<PAGE> 1
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. _____)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission Only
[X] Definitive Proxy Statement (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
CitiSave Financial Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11 (previously paid).
(1) Title of each class of securities to which transaction
applies: Common Stock
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(2) Aggregate number of securities to which transaction applies:
1,043,073*
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(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined): $20.50
----------------------------------------------
(4) Proposed maximum aggregate value of transaction:
$21,382,996.50*
--------------------------------------------------------------
(5) Total fee paid: $4,276.60
-----------------------------------------------
* Assumes the exercise of all outstanding stock options.
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
--------------------------------------
(2) Form, schedule or registration statement no.:
----------------
(3) Filing party:
-------------------------------------------------
(4) Date filed:
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<PAGE> 2
[CITISAVE FINANCIAL LETTERHEAD]
May 12, 1997
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders
(the "Annual Meeting") of CitiSave Financial Corporation ("CitiSave"), which
will be held at CitiSave's main office located at 665 Florida Street, Baton
Rouge, Louisiana, on Tuesday, June 24, 1997 at 10:00 a.m., Central Time.
At the Annual Meeting, stockholders will be asked to approve the
Agreement and Plan of Merger dated as of March 26, 1997 (the "Merger
Agreement"), whereby a wholly owned subsidiary of Deposit Guaranty Corp.
("DGC") will be merged with and into CitiSave (the "Merger"), with CitiSave as
the surviving corporation. If the Merger is consummated, each share of common
stock of CitiSave, par value $.01 per share (the "Common Stock"), outstanding
immediately prior to consummation of the Merger (other than shares as to which
dissenters' rights have been asserted and duly perfected in accordance with
Louisiana law, if such rights are available) shall be converted into and
represent the right to receive $20.50 in cash without any interest thereon (the
"Merger Price"). In addition, stockholders are being asked to elect directors
and to ratify our independent auditors.
As a result of the Merger, CitiSave will become a wholly owned
subsidiary of DGC. Approval by CitiSave's stockholders of the Merger Agreement
is a condition to consummation of the Merger. The terms of the Merger are
explained in detail in the accompanying Proxy Statement, which we urge you to
read carefully.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT
AND RECOMMENDS THAT YOU VOTE IN FAVOR OF THE MERGER BECAUSE THE BOARD BELIEVES
IT TO BE IN THE BEST INTERESTS OF STOCKHOLDERS.
Enclosed is a Notice of Annual Meeting of Stockholders, the Proxy
Statement, and a proxy card. Your vote is important, regardless of the number
of shares you own. 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 meeting, you may vote your shares in person whether or not you have
previously submitted a proxy. On behalf of the Board, I thank you for your
attention to this important matter.
Sincerely,
Lee F. Nettles, Chairman, President and
Chief Executive Officer
<PAGE> 3
CitiSave Financial Corporation
665 Florida Street
Baton Rouge, Louisiana 70801
(504) 383-4102
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 24, 1997
NOTICE IS HEREBY GIVEN that an Annual Meeting of Stockholders of
CitiSave Financial Corporation ("CitiSave") will be held at CitiSave's main
office located at 665 Florida Street, Baton Rouge, Louisiana, on Tuesday, June
24, 1997, commencing at 10:00 a.m., Central Time, for the following purposes,
all of which are more completely set forth in the accompanying Proxy Statement:
1. To consider and vote upon the Agreement and Plan of Merger
(the "Merger Agreement") dated as of March 26, 1997, by and among Deposit
Guaranty Corp. ("DGC"), CSF Acquisition Corp. ("CSF"), CitiSave and Citizens
Savings Association, F.A. ("Citizens"), pursuant to which (i) CSF will be
merged with and into CitiSave (the "Merger"), with CitiSave as the surviving
corporation; and (ii) each share of common stock of CitiSave, par value $.01
per share ("Common Stock"), outstanding immediately prior to consummation of
the Merger (other than shares as to which dissenters' rights have been asserted
and duly perfected in accordance with Louisiana law, if such rights are
available) shall be converted into and represent the right to receive $20.50 in
cash ("Merger Price"), as described in the Proxy Statement and in the Merger
Agreement which is attached as Appendix A thereto;
2. To adjourn the Annual Meeting, if necessary, to solicit
additional proxies;
3. To elect three directors for terms of three years or until
their successors have been elected and qualified;
4. To ratify the appointment of Hannis T. Bourgeois & Co., L.L.P.
as CitiSave's independent auditors for the year ending December 31, 1997; and
5. To transact such other business, if any, as may properly come
before the Annual Meeting or any adjournment thereof.
Only holders of record of the CitiSave Common Stock at the close of
business on April 28, 1997 are entitled to notice of and to vote at the Annual
Meeting or any adjournments thereof.
Dissenting stockholders who comply with the procedural requirements of
the Business Corporation Law of Louisiana will be entitled to receive payment
of the fair cash value of their shares if the Merger is effected upon approval
by less than 80% of CitiSave's total voting power. For a summary of the rights
of stockholders of CitiSave to dissent, see "The Merger - Dissenters' Rights"
in the attached Proxy Statement and Appendix C thereto.
BY ORDER OF THE BOARD OF DIRECTORS
Mary Anne Chiasson, Secretary
Baton Rouge, Louisiana
May 12, 1997
- --------------------------------------------------------------------------------
YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING. IT IS IMPORTANT
THAT YOUR SHARES BE REPRESENTED REGARDLESS OF THE NUMBER YOU OWN. EVEN IF YOU
PLAN TO BE PRESENT, YOU ARE URGED TO COMPLETE, SIGN, DATE AND RETURN THE
ENCLOSED PROXY PROMPTLY IN THE ENVELOPE PROVIDED. IF YOU ATTEND THE MEETING,
YOU MAY VOTE EITHER IN PERSON OR BY YOUR PROXY. ANY PROXY GIVEN MAY BE
REVOKED BY YOU IN WRITING OR IN PERSON AT ANY TIME PRIOR TO THE EXERCISE
THEREOF.
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<PAGE> 4
TABLE OF CONTENTS
<TABLE>
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Page
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<S> <C>
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Selected Consolidated Financial and Other Information of CitiSave . . . . . . . . . . . . . . . . . . . . . 8
Annual Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Background of and Reasons for the Merger; Recommendation
of the Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Opinion of Financial Advisor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Terms of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Surrender of Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Representations and Warranties; Conditions to the Merger . . . . . . . . . . . . . . . . . . . . . . . 17
Regulatory and Other Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Business Pending the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Effective Date of the Merger; Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Interests of Certain Persons in the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Certain Federal Income Tax Consequences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Accounting Treatment of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Expenses of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Dissenters' Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Adjournment of Annual Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Information with Respect to Nominees for Director, Directors Whose
Terms Continue and Executive Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Beneficial Ownership of CitiSave Common Stock by Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Executive Compensation of CitiSave . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Ratification of Appointment of Citisave's Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Management's Discussion and Analysis of Financial Condition and
Results of Operations of CitiSave . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Business of Citisave . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Regulation of CitiSave . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Taxation of CitiSave . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
Stockholder Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
Annual Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
Other Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
Index to Consolidated Financial Statements of CitiSave . . . . . . . . . . . . . . . . . . . . . . . . . . 97
Appendix A -- Agreement and Plan of Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
Appendix B -- Opinion of CitiSave's Financial Advisor . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1
Appendix C -- Statutory Dissenters' Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C-1
</TABLE>
i
<PAGE> 5
CITISAVE FINANCIAL CORPORATION
PROXY STATEMENT
INTRODUCTION
This Proxy Statement is being furnished to the stockholders of
CitiSave Financial Corporation ("CitiSave" or the "Company") in connection with
the solicitation of proxies by the Board of Directors of CitiSave for use at
the annual meeting of stockholders, and any adjournment thereof, to be held at
the time and place set forth in the accompanying notice of annual meeting
("Annual Meeting"). It is anticipated that the mailing of this Proxy Statement
and the enclosed proxy card will commence on or about May 12, 1997.
At the Annual Meeting, stockholders of CitiSave will be asked to
approve and adopt an Agreement and Plan of Merger (the "Merger Agreement")
dated as of March 26, 1997, a copy of which is attached hereto as Appendix A.
In addition, stockholders are being asked to elect directors and to ratify
CitiSave's independent auditors.
Upon the Effective Date (as defined in the Merger Agreement) of the
merger of a wholly owned subsidiary of Deposit Guaranty Corp. ("DGC") with and
into CitiSave (the "Merger"), each share of the common stock of CitiSave, par
value $.01 per share ("CitiSave Common Stock"), issued and outstanding
immediately prior to the Effective Date (other than shares as to which
dissenters' rights have been asserted and duly perfected in accordance with
Louisiana law, if such rights are available) shall be converted into and
represent the right to receive $20.50 in cash without any interest thereon (the
"Merger Price"). For a more complete description of the Merger Agreement and
the terms of the Merger, see "The Merger."
The CitiSave Common Stock is listed on the American Stock Exchange
("AMEX") under the symbol "CZF". On March 26, 1997, the last full trading day
prior to the public announcement of the execution of the Merger Agreement
between DGC and CitiSave, the closing sales price per share of CitiSave Common
Stock on the AMEX as reported in the Wall Street Journal was $14.00. The last
reported closing sales price per share of CitiSave Common Stock as of April 30,
1997, the latest practicable trading day before printing of this Proxy
Statement, was $19.50. See "Summary - Market Prices."
ALL STOCKHOLDERS ARE URGED TO READ THIS PROXY STATEMENT CAREFULLY AND
IN ITS ENTIRETY.
1
<PAGE> 6
SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE
IN THIS PROXY STATEMENT AND IS NOT INTENDED TO BE A COMPLETE STATEMENT OF THE
MATTERS DESCRIBED HEREIN. REFERENCE IS MADE TO, AND THIS SUMMARY IS QUALIFIED
IN ITS ENTIRETY BY, THE MORE DETAILED INFORMATION CONTAINED IN THIS PROXY
STATEMENT AND IN THE APPENDICES ATTACHED HERETO. STOCKHOLDERS ARE URGED TO READ
THIS PROXY STATEMENT AND THE APPENDICES HERETO IN THEIR ENTIRETY.
THE PARTIES TO THE MERGER
CITISAVE AND CITIZENS. CitiSave is a Louisiana corporation and a
unitary savings and loan holding company registered under the Home Owners' Loan
Act, as amended (the "HOLA"). CitiSave is the parent holding company of
Citizens Savings Association, F.A. ("Citizens" or the "Association"), a
federally chartered savings and loan association. The only significant assets
of CitiSave are the capital stock of Citizens, CitiSave's loan to CitiSave's
Employee Stock Ownership Plan ("ESOP"), and the portion of the net proceeds
retained by CitiSave in connection with the conversion of Citizens from a
Louisiana-chartered mutual savings association to a federally chartered stock
savings association in July 1995 (the "Conversion"). CitiSave conducts
business from six offices located in Baton Rouge, Louisiana. At December 31,
1996, CitiSave had $75.3 million of total assets, $63.0 million of total
liabilities, including $61.5 million of deposits, and $12.3 million of total
stockholders' equity. References herein to CitiSave include Citizens except
where otherwise noted.
CitiSave is primarily engaged in attracting deposits from the general
public through its offices and using those and other available sources of funds
to originate loans secured primarily by one- to four-family residences located
in the Baton Rouge, Louisiana metropolitan area and to purchase investment
securities. At December 31, 1996, CitiSave's net loans receivable totaled
$45.2 million or 60.0% of total assets. One- to four-family residential loans
amounted to $37.6 million or 79.1% of CitiSave's total loan portfolio,
including loans held for sale, at December 31, 1996. To a lesser extent,
CitiSave also originates commercial real estate loans, construction loans,
consumer loans and commercial business loans. CitiSave had $19.3 million of
investment securities (excluding FLHB stock) at December 31, 1996, representing
25.6% of total assets.
Citizens is a community-oriented savings institution which emphasizes
customer service and convenience. It generally has sought to enhance its net
income by, among other things, maintaining strong asset quality. In pursuit of
these goals, CitiSave has adopted a business strategy that emphasizes lending
and deposit products and services traditionally offered by savings
institutions. CitiSave is engaged in mortgage banking activities by
originating one- to four-family residential loans for sale into the secondary
market. In addition, a subsidiary of Citizens owns an 80% interest in an
insurance agency which provides a wide variety of insurance to businesses and
individuals. The implementation of CitiSave's business strategy
2
<PAGE> 7
has enabled CitiSave to be profitable in each of the last five years and to
exceed regulatory capital requirements.
The deposits of Citizens are insured to the maximum extent provided by
law by the Savings Association Insurance Fund ("SAIF"), which is administered
by the Federal Deposit Insurance Corporation ("FDIC"). Citizens is subject to
examination and comprehensive regulation by the Office of Thrift Supervision
("OTS"), which is Citizens' chartering authority and primary federal
regulator. Citizens is also regulated by the FDIC, subject to certain reserve
requirements established by the Board of Governors of the Federal Reserve
System ("FRB") and is a member of the Federal Home Loan Bank ("FHLB") of
Dallas, which is one of the 12 regional banks comprising the FHLB System.
The executive office for CitiSave and Citizens is located at 665
Florida Street, Baton Rouge, Louisiana 70801, and their telephone number is
(504) 383-4102.
For additional information concerning CitiSave, its business,
financial condition and results of operations, see "Selected Consolidated
Financial and Other Information of CitiSave," "Business of CitiSave" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of CitiSave."
DGC AND CSF. DGC is a Mississippi corporation organized in 1968 as a
bank holding company registered under the Bank Holding Company Act of 1956, as
amended (the "BHCA") and is headquartered in Jackson, Mississippi. During
1996, DGC conducted its business through its banking subsidiaries, the largest
of which are the 98%-owned Deposit Guaranty National Bank with $4.5 billion in
assets and the 100%-owned Commercial National Bank with $1.2 billion in assets,
two other banking subsidiaries and its various bank-related subsidiaries.
Through its subsidiaries, which includes 205 banking offices, DGC serves
customers primarily in Mississippi, Louisiana, and Arkansas, offering complete
banking, mortgage banking, discount brokerage and trust services. DGC also
provides mortgage banking services in Texas, Nebraska and Oklahoma through two
of its subsidiaries. CSF Acquisition Corp. ("CSF") is a Louisiana corporation
and a wholly owned subsidiary of DGC.
DGC's subsidiary banks are subject to supervision and examination by
the Office of the Comptroller of the Currency ("OCC"). All of DGC's subsidiary
banks are insured by, and therefore subject to the regulations of, the FDIC and
are also subject to requirements and restrictions under federal law. DGC's
banking subsidiaries comprise more than 99% of the related combined revenue,
profits and assets of all industry segments of DGC. DGC's executive offices
are located at One Deposit Guaranty Plaza, 210 East Capitol Street, Jackson,
Mississippi 39201, and its telephone number is (601)354-8564. At December 31,
1996, DGC had total consolidated assets of $6.4 billion, total liabilities of
$5.8 billion, including deposits of $5.0 billion, and stockholders' equity of
$581.3 million.
3
<PAGE> 8
THE ANNUAL MEETING
The Annual Meeting will be held at CitiSave's main office located at
665 Florida Street, Baton Rouge, Louisiana on June 24, 1997 at 10:00 a.m.,
Central Time. Only the holders of record of the outstanding shares of CitiSave
Common Stock at the close of business on April 28, 1997 (the "Voting Record
Date") are entitled to notice of and to vote at the Annual Meeting. At the
Annual Meeting, CitiSave's stockholders will be asked to consider and vote upon
(1) a proposal to approve the Merger Agreement, (2) an adjournment of the
Annual Meeting if necessary to solicit additional proxies, (3) the election of
three directors, and (4) the ratification of auditors, as well as the
transaction of such other business as may properly come before the Annual
Meeting and any adjournment thereof. The affirmative vote of at least
two-thirds of the total votes present in person or by proxy at the Annual
Meeting is required to adopt and approve the Merger Agreement.
HOLDERS OF CITISAVE COMMON STOCK ARE URGED TO COMPLETE, DATE AND SIGN
THE ACCOMPANYING PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED,
POSTAGE-PAID ENVELOPE, EVEN IF THEY ARE PLANNING TO ATTEND THE MEETING. ALL
PROPERLY EXECUTED PROXIES RECEIVED PRIOR TO OR AT THE MEETING WILL BE VOTED
WITH RESPECT TO THE MATTERS IDENTIFIED ON THE PROXY CARDS IN ACCORDANCE WITH
ANY INSTRUCTIONS THEREON AND, IF NO INSTRUCTIONS ARE GIVEN, WILL BE VOTED FOR
ADOPTION AND APPROVAL OF THE MERGER AGREEMENT, FOR ANY NECESSARY ADJOURNMENT
OF THE ANNUAL MEETING, AND FOR THE ELECTION OF DIRECTORS AND THE RATIFICATION
OF AUDITORS.
TERMS OF THE MERGER
In accordance with the terms of the Merger Agreement, on the Effective
Date, CSF will be merged with and into CitiSave (the "Merger"), with CitiSave
as the surviving corporation. Each share of CitiSave Common Stock outstanding
immediately prior to consummation of the Merger (other than shares as to which
dissenters' rights have been asserted and duly perfected in accordance with
Louisiana law, if such rights are available) shall be converted into and
represent the right to receive $20.50 in cash without any interest thereon (the
"Merger Price"). In addition, each outstanding option to purchase CitiSave
Common Stock issued by CitiSave ("CitiSave Option") shall be cancelled, and
each holder shall be entitled to receive an amount determined by multiplying
the excess of the Merger Price over the applicable exercise price per share of
such option by the number of shares of CitiSave Common Stock subject to such
CitiSave Option. All outstanding awards ("MRP Awards") to acquire CitiSave
Common Stock pursuant to CitiSave's 1996 Management Recognition Plan for
Officers (the "MRP") shall be cancelled at or immediately prior to the
Effective Date to the extent not previously vested, and each holder of any such
unvested MRP Award shall be entitled to receive an amount determined by
multiplying the Merger Price by the number of unvested shares of CitiSave
Common Stock subject to such MRP Award.
4
<PAGE> 9
FAIRNESS OPINION
The Board of Directors of CitiSave has received a written opinion
from Charles Webb & Company, a Division of Keefe, Bruyette & Woods, Inc.
("Webb"), dated as of May 12, 1997, to the effect that the consideration to be
paid to CitiSave's stockholders pursuant to the Merger Agreement is fair to the
stockholders of CitiSave from a financial point of view. A copy of the
fairness opinion of Webb is attached hereto as Appendix B and should be read in
its entirety. See "The Merger - Opinion of Financial Advisor."
RECOMMENDATION OF THE BOARD OF DIRECTORS OF CITISAVE
The Board of Directors of CitiSave has determined that the Merger is
in the best interests of the stockholders and, accordingly, has unanimously
approved the Merger. THE BOARD OF DIRECTORS OF CITISAVE UNANIMOUSLY RECOMMENDS
THAT THE STOCKHOLDERS VOTE FOR THE MERGER AGREEMENT. SEE "THE MERGER -
BACKGROUND OF AND REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD OF
DIRECTORS."
CONDITIONS TO THE MERGER
The obligations of the parties to the Merger Agreement to consummate
the transactions contemplated thereunder are subject to a variety of
conditions, including the approval by the stockholders of CitiSave, the receipt
of all required regulatory approvals, the receipt of opinions from counsel to
CitiSave and DGC, the absence of any order, judgment or decree or any suit,
action or proceeding pending or threatened which seeks to restrain or prohibit
the Merger, the continued accuracy of the representations and warranties of
each party to the Merger Agreement, and the delivery of certain documentation
contemplated by the Merger Agreement. See "The Merger - Representations and
Warranties; Conditions to the Merger."
DISSENTERS' RIGHTS
Holders of shares of CitiSave Common Stock who object to the Merger
and comply with the prescribed statutory procedures may be entitled to have the
fair value of their shares determined in accordance with the Louisiana Business
Corporation Law ("BCL") and paid to them in cash in lieu of the cash they would
otherwise be entitled to receive in the Merger. Dissenting shareholders who
comply with the procedural requirements of the BCL will be entitled to receive
payment of the fair cash value of their shares if the Merger is effected upon
approval by less than 80% of CitiSave's total voting power. A copy of the
pertinent statutory provisions of the BCL is attached to this Proxy Statement
as Appendix C. FAILURE TO FOLLOW SUCH PROVISIONS PRECISELY MAY RESULT IN A
LOSS OF DISSENTERS' RIGHTS. See "The Merger - Dissenters' Rights."
5
<PAGE> 10
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The payment of cash for the CitiSave Common Stock and for outstanding
options pursuant to the terms of the Merger Agreement will be a taxable
transaction to the stockholders and optionees of CitiSave for federal income
tax purposes and may also be a taxable transaction under state, local and other
tax laws. The stockholders and optionees of CitiSave are urged to consult
their personal tax advisors regarding the tax consequences of the proposed
transaction as it may relate to them. See "The Merger - Certain Federal Income
Tax Consequences."
ACCOUNTING TREATMENT OF THE MERGER
The Merger will be accounted for as a purchase for accounting
purposes. See "The Merger - Accounting Treatment of the Merger."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
The Merger Agreement contains provisions which (i) require DGC, from
and after the Effective Date, to provide coverage for all Citizens employees
under all DGC employee benefit plans for which they are eligible, with credit
for vesting and eligibility purposes given for all prior years of service at
Citizens, subject to compliance with applicable legal and regulatory
requirements; (ii) require DGC or its subsidiaries, from and after the
Effective Date, to indemnify, defend and hold harmless the former directors,
officers, employees and agents of CitiSave or Citizens against all losses,
claims, damages, liabilities, judgments (and related expenses including, but
not limited to, attorney's fees and amounts paid in settlement), joint, several
or solidary, and any action or other proceeding in respect thereof, to which
such parties or any of them become subject, based upon or arising out of
actions or omissions of such persons occurring at or prior to the Effective
Date (including the transactions contemplated by the Merger Agreement) to the
full extent permitted under applicable law or by the governing corporate
documents as in effect on the date of the Merger Agreement, whichever is
greater; (iii) permit Citizens to pay Lee F. Nettles, the President and Chief
Executive Officer of Citizens, a bonus equal to 3% of Citizens' pre-tax income
in 1997 immediately prior to the Effective Date; and (iv) provide for
accelerated vesting of all outstanding MRP Awards and participants' ESOP
account balances in accordance with the terms of such plans. In addition, Mr.
Nettles will be entitled to receive severance pay equal to three times his
average annual compensation for the most recent five calendar years, as well as
the continuation of certain fringe benefits, as a result of the termination of
his employment as of the Effective Date. See "The Merger -Interests of Certain
Persons in the Merger."
Other than as summarized above and set forth in the referenced
section, no director or executive officer of CitiSave or DGC has any direct or
indirect material interest in the Merger, except in the case of the directors
and executive officers of CitiSave insofar as
6
<PAGE> 11
ownership of CitiSave Common Stock, existing options to purchase such stock,
and rights to acquire such stock pursuant to CitiSave's MRP might be deemed
such an interest.
MARKET PRICES
The CitiSave Common Stock is listed on the AMEX under the symbol
"CZF." The table below sets forth, for the calendar quarters indicated, the
reported high and low closing sales prices of the CitiSave Common Stock based
on published financial sources and cash dividends paid or declared per share by
CitiSave.
<TABLE>
<CAPTION>
Cash
Dividends
Paid Per
1995 High Low Share(1)
---- ---- ---- --------
<S> <C> <C> <C>
Third Quarter $13.75 $11.50 $.075
Fourth Quarter 15.75 14.25 .075
1996
----
First Quarter 15.13 14.00 .075
Second Quarter 16.50 14.00 .075
Third Quarter 14.50 13.75 .075
Fourth Quarter 14.50 13.00 .100
1997
----
First Quarter 19.50 13.63 .100
</TABLE>
- ---------------------------
(1) In addition, a $2.00 per share special cash distribution was paid on
June 28, 1996.
On March 26, 1997, the last full trading day prior to the public
announcement of the execution of the Merger Agreement between DGC and CitiSave,
the closing sales price per share of CitiSave Common Stock on the AMEX as
reported in the Wall Street Journal was $14.00. On April 30, 1997, the most
recent practicable date prior to the printing of this Proxy Statement, the
closing sales price per share of CitiSave Common Stock on the AMEX was $19.50.
STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR THE
CITISAVE COMMON STOCK, TO THE EXTENT POSSIBLE, PRIOR TO THE ANNUAL MEETING.
7
<PAGE> 12
SELECTED CONSOLIDATED FINANCIAL AND OTHER
INFORMATION OF CITISAVE
(Dollars in Thousands, Except Per Share Data)
The following tables set forth certain consolidated financial and
other data of CitiSave at the dates and for the periods indicated.
<TABLE>
<CAPTION>
At December 31,
----------------------------------------------------------------------------
1996 1995 1994 1993 1992
----------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL DATA:
Total assets $75,286 $78,218 $69,125 $72,030 $72,819
Cash and cash equivalents 2,419 3,936 1,045 4,438 7,705
Federal funds sold 2,650 5,000 625 -- --
Investment securities 19,254 22,521 28,120 26,080 17,976
Mortgage-backed securities 2,275 2,565 2,873 3,321 3,245
Loan receivable, net 45,193 41,710 34,346 35,067 37,776
Loans held for sale 363 -- 71 1,010 1,434
Costs in excess of net assets of
business acquired -- 17 34 158 282
Deposits 61,457 62,514 62,560 66,075 67,388
Stockholders equity/retained earnings 12,292 14,300 5,178 4,678 3,791
Book value per share(1) 12.77 14.82 -- -- --
Market price per share 14.00 14.75 -- -- --
Full service offices 6 5 5 5 5
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------------
1996 1995 1994 1993 1992
----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Total interest income $5,521 $5,230 $4,486 $4,756 $5,633
Total interest expense 2,527 2,516 2,104 2,138 2,901
------ ------ ------ ------ ------
Net interest income 2,994 2,714 2,382 2,618 2,732
Provision for (recovery of) loan
losses 35 1 10 (43) (43)
------ ------ ------ ------ ------
Net interest income after provision for
(recovery of) loan losses 2,959 2,713 2,372 2,661 2,775
Total noninterest income 1,199 1,139 972 1,220 1,136
Total noninterest expense 3,472 2,562 2,473 2,449 2,465
------ ------ ------ ------ ------
Income before income taxes and
minority interest 686 1,290 871 1,432 1,446
Income taxes 216 418 334 503 517
------ ------ ------ ------ ------
Net income before minority interest 470 872 537 929 929
Minority interest in subsidiary (40) (37) (37) (42) (46)
------ ------ ------ ------ ------
Net income $ 430 $ 835 $ 500 $ 887 $ 883
====== ====== ====== ====== ======
SELECTED OPERATING RATIOS:
Return on average assets 0.56% 1.12% 0.70% 1.24% 1.21%
Return on average equity 3.21 8.56 9.98 20.72 26.15
Average equity to average assets 17.41 13.09 7.04 5.98 4.64
Dividend payout ratio 70.65 16.05(2) -- -- --
Equity to total assets at end of period 16.33 18.28 7.49 6.49 5.21
Risk-based capital ratio 30.15 29.87 19.71 17.29 12.66
</TABLE>
- ---------------------
(1) Based on 962,207 and 964,707 total outstanding shares at December 31,
1996 and 1995, respectively.
(2) Based on only two quarterly dividends
paid in 1995.
8
<PAGE> 13
ANNUAL MEETING
This Proxy Statement is being furnished to CitiSave's stockholders in
connection with the solicitation of proxies by the Board of Directors of
CitiSave for use at the Annual Meeting to be held on June 24, 1997, and at any
adjournment thereof.
STOCKHOLDERS SHOULD NOT FORWARD ANY STOCK CERTIFICATES WITH
THEIR PROXY CARDS. CitiSave stock certificates should NOT be forwarded until
after receipt of a letter of transmittal, which will be provided to
stockholders promptly following consummation of the Merger.
This Proxy Statement, the Notice of Annual Meeting of Stockholders and
the accompanying proxy solicited by the Board of Directors of CitiSave are
first being mailed to the stockholders of CitiSave on or about May 12, 1997.
All information contained in this Proxy Statement relating to CitiSave
and its subsidiaries has been supplied by CitiSave, and all information
contained in this Proxy Statement relating to DGC and its subsidiaries has been
supplied by DGC.
Purpose of Meeting. The purpose of the Annual Meeting is to consider
and vote upon a proposal to approve the Merger Agreement, a proposal to adjourn
the Annual Meeting if necessary to solicit additional votes, the election of
directors, the ratification of auditors and the transaction of such other
business as may properly come before the Annual Meeting and any adjournment
thereof. It is not anticipated that any other matter will be brought before
the Annual Meeting. If any other matter is properly presented at the Annual
Meeting for consideration, the persons named in the enclosed form of proxy card
and acting thereunder will have discretion to vote on such matter in accordance
with their best judgment.
Shares Outstanding and Entitled to Vote; Voting Record Date. The
close of business on April 28, 1997 has been fixed by the Board of Directors of
CitiSave as the Voting Record Date for the determination of holders of CitiSave
Common Stock entitled to notice of and to vote at the Annual Meeting and any
adjournment thereof. At the close of business on the Voting Record Date, there
were 962,207 shares of CitiSave Common Stock outstanding, held by approximately
215 holders of record. Each share of CitiSave Common Stock entitles the holder
thereof to one vote on each matter to be submitted to stockholders at the
Annual Meeting.
Vote Required. A quorum, consisting of a majority of the voting power
of the issued and outstanding CitiSave Common Stock entitled to vote at the
Annual Meeting, must be present in person or by proxy before any action may be
taken at the Annual Meeting. Shares as to which the "ABSTAIN" box has been
marked on the proxy will be counted as present for determining if a quorum is
present. Under the BCL, the affirmative vote of the holders of at least
two-thirds of the CitiSave Common Stock present in person or by proxy at the
9
<PAGE> 14
Annual Meeting is required to approve the Merger Agreement. The affirmative
vote of the holders of a majority of the total votes actually cast at the
Annual Meeting is required to adjourn the Annual Meeting, if such adjournment
is necessary, and to ratify the appointment of the independent auditors.
Directors are elected by a plurality of the votes cast with a quorum present.
Because of the required votes, abstentions will have the effect of a vote
against the Merger proposal but will have no effect on the other proposals.
Under rules of the AMEX, the proposals for the election of directors
and the ratification of auditors are considered "discretionary" items upon
which brokerage firms may vote in their discretion on behalf of their clients
if such clients have not furnished voting instructions. However, the proposals
to approve the Merger Agreement and to approve any necessary adjournment of the
Annual Meeting are "non-discretionary" items upon which brokerage firms may not
vote in the absence of voting instructions from their clients and for which
there will be broker non-votes (i.e., the withholding of a vote by a broker on
a non-discretionary proposal as to shares that are being voted on a
discretionary proposal by the broker). Broker non-votes will have the same
effect as a vote against the Merger proposal but will have no effect on the
other proposals.
As of the Voting Record Date, the directors and executive officers of
CitiSave and their associates in the aggregate beneficially owned and are
entitled to vote 136,236 shares or 14.2% of the outstanding shares of CitiSave
Common Stock (exclusive of shares of CitiSave Common Stock which may be
acquired upon the exercise of outstanding stock options). The directors of
CitiSave intend to vote or cause to be voted all shares of CitiSave which they
have the right to vote for approval and adoption of the Merger Agreement.
Voting; Solicitation and Revocation of Proxies. A proxy for use at
the Annual Meeting is being furnished to each CitiSave stockholder together
with this Proxy Statement and is solicited by the Board of Directors of
CitiSave. Any stockholder executing a proxy may revoke it at any time before
it is voted by filing with the Secretary of CitiSave (Mary Anne Chiasson,
Secretary, 665 Florida Street, Baton Rouge, Louisiana 70801) a written notice
of revocation or a proxy bearing a later date, or by voting in person at the
Annual Meeting. Attendance at the Annual Meeting will not of itself constitute
revocation of a proxy. If your shares are not registered in your own name, you
will need additional documentation from your recordholder in order to vote
personally at the Annual Meeting. Each proxy returned to CitiSave (and not
revoked) will be voted in accordance with the instructions indicated thereon.
IF NO INSTRUCTIONS ARE INDICATED, THE PROXY WILL BE VOTED FOR APPROVAL OF THE
MERGER AGREEMENT AND FOR ANY NECESSARY ADJOURNMENT OF THE ANNUAL MEETING, FOR
THE ELECTION OF DIRECTORS AND FOR THE RATIFICATION OF AUDITORS.
10
<PAGE> 15
THE MERGER
The following description of the material terms of the Merger does not
purport to be complete and is qualified in its entirety by reference to the
Merger Agreement, a copy of which is attached to this Proxy Statement as
Appendix A. All stockholders are urged to read such document carefully.
BACKGROUND OF AND REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD OF
DIRECTORS
Background of the Merger. From late 1995 through the fall of 1996,
CitiSave was contacted by and had preliminary discussions with certain
financial institutions or their holding companies regarding a possible
combination with or acquisition of CitiSave. Certain of the discussions
related to potential mergers of equals, while other discussions involved a
potential acquisition of CitiSave. In connection with such preliminary
discussions, the Board of Directors and management of CitiSave considered the
long-term ability of CitiSave to grow in the very competitive banking community
of greater Baton Rouge and to provide its stockholders with the returns
necessary to remain an independent company. Further, the addition of new
products, services and branch locations were evaluated as a means to facilitate
deposit growth and enhance the franchise. CitiSave did add one new branch
location in 1996 as a means of enhancing its franchise and customer base, but
given the potential negative earnings impact of additional products and
services and the uncertainty of ultimate success, the Board did not opt to
follow this route. The Board also considered the continued consolidation of
the thrift and banking industries; the fact that larger savings institutions
and banks are able to compete more effectively for new customers; and the
uncertainty of congressional and other proposals to eliminate the thrift
charter.
As the directors considered the foregoing factors, the Board of
Directors determined that a merger of equals transaction was not in the best
interests of stockholders due to the absence of any control premium and the
risks associated with implementing various long-term strategies, and the Board
began to focus on whether the sale of CitiSave might be in the best interests
of stockholders. As a result, the directors decided to investigate the
possible sale of CitiSave and in October 1996 CitiSave retained the services of
Webb to assist in such an investigation.
Beginning in November 1996, the Board of Directors conducted through
Webb a confidential inquiry into the possible interest of nine entities in
pursuing a merger with or acquisition of CitiSave. All nine entities expressed
an interest and were provided certain information on CitiSave, including
financial statements, loan and deposit summaries and other data, after signing
a confidentiality agreement. In December 1996, DGC and three other companies
submitted preliminary, non-binding indications of interest to acquire CitiSave.
The bidder with the lowest proposal elected not to proceed further. DGC and
two other companies then conducted extensive due diligence in January 1997, and
revised proposals were received from each of the three companies in late
January. DGC's proposal was $20.50 per share for an all cash transaction and
$18.50 per share for an all stock
11
<PAGE> 16
transaction. A second proposal was for an all stock transaction at less than
$18.50 per share, and the third proposal was for either all cash or a
combination of cash and stock at prices less than DGC's proposal.
On February 3, 1997, the Board of Directors of CitiSave met to
consider the proposals and questioned Webb about the financial aspects of each
proposal, specifically inquiring into the key financial components of
comparable transactions. The Board also considered the merits of an all cash
transaction versus an all stock transaction, particularly in light of the then
prevailing stock prices of the bidders and of the market in general. Following
such questioning, Webb provided the Board of Directors with its oral opinion
that the transaction was fair to CitiSave's stockholders from a financial point
of view. Based on all the foregoing, the Board of Directors of CitiSave
determined to commence negotiations with DGC regarding a cash acquisition of
CitiSave.
DGC then prepared and filed an application with the OTS by letter
dated February 28, 1997 seeking OTS approval to make an offer to acquire all of
CitiSave's Common Stock. The prior approval of the OTS was required because
the Conversion of Citizens from mutual to stock form had been completed within
the preceding three years.
From mid-February to mid-March, the management of CitiSave reviewed
and revised several drafts of the definitive agreement with the assistance of
its legal counsel and investment banker. The terms of the Merger Agreement
were reviewed in detail and actively negotiated. Following DGC's receipt of OTS
approval on March 19, 1997 of the initial application to make an offer to
acquire CitiSave, negotiations continued.
On March 26, 1997, the Board of Directors of CitiSave reviewed the
proposed definitive Merger Agreement in detail. After consideration of all
factors deemed relevant and in conjunction with advice from CitiSave's
financial and legal advisors, the Board of Directors determined that the
proposed Merger was in CitiSave's best interests and the best interests of
CitiSave's stockholders and unanimously approved the Merger. DGC and CitiSave
executed the Merger Agreement on March 26, 1997 and publicly announced the
transaction on such date.
Reasons for the Merger. The terms of the Merger Agreement, including
the Merger Price to be paid to CitiSave's stockholders, were the result of
arm's-length negotiations between the representatives of CitiSave and DGC.
Among the factors considered by the Board of Directors of CitiSave in deciding
to approve and recommend the terms of the Merger were (i) the Merger Price to
be paid to CitiSave's stockholders in relation to the market value, book value,
earnings per share and dividend rates of the CitiSave Common Stock, (ii)
information concerning the financial condition, results of operations, capital
levels, asset quality and prospects of CitiSave, (iii) industry and economic
conditions, (iv) the impact of the Merger on the depositors, employees,
customers and communities served by CitiSave through expanded commercial,
consumer and retail banking products and services, (v) the opinion of
CitiSave's financial advisor as to the fairness of the Merger Price
12
<PAGE> 17
from a financial point of view to the holders of the CitiSave Common Stock,
(vi) the general structure of the transaction and the compatibility of
management and business philosophy, (vii) the likelihood of receiving the
requisite regulatory approvals in a timely manner, and (viii) the ability of
the combined enterprise to compete in relevant banking and non-banking markets.
In making its determination, the Board of Directors of CitiSave did not ascribe
relative weights to the factors which it considered.
The Board of Directors of CitiSave believes that the Merger is in the
best interest of CitiSave and its stockholders. THE BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE APPROVAL OF THE
MERGER AGREEMENT.
OPINION OF FINANCIAL ADVISOR
In October 1996, Webb was retained by CitiSave to evaluate CitiSave's
strategic alternatives as part of a shareholder enhancement program and to
evaluate any specific proposals that might be received regarding an acquisition
of CitiSave. Webb, as part of its investment banking business, is continuously
engaged in the evaluation of businesses and securities in connection with
mergers and acquisitions, negotiated underwritings, and distributions of listed
and unlisted securities. Webb is familiar with the market for common stocks of
publicly traded banks, savings institutions and bank and savings institution
holding companies. The Board of Directors of CitiSave selected Webb on the
basis of the firm's reputation and its experience and expertise in transactions
similar to the Merger. Except as described herein, Webb is not affiliated with
CitiSave, DGC or their respective affiliates.
Pursuant to its engagement, Webb was asked to render an opinion as to
the fairness, from a financial point of view, of the Merger Price to the
stockholders of CitiSave. Webb delivered a fairness opinion dated as of March
26, 1997 to the Board of Directors of CitiSave that the Merger Price is fair to
the stockholders of CitiSave from a financial point of view. No limitations
were imposed by CitiSave upon Webb with respect to the investigations made or
procedures followed by Webb in rendering its opinion. Webb has consented to
the inclusion herein of the summary of its opinion to the Board of Directors of
CitiSave and to the entire opinion being attached hereto as Appendix B.
THE FULL TEXT OF THE OPINION OF WEBB, UPDATED AS OF THE DATE OF THIS
PROXY STATEMENT, WHICH SETS FORTH CERTAIN ASSUMPTIONS MADE, MATTERS CONSIDERED
AND LIMITATIONS ON THE REVIEWS UNDERTAKEN, IS ATTACHED AS APPENDIX B TO THE
PROXY STATEMENT AND SHOULD BE READ IN ITS ENTIRETY. THE SUMMARY OF THE OPINION
OF WEBB SET FORTH IN THIS PROXY STATEMENT IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE OPINION. SUCH OPINION DOES NOT CONSTITUTE A RECOMMENDATION BY
WEBB TO ANY CITISAVE STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD VOTE WITH
RESPECT TO THE MERGER.
In rendering its opinion, Webb (i) reviewed the financial and business
data supplied to it by CitiSave, including CitiSave's prospectus dated May 19,
1995, CitiSave's Annual
13
<PAGE> 18
Report, Proxy Statement and Form 10-KSB for the year ended December 31, 1995
and drafts of such materials for the year ended December 31, 1996, and
CitiSave's quarterly reports on Form 10-QSB for the quarters ended March 31,
1996, June 30, 1996 and September 30, 1996; (ii) reviewed DGC's Annual Report
and Form 10-K for the year ended December 31, 1995 and Form 10-Qs for the
quarters ended March 31, 1996, June 30, 1996 and September 30, 1996 and
publicly released results for the quarter and year ended December 31, 1996;
(iii) discussed with senior management and the Boards of Directors of CitiSave
and Citizens the current position and prospective outlook for CitiSave; (iv)
considered historical quotations and the prices of recorded transactions in the
CitiSave Common Stock since the Conversion in July 1995; (v) reviewed the
financial and stock market data of other savings institutions, particularly in
the southern region of the United States, and the financial and structural
terms of several other recent transactions involving mergers and acquisitions
of savings institutions or proposed changes of control of comparably situated
companies; and (vi) reviewed certain other information which it deemed
relevant.
In rendering its opinion, Webb assumed and relied upon the accuracy
and completeness of the information provided to it by CitiSave and DGC and
obtained by it from public sources. In its review, with the consent of the
CitiSave Board, Webb did not undertake any independent verification of the
information provided to it, nor did it make any independent appraisal or
evaluation of the assets and liabilities of CitiSave or DGC, or of potential or
contingent liabilities of CitiSave or DGC. With respect to the financial
information, including forecasts and asset valuations received from CitiSave,
Webb assumed (with CitiSave's consent) that such information had been
reasonably prepared reflecting the best currently available estimates and
judgment of CitiSave's management. Webb also assumed that no restrictions or
conditions would be imposed by regulatory authorities that would have a
material adverse effect on the contemplated benefits of the Merger to CitiSave
or the ability to consummate the Merger.
Webb's review of comparable transactions included the compilation of
pending or recently completed acquisitions of savings institutions. The results
of the analysis are summarized below along five industry-accepted ratios. The
information in the following table summarizes the material information analyzed
by Webb with respect to the Merger. The summary does not purport to be a
complete description of the analysis performed by Webb in rendering its
opinion. Selecting portions of Webb's analysis or isolating certain aspects of
the comparable transactions without considering all analyses and factors could
create an incomplete or potentially misleading view of the evaluation process.
14
<PAGE> 19
SUMMARY OF SELECTED ACQUISITIONS
WHERE THE TARGET IS A SAVINGS INSTITUTION
<TABLE>
<CAPTION>
Price to
------------------------------------------------------- Tangible
Tangible LTM Deposit Equity to
Book EPS(a) Assets Deposits Premium Assets
--------- -------- ------- --------- -------- ----------
MEDIANS FOR ALL DEALS SINCE JUNE 30, 1995(b)
<S> <C> <C> <C> <C> <C> <C>
Completed (#=17) 140.82% 23.62x 20.52% 25.06% 9.10% 14.59%
Pending (#=9) 125.34 26.67 21.63 27.69 7.50 17.14
DGC/CitiSave Merger 159.40 26.66 26.04 31.90 13.04 16.34
</TABLE>
- --------------------
(a) Last twelve months earnings per share.
(b) Deals completed as of December 31, 1996 or, if pending, announced as
of December 31, 1996.
In its analysis of comparable transactions, Webb evaluated each
pricing ratio against the proposed pricing analysis of DGC's acquisition of
CitiSave. Slightly more weight was given to the price to tangible book value
ratio, the price to last twelve month earnings per share and the price to core
deposit premium ratio. CitiSave's tangible equity as a percentage of assets
was 16.3%, which is higher than the median levels of tangible equity to assets
for completed transactions but not greater than the median for the pending
group of transactions.
In preparing its analyses, Webb made numerous assumptions with respect
to industry performance, business and economic conditions and other matters,
many of which are beyond the control of Webb and CitiSave. The analyses
performed by Webb are not necessarily indicative of actual values or future
results, which may be significantly more or less favorable than suggested by
such analyses and do not purport to be appraisals or reflect the prices at
which a business may be sold.
In October 1996, CitiSave engaged Webb to, among other things, assist
CitiSave in determining appropriate and desirable values that could be realized
in a merger, prepare a summary of recent merger and acquisition trends in the
financial service industry, advise CitiSave as to the structure and form of any
proposed merger, and render an opinion as to the fairness of the consideration
to be paid in any proposed merger. CitiSave agreed to pay Webb a fee of
$25,000 for the delivery of a fairness opinion, which fee was paid in April
1997. In addition, CitiSave agreed to pay Webb a success fee upon consummation
of the Merger equal to approximately $160,500. The $25,000 fee already paid by
CitiSave will be deducted from the success fee payable as of the Effective
Date. CitiSave has also agreed
15
<PAGE> 20
to reimburse Webb for its reasonable out-of-pocket expenses, not to exceed
$10,000 without the prior approval of CitiSave. Webb's compensation, including
the success fee which is contingent upon completion of the Merger, was
determined by arm's-length negotiations between CitiSave and Webb. CitiSave has
further agreed to indemnify Webb and its affiliates, and their respective
directors, officers and employees and each such other person controlling Webb
or any of its affiliates from and against any and all losses, claims, damages,
penalties, judgments and liabilities, joint or several, to which such
indemnified parties may become subject under any applicable federal or state
law, or otherwise, and related to or arising out of the Merger or the
engagement of Webb pursuant to, and the performance by Webb of the services
contemplated by, CitiSave's agreement with Webb, unless such loss, claim,
damage, penalty, judgment, liability or expense is found in a final judgment by
a court of competent jurisdiction to have resulted from Webb's or such
indemnified party's bad faith or gross negligence. CitiSave also agreed to
reimburse any indemnified party for all expenses (including, without
limitation, all expenses of litigation or preparation therefore, including
reasonable counsel fees and expenses, whether or not an indemnified party is a
party thereto) as they are incurred in connection with the investigation of,
preparation for or defense of any pending or threatened claim or any action or
proceeding arising therefrom.
TERMS OF THE MERGER
On the Effective Date, the Merger will be effectuated pursuant to
which CSF, a wholly owned subsidiary of DGC, will be merged with and into
CitiSave and the separate existence of CSF will cease. Each outstanding share
of CitiSave Common Stock issued and outstanding immediately prior to the
consummation of the Merger (other than shares as to which dissenters' rights
have been asserted and duly perfected in accordance with Louisiana law, if such
rights are available) shall be converted into and represent the right to
receive $20.50 in cash without any interest thereon, representing the Merger
Price. The aggregate amount of the Merger Price to be paid in connection with
the Merger is expected to be approximately $21.4 million if all outstanding and
exercisable stock options of CitiSave are exercised prior to the Effective
Date.
CitiSave has two separate stock option plans pursuant to which
directors, officers and key employees of CitiSave have been granted options to
purchase 86,607 shares of CitiSave Common Stock. The Merger Agreement provides
that at or immediately prior to the Effective Date, each holder of a CitiSave
Option then outstanding shall receive cash in settlement thereof from CitiSave
in an amount determined by multiplying the excess of the $20.50 per share
Merger Price over the applicable exercise price per share of such option,
multiplied by the number of shares of CitiSave Common Stock subject to such
CitiSave Option. All such options will automatically be deemed cancelled and
of no further effect as of the Effective Date.
CitiSave also has in effect a Management Recognition Plan pursuant to
which officers and key employees have been granted MRP Awards for an aggregate
of 32,847 restricted shares of CitiSave Common Stock, which shares vest at the
rate of 20% per year
16
<PAGE> 21
commencing July 23, 1997. The Merger Agreement provides that at or immediately
prior to the Effective Date, all outstanding MRP Awards shall be cancelled to
the extent not previously vested, and each holder of any such unvested MRP
Award shall be entitled to receive cash in an amount determined by multiplying
the $20.50 per share Merger Price by the number of unvested shares subject to
such MRP Award.
SURRENDER OF CERTIFICATES
Within five business days after the Effective Date, Deposit Guaranty
National Bank, acting as the exchange agent of DGC, will mail to all holders of
record of the CitiSave Common Stock a letter of transmittal, together with
instructions for the exchange of their CitiSave Common Stock certificates for
cash. Until so exchanged, each certificate representing CitiSave Common Stock
outstanding immediately prior to the Effective Date shall be deemed for all
purposes to evidence ownership of the Merger Price, consisting of cash in the
amount of $20.50 into which each such share is to be converted. CITISAVE'S
STOCKHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES OF CITISAVE COMMON STOCK
UNTIL THEY RECEIVE FURTHER INSTRUCTIONS.
REPRESENTATIONS AND WARRANTIES; CONDITIONS TO THE MERGER
The Merger Agreement contains representations and warranties by
CitiSave, Citizens, DGC and CSF regarding a variety of matters. In the case of
CitiSave and Citizens, representations and warranties have been made concerning
their organization, authority to conduct business, capitalization, the power
and authority to enter into the Merger Agreement and to consummate the
transactions thereunder, material accuracy of financial statements, compliance
with applicable laws, the absence of certain legal proceedings and other events
including material adverse changes in their business or financial condition,
the adequacy of insurance coverage generally, the validity of loans, taxes,
employee benefit plans, certain contracts, undisclosed liabilities,
environmental matters, properties and the accuracy of information prepared and
provided in connection with the Merger Agreement, among other things. In the
case of DGC and CSF, representations and warranties have been provided
concerning their organization, their power and authority to enter into the
Merger Agreement and to consummate the transactions thereunder, and the
consents and approvals required to consummate the Merger.
The obligations of CitiSave, Citizens, DGC and CSF to consummate the
Merger are subject to the fulfillment, at or prior to the Effective Date, of a
variety of conditions, the material conditions of which are as follows: (i)
the approval of the Merger Agreement by the requisite vote of the stockholders
of CitiSave; (ii) the absence of any order, decree or injunction which enjoins
or prohibits the consummation of the Merger, as well as the absence of any
action or proceeding which seeks to prevent such consummation; (iii) the
receipt of all requisite regulatory approvals for the Merger, without any
non-standard condition or requirement which would (a) in the reasonable opinion
of DGC, so materially adversely affect the business or economic benefits of the
transactions contemplated by the
17
<PAGE> 22
Merger Agreement as to render consummation of such transactions inadvisable or
unduly burdensome, or (b) result in a materially adverse effect on CitiSave,
Citizens, the Citizens subsidiaries, DGC, or CSF or so materially and adversely
affect the economic or business benefits of the Merger that DGC or CSF, in the
reasonable and good faith opinion of DGC or CSF, would not have entered into
the Merger Agreement had such conditions or requirements been known at the date
thereof; (iv) the continuing accuracy in all material respects of the
representations and warranties of the other party to the Merger Agreement; (v)
compliance in all material respects with all obligations and covenants of the
other party to the extent not otherwise waived; (vi) the deposit of funds with
the exchange agent by DGC in an amount equal to the aggregate Merger Price; and
(vii) the receipt of certain certificates and legal opinions.
Except with respect to any required stockholder or regulatory
approvals and the absence of any order, decree or injunction enjoining or
prohibiting the consummation of the Merger, all of the conditions of
consummating the Merger may be waived at any time by the party for whose
benefit they were created, and the Merger Agreement may be amended (or
provisions may be waived and time periods may be extended) by written agreement
of the parties, except that after any approval of the Merger by CitiSave's
stockholders, there may not be, without further approval of such stockholders,
any amendment, extension or waiver of the Merger Agreement which changes the
amount or form of consideration to be delivered to the stockholders of
CitiSave.
