FILED PURSUANT TO RULE 424(B)3
FILE NO. 333-16625
Dear Shareholders:
You are cordially invited to attend the Special Meeting of Shareholders of The
Old National Bank of Huntington ("Bank") on Tuesday, January 14, 1997, at 3:00
p.m., Eastern Time, at 999 4th Avenue, Huntington, West Virginia. This is a very
important meeting regarding your investment in the Bank.
The purpose of the meeting is to consider and vote upon the Agreement and Plan
of Reorganization, dated as of August 13, 1996, by and among the Bank, City
Holding Company ("City Holding") and ONB Acquisition Subsidiary, N.A.
("Acquisition") and the related Plan of Merger (together, the "Agreement"),
pursuant to which, among other things, the Bank will be merged with and into
Acquisition (the "Bank Merger") and become a subsidiary of City Holding. In the
Bank Merger, each share of Common Stock of the Bank, other than dissenters'
shares, will be converted into the right to receive shares of Common Stock of
City Holding, as described in the accompanying Proxy Statement/Prospectus. YOUR
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF THE
AGREEMENT AND THE BANK MERGER, WHICH THE BOARD BELIEVES IS IN THE BEST INTERESTS
OF SHAREHOLDERS OF THE BANK.
Enclosed is a Notice of the Special Meeting of Shareholders, a Proxy
Statement/Prospectus containing a discussion of the Agreement and the Bank
Merger and a proxy card. Please complete, sign and date the enclosed proxy card
and return it as soon as possible in the envelope provided.
If you decide to attend the Special Meeting, you may vote your shares in person
whether or not you have previously submitted a proxy. It is important that you
understand that the Agreement and Bank Merger must be approved by the holders of
more than two-thirds of all outstanding shares of Common Stock of the Bank, and
that the failure to vote will have the same effect as a vote against the
proposal. On behalf of the Board, thank you for your attention to this important
matter.
December 13, 1996 Very truly yours,
/s/ William M. Frazier
------------------------
William M. Frazier
President
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THE OLD NATIONAL BANK OF HUNTINGTON
999 4TH AVENUE
HUNTINGTON, WEST VIRGINIA 25701
(304) 525-7500
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JANUARY 14, 1997
TO THE SHAREHOLDERS OF THE OLD NATIONAL BANK OF HUNTINGTON:
NOTICE IS HEREBY GIVEN that a Special Meeting of shareholders has been called by
the Board of Directors of The Old National Bank of Huntington ("the Bank") and
will be held at the Bank's office located at 999 4th Avenue, Huntington, West
Virginia, on Tuesday, January 14, 1997, at 3:00 p.m. Eastern Time for the
purpose of considering and voting upon the following matters:
1. Proposed Bank Merger. To consider and vote upon the Agreement and Plan
of Reorganization dated as of August 13, 1996 and a related Plan of Merger
(together, the "Agreement") providing for the merger of the Bank with and into
ONB Acquisition Subsidiary, N.A., a wholly-owned subsidiary of City Holding
Company (the "Bank Merger"). The Agreement is attached to the accompanying
Proxy Statement/Prospectus as Annex I; and
2. Other Business. To consider and vote upon such other matters as may
properly come before the meeting.
Only those holders of shares of Common Stock of the Bank ("Bank Common Stock")
of record at the close of business on December 11, 1996 are entitled to notice
of and to vote at the meeting.
Huntington, West Virginia By Order of the Board of Directors,
December 13, 1996
/s/ Leon K. Oxley
----------------------------
Leon K. Oxley
Secretary
THE BOARD OF DIRECTORS OF THE BANK UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF
BANK COMMON STOCK VOTE TO APPROVE THE BANK MERGER PROPOSAL.
YOU ARE CORDIALLY INVITED TO ATTEND THE SPECIAL MEETING. IT IS IMPORTANT THAT
YOUR SHARES BE REPRESENTED AT THE MEETING. PLEASE SIGN, DATE AND RETURN THE
ENCLOSED PROXY CARD IN THE ACCOMPANYING POSTAGE-PAID ENVELOPE SO THAT YOUR
SHARES WILL BE REPRESENTED AT THE MEETING. SHAREHOLDERS ATTENDING THE MEETING
MAY PERSONALLY VOTE ON ALL MATTERS WHICH ARE CONSIDERED, IN WHICH EVENT THE
SIGNED PROXIES ARE REVOKED. ANY PROXY MAY BE REVOKED BY YOU IN WRITING OR IN
PERSON AT ANY TIME PRIOR TO THE EXERCISE THEREOF.
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PROXY STATEMENT
FOR
SPECIAL MEETING OF SHAREHOLDERS
OF
THE OLD NATIONAL BANK OF HUNTINGTON
TO BE HELD ON JANUARY 14, 1997
PROSPECTUS OF
CITY HOLDING COMPANY
COMMON STOCK
This Proxy Statement/Prospectus is being furnished to the holders of Common
Stock, par value $10.00 per share ("Bank Common Stock"), of The Old National
Bank of Huntington, a national banking association (the "Bank"), in connection
with the solicitation of proxies by the Board of Directors of the Bank (the
"Bank Board") for use at the Special Meeting of Bank Shareholders to be held at
3:00 p.m. Eastern Time on Tuesday, January 14, 1997, at the Bank's office
located at 999 4th Avenue, Huntington, West Virginia (the "Bank Shareholder
Meeting" or the "Special Meeting").
At the Bank Shareholder Meeting, shareholders of record of Bank Common Stock as
of the close of business on December 11, 1996, will consider and vote upon a
proposal to approve the Agreement and Plan of Reorganization, dated as of August
13, 1996, and a related Plan of Merger (together, the "Agreement") by and among
City Holding Company, a West Virginia corporation ("City Holding"), ONB
Acquisition Subsidiary, N.A., an interim national banking association (in
organization) wholly owned by City Holding ("Acquisition"), and Bank pursuant to
which, among other things, the Bank will merge into Acquisition (the "Bank
Merger"). Upon consummation of the Bank Merger, which is expected to occur on or
about January 24, 1997, each outstanding share of Bank Common Stock, other
shares as to which the holder exercises and perfects the statutory right to an
appraisal ("Dissenting Shares"), shall be converted into and represent the right
to receive a number of shares of City Holding Common Stock, determined by the
Exchange Ratio, subject to adjustment as set forth in the Agreement. The number
of Dissenting Shares as defined in Section 2.3 of the Agreement and fractional
shares settled in cash may not exceed 9.9% of the outstanding shares of Bank
Common Stock. See "The Bank Merger -- Determination of Exchange Ratio and
Exchange for City Holding Common Stock." For a description of the Agreement,
which is included herein as Annex I to this Proxy Statement/Prospectus, see "The
Bank Merger."
This Proxy Statement/Prospectus and the accompanying proxy card are first being
mailed to shareholders of the Bank on or about December 13, 1996.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF CITY HOLDING COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS,
DEPOSITS OR OTHER OBLIGATIONS OF A BANK AND ARE NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
The date of this Proxy Statement/Prospectus is December 5, 1996.
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TABLE OF CONTENTS
<TABLE>
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Page
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AVAILABLE INFORMATION........................................................................................... 1
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE............................................................... 1
SUMMARY......................................................................................................... 2
Parties to the Bank Merger................................................................................ 2
Shareholder Meeting....................................................................................... 2
Vote Required; Record Date................................................................................ 3
The Bank Merger........................................................................................... 3
The Exchange Ratio........................................................................................ 3
Recommendation of the Board of Directors of Bank; Reasons for the Bank Merger............................. 3
Effective Time of the Bank Merger......................................................................... 4
Rights of Shareholders Electing to Exercise their Rights of Appraisal..................................... 4
Conditions to Consummation................................................................................ 4
Conduct of Business Pending the Bank Merger............................................................... 4
Interests of Certain Persons in the Bank Merger........................................................... 5
Resale of City Holding Common Stock....................................................................... 5
Certain Federal Income Tax Consequences of the Bank Merger................................................ 5
Market Prices Prior to Announcement of the Bank Merger.................................................... 5
Comparative Per Share Data................................................................................ 5
SELECTED FINANCIAL DATA......................................................................................... 7
THE OLD NATIONAL BANK OF HUNTINGTON
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS............................................................................. 11
GENERAL INFORMATION............................................................................................. 21
THE BANK MERGER................................................................................................. 22
Effective Time of the Bank Merger......................................................................... 22
Determination of Exchange Ratio; Exchange of Bank Stock for City Holding Common Stock..................... 22
Business of the Bank Pending the Bank Merger.............................................................. 23
Conditions to Consummation of the Bank Merger............................................................. 23
Termination............................................................................................... 23
Accounting Treatment...................................................................................... 24
Operations After the Bank Merger.......................................................................... 24
Interests of Certain Persons in the Bank Merger........................................................... 24
Effect on the Bank Employee Benefits Plans................................................................ 24
Certain Federal Income Tax Consequences................................................................... 25
Rights of Shareholders Electing to Exercise their Right of Appraisal...................................... 26
CITY HOLDING COMPANY............................................................................................ 27
PRICE RANGE OF CITY HOLDING COMMON STOCK AND DIVIDENDS.......................................................... 28
<PAGE>
THE OLD NATIONAL BANK OF HUNTINGTON............................................................................. 28
General................................................................................................... 28
MARKET FOR AND DIVIDENDS PAID ON BANK COMMON STOCK.............................................................. 29
OWNERSHIP BY CERTAIN BENEFICIAL OWNERS OF BANK STOCK............................................................ 29
REGULATION AND SUPERVISION...................................................................................... 31
Bank Holding Companies.................................................................................... 31
Capital Requirements...................................................................................... 32
Limits on Dividends and Other Payments.................................................................... 33
FIRREA.................................................................................................... 33
FDICIA.................................................................................................... 34
Banks .................................................................................................... 34
FDIC Insurance Assessments................................................................................ 34
Governmental Policies..................................................................................... 34
Other Safety and Soundness Regulations.................................................................... 35
DESCRIPTION OF CAPITAL STOCK OF CITY HOLDING.................................................................... 35
Common Stock.............................................................................................. 36
Preferred Stock........................................................................................... 36
Preferred Stock Purchase Rights Plan; Change of Control................................................... 36
Reports to Shareholders................................................................................... 37
Transfer Agent............................................................................................ 37
COMPARATIVE RIGHTS OF SHAREHOLDERS.............................................................................. 37
Capitalization............................................................................................ 37
Voting Rights............................................................................................. 37
Directors and Classes of Directors........................................................................ 38
Anti-Takeover Provisions.................................................................................. 38
Preemptive Rights......................................................................................... 38
Assessment................................................................................................ 38
Conversion; Redemption; Sinking Fund...................................................................... 39
Liquidation Rights........................................................................................ 39
Dividends and Other Distributions......................................................................... 39
Shareholder Meetings...................................................................................... 39
Indemnification........................................................................................... 39
Director Exculpation...................................................................................... 40
Dissenters' Rights........................................................................................ 40
RESALE OF CITY HOLDING COMMON STOCK............................................................................. 40
EXPERTS......................................................................................................... 41
LEGAL OPINIONS.................................................................................................. 41
OTHER MATTERS................................................................................................... 41
ANNEX I--Agreement and Plan of Reorganization dated August 13, 1996; Plan of Merger
ANNEX II--12 U.S.C.A. ss. 215a relating to Dissenters' Rights
</TABLE>
<PAGE>
AVAILABLE INFORMATION
City Holding is subject to the reporting and informational requirements of the
Securities Exchange Act of 1934 (the "Exchange Act") and in accordance therewith
files reports, proxy statements and other information with the Securities and
Exchange Commission (the "SEC"). Reports, proxy statements and other information
filed with the SEC can be inspected and copied at the public reference
facilities maintained by the SEC at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at its Regional Offices located at Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60611-2511
or Seven World Trade Center (13th Floor), New York, New York 10048. Copies of
such material can be obtained from the Public Reference Section of the SEC at
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The SEC
also maintains a Web site that contains reports, proxy statements, information
statements, and other information regarding registrants that file
electronically, including City Holding, with the SEC at http:\\www.sec.gov. As
permitted by the Rules and Regulations of the SEC, this Proxy
Statement/Prospectus does not contain all the information set forth in the
Registration Statement on Form S-4, of which this Proxy Statement/Prospectus is
a part, and exhibits thereto (together with the amendments thereto, the
"Registration Statement"), which has been filed by City Holding with the SEC
under the Securities Act of 1933 (the "1933 Act") with respect to City Holding
Common Stock and to which reference is hereby made.
No person has been authorized to give any information or to make any
representation other than as contained herein in connection with the offer
contained in this Proxy Statement/Prospectus, and if given or made, such
information or representation must not be relied upon as having been authorized
by City Holding or the Bank. This Proxy Statement/Prospectus does not constitute
an offer to sell or a solicitation of an offer to buy any securities other than
the securities to which it relates, nor does it constitute an offer to or
solicitation of any person in any jurisdiction to whom it would be unlawful to
make such an offer or solicitation. Neither the delivery of this Proxy
Statement/Prospectus nor the distribution of any of the securities to which this
Proxy Statement/Prospectus relates shall, at any time, imply that the
information herein is correct as of any time subsequent to the date hereof.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE CERTAIN DOCUMENTS
RELATING TO CITY HOLDING THAT ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH.
CITY HOLDING DOCUMENTS ARE AVAILABLE WITHOUT CHARGE UPON REQUEST FROM ROBERT A.
HENSON, CHIEF FINANCIAL OFFICER, CITY HOLDING COMPANY, 3601 MACCORKLE AVENUE,
S.E., CHARLESTON, WEST VIRGINIA 25304, (304) 925-6611. IN ORDER TO ENSURE TIMELY
DELIVERY OF THE DOCUMENTS, ANY REQUESTS SHOULD BE MADE BY JANUARY 7, 1997.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed by City Holding are incorporated by reference in
this Proxy Statement/Prospectus: (i) City Holding's Annual Report on Form 10-K
for the year ended December 31, 1995; (ii) City Holding's Quarterly Report on
Form 10-Q for the period ended September 30, 1996; and (iii) the description of
City Holding Common Stock in City Holding's registration statement filed under
the Exchange Act with respect to City Holding Common Stock, including all
amendments and reports filed for the purpose of updating such description.
All documents filed by City Holding pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date hereof and prior to the date of
the Bank Shareholder Meeting are hereby incorporated by reference in this Proxy
Statement/Prospectus and shall be deemed a part hereof from the date of filing
of such documents. Any statement contained in any supplement hereto or in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of the Registration Statement
and this Proxy Statement/Prospectus to the extent that a statement contained
herein, in any supplement hereto or in any subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of the
Registration Statement, this Proxy Statement/Prospectus or any supplement
hereto.
Also incorporated by reference herein is the Agreement and Plan of
Reorganization among City Holding, Acquisition and the Bank, dated August 13,
1996, which is attached to this Proxy Statement/Prospectus as Annex I.
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SUMMARY
THE FOLLOWING SUMMARY IS NOT INTENDED TO BE A COMPLETE DESCRIPTION OF ALL
MATERIAL FACTS REGARDING CITY HOLDING, THE BANK AND THE MATTERS TO BE CONSIDERED
AT THE BANK SHAREHOLDER MEETING AND IS QUALIFIED IN ALL RESPECTS BY THE
INFORMATION APPEARING ELSEWHERE OR INCORPORATED BY REFERENCE IN THIS PROXY
STATEMENT/PROSPECTUS, THE ANNEXES HERETO AND THE DOCUMENTS REFERRED TO HEREIN.
SHAREHOLDERS ARE URGED TO CAREFULLY READ ALL SUCH INFORMATION.
Parties to the Bank Merger
City Holding. The main office of City Holding is located at 3601 MacCorkle
Avenue, S.E., Charleston, West Virginia 25304, telephone (304) 925-6611.
City Holding, a West Virginia corporation headquartered in Charleston, commenced
operations in November 1983. City Holding currently has nine banking
subsidiaries and three non-banking subsidiaries. All of the subsidiaries are
wholly-owned. In addition to City Holding's periodic filings with the
Commission, each of the Banking Subsidiaries is subject to certain regulatory
guidelines at the applicable federal and state level. As such, the banks are
routinely examined by these regulatory bodies and certain information is
required to be submitted to them each quarter. City Holding operates retail and
consumer-oriented community banks that emphasize personal service. At September
30, 1996, City Holding had total assets of $1,085 million, total deposits of
$826 million and total stockholders' equity of $77 million.
City Holding's principal subsidiary bank is The City National Bank of Charleston
("City National"), which was organized in 1957 and had $432 million in total
assets at September 30, 1996. Through its main office, City National serves the
Kanawha City section of Charleston and municipalities and rural areas east of
the city. City National operates full service branch banks in downtown
Charleston, eastern and western Charleston, the South Hills district of
Charleston, Marmet, St. Albans, Teays Valley, Winfield, Eleanor and Cross Lanes.
As a bank holding company, City Holding is permitted by the Bank Holding Company
Act of 1956 to own banks and engage in business which the Federal Reserve Board
has determined to be "so closely related to banking or managing or controlling
banks as to be a proper incident thereto." Examples of businesses the Federal
Reserve Board has permitted bank holding companies to engage in under this
provision are consumer finance, credit card, mortgage, commercial finance and
factoring businesses, providing investment advice and brokerage services, and
engaging in certain insurance agency activities. See "City Holding Company." ONB
Acquisition Subsidiary, N.A., is owned by City Holding and has no business
operations.
The Bank. The main office of the Bank is located at 999 4th Avenue, Huntington,
West Virginia 25701, telephone (304) 525-7500.
The Old National Bank of Huntington (the "Bank") is a national banking
association providing deposit, loan and commercial banking services in Cabell
County and Wayne County. The Bank operates three offices. At September 30, 1996,
the Bank had assets of $53.840 million, deposits of $49.114 million, and
shareholders' equity of $4.059 million. The Bank serves approximately 2,600
customers in its market area. Its lending activities focus on meeting the needs
of its market area by offering residential mortgage loans, equity lines of
credit, consumer loans, automobile loans, and business loans to local
individuals and businesses. See "The Old National Bank of Huntington."
Shareholder Meeting
The Bank Shareholders Meeting will be held on Tuesday, January 14, 1997, at 3:00
p.m. Eastern Time at the Bank's office located at 999 4th Avenue, Huntington,
West Virginia, for the purpose of considering and voting upon a proposal to
approve the Agreement and a related Plan of Merger; and such other business as
may properly come before the meeting.
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Vote Required; Record Date
Only Bank shareholders of record at the close of business on December 11, 1996
(the "Record Date") are entitled to vote at the Bank Shareholder Meeting. The
affirmative vote of the holders of more than two-thirds of the shares
outstanding on such date is required to approve the Bank Merger. As of the
Record Date, there were 75,000 shares of Bank Common Stock entitled to be voted,
held by approximately 145 shareholders of record.
Directors of the Bank and their affiliates beneficially owned, as of the Record
Date, 45,830 shares or approximately 61.11% of the 75,000 outstanding shares of
Bank Common Stock. Directors of the Bank have agreed with City Holding to
recommend approval of the Bank Merger to shareholders of the Bank and to vote
the shares of Bank Common Stock beneficially owned by them, and with respect to
which they have the power to vote, in favor of the Bank Merger. See "Ownership
by Certain Beneficial Owners of Bank Stock."
The Board of Directors of City Holding has approved the Bank Merger. Approval of
the Bank Merger by City Holding shareholders is not required by applicable law
or regulation.
The Bank Merger
Pursuant to the Agreement, at the Effective Time of the Bank Merger, as defined
herein under the heading "The Bank Merger -- Effective Time of the Bank Merger,"
the Bank will merge into Acquisition in accordance with the Plan of Merger. At
the Effective Time of the Bank Merger, each outstanding share of Bank Common
Stock (other than shares held by City Holding or Dissenting Shares) will be
converted into the right to receive 5.83 shares of City Holding Common Stock,
subject to adjustment as set forth in the Agreement, provided that the number of
shares of Bank Common Stock that become Dissenting Shares as defined in Section
2.3 of the Agreement and fractional shares settled in cash, does not exceed 9.9%
of the outstanding shares of Bank Common Stock.
The Exchange Ratio
Each share of Bank Common Stock issued and outstanding at the Effective Time of
the Bank Merger (as defined below) (other than shares held by City Holding and
other than Dissenting Shares as defined in Section 2.3 of the Agreement) shall,
and without any action by the holder thereof, be converted to a number of shares
of City Holding Common Stock equal to the quotient (rounded to the nearest one
one-hundredth) obtained by dividing (i) the product obtained by multiplying the
per share book value of Bank Common Stock as of June 30, 1996 by 2.5 by (ii)
$23.325 (the "City Holding Stock Price") (such quotient, the "Exchange Ratio").
The consideration to be received by the holders of Bank Common Stock is
sometimes referred to herein as "Merger Consideration." The Exchange Ratio will
be adjusted to reflect any consolidation, split-up, other subdivisions or
combinations of City Holding Common Stock, any dividend payable in City Holding
Common Stock, or any capital reorganization involving the reclassification of
City Holding Common Stock after August 13, 1996. The Exchange Ratio of 5.83 has
not been adjusted to reflect the City Holding 10% stock dividend effective
November 1996. See "The Bank Merger -- Determination of Exchange Ratio and
Exchange for City Holding Common Stock."
Recommendation of the Board of Directors of Bank; Reasons for the Bank Merger
The Board of Directors of Bank has determined that the Bank Merger is in the
best interests of Bank and its shareholders. The Board was influenced by a
number of factors in arriving at this determination, though it did not assign
any specific or relative weight to these factors in its consideration. Among the
factors considered were:
(i) The Board of Directors of Bank believes that the Exchange Ratio of 2.5 times
book value at June 30, 1996 provides a fair price to Bank's shareholders for
their shares of Bank Common Stock.
(ii) The Bank Merger is anticipated to be tax-free for federal income tax
purposes for the shareholders of Bank Common Stock (other than in respect to
cash paid in lieu of fractional shares or to dissenting shareholders).
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(iii) City Holding Common Stock to be received by Bank shareholders is expected
to afford greater market liquidity when compared to the current minimal trading
of Bank's Common Stock.
(iv) The Bank Merger will provide Bank's customers access to a broader range of
financial services and products.
(v) Bank's Board of Directors review of the provisions of the Agreement and
related Plan of Merger was favorable.
(vi) The Bank Merger will allow Bank to continue its community bank philosophy.
Based on these matters, and such other matters as the Board deemed relevant,
Bank's Board of Directors unanimously adopted the Agreement and Plan of Merger
as being in the best interests of Bank and its shareholders.
BANK'S BOARD OF DIRECTORS RECOMMENDS THAT BANK SHAREHOLDERS VOTE FOR APPROVAL OF
THE PROPOSAL.
Effective Time of the Bank Merger
The Bank Merger is expected to be consummated around January 24, 1997. Subject
to the terms and conditions set forth herein, including receipt of all required
regulatory approvals, the Bank Merger shall become effective at the time
Articles of Merger relating to the Bank Merger are made effective (the
"Effective Time of the Bank Merger") by the Office of the Comptroller of the
Currency (the "OCC"). The Bank and City Holding each have the right, acting
unilaterally, to terminate the Agreement should the Bank Merger not be completed
by March 31, 1997. See "The Bank Merger -- Termination."
Rights of Shareholders Electing to Exercise their Rights of Appraisal
Holders of Bank Common Stock entitled to vote on approval of the Agreement and
the related Plan of Merger have the right to dissent from the Bank Merger and,
upon consummation of the Bank Merger and the satisfaction of certain specified
procedures, to receive payment of the fair value of each such holder's shares of
Bank Common Stock in cash in accordance with 12 U.S.C.A. ss. 215a. The
procedures to be followed by a shareholder electing to perfect his or her right
of appraisal are summarized under "The Bank Merger -- Rights of Shareholders
Electing to Exercise Their Right of Appraisal" and a copy of 12 U.S.C.A. ss.
215a (b), (c) and (d) is set forth in Annex II to this Proxy
Statement/Prospectus. FAILURE TO FOLLOW SUCH PROVISIONS PRECISELY MAY RESULT IN
LOSS OF SUCH APPRAISAL RIGHTS.
Conditions to Consummation
Consummation of the Bank Merger will be accomplished by the statutory merger of
the Bank into Acquisition. The Bank Merger is contingent upon the approvals of
the Board of Governors of the Federal Reserve System (the "Federal Reserve
Board"), the OCC and the West Virginia Division of Banking (the "Division"). The
Bank Merger has been approved by the Federal Reserve Board and the Division, and
preliminarily approved by the OCC. The Bank Merger is also subject to other
usual conditions. See "The Bank Merger -- Conditions to Consummation of the Bank
Merger."
Conduct of Business Pending the Bank Merger
Pursuant to the terms of the Agreement, the Bank has agreed not to take certain
actions relating to the operation of its business pending consummation of the
Bank Merger, without extending prior notice to and reasonably cooperating with
City Holding, except as otherwise permitted by the Agreement. See "The Bank
Merger -- Business of the Bank Pending the Bank Merger."
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Interests of Certain Persons in the Bank Merger
Certain members of the Bank's management and the Bank Board have interests in
the Bank Merger in addition to their interests as shareholders of the Bank
generally. These include, among other things, the elections of William M.
Frazier and Leon K. Oxley to City Holding's Board of Directors, indemnification
and directors' and officers' liability insurance for Bank directors and
officers, payments to Messrs. Frazier and Oxley under a Covenant Not to Compete
and Consulting Agreement, and eligibility of Bank employees for certain City
Holding employee benefits. See "The Bank Merger -- Interests of Certain Persons
in the Bank Merger."
Resale of City Holding Common Stock
Shares of City Holding Common Stock received in the Bank Merger will be freely
transferable by the holders thereof, except for those shares held by those
holders who may be deemed to be "affiliates" (generally including directors,
certain executive officers and 10% or greater shareholders) of the Bank or City
Holding under applicable federal securities laws. See "Resale of City Holding
Common Stock."
Certain Federal Income Tax Consequences of the Bank Merger
The Bank Merger is intended to be a tax-free "reorganization" as defined in
Section 368(a) of the Internal Revenue Code of 1986 (the "Code"), but the
receipt of cash by a Bank shareholder as a result of the perfection of
dissenters' rights or in lieu of a fractional share of City Holding Common Stock
will be a taxable transaction. A condition to consummation of the Bank Merger is
the receipt by City Holding and the Bank of an opinion from Hunton & Williams,
counsel to City Holding, as to the qualification of the Bank Merger as a
tax-free reorganization and certain other federal income tax consequences of the
Bank Merger. See "The Bank Merger -- Certain Federal Income Tax Consequences."
Market Prices Prior to Announcement of the Bank Merger
The following is information regarding the last reported closing price per share
of City Holding Common Stock on the National Association of Securities Dealers,
Inc. National Market System (the "NASDAQ/NMS") on May 6, 1996, the date
immediately preceding delivery of an indication of interest to the Bank on May
7, 1996, which was superseded by the Agreement on August 13, 1996. See "Price
Range of Bank Common Stock and Dividend Policy" for information concerning
recent market prices of the Bank Common Stock.
Bank
Historical Equivalent
City Holding(a)(b) Bank Pro Forma(a)
------------------ ---- ------------
Common Stock $23.00 $40.00 $134.09
(a) The equivalent price for Bank Common Stock is the product of
multiplying an assumed Exchange Ratio of 5.83 shares of City Holding
Common Stock times $23.00.
(b) City Holding Common Stock is included in the NASDAQ/NMS under the
symbol "CHCO."
Comparative Per Share Data
The following table presents historical and pro forma per share data for City
Holding, and historical and equivalent pro forma per share data for the Bank.
The pro forma combined amounts give effect to an Exchange Ratio of 5.83 shares
of City Holding Common Stock for each share of Bank Common Stock (based on City
Holding stock price of $23.325). The equivalent pro forma Bank share amounts
allow comparison of historical information about one share of Bank Common Stock
to the corresponding data about what one share of Bank Common Stock will equate
to in the combined corporation and are computed by multiplying the pro forma
combined amounts by an Exchange Ratio of 5.83. The following table is based on
5
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the assumption that all issued and outstanding shares of Bank Common Stock are
converted into shares of City Holding Common Stock. The Bank Merger is reflected
under the pooling of interests method of accounting and pro forma information is
derived accordingly.
The per share data included in the following table should be read in conjunction
with the consolidated financial statements of City Holding incorporated by
reference herein and the financial statements of the Bank included herein and
the notes accompanying all such financial statements. The data presented below
are not necessarily indicative of the results of operations which would have
been obtained if the Bank Merger had been consummated in the past or which may
be obtainable in the future.
<TABLE>
<CAPTION>
As of or For
Nine Months Ended As of or For Years
September 30, Ended December 31,
1996 1995 1995 1994 1993
<S> <C>
Book Value Per Share at Period End:(4)
City Holding historical(6) $13.84 $12.68 $13.09 $11.66 $11.56
Bank historical 54.13 54.15 53.22 48.27 46.89
Pro forma combined per City Holding common share(1) 13.40 12.35 12.71 11.35 11.23
Equivalent pro forma per Bank common share 78.12 72.00 74.10 66.17 65.47
Cash Dividends Declared Per Share:(4)
City Holding historical(6) $0.46 $0.405 $0.56 $0.49 $0.46
Bank historical(5) -- -- 1.30 1.25 1.20
Pro forma combined per City Holding common share(2) 0.46 0.405 0.56 0.49 0.46
Equivalent pro forma per Bank common share 2.70 2.36 3.29 2.86 2.70
Net Income Per Share:(4)
City Holding historical(6) $1.36 $1.11 $1.55 $1.44 $1.35
Bank historical 1.63 3.97 4.07 3.95 4.88
Pro forma combined per City Holding common share(3) 1.27 1.07 1.47 1.37 1.30
Equivalent pro forma per Bank common share 7.40 6.24 8.57 7.99 7.58
</TABLE>
(1) Pro forma combined book value per City Holding common share represents
combined common shareholders' equity amounts, divided by pro forma
combined period-end common shares outstanding.
(2) Pro forma combined dividends per City Holding common share represent
historical dividends declared by City Holding.
(3) Pro forma combined net income per City Holding common share represents
combined net income available to common shareholders, divided by pro
forma combined average common shares outstanding.
(4) City Holding's fiscal year ends December 31 and the Bank's fiscal year
ends December 31. The Bank's book value per share is as of the dates
presented, and net income and dividend data reflect results for the
periods presented.
(5) The Bank pays an annual regular and special dividend.
(6) All per share data have been restated to reflect 10% stock dividends
effective November 1996, January 1995 and November 1995.
6
<PAGE>
SELECTED FINANCIAL DATA
CITY HOLDING COMPANY
AND THE OLD NATIONAL BANK OF HUNTINGTON
The following City Holding consolidated financial data and Bank financial data
is qualified in its entirety by the information included in the documents
incorporated in this Proxy Statement/Prospectus by reference. Interim financial
results, in the opinion of City Holding and Bank management, reflect all
adjustments necessary for a fair presentation of the results of operations,
including adjustments related to completed acquisitions. All such adjustments
are of a normal nature. The results of operations for an interim period are not
necessarily indicative of results that may be expected for a full year or any
other interim period.
