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CSB FINANCIAL CORPORATION
2120 LANGHORNE ROAD
LYNCHBURG, VIRGINIA 24501
March 21, 1996
To the Shareholders of
CSB Financial Corporation:
You are cordially invited to attend the Special Meeting of Shareholders
of CSB Financial Corporation ("CSB Financial"), which will be held at the
Holiday Inn Select, 601 Main Street, Lynchburg, Virginia, on April 26, 1996, at
2:00 p.m. local time.
At the Special Meeting, you will be asked to consider and vote upon an
Agreement and Plan of Merger pursuant to which CSB Financial will be merged (the
"Merger") with and into One Valley Thrift, Inc. ("Thrift"), a wholly-owned
subsidiary of One Valley Bancorp of West Virginia, Inc. ("One Valley"). The
Merger will require One Valley to issue up to 1,789,745 shares of its common
stock, par value $10.00 per share, ("One Valley Common Stock") in exchange for
the common stock of CSB Financial, par value $.01 per share, ("CSB Financial
Common Stock"). As a result of the Merger, Shareholders of CSB Financial will
receive .6774 shares of One Valley Common Stock in exchange for each share of
CSB Financial Common Stock held by them.
Enclosed with this letter are a Notice of Special Meeting of CSB
Financial's Shareholders and CSB Financial's Proxy Statement, which describes in
detail the proposed Merger, the background of the Merger, and other related
information. Also enclosed is a proxy solicited by CSB Financial's Board of
Directors in connection with the Special Meeting.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE PROPOSED MERGER AND
RECOMMENDS THAT SHAREHOLDERS VOTE THEIR SHARES "FOR" THE MERGER. THE BOARD OF
DIRECTORS BELIEVES THAT THE PROPOSED MERGER IS IN THE BEST INTEREST OF CSB
FINANCIAL AND ITS SHAREHOLDERS. THE AFFIRMATIVE VOTE OF A MAJORITY OF CSB
FINANCIAL'S OUTSTANDING SHARES ENTITLED TO VOTE IS NECESSARY TO APPROVE THE
MERGER. ACCORDINGLY, FAILURE TO RETURN YOUR PROXY CARD OR TO VOTE IN PERSON AT
THE SPECIAL MEETING WILL HAVE THE EFFECT OF A VOTE AGAINST THE MERGER.
We urge you to consider carefully all of the materials in the Proxy
Statement and to execute and return the enclosed proxy as soon as possible. If
you attend the Special Meeting, you may vote in person if you wish, even though
you have previously returned your proxy.
Sincerely,
/s/
Bob M. Johnson
President and Chief Executive Officer
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CSB FINANCIAL CORPORATION
LYNCHBURG, VIRGINIA
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 26, 1996
The Special Meeting of Shareholders of CSB Financial Corporation ("CSB
Financial") will be held on April 26, 1996, at the Holiday Inn Select, 601 Main
Street, Lynchburg, Virginia, at 2:00 p.m., local time, for the purpose of
considering and voting upon the following:
1. To consider and vote upon a proposal to approve the Agreement and
Plan of Merger (the "Merger Agreement") dated as of January 26, 1996, between
CSB Financial and One Valley Bancorp of West Virginia, Inc. ("One Valley"). The
Merger Agreement provides for the merger (the "Merger") of CSB Financial with
and into One Valley Thrift, Inc. ("Thrift"), a wholly-owned subsidiary of One
Valley. The Merger will require One Valley to issue up to 1,789,745 shares of
its common stock, par value $10.00 per share, ("One Valley Common Stock") in
exchange for the common stock of CSB Financial, par value $.01 per share ("CSB
Financial Common Stock") pursuant to the terms of the Merger Agreement. The
Merger Agreement provides for the conversion of each share of CSB Financial
Common Stock into .6774 of a share of One Valley Common Stock. The Merger
Agreement is attached as Appendix I to and is described in the accompanying
Proxy Statement.
2. To approve a proposal to adjourn the Special Meeting to permit
further solicitation in the event that an insufficient number of shares is
present in person or by proxy to approve the Merger Agreement.
3. To act upon such other matters as may properly come before the
meeting or any adjournment or adjournments thereof.
A copy of the Merger Agreement is set forth in Appendix I to the
accompanying Proxy Statement/Prospectus. Shareholders are urged to read the
Merger Agreement in its entirety.
Only shareholders of record at the close of business on the record
date, March 15, 1996, are entitled to notice of and to vote at the Special
Meeting and any adjournments thereof. The affirmative vote of not less than a
majority of CSB Financial's outstanding Common Stock entitled to vote is
necessary to approve the Merger. Accordingly, failure to return your proxy card
or to vote in person at the Special Meeting will have the effect of a vote
against the Merger. In the event there are not sufficient shares represented for
a quorum or votes to approve the Merger Agreement at the Special Meeting, CSB
Financial's Board of Directors may adjourn the Special Meeting to permit further
solicitation. We urge you to execute and return the enclosed proxy as soon as
possible to ensure that your shares will be represented at the Special Meeting.
Your proxy may be revoked in the manner described in the accompanying Proxy
Statement at any time before it has been voted at the Special Meeting.
By Order of the Board of Directors
/s/
Bob M. Johnson
President and Chief Executive Officer
Lynchburg, Virginia
March 21, 1996
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE
PROPOSAL TO ADOPT AND APPROVE THE MERGER AGREEMENT. PLEASE SIGN AND RETURN THE
ENCLOSED PROXY AS PROMPTLY AS POSSIBLE, WHETHER OR NOT YOU PLAN TO ATTEND THE
MEETING IN PERSON. YOU MAY REVOKE YOUR PROXY AT ANY TIME BEFORE IT IS VOTED AT
THE SPECIAL MEETING.
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PROXY STATEMENT/PROSPECTUS
PROXY STATEMENT
OF
CSB FINANCIAL CORPORATION
ONE VALLEY BANCORP OF WEST VIRGINIA
PROSPECTUS
1,789,745 SHARES OF COMMON STOCK
FOR A SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 26, 1996
This Proxy Statement/Prospectus is being furnished to the Shareholders
of CSB Financial Corporation ("CSB Financial") in connection with the
solicitation of proxies by CSB Financial's Board of Directors for use at a
Special Meeting of shareholders of CSB Financial to be held on April 26, 1996.
The primary purpose of the Special Meeting is to consider and vote upon a
proposal to approve the Agreement and Plan of Merger (the "Merger Agreement")
dated as of January 26, 1996, between CSB Financial and One Valley Bancorp of
West Virginia, Inc. ("One Valley"), which agreement provides for the merger (the
"Merger") of CSB Financial with and into One Valley Thrift, Inc. ("Thrift"), a
wholly-owned subsidiary of One Valley. The Merger Agreement is attached to this
Proxy Statement/Prospectus as Appendix I and is incorporated by reference
herein. Shareholders will also vote at the meeting for adjournment to permit
further solicitation if an insufficient number of shares have voted for approval
of the Merger Agreement.
As a result of the Merger, CSB Financial's shareholders will be
entitled to receive, in exchange for each share of common stock, par value $.01
per share, of CSB Financial ("CSB Financial Common Stock") .6774 of a share of
One Valley's common stock, par value $10.00 per share ("One Valley Common
Stock"). This Proxy Statement also constitutes a prospectus of One Valley
relating to a maximum of 164,507 shares of One Valley Common Stock that it will
issue in connection with the Merger and the exercise of certain options granted
under the CSB Financial Corporation 1993 Stock Option Plan for Outside Directors
and the CSB Financial Corporation 1993 Incentive Stock Option Plan
(collectively, the "Plans").
THE SHARES OF ONE VALLEY COMMON STOCK TO BE ISSUED PURSUANT TO THE MERGER
AGREEMENT AND THE PLANS HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE
SHARES OF ONE VALLEY COMMON STOCK TO BE ISSUED UNDER
THE MERGER AGREEMENT ARE NOT INSURED BY AN AGENCY
OF THE GOVERNMENT.
THE SHARES OF ONE VALLEY COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS,
DEPOSITS OR OTHER OBLIGATIONS OF A BANK OR SAVINGS ASSOCIATION AND ARE NOT
INSURED BY THE FDIC, BIF OR ANY OTHER
GOVERNMENTAL AGENCY.
This Proxy Statement/Prospectus and the accompanying Notice of Special
Meeting and form of proxy are first being mailed to shareholders of CSB
Financial on or about March 21, 1996.
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS MARCH 21, 1996.
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No persons have been authorized to give any information or to make any
representations other than those contained in this Proxy Statement/Prospectus or
incorporated by reference herein in connection with the solicitation of proxies
or the offering of securities made hereby and, if given or made, such
information or representations must not be relied upon as having been authorized
by One Valley or CSB Financial. This Proxy Statement/Prospectus does not
constitute an offer to sell, or a solicitation of an offer to buy, any
securities, or the solicitation of a proxy, in any jurisdiction to or from any
person to whom it is not lawful to make any such offer or solicitation in such
jurisdiction. Neither the delivery of this Proxy Statement/Prospectus nor any
distribution of securities made hereunder shall, under any circumstances, create
an implication that there has been no change in the affairs of One Valley or CSB
Financial since the date of this Proxy Statement/Prospectus or that the
information herein or the documents or reports incorporated by reference herein
are correct as of any time subsequent to such date. All information contained in
this Proxy Statement/Prospectus relating to CSB Financial and its subsidiaries
has been supplied by CSB Financial and all information contained in this Proxy
Statement/Prospectus relating to One Valley and its subsidiaries has been
supplied by One Valley.
AVAILABLE INFORMATION
One Valley and CSB Financial are each subject to the informational
requirements of the Securities Exchange Act of 1934, as amended, and in
accordance therewith file reports, proxy statements, information statements and
other information with the Securities and Exchange Commission (the
"Commission"). Such reports, proxy statements, information statements and other
information, when filed, can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and the Commission's Regional offices in New York (7
World Trade Center, New York, New York 10048) and Chicago (Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661). Copies of
such material can also be obtained from the Public Reference Section of the
Commission, at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. One Valley and CSB Financial each furnishes its shareholders
with annual reports containing audited consolidated financial statements with an
opinion expressed by independent certified public accountants for each fiscal
year and quarterly reports containing unaudited financial information for the
first three quarters of each fiscal year.
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INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed by One Valley are hereby incorporated by
reference into this Prospectus:
1. Portions of (Part I and Part III) One Valley's Annual Report on
Form 10-K for the fiscal year ended December 31, 1995, to be
filed with the Commission before the effective date of the Form
S-4.
2. One Valley's report on Form 8-K dated February 12, 1996, filed
with the Commission.
3. One Valley's Proxy Statement to be filed with the Commission on
March 18, 1996.
4. All documents filed by One Valley after the date of this
Prospectus pursuant to Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934, prior to the termination of the
offering covered by this Prospectus.
One Valley has filed with the Commission a Registration Statement on
Form S-4 (together with any amendments thereof, the "Registration Statement")
under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the shares of One Valley Common Stock it will issue pursuant to the
Merger Agreement. This Proxy Statement/Prospectus does not contain all
information set forth in the Registration Statement and the exhibits thereto.
Such additional information may be inspected and copied as set forth above.
Statements contained in this Proxy Statement/Prospectus or in any document
incorporated by reference in this Proxy Statement/Prospectus as to the contents
of any contract or other document referred to herein or therein are not
necessarily complete, and in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement or such other document each such statement being qualified in all
respects by such reference. Any statement contained herein or in a document
incorporated or deemed to be incorporated by reference in this Prospectus shall
be deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON
REQUEST (WITHOUT CHARGE) TO BRIEN CHASE, ONE VALLEY BANCORP OF WEST VIRGINIA,
INC., ONE VALLEY SQUARE, P.O. BOX 1793, CHARLESTON, WV 25326. IN ORDER TO ENSURE
TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST MUST BE RECEIVED BY APRIL 21,
1996.
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TABLE OF CONTENTS
<TABLE>
<S> <C>
INTRODUCTION..................................................1
SUMMARY INFORMATION...........................................2
General....................................................2
The Parties................................................2
The Special Meeting of Shareholders........................3
Effective Date.............................................3
Recommendation of CSB Financial's Board of Directors.......3
Opinion of CSB Financial's Financial Advisor...............3
Federal Income Tax Consequences............................4
Accounting Treatment.......................................4
Conditions; Regulatory Approvals; Termination..............4
Conduct of CSB Financial's Business Pending the Merger.....4
Effect of the Merger on Shareholders' Rights...............4
Absence of Dissenters' Rights of Appraisal.................4
Certain Related Transactions...............................5
Interests of Certain Persons in the Merger.................5
Comparative Per Share Information..........................6
SELECTED CONSOLIDATED FINANCIAL INFORMATION...................8
PRO FORMA SELECTED FINANCIAL INFORMATION.....................10
THE SPECIAL MEETING OF CSB FINANCIAL SHAREHOLDERS............11
PROPOSAL I-THE MERGER........................................12
General...................................................12
Operations and Management After the Merger................12
Background of the Merger..................................13
Reasons for the Merger....................................15
Opinion of CSB Financial's Financial Advisor..............16
Conditions To Consummation Of The Merger; Waiver..........19
Termination...............................................20
No Solicitation of Transactions...........................20
Expenses: Termination Fees................................20
Business Pending Consummation.............................21
CSB Financial's Stock Option Plans........................22
Certain Federal Income Tax Consequences...................22
Accounting Treatment......................................23
Exchange Of Certificates..................................23
Interests of Certain Persons in the Merger................23
Resales by Affiliates.....................................24
Regulatory Approvals......................................25
EFFECT OF THE MERGER ON SHAREHOLDERS' RIGHTS.................25
Antitakeover Provisions in One Valley's
Articles and Bylaws......................................25
Shareholder Protection Rights Plan........................28
Antitakeover Provisions in CSB Financial's
Certificate of Incorporation and Bylaws..................28
Other Restrictions on Acquisitions of
CSB Financial Common Stock...............................30
HISTORICAL COMPARATIVE STOCK PRICES AND DIVIDENDS............31
One Valley................................................31
CSB Financial.............................................32
CSB FINANCIAL CORPORATION MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS..............................................33
BUSINESS AND PROPERTIES OF CSB FINANCIAL.....................50
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF..............65
DIRECTORS AND EXECUTIVE OFFICERS OF CSB FINANCIAL............67
DESCRIPTION OF ONE VALLEY'S SECURITIES.......................74
Authorized Common Stock...................................74
Preferred Stock...........................................74
Dividends and Dividend Rights.............................74
Voting Rights.............................................75
Preemptive Rights.........................................75
Liquidation Rights........................................75
Assessment of Shares......................................75
Shareholder Approval of Mergers...........................75
SUPERVISION AND REGULATION OF CSB FINANCIAL..................76
PROPOSAL II-ADJOURNMENT OF THE MEETING.......................80
SHAREHOLDER PROPOSALS FOR THE 1996 ANNUAL MEETING............80
EXPERTS......................................................80
LEGAL MATTERS................................................80
OTHER MATTERS................................................80
INDEX TO FINANCIAL STATEMENTS...............................F-1
INDEPENDENT AUDITOR'S REPORT
APPENDICES:
Appendix I-Agreement and Plan of Merger dated January 26,
1996, by and between One Valley Bancorp of
West Virginia, Inc. Antitakeover Provisions in CSB
Financial's and CSB Financial Corporation..............A-1
Appendix II-Fairness Opinion of Friedman, Billings &
Ramsey & Co., Inc.....................................A-11
</TABLE>
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CSB FINANCIAL CORPORATION
PROXY STATEMENT
INTRODUCTION
CSB Financial Corporation ("CSB Financial") is furnishing this Proxy
Statement and the accompanying proxy (the "Proxy") to CSB Financial's
shareholders in connection with the solicitation of proxies by CSB Financial's
Board of Directors for a Special Meeting of shareholders (the "Special Meeting")
to be held at 2:00 p.m., local time, on April 26, 1996, at the Holiday Inn
Select, 601 Main Street, Lynchburg, Virginia, and any adjournments thereof, to
consider and vote upon a proposal to approve the Agreement and Plan of Merger
(the "Merger Agreement") dated as of January 26, 1996, between CSB Financial and
One Valley Bancorp of West Virginia, Inc. ("One Valley").
This Proxy Statement and the Proxy will be first sent or given to CSB
Financial shareholders on or about March 21, 1996.
The shares of CSB Financial's Common Stock, par value $.01 per share,
("CSB Financial Common Stock") represented by a Proxy will be voted as directed
if the Proxy is properly signed and received by CSB Financial prior to the
Special Meeting. The Proxy will be voted "FOR" the approval of the Merger
Agreement if no direction is made to the contrary on a duly executed and
returned Proxy. The Proxy will also be voted, if necessary and unless otherwise
instructed, in favor of a proposal to adjourn the Special Meeting to solicit
additional proxies should an insufficient number of shares be present to approve
the Merger Agreement. The Proxy may also be used to grant discretionary
authority to vote on other matters which may arise at the CSB Financial Special
Meeting. While management is presently unaware of any such matters, the person
or persons designated to vote the shares of CSB Financial Common Stock will cast
votes at the direction of CSB Financial's Board of Directors if any such matters
properly come before the Special Meeting. A person giving a Proxy has the power
to revoke it at any time before it is voted by notifying CSB Financial in
person, by giving written notice to CSB Financial of the revocation of the
proxy, by submitting to CSB Financial a subsequently dated Proxy, or by
attending the meeting and withdrawing the Proxy before it is voted at the
Special Meeting.
CSB Financial will bear the cost of the solicitation of the Proxies,
including the charges and expenses of brokerage firms and others, if any, for
forwarding solicitation material to beneficial owners of stock. Representatives
of CSB Financial may solicit proxies by mail, telegram, telephone or personal
interview. See "Voting of Proxies; Revocability of Proxies; Solicitation of
Proxies."
Shareholders of record of CSB Financial at the close of business on
March 15, 1996 (the "Record Date"), will be entitled to vote at the Special
Meeting.
1
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SUMMARY INFORMATION
THE FOLLOWING IS A BRIEF SUMMARY OF THE MATTERS TO BE CONSIDERED AT THE
SPECIAL MEETING. THIS SUMMARY IS NOT INTENDED TO BE COMPLETE AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO, AND SHOULD BE READ IN CONJUNCTION WITH, THE
DETAILED INFORMATION, INCLUDING THE APPENDICES ATTACHED HERETO, CONTAINED OR
INCORPORATED BY REFERENCE HEREIN. A COPY OF THE MERGER AGREEMENT IS ATTACHED AS
APPENDIX I TO THIS PROXY STATEMENT. SHAREHOLDERS ARE URGED TO READ CAREFULLY THE
ENTIRE PROXY STATEMENT AND PROSPECTUS. THE TERMS "ONE VALLEY," "CSB FINANCIAL,"
"SAVINGS BANK" AND "THRIFT" REFER TO SUCH ORGANIZATIONS, AND UNLESS THE CONTEXT
OTHERWISE REQUIRES, SUCH ORGANIZATIONS AND THEIR RESPECTIVE SUBSIDIARIES.
GENERAL
The Merger Agreement provides for the Merger of CSB Financial with and
into One Valley Thrift, Inc. ("Thrift"), a wholly-owned subsidiary of One
Valley. Upon consummation of the Merger, Co-operative Savings Bank, FSB (the
"Savings Bank") and CSB Financial Services, Inc. ("CSB Services" and, together
with the Savings Bank, the "CSB Subsidiaries"), both wholly-owned subsidiaries
of CSB Financial, will become wholly-owned subsidiaries of Thrift. After the
Merger, the Savings Bank's name will be changed to One Valley Bank -- Central
Virginia, F.S.B.
The Merger will become effective upon the date the Secretary of State
of the State of West Virginia issues a certificate of merger. At that time, each
of the outstanding shares of CSB Financial Common Stock will be converted into
.6774 of a share of One Valley's common stock par value $10.00 per share, ("One
Valley Common Stock") except that no fractional shares will be issued. One
Valley will pay cash to the holders of fractional interests in an amount equal
to that fraction multiplied by the average of the closing bid and ask price for
One Valley Common Stock as of the Effective Date. The affirmative vote of not
less than a majority of the outstanding shares of CSB Financial Common Stock is
required to approve the Merger. See "Proposal I--The Merger - Conditions to
Consummation of the Merger."
THE PARTIES
ONE VALLEY. One Valley is a multi-bank holding company organized under
the laws of the State of West Virginia and registered with the Board of
Governors of the Federal Reserve System (the "Federal Reserve Board") pursuant
to the Bank Holding Company Act of 1956, as amended, with headquarters in
Charleston, West Virginia. It is comprised of 11 banking subsidiaries located in
50 cities and towns in West Virginia and provides services to customers through
79 offices. Other subsidiaries include a real estate management company that
owns and operates the building housing One Valley's headquarters. At December
31, 1995, One Valley reported total assets of approximately $3.9 billion, loans
of $2.5 billion, deposits of $3.0 billion, and equity of $366 million. In
addition to providing commercial and retail banking services, One Valley
provides trust services to its customers. At December 31, 1995, One Valley
reported over $2.9 billion in trust assets.
For more information about One Valley, reference is made to Parts I and
III of One Valley's Form 10-K for the fiscal year ended 1995 which is hereby
incorporated by reference. See "Available Information" and "Incorporation by
Reference
One Valley's executive offices are located at One Valley Square, P.O.
Box 1793, Charleston, West Virginia 25326. Its telephone number is (304)
348-7000.
CSB FINANCIAL. CSB Financial, a Delaware corporation, is a unitary
thrift holding company formed in 1993 for the purpose of acquiring all of the
issued and outstanding common stock of the Savings Bank. The Savings Bank, a
federally chartered capital stock savings bank headquartered in Lynchburg,
Virginia, is in the principal business of attracting retail deposits from the
general public and investing those deposits, together with funds generated from
operations, primarily in one-to four-family residential mortgage loans. CSB
Financial operates 10 full service branches throughout central Virginia and is
the fifth largest financial institution in the Lynchburg, Virginia, market. CSB
Financial also has locations in Amherst and Bedford counties, as well as
Danville, Virginia. At December 31, 1995, CSB Financial reported total assets of
approximately $329 million, loans of approximately $157 million and total
deposits of approximately $253 million. See "CSB Financial Corporation
Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business and Properties of CSB Financial" and "Index to Financial
Statements."
2
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CSB Financial's executive offices are located at 2120 Langhorne Road,
Lynchburg, Virginia. Its telephone number is (804) 847-3800.
THE SPECIAL MEETING OF SHAREHOLDERS
The purpose of the Special Meeting is to approve the Merger Agreement
which provides for the merger of CSB Financial with and into Thrift. If
consummated, each share of CSB Financial Common Stock will be converted into
.6774 of a share of One Valley Common Stock. No fractional shares of One Valley
Common Stock will be issued in connection with the Merger and, in lieu thereof,
One Valley will pay cash for fractional shares. CSB Financial's Board of
Directors has unanimously approved the Merger Agreement and recommends that the
Shareholders of CSB Financial vote "FOR" the Merger. See "Proposal I--The Merger
- - Background of the Merger" and "Proposal I--The Merger - Reasons for the
Merger."
Shareholders of record of CSB Financial at the close of business on the
Record Date will be entitled to vote at the Special Meeting. CSB Financial
shareholders are entitled to cast one vote for each share of CSB Financial
Common Stock they hold on the Record Date. To approve the Merger, a vote of a
majority of the issued and outstanding shares of CSB Financial Common Stock is
required. As of the Record Date, the directors, executive officers and
affiliates of CSB Financial owned 210,571 shares of the issued and outstanding
common stock of CSB Financial. Management of CSB Financial expects that such
shares will be voted "FOR" the approval of the Merger.
A Proxy for use by CSB Financial's shareholders in connection with the
Special Meeting is enclosed with this Proxy Statement which was mailed to
shareholders on or about March 21, 1996. The Proxy will be voted as specified
thereon by the shareholder. Where no specification is made on the proxy, a
properly executed Proxy will be voted "FOR" approval of the Merger and "FOR"
adjournment of the Special Meeting, if necessary, in order to further solicit
proxies in favor of the Merger Agreement.
As of the date of the mailing of this Proxy Statement, CSB Financial is
not aware of any business to be acted on at the Special Meeting other than
consideration of the Merger. It is not anticipated that other matters will be
brought before the Special Meeting.
A person giving a Proxy may revoke it at any time before it is voted by
notifying CSB Financial in person, by giving written notice to CSB Financial
of the revocation of the Proxy, by submitting to CSB Financial a
subsequently dated proxy or by attending the Special Meeting and withdrawing the
Proxy before it is voted at the Special Meeting. See "The Special Meeting."
EFFECTIVE DATE
Subject to the conditions to the obligations of the parties to effect the
Merger, the Merger will become effective (the "Effective Date") on such date
which the certificate of merger approving the Merger is issued by the Secretary
of State of the State of West Virginia, provided such date is not more than 60
days after the receipt of all requisite approvals of regulatory authorities and
shareholders. Subject to the foregoing, it is currently anticipated that the
Merger will be consummated in mid-1996.
RECOMMENDATION OF CSB FINANCIAL'S BOARD OF DIRECTORS
THE BOARD OF DIRECTORS OF CSB FINANCIAL HAS APPROVED THE MERGER
AGREEMENT BY UNANIMOUS VOTE, BELIEVES IT IS IN THE BEST INTERESTS OF CSB
FINANCIAL AND ITS SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS ITS APPROVAL BY CSB
FINANCIAL SHAREHOLDERS. See "The Merger -- Background of the Merger" and "--
Reasons for the Merger."
OPINION OF CSB FINANCIAL'S FINANCIAL ADVISOR
Friedman, Billings, Ramsey & Co., Inc. ("Friedman"), CSB Financial's
financial advisor, has rendered its opinion to CSB Financial's Board of
Directors that the consideration to be paid is fair to CSB Financial's
shareholders from a financial point of view. As discussed in "The Merger--
Reasons for the Merger," Friedman's opinion and presentations were among the
factors considered by CSB Financial's Board in reaching the determination to
approve the Merger. A copy of Friedman's opinion is attached hereto as Appendix
II and should be read in its entirety with respect to the assumptions made,
other matters considered and limitations on the review undertaken by Friedman in
rendering its opinion. See "The Merger - Opinion of CSB Financial's Financial
Advisor."
3
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FEDERAL INCOME TAX CONSEQUENCES
It is anticipated that the Merger will be a tax-free reorganization for
federal income tax purposes. CSB Financial's shareholders will receive One
Valley Common Stock in exchange for their CSB Financial Common Stock under the
terms of the Merger. Upon the exchange of stock, CSB Financial's shareholders
will recognize no gain or loss upon their exchange of CSB Financial Common Stock
solely for shares of One Valley Common Stock. Upon the exchange of cash for
fractional shares of CSB Financial Common Stock, CSB Financial's shareholders
will recognize gain, but not in an amount in excess of cash received. See "The
Merger - Federal Income Tax Consequences."
ACCOUNTING TREATMENT
One Valley expects that the Merger will be accounted for under the
purchase method of accounting. See "The Merger - Accounting Treatment".
CONDITIONS; REGULATORY APPROVALS; TERMINATION
Consummation of the Merger is subject to various conditions, including
among others, receipt of approval by a majority of the shares entitled to be
voted by CSB Financial's shareholders, receipt of certain legal opinions and the
satisfaction of other closing conditions. In addition, the Merger is subject to
receipt of required approvals from the Federal Reserve Board and the Office of
Thrift Supervision ("OTS"). An application seeking approval of the Merger was
filed with the OTS on February 15, 1996, and notice of the Merger was filed with
the Federal Reserve Board on March 14, 1996. On February 23, 1996, One Valley
filed an application seeking approval of the Virginia Bureau of Financial
Institutions. See "Proposal I--The Merger - Regulatory Approvals."
Upon satisfaction or waiver of all conditions under the Merger
Agreement, One Valley will file a Certificate of Merger with the West Virginia
Secretary of State, at which time the Merger will become effective. One Valley
and CSB Financial anticipate that the Merger will be completed prior to June 30,
1996. There can be no assurance, however, that the necessary regulatory and
other approvals will be received by the parties or as to the timing of such
approvals. Accordingly, there may be extended delays following the Special
Meeting before the Merger is consummated, and if any of the conditions of the
Merger Agreement are not satisfied or waived, the Merger might not be
consummated. See "Proposal I -- The Merger -- Conditions to Consummation of the
Merger" and "--Termination." Also, the Merger Agreement may be terminated under
certain circumstances. See "The Merger-Termination."
CONDUCT OF CSB FINANCIAL'S BUSINESS PENDING THE MERGER
The Merger Agreement restricts CSB Financial's ability to engage in
transactions outside the ordinary course of business prior to consummation of
the Merger except as permitted with the written consent of One Valley. See
"Proposal I -- The Merger -- Conduct of CSB Financial's Business Pending the
Merger."
EFFECT OF THE MERGER ON SHAREHOLDERS' RIGHTS
If the Merger Agreement is approved, CSB Financial Shareholders will
receive shares of One Valley Common Stock which have different rights with
respect to certain important matters including certain provisions which are
intended to ensure that a party seeking control of One Valley will discuss its
proposal with One Valley's Board of Directors. CSB Financial is a Delaware
corporation, and upon consummation of the Merger, CSB Financial's shareholders
will become shareholders of a West Virginia corporation. See "Effect of the
Merger on Shareholders' Rights."
ABSENCE OF DISSENTERS' RIGHTS OF APPRAISAL
Holders of CSB Financial Common Stock will not be entitled to dissenters'
rights of appraisal under applicable law. See "The Special Meeting of
Shareholders -- Appraisal Rights."
4
<PAGE>
CERTAIN RELATED TRANSACTIONS
NO SOLICITATION. CSB Financial has agreed in the Merger Agreement that
it will not solicit or engage in any discussions with any person other than One
Valley concerning any acquisition of CSB Financial or any of its subsidiaries,
except that CSB Financial may respond to unsolicited inquiries to the extent the
fiduciary duty of CSB Financial's Board of Directors may legally require the
Board of Directors to do so. See "The Merger -- No Solicitation of
Transactions." In addition, the directors and executive officers of CSB
Financial have indicated their intentions to vote their shares of CSB Financial
Common Stock in favor of the Merger Agreement. See "The Special Meeting of CSB
Financial Shareholders -- Record Date; Vote Required."
EXPENSES; TERMINATION FEE. All expenses incurred by or on behalf of the
parties in connection with the Merger Agreement and the transactions
contemplated thereby shall be borne by the party incurring the same. If the
Merger Agreement is terminated due to a breach, the breaching party shall be
liable for the expenses of the nonbreaching party unless the nonbreaching party
would otherwise be entitled to a termination fee pursuant to the terms of the
Merger Agreement.
One Valley shall be entitled to a fee of $2.0 million (the "Termination
Fee") following the occurrence of a Purchase Event (as defined in the Merger
Agreement), provided One Valley shall have sent written notice of such
entitlement within 90 days after its awareness of such occurrence. One Valley's
right to receive the Termination Fee shall be extinguished under certain
circumstances. See "The Merger Agreement --Expenses; Termination Fee."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of CSB Financial's management and Board of Directors
have interests in the Merger in addition to their interests as stockholders.
These include provisions in the Merger Agreement relating to continued
employment, indemnification, severance payments and benefit plan payments. See
"Proposal I--The Merger-Interests of Certain Persons in the Merger."
5
<PAGE>
COMPARATIVE PER COMMON SHARE DATA (UNAUDITED)
The following table sets forth certain unaudited comparative per share
data relating to book value per common share, cash dividends per common share
and income from continuing operations per common share (i) on an historical
basis for One Valley and CSB Financial, (ii) on a pro forma basis per share of
One Valley Common Stock to reflect completion of the Merger, and (iii) on an
equivalent pro forma basis per share of CSB Financial Common Stock to reflect
the completion of the Merger. The pro forma information has been prepared giving
effect to the Merger using the purchase method of accounting. See "The Merger --
Accounting Treatment." The pro forma financial information for the year ended
December 31, 1995, utilizes CSB Financial historical financial information for
January 1, 1995 through December 31, 1995. This information should be read in
conjunction with the consolidated financial statements of One Valley and CSB
Financial, including the notes thereto, appearing elsewhere herein or
incorporated by reference in this Proxy Statement/Prospectus, and the other
financial data appearing elsewhere in this Proxy Statement/Prospectus. See
"Incorporation of Certain Documents by Reference," "Available Information,"
"Index to Financial Statements" and "Pro Forma Financial Information."
The following information is not necessarily indicative of the results which
would have been obtained if the Merger had been consummated in the period
presented or which may be obtained in the future.
BOOK VALUE PER COMMON SHARE AT DECEMBER 31, 1995:
Historical:
One Valley....................................................... $21.47
CSB Financial.................................................... 17.84
Pro Forma:
Pro forma per share of One
Valley Common Stock........................................... 22.49
Equivalent pro forma per share
of CSB Financial Common
Stock(1)........................................................ 15.24
CASH DIVIDENDS DECLARED PER
COMMON SHARE FOR THE YEAR ENDED DECEMBER 31, 1995:
Historical:
One Valley...................................................... 1.04
CSB Financial................................................... .38
Pro Forma:
Pro forma per share of One
Valley Common Stock........................................... 1.04
Equivalent pro forma per share
of CSB Financial Common
Stock(1)..................................................... .70
INCOME FROM CONTINUING OPERATIONS PER
COMMON SHARE FOR THE YEAR ENDED DECEMBER 31, 1995:
Historical:
One Valley........................................................ 2.86
CSB Financial..................................................... .87
Pro Forma:
Pro forma per share of One
Valley Common Stock........................................... 2.66
Equivalent pro forma per share
of CSB Financial Common
Stock(1)...................................................... 1.80
(1) CSB Financial pro forma equivalent amounts represent pro forma
combined information multiplied by an Exchange Ratio of .6774.
6
<PAGE>
MARKET VALUE OF SECURITIES. The following table sets forth the market
value per share of One Valley Common Stock, the market value per share of CSB
Financial Common Stock and the equivalent market value per share of CSB
Financial Common Stock on January 25, 1996, the last business day preceding
public announcement of the signing of the Merger Agreement. The equivalent
market value per share of CSB Financial Common Stock indicated in the table is
based upon the Exchange Ratio of .6774.
The historical market values per share of One Valley Common Stock and
CSB Financial Common Stock and the historical market value of One Valley Common
Stock used to determine the equivalent market value per share of CSB Financial
Common Stock are the per share last sales prices on January 25, 1996, as
reported on the Nasdaq National Market.
<TABLE>
<CAPTION>
CSB Financial
Equivalent
One Valley Market Value
Historical Historical Per Share
<S> <C> <C> <C>
January 25, 1996 ................................................ $32.25 $17.25 $21.85
</TABLE>
MARKET PRICE AND DIVIDEND INFORMATION. At March 1, 1996, the last reported
sale price of One Valley Common Stock, as reported on the Nasdaq National
Market, was $32.63 per share. For information concerning cash dividends paid by
One Valley, see "Historical Comparative Stock Prices and Dividends."
7
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
ONE VALLEY BANCORP OF WEST VIRGINIA, INC.
The following selected consolidated financial data for the five years
ended December 31, 1995, are derived from the consolidated financial statements
of One Valley. The information shown below should be read in conjunction with
the consolidated financial statements, the related notes thereto and other
financial information of One Valley incorporated herein by reference. See
"Available Information" and "Incorporation of Certain Information By Reference."
<TABLE>
<CAPTION>
At or for the Year Ended December 31,
1995 1994 1993 1992 1991
----------------- ----------------- ------------------ ----------------- -----------------
(In thousands, except per share and ratio data)
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Interest income............ $ 282,372 $251,383 $247,699 $ 263,484 $ 242,792
Interest expense........... 121,080 94,897 99,786 120,039 130,913
Net interest income........ 161,292 156,486 147,913 143,445 111,879
Provision for losses....... 5,632 4,788 5,788 11,389 6,671
Non-interest income........ 37,639 37,445 39,192 36,801 24,703
Securities transactions.... (65) (867) (35) (730) 113
Non-interest expense....... 119,591 120,156 125,150 115,538 92,046
Net income................. 49,106 46,211 37,954 36,638 26,392
PER SHARE DATA
Net income................. 2.86 2.70 2.20 2.13 1.72
Cash dividends............. 1.04 0.94 0.84 0.70 0.62
Book Value................. 21.47 18.93 17.70 16.29 14.83
AVERAGE BALANCE
SHEET DATA
Loans, net................. 2,392,572 2,199,686 2,026,748 1,926,773 1,557,230
Investment securities...... 997,269 1,050,980 1,074,467 1,049,459 834,820
Total assets............... 3,689,211 3,540,451 3,467,261 3,373,245 2,771,901
Deposits................... 3,006,906 2,930,555 2,895,131 2,829,263 2,343,404
Long-term debt............. 11,416 22,931 36,088 25,703 15,653
Shareholders' equity....... 348,273 315,724 294,733 269,007 215,273
SELECTED RATIOS
Equity to average assets... 9.44% 8.92% 8.50% 7.97% 7.77%
Return on average assets... 1.33 1.31 1.09 1.09 0.95
Return on average equity... 14.10 14.64 12.88 13.62 12.26
Dividends declared as
a % of net income....... 36.36 34.81 38.18 32.86 36.05
</TABLE>
8
<PAGE>
CSB FINANCIAL CORPORATION
The following selected consolidated financial data for the five years
ended June 30, 1995, are derived from the consolidated financial statements of
CSB Financial. The selected consolidated financial data for the six months ended
December 31, 1995 and 1994, are derived from unaudited consolidated financial
statements. The unaudited consolidated financial statements include all
adjustments (consisting of normal recurring adjustments) which management of CSB
Financial considers necessary for a fair presentation of the financial position
and the results of operation for these periods. Operating results for the six
months ended December 31, 1995, are not necessarily indicative of the results
that may be expected for the entire year ended June 30, 1996 or any other
period. The information shown below should be read in conjunction with the
consolidated financial statements, the related notes thereto and other financial
information of CSB Financial included elsewhere in this Proxy
Statement/Prospectus.
<TABLE>
<CAPTION>
(Unaudited)
At or for the
Six Months
Ended December 31, At or for the Year Ended June 30,
---------------------------- ------------------------------------------------------------------
1995 1994 1995 1994 1993 1992 1991
------------- ------------- ------------ ------------ ------------ ------------ ------------
(In thousands, except per share and ratio data)
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Interest income........... $11,473 $ 8,897 $ 19,494 $ 16,305 $ 16,455 $ 17,416 $ 17,853
Interest expense.......... 6,844 4,727 10,851 8,265 9,146 11,450 13,250
Net interest income....... 4,629 4,170 8,643 8,040 7,309 5,966 4,603
Provision for loan losses. 70 23 276 38 277 234 301
Non-interest income....... 290 211 466 649 460 191 186
Securities transactions... 25 - 243 (235) (178) 222 112
Non-interest expense...... 3,329 2,755 5,811 4,814 4,012 3,289 2,968
Net income................ 960 1,035 2,170 2,342 2,097 1,855 1,000
PER SHARE DATA
Net income................ .39 .40 0.89 0.94 NA NA NA
Cash dividends............ .20 .15 .33 .23 NA NA NA
Book Value................ 17.84 16.37 17.06 16.26 NA NA NA
AVERAGE BALANCE SHEET
SUMMARY
Loans, net................ 148,873 129,386 132,749 124,636 123,192 117,211 118,036
Investment securities..... 147,799 117,404 129,785 108,510 88,635 77,515 63,934
Total assets.............. 316,079 263,524 280,461 248,685 224,695 205,745 193,841
Deposits.................. 247,943 204,779 217,755 194,046 193,338 184,326 171,703
Long-term debt............ 9,051 9,850 9,625 10,000 6,886 1,150 1,150
Shareholders' equity...... 44,947 45,248 43,632 39,919 20,439 18,435 17,124
SELECTED RATIOS
Equity to average assets.. 14.22% 17.17% 15.55% 16.05% 9.10% 8.96% 8.83%
Return on average assets. 0.61 0.79 0.77 0.94 0.93 0.90 0.52
Return on average equity 4.27 4.57 4.97 5.87 10.26 10.06 5.84
Dividends declared as
a % of net income...... 50.00 35.71 37.08 24.47 NA NA NA
</TABLE>
9
<PAGE>
PRO FORMA SELECTED FINANCIAL INFORMATION
The following table sets forth selected unaudited pro forma financial
information reflecting the Merger. The pro forma information has been prepared
assuming that CSB Financial's Shareholders will receive in the Merger .6774
shares of One Valley Common Stock for each share of CSB Financial Common Stock
they own. The pro forma information gives effect to the acquisition of 100% of
the outstanding shares CSB Financial as if the Merger occurred at the beginning
of the year presented. Under the purchase method of accounting the assets and
liabilities of CSB Financial are adjusted to their estimated fair market value
at the acquisition date. The estimated fair value adjustments have been included
in the pro forma information. CSB Financial does not qualify as a significant
subsidiary under Regulation S-X, Article 1-02(w), accordingly, only selected
unaudited pro forma financial information is provided.
The pro forma financial information has been prepared by One Valley
management based upon the financial statements and other financial information
of CSB Financial included elsewhere herein. Such pro forma financial information
does not necessarily reflect what the future results of One Valley will be
following the completion of the Merger or the actual results that would have
been achieved had the Merger been consummated prior to the period presented. The
unaudited information should be read in conjunction with the consolidated
financial statements of One Valley and CSB Financial, including the notes
thereto, appearing elsewhere herein or incorporated by reference in this Proxy
Statement/Prospectus, and the other financial data appearing elsewhere in this
Proxy Statement/Prospectus. See "Incorporation of Certain Documents by
Reference," "Available Information" and "Index to Financial Statements."
ONE VALLEY BANCORP OF WEST VIRGINIA, INC. AND
CSB FINANCIAL CORPORATION
(DOLLARS IN THOUSANDS EXCEPT FOR PER SHARE AND RATIO DATA)
AT OR FOR THE YEAR ENDED DECEMBER 31, 1995
SUMMARY OF OPERATIONS
Interest income $ 304,442
Interest expense 134,048
Net interest income 170,394
Provision for loan losses 5,955
Non-interest income 38,184
Securities transactions 203
Non-interest expense 126,682
Net income 50,495
PER SHARE DATA
Net income 2.66
Cash dividends 1.04
AVERAGE BALANCE SHEET
SUMMARY
Loans, net 2,535,065
Investment securities 1,142,252,
Total assets 4,005,950
Deposits 3,246,243
Long-term debt 20,642
Shareholders' equity 401,755
SELECTED RATIOS
Equity to average assets 10.03
Return on average assets 1.26
Return on average equity 12.57
Dividends declared as
a % of net income 39.10
10
<PAGE>
THE SPECIAL MEETING OF CSB FINANCIAL SHAREHOLDERS
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
This Proxy Statement/Prospectus is being furnished by CSB Financial to
its shareholders in connection with the solicitation of proxies by the Board of
Directors of CSB Financial for use at the Special Meeting to be held at 2:00
p.m., local time, on Friday, April 26, 1996, at the Holiday Inn Select, 601 Main
Street, Lynchburg, Virginia, and any adjournment or adjournments thereof, to
consider and vote upon a proposal to approve the Merger Agreement and a proposal
for adjournment in the event there are insufficient votes to approve the Merger
Agreement and any other business as may properly come before the Special
Meeting.
THE BOARD OF DIRECTORS OF CSB FINANCIAL HAS UNANIMOUSLY APPROVED THE
MERGER AGREEMENT, BELIEVES IT IS IN THE BEST INTERESTS OF CSB FINANCIAL AND ITS
SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS ITS APPROVAL BY CSB FINANCIAL
SHAREHOLDERS. SEE "PROPOSAL I - THE MERGER -- BACKGROUND OF THE MERGER" AND "--
REASONS FOR THE MERGER."
RECORD DATE; VOTE REQUIRED
The Board of Directors of CSB Financial has fixed the close of business
on March 15, 1996, as the Record Date for determining shareholders entitled to
notice of and to vote at the Special Meeting, and accordingly, only holders of
CSB Financial Common Stock of record at the close of business on that day will
be entitled to notice of and to vote at the Special Meeting. The number of
shares of CSB Financial Common Stock outstanding on the Record Date was
2,642,081, each of such shares being entitled to one vote.
As to the approval of the Merger Agreement by checking the appropriate
box, a stockholder may: (i) vote "FOR" approval of the Merger Agreement; (ii)
vote "AGAINST" approval of the Merger Agreement; or (iii) "ABSTAIN." Since the
affirmative vote of the holders of a majority of the outstanding shares of CSB
Financial Common Stock entitled to vote on the Merger is required to approve and
adopt the Merger Agreement and the transaction contemplated thereby, abstentions
will have the effect of a vote against the approval of the Merger Agreement. In
addition, brokers who hold shares in street name for customers who are the
beneficial owners of such shares are prohibited from giving a proxy to vote
shares held for such customers on the approval and adoption of the Merger
Agreement without specific instructions from such customers. Given that Delaware
law requires the affirmative vote of the holders of a majority of the
outstanding shares of CSB Financial Common Stock entitled to vote on the Merger
Agreement in order to approve and adopt the Merger Agreement, the failure of
such customers to provide specific instructions with respect to their shares of
CSB Financial Common stock to their broker will have the effect of a vote
against the approval of the Merger Agreement.
As to the approval of the proposal to adjourn the Special Meeting in
the event that there is an insufficient number of shares present in person or by
proxy to approve the Merger Agreement a shareholder may: (i) vote "FOR" the
adjournment; (ii) vote "AGAINST"; or (iii) "ABSTAIN." Approval of the
adjournment requires the affirmative vote of the holders of a majority of the
Common Stock of CSB Financial present in person or by proxy at the Special
Meeting, without regard to Broker Non-votes. Proxies marked "ABSTAIN" will have
the same effect as a vote against.
The directors and executive officers of CSB Financial (including
certain of their related interests) beneficially own, as of the Record Date, and
are entitled to vote at the Special Meeting 210,571 shares of CSB Financial
Common Stock. See "Voting Securities and Principal Holders Thereof."
Accordingly, assuming that the directors and executive officers of CSB Financial
vote their shares of CSB Financial Common Stock in favor of approval of the
Merger Agreement, the affirmative vote of the holders of an additional 1,110,471
shares of CSB Financial Common Stock will be required in order for the Merger
Agreement to be approved at the Special Meeting. It should be noted that in
addition to the above, the ESOP holds 182,160 unallocated shares which will be
voted in the same proportion as the allocated shares which are anticipated to be
voted for the Merger.
A FAILURE TO VOTE, EITHER BY NOT RETURNING THE ENCLOSED PROXY OR BY
CHECKING THE "ABSTAIN" BOX THEREON, WILL HAVE THE SAME EFFECT AS A VOTE AGAINST
APPROVAL OF THE MERGER AGREEMENT.
11
<PAGE>
VOTING OF PROXIES; REVOCABILITY OF PROXIES; SOLICITATION OF PROXIES
After having been submitted, the enclosed Proxy may be revoked by the
person giving it, at any time before it is exercised, by: (i) submitting written
notice of revocation of such Proxy to the Secretary of CSB Financial; (ii)
submitting a Proxy having a later date; or (iii) such person appearing at the
Special Meeting and requesting a return of the Proxy. All shares represented by
valid Proxies will be exercised in the manner specified thereon. If no
specification is made, duly executed Proxies will be voted in favor of each of
approval of the Merger Agreement, the proposal to adjourn the Special Meeting
and any such other matters which may properly come before the Special Meeting.
The solicitation is being made by CSB Financial. Directors, officers
and employees of CSB Financial may solicit Proxies from CSB Financial
shareholders, either personally or by telephone, telegraph or other form of
communication. Such persons will receive no additional compensation for such
services. CSB Financial has retained Kissel-Blake, Inc. to assist in soliciting
Proxies and to send Proxy materials to brokerage houses and other custodians,
nominees and fiduciaries for transmittal to their principals, at a cost of
$3,000, plus out-of-pocket expenses. All expenses associated with the
solicitation of Proxies will be paid by CSB Financial except that One Valley
shall bear the printing and mailing expenses of the Proxy materials.
APPRAISAL RIGHTS
In accordance with Delaware law, record holders of CSB Financial Common
Stock will not be entitled to dissenters' or appraisal rights.
PROPOSAL I--THE MERGER
THE FOLLOWING INFORMATION CONCERNING THE MERGER, INSOFAR AS IT RELATES
TO MATTERS CONTAINED IN THE MERGER AGREEMENT, IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF THE MERGER AGREEMENT WHICH IS ATTACHED AS APPENDIX
I TO THIS PROXY STATEMENT.
GENERAL
On January 26, 1996, One Valley and CSB Financial entered into the
Merger Agreement which provides for the merger of CSB Financial with Thrift. On
the effective date of the Merger, the shareholders of CSB Financial will become
shareholders of One Valley, and the separate existence and corporate
organization of CSB Financial will cease. As a result of the Merger, the Savings
Bank and CSB Services will become subsidiaries of One Valley, and each of the
outstanding shares of CSB Financial Common Stock will be converted into One
Valley Common Stock at the exchange rate of .6774 of a share of One Valley
Common Stock for each share of CSB Financial Common Stock. In lieu of fractional
shares, each shareholder of CSB Financial, who would otherwise be entitled to
receive a fraction of a share, will receive an amount in cash equal to such
fraction multiplied by the average of the closing bid and ask price of One
Valley on the business day immediately prior to the effective date of the
Merger.
The affirmative vote of not less than a majority of the outstanding
shares of CSB Financial entitled to vote is required to approve the Merger.
Subject to shareholder approval, the satisfaction of certain conditions
and the receipt of all requisite regulatory approvals, the Merger shall become
effective on the date the certificate of merger approving the Merger is issued
by the Secretary of State of West Virginia, but in any event, no later than the
60th day after receipt of all requisite approvals of regulatory authorities and
shareholders.
OPERATIONS AND MANAGEMENT AFTER THE MERGER
Following consummation of the Merger, One Valley anticipates that it
will operate the Savings Bank as a federally chartered savings bank and
wholly-owned subsidiary of Thrift. It is expected that Savings Bank's charter
and bylaws will continue and the Savings Bank will continue to operate its
existing branches. Over time, One Valley will expand the
12
<PAGE>
products and services that Savings Bank and CSB Services currently offer through
the introduction of common products that One Valley currently offers throughout
West Virginia.
After the Merger, the Savings Bank's current directors and officers
shall continue as the Savings Bank's directors and officers and shall hold
office as prescribed in the Savings Bank's bylaws and applicable law until their
successors are elected and qualified. In addition, pursuant to the Merger
Agreement, One Valley will increase the size of the Savings Bank's Board by two
and will designate new directors to fill the positions created. Upon the
effective date of the Merger, One Valley shall, by action of its Board of
Directors, elect Bob M. Johnson as a member of One Valley's Board of Directors.
Additionally, at its Annual Meeting of Shareholders in April, 1997, One Valley
shall nominate and recommend Mr. Johnson for a three-year term as a member of
One Valley's Board of Directors. See "--Interests of Certain Persons in the
Merger."
One Valley intends to retain all of the Savings Bank's existing
employees at no less than their salary levels existing on the date of the Merger
Agreement and that such persons shall continue to be employed by the Savings
Bank as employees at will. After the Effective Date, One Valley intends to
integrate the benefit plans of the Savings Bank and eventually make available to
all employees and officers of the Savings Bank coverage under the benefit plans
generally available to One Valley's employees and officers (including pension,
profit-sharing, and health and hospitalization) on the terms and conditions
available to similarly situated employees and officers of One Valley.
BACKGROUND OF THE MERGER
The Savings Bank, organized in 1914, is a federally-chartered, capital
stock savings bank headquartered in Lynchburg, Virginia, and for most of its
existence has operated as a traditional thrift institution. Over the years, the
Savings Bank has expanded by branching into other communities, including the
counties of Amherst and Bedford and the city of Danville, Virginia.
Like other thrifts, the core of the Savings Bank's business has
consisted of attracting deposits from the general public and originating loans
to finance the acquisition, construction, or improvement of residential
properties located in the market areas served by the Savings Bank. Management
has worked over a number of years to diversify the Savings Bank's activities by
expanding commercial and consumer lending and improving the array of deposit
products and non-deposit investment services. While a measure of success has
been realized in such diversification, it is also recognized that the basic
business and identity of the Savings Bank remains closely tied to its roots as a
traditional thrift institution.
In September 1993, the Savings Bank converted from a mutual to a stock
form of organization through the formation of CSB Financial and an Initial
Public Offering. This transaction resulted in a capital to assets ratio
appreciably in excess of the norm for financial institutions. Since 1993, the
CSB Financial's Board of Directors and management have explored several growth
strategies seeking to better employ the company's capital in order to improve
the return on shareholder equity.
During 1994 and 1995 CSB Financial engaged in various discussions
relating to possible acquisitions of other financial institutions by CSB
Financial. In November 1994, CSB Financial was successful in acquiring the
Danville, Virginia branch of another institution, thus increasing its assets by
approximately $40 million. The Board was regularly advised of management's
effort to expand the institution through acquisitions and, on several occasions,
pursued offers to acquire other financial institutions. However, for a variety
of reasons, no final agreements were reached with such institutions. During this
period of time, CSB Financial utilized the services of an investment banking
firm to assist management in its efforts.
The Board of Directors and management of CSB Financial have recognized
that the increased competition from commercial banks and other financial
institutions has changed fundamentally the environment in which traditional
thrifts have operated and threatens the market shares held by thrifts for their
traditional services. The city of Lynchburg supports six commercial banks, the
city of Danville supports seven commercial banks and Amherst and Bedford
Counties support five and six commercial banks, respectively. Competition with
these commercial banks, with other financial institutions and with other
providers of financial services, such as credit unions, is strong, making it
extremely difficult for the Savings Bank, despite its diversification efforts
and accomplishments, to meaningfully expand into the commercial banking business
or make significant market share gains in any one market area.
The Riegle-Neal Interstate Banking and Branching Efficiency Act (the
"Interstate Banking Act"), enacted by Congress in September 1994, also has
raised new questions about the future nature and structure of the financial
services industry and the options open to local institutions offering limited
lines of financial services and products. In addition, current proposals to
recapitalize the Savings Association Insurance Fund ("SAIF") and the current
disparity between SAIF and Bank Insurance Fund ("BIF") deposit insurance
premiums, in addition to the uncertainty currently surrounding such
13
<PAGE>
issues, are anticipated to result in additional competitive advantages to
commercial banks that will further harm the thrift industry as a whole.
The Board of Directors and management of CSB Financial have assessed
the foregoing and other developments and their significance to CSB Financial and
its shareholders. The Board of Directors of CSB Financial also has received and
considered expressions of interest in potential acquisition transactions from
other financial institutions. None of such expressions led to an agreement as to
the terms of a potential merger. At the same time, the Board of Directors has
been cognizant of changes in CSB Financial's operating environment, including
rising interest rates and shrinking interest margins, causing the Board of
Directors and management to project slower growth in earnings and a decline in
the estimated fair value of financial assets compared to their carrying values
over the next few years.
In light of these occurrences and conditions, the Board of Directors,
in August 1995, decided to undertake a comprehensive study of CSB Financial's
future and the strategic options available to CSB Financial. The Board of
Directors employed Friedman, Billings, Ramsey & Co., Inc. ("Friedman") to
provide business and financial advice regarding the strategic future of CSB
Financial. With the assistance of Friedman, the Board of Directors reviewed the
economic and competitive conditions in the market areas of the Saving Bank,
changes in the residential mortgage industry, the trend of consolidation among
federally-insured depository institutions, the potential effects of the
Interstate Banking Act and the advent of interstate banking, and the effects
that rising interest rates and cyclical trends could have on bank and thrift
stock prices in coming years. The Board of Directors also analyzed the history
and market performance of CSB Financial since it converted to a stock
institution in 1993. Since the third quarter of 1993, CSB Financial had been
traded actively and the market price had increased steadily. The Board of
Directors concluded that the market price of CSB Financial Stock included a
premium that reflected a belief among purchasers of CSB Financial Common Stock
and other participants in the securities market that CSB Financial was an
attractive candidate for takeover. The Board of Directors further concluded
that, if CSB Financial were not acquired within a reasonable period of time, the
takeover premium was likely to erode, which, when coupled with the projections
for slower earnings growth and a decline in the estimated fair value of
financial assets compared to their carrying value, likely would cause the market
price of CSB Financial Common Stock to decline, thereby reducing the value of
the CSB Financial Common Stock held by CSB Financial shareholders.
