As Filed With The Securities and Exchange Commission on December 23, 1997
Registration No. 333-_________
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
CITY HOLDING COMPANY
(Exact name of registrant as specified in its charter)
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WEST VIRGINIA 6711 55-0619957
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation) Classification Code Number) Identification No.)
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3601 MacCorkle Avenue, S.E.
Charleston, West Virginia 25304
(304) 925-6611
(Address, including zip code, and telephone
number, including area code, Of
registrant's principal executive
offices)
STEVEN J. DAY
President and Chief Executive Officer
3601 MacCorkle Avenue, S.E.
Charleston, West Virginia 25304
(304) 925-6611
(Name, address, including zip code, and telephone number,
Including area code, of agent for service)
Copies to:
LATHAN M. EWERS, JR. PETER F. McANDREWS
RANDALL S. PARKS STEPHEN S. AUSTIN
Hunton & Williams Adams, McAndrews, Matson & Landsberg
951 East Byrd Street 429 Santa Monica Boulevard, Suite 550
Richmond, Virginia 23219 Santa Monica, California 90401
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED
SALE TO THE PUBLIC: From time to time after the
effective date of this Registration Statement.
If the securities being registered on this form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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Proposed Proposed Maximum
Title of Each Class Amount to be Maximum Offering Aggregate Offering Amount of
of Securities to be Registered Registered(1) Price Per Unit(2) Price(2) Registration Fee
- ------------------------------ ------------- ----------------- -------- ----------------
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Common Stock(2) 400,000 shs. $ 16.75 $ 6,702,156 $ 1,978
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(1) This Registration Statement covers the maximum number of shares of common
stock of the Registrant which are expected to be issued in connection with the
transactions described herein.
(2) Estimated in accordance with Rule 457(f)(2) for the purpose of calculating
the registration fee, with the value of Del Amo Savings Bank, FSB Common Stock
being exchanged in the transaction for City Holding Company Common Stock being
based upon the book value of Del Amo Savings Bank, FSB Common Stock at September
30, 1997, the latest practicable date prior to filing.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THE REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
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CITY HOLDING COMPANY
CROSS REFERENCE SHEET
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ITEM OF FORM S-4 LOCATION IN PROXY STATEMENT/PROSPECTUS
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1. Forepart of Registration Statement and Outside Facing Page; Cross Reference Sheet; Outside Front Cover
Front Cover Page of Prospectus Page
2. Inside Front and Outside Back Cover Pages of Inside Front Cover Page; Table of Contents; Available
Prospectus Information; Incorporation of Certain Information by
Reference
3. Risk Factors, Ratio of Earnings to Fixed Charges Summary; Comparative Per Share Data; Selected Financial
and Other Information Data
4. Terms of the Transaction Summary; The Merger; City Holding Company; Price Range of
City Holding Common Stock and Dividends; Comparative
Rights of Shareholders; Incorporation of Certain
Information by Reference; Annex A; Annex B
5. Pro Forma Financial Information Not Applicable
6. Material Contracts with the Company Being Acquired Not Applicable
7. Additional Information Required for Reoffering by Not Applicable
Persons and Parties Deemed to be Underwriters
8. Interests of Named Experts and Counsel Not Applicable
9. Disclosure of SEC's Position on Indemnification for Not Applicable
Securities Act Liabilities
10. Information with Respect to S-3 Registrants Available Information; Incorporation of Certain
Information by Reference; Summary; Selected Financial
Data; City Holding Company; Price Range of City Holding
Common Stock and Dividends; Regulation and Supervision
11. Incorporation of Certain Information by Reference Incorporation of Certain Information by Reference
12. Information with Respect to S-2 or S-3 Registrants Not Applicable
13. Incorporation of Certain Information by Reference Not Applicable
14. Information with Respect to Registrants Other than Not Applicable
S-2 or S-3 Registrants
15. Information with Respect to S-3 Companies Not Applicable
16. Information with Respect to S-2 or S-3 Companies Not Applicable
17. Information with Respect to Companies other than Selected Financial Data; Management's Discussion and
S-2 or S-3 Companies Analysis of Operations; Del Amo Savings Bank, FSB; Market
For and Dividends Paid on Bank Common Stock; Del Amo
Savings Bank, FSB Financial Statements
18. Information if Proxies, Consents or Authorizations Incorporation of Certain Information By Reference;
are to be Solicited Summary -- Shareholder Meeting; The Merger; Summary --
Rights of Shareholders Electing to Exercise Their Right
of Appraisal; Comparative Rights of Shareholders; Annex B
19. Information if Proxies, Consents or Authorizations Not Applicable
are not to be Solicited, or in an Exchange Offer
</TABLE>
<PAGE>
[Del Amo Savings Bank, FSB Letterhead]
Dear Shareholders:
You are cordially invited to attend the Special Meeting of Shareholders of Del
Amo Savings Bank, FSB ("the Bank") on Monday, March 9, 1998, at 10:00 a.m.,
Pacific Time, at the Torrance Chamber of Commerce, 3400 Torrance Blvd., Suite
100, Torrance, California. This is a very important meeting regarding your
investment in the common stock of the Bank.
The purpose of the meeting is to consider and vote upon the Amended and Restated
Agreement and Plan of Reorganization, dated as of December 18, 1997, by and
among the Bank, City Holding Company ("City Holding") and City Acquisition Sub,
F.S.B. (in organization) ("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 "Merger") and become a subsidiary
of City Holding. In the 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 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 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 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.
Very truly yours,
Nicholas Barakonski
President and Chief Executive Officer
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DEL AMO SAVINGS BANK, FSB
3422 CARSON STREET
TORRANCE, CALIFORNIA 90503
(800) 961-6636
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON MARCH 9, 1998
TO THE SHAREHOLDERS OF DEL AMO SAVINGS BANK, FSB:
NOTICE IS HEREBY GIVEN that a Special Meeting of shareholders has been called by
the Board of Directors of Del Amo Savings Bank, FSB ("the Bank") and will be
held at the Torrance Chamber of Commerce, located at 3400 Torrance Blvd., Suite
100, Torrance, California, on Monday, March 9, 1998, at 10:00 a.m. Pacific Time
for the purpose of considering and voting upon the following matters:
1. Proposed Merger. To consider and vote upon the Amended and Restated Agreement
and Plan of Reorganization dated as of December 18, 1997, and a related Plan of
Merger (together, the "Agreement") providing for the merger of the Bank with and
into City Acquisition Sub, F.S.B. (in organization), a wholly-owned subsidiary
of City Holding Company (the "Merger"). The Agreement is attached to the
accompanying Proxy Statement/Prospectus as Annex A; 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 January 26, 1998, are entitled to notice
of and to vote at the meeting.
Torrance, California By Order of the Board of Directors,
January 30, 1998
Diana Bowers
Secretary
THE BOARD OF DIRECTORS OF THE BANK UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF
THE SHARES OF THE BANK'S COMMON STOCK VOTE IN FAVOR OF THE AGREEMENT AND THE
MERGER.
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 VOTING THEREOF.
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PROXY STATEMENT
FOR
SPECIAL MEETING OF SHAREHOLDERS
OF
DEL AMO SAVINGS BANK, FSB
TO BE HELD ON MARCH 9, 1998
PROSPECTUS OF
CITY HOLDING COMPANY
COMMON STOCK
This Proxy Statement/Prospectus is being furnished to the holders of shares of
Common Stock, par value $2.50 per share ("Bank Common Stock"), of Del Amo
Savings Bank, FSB, a Federally chartered savings bank (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 10:00 a.m. Pacific Time on March 9, 1998, at the Torrance Chamber of
Commerce, located at 3400 Torrance Blvd., Suite 100, Torrance, California (the
"Bank Shareholder Meeting").
At the Bank Shareholder Meeting, shareholders of record of Bank Common Stock as
of the close of business on January 26, 1998, will consider and vote upon a
proposal to approve the Amended and Restated Agreement and Plan of
Reorganization, dated as of December 18, 1997, and a related Plan of Merger
(together, the "Agreement") by and among City Holding Company, a West Virginia
corporation ("City Holding"), City Acquisition Sub, F.S.B., a wholly owned
subsidiary of City Holding (in organization) ("Acquisition"), and the Bank
pursuant to which, among other things, the Bank will merge into Acquisition (the
"Merger"). Upon consummation of the Merger, which is expected to occur on or
about March 31, 1998, each outstanding share of Bank Common Stock, other than
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 common stock, $2.50 par value, of City Holding
("City Holding Common Stock"), determined by the Exchange Ratio (as defined
herein), subject to adjustment as set forth in the Agreement. See "The Merger --
Determination of Exchange Ratio and Exchange for City Holding Common Stock." For
a description of the Agreement, which is included herein as Annex A to this
Proxy Statement/Prospectus, see "The Merger."
This Proxy Statement/Prospectus and the accompanying proxy card are first being
mailed to shareholders of the Bank on or about January 30, 1998.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE 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 January 30, 1998.
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TABLE OF CONTENTS
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AVAILABLE INFORMATION.............................................................................................1
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE.................................................................1
SUMMARY ..........................................................................................................2
Parties to the Merger....................................................................................2
Shareholder Meeting......................................................................................2
Vote Required; Record Date...............................................................................3
The Merger...............................................................................................3
Determination of Exchange Ratio..........................................................................3
Exchange of Bank Stock for City Holding Common Stock.....................................................4
Effective Time of the Merger.............................................................................4
Recommendation of the Board of Directors of Bank; Reasons for the Merger.................................4
Opinion of the Bank's Financial Advisor..................................................................5
Business of the Bank Pending the Merger.................................................................5
Conditions to Consummation of the Merger.................................................................5
Interests of Certain Persons in the Merger...............................................................5
Certain Federal Income Tax Consequences..................................................................5
Rights of Shareholders Electing to Exercise their Dissenter Rights of Appraisal..........................6
Resale of City Holding Common Stock......................................................................6
Market Prices Prior to Announcement of the Merger........................................................6
Comparative Per Share Data...............................................................................6
SELECTED FINANCIAL DATA...........................................................................................8
GENERAL INFORMATION..............................................................................................12
THE MERGER.......................................................................................................13
Determination of Exchange Ratio.........................................................................13
Exchange of Bank Stock for City Holding Common Stock....................................................14
Exchange of Options Granted Under Bank's 1990 Stock Option Plan.........................................14
Effective Time of the Merger............................................................................15
Recommendation of the Board of Directors of Bank; Reasons for the Merger................................15
Opinion of the Bank's Financial Advisor.................................................................15
Business of the Bank Pending the Merger.................................................................18
Conditions to Consummation of the Merger................................................................19
Termination.............................................................................................19
Accounting Treatment....................................................................................19
Operations After the Merger.............................................................................19
Interests of Certain Persons in the Merger..............................................................19
Effect on the Bank Employee Benefits Plans..............................................................20
Certain Federal Income Tax Consequences.................................................................20
Rights of Shareholders Electing to Exercise Dissenter's Right of Appraisal..............................21
CITY HOLDING COMPANY.............................................................................................23
PRICE RANGE OF CITY HOLDING COMMON STOCK AND DIVIDENDS...........................................................24
DEL AMO SAVINGS BANK, FSB........................................................................................24
General.................................................................................................24
MARKET FOR AND DIVIDENDS PAID ON BANK COMMON STOCK...............................................................25
OWNERSHIP BY CERTAIN BENEFICIAL OWNERS OF BANK STOCK.............................................................25
REGULATION AND SUPERVISION.......................................................................................27
Bank Holding Companies..................................................................................27
Capital Requirements....................................................................................28
Limits on Dividends and Other Payments..................................................................28
City National...........................................................................................29
Governmental Policies and other Safety and Soundness Regulations........................................29
DESCRIPTION OF CAPITAL STOCK OF CITY HOLDING.....................................................................29
Common Stock............................................................................................30
Preferred Stock.........................................................................................30
Preferred Stock Purchase Rights Plan; Change of Control.................................................30
Reports to Shareholders.................................................................................31
Transfer Agent..........................................................................................31
COMPARATIVE RIGHTS OF SHAREHOLDERS...............................................................................31
Capitalization..........................................................................................31
Voting Rights...........................................................................................31
Directors and Classes of Directors......................................................................32
Anti-Takeover Provisions................................................................................32
Preemptive Rights.......................................................................................32
Assessment..............................................................................................32
Conversion; Redemption; Sinking Fund....................................................................32
Liquidation Rights......................................................................................33
Dividends and Other Distributions.......................................................................33
Shareholder Meetings....................................................................................33
Indemnification.........................................................................................33
Director Exculpation....................................................................................34
Dissenters' Rights......................................................................................34
RESALE OF CITY HOLDING COMMON STOCK..............................................................................34
EXPERTS..........................................................................................................34
LEGAL OPINIONS...................................................................................................35
OTHER MATTERS....................................................................................................35
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ANNEX A--Amended and Restated Agreement and Plan of Reorganization
ANNEX B--Plan of Merger
ANNEX C--Opinion of Hovde Financial, Inc.
ANNEX D--12 U.S.C.A. ss. 552.14 relating to Dissenters' Rights
<PAGE>
AVAILABLE INFORMATION
City Holding is subject to the reporting and informational requirements of the
Securities Exchange Act of 1934, as amended (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. City Holding common stock is quoted on Nasdaq, and reports,
proxy statements, and other information concerning City Holding may be inspected
and copied at the offices of Nasdaq, 1735 K Street, N.W., Washington, D.C.
20006. 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, as amended (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 TO 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 MARCH 2, 1998.
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, 1996; (ii) City Holding's Quarterly Reports on
Form 10-Q for the periods ended March 31, 1997, June 30, 1997, and September 30,
1997; and (iii) the description of City Holding Common Stock in City Holding's
registration statement on Form 8A 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 Amended and Restated Agreement and
Plan of Reorganization among City Holding, Acquisition and the Bank, dated
December 18, 1997, which is attached to this Proxy Statement/Prospectus as Annex
A.
<PAGE>
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 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. On December 22, 1997, each of City Holding's West
Virginia banking subsidiaries was merged into and became divisions of City
Holding's principal subsidiary, The City National Bank of Charleston (City
National). In addition to City National, City Holding is the parent company of
City Financial Corporation, a full-service securities brokerage and investment
advisory company and City Mortgage Corporation, currently inactive. All of the
subsidiaries are wholly-owned. In addition to City Holding's periodic filings
with the SEC, City National is subject to certain regulatory guidelines at the
applicable federal and state level. As such, City National is 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, 1997, City
Holding had total assets of $1.34 billion, total deposits of $910 million and
total shareholders' equity of $90 million.
City Holding's principal subsidiary is City National, which was organized in
1957. 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. City National, including its
divisions, operates 43 banking offices throughout the state of West Virginia.
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."
City Acquisition Sub, F.S.B. is owned by City Holding, has no business
operations and is being formed solely to effect the acquisition of the Bank.
The Bank. The main office of the Bank is located at 3422 Carson Street,
Torrance, California 90503, telephone (800) 961-6636.
Del Amo Savings Bank, FSB is a Federally chartered savings bank providing
deposit, loan and commercial banking services in the South Bay area of Los
Angeles County. The Bank operates two offices. At September 30, 1997, the Bank
had assets of $113.3 million, deposits of $100.4 million, and shareholders'
equity of $6.7 million. The Bank serves approximately 7,000 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 "Del Amo Savings Bank."
Shareholder Meeting
The Bank Shareholder Meeting will be held on Monday, March 9, 1998, at 10:00
a.m. Pacific Time at the Torrance Chamber of Commerce located at 3400 Torrance
Blvd., Suite 100, Torrance, California, 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.
Vote Required; Record Date
Only Bank shareholders of record at the close of business on January 26, 1998
(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 Merger. As of the Record
Date, there were 533,096 shares of Bank Common Stock entitled to be voted, held
by approximately 292 shareholders of record.
Directors of the Bank and its affiliates beneficially owned, as of the Record
Date, 199,761 shares, or approximately 37.5%, of the 533,096 outstanding shares
of Bank Common Stock. Directors of the Bank have agreed with City Holding to
recommend approval of the Merger to shareholders of the Bank and to vote the
shares of Bank Common Stock beneficially owned by them in favor of the Merger.
See "Ownership by Certain Beneficial Owners of Bank Stock."
The Board of Directors of City Holding has approved the Merger. Approval of the
Merger by City Holding shareholders is not required by applicable law or
regulation. No officers or directors of City Holding own any shares of Bank
Common Stock.
The Merger
Pursuant to the Agreement, at the Effective Time of the Merger, as defined
herein under "--Effective Time of the Merger," the Bank will merge into
Acquisition in accordance with the Plan of Merger. At the Effective Time of the
Merger, each outstanding share of Bank Common Stock (other than shares held by
City Holding or Dissenting Shares, as defined below) will be converted into the
right to receive a fixed number of shares of City Holding Common Stock based on
the Exchange Ratio, as described below and subject to adjustment as set forth in
the Agreement. See "The Merger - Determination of Exchange Ratio."
Determination of Exchange Ratio
In connection with the Merger, each share of Bank Common Stock outstanding
immediately prior to the Effective Time of the Merger (other than shares of Bank
Common Stock held by City Holding, if any, and other than Dissenting Shares as
defined in Section 2.3 of the Agreement), by virtue of the Merger and without
any action on the part of the holder thereof, shall be converted into that
number of shares of City Holding Common Stock equal to the product of one
multiplied by the Exchange Ratio. As used in the Agreement:
(i) "Exchange Ratio" shall mean the quotient of (x) the sum of (A)
the product of 1.55 times the Net Book Value Per Share (as
defined herein) plus (B) the per share pro rata amount of the
Bank's out-of-pocket accountable fees, costs and expenses
associated with the Merger (up to a maximum in the aggregate
of $200,000 and only to the extent such costs have not been
capitalized) (the "Merger Expenses") divided by (y) the Fair
Market Value Per City Holding Share (as defined herein);
(ii) "Net Book Value Per Share" shall mean the net book value of
the Bank at the Measurement Date (as defined herein) divided
by the total number of shares of Bank Common Stock outstanding
immediately prior to the Effective Time of the Merger;
(iii) "Fair Market Value Per City Holding Share" shall mean the
average closing price of a share of City Holding Common
Stock as reported on The Nasdaq National Market for the
twenty trading days prior to the Measurement Date; provided,
that (A) if the Fair Market Value Per City Holding Share as
determined in the clause immediately preceding this
proviso is less than $32.00 and greater than or equal to
$30.00, the Fair Market Value Per City Holding Share
shall equal $32.00, (B) if the Fair Market Value Per
City Holding Share as determined in the clause
immediately preceding this proviso is greater than $43.00 and
less than or equal to $48.00, the Fair Market Value Per City
Holding Share shall equal $43.00, or (C) if the Fair Market
Value Per City Holding Share as determined in the clause
immediately preceding this proviso is greater than $48.00
or less than $30.00, the Bank or City Holding may terminate
the Agreement in accordance with Section 7.1(k) of the
Agreement; and
(iv) "Measurement Date" shall mean the last day of the month
immediately preceding the Closing Date, as defined in Section
6.1 of the Agreement.
Exchange of Bank Stock for City Holding Common Stock
After the Effective Time of the Merger, each holder of a certificate theretofore
representing outstanding shares of Bank Common Stock, upon surrender of such
certificate to The 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). See
"The Merger -- Exchange of Bank Common Stock for City Holding Common Stock."
Holders of options granted under the Bank's 1990 Stock Option Plan must exercise
such options or deliver an irrevocable election to convert such options to the
Bank prior to March 9, 1998, or such options will terminate pursuant to the
terms of the underlying option agreements. See "The Merger -- Exchange of
Options Granted Under Bank's 1990 Stock Option Plan."
Effective Time of the Merger
The Merger is expected to be consummated on or about March 31, 1998. Subject to
the terms and conditions set forth herein, including receipt of all required
regulatory approvals, the Merger shall become effective at the time Articles of
Merger relating to the Merger are made effective (the "Effective Time of the
Merger") by the Office of Thrift Supervision (the "OTS") and the Secretary of
State of West Virginia. The Bank and City Holding each has the right, acting
unilaterally, to terminate the Agreement should the Merger not be completed by
June 30, 1998. See "The Merger -- Termination."
Recommendation of the Board of Directors of Bank; Reasons for the
Merger
The Board of Directors of the Bank has determined that the Merger is in the best
interests of the 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:
<PAGE>
(i) The Board of Directors of the Bank believes that the Exchange
Ratio provides a fair price to the Bank's shareholders for
their shares of Bank Common Stock.
(ii) The opinion of Hovde Financial, Inc. that the terms of the
merger are fair to the Bank's shareholders from a financial
point of view.
(iii) The exchange of shares pursuant to the 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).
(iv) City Holding Common Stock to be received by the Bank
shareholders is expected to afford greater market liquidity
when compared to the current minimal trading of the Bank's
Common Stock.
(v) The Merger is expected to provide the Bank's customers access
to a broader range of financial services and products.
(vi) The Board of Directors of the Bank found the provisions of the
Agreement and related Plan of Merger to be fair and
reasonable.
Based on these matters, and such other matters as the Board deemed relevant, the
Bank's Board of Directors unanimously adopted the Agreement and Plan of Merger
as being in the best interests of the Bank and its shareholders.
THE BOARD OF DIRECTORS OF BANK RECOMMENDS THAT BANK SHAREHOLDERS VOTE IN FAVOR
OF THE AGREEMENT AND THE MERGER.
Opinion of the Bank's Financial Advisor
The Bank has received the opinion of Hovde Financial, Inc. ("Hovde") that as of
November 20, 1997, the terms of the Merger are fair, from a financial point of
view, to the shareholders of the Bank. The full text of Hovde's opinion, dated
November 20, 1997, which describes the procedures followed, assumptions made,
limitations on the review taken, and other matters in connection with rendering
such opinion, is set forth in Annex C to this Proxy Statement/Prospectus and
should be read in its entirety by the Bank's shareholders. For additional
information regarding the opinion of Hovde, a discussion of the qualifications
of Hovde, the method of their selection and certain relationships between Hovde
and the Bank, see "The Merger -- Opinion of the Bank's Financial Advisor."
Business of the Bank Pending the 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
Merger without extending prior notice to and reasonably cooperating with City
Holding, except as otherwise permitted by the Agreement. See "The Merger --
Business of the Bank Pending the Merger."
Conditions to Consummation of the Merger
Consummation of the Merger will be accomplished by the statutory merger of the
Bank into Acquisition. The Merger is contingent upon the approvals of the Board
of Governors of the Federal Reserve System (the "Federal Reserve Board"), the
OTS and the West Virginia Division of Banking (the "Division"). The Merger is
also subject to other usual conditions set forth in the Agreement. See "The
Merger -- Conditions to Consummation of the Merger."
Interests of Certain Persons in the Merger
Certain members of the Bank's management and the Bank's Board of Directors have
interests in the Merger in addition to their interests as shareholders of the
Bank generally. These include, among other things, certain employment
agreements, indemnification and directors' and officers' liability insurance for
the Bank's directors and officers, and eligibility of the Bank's employees for
certain City Holding employee benefits. See "The Merger -- Interests of Certain
Persons in the Merger."
Certain Federal Income Tax Consequences
The Merger is intended to be a tax-free "reorganization" as defined in Section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code"), but the
receipt of cash by a Bank shareholder as a result of the exercise 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 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 Merger as a tax-free reorganization and
certain other federal income tax consequences of the Merger. See "The Merger --
Certain Federal Income Tax Consequences."
Rights of Shareholders Electing to Exercise their Dissenter 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 Merger and, upon
consummation of the Merger and the satisfaction of certain specified procedures,
to receive payment of the fair value of such holder's shares of Bank Common
Stock in cash in accordance with 12 U.S.C.A. ss. 552.14. The procedures to be
followed by a shareholder electing to perfect his or her right of appraisal are
summarized under "The Merger -- Rights of Shareholders Electing to Exercise
Their Right of Appraisal" and a copy of 12 U.S.C.A. ss. 552.14 is set forth in
Annex B to this Proxy Statement/Prospectus. FAILURE TO FOLLOW SUCH PROVISIONS
PRECISELY MAY RESULT IN LOSS OF SUCH APPRAISAL RIGHTS.
Resale of City Holding Common Stock
Shares of City Holding Common Stock received in the 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."
Market Prices Prior to Announcement of the Merger
The following is information regarding the last reported closing price per share
of City Holding Common Stock on The Nasdaq National Market on May 20, 1997, the
date immediately preceding delivery of an indication of interest to the Bank on
May 21, 1997, which was superseded by an agreement dated November 20, 1997,
which agreement was amended and restated on December 18, 1997. See "Price Range
of City Holding Common Stock and Dividends" for information concerning recent
market prices of City Holding Common Stock. There is no established market for
Bank Common Stock.
<TABLE>
<CAPTION>
Bank
Historical Equivalent
City Holding(a) Bank(b) Pro Forma(c)
--------------- ------- -------------
<S> <C>
Common Stock $31.75 $12.18 $18.88
</TABLE>
(a) City Holding Common Stock is included in The Nasdaq National Market
under the symbol "CHCO."
(b) No active market exists for Bank Common Stock. Amount represents the
net book value per share of Bank Common Stock on May 20, 1997.
(c) The equivalent price for Bank Common Stock is determined by multiplying
the Bank's net nook value per share of $12.18 by 1.55, resulting in an
assumed exchange ratio of .5946, if the transaction were to have
occurred on May 20, 1997.
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 assumed exchange ratio of
0.4886 shares of City Holding Common Stock for each share of Bank Common Stock
(based on City Holding stock price of $39.875 at September 30, 1997). 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 assumed
exchange ratio of 0.4886. The following table is based on the assumption that
all issued and outstanding shares of Bank Common Stock are converted into shares
of City Holding Common Stock.
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>
At or for the
Nine Months Ended At or for the Year
September 30, Ended December 31,
1997 1996
---- ----
<S> <C>
Book Value Per Share at Period End:
City Holding historical $14.89 $14.21
Bank historical 12.57 11.93
Pro forma combined per City Holding common share (1) 15.92 15.35
Equivalent pro forma per Bank common share 7.78 7.50
Cash Dividends Declared Per Share:
City Holding historical $0.54 $0.63
Bank historical -- --
Pro forma combined per City Holding common share (2) 0.54 0.63
Equivalent pro forma per Bank common share 0.26 0.31
Net Income Per Share:
City Holding historical $1.56 $1.81
Bank historical 0.64 0.04
Pro forma combined per City Holding common share (3) 1.55 1.74
Equivalent pro forma per Bank common share 0.76 0.85
</TABLE>
- -----------------
(1) Pro forma combined book value per City Holding common share represents
City Holding's historical stockholder's equity at the respective dates
plus the additional equity that would be created as a result of the
proposed issuance of shares of City Holding Common Stock pursuant to
the Merger divided by the sum of the the outstanding shares of City
Holding Common Stock at the respective dates plus the number of shares
of City Holding Common Stock that would be issued pursuant to the
Merger.
(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. City Holding's and the Bank's book value per share
are as of the dates presented, and net income and dividend data reflect
results for the periods presented.
(5) All per share data have been restated to reflect 10% stock dividends
declared by City Holding effective November 1996.
<PAGE>
SELECTED FINANCIAL DATA
CITY HOLDING COMPANY AND DEL AMO SAVINGS BANK, FSB
The following City Holding consolidated financial data and Bank financial data
are qualified in their entirety by the information in the documents included or
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>
At or for the
Nine Months
Ended At or for the
September 30, Year Ended December 31,
------------------- ------------------------------------
1997 1996 1996 1995 1994 1993 1992
<S> <C>
(in 000s, except per share data)
EARNINGS:
Interest Income:
City Holding $70,875 $64,081 $86,069 $75,125 $62,762 $55,301 $50,880
Bank 6,343 6,640 8,814 8,661 7,663 7,834 9,886
Interest Expense:
City Holding $32,084 $29,041 $39,064 $33,580 $25,168 $22,425 $22,184
Bank 3,879 4,209 5,563 5,710 4,607 4,823 6,255
Net Interest Income:
City Holding $38,791 $35,040 $47,005 $41,545 $37,594 $32,876 $28,696
Bank 2,464 2,431 3,251 2,951 3,056 3,011 3,631
Provision (Benefit) for Loan Losses:
City Holding $ 1,861 $ 943 $ 1,678 $ 1,104 $ 1,040 $ 1,434 $ 2,325
Bank 90 74 104 76 (18) 297 289
Net Interest Income after Provision for Loan Losses:
City Holding $36,930 $34,097 $45,327 $40,441 $36,554 $31,442 $26,371
Bank 2,374 2,357 3,147 2,875 3,074 2,714 3,342
Noninterest Income:
City Holding $17,029 $ 6,586 $ 11,123 $ 6,346 $ 5,249 $ 3,862 $ 2,328
Bank 477 696 897 268 290 633 628
Noninterest Expense:
City Holding $39,348 $29,303 $40,982 $33,887 $30,116 $24,292 $18,889
Bank 2,260 3,200 4,008 2,977 3,118 2,951 3,033
Income (Loss) before Income Taxes:
City Holding $14,611 $11,380 $15,468 $12,900 $11,687 $11,012 $ 9,810
Bank 591 (147) 36 166 246 396 937
Income Taxes (Benefit):
City Holding $5,122 $3,810 $5,338 $4,182 $3,546 $3,367 $2,838
Bank 249 (61) 15 69 108 259 506
Net Income (Loss):
City Holding $ 9,489 $ 7,570 $10,130 $ 8,718 $ 8,141 $ 7,645 $ 6,972
Bank 342 (86) 21 97 138 137 431
Net Income (Loss) Applicable to Common Shares:
City Holding $ 9,489 $ 7,570 $10,130 $ 8,718 $ 8,141 $ 7,645 $ 6,972
Bank 342 (86) 21 97 138 137 431
<CAPTION>
At or for the
Nine Months
Ended At or for the
September 30, Year Ended December 31,
------------------- ------------------------------------
<S> <C>
1997 1996 1996 1995 1994 1993 1992
(in 000s, except per share data)
PER COMMON SHARE DATA:(1) Net Income (Loss) (primary):
City Holding $ 1.56 $ 1.36 $ 1.81 $ 1.55 $ 1.44 $ 1.35 $ 1.23
Bank 0.64 (0.16) 0.04 0.18 0.26 0.26 0.82
Net Income (Loss) (fully diluted):
City Holding $ 1.56 $ 1.36 $ 1.81 $ 1.55 $ 1.44 $ 1.35 $ 1.23
Bank 0.64 (0.16) 0.04 0.18 0.26 0.26 0.82
Dividends declared:
City Holding(2) $ 0.54 $ 0.46 $ 0.63 $ 0.56 $ 0.49 $ 0.46 $ 0.41
Bank -- -- -- -- -- -- --
Book Value Per Share:
City Holding $14.89 $13.84 $14.21 $13.09 $11.66 $11.56 $10.73
Bank 12.57 11.73 11.93 11.89 11.71 11.45 11.19
Average Primary Shares Outstanding:
City Holding 6,069 5,586 5,586 5,642 5,676 5,664 5,685
Bank 533 533 533 532 531 531 526
Average Fully Diluted Shares Outstanding:
City Holding 6,092 5,586 5,586 5,642 5,676 5,664 5,685
Bank 533 533 533 532 531 531 526
SELECTED PERIOD-END BALANCES:
Total Assets:
City Holding $1,335,063 $1,085,215 $1,048,810 $1,040,969$895,785 $816,225 $701,862
Bank 113,329 115,843 111,835 117,772 116,538 111,730 113,694
Net Loans:
City Holding $764,091 $675,052 $690,701 $650,195 $547,809 $462,424 $376,206
Bank 98,028 101,315 98,452 106,357 108,868 95,892 87,563
Allowance for Loan Losses:
City Holding $8,246 $6,836 $7,281 $6,566 $6,477 $6,209 $5,730
Bank 601 629 540 615 574 642 844
Nonperforming and Potential Problem Assets:
City Holding $8,719 $5,706 $5,932 $4,353 $4,825 $4,788 $5,579
Bank 1,213 1,641 1,262 689 1,033 2,582 941
Total Deposits:
City Holding $910,346 $825,574 $828,670 $797,415 $746,805 $709,958 $605,398
Bank 100,370 99,551 98,482 102,189 104,109 104,429 105,894
Long-term Debt:
City Holding $64,400 $25,750 $34,250 $20,000 $6,875 $5,875 $4,000
Bank 5,000 5,000 5,000 5,000 ---- ---- ----
Common Shareholders' Equity:
City Holding $90,392 $77,300 $79,373 $73,139 $66,299 $65,605 $60,858
Bank 6,702 6,253 6,361 6,333 6,215 6,077 5,940
Total Shareholders' Equity:
City Holding $90,392 $77,300 $79,373 $73,139 $66,299 $65,605 $60,858
Bank 6,702 6,253 6,361 6,333 6,215 6,077 5,940
<PAGE>
<CAPTION>
At or for the
Nine Months
Ended At or for the
September 30, Year Ended December 31,
------------------- ------------------------------------
<S> <C>
1997 1996 1996 1995 1994 1993 1992
(in 000s, except per share data)
AVERAGE BALANCES:
Total Assets:
City Holding $1,169,927 $1,071,027 $1,079,540 $957,048 $864,690 $739,804 $610,707
Bank 112,851 117,253 116,636 116,619 113,672 113,180 121,903
Net Loans:
City Holding $747,957 $657,212 $665,641 $608,551 $504,795 $413,645 $322,464
Bank 97,044 103,866 102,634 107,582 103,230 95,744 91,606
Total Deposits:
City Holding $885,092 $809,715 $812,655 $771,303 $736,115 $639,480 $523,488
Bank 99,966 101,069 100,459 103,481 103,168 105,248 114,058
Long-term Debt:
City Holding $39,845 $22,650 $24,666 $8,204 $6,252 $4,387 $508
Bank 5,000 5,000 5,000 5,000 ---- ---- ----
Common Shareholders' Equity:
City Holding $87,342 $75,771 $76,130 $69,463 $67,652 $63,511 $58,606
Bank 6,518 6,439 6,412 6,290 6,166 6,124 5,628
Total Shareholders' Equity:
City Holding $87,342 $75,771 $76,130 $69,463 $67,652 $63,511 $58,606
Bank 6,518 6,439 6,412 6,290 6,166 6,124 5,628
RATIOS:
Return on Average Assets:
City Holding 1.08% 0.94% 0.94% 0.91% 0.94% 1.03% 1.14%
Bank 0.30 (0.07) 0.02 0.08 0.12 0.12 0.35
Return on Average Shareholders' Equity:
City Holding 14.49% 13.32% 13.31% 12.55% 12.03% 12.04% 11.90%
Bank 5.25 (1.34) 0.33 1.54 2.24 2.24 7.66
Return on Average Common Shareholders' Equity:
City Holding 14.49% 13.32% 13.31% 12.55% 12.03% 12.04% 11.90%
Bank 5.25 (1.34) 0.33 1.54 2.24 2.24 7.66
Nonperforming and Potential Problem
Assets to Net Loans at period end:
City Holding 1.14% 0.84% 0.86% 0.67% 0.88% 1.04% 1.48%
Bank 1.24 1.67 1.28 0.65 0.95 2.69 1.07
Net Charge-offs to Net Average Loans:
City Holding 0.15% 0.10% 0.14% 0.17% 0.15% 0.27% 0.32%
Bank 0.01 0.07 0.17 0.03 0.05 0.52 0.00
Allowance for Loan Losses to Net Loans at period end:
City Holding 1.08% 1.01% 1.05% 1.01% 1.18% 1.34% 1.52%
Bank 0.61 0.64 0.55 0.58 0.53 0.67 0.96
<PAGE>
<CAPTION>
At or for the
Nine Months
Ended At or for the
September 30, Year Ended December 31,
------------------- ------------------------------------
1997 1996 1996 1995 1994 1993 1992
<S> <C>
(in 000s, except per share data)
Allowance for Loan Losses to Nonperforming
and Potential Problem Assets:
City Holding 94.58% 119.80% 149.26% 150.84% 134.24% 129.68% 102.71%
Bank 49.55 38.33 42.79 89.25 55.57 24.86 89.69
Average Shareholders' Equity to Average
Assets:
City Holding 7.47% 7.07% 7.05% 7.26% 7.82% 8.58% 9.60%
Bank 5.78 5.49 5.50 5.40 5.42 5.41 4.62
CAPITAL RATIOS AT PERIOD END:
Tier 1 Risk-adjusted Capital:
City Holding 8.67% 9.32% 10.20% 8.87% 11.03% 11.39% 13.23%
Bank 10.35 9.20 10.00 9.13 8.90 9.05 9.02
Total Risk-adjusted Capital:
City Holding 9.52% 10.21% 11.23% 9.75% 12.19% 12.64% 14.48%
Bank 11.28 10.07 10.84 9.93 9.72 10.00 10.27
Tier 1 Leverage:
City Holding 6.93% 6.61% 6.58% 6.45% 6.83% 6.66% 8.68%
Bank 5.91 5.40 5.69 5.39 5.33 5.44 5.22
</TABLE>
- --------------
(1) All per share data have been restated to reflect 10% stock dividends
declared by City Holding effective November, 1996, January and
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 acquired 100% of the Common Stock of The Buffalo Bank of Eleanor 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. The acquisition of The Old National Bank of
Huntington, consummated in January 1997, was accounted for as a pooling of
interests. However, due to the relative immateriality of the size of the
acquisition, prior period financial data has not been restated.