REGULATORY AND OTHER APPROVALS
Receipt of all requisite regulatory approvals is a condition precedent
to consummating the transactions contemplated by the Merger Agreement. There
can be no assurance, however, that any or all of such regulatory approvals will
be forthcoming or, if received, the timing of such receipt. DGC filed an
application with the OCC in May 1997 with respect to the Merger of Citizens
with and into a national bank subsidiary of DGC, which merger is expected to be
consummated concurrently with the Merger. In light of the OCC application, DGC
intends to request a waiver from the FRB under the BHCA or, if required, file a
separate application with the FRB. The applicable banking agencies will
take into consideration the financial and managerial resources and future
prospects of DGC and its subsidiaries as well as the convenience and needs of
the communities to be served after the Merger in reaching a decision as to
whether to approve the application.
Citizens also filed with the OTS in April 1997 a notice of its
intention to pay a cash dividend to CitiSave immediately prior to the Effective
Date, which will be used by CitiSave to fund the cancellation of its
outstanding stock options and MRP Awards. Citizens received the nonobjection of
the OTS by letter dated April 30, 1997, which letter confirmed that the amount
of the dividend is within the limits set forth in the applicable OTS
regulation.
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<PAGE> 23
DGC and CitiSave are unaware of any other governmental approvals or
actions that are required for consummation of the Merger except as described
above. Should any such approval or action be required, it is presently
contemplated that such approval or action will be sought. There can be no
assurance, however, that any such approval or action, if needed,
could be obtained, would not delay the consummation of the transactions
contemplated under the Merger Agreement and would not be conditioned in a
manner that would cause DGC to terminate the Merger Agreement. Moreover, there
can be no assurance that no action will be brought challenging the Merger on
antitrust or other grounds.
BUSINESS PENDING THE MERGER
The provisions of the Merger Agreement provide that, until the
Effective Date, CitiSave and Citizens are required to conduct their businesses
and engage in transactions only in the ordinary course and consistent with
prudent banking practice. In addition, during the period prior to the
Effective Date, neither CitiSave nor Citizens shall (a) increase by more than
10% the compensation payable by Citizens or CitiSave to any of its directors,
officers, agents, consultants, or any of its employees whose total compensation
after such increase would be in excess of $25,000 per annum (excluding
increases in compensation resulting from the vesting of outstanding MRP Awards
or from the exercise of outstanding CitiSave Options; (b) grant or pay any
extraordinary bonus, percentage compensation, service award or other like
benefit to any such director, officer, agent, consultant or employee, except
that a bonus equal to 3% of Citizens' net income before taxes in 1997 may be
paid to Mr. Nettles, or make or agree to any extraordinary welfare, pension,
retirement or similar payment or arrangement for the benefit of any such
director, officer, agent, consultant or employee; (c) sell or dispose of
material assets except in the ordinary course of business; (d) enter into any
new capital commitments or make any capital expenditures, except commitments or
expenditures within existing operating and capital budgets or otherwise in the
ordinary course of business; (e) authorize or issue any additional shares of
any class of its capital stock (except that shares of CitiSave Common Stock may
be issued upon the exercise of outstanding CitiSave Options) or any securities
exchangeable for or convertible into any such shares or any options or rights
to acquire any such shares, nor shall Citizens or CitiSave otherwise authorize
or affect any change in its capitalization; (f) pay any dividends to its
stockholders, except in the case of Citizens as set forth in the Merger
Agreement and except that CitiSave may pay regular quarterly cash dividends on
the CitiSave Common Stock of $.10 per share for the first two quarters of
1997, which may be paid at the regular times, and dividends of $.10 per share
for each additional full calendar quarter completed on or prior to the
Effective Date to be paid after completion of the full calendar quarter; (g)
make any change in any of their accounting policies or practices, unless
required by generally accepted accounting principles, or take any action which
would have a material adverse effect on the Merger or the anticipated merger of
Citizens into a subsidiary bank of DGC; (h) incur any liability for borrowed
money except extensions of credit from the FHLB of Dallas (in which no single
transaction shall exceed $5,000,000) and otherwise in the ordinary course of
their banking business or place upon or permit any lien or encumbrance upon
any of their properties or assets, except certain types of liens permitted by
the Merger Agreement.
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<PAGE> 24
In addition, CitiSave has agreed not to solicit or encourage inquiries
or proposals with respect to, or furnish information relating to or participate
in any negotiations or discussions concerning, any acquisition or purchase of
all or a substantial portion of the assets of, or of a substantial equity
interest in, CitiSave or any subsidiary thereof, or any business combination
with CitiSave or any subsidiary thereof, other than as contemplated by the
Merger Agreement. Notwithstanding the foregoing, CitiSave, after written notice
to DGC, may furnish information in response to unsolicited inquiries from third
parties and/or engage in discussions or negotiations with third parties if, in
each case, the Board of Directors of CitiSave determines in good faith based on
the advice of legal counsel that the failure to furnish information in response
to such unsolicited inquiries and/or engage in such discussions or negotiations
is likely to be deemed to constitute a breach of their fiduciary duties under
applicable Louisiana law. If (i) CitiSave furnishes information to or enters
into discussions or negotiations with another party prior to December 31, 1997,
and (ii) CitiSave enters into a definitive agreement with such party prior to
June 30, 1998, then CitiSave shall pay DGC a fee of $500,000.
EFFECTIVE DATE OF THE MERGER; TERMINATION
The Effective Date shall be the date set forth in the certificate of
merger to be filed in the office of the Secretary of State of the State of
Louisiana. The closing of the transactions contemplated by the Merger
Agreement (the "Closing") will take place on the last business day of the month
following the receipt of all regulatory and stockholder approvals required to
consummate the Merger, unless otherwise agreed to by the parties. It is
anticipated that the Closing and the Effective Date will occur on the same
date.
DGC and CitiSave each anticipate that the Merger will be consummated
in the third quarter of 1997. Consummation of the Merger could be delayed,
however, as a result of delays in obtaining the necessary governmental and
regulatory approvals or if any other condition to the consummation of the
Merger is not satisfied. There can be no assurance as to if or when such
approvals will be obtained or such conditions will be satisfied.
The Merger Agreement may be terminated at any time prior to the
Effective Date by (a) mutual written consent of the parties, properly
authorized by their respective Boards of Directors; (b) DGC and CSF
Acquisition, if at the time of such termination there shall have been any
material adverse change in the financial condition, results of operations,
business or prospects of CitiSave and Citizens, considered as a whole, since
December 31, 1996; (c) any party to the Merger Agreement, if a United States
District Court shall rule upon application of the Department of Justice after a
full trial on the merits or a decision on the merits based on a stipulation of
facts that the transactions contemplated by the Merger Agreement violate the
antitrust laws of the United States; (d) any party to the Merger Agreement, if
the Merger Agreement shall not have been approved by the affirmative vote of
the holders of at least two-thirds of the total votes present in person or by
proxy at the Annual Meeting; (e) DGC and CSF, in the event there are dissenting
stockholders who hold more than 15% of the shares of CitiSave Common Stock; or
(f) any party to the Merger Agreement if the Closing shall not have occurred by
December 31, 1997.
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<PAGE> 25
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Board of Directors of
CitiSave, stockholders should be aware that members of CitiSave's management
and the CitiSave Board of Directors have interests in the Merger that are in
addition to the interests of stockholders generally. The CitiSave Board of
Directors was aware of these interests and considered them, among other
matters, in approving the Merger Agreement and the transactions contemplated
thereby.
Benefits to Mr. Nettles. The employment of Mr. Nettles as the
Chairman, President and Chief Executive Officer (the "Executive") of CitiSave
and Citizens will be terminated as of the Effective Date. Upon such
termination, CitiSave and/or Citizens shall pay to the Executive the amount
required to be paid to him under the agreement, dated as of July 14, 1995,
among the Executive, CitiSave and Citizens ("1995 Agreement"). Pursuant to the
1995 Agreement, the Executive shall be entitled to receive a severance amount
equal to three times his average annual compensation over the most recent five
calendar years, with the amount to be paid in equal monthly installments over a
period of up to 36 months. In addition, DGC will provide the Executive for a
period ending the earlier of (i) the expiration of the remaining term of
employment (currently July 14, 1999), or (ii) the date of the Executive's
full-time employment by another employer (provided that the Executive is
entitled under the terms of such employment to benefits substantially similar
to those described in this sentence), at no cost to the Executive, the
Executive's continued participation in all group insurance, life insurance,
health and accident, disability and other employee benefit plans, programs and
arrangements in which the Executive was entitled to participate immediately
prior to consummation of the Merger. If the Effective Date is on or before
December 31, 1997, then the sum of (i) the present value of the cash severance
benefits to be paid pursuant to the 1995 Agreement, and (ii) the deemed
parachute payments that arise from (A) the present value of the fringe benefits
to be provided pursuant to the 1995 Agreement, and (B) the accelerated vesting
of the restricted shares granted to the Executive under CitiSave's Management
Recognition Plan which will be treated as contingent on the change in control
for purposes of Section 280G of the Internal Revenue Code of 1986, as amended
(the "Code"), shall be $361,219.
The Merger Agreement also permits Citizens to continue its current
practice of accruing 3% of its net income before taxes for a bonus to be paid
to Mr. Nettles immediately prior to the Effective Date.
Benefits to Employees. From and after the Effective Date, DGC will,
subject to compliance with applicable legal and regulatory requirements,
provide coverage for all Citizens employees under all DGC employee benefit
plans for which they are eligible, as soon as practicable after the Effective
Date. All prior years of service of Citizens employees will be counted for
vesting and eligibility purposes under all applicable DGC employee benefit
plans to the extent permitted by applicable law. Any Citizens employee who,
immediately prior to the Effective Date, is covered by or is a participant in a
Citizens employee benefit plan listed in a schedule to the Merger Agreement,
shall, on the Effective Date, be covered by or participate in the comparable
DGC employee benefit plan if a
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<PAGE> 26
comparable plan otherwise is maintained by DGC and if the eligibility
requirements of the DGC plan are met.
CitiSave ESOP. The CitiSave ESOP will terminate upon the Effective
Date. Any indebtedness of the CitiSave ESOP remaining as of the Effective Date
shall be repaid from the Trust associated with the CitiSave ESOP through
application of the Merger Price received by the CitiSave ESOP. Upon the
repayment of the CitiSave ESOP loan, the remaining funds in the ESOP loan
suspense account will be allocated (to the extent permitted by applicable laws
and regulations) to CitiSave ESOP participants (as determined under the terms
of the CitiSave ESOP). Each participant in the CitiSave ESOP not fully vested
will become fully vested in his or her CitiSave ESOP account as of the
Effective Date. Subject to the conditions described in the Merger Agreement,
as soon as practicable after the Effective Date, repayment of the CitiSave ESOP
loan and the receipt of a favorable termination ruling from the IRS,
participants in the CitiSave ESOP shall be entitled at their election to have
the amounts in their CitiSave ESOP accounts either distributed to them in a
lump sum or rolled over to another tax-qualified plan or individual retirement
account.
As of and following the Effective Date, DGC shall cause the CitiSave
ESOP to be maintained for the exclusive benefit of employees and other persons
who were participants or beneficiaries therein prior to the Effective Date and
proceed with termination of the CitiSave ESOP through distribution of its
assets in accordance with its terms, except as otherwise may be required to
comply with applicable law or to obtain a favorable determination from the IRS
as to the continuing qualified status of the CitiSave ESOP. No such
distributions of the CitiSave ESOP shall occur until a favorable termination
ruling has been received from the IRS. CitiSave shall cause the CitiSave ESOP
to be amended, effective as of the Effective Date, to provide that the
administrative committee thereof shall consist of three individuals appointed
by the Board of Directors of CitiSave prior to the Effective Date (the
appointment of such individuals will be subject to the prior consent of DGC and
such individuals, after their appointment, may not be unreasonably removed or
changed by DGC or its affiliates for a period of two years after the Effective
Date).
Indemnification Rights and Insurance. From and after the Effective
Date, CitiSave, as survivor of the Merger, shall indemnify, defend, and hold
harmless the former directors, officers, employees and agents of CitiSave
(collectively, the "Holding Company Indemnified Parties") against all losses,
claims, damages, liabilities, judgments (and related expenses including, but
not limited to, attorney's fees and amounts paid in settlement), joint, several
or solidary, and any action or other proceeding in respect thereof, to which
the Holding Company Indemnified Parties or any of them become subject, based
upon or arising out of actions or omissions of such persons occurring at or
prior to the Effective Date (including the transactions contemplated by the
Merger Agreement) to the full extent permitted under Louisiana law or by
CitiSave's Articles of Incorporation and Bylaws as in effect on the date of the
Merger Agreement, whichever is greater. In addition, Citizens or any successor
thereto shall similarly indemnify, defend, and hold harmless the former
directors, officers, employees and agents of Citizens.
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<PAGE> 27
In addition to the indemnification required under the preceding
paragraph, DGC has agreed to use its best efforts to maintain the existing
directors' and officers' liability insurance policy of CitiSave and Citizens,
respectively, covering persons who are currently covered by such insurance for
a period of five years after the Effective Date on terms generally no less
favorable than those in effect on the date of the Merger Agreement; provided,
however, that DGC may substitute therefor policies providing at least
comparable coverage containing terms and conditions no less favorable than
those in effect on the date of the Merger Agreement.
Other than as set forth above, no director or executive officer of
CitiSave or DGC has any direct or indirect material interest in the Merger,
except in the case of CitiSave insofar as ownership of CitiSave Common Stock
and existing CitiSave Options and MRP Awards might be deemed such an interest.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The exchange of CitiSave Common Stock for cash pursuant to the terms
of the Merger Agreement will be a taxable transaction for federal income tax
purposes under the Code, and may also be a taxable transaction under state,
local and other tax laws. Similarly, stockholders of CitiSave who exercise
their dissenters' appraisal rights and receive cash in exchange for their
shares of CitiSave Common Stock will realize and recognize income for federal
tax purposes and may recognize income under state, local and other tax laws. A
stockholder of CitiSave will recognize gain or loss equal to the difference
between the amount of cash received by the stockholder pursuant to the Merger
and the tax basis in the CitiSave Common Stock exchanged by such stockholder
pursuant to the Merger. Gain or loss must be determined separately for each
block of CitiSave Common Stock (i.e., shares of CitiSave Common Stock acquired
by the stockholder at the same time and price) exchanged pursuant to the
Merger.
Gain or loss recognized by the stockholder exchanging his or her
CitiSave Common Stock pursuant to the Merger or pursuant to the exercise of
dissenters' rights will be capital gain or loss if such CitiSave Common Stock
is a capital asset in the hands of the stockholder. If the CitiSave Common
Stock has been held for more than one year, the gain or loss will be long-term.
Capital gains recognized by an exchanging individual stockholder generally will
be subject to tax at the top marginal rate applicable to the stockholder (up to
a maximum of 39.6% for short-term capital gains and 28% for long-term capital
gains), and capital gains recognized by an exchanging corporate stockholder
generally will be subject to tax at a maximum rate of 35%.
The exchange of outstanding stock options to acquire CitiSave Common
Stock for cash pursuant to the terms of the Merger Agreement will also be a
taxable transaction for federal income tax purposes under the Code and may also
be a taxable transaction under state, local and other laws. Each optionee will
recognize ordinary income equal to the amount of cash received by the optionee
pursuant to the Merger in exchange for his stock options.
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<PAGE> 28
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS BASED UPON
CURRENT LAW AND IS INTENDED FOR GENERAL INFORMATION ONLY. EACH CITISAVE
STOCKHOLDER AND OPTIONEE IS URGED TO CONSULT HIS TAX ADVISOR CONCERNING THE
SPECIFIC TAX CONSEQUENCES OF THE MERGER TO SUCH STOCKHOLDER OR OPTIONEE,
INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL OR OTHER TAX LAWS AND OF
ANY PROPOSED CHANGES IN THE CODE.
ACCOUNTING TREATMENT OF THE MERGER
The Merger will be accounted for as a purchase for financial reporting
purposes. Under this method of accounting, DGC will record the acquisition of
CitiSave at its cost at the Effective Date of the Merger, which cost would
include the cash paid in the Merger and all direct acquisition costs. The
acquisition cost will be allocated to the acquired assets and liabilities of
CitiSave based upon their fair values at the Effective Date of the Merger in
accordance with generally accepted accounting principles. Acquisition cost in
excess of the fair values of the net assets acquired, if any, will be recorded
as an intangible asset and amortized for financial accounting purposes. The
reported income of DGC will include the operations of CitiSave after the
Effective Date of the Merger.
EXPENSES OF THE MERGER
All out-of-pocket costs and expenses incurred in connection with the
Merger (including, but not limited to, counsel fees) shall be paid by the party
incurring such costs and expenses.
DISSENTERS' RIGHTS
Dissenting stockholders who comply with the procedural requirements of
the BCL will be entitled to receive payment of the fair cash value of their
shares if the Merger is effected with the approval of less than 80% of
CitiSave's total voting power. Section 12:131 of the BCL sets forth the
procedures which must be complied with in order to qualify for dissenters'
rights. THE FOLLOWING DOES NOT PURPORT TO BE A COMPLETE STATEMENT OF THE
PROVISIONS OF SECTION 12:131 OF THE BCL AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THOSE PROVISIONS, A COPY OF WHICH IS ATTACHED HERETO AS APPENDIX
C. SUCH PROVISIONS MUST BE STRICTLY COMPLIED WITH OR A STOCKHOLDER'S
DISSENTERS' RIGHTS WILL BE LOST.
If an owner of shares of CitiSave Common Stock wishes to exercise the
right to dissent, such owner must file with CitiSave, prior to or at the Annual
Meeting, a written objection to the Merger and the owner must vote his shares
against the Merger at the Annual Meeting. Failure to vote against the Merger
proposal will constitute a waiver of the stockholder's dissenters' rights, and
the written objection required by the BCL must be filed with CitiSave in
addition to voting against the Merger if a stockholder wishes to exercise his
dissenters' rights. If the Merger is approved by the required vote, but by less
than 80% of the total voting power, CitiSave shall promptly give written notice
thereof, by registered mail, to each stockholder who filed a written objection.
Each stockholder may, within
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<PAGE> 29
twenty days after the mailing of such notice to him, file with CitiSave a
demand in writing for the fair cash value of his shares as of the day before
the vote was taken at the Annual Meeting; provided that the stockholder (i)
states in such demand the value demanded, (ii) states in such demand a post
office address to which the reply of CitiSave may be sent, and (iii) deposits
in escrow in a chartered bank or trust company located in the parish of
CitiSave's registered office the certificates of CitiSave Common Stock duly
endorsed and transferred to CitiSave upon the sole condition that such
certificates of CitiSave Common Stock will be delivered to CitiSave upon
payment of the value of the CitiSave Common Stock determined in accordance with
Section 12:131 of the BCL. The stockholder shall deliver to CitiSave, with his
demand, the written acknowledgement of such bank or trust company that so holds
his certificates of CitiSave Common Stock. Unless the objection, demand and
acknowledgement discussed above are made and delivered by the stockholder
within the appropriate time period, the stockholder shall conclusively be
presumed to have acquiesced to the Merger and related transactions.
If CitiSave does not agree to the value stated and demanded by a
dissenting stockholder, or does not agree that a payment is due, it shall,
within twenty days after receipt of such demand and acknowledgement, notify the
stockholder in writing of its disagreement and shall state in such notice the
value it will agree to pay; otherwise CitiSave shall be liable to pay the value
demanded by the dissenting stockholder.
In the case of disagreement as to the fair cash value, within sixty
days after receipt of CitiSave's notice of disagreement, the dissenting
stockholder may file suit against CitiSave, or DGC after the Merger, in the
district court of the parish within which CitiSave or DGC, as the case may be,
has its registered office, praying the court to fix and decree the fair cash
value of the CitiSave Common Stock as of the day before the vote at the Annual
Meeting. The court shall, on such evidence as may be adduced in relation
thereto, determine whether payment is due, and if so, the cash value of the
CitiSave Common Stock. Any other dissenting stockholder entitled to file suit
may, within such sixty-day period, intervene as a plaintiff in such suit filed
by another stockholder. No order or decree can be made by the court staying
the proposed corporate action. Failure of the dissenting stockholder to bring
suit, or intervene in such suit, within the sixty days after receipt of notice
of disagreement by CitiSave shall conclusively bind the stockholder to accept
the value as fixed by CitiSave in its notice of disagreement.
Upon institution of a suit by a dissenting stockholder, if CitiSave,
or DGC after the Merger, deposits in the registry of the court the amount it
deemed to be the fair cash value of the dissenting stockholder's CitiSave
Common Stock in its notice of disagreement, then if the amount finally awarded
to such stockholder, exclusive of interest and costs, is more than the amount
offered and deposited, the costs of the proceeding will be taxed against
CitiSave or DGC after the Merger. Otherwise, if the amount deposited exceeds
the amount awarded to the dissenting stockholder, the costs of such proceeding
shall be taxed against the dissenting stockholder.
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ADJOURNMENT OF ANNUAL MEETING
Each proxy solicited hereby requests authority to vote for an
adjournment of the Annual Meeting, if an adjournment is deemed to be necessary.
CitiSave may seek an adjournment of the Annual Meeting for not more than 29
days in order to enable CitiSave to solicit additional votes in favor of the
proposal to adopt the Merger Agreement in the event that such proposal has not
received the requisite vote of stockholders at the Annual Meeting and such
proposal has not received the negative votes of the holders of a majority of
CitiSave Common Stock. If CitiSave desires to adjourn the meeting with respect
to such proposal, it will request a motion that the meeting be adjourned for up
to 29 days with respect to such proposal, and no vote will be taken on such
proposal at the originally scheduled Annual Meeting. Each proxy solicited
hereby, if properly signed and returned to CitiSave and not revoked prior to
its use, will be voted on any motion for adjournment in accordance with the
instructions contained therein. If no contrary instructions are given, each
proxy received will be voted in favor of any motion to adjourn the meeting.
Unless revoked prior to its use, any proxy solicited for the Annual Meeting
will continue to be valid for any adjournment of the Annual Meeting, and will
be voted in accordance with instructions contained therein, and if no contrary
instructions are given, for the proposal in question.
Any adjournment will permit CitiSave to solicit additional proxies and
will permit a greater expression of the stockholders' views with respect to the
Merger proposal. Such an adjournment would be disadvantageous to stockholders
who are against the Merger proposal, because an adjournment will give CitiSave
additional time to solicit favorable votes and thus increase the chances of
passing the Merger proposal.
If a quorum is not present at the Annual Meeting, no proposal will be
acted upon and the Board of Directors of CitiSave will adjourn the Annual
Meeting to a later date in order to solicit additional proxies on each of the
proposals being submitted to stockholders.
An adjournment for up to 29 days will not require either the setting
of a new record date or notice of the adjourned meeting as in the case of an
original meeting. CitiSave has no reason to believe that an adjournment of the
Annual Meeting will be necessary at this time.
BECAUSE THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR
THE PROPOSAL TO ADOPT THE MERGER AGREEMENT, AS DISCUSSED ABOVE, THE BOARD OF
DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE POSSIBLE ADJOURNMENT OF THE
ANNUAL MEETING. THE HOLDERS OF A MAJORITY OF THE CITISAVE COMMON STOCK
PRESENT, IN PERSON OR BY PROXY, AT THE ANNUAL MEETING WILL BE REQUIRED TO
APPROVE A MOTION TO ADJOURN THE ANNUAL MEETING.
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INFORMATION WITH RESPECT TO NOMINEES FOR DIRECTOR, DIRECTORS
WHOSE TERMS CONTINUE AND EXECUTIVE OFFICERS
ELECTION OF DIRECTORS
The Bylaws of the Company presently provide that the Board of
Directors shall consist of nine members. The Articles of Incorporation of the
Company require that the Board of Directors shall be divided into three classes
as nearly equal in number as possible. The members of each class are to be
elected for a term of three years or until their successors are elected and
qualified. One class of directors is to be elected annually. There are no
arrangements or understandings between the Company and any person pursuant to
which such person has been elected a director, and no director or nominee for
director is related to any other director, nominee for director or executive
officer of the Company by blood, marriage or adoption.
Unless otherwise directed, each proxy executed and returned by a
stockholder will be voted for the election of the nominees for director listed
below. If any person named as a nominee should be unable or unwilling to stand
for election at the time of the Annual Meeting, the proxies will nominate and
vote for any replacement nominee or nominees recommended by the Board of
Directors. At this time, the Board of Directors knows of no reason why any of
the nominees listed below may not be able to serve as a director if elected.
<TABLE>
<CAPTION>
Position with the Company and the
Association and Principal Occupation Director
Name Age(1) During the Past Five Years Since(2)
- ------------------------------ -------- ----------------------------------------------- -----------
NOMINEES FOR A THREE-YEAR TERM EXPIRING IN 2000
<S> <C> <C>
S. Pendery Gibbens, Jr. 65 Director; President and Secretary of B.R. Sec. 1985
Co., Inc., a finance company and mini-storage
facility in Baton Rouge, Louisiana since 1960.
Dr. Clarence B. Hackett 53 Director; Self-employed veterinarian in Baton 1993
Rouge, Louisiana since 1971.
Wayne P. Hirschey 57 Director; President of S.H. Hirschey Co., a 1988
developer of one- to four-family residences in
Baton Rouge, Louisiana since 1958.
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR
ELECTION OF THE ABOVE NOMINEES FOR DIRECTOR.
(Footnotes on following page)
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<PAGE> 32
<TABLE>
<CAPTION>
Position with the Company and the
Association and Principal Occupation Director
Name Age(1) During the Past Five Years Since(2)
- ------------------------------ -------- ----------------------------------------------- -----------
DIRECTORS WHOSE TERMS EXPIRE IN 1998
<S> <C> <C>
Lee F. Nettles 55 Chairman of the Board, President and Chief 1976
Executive Officer of the Company since 1995, Chief
Executive Officer of the Association since 1976
and Chairman of the Board and President of the
Association since 1977.
Ferd B. Kramer, Jr. 55 Director; Director, President and owner of Kramer 1989
Engineering, Inc. in Baton Rouge, Louisiana since
November 1995; prior thereto, Director of Project
Management of Marrero, Couvillon & Associates,
Inc., consulting engineers in Baton Rouge,
Louisiana, from 1991 to November 1995.
Charlotte H. Smith 52 Director; Director, Vice President and Treasurer 1986
of Cecil L. Smith, Inc., a computer consulting
company in Baton Rouge, Louisiana, since 1979.
Ms. Smith has also been the sole owner of Smith
Properties, a manager of commercial and
residential investment real estate, in Baton
Rouge, Louisiana since 1975.
DIRECTORS WHOSE TERMS EXPIRE IN 1999
Dr. Ernest D. Bateman, Jr. 65 Director; Self-employed orthodontist in Baton 1983
Rouge, Louisiana since 1965.
Howard L. Harvill 50 Director; Vice President, Finance of Our Lady of 1994
the Lake Regional Medical Center in Baton Rouge,
Louisiana since 1958.
Frank D. McArthur, II 53 Director; Insurance salesman with and partner of 1992
Arst-McArthur-Sanchez Associates, a firm offering
disability, life and health insurance, in Baton
Rouge, Louisiana since 1977.
</TABLE>
- ---------------------
(1) As of December 31, 1996.
(2) Includes service as a director of the Association.
28
<PAGE> 33
STOCKHOLDER NOMINATIONS
Article 6.F of the Company's Articles of Incorporation governs
nominations for election to the Board of Directors and requires all such
nominations, other than those made by the Board, to be made in compliance with
the notice provisions in that section. Stockholder nominations must be made
pursuant to timely notice in writing to the Secretary of the Company. To be
timely, a stockholder's notice must be delivered to, or mailed and received at,
the principal executive offices of the Company not later than 60 days prior to
the anniversary date of the immediately preceding annual meeting. The Articles
of Incorporation set forth specific requirements with respect to stockholder
nominations.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company met 16 times during the year
ended December 31, 1996. Directors of the Company receive no fees from the
Company for attending Board of Directors meetings or committee meetings. The
Board of Directors has a standing audit committee as described below. The
Board of Directors of the Company does not have a compensation committee. No
director of the Company attended fewer than 75% in the aggregate of the
meetings of the Board of Directors held during fiscal 1996 and the total number
of meetings held by all committees of the Board on which he served during the
year.
The Audit Committee reviews (i) the independent auditors' reports and
results of their examination, subject to review by and with the entire Board of
Directors, (ii) the internal audit function, which is under the control of and
reports directly to the Audit Committee, and (iii) the examination reports of
the federal banking agencies and other regulatory reports, subject to review by
and with the entire Board of Directors. Currently, Messrs. Bateman, Harvill
and Kramer and Ms. Smith are members. The Audit Committee met once during the
year ended December 31, 1996.
The full Board of Directors of the Company serves as the Nominating
Committee and met once during 1996 in such capacity. Although the Board of
Directors will consider nominees recommended by stockholders, it has not
actively solicited recommendations from stockholders of the Company. Article
6.F of the Company's Articles of Incorporation provides certain procedures
which stockholders must follow in making director nominations. If such
stockholder nominations are made, ballots will be provided at the Annual
Meeting bearing the name of a stockholder's nominee or nominees.
Regular meetings of the Board of Directors of the Association are held
on at least a monthly basis and special meetings of the Board of Directors are
held from time-to-time as needed. There were 12 meetings of the Board of
Directors held during the year ended December 31, 1996. No director attended
fewer than 75% of the total number of meetings of the Board of Directors of the
Association during 1996 and the total number of meetings held by all committees
of the Board on which the director served during such year. During
29
<PAGE> 34
the year ended December 31, 1996, each member of the Board of Directors of the
Association (other than Mr. Nettles) was paid $225 per Board meeting (one-half
of such amount is paid for excused absences). For committee meetings,
non-employee directors receive $100 per meeting. Directors who are also
officers do not receive any fees for Board or committee meetings.
The Board of Directors of the Association has established various
committees, including Executive, Audit and Compensation Committees. The Board
of Directors does not have a separate Nominating Committee.
The Executive Committee generally has the power and authority to act
on behalf of the Board of Directors on important matters between scheduled
Board meetings, unless specific Board of Directors action is required or unless
otherwise restricted by the Association's Charter or Bylaws or its Board of
Directors. The members of the Executive Committee change every three months
and consist of a minimum of five directors. The Executive Committee met 26
times during the year ended December 31, 1996.
The Audit Committee reviews (i) the independent auditors' reports and
results of their examination, subject to review by and with the entire Board of
Directors, (ii) the internal audit function, which is under the control of the
reports directly to the Audit Committee, and (iii) the examination reports of
the federal banking agencies and other regulatory reports, subject to review by
and with the entire Board of Directors. During 1996, the members of the Audit
Committee consisted of Messrs. Bateman, Harvill and Kramer and Ms. Smith. The
Audit Committee met once during the year ended December 31, 1996.
The Compensation Committee reviews the compensation of the
Association's officers and employees. The members of the committee are Messrs.
Gibbens, Hackett and Harvill and Ms. Smith, and the committee met once during
the year ended December 31, 1996.
30
<PAGE> 35
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
The following table sets forth certain information with respect to the
executive officers of the Company who are not directors. There are no
arrangements or understandings between the Company and any such person pursuant
to which such person was elected an executive officer of the Company, and no
such officer is related to any director or officer of the Company by blood,
marriage or adoption.
<TABLE>
<CAPTION>
Name Age(1) Principal Occupation During the Past Five Years
- -------------------------------- ------- -------------------------------------------------------
<S> <C> <C>
J. Larry Bellard 45 Senior Vice President and Controller of the Company
since February 1995 and the Association since 1983.
Reginald M. Gremillion, Jr. 47 Senior Vice President of the Company since February 1995
and the Association since February 1991. Prior thereto,
he was Vice President of Capital-Union Federal Savings
and Loan Association in Baton Rouge, Louisiana in charge
of mortgage lending, loan servicing and real estate
owned.
</TABLE>
- -----------------------------------
(1) As of December 31, 1996.
31
<PAGE> 36
BENEFICIAL OWNERSHIP OF CITISAVE COMMON STOCK
BY CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of the Voting Record Date, certain
information as to the CitiSave Common Stock beneficially owned by (i) the only
person or entity, including any "group" as that term is used in Section
13(d)(3) of the Securities Exchange Act of 1934, as amended ("1934 Act"), who
or which was known to the Company to be the beneficial owner of more than 5% of
the issued and outstanding CitiSave Common Stock, (ii) the directors of the
Company, and (iii) all directors and executive officers of the Company and the
Association as a group.
<TABLE>
<CAPTION>
CitiSave Common Stock
Beneficially Owned as of
April 28, 1997(1)(2)
--------------------------------
Name of Beneficial Owner Amount %
- --------------------------------------------------------- ------------------- ---------
<S> <C> <C>
CitiSave Financial Corporation 77,177(3) 8.0%
Employee Stock Ownership Plan Trust
665 Florida Street
Baton Rouge, Louisiana 70801
Tontine Financial Partners, L.P. 95,000(4) 9.9%
200 Park Avenue, Suite 3900
New York, New York 10166
Directors:
Dr. Ernest D. Bateman, Jr. 26,755(5)(6) 2.8%
S. Pendery Gibbens, Jr. 8,255(5)(7) *
Dr. Clarence B. Hackett 5,755(5)(8) *
Howard L. Harvill 4,255(5)(9) *
Wayne P. Hirschey 23,255(5)(10) 2.4%
Ferd B. Kramer, Jr. 11,455(5)(11) 1.2%
Frank D. McArthur, II 18,255(5) 1.9%
Lee F. Nettles 47,994(12) 4.9%
Charlotte H. Smith 23,255(5)(9)(13) 2.4%
All directors and executive officers of the Company
and the Association as a group (11 persons) 204,893(3)(14) 19.9%
</TABLE>
- ------------
* Represents less than 1% of the outstanding CitiSave Common Stock.
(1) For purposes of this table, pursuant to rules promulgated under the
1934 Act, an individual is considered to beneficially own shares of
CitiSave Common Stock if he or she directly or indirectly has or
shares (i) voting power, which includes the power to vote or to direct
the voting of the shares; or (ii) investment power, which includes the
power to dispose or direct the disposition of the shares. Unless
otherwise indicated, an individual has sole voting power and sole
investment power with respect to the indicated shares.
(Footnotes continued on following page)
32
<PAGE> 37
(2) Under applicable regulations, a person is deemed to have beneficial
ownership of any shares of CitiSave Common Stock which may be acquired
within 60 days of the Voting Record Date pursuant to the exercise of
outstanding stock options. Shares of CitiSave Common Stock which are
subject to stock options are deemed to be outstanding for the purpose
of computing the percentage of outstanding CitiSave Common Stock owned
by such person or group but not deemed outstanding for the purpose of
computing the percentage of CitiSave Common Stock owned by any other
person or group.
(3) The CitiSave Financial Corporation Employee Stock Ownership Plan Trust
("Trust") was established pursuant to the CitiSave Financial
Corporation Employee Stock Ownership Plan ("ESOP") by an agreement
between the Company and Messrs. Nettles and Bellard and Ms. Smith, who
act as trustees of the plan ("Trustees"). As of the Voting Record
Date, 58,187 shares of CitiSave Common Stock held in the Trust were
unallocated and 18,990 shares had been allocated to the accounts of
participating employees. Under the terms of the ESOP, the Trustees
must vote the allocated shares held in the ESOP in accordance with the
instructions of the participating employees. Unallocated shares held
in the ESOP will be voted by the ESOP Trustees in the same proportion
for and against proposals to stockholders as the ESOP participants and
beneficiaries actually vote shares of CitiSave Common Stock allocated
to their individual accounts. Any allocated shares which either
abstain on the proposal or are not voted will be disregarded in
determining the percentage of stock voted for and against each
proposal by the participants and beneficiaries. The amount of
CitiSave Common Stock beneficially owned by directors and executive
officers who serve as trustees of the ESOP and by all directors and
executive officers as a group does not include the shares held by the
Trust, except for the shares actually allocated to the accounts of the
executive officers.
(4) Based on a Schedule 13D filed pursuant to the 1934 Act by Jeffrey L.
Gendell and Tontine Financial Partners, L.P. ("Tontine"). The shares
were purchased by Tontine. Mr. Gendell is the Managing Member of
Tontine Management, L.L.C., which is the general partner of Tontine.
(5) Includes 3,255 shares subject to stock options granted to each
non-employee director pursuant to CitiSave's 1996 Directors' Stock
Option Plan, which shares may be acquired upon the exercise of stock
options exercisable within 60 days of the Voting Record Date.
(6) Includes 20,000 shares held by Mr. Bateman's individual retirement
account ("IRA") and 3,500 shares held by his spouse, which shares may
be deemed to be beneficially owned by Mr. Bateman.
(7) Includes 3,900 shares held by Mr. Gibben's IRA.
33
<PAGE> 38
(8) Includes 2,500 shares held by Mr. Hackett's IRA.
(9) The shares are owned jointly with the person's spouse.
(10) Includes 10,000 shares held jointly with Mr. Hirschey's children.
(11) Includes 5,700 shares held by Mr. Kramer's IRA.
(12) Includes 2,240 shares held by Mr. Nettles' IRA, 4,030 shares allocated
to Mr. Nettles' ESOP account, 9,647 unvested shares granted to Mr.
Nettles pursuant to the Company's MRP which may be voted by Mr.
Nettles, and 24,117 shares which may be acquired upon the exercise of
stock options exercisable within 60 days of the Voting Record Date.
Excludes the remaining shares held by the ESOP, of which Mr. Nettles
is one of three trustees.
(13) Excludes the shares held by the ESOP, of which Ms. Smith is one of
three trustees.
(14) Includes 7,339 shares allocated to the accounts of the executive
officers under the ESOP, 21,747 unvested shares granted to all
executive officers as a group pursuant to the Company's MRP which may
be voted by such persons, and 68,657 shares which may be acquired by
all executive officers and directors as a group upon the exercise of
stock options exercisable within 60 days of the Voting Record Date.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under Section 16(a) of the 1934 Act, the Company's directors, officers
and any persons holding more than 10% of the CitiSave Common Stock are required
to report their ownership of the CitiSave Common Stock and any changes in that
ownership to the Securities and Exchange Commission ("Commission") and the AMEX
by specific dates. Based on representations of its directors and officers and
copies of the reports that they have filed with the Commission and the AMEX,
the Company believes that all of these filing requirements were satisfied by
the Company's directors and officers in the year ended December 31, 1996.
34
<PAGE> 39
EXECUTIVE COMPENSATION OF CITISAVE
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the
Association for services rendered in all capacities during the periods
indicated to the President and Chief Executive Officer of the Association.
<TABLE>
<CAPTION>
====================================================================================================================================
Annual Compensation Long Term Compensation
-------------------------------------------------------------------------------
Awards Payouts
----------------------------------------
Name and Principal Stock Number of All Other
Position Year Salary Bonus Other(3) Grants(2) Options(3) LTIP Payouts Compensation(4)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Lee F. Nettles, 1996 $92,000 $20,000 $ $133,852 24,117 -- $45,388
Chairman of the Board, 1995 85,500 25,000 -- -- -- -- 11,623
President and Chief 1994 80,000 28,293 -- -- -- -- --
Executive Officer
====================================================================================================================================
</TABLE>
(1) Annual compensation does not include amounts attributable to other
miscellaneous benefits received by Mr. Nettles, including automobile
expenses and the payment of club dues. The costs to the Association
of providing such benefits during each period indicated did not exceed
10% of the total salary and bonus paid to or accrued for the benefit
of such individual executive officer.
(2) Represents the grant of 9,647 restricted shares of CitiSave Common
Stock to Mr. Nettles pursuant to the Company's MRP, which shares were
deemed to have had the indicated value at the date of grant. The
restricted CitiSave Common Stock awarded to Mr. Nettles had a fair
market value of $135,058 at December 31, 1996, based on the $14.00 per
share closing market price on such date. The awards vest 20% each
year beginning July 23, 1997, and dividends are paid on the restricted
shares.
(3) Consists of stock options granted pursuant to the Company's 1996 Key
Employee Stock Compensation Program.
(4) Represents the value of the shares allocated to Mr. Nettles' account
under the ESOP.
35
<PAGE> 40
STOCK OPTIONS
The following table discloses the total options granted to the
Company's Chief Executive Officer during the year ended December 31, 1996:
<TABLE>
<CAPTION>
% of Total
Number of Options
Options Granted To Exercise
Name Granted Employees(1) Price(2) Expiration Date
- --------------------------- ------------ -------------- ------------ ----------------
<S> <C> <C> <C> <C>
Lee F. Nettles 24,117 27.8% $13.875 July 23, 2006
</TABLE>
- ----------------------
(1) Percentage of options granted to all employees and directors during
1996.
(2) In all cases, the exercise price was based on the closing market price
of a share of CitiSave Common Stock on the date of grant.
The following table discloses certain information regarding the
options held at December, 1996 by the Company's Chief Executive Officer. No
options were exercised during the year ended December 31, 1996.
<TABLE>
<CAPTION>
Number of Options at Value of Options at
December 31, 1996 December 31, 1996
------------------------------- ----------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- --------------------------- ------------ -------------- --------------- ----------------
<S> <C> <C> <C> <C>
Lee F. Nettles 24,117 -- $3,015 $ --
</TABLE>
- --------------------------
(1) Based on a per share market price of $14.00 at December 31, 1996.
EMPLOYMENT AGREEMENT
The Company and the Association (collectively, the "Employers")
entered into an employment agreement with Mr. Nettles on July 14, 1995. The
Employers have agreed to employ Mr. Nettles for a term of three years in his
current position at an initial salary of $92,000. At least 30 days prior to
each annual anniversary date of the employment agreement, the Boards of
Directors of the Company and the Association shall determine whether or not to
extend the term of the agreement for an additional one year. Any party may
elect not to extend the agreement for an additional year by providing written
notice at least 30 days prior to any annual anniversary date. The term of the
agreement is currently schedule to expire on July 14, 1999.
36
<PAGE> 41
The employment agreement is terminable with or without cause by the
Employers. The officer shall have no right to compensation or other benefits
pursuant to the employment agreement for any period after voluntary termination
or termination by the Employers for cause, disability, retirement or death,
provided, however, that (i) in the event that the officer terminates his
employment because of failure of the Employers to comply with any material
provision of the employment agreement or (ii) the employment agreement is
terminated by the Employers other than for cause, disability, retirement or
death or by the officer as a result of certain adverse actions which are taken
with respect to the officer's employment following a Change in Control of the
Company, as defined, Mr. Nettles will be entitled to a cash severance amount
equal to three times his average annual compensation over his most recent five
taxable years. In addition, Mr. Nettles will be entitled to a continuation of
benefits similar to those he is receiving at the time of such termination for
the remaining term of the agreement or until the officer obtains full-time
employment with another employer, whichever occurs first.
A Change in Control is generally defined in the employment agreement
to include any change in control required to be reported under the federal
securities laws, as well as (i) the acquisition by any person of 25% or more of
the Company's outstanding voting securities and (ii) a change in a majority of
the directors of the Company during any two-year period without the approval of
at least two-thirds of the persons who were directors of the Company at the
beginning of such period. Consummation of the Merger will constitute a Change
in Control. See "The Merger - Interests of Certain Persons in the Merger."
The employment agreement provides that in the event that any of the
payments to be made thereunder or otherwise upon termination of employment are
deemed to constitute a "parachute payment" within the meaning of Section 280G
of the Code, then such payments and benefits received thereunder shall be
reduced, in the manner determined by the employee, by the amount, if any, which
is the minimum necessary to result in no portion of the payments and benefits
being non-deductible by the Employers for federal income tax purposes.
Parachute payments generally are payments equal to or exceeding three times the
base amount, which is defined to mean the recipient's average annual
compensation from the employer includable in the recipient's gross income
during the most recent five taxable years ending before the date on which a
change in control of the employer occurred (or such lesser time as the
recipient has been employed). Recipients of parachute payments are subject to
a 20% excise tax on the amount by which such payments exceed the base amount,
in addition to regular income taxes, and payments in excess of the base amount
are not deductible by the employer as compensation expense for federal income
tax purposes.
EMPLOYEE STOCK OWNERSHIP PLAN
The Company established the ESOP for employees of the Company and the
Association effective January 1, 1995. Full-time employees of the Company and
the Association who have been credited with at least 1,000 hours of service
during a twelve month period and who have attained age 18 are eligible to
participate in the ESOP.
37
<PAGE> 42
As part of the Conversion, in order to fund the purchase of up to 8%
of the CitiSave Common Stock issued in the Conversion, the ESOP borrowed funds
from the Company in an amount equal to 100% of the aggregate purchase price of
the CitiSave Common Stock acquired by the ESOP. The loan to the ESOP will be
repaid principally from the Company's and the Association's contributions to
the ESOP over a period of 10 years, and the collateral for the loan is the
CitiSave Common Stock purchased by the ESOP. The loan to the ESOP bears a
fixed interest rate of 8.5%. The Company may, in any plan year, make
additional discretionary contributions for the benefit of plan participants in
either cash or shares of CitiSave Common Stock, which may be acquired through
the purchase of outstanding shares in the market or from individual
stockholders, upon the original issuance of additional shares by the Company or
upon the sale of treasury shares by the Company. Such purchases, if made,
would be funded through additional borrowings by the ESOP or additional
contributions from the Company. The timing, amount and manner of future
contributions to the ESOP will be affected by various factors, including
prevailing regulatory policies, the requirements of applicable laws and
regulations and market conditions.
Shares purchased by the ESOP with the proceeds of the loan are held in
a suspense account and released on a pro rata basis as debt service payments
are made. Discretionary contributions to the ESOP and shares released from the
suspense account are allocated among participants on the basis of compensation.
Forfeitures are reallocated among remaining participating employees and may
reduce any amount the Company might otherwise have contributed to the ESOP.
Participants will vest in their right to receive their account balances within
the ESOP at the rate of 20% per year starting with the completion of three
years of service and will be 100% vested upon the completion of seven years of
service. Credit is given for years of service with the Association prior to
adoption of the ESOP. In the case of a "change in control," as defined,
however, participants will become immediately fully vested in their account
balances. Benefits may be payable upon retirement or separation from service.
The Company's contributions to the ESOP are not fixed, so benefits payable
under the ESOP cannot be estimated.
Messrs. Nettles and Bellard and Ms. Smith serve as trustees of the
ESOP. Under the ESOP, the trustees must vote all allocated shares held in the
ESOP in accordance with the instructions of the participating employees, and
allocated shares for which employees do not give instructions, and unallocated
shares, will be voted in the same ratio on any matter as to those shares for
which instructions are given.
Generally accepted accounting principles require that any third party
borrowing by the ESOP be reflected as a liability on the Company's statement of
financial condition. Since the ESOP is borrowing from the Company, such
obligation is not treated as a liability, but the amount of the borrowing is
deducted from stockholders' equity. If the ESOP purchases newly issued shares
from the Company, total stockholders' equity would neither increase nor
decrease, but per share stockholders' equity and per share net earnings would
decrease as the newly issued shares are allocated to the ESOP participants.
38
<PAGE> 43
The ESOP is subject to the requirements of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), and the regulations of the
Internal Revenue Service and the Department of Labor thereunder.
DEFINED BENEFIT PENSION PLAN
The Association had a defined benefit pension plan ("Pension Plan") for
all full-time employees who had completed one year of service with the
Association and who had attained the age of 21, which plan was terminated
effective as of March 31, 1996. Pension expense amounted to $16,000, $50,000
and $45,000 for 1996, 1995 and 1994, respectively. Upon termination of the
Pension Plan, each covered employee received his or her accumulated benefits in
either the form of a cash (or rollover) distribution or an annuity contract.
Mr. Nettles received a cumulative benefit of approximately $200,000 upon
termination of the plan.
The Board of Directors of the Association adopted a Supplemental
Executive Retirement Plan ("SERP") effective January 1, 1993, which provided
supplemental benefits for selected executives beyond those provided by the
Association's Pension Plan. Participation in the SERP was limited to certain
key executive officers of the Association selected by the Board of Directors.
In 1996, the Association contributed $3,300 to the SERP, all of which was
allocated to the account of Mr. Nettles. Upon termination of the SERP in
January 1997, Mr. Nettles received approximately $45,000, which represents
cumulative benefits including the earnings thereon.
INDEBTEDNESS OF MANAGEMENT
The Association, in the ordinary course of business, makes available to
its directors, officers and employees mortgage loans on their primary
residences and other types of loans. Such loans are made on the same terms as
comparable loans to other borrowers. It is the belief of management that these
loans neither involve more than the normal risk of collectibility nor present
other unfavorable features. At December 31, 1996, the Association's
outstanding loans to directors and executive officers of the Association, or
members of their immediate families, totalled approximately $517,000 or 4.2% of
the Company's total net worth at December 31, 1996.
39
<PAGE> 44
The following table sets forth certain information with respect to each
current director or executive officer of the Association, or members of their
immediate families, whose aggregate indebtedness exceeded $60,000 during the
period indicated.
<TABLE>
<CAPTION>
Highest
Principal
Year Balance from Principal Interest
Nature of Loan 1/1/96 to Balance at Rate as of
Name and Position Indebtedness Made 12/31/96 12/31/96 12/31/96
- ---------------------------------- ----------------------- ------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
S. Pendery Gibbens, Jr., First mortgage(1) 1996 $100,000 $99,353 6.750%
Director Miscellaneous(2) 1996 65,000 65,000 9.250
Howard L. Harvill, First mortgage(1) 1991 145,503 0 8.000
Director
Charlotte H. Smith, First mortgage(3) 1988 67,875 66,107 8.125
Director First mortgage(3) 1993 59,045 56,167 9.000
Reginald M. Gremillion, Jr., First mortgage(1) 1986 84,138 82,547 8.250
Senior Vice President First mortgage(1)(4) 1994 92,132 91,171 8.125
Automobile(4) 1994 8,192 7,403 9.500
</TABLE>
- -----------------------
(1) Secured by primary residence.
(2) Secured by common stock of other companies.
(3) Secured by rental property.
(4) Loan made to an immediate family member.
40
<PAGE> 45
RATIFICATION OF APPOINTMENT OF AUDITORS
The Board of Directors of the Company has appointed Hannis T. Bourgeois
& Co., L.L.P., independent certified public accountants, to perform the audit
of the Company's consolidated financial statements for the year ending December
31, 1997, and further directed that the selection of auditors be submitted for
ratification by the stockholders at the Annual Meeting.
The Company has been advised by Hannis T. Bourgeois & Co. that neither
that firm nor any of its associates has any relationship with the Company or
its subsidiaries other than the usual relationship that exists between
independent certified public accountants and clients. Hannis T. Bourgeois & Co.
will have one or more representatives at the Annual Meeting who will have an
opportunity to make a statement, if they so desire, and who will be available
to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE RATIFICATION OF
THE APPOINTMENT OF HANNIS T. BOURGEOIS & CO., L.L.P., AS INDEPENDENT AUDITORS
FOR THE FISCAL YEAR ENDING DECEMBER 31, 1997.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF CITISAVE
The following is a discussion of the consolidated financial condition of
CitiSave at December 31, 1996 and December 31, 1995 and the results of
operations for the last three years. Currently, the business and management of
CitiSave are primarily the business and management of the Association. This
discussion should be read in conjunction with the consolidated financial
statements and footnotes included herein.
GENERAL
The profitability of CitiSave and the Association depends primarily on
net interest income, which is the difference between interest and dividend
income on interest-earning assets, principally loans, investment securities and
mortgage-backed securities, and interest expense on interest-bearing deposits.