The Board of Directors considered several options for the future of CSB
Financial, including: (i) remaining independent and seeking to generate growth
and added profits by expanding and diversifying CSB Financial's financial
services and product offerings, (ii) expanding through establishment of new
branches, (iii) expanding by acquiring smaller savings institutions, commercial
banks or branches, (iv) merging with an institution of nearly equal size, and
(v) being acquired by a larger bank or thrift holding company. The Board
reviewed each option and concluded, in light of current business conditions, CSB
Financial's particular circumstances and prospects, and the risks and expenses
of expanding its products, services, and/or branch network on an independent
basis, that the best interests of CSB Financial and its shareholders should be
served by exploring closely the possibility of combining with another
institution in a sale transaction in the near term.
Accordingly, the Board of Directors decided to survey the most likely
obtainable terms and conditions on which CSB Financial could combine with a
larger in-state or out-of-state bank or thrift holding company. Friedman, on
behalf of CSB Financial, communicated directly with the financial institutions
it considered to be the most likely potential acquirors of CSB Financial to
invite expressions of interest in pursuing acquisition proposals. Several
companies expressed indications of interest, with One Valley ultimately
submitting a proposal in response to Friedman's communications. The other
expressions were not pursued by CSB Financial because the offers were lower than
that of One Valley. With the advice of Friedman, CSB Financial proceeded to
enter into further discussions with One Valley. Over the period of November 15,
1995 to January 21, 1996, several lengthy meetings of certain members of the
senior management of One Valley and CSB Financial were held to discuss and
develop the basis for a potential acquisition of CSB Financial by One Valley.
Between meetings, and subject to a confidentiality agreement between the
parties, an appreciable exchange of information occurred. Representatives of One
Valley conducted due diligence of CSB Financial and Friedman conducted due
diligence of One Valley on behalf of CSB Financial. Friedman further conducted a
due diligence examination of CSB Financial and its subsidiaries.
Throughout the foregoing process, management advised and informed the
Board of Directors of CSB Financial of developments and was directed by the
Board to pursue discussions.
On January 17, 1996 the Executive Committee of CSB Financial met with
senior management of CSB Financial. Management reviewed with the Committee the
alternative strategies for the future operation of CSB Financial including the
potential of a merger with One Valley. On January 18, 1996, the full Board of
Directors of CSB Financial met with senior
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management and Friedman representatives in attendance. Management repeated the
review of alternative strategies for the future operation of CSB Financial
previously discussed with the Executive Committee. Friedman addressed the Board
on these strategies and reviewed with the Board the tentative proposal of One
Valley. Friedman also briefed the Board on the general climate of the
merger/acquisitions market place and reported on all contacts with other
financial institutions by Friedman acting in CSB Financial's behalf. The Board
directed senior management to continue negotiations with One Valley, including
the conduct of due diligence by both parties.
Through the week of January 21, 1996, senior management of both
institutions, with the assistance of Friedman and outside counsel, negotiated a
form of definitive merger agreement. Draft copies of the proposed agreement were
distributed to the Board of Directors of CSB Financial for their review.
On January 26, 1996, the Board of Directors reviewed the proposal and
met with Friedman and CSB Financial's attorneys to discuss and review the final
proposal. Friedman presented a detailed analysis of the final proposal to the
Board of Directors and concluded that in Friedman's opinion One Valley's
proposal was fair to CSB Financial's shareholders from a financial point of
view.
On the basis of the independent judgment of the members of the Board of
Directors of CSB Financial, and the advice of Friedman, that the One Valley
proposal was fair to CSB Financial's shareholders from a financial point of
view, the Board of Directors concluded that One Valley's offer was in the best
interests of CSB Financial and its shareholders. Accordingly, for all of the
reasons discussed above, on January 26, 1996, CSB Financial's Board of Directors
accepted One Valley's offer and authorized execution of the Agreement.
REASONS FOR THE MERGER
In reaching its conclusion to approve the Merger, the CSB Financial
Board considered a number of factors. The CSB Financial Board did not assign any
relative or specific weights to the factors considered. Among other things, the
CSB Financial Board considered: the Merger consideration in relation to the book
value, assets and earnings of CSB Financial and One Valley; information
concerning the financial condition, results of operations and prospects of CSB
Financial, including the return on assets and return on equity of CSB Financial;
the financial terms of other recent business combinations in the banking
industry; and the opinion of Friedman as to the fairness of the Exchange Ratio
to CSB Financial stockholders from a financial point of view.
The CSB Financial Board believes that the terms of the Merger
Agreement, which are the product of arms-length negotiations between One Valley
and CSB Financial, are in the best interest of CSB Financial and its
stockholders. In the course of reaching its determination, the CSB Financial
Board consulted with legal counsel with respect to its legal duties, the terms
of the Merger Agreement and the issues related thereto; with its financial
advisor with respect to the financial aspects and fairness of the transaction;
and with senior management regarding, among other things, operational matters.
In reaching its determination to approve the Merger Agreement, the CSB
Financial Board considered various factors it deemed material, including:
(a) The CSB Financial Board analyzed information with respect to the
financial condition, results of operations, businesses and prospectus of CSB
Financial and One Valley. In this regard, the CSB Financial Board analyzed the
options of selling CSB Financial or continuing on a stand-alone basis. The range
of values on a sale basis were determined to generally exceed the present value
of CSB Financial shares on a stand-alone basis under business strategies which
could be reasonably implemented by CSB Financial.
(b) The CSB Financial Board considered the written opinion of Friedman
that, as of January 26, 1996, the Exchange Ratio was fair to CSB Financial
stockholders from a financial point of view. See "--Opinion of CSB Financial's
Financial Advisor."
(c) The CSB Financial Board considered the current operating
environment, including, but not limited to, the continued merger and increasing
competition in the banking and financial services industries, the prospect for
further changes in these industries, and the importance of being able to
capitalize on developing opportunities in these industries. This information has
been periodically reviewed by the CSB Financial Board at its regular board
meetings and was also discussed between the CSB Financial Board and CSB
Financial's various advisors.
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(d) The CSB Financial Board considered the other terms of the Merger
Agreement and exhibits, including the tax-free nature of the transaction.
(e) The CSB Financial Board considered the detailed financial analyses
and other information with respect to CSB Financial and One Valley discussed by
Friedman, as well as the CSB Financial Board's own knowledge of CSB Financial,
One Valley and their respective businesses. In this regard, the latest
publicly-available financial and other information for CSB Financial and One
Valley were analyzed, including a comparison to publicly-available financial and
other information for other similar institutions.
(f) The CSB Financial Board considered the value of CSB Financial
Common Stock continuing as a stand-alone entity compared to the effect of CSB
Financial combining with One Valley in light of the factors summarized above and
the current economic and financial environment, including, but not limited to,
other possible strategic alternatives, the results of the contacts and
discussions between CSB Financial and its financial advisor and various third
parties and the belief of the CSB Financial Board and management that the Merger
offered the best transaction available to CSB Financial and its shareholders.
(g) The CSB Financial Board considered the likelihood of the Merger
being approved by the appropriate regulatory authorities, including factors such
as market share analysis, One Valley's Community Reinvestment Act rating at that
time and the estimated pro forma financial impact of the Merger on One Valley.
The exchange ratio of .6774 of a share of One Valley represents an
exchange premium of approximately 26% to CSB Financial shareholders based on a
comparison of the market values of One Valley Common Stock and CSB Financial
Common Stock as of January 26, 1996, with the market value of CSB Financial
Common Stock as of January 26, 1996.
Upon completion of the Merger, former shareholders of CSB Financial
will have equity ownership in a large bank holding company. One Valley is the
largest bank holding company headquartered in the State of West Virginia with
$3.8 billion in total assets as of December 31, 1995, and currently operates 11
affiliate banks with 79 locations in West Virginia. When the Merger is
consummated, shareholders of CSB Financial will receive, in the aggregate,
1,789,745 shares of One Valley Common Stock. If the Merger had been completed on
December 31, 1995, CSB Financial shareholders would have received, 9.5% of the
18,852,129 shares of One Valley Common Stock that would have been outstanding.
Based upon financial data as of December 31, 1995, the proportion of the pro
forma consolidated bank holding company assets contributed by CSB Financial will
be approximately 7.9% of assets, 7.7% of deposits, 2.8% of net income, and 11.4%
of shareholders' equity. If the Merger had been completed on December 31, 1995,
One Valley would have had approximately $4.2 billion in total assets,
approximately $3.3 billion in total deposits and approximately $2.8 billion in
total loans.
The foregoing discussion of the information and factors considered by
the CSB Financial Board is not intended to be exhaustive, but constitutes the
material factors considered by the CSB Financial Board. In reaching its
determination to approve and recommend the Merger Agreement, the CSB Financial
Board did not assign any relative or specific weights to the foregoing factors,
and individual directors may have weighted factors differently. After
deliberating with respect to the Merger and the other transactions contemplated
by the Merger Agreement, considering, among other things, the matters discussed
above and the opinion of Friedman referred to above, the CSB Financial Board
approved and adopted the Merger Agreement and the transactions contemplated
thereby as being in the best interests of CSB Financial and its stockholders.
OPINION OF CSB FINANCIAL'S FINANCIAL ADVISOR
On August 15, 1995, CSB Financial retained Friedman to act as its
financial advisor. Friedman, as part of its institutional brokerage, research
and investment banking business, is regularly engaged in the valuation of
securities and the evaluation of transactions in connection with initial and
secondary offerings, mutual-to-stock conversion of thrift institutions, mergers
and acquisitions of commercial banks, thrift institutions and their holding
companies, as well as business valuations for other corporate purposes for
financial institutions and real estate-related companies. As a specialist in the
valuation of securities of financial institutions, Friedman has experience in,
and knowledge of, Virginia and the surrounding regional markets for thrift and
bank securities as well as institutions operating in Virginia and the
surrounding regional areas. CSB Financial engaged the services of Friedman based
upon its qualifications, expertise and reputation.
At the January 26, 1996 meeting of the Board of Directors of CSB
Financial, Friedman delivered its fairness opinion, subsequently confirmed in
writing as of the date of this Prospectus/Proxy Statement, that the
consideration to be received by the shareholders of CSB Financial from One
Valley in the Merger is fair, from a financial point of view, as of such dates.
Friedman's opinion is directed only to the fairness, from a financial point of
view, to CSB Financial's
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shareholders of the consideration to be received by them in the Merger and does
not address CSB Financial's underlying business decision to effect the Merger.
No limitations were imposed by CSB Financial on Friedman with respect to the
investigation made or procedures followed in rendering its opinion. THE FULL
TEXT OF FRIEDMAN'S WRITTEN OPINION TO THE CSB FINANCIAL BOARD OF DIRECTORS,
DATED THE DATE OF THIS PROSPECTUS/PROXY STATEMENT, IS ATTACHED HERETO AS
APPENDIX II AND IS INCORPORATED HEREBY BY REFERENCE AND SHOULD BE READ CAREFULLY
AND IN ITS ENTIRETY IN CONNECTION WITH THIS PROSPECTUS/PROXY STATEMENT. THE
FOLLOWING SUMMARY OF FRIEDMAN'S OPINION IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF THE OPINION. FRIEDMAN'S OPINION IS ADDRESSED TO
THE CSB FINANCIAL BOARD OF DIRECTORS ONLY AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY CSB FINANCIAL SHAREHOLDER AS TO HOW SUCH SHAREHOLDER
SHOULD VOTE WITH RESPECT TO THE MERGER. IN FURNISHING ITS OPINION, FRIEDMAN DID
NOT ADMIT THAT IT IS AN EXPERT WITHIN THE MEANING OF THE TERM "EXPERT" AS USED
IN THE SECURITIES ACT AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER.
In connection with rendering its opinion, Friedman, among other things,
(i) reviewed CSB Financial's Annual Reports to Shareholders and Annual Reports
on Form 10-K filed with the SEC for the fiscal years ended June 30, 1995 and
1994, (ii) reviewed One Valley's Annual Reports to Shareholders and Annual
Reports on Form 10-K filed with the SEC for the fiscal years ended December 31,
1994 and 1993, (iii) reviewed the Quarterly Reports on Form 10-Q for the fiscal
quarters ended September 30, 1995, filed with the SEC by CSB Financial and One
Valley, (iv) discussed the past and current operations, financial condition and
prospects of CSB Financial and One Valley with the management of CSB Financial
and One Valley, (v) reviewed CSB Financial's and One Valley's business plans,
(vi) reviewed the reported market prices and trading activity for CSB Financial
Common Stock and One Valley Common Stock and compared them with those of certain
publicly-traded financial companies which Friedman deemed to be reasonably
comparable to CSB Financial and One Valley, respectively, (vii) compared the
results of operations and financial condition of CSB Financial and One Valley
with those of certain publicly-traded financial companies which Friedman deemed
to be reasonably comparable to CSB Financial and One Valley, respectively,
(viii) reviewed the financial terms, to the extent publicly available, of
certain acquisition transactions which Friedman deemed to be reasonably
comparable, and (ix) performed such other analysis and reviewed and analyzed
such other information as Friedman deemed appropriate.
In rendering its opinion, Friedman did not assume responsibility for
independently verifying, and did not independently verify, any financial or
other information concerning CSB Financial and One Valley furnished to it by CSB
Financial and One Valley or the publicly-available financial and other
information regarding CSB Financial, One Valley and other financial
institutions. Friedman has assumed that all such information is accurate and
complete. Friedman has further relied on the assurances of management of CSB
Financial and One Valley that they are not aware of any facts that would make
such financial or other information relating to such entities inaccurate or
misleading. Friedman has assumed that there has been no material change in CSB
Financial's or One Valley's assets, financial condition, result of operations,
business or prospects since September 30, 1995. Friedman did not undertake an
independent appraisal of any of the assets or liabilities of CSB Financial or
One Valley nor was Friedman furnished with any such appraisals. Friedman is not
an expert in the evaluation of allowances for loan losses and did not review any
individual credit files of CSB Financial or One Valley. Friedman's conclusions
and opinion were necessarily based upon economic, market and other conditions as
they existed on, and the information made available to Friedman as of, the date
of its opinion. Friedman expressed no opinion on matters of a legal, regulatory,
tax or accounting nature related to the Merger as set forth in the Agreement.
The preparation of a fairness opinion is a complex project and is not
necessarily susceptible to partial or summary description. No single analytical
methodology used by Friedman was critical to its overall conclusions, as such
analytical technique has inherent strengths and weaknesses. The nature of
available information may further affect the value of any particular methodology
or technique. Friedman's conclusions are based upon all the analyses and factors
that it considered, taken as a whole, and also on the application of Friedman's
experience and judgement. Friedman's conclusions involve significant elements of
subjective judgment and qualitative analysis. No single technique was assigned
any special value, merit or weight. Accordingly, Friedman believes that its
analyses must be considered as a whole and that to focus upon specific portions
of such analyses and factors would create an incomplete and misleading view of
the process underlying the preparation of its opinion. In preparing its analyses
Friedman made numerous assumptions with respect to industry performance, general
business and economic conditions and other matters, many of which are beyond
Friedman's control and are inherently imprecise. The analyses were prepared by
Friedman solely for the purpose of preparing its opinion of January 26, 1996, to
the CSB Financial Board as to the fairness of the consideration to be received
by CSB Financial Shareholders in the Merger and do not purport to be appraisals
or necessarily reflect the prices at which CSB Financial or its securities may
be sold. Analyses based upon forecasts of future results are not necessarily
indicative of actual factual future results which may be significantly more
favorable than suggested by such analyses.
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The following is a brief summary of the analyses performed by Friedman
in connection with its opinion:
COMPARISON OF SELECTED COMPLETED TRANSACTIONS. Friedman reviewed 22
completed acquisition transactions announced after January 1, 1994 and completed
during 1994 and 1995 involving thrift institutions located in Virginia, North
Carolina, West Virginia, Tennessee, Maryland and Washington, D.C. (the "Regional
Completed Transaction Group"). Friedman calculated, as of the respective dates
of announcement of such transactions, the multiple of last twelve months ("LTM")
earnings and book value, as well as the core deposit premium, implied by the
aggregate consideration to be received by the shareholders and stock option
holders of each acquired institution in each such transaction. Friedman also
computed the average and median of these multiples of LTM earnings and book
value and the average and median core deposit premium resulting in these
transactions. The analysis yielded a range of transaction values for the
Regional Completed Transaction Group as a multiple of LTM earnings of 3.66x to
34.87x, with an average of 18.57x and a median of 16.00x in 1994 and an average
of 17.58x and a median of 18.69x in 1995. The range of transaction values as a
multiple of book value for the Regional Completed Transaction Group was 0.99x to
2.16x with an average of 1.58x and a median of 1.53x for 1994 and an average of
1.69x and a median of 1.67x for 1995. The range of core deposit premiums was
(0.08%) to 22.54% with an average of 7.08% and a median of 7.32% for 1994 and an
average of 10.30% and a median of 8.46% for 1995 for the Regional Completed
Transaction Group. The offer price used for CSB Financial in the Merger in the
preceding analysis was $21.00 per share, derived from the market value of One
Valley Common Stock of $31.50 as of January 16, 1996.
CSB Financial is deemed to be an overcapitalized thrift institution.
Friedman also reviewed 18 acquisition transactions announced after January 1,
1994 and completed during 1994 and 1995 involving national "overcapitalized"
thrift institutions (defined as institutions with tangible equity in excess of
13%) (the "Overcapitalized Completed Transaction Group"). The analysis yielded a
range of transaction values as a multiple of LTM earnings for the
Overcapitalized Completed Transaction Group of 11.19x to 34.87x, with an average
of 18.52x and a median of 16.34x in 1994 and an average of 19.24x and a median
of 17.13x in 1995, compared to 29.52x for CSB Financial in the Merger. The range
of transaction values for the Overcapitalized Completed Transaction Group as a
multiple of book value was 0.97x to 1.54x with an average of 1.27x and a median
of 1.32x for 1994 and an average of 1.27x and a median of 1.28x for 1995,
compared to 1.31x for CSB Financial in the Merger. The range of core deposit
premiums for the Overcapitalized Completed Transaction Group was (0.63%) to
14.33% with an average of 6.51% and a median of 7.14% for 1994 and an average of
8.35% and a median of 7.32% for 1995, compared to 6.40% for CSB Financial in the
Merger.
COMPARISON OF SELECTED PENDING TRANSACTIONS. Friedman reviewed 50
acquisition transactions pending as of January 25, 1996 on a nationwide basis
involving thrift institutions (the "National Pending Transaction Group").
Friedman calculated, as of the respective dates of announcement of such
transactions, the multiple of LTM earnings and book value, as well as the core
deposit premium, implied by the aggregate consideration to be received by the
shareholders and stock option holders of each target institution in each such
transaction. Friedman also computed the average and median of these multiples of
LTM earnings and book value and the average and median core deposit premium
resulting in these transactions. The analysis yielded a range of transaction
values for the National Pending Transaction Group as a multiple of LTM earnings
of 10.11x to 60.26x, with an average of 22.27x and a median of 19.33x, compared
to 29.52x for CSB Financial in the Merger. The range of transaction values as a
multiple of book values for the National Pending Transaction Group was 0.97x to
2.08x, with an average of 1.42x and a median of 1.40x, compared to 1.31x for CSB
Financial in the Merger. The range of core deposit premiums was 1.94% to 17.73%,
with an average of 6.94% and a median of 5.74%, for the National Pending
Transaction Group, compared to 6.40% for CSB Financial in the Merger.
Friedman reviewed ten acquisition transactions pending as of January
25, 1996 involving thrift institutions located in Virginia, North Carolina, West
Virginia and Maryland (the "Regional Pending Transaction Group"). Friedman
calculated, as of the respective dates of announcement of such transactions, the
multiple of LTM earnings and book value, as well as the core deposit premium,
implied by the aggregate consideration to be received by the shareholders and
stock option holders of each target institution in each such transaction.
Friedman also computed the average and median of these multiples of LTM earnings
and book value and the average and median core deposit premium resulting in
these transactions. The analysis yielded a range of transaction values as a
multiple of LTM earnings of 13.75x to 38.06x, with an average of 20.08x and a
median of 19.24x, for the Regional Pending Transaction Group, compared to 29.52x
for CSB Financial in the Merger. The range of transaction values as a multiple
of book value was 1.35x to 1.98x, with an average of 1.64x and a median of
1.62x, for the Regional Pending Transaction Group, compared to 1.31x for CSB
Financial in the Merger. The range of core deposit for the Regional Pending
Transaction Group premiums was 3.17% to 17.73%, with an average of 10.52% and a
median of 10.84%, compared to 6.40% for CSB Financial in the Merger.
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Friedman also reviewed 13 acquisition transactions pending as of
January 25, 1996 involving national overcapitalized thrift institutions (the
"Overcapitalized Pending Transaction Group"). Friedman calculated, as of the
respective dates of announcement of such transactions, the multiple of LTM
earnings and book value, as well as the core deposit premium, implied by the
aggregate consideration to be received by the shareholders and stock option
holders of each target institution in each such transaction. Friedman also
computed the average and median of these multiples of LTM earnings and book
value and the average and median core deposit premium resulting in these
transactions. The analysis yielded a range of transaction values as a multiple
of LTM earnings for the Overcapitalized Pending Transaction Group of 12.36x to
44.60x, with an average of 26.19x and a median of 25.91x, compared to 29.52x for
CSB Financial in the Merger. The range of transaction values as a multiple of
book value was 1.11x to 1.63x, with an average of 1.32x and a median of 1.24x,
for the Overcapitalized Pending Transaction Group, compared to 1.31x for CSB
Financial in the Merger. The range of core deposit premiums was 3.57% to 15.49%,
with an average of 8.09% and a median of 6.41%, for the Overcapitalized Pending
Transaction Group, compared to 6.40% for CSB Financial in the Merger.
CONTRIBUTION ANALYSIS. Friedman analyzed the contribution of CSB
Financial and One Valley to the pro forma balance sheet and income statement of
the combined entity. Among the various balance sheet and income statement items
analyzed were the relative contribution to the pro forma company of each of CSB
Financial and One Valley to total assets, total loans, net, total deposits,
shareholders' equity, net interest income for the 12 months ended September 30,
1995, net income before extraordinary items for the 12 months ended September
30, 1995, and 1996 projected net income. Estimates of net income for 1996 were
based upon estimates provided by each of CSB Financial and One Valley
management. Based on this analysis, the relative contribution to the pro forma
company produced a range of 11.9% (shareholders' equity) to 4.4% (net income
before extraordinary items) for CSB Financial.
ONE VALLEY COMPARABLE BANK ANALYSIS. Friedman compared certain
valuation ratios and profitability, operations, credit quality and capital
ratios, for One Valley with the average ratios (excluding in each case the low
and high ratio) for the 57 publicly traded banks located in Virginia, North
Carolina, West Virginia, Tennessee, Maryland and Washington, D.C. (the
"Comparable Banks"), using market data as of January 25, 1996, and publicly
reported financial data as of September 30, 1995 and for the 12 months ended as
of the date. Among the valuation ratios considered were (a) the ratio of market
price to LTM earnings per share, which was 11.29x for One Valley and averaged
13.10x for the Comparable Banks, and (b) the ratio of market price to book
value, which was 1.61x for One Valley and averaged 1.67x for the Comparable
Banks. Among the profitability, operations, credit quality and capital ratios
compared by Friedman were (i) return on average assets for the 12 months ended
September 30, 1995, which was 1.33% for One Valley and averaged 1.34% for the
Comparable Banks, (ii) return on average common equity for the 12 months ended
September 30, 1995, which was 13.93% for One Valley and averaged 14.65% for the
Comparable Banks, (iii) the ratio of non-performing assets to total assets at
September 30, 1995, which was 0.23% for One Valley and averaged 0.60% for the
Comparable Banks, (iv) the ratio of loan loss reserves to non-performing assets
at September 30, 1995, which was 453.51% for One Valley and averaged 237.23% for
the Comparable Banks, and (v) the ratio of tangible common equity to tangible
common assets at September 30, 1995, which was 9.30% for One Valley and averaged
9.17% for the Comparable Banks.
In the ordinary course of business, Friedman trades the equity
securities of CSB Financial and One Valley for its own accounts and the accounts
of its customers, and, accordingly, may at any time hold a long or short
position in such securities.
COMPENSATION OF FRIEDMAN. Pursuant to an engagement letter dated August
15, 1995, between CSB Financial and Friedman , CSB Financial hired Friedman to
provide financial advisory services. Upon signing the letter, CSB Financial paid
a $25,000 retainer and agreed, in the event a merger was consummated, to pay a
financial advisory fee (to be paid upon consummation of a merger or other
transaction) equal to 1% of the aggregate consideration received by the
shareholders of CSB Financial. Such fee includes the rendering of the fairness
opinion and would be offset against the previously paid retainer. CSB Financial
also agreed to indemnify and hold harmless Friedman and its officers and
employees against certain liabilities in connection with its services under the
engagement letter, except for liabilities resulting from the negligence,
misconduct or bad faith of Friedman.
CONDITIONS TO CONSUMMATION OF THE MERGER; WAIVER
The Merger will occur only if holders of a majority of the issued and
outstanding shares of CSB Financial Common Stock approve the Merger Agreement.
Consummation of the Merger is subject to the satisfaction of certain other
conditions, including: (i) receipt of the regulatory approvals referred to below
under "-- Regulatory Approvals"; (ii) representations and warranties of One
Valley and CSB Financial contained in the Merger Agreement being true and
correct in all material respects on the effective date of the Merger; (iii)
receipt of certain legal opinions from counsel, including an opinion
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regarding certain federal tax aspects of the Merger; (iv) CSB Financial having
delivered to One Valley a schedule of all persons deemed to be "affiliates" of
CSB Financial; and (v) continued effectiveness of the registration statement
filed with the Securities and Exchange Commission and the absence of any pending
or threatened stop order proceedings with respect thereto.
One Valley and CSB Financial may waive (i) any inaccuracies in the
representations and warranties of the other party contained in the Merger
Agreement or in any document delivered pursuant thereto, and (ii) compliance by
the other party with any of the conditions, covenants and agreements contained
in the Merger Agreement.
Subject to the conditions to the obligations of the parties to effect
the Merger, the Merger will become effective (the "Effective Date") on such date
which the Certificate of Merger approving the Merger is issued by the Secretary
of State of the State of West Virginia provided such date is not more than 60
days after the receipt of all requisite approvals of regulatory authorities and
shareholders. Subject to the foregoing, it is currently anticipated by the
parties that the Merger will be consummated by June 30, 1996. The Board of
Directors of either One Valley or CSB Financial may terminate the Merger
Agreement if the Effective Date does not occur on or before midnight on November
1, 1996. See "-- Exchange of CSB Financial Common Stock Certificates," "--
Conditions to Consummation of the Merger" and "-- Termination."
TERMINATION
The Merger Agreement may be terminated, either before or after the
meeting of the shareholders of CSB Financial, (i) by mutual consent of CSB
Financial and One Valley; (ii) by One Valley if there has been a material
misrepresentation or breach of warranty in the representations and warranties of
CSB Financial in the Merger Agreement; (iii) by CSB Financial if there has been
a material misrepresentation or breach of warranty in the representations and
warranties of One Valley in the Merger Agreement; (iv) by either CSB Financial
or One Valley upon written notice to the other if the effective date of the
Merger does not occur on or before midnight on November 1, 1996; and (v) by
either One Valley or CSB Financial if the Merger will violate any nonappealable
final order, decree or judgment of any court or governmental body having
competent jurisdiction.
NO SOLICITATION OF TRANSACTIONS
Pursuant to the Merger Agreement, CSB Financial and its directors,
officers and representatives are prohibited from soliciting, supporting or
encouraging any offer or proposal from any person to acquire CSB Financial or
its assets except to the extent that CSB Financial concludes after receipt of
legal advice that their fiduciary duties require them to do so. The Merger
Agreement provides that the Merger Agreement may be terminated by One Valley in
its sole discretion at any time before the Effective Date if: (i) the meeting of
CSB Financial shareholders has not been held on or before July 1, 1996, provided
the delay is caused by such negotiations, offer or proposal discussed above and
(ii) CSB Financial shareholder approval of the Merger has not been obtained
prior to One Valley's termination of the Merger Agreement for the reason stated
in (i) above.
EXPENSES; TERMINATION FEE
All expenses incurred by or on behalf of the parties in connection with
the Merger Agreement and the transactions contemplated thereby shall be borne by
the party incurring the same, except that printing and mailing expenses will
borne by One Valley. If the Merger Agreement is terminated due to a breach, the
breaching party shall be liable for the expenses of the nonbreaching party
unless the nonbreaching party would otherwise be entitled to a termination fee
pursuant to the terms of the Merger Agreement.
One Valley shall be entitled to a fee of $2.0 million following the
occurrence of a Purchase Event provided One Valley shall have sent written
notice of such entitlement within 90 days after its awareness of such occurrence
(the "Termination Fee"). One Valley's right to receive the Termination Fee shall
terminate if any of the following occurs prior to a Purchase Event: (i) the
Effective Date; (ii) termination of the Merger Agreement in accordance with its
terms if such termination occurs prior to the occurrence of a Preliminary
Purchase Event, except termination by One Valley due to a delay in CSB
Financial's shareholders meeting discussed above; or (iii) termination of the
Merger Agreement following the occurrence of a Preliminary Purchase Event and
the passage of 11 months after such termination.
A Preliminary Purchase Event refers to any of the following events or
transactions occurring after the date of the Merger Agreement:
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(i) CSB Financial or any of its subsidiaries without having
received One Valley's prior written consent, shall have entered into an
agreement to engage in any Acquisition Transaction with any person (the term
"person" for purposes of the Merger Agreement having the meaning assigned
thereto in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) other than One Valley or any of its subsidiaries or
affiliates or the Board of Directors of CSB Financial approve or accept any
Acquisition Transaction with any person other than One Valley or any of its
subsidiaries or affiliates. For purposes of the Merger Agreement, "Acquisition
Transaction" means (a) a merger or consolidation, or any similar transaction,
involving CSB Financial or any of its subsidiaries, (b) a purchase, lease or
other acquisition of all or substantially all of the assets or deposits of CSB
Financial or the Savings Bank, (c) a purchase or other acquisition (including by
way of merger, consolidation, share exchange or otherwise) of securities
representing 30% or more of the voting power of CSB Financial or the Savings
Bank; provided that the term "Acquisition Transaction" does not include any
internal merger or consolidation involving only CSB Financial and/or the Savings
Bank;
(ii) (a) any person (other than One Valley or any of its
subsidiaries or affiliates) shall have acquired beneficial ownership or the
right to acquire beneficial ownership of 10% or more of the outstanding shares
of CSB Financial (the term "beneficial ownership" for purposes of the Merger
Agreement having the meaning assigned thereto in Section 13(d) of the Exchange
Act), or (b) any group (as such term "group" is defined in Section 13(d)(3) of
the Exchange Act), other than a group of which any of One Valley or any of its
subsidiaries or affiliates is a member, shall have been formed that beneficially
owns 10% or more of the shares of CSB Financial then outstanding;
(iii) any person other than One Valley or any of its subsidiaries
or affiliates shall have made a bona fide proposal to CSB Financial or its
shareholders, by public announcement or written communication that is or becomes
the subject of public disclosure, to engage in an Acquisition Transaction
(including, without limitation, any situation in which any person other than One
Valley or any of its subsidiaries or affiliates shall have commenced (as such
term is defined in Rule 14d-2 under the Exchange Act) or shall have filed a
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to a tender offer or exchange offer to purchase
any shares such that, upon consummation of such offer, such person would own or
control 10 percent or more of the then outstanding shares of CSB Financial (such
an offering referred to herein as a "Tender Offer" or an "Exchange Offer",
respectively));
(iv) after a proposal is made by a third party to CSB Financial or
its shareholders to engage in an Acquisition Transaction, or such third party
states its intention to CSB Financial to make such a proposal if the Merger
Agreement terminates, CSB Financial shall have breached any representation,
covenant or obligation contained in the Merger Agreement and such breach would
entitle One Valley to terminate the Merger Agreement (without regard to the cure
period provided for in the Merger Agreement unless such cure is promptly
effected without jeopardizing consummation of the Merger); or
(v) the holders of shares of CSB Financial Common Stock shall not
have approved the Merger Agreement at the Special Meeting or the Special Meeting
shall not have been held or shall have been canceled prior to termination of the
Merger Agreement, in each case after any person (other than One Valley or any of
its subsidiaries or affiliates) shall have (a) made, or disclosed an intention
to make, a bona fide proposal to engage in an Acquisition Transaction or (b)
commenced a Tender Offer or filed a registration statement under the Securities
Act, with respect to an Exchange Offer.
The term "Purchase Event" shall mean either of the following events or
transactions occurring after the date of the Merger Agreement:
(i) the acquisition by any person, other than One Valley or any of
its subsidiaries or affiliates, alone or together with such person's affiliates
and associates, or any group (as defined in Section 13(d)(3) of the Exchange
Act), of beneficial ownership of 50 percent or more of the outstanding shares of
CSB Financial Common Stock; or
(ii) the occurrence of a Preliminary Purchase Event described
above, except that the percentage thereof shall be 50% or more of the
outstanding shares of CSB Financial Common Stock.
BUSINESS PENDING CONSUMMATION
CSB Financial has agreed in the Merger Agreement not to take certain
actions relating to the operation of CSB Financial pending consummation of the
Merger without the prior written consent of One Valley except as otherwise
permitted in the Merger Agreement. See the Merger Agreement attached hereto as
Appendix I.
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CSB FINANCIAL'S STOCK OPTION PLANS
On February 11, 1994, CSB Financial's shareholders adopted the CSB
Financial Corporation 1993 Stock Option Plan for outside directors and the CSB
Financial Corporation 1993 Incentive Stock Option Plan (collectively, the
"Plans"). Together, the Plans permit the granting of stock options for up to
276,000 shares of CSB Financial Common Stock (of which 255,172 options have been
granted, and of which 242,851 are currently outstanding) to CSB Financial's
directors and key employees. Pursuant to the Merger Agreement, on the effective
date of the Merger, each option granted under the Plans which is outstanding and
unexercised will be converted into an option to purchase shares of One Valley
Common Stock at an exercise price adjusted to reflect the Exchange Ratio with
cash being given in lieu of fractional options. If all options are exercised, a
total of 164,507 shares of One Valley Common Stock will be issued.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The summary of certain federal income tax consequences set forth below
is based on the Internal Revenue Code of 1986, as amended (the "Code"),
applicable treasury regulations and IRS guidance, all of which may be
retroactively revoked, and is for general information only. The tax treatment of
a particular shareholder may vary depending on his specific circumstances.
Special tax considerations not discussed herein may be applicable to particular
categories of taxpayers, such as broker-dealers, or to any shareholder who
acquired his or her CSB Financial Common Stock through the exercise of an
employee stock option including a plan under Section 422 of the Code, or
otherwise as compensation. This discussion does not address the effect of any
applicable foreign, state, local or other tax laws. SHAREHOLDERS OF CSB
FINANCIAL ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE PARTICULAR TAX
CONSEQUENCES TO THEM OF THE MERGER, INCLUDING THE APPLICABILITY OF AND EFFECT OF
FOREIGN, STATE, LOCAL AND OTHER TAX LAWS.
In the opinion of Jackson & Kelly, counsel to One Valley, the Merger
will have the following tax consequences:
1. The Merger will constitute a tax-free reorganization under Section
368(a)(1)(A) and Section 368(a)(2)(D) of the Code and CSB Financial, Thrift, and
One Valley will each be "a party to a reorganization" within the meaning of
Section 368(b) of the Code.
2. No gain or loss will be recognized by CSB Financial, One
Valley, or Thrift as a result of the Merger.
3. The basis of the assets of CSB Financial acquired by Thrift in the
Merger will be the same as the basis of such assets in the hands of CSB
Financial immediately prior to the Merger, and the holding period of the assets
of CSB Financial in the hands of Thrift will include, in each instance, the
holding period during which such assets were held by CSB Financial.
4. Except as provided in (5) below, no gain or loss will be recognized
by CSB Financial's shareholders upon their receipt of One Valley Common Stock
solely in exchange for CSB Financial Common Stock.
5. The payment of cash in lieu of fractional share interests of One
Valley Common Stock will be treated as if the fractional shares were distributed
as part of the Merger and then were redeemed by One Valley. These cash payments
will be treated as having been received as distributions in full payment in
exchange for the stock redeemed as provided in Section 302(a) of the Code.
6. The basis of the One Valley Common Stock to be received by CSB
Financial's shareholders will be, in each instance, the same as the basis of the
CSB Financial Common Stock surrendered in exchange therefor decreased by the
amount of cash, if any, received by the shareholder and increased by the amount
of gain, if any, recognized by such shareholder with respect to any cash
received pursuant to the Merger.
7. The holding period of the One Valley Common Stock received by CSB
Financial shareholders will include the period during which the CSB Financial
Common Stock surrendered in exchange therefor was held by the CSB Financial
shareholder, provided that the CSB Financial Common Stock was a capital asset in
the hands of the CSB Financial shareholder on the date of the Merger.
8. Thrift will succeed to and take into account those attributes of CSB
Financial described in Section 381(c) of the Code, and Thrift will be the
"acquiring corporation" within the meaning of Section 1.381(a)-1(b)(2) of the
Treasury
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Regulations. These items will be taken into account by Thrift subject to the
conditions and limitations specified in Sections 381, 382, 383 and 384 of the
Code and regulations thereunder.
In rendering the above opinions, Jackson & Kelly has relied upon
written representations and covenants of One Valley and CSB Financial. No ruling
has been sought from the Internal Revenue Service as to the federal income tax
consequences of the Merger, and the opinions of Jackson & Kelly set forth above
are not binding on the Internal Revenue Service or any Court.
ACCOUNTING TREATMENT
Under generally accepted accounting principles, it is anticipated that
the Merger will be accounted for under the purchase method of accounting. The
assets and liabilities of CSB Financial will be reflected in the consolidated
financial statements of One Valley based upon their fair values as of the
effective date of the Merger. Results of operations will be reflected in the
consolidated financial statements of One Valley for all periods subsequent to
the effective date of the Merger. Under the purchase method of accounting, the
excess purchase price paid over the fair market value of assets is amortized as
an expense over the period estimated to be benefited. Based upon preliminary
estimates and assumptions, the excess purchase price paid over the fair value of
net assets acquired would have been approximately $10 million if the Merger had
been consummated as of December 31, 1995.
EXCHANGE OF CERTIFICATES
As soon as practicable after the effective date of the Merger, the
certificates representing the outstanding shares of CSB Financial Common Stock
will be surrendered to Harris Trust and Savings Bank (the "Exchange Agent") and,
upon such surrender, the Exchange Agent will issue certificates representing the
number of shares of One Valley Common Stock into which surrendered shares have
been converted and will issue cash in lieu of fractional shares (without
interest). CERTIFICATES FOR CSB FINANCIAL COMMON STOCK SHOULD NOT BE FORWARDED
TO THE EXCHANGE AGENT UNTIL AFTER RECEIPT OF A LETTER OF TRANSMITTAL AND SHOULD
NOT BE RETURNED TO CSB FINANCIAL WITH THE ENCLOSED PROXY.
Certificates representing shares of CSB Financial Common Stock which
are not surrendered will be deemed for all purposes to evidence the ownership of
the number of shares of One Valley Common Stock into which the shares of CSB
Financial Common Stock will have been converted. No dividends or distributions
payable to holders of record of One Valley Common Stock will be paid to former
CSB Financial shareholders who have not surrendered their certificates formerly
representing shares of CSB Financial Common Stock, until they have exchanged
their certificates representing their CSB Financial Common Stock for
certificates representing One Valley Common Stock, at which time the holder will
be paid the amount of dividends previously declared on such shares without
interest. All unclaimed dividends at the end of two years from the effective
date of the Merger will be repaid by the Exchange Agent to One Valley, and
thereafter, the holders of certificates of CSB Financial Common Stock will be
paid directly by One Valley.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
According to the Merger Agreement, upon consummation of the Merger, One
Valley intends to operate the Savings Bank as a wholly owned subsidiary of
Thrift. The Savings Bank will continue to retain Bob Johnson as the President
and Chief Executive Officer and its existing management team. Unexercised
options awarded under CSB Financial's stock option plans will be converted
pursuant to the Exchange Ratio into options to purchase shares of One Valley
Common Stock. See "-- CSB Financial's Stock Option Plans." Bob Johnson shall be
entitled to participate in One Valley's Management Incentive Compensation Plan.
In addition to stating that One Valley intends to retain the current
members of the Board of Directors of the Savings Bank as prescribed in its
bylaws, the Merger Agreement provides that such directors shall receive fees in
the same amount as those paid to directors of One Valley. Bob Johnson will also
be elected to the Board of Directors of One Valley.
The Merger Agreement provides that after the Effective Date, One Valley
shall continue to indemnify all persons who, as of the consummation of the
Merger, are directors and officers of CSB Financial and its subsidiaries in
accordance with and subject to the requirements and other provisions of One
Valley's Articles of Incorporation and Bylaws in effect on the date of the
Merger Agreement.
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In connection with the Merger, the Savings Bank's Employee Stock
Ownership Plan and Trust (the "ESOP") would be terminated and all participant
accounts would be 100% vested and non-forfeitable. The termination of the ESOP
will require the ESOP trustee to use a certain portion of the proceeds received
from the exchange of shares of CSB Financial Common Stock pursuant to the Merger
Agreement to repay the related outstanding debt. Pursuant to the terms of the
ESOP, any amounts remaining after the repayment of the debt would be distributed
to the ESOP participants. It should be noted that in general a portion of these
amounts have already vested. A participant's accounts may be transferred to the
One Valley 401(k) plan or a participant's IRA account.
CSB Financial Common Stock awards previously awarded to persons under
the Savings Bank Recognition and Retention Plans for Directors, Officers and
Employees immediately vest in the event of a "change in control." For purposes
of such Plans, the Merger would constitute a "change in control." As of March 1,
1996, Mr. Johnson, the executive officers of the Savings Bank (5 persons) and
the non-executive officer directors of the Savings Bank (9 persons) would
receive 16,560, 25,120 and 12,696 shares of CSB Financial Common Stock,
respectively, due to acceleration of unvested awards pursuant to the Savings
Bank Recognition and Retention Plans. Based on the Exchange Ratio, One Valley
Common Stock to be received by the executive officers and directors due to
acceleration of unvested benefits would be 36,834 shares of One Valley Common
Stock in the aggregate.
Prior to the Closing Date, the Savings Bank will fully fund the its
retirement plan at an additional cost of approximately $240,000. At the Closing
Date, the Savings Bank's retirement plan will be either (i) terminated, (ii)
amended to cease all future accruals, or (iii) merged into the One Valley
Retirement Plan. Participants in the Savings Bank's retirement plan will be
entitled to their vested accrued benefit under that plan at the Closing Date
plus such additional vested accrued benefit to which they shall be entitled to
for years of service with the Savings Bank subsequent to the Closing under the
One Valley Retirement Plan.
Other than as described herein and under "-- Operations and Management
After the Merger," no director or officer of CSB Financial or One Valley has any
direct or indirect material interest in the Merger, except in the case of such
persons insofar as ownership of CSB Financial Common Stock might be deemed to
constitute an interest.
RESALES BY AFFILIATES
The shares of One Valley Common Stock issued to CSB Financial
shareholders upon consummation of the Merger have been registered under the
Securities Act, but such registration does not cover resales by affiliates of
CSB Financial ("Affiliates"). One Valley Common Stock received and beneficially
owned by those CSB Financial shareholders who are deemed to be Affiliates may be
resold without registration as provided for by Rule 145 under the Securities
Act, or as otherwise permitted. The term "Affiliate" is defined to include any
person who, directly or indirectly, controls, or is controlled by, or is under
common control with CSB Financial at the time the Merger Agreement is submitted
for approval by a vote of the holders of CSB Financial Common Stock. Generally,
this definition includes executive officers, directors and 10% shareholders of
CSB Financial. Each Affiliate who desires to resell One Valley Common Stock
received in the Merger must sell such One Valley Common Stock either (i)
pursuant to an effective registration statement under the Securities Act, (ii)
in accordance with the applicable provisions of Rule 145 under the Securities
Act or (iii) in a transaction which, in the opinion of counsel for such
Affiliate or as described in a "no-action" or interpretive letter from the staff
of the Securities and Exchange Commission, in each case reasonably satisfactory
in form and substance to One Valley, to the effect that such resale is exempt
from the registration requirements of the Securities Act.
Rule 145(d) requires that persons deemed to be Affiliates resell their
One Valley Common Stock pursuant to certain of the requirements of Rule 144
under the Securities Act if such One Valley Common Stock is sold within the
first two years after the receipt thereof. After two years, if such person is
not an affiliate of One Valley and One Valley is current in the filing of its
periodic securities law reports, a former Affiliate of CSB Financial may freely
resell the One Valley Common Stock received in the Merger without limitation.
After three years from the issuance of the One Valley Common Stock, if such
person is not an affiliate of One Valley at the time of sale or for at least
three months prior to such sale, such person may freely resell such One Valley
Common Stock, without limitation, regardless of the status of One Valley's
periodic securities law reports.
CSB Financial has agreed to provide One Valley with a list of those
persons who may be deemed Affiliates at the time of the CSB Financial Special
Meeting. The certificates of One Valley Common Stock issued to affiliates of CSB
Financial in the Merger may contain an appropriate restrictive legend, and
appropriate stop transfer orders may be given to the transfer agent for such
certificates.
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REGULATORY APPROVALS
Pursuant to Federal Reserve Board Regulation Y (12 C.F.R., Part 225),
One Valley must notify the Federal Reserve Board of the Merger at least thirty
days prior to consummation. During this thirty-day period, the Federal Reserve
Board may approve the notice, refer the notice to the Federal Reserve Board or
extend the time period under certain circumstances.
An application seeking approval of the Merger was filed with the OTS on
February 15, 1996 and a notice of the Merger was filed with the Federal Reserve
Board on March 14, 1996. Also, on February 23, 1996, One Valley filed an
application seeking approval with the Virginia Bureau of Financial Institutions.
The Merger cannot proceed in the absence of the requisite regulatory
approvals. There can be no assurance that such regulatory approvals will be
obtained, and, if the Merger is approved, there can be no assurance as to the
date of any such approvals. There can also be no assurance that any such
approvals will not contain a condition or requirement which causes such
approvals to fail to satisfy the conditions set forth in the Merger Agreement
and described below under "-- Termination." There can likewise be no assurance
that the U.S. Department of Justice or a state Attorney General will not
challenge the Merger or, if such a challenge is made, as to the result thereof.
EFFECT OF THE MERGER ON SHAREHOLDERS' RIGHTS
GENERAL
Although One Valley is a West Virginia corporation and CSB Financial is
a Delaware corporation, the respective rights of their shareholders with regard
to such rights as voting rights, dividend rights, liquidation rights, preemptive
rights and dissenters rights are similar. However, under West Virginia law, One
Valley shareholders have cumulative voting rights with regard to the election of
directors whereas CSB Financial shareholders do not have cumulative voting
rights. Cumulative voting means the right to vote, in person or by proxy, the
number of shares owned by the stockholder for as many persons as there are
directors to be elected and for whose election the stockholder has a right to
vote, or to cumulate votes by giving one candidate as many votes as the number
of shares owned multiplied by the number of such directors to be elected, or by
distributing such votes on the same principle among any number of candidates.
One Valley shareholders and CSB Financial shareholders do not have conversion
rights.
One Valley relies primarily on the ability of its subsidiaries to pay
dividends to One Valley in order for it, in turn, to pay dividends to One Valley
shareholders. The dividends payable by One Valley's banking subsidiaries are
dependent upon their earnings and profitability and must be in compliance with
certain federal and state banking law requirements. Following consummation of
the proposed Merger, dividends received by One Valley's shareholders will
continue to be dependent upon the payment of dividends by its banking
subsidiaries.
In the case of One Valley and CSB Financial , preemptive rights do not
exist, and the Board of Directors of each has the authority to issue additional
shares without first obtaining the approval of existing shareholders and without
first offering newly issued shares to existing shareholders for purchase.
Following the proposed Merger, One Valley Common Stock will continue to be
available for issuance by the Board of Directors when and as it determines
advisable for the purpose of raising capital, in acquiring other businesses and
for other appropriate purposes.
Under West Virginia Code Sections 31-1-122 and 31-1-123, shareholders
of One Valley possess dissenters' rights in connection with certain
transactions, which are substantially similar to CSB Financial's appraisal
rights under Delaware law.
ANTITAKEOVER PROVISIONS IN ONE VALLEY'S ARTICLES AND BYLAWS
In 1986, One Valley's shareholders adopted certain amendments to One
Valley's Articles of Incorporation (the "Articles") and Bylaws which are
intended to ensure that a party seeking control of One Valley will discuss its
proposal with One Valley's Board of Directors. These amendments are discussed
below.
CLASSIFICATION OF THE BOARD OF DIRECTORS. Article V.1(a) of the
Articles permits the Board to fix the number of Directors from time to time
pursuant to the Bylaws and provides that the Board will be divided into three
classes of directors, each class to be as nearly equal in number of directors as
possible. This provision has the effect of making it more difficult and
time-consuming for a shareholder who has acquired or controls a majority of One
Valley's outstanding common stock to gain immediate control of the Board of
Directors or otherwise disrupt the management of One Valley. Unless that
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shareholder can gain the 80% vote required to amend the provisions regarding
classifications or number of directors or to remove directors, it would not be
possible for that shareholder to elect a majority of the directors at a single
meeting of shareholders. Accordingly, it takes at least two annual meetings to
change the composition of a majority of the Board of Directors.
This provision has the effect of making it more difficult for a
shareholder to elect a director pursuant to the exercise of his cumulative
voting rights. However, the Board believes that the benefits to One Valley and
its shareholders of encouraging prior consultation and negotiation outweigh the
disadvantages of discouraging any such proposals.
NOMINATIONS OF DIRECTORS. Article V.1(b) of the Articles provides that
nominations for the election of directors must be made as provided in the
Bylaws. Article III of the Bylaws provides the manner in which nominations for
the election of directors may be made by a shareholder. Article V.1(b) requires
the affirmative vote of over 80% of the voting power of One Valley to repeal or
amend this provision regarding shareholder nominations.
The advance notice requirement, by regulating shareholder nominations
of Directors, affords the Board of Directors the opportunity to consider the
qualifications of the proposed nominees and, to the extent deemed necessary or
desirable by the Board, to inform shareholders about these qualifications.
Although this provision does not give the Board of Directors any power to
approve or disapprove shareholder nominations for election of directors, it may
have the effect of precluding a contest for the election of directors if the
procedures established are not followed and may discourage a third party from
conducting a solicitation of proxies to elect its own slate of directors.
NEWLY-CREATED DIRECTORSHIPS AND VACANCIES. Article V.1(c) of the
Articles and Section 9, Article III, of the Bylaws provide that a vacancy on the
Board occurring during the course of the year, including a vacancy created by an
increase in the number of directors, will be filled by the remaining directors.
They further provide that any new director elected to fill a vacancy on the
Board resulting from death, resignation, disqualification, removal or other
cause will serve for the remainder of the full term of the class (each class
having staggered 3-year terms) in which the vacancy occurred rather than until
the next annual meeting of shareholders. However, in accordance with West
Virginia law, the amendments provide that those directors elected to fill a
vacancy resulting from an increase in the number of directors will hold office
only until the next election of directors. It also provides that no decrease in
the number of directors will shorten the term of any incumbent.
The provision that newly-created directorships are to be filled by the
Board could prevent a third party seeking majority representation on the Board
of Directors from obtaining such representation simply by enlarging the Board
and immediately filling the new directorships created with its own nominees.
However, these new directors elected by the Board would only serve until the
next meeting of shareholders under West Virginia law.
REMOVAL OF DIRECTORS. Article V.1(d) and Section 13, Article III of the
Bylaws provide that a director may be removed, with or without cause, by the
affirmative vote of the holders of at least 80% of the voting power of the
shares entitled to vote generally in the election of directors. These provisions
preclude a third party from removing incumbent directors and simultaneously
gaining control of the Board by filling the vacancies created by removal with
its own nominees unless the third party controls 80% of the voting power of the
voting stock and can amend provisions of the Bylaws and the Articles.
INCREASED SHAREHOLDER AND DIRECTOR VOTE FOR ALTERATION, AMENDMENT OR
REPEAL OF PROPOSED AMENDMENTS. Article V.1(e) of the Articles requires the
concurrence of the holders of at least 80% of the voting power of One Valley
entitled to vote generally in the election of directors for the alteration,
amendment or repeal of, or the adoption of any provision inconsistent with, all
of the foregoing provisions to the Articles and Bylaws. Under West Virginia
corporation law, amendments to the Articles of One Valley require the approval
of the holders of more than one-half of the outstanding stock entitled to vote
thereon and of more than one-half of the outstanding stock of each class
entitled to vote thereon voting as a class. However, West Virginia corporation
law also permits provisions in the Articles which require a greater vote than
the minimum vote otherwise required by law for any corporate action. In
addition, under Article V.2 of the Articles, none of the Bylaw provisions
discussed above relating to the Articles may be altered, amended or repealed,
nor may any provision inconsistent with those provisions be adopted, without the
concurrence of the holders at least 80% of the voting power of One Valley.
The requirement of an increased shareholder vote is designed to prevent
a shareholder with a majority of the voting power of One Valley from avoiding
the requirements of the foregoing provisions by simply repealing them.
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NOTIFICATION OF SHAREHOLDER BUSINESS AND NOTICE OF PURPOSE OF ANNUAL
MEETING. Article II, Section 1 of One Valley's Bylaws provides that a
shareholder who wishes to bring business before an annual meeting of
shareholders must give advance notification in a manner similar to that required
for shareholder nominations for election of directors. Shareholders intending to
bring business before an annual meeting are required to deliver or mail notice
not less than 40 days prior to the meeting, unless less than 50 days' notice or
prior disclosure of the date of the meeting is made in which case the notice
must be received not later than the close of business on the 8th day following
the day on which notice of the date of the annual meeting was mailed or public
disclosure was made. The notice must be sent to the secretary and must set forth
a brief description of the business to be brought before the annual meeting, the
reasons for conducting the business at the annual meeting, the name, address,
number and class of shares held by the shareholder, and any material interest of
the shareholder in the proposal.
The advance notice requirement affords the Board of Directors the
opportunity to consider the shareholder's proposal and, to the extent deemed
necessary or desirable by the Board, inform other shareholders about the
proposal and the Board's position with respect to the proposal. Although the
Bylaw provision does not give the Board the power to approve or disapprove the
consideration of a matter which a shareholder wishes to bring before the Annual
Meeting, the Bylaw provision may discourage a shareholder from bringing a matter
before an Annual Meeting.
In addition, Section 4, Article II of the Bylaws requires that written
notice of all meetings and the purpose or purposes for which a meeting is to be
called must be delivered not less than ten nor more than 50 days before the date
of the meeting by those persons calling the meeting to each shareholder of
record entitled to vote the meeting.