<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 Torrance Chamber of Commerce
located at 3400 Torrance Blvd., Suite 100, Torrance, California, on Monday,
March 9, 1998 at 10:00 a.m. Pacific 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 January 26, 1998, 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 January 26, 1998.
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 Agreement and the Merger.
Abstentions 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 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 Agreement and the 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 Diana Bowers, Secretary, Del Amo
Savings Bank, FSB, 3422 Carson Street, Torrance, California 90503; (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
Bank Shareholder Meeting. If, however, other matters are presented, the
accompanying proxy will be voted in the discretion of the Board's proxy holders
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 199,761 shares (representing
approximately 37.5% 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 Agreement and the 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 Agreement and the Merger. See "Ownership of Certain Beneficial
Owners of Bank Stock."
For the reasons described below, the Bank Board has adopted the Agreement,
believes the 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 and
the Merger. See "The Merger--Reasons for the 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 3422 Carson Street, Torrance, California 90503 and its telephone number
is (800) 961-6636.
THE MERGER
The detailed terms of the Merger are contained in the Amended and Restated
Agreement and Plan of Reorganization, attached as Annex A to this Proxy
Statement/Prospectus. The following discussion describes the more important
aspects of the 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.
Determination of Exchange Ratio
In connection with the Merger, each share of Bank Common Stock outstanding
immediately prior to the Effective Time of the Merger (other than shares of Bank
Common Stock held by City Holding, if any, and other than Dissenting Shares as
defined in Section 2.3 of the Agreement), by virtue of the Merger and without
any action on the part of the holder thereof, shall be converted into that
number of shares of City Holding Common Stock equal to the product of one
multiplied by the Exchange Ratio. As used in the Agreement:
(i) "Exchange Ratio" shall mean the quotient of (x) the sum of (A) the
product of 1.55 times the Net Book Value Per Share (as defined
herein) plus (B) the per share pro rata amount of the Bank's
out-of-pocket accountable fees, costs and expenses associated with
the Merger (up to a maximum in the aggregate of $200,000 and only
to the extent such costs have not been capitalized) (the "Merger
Expenses") divided by (y) the Fair Market Value Per City Holding
Share (as defined herein);
(ii) "Net Book Value Per Share" shall mean the net book value of the
Bank at the Measurement Date (as defined herein) divided by the
total number of shares of Bank Common Stock outstanding
immediately prior to the Effective Time of the Merger;
(iii)"Fair Market Value Per City Holding Share" shall mean the average
closing price of a share of City Holding Common Stock as reported
on The Nasdaq National Market for the twenty trading days prior to
the Measurement Date; provided, that (A) if the Fair Market Value
Per City Holding Share as determined in the clause immediately
preceding this proviso is less than $32.00 and greater than or
equal to $30.00, the Fair Market Value Per City Holding Share
shall equal $32.00, (B) if the Fair Market Value Per City Holding
Share as determined in the clause immediately preceding this
proviso is greater than $43.00 and less than or equal to $48.00,
the Fair Market Value Per City Holding Share shall equal $43.00,
or (C) if the Fair Market Value Per City Holding Share as
determined in the clause immediately preceding this proviso is
greater than $48.00 or less than $30.00, the Bank or City Holding
may terminate the Agreement in accordance with Section 7.1(k) of
the Agreement; and
(iv) "Measurement Date" shall mean the last day of the month
immediately preceding the Closing Date, as defined in Section 6.1
of the Agreement.
The Exchange Ratio at the Effective Time of the 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.
The Exchange Ratio may be expressed as the following formula:
<TABLE>
<S> <C>
Exchange Ratio = (1.55 x Net Book Value Per Share) plus pro rata Merger Expenses
----------------------------------------------------------------
Fair Market Value Per City Holding Share
</TABLE>
Exchange of Bank Stock for City Holding Common Stock
After the Effective Time of the Merger, each holder of a certificate theretofore
representing outstanding shares of Bank Common Stock, upon surrender of such
certificate to The 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 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 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 Merger shall be paid to the holder of such
outstanding certificates in respect thereof. After the Effective Time of the
Merger there shall be no further registry or transfer on the records of the 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 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 prior to
surrender and payment date subsequent to surrender. No interest shall be payable
with respect to such dividends upon surrender of outstanding certificates.
Exchange of Options Granted Under Bank's 1990 Stock Option Plan
Pursuant to the terms of the underlying option agreement, each outstanding
option to acquire a share of Bank Common Stock ("Del Amo Option") shall
terminate if not exercised prior to the Effective Time of the Merger.
Notwithstanding the foregoing, if the Bank shall receive an irrevocable letter
of instruction from an option holder in the form attached to the Agreement as
Exhibit B prior to the meeting of the shareholders of the Bank required by
Section 4.2 of the Agreement, then the Del Amo Options listed in such letter
shall be converted into either (i) an option to acquire that number of shares of
City Holding Common Stock equal to the product of (A) the number of shares of
Bank Common Stock subject to such option immediately prior to the Effective Time
multiplied by (B) the Exchange Ratio, at an exercise price per share equal to
the Del Amo Exercise Price (as defined herein) divided by the Exchange Ratio, or
(ii) the right to receive, upon surrender of such option to the Exchange Agent
accompanied by a Letter of Transmittal, with respect to each share of Bank
Common Stock subject to such option, the number of full shares of City Holding
Common Stock equal to the quotient of (A) the Option Spread (as defined below)
divided by (B) the Fair Market Value Per City Holding Share. As used herein,
"Del Amo Exercise Price" shall mean the exercise price of the respective Del Amo
Option immediately prior to the Effective Time of the Merger. As used herein,
the "Option Spread" shall be equal to the difference between (i) the sum of (A)
the product of the Net Book Value Per Share multiplied by 1.55 plus (B) the
Merger Expenses Per Share (as defined herein) and (ii) the exercise price per
share pursuant to such option. As used herein, "Merger Expenses Per Share" shall
be equal to the Merger Expenses divided by the total number of shares of Bank
Common Stock outstanding immediately prior to the Effective Time of the Merger.
Effective Time of the Merger
Subject to the terms and conditions set forth herein, including receipt of all
required regulatory approvals, the Merger shall become effective at the time
Articles of Merger relating to the Merger are made effective by the OTS and the
Secretary of State of West Virginia. The Effective Time of the Merger is
expected to occur on or about March 31, 1998, or as soon thereafter as is
practicable. Either the Bank or City Holding may terminate the Agreement if the
Merger has not been consummated by June 30, 1998.
Until the Effective Time of the Merger, Bank shareholders will retain their
rights as shareholders to vote on matters submitted to them by the Bank Board.
Recommendation of the Board of Directors of Bank; Reasons for the Merger
The Board of Directors of the Bank has determined that the Merger is in the best
interests of the 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 the Bank believes that the terms of
the merger are fair to the Bank's shareholders for their
shares of Bank Common Stock.
(ii) The opinion of Hovde Financial, Inc. that the Exchange Ratio
is fair to the Bank's shareholders from a financial point of
view.
(iii) The exchange of shares pursuant to the 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).
(iv) City Holding Common Stock to be received by the Bank
shareholders is expected to afford greater market liquidity
when compared to the current minimal trading of the Bank's
Common Stock.
(v) The Merger is expected to provide the Bank's customers access
to a broader range of financial services and products.
(vi) The Board of Directors of the Bank found the provisions of the
Agreement and related Plan of Merger to be fair and
reasonable.
Based on these matters, and such other matters as the Board deemed relevant, the
Bank's Board of Directors unanimously adopted the Agreement and Plan of Merger
as being in the best interests of the Bank and its shareholders.
THE BOARD OF DIRECTORS OF BANK RECOMMENDS THAT BANK SHAREHOLDERS VOTE IN FAVOR
OF THE AGREEMENT AND THE MERGER.
Opinion of the Bank's Financial Advisor
At a meeting of the Bank's Board of Directors on November 20, 1997, Hovde
delivered its oral opinion that the consideration to be received by the holders
of Bank Common Stock pursuant to the Merger was fair to such shareholders from a
financial point of view, as of the date of such opinion. Hovde's oral opinion
was subsequently confirmed in writing, which opinion is attached hereto as Annex
C. Hovde subsequently rendered a more extensive written opinion dated as of the
date of this Proxy Statement/Prospectus (the "Hovde Opinion") to the Bank's
Board of Directors to the effect that the financial terms of the Merger as
defined in the Agreement are fair to the holders of Bank Stock from a financial
point of view. The Bank's Board of Directors imposed no limitations upon Hovde
with respect to the investigations made or procedures followed in rendering the
Hovde Opinion.
THE FULL TEXT OF HOVDE'S OPINION TO THE BANK'S BOARD OF DIRECTORS, DATED THE
DATE OF THIS PROXY STATEMENT/PROSPECTUS, WHICH SETS FORTH THE ASSUMPTIONS MADE,
MATTERS CONSIDERED, AND LIMITATIONS OF THE REVIEW BY HOVDE, IS ATTACHED HERETO
AS APPENDIX C AND IS INCORPORATED HEREIN BY REFERENCE. THE FOLLOWING SUMMARY OF
HOVDE'S OPINION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF
THE OPINION, WHICH SHOULD BE READ CAREFULLY AND IN ITS ENTIRETY. IN FURNISHING
SUCH OPINION, HOVDE DOES NOT CLAIM THAT IT IS AN EXPERT WITH RESPECT TO THE
REGISTRATION STATEMENT OF WHICH THIS PROXY STATEMENT/ PROSPECTUS IS PART WITHIN
THE MEANING OF THE TERM "EXPERTS" AS USED IN THE SECURITIES ACT OF 1933 AND THE
RULES AND REGULATIONS PROMULGATED THEREUNDER, OR THAT ITS OPINION CONSTITUTES A
REPORT OR VALUATION WITHIN THE MEANING OF SECTION 11 OF THE SECURITIES ACT OF
1933 AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER, AND STATEMENTS TO
THAT EFFECT ARE INCLUDED IN THE TEXT OF HOVDE'S WRITTEN OPINION. HOVDE'S OPINION
IS ADDRESSED TO THE BANK'S BOARD OF DIRECTORS, COVERS ONLY THE FAIRNESS OF THE
CONSIDERATION TO BE RECEIVED BY HOLDERS OF BANK STOCK FROM A FINANCIAL POINT OF
VIEW AS OF THE DATE OF THE OPINION AND DOES NOT CONSTITUTE A RECOMMENDATION TO
ANY HOLDER OF BANK STOCK AS TO HOW SUCH SHAREHOLDER SHOULD VOTE AT THE SPECIAL
MEETING.
In connection with its opinion, Hovde, among other things: (i) reviewed certain
publicly available financial and other data with respect to the Bank and City
Holding, including the audited consolidated financial statements for the past
three (3) fiscal years ending December 31, 1996, 1995, and 1994, respectively,
and unaudited consolidated financial statements for the period ending September
30, 1997, and certain other relevant financial and operating data relating to
the Bank and City Holding made available to Hovde from published sources and, in
the case of the Bank, from the internal records of the Bank; (ii) reviewed a
draft of the Agreement; (iii) reviewed certain publicly available information
concerning the trading of, and the trading market for, Bank Stock and City
Holding Stock; (iv) compared both the Bank and City Holding from a financial
point of view with certain other companies in the banking industry, which Hovde
deemed to be relevant; (v) considered the financial terms, to the extent
publicly available, of business combinations in the banking industry which Hovde
deemed to be comparable, in whole or in part, to the Merger; (vi) reviewed and
discussed with representatives of the management of the Bank certain information
of a business and financial nature regarding the Bank furnished to Hovde by
them; (vii) made inquiries regarding and discussed the Merger and the Merger
Agreement and other matters related thereto with the Bank's counsel; and (viii)
performed such other analyses and examinations as Hovde deemed appropriate.
Hovde took into account its assessment of general economic, market and financial
conditions and its experience in other transactions, as well as its experience
in securities valuation and its knowledge of the banking industry generally. The
Hovde Opinion was necessarily based upon conditions as they existed and could
only be evaluated on the date thereof and the information made available to
Hovde through the date thereof.
In conducting its review and in arriving at the Hovde Opinion, Hovde relied upon
and assumed the accuracy and completeness of the financial and other information
provided to it or publicly available and did not attempt independently to verify
the same. Hovde relied upon the management of the Bank and City Holding as to
the reasonableness of the financial and operating forecasts, projections and
projected operating cost savings. Hovde also assumed, without independent
verification, that the aggregate allowances for loan losses for the Bank and
City Holding were adequate to cover such losses. Hovde did not make or obtain
any evaluations or appraisals of the property of the Bank or City Holding, nor
did Hovde examine any individual loan credit files. The Hovde Opinion is limited
to the fairness, from a financial point of view, to the shareholders of the Bank
of the consideration to be received by the Bank's shareholders in the Merger,
which was determined by arm's length negotiations, and does not address the
Bank's underlying decision to proceed with the Merger.
In connection with rendering its opinion to the Bank's Board of Directors, Hovde
performed certain financial analyses, which are summarized below. The summary
set forth below does not purport to be a complete description of the
presentation by Hovde to the Bank's Board of Directors or of the analyses
performed by Hovde. Hovde believes that its analyses must be considered as a
whole and that selecting portions of such analyses and the factors considered
therein, without considering all factors and analyses, could create an
incomplete view of the analyses and the processes underlying the Hovde Opinion.
The preparation of a fairness opinion is a complex process involving subjective
judgments and is not necessarily susceptible to partial analysis or summary
description. In its analyses, Hovde made numerous assumptions with respect to
industry performance, business and economic conditions and other matters, many
of which are beyond the control of the Bank and City Holding. Any estimates
contained in Hovde's analyses are not necessarily indicative of future results
or values, which may be significantly more or less favorable than such
estimates. Estimates of values of companies do not purport to be appraisals or
necessarily reflect the prices at which companies or their securities may
actually be sold.
Set forth below is a brief summary of the analyses performed by Hovde in
reaching the Hovde Opinion. Hovde assumed for purposes of its opinion that the
Merger will be accounted for as a purchase transaction under generally accepted
accounting principles. The analyses focused on core financial and operating
projections and statistics that are not specifically adjusted for nonrecurring
charges, unless otherwise stated. Unless otherwise noted in the analyses, Hovde
used the Exchange Ratio as defined in the Agreement to determine the level at
which Bank Stock would be exchanged if the Closing Date (as defined in the
Agreement) were the same as the day prior to the signing of the Agreement. The
Exchange Ratio formula was developed pursuant to extensive negotiations between
the Bank and City Holding. Hovde analyzed certain effects of the Merger assuming
various Exchange Ratios and concluded pursuant to the analysis of the range of
possible values of the Exchange Ratio that the financial terms of the Merger
remained fair to the holders of shares of Bank Stock from a financial point of
view.
Transaction Summary. Under the terms of the Transaction (as defined in
the Agreement) each shareholder of the Bank will receive fractional shares of
City Holding stock with a value equal to 1.55 times the Bank's book value (as of
the month end prior to the Closing Date). Based upon an estimated 533,096 common
shares outstanding with an estimated book value of $13.11 per share as of
February 28, 1998 (the projected Determination Date), the effective price per
share is equal to $20.32. The actual value per share to be received by the
Bank's shareholders may increase or decrease marginally as a result of the
Exchange Ratio and pricing formula more fully discussed in the Agreement. In
addition, option holders controlling 76,637 options with an average strike price
of $9.64 will receive cash, stock or options to acquire shares of City Holding.
The value of this consideration is equal to the spread between the effective
price per share ($20.32) and the exercise price of the options ($9.64). Hovde
estimated the total transaction value at $11.67 million.
Discounted Earnings Analysis. Hovde analyzed the results of a
discounted earnings analysis designed to compare the present value per share,
under certain assumptions, that could be attained if the Bank were to remain
independent through the year 2000. In performing the analysis, Hovde estimated
the future earnings per share of the Bank for each of the years of 1997, 1998,
1999 and 2000. The estimated earnings per share for each year were then
multiplied by an estimated price to earnings multiple for purchase transactions
using historical earnings per share comparables ranging from 16 times to 21
times actual or projected earnings. The results were then discounted to a
present value using a discount rate of 13%. This analysis indicated the Bank's
future value on a stand-alone bases ranged from $13.08 to $17.17 per share for
1997, $16.21 to $21.28 per share for 1998, $16.50 to $21.65 per share for 1999
and $16.79 to $22.04 per share for 2000. City Holding's offer of approximately
$20.32 per share compared favorably to the present value calculations derived in
this analysis.
Comparable Transaction Analysis. For purposes of facilitating a fair
comparison to comparable transactions, Hovde computed the effective price to
book of 1.67 times book value and price to earnings of 23.34 times earnings.
This level, which exceeds the 1.55 times book value stated in the Agreement
incorporates the impact of the estimated $836,105 in additional consideration
payable to the option holders. Hovde then reviewed and compared these results to
the thrift merger and acquisition transactions for California institutions
announced or closed through November 20, 1997. This analysis which is presented
below showed how the consideration paid to the Bank compared to the high,
median, average and low pricing multiples of other California thrift
transactions:
<TABLE>
<CAPTION>
Deal Value Deal Value to Deal Value
To Book Tangible Book to Earnings
--------- ------------- ------------
Bank 1.67 1.67 23.34
<S> <C>
Comparables:
High 2.71 3.08 69.46
Median 1.67 1.69 14.67
Average 1.62 1.63 22.36
Low 0.89 0.89 9.38
</TABLE>
Merger and Contribution Analysis. Hovde analyzed the contribution of
each of the Bank and City Holding to, among other things, total equity, assets,
deposits and loan loss provisions of the pro forma combined companies for the
period ending September 30, 1997, and projected net income for the calendar year
ending December 31, 1997. This analysis showed, among other things, that based
on pro forma combined balance sheets for the Bank and City Holding at September
30, 1997, the Bank would have contributed 6.90% of the total equity, 8.56% of
total assets, 6.79% of the total loan loss provisions and 15.10% of the total
deposits. The pro forma projected income statement for the period ending
December 31, 1997, showed that the Bank would contribute 3.46% of the net income
of the combined companies. Based on an exchange ratio as defined in the
Agreement and assuming a 100% stock transaction, holders of Bank Stock would own
approximately 4.06% (assuming a trading price for City Holding of $42.00 per
share) of the combined companies based on common shares outstanding at September
30, 1997.
Financial Advisory Fee. In consideration for the rendering of financial
advice and for the preparation and delivery of the Hovde Opinion, the Bank has
agreed to pay Hovde a fee of $60,000. In addition, the Bank has agreed to
reimburse Hovde for all reasonable out-of-pocket expenses associated with this
transaction.
Relationship with the Bank. Hovde is substantially owned and managed by
Eric D. Hovde and Steven D. Hovde, the managing members of Hancock Park
Acquisition, LLC, an Illinois limited liability company which serves as the
managing partner of Hancock Park Acquisition, L.P., a Delaware limited
partnership which owns approximately 17.15% of the outstanding common stock of
the Bank. Neither Eric nor Steven Hovde participated in the preparation or
delivery of the Hovde Opinion. The Bank's Board of Directors evaluated the
relationship between Hovde and Hancock in determining whether Hovde was
qualified to render the Hovde Opinion on an independent basis.
Business of the Bank Pending the Merger
The Bank has agreed that prior to the Effective Time of the 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 the Bank shall refrain from taking without prior
notice to City Holding in satisfying this undertaking.
The Bank also has agreed that unless and until the Agreement is terminated,
pursuant to its terms, neither the Bank nor any of its executive 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 the Bank
(collectively, a "Significant Transaction") or disclose, directly or indirectly,
any information not customarily disclosed to the public concerning the Bank,
afford to any other person access to the properties, books or records of the
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
Significant Transaction.
The Bank further has agreed that, prior to the Effective Time of the 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 Merger.
Conditions to Consummation of the Merger
Consummation of the 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. Consummation of the Merger is also conditioned on
approval by the Federal Reserve Board and the Division, and preliminary approval
by the OTS. The obligations of the Bank and City Holding to consummate the
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 the Bank and City
Holding, the absence of material adverse change in the Bank's and City Holding's
businesses and the receipt of legal opinions. See Article V of the Agreement
(Annex A).
Termination
The Agreement will be terminated, and the Merger abandoned, if shareholders of
the Bank do not approve the Merger. Notwithstanding such approval by such
shareholders, the Agreement also may be terminated at any time prior to the
Effective Time of the Merger by mutual consent, upon breach of the Agreement, if
the Merger is not effective by June 30, 1998, and upon the occurrence of certain
other events specified in the Agreement. See Article VII of the Agreement (Annex
A).
Accounting Treatment
City Holding will cause the Merger to be accounted under the purchase method of
accounting. Accordingly, City Holding will not restate financial statements and
other financial information for periods prior to the Merger to include the
assets and liabilities and results of operations of the Bank.
Operations After the Merger
After consummation of the Merger, City Holding will generally continue to
conduct the business presently conducted by the Bank.
Interests of Certain Persons in the Merger
Certain directors of the Bank and members of the Bank's management set forth
below may be deemed to have interests in the Merger in addition to their
interests as shareholders of the Bank generally. In each case, the Bank Board
was aware of their potential interests, and considered them, among other
matters, in approving the Agreement and the transactions contemplated thereby.
Senior Management. Certain members of Bank senior management will enter into
employment contracts with the Bank regarding their employment subsequent to the
Merger. Nicholas Barakonski, Diana Bowers, and Jasna Penich intend to sign
contracts which require the Bank to guarantee: (1) that their respective duties
and titles will remain substantially equivalent to their duties and titles prior
to the Merger, (2) that each will receive fringe benefits commensurate with
their duties and titles, and (3) that if the employee is terminated without
cause, the employee will receive a severance payment equal to the employees'
most recent annual salary. The contracts have original expiration dates three
years from the date of the Effective Time of the Merger and are renewable, at
the option of the employee and the Bank, for one year periods thereafter. During
the renewal periods, if any, the contract can be terminated without penalty, at
any time upon 90 days prior written notice.
Indemnification; Liability Insurance. After the Effective Time of the Merger,
City Holding has agreed to provide indemnification to the directors and officers
of the 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.
Employee Benefits. Following the Merger, employees who continue to be employees
of the Bank 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 Merger, except
in the case of directors and executive officers of 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 the Bank immediately prior to the Effective Time of the 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 the 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 the
Bank, subject to applicable break in service rules. The Bank's employee benefit
plans are expected to be terminated at the Effective Time of the Merger.
As of the Effective Time of the Merger, employees of the Bank who become
employees of City Holding will be entitled to participate in City Holding's
401(k) plan and employee stock ownership plan to the extent they are eligible
based on their length of service, compensation, job classification and position,
and the Bank's existing 401(k) plan and will be terminated as of the Effective
Time of the Merger.
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 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 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 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 Merger. Receipt of substantially
the same opinion of Hunton & Williams as of the Effective Time of the Merger is
a condition to consummation of the 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 of 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 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 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 Merger.
Shareholders Electing to Exercise Dissenter's Right of Appraisal
The receipt of cash for shares of Bank Common Stock pursuant to the exercise of
dissenter's rights will be a taxable transaction. Any shareholder considering
the exercise of such rights 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 MERGER TO BANK SHAREHOLDERS. THE TAX CONSEQUENCES
TO ANY PARTICULAR SHAREHOLDER MAY DEPEND ON THE SHAREHOLDER'S CIRCUMSTANCES.
BANK SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS WITH REGARD TO
FEDERAL, STATE, AND LOCAL TAX CONSEQUENCES.
Rights of Shareholders Electing to Exercise Dissenter's 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 Merger paid to such holder in cash, together with interest, if any, by
complying with the provisions of 12 U.S.C.A. ss. 552.14. Section 552.14 gives
any shareholder of a Federal savings bank the right to dissent from the merger
of such savings bank into another depository institution if he or she votes
against such merger and has given notice in writing to the savings bank prior to
the meeting of shareholders at which the merger is considered that he or she
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. Within 10
days after the effective date of the combination, the resulting institution
shall make a written offer to each shareholder who has given notice of his or
her demand for appraisal and payment. Within 60 days of the effective date of
the combination, each shareholder demanding appraisal and payment shall submit
to the transfer agent his or her certificates of stock for notation thereon that
appraisal and payment have been demanded. Failure to so submit stock
certificates for such notation constitutes waiver of dissenter's rights. If the
value offered is not satisfactory to any dissenting shareholder, he or she may
within sixty days of the effective date of the combination petition the OTS,
with a copy by certified mail to the resulting institution, which shall cause a
reappraisal to be made, which will be final and binding. The OTS' expenses in
making any reappraisal will be apportioned in an equitable manner by the OTS.
THE FOREGOING IS ONLY A SUMMARY OF THE RIGHTS OF A DISSENTING HOLDER OF SHARES
OF BANK COMMON STOCK. ANY HOLDER OF BANK COMMON STOCK WHO INTENDS TO DISSENT
FROM THE MERGER SHOULD CAREFULLY REVIEW THE TEXT OF 12 U.S.C.A. ss. 552.14 SET
FORTH IN ANNEX II TO THIS PROXY STATEMENT/PROSPECTUS AND SHOULD ALSO CONSULT
WITH SUCH HOLDER'S LEGAL COUNSEL. THE FAILURE OF A HOLDER OF BANK COMMON STOCK
TO FOLLOW PRECISELY THE PROCEDURES SUMMARIZED ABOVE, AND SET FORTH IN ANNEX D,
MAY RESULT IN LOSS OF DISSENTERS' RIGHTS.
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 BOARD OF DIRECTORS OF THE BANK UNANIMOUSLY RECOMMENDS A VOTE FOR THE
AGREEMENT AND THE MERGER.
<PAGE>
CITY HOLDING COMPANY
City Holding, a West Virginia corporation headquartered in Charleston, commenced
operations in November 1983. On December 22, 1997, each of City Holding's West
Virginia banking subsidiaries was merged into and became divisions of City
Holding's principal subsidiary, The City National Bank of Charleston (City
National). At September 30, 1997, City Holding had total assets of $1.34
billion, total deposits of $910 million and total shareholders' equity of $90
million. City National and its banking divisions, including Peoples National
Bank, 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"), Merchants National Bank ("Merchants"), and the Old
National Bank of Huntington ("Old National"), currently operate 43 banking
offices in the state of West Virginia. In addition to City Holding's periodic
filings with the SEC, each of its banks 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.
In addition to City National and its divisions, City Holding is the parent
company of City Financial Corporation, a full service securities brokerage and
investment advisory company, and City Mortgage Corporation, currently inactive.
City Financial Corporation is headquartered in Charleston, West Virginia, with
its office located in City National's main location. Certain assets and
liabilities of City Mortgage Corporation were sold to an independent third party
in July 1997. As a result, this subsidiary has not had significant operations
since the date of the sale.
Created in August 1996, City Mortgage Services, a division of City Holding, is
an originator and servicer of junior lien and other mortgage loan products. As
of September 30, 1997, City Mortgage Services maintained a servicing portfolio
of approximately $1.13 billion of mortgage loans.
In October 1997, City Holding, through City National, acquired First Allegiance
Financial Corporation ("First Allegiance"). First Allegiance, headquartered in
Irvine, California, originates junior lien mortgage loans. City Holding intends
to either securitize or sell to independent third parties the loans produced by
First Allegiance.
In December 1997, City Holding, through City National, announced the acquisition
of its fourth non-banking subsidiary, RMI Ltd. ("RMI"). RMI offers a full range
of insurance products and services, including employee benefit programs, key
person programs, benefits consulting services, property and casualty insurance,
retirement plans and deferred compensation plans to select corporate,
association and individual clients.
These acquisitions are indicative of City Holding's strategy to diversify and
expand into evolving areas within the financial services industry. Such a
strategy positions City Holding to pursue fee-based revenues thereby reducing
City Holding's reliance on net interest margin and enables City Holding to
provide a full array of financial service products to its customers.
City Holding continually seeks strategic acquisition opportunities for small to
medium-sized banks and other financial service entities. City Holding's
acquisition policy has permitted subsidiary banks to operate as separate
business units with their historical names and boards of directors. City Holding
believes that this policy maintains community loyalty to the banks and improves
operating performance while providing the services and efficiencies of a larger
holding company.
<PAGE>
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, 1997, there were 2,176
shareholders of record.
<TABLE>
<CAPTION>
Cash Market Price Range
Dividends --------------------------
Per Share Low High
---------- --- ----
<S> <C>
1997
Fourth Quarter (through December 18, 1997) $0.190 $39.875 $42.325
Third Quarter 0.180 32.250 43.250
Second Quarter 0.180 30.000 34.500
First Quarter 0.180 25.750 34.750
1996
Fourth Quarter $0.170 $21.000 $26.250
Third Quarter 0.155 19.770 22.950
Second Quarter 0.155 20.000 23.410
First Quarter 0.155 20.910 24.090
1995
Fourth Quarter $0.155 $20.450 $22.730
Third Quarter 0.140 20.660 23.140
Second Quarter 0.130 21.490 23.960
First Quarter 0.130 21.490 24.790
1994
Fourth Quarter $0.130 $22.320 $26.300
</TABLE>
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.
DEL AMO SAVINGS BANK, FSB
General
Del Amo Savings Bank, FSB is a Federal savings bank providing deposit, loan and
commercial banking services in Torrance and Lomita, California. The Bank
operates two offices. At September 30, 1997, the Bank had assets of $113.3
million, deposits of $100.4 million, and shareholders' equity of $6.7 million.
The Bank serves approximately 7,000 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 is subject to examination and comprehensive regulation by the OTS and
the FDIC, and to regulation of the Federal Reserve Board relating to reserves
required to be maintained against deposits and certain other matters.
MARKET FOR AND DIVIDENDS PAID ON BANK COMMON STOCK
There is no established public market for the Bank's Common Stock. In 1994, 1995
and 1996 the Bank paid no cash dividends. The Bank is prohibited by the
Agreement from paying any dividend.
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, 1997, by each of the Bank's
directors and by all directors and executive officers of the Bank as a group.
<TABLE>
<CAPTION>
Number of Shares
Name Beneficially Owned (1) Percent
- ------------------- ---------------------- -------
<S> <C>
E.J. Chris Sorensen 67,409 12.64%
Seymour S. Bilowit 39,120 7.34%
Nicholas Barakonski 38,000 7.13%
Jean H. Babbitt 33,420 6.27%
Diana Bowers 14,300 2.68%
J. Walker Owens 6,362 1.19%
Jasna Penich 1,050 *
William J. Clayton 100 *
-------- ----------
All directors and executive 199,761 37.47%
=======
officers as a group (8 persons)
</TABLE>
- -------------------
* 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.