Profitability also is dependent, to a lesser extent, on the level of
non-interest income (including insurance agency commissions, loan fees and gain
on sale of loans), provision for loan losses, noninterest expense and income
taxes. Noninterest expense consists of general, administrative and other
expenses, such as compensation and benefits, occupancy and equipment expense,
federal insurance premiums, and miscellaneous other expenses.
41
<PAGE> 46
ASSET AND LIABILITY MANAGEMENT
Consistent net interest income is largely dependent upon the achievement
of a positive interest rate spread that can be sustained during periods of
fluctuating market interest rates. Interest rate sensitivity is a measure of
the difference between amounts of interest-earning assets and interest-bearing
liabilities that either reprice or mature within a given period. The
difference, or the interest rate repricing "gap," provides an indication of the
extent to which an institution's interest rate spread will be affected by
changes in interest rates. A gap is considered positive when the amount of
interest-rate sensitive assets exceeds the amount of interest-rate sensitive
liabilities, and is considered negative when the amount of interest-rate
sensitive liabilities exceeds the amount of interest-rate sensitive assets.
Generally, during a period of rising interest rates, a negative gap within
shorter maturities would adversely affect net interest income, while a
positive gap within shorter maturities would result in an increase in net
interest income, and during a period of falling interest rates, a negative gap
within shorter maturities would result in an increase in net interest income
while a positive gap within shorter maturities would have the opposite effect.
However, the effects of a positive or negative gap are greatly influenced by
consumer demand and by discretionary pricing by the Association's management.
The Association attempts to manage its interest rate risk by maintaining
a high percentage of its assets in adjustable-rate mortgages ("ARMs") and
short-term investment securities. At December 31, 1996, the Association's ARMs
amounted to $31.1 million or 41.3% of total assets. The interest rate on ARMs,
however, adjusts no more frequently than once a year, with the amount of the
change subject to annual limitations, whereas the interest rates on deposits
can change more frequently and are not subject to annual limitations. In order
to increase the ratio of interest-sensitive assets to interest-sensitive
liabilities, the Association is selling most of the newly originated,
fixed-rate mortgages with terms greater than 15 years, while originating ARMs
and shorter term fixed-rate mortgages and other loans for retention in the loan
portfolio.
At December 31, 1996, investment securities amounted to $19.3 million or
25.6% of total assets. Of such amount, $19.2 million or 99.5% mature or are
callable within two years of December 31, 1996. Investment securities include
$4.5 million of structured notes. See Note 3 to the Consolidated Financial
Statements.
The Association also attempts to manage its interest rate risk by
originating commercial real estate loans, consumer loans and commercial
business loans, which generally have higher yields and shorter terms to
maturity than 30-year, fixed-rate residential mortgages. However, since these
types of loans generally involve a higher degree of risk than residential
mortgages or investment securities, the Association has placed less emphasis on
these loans. Commercial real estate loans, consumer loans and commercial
business loans amounted to $3.9 million, $2.9 million and $787,000,
respectively, at December 31, 1996.
42
<PAGE> 47
Management also presently monitors and evaluates the potential impact of
interest rate changes upon the market value of Citizens' portfolio equity and
the level of net interest income on a quarterly basis, in an attempt to ensure
that interest rate risk is maintained within limits established by the Board of
Directors. The following table presents the Association's Net Portfolio Value
as of December 31, 1996, as calculated by the OTS, based on information
provided to the OTS by the Association.
<TABLE>
<CAPTION>
Change in
Change in NVP as %
Interest Rates Net Portfolio Value NPV as % of of Portfolio
In Basis Points --------------------------------------- Portfolio Value Value
(Rate Shock) Amount $ Change % Change of Assets of Assets
---------------- ----------- ------------ ------------- --------------- --------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
400 $11,141 $(2,314) (17.0)% 15.3% (2.2)
300 11,847 (1,608) (12.0) 16.0 (1.5)
200 12,513 (941) (7.0) 16.7 (.8)
100 13,079 (375) (3.0) 17.2 (.3)
Static 13,454 -- -- 17.5 --
(100) 13,517 63 -- 17.4 (.1)
(200) 13,272 (183) (1.0) 17.0 (.5)
(300) 13,046 (409) (3.0) 16.7 (.8)
(400) 13,047 (408) (3.0) 16.5 (1.0)
</TABLE>
- ----------------------
(1) Based on the portfolio value of the Association's assets assuming no
change in interest rates.
As shown by the table above, increases in interest rates will result in
net decreases in the Association's net portfolio value, while decreases in
interest rates will result in smaller net decreases in the Association's net
portfolio value.
CHANGES IN FINANCIAL CONDITION
Total assets decreased from $78.2 million at December 31, 1995 to $75.3
million at December 31, 1996. This decrease is primarily due to the payment of
a special return of capital cash distribution of $1.9 million on June 28, 1996
to the stockholders of the Company. The decrease in total assets reflected
decreases in total cash and cash equivalents of $1.5 million, in securities of
$3.5 million and in federal funds sold of $2.4 million, offset by increases in
net loans receivable of $3.5 million and in premises and equipment of $597,000.
Net loans receivable at December 31, 1996 totaled $45.2 million or 60.0%
of total assets compared to $41.7 million or 53.3% of total assets at December
31, 1995. This $3.5 million increase in net loans receivable as well as the
$363,000 balance in loans held for sale were primarily due to strong loan
demand in the Association's market area and additional marketing efforts by the
Association. The loans added to the portfolio were primarily single-family
ARMs funded through the decrease in federal funds sold and a decrease in
interest-bearing deposits.
43
<PAGE> 48
Investment securities and mortgage-backed securities were 25.6% and 3.0%
of total assets, respectively, at December 31, 1996 compared to 29.3% and 3.3%
at December 31, 1995.
Non-performing assets have increased from .20% of total assets at
December 31, 1995 to .31% of total assets at December 31, 1996. Non-accruing
single-family residential loans represented 72.3% of the $235,000 of total
non-performing assets at December 31, 1996. The balance of non-performing
assets included a single-family real estate owned property which accounted for
27.2%, and a consumer loan accounted for .5% of total non-performing assets.
At December 31, 1996, the Association's allowance for loan losses equaled
$61,000 or .13% of total loans outstanding.
The premises and equipment of the Association increased by $597,000 or
43.6% as the Association completed construction of its sixth full service
branch office during 1996. The Association also installed two automated teller
machines during the last quarter of 1996.
The Association's total deposits decreased by 1.7% from $62.5 million at
December 31, 1995 to $61.5 million at December 31, 1996. Certificate accounts
decreased by $1.8 million while transaction accounts increased by $748,000
during such period.
Total stockholders' equity decreased by $2.0 million or 14.0%, to $12.3
million at December 31, 1996 from $14.3 million at December 31, 1995. The
decrease was the result of a $1.9 million special return of capital cash
distribution paid to stockholders of $2 per share and regular cash dividends
paid to stockholders totaling $289,000. Additionally, $535,000 was used to
acquire Common Stock in the establishment of the Company's Management
Recognition Plan. Net income of $430,000, release of ESOP shares of $312,000
and $38,000 of MRP stock earned partially offset the decrease during the
period.
RESULTS OF OPERATIONS
The Company reported net income of $430,000 for the twelve months ended
December 31, 1996, compared to net income of $835,000 during the twelve month
period ended December 31, 1995 and $500,000 during 1994. The decrease of
$405,000 in 1996 was primarily due to the one-time, special Federal Deposit
Insurance Corporation/SAIF premium assessment totaling $414,000. Other items
contributing to the decrease were the payment of the Louisiana Shares Tax
expense of $80,000 in 1996 not required in 1995 and the full implementation of
the Company's stock benefit plans adopted in connection with the mutual to
stock conversion. The increase of $335,000 in 1995 was attributable to
increases in interest income on loans and loan fees and service charges, as
well as increases in interest income on securities and other interest-earning
assets.
NET INTEREST INCOME. The primary source of earnings for the Company is
net interest income, which equals the difference between income generated from
interest-earning assets and interest expense from interest-bearing liabilities.
The primary factors that influence
44
<PAGE> 49
net interest income are changes in the volume and type of interest-earning
assets and interest-bearing liabilities coupled with changes in market interest
rates. Net interest income increased $280,000 or 10.3% in 1996 and increased
$332,000 or 13.9% in 1995. The increases were due to increases in average net
interest-earning assets to $14.0 million in 1996 from $10.3 million in 1995 and
$6.4 million in 1994, and increases in the average interest rate spread to
3.26% for 1996 from 3.20% for 1995 and 3.15% for 1994. The Company's ratio of
average interest-earning assets to average interest-bearing liabilities
increased to 123.63% in 1996 from 116.99% for 1995 and 110.21% for 1994. The
increases in the interest rate spread resulted from the average yield earned on
interest-earning assets increasing faster than the average rate paid on
deposits.
45
<PAGE> 50
AVERAGE BALANCES, NET INTEREST INCOME AND YIELDS EARNED AND RATES PAID.
The following table presents for the periods indicated the total dollar amount
of interest income from the Company's average interest-earning assets and the
resultant yields, as well as the interest expense on average interest-bearing
liabilities, expressed both in dollars and rates, and the net interest margin.
All average balances are based on monthly balances.
<TABLE>
<CAPTION>
1996 1995
-------------------------------- --------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
-------- ---------- -------- --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable (1) $43,657 $ 3,729 8.54% $38,528 $ 3,391 8.80%
Investment securities 21,379 1,331 6.23 24,295 1,409 5.80
Mortgage-backed securities 2,404 157 6.53 2,715 172 6.34
Other interest-earning assets 5,967 304 5.09 5,587 258 4.62
------ ------ ---- ------ ------- ----
Total interest-earning assets 73,407 5,521 7.52 71,125 5,230 7.35
------ ---- ------ ----
Non-interest-earning assets 3,471 3,442
------ ------
Total assets $76,878 $74,567
====== ======
Interest-bearing liabilities:
Passbook, NOW and money market accounts $18,283 381 2.08 $17,948 397 2.23
Certificates of deposit 41,095 2,146 5.22 42,230 2,115 5.01
Other interest-bearing liabilities -- -- -- 619 4 .65
-------- ------- ------- ------- ------ ----
Total interest-bearing liabilities 59,378 2,527 4.26 60,797 2,516 4.15
------ ---- ------ ----
Non-interest-bearing liabilities(2) 4,114 4,012
------ ------
Total liabilities 63,492 64,809
Stockholders' equity 13,386 9,758
------ ------
Total liabilities and stockholders
equity $76,878 $74,567
====== ======
Net interest-earning assets $14,029 $10,328
====== ======
Net interest income; average interest rate $ 2,994 3.26% $ 2,714 3.20%
spread ====== ===== ====== ====
Net interest margin(3) 4.08% 3.82%
===== ====
Average interest-earning assets to average
interest-bearing liabilities 123.63% 116.99%
====== ======
<CAPTION>
1994
---------------------------------
Average
Average Yield/
Balance Interest Rate
--------- ----------- ---------
<S> <C> <C> <C>
Interest-earning assets:
Loans receivable (1) $33,860 $ 2,989 8.83%
Investment securities 28,849 1,253 4.34
Mortgage-backed securities 3,049 169 5.54
Other interest-earning assets 3,038 75 2.47
------ ------ ----
Total interest-earning assets 68,796 4,486 6.52
------ ----
Non-interest-earning assets 2,386
------
Total assets $71,182
======
Interest-bearing liabilities:
Passbook, NOW and money market accounts $19,544 438 2.24
Certificates of deposit 42,878 1,666 3.89
Other interest-bearing liabilities -- -- --
------- ------- ----
Total interest-bearing liabilities 62,422 2,104 3.37
------ ----
Non-interest-bearing liabilities(2) 3,748
------
Total liabilities 66,170
Stockholders' equity 5,012
------
Total liabilities and stockholders
equity $71,182
======
Net interest-earning assets $ 6,374
======
Net interest income; average interest rate $ 2,382 3.15%
spread ====== ====
Net interest margin(3) 3.46%
====
Average interest-earning assets to average
interest-bearing liabilities 110.21%
======
</TABLE>
- -----------------
(1) Includes non-accrual loans during the respective periods. Calculated
net of deferred fees and discounts, loans in process and allowance for
loan losses.
(2) Includes non-interest-bearing deposits.
(3) Net Interest margin is net interest income divided by average
interest-earning assets.
(4) At December 31, 1996, the weighted average yields earned and rates paid
were as follows: loans receivable, 8.29%; investment securities, 6.12%;
mortgage-backed securities, 6.74% other interest-earning assets, 6.00%
total interest-earning assets, 7.53%; deposits, 4.00%; and Interest rate
spread, 3.53%.
46
<PAGE> 51
RATE/VOLUME ANALYSIS. The following table describes the extent to which
changes in interest rates and changes in volume of interest-related assets and
liabilities have affected interest income and expense during the periods
indicated. For each category of interest-earning assets and interest-bearing
liabilities, information is provided on changes attributable to (i) changes in
rate (change in rate multiplied by prior year volume), (ii) changes in volume
(change in volume multiplied by prior year rate), and (iii) total change in
rate and volume. The combined effect of changes in both rate and volume has
been allocated proportionately to the change due to rate and the change due to
volume.
<TABLE>
<CAPTION>
1996 vs. 1995 1995 vs. 1994
-------------------------------------- -----------------------------------------
Increase (Decrease) Increase (Decrease)
Due to Total Due to Total
------------------------ Increase ------------------------ Increase
Rate Volume (Decrease) Rate Volume (Decrease)
------ -------- ----------- ----- -------- ------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Loan receivable $(103) $ 441 $ 338 $ (10) $ 412 $ 402
Investment securities 99 (177) (78) 375 (219) 156
Mortgage-backed securities 5 (20) (15) 23 (20) 3
Other interest-earning assets 28 18 46 93 90 183
---- ---- ---- ---- ---- ----
Total interest-earning assets 29 262 291 481 263 744
---- ---- ---- ---- ---- ----
Interest-Bearing Liabilities:
Passbook, NOW and money market
accounts (23) 7 (16) (3) (38) (41)
Certificates of deposit 88 (57) 31 472 (23) 449
Other interest-bearing liabilities -- (4) (4) 2 2 4
---- ---- ---- ---- ---- ----
Total interest-bearing liabilities 65 (54) 11 471 (59) 412
---- ---- ---- ---- ---- ----
Increase (decrease) in net interest
income $(36) $ 316 $ 280 $ 10 $ 322 $ 332
==== ==== ==== ==== ==== ====
</TABLE>
INTEREST INCOME. Interest earned on loans increased by $338,000 or
10.0% in 1996 after increasing $402,000 or 13.5% in 1995. The increase in 1996
was due to an increase of $5.1 million or 13.3% in the average balance of loans
receivable offset by a decrease in the average rate on loans. The increase in
the average balance of loans receivable is primarily due to an increase of $3.5
million in single-family residential loans. The increase in 1995 is due to an
increase of $4.7 million or 13.9% in the average balance of loans receivable,
offset slightly by a decrease in the average rate. The increased average
balance is primarily due to an increase in the amount of single-family
residential loans.
Interest on investment securities decreased by $78,000 or 5.5% in 1996
and increased by $156,000 or 12.5% in 1995. The decrease in 1996 was due to a
decrease in the average balance of $2.9 million or 12.0% offset by an increase
in the average rate to 6.23% from 5.80%. In 1996, $16.7 million in securities
matured or were called, while only $13.4 million were purchased. The increase
in 1995 was due to an increase in the average rate to 5.80% from 4.34% in 1994,
which was offset by a decrease in the average balance of $4.6 million.
47
<PAGE> 52
Interest income on mortgage-backed securities decreased by $15,000 or
8.7% in 1996 and increased by $3,000 or 1.8% in 1995. The decrease in 1996 is
due to a $311,000 or 11.5% decrease in the average balance offset by an
increase to 6.53% in the average rate from 6.34% in 1995. No mortgage-backed
securities have been purchased in the last three years.
Other interest-earning assets consist of interest-bearing deposits in
other institutions and federal funds sold. Interest on these assets increased
by $46,000 or 17.8% in 1996 and increased by $183,000 or 244% in 1995. The
average rate increased to 5.09% in 1996 from 4.62% in 1995 and the average
balance increased $380,000 or 6.8% in 1996. In 1995, the average balance
increased $2.6 million or 84% due primarily to the sale of stock and the
maturities of securities. Also in 1995, the average yield increased to 4.62%
from 2.47% in 1994.
Total interest income increased by $291,000 or 5.6% in 1996 and
increased by $744,000 or 16.6% in 1995. The increase in 1996 was primarily due
to a 3.2% increase in the average balance of interest-earning assets and an
increase in the average rate to 7.52% from 7.35%. The increase in 1995 was
primarily due to a 3.4% increase in the average balance of interest-earning
assets as well as an increase in the average yield to 7.35% from 6.52% of those
assets.
INTEREST EXPENSE. Interest expense paid on deposits increased slightly
by $15,000 or .6% in 1996 and increased by $408,000 or 19.3% in 1995. The
increase in 1996 was due to an increase in the average rate paid to 4.26% from
4.15% in 1995 offset by a decline in the average balance of $800,000 or 1.3%.
The increase in 1995 was due to an increase in the average rate to 4.15% from
3.37% in 1994, offset slightly by a decrease in average balance of $2.2 million
or 3.5%. In 1996, the average rate paid on certificates increased 21 basis
points while the average balance declined $1.1 million. The average balance of
passbooks, NOW and money market accounts had an increase of $335,000 in 1996,
while the average rate paid on these accounts decreased slightly to 2.08% from
2.23% in 1995.
Interest on other interest-bearing liabilities decreased by $4,000 in
1996 to $0. In 1995, due to the stock conversion in July, monies of potential
stockholders were placed in an escrow account during the stock offering period
which earned interest at the passbook rate.
PROVISIONS FOR LOAN LOSSES. Provision for loan losses was $35,000,
$1,000 and $10,000 for 1996, 1995 and 1994, respectively. These provisions
were based on many variables including the amount of non-performing loans
totaling $171,000, $118,000 and $109,000 at December 31, 1996, 1995 and 1994,
respectively.
NONINTEREST INCOME. Insurance agency commissions increased by $34,000
or 4.9% in 1996 and by $24,000 or 3.6% in 1995. The increase in 1996 is due
mainly to a decline in cancellations and a slightly higher average commission
rate in 1996 from 1995.
48
<PAGE> 53
Loan fees and service charges decreased slightly by $11,000 or 3.2% in
1996 and increased by $126,000 or 56.5% in 1995. Loan fees consist mainly of
origination fees, fees for processing loan applications, and miscellaneous
fees on construction loans. The secondary market interest rate for 30 and 15
year fixed rate mortgage loans greatly influence the amount of loans sold.
Loans sold increased by $2.5 million in 1996 from 1995 and by $306,000 in 1995
from 1994.
Other income, which is primarily fee income generated from various
miscellaneous services performed by Association personnel, decreased by $9,000
in 1996 and increased by $3,000 in 1995.
NONINTEREST EXPENSE. Total noninterest expense increased by $910,000 or
35.5% in 1996 and by $89,000 or 3.6% in 1995. The increase in 1996 was
primarily due to the increase in federal deposit insurance premiums of $414,000
caused by the one-time, special SAIF assessment and an increase of $188,000 in
compensation and benefits due to the cost of additional benefit plans approved
by the stockholders.
Compensation and benefits increased by $188,000 or 12.0% in 1996 and by
$156,000 or 11.1% in 1995. The increase in 1996 was due primarily to the
release of common shares to employees from the ESOP and the implementation of
the Company's Management Recognition Plan approved by stockholders on July 23,
1996. Salary and benefit costs associated with the hiring of additional
personnel needed to staff the Association's new branch which opened in 1996
also accounted for a portion of the increase. The increase in 1995 was due to
the hiring of additional employees, additional bonuses paid and normal pay
increases, and the release of CitiSave Common Stock to employees from the ESOP.
Occupancy and equipment expense increased by $9,000 or 2.7% in 1996 and
by $19,000 or 6.0% in 1995. The increase in 1996 was primarily attributable to
the opening of the new branch office in October 1996. The increase in 1995 was
due to changes in various maintenance and office related expenses.
Federal deposit insurance premiums increased by $415,000 or 284.3% in
1996. This increase was due to the one-time FDIC/SAIF premium assessment of
$414,000 at September 30, 1996. The premium assessment was used by the FDIC to
recapitalize the SAIF portion of the FDIC.
In 1996, 1995, and 1994, the Association had net income from real estate
owned of $9,000, $8,000 and $36,000, respectively, due primarily to gains on
the sale of properties and rental income from real estate owned. The
Association had real estate owned of $64,000 and $39,000 at December 31, 1996
and 1995, respectively.
Professional fees increased by $85,000 or 111.8% in 1996 from 1995 as
the Company incurred increased legal, accounting and other expenses related to
its first year as a public
49
<PAGE> 54
company. In addition, the opening of the Association's new branch in 1996
increased printing, postage, stationery and other supplies.
Other noninterest expense which primarily consists of advertising,
goodwill amortization and various other expenses, increased by $193,000 or
114.9% in 1996. The Louisiana Shares Tax and Louisiana Franchise Tax increased
by $90,000 in 1996 compared to 1995. The Louisiana Share Tax is assessed only
on stock institutions beginning in the year after they issue stock along with
the Louisiana Franchise Tax. Advertising increased by $44,000 in 1996 after
decreasing by $32,000 in 1995, primarily due to increased advertisement related
to name recognition, product awareness, and the opening of the new branch
office.
INCOME TAXES. Income taxes decreased by $202,000 or 48.3% in 1996 after
increasing by $84,000 or 25.2% in 1995. The decrease in 1996 resulted from a
46.8% decrease in pre-tax income. The effective tax rate was 33.4%, 33.4% and
40.0% in 1996, 1995 and 1994, respectively.
MINORITY INTEREST IN SUBSIDIARY. The Association's wholly owned
subsidiary (665 Florida Street Corporation) owns an 80% interest in an
insurance agency. The income attributable to the owner of the 20% interest in
the agency is subtracted on the Company's Consolidated Statements of Income.
The income pertaining to the minority owner amounted to $40,000, $37,000 and
$37,000 in 1996, 1995 and 1994, respectively. The net income of the insurance
agency does not reflect the goodwill amortization expense incurred by the
Association's subsidiary in 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Association is required under applicable federal regulations to
maintain specified levels of "liquid" investments in qualifying types of U.S.
government, federal agency and other investments having maturities of five
years or less. Current OTS regulations require that a savings institution
maintain liquid assets of not less than 5% of its average daily balance of net
withdrawable deposit accounts and borrowings payable in one year or less, of
which short-term liquid assets must consist of not less than 1%. At December
31, 1996, the Association's liquidity was 38.4% or $20.3 million in excess of
the minimum OTS requirement.
Cash was generated by CitiSave's operating activities during 1996, 1995
and 1994 primarily as a result of net income in each period, the provision for
depreciation and amortization, and decreases in various asset accounts and
increases in liability accounts. The adjustments to reconcile net income to
net cash provided by operations during the periods presented consisted
primarily of loans sold and loans originated for sale, the provision for
depreciation and amortization, accretion of the discount on investments,
provision for loan losses, gains and losses on the sale of assets and increases
or decreases in various receivable and payable accounts. The primary investing
activities of CitiSave are
50
<PAGE> 55
the origination of loans and the purchase of investment securities, which are
funded with the proceeds from repayment on loans, prepayments on
mortgage-backed securities and the maturity of investment and mortgage-backed
securities. Investing activities provided net cash in 1996 and used net cash
in 1995 and 1994. The primary financing activity consists of deposits, which
decreased in 1996, 1995 and 1994. Also, in 1996 the special return of capital
distribution accounted for the net cash being used in financing activities.
Total cash and cash equivalents decreased by $1.5 million in 1996 and increased
by $2.9 million in 1995. See the Consolidated Statements of Cash Flows in the
Consolidated Financial Statements.
At December 31, 1996, the Association had outstanding commitments to
extend credit of $3.9 million. This amount includes unfunded loan commitments
aggregating $3.0 million and undisbursed lines of credit of $902,000. At the
same date, the total amount of certificates of deposit which are scheduled to
mature in the following 12 months was $27.8 million. The Association believes
that it has adequate resources to fund all of its commitments and that it can
adjust the rate it offers on deposits in order to retain them to the extent
desired. If the Association requires funds beyond its internal funding
capabilities, advances from the FHLB of Dallas are available as an additional
source of funds.
The Association is required to maintain regulatory capital sufficient to
meet tangible, core and risk-based capital ratios of at least 1.5%, 3.0% and
8.0%, respectively. At December 31, 1996, the Association exceeded each of the
capital requirements with tangible, core and risk-based capital ratios of
14.23%, 14.23% and 30.15%, respectively. Also see Note 13 of Notes to
Consolidated Financial Statements for more details.
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements and related financial data have been prepared
in accordance with generally accepted accounting principles, which generally
require the measurement of financial position and operating results in terms of
historical dollars, without considering changes in relative purchasing power
over time due to inflation. Unlike most industrial companies, virtually all of
the Company's assets and liabilities are monetary in nature. As a result,
interest rates generally have a more significant impact on the Company's
performance than does the effect of inflation.
51
<PAGE> 56
BUSINESS OF CITISAVE
MARKET AREA
The Company's market area consists of East Baton Rouge Parish and the
remaining Baton Rouge metropolitan statistical area, which includes West Baton
Rouge, Ascension and Livingston Parishes. These parishes had a total
population of approximately 528,000 in 1990, with East Baton Rouge Parish
having a population of approximately 380,000. In 1994, the four parishes had
an estimated total population of approximately 562,000, or 6.4% higher than
1990. Baton Rouge is the state capital of Louisiana and the seat of East Baton
Rouge Parish. Located on the Mississippi River, Baton Rouge is the fifth
largest port in the United States and is a major trade center.
Baton Rouge is a major petrochemicals-manufacturing center. Slowdowns in
the petroleum industry in the mid-1980s had a material negative impact on the
area's economy. While the local economy has stabilized in recent years, there
is still a heavy reliance on the petroleum industry and related industries.
Major employers in the area include the State of Louisiana (including Louisiana
State University and Southern University), the East Baton Rouge Parish
government, Exxon Corp., Dow Chemical, Turner Industries and Our Lady of the
Lake Regional Medical Center.
LENDING ACTIVITIES
LOAN PORTFOLIO COMPOSITION. At December 31, 1996, the Company's net loan
portfolio, excluding loans held for sale, totaled $45.2 million, representing
approximately 60.0% of the Company's $75.3 million of total assets at that
date. The lending activities are conducted through the Association, and the
principal lending activity of Citizens is the origination of one- to
four-family residential loans. At December 31, 1996, one- to four-family
residential loans amounted to $37.6 million or 79.1% of the total loan
portfolio (including loans held for sale and loans in process). To a lesser
extent, the Association originates commercial real estate loans, construction
loans, consumer loans and commercial business loans. At December 31, 1996,
commercial real estate loans totaled $3.9 million or 8.1% of the total loan
portfolio (including loans held for sale and loans in process). Construction
loans amounted to $2.4 million or 5.1%, consumer loans amounted to $2.9 million
or 6.0%, and commercial business loans amounted to $787,000 or 1.7% of the
total loan portfolio (including loans held for sale and loans in process).
52
<PAGE> 57
LOAN PORTFOLIO COMPOSITION. The following table sets forth the
composition of the Company's loan portfolio by type of loan at the dates
indicated.
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------------
1996 1995 1994
------------------ -------------------- -------------------
Amount % Amount % Amount %
--------- ------- ---------- ------ ---------- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Real estate loans:
One- to four-family residential (1) $37,633 79.1% $33,812 76.5% $28,185 77.7%
Construction 2,411 5.1 2,601 5.9 1,749 4.8
Commercial real estate 3,875 8.1 4,623 10.4 4,283 11.8
------- ----- ------- ----- ------- -----
Total real estate loans 43,919 92.3 41,036 92.8 34,217 94.3
------- ----- ------- ----- ------- -----
Consumer loans:
Automobile 761 1.6 597 1.4 386 1.1
Home equity and second mortgage 485 1.0 756 1.7 614 1.7
Loans on deposits 535 1.1 553 1.3 403 1.1
Other 1,105 2.3 500 1.1 292 .8
------- ----- ------- ----- ------- -----
Total consumer loans 2,886 6.0 2,406 5.5 1,695 4.7
------- ----- ------- ----- ------- -----
Commercial business loans 787 1.7 770 1.7 350 1.0
------- ----- ------- ----- ------- -----
Total loans 47,592 100.0% 44,212 100.0% 36,262 100.0%
===== ===== =====
Less:
Loans held for sale (363) -- (71)
Unearned discounts (282) (363) (477)
Undisbursed portion of construction
loans (1,536) (1,915) (1,145)
Deferred loan fees (157) (142) (84)
Allowance for loan losses (61) (82) (139)
------- ------- -------
Net loans $45,193 $41,710 $34,346
======= ======= =======
<CAPTION>
December 31,
----------------------------------------------------
1993 1992
-------------------- ---------------------------
Amount % Amount %
--------- ----- ---------- ---------
<S> <C> <C> <C> <C>
(Dollars in Thousands)
Real estate loans:
One- to four-family residential (1) $29,308 77.8% $32,802 79.7%
Construction 1,303 3.5 1,168 2.8
Commercial real estate 4,976 13.2 4,596 11.2
------- ---- ------- -----
Total real estate loans 35,587 94.5 38,566 93.7
------- ---- ------- -----
Consumer loans:
Automobile 344 .9 340 .8
Home equity and second mortgage 478 1.3 680 1.7
Loans on deposits 425 1.1 644 1.6
Other 229 .6 244 .6
------- ----- ------- -----
Total consumer loans 1,476 3.9 1,908 4.7
------- ----- ------- -----
Commercial business loans 617 1.6 679 1.6
------- ----- ------- -----
Total loans 37,680 100.0% 41,153 100.0%
===== =====
Less:
Loans held for sale (1,010) (1,434)
Unearned discounts (603) (837)
Undisbursed portion of construction
loans (829) (914)
Deferred loan fees (42) (12)
Allowance for loan losses (129) (180)
------- -------
Net loans $35,067 $37,776
======= =======
</TABLE>
- ---------
(1) Includes loans held for sale.
53
<PAGE> 58
CONTRACTUAL TERMS TO FINAL MATURITIES. The following table sets
forth certain information as of December 31, 1996 regarding the dollar amount
of loans (including loans held for sale) maturing in the Company's portfolio,
based on the contractual date of the loan's final maturity, before giving
effect to net items. Demand loans, loans having no stated schedule of
repayments and no stated maturity, and overdraft loans are reported as due in
one year or less. The amounts shown below do not reflect normal principal
amortization; rather, the balance of each loan outstanding at December 31, 1996
is shown in the appropriate year of the loan's final maturity.
<TABLE>
<CAPTION>
One- to
four-family Commercial Commercial
residential Construction real estate Consumer business Total
------------ ------------ -------------- -------- -------------- ------
<S> <C> <C> <C> <C> <C> <C>
(In Thousands)
Amounts due after December 31, 1996 in:
One year or less $ 535 $2,411 $ 4 $ 863 $245 $ 4,058
After one year through two years 155 -- 63 230 40 488
After two years through three years 320 -- 61 533 9 923
After three years through five years 636 -- 238 835 182 1,891
After five years through ten years 4,114 -- 1,043 321 202 5,680
After ten years through fifteen years 11,357 -- 1,752 104 109 13,322
After fifteen years 20,516 -- 714 - -- 21,230
------ ------ ------ -------- --- -----
Total(l) $37,633 $2,411 $3,875 $2,886 $787 $47,592
====== ===== ===== ===== === ======
</TABLE>
- --------------
(1) Gross of loans in process, deferred fees and discounts, and allowance
for loan losses.
The following table sets forth the dollar amount of all loans,
including loans held for sale, before net items, due after one year from
December 31, 1996 as shown in the preceding table, which have fixed interest
rates or which have floating or adjustable interest rates.
<TABLE>
<CAPTION>
Floating or
Fixed-Rate Adjustable-Rate Total
----------- --------------- ---------
(In Thousands)
<S> <C> <C> <C>
One- to four-family residential $ 9,528 $27,570 $37,098
Commercial real estate 487 3,384 3,871
Consumer 2,023 -- 2,023
Commercial business 542 -- 542
------- ------- ------
Total $12,580 $30,954 $43,534
====== ====== ======
</TABLE>
54
<PAGE> 59
Scheduled contractual maturities of loans do not necessarily reflect
the actual term of Citizens' portfolio. The average life of mortgage loans is
substantially less than their average contractual terms because of loan
prepayments and enforcement of due-on-sale clauses, which give Citizens the
right to declare a loan immediately due and payable in the event, among other
things, that the borrower sells the real property subject to the mortgage and
the loan is not repaid. The average life of mortgage loans tends to increase,
however, when current mortgage loan rates substantially exceed rates on
existing mortgage loans and, conversely, decrease when rates on existing
mortgage loans substantially exceed current mortgage loan rates.
ORIGINATION, PURCHASE AND SALE OF LOANS. The lending activities of
Citizens are subject to the written, non-discriminatory, underwriting standards
and loan origination procedures established by Citizens' Board of Directors and
management. Loan originations are obtained through a variety of sources,
including referrals from real estate brokers, developers, builders and existing
customers. Written loan applications are taken by lending personnel, and the
loan department supervises the procurement of credit reports, appraisals and
other documentation involved with a loan. Property valuations are performed by
independent outside appraisers approved by Citizens' Board of Directors or a
committee thereof, hazard insurance is also required on all secured property.
Citizens' loan approval process is intended to assess the borrower's
ability to repay the loan, the viability of the loan and the adequacy of the
value of the property that will secure the loan. If the loan is to be sold to
one of the investors with which the Association has an agreement, as discussed
below, the Association's loan underwriter may approve the loan if the investor
has delegated such authority to the Association. If the investor requires that
the loan be underwritten by it, the loan is submitted to the investor for its
approval. Citizens has established loan approval limits for its officers;
loans in excess of these limits must be approved by an officer who has a
greater approval limit or by the Board of Directors or a committee thereof.
Mr. Gremillion, the Chief Lending Officer, is authorized to approve unsecured
loans up to $50,000, secured loans up to $100,000 and may make loans to one
borrower up to $100,000. Other officers of the Association are subject to
lower limitations which in each case are less than Mr. Gremillion's lending
limitations. Loans in excess of Mr. Gremillion's authority require the
approval of the President of the Association, and loans deemed to be large or
unusual in any manner by the President are submitted to either the full Board
of Directors or the Executive Committee. All loan approvals are subsequently
reviewed by the Board of Directors to monitor the quality of the credit
decisions being made and to verify compliance with the Association's lending
policies.
The Association has agreements with several investors, each of whom
has agreed to purchase loans, together with servicing thereof, from the
Association on a loan-by-loan basis, provided that it is satisfied after its
review of the loan that the loan complies with its established underwriting
guidelines and lending requirements. The Association does not approve a loan
to be originated for sale unless either the loan has been satisfactorily
reviewed by one of the investors or the loan is to be sold to an investor which
has delegated the approval authority to the Association. The Association makes
certain representations and warranties regarding the loans it sells pursuant to
the above agreements, primarily with respect to the origination of the loans,
the loan documents and the existence of valid liens and insurance policies.
Any violation of these representations and warranties or, with respect to
certain of the agreements, the existence of
55
<PAGE> 60
certain deficiencies in the loans during a specified period may result in the
Association being required to repurchase the affected loans that were sold. As
of December 31, 1996, the Association has not been required to repurchase any
of the loans it has sold. The above agreements may be terminated by either
party at any time with respect to future loan commitments, with varying amounts
of termination notice required.
For several years prior to 1994, Citizens sold all of its newly
originated fixed-rate mortgages and retained its ARMs. Because the demand for
ARMs in the low interest rate environment prevailing in 1993 and 1992 was less
than the demand for fixed-rate mortgages, a majority of the Association's loan
originations in 1993 and 1992 were sold, which combined with loan repayments
resulted in decreases in the loan portfolio. However, in order to maintain its
compliance with the QTL test, the Association decided in June 1994 to retain
fixed-rate mortgages with maturities of 15 years or less. For a description of
the QTL test, see "Regulation of CitiSave - The Association - Qualified Thrift
Lender Test." The Association currently sells the majority of its fixed-rate
mortgage loans with a maturity greater than 15 years meeting secondary market
requirements to investors.
To supplement its loan originations, the Association purchased loans
from the Resolution Trust Corporation ("RTC") in 1992 as the successful bidder
in a loan auction held by the RTC. The loans purchased from the RTC consisted
of three pools: $1.0 million of one- to four-family residential mortgages,
$368,000 of second mortgages and $362,000 of land loans. The aggregate loan
balances of $1.7 million had a discounted purchase price of $1.4 million, and
as of December 31, 1996 the remaining balance of such loans was $772,000.
Prior to the purchase, the Association reviewed the loans to ensure that the
loans satisfied the Association's underwriting criteria for newly originated
loans. The Association purchased other loans from the RTC prior to 1992. One
$49,000 loan was purchased from the Company's defined benefit pension plan in
1996 as that plan was being terminated and in 1995 a $22,000 loan was purchased
from a local investor.
The Association originated mortgage loans totaling $25.1 million,
$22.9 million and $13.5 million in 1996, 1995, and 1994 respectively. The
Association sold $8.0 million, $5.5 million and $5.2 million of loans in 1996,
1995 and 1994, representing 31.9%, 24.2% and 38.7% of total loans originated
and purchased in those periods. The strong origination effort in 1996 and 1995
was the result of an easing of interest rates, a continuing aggressive
marketing effort by the Association and the hiring of a commissioned loan
originator. This strategy proved successful as evidenced by the $2.5 million
increase in 1996 production over 1995 production and the $9.4 million increase
in 1995 production over 1994 production. Consumers were attracted to the
Association's portfolio adjustable rate product which featured adjustment terms
that were more favorable than the typical adjustable rate product offered in
the secondary market. In addition, the Association began offering a
construction-permanent loan with a one time closing feature. This product was
targeted toward the self-contractor of a custom home. The Association's
efforts to increase portfolio lending did not hinder the production of loans
sold. The $2.5 million increase in loans sold in 1996 represented a 45.5%
increase over 1995 loans sold. At December 31, 1996, Citizens was servicing
$1.2 million of loans for others.
56
<PAGE> 61
The following table shows total loans originated, purchased, sold and
repaid during the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1996 1995 1994
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Loan originations:
One-to-four family residential:
For sale $ 8,377 $ 5,467 $ 4,293
For portfolio:
Adjustable-rate 8,870 6,399 3,937
Fixed-rate 726 966 860
Construction 3,780 6,742 2,210
Commercial real estate 910 735 248
Consumer 2,108 2,264 1,900
Commercial business 308 324 98
------ ------ ------
Total loan originations 25,079 22,897 13,546
Loans purchased:
One-to-four family residential 49 22 ---
------ ------ ------
Total loans originated and purchased 25,128 22,919 13,546
------ ------ ------
Sales and loan principal repayments:
Loans sold 8,014 5,538 5,232
Loan principal repayments 13,528 10,603 9,732
------ ------ ------
Total loans sold and
principal repayments 21,542 16,141 14,964
------ ------ ------
Increase (decrease) due to other
items, net(l) 103 (586) (697)
------ ------ ------
Net increase (decrease) in
loan portfolio(2) $3,483 $7,364 $ (721)
====== ====== ======
</TABLE>
- ---------------
(1) Other items consist of loans in process, deferred fees and discounts,
allowance for loan losses and loans held for sale.
(2) Excludes changes in loans held for sale.
REAL ESTATE LENDING STANDARDS AND UNDERWRITING POLICIES - Effective
March 19, 1993, all financial institutions were required to adopt and maintain
comprehensive written real estate lending policies that are consistent with
safe and sound banking practices. These lending policies must reflect
consideration of the Interagency Guidelines for Real Estate Lending Policies
adopted by the federal banking agencies, including the OTS, in December 1992
("Guidelines"). The Guidelines set forth uniform regulations prescribing
standards for real estate lending. Real estate lending is defined as
extensions of credit secured by liens on interests in real estate or made for
the purpose of financing the construction of a building or other improvements
to real estate, regardless of whether a lien has been taken on the property.
An institution's lending policy must address certain lending considerations set
forth in the Guidelines, including LTV limits, loan
57
<PAGE> 62
administration procedures, underwriting standards, portfolio diversification
standards, and documentation, approval and reporting requirements. The policy
must also be appropriate to the size of the institution and the nature and
scope of its operations, and must be reviewed and approved by the institution's
board of directors at least annually. The LTV ratio framework, with the LTV
ratio being the total amount of credit to be extended divided by the appraised
value or purchase price of the property at the time the credit is originated,
must be established for each category of real estate loans. If not a first
lien, the lender must combine all senior liens when calculating this ratio.
The Guidelines, among other things, establish the following supervisory LTV
limits: raw land (65%); land development (75%); construction (commercial,
multi-family and nonresidential) (80%); improved property and one-to
four-family residential construction (85%); and one- to four-family (owner
occupied) and home equity (no maximum ratio; however, any LTV ratio in excess
of 90% should require appropriate insurance or readily marketable collateral).
Certain institutions can make real estate loans that do not conform
with the established LTV ratio limits up to 100% of the institution's total
capital. Within this aggregate limit, total loans for all commercial,
agricultural, multi-family and other non-one-to-four family residential
properties should not exceed 30% of total capital. An institution will come
under increased supervisory scrutiny as the total of such loans approaches
these levels. Certain loans are exempt from the LTV ratios (e.g., those
guaranteed by a government agency, loans to facilitate the sale of real estate
owned, loans renewed, refinanced or restructured by the original lender(s) to
the same borrower(s) where there is no advancement of new funds, etc.).
Citizens is in compliance with the above standards.
Although federal laws and regulations permit savings institutions,
such as Citizens, to originate and purchase loans secured by real estate
located throughout the United States, Citizens' present lending is done
primarily within its primary market area, which consists of East Baton Rouge
Parish in Louisiana, and to a lesser extent in West Baton Rouge, Ascension and
Livingston Parishes. Subject to Citizens' loans-to-one borrower limitation,
Citizens is permitted to invest without limitation in residential mortgage
loans and up to 400% of its capital in loans secured by non-residential or
commercial real estate. Citizens may also invest in secured and unsecured
consumer loans in an amount not exceeding 35% of Citizens' total assets. This
35% limitation may be exceeded for certain types of consumer loans, such as
home equity and property improvement loans secured by residential real
property. In addition, Citizens may invest up to 10% of its total assets in
secured and unsecured loans for commercial, corporate, business or agricultural
purposes. At December 31, 1996, Citizens was well within each of the above
lending limits.
As required by the Financial Institutions Reform, Recovery, and
Enforcement Act of 1989 ("FIRREA"), a savings institution generally may not
make loans to one borrower and related entities in an amount which exceeds 15%
of its unimpaired capital and surplus, although loans in an amount equal to an
additional 10% of unimpaired capital and surplus may be made to a borrower if
the loans are fully secured by readily marketable securities. At December 31,
1996, Citizens' limit on loans-to-one borrower was $1.6 million and its five
largest loans or groups of loans-to-one borrower, including persons or entities
related to the borrower, amounted to $520,000, $478,000, $461,000, $395,000 and
$368,000, respectively, at such date. All of these loans were current at
December 31, 1996.
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<PAGE> 63
Under Citizens' real estate lending policy, either a title opinion
signed by an approved attorney or a title insurance policy must be obtained for
each real estate loan. On certain second mortgage loans, the Association may
rely upon an abstract from a reputable, bonded abstractor to certify that the
Association's lien is in second position. Citizens also requires fire and
extended coverage casualty insurance, in order to protect the properties
securing its real estate loans. Borrowers must also obtain flood insurance
policies when the property is in a flood hazard area as designated by the
Department of Housing and Urban Development. Borrowers may be required to
advance funds on a monthly basis together with each payment of principal and
interest to a mortgage loan account from which Citizens makes disbursements for
items such as real estate taxes, hazard insurance premiums and private mortgage
insurance premiums as they become due.
LOANS ON EXISTING RESIDENTIAL PROPERTIES. The primary real estate
lending activity of Citizens is the origination of loans secured by first
mortgage liens on one- to four-family residences. At December 31, 1996, $37.6
million or 79.1% of Citizens' total loan portfolio, including loans held for
sale (before net items), consisted of one- to four-family residential loans.
The loan-to-value ratio, maturity and other provisions of the loans
made by Citizens generally have reflected the policy of making less than the
maximum loan permissible under applicable regulations, in accordance with sound
lending practices, market conditions and underwriting standards established by
Citizens. Citizens' lending policies on one- to four-family residential
mortgage loans generally limit the maximum loan-to-value ratio to 97% of the
lesser of the appraised value or purchase price of the property, and generally
one- to four-family residential loans in excess of an 80% loan-to-value ratio
require private mortgage insurance.
Citizens offers fixed-rate one- to four-family residential loans with
terms up to 30 years. Such loans are amortized on a monthly basis with
principal and interest due each month and customarily include "due-on-sale"
clauses, which are provisions giving Citizens the right to declare a loan
immediately due and payable in the event the borrower sells or otherwise
disposes of the real property subject to the mortgage or the loan is not
repaid. Citizens enforces due-on-sale clauses to the extent permitted under
applicable laws.
Various legislative and regulatory changes have given Citizens the
authority to originate and purchase mortgage loans which provide for periodic
interest rate adjustments subject to certain limitations. Citizens has been
actively marketing ARMs in order to decrease the vulnerability of its
operations to changes in interest rates. At December 31, 1996, one- to
four-family residential ARMs represented $31.1 million or 65.1% of the total
loan portfolio, including loans held for sale (before net items).
Citizens' one- to four-family residential ARMs are fully amortizing
loans with contractual maturities of up to 30 years. These loans have interest
rates which are scheduled to adjust periodically in accordance with a
designated index. Citizens currently offers ARMs on which the interest rate
adjusts every one, three, five, seven or 10 years, based upon Treasury
securities having a similar maturity plus a specified margin. The margin above
the applicable Treasury security index is generally 2.75% for the one and
three-year adjustment terms and 3% for the five, seven and 10-year adjustment
terms. Citizens also offers various caps on the rate adjustment per period and
on the rate adjustment over the life of the loan, and new ARMs generally
provide for a
59
<PAGE> 64
minimum interest rate of 5%. In order to be more competitive with respect to
ARMS, the Association first began offering seven- and 10-year ARMs in 1994, as
well as a maximum interest rate of 10% on one-and three-year ARMS. On ARMs
that have a maximum interest rate of 10%, the cap on the rate adjustment per
period is 3% instead of the standard 2%. The adjustable-rate loans in
Citizens' loan portfolio are not convertible by their terms into fixed rate
loans, are assumable, do not contain prepayment penalties and do not produce
negative amortization.
The Association qualifies borrowers based on the initial interest
rate on the ARM rather than the fully indexed rate. In a rising interest rate
environment, the interest rate on the ARM will increase on the next adjustment
date, resulting in an increase in the borrower's monthly payment. To the
extent the increased rate adversely affects the borrower's ability to repay his
loan, the Association is exposed to increased credit risk. As of December 31,
1996, the Association's non-accruing loans 90 days or more past due were
$171,000. See "- Asset Quality."
The demand for adjustable-rate loans in Citizens' primary market area
has been a function of several factors, including the level of interest rates,
and the difference between the interest rates offered for fixed-rate loans and
adjustable-rate loans. Due to the generally lower rates of interest prevailing
in recent periods, the market demand for adjustable-rate loans has decreased as
consumer preference for fixed-rate loans has increased. Nevertheless, ARMs
have represented a substantial portion of residential mortgage loan
originations for Citizens. For 1996, ARMs represented 49.3% of total one- to
four-family residential loan originations. The origination percentages of
ARMs for 1995 and 1994 were 49.9% and 43.4%, respectively.
CONSTRUCTION LOANS. At December 31, 1996, $2.4 million or 5.1% of
Citizens' total loan portfolio, including loans held for sale (before net
items), consisted of loans for the construction of one- to four-family
residences. These loans represent loans to individuals who have a contract
with a builder for the construction of their residence as well as loans to
builders of residential real estate property. This type of lending has
significantly increased in recent years and represents the third most
significant type of loan for the Association. At December 31, 1995 and 1994,
construction loans amounted to $2.6 million and $1.7 million, respectively, or
5.9% and 4.8% of the total loan portfolio, respectively.
The maximum term on loans for the construction of one- to four-family
residences is 18 months, and for the construction of five or more dwelling
units or commercial buildings the maximum term is 36 months. For all
construction loans, interest is payable at least quarterly at a fixed rate of
interest. A construction loan may be combined with any other type of real
estate loan the Association is authorized to originate, giving the customer the
advantage of a single loan closing. Each construction loan requires builders'
risk insurance, a recorded contract between the owner and the builder, an
affidavit signed by a registered professional engineer or architect dated
subsequent to the Association's construction mortgage indicating that work has
not begun or material delivered to the job site prior to the recording of the
mortgage, and a commitment by the Association or an approved lender for
permanent financing. In certain cases, a performance bond is also required.
Construction financing is generally considered to involve a higher
degree of risk of loss than long-term financing on improved, owner-occupied
real estate because of the uncertainties of construction, including the
possibility of costs exceeding the initial estimates. Citizens generally
60
<PAGE> 65
attempts to mitigate the risks associated with construction lending by, among
other things, lending primarily in its market area, using conservative
underwriting guidelines, and closely monitoring the construction process. The
Association generally avoids speculative construction lending, which involves a
higher degree of risk than one- to four-family residential lending. Such
lending typically involves large loan balances concentrated in a single
borrower or groups of related borrowers for properties that are dependent upon
sale of the home being constructed.
COMMERCIAL REAL ESTATE LOANS. The Association's commercial real
estate loan portfolio primarily consists of loans secured by office buildings,
retail establishments, churches and multi-family dwellings located within the
Association's primary market area. Commercial real estate loans amounted to
$3.9 million or 8.1% of the total loan portfolio (including loans held for
sale) at December 31, 1996. The largest commercial real estate loan at
December 31, 1996 was $506,000, and the average balance of such loans at
December 31, 1996 was $84,000.
Nonresidential real estate loans may have terms up to 30 years and
generally have adjustable rates of interest. As part of its commitment to loan
quality, the Association's senior management reviews each nonresidential loan
prior to approval by the Board of Directors. All loans are based on the
appraised value of the secured property and loans are generally not made in
amounts in excess of 75% of the appraised value of the secured property. All
appraisals are performed by an independent appraiser designated by the
Association and are reviewed by management. In originating nonresidential
loans, the Association considers the quality of the property, the credit of the
borrower, the historical and projected cash flow of the project, the location
of the real estate and the quality of the property management. Less than
$250,000 of commercial real estate loans were originated in each of 1994 and
1992, while $1.3 million of such loans were originated in 1993. In the last
quarter of 1995, the Association was successful in attracting several
commercial business accounts and refinancing their commercial real estate
loans. This resulted in an increase in commercial real estate loan
originations of $487,000 in 1995 over 1994. The Association's 1996 plan to
attract commercial real estate loans proved successful with slightly over
$900,000 in new originations in 1996. This was an increase of $175,000 over
1995 production. The Association plans to continue to pursue loan
opportunities in the commercial real estate market during 1997 when the
property under consideration combined with the credit worthiness of the
borrowers, cash flow of the project and the quality of the management present
an acceptable level of risk.
Commercial real estate lending is generally considered to involve a
higher degree of risk than single-family residential lending. Such lending
typically involves large loan balances concentrated in a single borrower or
groups of related borrowers for rental or business properties. In addition,
the payment experience on loans secured by income producing properties is
typically dependent on the success of the operation of the related project and
thus is typically affected by adverse conditions in the real estate market and
in the economy. Citizens generally attempts to mitigate the risks associated
with commercial real estate lending by, among other things, lending primarily
in its market area and using low LTV ratios in the underwriting process.
