CSB Bancorp, Inc. 424(b)(3)
File Pursuant To Rule 424(b)(3)
Registration No. 333-152393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CSB BANCORP, INC.
|
|
|
|
INDIAN VILLAGE BANCORP, INC. |
|
|
|
|
|
|
|
|
|
|
CSB Bancorp, Inc. (CSB), and Indian Village Bancorp, Inc. (Indian Village), have entered
into an Agreement and Plan of Merger dated as of May 14, 2008 (the merger agreement), which
provides for the merger of Indian Village with and into CSB (the merger). Consummation of the
merger is subject to certain conditions, including, but not limited to, obtaining the requisite
vote of the shareholders of Indian Village and the approval of the merger by various regulatory
agencies.
The Board of Directors of Indian Village has called a special meeting of its shareholders to
vote on the adoption and approval of the merger agreement. The time, date and place of the Indian
Village special meeting is as follows: 5:00 p.m., local time, on
September 17, 2008, at the New
Philadelphia branch office of Indian Village Community Bank, 635 West High Avenue, New
Philadelphia, Ohio 44663. The adoption and approval of the merger agreement by the shareholders of
Indian Village requires the affirmative vote of the holders of a majority of the shares of Indian
Village common stock outstanding and entitled to vote at the special meeting.
Under the terms of the merger agreement, the shareholders of Indian Village will be entitled
to receive after the merger is completed, for each share of Indian Village common stock (other than
shares held in the Indian Village Community Bank 401(k) Plan and certain shares held in the Indian
Village Community Bank Employee Stock Ownership Plan), a combination of:
|
|
|
$4.375 in cash, and |
|
|
|
|
0.7611 CSB common shares. |
As
of August 4, 2008, 423,679 shares of Indian Village common stock were outstanding.
CSB common shares are not traded on an established market. CSB common shares are traded
through broker/dealers and in private transactions, and quotations are reported on the OTC Bulletin
Board under the symbol CSBB.OB. OTC Bulletin Board quotations reflect inter-dealer prices,
without mark-up, mark-down, or commission and may not necessarily represent actual transactions.
An investment in the common shares of CSB involves certain risks. For a discussion of these
risks, see Risk Factors beginning on page 10 of this prospectus/proxy statement.
Whether or not you plan to attend the special meeting of shareholders of Indian Village,
please complete, sign and return the enclosed proxy card in the enclosed postage-paid envelope.
Not voting by proxy or at the special meeting will have the same effect as voting against the
adoption and approval of the merger agreement. We urge you to read carefully the prospectus/proxy
statement, which contains a detailed description of the merger, the merger agreement and related
matters.
This prospectus/proxy statement is dated August 4, 2008 and, together with the enclosed proxy
card of Indian Village, is being first mailed to shareholders of Indian Village on or about
August 8, 2008.
|
|
|
Sincerely,
|
|
Sincerely, |
![-s- Eddie L. Steiner](l31934cl3193420.jpg) |
|
![-s- Marty R. Lindon](l31934cl3193421.jpg) |
Eddie L. Steiner
|
|
Marty R. Lindon |
President and Chief Executive Officer
|
|
President and Chief Executive Officer |
CSB Bancorp, Inc.
|
|
Indian Village Bancorp, Inc. |
The securities to be issued in connection with the merger described in this prospectus/proxy
statement are not savings accounts, deposit accounts or other obligations of any bank or savings
association and are not insured by the Federal Deposit Insurance Corporation, the Deposit Insurance
Fund or any other federal or state governmental agency. Neither the Securities and Exchange
Commission nor any state securities commission has approved or disapproved of the CSB common shares
to be issued in the merger or determined if this prospectus/proxy statement is truthful or
complete. Any representation to the contrary is a criminal offense.
This document does not constitute an offer to sell, or a solicitation of an offer to buy, any
securities, or the solicitation of a proxy, in any jurisdiction to or from any person to whom it is
unlawful to make any such offer or solicitation in such jurisdiction.
Sources of Information
CSB has supplied all information contained in this prospectus/proxy statement relating to CSB,
and Indian Village has supplied all information contained in this prospectus/proxy statement
relating to Indian Village.
You should rely only on the information which is contained in this prospectus/proxy statement
or to which we have referred in this prospectus/proxy statement. We have not authorized anyone to
provide you with information that is different. You should not assume that the information
contained in this prospectus/proxy statement is accurate as of any date other than the date of this
prospectus/proxy statement.
Indian Village Bancorp, Inc.
100 South Walnut Street
Gnadenhutten, Ohio 44629
(740) 254-4313
Notice of Special Meeting of Shareholders
To Be Held on September 17, 2008
To the Shareholders of Indian Village Bancorp, Inc:
Notice is hereby given that a special meeting of the shareholders of Indian Village Bancorp,
Inc. will be held on September 17, 2008, at 5:00 p.m., local time, at the New Philadelphia branch
office of Indian Village Community Bank, 635 West High Avenue, New Philadelphia, Ohio 44663, for
the purpose of considering and voting on the following matters:
1. A proposal to adopt and approve the Agreement and Plan of Merger dated as of May 14, 2008,
by and between CSB Bancorp, Inc. and Indian Village Bancorp, Inc.;
2. A proposal to approve the adjournment of the special meeting, if necessary, to solicit
additional proxies in the event there are not sufficient votes at the time of the special meeting
to adopt and approve the Agreement and Plan of Merger; and
3. Any other business which properly comes before the special meeting or any adjournment or
postponement of the special meeting. The Board of Directors of Indian Village Bancorp, Inc. is
unaware of any other business to be transacted at the special meeting.
Holders of record of shares of Indian Village Bancorp, Inc. common stock at the close of
business on August 4, 2008, the record date, are entitled to notice of and to vote at the
special meeting and any adjournment or postponement of the special meeting. The affirmative vote
of the holders of a majority of the outstanding shares of Indian Village Bancorp, Inc. common stock
entitled to vote at the special meeting is required to adopt and approve the Agreement and Plan of
Merger.