The following table sets forth information as to Bank Common Stock beneficially
owned, as of September 30, 1997, by the only persons or entities known to the
Bank to be the beneficial owners of more than 5% of Bank Common Stock.
<TABLE>
<CAPTION>
Number of Shares
Name and Address of Beneficially Owned as of Percent of
Beneficial Owner September 30, 1997 Outstanding Shares
- ------------------- ------------------------ -------------------
<S> <C>
Hancock Park Acquisition, L.P.(1) 91,950 17.25%
1629 Colonial Parkway
Inveriness, IL 60067
E.J. Chris Sorensen 67,409 12.64%
27826 Conestoga Drive
Rolling Hills Estates,
CA 90274
Thien Koan Ng & Affiliates 50,287 9.43%
c/o Thien Koan Ng
145 Pasadena Avenue
South Pasadena, CA 91030
Cede & Co. 40,660 7.63%
Box 20
Bowling Green Station
New York, NY 10004
Seymour S. Bilowit 39,120 7.34%
38085 Maracaibo Circle West
Palm Springs, CA 92264
Nicholas Barakonski 38,000 7.13%
3500 Coy Drive
Sherman Oaks, CA 91423
Jean H. Babbitt 33,420 6.27%
15 Caballeros Road
Rolling Hills, CA 90274
All directors and executive officers
as a group (8 persons) 199,761 37.47%
</TABLE>
(1) Eric D. Hovde and Steven D. Hovde serve as managing members of the
limited liability company that is the managing partner of Hancock Park
Acquisition, L.P. and own substantially all of Hovde, the Bank's financial
advisor. See "The Merger--Opinion of the Bank's Financial Advisor."
<PAGE>
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 City National. 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.
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 allowed 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 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 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 BIF. 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 City National.
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 City National are subject to further regulation
and supervision by the Division.
Capital Requirements
The Federal Reserve Board has issued risk-based and leverage capital guidelines
applicable to banking organizations it supervises. In addition, the Federal
Reserve Board may from time to time require that a banking organization maintain
capital above the minimum levels because of its financial condition or actual or
anticipated growth. Under the risk-based capital requirements, City Holding is
required to maintain a minimum ratio of total capital to risk- weighted assets
of at least 8%. At least half of the total capital is required to be "Tier 1
capital", which consists principally of common and certain qualifying preferred
stockholders' equity, less certain intangibles and other adjustments. The
remainder "Tier 2 capital" consists of a limited amount of subordinated and
other qualifying debt (including certain hybrid capital instruments) and a
limited amount of the general loan loss allowance. The Tier 1 and total capital
to risk-weighted asset ratios of City Holding as of September 30, 1997 were
8.67% and 9.52% respectively.
In addition, a minimum leverage capital ratio (Tier 1 capital to average
tangible assets) must be maintained. The guidelines provide for a minimum ratio
of 3% for banks and bank holding companies that meet certain specified criteria,
including that they have the highest regulatory examination rating and are not
contemplating significant growth or expansion. All other institutions are
expected to maintain a leverage ratio of at least 100 to 200 basis points above
the minimum. The Tier 1 capital leverage ratio of City Holding as of September
30, 1997, was 6.93%. The guidelines also provide that banking organizations
experiencing internal growth or making acquisitions will be expected to maintain
strong capital positions substantially above the minimum supervisory levels,
without significant reliance on intangible assets.
Limits on Dividends and Other Payments
City Holding is a legal entity separate and distinct from City National and its
banking operations. Most of City Holding's revenues result from dividends paid
to City Holding by City National. The right of City Holding and shareholders of
City Holding, to participate in any distribution of the assets or earnings of
City National through the payment of such dividends or otherwise is necessarily
subject to the prior claims of creditors of City National and its separate
banking divisions, 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,
City National 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. City National is also
subject to collateral security requirements for any loans or extensions of
credit permitted by such exceptions.
City National is subject to various statutory restrictions on its ability to pay
dividends to City Holding. Under applicable regulations, at September 30, 1997,
City National could have paid aggregate dividends to City Holding of $5.8
million without obtaining prior approval of its respective regulators. The
payment of dividends by City Holding and City National may also be limited by
other factors, such as requirements to maintain adequate capital above
regulatory guidelines. The various regulators supervising City National and its
banking operations have authority to prohibit bank 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 City National
and its banking operations, could be deemed to constitute such an unsafe or
unsound practice. The Federal Reserve Board and the Office of the Comptroller of
Currency ("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 City National 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.
City National
City National is a national banking association, and is subject to supervision
and regulation by the OCC and the FDIC. 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.
Governmental Policies and other Safety and Soundness Regulations
The operations of City Holding and City National 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.
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, 1997, 6,071,327 shares of Common
Stock and no shares of Preferred Stock were outstanding and entitled to vote. At
such date, City Holding had 2,176 shareholders of record.
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
City National 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 or her and entitled to vote for as many persons as there are
directors to be elected, or he or she may cumulate such votes and give one
candidate as many votes as the number of directors to be elected multiplied by
the number his or her shares of stock shall equal; or he or she may distribute
such votes on the same principle among as many candidates and in such manner as
he or she 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 or her 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) 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 The City National Bank of
Charleston.
COMPARATIVE RIGHTS OF SHAREHOLDERS
At the Effective Time of the Merger, shareholders of the 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 the 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 Federal
Stock Charter and Bylaws of each entity.
Capitalization
City Holding. City Holding's authorized capital is described under "Description
of City Holding Capital Stock".
Bank. The Bank is authorized to issue 800,000 shares of Bank Common Stock, $2.50
par value of which 533,096 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 or her
and is entitled to vote for as many persons as there are directors to be
elected, or he or she may cumulate such votes and give one candidate as many
votes as the number of directors to be elected multiplied by the number his or
her shares of stock shall equal; or he or she may distribute such votes on the
same principle among as many candidates and in such manner as he or she desires.
On any other issue to be determined at any meeting of shareholders, each
shareholder is entitled to one vote for each share of stock owned by him or her.
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.
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 or her and is
entitled to vote for as many persons as there are directors to be elected, or he
or she may cumulate such votes and give one candidate as many votes as the
number of directors to be elected multiplied by the number his or her shares of
stock shall equal; or he or she may distribute such votes on the same principle
among as many candidates and in such manner as he or she desires. The approval
of a majority of the 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 the 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 the Bank.
Directors and Classes of Directors
City Holding. The City Holding Board of Directors presently comprises 19
members. 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 is comprised of seven members. The Board of
Directors is classified into three classes, with one class to be elected each
year to a three-year term.
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 to its shareholders 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. None.
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. None.
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.
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
the 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
the Bank. The approval of the OTS is required if dividends for a year exceed
certain calculations involving the accumulation of net profits.
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 the President and Secretary
or by holders of at least 10% of the Bank's outstanding Capital Stock.
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 or her in connection
with the defense of any claim, action, suit or proceeding against him or her 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 or she acted in good
faith and in a manner he or she 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 or she acted in
good faith and in a manner he or she reasonably believed to be in or not opposed
to the best interest of the corporation, except in relation to matters as to
which he or she shall be finally adjudged in such action, suit or proceeding
against him or her 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 persons that may
be authorized by the articles of incorporation or any by-law approved 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 the Bank for certain
actions taken on behalf of, or at the request of, the Bank. Indemnification may
not be permitted for fines or penalties imposed by bank regulatory authorities.
The Bank's Federal Stock Charter provides 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 the Bank against certain losses, to the extent such
losses are not indemnified by the Bank, and (ii) the Bank, to the extent it
indemnifies its officers and directors for losses as permitted under its Federal
Stock Charter 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
City Holding. The West Virginia Code permits shareholders of a West Virginia
corporation to dissent from, and obtain payment of the "fair value" of their
shares in connection with, any plan of merger or consolidation to which the
corporation is a party and any sale or exchange of all or substantially all of
the property and assets of the corporation not made in the usual and regular
course of its business.
Bank. Provisions of Title 12 of the United States Code give shareholders of a
Federal savings 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 Merger, see
"The Merger -Rights of Shareholders Electing to Exercise Their Right of
Appraisal".
RESALE OF CITY HOLDING COMMON STOCK
City Holding Common Stock issuable in the 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 the Bank or City Holding.
Each holder of Bank Common Stock who is deemed by the Bank to be an affiliate of
it has entered into an agreement with City Holding prior to the Effective Date
of the 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 or her to ratify and confirm the Agreement and the
Merger, (B) such affiliate acknowledges and agrees beginning 30 days prior to
the Effective Date of the Merger, that he or she 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 (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 or non-affiliates of the Bank.
EXPERTS
The consolidated financial statements of City Holding and Subsidiaries
incorporated by reference in City Holding's Annual Report on Form 10-K for the
year ended December 31, 1996 have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon incorporated by reference therein
and incorporated herein by reference. Such consolidated financial statements are
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
The financial statements of Del Amo Savings Bank, FSB as of December 31, 1996
and 1995, and for the years then ended have been included herein and in the
registration statement in reliance upon the report of KPMG Peat Marwick LLP,
independent auditors, appearing elsewhere herein, and upon the authority of said
firm as experts in accounting and auditing.
LEGAL OPINIONS
The legality of the City Holding Common Stock to be issued in the Merger, and
certain other matters, will be passed on for City Holding by Steptoe & Johnson,
Charleston, West Virginia and Hunton & Williams, Richmond, Virginia.
Certain legal matters will be passed on for the Bank by Adams, McAndrews, Matson
& Landsberg, Santa Monica, California.
A condition to consummation of the Merger is the delivery to City Holding and
the Bank by Hunton & Williams of an opinion concerning certain federal income
tax consequences of the Merger. See "The 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.
January 30, 1998 By Order of the Board of Directors,
Diana Bowers
Secretary
<PAGE>
INDEX TO
DEL AMO SAVINGS BANK, FSB FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Page
<S> <C>
Independent Auditors' Report....................................................................................F-2
Statements of Financial Condition for the Years
Ended December 31, 1996 and 1995................................................................................F-3
Statements of Earnings for the Years Ended
December 31, 1996 and 1995......................................................................................F-4
Statements of Stockholders' Equity for
the Years Ended December 31, 1996 and 1995......................................................................F-5
Statements of Cash Flows for the Years Ended
December 31, 1996 and 1995......................................................................................F-6
Notes to Financial Statements...................................................................................F-8
Unaudited Statements of Financial Condition at September 30, 1997
and December 31, 1996..........................................................................................F-21
Unaudited Statements of Earnings for the Nine Months
Ended September 30, 1997 and 1996..............................................................................F-22
Unaudited Statements of Cash Flows for the Nine Months
Ended September 30, 1997 and 1996..............................................................................F-23
Unaudited Notes to Financial Statements........................................................................F-24
Management's Discussion and Analysis of Financial Condition and Results of Operations..........................F-25
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Del Amo Savings Bank, FSB:
We have audited the accompanying statements of financial condition of Del Amo
Savings Bank, FSB (Bank) as of December 31, 1996 and 1995, and the related
statements of earnings, stockholders' 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 Del Amo Savings Bank, FSB as of
December 31, 1996 and 1995, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Los Angeles, California
March 7, 1997
<PAGE>
DEL AMO SAVINGS BANK, FSB
Statements of Financial Condition
<TABLE>
<CAPTION>
December 31,
------------
1996 1995
---- ----
<S> <C>
Assets
Cash and cash equivalents (note 1)................................. $ 6,137,400 $ 2,120,900
Certificates of deposit (note 2)................................... 600,000 1,598,000
Loans receivable held for sale at the lower
of cost or fair value (note 3)................................... 3,703,700 4,818,000
Loans receivable held for investment, net (notes 3 and 8).......... 98,451,800 106,357,400
Real estate owned, net (REO) (note 4).............................. 462,100 403,300
Accrued interest receivable........................................ 559,500 660,700
Investment in Federal Home Loan Bank stock, at cost (note 5)....... 963,500 901,300
Premises and equipment, net (note 6)............................... 514,300 613,800
Income taxes receivable (note 9)................................... 364,600 231,100
Prepaid expenses and other assets.................................. 77,800 67,600
------------- -------------
$ 111,834,700 $ 117,772,100
============= =============
Liabilities and Stockholders' Equity
Deposits (note 7).................................................. 98,482,200 102,189,400
FHLB advances (note 8)............................................. 6,000,000 8,000,000
Deferred income taxes (note 9)..................................... 886,900 1,083,400
Accrued interest payable and accrued expenses...................... 12,900 82,100
Advance payments by borrowers for taxes and insurance.............. 92,200 84,200
------------- -------------
105,474,200 111,439,100
------------ -------------
Commitments (notes 3 and 13)
Stockholders' Equity (notes 9, 10, 11 and 12)
Common stock of $2.50 par value. Authorized 800,000 shares:
issued and outstanding 533,163 and 532,503 at
December 31, 1996 and 1995 respectively.......................... 1,332,900 1,331,300
Additional paid-in capital......................................... 1,424,900 1,420,200
Retained earnings (subject to restrictions)........................ 3,602,700 3,581,500
------------- -------------
6,360,500 6,333,000
------------- -------------
$ 111,834,700 $ 117,772,100
============= =============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
DEL AMO SAVINGS BANK, FSB
Statements of Earnings
<TABLE>
<CAPTION>
Year ended
December 31,
------------
1996 1995
---- ----
<S> <C>
Interest Income:
Interest on loans................................................ $ 8,507,500 $ 8,370,200
Interest on investments.......................................... 306,800 291,000
----------- -----------
8,814,300 8,661,200
Interest Expense:
Interest on deposits (note 7).................................... 5,027,900 5,333,000
Interest on FHLB borrowings...................................... 535,300 377,400
------------- -----------
5,563,200 5,710,400
Net interest income......................................... 3,251,100 2,950,800
Provision for loan losses (note 3)................................. 104,000 76,000
Net interest income after provision for loan losses......... 3,147,100 2,874,800
Other income:
Loan and other fees.............................................. 112,000 72,800
Loan servicing fees.............................................. 22,900 26,800
Gain on sale of loans held for sale.............................. 740,400 130,900
Other............................................................ 22,000 37,300
----------- -----------
897,300 267,800
----------- -----------
Other expenses:
Salaries and employee benefits................................... 1,615,600 1,400,900
SAIF recapitalization assessment................................. 673,400 -
Premises and occupancy expense (note 13)......................... 503,800 489,500
SAIF insurance premiums.......................................... 258,900 298,000
Professional services............................................ 176,000 162,200
Data processing.................................................. 152,900 143,400
Advertising and promotion........................................ 135,100 99,000
REO operations, net (note 4)..................................... 59,900 (10,600)
Other general and administrative................................... 432,600 394,300
----------- -----------
4,008,200 2,976,700
----------- -----------
Earnings before income taxes.................................. 36,200 165,900
Income taxes (note 9).............................................. 15,000 69,100
----------- -----------
Net earnings.................................................. $ 21,200 $ 96,800
=========== ===========
Earnings per share (note 1)........................................ $ 0.04 $ 0.18
=========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
DEL AMO SAVINGS BANK, FSB
Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Retained
Additional earnings
Common paid-in (subject to
stock capital restrictions) Total
------- ----------- ------------- -------
<S> <C>
Balance at December 31, 1994.....................$ 1,326,400 $ 1,403,700 $ 3,484,700 $ 6,214,800
Exercise of Stock Options........................ 2,100 4,600 - 6,700
Stock issued to 401KSOP Plan..................... 2,800 11,900 - 14,700
Net earnings for the year
ended December 31, 1995....................... - - 96,800 96,800
----------- ----------- ----------- -----------
Balance at December 31, 1995..................... 1,331,300 1,420,200 3,581,500 6,333,000
Stock issued to 401KSOP Plan..................... 1,600 4,700 - 6,300
Net earnings for the year
ended December 31, 1996....................... - - 21,200 21,200
------------- ------------- ----------- -----------
Balance at December 31, 1996.....................$ 1,332,900 $ 1,424,900 $ 3,602,700 $ 6,360,500
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
DEL AMO SAVINGS BANK, FSB
Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended
December 31,
--------------
Cash flows from operating activities: 1996 1995
---- ----
<S> <C>
Net earnings........................................................... $ 21,200 $ 96,800
------------ -------------
Adjustments to reconcile net earnings to net cash provided (used) by operating
activities:
Depreciation and amortization...................................... 122,800 127,400
Provision for loan losses.......................................... 104,000 76,000
Provision (reductions credited) for losses on REO.................. 13,000 (25,000)
Loans originated and held for sale................................. (99,167,300) (16,732,100)
Proceeds from sale of loans held for sale.......................... 101,022,000 12,045,000
Amortization of deferred loan fees................................. (32,500) (51,000)
Net loss (gain) on sale of REO..................................... 6,400 (2,900)
Gain on sale of loans held for sale................................ (740,400) (130,900)
Federal Home Loan Bank stock dividend received..................... (53,800) (44,100)
Loss on disposal of assets......................................... 800 -
Decrease (increase) in accrued interest receivable................. 101,200 (80,700)
(Increase) decrease in prepaid expenses and other assets........... (10,200) 245,300
(Decrease) increase in accrued interest payable and
accrued expenses................................................ (69,200) 31,800
Increase (decrease) in advance payments by borrowers
for taxes and insurance......................................... 8,000 (7,500)
Provision for deferred income taxes................................ (196,500) 11,300
Increase in income taxes receivable................................ (133,500) (231,100)
Stock issued to 401KSOP plan....................................... 6,300 14,700
------------ -------------
Total adjustments............................................... 981,100 (4,753,800)
------------ -------------
Net cash provided (used) by operating activities................ 1,002,300 (4,657,000)
------------ -------------
Cash flows from investing activities:
Decrease in certificates of deposit.................................. 998,000 470,800
Proceeds from sale of REO............................................ 630,400 791,700
Loans originated..................................................... (5,757,200) (5,863,700)
Principal payments on loans.......................................... 12,882,700 8,214,700
Purchase of Federal Home Loan Bank stock............................. (8,400) (94,500)
Investment in premises and equipment................................. (24,100) (70,200)
------------ -------------
Net cash provided by investing activities......................... 8,721,400 3,448,800
------------ -------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year ended
December 31,
------------
Cash flows from financing activities: 1996 1995
---- ----
<S> <C>
Increase (decrease) in demand deposits and savings accounts.......... $ 767,700 $ (2,954,100)
Proceeds from issuance of certificates of deposit.................... 109,478,600 96,393,000
Payments on maturing certificates of deposit......................... (113,953,500) (95,358,500)
(Payments) proceeds from FHLB advances............................... (2,000,000) 3,000,000
Proceeds from exercise of stock options.............................. - 6,700
------------ -------------
Net cash (used) provided by financing activities................... (5,707,200) 1,087,100
------------ -------------
Net increase (decrease) in cash and cash equivalents............... 4,016,500 (121,100)
Cash and cash equivalents at beginning of year....................... 2,120,900 2,242,000
------------ -------------
Cash and cash equivalents at end of year............................. $ 6,137,400 $ 2,120,900
============ =============
Supplemental disclosures of cash flow information:
Interest paid (including interest credited) during the year............ $ 5,565,600 $ 5,710,600
Cash paid during the year for income taxes............................. 345,000 186,500
============ =============
Supplemental disclosures of noncash investing activities:
Additions to REO....................................................... $ 880,500 $ 169,300
============ =============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
DEL AMO SAVINGS BANK, FSB
Notes to Financial Statements
(1) Summary of Significant Accounting Policies
The following items, together with those notes elsewhere in the financial
statements, comprise the significant accounting policies of Del Amo Savings
Bank, FSB (Bank) used in preparing the accompanying financial statements.
Certain reclassifications have been made to prior year amounts to conform to the
current year presentation.
The Bank maintains two full-service savings branches and one loan office in
Southern California. The Bank's primary business consists of attracting retail
deposits from the general public and originating loans secured by mortgages on
residential real estate. Additionally, the Bank sells whole loans, with
servicing released, in the secondary market.
Basis of Financial Statement Presentation
The preparation of the Bank's financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported operations of the Bank for the
periods presented. Actual results may differ from those estimates calculated by
management.
Material estimates that are particularly susceptible to significant change in
the near term relate to the determination of the allowance for loan losses and
the valuation of REO.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, demand accounts with other
financial institutions, and overnight deposits.
Certificates of Deposit
Certificates of deposit are held to maturity and recorded at cost. These
investments are carried at cost because the Bank has the intent and ability to
hold them until maturity.
Loans Receivable Held for Investment and Held for Sale
Loans receivable held for investment are recorded at cost, net of deferred loan
fees and costs and the allowance for loan losses. Loan origination fees, net of
direct loan origination costs, are deferred and credited to income using the
interest method over the contractual life of the loan. For loans placed on non
accrual status, the amortization of net deferred loan fees and costs is
discontinued.
Loans receivable held for sale are recorded at the lower of cost or fair value.
A valuation allowance is established if the fair value of such loans is less
than their cost and operations are charged or credited for valuation
adjustments. Loan origination fees, net of direct loan origination costs, are
deferred and recognized as income when the loans are sold. Realized gains and
losses from the sale of loans receivable are computed under the specific
identification method.
<PAGE>
(1) Summary of Significant Accounting Policies (cont.)
Impaired Loans
Loans are evaluated for impairment as part of the Bank's internal asset review
process. All of the Bank's loans are subject to the review for impairment. A
loan is impaired, when based on current information and events, a creditor will
be unable to collect all amounts contractually due according to the terms of the
loan agreement. When a loan is determined to be impaired, a valuation allowance
is established based upon the difference between the Bank's investment in the
loan and the fair value of the collateral securing the loan.
Subsequent collection of cash may be applied as reduction to the principal
balance or recorded as income, depending upon management's assessment of the
ultimate collectibility of the loan. Interest income on impaired loans is
recognized only to the extent that cash payments are received.
Allowance for Loan Losses
In addition to the specific valuation allowances on impaired loans, the
allowance for loan losses includes general valuation allowances provided for
estimated inherent losses in the loan portfolio which have not been specifically
identified.
Management believes that the allowance for loan losses is adequate. While
management uses available information to estimate the allowance, future
additions to the allowance may be necessary based on changes in economic
conditions. In addition, certain regulatory agencies, as part of their
examination process, periodically review the Bank's allowance for loan losses.
Such agencies may require the Bank to recognize additions to the allowance based
on their judgments about information available to them at the time of their
examination.
Allowance for Delinquent Interest
Accrued interest on loans that are contractually 90 days or more past due is
reversed and charged against income. Income is subsequently recognized only to
the extent cash payments are received and such loans are restored to an accrual
status only if the borrower has demonstrated the ability to make future payments
of principal and interest.
Gain or Loss on Sale of Loans
The Bank sells whole loans, servicing released, and recognizes a gain or loss to
the extent that the sale proceeds of the loans sold exceed or are less than the
book value at the time of sale.
REO
REO is recorded on an individual asset basis at fair value, based on the current
appraised value, minus estimated cost to sell at the date of foreclosure, and is
adjusted for any subsequent decline in fair value through recording of valuation
allowances. Income recognition on the sale of REO is dependent upon the
transaction meeting certain criteria relating to the nature of the property sold
and terms of the sale.
Premises and Equipment
Office premises and equipment are stated at cost, less accumulated depreciation
and amortization. The Bank's policy is to depreciate office furniture and
equipment on the straight line basis over the estimated useful lives of the
various assets, which range from two to ten years. Leasehold improvements are
amortized over the shorter of the life of the improvement or the life of the
lease.
<PAGE>
(1) Summary of Significant Accounting Policies (cont.)
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. A valuation allowance, if necessary, is then established to reduce that
deferred tax asset to the level at which it is more likely than not that the tax
benefits will be realized. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
Stock Compensation Plan
Prior to January 1, 1996, the Bank accounted for its stock option plan in
accordance with the provisions of Accounting Principles Board (APB) Opinion No.
25 "Accounting for Stock Issued to Employees", and related interpretations. As
such, compensation expense would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price. On
January 1, 1996, the Bank adopted Statement of Financial Accounting Standards
(SFAS) No. 123 "Accounting for Stock-Based Compensation", which permits entities
to recognize as expense over the vesting period the fair value of all
stock-based awards on the date of grant. Alternatively, SFAS No. 123 also allows
entities to continue to apply the provisions of APB Opinion No. 25 and provide
pro forma net earnings and pro forma earnings per share disclosures for employee
stock option grants made in 1995 and future years as if the fair-value-based
method defined in SFAS No. 123 has been applied. The Bank has elected to
continue to apply the provisions of APB Opinion No. 25 and to provide the pro
forma disclosure provisions of SFAS No. 123.
Earnings Per Share
Earnings per share calculations are based upon the weighted average number of
common shares and dilutive common stock equivalents outstanding during the
period. The weighted average shares outstanding for the years ended December 31,
1996 and 1995 were 533,011 and 531,698, respectively.
Current Accounting Pronouncements
In June 1996, the Financial Accounting Standards Board issued SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishment
of Liabilities". This statement provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishment of liabilities
based on consistent application of a financial components approach that focuses
on control. The statement distinguishes transfers of financial assets that are
sales from transfers that are secured borrowings. SFAS No. 125 is effective for
transfers and servicing of financial assets and extinguishment of liabilities
occurring after December 31, 1996 and is to be applied prospectively. The
statement supersedes SFAS No. 122, though the general concepts of SFAS No. 122
are retained in the new pronouncement. The Bank does not believe that its
adoption will have a material adverse impact upon its financial condition or
results of operations.
(2) Certificates of Deposit
The weighted average interest rate on certificates of deposit was 5.50% at
December 31, 1996 and 5.72% at December 31, 1995.
Accrued interest receivable on certificates of deposit amounted to $2,000 and
$3,500 at December 31, 1996 and 1995, respectively.
(3) Loans Receivable
Loans receivable held for investment are summarized as follows:
<TABLE>
<CAPTION>
December 31,
-------------------
1996 1995
-------------- ---------------
<S> <C>
Conventional loans secured by deeds of trust
Residential, 1-4 units............................................... $ 72,855,600 $ 76,258,200
Residential, 5+ units................................................ 10,221,200 11,038,600
Commercial and industrial............................................ 15,307,100 19,115,500
Land................................................................. 77,600 203,400
Home improvement..................................................... 274,300 294,600
------------ -------------
Total loans secured by real estate............................... 98,735,800 106,910,300
Loans on savings accounts............................................ 356,100 194,700
------------ -------------
99,091,900 107,105,000
Less:
Deferred loan fees................................................... 75,700 107,900
Deferred gain on sale of REO......................................... 24,400 24,700
Allowance for loan losses............................................ 540,000 615,000
------------ -------------
Loans receivable held for investment, net................................ $ 98,451,800 $ 106,357,400
============ =============
</TABLE>
The weighted average interest rate on loans receivable held for investment was
7.89% at December 31, 1996 and 7.93% at December 31, 1995.
At December 31, 1996 and 1995, accrued interest receivable amounted to $542,600
and $645,300, respectively, and non-accrual loans amounted to $800,200 and
$286,300, respectively. The effect of non-accrual loans on interest income was a
reduction of $33,100 for 1996 and $9,700 for 1995.
Loans serviced for others totaled $8,111,100 and $9,656,600 at December 31, 1996
and 1995, respectively. At December 31, 1996, the Bank had $3,703,700 of
outstanding commitments to sell fixed and adjustable real estate loans, with a
fair value of $3,727,000.
All of the Bank's lending activity is within the state of California and
primarily in Southern California.
The commercial and industrial loans are seasoned loans with no new originations
since early 1989.
Loans outstanding to directors and officers of the Bank amounted to $137,000 and
$865,000 at December 31, 1996 and 1995, respectively. These loans were made at
the then current market terms.
The activity in the allowance for loan losses is summarized as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------
1996 1995
--------------- ---------------
<S> <C>
Balance at beginning of year......................................... $ 615,000 $ 574,000
Provision for loan losses............................................ 104,000 76,000
Charge-offs.......................................................... (179,000) (35,000)
------------ -------------
Balance at end of year............................................... $ 540,000 $ 615,000
============ =============
</TABLE>
<PAGE>
(3) Loan Receivable (Cont.)
Impaired Loans
The Bank's impaired loans totaled $800,200 and $226,300 at December 31, 1996 and
1995, respectively, and for the years then ended the average investment in
impaired loans was $740,400 and $100,000, respectively. Interest income on such
loans totaled $43,200 in 1996 and $11,600 in 1995 and was recognized using the
cash-basis method of accounting.
The entire balance of impaired loans at December 31, 1996 and 1995, had no
related allowance for loan losses.
(4) REO
REO is summarized as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------
1996 1995
--------------- ---------------
<S> <C>
Residential, 1-4 unit................................................ $ 475,100 $ 129,300
Commercial........................................................... - 274,000
------------ -------------
475,100 403,300
Allowance for losses................................................. (13,000) -
------------ -------------
REO, net............................................................. $ 462,100 $ 403,300
============ =============
</TABLE>
The activity in the allowance for REO is summarized as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------
1996 1995
--------------- ----------------
<S> <C>
Balance at beginning of year......................................... $ - $ 35,000
Provision (reductions credited) for losses........................... 13,000 (25,000)
Charge-offs, net of recovery......................................... - (10,000)
------------ -------------
Balance at end of year............................................... $ 13,000 $ -
============ =============
</TABLE>
REO operations, net consisted of the following:
<TABLE>
<CAPTION>
Year ended
December 31,
--------------------------
1996 1995
--------------- ----------------
<S> <C>
Operating expenses, net of operating income.......................... $ 23,800 $ 8,300
Loss (gain) on sale of REO........................................... 6,400 (2,900)
Valuation write downs................................................ 16,700 9,000
Provision (reductions credited) for losses........................... 13,000 (25,000)
------------ -------------
REO operations, net.................................................. $ 59,900 $ (10,600)
============ =============
</TABLE>
(5) Investment in Federal Home Loan Bank Stock
As a member of the Federal Home Loan Bank of San Francisco (FHLB), the Bank is
required to maintain a specified investment in shares of FHLB stock in an amount
at least equal to the greater of 1% of the aggregate principal amount of its
residential mortgage loans at the end of each year or 5% of its outstanding
borrowings from the Federal Home Loan Bank of San Francisco. At December 31,
1996 and 1995, the Bank owned 9,635 and 9,013 shares, respectively, of the
FHLB's $100 par value capital stock in satisfaction of this requirement.
(6) Premises and Equipment, Net
Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------
1996 1995
--------------- ---------------
<S> <C>
Leasehold improvements............................................... $ 717,000 $ 748,500
Building, furniture and equipment.................................... 1,502,300 1,523,300
------------ -------------
Total cost...................................................... 2,219,300 2,271,800
Less accumulated depreciation and amortization....................... 1,705,000 1,658,000
------------ -------------
Premises and equipment, net.......................................... $ 514,300 $ 613,800
============ =============
</TABLE>
(7) Deposits
A comparative summary of savings accounts follows:
<TABLE>
<CAPTION>
Weighted December 31,
Average ----------------
Interest Rate 1996 1995
------------- ---- ----
<S> <C>
Regular passbook...................................... 1.86% $ 3,245,100 $ 2,998,600
Money market passbook................................. 2.19 3,043,500 3,386,800
Checking accounts..................................... 0.95 8,996,800 8,132,300
---- ------------ -------------
1.39 15,285,400 14,517,700
Fixed rate certificate accounts:
32-89 days....................................... 3.22 670,900 684,600
90-179 days...................................... 3.56 1,072,600 2,015,400
6-11 months...................................... 4.69 8,853,300 18,925,400
12-23 months..................................... 5.33 14,393,700 18,117,700
24-59 months..................................... 5.98 6,336,300 8,402,700
60-89 months..................................... 6.17 14,176,100 14,931,900
Negotiable certificates of $50,000 to $100,000... 5.38 23,636,500 14,026,800
Negotiable certificates of $100,000 and greater.. 5.86 14,057,400 10,567,200
---- ------------ -------------
Total certificate accounts....................... 5.52 83,196,800 87,671,700
---- ------------ -------------
4.88% $ 98,482,200 $ 102,189,400
==== ============ =============
</TABLE>
The weighted average interest rate on deposits was 5.23% at December 31, 1995.
(7) Deposits (cont.)
Interest expense on deposits by type is as follows:
<TABLE>
<CAPTION>
Year ended
December 31,
------------------
1996 1995
--------------- ----------------
<S> <C>
Regular passbook......................................................... $ 54,900 $ 65,700
Money market passbook.................................................... 69,500 95,200
Checking accounts........................................................ 84,700 105,100
Certificate accounts..................................................... 4,818,800 5,067,000
------------ -------------
Total interest expense on deposits....................................... $ 5,027,900 $ 5,333,000
============ =============
</TABLE>
A summary of certificate accounts by maturity is as follows:
Year ending December 31,
------------------------
1997 $ 63,789,800
1998 8,115,200
1999 6,570,000
2000 2,566,300
2001 2,147,900
Thereafter 7,600
------------
$ 83,196,800
==============
(8) Federal Home Loan Bank Advances
A summary of Federal Home Loan Bank advances by maturity is as follows:
Balance Interest Rate
12/31/96 Maturity Date 12/31/96
-------- ------------- -------------
$ 1,000,000 01/06/1997 5.46%
2,000,000 06/01/2000 6.58%
1,500,000 06/01/2005 6.94%
1,500,000 06/01/2015 7.14%
----------
$ 6,000,000
=============
The collateral for the advances consists of real estate loans in the amount of
$28,256,400. The Bank had $8,000,000 in FHLB advances outstanding as of December
31, 1995.
At December 31, 1996, the Bank had an unused line of credit available with the
Federal Home Loan Bank of San Francisco in the amount of $21,958,700.