CONSUMER LOANS. The Association's consumer loans consist of home
equity and second mortgage loans, automobile loans, loans on deposits, and
other secured and unsecured loans. The consumer loans are not being actively
marketed and are offered primarily as a service to existing customers. The
total consumer loan portfolio has increased to $2.9 million or 6.0% of the
total
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<PAGE> 66
loan portfolio (including loans held for sale) at December 31, 1996 from $1.9
million or 4.6% of the total loan portfolio (including loans held for sale) at
December 31, 1992.
The Association offers loans on new automobiles and trucks with terms
up to five years and also offers loans on used vehicles with maximum terms of
three to five years depending on the age of the vehicle. Loans secured by
deposit accounts are generally offered with an interest rate equal to 3.25%
above the rate on the deposit account, with a minimum interest rate of 7.25%.
Installment loans are offered with either fixed or adjustable interest rates,
and the maximum term is five years if the loan is secured, four years if the
loan is unsecured but has an adjustable interest rate, and three years if the
loan is unsecured and has a fixed interest rate. Interest only personal loans
are offered with a maximum term of one year.
COMMERCIAL BUSINESS LOANS. The Association does not actively solicit
commercial business loans, and such loans are considered on a case-by-case
basis. Commercial business loans have been increasing slightly in recent
years, and such loans amounted to $787,000 or 1.7% of the total loan portfolio
(including loans held for sale) at December 31, 1996.
LOAN FEES AND SERVICING INCOME. In addition to interest earned on
loans, Citizens receives income through the servicing of loans and loan fees
charged in connection with loan originations and modifications, late payments,
prepayments, changes of property ownership and for miscellaneous services
related to its loans. Income from these activities varies from
period-to-period with the volume and type of loans made.
Loan origination fees or "points" are a percentage of the principal
amount of the mortgage loan and are charged to the borrower in connection with
the origination of the loan. Citizens' loan origination fees are offset
against direct loan origination costs, and the resulting net amount is deferred
and amortized as interest income over the contractual life of the related loans
as an adjustment to the yield of such loans. At December 31, 1996, Citizens
had approximately $157,000 of loan fees which had been deferred. The
Association also had $282,000 of unearned discounts at December 31, 1996 from
the purchase of loans from the RTC. Both the deferred loan fees and the
unearned discounts are being recognized as income over the lives of the related
loans.
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<PAGE> 67
ASSET QUALITY
DELINQUENT LOANS. The following table sets forth information
concerning delinquent loans at December 31, 1996, in dollar amounts and as a
percentage of the Association's total loan portfolio. The amounts presented
represent the total outstanding principal balances of the related loans, rather
than the actual payment amounts which are past due.
<TABLE>
<CAPTION>
December 31, 1996
----------------------------------------------------------------------------------
30-59 90 or More Days
Days Overdue 60-89 Days Overdue Overdue
-------------------------- ------------------------ -----------------------
Percent Percent Percent
of Total of Total of Total
Amount Loans Amount Loans Amount Loans
------- ----- ------ ----- ------- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
One- to four-family
residential real estate
loans $61 .13% $32 .07% $76 .16%
Commercial loans 3 .01 --- --- --- ---
Consumer loans 42 .08 --- --- --- ---
---- --- ---- ---- ---- ---
Total delinquent loans $106 .22% $32 .07% $76 .16%
==== === == === == ===
</TABLE>
NON-PERFORMING ASSETS. When a borrower fails to make a required loan
payment, Citizens attempts to cause the default to be cured by contacting the
borrower. In general, contacts are made after a payment is more than 15 days
past due, at which time a late charge is assessed. Defaults are cured promptly
in most cases. If the delinquency on a mortgage loan exceeds 90 days and is
not cured through Citizens' normal collection procedures, or an acceptable
arrangement is not worked out with the borrower, Citizens will commence
foreclosure action.
If foreclosure is effected, the property is sold at a sheriff's sale.
If Citizens is the successful bidder, the acquired real estate property is then
included in Citizens' "real estate owned" account until it is sold. Citizens
is permitted under applicable regulations to finance sales of real estate owned
by "loans to facilitate" which may involve more favorable interest rates and
terms than generally would be granted under Citizens' underwriting guidelines.
At the end of each of the last five years, Citizens had no loans to facilitate.
The Association generally places loans on non-accrual status when the
payment of interest becomes 90 days past due or when interest payments are
otherwise deemed uncollectible.
63
<PAGE> 68
The following table sets forth the amounts of the Company's
non-performing assets at the dates indicated. At such dates, there were no
troubled debt restructurings.
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Total non-performing assets:
Non-accruing loans 90 days or $171 $118 $109 $ -- $ ---
more past due
Real estate owned, net 64 39 --- 80 298
---- ---- ------ ----- ----
Total non-performing assets $235 $157 $109 $ 80 $ 298
==== ==== ==== ==== =====
Total non-performing loans as a
percentage of loans, net .38% .28% .32% --- ---
==== ======= ====== ==== ===
Total non-performing assets as a
percentage of total assets .31% .20% .16% .11% .41%
==== ===== ====== ==== ====
</TABLE>
The $171,000 of non-accruing loans 90 days or more past due at
December 31, 1996 consisted of one-to four-family residential loans for
$170,000 secured by property mainly in the Baton Rouge metropolitan area, and a
$1,000 secured consumer loan.
The Association's real estate owned steadily declined from $298,000
at December 31, 1992 to $0 at December 31, 1994, and then slightly increased to
$64,000 at December 31, 1996.
All loans are reviewed on a regular basis under the Association's
asset classification policy. The Association's total classified assets at
December 31, 1996 (excluding loss assets specifically reserved for) amounted to
$561,000, of which $531,000 was classified as special mention and $30,000 was
classified as substandard. See "Regulation of CitiSave - The Association -
Classified Assets."
At December 31, 1996, management was not aware of any additional
loans with possible credit problems which caused it to have doubts as to the
ability of the borrowers to comply with present loan repayment terms and which
in management's view may result in the future inclusion of such items in
classified assets.
ALLOWANCE FOR LOAN LOSSES. At December 31, 1996, Citizens' allowance
for loan losses amounted to $61,000 or .13% of the total loan portfolio
(including loans held for sale). Citizens' loan portfolio consists primarily
of one- to four-family residential loans and, to a lesser extent, commercial
real estate loans, construction loans, consumer loans and commercial business
loans. The Association believes that there are no material elements of risk in
its loan portfolio, and total nonperforming assets have remained at very low
levels. The classification of assets policy is reviewed periodically by the
Board of Directors. The loan loss allowance is maintained by management at a
level considered adequate to cover possible losses that are currently
anticipated based on the past three-year loan loss experience, known and
inherent risks in the portfolio,
64
<PAGE> 69
adverse situations that may affect the borrower's ability to repay, the
estimated value of any underlying collateral, general economic conditions, and
other factors and estimates which are subject to change over time. Although
management believes that it uses the best information available to make such
determinations, future adjustments to allowances may be necessary, and net
income could be significantly affected, if circumstances differ substantially
from the assumptions used in making the initial determinations.
The following table summarizes changes in the allowance for loan
losses and other selected statistics for the periods presented.
<TABLE>
<CAPTION>
At of For Year Ended December 31,
---------------------------------------------------------------
1996 1995 1994 1993 1992
----- ----- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Total loans outstanding(l) $47,592 $44,212 $36,262 $37,680 $41,153
Allowance for loan losses, beginning of
period 82 139 129 180 271
Provision for (recovery of) loan losses 35 1 10 (43) (43)
------- ------- ------- ------- -------
Charged-off loans:
Consumer loans 20 10 -- 2 --
Commercial real estate 26 -- -- 6 39
One- to four-family residential 10 48 -- -- 15
------- ------- ------- ------- -------
Total charged-off loans 56 58 -- 8 54
------- ------ ------- ------- -------
Recoveries on loans previously
charged-off:
Commercial real estate -- -- -- -- 5
Consumer -- -- -- -- 1
------- ------- ------- ------- -------
Total recoveries -- -- -- -- 6
------- ------- ------- ------- -------
Net loans charged-off (recovered) 56 58 -- -- 48
------- ------- ------- ------- -------
Allowance for loan losses, end of period $61 $ 82 $139 $129 $180
======= ======= ======= ======= =======
Allowance for loan losses as a percent of
total loans outstanding .13% .19% .38% .34% .44%
======== ======= ======= ======= =======
Allowance for loan losses as a percent of
non-performing loans(2) 35.67% 69.49% 127.52% --% ---%
======== ======= ======= ======= =======
Ratio of net charge-offs during the period
to average loans outstanding during the
period .13% .15% --% .02% .12%
======== ======= ======== ======== ========
</TABLE>
- --------------
(1) Includes loans held for sale.
(2) The Association had no non-performing loans at December 31, 1993 and
1992.
65
<PAGE> 70
The following table presents the allocation of Citizens' allowance
for loan losses by type of loan at each of the dates indicated.
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------------------
1996 1995 1994
---------------------- --------------------- -----------------------
Loan Loan Loan
Category Category Category
Amount as a % Amount as a % Amount as a %
of of Total of of Total of of Total
Allowance Loans Allowance Loans Allowance Loans
--------- -------- --------- --------- --------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
One- to four-family residential $ 5 79.1% $ 29 76.5% $ 69 77.7%
Construction -- 5.1 -- 5.9 -- 4.8
Commercial real estate -- 8.1 -- 10.4 15 11.8
Consumer 1 6.0 21 5.5 5 4.7
Commercial business -- 1.7 -- 1.7 -- 1.0
Unallocated(l) 55 -- 32 -- 50 --
--- ------ --- ------ --- ------
Total $ 61 100.0% $ 82 100.0% $139 100.0%
=== ====== === ====== === ======
<CAPTION>
December 31,
-------------------------------------------------------
1993 1992
------------------------ --------------------------
Loan Loan
Category Category
Amount as a % Amount as a %
of of Total of of Total
Allowance Loans Allowance Loans
--------- --------- --------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
One- to four-family residential $ 55 77.8% $ 74 79.7%
Construction -- 3.5 -- 2.8
Commercial real estate -- 13.2 2 11.2
Consumer 1 3.9 1 4.7
Commercial business -- 1.6 -- 1.6
Unallocated(l) 73 -- 103 --
-- ------ --- ------
Total $129 100.0% $180 100.0%
=== ====== === ======
</TABLE>
- ---------------------
(1) Consists of unclassified general allowances established for future
undetermined losses.
66
<PAGE> 71
INVESTMENT SECURITIES
The investment policy of the Company, which is established by the
Board of Directors, is designed primarily to maintain liquidity within
regulatory limits, maintain a balance of high-quality investments to minimize
risk, provide collateral for pledging requirements, provide alternative
investments when loan demand is low, maximize returns while preserving
liquidity and safety, and manage interest rate risk. Citizens is required to
maintain certain liquidity ratios and does so by investing in securities that
qualify as liquid assets under OTS regulations. See "Regulation of CitiSave -
The Association - Liquidity Requirements" for a description of such
regulations. Such securities include obligations issued or fully guaranteed by
the United States government, certain federal agency obligations and
certificates of deposit.
Investment securities (excluding FHLB stock) totaled $19.3 million or
25.6% of total assets at December 31, 1996. The investment securities consist
of U.S. government and agency securities and are accounted for as
held-to-maturity. The aggregate market value of such securities was $19.2
million at December 31, 1996. At December 31, 1996, $12.6 million of
investment securities were scheduled to mature in one year or less, $6.7
million of investment securities were scheduled to mature in more than one and
through five years, and no investment securities were scheduled to mature in
more than five years.
The following table sets forth certain information relating to the
Company's investment securities portfolio at the dates indicated.
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------------------
1996 1995 1994
--------------------- ------------------- ---------------------
Carrying Market Carrying Market Carrying Market
Value Value Value Value Value Value
----------- ---------- ---------- -------- ---------- ---------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
U.S. Government and
agency securities $19,254 $19,229 $22,521 $22,525 $27,784 $27,040
FHLB stock 380 380 358 358 336 336
------- ------- ------- ------- ------- -------
Total $19,634 $19,609 $22,879 $22,883 $28,120 $27,376
======= ======= ======= ======= ======= =======
</TABLE>
At December 31, 1996 and 1995, U.S. Government agency securities
included structured notes with an amortized cost of $4.5 million and $5.5
million, respectively, and a market value of $4.5 million and $5.4 million,
respectively. The structured notes at December 31, 1996 included $1.0 million
of FHLB step-up notes, $3.0 million of adjustable-rate FHLB notes that are not
subject to interest rate caps, and $500,000 of adjustable-rate FHLB notes that
are subject to interest rate caps. The interest rate on the step-up notes is
scheduled to increase by pre-determined amounts on pre-determined dates, and
the notes are callable at par on each date the interest rate is scheduled to
increase. If the step-up interest rate exceeds the then current market rate
for notes with similar terms to the next adjustment date or maturity date, then
the note would generally be called and the Company would have to re-invest the
proceeds in the lower interest rate environment. If the step-up interest rate
is less than the then current market rate, the note would generally not be
called and the Company would continue to hold the note with a below
67
<PAGE> 72
market interest rate. The adjustable-rate notes that are not subject to
interest rate caps adjust monthly based on the 11th District cost of funds
index minus 17.5 to 35 basis points. The adjustable-rate notes that are
subject to interest rate caps adjust based on the 90-day U.S. Treasury bill
plus a specified margin, subject to varying caps on the interest rate. The
above notes subject the Company to interest rate risk. Management attempts to
minimize the risks associated with these types of instruments by investing only
in instruments which mature within five years.
The following table sets forth the amount of investment securities
which mature during each of the periods indicated and the weighted average
yields for each range of maturities at December 31, 1996. No tax-exempt yields
have been adjusted to a tax equivalent basis.
<TABLE>
<CAPTION>
Amounts at December 31, 1996 Which Mature In
--------------------------------------------------------------------------
Over One
Weighted Year Weighted Over Weighted
One Year Average Through Average Five Average
or Less Yield Five Years Yield Years Yield
----------- --------- ------------ ---------- ----------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Bonds and other debt
securities:
U.S. Government
and federal agencies $12,586 6.08% $6,668 6.19% -- --%
Equity securities:
FHLB stock(l) -- -- -- -- 380 5.90
------- ---- ------ ---- ------- ----
Total investment
securities $12,586 6.08% $6,668 6.19% $ 380 5.90%
======= ==== ====== ==== ======= ====
</TABLE>
- ---------------------------
(1) As a member of the FHLB of Dallas, Citizens is required to maintain
its investment in FHLB stock, which has no stated maturity.
At December 31, 1996, the Company did not have investments in any one
issuer which exceeded more than 10% of the Company's total stockholders'
equity.
MORTGAGE-BACKED SECURITIES
The Company has invested in a portfolio of mortgage-backed securities
that are insured or guaranteed by the Federal Home Loan Mortgage Corporation
("FHLMC"), the Government National Mortgage Association ("GNMA") or the Federal
National Mortgage Association ("FNMA"). Mortgage-backed securities (which also
are known as mortgage participation certificates or pass-through certificates)
represent a participation interest in a pool of one- to four-family or
multi-family residential mortgages, the principal and interest payments on
which are passed from the mortgage originators, through intermediaries
(generally U.S. government agencies and government sponsored enterprises) that
pool and repackage the participation interests in the form of securities, to
investors such as the Company. FHLMC is a public corporation chartered by the
U.S. government and guarantees the timely payment of interest.
68
<PAGE> 73
FHLMC mortgage-backed securities are not backed by the full faith and credit of
the United States, but because FHLMC is a U.S. government sponsored enterprise,
these securities are considered high quality investments with minimal credit
risks. The GNMA is a government agency within the Department of Housing and
Urban Development which is intended to help finance government assisted housing
programs. The GNMA guarantees the timely payment of principal and interest,
and GNMA securities are backed by the full faith and credit of the U.S.
Government. The FNMA guarantees the timely payment of principal and interest
on FNMA securities.
At December 31, 1996, all of the Company's mortgage-backed securities
are accounted for as held-to-maturity and had a book value and approximate
market value of $2.3 million and $2.3 million, respectively. For additional
information relating to the Company's mortgage-backed securities, see Note 3 of
Notes to Consolidated Financial Statements.
Mortgage-backed securities generally yield less than the loans that
underlie such securities, because of the cost of payment guarantees or credit
enhancements that result in nominal credit risk. In addition, mortgage-backed
securities are more liquid than individual mortgage loans and may be used to
collateralize obligations of the Company. In general, mortgage-backed
pass-through securities are weighted at no more than 20% for risk-based capital
purposes, compared to an assigned risk weighting of 50% to 100% for whole
residential mortgage loans. As a result, these types of securities allow the
Company to optimize regulatory capital to a greater extent than non-securitized
whole loans. While mortgage-backed securities carry a reduced credit risk as
compared to whole loans, such securities remain subject to the risk that a
fluctuating interest rate environment, along with other factors such as the
geographic distribution of the underlying mortgage loans, may alter the
prepayment rate of such mortgage loans and so affect both the prepayment speed,
and value, of such securities.
The following table sets forth the composition of the Company's
mortgage-backed securities portfolio at each of the dates indicated.
<TABLE>
<CAPTION>
December 31,
------------------------------------------
1996 1995 1994
-------- ------------- -----------
(In Thousands)
<S> <C> <C> <C>
Mortgage-backed
securities:
FHLMC $ 159 $ 188 $ 238
FNMA 424 497 562
GNMA 1,692 1,880 2,073
----- ------ -----
Total $ 2,275 $ 2,565 $ 2,873
===== ====== =====
</TABLE>
69
<PAGE> 74
Information regarding the contractual maturities and weighted average
yield of the Company's mortgage-backed securities portfolio at December 31,
1996 is presented below. Due to repayments of the underlying loans, the actual
maturities of mortgage-backed securities generally are substantially less than
the scheduled maturities.
<TABLE>
<CAPTION>
Amounts at December 31, 1996 Which Mature In
------------------------------------------------------------------------------
After Five
One Year After One to to Over 10
or Less Five Years 10 Years Years Total
------------- -------------- --------------- ------------- ------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
FHLMC $ -- $ 3 $ -- $ 156 $ 159
FNMA -- -- -- 424 424
GNMA -- -- -- 1,692 1,692
------ -------- ------ ------ ------
Total $ -- $ 3 $ -- $ 2,272 $ 2,275
====== ======== ====== ====== ======
Weighted average yield --% 9.00% --% 6.74% 6.74%
====== ======== ======= ====== ======
</TABLE>
The following tables sets forth the purchases, and principal
repayments of the Company's mortgage-backed securities during the periods
indicated. No mortgage-backed securities have been sold in the last three
years.
<TABLE>
<CAPTION>
At or For the
Year Ended December 31,
-------------------------------------------
1996 1995 1994
---------- ------------ -----------
(Dollars in Thousands)
<S> <C> <C> <C>
Mortgage-backed securities
at beginning of period $2,565 $2,873 $3,321
Purchases 90 -- --
Repayments (376) (305) (444)
Amortizations of premiums
and discounts, net (4) (3) (4)
-------- -------- --------
Mortgage-backed securities at
end of period $2,275 $ 2,565 $ 2,873
===== ====== =====
Weighted average yield at
end of period 6.74% 6.45% 5.68%
====== ====== ======
</TABLE>
70
<PAGE> 75
SOURCES OF FUNDS
GENERAL. Deposits are the primary source of the Company's funds for
lending and other investment purposes. In addition to deposits, the Company
derives funds from principal repayments on loans and mortgage-backed
securities. Loan repayments are a relatively stable source of funds, while
deposit inflows and outflows are significantly influenced by general interest
rates and money market conditions. Borrowings may be used on a short-term
basis to compensate for reductions in the availability of funds from other
sources. They may also be used on a longer-term basis for general business
purposes.
DEPOSITS. The Company's deposits are attracted principally from
within the Company's primary market area through the offering of a broad
selection of deposit instruments, including NOW accounts, money market deposit
accounts ("MMDAs"), regular savings accounts, and term certificate accounts.
Deposit account terms vary, with the principal differences being the minimum
balance required, the time periods the funds must remain on deposit and the
interest rate.
The large variety of deposit accounts offered by the Company has
increased the Company's ability to retain deposits and allowed it to be more
competitive in obtaining new funds, but has not eliminated the threat of
disintermediation (the flow of funds away from savings institutions into direct
investment vehicles such as government and corporate securities). During
periods of high interest rates, deposit accounts that have adjustable interest
rates have been more costly than traditional passbook accounts. In addition,
the Company is subject to short-term fluctuations in deposit flows because
funds in transaction accounts can be withdrawn at any time and because 69.1% of
the certificates of deposit at December 31, 1996 mature in one year or less.
The Company's ability to attract and maintain deposits is affected by the rate
consciousness of its customers and their willingness to move funds into
higher-yielding accounts. The Company's cost of funds has been, and will
continue to be, affected by money market conditions.
The following table sets forth the savings flows of the Company
during the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------
1996 1995 1994
------------ ------------ ----------
(In Thousands)
<S> <C> <C> <C>
Deposits $161,012 $155,503 $131,710
Withdrawals 163,733 157,233 136,639
------- ------- -------
Increase (decrease) before interest
credited (2,721) (1,730) (4,929)
Interest credited 1,664 1,684 1,414
------- ------- -------
Net increase (decrease) in deposits $ (1,057) $ (46) $ (3,515)
======== ======= =======
</TABLE>
71
<PAGE> 76
The Company attempts to control the flow of deposits by pricing its
accounts to remain generally competitive with other financial institutions in
its market area, but does not necessarily seek to match the highest rates paid
by competing institutions. The Association has generally not taken a position
of price leadership in its markets unless there has been an opportunity to
market longer term deposits.
The following table shows the distribution of, and certain other
information relating to, the Company's deposits by type of deposit, as of the
dates indicated.
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------------------
1996 1995 1994
-------------------- ------------------ ------------------------
Amount % Amount % Amount %
-------- ------- -------- ----- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Certificate accounts:
2.00% - 3.00% $ 319 .5% $ 141 .2% $ 530 .9%
3.01% - 4.00% 1,207 2.0 1,517 2.4 25,353 40.5
4.01% - 5.00% 19,145 31.2 18,577 29.7 5,958 9.5
5.01% - 6.00% 12,176 19.8 13,246 21.2 7,784 12.4
6.01% - 7.00% 5,675 9.2 6,632 10.6 883 1.4
7.01% - 8.00% 1,257 2.0 1,449 2.3 342 .5
8.01% or more 390 .7 412 .7 410 .8
-------- ---- -------- ------ ------- ------
Total certificate
accounts 40,169 65.4 41,974 67.1 41,260 66.0
-------- ---- -------- ------ ------- ------
Transaction accounts:
Passbook savings 6,160 10.0 6,523 10.4 7,268 11.6
MMDAs 5,828 9.5 6,293 10.1 6,584 10.5
Demand and NOW
accounts(l) 9,300 15.1 7,724 12.4 7,448 11.9
-------- ---- -------- ------ ------- ------
Total transaction
accounts 21,288 34.6 20,540 32.9 21,300 34.0
-------- ---- -------- ------ ------- ------
Total deposits $ 61,457 100.0% $62,514 100.0% $62,560 100.0%
========= ===== ======= ===== ======= =====
</TABLE>
- ------------
(1) Includes noninterest-bearing deposits of $3.3 million, $4.4 million
and $2.4 million at December 31, 1996, 1995 and 1994, respectively.
72
<PAGE> 77
The following table presents the average balance of each type of
deposit and the average rate paid on each type of deposit for the periods
indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------
1996 1995 1994
---------------------- ---------------------- ----------------------
Average Average Average
Average Rate Average Rate Average Rate
Balance Paid Balance Paid Balance Paid
--------- --------- ---------- ---------- ----------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Passbook savings accounts $ 6,159 1.98% $ 6,746 2.11% $ 7,321 2.13%
Demand and NOW accounts 5,776 2.20 4,820 2.49 4,956 2.48
MMDAs 6,348 2.08 6,382 2.27 7,267 2.29
Certificates of deposit 41,095 5.22 42,230 4.98 42,878 3.87
-------- ----- ------- ---- ------ -----
Total interest-bearing
deposits 59,378 4.26% 60,178 4.17% 62,422 3.37%
===== ==== =====
Noninterest-bearing
deposits 2,562 2,404 2,654
------ ------- -------
Total deposits $ 61,940 $ 62,582 $ 65,076
====== ====== ======
</TABLE>
The principal methods used by the Association to attract deposits
include the offering of a wide variety of services and accounts, competitive
interest rates and convenient office locations. The Company is a member of the
Pulse automatic teller machine network. The Company uses traditional marketing
methods to attract new customers and deposits, including mass media advertising
and direct mailings.
The Company does not advertise for deposits outside of its primary
market area. At December 31, 1996, the Company had no deposits that were
obtained through deposit brokers. The Company does not actively solicit
broker deposits and does not pay fees to such brokers.
73
<PAGE> 78
The following table presents, by various interest rate categories,
the amount of certificates of deposit at December 31, 1996 and the amounts at
December 31, 1996 which mature during the periods indicated.
<TABLE>
<CAPTION>
Balance at December 31, 1996
Maturing in the 12 Months Ending December 31,
--------------------------------------------------------
Certificates of Deposit 1997 1998 1999 Thereafter Total
----------------------- ---- ---- ---- ---------- -----
(In Thousands)
<S> <C> <C> <C> <C> <C>
2.00% - 3.00% $ 319 $ -- $ -- $ -- $ 319
3.01% - 4.00% 1,207 -- -- -- 1,207
4.01% - 5.00% 18,401 742 -- 3 19,146
5.01% - 6.00% 3,066 6,240 1,858 1,011 12,175
6.01% - 7.00% 3,777 161 405 1,333 5,676
7.01% - 8.00% 740 100 -- 417 1,257
8.01% or more 264 88 32 5 389
---------- ----------- --------- ------- ---------
Total certificate accounts $ 27,774 $ 7,331 $ 2,295 $ 2,769 $40,169
========= ========= ======== ======= ========
</TABLE>
The following table sets forth the maturities of the Company's
certificates of deposit of $100,000 or more at December 31, 1996 by time
remaining to maturity.
<TABLE>
<CAPTION>
Quarter Ending: Amounts
- -------------------------------- --------------
(In Thousands)
<S> <C>
March 31, 1997 $1,600
June 30, 1997 1,353
September 30, 1997 722
December 31, 1997 200
After December 31, 1997 2,008
-----
Total certificates of deposit with
balances of $100,000 or more $5,883
=====
</TABLE>
BORROWINGS. The Association may obtain advances from the FHLB of
Dallas upon the security of the common stock it owns in that bank and certain
of its residential mortgage loans, investment securities and mortgage-backed
securities, provided certain standards related to credit worthiness have been
met. See "Regulation of Citisave - The Association - Federal Home Loan Bank
System." Such advances are made pursuant to several credit programs, each of
which has its own interest rate and range of maturities. Such advances are
generally available to meet seasonal and other withdrawals of deposit accounts
and to permit increased lending. The Association has not utilized advances
from the FHLB of Dallas in the last five years.
74
<PAGE> 79
SUBSIDIARY
In 1984, the Association's wholly owned subsidiary, 665 Florida Street
Corp. ("FSC"), purchased an 80% ownership interest in Roberts and Eastland
Insurance Agency ("Roberts and Eastland"). Roberts and Eastland engages in a
general insurance agency business and offers a wide variety of insurance to
businesses and individuals, including general liability, commercial automobile,
workers' compensation, property coverage and construction bond insurance to
businesses and homeowners', automobile, rental coverage and flood insurance to
individuals. Roberts and Eastland also offers life insurance and group medical
insurance. Roberts and Eastland acquired a smaller insurance agency in 1986.
While Roberts and Eastland has been profitable since 1984, its average
commissions have declined from approximately 15% at the time of the acquisition
to a range of 10 to 11%. Roberts and Eastland has been successful in hiring
and training another producer to complement its primary producer, who has been
with the agency for 30 years.
At December 31, 1996, the Association's total investment in FSC
amounted to $159,000. See Notes 1 and 22 of Notes to Consolidated Financial
Statements. For financial information with respect to FSC for each of the
last three years, see Note 22 of Notes to Consolidated Financial Statements.
The Association is permitted to invest up to 3% of its assets in the
capital stock of, and secured and unsecured loans to, subsidiary corporations
or service corporations, provided that at least one-half of the investments in
excess of 1% of assets are utilized for community or inner-city purposes. In
addition, federally chartered savings institutions may make, subject to the
loans-to-one borrower limitations, conforming loans to service corporations (1)
in which the institution owns or holds more than 10% of the capital stock of
the service corporation, an aggregate amount of up to 50% of the institution's
risk-based capital, and (2) in which the institution does not own or hold more
than 10% of the capital stock of the service corporation, an amount up to 100%
of the institution's risk-based capital. The Association's investment is well
within these limitations. In addition, federal regulations permit service
corporation subsidiaries to engage in an insurance agency business for
liability, casualty, automobile, life, health, accident or title insurance, but
not private mortgage insurance.
COMPETITION
The Company faces significant competition both in attracting deposits
and in making loans. Its most direct competition for deposits has come
historically from commercial banks, credit unions and other savings
institutions located in its primary market area, including many large financial
institutions which have greater financial and marketing resources available to
them. Some of the Company's major competitors include Banc One, Hibernia
National Bank, Whitney National Bank, City National Bank, Hancock Bank of
Louisiana and Union Planters. In addition, the Company faces additional
significant competition for investors' funds from short-term money market
mutual funds and issuers of corporate and government securities. The Company
competes for deposits principally by offering depositors a variety of deposit
programs. The Company does not rely upon any individual group or entity for a
material portion of its deposits. The Company
75
<PAGE> 80
estimates that its market share of total deposits in East Baton Rouge Parish,
Louisiana is approximately 1.5%.
The Company's competition for real estate loans comes principally from
mortgage banking companies, commercial banks, other savings institutions and
credit unions. The Company competes for loan originations primarily through
the interest rates and loan fees it charges, and the efficiency and quality of
services it provides borrowers and real estate brokers. Factors which affect
competition include general and local economic conditions, current interest
rate levels and volatility in the mortgage markets.
EMPLOYEES
The Company and its subsidiaries had 42 full-time employees and 7
part-time employees at December 31, 1996. None of these employees are
represented by a collective bargaining agent, and the Company believes that it
enjoys good relations with its personnel.
PROPERTIES
At December 31, 1996, the Company and the Association conducted their business
from the Association's main office and five branch offices in Baton Rouge,
Louisiana. The table below sets forth the net book value (including
furnishings and equipment) and certain other information with respect to the
offices and other properties of the Company at December 31, 1996.
<TABLE>
<CAPTION>
Net Book
Value of Amount of
Description/Address Leased/Owned Property Deposits
--------------------------------------- ------------------------ -------- -------------
(In Thousands)
<S> <C> <C> <C>
Main Office:
665 Florida Street
Baton Rouge, Louisiana 70801 Owned $340 $22,756
Branch Offices:
450 N. Lobdell
Baton Rouge, Louisiana 70806 Owned 559 13,566
5505 Highland Road
Baton Rouge, Louisiana 70808 Owned 33 8,667
16969 Old Jefferson Hwy
Baton Rouge, Louisian 70817 Owned 536 300
5711 Sherwood Forest Blvd.
Baton Rouge, Louisiana 70816 Owned 256 10,196
10088 Greenwell Springs Road
Baton Rouge, Louisiana 70814 Owned 152 5,972
Land Held for Investment:
Lot 104-Round Oak Subdivision Owned 90 --
-- -------
Total $1,966 $61,457
===== =======
</TABLE>
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<PAGE> 81
LEGAL PROCEEDINGS
The Company is involved in routine legal proceedings occurring in the
ordinary course of business which, in the aggregate, are believed by management
to be immaterial to the consolidated financial condition and results of
operations of the Company.
REGULATION OF CITISAVE
THE COMPANY
GENERAL. The Company, as a registered savings and loan holding
company within the meaning of the Home Owners' Loan Act, as amended ("HOLA"),
is subject to OTS regulations, examinations, supervision and reporting
requirements. As a subsidiary of a savings and loan holding company, Citizens
is subject to certain restrictions in its dealings with the Company and
affiliates thereof
ACTIVITIES RESTRICTIONS. There are generally no restrictions on the
activities of a savings and loan holding company which holds only one
subsidiary savings institution. However, if the Director of the OTS determines
that there is reasonable cause to believe that the continuation by a savings
and loan holding company of an activity constitutes a serious risk to the
financial safety, soundness or stability of its subsidiary savings institution,
the Director may impose such restrictions as deemed necessary to address such
risk, including limiting (i) payment of dividends by the savings institution;
(ii) transactions between the savings institution and its affiliates; and (iii)
any activities of the savings institution that might create a serious risk that
the liabilities of the holding company and its affiliates may be imposed on the
savings institution. Notwithstanding the above rules as to permissible
business activities of unitary savings and loan holding companies, if the
savings institution subsidiary of such a holding company fails to meet the QTL
test, as discussed under "- The Association - Qualified Thrift Lender Test,"
then such unitary holding company also shall become subject to the activities
restrictions applicable to multiple savings and loan holding companies and,
unless the savings institution requalifies as a QTL within one year thereafter,
shall register as, and become subject to the restrictions applicable to, a bank
holding company. See "- The Association - Qualified Thrift Lender Test."
If the Company were to acquire control of another savings institution,
other than through merger or other business combination with Citizens, the
Company would thereupon become a multiple savings and loan holding company.
Except where such acquisition is pursuant to the authority to approve emergency
thrift acquisitions and where each subsidiary savings institution meets the QTL
test, as set forth below, the activities of the Company and any of its
subsidiaries (other than Citizens or other subsidiary savings institutions)
would thereafter be subject to further restrictions. Among other things, no
multiple savings and loan holding company or subsidiary thereof which is not a
savings institution shall commence or continue for a limited period of time
after becoming a multiple savings and loan holding company or subsidiary
thereof any business activity other than, upon prior notice to, and no
objection by the OTS: (i) furnishing or performing management services for a
subsidiary savings institution; (ii) conducting an insurance agency or escrow
business; (iii) holding, managing, or liquidating assets owned by or acquired
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<PAGE> 82
from a subsidiary savings institution; (iv) holding or managing properties used
or occupied by a subsidiary savings institution; (v) acting as trustee under
deeds of trust; (vi) those activities authorized by regulation as of March 5,
1987 to be engaged in by multiple savings and loan holding companies; or (vii)
unless the Director of the OTS by regulation prohibits or limits such
activities for savings and loan holding companies, those activities authorized
by the FRB as permissible for bank holding companies. nose activities
described in (vii) above also must be approved by the Director of the OTS prior
to being engaged in by a multiple savings and loan holding company.
LIMITATIONS ON TRANSACTIONS WITH AFFILIATES. Transactions between
savings institutions and any affiliate are governed by Sections 23A and 23B of
the Federal Reserve Act and OTS regulations. An affiliate of a savings
institution is any company or entity which controls, is controlled by or is
under common control with the savings institution. In a holding company
context, the parent holding company of a savings institution (such as the
Company) and any companies which are controlled by such parent holding company
are affiliates of the savings institution. Generally, such provisions (i)
limit the extent to which the savings institution or its subsidiaries may
engage in "covered transactions" with any one affiliate to an amount equal to
10% of such institution's capital stock and surplus, and contain an aggregate
limit on all such transactions with all affiliates to an amount equal to 20% of
such capital stock and surplus and (ii) require that all such transactions be
on terms substantially the same, or at least as favorable, to the institution
or subsidiary as those provided to a non-affiliate. The term "covered
transaction" includes the making of loans, purchase of assets, issuance of a
guarantee and other similar transactions. In addition to the restrictions
imposed by such provisions, no savings institution may (i) loan or otherwise
extend credit to an affiliate, except for any affiliate which engages only in
activities which are permissible for bank holding companies, or (ii) purchase
or invest in any stocks, bonds, debentures, notes or similar obligations of any
affiliate, except for affiliates which are subsidiaries of the savings
institution.
In addition, Sections 22(h) and (g) of the Federal Reserve Act place
restrictions on loans to executive officers, directors and principal
stockholders. Under Section 22(h), loans to a director, an executive officer
and to a greater than 10% stockholder of a savings institution, and certain
affiliated interests of either, may not exceed, together with all other
outstanding loans to such person and affiliated interests, the savings
institution's loans to one borrower limit (generally equal to 15% of the
institution's unimpaired capital and surplus). Section 22(h) also requires
that loans to directors, executive officers and principal stockholders be made
on terms substantially the same as offered in comparable transactions to other
persons and also requires prior board approval for certain loans. In addition,
the aggregate amount of extensions of credit by a savings institution to all
insiders cannot exceed the institution's unimpaired capital and surplus.
Furthermore, Section 22(g) places additional restrictions on loans to executive
officers. At December 31, 1996, Citizens was in compliance with the above
restrictions.
RESTRICTIONS ON ACQUISITIONS. Except under limited circumstances,
savings and loan holding companies are prohibited from acquiring, without prior
approval of the Director of the OTS, (i) control of any other savings
institution or savings and loan holding company or substantially all the assets
thereof or (ii) more than 5% of the voting shares of a savings institution or
holding company thereof which is not a subsidiary. Except with the prior
approval of the Director of the OTS, no director or officer of a savings and
loan holding company or person
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<PAGE> 83
owning or controlling by proxy or otherwise more than 25% of such company's
stock, may acquire control of any savings institution, other than a subsidiary
savings institution, or of any other savings and loan holding company.
The Director of the OTS may only approve acquisitions resulting in the
formation of a multiple savings and loan holding company which controls savings
institutions in more than one state if (i) the multiple savings and loan
holding company involved controls a savings institution which operated a home
or branch office located in the state of the institution to be acquired as of
March 5, 1987; (ii) the acquirer is authorized to acquire control of the
savings institution pursuant to the emergency acquisition provisions of the
Federal Deposit Insurance Act ("FDIA"); or (iii) the statutes of the state in
which the institution to be acquired is located specifically permit
institutions to be acquired by the state-chartered institutions or savings and
loan holding companies located in the state where the acquiring entity is
located (or by a holding company that controls such state-chartered savings
institutions).
Under the Bank Holding Company Act of 1956, the FRB is authorized to
approve an application by a bank holding company to acquire control of a
savings institution. In addition, a bank holding company that controls a
savings institution may merge or consolidate the assets and liabilities of the
savings institution with, or transfer assets and liabilities to, any subsidiary
bank which is a member of the Bank Insurance Fund ("BIF") with the approval of
the appropriate federal banking agency and the FRB. As a result of these
provisions, there have been a number of acquisitions of savings institutions by
bank holding companies in recent years.
THE ASSOCIATION
GENERAL. The OTS has extensive authority over the operations of
federally chartered savings institutions and is the primary federal regulator
of the Association. As part of this authority, savings institutions are
required to file periodic reports with the OTS and are subject to periodic
examinations by the OTS and the FDIC. The investment and lending authority of
savings institutions are prescribed by federal laws and regulations, and such
institutions are prohibited from engaging in any activities not permitted by
such laws and regulations. Such regulation and supervision is primarily
intended for the protection of depositors.
The OTS' enforcement authority over all savings institutions and their
holding companies includes, among other things, the ability to assess civil
money penalties, to issue cease and desist or removal orders and to initiate
injunctive actions. In general, these enforcement actions may be initiated for
violations of laws and regulations and unsafe or unsound practices. Other
actions or inactions may provide the basis for enforcement action, including
misleading or untimely reports filed with the OTS.
On December 19, 1991, the Federal Deposit Insurance Corporation
Improvement Act of 1991 ("FDICIA") was enacted into law. The FDICIA provided
for, among other things, the recapitalization of the BIF; the authorization of
the FDIC to make emergency special assessments under certain circumstances
against BIF members and members of the SAIF; the establishment of risk-based
deposit insurance premiums; and improved examinations and reporting
requirements. The FDICIA also provided for enhanced federal supervision of
depository institutions based on, among other things, an institution's capital
level. See- "Prompt Corrective Action."
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<PAGE> 84
INSURANCE OF ACCOUNTS. The deposits of Citizens are insured to the
maximum extent permitted by the SAIF, which is administered by the FDIC, and
are backed by the full faith and credit of the U.S. Government. As insurer,
the FDIC is authorized to conduct examinations of, and to require reporting by,
FDIC-insured institutions. It also may prohibit any FDIC-insured institution
from engaging in any activity the FDIC determines by regulation or order to
pose a serious threat to the FDIC. The FDIC also has the authority to initiate
enforcement actions against savings institutions, after giving the OTS an
opportunity to take such action.
Under current FDIC regulations, institutions are assigned to one of
three capital groups which are based solely on the level of an institution's
capital--"well capitalized," "adequately capitalized," and
"undercapitalized"--which are defined in the same manner as the regulations
establishing the prompt corrective action system under Section 38 of the FDIA,
as discussed below. These three groups are then divided into three subgroups
which reflect varying levels of supervisory concern, from those which are
considered to be healthy to those which are considered to be of substantial
supervisory concern. The matrix so created resulted in nine assessment risk
classifications, with rates ranging prior to September 30, 1996 from .23% for
well capitalized, healthy institutions to .31% for undercapitalized
institutions with substantial supervisory concerns. The insurance premiums for
Citizens for each of the semi-annual periods in the first half of 1996 and in
1995 and 1994 were .23% (per annum) of insured deposits.
The deposits of Citizens are currently insured by the SAIF. Both the
SAIF and the BIF, the federal deposit insurance fund that covers commercial
bank deposits, are required by law to attain and thereafter maintain a reserve
ratio of 1.25% of insured deposits. The BIF had achieved a fully funded status
in contrast to the SAIF and, therefore, the FDIC substantially reduced the
average deposit insurance premium paid by commercial banks to a level
approximately 75% below the average premium then paid by savings institutions.
On November 14, 1995, the FDIC approved a final rule regarding deposit
insurance premiums. The final rule reduces deposit insurance premiums for BIF
member institutions to zero basis points (subject to a $2,000 minimum) for
institutions in the lowest risk category, while holding deposit insurance
premiums for SAIF members at their then current levels (23 basis points for
institutions in the lowest risk category). The reduction was effective with
respecti to the semiannual premium assessment beginning January 1, 1996.
On September 30, 1996, President Clinton signed into law legislation
which eliminates the premium differential between SAIF-insured institutions and
BIF-insured institutions by recapitalizing the SAIF's reserves to the required
ratio. The legislation required all SAIF member institutions pay a one-time
special assessment to recapitalize the SAIF, with the aggregate amount to be
sufficient to bring the reserve ratio in the SAIF to 1.25% of insured deposits.
The legislation also provides for the merger of the BIF and the SAIF, with such
merger being conditioned upon the prior elimination of the thrift charter.
Implementing FDIC regulations imposed a one-time special assessment
equal to 65.7 basis points for all SAIF-assessable deposits as of March 31,
1995, which was accrued as an expense on September 30, 1996. The one-time
special assessment for the Association amounted to $414,000. Net of related
tax benefits, the one-time special assessment amounted to $273,000 or
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<PAGE> 85
$.29 per share. The payment of such special assessment had the effect of
immediately reducing the Association's capital by such amount. Nevertheless,
management does not believe that this one-time special assessment had a
material adverse effect on the Company's consolidated financial condition.
In the fourth quarter of 1996, the FDIC lowered the assessment rates
for SAIF members to reduce the disparity in the assessment rates paid by BIF
and SAIF members. Beginning October 1, 1996, effective SAIF rates generally
range from zero basis points to 27 basis points, except that during the fourth
quarter of 1996, the rates for SAIF members ranged from 18 basis points to 27
basis points in order to include assessments paid to the Financing Corporation
("FICO"). From 1997 through 1999, SAIF members will pay 6.4 basis points to
fund the FICO, while BIF member institutions will pay approximately 1.3 basis
points. The Association's insurance premiums, which had amounted to 23 basis
points, were thus reduced to 6.4 basis points effective January 1, 1997. All
institutions that pay assessments to the SAIF also received a partial refund of
the fourth quarter assessment that was applied to the first quarter 1997
billing. Based upon the $61.5 million of assessable deposits at December 31,
1996, the 6.4 basis point premiums and the refund, the Association will pay
$64,000 less in insurance premiums in the first half of 1997.
The FDIC may terminate the deposit insurance of any insured depository
institution, including Citizens, if it determines after a hearing that the
institution has engaged or is engaging in unsafe or unsound practices, is in an
unsafe or unsound condition to continue operations, or has violated any
applicable law, regulation, order or any condition imposed by an agreement with
the FDIC. It also may suspend deposit insurance temporarily during the hearing
process for the permanent termination of insurance, if the institution has no
tangible capital. If insurance of accounts is terminated, the accounts at the
institution at the time of the termination, less subsequent withdrawals, shall
continue to be insured for a period of six months to two years, as determined
by the FDIC. Management is aware of no existing circumstances which would
result in termination of the Association's deposit insurance.
REGULATORY CAPITAL REQUIREMENTS. Federally insured savings
institutions are required to maintain minimum levels of regulatory capital. The
OTS has established capital standards applicable to all savings institutions.
These standards generally must be as stringent as the comparable capital
requirements imposed on national banks. The OTS also is authorized to impose
capital requirements in excess of these standards on individual institutions on
a case-by-case basis.
Current OTS capital standards require savings institutions to satisfy
three different capital requirements. Under these standards, savings
institutions must maintain "tangible" capital equal to at least 1.5% of
adjusted total assets, "core" capital equal to at least 3.0% of adjusted total
assets and "total" capital (a combination of core and "supplementary" capital)
equal to at least 8.0% of "risk-weighted" assets. For purposes of the
regulation, core capital generally consists of common stockholders' equity
(including retained earnings), noncumulative perpetual preferred stock and
related surplus, minority interests in the equity accounts of fully
consolidated subsidiaries, certain nonwithdrawable accounts and pledged
deposits and "qualifying supervisory goodwill." Tangible capital is given the
same definition as core capital but does not include qualifying supervisory
goodwill and is reduced by the amount of all the savings institution's
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<PAGE> 86
intangible assets, with only a limited exception for purchased mortgage
servicing rights. Citizens had no goodwill or other intangible assets at
December 31, 1996. Both core and tangible capital are further reduced by an
amount equal to a savings institution's debt and equity investments in
subsidiaries engaged in activities not permissible to national banks (other
than subsidiaries engaged in activities undertaken as agent for customers or in
mortgage banking activities and subsidiary depository institutions or their
holding companies). Because Roberts and Eastland only engages in insurance
activities on an agency basis, the Association's investment in its subsidiary
is not deducted for capital purposes.
In determining compliance with the risk-based capital requirement, a
savings institution is allowed to include both core capital and supplementary
capital in its total capital, provided that the amount of supplementary capital
included does not exceed the savings institution's core capital. Supplementary
capital generally consists of hybrid capital instruments; perpetual preferred
stock which is not eligible to be included as core capital; subordinated debt
and intermediate-term preferred stock; and general allowances for loan losses
up to a maximum of 1.25% of risk-weighted assets. In determining the required
amount of risk-based capital, total assets, including certain off-balance sheet
items, are multiplied by a risk weight based on the risks inherent in the type
of assets. The risk weights assigned by the OTS for principal categories of
assets are (i) 0% for cash and securities issued by the U.S. Government or
unconditionally backed by the full faith and credit of the U.S. Government;
(ii) 20% for securities (other than equity securities) issued by U.S.
Government-sponsored agencies and mortgage-backed securities issued by, or
fully guaranteed as to principal and interest by, the FNMA or the FHLMC, except
for those classes with residual characteristics or stripped mortgage-related
securities; (iii) 50% for prudently underwritten permanent one- to four family
first lien mortgage loans not more than 90 days delinquent and having a
loan-to-value ratio of not more than 80% at origination unless insured to such
ratio by an insurer approved by the FNMA or the FHLMC, qualifying residential
bridge loans made directly for the construction of one- to four-family
residences and qualifying multi-family residential loans; and (iv) 100% for all
other loans and investments, including consumer loans, commercial loans, and
one- to four-family residential real estate loans more than 90 days delinquent,
and for repossessed assets.
In August 1993, the OTS adopted a final rule incorporating an
interest-rate risk component into the risk-based capital regulation. Under the
rule, an institution with a greater than "normal" level of interest rate risk
will be subject to a deduction of its interest rate risk component from total
capital for purposes of calculating its risk-based capital. As a result, such
an institution will be required to maintain additional capital in order to
comply with the risk-based capital requirement. An institution with a greater
than "normal" interest rate risk is defined as an institution that would suffer
a loss of net portfolio value exceeding 2.0% of the estimated economic value of
its assets in the event of a 200 basis point increase or decrease (with certain
minor exceptions) in interest rates. The interest rate risk component will be
calculated, on a quarterly basis, as one-half of the difference between an
institution's measured interest rate risk and 2.0% multiplied by the economic
value of its assets. The rule also authorizes the Director of the OTS, or his
designee, to waive or defer an institution's interest rate risk component on a
case-by-case basis. The final rule was originally effective as of January 1,
1994, subject however to a two quarter "lag" time between the reporting date of
the data used to calculate an institution's interest rate risk and the
effective date of each quarter's interest rate risk component. However, in
October 1994 the Director of the OTS indicated that it would waive the capital
deductions for
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<PAGE> 87
institutions with a greater than "normal" risk until the OTS published an
appeals process. On August 21, 1995, the OTS released Thrift Bulletin 67 which
established (i) an appeals process to handle "requests for adjustments" to the
interest rate risk component and (ii) a process by which "well-capitalized"
institutions may obtain authorization to use their own interest rate risk model
to determine their interest rate risk component. The Director of the OTS
indicated, concurrent with the release of Thrift Bulletin 67, that the OTS will
continue to delay the implementation of the capital deduction for interest rate
risk pending the testing of the appeals process set forth in Thrift Bulletin
67.
At December 31, 1996, Citizens exceeded all of its regulatory capital
requirements, with tangible, core and risk-based capital ratios of 14.23%,
14.23% and 30.15%, respectively. The following table sets forth Citizens'
compliance with each of the above-described capital requirements as of December
31, 1996.
<TABLE>
<CAPTION>
Tangible Core Risk-Based
Capital Capital (1) Capital (2)
---------- ----------- -----------
(Dollars in Thousands)
<S> <C> <C> <C>
Capital under GAAP $10,563 $10,563 $10,563
Additional capital items:
General valuation
allowances(3) -- -- 61
------ ------ ------
Regulatory capital 10,563 10,563 10,624
Minimum required
regulatory capital(4) 1,114 2,227 2,819
----- ----- -----
Excess regulatory capital $ 9,449 $8,336 $7,805
===== ===== =====
Regulatory capital as a
percentage 14.23% 14.23% 30.15%
Minimum capital required
as a percentages) 1.50 3.00 8.00
------ ------- --------
Regulatory capital as a
percentage in excess of
requirements 12.73% 11.23% 22.15%
===== ====== =======
</TABLE>
- -------------------
(1) Does not reflect the 4.0% requirement to be met in order for an
institution to be "adequately capitalized." See "-Prompt
Corrective Action."
(2) Does not reflect the interest-rate risk component in the risk-based
capital requirement.
(3) General valuation allowances are only used in the calculation of
risk-based capital. Such allowances are limited to 1.25% of
risk-weighted assets.
(4) Tangible and core capital are computed as a percentage of adjusted
total assets of $74.2 million. Risk-based capital is computed as a
percentage of adjusted risk weighted assets of $35.2 million.
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<PAGE> 88
Effective November 28, 1994, the OTS revised its interim policy issued
in August 1993 under which savings institutions computed their regulatory
capital in accordance with SFAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." Under the revised OTS policy, savings institutions
must value securities available for sale at amortized cost for regulatory
capital purposes. This means that in computing regulatory capital, savings
institutions should add back any unrealized losses and deduct any unrealized
gains, net of income taxes, on debt securities reported as a separate component
of GAAP capital. This change in policy did not affect the Association's
regulatory capital at December 31, 1996.