<TABLE>
<CAPTION>
As of or for
Nine Months
Ended As of or for
September 30, Years ended December 31,
---------------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
(Dollars in 000s, except per share data)
<S> <C>
EARNINGS:
Net Interest Income
City Holding Company $35,040 $30,182 $41,545 $37,594 $32,876 $28,696 $24,551
Bank 1,322 1,028 1,393 1,271 1,280 1,231 1,053
City Holding Company and Bank ProForma 36,362 31,210 42,938 38,865 34,156 29,927 25,604
Provision for Loan Losses
City Holding Company 943 711 1,104 1,040 1,434 2,325 1,345
Bank 136 10 14 6 6 6 6
City Holding Company and Bank ProForma 1,079 721 1,118 1,046 1,440 2,331 1,351
Net Interest Income after provision for loan losses
City Holding Company 34,097 29,471 40,441 36,554 31,442 26,371 23,206
Bank 1,186 1,018 1,379 1,265 1,274 1,225 1,047
City Holding Company and Bank ProForma 35,283 30,489 41,820 37,819 32,716 27,596 24,253
Noninterest Income
City Holding Company 6,586 4,635 6,346 5,249 3,862 2,328 2,294
Bank 178 78 116 96 86 57 52
City Holding Company and Bank ProForma 6,764 4,713 6,462 5,345 3,948 2,385 2,346
Noninterest Expense
City Holding Company 29,303 24,887 33,887 30,116 24,292 18,889 17,854
Bank 1,174 752 1,099 980 939 827 769
City Holding Company and Bank ProForma 30,477 25,639 34,986 31,096 25,231 19,716 18,623
Income before income taxes
City Holding Company 11,380 9,219 12,900 11,687 11,012 9,810 7,646
Bank 190 344 396 381 421 455 330
City Holding Company and Bank ProForma 11,570 9,563 13,296 12,068 11,433 10,265 7,976
Net Income
City Holding Company 7,570 6,308 8,718 8,141 7,645 6,972 5,203
Bank 122 298 305 296 366 334 257
City Holding Company and Bank ProForma 7,692 6,606 9,023 8,437 8,011 7,306 5,460
Net income applicable to common shares
City Holding Company 1.36 1.11 1.55 1.44 1.35 1.23 0.92
Bank 1.63 3.97 4.07 3.95 4.88 4.45 3.43
City Holding Company and Bank ProForma 1.27 1.07 1.47 1.37 1.30 1.18 0.89
PER COMMON SHARE DATA:(1)
Net Income (primary):
City Holding Company 1.36 1.11 1.55 1.44 1.35 1.23 0.92
Bank 1.63 3.97 4.07 3.95 4.88 4.45 3.43
City Holding Company and Bank ProForma 1.27 1.07 1.47 1.37 1.30 1.18 0.89
Net Income (fully diluted):
City Holding Company 1.36 1.11 1.55 1.44 1.35 1.23 0.92
Bank 1.63 3.97 4.07 3.95 4.88 4.45 3.43
City Holding Company and Bank ProForma 1.27 1.07 1.47 1.37 1.30 1.18 0.89
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
As of or for
Nine Months
Ended As of or for
September 30, Years ended December 31,
----------------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
(Dollars in 000s, except per share data)
<S> <C>
Dividends declared:
City Holding Company $ 0.46 $ 0.405 $ 0.56 $ 0.49 $ 0.46 $ 0.41 $ 0.35
Bank 0.00 0.00 1.30 1.25 1.20 1.10 1.00
City Holding Company and Bank ProForma 0.46 0.405 0.56 0.49 0.46 0.41 0.35
Book value:
City Holding Company 13.84 12.68 13.09 11.66 11.56 10.73 9.85
Bank 54.13 54.15 53.22 48.27 46.89 43.22 39.54
City Holding Company and Bank ProForma 13.40 12.35 12.71 11.35 11.23 10.42 9.56
Average primary shares (thousands):
City Holding Company 5,586 5,672 5,642 5,676 5,664 5,685 5,661
Bank 75 75 75 75 75 75 75
City Holding Company and Bank ProForma 6,067 6,153 6,123 6,157 6,145 6,166 6,141
Average fully diluted shares (thousands):
City Holding Company 5,586 5,672 5,642 5,676 5,664 5,685 5,661
Bank 75 75 75 75 75 75 75
City Holding Company and Bank ProForma 6,067 6,153 6,123 6,157 6,145 6,166 6,141
SELECTED PERIOD-END BALANCES:
Total Assets
City Holding Company 1,085,215 1,025,817 1,040,969 895,785 816,225 701,862 575,559
Bank 53,840 42,672 39,213 34,547 30,489 29,805 24,710
City Holding Company and Bank ProForma 1,139,055 1,068,489 1,080,182 930,332 846,714 731,667 600,269
Loans (Net)
City Holding Company 681,888 646,374 650,195 547,809 462,424 376,206 298,378
Bank 25,741 15,963 17,765 11,632 9,414 10,283 10,287
City Holding Company and Bank ProForma 707,629 662,337 667,960 559,441 471,838 386,489 308,665
Allowance for loan losses
City Holding Company 6,836 6,494 6,566 6,477 6,209 5,730 2,761
Bank 122 114 96 105 103 104 98
City Holding Company and Bank ProForma 6,958 6,608 6,662 6,582 6,312 5,834 2,859
Nonperforming and potential problem Assets
City Holding Company 5,706 5,078 4,353 4,825 4,788 5,579 3,992
Bank 41 181 26 0 0 197 197
City Holding Company and Bank ProForma 5,747 5,259 4,379 4,825 4,788 5,776 4,189
Total Deposits
City Holding Company 825,574 794,347 797,415 746,805 709,958 605,398 493,937
Bank 49,114 38,045 34,593 29,947 26,770 26,213 21,542
City Holding Company and Bank ProForma 874,688 832,392 832,008 776,752 736,728 631,611 515,479
Long-term debt
City Holding Company 25,750 15,000 20,000 6,875 5,875 4,000 0
Bank 0 0 0 0 0 0 0
City Holding Company and Bank ProForma 25,750 15,000 20,000 6,875 5,875 4,000 0
Common shareholders' equity
City Holding Company 77,300 70,736 73,139 66,299 65,605 60,858 55,760
Bank 4,059 4,061 3,991 3,621 3,517 3,242 2,965
City Holding Company and Bank ProForma 81,359 74,797 77,130 69,920 69,122 64,100 58,725
Total shareholders' equity
City Holding Company 77,300 70,736 73,139 66,299 65,605 60,858 55,760
Bank 4,059 4,061 3,991 3,621 3,517 3,242 2,965
City Holding Company and Bank ProForma 81,359 74,797 77,130 69,920 69,122 64,100 58,725
AVERAGE BALANCES:
Total assets
City Holding Company 1,071,027 933,537 957,048 864,690 739,804 610,707 561,341
Bank 46,008 37,660 38,025 31,205 30,147 27,257 23,492
City Holding Company and Bank ProForma 1,117,035 971,197 995,073 895,895 769,951 637,964 584,833
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
As of or for
Nine Months
Ended As of or for
September 30 Years ended December 31,
---------------------- -------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
(Dollars in 000s, except per share data)
<S> <C>
Loans (net of unearned income)
City Holding Company $657,212 $595,023 $608,551 $504,795 $413,645 $322,464 $285,643
Bank 22,443 13,301 14,167 10,202 10,098 10,535 10,040
City Holding Company and Bank ProForma 679,655 608,324 622,718 514,997 423,743 332,999 295,683
Total deposits
City Holding Company 809,715 760,683 771,303 736,115 639,480 523,488 479,984
Bank 41,331 33,311 33,491 27,404 25,492 23,878 20,399
City Holding Company and Bank ProForma 851,046 793,994 804,794 763,519 664,972 547,366 500,383
Long-term debt
City Holding Company 22,650 7,095 8,204 6,252 4,387 508 373
Bank 0 0 0 0 0 0 0
City Holding Company and Bank ProForma 22,650 7,095 8,204 6,252 4,387 508 373
Common shareholders' equity
City Holding Company 75,771 69,031 69,463 67,652 63,511 58,606 54,051
Bank 4,021 3,604 3,829 3,585 3,380 3,103 2,853
City Holding Company and Bank ProForma 79,792 72,635 73,292 71,237 66,891 61,709 56,904
Total shareholders' equity
City Holding Company 75,771 69,031 69,463 67,652 63,511 58,606 54,051
Bank 4,021 3,604 3,829 3,585 3,380 3,103 2,853
City Holding Company and Bank ProForma 79,792 72,635 73,292 71,237 66,891 61,709 56,904
RATIOS:
Return on average assets(2)
City Holding Company 0.94% 0.90% 0.91% 0.94% 1.03% 1.14% 0.93%
Bank 0.35 1.05 0.80 0.95 1.21 1.23 1.09
City Holding Company and Bank ProForma 0.92 0.91 0.91 0.94 1.04 1.15 0.93
Return on average shareholders' equity(2)
City Holding Company 13.32 12.18 12.55 12.03 12.04 11.90 9.63
Bank 4.05 11.02 7.97 8.26 10.83 10.76 9.01
City Holding Company and Bank ProForma 12.85 12.13 12.31 11.84 11.98 11.84 9.60
Return on average common shareholders' equity
City Holding Company 13.32 12.18 12.55 12.03 12.04 11.90 9.63
Bank 4.05 11.02 7.97 8.26 10.83 10.76 9.01
City Holding Company and Bank ProForma 12.85 12.13 12.31 11.84 11.98 11.84 9.60
Nonperforming and potential problem
assets to loans at period end
City Holding Company 0.84 0.79 0.67 0.88 1.04 1.48 1.34
Bank 0.16 1.13 0.15 0.00 0.00 1.92 1.92
City Holding Company and Bank Proforma 0.81 0.79 0.66 0.86 1.01 1.49 1.36
Net charge-offs to average loans
City Holding Company 0.10 0.06 0.17 0.15 0.27 0.32 0.30
Bank 0.47 0.00 0.16 0.04 0.07 0.00 0.00
City Holding Company and Bank ProForma -- -- 0.17 0.15 -- -- --
Allowance for loan losses to loans at period end
City Holding Company 1.00 1.00 1.01 1.18 1.34 1.52 0.93
Bank 0.47 0.71 0.54 0.90 1.09 1.01 0.95
City Holding Company and Bank ProForma 0.98 1.00 1.00 1.18 1.34 1.51 0.93
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
As of or for
Nine Months
Ended As of or for
September 30, Years ended December 31,
---------------------- ------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
(Dollars in 000s, except per share data)
<S> <C>
Allowance for loan losses to nonperforming
and potential problem assets at period end
City Holding Company 119.80 127.88 150.84 134.24 129.68 102.71 69.16
Bank 297.56 62.98 369.23 0.00 0.00 52.79 49.75
City Holding Company and Bank ProForma 121.07 125.65 152.14 136.41 131.83 101.00 68.25
Average shareholders' equity to average
assets at period end
City Holding Company 7.07 7.39 7.26 7.82 8.58 9.60 9.63
Bank 8.74 9.57 10.07 11.49 11.21 11.38 12.14
City Holding Company and Bank ProForma 7.14 7.48 7.37 7.95 8.69 9.67 9.73
CAPITAL RATIOS AT PERIOD END:
Tier 1 risk-adjusted capital
City Holding Company 9.32 9.19 8.87 11.03 -- -- --
Bank 15.14 23.24 14.70 17.13 -- -- --
City Holding Company and Bank ProForma 9.52 9.53 -- -- -- -- --
Total risk-adjusted capital
City Holding Company 10.21 10.12 9.75 12.19 -- -- --
Bank 15.59 23.90 15.06 17.63 -- -- --
City Holding Company and Bank ProForma 10.39 10.45 -- -- -- -- --
Tier 1 leverage
City Holding Company 6.61 6.65 6.45 6.83 -- -- --
Bank 8.10 10.10 10.82 11.21 -- -- --
City Holding Company and Bank ProForma 6.68 6.79 -- -- -- -- --
</TABLE>
NOTES TO SELECTED FINANCIAL DATA -
CITY HOLDING COMPANY AND
THE OLD NATIONAL BANK OF HUNTINGTON
(1) All per share data have been restated to reflect 10% stock dividends
effective November 1996, January 1995, November 1995 and August 1992.
(2) Cash dividends are based on historical results of City Holding and do
not include cash dividends of acquired subsidiaries prior to the dates
of consummation.
City Holding Company acquired 100% of the Common Stock of The Buffalo
Bank of Eleanor (Buffalo) in December 1992 for cash. In 1993, certain other
purchase acquisitions were consummated by City Holding. These acquisitions were
accounted for using the purchase method of accounting. Accordingly, the results
of operations of the purchased subsidiaries are included in the information
presented above from the date of acquisition forward, and prior year balance
sheets have not been restated for such transactions. The acquisitions of Home
Bancorp, Inc. (1992), Hinton Financial Corporation and subsidiary (1994) and
First Merchants Bancorp, Inc. and subsidiary (1995) were accounted for as
poolings of interests and, accordingly, the financial data of these subsidiaries
are included in all periods presented above, as if the acquisitions had occurred
as of the beginning of the earliest period presented.
10
<PAGE>
THE OLD NATIONAL BANK OF HUNTINGTON
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Old National Bank of Huntington (the "Bank"), headquartered in
Huntington, West Virginia, was organized as a national banking association in
1980 and began operations in 1981. The Bank engages in the general banking
business and provides retail and consumer oriented banking services primarily in
Cabell and Wayne Counties of West Virginia as well as the adjoining counties in
southwestern West Virginia, southern Ohio and eastern Kentucky. The Bank
operates from its main and branch offices located in Huntington, West Virginia
and a branch office located in Wayne, West Virginia. The two branch offices were
established and placed into operation during the fourth quarter of 1995.
The Bank's operating results are dependent primarily on net interest
income, the difference between interest income earned on loans, investment
securities, mortgage-backed and related securities, and the Bank's cost of funds
(interest paid to its depositors and interest paid for borrowed funds).
Operating results are also affected by the provision for credit (loan) losses
and noninterest income and expense items. Noninterest expenses principally
consist of employee salaries and benefits, occupancy and equipment expenses,
federal deposit insurance premiums and other administrative expenses. Factors
that significantly impact operating results include general economic and
competitive conditions, particularly changes in market interest rates,
government policies and actions of regulatory authorities.
The following discussion provides additional analysis of the Bank's
financial condition and the results of operations as of and for the years ended
December 31, 1995 and 1994. This discussion and analysis should be read in
conjunction with the Bank's audited financial statements and the notes thereto.
EARNINGS SUMMARY AND SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C>
INCOME STATEMENT DATA:
Interest income $ 2,654,510 $ 1,968,757
Interest expense 1,261,978 697,448
--------- ---------
Net interest income 1,392,532 1,271,309
Provision for credit losses 14,000 6,000
Net securities gains 3,585 12,098
Other income 112,971 83,623
Other expenses 1,099,300 980,358
--------- ---------
Income before income taxes 395,788 380,672
Income tax expense 90,619 84,216
--------- ---------
Net income $ 305,169 $ 296,456
========= =========
</TABLE>
11
<PAGE>
EARNINGS SUMMARY AND SELECTED FINANCIAL DATA (CONTINUED)
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C>
PER COMMON SHARE DATA:
Net income per share $ 4.07 $ 3.95
Cash dividends per share 1.30 1.25
Weighted average shares outstanding 75,000 75,000
BALANCE SHEET DATA:
Average total assets $ 38,024,965 $ 31,205,082
Loans, net of unearned discount 17,764,719 11,631,616
Allowance for loan loss 96,152 104,862
Total deposits 34,593,070 29,946,921
Average stockholder's equity 3,828,644 3,585,124
KEY FINANCIAL RATIOS:
Return on average assets 0.80% 0.95%
Return on average equity 8.0% 8.3%
Average equity to average total assets 10.1% 11.5%
Book value per share $ 53 $ 48
Dividend payout ratio 31.9% 31.6%
</TABLE>
RESULTS OF OPERATIONS AND FINANCIAL CONDITION FOR THE YEARS ENDED DECEMBER 31,
1995 AND 1994
Net income for 1995 was $305,169, a 3.0% increase from $296,456 earned in
1994. The increase resulted primarily from interest income from an increased
loan volume and service charges from new deposit customer relationships
generated at the main office and attributable to the opening of two new branch
offices in 1995.
Net interest income for 1995 improved $113,223, or 8.9% over 1994 levels.
Interest income increased 34.8% and interest expense increased 80.9%. The
increases resulted from new loan and deposit customer relationships generated at
the main office and at the two branch office locations.
Other income increased by $20,835, or 21.8%, from 1994 levels, which
resulted from additional service charges derived from new demand and savings
deposit customer account relationships.
Other expenses increased by $118,942, or 12.1%, from 1994, which resulted
from additional salaries and other expenses incurred with the opening of two
additional branch office locations.
Return on average assets decreased to 0.8% in 1995 compared with 0.9% in
1994. Average assets grew 21.9% in 1995 and 17.4% in 1994.
Return on average equity in 1995 likewise showed a decline to 8.0%
compared to 8.3% in 1994.
NET INTEREST INCOME
Net interest income is the amount by which interest generated from
interest earning assets exceeds the expenses associated with funding those
assets. Net interest income for 1995 totaled $1,392,532 compared to $1,271,309
in 1994. The increase in 1995 was primarily attributable to growth in the loan
portfolio which is the Bank's highest yielding asset. Average loans outstanding
grew to $14,167,401 in 1995 from $10,201,750 in 1994. Loan to deposit ratios
increased to approximately 41.8% in 1995 from approximately 36.8% in 1994, which
was accomplished by increasing the loan portfolio at a greater pace than
deposits.
12
<PAGE>
Growth in net interest income was achieved as discussed above, despite
declines in the yield on interest-earning assets resulting from slightly greater
declines in interest yield compared to interest paid, as shown in the following
table.
Yield on interest - average earning assets 7.65% 7.04%
Interest paid - average earning assets 3.53 2.39
---- ----
Net yield on interest-earning assets 4.12% 4.65%
===== =====
INTEREST EARNING ASSETS AND INTEREST BEARING LIABILITIES
The following table sets forth certain information relating to interest
earning assets and interest bearing liabilities and reflects the average yield
earned on assets and average cost or rates paid on liabilities for the years
ended December 31, 1995 and 1994.
<TABLE>
<CAPTION>
1995 1994
-------------------------- -------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
------- -------- ------ ------- -------- ------
<S> <C>
Earning assets:
Loans (1)
Commercial $ 2,843,634 $ 245,876 8.64% $ 1,682,152 $ 132,447 7.87%
Real estate 6,580,038 570,206 8.67% 5,379,895 466,583 8.67%
Consumer 4,743,729 497,418 10.49% 3,139,703 271,954 8.66%
---------- --------- ----- ---------- --------- ----
Total loans 14,167,401 1,313,500 9.27% 10,201,750 870,984 8.54%
Securities
Taxable 13,854,965 930,896 6.71% 11,872,313 765,389 6.45%
Tax-exempt 3,085,953 233,736 7.57% 3,258,457 250,892 7.70%
---------- --------- ---- ---------- --------- ----
Total securities 16,940,918 1,164,632 6.87% 15,130,770 1,016,281 6.72%
Federal funds sold 4,610,685 255,848 5.55% 3,840,918 166,795 4.34%
---------- --------- ---- ---------- --------- ----
Total earning assets 35,719,004 2,733,980 7.65% 29,173,438 2,054,060 7.04%
Cash and due from
banks 1,572,374 1,698,623
Bank premises and
equipment 376,185 68,778
Other assets 468,335 369,224
Less: allowance
for credit losses (110,933) (104,981)
---------- ----------
Total assets $ 38,024,965 $ 31,205,082
========== ============
Interest-bearing
liabilities:
Demand and savings
deposits $ 15,049,829 450,781 3.00% $ 17,146,095 461,801 2.69%
Time deposits 13,848,539 787,369 5.69% 5,906,472 232,289 3.93%
Repurchase agreements 522,012 23,828 4.56% 95,286 3,358 3.52%
---------- -------- ---- ---------- ------- ----
Total interest-bearing
liabilities 29,420,380 1,261,978 4.29% 23,147,853 697,448 3.01%
--------- ---- ------- ----
Demand deposits 4,592,885 4,351,403
Other liabilities 182,056 120,702
Stockholders' equity 3,829,644 3,585,124
---------- ----------
Total liabilities
and stockholders'
equity $ 38,024,965 $ 31,205,082
========== ==========
Net interest income $ 1,472,002 $ 1,356,612
========= =========
Net yield on earning
assets 4.12% 4.65%
==== ====
</TABLE>
13
<PAGE>
(1) - For purposes of this table, nonaccruing loans have been included in
average balances and loan fees, which are immaterial, have been included
in interest income.
(2) - Computed on a fully federal tax-equivalent basis assuming a tax rate of
34% in all years.
ALLOWANCE FOR CREDIT LOSSES
The allowance for credit losses represents additions charged against
earnings, less credit (loan) charge-offs net of recoveries, and is the amount
available to absorb losses on loans. The provision for credit losses charged to
earnings is the amount which, in the judgment of management, is necessary to
establish the allowance at a level that is adequate to absorb known and inherent
risks in the loan portfolio.
Allowance for credit losses in 1995 was $96,152 compared to $104,862 in
1994. Net charge-offs were $22,710 in 1995 and $4,639 in 1994. Refer to the
tables below for details of the amounts and nature of charge-offs and related
recoveries. Management's determination of the provision for credit losses is
based on several factors, including evaluation of the loan portfolio, current
domestic economic conditions, loan volumes, loan growth, loan portfolio
composition, levels of nonperforming loans, trends in past due loans, and
evaluation of various problem loans for loss potential. The provision of $14,000
in 1995 represents 0.10% of average loans as compared to a $6,000 or 0.06%
provision in 1994. The increased provision for 1995 is primarily due to higher
net charge-offs and higher loan volume.
The Bank intends to continue to provide for credit losses based on its
periodic review of the loan portfolio and the general market conditions.
14
<PAGE>
SUMMARY OF LOAN LOSS EXPERIENCE
The following table summaries the daily average loan balances at
December 31, 1995 and 1994; changes in the allowance for loan losses arising
from loans charged off and recoveries on loans previously charged off, by loan
category; and additions to the allowance which have been charged to operating
expenses.
1995 1994
---------- -------
Average total loans $ 14,167,401 $ 10,201,750
========== ==========
Balance of allowance for loan
losses at beginning of year $ 104,862 $ 103,007
Loans charged off:
Commercial loans 10,000 - 0 -
Consumer loans 13,010 4,945
Total loans charged off 23,010 4,945
Recoveries of loans previously charged off:
Commercial loans - 0 - - 0 -
Consumer loans 300 800
-------- --------
Total recoveries 300 800
Net loans charged off 22,710 4,145
Additions to allowance for credit
losses charged to operating expense 14,000 6,000
-------- --------
Balance of allowance for loan losses
at end of period $ 96,152 $ 104,862
======== =========
Ratio of net charge-offs during the
year to average total loans 0.16% 0.04%
====== =======
PAST DUE AND NONPERFORMING LOANS
The following table reflects as of the years ended the aggregate
amounts of loans which are nonaccrual.
1995 1994
-------- ------
Nonaccrual loans $ 25,552 $ - 0 -
====== =====
If the nonaccrual loans had been
current throughout their terms
interest income recorded in income
would have been: $ 2,131 $ 393
Interest income recorded in income
only as received: 1,980 - 0 -
------ ------
Interest income foregone: $ 151 $ 393
======= ======
15
<PAGE>
Interest accrual is discontinued when in the opinion of management it
appears that collection of principal or interest according to the contractual
terms may be doubtful. Upon the discontinuance, all unpaid accrued interest is
reversed. Interest collections on nonaccrual loans for which the collectibility
of principal is uncertain are applied to principal. Otherwise, such collections
are credited to income when received.
NONINTEREST INCOME
The following table summarizes noninterest income for 1995 and 1994:
1995 1994
-------- ------
Service charges on deposit accounts $ 29,441 $ 21,252
Other service charges and fees 55,985 38,561
Other income 27,545 23,810
------- -------
Total noninterest income $112,971 $ 83,623
======= =======
Service charges on deposit accounts and other service charges and fees
increased $25,613 in 1995 from $59,813 in 1994, which was attributable mainly to
a new service fee structure implemented by the Bank in early 1995 and, to a
lesser extent, to new deposit customer relationships and to the opening of two
new branch offices in 1995.
NONINTEREST EXPENSE
The following table summarizes noninterest expenses for 1995 and 1994:
1995 1994
---------- -------
Salaries and employee benefits $ 468,444 $ 404,550
Occupancy expense 144,346 135,128
Equipment expense 38,076 30,002
Other expense 448,434 410,678
--------- ---------
Total noninterest expenses $ 1,099,300 $ 980,358
========== =========
Salaries and employee benefits increased $63,894 from 1994 to 1995,
which was attributable to adding additional staff for the two new branch offices
established and placed into service during 1995. Other noninterest expenses also
increased in 1995 due primarily to processing fees, advertising and promotion,
and stationary and supplies expenses, most of which was attributable to the two
additional branch offices.
FUNDING AND LIQUIDITY
The deposit base of the Bank has traditionally provided the major
source of funding. Deposits grew significantly (by 15.5%) in 1995, attributable
to the establishment of two new branch offices in addition to greater than
normal growth. Most of the deposit growth has been in the interest bearing
accounts, which results in a lesser contribution towards net interest income.
The increase of approximately 23.4% in noninterest bearing deposits from 1994 to
1995 was attributable to the establishment of the two new branch offices, and to
a lesser extent, normal seasonal fluctuations. The following tabulation reflects
the classifications of deposits for 1995 and 1994.
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<PAGE>
1995 1994
---------- -------
Noninterest bearing deposits:
Demand deposits $ 4,219,386 $ 3,419,635
Interest bearing deposits:
Demand deposits (including
NOW and money market accounts) 8,067,920 10,594,832
Savings deposits 4,755,264 6,684,184
Individual retirement accounts 2,195,818 1,785,866
Certificates of deposit $100,000 and over 4,326,751 1,587,695
Certificates of deposit under $100,000 11,027,931 5,874,709
---------- ----------
Total interest bearing deposits 30,373,684 26,527,286
---------- ----------
Total deposits $ 34,593,070 $ 29,946,921
========== ==========
FUNDING AND LIQUIDITY
Liquidity is the ability of a bank to meet the needs of its customers and its
financial commitments. The Bank ensures liquidity through pricing of earning
assets at market rates, developing a stable base of deposits and maintaining a
pool of assets which can readily be redeployed into other earning assets or used
to meet depositors' demands. Cash, federal funds sold, investment securities
available for sale and mortgage-backed and related securities available for sale
comprise 33.1% of total deposits at December 31, 1995 and 42.7% at December 31,
1994. The following table summarizes the liquidity calculations on December 31,
1995 and 1994.
1995 1994
---------- -------
Cash and due from banks $ 3,109,413 $ 2,831,500
Federal funds sold 1,340,000 2,810,000
Investment securities available for sale:
U.S. Government and agencies 6,275,475 4,946,301
State and municipal 227,730 1,437,776
---------- ----------
Total investment securities available
for sale 6,503,205 6,384,077
Mortgage-backed and related securities
available for sale:
FNMA certificates 506,421 487,462
FHLMC certificates - 0 - 176,240
SLMA certificates - 0 - 100,187
---------- ----------
Total mortgage-backed and related
securities available for sale 506,421 763,889
---------- ----------
Total liquid assets $ 11,459,039 $ 12,789,466
========== ==========
Total deposits $ 34,593,070 $ 29,946,921
========== ==========
Liquid assets as a percentage of total
deposits 33.1% 42.7%
========= =========
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IMPACT OF INFLATION AND CHANGING PRICES
The Bank's financial statements and notes thereto have been prepared in
accordance with generally accepted accounting principles (GAAP) which require
the measurement of financial position and operating results in terms of
historical dollars without considering the changes in the relative purchasing
power of money over time due to inflation. The impact of inflation is reflected
in the increased cost of the Bank's operations. Unlike most industrial
companies, nearly all the assets and liabilities of the Bank are monetary in
nature. As a result of inflation, interest rates have a greater impact on the
Bank's performance than do the effects of general levels of inflation. Interest
rates do not necessarily move in the same direction or to the same extent as the
price of goods and services.
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September 30, 1996 vs. September 30, 1995
Overview
Net income for the first three quarters of 1996 was $122,161, or $1.63
per primary share, compared with $297,915, or $3.97 per primary share for the
same period in 1995. This reflects a 58.99% decrease from the prior year. The
return on average assets were 0.35% and 1.05% for the first three quarters of
1996 and 1995, respectively. The return on average shareholders' equity for the
three periods were 4.05% at September 30, 1996 and 11.02% at September 30, 1995.
Most of the decrease in net income resulted from increased expenses for credit
losses, salaries, employee bonuses and benefits; and increased occupancy and
equipment costs associated with the two additional branch office locations
opened during the fourth quarter of 1995.
Statement of Income
Net Interest Income
Net interest income increased when comparing the first three quarters
of 1996 and 1995. Interest income saw an increase of 30.56% over the first three
quarters of 1995, while interest expense rose 32.73%. These fluctuations
resulted in a 28.62% increase in net interest income over 1995 numbers for the
first three quarters. The net interest margin increased from 2.88% at September
30, 1995 to 3.14% at September 30, 1996. Average earning assets from the first
three quarters of 1995 were $35.659 million, compared to $42.162 million for the
first three quarters of 1996, an increase of $6.503 million.
Provision for Loan Losses
Provision for loan losses for the first three quarters of 1996
increased $126,500, over the first three quarters in 1995. The provision for the
first three quarters of 1996 was $136,000, compared with $9,500 for the same
period in 1995. The increase resulted from higher net charge-offs and higher
loan volume. The allowance for loan losses is evaluated quarterly and was
considered to be adequate for this period in 1996.
Noninterest Income
Noninterest income for the first three quarters of 1996 increased
129.59%, or $100,765, over the first three quarters of 1995. The two chief
components of this fluctuation are due to increases in service and loan fee
income and a gain on the sale of other real estate owned.
Noninterest Expense
Noninterest expenses increased $422,757, or 56.24%, for the first three
quarters of 1996 in comparison to the same period in 1995. Salaries and employee
benefits expenses along with occupancy and equipment costs are the chief
components of this increase.
19
<PAGE>
September 30, 1996 vs. December 31, 1995
Balance Sheet
Investment portfolio
The total securities portfolio declined 6.11% from $15.500 million at
year end 1995 to $14.553 million at the end of the first three quarters. The
decline was chiefly due to the sale and maturity of U.S. Treasury and Government
Agencies securities classified as available for sale. The securities portfolio
classified as held to maturity at September 30, 1996 remained fairly constant
from December 31, 1995.
Loans and Credit Quality
Average gross loans, net of unearned income, increased from $14.167
million at December 31, 1995 to $22.443 million at September 30, 1996, up
58.42%. This increased volume was chiefly due to opening of two additional
branch office locations in 1995.
During 1995, the Bank's ratio of net charge-offs to average loans was
.16%, compared to .47% for the first three quarters in 1996. At December 31,
1995, the allowance for loan losses to nonperforming assets was approximately
369.23%, compared with 297.56% at September 30, 1996. This declining percentage
is due to an increase in nonperforming assets of 57.69%, or $15,000.
Deposits
Total deposits at December 31, 1995 were $34.593 million, compared to
$49.114 million at September 30, 1996. This 41.98% increase in deposits was
chiefly in the interest bearing category which saw a 48.54% increase. The
noninterest bearing category decreased by 5.26%. This overall increase in
deposits is due to the opening of two branch office locations during the fourth
quarter of 1995.
In comparison of average deposit balances, we experienced a 22.98%
increase from year end 1995 to September 30, 1996. The breakdown of the
increases/(decreases) amount deposit categories were as follows: Time Deposits,
up 47.40%, Savings accounts, up 4.98%, Money Market accounts, up 20.30%, NOW
accounts, up 6.13%, and Demand Deposits, down 12.75%. These fluctuations were
chiefly due to new accounts attributed to the two additional branch office
locations and, to a lessor extent, changes in interest rates.
Shareholders' Equity
Total shareholders' equity, excluding unrealized gains on securities,
increased from $3.928 million to $4.049 million, or 3.08% from December 31, 1995
to September 30, 1996, respectively. Dividends per share for 1995 were $1.30 per
share. No dividends have been declared during the first two quarters of 1996.
The Agreement allows the Bank to declare and pay a dividend of $1.35 per share
prior to the Effective Time of the Merger. Total capital to risk based assets
was 15.06% at December 31, 1995, compared to 15.59% at September 30, 1996.
Financial reporting in accordance with SFAS No. 115 requires an
adjustment to shareholders' equity for net unrealized gains/(losses) in the
"available-for-sale" securities portfolio. This adjustment at December 31, 1995
and September 30, 1996, was $63,530 and $9,857, respectively.
Effects of Inflation
Over the past few years, the rate of inflation has been relatively
mild. However, because interest rates and the level of loans and deposits
generally increase as the rate of inflation increases, the financial statements
reflect these effects of inflation.
20
<PAGE>
GENERAL INFORMATION
This Proxy Statement/Prospectus is furnished in connection with the solicitation
of proxies by the Board of Directors of the Bank (the "Bank Board"), to be voted
at the Bank Shareholder Meeting to be held at the Bank's office located at 999
4th Avenue, Huntington, West Virginia, on Tuesday, January 14, 1997 at 3:00 p.m.
Eastern Time and at any adjournment thereof. At the Bank Shareholder Meeting,
shareholders will consider and vote upon: (i) the Agreement and the related Plan
of Merger, pursuant to which the Bank will merge into Acquisition and (ii) such
other matters as may properly come before such Special Meeting. Only
shareholders of record of the Bank at the close of business on December 11, 1996
are entitled to notice of and to vote at the Bank Shareholder Meeting. This
Proxy Statement/Prospectus is being mailed to all such holders of record of Bank
Common Stock on or about December 13, 1996.
Holders of Bank Common Stock are entitled to one vote for each share standing in
such holder's name on the books of the Bank. The affirmative vote of the holders
of more than two-thirds of the outstanding shares entitled to vote is required
for approval of the Bank Merger.
Under rules of the National Association of Securities Dealers, Inc., the
proposal to adopt the Agreement is considered a "non-discretionary item" whereby
brokerage firms may not vote in their discretion on behalf of their clients if
such clients have not furnished voting instructions. Abstentions and such broker
"non-votes" will be considered in determining the presence of a quorum at the
Special Meeting but will not be counted as a vote cast for a proposal. Because
the proposal to adopt the Agreement is required to be approved by the holders of
two-thirds of the outstanding shares of Bank Common Stock, abstentions and
broker "non-votes" will have the same effect as a vote against this proposal.