LIMITATIONS ON AMENDMENTS TO BYLAWS. Generally, the Articles can be
amended by a majority vote of the shareholders, however, the following articles
all require the affirmative vote of the shareholders of 80% or more of the
shares entitled to vote on such matters: (i) Article V.1 (board of directors);
(ii) Article V.2 (certain bylaw amendments, including Article II, Sections 1
(annual meetings), 4 (notice of meetings), and 13 (board of director
nominations); Article III, Sections 2 (number, election and terms of directors;
nominations), 9 (newly created directorships), and 13 (removal); and Article XI
(amendments); and (iii) Article VI (certain business combinations.) Article XI
of the Bylaws provides that subject to the laws of the State of West Virginia,
the Articles and other provisions of the Bylaws, the Bylaws may be altered,
amended or repealed at (1) any regular or special meeting for the shareholders
by a majority vote of the shares represented and entitled to vote at the meeting
provided notice of the proposed amendment is given; or by (2) a majority of the
Board at any meeting at which a quorum of the Directors are present except that
a two-thirds affirmative vote of all members of the Board is required to amend
the Bylaws to change the principal office, change the number of directors,
change the number of directors on the Executive Committee or make a substantial
change in the duties of the Chairman of the Board and the President.
The purpose of Article XI of the Bylaws is to prohibit directors who
only control a simple majority of the Board from amending or repealing those
Bylaws which could have significant effects on the operation of One Valley.
FAIR PRICE AMENDMENT. In 1986, the shareholders of One Valley also
approved a "Fair Price Amendment" concerning business combinations, such as
mergers or consolidations. The Fair Price Amendment requires the approval of the
holders of 80%, or a "super majority," of the shares of One Valley then entitled
to vote ("Voting Stock") as a condition to specified transactions with an
Interested Shareholder, except in cases in which either (i) certain price
criteria and procedural requirements are satisfied or (ii) the transaction is
recommended to the shareholders by a majority of the Disinterested Directors. In
the event the minimum price criteria and procedural requirements have been met
or the requisite approval of the Board of Directors of One Valley has been given
with respect to a particular business combination, the normal requirements of
West Virginia law would apply.
An "Interested Shareholder" is defined in the Fair Price Amendment as
any person, other than One Valley or any of its subsidiaries, who is, or who was
within the two-year period immediately before the announcement of the proposed
business combination, the Beneficial Owner of more than 10% of the voting power
of One Valley's Voting Stock. It also includes any person who is an assignee of,
or has succeeded to, any shares of Voting Stock in a transaction not involving a
public offering which were at any time within the prior two-year period
beneficially owned by Interested Shareholders. The term "Beneficial Owner"
includes persons directly or indirectly owning or having the right to acquire or
vote the stock. At present, One Valley is not aware of the existence of any
shareholder or group of shareholders who would be "Interested Shareholders"
except for those persons listed under "Principal Holders of Voting Securities."
A "Disinterested Director" is any member of the Board of Directors of
One Valley who is not affiliated with an Interested Shareholder and who was a
director of One Valley prior to the time the Interested Shareholder became an
Interested Shareholder, and any successor to such Disinterested Director who is
not affiliated with an Interested Shareholder
27
<PAGE>
who was recommended by a majority of the Disinterested Directors then on the
Board. The Merger is not subject to the Fair Price Amendment.
SHAREHOLDER PROTECTION RIGHTS PLAN
On October 18, 1995, the Board of Directors of One Valley approved a
Shareholder Protection Rights Plan, which provides that each share of One Valley
Common Stock, including shares to be issued in the Merger, carries with it one
right under certain circumstances, to acquire shares of One Valley Common Stock
("Right"). The Rights are not currently exercisable or transferable, and no
separate certificates evidencing such Rights have been or will be distributed,
unless certain events occur. The Rights currently attached to the shares of One
Valley Common Stock will expire on October 18, 2005. The Rights are generally
excercisable if a person or group, as defined, acquired 10% or more of One
Valley Common Stock, or after a person commences a tender offer for such stock.
If a person or group acquires 10% or more of One Valley Common Stock, holders of
the rights, other than the 10% holder, could acquire shares of One Valley's
Common Stock at a substantially reduced price or the Board of Directors could
exchange each such right for one share of One Valley Common Stock. In addition,
under certain circumstances, holders of Rights could acquire shares of the 10%
holder at a substantially reduced price.
ANTITAKEOVER PROVISIONS IN CSB FINANCIAL 'S CERTIFICATE OF INCORPORATION AND
BYLAWS.
CSB Financial's Certificate of Incorporation and Bylaws also contain
certain provisions designed to ensure that a party seeking control of CSB
Financial will discuss any proposal with its Board of Directors. These
provisions are discussed below.
LIMITATIONS ON VOTING RIGHTS. The Certificate of Incorporation of CSB
Financial provides that in no event shall any record owner of any outstanding
Common Stock which is beneficially owned, directly or indirectly, by a person
who beneficially owns in excess of 10% of the then outstanding shares of Common
Stock (the "Limit") be entitled or permitted to any vote in respect of the
shares held in excess of the Limit. Beneficial ownership is determined pursuant
to Rule 13d-3 of the general rules and regulations promulgated pursuant to the
Securities Exchange Act of 1934, and includes shares beneficially owned by such
person or any of his or her affiliates (as defined in the Certificate of
Incorporation), shares which such person or their affiliates have the right to
acquire upon the exercise of conversion rights or options, and shares as to
which such person and his or her affiliates have or share investment or voting
power, but do not include shares beneficially owned by directors, officers and
employees of the Savings Bank or CSB Financial or shares that are subject to a
revocable proxy and that are not otherwise beneficially owned, or deemed by CSB
Financial to be beneficially owned, by such person and his or her affiliates.
The Certificate of Incorporation of CSB Financial further provides that this
provision limiting voting rights may only be amended upon the vote of 80% of the
outstanding shares of voting stock.
DIRECTORS. Certain provisions of CSB Financial's Certificate of
Incorporation and Bylaws impede changes in majority control of the Board of
Directors. CSB Financial's Certificate of Incorporation provides that the Board
of Directors of CSB Financial be divided into three classes, with directors in
each class elected for three-year staggered terms. Thus, it takes two annual
elections to replace a majority of CSB Financial's Board. CSB Financial's
Certificate of Incorporation provides that the size of the Board of Directors
may be increased or decreased by a majority vote of the directors then in
office. The Certificate of Incorporation also provides that any vacancy
occurring in the Board of Directors, including a vacancy created by an increase
in the number of directors, must be filled for the remainder of the unexpired
term by a majority vote of the directors then in office.
The Certificate of Incorporation provides that directors may only be
removed for cause by the affirmative vote of 80% of the shares eligible to vote.
RESTRICTIONS ON CALL OF SPECIAL MEETINGS. The Certificate of
Incorporation of CSB Financial provides that a special meeting of shareholders
may be called only pursuant to a resolution adopted by a majority of the Board
of Directors. Shareholders are not authorized to call a special meeting. The
Certificate of Incorporation also provides that any action required as permitted
to be taken by the Shareholders may be taken only at an annual or special
meeting and prohibits shareholder action by written consent in lieu of a
meeting.
ABSENCE OF CUMULATIVE VOTING. CSB Financial's Certificate of
Incorporation provides that there shall be no cumulative voting rights in the
election of directors.
28
<PAGE>
AUTHORIZATION OF PREFERRED STOCK. The Certificate of Incorporation of
CSB Financial authorizes 500,000 shares of serial preferred stock, $.01 par
value per share. CSB Financial is authorized to issue preferred stock from time
to time in one or more series subject to applicable provisions of law, and the
Board of Directors is authorized to fix the designations, powers, preferences
and relative participating, optional and other special rights of such shares,
including voting rights (which could be multiple or as a separate class) and
conversion rights. In the event of a proposed merger, tender offer or other
attempt to gain control of CSB Financial that the Board of Directors does not
approve, it might be possible for the Board of Directors to authorize the
issuance of a series of preferred stock with rights and preferences that would
impede the completion of such a transaction. An effect of the possible issuance
of preferred stock, therefore, may be to deter a future takeover attempt. No
shares of preferred stock have been issued, and the Board of Directors has no
present plans or understanding for the issuance of any preferred stock and does
not intend to issue any preferred stock except on terms which the Board deems to
be in the best interests of CSB Financial and its shareholders.
STOCKHOLDER VOTE REQUIRED TO APPROVE BUSINESS COMBINATIONS WITH
PRINCIPAL STOCKHOLDERS. The Certificate of Incorporation requires the approval
of the holders of at least 80% of CSB Financial's outstanding shares of voting
stock to approve certain "Business Combinations," as defined therein, and
related transactions. Under Delaware law, absent this provision, business
combinations, including mergers, consolidations and sales of substantially all
of the assets of a corporation must, subject to certain exceptions, be approved
by the vote of the holders of only a majority of the outstanding shares of
common stock of CSB Financial and any other affected class of stock. Under the
Certificate of Incorporation, the approval of at least 80% of the outstanding
voting stock is required in connection with any Business Combination (as
defined) involving an Interested Stockholder (as defined below) except (i) in
cases where the proposed transaction has been approved in advance by a majority
of those members of CSB Financial's Board of Directors who are unaffiliated with
the Interested Stockholders and were directors prior to the time when the
Interested Stockholder became an Interested Stockholder or (ii) if the proposed
transaction meets certain conditions set forth therein which are designed to
afford the shareholders a fair price in consideration for their shares in which
cases where a vote of stockholders is required, the approval of a majority of
the outstanding shares of voting stock is sufficient. The term "Interested
Stockholder" is defined to include any individual, corporation, partnership or
other entity (other than CSB Financial or its subsidiary) which owns
beneficially or controls, directly or indirectly, 10% or more of outstanding
shares of voting stock of CSB Financial. This provision of the Certificate of
Incorporation applies to any "Business Combination," which is defined to
include: (i) any merger or consolidation of CSB Financial or any of its
subsidiaries with or into any Interested Stockholder or Affiliate (as defined in
the Certificate of Incorporation) of an Interested Stockholder; (ii) any sale,
lease, exchange, mortgage, transfer, or other disposition with any Interested
Stockholder or Affiliate of 25% or more of the assets of CSB Financial or
combined assets of CSB Financial and its subsidiaries; (iii) the issuance or
transfer to any Interested Stockholder or its Affiliate by CSB Financial (or any
of its subsidiaries) of any securities of CSB Financial in exchange for any
assets, cash or securities the value of which equals or exceeds 25% of the fair
market value of the common stock of CSB Financial; (iv) the adoption of any plan
for the liquidation or dissolution of CSB Financial proposed by or on behalf of
any Interested Stockholder or Affiliate thereof; and (v) any reclassification of
securities, recapitalization, merger or consolidation of CSB Financial which has
the effect of increasing the proportionate share of Common Stock or any class of
equity or convertible securities of CSB Financial owned directly or indirectly,
by an Interested Stockholder or Affiliate thereof.
EVALUATION OF OFFERS. The Certificate of Incorporation of CSB Financial
further provides that the Board of Directors of CSB Financial, when evaluating
any offer of another "Person", as defined therein, to: (i) make a tender or
exchange offer for any equity security of CSB Financial; (ii) merge or
consolidate CSB Financial with another corporation or entity; or (iii) purchase
or otherwise acquire all or substantially all of the properties and assets of
the Holding Company, may, in connection with the exercise of its judgment in
determining what is in the best interest of CSB Financial, the Savings Bank and
the stockholders of CSB Financial, give due consideration to all relevant
factors, including, without limitation, the social and economic effects of
acceptance of such offer on CSB Financial customers and the Savings Bank's
present and future account holders, borrowers and employees; on the communities
in which CSB Financial and the Savings Bank operate or are located; and on the
ability of CSB Financial to fulfill its corporate objectives as a savings and
loan holding company and on the ability of the Savings Bank to fulfill the
objectives of a federally chartered stock savings association under applicable
statutes and regulations. By having these standards in the Certificate of
Incorporation of CSB Financial, the Board of Directors may be in a stronger
position to oppose such a transaction if the Board concludes that the
transaction would not be in the best interests of CSB Financial, even if the
price offered is significantly greater than the then market price of any equity
security of CSB Financial.
AMENDMENT OF CERTIFICATE OF INCORPORATION AND BYLAWS. Amendments to CSB
Financial's Certificate of Incorporation must be approved by a majority vote of
its Board of Directors and also by a majority of the outstanding shares of its
voting stock, provided, however, that an affirmative vote of at least 80% of the
outstanding voting stock entitled to vote (after giving effect to provision
limiting voting rights) is required to amend or repeal certain provisions of the
certificate of incorporation, including the provision limiting voting rights,
the provisions relating to approval of certain business combinations, calling
special meetings, the number and classification of directors, director and
officer indemnification by
29
<PAGE>
CSB Financial and amendment of CSB Financial's bylaws and certificate of
incorporation. CSB Financial's bylaws may be amended by its Board of Directors,
or by a vote of 80% of the total votes eligible to be voted at a duly
constituted meeting of stockholders.
CERTAIN BYLAW PROVISIONS. The bylaws of CSB Financial also require a
stockholder who intends to nominate a candidate for election to the Board of
Directors, or to raise new business at a stockholder meeting to give at least 90
days' advance notice to the Secretary of CSB Financial. The notice provision
requires a stockholder who desires to raise new business to provide certain
information to CSB Financial concerning the nature of the new business, the
stockholder and the stockholder's interest in the business matter. Similarly a
stockholder wishing to nominate any person for election as a director must
provide CSB Financial with certain information concerning the nominee and the
proposing stockholder.
OTHER RESTRICTIONS ON ACQUISITIONS OF CSB FINANCIAL COMMON STOCK
DELAWARE ANTI-TAKEOVER STATUTE. The State of Delaware has enacted
legislation which provides that subject to certain exceptions, a publicly-held
Delaware corporation may not engage in any business combination with an
"interested stockholder" for three years after such stockholder became an
interested stockholder, unless, among other things, the interested stockholder
acquires at least 85% of the corporation's voting stock in the transaction that
resulted in the stockholder becoming an interested stockholder. This legislation
generally defines "interested stockholder" as any person or entity that owns 15%
or more of the corporation's voting stock. The term "business combination" is
defined broadly to cover a wide range of corporate transactions, including
mergers, sale of assets, issuance of stock, transactions with subsidiaries and
the receipt of disproportionate financial benefits. Under certain circumstances,
either the Board of Directors or both the Board and two-thirds of the
shareholders other than the acquirer may approve a given business combination
and thereby exempt the corporation from the operation of the statute.
FEDERAL REGULATION. For three years following conversion, OTS
regulations prohibit any person, without the prior approval of the OTS from
acquiring or making an offer to acquire more than 10% of the stock of any
converted savings institution if such person, is, or after consummation of such
acquisition would be, the beneficial owner of more than 10% of such stock. In
the event that person, directly or indirectly, violates this regulation, the
securities beneficially owned by such person in excess of 10% shall not be
counted as shares entitled to vote and shall not be voted by any person or
counted as voting shares in connection with any matter submitted to a vote of
shareholders.
Federal regulations require that, prior to obtaining control of an
insured institution, a person, other than a company, must give 60 days' notice
to the OTS and have received no OTS objection to such acquisition of control,
and a company must apply for and receive OTS approval of the acquisition.
Control, as defined under federal law, involves a 25% voting stock test, control
in any manner of the election of a majority of the institution's directors, or a
determination by the OTS that the acquirer has the power to direct, or directly
or indirectly to exercise a controlling influence over, the management or
policies of the institution. Acquisition of more than 10% of an institution's
voting stock, if the acquirer also is subject to any one of either "control
factors," constitutes a rebuttable determination of control under the
regulations. The determination of control may be rebutted by submission to the
OTS, prior to the acquisition of stock or the occurrence of any other
circumstances giving rise to such determination, of a statement setting forth
facts and circumstances which would support a finding that no control
relationship will exist and containing certain undertakings. The regulations
provide that persons or companies which acquire beneficial ownership exceeding
10% or more of any class of a savings association's stock after the effective
date of the regulations must file with the OTS a certification that the holder
is not in control of such institution, is not subject to a rebuttable
determination of control and will take no action which would result in a
determination or rebuttable determination of control without prior notice or
approval of the OTS, as applicable.
30
<PAGE>
HISTORICAL COMPARATIVE STOCK PRICES AND DIVIDENDS
ONE VALLEY
One Valley Common Stock is traded on the Nasdaq National Market under
the symbol "OVWV." At March 1, 1996, there were approximately 5,000 holders of
record of One Valley's Common Stock. The following table sets forth the price
range and the cash dividends paid per share for the periods indicated below.
<TABLE>
<CAPTION>
CASH
PRICE RANGE DIVIDENDS
HIGH LOW PAID PER SHARE
<S> <C> <C> <C>
Fiscal 1994
First Quarter $28.50 $24.75 $0.22
Second Quarter 29.00 24.25 0.22
Third Quarter 29.75 27.75 0.25
Fourth Quarter 30.25 28.00 0.25
Fiscal 1995
First Quarter $31.00 $28.00 $0.25
Second Quarter 31.13 28.75 0.25
Third Quarter 33.50 30.50 0.27
Fourth Quarter 34.63 31.13 0.27
Fiscal 1996
First Quarter (through February 29, 1996) $32.50 $30.88 $ --
</TABLE>
On March 1, 1996, the average of the closing bid and ask prices of One
Valley's Common Stock on the Nasdaq National Market was $32.63 per share. On
January 25, 1995, the day prior to the public announcement of the Merger, the
average of the closing bid and ask prices of One Valley's Common Stock on the
Nasdaq National Market was $32.38 per share.
One Valley has historically paid dividends on a quarterly basis and
currently intends to continue to pay such dividends in the foreseeable future.
One Valley's ability to pay dividends depends upon dividends One Valley receives
from its banking subsidiaries. Dividends paid by One Valley's banking
subsidiaries are subject to restrictions by banking regulations. The most
restrictive provision requires regulatory approval if dividends in any year
exceed the year's retained net profits, as defined, plus the retained net
profits of the two preceding years.
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<PAGE>
CSB FINANCIAL
CSB Financial's Common Stock trades on the Nasdaq National Market under
the symbol "COSB." The following table sets forth the price range and the cash
dividends paid per share for the periods indicated below since the Common Stock
began trading on September 28, 1993.
<TABLE>
<CAPTION>
CASH
PRICE RANGE DIVIDENDS
HIGH LOW PAID PER SHARE
<S> <C> <C> <C>
Fiscal 1994
First Quarter $13.25 $12.50 $ N/A
Second Quarter 13.87 11.50 0.075
Third Quarter 13.25 11.87 0.075
Fourth Quarter 14.25 11.50 0.075
Fiscal 1995
First Quarter $16.25 $13.50 $0.075
Second Quarter 15.00 12.25 0.075
Third Quarter 15.00 13.00 0.075
Fourth Quarter 17.25 14.25 0.100
Fiscal 1996
First Quarter $18.50 $14.00 $0.10
Second Quarter 18.25 16.25 0.10
Third Quarter (through February 29, 1996) 21.25 17.00 --
</TABLE>
As of March 1, 1996, CSB Financial had approximately 1,900 shareholders
of record.
32
<PAGE>
CSB FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
AT OR FOR THE SIX MONTHS ENDED DECEMBER 31, 1995 AND DECEMBER 31, 1994
GENERAL
CSB Financial is the holding company for the Savings Bank and CSB
Financial's consolidated results of operations are primarily the same as those
of the Savings Bank. The Savings Bank is a community-oriented financial
institution headquartered in Lynchburg, Virginia, and currently operates ten
retail banking offices servicing central and southside Virginia. The Savings
Bank is principally engaged in the business of attracting retail deposits from
the general public and investing those funds in investment securities, mortgage
loans and mortgage-backed securities, secured primarily by one-to-four family
residential real estate and commercial and consumer loans. During the periods of
sustained low interest rates, the Savings Bank sells loans into the secondary
mortgage market to avoid retaining long-term fixed rate loans in the portfolio.
Deposits of the Savings Bank are insured up to the applicable limits of the
Savings Association Insurance Fund ("SAIF"), currently administered by the
Federal Deposit Insurance Corporation ("FDIC"). The Savings Bank is subject to
regulation by the OTS and the FDIC. The Savings Bank files periodic reports with
the OTS regarding its activities and financial condition, and is subject to
periodic examination by both the OTS and FDIC. The most recent examination
conducted by the OTS was completed in August, 1995.
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements of CSB Financial and notes
thereto, presented elsewhere herein, have been prepared in accordance with GAAP,
which require the measurement of financial position and operating results in
terms of historical dollars without considering the change in the relative
purchasing power of money over time due to inflation. The impact of inflation is
reflected in the increased cost of CSB Financial's operations. Unlike most
industrial companies, nearly all the assets and liabilities of CSB Financial are
financial. As a result, interest rates have a greater impact on CSB Financial's
performance than do the effects of general levels of inflation. Interest rates
do not necessarily move in the same direction or to the same extent as the
prices of goods and services.
POTENTIAL ONE-TIME ASSESSMENT
The FDIC charges an annual assessment for the insurance deposits based
on the risk that a particular institution poses to its deposit insurance fund.
Under this risk-based system, a thrift pays within a range of 23 cents to 31
cents per $100 of domestic deposits, depending upon the institution's risk
classification. This risk classification is based on an institution's capital
group and supervisory subgroup assignment as determined by the FDIC. In
addition, the FDIC is authorized to increase such deposit insurance rates, on a
semi-annual basis, if it determines that such action is necessary to cause the
balance in the SAIF to reach the designated reserve ratio of 1.25% of
SAIF-insured deposits within a reasonable period of time. Pending legislation
would impose an assessment of approximately 85 basis points on all SAIF-insured
deposits as of March 31, 1995, in order to recapitalize the SAIF Fund to the
designated reserve ratio of 1.25% of its insured deposits. This assessment, if
enacted, would cost the Savings Bank approximately $1.5 million after taxes.
Furthermore, due to the disparity between deposit insurance premiums
paid by members of the SAIF (such as the Savings Bank), and members of the Bank
Insurance Fund ("BIF") (e.g., most commercial banks), the Savings Bank may be at
a competitive disadvantage as a result of it being required to pay higher
premiums as a member of the SAIF.
LIQUIDITY/CAPITAL RESOURCES
The Savings Bank's primary sources of funds are deposits, proceeds from
principal and interest payments on loans and mortgage-backed securities,
borrowings from the Federal Home Loan Bank of Atlanta ("FHLB"), and the sale of
loans. While maturities and scheduled amortization of loans and mortgage-backed
securities are a predictable source of funds, deposit flows and mortgage
prepayments are greatly influenced by interest rate cycles and economic
conditions.
The Savings Bank is required by regulation to maintain specific minimum
levels of liquid investments. Regulations currently in effect require the
Savings Bank to maintain liquid assets at least equal to 5.0% of the sum of its
average daily
33
<PAGE>
balance of net withdrawable accounts and short-term borrowed funds. This
regulatory requirement may be changed from time to time by the OTS to reflect
current economic conditions and deposit flows. The Savings Bank's average
liquidity ratio was 23.15% for the quarter ended December 31, 1995.
The Savings Bank's most liquid assets are cash, cash equivalents and
other investment securities, which include investments in highly liquid,
short-term investments, federal funds and interest-bearing deposits. The levels
of these assets are dependent on the Savings Bank's operating, financing,
lending and investing activities during any given period. At December 31, 1995,
the amount available for regulatory liquidity totaled $57.6 million.
Liquidity management for the Savings Bank is both a daily and long-term
function of the Savings Bank's management strategy. Excess funds are generally
invested in short-term investments such as federal funds. In the event that the
Savings Bank should require funds beyond its ability to generate them
internally, additional sources of funds are available through the use of FHLB
advances. At December 31, 1995, FHLB advances totaled $26.9 million.
The Savings Bank's cash flows are comprised of three classifications:
cash flows from operating activities, cash flows from investing activities and
cash flows from financing activities. A consolidated statement of cash flows for
the six month period ended December 31, 1995, is included in the quarterly
financial statements. This statement shows the net cash provided or used by each
of the activities in which CSB Financial and the Savings Bank are engaged. At
December 31, 1995, the Savings Bank had outstanding commitments to originate
loans of $9.2 million. The Savings Bank anticipates that it will have sufficient
funds available to meet its current loan commitments.
The Savings Bank's Tangible and Leverage capital ratio at December 31,
1995, was 10.6%. This exceeded the Tangible capital requirement of 1.5% of
adjusted assets and the Leverage capital requirement of 3.0% of adjusted assets
by $28.8 million and $24.0 million, respectively. The Savings Bank's Risk-based
capital ratio was 22.4% at December 31, 1995. The Savings Bank currently exceeds
the Risk-based capital requirement of 8.0% of Risk-weighted assets by $22.0
million.
CHANGES IN FINANCIAL CONDITION
CSB Financial reported total assets of $328.9 million at December 31,
1995, an increase of $23.1 million, or 7.5% from $305.8 million at June 30,
1995.
Cash and cash equivalents increased $5.3 million, or 74.3%, to $12.5
million at December 31, 1995, from $7.2 million at June 30, 1995. Marketable
equity securities decreased $1.2 million, or 2.4%, to $46.9 million at December
31, 1995 from $48.1 million at June 30, 1995. Investment securities increased
$2.6 million or 3.9%, from $68.2 million at June 30, 1995 to $70.8 million at
December 31, 1995. Mortgage backed securities also increased by $3.9 million, or
14.1%, from $27.7 million at June 30, 1995 to $31.6 million at December 31,
1995.
Total loans, including loans held for sale, increased $12.8 million, or
8.9%, from $144.1 million at June 30, 1995 to $156.9 million at December 31,
1995. The allowance for credit losses totaled $756,000 at December 31, 1995,
resulting in a ratio of allowance for credit losses to net portfolio loans of
0.5%, the same ratio that the Savings Bank had at June 30, 1995. In addition,
there were no substantial changes between the levels of past due ($405,000) and
classified assets ($1.5 million) during the six month period between June and
December 1995.
Deposits increased $9.1 million, or 3.8%, from $244.1 million at June
30, 1995 to $253.2 million at December 31, 1995. Advances and other borrowings
increased $12.4 million, or 85.6%, to $26.9 million at December 31, 1995 from
$14.5 million at June 30, 1995. During the six month period between June and
December 1995, the Savings Bank used borrowed funds primarily to fund the
purchase investment and mortgage backed securities classified as available for
sale.
Stockholders' equity increased $2.0 million, or 4.6%, from $45.1 million at
June 30, 1995 to $47.1 million at December 31, 1995. The primary reason for this
increase was the change in the net unrealized gain (loss) on assets held as
available for sale in accordance with the Financial Accounting Standard Board
pronouncement which totaled $1.3 million. Net income of $960,000 for the six
month period ended December 31, 1995 was responsible for the remainder of this
increase. CSB Financial paid dividends during the first two quarters of fiscal
1996 of $0.10 per share of common stock totaling $482,000. Other stockholder's
equity activity during the six month period between June and December 1995
included the expense amortization of the RRP and ESOP shares and the exercise of
stock options.
34
<PAGE>
ASSET QUALITY
NON-PERFORMING ASSETS
The following table sets forth information as to non-accrual loans and
real estate owned at the dates indicated. The Savings Bank currently reviews all
loans ninety days or more past due to determine whether the accrued interest on
those loans is collectible. There were no impaired loans during the six months
ended December 31, 1995, within the meaning of FASB Statements 114 and 118.
<TABLE>
<CAPTION>
QUARTERS ENDED
December 31, September 30, June 30, March 31, December 31,
(Dollars in thousands) 1995 1995 1995 1995 1994
<S> <C> <C> <C> <C> <C>
Non-accrual loans
90 days or more past due $1,046 $1,046 $1,502 $ 0 $ 15
Loans 90 days or more delinquent
and still accruing 405 266 365 369 398
Total non-performing loans $1,451 $1,312 $1,867 $ 369 $ 413
Total foreclosed real estate -- 66 -- 411 411
Total non-performing assets 1,451 1,378 1,867 780 824
Total non-performing loans
to total loans 0.92% 0.92% 1.29% 0.28% 0.31%
Total non-performing assets
to total assets 0.44 0.44 0.61 0.26 0.28
</TABLE>
The Savings Bank's most significant non-performing asset is a
participating interest of $1.0 million in a mortgage loan on a shopping center
located in the city of Bedford, Virginia. The loan is presently the subject of a
loan workout agreement which management anticipates will result in the Savings
Bank's recovery of its investment.
CLASSIFICATION OF ASSETS
The Savings Bank regularly reviews the assets in its portfolio to
determine whether any assets require classification in accordance with
applicable regulations.
As of December 31, 1995, the Savings Bank had assets of $1.5 million
classified as "substandard" and $6,500 classified as "loss." Included in these
classified assets is the shopping center loan previously discussed totaling $1.0
million. The remaining $500,000 "substandard" assets are primarily
owner-occupied, single-family dwellings which were delinquent 90 days or more at
December 31, 1995, or had a pattern of chronic delinquency or a well defined
collateral weakness.
ANALYSIS OF NET INTEREST INCOME
Net interest income represents the difference between income on
interest-earning assets and expense on interest-bearing liabilities. Net
interest income depends upon the volume of interest-earning assets and
interest-bearing liabilities and the interest rate earned or paid on them.
35
<PAGE>
AVERAGE BALANCE SHEETS
The following table sets forth certain information relating to CSB Financial's
Consolidated Statements of Financial Condition and reflects the average yield on
assets and the average cost of liabilities for the periods indicated. Such
yields and costs are derived by dividing income or expense by the average
balance of assets or liabilities, respectively, for the periods shown. Average
balances are derived from average daily balances. The yields and costs include
fees which are considered adjustments to yields.
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31, SIX MONTHS ENDED DECEMBER 31
1995 1994 1995
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE
BALANCE INTEREST COST BALANCE INTEREST COST BALANCE INTEREST COST BALANCE
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-earning assets:
Loans, net $151,941 $3,279 8.63% $130,138 $2,704 8.31% $148,873 $6,455 8.67% $129,386
Marketable equity securities 47,940 746 6.22% 47,050 719 6.11% 48,028 1,518 6.32% 47,251
Mortgage-backed securities 30,543 533 6.98% 20,213 317 6.27% 29,960 1,048 6.99% 19,325
Overnight deposits 7,837 118 6.02% 10,626 147 5.53% 6,681 200 5.99% 6,612
Investment securities 69,950 1,124 6.43% 53,420 790 5.92% 69,811 2,252 6.45% 50,828
Trading account securities - - - - - - - - - -
Total interest-earning assets 308,211 5,800 7.53% 261,447 4,677 7.16% 303,353 11,473 7.56% 253,402
Noninterest-earning assets 12,672 - - 9,827 - - 12,726 - - 10,122
Total assets $ 320,883 $5,800 7.23% $271,274 $4,677 6.90% $316,079 $11,473 7.26% $263,524
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Deposits $ 250,266 $3,139 5.02% $214,120 $2,350 4.39% $247,943 $6,202 5.00% $204,779
FHLB advances and other 22,935 354 6.17% 11,690 185 6.33% 20,692 642 6.21% 10,954
Total interest-bearing
liabilities 273,201 3,493 5.11% 225,810 2,535 4.49% 268,635 6,844 5.10% 215,733
Other liabilities 2,374 - - 1,566 - - 2,497 - - 2,543
Total liabilities 275,575 3,493 5.07% 227,376 2,535 4.46% 271,132 6,844 5.05% 218,276
Stockholders' equity 45,308 - - 43,898 - - 44,947 - - 45,248
Total liabilities and
stockholder's equity 320,883 3,493 4.35% 271,274 2,535 3.74% 316,079 6,844 4.33% 263,524
Net interest income/
interest rate spread (1) $2,307 2.41% $2,142 2.67% $4,629 2.47%
Net earning assets/net
interest margin (2) $ 35,010 2.99% $ 35,637 3.28% $ 34,718 3.05% $ 37,669
Ratio of interest-earning
assets to interest-bearing
liabilities 112.81% 115.78% 112.92%
<CAPTION>
AT DECEMBER 31,
1994 1995
AVERAGE AVERAGE
YIELD/ YIELD/
INTEREST COST BALANCE COST
<C> <C> <C> <C>
5,293 8.18% 156,945 8.86%
1,384 5.86% 46,902 6.52%
575 5.95% 31,581 6.90%
171 5.17% 8,477 5.60%
1,474 5.80% 70,804 6.31%
- - - -
8,897 7.02% 314,709 7.65%
- - 14,171 -
8,897 6.75% 328,880 7.32%
4,370 4.27% 253,245 4.95%
357 6.52% 26,904 6.07%
4,727 4.38% 280,149 5.06%
- - 1,595 -
4,727 4.33% 281,744 5.03%
- - 47,136 -
4,727 3.59% 328,880 4.31%
4,170 2.64% 2.59%
3.29% $ 34,560
117.46% 112.34%
</TABLE>
(1) Interest rate spread represents the difference between the average rate on
interest-earning assets and the average cost of interest-bearing
liabilities.
(2) Net interest margin represents net interest income before the provision
for credit losses divided by average interest-earning assets.
36
<PAGE>
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED
DECEMBER 31, 1995 AND DECEMBER 31, 1994
GENERAL
Net income totaled $458,000 for the three months ended December 31,
1995, as compared to $498,000 reported for the three months ended December 31,
1994. The decrease in net income resulted from increases in the provision for
credit losses of $10,000 and non-interest expense of $220,000, offset by the
increases in net interest income of $165,000 and the non-interest income of
$19,000.
INTEREST INCOME
Interest income increased $1.1 million or 24.0%, to $5.8 million for
the three months ended December 31, 1995, from the $4.7 million for the three
months ended December 31, 1994. The average yield on interest-earning assets
increased 0.37% from 7.16% to 7.53% between the same two periods and the average
balance of interest-earning assets increased $46.8 million from $261.4 million
for the three months ended December 31, 1994, to $308.2 million in that same
quarter of 1995. The increase in the average daily balance between the two
periods is a direct result of the branch acquisition which was completed in
November 1994.
INTEREST EXPENSE
Interest expense increased $1.0 million, or 38.0%, to $3.5 million for
the three months ended December 31, 1995, as compared to $2.5 million for the
same period of 1994. This increase is a result of the increase of $47.4 million
in the average balance of interest-bearing liabilities from $225.8 million for
the three months ended December 31, 1994 to $273.2 in that same quarter of 1995
plus the increase of 0.62% in the average rate on those liabilities from 4.49%
to 5.11%. The increase in the average daily balance between the two periods is
also a direct result of the branch acquisition.
NET INTEREST INCOME
Net interest income increased $165,000, or 7.7%, to $2.3 million for
the three months ended December 31, 1995, from $2.1 million for the three months
ended December 31, 1994.
PROVISION FOR CREDIT LOSSES
Based on management's evaluation of the loan portfolio, the Savings
Bank recorded a provision for credit losses of $35,000 for the three months
ended December 31, 1995, as compared to $25,000 for the same period of 1994. The
ratio of the allowance for credit losses to net portfolio loans at both December
31, 1995 and 1994 was approximately 0.5%.
NON-INTEREST INCOME
Non-interest income increased by $19,000, or 14.8%, from $128,000 for
the three months ended December 31, 1994 to $147,000 for the same three months
ended in 1995 as a result of the increase in gains recognized on the sale of
loans of $11,000. Additionally, other income, including loan servicing fees,
increased 6.5%, or $8,000, to $132,000 from $124,000 for the quarters ended
December 31, 1995 and 1994.
NON-INTEREST EXPENSE
Non-interest expense increased by $220,000, or 15.1% from $1.5 million
for the three months ended December 31, 1994 to $1.7 million for the three
months ended December 31, 1995. The primary reason for the increase is the
additional expenses resulting from the branch expansion activities which include
not only personnel and branch operating expenses but also increases in deposit
insurance premiums and data processing and the amortization of the goodwill
created by the November 1994 branch acquisition.
37
<PAGE>
COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED
DECEMBER 31, 1995 AND DECEMBER 31, 1994
GENERAL
Net income totaled $960,000 for the six months ended December 31, 1995
as compared to $1.0 million reported for the six months ended December 31, 1994.
The decrease in net income resulted primarily from the increases in non-interest
expense of $574,000 and the provision for credit losses of $47,000, offset by
the increase in net interest income of $459,000 and non-interest income of
$104,000.
INTEREST INCOME
Interest income increased $2.6 million, or 29.0%, to $11.5 million for
the six months ended December 31, 1995 from $8.9 million for the six months
ended December 31, 1994. This increase was due to an increase in the average
yield on interest earning assets of 0.54% from 7.02% for the six months ended
December 31, 1994 to 7.56% for the six months ended December 31, 1995 plus the
increase in the average interest earning assets of $50.0 million, or 19.7%, from
$253.4 million to $303.4 million between the same two periods. The increase in
the average daily balance between the two periods is a result of the branch
expansion activities in November 1994 and June 1995.
INTEREST EXPENSE
Interest expense increased $2.1 million, or 44.7% to $6.8 million for
the six months ended December 31, 1995 from $4.7 million for the six months
ended December 31, 1994. The increase was due to an increase in the average cost
of 0.72% from 4.38% for the six months ended December 31, 1994 to 5.10% for the
six months ended December 31, 1995, plus the increase in the average interest
bearing liabilities of $52.9 million or 24.5%, from $215.7 million to $268.6
million between the same two periods. As with interest income, the increase in
average daily balances between the two periods is a result of the branch
expansion activities in November 1994 and June 1995.
NET INTEREST INCOME
Net interest income increased $459,000, or 11.0% to $4.6 million for
the six months ended December 31, 1995 from $4.1 million for the six months
ended December 31, 1994.
PROVISION FOR CREDIT LOSSES
Based on management's evaluation of the loan portfolio, the Savings
Bank recorded a provision for the credit losses of $70,000 for the six months
ended December 31, 1995, an increase of $47,000 from the $23,000 recorded for
the six months ended December 31, 1994.
NON-INTEREST INCOME
Non-interest income increased $104,000, or 49.3%, to $315,000 for the
six months ended December 31, 1995 from $211,000 for the six months ended
December 31, 1994. Net realized and unrealized gains on loans classified as
"Held for Sale" increased from a net loss $30,000 for the six months ended
December 31, 1994 to a gain of $30,000 for the six months ended December 31,
1995. Net realized gains on the sale of securities increased from $0 (zero) for
the six months ended December 31, 1994 to $25,000 for the six months ended
December 31, 1995. Other non-interest income, including fee income, increased
$19,000, or 7.9%, from $241,000 for the six months ended December 31, 1994 to
$260,000 for the six months ended December 31, 1995.
NON-INTEREST EXPENSE
Non-interest expense increased by $574,000, or 20.8%, to $3.3 million
for the six months ended December 31, 1995 from $2.7 million for the six months
ended December 31, 1994. The primary reason for the increase is the additional
expenses resulting from the branch expansion activities which include not only
personnel and branch operating expenses but also increases in deposit insurance
premiums and data processing and the amortization of the goodwill created by the
November 1994 branch acquisition.
38
<PAGE>
COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 1995 AND JUNE 30, 1994
FINANCIAL CONDITION
GENERAL. Total assets of CSB Financial increased $52.6 million to
$305.8 million at June 30, 1995, from $253.2 million at June 30, 1994. Total
liabilities increased during the fiscal year by $51.1 million, to $260.7 million
at June 30, 1995 from $209.6 million at June 30, 1994. The increase in assets
and liabilities were primarily the result of an acquisition, in November 1994,
of a branch office in Danville, Virginia.
INVESTMENTS AND MORTGAGE-BACKED SECURITIES. The total of investments
owned, including short term cash equivalents and interest bearing deposits,
trading securities, marketable equity securities, and mortgage-backed
securities, increased $31.1 million during the fiscal year ended June 30, 1995.
The securities portfolios of the Savings Bank and CSB Financial are short term
in nature because of Management's strategy to use these funds to manage CSB
Financial's overall interest rate risk. The composition of the Savings Bank's
securities portfolio includes issues which compliment the Savings Bank's
compliance with the Qualified Thrift Lender ("QTL") test.
Marketable equity securities increased marginally, from $47.5 million
at June 30, 1994 to $48.1 million at June 30, 1995. These assets are primarily
investments in mutual funds which are composed of adjustable rate mortgage
securities and U.S. Government Securities. The portion of these funds which is
invested in mortgage-backed securities qualifies as residential mortgage related
investments for the purposes of the Savings Bank's QTL test in the same manner
as conventional mortgage - backed securities. Over 78%, or $37.7 million, of the
$48.1 million balance in marketable equity securities at June 30, 1995, are in
the adjustable rate mortgage funds with the remainder being invested in
short-term U.S. Government Securities funds ($7.8 million), and equity
securities, including FHLMC and FHLB stocks ($2.6 million).
Under SFAS 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY
SECURITIES, investments in securities which CSB Financial does not anticipate
holding to maturity must be held as either "available for sale" or "held for
trading". At June 30, 1995, CSB Financial held $8.5 million in an "available for
sale" category, a decrease of $16.8 million from the year earlier. At June 30,
1995, CSB Financial held no securities in a "held for trading" category.
Securities held as available for sale are recorded at their fair market
value in accordance with the SFAS 115.
LOANS. The Savings Bank's primary use of funds is to originate loans.
In fiscal year 1995, total net loans, increased $18.8 million, from $125.4
million at June 30, 1994 to $144.2 million at June 30, 1995. The Savings Bank
continues to sell a significant portion of thirty-year fixed-rate residential
loan production in the secondary mortgage market. While residential mortgage
lending continues to be the primary use of funds by the Savings Bank, loan
origination activity in fiscal year 1995 included nonresidential mortgage loans
and consumer and commercial lending as well. The current business plan is to
continue the expansion of this lending activity. Sources of funding for the
Savings Bank's lending functions are deposit gains, loan repayments, and
borrowed funds, primarily from the Federal Home Loan Bank ("FHLB") system.
DEPOSITS. Total deposits increased by $48.1 million, or 24.5%, from
$196.0 million at June 30, 1994, to $244.1 million at June 30, 1995, primarily
as a result of the Danville branch acquisition. Deposit accounts offered by the
Savings Bank include non-interest-bearing business and individual checking
accounts, negotiable order of withdrawal ("NOW") accounts, money market
accounts, savings accounts, certificates of deposit having terms from 7 days to
60 months, and Individual Retirement Accounts (IRAs). Market interest rate
trends, after declining over a two year period, reversed during fiscal year
1995, resulting in an increase of 69 basis points in average deposit costs, from
3.93% in 1994 to 4.62% in 1995. The Savings Bank attempts to control the flow of
deposits by pricing its accounts to remain generally competitive with other
financial institutions in its market areas.
BORROWINGS. The Savings Bank from time to time uses borrowed money to
fund cash flow needs or to finance long term investment or loan funding
opportunities. At June 30, 1995, the Savings Bank had total borrowings of $14.5
million of which $9.5 million was in long-term fixed-rate advances from the FHLB
of Atlanta which were used to fund 15 year fixed-rate residential mortgages
placed in the Savings Bank's portfolio. Other borrowings were used to finance
short-term arbitrage investments for income enhancement.
STOCKHOLDERS' EQUITY. Net stockholders' equity increased during the
year ended June 30, 1995 by $1.5 million, or 3.4%, from $43.6 million to $45.1
million. During fiscal year 1995, CSB Financial repurchased 48,000 shares of its
common stock at an average cost of $13.75 per share. Option rights were
exercised for the purchase of 9,088 shares at $10.00 per share. At June 30,
1995, CSB Financial held 176,912 shares of common stock as treasury stock for
the intended purpose of
39
<PAGE>
re-issue upon exercise of option rights by the holders thereof. Net after-tax
earnings of $2.2 million, a reduction in the adjustment for unearned shares of
common stock held by the ESOP and RRPs of $413,000 and a reduction in net
unrealized losses on securities held as available for sale of $104,000 further
impacted net shareholder value. At June 30, 1995 per share book value was
$17.06, up 4.9% from June 30, 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Savings Bank's primary sources of funds are deposits, proceeds from
principal and interest payments on loans and mortgage-backed securities and the
sale of loans. While maturities and scheduled amortization of loans and
mortgage-backed securities are a predictable source of funds, deposit flows and
mortgage prepayments are greatly influenced by interest rate cycles and economic
conditions.
The Savings Bank is required by regulation to maintain specific minimum
levels of liquid investments. Regulations currently in effect require the
Savings Bank to maintain liquid assets at least equal to 5.0% of the sum of its
average daily balance of net withdrawable accounts and short-term borrowed
funds. This regulatory requirement may be changed from time to time by the OTS
to reflect current economic conditions and deposit flows. The Savings Bank's
liquidity ratio at June 30, 1995 was 24.21%. The Savings Bank's liquidity ratio
at June 30 1994 and 1993 were 21.08% and 22.41%, respectively.
The Savings Bank's most liquid assets are cash, cash equivalents and
other investment securities, which include investments in highly liquid,
short-term securities, federal funds and interest-bearing deposits. The levels
of these assets are dependent on the Savings Bank's deposit, lending and
investing activities during any given period. At June 30, 1995, the amount
available for regulatory liquidity totaled $57.9 million.
Liquidity management for the Savings Bank is both a daily and long-term
function. Excess funds are generally invested in short-term investments such as
federal funds and mutual funds. In the event that the Savings Bank should
require funds beyond its ability to generate them internally, additional sources
of funds are available through the use of FHLB of Atlanta advances. At June 30,
1995, FHLB advances totaled $14.5 million.
40
<PAGE>
The Savings Bank is subject to regulations of the OTS that impose
certain minimum regulatory capital requirements. The following is a table of the
Savings Bank's regulatory capital at June 30, 1995:
<TABLE>
<CAPTION>
TANGIBLE CORE RISK-BASED
(DOLLARS IN THOUSANDS) CAPITAL CAPITAL CAPITAL
<S> <C> <C> <C>
GAAP capital $ 34,510 $ 34,510 $ 34,510
Unrealized losses on certain
available for sale securities 671 671 671
General credit loss allowance - - 679
Goodwill and other intangibles (2,101) (2,101) (2,101)
Regulatory capital computed 33,080 11.22% 33,080 11.22% 33,759 22.93%
Minimum capital requirement 4,422 1.50 8,845 3.00 11,780 8.00
Regulatory capital excess $ 28,658 9.72% $ 24,235 8.22% $ 21,979 14.93%
</TABLE>
ASSET/LIABILITY MANAGEMENT AND INTEREST RATE SENSITIVITY
The Savings Bank has employed various strategies intended to minimize
the adverse effect of interest rate risk on future operations by seeking to
reduce the difference between the interest rate sensitivity of its assets and
liabilities and by expanding its activities which are not directly dependent on
interest rate spreads.
The Savings Bank has reduced its exposure to interest rate risk by
emphasizing the origination of adjustable rate mortgage ("ARM") loans and/or
limited-term fixed-rate mortgage loans for portfolio while primarily producing
long-term conforming fixed-rate loans to be sold in the secondary market. Other
strategies include the purchase of floating rate and short-term investments for
its portfolio and attempts to lengthen the maturities of its deposits consistent
with the market environment. CSB Financial's one-year interest sensitivity gap
as a percent of total assets was a positive 3.10% at June 30, 1995. Management
believes that investing in floating rate and short-term mortgages, high quality
collateralized mortgage obligations, and short-term U. S. Government, federal
agency and corporate securities, although possibly sacrificing short-term
profits compared to the yields obtainable through longer-term fixed-rate
investments, reduces CSB Financial's exposure to the risk of interest rate
fluctuations and thereby enhances long-term profitability. During times of
declining interest rates when borrowers are seeking fixed-rate mortgages, the
Savings Bank concentrates on originating fixed-rate mortgages for sale into the
secondary mortgage market.
The Savings Bank seeks to lengthen the maturities of its deposits by
emphasizing savings certificates with maturities of three months to five years.
At June 30, 1995, savings certificates with maturities of three months or more
remaining totaled $111.2 million, or 45.6% of total deposits. The Savings Bank
does not solicit high rate, jumbo certificates of deposit or brokered funds.
Matching of assets and liabilities may be analyzed by examining the
extent to which such assets and liabilities are interest rate sensitive and by
monitoring an institution's interest rate sensitivity gap. An asset or liability
is considered interest rate sensitive within a specific time period if it will
mature or reprice within that time period. The interest rate sensitivity gap is
defined as the difference between the amount of interest-earning assets
anticipated, based upon certain assumptions, to mature or reprice within a
specific time period and the amount of interest-bearing liabilities anticipated,
based upon certain assumptions, to mature or reprice within that time period. A
gap is considered positive when the amount of interest rate sensitive assets
exceeds the amount of interest rate sensitive liabilities. A gap is considered
negative when the amount of interest rate sensitive liabilities exceeds the
amount of interest rate sensitive assets. During a period of rising interest
rates, a negative gap would tend to adversely affect net interest income while a
positive gap would tend to result in an increase in net interest income. During
a period of falling interest rates, a negative gap would tend to result in an
increase in net interest income, while a positive gap would tend to adversely
affect net interest income. Management's goal is to manage the one-year interest
rate sensitivity gap consistent with perceived market rate trends within Board
prescribed tolerance levels.
The following table sets forth the amounts of interest-earning assets
and interest-bearing liabilities outstanding at June 30, 1995, which are
anticipated by CSB Financial to reprice or mature in each of the future time
periods shown, based upon the contractual terms of the asset or liability or
certain assumptions concerning amortization and prepayment of such assets and
liabilities. CSB Financial's analysis of its interest rate sensitivity
incorporates the modeling assumptions used by
41
<PAGE>
the FHLB of Atlanta Interest Rate Risk Service concerning the amortization of
loans and other interest-earning assets and the withdrawal of deposits. CSB
Financial has made the following assumptions in calculating the values in the
aforementioned table: fixed-rate mortgages and mortgage-backed securities have a
calculated prepayment rate that assumes a remaining 330 month amortization
period; variable rate loans and asset-backed securities are assumed to reset at
one-half their reset frequency; debt securities with call provisions are assumed
to be repaid on the call date if the securities are trading at or above par;
passbooks have decay rates ranging from 17.0% for one year or less to 40.4%
after 5 years; NOW checking accounts have decay rates ranging from 37.0% for one
year or less to 20.0% after 5 years; and money market deposits have a decay rate
ranging from 79.0% for one year or less to 4.8% after 5 years. These assumptions
change over time based upon current economic conditions. Management believes
that these assumptions approximate actual experience and considers them
reasonable, although the actual amortization and repayment of assets and
liabilities may vary substantially.
<TABLE>
<CAPTION>
JUNE 30, 1995
MORE THAN MORE THAN
LESS THAN 3 TO 6 6 MONTHS 1 YEAR TO 3 YEARS MORE THAN
(Dollars in thousands) 3 MONTHS MONTHS TO ONE YR. 3 YEARS TO 5 YEARS 5 YEARS
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans, including other loans $ 17,471 $ 8,601 $ 38,660 $ 24,845 $ 25,274 $ 28,735
Marketable equity securities 5,702 2,779 29,151 5,156 4,089 1,200
Mortgage-backed securities 679 1,605 4,518 11,715 5,499 3,668
Overnight deposits 4,499 -- -- -- -- --
Investment securities 22,375 8,000 8,000 18,800 11,000 --
Total interest-earning assets 50,726 20,985 80,329 60,516 45,862 33,603
Interest-bearing liabilities:
Passbook accounts 1,981 1,754 3,272 10,426 6,797 16,291
NOW accounts 1,848 1,646 2,773 5,737 1,535 3,399
Money market accounts 4,091 2,946 3,344 1,482 706 641
Certificate accounts 57,668 476 54,251 35,793 20,683 --
Total deposits 65,588 6,822 63,640 53,438 29,721 20,331
Borrowed funds 5,000 1,500 -- 4,000 4,000
Total interest-bearing
liabilities 70,588 8,322 63,640 57,438 33,721 20,331
Interest sensitivity gap $(19,862) $ 12,663 $ 16,689 $ 3,078 $ 12,141 $ 13,272
Cumulative interest sensitivity
gap $(19,862) $ (7,199) $ 9,490 $ 12,568 $ 24,709 $ 37,981
Cumulative interest sensitivity
gap as a percentage of
total assets -6.49% -2.35% 3.10% 4.11% 8.08% 12.42%
Cumulative net interest-earning
assets as a percentage of
interest-sensitive liabilities 71.86% 90.88% 106.66% 106.28% 110.57% 114.95%
</TABLE>
(1) Loans are reduced by non-performing loans but not by the allowance for
credit losses.
Certain shortcomings are inherent in the method of analysis presented
in the foregoing table. For example, although certain assets and liabilities may
have similar maturities or periods to repricing, they may react in different
degrees to changes in market interest rates. Also, the interest rates on certain
types of assets and liabilities may fluctuate in advance of changes in market
interest rates, while interest rates on other types may lag behind changes in
market rates. Additionally, certain assets, such as ARM loans, have features
which restrict changes in interest rates on a short-term basis and over the life
of the asset.
42
<PAGE>
Further, in the event of a change in interest rates, prepayment and
early withdrawal levels would likely deviate significantly from those assumed in
calculating the table. Finally, the ability of many borrowers to service their
adjustable rate debt may decrease in the event of an interest rate increase.
ASSET QUALITY
CLASSIFICATION OF ASSETS. Federal regulations provide for the
classification of loans and other assets, such as debt and equity securities,
considered to be of lesser quality as "substandard," "doubtful" or "loss"
assets.
An asset is considered "substandard" if it is inadequately protected by
the paying capacity and net worth of the obligor or the collateral pledged, if
any. Substandard assets include those characterized by the distinct possibility
that the insured institution may sustain some loss if the deficiencies are not
corrected. Assets classified as "doubtful" have all of the weaknesses inherent
in those classified substandard, with the added characteristic that the
weaknesses present make collection or liquidation in full highly questionable
and improbable, on the basis of currently existing facts, conditions, and
values. Assets classified as "loss" are those considered uncollectible and of
such little value that their continuance as assets without the establishment of
a specific loss reserve is not warranted. Assets which do not currently expose
the insured institution to a sufficient degree of risk to warrant classification
in one of the aforementioned categories but possesses credit deficiencies or
potential weaknesses are required to be designated "special mention" by
Management.
When an insured institution classifies problem assets as either
substandard or doubtful, it is required to establish general allowances for
losses in an amount deemed prudent by management. General allowances represent
loss allowances which have been established to recognize the inherent risk
associated with lending activities, but which, unlike specific allowances, have
not been allocated to particular problem assets. When an insured institution
classifies problem assets as loss, it is required to establish a specific
allowance for losses equal to 100% of the amount of the asset so classified or
to charge-off such amount. An institution's determination as to the
classification of its assets and the amount of additional general or specific
loss allowances is subject to review by the OTS which can order the
establishment of additional general or specific loss allowances. The Savings
Bank regularly reviews the assets in its portfolio to determine which assets
require classification in accordance with applicable regulations.
At June 30, 1995, the Savings Bank had total classified assets of $2.0
million of which $1.5 million were classified as substandard, $207,000 were
classified as doubtful and $258,000 were classified as loss. Special mention
assets totaled $765,000 at June 30, 1995.
43
<PAGE>
NON-PERFORMING ASSETS. The following table sets forth information as to
non-accrual loans and real estate owned at the dates indicated. The Savings Bank
may discontinue the accrual of interest on loans 90 days or more past due which
Management considers to be uncollectible, at which time all accrued but
uncollected interest on such loans is reversed. There were no restructured or
impaired loans during the fiscal year ended June 30, 1995 within the meaning of
FASB Statements 15 and 114.
<TABLE>
<CAPTION>
JUNE 30
(DOLLARS IN THOUSANDS) 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Non-accrual mortgage loans delinquent
more than 90 days $1,046 $ - $ 368 $ 586 $1,827
Non-accrual other loans delinquent
more than 90 days 456 - - 3 12
Total non-accrual loans 1,502 - 368 589 1,839
Loans 90 days or more delinquent and
still accruing 365 369 - - -
Total non-performing loans 1,867 369 368 589 1,839
Total foreclosed real estate, net
of related allowance for losses - 411 411 510 200
Total non-performing assets $1,867 $ 780 $ 779 $1,099 $2,039
Non-performing loans to net loans 1.30% 0.30% 0.33% 0.50% 1.61%
Non-performing loans to total loans 1.24% 0.28% 0.32% 0.50% 1.56%
Total non-performing assets to
total assets 0.61% 0.31% 0.33% 0.52% 1.02%
</TABLE>
At June 30, 1995, the Savings Bank had two non-accruing loans totaling
$1.5 million. The larger of the two is a participation of $1.0 million in a
mortgage loan on a shopping center located in the Town of Bedford, Virginia.