A savings institution which is not in capital compliance or which is
otherwise deemed to require more than normal supervision is subject to
restrictions on its ability to grow pursuant to Regulatory Bulletin 3a-1. In
addition, a provision of HOLA generally provides that the Director of the OTS
must restrict the asset growth of savings institutions not in regulatory
capital compliance, subject to a limited exception for growth not exceeding
interest credited.
A savings institution which is not in capital compliance is also
automatically subject to the following: (i) new directors and senior executive
officers and employment contracts for senior executive officers must be
approved by the OTS in advance; (ii) the savings institution may not accept or
renew any brokered deposits; (iii) the savings institution is subject to higher
OTS assessments as a capital-deficient institution; and (iv) the savings
institution may not make any capital distributions without prior written
approval.
Any savings institution that fails any of the capital requirements is
subject to possible enforcement actions by the OTS or the FDIC. Such actions
could include a capital directive, a cease and desist order, civil money
penalties, the establishment of restrictions on the institution's operations,
termination of federal deposit insurance and the appointment of a conservator
or receiver. The OTS' capital regulation provides that such actions, through
enforcement proceedings or otherwise, could require one or more of a variety of
corrective actions.
PROMPT CORRECTIVE ACTION. Under Section 38 of the FDIA, as added by
the FDICIA, each federal banking agency was required to implement a system of
prompt corrective action for institutions which it regulates. The federal
banking agencies, including the OTS, adopted substantially similar regulations
to implement Section 38 of the FDIA, effective as of December 19, 1992. Under
the regulations, an institution is deemed to be (i) "well capitalized" if it
has total risk-based capital of 10.0% or more, has a Tier 1 risk-based capital
ratio of 6.0% or more, has a Tier 1 leverage capital ratio of 5.0% or more and
is not subject to any order or final capital directive to meet and maintain a
specific capital level for any capital measure, (ii) "adequately capitalized"
if it has a total risk-based capital ratio of 8.0% or more, a Tier 1 risk-based
capital ratio of 4.0% or more and a Tier I leverage capital ratio of 4.0% or
more (3.0% under certain circumstances) and does not meet the definition of
"well capitalized," (iii) "undercapitalized" if it has a total risk-based
capital ratio that is less than 8.0%, a Tier 1 risk-based capital ratio that is
less than 4.0% or a Tier 1 leverage capital ratio that is less than 4.0% (3.0%
under certain circumstances), (iv) "significantly undercapitalized" if it has a
total risk-based capital ratio that is less than 6.0%, a Tier 1 risk-based
capital ratio that is less than 3.0% or a Tier 1 leverage capital ratio that is
less than 3.0%, and (v) "critically undercapitalized" if it has a ratio of
tangible equity to total assets that is equal to or less than 2.0%. Section 38
of the FDIA and the regulations promulgated thereunder also specify
circumstances under which a federal banking agency may
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<PAGE> 89
reclassify a well capitalized institution as adequately capitalized and may
require an adequately capitalized institution or an undercapitalized
institution to comply with supervisory actions as if it were in the next lower
category (except that the FDIC may not reclassify a significantly
undercapitalized institution as critically undercapitalized).
An institution generally must file a written capital restoration plan
which meets specified requirements with an appropriate federal banking agency
within 45 days of the date that the institution receives notice or is deemed to
have notice that it is undercapitalized, significantly undercapitalized or
critically undercapitalized. A federal banking agency must provide the
institution with written notice of approval or disapproval within 60 days after
receiving a capital restoration plan, subject to extensions by the agency. An
institution which is required to submit a capital restoration plan must
concurrently submit a performance guaranty by each company that controls the
institution. In addition, undercapitalized institutions are subject to various
regulatory restrictions, and the appropriate federal banking agency also may
take any number of discretionary supervisory actions.
At December 31, 1996, Citizens was deemed a well capitalized
institution for purposes of the above regulations and as such is not subject to
the above mentioned restrictions.
SAFETY AND SOUNDNESS. On November 18, 1993, a joint notice of
proposed rulemaking was issued by the OTS, the FDIC, the Office of the
Comptroller of the Currency and the FRB (collectively, the "agencies")
concerning standards for safety and soundness required to be prescribed by
regulation pursuant to Section 39 of the FDIA In general, the standards relate
to (1) operational and managerial matters; (2) asset quality and earnings; and
(3) compensation. The operational and managerial standards cover (a) internal
controls and information systems, (b) internal audit system, (c) loan
documentation, (d) credit underwriting, (e) interest rate risk exposure, (f)
asset growth, and (g) compensation, fees and benefits. Under the proposed
asset quality and earnings standards, Citizens would be required to maintain
(1) a maximum ratio of classified assets (assets classified substandard,
doubtful and to the extent that related losses have not been recognized, assets
classified loss) to total capital of 1.0, and (2) minimum earnings sufficient
to absorb losses without impairing capital. The last ratio concerning market
value to book value was determined by the agencies not to be feasible.
Finally, the proposed compensation standard states that compensation will be
considered excessive if it is unreasonable or disproportionate to the services
actually performed by the individual being compensated. Legislation enacted in
1994: (1) authorizes the agencies to establish safety and soundness standards
by regulation or guideline for all insured depository institutions; (2) gives
the agencies greater flexibility in prescribing asset quality and earnings
standards by eliminating the requirement that agencies establish quantitative
standards; and (3) eliminates the requirement that the standards referenced
above apply to depository institution holding companies. The agencies have
published a final rule and interagency guidelines ("Guidelines"), which were
effective August 9, 1995, as well as asset quality and earning standards which
were added to the Guidelines effective October 1, 1996.
Under the Guidelines and final rule of the OTS, if an insured savings
institution fails to meet any of the standards promulgated by the Guidelines,
then the OTS may require such institution to submit a plan within 30 days (or
such different period specified by the OTS) specifying the steps it will take
to correct the deficiency. In the event that an institution fails to
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<PAGE> 90
submit or fails in any material respect to implement a compliance plan within
the time allowed by the OTS, the OTS must order the institution to correct the
deficiency and may (1) restrict asset growth; (2) require the institution to
increase its ratio of tangible equity to assets; (3) restrict the rates of
interest that the institution may pay; or (4) take any other action that would
better carry out the purpose of prompt corrective action. Citizens believes
that it is in compliance with the Guidelines and final rule as adopted.
LIQUIDITY REQUIREMENTS. All savings institutions are required to
maintain an average daily balance of liquid assets equal to a certain
percentage of the sum of its average daily balance of net withdrawable deposit
accounts and borrowings payable in one year or less. The liquidity requirement
may vary from time to time (between 4% and 10%) depending upon economic
conditions and savings flows of all savings institutions. At the present time,
the required minimum liquid asset ratio is 5%. At December 31, 1996, Citizens'
liquidity ratio was 38.4%.
CAPITAL DISTRIBUTIONS. OTS regulations govern capital distributions
by savings institutions, which include cash dividends, stock redemptions or
repurchases, cash-out mergers, interest payments on certain convertible debt
and other transactions charged to the capital account of a savings institution
to make capital distributions. Generally, the regulation creates a safe harbor
for specified levels of capital distributions from institutions meeting at
least their minimum capital requirements, so long as such institutions notify
the OTS and receive no objection to the distribution from the OTS. Savings
institutions and distributions that do not qualify for the safe harbor are
required to obtain prior OTS approval before making any capital distributions.
Generally, a savings institution that before and after the proposed
distribution meets or exceeds its fully phased-in capital requirements (Tier 1
institutions) may make capital distributions during any calendar year equal to
the higher of (i) 100% of net income for the calendar year-to-date plus 50% of
its "surplus capital ratio" at the beginning of the calendar year or (ii) 75%
of net income over the most recent four-quarter period. The "surplus capital
ratio" is defined to mean the percentage by which the institution's tangible,
core or risk-based capital ratio exceeds its tangible, core or risk-based
capital requirement. Failure to meet minimum capital requirements will result
in further restrictions on capital distributions, including possible
prohibition without explicit OTS approval. See "- Regulatory Capital
Requirements."
In order to make distributions under these safe harbors, Tier 1 and
Tier 2 institutions must submit 30 days written notice to the OTS prior to
making the distribution. The OTS may object to the distribution during that
30-day period based on safety and soundness concerns. In addition, a Tier 1
institution deemed to be in need of more than normal supervision by the OTS may
be downgraded to a Tier 2 or Tier 3 institution as a result of such a
determination.
At December 31, 1996, Citizens was a Tier 1 institution for purposes of
this regulation.
On December 5, 1994, the OTS published a notice of proposed rulemaking
to amend its capital distribution regulation. Under the proposal, institutions
would be permitted to only make capital distributions that would not result in
their capital being reduced below the level required to remain "adequately
capitalized," as defined above under "-Prompt Corrective Action." Because the
Association will be a subsidiary of a holding company, the proposal would
require the Association to provide notice to the OTS of its intent to make a
capital distribution. The
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Association does not believe that the proposal will adversely affect its
ability to make capital distributions if it is adopted substantially as
proposed.
The Company declared a special return of capital cash distribution of
$2.00 per share paid to shareholders of record on June 15, 1996. The special
return of capital distribution was paid on June 28, 1996. This special
distribution was authorized by a favorable private letter ruling received from
the Internal Revenue Service whereby the portion of the distribution which
exceeds the amount of the current or accumulated earnings and profits of the
Company for 1996, the taxable year of the distribution, is not a dividend, and
will reduce the shareholders adjusted basis in the Company. When this
calculation was completed at December 31, 1996, it was determined that only
1.054% of the total amount paid to each shareholder in 1996 should be treated
as taxable ordinary dividends.
LOANS TO ONE BORROWER. The permissible amount of loans-to-one borrower
now generally follows the national bank standard for all loans made by savings
institutions. The national bank standard generally does not permit
loans-to-one borrower to exceed the greater of $500,000 or 15% of unimpaired
capital and surplus. Loans in an amount equal to an additional 10% of
unimpaired capital and surplus also may be made to a borrower if the loans are
fully secured by readily marketable securities. For information about the
largest borrowers from Citizens, see "Business of CitiSave - Lending
Activities - Real Estate Lending Standards and Underwriting Policies."
CLASSIFIED ASSETS. Federal regulations require that each insured
savings institution classify its assets on a regular basis. In addition, in
connection with examinations of insured institutions, federal examiners have
authority to identify problem assets and, if appropriate, classify them. There
are three classifications for problem assets: "substandard," "doubtful" and
"loss." Substandard assets have one or more defined weaknesses and are
characterized by the distinct possibility that the insured institution will
sustain some loss if the deficiencies are not corrected. Doubtful assets have
the weaknesses of substandard assets, with the additional characteristic that
the weaknesses make collection or liquidation in fun on the basis of currently
existing facts, conditions and values questionable, and there is a high
possibility of loss. An asset classified loss is considered uncollectible and
of such little value that continuance as an asset of the institution is not
warranted. Another category designated "Special mention" must also be
established and maintained for assets which do not currently expose an insured
institution to a sufficient degree of risk to warrant classification as
substandard, doubtful or loss. Assets classified as substandard or doubtful
require the institution to establish general allowances for loan losses. If an
asset or portion thereof is classified loss, the insured institution must
either establish specific allowances for loan losses in the amount of 100% of
the portion of the asset classified loss, or charge-off such amount. General
loss allowances established to cover possible losses related to assets
classified substandard or doubtful may be included in determining an
institution's regulatory capital up to certain amounts, while specific
valuation allowances for loan losses do not qualify as regulatory capital.
Federal examiners may disagree with an insured institution's classifications
and amounts reserved. See "Business of CitiSave - Asset Quality - Classified
Assets."
BRANCHING BY FEDERAL SAVINGS INSTITUTIONS. OTS policy permits
interstate branching to the full extent permitted by statute (which is
essentially unlimited). Generally, federal law
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prohibits federal savings institutions from establishing, retaining or
operating a branch outside the state in which the federal institution has its
home office unless the institution meets the Internal Revenue Service's
domestic building and loan test (generally, 60% of a thrift's assets must be
housing-related) ("IRS Test"). The IRS Test requirement does not apply if. (i)
the branch(es) result(s) from an emergency acquisition of a troubled savings
institution (however, if the troubled savings institution is acquired by a bank
holding company, does not have its home office in the state of the bank holding
company bank subsidiary and does not qualify under the IRS Test, its branching
is limited to the branching laws for state chartered banks in the state where
the savings institution is located); (ii) the law of the state where the branch
would be located would permit the branch to be established if the federal
savings institution were chartered by the state in which its home office is
located; or (iii) the branch was operated lawfully as a branch under state law
prior to the savings institution's conversion to a federal charter.
Furthermore, the OTS will evaluate a branching applicant's record of
compliance with the Community Reinvestment Act of 1977 ("CRA"). An
unsatisfactory CRA record may be the basis for denial of a branching
application.
During 1996, the OTS approved the Association's application to establish
a sixth branch office located at 16969 Old Jefferson Hwy, Baton Rouge, La.
This full service branch office was opened for business on October 1, 1996 and
serves the southeast portion of East Baton Rouge Parish.
QUALIFIED THRIFT LENDER TEST. All savings institutions are required to
meet a QTL test to avoid certain restrictions on their operations. Under
Section 2303 of the Economic Growth and Regulatory Paperwork Reduction Act of
1996, a savings institution can comply with the QTL test by either qualifying
as a domestic building and loan association as defined in Section 7701(a)(19)
of the Code or meeting the second prong of the QTL test set forth in
Section 10(m) of the HOLA. A savings institution that does not meet the QTL
test must either convert to a bank charter or comply with the following
restrictions on its operations: (i) the institution may not engage in any new
activity or make any new investment, directly or indirectly, unless such
activity or investment is permissible for a national bank; (ii) the branching
powers of the institution shall be restricted to those of a national bank;
(iii) the institution shall not be eligible to obtain any advances from its
FHLB; and (iv) payment of dividends by the institution shall be subject to the
rules regarding payment of dividends by a national bank. Upon the expiration
of three years from the date the savings institution ceases to be a QTL, it
must cease any activity and not retain any investment not permissible for a
national bank and immediately repay any outstanding FHLB advances (subject to
safety and soundness considerations).
Currently, the prong of the QTL test that is not based on the Code
requires that 65% of an institution's "portfolio assets" (as defined) consist
of certain housing and consumer-related assets on a monthly average basis in
nine out of every 12 months. Assets that qualify without limit for inclusion
as part of the 65% requirement are loans made to purchase, refinance,
construct, improve or repair domestic residential housing and manufactured
housing; home equity loans; mortgage-backed securities (where the mortgages are
secured by domestic residential housing or manufactured housing); stock issued
by the FHLB of Dallas; and direct or indirect obligations of the FDIC. In
addition, the following assets, among others, may be included in meeting the
test
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subject to an overall limit of 20% of the savings institution's portfolio
assets: 50% of residential mortgage loans originated and sold within 90 days of
origination; 100% of consumer and educational loans (limited to 10% of total
portfolio assets); and stock issued by the FHLMC or the FNMA Portfolio assets
consist of total assets minus the sum of (i) goodwill and other intangible
assets, (ii) property used by the savings institution to conduct its business,
and (iii) liquid assets up to 20% of the institution's total assets. At
December 31, 1996, the qualified thrift investments of Citizens were
approximately 86.5% of its portfolio assets.
ACCOUNTING REQUIREMENTS. FIRREA required the OTS to establish
accounting standards to be applicable to all savings institutions for purposes
of complying with regulations, except to the extent otherwise specified in the
capital standards. Such standards must incorporate GAAP to the same degree as
is prescribed by the federal banking agencies for banks or may be more
stringent than such requirements.
Effective October 2, 1992, the OTS amended a number of its accounting
regulations and reporting requirements to adopt the following standards: (i)
regulatory reports will incorporate GAAP when GAAP is used by federal banking
agencies; (ii) savings institution transactions, financial condition and
regulatory capital must be reported and disclosed in accordance with OTS
regulatory reporting requirements that will be at least as stringent as for
national banks; and (iii) the Director of the OTS may prescribe regulatory
reporting requirements more stringent than GAAP whenever the Director
determines that such requirements are necessary to ensure the safe and sound
reporting and operation of savings institutions.
Effective February 10, 1992, the OTS adopted a statement of policy
("Statement") set forth in Thrift Bulletin 52 concerning (i) procedures to be
used in the selection of a securities dealer, (ii) the need to document and
implement prudent policies and strategies for securities, whether held for
investment, trading or for sale, and to establish systems and internal controls
to ensure that securities activities are consistent with the financial
institution's policies and strategies, (iii) securities trading and sales
practices that may be unsuitable in connection with securities held in an
investment portfolio, (iv) high-risk mortgage securities that are not suitable
for investment portfolio holdings for financial institutions, and (v)
disproportionately large holdings of long-term, zero-coupon bonds that may
constitute an imprudent investment practice. The Statement applies to
investment securities, high-yield, corporate debt securities, loans,
mortgage-backed securities and derivative securities, and provides guidance
concerning the proper classification of and accounting for securities held for
investment, sale and trading. Securities held for investment, sale or trading
may be differentiated based upon an institution's desire to earn an interest
yield (held for investment), to realize a holding gain from assets held for
indefinite periods of time (held for sale), or to earn a dealer's spread
between the bid and asked prices (held for trading). Depository institution
investment portfolios are maintained to provide earnings consistent with the
safety factors of quality, maturity, marketability and risk diversification.
Securities that are purchased to accomplish these objectives may be reported at
their amortized cost only when the depository institution has both the intent
and ability to hold the assets for long-term investment purposes. Securities
held for investment purposes may be accounted for at amortized cost, securities
held for sale are to be accounted for at the lower of cost or market, and
securities held for trading are to be accounted for at market. Citizens
believes that its investment activities have been and will continue to be
conducted in accordance with the requirements of OTS policies and GAAP.
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The Omnibus Reconciliation Act of 1993 added a new Section 475 to the
Code, which provides that certain financial institutions must recognize gain or
loss annually with regard to any securities held by them as inventory for
resale. Gain or loss is not required to be recognized with regard to
securities which are intended to be held until their maturity. Because all of
the Association's investment securities and mortgage-backed securities are
classified as held to maturity, management of the Association believes that
Section 475 of the Code will not have a material impact on the financial
statements of the Association.
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishment of Liabilities." Pursuant
to SFAS No. 125, after a transfer of financial assets, an entity would be
required to recognize all financial assets and servicing it controls and
liabilities it has incurred and, conversely, would not be required to recognize
either financial assets when control has been surrendered or liabilities when
extinguished. SFAS No. 125 provides standards for distinguishing transfers of
financial assets that are sales from transfers that are secured borrowings.
SFAS No. 125 will be effective with respect to the transfer and servicing of
financial assets and the extinguishment of liabilities occurring after December
31, 1996, with earlier application prohibited. The adoption of this Statement
will be prospective, and the Company anticipates no material adverse effect on
its consolidated financial statements.
FEDERAL HOME LOAN BANK SYSTEM. Citizens is a member of the FHLB of
Dallas, which is one of 12 regional FHLBs that administers the home financing
credit function of savings institutions. Each FHLB serves as a reserve or
central bank for its members within its assigned region. It is funded
primarily from proceeds derived from the sale of consolidated obligations of
the FHLB System. It makes loans to members (i.e., advances) in accordance with
policies and procedures established by the Board of Directors of the FHLB. At
December 31, 1996, the Association had no FHLB advances.
As a member, Citizens is required to purchase and maintain stock in the
FHLB of Dallas in an amount equal to at least 1% of its aggregate unpaid
residential mortgage loans, home purchase contracts or similar obligations at
the beginning of each year. At December 31, 1996, Citizens owned $380,000 in
FHLB stock, which was in compliance with this requirement.
The FHLBs are required to provide funds for the resolution of troubled
savings institutions and to contribute to affordable housing programs through
direct loans or interest subsidies on advances targeted for community
investment and low and moderate-income housing projects. These contributions
have adversely affected the level of FHLB dividends paid in the past and could
continue to do so in the future. These contributions also could have an
adverse effect on the value of FHLB stock in the future.
FEDERAL RESERVE SYSTEM. The FRB requires all depository institutions to
maintain reserves against their transaction accounts (primarily NOW and Super
NOW checking accounts) and non-personal time deposits. As of December 31,
1996, no reserves were required to be maintained on the first $4.4 million of
transaction accounts, reserves of 3% were required to be maintained against the
next $44.9 million of net transaction accounts (with such dollar amounts
subject to adjustment by the FRB), and a reserve of 10% (which is subject to
adjustment by the FRB to a level between 8% and 14%) against all remaining net
transaction accounts. Because
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required reserves must be maintained in the form of vault cash or a
noninterest-bearing account at a Federal Reserve Bank, the effect of this
reserve requirement is to reduce an institution's earning assets.
TAXATION OF CITISAVE
FEDERAL TAXATION
GENERAL. The Company and Citizens are subject to the generally
applicable corporate tax provisions of the Code, and Citizens is subject to
certain additional provisions of the Code which apply to thrift and other types
of financial institutions. The following discussion of federal taxation is
intended only to summarize certain pertinent federal income tax matters
material to the taxation of the Company and the Association and is not a
comprehensive discussion of the tax rules applicable to the Company and
Citizens.
YEAR. The Company and Citizens file a federal income tax return on the
basis of a calendar year ending on December 31. For 1995 and 1996, the Company
and Citizens have filed or intend to file separate tax returns.
BAD DEBT RESERVES. Savings institutions, such as Citizens, which meet
certain definitional tests primarily relating to their assets and the nature of
their businesses, are permitted to establish a reserve for bad debts and to
make annual additions to the reserve. These additions may, within specified
formula limits, be deducted in arriving at the institution's taxable income.
For purposes of computing the deductible addition to its bad debt reserve, the
institution's loans are separated into "qualifying real property loans" (i.e.,
generally those loans secured by certain interests in real property) and all
other loans("non-qualifying loans"). The deduction with respect to
non-qualifying loans must be computed under the experience method as described
below. The following formulas may be used to compute the bad debt deduction
with respect to qualifying real property loans: (i) actual loss experience, or
(ii) for tax years beginning before 1996, a percentage of taxable income.
Reasonable additions to the reserve for losses on non-qualifying loans must be
based upon actual loss experience and would reduce the current year's addtion
to the reserve for losses on qualifying real property loans, unless that
addition is also determined under the experience method. The sum of the
additions to each reserve for each year is the institution's annual bad debt
deduction.
Under the experience method, the deductible annual addition to the
institution's bad debt reserves is the amount necessary to increase the balance
of the reserve at the close of the taxable year to the greater of (a) the
amount which bears the same ratio to loans outstanding at the close of the
taxable years bear to the sum of the loans outstanding at the close of the six
years, or (b) the lower of (i) the balance of the reserve account at the close
of the Association's "base year," which was its tax year ended December 31,
1987, or (ii) if the amount of loans outstanding at the close of the taxable
year is less than the amount of loans outstanding at the close of the base
year, the amount which bears the same ratio to loans outstanding at the close
of the taxable year as the balance of the reserve at the close of the base year
bears to the amount of loans outstanding at the close of the base year.
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Under the percentage of taxable income method, the bad debt deduction
equaled 8% of taxable income determined without regard to that deduction and
with certain adjustments. The availability of the percentage of taxable income
method permitted a qualifying savings institution to be taxed a lower effective
federal income tax rate than that applicable to corporations in general. This
resulted generally in an effective federal income tax rate payable by a
qualifying savings institution fully able to use the maximum deduction
permitted under the percentage of taxable income method, in the absence of
other factors affecting taxable income, of 31.3% exclusive of any minimum tax
or environmental tax (as compared to 34% for corporations generally). For tax
years beginning on or after January 1, 1993, the maximum corporate tax rate
payable by a qualifying savings institution fully able to use the maximum
deduction to 32.2% for tax years beginning before 1996. Any savings
institution at least 60% of whose assets are qualifying assets, as described in
the Code, was generally eligible for the full deduction of 8% of taxable
income. As of December 31, 1996, 94.4% of the assets of Citizens were
"qualifying assets" as defined in the Code.
Pursuant to legislation effective for tax years beginning after 1995,
savings institutions are no longer permitted to make additions to their tax bad
debt reserve under the percentage of taxable income method. Such institutions
are permitted to use the experience method in lieu of deducting bad debts only
as they occur. Such legislation requires the Association to realize increased
tax liability over a period of six years, which period begins in 1996 unless
suspended as set forth below. Specifically, the legislation requires each
savings institution to recapture (i.e., take into income) over a multi-year
period the balance of its bad debt reserves in excess of the lesser of (i) the
balance of such reserves as of the end of its taxable year ending before 1988
or (ii) an amount that would have been the balance of such reserves had the
institution always computed its additions to its reserves using the experience
method. The recapture requirement will be suspended for each of two successive
taxable years beginning January 1, 1996 in which the Association originates an
amount of certain kinds of residential loans which in the aggregate are equal
to or greater than the average of the principal amounts of such loans made by
the Association during its six taxable years preceding 1996. It is anticipated
that any recapture of the Association's bad debt reserves accumulated after
1987 will not have a material adverse effect on the Company's consolidated
financial condition or results of operations.
The excess reserves of Citizens will be taken into account ratably over
the six-year period beginning with 1996. This change in accounting method and
reversal of excess bad debt reserves is adequately provided for in the
Company's deferred tax liability.
At December 31, 1996, the federal income tax reserves of Citizens
included $1.0 million for which no federal income tax has been provided.
Because of these federal income tax reserves and the liquidation account
established for the benefit of certain depositors of Citizens in connection
with the conversion of the Association to stock form, the retained earnings of
Citizens are substantially restricted.
DISTRIBUTIONS. If Citizens were to distribute cash or property to its
sole stockholder, and the distribution was treated as being from its
accumulated bad debt reserves, the distribution would cause Citizens to have
additional taxable income. A distribution is deemed to have been made from
accumulated bad debt reserves to the extent that (a) the reserves exceed the
amount that would have been accumulated on the basis of actual loss experience,
and (b) the distribution
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is a "non-qualified distribution." A distribution with respect to stock is a
non-qualified distribution to the extent that, for federal income tax purposes,
(i) it is in redemption of shares, (ii) it is pursuant to a liquidation of the
institution, or (iii) in the case of a current distribution, together with all
other such distributions during the taxable year, it exceeds the institution's
current and post-1951 accumulated earnings and profits. The amount of
additional taxable income created by a non-qualified distribution is an amount
that when reduced by the tax attributable to it is equal to the amount of the
distribution.
MINIMUM TAX. The Code imposes an alternative minimum tax at a rate of
20%. The alternative minimum tax generally applies to a base of regular
taxable income plus certain tax preferences ("alternative minimum taxable
income" or "AMTI") and is payable to the extent such AMTI is in excess of an
exemption amount. The Code provides that an item of tax preference is the
excess of the bad debt deduction allowable for a taxable year pursuant to the
percentage of taxable income method over the amount allowable under the
experience method. Other items of tax preference that constitute AMTI include
(a) tax-exempt interest on newly issued (generally, issued on or after August
8, 1986) private activity bonds other than certain qualified bonds and (b) 75%
of the excess (if any) of (i) adjusted current earnings as defined in the Code,
over (ii) AMTI (determined without regard to this preference and prior to
reduction by net operating losses).
NET OPERATING LOSS CARRYOVERS. A financial institution may carry back
net operating losses ("NOLs") to the preceding three taxable years and forward
to the succeeding 15 taxable years. This provision applies to losses incurred
in taxable years beginning after 1986. At December 31, 1996, Citizens had no
NOL carryforwards for federal income tax purposes.
CAPITAL GAINS AND CORPORATE DIVIDENDS-RECEIVED DEDUCTION. Corporate net
capital gains are taxed at a maximum rate of 34%. The corporate
dividends-received deduction is 80% in the case of dividends received from
corporations with which a corporate recipient does not file a consolidated tax
return, and corporations which own less than 20% of the stock of a corporation
distributing a dividend may deduct only 70% of dividends received or accrued on
their behalf. However, a corporation may deduct 100% of dividends from a
member of the same affiliated group of corporations.
OTHER MATTERS. Federal legislation is introduced from time to time that
would limit the ability of individuals to deduct interest paid on mortgage
loans. Individuals are currently not permitted to deduct interest on consumer
loans. Significant increases in tax rates or further restrictions on the
deductibility of mortgage interest could adversely affect Citizens.
Citizens' federal income tax returns for the tax years ended December
31, 1993 forward are open under the statute of limitations and are subject to
review by the IRS.
STATE TAXATION
The nonbanking subsidiaries of the Association (as well as the Company)
are subject to the Louisiana Corporation Income Tax based on their Louisiana
taxable income, as well as franchise taxes. The Corporation Income Tax applies
at graduated rates from 4% upon the first $25,000 of
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Louisiana taxable income to 8% on all Louisiana taxable income in excess
of $200,000. For these purposes, "Louisiana taxable income" means net
income which is earned within or derived from sources within the State
of Louisiana, after adjustments permitted under Louisiana law including a
federal income tax deduction and an allowance for net operating losses, if any.
In addition, the Association is subject to the Louisiana Shares Tax, which is
imposed on the assessed value of its stock. The formula for deriving the
assessed value is to calculate 15% of the sum of (a) 20% of the company's
capitalized earnings, plus (b) 80% of the company's taxable stockholders'
equity, and to subtract from that figure 50% of the company's real and personal
property assessment. Various items may also be subtracted in calculating a
company's capitalized earnings. For 1996, the Louisiana Shares Tax expense
amounted to $80,000.
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STOCKHOLDER PROPOSALS
If the Merger is not consummated prior to CitiSave's next annual meeting
of stockholders, any proposal which a stockholder wishes to have included in
CitiSave's proxy statement and form of proxy relating to CitiSave's 1998 Annual
Meeting of Stockholders must be received at the principal executive offices of
CitiSave, 665 Florida Street, Baton Rouge, Louisiana 70801, Attention: Mary
Anne Chiasson, Secretary, no later than January 12, 1998. If such proposal is
in compliance with all of the requirements of Rule 14a-8 of the Exchange Act,
it will be included in the Proxy Statement and set forth on the form of proxy
issued for the next annual meeting of stockholders. It is urged that any such
proposals be sent by certified mail, return receipt requested.
Stockholder proposals which are not submitted for inclusion in
CitiSave's proxy materials pursuant to Rule 14a-8 under the Exchange Act may be
brought before an annual meeting provided that the requirements set forth in
Article 9.D of CitiSave's Articles of Incorporation are satisfied in a timely
manner. To be timely, a stockholder's notice must be delivered to, or mailed
and received at, the principal executive offices of CitiSave not less than 60
days prior to the anniversary date of the immediately preceding annual meeting
of stockholders of CitiSave. A stockholder's notice must set forth as to each
matter the stockholder proposes to bring before an annual meeting (a) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting and (b) certain
other information set forth in Article 9.D of CitiSave's Articles of
Incorporation.
ANNUAL REPORTS
Because this Proxy Statement contains all of the information that would
normally be included in CitiSave's Annual Report to Stockholders, there is no
separate Annual Report to Stockholders for the year ended December 31, 1996.
UPON RECEIPT OF A WRITTEN REQUEST, CITISAVE WILL FURNISH TO ANY
STOCKHOLDER WITHOUT CHARGE A COPY OF CITISAVE'S ANNUAL REPORT ON FORM 10-KSB
FOR THE YEAR ENDED DECEMBER 31, 1996 AND A LIST OF THE EXHIBITS THERETO
REQUIRED TO BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE 1934
ACT. SUCH WRITTEN REQUEST SHOULD BE DIRECTED TO MARY ANNE CHIASSON, SECRETARY,
CITISAVE FINANCIAL CORPORATION, 665 FLORIDA STREET, BATON ROUGE, LOUISIANA
70801. THE FORM 10-KSB IS NOT PART OF THE PROXY SOLICITATION MATERIALS.
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OTHER MATTERS
Each proxy solicited hereby also confers discretionary authority on the
Board of Directors of CitiSave to vote the proxy with respect to the approval
of the minutes of the last meeting of stockholders, the election of any person
as a director if the nominee is unable to serve or for good cause will not
serve, matters incident to the conduct of the meeting, and upon such other
matters as may properly come before the Annual Meeting. Management is not
aware of any business that may properly come before the Annual Meeting other
than those matters described above in this Proxy Statement. However, if any
other matters should properly come before the Annual Meeting, it is intended
that the proxies solicited hereby will be voted with respect to those other
matters in accordance with the judgment of the persons voting the proxies.
The cost of the solicitation of proxies will be borne by CitiSave.
CitiSave will reimburse brokerage firms and other custodians, nominees and
fiduciaries for reasonable expenses incurred by them in sending the proxy
materials to the beneficial owners of CitiSave Common Stock. In addition to
solicitations by mail, directors, officers and employees of CitiSave may
solicit proxies personally or by telephone without additional compensation.
YOUR VOTE IS IMPORTANT! WE URGE YOU TO SIGN AND DATE THE ENCLOSED PROXY
CARD AND RETURN IT TODAY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF CITISAVE
<TABLE>
<S> <C>
Independent Auditor's Report . . . . . . . . . . . . . . . . . . . . F-1
Consolidated Statements of Financial Condition as of December 31,
1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Statements of Income for the years ended December 31,
1996, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . F-3
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1996, 1995 and 1994 . . . . . . . . . . . . . . . . . F-4
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . F-5
Notes to Consolidated Financial Statements . . . . . . . . . . . . . F-7
</TABLE>
All financial statement schedules are omitted because the required
information either is not applicable or is shown in the financial statements or
in the notes thereto.
97
<PAGE> 102
Independent Auditor's Report
To the Board of Directors
CitiSave Financial Corporation
and Subsidiary
Baton Rouge, Louisiana
We have audited the Consolidated Statements of Financial Condition of CitiSave
Financial Corporation and Subsidiary as of December 31, 1996 and 1995, and the
related Consolidated Statements of Income, Stockholders' Equity and Cash Flows
for the years ended December 31, 1996, 1995 and 1994. These financial
statements are the responsibility of the Company'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 CitiSave Financial Corporation
and Subsidiary as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for the years ended December 31, 1996, 1995 and
1994, in conformity with generally accepted accounting principles.
Respectfully submitted,
/s/ HANNIS T. BOURGEOIS & CO., L.L.P.
Baton Rouge, Louisiana
January 31, 1997
(except for Note 26, as to
which the date is April 11, 1997)
F-1
<PAGE> 103
CitiSave Financial Corporation and Subsidiary
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
as of December 31, 1996 and 1995
<TABLE>
<CAPTION>
ASSETS
------
1996 1995
-------- --------
(In Thousands)
<S> <C> <C>
Cash and Cash Equivalents $ 1,755 $ 1,022
Interest-Bearing Deposits in Other Institutions 664 2,914
------ ------
Total Cash and Cash Equivalents 2,419 3,936
Federal Funds Sold 2,650 5,000
Securities: - Note 3
Investment Securities Held to Maturity
(Fair Value $19,229 and $22,525) 19,254 22,521
Mortgage-Backed Securities Held to Maturity
(Fair Value $2,293 and $2,575) 2,275 2,565
Federal Home Loan Bank Stock 380 358
------ ------
21,909 25,444
Insurance Accounts Receivable 42 56
Loans Held for Sale - Note 4 363 -
Loans Receivable - Note 4 45,254 41,792
Less: Allowance for Loan Losses (61) (82)
------ ------
45,193 41,710
Accrued Interest Receivable - Note 6 500 531
Foreclosed Real Estate, Net - Note 7 64 39
Premises and Equipment - Note 8 1,966 1,369
Other Assets 180 116
Costs in Excess of Net Assets of Business Acquired - 17
------ ------
Total Assets $75,286 $78,218
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Deposits - Note 10 $61,457 $62,514
Accounts Payable 187 243
Advances from Borrowers for Taxes and Insurance 77 94
Accrued Expenses and Other Liabilities 1,233 1,030
------ ------
Total Liabilities 62,954 63,881
Minority Interest in Subsidiary 40 37
Stockholders' Equity: - Notes 2, 13, 14, 15 and 16
Preferred Stock, $.01 Par Value; Authorized
5,000,000 Shares, Issued and Outstanding -
None - -
Common Stock, $.01 Par Value; Authorized
10,000,000 Shares, Issued 964,707 Shares 10 10
Paid-in Capital in Excess of Par 7,376 9,144
Retained Earnings 6,020 5,879
------ ------
13,406 15,033
Less: Unearned ESOP Shares (582) (733)
Less: Unearned Compensation-MRP (497) -
Less: Treasury Shares (2,500 shares at Cost) (35) -
------ ------
12,292 14,300
------ ------
Total Liabilities and Stockholders' Equity $75,286 $78,218
====== ======
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-2
<PAGE> 104
CitiSave Financial Corporation and Subsidiary
CONSOLIDATED STATEMENTS OF INCOME
for the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
(In Thousands)
<S> <C> <C> <C>
Interest Income:
Loans $3,729 $3,391 $2,989
Investment Securities 1,331 1,409 1,253
Mortgage-Backed Securities 157 172 169
Other Interest-Earning Assets 304 258 75
----- ----- -----
Total Interest Income 5,521 5,230 4,486
----- ----- -----
Interest Expense:
Deposits - Note 10 2,527 2,512 2,104
Other Interest-Bearing Liabilities - 4 -
----- ----- -----
Total Interest Expense 2,527 2,516 2,104
----- ----- -----
Net Interest Income Before Provision
for Loan Losses 2,994 2,714 2,382
Provision for Loan Losses - Note 4 35 1 10
----- ----- -----
Net Interest Income after Provision for
Loan Losses 2,959 2,713 2,372
----- ----- -----
Noninterest Income:
Insurance Agency Commissions 724 690 666
Loan Fees and Service Charges 338 349 223
Gain on Sales of Loans 111 65 51
Other 26 35 32
----- ----- -----
Total Noninterest Income 1,199 1,139 972
----- ----- -----
Noninterest Expense:
Compensation and Benefits - Notes 11, 14
and 15 1,755 1,567 1,411
Occupancy and Equipment Expenses 344 335 316
Federal Insurance Premium - Note 17 561 146 152
Net Real Estate Owned Expense (Income) (9) (8) (36)
Data Processing 141 127 110
Professional Fees 161 76 73
Printing, Postage, Stationery and Supplies 158 151 118
Other - Note 18 361 168 329
----- ----- -----
Total Noninterest Expense 3,472 2,562 2,473
----- ----- -----
Income Before Provision for Income Taxes and
Minority Interest 686 1,290 871
Income Taxes - Note 12 216 418 334
----- ----- -----
Net Income Before Minority Interest 470 872 537
Minority Interest in Subsidiary (40) (37) (37)
----- ----- -----
Net Income $ 430 $ 835 $ 500
===== ===== =====
Per Share:
Net Income - Note 16 $ .46 $ N/A $ N/A
Dividends - Note 16 $ .325 $ .15 $ N/A
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-3
<PAGE> 105
CitiSave Financial Corporation and Subsidiary
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
(In Thousands)
<S> <C> <C> <C>
Common Stock:
Balance - Beginning of Year $ 10 $ - $ -
Issuance of Common Stock - Note 2 - 10 -
------ ------ ------
Balance - End of Year $ 10 $ 10 $ -
====== ====== ======
Paid-In Capital in Excess of Par:
Balance - Beginning of Year $ 9,144 $ - $ -
Return of Capital Distribution - Note 16 (1,929) - -
Issuance of Common Stock - Note 2 - 9,128 -
Allocation of ESOP Shares 61 16 -
Unallocated ESOP Shares Return of Capital
Distribution 100 - -
------ ------ ------
Balance - End of Year $ 7,376 $ 9,144 $ -
====== ====== ======
Retained Earnings:
Balance - Beginning of Year $ 5,879 $ 5,178 $ 4,678
Net Income 430 835 500
Cash Dividends (289) (134) -
------ ------ -----
Balance - End of Year $ 6,020 $ 5,879 $ 5,178
====== ====== ======
Unearned ESOP Shares:
Balance - Beginning of Year $ (733) $ - $ -
Establishment of ESOP - Note 14 - (772) -
Shares Released for Allocation 151 39 -
------ ------ ------
Balance - End of Year $ (582) $ (733) $ -
====== ====== ======
Unearned Compensation-MRP:
Balance - Beginning of Year $ - $ - $ -
Establishment of MRP - Note 15 (535) - -
Accrual of Shares to be Vested 38 - -
------ ------ ------
Balance - End of Year $ (497) $ - $ -
====== ====== ======
Treasury Stock:
Balance - Beginning of Year $ - $ - $ -
Purchase of Shares (35) - -
------ ------ ------
Balance - End of Year $ (35) $ - $ -
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-4
<PAGE> 106
CitiSave Financial Corporation and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net Income $ 430 $ 835 $ 500
Adjustments to Reconcile Net Income
to Net Cash Provided by (Used in)
Operating Activities:
Provision for Loan and Foreclosed
Real Estate Losses 35 20 10
Gain on Sale of Foreclosed Real Estate (11) (26) (30)
Provision for Depreciation and
Amortization 119 111 213
Other 250 55 -
Provision for Deferred Income Taxes (9) 33 -
Loss on Sale of Property and Equipment - - 4
Increase (Decrease) in Minority
Interest, Net 3 12 1
Stock Dividends on Federal Home Loan
Bank Stock (22) (22) (17)
Loans Originated for Sale (8,377) (5,467) (4,293)
Sale of Loans 8,014 5,538 5,232
Amortization (Accretion) of Securities
Premiums (Discounts) (59) (184) (272)
Changes in Assets and Liabilities:
Decrease in Insurance Accounts
Receivable 14 76 36
(Increase) Decrease in Accrued
Interest Receivable 31 (78) (180)
Increase in Other Assets (64) (25) (11)
Increase (Decrease) in Accounts
Payable (56) (46) 26
Increase in Accrued Expenses and
Other Liabilities 212 19 137
------- ------- -------
Net Cash Provided by Operating
Activities 510 851 1,356
------- ------- -------
Cash Flows From Investing Activities:
Purchase of Premises and Equipment (746) (128) (96)
Proceeds from Sale of Premises and
Equipment 48 - 19
Maturities of Investment Securities 16,690 17,750 22,800
Purchase of Investment Securities (13,364) (12,303) (24,609)
Payments on Mortgage-Backed Securities 290 308 444
</TABLE>
(CONTINUED)
F-5
<PAGE> 107
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Net (Increase) Decrease in Federal
Funds Sold 2,350 (4,375) (625)
Redemption of Federal Home Loan
Bank Stock - - 62
Loan Originations (17,128) (17,995) (8,973)
Principal Repayments on Loans 13,528 10,603 9,732
Proceeds from Sale of Real Estate Owned 84 21 62
Additions to Real Estate Owned (17) (26) -
------- ------- -------
Net Cash Provided by (Used in)
Investing Activities 1,735 (6,145) (1,184)
------- ------- -------
Cash Flows From Financing Activities:
Return of Capital Distribution (1,929) - -
Establishment of MRP (535) - -
Unallocated ESOP Shares Return of Capital
Distribution 100 - -
Purchase of Treasury Stock (35) - -
Net Proceeds from the Issuance of Common
Stock - 8,366 -
Dividends Paid on Common Stock (289) (134) -
Net Increase (Decrease) in Demand
Accounts, Ready Cash Accounts, and
Passbook Savings Accounts 831 (760) (289)
Net Increase (Decrease) in
Certificates of Deposit (1,888) 714 (3,226)
Decrease in Advances from Borrowers
for Taxes and Insurance (17) (1) (50)
------- ------- -------
Net Cash Provided by (Used in)
Financing Activities (3,762) 8,185 (3,565)
------- ------- -------
Increase (Decrease) in Cash and
Cash Equivalents (1,517) 2,891 (3,393)
Cash and Cash Equivalents - Beginning
of Year 3,936 1,045 4,438
------- ------- -------
Cash and Cash Equivalents - End of Year $ 2,419 $ 3,936 $ 1,045
======= ======= =======
Supplemental Disclosures of Cash Flow
Information:
Cash Payments for:
Interest Paid to Depositors $ 2,520 $ 2,516 $ 2,102
======= ======= =======
Income Taxes $ 267 $ 368 $ 252
======= ======= =======
Supplemental Schedules of Noncash
Investing and Financing Activities:
Transfers from Loans to Real
Estate Acquired Through
Foreclosure $ 81 $ 142 $ -
======= ======= =======
Real Estate Owned Sold as Loans $ - $ 115 $ 48
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 108
CitiSave Financial Corporation and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
Note 1 - Summary of Significant Accounting Policies -
The accounting principles followed by CitiSave Financial Corporation and its
wholly-owned subsidiary, Citizens Savings Association, F.A., are those which
are generally practiced within the savings and loan industry. The methods
of applying those principles conform with generally accepted accounting
principles and have been applied on a consistent basis. The principles
which significantly affect the determination of financial position, results
of operations, changes in stockholders' equity and cash flows are summarized
below.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
CitiSave Financial Corporation ("the Company") and its wholly owned
subsidiary, Citizens Savings Association, F.A. ("the Association"),
(formally Citizens Savings & Loan Association). Citizens Savings
Association, F.A. has been consolidated with 665 Florida Street Corp.
(formally CitiSave Financial Corp.) (the "Subsidiary"). 665 Florida Street
Corp. has been consolidated with Roberts & Eastland (A Louisiana
Partnership), of which it owns an 80% interest. Effective January 1, 1996,
Roberts & Eastland joined another insurance agency to form Roberts, Eastland
& Persac Insurance Agency, L.L.C. ("L.L.C.") with each member having a 50%
interest. The activities of the L.L.C. were not significant during 1996.
See Note 23 regarding disclosure of certain segment information. Roberts
& Eastland is an insurance agency whose operation consists primarily of
commissions and related expenses from the sale of insurance policies for
various insurance companies. All significant intercompany transactions and
balances are eliminated in consolidation. The minority interest's share of
the net income of Roberts & Eastland has been properly reflected in these
financial statements.
Estimates
The preparation of 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 and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand, certificates of
deposit, and funds due from banks. For purposes of the Statements of Cash
Flows, the Company and its subsidiary consider all highly liquid debt
instruments with original maturities when purchased of three months or less
to be cash equivalents. In addition, the Association reports its loans and
certificates of deposit on a net basis.
F-7
<PAGE> 109
Investment and Mortgage-Backed Securities
Securities are being accounted for in accordance with Statement of Financial
Accounting Standards (SFAS) No. 115, "Accounting for Investments in Debt and
Equity Securities," which requires the classification of securities as held
to maturity, trading, or available for sale.
Securities classified as held to maturity are those securities the Company
and its subsidiary have both the intent and ability to hold to maturity
regardless of changes in market conditions, liquidity needs or changes in
general economic conditions. These securities are carried at cost adjusted
for amortization of premium and accretion of discount, computed by various
methods approximating the interest method over their contractual lives.
Securities classified as available for sale are those securities that the
Company and its subsidiary intend to hold for an indefinite period of time
but not necessarily to maturity. Securities classified as trading are those
securities held for resale in anticipation of short-term market movements.
The Company and its subsidiary had no securities classified as available for
sale or trading at December 31, 1996 or 1995.
Loans Held For Sale
Mortgage loans originated and intended for sale in the secondary market are
carried at the lower of cost or estimated market value on an aggregate
basis. Net unrealized losses are recognized in a valuation allowance by
charges to income.
Loans Receivable
Loans receivable are stated at unpaid principal balances, less the allowance
for loan losses, and net deferred loan origination fees. Interest on
mortgage and consumer loans is accrued based on the principal outstanding.
Impaired loans are being accounted for in accordance with SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan", which was amended by
Statement No. 118. The Statement generally requires impaired loans to be
measured on the present value of expected future cash flows discounted at
the loan's effective interest rate, or as an expedient, at the loan's
observable market price or the fair value of the collateral if the loan is
collateral dependent. A loan is impaired when it is probable the creditor
will be unable to collect all contractual principal and interest payments
due in accordance with the terms of the loan agreement.
The Association discontinues the accrual of interest income when a loan
becomes 90 days past due as to principal or interest. At that time, a
reserve is recorded equal to the amount of delinquent interest. If the
delinquent interest is subsequently collected, it is credited to income in
the period collected. Interest on impaired loans is discontinued when, in
management's opinion, the borrower may be unable to meet payments as they
become due.
F-8
<PAGE> 110
Allowance for Losses
The allowance for loan losses is maintained at a level which, in
management's judgment, is adequate to absorb credit losses inherent in the
loan portfolio. The amount of the allowance is based on management's
evaluation of the collectibility of the loan portfolio, including the nature
of the portfolio, credit concentrations, trends in historical loss
experience, specific impaired loans, and economic conditions. Allowances
for impaired loans are generally determined based on collateral values or
the present value of estimated cash flows. The allowance is increased by a
provision for loan losses, which is charged to expense, and reduced by
charge-offs, net of recoveries.
Loan Origination Fees, Commitment Fees and Related Costs
Loan fees and certain direct loan origination costs are accumulated and, if
significant, are recognized as an adjustment to interest income using the
level yield method over the contractual life of the loans, adjusted for
estimated prepayments. No fees are deferred on loans that are sold.
Commitment fees and costs relating to commitments, the likelihood of
exercise of which is remote, are recognized over the commitment period on a
straight-line basis if material. If the commitment is subsequently
exercised during the commitment period, the remaining unamortized commitment
fee at the time of exercise is recognized over the life of the loan as an
adjustment of yield.
Foreclosed Real Estate
Real estate properties acquired through, or in lieu of, loan foreclosure are
initially recorded at fair value at the date of foreclosure establishing a
new cost basis. After foreclosure, valuations are periodically performed by
management and the real estate is carried at the lower of cost or fair value
minus estimated costs to sell. Revenue and expenses from operations and
additions to the valuation allowance are included in Net Real Estate Owned
Expense.
Income Taxes
Deferred income taxes are provided on differences between income
reported for financial reporting and income tax purposes as explained more
fully in Note 12.
Deferred taxes are provided on a liability method in accordance with SFAS
No. 109 whereby deferred tax assets are recognized for deductible temporary
differences and operating loss and tax credit carryforwards and deferred tax
liabilities are recognized for taxable temporary differences. Temporary
differences are the differences between the reported amounts of assets
and liabilities and their tax bases. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is more likely
than not that some portion or all of the deferred tax assets will not be
realized. Deferred tax assets and liabilities are adjusted for the effects
of changes in tax laws and rates on the date of enactment.
F-9
<PAGE> 111
Premises and Equipment
Land is carried at cost. Buildings and equipment are stated at cost less
accumulated depreciation. Buildings, furniture, fixtures and equipment are
depreciated for book purposes using the straight-line method. The estimated
useful lives used to compute depreciation are: buildings twenty to forty
years; and furniture, fixtures and equipment, three to ten years.
Maintenance and repairs are expensed as incurred. For assets placed in
service since 1980, the Accelerated and Modified Accelerated Cost Recovery
System is used for tax reporting purposes.
Cost In Excess of Fair Value of Net Assets Acquired
The cost of investment in subsidiary in excess of the fair value of net
assets at dates of purchase is amortized over a period of ten years.
Pension Benefits
The Association had a noncontributory defined benefit retirement plan which
covered substantially all employees who qualified as to age and length of
service. The benefits were based on each employee's years of service and an
employee's average monthly compensation. An employee became fully vested
upon completion of 5 years of qualifying service. The Association's funding
policy was to make the minimum annual contribution that was required by
actuarial calculations subject to Internal Revenue Service limitations. The
Plan was terminated during 1996.
Reclassifications
Certain reclassifications have been made to the prior year's finan- cial
statements in order to conform to current reporting practices. The
reclassifications have no effect on total assets or net earnings as
previously reported.