(9) Income Taxes
Income taxes (benefit) consisted of the following:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
----------------- -----------------
Current Deferred Total Current Deferred Total
------- -------- ----- ------- -------- -----
<S> <C>
Federal $ 144,000 $ (124,300) $ 19,700 Federal $ 278,100 $ (228,300) $ 49,800
State 67,500 (72,200) (4,700) State 89,100 (69,800) 19,300
-------- --------- -------- --------- ---------- --------
$ 211,500 $ (196,500) $ 15,000 $ 367,200 $ (298,100) $ 69,100
======== ========= ======== ========= ========== ========
</TABLE>
Income taxes differed from the amounts computed by applying the U.S. Federal
income tax rate of 34 percent to pretax income as a result of the following:
<TABLE>
<CAPTION>
December 31,
------------
1996 % 1995 %
---- - ---- -
<S> <C>
Federal income taxes at statutory rate............... $ 12,300 34 $ 56,400 34
California franchise tax, net of Federal
tax benefit........................................ 2,700 7 12,700 8
Change in California franchise tax rate,
net of Federal tax benefit......................... (5,800) (18) - -
Other, net........................................... 5,800 18 - -
-------- --- --------- ---
$ 15,000 41 $ 69,100 42
======== === ========= ===
</TABLE>
Until passage of legislation in 1996, savings and loan associations that met
certain definitional tests as prescribed by the Internal Revenue Code ("Code")
were allowed a bad debt deduction, when computing federal income taxes,
equivalent to 8% of taxable income, subject to a minimum tax for preference
items. Alternatively, a deduction based upon actual experience losses of the
Bank could be taken if it resulted in a greater deduction. Both houses of
Congress passed legislation in 1996 that repealed the tax rules formerly
applicable to bad debt reserves of thrift institutions for taxable years
beginning after December 31, 1995. Pursuant to the legislation, the Bank was
required to change its tax method of accounting for bad debts from the reserve
method formerly permitted to the "specific charge-off" method under which tax
deductions are permissible for bad debts only as and to the extent that the
loans become wholly or partially worthless. At December 31, 1996, the Bank had a
$71,900 tax bad debt reserve that was accumulated using the provisions of the
tax law prior to the 1996 changes that is subject to recapture in whole or in
part in future years upon the occurrence of certain events, such as a
distribution to shareholders in excess of the Bank's current and accumulated
earnings and profits, a redemption of shares, or upon a partial or complete
liquidation of the Bank.
<PAGE>
(9) Income Taxes (Cont.)
At December 31, 1996 and 1995, the Bank had current income taxes receivable of
$364,600 and $231,100, respectively.
The tax effects of temporary differences that give rise to significant portions
of deferred tax assets and deferred liabilities at December 31, 1996 and 1995
(certain amounts for 1995 have been reclassified to reflect 1995 tax returns as
filed) are presented below:
<TABLE>
<CAPTION>
December 31,
------------
1996 1995
---- ----
<S> <C>
Assets:
Loan loss allowances............... $ 190,200 $ 195,500
California franchise taxes......... 22,900 12,900
REO deferred gain.................. 15,400 10,200
---------- ----------
Total.......................... 228,500 218,600
Liabilities:
Loan fees.......................... 904,800 1,103,000
FHLB stock dividends............... 194,800 174,000
Depreciation....................... 15,800 25,000
---------- ----------
Total.......................... 1,115,400 1,302,000
Net deferred tax liability......... $ 886,900 $ 1,083,400
========== ==========
Federal............................ 643,400 767,700
State.............................. 243,500 315,700
---------- ----------
Total.......................... $ 886,900 $ 1,083,400
========== ==========
</TABLE>
(10) Stockholders' Equity and Regulatory Capital
Capital Requirements
The Bank is subject to the Financial Institutions Reform Recovery and
Enforcement Act of 1989 (FIRREA) and the capital regulations of the Office of
Thrift Supervision (OTS) promulgated thereunder. The regulations require
institutions to have a minimum regulatory tangible capital equal to 1.5% of
total assets, a minimum 3.0% leverage (core) capital ratio and an 8.0%
risk-based capital ratio as of December 31, 1996.
At December 31, 1996, the Bank was "well capitalized" under the prompt
corrective action ("PCA") regulations adopted by the OTS pursuant to the Federal
Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"). To be
categorized as "well capitalized" the Bank must maintain minimum core capital,
Tier 1 risk-based capital, and risk-based capital ratios as set forth in the
table below.
<PAGE>
(10) Stockholders' Equity and Regulatory Capital (Cont.)
The following table presents the Bank's regulatory capital position under both
FIRREA and FDICIA at December 31, 1996:
<TABLE>
<CAPTION>
Tier 1
Tangible Core Risk-based Risk-based
Capital Capital Capital Capital
-------- ------- ---------- ----------
(Dollars in thousands)
<S> <C>
Actual capital
Amount................................... $ 6,361 $ 6,361 $ 6,361 $ 6,901
Ratio.................................... 5.69% 5.69% 10.00% 10.84%
Minimum required capital (FIRREA):
Amount................................... $ 1,677 $ 3,355 N/A $ 5,090
Ratio.................................... 1.50% 3.00% N/A 8.00%
PCA "well capitalized" capital:
Amount................................... N/A $ 5,592 $ 3,818 $ 6,363
Ratio.................................... N/A 5.00% 6.00% 10.00%
</TABLE>
The Bank's capital amounts and classification are subject to review by federal
regulators about components, risk-weighting and other factors. There are no
conditions or events since December 31, 1996 that management believes have
changed the institution's category.
The payment of dividends by the Bank is subject to regulation by the OTS. The
OTS has promulgated a regulation that measures a savings institution's ability
to make capital distributions which include the payment of dividends, according
to the institution's capital position. The rule establishes "safe harbor"
amounts of capital distributions that institutions make after providing notice
to the OTS, but without needing prior approval. Institutions can distribute
amounts in excess of the safe harbor only with the prior approval of the OTS.
The OTS has proposed a new regulation that would amend the existing regulations
to permit capital distributions without prior notice to the OTS provided that,
following the distribution, the institution would remain at least adequately
capitalized. The OTS retains the authority to prohibit any capital distribution
otherwise authorized under the regulation if the OTS determines that
distributions would constitute an unsafe and unsound practice.
The following is a reconciliation between GAAP capital and FIRREA regulatory
capital at December 31, 1996:
<TABLE>
<CAPTION>
Tangible Core Risk-based
Capital Capital Capital
-------- ------- ----------
<S> <C>
Total stockholders' equity....................... $ 6,360,500 $ 6,360,500 $ 6,360,500
General loan valuation allowance................. -- -- 540,000
------------ ------------ ----------
Regulatory capital reported to the OTS........... 6,360,500 6,360,500 6,900,500
Minimum regulatory capital requirement........... 1,677,000 3,355,000 5,090,000
--------- --------- ---------
Excess regulatory capital........................ $ 4,683,500 $ 3,005,500 $ 1,810,500
========= ========= =========
</TABLE>
(11) Stock Option Plan
During 1990, the Bank established the 1990 Stock Option Plan (Plan), which is
administered by a committee appointed by the Board of Directors.
<PAGE>
(11) Stock Option Plan (Cont.)
The Plan provides for the granting of options to purchase shares of common stock
at an option price per share equal to the appraised value of the stock adjusted
for the minority interest. The number of shares to be authorized for issuance
under the Plan is 98,394 shares. In general, options may be granted for a period
of up to five years at any time before the expiration of the Plan. The
recipients' right to exercise the options would vest at a rate of 25% per year,
beginning on the first anniversary date of the date of grant.
A summary of the status of the Bank's fixed stock option plan as of December 31,
1996 and 1995 and changes during the years ended on those dates is presented
below:
<TABLE>
<CAPTION>
1996 1995
------------------------------ -------------------------
Weighted-Average Weighted-Average
Exercise Exercise
Fixed Options Shares Price Shares Price
------------- ------ ------- ------ -------
<S> <C>
Outstanding at beginning of year........... 10,250 $ 9.48 53,423 $ 8.40
Granted.................................... 72,487 9.62 -- --
Exercised.................................. -- -- 825 8.08
Forfeited.................................. 4,450 9.00 42,348 8.15
------ ------
Outstanding at end of year................. 78,287 $ 9.63 10,250 $ 9.48
====== ======
</TABLE>
The following table summarizes information about fixed stock options outstanding
at December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------- -------------------
Number Weighted-Avg. Number
Exercise Outstanding Remaining Weighted-Avg. Exercisable Weighted-Avg.
Prices at 12/31/96 Contractual Life Exercise Price at 12/31/96 Exercise Price
- -------- ----------- ---------------- -------------- ----------- --------------
<S> <C>
$ 9.42 2,250 0.96 $ 9.42 2,250 $ 9.42
10.11 3,650 1.97 10.11 2,737 10.11
9.62 42,898 4.15 9.62 -- --
9.62 18,289 4.89 9.62 -- --
9.62 11,200 4.97 9.62 -- --
------
78,287 4.25 $ 9.63 4,987 $ 9.80
====== =====
</TABLE>
The per share weighted average fair value of stock options granted during 1996
was $3.27 on the date of grant assuming a weighted average risk-free interest
rate of 5.69% and an expected life of 5 years.
The Bank applies APB Opinion No. 25 in accounting for its Plan, and accordingly,
no compensation cost has been recognized for its stock options in the financial
statements. Had the Bank determined compensation cost based on the fair value at
the grant date for its stock options under SFAS No. 123, the Bank's net earnings
and earnings per share for 1996 would have been reduced to $11,900 and $.02,
respectively. Net earnings for 1995 would not have been affected as there were
no options granted in 1995.
Pro forma net earnings reflects only options granted in 1996. Therefore, the
full impact of calculating compensation cost for stock options under SFAS No.
123 is not reflected in the pro forma net earnings presented, because
(11) Stock Option Plan (Cont.)
compensation cost is reflected over the options' vesting period of five years
and compensation cost for options granted prior to January 1, 1995 is not
considered.
(12) Employees' Savings and Stock Bonus Plan
Effective January 1, 1994, the Bank established the Del Amo Savings Bank, FSB
Employees' Savings and Stock Bonus Plan (the Plan) for the exclusive benefit of
the employees of the Bank. The Plan is a defined contribution stock bonus plan
with a 401k salary deferral feature under which employer matching contributions,
at the discretion of the Bank, can be made in cash or Bank stock. The employees
vest in the Bank's contributions at a rate of 20% per year of service and are
100% vested at death, disability or normal retirement age as defined by the
Plan. The Plan is available to all employees over 21 years of age with at least
six months of service in a plan year. Employee contributions are voluntary as
employees may elect to defer from one to fifteen percent of compensation as
defined by the Plan. The Bank made stock contributions of $6,300 and $14,700 to
the Plan in 1996 and 1995, respectively, which have been recorded as salaries
and employee benefits in the statement of earnings.
(13) Commitments
The Bank operates from leased premises under operating lease agreements expiring
at various dates through 2008. Rent expense for the years ended December 31,
1996 and 1995 was $282,700 and $277,300 respectively. The following is a
schedule by years of future minimum rental payments:
1997 $ 284,100
1998 263,000
1999 157,100
2000 157,100
2001 157,100
Thereafter 477,400
---------
$ 1,495,800
=============
(14) Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107 ("SFAS No. 107"),
"Disclosures About Fair Value of Financial Instruments", requires disclosure of
fair value information about financial instruments, regardless of whether
recognized in the financial statements of the reporting entity. For purposes of
determining fair value, SFAS No. 107 provides that the fair value of a financial
instrument is the amount at which the instrument could be exchanged in a current
transaction between willing parties, other than in a forced or liquidation sale.
All of the fair values presented have been made under this definition of fair
value.
It is management's belief that the fair values presented below are accurate
based on the valuation techniques and data available to the Bank as of December
31, 1996, as more fully described below. It should be noted that the operations
of the Bank are managed from a going concern basis and not a liquidation basis.
As a result, the ultimate value of the financial instruments presented could be
substantially different when actually recognized over time through the normal
course of operations. Additionally, a substantial portion of the Bank's inherent
value is its franchise value. Neither of these components have been given
consideration in the presentation of fair values below.
<PAGE>
(14) Fair Value of Financial Instruments (Cont.)
The following table presents fair value information for financial instruments
shown in the Bank's Statements of Financial Condition. The Bank does not know
whether the fair values shown below represent values at which the respective
financial instruments could be sold.
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
----------------- -----------------
Carrying Estimated Fair Carrying Estimated Fair
Value Value Value Value
--------------- --------------- --------------- ---------------
<S> <C>
Cash and cash equivalents................... $ 6,137,400 $ 6,137,400 $ 2,120,900 $ 2,120,900
Certificates of deposit..................... 600,000 600,000 1,598,000 1,598,000
Loans held for sale......................... 3,703,700 3,727,000 4,818,000 4,867,000
Loans held for investment................... 98,451,800 99,397,000 106,357,400 108,095,000
Fixed-term certificate of deposit accounts.. 83,196,800 82,984,000 87,671,700 88,171,000
Non-term deposit accounts................... 15,285,400 15,285,400 14,517,700 14,517,700
FHLB advances............................... 6,000,000 5,951,000 8,000,000 8,263,000
Commitments to sell loans................... -- 23,300 -- 49,000
</TABLE>
Fair value estimates are based on the following methods and assumptions, some of
which are subjective in nature. Changes in assumptions could significantly
affect the estimates.
Cash
The carrying amounts reported in the Statements of Financial Condition for this
item approximate fair value.
Certificates of Deposit
The carrying amounts reported in the Statements of Financial Condition for this
item approximate fair value.
Loans Receivable
The portfolio is segregated into those loans with adjustable rates of interest
and those with fixed rates of interest. Fair values for loans held for sale are
based on quotes obtained from individual brokers. Fair values for loans held for
investment are based on discounting future cash flows by the current rate
offered for such loans with similar remaining maturities and credit risk. The
amounts so determined for each loan category are reduced by the Bank's allowance
for loan losses which thereby takes into consideration changes in credit risk.
Deposits
The fair value of deposits with no stated term such as regular passbook
accounts, money market accounts and checking accounts, approximates the carrying
amounts reported in the Statements of Financial Conditions. The fair value of
deposits with a stated maturity such as certificates of deposit is based on
discounting future cash flows by the current rate offered for such deposits with
similar remaining maturities.
FHLB Advances
For short term advances, fair value approximates carrying value. The fair value
of long term advances is based on their interest rate characteristics. For
variable rate borrowings, fair value is based on carrying values. For fixed rate
borrowings, fair value is based on discounting future contractual cash flows by
the current interest rate paid on such borrowings with similar remaining
maturities.
Commitments to Sell Loans
The fair market value of commitments to sell loans is based on rates for similar
transactions as of the reporting date.
<PAGE>
DEL AMO SAVINGS BANK, FSB
Unaudited Statements of Financial Condition
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- -------------
<S> <C>
Assets
Cash and cash equivalents.......................................... $ 4,130,700 $ 6,137,400
Certificates of deposit............................................ 3,100,000 600,000
Loans receivable held for sale at the lower of cost or fair value.. 5,460,400 3,703,700
Loans receivable held for investment, net.......................... 98,027,900 98,451,800
Real estate owned, net (REO)....................................... 408,800 462,100
Accrued interest receivable........................................ 634,700 559,500
Investment in Federal Home Loan Bank stock, at cost................ 897,200 963,500
Premises and equipment, net........................................ 496,100 514,300
Income taxes receivable............................................ 364,600
Prepaid expenses and other assets.................................. 173,100 77,800
------------- ---------------
$ 113,328,900 $ 111,834,700
============= =============
Liabilities and Stockholders' Equity
Deposits........................................................... 100,369,600 98,482,200
FHLB advances...................................................... 5,000,000 6,000,000
Income taxes payable............................................... 77,600 -
Deferred income taxes.............................................. 886,900 886,900
Accrued interest payable and accrued expenses...................... 136,100 12,900
Advance payments by borrowers for taxes and insurance.............. 156,500 92,200
------------- -------------
106,626,700 105,474,200
------------- -------------
Stockholders' Equity
Common stock of $2.50 par value. Authorized 800,000 shares;
issued and outstanding 533,096 and 533,163 at September 30, 1997
and December 31, 1996, respectively.............................. 1,332,900 1,332,900
Additional paid-in capital......................................... 1,425,000 1,424,900
Retained earnings (subject to restrictions)........................ 3,944,300 3,602,700
------------- -------------
6,702,200 6,360,500
------------- -------------
$ 113,328,900 $ 111,834,700
============= =============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
DEL AMO SAVINGS BANK, FSB
Unaudited Statements of Earnings
<TABLE>
<CAPTION>
Nine months ended
September 30,
---------------------
1997 1996
-------------- -------------
<S> <C>
Interest Income:
Interest on loans................................................ $ 5,915,400 $ 6,421,200
Interest on investments.......................................... 428,000 218,500
----------- -----------
6,343,400 6,639,700
Interest Expense:
Interest on deposits............................................. 3,621,300 3,815,600
Interest on FHLB borrowings...................................... 257,900 393,600
------------- -----------
3,879,200 4,209,200
Net interest income......................................... 2,464,200 2,430,500
Provision for loan losses.......................................... 90,000 74,000
----------- -----------
Net interest income after provision for loan losses......... 2,374,200 2,356,500
----------- -----------
Other income:
Loan and other fees.............................................. 96,400 86,600
Loan servicing fees.............................................. 15,900 17,600
Gain on sale of loans held for sale.............................. 341,900 575,500
Other............................................................ 22,300 16,300
----------- -----------
476,500 696,000
----------- -----------
Other expenses:
Salaries and employee benefits................................... 1,135,400 1,235,200
SAIF recapitalization assessment................................. - 673,400
Premises and occupancy expense................................... 370,200 372,300
SAIF insurance premiums.......................................... 70,000 214,600
Professional services............................................ 99,700 102,600
Data processing.................................................. 89,400 114,700
Advertising and promotion........................................ 82,700 115,400
REO operations, net.............................................. 12,200 45,600
Other general and administrative................................. 400,500 326,100
----------- ----------
.. 2,260,100 3,199,900
----------- ----------
Earnings (loss) before income taxes (benefit)................. 590,600 (147,400)
Income taxes (benefit)............................................. 249,000 (61,300)
----------- -----------
Net earnings (loss)........................................... $ 341,600 $ (86,100)
=========== ===========
Earnings (loss) per share.......................................... $ 0.64 $ (0.16)
=========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
DEL AMO SAVINGS BANK, FSB
Unaudited Statements of Cash Flows
<TABLE>
<CAPTION>
Nine Months ended
September 30,
-----------------------
Cash flows from operating activities: 1997 1996
---- ----
<S> <C>
Net earnings (loss).......................................................... $ 341,600 $ (86,100)
------------ -------------
Adjustments to reconcile net earnings (loss) to net cash used by
operating activities
Depreciation.............................................................. 78,700 94,700
Provision for loan losses................................................. 90,000 74,000
Provision for losses on REO............................................... - 13,000
Loans originated and held for sale........................................ (50,897,900) (77,327,700)
Proceeds from sale of loans held for sale................................. 49,483,100 74,338,500
Amortization of deferred loan fees........................................ (19,500) (33,100)
Net loss on sale of REO................................................... 2,000 8,000
Gain on sale of loans held for sale....................................... (341,900) (575,500)
Federal Home Loan Bank Stock dividend received............................ (44,400) (38,800)
(Increase) decrease in accrued interest receivable........................ (75,200) 66,000
Increase in prepaid expenses and other assets............................. (95,300) (206,800)
Increase in accrued interest payable and accrued expenses................. 123,300 616,900
Increase in advance payments by borrowers for taxes and insurance......... 64,300 78,600
Increase in income taxes payable.......................................... 77,600 -
Provision for deferred income taxes....................................... - (406,300)
Decrease in income taxes receivable....................................... 364,600 -
Stock issued to 401KSOP plan.............................................. - 6,600
------------- -------------
Total adjustments...................................................... (1,190,600) (3,291,900)
-------------- --------------
Net cash used by operating activities.................................. (849,000) (3,378,000)
-------------- --------------
Cash flows from investing activities:
Increase in certificates of deposit.......................................... (2,500,000) (102,000)
Proceeds from sale of REO.................................................... 462,300 174,700
Loans originated............................................................. (7,529,100) (4,029,900)
Principal payments on loans.................................................. 7,471,500 8,589,900
Redemption (purchase) of Federal Home Loan Bank stock........................ 110,700 (8,400)
Investment in premises and equipment......................................... (60,500) (13,300)
-------------- --------------
Net cash (used) provided by investing activities....................... (2,045,100) 4,611,000
-------------- -------------
Cash flow from financing activities:
Increase in demand deposits and savings accounts............................. 8,957,600 1,346,000
Proceeds from issuance of certificates of deposit............................ 10,907,000 3,964,400
Payments on maturing certificates of deposit................................. (17,977,200) (7,948,700)
(Payments) proceeds from FHLB advances....................................... (1,000,000) 500,000
-------------- ---------------
Net cash provided (used) by financing activities....................... 887,400 (2,138,300)
-------------- ---------------
Net decrease in cash and cash equivalents.............................. (2,006,700) (905,300)
Cash and cash equivalents at beginning of period....................... 6,137,400 2,120,900
---------------- ------------
Cash and cash equivalents at end of period............................. $ 4,130,700 $ 1,215,600
================ ===========
Supplemental disclosures of cash flow information:
Interest paid (including interest credited) during the year................. $ 3,858,200 $ 4,204,200
Cash paid during the year for income taxes................................... 50,000 260,000
============= =============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
September 30, 1997
NOTE A- BASIS OF PRESENTATION
The financial statements include adjustments which, in the opinion of
management, are necessary for a fair presentation of the results of operation
and financial condition for each of the periods presented. Such adjustments are
of a normal recurring nature. The results of operations for the nine months
ended September 30, 1997, are not necessarily indicative of the results of
operations that can be expected for the year ending December 31, 1997. The
Bank's accounting and reporting policies conform with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Such policies
require management to make estimates and develop assumptions that affect the
amounts reported in the financial statements and related footnotes. Actual
results could differ from management's estimates. For further information, refer
to the financial statements and footnotes thereto included in the Del Amo
Savings annual report for the year ended December 31, 1996.
NOTE B - PENDING ACQUISITION
On November 20, 1997, City Holding Company ("City Holding"), and the Bank
jointly announced the signing of a definitive agreement for City Holding to
acquire the Bank. Under the terms of the agreement, the Bank's stockholders will
receive in a tax-free exchange, a fixed number of shares of City Holding Common
Stock based on the Exchange Ratio, as described in the agreement. The
acquisition is contingent upon regulatory and stockholders' approval, and is
expected to be completed in the first quarter of 1998.
NOTE C - NEW ACCOUNTING PRONOUNCEMENTS
On January 1, 1997, the Bank adopted Statement of Financial Accounting Standards
(SFAS) No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities", which requires that an entity recognize the
financial and servicing assets it controls and the liabilities it has incurred
and derecognize financial assets when control has been surrendered in accordance
with the criteria provided in the Statement. The adoption of SFAS No. 125 did
not have a material impact on the Bank's financial position or results of
operations during 1997.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 128, "Earnings per Share", (SFAS No. 128) which
establishes new standards for computing and presenting earnings per share. SFAS
No. 128 is effective for all financial statements issued subsequent to December
15, 1997. The basic and diluted earnings per share computed under SFAS No. 128
are not anticipated to be materially different from earnings per common share
presented herein.
Also, during 1997, the Financial Accounting Standards Board issued several other
new accounting pronouncements which will become effective in 1998. These
pronouncements include SFAS No. 129, "Disclosure of Information about Capital
Structure"; SFAS No. 130, "Reporting Comprehensive Income"; and SFAS No. 131,
"Disclosure about Segments of an Enterprise and Related Information". The Bank
is in the process of fully evaluating these new pronouncements and expects to
adopt them in 1998 in accordance with the requirements. Such adoption is not
expected to have a significant impact on the financial position or results of
operations of the Bank.
<PAGE>
DEL AMO SAVINGS BANK, FSB
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
The Bank was incorporated on May 31, 1977 as "Commonwealth Savings and Loan
Association", a California-chartered savings and loan association with accounts
insured by the Federal Savings and Loan Insurance Corporation. On December 1,
1982, the Bank's name was changed to "Del Amo Savings and Loan Association" and
on March 13, 1989 the name was again changed, this time to "Del Amo Savings
Bank". On May 22, 1990, the Bank completed the conversion of its charter from a
California savings and loan association to that of a Federal savings bank, with
the resultant adoption of its current name, "Del Amo Savings Bank, FSB".
The Bank's operating results are dependent primarily on net interest income, the
difference between interest income earned on loans and federal funds sold, and
the Bank's cost of funds (interest paid to its depositors and on borrowed
funds). Operating results are also affected by the provision for 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.
Average Balance Sheet
The following tables set forth certain information relating to the Bank's
average balance sheets for the nine months ended September 30, 1997 and 1996,
and for the years ended December 31, 1996 and 1995. The yields and costs are
derived by dividing income or expense by the average balance of assets or
liabilities, respectively, for the periods shown except where noted otherwise.
Average balances are derived from average daily balances.
The yields and costs include fees, which are considered adjustments to yields.
<PAGE>
<TABLE>
<CAPTION>
For the Nine Months Ended September 30,
---------------------------------------
1997 1996
----------------------------- -----------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
------- -------- ------- ------- -------- -------
(Dollars in thousands)
<S> <C>
Assets
Interest-earning assets:
Interest-earning deposits $ 2,940 $ 140 6.35% $ 2,082 $ 87 5.57%
Federal Funds sold and other
short-term investments 6,264 244 5.19% 2,320 93 5.34%
Loans receivable(3) 101,067 5,915 7.80% 110,011 6,421 7.78%
FHLB Stock 932 44 6.29% 930 39 5.59%
--------- -------- -------- ---------
Total interest-earning
assets 111,203 $ 6,343 7.61% 115,343 $ 6,640 7.68%
========= ========
Noninterest-earning assets 1,648 1,910
------- --------
Total Assets $ 112,851 $117,253
========= ========
Liabilities and Retained Earnings
Interest-bearing liabilities
Money market deposits $ 9,478 $ 229 3.22% $ 4,739 $ 74 2.08%
Passbook deposits 3,389 46 1.81% 3,239 44 1.81%
NOW and other demand
deposits 8,071 61 1.01% 7,206 36 0.67%
Certificate accounts 79,028 3,285 5.54% 85,884 3,662 5.69%
--------- -------- ------ ------ ------ --------
Total deposits 99,966 3,621 4.83% 101,068 3,816 5.03%
FHLB advances 5,036 258 6.83% 8,450 393 6.20%
--------- -------- -------- ---------
Total interest-bearing
liabilities 105,002 $ 3,879 4.93% 109,518 $ 4,209 5.12%
--------- ========= --------- ========
Noninterest-bearing
liabilities 1,331 1,296
Stockholders' equity 6,518 6,439
--------- --------
Total liabilities and
stockholders' equity $112,851 $ 117,253
======== =========
Net interest income $ 2,464 $ 2,431
Net interest rate spread(1) 2.68% 2.55%
Net interest margin(2) 2.95% 2.81%
Ratio of interest-earning
assets to interest-bearing liabilities 105.91% 105.32%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
For the Year Ended December 31,
--------------------------------
1996 1995
----------------------------- ----------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
------- -------- ------- ------- -------- -------
(Dollars in thousands)
<S> <C>
Assets
Interest-earning assets:
Interest-earning deposits $ 2,033 $ 110 5.41% $ 2,259 $ 146 6.46%
Federal Funds sold and other
short-term investments 2,654 142 5.35% 1,713 101 5.90%
Loans receivable(3) 108,427 8,508 7.85% 109,052 8,370 7.68%
FHLB Stock 939 54 5.75% 869 44 5.06%
--------- -------- -------- ---------
Total interest-earning
assets 114,053 $ 8,814 7.73% 113,893 $ 8,661 7.60%
========= ========
Noninterest-earning assets 2,583 2,726
--------- -------
Total Assets $ 116,636 $116,619
========= ========
Liabilities and Retained Earnings
Interest-bearing liabilities
Money market deposits $ 4,732 $ 70 1.48% $ 3,941 $ 95 2.41%
Passbook deposits 3,248 55 1.69% 3,094 66 2.13%
NOW and other demand
deposits 7,272 85 1.17% 8,205 105 1.28%
Certificate accounts 85,207 4,818 5.65% 88,241 5,067 5.74%
--------- -------- -------- ---------
Total deposits 100,459 5,028 5.01% 103,481 5,333 5.15%
FHLB advances 8,400 535 6.37% 5,875 377 6.42%
--------- -------- -------- ---------
Total interest-bearing
liabilities 108,859 $ 5,563 5.11% 109,356 $ 5,710 5.22%
--------- ========= --------- ========
Noninterest-bearing
liabilities 1,365 973
Stockholders' equity 6,412 6,290
--------- ---------
Total liabilities and
stockholders' $ 116,636 $ 116,619
========== ==========
equity
Net interest income $ 3,251 $ 2,951
Net interest rate spread(1) 2.62% 2.38%
Net interest margin(2) 2.85% 2.59%
Ratio of interest-earning
assets to interest-bearing liabilities 104.77% 104.15%
</TABLE>
- ---------------------
(1) Net interest rate spread represents the difference between the yield on
average interest-earning assets and the cost of average interest-bearing
liabilities.
(2) Net interest margin represents net interest income as a percentage of
average interest-earning assets.
(3) Amount is net of deferred loan fees, loan discounts, loans in process and
loan loss allowances, and includes loans held for sale and nonaccrual loans.
(4) Certificate accounts greater than $100,000 amounted to $10,320,000 as of
September 30, 1997.
<PAGE>
Rate/Volume Analysis
The following table presents the extent to which changes in interest rates and
changes in the volume of interest-earning assets and interest-bearing
liabilities have affected the Bank's interest income and interest expenses
during the periods indicated. Information is provided in each category with
respect to (i) changes attributable to changes in volume (changes in volume
multiplied by prior rate), (ii) changes attributable to changes in rate (changes
in rate multiplied by prior volume), and (iii) the net change. The changes
attributable to the combined impact of volume and rate have been allocated
proportionately to the changes due to volume and the changes due to rate.
<PAGE>
<TABLE>
<CAPTION>
Nine months ended Year ended
September 30, December 31,
1997 vs. 1996 1996 vs. 1995
Increase (Decrease) Increase (Decrease)
Due to Change In: Due to Change In:
----------------------------------------------- ---------------------------------------------------
Volume Rate Total Volume Rate Total
----------------- ------------- --------------- -------------------- ------------- ----------------
(Dollars in thousands) (Dollars in thousands)
----------------------------------------------- ---------------------------------------------------
<S> <C>
INTEREST INCOME FROM:
Interest-earning $ 40 $ 13 $ 53 $ (14) $ (22) $ (36)
deposits
Federal funds sold &
other short 156 (4) 152 51 (10) 41
term investments
Loans receivable, net (535) 29 (506) (48) 186 138
FHLB stock 0 5 5 4 6 10
---- ------------ ---- ---------- --- --------- ----- -------------- -- ----------- --- -----------
Total interest-earning (339) 43 (296) (7) 160 153
assets
INTEREST EXPENSE ON:
Money market deposits 100 55 155 17 (42) (25)
Passbook deposits 2 - 2 3 (14) (11)
NOW and other demand 5 20 25 (11) (9) (20)
deposits
Certificate accounts (287) (90) (377) (172) (77) (249)
FHLB advances (193) 58 (135) 161 (3) 158
---- ------------ ---- ---------- --- --------- ----- -------------- -- ----------- --- -----------
Total interest-bearing
liabilities (373) 43 (330) (2) (145) (147)
---- ------------ ---- ---------- --- --------- ----- -------------- -- ----------- --- -----------
CHANGE IN NET INTEREST
INCOME $ 34 $ - $ 34 $ (5) $ 305 $ 300
==== ============ ==== ========== === ========= ===== ============== == =========== === ===========
</TABLE>
Investment Portfolio
At September 30, 1997, December 31, 1996 and 1995, respectively, investment
securities amounted to $3,100,000, $600,000 and $1,598,000. At each of these
dates, the entire investment securities portfolio was comprised of certificates
of deposit. All of the certificates of deposit for all periods presented had
maximum terms of one year. The weighted average yields on investment securities
were 5.80%, 5.50% and 5.72% as of September 30, 1997, December 31, 1996 and
December 31, 1995, respectively.
<PAGE>
Loan Portfolio
The composition of the Bank's loan portfolio is presented in the following
table:
<TABLE>
<CAPTION>
September 30 December 31 December 31
1997 1996 1995
---- ---- ----
<S> <C>
Conventional loans secured by deeds of trust
Residential, 1-4 units.................. $ 71,189,000 $ 72,855,600 $ 76,258,200
Residential, 5+ units................... 10,657,500 10,221,200 11,038,600
Commercial and industrial............... 15,962,400 15,307,100 19,115,500
Land.................................... 77,000 77,600 203,400
Home improvement........................ 268,100 274,300 294,600
-------- -------- --------
Total loans secured by real estate. 98,154,000 98,735,800 106,910,300
Loans on savings accounts............... 555,600 356,100 194,700
Less:
Deferred loan fees...................... 56,400 75,700 107,900
Deferred gain on sale of REO............ 24,200 24,400 24,700
Allowance for loan losses............... 601,100 540,000 615,000
-------- -------- --------
Loans receivable held for investment, net. $ 98,027,900 $98,451,800 $106,357,400
============ =========== ============
Loans receivable held for sale (1)........ $ 5,460,400 $ 3,703,700 $ 4,818,000
=========== =========== ===========
</TABLE>
(1) Loans receivable held for sale were collateralized by residential, 1-4 unit
properties for all periods presented.
Comparison of Operating Results for the Nine Months Ended September 30, 1997 and
September 30, 1996
General
The Bank reported net earnings of $341,600 or $0.64 per share for the nine
months ended September 30, 1997 compared to a net loss of $86,100 or $0.16 per
share for the nine months ended September 30, 1996. This increase of $427,700 or
496.74%, for the nine months ended September 30, 1997 was primarily due to the
one-time SAIF recapitalization assessment of $673,400 paid in 1996, offset by
the decrease in the gain on sale of loans held for sale of $233,600.