This loan is presently the subject of a loan work-out agreement which Management
anticipates will result in the Savings Bank's recovery of its investment. The
smaller of the two loans, a non-mortgage loan in the amount of $456,000, has
been determined to be a fraudulent transaction. Actions have been taken to
improve the collateral position partially securing this loan and provision has
been made to recognize the maximum anticipated loss.
The most significant non-performing asset at June 30, 1994, a
participation in a loan on a 200 unit hotel in Richmond, Virginia, was resolved
during fiscal year 1995 through the actual foreclosure and sale of the
collateral property. There was a full recovery of the net book value of the
asset, plus a partial recovery of $128,000 of previously recognized losses.
At June 30, 1995, non-performing assets totaled $1.9 million or 0.61%
of assets, up from $780,000 or 0.31% of assets, at June 30, 1994.
ALLOWANCE FOR CREDIT LOSSES. The Savings Bank provides valuation
allowances for estimated losses from uncollectible loans. Management's periodic
evaluation of the adequacy of the allowance for credit losses is based on loss
experience, known and inherent risk in the portfolio, prevailing market
conditions, and management's judgment as to collectibility. The allowance for
credit losses is increased by charges to earnings and decreased by charge-offs
(net of recoveries).
44
<PAGE>
The following table provides an analysis of the allowance for loan
losses for the last five years:
<TABLE>
<CAPTION>
AT JUNE 30,
(DOLLARS IN THOUSANDS) 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $ 644 $ 569 $ 289 $ 552 $ 264
Provision for loan losses 276 38 277 234 302
Charge-offs:
Mortgage loans - - - 485 14
Other loans 16 - 1 13 2
Recoveries:
Mortgage loans 31 37 4 - -
Other loans 2 - - 1 2
Balance at end of year $ 937 $ 644 $ 569 $ 289 $ 552
At end of period allocated to:
Mortgage loans $ 612 $ 600 $ 546 $ 272 $ 531
Other loans 325 44 23 17 21
Unallocated - - - - -
Ratio of net charge-offs during the
period to average loans outstanding
during the period -0.01% -0.03% 0.00% 0.42% 0.01%
Ratio of allowance for credit losses
to net loans receivable at the
end of period 0.65% 0.52% 0.51% 0.25% 0.48%
Ratio of allowance for credit losses
to total non-performing assets
at the end of period 50.19% 82.56% 73.04% 26.30% 27.07%
Ratio of allowances for credit losses
to non-performing loans at the
end of the period 50.19% 174.53% 154.62% 49.07% 30.02%
</TABLE>
RESULTS OF OPERATIONS
The operating results of CSB Financial are primarily dependent upon the
operations of the Savings Bank. The Savings Bank's results of operations are
dependent upon its net interest income, which is the difference between its
interest and dividend income on earning assets, such as loans and investments,
and its interest expense on interest-bearing liabilities, primarily deposits and
borrowings. Other components also effect CSB Financial/Bank's operating results
such as the provision for credit losses, the level of non-interest income, and
non-interest expense, and income tax expense. Each of the principal components
of CSB Financial/Bank's operating results is discussed below.
ANALYSIS OF NET INTEREST INCOME. Net interest income represents the
difference between income on interest-earning assets and expense on
interest-bearing liabilities. Net interest income depends upon the volume of
interest-earning assets and interest-bearing liabilities and the interest rate
earned or paid on them.
45
<PAGE>
AVERAGE BALANCE SHEETS
The following table sets forth certain information relating to CSB
Financial's Consolidated Statements of Financial Condition and reflects the
average yield on assets and the average cost of liabilities for the periods
indicated. Such yields and costs are derived by dividing income or expense by
the average balance of assets or liabilities, respectively, for the periods
shown. Average balances are derived from average daily balances. The yields and
costs include fees which are considered adjustments to yields.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
1995 1994 1993
AVERAGE AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
(DOLLARS IN THOUSANDS) BALANCE INTEREST COST BALANCE INTEREST COST BALANCE INTEREST COST
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-earning assets:
Mortgage loans, net $129,218 $10,746 8.32% $122,954 $10,002 8.13% $122,466 $10,783 8.80%
Other loans, net 3,531 323 9.15 1,682 177 10.52 726 85 11.71
Mortgage-backed securities 25,473 1,694 6.65 18,381 1,088 5.92 18,186 1,255 6.90
Overnight deposits 5,441 321 5.90 6,883 235 3.41 4,934 157 3.18
Trading account securities - - - 186 8 4.30 502 16 3.19
Marketable equity securities 47,399 2,910 6.14 46,151 2,298 4.98 29,043 1,589 5.47
Investment securities 56,913 3,500 6.15 43,792 2,497 5.70 40,904 2,570 6.28
Total interest-earning assets 267,975 19,494 7.27 240,029 16,305 6.79 216,761 16,455 7.59
Non-interest-earning assets 12,486 8,656 7,934
Total assets $280,461 $19,494 6.95% $248,685 $16,305 6.56% $224,695 $16,455
7.32%
LIABILITIES AND RETAINED
EARNINGS:
Interest-bearing liabilities:
Deposits:
Passbook and statement
savings accounts $41,183 $ 1,487 3.61% $ 41,575 $ 1,332 3.20% $ 35,203 $ 1,246 3.53%
NOW accounts 18,670 557 2.98 5,757 158 2.74 5,478 158 2.88
Money market accounts 14,067 464 3.30 28,558 876 3.07 25,978 862 3.32
Certificate accounts 7,562 5.26 118,156 5,269 4.46 126,679 6,405 5.06
143,835
Total Deposits 10,070 4.62 194,046 7,635 3.93 193,338 8,671 4.48
217,755
Borrowed funds:
FHLB advances and other 12,233 766 6.26 10,000 629 6.29 6,886 460 6.68
Short-term borrowings 318 15 4.72 42 1 2.38 351 15 4.27
Total interest-bearing
liabilities 230,306 10,851 4.71 204,088 8,265 4.05 200,575 9,146 4.56
Other liabilities 6,523 4,678
3,681
Total liabilities 236,829 10,851 4.58 208,766 8,265 3.96 204,256 9,146 4.48
Stockholders' equity 43,632 39,919 20,439
Total liabilities and
stockholders' equity $280,461 $ 10,851 3.87% $248,685 $8,265 3.32% $224,695 $9,146 4.07%
Net interest income/
interest rate rate spread $ 8,643 2.56% $8,040 2.74% $7,309 3.03%
Net earning assets/net
interest margin $ 37,669 3.23% $35,941 3.35% $ 3.37%
16,186
Ratio of interest-earning
assets to interest-bearing
liabilities 116.36% 117.61% 108.07%
</TABLE>
RATE/VOLUME ANALYSIS. The following table presents the extent to which
changes in interest rates and changes in volume of interest-earning assets and
interest-bearing liabilities have affected CSB Financial's interest income and
interest expense during the periods indicated. Information is provided in each
category with respect to (i) changes attributable to changes in volume (changes
in volume multiplied by prior rate), (ii) changes attributable to changes in
rate (changes in rate multiplied by prior volume), and (iii) the net change. The
changes attributable to the combined impact of volume and rate have been
allocated proportionately to the changes due to volume and the changes due to
rate.
46
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30, 1994 FISCAL YEAR ENDED JUNE 30, 1993
COMPARED TO FISCAL YEAR ENDED COMPARED TO FISCAL YEAR ENDED
JUNE 30, 1995 JUNE 30, 1994
INCREASE (DECREASE) IN NET INCREASE (DECREASE) IN NET
INTEREST INCOME DUE TO INTEREST INCOME DUE TO
(IN THOUSANDS) VOLUME RATE NET VOLUME RATE NET
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Mortgage loans, net $ 517 $ 227 $ 744 $ 43 $ (824) $ (781)
Other loans 172 (26) 146 101 (9) 92
Mortgage-backed securities 459 147 606 13 (180) (167)
Overnight deposits (57) 143 86 66 12 78
Marketable Equity Securities 64 548 612 863 (154) 709
Investment securities 795 208 1,003 174 (247) (73)
Trading account securities (4) (4) (8) (12) 4 (8)
Total 1,946 1,243 3,189 1,248 (1,398) (150)
Interest-bearing liabilities:
Demand accounts (63) 205 142 298 (198) 100
Certificates 1,258 1,035 2,293 (412) (724) (1,136)
Borrowed funds 156 (5) 151 177 (22) 155
Total 1,351 1,235 2,586 63 (944) (881)
Net change in net interest income $ 595 $ 8 $ 603 $ 1,185 $ (454) $ 731
</TABLE>
COMPARISON OF FISCAL YEARS ENDED JUNE 30, 1995 AND
JUNE 30, 1994
GENERAL. Net income totaled $2.2 million for the fiscal year ended June
30, 1995 compared to $2.3 million reported for fiscal 1994, a decrease of 7.3%.
INTEREST INCOME. Interest income increased $3.2 million, or 19.6%, to
$19.5 million for fiscal year ended June 30, 1995 from $16.3 million reported in
the prior year. This was due to the increase in interest-earning assets by
reasons of the acquisition of the Danville branch in November, 1994, the change
in the mix of interest-earning assets and the upward movement in market interest
rates from the prior year. Management continued to follow the strategies of the
Savings Bank's interest rate risk program by selling long-term, fixed-rate loans
in the secondary mortgage market and holding shorter-term and/or adjustable-rate
loans in portfolio. Additional activity in commercial, nonresidential real
estate, and consumer lending also produced positive impacts upon interest income
without disproportionately affecting interest rate risk. Investment security
activity continued to emphasize the short-term U. S. Government, federal agency,
mortgage-backed securities and high-grade corporate debt markets. While these
categories of investments produce lower interest returns than longer-term,
fixed-rate alternatives, they afford the Savings Bank a constant flow of
liquidity and an appreciably greater interest rate risk protection.
INTEREST EXPENSE. Interest expense increased by $2.6 million to $10.9
million for the fiscal year ended June 30, 1995 versus $8.3 million for the
prior year. Contributing factors were the increase of 69 basis points on the
average yield on interest-bearing deposits, from 3.93% in 1994 to 4.62% in 1995,
and the increase in average interest-bearing deposits of $23.7 million,
primarily as a result of the Danville branch acquisition.
Interest expense on borrowings, primarily FHLB advances, increased
$151,000, or 24.0% to $781,000 for the fiscal year ended June 30, 1995 from
$630,000 for the prior year. The primary reason for the increase was a higher
average level of borrowing.
PROVISION FOR CREDIT LOSSES. Management of the Savings Bank continually
reviews the loan portfolio to assess the risks inherent in lending. Factors
incorporated in Management's assessment of risks include an analysis of the
payment history on the loans, the financial condition and results of operations
of the borrowing entities and guarantors, if applicable, and general and
regional economic conditions particularly as they apply to the related industry
of the borrower. Loans which
47
<PAGE>
are determined to have more than the normal risk are designated as "classified
assets" and are subject to the establishment of loss reserves to offset the
added risk.
In addition to the specific valuations on "classified assets" which are
established and reviewed on a quarterly basis, the Savings Bank also maintains
general loss reserves to offset future losses inherent in the loan portfolio.
The Savings Bank's general valuation allowance is based on a computational
analysis of the loan portfolio. The provision for credit losses is then charged,
or credited, based on the appropriate percentage of the change in the
outstanding balances in the loan portfolio. Management and the Board
periodically review valuation rates used on each segment of the portfolio to
assure that the reserves are adequate.
At June 30, 1995, the Savings Bank's total allowance for credit losses
on loans was $937,000 compared to $644,000 at June 30, 1994. This represents a
45.5% increase over the prior year's valuation allowance while total loans
increased 15.0%. Of the $276,000 provision for credit losses on the fiscal year
1995 income statement, $250,000 is attributable to a non-recurring fraudulent
loan transaction. The remainder of the provision is the result of a general
evaluation of the loan portfolio.
NON-INTEREST INCOME. Total non-interest income for the fiscal year
ended June 30, 1995 increased by $295,000, or 71.3%, to $709,000 from $414,000
for the prior year. Fee income, including service fees on loans sold, increased
by $115,000, or 35.2% to $442,000 during fiscal 1995 from $327,000 for the
fiscal year ended June 30, 1994. The net effect of gains and losses on the sale
of loans and securities, plus the adjustments in market value of loans held for
sale was $229,000 for the fiscal year ended June 30, 1995, as compared to
$51,000 for the prior year.
NON-INTEREST EXPENSE. Total non-interest expense for the fiscal year
ended June 30, 1995 increased $997,000, or 20.7%, from $4.8 million in the prior
year to $5.8 million in fiscal 1995. This increase is the result of the
acquisition of the Danville office in November 1994 and the general increase in
the cost of personnel, facilities operation, marketing and data processing.
Personnel costs increased $586,000, or 21.2%, from $2.8 million in the prior
fiscal year to $3.4 million in fiscal 1995. Over the past two years a
significant portion of personnel cost increase is attributable to the funding of
the Employee Stock Ownership Plan and Recognition & Retention Plan for directors
and employees. The plans were approved by the stockholders on February 11, 1994.
INCOME TAX EXPENSE. The provisions for income taxes for the fiscal year
ended June 30, 1995 declined by $165,000, or 13.1%, from the prior year as a
result of the $337,000 decrease of income before taxes.
COMPARISON OF FISCAL YEARS ENDED JUNE 30, 1994 AND 1993
NET INCOME. Net income for fiscal 1994 increased $245,000, or 11.7%,
from fiscal 1993. The increase in net income primarily resulted from a decrease
of $881,000 in interest expense due to declining interest rates throughout
fiscal 1993 and 1994. The decline in interest rates had a greater impact upon
the cost of interest-bearing liabilities than it did on the yield on
interest-earning assets, resulting in a $731,000 increase in net interest
income.
INTEREST INCOME. Interest income decreased $150,000, or 0.9%, to $16.3
million for fiscal 1994 from $16.5 million for fiscal 1993. This decrease was
the combined result of a decline in average yield on mortgage loans from 8.80%
in 1993 to 8.13% in 1994, an increase in the volume of average assets in
investment securities from $93.6 million in 1993 to $115.4 million in 1994, and
a decline in average yield on investments from 5.97% in 1993 to 5.30% in 1994.
INTEREST EXPENSE. Interest expense for fiscal 1994 was $8.3 million as
compared to $9.1 million for fiscal 1993, a decrease of $881,000, or 9.6%. The
decrease resulted from a decrease in interest rates and a marginal shift of
deposits from certificate of deposit to passbook and statement accounts as
depositors waited for a rate change before committing deposits for longer terms.
The average cost of liabilities decreased 52 basis points from 4.48% during
fiscal 1993 to 3.96% for fiscal 1994.
PROVISION FOR CREDIT LOSSES. During fiscal 1994, the Savings Bank made
a $38,000 provision for credit losses as compared to a $277,000 provision in
fiscal 1993. See "Comparison of Fiscal Years Ended June 30, 1995 and June 30,
1994 Provision for Credit Losses".
NON-INTEREST INCOME. Non-interest income during fiscal 1994 increased
by $132,000, from $282,000 in fiscal 1993 to $414,000 for fiscal 1994. Increases
of $120,000 in service fees accounted for the majority of this increase.
48
<PAGE>
NON-INTEREST EXPENSE. Non-interest expense during fiscal 1994 increased
$802,000, or 20.0%, to $4.8 million from $4.0 million during fiscal 1993. This
increase was primarily the result of the conversion of the Savings Bank from a
mutual institution to a federal stock charter and the organization and operation
of CSB Financial. Personnel cost increased by 31.1%, approximately half of which
was to fund the cost of employee and director benefit programs resulting from
the conversion to a stock institution.
INCOME TAX EXPENSE. The provision for income taxes increased
$55,000 between the two fiscal years. This increase is due to a $300,000
increase in pre-tax income between the tw
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ("FASB") has recently
announced and issued the following pronouncements which may have an effect on
CSB Financial's financial statements:
Statement of Financial Accounting Standards No. 114, ("SFAS 114")
ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A Loan, as amended by Statement No.
118, will become effective for CSB Financial beginning July 1, 1995. This
statement requires recognition of impairment of a loan when it is probable that
principal and interest are not collectible in accordance with the terms of the
loan agreement. Measurement of impairment is based on the present value of
expected future cash flows discounted at the loan's effective interest rate, or
as a practical expedient, at the loan's market price or the fair value of the
collateral, if known. Management believes implementation of SFAS 114 will not
have a significant impact on the financial position or operations of CSB
Financial.
In May 1995, the FASB issued Statement No. 122 ("SFAS 122"), ACCOUNTING
FOR MORTGAGE SERVICING RIGHTS. This Statement amends Statement No. 65,
ACCOUNTING FOR CERTAIN MORTGAGE BANKING ACTIVITIES, to eliminate the accounting
distinction between purchased mortgage servicing rights and originated mortgage
servicing rights. Thus, a mortgage banking enterprise will recognize the rights
to service loans for others as an asset no matter how those rights were
acquired. SFAS 122 also requires that these capitalized mortgage servicing
rights be evaluated for impairment based on the fair value of such rights. SFAS
122 is effective for fiscal years beginning after December 15, 1995.
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements and related data presented herein have been
prepared in accordance with generally accepted accounting principles, which
require the measurement of financial position and operating results in 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 the assets and
liabilities of financial institutions are monetary in nature. As a result,
interest rates have a more significant impact on a financial institution's
performance than the effect of general levels of inflation. Interest rates do
not necessarily move in the same direction or with the same magnitude as the
prices of goods and services since such prices are affected by inflation to a
larger extent than interest rates.
LEGAL PROCEEDINGS
CSB Financial is involved only in routine legal proceedings occurring
in the ordinary course of business which are believed by Management to be
immaterial to the financial condition of the Corporation.
49
<PAGE>
BUSINESS AND PROPERTIES OF CSB FINANCIAL
GENERAL
CSB Financial is a unitary thrift holding company that was incorporated
in 1993 under the laws of the State of Delaware for the purpose of acquiring all
of the issued and outstanding common stock of the Savings Bank. This acquisition
occurred in connection with the simultaneous conversion on September 24, 1993,
of the Savings Bank from a mutual to stock institution. In June 1995, CSB
Services was incorporated as a Virginia corporation. Neither the Savings Bank
nor CSB Services have any subsidiaries. At June 30, 1995, CSB Financial had
total consolidated assets of $305.8 million, deposits of $244.1 million, and
stockholders' equity of $45.1 million or 14.7% of total assets under generally
accepted accounting principles (GAAP). The principle activities of CSB Financial
are those of the Savings Bank.
The Savings Bank is a federally chartered capital stock savings bank
located in Lynchburg, Virginia. The Savings Bank was founded in 1914 as a
Virginia chartered building and loan association under the name Co-operative
Building and Loan Association. In 1988, the Savings Bank adopted a federal
savings bank charter and changed its name to Co-operative Savings Bank, F.S.B.
In 1993, the Savings Bank converted from a federally chartered mutual savings
bank to its current form, a federally chartered capital stock savings bank
subsidiary of a thrift holding company.
The Savings Bank's deposits have been federally insured since 1934 by
the Savings Association Insurance Fund ("SAIF"), as administered by the Federal
Deposit Insurance Corporation ("FDIC"), and its predecessor, the Federal Savings
and Loan Insurance Corporation. The Savings Bank has been a member of the
Federal Home Loan Bank System since 1932.
The Savings Bank offers a variety of financial services to meet the
needs of the communities it serves. The Savings Bank's principal business has
been and continues to be attracting retail deposits from the general public and
investing those deposits, together with funds generated from operations,
primarily in one-to four-family residential mortgage loans. The Savings Bank
invests in U.S. government and federal agency securities and mortgage-backed and
related securities, interest-earning deposits and to a lesser extent, commercial
and multi-family real estate loans, construction loans, commercial loans and
consumer loans. The Savings Bank's revenues are derived principally from
interest on its mortgage loan and mortgage-backed and related securities
portfolio and earnings on its investment securities. The Savings Bank's primary
sources of funds are deposits, principal and interest payments on loans and
mortgage-backed and related securities.
MARKET AREAS
The Savings Bank operates in two distinct marketing areas - the Greater
Lynchburg, Virginia area and the Danville, Virginia area.
The Greater Lynchburg, Virginia, area includes the City of Lynchburg
and portions of Amherst, Appomattox, Bedford and Campbell Counties. This area
composes the majority of the Central Virginia Planning District ("CVDP") and a
sizable portion of that area referred to as Region 2000. The manufacturing
sector accounts for over 25% of total employment within the CVPD. Lynchburg, one
of the state's main manufacturing centers, accounts for over one-third of all
employment in the CVPD; and the Lynchburg-Campbell County area accounts for over
three-quarters of the manufacturing employment within the CVPD. Among the
largest employers are Babcock and Wilcox Company, BW Nuclear Technologies and
Ericsson Mobile Communications Division.
The services sector accounts for over 23% of all employment within the
CVPD. Most of the services sector employers are relatively small with, the
largest employers being Centra Health, Liberty University, Sweet Briar College,
Lynchburg College and Randolph Macon Woman's College. Sixteen percent of
employment is in the retail sector and another 12% is in the government sector.
Unemployment in the CVPD is consistently below the state average.
Population within the CVPD increased only modestly between 1980 and
1990 with the largest portion of such increases occurring in the eastern
one-half of Bedford County. Within the CVPD, 14% of the population is of
retirement age (compared to 10% for the state). Within Bedford County, 25% of
the population is of retirement age.
The Danville, Virginia, area includes the City of Danville and adjacent
Pittsylvania County. This area is a part of the West Piedmont Planning District
("WPPD"). The City of Danville accounts for 22% of the population of WPPD.
Danville combined with Pittsylvania County accounts for 45.5% of the population
of WPPD. From 1980 to 1990 there was a net out-migration of 2125 persons for an
average annual growth rate of -0.1%. Only modest population growth is forecasted
50
<PAGE>
for the 1990's. Manufacturing accounts for the largest portion of jobs within
the WPPD and the City of Danville and the larger employers are Dan-River, Inc.,
Goodyear Tire and Rubber Company and Owens Brockway Glass Containers (formerly
Corning Glass Works). The services sector is the second largest sector of
employment and Danville Regional Medical Center the largest employee in this
section. Even with the large expanses of farmland in Pittsylvania, Franklin,
Patrick, and Henry counties, agriculture accounts for only 2% of total
employment within the WPPD. Retail trade employs 14.7% of the workforce with the
government accounting for 9.8%. Unemployment in the WPPD has been consistently
higher than the state or the nation.
LENDING ACTIVITIES
GENERAL. The Savings Bank's lending strategy is: (i) to originate
adjustable-rate or short-term loans for portfolio purposes whenever lending
market conditions will support the generation of these types of loans; (ii) to
originate fixed-rate residential mortgage loans primarily for sale into the
secondary market (Federal Home Loan Mortgage Corporation ("FHLMC") and Federal
National Mortgage Association ("FNMA")) on a servicing retained basis, although
some fixed-rate loans will be originated for portfolio; (iii) to finance
nonresidential real estate properties on a conservative basis and within the
Savings Bank's primary market area only; and (iv) to continuously develop the
consumer and small commercial loan portfolios on a conservatively underwritten
basis and within the Savings Bank's primary market only. When lending market
conditions do not favor adjustable-rate residential mortgage lending, the
Savings Bank will purchase mortgage-backed securities on a short-to-intermediate
term basis, using these investments as alternatives to residential mortgage
lending activity. In contrast to other types of securities in which the Savings
Bank is authorized to invest, mortgage-backed securities constitute "qualified
thrift investments" for purposes of enabling the Savings Bank to comply with a
statutory requirement to have a minimum percentage of total assets invested in
qualified thrift investments. See "Supervision and Regulation of CSB
Financial--Bank Regulation--QTL Test." The Savings Bank emphasizes the purchase
of short- and intermediate-term securities in order to reduce its level of
interest rate risk. See "--Mortgage-Backed and Related Securities."
LOAN PORTFOLIO COMPOSITION. The Savings Bank's loan portfolio
composition consists primarily of conventional adjustable-rate and fixed-rate
first mortgage loans secured by one- to four-family residences. The Savings Bank
also makes multi-family and nonresidential real estate mortgage loans and, to a
lesser extent, construction, commercial and consumer loans. At June 30, 1995,
the Savings Bank's mortgage loans outstanding (including loans held for sale of
$140,000) were $133.5 million, of which $117.9 million were one- to four-family
residential mortgage loans. Of the one- to four-family residential mortgage
loans outstanding at that date, 48.4% were adjustable-rate mortgage ("ARM")
loans and 51.6% were fixed-rate loans. At that date, other real estate loans
totaled $15.6 million and consisted primarily of nonresidential real estate and
multi-family mortgage loans.
51
<PAGE>
The following tables set forth the composition of the Savings Bank's
loan and mortgage-backed and related securities portfolios in dollar amounts and
percentages at the dates indicated.
<TABLE>
<CAPTION>
AT JUNE 30,
1995 1994 1993 1992 1991
PERCENT PERCENT PERCENT PERCENT PERCENT
(DOLLARS IN THOUSANDS) AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF AMOUNT OF TOTAL AMOUNT OF TOTAL
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Construction loans
One- to four-family $ 1,563 1.04% $ 2,342 1.81% $ 2,713 2.33% $ 1,826 1.54 $ 1,660 1.41%
Multi-family 500 0.33 500 0.38 500 0.43 - - 1,440 1.22
Nonresidential 2,536 1.69 - - - - - - 167 0.14
Total 4,599 3.06 2,842 2.19 3,213 2.76 1,826 1.54 3,267 2.77
Mortgage loans:
One- to four-family 117,819 78.41 108,455 83.69 100,495 86.35 105,144 88.58 101,582 86.35
Multi-family 3,781 2.52 1,395 1.08 1,618 1.39 1,770 1.49 1,187 1.01
Nonresidential 10,676 7.10 9,662 7.46 7,558 6.49 7,457 6.28 8,413 7.15
Land 1,060 0.70 1,082 0.83 1,415 1.22 1,011 0.85 1,148 0.98
Total 133,336 88.73 120,594 93.06 111,086 95.45 115,382 97.20 112,330 95.49
Total mortgage loans 137,935 91.79 123,436 95.25 114,299 98.21 117,208 98.74 115,597 98.26
Other loans:
Commercial 8,574 5.71 3,847 2.97 700 0.60 - - - -
Consumer 3,760 2.50 2,311 1.78 1,387 1.19 1,490 1.26 2,046 1.74
Total other loans 12,334 8.21 6,158 4.75 2,087 1.79 1,490 1.26 2,046 1.74
Total loans receivable 150,269 100.00% 129,594 100.00% 116,386 100.00% 118,698 100.00% 117,643 100.00%
Less:
Loans in process 4,474 4,077 2,541 992 1,873
Unearned discounts and
deferred loan fees 846 741 834 744 662
Allowance for credit losses 937 644 569 290 552
Loans receivable, net $144,012 $124,132 $112,442 $116,672 $114,556
Mortgage-backed and related
securities, net (1):
FHLMC $ 2,459 8.88% $ 1,364 7.21% $ 2,978 15.52% $ 3,475 23.18% $24,125 77.58%
FHLMC ARM's 539 1.95 597 3.15 782 4.08 1,398 9.33 - -
FHLMC CMO's 11,954 43.18 4,847 25.60 2,473 12.89 3,677 24.53 - -
FNMA 1,177 4.25 1,368 7.23 3,388 17.66 5,512 36.77 6,971 22.42
FNMA CMO's 8,287 29.94 8,916 47.10 6,419 33.47 928 6.19 - -
GNMA - - - - - - - - - -
GNMA CMO's 2,030 7.33 352 1.86 524 2.73 - - - -
Privately issued CMO's 1,237 4.47 1,485 7.85 2,619 13.65 - - - -
Total $27,683 100.00% $18,929 100.00% $19,183 100.00% $14,990 100.00%$ 31,096 100.00%
</TABLE>
(1) At carrying value.
52
<PAGE>
The following table sets forth the Savings Bank's mortgage and other
loan originations, principal repayments and sales and mortgage-backed securities
purchases, sales and principal repayments for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
(IN THOUSANDS) 1995 1994 1993
<S> <C> <C> <C>
Mortgage loans (gross):
At beginning of period $124,666 $130,678 $117,208
Mortgage loans originated:
Construction 5,371 4,838 7,047
One-to four-family 32,495 39,444 55,272
Multi-family - - -
Nonresidential real estate 5,195 2,850 1,670
Land 220 121 67
Total mortgage loans originated $43,281 $47,253 $64,056
Transfer of mortgage loans to
foreclosed real estate - - -
Principal repayments ( 27,486) ( 29,012) ( 31,033)
Sale of loans ( 2,386) ( 24,253) ( 19,553)
At end of period $138,075 $124,666 $130,678
Other loans (gross):
At beginning of period $ 6,158 $ 2,087 $ 1,490
Loans originated 13,429 5,012 1,895
Principal repayments ( 7,253) ( 941) ( 1,298)
At end of period $ 12,334 $ 6,158 $ 2,087
Mortgage-backed and related
securities:
At beginning of period $ 18,929 $ 19,183 $ 14,990
Securities purchased 22,668 9,830 13,090
Securities sold ( 9,853) - -
Amortization and repayments ( 4,061) ( 10,084) ( 8,897)
At end of period $ 27,683 $ 18,929 $ 19,183
</TABLE>
The availability of ARM loan originations is limited in low interest
rate environments. During such times, portfolio lending usually subsides and use
of the secondary mortgage market increases. Such was the case in most of fiscal
1994 when outstanding balances in mortgage loans declined. With rising rate
environments, more borrowers avail themselves of the lower initial rates of ARMS
and portfolio balances usually rise as in the case of fiscal 1995. During 1995,
the Savings Bank's investments in mortgage backed securities increased
significantly due to the employment of cash received in the acquisition of the
Danville Branch.
ONE-TO FOUR-FAMILY MORTGAGE LOANS. The Savings Bank's primary lending
activity is the origination of first mortgage loans secured by one-to
four-family residences located within its primary market area. At June 30, 1995,
the Savings Bank had $117.8 million, or 78.4% of its total loan portfolio
invested in loans secured by one-to four-family residences of which 48.4% were
ARMs and 51.6% were fixed rate. Typically, such loans are originated in amounts
up to 80% of the lesser of the appraised value or selling price of the mortgaged
property. Loans originated in amounts over 80% of the lesser of the appraised
value or selling price of the mortgaged property are usually owner-occupied and
private mortgage insurance is usually provided on the amount in excess of 80%,
therefore, such loans generally do not involve any greater credit risk than do
loans with loan-to-value ratios of 80% or less. The Savings Bank had nine
one-to-four-family loans with principal balances exceeding $250,000 at June 30,
1995, the largest of which had an outstanding balance of $797,744. At June 30,
1995, all of such loans with balances exceeding $250,000 were current.
Loan originations are generally obtained from existing or past
customers, members of the local community, and realtors within the Savings
Bank's lending area. Fixed-rate mortgage loans originated and held by the
Savings Bank in its portfolio generally include due-on-sale clauses which
provide the Savings Bank with the contractual right to deem the loan immediately
due and payable in the event that the borrower transfers ownership of the
property without the Savings Bank's consent.
The Savings Bank offers fixed-rate mortgage loans with terms ranging
from 10 to 30 years that are underwritten by the Savings Bank on terms
consistent with prevailing secondary mortgage market standards. During periods
of relatively low market interest rates, the Savings Bank usually sells
fixed-rate, long-term mortgage loans in the secondary mortgage market.
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<PAGE>
For the fiscal year ended June 30, 1995, the Savings Bank sold $2.4 million of
residential mortgage loans into the secondary market, resulting in the
recognition of $29,000 in income in the form of gain on sale and unamortized
loan origination and discount fees. For loans sold on a servicing and retained
basis, the Savings Bank earns servicing fee income at an annual rate of 0.25% of
the outstanding balance of the loans sold. The principal risks associated with
this activity are (i) that interest rates will increase between the time the
loans are originated and the time the loans are sold and (ii) that the Savings
Bank will be unable to deliver loans as to which a contractual obligation to
sell has been incurred. As to both types of risk, Management believes that the
potential loss to the Savings Bank is not significant.
Generally, ARM loans pose credit risks different from the risk inherent
in fixed-rate loans, primarily because as interest rates rise, the underlying
payments of the borrower rise, thereby increasing the potential for default. At
the same time, the marketability of the underlying property may be adversely
affected by higher interest rates. The Savings Bank currently offers ARM loans
which adjust annually and ARM loans with the rates fixed for the first three,
five or seven years and annually adjustable thereafter. The ARM loans currently
being originated by the Savings Bank adjust by a maximum of 2% per adjustment
and have a lifetime maximum adjustment of 6% over the initial interest rate. ARM
loans are originated for terms of up to 30 years.
RESIDENTIAL CONSTRUCTION LOANS. The Savings Bank originates
construction and construction-permanent loans secured by one- to four-family
residential properties and, at June 30, 1995, held $1.6 million of such loans,
or 1.0% of its total loan portfolio. Construction loans are generally made for
terms not to exceed twelve months and at interest rates equal to the prime rate,
plus a margin of 1% to 2% per annum. Such loans are underwritten based upon
plans, specifications of materials, appraisal of the completion value of the
land and improvements, qualifications of the borrower as to credit, employment
stability and ability to repay the loan. Qualifications of the proposed
contractor are also considered. Disbursements from the loan proceeds are made in
accordance with the progress of the construction confirmed by physical
inspection of the premises by representatives of the Savings Bank and written
documentation of such inspection is maintained. The maximum loan-to-value ratio
for construction loans is generally 80% of the appraised value, not to exceed
the cost of land and improvements. Applicants for "construction only" loans must
have a "take-out" commitment for a permanent mortgage loan from the Savings Bank
or another lender prior to the loan approval, thereby providing the Savings Bank
with adequate assurance that the construction loan will be repaid at maturity.
Construction lending generally is considered to involve a higher degree
of risk of loss than permanent lending on improved, owner-occupied real estate.
Risk of loss on a construction loan is dependent largely upon the accuracy of
the initial estimate of the property's value at completion of construction or
development and the estimated cost (including interest) of construction. During
the construction phase, a number of factors could result in delays and cost
overruns. If the estimate of construction costs proves to be inaccurate, the
Savings Bank may be required to advance funds beyond the amount originally
committed to permit completion of the development. If the estimate of value
proves to be inaccurate, the Savings Bank may be confronted, at or prior to the
maturity of the loan, with collateral having a value which is insufficient to
assure full repayment.
NONRESIDENTIAL REAL ESTATE/MULTI-FAMILY LENDING. The Savings Bank
originates loans secured by nonresidential real estate and multi-family dwelling
units (more than four units). At June 30, 1995, the Savings Bank had $14.2
million, or 9.5%, and $4.3 million, or 2.8%, of the Savings Bank's total loan
portfolio invested in loans secured by nonresidential real estate and
multi-family dwelling units, respectively, located primarily in Central
Virginia. Multi-family real estate loans are generally originated at 80% or less
of the appraised value of the property or selling price, whichever is less, and
are generally originated on an adjustable rate basis with adjustments scheduled
as frequently as semi-annually or annually. The Savings Bank also originates
commercial real estate loans with the rate fixed for as long as five years, then
adjusting periodically thereafter. The index for these loans is usually the
prime rate or the one year U.S. Treasury yield. Margins for such loans vary
based upon the nature of the collateral and the credit risk of the individual
loan. The maximum term for such loans is 25 years and the maximum
loan-to-appraised-value is 75%. These loans generally have no limits on periodic
adjustments, but may have maximum lifetime adjustments of 5% to 6% above/below
the original rate of interest.
Of primary concern in nonresidential real estate and multi-family
lending is the feasibility and cash flow potential of the project and the
borrower's credit worthiness. Loans secured by income properties are generally
larger and involve greater risks than residential mortgage loans because
payments on loans secured by income properties are often dependent on successful
operation or management of the properties. As a result, repayment of such loans
may be subject, to a greater extent than one-to four-family real estate loans,
to adverse conditions in the real estate market or the economy.
CONSUMER AND OTHER LOANS. The Savings Bank also offers consumer loans
such as personal loans, share loans, home equity loans and automobile loans as
well as commercial loans. These loans totaled $12.3 million or 8.2% of total
54
<PAGE>
loans receivable at June 30, 1995. Federal regulations permit savings
associations to make secured and unsecured consumer loans up to 35% of an
institution's assets. In addition, a savings association has lending authority
above the 35% category for certain consumer loans, such as home equity loans,
property improvement loans, and loans secured by savings accounts.
Consumer loans are conservatively underwritten with greatest attention
given to the borrower's ability to repay the loan as constructed as evidenced by
employment stability, credit status and history and current financial status.
Under federal regulations, the Savings Bank is permitted to make
secured or unsecured loans for commercial, corporate, business or agricultural
purposes, including the issuance of letters of credit secured by real estate,
business equipment, inventories, accounts receivable and cash equivalents in
amounts not exceeding 10% of the Savings Bank's assets. Non-real estate
commercial lending by the Savings Bank (exclusive of corporate debt issues) has
been limited with the total outstanding balances of such loans at June 30, 1995
being $8.6 million, which amount is included in the $12.3 million of total other
loans. These loans are generally for speculative residential construction by
building contractors or small business operations. The Savings Bank obtains
personal guarantees from the principals of the borrowing entity and such loans
are collateralized by real estate and/or personal property.
LOAN APPROVAL AUTHORITY AND UNDERWRITING. The Loan Administrative
Officer is qualified to approve one-to four-family residential mortgage loans
conforming to secondary mortgage market standards and for an amount not
exceeding the FNMA/FHLMC purchase limits, currently $203,150. Approval authority
for the Senior Lending Officer and the Senior Retail Banking Officer is placed
at $200,000 for real estate secured loans and $100,000 for non-mortgage loans.
The Chief Executive Officer has a $500,000 lending authority limit. Any loan in
excess of $500,000 must be approved by action of the Board of Directors of the
Savings Bank or a committee of that Board. One-to four-family residential
mortgage loans are underwritten in accordance with the Savings Bank's written
loan underwriting guidelines, including verification of applicant's credit and
income and the market value of real estate collateral. It is the Savings Bank's
policy to require lender's title insurance policies on real estate loans.
Borrowers must also obtain hazard and flood insurance (for loans on property
located in a flood zone) prior to closing the loan. For loans with a 90% or
higher loan to value ratio, borrowers are required to advance funds on a monthly
basis together with each payment of principal and interest to an escrow account
from which the Savings Bank makes disbursements for real estate taxes and hazard
insurance premiums. For other loans, the escrow of such funds is at the
borrower's option.
MORTGAGE-BACKED AND RELATED SECURITIES. At June 30, 1995,
mortgage-backed securities totaled $27.7 million. Most of these mortgage-backed
securities (over 90%) at June 30, 1995 are either FNMA or FHLMC securities, thus
minimizing any credit risk associated with holding such securities. The Savings
Bank remains subject to the risk that these securities will decline in value if
market interest rates increase. The mortgage-backed securities in the portfolio
had a weighted average yield of 6.95% at June 30, 1995. The Savings Bank follows
a strategy of investing in short-term mortgage-backed securities and mutual
funds invested in mortgage-backed securities as an alternative to investments in
adjustable-rate, residential mortgage loans. During the low interest rate
environment of the past several fiscal years, ARM loans were in low demand.
Origination and sale of fixed-rate, fixed-term mortgage loans, while
accommodating the market demand, did not build and maintain the requisite Bank
investment in "qualified thrift investments." Accordingly, the Savings Bank's
activity in this field of mortgage-backed and related securities not only
enabled the Savings Bank to meet its QTL Test for investment in residential
mortgage assets, but also afforded the Savings Bank an opportunity to limit its
exposure to interest rate risk. See also "--Investment Activity -- Effect on
Securities Value."
LOANS AND MORTGAGE-BACKED SECURITIES MATURITY AND REPRICING.
The following table shows the maturity of the Savings Bank's loan and
mortgage-backed and related securities portfolios at June 30, 1995. Loans that
have adjustable rates are shown as being due in the period during which the
interest rates are next subject to change. The table does not include
prepayments or scheduled principal amortization. Prepayments and scheduled
principal amortization on mortgage loans totaled $27.5 million, $29.0 million,
and $31.0 million, for the years ended June 30, 1995, 1994 and 1993,
respectively.
55
<PAGE>
<TABLE>
<CAPTION>
AT JUNE 30, 1995
MORTGAGE LOANS TOTALS
MORTGAGE-BACKED
OTHER AND
ONE TO MULTI-- NON-RESIDENTIAL LOANS TOTAL LOANS RELATED
(IN THOUSANDS) FOUR FAMILY FAMILY REAL ESTATE LAND RECEIVABLE RECEIVABLE SECURITIES TOTAL
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Amounts due:
Within 1 year $ 1,698 $ 506 $ 3,634 $ 500 $ 7,668 $ 14,006 $ 2,510 $ 16,516
After 1 year:
1 to 3 years 995 83 591 37 2,186 3,892 14,815 18,707
3 to 5 years 2,056 79 578 160 1,673 4,546 4,631 9,177
5 to 10 years 12,301 200 1,596 209 553 14,859 5,550 20,409
10 to 20 years 39,982 2,725 6,443 154 254 49,558 274 49,832
Over 20 years 62,350 688 370 - - 63,408 - 63,408
Total due after
1 year 117,684 3,775 9,578 560 4,666 136,263 25,270 161,533
Total amounts
due or repricing 119,382 4,281 13,212 1,060 12,334 150,269 27,780 178,049
Less:
Loans in process 769 102 1,161 84 2,358 4,474 - 4,474
Unearned discounts,
(premiums) and
deferred loan fees,
net 777 25 42 2 - 846 97 943
Allowance for credit
losses 363 38 206 5 325 937 - 937
Loans receivable and
mortgage-backed
securities, net $117,473 $4,116 $11,803 $ 969 $9,651 $144,012 $27,683 $171,695
</TABLE>
The following table sets forth at June 30, 1995, the dollar amount of
all loans and mortgage-backed and related securities due after June 30, 1996,
and whether such loans and mortgage-backed and related securities have fixed or
adjustable rates.
<TABLE>
<CAPTION>
DUE AFTER JUNE 30, 1996
(IN THOUSANDS) FIXED ADJUSTABLE TOTAL
<S> <C> <C> <C>
Mortgage loans:
One-to four-family $62,272 $55,412 $117,684
Multi-family 273 3,502 3,775
Commercial real estate 1,845 7,733 9,578
Land and other 340 220 560
Other loans 4,079 587 4,666
Total loans receivable 68,809 67,454 136,263
Mortgage-backed and related securities 24,726 544 25,270
Total loans receivable and mortgage-
backed securities $93,535 $67,998 $161,533
</TABLE>
NON-PERFORMING AND PROBLEM ASSETS
COLLECTION PROCEDURES. The Savings Bank's collection procedures on
delinquent loans, mortgage and consumer, are implemented primarily by the
Savings Bank's Collection Officer. On mortgage loans, the procedures include the
sending of a written past due notice 15 days after the due date for payment,
followed by a delinquency notice if the payment is not received within 30 days
following the payment due date. Late charges are assessed after a loan is 15
days past due. During this procedure, attempts are made to reach the borrower by
telephone to ascertain the reason for the delinquency. If payment is not
received and if telephone contact is not successful, letters are sent to the
borrower at the address shown on the Savings Bank's records. If initial letters
are not successful, registered letters are sent requesting face-to-face meeting
with the borrower to ascertain the circumstances and arrive at corrective
procedures. If collection efforts are unsuccessful, foreclosure
56
<PAGE>
procedures are initiated which, if carried to fulfillment, results in the
auction of the security property to recover the balance owning to the Savings
Bank. At any time during the foreclosure process, efforts to work out a
repayment schedule and avoid the foreclosure are continued. Generally,
foreclosure actions are initiated when a loan is 60-90 days delinquent.
Collection efforts start much earlier on consumer and commercial loans
with the initial contact being made five days after the loan payment due date.
This contact is usually by telephone, then in writing. The collection efforts on
delinquent consumer and commercial loans is constantly continued until
corrective measures are taken by the borrower or until repossession of
collateral is initiated. Repossession of collateral is usually initiated within
the first 30 to 60 days of delinquency. The Savings Bank had no incidents of
having to initiate repossession of collateral under its consumer and commercial
loans during the periods discussed herein.
From time to time, borrowers file for bankruptcy for purposes of
development of a workout of their financial problems or to remove the burden of
debt which is beyond their ability to repay. In these cases the Collections
Officer represents the Savings Bank and works with the courts and the trustees
in bankruptcy to protect the interest of the Savings Bank.
At June 30, 1995, the Savings Bank had mortgage loans delinquent more
than 90 days which consisted of eleven residential mortgage loans secured by
owner-occupied one-to four-family properties with an aggregate outstanding
balance of $331,000 and two nonresidential mortgage loan with an outstanding
balance of $1,046,000. All of these loans were secured by properties located in
the Savings Bank's primary market area.
DELINQUENT LOANS. At June 30, 1995, 1994 and 1993, delinquencies in the Savings
Bank's portfolio were as follows:
<TABLE>
<CAPTION>
At June 30, 1995 At June 30, 1994 At June 30, 1993
60 - 89 Days 90 Days or More 60 - 89 Days 90 Days or 60 - 89 Days 90 Days or
More More
(DOLLARS IN PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL
THOUSANDS) NUMBER BALANCE NUMBER BALANCE NUMBER BALANCE NUMBER BALANCE NUMBER BALANCE NUMBER BALANCE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
One-to four-family 5 $ 214 11 $ 311 68 $ 2,018 9 $ 334 58 $1,638 11 $ 313
Multi-family - - - - - - - - - - - -
Nonresidential - - 2 1,046 4 95 1 31 4 300 2 55
Construction - - - - - - - - - - - -
Land - - - - 3 27 - 2 2 24 - -
Total mortgage loans 5 214 13 1,377 75 2,140 10 365 64 1,962 13 368
Other loans 8 23 2 34 2 13 1 4 1 5 - -
Total all loans 13 $ 237 15 $1,411 77 $ 2,153 11 $ 369 65 $1,967 13 $ 368
Delinquent loans
/net loans 0.35% 0.16% 0.35% 0.98% 1.92% 1.73% 0.27% 0.30% 1.69% 1.75% 0.34% 0.33%
Delinquent loans
/total loans 0.35% 0.15% 0.35 0.93% 1.92% 1.66% 0.27% 0.28% 1.69% 1.58% 0.34% 0.30%
</TABLE>
NON-PERFORMING ASSETS AND ALLOWANCE FOR CREDIT LOSSES. Non-performing
assets include non-accrual loans, non-performing accruing loans and foreclosed
real estate. The Savings Bank provides valuation allowances for estimated
losses from uncollectible loans. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Asset Quality--."
INCOME FROM LENDING ACTIVITIES.
The major source of the Savings Bank's
income is the interest charged on the loans that it has in its portfolio.
Interest rates charged on loans originated by the Savings Bank are primarily
determined by the prevailing market rates of interest, the availability of
lendable funds, the demand for such loans and competitive conditions.
In addition to interest earned on loans, the Savings Bank receives fees
in connection with loan originations. Currently, the Savings Bank receives
origination fees and discount points totaling 0% to 3% on permanent residential
loans, 0% to 2.5% on residential construction loans and 1% to 2.5% on permanent
commercial real estate loans. The Savings Bank
57
<PAGE>
also receives other income relating to existing loans in its portfolio,
including loan prepayment penalties, late charges and loan servicing fees.
At June 30, 1995, the Savings Bank was servicing $37.3 million of loans
owned by FHLMC and FNMA as compared to $39.9 million and $20.6 million at June
30, 1994 and 1993, respectively. Loan servicing fee income amounted to $127,000
and $90,000 during fiscal 1995 and fiscal 1994, respectively.
INVESTMENT ACTIVITIES
GENERAL. Federally chartered savings institutions have the authority to
invest in various types of liquid assets, including U.S. Government obligations,
securities of various federal agencies, certain certificates of deposit of
insured banks and savings institutions, certain bankers' acceptances, repurchase
agreements and federal funds sold. Subject to various restrictions, federally
chartered savings institutions may also invest a portion of their assets in
commercial paper, corporate debt securities and asset-backed securities. The
investment policy of the Savings Bank, which is established by the Board of
Directors and is implemented by the President and the Treasurer, is designed
primarily to provide and maintain liquidity, to generate a favorable return on
investments without incurring undue interest rate and credit risk, and to
complement and fund the Savings Bank's lending activities. The Savings Bank's
President and Treasurer have authority to make investments for the Savings Bank
within the scope of the policy established by the Board of Directors. The
President and the Treasurer make a monthly report to the Board of Directors on
all investments.
PORTFOLIO COMPOSITION. The maturities of the Savings Bank's and CSB
Financial's securities portfolios are short term in nature because of
Management's strategy to use these funds to manage CSB Financial's overall
interest rate risk and the Savings Bank's compliance with the Qualified Thrift
Lender (QTL) Test. See "Supervision and Regulation of CSB Financial--Bank
Regulation--QTL Test." Traditionally, the Savings Bank has invested primarily in
U.S. Government and agency obligations and, to a lesser extent, in high-grade
corporate securities. Beginning in fiscal 1992, the Savings Bank expanded its
investments to include marketable equity securities ("mutual funds") which are
composed of adjustable rate mortgage products and U.S. Government obligations.
The investments in mutual funds enables CSB Financial and Bank to include a
wider range of U.S. Government issues within its investments portfolio than
would be reasonably possible through direct investments in these same
securities.
CSB Financial's and the Savings Bank's investment in marketable equity
securities began in 1992 when the Savings Bank sold approximately $19.6 million
of long-term, fixed-rate mortgage-backed securities and reinvested those funds
into mutual funds backed by adjustable-rate mortgage-backed securities. The
Savings Bank continued to invest in these types of funds throughout 1993 as an
alternative to adjustable rate residential mortgage loans due to low demand for
this product in the Savings Bank's market area. Then in 1994, the proceeds from
the stock conversion were invested in marketable equity securities because of
CSB Financial's ability to liquidate these investments on a short-term basis as
other investment opportunities present themselves. Investments in these funds
are based on the composition of its portfolio, the stability of its Net Asset
Value (NAV) and its dividends rate. Management monitors the daily dividend rates
and NAVs on all of its funds and reports on the status of the funds and their
overall rate of return to the Board of Directors monthly. CSB Financial and the
Savings Bank held an aggregate balance of $48.1 million, $47.5 million and $37.8
million in marketable equity securities at June 30, 1995, 1994 and 1993,
respectively.
The Savings Bank's investment in corporate debt obligations has
increased modestly during fiscal years 1995, 1994 and 1993. These investments
are evaluated based upon thorough review and analysis of background data on each
corporate entity and review of the rating of such corporation's debt by Moodys
and/or Standard and Poors prior to making an investment in its debt securities.
Only investment-grade securities or regional entities' debt issues with which
Bank management is very familiar are considered for investment. The Savings Bank
held $27.6 million, $24.4 million, and $18.7 million in corporate debt
securities at June 30, 1995, 1994 and 1993, respectively.
SECURITIES TRADING ACTIVITIES. From time to time, the Savings Bank may
engage in a limited amount of securities trading for the purpose of improving
the Savings Bank's return on assets. Pursuant to generally accepted accounting
principles, securities designated for trading are maintained in a separate
trading account and are reported at market value. The average investment in
securities held in the trading account for the fiscal years ended June 30, 1994
and 1993 were $186,000 and $502,000, respectively. During fiscal 1995, there
were no securities held in the trading accounts.
Pursuant to limits set by the Board of Directors, no more than $20.0
million may be invested in securities held in the trading account at any one
time and securities must be sold if the price increases or decreases by more
than a specified
58
<PAGE>
amount. Transactions in the trading account are executed by the Chief Executive
Officer and the Senior Financial Officer and are reported to the Board of
Directors monthly.
The Savings Bank utilizes the trading account as a medium for
short-term investment of funds which are anticipated to be used for other
funding purposes at a designated time and only invests in U.S. Government
obligations. Use of the trading account under these conditions affords the
Savings Bank the ability to earn a return greater than that of federal funds (or
overnight funds) while still maintaining cash availability without sacrificing
credit quality or increasing sensitivity to interest rate risk.
EFFECT ON SECURITIES VALUES. In addition to affecting net interest
income, interest rates affect the value of CSB Financial's interest-earning
assets. Generally, the value of fixed-rate securities fluctuate inversely with
interest rate changes. Furthermore, changes in interest rates also can affect
the average life (and thus outstanding balances) of mortgage-backed securities,
as borrowers, in low interest rate periods, refinance to reduce borrowing cost.
At June 30, 1995 CSB Financial held $56.6 million in securities classified as
available for sale, including marketable equity securities, with an aggregate
amortized cost of $58.0 million.
59
<PAGE>
The following table sets forth certain information regarding the
carrying and market values of CSB Financial's and the Savings Bank's
interest-earning deposits, investment and trading securities at the dates
indicated:
<TABLE>
<CAPTION>
AT JUNE 30, 1995
1995 1994 1993
(IN THOUSANDS) CARRYING MARKET CARRYING MARKET CARRYING MARKET
VALUE VALUE VALUE VALUE VALUE VALUE
<S> <C> <C> <C> <C> <C> <C>
Interest-Bearing Deposits
(including CD's etc.) $ 40 $ 40 $ 442 $ 442 $ 1,042 $ 1,042
Trading Securities (U.S. Govt.) - - - - 998 998
Marketable Equity Securities
U.S. Government securities funds 7,753 7,753 7,634 7,634 8,930 8,930
Adjustable rate mortgage funds 37,694 37,694 37,420 37,420 26,382 26,382
FHLMC stock 945 945 914 914 967 967
FHLB stock 1,195 1,195 1,531 1,531 1,471 1,471
Other equity securities 490 490 - - - -
Total 48,077 48,077 47,499 47,499 37,750 37,750
Securities Available For Sale
U.S. Government and federal 8,490 8,490 13,374 13,374 - -
agency obligations
Corporate and other securities - - 11,979 11,979 - -
Total 8,490 8,490 25,353 25,353 - -
Securities Held to Maturity
U.S. Government federal
agency obligations 31,011 31,327 11,999 11,795 15,553 15,947
State and political subdivision
obligations 1,042 1,049 - - - -
Corporate and other securities 27,632 27,679 12,463 11,929 18,668 19,014
Total 59,685 60,055 24,462 23,724 34,221 34,961
Total investment securities $116,292 $116,662 $97,756 $97,018 $74,011 $74,751
</TABLE>
60
<PAGE>
The table below sets forth certain information regarding the carrying
value, weighted average yields and maturities of the Savings Bank's investment
securities at June 30, 1995.