The proxies solicited hereby, if properly signed and returned and not revoked
prior to their use, will be voted in accordance with the instructions given
thereon by the shareholders. If no instructions are so specified, the proxies
will be voted FOR the proposed Bank Merger. Any shareholder giving a proxy has
the power to revoke it at any time before it is exercised by (i) filing written
notice of revocation addressed to Leon K. Oxley, Secretary, The Old National
Bank of Huntington, 999 4th Avenue, Huntington, West Virginia 25701; (ii)
submitting a duly executed proxy bearing a later date; or (iii) appearing at the
Bank Shareholder Meeting and notifying the Secretary of his or her intention to
vote in person. Attendance at the Special Meeting will not, in and of itself,
constitute revocation of a proxy. Proxies solicited by this Proxy
Statement/Prospectus may be exercised only at the Bank Shareholder Meeting and
any adjournment of the Bank Shareholder Meeting and will not be used for any
other meeting.
The accompanying proxy is being solicited by the Bank Board. The cost of such
solicitation will be borne by the Bank. In addition to the use of the mails,
proxies may be solicited by personal interview, telephone or telegram by
directors, officers and employees of the Bank or City Holding without additional
compensation. Arrangements may also be made with brokerage houses and
custodians, nominees and fiduciaries for forwarding of solicitation material to
beneficial owners of stock held of record by such persons and obtaining proxies
from the beneficial owners of Bank Common Stock entitled to vote at the Special
Meeting, and the Bank will reimburse such persons for their reasonable expenses
incurred in doing so.
The Bank Board has no information that other matters will be brought before the
meeting. If, however, other matters are presented, the accompanying proxy will
be voted in the discretion of the proxies with respect to such matters.
As of the Record Date, directors and executive officers of the Bank and their
affiliates beneficially owned a total of 45,830 shares (representing 61.11% of
the outstanding shares of Bank Common Stock), and the directors of City Holding
owned no Bank Common Stock. The Bank directors have agreed with City Holding to
recommend that the Bank shareholders vote in favor of the Bank Merger and to
vote shares beneficially owned by such directors, and shares with respect to
which they have the power to vote, in favor of the Bank Merger. See "Ownership
of Certain Beneficial Owners of Bank Stock."
21
<PAGE>
For the reasons described below, the Bank Board has adopted the Agreement,
believes the Bank Merger is in the best interest of the Bank and its
shareholders and recommends that shareholders of the Bank vote FOR approval of
the Agreement. See "The Bank Merger" "--Reasons for the Bank Merger."
The address of City Holding is 3601 MacCorkle Avenue, S.E., Charleston, West
Virginia 25304, and its telephone number is (304) 925-6611. The address of the
Bank is 999 4th Avenue, Huntington, West Virginia 25701 and its telephone number
is (304) 525-7500.
THE BANK MERGER
The detailed terms of the Bank Merger are contained in the Agreement and Plan of
Reorganization, attached as Annex I to this Proxy Statement/Prospectus. The
following discussion describes the more important aspects of the Bank Merger and
the terms of the Agreement. This description is not complete and is qualified by
reference to the Agreement which is incorporated by reference herein.
Effective Time of the Bank Merger
Subject to the terms and conditions set forth herein, including receipt of all
required regulatory approvals, the Bank Merger shall become effective at the
time Articles of Merger relating to the Bank Merger are made effective by the
OCC (the "Effective Time of the Bank Merger"). The Effective Time of the Bank
Merger is expected to occur on or about January 31, 1997, or as soon thereafter
as is practicable. Either the Bank or City Holding may terminate the Agreement
if the Bank Merger has not been consummated by March 31, 1997.
Until the Effective Time of the Bank Merger, Bank shareholders will retain their
rights as shareholders to vote on matters submitted to them by the Bank Board.
Determination of Exchange Ratio; Exchange of Bank Stock for City Holding Common
Stock
Each share of Bank Common Stock issued and outstanding at the Effective Time of
the Bank Merger (other than shares held by City Holding or in Bank's treasury
and other than Dissenting Shares as defined in Section 2.3 of the Agreement)
shall, and without any action by the holder thereof, be converted into 5.83
shares of City Holding Common Stock (the "Exchange Ratio"). The Exchange Ratio
is equal to the quotient (rounded to the nearest one one-hundredth) obtained by
dividing (i) the product obtained by multiplying the per share book value of
Bank Common Stock at June 30, 1996 by 2.5 by (ii) $23.325 (the "City Holding
Stock Price"). All such shares of City Holding Common Stock shall be validly
issued, fully paid and nonassessable.
The Exchange Ratio at the Effective Time of the Bank Merger shall be adjusted to
reflect any consolidation, split-up, other subdivisions or combinations of City
Holding Common Stock, any dividend payable in City Holding Common Stock, or any
capital reorganization involving the reclassification of City Holding Common
Stock subsequent to the date of the Agreement.
After the Effective Time of the Bank Merger, each holder of a certificate
theretofore representing outstanding shares of Bank Common Stock, upon surrender
of such certificate to City National Bank of Charleston (which shall act as
exchange agent) accompanied by a Letter of Transmittal shall be entitled to
receive in exchange therefor a certificate or certificates representing the
number of full shares of City Holding Common Stock for which shares of Bank
Common Stock theretofore represented by the certificate or certificates so
surrendered shall have been exchanged as provided (plus cash in lieu of any
fractional share). Until so surrendered, each outstanding certificate which,
prior to the Effective Time of the Bank Merger, represented Bank Common Stock
(other than Dissenting Shares referred to in Section 2.3 of the Agreement) will
be deemed to evidence the right to receive the number of full shares of City
Holding Common Stock into which the shares of Bank Common Stock represented
thereby may be converted, and, after the Effective Time of the Bank Merger, will
be deemed for all corporate purposes of City Holding to evidence ownership of
the number of full shares of City Holding Common Stock into which the shares of
Bank Common Stock represented thereby were converted. Until such outstanding
certificates formerly
22
<PAGE>
representing Bank Common Stock are surrendered, no dividend payable to holders
of record of City Holding Common Stock for any period as of any date subsequent
to the Effective Time of the Bank Merger shall be paid to the holder of such
outstanding certificates in respect thereof. After the Effective Time of the
Bank Merger there shall be no further registry of transfer on the records of
Bank of shares of Bank Common Stock. If a certificate representing such shares
is presented to the exchange agent, it shall be canceled and exchanged for a
certificate representing shares of City Holding Common Stock as herein provided.
City Holding will also issue a certificate in exchange for shares evidenced by
lost certificate(s) provided the record owner thereof provides City Holding with
such substantiation, indemnification and security as City Holding may reasonably
require.
Upon surrender of certificates of Bank Common Stock in exchange for City Holding
Common Stock, there shall be paid to the recordholder of the certificates of
City Holding Common Stock issued in exchange thereof (i) the amount of dividends
theretofore paid with respect to such full shares of City Holding Common Stock
as of any date subsequent to the Effective Time of the Bank Merger which have
not yet been paid to a public official pursuant to abandoned property laws and
(ii) at the appropriate payment date the amount of dividends with a record date
after the Effective Time of the Bank Merger, but prior to surrender, and payment
date subsequent to surrender. No interest shall be payable with respect to such
dividends upon surrender of outstanding certificates.
Business of the Bank Pending the Bank Merger
The Bank has agreed that prior to the Effective Time of the Bank Merger, it will
operate its business substantially as presently operated and in the ordinary
course, and, consistent with such operation, will use its best efforts to
preserve intact its present business organization and relationships with persons
having business dealings with it. The Agreement contains a description of
certain specified actions Bank shall refrain from taking without prior notice to
City Holding in satisfying this undertaking.
The Bank further has agreed that, prior to the Effective Time of the Bank
Merger, it will consult and reasonably cooperate with City Holding regarding (i)
loan portfolio management, including management and work-out of nonperforming
assets, and credit review and approval procedures, (ii) securities portfolio and
funds management, including management of interest rate risk; and (iii) expense
management, all with the objective of achieving appropriate operating synergies
and appropriate accruals prior to the Effective Time of the Bank Merger.
Conditions to Consummation of the Bank Merger
Consummation of the Bank Merger is conditioned upon the approval of the holders
of more than two-thirds of the outstanding Bank Common Stock entitled to vote at
the Bank Shareholder Meeting. The Bank Merger has been approved by the Federal
Reserve Board and the Division, and preliminarily approved by the OCC. The
obligations of the Bank and City Holding to consummate the Bank Merger are
further conditioned upon the satisfaction of terms and conditions contained in
the Agreement usual for transactions of this type, including continued accuracy
of representations and warranties made by Bank and City Holding, the absence of
material adverse change in the Bank's and City Holding's businesses, the receipt
of legal and accounting opinions, and the transaction being accounted for as a
"pooling of interests". See Article V of the Agreement (Annex I).
Termination
The Agreement will be terminated, and the Bank Merger abandoned, if shareholders
of the Bank do not approve the Bank Merger. Notwithstanding such approval by
such shareholders, the Agreement also may be terminated at any time prior to the
Effective Time of the Bank Merger by mutual consent, upon breach of the
Agreement, if the Bank Merger is not effective by March 31, 1997, and upon the
occurrence of certain other events specified in the Agreement. See Article VII
of the Agreement (Annex I).
23
<PAGE>
Accounting Treatment
City Holding and Bank have agreed to use their best efforts to cause the Bank
Merger to be accounted for as a "pooling of interests" and this accounting
treatment is a condition to City Holding's obligation to complete the Bank
Merger. It is City Holding's intention not to restate financial statements and
other financial information for periods prior to the Bank Merger to include the
assets and liabilities and results of operations of Bank because the transaction
is not expected to be material to City Holding.
Operations After the Bank Merger
After consummation of the Bank Merger, City Holding will continue generally to
conduct the business presently conducted by the Bank.
Interests of Certain Persons in the Bank Merger
Certain members of the Bank and the Bank's management may be deemed to have
interests in the Bank Merger in addition to their interests as shareholders of
the Bank generally. In each case, the Bank Board or the Bank was aware of their
potential interests, and considered them, among other matters, in approving the
Agreement and the transactions contemplated thereby.
Indemnification; Liability Insurance. After the Effective Time of the Bank
Merger, City Holding has agreed to provide indemnification to the directors and
officers of Bank and director's and officer's liability insurance following the
Closing Date to the same extent as it provides indemnification to directors and
officers of City Holding and its subsidiaries.
City Holding Board of Directors. City Holding has agreed to elect William M.
Frazier, Chairman of the Board, President and a director of the Bank, and Leon
K. Oxley, Secretary and a director of the Bank, as members of City Holding's
Board of Directors. Messrs. Frazier and Oxley's eligibility for and election at
City Holding's next following Annual Meeting of Shareholders will be governed by
City Holding's Bylaws. Additionally, Messrs. Frazier and Oxley have entered into
Covenant Not to Compete and Consulting Agreements with City Holding. Pursuant to
the terms of these agreements, each will be paid $50,000 per year for seven
years for consulting services and in consideration of their agreement not to
provide banking services (other than legal services) to banking institutions
(except City Holding) within a 50 miles radius of Huntington, West Virginia.
Employee Benefits. Following the Bank Merger, employees who continue to be
employees of Acquisition will be eligible for City Holding's benefit plans based
on their length of service, compensation, job classification and position with
the Bank. City Holding will recognize all such employees' service with the Bank
for eligibility to participate, for early retirement and for vesting under City
Holding's benefit plans.
Other than as set forth above, no director or executive officer of the Bank or
City Holding has any direct or indirect material interest in the Bank Merger,
except in the case of directors and executive officers of the Bank and the Bank
insofar as ownership of Bank Common Stock might be deemed such an interest.
Effect on the Bank Employee Benefits Plans
All employees of Bank immediately prior to the Effective Time of the Bank Merger
("Transferred Employees") will be covered by City Holding's employee benefit
plans as to which they are eligible based on their length of service,
compensation, job classification, and position with Bank. City Holding's
benefits plans will recognize for purposes of eligibility to participate and for
early retirement and for vesting, all Transferred Employees' service with Bank,
subject to applicable break in service rules. Bank's employee benefit plans are
expected to be merged into City Holding's plans.
24
<PAGE>
Except as described in Schedule V of the Agreement, as of the Effective Time of
the Bank Merger employees of Bank who become employees of Acquisition as the
Surviving Bank will be entitled to immediate coverage under City Holding
Employee Plans without any waiting period.
The effect on the Bank employees' benefits plans remains subject to certain
variables, and City Holding retains the option to maintain separate plans, if
necessary.
Certain Federal Income Tax Consequences
City Holding and the Bank have received an opinion of Hunton & Williams, counsel
to City Holding, to the effect that for federal income tax purposes the Bank
Merger will be a reorganization under Section 368(a) of the Code, and,
consequently, (i) none of City Holding, Acquisition or the Bank will recognize
any taxable gain or loss upon consummation of the Bank Merger (but income may be
recognized as a result of (a) the termination of the bad-debt reserve maintained
by the Bank for federal income tax purposes and (b) other possible changes in
tax accounting methods), and (ii) the Bank Merger will result in the tax
consequences summarized below for the Bank shareholders who receive City Holding
Common Stock in exchange for Bank Common Stock pursuant to the Bank Merger.
Receipt of substantially the same opinion of Hunton & Williams as of the
Effective Date is a condition to consummation of the Bank Merger. The opinion of
Hunton & Williams is based on, and the opinion to be given as of the Effective
Date will be based on, certain customary assumptions and representations
regarding, among other things, the lack of previous dealings between the Bank
and City Holding, the existing and future ownership of Bank Common Stock and
City Holding Common Stock, and the future business plans for City Holding.
The following summary does not discuss all potentially relevant federal income
tax matters, consequences to any shareholders subject to special tax treatment
(for example, tax-exempt organizations and foreign persons), or consequences to
shareholders who acquired their Bank Common Stock through the exercise of
employee stock options or otherwise as compensation.
Exchange of Bank Common Stock for City Holding Common Stock
A holder of shares of Bank Common Stock who receives solely City Holding Common
Stock in exchange for all his or her shares of Bank Common Stock will not
recognize any gain or loss on the exchange. If a shareholder receives City
Holding Common Stock and cash in lieu of a fractional share of City Holding
Common Stock, the shareholder will recognize taxable gain or loss solely with
respect to such fractional share as if the fractional share had been received
and then redeemed for the cash. A shareholder who exchanges his or her shares of
Bank Common Stock for City Holding Common Stock will have an aggregate tax basis
in the shares of City Holding Common Stock (including any fractional share
interest) received in the Bank Merger equal to his or her aggregate tax basis in
the shares of Bank Common Stock exchanged therefor. A shareholder's holding
period for shares of City Holding Common Stock (including any fractional share
interest) received in the Bank Merger will include his or her holding period for
the shares of Bank Common Stock exchanged therefor if they are held as a capital
asset at the Effective Time of the Bank Merger.
Shareholders Electing to Exercise Their Right of Appraisal
The receipt of cash for shares of Bank Common Stock pursuant to the exercise of
the right to an appraisal will be a taxable transaction. Any shareholder
considering the exercise of such right should consult his or her tax advisor
about the tax consequences of receiving cash for his or her shares.
THE PRECEDING DISCUSSION SUMMARIZES FOR GENERAL INFORMATION THE MATERIAL FEDERAL
INCOME TAX CONSEQUENCES OF THE BANK MERGER TO THE BANK SHAREHOLDERS. THE TAX
CONSEQUENCES TO ANY PARTICULAR SHAREHOLDER MAY DEPEND ON THE SHAREHOLDER'S
CIRCUMSTANCES. THE BANK SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS
WITH REGARD TO FEDERAL, STATE, AND LOCAL TAX CONSEQUENCES.
25
<PAGE>
Rights of Shareholders Electing to Exercise their Right of Appraisal
Holders of Bank Common Stock entitled to vote on the approval of the Agreement
and the related Plan of Merger will be entitled to have the fair value of each
such holder's shares of Bank Common Stock immediately prior to consummation of
the Bank Merger paid to such holder in cash, together with interest, if any, by
complying with the provisions of 12 U.S.C.A. ss. 215a. Section 215a gives any
shareholder of a national bank the right to dissent from the merger of such bank
into another national bank if he votes against such merger or has given notice
in writing to the national bank prior to the meeting of shareholders at which
the merger is considered that he dissents from the plan of merger. Failure to
vote against the merger or to give written notice of dissent constitutes waiver
of dissenter's rights. The shareholder is entitled to receive, in cash, the
value of the shares held by him when the merger is consummated upon written
request to the resulting national bank at any time before 30 days after
consummation of the merger, such notice to be accompanied by his or her stock
certificates. The value of the dissenting shares is to be determined as of the
date on which the shareholders' meeting is held by a committee of three persons,
one selected by unanimous vote of dissenting shareholders, one by the directors
of the resulting national bank, and the third by the two so chosen. The
valuation agreed upon by any two of the three appraisers shall govern, but if
the value so fixed is not satisfactory to any dissenting shareholder, he may
within five days after being notified of such appraised value appeal to the
Comptroller of the Currency, who shall cause a reappraisal to be made, which
will be final and binding. If for any reason, within 90 days of the consummation
of the merger, one or more appraisers has not been selected, or the appraisers
fail to determine the value of the shares, the Comptroller, upon written request
of any interested party, shall cause an appraisal to be made which shall be
final and binding. The Comptroller's expenses in making any reappraisal or
appraisal, as the case may be, are to be paid by the resulting national bank.
THE FOREGOING IS ONLY A SUMMARY OF THE RIGHTS OF A DISSENTING HOLDER OF BANK
COMMON STOCK. ANY HOLDER OF BANK COMMON STOCK WHO INTENDS TO DISSENT FROM THE
BANK MERGER SHOULD CAREFULLY REVIEW THE TEXT OF SUBSECTIONS (B), (C) AND (D) OF
12 U.S.C.A. SS. 215A SET FORTH IN ANNEX II TO THIS PROXY STATEMENT/PROSPECTUS
AND SHOULD ALSO CONSULT WITH SUCH HOLDER'S LAWYER. THE FAILURE OF A HOLDER OF
BANK COMMON STOCK TO FOLLOW PRECISELY THE PROCEDURES SUMMARIZED ABOVE, AND SET
FORTH IN ANNEX II, MAY RESULT IN LOSS OF DISSENTERS' RIGHTS. NO FURTHER NOTICE
OF THE EVENTS GIVING RISE TO DISSENTER'S RIGHTS OR ANY STEPS ASSOCIATED
THEREWITH WILL BE FURNISHED TO HOLDERS OF BANK COMMON STOCK, EXCEPT AS INDICATED
ABOVE OR OTHERWISE REQUIRED BY LAW.
In general, any dissenting shareholder who perfects such holder's right to be
paid the fair value of such holder's Bank Common Stock in cash will recognize
taxable gain or loss for federal income tax purposes upon receipt of such cash.
See "-- Certain Federal Income Tax Consequences."
THE BANK BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR THE BANK MERGER.
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CITY HOLDING COMPANY
City Holding Company ("City Holding"), a West Virginia corporation headquartered
in Charleston, commenced operations in November 1983. City Holding currently has
nine banking subsidiaries, and three non-banking subsidiaries. All of the
subsidiaries are wholly-owned. At December 31, 1995, City Holding had total
assets of $1 billion, total deposits of $797 million and total stockholders'
equity of $73 million. The banking subsidiaries include The City National Bank
of Charleston (City National, principal subsidiary bank), The Peoples Bank of
Point Pleasant, First State Bank & Trust, The Bank of Ripley, Home National Bank
of Sutton (Home National), Blue Ridge Bank, Peoples State Bank, The First
National Bank of Hinton (Hinton) and Merchants National Bank (Merchants), which
currently operate 36 banking offices in the state of West Virginia. Certain
assets and liabilities of The Buffalo Bank of Eleanor (now Peoples State Bank)
were purchased by City National in 1995. This transaction had no impact on the
consolidated results of City Holding. In addition to City Holding's periodic
filings with the SEC, each of its subsidiary banks are subject to certain
regulatory guidelines at the applicable federal and state level. As such, the
banks are routinely examined by these regulatory bodies and certain information
is required to be submitted to them each quarter. City Holding operates retail
and consumer-oriented community banks that emphasize personal service.
During 1993, City Holding formed two non-banking subsidiaries. City Mortgage
Corporation was approved by the Federal Reserve Bank of Richmond to operate as a
full service mortgage banking company in December 1993. Headquartered in a
suburb of Pittsburgh, Pennsylvania, this company originates, services and sells
long-term fixed-rate mortgage loans. City Financial Corporation was approved by
the Federal Reserve Bank of Richmond in November 1993 and by the National
Association of Securities Dealers in February 1994, to serve as a full service
securities brokerage and investment advisory company. City Financial Corporation
is headquartered in Charleston, West Virginia with its office located in City
National's main location. Both of these companies were formed under a strategy
to generate fee income in order to lessen City Holding's reliance on net
interest margin and to enable City Holding to offer a full array of financial
services to its customers. Hinton Financial Corporation, City Holding's third
non-banking subsidiary, owns all of the capital stock of Hinton and does not
conduct any other business activities.
City Holding continually seeks strategic acquisition opportunities for small to
medium-sized banks. City Holding's latest acquisitions include Hinton Financial
Corporation and subsidiary, acquired in late 1994, followed by First Merchants
Bancorp, Inc. and subsidiary in mid 1995. City Holding's acquisition policy has
permitted subsidiary banks to operate as separate entities with their historical
names and boards of directors. City Holding believes that this policy maintains
community loyalty to the subsidiary banks and improves operating performance
while providing the services and efficiencies of a larger holding company.
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PRICE RANGE OF CITY HOLDING COMMON STOCK AND DIVIDENDS
City Holding Common Stock is included on The Nasdaq National Market under the
symbol CHCO. The following table sets forth the cash dividends paid per share
and information regarding the market prices per share of City Holding's Common
Stock for the periods indicated. The price ranges are based on transactions as
reported on The Nasdaq National Market. At September 30, 1996, there were 2,027
stockholders of record.
Cash Market Price Range
Dividends ------------------------
Per Share Low High
--------- --- ----
1996
- ----
Third Quarter $.155 $19.77 $22.95
Second Quarter $.155 $20.00 $23.41
First Quarter $.155 $20.91 $24.09
1995
- ----
Fourth Quarter $.155 $20.45 $22.73
Third Quarter .14 20.66 23.14
Second Quarter .13 21.49 23.96
First Quarter .13 21.49 24.79
1994
- ----
Fourth Quarter $.13 $22.32 $26.30
See the City Holding Audited Consolidated Financial Statements for a discussion
of restrictions on subsidiary dividends. All per share data have been restated
to reflect 10% stock dividends effective in November 1996, January 1995 and
November 1995. Cash dividends represent amounts declared by City Holding and do
not include cash dividends of acquired subsidiaries prior to the dates of
acquisition.
THE OLD NATIONAL BANK OF HUNTINGTON
General
The Old National Bank of Huntington is a national banking association providing
deposit, loan and commercial banking services in Cabell County and Wayne County.
The Bank operates three offices. At September 30, 1996, the Bank had assets of
$53.840 million, deposits of $49.114 million, and shareholders equity of $4.059
million. The Bank serves approximately 2,600 customers in its market area. Its
lending activities focus on meeting the needs of its market area by offering
residential mortgage loans, equity lines of credit, consumer loans, automobile
loans, and business loans to local individuals and businesses.
The Bank reinvests deposits raised in its market area with loans that meet the
residential mortgage, personal and business financial needs of the community.
The Bank has achieved a "satisfactory" rating from the OCC for its community
reinvestment activities.
The Bank is subject to examination and comprehensive regulations by the OCC and
to regulations of the Federal Reserve Board relating to reserves required to be
maintained against deposits and certain other matters.
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MARKET FOR AND DIVIDENDS PAID ON BANK COMMON STOCK
There is no established public market for Bank Common Stock. Bank's management
is aware of transactions in Bank Common Stock which occurred during 1995 and
thus far in 1996 at $40.00 per share. In 1994 and 1995, Bank paid annual cash
dividends aggregating $1.25 and $1.30. Bank is permitted by the Agreement to
declare and pay a cash dividend aggregating $1.35 per share in 1996.
OWNERSHIP BY CERTAIN BENEFICIAL OWNERS OF BANK STOCK
The following table sets forth certain information regarding the beneficial
ownership of Bank Common Stock as of September 30, 1996 by each of the Bank's
directors and by all directors and executive officers of the Bank as a group.
Shares Beneficially Owned
As of September 30, 1996 (1)
Number of Shares
Name Beneficially Owned Percent
- ---- ------------------ -------
W. B. Andrews 4,125 (3) 5.50%
Lucian R. Carter 4,261 (4) 5.68%
William M. Frazier 13,065 (5) 17.42%
W. Michael Frazier 4,185 (6) 5.58%
Frank L. Gaddy 2,350 (9) 3.13%
W. Kenneth Grant 1,250 1.67%
John J. Klim, Jr. 8,240 (7) 10.99%
Ezra A. Midkiff, Jr. 950 (10) *
Leon K. Oxley 10,935 (8) 14.58%
Robert M. Davidson 2,699 3.60%
All directors and executive
officers as a group (10 persons)
represent 61.11 percent of stock (2) 45,830 61.11%
- -------------------
* Represents less than 1%.
(1) For the purposes of this table, pursuant to rules promulgated under
the Exchange Act, an individual is considered to "beneficially own"
any shares of Bank Common Stock if he or she has or shares, (a) voting
power, which includes the power to vote or direct the voting of the
shares; or (b) investment power, which includes the power to dispose
or direct the disposition of the shares. A person is deemed to have
beneficial ownership of any shares of Bank Common Stock which may be
acquired within 60 days pursuant to the exercise of stock options.
Unless otherwise indicated, a director has sole voting power and sole
investment power with respect to the indicated shares. Shares of
Common Stock which may be acquired within 60 days of the Record Date
are deemed to be outstanding shares of Bank Common Stock beneficially
owned by such person(s) but are not deemed to be outstanding for the
purposes of computing the percentage of Bank Common Stock owned by any
other person or group.
(2) Does not include 1,750 shares owned by Francisco Valentine and 1,000
shares owned by Clenton Meadows, Sr. Both of these individuals are
members of the Bank's advisory board and do not have voting rights.
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(3) Includes 500 shares owned by the D. E. Wagoner Trust, which Mr.
Andrews is co-trustee with Mr. William Frazier.
(4) Includes 268 shares owned by Mr. Carter's wife and 250 shares owned by
Carter & Company. Mr. Carter is the sole owner of Carter & Company.
Also includes 2,333 shares owned by the Carter & Company Employee
Profit Sharing Trust administered by Mr. Carter as sole trustee.
(5) Includes 700 shares owned by Mr. Frazier's wife, 500 shares owned by
the D. E. Wagoner Trust, which Mr. Frazier is co-trustee with Mr.
Andrews, 1,000 shares owned by the Leretto Smith Trust, which Mr.
Frazier is co-trustee, and 5,750 shares owned by the Frazier & Oxley,
L.C. Employee Profit Sharing Trust, which Mr. Frazier is co-trustee
with Mr. Oxley.
(6) Includes 600 shares owned by Mr. Frazier's wife.
(7) Includes 7,575 shares owned by TSB & Company, Trustee of an Individual
Retirement Account that Mr. Klim is the owner and beneficiary.
(8) Includes 1,000 shares owned by the Oxley Grandchildren Trust, which
Mr. Oxley is the sole trustee, and 5,750 shares owned by the Frazier &
Oxley, L.C. Employee Profit Sharing Trust, which Mr. Oxley is
co-trustee with Mr. William Frazier.
(9) Includes 1,000 shares owned by Mr. Gaddy's wife.
(10) Includes 450 shares owned by Wilson Welding Company, which is
controlled by Mr. Midkiff.
The following table sets forth information as to Bank Common Stock beneficially
owned, as of September 30, 1996, by the only persons or entities known to the
Bank to be the beneficial owners of more than 5% of Bank Common Stock.
Amount and Nature of
Name and Address of Beneficial Ownership as of Percent of
Beneficial Owner September 30, 1996 (1) Outstanding Shares
---------------------- ------------------
Lucian R. Carter 4,261 (2) 5.68%
W. Michael Frazier 4,185 (3) 5.58%
W.B. Andrews 4,125 (4) 5.50%
John J. Klim, Jr. 8,240 (5) 10.99%
Leon K. Oxley 10,935 (6) 14.58%
William M. Frazier 13,065 (7) 17.42%
All directors and executive
officers as a group (10 persons) 45,830 (8)(9) 61.11%
(1) Except as indicated otherwise, based on information furnished by the
respective individuals or entity. Under applicable regulations, shares
are deemed to be beneficially owned by a person if he or she directly
or indirectly has or shares the power to vote or dispose of the shares,
whether or not he or she has any economic interest in the shares.
Unless otherwise indicated, the named beneficial owner has sole voting
and dispositive power with respect to the shares.
(2) Includes 268 shares owned by Mr. Carter's wife and 250 shares owned by
Carter & Company. Mr. Carter is the sole owner of Carter & Company.
Also includes 2,333 shares owned by the Carter & Company Employee
Profit Sharing Trust administered by Mr. Carter as sole trustee.
(3) Includes 600 shares owned by Mr. Frazier's wife.
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(4) Includes 500 shares owned by the D.E. Wagoner Trust, which Mr. Andrews
is co-trustee with Mr. William Frazier.
(5) Includes 7,575 shares owned by TSB & Company, Trustee of an Individual
Retirement Account that Mr. Klim is the owner and beneficiary.
(6) Includes 1,000 shares owned by the Oxley Grandchildren Trust, which Mr.
Oxley is the sole trustee, and 5,750 shares owned by the Frazier &
Oxley, L.C. Employee Profit Sharing Trust, which Mr. Oxley is co-
trustee with Mr. William Frazier.
(7) Includes 700 shares owned by Mr. Frazier's wife, 500 shares owned by
the D.E. Wagoner Trust, which Mr. Frazier is co-trustee with Mr.
Andrews, 1,000 shares owned by the Leretto Smith Trust, which Mr.
Frazier is co-trustee, and 5,750 shares owned by the Frazier & Oxley,
L.C. Employee Profit Sharing Trust, which Mr. Frazier is co-trustee
with Mr. Oxley.
(8) Does not include 1,750 shares owned by Francisco Valentine and 1,000
shares owned by Clenton Meadows, Sr. Both of these individuals are
members of the Bank's advisory board and do not have voting rights.
(9) The 500 shares owned by the D.E. Wagoner Trust and 5,750 shares owned
by the Frazier & Oxley, L.C. Employee Profit Sharing Trust are counted
once.
REGULATION AND SUPERVISION
Bank holding companies and banks operate in a highly regulated environment and
are regularly examined by federal and state regulators. The following
description briefly discusses certain provisions of federal and state laws and
certain regulations and the potential impact of such provisions on City Holding
and the Banks. These federal and state laws and regulations have been enacted
for the protection of depositors in national and state banks and not for the
protection of shareholders of bank holding companies such as City Holding.
References to "Banks" means the current subsidiary banks of City Holding.
Bank Holding Companies
As a bank holding company registered under the Bank Holding Company Act of 1956,
as amended (the "BHCA"), City Holding is subject to regulation by the Federal
Reserve Board. The Federal Reserve Board has jurisdiction under the BHCA to
approve any bank or nonbank acquisition, merger or consolidation proposed by a
bank holding company. The BHCA generally limits the activities of a bank holding
company and its subsidiaries to that of banking, managing or controlling banks,
or any other activity which is so closely related to banking or to managing or
controlling banks as to be a proper incident thereto.
Federal law permits bank holding companies from any state to acquire banks and
bank holding companies located in any other state. Effective June 1, 1997, the
law will allow interstate bank mergers, subject to earlier "opt-in" or "opt-out"
action by individual states. The law currently allows interstate branch
acquisitions and de novo branching if permitted by the host state. West Virginia
has adopted early "opt-in" legislation that allows interstate bank mergers.
These laws also permit interstate branch acquisitions and de novo branching in
West Virginia by out-of-state banks if reciprocal treatment is accorded West
Virginia banks in the state of the acquiror.
There are a number of obligations and restrictions imposed on bank holding
companies and their depository institution subsidiaries by federal law and
regulatory policy that are designed to reduce potential loss exposure to the
depositors of such depository institutions and to the FDIC insurance fund in the
event the depository institution becomes in danger of default or in default. For
example, under a policy of the Federal Reserve Board with respect to bank
holding company operations, a bank holding company is required to serve as a
source of financial strength to its subsidiary depository institutions and to
commit resources to support such institutions in circumstances where
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it might not do so otherwise. In addition, the "cross-guarantee" provisions of
federal law require insured depository institutions under common control to
reimburse the FDIC for any loss suffered or reasonably anticipated by either the
Savings Association Insurance Fund ("SAIF") or the Bank Insurance Fund ("BIF")
as a result of the default of a commonly controlled insured depository
institution or for any assistance provided by the FDIC to a commonly controlled
insured depository institution in danger of default. The FDIC may decline to
enforce the cross- guarantee provisions if it determines that a waiver is in the
best interest of the SAIF or the BIF or both. The FDIC's claim for reimbursement
is superior to claims of shareholders of the insured depository institution or
its holding company but is subordinate to claims of depositors, secured
creditors and holders of subordinated debt (other than affiliates) of the
commonly controlled insured depository institution.