Earnings Per Common Share
The computation of earnings per share and other per share amounts of common
stock is based on the weighted average number of shares of common stock
outstanding during the year, which is 931,633 shares for 1996. In 1996, the
weighted average number of shares excludes shares held by the Employee Stock
Ownership Plan which have not been committed to be released. The Company's
stock issuance took place on July 14, 1995 and earnings per share numbers
for periods prior to the quarter ended September 30, 1995 were not
considered meaningful.
Current Accounting Developments -
SFAS No. 122, "Accounting for Mortgage Servicing Rights", amends SFAS No.
65. This statement requires that a mortgage banking enterprise assess its
capitalized mortgage servicing rights for impairment based on the fair value
of those rights. This statement applies prospectively in fiscal years
beginning after December 15, 1995. The Association has addressed the
potential future impact of the application of this statement, and considers
it to be immaterial.
F-10
<PAGE> 112
SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities" becomes effective for transfers and
servicing of financial assets and extinguishments of liabilities occurring
after December 31, 1996. The statement generally requires that after a
transfer of financial assets, an entity would recognize all financial assets
and servicing it controls and liabilities it has incurred, and would not
recognize financial assets when control has been surrendered or liabilities
when they have been extinguished. The Association has addressed the
potential future impact of the application of this statement, and considers
it to be immaterial.
Note 2 - Reorganization and Change of Corporate Form -
In July 1995, Citizens Savings and Loan Association (Citizens) completed its
reorganization into a federally chartered stock savings and loan association
whereby Citizens (I) converted its charter to a federal stock savings and
loan association known as Citizens Savings Association, F.A., and (ii)
concurrently issued all of its outstanding capital stock to the newly
formed holding company, CitiSave Financial Corporation (the Company). As
part of the Reorganization, which was accounted for under the pooling of
interests method of accounting, the Company issued 964,707 shares of common
stock, 77,177 shares of which were acquired by its Employee Stock Ownership
Plan, and the Association issued 1,000 shares of $.01 par value common stock
to the Company. The 1994 financial statements contained herein are those of
the Association as the predecessor entity.
Note 3 - Securities -
The amortized cost and fair values of securities being held to maturity as
of December 31, 1996 and 1995 are summarized as follows:
<TABLE>
<CAPTION>
1996
-------------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ----------- ----------- ---------
(In Thousands)
<S> <C> <C> <C> <C>
Investment Securities:
U.S. Treasury Securities $ 2,982 $ 12 $ (1) $ 2,993
Securities of Other
U.S. Government Agencies 16,272 55 (91) 16,236
------- ------- ------- -------
19,254 67 (92) 19,229
------- ------- ------- -------
Mortgage-Backed Securities:
FHLMC 159 13 - 172
FNMA 424 - (13) 411
GNMA 1,692 18 - 1,710
------- ------- ------- -------
2,275 31 (13) 2,293
------- ------- ------- -------
$ 21,529 $ 98 $ (105) $ 21,522
======= ======= ======= =======
</TABLE>
(CONTINUED)
F-11
<PAGE> 113
<TABLE>
<CAPTION>
1995
-------------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ----------- ----------- ---------
(In Thousands)
<S> <C> <C> <C> <C>
Investment Securities:
U.S. Treasury Securities $ 5,484 $ 55 $ - $ 5,539
Securities of Other U.S.
Government Agencies 17,037 - (51) 16,986
------- ------- ------- -------
22,521 55 (51) 22,525
------- ------- ------- -------
Mortgage-Backed Securities:
FHLMC 188 13 - 201
FNMA 497 - (6) 491
GNMA 1,880 3 - 1,883
------- ------- ------- ------
2,565 16 (6) 2,575
------- ------- ------- -------
$ 25,086 $ 71 $ (57) $ 25,100
======= ======= ======= =======
</TABLE>
Included in the category of Securities of Other U.S. Government Agencies at
December 31, 1996 and 1995 are structured notes with a par value of $4.5
million and $5.5 million, respectively. At December 31, 1996 and 1995, the
securities have an amortized cost of $4.5 million and $5.5 million and a
fair value of $4.5 million and $5.4 million, respectively. Structured notes
consist of step-up notes, adjustable rate notes that are not subject to
interest rate caps which adjust monthly based on the 11th District Cost of
Funds index minus 17.5 to 35 basis points, and adjustable rate notes that
are subject to interest rate caps which adjust based on the 90 day U.S.
Treasury Bill plus a specified margin. The step-up notes have interest
rates that are scheduled to increase by predetermined amounts on
pre-determined dates, and are callable at par on each date the interest rate
is scheduled to increase. Management understands the risks associated with
these types of instruments. Management has all securities mentioned above
classified as held to maturity.
The amortized cost and fair values of securities being held to maturity as
of December 31, 1996 by contractual maturity are shown below. Maturities
may differ from contractual maturities in mortgage-backed securities because
the mortgages underlying the securities may be called or repaid without any
penalties. Therefore, these securities are not included in the maturity
categories in the following maturity summary.
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
---------- ----------
(In Thousands)
<S> <C> <C>
Within One Year $ 12,586 $ 12,546
One to Five Years 6,668 6,683
--------- ---------
$ 19,254 $ 19,229
========= =========
</TABLE>
F-12
<PAGE> 114
Securities being held to maturity with a carrying amount of $500,000 at
December 31, 1996 and 1995, were pledged as collateral on public deposits
and for other purposes as required or permitted by law.
There were no sales of securities during 1996, 1995 or 1994.
The Association has invested in FHLB stock which is reflected at cost which
approximates market.
Note 4 - Loans Receivable -
Loans receivable at December 31, 1996 and 1995 consisted of the following:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
(In Thousands)
<S> <C> <C>
First Mortgage Loans (Principally
Conventional):
Principal Balances:
Secured by One-To-Four-Family
Residences $ 37,270 $ 33,812
Secured by Other Properties 3,875 4,623
Construction Loans 2,411 2,601
------ ------
43,556 41,036
Less:
Unearned Discounts (282) (363)
Undisbursed Portion of
Construction Loans (1,536) (1,915)
Deferred Loan Fees (157) (142)
------- -------
Total First Mortgage Loans 41,581 38,616
------- -------
Consumer and Other Loans:
Principal Balances:
Automobile 761 597
Home Equity and Second Mortgage 485 756
Commercial 787 770
Loans on Deposits 535 553
Other 1,105 500
------ -------
Total Consumer and Other Loans 3,673 3,176
------- -------
Total All Loans 45,254 41,792
Less: Allowance for Loan Losses (61) (82)
------- -------
45,193 41,710
Loans Held for Sale 363 -
------- -------
Net Loans $ 45,556 $ 41,710
======= =======
</TABLE>
F-13
<PAGE> 115
Following is a summary of the activity in the allowance for loan losses:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Balance at Beginning of Year $ 82 $ 139 $ 129
Provision for Loan Losses 35 1 10
Charged-Off Loans (56) (58) -
Recoveries of Loans - - -
------- ------- -------
Balance at End of Year $ 61 $ 82 $ 139
======= ======= =======
</TABLE>
The Association had non-performing loans contractually past due 90 days or
more totaling approximately $171,000 and $118,000 at December 31, 1996 and
1995, respectively. The Association recognized $9,000 and $12,000 in
interest income relating to these loans during the years ended December 31,
1996 and 1995, respectively. Had the loans been performing, approximately
$7,000 and $5,000 of additional interest income would have been recognized
for the years ended December 31, 1996 and 1995, respectively.
Impairment of loans having recorded investments of $171,000 at December 31,
1996 has been recognized in conformity with SFAS No. 114 as amended by SFAS
No. 118. The total allowance for loan losses related to these loans was
$20,000.
The Association is permitted to make extensions of credit to its officers
and directors in the ordinary course of business. The loans are made on
substantially the same terms as those prevailing at the time for comparable
loans with other parties. The total of such indebtedness outstanding at
December 31, 1996 and 1995 for officers, directors and their associates was
$517,000 and $510,000, respectively. An analysis of the aggregate of these
loans for 1996 is as follows:
<TABLE>
<CAPTION>
(In Thousands)
<S> <C>
Balance - Beginning of Year $ 510
New Loans 171
Repayments (164)
----
Balance - End of Year $ 517
====
</TABLE>
Note 5 - Loan Servicing -
Mortgage loans serviced for others are not included in the accompanying
Consolidated Statements of Financial Condition. The unpaid principal
balances of these loans serviced for FHLMC at December 31, 1996, 1995
and 1994 amounted to $1.2 million, $1.8 million and $2.2 million,
respectively.
Custodial escrow balances maintained in connection with the foregoing loan
servicing were approximately $4,000, $6,000 and $7,000 at December 31, 1996,
1995 and 1994, respectively.
F-14
<PAGE> 116
Note 6 - Accrued Interest Receivable -
Accrued interest receivable at December 31, 1996 and 1995 is summarized as
follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
(In Thousands)
<S> <C> <C>
Securities $ 302 $ 363
Loans Receivable 198 168
------- -------
$ 500 $ 531
======= =======
</TABLE>
Note 7 - Foreclosed Real Estate -
Activity in the allowance for losses on foreclosed real estate is as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Balance at Beginning of Year $ 19 $ - $ -
Provision Charged to Income - 19 -
Charge-offs, Net of Recoveries (19) - -
------- ------- -------
Balance at End of Year $ - $ 19 $ -
======= ======= =======
</TABLE>
Note 8 - Premises and Equipment -
Premises and equipment at December 31 are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
(In Thousands)
<S> <C> <C>
Cost:
Land $ 680 $ 492
Buildings 1,512 1,163
Autos 79 77
Furniture, Fixtures and Equipment 826 889
------- -------
3,097 2,621
Less: Accumulated Depreciation (1,131) (1,252)
------- -------
$ 1,966 $ 1,369
======= =======
</TABLE>
The provision for depreciation charged to operating expenses was $102,000,
$83,000 and $92,000, respectively, for the years ended December 31, 1996,
1995 and 1994.
Note 9 - Short-Term Borrowings -
The Association has an outstanding line of credit with First National
Banker's Bank in the amount of $2.5 million. No funds were drawn on this
line during the year ended December 31, 1996.
The Association has, in conjunction with the ownership of FHLB Stock, an
unused line of credit in the amount of $7.6 million with the Federal Home
Loan Bank of Dallas. Although this line of credit is available, management
has no intentions of drawing from it.
F-15
<PAGE> 117
Note 10 - Deposits -
Deposits at December 31 are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
--------------------------------------- ------------------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
RATE AMOUNT % RATE AMOUNT %
-------- --------- ----- -------- --------- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Demand and NOW
Accounts* 1.43% $ 9,300 15.1% 1.19% $ 7,724 12.4%
Ready Cash
Accounts 2.05% 5,828 9.5 2.10% 6,293 10.1
Passbook Savings 1.97% 6,160 10.0 1.96% 6,523 10.4
------- ----- ------- -----
21,288 34.6 20,540 32.9
------- ----- ------- -----
Certificates of Deposit:
2.00-3.00% 2.33% 319 .5% 2.35% 141 .2%
3.01-4.00% 3.94% 1,207 2.0 3.95% 1,517 2.4
4.01-5.00% 4.56% 19,145 31.2 4.53% 18,577 29.7
5.01-6.00% 5.45% 12,176 19.8 5.52% 13,246 21.2
6.01-7.00% 6.65% 5,675 9.2 6.61% 6,632 10.6
7.01-8.00% 7.36% 1,257 2.0 7.38% 1,449 2.3
greater than or equal to 8.01% 8.49% 390 .7 8.62% 412 .7
------- ----- ------- -----
40,169 65.4% 41,974 67.1%
------- ----- ------- -----
$ 61,457 100.0% $ 62,514 100.0%
======= ===== ======= =====
</TABLE>
*Includes noninterest-bearing deposits of $3.3 million at December 31, 1996
and $4.4 million at December 31, 1995.
The aggregate amount of demand accounts, savings accounts and certificates
of deposit with a minimum balance of $100,000 was approximately $8.7 million
at December 31, 1996 and $8.9 million at December 31, 1995. Deposit
accounts are insured by the SAIF to a maximum of $100,000 for each insured
member.
A summary of savings certificates by maturity at December 31, 1996 and 1995
is as follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
(In Thousands)
<S> <C> <C>
1996 $ - $ 27,628
1997 27,774 8,623
1998 7,331 1,822
1999 2,295 1,550
2000 1,456 1,288
2001 328 -
Thereafter 985 1,063
------- -------
$ 40,169 $ 41,974
======= =======
</TABLE>
F-16
<PAGE> 118
Interest expense on deposits is summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Demand Accounts $ 127 $ 120 $ 123
Ready Cash Accounts 132 144 166
Passbook Savings 122 146 155
Certificates of Deposits 2,146 2,102 1,660
------- ------- -------
$ 2,527 $ 2,512 $ 2,104
======= ======= =======
</TABLE>
Note 11 - Pension Plan -
The following table sets forth the plan's funded status and amounts
recognized in the Company's financial statements at December 31:
<TABLE>
<CAPTION>
1995
--------
(In Thousands)
<S> <C>
Actuarial Present Value of Benefit
Obligations:
Accumulated Benefit Obligation:
Vested $ 729
Nonvested 107
-------
836
Effect of Projected Future Obligation 238
-------
Projected Benefit Obligation for
Service Rendered To Date 1,074
Plan Assets at Fair Value 967
-------
Projected Benefit Obligation in
Excess of Plan Assets (107)
Unrecognized Net Loss 148
Unrecognized Net Transition Amount 31
-------
Prepaid Pension Benefit $ 72
=======
</TABLE>
Plan assets were primarily invested in U.S. Treasury Securities, U.S.
Government Agencies and Mortgage-Backed Securities.
The components of net pension expense for the years ended December 31, are
as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Service Cost-Benefits Earned During
the Period $ 16 $ 40 $ 41
Interest Cost on Projected Benefit
Obligation - 70 63
Actual Return on Plan Assets - (83) (18)
Net Amortization and Deferral - 23 (41)
------- ------- -------
Net Pension Expense $ 16 $ 50 $ 45
======= ======= =======
</TABLE>
F-17
<PAGE> 119
Assumptions used to develop the net periodic pension cost were:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Discount Rate 7.50% 7.50% 7.25%
Expected Long-Term Rate
of Return on Assets 8.00% 8.00% 8.00%
Rate of Increase In
Compensation Levels 4.00% 4.00% 4.00%
</TABLE>
As of March 31, 1996, the Association terminated the defined benefit pension
plan. Upon termination, employees either received a cash distribution or an
annuity contract was purchased for the employees' accumulated benefits. The
distribution of all plan assets was completed at December 31, 1996.
Note 12 - Income Taxes -
The Company, Association and Subsidiary each file a separate federal income
tax return on a calendar-year basis. In addition, state income tax returns
are filed individually by the Company in accordance with state statutes.
The reserve method of accounting for bad debt utilized by qualified thrift
institutions pursuant to Code Section 593 was repealed for tax years
beginning after December 31, 1995. Savings institutions are no longer
permitted to make additions to their tax bad debt reserve under the
percentage of taxable income method. Such institutions are permitted to use
the experience method in lieu of deducting bad debts only as they occur.
The $87,000 of excess reserves of the Association will be taken into account
ratably over the six-year period beginning with the current year. This
change in accounting method and reversal of excess bad debt reserves is
adequately provided for in the Association's deferred tax liability.
The components of consolidated income tax expense are:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Provision for Current Taxes $ 225 $ 385 $ 334
Provision (Credit) for Deferred
Taxes (9) 33 -
------- ------- -------
$ 216 $ 418 $ 334
======= ======= =======
</TABLE>
Total income tax expense differed from the amounts computed by applying the
U.S. federal income tax rate of 34 percent in 1996, 1995 and 1994 to income
before income taxes as a result of the following:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C>
Expected Income Tax Expense at
Federal Tax Rate $ 233 $ 424 $ 296
Amortization of Goodwill 6 6 40
Bad Debt - - (30)
Other - Net (23) (12) 28
------- ------- -------
Total Income Tax Expense $ 216 $ 418 $ 334
======= ======= =======
Effective Tax Rate 33.4% 33.4% 40.0%
======= ======= =======
</TABLE>
F-18
<PAGE> 120
The deferred tax provision (credit) consists of the following timing
differences:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Difference in Tax Bad Debt Deduction $ 2 $ 28 $ -
Depreciation for Tax Purposes in
Excess of Book 3 2 4
Dividends/Redemptions on FHLB Stock 8 7 -
Retirement Expense (1) (4) (4)
ESOP Expense (21) - -
------- ------- -------
$ (9) $ 33 $ -
======= ======= =======
</TABLE>
A deferred income tax liability of $151,000 and $160,000 is included in the
liabilities section of the Statements of Condition at December 31, 1996 and
1995, respectively.
The net deferred tax liability consists of the following components at
December 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Depreciation $ 108 $ 105 $ 103
FHLB Stock 47 39 32
Retirement Expense (13) (12) (8)
Provision for Loan Losses 30 28 -
ESOP Expense (21) - -
------- ------- -------
$ 151 $ 160 $ 127
======= ======= =======
</TABLE>
Retained earnings at December 31, 1996 and 1995 include approximately $1
million at each date for which no deferred federal income tax liability has
been recognized. These amounts represent an allocation of income to bad
debt deductions for tax purposes only.
Note 13 - Regulatory Capital Requirements -
Under the Financial Institutions Reform, Recovery, and Enforcement Act of
1989 (FIRREA), the Association is required by law to maintain (I) core
capital equal to at least 3% of adjusted total assets, (ii) tangible capital
equal to at least 1.5% of adjusted total assets, and (iii) total capital
equal to at least 8.0% of risk-weighted assets.
F-19
<PAGE> 121
The following is a reconciliation of GAAP capital to regulatory capital for
the Association at December 31, 1996:
<TABLE>
<CAPTION>
TANGIBLE CORE RISK-BASED
CAPITAL CAPITAL CAPITAL
----------- ----------- ----------
(Dollars in Thousands)
<S> <C> <C> <C>
GAAP Capital $ 10,563 $ 10,563 $ 10,563
Additional Capital Items:
General Valuation Allowances - - 61
--------- --------- ---------
Regulatory Capital - Computed 10,563 10,563 10,624
Minimum Capital Requirement 1,114 2,227 2,819
--------- --------- ---------
Regulatory Capital - Excess $ 9,449 $ 8,336 $ 7,805
========= ========= =========
Regulatory Capital as a
Percentage 14.23% 14.23% 30.15%
Minimum Capital Required as
a Percentage 1.50 3.00 8.00
----- ----- -----
Regulatory Capital as a
Percentage in Excess of
Requirements 12.73% 11.23% 22.15%
===== ===== =====
</TABLE>
Based on these capital ratios, the Association meets the criteria for a
"well capitalized" institution at December 31, 1996. The Association's
management believes that under the current regulations, the Association will
continue to meet its minimum capital requirements in the foreseeable
future. However, events beyond the control of the Association, such as
increased interest rates or a downturn in the economy in the Association's
area, could adversely affect future earnings and consequently, the ability
of the Association to continue to exceed its future minimum capital
requirements.
Note 14 - Employee Stock Ownership Plan -
The Company sponsors a leveraged employee stock ownership plan (ESOP) that
covers all employees who have completed one year of service and have
attained age 21. The Company makes contributions to the ESOP to fund the
ESOP's debt service. All dividends received by the ESOP are used to pay debt
service. As the debt is repaid, shares are released from collateral and
allocated to active employees, based on the proportion of debt service paid
in the year.
The note payable referred to in the preceding paragraph requires quarterly
principal payments plus interest at 8.5%. Future principal payments are due
as follows:
(CONTINUED)
F-20
<PAGE> 122
During the year ending December 31:
<TABLE>
<CAPTION>
(In Thousands)
<S> <C>
1997 $ 67
1998 72
1999 79
2000 86
2001 93
Due thereafter 202
-----
$ 599
=====
</TABLE>
The Company accounts for the ESOP in accordance with Statement of Position
93-6, "Employers' Accounting for Employee Stock Ownership Plans."
Accordingly, the debt of the ESOP is recorded as debt of the Association and
the shares pledged as collateral are reported as unearned compensation in
equity. The Company's loan asset and the Association's debt liability
eliminates in consolidation. As shares are released from collateral, the
Company reports compensation expense equal to the current market price of
the shares and the shares become outstanding for earnings-per-share
computations. Dividends on allocated ESOP shares are recorded as a
reduction of retained earnings; dividends on unallocated ESOP shares are
recorded as a reduction of debt and accrued interest. ESOP compensation
expense was $212,000 and $54,000 for the years ended December 31, 1996 and
1995, respectively.
Shares of the Company held by the ESOP at December 31, 1996 and 1995 are as
follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
(In Thousands)
<S> <C> <C>
Allocated shares 19 -
Shares released for allocation - 4
Unreleased shares 58 73
----- -----
77 77
===== =====
Fair value of unreleased shares $ 815 $1,070
===== =====
</TABLE>
Note 15 - Stock Option and Management Recognition Plans
Stock Option Plans -
The Company instituted two stock option plans during 1996. Under the 1996
Directors' Stock Option Plan, the Company may grant options to its
non-employee directors up to 28,941 shares of common stock. The exercise
price of each option equals the market price of the Company's stock on the
date of grant and an option's maximum term is 10 years. Ninety percent of
the options were granted on the date the Plan was approved by the
stockholders of the Company, which was July 23, 1996. The remaining 2,901
shares will be granted after one year. The options become exercisable after
six months from the grant date. Under the 1996 Key Employee Stock
F-21
<PAGE> 123
Compensation Program, the Company may grant both incentive and compensatory
options to its officers and key employees for up to 67,529 shares of common
stock. The exercise price of each option equals the market price of the
Company's stock on the date of grant and an option's maximum term is 10
years for incentive options and 10 years and one month for compensatory
options. Options are granted and vest at the discretion of the Program
Administrators. The weighted average remaining contractual life of the
granted options is 9.6 years.
At December 31, 1996, shares available for grant under the 1996 Directors'
Stock Option Plan and the 1996 Key Employee Stock Compensation Program
amounted to 2,901, and 6,962, respectively.
Management Recognition Plan -
The Company instituted a Management Recognition Plan during 1996. Under the
Plan, the Company may grant awards to its officers and key employees up to
38,588 shares of common stock. The awards are allocated at the discretion
of the Compensation Committee. Shares vest at the rate of 20% on each
annual anniversary date. At December 31, 1996, 32,847 shares were granted
and 5,741 shares remain available for grant.
The tables below summarize the activity in the Plans during 1996.
**1996 Directors' Stock Option Plan**
<TABLE>
<CAPTION>
NON - PRICE
INCENTIVE QUALIFIED PER SHARE
--------- --------- -----------
<S> <C> <C> <C>
Outstanding, December 31, 1995 - - $ -
Granted - 26,040 13.875
Exercised - -
------ ------
Outstanding, December 31, 1996 - 26,040 13.875
====== ======
Exercisable, December 31, 1996 - - -
====== ======
</TABLE>
**1996 Key Employee Stock Compensation Program**
<TABLE>
<CAPTION>
NON - PRICE
INCENTIVE QUALIFIED PER SHARE
--------- --------- -----------
<S> <C> <C> <C>
Outstanding, December 31, 1995 - - $ -
Granted 38,364 22,203 13.875
Exercised - - -
------- ------
Outstanding, December 31, 1996 38,364 22,203 13.875
======= ======
Exercisable, December 31, 1996 38,364 22,203 -
======= ======
</TABLE>
F-22
<PAGE> 124
**Management Recognition Plan**
<TABLE>
<CAPTION>
SHARES
--------
<S> <C>
Outstanding, December 31, 1995 -
Granted 32,847
Vested -
------
Outstanding, December 31, 1996 32,847
======
Vested, December 31, 1996 -
======
</TABLE>
The Company applies APB Opinion 25 and related interpretations in accounting
for its stock option and management recognition plans. Accordingly, no
compensation cost has been recognized for its stock-based compensation
plans. Had compensation cost for the Company's stock-based compensation
plans been determined based on the fair value on the grant dates for awards
under those plans consistent with the method of SFAS No. 123, the Company's
net income and earnings per share would have been reduced to the proforma
amounts indicated below:
<TABLE>
<CAPTION>
(In Thousands)
<S> <C> <C>
Net Income As Reported $ 430
Proforma $ 364
Primary Earnings
Per Share As Reported $ .46
Proforma $ .39
</TABLE>
Compensation cost recognized under SFAS No. 123, was established using the
Black-Scholes model with the following assumptions: dividend yield of 4
percent, an expected life of the options of 1 year, expected volatility of
19 percent and risk-free interest rate of 5.56 percent.
Note 16 - Dividends and Earnings Per Share -
During 1996, the Company declared dividends of $.075 per share to be paid to
shareholders of record on March 15, 1996, June 15, 1996 and September 15,
1996 and $.10 per share to be paid to shareholders of record on December 15,
1996. The dividends were paid to shareholders on March 31, 1996, June
30, 1996, September 30, 1996 and December 31, 1996, respectively.
The Company also declared a special distribution of $2.00 per share to
shareholders of record on June 15, 1996. The special distribution was paid
on June 28, 1996. This special distribution was authorized by a favorable
private letter ruling received from the Internal Revenue Service whereby the
portion of the quarterly dividends and special distribution which exceeds
the amount of the current or accumulated earnings and profits of Citisave
Financial Corporation for 1996, the taxable year of the dividends and
distribution, is not a dividend, and will reduce the shareholders adjusted
basis in the stock of Citisave Financial Corporation. The amount of the
dividends and distribution which has been determined to be nontaxable
amounts to $2.30 per share.
F-23
<PAGE> 125
Note 17 - SAIF Assessment -
The deposits of the Association are currently insured by the SAIF, which is
a federal deposit insurance fund that covers SAIF member institutions. On
September 30, 1996, legislation was passed which required all SAIF member
institutions to pay a one-time special assessment to recapitalize the SAIF.
The one-time special assessment for the Association amounted to $414,000.
Net of related tax benefits the one-time special assessment amounted to
$273,000 or $.29 per share. The payment of such special assessment had the
effect of immediately reducing the Association's capital by such amount.
Nevertheless, the assessment did not have a material adverse effect on the
Company.
Note 18 - Other Noninterest Expense -
Other noninterest expense amounts are summarized as follows for the years
ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Advertising $ 89 $ 45 $ 77
Goodwill Amortization 17 17 124
Other 255 106 128
------- ------- -------
$ 361 $ 168 $ 329
======= ======= =======
</TABLE>
Note 19 - Off-Balance Sheet Instruments -
The Association is a party to financial instruments with off-balance sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments consist of commitments to extend
credit. Those instruments involve, to varying degrees, elements of credit
risk in excess of the amount recognized in the Statement of Financial
Condition.
The Association's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend credit
is represented by the contractual amount of those instruments. The
Association uses the same credit policies in making commitments and
conditional obligations as they do for on-balance sheet instruments.
In the normal course of business, the Association has made commitments to
extend credit of $3.9 million at December 31, 1996. This amount includes
unfunded loan commitments aggregating $3.0 million and undisbursed lines of
credit of $902,000.
The Association has entered into agreements with third parties to sell loans
that it originates. The Association may be required to repurchase a loan if
it is in violation of certain representations and warranties during a
specified period of time as stated in the agreement. The total amount of
loans originated and sold to these parties that may be subject to repurchase
amounted to $1.5 million and $3.1 million at December 31, 1996 and 1995,
respectively. At December 31, 1996 no loans were required to be
repurchased.
F-24
<PAGE> 126
Note 20 - Fair Value of Financial Instruments -
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to
estimate that value:
Cash and Short-Term Investments - For those short-term instruments, the
carrying amount is a reasonable estimate of fair value.
Securities - Fair value of securities held to maturity is based on quoted
market prices or dealer quotes, if available. If a quoted market price is
not available, fair value is estimated using quoted market prices for
similar securities.
Loans - The fair value for loans is estimated using discounted cash flow
analyses, with interest rates currently being offered for similar loans to
borrowers with similar credit rates. Loans with similar classifications are
aggregated for purposes of the calculations. The allowance for loan loss,
which was used to measure the credit risk, is subtracted from loans.
Deposits - The fair value of demand deposits, savings accounts, and certain
money market deposits is the amount payable on demand at the reporting date.
The fair value of fixed-maturity certificates of deposit is estimated using
discounted cash flow analyses, with interest rates currently offered for
deposits of similar remaining maturities.
Commitments to Extend Credit and Standby Letters of Credit - The fair value
of commitments to extend credit and standby letters of credit were not
significant.
The estimated approximate fair values of the Association's financial
instruments as of December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
------------------------ ------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
(In Thousands)
<S> <C> <C> <C> <C>
Financial Assets:
Cash, Short-Term Investments
and Federal Funds Sold $ 5,069 $ 5,069 $ 8,936 $ 8,936
Securities Held to Maturity 21,909 21,902 25,444 25,458
Loans - Net 45,193 44,988 41,710 41,803
------- ------- ------- -------
$ 72,171 $ 71,959 $ 76,090 $ 76,197
======= ======= ======= =======
Financial Liabilities:
Deposits $ 61,457 $ 61,222 $ 62,514 $ 62,142
======= ======= ======= =======
</TABLE>
Note 21 - Related Party Transactions -
The Association has an outstanding note receivable from 665 Florida Street
Corp. The balance on the note is $683,000 and $735,000 at December 31, 1996
and 1995, respectively. The interest rate charged is currently prime plus
1% on the outstanding principal balance at the end of the month.
The Association leases office space to Roberts & Eastland. The lease is for
a twelve month period and is renewed annually. Rent income for the years
ended December 31, 1996, 1995 and 1994 amounted to $47,000 for each year.
F-25
<PAGE> 127
The ESOP borrowed $772,000 from the Company in order to acquire shares of
the Company's stock (See Note 14). The dividends received from the Company
on these shares are used to repay the debt. The balance of this note
payable at December 31, 1996 and 1995 is $599,000 and $744,000,
respectively. Dividends to the ESOP totaled $31,000 and $11,000 for the
years ended December 31, 1996 and 1995, respectively. In addition, a
special return of capital cash distribution which totaled $154,000 was paid
to the ESOP during 1996. See Note 16 for further discussion.
Note 22 - Contingencies -
In the normal course of business, the Association is involved in various
legal proceedings. In the opinion of management, and counsel, any liability
resulting from such proceedings would not have a material adverse effect on
the Association's financial statements.
Note 23 - Concentrations of Credit -
The Association's business activities are primarily with customers in the
Association's market area, which is East Baton Rouge Parish. The majority
of such customers are depositors of the Association. The concentrations of
credit by type of loan are shown in Note 3. The Association generally
originates single-family residential loans within its primary lending area.
Note 24 - Segment Information -
The Company owns 100% of the Association, a federally chartered stock
savings and loan. The Company's operations relate primarily to its
investment in the Association. The Association and its subsidiary own an
80% interest in an insurance agency. The subsidiary's operations relate
totally to its investment in the insurance agency. Noninterest income of
the subsidiary is the insurance agency commissions.
Certain financial information concerning the Company, the Association and
its subsidiary operations are as follows:
<TABLE>
<CAPTION>
COMPANY ASSOCIATION SUBSIDIARY ELIMINATIONS TOTALS
------- ----------- ---------- ------------ -------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1996:
Total Interest Income $ 165 $ 5,389 $ 8 $ (41) $ 5,521
Total Interest Expense - 2,569 64 (106) 2,527
Provision for Loan Losses - 35 - - 35
Noninterest Income 418 638 724 (581) 1,199
Noninterest Expense 130 2,854 535 (47) 3,472
Income Taxes 23 151 42 - 216
Minority Interest in
Subsidiary - - (40) - (40)
------ ------ ------ ------- ------
Net Income $ 430 $ 418 $ 51 $ (469) $ 430
====== ====== ====== ======= ======
</TABLE>
(CONTINUED)
F-26
<PAGE> 128
<TABLE>
<CAPTION>
COMPANY ASSOCIATION SUBSIDIARY ELIMINATIONS TOTALS
------- ----------- ---------- ------------ -------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Depreciation and
Amortization $ - $ 92 $ 10 $ - $ 102
====== ====== ====== ======= ======
Property and Equipment
Acquisitions $ - $ 740 $ 36 $ - $ 776
====== ====== ====== ======= ======
December 31, 1996:
Total Assets $12,276 $74,159 $ 371 $(11,520) $75,286
====== ====== ====== ======= ======
Year ended December 31,
1995:
Total Interest Income $ 88 $ 5,164 $ 8 $ (30) $ 5,230
Total Interest Expense - 2,546 72 (102) 2,516
Provision for (Recovery
of) Loan Losses - 1 - - 1
Noninterest Income 775 608 690 (934) 1,139
Noninterest Expense 12 2,081 516 (47) 2,562
Income Taxes 16 369 33 - 418
Minority Interest in
Subsidiary - - (37) - (37)
------ ------- ------ ------- -------
Net Income $ 835 $ 775 $ 40 $ (815) $ 835
====== ======= ====== ======= =======
Depreciation and
Amortization $ - $ 101 $ 10 $ - $ 111
====== ======= ====== ======= =======
Property and Equipment
Acquisitions $ - $ 90 $ 6 $ - $ 96
====== ======= ====== ======= =======
December 31, 1995:
Total Assets $ 9,112 $ 76,063 $ 551 $ (7,508) $ 78,218
====== ======= ====== ======= =======
</TABLE>
(CONTINUED)
F-27
<PAGE> 129
<TABLE>
<CAPTION>
ASSOCIATION SUBSIDIARY ELIMINATIONS TOTALS
----------- ---------- ------------ -------
(In Thousands)
<S> <C> <C> <C> <C>
Year ended December 31,
1994:
Total Interest Income $ 4,541 $ 6 $ (61) $ 4,486
Total Interest Expense 2,104 61 (61) 2,104
Provision for (Recovery
of) Loan Losses 10 - - 10
Noninterest Income 293 666 13 972
Noninterest Expense 1,925 595 (47) 2,473
Income Taxes 295 39 - 334
Minority Interest in
Subsidiary - (37) - (37)
------- ------ ------- -------
Net Income $ 500 $ (60) $ 60 $ 500
======= ====== ======= =======
Depreciation and
Amortization $ 81 $ 132 $ - $ 213
======= ====== ======= =======
Property and Equipment
Acquisitions $ 96 $ - $ - $ 96
======= ====== ======= =======
December 31, 1994:
Total Assets $ 68,975 $ 397 $ (247) $ 69,125
======= ====== ======= =======
</TABLE>
F-28
<PAGE> 130
Note 25 - Financial Information - Parent Company Only -
The financial statements for CitiSave Financial Corporation (Parent
Company) are presented below:
BALANCE SHEET
December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
--------- ---------
(In Thousands)
<S> <C> <C>
Assets:
Cash $ 55 $ 1,686
Investment Securities 1,000 1,994
Investment in Subsidiary 11,145 10,538
Due from Subsidiary 38 35
Other Assets 38 52
------- -------
Total Assets $ 12,276 $ 14,305
======= =======
Liabilities:
Other Liabilities $ 1 $ 16
------- -------
Total Liabilities 1 16
Stockholders' Equity:
Common Stock 10 10
Additional Paid in Capital 7,376 9,144
Retained Earnings 6,020 5,879
Less: Unearned Compensation - MRP (497) -
Treasury Shares at Cost (35) -
Note Receivable from ESOP (599) (744)
------- -------
Total Stockholders' Equity 12,275 14,289
------- -------
Total Liabilities and
Stockholders' Equity $ 12,276 $ 14,305
======= =======
</TABLE>
F-29
<PAGE> 131
STATEMENT OF INCOME
for the years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
-------- --------
(In Thousands)
<S> <C> <C>
Income:
Interest on Investment Securities $ 103 $ 58
Interest on ESOP Note 62 30
------ ------
Total Income 165 88
Expenses:
Operating Expenses 130 12
------ ------
Income before Equity in Undistributed
Net Income of Subsidiary 35 76
Equity in Undistributed Net Income
of Subsidiary 418 775
------ ------
Net Income before Income Taxes 453 851
Applicable Income Tax Expense 23 16
------ ------
Net Income $ 430 $ 835
====== ======
</TABLE>
F-30
<PAGE> 132
STATEMENT OF CASH FLOWS
for the year ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
--------- ---------
(In Thousands)
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income $ 430 $ 835
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Equity in Undistributed Net Income
of Subsidiary (418) (775)
Other (90) -
(Increase) Decrease in Receivable
From Subsidiary (3) (35)
(Increase) Decrease in Other Assets 14 (52)
Increase (Decrease) in Income Tax Payable (16) -
Increase (Decrease) in Other Liabilities 1 16
------- -------
Net Cash Provided by (Used in) Operating
Activities (82) (11)
Cash Flows From Investing Activities:
Maturities of Investment Securities 994 -
Purchase of Investment Securities - (1,994)
Investment in Subsidiary - (4,570)
------- -------
Net Cash Provided by (Used in) Investing
Activities 994 (6,564)
Cash Flows From Financing Activities:
Return of Capital Distribution (1,929) -
Unallocated ESOP Shares Return of Capital
Distribution 100 -
Payment Received on ESOP Note 145 28
Dividends Paid (289) (134)
Purchase of Treasury Stock (35) -
Net Cash Proceeds from Sale of Stock - 9,139
Note Payable Issued on ESOP - (772)
Establishment of MRP (535) -
------- -------
Net Cash Provided by (Used in) Financing
Activities (2,543) 8,261
------- -------
Net Increase (Decrease) in Cash (1,631) 1,686
Cash - Beginning of Year 1,686 -
------- -------
Cash - End of Year $ 55 $ 1,686
======= =======
</TABLE>
F-31
<PAGE> 133
Note 26 - Event Subsequent to the Date of the Report of Independent
Auditor -
On March 26, 1997, the Company and the Association, entered into an
Agreement and Plan of Merger ("Agreement") by and among Deposit Guaranty
Corporation ("DGC"), CSF Acquisition Corporation, a Louisiana corporation
and wholly owned subsidiary of DGC ("CSF Acquisition"), the Company and the
Association, which provides for DGC's acquisition of all the issued and
outstanding Common Stock, par value $.01 per share, of the Company. Under
the terms of the Agreement, CSF Acquisition shall be merged with and into
the Company and the Company shall be the surviving corporation. As a
result of the merger, the Company will become a wholly owned subsidiary of
DGC.
Pursuant to the Agreement, upon the effective date of the Merger
("Effective Date"), each share of the Company Common Stock, other than
those as to which the Company stockholders properly perfect their
dissenters' rights under Louisiana law (if applicable), will be converted
into the right to receive from DGC $20.50 in cash (the "Merger Price").
In addition, pursuant to the Agreement, at or immediately prior to the
Effective Date, each outstanding option to purchase the Company Common
Stock issued by the Company ("CitiSave Option") shall be canceled, and
each holder of any such CitiSave Option, whether or not then vested or
exercisable, shall be entitled to receive from the Company at the Effective
Date for each CitiSave Option an amount determined by multiplying (i) the
excess of the Merger Price over the applicable exercise price per share of
the stock option by (ii) the number of shares of the Company Common Stock
subject to such CitiSave Option, subject to the execution by any such
holder of instruments of cancellation as DGC may reasonably deem
appropriate. At or immediately prior to the Effective Date, each
outstanding award ("MRP Award") to acquire the Company Common Stock
pursuant to the Company's 1996 Management Recognition Plan for Officers
shall be canceled to the extent not previously vested, and each holder of
any such unvested MRP Award shall be entitled to receive at or immediately
prior to the Effective Date for each MRP Award an amount determined by
multiplying (i) the Merger Price by (ii) the number of shares of unvested
Company Common Stock subject to such MRP Award, subject to the execution by
any such holder of such instruments of cancellation as DGC may reasonably
deem appropriate.
Consummation of the Merger is subject to the prior receipt of all necessary
regulatory or governmental approvals and consents, the necessary approval
of stockholders of the Company and certain closing conditions.
F-32
<PAGE> 134
APPENDIX A
AGREEMENT AND PLAN OF MERGER
By and Among
DEPOSIT GUARANTY CORP.,
CSF ACQUISITION CORP.,
CITISAVE FINANCIAL CORPORATION
And
CITIZENS SAVINGS ASSOCIATION, F.A.
A-1
<PAGE> 135
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Article I. THE HOLDING COMPANY MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . A-4
1.01 Holding Company Merger. . . . . . . . . . . . . . . . . . . . . . . . . A-4
1.02 Effective Date of the Holding Company Merger. . . . . . . . . . . . . . A-4
1.03 Effect of the Holding Company Merger. . . . . . . . . . . . . . . . . . A-4
1.04 Additional Actions. . . . . . . . . . . . . . . . . . . . . . . . . . . A-5
1.05 Conversion of CitiSave Shares and Options. . . . . . . . . . . . . . . . A-5
1.06 Exchange of Shares. . . . . . . . . . . . . . . . . . . . . . . . . . A-6
1.07 Shares of CSF Acquisition. . . . . . . . . . . . . . . . . . . . . . . . A-7
1.08 Tax Consequences. . . . . . . . . . . . . . . . . . . . . . . . . . . . A-7
Article II. THE BANK MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-7
Article III. REPRESENTATIONS AND WARRANTIES OF CITIZENS AND
CITISAVE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-8
3.01 Corporate Organization. . . . . . . . . . . . . . . . . . . . . . . . . A-8
3.02 Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-8
3.03 Investments; No Subsidiaries. . . . . . . . . . . . . . . . . . . . . . A-9
3.04 Loan Portfolio. . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-9
3.05 Authority; No Violation. . . . . . . . . . . . . . . . . . . . . . . . . A-10
3.06 Consents and Approvals. . . . . . . . . . . . . . . . . . . . . . . . . A-10
3.07 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . A-10
3.08 No Broker's Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . A-11
3.09 Title to Properties; Encumbrances. . . . . . . . . . . . . . . . . . . . A-11
3.10 No Undisclosed Liabilities. . . . . . . . . . . . . . . . . . . . . . . A-12
3.11 Absence of Certain Changes or Events. . . . . . . . . . . . . . . . . . A-12
3.12 Leases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-14
3.13 Trademarks; Trade Names. . . . . . . . . . . . . . . . . . . . . . . . . A-14
3.14 Compliance with Applicable Law. . . . . . . . . . . . . . . . . . . . . A-14
3.15 Absence of Questionable Payments. . . . . . . . . . . . . . . . . . . . A-15
3.16 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-15
3.17 Powers of Attorney; Guarantees. . . . . . . . . . . . . . . . . . . . . A-15
3.18 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-15
3.19 Benefit and Employee Matters. . . . . . . . . . . . . . . . . . . . . . A-17
3.20 Contracts and Commitments; No Default . . . . . . . . . . . . . . . . . A-18
3.21 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-19
3.22 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-20
3.23 Environmental Matters. . . . . . . . . . . . . . . . . . . . . . . . . . A-20
3.24 Contract Termination Provisions . . . . . . . . . . . . . . . . . . . . A-21
3.25 Financial Institutions Bond . . . . . . . . . . . . . . . . . . . . . . A-21
</TABLE>
A-2
<PAGE> 136
<TABLE>
<S> <C> <C>
Article IV. REPRESENTATIONS AND WARRANTIES OF DGC AND CSF
ACQUISITION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-21
4.01 Corporate Organization. . . . . . . . . . . . . . . . . . . . . . . . . A-21
4.02 Authority; No Violation. . . . . . . . . . . . . . . . . . . . . . . . . A-22
4.03 Consents and Approvals. . . . . . . . . . . . . . . . . . . . . . . . . A-22
Article V. COVENANTS OF THE PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . A-23
5.01 Conduct of Business. . . . . . . . . . . . . . . . . . . . . . . . . . . A-23
5.02 Limitation on Actions. . . . . . . . . . . . . . . . . . . . . . . . . . A-24
5.03 Current Information. . . . . . . . . . . . . . . . . . . . . . . . . . . A-24
5.04 Access to Properties and Records; Confidentiality. . . . . . . . . . . . A-25
5.05 Interim Financial Statements. . . . . . . . . . . . . . . . . . . . . . A-25
5.06 Regulatory Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . A-26
5.07 Approval of Shareholders. . . . . . . . . . . . . . . . . . . . . . . . A-26
5.08 Further Assurances. . . . . . . . . . . . . . . . . . . . . . . . . . . A-26
5.09 Public Announcements. . . . . . . . . . . . . . . . . . . . . . . . . . A-26
5.10 Benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-27
5.11 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-27
5.12 CitiSave ESOP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-28
5.13 CitiSave Stock Option Plans and MRP . . . . . . . . . . . . . . . . . . A-29
Article VI. CLOSING CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-30
6.01 Conditions to Each Party's Obligations under this Agreement. . . . . . . A-30
6.02 Conditions to the Obligations of DGC and CSF Acquisition under
this Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . A-30
6.03 Conditions to the Obligations of Citizens and CitiSave under
this Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-33
Article VII. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-35
7.01 Time and Place. . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-35
7.02 Deliveries at the Closing. . . . . . . . . . . . . . . . . . . . . . . . A-35
Article VIII. TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-36
8.01 Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-36
8.02 Effect of Termination. . . . . . . . . . . . . . . . . . . . . . . . . . A-36
Article IX. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-37
9.01 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-37
9.02 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-37
9.03 Parties in Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . A-38
9.04 Amendment, Extension and Waiver. . . . . . . . . . . . . . . . . . . . . A-38
9.05 Complete Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . A-38
9.06 Non-Survival of Representations and Warranties . . . . . . . . . . . . . A-39
9.07 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-39
9.08 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-39
9.09 Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-39
</TABLE>
A-3
<PAGE> 137
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER, dated as of March 26, 1997, by
and among CitiSave Financial Corporation ("CitiSave"), a corporation organized
under the laws of the State of Louisiana, and its wholly-owned subsidiary
Citizens Savings Association, F.A. ("Citizens"), a federally chartered stock
savings and loan association organized under the laws of the United States, and
Deposit Guaranty Corp. ("DGC"), a corporation organized under the laws of the
State of Mississippi, and its wholly-owned subsidiary CSF Acquisition Corp.
("CSF Acquisition"), a corporation organized under the laws of Louisiana, each
acting pursuant to a resolution of its Board of Directors.
In consideration of the mutual covenants, representations,
warranties and agreements herein contained, the parties agree that CSF
Acquisition shall be merged into CitiSave (the "Holding Company Merger") on the
terms and subject to the conditions set forth in this Agreement.
I.
THE HOLDING COMPANY MERGER
1.01 Holding Company Merger. In accordance with the applicable
provisions of the Louisiana Business Corporation Law ("LBCL"), CSF Acquisition
shall be merged with and into CitiSave pursuant to a certificate of merger
substantially in the form attached as Exhibit A and executed and acknowledged
at the appropriate time in the manner required by law; the separate existence
of CSF Acquisition shall cease; and CitiSave shall be the corporation surviving
the Holding Company Merger.
1.02 Effective Date of the Holding Company Merger. The Holding
Company Merger shall become effective on the date (the "Effective Date") set
forth in the certificate of merger filed in the office of the Secretary of
State of Louisiana.
1.03 Effect of the Holding Company Merger. On the Effective
Date, (i) the separate existence of CSF Acquisition shall cease and CSF
Acquisition shall be merged with and into CitiSave, (ii) CitiSave shall
continue to possess all of the rights, privileges and franchises possessed by
it and shall, on the Effective Date, become vested with and possess all rights,
privileges and franchises possessed by CSF Acquisition, (iii) CitiSave shall be
responsible for all of the liabilities and obligations of CSF Acquisition in
the same manner as if CitiSave had itself incurred such liabilities or
obligations, and the Holding Company Merger shall not affect or impair the
rights of the creditors or of any persons dealing with CSF Acquisition, (iv)
the Holding Company Merger will not of itself cause a change, alteration or
amendment to the Articles of Incorporation of CitiSave, (v) the Bylaws of CSF
Acquisition shall become the Bylaws of CitiSave, (vi) the Holding Company
Merger will affect the tenure in office of all officers and directors of
CitiSave and the existing officers and directors of CSF Acquisition shall
A-4
<PAGE> 138
succeed to such positions with CitiSave solely by virtue of the Holding Company
Merger, and (vii) the Holding Company Merger shall, from and after the
Effective Date, have all the effects provided by applicable Louisiana law.
1.04 Additional Actions. If, at any time after the Effective
Date, CitiSave shall consider or be advised that any further assignments or
assurances in law or any other acts are necessary or desirable (i) to vest,
perfect or confirm, of record or otherwise, in CitiSave, title to or the
possession of any property or right of CSF Acquisition acquired or to be
acquired by reason of, or as a result of, the Holding Company Merger, or (ii)
otherwise to carry out the purposes of this Agreement, CSF Acquisition and its
proper officers and directors shall be deemed to have granted to CitiSave an
irrevocable power of attorney to execute and deliver all such proper deeds,
assignments and assurances in law and to do all acts necessary or proper to
vest, perfect or confirm title to and possession of such property or rights in
CitiSave and otherwise to carry out the purposes of this Agreement; and the
proper officers and directors of CitiSave are fully authorized in the name of
CSF Acquisition to take any and all such action.
1.05 Conversion of CitiSave Shares and Options.
(a) Each share of common stock, $.01 par value, of CitiSave
(the "CitiSave Common Stock") issued and outstanding immediately prior to the
Effective Date other than shares of CitiSave Common Stock owned by stockholders
who, pursuant to the LBCL, perfect dissenters' rights ("Dissenting Shares") in
the event such rights are available under the LBCL, shall, by virtue of this
Agreement and without any action on the part of the holder thereof, be
converted into the right to receive $20.50 in cash per share (the "Merger
Price"), payable to the holder thereof without interest thereon, upon the
surrender of the certificate formerly representing such share of CitiSave
Common Stock.
(b) At or immediately prior to the Effective Date, each
outstanding option to purchase CitiSave Common Stock issued by CitiSave set
forth on Schedule 3.02 hereof ("CitiSave Option") shall be canceled, and each
holder of any such CitiSave Option shall be entitled to receive at or
immediately prior to the Effective Date for each CitiSave Option an amount
determined by multiplying (i) the excess of the Merger Price over the
applicable exercise price per share of such option by (ii) the number of shares
of CitiSave Common Stock subject to such CitiSave Option ("Option
Consideration"). The payment of the consideration referred to in the
immediately preceding sentence to holders of CitiSave Options shall be subject
to the execution by any such holder of such instruments of cancellation as DGC
may reasonably deem appropriate. In no event shall the amount paid by CitiSave
in settlement of CitiSave Options exceed $573,772 in the aggregate.
(c) At or immediately prior to the Effective Date, each
outstanding award ("MRP Award") to acquire CitiSave Common Stock pursuant to
CitiSave's 1996 Management Recognition Plan for Officers (the "MRP") set forth
on Schedule 3.02 shall be cancelled to the extent not previously vested, and
each holder of any such unvested MRP Award shall be entitled to receive at or
immediately prior to the Effective Date for each MRP Award an amount
A-5
<PAGE> 139
determined by multiplying (i) the Merger Price by (ii) the number of shares of
unvested CitiSave Common Stock subject to such MRP Award ("MRP Consideration").
The payment of the consideration referred to in the immediately preceding
sentence to holders of MRP Awards shall be subject to the execution by any such
holder of such instruments of cancellation as DGC may reasonably deem
appropriate. In no event shall the aggregate MRP Consideration exceed
$673,364.