<TABLE>
<CAPTION>
1 Year or Less 1 to 3 Years 3 to 5 Years More than 5 Years Total Investments Securities
AVERAGE
(DOLLARS IN WEIGHTED WEIGHTED WEIGHTED WEIGHTED REMAINING APPROX. WEIGHTED
THOUSANDS) CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE YEARS TO CARRYING MARKET AVERAGE
VALUE RATE VALUE RATE VALUE RATE VALUE RATE MATURITY VALUE VALUE YIELD
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-Bearing
Deposits $ 40 2.50% $ - - $ - - $ - - N/A $ 40 $ 40 2.50%
Marketable
Equity Securities
U.S. Government
securities $ 7,753 5.96% $ - - $ - - $ - - N/A $ 7,753 $ 7,753 5.96%
funds
Adjustable rate
mortgage funds 37,694 5.82% - - - - - - N/A 37,694 37,694 5.82%
FHLMC stock 945 5.52% - - - - - - N/A 945 945 5.52%
FHLB stock 1,195 7.25% - - - - - - N/A 1,195 1,195 7.25%
Other equity
securities 490 3.41% - - - - - - N/A 490 490 3.41%
Total $ 48,077 5.85% $ - - $ - - $ - - N/A $ 48,077 $ 48,077 5.85%
Securities
Available For Sale
U.S. Government
and federal
agency obligations $ - - $ - - $ - - $ 8,490 6.52% 12.00 $ 8,490 $ 8,490 6.52%
Corporate and
other securities - - - - - - - - - - - - %
Total $ - - $ - - $ - - $ 8,490 6.52% 12.00 $ 8,490 $ 8,490 6.52%
Securities Held to
Maturity
U.S. Government
and federal
agency obligations $998 7.11% $12,634 6.27% $13,384 5.80% $3,995 7.21% 3.47 $ 31,011 $31,327 6.22%
State and political
subdivision 1,042 6.72% - - - - - - 1.00 1,042 1,049 6.72%
obligations
Corporate and
other securities 3,972 5.88% 9,731 7.21% 10,927 6.05% 3,002 6.66% 3.11 27,632 27,679 6.50%
Total $6,012 6.23% $22,365 6.68% $24,311 5.91% $6,997 6.98% 3.26 $ 59,685 $60,055 6.36%
</TABLE>
Investment securities (exclusive of obligations of the U.S. Government
and federal agencies issued by any one entity with a total carrying value in
excess of 10% of stockholders' equity at June 30, 1995 include the AMF
Intermediate U.S. Government Fund ($5.6 million), Federated U.S. Government Fund
($7.6 million), AMF Adjustable Rate Mortgage Fund ($10.9 million), Federated
Adjustable Rate Mortgage Fund ($9.7 million) and AMF Intermediate Mortgage Fund
($9.7 million).
61
<PAGE>
SOURCES OF FUNDS
GENERAL. Except for the proceeds from the stock conversion in fiscal
1994 and a purchase of a branch in fiscal 1995, deposits, loan repayments and
retained earnings are the primary sources of the Savings Bank's funds for use in
lending, investing and for other general purposes. From time to time, the
Savings Bank supplements its primary sources through borrowings from the
FHLB-Atlanta.
DEPOSITS. The Savings Bank offers a variety of deposit accounts having
a range of interest rates and terms. The Savings Bank's deposits consist of
passbook savings, NOW, money market and certificate accounts. The flow of
deposits is influenced significantly by general economic conditions, changes in
money market and prevailing interest rates and competition. The Savings Bank's
deposits are obtained primarily from the areas in which its branches are
located. The Savings Bank uses no brokers to obtain deposits, relying primarily
on customer service and long-standing relationships with customers to attract
and retain deposits. Certificate accounts in excess of $100,000 are not actively
solicited by the Savings Bank nor does the Savings Bank pay preferential
interest rates on such accounts.
The following table sets forth the distribution of the Savings Bank's
deposit accounts at the dates indicated and the weighted average nominal
interest rates on each category of deposits presented.
<TABLE>
<CAPTION>
JUNE 30, 1995 JUNE 30, 1994 JUNE 30, 1993
WEIGHTED WEIGHTED WEIGHTED
% OF AVERAGE % OF AVERAGE % OF AVERAGE
TOTAL NOMINAL TOTAL NOMINAL TOTAL NOMINAL
(DOLLARS IN THOUSANDS) AMOUNT DEPOSITS RATE AMOUNT DEPOSITS RATE AMOUNT DEPOSITS RATE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Demand Accounts
Non-interest bearing DDAs $ 4,525 1.85% 0.00% $3,426 1.75% 0.00% $3,199 1.60% 0.00%
NOW 16,678 6.83% 3.00% 19,385 9.89% 2.96% 18,726 9.36% 3.12%
Money market 13,470 5.52% 3.39% 14,472 7.38% 3.09% 13,843 6.92% 3.30%
Regular savings 40,379 16.55% 3.73% 41,324 21.08% 3.35% 41,555 20.78% 3.35%
Club accounts 142 0.06% 0.73% 115 0.06% 0.00% 99 0.05% 0.00%
Total 75,194 30.81% 3.27% 78,722 40.16% 3.05% 77,422 38.71% 3.14%
Certificate Accounts
Fixed Rates of Interest
7 to 91 days 334 0.14% 3.75% 317 0.16% 3.00% 166 0.08% 3.00%
Over 91 to 180 days 11,074 4.54% 4.81% 9,920 5.06% 3.29% 38,987 19.49% 3.61%
Over 181 to 365 days 42,253 17.31% 5.36% 19,005 9.70% 3.52% 3,745 1.87% 4.22%
Over 1 year to 3 years 50,175 20.56% 5.22% 39,771 20.29% 4.65% 42,898 21.45% 5.77%
Over 3 years and up 26,810 10.98% 6.51% 13,055 6.67% 5.78% 9,380 4.69% 6.69%
Other 66 0.03% 7.98% 458 0.23% 7.77% 593 0.30% 8.32%
Variable Rates of Interest
Up to 1 year 12,953 5.31% 6.61% 27,941 14.26% 4.87% 20,253 10.13% 3.75%
Over 1 year 21,220 8.69% 6.41% 2,381 1.21% 5.51% 381 0.19% 3.81%
Jumbos 3,986 1.63% 5.13% 4,438 2.26% 3.71% 6,184 3.09% 3.65%
Total 168,871 69.19% 5.69% 117,286 59.84% 4.52% 122,587 61.29% 4.67%
Total deposits $244,065 100.00% 4.94% $196,008 100.00% 3.93% $200,009 100.00% 4.08%
</TABLE>
62
<PAGE>
The following table presents the deposit activity of the Savings Bank
for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
(IN THOUSANDS) 1995 1994 1993
<S> <C> <C> <C>
Net deposits (withdrawals) $ ( 3,422) $(11,652) $ 361
Acquisition of deposits 41,165 - -
Interest credited 10,314 7,651 8,692
Total increase (decrease) in deposits $ 48,057 $( 4,001) $ 9,053
</TABLE>
At June 30, 1995, the Savings Bank had outstanding $19.9 million in
certificate accounts in amounts of $100,000 or more maturing as follows:
MATURITY PERIOD AMOUNT
(In thousands)
Three months or less $ 3,516
Over three through six months 1,908
Over six through 12 months 5,627
Over 12 months 8,827
Total $19,878
The following tables present, by various rate categories, the amount of
certificate accounts outstanding at June 30, 1995, 1994 and 1993 and the periods
to maturity of the certificate accounts outstanding at June 30, 1995.
<TABLE>
<CAPTION>
PERIOD TO MATURITY FROM JUNE 30, 1995
WITHIN AT JUNE 30
(IN THOUSANDS) ONE YEAR 3 YEARS THEREAFTER 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
Certificate accounts
3.99% or less $ 3,284 $ - $ - $ 3,284 $ 35,819 $ 57,138
4.00% to 4.99% 29,266 6,573 - 35,839 50,046 26,593
5.00% to 5.99% 35,620 16,160 113 51,893 26,059 15,862
6.00% to 6.99% 32,066 26,501 3,709 62,276 3,516 10,802
7.00% to 7.99% 206 3,696 11,198 15,100 533 6,990
8.00% to 8.99% 352 1 79 432 1,251 4,362
9.00% to 9.99% 47 - - 47 61 940
Total $100,841 $ 52,931 $ 15,099 $168,871 $117,285 $122,687
</TABLE>
BORROWINGS. Deposits are the Savings Bank's primary source of funds.
The Savings Bank's policy has been to utilize borrowings only when necessary and
when they are a less costly source of funds or can be invested at a positive
rate of return. The Savings Bank may obtain advances from the FHLB-Atlanta upon
the security of its capital stock of the FHLB-Atlanta and certain of its
mortgage loans. See "Supervision and Regulation of CSB Financial--Bank
Regulation--Federal Home Loan Bank System." At June 30, 1995, the Savings Bank
had $14.5 million in outstanding advances from the FHLB-Atlanta with a weighted
average interest rate of 6.33% and with a weighted average maturity of 1.6
years. The Savings Bank, from time to time, also makes use of other borrowing
mechanisms, including reverse repurchase agreements. At June 30, 1995, the
Savings Bank has no reverse repurchase agreements outstanding.
In November 1992, the Savings Bank entered into a loan agreement with
the FHLB-Atlanta, covering an aggregate of $10 million in advances, structured
to be repaid over a five-year period commencing in November 1994. These funds
were used in part to meet loan demand resulting from an increase in refinancings
of mortgage loans due to lower interest rates. Management believes that the
normal repayment of existing mortgage loans will provide the funds necessary to
repay the FHLB advance and that the use of these funds will provide a positive
net yield to the Savings Bank.
63
<PAGE>
The following table sets forth certain information regarding borrowed
funds for the dates indicated:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
(DOLLARS IN THOUSANDS) 1995 1994 1993
<S> <C> <C> <C>
FHLB-Atlanta advances:
Average balance outstanding $12,233 $10,000 $ 6,886
Maximum amount outstanding at any month-
end during the period 19,263 10,000 11,150
Balance outstanding at end of period 14,500 10,000 10,000
Weighted average interest rate during
the period 6.26% 6.36% 6.68%
Weighted average interest rate at the
end of period 6.33% 6.36% 6.30%
Short-term borrowings:
Average balance outstanding $ 318 $ 42 $ 351
Maximum amount outstanding at any month-
end during the period 1,499 1,499 4,000
Balance outstanding at end of period - 1,499 -
Weighted average interest rate during
the period 4.72% 2.38% 3.64%
Weighted average interest rate at the
end of period - 4.44% -
Total borrowing:
Average balance outstanding $12,551 $10,042 $ 7,237
Maximum amount outstanding at any month-
end during the period 19,263 11,499 15,150
Balance outstanding at end of period 14,500 11,499 10,000
Weighted average interest rate during
the period 6.22% 6.27% 6.56%
Weighted average interest rate at the
end of period 6.33% 6.10% 6.36%
</TABLE>
64
<PAGE>
COMPETITION
The Savings Bank faces strong competition in attracting deposits, its
principal source of funds. Its most direct competition for deposits has
historically come from other thrift institutions, commercial banks and credit
unions located in the areas where the Savings Bank's offices are located. The
Savings Bank also has to compete with money market funds, bond funds and equity
funds, which unlike financial institutions, are not required to maintain reserve
requirements or pay premiums to regulatory agencies for depository insurance,
and are therefore able to offer higher interest rates and potentially higher
returns on such investments. The Savings Bank competes for deposits by offering
a wide variety of deposit accounts, a tax-deferred retirement program,
competitive rates and miscellaneous services.
The Savings Bank also must compete vigorously in making loans. The
Savings Bank's competition for real-estate loans comes principally from other
thrift institutions, commercial banks, mortgage brokers, mortgage banking
companies and other institutional lenders located throughout Virginia. The
Savings Bank competes for loans through the interest rates and loan fees that it
charges and the efficiency and quality of services that it provides borrowers.
PERSONNEL
As of December 31, 1995, the Savings Bank had 103.5 full-time
equivalent employees. The employees are not represented by a collective
bargaining agreement. The Savings Bank believes its relationship with its
employees is good.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
CSB Financial's Certificate of Incorporation provides that in no event shall any
record owner of any outstanding Common Stock which is beneficially owned,
directly or indirectly, by a person who beneficially owns in excess of 10% of
the then outstanding shares of Common Stock (the "Limit") be entitled or
permitted to any vote with respect to the shares held in excess of the Limit and
that voting rights may, in certain situations, be reduced below the Limit.
Beneficial ownership is determined pursuant to Rule 13d-3 of the General Rules
and Regulations promulgated pursuant to the Securities Exchange Act of 1934
("1934 Act"), and includes shares beneficially owned by such person or any of
his or her affiliates (as defined in the Certificate of Incorporation) and
shares which such person or his or her affiliates have the right to acquire upon
the exercise of conversion rights or options and shares as to which such person
and his or her affiliates have or share investment or voting power, but shall
not include shares beneficially owned by the Bank's Employee Stock Ownership
Plan ("ESOP"), or shares that are subject to a revocable proxy and that are not
otherwise beneficially owned, or deemed by the Company to be beneficially owned,
by such person or his or her affiliates.
The presence in person or by proxy of at least a majority of the outstanding
shares of Common Stock entitled to vote (after subtracting any shares held in
excess of the Limit) is necessary to constitute a quorum at the Special Meeting.
In the event that there are not sufficient votes present for a quorum, or to
ratify any proposal at the time of the Special Meeting, the Special Meeting may
be adjourned in order to permit the further solicitation of proxies.
Persons and groups owning in excess of five percent of the Common Stock are
required to file certain reports with the Securities and Exchange Commission
("SEC") regarding such ownership pursuant to the 1934 Act. Based upon such
reports and information provided by the Company's Stock Transfer Agent, the
following table sets forth, as of March 15, 1996, certain information as to
those persons who were beneficial owners of more than 5% of the outstanding
shares of Common Stock.
65
<PAGE>
<TABLE>
<CAPTION>
Percent of Shares
Name and Address of Amount and Nature of Common Stock
Beneficial Owner of Beneficial Ownership Outstanding(1)
<S> <C> <C>
Co-operative Savings Bank, FSB 220,800 8.36%
Employee Stock
Ownership Plan and Trust
(the "ESOP")(2)
2120 Langhorne Road
Lynchburg, Virginia 24501
The Shelton Group(3) 150,303 5.69%
301 South College Street
Charlotte, North Carolina 28202
First Manhattan Co. 140,000 5.30%
437 Madison Avenue
New York, New York 10022
</TABLE>
(1) Calculated based upon 2,642,081 shares of Common Stock outstanding.
(2) A Committee of the Board of Directors of the Bank, consisting of
Messrs. Britton, Conner, and Perrow, administers the ESOP as a
committee (the "ESOP Committee"). The ESOP Committee has also been
appointed as the trustee for the ESOP (the "ESOP Trustee"). As
administrator and trustee, the ESOP Committee directs the investment of
funds contributed to the ESOP. The ESOP Trustee must vote all allocated
shares held in the ESOP in accordance with the instructions of the
participating employees. Under the ESOP, unallocated shares held in the
suspense account will be voted by the ESOP Trustee in a manner
calculated to most accurately reflect the instructions received from
participants regarding the allocated stock so long as such vote is in
accordance with the provisions of Employee Retirement Income Security
Act of 1974, as amended ("ERISA").
(3) The Shelton Group consists of the following private and personal
investors who, acting in concert, hold shared voting power in excess of
5% of outstanding stock: The Shelton Companies, a North Carolina
Partnership in which Charles M. Shelton, Sr. and R. Edwin Shelton are
each 50% general partners, The Shelton Foundation, Third Set, Inc.,
Chedren, Inc., Charles M. Shelton, Sr., Sandra G. Shelton, R. Edwin
Shelton, Amanda L. Shelton, Charles M. Shelton, Jr., Dorothy M.
Shelton, Jennifer L. Shelton, Winifred L. Shelton, and Linda Shelton
Surles.
66
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS OF
CSB FINANCIAL
INFORMATION WITH RESPECT TO DIRECTORS
CSB Financial's Board of Directors is presently composed of ten members
who are elected for terms of three years, approximately one-third of whom are to
be elected annually in accordance with CSB Financial's Bylaws.
The following table sets forth each director's name, age, the year he or she
first became a director of CSB Financial, the year in which such term will
expire and the number of shares and percentage of CSB Financial's Common Stock
beneficially owned. The following table also sets forth, for all executive
officers and directors as a group and for each executive officer listed in the
Summary Compensation Table under the caption "Executive Compensation," the
number of shares and the percentage of CSB Financial's Common Stock beneficially
owned.
<TABLE>
<CAPTION>
Yr. First Shares of Common
Elected Term To Stock Beneficially % of
Name Age(1) Director Expire Owned(2)(3)(4)(5) Class(6)
<S> <C> <C> <C> <C> <C>
Bob M. Johnson 60 1993 1996 119,310 4.27%
Jerry T. Price, M.D. 38 1993 1996 14,837 0.53%
F. Rogers Vaden 47 1993 1996 10,066 0.36%
Robert M. O'Brian 45 1994 1997 9,258 0.33%
William F. Overacre 54 1993 1997 9,137 0.33%
Edgar J. T. Perrow(7) 48 1993 1997 14,758 0.53%
George P. Ramsey, III 45 1994 1997 8,083 0.29%
Donald W. Britton(7) 47 1993 1998 15,258 0.55%
William J. Conner(7) 68 1993 1998 29,784 1.06%
Herbert W. Snyder 50 1993 1998 17,558 0.63%
All executive officers and
directors as a group
(15 persons) . . . . . . . . . . . . . . . . . . . . . . . . . . 419,767 15.01%
</TABLE>
(1) At January 31, 1996.
(2) At March 1, 1996.
(3) Pursuant to rules promulgated under the 1934 Act, a person or entity
is considered to beneficially own shares of Common Stock if he or she
directly or indirectly has or shares (1) voting power, which includes
the power to vote or to direct the voting of the shares; or (2)
investment power, which includes the power to dispose of or direct the
disposition of the shares. Unless otherwise indicated, includes all
shares held directly by the named individuals as well as by spouses,
minor children in trust and other indirect ownership, over which
shares the named individual effectively exercises sole voting and
investment power.
(4) Includes an aggregate of 72,105 restricted shares awarded to all
executive officers, including Mr. Johnson, and directors as a group
pursuant to the Recognition and Retention Plans. Shares awarded to
executive officers vest over five years at a rate of 20% per year and
shares awarded to directors vest over four years at a rate of 25% per
year, commencing in each case on the first anniversary of the date of
such awards. Each recipient possesses sole voting power and no
investment power until such shares vest. See also--Directors
Compensation--Recognition and Retention Plan for Outside Directors and
Executive Compensation--Recognition and Retention Plans for Officers
and Employees.
(5) Includes 209,196 shares of Common Stock subject to options granted
pursuant to the 1993 Stock Option Plan for which options are
exercisable within 60 days of the Voting Record Date due to normal
vesting or due to accelerated vesting as a result of a change of
control.
(6) The total number of shares of Common Stock outstanding on March 1,
1996 was 2,642,081. For the purposes of this table, an additional
154,865 shares of Common Stock are considered outstanding which amount
is equal to the number of all options exercisable within 60 days.
(7) Excludes 182,160 unallocated shares of Common Stock held by the ESOP
of the Bank for which Directors Britton, Conner and Perrow serve as
ESOP Committee. The ESOP Committee, whose members also serve as the
ESOP Trustee, directs the investment of funds contributed to the ESOP.
Shares which are unallocated to participating employees (presently
182,160 shares) and shares for which no voting directions received are
voted by the ESOP Trustee in the same ratio as the votes cast on the
allocated shares. Allocated Common Stock will be voted by the ESOP
Trustee as directed by the Plan Participants as the beneficial owners
of such Common Stock. Presently, 38,640 shares are allocated to
Participant accounts, including 10,771 shares allocated to executive
officers. The shares allocated to executive officers as of the Voting
Record Date are included in the table above. The ESOP Trustee acts as
a fiduciary within the meaning of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"). The parties serving as
ESOP Trustee disclaim beneficial ownership of stock held under the
ESOP for which they serve as ESOP Trustee.
67
<PAGE>
The principal occupation during the past five years of each director of CSB
Financial is set forth below.
DONALD W. BRITTON is Executive Vice President of Marketing and a director of
First Colony Life Insurance Company in Lynchburg, Virginia. Mr. Britton has been
employed with First Colony Life Insurance Company for the past thirteen years.
Mr. Britton has been a director of the Savings Bank since 1991 and of CSB
Financial Services since June 1995.
WILLIAM J. CONNER served as President and Chief Executive Officer of the Savings
Bank from 1980 until he retired in 1989. Mr. Conner was first elected as
director of the Savings Bank in 1974. Prior to retirement in 1989, Mr. Conner
served the Savings Bank in several capacities for a total of 39 years. Mr.
Conner has also been a director of CSB Financial Services since June 1995.
BOB M. JOHNSON has been President and Chief Executive Officer of CSB Financial
and of the Savings Bank since 1993 and 1989, respectively, and has served on the
Board of Directors of the Savings Bank since 1987. In addition, in June 1995
when CSB Financial Services was organized, Mr. Johnson was appointed to serve as
President and Chief Executive Officer and as a member of the Board of Directors
of that company. Mr. Johnson was Executive Vice President of the Savings Bank
from 1987 to 1989. Prior to 1987, Mr. Johnson served as the Chief Executive
Officer and/or a senior officer of two other thrift institutions for over 27
years.
ROBERT M. O'BRIAN is President and owner of Lynchburg Ready Mix Concrete Co.,
Inc. in Lynchburg, Virginia. Mr. O'Brian has been with such company since 1971
and he became a part owner in 1976 prior to becoming sole owner in 1988. Mr.
O'Brian was elected to the Board of Directors of the Savings Bank in October
1994.
WILLIAM F. OVERACRE is President and owner of Overacre, Inc., a real estate
appraisal and brokerage firm in Lynchburg, Virginia. From 1983 to 1992, Mr.
Overacre was President and a co-owner of Marks-Overacre, Inc., Lynchburg,
Virginia, also a real estate appraisal and brokerage firm. Mr. Overacre was
appointed as a director of the Savings Bank in 1993.
EDGAR J.T. PERROW is a partner in the law firm of Martin, Taylor and Perrow, in
Lynchburg, Virginia, which serves as general counsel to the Savings Bank. Mr.
Perrow has been a practicing attorney for over 21 years. Mr. Perrow has been a
director of the Savings Bank since 1985 and of CSB Financial Services since June
1995.
JERRY T. PRICE, M.D. is a physician and has practiced with Lynchburg Emergency
Physicians, Inc. in Lynchburg, Virginia since 1989. From 1986 to 1989, Dr. Price
was employed with Lynchburg Family Practice Residency. Dr. Price was appointed
as a director of the Savings Bank in 1993.
GEORGE P. RAMSEY, III is Vice President of Taylor-Ramsey Corporation, a lumber
products company located in Lynchburg, Virginia. Mr. Ramsey has been employed by
Taylor-Ramsey Corporation for 23 years. Mr. Ramsey was elected to the Board of
Directors of the Savings Bank in October 1994.
HERBERT W. SNYDER is currently the industrial sales manager for Pauwels
Transformers of Washington, Missouri. Prior to July 1995, Mr. Snyder had been
the Director of Marketing and Sales for Delta Star, Inc. in Lynchburg, Virginia
for over 10 years. Mr. Snyder has been a director of the Savings Bank since
1991.
F. ROGERS VADEN is Senior Vice-President and Regional Manager of Scott &
Stringfellow in Lynchburg, Virginia, and has been employed as a stockbroker with
the firm for the past eight years. Mr. Vaden was appointed as a director of the
Savings Bank in 1993.
DIRECTOR'S COMPENSATION
FEES. No fees are received for services rendered as a director of CSB Financial.
All fees are paid by the Savings Bank. No fees are paid to directors who are
also officers or employees of the Savings Bank or CSB Financial, i.e., the
President. Each director, other than the Chairman of the Board receives an
annual retainer fee of $4,000 for serving as a director. The Chairman of the
Board receives an annual retainer fee of $9,200 for serving in that capacity.
Each director (including honorary directors and the Chairman of the Board) also
receive a fee of $500 for each meeting attended. Members of the committees
receive $200 per meeting attended. The Savings Bank paid a total of $139,500 in
director's fees for the fiscal year ended June 30, 1995.
68
<PAGE>
STOCK OPTION PLAN FOR OUTSIDE DIRECTORS. In connection with the Conversion, CSB
Financial's Board of Directors adopted the CSB Financial Corporation 1993 Stock
Option Plan for Outside Directors (the "Directors' Option Plan"), which was
ratified by stockholders of CSB Financial at the February 11, 1994 special
meeting ("Special Meeting"). Pursuant to the Directors' Option Plan, each member
of the Board of Directors (including honorary directors of the Savings Bank) who
was not an officer or employee of the Savings Bank or Company (11 persons) was
granted non-statutory options to purchase 5,244 shares. All of these options are
exercisable within 60 days of the Voting Record Date. Under the Directors'
Option Plan, 828 shares remain reserved for future awards. The exercise price
per share of each option is the fair market value of the Common Stock at the
date the Option was granted. All options granted under the Directors' Option
Plan expire upon the earlier of 10 years following the date of the grant or one
year following the date the optionee ceases to be a director. All options
granted are immediately exercisable in the event of a change in control of CSB
Financial or the Savings Bank.
RECOGNITION AND RETENTION PLAN FOR OUTSIDE DIRECTORS. The Savings Bank has
established the Co-operative Savings Bank, F.S.B. Recognition and Retention Plan
for Outside Directors (the "Directors' Plan"), which was ratified by
stockholders at the Special Meeting, as a method of providing such directors of
the Savings Bank with proprietary interest in CSB Financial in a manner designed
to recognize the value of such directors' past service and to encourage such
persons to continue to serve as directors. Pursuant to the Directors' Plan, each
outside director upon election to the Board received a nontransferable and
nonassignable award of 2,484 shares of Common Stock held in trust. In August
1995, the remaining 276 unawarded shares were awarded to outside directors. Each
director other than the Chairman of the Board was awarded 30 shares, and the
Chairman was awarded 36 shares. Directors earn the shares awarded to them at a
rate of 25% per year commencing immediately upon the date of the award. Awards
become 100% vested upon termination of service due to death, disability or
retirement or following a change in control of the Savings Bank or CSB
Financial. In the event a director ceases to serve with the Savings Bank for any
other reason, the director's non-vested awards will be forfeited. When shares
become vested in accordance with the Directors' Plan, the participants recognize
income equal to the fair market value of the Common Stock at that time. The
amount of income recognized by the participant is a deductible expense for tax
purposes for the Savings Bank. When shares become vested and are distributed in
accordance with the Directors' Plan, the participants also receive amounts equal
to any accrued dividends with respect thereto. Prior to vesting, recipients of
awards may direct the voting of the shares allocated to them. Unallocated shares
will be voted by the Directors' Plan trustees. Earned shares are distributed to
recipients as soon a practicable following the day on which they are earned.
During fiscal 1995, 5,589 shares were distributed to the Directors' Plan
participants.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table sets forth the name of the Chief
Executive Officer during the fiscal years ended June 30, 1995, 1994 and 1993. No
other executive officer received cash compensation in excess of $100,000 during
the fiscal years ended June 30, 1995, 1994 or 1993.
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compensation Awards Payouts
Securities
Other Annual Restricted Underlying All Other
Name and Compensation Stock Options LTIP Compensation
Principal Position Year Salary Bonus (1) Award(s)($)(2) SARs(#)(2) Payouts (3)
<S> <C> <C> <C> <C> <C> <C> <C>
Bob M. Johnson 1995 $120,000 $10,730 $ -- $ -- -- $ -- $7,992
President & CEO 1994 $113,625 $30,201 $ -- $276,000 69,000 $ -- $5,752
1993 $ 92,250 $28,598 $ -- $ -- -- $ -- $6,961
</TABLE>
(1) Except as otherwise disclosed, for fiscal years ended 1995, 1994 and 1993,
there were no (a) perquisites over the lesser of $50,000 or 10% of the named
executive officer's total salary and bonus for the year; (b) payments of
above market or preferential earnings on deferred compensation; (c) payments
of earnings with respect to long term incentive plans prior to settlement or
maturation; (d) tax payment reimbursements; or (e) preferential discounts on
stock.
(2) Includes restricted stock awards and grants of stock options received under
the Recognition and Retention Plan and the 1993 Stock Option Plan.
Restricted stock awards were made on September 24, 1993, based upon a market
price of $10.00 per share. Awards are fully vested and distributed at the
rate of 20% per year beginning on the date of the award. During fiscal 1995,
5,520 shares plus accumulated dividends were distributed for an aggregate
compensation of $81,714. At June 30, 1995, 22,080 shares with a market value
of $347,760 at such date (based on the fair market value of the Common Stock
at June 30, 1995) remain unvested.
(3) The amount for fiscal 1993 consists of: (i) taxable term life insurance of
$2,348 and (ii) deferred profit sharing contribution of $4,613. The amount
for fiscal 1994 consists of (i) taxable term life insurance of $1,716 and
(ii) deferred profit sharing contribution of $4,036. The amount for fiscal
year 1995 consists of (i) taxable term life insurance of $1,992 and; (ii)
deferred profit sharing of $6,000.
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EMPLOYMENT AGREEMENT. The Savings Bank and CSB Financial entered into an
employment agreement with Mr. Bob M. Johnson in 1993. This employment agreement
ensures that the Savings Bank will be able to maintain a stable and competent
management base. The continued success of the Savings Bank depends to a
significant degree on the skills and competence of this officer.
Mr. Johnson's employment agreement with the Savings Bank provides for a
three-year term. Commencing on the first anniversary date and continuing each
anniversary date thereafter, the agreement may be extended for an additional
year so that the remaining term shall be three years if the Board of Directors,
after conducting performance evaluations, votes to extend the agreement. The
agreement provides that the annual base salary for Mr. Johnson is $120,000. In
addition to the base salary, the agreement provides for, among other things,
disability pay, participation in stock benefit plans and other fringe benefits.
The agreement provides for termination by the Savings Bank for cause at any
time. In the event the Savings Bank chooses to terminate Mr. Johnson's
employment for reasons other than for cause or (1) in the event of Mr. Johnson's
resignation upon (i) failure to re-elect or nominate Mr. Johnson to his current
offices or board membership, (ii) material change in Mr. Johnson's duties or
responsibilities, or relocation of his principal place of employment, (iii)
liquidation, dissolution, consolidation, reorganization or merger in which the
Savings Bank is not the resulting entity, or (iv) a breach of the agreement by
the Savings Bank or (2) if termination, voluntary or involuntary, occurs
following a change in control of the Savings Bank, Mr. Johnson or, in the event
of his subsequent death, his beneficiary, would be entitled to a severance
payment equal to three times his average annual compensation over the past three
years of employment with the Savings Bank. The Savings Bank would also continue
Mr. Johnson's life, health, accident, and disability coverage for the remaining
unexpired term of the agreement. A change in control is generally defined to
mean the acquisition by a person or group of persons having beneficial ownership
of 20% or more of the Savings Bank's or CSB Financial's common stock during the
term of the agreement or a tender offer for 20% of the Common Stock, or exchange
offer, merger or other form of business combination, sale of assets, or an
election of Directors which results in a change of a majority of the Board of
Directors.
The agreement provides that benefits payable to the executive under a change in
control will be reduced to an amount that would not constitute an excess
parachute payment (as that term is defined in Section 280G of the Internal
Revenue Code). If a change in control had occurred as of June 30, 1995, and Mr.
Johnson's employment had been terminated, a payment in the amount of
approximately $395,000 would have been made to him in accordance with the
agreement.
STOCK OPTION PLAN. In connection with the conversion, CSB Financial's Board of
Directors adopted the CSB Financial Corporation 1993 Incentive Stock Option Plan
(the "Option Plan"), which was ratified by stockholders of CSB Financial at the
Special Meeting. Pursuant to the Option Plan, 207,000 shares of Common Stock are
reserved for issuance upon exercise of stock options granted or to be granted to
officers and key employees of CSB Financial and its subsidiaries from time to
time. The purpose of the Option Plan is to advance the interests of CSB
Financial and its shareholders by providing those key employees of CSB Financial
and its affiliates, including the Savings Bank, upon whose judgment, initiative
and efforts the successful conduct of the business of CSB Financial and its
affiliates largely depends, with an additional incentive to perform in a
superior manner as well as to attract people of experience and ability. As of
June 30, 1995, a total of 187,000 of these shares of Common Stock have been set
aside for the exercise of options granted during the fiscal years ended June 30,
1995 and 1994.
The following table sets forth additional information concerning options granted
to the named executive officer under the 1993 Stock Option Plan.
<TABLE>
<CAPTION>
OPTION/SAR EXERCISES AND FISCAL YEAR END VALUE TABLE
Aggregated Option/SAR Exercises in Last Fiscal Year, and FY-End Option/SAR Value
Number of Securities Value of
Underlying Unexercised Unexercised In-the-
Options/SARs Money Options/SARs
at FY-End(#)(1) at FY-End($)(2)
Shares Acquired Exercisable/ Exercisable/
Name on Exercise(#) Value Realized ($)(1) Unexercisable Unexercisable
<S> <C> <C> <C> <C>
Bob M. Johnson -- -- $46,000/ $264,500/
23,000 $132,250
</TABLE>
(1) Options are exercisable at the rate of one-third beginning in September
1994, and one-third annually thereafter.
(2) Based upon the closing price of the stock as of June 30, 1995 of $15.75 per
share.
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BANK RECOGNITION AND RETENTION PLANS FOR OFFICERS AND EMPLOYEES. The Savings
Bank has established Recognition and Retention Plans for Officers and Employees
(the "Officer and Employee Plan") as a method of providing officers and
employees of the Savings Bank with a propriety interest in CSB Financial in a
manner designed to encourage such persons to remain with the Savings Bank. All
officers and full-time employees are eligible to receive grants under the Plans.
A committee of the Outside Directors may make discretionary awards to officers
and employees under the Officer and Employee Plans. Under the Officer and
Employee Plans, awards are granted to officers and employees in the form of
shares of Common Stock to be held in trust under the Plans. Awards are
nontransferable and nonassignable. Participants earn (i.e., become vested in)
shares of Common Stock covered by the award at a rate of 20% per year,
commencing immediately the date of the award. Awards will be 100% vested upon
termination of employment due to death, disability or retirement or following a
change in the control of the Savings Bank or CSB Financial. In the event that an
employee terminates employment with the Savings Bank or CSB Financial for any
other reason, the employee's non-vested awards will be forfeited.
When shares become vested in accordance with non-qualified plans, the
participants will recognize income equal to the fair market value of the Common
Stock at that time. The amount of income recognized by the participants is a
deductible expense for tax purposes for the Savings Bank. When shares become
vested and are distributed in accordance with the Plans, the participants also
receive amounts equal to any accrued dividends with respect thereto. Prior to
vesting, recipients of awards may direct the voting of the shares allocated to
them. Unallocated shares will be voted by the Plan trustees. Earned shares are
distributed to recipients as soon as practicable following the day on which they
are earned. Upon the conversion 27,600 shares were awarded to Mr. Johnson, and
an aggregate of 27,600 shares were awarded to three (3) other executive officers
of the Savings Bank. In addition, in July 1994, 10,700 shares were awarded to
two (2) other executive officers and 11,800 shares were awarded to other
officers and employees of the Savings Bank who were not previously participants.
In August 1995, the remaining unawarded Plan shares of 5,100 were awarded to
non-executive officers.
OTHER BENEFITS
PENSION PLAN. The Savings Bank maintains a tax qualified pension plan, the
Co-operative Savings Bank Employee Retirement Plan (the "Pension Plan"), for the
benefit of its employees. The Pension Plan provides for participation by
employees of the Savings Bank who have completed one year of service and who
will work a minimum of 1,000 hours per year. Employees must also have reached
the age of 21. Employees may become participants of the Pension Plan on the
first day of the month coinciding with or next following the date the employee
satisfies the eligibility requirements. As of June 30, 1995, Mr. Bob M. Johnson,
President, had 27 years of credited service under the Pension Plan.
The following table shows the estimated annual benefits payable under the
Pension Plan based on an employee's years of service and compensation, as
calculated under the Pension Plan, without regard to benefits payable under
Social Security. Covered compensation under the Pension Plan includes only base
salary. Under the Code, maximum benefits under the Pension Plan are limited to
$118,800 per year for the 1994 calendar year.
<TABLE>
<CAPTION>
Years of Service
Average 10 15 20 25 30 35
<S> <C> <C> <C> <C> <C> <C>
$ 25,000 $ 3,250 $ 4,875 $ 6,500 $ 8,125 $ 9,750 $11,375
50,000 7,000 10,500 14,000 17,500 21,000 24,500
75,000 10,750 16,125 21,500 26,875 32,250 37,625
100,000 14,500 21,750 29,000 36,250 42,500 50,750
125,000 18,250 27,375 36,500 45,625 54,750 63,875
</TABLE>
EMPLOYEE'S PROFIT SHARING PLAN. The Savings Bank maintains a tax qualified
profit sharing plan for the benefit of its employees. The Profit Sharing Plan
("Plan") provides for participation by employees of the Savings Bank who have
completed one year of service prior to the entry dates of January 1, or July 1
and who will work a minimum of 1,000 hours per year. Employees must also have
reached the age of 21.
The Plan is composed of two elements: (1) a 401(k) Plan; and (2) Discretionary
Plan. Employees may contribute up to 15% of their individual compensation per
plan year to the 401(k) Plan. The Savings Bank may make discretionary
contributions to the 401(k) Plan from current net profits. The Plan allows the
Savings Bank to make discretionary matching contributions
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equal to a percentage of the deferred compensation of the participants (100% of
the first 4% of deferred compensation and 50% of the next 2% of deferred
compensation). Under the Discretionary Plan, the Savings Bank may make
contributions at the discretion of the Board of Directors. The amount of any
such contribution is determined by the Board of Directors on an annual basis.
Contributions to the Discretionary Plan, if made, are allocated to participants
in the same proportion as the individual participant's compensation bears to
total eligible participants' compensation. Participants need not have
participated in the 401(k) Plan (through deferral of compensation) in order to
receive contributions made to the Discretionary Plan by the Savings Bank. A
trust has been created as part of the Profit Sharing Plan to receive
contributions made to the Plan by the Savings Bank and the Plan's participants
and to invest and disburse the trust's assets for the benefit of the Plan's
participants and beneficiaries.
While employees always have a 100% nonforfeitable right to the funds they
contribute to their 401(k) Plan Account, their rights to the funds contributed
by the Savings Bank vest according to their length of service with the Savings
Bank. After six (6) full years of service, employees are fully vested. Upon
disability, death or retirement, an employee becomes entitled to 100% of his
account balance. For the fiscal year ended June 30, 1995, 1994 and 1993, the
Savings Bank made total deferred contributions to the Plan of $55,565, $44,245
and $44,562, respectively.
EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST. The Savings Bank has established for
eligible employees an Employee Stock Ownership Plan (ESOP). Employees who have
completed one year of service and 1,000 hours of employment with the Savings
Bank and who have attained age 21 are eligible to participate.
At the time of the Conversion, the ESOP borrowed funds from CSB Financial to
purchase a total of 220,800 shares of CSB Financial's Common Stock, the loan
being collateralized by the Common Stock. Contributions by the Savings Bank to
the ESOP are used to repay the loan with shares being released from CSB
Financial's lien proportional to the repayment of the loan. Shares released are
allocated among the eligible participants, subject to certain limitations, in
the same proportion as an individual participant's compensation bears to the
total compensation of all eligible participants in the year of allocation.
Benefits generally become 20% vested after two years of credited service and the
vested portion increases by 20% for each additional year of credited service
thereafter, becoming 100% vested after six years of credited service. Prior to
the completion of two years of credited service, a participant who terminates
employment for reasons other than death, retirement (or early retirement), or
disability will not receive any benefit under the ESOP. Forfeitures will be
reallocated among remaining participating employees, in the same proportion as
contributions. Benefits may be payable in the form of stock or cash upon death,
retirement, early retirement, disability or separation from service. The Savings
Bank's contributions to the ESOP are not fixed, so benefits payable under the
ESOP cannot be estimated.
The ESOP Committee, as appointed by the Board of Directors of the Savings Bank,
administers the ESOP for the Savings Bank. This committee consists of outside
directors Messrs. Britton, Conner and Perrow and also acts as trustee for the
ESOP (the "ESOP Trustee"). The ESOP Committee directs the investment of funds
contributed to the ESOP. The ESOP Trustee, subject to its fiduciary duty, must
vote all allocated shares held in the ESOP in accordance with the instructions
of the participating employees. Under the ESOP, unallocated shares and shares
held in the suspense account will be voted in a manner calculated to most
accurately reflect the instructions the ESOP Trustee has received from
participants regarding the allocated stock so long as such vote is in accordance
with the provisions of ERISA. For the fiscal years ended June 30, 1995 and 1994,
contributions by the Savings Bank to the ESOP were $237,639 and $198,534
respectively. The Savings Bank also used $61,272 in fiscal 1995 and $33,120 in
fiscal 1994 in dividends received by the ESOP to further reduce the amount of
principal and interest payments on the loan to the ESOP. As of June 30, 1995, a
total of 38,640 shares of CSB Financial's Common Stock have been released and
allocated to the Plan Participants.
PERSONNEL/COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Personnel/Compensation Committee of CSB Financial consists of Directors
Snyder, Johnson, Overacre and Ramsey. The committee also serves as the
Personnel/Compensation Committee for the Savings Bank. Members of the committee,
with the exception of Mr. Johnson, are non-employee directors of the Company and
the Savings Bank. The committee meets at least annually to review the
performance of the Savings Bank's officers and employees and to determine
compensation programs and salary actions for the Savings Bank and its personnel.
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LONG-TERM INCENTIVE PLANS
CSB Financial sponsors no long term incentive plans and made no awards or
payments under any such plans during the fiscal year ended June 30, 1995.
TRANSACTIONS WITH CERTAIN RELATED PERSONS
The Savings Bank, like many other financial institutions, has followed a policy
of extending credit to officers, directors, and employees. The loans have been
made on substantially the same terms, including interest rates and collateral,
as those prevailing at the time for comparable transactions with the general
public and do not involve more than the normal risk of repayment or present
other unfavorable features. Loans made to a director or executive officer must
be approved in advance by a majority of the disinterested members of the Board
of Directors.
Loans to executive officers and directors of the Savings Bank (or CSB Financial)
and their affiliates, amounted to $2.8 million, or 6.3% of CSB Financial's
retained earnings at June 30, 1995.
During the fiscal year ended June 30, 1995, the Savings Bank paid $22,031 in
legal fees to the firm of Martin, Taylor and Perrow, which serves as general
counsel to the Savings Bank. Edgar J. T. Perrow, a director of the Holding
Company and the Savings Bank, is a partner in Martin, Taylor and Perrow.
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<PAGE>
DESCRIPTION OF ONE VALLEY'S SECURITIES
AUTHORIZED COMMON STOCK
One Valley has authorized capital of 41,000,000 shares, consisting of
40,000,000 shares of Common Stock, with a par value of $10 per share, and
1,000,000 shares of preferred stock with a par value of $10 per share. As of
March 1, 1996, 16,580,306 shares of One Valley Common Stock were issued and
outstanding. No shares of One Valley's preferred stock are issued and
outstanding. As of March 1, 1996, there were approximately 5,000 shareholders of
record of One Valley.
PREFERRED STOCK
One Valley is authorized to issue 1,000,000 shares of Preferred Stock,
$10 par value per share. One Valley does not have any shares of preferred stock
outstanding as of the date of this Prospectus. The Board of Directors of One
Valley is authorized by the Articles of Incorporation to provide, without
further shareholder action, for the issuance of one or more series of preferred
stock and to fix various terms with respect to each series, including voting
powers, designations, preferences, dividend rates, conversion and exchange
provisions, redemption provisions, and the amounts which holders are entitled to
receive upon any liquidation, dissolution, or winding up of One Valley.
DIVIDENDS AND DIVIDEND RIGHTS
The shareholders of One Valley are currently entitled to receive
dividends when and as declared by its Board of Directors. Dividends may be paid
out of funds legally available therefor, and subject to the restrictions set
forth in the West Virginia Corporation Act (West Virginia Code, Sections 31-1-1,
ET SEQ.) (the "Corporation Act"). The Corporation Act provides that a
corporation may declare and pay a dividend to its shareholders if the
corporation is solvent and if the payment would not render the corporation
insolvent. A corporation under the Corporation Act cannot declare a dividend
contrary to any restrictions contained in its articles of incorporation. One
Valley does not have any such restrictions. Dividends may be declared and paid
in cash or property only from the unreserved and unrestricted earned surplus of
the corporation except that dividends may be declared and paid in treasury
shares or in the corporation's authorized but unissued shares, from unreserved
and unrestricted surplus if an amount of surplus is transferred to stated
capital equal to the aggregate par value of the shares to be issued or the
aggregate stated value fixed by the Board of Directors in the case of shares
without par value.
Historically, One Valley has declared regular quarterly dividends. It
is expected that cash dividends of One Valley after the consummation of the
Merger will be declared and paid on approximately the same schedule of dates as
that now followed with respect to regular cash dividends on the Common Stock of
One Valley, which is quarterly. One Valley's future cash dividends will depend
on its consolidated earnings, general economic conditions, financial condition
of its banking subsidiaries and other facts generally affecting dividend policy.
Dividends of One Valley and its banking subsidiaries which are state
banks may be paid out of funds legally available therefor, subject to the
restrictions set forth in West Virginia Code, Section 31A-4-25, which provides
that before the declaration of any dividend at least one-tenth of the net
profits of the preceding half year (in the case of quarterly or semiannual
dividends) or the preceding two consecutive half-year periods (in the case of
annual dividends) must be carried to a bank's surplus fund until the surplus
fund equals the amount of its capital stock. The prior approval of the West
Virginia Commissioner of Banking is required if the total of all dividends
declared by a state bank in any calendar year will exceed the bank's net profits
for that year combined with its retained net profits for the preceding two
years. "Net profits" is defined as the remainder of all earnings from current
operations plus actual recoveries on loans and investments and other assets,
after deducting from the total thereof, all current operations expenses, actual
losses and all federal and state taxes.
For those banking subsidiaries of One Valley which are national banks,
dividends may be paid out of funds legally available therefor, subject to the
restrictions set forth in the United States Code. The United States Code
generally provides that the board of directors of any national banking
association may, quarterly, semiannually or annually, declare a dividend of so
much of the net profits of the association as they shall judge expedient, except
that until the surplus fund of the association equals its common capital, no
dividends can be declared unless the association has carried to the surplus fund
not less than one-tenth part of the association's net profits of the preceding
half year in the case of quarterly or semiannual dividends, or no less than
one-tenth part of its net profits of the preceding two consecutive half-year
periods in the case of annual dividends. The United States Code also provides
that if a national banking association sustains losses equal to or exceeding its
undivided profits it may not pay a dividend and that a national banking
association while engaging in banking operations may never pay
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<PAGE>
a dividend in an amount greater than its net profits on hand less its losses and
bad debts. Furthermore, a federal banking agency may prohibit a national banking
association from paying a dividend if the agency determines that it would be an
unsafe or unsound practice in conducting the business of the bank. The approval
of the OCC is required if the total of all dividends declared by an association
in any calendar year exceeds the total of its net profits of that year combined
with its retained net profits of the preceding two years, less any required
transfers to surplus.
VOTING RIGHTS
All voting rights of One Valley are vested in the holders of One Valley
Common Stock. In the election of Directors, the shareholders of One Valley have
the right to vote the number of shares owned by them for as many persons as
there are directors to be elected, or to cumulate their votes and give one
candidate as many votes as the number of directors to be elected multiplied by
the number of shares they own, or to distribute them on the same principle among
as many candidates as they may decide. For all other purposes, each share is
entitled to one vote.
PREEMPTIVE RIGHTS
Holders of Common Stock presently have no preemptive rights to
subscribe to a pro rata share of any future offers of shares by One Valley.
Therefore, future shares of Common Stock or other securities may be offered to
the investing public or to shareholders or to both at the discretion of the
Board of Directors. If One Valley should decide to issue any or all of these
shares, the effect would be to dilute the percentage ownership of the
Shareholders who do not acquire a pro rata portion of shares issued.
LIQUIDATION RIGHTS
The holders of One Valley Common Stock are entitled to share equally in
the net assets of One Valley in the event of liquidation or dissolution, subject
to the preferential rights, if any, of the holders of any outstanding senior
securities. At this time, there are no senior securities of One Valley issued or
outstanding.
ASSESSMENT OF SHARES
The shares of One Valley Common Stock are fully paid and nonassessable.
West Virginia Code Section 31A-4-11 provides that in certain circumstances
shareholders of a state bank may be liable to the creditors of the bank for
obligations arising while they are shareholders in an amount equal to the par
value of the shares owned by them unless the bank has its deposits insured by
the FDIC or any other federal institution or agency, or the bank has obtained a
certificate from the Commissioner of Banking stating that the bank has
unimpaired surplus equal to at least 50 percent of the authorized capital of the
state bank. Because the deposits of its banking subsidiaries are insured by the
FDIC, neither One Valley nor its shareholders are presently subject to this
liability. In addition to the foregoing section, West Virginia Code, Section
31A-4-12, provides that the outstanding shares of a bank may be assessed by the
officers and directors of the bank if the bank's common stock becomes impaired
by losses or otherwise.
SHAREHOLDER APPROVAL OF MERGERS
Before One Valley can merge or consolidate with other corporations
under West Virginia law, the affirmative vote of the holders of a majority of
the outstanding shares of each corporation is needed to approve such a merger or
consolidation, unless the other corporation is a bank or bank holding company
with principal offices in another state or is a national bank. Pursuant to
legislation passed by the West Virginia legislature in 1986, if the other
corporation is a bank or bank holding company with principal offices outside the
State of West Virginia, a proposed merger requires the affirmative vote of the
holders of two-thirds of the outstanding shares of One Valley Common Stock,
unless the laws of the other state require a higher percentage vote.
In 1986, the shareholders of One Valley approved a "Fair Price
Amendment" concerning business combinations, such as mergers or consolidations.
For a discussion of the Fair Price Amendment. See "Effect of the Merger on
Shareholder Rights -- Antitakeover Provisions in One Valley's Articles and
Bylaws -- Fair Price Amendment."
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SUPERVISION AND REGULATION OF CSB FINANCIAL
COMPANY REGULATION
GENERAL. CSB Financial is a unitary savings and loan holding company
subject to regulatory oversight by the OTS. As such, CSB Financial is required
to register and file reports with the OTS and is subject to regulation and
examination by the OTS. In addition, the OTS has enforcement authority over CSB
Financial and its non-savings association subsidiaries, which also permits the
OTS to restrict or prohibit activities that are determined to be a serious risk
to the subsidiary savings association. CSB Financial is also required to file
certain reports with, and otherwise comply with, the rules and regulations of
the Securities and Exchange Commission ("SEC").
QUALIFIED THRIFT LENDER. As a unitary savings and loan holding company,
CSB Financial generally is not subject to activity restrictions, provided the
Savings Bank satisfies the Qualified Thrift Lender ("QTL") test. If CSB
Financial acquires control of another savings association as a separate
subsidiary, it would become a multiple savings and loan holding company, and the
activities of CSB Financial and any of its subsidiaries (other than the Savings
Bank or any other SAIF-insured savings association), except under certain
circumstances, would become subject to restrictions applicable to bank holding
companies unless such other associations each also qualify as a QTL and were
acquired in a supervisory acquisition. See "--Bank Regulation--QTL Test."
RESTRICTIONS ON ACQUISITIONS. CSB Financial must obtain approval from
the OTS and other regulatory agencies before acquiring control of any other
FDIC-insured institution. Such acquisitions are generally prohibited if they
result in a multiple savings and loan holding company controlling savings
associations in more than one state. However, such interstate acquisitions are
permitted based on specific state authorization or in a supervisory acquisition
of a failing savings association.
Federal law generally provides that no "person," acting directly or
indirectly or through or in concert with one or more other persons, may acquire
"control," as that term is defined in OTS regulations, of a federally insured
savings institution without giving at least 60 days' written notice to the OTS
and providing the OTS an opportunity to disapprove the proposed acquisition.
Such acquisitions of control may be disapproved if it is determined, among other
things, that (i) the acquisition would substantially lessen competition; (ii)
the financial condition of the acquiring person might jeopardize the financial
stability of the savings institution or prejudice the interests of its
depositors; or (iii) the competency, experience or integrity of the acquiring
person or the proposed management personnel indicates that it would not be in
the interest of the depositors or the public to permit the acquisitions of
control by such person.
The Bank Holding Company Act of 1956, as amended ("BHCA"), authorizes
the Federal Reserve Board to approve an application by a bank holding company to
acquire control of a savings association. Furthermore, a bank holding company
that controls a savings association is authorized to merge or consolidate the
assets and liabilities of the savings association with, or transfer assets and
liabilities to, any subsidiary bank which is a member of the BIF with the
approval of the appropriate federal banking agency and the Federal Reserve
Board. Generally a federal savings association or its holding company can
acquire or be acquired by any insured depository institution.
FEDERAL SECURITIES LAW. CSB Financial's Common Stock is registered with
the SEC under the Exchange Act. CSB Financial is subject to the information,
proxy solicitation, insider trading restrictions and other requirements under
the Exchange Act.
BANK REGULATION
GENERAL. As a federally chartered, SAIF-insured savings bank, the
Savings Bank is subject to extensive regulation by the OTS and the FDIC. Lending
activities and other investments must comply with various federal statutory and
regulatory requirements. The Savings Bank is also subject to certain reserve
requirements promulgated by the Federal Reserve Board.
The OTS, in conjunction with the FDIC, regularly examines the Savings
Bank and prepares reports for the consideration of the Savings Bank's Board of
Directors on any deficiencies that they find in the Savings Bank's operations.
The Savings Bank's relationship with its depositors and borrowers is also
regulated to a great extent by federal law, especially in such matters as the
ownership of savings accounts and the form and content of the Savings Bank's
mortgage documents.
76
<PAGE>
The Savings Bank must file reports with the OTS and the FDIC concerning
its activities and financial condition, in addition to obtaining regulatory
approvals prior to entering into certain transactions such as mergers with or
acquisitions of other savings institutions. This regulation and supervision
establishes a comprehensive framework of activities in which an institution can
engage and is intended primarily for the protection of the SAIF and depositors.
The regulatory structure also gives the regulatory authorities extensive
discretion in connection with their supervisory and enforcement activities and
examination policies, including policies with respect to the classification of
assets and the establishment of adequate loan loss reserves for regulatory
purposes. Any change in such regulations, whether by the OTS, the FDIC or the
U.S. Congress could have a material impact on CSB Financial, the Savings Bank
and their operations.
INSURANCE OF DEPOSIT ACCOUNTS. The Savings Bank's deposit accounts are
insured by the SAIF to a maximum of $100,000 for each insured member (as defined
by law and regulation).
Insurance of deposits may be terminated by the FDIC if a savings
association or bank fails to meet certain minimum capital requirements or upon
finding that the savings association or bank has engaged in unsafe or unsound
practices, is in an unsafe or unsound condition to continue operations or has
violated any applicable law, regulation, rule, order or condition imposed by the
FDIC or the institution's primary regulator. Management of the Savings Bank is
unaware of any practice, condition or violation that might lead to termination
of its deposit insurance.
The FDIC charges an annual assessment for the insurance of deposits
based on the risk a particular savings association poses to its deposit
insurance fund. The risk-related assessment program requires a savings
association to pay within a range of 23 cents to 31 cents per $100 of domestic
deposits, depending upon the savings association's or bank's risk
classification. This risk classification is based on a savings association's or
bank's capital group and supervisory subgroup assignment. In addition, the FDIC
is authorized to increase such deposit insurance rates semi-annually if
necessary to cause the balance in the SAIF to reach the designated reserve ratio
of 1.25% of SAIF-insured deposits within a reasonable period of time.
Furthermore, the FDIC may impose special assessments on SAIF members to repay
amounts borrowed from the U.S. Treasury or for any other reason deemed necessary
by the FDIC. The Savings Bank's federal deposit insurance premium expense for
the fiscal year ended June 30, 1995 was approximately $473,000.
OTS ASSESSMENT. In addition to federal deposit insurance premiums,
savings associations are required by OTS regulations to pay assessments to the
OTS to fund the operations of the OTS. The general assessment is paid
semi-annually and is computed based on a total consolidated assets of the
institution. The Savings Bank's OTS assessment expense for the fiscal year ended
June 30, 1995 was approximately $68,000.