A prospectus/proxy statement and proxy card for the special meeting are enclosed. A copy of
the Agreement and Plan of Merger is attached as Annex A to the prospectus/proxy statement.
Your vote is very important, regardless of the number of shares of Indian Village Bancorp,
Inc. common stock you own. Please vote as soon as possible to make sure that your shares of common
stock are represented at the special meeting. If you are a holder of record, you may cast your
vote in person at the special meeting or, to ensure that your shares of Indian Village Bancorp,
Inc. common stock are represented at the special meeting, you may vote your shares by completing,
signing and returning the enclosed proxy card. If your shares are held in a stock brokerage
account or by a bank or other nominee (in street name), please follow the voting instructions
provided by your broker, bank or nominee.
The Indian Village Bancorp, Inc. Board of Directors unanimously recommends that you vote (1)
FOR the adoption and approval of the Agreement and Plan of Merger and (2) FOR the proposal to
adjourn the special meeting, if necessary, to solicit additional proxies.
|
|
|
|
|
|
|
By Order of the Board of Directors,
|
|
|
|
|
![-s- Marty R. Lindon](l31934cl3193421.jpg) |
|
|
|
Marty R. Lindon, President and |
|
|
|
|
Chief Executive Officer |
|
|
August 4, 2008
|
|
Indian Village Bancorp, Inc. |
|
|
TABLE OF CONTENTS
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
|
|
10 |
|
|
|
|
|
|
|
|
|
13 |
|
|
|
|
|
|
|
|
|
14 |
|
|
|
|
|
|
|
|
|
16 |
|
|
|
|
|
|
|
|
|
18 |
|
|
|
|
|
|
|
|
|
19 |
|
|
|
|
|
|
|
|
|
20 |
|
|
|
|
|
|
|
|
|
21 |
|
|
|
|
|
|
|
|
|
21 |
|
|
|
|
21 |
|
|
|
|
21 |
|
|
|
|
22 |
|
|
|
|
|
|
|
|
|
23 |
|
|
|
|
|
|
|
|
|
23 |
|
|
|
|
24 |
|
|
|
|
24 |
|
|
|
|
24 |
|
|
|
|
25 |
|
|
|
|
25 |
|
|
|
|
25 |
|
|
|
|
25 |
|
|
|
|
|
|
|
|
|
26 |
|
|
|
|
|
|
|
|
|
26 |
|
|
|
|
26 |
|
|
|
|
30 |
|
|
|
|
31 |
|
|
|
|
34 |
|
|
|
|
34 |
|
|
|
|
36 |
|
|
|
|
39 |
|
|
|
|
39 |
|
|
|
|
40 |
|
|
|
|
40 |
|
|
|
|
|
|
|
|
|
40 |
|
- i -
|
|
|
|
|
|
|
|
41 |
|
|
|
|
|
|
|
|
|
41 |
|
|
|
|
41 |
|
|
|
|
41 |
|
|
|
|
42 |
|
|
|
|
43 |
|
|
|
|
43 |
|
|
|
|
43 |
|
|
|
|
43 |
|
|
|
|
46 |
|
|
|
|
48 |
|
|
|
|
51 |
|
|
|
|
51 |
|
|
|
|
52 |
|
|
|
|
52 |
|
|
|
|
53 |
|
|
|
|
|
|
|
|
|
53 |
|
|
|
|
|
|
|
|
|
53 |
|
|
|
|
53 |
|
|
|
|
55 |
|
|
|
|
|
|
|
|
|
57 |
|
|
|
|
|
|
|
|
|
58 |
|
|
|
|
58 |
|
|
|
|
58 |
|
|
|
|
59 |
|
|
|
|
59 |
|
|
|
|
59 |
|
|
|
|
61 |
|
|
|
|
61 |
|
|
|
|
61 |
|
|
|
|
62 |
|
|
|
|
62 |
|
|
|
|
63 |
|
|
|
|
63 |
|
|
|
|
|
|
|
|
|
64 |
|
|
|
|
|
|
|
|
|
68 |
|
|
|
|
|
|
|
|
|
68 |
|
|
|
|
69 |
|
|
|
|
70 |
|
|
|
|
73 |
|
|
|
|
74 |
|
|
|
|
77 |
|
|
|
|
78 |
|
|
|
|
78 |
|
|
|
|
79 |
|
|
|
|
|
|
|
|
|
79 |
|
- ii -
|
|
|
|
|
|
|
|
81 |
|
|
|
|
|
|
|
|
|
81 |
|
|
|
|
84 |
|
|
|
|
84 |
|
|
|
|
85 |
|
|
|
|
86 |
|
|
|
|
90 |
|
|
|
|
|
|
|
|
|
104 |
|
|
|
|
|
|
|
|
|
104 |
|
|
|
|
104 |
|
|
|
|
105 |
|
|
|
|
107 |
|
|
|
|
110 |
|
|
|
|
|
|
|
|
|
112 |
|
|
|
|
|
|
|
|
|
112 |
|
|
|
|
|
|
|
|
|
112 |
|
|
|
|
|
|
|
|
|
F-1 |
|
|
|
|
|
|
|
|
|
F-38 |
|
Annexes:
|
|
|
Annex A
|
|
Agreement and Plan of Merger |
|
|
|
Annex B
|
|
Dissenters Rights Under Subchapter D of Chapter 15 of the Pennsylvania Consolidated Statutes |
|
|
|
Annex C
|
|
Opinion of Keller & Company, Inc. |
- iii -
Questions and Answers About the Merger and the Special Meeting
Q. |
|
Why am I receiving this prospectus/proxy statement? |
|
A: |
|
You are receiving this prospectus/proxy statement because CSB and
Indian Village have agreed to a merger of Indian Village with and into
CSB pursuant to the terms of the merger agreement attached to this
prospectus/proxy statement as Annex A. The merger agreement must be
adopted and approved by the shareholders of Indian Village in
accordance with Section 1924 of the Pennsylvania Consolidated
Statutes. |
|
|
|
This prospectus/proxy statement contains important information about
the merger and the special meeting of the shareholders of Indian
Village, and you should read it carefully. The enclosed voting
materials allow you to vote your shares of Indian Village common stock
without attending the special meeting. |
|
Q. |
|
Why are CSB and Indian Village proposing to merge? |
|
A: |
|
Indian Village believes that the merger is in the best interests of its shareholders and
other constituencies because, among other reasons, the merger consideration will provide
enhanced value and increased liquidity to Indian Village shareholders. Furthermore, as a
result of the merger, Indian Village will become part of a larger community banking
institution which will have an improved ability to compete with larger financial institutions
and better serve its customers needs. |
|
|
|
CSB believes that the merger will benefit CSB and its shareholders because the merger will
enable CSB to expand its business into the markets currently served by Indian Village and
strengthen the competitive position of the combined organization. Furthermore, CSBs increased
asset size after the merger will, CSB hopes, create additional economies of scale and provide
additional opportunities for asset and earnings growth in an extremely competitive environment.