Interest Income
Interest income was $6,343,400 and $6,639,700 for the nine months ended
September 30, 1997 and 1996 respectively. The $296,300 decrease in interest
income for the nine months ended September 30, 1997 compared to 1996 resulted
from a decrease in the average balance of interest-earning assets of $4,140,000
and a decrease in the average yield on interest-earning assets of .07% to 7.61%.
The decrease in the average yield on interest-earning assets is primarily due to
a decrease in the average yield on interest-earning deposits and federal funds
sold.
Interest Expense
Interest expense was $3,879,200 and $4,209,200 for the nine months ended
September 30, 1997 and 1996 respectively. The $330,000 decrease in interest
expense for the nine months ended September 30, 1997 compared to 1996 resulted
from a decrease in the average balance of interest-bearing liabilities of
$4,516,000 and a decrease in the average cost of interest-bearing liabilities of
.19%. The decrease in the average cost of interest-bearing liabilities is
primarily due to a decrease in the average cost on certificate accounts.
Net Interest Income Before Provision for Loan Losses
Net interest income before provision for loan losses was $2,464,200 and
$2,430,500 for the nine months ended September 30, 1997 and 1996 respectively.
The results were comparable for the period.
Provision for Loan Losses
During the nine months ended September 30, 1997 and 1996, the Bank recorded
provisions for loan losses of $90,000 and $74,000, respectively. The increase of
$16,000, or 21.62%, in the provision for loan losses is due primarily to the
continued declines in the real estate values for loans secured by multifamily
loans and originated prior to 1990. Although management considers the level of
allowance for loan losses as of September 30, 1997 to be adequate, there can be
no assurance that the Bank will not have to establish additional loss provisions
in the future.
Other Income
The following table summarizes other income for the nine months ended September
30,:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C>
Loan and other fees $ 112,300 $ 104,200
Gain on sale of loans held for sale 341,900 575,500
Other income 22,300 16,300
--------- ---------
Total other income $ 476,500 $ 696,000
========== ==========
</TABLE>
Other income decreased by $219,500, or 31,54%, to $476,500 for the nine months
ended September 30, 1997 as compared to 1996. The decrease was primarily
attributable to a decrease in the gain on sale of loans held for sale due to
changes in market conditions.
Other Expense
The following table summarizes other expense for nine months ended September
30,:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C>
Salaries and employee benefits $ 1,135,400 $ 1,235,200
SAIF recapitalization assessment -- 673,400
SAIF insurance premiums 70,000 214,600
Premises and occupancy expense 370,200 372,300
Other expenses 684,500 704,400
----------- -----------
Total other expense $2,260,100 $3,199,900
========== ==========
</TABLE>
Other expense decreased $939,800, or 29.37%, to $2,260,100 for the nine months
ended September 30, 1997 as compared to 1996. The decrease is primarily due to a
one-time SAIF recapitalization assessment of $673,400 paid in 1996, a decrease
in annual SAIF insurance premiums of $144,600, and a decrease in salaries and
employee benefits of $99,800, attributable to fewer mortgage banking employees.
Income Taxes
Income taxes increased by $310,300 from a tax benefit of $61,300 for the nine
months ended September 30, 1996 to income taxes of $249,000 for the nine months
ended September 30, 1997. The effective tax rate was 42% for both periods.
Comparison of Financial Condition at September 30, 1997 and December 31, 1996
Total assets at September 30, 1997 were $113.3 million compared to $111.8
million at December 1, 1996, an increase of $1.5 million, or 1.34%. The increase
primarily resulted from increase in loans held for sale of $1.8 million funded
by an increase in deposits of $1.9 million.
The increase of $1.8 million, or 48.65%, in loans held for sale to $5.5 million
at September 30, 1997 was primarily due to the timing of cash receipts from
purchasers of loans. All loans held for sale were sold servicing released.
The decrease in FHLB advances of $1.0 million, or 16.67%, to $5 million at
September 30, 1997, reflects the Bank's liquidity at that point in time.
Comparison of Operating Results for Twelve Months Ended December 31, 1996 and
December 31, 1995
General
The Bank reported net earnings of $21,200 or $0.04 per share for the year ended
December 31, 1996, compared to net earnings of $96,800 or $0.18 per share for
the year ended December 31, 1995. The decrease in earnings was due primarily to
the one-time SAIF recapitalization assessment of $673,400 paid in 1996, offset
by an increase in net interest income of $300,300, and an increase in the gain
on sale of loans held for sale of $609,500.
Interest Income
Interest income was $8,814,300 and $8,661,200 for the years ended December 31,
1996 and 1995 respectively. The $153,100 increase in interest income in 1996
compared to 1995 resulted from an increase in the average yield on
interest-earning assets of 0.13%, partially offset by a decrease in the average
balance of interest-earning assets of $160,000.
Interest Expense
Interest expense was $5,563,200 and $5,710,400 for the years ended December 31,
1996 and 1995 respectively. The decrease in interest expense in 1996 compared to
1995 resulted from a decrease in the average cost on interest-bearing
liabilities of 0.11%, partially offset by an increase in the average balance of
interest-bearing liabilities of $147,000.
Net Interest Income Before Provision for Loan Losses
Net interest income before provision for loan losses was $3,251,100 and
$2,950,800 for the years ended December 31, 1996 and 1995 respectively. The
increase in 1996 compared to 1995 was primarily a result of the net interest
margin increasing to 2.59% from 2.85% during the year.
Provision for Loan Losses
During 1996 and 1995, the Bank established $104,000 and $76,000, respectively,
of provisions for losses on loans. The increase of $28,000, or 36.8%, in the
provision for loan losses is due primarily to the continued declines in the real
estate values for loans secured by multifamily loans and originated prior to
1990. Although management considers the level of allowance for loans losses at
December 31, 1996 to be adequate, there can be no assurance that the Bank will
not have to establish additional loss provisions in the future.
Other Income
The following table summarizes other income for the years ended December 31,:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C>
Loan and other fees $ 134,900 $ 99,600
Gain on sale of loans held for sale 740,400 130,900
Other income 22,000 37,300
----------- -----------
Total other income $ 897,300 $ 267,800
========== ==========
</TABLE>
Other income increased by $629,500, or 235.06%, in 1996 to $897,300 as compared
to 1995. The increase was primarily due to the increase in the gain on sale of
loans held for sale due to changes in market conditions.
Other Expense
The following table summarizes other expense for the years ended December 31,:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C>
Salaries and employee benefits $ 1,615,600 $ 1,400,900
SAIF recapitalization assessment 673,400 --
SAIF insurance premiums 258,900 298,000
Premises and occupancy expense 503,800 489,500
Other expenses 956,500 788,300
------------ ------------
Total other expense $ 4,008,200 $ 2,976,700
=========== ===========
</TABLE>
Other expense increased $1,031,500, or 34.7%, in 1996 to $4,008,200 as compared
to 1995. The increase is primarily due to a one-time SAIF recapitalization
assessment of $673,400 paid in 1996, an increase in salaries and employee
benefits of $214,700 attributable to mortgage banking operations, and an
increase in net REO operations of $70,500.
Income Taxes
Income taxes decreased by $54,100 from $69,100 in 1995 to $15,000 in 1996. The
decrease was due to decrease in earnings before income taxes. The effective tax
rates were 41% and 42% for 1996 and 1995, respectively.
Comparison of Financial Condition at December 31, 1996 and December 31, 1995
Total assets at December 31, 1996 were $111.8 million compared to $117.8 million
at December 31, 1995, a decrease of $6.0 million, or 5.1%. The decrease
primarily resulted from a decrease in net loans receivable of $9.0 million,
offset by an increase in cash and cash equivalents and certificates of deposit
of $3.0 million.
Cash and cash equivalents increased from $2.1 million as of December 31, 1995 to
$6.1 million as of December 31, 1996 primarily in federal fund investments. The
increase reflects increased investment in federal funds during a period of
decreasing loan originations.
Loans held for sale decreased from $4.8 million at December 31, 1995 to $3.7
million as of December 31, 1996. Loan sales increased to $101.0 million for the
year ended December 30, 1996, compared to $12.0 million for the same period
ended December 31, 1995. All of the loans sold during 1996 were sold servicing
released.
Loans held for investment decreased from $106.4 million at December 31, 1995 to
$98.5 million as of December 31, 1996 due to an increase in principal payments
to $12.9 million, primarily on one to four residential loans and commercial real
estate loans.
Deposits decreased from $102.2 million as of December 31, 1995 to $98.5 million
as of December 31, 1996 primarily as a result of payments on maturing
certificates of deposit of $114.0 million offset by proceeds from issuance of
certificates of deposit of $109.5 million. During this period, the Bank's
pricing of deposits was conservative due to low consumer demand for loans.
FHLB advances decreased from $8.0 million as of December 31, 1995 to $6.0
million as of December 31, 1996 primarily due to the payment of a one year
advance maturing December 31, 1996.
Liquidity and Capital Resources
The Bank's primary sources of funds are deposits, principal and interest
payments on loans, and proceeds from the sale of loans. While maturities and
scheduled amortization of loans are predictable sources of funds, deposit flows
and mortgage prepayments are greatly influenced by general interest rates,
economic conditions, and competition. Beginning in 1994, the Bank began
originating loans for sale, and selling such loans in the secondary market
servicing released. The Bank has continued to maintain the required minimum
levels of liquid assets as defined by OTS regulations. This requirement, which
may be varied at the direction of the OTS depending upon economic conditions and
deposit flow, is based upon a percentage of deposits and short-term borrowings.
The required ratio is currently 5%. The Bank's average liquidity ratios were
9.86% and 5.98% for the nine months ended September 30, 1997 and 1996 and 6.17%
and 5.54% for the years ended December 31, 1996 and 1995 respectively. The
increase in average liquidity ratio for the nine months ended September 30, 1997
compared to September 30, 1996 was primarily due to a decrease in loans held for
sale during the first two quarters of 1997.
The Bank has other sources of liquidity in the event that a need for additional
funds arises. Additional sources of funds include FHLB advances and certificates
of deposit maturing within one year. Short-term borrowings from FHLB are used to
offset increases and decreases in loans held for sale. Long-term borrowings from
FHLB are used to fund loans held for investment when long term retail deposits
are not available or pricing is not favorable. The Bank believes that it has
sufficient liquidity and capital resources to meet all of its obligations.
The Bank's cash flows are comprised of three primary classifications: cash flows
from operating activities, investing activities and financing activities. Cash
flows provided by (used in) operating activities were ($849,000) and
($3,378,000) for the nine months ended September 30, 1997 and 1996,
respectively, and were $1,002,300 and ($4,657,000) for the years ended December
31, 1996 and 1995, respectively. Net cash provided by (used in) investing
activities consists primarily of disbursements from loan originations and
investments, offset by principal collection on loans and proceeds from the sale
of loans. Disbursements on loans originated were $7.5 million and $4.0 million
for the nine months ended September 30, 1997 and 1996, respectively, and $5.8
million and $5.9 million for the years ended December 31, 1996 and 1995,
respectively. Principal payments on loans were $7.5 million and $8.6 million for
the nine months ended September 30, 1997 and 1996, respectively, and $12.9
million and $8.2 million for the years ended December 31, 1996 and 1995,
respectively. Net cash provided by (used in) financing activities consisted
primarily of net activity in deposit accounts and FHLB advances. The net
increase in deposits was $1.9 million for the nine months ended September 30,
1997 a net decrease of $2.6 million for the nine months ended September 30,
1996, and $3.7 million and $1.9 million for the years ended December 31, 1996
and 1995, respectively. The net decrease in FHLB advances was $1.0 million and
$2.0 million for the nine months ended September 30, 1997 and year ended
December 31, 1996, respectively. The net increase in FHLB advances was $0.5
million and $3.0 million for the nine months ended September 30, 1996 and the
year ended December 31, 1995, respectively.
At September 30, 1997 and December 31, 1996, the Bank was "well capitalized"
under the prompt corrective action ("PCA") regulations adopted by the OTS
pursuant to the Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"). To be categorized as "well capitalized" the Bank must maintain
minimum core capital, Tier 1 risk-based capital, and risk-based capital ratios
as set forth in the table below.
The following table presents the Bank's regulatory capital position under both
FIRREA and FDICIA:
<TABLE>
<CAPTION>
Tier 1
Tangible Core Risk-based Risk-based
Capital Capital Capital Capital
------- ------- ---------- -----------
As of September 30, 1997 (Dollars in thousands)
<S> <C>
Actual capital
Amount $ 6,702 $ 6,702 $ 6,702 $ 7,303
Ratio 5.91% 5.91% 10.35% 11.28%
Minimum required capital (FIRREA)
Amount $ 1,700 $ 3,400 N/A N/A
Ratio 1.50% 3.00% N/A N/A
PCA "well capitalized" capital
Amount N/A $ 5,666 $ 3,886 $ 6,476
Ratio N/A 5.00% 6.00% 10.00%
As of December 31, 1996
Actual capital
Amount $ 6,361 $ 6,361 $ 6,361 $ 6,901
Ratio 5.69% 5.69% 10.00% 10.84%
Minimum required capital (FIRREA)
Amount $ 1,677 $ 3,355 N/A N/A
Ratio 1.50% 3.00% N/A N/A
PCA "well capitalized" capital
Amount N/A $ 5,592 $ 3,818 $ 6,363
Ratio N/A 5.00% 6.00% 10.00%
</TABLE>
<PAGE>
Asset Quality and Allowance for Loan Losses
At September 30, 1997, December 31, 1996 and 1995, respectively, non-accrual
loans totaled $804,000, $800,200 and $286,300. The Bank had no troubled debt
restructurings or accruing loans contractually past due 90 days or more for any
of the periods presented. Loans are generally placed on non-accrual when they
become contractually 90 days past due. Accrued interest on loans that are
contractually 90 days or more past due is reversed and charged against income.
Income is subsequently recognized only to the extent cash payments are received
and such loans are restored to an accrual status only if the borrower has
demonstrated the ability to make future payments of principal and interest. For
all periods presented there were no loans where known information about possible
credit problems causes management to have serious doubts as to the ability of
the borrowers to comply with the present loan repayment terms.
The activity in the allowance for loan losses is summarized as follows:
<TABLE>
<CAPTION>
Year Ended
Nine Months Ended December 31,
September 30, ---------------------------
1997 1996 1995
---- ---- ----
<S> <C>
Balance at beginning of period............ $540,000 $615,000 $574,000
Provision for loan losses................. 90,000 104,000 76,000
Charge-offs, net.......................... (28,900) (179,000) (35,000)
-------- --------- --------
Balance at end of period.................. $601,100 $540,000 $615,000
======== ======== ========
</TABLE>
The allowance for loan losses is allocated as follows:
<TABLE>
<CAPTION>
As of September 30, 1997
------------------------
% of Loans/ Allowance % of Allowance/
Total Loans Amount Total Allowance
----------- --------- ---------------
Loans secured by real estate
<S> <C>
Residential, 1-4 units....................... 72.53% $125,000 20.80%
Residential, 5+ units........................ 10.86% 180,000 29.95%
Commercial and industrial.................... 16.26% 189,600 31.54%
Other........................................ 0.35% 2,400 0.40%
Unallocated.................................. 0.00% 104,100 17.31%
----- -------- ------
Total loans secured by real estate... 100.00% $601,100 100.00%
======= ======= ======
<CAPTION>
As of December 31, 1996
-------------------------------------------------
% of Loans/ Allowance % of Allowance/
Total Loans Amount Total Allowance
----------- --------- ---------------
Loans secured by real estate
<S> <C>
Residential, 1-4 units....................... 73.79% $131,000 24.26%
Residential, 5+ units........................ 10.35% 233,000 43.15%
Commercial and industrial.................... 15.50% 167,000 30.93%
Other........................................ 0.36% 1,000 0.19%
Unallocated.................................. 0.00% 8,000 1.48%
----- --------- -------
Total loans secured by real estate... 100.00% $540,000 100.00%
======= ======= ======
<CAPTION>
As of December 31, 1995
------------------------
% of Loans/ Allowance % of Allowance/
Total Loans Amount Total Allowance
----------- --------- ----------------
Loans secured by real estate
<S> <C>
Residential, 1-4 units....................... 71.33% $120,000 19.51%
Residential, 5+ units........................ 10.33% 207,000 33.66%
Commercial and industrial.................... 17.88% 258,000 41.95%
Other........................................ 0.47% 2,000 0.32%
Unallocated.................................. 0.00% 28,000 4.56%
----- --------- -----
Total loans secured by real estate... 100.00% $615,000 100.00%
======= ======= ======
</TABLE>
The following ratios are indicative of trends in asset quality and the allowance
for loan losses for the periods indicated:
<TABLE>
<CAPTION>
As of As of
September 30, December 31,
---------------- --------------
1997 1996 1996 1995
----- ---- ---- ----
<S> <C>
Non-performing loans as a
percentage of total loans (1) 0.78% 1.00% 0.78% 0.26%
Non-performing assets as
a percentage of total assets (2) 1.07% 1.42% 1.13% 0.59%
Allowance for loan losses as
a percentage of total loans 0.58% 0.62% 0.53% 0.55%
Allowance for loan losses as
a percentage of non-performing loans 74.75% 63.41% 67.50% 215.03%
Allowance for losses as a percentage of
non-performing assets (3) 52.10% 39.12% 43.82% 89.26%
</TABLE>
(1) Non-performing loans consist of non-accrual loans. Total loans include loans
held for sale.
(2) Non-performing assets consist of non-performing loans and
REO.
(3) Allowance for losses includes valuation allowances on loans and REO.
Impact of Inflation and Changing Prices
The Financial Statements and Notes thereto presented herein 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 industrial companies,
nearly all of the assets and liabilities of the Bank are monetary in nature. As
a result, 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.
<PAGE>
ANNEX A
AMENDED AND RESTATED
AGREEMENT AND PLAN OF REORGANIZATION
among
CITY HOLDING COMPANY,
CITY ACQUISITION SUB, F.S.B.
and
DEL AMO SAVINGS BANK, F.S.B.
December 18, 1997
<PAGE>
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I General.................................................................................................2
1.1. Merger..............................................................................................2
1.2. Issuance of City Holding Common Stock and Payment of Cash...........................................2
1.3. Taking of Necessary Action..........................................................................2
ARTICLE II Effect of Transaction on Common Stock, Assets, Liabilities and Capitalization of City
Holding, Acquisition Sub and Del Amo.....................................................................2
2.1. Conversion of Stock, Exchange Ratio.................................................................2
2.2. Manner of Exchange..................................................................................4
2.3. Dissenting Shares...................................................................................5
2.4. Effects of Merger...................................................................................5
2.5. Withholding Taxes...................................................................................5
ARTICLE III Representations and Warranties........................................................................5
3.1. Representations and Warranties of Del Amo...........................................................5
(a) Organization, Standing and Power...........................................................5
(b) Capital Structure..........................................................................6
(c) Authority..................................................................................6
(d) Investments................................................................................6
(e) Financial Statements.......................................................................7
(f) Absence of Undisclosed Liabilities.........................................................7
(g) Tax Matters................................................................................7
(h) Options, Warrants and Related Matters......................................................8
(i) Property...................................................................................8
(j) Additional Schedules Furnished to City Holding.............................................9
(k) Agreements in Force and Effect............................................................10
(l) Legal Proceedings; Compliance with Laws...................................................10
(m) Employee Benefit Plans....................................................................10
(n) Insurance.................................................................................12
(o) Loan Portfolio............................................................................13
(p) Absence of Changes........................................................................13
(q) Brokers and Finders.......................................................................13
(r) Subsidiaries; Partnerships and Joint Ventures.............................................14
(s) Reports...................................................................................14
(t) Environmental Matters.....................................................................14
(u) Disclosure................................................................................15
(v) Accounting; Tax; Regulatory Matters.......................................................15
(w) Regulatory Approvals......................................................................15
3.2. Representations and Warranties of City Holding.....................................................15
(a) Organization, Standing and Power..........................................................15
(b) Capital Structure.........................................................................16
(c) Authority.................................................................................16
(d) Brokers and Finders.......................................................................16
(e) Reports...................................................................................16
(f) Disclosure................................................................................17
3.3. Representations and Warranties of Acquisition Sub..................................................17
(a) Organization Standing and Power...........................................................17
(b) Authority.................................................................................17
ARTICLE IV Conduct and Transactions Prior to Effective Time of the Merger.......................................18
4.1. Access to Records and Properties of City Holding, Acquisition Sub, and Del Amo.....................18
4.2. Registration Statement, Proxy Statement, Shareholder Approval......................................18
4.3. Operation of the Business of Del Amo...............................................................19
4.4. No Solicitation....................................................................................20
4.5. Dividends..........................................................................................20
4.6. Regulatory Filings; Best Efforts...................................................................20
4.7. Public Announcements...............................................................................20
4.8. Operating Synergies; Conformance to Reserve Policies, Etc..........................................20
4.9. Agreement as to Efforts to Consummate..............................................................21
4.10. Adverse Changes in Condition......................................................................21
4.11. Nasdaq National Market Listing....................................................................21
4.12. Updating of Schedules.............................................................................21
4.13. Transactions in City Holding Common Stock.........................................................22
ARTICLE V Conditions of Merger...................................................................................22
5.1. Conditions of Obligations of City Holding and Acquisition Sub......................................22
(a) Representations and Warranties; Performance of Obligations................................22
(b) Authorization of Transaction..............................................................22
(c) Opinion of Counsel........................................................................22
(d) The Registration Statement................................................................22
(e) Tax Opinion...............................................................................23
(f) Regulatory Approvals......................................................................23
(g) Affiliate Letters.........................................................................23
(h) Nasdaq National Market Listing............................................................23
(i) Acceptance by City Holding and Acquisition Sub Counsel....................................23
5.2. Conditions of Obligations of Del Amo...............................................................23
(a) Representations and Warranties; Performance of Obligations................................24
(b) Authorization of Transaction..............................................................24
(c) Opinion of Counsel........................................................................24
(d) The Registration Statement................................................................24
(e) Regulatory Approvals......................................................................24
(f) Tax Opinion...............................................................................24
(g) Nasdaq National Market Listing............................................................25
(h) Acceptance by Del Amo's Counsel...........................................................25
ARTICLE VI Closing Date; Effective Time..........................................................................26
6.1. Closing Date.......................................................................................26
6.2. Filings at Closing.................................................................................26
6.3. Effective Time.....................................................................................26
ARTICLE VII Termination; Waiver and Amendment....................................................................26
7.1. Termination........................................................................................26
7.2. Effect of Termination..............................................................................28
7.3. Waiver and Amendment...............................................................................28
ARTICLE VIII Additional Covenants...............................................................................28
8.1. Indemnification of Del Amo Officers and Directors; Liability Insurance.............................28
8.2. Employee Benefit Matters...........................................................................29
(a) Plan Participation........................................................................29
(b) Cooperation...............................................................................29
8.3. Accounting.........................................................................................29
ARTICLE IX Miscellaneous.........................................................................................29
9.1. Expenses...........................................................................................29
9.2. Entire Agreement...................................................................................30
9.3. Descriptive Headings...............................................................................30
9.4. Notices............................................................................................30
9.5. Counterparts.......................................................................................31
9.6. Governing Law......................................................................................31
Exhibit A - Plan of Merger
Exhibit B - Form of Optionee Irrevocable Letter of Instruction
Exhibit C - Opinion of Adams, McAndrews, Matson & Landsberg, counsel to Del Amo and Savings
Bank
Exhibit D - Opinion of Hunton & Williams, counsel to City Holding and City Holding Bank
Exhibit E - Form of Affiliate's Undertaking
</TABLE>
<PAGE>
INDEX TO SCHEDULES
<TABLE>
<CAPTION>
Section in
Schedule Description Agreement
------------ --------------- --------------
<S> <C>
A-1 Securities Owned by Del Amo 3.1(d)
A-2 Del Amo Financial Statements 3.1(e)
B Del Amo Taxes Being Contested, etc. 3.1(g)
C Salary Rates, Del Amo Common Stock Held by Certain Employees and 3.1(h); 3.1(j)(1)
Directors of Del Amo, Options and Restricted Stock Awards
D Notes, Bonds, Mortgages, Indentures, Licenses, Lease Agreements 3.1(j)(2)
and Other Contracts of Del Amo
E Employment Contracts and Related Matters of Del Amo 3.1(j)(3);
3.1(m)(1);
3.1(m)(7); 3.1(m)(8);
3.1(m)(9)
F Real Estate Owned or Leased by Del Amo 3.1(j)(4)
G Affiliates of Del Amo 3.1(j)(5); 5.1(g)
H Legal Proceedings of Del Amo 3.1(1)
I Insurance of Del Amo 3.1(n)
J Del Amo Loans 3.1(o)
K Certain Changes 3.1(p)
L Environmental Matters 3.1(t)
N Del Amo Subsidiaries and Joint Ventures 3.1(r)
</TABLE>
<PAGE>
AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION
This Amended and Restated Agreement and Plan of Reorganization (the "Agreement")
dated as of December 18, 1997 among CITY HOLDING COMPANY, a West Virginia
corporation ("City Holding"), CITY ACQUISITION SUB, F.S.B. (in organization), a
federal savings bank and a wholly-owned subsidiary of City Holding ("Acquisition
Sub") and DEL AMO SAVINGS BANK, F.S.B., a federal savings bank ("Del Amo"),
recites and provides:
A. The boards of directors of City Holding and Del Amo deem it advisable to
merge Acquisition Sub into Del Amo (the "Merger") pursuant to this Agreement and
the Plan of Merger attached as Exhibit A (the "Plan of Merger"), whereby the
holders of shares of Common Stock of Del Amo ("Del Amo Common Stock") will
receive Common Stock of City Holding ("City Holding Common Stock").
B. To effectuate the foregoing, the parties desire to adopt this Agreement and
the Plan of Merger, which shall represent a plan of reorganization in accordance
with the provisions of Section 368(a) of the United States Internal Revenue
Code, as amended (the "Code").
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 Sub, and Del Amo hereby adopt this
Agreement whereby at the "Effective Time of the Merger" (as defined in Article
VI hereof) Acquisition Sub shall be merged with and into Del Amo (which will be
the Surviving Bank, as defined in Section 1.1) in accordance with the Plan of
Merger. The outstanding shares of Del Amo Common Stock shall be converted into
shares of City Holding Common Stock as provided in this Agreement on the basis,
terms and conditions contained herein and in the Plan of Merger as set forth as
Exhibit A hereto.
In connection therewith, the parties hereto agree as follows:
ARTICLE I
General
1.1. Merger. Subject to the provisions of this Agreement and
the Plan of Merger, at the Effective Time of the Merger the
separate existence of Acquisition Sub shall cease and
Acquisition Sub shall be merged with and into Del Amo (the
"Surviving Bank").
1.2. Issuance of City Holding Common Stock. City Holding
agrees that at the Effective Time of the Merger (as defined in
Section 6.3 hereof) 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. In case at any time after the
Effective Time of the Merger any further action is necessary
or desirable to carry out the purposes of this Agreement and
to vest the Surviving Bank with full title to all properties,
assets, rights, approvals, immunities and franchises of Del
Amo, the officers and directors of the Surviving Bank shall
take all such necessary action.
ARTICLE II
Effect of Transaction on Common Stock, Assets,
Liabilities and Capitalization of City Holding,
Acquisition Sub and Del Amo
2.1. Conversion of Stock, Exchange Ratio.
1. Conversion of Stock. At the Effective Time of the
Merger, each share of Del Amo Common Stock
outstanding immediately prior to the Effective Time
of the Merger (other than shares of Del Amo Common
Stock held by City Holding, if any, which shares
shall be canceled), by virtue of the Merger and
without any action on the part of the holders
thereof, shall be converted into that number of
shares of City Holding Common Stock equal to the
product of one multiplied by the Exchange Ratio (as
defined herein). As used herein:
a) "Exchange Ratio" shall mean the quotient of
(x) the sum of (A) the product of 1.55 times
the Net Book Value Per Share (as defined
herein) plus (B) the per share pro rata
amount of Del Amo's out-of-pocket
accountable fees, costs and expenses
associated with the Merger (up to a maximum
in the aggregate of $200,000 and only to the
extent such costs have not been capitalized)
(the "Merger Expenses") divided by (y) the
Fair Market Value Per City Holding Share (as
defined herein);
b) "Net Book Value Per Share" shall mean the
net book value of Del Amo at the Measurement
Date (as defined herein) divided by the
total number of shares of Del Amo Common
Stock outstanding immediately prior to the
Effective Time of the Merger;
c) "Fair Market Value Per City Holding
Share" shall mean the average closing
price of a share of City Holding Common
Stock as reported on the Nasdaq National
Market for the twenty trading days prior
to the Measurement Date; provided, that
(A) if the Fair Market Value Per City
Holding Share as determined in the clause
immediately preceding this proviso is
less than $32.00 and greater than or equal
to $30.00, the Fair Market Value Per City
Holding Share shall equal $32.00, (B)
if the Fair Market Value Per City Holding
Share as determined in the clause
immediately preceding this proviso is
greater than $43.00 and less than or equal
to $48.00, the Fair Market Value Per City
Holding Share shall equal $43.00, or (C) if
the Fair Market Value Per City Holding Share
as determined in the clause immediately
preceding this proviso is greater than
$48.00 or less than $30.00, Del Amo and
City Holding may terminate this Agreement in
accordance with Section 7.1; and
d) "Measurement Date" shall mean the last day
of the month immediately preceding the
Closing Date, as defined in Section 6.1.
The Exchange Ratio at the Effective Time of the
Merger shall be proportionately adjusted to reflect any
consolidation, split-up, stock dividend, subdivision or
combination of City Holding Common Stock subsequent to the
date of this Agreement.
2. At the Effective Time of the Merger, but after the
conversion contemplated in Section 2.1(a) above, each
share of Acquisition Sub common stock outstanding
immediately prior to the Effective Time of the
Merger, by virtue of the Merger and without any
action on the part of the holders thereof, shall be
converted into one share of Del Amo Common Stock.
3. Notwithstanding any other term or provision
hereof, no fraction of a share of City Holding
Common Stock, and no certificates or scrip
therefor or other evidence of ownership thereof,
will be issued in connection with the conversion of
Del Amo Common Stock in the Merger, and no right to
receive cash in lieu thereof shall entitle the
holders thereof to any voting or other rights of
a holder of shares or fractional share interests
of City Holding. In lieu of such fractional
shares, any holder of shares who would otherwise be
entitled to fractional shares of City Holding
Common Stock will, upon surrender of a certificate or
certificates representing shares of Del Amo Common
Stock outstanding immediately prior to the
Effective Time of the Merger, be paid the cash value
of each such fraction, computed on the basis of
the Fair Market Value Per City Holding Share.
4. Prior to the Effective Time of the Merger, the Plan
of Merger shall terminate and be abandoned upon a
termination of the Agreement, notwithstanding
approval of the Plan of Merger by the shareholders of
Del Amo.
2.2. Manner of Exchange.
1. After the Effective Time of the Merger, each holder
of a certificate for theretofore outstanding shares
of Del Amo Common Stock, upon surrender of such
certificate to the agent appointed by City Holding
to administer the exchange of certificates (the
"Exchange Agent"), accompanied by a letter of
transmittal in the form furnished by City Holding and
the Exchange Agent (the "Letter of Transmittal"),
shall be entitled to receive in exchange therefor
the number of full shares of City Holding Common
Stock into which shares of Del Amo Common Stock
shall be converted pursuant to Section 2.1
hereof. Until so surrendered, each
outstanding certificate which, prior to the
Effective Time of the Merger, represented Del Amo
Common Stock will be deemed to evidence the right
to receive the number of full shares of City Holding
Common Stock into which the shares of Del Amo Common
Stock represented thereby may be converted in
accordance with the Exchange Ratio, and, after
the Effective Time of the 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 Del Amo Common Stock represented thereby were
converted.
2. Until outstanding certificates formerly
representing Del Amo Common Stock are
surrendered in exchange for City Holding Common
Stock, 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
Merger shall be paid to the holder of such
outstanding certificates in respect thereof. After
the Effective Time of the Merger, there shall be no
further registry of transfer on the records of
Del Amo of shares of Del Amo Common Stock. If a
certificate representing such shares is presented
to Del Amo or City Holding, it shall be canceled and
exchanged for a certificate representing shares of
City Holding Common Stock as herein provided. Upon
surrender of certificates of Del Amo 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 therefor (i) the amount of dividends
theretofore paid for such full shares of City
Holding Common Stock as of any date subsequent to
the Effective Time of the 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 prior to surrender and a payment date
subsequent to surrender. No interest shall be
payable on such dividends upon surrender of
outstanding certificates.
3. At the Effective Time of the Merger, each share of
Del Amo Common Stock held by City Holding, if any,
shall be canceled, retired and cease to exist.
4. At the Effective Time of the Merger and as provided
in the Plan of Merger, each Del Amo Option (as
defined in Section 3.1(j)(1) hereof), which is
identified on Schedule C, shall be canceled as
provided in the underlying option agreement.
Notwithstanding the foregoing, if Del Amo shall
receive an irrevocable letter of instruction from
an option holder in the form attached hereto as
Exhibit B prior to the meeting of the shareholders
of Del Amo required by Section 4.2, then the Del
Amo Options listed in such letter shall be
converted, at the election of the holder thereof,
into either (i) an option to acquire that number of
shares of City Holding Common Stock equal to the
product of (A) the number of shares of Del Amo
Common Stock subject to such option immediately
prior to the Effective Time multiplied by (B) the
Exchange Ratio, at an exercise price per share
equal to the Del Amo Exercise Price (as defined
herein) divided by the Exchange Ratio, or (ii) the
right to receive, upon surrender of such option to
the Exchange Agent accompanied by a Letter of
Transmittal, with respect to each share of Del Amo
Common Stock subject to such option, the number
of full shares of City Holding Common Stock equal
to the quotient of (A) the Option Spread (as
defined below) divided by (B) the Fair Market
Value Per City Holding Share. As used herein, "Del
Amo Exercise Price" shall mean the exercise price
of the respective Del Amo Option immediately prior
to the Effective Time of the Merger as identified
on Schedule C. As used herein, the "Option
Spread" shall be equal to the difference between
(i) the sum of (A) the product of the Net Book Value
Per Share multiplied by 1.55 plus (B) the Merger
Expenses Per Share (as defined herein) and (ii) the
exercise price per share pursuant to such option. As
used herein, "Merger Expenses Per Share" shall be
equal to the Merger Expenses divided by the total
number of shares of Del Amo Common Stock outstanding
immediately prior to the Effective Time of the
Merger.