REGULATORY CAPITAL REQUIREMENTS. OTS capital regulations require
savings associations to meet three capital standards: (1) tangible capital equal
to 1.5% of total adjusted assets, (2) a leverage ratio (core capital) equal to
at least 3% of total adjusted assets and (3) a risk-based capital requirement
equal to 8.0% of total risk-weighted assets.
As of June 30, 1995, the Savings Bank had tangible, core and risk-based
capital of $33.1 million, $33.1 million and $33.8 million, respectively, which
amounts significantly exceeded its applicable regulatory capital requirements by
$28.7 million, $24.2 million and $22.0 million, respectively.
On August 31, 1993, the OTS issued a final rule effective January 1,
1994, which set forth the methodology for calculating an interest rate risk
("IRR") component which is added to the risk-based capital requirements for OTS
regulated thrift institutions. Under the final rule, savings associations with a
greater than "normal" level of interest rate exposure will be subject to a
deduction from total capital for purposes of calculating their risk-based
capital requirements. Specifically, interest rate exposure will be measured as
the decline in net portfolio value due to a 200 basis point change in market
interest rates. The IRR component to be deducted from total capital is equal to
one-half the difference between an institution's measured exposure and the
"normal" level of exposure which is defined as two percent of the estimated
economic value of its assets.
The final rule establishes a two quarter "lag" between the reporting
date that is used to calculate the IRR component and the effective date of each
quarter's IRR component. Under the final rule, the Director of the OTS may waive
or defer an institution's IRR component, but not decrease it unless it is
decreased as the result of an appeal. The OTS intends to provide an appeal
process under certain circumstances.
PROMPT CORRECTIVE ACTION. Current law provides a system of prompt
corrective action to resolve the problems of undercapitalized savings
associations and banks. Under this system, the federal banking regulators are
required to take certain supervisory actions against undercapitalized savings
associations and banks, the severity of which depends upon the
77
<PAGE>
degree of undercapitalization. At June 30, 1995, the Savings Bank was "well
capitalized" under the regulations and not subject to any restrictions.
DIVIDEND AND OTHER CAPITAL DISTRIBUTION LIMITATIONS. OTS regulations
require the Savings Bank to give the OTS 30 days' advance notice of any proposed
declaration of dividends to CSB Financial, and the OTS has the authority under
its supervisory powers to prohibit the payment of dividends to CSB Financial. In
addition, the Savings Bank may not declare or pay a cash dividend on its capital
stock if the effect thereof would be to (i) cause the Savings Bank to be
undercapitalized or (ii) reduce the regulatory capital of the Savings Bank below
the amount required for the liquidation account established when the Savings
Bank converted from mutual to stock form. In addition, the OTS could prohibit a
proposed capital distribution by any savings association, which would otherwise
be permitted by the regulation, if the OTS determines that such distribution
would constitute an unsafe or unsound practice.
QTL TEST. The Home Owners' Loan Act, as amended ("HOLA"), requires
savings associations to meet a qualified thrift lender ("QTL") test. If the
Savings Bank maintains an appropriate level of qualified thrift investments
(primarily residential mortgages and related investments, including certain
mortgage-backed securities) ("QTIs") and otherwise qualifies as a QTL, it will
continue to enjoy full borrowing privileges from the FHLB of which it is a
member. The required percentage of QTIs is 65% of portfolio assets (defined as
all assets minus intangible assets, property used by the institution in
conducting its business and liquid assets equal to 10% of total assets). Certain
assets are subject to a percentage limitation of 20% of portfolio assets. In
addition, savings associations may include shares of stock of the FHLBs, FNMA
and FHLMC as qualifying QTIs. As of June 30, 1995, the Savings Bank was in
compliance with its QTL requirement with 81.5% of its assets invested in QTIs.
A savings association that does not meet a QTL test must either convert
to a bank charter or comply with the following restrictions on its operations:
(i) the savings association may not engage in any new activity or make any new
investment, directly or indirectly, unless such activity or investment is
permissible for a national bank; (ii) the branching powers of the savings
association shall be restricted to those of a national bank; (iii) the savings
association shall not be eligible to obtain any advances from its FHLB; and (iv)
payment of dividends by the savings association shall be subject to the rules
regarding payment of dividends by a national bank. Upon the expiration of three
years from the date the savings association ceases to be a QTL, it must cease
any activity and not retain any investment not permissible for a national bank
and immediately repay any outstanding FHLB advances (subject to safety and
soundness considerations).
LOANS-TO-ONE BORROWER. Generally, a savings association may not make a
loan or extend credit to a single or related group of borrowers in excess of 15%
of the savings association's unimpaired capital and surplus. An additional
amount may be lent, equal to 10% of unimpaired capital and surplus, if such loan
is secured by readily-marketable collateral, which is defined to include certain
securities and bullion, but generally does not include real estate.
COMMUNITY REINVESTMENT. Under the Community Reinvestment Act ("CRA"),
as implemented by OTS regulations, a savings association has a continuing and
affirmative obligation consistent with its safe and sound operation to help meet
the credit needs of its entire community, including low and moderate income
neighborhoods. The CRA does not establish specific lending requirements or
programs for financial institutions nor does it limit an institution's
discretion to develop the types of products and services that it believes are
best suited to its particular community, consistent with the CRA. The CRA
requires the OTS, in connection with its examination of a savings association,
to assess the savings association's record of meeting the credit needs of its
community and to take such record into account in its evaluation of certain
applications by such institution. Financial institutions are required to
publicly disclose its CRA rating and the OTS is required to provide a written
evaluation of the institution's CRA performance utilizing a four tiered
descriptive rating system. The Savings Bank received a rating of "satisfactory"
as a result of its last evaluation.
TRANSACTIONS WITH AFFILIATES. Generally, restrictions on transactions
with affiliates require that transactions between a savings association or its
subsidiaries and its affiliates be on terms as favorable to the savings
association as comparable transactions with non-affiliates. In addition, certain
of these transactions are restricted to an aggregate percentage of the savings
association's capital and require collateral in specified amounts. Affiliates of
the Savings Bank include CSB Financial and any other company which would be
under common control with the Savings Bank. Furthermore, a savings association
may not lend to any affiliate engaged in activities not permissible for a bank
holding company or acquire the securities of any affiliate which is not a
subsidiary.
A savings association's authority to extend credit to its officers,
directors and 10% shareholders, as well as to entities that such persons control
is currently governed by Sections 22 (g) and 22(h) of the Federal Reserve Act
and Regulation O promulgated by the Federal Reserve Board. Among other things,
these regulations require such loans to be made on terms
78
<PAGE>
substantially similar to those offered to unaffiliated individuals, place limits
on the amount of loans the savings association may make to such persons based,
in part, on the savings association's capital position, and require certain
approval procedures to be followed. OTS regulations, with minor variation, apply
Regulation O to savings associations.
BRANCHING BY FEDERAL SAVINGS ASSOCIATIONS. Federal savings associations
are permitted to establish interstate branches to the full extent permitted by
statute (which is essentially unlimited). This permits savings associations with
interstate networks to diversify their loan portfolios and lines of business.
The OTS authority preempts any state law purporting to regulate branching by
federal associations. However, the OTS will evaluate a branching applicant's
record of compliance with the CRA. A poor CRA record may be the basis for denial
of branching application.
FEDERAL HOME LOAN BANK SYSTEM. The Savings Bank is a member of the
FHLB-Atlanta, which is one of 12 FHLB banks that administers the home financing
credit function of savings associations. Each FHLB serves as a reserve or
central bank for its members within its assigned region. It is funded primarily
from proceeds derived from the sale of consolidated obligations of the FHLB
System. It makes loans to members (i.e., advances) in accordance with policies
and procedures established by the Board of Directors of the FHLB.
As a member, the Savings Bank is required to purchase and maintain
stock in the FHLB - Atlanta in an amount equal to at least 1% of its aggregate
unpaid residential mortgage loans, home purchase contracts or similar
obligations at the beginning of each year. At June 30, 1995, the Savings Bank
had $1.2 million in FHLB stock, which was in compliance with this requirement.
The FHLBs are required to provide funds for the resolution of troubled
savings associations and to contribute to affordable housing programs through
direct loans or interest subsidies on advances targeted for community investment
and low- and moderate-income housing projects. These contributions have
adversely affected the level of FHLB dividends paid and could continue to do so
in the future. For the fiscal year ended June 30, 1995, dividends paid by the
FHLB-Atlanta to the Savings Bank totaled approximately $100,000.
FEDERAL RESERVE SYSTEM. The Federal Reserve Board requires all
depository institutions to maintain cash and noninterest-bearing reserves at
specified levels against their transaction accounts (primarily checking, NOW and
Super NOW checking accounts) and non-personal time deposits. The balances
maintained to meet the reserve requirements imposed by the Federal Reserve Board
may be used to satisfy the liquidity requirements that are imposed by the OTS.
At June 30, 1995, the Savings Bank was in compliance with all applicable Federal
Reserve Bank reserve requirements.
Savings associations have authority to borrow from the Federal Reserve
Bank "discount window," but Federal Reserve policy generally requires savings
associations to exhaust FHLB-Atlanta sources before borrowing from the Federal
Reserve system. The Savings Bank had no such borrowings at June 30, 1995.
79
<PAGE>
PROPOSAL II -- ADJOURNMENT OF THE MEETING
Approval of the Merger Agreement requires the affirmative vote of at
least a majority of the votes entitled to be cast by the holders of CSB
Financial Common Stock. In the event there is an insufficient number of shares
present in person or by proxy at the Special Meeting to approve the Agreement,
the Board of Directors of CSB Financial intends to adjourn the Special Meeting
to a later date. The place and date to which the Special Meeting would be
adjourned would be announced at the Special Meeting.
The effect of any such adjournment would be to permit CSB Financial to
solicit additional proxies for approval of the Merger Agreement. While such an
adjournment would not invalidate any proxies previously filed, including those
voting against the Merger Agreement, it would give CSB Financial the opportunity
to solicit additional proxies in favor of the Merger Agreement.
THE BOARD OF DIRECTORS OF CSB FINANCIAL RECOMMENDS A VOTE "FOR"
APPROVAL OF THE ADJOURNMENT UNDER THE CIRCUMSTANCES DESCRIBED HEREIN. APPROVAL
OF THE ADJOURNMENT REQUIRES THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF
THE SHARES OF CSB FINANCIAL COMMON STOCK PRESENT IN PERSON OR BY PROXY AT THE
SPECIAL MEETING.
SHAREHOLDER PROPOSALS FOR THE 1996 ANNUAL MEETING
If the Merger is not completed, the next annual meeting of shareholders of
CSB Financial is expected to be held October 17, 1996. Any proposal that a
shareholder wishes to have included in CSB Financial's Proxy Statement for the
1996 Annual Meeting must be received by the Secretary of CSB Financial at CSB
Financial's executive offices, 2120 Langhorne Road, Lynchburg, Virginia
24501-1424, no later than May 22, 1996. If such proposal is in compliance with
the requirements of Rule 14a-8 under the Exchange Act, the proposal will be
inclued in the proxy statement and set forth on the form of proxy issued for the
1996 Annual Meeting. It is urged that any such proposals be sent by certified
mail, return receipt requested.
EXPERTS
The consolidated financial statements of CSB Financial at June 30,
1995, and 1994, and for each of the years in the three year period ended June
30, 1995, appearing in this Proxy Statement, have been audited by Cherry,
Bekaert & Holland, L.L.P., independent auditors, whose report thereon appears
elsewhere in this Proxy Statement, which is included in this Proxy Statement in
reliance upon such firm's reports given upon the authority of such firm as
experts in accounting and auditing.
The consolidated financial statements of One Valley at December 31,
1995 and 1994, and for each of the three years in the period ended December 31,
1995, incorporated by reference in the Prospectus/Proxy Statement and the
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon incorporated herein by reference
which, as to the year 1993, are based in part on the report of Crowe, Chizek and
Company, LLP, independent auditors. Such consolidated financial statements are
incorporated herein by reference in reliance upon such reports given upon the
authority of such firms as experts in accounting and auditing.
LEGAL MATTERS
The validity of the One Valley Common Stock to be issued to CSB
Financial Shareholders pursuant to the Merger and certain other legal matters in
connection with the Merger will be passed upon for One Valley by Jackson &
Kelly, Charleston, West Virginia. James K. Brown, a director of One Valley, is a
partner in Jackson & Kelly.
Certain legal matters in connection with the Merger will be passed upon
for CSB Financial by Malizia, Spidi, Sloane & Fisch, P.C., Washington, D.C.
OTHER MATTERS
As of the date of this Proxy Statement, management of One Valley and
CSB Financial know of no other business that will come before the Special
Meeting. Should any other matters properly come before the Special Meeting, the
proxy in the enclosed form confers upon the person or persons designated to vote
the shares discretionary authority to vote the same with respect to any other
matter in accordance with the direction of the Board of Directors of CSB
Financial.
80
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
CSB FINANCIAL CORPORATION:
Independent Auditors' Report F-1
Consolidated Statements of Financial Condition as of June 30, 1995
and 1994 F-2
Consolidated Statements of Income for the Years Ended
June 30, 1995, 1994, and 1993 F-3
Consolidated Statements of Cash Flows for the Years Ended
June 30, 1995, 1994, and 1993 F-4
Consolidated Statements of Changes in Stockholders' Equity for the
Years Ended June 30, 1995, 1994, and 1993 F-6
Notes to Consolidated Financial Statements F-7
Consolidated Statements of Financial Condition as of December 31, 1995
and 1994 (Unaudited) F-33
Consolidated Statements of Income for the
Six Months and the Three Months Ended December 31, 1995 and
1994 (Unaudited) F-34
Consolidated Statements of Changes in Stockholders Equity
for the Six Months Ended December 31, 1995
and 1994 (Unaudited) F-35
Consolidated Statements of Cash Flows for the
Six Months Ended December 31, 1995 and
1994 (Unaudited) F-36
Notes to Interim Consolidated Financial
Statements (Unaudited) F-38
</TABLE>
<PAGE>
(Cherry Bekaert & Holland Logo)
Report of Independent Auditors
The Board of Directors and Stockholders
CSB Financial Corporation
Lynchburg, Virginia
We have audited the accompanying consolidated statements of financial condition
of CSB Financial Corporation and subsidiaries as of June 30, 1995 and 1994, and
the related consolidated statements of income, changes in stockholder's equity,
and cash flows for each of the three years in the period ended June 30, 1995.
These financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of CSB Financial
Corporation and subsidiaries as of June 30, 1995 and 1994, and the results of
their operations and their cash flows for each of the three years in the period
ended June 30, 1995 in conformity with generally accepted accounting principles.
/s/ Cherry, Bekaert & Holland, L.L.P.
Lynchburg, Virginia
August 9, 1995
F-1
<PAGE>
CSB FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
JUNE 30
(In thousands) 1995 1994
- ----------------------------------------------------------------------------
ASSETS
Cash and cash equivalents $ 7,169 $ 3,375
Interest bearing deposits 40 442
Trading securities - -
Marketable equity securities 48,077 47,499
Securities available for sale 8,490 25,353
Investment securities (estimated market value
of $60,055 and $23,724) 59,685 24,462
Mortgage-backed securities (estimated market value
of $27,595 and $18,325) 27,683 18,929
Mortgage-backed securities available for sale - -
Loans receivable, net 144,012 124,132
Loans held for sale 140 1,230
Foreclosed real estate - 411
Property and equipment, net 4,830 4,045
Accrued interest receivable 2,065 1,901
Deferred income taxes 1,039 1,090
Goodwill 2,101 -
Other assets 485 297
- -----------------------------------------------------------------------------
$ 305,816 $ 253,166
- -----------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 244,065 $ 196,008
Advances and other borrowings 14,500 11,499
Advances from borrowers for taxes and insurance 555 640
Other liabilities 1,622 1,424
- -----------------------------------------------------------------------------
Total liabilities 260,742 209,571
- -----------------------------------------------------------------------------
Commitments and Contingencies
Stockholders' Equity:
Preferred stock, par value $.01 per share,
authorized 500,000 shares; issued and
outstanding, none - -
Common stock, par value $.01 per share,
authorized 4,000,000 shares; issued
2,818,660 (Issued 9/24/93) 28 28
Additional paid-in capital 27,009 26,937
Retained earnings, substantially restricted 24,594 23,163
Unrealized gain (loss) on assets available
for sale, net ( 1,634) ( 1,738)
Unearned shares held by:
Employee Stock Ownership Plan ( 1,822) ( 2,018)
Recognition and Retention Plans ( 762) ( 979)
Treasury stock, at cost, 176,912 and 138,000 shares ( 2,339) ( 1,798)
- -----------------------------------------------------------------------------
Total stockholders' equity 45,074 43,595
- ----------------------------------------------------------------------------
$ 305,816 $ 253,166
- ----------------------------------------------------------------------------
See notes to consolidated financial statements.
F-2
<PAGE>
CSB FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JUNE 30
(In thousands except 1995 1994 1993
per share amounts)
<S> <C> <C> <C>
INTEREST INCOME:
Loans $ 11,069 $ 10,179 $ 10,868
Marketable equity securities 2,910 2,298 1,589
Mortgage-backed securities 1,694 1,088 1,255
Overnight deposits 321 235 157
Other securities 3,500 2,497 2,570
Trading account securities - 8 16
- ----------------------------------------------------------------------------------
Total interest income 19,494 16,305 16,455
- ----------------------------------------------------------------------------------
INTEREST EXPENSE:
Deposits 10,070 7,635 8,671
Borrowed money 781 630 475
- ----------------------------------------------------------------------------------
Total interest expense 10,851 8,265 9,146
- ----------------------------------------------------------------------------------
Net interest income 8,643 8,040 7,309
Provision for credit losses 276 38 277
- ----------------------------------------------------------------------------------
Net interest income after
provision for credit losses 8,367 8,002 7,032
- ----------------------------------------------------------------------------------
NON-INTEREST INCOME:
Loan and other customer service fees 315 237 171
Gain (loss) on sale of:
Loans 29 369 217
Trading and other securities 243 ( 234) ( 33)
Market value adjustment of:
Loans ( 43) ( 83) 10
Trading and equity securities - ( 1) ( 145)
Servicing fee income 127 90 36
Other 38 36 26
- ---------------------------------------------------------------------------------
Total non-interest income 709 414 282
- ---------------------------------------------------------------------------------
NON-INTEREST EXPENSE:
Personnel 3,353 2,767 2,110
Office occupancy and equipment 637 585 517
Federal deposit insurance premiums 473 452 404
Net (gain) loss from foreclosed real estate ( 74) - 99
Advertising 286 167 172
Data processing 360 299 249
Other 776 544 461
- ---------------------------------------------------------------------------------
Total non-interest expense 5,811 4,814 4,012
- ---------------------------------------------------------------------------------
Income before income taxes 3,265 3,602 3,302
Income tax expense 1,095 1,260 1,205
- ---------------------------------------------------------------------------------
Net income $ 2,170 $ 2,342 $ 2,097
- ---------------------------------------------------------------------------------
Primary earnings per share $0.89 $0.94 N/A
Fully diluted earnings per share $0.88 $0.93 N/A
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
CSB FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
(In thousands) 1995 1994 1993
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,170 $ 2,342 $ 2,097
Adjustments to reconcile net income to net
cash provided (used in) by operating activities
Provision for credit losses 276 38 277
Provision for losses (recoveries) on
foreclosed property ( 128) - 99
Depreciation and amortization 356 218 188
Deferred income taxes ( 13) 22 ( 71)
Realized and unrealized investment
security (gains) losses ( 243) 235 168
Realized and unrealized loan sale
(gains) losses 41 ( 286) ( 217)
Purchases of trading account securities - - (13,949)
Proceeds from sales of trading account
securities - 1,007 13,911
Loans originated for sale ( 1,339) ( 9,191) (16,996)
Proceeds from sales of loans originated
for sale 2,388 24,626 617
(Increase) decrease in interest receivable ( 164) ( 311) 146
(Increase) decrease in other assets ( 188) 75 ( 272)
Increase (decrease) in other liabilities 371 ( 86) 1,150
Increase (decrease) in income taxes payable ( 173) ( 24) ( 326)
- ---------------------------------------------------------------------------------
Net cash provided by (used in) operating
activities 3,354 18,665 (13,178)
- ---------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of investment
securities 14,464 15,171 34,093
Proceeds from sale of marketable equity
securities 905 15,499 6,002
Principle collected on mortgage-backed
securities 4,154 10,084 9,086
Proceeds from sales of mortgaged-backed
securities 9,853 - -
Purchase of mortgage-backed securities (22,668) ( 9,830) (13,090)
Purchase of marketable equity securities ( 839) (27,331) (12,500)
Purchases of investment securities and
interest-bearing deposits (32,748) (30,831) (34,160)
Proceeds from sale of loans from portfolio - - 19,050
Net (increase) decrease in loans receivable (20,156) (11,728) (14,880)
Purchases of premises and equipment ( 1,056) ( 381) ( 1,970)
Payment of branch acquisition premium ( 2,186) - -
Proceeds from sale of foreclosed real estate 539 - -
Disposal of obsolete equipment - 85 -
- --------------------------------------------------------------------------------
Net cash provided by (used in) investing
activities (49,738) (39,262) ( 8,369)
- ---------------------------------------------------------------------------------
</TABLE>
F-4
<PAGE>
CSB FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continuation from Preceding Page)
YEAR ENDED JUNE 30
(In thousands) 1995 1994 1993
- ----------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in customer
deposits $ 6,892 $( 4,001) $ 9,053
Acquisition of deposits 41,165 - -
Proceeds from advances and other
borrowed money 28,138 1,499 10,000
Repayments of advances and other
borrowed money (25,137) - (1,150)
Net increase (decrease) in advance
payments by borrowers ( 85) ( 235) -
Proceeds from sale of stock - 26,933 -
Purchase of stock by ESOP - ( 2,208) -
Purchase of stock by RRPs - ( 1,104) -
Proceeds/allocation of ESOP and RRPs 513 356 -
Purchase of treasury stock ( 660) ( 1,836) -
Proceeds from reissuance of stock through
exercise of options 91 29 -
Payment of cash dividend ( 739) ( 383) -
- ------------------------------------------------------------------------------
Net cash provided by (used in) financing
activities 50,178 19,050 17,903
- ------------------------------------------------------------------------------
Increase (decrease) in cash and
cash equivalents 3,794 (1,547) (3,644)
Cash and cash equivalents at beginning
of period 3,375 4,922 8,566
- ------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 7,169 $ 3,375 $ 4,922
- ------------------------------------------------------------------------------
Supplemental disclosures:
Cash paid for:
Interest on deposits, advances, and
other borrowings $11,095 $ 8,281 $ 9,169
Income taxes $ 1,282 $ 1,133 $ 1,602
Noncash investing and financing activity:
Unrealized gain (loss) on "Available
for Sale" securities $ 168 $(2,650) $ -
Deferred tax increase (decrease) $( 64) $ 912 $ -
Transfer from loans to foreclosed real
estate (in-substance foreclosure) $ - $ - $ 510
See notes to consolidated financial statements.
F-5
<PAGE>
CSB FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNREALIZED
GAIN (LOSS)
ADDITIONAL ON ASSETS
COMMON PAID-IN RETAINED AVAILABLE ACQUIRED ACQUIRED TREASURY
(In thousands) STOCK CAPITAL EARNINGS FOR SALE, NET BY ESOP BY RRPs STOCK TOTAL
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1992 $ - $ - $19,011 $ - $ - $ - $ - $19,011
Net Income - - 2,097 - - - - 2,097
- ----------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1993 - - 21,108 - - - - 21,108
Net Income - - 2,342 - - - - 2,342
Cumulative effect of change
in accounting principle - - 96 (96) - - - -
Change in unrealized loss on
assets available for sale,net - - - (1,642) - - - (1,642)
Sale of stock 28 26,905 - - (2,208) (1,104) - 23,621
Allocated/Earned ESOP & RRPs
shares - 41 - - 190 125 - 356
Stock reacquired at cost - - - - - - (1,836) (1,836)
Stock reissued for options
exercised - (9) - - - - 38 29
Cash dividends declared
($0.225 per share) - - (383) - - - - (383)
- -----------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1994 28 26,937 23,163 (1,738) (2,018) (979) (1,798) 43,595
Net Income - - 2,170 - - - - 2,170
Change in unrealized loss on
assets available for sale,net - - - 104 - - - 104
Allocated/Earned ESOP & RRPs
shares - 100 - - 196 217 - 513
Stock reacquired at cost - - - - - - ( 660) ( 660)
Stock reissued for options
exercised - ( 28) - - - - 119 91
Cash dividends declared
($0.325 per share) - - ( 739) - - - - ( 739)
- -----------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1995 $ 28 $27,009 $24,594 $(1,634) $(1,822) $( 762) $(2,339) $45,074
======================================================================================================================
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
CSB FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1995, 1994 and 1993
CSB Financial Corporation (the Company) is a unitary thrift holding company
whose principal asset is its wholly owned subsidiary, Cooperative Savings Bank,
F.S.B. ("the Bank" or "Co-operative"). Cooperative is a federally chartered
stock savings bank organized under the United States Home Owner's Loan Act. CSB
Financial Services, Inc., another wholly-owned subsidiary of the Company was
incorporated in June 1995.
The accounting and reporting policies of the Company and subsidiaries conform
with generally accepted accounting principles (GAAP). A brief description of the
Company's significant accounting policies is presented below.
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of CSB Financial
Corporation and its wholly owned subsidiaries. All material intercompany
accounts and transactions have been eliminated in consolidation. The Company
also presents herein condensed parent company financial information. Prior year
amounts are reclassified when necessary to conform with current year
classifications.
Cash Equivalents
For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments purchased with maturities of three months or less to be
cash equivalents. Cash and cash equivalents for the years presented include cash
on hand, amounts due from banks, and overnight investments including federal
funds. Certificates of deposit with initial maturities greater than three months
are shown separately as interest-bearing deposits.
Investment Securities and Mortgage-Backed Securities
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 115 ("SFAS 115"), Accounting for Certain Investments in Debt and
Equity Securities, as of July 1, 1993. Under SFAS 115, the Bank classifies its
debt and marketable equity securities as either trading, held-to-maturity, or
available-for-sale. Mortgage-backed securities are accounted for in the same
manner as debt and equity securities.
Investments in debt securities classified as held-to-maturity are stated at
cost, adjusted for amortization of premiums and accretion of discounts using the
level yield method. The Company has the ability and positive intent to hold
these securities to maturity and, accordingly, adjustments are not made for
temporary declines in fair value below amortized cost.
F-7
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Investments in debt and equity securities classified as available-for-sale are
stated at fair value, based on quoted market prices, with unrealized holding
gains and losses excluded from earnings and reported as a net amount, net of
related income taxes, as a separate component of stockholders' equity until
realized. Investment in the restricted stock of Federal Home Loan Bank of
Atlanta is stated at cost. A decline in the fair value of any available-for-sale
or held-to-maturity security below cost that is deemed other than temporary is
charged to earnings resulting in the establishment of a new cost basis for the
security.
Investments in debt and equity securities classified as trading are stated at
fair value. Unrealized holdings gains and losses for trading securities are
included in earnings.
Transfers of securities between categories are recorded at fair value at the
date of transfer. Unrealized holding gains and losses are recognized in earnings
for transfers into trading securities. Unrealized holdings gains or losses
associated with transfers of securities from held-to-maturity to
available-for-sale are recorded as a separate component of stockholders' equity.
The unrealized holding gains or losses included in a separate component of
equity for securities transferred from available-for-sale to held-to-maturity
are maintained and amortized into earnings over the remaining life of the
security as an adjustment to yield in a manner consistent with amortization or
accretion of premium or discount on the associated security.
Dividend and interest income are recognized when earned. Realized gains and
losses for securities classified as available-for-sale and held-to-maturity are
included in earnings and are derived using the specific identification method
for determining the cost of securities sold.
Loans Held For Sale
The Company identifies loans which may be sold prior to maturity. Such
identification as held-for-sale is made at the time of origination. These loans
are classified as held-for-sale and recorded at the lower of cost or market
value on an aggregate basis. Any gain or loss in the market value or actual sale
of these loans is recorded in non-interest income.
Credit Losses
Loans receivable are stated at their face or par value, net of unearned purchase
discounts, discounts resulting from add-on interest, participation or whole-loan
interests owned by others, deferred loan fees, allowance for credit losses, and
undisbursed loans in process. Valuation allowances for estimated credit losses
are established by charges to earnings when any material and estimable decline
in value is deemed to have occurred. The determination of the adequacy of the
valuation allowances is based on a detailed analysis and classification of loans
with known or anticipated adverse performance characteristics, and included
consideration of historical patterns, industry experience, current economic
conditions, changes in the composition and risk characteristics of the loan
portfolio, and other factors deemed relevant to the collectibility of the loans
currently outstanding.
F-8
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Foreclosed Real Estate
Foreclosed real estate consists of property acquired in settlement of loans,
whether through actual foreclosure or in-substance foreclosure on delinquent
loans. Such property is stated initially at the lower of cost or fair value, and
is subsequently maintained at the lower of cost or fair value less estimated
cost to sell.
Property, Equipment and Depreciation
The various classes of property are stated at cost, and are depreciated by the
straight-line method over their estimated useful lives of 5 to 50 years for
buildings and improvements and 3 to 10 years for furniture, fixtures, and
equipment. Repairs are expensed as incurred. Leasehold improvements are
capitalized and amortized over the shorter of their useful lives or the term of
the lease. The cost and accumulated depreciation of property are eliminated from
the accounts upon disposal, and any resulting gain or loss is included in the
determination of net income.
Goodwill
Goodwill, representing the excess purchase price over the fair value of net
assets acquired is reported net of accumulated amortization. Goodwill is
amortized on a straight line basis over 15 years.
Income Taxes
The Company adopted the Statement of the Financial Accounting Standards No. 109
("SFAS 109"), Accounting for Income Taxes for the fiscal year ended June 30,
1993. SFAS 109 requires the asset-and-liability method of accounting for income
taxes. Under the asset-and-liability method, deferred income taxes are
recognized for the tax consequences of "temporary differences" by applying
enacted statutory tax rates applicable to future years to differences between
the financial statement carrying amounts and the tax bases of existing assets
and liabilities. Under SFAS 109, the effect on deferred taxes of a change in tax
rates is recognized in income in the period that includes the enactment date.
Loan Origination Fees, Costs, Discounts and Premiums
Loan fees are accounted for in accordance with the Statement of Financial
Accounting Standards No. 91 ("SFAS 91"), Accounting for Non-refundable Fees and
Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of
Leases. Under SFAS 91, loan origination and commitment fees and certain direct
loan origination costs are deferred. Upon the expiration of unfunded commitments
the related fees are recognized into income as loan fees. Loan origination fees
on funded commitments and related direct costs are amortized into income on
loans as yield adjustments over the contractual life of related loans using the
level-yield method.
F-9
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Sales of Mortgage Loans, Mortgage-Related Securities, and
Foreclosed Real Estate
Gains and losses on the sales of loans, participation interests in loans, and
foreclosed real estate are accounted for by imputing gain or loss on those sales
where a yield rate guaranteed to the buyer is more or less than the contract
interest rate being collected, in the case of loans, and where foreclosed
property is sold on financing terms more or less favorable than the prevailing
market terms for similar property. Such gains or losses are recognized in the
financial statements for the year of sale. The Company services loans that have
been sold with servicing retained by the Company. Such loan balances are not
included in the accompanying statements of financial condition. Deferred loan
fees on loans sold are treated as adjustments to basis in determining gain or
loss on the sale.
Earnings Per Share
Earnings per share of common stock for the fiscal year ended June 30, 1995, have
been computed by dividing the net income by the weighted average number of
shares of common stock and common stock equivalents outstanding during the year.
Stock options are regarded as common stock equivalents and are therefore
considered in both primary and fully diluted earnings per share calculations.
Common stock equivalents are computed using the treasury stock method.
Shares acquired by the employee stock benefit plans are accounted for in
accordance with AICPA Statement of Position 93-6 and are not considered in the
weighted average shares outstanding until the shares have been earned by the
employees and/or committed to be released.
Earnings per share of common stock for the fiscal year ended June 30, 1994, have
been computed by dividing the net income for the twelve month period by the
calculated weighted average number of shares of common stock and common stock
equivalents which would have been outstanding if the conversion had occurred on
the first day of the fiscal year rather than on September 24, 1993.
Earnings per share information for fiscal year ended June 30, 1993, is not
meaningful because the Company did not complete its stock conversion until
September 23, 1993.
F-10
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Conversion to Stock Ownership
On September 24, 1993, the Company issued 2,818,660 shares of $0.01 par value
common stock at $10.00 per share and became the parent company of the Bank. Net
proceeds, after deducting conversion expenses and underwriters' discounts of
$1,254,000, were $26,933,600 and are reflected as common stock and additional
paid-in capital in the accompanying consolidated statement of financial
condition.
As part of the conversion to stock form, the Bank established an Employee Stock
Ownership Plan ("ESOP") for eligible employees. The ESOP purchased 220,800
common shares of the Company issued in the conversion, which was funded by a
loan from the Company. In accordance with generally accepted accounting
principles, the unpaid balance of the ESOP loan has been eliminated on the
Company's consolidated statement of financial condition. Stockholders' equity
has been reduced by the aggregate purchase price of the shares owned by the ESOP
net of the shares committed to be released. Contributions to the ESOP by the
Bank are made to fund the principal and interest payments on the debt of the
ESOP. As of June 30, 1995, 38,640 shares were committed to be released.
Additionally, the Bank established four Recognition and Retention Plans
("RRPs"), which purchased 51,740 common shares of the Company, issued in the
conversion. An additional 58,660 common shares were purchased from the
authorized but unissued shares concurrently with the conversion. The funds used
to acquire the RRPs shares were contributed by the Bank. These shares are
available for issuance to directors and employees in key management positions
with the Bank. The aggregate purchase price of all the shares owned by the RRPs
net of the amortized expense to the extent that the participants are vested in
the awarded shares is reflected as a reduction of stockholders' equity. As of
June 30, 1995, 16,629 shares had been distributed to employees.
Treasury Stock
On two separate occasions, December 2, 1994 and January 18, 1994, the Company
received regulatory authority to repurchase up to five percent of its
outstanding common stock, 134,417 shares and 140,933 shares, respectively, a
total of 275,350 shares of the Company's common stock. The primary purpose of
the Company's stock repurchase plan is to accumulate shares of common stock so
that they may be reissued under the Company's stock option plans which were
approved by the stockholders on February 11, 1994. At June 30, 1995, the Company
held 176,912 shares in Treasury Stock at an average purchase price of $13.22 per
share.
F-11
<PAGE>
NOTE 2 - INVESTMENT SECURITIES
Investment Securities are summarized below:
<TABLE>
<CAPTION>
June 30, 1995 June 30, 1994
----------------------------------- -------------------------
Amortized Gross Unrealized Market Amortized Gross Unrealized Market
(In thousands) Cost Gain Losses Value Cost Gain Losses Value
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Marketable Equity Securities,
Available for Sale
U.S. Government securities funds $ 8,000 $ - $ 247 $ 7,753 $ 8,000 $ - $ 366 $ 7,634
Adjustable rate mortgage funds 38,964 - 1,270 37,694 38,964 - 1,544 37,420
FHLMC Stock 937 8 - 945 957 - 43 914
FHLB Stock 1,195 - - 1,195 1,531 - - 1,531
Other equity securities 442 48 - 490 - - - -
- -------------------------------------------------------------------------------------------------------------
Total 49,538 56 1,517 48,077 49,452 - 1,953 47,499
- -------------------------------------------------------------------------------------------------------------
Securities Available For Sale
U.S. Government and federal
agency obligations 8,474 16 - 8,490 13,973 3 602 13,374
Corporate and other securities - - - - 12,055 15 91 11,979
- -------------------------------------------------------------------------------------------------------------
Total 8,474 16 - 8,490 26,028 18 693 25,353
- -------------------------------------------------------------------------------------------------------------
Investment Securities, Held to Maturity
U.S. Government and federal
agency obligations 31,011 510 194 31,327 11,999 56 260 11,795
State and political subdivision
obligations 1,042 7 - 1,049 - - - -
Corporate and other securities 27,632 314 267 27,679 12,463 - 534 11,929
- -------------------------------------------------------------------------------------------------------------
Total 59,685 831 461 60,055 24,462 56 794 23,724
- -------------------------------------------------------------------------------------------------------------
Total investment securities $117,697 $903 $1,978 $116,622 $99,942 $74 $ 3,440 $96,576
- -------------------------------------------------------------------------------------------------------------
</TABLE>
Proceeds from the sale of marketable equity securities during the fiscal year
ended June 30, 1995, were $905,000. Gross gains of $152,000 were realized on
those sales.
U. S. Government and federal agency securities with a carrying value of
$9,975,000 and a market value of $10,140,000 were pledged as collateral for
short term credit advances from the Federal Home Loan Bank of Atlanta.
The amortized cost and estimated market value of debt securities at June 30,
1995, by contractual maturity, are shown 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.
Amortized Estimated
(In thousands) Cost Market Value
U. S. Government and federal agency obligations:
Due in one year or less $ 998 $ 1,003
Due after one year through five years 26,018 26,359
Due after five years through ten years 12,469 12,455
- ---------------------------------------------------------------
Total 39,485 39,817
State and political subdivision obligations:
Due in one year or less 1,042 1,049
- ---------------------------------------------------------------
Corporate and other securities:
Due in one year or less 3,972 3,992
Due after one year through five years 20,658 20,670
Due after five years through ten years 3,002 3,017
- ---------------------------------------------------------------
Total 27,632 27,679
- ---------------------------------------------------------------
Grand Total $68,159 $68,545
- ---------------------------------------------------------------
F-12
<PAGE>
NOTE 3 - MORTGAGE-BACKED SECURITIES
The carrying values and estimated market values of mortgage-backed securities,
which are classified as held to maturity, are summarized as shown below:
<TABLE>
<CAPTION>
June 30, 1995 June 30, 1994
----------------------------------- -------------------------
Gross Gross
Amortized Unrealized Estimated Amortized Unrealized Estimated
(In thousands) Cost Gain Loss Market Value Cost Gain Loss Market Value
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage-backed securities, net:
FHLMC $ 2,459 $ 50 $ 5 $ 2,504 $ 1,364 $ 8 $ 12 $ 1,360
FHLMC ARMs 539 13 6 546 597 3 2 598
FHLMC CMOs 11,954 108 98 11,964 4,847 - 216 4,631
FNMA 1,177 34 - 1,211 1,368 37 - 1,405
FNMA CMOs 8,287 16 193 8,110 8,916 - 386 8,530
GNMA - - - - - - - -
GNMA CMOs 2,030 13 8 2,035 352 - 10 342
Privately issued CMOs 1,237 - 12 1,225 1,485 - 26 1,459
- ---------------------------------------------------------------------------------------------------------
Total $27,683 $234 $322 $27,595 $18,929 $48 $ 652 $18,325
- ---------------------------------------------------------------------------------------------------------
</TABLE>
Proceeds from the sale of mortgage-backed securities which were classified as
available for sale during the fiscal year ended June 30, 1995 were $9,853,000.
Gross gains of $91,000 were realized on those sales.
NOTE 4 - LOANS RECEIVABLE
Loans receivable at the end of each year were as shown below:
June 30
(In thousands) 1995 1994
- -----------------------------------------------------------
Construction loans:
One- to four- family $ 1,563 $ 2,342
Multi-family 500 500
Non-residential real estate 2,536 -
- -------------------------------------------------------------
Total 4,599 2,842
- -------------------------------------------------------------
Mortgage loans:
One- to four- family 117,819 108,455
Multi-family 3,781 1,395
Non-residential real estate 10,676 9,662
Land 1,060 1,082
- -------------------------------------------------------------
Total 133,336 120,594
- -------------------------------------------------------------
Total real estate loans 137,935 123,436
Other loans:
Commercial 8,574 3,847
Consumer 3,760 2,311
- -------------------------------------------------------------
Total 12,334 6,158
- -------------------------------------------------------------
Total loans receivable 150,269 129,594
- -------------------------------------------------------------
Less:
Loans in process 4,474 4,077
Unearned discounts and
deferred loan fees 846 741
Allowance for credit losses 937 644
- -------------------------------------------------------------
Loans receivable, net $144,012 $124,132
=============================================================
F-13
<PAGE>
NOTE 4 - LOANS RECEIVABLE (continued)
An analysis of the allowance for credit losses follows:
Year Ended June 30
(In thousands) 1995 1994 1993
- -------------------------------------------------------------
Balance, beginning of year $ 644 $ 569 $ 289
Provision charged to operations 276 38 277
Loans charged off ( 16) - ( 1)
Recoveries of loans charged off 33 37 4
- --------------------------------------------------------------
Balance at end of year $ 937 $ 644 $ 569
==============================================================
Residential loans aggregating $19,333,000 have been pledged to the Federal Home
Loan Bank of Atlanta as collateral for advances from that bank. See Note 10.
NOTE 5 - LOAN SERVICING
Mortgage loans serviced for others are not included in the accompanying
statements of financial condition. The unpaid principal balances of these loans
are summarized as follows:
June 30
(In thousands) 1995 1994 1993
- --------------------------------------------------------------
FHLMC $ 1,234 $ 1,485 $ 2,027
FNMA 36,039 38,443 18,545
- ---------------------------------------------------------------
Total $37,273 $39,928 $20,572
===============================================================
Custodial escrow balances maintained in connection with the foregoing loan
servicing were approximately $206,000 at June 30, 1995, $254,000 at June 30,
1994, and $282,000 at June 30, 1993.
NOTE 6 - FORECLOSED REAL ESTATE
Foreclosed real estate consisted of the amounts shown below:
June 30
(In thousands) 1995 1994
- -------------------------------------------------------------
In-substance foreclosure,
net fair value $ - $ 510
Less allowance for losses in value - (99)
- ---------------------------------------------------------------
Foreclosed real estate, net $ - $ 411
==============================================================
F-14
<PAGE>
NOTE 6 - FORECLOSED REAL ESTATE (continued)
An analysis of the allowance for losses on foreclosed real estate
value follows:
Year Ended June 30
(In thousands) 1995 1994 1993
- ---------------------------------------------------------------
Balance, beginning of period $ 99 $ 99 $ -
Provision charged to operations (99) - 99
Charge-offs - - -
- ---------------------------------------------------------------
Balance, end of period $ - $ 99 $ 99
===============================================================
The net gain (loss) from foreclosed real estate consisted of the amounts shown
below:
Year Ended June 30
(In thousands) 1995 1994 1993
- ---------------------------------------------------------------
Gain on sale of property $ 29 $ - $ -
Less expenses:
Provision for losses (recoveries)
charged to operations (99) - 99
Maintenance, utilities, taxes
and insurance 54 - -
- ----------------------------------------------------------------
Net gain(loss) $ 74 $ - $ (99)
- -----------------------------------------------------------------
NOTE 7 - PROPERTY, EQUIPMENT AND DEPRECIATION
Property and equipment were as shown below:
June 30
(In thousands) 1995 1994
- --------------------------------------------------------------
Land $ 1,155 $ 1,005
Office buildings and improvements 3,824 3,292
Leasehold improvements, net 244 108
Furniture, fixtures and equipment 1,190 966
- ----------------------------------------------------------------
Total 6,413 5,371
Less accumulated depreciation (1,583) (1,326)
- -----------------------------------------------------------------
Net property and equipment $ 4,830 $ 4,045
- ----------------------------------------------------------------
Accumulated depreciation on property and equipment and the related depreciation
expense were as shown below:
Accumulated Depreciation
June 30
(In thousands) 1995 1994
- ---------------------------------------------------------------
Buildings and improvements $ 1,136 $ 1,019
Furniture, fixtures and equipment 447 307
- ---------------------------------------------------------------
Total $ 1,583 $ 1,326
- ---------------------------------------------------------------
F-15
<PAGE>
NOTE 7 - PROPERTY, EQUIPMENT AND DEPRECIATION (continued)
Depreciation and
Amortization Expense
Year Ended June 30
(In thousands) 1995 1994 1993
- ----------------------------------------------------------------
Buildings and improvements $ 118 $ 109 $ 92
Furniture, fixtures and equipment 143 100 87
- ----------------------------------------------------------------
Total 261 209 179
Leasehold improvements 10 9 9
- ----------------------------------------------------------------
Total $ 271 $ 218 $ 188
- ----------------------------------------------------------------
NOTE 8 - ACCRUED INTEREST RECEIVABLE
Accrued interest receivable was as shown below:
June 30
(In thousands) 1995 1994
- ----------------------------------------------------------------
Interest on loans $ 854 $ 899
Interest and dividends on
investment securities 1,046 894
Interest on mortgage-backed securities 165 108
Interest on trading securities - -
- ----------------------------------------------------------------
Total $ 2,065 $1,901
- ----------------------------------------------------------------
NOTE 9 - DEPOSITS
Savings deposits, summarized by interest rate, were as shown below:
June 30
(In thousands) 1995 1994
- ----------------------------------------------------------------
Negotiable order of withdrawal deposits
Non-interest bearing $ 4,525 $ 3,426
2.745%/0.000% 122 -
2.802%/2.785% 5,914 5,484
3.110%/3.124% 10,642 13,901
3.391%/3.137% 13,470 14,472
- ----------------------------------------------------------------
Total negotiable order of
withdrawal deposits 34,673 37,283
- ----------------------------------------------------------------
Passbook and statement deposits,
0.00% to 6.76% 40,521 41,440
- ----------------------------------------------------------------
Savings certificates and other term deposits
3.99% or less 3,284 35,819
4.00% to 4.99% 35,839 50,046
5.00% to 5.99% 51,893 26,059
6.00% to 6.00% 62,276 3,516
7.00% to 7.00% 15,100 533
8.00% to 8.99% 432 1,251
9.00% to 9.99% 47 61
- ----------------------------------------------------------------
Total savings certificates and
other term deposits 168,871 117,285
- ----------------------------------------------------------------
Total deposits $244,065 $196,008
- ----------------------------------------------------------------
F-16
<PAGE>
NOTE 9 - DEPOSITS (continued)
The aggregate amount of jumbo certificates of deposit with a minimum
denomination of $100,000 was approximately $3,986,000 at June 30, 1995, and
$4,438,000 at June 30, 1994.
At June 30, 1995, scheduled maturities of certificates of deposit by various
rate categories were as shown below.
Period of Maturity
From June 30, 1995
Within One to
(In thousands) One Year Three Years Thereafter Total
Certificate accounts:
3.99% or less $ 3,284 $ - $ - $ 3,284
4.00% to 4.99% 29,266 6,573 - 35,839
5.00% to 5.99% 35,620 16,160 113 51,893
6.00% to 6.99% 32,066 26,501 3,709 62,276
7.00% to 7.99% 206 3,696 11,198 15,100
8.00% to 8.99% 352 1 79 432
9.00% to 9.99% 47 - - 47
- ----------------------------------------------------------------
Total $100,841 $52,931 $15,099 $168,871
- ----------------------------------------------------------------
Interest expense on deposits is summarized as follows:
Year Ended June 30
(In thousands) 1995 1994 1993
- --------------------------------------------------------------
Negotiable order of
withdrawal deposits $ 1,021 $ 1,034 $ 1,020
Passbook and statement deposits 1,487 1,332 1,246
Savings certificates and
other term deposits 7,562 5,269 6,405
- ---------------------------------------------------------------
Total $10,070 $ 7,635 $ 8,671
- ---------------------------------------------------------------
F-17
<PAGE>
NOTE 10 - ADVANCES AND OTHER BORROWINGS
The Company's liability on advances and other borrowings at the end of each year
was as shown below:
Interest June 30
(In thousands) Rate 1995 1994
- ---------------------------------------------------------------
Advances from Federal Home Loan
Bank of Atlanta
Fixed rate credit (FRC) advances:
Due within one year 4.85% $ - $ 500
5.48% 1,500 -
Due after one year but within
five years 5.48% - 1,500
6.09% 2,000 2,000
6.55% 2,000 2,000
6.75% 2,000 2,000
7.10% 2,000 -
Due after five years but within
ten years 7.10% - 2,000
Total FRC Advances 9,500 10,000
Short term credit (STC) advances:
Due within one year 6.11% 5,000 -
- ----------------------------------------------------------------
Total Advances 14,500 10,000
Securities sold under agreements
to repurchase, due on demand,
variable rates 4.6875% - 1,499
Total $14,500 $11,499
- ----------------------------------------------------------------
Annual maturities of the advances are:
1996 $ 6,500
1997 2,000
1998 2,000
1999 2,000
2000 2,000
-------
$14,500
The Bank's stock in the Federal Home Loan Bank of Atlanta was pledged as
collateral for the advances along with a blanket floating lien on the Bank's
real estate loans. At June 30, 1995, $19,333,000 in unspecified real estate
loans were encumbered under this agreement. In addition, U. S. Government and
federal agency securities with a carrying value of $9,975,000 and a market value
of $10,140,000 were pledged as collateral for the short term credit advance.
F-18
<PAGE>
NOTE 11 - INCOME TAXES
For 1995, 1994 and 1993, federal income taxes were computed by application of
Section 593 of the U.S. Internal Revenue Code which provides a special allowance
for bad debts for qualified institutions. The bad debt deduction may be a "tax
preference item" to which a minimum tax may apply.
The provision for income taxes consisted of the following elements.
Year Ended June 30
(In thousands) 1995 1994 1993
- --------------------------------------------------------------
Tax paid or payable currently:
Federal $ 970 $1,068 $1,147
State 138 121 129
- ---------------------------------------------------------------
Net amounts paid or
payable currently 1,108 1,189 1,276
Income tax deferred to
future periods ( 13) 71 ( 71)
- ----------------------------------------------------------------
Total income tax expense $ 1,095 $1,260 $1,205
- ---------------------------------------------------------------
The provision for income taxes differs from that computed at the statutory rate
as shown below:
<TABLE>
<CAPTION>
Amount Percent of Pretax Income
Year Ended June 30 Year Ended June 30
(In thousands) 1995 1994 1993 1995 1994 1993
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Tax at statutory rate $1,110 $ 1,225 $ 1,122 34.0% 34.0% 34.0%
Increases (decreases) in taxes
resulting from:
Exempt dividends ( 17) ( 36) ( 30) ( 0.5) ( 1.0) ( 0.9)
State income taxes net of federal benefit 70 79 85 2.1 2.2 2.6
Other ( 68) ( 8) 28 ( 2.1) ( 0.2) 0.8
- ----------------------------------------------------------------------------------------------------
Total income tax expense $1,095 $1,260 $1,205 33.5% 35.0% 36.5%
- -----------------------------------------------------------------------------------------------------
</TABLE>
The significant components of net deferred tax assets are listed below:
June 30
(In thousands) 1995 1994
- -----------------------------------------------------------------
Components of the deferred tax asset:
Bad debts $ 71 $ 22
Deferred income 249 249
Market value adjustments on loans and
trading and equity securities - 25
Unrealized loss on securities available
for sale 848 912
- ----------------------------------------------------------------
1,168 1,208
Valuation allowance - (22)
- -----------------------------------------------------------------
Total deferred tax asset 1,168 1,186
- ----------------------------------------------------------------
Components of the deferred tax liability:
Accelerated depreciation (129) (96)
- -----------------------------------------------------------------
Total deferred tax liability (129) (96)
- -----------------------------------------------------------------
Net deferred tax asset $1,039 $1,090
- ----------------------------------------------------------------
F-19
<PAGE>
NOTE 11 - INCOME TAXES (continued)
The net deferred tax (benefit) consisted of the following elements in thousands:
Year Ended June 30
(In thousands) 1995 1994 1993
- --------------------------------------------------------------
Income tax paid on income
deferred to future periods $ (71) $ 30 $ (33)
Income tax to market value
adjustments 25 24 (45)
Income tax accrued on difference
between depreciation recorded
on the books and amount
deducted on tax return 33 17 7
- ----------------------------------------------------------------
Net deferred income tax
benefit $ (13) $ 71 $ (71)
- -----------------------------------------------------------------
Net deferred tax change
recognized in equity $ 64 $ (912) $ -
- ----------------------------------------------------------------
The classification of the Bank's retained earnings for federal
income tax purposes was as follows:
June 30
(In thousands) 1995 1994
- ----------------------------------------------------------------
Appropriations of net income representing
tax bad debt deductions on which no
income tax has been paid $ 7,250 $ 7,152
Tax-paid or tax-exempt income accumulated 15,591 15,301
$22,841 $22,453
If any of the $7,250,000 untaxed retained earnings are used for other than bad
debt losses, gross taxable income will be created to the extent of such amounts.
The Bank's income tax returns for the fiscal years ended June 30, 1991, 1992,
and 1993 were recently examined by the Internal Revenue Service and a total of
$141,100 assessed. Immediately subsequent to receipt of the adjustment, the Bank
filed amended returns as a protective claim for the June 30, 1992 and 1993
fiscal years requesting refunds totaling $215,700. Additionally, the Bank filed
a letter of written protest. Both the assessments and the protective claims have
been placed on hold until an appeal date can be set. Neither amount has been
recorded on the financial statements.
F-20
<PAGE>
NOTE 12 - RESTRICTED RETAINED EARNINGS
The Bank is required by federal insurance regulations to maintain certain
reserves for the sole purpose of absorbing losses. A federal insurance reserve
was established for this purpose by an appropriation of retained earnings. In
1980, the requirement for a separate federal insurance reserve account was
eliminated. However, amounts previously credited to this separate reserve
account are designated "restricted retained earnings," and shall be used only
for absorption of losses. The amount so designated totaled $2,291,000 at June
30, 1995.
In accordance with the current regulations concerning conversion from a mutual
to a stock organization the Bank was required to establish a liquidation account
equal to its net worth as of the latest statement of financial condition
contained in the final offering circular. Such liquidation account is to be
maintained for the benefit of depositors, as of the eligibility record date
(November 30, 1992) who continue to maintain their deposits in the Bank after
the conversion, in the event of a complete liquidation of the Bank. If, however,
on any annual closing date of the Bank subsequent to November 30, 1992, the
amount in any deposit account is less than the amount in such deposit account on
November 30, 1992, then the interest in the liquidation account relating to such
deposit account would be reduced by the amount of such reduction, and such
interest will cease to exist if such deposit account is closed. The Bank may not
declare or pay a cash dividend, or repurchase any of its capital stock if the
effect thereof would cause the net worth of the Bank to be reduced below either
the amount required for the liquidation account or the minimum regulatory
capital requirements. At June 30, 1995, the unadjusted liquidation account
totaled $20,548,000 and minimum regulatory capital was $11,780,000.
NOTE 13 - RETIREMENT PLANS, EMPLOYEE BENEFIT PROGRAMS
Pension Plan
The Bank participates in a multi-employer noncontributory defined benefit
pension plan covering substantially all of its employees. The benefits are based
on years of service and the employee's compensation during the last 5 years of
employment. The Bank contributes to the plan annually based on actuarial funding
guidelines. Contributions are intended to provide not only for benefits
attributed to service to date, but also for those expected to be earned in the
future. Pension expense totaled $94,000 for 1995, $42,000 for 1994, and $32,000
for 1993, respectively.
Savings and Profit Sharing Plans
In addition to the defined benefit pension plan, the Bank also provides various
defined contribution savings and profit sharing plans for the benefit of its
full-time employees with at least one year of service. Contributions to these
plans are made annually as determined by the Board of Directors.
F-21
<PAGE>
NOTE 13 - RETIREMENT PLANS, EMPLOYEE BENEFIT PROGRAMS (continued)
All full-time employees of the Bank are eligible to participant in the Bank's
Annual Performance Incentive Plan (APIP). Awards under this plan are based on
various performance goals, such as individual production, unit performance, and
overall Bank profitability, and are paid monthly, quarterly and annual depending
on each individual's objectives. The allocation of funds for this plan are
approved annually by the Board of Directors based on the goals and objectives
stated for the upcoming fiscal year.
Contributions were as shown below by benefit.