The Federal Deposit Insurance Act ("FDIA") also provides that amounts received
from the liquidation or other resolution of any insured depository institution
by any receiver must be distributed (after payment of secured claims) to pay the
deposit liabilities of the institution prior to payment of any other general or
unsecured senior liability, subordinated liability, general creditor or
shareholder. This provision would give depositors a preference over general and
subordinated creditors and shareholders in the event a receiver is appointed to
distribute the assets of any of the Banks.
The BHCA also prohibits a bank holding company, with certain exceptions, from
acquiring more than 5% of the voting shares of any company that is not a bank
and from engaging in any business other than banking or managing or controlling
banks. Under the BHCA, the Federal Reserve Board is authorized to approve the
ownership of shares by a bank holding company in any company the activities of
which the Federal Reserve Board has determined to be so closely related to
banking or to managing or controlling banks as to be a proper incident thereto.
The Federal Reserve Board has by regulation determined that certain activities
are closely related to banking within the meaning of the BHCA. These activities
include: operating a mortgage company, finance company, credit card company or
factoring company; performing certain data processing operations; providing
investment and financial advice; and acting as an insurance agent for certain
types of credit-related insurance.
City Holding is registered under the bank holding company laws of West Virginia.
Accordingly, City Holding and the Banks are subject to further regulation and
supervision by the Division.
Capital Requirements
The Federal Reserve Board and the FDIC have issued substantially similar
risk-based and leverage capital guidelines applicable to United States banking
organizations. In addition, those regulatory agencies may from time to time
require that a banking organization maintain capital above the minimum levels
because of its financial condition or actual or anticipated growth. Under the
risk-based capital requirements of these federal bank regulatory agencies, City
Holding and the Banks are required to maintain a minimum ratio of total capital
to risk- weighted assets of at least 8%. At least half of the total capital is
required to be "Tier 1 capital", which consists principally of common and
certain qualifying preferred shareholders' equity, less certain intangibles and
other adjustments. The remainder "Tier 2 capital" consists of a limited amount
of subordinated and other qualifying debt (including certain hybrid capital
instruments) and a limited amount of the general loan loss allowance. The Tier 1
and total capital to riskweighted asset ratios of City Holding as of September
30, 1996 were 9.32% and 10.21% respectively, exceeding the minimums required.
In addition, each of the federal regulatory agencies has established a minimum
leverage capital ratio (Tier 1 capital to average tangible assets). These
guidelines provide for a minimum ratio of 3% for banks and bank holding
companies that meet certain specified criteria, including that they have the
highest regulatory examination rating and are not contemplating significant
growth or expansion. All other institutions are expected to maintain a leverage
ratio of at least 100 to 200 basis points above the minimum. The Tier 1 capital
leverage ratio of City Holding as of September 30, 1996, was 6.61%. The
guidelines also provide that banking organizations experiencing internal growth
or making acquisitions will be expected to maintain strong capital positions
substantially above the minimum supervisory levels, without significant reliance
on intangible assets.
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The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
requires each federal banking agency to revise its risk-based capital standards
to ensure that those standards take adequate account of interest rate risk,
concentration of credit risk and the risks of nontraditional activities, as well
as reflect the actual performance and expected risk of loss on multi-family
mortgages. Rules have been promulgated with respect to concentration of credit
risk and the risks of non-traditional activities, and also as to the risk of
loss on multi-family mortgages. A proposed rule with respect to interest rate
risk is still under consideration. The proposal would allow institutions to use
internal risk models to measure interest rate risk (if the models are acceptable
to examiners) and would require additional capital of institutions identified as
having excess interest rate risk. City Holding does not expect any of these
rules, either individually or in the aggregate, to have a material impact on its
capital requirements.
Limits on Dividends and Other Payments
City Holding is a legal entity separate and distinct from its Banks. Most of
City Holding's revenues result from dividends paid to City Holding by the Banks.
The right of City Holding and shareholders of City Holding, to participate in
any distribution of the assets or earnings of any Banks through the payment of
such dividends or otherwise is necessarily subject to the prior claims of
creditors of such Banks, except to the extent that claims of City Holding in its
capacity as a creditor may be recognized. Moreover, there are various legal
limitations applicable to the payment of dividends to City Holding as well as
the payment of dividends by City Holding to its shareholders. Under federal law,
the Banks may not, subject to certain limited exceptions, make loans or
extensions of credit to, or investments in the securities of, or take securities
of City Holding as collateral for loans to any borrower. The Banks are also
subject to collateral security requirements for any loans or extensions of
credit permitted by such exceptions.
The Banks are subject to various statutory restrictions on their ability to pay
dividends to City Holding. Under applicable regulations, at September 30, 1996,
the Banks could have paid aggregate dividends to City Holding of $16.5 million
without obtaining prior approval of their respective regulators. The payment of
dividends by City Holding and the Banks may also be limited by other factors,
such as requirements to maintain adequate capital above regulatory guidelines.
The various regulators supervising the Banks have authority to prohibit any
Banks under their jurisdiction from engaging in an unsafe or unsound practice in
conducting its business. The payment of dividends, depending upon the financial
condition of the Bank in question, could be deemed to constitute such an unsafe
or unsound practice. The Federal Reserve Board and the OCC have indicated their
view that it generally would be an unsafe and unsound practice to pay dividends
except out of current operating earnings. The Federal Reserve Board has stated
that, as a matter of prudent banking, a bank or bank holding company should not
maintain its existing rate of cash dividends on common stock unless (1) the
organization's net income available to common shareholders over the past year
has been sufficient to fund fully the dividends and (2) the prospective rate of
earnings retention appears consistent with the organization's capital needs,
asset quality, and overall financial condition. Moreover, the Federal Reserve
Board has indicated that bank holding companies should serve as a source of
managerial and financial strength to their subsidiary banks. Accordingly, the
Federal Reserve Board has stated that a bank holding company should not maintain
a level of cash dividends to its shareholders that places undue pressure on the
capital of bank subsidiaries, or that can be funded only through additional
borrowings or other arrangements that may undermine the bank holding company's
ability to serve as a source of strength.
The ability of the Banks to pay dividends in the future is, and is expected to
continue to be, influenced by regulatory policies and by capital guidelines. The
bank regulatory agencies have broad discretion in developing and applying
policies and guidelines, in monitoring compliance with existing policies and
guidelines, and in determining whether to modify such policies and guidelines.
FIRREA
Under the enactment of the Financial Institutions Reform, Recovery, and
Enforcement Act ("FIRREA") a depository institution insured by the FDIC can be
held liable for any loss incurred by, or reasonably expected to be incurred by,
the FDIC after August 9, 1989, in connection with (i) the default of a commonly
controlled FDIC-insured depository institution or (ii) any assistance provided
by the FDIC to a commonly controlled FDIC-insured depository institution in
danger of default. "Default" is defined generally as the appointment of a
conservator or receiver and
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"in danger of default" is defined generally as the existence of certain
conditions indicating that a "default" is likely to occur in the absence of
regulatory assistance. Liability of any Bank under this cross-guarantee position
could have a material adverse effect on the financial condition of any other
Bank and City Holding.
FDICIA
In December 1991, the Federal Deposit Insurance Corporation Improvement Act of
1991 ("FDICIA") became effective. FDICIA substantially revised the depository
institution regulatory and funding provisions of the Federal Deposit Insurance
Act and revised several other federal banking statutes.
Banks
City National Bank of Charleston, The Home National Bank of Sutton, Merchants
National Bank and the First National Bank of Hinton are national banking
associations, and are subject to supervision and regulation by the OCC, the
Federal Reserve Board and the FDIC. The Peoples Bank of Point Pleasant, First
State Bank & Trust and Blue Ridge Bank are supervised and regulated by the West
Virginia Board of Banking and Financial Institutions and the FDIC. The Bank of
Ripley and Peoples State Bank are supervised and regulated by the West Virginia
Board of Banking and Financial Institutions, the FDIC and the Federal Reserve
Board. The various laws and regulations administered by the regulatory agencies
affect corporate practices, such as payment of dividends, incurring debt and
acquisition of financial institutions and other companies, and affect business
practices, such as payment of interest on deposits, the charging of interest on
loans, types of business conducted and location of offices.
FDIC Insurance Assessments
The Banks are subject to FDIC deposit insurance assessments. Effective in the
fourth quarter of 1995, each of the Banks were assessed FDIC deposit insurance
premiums of approximately $2,000 per annum. Between the fourth quarter of 1995
and January 1993, FDIC deposit insurance premium rates range from $.23 to $.31
per $100 of deposits and depend on both the institution's capital adequacy and a
supervisory judgment of overall risk posed by the institution. Prior to January
1993, FDIC insurance premiums were charged at a flat rate. Because of decreases
in the reserves of the Bank Insurance Fund due to the increased number of bank
failures in recent years, it is possible that insurance assessments will
increase and that there may be special additional assessments. Additional
assessments could have an adverse impact on City Holding's results of
operations.
Governmental Policies
The operations of City Holding and its Banks are affected not only by general
economic conditions, but also by the policies of various regulatory authorities.
In particular, the Federal Reserve Board regulates money and credit and interest
rates in order to influence general economic conditions. These policies have a
significant influence on overall growth and distribution of bank loans,
investments and deposits and affect interest rates charged on loans or paid for
time and savings deposits. Federal Reserve monetary policies have had a
significant effect on the operating results of commercial banks in the past and
are expected to continue to do so in the future.
Among other things, FDICIA requires the federal banking regulators to take
prompt corrective action with respect to depository institutions that do not
meet minimum capital requirements. FDICIA establishes five capital tiers: well
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized.
The Federal Reserve Board has adopted regulations establishing relevant capital
measures and relevant capital levels for banks. The relevant capital measures
are the total risk-adjusted capital ratio, Tier 1 risk-adjusted capital ratio
and the leverage ratio. Under the regulations, a bank is considered (i) well
capitalized if it has a total capital ratio of ten percent or greater, a Tier 1
capital ratio of six percent or greater and a leverage ratio of five percent or
greater and is not subject to any order or written directive by such regulator
to meet and maintain a specific capital level for any capital measure, (ii)
adequately capitalized if it has a total capital ratio of eight percent or
greater, a Tier 1 capital ratio of four percent or greater and a leverage ratio
of four percent or greater (three percent in certain
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<PAGE>
circumstances) and is not well capitalized, (iii) undercapitalized if it has a
total capital ratio of less than eight percent, a Tier 1 capital ratio of less
than four percent or a leverage ratio of less than four percent (three percent
in certain circumstances), (iv) significantly undercapitalized if it has a total
capital ratio of less than six percent, a Tier 1 capital ratio of less than
three percent or a leverage ratio of less than three percent, and (v) critically
undercapitalized if its tangible equity is equal to or less than two percent of
average quarterly tangible assets. As of December 31, 1995, each of the Banks
had capital levels that qualify them as being well capitalized under such
regulations.
FDICIA generally prohibits a depository institution from making any capital
distribution (including payment of a dividend) or paying any management fee to
its holding company if the depository institution would thereafter be
undercapitalized. Undercapitalized depository institutions are subject to
restrictions on borrowing from the Federal Reserve Board, effective December 19,
1993. In addition, undercapitalized depository institutions are subject to
growth limitations and are required to submit capital restoration plans. In
order to obtain acceptance of a capital restoration plan, a depository
institution's holding company must guarantee the capital plan, up to an amount
equal to the lesser of 5% of the depository institution's assets at the time it
becomes undercapitalized or the amount of the capital deficiency when the
institution fails to comply with the plan. Furthermore, in the event of a
bankruptcy of the parent holding company, such guarantee would take priority
over the parent's general unsecured creditors. The federal banking agencies may
not accept a capital plan without determining, among other things, that the plan
is based on realistic assumptions and is likely to succeed in restoring the
depository institution's capital. If a depository institution fails to submit an
acceptable plan, it is treated as if it is significantly undercapitalized.
Significantly undercapitalized depository institutions may be subject to a
number of requirements and restrictions, including orders to sell sufficient
voting stock to become adequately capitalized, requirements to reduce total
assets, and cessation of receipt of deposits from correspondent banks.
Critically undercapitalized depository institutions are subject to appointment
of a receiver or conservator.
Under FDICIA, a depository institution that is not well capitalized is generally
prohibited from accepting brokered deposits and offering interest rates on
deposits higher than the prevailing rate in its market. In addition, pass
through insurance coverage may not be available for certain employee benefit
accounts.
Various other legislation, including proposals to overhaul the banking
regulatory system and to limit the investments that a depository institution may
make with insured funds are from time to time introduced in Congress. City
Holding cannot determine the ultimate effect that FDICIA and the implementing
regulations adopted thereunder, or any other potential legislation, if enacted,
would have upon its financial condition or operations.
Other Safety and Soundness Regulations
The federal banking agencies have broad powers under current federal law to take
prompt corrective action to resolve problems of insured depository institutions.
The extent of these powers depends upon whether the institutions in question are
"well capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized" or "critically undercapitalized," as such terms are defined
under uniform regulations defining such capital levels issued by each of the
federal banking agencies.
DESCRIPTION OF CAPITAL STOCK OF CITY HOLDING
City Holding's Articles of Incorporation authorize 20,000,000 shares of Common
Stock, par value $2.50, and 500,000 shares of Preferred Stock, par value $25,
including a series of 100,000 shares of Junior Participating Cumulative
Preferred Stock, Series A. As of September 30, 1996, 5,080,443 shares of Common
Stock and no shares of Preferred Stock were outstanding and entitled to vote. At
such date, City Holding had 2,027 shareholders of record.
35
<PAGE>
Authority is given in the Articles of Incorporation to the Board of Directors to
issue shares of City Holding's Common Stock and Preferred Stock from time to
time for such consideration as the Board may deem advisable.
The characteristics of City Holding's capital stock are summarized below.
Common Stock
Dividend Rights. Common shareholders are entitled to dividends to the extent
funds are legally available and the Board of Directors declares payment. City
Holding's ability to pay dividends is largely contingent upon the abilities of
the Banks to pay dividends, and is subject to various statutory limits.
Voting Rights and Cumulative Voting. In all elections of directors, each holder
of City Holding Common Stock has the right to cast one vote for each share of
stock owned by him and entitled to vote for as many persons as there are
directors to be elected, or he may cumulate such votes and give one candidate as
many votes as the number of directors to be elected multiplied by the number of
his shares of stock shall equal; or he may distribute such votes on the same
principle among as many candidates and in such manner as he desires. On any
other question to be determined by a vote of shares at any meeting of
shareholders, each shareholder is entitled to one vote for each share of stock
owned by him and entitled to vote.
Liquidation Rights. Upon liquidation, after payment to all creditors and holders
of Preferred Stock, the remaining assets of City Holding would be distributed to
the holders of City Holding Common Stock pro rata.
Preemptive Rights. Holders of City Holding Common Stock have no preemptive
rights with respect to future issues of Common Stock.
Calls and Assessments. All City Holding Common Stock outstanding is fully paid
and nonassessable.
Preferred Stock
The Board of Directors has the authority, without any vote or action by the
shareholders, to issue Preferred Stock in one or more series and to fix the
designations, preferences, rights, qualifications, limitations and restrictions
thereof, including the voting rights, dividend rights, dividend rate, conversion
rights, terms of redemption (including sinking fund provisions), redemption
price or prices, liquidation preferences and the number of shares constituting
any series. Issuance of Preferred Stock by the Board of Directors of City
Holding could be utilized to render more difficult, or discourage, an attempt to
gain control of City Holding. There are no shares of Preferred Stock
outstanding, and there are no agreements or understandings for the designation
of any series of Preferred Stock or the issuance of shares, except pursuant to
the Preferred Stock Purchase Rights Plan summarized below.
Preferred Stock Purchase Rights Plan; Change of Control
Pursuant to a Preferred Stock Purchase Rights Plan and a related Amended and
Restated Rights Agreement between City Holding and Fifth Third Bank, as Rights
Agent, each outstanding share of City Holding Common Stock carries with it one
Preferred Stock Purchase Right (a "Right"). In general, the number of Rights
outstanding will equal the number of shares of City Holding Common Stock
outstanding from time to time. The Rights will expire on April 9, 2001, unless
previously exercised or redeemed at the option of the Board of Directors. Each
share of City Holding Common Stock offered hereby has one Right attached.
Generally, under the terms of the Rights Plan, the Rights will be exercisable
only if a person or group acquires 10% or more of City Holding Common Stock or
announces a tender offer, the consummation of which would result in ownership by
a person or group of 10% or more of City Holding Common Stock. Each Right will
entitle its holder to buy one one-thousandth of a share of Junior Participating
Cumulative Preferred Stock, Series A, par value $25, at an exercise price of
$53, subject to adjustment. If a person or group acquires 20% or more of the
outstanding City Holding Common Stock, each Right will entitle its holder (other
than such person or members of such group)
36
<PAGE>
to purchase, at the then-current exercise price, City Holding Common Stock
having a market value equal to twice the exercise price. If City Holding is
acquired in a merger or other business combination or if 50% or more of City
Holding's assets or earning power is sold or transferred, each Right will
entitle its holder to purchase, at the then-current exercise price, common stock
of the acquiror having a value equal to twice the exercise price.
City Holding's Articles of Incorporation provide that the Board of Directors
consist of three classes with staggered terms for directors. City Holding has
also adopted a by-law requiring advance notice from a shareholder to nominate a
director. The effect of these measures and the Rights Plan could be to render
more difficult or to discourage an attempt to gain control of City Holding by
means of a merger, tender offer, proxy contest or otherwise, even if supported
by holders of a majority of the voting securities of City Holding, and thereby
protect the current management.
Reports to Shareholders
City Holding furnishes its shareholders with annual reports, including audited
financial statements, and with three quarterly reports.
Transfer Agent
The transfer agent for City Holding Common Stock is City National Bank of
Charleston.
COMPARATIVE RIGHTS OF SHAREHOLDERS
At the Effective Time of the Bank Merger, shareholders of Bank will become
shareholders of City Holding, and their rights as shareholders will be
determined by the City Holding Articles of Incorporation and City Holding Bylaws
and applicable law. The following is a summary of the material differences in
the rights of shareholders of City Holding and Bank. This summary does not
purport to be a complete discussion of, and is qualified in its entirety by
reference to, the governing law and the Articles of Incorporation or Articles of
Association and Bylaws of each entity.
Capitalization
City Holding. City Holding's authorized capital is described under "Description
of City Holding Capital Stock".
Bank. Bank is authorized to issue 75,000 shares of Bank Common Stock, $10.00 par
value of which 75,000 shares were issued and outstanding as of the Record Date.
Voting Rights
City Holding. In all elections of directors, each holder of City Holding Common
Stock has the right to cast one vote for each share of stock owned by him and is
entitled to vote for as many persons as there are directors to be elected, or he
may cumulate such votes and give one candidate as many votes as the number of
directors to be elected multiplied by the number of his shares of stock shall
equal; or he may distribute such votes on the same principle among as many
candidates and in such manner as he desires. On any other issue to be determined
by a vote of shares at any meeting of shareholders, each shareholder is entitled
to one vote for each share of stock owned by him and entitled to vote. The vote
of a majority of shares represented at a meeting and entitled to vote is
required to approve most actions requiring shareholder approval, except that
amendments to the Articles of Incorporation and certain fundamental actions such
as mergers, consolidations and sales of substantially all assets outside the
ordinary course of business must be approved by vote of a majority of shares
entitled to vote thereon.
37
<PAGE>
Bank. In all elections of directors, each holder of Bank Common Stock has the
right to cast one vote for each share of stock owned by him and is entitled to
vote for as many persons as there are directors to be elected, or he may
cumulate such votes and give one candidate as many votes as the number of
directors to be elected multiplied by the number his shares of stock shall
equal; or he may distribute such votes on the same principle among as many
candidates and in such manner as he desires. The approval of a majority of
Bank's Board of Directors is generally required under federal law on any plan of
merger, consolidation or sale of substantially all of the assets of Bank. The
approval of shareholders holding more than two-thirds (2/3) of all votes
entitled to be cast is required for a merger, consolidation or sale of
substantially all of the assets of Bank.
Directors and Classes of Directors
City Holding. The City Holding Board of Directors presently comprises 16
members. Pursuant to the Agreement, following the Effective Date of the Bank
Merger, City Holding will increase the number of members of the City Holding
Board by two and will appoint two persons currently serving as directors of Bank
to fill the resulting vacancies. The Board of Directors is classified into three
classes, with one class to be elected each year to a three-year term.
Bank. The Bank Board of Directors presently comprises 10 members and 2 members
of its advisory board. Advisory board members do not have voting rights.
Anti-Takeover Provisions
City Holding. City Holding's Board of Directors has adopted a Rights Plan and
City Holding's Articles of Incorporation provide that the Board of Directors
consist of three classes with staggered terms for members of the Board of
Directors. City Holding has also adopted a by-law requiring advance notice from
a shareholder to nominate a director.
City Holding has not adopted other conventional anti-takeover provisions such
as, for example, a fair-price charter amendment, a super-majority vote charter
amendment, or an anti-greenmail charter amendment, and has no current plans to
submit further proposals with a possible "anti-takeover" effect. In addition,
West Virginia law does not contain any provisions protecting a West Virginia
corporation against hostile takeovers, such as a fair price statute or a control
share acquisition statute.
Bank. The Bank's Articles and Bylaws require advance notice from a shareholder
to nominate a director. Otherwise, neither the Bank's Articles nor Bylaws
contain any provisions that may be deemed to have any anti-takeover effect.
Preemptive Rights
City Holding. The shareholders of City Holding do not have preemptive rights.
Thus, if additional shares of City Holding Common Stock were issued, holders of
such stock, to the extent that they did not participate in such additional
issuance of shares, would own proportionately smaller interests in a larger
amount of outstanding capital stock.
Bank. The Bank's Articles contain a provision granting shareholders preemptive
rights. Thus, if additional shares of Bank Common Stock were issued, holders of
such stock would be given the right to purchase shares to maintain their
proportionate interests.
Assessment
City Holding. All outstanding shares of City Holding Common Stock are, and those
to be issued pursuant to the Agreement will be, fully paid and nonassessable.
38
<PAGE>
Bank. All outstanding shares of Bank Common Stock are fully paid and
nonassessable.
Conversion; Redemption; Sinking Fund
Neither City Holding Common Stock nor Bank Common Stock is convertible,
redeemable or entitled to any sinking fund.
Liquidation Rights
City Holding. Upon liquidation, after payment to all creditors and holders of
Preferred Stock, the remaining assets of City Holding would be distributed to
the holders of City Holding Common Stock pro rata.
Bank. Upon liquidation, after payment to all creditors, the remaining assets of
Bank would be distributed to the holders of Bank Common Stock on a pro rata
basis.
Dividends and Other Distributions
City Holding. Holders of City Holding Common Stock are entitled to dividends to
the extent funds are legally available and the Board of Directors declares
payment. City Holding's ability to pay dividends is largely contingent upon the
abilities of its subsidiaries to pay dividends, and is subject to various
statutory limits.
Bank. Federal law permits the declaration of dividends by the Board of Directors
of the Bank from the net profits of the Bank with a number of limitations. No
dividends or other distributions may be paid which would impair the capital of
Bank. The approval of the Comptroller of the Currency is required if dividends
for a year exceed certain calculations involving the accumulation of net
profits. In addition, unless the Bank's surplus equals or exceeds the capital of
Bank, 10% of net profits each year must be transferred to surplus before
dividends may be paid.
Shareholder Meetings
City Holding. City Holding's Bylaws provide that special meetings of the
shareholders may be called at any time by the Board of Directors or by the
President and Secretary, or by any three or more shareholders holding together
at least 10% of the capital stock of City Holding.
Bank. Bank's Bylaws provide that special meetings of the shareholders may be
called at any time by the Board of Directors, or by any three or more
shareholders holding together at least 25% of the capital stock of Bank. Neither
Bank's Articles of Association nor Bylaws contain requirements that must be
followed for a shareholder to otherwise submit a proposal to a vote for the
shareholders, except for the nominations of directors. See "Comparative Rights
of Shareholder -- Anti-Takeover Provisions -- Bank" herein.
Indemnification
City Holding. Section 31-1-9 of the West Virginia Code provides in part that
each West Virginia corporation shall have power to indemnify any director,
officer, employee or agent or former director, officer, employee or agent
against expenses actually and reasonably incurred by him in connection with the
defense of any claim, action, suit or proceeding against him by reason of being
or having been such director, officer, employee or agent other than an action by
or in the right of the corporation if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interest of the
corporation. With respect to an action by or in the right of the corporation the
director, officer, employee or agent or former director, officer, employee or
agent may be indemnified if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interest of the corporation, except
in relation to matters as to which he shall be finally adjudged in such action,
suit or proceeding against him by reason of being or having been such director,
officer, employee or agent to be liable for negligence or misconduct in the
performance of duty; and to make any other or further indemnity to any such
39
<PAGE>
persons that may be authorized by the articles of incorporation or any by-law
made by the shareholders or any resolution adopted, before or after the event,
by the shareholders. The By-laws of City Holding contain provisions pursuant to
the foregoing section of the West Virginia Code indemnifying the directors,
officers, employees and agents of City Holding in certain cases against expenses
and liabilities under judgments and reimbursements of amounts paid in
settlement.
City Holding has purchased directors and officers' liability insurance policies.
Within the limits of their coverage, the policies insure (i) the directors and
officers of City Holding against certain losses, to the extent such losses are
not indemnified by City Holding, and (ii) City Holding, to the extent it
indemnifies such directors and officers for losses as permitted under the laws
of West Virginia.
Bank. Federal law permits indemnification of directors of Bank for certain
actions taken on behalf of, or at the request of, Bank. Indemnification may not
be permitted for fines or penalties imposed by bank regulatory authorities.
Bank's Articles of Association provide for indemnification of directors or
officers. The Bank has purchased directors' and officers' liability insurance
policies. Within the limits of their coverage, the policies insure (i) the
directors and officers of Bank against certain losses, to the extent such losses
are not indemnified by Bank, and (ii) Bank, to the extent it indemnifies its
officers and directors for losses as permitted under its Articles of Association
and applicable law.
Director Exculpation
City Holding. The West Virginia Code does not provide for limitation of
directors' monetary liability or director exculpation.
Bank. Federal law does not provide for limitation of directors' monetary
liability or director exculpation.
Dissenters' Rights
Bank. Provisions of Title 12 of the United States Code give shareholders of a
national bank the right to dissent from, and obtain payment of the "fair value"
of their shares in mergers and consolidations. For a description of dissenter's
rights the Bank's shareholders have in connection with a Bank Merger, see "The
Bank Merger -- Rights of Shareholders Electing to Exercise Their Right of
Appraisal".
RESALE OF CITY HOLDING COMMON STOCK
City Holding Common Stock issuable in the Bank Merger has been registered under
the 1933 Act, thereby allowing such shares to be traded freely and without
restriction by those holders of Bank Common Stock who receive such shares
following consummation of the Merger and who are not deemed to be "affiliates"
(as defined under the 1933 Act, but generally including directors, certain
executive officers and 10% or more shareholders) of Bank or City Holding. Each
holder of Bank Common Stock who is deemed by Bank to be an affiliate of it has
entered into an agreement with City Holding prior to the Effective Date of the
Bank Merger providing, among other things, that (A) such affiliate acknowledges
and agrees to support and vote such shares of Bank Common Stock beneficially
owned by him to ratify and confirm the Agreement and the Bank Merger, (B) such
affiliate acknowledges and agrees beginning 30 days prior to the Effective Date
of the Bank Merger, that he will not sell, pledge, transfer or otherwise dispose
of shares of Bank Common Stock or City Holding Common Stock except in compliance
with the applicable provisions of the 1933 Act and rules and regulations
thereunder and until such time as financial results covering at least 30 days of
combined operations of City Holding and Bank have been published within the
meaning of Section 201.01 of the SEC's Codification of Financial Reporting
Policies, and (C) the certificates representing said shares may bear a legend
referring to the foregoing restrictions. This Proxy Statement/Prospectus does
not cover any resales of City Holding Common Stock received by affiliates of
Bank.
40
<PAGE>
EXPERTS
The consolidated financial statements of City Holding and Subsidiaries for the
year ended December 31, 1995 and 1994, and related statements of income, changes
in stockholder's equity and cash flows for each of the years in the three-year
period ended December 31, 1995, incorporated in this Proxy Statement/Prospectus
by reference to City Holding's Annual Report on Form 10-K for the year ended
December 31, 1995 have been audited by Ernst & Young LLP, independent auditors,
as set forth in their report thereon also incorporated by reference. Such
consolidated financial statements have been so incorporated herein in reliance
on their report incorporated herein by reference, given on their authority as
experts in accounting and auditing.
The financial statements of The Old National Bank of Huntington included in this
Proxy Statement/Prospectus have been included in reliance upon the report of
Trainer, Wright & Paterno, C.P.A.s, independent auditors, incorporated herein by
reference, given on their authority as experts in accounting and auditing.
LEGAL OPINIONS
The legality of the City Holding Common Stock to be issued in the Bank Merger
will be passed on for City Holding by Hunton & Williams, Richmond, Virginia.
Certain legal matters will be passed on for Bank by Woods, Rogers & Hazlegrove,
P.L.C., Roanoke, Virginia.
A condition to consummation of the Merger is the delivery to City Holding and
Bank by Hunton & Williams of an opinion concerning certain federal income tax
consequences of the Bank Merger. See "The Bank Merger -- Certain Federal Income
Tax Consequences."
OTHER MATTERS
As of the date of this Prospectus/Proxy Statement, the Bank Board does not know
of any other matters to be presented for action at the Bank Shareholder Meeting
other than procedural matters incident to the conduct of the meeting. If any
other matters not now known are properly brought before the Bank Shareholder
Meeting, the persons named in the accompanying proxy will vote such proxy in
accordance with the determination of a majority of the Bank Board.
December 13, 1996 By Order of the Board of Directors,
/s/ Leon K. Oxley
----------------------
Leon K. Oxley
Secretary
41
<PAGE>
INDEX TO
THE OLD NATIONAL BANK OF HUNTINGTON FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995
Page
Independent Auditor's Report.................................................F-2
Statements of Condition For the Years
Ended December 31, 1995 and 1994.............................................F-3
Statements of Income for the Years Ended
December 31, 1995 and 1994...................................................F-4
Statements of Changes in Shareholders' Equity for
the Years Ended December 31, 1995 and 1994...................................F-6
Statements of Cash Flows for the Years Ended
December 31, 1995 and 1994...................................................F-7
Notes to Financial Statements................................................F-9
Statements of Condition at September 30, 1996
(Unaudited) and December 31, 1995...........................................F-22
Statements of Income for the Nine Months
Ended September 30, 1996 and September 30, 1995
(Unaudited).................................................................F-23
Statements of Cash Flow for the Nine Months Ended September 30, 1996 and
September 30, 1995
(Unaudited).................................................................F-25
Notes to Financial Statements...............................................F-27
F-1
<PAGE>
[Trainer, Wright & Paterno Letterhead]
INDEPENDENT AUDITOR'S REPORT
Board of Directors
The Old National Bank of Huntington
Huntington, West Virginia
We have audited the accompanying statements of condition of
The Old National Bank of Huntington as of December 31, 1995 and 1994, and the
related statements of income, changes in shareholders' equity and cash flows for
the years then ended. These financial statements are the responsibility of the
Bank'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 financial statements referred to above
present fairly, in all material respects, the financial position of The Old
National Bank of Huntington as of December 31, 1995 and 1994, and the results of
its operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
As discussed in Note 1 to the financial statements, the Bank
changed its method of accounting for certain investments in debt and equity
securities in 1994 to conform with Statement of Financial Accounting Standards
No. 115.