No approval of the shareholders of CSB is required under the provisions of CSBs Amended
Articles of Incorporation or Code of Regulations or applicable law in order to consummate the
merger. |
|
Q: |
|
What will Indian Village shareholders receive in the merger? |
|
A: |
|
Under the terms of the merger agreement, the shareholders of Indian Village will be entitled to receive, for each share of
Indian Village common stock (other than shares held in the Indian Village Community Bank 401(k) Plan and certain shares
held in the Indian Village Community Bank Employee Stock Ownership Plan), a combination of: |
|
|
|
$4.375 in cash; and |
|
|
|
|
0.7611 CSB common shares. |
Q: |
|
What will Indian Village option holders receive in the merger? |
|
A: |
|
Each outstanding option granted pursuant to the Indian Village 2000 Stock-Based Incentive Plan which is not exercised in
accordance with the terms of the merger agreement will be cancelled at the effective time of the merger and converted into
the right to receive an amount in cash equal to the product of (1) the difference between $17.50, less the exercise price
of each such option, multiplied by (2) the number of shares of Indian Village common stock subject to such option. |
|
Q: |
|
When and where will the Indian Village special meeting of shareholders take place? |
|
A: |
|
The special meeting of shareholders of Indian Village will
be held at 5:00 p.m., local time, on September 17, 2008, at the
New Philadelphia branch office of Indian Village Community Bank, 635 West High Avenue, New Philadelphia, Ohio 44663. |
- 1 -
Q: |
|
What matters will be considered at the Indian Village special meeting? |
|
A: |
|
The shareholders of Indian Village will be asked to (1) vote to adopt and approve the merger agreement; (2) vote to approve
the adjournment of the special meeting to solicit additional proxies if there are not sufficient votes at the time of the
special meeting to adopt and approve the merger agreement; and (3) vote on any other business which properly comes before
the special meeting. |
|
Q: |
|
Is my vote needed to adopt and approve the merger agreement? |
|
A: |
|
The adoption and approval of the merger agreement by the shareholders of Indian Village requires the affirmative vote of
the holders of a majority of the shares of Indian Village common stock outstanding and entitled to vote at the special
meeting. The special meeting may be adjourned, if necessary, to solicit additional proxies in the event there are not
sufficient votes at the time of the special meeting to adopt and approve the merger agreement. The affirmative vote of the
holders of a majority of the shares of Indian Village common stock represented, in person or proxy, at the special meeting
is required to adjourn the special meeting. |
|
Q: |
|
How do I vote? |
|
A: |
|
If you were the record holder of shares of Indian Village
common stock as of August 4, 2008, you may vote in person by
attending the special meeting or, to ensure that your shares of Indian Village common stock are represented at the special
meeting, you may vote your shares by signing and returning the enclosed proxy card in the postage-paid envelope provided. |
|
|
|
If you hold shares of Indian Village common stock in the name of a broker, bank or other nominee, please see the discussion
below regarding shares held in street name. |
|
Q: |
|
What will happen if I fail to vote or abstain from voting? |
|
A: |
|
If you fail to vote or mark ABSTAIN on your proxy card with respect to the proposal to adopt and approve the merger
agreement, it will have the same effect as a vote AGAINST the proposal. |
|
|
|
If you mark ABSTAIN on your proxy card with respect to the proposal to approve the
adjournment of the Indian Village special meeting, if necessary, to solicit additional proxies,
it will have the same effect as a vote AGAINST the proposal. The failure to vote, however,
will have no effect on the proposal to approve the adjournment of the Indian Village special
meeting, if necessary, to solicit additional proxies. |
|
Q: |
|
How will my common shares be voted if I return a blank proxy card? |
|
A: |
|
If you sign, date and return your proxy card and do not indicate how you want your shares of Indian Village common stock to
be voted, then your shares will be voted FOR the adoption and approval of the merger agreement and, if necessary, FOR
the approval of the adjournment of the special meeting to solicit additional proxies. |
|
Q: |
|
If my shares of Indian Village common stock are held in a stock brokerage account or by a bank or other nominee (in street
name), will my broker, bank or other nominee vote my shares for me? |
|
A: |
|
You must provide your broker, bank or nominee (the record holder of your common shares) with instructions on how to vote
your shares of Indian Village common stock. Please follow the voting instructions provided by your broker, bank or
nominee. |
|
|
|
If you do not provide voting instructions to your broker, bank or nominee, then your shares of Indian Village common stock
will not be voted by your broker, bank or nominee. |
- 2 -
Q: |
|
Can I change my vote after I have submitted my proxy? |
|
A: |
|
Yes. You may revoke your proxy at any time before a vote is taken at the special meeting by: |
|
|
|
filing a written notice of revocation with the Secretary of Indian Village,
at 100 South Walnut Street, Gnadenhutten, Ohio 44629; |
|
|
|
|
executing and returning another proxy card with a later date; or |
|
|
|
|
attending the special meeting and giving notice of revocation in person. |
|
|
Attendance at the special meeting will not, by itself, revoke your proxy. |
|
|
|
If you have instructed your broker, bank or nominee to vote your shares of Indian Village
common stock, you must follow directions received from your broker, bank or nominee to change
your vote. |
|
Q: |
|
If I do not favor the adoption and approval of the merger agreement, what are my rights? |
|
A: |
|
If you are an Indian Village shareholder as of the
August 4, 2008, record date and if you do not vote in favor of the
adoption and approval of the merger agreement, you will have the right under Subchapter D of Chapter 15 of the Pennsylvania
Consolidated Statutes to demand the fair cash value for your shares of Indian Village common stock. The right to make this
demand is known as dissenters rights. For additional information regarding your dissenters rights, see Dissenters
Rights beginning on page 23 of this prospectus/proxy statement and the complete text of the applicable sections of Subchapter D of
Chapter 15 of the Pennsylvania Consolidated Statutes attached to this prospectus/proxy statement as Annex B. |
|
Q: |
|
When is the merger expected to be completed? |
|
A: |
|
We are working to complete the merger as quickly as we can.