June 30
(In thousands) 1995 1994 1993
- ---------------------------------------------------------------
Bank's 401k match $ 56 $ 44 $ 44
Annual Performance Incentive Plan 147 191 222
Employee Stock Ownership Plan
At the time of the stock conversion, the Bank established an Employee Stock
Ownership Plan (ESOP) covering all full-time employees, over the age of 21, with
at least one year of service. The ESOP borrowed funds from the Company to
purchase a total of 220,800 shares of the Company's Common Stock, the loan being
collateralized by the Common Stock. Contributions by the Bank, along with
dividends received on unallocated shares, are used to repay the loan with shares
being released from the Company's lien proportional to the loan repayments.
Annually on June 30, the released shares are allocated to the participants in
the same proportion that their wages bear to the total compensation of all of
the participants. At June 30, 1995, a total of 38,640 shares of the Company's
Common Stock have been released and allocated to the Plan Participants.
The Company has elected to present these financial statements in accordance with
the AICPA Statement of Position No. 93-6, Employers' Accounting for Employee
Stock Ownership Plans, which was issued in November 1993. This SOP provides that
the price of the shares issued and unreleased be charged to unearned
compensation, a contra-equity account, and that when shares are released that
the difference between the original price and the fair market value of those
shares be recognized as expense in that period and recorded as an increase in
additional paid-in capital. Also under this SOP, the dividends paid on allocated
shares would be charged to retained earnings and those on unallocated shares are
charged to expense to the extent that they are used to reduce the amount of the
Bank's contribution which would be necessary to meet the loan repayment
schedule. The total amounts charged to expense in the fiscal years ended June
30, 1995 and 1994, based on SOP No. 93-6, were $295,900 and $230,800,
respectively.
SOP No. 93-6 also addressed the number of shares to be used for the
Earnings-Per-Share calculation, therefore, the unreleased ESOP shares, 182,200
at June 30, 1995 and 204,200 at June 30, 1994, were not considered outstanding
for this calculation. The market value of unreleased ESOP shares was $2,869,000
at June 30, 1995.
F-22
<PAGE>
NOTE 13 - RETIREMENT PLANS, EMPLOYEE BENEFIT PROGRAMS (continued)
Recognition and Retention Plan
Also at the time of the stock conversion, the Bank purchased 110,400 shares at
$10.00 per share of the Company's Common Stock to be awarded to directors,
officers and employees in accordance with the provisions of the Recognition and
Retention Plans. The cost of the shares awarded under these plans are recorded
as unearned compensation, a contra equity account, and are recognized as an
expense in accordance with the vesting requirements under the various plans. For
the fiscal years ended June 30, 1995 and 1994, the amounts included in
compensation expense were $216,900 and $124,700, respectively.
Unawarded Awarded
Shares Shares
Purchased by plan 110,400 -
Granted ( 77,556) 77,556
Vested - (12,472)
- --------------------------------------------------------------
June 30, 1994 32,844 65,084
Granted ( 28,268) 28,268
Vested - (21,686)
Cancelled 800 ( 800)
- --------------------------------------------------------------
June 30, 1995 5,376 70,866
=============================================================
Stock Option Plans
The Company established two stock option plans as part of the stock conversion
for directors, officers and employees. The exercise price under both plans is
the fair market price on the date of the grant, however, one is a non-qualified
plan and the other an incentive stock option plan. A summary of the stock option
activity is shown below:
Exercise Average
Available Options Price Exercise
for Grant Outstanding Per Share Price
At inception 276,000 - - -
Granted (205,684) 205,684 $10.00-$13.00 $10.15
Exercised - (2,900) $10.00 $10.00
- ----------------------------------------------------------------------
June 30, 1994 70,316 202,784 $10.00-$13.00 $10.15
Granted ( 50,988) 50,988 $13.50-$14.625 $14.27
Exercised - ( 9,088) $10.00 $10.00
Cancelled 1,500 ( 1,500) $14.625 $14.63
- ----------------------------------------------------------------------
June 30, 1995 20,828 243,184 $10.00-$14.625 $10.99
======================================================================
F-23
<PAGE>
NOTE 14 - COMMITMENTS AND CONTINGENCIES
The Company is lessee under several operating leases for equipment at various
locations, and a licensing agreements for the operation of branches within two
local retail establishments. Certain leases require other contingent rental
payments for taxes. Total rent expense for all cancelable and non-cancelable
leases was $49,000, $40,000 and $41,000, respectively, for each of the three
years ended June 30, 1995. The minimum annual rental commitments under the
noncancelable leases were as shown in the following table in thousands.
(In thousands) Equipment Facilities Total
- ---------------------------------------------------------------
Year Ending June 30
1996 $ 4 $ 54 $ 58
1997 2 31 33
1998 - 31 31
1999 - 31 31
2000 - 30 30
- --------------------------------------------------------------
Total $ 6 $177 $183
- --------------------------------------------------------------
A contract for $253,000 to renovate a branch was outstanding at June 30, 1995.
Other commitments are as discussed in Note 15.
NOTE 15 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Company is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments consist primarily of commitments to extend credit.
These instruments involve, to varying degrees, elements of credit risk in excess
of the amount recognized in the statement of financial position. The contract or
notional amounts of those instruments reflect the extent of involvement the
Company has in particular classes of financial instruments.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit is
represented by the contractual notional amount of those instruments. The Company
uses the same credit policies in making commitments and conditional obligations
as it does for on-balance-sheet instruments.
Contract or
Notional Amount
June 30
(In thousands) 1995 1994
- -----------------------------------------------------------
Financial instruments whose contract
amounts represent credit risk
Commitments to finance real
estate acquisitions and
construction $ 3,439 $ 2,590
Consumer and commercial loans 2,361 1,938
Unfunded lines-of-credit 6,431 3,717
- -------------------------------------------------------------
Total $12,231 $ 8,245
- -------------------------------------------------------------
F-24
<PAGE>
NOTE 15 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK (continued)
Total commitments to finance real estate acquisitions and construction at June
30, 1995 included $1,839,000 in adjustable rate loans and $1,600,000 in fixed
rate loans. Fixed rate loans included $860,000 in 30 year loans, $372,000 in 12
to 27 year loans and the rest in loans of 10 years or less.
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 be drawn
upon, the total commitment amounts generally represent future cash requirements.
The Company evaluates each customer's credit worthiness on a case-by-case basis.
The amount of collateral if deemed necessary by the Company upon extension of
credit is based on management's credit evaluation of the counter party.
Collateral normally consists of real property.
NOTE 16 - SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK
The Company grants residential, commercial, and installment loans to customers
mainly in the Central and Southside Regions of Virginia. The Company has a loan
portfolio, consisting principally of residential mortgage loans, and is not
dependent upon any particular economic sector, although the portfolio as a whole
may be affected by general economic factors of the Central and Southside
Virginia Regions.
At June 30, 1995, the Company held cash and interest bearing deposits in three
financial institutions. Accounts in each institution are insured by the Federal
Deposit Insurance Corporation up to $100,000. There were total uninsured
balances of $143,000 at June 30, 1995.
NOTE 17 - RELATED PARTY TRANSACTIONS
The Company has made loans in the ordinary course of business to various
officers and directors generally collateralized by the individual's personal
residences or by savings accounts in the Bank. The aggregate balance of such
loans which exceed $60,000 in aggregate outstanding amount for any officer or
director is summarized below:
Year Ended June 30
(In thousands) 1995 1994 1993
- --------------------------------------------------------------
Beginning balance $2,640 $2,415 $ 501
New loans originated 378 564 1,340
Existing loans of new directors - - 689
Repayments (355) (339) (115)
- ----------------------------------------------------------------
Ending Balance $2,663 $2,640 $2,415
- ---------------------------------------------------------------
F-25
<PAGE>
NOTE 17 - RELATED PARTY TRANSACTIONS (continued)
Real estate sales commissions and appraisal fees totaling $45,000 in 1995,
$38,000 in 1994 and $86,000 in 1993 and legal fees on loan closing of $12,000 in
1995, $29,000 in 1994, and $46,000 in 1993 were paid to business firms in which
certain Company directors held substantial ownership interests. These fees were
generally paid from loan disbursements and were not considered to be expenses of
the Company. Other legal fees paid to the same law firm and charged to the
Company's expense totaled $18,000 for 1995, $12,000 for 1994, and $21,000 for
1993.
NOTE 18 - REDUCED INCOME
The Company stops the accrual of interest income on delinquent loans upon the
commencement of foreclosure proceedings. The effect of these requirements on
income is shown below.
Year Ended June 30
(In thousands) 1995 1994 1993
- --------------------------------------------------------------
Interest removed or not accrued on loans
under foreclosure during the year $ 33 $ 57 $ 57
Interest reserved (recovered) on
delinquent loans 90 (17) (43)
- ----------------------------------------------------------------
Total unrecorded interest $123 $ 40 $ 14
- ---------------------------------------------------------------
Interest income recorded on loans which were 90 days or more past due but still
accruing as of June 30, 1995 was $30,200, of which $21,700 was uncollected.
NOTE 19 - REGULATORY CAPITAL
Co-operative Savings Bank, F.S.B., the wholly owned subsidiary of CSB Financial
Corporation is required by the Office of Thrift Supervision to maintain capital
at least sufficient to meet three requirements: tangible capital, core capital,
and risk-based capital. Management has determined that the Bank's capital meets
and exceeds all three capital requirements as shown below as of June 30, 1995
and 1994.
Tangible and core capital levels are shown as a percentage of adjusted total
assets. Risk-based capital levels are shown as a percentage of risk-weighted
assets.
F-26
<PAGE>
<TABLE>
<CAPTION>
CO-OPERATIVE SAVINGS BANK, F. S. B.
Tangible Core Risk-Based
(Dollars in thousands) Capital Capital Capital
<S> <C> <C> <C> <C> <C> <C>
As of June 30, 1995
GAAP capital $ 34,510 $ 34,510 $ 34,510
Unrealized losses on certain
available for sale securities 671 671 671
General credit loss allowance - - 679
Goodwill and other intangibles (2,101) (2,101) (2,101)
- -----------------------------------------------------------------------------------------
Regulatory capital computed 33,080 11.22% 33,080 11.22% 33,759 22.93%
Minimum capital requirement 4,422 1.50 8,845 3.00 11,780 8.00
- -----------------------------------------------------------------------------------------------
Regulatory capital excess $ 28,658 9.72% $ 24,235 8.22% $ 21,979 14.93%
- ------------------------------------------------------------------------------------------------
As of June 30, 1994
GAAP capital $ 34,123 $ 34,123 $ 34,123
General credit loss allowance - - 640
- ----------------------------------------------------------------------------------------
Regulatory capital computed 34,123 14.00% 34,123 14.00% 34,763 28.20%
Minimum capital requirement 3,658 1.50 7,316 3.00 9,860 8.00
- -----------------------------------------------------------------------------------------------
Regulatory capital excess $30,465 12.50% $26,807 11.00% $24,903 20.20%
- ------------------------------------------------------------------------------------------------
</TABLE>
NOTE 20 - OTHER NON-INTEREST INCOME AND EXPENSE
Other non-interest income and expense are summarized below:
Year Ended June 30
(In thousands) 1995 1994 1993
- --------------------------------------------------------------
Other non-interest income
Rental $ 45 $ 35 $ 33
Other non-operating ( 7) 1 ( 7)
- ---------------------------------------------------------------
Total $ 38 $ 36 $ 26
- --------------------------------------------------------------
Other non-interest expense
Amortization of goodwill $ 85 $ - $ -
Charitable contributions 35 24 22
Dues and subscriptions 25 27 22
Office supplies and postage 195 128 138
Other insurance 42 44 35
Other expenses 79 89 82
Professional fees 140 76 48
Taxes and assessments 101 99 61
Telephone 74 57 53
- --------------------------------------------------------------
Total $ 776 $ 544 $ 461
- --------------------------------------------------------------
F-27
<PAGE>
NOTE 21 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
FASB Statement 107 requires disclosure of the estimated fair value of an
entity's financial instrument assets and liabilities. For the Company, as for
most financial institutions, the great bulk of its assets and liabilities are
considered financial instruments as defined in FAS 107. However, many of such
instruments lack an available trading market, as characterized by a willing
buyer and seller engaging in an exchange transaction. Also it has been the
Company's general practice and intent to hold most of its financial instruments
to maturity and only engage in selective trading and sales activities of
instruments purchased or originated for that specific purpose. Therefore, the
Company had to use significant estimation and present value calculations on the
majority of its financial instruments in order to prepare this disclosure.
Changes in the assumptions or methodologies used to estimate fair values may
materially affect the estimated amounts. Also, management is concerned that
there may not be reasonable comparability between financial institutions due to
the wide range of permitted assumptions and methodologies in the absence of
active markets. This lack of uniformity gives rise to a high degree of
subjectivity in estimating financial instrument fair value.
Fair values have been estimated using data which management considered the best
available and estimation methodologies deemed suitable for the pertinent
category of financial instruments. The estimation methodologies and resulting
fair values and recorded carrying amounts at June 30, 1995 and 1994 are shown
as follows.
Fair values of financial instruments actively traded in the secondary market
have been estimated using quoted prices.
June 30, 1995 June 30, 1994
Carrying Estimated Carrying Estimated
(In thousands) Value Fair Value Value Fair Value
Cash and cash equivalents $ 7,169 $ 7,169 $ 3,375 $ 3,375
Interest-earning deposits 40 40 442 442
Marketable equity securities 48,077 48,077 48,499 48,499
Investment securities 59,685 60,055 24,462 23,724
Securities available for sale 8,490 8,490 25,353 25,353
Mortgage-backed securities 27,683 27,595 18,929 18,325
Loans held for sale 140 140 1,230 1,230
Fair values of financial instruments with stated maturities have been estimated
using the Federal Home Loan Bank of Atlanta (FHLB) Asset Liability Model as
applied to the Bank's June 1995 and 1994 Thrift Financial Reports. The FHLB
model computes the market value by discounting cash flows, with adjustments for
amortization, prepayments, and decay factors, at the market rate appropriate to
each scenario.
F-28
<PAGE>
NOTE 21 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)
June 30, 1995 June 30, 1994
Carrying Estimated Carrying Estimated
(In thousands) Value Fair Value Value Fair Value
Loans receivable, net $ 144,012 $ 147,662 $ 124,132 $ 129,794
Deposits 244,065 242,158 196,008 190,827
Borrowings 14,500 14,537 11,499 11,299
There is no material difference between the carrying amount and estimated fair
value of the off-balance sheet items totaling $12,231,000 at June 30. 1995 and
$8,245,000 at June 30, 1994, which are primarily comprised of unfunded loan
commitments and undisbursed home equity lines of credit which are generally
priced at market at the time of funding. The Bank's remaining assets and
liabilities are not considered financial instruments.
NOTE 22 - ACQUISITION
On November 19, 1994, pursuant to a Branch Sale Agreement between Charter
Federal Savings Bank and the company's subsidiary, the Bank acquired selected
assets and assumed all deposits of Charter Federal's Danville, Virginia branch
office. The Bank received net funds of approximately $38.4 million in cash in
exchange for $61,000 in selected loans, $675,000 in office premises and
equipment and $41.3 million in deposits assumed.
The acquisition was accounted for under the purchase method of accounting
whereby the purchase price has been allocated to the underlying assets acquired
and liabilities assumed based on their fair value at the date of acquisition.
The excess purchase price over the fair value of net assets acquired is recorded
as goodwill which is amortized over 15 years. The results of operations of the
acquired branch have been included with those of the Bank and therefore of the
Company since the acquisition date.
F-29
<PAGE>
NOTE 23 - CONDENSED PARENT INFORMATION
The following shows CSB Financial Corporation's (parent company only) condensed
financial information for the years ended June 30, 1995 and 1994. Net income and
stockholders' equity differ from the consolidated statements by the amount of
consolidating ESOP and RRP adjustments
Statements of Financial Condition June 30,
(In thousands) 1995 1994
- -----------------------------------------------------------
ASSETS
Cash and Cash Equivalents $ 937 $ 309
Marketable Equity securities 9,179 8,566
Investment securities 1,000 1,400
Investment in Bank subsidiaries 34,609 34,122
Loan to Bank ESOP 1,822 2,042
Other Assets 165 223
- --------------------------------------------------------------
$ 47,712 $46,662
- --------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities $ 54 $ 46
Stockholders' Equity 47,658 46,616
- --------------------------------------------------------------
$ 47,712 $46,662
- --------------------------------------------------------------
Statement of Income (In thousands)
INCOME
Dividends from Bank subsidiary $ 1,448 $ 929
Interest from
Bank's ESOP loan 78 66
Other 652 437
Other income (loss) 153 (18)
- ---------------------------------------------------------------
2,331 1,414
EXPENSE
Non-interest 146 59
- --------------------------------------------------------------
Income before income taxes and equity
in undistributed net income of Bank
subsidiary 2,185 1,355
Income tax expense 267 163
- --------------------------------------------------------------
1,918 1,192
Equity in undistributed net income
of Bank subsidiary 388 1,249
- --------------------------------------------------------------
Net income $ 2,306 $ 2,441
- --------------------------------------------------------------
F-30
<PAGE>
NOTE 23 - CONDENSED PARENT INFORMATION (continued)
June 30,
Statement of Cash Flows (In thousands) 1995 1994
- -----------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 2,306 $ 2,441
Adjustments:
Equity in undistributed net income of
Bank subsidiary ( 388) (1,249)
Gain (loss) on sale of securities ( 152) 18
(Increase) in other assets ( 7) (65)
Increase in other liabilities 8 46
- ------------------------------------------------------------------
Net cash provided by operations 1,767 1,191
- ------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investments 400 19,000
Proceeds from sale of marketable equity
securities 550 3,482
Purchase of investment securities - (20,400)
Purchase of marketable equity securities ( 839) (12,482)
Loans originated, net of principle
repayments 220 ( 2,042)
Purchase of subsidiary stock ( 100) (13,150)
- -------------------------------------------------------------------
Net cash provided by (used in)
investing activities 231 (25,592)
- -------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of stock - 26,924
Purchase of treasury stock, net of
reissuance ( 569) ( 1,798)
Payment of cash dividend ( 801) ( 416)
- -------------------------------------------------------------------
Net cash provided by (used in)
financing activities (1,370) 24,710
- ------------------------------------------------------------------
Increase in cash and cash equivalents 628 309
Cash and cash equivalents at beginning
of period 309 -
- ------------------------------------------------------------------
Cash and cash equivalents at
end of period $ 937 $ 309
- ------------------------------------------------------------------
Non-cash investing activity
Unrealized loss on "Available
for Sale" securities, net $ 106 $ 258
F-31
<PAGE>
NOTE 24 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Fiscal Year Ended June 30, 1995
(In thousands, except First Second Third Fourth
per share amounts) Quarter Quarter Quarter Quarter
Total interest income $4,220 $4,677 $5,210 $5,387
Total interest expense 2,192 2,535 2,958 3,166
Net interest income 2,028 2,142 2,252 2,221
Provision for credit losses (2) 25 12 241
Net interest income after
provision for credit
losses 2,030 2,117 2,240 1,980
Securities gains - - - 243
Other non-interest income 83 128 106 149
Non-interest expense 1,295 1,460 1,636 1,420
- ------------------------------------------------------------
Income before income taxes 818 785 710 952
Income tax expense 281 287 260 267
- ------------------------------------------------------------
Net income $ 537 $ 498 $ 450 $ 685
- ------------------------------------------------------------
Net income per share $ 0.22 $ 0.20 $ 0.19 $ 0.28
============================================================
Cash dividends
declared per share $ 0.075 $ 0.075 $ 0.075 $ 0.10
============================================================
Fiscal Year Ended June 30, 1994
(In thousands, except First Second Third Fourth
per share amounts) Quarter Quarter Quarter Quarter
Total interest income $4,063 $4,144 $3,976 $4,122
Total interest expense 2,208 2,034 1,964 2,059
Net interest income 1,855 2,110 2,012 2,063
Provision for credit losses 52 (23) 5 4
Net interest income after
provision for credit
losses 1,803 2,133 2,007 2,059
Securities gains (losses) 9 - (244) -
Other non-interest income 79 371 141 58
Non-interest expense 1,077 1,172 1,277 1,288
- ------------------------------------------------------------
Income before income taxes 814 1,332 627 829
Income tax expense 288 456 231 285
- ------------------------------------------------------------
Net income $ 526 $ 876 $ 396 $ 544
- ------------------------------------------------------------
Net income per share N/A $ 0.35 $ 0.16 $ 0.22
- ------------------------------------------------------------
Cash dividends
declared per share N/A $ 0.075 $ 0.075 $0.075
- ------------------------------------------------------------
F-32
<PAGE>
CSB FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
(IN THOUSANDS) 1995 1995
(unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 12,494 7,169
Interest bearing deposits - 40
Trading securities - -
Marketable equity securities 46,902 48,077
Investment securities (estimated market value of $15,963 and $60,055) 15,994 59,685
Securities available for sale 54,810 8,490
Mortgage-backed securities (estimated market value of $20,210 and
$27,595) 20,198 27,683
Mortgage-backed securities available for sale 11,383 -
Loans receivable (net of allowance for credit losses of $756 and $937) 156,498 144,012
Loans held for sale 447 140
Foreclosed real estate - -
Property and equipment, net 5,017 4,830
Accrued interest receivable 2,328 2,065
Deferred income taxes 379 1,039
Goodwill 2,028 2,101
Other assets 402 485
$ 328,880 305,816
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 253,245 244,065
Advances and other borrowings 26,904 14,500
Advances from borrowers for taxes and insurance 461 555
Other liabilities 1,134 1,622
Total liabilities 281,744 260,742
Stockholders' Equity:
Preferred stock, par value $.01 per share, authorized 500,000 shares;
issued and outstanding, none - -
Common stock, par value $.01 per share, authorized 4,000,000 shares;
issued and outstanding 2,818,660 (Issued 9/24/93) 28 28
Additional paid in capital 27,090 27,009
Retained earnings, substantially restricted 25,072 24,594
Unrealized gain (loss) on assets available for sale, net (366) (1,634)
Unearned shares held by: (1,711) (1,822)
Employee Stock Ownership Plan (643) (762)
Recognition and Retention Plans
Treasury Stock, at cost, 176,579 and 176,912
shares at December 31, 1995 and June 30, 1995 (2,334) (2,339)
Total stockholders' equity 47,136 45,074
$ 328,880 305,816
</TABLE>
See accompanying notes to consolidated financial statements.
F-33
<PAGE>
CSB FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED DECEMBER 31, ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS) 1995 1994 1995 1994
(unaudited)
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans $ 3,279 2,704 6,455 5,293
Marketable equity securities 746 719 1,518 1,384
Mortgage-backed securities 533 317 1,048 575
Overnight deposits 118 147 200 171
Other securities 1,124 790 2,252 1,474
Trading account securities - - - -
Total interest income 5,800 4,677 11,473 8,897
INTEREST EXPENSE:
Deposits $ 3,139 2,350 6,202 4,370
Borrowed money 354 185 642 357
Total interest expense 3,493 2,535 6,844 4,727
Net interest income 2,307 2,142 4,629 4,170
Provision for credit losses 35 25 70 23
Net interest income after provision for credit 2,272 2,117 4,559 4,147
losses
NONINTEREST INCOME:
Loan and other customer service fees 85 79 167 145
Gain (loss) on sale of: Loans 15 4 30 12
Trading and other securities - - 25 -
Market value adjustment of: Loans - - - (42)
Trading and equity securities - - - -
Servicing fee income 30 35 65 66
Other 17 10 28 30
Total noninterest income 147 128 315 211
NONINTEREST EXPENSE:
Personnel 953 844 1,882 1,645
Office occupancy and equipment 183 161 370 297
Federal deposit insurance premiums 140 112 278 225
Net loss from foreclosed real estate 1 - 31 -
Data processing 103 73 210 163
Advertising 58 63 120 83
Other 242 207 438 342
Total noninterest expense 1,680 1,460 3,329 2,755
Income (loss) before income taxes 739 785 1,545 1,603
Income tax expense 281 287 585 568
Net income (loss) $ 458 498 960 1,035
Primary earnings per share $ 0.18 $ 0.20 $ 0.39 $ 0.40
Fully diluted earnings per share $ 0.18 $ 0.20 $ 0.39 $ 0.40
</TABLE>
F-34
<PAGE>
CSB FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNREALIZED
GAIN (LOSS)
ADDITIONAL ON ASSETS
COMMON PAID-IN RETAINED AVAILABLE ACQUIRED ACQUIRED TREASURY
(IN THOUSANDS) STOCK CAPITAL EARNINGS FOR SALE, NET BY ESOP BY RRP'S STOCK TOTAL
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SIX MONTHS ENDED
DECEMBER 31, 1994
Balance at June 30, 1994 $ 28 26,937 23,163 (1,738) (2,018) (979) (1,798) 43,595
Net income - - 1,035 - - - - 1,035
Change in unrealized loss on
assets available for sale, net - - - (1,276) - - - (1,276)
Allocated/earned ESOP & RRP
shares - 46 - - 86 103 - 235
Stock reacquired at cost - - - - - - (347) (347)
Stock reissued for options - (23) - - - - 99 76
Cash dividends declared - - (371) - - - - (371)
Balance at December 31, 1994 $ 28 26,960 23,827 (3,014) (1,932) (876) (2,046) 42,947
SIX MONTHS ENDED
DECEMBER 31, 1995
Balance at June 30, 1995 $ 28 27,009 24,594 (1,634) (1,822) (762) (2,339) 45,074
Net income - - 960 - - - - 960
Change in unrealized loss on
assets available for sale, net - - - 1,268 - - - 1,268
Allocated/earned ESOP & RRP
shares - 80 - - 111 119 - 310
Stock reacquired at cost - - - - - - - -
Stock reissued for options - 1 - - - - 5 6
Cash dividends declared - - (482) - - - - (482)
Balance at December 31, 1995 $ 28 27,090 25,072 (366) (1,711) (643) (2,334) 47,136
</TABLE>
See accompanying notes to consolidated financial statements.
F-35
<PAGE>
CSB FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
DECEMBER 31,
(IN THOUSANDS) 1995 1994
(unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 960 1,035
Adjustments to reconcile net income to net cash provided by
operating activities
Provisions for credit losses 70 53
Recoveries of charge-off loans - (30)
Depreciation and amortization 228 137
Realized and unrealized investment security (gains) losses - -
Realized and unrealized loan sale (gains) losses (30) 30
Purchases of trading account securities - -
Proceeds form sales of trading account securities - -
Loans originated for sale (2,447) -
Proceeds from sales of loans originated for sale 2,170 1,200
(Increase) decrease in interest receivable (263) (93)
(Increase) decrease in other assets 83 (72)
Increase (decrease) in other liabilities (488) (421)
Net cash provided (used) by operating activities 283 1,839
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales or maturities of investment 13,459 5,235
Proceeds from sale of marketable equity securities 2,001 -
Proceeds from sale of mortgage-backed securities 7,484 -
Principle collected on mortgage-backed securities 3,762 1,869
Purchase of mortgage-backed securities (14,941) (11,669)
Purchase of marketable equity securities (217) (297)
Purchases of investment securities and interest-bearing deposits (14,932) (18,800)
Net (increase) decrease in loans receivable (12,556) (9,207)
Purchases of premises and equipment (342) (758)
Payment of branch acquisition premium - (2,186)
Net cash provided (used) in investing activities (16,282) (35,813)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in customer deposits 9,180 898
Acquisition of deposits - 41,165
Proceeds from advances and other borrowed money 74,178 13,375
Repayments of advances and other borrowed money (61,774) (15,374)
Net increase (decrease) in advance payments by borrowers (94) (158)
Proceeds/allocation of ESOP and RRP 310 235
Purchase of Treasury Stock - (347)
Proceeds from reissuance of stock through exercise of options 6 76
Payment of cash dividend (482) (371)
Net cash provided (used) by financing activities 21,324 39,499
Increase (decrease) in cash and cash equivalents 5,325 5,325
Cash and cash equivalents at beginning of period 7,169 3,375
Cash and cash equivalents at end of period $ 12,494 8,900
(continued)
</TABLE>
F-36
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Supplemental disclosures:
Cash paid for:
Interest on deposits, advances, and other borrowings $ 6,833 4,945
Income taxes $ 581 633
Non-cash investing activity:
Unrealized gain (loss) on "Available for Sale" securities $ 1,928 (1,939)
Deferred tax increase (decrease) $ (660) 663
</TABLE>
See accompanying notes to consolidated financial statements.
F-37
<PAGE>
CSB FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three and Six Months Ended December 31, 1995 and December 31, 1994.
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles ("GAAP")
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by GAAP for complete financial statements. In
the opinion of management, all adjustments (consisting of only normal recurring
accruals) necessary for a fair presentation have been included.
The results of operations and other data for the interim periods are
not necessarily indicative of results that may be expected for the entire fiscal
year.
The unaudited consolidated financial statements include the accounts of
CSB Financial Corporation ("CSB Financial") and its wholly-owned subsidiaries,
Co-operative Savings Bank, F.S.B. (the "Savings Bank") and CSB Financial
Services, Inc. All material intercompany balances and transactions have been
eliminated.
(2) TREASURY STOCK
The primary purpose of CSB Financial's stock repurchase plan is to accumulate
shares of common stock so that they may be reissued under CSB Financial's stock
option plans. At December 31, 1995, CSB Financial held 176,579 shares in
Treasury Stock at an average purchase price of $13.22 per share.
(3) EARNINGS PER SHARE
Earnings per share of common stock for the three months and six months
ended December 31, 1995 and 1994 has been determined by dividing net income for
the period by the weighted average number of shares of common stock and common
stock equivalent outstanding. Stock options are regarded as common stock
equivalents and are therefore considered in both primary and fully diluted
earnings per share calculations. Common stock equivalents are computed using the
Treasury Stock method.
Shares acquired by the employee stock benefit plans are accounted for
in accordance with AICPA Statement of Position 93-6 and are not considered in
the weighted average shares outstanding until the shares have been earned by
employees and/or committed to be released.
(4) COMMITMENTS AND CONTINGENCIES
At December 31, 1995, the Bank had outstanding commitments to originate
mortgage loans of $4.5 million, of which $2.5 million were fixed rate, with
rates ranging from 5.0% to 10.75%, and $2.0 million were adjustable rate
commitments. At December 31, 1995, there were outstanding commitments of
$682,000 to sell mortgage loans. Also at December 31, 1995, the Bank had
outstanding commitments to fund non-mortgage loans of $419,000. Unused equity
and commercial lines of credit available to customers were $4.3 million at
December 31, 1995. At December 31, 1995, CSB Financial had no outstanding
commitments to purchase investment securities.
(5) SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
The Savings Bank adopted a supplemental executive retirement plan
("SERP") effective September 1, 1995 for the benefit of Bob M. Johnson,
President and CEO. The purpose of the SERP is to provide the President with
supplemental post-retirement benefits in addition to those provided under the
Bank's other retirement plans. The benefit payable under the SERP will equal 50%
of the President's five year final average compensation divided by twelve and
reduced by benefits payable under the defined benefit plans under which he is a
participant. The benefit is payable monthly for the life of the participant and
his beneficiary. The expense of funding the liability created by SERP is being
accrued at the rate of $3,000 per month.
F-38
<PAGE>
(6) SUBSEQUENT EVENTS
On January 26, 1996, CSB Financial entered into an Agreement and Plan
of Merger with One Valley Bancorp of West Virginia, Inc. Under the terms of the
agreement stockholders of CSB Financial will receive 0.6774 shares of One Valley
stock for each share of CSB Financial's outstanding common stock. The
transaction, which is subject to, among other things, regulatory and stockholder
approval as well as due diligence, is expected to close in the third quarter of
calendar 1996.
F-39
<PAGE>
APPENDIX I
AGREEMENT
AND
PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (hereinafter sometimes referred to as
the "Agreement"), made and entered into as of the 26th day of January, 1996, by
and between One Valley Bancorp of West Virginia, Inc. ("One Valley") and CSB
Financial Corporation ("CSB Financial").
WITNESSETH:
RECITALS
A. One Valley is a West Virginia corporation duly organized and validly
existing under the laws of the State of West Virginia.
B. CSB Financial is a Delaware corporation duly organized and validly
existing under the laws of the State of Delaware.
C. The Boards of Directors of CSB Financial and of One Valley have each
approved this Agreement, authorized the execution hereof in counterparts and the
Board of Directors of CSB Financial has directed that it be submitted for
shareholder approval.
D. One Valley and CSB Financial intend, and it is a condition hereof,
that the Merger (as defined below) constitute a tax-free reorganization.
AGREEMENT
Now, therefore, for and in consideration of the premises and the mutual
agreements hereinafter set forth, and in accordance with the provisions of
applicable law, the parties agree as follows:
SECTION 1
THE PLAN OF MERGER
1.1 The Merger. On the Effective Date, CSB Financial shall merge with
and into One Valley Thrift, Inc. ("Thrift"), a wholly-owned subsidiary of One
Valley, under the Articles of Incorporation of Thrift (the "Merger"). Thrift
shall be the surviving corporation (hereinafter sometimes called the "Surviving
Corporation").
1.2 Effects of Merger. On the Effective Date, the corporate name and
existence of CSB Financial shall cease and all of its purposes, powers and
objects, and all of its rights, assets, liabilities and obligations, shall pass
to and vest in Thrift as the Surviving Corporation without any conveyance or
transfer, and Thrift as the Surviving Corporation shall continue to be governed
by the laws of the State of West Virginia and shall also succeed to all rights,
assets, liabilities and obligations of CSB Financial in accordance with the West
Virginia Corporation Act. Upon the Effective Date of the Merger, the separate
existence and corporate organization of CSB Financial shall cease.
A-I-1
<PAGE>
SECTION 2
ARTICLES OF INCORPORATION; BYLAWS;
BOARD OF DIRECTORS AND OFFICERS
2.1 Articles of Incorporation. The Articles of Incorporation of Thrift
shall continue unchanged as the Articles of Incorporation of Thrift as the
Surviving Corporation. From and after the Effective Date, said Articles of
Incorporation, as the same may be amended from time to time as provided by law,
shall be the Articles of Incorporation of the Surviving Corporation.
2.2 Bylaws. The Bylaws of Thrift as in effect on the Effective Date
shall continue as the Bylaws of the Surviving Corporation until the same shall
thereafter be altered, amended or repealed in accordance with law, its Articles
of Incorporation, or said Bylaws.
2.3 Directors and Officers. The directors and officers of Thrift on the
Effective Date shall continue as the directors and officers of the Surviving
Corporation and shall hold office as prescribed in the Bylaws of the Surviving
Corporation and applicable law until their successors shall have been elected
and shall qualify.
SECTION 3
CONVERSION OF SHARES AND OPTIONS
3.1 Conversion of Shares. On the Effective Date:
(a) The number of issued and outstanding shares of common
stock of Thrift shall not be changed by the Merger.
(b) Each share of common stock of CSB Financial then issued
and outstanding [excluding (i) any shares held in the treasury of CSB Financial;
and (ii) any shares as to which appraisal rights are exercised pursuant to the
requirements of Delaware General Corporation Law, if applicable (the "Appraisal
Rights"), all of which shares shall be canceled] shall be converted by the
Merger into .6774 shares of common stock of One Valley ("Fixed Exchange Ratio").
Each person who, but for the provisions of this Section 3.1 (b), would be
entitled to a fractional share interest in the common stock of One Valley as a
result of the conversion, upon surrender of certificates theretofore
representing shares of common stock of CSB Financial, shall receive in lieu
thereof an amount in cash equal to such fraction multiplied by the average of
the last bid and ask price for the common stock of One Valley reported on the
Nasdaq National Market on the business day immediately prior to the Effective
Date.
(c) Shareholders of CSB Financial asserting Appraisal Rights
under the laws of the State of Delaware shall have their rights determined
pursuant to Delaware General Corporation Law and shall be entitled to cash
payment pursuant to the terms and provisions of said law with funds to be
provided by One Valley.
(d) From and after the Effective Date, the holders of the
certificates representing common stock of CSB Financial shall cease to have any
rights with respect to such shares (except such rights as they may have as
dissenting shareholders) and their sole right shall be to receive cash and
common stock of One Valley as herein provided.
(e) If One Valley shall, at any time prior to the Effective
Date, (i) issue a dividend in shares of One Valley common stock, (ii) combine
the outstanding shares of One Valley common stock into a smaller number of
shares, (iii) subdivide the outstanding shares of One Valley common stock, or
(iv) reclassify the shares of One Valley common stock, then, in any such event,
the Fixed Exchange Ratio (as set forth in Section 3.1(b) hereof) shall be
adjusted by multiplying the Fixed Exchange Ratio by a fraction the numerator of
which is equal to the number of shares of One Valley common stock outstanding
immediately after the happening of such event and the denominator of which is
equal to the number of shares of One Valley common stock outstanding immediately
prior to the happening of such event.
3.2 Exchange of Certificates. As soon as practicable after the
Effective Date, the certificates representing the outstanding shares of CSB
Financial shall be surrendered to Harris Trust and Savings Bank, or to such
other entity as One Valley may direct, as agent ("Exchange Agent") for One
Valley and, upon such surrender, the Exchange Agent shall issue and deliver in
substitution therefore, certificates representing the number of shares of common
stock of One Valley into which such surrendered shares have been converted as
hereinbefore provided, and cash in lieu of fractional shares (without interest).
Certificates representing shares of CSB Financial (other than the shares of
common stock of CSB Financial as to
A-I-2
<PAGE>
which there are perfected Appraisal Rights) which are not surrendered shall be
deemed for all purposes to evidence the ownership of the number of shares of
common stock of One Valley into which said shares of CSB Financial shall have
been converted as hereinbefore set forth and the right to receive cash in the
amount determined pursuant to Section 3.1; provided, however, that One Valley
will not distribute to the holder of an unsurrendered certificate for common
stock of CSB Financial dividends declared with respect to common stock of One
Valley until such owner shall surrender such certificate, at which time the
holder thereof shall be paid the amount of the dividends having a record date on
or after the Effective Date theretofore declared with respect to common stock
without interest. All such dividends unclaimed at the end of two years from the
Effective Date shall be repaid by the Exchange Agent to One Valley, and
thereafter the holders of such outstanding certificates shall look, subject to
applicable escheat, unclaimed funds and other laws, as general creditors only to
One Valley for payment thereof.
3.3 Closing of Stock Transfer Books. At the close of business on the
business day immediately preceding the Effective Date, the stock transfer books
of CSB Financial shall be deemed closed, and no shares of common stock of CSB
Financial shall thereafter be transferred.
3.4 Conversion of Options. At the Effective Date, each option granted
by CSB Financial to purchase shares of its common stock pursuant to the "CSB
Financial Corporation 1993 Stock Option Plan for Outside Directors" and the "CSB
Financial Corporation 1993 Incentive Stock Option Plan" (collectively the "Stock
Option Plans"), which is outstanding and unexercised immediately prior thereto,
shall be converted into an option to purchase shares of One Valley's common
stock on the same terms and conditions as are in effect immediately prior to the
Merger as adjusted as set forth below. Each such option that is converted shall
be converted into an option to purchase such number of shares of One Valley's
common stock at such exercise price as is determined as provided below (and
otherwise having the same duration and other terms as the original option):
(a) the number of shares of One Valley's common stock to be
subject to the new option shall be equal to .6774 times the number of shares of
CSB Financial's common stock subject to the original option, rounded, if
necessary, up to the nearest whole share; and
(b) the exercise price per share of One Valley's common stock
under the new option shall be equal to the exercise price per share of CSB
Financial's common stock under the original option divided by .6774, rounded, if
necessary, up to the nearest cent. The adjustment provided herein with respect
to any options which are "incentive stock options" (as defined in Section 422 of
the Internal Revenue Code) shall be effected in a manner consistent with Section
424 (a) of the Internal Revenue Code.
One Valley will register the shares to be issued pursuant to the Stock
Option Plans in the Registration Statement to be filed pursuant to Section 5.12
of this Agreement, and after the Closing Date will take such other steps,
including the filing of a Form S-8, as may be necessary or appropriate.
SECTION 4
REPRESENTATIONS, WARRANTIES AND
COVENANTS OF CSB FINANCIAL
Except as set forth in the disclosure schedule to be delivered by CSB
Financial to One Valley on or before 30 days from the date of this Agreement
(the "Disclosure Schedule"), CSB Financial represents and warrants to and
covenants with One Valley that:
4.1 Organization and Qualification of CSB Financial and the
Subsidiaries. CSB Financial is duly organized, validly existing and in good
standing as a corporation under the laws of the State of Delaware and has the
corporate power to own all of its properties and assets and to carry on its
business as it is now being conducted. CSB Financial is qualified to do business
in each jurisdiction in which such qualification is required. CSB Financial owns
100% of the issued and outstanding shares of stock of Co-operative Savings Bank,
F.S.B. (the "Bank") and CSB Financial Services, Inc. (the "Service Co.") (the
Bank and the Service Co. are hereinafter referred to jointly as the
"Subsidiaries"), free and clear of all liens, claims and encumbrances. The Bank
is duly organized, validly existing and in good standing as a federal savings
bank under the laws of the United States and has the corporate power to own all
of its assets and to carry on its business as it is now being conducted. The
Service Co. is duly organized, validly existing and in good standing as a
corporation under the laws of the Commonwealth of Virginia and has the corporate
power to own all of its assets and to carry on its business as it is now being
conducted. The Service Co. has no employees. The issued and outstanding shares
of stock of each Subsidiary are all duly
A-I-3
<PAGE>
authorized, validly issued, fully paid and nonassessable. Except for the
Subsidiaries, CSB Financial has no other direct or indirect subsidiaries, and
does not own 5% or more of the shares of stock of any other corporation.
4.2 Authorization of Agreement. The Board of Directors of CSB Financial
has authorized the execution of this Agreement as set forth herein, and subject
to the approval of this Agreement by the shareholders of CSB Financial and all
appropriate regulatory authorities as provided in Delaware General Corporation
Law and the Rules and Regulations of the Office of Thrift Supervision ("OTS"),
CSB Financial has the corporate power and is duly authorized to merge with
Thrift pursuant to this Agreement, and upon its execution and delivery (and
assuming due execution and delivery by One Valley) this Agreement is a valid and
binding agreement of CSB Financial enforceable in accordance with its terms.
4.3 No Violation of Other Instruments. The execution and delivery of
this Agreement do not, and the consummation of the Merger in accordance with
this Agreement will not, (i) violate any provisions of CSB Financial's
Certificate of Incorporation or Bylaws, (ii) violate any provision of, or result
in the acceleration of any obligation under or in the termination, if
applicable, of, any mortgage, deed of trust, note, lien, lease, franchise,
license, permit, agreement, instrument, order, arbitration award, judgment or
decree to which either CSB Financial or either Subsidiary is a party or by which
any of them is bound except for such as would not have a material adverse effect
on the financial condition, business, properties, or results of operations of
CSB Financial and either Subsidiary, taken as a whole, or the transactions
contemplated hereby, (iii) violate or conflict with any other material
restriction of any kind or character by which CSB Financial or either Subsidiary
is bound, or (iv) enable any person to enjoin the transactions contemplated
hereby. After the approval of this Agreement by the shareholders of CSB
Financial and by the OTS, CSB Financial will have taken all action required by
law, the Certificate of Incorporation of CSB Financial, its Bylaws or otherwise
to authorize the execution and delivery of this Agreement and to authorize the
Merger of CSB Financial with Thrift pursuant to this Agreement and the
consummation of the transactions contemplated hereby.
4.4 Financial Statements. The consolidated balance sheets of CSB
Financial as of the years ended June 30, 1993, 1994 and 1995, and its statements
of income for each of such years, heretofore delivered to One Valley, were
prepared in accordance with generally accepted accounting principles
consistently applied and those financial statements, as well as the unaudited
balance sheet as of December 31, 1995, and the statement of income for the
six-month period ended December 31, 1995, both of which will be delivered to One
Valley, will fairly present its financial condition and results of operations as
of such date and for such period.
4.5 No Material Adverse Change. There has been no material adverse
change, or development involving a reasonably foreseeable prospective material
adverse change, in or affecting the financial condition, businesses, properties,
results of operations or prospects of CSB Financial and Subsidiaries, taken as a
whole, since June 30, 1995.
4.6 Form 10-K Annual Report and Other Reports. CSB Financial's Annual
Report on Form 10-K filed with the Securities and Exchange Commission for the
fiscal year ended June 30, 1995, heretofore delivered to One Valley, does not
contain, as of the date thereof, an untrue statement of a material fact or omit
to state a material fact necessary to make the statements therein, in light of
the circumstances under which such statements were made, not misleading. Since
September 30, 1993, CSB Financial has filed with the Securities and Exchange
Commission and the OTS all documents and reports required to be filed and such
reports do not contain, as of their respective dates, an untrue statement of a
material fact or omit to state a material fact necessary to make the statements
therein, in light of the circumstances under which such statements were made,
not misleading. The Bank has filed with the OTS and the Federal Deposit
Insurance Corporation all documents and reports required to be filed and such
reports are accurate and complete in all material respects.
4.7 No Actions, Etc. There are no actions, suits, claims, proceedings
or investigations pending or, to the knowledge of the executive officers or
directors of CSB Financial or either Subsidiary, threatened or contemplated
against or relating to CSB Financial or either Subsidiary or any of their
properties which, individually or in the aggregate, could materially and
adversely affect the financial condition, businesses, properties or results of
operations of CSB Financial and either Subsidiary, taken as a whole, or the
ability of CSB Financial to consummate the transactions contemplated hereby, and
such officers and directors do not know of any basis for any such action or
proceeding. Neither CSB Financial nor either Subsidiary is transacting business
in violation of any applicable law or regulation which could materially
adversely affect the financial condition, businesses, properties or results of
operations of CSB Financial and either Subsidiary, taken as a whole, or the
ability of CSB Financial to consummate the transactions contemplated hereby.
4.8 Capitalization. The authorized capital stock of CSB Financial
consists of (i) 4,000,000 shares of common stock, par value of $.01 per share,
2,642,081 of which as of the date hereof are issued and outstanding and are
validly issued, fully paid and nonassessable, and (ii) 500,000 shares of
preferred stock, par value of $.01 per share, none of which is issued.
A-I-4
<PAGE>
Other than stock options granted under all of the stock option plans listed in
the Disclosure Schedule covering 242,851 shares of common stock of CSB Financial
(as listed thereon), there are no options, warrants, calls, reservations for
issuance or commitments of any kind relating to, or securities convertible into,
the common stock of CSB Financial or either Subsidiary.
4.9 Copies of All Contracts, Leases, Etc. CSB Financial has furnished
or made available or will promptly furnish or make available to One Valley true
and complete copies of all material contracts, leases and other agreements to
which CSB Financial or either Subsidiary is a party or by which any of them is
bound, and has listed on the Disclosure Schedule and will furnish to One Valley
true and complete copies of all employment, pension, retirement, stock option,
employee stock option, profit sharing, deferred compensation, consultant, bonus,
group insurance or similar plans with respect to any of the directors, officers
or other employees of CSB Financial or either Subsidiary.
4.10 Undisclosed Liabilities. Neither CSB Financial nor either
Subsidiary has any material liabilities other than those liabilities disclosed
on or provided for in the balance sheet as of June 30, 1995, and liabilities
incurred since such date in the ordinary course of business consistent with past
practices.
4.11 Title to Properties. CSB Financial and the Subsidiaries have good
and marketable title to all their property and assets set forth in their balance
sheets as of June 30, 1995, except property and assets sold or otherwise
disposed of since June 30, 1995, in the ordinary course of business, subject to
no liens, mortgages, pledges, encumbrances or charges of any kind except liens
reflected on said balance sheet and except liens for taxes and assessments not
delinquent, pledges to secure deposits and such other liens and encumbrances and
imperfections of title as do not materially affect the value of such property as
reflected on said balance sheet and which do not interfere with or impair its
present or continued use, and all of their material leases are in full force and
effect and neither CSB Financial nor either Subsidiary is in default in any
material respect thereunder.
4.12 Proxy Statement. The information pertaining to CSB Financial which
has been or will be furnished by or on behalf of CSB Financial or its management
for inclusion in the Proxy Statement referred to in Section 10 and the
Registration Statement referred to in Section 5.12 or any amendment or
supplement thereto will 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 under which they
are made, not misleading.
4.13 Good Faith. CSB Financial shall use its best efforts in good faith
to take or cause to be taken all action required under this Agreement on its
part to be taken as promptly as practicable so as to permit the consummation of
this Agreement at the earliest practicable date and cooperate fully with the
other parties to that end.
4.14 Absence of Regulatory Actions. Neither CSB Financial nor either
Subsidiary is a party to any cease and desist order, written agreement or
memorandum of understanding with, or a party to any commitment letter or similar
undertaking to, or is subject to any order or directive by, or is a recipient of
any extraordinary supervisory letter from, federal governmental authorities
charged with the supervision or regulation of the operations of any of them nor
has it been advised by any such governmental authority that it is contemplating
issuing or requesting (or is considering the appropriateness of issuing or
requesting) any such order, directive, written agreement, memorandum of
understanding, extraordinary supervisory letter, commitment letter, board
resolutions or similar undertaking.
4.15 Employee Benefits.
(a) For purposes of this Agreement the following
definitions shall apply:
1. "Employee Pension Benefit Plan" has the meaning
as set forth in ERISA ss.3(2).
2. "Employee Welfare Benefit Plan" has the meaning
set forth in ERISA ss.3(1).
3. "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended.
4. "Multiemployer Plan" shall mean a plan described
in ss.3(7) and/or ss.4001(a)(3) of ERISA.
5. "CSB ESOP" shall mean the Bank's Employee Stock
Ownership Plan.
6. "CSB Retirement Plan" shall mean the Financial
Institutions Retirement Fund as adopted by the
Bank.
7. "CSB Profit Sharing Plan" shall mean the Bank's
Profit Sharing Plan.
8. "CSB Employee" means an employee of either CSB
Financial, Bank or Service Co.
9. "Employee Benefit Plan(s)" means any one or more
of the following in which a CSB
Employee is a participant in or benefits from as a result of his employment
(whether current or past with either CSB Financial, Bank or Service Co.): (a)
Employee Pension Benefit Plan, (b) Employee Welfare Benefit Plan or (c) any
other deferred compensation plan, bonus plan, incentive, disability or group
insurance plan, stock option plan, employee stock
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purchase plan, vacation plan, severance plan, sick leave plan or policy, holiday
plan or policy, maternity leave or policy, or any other benefit plan, program,
agreement (including employment and severance agreements), arrangements or
commitments of any kind whether or not subject to the requirements of ERISA.
10. "One Valley 401K Plan" shall mean the One Valley
Bancorp of West Virginia, Inc., 401(k) Plan.
11. "Code" means the Internal Revenue Code of 1986,
as amended.
(b) Neither currently nor at any time during the preceding
five calendar years has CSB Financial or either Subsidiary contributed to or had
any obligation to contribute to any Multiemployer Plan.
(c) Neither currently nor in the past has CSB Financial or
Service Co. (i) had any employees (who were not also employees of the Bank), or
(ii) had any direct obligation to fund or contribute to any Employee Benefit
Plan.
(d) Each Employee Benefit Plan will be listed in the
Disclosure Schedule, and copies of such plans and accompanying Summary Plan
Descriptions, if required, have been furnished to One Valley.
(e) Each of the Employee Benefit Plans has been administered
in all material respects in compliance with the applicable requirements of
ERISA, the Code, other federal statutes, applicable federal regulations,
applicable State law (including without limitation State insurance law) and in
accordance with its terms. All reports required by any governmental agency with
respect to each such Employee Benefit Plan has been timely and properly filed
and to the extent required, furnished to the participants in such plan. Bank has
paid all costs, benefits, premiums, contributions and any other amounts required
or coming due in connection with the Employee Benefit Plans and no accumulated
funding deficiency, as defined in ss.302(a)(2) of ERISA, exists with respect to
any Employee Benefit Plan. Neither CSB Financial, the Bank or the Service Co.
nor any fiduciary of any Employee Benefit Plan, has engaged in a transaction
that would subject CSB Financial, Bank or Service Co. to any tax, penalty or
liability for prohibited transactions imposed by ERISA or by ss.4975 of the
Code. Neither CSB Financial, the Bank or the Service Co. nor any fiduciary of
any Employee Benefit Plan has engaged in any transaction in violation of
ss.406(a) or ss.406(b) of ERISA (for which no exemption exists under ss.408 of
ERISA).
(f) With the exception of Employee Pension Benefit Plan and
except as set forth in the Disclosure Schedule, none of the benefits provided
under any of the Employee Benefit Plans are vested, and the Bank retains full
authority to terminate or amend any of the Employee Benefit Plans.
(g) Each Employee Welfare Benefit Plan is either fully insured
and all premiums have been timely paid or, if not fully insured, adequate
reserves have been established on the books of the Bank in connection with such
benefits.
(h) With the exception of the CSB Retirement Plan, no Employee
Benefit Plan is subject to the provisions of Title IV of ERISA.
(i) CSB Financial and the Bank represent and warrant that as
of July 1, 1995, the total unfunded liability of the CSB Retirement Plan was
$239,608. CSB Financial and Bank further warrant and represent that they have
taken no action since that date by amendment of that plan or otherwise, to
increase the actuarial present value of unfunded liability of the CSB Retirement
Plan except with respect to changes in normal eligibility resulting from
increased terms of service or compensation changes.
(j) As of the Closing Date the CSB Retirement Plan will be
either (i) terminated, (ii) amended to cease all future benefit accruals, or
(iii) merged into the One Valley Retirement Plan. The parties agree that the
preferred option is merger of the CSB Retirement Plan into the One Valley
Retirement Plan, if the merger of the plans can be accomplished without
increasing the total unfunded liability of the One Valley Retirement Plan (as to
former CSB Employees) in excess of such unfunded liability in the CSB Retirement
Plan as set forth in Section 4.15(i). The parties agree that at a minimum,
participants in the CSB Retirement Plan will be entitled to their vested accrued
benefit under that plan as of the Closing Date plus such additional vested
accrued benefit to which they shall be entitled to for years of service with the
Bank subsequent to the Closing Date under the One Valley Retirement Plan.
(k) There has not been any (i) termination of the CSB
Retirement Plan or (ii) the commencement of any proceeding to terminate such
plan pursuant to ERISA, or otherwise, or (iii) written notice given to CSB
Financial or Bank of the intention to commence or seek the commencement of any
such proceeding.
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(l) Within 90 days following the Closing Date, the Bank shall
cause the CSB ESOP to be terminated in accordance with its provisions. It is
understood that prior to the earlier of the Closing Date or June 30, 1996, the
Bank will make a final cash contribution equal to the maximum amount allowable
without penalty pursuant to sections 404 and 415 of the Code with respect to the
CSB ESOP plan year ending on or before June 30, 1996. It is expressly warranted
that such termination shall not result in any additional funding obligation,
including but not limited to any obligation to pay off all stock obligations, to
such ESOP and that sufficient shares of stock held in the CSB ESOP's Unallocated
Stock Fund will be sold pursuant to the provisions of the plan to fully pay off
any stock obligation to the extent that prior Bank contributions and dividend
income on unallocated stock are not sufficient to pay off such Stock Obligation
as of the Closing Date. Thereafter, any remaining unallocated ESOP assets shall
be allocated as trust earnings based upon account balances. Participants
eligible to receive distributions from the CSB ESOP upon its termination shall
be given the opportunity to have such distribution transferred to the One Valley
401(k) Plan pursuant to the provisions of ss.401(a)(31) of ERISA.
Notwithstanding the foregoing, CSB Financial and the Bank shall make such
amendments to the ESOP as deemed appropriate to effectuate the purposes of the
CSB ESOP Plan and this Section of the Agreement.
(m) As soon as administratively feasible after the Closing,
the CSB Profit Sharing Plan shall be amended into the form of the One Valley
401(k) Plan and merged into such plan in accordance with the provisions of ERISA
and the Code. All Participant Accounts shall be deemed 100% vested and
non-forfeitable as of the Closing Date.