/s/ Trainer, Wright & Paterno
------------------------------
Huntington, West Virginia
April 12, 1996
F-2
<PAGE>
THE OLD NATIONAL BANK OF HUNTINGTON
STATEMENTS OF CONDITION
DECEMBER 31, 1995 AND 1994
1995 1994
---- ----
ASSETS
Cash and due from banks $ 3,109,413 $ 2,831,500
Federal funds sold (cash equivalent) 1,340,000 2,810,000
Investment securities
Held to maturities (fair value of $8,674,708
in 1995 and $8,703,369 in 1994) 8,491,067 9,114,681
Available for sale, at fair value 6,503,205 6,354,077
Mortgage-backed and related securities
Held to maturities (fair value of $-0-
in 1995 and $472,373 in 1994) -0- 499,796
Available for sale, at fair value 506,421 763,889
Loans 17,764,719 11,631,616
Less allowance for credit losses (96,152) (104,862)
---------- ----------
Net loans 17,668,567 11,526,754
Properties and equipment 857,726 79,388
Other real estate owned 242,894 56,894
Deferred income tax benefit 33,072 103,134
Accrued income and other assets 460,865 406,418
---------- ----------
TOTAL ASSETS $ 39,213,230 $ 34,546,531
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Demand deposits $ 4,219,386 $ 3,419,635
Savings and NOW deposits 12,823,184 17,276,474
Time deposits $100,000 and over 4,326,751 1,587,695
Other time deposits 13,223,749 7,663,117
---------- ---------
Total Deposits 34,593,070 29,946,921
Securities sold under agreements to
repurchase 378,886 728,156
Accrued expenses and other liabilities 249,908 250,613
---------- ----------
TOTAL LIABILITIES 35,221,864 30,925,690
---------- ----------
SHAREHOLDERS' EQUITY
Common stock - $10 par value 75,000
shares authorized, issued and
outstanding 750,000 750,000
Capital surplus 750,000 750,000
Retained earnings 2,427,836 2,220,167
Less: Net unrealized loss on
available for sale securities 63,530 (99,326)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 3,991,366 3,620,841
--------- ---------
TOTAL LIABILITIES AND
SHAREHOLDER' EQUITY $ 39,213,230 $ 34,546,531
========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
F-3
<PAGE>
THE OLD NATIONAL BANK OF HUNTINGTON
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995 AND 1994
1995 1994
---- ----
INTEREST INCOME
Interest and fees on loans $ 1,313,500 $ 870,984
Interest on investment securities:
Taxable 690,176 585,839
Exempt from federal income tax 154,266 165,589
Interest on federal funds sold 255,848 166,795
Interest on mortgage backed and
related securities 239,177 177,755
Interest on other bonds 1,543 1,795
--------- ---------
TOTAL INTEREST INCOME 2,654,510 1,968,757
--------- ---------
INTEREST EXPENSE
Interest on demand and savings deposits 450,781 461,801
Interest on certificates of deposits
over $100,000 145,908 30,682
Interest on other time deposits 641,461 201,607
Interest on federal funds purchased
and securities sold under agreements
to repurchase 23,828 3,358
--------- -------
TOTAL INTEREST EXPENSE 1,261,978 697,448
--------- -------
NET INTEREST INCOME 1,392,532 1,271,309
PROVISION FOR CREDIT LOSSES (14,000) (6,000)
--------- ---------
NET INTEREST INCOME AFTER
PROVISION FOR CREDIT LOSSES 1,378,532 1,265,309
--------- ---------
OTHER INCOME
Service charges on deposit accounts 29,441 21,252
Other service charges and fees 55,985 38,561
Net investment and mortgage backed
securities gains 3,585 12,098
Other income 27,545 23,810
-------- --------
TOTAL OTHER INCOME 116,556 95,721
-------- --------
OTHER EXPENSES
Salaries and employee benefits 468,444 404,550
Occupancy expense 144,346 135,128
Equipment expense 38,076 29,202
Other expense 448,434 410,678
Loss on writedown of property -0- 800
--------- --------
TOTAL OTHER EXPENSES 1,099,300 980,358
--------- --------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
F-4
<PAGE>
THE OLD NATIONAL BANK OF HUNTINGTON
STATEMENTS OF INCOME (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1994
1995 1994
---- ----
INCOME BEFORE INCOME TAXES $ 395,788 $ 380,672
INCOME TAX EXPENSE 90,619 84,216
------- -------
NET INCOME $ 305,169 $ 296,456
======= =======
NET INCOME PER SHARE OF COMMON
STOCK $ 4.07 $ 3.95
==== ====
AVERAGE SHARES OUTSTANDING 75,000 75,000
====== ======
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
F-5
<PAGE>
THE OLD NATIONAL BANK OF HUNTINGTON
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
Net
Unrealized
(Loss) Available Total
Common Capital Retained for Sale Shareholders'
Stock Surplus Earnings Securities Equity
-------- --------- ------------ ---------------- -------------
<S> <C>
BALANCE, DECEMBER 31, 1993 $ 75,000 $ 750,000 $ 2,017,461 $ -0- $ 3,517,461
Net income for 1994 -0- -0- 296,456 -0- 296,456
Cash dividends paid - $.70 per share -0- -0- (56,250) -0- (56,250)
Cash dividends paid - $.50 per share -0- -0- (37,500) -0- (37,500)
Net unrealized (loss) on available
for sale securities -0- -0- -0- (99,326) (99,326)
------- ------- ------- --------- ----------
BALANCE, DECEMBER 31, 1994 750,000 750,000 2,220,167 (99,326) 3,620,841
Net income for 1995 -0- -0- 305,169 -0- 305,169
Cash dividends paid - $.80 per share -0- -0- (60,000) -0- (60,000)
Cash dividends paid - $.50 per share -0- -0- (37,500) -0- (37,500)
Net unrealized (loss) on available for
sale securities -0- -0- -0- 162,856 162,856
------- ------ ------- -------- -------
BALANCE, DECEMBER 31, 1995 $ 750,000 $ 750,000 $ 2,427,836 $ 63,530 $ 3,991,366
======= ======= ========= ====== =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
F-6
<PAGE>
THE OLD NATIONAL BANK OF HUNTINGTON
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1994
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 305,169 $ 296,456
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 29,765 26,226
Provision for credit losses 14,000 6,000
Loss on foreclosures of property -0- 800
Accretion of deferred loan origination fees (16,487) (13,926)
Premium amortization and discount accretion, net (2,905) (2,622)
Realized (gains) from investments and
mortgage-backed securities - net (3,585) (12,096)
Changes in assets and liabilities which provided
(used) cash exclusive of changes shown
separately:
Deferred income tax benefit 70,062 18,337
Accrued income and other assets (54,447) (45,121)
Accrued expenses and other liabilities (104,826) 68,562
---------- ----------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 236,746 342,616
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales and maturities of investment
securities - held in maturity 744,924 2,289,925
Proceeds from sales and maturities of investment
securities - available for sale 2,695,879 1,048,040
Purchase of investment securities - held to maturity (122,868) (2,281,179)
Purchase of investment securities - available for sale (2,608,029) (3,671,602)
Proceeds from sales and maturities of mortgage
backed and related securities - held to maturity 503,311 -0-
Proceeds from sales and maturities of mortgage backed
and related securities - available for sale 292,000 608,221
Purchase of mortgage backed and related securities-
held to maturity -0- (300,252)
Purchase of mortgage backed and related securities -
available for sale -0- -0-
Net (increase) decrease in loans (6,325,326) (2,208,005)
Purchases of properties and equipment (808,103) (31,000)
NET CASH (USED IN) INVESTING ------------ -----------
ACTIVITIES (5,628,212) (4,545,852)
------------ -----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
F-7
<PAGE>
THE OLD NATIONAL BANK OF HUNTINGTON
STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1994
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in:
Demand, savings and
NOW deposit accounts $ (3,653,539) $ (782,126)
Time deposits 8,299,688 3,958,852
Securities sold under agreements
to purchase (349,270) 709,335
Dividends paid (97,500) (93,750)
---------- ----------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 4,199,379 3,792,311
---------- ----------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (1,192,087) (410,925)
----------- ----------
CASH AND CASH EQUIVALENTS AT THE
BEGINNING OF THE YEAR 5,641,500 6,052,425
----------- ----------
CASH AND CASH EQUIVALENTS AT THE
END OF THE YEAR $ 4,449,413 $ 5,641,500
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash received during the year for:
Interest $ 2,618,825 $ 1,946,969
========= =========
Cash paid during the year for:
Interest $ 1,207,847 $ 658,401
========= =========
Income taxes $ 53,025 $ 105,329
========== =========
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING ACTIVITIES:
Transfer between loans and other
real estate owned-net $ 186,000 $ -0-
========= =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
F-8
<PAGE>
THE OLD NATIONAL BANK OF HUNTINGTON
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial statements of The Old National Bank of Huntington have
been prepared in conformity with generally accepted accounting
principles and conform with practices within the banking industry.
The more significant accounting policies are summarized below.
(a) Investment and Mortgage-Backed Securities
Effective January 1, 1994, the Bank adopted the provisions of
Statement of Financial Accounting Standards No. 115 -
Accounting for Certain Debt and Equity Securities (SFAS 115).
In accordance with this statement securities are classified
as held-to-maturity, available-for-sale or trading.
Securities classified as held-to-maturity are stated at cost
adjusted for amortization of premiums and accretion of
discounts. The Bank has the positive intent and ability to
hold these securities to maturity. Securities classified as
available-for-sale may be sold in response to changes in
interest rates, liquidity needs and for other purposes.
Available-for-sale securities are carried at fair value and
include all debt and equity securities not classified as
held-to-maturity or trading. Trading securities are those
held principally for the purpose of selling in the near
future and are carried at fair value. The Bank does not
currently have any trading securities.
Unrealized holding gains and losses for trading securities
are included in earnings. Unrealized holding gains and losses
for available-for-sale securities are excluded from earnings
and reported, net of any income tax effect, as a separate
component of shareholders' equity. Realized gains and losses
for securities classified as either available-for-sale or
held-to-maturity are reported in earnings based on the
adjusted cost of the specific security sold.
Prior to adoption of SFAS 115, all investment securities were
stated at cost, adjusted for amortization of premiums and
accretion of discounts, similar to the held-to-maturity
category under the provisions of SFAS 115.
F-9
<PAGE>
THE OLD NATIONAL BANK OF HUNTINGTON
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(b) Loans
Loans are stated at the principal amount outstanding.
Deferred loan fees and the allowance for loan losses are
shown as reductions of loans. Loan origination fees and
certain direct origination costs are being deferred and
amortized as an adjustment of the related loan's yield, over
the contractual life of the loan. Interest income on loans is
computed based on the outstanding loan balance. Interest
accrual is discontinued when in the opinion of management it
appears that collection of principal or interest according to
contractual terms may be doubtful. Upon the discontinuance,
all unpaid accrued interest is reversed. Interest collections
on nonaccrual loans for which the collectibility of principal
is uncertain are applied to principal. Otherwise, such
collections are credited to income when received.
The allowance for loan losses is increased by provisions for
loan losses charged to operating expense and reduced by loans
charged off, net of recoveries. The level of the allowance
and the provision are determined based on management's
evaluation of the loan portfolio, current and anticipated
economic conditions, and other relevant factors. The
allowance for loan losses is available to absorb future loan
losses.
While management believes it has established the allowance
for loan losses in accordance with generally accepted
accounting principles and has taken into account the views of
its regulators and the current economic environment, there
can be no assurance that in the future the Bank's regulators
or its economic environment will not require further
increases and decreases in the allowance.
(c) Properties and Equipment
Properties and equipment are stated at cost, less accumulated
depreciation. The provision for deprecation is computed
principally by the straight-line methods. Maintenance and
repairs are charged to expense as incurred. Renewals and
betterments which materially increase the value of the
property are capitalized.
(d) Other Real Estate Owned
Other real estate owned primarily represents properties
acquired by the Bank through customer loan defaults. The real
estate is stated at an amount equal to lesser of the loan
balance prior to foreclosure, plus certain cost incurred for
improvements to the property, or fair value less estimated
selling costs of the property.
(e) Income Taxes
The asset and liability approach is used to calculate
deferred income taxes. Under this method, deferred tax assets
and labilities are recognized on temporary differences
between the financial statement and tax bases of assets and
liabilities using applicable enacted tax rates.
F-10
<PAGE>
THE OLD NATIONAL BANK OF HUNTINGTON
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(f) Net Income Per Share of Common Stock
Net income per share of common stock is computed by dividing
net income by the weighted average number of shares of common
stock outstanding during the period.
(g) Off Balance Sheet Financial Instruments
In the ordinary course of business the Bank has entered into
off balance sheet financial instruments consisting of
commitments to extend credit, for commercial real estate,
construction and land development, other unused commitments,
and commercial letters of credit and similar letters of
credit. Such financial instruments are recorded in the
financial statements when they become payable.
(h) Cash and Cash Equivalents
For the purpose of presentation in the statement of cash
flows, cash and cash equivalents are defined as those amounts
included in the balance sheet captioned cash and due from
banks and federal funds sold.
(i) Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amount of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates.
(j) Reclassification
Certain prior year amounts have been reclassified to conform
the 1995 financial statement presentation.
F-11
<PAGE>
THE OLD NATIONAL BANK OF HUNTINGTON
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
NOTE 2 - INVESTMENT SECURITIES
The carrying amounts of investment securities as shown in the
balance sheets of the Bank and their approximate market values at
December 31 were as follows:
Held to maturity securities:
<TABLE>
<CAPTION>
Carrying Unrealized Unrealized Market
Amount Gains Losses Value
-------- ---------- ---------- ---------
<S> <C>
December 31, 1995:
U.S. Government and agency
securities $ 5,592,696 $ 104,280 $ -0- $ 5,696,976
State and municipal securities 2,853,371 79,361 -0- 2,932,732
Other securities 45,000 -0- -0- 45,000
--------- --------- ------- ----------
TOTAL $ 8,491,067 $ 183,641 $ -0- $ 8,674,708
========= ======= ======= =========
Available for sale securities:
</TABLE>
<TABLE>
<CAPTION>
Carrying Unrealized Unrealized Market
Amount Gains Losses Value
-------- ---------- ---------- ---------
<S> <C>
December 31, 1995:
U.S. Government and agency
securities $ 6,190,349 $ 85,126 $ -0- $ 6,275,475
State and municipal securities 215,000 12,730 -0- 227,730
--------- -------- ------- ---------
TOTAL $ 6,405,349 $ 97,856 $ -0- $ 6,503,205
========= ======= ======= =========
Held to maturity securities:
</TABLE>
<TABLE>
<CAPTION>
Carrying Unrealized Unrealized Market
Amount Gains Losses Value
-------- ---------- ---------- ---------
<S> <C>
December 31, 1994:
U.S. Government and agency
securities $ 5,693,538 $ 1,988 $(308,681) $ 5,386,845
State and municipal securities 3,278,659 16,280 (122,505) 3,172,434
Other securities 142,484 1,606 -0- 144,090
--------- ------- ----------- ---------
TOTAL $ 9,114,681 $ 19,874 $(431,186) $ 8,703,369
========= ======= ========= =========
Available for sale securities:
</TABLE>
<TABLE>
<CAPTION>
Carrying Unrealized Unrealized Market
Amount Gains Losses Value
-------- ---------- ---------- ---------
<S> <C>
December 31, 1994:
U.S. Government and agency
securities $ 4,977,585 $ 4,774 $ (66,058) $ 4,916,301
Other securities 1,502,750 1,003 (65,977) 1,437,776
--------- ------- -------- ---------
TOTAL $ 6,480,335 $ 5,777 $(132,035) $ 6,354,077
========= ====== ========= =========
</TABLE>
F-12
<PAGE>
THE OLD NATIONAL BANK OF HUNTINGTON
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
NOTE 2 - INVESTMENT SECURITIES (CONTINUED)
Assets, principally securities carried at approximately $4,722,007
and $702,270 at December 31, 1995 and 1994 with a market value of
$4,886,697 and $714,094 at December 31, 1995 and 1994 were pledged
to secure public deposits and for other purposes required or
permitted by law. Included in other securities are marketable equity
securities with an original cost of $45,000 and a market value of
$45,000 at December 31, 1995 and December 31, 1994.
The maturities of investment securities at December 31, 1995 were as
follows:
Held to maturity securities:
Carrying Market
Amount Value
-------- --------
Due in one year or less $ 80,000 $ 80,000
Due from one to five years 6,164,844 6,275,411
Due from five to ten years 1,776,247 1,833,862
Due after ten years 424,976 440,435
Marketable equity securities 45,000 45,000
--------- ---------
TOTAL $ 8,491,067 $ 8,645,708
========= =========
Available for sale securities:
Carrying Market
Amount Value
-------- --------
Due in one year or less $ 3,098,001 $ 3,119,228
Due from one to five years 3,105,080 3,182,524
Due from five to ten years 202,300 201,453
Due after ten years -0- -0-
----------- -----------
TOTAL $ 6,405,381 $ 6,503,205
========= =========
Gross realized gains and gross realized losses on sales of securities were:
1995 1994
------ -----
Gross realized gains:
U.S. government and agency securities $ 324 $ 1,188
State and municipal securities 2,000 3,546
----- -----
TOTAL $ 2,324 $ 4,734
===== =====
Gross realized losses:
U.S. government and agency securities $ (14,486) $ -0-
State and municipal securities (133) -0-
Other securities -0- (137)
--------- -------
TOTAL $ (14,619) $ (137)
======== =====
F-13
<PAGE>
THE OLD NATIONAL BANK OF HUNTINGTON
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
NOTE 3 - MORTGAGE BACKED AND RELATED SECURITIES
The carrying values and estimated market values of mortgage backed
and related securities at December 31, 1995 and 1994 are summarized
as follows:
Held to maturity securities:
No mortgage backed and related securities were classified as held to
maturity at December 31, 1995.
Available for sale securities:
<TABLE>
<CAPTION>
December 31, 1995
-------------------------------------------------------------------------
Unrealized Estimated
Principal Unamortized Unearned Carrying Gains Market
Balance Premiums Discounts Value (Losses) Value
--------- ----------- --------- -------- ---------- ---------
<S> <C>
FNMA certificates $ 500,000 $ 128 $ -0- $ 500,128 $ 6,293 $ 506,421
======= === ===== ======= ===== =======
</TABLE>
Held to maturity securities:
<TABLE>
<CAPTION>
December 31, 1994
-----------------------------------------------------------------------
Unrealized Estimated
Principal Unamortized Unearned Carrying Gains Market
Balance Premiums Discounts Value (Losses) Value
--------- ----------- --------- -------- ---------- ---------
<S> <C>
FNMA certificates $ 500,000 $ 410 $ (614) $ 499,796 $ (27,423) $ 472,373
======= === ====== ======= ======== =======
</TABLE>
Available for sale securities:
<TABLE>
<CAPTION>
December 31, 1994
-------------------------------------------------------------------------
Unrealized Estimated
Principal Unamortized Unearned Carrying Gains Market
Balance Premiums Discounts Value (Losses) Value
--------- ----------- --------- -------- ---------- ---------
<S> <C>
FNMA certificates $ 500,000 $ 389 $ -0- $ 500,389 $ (12,927) $ 487,462
FHLMC certificates 200,000 -0- -0- 200,000 (23,760) 176,240
SLMA certificates 100,000 71 -0- 100,071 116 100,187
------- --- ---- ------- -------- -------
TOTAL $ 800,000 $ 460 $ -0- $ 800,460 $ (36,571) $ 763,889
======= === ==== ======= ======== =======
</TABLE>
Gross realized gains and gross realized losses on sales of mortgage
backed and related securities were:
1995 1994
---- ----
Gross realized gains:
FNMA certificates $ 23,880 $ 7,500
Gross realized losses:
FHLMC certificates $ (8,000) $ -0-
======= =====
F-14
<PAGE>
THE OLD NATIONAL BANK OF HUNTINGTON
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
NOTE 4 - LOANS
The components of loans in the balance sheets were as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C>
Commercial $ 3,456,508 $ 2,053,726
Residential real estate mortgages 7,457,796 6,030,335
Consumer 6,850,415 3,547,555
---------- ----------
$ 17,764,719 $ 11,631,616
========== ==========
</TABLE>
Loans on which the accrual of interest has been discontinued
amounted to $25,552 and $-0- at December 31, 1995 and 1994,
respectively. Interest income that would have been accrued on
non-accrual loans and the interest income actually recognized for
the years ended December 31 are summarized below:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C>
Interest income that would have been recorded $ 2,131 $ 393
Interest income recognized 1,980 -0-
------ -------
Interest income foregone $ 151 $ 393
====== =======
</TABLE>
NOTE 5 - ALLOWANCE FOR CREDIT LOSSES
An analysis of the change in the allowance for credit losses follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C>
BALANCE AT JANUARY 1 $ 104,862 $ 103,007
Credits charged off (23,010) (4,945)
Recoveries 300 800
-------- -------
Net credits charged off (22,710) (4,145)
Provision for credit losses 14,000 6,000
------- -------
BALANCE, DECEMBER 31 $ 96,152 $ 104,862
====== =======
</TABLE>
F-15
<PAGE>
THE OLD NATIONAL BANK OF HUNTINGTON
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
NOTE 6 - PROPERTIES AND EQUIPMENT
Components of properties and equipment included in the balance sheets
at December 31, 1995 and 1994 were as follows:
1995 1994
---- ----
Cost:
Furniture and equipment $ 383,955 $ 137,592
Leasehold improvements 177,987 146,267
Automobiles 47,501 47,501
Land 200,749 9,000
Branch Building 343,271 5,000
--------- --------
TOTAL COST 1,153,463 345,360
Less accumulated depreciation (295,737) (265,972)
--------- ---------
NET BOOK VALUE $ 857,726 $ 79,388
======== ========
The charge to operations for amortization and depreciation was
$29,765 for 1995 and $26,226 for 1994.
NOTE 7 - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Securities sold under agreements to repurchase generally mature
within one to ten days from the transaction date. Securities sold
under agreements to repurchase were $378,886 and $728,156 at December
31, 1995 and 1994.
NOTE 8 - INCOME TAXES
Income tax expense for the years ended December 31, 1995 and 1994 is
summarized as follows:
1995 1994
---- ----
Currently Payable
Federal $ 66,455 $ 56,650
State 17,605 14,931
------ ------
Total current 84,060 71,581
------ ------
Deferred
Federal 6,273 10,839
State 286 1,796
------ ------
Total deferred 6,559 12,635
------ ------
Total income tax expense $ 90,619 $ 84,216
====== ======
F-16
<PAGE>
THE OLD NATIONAL BANK OF HUNTINGTON
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
NOTE 8 - INCOME TAXES (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax
purposes. Temporary differences giving rise to the deferred tax
asset/(liability) consist primarily of provision for credit losses,
depreciation, and write down of property to net realizable value,
accounted for differently for financial reporting and tax purposes.
Significant components of the Banks deferred tax assets at December
31, 1995 are as follows:
Deferred tax assets:
Allowance for credit losses $ 36,973
Write down of property to net
realizable value 3,657
Total deferred tax asset 40,630
Deferred tax liabilities 7,558
-------
Net deferred tax asset $ 33,072
======
The effective income tax rate differs from the statutory rate
principally because of the effects of tax exempt interest income of
$177,243 and $190,468 for 1995 and 1994, respectively, and
non-deductible interest expense related to tax exempt income of
$20,534 and $15,107 for 1995 and 1994, respectively.
NOTE 9 - RELATED PARTIES
The Bank has entered into transactions with its directors,
significant shareholders and their affiliates (Related Parties). Such
transactions were made in the ordinary course of business on
substantially the same terms and conditions, including interest rates
and collateral, as those prevailing at the same time for comparable
transactions with other customers, and did not, in the opinion of
management, involve more than normal credit risk or present other
unfavorable features. The aggregate amount of loans to such related
parties at December 31, 1995 and 1994 was $1,243,307 and $1,270,962,
respectively. During 1995 new loans to such related parties amounted
to $383,338 and repayments amounted to $410,993.
The Bank leases property to a board member. The lease is classified
as an operating lease and provides for minimum annual rentals of
$6,000 through 1996. The lease is cancelable upon written notice by
either party. The lease provides for the option to purchase the
property. If the right to purchase the property is exercised, all
rental payments made will be applied to the purchase price.
The Bank purchased a portion of land for one of its branch facilities
from a board member. The cost of the land purchased from the board
member amounted to $149,303.
F-17
<PAGE>
THE OLD NATIONAL BANK OF HUNTINGTON
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
NOTE 10 - CONTINGENT LIABILITIES AND COMMITMENTS
The Bank's financial statements do not reflect various commitments
and contingent liabilities which arise in the normal course of
business and which involve elements of credit risk, interest rate
risk and liquidity risk. These commitments and contingent liabilities
are commercial and similar letters of credit. A summary of the Bank's
commitments and contingent liabilities at December 31, 1995, is as
follows:
Notional Amount
---------------
Commercial real estate, construction,
and land development $ 465,000
Other unused commitments 90,000
Commercial and similar letters of credit 38,000
Commitments for commercial real estate, construction and land
development, other unused commitments, and commercial and similar
letters of credit include exposure to some credit loss in the event
of nonperformance for the customer. The Bank's credit policies and
procedures for credit commitments and financial guarantees are the
same as those for extension of credit that are recorded on the
statements of condition. Because these instruments have fixed
maturity dates, and because many of them expire without being drawn
upon, they do not generally present any significant liquidity risk to
the Bank. The Bank has not been required to perform on any financial
guarantees during the past two years. The Bank has not incurred any
losses on its commitments in either 1995 or 1994.
NOTE 11 - CONTINGENCIES
The Bank is a defendant in various litigation and claims arising from
the construction of the Bank's branch facilities. Management, after
consultation with legal counsel, believes that the liabilities, if
any, arising from such litigation and claims will not be material to
the Bank's financial position. The Bank intends to vigorously defend
its position.
NOTE 12 - LEASE OBLIGATIONS
The Bank leases the main office banking facility and exterior
advertising space under operating leases expiring at the end of 1999.
The Bank also leases a branch banking facility under an operating
lease expiring during 1996. The operating lease for the branch
banking facility provides for a renewal option for an additional
period of two years and a purchase option at the end of the initial
term or any extended term of this lease. The minimum future rental
payments under the current terms of the lease are as follows:
Year ended Amount
---------- ------
1996 $ 136,076
1997 111,576
1998 111,576
1999 92,980
2000 -0-
---------
TOTAL MINIMUM FUTURE
LEASE PAYMENTS $ 452,208
=======
Lease expenses charged to operations was $117,344 and $112,608 and
1995 and 1994, respectively.
F-18
<PAGE>
THE OLD NATIONAL BANK OF HUNTINGTON
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
The Bank is the lessor of property to a board member. The lease is
classified as an operating lease and provides for minimum annual
rentals of $6,000 through 1996. The lease is cancelable upon written
notice by either party. The lease provides for the option to purchase
the property. If the right to purchase the property is exercised, all
rental payments made will be applied to the purchase price.
Following is a summary of property on or held for lease at December
31, 1995 and 1994:
1995 1994
---- ----
Land $ 56,895 $ 56,895
====== ======
NOTE 13 - CONCENTRATIONS OF CREDIT RISK
The Bank grants retail, commercial and commercial real estate loans
to customers located throughout West Virginia, eastern Kentucky, and
southern Ohio. The Bank evaluates each customer's creditworthiness on
a case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Bank upon extension of credit, is based on
management's credit evaluation of the customer. Collateral held
varies but may include accounts receivable, inventory, property,
plant and equipment, and income-producing commercial properties.
Although the Bank has a diversified loan portfolio, a substantial
portion of the debtors' ability to honor their contracts is dependent
upon the economic conditions in each loan's respective location.
F-19
<PAGE>
THE OLD NATIONAL BANK OF HUNTINGTON
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
NOTE 14 - REGULATORY MATTERS
The Bank, as a National Bank, is subject to the dividend restrictions
set forth by the Comptroller of the Currency. Under such
restrictions, the Bank may not, without the prior approval of the
Comptroller of the Currency, declare dividends in excess of the sum
of the current year's earnings (as defined) plus the retained
earnings (as defined) from the prior two years. The dividends, as of
December 31, 1995, that the Bank could declare, without the approval
of the Comptroller of the Currency, amounted to approximately
$967,291. The Bank is also required to maintain minimum amounts of
capital to total risk weighted assets, as defined by the banking
regulators. At December 31, 1995, the Bank is required to have
minimum Tier 1 and Total capital ratios of 4.00% and 8.00%,
respectively. The Bank's actual ratios at that date were 14.70% and
15.06%, respectively. The Bank's leverage ratio at December 31, 1995,
was 10.82%.
NOTE 15 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Estimated fair values of financial instruments are as follows:
1995
-------------------------
Carrying Fair
Amount Value
-------- -------
Financial assets:
Cash and cash
equivalents $ 4,449,413 $ 4,449,413
Investment securities 14,896,416 15,177,913
Mortgage-backed and
related securities 500,128 506,421
Loans, net of allowance 17,764,719 17,756,921
---------- ----------
TOTAL $ 37,610,676 $ 37,890,668
========== ==========
Financial liabilities:
Deposits $ 34,593,070 $ 34,579,034
Securities sold under
agreement to repurchase 378,886 378,886
---------- ----------
TOTAL $ 34,971,956 $ 34,957,920
========== ==========
F-20
<PAGE>
THE OLD NATIONAL BANK OF HUNTINGTON
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
NOTE 15 - FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The carrying amount of cash and equivalents approximate fair
value. For investment securities and mortgage-backed and related
securities, fair value is based on quoted market prices. For loans
receivable, fair values are determined and based on quoted market
prices. For loans receivable, fair values are determined and based
on discounted cash flows. The fair value of demand and savings
deposits and securities sold under agreements to repurchase is
equal to the amount payable at the date of the financial
statements. For certificates of deposit, fair value is estimated
based on current rates for deposits of similar remaining
maturities.
NOTE 16 - INDUSTRY SEGMENT REPORTING
The Company operates principally in a single business segment
offering general commercial banking services.
F-21
<PAGE>
THE OLD NATIONAL BANK OF HUNTINGTON
STATEMENTS OF CONDITION
September 30, December 31,
1996 1995
---- ----
(UNAUDITED)
ASSETS
Cash and due from banks $ 2,756,153 $ 3,109,413
Federal funds sold (cash equivalent) 9,200,000 1,340,000
Investment securities
Held to maturities (fair value of $8,364,917
at September 30, 1996 and $8,674,708 at
December 31, 1995) 8,354,862 8,491,067
Available for sale, at fair value 5,897,664 6,503,205
Mortgage-backed and related securities
Available for sale, at fair value 300,252 506,421
Loans 25,741,170 17,764,719
Less allowance for credit losses (121,705) (96,152)
---------- ----------
Net loans 25,619,465 17,668,567
Properties and equipment 1,089,881 857,726
Other real estate owned -0- 242,894
Deferred income tax benefit -0- 33,072
Accrued income and other assets 621,652 460,865
---------- ----------
TOTAL ASSETS $ 53,839,929 $ 39,213,230
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Demand deposits $ 3,997,598 $ 4,219,386
Savings and NOW deposits 22,147,673 12,823,184
Time deposits $100,000 and over 5,549,386 4,326,751
Other time deposits 17,419,753 13,223,749
---------- ----------
Total Deposits 49,114,410 34,593,070
Securities sold under agreements to repurchase 415,257 378,886
Accrued expenses and other liabilities 250,408 249,908
----------- -----------
TOTAL LIABILITIES 49,780,075 35,221,864
---------- ----------
SHAREHOLDERS' EQUITY
Common stock - $10 par value 75,000 shares
authorized, issued and outstanding 750,000 750,000
Capital surplus 750,000 750,000
Retained earnings 2,549,997 2,427,836
Less: Net unrealized loss on available
for sale securities 9,857 63,530
--------- ----------
TOTAL SHAREHOLDERS' EQUITY 4,059,854 3,991,366
---------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 53,839,929 $ 39,213,230
========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
F-22
<PAGE>
THE OLD NATIONAL BANK OF HUNTINGTON
STATEMENTS OF INCOME
NINE MONTHS ENDED
--------------------------------
September 30, September 30,
1996 1995
---- ----
(UNAUDITED) (UNAUDITED)
INTEREST INCOME
Interest and fees on loans $ 1,675,716 $ 905,924
Interest on investment securities:
Taxable 469,631 521,483
Exempt from federal income tax 115,250 116,299
Interest on federal funds sold 206,458 214,126
Interest on mortgage backed and
related securities 73,607 187,675
Interest on other bonds 940 1,189
---------- ----------
TOTAL INTEREST INCOME 2,541,602 1,946,696
--------- ---------
INTEREST EXPENSE
Interest on demand and savings deposits 344,838 345,117
Interest on certificates of deposits
over $100,000 220,611 98,749
Interest on other time deposits 638,129 457,651
Interest on federal funds purchased
and securities sold under agreements
to repurchase 16,128 17,390
--------- --------
TOTAL INTEREST EXPENSE 1,219,706 918,907
--------- --------
NET INTEREST INCOME 1,321,896 1,027,789
PROVISION FOR CREDIT LOSSES (136,000) (9,500)
---------- --------
NET INTEREST INCOME AFTER
PROVISION FOR CREDIT LOSSES 1,185,896 1,018,289
--------- ---------
OTHER INCOME
Service charges on deposit accounts 33,130 22,169
Other service charges and fees 88,132 38,519
Net investment and mortgage backed
securities gains (losses) (264) (175)
Net gain on sale of fixed assets 28,731 -0-
Other income 28,790 17,241
-------- --------
TOTAL OTHER INCOME 178,519 77,754
-------- --------
OTHER EXPENSES
Salaries and employee benefits 534,156 266,838
Occupancy expense 157,220 100,697
Equipment expense 52,844 23,115
Other expense 430,229 361,042
--------- --------
TOTAL OTHER EXPENSES 1,174,449 751,692
--------- --------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
F-23
<PAGE>
THE OLD NATIONAL BANK OF HUNTINGTON
STATEMENTS OF INCOME (CONTINUED)
NINE MONTHS ENDED
--------------------------------
September 30, September 30,
1996 1995
---- ----
(UNAUDITED) (UNAUDITED)
INCOME BEFORE INCOME TAXES $ 189,966 $ 344,351
INCOME TAX EXPENSE 67,805 46,436
-------- --------
NET INCOME $ 122,161 $ 297,915
======= =======
NET INCOME PER SHARE OF COMMON
STOCK $ 1.63 $ 3.97
======= =======
AVERAGE SHARES OUTSTANDING 75,000 75,000
======= =======
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
F-24
<PAGE>
THE OLD NATIONAL BANK OF HUNTINGTON
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
---------------------------
September 30, September 30,
1996 1995
---- ----
(UNAUDITED) (UNAUDITED)
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 122,161 $ 297,915
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 52,284 18,610
Provision for credit losses 136,000 9,500
Accretion of deferred loan origination fees (23,226) (11,873)
Premium amortization and discount accretion, net (5,220) (1,162)
Realized losses (gains) from investments and
mortgage-backed securities - net 264 175
Gain from sale of other real estate owned (28,731) -0-
Changes in assets and liabilities which provided
(used) cash exclusive of changes shown
separately:
Deferred income tax benefit 33,072 103,134
Accrued income and other assets (160,787) (11,947)
Accrued expenses and other liabilities 34,816 (152,237)
---------- ---------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 160,633 252,115
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales and maturities of investment
securities - held to maturity 190,520 395,369
Proceeds from sales and maturities of investment
securities - available for sale 2,499,820 1,296,121
Purchase of investment securities - held to maturity (50,000) (122,868)
Purchase of investment securities - available for sale (1,975,443) (1,896,088)
Proceeds from sales and maturities of mortgage backed
and related securities - available for sale 199,985 292,000
Net (increase) decrease in loans (8,063,672) (4,320,229)
Purchases of properties and equipment (284,439) (527,230)
Proceeds from the sale of other real estate owned 271,625 -0-
NET CASH (USED IN) INVESTING ----------- -----------
ACTIVITIES (7,211,604) (4,882,925)
----------- -----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
F-25
<PAGE>
THE OLD NATIONAL BANK OF HUNTINGTON
STATEMENTS OF CASH FLOWS (CONTINUED)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
NINE MONTHS ENDED
----------------------------
September 30, September 30,
1996 1995
---- ----
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in:
Demand, savings and
NOW deposit accounts $ 9,102,701 $ 1,896,741
Time deposits5,418,639 6,201,318
Securities sold under agreements
to repurchase 36,371 (350,292)
--------- ----------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 14,557,711 7,747,767
---------- ------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 7,506,740 3,116,957
--------- ---------
CASH AND CASH EQUIVALENTS AT THE
BEGINNING OF THE PERIOD 4,449,413 5,641,500
--------- ----------
CASH AND CASH EQUIVALENTS AT THE
END OF THE PERIOD $ 11,956,153 $ 8,758,457
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash received during the six month period for:
Interest $ 2,518,585 $ 1,892,789
========= ==========
Cash paid during the six month period for:
Interest $ 1,180,173 $ 858,773
========= ==========
Income taxes $ 79,899 $ 35,350
========= ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
F-26
<PAGE>
THE OLD NATIONAL BANK OF HUNTINGTON
NOTE TO FINANCIAL STATEMENTS
The statement of condition as of September 30, 1996, and the statements of
income and cash flows for the nine months ended September 30, 1996 and 1995 are
unaudited; however, in the opinion of management, all adjustments of a normal
and recurring nature which are necessary for a fair presentation have been
included. The statement of condition as of December 31, 1995 was audited by the
Bank's independent auditors and should be read in conjunction with the Bank's
audited financial statements and the notes thereto as of and for the year ended
December 31, 1995.