We expect to complete the merger on or before October 31, 2008, assuming shareholder approval and all applicable governmental approvals have been received by that date and all other
conditions precedent to the merger have been satisfied or waived. |
|
Q: |
|
Should I send in my Indian Village stock certificates now? |
|
A. |
|
No. Please do not send in your Indian Village stock certificates with your proxy card.
Shortly after the merger is completed, CSBs exchange agent, Registrar and Transfer Company,
will mail to you transmittal materials that you will need to complete and return with your
Indian Village stock certificates. You should not surrender your Indian Village stock
certificates for exchange until you receive these transmittal materials from the exchange
agent. For additional information, see The Merger Agreement Surrender of certificates
beginning on page 42 of this prospectus/proxy statement. |
|
Q: |
|
What do I need to do now? |
|
A: |
|
After carefully reviewing this prospectus/proxy statement, including
its annexes, please complete, sign and date the enclosed proxy card
and return it in the enclosed postage-paid envelope as soon as
possible. By submitting your proxy, you authorize the individuals
named in the proxy to vote your shares of Indian Village common stock
at the special meeting of shareholders of Indian Village in accordance
with your instructions. Your vote is very important. Whether or not
you plan to attend the special meeting, please submit your proxy with
voting instructions to ensure that your shares of Indian Village
common stock will be voted at the special meeting. |
- 3 -
Q: |
|
Who can answer my questions? |
|
A: |
|
If you have questions about the merger or desire additional copies of
this prospectus/proxy statement or additional proxy cards, please
contact: |
Marty R. Lindon
President and Chief Executive Officer
Indian Village Bancorp, Inc.
100 South Walnut Street
Gnadenhutten, Ohio 44629
(740) 254-4313
- 4 -
Summary
This summary highlights selected information from this prospectus/proxy statement. It does
not contain all of the information that may be important to you. You should read carefully this
entire document and its annexes and all other documents to which this prospectus/proxy statement
refers before you decide how to vote. Page references are included in this summary to direct you
to a more complete description of topics discussed in this prospectus/proxy statement.
The
parties (pages 81 and 104)
CSB Bancorp, Inc.
91 North Clay Street
Millersburg, Ohio 44654
(330) 674-9015
CSB is a financial holding company registered under the Bank Holding Company Act of 1956, as
amended, and was incorporated under the laws of the State of Ohio in 1991. CSB has two
wholly-owned subsidiaries The Commercial and Savings Bank of Millersburg, Ohio (CSB Bank) and
CSB Investment Services, LLC (CSB Investment).
CSB Bank is an Ohio commercial bank chartered in 1879, is a member of the Federal Reserve
System, and its deposits are insured up to the maximum provided by law by the Federal Deposit
Insurance Corporation. CSB Bank provides retail and commercial banking services to its customers,
including checking and savings accounts, time deposits, IRAs, safe deposit facilities, consumer
loans, commercial loans, real estate mortgage loans, installment loans, night depository
facilities, brokerage and trust services. Residential real estate, commercial real estate,
consumer and commercial loans are made by CSB to customers located primarily in Holmes County and
portions of surrounding counties in Ohio. CSB Bank currently has ten full-service banking offices
in Holmes, Tuscarawas and Wayne counties and trust offices located in Millersburg and Wooster,
Ohio.
CSB Investment is an inactive subsidiary and has never engaged in any business activities.
At March 31, 2008, CSB had total consolidated assets of $345 million, total deposits of $247
million, total loans of $244 million, and total shareholders equity of $37 million.
CSB common shares are not traded on an established market. CSB common shares are traded
through broker/dealers and in private transactions, and quotations are reported on the OTC Bulletin
Board under the symbol CSBB.OB. CSB is subject to the reporting requirements under the
Securities Exchange Act of 1934, as amended, and, therefore, files reports, proxy statements and
other information with the Securities and Exchange Commission. See Where You Can Find More
Information beginning on page 112 of this prospectus/proxy statement.
Indian Village Bancorp, Inc.
100 South Walnut Street
Gnadenhutten, Ohio 44629
(740) 254-4313
Indian Village is a unitary thrift holding company registered under the Home Owners Loan Act
of 1933, as amended, and was incorporated under the laws of the Commonwealth of Pennsylvania in
1999. Indian Villages wholly-owned subsidiary, Indian Village Community Bank (Indian Village
Bank), is an Ohio savings bank which was originally founded in 1923 as the Indian Village Savings
& Loan Association.