(n) From and after Closing, One Valley shall (i) cause Bank to
continue to employ those CSB employees employed immediately prior to the closing
at their then current rate of cash compensation; and (ii) authorize the Bank to
adopt the One Valley 401(k) Plan and the One Valley Retirement Plan
(collectively "OVB Qualified Plans"). In adopting the OVB Qualified Plans it is
understood that such plans will recognize CSB Employees years of employment with
Bank only for purposes of eligibility to participate in and vest under such
plans. It is specifically understood that CSB Employees shall not be entitled to
any past service for benefit accrual purposes under any Employee Pension Benefit
Plans of One Valley, except that if the CSB Retirement Plan and the One Valley
Retirement Plan are merged pursuant to Section 4.15(j), and in connection with
such merger it is decided that such past service can be granted without
increasing the unfunded liability of the One Valley Retirement Plan in excess of
such amount described in Section 4.15(j). It is further specifically understood
that, notwithstanding any provision hereof to the contrary, CSB Employees shall
be employees at-will and that after the Closing Date, One Valley and/or the Bank
may alter, amend, or terminate any of its benefit programs covering such
employees.
(o) Except as specifically provided elsewhere in this
Agreement, Bank shall continue for the calendar year 1996 those Employee
Benefits Plans in existence as of the date of the execution of this Agreement
and shall not adopt any other such plans nor otherwise amend such plans except
as authorized by One Valley. Except as expressly provided for elsewhere in this
Agreement, Bank shall terminate or amend each such plan effective December 31,
1996. Bank shall adopt and One Valley shall authorize such adoption effective
January 1, 1997, of life, disability insurance, health, welfare, vacation and
other fringe benefits (collectively "fringe benefit programs") of the types and
in the amounts and at the contribution levels provided to other similarly
situated employees of One Valley. In determining eligibility, benefit levels and
required contributions under such fringe benefit programs all full time years of
employment with Bank shall be counted and preexisting conditions shall be
treated as such conditions were treated under any such predecessor plan.
(p) Notwithstanding the limitation in (o) above it is
understood that CSB employees employed by the Bank as of the Closing Date shall
(as long as they otherwise remain eligible under the terms of the Bank's
vacation policy) be entitled to annual vacation for 1997 and thereafter equal to
the greater of (i) the number of days of vacation to which they were entitled to
in 1996 or (ii) such vacation to which they are entitled to under Bank's
vacation policy then in effect.
4.16 Labor Disputes. Neither CSB Financial nor either Subsidiary is
directly or indirectly involved in or to the knowledge of any of them threatened
with any labor dispute or trouble or organizational effort, including, without
limitation, matters regarding actual or alleged discrimination by reason of
race, creed, sex, disability or national origin, which might materially and
adversely affect the financial condition, assets, businesses or results of
operations of any of them. Neither CSB Financial nor either Subsidiary is a
party to, nor has ever been a party to, any collective bargaining agreement.
4.17 Reserve for Possible Loan Losses. The reserve for possible loan
losses shown on the consolidated balance sheet of CSB Financial as of June 30,
1995, and to be shown on the unaudited balance sheet of CSB Financial dated
December 31, 1995, is and will be adequate as of the dates thereof. The reserve
for possible loan losses to be shown on the consolidated balance sheet of CSB
Financial as of March 31, 1996, will be adequate as of the date thereof.
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4.18 Knowledge as to Conditions. CSB Financial knows of no reason
relating to CSB Financial why the approvals, consents and waivers of
governmental authorities referred to in Sections 8.1 (b) and 8.1 (c) should not
be obtained in a timely manner; CSB Financial and the Subsidiaries are not aware
of any conditions or provisions of any actions, reports of examinations or
similar regulatory reports or findings which is anticipated to delay or
precludes CSB Financial or either Subsidiary from entering into the Agreement or
obtaining prompt regulatory approval of all applications to be filed in
connection with the transaction contemplated by this Agreement, including but
not limited to compliance with the Community Reinvestment Act ("CRA").
4.19 Taxes.
(a) CSB Financial and Subsidiaries have each filed on a timely
basis all Federal Income Tax Returns and all other federal, state, municipal and
other tax returns which each of them is required to file, and each has paid all
taxes shown to be due on such returns and, in the opinion of its respective
Chief Executive and Financial Officers, has adequately reserved for all current
taxes;
(b) Neither the Internal Revenue Service nor any other taxing
authority is now asserting against CSB Financial or Subsidiaries, or, to the
knowledge of any of them, threatening to assert against any of them, any
deficiency or claim for additional taxes, interest or penalty;
(c) There is no pending, or to the knowledge of CSB Financial
or either Subsidiary, threatened examination of the Federal Income Tax Returns
of CSB Financial or either Subsidiary and, except for tax years still subject to
the assessment and collection of additional federal income taxes under the
three-year period of limitations prescribed in Section 6501(a) of the Internal
Revenue Code, no tax year of CSB Financial or either Subsidiary remains open to
the assessment and collection of additional Federal Income Taxes; and
(d) There is no pending or, to the knowledge of CSB Financial
or Subsidiary, threatened examination of State Tax (the "Virginia Taxes")
returns of CSB Financial or any of the Subsidiaries and, except for tax years
still subject to the assessment and collection of additional Virginia Taxes
under the applicable statutes of limitations, no tax year of CSB Financial or
either Subsidiary remains open to the assessment and collection of additional
taxes.
4.20 Absence of Certain Changes. Since June 30, 1995:
(a) There has not been any damage, destruction or loss by
reason of fire, flood, accident or other casualty (whether insured or not
insured) materially and adversely affecting the assets, financial condition or
operations of CSB Financial or either Subsidiary;
(b) Except in the ordinary course of business, neither CSB
Financial nor either Subsidiary has disposed of, or agreed to dispose of, any of
its material properties or assets, nor has any of them leased to others, or
agreed to so lease, any of such material properties or assets;
(c) Except for the exercise of stock options there has not
been any change in the authorized, issued or outstanding capital stock of CSB
Financial or either Subsidiary, except as provided for in this Agreement, or any
material change in the outstanding debt of CSB Financial or either Subsidiary,
other than changes due to payments in accordance with the terms of such debt and
FHLB advances to meet funding needs of the Bank in the ordinary course of
business;
(d) No change has occurred in the personnel who are key
personnel with respect to the operations of CSB Financial or Subsidiaries, nor
has there been any increase in the compensation or fees payable by either CSB
Financial or either Subsidiary to their directors or officers other than
increases in the ordinary course of business in accordance with the personnel
policies of CSB Financial or either Subsidiary, or any material increase in any
bonus, insurance, pension or other Employee Benefit Plan, payment or arrangement
for or with any of such directors or officers;
(e) Neither CSB Financial nor either Subsidiary has made any
material loan or advance other than in the ordinary course of business;
(f) Neither CSB Financial nor either Subsidiary has made any
expenditure or major commitment for the purchase, acquisition, construction or
improvement of any material asset or assets which in the aggregate would be
material;
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(g) Neither CSB Financial nor either Subsidiary has entered
into any other material transaction, contract or lease or incurred any other
material obligation or liability;
(h) The Bank has not incurred any unusual or extraordinary
loan losses;
(i) There has not been any other event, condition or
development of any kind which materially and adversely affects the assets,
financial condition or results of operations of CSB Financial or either
Subsidiary, and neither CSB Financial nor either Subsidiary has knowledge of any
such event, condition or development which may materially and adversely affect
the assets, financial condition or operations of CSB Financial or either
Subsidiary; and
(j) CSB Financial and the Subsidiaries are, and have been, in
substantial compliance with all environmental laws and regulations, and there is
no suit, claim, action, demand, executive or administrative order, directive,
investigation or proceeding pending, or, to the knowledge of CSB Financial or
either Subsidiary, threatened, before any court, governmental agency or board or
other forum against CSB Financial or either Subsidiary for alleged noncompliance
with, or liability under, any environmental law or relating to the release into
the environment of any hazardous material or oil.
4.21 Negative Covenants. Except as otherwise contemplated hereby,
between the date hereof and the Effective Date, or the time when this Agreement
terminates as provided herein, neither CSB Financial nor either Subsidiary,
respectively, will, without the prior written consent of One Valley, which
consent shall not be unreasonably withheld:
(a) Make any change in its authorized capital stock or
corporate structure;
(b) Issue, redeem or purchase any shares of its capital stock,
securities convertible into its common stock or any long-term debt securities of
CSB Financial or the Subsidiaries; other than shares of capital stock issued
pursuant to the exercise of outstanding stock options granted under the stock
option plans of CSB Financial and/or the Bank;
(c) Issue or grant any options, warrants or other rights to
purchase shares of its common stock;
(d) Declare or pay any dividends or other distributions on any
shares of common stock, except a cash dividend in an amount not to exceed
10(cent) (ten cents) per share per quarter for each quarter prior to the Closing
Date, to be paid on or before the Effective Date;
(e) Purchase or otherwise acquire, or agree to acquire, for
consideration any shares of its capital stock (other than in a fiduciary
capacity);
(f) Enter into or amend (except as otherwise specifically
contemplated by this Agreement) any Employee Benefit Plan, consultant, or
similar plan in respect of any of its directors, officers or other employees or
increase its contribution to any Employee Benefit Plan;
(g) Take any action materially and adversely affecting the
transactions contemplated hereby or this Agreement or the financial condition,
businesses, properties or results of operations of CSB Financial and either
Subsidiary, taken as a whole;
(h) Acquire any other company or acquire any branch or, other
than in the ordinary course of business, any assets or deposits of any other
company;
(i) Mortgage, pledge or subject to a lien or any other
encumbrance any of its assets, dispose of any of its assets, incur or cancel any
debts or claims, or take any other action not in the ordinary course of its
business as heretofore conducted;
(j) Except as may be necessary to comply with this Agreement,
amend its Certificate of Incorporation or Bylaws;
(k) Sell, pledge or otherwise dispose of or encumber any of
its stock, or any of the stock of either Subsidiary or change the capital
structure of any of them;
(l) Sell any securities from its investment portfolio, except
in the ordinary course of business;
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(m) Increase the compensation of or pay any benefit to any
director, officer or employee during or for the calendar year 1996 other than in
the ordinary course of business and, in any event, in the aggregate not in
excess of 5% of the total salary expense of the Bank; or
(n) Enter into any agreement to do any of the foregoing.
4.22 Additional Covenants. Except as otherwise contemplated by this
Agreement, CSB Financial covenants and agrees:
(a) That it will promptly advise One Valley in writing of the
name and address of, and number of shares of CSB Financial held by, each
shareholder who elects to exercise his Appraisal Rights pursuant to Delaware
General Corporation Law;
(b) That, subsequent to the date of this Agreement and prior
to the Effective Date, it will operate its business and the businesses of the
Subsidiaries only in the normal course and in a normal manner consistent with
past practices;
(c) That it will take no action which would adversely affect
or delay the ability of CSB Financial or either Subsidiary to obtain any
necessary approvals, consents or waivers of any governmental authority required
for the transaction contemplated hereby or to perform its covenants and
agreements on a timely basis under this Agreement;
(d) That immediately upon the execution of this Agreement it
will direct its accountants and attorneys to give One Valley access to all
relevant and material information, documents and working papers pertaining to
CSB Financial and Subsidiaries; provided, however, that in the event CSB
Financial determines that providing One Valley access to such information,
documents and working papers of its attorneys would waive its attorney-client
privilege therein and if CSB Financial determines in its reasonable discretion
to assert such privilege and to deny access thereto to One Valley, then,
notwithstanding any other provision of this Agreement, One Valley may in its
sole discretion immediately terminate this Agreement at any time before the
Effective Date;
(e) That it will use its best efforts in good faith to take or
cause to be taken all action required under this Agreement on its part to be
taken as promptly as practicable so as to permit the consummation of the Merger
at the earliest possible date and cooperate fully with the other parties to that
end;
(f) That neither CSB Financial nor its directors, officers or
representatives or agents will, directly or indirectly, take any action to
solicit, support or encourage any offer or proposal from any other person to
acquire CSB Financial or its assets, or shares of its common stock, or of either
Subsidiary, or engage in negotiations with or provide information to such person
with respect to such offer or proposal; provided, however that CSB Financial may
engage in negotiations or provide information if the Board of Directors of CSB
Financial concludes after receipt of legal advice from its counsel, that their
fiduciary duties to the shareholders of CSB Financial so require; provided
further, however, in the case of any action pursuant to the immediately
preceeding proviso, One Valley may, in its sole discretion, terminate this
Agreement at any time before the Effective Date if: (i) the meeting of
shareholders contemplated in Section 10 of this Agreement has not been held on
or before July 1, 1996, provided the delay is caused by such negotiations, offer
or proposal as contemplated herein; and (ii) shareholder approval of the Merger
has not been obtained prior to One Valley's termination of the Agreement
pursuant to this Section. CSB Financial will immediately notify One Valley if
any such negotiations occur, if such information is provided, or if such offer
or proposal is made;
(g) That it will promptly advise One Valley of any material
adverse change in the financial condition, assets, businesses, results of
operations or prospects of CSB Financial or either Subsidiary, and any breach of
any representation, warranty, covenant or agreement made by CSB Financial or
either Subsidiary in this Agreement known to CSB Financial;
(h) That it will maintain in full force and effect adequate
fire, casualty, public liability, employer fidelity and other insurance coverage
in accordance with prudent practices to protect CSB Financial and Subsidiaries
against losses for which insurance can reasonably be obtained;
(i) That it will consult with One Valley as to the form and
substance of any press release or other public disclosure concerning matters
related hereto, and, except as required by law or within good faith, shall not
issue such release or disclosure without the reasonable consent of One Valley;
and
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(j) Prior to the Effective Date and subject to requisite
regulatory approval, if any, CSB Financial and/or Bank shall amend (including
shareholder approval if required) the Recognition and Retention Plan for Outside
Directors and the Recognition and Retention Plan for Officers and Employees (the
"Recognition Plans") to provide that all shares awarded under the Recognition
Plans as of the date of this Agreement shall be vested immediately prior to the
Effective Date and the shares distributed to the participants, and shall
thereafter immediately terminate the Recognition Plans.
SECTION 5
REPRESENTATIONS, WARRANTIES AND COVENANTS
OF ONE VALLEY
One Valley represents and warrants to and covenants with CSB Financial that:
5.1 Organization and Qualification of One Valley. One Valley is a
corporation duly organized, validly existing and in good standing under the laws
of the State of West Virginia and has the corporate power to own all of its
properties and assets and to carry on its business as it is now being conducted.
Each of the banking subsidiary companies owned by One Valley is duly organized,
validly existing and in good standing as either a state banking corporation
under the laws of West Virginia or a national bank under the laws of the United
States and each has the corporate power to own all of its assets and to carry on
its business as it is now being conducted.
5.2 Authorization of Agreement. The Board of Directors of One Valley
has authorized the execution of this Agreement as set forth herein, and One
Valley has the corporate power to execute and deliver this Agreement, and has
taken all action required by law, its Articles of Incorporation, its Bylaws or
otherwise to authorize such execution and delivery, the Merger and the
consummation of the transactions contemplated hereby, and upon its execution and
delivery (and assuming due execution and delivery by CSB Financial) this
Agreement is a valid and binding agreement of One Valley enforceable in
accordance with its terms.
5.3 No Violation of Other Instruments. The execution and delivery of
this Agreement do not, and the consummation of the Merger will not, (i) violate
any provision of the Articles of Incorporation or Bylaws of One Valley, (ii)
violate any provision of, or result in the acceleration of any obligation under
or in the termination, if applicable, of, any mortgage, deed of trust, note,
lien, lease, franchise, license, permit, agreement, instrument, order,
arbitration award, judgment or decree to which One Valley or any of its
subsidiaries is a party or by which it is bound except for such as would not
have a material adverse effect on the financial condition, business, properties,
or results of operations of One Valley and its subsidiaries, taken as a whole,
or the transactions contemplated hereby, (iii) violate or conflict with any
other material restriction of any kind or character to which One Valley or any
of its Subsidiaries is subject, or (iv) enable any person to enjoin the
transactions contemplated hereby. After approval of this Agreement by the Board
of Directors of One Valley and by the OTS, One Valley will have taken all action
required by law and its Articles of Incorporation and Bylaws necessary to
authorize the execution and delivery of this Agreement and to authorize the
Merger of CSB Financial with Thrift and the consummation of the transactions
contemplated hereby.
5.4 Organization and Qualification of Thrift. One Valley shall cause to
be filed with the OTS and the Board of Governors of the Federal Reserve
("Federal Reserve") an application to approve the transaction contemplated
hereby. One Valley shall cause Thrift to take such action as is provided in this
Agreement on Thrift's part to be taken.
5.5 Regulatory Approvals. Prior to the Effective Date, One Valley,
separately and jointly with CSB Financial, shall use its best efforts in good
faith to take or cause to be taken as promptly as practicable all such steps as
shall be necessary to obtain: (i) the approval of the OTS for One Valley to
effectuate the Merger; (ii) the prior approval of the Board of Governors of the
Federal Reserve System under the Bank Holding Company Act of 1956, as amended,
of the Merger; and (iii) all other consents and approvals of governmental
agencies as are required by law or otherwise, and shall do any and all things
deemed by One Valley and CSB Financial to be necessary or appropriate in order
to cause the Merger to be consummated on the terms provided herein.
5.6 Financial Statements. One Valley's consolidated balance sheets as
of the years ended December 31, 1993, 1994 and 1995, and its statement of income
for each of such years, heretofore delivered to CSB Financial, were prepared in
accordance with generally accepted accounting principles consistently applied
and those financial statements, fairly present its financial condition and
results of operations as of such respective dates and for such respective
periods.
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5.7 No Material Adverse Change. There has been no material adverse
change, or development involving a reasonably foreseeable prospective material
adverse change, in or affecting the financial condition, businesses, properties
or results of operations of One Valley and its subsidiaries, taken as a whole,
since December 31, 1995.
5.8 Form 10-K Annual Report and Other Reports. One Valley's Annual
Report on Form 10-K filed with the Securities and Exchange Commission for the
year ended December 31, 1994, heretofore delivered to CSB Financial, does not
contain, as of the date thereof, any untrue statement of a material fact or omit
to state any material fact necessary to make the statements therein, in light of
the circumstances under which such statements were made, not misleading. Since
January 1, 1993, One Valley has filed with the Securities and Exchange
Commission all documents and reports required to be filed and such reports do
not contain, as of their respective dates, an untrue statement of a material
fact or omit to state a material fact necessary to make the statements therein,
in light of the circumstances under which such statements were made, not
misleading.
5.9 No Actions, Etc. There are no actions, proceedings or
investigations pending or, to the knowledge of the executive officers or
directors of One Valley, threatened or contemplated against or relating to One
Valley or any of its subsidiaries or any of its properties, which, individually
or in the aggregate, could materially and adversely affect the financial
condition, businesses, properties or operations of One Valley and its
subsidiaries, taken as a whole, or the ability of One Valley to consummate the
transactions contemplated hereby, and such officers and directors do not know of
any basis for any action or proceeding. Neither One Valley, nor any of its
subsidiaries, is transacting business in violation of any applicable law or
regulation which could materially adversely affect the financial condition,
businesses, properties or operations of One Valley and its subsidiaries, taken
as a whole, or the ability of One Valley to consummate the transactions
contemplated hereby.
5.10 Capitalization. As of the date hereof, the authorized capital
stock of One Valley consists of (i) Forty Million shares of common stock, par
value of $10 per share, of which 17,079,684 are issued and outstanding and are
fully paid and nonassessable, and (ii) One Million shares of preferred stock,
par value of $10 per share, none of which is issued.
5.11 Good Faith. One Valley shall use its best efforts in good faith to
take or cause to be taken all action required under this Agreement on its part
to be taken as promptly as practicable so as to permit the consummation of this
Agreement at the earliest practicable date and cooperate fully with the other
parties to that end.
5.12 Registration. One Valley will cause a Registration Statement (or
other appropriate form) to be filed with and declared effective by the
Securities and Exchange Commission, appropriate agencies regulating securities,
and other governmental agencies having jurisdiction, with respect to the
securities to be issued in conjunction with the Merger. The information
pertaining to One Valley which will appear in the Registration Statement and
Proxy Statement will contain no untrue statement of any material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they are made, not
misleading.
5.13 Copies of Public Information One Valley has made or will make
available for review by CSB Financial all information publicly available
concerning One Valley and all pension, retirement, thrift, group insurance or
similar plans with respect to any of the directors, officers or other employees
of One Valley or its subsidiaries.
5.14 Undisclosed Liabilities; Taxes. One Valley has no material
liabilities other than those liabilities disclosed on or provided for in its
balance sheet as of December 31, 1995, and liabilities incurred since such date
in the ordinary course of business. One Valley has paid all federal, state and
local taxes now due and payable and there are no material tax items now in
dispute or anticipated to be disputed.
5.15 Title to Properties. One Valley has good and marketable title to
all its property and assets set forth on its balance sheet as of December 31,
1995, except property and assets sold or otherwise disposed of since December
31, 1995, in the ordinary course of business, subject to no liens, mortgages,
pledges, encumbrances or charges of any kind except liens reflected on said
balance sheet and except liens for taxes and assessments not delinquent, pledges
to secure deposits, and such other liens and encumbrances and imperfections of
title as do not materially affect the value of such property as reflected on
said balance sheet and which do not interfere with or impair its present or
continued use, and all of its leases are in full force and effect and One Valley
is not in default thereunder.
5.16 Absence of Regulatory Actions. Neither One Valley nor any of its
banking subsidiaries is a party to any cease and desist order, written agreement
or memorandum of understanding with, or a party to any commitment letter or
similar undertaking to, or is subject to any order or directive by, or is a
recipient of any extraordinary supervisory letter from,
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or has adopted any board resolutions at the request of, federal or state
governmental authorities charged with the supervision or regulation of the
operations of any of them nor has it been advised by any such government
authority that it is contemplating issuing or requesting (or is considering the
appropriateness of issuing or requesting) any such order, directive, written
agreement, memorandum of understanding, extraordinary supervisory letter,
commitment letter, board resolutions or similar undertaking.
5.17 Labor Disputes. One Valley is not directly or indirectly involved
in or threatened with any labor dispute or trouble or organizational effort,
including, without limitation, matters regarding actual or alleged
discrimination by reason of race, creed, sex, disability or national origin,
which might materially and adversely affect its financial condition, assets,
businesses or results of operations.
5.18 Reserve for Possible Loan Losses. The reserve for possible loan
losses shown on the consolidated balance sheet of One Valley as of December 31,
1995, is adequate as of the dates thereof.
5.19 Knowledge as to Conditions. One Valley knows of no reason relating
to One Valley why the approvals, consents and waivers of governmental
authorities referred to in Sections 8.1 (b) and 8.1 (c) should not be obtained
in a timely manner; One Valley and One Valley Subsidiaries are not aware of any
conditions or provisions of any actions, reports of examinations or similar
regulatory reports or findings which is anticipated to delay or precludes One
Valley or any of One Valley Subsidiaries from entering into the Agreement or
obtaining prompt regulatory approval of all applications to be filed in
connection with the transaction contemplated by this Agreement, including but
not limited to compliance with the Community Reinvestment Act ("CRA").
5.20 Other Transactions. One Valley has had, and will continue to have,
negotiations for the acquisition of other banking institutions. Nothing
contained herein shall in any manner limit the ability of One Valley to acquire
additional banking institutions or other corporations, either before or after
the Effective Date, for such consideration (cash, notes, common or preferred
stock) and upon such terms and conditions as One Valley deems appropriate.
Notwithstanding the foregoing, One Valley will not, and will cause its
subsidiaries to not, make or agree to make any acquisition or take any action
that materially adversely affects its ability to consummate the transaction
contemplated hereby in a reasonably timely manner.
5.21 Press Release. One Valley will consult with CSB Financial as to
the form and substance of any press release or other public disclosure
concerning matters related hereto, and, except as required by law or within good
faith, shall not issue such release or disclosure without the consent of CSB
Financial.
5.22 Indemnification. One Valley shall indemnify, and advance expenses
(including legal fees and expenses) in matters that may be subject to
indemnification to, persons who served as directors and officers of CSB
Financial and its Subsidiaries on or before the Effective Date of the Merger
with respect to liabilities and claims (and related expenses) made against them
resulting from their service as such prior to the Effective Date of the Merger
in accordance with and subject to the requirements and other provisions of One
Valley's Articles of Incorporation and Bylaws in effect on the date of this
Agreement and applicable provisions of law to the same extent as One Valley is
obliged thereunder to indemnify and advance expenses to its own directors and
officers with respect to liabilities and claims made against them resulting from
their service as such to One Valley.
5.23 Employee Benefits. Each of One Valley's employee benefit plans has
been administered in all material respects in compliance with the applicable
requirements of ERISA, the Code, other federal statutes, applicable federal
regulations, applicable state law (including without limitation state insurance
law) and in accordance with its terms. All reports required by any governmental
agency with respect to each such employee benefit plan has been timely and
properly filed and to the extent required furnished to the participants in such
plan. One Valley has paid all costs, benefits, premiums and any other amounts
coming due in connection with the employee benefit plans and no accumulated
funding deficiency, as defined in ss.302(a)(2) of ERISA, exists with respect to
any employee benefit plan. One Valley has not engaged in a transaction that
would subject One Valley to any tax, penalty or liability for prohibited
transactions imposed by ERISA or by ss.4975 of ERISA. One Valley has not engaged
in any transaction in violation of ss.406(a) or ss.406(b) of ERISA (for which no
exemption exists under ss.408 of ERISA).
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SECTION 6
INVESTIGATION AND CONFIDENTIALITY
6.1 Investigation. Prior to the Closing Date, either party may directly
and through its representatives, make such reasonable investigation of the
assets and business of the other party and its subsidiaries as deemed necessary
or advisable. Each party and its representatives shall have, at reasonable times
after the date of execution hereof, during normal business hours and upon
reasonable request, full access to the premises and to all the relevant and
material books and records of the other party and its subsidiaries.
6.2 Confidentiality. One Valley and CSB Financial each agree to treat
as strictly confidential and agree not to divulge to any other person, natural
or corporate (other than employees of, and attorneys and accountants for, such
party) any proprietary financial statements, schedules, contracts, agreements,
instruments, papers, documents and other information relating to CSB Financial
or One Valley (as the case may be) by which it may come to know or which may
come into its possession during the course of its due diligence investigation of
CSB Financial or One Valley, as the case may be, and, if the Merger contemplated
hereby are not consummated for any reason, One Valley agrees promptly to return
to CSB Financial (and CSB Financial to One Valley) all written proprietary
material furnished in connection with such investigation; and thereafter all
such information shall continue to not be disclosed by One Valley and CSB
Financial and their directors, officers, employees, or advisors to third parties
without One Valley's or CSB Financial's written consent, as the case may be.
SECTION 7
NON-SURVIVAL
Other than Section 5.22 hereof, the representations and warranties
included or provided herein shall not survive the Effective Date.
SECTION 8
CONDITIONS PRECEDENT; CLOSING DATE AND EFFECTIVE DATE
8.1 Conditions Precedent. The consummation of this Agreement and the
Merger is conditioned upon the following:
(a) The shareholders of CSB Financial shall have approved this
Agreement by vote as required by law and final approval of this Agreement shall
have taken place as provided in Section 10 hereof, and the Board of Directors of
One Valley shall have approved this Agreement;
(b) OTS shall have approved the acquisition of control of CSB
Financial and Subsidiaries by One Valley;
(c) The Federal Reserve shall have approved the acquisition of
control of CSB Financial and Subsidiaries by One Valley;
(d) The Registration Statement shall have become effective
under the 1933 Act, no stop order suspending the effectiveness of such
Registration Statement shall be in effect and no proceedings for such purpose
shall have been initiated or threatened by or before the Securities and Exchange
Commission. All state securities and "blue sky" permits or approvals required
(in the opinion of One Valley) to carry out the transactions contemplated by
this Agreement shall have been received;
(e) All other consents, approvals and permissions and the
satisfaction of all the requirements prescribed by law which are necessary to
the carrying out of the transactions contemplated hereby shall have been
procured;
(f) All delay periods and all periods for review, objection or
appeal of or to any of the consents, approvals or permissions required with
respect to the consummation of the Merger and this Agreement shall have expired;
(g) Unless waived by One Valley, the approvals referred to in
subparagraphs (b), (c) and (d) hereof shall not have required the divestiture or
cessation of any significant part of the present operations conducted by One
Valley,
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CSB Financial, and their respective subsidiaries, taken as a whole, and shall
not have imposed any other condition which One Valley reasonably deems to be
materially disadvantageous or burdensome;
(h) Unless waived by One Valley, the representations and
warranties of CSB Financial contained in this Agreement shall be correct on and
as of the Effective Date in all material respects with the same effect as though
made on and as of such date, except as affected by the transactions contemplated
by this Agreement and except for changes which are not, in the aggregate,
material and adverse to the financial condition, businesses, properties or
operations of CSB Financial, and CSB Financial shall have performed in all
material respects all its obligations and agreements hereunder theretofore to be
performed by it; and One Valley shall have received on the Effective Date an
appropriate certificate to the foregoing effect dated the Effective Date and
executed on behalf of CSB Financial by one or more appropriate executive
officers of CSB Financial;
(i) Unless waived by CSB Financial, the representations and
warranties of One Valley contained in this Agreement shall be correct on and as
of the Effective Date in all material respects with the same effect as though
made on and as of such date, except as affected by the transactions contemplated
by this Agreement and except for changes which are not, in the aggregate,
material and adverse to the financial condition, businesses, properties, results
of operations or prospects of One Valley, and One Valley shall have performed in
all material respects all of its obligations and agreements hereunder
theretofore to be performed by it; and CSB Financial shall have received on the
Effective Date an appropriate certificate to the foregoing effect dated the
Effective Date and executed on behalf of One Valley by one or more appropriate
executive officers;
(j) One Valley shall have received from legal counsel to CSB
Financial a written opinion pertaining to the transactions herein provided for,
dated the Effective Date, in form and substance acceptable to counsel for One
Valley, and CSB Financial shall have received from legal counsel to One Valley a
customary written opinion pertaining to the transactions herein provided for,
dated the Effective Date, in form and substance acceptable to counsel for CSB
Financial;
(k) Unless waived by One Valley, One Valley shall have
received an opinion of counsel to the effect that the transaction will
constitute a tax free reorganization within the meaning of Section 368(a) of the
Internal Revenue Code;
(l) Unless waived by CSB Financial, CSB Financial shall have
obtained an opinion of counsel to the effect that, as to each holder of CSB
Financial common stock who receives One Valley common stock in exchange for his
or her CSB Financial common stock, no gain will be recognized by such
shareholder on such exchange; the basis of the One Valley common stock to be
received by such CSB Financial shareholders will be the same as the basis of the
CSB Financial common stock surrendered in exchange therefor; and the holding
period of the One Valley common stock to be received by such CSB Financial
shareholders includes the holding period of the CSB Financial common stock
surrendered in exchange therefor, provided their CSB Financial common stock was
held as a capital asset at the time of the exchange;
(m) CSB Financial shall have delivered to One Valley a list of
all persons known to CSB Financial who own in excess of 5% of the issued and
outstanding stock of CSB Financial;
(n) Unless waived by One Valley, the holders of not more than
10% of the outstanding shares of common stock of CSB Financial shall have
elected to exercise their statutory Appraisal Rights; and
(o) The receipt by CSB Financial of the opinion of its
investment banker that the consideration to be paid to stockholders of CSB
Financial pursuant to this Agreement is fair from a financial point of view to
such stockholders as of the date of Board adoption of the Agreement, as of the
date of mailing of the proxy to stockholders of CSB related to the Meeting of
Stockholders to approve the Agreement, and as of the Closing Date of the
transaction.
8.2 Closing Date. The time and date of closing are herein called the
"Closing Date". The Closing Date shall be selected by One Valley and shall be
within thirty (30) days of approvals of this Agreement by the shareholders of
CSB Financial or the receipt of all of the approvals (including any statutory
waiting periods) referred to in Section 8.1(b), (c), (d), (e) and (f), whichever
is later. One Valley shall cause the Articles of Merger with respect to the
Merger to be filed with the Secretary of State of West Virginia and of the State
of Delaware.
8.3 Effective Date. The Merger shall become effective (the "Effective
Date") on the date on which the certificate of merger approving the Merger is
issued by the Secretary of State of the State of West Virginia, but in any event
no later than the 60th day after receipt of all requisite approvals of
regulatory authorities and shareholders.
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SECTION 9
TERMINATION OF AGREEMENT
9.1 Grounds for Termination. This Agreement and the transactions
contemplated hereby may be terminated at any time prior to the Closing Date
either before or after the meeting of the shareholders of CSB Financial:
(a) By mutual consent of CSB Financial and One Valley;
(b) By One Valley if there has been a material
misrepresentation or breach of warranty in the representations and warranties of
CSB Financial set forth herein, or by CSB Financial if there has been a material
misrepresentation or breach of warranty in the representations and warranties of
One Valley set forth herein, which material misrepresentation or breach of
warranty has not been cured to the satisfaction of the non-breaching party
within 30 days thereof;
(c) By either CSB Financial or One Valley upon written notice
to the other, if the Effective Date does not occur on or before midnight on
November 1, 1996;
(d) By either CSB Financial or One Valley if the Merger shall
violate any nonappealable final order, decree or judgment of any court or
governmental body having competent jurisdiction;
(e) In the event that the Disclosure Schedule or One Valley's
investigation of CSB Financial and Subsidiaries discloses matters which One
Valley in good faith believes either (i) to be inconsistent in any material and
adverse respect with any of the representations or warranties of CSB Financial
(without giving effect to the Disclosure Schedule) or (ii) in the reasonable
judgment of the Board of Directors of One Valley either (A) to be of such
significance as to materially and adversely affect the financial condition or
results of operations of CSB Financial and the Subsidiary, taken as a whole, or
(B) to deviate materially and adversely from the financial statements for the
year ended June 30, 1995, of CSB Financial, the Board of Directors of One Valley
may elect to terminate this Agreement by giving notice of termination to CSB
Financial within or at the end of the 30 day period following the date of the
delivery by CSB Financial to One Valley of the Disclosure Schedule; provided,
however, that actions taken by CSB Financial as contemplated in this Agreement
concerning the CSB ESOP, CSB Retirement Plan, the Recognition Plans, or the
Stock Option Plans shall not trigger One Valley's right to terminate hereunder
or otherwise violate any term of this Agreement;
(f) In the event that CSB Financial's investigation of One
Valley and its subsidiaries discloses matters which CSB Financial in good faith
believes either (i) to be inconsistent in any material and adverse respect with
any of the representations or warranties of One Valley or (ii) in the reasonable
judgment of the Board of Directors of CSB Financial either (A) to be of such
significance as to materially and adversely affect the financial condition or
results of operations of One Valley and its subsidiaries taken as a whole, or
(B) to deviate materially and adversely from the financial statements for the
year ended December 31, 1995, of One Valley, the Board of Directors of CSB
Financial may elect to terminate this Agreement by giving notice of termination
to One Valley within or at the end of the 30 day period following the date of
this Agreement;
(g) By One Valley in accordance with the provisions of Section
4.22(d); or
(h) By One Valley in accordance with the provisions of Section
4.22(f).
9.2 Effect of Termination; Right to Proceed. In the event this
Agreement shall be terminated pursuant to Section 9.1, all further obligations
of One Valley and CSB Financial under this Agreement shall terminate (other than
this Section 9.2 and Sections 6.2, 9.3, 18.2, 18.3, and 18.4 hereof, all of
which shall remain in full force and effect) without further liability of the
parties to one another, except for any liability arising out of any uncured
willful breach of any covenant or other agreement contained in this Agreement or
any fraudulent breach of a representation or warranty.
9.3 Return of Documents in Event of Termination. In the event of the
termination of this Agreement for any reason, each party shall forthwith deliver
to the other all documents, work papers and other material obtained from it
relating to the transactions contemplated hereby, whether obtained before or
after the execution hereof, including information obtained pursuant to Section 6
hereof, and will take reasonable steps to have any information so obtained kept
confidential.
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SECTION 10
MEETING OF SHAREHOLDERS
CSB Financial shall take all steps necessary to call and hold a special
meeting of shareholders, in accordance with applicable law and its Certificate
of Incorporation and Bylaws, as soon as practicable for the purpose of
submitting this Agreement to its shareholders for their consideration and
approval. CSB Financial will prepare and send to its shareholders for purposes
of such meetings a proxy statement, which will be in the form contained in the
Registration Statement on Form S-4, or any amendments thereto, prepared and
filed by One Valley (the "Proxy Statement"). The Board of Directors of CSB
Financial will recommend shareholder approval of this Agreement and will not
withdraw such recommendation unless (in the opinion of counsel for CSB
Financial) the fiduciary duties such persons owe to the shareholders of CSB
Financial so require.
SECTION 11
OTHER AGREEMENTS
11.1 Distribution to the Bank. Immediately prior to the Effective Date,
CSB Financial shall, by means of a tax-free distribution, distribute all of its
assets, to the extent permitted by applicable law, to the Bank.
11.2 Post-Merger Operation of the Bank. After the Effective Date, it is
anticipated that the Bank will continue operations as a financial institution
and wholly-owned subsidiary of Thrift, that its charter and Bylaws, as amended
from time to time, will continue as the Bylaws of the Bank, and that it will
continue to operate its existing branches.
11.3 Directors and Officers of the Bank.The directors and officers of
the Bank on the Effective Date shall continue as the directors and officers of
the Bank and shall hold office as prescribed in the Bylaws and applicable law
until their successors shall have been elected and shall qualify. Directors'
fees shall be the same as those paid to directors of One Valley. Upon the
Effective Date, the Bank shall, by action of its Board of Directors, elect as
members of the Board of Directors of the Bank two persons to be designated by
the President and CEO of One Valley.
11.4 Director of One Valley. Upon the Effective Date, One Valley shall,
by action of its Board of Directors, elect Bob M. Johnson as a member of the
Board of Directors of One Valley, for a term expiring on the date of the next
Annual Meeting of Shareholders of One Valley. In addition, at its Annual Meeting
of Shareholders to be held in April, 1997, One Valley shall nominate and
recommend Bob M. Johnson for a three-year term as member of the Board of
Directors of One Valley. Upon the Effective Date, Bob M. Johnson will also
become a member of a regional credit committee of One Valley.
11.5 Certain Benefit Plans. Notwithstanding Section 4.15 of the
Agreement, any Employee Benefit Plans exclusively covering the Chief Executive
Officer of the Bank shall remain in full force and effect until terminated or
amended pursuant to their terms. The Chief Executive Officer of the Bank shall
be eligible to participate in One Valley's Management Incentive Compensation
Plan.
SECTION 12
BROKERS, ETC.
CSB Financial represents and warrants to One Valley, that no broker, or
finder, or financial analyst except Friedman, Billings, Ramsey & Co. Inc.,
pursuant to an agreement previously provided to One Valley, has been employed by
CSB Financial or either Subsidiary, or is entitled to a fee, commission or other
compensation from CSB Financial or the Subsidiaries, with respect to this
Agreement or the transactions contemplated hereby.
SECTION 13
GOVERNING LAW; SUCCESSORS AND ASSIGNS;
COUNTERPARTS; ENTIRE AGREEMENT
This Agreement (a) shall be governed by and construed under and in
accordance with the laws of the State of West Virginia; (b) shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and assigns, provided, however, that this Agreement may not be
assigned by any party without the written consent of the other parties hereto;
(c) may be executed in one or more counterparts, all of which shall be
considered one and the same agreement, and shall become effective and binding
when one or more counterparts shall have been signed and delivered; and (d)
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embodies the entire agreements and understandings between CSB Financial and One
Valley relating to the subject matter hereof.
SECTION 14
EFFECT OF CAPTIONS
The captions in this Agreement are included for convenience only and
shall not in any way affect the interpretation or construction of any of the
provisions hereof.
SECTION 15
SEVERABILITY
The Parties expressly agree that it is not the intention of any party
to violate any public policy, law, rule, regulation, treaty or decision of any
government or agency thereof of any state or country. If any provision of this
Agreement is judicially or administratively interpreted to be in violation of
any such provision in any state or country, such provisions, sentences, words,
clauses or combination thereof shall be inoperative in each such state or
country; and the remainder of this Agreement shall remain binding upon the
parties hereto in each such state or country with this Agreement as a whole
unaffected elsewhere.
SECTION 16
NOTICES
Any notices or other communications required or permitted hereunder
shall be sufficiently given if sent by registered mail, postage prepaid,
addressed as follows:
To CSB Financial:
CSB Financial Corporation
2120 Langhorne Road
Lynchburg, Virginia 24501
Attention: Bob M. Johnson, President and CEO
With a copy to:
Charles E. Sloane, Esquire
Malizia, Spidi, Sloane & Fisch, P.C.
One Franklin Square
1301 K. Street, N.W., Suite 700 East
Washington, DC 20005
To One Valley:
One Valley Bancorp of West Virginia, Inc.
One Valley Square
P. O. Box 1793
Charleston, West Virginia 25326
Attention: J. Holmes Morrison
With a copy to:
Merrell S. McIlwain, Esquire
One Valley Bancorp of West Virginia, Inc.
One Valley Square
P. O. Box 1793
Charleston, West Virginia 25326
or such other addresses as shall be furnished in writing by either party to the
other party. Any such notice or communication shall be deemed to have been given
as of the date so mailed.
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SECTION 17
AMENDMENTS
This Agreement may be amended by the written agreement of One Valley
and CSB Financial and without the approval of the shareholders before or after
the meeting of shareholders at any time prior to the Closing Date with respect
to any of the terms contained herein; provided, however, that if amended after
such meeting of shareholders, no such amendment shall be materially adverse to
the shareholders of CSB Financial.
SECTION 18
EXPENSES
18.1 General. Except as otherwise provided herein, each of the parties
hereto agrees to pay, without a right of reimbursement from the other party and
whether or not the transactions contemplated by this Agreement shall be
consummated, the costs incurred by it incident to the performance of its
obligations under this Agreement and to the consummation of the Merger and the
other transactions contemplated herein, including the fees and disbursements of
counsel, accountants and consultants employed by such party in connection
therewith; provided, however, that One Valley shall bear the full expense of the
printing and mailing of the proxy statement to be used in connection with the
special meeting of shareholders referenced in Section 10.
18.2 Expenses of One Valley. CSB Financial hereby agrees that if this
Agreement or the transactions contemplated hereby are terminated by One Valley
pursuant to Sections 9.1(b) or 9.1(e) as a result of a willful breach by CSB
Financial, CSB Financial shall promptly (and in any event within ten (10)
business days after such termination) pay all Expenses of One Valley. "Expenses
of One Valley" as used in this Section 18.2 shall include all reasonable in
amount and reasonably incurred out-of-pocket expenses of One Valley (including
all fees and expenses of counsel, accountants, investment bankers, experts and
consultants to One Valley and its Affiliates) incurred by it or on its behalf in
connection with the consummation of the transactions contemplated by this
Agreement.
18.3 Expenses of CSB Financial.One Valley hereby agrees that if this
Agreement or the transactions contemplated hereby are terminated by CSB
Financial pursuant to Section 9.1(b) or 9.1(f) as a result of a willful breach
by One Valley, One Valley shall promptly (and in any event within ten (10)
business days after such termination) pay all Expenses of CSB Financial. For
purposes of this Section 18.3, the "Expenses of CSB Financial" shall include all
reasonable out-of-pocket expenses (including all fees and expenses of counsel,
accountants, investment bankers, experts and consultants to CSB Financial and
its Affiliates) incurred by it or on its behalf in connection with the
consummation of the transactions contemplated by this Agreement.
18.4 Termination Fee. (a) CSB Financial hereby agrees to pay One Valley
and One Valley shall be entitled to payment of, a fee (the "Termination Fee") of
$2.0 million following the occurrence of a Purchase Event (as defined below),
provided that One Valley shall have sent written notice of such entitlement
within 90 days after One Valley actually becomes aware of such occurrence. Such
payment shall be made in immediately available funds within five business days
after delivery of a notice from One Valley requesting such payment. The right to
receive the Termination Fee shall terminate if any of the following (a "Fee
Termination Event") occurs prior to a Purchase Event: (i) the Effective Date,
(ii) termination of this Agreement in accordance with the provisions hereof if
such termination occurs prior to the occurrence of a Preliminary Purchase Event
(as defined below), except termination by One Valley pursuant to Section 9.1(h),
(iii) termination of this Agreement following the occurrence of a Preliminary
Purchase Event and the passage of 11 months after such termination.
(b) The term "Preliminary Purchase Event" shall mean any of
the following events or transactions occurring after the date hereof:
(1) CSB Financial or either Subsidiary without having
received One Valley's prior written consent, shall have entered into an
agreement to engage in any Acquisition Transaction (as defined below) with any
person (the term "person" for purposes of this Agreement having the meaning
assigned thereto in Section 3(a)(9) of the Securities Exchange Act of 1934, as
amended ("Exchange Act")) other than One Valley or any of its subsidiaries or
affiliates or the Board of Directors of CSB Financial approve or accept any
Acquisition Transaction with any person other than One Valley or any of its
subsidiaries or affiliates. For purposes of this Agreement, "Acquisition
Transaction" shall mean (A) a merger or consolidation, or similar transaction,
involving CSB Financial or the Bank, (B) a purchase, lease or other acquisition
of all or substantially all of the assets or deposits of CSB Financial or the
Bank, (C) a purchase or other acquisition (including by way
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of merger, consolidation, share exchange or otherwise) of securities
representing 30% or more of the voting power of CSB Financial or the Bank;
provided that the term "Acquisition Transaction" does not include any internal
merger or consolidation involving only CSB Financial or either of the
Subsidiaries;
(2) (A) any person (other than One Valley or any of
its subsidiaries or affiliates) shall have acquired beneficial ownership or the
right to acquire beneficial ownership of 10% or more of the outstanding CSB
Financial common stock (the term "beneficial ownership" for purposes of this
Agreement having the meaning assigned thereto in Section 13(d) of the Exchange
Act), (B) any group (as such term "group" is defined in Section 13(d)(3) of the
Exchange Act), other than a group of which any of One Valley or any of its
subsidiaries or affiliates is a member, shall have been formed that beneficially
owns 10% or more of CSB Financial common stock then outstanding;
(3) any person other than One Valley or any of its
subsidiaries or affiliates shall have made a bona fide proposal to CSB Financial
or its shareholders, by public announcement or written communication that is or
becomes the subject of public disclosure, to engage in a Acquisition Transaction
(including, without limitation, any situation in which any person other than One
Valley or any of its subsidiaries or affiliates shall have commenced (as the
term is defined in Rule 14d-2 under the Exchange Act) or shall have filed a
registration statement under the Securities Act of 1933, as amended, with
respect to, a tender offer or exchange offer to purchase any CSB Financial
common stock such that, upon consummation of such offer, such person would own
or control 10% or more of the then outstanding CSB Financial common stock (such
an offering referred to herein as a "Tender Offer" or an "Exchange Offer,"
respectively);
(4) after a proposal is made by a third party to CSB
Financial or its shareholders to engage in an Acquisition Transaction, or such
third party states its intention to CSB Financial to make such a proposal if
this Agreement terminates, CSB Financial shall have breached any representation,
covenant or obligation contained in this Agreement and such breach would entitle
One Valley to terminate this Agreement under Section 9.1(b) (without regard to
the cure period provided for therein unless such cure is promptly effected
without jeopardizing consummation of the Merger); or
(5) the holders of CSB common stock shall not have
approved this Agreement at the meeting of shareholders set forth in Section 10
hereof or the meeting of shareholders shall not have been held or shall have
been canceled prior to termination of this Agreement, in each case after any
person (other than One Valley or any of its subsidiaries or affiliates) shall
have (A) made, or disclosed an intention to make, a bona fide proposal to engage
in an Acquisition Transaction or (B) commenced a Tender Offer or filed a
registration statement under the Securities Act of 1933, as amended, with
respect to an Exchange Offer.
(c) The term "Purchase Event" shall mean either of the
following events or transactions occurring after the date hereof:
(1) the acquisition by any person, other than One
Valley or any of its subsidiaries or affiliates, alone or together with such
person's affiliates and associates, or group (as defined in Section 13(d)(3) of
the Exchange Act), of beneficial ownership of 50% or more of the outstanding
shares of CSB Financial common stock; or
(2) the occurrence of a Preliminary Purchase Event
described in (x) clause (b)(1) above, except that the percentage referred to in
clause (C) shall be 50% or more of the outstanding shares of CSB Financial
common stock.
SECTION 19
AGREEMENT TO TAKE NECESSARY AND DESIRABLE ACTIONS
CSB Financial and One Valley each agree to execute and deliver such
other documents, certificates, agreements and other writings and to take such
other actions as may be necessary or desirable in order to consummate or
implement expeditiously the transactions contemplated by this Agreement. Each
Director who has authorized this Agreement hereby further agrees to cooperate
fully with the parties, their employees, representatives and agents in
consummating the Merger, and that, based upon his or her understanding of the
transaction, as proposed, each Director will vote appropriately upon all
corporate resolutions toward that end and will take no action inconsistent with
the purposes of this Agreement or the consummation of the Merger.
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<PAGE>
IN WITNESS WHEREOF, One Valley and CSB Financial have each caused this
Agreement to be executed on its behalf by its officers thereunto duly authorized
all as of the day and year first written above.
ONE VALLEY BANCORP OF WEST VIRGINIA, INC.
By /s/ J. Holmes Morrison
Its President and Chief Executive Officer
CSB FINANCIAL CORPORATION
By /s/ Bob M. Johnson
Its President and Chief Executive Officer
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<PAGE>
APPENDIX II
January 26, 1996
Board of Directors
CSB Financial Corporation
2120 Langhorne Road
Lynchburg, VA 24505
Board of Directors:
You have requested that Friedman, Billings, Ramsey & Co., Inc., ("FBR") provide
you with its opinion as to the fairness from a financial point of view to
holders of the issued and outstanding shares of common stock, par value $0.01
per share ("Common Stock"), of CSB Financial Corporation ("CSB" or the
"Company") of the proposed, merger consideration to be received for the CSB
Common Stock pursuant to the terms of the Agreement and Plan of Merger between
CSB and One Valley Bancorp of West Virginia, Inc. ("One Valley"), dated as of
January 26, 1996 (the "Merger Agreement"), pursuant to which CSB will be merged
with and into a wholly owned federal savings bank (the "Merger"). The Agreement
provides, among other things, that each issued and outstanding share of CSB
Common Stock, other than such shares held directly or indirectly by One Valley
in a nonfiduciary capacity, shares of Common Stock as to which appraisal rights
are perfected and any such shares held as treasury stock by the Company, shall
be converted into .6774 shares of common stock of One Valley common stock, par
value $10.00 per share (the "Consideration"). Each person who would be entitled
to a fractional share interest in the common stock of One Valley as a result of
the conversion, upon surrender of CSB common stock, shall receive in lieu
thereof an amount in cash equal to such fraction multiplied by the average of
the last bid and ask price for the common stock of One Valley reported on the
Nasdaq National Market, on the business day immediately prior to the Effective
Date as defined in the Merger Agreement. The Merger Agreement will be considered
at a special meeting of the shareholders of CSB. The terms of the Merger are
more fully set forth in the Merger Agreement. Capitalized terms used herein not
otherwise defined herein shall have the meanings assigned thereto in the Merger
Agreement.
In delivering this opinion, FBR has, among other things, completed the following
tasks:
1. reviewed CSB's Annual Reports to Shareholders and CSB's Annual Reports
on Form 10-K filed with the Securities and Exchange Commission (the
"SEC") for the fiscal year ended June 30, 1995 and 1994;
2. reviewed One Valley's Annual Reports to Shareholders and One Valley's
Annual Reports on Form 10-K filed with the SEC for the fiscal years
ended December 31, 1993, and 1994;
3. reviewed CSB's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1995 filed with the SEC;
4. reviewed One Valley's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1995 filed with the SEC;
5. discussed the past and current operations, financial condition and
prospects of CSB and One Valley with the managements of CSB and One
Valley;
6. reviewed CSB's and One Valley's business plans;
7. reviewed the reported prices and trading activity for CSB's Common
Stock and One Valley's common stock and compared them with those of
certain publicly traded companies which FBR deemed to be reasonably
comparable to CSB and One Valley;
8. compared results of operations and financial condition of CSB and One
Valley with those of certain companies which FBR deemed to be
reasonably comparable to CSB and One Valley;
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9. reviewed the financial terms, to the extent publicly available, of
certain acquisition transactions which FBR deemed to be reasonably
comparable;
10. participated in discussions and negotiations among representatives of
CSB, representatives of One Valley, legal counsel for CSB and legal
counsel for One Valley;
11. performed such other analyses and reviewed and analyzed such other
information as FBR deemed appropriate.
In rendering this opinion, FBR did not assume any responsibility for
independently verifying the accuracy and completeness of all the information
concerning the Company and One Valley as furnished by the Company and One
Valley, respectively, or the publicly available information regarding other
financial institutions and economic data. FBR has further relied on the
assurances of management of CSB and One Valley that they are not aware of any
facts that would make such information provided inaccurate or misleading. FBR
has also relied upon the accuracy and completeness of the representations and
warranties of CSB and One Valley set forth in the Merger Agreement. FBR has
neither undertaken an independent appraisal of the assets or liabilities of CSB
or One Valley, or their respective subsidiaries, nor has FBR been furnished with
any such appraisals. FBR is not an expert in the evaluation of allowances for
loan losses and has not reviewed any individual credit files of CSB or One
Valley. FBR's opinion is necessarily based upon economic, market and other
conditions as they exist on and the information made available to FBR as of the
date hereof. FBR has assumed that there has been no material change in the
Company's or One Valley's assets, financial condition, results of operations,
business or prospects since the date of the last financial statements made
available to FBR by the Company and One Valley, respectively. FBR expresses no
opinion on matters of a legal, regulatory, tax or accounting nature related to
the Merger and related transactions as set forth in the Merger Agreement and
relied on advice of counsel to CSB as to all legal matters with respect to CSB,
CSB's Board of Directors, the Merger, the Merger Agreement and the Voting
Agreement.
FBR, as part of its institutional brokerage, research and investment banking
practice, is regularly engaged in the valuation of securities and the evaluation
of transactions in connection with initial and secondary offerings,
mutual-to-stock conversions of savings institutions, mergers and acquisitions of
commercial banks, savings institutions and savings and loan holding companies,
as well as business valuations for other corporate purposes for financial
institutions and real estate related companies. As specialists in the valuation
of securities of financial institutions, FBR has experience in, and knowledge
of, Virginia and the surrounding regional markets for thrift and bank securities
and institutions operating in Virginia and the surrounding regional areas.
FBR has acted as financial advisor to CSB in connection with the transaction
described herein and will receive a fee for services rendered which is
contingent upon the consummation of the Merger. In the ordinary course of FBR's
business, it may effect transactions in the securities of CSB or One Valley for
its own account and/or for the accounts of its customers and, accordingly, may
at any time hold long or short positions in such securities. From time to time,
principals and/or employees of FBR may also have positions in the securities of
CSB or One Valley.
This letter is solely for the information of the Board of Directors of CSB in
its consideration of the Merger Agreement. This letter may not be relied upon by
any other person or used for any other purpose, reproduced, disseminated, quoted
from or referred to without FBR's prior written consent. It is understood that
this letter is directed solely to the Board of Directors of CSB and is not
intended to be and does not constitute a recommendation to any shareholders of
CSB as to how such shareholders should vote with respect to the Merger
Agreement.
Based upon and subject to the foregoing, as well as any such other matters as we
consider relevant, it is FBR's opinion that as of the date hereof, the
Consideration to be paid by One Valley pursuant to the terms of the Merger
Agreement is fair, from a financial point of view, to the shareholders of CSB.
Very truly yours,
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
By: /s/ Emanuel J. Friedman
Emanuel J. Friedman
Chairman
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