F-27
<PAGE>
ANNEX I
AGREEMENT AND PLAN OF REORGANIZATION
among
CITY HOLDING COMPANY
ONB ACQUISITION SUBSIDIARY, N.A.,
(In Organization)
and
THE OLD NATIONAL BANK OF HUNTINGTON
August 13, 1996
<PAGE>
ARTICLE I
General
1.1 Bank Merger........................................................ 2
1.2 Issuance of City Holding Common Stock.............................. 2
1.3 Taking of Necessary Action......................................... 2
1.4 Directors of City Holding and Bank................................. 2
ARTICLE II
Effect of Transaction on Common Stock of Bank
2.1 Conversion of Stock................................................ 3
2.2 Manner of Exchange................................................. 4
2.3 Dissenting Shares.................................................. 5
2.4 No Fractional Shares............................................... 6
ARTICLE III
Representations and Warranties
3.1 Representations and Warranties of Bank............................. 6
(a) Organization, Standing and Power............................ 6
(b) Capital Structure; Subsidiaries............................. 7
(c) Authority................................................... 7
(d) Investments................................................. 8
(e) Financial Statements........................................ 9
(f) Absence of Undisclosed Liabilities.......................... 9
(g) Tax Matters................................................. 10
(h) Options, Warrants and Related Matters....................... 11
(i) Property; Leases............................................ 11
(j) Employees................................................... 12
(k) Certain Contracts........................................... 13
(l) Employment Contracts and Related Matters.................... 13
(m) Real Estate................................................. 13
(n) Affiliates.................................................. 13
(o) Agreements in Force and Effect.............................. 13
(p) Legal Proceedings; Compliance with Laws..................... 14
(q) Employee Benefit Plans...................................... 15
(r) Insurance................................................... 17
(s) Loan Portfolio.............................................. 18
(t) Absence of Changes.......................................... 19
-i-
<PAGE>
(u) Brokers and Finders......................................... 19
(v) Securities Portfolio........................................ 19
(w) Reports..................................................... 19
(x) Environmental Matters....................................... 19
(y) Disclosure.................................................. 21
3.2 Representations and Warranties of City Holding..................... 22
(a) Organization, Standing and Power............................ 22
(b) Capital Structure........................................... 22
(c) Authority................................................... 23
(d) Financial Statements........................................ 24
(e) Absence of Undisclosed Liabilities.......................... 25
(f) Absence of Changes.......................................... 25
(g) Brokers and Finders......................................... 25
(h) Options, Warrants and Related Matters....................... 25
(i) Reports..................................................... 25
(j) Legal Proceedings; Compliance with Laws..................... 26
(k) Employee Benefits Plan...................................... 27
(l) Insurance................................................... 28
(m) Loan Portfolio.............................................. 28
(n) Absence of Changes.......................................... 29
(o) Securities Portfolio........................................ 29
(p) Environmental Matters....................................... 29
(q) Disclosure.................................................. 30
ARTICLE IV
Conduct and Transactions Prior to
Effective Time of the Bank Merger
4.1 Access to Records and Properties of City Holding and Bank.......... 30
4.2 Registration Statement; Proxy Statement; Shareholder Approval...... 31
4.3 Operation of the Business of Bank.................................. 33
4.4 No Solicitation.................................................... 34
4.5 Dividends.......................................................... 35
4.6 Regulatory Filings................................................. 35
4.7 Tax Opinion........................................................ 35
4.8 Public Announcements............................................... 35
4.9 Transactions in City Holding Common Stock.......................... 35
4.10 City Holding Rights Agreement...................................... 36
4.11 Accounting Treatment............................................... 36
4.12 Agreement as to Efforts to Consummate.............................. 36
4.13 Adverse Changes in Condition....................................... 36
-ii-
<PAGE>
4.14 Updating of Schedules.............................................. 37
ARTICLE V
Conditions of Transaction
5.1 Conditions of Obligations of City Holding.......................... 37
(a) Representations and Warranties; Performance of Obligations;
No Adverse Change........................................... 37
(b) Authorization of Transaction................................ 38
(c) Opinion of Counsel.......................................... 38
(d) Registration Statement...................................... 41
(e) Tax Opinion................................................. 41
(f) Regulatory Approvals........................................ 42
(g) Affiliate Letters........................................... 42
(h) Provision for Loan Losses................................... 43
(i) Accounting Treatment........................................ 43
(j) Acceptance by City Holding Counsel.......................... 43
5.2 Conditions of Obligations of Bank.................................. 43
(a) Representations and Warranties; Performance of Obligations;
No Adverse Change........................................... 43
(b) Authorization of Transaction................................ 44
(c) Opinion of Counsel.......................................... 44
(d) Registration Statement...................................... 46
(e) Regulatory Approvals........................................ 47
(f) Tax Opinion................................................. 47
(g) Acceptance by Bank's Counsel................................ 47
ARTICLE VI
Closing Date; Effective Time of the
Bank Merger
6.1 Closing Date....................................................... 47
6.2 Filings at Closing................................................. 48
6.3 Effective Time..................................................... 48
ARTICLE VII
Termination; Survival of Representations
Warranties and Covenants; Waiver and Amendment
7.1 Termination........................................................ 48
-iii-
<PAGE>
7.2 Effect of Termination.............................................. 50
7.3 Survival of Representations, Warranties and Covenants.............. 50
7.4 Waiver and Amendment............................................... 50
ARTICLE VIII
Additional Covenants
8.1 Registration Statement............................................. 51
8.2 Employee Benefits.................................................. 51
8.3 Indemnification.................................................... 52
ARTICLE IX
Miscellaneous
9.1 Expenses........................................................... 53
9.2 Entire Agreement................................................... 53
9.3 Descriptive Headings............................................... 53
9.4 Notices............................................................ 53
9.5 Counterparts....................................................... 54
9.6 Governing Law...................................................... 54
Exhibit A - Plan of Merger
-iv-
<PAGE>
SCHEDULE DESCRIPTION SECTION IN AGREEMENT
-------- ----------- --------------------
A Bank Articles of Association 3.1(a)
B Bank Bylaws 3.1(a)
C Securities Owned by Bank 3.1(b), 3.1(d), 3.1(d)
D Bank Conflicts, Breaches or 3.1(c)
Defaults
E Bank Financial Statements 3.1(e)
F Bank Tax Matters 3.1(g), 3.1(g), 3.1(g)
G Salary Rates and Bank Common 3.1(j)
Stock Owned by Employees and
Directors of Bank; Owners of
5% of Bank Common Stock;
Outstanding Unexercised
Options, Warrants, Calls,
Commitments or Agreements
H Notes, Bonds, Mortgages, 3.1(k), 5.1(c))vi),
Indentures, Licenses, Lease 5.1(c)(viii)
Agreements and Other Contracts
of Bank
I Employment Contracts and 3.1(l), 3.1(q)(i),
Related Matters of Bank 3.1(q)(i), 3.1(q)(vii),
3.1(q)(viii)
J Real Estate Owned or Leased 3.1(m)
by Bank
-v-
<PAGE>
K Bank Affiliates 3.1(n), 5.1(c)(iv)
L Bank Legal Proceedings 3.1(p), 3.1(p), 3.1(p)
M Bank Insurance 3.1(r)
N Bank Loans 3.1(s), 3.1(s)
O Bank Material Adverse Changes 3.1(t)
P Bank Environmental Matters 3.1(x)
Q City Holding Contingencies 3.2(e)
R City Holding Options, Warrants 3.2(h)
Calls, etc.
S City Holding Litigation 3.2(j), 5.2(c)(viii)
T City Holding Environmental 3.2(p)
Matters
U Bank Salary Adjustments 4.3
V Waiting Periods for City 8.2
Holding Employee Plans
-vi-
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement"), dated as of
August 13, 1996 by and among City Holding Company, a West Virginia corporation
("City Holding"), ONB Acquisition Subsidiary, N.A., an interim national banking
association (in organization) wholly-owned by City Holding ("Acquisition"), and
The Old National Bank of Huntington, a national banking association ("Bank"),
recites and provides:
A. The boards of directors of City Holding and Bank deem it advisable to merge
Bank into Acquisition (the "Bank Merger") pursuant to this Agreement, the Plan
of Merger attached as Exhibit A (the "Plan of Merger") and the provisions of 12
U.S.C. ss. 215a whereby the holders of shares of common stock of Bank ("Bank
Common Stock") will receive common stock of City Holding ("City Holding Common
Stock").
B. To effectuate the foregoing, the parties desire to adopt a plan of
reorganization in accordance with the provisions of Section 368(a) of the United
States Internal Revenue Code, as amended (the "Code").
C. City Holding shall cause Acquisition to become a party to this Agreement upon
its organization and prior to consummation of the Bank Merger.
NOW, THEREFORE, in consideration of the mutual benefits to be derived from this
Agreement, and of the representations, warranties, conditions and promises
herein contained, City Holding, Acquisition and Bank adopt this Agreement
whereby at the "Effective Time of the Bank Merger" (as defined in Article VI)
Bank shall be merged into Acquisition in accordance
-1-
<PAGE>
with the Plan of Merger. The outstanding shares of Bank Common Stock shall be
converted into shares of City Holding Common Stock on the basis, terms and
conditions contained herein and in the Plan of Merger. In connection therewith,
the parties hereto agree as follows:
ARTICLE I
General
1.1 Bank Merger. Subject to the provisions of this Agreement, the
Plan of Merger and 12 U.S.C. ss. 215a, at the Effective Time of the Bank Merger,
Bank shall be merged with and into Acquisition and the separate existence of
Bank shall cease.
1.2 Issuance of City Holding Common Stock. City Holding agrees that at
the Effective Time of the Bank Merger, it will issue City Holding Common Stock
to the extent set forth in, and in accordance with, the terms of this Agreement
and the Plan of Merger.
1.3 Taking of Necessary Action. Prior to and after the Effective Time
of the Bank Merger, subject to the provisions of this Agreement, City Holding,
Acquisition and Bank, respectively, each shall take all such action as may be
necessary or appropriate to effect the Bank Merger.
1.4 Directors of City Holding and Bank. At its first meeting following
the Effective Time of the Bank Merger, City Holding agrees to increase the
number of members of City Holding's Board of Directors by two and to elect
William M. Frazier and Leon K. Oxley to fill the resulting vacancies. The two so
elected's eligibility for and election at City Holding's next following Annual
Meeting of Shareholders will be governed by City Holding's Bylaws.
-2-
<PAGE>
Following the Effective Time of the Bank Merger, the Directors and
Merchants shall continue as Directors of Merchants for at least five years
following the Effective Time of the Bank Merger unless removed for cause or in
accordance with Bank's Bylaws and shall continue to receive Board fees at least
equal to the Board fees such persons received immediately prior to the Effective
Time of the Bank Merger. As used in this Section, "cause" shall mean dishonesty,
fraud or gross abuse of authority in performance of duty or breach of fiduciary
duty.
ARTICLE II
Effect of Transaction on Common Stock of Bank
2.1 Conversion of Stock. At the Effective Time of the Bank Merger:
(a) Each share of Bank Common Stock issued and outstanding at the
Effective Time of the Bank Merger (other than shares held by City Holding or in
Bank's treasury and other than Dissenting Shares as defined in Section 2.3)
shall, and without any action by the holder thereof, be converted into a number
of shares of City Holding Common Stock equal to the quotient (rounded to the
nearest one one-hundredth) obtained by dividing (i) the product obtained by
multiplying the per share book value of Bank Common Stock at June 30, 1996 by
2.5 by (ii) $23.325 (the "City Holding Stock Price"). (The quotient thus
obtained is referred to as the "Exchange Ratio"). All such shares of City
Holding Common Stock shall be validly issued, fully paid and nonassessable.
(b) The Exchange Ratio at the Effective Time of the Bank
Merger shall be adjusted to reflect any consolidation, split-up, other
subdivisions or combinations of City Holding Common Stock, any dividend payable
in City Holding Common Stock, or any capital
-3-
<PAGE>
reorganization involving the reclassification of City Holding Common Stock
subsequent to the date of this Agreement.
2.2 Manner of Exchange. After the Effective Date of the Bank Merger,
each holder of a certificate to theretofore outstanding shares of Bank Common
Stock, upon surrender of such certificate to City National Bank of Charleston
(which shall act as exchange agent), accompanied by a Letter of Transmittal
shall be entitled to receive in exchange therefor a certificate or certificates
representing the number of full shares of City Holding Common Stock for which
shares of Bank Common Stock theretofore represented by the certificate or
certificates so surrendered shall have been exchanged as provided in this
Article II. Until so surrendered, each outstanding certificate which, prior to
the Effective Time of the Bank Merger, represented Bank Common Stock (other than
Dissenting Shares referred to in Section 2.3) will be deemed to evidence the
right to receive the number of full shares of City Holding Common Stock into
which the shares of Bank Common Stock represented thereby may be converted, and,
after the Effective Time of the Bank Merger, will be deemed for all corporate
purposes of City Holding to evidence ownership of the number of full shares of
City Holding Common Stock into which the shares of Bank Common Stock represented
thereby were converted. Until such outstanding certificates formerly
representing Bank Common Stock are surrendered, no dividend payable to holders
of record of City Holding Common Stock for any period as of any date subsequent
to the Effective Time of the Bank Merger shall be paid to the holder of such
outstanding certificates in respect thereof. After the Effective Time of the
Bank Merger there shall be no further registry of transfer on the records of
Bank of shares of Bank Common Stock. If a certificate representing such shares
is presented to the exchange agent, it shall be canceled and
-4-
<PAGE>
exchanged for a certificate representing shares of City Holding Common Stock as
herein provided. City Holding will also issue a certificate in exchange for
shares evidenced by lost certificate(s) provided the record owner thereof
provides City Holding with such substantiation, indemnification and security as
City Holding may reasonably require. Upon surrender of certificates of Bank
Common Stock in exchange for City Holding Common Stock, there shall be paid to
the recordholder of the certificates of City Holding Common Stock issued in
exchange thereof (i) the amount of dividends theretofore paid with respect to
such full shares of City Holding Common Stock as of any date subsequent to the
Effective Time of the Bank Merger which have not yet been paid to a public
official pursuant to abandoned property laws and (ii) at the appropriate payment
date the amount of dividends with a record date after the Effective Time of the
Bank Merger, but prior to surrender and payment date subsequent to surrender. No
interest shall be payable with respect to such dividends upon surrender of
outstanding certificates.
2.3 Dissenting Shares. Notwithstanding anything in this Agreement to
the contrary, shares of Bank Common Stock which are issued and outstanding
immediately prior to the Effective Time of the Bank Merger and which are held by
a shareholder who has the right (to the extent such right is available by law)
to demand and receive payment of the fair value of his shares of Bank Common
Stock (the "Dissenting Shares") pursuant to 12 U.S.C. ss. 215a, shall not be
converted into or be exchangeable for the right to receive the consideration
provided in Section 2.2 unless and until such holder shall fail to perfect his
or her right to an appraisal or shall have effectively withdrawn or lost such
right under 12 U.S.C. ss. 215a, as the case may be. If such holder shall have so
failed to perfect his right to dissent or shall have effectively
-5-
<PAGE>
withdrawn or lost such right, each of his shares of Bank Common Stock shall
thereupon be deemed to have been converted into, at the Effective Time of the
Bank Merger, the right to receive shares of City Holding Common Stock at the
Exchange Ratio. The number of Dissenting Shares and fractional shares settled
for cash cannot exceed 9.9% of the shares of Bank Common Stock to preserve the
"pooling of interests" accounting treatment of the Bank Merger. City Holding
shall either pay or contribute to the capital of Acquisition funds to pay all
amounts payable to holders of Dissenting Shares for such shares.
2.4 No Fractional Shares. No certificates or scrip for fractional
shares of City Holding Common Stock will be issued. In lieu thereof, City
Holding will pay the value of such fractional shares in cash (subject to all
applicable withholding taxes), for which purpose City Holding Common Stock shall
be valued at the City Holding Stock Price.
ARTICLE III
Representations and Warranties
3.1 Representations and Warranties of Bank. Bank represents and
warrants to City Holding as follows:
(a) Organization, Standing and Power. Bank is a national
banking association duly organized, validly existing and in good standing under
the laws of the United States and has all requisite power and authority to own,
lease and operate its properties and to carry on its business as now being
conducted and subject to the approval of the Plan of Merger by shareholders of
Bank as contemplated by Section 4.2, to perform this Agreement to effect the
transactions contemplated hereby. Bank's Articles of Association and all
amendments thereto
-6-
<PAGE>
to the date hereof and Bank's Bylaws as amended to the date hereof are attached
hereto as Schedule A and Schedule B, respectively. Bank's deposits are insured
by the Bank Insurance Fund of the Federal Deposit Insurance Corporation to the
maximum extent permitted by law.
(b) Capital Structure; Subsidiaries. Bank's authorized capital
stock consists of 75,000 shares of Common Stock, par value $10 per share. As of
the Effective Time of the Bank Merger, 75,000 shares of Bank Common Stock will
be issued and outstanding, and all of the issued and outstanding shares of Bank
Common Stock are and will be validly issued, fully paid and nonassessable. Bank
has no subsidiaries.
Except as disclosed on Schedule C, Bank knows of no person who
beneficially owns 5% or more of outstanding Bank Common Stock.
(c) Authority. Subject to the approval of the Plan of Merger
by shareholders of Bank as contemplated by Section 4.2 hereof, the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby and by the Plan of Merger have been duly and validly authorized by all
necessary action on the part of Bank, and this Agreement is a valid and binding
obligation of Bank, enforceable in accordance with its terms. The execution and
delivery of this Agreement, the consummation of the transactions contemplated
hereby and by the Plan of Merger and compliance by Bank with any of the
provisions hereof will not, except as noted on Schedule D, (i) conflict with or
result in a breach of any provision of Bank's Articles of Association or Bylaws
or a default (or give rise to any right of termination, cancellation or
acceleration) under any of the terms, conditions or provisions of any note,
bond, debenture, mortgage, indenture, license, material agreement or other
material instrument or obligation to which Bank is a party, by which Bank or any
of its properties or assets may be
-7-
<PAGE>
bound (except for such conflict, breach or default, as to which requisite
waivers or consents shall have been obtained by Bank prior to the Effective Time
of the Bank Merger or the obtaining of which shall have been waived by City
Holding); or (ii) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to Bank or any of its properties or assets. No consent or
approval by any governmental authority, other than compliance with applicable
federal and state corporate, securities and banking laws, and regulations of the
Board of Governors of the Federal Reserve System (the "Federal Reserve Board")
and the Office of the Comptroller of the Currency (the "OCC"), is required in
connection with the execution and delivery by Bank of this Agreement or the
consummation by Bank of the transactions contemplated hereby or by the Plan of
Merger.
(d) Investments. All securities owned by Bank of record and
beneficially are free and clear of all mortgages, liens, pledges, encumbrances
or any other restriction, whether contractual or statutory, which would
materially impair the ability of Bank freely to dispose of any such security at
any time, except as noted on Schedule C. Any securities owned of record by Bank
in an amount equal to 5% or more of the issued and outstanding voting securities
of the issuer thereof have been noted on Schedule C. There are no voting trusts
or other agreements or undertakings with respect to the voting of such
securities. With respect to all repurchase agreements to which Bank is a party,
Bank has a valid, perfected first lien or security interest in the government
securities or other collateral securing the repurchase agreement, and the value
of the collateral securing each such repurchase agreement equals or exceeds the
amount of the debt secured by such collateral under such agreement.
-8-
<PAGE>
(e) Financial Statements. Schedule E contains copies of the
following financial statements of Bank (the "Bank Financial Statements"):
(i) Balance Sheets as of December 31, 1995 and 1994
and March 31, 1996 and 1995;
(ii) Statements of Income for each of the three
years ended December 31, 1995, 1994 and 1993 and the three months ended March
31, 1996 and 1995;
(iii) Statements of Changes in Stockholders' Equity
for each of the three years ended December 31, 1995, 1994 and 1993; and
(iv) Statements of Cash Flows for each of the three
years ended December 31, 1995, 1994 and 1993.
Such financial statements and the notes thereto have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods indicated. Each of such statements of financial
condition, together with the notes thereto, presents fairly as of its date the
financial condition and assets and liabilities of Bank. Such statements of
operations, statements of stockholders' equity and statements of cash flows,
together with the notes thereto, present fairly the results of operations of
Bank for the periods indicated.
Subject to the limitations imposed by federal laws applicable to
national banks, and except as disclosed in the Bank Financial Statements, there
are no restrictions precluding Bank from paying dividends.
(f) Absence of Undisclosed Liabilities. At December 31, 1995
and March 31, 1996, Bank had no obligations or liabilities (contingent or
otherwise) of any nature which were
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not reflected in the Bank Financial Statements as of such date, or disclosed in
the notes thereto, except for those which in the aggregate are immaterial or
disclosed in Schedules specifically referred to herein.
(g) Tax Matters. Bank has filed or (in the case of returns or
reports not yet due) will file all tax returns and reports required to have been
filed by or for it before the Effective Time of the Bank Merger, and all
information set forth in such returns or reports is or (in the case of such
returns or reports not yet due) will be accurate and complete in all material
respects. Bank has paid or made adequate provision in all material respects for
(or with respect to returns or reports not filed before the Effective Time of
the Bank Merger will pay or make adequate provision for) all taxes, additions to
tax, penalties, and interest for all periods covered by those returns or
reports. Except as disclosed on Schedule F, there are, and at the Effective Time
of the Bank Merger will be, no unpaid taxes, additions to tax, penalties, or
interest due and payable by Bank or by any other person that are or could become
a lien on any asset or otherwise adversely affect the business, property or
financial condition of Bank. Bank has collected or withheld, or will collect or
withhold before the Effective Time of the Bank Merger, all amounts required to
be collected or withheld by it for any taxes, and all such amounts have been, or
before the Effective Time of the Bank Merger will have been, paid to the
appropriate governmental agencies or set aside in appropriate accounts for
future payment when due. Bank is in material compliance with, and its records
contain all information and documents (including, without limitation, properly
completed IRS Forms W-9) necessary to comply in all material respects with, all
information reporting and tax withholding requirements under federal, state, and
local laws, rules, and regulations, and such records identify with
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<PAGE>
specificity all accounts subject to backup withholding under Section 3406 of the
Internal Revenue Code of 1986 (the "Code"). The balance sheets contained in the
Bank Financial Statements fully and properly reflect, as of the dates thereof,
the aggregate liabilities of Bank for all accrued taxes, additions to tax,
penalties and interest. For periods ending after December 31, 1995, the books
and records of Bank fully and properly reflect its liability for all accrued
taxes, additions to tax, penalties and interest. Except as disclosed in Schedule
F, no tax return or report of Bank is under examination by any taxing authority
or the subject of any administrative or judicial proceeding, Bank has not
granted (nor is it subject to) any waiver of the period of limitations for the
assessment of tax for any currently open taxable period, and no unpaid tax
deficiency has been asserted against or with respect to Bank by any taxing
authority. Bank has not made or entered into, and holds no asset subject to, a
consent filed pursuant to Section 341(f) of the Code and the regulations
thereunder or a "safe harbor lease" subject to former Section 168(f)(8) of the
Code and the regulations thereunder. Schedule F describes all tax elections,
consents and agreements affecting Bank for any tax period beginning on or after
January 1, 1989, and all such material elections, consents and agreements for
any prior period. To the best knowledge of Bank, no Bank shareholder is a
"foreign person" for purposes of Section 1445 of the Code.
(h) Options, Warrants and Related Matters. There are no
outstanding unexercised options, warrants, calls, commitments or agreements of
any character to which Bank is a party or by which it is bound calling for the
issuance of securities of Bank or any security representing the right to
purchase or otherwise receive any such security.
(i) Property; Leases. Bank owns (or enjoys use of under
capital leases) all property reflected on the Bank Financial Statements as of
December 31, 1995 and March 31,
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1996 (except personal property sold or otherwise disposed of in the ordinary
course of business). All property shown as being owned is owned free and clear
of all mortgages, liens, pledges, charges or encumbrances of any nature
whatsoever, except those referred to in the notes to the Bank Financial
Statements, liens for current taxes not yet due and payable, any unfiled
mechanics' liens and such encumbrances and imperfections of title, if any, as
are not substantial in character or amount or otherwise materially impair
business operations.
The capital leases, if any, relating to leased property are valid and
subsisting and there does not exist with respect to Bank's obligations
thereunder any material default or event or condition which, after notice or
lapse of time or both, would constitute a material default thereunder. There is
no condemnation proceeding pending or threatened which would preclude or impair
the use of any property as presently being used in the conduct of Bank's
business. Such leases are reflected in the Bank Financial Statements.
All property and assets material to the business or operations of Bank
are in substantially good operating condition and repair and such property and
assets are adequate for the business and operations of Bank as currently
conducted.
No notice of violation of zoning laws, building or fire codes or other
statutes, ordinances or regulations relating to the operations of Bank has been
received by Bank.
(j) Employees. Schedule G lists (A) name of, current annual
salary rates for, and the number of shares of Bank Common Stock owned
beneficially by, all present employees of Bank who each are presently scheduled
to receive a salary in excess of $50,000 during the year ending December 31,
1996; (B) the number of shares of Bank Common Stock owned beneficially by each
director of Bank; and (C) the names of and the number of shares of Bank
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Common Stock owned by each person who, to the knowledge of Bank, beneficially
owns 5% or more of the outstanding Bank Common Stock.
(k) Certain Contracts. Schedule H lists all notes, bonds,
mortgages, indentures, licenses, lease agreements and other contracts and
obligations to which Bank is a party, except for those entered into by Bank in
the ordinary course of business consistent with prior practices and that do not
involve more than $50,000.
(l) Employment Contracts and Related Matters. Except in all
cases as set forth on Schedule I, Bank is not a party to (A) any employment
contract not terminable at the option of Bank without liability; (B) any
retirement, stock option, profit sharing or pension plan or thrift plan or
agreement or employee benefit plan (as defined in Section 3 of the Employee
Retirement Income Security Act of 1974 ("ERISA")); (C) any management or
consulting agreement not terminable at the option of Bank without liability; or
(D) any union or labor agreement.
(m) Real Estate. Schedule J describes all interests in real
property owned, leased or otherwise claimed by Bank, including "other real
estate owned."
(n) Affiliates. Schedule K sets forth the names and number of
shares of Bank Common Stock owned beneficially or of record by any persons Bank
considers to be affiliates ("Bank Affiliates") as that term is defined for
purposes of Rule 145 under the Securities Act of 1933 (the "1933 "Act").
(o) Agreements in Force and Effect. All material contracts,
agreements, plans, leases, policies and licenses referred to in any Schedule of
Bank referred to herein are valid and in full force and effect, and Bank has not
breached any material provision of, nor are
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in default in any material respect under the terms of, any such contract,
agreement, lease, policy or license.
(p) Legal Proceedings; Compliance with Laws. Except as set
forth in Schedule L, there is no legal, administrative, arbitration or other
proceeding or governmental investigation pending (including any legal,
administrative, arbitration or other proceeding or governmental investigation
pending involving a violation of the federal antitrust laws), or, to the
knowledge of Bank's management, threatened or probable of assertion, which might
result in money damages payable by Bank in excess of insurance coverage, which
might result in a permanent injunction against Bank, which might result in a
change in the zoning or building ordinances materially affecting the property or
leasehold interests of Bank, or which otherwise, either individually or in the
aggregate, is likely to have a material adverse affect on Bank. Except as set
forth in Schedule L, Bank has complied in all material respects with any laws,
ordinances, requirements, regulations or orders applicable to its business
(including environmental laws, ordinances, requirements, regulations or orders).
Bank has all licenses, permits, orders or approvals of any federal, state, local
or foreign governmental or regulatory body (collectively, "Permits") that are
material to or necessary for the conduct of the business of Bank; the Permits
are in full force and effect; no violations are or have been recorded in respect
of any Permits, nor has Bank received notice of any such violation; and no
proceeding is pending or, to the knowledge of Bank, threatened or probable of
assertion to revise, revoke or limit any Permit. Except as set forth in Schedule
L, Bank has not entered into any agreements or written understandings with the
OCC, the FDIC or any other regulatory authority. Bank is not subject to any
judgment, order, writ, injunction or decree which materially adversely
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<PAGE>
affects, or might reasonably be expected to materially adversely affect, the
condition (financial or otherwise), business or prospects of Bank.
(q) Employee Benefit Plans.
(i) Schedule I includes a correct and complete list
of, and City Holding has been furnished a true and correct copy of, (A) all
qualified pension and profit-sharing plans, all deferred compensation,
consultant, severance, thrift, option, bonus and group insurance contracts and
all other incentive, welfare and employee benefit plans, trust, annuity or other
funding agreements, and all other agreements that are presently in effect, or
have been approved prior to the date hereof, for the benefit of employees or
former employees of Bank, or the dependents or beneficiaries of any employee or
former employee of Bank, whether or not subject to ERISA (the "Employee Plans");
(B) the most recent actuarial and financial reports prepared or required to be
prepared with respect to any Employee Plan; and (C) the most recent annual
reports filed with any governmental agency, the most recent favorable
determination letter issued by the Internal Revenue Service, and any open
requests for rulings or determination letters, that pertain to any such
qualified Employee Plan. Schedule I identifies each Employee Plan that is
intended to be qualified under Section 401(a) of the Code and each such plan is
qualified.
(ii) Neither Bank nor any employee pension benefit
plan (as defined in Section 3(2) of ERISA (a "Pension Plan")) maintained or
previously maintained by it, has incurred any material liability to the Pension
Benefit Guaranty Corporation ("PBGC") or to the Internal Revenue Service with
respect to any Pension Plan. There is not currently pending with the PBGC any
filing with respect to any reportable event under Section 4043 of ERISA nor has
any reportable event occurred as to which a filing is required and has not been
made.