2.3. Dissenting Shares. Notwithstanding anything in this
Agreement to the contrary, shares of Del Amo Common Stock
which are issued and outstanding immediately prior to the
Effective Time of the 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 Del Amo Common Stock pursuant to 12
C.F.R.ss. 552.14 (the "Dissenting Shares") shall not be
converted into or be exchangeable for the right to
receive the consideration provided in Section 2.1 of this
Agreement, unless and until such holder shall fail to
perfect his or her right to dissent or shall have
effectively withdrawn or lost such right under 12 C.F.R.
ss. 552.14, as the case may be. If such holder shall have
so failed to perfect his right to dissent or shall have
effectively withdrawn or lost such right, each of his
shares of Del Amo Common Stock shall thereupon be deemed to
have been converted into, at the Effective Time of the
Merger, the right to receive that number of shares of City
Holding Common Stock equal to the product of one multiplied
by the Exchange Ratio.
2.4. Effects of Merger. The Merger shall have the
effects set forth in 12 C.F.R. ss. 552.13. As of the
Effective Time of the Merger, Del Amo shall be a wholly-owned
subsidiary of City Holding.
2.5. Withholding Taxes. All payments to be made
pursuant to this Agreement shall be made less all applicable
withholding taxes.
ARTICLE III
Representations and Warranties
3.1. Representations and Warranties of Del Amo. Del
Amo represents and warrants to City Holding and Acquisition
Sub as follows:
1. Organization, Standing and Power. Del Amo is a
federal savings bank duly organized, validly
existing and in good standing under the laws of the
United States and has all requisite corporate power
and authority to own, lease and operate its
properties and to carry on its business as now being
conducted and to perform this Agreement and the
Plan of Merger and to effect the transactions
contemplated hereby and thereby. Del Amo's
deposits are insured by the Federal Deposit
Insurance Corporation (the "FDIC") to the maximum
extent permitted by law. Del Amo has delivered
to City Holding complete and correct copies of (i)
its Charter and (ii) its By-laws.
2. Capital Structure. The authorized capital stock of
Del Amo consists entirely of 800,000 shares of Del
Amo Common Stock, par value $2.50. On the date
hereof, 533,163 shares of Del Amo Common Stock were
outstanding. All of the outstanding shares of Del Amo
Common Stock were validly issued and are fully paid
and nonassessable.
Except as disclosed on Schedule C, Del Amo knows of
no person who beneficially owns 5% or more of the
outstanding Del Amo Common Stock as of the date
hereof.
3. Authority. Subject to the approval of this
Agreement and the Plan of Merger by the shareholders
of Del Amo as contemplated by Section 4.2, 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 Del Amo, and this Agreement is a valid
and binding obligation of Del Amo, enforceable in
accordance with its terms, except as
enforceability may be limited by laws affecting the
enforcement of creditors' rights generally and
subject to any equitable principles limiting the
right to obtain specific performance. The execution
and delivery of this Agreement, the consummation
of the transactions contemplated hereby and by the
Plan of Merger and compliance by Del Amo with any
of the provisions hereof or thereof will not (i)
conflict with or result in a breach of any provision
of its Charter or By-laws or a default (or give
rise to any right of termination, cancellation or
acceleration) under any of the terms, conditions or
provisions of any note, bond, debenture, mortgage,
indenture, license, material agreement or other
material instrument or obligation to which Del Amo
is a party, or by which it or any of its properties
or assets may be bound, or (ii) violate any order,
writ, injunction, decree, statute, rule or
regulation applicable to Del Amo or any of its
properties or assets. No consent or approval by any
governmental authority, other than compliance with
applicable federal and state securities and banking
laws, and regulations of the Board of Governors of
the Federal Reserve System (the "Federal Reserve
Board"), the FDIC and the Office of Thrift
Supervision ("OTS"), is required in connection with
the execution and delivery by Del Amo of this
Agreement or the consummation by Del Amo of the
transactions contemplated hereby or by the Plan of
Merger.
4. Investments. All securities owned by Del Amo 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 Del Amo
freely to dispose of any such security at any
time, except as noted on Schedule A-1. Any
securities owned of record by Del Amo in an amount
equal to 5% or more of the issued and outstanding
voting securities of the issuer thereof have
been noted on such Schedule A-1. There are no voting
trusts or other agreements or undertakings of
which Del Amo is a party with respect to the voting
of such securities. With respect to all repurchase
agreements to which Del Amo is a party, Del Amo
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.
5. Financial Statements. Schedule A-2 contains
copies of the following financial statements of
Del Amo (the "Del Amo Financial Statements"):
a) Statements of Financial Condition as of
September 30, 1997 (unaudited), and
December 31, 1996 and 1995 (audited);
b) Statements of Operations for each of the
three years in the period ended December 31,
1996 (audited) and the three months and nine
months ended September 30, 1997 (unaudited);
c) Statements of Changes in Stockholders'
Equity for each of the three years in the
period ended December 31, 1996 (audited) and
the nine months ended September 30, 1997
(unaudited); and
d) Statements of Cash Flows for each of the
three years in the period ended December 31,
1996 (audited) and the nine months ended
September 30, 1997 (unaudited).
Such financial statements and the notes thereto have
been prepared in accordance with generally accepted
accounting principles ("GAAP") applied on a
consistent basis throughout the periods indicated
unless otherwise noted in the Del Amo Financial
Statements and are consistent with the books and
records of Del Amo. 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 Del Amo. The
statements of operations, changes in stockholders'
equity and cash flows, together with the notes
thereto, present fairly the results of operations,
changes in stockholders' equity and cash flows of Del
Amo for the periods indicated.
Except as disclosed in the Del Amo Financial
Statements and as per compliance with and subject to
the requirements of 12 C.F.R. ss. 563.134, there are
no restrictions precluding Del Amo from paying
dividends when, as and if declared by their
respective Boards of Directors.
6. Absence of Undisclosed Liabilities. At December 31,
1996 and September 30, 1997, Del Amo had no material
obligations or liabilities (contingent or otherwise)
of any nature which were not reflected in the Del Amo
Financial Statements, except for those which are
disclosed (including an estimate of the amount of any
such liability) in Schedules specifically referred to
herein.
7. Tax Matters. Del Amo has filed or caused to be
filed or (in the case of returns or reports not yet
due) will file all tax returns and reports required
to have been filed by it before the Effective Time
of the 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. Del Amo has
paid or made adequate provision for, or (with
respect to returns or reports not yet filed)
before the Effective Time of the Merger will pay
or make adequate provision for, all taxes,
additions to tax, penalties, and interest for all
periods covered by those returns or reports. There
are, and at the Effective Time of the Merger will
be, no unpaid taxes, additions to tax, penalties,
or interest due and payable by Del Amo that are or
could become a lien on any asset, or otherwise
materially adversely affect the business, property
or financial condition of Del Amo, except for
taxes and any such related liability being
contested in good faith and disclosed in
Schedule B. Del Amo has collected or withheld, or
will collect or withhold before the Effective Time
of the 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 Merger will have been, paid to the
appropriate governmental agencies or set aside in
appropriate accounts for future payment when due.
Del Amo is in material compliance with, and its
records contain all information and documents
(including, without limitation, properly
completed IRS Forms W-9) necessary to comply in
all material respects with, all applicable
information reporting and tax withholding
requirements under federal, state, and local
laws, rules, and regulations, and such records
identify with specificity all accounts subject to
backup withholding under Section 3406 of the
Code. The statements of financial condition
contained in the Del Amo Financial Statements
fully and properly reflect, as of the dates
thereof, the aggregate liabilities of Del Amo for
all accrued taxes, additions to tax, penalties and
interest in accordance with GAAP. The books and
records of Del Amo fully and properly reflect any
liability for all accrued taxes, additions to
tax, penalties and interest in accordance with
GAAP. Except as disclosed in Schedule B, Del Amo
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 in writing
against or with respect to Del Amo by any taxing
authority. Del Amo has not made or entered into,
and does not hold any asset subject to, a consent
filed pursuant to Section 341(f) of the Code and
the regulations thereunder or a "safe harbor
lease" subject to former Section 168(f)(8) of
the Code and the regulations thereunder. Schedule B
describes all tax elections, consents and agreements
affecting Del Amo. To the best knowledge of Del
Amo, no Del Amo shareholder is a "foreign person"
for purposes of Section 1445 of the Code.
8. Options, Warrants and Related Matters. There are no
outstanding unexercised options, warrants, calls,
commitments or agreements of any character to which
Del Amo is a party or by which it is bound, calling
for the issuance of securities of Del Amo or any
security representing the right to purchase or
otherwise receive any such security, except as set
forth on Schedule C.
9. Property. Del Amo owns (or enjoys use of under
capital or operating leases) all property
reflected on the Del Amo Financial Statements as
of September 30, 1997 (except property sold or
otherwise disposed of in the ordinary course of
business). All property shown as being owned is
owned free and clear of all mortgages, liens,
pledges, charges or encumbrances of any nature
whatsoever, except those referred to in such Del Amo
Financial Statements or the notes thereto, liens
for current taxes not yet due and payable, any
unfiled mechanics' liens and such encumbrances
and imperfections of title, if any, as are not
substantial in character or amount or otherwise
materially impair the use of the subject property.
The leases relating to leased property are fairly
reflected in such Del Amo Financial Statements.
All property and assets material to the business or
operations of Del Amo are in substantially good
operating condition and repair and such property and
assets are adequate for the business and operations
of Del Amo as currently conducted.
10. Additional Schedules Furnished to City Holding. In
addition to any Schedules furnished to City Holding
pursuant to other provisions of this Agreement, Del
Amo has furnished to City Holding the following
Schedules which are correct and complete as of the
date hereof:
(1) Employees. Schedule C lists as of
the date hereof (A) the names of and
current annual salary rates for all
present employees of Del Amo who
received, respectively, $50,000 or
more in aggregate compensation,
whether in salary or otherwise as
reported or would be reported on
Form W-2, during the year ended
December 31, 1996, or are presently
scheduled to receive salary in
excess of $50,000 during the year
ending December 31, 1997; (B) the
number of shares of Del Amo Common
Stock owned beneficially by each
director and five highest
compensated officers of Del Amo as
of the date hereof, (C) the names of
and the number of shares of Del Amo
Common Stock owned by each person
known to Del Amo who beneficially
owns 5% or more of the outstanding
Del Amo Common Stock as of the date
hereof, and (D) the names of, the
number of outstanding options of,
and the exercise price of, each
agreement to make stock awards
granted to each person under the
1990 Stock Option Plan or any option
granted to a director of Del Amo
(collectively, "Del Amo Options")
and the exercise price of each such
Del Amo Option.
(2) Certain Contracts. Schedule D lists
all notes, bonds, mortgages,
indentures, licenses, lease
agreements and other contracts and
obligations to which Del Amo is an
indebted party or a lessee, licensee
or obligee as of the date hereof
except for those entered into by Del
Amo in the ordinary course of its
business consistent with its prior
practice and that do not involve an
amount remaining greater than
$50,000.
(3) Employment Contracts and Related
Matters. Except in all cases as set
forth on Schedule E, Del Amo is not
a party to any employment contract
not terminable at the option of Del
Amo without liability. Except in all
cases as set forth on Schedule E,
Del Amo is not a party to (A) any
retirement, profit sharing or
pension plan or thrift plan or
agreement or employee benefit plan
(as defined in Section 3 of the
Employee Retirement Income Security
Act of 1974 ("ERISA")), (B) any
management or consulting agreement
not terminable at the option of Del
Amo without liability or (C) any
union or labor agreement.
(4) Real Estate. Schedule F describes,
as of the date hereof, all interests
in real property owned, leased or
otherwise claimed by Del Amo.
(5) Affiliates. Schedule G sets forth
the names and number of shares of
Del Amo Common Stock owned as of the
date hereof beneficially or of
record by any persons Del Amo
considers to be affiliates of Del
Amo ("Del Amo Affiliates") as that
term is defined for purposes of Rule
145 under the Securities Act of
1933, as amended (the "1933 Act").
11. Agreements in Force and Effect. All contracts,
agreements, plans, leases, policies and licenses
referred to in any Schedule of Del Amo referred to
herein are valid and in full force and effect, and
Del Amo has not breached any provision of, nor is in
default in any respect under the terms of, any such
contract, agreement, lease, policy or license, the
effect of which breach or default would have a
material adverse effect upon either the financial
condition, results of operations, or business of Del
Amo.
12. Legal Proceedings; Compliance with Laws.
Schedule H describes all legal, administrative,
arbitration or other proceeding or governmental
investigation known to Del Amo pending or, to the
knowledge of Del Amo's management, threatened or
probable of assertion against Del Amo. Except as
set forth on Schedule H, no such proceeding or
investigation, if decided adversely, would have a
material adverse effect on either the financial
condition, results of operations or business
of Del Amo on a consolidated basis. Except as
set forth in Schedule H, Del Amo has complied in
all material respects with any laws, ordinances,
requirements, regulations or orders applicable to
its business. Del Amo has all licenses, permits,
orders or approvals (collectively, the "Permits") of
any federal, state, local or foreign governmental
or regulatory body that are necessary for the
conduct of its business; the Permits are in full
force and effect; no violations are or have been
recorded in respect of any Permits nor has Del Amo
received written notice of any violations; and no
proceeding is pending or, to the knowledge of Del
Amo, threatened to revoke or limit any Permit.
Except as set forth in Schedule H, Del Amo has not
entered into any agreements or written
understandings with the Federal Reserve Board, the
OTS, the FDIC or any other regulatory agency having
authority over it. Del Amo is not subject to any
judgment, order, writ, injunction or decree which
materially adversely affects, or might reasonably
be expected materially adversely to affect either
the financial condition, results of operations, or
business of Del Amo on a consolidated basis.
13. Employee Benefit Plans.
(1) Schedule E includes a correct and
complete list of, and City Holding
has been furnished a true and
correct copy of (or an accurate
written description thereof in the
case of oral agreements or
arrangements) (A) all qualified
pension and profit-sharing plans,
all deferred compensation,
consultant, severance, thrift,
option, bonus and group insurance
contracts and all other incentive,
welfare and employee benefit plans,
trust, annuity or other funding
agreements, and all other agreements
(including oral agreements) that are
presently in effect, or have been
approved prior to the date hereof,
maintained for the benefit of
employees or former employees of Del
Amo or the dependents or
beneficiaries of any employee or
former employee of Del Amo, 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 Employee
Plan that is intended to be
qualified under Section 401(c) of
the Code. Schedule E identifies each
Employee Plan that is intended to be
qualified under Section 401(a) of
the Code and each such plan is
qualified.
(2) Neither Del Amo nor any employee
pension benefit plan (as defined in
Section 3(2) of ERISA (a "Pension
Plan")) maintained or previously
maintained by it, has incurred any
material liability to the Pension
Benefit Guaranty Corporation
("PBGC") or to the Internal Revenue
Service with respect to any Pension
Plan. There is not currently pending
with the PBGC any filing with
respect to any reportable event
under Section 4043 of ERISA nor has
any reportable event occurred as to
which a filing is required and has
not been made.
(3) Full payment has been made (or
proper accruals have been
established) of all contributions
which are required for periods prior
to the Closing Date, as defined in
Section 6.1 hereof, under the terms
of each Employee Plan, ERISA, or a
collective bargaining agreement, no
accumulated funding deficiency (as
defined in Section 302 of ERISA or
Section 412 of the Code) whether or
not waived, exists with respect to
any Pension Plan (including any
Pension Plan previously maintained
by Del Amo), and except as set forth
on Schedule E, there is no "unfunded
current liability" (as defined in
Section 412 of the Code) with
respect to any Pension Plan.
(4) No Employee Plan is a "multiemployer
plan" (as defined in Section 3(37)
of ERISA). Del Amo has not incurred
any liability under Section 4201 of
ERISA for a complete or partial
withdrawal from a multi-employer
plan (as defined in Section 3(37) of
ERISA). Del Amo has not participated
in or agreed to participate in, a
multiemployer plan (as defined in
Section 3(37) of ERISA).
(5) All Employee Plans that are
"employee benefit plans," as defined
in Section 3(3) of ERISA, that are
maintained by Del Amo or previously
maintained by Del Amo comply and
have been administered in compliance
in all material respects with ERISA
and all other applicable legal
requirements, including the terms of
such plans, collective bargaining
agreements and securities laws. Del
Amo does not have any material
liability under any such plan that
is not reflected in the Del Amo
Financial Statements or on Schedule
E hereto.
(6) Except as set forth on Schedule E,
no prohibited transaction has
occurred with respect to any
Employee Plan that is an "employee
benefit plan" (as defined in Section
3(3) of ERISA) maintained by Del Amo
or previously maintained by Del Amo
that would result, directly or
indirectly, in material liability
under ERISA or in the imposition of
a material excise tax under Section
4975 of the Code.
(7) Schedule E identifies each Employee
Plan that is an "employee welfare
benefit plan" (as defined in Section
3(1) of ERISA) and its funding
status, whether through insurance, a
trust, or from an employee's general
assets. The funding under each such
plan does not exceed the limitations
under Section 419A(b) or 419A(c) of
the Code. Del Amo is not subject to
taxation on the income of any such
plan or any such plan previously
maintained by Del Amo.
(8) Schedule E identifies the method of
funding (including any individual
accounting) for all post-retirement
medical or life insurance benefits
for the employees of Del Amo.
Schedule E also discloses the funded
status of these Employee Plans.
(9) Schedule E identifies each corporate
owned life insurance policy,
including any key man insurance
policy and policy insuring the life
of any director or employee of Del
Amo, and indicates for each such
policy, the face amount of coverage,
cash surrender value, if any, and
annual premiums.
(10) No trade or business is, or has ever
been, treated as a single employer
with Del Amo for employee benefit
purposes under ERISA and the Code.
14. Insurance. All policies or binders of fire,
liability, product liability, workmen's
compensation, vehicular and other insurance held
by or on behalf of Del Amo are described on
Schedule I and are valid and enforceable in
accordance with their terms, are in full force and
effect, and insure against risks and liabilities
to the extent and in the manner customary for the
industry and are deemed appropriate and sufficient
by Del Amo. Del Amo 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. Del Amo has not received
notice of cancellation or non-renewal of any such
policy or binder. Del Amo has no knowledge of any
inaccuracy in any application for such policies or
binders, any failure to pay premiums when due or
any similar facts that might form the basis for
termination of any such insurance. Del Amo has no
knowledge of any facts or of the occurrence of any
event that is reasonably likely to form the basis
for any material claim against it not fully
covered (except to the extent of any applicable
deductible) by the policies or binders referred to
above. Del Amo has not received notice from
any of its insurance carriers that any insurance
premiums will be materially increased in the
future or that any such insurance coverage will
not be available in the future on substantially
the same terms as now in effect.
15. Loan Portfolio. Each loan outstanding on the
books of Del Amo is in all respects what it purports
to be, was made in the ordinary course of business,
was not known to be uncollectible at the time it
was made, accrues interest (except for loans
recorded on Del Amo's books as non-accrual) in
accordance with the terms of the loan, and with
respect to loans originated by Del Amo was made in
accordance with Del Amo's standard loan policies
as in effect at the time the loan was negotiated,
except for loans to facilitate the sale of other
real estate owned ("OREO") or loans with
renegotiated terms and conditions. The records of
Del Amo regarding all loans outstanding and OREO by
Del Amo on its books are accurate in all
material respects and the risk classifications
for the loans outstanding are, in the best judgment
of the management of Del Amo, appropriate. The
reserves for possible loan losses on the
outstanding loans of Del Amo, as reflected in
the Del Amo Financial Statements, have been
established in accordance with generally accepted
accounting principles and with the requirements of
the OTS and the FDIC. In the best judgment of the
management of Del Amo, such reserves are adequate
as of the date hereof and will be adequate as of the
Effective Time of the Merger to absorb all known
and anticipated loan losses in the loan portfolio
of Del Amo. Except as identified on Schedule J, no
loans in excess of $100,000 individually or in
the aggregate have been classified by
examiners (regulatory or internal) as "Special
Mention," "Substandard," "Doubtful," or "Loss."
Except as disclosed on Schedule F, the OREO included
in any nonperforming asset of Del Amo is recorded
at the lower of cost or fair value less estimated
costs to sell based on independent appraisals that
comply with the requirements of the Financial
Institutions Reform, Recovery and Enforcement
Act of 1989 and Uniform Standards of Professional
Appraisal Practice. Except as identified on
Schedule J, to the best knowledge of the management
of Del Amo, each loan reflected as an asset on the
Del Amo Financial Statements is the legal, valid
and binding obligation of the obligor and any
guarantor, subject to bankruptcy, insolvency,
fraudulent conveyance and other laws of general
applicability relating to or affecting creditors'
rights and to general principles of equity, and
no defense, offset or counterclaim has been
asserted with respect to any such loan, which if
successful would have a material adverse effect on
the financial condition, results of operation or
business of Del Amo.
16. Absence of Changes. Except as identified on
Schedule K, since September 30, 1997, there has
not been any material adverse change in the
aggregate assets or liabilities, earnings or
business of Del Amo, other than changes resulting
from or attributable to (i) changes since such
date in laws or regulations, generally accepted
accounting principles or administrative
interpretations of any thereof that affect the
banking or savings and loan industries generally,
(ii) changes since such date in the general level
of interest rates, (iii) accruals and reserves
incurred or to be incurred by Del Amo since such date
pursuant to the terms of Section 4.8 hereof, or
(iv) any other accruals, reserves or expenses
incurred or to be incurred by Del Amo since such date
with City Holding's prior written consent. Since
September 30, 1997, the business of Del Amo has been
conducted only in the ordinary course.
17. Brokers and Finders. Neither Del Amo 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 transactions contemplated herein,
except that Del Amo has employed Hovde Financial,
Inc., and has paid or accrued all amounts due such
advisor in connection with services rendered.
18. Subsidiaries; Partnerships and Joint Ventures. Del
Amo has no subsidiaries and does not own any
interest in any partnership or joint venture.
19. Reports. Del Amo has filed all material reports
and statements, together with any amendments
required to be made with respect thereto, that
were required to be filed with (i) the Federal
Reserve Board, (ii) the FDIC, (iii) the OTS, and
(iv) any other governmental or regulatory authority
or agency having jurisdiction over their
operations. No such report or statement, or any
amendments thereto, contains any statement which,
at the time and in light of the circumstances
under which it was made, was false or misleading
with respect to any material fact necessary in order
to make the statements contained therein not
false or misleading. Del Amo is not required to
file reports under Section 12(g) or 15(d) of the
Securities Exchange Act of 1934, as amended (the
"1934 Act") and the regulations of the SEC.
20. Environmental Matters. For purposes of this
subsection, the following terms shall have the
indicated meaning:
"Environmental Law" means any federal, state or local
law, statute, ordinance, rule, regulation, code,
license, permit, authorization, approval, consent,
order, judgment, decree, injunction or agreement with
any governmental entity relating to (i) the
protection, preservation or restoration of the
environment (including, without limitation, air,
water vapor, surface water, groundwater, drinking
water supply, surface soil, subsurface soil, plant
and animal life or any other natural resource),
and/or (ii) the use, storage, recycling, treatment,
generation, transportation, processing, handling,
labeling, production, release or disposal of
Hazardous Substances. The term "Environmental Law"
includes without limitation (i) the Comprehensive
Environmental Response, Compensation and Liability
Act, as amended, 42 U.S.C. Section 9601, et seq; the
Resource Conservation and Recovery Act, as amended,
42 U.S.C. Section 6901, et seq; the Clean Air Act, as
amended, 42 U.S.C. Section 7401, et seq; the Federal
Water Pollution Control Act, as amended, 33 U.S.C.
Section 1251, et seq; the Toxic Substances Control
Act, as amended, 15 U.S.C. Section 9601, et seq; the
Emergency Planning and Community Right to Know Act,
42 U.S.C. Section 11001, et seq; the Safe Drinking
Water Act, 42 U.S.C. Section 300f, et seq; and all
comparable state and local laws, and (ii) any common
law (including without limitation common law that may
impose strict liability) that may impose liability or
obligations for injuries or damages due to, or
threatened as a result of, the presence of or
exposure to any Hazardous Substance.
"Hazardous Substance" means any substance presently
listed, defined, designated or classified as
hazardous, toxic, radioactive or dangerous, or
otherwise regulated under any Environmental Law,
whether by type or by quantity, including any
material containing any such substance as a
component. Hazardous Substances include without
limitation petroleum, or any derivative or by-product
thereof, asbestos, radioactive material and
polychlorinated biphenyls.
"Loan Portfolio Properties and Other Properties
Owned" means those properties owned or operated by
Del Amo or any of its subsidiaries, including those
properties serving as collateral for any loans made
and retained by Del Amo or for which Del Amo serves
in a trust relationship for the loans retained in
portfolio.
Except as disclosed in Schedule L, to the best
knowledge of Del Amo:
a) Del Amo has not been nor is in violation of
or liable under any Environmental Law;
b) none of the Loan Portfolio Properties and
Other Properties Owned has been or is in
violation of or liable under any
Environmental Law; and
c) 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.
21. 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
Del Amo 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 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 Del Amo to City Holding is or will be a
true and complete copy of such document,
unmodified except by another document delivered
by Del Amo.
22. Accounting; Tax; Regulatory Matters. Subject to
action taken by the Board of Directors of Del Amo
pursuant to or as a result of the exception clause to
the first sentence of Section 4.4 hereof, Del Amo has
not taken or agreed to take any action or has any
knowledge of any fact or circumstance that would
prevent the Merger from qualifying as a
reorganization within the meaning of Section 368 of
the Code, or materially impede or delay receipt of
any approval referred to in Section 4.6 hereof.
23. Regulatory Approvals. Del Amo knows of no reason why
the approvals, consents and waivers of governmental
authorities referred to in Sections 5.1(f) and 5.2(e)
hereof should not be obtained on a timely basis
without the imposition of any condition of the type
referred to in Section 5.1(f) hereof.
3.2. Representations and Warranties of City Holding.
City Holding represents and warrants to Del Amo as follows:
1. Organization, Standing and Power. 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 and to carry on its
business as now being conducted. City Holding has
delivered to Del Amo complete and correct copies of
its Articles of Incorporation and all amendments
thereof to the date hereof and its By-laws as amended
to the date hereof.
2. Capital Structure. The authorized capital stock of
City Holding consists of 20,000,000 shares of Common
Stock and 500,000 shares of Preferred Stock, of which
6,071,327 shares of Common Stock and no shares of
Preferred Stock were issued and outstanding as of
September 30, 1997. All of such issued and
outstanding shares of City Holding Common Stock were
validly issued, fully paid and nonassessable at such
date.
3. 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 this Agreement is a valid
and binding obligation of City Holding, 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 with any of the provisions hereof
will not (i) conflict with or result in a breach of
any provision of its Articles of Incorporation or
By-laws or a default (or give rise to any right
of termination, cancellation or acceleration) under
any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, license,
agreement or other instrument or obligation to which
City Holding is a party, or by which it or any of
its properties or assets may be bound or (ii)
violate any order, writ, injunction, decree,
statute, rule or regulation applicable to City
Holding or any of its properties or assets. No
consent or approval by any governmental authority,
other than compliance with applicable federal and
state securities and banking laws, the rules of
the National Association of Securities Dealers,
Inc. (the "NASD") and regulations of the Federal
Reserve Board, the OTS, the FDIC, and the West
Virginia Division of Banking is required in
connection with the execution and delivery by City
Holding of this Agreement or the consummation by
City Holding of the transactions contemplated hereby
or by the Plan of Merger.
4. Brokers and Finders. Neither City Holding nor any of
its respective officers, directors or employees has
employed any broker or finder or incurred any
liability for any brokerage fees, commissions or
finders' fees in connection with the transactions
contemplated herein, except that City Holding has
employed Baxter, Fentriss & Co. and will be liable
for its fees.
5. Reports. City Holding has filed all material
reports and statements, together with any
amendments required to be made with respect
thereto, that were required to be filed with (i)
the Federal Reserve Board, (ii) the FDIC, (iii)
the West Virginia Division of Banking, (iv) the
SEC and (v) any other governmental or regulatory
authority or agency having jurisdiction over their
operations. Each of such reports and documents,
including the financial statements, exhibits and
schedules thereto, filed with the SEC pursuant to
the 1934 Act was in form and substance in
compliance in all material respects with the 1934
Act. No such report or statement, or any
amendments thereto, contains any statement
which, at the time and in light of the
circumstances under which it was made, was false
or misleading with respect to any material fact
necessary in order to make the statements contained
therein not false or misleading.
6. 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
City Holding at any time to Del Amo, in connection
with this Agreement when considered as a whole,
contains or will contain any untrue statement of a
material fact or omits or will omit to state a
material fact necessary in order to make the
statements herein or therein, in light of the
circumstances under which they were made, not
misleading. Each document delivered or to be
delivered by City Holding to Del Amo is or will be a
true and complete copy of such document, unmodified
except by another document delivered by City
Holding.
3.3. Representations and Warranties of Acquisition
Sub. Acquisition Sub represents and warrants to Del Amo as
follows:
1. Organization Standing and Power. Acquisition Sub is a
federal savings bank duly organized, validly existing
and in good standing under the laws of the United
States.
2. Authority. 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 Acquisition Sub, and this
Agreement is a valid and binding obligation of
Acquisition Sub 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 Acquisition Sub with any of the
provisions hereof or thereof will not (i)
conflict with or result in a breach of any provision
of its Articles of Incorporation or 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, mortgage, indenture, license, agreement or
other instrument or obligation to which Acquisition
Sub is a party, or by which it or any of its
properties or assets may be bound (except for such
conflict, breach or default as to which requisite
waivers or consents either shall have been obtained
by Acquisition Sub by the Effective Time of the
Merger or the obtaining of which shall have been
waiver by Del Amo), or (ii) violate any order,
writ, injunction, decree, statute, rule or
regulation applicable to Acquisition Sub or any of
its property or assets. No consent or approval by
any government authority, other than compliance
with applicable federal and state securities and
banking laws, regulations of the Federal Reserve
Board, the FDIC, the OTS and the West Virginia
Division of Banking, is required in connection
with the execution and delivery by Acquisition Sub
of this Agreement or the consummation by
Acquisition Sub of the transactions contemplated
hereby or by the Plan of Merger.
ARTICLE IV
Conduct and Transactions Prior to
Effective Time of the Merger
4.1. Access to Records and Properties of City
Holding, Acquisition Sub, and Del Amo. Between the date of
this Agreement and the Effective Time of the Merger, each
of City Holding and Acquisition Sub on the one hand, and
Del Amo on the other, agrees to give to the other
reasonable access to all the premises and books and records
(including tax returns filed and those in preparation) of it
and its subsidiaries and to cause its officers to furnish
the other with such financial and operating data and other
information with respect to the business and properties as
the other shall from time to time request for the purposes
of verifying the representations and warranties set forth
herein, preparing the Registration Statement (as defined
in Section 4.2 hereof) and applicable regulatory filings
(as set forth in Section 4.6 hereof), and preparing
unaudited financial statements of Del Amo as of a date
prior to the Effective Time of the Merger in order to
facilitate City Holding in performance of its
post-Closing Date financial reporting requirements.
Each party shall maintain the confidentiality of all
confidential information furnished to it by the other
party hereto concerning the business, operations, and
financial condition of the party furnishing such
information, and shall not use any such information except
in furtherance of the transactions contemplated hereby or by
the Plan of 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; (c) disclosure by any party
is required by subpoena or order of a court of competent
jurisdiction or by order of a regulatory authority of
competent jurisdiction; or (d) disclosure is required by
law or by the SEC or bank or thrift regulatory
authorities in connection with the transactions contemplated
by this Agreement or otherwise, provided that the disclosing
party has, prior to such disclosure, advised the other
party of the circumstances necessitating such disclosure
and the parties have reached mutually agreeable
arrangements relating to such disclosure.
4.2. Registration Statement, Proxy Statement,
Shareholder Approval. Del Amo will duly call and will hold a
meeting of its shareholders as soon as practicable for the
purpose of approving the Merger and will comply fully with the
applicable rules and regulations of bank and thrift
regulatory authorities, and the Articles of Incorporation
and By-laws of Del Amo relating to the calling and holding of
a meeting of shareholders for such purpose. The Board of
Directors of Del Amo will recommend to and actively encourage
shareholders that they vote in favor of the Merger. City
Holding and Del Amo 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 Statement-Prospectus 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, the 1934 Act, the NASD 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 Transaction and with all applicable state Blue
Sky and securities laws. The notices of such
meetings and the Proxy Statement-Prospectus shall not be
mailed to Del Amo shareholders until the Registration
Statement shall have become effective under the 1933 Act.
Del Amo covenants that none of the information supplied by
Del Amo and City Holding covenants that none of the
information supplied by City Holding in the Proxy
Statement-Prospectus will, at the time of the mailing of the
Proxy Statement-Prospectus to Del Amo shareholders,
contain any untrue statement of a material fact nor will
any such information omit any material fact required to
be stated therein or necessary in order to make the
statements therein, in light of the circumstances in which
they were made, not misleading; and at all times subsequent
to the time of the mailing of the Proxy Statement-Prospectus,
up to and including the date of the meeting of Del Amo
shareholders to which the Proxy Statement-Prospectus
relates, none of such information in the Proxy
Statement-Prospectus, as amended or supplemented, will
contain an untrue statement of a material fact or omit any
material fact required to be stated therein in order to
make the statements therein, in light of the circumstances in
which they were made, not misleading.