Indian Village Bank, which has three full-service banking offices located in Gnadenhutten, New
Philadelphia and North Canton, Ohio, provides retail and commercial banking services to its
customers,
- 5 -
including checking and savings accounts, time deposits, IRAs, real estate mortgage loans,
commercial loans, consumer loans and safe deposit facilities. Its deposits are insured up to the
maximum provided by law by the Federal Deposit Insurance Corporation. Indian Village Bank
originates primarily first mortgage loans on one- to four-family residential real estate properties
located in its primary market area and also originates a limited number of loans for the
construction of one- to four-family residences and permanent mortgage loans secured by multi-family
and nonresidential real estate. In addition to real estate lending, Indian Village Bank originates
limited commercial loans, as well as various types of consumer loans.
Indian Village Bank is the sole member of Delaware Valley Title, LLC, an Ohio limited
liability company. Delaware Valley Title, LLC is an inactive subsidiary and has never engaged in
any business activities. At the time the merger agreement was executed, Indian Village Bank also
owned a one-third interest in Alban Title, LLC. However, as contemplated by the terms and
conditions of the merger agreement, Indian Village Banks one-third interest was sold to and
redeemed by Alban Title, LLC on June 30, 2008.
At March 31, 2008, Indian Village had total consolidated assets of $97.1 million, total
deposits of $66.0 million, total loans of $63.8 million, and total shareholders equity of $8.1
million.
Indian Village common shares are not traded on an established market. Indian Village common
shares are traded through broker/dealers and in private transactions, and quotations are reported
on the OTC Bulletin Board under the symbol of IDVB.OB.
The merger (page 26)
The merger agreement provides for the merger of Indian Village with and into CSB, with CSB
surviving the merger. Immediately following the merger, Indian Villages wholly-owned banking
subsidiary, Indian Village Bank, will be merged with and into CSBs wholly-owned banking
subsidiary, CSB Bank. The merger agreement is attached to this prospectus/proxy statement as Annex
A and is incorporated in this prospectus/proxy statement by reference. We encourage you to read
the merger agreement carefully, as it is the legal document that governs the merger.
What Indian Village shareholders will receive in the merger (page 41)
Under the terms of the merger agreement, the shareholders of Indian Village will be entitled
to receive, for each share of Indian Village common stock (other than shares held in the Indian
Village Community Bank 401(k) Plan and certain shares held in the Indian Village Community Bank
Employee Stock Ownership Plan), a combination of:
|
|
|
$4.375 in cash; and |
|
|
|
|
0.7611 CSB common shares. |
CSB will not issue fractional CSB common shares, or certificates or scrip representing
fractional CSB common shares, in the merger. Instead, CSB will pay to each holder of shares of
Indian Village common stock who would otherwise be entitled to a fractional CSB common share (after
taking into account all Indian Village common shares held at the effective time of the merger by
such holder) an amount of cash, without interest, equal to the product of the fractional CSB common
share multiplied by $17.24.
What Indian Village option holders will receive in the merger (page 43)
Each outstanding option granted pursuant to the Indian Village 2000 Stock-Based Incentive Plan
which is not exercised in accordance with the terms of the merger agreement will be cancelled at
the effective time of the merger and converted into the right to receive an amount in cash equal to
the product of (1) the difference between $17.50 less the exercise price of each such option,
multiplied by (2) the number of shares of Indian Village common stock subject to such option.
- 6 -
Indian Village common stock held in the Indian Village 401(k) and ESOP Plans (page 43)
Under the terms of the merger agreement, all shares of Indian Village common stock held in the
Indian Village Community Bank 401(k) Plan will be redeemed by Indian Village for cash in the amount
of $17.50 per share prior to the effective date of the merger. No shares of Indian Village common
stock held in the Indian Village Community Bank 401(k) Plan will be converted into CSB common
shares.
The merger agreement provides that a total of 9,573 shares of Indian Village common stock held
in the unallocated account of the Indian Village Community Bank Employee Stock Ownership Plan (the
Indian Village ESOP) will be converted into the right to receive cash in the amount of $17.50 per
share. The cash proceeds will be used to repay the loan outstanding from Indian Village to the
Indian Village ESOP. Each of the remaining shares of Indian Village common stock held in the
Indian Village ESOP will be converted into the right to receive $4.375 in cash and 0.7611 CSB
common shares.
Indian Village special meeting of shareholders (page 21)
A special meeting of shareholders of Indian Village will be held at 5:00 p.m., local time, on
September 17, 2008, at the New Philadelphia branch office of Indian Village Community Bank, 635
West High Avenue, New Philadelphia, Ohio 44663, for the purpose of considering and voting on the
following matters:
|
|
|
a proposal to adopt and approve the merger agreement; |
|
|
|
|
a proposal to approve the adjournment of the special meeting, if necessary, to
solicit additional proxies, in the event there are not sufficient votes at the time of
the special meeting to adopt and approve the merger agreement; and |
|
|
|
|
any other business which properly comes before the special meeting or any
adjournment or postponement of the special meeting. The Indian Village Board of
Directors is presently unaware of any other business to be transacted at the special
meeting. |
You are entitled to vote at the special meeting if you owned shares of Indian Village common
stock as of the close of business on August 4, 2008. As of August 4, 2008, a total of
423,679 shares of Indian Village common stock were eligible to be voted at the Indian Village
special meeting.