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<PAGE>
(iii) Full payment has been made (or proper accruals
have been established) of all contributions which are required for periods prior
to the Closing Date under the terms of each Employee Plan, ERISA, or a
collective bargaining agreement. No accumulated funding deficiency (as defined
in Section 302 of ERISA or Section 412 of the Code) whether or not waived,
exists with respect to any Pension Plan (including any Pension Plan previously
maintained by Bank). There is no "unfunded current liability" (as defined in
Section 412 of the Code) with respect to any Pension Plan.
(iv) No Employee Plan is a "multiemployer plan" (as
defined in Section 3(37) of ERISA). Bank has not incurred any liability under
Section 4201 of ERISA for a complete or partial withdrawal from a multiemployer
plan (as defined in Section 3(37) of ERISA). Bank has not participated in or
agreed to participate in, a multiemployer plan (as defined in Section 3(37) of
ERISA).
(v) All Employee Plans that are "employee benefit
plans", as defined in Section 3(3) of ERISA, that are maintained by or were
previously maintained by Bank comply and have been administered in compliance in
all material respects with ERISA and all other legal requirements, including the
terms of such plans, collective bargaining agreements and securities laws. Bank
does not have any material liability under any such plan that is not reflected
in the Bank Financial Statements.
(vi) No prohibited transaction has occurred with
respect to any Employee Plan that is an "employee benefit plan" (as defined in
Section 3(3) of ERISA) maintained by Bank or any "employee benefit plan"
previously maintained by Bank that would
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<PAGE>
result, directly or indirectly, in material liability under ERISA or in the
imposition of a material excise tax under Section 4975 of the Code.
(vii) Schedule I identifies each Employee Plan that
is an "employee welfare benefit plan" (as defined in Section 3(1) of ERISA) and
which is funded. The funding under each such plan does not exceed the
limitations under Section 419A(b) or 419A(c) of the Code. Bank is not subject to
taxation on the income of any such plan or any such plan previously maintained
by Bank.
(viii) Schedule I identifies the method of funding
(including any individual accounting) and funded status for all post-retirement
medical or life insurance benefits for the employees of Bank.
(r) Insurance. All policies or binders of fire, liability,
product liability, workmen's compensation, vehicular and other insurance held by
or on behalf of Bank are described on Schedule M and are valid and enforceable
in accordance with their terms, are in full force and effect, and insure against
risks and liabilities to the extent and in the manner customary for the industry
and are deemed appropriate and sufficient by Bank. Bank is not in default with
respect to any provision contained in any such policy or binder and has not
failed to give any notice or present any claim under any such policy or binder
in due and timely fashion. Bank has not received notice of cancellation or
non-renewal of any such policy or binder. Bank has no knowledge of any
inaccuracy in any application for such policies or binders, any failure to pay
premiums when due or any similar state of facts that might form the basis for
termination of any such insurance. Bank has no knowledge of any state of facts
or of the occurrence of any event that is reasonably likely to form the basis
for any material claim
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<PAGE>
against it not fully covered (except to the extent of any applicable deductible)
by the policies or binders referred to above. Bank has not received notice from
any of their respective insurance carriers that any insurance premiums will be
materially increased in the future or that any such insurance coverage will not
be available in the future on substantially the same terms as now in effect.
(s) Loan Portfolio. Each loan outstanding on the books of Bank
is reflected correctly in all material respects by the loan documentation, was
made in all material respects in the ordinary course of business, was not known
to be uncollectible at the time it was made, and was made in all material
respects in accordance with Bank's standard loan policies unless made with
waivers or exceptions approved by the Bank's loan committee. The records of Bank
regarding all loans outstanding on its books are accurate in all material
respects. The reserves for possible loan losses on the outstanding loans of Bank
and the reserves for other real estate owned by Bank as reflected in the Bank
Financial Statements, have been established in accordance with generally
accepted accounting principles and with the requirements of the OCC, and, in the
best judgment of the management of Bank, are adequate to absorb all material
known and anticipated loan losses in the loan portfolio of Bank, and any losses
associated with other real estate owned or held by Bank. Except as identified on
Schedule N, no loan in excess of $50,000 has been classified as of the date
hereof by Bank or regulatory examiners as "Other Loans Specifically Mentioned",
"Substandard", "Doubtful" or "Loss". Except as identified on Schedule N, each
loan reflected as an asset on the Bank balance sheets is, to the knowledge of
Bank, the legal, valid and binding obligation of the obligor and any guarantor,
subject to bankruptcy, insolvency, fraudulent conveyance and other laws of
general applicability relating
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<PAGE>
to or affecting creditor's rights and to general equity principles, and no
defense, offset or counterclaim has been asserted with respect to any such loan
which if successful would have a material adverse effect on the financial
condition, results of operations, business or prospects of Bank.
(t) Absence of Changes. Except as set forth in Schedule O,
since December 31, 1995, there has not been any material adverse change in the
condition (financial or otherwise), aggregate assets or liabilities, earnings or
business of Bank. Since such date the business of Bank has been conducted only
in the ordinary course.
(u) Brokers and Finders. Neither Bank nor any of its officers,
directors or employees have employed any broker or finder or incurred any
liability for any brokerage fees, commissions or finders' fees in connection
with the transaction contemplated herein.
(v) Securities Portfolio. Since December 31, 1995, there has
been no material deterioration in the quality of the portfolio of securities of
Bank.
(w) Reports. Bank has filed all reports and statements,
together with any amendments required to be made with respect thereto, that were
required to be filed with (i) the OCC; (ii) the FDIC; and (iii) any other
governmental or regulatory authority or agency having jurisdiction over its
operations. None of such reports or statements, or any amendments thereto,
contains any statement which, at the time and in the light of the circumstances
under which it was made, was false or misleading with respect to any material
fact necessary in order to make the statements contained therein not false or
misleading.
(x) Environmental Matters. For purposes of this Agreement,
the following terms shall have the indicated meaning:
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"Environmental Law" means any federal, state or local law, statute,
ordinance, rule, regulation, code, license, permit, authorization, approval,
consent, order, judgment, decree, injunction or agreement with any governmental
entity relating to (i) the protection, preservation or restoration of the
environment (including, without limitation, air, water vapor, surface water,
groundwater, drinking water supply, surface soil, subsurface soil, plant and
animal life or any other natural resource), and/or (ii) the use, storage,
recycling, treatment, generation, transportation, processing, handling,
labeling, production, release or disposal of Hazardous Substances. The term
"Environmental Law" includes without limitation (i) the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, 42 U.S.C.
ss. 9601, et seq; the Resource Conservation and Recovery Act, as amended, 42
U.S.C. ss. 6901, et seq; the Clean Air Act, as amended, 42 U.S.C. ss. 7401, et
seq; the Federal Water Pollution Control Act, as amended, 33 U.S.C. ss. 1251, et
seq; the Toxic Substances Control Act, as amended, 15 U.S.C. ss. 9601, et seq;
the Emergency Planning and Community Right to Know Act, 42 U.S.C. ss. 11001, et
seq; the Safe Drinking Water Act, 42 U.S.C. ss. 300f, et seq; and all comparable
state and local laws, and (ii) any common law (including without limitation
common law that may impose strict liability) that may impose liability or
obligations for injuries or damages due to, or threatened as a result of, the
presence of or exposure to any Hazardous Substance.
"Hazardous Substance" means any substance presently listed, defined,
designated or classified as hazardous, toxic, radioactive or dangerous, or
otherwise regulated, under any Environmental Law, whether by type or by
quantity, including any material containing any such substance as a component.
Hazardous Substances include without limitation petroleum or any derivative or
by-product thereof, asbestos, radioactive material, and polychlorinated
biphenyls.
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<PAGE>
"Loan Portfolio Properties and Other Properties Owned" means those
properties owned or operated by Bank, including those properties serving as
collateral for any loans made by Bank.
To the best knowledge of Bank, except as set forth in Schedule P,
(i) Bank has not been or is in violation of or liable
under any Environmental Law;
(ii) none of the Loan Portfolio Properties and Other
Properties Owned has been or is in violation of or liable under any
Environmental Law; and
(iii) there are no actions, suits, demands, notices,
claims, investigations or proceedings pending or threatened relating to the
liability of the Loan Portfolio Properties and Other Properties Owned under any
Environmental Law, including without limitation any notices, demand letters or
requests for information from any federal or state environmental agency relating
to any such liabilities under or violations of Environmental Law, except in the
case of clauses (i), (ii) and (iii) above for such violations and liabilities,
and actions, suits, demands, notices, claims, investigations or proceedings,
which would not singly or in the aggregate have a material adverse effect on the
financial condition, results of operations, business or prospects of Bank.
(y) Disclosure. Except to the extent of any
subsequent correction or supplement with respect thereto furnished prior to the
date hereof, no written statement, certificate, schedule, list or other written
information furnished by or on behalf of Bank at any time to City Holding, in
connection with this Agreement when considered as a whole, contains or will
contain any untrue statement of a material fact or omits or will omit to state a
material
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<PAGE>
fact necessary in order to make the statements herein or therein, in light of
the circumstances under which they were made, not misleading. Each document
delivered or to be delivered by Bank to City Holding is or will be a true and
complete copy of such document, unmodified except by another document delivered
by Bank.
3.2 Representations and Warranties of City Holding. City Holding
represents and warrants to Bank as follows:
(a) Organization, Standing and Power. (i) City Holding is a
corporation duly organized, validly existing and in good standing under the laws
of West Virginia and has all requisite corporate power and authority to own,
lease and operate its properties, to effect this transaction and to carry on its
business as now being conducted. City Holding has delivered to Bank complete and
correct copies of (i) its Articles of Incorporation and all amendments thereto
to the date hereof, and (ii) its Bylaws as amended to the date hereof.
(ii) At the Effective Time of the Bank Merger,
Acquisition is an interim national banking association, duly organized, validly
existing and in good standing under the laws of the United States. Acquisition
is being formed as an "interim" national banking association solely to
facilitate the Merger and has had no prior business operations.
(b) Capital Structure. As of December 31, 1995, the authorized
capital stock of City Holding consisted of 500,000 shares of Preferred Stock,
par value $25 per share, and 20,000,000 shares of Common Stock, par value $2.50
per share, of which 5,092,046 shares of City Holding Common Stock were issued
and outstanding. All of such issued and outstanding shares of City Holding
Common Stock were validly issued, fully paid and nonassessable at such date.
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City Holding will own at the Effective Time of the Bank Merger all of
the issued and outstanding common stock of Acquisition free and clear of any
liens, claims, encumbrances, charges or rights of third parties of any kind
whatsoever.
City Holding also owns all of the issued and outstanding capital stock
of The City National Bank of Charleston, The Peoples Bank of Point Pleasant,
First State Bank & Trust, Home National Bank of Sutton, Blue Ridge Bank, Bank of
Ripley, Peoples State Bank, The First National Bank of Hinton, Merchants
National Bank, City Financial Corporation, City Mortgage Corporation and Hinton
Financial Corporation (each a "Subsidiary" and together the "Subsidiaries"). The
Subsidiaries are duly organized, validly existing and in good standing under the
laws of their jurisdiction of incorporation and have all requisite corporate
power and authority to own, lease and operate their properties and to carry on
their business as now being conducted.
(c) Authority. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly and
validly authorized by all necessary action on the part of City Holding and
Acquisition, and this Agreement is a valid and binding obligation of City
Holding and Acquisition, enforceable in accordance with its terms. The execution
and delivery of this Agreement, the consummation of the transactions
contemplated hereby and compliance by City Holding and Acquisition with any of
the provisions hereof will not (i) conflict with or result in a breach of any
provision of City Holding's, Acquisition's or a Subsidiary's Articles of
Incorporation, or any of their respective Bylaws or result in a default (or give
rise to any right of termination, cancellation or acceleration) under any of the
terms, conditions or provisions of any note, bond, mortgage, indenture, license,
agreement or other instrument or to which City Holding, Acquisition or a
Subsidiary is a party,
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or by which any of them or any of their properties or assets may be bound; or
(ii) violate any order, writ, injunction, decree, statute, rule or regulation
applicable to City Holding, Acquisition or a Subsidiary or any of their
properties or assets. No consent or approval by any government authority, other
than compliance with applicable federal and state corporate, securities and
banking laws, and regulations of the United States Securities and Exchange
Commission ("SEC"), Federal Reserve Board, West Virginia Department of Banking
and the OCC are required in connection with the execution and delivery by City
Holding or Acquisition of this Agreement or the consummation by City Holding and
Acquisition of the Bank Plan of Merger.
(d) Financial Statements. City Holding has delivered to Bank
copies of the following financial statements of City Holding (the "City Holding
Financial Statements"):
(i) Consolidated Balance Sheets as of December 31,
1995 and 1994 and March 31, 1996 and 1995;
(ii) Consolidated Statements of Income for each of
the three years ended December 31, 1995, 1994 and 1993 and the three months
ended March 31, 1996 and 1995;;
(iii) Consolidated Statements of Changes in
Stockholders' Equity for each of the three years ended December 31, 1995, 1994
and 1993; and
(iv) Consolidated Statements of Cash Flows for each
of the three years ended December 31, 1995, 1994 and 1993.
Such consolidated financial statements and the notes thereto
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods indicated. Each of such
consolidated balance sheets, together with the notes thereto, presents fairly as
of its date the financial condition and assets and liabilities of City
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Holding and the Subsidiaries. The consolidated statements of income, statements
of changes in shareholders' equity and statements of cash flows, together with
the notes thereto, present fairly the consolidated results of operations of City
Holding and the Subsidiaries for the periods indicated.
(e) Absence of Undisclosed Liabilities. Except as disclosed on
Schedule Q, at December 31, 1995 and March 31, 1996, City Holding and the
Subsidiaries had no material liabilities (contingent or otherwise) of any nature
which were not reflected on the City Holding Financial Statements or disclosed
in the notes thereto at such date except for those which in the aggregate are
immaterial.
(f) Absence of Changes. Since December 31, 1995, there has not
been any material adverse change in the condition (financial or otherwise),
aggregate assets or liabilities, earnings or business of City Holding as
reflected on its consolidated financial statements as of such date and for the
year then ended.
(g) Brokers and Finders. Neither City Holding nor any of its
officers, directors or employees has employed any broker or finder or incurred
any liability for any brokerage fees, commissions or finders' fees in connection
with the Merger.
(h) Options, Warrants and Related Matters. There are no
outstanding unexercised options, warrants, calls, commitments or agreements of
any character to which City Holding is a party or by which it is bound calling
for the issuance of securities of City Holding or any security representing the
right to purchase or otherwise receive any such security, except as set forth in
Schedule R.
(i) Reports. City Holding and the Subsidiaries have filed all
reports and statements, together with any amendments required to be made with
respect thereto, that were
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required to be filed with (i) United States Securities and Exchange Commission
(the "SEC"); (ii) the Federal Reserve Board; (iii) the OCC; (iv) the FDIC; (v)
West Virginia Department of Banking; and (vi) any other governmental or
regulatory authority or agency having jurisdiction over their operations. Each
of such reports and documents, including the financial statements, exhibits and
schedules thereto, which was filed with the SEC was in form and substance in
compliance with the 1933 Act or the Securities Exchange Act of 1934 (the "1934
Act"), as the case may be. No such report or statement, or any amendments
thereto, contains any statement which, at the time and in the light of the
circumstances under which it was made, was false or misleading with respect to
any material fact necessary in order to make the statements contained therein
not false or misleading.
(j) Legal Proceedings; Compliance with Laws. Except as
set forth in Schedule S, there is no legal, administrative, arbitration or other
proceeding or governmental investigation pending (including any legal,
administrative, arbitration or other proceeding or governmental investigation
pending involving a violation of the federal antitrust laws), or, to the
knowledge of City Holding's management, threatened or probable of assertion,
which might result in damages payable by City Holding or any Subsidiary in
excess of insurance coverage, which might result in a permanent injunction
against Bank or a Subsidiary, which might result in a change in the zoning or
building ordinances materially affecting the property or leasehold interests of
City Holding or a Subsidiary, or which otherwise, either individually or in the
aggregate, is likely to have a material adverse affect on City Holding or any
Subsidiary. Except as set forth in Schedule S, City Holding and each Subsidiary
has complied in all material respects with any laws, ordinances, requirements,
regulations or orders applicable to its business (including environmental laws,
ordinances, requirements, regulations or orders). City Holding
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and each Subsidiary has all licenses, permits, orders or approvals of any
federal, state, local or foreign governmental or regulatory body (collectively,
"Permits") that are material to or necessary for the conduct of its business;
the Permits are in full force and effect; no violations are or have been
recorded in respect of any Permits, nor has City Holding or any Subsidiary
received notice of any such violation; and no proceeding is pending or, to the
knowledge of City Holding or any Subsidiary, threatened or probable of assertion
to revise, revoke or limit any Permit. Except as set forth in Schedule S,
neither City Holding nor any Subsidiary has entered into any agreements or
written understandings with the OCC, the FDIC or any other regulatory authority.
Neither City Holding nor any Subsidiary is subject to any judgment, order, writ,
injunction or decree which materially adversely affects, or might reasonably be
expected to materially adversely affect, its condition (financial or otherwise),
business or prospects.
(k) Employee Benefits Plan.
(i) With respect to qualified pension and
profit-sharing plans, all deferred compensation, consultant, severance, thrift,
option, bonus and group insurance contracts and all other incentive, welfare and
employee benefit plans, trust, annuity or other funding agreements, and all
other agreements that are presently in effect, for the benefit of employees of
City Holding or any Subsidiary, or the dependents or beneficiaries of any
employee thereof, whether or not subject to ERISA (the "City Holding Employee
Plans"), full payment has been made (or proper accruals have been established)
of all contributions which are required for periods prior to the Closing Date
under the terms of each City Holding Employee Plan, ERISA, or a collective
bargaining agreement. No accumulated funding deficiency (as defined in Section
302 of ERISA or Section 412 of the Code), whether or not waived, exists with
respect to any
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such pension plan. There is no "unfunded current liability" (as defined in
Section 412 of the Code) with respect to any such pension plan;
(ii) All City Holding Employee Plans that are
"employee benefit plans", as defined in Section 3(3) of ERISA, that are
maintained by City Holding or any Subsidiary comply and have been administered
in compliance in all material respects with ERISA and all other legal
requirements, including the terms of such plans, collective bargaining
agreements and securities laws. Neither City Holding nor any of its Subsidiaries
has any material liability under any such plan that is not reflected in the City
Holding Financial Statements; and
(iii) No prohibited transaction has occurred with
respect to any City Holding Employee Plan that is an "employee benefit plan" (as
defined in Section 3(3) of ERISA) maintained by City Holding or any Subsidiary
that would result, directly or indirectly, in material liability under ERISA or
in the imposition of a material excise tax under Section 4975 of the Code.
(l) Insurance. City Holding or its Subsidiaries maintain and
hold valid and enforceable policies or binders of fire, liability, product
liability, workmen's compensation, vehicular and other insurance insuring
against risks and liabilities to the extent and in the manner customary for the
industry and are deemed appropriate and sufficient by City Holding.
(m) Loan Portfolio. Each loan outstanding on the books of the
Subsidiaries is reflected correctly in all material respects by the loan
documentation, was made in, in all material respects, the ordinary course of
business, was not known to be uncollectible at the time it was made, and was
made in all material respects in accordance with the Subsidiary's standard loan
policies. The records of the Subsidiaries regarding all loans outstanding on its
books are accurate in all material respects. The reserves for possible loan
losses on the outstanding loans
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of the Subsidiaries and the reserves for other real estate owned by the
Subsidiaries as reflected in the City Holding Financial Statements, have been
established in accordance with generally accepted accounting principles and with
the requirements of the applicable regulatory authority, and, in the best
judgment of the management of City Holding, are adequate to absorb all material
known and anticipated loan losses in the loan portfolio of the Subsidiaries, and
any losses associated with other real estate owned or held by them.
(n) Absence of Changes. Since December 31, 1995, there has not
been any material adverse change in the condition (financial or otherwise),
aggregate assets or liabilities, earnings or business of City Holding and its
Subsidiaries. Except as disclosed on Schedule Q, since such date the business of
City Holding and each of its Subsidiaries has been conducted only in the
ordinary course.
(o) Securities Portfolio. Since December 31, 1995, there has
been no material deterioration in the quality of the portfolio of securities of
City Holding and its Subsidiaries.
(p) Environmental Matters. To the best knowledge of City
Holding, except as set forth in Schedule T,
(i) Neither City Holding nor any Subsidiary has
been or is in violation of or liable under any Environmental Law;
(ii) None of the properties owned or operated by
City Holding or any Subsidiary has been or is in violation of or liable under
any Environmental Law; and
(iii) There are no actions, suits, demands, notices,
claims, investigations or proceedings pending or threatened relating to the
liability of the properties owned or operated by City Holding or any Subsidiary
under any Environmental Law, including without limitation any notices, demand
letters or requests for information from any federal or state environmental
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agency relating to any such liabilities under or violations of Environmental
Law, except in the case of clauses (i), (ii) and (iii) above for such violations
and liabilities, and actions, suits, demands, notices, claims, investigations or
proceedings, which would not singly or in the aggregate have a material adverse
effect on the financial condition, results of operations, business or prospects
of City Holding and its Subsidiaries.
(q) Disclosure. This Agreement, and, except to the extent of
any subsequent correction or supplement with respect thereto furnished prior to
the date hereof, no written statement, certificate, schedule, list or other
written information furnished by or on behalf of City Holding to Bank, in
connection with this Agreement when considered as a whole, contains or will
contain any untrue statement of a material fact or omits or will omit to state a
material fact necessary in order to make the statements herein or therein, in
light of the circumstances under which they are made, not misleading.
ARTICLE IV
Conduct and Transactions Prior to
Effective Time of the Bank Merger
4.1 Access to Records and Properties of City Holding and Bank. Between
the date of this Agreement and the Effective Time of the Bank Merger, City
Holding (for itself and for each of its Subsidiaries) on the one hand, and Bank,
on the other, agrees to give to the other reasonable access to all its premises
and books and records and to cause its officers to furnish the other with such
financial and operating data and other information with respect to the business
and properties as the other shall from time to time request for the purposes of
verifying the warranties and representations set forth herein, preparing the
Registration Statement (as
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defined in Section 4.2) and applicable regulatory filings and preparing
financial statements of Bank as of a date prior to the Effective Time of the
Merger in order to facilitate City Holding's performance of its post-Closing
Date financial reporting requirements; provided, that any such investigation
shall be conducted in such manner as not to interfere unreasonably with the
operation of the respective business of the other. City Holding and Bank shall
each maintain the confidentiality of all confidential information furnished to
them by the other parties hereto concerning the business, operations, and
financial condition of the party furnishing such information, and shall not use
any such information except in furtherance of the Bank Merger. If this Agreement
is terminated, each party hereto shall promptly return all documents and copies
of, and all workpapers containing, confidential information received from the
other party hereto. The obligations of confidentiality under this Section 4.1
shall survive any such termination of this Agreement and shall remain in effect,
except to the extent that (a) one party shall have directly or indirectly
acquired the assets and business of the other party; (b) as to any particular
confidential information with respect to one party, such information (i) shall
become generally available to the public other than as a result of an
unauthorized disclosure by the other party or (ii) was available to the other
party on a nonconfidential basis prior to its disclosure by the first party; or
(c) disclosure by any party is required by subpoena or order of a court of
competent jurisdiction or by order of a regulatory authority of competent
jurisdiction.
4.2 Registration Statement; Proxy Statement; Shareholder Approval. Bank
will duly call and will hold a meeting of its shareholders as soon as
practicable for the purpose of approving the Bank Merger, and in connection
therewith will recommend to and encourage shareholders that they vote in favor
of the Bank Merger and will comply fully with the provisions of Title 12 of the
United States Code and the rules and regulations of the OCC, and
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its Articles of Association and By-laws relating to the call and holding of a
meeting of shareholders for such purpose. The Board of Directors of Bank will
recommend and encourage shareholders that they vote in favor of the Bank Merger.
City Holding and Bank will jointly prepare the proxy statement-prospectus to be
used in connection with such meeting (the "Proxy Statement-Prospectus") and City
Holding will prepare and file with the SEC a Registration Statement on Form S-4
(the "Registration Statement"), of which such Proxy StatementProspectus shall be
a part, and use its best efforts promptly to have the Registration Statement
declared effective. In connection with the foregoing, City Holding will comply
with the requirements of the 1933 Act and the 1934 Act and the rules and
regulations of the SEC under such Acts with respect to the offering and sale of
City Holding Common Stock in connection with the Bank Merger and with all
applicable state Blue Sky and securities laws. The notices of such meetings and
the Proxy Statement-Prospectus shall not be mailed to Bank shareholders until
the Registration Statement shall have become effective under the 1933 Act. Bank
covenants that none of the information supplied by Bank, and City Holding
covenants that none of the information supplied by City Holding, for inclusion
in the Proxy Statement-Prospectus will, at the time of the mailing of the Proxy
Statement-Prospectus to Bank shareholders, contain any untrue statement of a
material fact nor will any such information omit any material fact required to
be stated therein or necessary in order to make the statements therein, in light
of the circumstances in which they were made, not misleading; and at all times
subsequent to the time of the mailing of the Proxy Statement-Prospectus,
including the date of the meeting of Bank shareholders to which the statement
relates and the Effective Time of the Bank Merger, none of such information in
the Proxy Statement-Prospectus, as amended or supplemented, will contain an
untrue statement of a material fact or omit any material fact required to be
stated
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therein in order to make the statements therein, in light of the circumstances
in which they were made, not misleading.
City Holding, as the sole shareholder of Acquisition, hereby approves
this Agreement and the Plan of Merger.
4.3 Operation of the Business of Bank. Bank agrees that from the date
hereof to the Effective Time of the Bank Merger, it will operate its business
substantially as presently operated and only in the ordinary course, and,
consistent with such operation, will use its best efforts to preserve intact its
present business organization and relationships with persons having business
dealings with it. Without limiting the generality of the foregoing, Bank agrees
that it will not, without prior written notice to City Holding, unless required
by regulatory authorities (i) make any change in the compensation or title of
any executive officer; (ii) make any change in the compensation or title of any
other employee, other than those set forth on Schedule U and other than those
permitted by current employment policies in the ordinary course of business, any
of which changes shall be promptly reported to City Holding; (iii) enter into
any bonus, incentive compensation, deferred compensation, profit sharing,
thrift, retirement, pension, group insurance or other benefit plan or (except as
otherwise specifically contemplated in this Agreement) any employment or
consulting agreement or amend any such plan or agreement to increase the
benefits accruing or payable thereunder; (iv) create or otherwise become liable
with respect to any indebtedness for money borrowed or purchase money
indebtedness except in the ordinary course of business; (v) amend Bank's
Articles of Association or Bylaws; (vi) issue or contract to issue any shares of
Bank capital stock or securities exchangeable for or convertible into capital
stock; (vii) purchase any shares of Bank capital stock; (viii) enter into or
assume any material contract or obligation, except in the ordinary course of
business; (ix) waive any
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right of substantial value; (x) propose or take any other action which would
make any representation or warranty in Section 3.1 hereof untrue; (xi) introduce
any new products or services or change the rate of interest on any deposit
instrument to above-market interest rates; (xii) make any change in policies
respecting extensions of credit or loan charge-offs; (xiii) change reserve
requirement policies; (xiv) change securities portfolio policies; (xv) change
financial or tax accounting methods or practices; (xvi) enter into any new
agreement, amendment or endorsement or make any changes relating to insurance
coverage, excluding "tail" insurance coverage for its directors and officers,
which would result in an additional payment obligation of $50,000 or more; or
(xvii) propose or take any action with respect to the closing of any branches.
Bank further agrees that, between the date of this Agreement and the
Effective Time of the Bank Merger, it will consult and reasonably cooperate with
City Holding regarding all actions described in the immediately preceding
paragraph and (i) loan portfolio management, including management and work-out
of nonperforming assets, and credit review and approval procedures, (ii)
securities portfolio and funds management, including management of interest rate
risk; and (iii) expense management, all with the objective of achieving
appropriate operating synergies and appropriate accruals prior to the Effective
Time of the Bank Merger.
4.4 No Solicitation. Unless and until this Agreement shall have been
terminated pursuant to its terms, neither Bank nor any of its officers,
directors, representatives, agents or affiliates shall, directly or indirectly,
encourage, solicit or initiate discussions or negotiations with any person
(other than City Holding) concerning any merger, sale of substantial assets,
tender offer, sale of shares of stock or similar transaction involving Bank or
disclose, directly or indirectly, any information not customarily disclosed to
the public concerning Bank, afford
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to any other person access to the properties, books or records of Bank or
otherwise assist any person preparing to make or who has made such an offer, or
enter into any agreement with any third party providing for a business
combination transaction, equity investment or sale of significant amount of
assets. Bank will promptly communicate to City Holding the terms of any proposal
which it may receive in respect to any of the foregoing transactions.
4.5 Dividends. Bank agrees that in 1996 it will only declare and pay
cash dividends aggregating $1.35 per share.
4.6 Regulatory Filings. City Holding and Bank shall jointly prepare all
regulatory filings required to consummate the transactions contemplated by the
Agreement and the Bank Plan of Merger and submit the filings for approval with
the Federal Reserve Board, the OCC and the West Virginia Department of Banking
as soon as practicable after the date hereof. City Holding and Bank shall use
their best efforts to obtain approvals of such filings.
4.7 Tax Opinion. City Holding and Bank shall each use their best
efforts to obtain the tax opinion referred to in paragraph (e) of Section 5.1
and paragraph (f) of Section 5.2.
4.8 Public Announcements. Each party will consult with the other before
issuing any news release or otherwise making any public statements with respect
to the Bank Merger and shall not issue any press release or make any such public
statement prior to such consultations except as may be required by law.
4.9 Transactions in City Holding Common Stock. Other than the issuance
of City Holding Common Stock upon the exercise of stock options granted pursuant
to employee benefit plans of City Holding, or in connection with the operation
in the ordinary course of City Holding's dividend reinvestment plan, neither
City Holding nor Bank will purchase, sell or
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otherwise acquire or dispose of any shares of City Holding Common Stock during
the period of calculation of the City Holding Stock Price.
4.10 City Holding Rights Agreement. City Holding agrees that any rights
issued pursuant to the Rights Agreement adopted by it in 1990 shall be issued
with respect to each share of City Holding Common Stock issued pursuant to the
terms hereof and the Plan of Merger, regardless whether there has occurred a
Distribution Date under the terms of such Rights Agreement prior to the
occurrence of the Effective Time of the Bank Merger.
4.11 Accounting Treatment. City Holding and Bank shall use their best
efforts to cause the Bank Merger to be accounted for as a "pooling of
interests."
4.12 Agreement as to Efforts to Consummate. Subject to the terms and
conditions of this Agreement, City Holding and Bank each agrees to use all
reasonable efforts to take, or cause to be taken, all actions, and to do, or
cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective, as soon as practicable
after the date of this Agreement, the transactions contemplated by this
Agreement, including, without limitation, using reasonable effort to lift or
rescind any injunction or restraining order or other order adversely affecting
the ability of the parties to consummate the transactions contemplated herein.
City Holding and Bank each shall use its best efforts to obtain consents of all
third parties and governmental bodies necessary or desirable for the
consummation of the transactions contemplated by this Agreement.
4.13 Adverse Changes in Condition. City Holding and Bank each agrees to
give written notice promptly to the other concerning any material adverse change
in its condition from the date of this Agreement until the Effective Time of the
Bank Merger that might adversely affect the consummation of the transactions
contemplated hereby or upon becoming aware of the
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occurrence or impending occurrence of any event or circumstance which would
cause or constitute a material breach of any of the representations, warranties
or covenants of such party contained herein. City Holding and Bank each shall
use its best efforts to prevent or promptly to remedy the same.
4.14 Updating of Schedules. From the date of execution of this
Agreement until the consummation of the Bank Merger, each party agrees to keep
up to date all of the Schedules applicable to it and to provide notification to
the other of any changes or additions or events which have caused, or after the
lapse of time may cause, any such change or addition in any of such Schedules.
No updating of Schedules or notification made pursuant to this Section 4.14
shall be deemed to cure any breach of any representation or warranty made in the
Agreement or any Schedule or exhibit unless the other party specifically agrees
thereto in writing, nor shall any such updating of Schedules or notification be
considered to constitute or give rise to a waiver by the other party of any
condition set forth in this Agreement.
ARTICLE V
Conditions of Transaction
5.1 Conditions of Obligations of City Holding. The obligations of City
Holding to perform this Agreement are subject to the satisfaction of the
following conditions unless waived by City Holding.
(a) Representations and Warranties; Performance of
Obligations; No Adverse Change. The representations and warranties of Bank set
forth in Section shall be true and correct as of the date of this Agreement and
as of the Effective Time of the Bank Merger as though made on and as of the
Effective Time of the Bank Merger; Bank shall have performed
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all obligations required to be performed by it under this Agreement prior to the
Effective Time of the Bank Merger; there shall have occurred no material adverse
change in the condition (financial or otherwise), assets, liabilities,
properties, business or prospects of Bank from December 31, 1995 to the
Effective Time of the Bank Merger; and City Holding shall have received a
certificate of the chief executive officer and chief financial officer of Bank
to such effects.