4.3. Operation of the Business of Del Amo. Del Amo agrees
that from September 30, 1997 to the Effective Time of the
Merger, it has operated, and it will operate, its
business substantially as presently operated and only in the
ordinary course and in general conformity with applicable
laws and regulations, and, consistent with such operation,
it will use its best efforts to preserve intact its present
business organizations and its relationships with persons
having business dealings with it. Without limiting the
generality of the foregoing, Del Amo agrees that it will not,
without the prior written consent of City Holding, (i)
make any change in the salaries, bonuses or title of J.
Walker Owens, Nicholas Barakonski, Diana Bowers, Randy C.
Bowers, Jasna Penich, Catherine A. Jaramillo or Enid E.
Malm or change the fees payable to any director; (ii) make
any change in the title, salaries or bonuses of any other
employee, other than those permitted by current employment
policies in the ordinary course of business, any of
which changes shall be reported promptly to City
Holding; (iii) enter into any bonus, incentive compensation,
deferred compensation, profit sharing, thrift, retirement,
pension, group insurance or other benefit plan or any
employment or consulting agreement or increase benefits
under existing plans; (iv) create or otherwise become liable
with respect to any indebtedness for money borrowed or
purchase money indebtedness except in the ordinary course of
business; (v) amend its Articles of Incorporation or
By-laws; (vi) except as provided in Section 4.5 hereof declare
any dividend or make any distribution, or effect any split
or combination in respect of its capital stock; (vii)
issue or contract to issue any shares of Del Amo capital
stock or securities exchangeable for or convertible into
capital stock except up to 76,637 shares of Del Amo Common
Stock issuable pursuant to Del Amo Options outstanding as
of September 30, 1997; (viii) purchase any shares of Del
Amo capital stock; (ix) enter into, renew, extend or assume
any material contract or obligation; (x) other than as
provided in subsection (A) below with respect to the work-out
of nonperforming assets, waive, release, compromise or
assign any right or claim involving $75,000 or more; (xi)
propose or take any other action which would make any
representation or warranty in Section 3.1 hereof untrue;
(xii) introduce any new products or services or change
the rate of interest on any deposit instrument to
above-market interest rates; (xiii) make any change in
policies respecting extensions of credit or loan charge-offs;
(xiv) change reserve requirement policies; (xv) change
securities portfolio policies; (xvi) acquire a policy or
enter into any new agreement, amendment or endorsement or
make any changes relating to insurance coverage,
including coverage for its directors and officers, which
would result in an additional payment obligation of $50,000
or more; (xvii) propose or take any action with respect to
the closing of any branches; (xviii) amend the terms of
the Del Amo Options; (xix) amend the terms of the written
severance or employment agreements identified in Schedule E;
or (xx) make any change in any tax election or accounting
method or system of internal accounting controls, except as
may be appropriate to conform to any change in regulatory
accounting requirements or generally accepted accounting
principles. Del Amo further agrees that, between the
date of this Agreement and the Effective Time of the
Merger, it will consult and cooperate with City Holding
regarding (A) loan portfolio management, including
management and work-out of nonperforming assets, and credit
review and approval procedures, and (B) securities
portfolio and funds management, including management of
interest rate risk.
4.4. No Solicitation. Unless and until this Agreement
shall have been terminated pursuant to its terms, neither
Del Amo nor any of its executive 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 Del Amo (collectively, a "Significant
Transaction") or disclose, directly or indirectly, any
information not customarily disclosed to the public
concerning Del Amo, afford to any other person access to
the properties, books or records of Del Amo 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 Significant Transaction.
4.5. Dividends. Del Amo agrees that subsequent to
September 30, 1997, and until the Effective Time of the
Merger, it will not declare any dividends or distributions
in respect of any class of its securities.
4.6. Regulatory Filings; Best Efforts. City Holding and Del
Amo shall jointly prepare all regulatory filings required to
consummate the transactions contemplated by the Agreement and
the Plan of Merger and submit the filings for approval with
the Federal Reserve Board, the OTS and the West Virginia
Division of Banking as soon as practicable after the date
hereof. City Holding and Del Amo shall use their best efforts
to obtain approvals of such filings.
4.7. Public Announcements. Each party will consult with the
other before issuing any press release or otherwise making any
public statements with respect to the Merger and shall not
issue any press release or make any such public statement
prior to such consultations and approval of the other party,
which approval shall not be unreasonably withheld, except as
may be required by law or the policies of the NASD.
4.8. Operating Synergies; Conformance to Reserve
Policies, Etc. Between the date hereof and the Effective
Time of the Merger, Del Amo's management will work with
City Holding to achieve appropriate operating efficiencies
following the Closing Date. Subject to Del Amo's approval,
which will not be unreasonably withheld, City Holding's
notification to Del Amo's customers and City Holding's direct
contact with customers will commence following receipt of
OTS approval. At the request of City Holding and upon
receipt by Del Amo of written confirmation from City
Holding that there are no conditions to the obligations of
City Holding under this Agreement set forth in Article V
hereof which they believe will not be fulfilled so as to
permit them to consummate the Merger and the other
transactions contemplated hereby, not more than three days
before the Effective Time of the Merger and after the
Measurement Date, Del Amo shall establish such additional
accruals, reserves and charge-offs, through appropriate
entries in its accounting books and records (provided such
adjustments are in accordance with GAAP and applicable law
and regulation) as may be necessary to conform Del Amo's
accounting and credit loss reserve practices and methods
to those of City Holding (as such practices and methods
are to be applied from and after the Effective Time of
the Merger) and to City Holding's plans with respect to the
conduct of the business of Del Amo following the Merger, as
well as the costs and expenses relating to the
consummation by Del Amo of the Merger and the other
transactions contemplated hereby. Any such accruals,
reserves and charge-offs shall not be deemed to cause any
representation and warranty of Del Amo to be untrue or
inaccurate as of the Effective Time of the Merger, nor
shall any such accruals, reserves or charge-offs be
included in the determination of Net Book Value Per Share
pursuant to Section 2.1.
4.9. Agreement as to Efforts to Consummate. Subject only
to the other terms and conditions of this Agreement, each
of City Holding and Del Amo agrees to use all reasonable
efforts to take, or cause to be taken, all actions, and to
do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to
consummate and make effective, as soon as practicable after
the date of this Agreement, the transactions contemplated
by this Agreement, including, without limitation, using
reasonable effort to lift or rescind any injunction or
restraining order or other order adversely affecting the
ability of the parties to consummate the transactions
contemplated herein. Each of City Holding and Del Amo 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.
4.10. Adverse Changes in Condition. City Holding and Del
Amo each agrees to give written notice promptly to the
other concerning any event or circumstance which would
cause or constitute a breach of any of the representations,
warranties or covenants of such party contained herein.
Each of City Holding and Del Amo shall use its best efforts
to prevent or promptly to remedy the same. No notification
made pursuant to this Section 4.10 shall be deemed to cure any
breach of any representation or warranty made in this
Agreement or any Schedule unless City Holding or Del Amo, as
the case may be, specifically agrees thereto in writing, nor
shall any such notification be considered to constitute or
give rise to a waiver by Del Amo on the one hand, or City
Holding on the other hand, of any condition set forth in this
Agreement.
4.11. Nasdaq National Market Listing. City Holding will file
with Nasdaq a Supplemental Listing Application for the shares
of City Holding Common Stock to be issued in the Merger and
have such shares approved for listing on The Nasdaq National
Market prior to the Effective Time of the Merger.
4.12. Updating of Schedules. Del Amo shall notify City
Holding, and City Holding shall notify Del Amo, of any
changes, additions or events which may cause any change in
or addition to any Schedules delivered by it under this
Agreement, promptly after the occurrence of same and at the
Closing Date by delivery of updates of all Schedules,
including future quarterly and annual Del Amo Financial
Statements. No notification made pursuant to this Section
4.12 shall be deemed to cure any breach of any representation
or warranty made in this Agreement or any Schedule unless
City Holding or Del Amo, as the case may be, specifically
agrees thereto in writing, nor shall any such notification
be considered to constitute or give rise to a waiver by Del
Amo on the one hand, or City Holding on the other hand of
any condition set forth in this Agreement.
4.13. Transactions in City Holding Common Stock. Other
than the issuance or acquisition of City Holding Common Stock
pursuant to City Holding employee benefit plans, or the
purchase or sale of City Holding Common Stock by City Holding
in its capacity as trustee under City Holding employee
benefit plans or in any other fiduciary capacity in which
it is directed to sell or purchase City Holding Common Stock,
none of City Holding, Acquisition Sub or Del Amo will, nor
will any such party permit any affiliate to directly or
indirectly, purchase, publicly sell or publicly acquire any
shares of City Holding Common Stock during the 20 trading
days prior to the Measurement Date.
ARTICLE V
Conditions of Merger
5.1. Conditions to Obligations of City Holding and Acquisition
Sub. The obligations of City Holding and Acquisition Sub to
perform this Agreement are subject to the satisfaction at or
prior to the Effective Time of the Merger of the following
conditions unless waived by City Holding and Acquisition Sub.
1. Representations and Warranties; Performance of
Obligations. The representations and warranties of
Del Amo set forth in Section 3.l hereof shall be
true and correct in all material respects as of the
date of this Agreement and as of the Effective Time
of the Merger as though made on and as of the
Effective Time of the Merger (or on the date when
made in the case of any representation and warranty
which specifically relates to an earlier date);
Del Amo shall have in all material respects
performed all obligations required to be performed
by it and satisfied all conditions required to be
satisfied by it under this Agreement prior to the
Effective Time of the Merger; and City Holding and
Acquisition Sub shall have received a certificate
signed by the Chief Executive Officer and by the
Chief Financial Officer of Del Amo, which may be to
their best knowledge after due inquiry, to such
effects.
2. Authorization of Transaction. All action necessary to
authorize the execution, delivery and performance of
this Agreement by Del Amo 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 and the shareholders of Del Amo and not
rescinded, and Del Amo shall have full power and
right to execute the Plan of Merger provided in
Exhibit A.
3. Opinion of Counsel. City Holding shall have received
an opinion of Adams, McAndrews, Matson & Landsberg,
counsel to Del Amo, dated the Closing Date and
satisfactory in form and substance to counsel to City
Holding, in substantially the form attached hereto as
Exhibit C.
4. The 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 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.
5. Tax Opinion. City Holding and Acquisition Sub shall
have received, in form and substance satisfactory to
them, an opinion of Hunton & Williams to the effect
that, for federal income tax purposes, the Merger
will qualify as a "reorganization" under Section
368(a) of the Code, and no taxable gain will be
recognized by City Holding, Acquisition Sub, or Del
Amo upon consummation of the Merger.
6. Regulatory Approvals. All required approvals from
federal and state regulatory authorities having
jurisdiction to permit City Holding and Acquisition
Sub to consummate the Merger and to issue City
Holding Common Stock to Del Amo shareholders shall
have been received and shall have contained no
conditions deemed in good faith to be materially
disadvantageous by City Holding.
7. Affiliate Letters. Within 60 days of the date
hereof, each shareholder of Del Amo who is a Del
Amo Affiliate shall have executed and delivered
a commitment and undertaking in the form of
Exhibit E to the effect that (1) such shareholder
will dispose of the shares of City Holding Stock
received by him in connection with the Merger only
in accordance with the provisions of Rule 145 under
the 1933 Act; (2) such shareholder will not dispose
of any of such shares until City Holding has
received, at its expense, an opinion of Adams,
McAndrews, Matson & Landsberg (or other counsel
acceptable to it), satisfactory in form and
substance to counsel to City Holding, that such
proposed disposition will not violate the
provisions of Rule 145 and any applicable
securities laws which opinion shall be rendered
promptly following counsel's receipt of such
shareholder's written notice of its intent to sell
shares of City Holding Common Stock; and (3) the
certificates representing said shares may bear a
legend referring to the foregoing restrictions.
8. Nasdaq National Market Listing. If the shares of City
Holding Common Stock to be issued in the Merger are
not repurchased on the open market, such shares to be
issued in the Merger shall have been approved for
listing, upon notice of issuance, on The Nasdaq
National Market.
9. Acceptance by City Holding and Acquisition Sub
Counsel. The form and substance of all legal matters
contemplated hereby and of all papers delivered
hereunder shall be reasonably acceptable to Hunton &
Williams, counsel for City Holding and Acquisition
Sub.
5.2. Conditions of Obligations of Del Amo. The
obligations of Del Amo to perform this Agreement are
subject to the satisfaction at or prior to the Effective
Time of the Merger of the following conditions unless waived
by Del Amo:
1. Representations and Warranties; Performance of
Obligations. The representations and warranties of
City Holding and Acquisition Sub set forth in
Section 3.2 hereof shall be true and correct in all
material respects as of the date of this Agreement
and as of the Effective Time of the Merger as though
made on and as of the Effective Time of the Merger
(or on the date when made in the case of any
representation and warranty which specifically
relates to an earlier date); City Holding and
Acquisition Sub shall have in all material respects
performed all obligations required to be performed
by them and satisfied all conditions required to
be satisfied by them under this Agreement prior
to the Effective Time of the Merger; and Del Amo
shall have received a certificate signed by the
Chief Executive Officer and by the Chief Financial
Officer of City Holding and Acquisition Sub, which
may be to their best knowledge after due inquiry,
to such effects.
2. Authorization of Transaction. All action necessary to
authorize the execution, delivery and performance of
this Agreement by City Holding and Acquisition Sub
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
Sub and the Board of Directors and shareholders of
Del Amo, and Acquisition Sub shall have full power
and right to merge with Del Amo on the terms provided
herein.
3. Opinion of Counsel. Del Amo shall have received an
opinion of Hunton & Williams, counsel to City
Holding, dated the Closing Date and satisfactory in
form and substance to counsel to Del Amo, in the form
attached hereto as Exhibit D.
4. The 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 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.
5. Regulatory Approvals. All required approvals from
federal and state regulatory authorities having
jurisdiction to permit Del Amo to consummate the
transactions contemplated hereby and to permit City
Holding to issue City Holding Common Stock to Del Amo
shareholders shall have been received.
6. Tax Opinion. City Holding, Acquisition Sub, and Del
Amo shall have received, in form and substance
reasonably satisfactory to them, an opinion of
Hunton & Williams to the effect that, for federal
income tax purposes, the Merger will qualify
as a "reorganization" under Section 368(a) of the
Code; no taxable gain will be recognized by City
Holding, Acquisition Sub, or Del Amo upon
consummation of the Merger; no taxable gain will
be recognized by a Del Amo shareholder on the
exchange by such shareholder of shares of Del Amo
Common Stock solely for shares of City Holding
Common Stock (including any fractional share
interest) in the Merger; a Del Amo shareholder's
aggregate basis in City Holding Common Stock
(including any fractional share interest) received
in the Merger will be the same as the
shareholder's basis in the Del Amo Common Stock
surrendered in exchange therefor; the holding
period of such City Holding Common Stock (including
any fractional share interest) for a Del Amo
shareholder will include the holding period of
the Del Amo Common Stock surrendered in
exchange therefor, if such Del Amo Common Stock is
held as a capital asset by the shareholder at the
Effective Time of the Merger; and a Del Amo
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.
7. Nasdaq National Market Listing. If the shares of City
Holding Common Stock to be issued in the Merger are
not repurchased on the open market, such shares to be
issued in the Merger shall have been approved for
listing, upon notice of issuance, on The Nasdaq
National Market.
8. Acceptance by Del Amo'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 Del Amo.
ARTICLE VI
Closing Date; Effective Time
6.1. Closing Date. Unless another date or place is agreed to
in writing by the parties, the closing of the transactions
contemplated in this Agreement shall take place at the offices
of City Holding, Charleston, West Virginia, at 10:00 A.M.,
local time, on such date as City Holding shall designate to
Del Amo at least 10 days prior to the designated Closing Date
and as reasonably acceptable to Del Amo; provided, that the
date so designated shall not be earlier than 5 days after OTS
approval, and shall not be later than 60 days after such
approval and, in no event, shall be later than June 30, 1998
(the "Closing Date").
6.2. Filings at Closing. Subject to the provisions of Article
V hereof, at the Closing Date, City Holding and Acquisition
Sub shall cause Articles of Combination relating to the Plan
of Merger to be filed in accordance with the rules and
regulations of the OTS, and each of City Holding, Acquisition
Sub and Del Amo shall take any and all lawful actions to cause
the 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 Merger shall become effective at the time
Articles of Combination filed with the OTS are made effective
(the "Effective Time of the Merger").
ARTICLE VII
Termination; Waiver and Amendment
7.1. Termination. This Agreement shall be terminated, and the
Transaction abandoned, if the shareholders of Del Amo shall
not have approved the Merger at the meeting required by
Section 4.2. Notwithstanding such approval by such
shareholders, this Agreement may be terminated at any time
prior to the Effective Time of the Merger, by:
1. The mutual consent of City Holding, Acquisition
Sub and Del Amo, as expressed by their respective
Boards of Directors;
2. Either City Holding or Acquisition Sub on the one
hand or Del Amo on the other hand, as expressed by
their respective Boards of Directors, if the Merger
has not occurred by June 30, 1998, provided that the
failure of the Merger to so occur shall not be due to
a willful breach of any representation, warranty,
covenant or agreement by the party seeking to
terminate this Agreement;
3. By City Holding and Acquisition Sub in writing
authorized by their respective Boards of Directors
if Del Amo has, or by Del Amo in writing
authorized by its Board of Directors, if City
Holding or Acquisition Sub has, in any material
respect, breached (i) any covenant or agreement
contained herein, or (ii) any representation or
warranty contained herein, in any case if such
breach has not been cured by the earlier of 30 days
after the date on which written notice of such
breach is given to the party committing such
breach or the Closing Date; provided that it is
understood and agreed that either party may
terminate this Agreement on the basis of any such
material breach of any representation or warranty
which is not cured within 30 days of written notice
thereof contained herein notwithstanding any
qualification therein relating to the knowledge of
the other party;
4. Either City Holding or Acquisition Sub on the one
hand or Del Amo on the other hand, as expressed by
their respective Boards of Directors, in the
event that any of the conditions precedent to the
obligations of such parties to consummate the Merger
have not been satisfied or fulfilled or waived by
the party entitled to so waive on or before the
Closing Date, provided that no party shall be
entitled to terminate 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;
5. City Holding and Acquisition Sub, if the Boards
of Directors of City Holding and Acquisition Sub
shall have determined in their sole discretion,
exercised in good faith, that the Merger, has
become inadvisable or impracticable by reason of
(A) the issuance of any order, decree or advisory
letter of regulatory authority containing
conditions or requirements reasonably deemed
objectionable to City Holding or (B) the threat or
the institution of any litigation, proceeding or
investigation (including under federal antitrust
laws) to restrain or prohibit the consummation of
the Merger or to obtain other relief in connection
with this Agreement;
6. Del Amo, if the Board of Directors of Del Amo
shall have determined in its sole discretion,
exercised in good faith, that the Merger has
become inadvisable or impracticable by reason of
(A) the issuance of any order, decree or advisory
letter of regulatory authority containing
conditions or requirements reasonably deemed
objectionable to Del Amo, or (B) the threat or
the institution of any litigation, proceeding or
investigation (including under federal antitrust
laws) to restrain or prohibit the consummation of
the Merger or to obtain other relief in connection
with this Agreement;
7. City Holding, Acquisition Sub, or Del Amo, if the
Federal Reserve Board, the OTS or the West Virginia
Division of Banking deny approval of the transactions
contemplated hereby and the time period for all
appeals or requests for reconsideration has run;
8. City Holding, if there has been a material adverse
change in the business operations or consolidated
financial condition of Del Amo from that shown by the
Del Amo Financial Statements as of September 30,
1997. For purposes of this paragraph (h), the term
"material adverse change" shall not include the
following: (i) changes resulting from movements in
general market interest rates, (ii) changes in laws,
rules and regulations and accounting principles, and
(iii) any other matters mutually agreed by the
parties to this Agreement;
9. Del Amo if, prior to the date of the
shareholders meeting, a corporation,
partnership, person or other entity or group shall
have made a bona fide, unsolicited proposal that
the Board of Directors of Del Amo believes, in
good faith after consultation with financial
advisors, is more favorable, from a financial
point of view, to the shareholders of Del Amo than
the proposal set forth in this Agreement (a
"Superior Proposal"); provided, that (i) Del Amo
shall have promptly informed City Holding of all
the terms and conditions of such Superior
Proposal and shall have furnished to City Holding
copies of any such written proposal or offer
and any communications in response thereto and (ii)
City Holding does not make, within five business
days of City Holding receiving the information
described above with respect to such Superior
Proposal, an offer that the Board of Directors of
Del Amo believes, in good faith after
consultation with its financial advisors, is at
least as favorable, from a financial point of
view, to the shareholders of Del Amo as such
Superior Proposal;
10. City Holding if, prior to the Effective Time of the
Merger, the Board of Directors of Del Amo shall have
withdrawn or modified in a manner adverse to City
Holding its approval or recommendation of the Merger,
or shall have recommended another offer or shall have
resolved to do any of the foregoing; or
11. City Holding or Del Amo, if the Fair Market Value Per
City Holding Share as defined in Section 2.1(a)(iii)
is greater than $48.00 or less than $30.00.
7.2. Effect of Termination. In the event of the termination
and abandonment of this Agreement and the Merger pursuant to
Section 7.1, this Agreement, other than the provisions of
Sections 4.1 (last three sentences) and 9.1, shall become void
and have no effect, without any liability on the part of any
party or its directors, officers or shareholders, provided
that nothing contained in this Section 7.2 shall relieve any
party from liability for any willful breach of this Agreement.
7.3. 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 Del Amo shareholders referred to in Section 4.2
hereof, excepting statutory requirements and requisite
approvals of shareholders and regulatory authorities,
provided that any such amendment or waiver executed after
shareholders of Del Amo have approved this Agreement and
the Plan of Merger shall not modify either the amount or form
of the consideration to be received by such shareholders
for their shares of Del Amo Common Stock or otherwise
materially adversely affect such shareholders without their
approval.
ARTICLE VIII
Additional Covenants
8.1. Indemnification of Del Amo Officers and Directors;
Liability Insurance. After the Effective Time of the Merger,
City Holding agrees to provide indemnification to the
directors, employees and officers of Del Amo and the
subsidiaries thereof for events occurring prior to or
subsequent to the Effective Time of the Merger as if they
had been directors, employees or officers of City Holding
prior to the Effective Time of the Merger, to the extent
permitted under the West Virginia Corporation Act and the
Articles of Incorporation and Bylaws of City Holding as in
effect as of the date of this Agreement. Such
indemnification shall continue for six years after the
Effective Time of the Merger, provided that any right to
indemnification in respect of any claim asserted or made
within such six year period shall continue until final
disposition of such claim. City Holding will provide
officers and directors liability insurance coverage to
all Del Amo and subsidiaries thereof directors and officers,
whether or not they become part of the City Holding
organization after the Effective Time of the Merger, to the
same extent it is provided to City Holding's officers and
directors, provided that coverage will not extend to acts
as to which notice has been given prior to the Effective
Time of the Merger. The right to indemnification and
insurance provided in this Section 8.1 is intended to be
for the benefit of directors, employees and officers
of Del Amo and the subsidiaries thereof and as such may be
personally enforced by them at law or in equity.
8.2. Employee Benefit Matters.
1. Plan Participation. All employees of Del Amo
immediately prior to the Effective Time of the
Merger who are employed by Del Amo immediately
following the Effective Time of the Merger will be
entitled to participate in City Holding's 401(k)
plan and employee stock ownership plan to the
extent they are eligible based on their length of
service, compensation, job classification, and
position and the existing Del Amo 401(k) plan and
employee stock ownership plan will be terminated
as of the Effective Time of the Merger. Except as
specifically provided in this Section 8.2 and
as otherwise prohibited by law, an employee's
service with Del Amo which is recognized by the
applicable benefit plan of Del Amo at the
Effective Time of the Merger shall be recognized
as service with City Holding for purposes of
eligibility to participate and vesting if
applicable, (but not for purposes of benefit
accrual) under the corresponding City Holding
benefit plan, if any, subject to
applicable break-in-service rules.
2. Cooperation. Del Amo agrees to cooperate with City
Holding in implementing any decision made by City
Holding under this Section 8.2 with respect to
employee benefit plans and to provide to City Holding
on or before the Effective Time of the Merger a
schedule of service credit for its employees.
8.3. Accounting. City Holding agrees that it will
account for the transactions contemplated under this
Agreement under the purchase method of accounting.
ARTICLE IX
Miscellaneous
9.1. Expenses. Each party hereto shall bear and pay the
costs and expenses incurred by it relating to the
transactions contemplated hereby, provided, that if
this Agreement is terminated pursuant to Section 7.1(e) by
City Holding, City Holding will, within 15 days of Del Amo's
presentation of its invoice, reimburse Del Amo for its
out-of-pocket accountable fees, costs and expenses
associated with the Merger up to a maximum of $200,000;
further provided, if this Agreement is terminated pursuant
to Section 7.1(c), (f), (h) (i) or (j) by Del Amo, Del Amo
will, within 15 days of City Holding's presentation of its
invoice, reimburse City Holding for its out-of-pocket
accountable fees, costs and expenses associated with the
Merger up to a maximum of $200,000. If this Agreement is
terminated pursuant to Section 7.1(d), the terminating
party may, within 15 days of presentation of its invoice,
recover its out-of-pocket accountable fees, costs and
expenses associated with the Merger up to a maximum of
$200,000 if such termination results from a failure of the
non-terminating party to meet a condition or conditions
specified in Article V of this Agreement.
9.2. Entire Agreement. This Agreement contains the entire
agreement among City Holding, Acquisition Sub and Del Amo with
respect to the transactions contemplated hereby and the
related transactions and supersedes all prior agreements
(including the Letter Agreement), arrangements or
understandings with respect thereto.
9.3. Descriptive Headings. Descriptive headings are for
convenience only and shall not control or affect the meaning
or construction of any provisions of this Agreement.
9.4. Notices. All notices or other communications
which are required or permitted hereunder shall be in
writing and sufficient if delivered personally or sent by
registered or certified mail, postage prepaid, addressed as
follows:
If to City Holding or Acquisition Sub:
Steven J. Day
President and Chief Executive Officer
City Holding Company
3601 MacCorkle Avenue, SE
Charleston, West Virginia 25304
Copy to:
Randall S. Parks
Hunton & Williams
951 East Byrd Street
Richmond, Virginia 23219
If to Del Amo Savings Bank, FSB:
Nicholas Barakonski
President and Chief Executive Officer
Del Amo Savings Bank FSB
3422 Carson Street
Torrance, California 90503
Copy to:
Peter F. McAndrews
Adams, McAndrews, Matson & Landsberg
429 Santa Monica Boulevard, Suite 550
Santa Monica, California 90401
9.5. Counterparts. This Agreement may be executed in any
number of counterparts, and each such counterpart hereof
shall be deemed to be an original instrument, but all such
counterparts together shall constitute but one agreement.
9.6. Governing Law. Except as may otherwise be required
by the laws of the United States, this Agreement shall be
governed by and construed in accordance with the laws of West
Virginia.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
executed on its behalf and its corporate seal (if any) to be hereunto affixed
and attested by its officers thereunto duly authorized, all as of the day and
year first above written.
CITY HOLDING COMPANY
By /s/ Steven J. Day
-----------------------------------
Name: Steven J. Day
Title: President & Chief Executive Officer
CITY ACQUISITION SUB, F.S.B.
(In Organization)
By /s/ Steven J. Day
-----------------------------------
Name: Steven J. Day
Title: President
DEL AMO SAVINGS BANK, F.S.B.
By /s/ Nicholas Barakonski
--------------------------------------
Name: Nicholas Barakonski
Title: President and Chief
Executive Officer
<PAGE>
/s/ J. Walker Owens /s/ Jean Clawson-Babbitt
- ------------------------------- ----------------------------------------
J. Walker Owens Jean Clawson-Babbit
/s/ Nicholas Barakonski /s/ William Clayton
- ------------------------------- ----------------------------------------
Nicholas Barakonski William Clayton
/s/ Seymour S. Bilowit /s/ E.J. Chris Sorenson
- ------------------------------- ----------------------------------------
Seymour S. Bilowit E.J. Chris Sorenson
/s/ Diana Bowers
- -------------------------------
Diana Bowers
All of the Directors of Del Amo have signed above to agree to vote all their
shares of Del Amo Common Stock beneficially owned by them and with respect to
which they have power to vote in favor of the Merger and the transactions
contemplated by this Agreement and to cause the Merger and the Plan of Merger to
be recommended by the Board of Directors of Del Amo to the shareholders of Del
Amo in the proxy statement sent to shareholders in connection with such
shareholders' meeting.
<PAGE>
ANNEX B
PLAN OF MERGER
OF
CITY ACQUISITION SUB, F.S.B.
INTO
DEL AMO SAVINGS BANK, F.S.B.
Section 1. City Acquisition Sub, F.S.B. ("Acquisition Sub") shall, upon
the issuance of a certificate of merger by the Office of Thrift Supervision (the
"Effective Time of the Merger"), be merged (the "Merger") into Del Amo Savings
Bank, F.S.B. ("Del Amo"), which shall be the surviving bank (the "Surviving
Bank").
Section 2. Conversion of Stock. At the Effective Time of the Merger:
(i) Each share of Del Amo Common Stock outstanding
immediately prior to the Effective Time of the Merger
shall be converted into ____ shares of Common Stock of
City Holding Company in such amount equal to the product
of one multiplied by the Exchange Ratio (as defined
herein). Cash shall be paid in lieu of any fractional
share interest at $_____ per share (the Fair Market Value
Per City Holding Share, as defined herein). As used
herein:
(A) "Exchange Ratio" shall mean the quotient
of (x) the sum of (A) the product of 1.55
times the Net Book Value Per Share (as
defined herein) plus (B) the per share pro
rata amount of Del Amo's out-of-pocket
accountable fees, costs and expenses
associated with the Merger (up to a maximum
in the aggregate of $200,000 and only to the
extent such costs have not been capitalized)
(the "Merger Expenses") divided by (y) the
Fair Market Value Per City Holding Share;
(B) "Net Book Value Per Share" shall mean
the net book value of Del Amo at the
Measurement Date (as defined herein) divided
by the total number of shares of Del Amo
Common Stock outstanding immediately prior
to the Effective Time of the Merger;
(C) "Fair Market Value Per City Holding
Share" shall mean the average closing
price of a share of City Holding Common
Stock as reported on the Nasdaq National
Market for the twenty trading days prior to
the Measurement Date; provided, that (A)
if the Fair Market Value Per City Holding
Share as determined in the clause
immediately preceding this proviso is
less than $32.00 and greater than or equal
to $30.00, the Fair Market Value Per City
Holding Share shall equal $32.00, (B)
if the Fair Market Value Per City Holding
Share as determined in the clause
immediately preceding this proviso is
greater than $43.00 and less than or equal
to $48.00, the Fair Market Value Per City
Holding Share shall equal $43.00, or (C) if
the Fair Market Value Per City Holding Share
as determined in the clause immediately
preceding this proviso is greater than
$48.00 or less than $30.00, Del Amo and
City Holding may terminate this Plan of
Merger; and
(D) "Measurement Date" shall mean the last
day of the month immediately preceding the
closing of the transactions contemplated by
the agreement of which this Plan of Merger
is a part.
(ii) Each outstanding option to acquire Del Amo Common
Stock that was granted under the Del Amo 1990 Stock Option
Plan (the "Del Amo Options") shall be canceled as provided
in the underlying option agreement. Notwithstanding the
foregoing, if Del Amo shall receive an irrevocable letter
of instruction from an option holder prior to the meeting
of the shareholders of Del Amo to approve the Merger, then
the Del Amo Options listed in such letter shall be
converted, at the election of the option holder, into
either (i) an option to acquire that number of shares of
City Holding Common Stock equal to the product of (x) the
number of shares of Del Amo Common Stock subject to such
option immediately prior to the Effective Time of the
Merger multiplied by (y) ____ (the Exchange Ratio), at an
exercise price per share equal to the exercise price of
such option immediately prior to the Effective Time of the
Merger divided by _______ (the Exchange Ratio), or (ii)
the right to receive the number of full shares of City
Holding Common Stock equal to the quotient of (x) _____
(the Option Spread, as defined herein) divided by (y)
$_____ (the Fair Market Value Per City Holding Share)
(with cash being paid in lieu of any fractional share
interest at $__ per share). The "Option Spread" shall be
equal to the difference between (i) the sum of (A) the
product of the Net Book Value Per Share multiplied by 1.55
plus (B) the Merger Expenses Per Share (as defined herein)
and (ii) the exercise price per share pursuant to such
option. As used herein, "Merger Expenses Per Share" shall
be equal to the Merger Expenses divided by the total
number of shares of Del Amo Common Stock outstanding
immediately prior to the Effective Time of the Merger.
(iii) Each share of Acquisition Sub Common Stock
outstanding immediately prior to the Effective Time of the
Merger shall be converted into one share of Del Amo Common
Stock (after giving effect to the conversion contemplated
above).
Section 3. Articles of Incorporation, Bylaws and Directors of the
Surviving Bank. At the Effective Time of the Merger, there shall be no change
caused by the Merger in the Charter (except any change caused by the filing of
Articles of Combination relating to the Merger), Bylaws, or Board of Directors
of the Surviving Bank.
Section 4. Conditions to Bank Merger. Consummation of the
Merger is subject to the following conditions:
(i) The approving vote of the holders of two-thirds of the
outstanding shares of Del Amo Common Stock entitled to
vote.
(ii) The approval of the Merger by the West Virginia Division
of Banking, the Board of Governors of the Federal Reserve
System and the Office of Thrift Supervision.