Required vote (page 21)
The adoption and approval of the merger agreement will require the affirmative vote of the
holders of at least 211,840 shares of Indian Village common stock, which is a majority of the
shares of Indian Village common stock outstanding and entitled to vote at the Indian Village
special meeting. A quorum, consisting of the holders of a majority of the outstanding shares of
Indian Village common stock, must be present in person or by proxy at the Indian Village special
meeting before any action, other than the adjournment of the special meeting, can be taken. The
affirmative vote of the holders of a majority of the shares of Indian Village common stock
represented, in person or proxy, at the special meeting is required to adjourn the special meeting,
if necessary, to solicit additional proxies.
As of August 4, 2008, directors and executive officers of Indian Village and their
respective affiliates beneficially owned an aggregate of 109,084 shares of Indian Village common
stock (excluding shares of Indian Village common stock underlying unexercised stock options), an
amount equal to approximately 24.7% of the outstanding shares of Indian Village common stock. All
of the directors of Indian Village, who collectively had the power to vote approximately 22.3% of
the outstanding shares of Indian Village common stock as of August 4, 2008, entered into a voting
agreement with CSB pursuant to which they agreed, subject to certain terms and conditions, to vote
all of their shares in favor of the adoption and approval of the merger agreement. As of the date
of this prospectus/proxy statement, CSB and its directors, executive officers and affiliates
beneficially owned an aggregate of 12,500 shares of Indian Village common stock.
- 7 -
Recommendation to Indian Village shareholders (page 30)
The Board of Directors of Indian Village unanimously approved the merger agreement. The Board
of Directors of Indian Village believes that the merger is fair to, and in the best interests of,
Indian Village and its shareholders, and, as a result, the directors unanimously recommend that
Indian Village shareholders vote FOR the adoption and approval of the merger agreement. In
reaching this decision, the Board of Directors of Indian Village considered many factors which are
described in the section captioned The Proposed Merger Indian Villages background and reasons
for the merger beginning on page 26 of this prospectus/proxy statement.
Opinion of Indian Villages financial advisor (page 31)
The Indian Village Board of Directors has received the written opinion of its financial
advisor, Keller & Company, Inc. (Keller & Company), to the effect that, as of the date of the
opinion, the merger consideration is fair, from a financial point of view, to the holders of shares
of Indian Village common stock. Indian Village has agreed to pay Keller & Company fees of $45,000
for its services in connection with the merger.
The full text of the fairness opinion, which outlines the matters considered and
qualifications and limitations on the review undertaken by Keller & Company in rendering its
opinion, is attached as Annex C to this prospectus/proxy statement. We encourage you to read this
fairness opinion in its entirety.
Material federal income tax consequences of the merger (page 36)
We intend that the merger will be treated as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the Internal Revenue Code), and
that, accordingly, for federal income tax purposes (i) no gain or loss will be recognized by CSB or
Indian Village as a result of the merger, and (ii) Indian Village shareholders who receive CSB
common shares in exchange for shares of Indian Village common stock in the merger will recognize no
gain or loss, other than the gain or loss to be recognized as to cash received either (a) in
exchange for a portion of their shares of Indian Village common stock, or (b) in lieu of fractional
CSB common shares. The obligation of CSB and Indian Village to consummate the merger is
conditioned on the receipt by CSB and Indian Village of an opinion of CSBs counsel, Vorys, Sater,
Seymour and Pease LLP, dated as of the effective date of the merger and substantially to the effect
that the federal income tax consequences of the merger will be as described above.
Indian Village shareholders who exercise dissenters rights and receive cash for their
shares of Indian Village common stock generally will recognize gain or loss for federal income tax
purposes.
Interests of directors and executive officers of Indian Village (page 34)
Some of the directors and executive officers of Indian Village have interests in the merger
that are different from, or in addition to, the interests of Indian Village shareholders generally.
These include:
|
|
|
benefits that certain Indian Village executive officers may receive under employment
and severance agreements in connection with the merger; |
|
|
|
|
the acceleration of certain stock options held by Indian Village directors and
executive officers under the Indian Village 2000 Stock-Based Incentive Plan; |
|
|
|
|
provisions in the merger agreement relating to continued indemnification of
directors and officers and continued insurance for directors and officers of Indian
Village for events occurring before the merger; and |
- 8 -
|
|
|
the appointment of three directors of Indian Village to serve on a CSB Bank
community board for a period of one year following the merger. |
The Indian Village Board of Directors was aware of these interests and considered them in
approving the merger agreement. See The Proposed Merger Interests of Indian Village directors
and executive officers in the merger beginning on page 34 of this prospectus/proxy statement.
Dissenters rights (page 23)
Under Pennsylvania law, if you do not vote in favor of the adoption and approval of the merger
agreement and if you deliver a written demand for payment for the fair cash value of your shares of
Indian Village common stock prior to the Indian Village special meeting, you will be entitled, if
and when the merger is completed, to receive the fair cash value of your shares of Indian Village
common stock. The right to make this demand is known as dissenters rights. Your right to
receive the fair cash value of your shares of Indian Village common stock, however, is contingent
upon your strict compliance with the procedures set forth in Subchapter D of Chapter 15 of the
Pennsylvania Consolidated Statutes. For additional information regarding your dissenters rights,
see Dissenters Rights on page 23 of this prospectus/proxy statement and the complete text of
the applicable sections of Subchapter D of Chapter 15 of the Pennsylvania Consolidated Statutes
attached to this prospectus/proxy statement as Annex B.
Certain differences in shareholder rights (page 57)
When the merger is completed, Indian Village shareholders will receive CSB common shares and,
therefore, will become CSB shareholders. As CSB shareholders, your rights will be governed by
CSBs Amended Articles of Incorporation and Code of Regulations, as well as Ohio law. See
Comparison of certain rights of CSB and Indian Village shareholders beginning on page 57 of this
prospectus/proxy statement.
Conditions to the merger (page 43)
The completion of the merger depends upon the satisfaction of a number of conditions set forth
in the merger agreement, including the adoption and approval of the merger agreement by Indian
Village shareholders and the receipt of all necessary governmental and regulatory approvals. CSB
and Indian Village have submitted the applications necessary to obtain approval of the merger from
the appropriate governmental and regulatory authorities, and these applications are currently
pending.