1.06 Exchange of Shares.
(a) Within five business days after the Effective Date,
Deposit Guaranty National Bank, acting as exchange agent (the "Exchange
Agent"), shall mail to each holder of record of a certificate or certificates
which immediately prior to the Effective Date represented issued and
outstanding shares of CitiSave Common Stock (the "Certificates"), a form letter
of transmittal (which shall specify that delivery shall be effected, and risk
of loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent) and instructions for use in effecting the
surrender of the Certificates in exchange for the Merger Price. Upon surrender
of a Certificate for exchange and cancellation to the Exchange Agent, together
with such letter of transmittal, duly executed, the holder of such Certificate
shall be entitled to receive in exchange therefor (as promptly as practicable)
the consideration set forth in Section 1.05 hereof, without any interest
thereon, and the Certificate so surrendered shall forthwith be canceled. Lost
Certificates shall be treated in accordance with the existing procedures of
CitiSave.
(b) If payment is to be made to a person other than the person
in whose name a Certificate surrendered in exchange therefor is registered, it
shall be a condition of payment that the Certificate so surrendered shall be
properly endorsed (or accompanied by an appropriate instrument of transfer) and
otherwise in proper form for transfer, and that the person requesting such
payment shall pay any transfer or other taxes required by reason of the payment
to a person other than the registered holder of the Certificate surrendered, or
required for any other reason, or shall establish to the satisfaction of the
Exchange Agent that such tax has been paid or is not payable.
(c) At the Effective Date, DGC shall deposit, or cause to be
deposited, in trust with the Exchange Agent the aggregate Merger Price to which
holders of shares of CitiSave Common Stock shall be entitled at the Effective
Date pursuant to Section 1.05 hereof
(d) Promptly following the date which is twelve months after
the Effective Date, the Exchange Agent shall deliver to CitiSave all cash,
Certificates and other documents in its possession relating to the transactions
described in this Agreement, and the Exchange Agent's duties shall terminate.
Thereafter, each holder of a Certificate formerly representing a share of
CitiSave Common Stock may surrender such Certificate to CitiSave and (subject
to (2) applicable abandoned property, escheat and similar laws) receive in
consideration therefor the Merger Price, without any interest or dividends
thereon.
A-6
<PAGE> 140
(e) After the Effective Date, there shall be no transfers on
the stock transfer books of CitiSave of the shares of CitiSave Common Stock
which are outstanding immediately prior to the Effective Date. If, after the
Effective Date, Certificates representing such shares are presented for
transfer to the Exchange Agent, they shall be canceled and exchanged as
provided in this Article I.
(f) From and after the Effective Date, the holders of
Certificates evidencing ownership of shares of CitiSave Common Stock
outstanding immediately prior to the Effective Date shall cease to have any
rights with respect to such shares, except as otherwise provided herein or by
applicable law.
(g) Notwithstanding anything to the contrary in this Section
1.06, neither the Exchange Agent, DGC, nor CitiSave shall be liable to a holder
of a Certificate formerly representing shares of CitiSave Common Stock for any
amount properly paid to a public official pursuant to an applicable property,
escheat or similar law.
1.07 Shares of CSF Acquisition. Each share of common stock,
$1.00 par value, of CSF Acquisition (the "CSF Acquisition Common Stock") issued
and outstanding immediately prior to the Effective Date, shall, by virtue of
this Agreement and without any action on the part of the holder thereof, be
converted into one (1) share of CitiSave Common Stock.
1.08 Tax Consequences. It is intended that the Holding Company
Merger shall constitute a qualified stock purchase by DGC within the meaning of
Section 338(d)(3) of the Internal Revenue Code of 1986, as amended (the
"Code").
II.
THE BANK MERGER
DGC and CitiSave shall take all action necessary and appropriate,
including causing the entering into of a merger agreement by Citizens, or its
successor, and a subsidiary bank of DGC (the "Bank Merger Agreement"), to cause
Citizens to convert to a national bank in the discretion of DGC, and to merge
with and into a subsidiary bank of DGC (the "Bank Merger"), after consummation
of the Holding Company Merger and the merger of CitiSave with and into Deposit
Guaranty Louisiana Corp., a wholly-owned subsidiary of DGC, in accordance with
the applicable laws of the United States and Regulations of the Office of the
Comptroller of the Currency (the "OCC") and the Office of Thrift Supervision
(the "OTS") thereunder.
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III.
REPRESENTATIONS AND WARRANTIES OF
CITIZENS AND CITISAVE
Citizens and CitiSave hereby make the following representations and
warranties to DGC and CSF Acquisition:
3.01 Corporate Organization.
(a) Citizens is a federally chartered stock savings and loan
association duly organized, validly existing and in good standing under the
laws of the United States. Citizens' deposits are insured under the provisions
of the Federal Deposit Insurance Act, as amended. Citizens has the power and
authority to own or lease all of its properties and assets and to carry on its
business as it is now being conducted. Citizens' wholly-owned subsidiary 665
Florida Street Corp. ("FS Corp.") is an 80% partner in Roberts & Eastland ("R &
E"), an insurance agency (collectively the "Citizens Subsidiaries"). FS Corp.
is a duly organized and validly existing corporation and is in good standing
under the laws of the State of Louisiana. R & E is a validly existing
partnership and is in good standing under the laws of the State of Louisiana.
Each of the Citizens Subsidiaries has the power and authority to own or lease
all of its properties and assets and to carry on its business as it is now
being conducted. All shares of capital stock of FS Corp. are validly issued
and outstanding, fully paid, and non-assessable, and FS Corp. is wholly-owned
by Citizens. There are no outstanding options, warrants, rights, or
obligations of any kind entitling the holder thereof to acquire shares of the
capital stock of FS Corp., and there are no instruments or securities of any
kind that are convertible into shares of the capital stock of FS Corp. Except
as set forth on Schedule 3.01, none of the Citizens Subsidiaries is party to
any joint venture or partnership.
(b) CitiSave is a corporation duly organized, validly existing
and in good standing under the laws of the State of Louisiana. CitiSave is a
registered thrift holding company under the Savings and Loan Holding Company
Act. CitiSave has the corporate power and authority to own or lease all of its
properties and assets and to carry on its business as it is now being
conducted, and is duly licensed or qualified to do business in each
jurisdiction in which the nature of the business conducted by it or the
character or location of the properties and assets owned or leased by it makes
such licensing or qualification necessary.
3.02 Capitalization.
(a) The authorized capital stock of Citizens consists of
10,000,000 shares of common stock, $.01 par value (the "Citizens Common
Stock"), and 5,000,000 shares of preferred stock, $.01 par value (the "Citizens
Preferred Stock"). At the close of business on December 31, 1996, there were
1,000 shares of Citizens Common Stock issued and outstanding, no shares were
held in Citizens' treasury, and no shares of Citizens Preferred Stock were
issued and outstanding. Except as set forth on Schedule 3.02 hereto, all
issued and outstanding shares of Citizens
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Common Stock have been duly authorized and validly issued and are fully paid,
nonassessable and free of preemptive rights with no personal liability
attaching to the ownership thereof. Except as set forth on Schedule 3.02
hereof, Citizens has not issued any additional shares of Citizens Common Stock
since December 31, 1996, and does not have and is not bound by any outstanding
subscription, options, warrants, calls, commitments or agreements of any
character calling for the purchase or issuance of any shares of Citizens Common
Stock or any security representing the right to purchase or otherwise receive
any Citizens Common Stock. CitiSave has good, valid and marketable title to
the Citizens Common Stock, and on the Effective Date the same will be free and
clear of all liens, encumbrances, pledges, claims, options, charges and
assessments of any nature whatsoever.
(b) The authorized capital stock of CitiSave consists of
10,000,000 shares of CitiSave Common Stock and 5,000,000 shares of serial
preferred stock, $.01 par value (the "CitiSave Preferred Stock"). At the close
of business on December 31, 1996, there were 962,207 shares of CitiSave Common
Stock issued and outstanding, 2,500 shares of CitiSave Common Stock were held
in CitiSave's treasury, and no shares of CitiSave Preferred Stock were issued
and outstanding. Except as set forth on Schedule 3.02 hereto, all issued and
outstanding shares of CitiSave Common Stock have been duly authorized and
validly issued and are fully paid, nonassessable and free of preemptive rights
with no personal liability attaching to the ownership thereof. Except as set
forth on Schedule 3.02 hereof, CitiSave has not issued any additional shares of
CitiSave Common Stock since December 31, 1996, and does not have and is not
bound by any outstanding subscription, options, warrants, calls, commitments or
agreements of any character calling for the purchase or issuance of any shares
of CitiSave Common Stock or any security representing the right to purchase or
otherwise receive any CitiSave Common Stock.
3.03 Investments; No Subsidiaries. The "CitiSave Consolidated
Group," as such term is used in this Agreement, consists of CitiSave, Citizens
and FS Corp. Except as set forth on Schedule 3.03 hereof, neither Citizens,
CitiSave nor FS Corp. has any subsidiaries or equity interest or other
investment, direct or indirect, in any corporation, partnership, joint venture
or other entity except for such equity interest or other investment which
Citizens may have acquired as a result of foreclosure and is as of the date
hereof holding subject to sale.
3.04 Loan Portfolio. All loans, discounts and financing leases
(in which any member of the CitiSave Consolidated Group is lessor) reflected on
the CitiSave Latest Balance Sheet (as defined in Section 3.07) (a) were, at the
time and under the circumstances in which made, made for good, valuable and
adequate consideration in the ordinary course of business of the CitiSave
Consolidated Group, (b) are evidenced by genuine notes, agreements or other
evidences of indebtedness and (c) to the extent secured, have been secured by
valid liens and security interests which have been perfected. Set forth in
Schedule 3.04 hereto is a true and complete list of all real property in which
Citizens has an interest as creditor or mortgagee in an amount greater than
$50,000 as of March 14, 1997. Except as set forth in Schedule 3.04 hereto,
there are no outstanding loans held by Citizens with an unpaid balance of
$25,000 or more in which a material default has occurred as of March 14, 1997.
A material default for purposes of this Section 3.04
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includes, without limitation, the failure to pay indebtedness or an installment
thereof more than sixty (60) days after it is due and payable.
3.05 Authority; No Violation. Each of Citizens and CitiSave
has full corporate power and authority to execute and deliver this Agreement
and to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby by Citizens have been duly and validly approved by the
Board of Directors of Citizens, and, except for approval by CitiSave as the
sole shareholder of Citizens, no other corporate proceedings on the part of
Citizens are necessary to consummate the transactions so contemplated. The
Board of Directors of CitiSave has duly and validly approved this Agreement and
the transactions contemplated hereby and has authorized the execution and
delivery of this Agreement by CitiSave, and, except for the approval of this
Agreement by its shareholders, no other corporate proceedings on the part of
CitiSave are necessary to consummate the transactions so contemplated. This
Agreement has been duly and validly executed and delivered by Citizens and
CitiSave and constitutes a valid and binding obligation of Citizens and of
CitiSave enforceable against each in accordance with its terms, except that
enforcement may be limited by (i) bankruptcy, insolvency, reorganization,
moratorium, conservatorship, receivership or other similar laws now or
hereafter in effect relating to or affecting the enforcement of creditors'
rights generally or the rights of creditors of federal savings institutions or
their holding companies, (ii) general equitable principles, and (iii) laws
relating to the safety and soundness of insured depository institutions, and
except that no representation is expressed as to the effect or availability of
equitable remedies or injunctive relief (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
3.06 Consents and Approvals. Except as set forth in Schedule
3.06 hereto, no permit, consent, approval or authorization of, or declaration,
filing or registration with, any public body or authority or to the knowledge
of Citizens and CitiSave any third party is necessary in connection with (i)
the execution and delivery by Citizens or CitiSave of this Agreement, or (ii)
the consummation by CitiSave or Citizens of the Holding Company Merger and the
other transactions contemplated hereby.
3.07 Financial Statements. CitiSave has filed all required
reports, schedules, forms, statements and other documents with the SEC since
July 14, 1995 (the "CitiSave SEC Documents"), complete copies of which have
been provided to DGC. The CitiSave SEC Documents complied as to form in all
material respects with the requirements of the Securities Act of 1933, as
amended (the "Securities Act") or the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), as the case may be, and the rules and regulations
of the SEC promulgated thereunder applicable to such CitiSave SEC Documents,
and none of the CitiSave SEC Documents contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided that
information as of a later date shall be deemed to modify information as of an
earlier date. The CitiSave financial statements included in the CitiSave SEC
Documents have been audited by Hannis T. Bourgeois & Co., independent public
accountants (in the case of the CitiSave audited financial statements)
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in accordance with generally accepted auditing standards, have been prepared in
accordance with generally accepted accounting principles and, except as
disclosed therein, applied on a basis consistent with prior periods, and
present fairly, in all material respects, the financial position of CitiSave
and its consolidated subsidiaries at such dates and the results of operations
and cash flows for the periods then ended, except, in the case of the CitiSave
interim financial statements, as permitted by Rule 10-01 of Regulation S-X of
the SEC. The CitiSave interim financial statements reflect all adjustments
(consisting only of normal recurring adjustments) that are necessary for a fair
statement of the results for the interim periods presented therein. Neither
CitiSave nor any of its consolidated subsidiaries has, nor are any of their
respective assets subject to, any liability, commitment, debt or obligation (of
any kind whatsoever whether absolute or contingent, accrued, fixed, known,
unknown, matured or unmatured) that is material individually or in the
aggregate, except as and to the extent reflected on the latest balance sheet
included in the CitiSave audited financial statements as of and for the year
ended December 31, 1996 (the "CitiSave Latest Balance Sheet"), or as may have
been incurred or may have arisen since the date of the CitiSave Latest Balance
Sheet in the ordinary course of business.
3.08 No Broker's Fees. Except as fully described and set forth
in Schedule 3.08 hereto, neither Citizens, CitiSave nor any of their officers
or directors has employed any broker or finder or incurred any liability for
any broker's fees, commissions or finder's fees in connection with any of the
transactions contemplated by this Agreement.
3.09 Title to Properties; Encumbrances. Except as set forth in
Schedule 3.09 hereto, Citizens and CitiSave have good, valid and marketable
title to, or a valid leasehold interest in, (a) all their real properties and
(b) all other properties and assets reflected in the CitiSave Latest Balance
Sheet, other than any of such properties or assets which have been sold or
otherwise disposed of since the date of the CitiSave Latest Balance Sheet in
the ordinary course of business and consistent with past practice. Except as
set forth in Schedule 3.09 hereto, all of such properties and assets are free
and clear of all title defects, mortgages, pledges, liens, claims, charges,
security interests or other encumbrances of any nature whatsoever, including,
without limitation, leases, options to purchase, conditional sales contracts,
collateral security arrangements and other title or interest retention
arrangements, and are not, in the case of real property, subject to any
easements, building use restrictions, exceptions, reservations or limitations
of any nature whatsoever, except, with respect to all such properties and
assets, liens for current taxes and assessments not in default, minor
imperfections of title, and encumbrances, if any, which have arisen in the
ordinary course of business, which are not substantial in character, amount or
extent and which do not detract from the value of or interfere with the present
or contemplated use of any of the properties subject thereto or affected
thereby or otherwise impair the business operations conducted or contemplated
by Citizens or CitiSave. All personal property material to the business,
operations or financial condition of Citizens or CitiSave, and all buildings,
structures and fixtures used by Citizens or CitiSave in the conduct of their
businesses, are in good operating condition and repair (ordinary wear and tear
excepted). Except as set forth in Schedule 3.09 hereto, neither Citizens nor
CitiSave has received any notification of any violation (which has not been
cured) of any building, zoning or other law, ordinance or regulation in respect
of such property or structures or Citizens' or CitiSave's use thereof.
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3.10 No Undisclosed Liabilities. Except as set forth in
Schedule 3.10 hereto, as of the date hereof neither Citizens nor CitiSave has
any liabilities or obligations of any nature (whether absolute, accrued,
contingent or otherwise and whether due or to become due), except liabilities
and obligations (i) fully reflected or reserved against in the CitiSave Latest
Balance Sheet or disclosed in the notes thereto or (ii) incurred since the date
of the CitiSave Latest Balance Sheet in the ordinary course of business and
consistent with past practice.
3.11 Absence of Certain Changes or Events.
(a) Except as set forth in Schedule 3.11 hereto, since the
date of the CitiSave Latest Balance Sheet, there has not been:
(i) any material adverse change in the business,
operations, properties, assets or financial condition of Citizens
and CitiSave, considered as a whole, or any event which has had or
will have a material adverse effect, excluding changes resulting
from or attributable to the payment of (a) investment banking fees
as set forth in Schedule 3.08 hereto and (b) cash in settlement of
outstanding stock options and MRP Awards pursuant to Section 1.05
hereof ("Material Adverse Change");
(ii) any loss, damage, destruction or other casualty
materially and adversely affecting any of the properties, assets or
business of Citizens or CitiSave or any of their subsidiaries
(whether or not covered by insurance);
(iii) any increase of more than ten percent (10%) in the
compensation payable by Citizens or CitiSave to any of their
directors, officers, agents, consultants, or any of their employees
whose total compensation after such increase was in excess of
$25,000 per annum (excluding increases in compensation resulting
from the vesting of shares of CitiSave Common Stock awarded prior to
the date of this Agreement pursuant to CitiSave's MRP or from the
exercise of CitiSave Options granted prior to the date of this
Agreement), or any extraordinary bonus, percentage compensation,
service award or other like benefit granted, made or accrued to the
credit of any such director, officer, agent, consultant or employee,
or any extraordinary welfare, pension, retirement or similar payment
or arrangement made or agreed to by Citizens or CitiSave for the
benefit of any such director, officer, agent, consultant or
employee;
(iv) any change in any method of accounting or accounting
practice of Citizens or CitiSave;
(v) any loan in excess of $25,000 or portion thereof
rescheduled as to payments thereon, subject to a moratorium on
payment thereof or written off by Citizens or CitiSave as
uncollectible; or
(vi) any agreement or understanding, whether in writing
or otherwise, of Citizens or CitiSave to do any of the foregoing.
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(b) Except as set forth in Schedule 3.11 hereto, since the date
of the CitiSave Latest Balance Sheet, neither Citizens nor CitiSave has:
(i) issued or sold any promissory note, stock, bond or
other corporate security of which it is the issuer in an amount
greater than $25,000 (except that shares of CitiSave Common Stock
may be issued upon the exercise of CitiSave Options which were
granted prior to the date of this Agreement);
(ii) discharged or satisfied any lien or encumbrance or
paid or satisfied any obligation or liability (whether absolute,
accrued, contingent or otherwise and whether due or to become due)
in an amount greater than $25,000 as to each such lien, encumbrance,
obligation or liability other than current liabilities shown on the
CitiSave Latest Balance Sheet and current liabilities incurred since
the date of the CitiSave Latest Balance Sheet in the ordinary course
of business and consistent with past practice and other than any
such lien, encumbrance, obligation or liability of the nature
(regardless of amount) required to be disclosed pursuant to Section
3.11(a)(iii) hereto;
(iii) declared, paid or set aside for payment any dividend
or other distribution (whether in cash, stock or property) in
respect of its capital stock, except regular quarterly cash
dividends of $.10 per share by CitiSave to its stockholders as
permitted by Section 5.01(f) and except dividends by Citizens to
CitiSave to the extent necessary to pay necessary and routine
expenses of CitiSave (including expenses relating to the
transactions contemplated by this Agreement) or to fund regular
dividends by CitiSave to its stockholders to the extent permitted by
Section 5.01(f) hereof;
(iv) split, combined or reclassified any shares of its
capital stock, or redeemed, purchased or otherwise acquired any
shares of its capital stock or other securities;
(v) sold, assigned or transferred any of its assets
(real, personal or mixed, tangible or intangible), canceled any
debts or claims or waived any rights of substantial value, except,
in each case, in the ordinary course of business and consistent with
past practice;
(vi) sold, assigned, transferred or permitted to lapse
any patents, trademarks, trade names, copyrights or other similar
assets, including applications or licenses therefor;
(vii) paid any amounts or incurred any liability to or in
respect of, or sold any properties or assets (real, personal or
mixed, tangible or intangible) to, or engaged in any transaction
(other than any transaction of the nature (regardless of amount)
required to be disclosed pursuant to Section 3.11(a)(iii) hereof) or
entered into any agreement or arrangement with, any corporation or
business in which Citizens, CitiSave or any of their officers or
directors, or any "affiliate" or "associate" (as such terms are
defined in the rules and regulations promulgated under the
Securities Act) of any such person, has any direct or indirect
interest;
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(viii) entered into any collective bargaining agreement; or
(ix) entered into any other transaction other than in the
ordinary course of business and consistent with past practice or in
connection with the transactions contemplated by this Agreement.
3.12 Leases. Set forth in Schedule 3.12 hereto is an accurate
and complete list of all leases calling for annual rent payments in excess of
$10,000 pursuant to which Citizens or CitiSave, as lessee, leases real or
personal property, including, without limitation, all leases of computer or
computer services and all arrangements for time-sharing or other data
processing services, describing for each lease Citizens' or CitiSave's
financial obligations under such lease, its rental payments, expiration date
and renewal terms. Except as set forth in Schedule 3.12 hereto: (a) all such
leases are in full force and effect in accordance with their terms; (b) there
exists no event of default or event, occurrence, condition or act which with
the giving of notice, the lapse of time or the happening of any further event
or condition would become a default under any such lease; and (c) neither
Citizens nor CitiSave is a lessee under a lease having an unexpired term
greater than 36 months that requires Citizens or CitiSave to make payments for
the use of any property at rates currently higher than prevailing market rates
for similar properties in the localities where such properties are located.
3.13 Trademarks; Trade Names. Set forth in Schedule 3.13 hereto
is an accurate and complete list and brief description of all trademarks
(either registered or common law), trade names and copyrights (and all
applications and licenses therefor) owned by Citizens or CitiSave or in which
they have any interest. Citizens and CitiSave own, or have the right to use,
all trademarks, trade names and copyrights used in or necessary for the
ordinary conduct of their existing businesses as heretofore conducted, and the
consummation of the transactions contemplated hereby will not alter or impair
any such rights. Except as set forth in Schedule 3.13 hereto, no claims are
pending by any person for the use of any trademarks, trade names or copyrights
or challenging or questioning the validity or effectiveness of any license or
agreement relating to the same, nor is there any valid basis for any such
claim, challenge or question, and use of such trademarks, trade names and
copyrights by Citizens or CitiSave does not infringe on the rights of any
person.
3.14 Compliance with Applicable Law.
(a) Citizens and CitiSave hold, and have at all times held, all
licenses, franchises, permits and governmental authorizations necessary for the
lawful conduct of their respective businesses under and pursuant to all, and
have complied in all material respects with and are not in default in any
respect under any, applicable statutes, laws, ordinances, rules, regulations,
and orders of all federal, state and local governmental bodies, agencies and
subdivisions having, asserting or claiming jurisdiction over them or over any
part of their operations (to the extent that such default or the failure to
hold such license, franchise, permit or authorization could result in a
material limitation on the conduct of Citizens' or CitiSave's business, or
could cause Citizens or CitiSave to incur a substantial financial penalty);
and, except as set forth in Schedule 3.14
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hereto, neither Citizens nor CitiSave has received notice of a violation of,
and does not know of any violation of or of any valid basis for any claim of a
violation of, any of the above.
(b) CitiSave has filed all reports that it was required to file
with the SEC under the Exchange Act, all of which complied in all material
respects with all applicable requirements of the Exchange Act and the rules and
regulations adopted thereunder. As of their respective dates, each such
report, statement, form or other document, including without limitation, any
financial statements or schedules included therein, did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, provided that
information as of a later date shall be deemed to modify information as of an
earlier date.
3.15 Absence of Questionable Payments. Citizens and CitiSave
have not, and, to the knowledge of Citizens or CitiSave, no director, officer,
agent, employee, consultant or other person acting on behalf of Citizens or
CitiSave has, (a) used any Citizens or CitiSave corporate funds for unlawful
contributions, gifts, entertainment or other unlawful expenses relating to
political activity or (b) made any direct or indirect unlawful payments to
government officials from any Citizens or CitiSave corporate funds, or
established or maintained any unlawful or unrecorded accounts with funds
received from Citizens or CitiSave.
3.16 Insurance. Set forth in Schedule 3.16 hereto is an
accurate and complete list of all policies of insurance, including the amounts
thereof, owned by Citizens or CitiSave or in which Citizens or CitiSave is
named as the insured party. All such policies are valid, outstanding and
enforceable and will remain in full force and effect at least through the
consummation of the transactions contemplated by this Agreement. Such
insurance with respect to Citizens' and CitiSave's property and the conduct of
their businesses is in such amounts and against such risks as are usually
insured against by persons operating similar properties and businesses in the
State of Louisiana and are adequate for the conduct of Citizens' and CitiSave's
businesses. Except as set forth in Schedule 3.16 hereto, neither Citizens nor
CitiSave has been refused any insurance nor have their coverages been limited
by any insurance carrier to which they have applied for insurance or with they
have carried insurance during the last five years.
3.17 Powers of Attorney; Guarantees. Except as set forth in
Schedule 3.17 hereto, other than in the ordinary course of business neither
Citizens nor CitiSave has given any power of attorney to any person to act on
its behalf, or has any obligation or liability, either actual, accruing or
contingent, as guarantor, surety, cosigner, endorser, co-maker or indemnitor in
respect of the obligation of any person, corporation, partnership, joint
venture, association, organization or other entity.
3.18 Tax Matters. Citizens and CitiSave make the following
representations with respect to tax matters:
(a) For purposes of this Section, the following definitions
shall apply:
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(1) The term "Taxes" shall mean all taxes, however denominated,
including any interest, penalties or other additions to tax that may become
payable in respect thereof, imposed by any federal, state or local government
or any agency or political subdivision of any such government since January 1,
1991, which taxes shall include, without limiting the generality of the
foregoing, all income or profits taxes (including, but not limited to, federal
income taxes and state income taxes), real property gains taxes, payroll and
employee withholding taxes, unemployment insurance taxes, social security
taxes, sales and use taxes, ad valorem taxes, excise taxes, franchise taxes,
gross receipts taxes, business license taxes, occupation taxes, real and
personal property taxes, stamp taxes, environmental taxes, transfer taxes,
workers' compensation, Pension Benefit Guaranty Corporation premiums and other
governmental charges, and other obligations of the same or of a similar nature
to any of the foregoing, which any member of the CitiSave Consolidated Group is
required to pay, withhold or collect.
(2) The term "Returns" shall mean all reports, estimates,
declarations of estimated tax, information statements and returns relating to,
or required to be filed in connection with, any Taxes since January 1, 1991,
including information returns or reports with respect to backup withholding and
other payments to third parties.
(b) To the knowledge of the CitiSave Consolidated Group, all
Returns required to be filed by or on behalf of members of the CitiSave
Consolidated Group have been duly filed and, to the knowledge of the CitiSave
Consolidated Group, such Returns are true, complete and correct in all material
respects. All Taxes shown to be payable on the Returns or on subsequent
assessments with respect thereto have been paid in full on a timely basis, and
no other Taxes are payable by the CitiSave Consolidated Group with respect to
items or periods covered by such Returns or with respect to any period prior to
the date of this Agreement. Each member of the CitiSave Consolidated Group has
withheld and paid over all Taxes required to have been withheld and paid over,
and complied with all information reporting and backup withholding
requirements, including maintenance of required records with respect thereto,
in connection with amounts paid or owing to any employee, creditor, independent
contractor, or other third party. There are no liens on any of the assets of
any member of the CitiSave Consolidated Group with respect to Taxes, other than
liens for Taxes not yet due and payable or for Taxes that a member of the
CitiSave Consolidated Group is contesting in good faith through appropriate
proceedings and for which appropriate reserves have been established.
(c) The Returns of the CitiSave Consolidated Group have not
been audited by a government or taxing authority, nor to the knowledge of the
CitiSave Consolidated Group, is any such audit in process, pending or
threatened. To the knowledge of the CitiSave Consolidated Group, no
deficiencies exist or have been asserted or are expected to be asserted with
respect to Taxes of the CitiSave Consolidated Group, and no member of the
CitiSave Consolidated Group has received notice or expects to receive notice
that it has not filed a Return or paid Taxes required to be filed or paid by
it. No member of the CitiSave Consolidated Group is a party to any action or
proceeding for assessment or collection of Taxes, nor to the knowledge of the
CitiSave Consolidated Group, has such event been asserted or threatened against
any member of
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the CitiSave Consolidated Group or any of its assets. No waiver or extension of
any statute of limitations is in effect with respect to Taxes or Returns of the
CitiSave Consolidated Group.
3.19 Benefit and Employee Matters.
(a) Schedule 3.19(a) lists all pension, retirement, stock
option, stock purchase, stock ownership, savings, stock appreciation right,
profit sharing, deferred compensation, employment, compensation arrangements,
consulting, bonus, collective bargaining, group insurance, severance and other
employee benefit, incentive and welfare policies, contracts, plans and
arrangements, and all trust agreements related thereto established or
maintained by CitiSave or Citizens, for the benefit of any of the present or
former directors, officers, or other employees of Citizens and CitiSave.
Schedule 3.19(a) also identifies each "employee benefit plan," as such term is
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA") maintained or contributed to by any member of the CitiSave
Consolidated Group. Except as set forth in Schedule 3.19(a) hereto, neither
Citizens nor CitiSave maintains or contributes to any "employee benefit plan,"
as such term is defined in Section 3 of ERISA. Except as set forth in Schedule
3.19(a), all "employee benefit plans" maintained by Citizens or CitiSave (all
such plans being listed in Schedule 3.19(a) hereto) (collectively, the
"Citizens Plans") are in material compliance with the provisions of ERISA and
the applicable provisions of the Code. No member of the CitiSave Consolidated
Group has maintained or become obligated to contribute to any "employee benefit
plan" as such term is defined in Section 3(3) of ERISA, (i) that is subject to
Title IV of ERISA or (ii) that is a multiemployer plan under Title IV of ERISA.
To the knowledge of the CitiSave Consolidated Group, no "prohibited
transaction," as defined in Section 406 of ERISA or Section 4975 of the Code,
has occurred that could result in liability to CitiSave, Citizens, DGC or CSF
Acquisition. No member of the CitiSave Consolidated Group has any current or
projected liability in respect of post-employment welfare benefits for retired,
current or former employees, except as required to avoid excise tax under
Section 4980B of the Code.
(b) Except as set forth in Schedule 3.19(b) hereto, since
January 1, 1991, neither Citizens nor CitiSave has been or is a party to any
collective bargaining or other labor contract. Since January 1, 1991, there has
not been, there is not presently pending or existing, and there is not
threatened, (a) any strike, slowdown, picketing, work stoppage, or employee
grievance process, (b) any proceeding against or affecting Citizens or CitiSave
relating to the alleged violation of any legal requirement pertaining to labor
relations or employment matters, including any charge or complaint filed by an
employee or union with the National Labor Relations Board, the Equal Employment
Opportunity Commission, or any comparable governmental body, organizational
activity, or other labor or employment dispute against or affecting Citizens or
CitiSave or their premises, or (c) any application for certification of a
collective bargaining agent. No event has occurred or circumstance exists that
could provide the basis for any work stoppage or other labor dispute. There is
no lockout of any employees by Citizens and CitiSave, and no such action is
contemplated by Citizens and CitiSave. Citizens and CitiSave have complied in
all respects with all legal requirements relating to employment, equal
employment opportunity, nondiscrimination, immigration, wages, hours, benefits,
collective bargaining, the payment of social security and similar taxes, and
occupational safety and health. Neither Citizens nor CitiSave
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is liable for the payment of any compensation, damages, taxes, fines,
penalties, or other amounts, however designated, for failure to comply with any
of the foregoing legal requirements.
3.20 Contracts and Commitments; No Default.
(a) The following information relating to Citizens and CitiSave
has been made available to DGC or CSF Acquisition:
(i) the name of each financial institution with which
Citizens or CitiSave has an account or safekeeping or custodial
arrangement or correspondent relationship and the names of all
persons who are authorized with respect thereto;
(ii) all mortgages, indentures, promissory notes, deeds
of trust, loan or credit agreements or similar instruments under
which Citizens or CitiSave is indebted in an amount greater than
$50,000 for borrowed money or the price of purchased property,
accompanied by originals or certified copies thereof and all
amendments or modifications of any thereof;
(iii) any loans, including any other credit arrangements
by Citizens, to any holder of ten percent (10%) or more of CitiSave
Common Stock, to any of Citizens' or CitiSave's directors or
executive officers, to any members of the immediate families of any
of Citizens' or CitiSave's directors or executive officers or to any
corporation, firm or other organization in which any of such
directors or executive officers has a financial interest; and
(iv) any pending application, including any documents or
materials relating thereto, which has been filed by Citizens or
CitiSave with any federal or state regulatory authority in order to
obtain the approval of such federal or state regulatory authority
for the establishment of a new branch bank or a new subsidiary bank.
(b) Except as set forth in Schedule 3.20 hereto, neither
Citizens nor CitiSave is a party to or bound by, nor have any bids or proposals
been made by or to Citizens or CitiSave with respect to, any written or oral,
express or implied:
(i) contract relating to the matters referred to in
paragraph (a) above;
(ii) contract with or arrangement for directors,
officers, employees, former employees, agents or consultants with
respect to salaries, bonuses, percentage compensation, pensions,
deferred compensation or retirement payments, or any profit-sharing,
stock option, stock purchase or other employee benefit plan or
arrangement;
(iii) collective bargaining or union contract or
agreement;
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(iv) contract, commitment or arrangement for the
borrowing of money or for a line of credit in an amount greater than
$50,000;
(v) contract, commitment or arrangement for the lending
of money or for the granting of a line of credit in an amount
greater than $100,000;
(vi) contract or agreement for the future purchase by it
of any materials, equipment, services, or supplies, which is not in
the ordinary course of business, and has a term of more than twelve
(12) months (including periods covered by any option to renew by
either party);
(vii) contract containing covenants purporting to limit
its freedom to compete; or
(viii) contract or commitment for the acquisition,
construction or refurbishment of any property, plant or equipment,
other than contracts and commitments for the acquisition,
construction or refurbishment of any property, plant or equipment
not in excess of $20,000 for any one establishment or $50,000 in the
aggregate.
(c) Citizens and CitiSave have performed all the obligations
required to be performed by them under any contract, agreement, arrangement,
commitment or other instrument to which they are a party (including, without
limitation, any of those described in paragraphs (a) and (b) of this Section
3.20), and there is not, with respect to any such contract, agreement,
commitment or other instrument, (i) any notice of violation, or (ii) any
existing default (or event which, with or without due notice or lapse of time
or both, would constitute a default) on the part of Citizens or CitiSave, which
default would have a material adverse effect on the business, operations,
properties, assets or financial condition of CitiSave and Citizens considered
as a whole, and neither Citizens nor CitiSave has received notice of any such
default, nor has Citizens or CitiSave knowledge of any facts or circumstances
which would reasonably indicate that it will be or may be in default under, any
such contract, agreement, arrangement, commitment or other instrument
subsequent to the date hereof.
3.21 Disclosure.
(a) All facts material to the business, operations, properties,
assets, liabilities (contingent or otherwise) financial condition and prospects
of Citizens and CitiSave considered as a whole have been disclosed to DGC and
CSF Acquisition in writing in or pursuant to this Agreement. No representation
or warranty contained in this Agreement, and no statement contained in any
schedule or certificate, list or other writing furnished to DGC or CSF
Acquisition pursuant to the provisions hereof, contains any untrue statement of
a material fact or omits to state a material fact necessary in order to make
the statements herein or therein not misleading. No information material to
this transaction which is necessary to make the representations and warranties
herein contained not misleading has been withheld from, or has not been
delivered in writing to, DGC or CSF Acquisition.
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(b) The Schedules referenced in this Article III set forth,
among other things, exceptions to the representations and warranties in this
Article III. While CitiSave and Citizens used their best efforts to identify in
the Schedules the particular representation or warranty to which each such
exception relates, each such exception shall be deemed disclosed for purposes
of all representations and warranties in this Article III. The mere inclusion
of an exception in a Schedule shall not be deemed an admission by CitiSave and
Citizens that such exception represents a material fact, event or circumstance.
3.22 Litigation. Except as listed on Schedule 3.22, there are
no actions, suits, proceedings, arbitrations or investigations pending or, to
the knowledge of CitiSave or Citizens, threatened, before any court, any
governmental agency or instrumentality or any arbitration panel, against or
affecting CitiSave or Citizens or any of their subsidiaries or any of the
directors, officers, or employees of the foregoing, and to the knowledge of
CitiSave or Citizens no facts or circumstances exist that would be likely to
result in the filing of any such action that would have a material adverse
effect on CitiSave and Citizens, considered as a whole. Neither CitiSave or
Citizens nor any of their subsidiaries is subject to any currently pending
judgment, order or decree entered in any lawsuit or proceeding.
3.23 Environmental Matters.
(a) To the best knowledge of each, CitiSave and Citizens are,
and since January 1, 1991 have been, in compliance with all applicable federal,
state and local laws, regulations, rules and decrees pertaining to pollution or
protection of the environment ("Environmental Laws"), including without
limitation the Comprehensive Environmental Response, Compensation, and
Liability Act, 42 U.S.C. Section 9601 et seq., the Resource Conservation and
Recovery Act, 42 U.S.C. Section 6901 et seq., the Louisiana Environmental
Quality Act, La. R.S. 30: 2001 et seq., or any similar federal, state or local
law, except for such instances of non-compliance that are not reasonably likely
to have, individually or in the aggregate, a material adverse effect on the
financial condition, results of operations, business or prospects of CitiSave
and Citizens, considered as a whole.
(b) To the best knowledge of each, all property owned, leased,
operated or managed by CitiSave or Citizens, or in which CitiSave or Citizens
has any interest, including any mortgage or security interest ("Business
Property"), and all businesses and operations conducted on any of the Business
Property (whether by CitiSave or Citizens, a mortgagor, or any other person),
are, and since January 1, 1991 have been, in compliance with all applicable
Environmental Laws, except for such instances of non-compliance that are not
reasonably likely to have, individually or in the aggregate, a material adverse
effect on the financial condition, results of operations, business or prospects
of CitiSave and Citizens, considered as a whole.
(c) To the best knowledge of each, there is no judicial,
administrative, arbitration or other similar proceeding pending or threatened
before any court, governmental agency, authority or other forum in which
CitiSave or Citizens or any prior owner of any Business Property has been or,
with respect to threatened matters, is threatened to be named as a party
relating to (i)
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alleged noncompliance with any applicable Environmental Law or (ii) the release
or threatened release into the environment of any Hazardous Substance (as
defined below), and relating to any of the Business Property, except for such
proceedings pending or threatened that are not reasonably likely to have,
individually or in the aggregate, a material adverse effect on the financial
condition, results of operations, business or prospects of CitiSave and
Citizens, considered as a whole, and to the knowledge of each there is no
reasonable basis for any such proceeding. The term "Hazardous Substance" means
any pollutant, contaminant, or toxic or hazardous substance, chemical, or waste
defined, listed or regulated by any Environmental Law (and specifically shall
include, but not be limited to, asbestos, polychlorinated biphenyls, and
petroleum and petroleum products).
(d) To the best knowledge of each, there has been no release or
threatened release of a Hazardous Substance in, on, under, or affecting any of
its Business Property, except such release or threatened release that is not
reasonably likely to have, individually or in the aggregate, a material adverse
effect on the financial condition, results of operations, business or prospects
of CitiSave and Citizens, considered as a whole.
3.24 Contract Termination Provisions. Except for those
contracts set forth in Schedule 3.24 hereto, all contracts between Citizens or
CitiSave and any employee thereof or independent contractor thereto shall, by
the terms of such contracts or a written addendum thereto, be terminable by
DGC, CSF Acquisition or Citizens following the Holding Company Merger, upon no
more than thirty (30) days' written notice to the employee or independent
contractor.
3.25 Financial Institutions Bond. Since January 1, 1991,
CitiSave and Citizens have continuously maintained in full force and effect
one or more financial institutions bonds insuring CitiSave and Citizens against
acts of dishonesty by each of their employees. No claim has been made under
any such bond since such date and CitiSave is not aware of any fact or
condition presently existing which forms the basis of a claim under any such
bond. CitiSave and Citizens have no reason to expect that their present
financial institutions bond or bonds will not be renewed by their carrier on
substantially the same terms as those now in effect; provided, however, that
CitiSave and Citizens make no representation as to the effect of this
Agreement, the Holding Company Merger, or the Bank Merger on their present
financial institutions bond or bonds.
IV.
REPRESENTATIONS AND WARRANTIES OF DGC AND CSF ACQUISITION
DGC and CSF Acquisition represent and warrant to Citizens and
CitiSave as follows:
4.01 Corporate Organization. DGC and CSF Acquisition are
corporations duly organized, validly existing and in good standing under the
laws of the States of Mississippi and Louisiana, respectively. DGC and CSF
Acquisition, respectively, have the corporate power and
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authority to own or lease all of their properties and assets and to carry on
their businesses as they are now being conducted.
4.02 Authority; No Violation.
(a) DGC and CSF Acquisition, respectively, have full corporate
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The respective Boards of Directors of DGC
and CSF Acquisition, or a majority thereof, and DGC as the sole shareholder of
CSF Acquisition, have duly and validly approved and adopted this Agreement and
the transactions contemplated hereby, have executed or authorized the execution
of and have authorized the delivery of this Agreement, no other corporate
proceedings on the part of DGC or CSF Acquisition are necessary or desirable to
consummate the transactions so contemplated. This Agreement has been duly and
validly executed and delivered by DGC and CSF Acquisition and constitutes a
valid and binding obligation of each of DGC and CSF Acquisition, enforceable in
accordance with its terms.
(b) Neither the execution and delivery of this Agreement by DGC
or CSF Acquisition, nor the consummation by DGC or CSF Acquisition of the
transactions contemplated hereby, nor compliance by DGC or CSF Acquisition with
any of the provisions hereof, will (i) violate any provision of the Certificate
of Incorporation or Bylaws of DGC or CSF Acquisition, (ii) to the best
knowledge of DGC and CSF Acquisition violate any statute, code, ordinance,
rule, regulation, judgment, order, writ, decree or injunction applicable to
DGC, CSF Acquisition, or any of their subsidiaries or any of their respective
properties or assets, or (iii) to the best knowledge of DGC and CSF Acquisition
violate, conflict with, result in a breach of any provisions of, constitute a
default (or an event which, with or without due notice or lapse of time, or
both, would constitute a default) under, result in the termination of,
accelerate the performance required by, or result in the creation of any lien,
security interest, charge or other encumbrance upon any of the respective
properties or assets of DGC, CSF Acquisition, or any of their subsidiaries
under, any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, deed of trust, license, lease, agreement or other instrument or
obligation to which DGC, CSF Acquisition, or any of their respective
subsidiaries is a party, or by which they or any of their respective properties
or assets may be bound or affected, except for such conflicts, breaches or
defaults as are set forth in Schedule 4.03 hereto, or which either individually
or in the aggregate will not have a material adverse effect on the business,
operations, properties, assets or financial condition of DGC, CSF Acquisition,
or any of their respective subsidiaries.
4.03 Consents and Approvals. Except for consents and approvals
of, or filings or registrations with, the SEC and the Federal Reserve Board, no
consents or approvals of or filings or registrations with any third party or
any public body or authority are necessary in connection with (i) the execution
and delivery by DGC and CSF Acquisition of this Agreement or (ii) the
consummation of the Holding Company Merger.
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V.
COVENANTS OF THE PARTIES
5.01 Conduct of Business. Except with the consent of the other
parties hereto, during the period from the date of this Agreement to the
Effective Date:
(a) Citizens and CitiSave will conduct their businesses and
engage in transactions only in the ordinary course and consistent with prudent
banking practice.
(b) Neither CitiSave nor Citizens shall (i) increase by more
than ten percent (10%) the compensation payable by Citizens or CitiSave to any
of its directors, officers, agents, consultants, or any of its employees whose
total compensation after such increase would be in excess of $25,000 per annum
(excluding increases in compensation resulting from the vesting of shares of
CitiSave Common Stock awarded prior to the date of this Agreement pursuant to
CitiSave's MRP or from the exercise of CitiSave Options granted prior to the
date of this Agreement), (ii) grant or pay any extraordinary bonus, percentage
compensation, service award or other like benefit to any such director,
officer, agent, consultant or employee, except as set forth in Schedule 3.11
hereto, or (iii) make or agree to any extraordinary welfare, pension,
retirement or similar payment or arrangement for the benefit of any such
director, officer, agent, consultant or employee.
(c) Neither CitiSave nor Citizens shall sell or dispose of
material assets except in the ordinary course of business.
(d) Neither CitiSave nor Citizens shall enter into any new
capital commitments or make any capital expenditures, except commitments or
expenditures within existing operating and capital budgets or otherwise in the
ordinary course of business.
(e) Neither Citizens nor CitiSave shall authorize or issue any
additional shares of any class of its capital stock (except that shares of
CitiSave Common Stock may be issued upon the exercise of CitiSave Options which
were granted prior to the date of this Agreement) or any securities
exchangeable for or convertible into any such shares or any options or rights
to acquire any such shares, nor shall Citizens or CitiSave otherwise authorize
or affect any change in its capitalization.
(f) No dividends shall be paid by Citizens to CitiSave except
as set forth in Section 3.11(b)(iii) hereto. CitiSave shall not pay any
dividends to its stockholders, other than regular quarterly cash dividends on
the CitiSave Common Stock of $.10 per share for the first two quarters of 1997,
which may be paid at the regular times, and dividends of $.10 per share for
each additional full calendar quarter completed on or prior to the Effective
Date to be paid after completion of the full calendar quarter.
(g) CitiSave and Citizens shall not make any change in any of
their accounting policies or practices, unless required by generally accepted
accounting principles, or take any
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action which would have a material adverse effect on the Holding Company Merger
or the Bank Merger.
(h) CitiSave and Citizens shall not incur any liability for
borrowed money except extensions of credit from the Federal Home Loan Bank of
Dallas (in which no single transaction shall exceed $5,000,000) and otherwise
in the ordinary course of their banking business or place upon or permit any
lien or encumbrance upon any of their properties or assets, except liens of
the type permitted in the exceptions to Section 3.09.
5.02 Limitation on Actions. Prior to the Effective Date or
until the termination of this Agreement, CitiSave shall not, without the prior
approval of the chief executive officer of DGC,
(a) solicit or encourage inquiries or proposals with respect
to; or
(b) furnish any information relating to or participate in any
negotiations or discussions concerning, any acquisition or purchase of all or a
substantial portion of the assets of, or of a substantial equity interest in,
CitiSave or any subsidiary thereof, or any business combination with CitiSave
or any subsidiary thereof, other than as contemplated by this Agreement; and
shall instruct its officers, directors, agents and affiliates to refrain from
doing any of the above. Notwithstanding the foregoing, CitiSave, after written
notice to DGC, may furnish information in response to unsolicited inquiries
from third parties and/or engage in discussions or negotiations with third
parties if, in each case, the Board of Directors of CitiSave determines in good
faith based on the advice of legal counsel that the failure to furnish
information in response to such unsolicited inquiries and/or engage in such
discussions or negotiations is likely to be deemed to constitute a breach of
their fiduciary duties under applicable Louisiana law. If (i) CitiSave
furnishes information to or enters into discussions or negotiations with
another party prior to December 31, 1997, and (ii) CitiSave enters into a
definitive agreement with such party prior to June 30, 1998, then CitiSave
shall pay DGC a fee of $500,000.
Citizens and CitiSave agree to notify DGC by telephone within
twenty-four hours of receipt of any inquiry with respect to a proposed merger,
consolidation, assets acquisition, tender offer or other takeover transaction
with another person or receipt of a request for information from the FDIC, the
OTS, or other governmental authority with respect to a proposed acquisition of
Citizens or CitiSave by another party.
5.03 Current Information. During the period from the date of
this Agreement to the Effective Date, Citizens and CitiSave will cause one or
more of its designated representatives to confer on a regular and frequent
basis with representatives of DGC and to report the general status of its
ongoing operations. In addition, separate reporting on matters involving the
loan portfolio will occur monthly and will include, but not be limited to, (i)
all board reports, (ii) new and renewed loans (including loan applications),
(iii) delinquency reports, (iv) loan extensions, (v) to the extent possible,
loan policy exceptions, loan documentation exceptions, and financial statement
exceptions, (vi) watch list reports, (vii) all written communications
concerning problem loan accounts greater than $50,000, (viii) notification and
written details involving new loan
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products and/or loan programs, and (ix) such other information regarding
specific loans, the loan portfolio and management of the loan portfolio as may
be requested. Citizens and CitiSave will promptly notify DGC of any material
change in the normal course of their business or in the operation of their
properties and of any governmental complaints, investigations or hearings (or
communications indicating that the same may be contemplated), or the
institution or the threat of litigation involving either party, and will keep
DGC fully informed of such events.
5.04 Access to Properties and Records; Confidentiality.
(a) For purposes of allowing DGC and CSF Acquisition and their
counsel to prepare regulatory submissions, and for other relevant purposes,
Citizens and CitiSave shall permit DGC reasonable access to their properties
during normal business hours, and shall disclose and make available to DGC and
its agents all books, papers and records relating to their assets, stock
ownership, properties, operations, obligations and liabilities, including, but
not limited to: their books of account (including their general ledgers); tax
records; minute books of directors' and shareholders' meetings; charter
documents; bylaws; material contracts and agreements; filings with any
regulatory authority; litigation files; compensatory plans affecting its
employees; and any other materials pertaining to business activities, projects
or programs in which the other parties may have a reasonable interest in light
of the proposed Mergers. No member of the CitiSave Consolidated Group shall be
required to provide access to or to disclose information where such access or
disclosure would violate or prejudice the rights of any customer or other
person, would jeopardize the attorney-client privilege of the institution in
possession or control of such information, or would contravene any law, rule,
regulation, order, judgment, decree or binding agreement. The parties will
make appropriate substitute disclosure arrangements under circumstances in
which the restrictions of the preceding sentence apply.
(b) All information furnished by any member of the CitiSave
Consolidated Group pursuant hereto shall be treated as the sole property of the
party furnishing the information until consummation of the Mergers contemplated
hereby and, if such Mergers shall not occur, DGC and CSF Acquisition shall
return to CitiSave all documents or other materials containing, reflecting or
referring to such information, shall use its best efforts to keep confidential
all of such information, and shall not directly or indirectly use such
information for any competitive or other commercial purpose. The obligation to
keep such information confidential shall continue for two (2) years from the
date the proposed Mergers are abandoned and shall not apply to (a) any
information which (i) DGC and CSF Acquisition can establish by convincing
evidence was already in its possession prior to the disclosure thereof by
CitiSave or Citizens, (ii) was then generally known to the public or set forth
in public records, (iii) became known to the public through no fault of DGC or
CSF Acquisition, or (iv) was disclosed to the party receiving the information
by a third party not bound by an obligation of confidentiality, or (b)
disclosures in accordance with an order of a court of competent jurisdiction.
5.05 Interim Financial Statements. As soon as reasonably
available, but in no event more than fifteen (15) days after the end of each
month ending after the date of this Agreement, Citizens and CitiSave will
deliver to DGC copies of their monthly financial statements.
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5.06 Regulatory Matters.
(a) CitiSave shall prepare and file a proxy statement (the
"Proxy Statement") to be mailed to CitiSave shareholders in connection with the
meeting to be called to consider the Holding Company Merger, as soon as
reasonably practicable following the date of this Agreement. The Proxy
Statement shall comply in all material respects with the Exchange Act.
(b) DGC and CitiSave will use their best efforts to prepare all
necessary documentation, to effect all necessary filings and to obtain all
necessary permits, consents, approvals and authorizations of all third parties
and governmental bodies necessary to consummate the transactions contemplated
by this Agreement, including those required by the OCC, the OTS, the Federal
Reserve Board, the FDIC, and the Louisiana Commissioner of Financial
Institutions.
(c) DGC shall cooperate in preparing the Proxy Statement. DGC
will promptly furnish all such data and information relating to it and its
subsidiaries as CitiSave may reasonably request for the purpose of including
such data and information in the Proxy Statement.