(iii) The satisfaction of the conditions contained in the
Amended and Restated Agreement and the Plan of
Reorganization, dated December 18, 1997, among City
Holding Company, Acquisition Sub and Del Amo, or the
waiver of such conditions by the party for whose benefit
they were imposed.
Section 5. Manner of Exchange.
(i) After the Effective Time of the Merger, each holder of a
certificate for theretofore outstanding shares of Del Amo
Common Stock, upon surrender of such certificate to the
agent appointed by City Holding to administer the exchange
of certificates (the "Exchange Agent"), accompanied by a
letter of transmittal in the form furnished by City
Holding and the Exchange Agent (the "Letter of
Transmittal"), shall be entitled to receive in exchange
therefor the number of full shares of City Holding Common
Stock into which shares of Del Amo Common Stock shall be
converted pursuant to Section 2 hereof (with cash in lieu
of any fractional share interest at $______ per share).
Until so surrendered, each outstanding certificate which,
prior to the Effective Time of the Merger, represented Del
Amo Common Stock will be deemed to evidence the right to
receive the number of full shares of City Holding Common
Stock into which the shares of Del Amo Common Stock
represented thereby may be converted in accordance with
Section 2 hereof, (with cash being paid in lieu of any
fractional share interest at $______ per share) and, after
the Effective Time of the 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 Del Amo Common Stock represented
thereby were converted.
(ii) Until outstanding certificates formerly representing Del
Amo Common Stock are surrendered in exchange for City
Holding Common Stock, 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 Merger
shall be paid to the holder of such outstanding
certificates in respect thereof. After the Effective Time
of the Merger, there shall be no further registry of
transfer on the records of Del Amo of shares of Del Amo
Common Stock. If a certificate representing such shares is
presented to Del Amo or City Holding, it shall be canceled
and exchanged for a certificate representing shares of
City Holding Common Stock as herein provided. Upon
surrender of certificates of Del Amo 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 therefor (i) the
amount of dividends theretofore paid for such full shares
of City Holding Common Stock as of any date subsequent to
the Effective Time of the 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 prior to surrender and a
payment date subsequent to surrender. No interest shall be
payable on such dividends upon surrender of outstanding
certificates.
(iii) At the Effective Time of the Merger, each outstanding Del
Amo Option shall be converted in the manner provided in
Section 2(ii) hereof without any further action on the
part of the holder thereof..
Section 6. Effect of the Bank Merger. The Bank Merger, upon the
Effective Time of the Bank Merger, shall have the effect provided by 12 C.F.R.
552.13.
<PAGE>
ANNEX C
[Letterhead of Hovde Financial, Inc.]
November 20, 1997
Board of Directors
Del Amo Savings Bank, FSB
3422 Carson Street
Torrance, CA 90503
Members of the Board:
Del Amo Savings Bank, F.S.B ("Del Amo") has proposed to enter into an
Agreement and Plan of Reorganization ("Agreement") with City Holdings Company
("City Holdings") and City Acquisition Sub, F.S.B. (Acquisition Sub"), a wholly
owned subsidiary of City Holdings, whereby Acquisition Sub will be merged with
and into Del Amo (the "Transaction"). Pursuant to the Agreement, shareholders of
Del Amo shall be entitled to receive consideration, in the form of City Holdings
common stock, equal to 1.55 times Del Amo's Net Book Value per share (as defined
in the Agreement) or approximately $20.23(1) per share, subject to certain
conditions set forth in the Agreement. Other terms and conditions of this merger
are more fully set forth in the Agreement.
Hovde Financial, Inc. ("Hovde") specializes in providing investment banking and
financial advisory services to commercial banks and thrift institutions. Our
principals are experienced in the independent valuation of securities in
connection with negotiated underwritings, subscription and community offerings,
private placements, merger and acquisition transactions and recapitalizations.
Pursuant to a Consulting Agreement between Del Amo and Hovde, Hovde was engaged
to assist Del Amo in this Transaction. WE are familiar with the operations of
Del Amo, having acted as an advisor in connection with the proposed transaction,
and having participated in the negotiations leading to the Agreement.
During the course of our engagement, we reviewed and analyzed material
bearing upon the financial and operating conditions of Del Amo and City Holdings
as well as material prepared in connection with the proposed transaction,
including but not limited to: (i) the Agreement and Plan of Reorganization; (ii)
certain publicly available information concerning Del Amo as well as publicly
available information concerning City Holdings; (iii) the nature and terms of
recent sale and merger transactions involving thrifts and thrift holding
companies that we consider relevant.
In addition, we have conducted meetings with members of the senior
management of Del Amo for the purpose of reviewing the future prospects of Del
Amo. We also performed a discounted cash flow analysis to determine a range of
present values per share of the Del Amo's common stock, assuming Del Amo
continued to operate as a stand-alone entity. In addition, we have taken into
account our assessment of general economic, regulatory, market and industry
conditions and our experience in similar transactions as well as our overall
knowledge of the banking industry and our general experience in securities
valuations.
<PAGE>
Del Amo Savings Bank, F.S.B.
November 20, 1997
Page 2
In rendering this opinion, we have assumed, without independent
verification, the accuracy and completeness of the financial and other
information and representations contained in the materials provided to us by Del
Amo and City Holdings and in the discussions with Del Amo's management.
Based on the foregoing and our experience as investment bankers, we are
of the opinion that, as of the date hereof, the transaction is fair, from a
financial point of view, to the shareholders of Del Amo.
Very truly yours,
/s/ Hovde Financial, Inc.
HOVDE FINANCIAL, INC.
1 Assumes closing date of March 1998, projected equity at 12/31/97 of
$6.9 million with additional income of $60,000 through Feb. 28, 1998 (assumed
determination date). Projected book value per share at closing of $13.05.
<PAGE>
ANNEX D
12 U.S.C.A. ss. 552.14
ss. 552.14 Dissenter and appraisal rights.
(a) Right to demand payment of fair or appraised value. Except as provided
in paragraph (b) of this section, any stockholder of a Federal stock association
combining in accordance with ss. 552.13 of this part shall have the right to
demand payment of the fair or appraised value of his stock: Provided, That such
stockholder has not voted in favor of the combination and complies with the
provisions of paragraph (c) of this section.
(b) Exceptions. No stockholder required to accept only qualified
consideration for his or her stock shall have the right under this section to
demand payment of the stock's fair or appraised value, if such stock was listed
on a national securities exchange or quoted on the National Association of
Securities Dealers' Automated Quotation System ("NASDAQ") on the date of the
meeting at which the combination was acted upon or stockholder action is not
required for a combination made pursuant to ss. 552.13(h)(2) of this part.
"Qualified consideration" means cash, shares of stock of any association or
corporation which at the effective date of the combination will be listed on a
national securities exchange or quoted on NASDAQ, or any combination of such
shares of stock and cash.
(c) Procedure. (1) Notice. Each constituent Federal stock association shall
notify all stockholders entitled to rights under this section, not less than
twenty days prior to the meeting at which the combination agreements is to be
submitted for stockholder approval, of the right to demand payment of appraisal
value of shares, and shall include in such notice a copy of this section. Such
written notice shall be mailed to stockholders of record and may be part of
management's proxy solicitation for such meeting.
(2) Demand for appraisal and payment. Each stockholder electing to make a
demand under this section shall deliver to the Federal stock association, before
voting on the combination, a writing identifying himself or herself and stating
his or her intention thereby to demand appraisal of and payment for his or her
shares. Such demand must be in addition to and separate from any proxy or vote
against the combination by the stockholder.
(3) Notification of effective date and written offer. Within ten days after
the effective date of the combination, the resulting association shall:
(i) Give written notice by mail to stockholders of constituent Federal
stock associations who have complied with the provisions of paragraph (c)(2)
of this section and have not voted in favor of the combination, of the
effective date of the combination;
(ii) Make a written offer to each stockholder to pay for dissenting
shares at a specified price deemed by the resulting association to be the
fair value thereof; and
(iii) Inform them that, within sixty days of such date, the respective
requirements of paragraphs (c)(5) and (c)(6) of this section (set out in the
notice) must be satisfied.
The notice and offer shall be accompanied by a balance sheet and
statement of income of the association the shares of which the dissenting
stockholder holds, for a fiscal year ending not more than sixteen months before
the date of notice and offer, together with the latest available interim
financial statements.
(4) Acceptance of offer. If within sixty days of the effective date of the
combination the fair value is agreed upon between the resulting association and
any stockholder who has complied with the provisions of paragraph (c)(2) of this
section, payment therefor shall be made within ninety days of the effective date
of the combination.
(5) Petition to be filed if offer not accepted. If within sixty days of the
effective date of the combination the resulting association and any stockholder
who has complied with the provisions of paragraph (c)(2) of this section do not
agree as to the fair value, then any such stockholder may file a petition with
the Office, with a copy by registered or certified mail to the resulting
association, demanding a determination of the fair market value of the stock of
all such stockholders. A stockholder entitled to file a petition under this
section who fails to file such petition within sixty days of the effective date
of the combination shall be deemed to have accepted the terms offered under the
combination.
(6) Stock certificates to be noted. Within sixty days of the effective date
of the combination, each stockholder demanding appraisal and payment under this
section shall submit to the transfer agent his certificates of stock for
notation thereon that an appraisal and payment have been demanded with respect
to such stock and that appraisal proceedings are pending. Any stockholder who
fails to submit his or her stock certificates for such notation shall no longer
be entitled to appraisal rights under this section and shall be deemed to have
accepted the terms offered under the combination.
(7) Withdrawal of demand. Notwithstanding the foregoing, at any time within
sixty days after the effective date of the combination, any stockholder shall
have the right to withdraw his or her demand for appraisal and to accept the
terms offered upon the combination.
(8) Valuation and payment. The Director shall, as he or she may elect,
either appoint one or more independent persons or direct appropriate staff of
the Office to appraise the shares to determine their fair market value, as of
the effective date of the combination, exclusive of any element of value arising
from the accomplishment or expectation of the combination. Appropriate staff of
the Office shall review and provide an opinion on appraisals prepared by
independent persons as to the suitability of the appraisal methodology and the
adequacy of the analysis and supportive data. The Director after consideration
of the appraisal report and the advice of the appropriate staff shall, if he or
she concurs in the valuation of the shares, direct payment by the resulting
association of the appraised fair market value of the shares, upon surrender of
the certificates representing such stock. Payment shall be made, together with
interest from the effective date of the combination, at a rate deemed equitable
by the Director.
(9) Costs and expenses. The costs and expenses of any proceeding under this
section may be apportioned and assessed by the Director as he or she may deem
equitable against all or some of the parties. In making this determination the
Director shall consider whether any party has acted arbitrarily, vexatiously, or
not in good faith in respect to the rights provided by this section.
(10) Voting and distribution. Any stockholder who has demanded appraisal
rights as provided in paragraph (c)(2) of this section shall thereafter neither
be entitled to vote such stock for any purpose nor be entitled to the payment of
dividends or other distributions on the stock (except dividends or other
distribution payable to, or a vote to be taken by stockholders of record at a
date which is on or prior to, the effective date of the combination): Provided,
That if any stockholder becomes unentitled to appraisal and payment of appraised
value with respect to such stock and accepts or is deemed to have accepted the
terms offered upon the combination, such stockholder shall thereupon be entitled
to vote and receive the distributions described above.
(11) Status. Shares of the resulting association into which shares of the
stockholders demanding appraisal rights would have been converted or exchanged,
had they assented to the combination, shall have the status of authorized and
unissued shares of the resulting association.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Officers and Directors
Section 31-1-9 of the West Virginia Corporation Act 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
persons that may be authorized by the articles of incorporation or any by-law
made by the stockholders or any resolution adopted, before or after the event,
by the stockholders. The By-laws of City Holding contain provisions pursuant to
the foregoing section of the West Virginia Corporation Act 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 (l) the
directors and officers of City Holding against certain losses, to the extent
such losses are not indemnified by City Holding, and (2) City Holding, to the
extent it indemnifies such directors and officers for losses as permitted under
the laws of West Virginia.
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits
2 Amended and Restated Agreement and Plan of
Reorganization dated December 18, 1997, among
City Holding Company, City Acquisition Sub,
F.S.B. (in organization), and Del Amo Savings
Bank, FSB (attached to the Proxy
Statement/Prospectus as Annex A)
5 Opinion of Steptoe & Johnson with respect to
legality of securities being offered.
8 Opinion of Hunton & Williams with respect to tax
consequences of the Merger
23.1 Consent of Ernst & Young LLP
23.2 Consent of KPMG Peat Marwick LLP
23.3 Consent of Steptoe & Johnson (included in
Exhibit 5)
23.4 Consent of Hunton & Williams (included in
Exhibit 8)
25 Power of Attorney (included on signature pages
of the Registration Statement)
99 Form of Proxy
(b) Financial Statement Schedules -- None
(c) Report, Opinion or Appraisal -- None
Item 22. Undertakings
(a) The undersigned Registrant hereby undertakes as follows:
1. To file, during any period in which offers or sales
are being made, a post-effective amendment to this
registration statement:
(i) To include any prospectus
required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts
or events arising after the effective date of the
registration statement (or the most recent
post-effective amendment thereof) which,
individually or in the aggregate, represent a
fundamental change in the information set forth in
the registration;
(iii) To include any material information
with respect to the plan of distribution not
previously disclosed in the registration statement
or any material change to such information in the
registration statement.
2. That, for the purpose of determining any liability
under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a
new registration statement relating to the
securities offered therein, and the offering of
such securities at that time shall be deemed to be
the initial bona fide offering thereof.
3. To remove from registration by means of a
post-effective amendment any of the securities
being registered in which remain unsold at the
termination of the offering.
4. That prior to any public reoffering of the
securities registered hereunder through the use of
a prospectus which is a part of this registration
statement, by any person or party who is deemed to
be an underwriter within the meaning of Rule
145(c), the Registrant undertakes that such
reoffering prospectus will contain, or will be
amended to contain, the information called for by
the applicable registration form with respect to
reoffering by persons who may be deemed
underwriters, in addition to the information called
for by the other items of the applicable form;
5. That every prospectus (i) that is filed
pursuant to the paragraph immediately preceding,
or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Act and is used in
connection with an offering of securities
subject to Rule 415, will be filed as part of an
amendment to the registration statement and will
not be used until such amendment is effective, and
that for the purposes of determining any liability
under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a
new registration statement relating to the
securities offered therein, and the offering of
such securities at that time shall be deemed to
be the initial bona fide offering thereof;
6. Insofar as indemnification for liabilities
arising under the Securities Act of 1933 may be
permitted to directors, officers and controlling
persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of
the Securities and Exchange Commission such
indemnification is against public policy as
expressed in the Act and is, therefore,
unenforceable. In the event that a claim for
indemnification against such liabilities (other
than the payment by the Registrant of expenses
incurred or paid by a director, officer or
controlling person of the Registrant in the
successful defense of any action, suit or
proceeding) is asserted by such director, officer
or controlling person in connection with the
securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question
whether such indemnification by it is against
public policy as expressed in the Act and will
be governed by the final adjudication of such
issue.
(b) The undersigned Registrant hereby undertakes to respond to
requests for information that is incorporated by reference into the prospectus
pursuant to Items 4, 10(b), 11, or 13 of this form, within one business day of
receipt of such request, and to send the incorporated documents by first-class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration statement
through the date of responding to the request.
(c) The undersigned Registrant hereby undertakes to supply by
means of a post-effective amendment all information concerning a transaction,
and the company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Charleston,
State of West Virginia on this 23rd day of December 1997.
City Holding Company
(Registrant)
/s/ Steven J. Day
-------------------------------
Steven J. Day
President/Director
(Principal Executive Officer)
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons on behalf
of the Registrant and in the capacities indicated on December 22, 1997. Each of
the directors and/or officers of City Holding Company whose signature appears
below hereby appoints Steven J. Day and Robert A. Henson and each of them
severally, as his attorney-in-fact to sign in his name and behalf, in any and
all capacities stated below and to file with the Commission, any and all
amendments to this Registration Statement, making such changes in this
Registration Statement as appropriate, and generally to do all such things in
their behalf in their capacities as officers and directors to enable the
Registrant to comply with the provisions of the Securities Act of 1933, and all
requirements of the Securities and Exchange Commission.
/s/ Samuel M. Bowling
- ------------------------------- ----------------------------------------
Samuel M. Bowling C. Scott Briers
Director Director
/s/ Dr. D. K. Cales /s/ Steven J. Day
- ------------------------------- ----------------------------------------
Dr. D. K. Cales Steven J. Day
Director Director/President
- ------------------------------- ----------------------------------------
Robert D. Fisher Jack E. Fruth
Director Director
/s/ Jay Goldman /s/ Carlin K. Harmon
- ------------------------------- ----------------------------------------
Jay Goldman Carlin K. Harmon
Director Director/Executive Vice President
- ------------------------------- ----------------------------------------
C. Dallas Kayser Dale Nibert
Director Director
/s/ Otis L. O'Connor
- ------------------------------- ----------------------------------------
Otis L. O'Connor Bob F. Richmond
Director Director
/s/ Mark H. Schaul
- ------------------------------- ----------------------------------------
Mark H. Schaul Van R. Thorn
Director Director
/s/ George J. Davis
- ------------------------------- ----------------------------------------
George J. Davis Hugh R. Clonch
Director/Executive Vice President Director
/s/ William M. Frazier /s/ Leon K. Oxley
- ------------------------------- ----------------------------------------
William M. Frazier Leon K. Oxley
Director Director
/s/ David E. Haden
- -------------------------------
David E. Haden
Director
<PAGE>
Exhibit Index
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Page
<S> <C>
2 Amended and Restated Agreement and Plan of
Reorganization dated December 18, 1997, among City
Holding Company, City Acquisition Sub, F.S.B. (in
organization), and Del Amo Savings Bank, FSB
(attached to the Proxy Statement/Prospectus Annex A)
5 Opinion of Steptoe & Johnson with respect to
legality of securities being offered
8 Opinion of Hunton & Williams with respect to tax
consequences of the Merger
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Ernst & Young LLP
23.3 Consent of Steptoe & Johnson (included in Exhibit 5)
23.4 Consent of Hunton & Williams (included in Exhibit 8)
25 Power of Attorney (included on signature pages of
the Registration Statement)
99 Form of Proxy
(b) Financial Statement Schedules - None
(c) Report, Opinion or Appraisal - None
</TABLE>
EXHIBIT 5
[Steptoe & Johnson Letterhead]
December 22, 1997
Board of Directors
City Holding Company
3601 MacCorkle Avenue, S.E.
Charleston, West Virginia 25304
Re: Registration Statement on Form S-4
Dear Ladies and Gentlemen:
We are acting as counsel for City Holding Company (the "Company") in
connection with the registration under the Securities Act of 1933 of 400,000
shares of its Common Stock (the "Common Stock"). The transaction in which the
Common Stock will be issued is described in the Company's Registration Statement
on Form S-4 (the "Registration Statement") filed with the Securities and
Exchange Commission (the "Commission"). In connection with the filing of the
Registration Statement, you have requested our opinion concerning certain
corporate matters.
We are of the opinion that:
1. The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of West Virginia.
2. The Common Stock has been duly authorized and, when the shares
have been issued as described in the Registration Statement, will
be legally issued, fully paid and nonassessable.
We consent to the filing of this opinion with the Commission as an
exhibit to the Registration Statement and to the references to us in
the Proxy Statement/Prospectus included therein. In giving this
consent, we do not admit that we are within the category of persons
whose consent is required by Section 7 of the Securities Act of 1933 or
the rules and regulations promulgated thereunder by the Securities and
Exchange Commission.
Very truly yours,
/s/ Steptoe & Johnson
EXHIBIT 8
[Hunton & Williams Letterhead]
December 23, 1997
City Holding Company
City Acquisition Sub, F.S.B.
3601 MacCorkle Avenue, S.E.
Charleston, West Virginia 25304
Del Amo Savings Bank, F.S.B.
3422 Carson Street
Torrance, California 90503
Merger of Del Amo Savings Bank, F.S.B.
Into City Acquisition Sub, F.S.B.
Certain Federal Income Tax Matters
Ladies and Gentlemen:
We have acted as counsel to City Holding Company ("City Holding") in
connection with the proposed merger of Del Amo Savings Bank, F.S.B. (the "Bank")
into City Acquisition Sub, F.S.B. ("Acquisition"), a wholly-owned subsidiary of
City Holding to be formed for purposes of effecting the merger (the "Merger").
The Bank's only class of stock outstanding is common stock ("Bank Common
Stock"). In the Merger, each outstanding share of Bank Common Stock (except any
shares held by City Holding and any shares with respect to which dissenter's
rights are exercised) will be converted into shares of common stock of City
Holding ("City Holding Common Stock") pursuant to the Exchange Ratio defined in
the Amended and Restated Agreement and Plan of Reorganization dated as of
December 18, 1997, among City Holding, Acquisition, and the Bank (the
"Agreement"). If a Bank shareholder otherwise would be entitled to receive a
fractional share of City Holding Common Stock upon the exchange of the
shareholder's shares of Bank Common Stock, City Holding will pay cash in lieu of
issuing any fractional share.
You have requested our opinion concerning certain federal income tax
consequences of the Merger. In giving this opinion, we have reviewed the
Agreement (including the Plan of Merger); the Form S-4 Registration Statement
under the Securities Act of 1933 relating to the Merger (the "S-4"); and such
other documents as we have considered necessary. In addition, we have assumed
the following:
1. The fair market value of the City Holding Common Stock (including
any fractional share interest) received by a Bank shareholder in exchange for
Bank Common Stock will be approximately equal to the fair market value of the
Bank Common Stock surrendered in the exchange.
2. None of the compensation received by any shareholder-employee of the
Bank will be separate consideration for, or allocable to, any shares of Bank
Common Stock; none of the shares of City Holding Common Stock received by any
shareholder-employee in the Merger will be separate consideration for, or
allocable to, any employment agreement; and the compensation paid to any
shareholder-employee will be for services actually rendered and will be
commensurate with amounts paid to third parties bargaining at arm's length for
similar services.
3. The payment of cash in lieu of fractional shares of City Holding
Common Stock is solely for the purpose of avoiding the expense and inconvenience
to City Holding of issuing fractional shares and does not represent separately
bargained-for consideration. The total cash that will be paid in the Merger in
lieu of fractional shares of City Holding Common Stock will not exceed one
percent of the total consideration that will be issued in the Merger to the Bank
shareholders in exchange for their Bank Common Stock.
4. No share of Bank Common Stock has been or will be redeemed in
anticipation of the Merger, and the Bank has not made and will not make any
extraordinary distribution with respect to its stock in anticipation of the
Merger.
5. City Holding has no plan or intention to reacquire any of its stock
issued in the Merger or to make any extraordinary distribution with respect to
such stock.
6. There is no plan or intention by the Bank shareholders to sell,
exchange, or otherwise dispose of a number of shares of City Holding Common
Stock received in the Merger that would reduce the Bank shareholders' ownership
of City Holding Common Stock to a number of shares having a fair market value,
as of the effective date of the Merger, of less than 50 percent of the fair
market value of all the formerly outstanding Bank Common Stock as of that date.
For this purpose, shares of Bank Common Stock exchanged for cash in lieu of
fractional shares of City Holding Common Stock and any shares for which
dissenter's rights are exercised are treated as outstanding Bank Common Stock on
the effective date of the Merger. Moreover, shares of Bank Common Stock and
shares of City Holding Common Stock held by Bank shareholders and otherwise
sold, redeemed, or disposed of before or after the Merger are considered in
making the above determination.
7. Acquisition will acquire at least 90 percent of the fair market
value of the net assets and at least 70 percent of the fair market value of the
gross assets held by the Bank immediately before the Merger. For this purpose,
assets of the Bank held immediately before the Merger include (a) any amounts
paid by the Bank or Acquisition (to the extent not paid with funds contributed
by City Holding) for (i) expenses related to the Merger and (ii) any shares with
respect to which dissenter's rights are exercised and (b) any redemptions and
distributions (except for regular, normal dividends) made by the Bank in
connection with the Merger.
8. Following the Merger, Acquisition will continue the historic
business of the Bank or use a significant portion of the Bank's historic
business assets in a business.
9. The liabilities of the Bank that will be assumed by Acquisition and
the liabilities, if any, to which assets of the Bank are subject were incurred
by the Bank in the ordinary course of business.
10. There is no indebtedness existing between (a) the Bank and (b) City
Holding, Acquisition, or any other subsidiary of City Holding.
11. Neither City Holding nor any subsidiary of City Holding (a) has
transferred or will transfer cash or other property to the Bank in anticipation
of the Merger or (b) has made or will make any loan to the Bank in anticipation
of the Merger.
12. On the effective date of the Merger, the fair market value of the
assets of the Bank transferred to Acquisition will exceed the sum of the Bank's
liabilities assumed by Acquisition plus the amount of liabilities, if any, to
which the transferred assets are subject.
13. City Holding, the Bank, and the Bank shareholders will pay their
respective expenses, if any, incurred in connection with the Merger. City
Holding also will pay Acquisition's expenses incurred in connection with the
Merger.
14. Acquisition will have only one class of stock. Upon the initial
issuance of shares by Acquisition (which will occur before the effective date of
the Merger), City Holding will own all the outstanding shares of such class.
Acquisition will not issue additional shares of its stock that would result in
City Holding's owning less than 80 percent of the total combined voting power of
all classes of Acquisition's voting stock or less than 80 percent of each class
of Acquisition's nonvoting stock.
15. Neither City Holding nor Acquisition has any plan or intention to
liquidate Acquisition, to merge Acquisition into another corporation, to sell or
otherwise dispose of any stock of Acquisition, or (except for dispositions made
in the ordinary course of business) for Acquisition to sell or otherwise dispose
of any of the assets of the Bank acquired in the Merger.
16. For each of City Holding, Acquisition, and the Bank, not more than
25 percent of the fair market value of its adjusted total assets consists of
stock and securities of any one issuer, and not more than 50 percent of the fair
market value of its adjusted total assets consists of stock and securities of
five or fewer issuers. For purposes of the preceding sentence, (a) a
corporation's adjusted total assets exclude cash, cash items (including accounts
receivable and cash equivalents), and United States government securities, (b) a
corporation's adjusted total assets exclude stock and securities issued by any
subsidiary at least 50 percent of the voting power or 50 percent of the total
fair market value of the stock of which is owned by the corporation, but the
corporation is treated as owning directly a ratable share (based on the
percentage of the fair market value of the subsidiary's stock owned by the
corporation) of the assets owned by any such subsidiary, and (c) all
corporations that are members of the same "controlled group" within the meaning
of section 1563(a) of the Internal Revenue Code (the "Code") are treated as a
single issuer.
17. At all times during the five-year period ending on the effective
date of the Merger, the fair market value of all of the Bank's United States
real property interests has been less than 50 percent of the total fair market
value of (a) its United States real property interests, (b) its interests in
real property located outside the United States, and (c) its other assets used
or held for use in a trade or business. For purposes of the preceding sentence,
(x) United States real property interests include all interests (other than an
interest solely as a creditor) in real property and associated personal property
(such as movable walls and furnishings) located in the United States or the
Virgin Islands and interests in any corporation (other than a controlled
corporation) owning any United States real property interest, (y) the Bank is
treated as owning its proportionate share (based on the relative fair market
value of its ownership interest to all ownership interests) of the assets owned
by any controlled corporation or any partnership, trust, or estate in which the
Bank is a partner or beneficiary, and (z) any such entity in turn is treated as
owning its proportionate share of the assets owned by any controlled corporation
or any partnership, trust, or estate in which the entity is a partner or
beneficiary. As used in this paragraph, "controlled corporation" means any
corporation when at least 50 percent of the fair market value of its stock is
owned by the Bank, in the case of a first-tier subsidiary of the Bank, or by a
controlled corporation, in the case of a lower-tier subsidiary.
18. No shares of Bank Common Stock, if any, that were acquired in
connection with the performance of services are subject to a substantial risk of
forfeiture within the meaning of section 83(c) of the Code.
19. The Bank has not filed, and holds no asset subject to, a consent
pursuant to section 341(f) of the Code and regulations thereunder.
20. The Bank is not a party to, and holds no asset subject to, a "safe
harbor lease" under former section 168(f)(8) of the Code and regulations
thereunder.
<PAGE>
On the basis of the foregoing, and assuming that (i) with
respect to any shareholder that is a nonresident alien or foreign entity, the
Bank will comply with all applicable statement and notification requirements of
Treasury Regulation ss. 1.897-2(g) & (h), and (ii) the Merger will be
consummated in accordance with the Plan of Merger, we are of the opinion that
(under existing law) for federal income tax purposes:
1. The Merger will be a reorganization within the meaning of section
368(a)(1)(A) by reason of section 368(a)(2)(D) of the Code, and City Holding,
Acquisition, and the Bank each will be a "party to a reorganization" within the
meaning of section 368(b) of the Code.
2. The Bank will not recognize gain or loss (a) on the transfer of its
assets to Acquisition in exchange for City Holding Common Stock and the
assumption of the Bank's liabilities, or (b) on the constructive distribution of
City Holding Common Stock to the Bank shareholders. (We note, however, that the
Bank or Acquisition may be required to include in income certain amounts as a
result of the termination of any bad-debt reserve maintained by the Bank for
federal income tax purposes and other possible required changes in accounting
methods.)
3. Neither City Holding nor Acquisition will recognize gain or loss on
the acquisition by Acquisition of the Bank's assets in exchange for City Holding
Common Stock and the assumption of the Bank's liabilities. (We note, however,
that the Bank or Acquisition may be required to include in income certain
amounts as a result of the termination of any bad-debt reserve maintained by the
Bank for federal income tax purposes and other possible required changes in
accounting methods.)
4. A Bank shareholder will not recognize gain or loss on the exchange
of shares of Bank Common Stock solely for shares of City Holding Common Stock
(including any fractional share interest) in the Merger.
5. The aggregate basis of shares of City Holding Common Stock
(including any fractional share interest) received in the Merger by a Bank
shareholder will be the same as the aggregate basis of the shares of Bank Common
Stock exchanged therefor.
6. The holding period for shares of City Holding Common Stock
(including any fractional share interest) received in the Merger by a Bank
shareholder will include the holding period for the shares of Bank Common Stock
exchanged therefor, if such shares of Bank Common Stock are held as a capital
asset on the effective date of the Merger.
7. Cash received by a Bank shareholder in lieu of a fractional share of
City Holding Common Stock will be treated as having been received as full
payment in exchange for such fractional share pursuant to section 302(a) of the
Code. Accordingly, a Bank shareholder who receives cash in lieu of a fractional
share will recognize gain or loss equal to the difference between the amount of
cash received and the shareholder's basis in the fractional share interest.
<PAGE>
We are also of the opinion that the material federal income
tax consequences of the Merger are fairly summarized in the S-4 under the
headings "Summary -- Certain Federal Income Tax Consequences of the Merger" and
"The Merger -- Certain Federal Income Tax Consequences." We consent to the use
of this opinion as an exhibit to the S-4 and to the reference to this firm under
such headings. In giving this consent, we do not admit that we are within the
category of persons whose consent is required by section 7 of the Securities Act
of 1933 or the rules and regulations promulgated thereunder by the Securities
and Exchange Commission.
Very truly yours,
HUNTON & WILLIAMS
EXHIBIT 23.1
Independent Auditors' Consent
Board of Directors
Del Amo Savings Bank, FSB:
We consent to the inclusion in the registration statement on Form S-4 of City
Holding Company of our report dated March 7, 1997, with respect to the balance
sheets of Del Amo Savings Bank, FSB as of December 31, 1996 and 1995, and the
related statements of earnings, stockholders' equity, and cash flows for the
years then ended, included herein, and to the reference to our firm under the
heading "Experts" in the proxy statement.
Los Angeles, California KPMG Peat Marwick LLP
December 22, 1997
EXHIBIT 23.2
Consent of Independent Auditors
We consent to the reference to our firm under the captions "Experts" in the
Registration Statement (Form S-4 No. 333- ) and related Prospectus of City
Holding Company for the registration of 400,000 shares of its common stock and
to the incorporation by reference therein of our report dated January 27, 1997,
with respect to the consolidated financial statements of City Holding Company
incorporated by reference in its Annual Report (Form 10-K) for the year ended
December 31, 1996, filed with the Securities and Exchange Commission.
Charleston, West Virginia Ernst & Young LLP
December 19, 1997
EXHIBIT 99
PROXY
DEL AMO SAVINGS BANK, FSB
3422 Carson Street
Torrance, California 90503
This Proxy is Solicited on Behalf of the Board of Directors
This undersigned hereby appoints _______________ and _______________ as Proxies,
each with the power to appoint his substitute, and hereby authorizes them to
represent and to vote, as designated below, all the shares of Common Stock of
Del Amo Savings Bank, FSB (the "Bank") held of record by the undersigned on
January 26, 1998, at the Special Meeting of Shareholders to be held on March 9,
1998, or any adjournment thereof.
The Board of Directors recommends a vote for Proposal 1.
1. PROPOSAL TO APPROVE THE AMENDED AN RESTATED AGREEMENT AND PLAN OF
REORGANIZATION, DATED DECEMBER 18, 1997, AND THE RELATED PLAN OF MERGER
PROVIDING FOR THE MERGER OF THE BANK WITH AND INTO CITY ACQUISITION SUB,
FSB, A WHOLLY-OWNED SUBSIDIARY OF CITY HOLDING COMPANY
( ) FOR ( ) AGAINST ( ) ABSTAIN
2. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
This proxy, when properly executed, will be voted in the manner directed herein
by the undersigned shareholder. If no direction is made, this proxy will be
voted FOR Proposal. You may revoke this proxy at any time prior to the time it
is voted at the Special Meeting.
<PAGE>
Please sign exactly as name appears below. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by president or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
DATED: _____________, 1998
--------------------------
Signature
--------------------------
Signature if held jointly
Please mark, sign, date and
return the proxy using the
enclosed envelope.