Termination of the merger agreement (page 52)
CSB and Indian Village may mutually agree to terminate the merger agreement and abandon the
merger at any time before the merger is effective, whether before or after shareholder approval, if
the Board of Directors of each approves such termination by vote of a majority of the members of
its entire Board. In addition, either CSB or Indian Village, acting alone, may terminate the
merger agreement and abandon the merger at any time before the merger is effective under the
following circumstances:
|
|
|
if any of the required regulatory approvals is denied by final, nonappealable
action; |
|
|
|
|
if the Indian Village shareholders do not adopt and approve the merger
agreement at the Indian Village special meeting; |
|
|
|
|
if there is a material breach by the other party of any representation,
warranty, covenant or agreement contained in the merger agreement that cannot be or has
not been cured within 30 days of notice of the breach; or |
- 9 -
|
|
|
if the merger has not been consummated by November 30, 2008, unless the failure
to complete the merger by that date is due to the knowing action or inaction of the
party seeking to terminate. |
Acquisition proposals and termination fee (page 52)
If Indian Village or any of its subsidiaries executes a definitive agreement in connection
with, or closes, an acquisition proposal (as defined in the merger agreement) with any person or
entity other than CSB and its subsidiaries, Indian Village must pay CSB the sum of $400,000 within
ten days after the earlier of such execution or closing. See The Merger Agreement Acquisition
proposals and termination fee beginning on page 52 of this prospectus/proxy statement.
Risk Factors
The merger and the acquisition of CSB common shares involve significant risks. In addition to
the other information included in this prospectus/proxy statement, you should consider carefully
the risk factors described below in deciding whether to vote to adopt and approve the merger
agreement. In addition, please refer to the section captioned Forward-Looking Statements
beginning on page 13 of this prospectus/proxy statement.
Risks Related to the Merger
Indian Village shareholders cannot be sure of the market value of the CSB common shares they
receive in the merger if there are fluctuations in the market price of the CSB common shares prior
to or following the merger.
Under the terms of the merger agreement, the shareholders of Indian Village will be entitled
to receive for each share of Indian Village common stock (other than shares held in the Indian
Village Community Bank 401(k) Plan and certain shares held in the Indian Village ESOP), a
combination of (a) $4.375 in cash and (b) 0.7611 CSB common shares. The share exchange ratio
(0.7611 CSB common shares for each share of Indian Village common stock owned) was established and
agreed to by CSB and Indian Village based upon the average market price ($17.24) of the CSB common
shares during a period prior to the execution of the merger agreement, and the share exchange ratio
will not be adjusted in the event of an increase or decrease in the market price of CSB common
shares prior to or following the merger.
As of July 31, 2008, the last practicable trading day for which information was available
prior to the date of this prospectus/proxy statement, the last reported sales price reported on the
OTC Bulletin Board for CSB common shares was $16.00. The market price of the CSB common shares may
decrease, however, following the date of this prospectus/proxy statement and prior to the closing
of the merger. Moreover, you will not receive your merger consideration until several days after
the closing of the merger, during which the market price of the CSB common shares may decrease. If
there is a decrease in the market price of the CSB common shares during this period, you will not
be able to sell any of the CSB common shares that you may be entitled to receive in the merger to
avoid losses resulting from such decrease in the market price of the CSB common shares.
CSB could experience difficulties in managing its growth and effectively integrating the operations
of Indian Village and Indian Village Bank.
The earnings, financial condition and prospects of CSB after the merger will depend in part on
CSBs ability to integrate successfully the operations of Indian Village and Indian Village Bank
and to continue to implement its own business plan. CSB may not be able to achieve fully the
strategic objectives and projected operating efficiencies in the merger. The costs or difficulties
relating to the integration of Indian Village and Indian Village Bank with the CSB organization may
be greater than expected or the cost savings from any anticipated economies of scale of the
combined organization may be lower or take longer to realize than
- 10 -
expected. Inherent uncertainties exist in integrating the operations of any acquired entity,
and CSB may encounter difficulties, including, without limitation, loss of key employees and
customers, the disruption of its ongoing business or possible inconsistencies in standards,
controls, procedures and policies. These factors could contribute to CSB not fully achieving the
expected benefits from the merger.
The merger agreement limits Indian Villages ability to pursue alternatives to the merger with CSB,
may discourage other acquirers from offering a higher valued transaction to Indian Village and may,
therefore, result in less value for the Indian Village shareholders.
The merger agreement contains a provision that, subject to certain limited exceptions,
prohibits Indian Village from soliciting, negotiating, or providing confidential information to any
third party relating to any competing proposal to acquire Indian Village or any of its
subsidiaries. In addition, if Indian Village executes a definitive agreement in respect of, or
closes, an acquisition transaction with a third party, the merger agreement provides that Indian
Village must pay a $400,000 termination fee to CSB. These provisions of the merger agreement could
discourage a potential competing acquirer that might have an interest in acquiring Indian Village,
even if it were prepared to pay a higher per share price than proposed in the merger agreement.
The fairness opinion obtained by Indian Village from its financial advisor will not reflect changes
in circumstances prior to the merger.
Keller & Company, the financial advisor to Indian Village, delivered a written fairness
opinion to the Board of Directors of Indian Village dated May 14, 2008. The fairness opinion
states that, as of the date of the opinion, the merger consideration set forth in the merger
agreement was fair, from a financial point of view, to the holders of shares of Indian Village
common stock. However, the fairness opinion does not reflect changes that may occur or may have
occurred after the date on which it was delivered, including changes to the operations and
prospects of CSB or Indian Village, changes in general market and economic conditions, or other
changes. Any such changes may alter the relative value of CSB and Indian Village.