5.07 Approval of Shareholders. CitiSave will (i) take all steps
necessary to call, give notice of, convene and hold a meeting of its
shareholders as soon as practicable for the purpose of approving this Agreement
and the transactions contemplated hereby and for such other purposes as may be
necessary or desirable, (ii) recommend to its shareholders the approval of this
Agreement and the transactions contemplated hereby and such other matters as
may be submitted to its shareholders in connection with this Agreement, unless
the Board of Directors determines based on the advice of counsel that such
recommendation would violate the fiduciary duties of the Board of Directors of
CitiSave to the shareholders of CitiSave, and (iii) cooperate and consult with
DGC and CSF Acquisition with respect to each of the foregoing matters.
CitiSave, as the sole shareholder of Citizens, shall approve this Agreement and
the Bank Merger. DGC, as sole shareholder of CSF Acquisition, shall approve
this Agreement.
5.08 Further Assurances. Subject to the terms and conditions
herein provided, each of the parties hereto agrees to use its best 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 the transactions contemplated by this Agreement.
In case at any time after the Effective Date any further action is necessary or
desirable to carry out the purposes of this Agreement, the proper officers and
directors of each party to this Agreement shall take all such necessary or
desirable action.
5.09 Public Announcements. DGC, CSF Acquisition, Citizens and
CitiSave will cooperate with each other in the development and distribution of
all news releases and other public information disclosures with respect to this
Agreement or any of the transactions contemplated hereby. No party to this
agreement shall make any public announcement or otherwise make any disclosure
(either public or private), other than such disclosure to employees or agents
of any such party as may be required to carry out the transactions contemplated
by this
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Agreement and except as may be required by law, without the express written
consent of all parties hereto. Each party hereto shall undertake such
reasonable steps as may be required to ensure that its employees and agents
comply with the provisions of this Section 5.09.
5.10 Benefits. From and after the Effective Date, DGC will,
subject to compliance with applicable legal and regulatory requirements,
provide coverage for all Citizens employees under all DGC employee benefit
plans for which they are eligible, as soon as practicable after the Effective
Date. All prior years of service of Citizens employees will be counted for
vesting and eligibility purposes under all applicable DGC employee benefit
plans to the extent permitted by applicable law. Any Citizens employee who,
immediately prior to the Effective Date, is covered by or is a participant in a
Citizens employee benefit plan listed in Schedule 3.19 of this Agreement,
shall, on the Effective Date, be covered by or participate in the comparable
DGC employee benefit plan if a comparable plan otherwise is maintained by DGC
and if the eligibility requirements of the DGC plan are met.
5.11 Indemnification.
(a) From and after the Effective Date, CitiSave, as survivor of
the Holding Company Merger, shall indemnify, defend, and hold harmless the
former directors, officers, employees and agents of CitiSave (each such
director, officer, employee or agent referred to as a "Holding Company
Indemnified Party") against all losses, claims, damages, liabilities,
judgments (and related expenses including, but not limited to, attorney's fees
and amounts paid in settlement), joint, several or solidary, and any action or
other proceeding in respect thereof, to which the Holding Company Indemnified
Parties or any of them become subject, based upon or arising out of actions or
omissions of such persons occurring at or prior to the Effective Date
(including the transactions contemplated by this Agreement) to the full extent
permitted under Louisiana law or by CitiSave's Articles of Incorporation and
Bylaws as in effect on the date hereof, whichever is greater.
(b) From and after the Effective Date and prior to the
effective date of the Bank Merger, Citizens shall indemnify, defend, and hold
harmless the former directors, officers, employees and agents of Citizens (each
such director, officer, employee or agent referred to as a "Bank Indemnified
Party") against all losses, claims, damages, liabilities, judgments (and
related expenses including, but not limited to, attorney's fees and amounts
paid in settlement), joint, several or solidary, and any action or other
proceeding in respect thereof, to which the Bank Indemnified Parties or any of
them become subject, based upon or arising out of actions or omissions of such
persons occurring at or prior to the Effective Date (including the transactions
contemplated by this Agreement) to the full extent permitted under federal law
or by Citizens' Charter and Bylaws as in effect on the date hereof, whichever
is greater.
(c) From and after the effective date of the Bank Merger, DGC
shall cause the subsidiary bank which is the survivor of the Bank Merger to
indemnify, defend, and hold harmless each Bank Indemnified Party against all
losses, claims, damages, liabilities, judgments (and related expenses
including, but not limited to, attorney's fees and amounts paid in
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settlement), joint, several or solidary, and any action or other proceeding in
respect thereof, to which the Bank Indemnified Parties or any of them become
subject, based upon or arising out of actions or omissions of such persons
occurring at or prior to such effective date (including the transactions
contemplated by this Agreement) to the full extent permitted under Louisiana
law or by Citizens' Charter and Bylaws as in effect on the date hereof,
whichever is greater.
(d) DGC shall use its best efforts to maintain the existing
directors' and officers' liability insurance policy of CitiSave and Citizens,
respectively, covering persons who are currently covered by such insurance for
a period of five (5) years after the Effective Date on terms generally no less
favorable than those in effect on the date of this Agreement; provided,
however, that DGC may substitute therefor policies providing at least
comparable coverage containing terms and conditions no less favorable than
those in effect on the date of this Agreement.
5.12 CitiSave ESOP.
(a) Each participant in the CitiSave Employee Stock Ownership
Plan ("CitiSave ESOP") not fully vested will become fully vested in his or her
CitiSave ESOP account as of the Effective Date. Schedule 5.12 sets forth the
number of allocated and unallocated shares of CitiSave Common Stock as of the
date of this Agreement. As soon as practicable after the execution of this
Agreement, CitiSave, Citizens and DGC will cooperate to cause the CitiSave ESOP
to be amended and other action taken, in a manner reasonably acceptable to
CitiSave and DGC, to provide that the CitiSave ESOP will terminate upon the
Effective Date. Between the date hereof and the Effective Date, the existing
CitiSave ESOP indebtedness as set forth on Schedule 5.12 shall be paid in the
ordinary course of business and CitiSave or Citizens shall make the
contributions set forth on Schedule 5.12 to the CitiSave ESOP to fund such
payments. CitiSave and Citizens shall make no further contributions to the
CitiSave ESOP except as may be required to obtain a favorable determination
from the IRS. Any indebtedness of the CitiSave ESOP remaining as of the
Effective Date shall be repaid from the Trust associated with the CitiSave ESOP
through application of the Merger Price received by the CitiSave ESOP. Upon
the repayment of the CitiSave ESOP loan, the remaining funds in the Loan
Suspense Account will be allocated (to the extent permitted by Sections 401(a),
415 or 4975 of the Code and the applicable laws and regulations including,
without limitation, the applicable provisions of ERISA) to CitiSave ESOP
participants (as determined under the terms of the CitiSave ESOP). CitiSave and
DGC agree that, subject to the conditions described herein, as soon as
practicable after the Effective Date and repayment of the CitiSave ESOP loan,
participants in the CitiSave ESOP shall be entitled at their election to have
the amounts in their CitiSave ESOP accounts either distributed to them in a
lump sum or rolled over to another tax-qualified plan or individual retirement
account.
(b) The actions relating to termination of the CitiSave ESOP
will be adopted conditioned upon the consummation of the Holding Company Merger
and upon receiving a favorable determination letter from the Internal Revenue
Service ("IRS") with regard to the continued qualification of the CitiSave ESOP
after any required amendments. CitiSave and DGC
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will cooperate in submitting appropriate requests for any such determination
letter to the IRS and will use their best efforts to seek the issuance of such
letter as soon as practicable following the date hereof. CitiSave and DGC will
adopt such additional amendments to the CitiSave ESOP as may be reasonably
required by the IRS as a condition to granting such determination letter,
provided that such amendments do not substantially change the terms outlined
herein or would result in a material adverse change in the business,
operations, properties, assets or financial condition of CitiSave and Citizens
considered as a whole or result in liability to DGC that is material in
relation to the aggregate Merger Price.
(c) As of and following the Effective Date, DGC shall cause the
CitiSave ESOP to be maintained for the exclusive benefit of employees and other
persons who were participants or beneficiaries therein prior to the Effective
Date and proceed with termination of the CitiSave ESOP through distribution of
its assets in accordance with its terms subject to the amendments described
herein and as otherwise may be required to comply with applicable law or to
obtain a favorable determination from the IRS as to the continuing qualified
status of the CitiSave ESOP, provided, however, that no such distributions of
the CitiSave ESOP shall occur until a favorable termination letter has been
received from the IRS. CitiSave shall cause the CitiSave ESOP to be amended,
effective as of the Effective Date, to provide that the administrative
committee thereof shall consist of three individuals appointed by the Board of
Directors of CitiSave prior to the Effective Date (the appointment of such
individuals will be subject to the prior consent of DGC, and such individuals
after their appointment may not be unreasonably removed or changed by DGC or
its affiliates for a period of two years after the Effective Date).
5.13 CitiSave Stock Option Plans and MRP.
(a) CitiSave shall take all appropriate action to provide for
the termination of the 1996 Key Employee Stock Compensation Program and the
1996 Directors' Stock Option Plan (collectively, the "CitiSave Option Plans")
following the cancellation of all outstanding stock options and the payment of
the Option Consideration pursuant to Section 1.05(b) hereof. The termination
of the CitiSave Option Plans shall be effective as of the Effective Date.
(b) CitiSave shall take all appropriate action to provide for
the termination of the MRP following the cancellation of all outstanding MRP
Awards and the payment of the MRP Consideration pursuant to Section 1.05(c)
hereof. The termination of the MRP shall be effective as of the Effective
Date, and all shares of CitiSave Common Stock held by the MRP trust shall be
cancelled upon such termination.
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VI.
CLOSING CONDITIONS
6.01 Conditions to Each Party's Obligations under this
Agreement. The respective obligations of each party under this Agreement shall
be subject to the fulfillment at or prior to the Effective Date of the
following conditions, none of which may be waived:
(a) This Agreement and the transactions contemplated hereby
shall have been approved by the affirmative vote of the holders of at least
two-thirds (2/3) of the total votes present in person or by proxy at the
meeting of shareholders of CitiSave called pursuant to Section 5.07 hereof.
(b) None of the parties hereto shall be subject to any order,
decree or injunction of a court or agency of competent jurisdiction which
enjoins or prohibits the consummation of the Holding Company Merger.
(c) A Proxy Statement distributed to CitiSave shareholders
seeking approval of the Holding Company Merger shall have been written and
distributed in accordance with the requirements of the Exchange Act and shall
not be subject to any stop order or a threatened stop order.
(d) This Agreement and the Holding Company Merger shall have
been approved by the Federal Reserve Bank and all other applicable federal and
state authorities.
6.02 Conditions to the Obligations of DGC and CSF Acquisition
under this Agreement. The obligations of DGC and CSF Acquisition under this
Agreement shall be further subject to the satisfaction, at or prior to the
Effective Date, of the following conditions, any one or more of which may be
waived by DGC and CSF Acquisition:
(a) Each of the obligations of Citizens and CitiSave required
to be performed by them at or prior to the Closing pursuant to the terms of
this Agreement shall have been duly performed and complied with in all material
respects and the representations and warranties of Citizens and CitiSave
contained in this Agreement shall be true and correct in all material respects
as of the date of this Agreement and as of the Effective Date as though made at
and as of the Effective Date (except as otherwise contemplated by this
Agreement and except as to any representation or warranty which specifically
relates to an earlier date) and DGC and CSF Acquisition shall have received a
certificate to that effect signed by the president of Citizens and CitiSave.
(b) All action required to be taken by, or on the part of,
Citizens and CitiSave to authorize the execution, delivery and performance of
this Agreement by Citizens and CitiSave and the consummation of the
transactions contemplated hereby shall have been duly and validly taken by the
Boards of Directors of Citizens and CitiSave and DGC and CSF Acquisition shall
have received certified copies of the resolutions evidencing such
authorization.
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(c) Any and all permits, consents, waivers, clearances,
approvals and authorizations (in addition to those referred to in Section 6.01
hereof) of all third parties and governmental bodies shall have been obtained
by Citizens and CitiSave, which are necessary in connection with the
consummation of the Holding Company Merger by CitiSave and the other
transactions contemplated hereby; provided, however, that no such approval
shall have imposed any non-standard condition or requirement which, in the
reasonable opinion of the Board of Directors of DGC, would so materially
adversely affect the business or economic benefits of the transactions
contemplated by this Agreement as to render consummation of such transactions
inadvisable or unduly burdensome.
(d) No action or proceeding against CitiSave, Citizens, or any
of the Citizens Subsidiaries or against DGC or CSF Acquisition shall be pending
which seeks to prevent consummation of the transactions contemplated by this
Agreement; and no order of any court shall have been entered which prohibits
consummation of the Holding Company Merger and the transactions contemplated by
this Agreement. No approval, consent, waiver, administrative, or regulatory
action shall have included any non-standard condition or requirement that would
(i) result in a materially adverse effect on CitiSave, Citizens, the Citizens
Subsidiaries, DGC, or CSF Acquisition or (ii) so materially and adversely
affect the economic or business benefits of the Holding Company Merger that DGC
or CSF Acquisition, in the reasonable and good faith opinion of DGC or CSF
Acquisition, would not have entered into this Agreement had such conditions or
requirements been known at the date hereof.
(e) DGC and CSF Acquisition shall have received an opinion from
Messrs. Elias, Matz, Tiernan and Herrick L.L.P., special counsel to Citizens
and CitiSave, dated the date of the Closing, in form satisfactory to DGC and
CSF Acquisition to the effect that:
(i) CitiSave is a corporation duly organized and validly
existing under the laws of the State of Louisiana and has all
requisite power and authority to own, lease and operate its
properties and to carry on its business as described in the Proxy
Statement. CitiSave is a registered thrift holding company under
the Savings and Loan Holding Company Act. Citizens is a federally
chartered stock savings and loan duly organized and validly existing
under the laws of the United States and (a) has all requisite
corporate power to own, lease and operate its properties and to
carry on its business as described in the Proxy Statement, (b) is
duly authorized to conduct a general savings and loan business under
the laws of the United States, and (c) is an insured depository
institution as defined in the Federal Deposit Insurance Act;
(ii) This Agreement has been duly and validly authorized,
executed and delivered by CitiSave and Citizens and is valid and
enforceable against each of them, except that enforcement may be
limited by (i) bankruptcy, insolvency, reorganization, moratorium,
conservatorship, receivership or other similar laws now or hereafter
in effect relating to or affecting the enforcement of creditors'
rights generally or the rights of creditors of federal savings
institutions or their holding companies, (ii) general equitable
principles, and (iii) laws relating to the safety and soundness of
insured depository
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institutions, and except that no opinion need be rendered as to the
effect or availability of equitable remedies or injunctive relief
(regardless of whether such enforceability is considered in a
proceeding in equity or at law).
(iii) The authorized capital stock of CitiSave consists of
10,000,000 shares of CitiSave Common Stock and 5,000,000 shares of
CitiSave Preferred Stock, of which, as of December 31, 1996, 962,207
shares of CitiSave Common Stock were duly issued, outstanding, fully
paid and non-assessable, and no shares of CitiSave Preferred Stock
were issued and outstanding;
(iv) The authorized capital stock of Citizens consists of
10,000,000 shares of Citizens Common Stock and 5,000,000 shares of
Citizens Preferred Stock, of which, as of December 31, 1996, 1,000
shares of Citizens Common Stock were issued and outstanding; all of
such outstanding shares are validly issued, fully paid and
non-assessable, and owned by CitiSave; and no shares of Citizens
Preferred Stock were issued and outstanding;
(v) The execution and delivery by CitiSave and Citizens
of this Agreement, consummation by CitiSave and Citizens of the
transactions contemplated hereby and compliance by CitiSave and
Citizens with the provisions hereof will not violate the Articles of
Incorporation or Charter of CitiSave or Citizens or violate, result
in a breach of, or constitute a default under, any material lease,
mortgage, contract, agreement, instrument, judgment, order or decree
to which CitiSave or Citizens is a party or to which they may be
subject and which was either included as an exhibit to any filing
made by CitiSave under either the Securities Act or the Exchange Act
or which is identified in Schedules 3.12, 3.19 or 3.20 to this
Agreement; and
(vi) The Proxy Statement and each amendment or supplement
thereto, as of their respective issue dates, complied as to form in
all material respects with the requirements of the Exchange Act and
the rules and regulations promulgated thereunder, and we do not know
of any documents required to be filed as exhibits to the Proxy
Statement which are not filed as required; it being understood that
such counsel need express no opinion as to any information regarding
DGC or CSF Acquisition or as to the financial statements, notes to
financial statements, financial tables or other financial or
statistical data and stock valuation information contained in or
omitted from the Proxy Statement.
The opinion of Elias, Matz, Tiernan & Herrick L.L.P. shall be
governed by the Legal Opinion Accord ("Accord") of the American Bar Association
Section of Business Law (1991). In addition, such opinion may be limited to
present statutes, regulations, rulings, and formal agency and judicial
interpretations and to facts as they presently exist; in rendering such
opinion, such counsel need assume no obligation to revise or supplement it
should the present laws be changed by legislative or regulatory action,
judicial decision or otherwise after such opinion is rendered. Such counsel may
assume that any agreement is the valid and binding obligation of any
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parties to such agreement other than CitiSave or Citizens. In giving such
opinion, such counsel may rely as to all matters of fact on certificates of
officers or directors of CitiSave and Citizens and certificates of public
officials or of CitiSave's transfer agent, provided that such certificates are
delivered to DGC and CSF Acquisition at or prior to the Closing or are attached
to the opinion. Such counsel's opinion shall be limited to matters governed by
federal law and by Louisiana law. With respect to matters involving the
application of Louisiana law, an opinion of local counsel reasonably acceptable
to DGC may be provided to DGC and CSF Acquisition. Elias, Matz, Tiernan &
Herrick L.L.P. may also indicate that it is expressing no opinion as to the
fairness of the transactions contemplated by this Agreement or of the Merger
Price to be received by the holders of CitiSave Common Stock from a financial
point view.
In addition, DGC and CSF Acquisition shall have received a separate
letter from Elias, Matz, Tiernan & Herrick L.L.P., special counsel to CitiSave
and Citizens, dated the date of the Closing, to the effect that such counsel
has participated in several conferences with representatives of the parties of
this Agreement and their respective accountants and counsel in connection with
the preparation of the Proxy Statement filed in connection with the
transactions contemplated by this Agreement and have considered the matters
required to be stated therein and the statements contained therein, and based
on the foregoing, nothing has come to the attention of such counsel that would
lead them to believe that such Proxy Statement, as amended or supplemented if
it has been amended or supplemented, at the time distributed to shareholders,
contained any untrue statement of a material fact or omitted to state a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading (except in each such
case as to any information regarding DGC or CSF Acquisition or as to the
financial statements, notes to financial statements, financial tables and other
financial and statistical data and stock valuation information included
therein, as to which no view need be expressed). In issuing such letter, such
counsel may indicate that it has not confirmed the accuracy or completeness of
or otherwise verified the information contained in the Proxy Statement, that it
does not assume any responsibility for such information, and that it is relying
as to materiality as to factual matters on certificates of officers and
representatives of the parties to this Agreement and other factual
representations by CitiSave and Citizens.
(e) There shall not have occurred any Material Adverse Change
in the financial condition, results of operations business or prospects of
CitiSave and Citizens, considered as a whole, from the date of the CitiSave
Latest Balance Sheet to the Closing.
Citizens and CitiSave will furnish DGC and CSF Acquisition with such
certificates of their officers or others and such other documents to evidence
fulfillment of the conditions set forth in this Section 6.02 as DGC and CSF
Acquisition may reasonably request.
6.03 Conditions to the Obligations of Citizens and CitiSave
under this Agreement. The obligations of Citizens and CitiSave under this
Agreement shall be further subject to the satisfaction, at or prior to the
Effective Date, of the following conditions, any one or more of which may be
waived by Citizens and CitiSave:
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(a) Each of the obligations of DGC or CSF Acquisition,
respectively, required to be performed by them at or prior to the Closing
pursuant to the terms of this Agreement (including Section 1.06(c) hereof)
shall have been duly performed and complied with in all material respects and
the representations and warranties of DGC or CSF Acquisition contained in this
Agreement shall be true and correct in all material respects as of the date of
this Agreement and as of the Effective Date as though made at and as of the
Effective Date (except as otherwise contemplated by this Agreement and except
as to any representation or warranty which specifically relates to an earlier
date) and Citizens and CitiSave shall have received certificates to that effect
signed by the presidents of DGC and CSF Acquisition, respectively.
(b) All action required to be taken by, or on the part of, DGC
and CSF Acquisition to authorize the execution, delivery and performance of
this Agreement by DGC and CSF Acquisition and the consummation of the
transactions contemplated hereby shall have been duly and validly taken by the
Boards of Directors of DGC and CSF Acquisition, respectively, and Citizens and
CitiSave shall have received certified copies of the resolutions evidencing
such authorization.
(c) CitiSave and Citizens shall have received from Messrs.
Watkins, Ludlam and Stennis, P.A., counsel for DGC and CSF Acquisition (or as
to certain matters involving Louisiana law from Louisiana counsel to DGC and
CSF Acquisition), an opinion, dated as of the Closing, in form and substance
satisfactory to CitiSave and Citizens, to the effect that:
(i) DGC is a corporation duly organized and validly
existing under the laws of the State of Mississippi and has all
requisite power and authority to own, lease and operate its
properties and to carry on its business as now being conducted. DGC
is qualified to do business as a foreign corporation in Louisiana.
CSF Acquisition is a corporation duly organized and validly existing
under the laws of the State of Louisiana and has all requisite power
and authority to own, lease and operate its properties and to carry
on its business as now being conducted.
(ii) This Agreement has been duly and validly authorized,
executed and delivered by DGC and CSF Acquisition and is valid and
enforceable against each of them, except that enforcement may be
limited by (i) bankruptcy, insolvency, reorganization, moratorium,
conservatorship, receivership or other similar laws now or hereafter
in effect relating to or affecting the enforcement of creditors'
rights generally or the rights of creditors of federal savings
institutions or their holding companies, (ii) general equitable
principles, and (iii) laws relating to the safety and soundness of
insured depository institutions, and except that no opinion need be
rendered as to the effect or availability of equitable remedies or
injunctive relief (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
(iii) The execution and delivery by DGC and CSF
Acquisition of this Agreement, consummation by DGC and CSF
Acquisition of the transactions contemplated hereby and compliance
by DGC and CSF Acquisition with the provisions hereof will not
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violate the Articles of Incorporation or Association of DGC and CSF
Acquisition or violate, result in a breach of, or constitute a
default under, any material lease, mortgage, contract, agreement,
instrument, judgment, order or decree to which DGC and CSF
Acquisition is a party or to which they may be subject;
The opinion of Watkins Ludlam & Stennis, P.A. shall be governed by
the Legal Opinion Accord ("Accord") of the American Bar Association Section of
Business Law (1991). In addition, such opinion may be limited to present
statutes, regulations, rulings, and formal agency and judicial interpretations
and to facts as they presently exist; in rendering such opinion, such counsel
need assume no obligation to revise or supplement it should the present laws be
changed by legislative or regulatory action, judicial decision or otherwise
after such opinion is rendered. Such counsel may assume that any agreement is
the valid and binding obligation of any parties to such agreement other than
DGC or CSF Acquisition. In giving such opinion, such counsel may rely as to all
matters of fact on certificates of officers or directors of DGC and CSF
Acquisition and certificates of public officials, provided that such
certificates are delivered to CitiSave and Citizens at or prior to the Closing
or are attached to the opinion. Such counsel's opinion shall be limited to
matters governed by federal law and by Louisiana law. With respect to matters
involving the application of Louisiana law, an opinion of local counsel
reasonably acceptable to DGC may be provided to DGC and CSF Acquisition.
DGC and CSF Acquisition will furnish Citizens and CitiSave with
such certificates of their officers or others and such other documents to
evidence fulfillment of the conditions set forth in this Section 6.03 as
Citizens and CitiSave may reasonably request.
(d) CitiSave shall have obtained from its independent
financial advisors an opinion dated within five business days of the date of
the Proxy Statement for the shareholders' meeting to be called pursuant to
Section 5.07 hereof stating that the Merger Price to be received by the holders
of CitiSave Common Stock is fair from a financial point of view.
VII.
CLOSING
7.01 Time and Place. Subject to the provisions of Articles
VI and VIII hereof, the Closing of the transactions contemplated hereby
shall take place at the offices of DGC, One Deposit Guaranty Plaza, 210
East Capitol Street, Jackson, Mississippi 39205 at 9:00 A.M., local time, on
the last business day of the month after all of the conditions contained in
Section 6.01(a) and Section 6.01(d) are satisfied or at such other place, at
such other time, or on such other date as DGC, CSF Acquisition, CitiSave and
Citizens may mutually agree upon for the Closing to take place.
7.02 Deliveries at the Closing. Subject to the provisions of
Articles VI and VIII hereof, at the Closing there shall be delivered to DGC,
CSF Acquisition, CitiSave and Citizens the
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opinions, certificates, and other documents and instruments required to be
delivered under Article VI hereof.
VIII.
TERMINATION
8.01 Termination. This Agreement may be terminated at any
time prior to the Effective Date, whether before or after approval of the
Holding Company Merger by the shareholders of CitiSave:
(a) by mutual written consent of the parties, properly
authorized by their respective Boards of Directors;
(b) by DGC and CSF Acquisition, if at the time of such
termination there shall have been any Material Adverse Change in the financial
condition, results of operations, business or prospects of CitiSave and
Citizens, considered as a whole, from the date of the CitiSave Latest Balance
Sheet;
(c) by any party hereto, if a United States District
Court shall rule upon application of the Department of Justice after a full
trial on the merits or a decision on the merits based on a stipulation of facts
that the transactions contemplated by this Agreement violate the antitrust laws
of the United States;
(d) by any party hereto, if at the meeting of
shareholders to be called by CitiSave pursuant to this Agreement, this
Agreement shall not have been approved by the affirmative vote of the holders
of at least two-thirds (2/3) of the total votes present in person or by proxy
at the meeting of shareholders of CitiSave called pursuant to Section 5.07
hereof;
(e) by DGC and CSF Acquisition, in the event there are
dissenting shareholders who hold more than fifteen percent (15%) of the shares
of CitiSave Common Stock; or
(f) by any party hereto if the Closing shall not have
occurred by December 31, 1997.
8.02 Effect of Termination. In the event of termination
of this Agreement by either DGC, CSF Acquisition, CitiSave or Citizens as
provided above, this Agreement shall forthwith become void and except as
provided in Section 5.04 and Section 9.01 hereof there shall be no further
liability on the part of Citizens, CitiSave, DGC, CSF Acquisition, or their
respective officers or directors.
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IX.
MISCELLANEOUS
9.01 Expenses. All out-of-pocket costs and expenses
incurred in connection with the Mergers (including, but not limited to, counsel
fees) shall be paid by the party incurring such costs and expenses.
9.02 Notices. All notices or other communications
hereunder shall be in writing and shall be deemed given if delivered personally
or mailed by prepaid registered or certified first class mail (return receipt
requested) or by facsimile, cable, telegram or telex addressed as follows:
(a) If to DGC or CSF Acquisition, to:
Deposit Guaranty Corp.
One Deposit Guaranty Plaza
210 East Capitol Street
P.0. Box 730
Jackson, Mississippi 39205
Attention: Thomas M. Hontzas
Fax Number: (601) 354-8288
Copy to:
Watkins Ludlam & Stennis, P.A.
633 North State Street (39202)
Post Office Box 427
Jackson, Mississippi 39205-0427
Attention: L. Keith Parsons, Esq.
Fax Number: (601) 949-4804
(b) If to Citizens or CitiSave, to:
CitiSave Financial Corporation
665 Florida Street
Baton Rouge, Louisiana 70801
(504) 383-4102
Attention: Lee F. Nettles
Fax Number: (504) 382-5511
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Copy to:
Elias, Matz, Tiernan and Herrick L.L.P.
Suite 1200
734 15th Street, N.W.
Washington, D.C. 20005
(202) 347-0300
Attention: Gerald F. Heupel, Jr., Esq.
Fax Number: (202) 347-2172
or such other address as shall be furnished in writing by any party, and any
such notice or communication shall be deemed to have been given as of the date
so mailed.
9.03 Parties in Interest. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto, and their respective
successors and assigns; provided, however, that neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned by any
party hereto without the prior written consent of the other parties, and that
nothing in this Agreement is intended to confer, expressly or by implication,
upon any other person any rights or remedies under or by reason of this
Agreement.
9.04 Amendment, Extension and Waiver. Subject to
applicable law, at any time prior to the consummation of the Mergers, whether
before or after approval thereof by the CitiSave shareholders, DGC, CSF
Acquisition, CitiSave and Citizens may, by action taken by their respective
Boards of Directors (i) amend this Agreement, (ii) extend the time for the
performance of any of the obligations or other acts of the other parties
hereto, (iii) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto, or (iv) waive
compliance with any of the agreements or conditions contained in Articles V and
VI (other than the conditions set forth in Section 6.01 hereof); provided,
however, that after any approval of the Holding Company Merger by the
shareholders of CitiSave, there may not be, without further approval of such
shareholders, any amendment, extension or waiver of this Agreement which
changes the amount or form of consideration to be delivered to shareholders of
CitiSave. This Agreement may not be amended except by an instrument in writing
signed on behalf of each of the parties hereto. Any agreement on the part of a
party hereto to any extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party, but such waiver or
failure to insist on strict compliance with such obligation, covenant,
agreement or condition shall not operate as a waiver of, or estoppel with
respect to, any subsequent or other failure.
9.05 Complete Agreement. This Agreement, including the
documents and other writings referred to herein or delivered pursuant hereto,
contains the entire agreement and understanding of the parties with respect to
its subject matter. There are no restrictions, agreements, promises,
warranties, covenants or undertakings other than those expressly set forth
herein or therein. This Agreement supersedes all prior agreements and
understandings between the parties, both written and oral, with respect to its
subject matter.
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9.06 Non-Survival of Representations and Warranties. None
of the representations and warranties in this Agreement shall survive the
Effective Date, or the earlier termination of this Agreement pursuant to
Article VIII hereof. Each party hereby agrees that its sole right and remedy
with respect to any breach of a representation or a warranty by the other party
shall be to not consummate the transactions described herein if such breach
results in the nonsatisfaction of a condition set forth in Section 6.02(a) or
6.03(a) hereof, provided, however, that the foregoing shall not be deemed a
waiver of any claim for intentional misrepresentation or fraud.
9.07 Counterparts. This Agreement may be executed in one
or more counterparts, all of which shall be considered one and the same
agreement and each of which shall be deemed an original.
9.08 Governing Law. This Agreement shall be governed by
the laws of the State of Louisiana, without giving effect to the principles of
conflicts of laws thereof, except to the extent that the effectiveness of the
Mergers may be subject to specific requirements of federal law.
9.09 Headings. The Article and Section headings contained
in this Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement.
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IN WITNESS WHEREOF, the Boards of Directors of DGC, CSF
Acquisition, CitiSave, and Citizens have caused this Agreement to be executed
by their duly authorized officers, all as of the day and year first above
written.
<TABLE>
<S> <C>
Attest: DEPOSIT GUARANTY CORP.
/s/ J. Clifford Harrison By /s/ Howard L. McMillan
- ----------------------------------------- ------------------------------------------
J. Clifford Harrison, Secretary Howard L. McMillan, Jr., President
Attest: CSF ACQUISITION CORP.
/s/ J. Clifford Harrison By /s/ Thomas M. Hontzas
- ---------------------------------------- ------------------------------------------
J. Clifford Harrison, Secretary Thomas M. Hontzas, President
Attest: CITISAVE FINANCIAL CORPORATION
/s/ Mary Anne Chiasson By /s/ Lee F. Nettles
- ------------------------------------- ------------------------------------------
Mary Anne Chiasson, Secretary Lee F. Nettles, President
Attest: CITIZENS SAVINGS ASSOCIATION, F.A.
/s/ Mary Anne Chiasson By /s/ Lee F. Nettles
- ------------------------------------- ------------------------------------------
Mary Anne Chiasson, Secretary Lee F. Nettles, President
</TABLE>
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Exhibit A
CERTIFICATE OF MERGER
OF
CSF ACQUISITION CORP.
WITH AND INTO
CITISAVE FINANCIAL CORPORATION
(Filed Pursuant to Section 112F of
the Louisiana Business Corporation Law)
The undersigned corporation, acting pursuant to Section 112F
of the Louisiana Business Corporation Law, hereby certifies as follows:
First: That the name and state of incorporation of each of
the corporations that are parties to the merger to which this Certificate
relates (the "Constituent Corporations") are as follows:
Name State of Incorporation
---- ----------------------
CSF Acquisition Corp. Louisiana
CitiSave Financial Corporation Louisiana
Second: That an Agreement and Plan of Merger between the
Constituent Corporations (the "Agreement") providing for the merger of CSF
Acquisition Corp. with and into CitiSave Financial Corporation (the "Merger")
has been approved, adopted, certified, executed and acknowledged by each of the
Constituent Corporations in accordance with the requirements of Section 112 of
the Louisiana Business Corporation Law.
Third: That CitiSave Financial Corporation will survive the
Merger and continue to operate under its current name (the "Surviving
Corporation").
Fourth: That the Articles of Incorporation of the Surviving
Corporation, as in effect on the date hereof, shall continue in full force and
effect as the Articles of Incorporation of the Surviving Corporation until
altered, amended or repealed as provided therein or by law.
Fifth: That a copy of the executed Agreement is on file at
the principal place of business of the Surviving Corporation, located at 665
Florida Street, Baton Rouge, Louisiana 70801.
Sixth: That a copy of the Agreement will be furnished by the
Surviving Corporation, on request and without cost, to any shareholder of
either Constituent Corporation.
Seventh: This Certificate of Merger shall be effective on
__________, 1997 upon recordation by the Secretary of State of Louisiana.
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This Certificate of Merger is executed by the Surviving
Corporation, acting through its President, this _____ day of __________, 1997.
CitiSave Financial Corporation
By:
---------------------------
Its: President
ACKNOWLEDGMENT
State of Louisiana )
)
Parish of East Baton Rouge )
BEFORE ME, the undersigned authority, personally came and
appeared ______________ who, being duly sworn, declared and acknowledged before
me that he is the President of CitiSave Financial Corporation and that in such
capacity he was duly authorized to and did execute the foregoing Certificate of
Merger on behalf of such corporation, for the purposes therein expressed and as
his and such corporation's free act and deed.
------------------------------
, Appearer
--------------
Sworn to and subscribed before me
this ____ day of _____________, 1997
- -------------------------------------------
NOTARY PUBLIC
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<PAGE> 176
APPENDIX B
[Charles Webb letterhead]
May 12, 1997
Board of Directors
CitiSave Financial Corporation
665 Florida Street
Baton Rouge, Louisiana 70801
Dear Ladies and Gentlemen:
You have requested our opinion as an independent investment banking firm
regarding the fairness, from a financial point of view, to the stockholders of
CitiSave Financial Corporation ("CitiSave"), of the consideration to be
received by such stockholders in the merger (the "Merger") between CitiSave and
a wholly owned subsidiary of Deposit Guaranty Corp. ("DGC"). We have not been
requested to opine as to, and our opinion does not in any matter address,
CitiSave's underlying business decision to proceed with or effect the Merger.
Pursuant to the Agreement and Plan of Merger, dated March 26, 1997, by and
among CitiSave, its wholly owned subsidiary Citizens Savings Association, F.A.
("Citizens"), DGC and its wholly owned subsidiary CSF Acquisition Corp. (the
"Agreement"), at the effective date of the Merger ("Effective Date"), holders
of CitiSave's issued and outstanding shares of common stock (962,207 shares as
of the date of the Agreement, which includes 5,741 shares that, while allocated
to CitiSave's Management Recognition Plan, have not been granted) will be
converted into the right to receive $20.50 in cash per share (the "Merger
Price"). In addition, the holders of outstanding options to purchase CitiSave
common stock (86,607 options outstanding as of the date of the Agreement),
shall receive the difference between the Merger Price and the price the holder
was required to pay for such share upon the exercise of the option. The
complete terms of the proposed transaction are described in the Agreement, and
this summary is qualified in its entirety by reference thereto.
Charles Webb & Company, a Division of Keefe, Bruyette & Woods, Inc., as part of
its investment banking business, is regularly engaged in the evaluation of
businesses and securities in connection with mergers and acquisitions,
negotiated underwritings, and distributions of listed and unlisted securities.
We are familiar with the market for common stocks of publicly traded banks,
savings institutions and bank and savings institution holding companies.
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CitiSave Financial Corporation
May 12, 1997
Page 2
In connection with this opinion we reviewed certain financial and other
business data supplied to us by CitiSave including (i) the prospectus dated May
19, 1995, for CitiSave's offering of common stock in connection with the
conversion of Citizens from a Louisiana mutual association to the stock holding
company structure, (ii) Annual Reports, Proxy Statements and Form 10-KSB's for
the year ended December 31, 1995 and drafts of such material for the year ended
December 31, 1996, (iii) Form 10-QSB's for the quarters ended March 31, 1996,
June 30, 1996, and September 30, 1996, and publicly released results for the
quarter and year ended December 31, 1996, and (iv) certain other information we
deemed relevant. We discussed with senior management and the Board of
Directors of CitiSave and its wholly owned subsidiary, Citizens, the current
position and prospective outlook for CitiSave. We considered historical
quotations and the prices of recorded transactions in CitiSave's common stock
since its public offering in July 1995. We reviewed financial and stock market
data of other savings institutions, particularly in the southern region of the
United States, and the financial and structural terms of several other recent
transactions involving mergers and acquisitions of savings institutions or
proposed changes of control of comparably situated companies.
For DGC, we reviewed the audited financial statements and annual report for the
fiscal year ended December 31, 1995, and Form 10-Q's for the quarters ended
March 31, 1996, June 30, 1996 and September 30, 1996 and publicly released
results for the quarter and year ended December 31, 1996, and certain other
information deemed relevant.
For purposes of this opinion we have relied, without independent verification,
on the accuracy and completeness of the material furnished to us by CitiSave
and DGC and the material otherwise made available to us, including information
from published sources, and we have not made any independent effort to verify
such data. With respect to the financial information, including forecasts and
asset valuations we received from CitiSave, we assumed (with your consent) that
they had been reasonably prepared reflecting the best currently available
estimates and judgment of CitiSave's management. In addition, we have not made
or obtained any independent appraisals or evaluations of the assets or
liabilities, and potential and/or contingent liabilities of CitiSave or DGC.
We have further relied on the assurances of management of CitiSave and DGC that
they are not aware of any facts that would make such information inaccurate or
misleading. We express no opinion on matters of a legal, regulatory, tax or
accounting nature or the ability of the Merger, as set forth in the Agreement,
to be consummated.
In rendering our opinion, we have assumed that in the course of obtaining the
necessary approvals for the Merger, no restrictions or conditions will be
imposed that would have a material adverse effect on the contemplated benefits
of the Merger to CitiSave or the ability to consummate the
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<PAGE> 178
CitiSave Financial Corporation
May 12, 1997
Page 3
Merger. Our opinion is based on the market, economic and other relevant
considerations as they exist and can be evaluated on the date hereof.
Consistent with the engagement letter with you, we have acted as financial
advisor to CitiSave in connection with the Merger and will receive a fee for
such services, a majority of which is contingent upon the consummation of the
Merger. In addition, CitiSave has agreed to indemnify us for certain
liabilities arising out of our engagement by CitiSave in connection with the
Merger.
Based upon and subject to the foregoing, as outlined in the foregoing
paragraphs and based on such other matters as we considered relevant, it is our
opinion that as of the date hereof, the consideration to be received by the
stockholders of CitiSave in the Merger is fair, from a financial point of view,
to the stockholders of CitiSave.
This opinion may not, however, be summarized, excerpted from or otherwise
publicly referred to without our prior written consent, although this opinion
may be included in its entirety in the proxy statements of CitiSave used to
solicit stockholder approval of the Merger. It is understood that this letter
is directed to the Board of Directors of CitiSave in its consideration of the
Agreement, and is not intended to be and does not constitute a recommendation
to any stockholder as to how such stockholder should vote with respect to the
Merger.
Very truly yours,
Charles Webb & Company
a Division of Keefe, Bruyette & Woods, Inc.
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<PAGE> 179
APPENDIX C
STATUTORY DISSENTERS' RIGHTS
UNDER THE LOUISIANA BUSINESS CORPORATION LAW
12:131 RIGHTS OF SHAREHOLDER DISSENTING FROM CERTAIN CORPORATE
ACTIONS. - A. Except as provided in subsection B of this Section, if a
corporation has, by vote of its shareholders, authorized a sale, lease or
exchange of all of its assets, or has, by vote of its shareholders, become a
party to a merger or consolidation, then, unless such authorization or action
shall have been given or approved by at least eighty per cent of the total
voting power, a shareholder who voted against such corporate action shall have
the right to dissent. If a corporation has become a party to a merger pursuant
to R.S. 12:112(H), the shareholders of any subsidiaries party to the merger
shall have the right to dissent without regard to the proportion of the voting
power which approved the merger and despite the fact that the merger was not
approved by vote of the shareholders of any of the corporations involved.
B. The right to dissent provided by this Section shall not exist
in the case of:
(1) A sale pursuant to an order of a court having
jurisdiction in the premises.
(2) A sale for cash on terms requiring distribution of all
or substantially all of the net proceeds to the
shareholders in accordance with their respective
interests within one year after the date of the sale.
(3) Shareholders holding shares of any class of stock
which, at the record date fixed to determine
shareholders entitled to receive notice of and to vote
at the meeting of shareholders at which a merger or
consolidation was acted on, were listed on a national
securities exchange, or were designated as a national
market system security on an inter-dealer quotation
system by the National Association of Securities
Dealers, unless the articles of the corporation
issuing such stock provide otherwise or the shares of
such shareholders were not converted by the merger or
consolidation solely into shares of the surviving or
new corporation.
C. Except as provided in the last sentence of this subsection,
any shareholder electing to exercise such right of dissent shall file with the
corporation, prior to or at the meeting of shareholders at which such proposed
corporate action is submitted to a vote, a written objection to such proposed
corporate action, and shall vote his shares against such action. If such
proposed corporate action be taken by the required vote, but by less than
eighty per cent of the total voting power, and the merger, consolidation or
sale, lease or exchange of assets authorized thereby be effected, the
corporation shall promptly thereafter give written notice thereof, by
registered mail, to each shareholder who filed such written objection to, and
voted his shares against, such action, at such shareholder's last address on
the corporation's records. Each such shareholder may,
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within twenty days after the mailing of such notice to him, but not thereafter,
file with the corporation a demand in writing for the fair cash value of his
shares as of the day before such vote was taken; provided that he state in such
demand the value demanded, and a post office address to which the reply of the
corporation may be sent, and at the same time deposit in escrow in a chartered
bank or trust company located in the parish of the registered office of the
corporation, the certificates representing his shares, duly endorsed and
transferred to the corporation upon the sole condition that said certificates
shall be delivered to the corporation upon payment of the value of the shares
determined in accordance with the provisions of this Section. With his demand
the shareholder shall deliver to the corporation, the written acknowledgment of
such bank or trust company that it so holds his certificates of stock. Unless
the objection, demand and acknowledgment aforesaid be made and delivered by the
shareholder within the period above limited, he shall conclusively be presumed
to have acquiesced in the corporate action proposed or taken. In the case of a
merger pursuant to R.S. 12:112(H), the dissenting shareholder need not file an
objection with the corporation nor vote against the merger, but need only file
with the corporation, within twenty days after a copy of the merger certificate
was mailed to him, a demand in writing for the cash value of his shares as of
the day before the certificate was filed with the Secretary of State, state in
such demand the value demanded and a post office address to which the
corporation's reply may be sent, deposit the certificates representing his
shares in escrow as hereinabove provided, and deliver to the corporation with
his demand the acknowledgment of the escrow bank or trust company as
hereinabove prescribed.
D. If the corporation does not agree to the value so stated and
demanded, or does not agree that a payment is due, it shall, within twenty days
after receipt of such demand and acknowledgment, notify in writing the
shareholder, at the designated post office address, of its disagreement, and
shall state in such notice the value it will agree to pay if any payment should
be held to be due; otherwise it shall be liable for, and shall pay to the
dissatisfied shareholder, the value demanded by him for his shares.
E. In the case of disagreement as to such fair cash value, or as
to whether any payment is due, after compliance by the parties with the
provisions of subsections C and D of this Section, the dissatisfied
shareholder, within sixty days after receipt of notice in writing of the
corporation's disagreement, but not thereafter, may file suit against the
corporation, or the merged or consolidated corporation, as the case may be, in
the district court of the parish in which the corporation or the merged or
consolidated corporation, as the case may be, has its registered office,
praying the court to fix and decree the fair cash value of the dissatisfied
shareholder's shares as of the day before such corporate action complained of
was taken, and the court shall, on such evidence as may be adduced in relation
thereto, determine summarily whether any payment is due, and, if so, such cash
value, and render judgment accordingly. Any shareholder entitled to file such
suit may, within such sixty-day period but not thereafter, intervene as a
plaintiff in such suit filed by another shareholder, and recover therein
judgment against the corporation for the fair cash value of his shares. No
order or decree shall be made by the court staying the proposed corporate
action, and any such corporate action may be carried to completion
notwithstanding any such suit. Failure of the shareholder to bring suit, or to
intervene in such a suit, within sixty days after receipt of notice of
disagreement by the
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corporation shall conclusively bind the shareholder (1) by the corporation's
statement that no payment is due, or (2) if the corporation does not contend
that no payment is due, to accept the value of his shares as fixed by the
corporation in its notice of disagreement.
F. When the fair value of the shares has been agreed upon between
the shareholder and the corporation, or when the corporation has become liable
for the value demanded by the shareholder because of failure to give notice of
disagreement and of the value it will pay, or when the shareholder has become
bound to accept the value the corporation agrees is due because of his failure
to bring suit within sixty days after receipt of notice of the corporation's
disagreement, the action of the shareholder to recover such value must be
brought within five years from the date the value was agreed upon, or the
liability of the corporation became fixed.
G. If the corporation or the merged or consolidated corporation,
as the case may be, shall, in its notice of disagreement, have offered to pay
to the dissatisfied shareholder on demand an amount in cash deemed by it to be
the fair cash value of his shares, and if, on the institution of a suit by the
dissatisfied shareholder claiming an amount in excess of the amount so offered,
the corporation, or the merged or consolidated corporation, as the case may be,
shall deposit in the registry of the court, there to remain until the final
determination of the cause, the amount so offered, then, if the amount finally
awarded such shareholder, exclusive of interest and costs, be more than the
amount offered and deposited as aforesaid, the costs of the proceeding shall be
taxed against the corporation, or the merged or consolidated corporation, as
the case may be; otherwise the costs of the proceeding shall be taxed against
such shareholder.
H. Upon filing a demand for the value of his shares, the
shareholder shall cease to have any of the rights of a shareholder except the
rights accorded by this Section. Such a demand may be withdrawn by the
shareholder at any time before the corporation gives notice of disagreement, as
provided in subsection D of this Section. After such notice of disagreement is
given, withdrawal of a notice of election shall require the written consent of
the corporation. If a notice of election is withdrawn, or the proposed
corporate action is abandoned or rescinded, or a court shall determine that the
shareholder is not entitled to receive payment for his shares, or the
shareholder shall otherwise lose his dissenter's rights, he shall not have the
right to receive payment for his shares, his share certificates shall be
returned to him (and, on his request, new certificates shall be issued to him
in exchange for the old ones endorsed to the corporation), and he shall be
reinstated to all his rights as a shareholder as of the filing of his demand
for value, including any intervening preemptive rights, and the right to
payment of any intervening dividend or other distribution, or, if any such
rights have expired or any such dividend or distribution other than in cash has
been completed, in lieu thereof, at the election of the corporation, the fair
value thereof in cash as determined by the board as of the time of such
expiration or completion, but without prejudice otherwise to any corporate
proceedings that may have been taken in the interim.
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CITISAVE FINANCIAL CORPORATION REVOCABLE PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
CITISAVE FINANCIAL CORPORATION ("CITISAVE") FOR USE AT THE ANNUAL MEETING OF
STOCKHOLDERS TO BE HELD ON JUNE 24, 1997 AND AT ANY ADJOURNMENT THEREOF.
The undersigned hereby appoints the Board of Directors of CitiSave, or any
successors thereto as proxies, with full powers of substitution, to vote the
shares of the undersigned at the Annual Meeting of Stockholders of CitiSave to
be held at the Main Office located at 665 Florida Street, Baton Rouge,
Louisiana, on June 24, 1997 at 10:00 a.m., Central Time, and at any adjournment
thereof, with all the powers that the undersigned would possess if personally
present, as follows:
1. To approve and adopt the Agreement and Plan of Merger (the
"Merger Agreement") dated as of March 26, 1997, by and among Deposit Guaranty
Corp. ("DGC"), CSF Acquisition Corp. ("CSF"), CitiSave and Citizens Savings
Association, F.A., pursuant to which (i) CSF will be merged into CitiSave (the
"Merger"), with CitiSave as the surviving corporation; and (ii) each share of
common stock of CitiSave outstanding immediately prior to consummation of the
Merger (other than shares as to which dissenters' rights have been asserted and
duly perfected in accordance with Louisiana law, if such rights are available)
shall be converted into and represent the right to receive $20.50 in cash.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. To adjourn the Annual Meeting, if necessary, to solicit
additional proxies.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. ELECTION OF DIRECTORS
[ ] FOR the nominees listed [ ] WITHHOLD AUTHORITY
below (except as marked to vote for the
to the contrary below) nominees listed below
Nominees for three-year term: S. Pendery Gibbens, Jr., Dr. Clarence B. Hackett
and Wayne P. Hirschey.
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE(S),
WRITE THE NAME OF THE NOMINEE(S) IN THE SPACE PROVIDED BELOW.)
- --------------------------------------------------------------------------------
4. To ratify the appointment of Hannis T. Bourgeois & Co.,
L.L.P. as CitiSave's independent auditors for the year ending December 31,
1997.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
<PAGE> 183
In their discretion, the proxies are authorized to vote with respect
to approval of the minutes of the last meeting of stockholders, the election of
any person as a director if the nominee is unable to serve or for good cause
will not serve, matters incident to the conduct of the meeting, and upon such
other matters as may properly come before the meeting.
The Board of Directors recommends that you vote FOR each of Proposals
1, 2, 3 and 4. Shares of common stock of the Company will be voted as
specified. IF NO SPECIFICATION IS MADE, SHARES WILL BE VOTED IN FAVOR OF EACH
OF PROPOSALS 1, 2, 3 AND 4, AND OTHERWISE AT THE DISCRETION OF THE PROXIES.
This proxy may not be voted for any person who is not a nominee of the Board of
Directors of the Company. THIS PROXY MAY BE REVOKED AT ANY TIME BEFORE IT IS
EXERCISED.
The undersigned hereby acknowledges receipt of the Notice of Annual
Meeting of the Stockholders of the Company called for June 24, 1997 and a Proxy
Statement for the Annual Meeting.
Dated: , 1997
---------------------
-------------------------------------------------
-------------------------------------------------
Signature(s)
PLEASE SIGN THIS EXACTLY AS YOUR NAME(S)
APPEAR(S) ON THIS PROXY. WHEN SIGNING IN A
REPRESENTATIVE CAPACITY, PLEASE GIVE TITLE. WHEN
SHARES ARE HELD JOINTLY, ONLY ONE HOLDER NEED
SIGN.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