City Holding may, at its expense, conduct a pre-Merger audit to
determine that the conditions described in the preceding paragraph are satisfied
as of the Effective Time of the Bank Merger.
(b) Authorization of Transaction. All action necessary to
authorize the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated herein (including the shareholder
action referred to in Section 4.2) shall have been duly and validly taken by the
board of directors of Bank and by the shareholders of Bank, and Bank shall have
full power and right to merge on the terms provided herein.
(c) Opinion of Counsel. City Holding shall have received an
opinion of Woods, Rogers & Hazlegrove P.L.C., counsel to Bank, dated the Closing
Date, and satisfactory in form and substance to counsel to City Holding, to the
effect that:
(i) Bank is a national banking association
organized and in good standing under the laws of the United States and has all
requisite corporate power to own, lease and operate its properties and to carry
on its business as now being conducted as described in the Registration
Statement and Proxy Statement--Prospectus;
(ii) Bank has full power to carry out the
transactions provided for in the Agreement; all corporate and other proceedings
required to be taken by or on the part of
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Bank to authorize it to execute and deliver the Agreement and to consummate the
transactions contemplated thereby and by the Plan of Merger have been duly and
validly taken; the Agreement has been duly and validly authorized, executed and
delivered by Bank and constitutes a valid and binding obligation of Bank
enforceable in accordance with its terms except as same (A) may be limited by
bankruptcy, insolvency, reorganization or other similar laws relating to the
rights of creditors, and (B) is subject to general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or law); and the Plan of Merger has been approved by the Board of
Directors and the shareholders of Bank;
(iii) All outstanding shares of Bank Common Stock to
be exchanged for shares of City Holding Common Stock at the Effective Time of
the Bank Merger have been duly authorized;
(iv) To the best knowledge of such counsel, except
as listed in Schedule K to the Agreement, there are no persons who may be deemed
to be Bank Affiliates;
(v) To the best knowledge of such counsel, Bank is
not a party to or bound by any outstanding option or agreement (other than this
Agreement) to sell, issue, buy or otherwise dispose of or acquire any shares of
Bank Common Stock or other security of Bank;
(vi) The execution and delivery by Bank of the
Agreement, consummation by Bank of the transactions contemplated hereby, and
compliance by Bank with the provisions hereof will not conflict with or result
in a breach of any provision of the Articles of Association or Bylaws of Bank,
as applicable, or result in a default (or give rise to rights of termination,
cancellation or acceleration) under any of the terms, conditions, or provisions
of any note, bond, mortgage, indenture, license, agreement or any other
instrument listed in Schedule H (such counsel having no knowledge of any item
called for by such schedule which
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is not disclosed therein), or violate any court order, writ, injunction or
decree applicable to Bank or any of its properties or assets, of which such
counsel has knowledge after making inquiry of Bank's President with respect
thereto;
(vii) Except as set forth in Schedule L, if any, such
counsel does not know of any litigation that is pending or threatened which
might result in money damages payable by Bank in excess of insurance coverage,
which might result in a permanent injunction against Bank or which, individually
or in the aggregate, otherwise might have a material adverse effect on Bank or
the transactions contemplated by this Agreement;
(viii) Such counsel does not know of any default
under, or the occurrence of any event which with the lapse of time, action or
inaction by a third party would result in a default under any outstanding
indenture, contract or agreement listed in Schedule H to the Agreement (such
counsel having no knowledge of any item called for by Schedule which is not
disclosed therein) or under any governmental license or permit or a breach of
any provision of the Articles of Association or Bylaws of Bank;
(ix) All legal matters pertaining to consummation of
the Bank Merger under the laws of the United States, including receipt of all
required regulatory approvals, other than the filing of the Articles of Merger
relating to the Plan of Merger with the OCC, have been completed to the
satisfaction of such counsel in all material respects; and
(x) On the basis of facts within their knowledge,
such counsel have no reason to believe that (except as to financial statements
and other financial data, or as to material relating to, and supplied by, City
Holding for inclusion in the Proxy Statement-Prospectus as to which no belief
need be expressed) the Proxy Statement-Prospectus (as amended or supplemented,
if so amended or supplemented) contained any untrue statement of a material fact
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or omitted any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
were made, not misleading as of (A) the time the Registration Statement became
effective, (B) the time of the meeting of Bank shareholders referred to in
Section 4.2 of the Agreement, or (C) at the Closing Date.
(d) Registration Statement. The Registration Statement shall
be effective under the 1933 Act and City Holding shall have received all state
securities laws or "blue sky" permits and other authorizations or there shall be
exemptions from registration requirements necessary to offer and issue the City
Holding Common Stock in connection with the Bank Merger, and neither the
Registration Statement nor any such permit, authorization or exemption shall be
subject to a stop order or threatened stop order by the SEC or any state
securities authority.
(e) Tax Opinion. City Holding and Bank shall have received, in
form and substance reasonably satisfactory to them, an opinion of Hunton &
Williams to the effect, for federal income tax purposes, that consummation of
the Merger will constitute a "reorganization" as defined in Section 368(a) of
the Code; that no taxable gain or loss will be recognized by City Holding,
Acquisition or Bank upon consummation of the Merger (but Acquisition or Bank may
be required to include in income certain amounts as a result of the termination
of any bad-debt reserve maintained by Bank and other possible required changes
in accounting methods); that no taxable gain will be recognized by a Bank
shareholder on the exchange by such shareholder of shares of Bank Common Stock
solely for shares of City Holding Common Stock (including any fractional share
interest); that the basis of City Holding Common Stock (including any fractional
share interest) received in the Bank Merger will be the same as the basis of the
Bank Common Stock surrendered in exchange therefor; that the holding period of
such City Holding Common Stock for such a Bank shareholder will include the
holding period of the Bank
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Common Stock surrendered in exchange therefor, if such Bank Common Stock is a
capital asset in the hands of the shareholder at the Effective Time of the Bank
Merger; and that a Bank shareholder who receives cash in lieu of a fractional
share of City Holding Common Stock will recognize gain or loss equal to any
difference between the amount of cash received and the shareholder's basis in
the fractional share interest.
(f) Regulatory Approvals. All required approvals from federal
and state regulatory authorities having jurisdiction to permit City Holding and
Acquisition to consummate the Bank Merger and to issue City Holding Common Stock
to Bank shareholders shall have been received and all related waiting periods
shall have expired, all applicable federal and state laws governing the Merger
shall have been complied with, and there shall not be in any order or decree of
any regulatory authority any condition or requirement reasonably deemed
objectionable to City Holding.
(g) Affiliate Letters. Each shareholder of Bank who is a Bank
Affiliate shall have executed and delivered a commitment and undertaking to the
effect that such shareholder will dispose of the shares of City Holding Common
Stock received by him in connection with the Bank Merger only in accordance with
the provisions of paragraph (d) of Rule 145; (ii) such shareholder will not
dispose of any of such shares until City Holding has received an opinion of
counsel acceptable to it that such proposed disposition will not violate the
provisions of any applicable securities laws; (iii) that they will not sell or
reduce their risk with respect to the City Holding shares acquired in the Bank
Merger until after the publication of combined financial results covering 30
days of combined operations; and (iv) the certificates representing said shares
may bear a legend referring to the foregoing restrictions.
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(h) Provision for Loan Losses. On the Closing Date, Bank's
reserve for loan losses on outstanding loans and reserve for other real estate
owned shall, in the reasonable judgment of City Holding, be adequate to absorb
all known or anticipated loan losses in Bank's loan portfolio and Bank's known
or anticipated losses associated with other real estate owned.
(i) Accounting Treatment. City Holding shall have received,
in form and substance satisfactory to it, a letter dated the Effective Time of
the Bank Merger from Ernst & Young, L.L.P. to the effect that the Transaction
will qualify for "pooling-of-interests" accounting treatment.
(j) Acceptance by City Holding Counsel. The form and
substance of all legal matters contemplated hereby and of all papers delivered
hereunder shall be reasonably acceptable to counsel for City Holding.
5.2 Conditions of Obligations of Bank. The obligations of Bank to
perform this Agreement are subject to the satisfaction of the following
conditions unless waived by Bank:
(a) Representations and Warranties; Performance of
Obligations; No Adverse Change. The representations and warranties of City
Holding and Acquisition set forth in Section 3.2 shall be true and correct in
all material respects as of the date of this Agreement and as of the Effective
Time of the Bank Merger as though made on and as of the Effective Time of the
Bank Merger; City Holding and Acquisition shall have performed all obligations
required to be performed by them under this Agreement prior to the Effective
Time of the Bank Merger; there shall have occurred no material adverse change in
the condition (financial or otherwise), assets, liabilities, properties,
business or prospects of City Holding from December 31, 1995 or March 31, 1996,
to the Effective Time of the Bank Merger; and Bank shall have received a
certificate of the chief executive officer and the chief financial officer of
City Holding to such effects.
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(b) Authorization of Transaction. All action necessary to
authorize the execution, delivery and performance of this Agreement by City
Holding and Acquisition and the consummation of the transactions contemplated
hereby shall have been duly and validly taken by the boards of directors of City
Holding and Acquisition and the shareholders of Bank, and City Holding and
Acquisition shall have full power and right to merge and to acquire and assume
on the terms provided herein.
(c) Opinion of Counsel. Bank shall have received an opinion of
Hunton & Williams, counsel to City Holding and Acquisition, dated the Closing
Date and satisfactory in form and substance to counsel to Bank, to the effect
that:
(i) City Holding and Acquisition are corporations
organized and in good standing under the laws of West Virginia and the United
States, respectively, and have all requisite corporate power to own, lease and
operate their respective properties and to carry on their respective businesses
as now being conducted as described in the Registration Statement and Proxy
Statement-Prospectus;
(ii) City Holding and Acquisition have full power to
carry out the transactions provided for in the Agreement; all corporate and
other proceedings required to be taken by or on the part of City Holding and
Acquisition to authorize them to execute and deliver the Agreement and to
consummate the transactions contemplated thereby and by the Plan of Merger have
been duly and validly taken; the Agreement has been duly and validly authorized,
executed and delivered by City Holding and Acquisition and constitutes a valid
and binding obligation of City Holding and Acquisition enforceable in accordance
with its terms except as same (A) may be limited by bankruptcy, insolvency,
reorganization or other similar laws relating to the rights of creditors; and
(B) is subject to general principles of equity (regardless of whether
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such enforceability is considered in a proceeding in equity or law); the Plan of
Merger has been approved by the board of directors of Acquisition; and the
shares of City Holding Common Stock to be issued in the Bank Merger in exchange
for shares of City Holding Common Stock have been duly authorized and when so
issued will be validly issued, fully paid and nonassessable;
(iii) All outstanding shares of City Holding Common
Stock have been duly authorized and are fully paid and nonassessable;
(iv) Execution and delivery by City Holding and
Acquisition of the Agreement, consummation by City Holding and Acquisition of
the transactions contemplated thereby, and compliance by City Holding and
Acquisition with the provisions thereof will not conflict with or result in a
breach of any provisions of either City Holding's or Acquisition's Articles of
Incorporation or Articles of Association, respectively, or either of their
Bylaws or result in a default (or give rise to rights or termination,
cancellation or acceleration) under any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, license, agreement or any other
instrument or of City Holding, Acquisition or any Subsidiary known to such
counsel, or violate any court order, writ, injunction or decree applicable to
City Holding, Acquisition or any Subsidiary or any of their properties or
assets, of which such counsel has knowledge after making inquiry with respect
thereto.
(v) The shares of City Holding Common Stock to be
issued pursuant to the Agreement have been duly registered under the 1933 Act;
(vi) All legal matters pertaining to consummation of
the Bank Merger under the laws of the United States, including the receipt of
all regulatory approvals, other than
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the filing of the Articles of Merger relating to the Bank Merger with the OCC,
have been completed to the satisfaction of such counsel in all material
respects;
(vii) On the basis of facts within their knowledge,
such counsel have no reason to believe that (except as to financial statements
and other financial data, or as to material relating to, and supplied by, Bank
for inclusion in the Proxy Statement-Prospectus, as to which no belief need be
expressed) the Proxy Statement-Prospectus (as amended or supplemented, if so
amended or supplemented) contained any untrue statement of a material fact or
omitted any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading (A) as of the time the Registration Statement became
effective; (B) as of the time of the special meeting of shareholders of Bank
mentioned in Section 4.2 of the Agreement; or (C) as of the Closing Date;
(viii) Except as set forth in Schedule S, such
counsel does not know of any litigation that is pending or threatened which
might result in money damages payable by City Holding, Acquisition or any
Subsidiary in excess of insurance coverage, which might result in a permanent
injunction against any of them or which, individually or in the aggregate,
otherwise might have a material adverse effect on City Holding or the
transactions contemplated by this Agreement; and
(ix) Such counsel does not know of any default
under, or the occurrence of any event which with the lapse of time, action or
inaction by a third party would result in a default under any governmental
license or permit or a breach of any provision of the Articles of Incorporation
or Bylaws of City Holding, Acquisition or any Subsidiary.
(d) Registration Statement. The Registration Statement shall
be effective under the 1933 Act and City Holding shall have received all state
securities laws or "blue sky" permits
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<PAGE>
and other authorizations or there shall be exemptions from registration
requirements necessary to offer and issue the City Holding Common Stock in
connection with the Bank Merger, and neither the Registration Statement nor any
such permit, authorization or exemption shall be subject to a stop order or
threatened stop order by the SEC or any state securities authority.
(e) Regulatory Approvals. All required approvals from federal
and state regulatory authorities having jurisdiction to permit City Holding and
Acquisition to consummate the Bank Merger and to permit City Holding to issue
City Holding Common Stock to Bank shareholders shall have been received and all
related waiting periods shall have expired.
(f) Tax Opinion. City Holding and Bank shall have received,
in form and substance reasonably satisfactory to them, an opinion of Hunton &
Williams to the effect set forth in Section 5.1(e).
(g) Acceptance by Bank's Counsel. The form and substance of
all legal matters contemplated hereby and of all papers delivered hereunder
shall be reasonably acceptable to counsel for Bank.
ARTICLE VI
Closing Date; Effective Time of the
Bank Merger
6.1 Closing Date. Unless another date or place is agreed to in writing
by the parties, the closing of the transactions contemplated in this Agreement
shall take place at the offices of Frazier & Oxley, L.C., 401 Tenth Street,
Huntington, West Virginia, 25727, at 10:00 A.M., local time, on such date as
City Holding shall designate to Bank and is reasonably acceptable to Bank;
provided, that the date so designated shall not be earlier than 30 days (or 15
days if
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<PAGE>
permitted under the Bank Merger Act) or later than 60 days following the date of
the decision of the Federal Reserve Board and the OCC, whichever decision occurs
later, approving the Merger (the "Closing Date").
6.2 Filings at Closing. Subject to the provisions of Article , at the
Closing Date, City Holding shall cause the Articles of Merger relating to the
Bank Merger to be filed in accordance with Title 12 of the United States Code,
and each of City Holding and Bank shall take any and all lawful actions to cause
the Bank Merger to become effective.
6.3 Effective Time. Subject to the terms and conditions set forth
herein, including receipt of all required regulatory approvals, the Bank Merger
shall become effective at the time Articles of Merger relating to the Bank
Merger are made effective by the OCC (the "Effective Time of the Bank Merger").
ARTICLE VII
Termination; Survival of Representations
Warranties and Covenants; Waiver and Amendment
7.1 Termination. This Agreement shall be terminated, and the Merger
abandoned, if the shareholders of Bank shall not have given the approval
required by Section 5.1(b). Notwithstanding such approval by such shareholders,
this Agreement may be terminated in writing at any time prior to the Effective
Time of the Bank Merger by:
(a) The mutual consent of City Holding and Bank, as expressed
by their respective boards of directors;
(b) Either City Holding or Bank, as expressed by their
respective boards of directors, after March 31, 1997;
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(c) By City Holding, in writing authorized by its Board of
Directors, if Bank has, or by Bank, in writing authorized by its Board of
Directors, if City Holding has, in any material respect, breached (i) any
covenant or agreement contained herein, or (ii) any representation or warranty
contained herein, in any case if such breach has not been cured by the earlier
of 30 days after the date on which written notice of such breach is given to the
party committing such breach or the Closing Date; provided that it is understood
and agreed that either party may terminate this Agreement on the basis of any
such material breach of any representation or warranty contained herein
notwithstanding any qualification therein relating to the knowledge of the other
party;
(d) Either City Holding or Bank, in writing authorized by
their respective boards of directors, in the event that any of the conditions
precedent to the obligations of such party to consummate the Bank Merger have
not been satisfied or fulfilled or waived by the party entitled to so waive on
or before the Closing Date, provided that neither party shall be entitled to
terminate this Agreement pursuant to this subparagraph (d) if the condition
precedent or conditions precedent which provide the basis for termination can
reasonably be and are satisfied within a reasonable period of time, in which
case, the Closing Date shall be appropriately postponed;
(e) City Holding or Bank, if the Board of Directors of either
corporation shall have determined in their sole discretion, exercised in good
faith, that the Bank Merger has become inadvisable or impracticable by reason of
the threat or the institution of any litigation, proceeding or investigation to
restrain or prohibit the consummation of the transactions contemplated by this
Agreement or to obtain other relief in connection with this Agreement;
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<PAGE>
(f) City Holding or Bank, if either the Federal Reserve Board
or the OCC deny approval of the Bank Merger and the time period for all appeals
or requests for reconsideration has run;
(g) [Left blank intentionally]
(h) City Holding, if holders of more than 9.9% of the
outstanding shares of Bank Common Stock exercise their rights to an appraisal of
their shares pursuant to 12 U.S.C. ss. 215a in connection with the Bank Merger.
7.2 Effect of Termination. In the event of the termination and
abandonment of this Agreement and the Bank Merger pursuant to Section 7.1, this
Agreement, other than the provisions of Sections 4.1 (last sentence) and 9.1,
shall become void and have no effect, without any liability on the part of any
party or its directors, officers or shareholders.
7.3 Survival of Representations, Warranties and Covenants. The
respective representations and warranties, covenants and agreements (except for
those contained in Sections 1.2, 1.3, 1.4, 2.2, 2.3, 2.4, 4.1 (last sentence),
8.2, 8.3, 9.1, 9.2, 9.3, 9.4, 9.5 and 9.6, which shall survive the effectiveness
of the Bank Merger indefinitely) of City Holding, Acquisition and Bank contained
herein shall survive for one year following the Effective Time of the Bank
Merger.
7.4 Waiver and Amendment. Any term or provision of this Agreement may
be waived in writing at any time by the party which is, or whose shareholders
are, entitled to the benefits thereof and this Agreement may be amended or
supplemented by written instructions duly executed by all parties hereto at any
time, whether before or after the meeting of Bank
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<PAGE>
shareholders referred to in Section 4.2 hereof, except statutory requirements
and requisite approvals of shareholders and regulatory authorities.
ARTICLE VIII
Additional Covenants
8.1 Registration Statement. City Holding, Acquisition and Bank
acknowledge and agree that the Bank Merger is a transaction to which the 1933
Act is applicable. Each of the parties agrees to comply with the provisions of
the 1933 Act and all rules and regulations of the SEC promulgated pursuant to
the 1933 Act and cooperate in connection with the preparation and filing by City
Holding of a Registration Statement under the 1933 Act relating to the Bank
Merger. Bank agrees (a) to give the representatives of City Holding access to
the books, records and files of Bank at any reasonable time for the purpose of
preparing such Registration Statement; (b) to provide to City Holding upon
request such information relating to Bank, its business and financial condition,
as shall be appropriate in connection with the preparation of the Registration
Statement; and (c) to submit to City Holding for its prior approval all press
releases or other oral or written statements made or issued by Bank and its
officers or directors, which relate to the Merger in any manner.
8.2 Employee Benefits. All employees of Bank immediately prior to the
Effective Time of the Bank Merger ("Transferred Employees") will be covered by
City Holding's employee benefit plans as to which they are eligible based on
their length of service, compensation, job classification, and position with
Bank. City Holding's benefits plans will recognize for purposes of eligibility
to participate and for vesting, but not for benefit accrual
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<PAGE>
under any existing defined benefit plan of City Holding, all Transferred
Employees' service with Bank, subject to applicable break in service rules.
City Holding will either terminate Bank's employee benefit plans, merge
such plans with comparable City Holding employee benefit plans, or maintain
Bank's plans as separate plans. If Bank's plans are terminated, subject to
applicable law City Holding intends to allow Transferred Employees to contribute
funds distributed on termination of any Bank plan to the comparable City Holding
plan.
Except as described in Schedule V, as of the Effective Time of the Bank
Merger employees of Bank who become employees of Acquisition as the Surviving
Bank will be entitled to immediate coverage under City Holding Employee Plans
without any waiting period.
For at least five years following the Effective Time of the Bank
Merger, except with approval of the continuing directors of Bank or the
requirements of the OCC, no employee of Bank as of the date of this Agreement
may be terminated and no decrease may be made in the compensation levels, fringe
benefits or similar arrangements of such employees. No provision of this
Agreement shall be deemed to limit the right of City Holding to require the
termination of any employee of Bank for cause, or the right of Bank, with the
approval of the Continuing Directors, to terminate any employee with or without
cause. This paragraph shall not be deemed to create a contract of employment
with any employee of Bank.
8.3 Indemnification. City Holding 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 Bank on or
before the Effective Time of the Bank Merger with respect to liabilities and
claims (and related expenses) made against them resulting from their service as
such prior to the Effective Time of the Merger in accordance with and subject to
the
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<PAGE>
requirements and other provisions of City Holdings' Articles of Incorporation
and Bylaws in effect on the date of this Agreement and applicable provisions of
law to the same extent as City Holding 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 City
Holding. On or prior to the Closing Date, Bank may purchase, at reasonable cost
(or, if it be determined to be less costly, City Holding will provide), a policy
of "tail" insurance to cover acts and omission of the Bank's directors and
officers occurring prior to the Effective Time of the Bank Merger.
ARTICLE IX
Miscellaneous
9.1 Expenses. If the Bank Merger is consummated, all of the costs will
be borne by City Holding. If the Bank Merger is not consummated, each party
shall bear its own expenses.
9.2 Entire Agreement. This Agreement contains the entire agreement
among City Holding, Acquisition, and Bank with respect to the Merger and the
related transactions and supersedes all prior arrangements or understandings
with respect thereto.
9.3 Descriptive Headings. Descriptive headings are for convenience only
and shall not control or affect the meaning or construction of any provisions of
this Agreement.
9.4 Notices. All notices or other communications which are required or
permitted hereunder shall be in writing and sufficient if delivered personally
or sent by registered or certified mail, postage prepaid, addressed as follows:
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If to City Holding or Acquisition:
City Holding Company
3601 MacCorkle Avenue, S.E.
Charleston, West Virginia 25304
Attention: Steven J. Day
President and Chief Executive Officer
Copy to:
Lathan M. Ewers, Jr.
Hunton & Williams
951 East Byrd Street
Richmond, Virginia 23219
If to Bank:
The Old National Bank of Huntington
Box 325
Huntington, West Virginia 25703
Attention: William M. Frazier
President
Copy to:
Talfourd H. Kemper
Woods, Rogers & Hazlegrove, P.L.C.
10 South Jefferson Street, Suite 1400
Roanoke, Virginia 24011
9.5 Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart hereof shall be deemed to be an original
instrument, but all such counterparts together shall constitute one agreement.
9.6 Governing Law. Except as may otherwise be required by the laws of
the United States, this Agreement shall be governed by and construed in
accordance with the laws of West Virginia.
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<PAGE>
IN WITNESS WHEREOF, each of the parties hereto have caused
this Agreement to be executed on their behalf, all as of the day and year first
above written.
CITY HOLDING COMPANY
By /s/ Steven J. Day
------------------------------------
Steven J. Day
President and Chief Executive Officer
ONB ACQUISITION SUBSIDIARY, N.A.
(In Organization)
By /s/ Steven J. Day
------------------------------------
Name Steven J. Day
Its _______________________________
THE OLD NATIONAL BANK OF HUNTINGTON
By /s/ William M. Frazier
------------------------------------
William M. Frazier
President
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<PAGE>
/s/ Robert M. Davidson /s/ W. Kenneth Grant
- --------------------------------------- ---------------------------------------
/s/ Ezra A. Midkiff, Jr. /s/ W. Michael Frazier
- --------------------------------------- ---------------------------------------
/s/ John J. Klim, Jr. /s/ Frank L. Gaddy
- --------------------------------------- ---------------------------------------
/s/ Leon K. Oxley /s/ W. B. Andrews
- --------------------------------------- ---------------------------------------
/s/ Lucian R. Carter /s/ William M. Frazier
- --------------------------------------- ---------------------------------------
The Directors of The Old National Bank of Huntington sign for the purpose of
agreeing to vote all shares of Bank Common Stock beneficially owned by them and
with respect to which they have power to vote in favor of the Bank Merger, and
to cause the Bank Merger to be recommended by the Board of Directors of Bank to
the shareholders of Bank in the proxy statement sent to shareholders in
connection with such shareholders' meeting.
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<PAGE>
SCHEDULE Q
City Holding Contingencies
None
<PAGE>
SCHEDULE R
City Holding Options, Warrants, Calls, etc.
None
<PAGE>
SCHEDULE S
City Holding Litigation
None
<PAGE>
SCHEDULE T
City Holding Environmental Matters
None
<PAGE>
Exhibit A
PLAN OF MERGER
OF
THE OLD NATIONAL BANK OF HUNTINGTON
INTO
ONB ACQUISITION SUBSIDIARY, N.A.
Section 1. The Old National Bank of Huntington, a national banking
association ("Bank"), shall, upon the time that the Articles of Merger are made
effective by the Office of the Comptroller of the Currency (the "Effective Time
of the Bank Merger"), be merged (the "Bank Merger") into ONB Acquisition
Subsidiary, N.A., a national banking association (interim) ("Acquisition"),
which is a subsidiary of City Holding Company ("City Holding"), and which shall
be the Surviving Bank.
Section 2. Conversion of Stock. At the Effective Time of the Bank
Merger:
(i) Each share of Bank Common Stock ("Bank Common Stock")
issued and outstanding at the Effective Time of the Bank Merger (other
than shares held by City Holding or in Bank's treasury and other than
Dissenting Shares, shall, and without any action by the holder thereof,
be converted into a number of shares of City Holding Common Stock
("City Holding Common Stock") equal to the quotient (rounded to the
nearest one one-hundredth) obtained by dividing (i) the product
obtained by multiplying the per share book value of Bank Common Stock
at June 30, 1996, by 2.5 by (ii) $23.325. The quotient thus derived is
referred to as the "Exchange Ratio".
(ii) Each share of Acquisition Common Stock issued and
outstanding immediately prior to the Effective Time of the Bank Merger
shall remain outstanding as one share of common stock of the Surviving
Bank.
(iii) Each share of Bank Common Stock issued and outstanding
immediately prior to the Effective Time of the Bank Merger and held by
City Holding or in the treasury of Bank shall be canceled.
Section 3. Manner of Conversion of Bank Common Stock. The manner in
which outstanding shares of Bank Common Stock shall be converted into City
Holding Common Stock, as specified in Section 2 hereof, after the Effective Time
of the Bank Merger, shall be as follows:
(i) Each share of Bank Common Stock, other than shares held
by City Holding or in the treasury of Bank and other than Dissenting
Shares, shall be converted into shares of City Holding Common Stock as
provided in Section 2(i).
(ii) No fractional shares of City Holding Common Stock shall
be issued, but instead the value of fractional shares shall be paid in
cash (subject to all applicable
<PAGE>
withholding taxes), for which purpose City Holding Common Stock shall
be valued at the City Holding Stock Price.
(iii) Certificates for shares of Bank Common Stock shall be
submitted for exchange for City Holding Common Stock accompanied by a
Letter of Transmittal to be furnished within 10 business days after the
Effective Time of the Bank Merger to Bank's shareholders of record as
of the Effective Time of the Bank Merger. Until so surrendered, each
outstanding certificate which, prior to the Effective Time of the Bank
Merger, represented Bank Common Stock, shall be deemed to evidence only
the right to receive shares of City Holding Common Stock determined in
accordance with the Exchange Ratio. Until such outstanding shares
formerly representing Bank Common Stock are so surrendered, no dividend
payable to holders of record of City Holding Common Stock as of any
date subsequent to the Effective Time of the Bank Merger shall be paid
to the holder of such outstanding certificates in respect thereof. Upon
such surrender, dividends accrued or declared on City Holding Common
Stock shall be paid in accordance with Section 2.2 of the Agreement and
Plan of Reorganization among City Holding, Acquisition and Bank.
Section 4. Dissenting Shares. Notwithstanding anything in this Plan of
Merger to the contrary, shares of Bank Common Stock which are issued and
outstanding immediately prior to the Effective Time of the Bank Merger and which
are held by a shareholder who has the right (to the extent such right is
available by law) to demand and receive payment of the fair value of his shares
of Bank Common Stock pursuant to 12 U.S.C. ss. 215a (the "Dissenting Shares")
shall be canceled and shall not be converted into or by exchangeable for the
right to receive the consideration provided in Section 2 of this Plan of Merger,
unless and until such holder shall fail to perfect his right to dissent or shall
have effectively withdrawn or lost such right under the 12 U.S.C. ss. 215a, as
the case may be. If such holder shall have so failed to perfect or shall have
effectively withdrawn or lost such right, his shares of Bank Common Stock shall
thereupon be deemed to have been converted, at the Effective Time of the Bank
Merger, into the right to receive shares of City Holding Common Stock.
Section 5. Articles of Association, Bylaws and Directors of the
Surviving Bank. At the Effective Time of the Bank Merger, the Articles of
Association, By-laws and Directors of Bank shall become the Articles of
Incorporation, Bylaws and Directors of the Surviving Bank.
2
<PAGE>
ANNEX II
12 U.S.C.A. SS. 215A(b), (c) AND (d)
(b) DISSENTING SHAREHOLDERS
If a merger shall be voted for at the called meetings by the necessary
majorities of the shareholders of each association or State bank participating
in the plan of merger, and thereafter the merger shall be approved by the
Comptroller, any shareholder of any association or State bank to be merged into
the receiving association who has voted against such merger at the meeting of
the association or bank of which he is a stockholder, or has given notice in
writing at or prior to such meeting to the presiding officer that he dissents
from the plan of merger, shall be entitled to receive the value of the share so
held by him when such merger shall be approved by the Comptroller upon written
request made to the receiving association at any time before thirty days after
the date of consummation of the merger, accompanied by the surrender of his
stock certificates.
(c) VALUATION OF SHARES
The value of the shares of any dissenting shareholder shall be ascertained, as
of the effective date of the merger, by an appraisal made by a committee of
three persons, composed of (1) one selected by the vote of the holders of the
majority of the stock, the owners of which are entitled to payment in cash; (2)
one selected by the directors of the receiving association; and (3) one selected
by the two so selected. The valuation agreed upon by any two of the three
appraisers shall govern. If the value so fixed shall not be satisfactory to any
dissenting shareholder who has requested payment, that shareholder may, within
five days after being notified of the appraised value of his shares, appeal to
the comptroller, who shall cause a reappraisal to be made which shall be final
and binding as to the value of the shares of the appellant.
(d) APPLICATION TO SHAREHOLDERS OF MERGING ASSOCIATIONS: APPRAISAL BY
COMPTROLLER; EXPENSES OF RECEIVING ASSOCIATION; SALE AND RESALE OF SHARES; STATE
APPRAISAL AND MERGER LAW
If, within ninety days from the date of consummation of the merger, for any
reason one or more of the appraisers is not selected as herein provided, or the
appraisers fail to determine the value of such shares, the Comptroller shall
upon written request of any interested party cause an appraisal to be made which
shall be final and binding on all parties. The expenses of the Comptroller in
making the reappraisal or the appraisal, as the case may be, shall be paid by
the receiving association. The value of the shares ascertained shall be promptly
paid to the dissenting shareholders by the receiving association. The shares of
stock of the receiving association which would have been delivered to such
dissenting shareholders had they not requested payment shall be sold by the
receiving association at an advertised public auction, and the receiving
association shall have the right to purchase any of such shares at such public
auction, if it is the highest bidder therefor, for the purpose of reselling such
shares within thirty days thereafter to such person or persons and at such price
not less than par as its board of directors by resolution may determine. If the
shares are sold at public auction at a price greater than the amount paid to the
dissenting shareholders, the excess in such sale price shall be paid to such
dissenting shareholders. The appraisal of such shares of stock in any State bank
shall be determined in the manner prescribed by the law of the State in such
cases, rather than as provided in this section, if such provision is made in the
State law; and no such merger shall be in contravention of the law of the State
under which such bank is incorporated. The provisions of this subsection shall
apply only to shareholders of (and stock owned by them in) a bank or association
being merged into the receiving association.