The merger may not result in increased liquidity for Indian Village shareholders with respect to
the portion of their shares of Indian Village common stock to be exchange for CSB common shares
because a limited trading market exists for CSBs common shares.
During the quarterly period ended June 30, 2008, the average daily trading volume for CSBs
common shares was 329 shares per day. While this volume is greater than the trading in Indian
Village common shares during the same period, the merger may not result in an increase in the
trading volume of CSBs common shares. The limited trading market for CSBs common shares may lead
to price volatility in excess of that which would occur in a more active trading market. In
addition, even if a more active trading market in CSBs common shares develops, such a market may
not continue.
Risks Related to CSBs Business
Changing economic conditions and the geographic concentration of our markets may unfavorably impact
CSBs financial condition and results of operations.
The operations of CSB and Indian Village are concentrated primarily in Holmes, Stark,
Tuscarawas and Wayne counties in Ohio and largely depend upon economic conditions in these market
areas. A deterioration in economic conditions in one or more of these markets could result in one
or more of the following:
|
|
|
an increase in loan delinquencies; |
|
|
|
|
an increase in problem assets and foreclosures; |
|
|
|
|
a decrease in the demand for our products and services; and |
- 11 -
|
|
|
a decrease in the value of collateral for loans, especially real estate, in turn
reducing customers borrowing power and the value of assets associated with problem
loans. |
CSB may be unable to manage interest rate risks, which could reduce its net interest income.
CSBs earnings and financial condition are dependent to a large degree upon net interest
income, which is the difference between interest earned on loans and investments and interest paid
on deposits and other borrowings. Market interest rates are largely beyond CSBs control and
fluctuate in response to general economic conditions and the policies of various governmental and
regulatory authorities, including monetary policies of the Board of Governors of the Federal
Reserve System. While CSB has ongoing policies and procedures designed to manage the risks from
changes in market interest rates, changes in interest rates can still have a material adverse
effect on CSBs profitability. Changes in interest rates can also influence the origination and
refinancing of loans, the purchase of investments and the level of prepayments on our loans and the
receipt of payments on our mortgage-backed securities.
Strong competition within CSBs market area may reduce its ability to attract and retain deposits
and originate loans.
CSB faces competition both in originating loans and in attracting deposits. The type of
institutions CSB competes with include large regional financial institutions, community banks,
thrifts and credit unions operating within CSBs market area. As a result of their size and
ability to achieve economies of scale, certain of CSBs competitors offer a broader range of
products and services than CSB offers. This competition may reduce CSBs ability to attract and
retain deposits and originate loans. In addition, to stay competitive in its markets, CSB may need
to adjust the interest rates on its products to match the rates offered by its competitors, which
could adversely affect its net interest margin.
CSBs dividends may be reduced due to an adverse change in policy or adverse changes in financial
condition.
CSBs earnings and financial condition have allowed for the payment of periodic dividends to
its shareholders. There can be no assurance that CSBs dividend policy or size of dividend
payments will continue after the merger.
- 12 -
Forward-Looking Statements
Certain statements contained in this prospectus/proxy statement which are not statements of
historical fact constitute forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995, including, without limitation, the statements specifically
identified as forward-looking statements within this prospectus/proxy statement. Examples of
forward-looking statements include: (a) projections of income or expense, earnings per share, the
payment or non-payment of dividends, capital structure and other financial items; (b) statements of
plans and objectives of each of CSB and Indian Village, or their respective directors and officers,
including those relating to products or services; (c) statements of future economic results; and
(d) statements of assumptions underlying the foregoing statements.
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements to encourage companies to provide prospective information as long as
those statements are identified as forward-looking and are accompanied by meaningful cautionary
statements identifying the important factors that could cause actual results to differ materially
from those discussed in the forward-looking statements. We desire to take advantage of the safe
harbor provisions of that Act.
Forward-looking statements are subject to numerous assumptions, risks and uncertainties.
Actual results could differ materially from those contained or implied by such forward-looking
statements because of various factors and possible events, including those factors specifically
identified as Risk Factors in this prospectus/proxy
statement beginning on page 10.
Forward-looking statements speak only as of the date on which they are made, and, except as
may be required by law, neither CSB nor Indian Village undertakes any obligation to update any
forward-looking statement to reflect events or circumstances after the date on which the statement
is made. All subsequent written and oral forward-looking statements attributable to CSB or Indian
Village or any person acting on behalf of either of them are qualified in their entirety by the
cautionary statements set forth in this prospectus/proxy statement.
- 13 -
Selected Financial Data of CSB Bancorp, Inc. (Historical)
The following table sets forth selected consolidated historical data of CSB for the periods
and at the dates indicated. This data has been derived in part from and should be read together
with the audited consolidated financial statements and notes thereto included elsewhere in this
prospectus/proxy statement. Financial data at March 31, 2007 and 2008, and for the three months
ended March 31, 2007 and 2008, is derived from unaudited financial data included elsewhere in this
prospectus/proxy statement. CSB believes that the interim financial data reflects all adjustments
(consisting solely of normal recurring accruals) necessary for a fair presentation of results of
operations for those periods and financial position at those dates. The results of operations for
the three-month period ended March 31, 2008 are not necessarily indicative of the operating results
to be anticipated for the fiscal year ending December 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
three months |
|
|
|
As of and for the year ended December 31, |
|
|
ended March 31, |
|
|
|
2003 |
|
|
2004 |
|
|
2005 |
|
|
2006 |
|
|
2007 |
|
|
2007 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share and ratio data) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statements of Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
$ |
15,414 |
|
|
$ |
15,074 |
|
|
$ |
17,358 |
|
|
$ |
20,045 |
|
|
$ |
21,231 |
|
|
$ |
5,146 |
|
|
$ |
5,283 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
4,631 |
|
|
|
3,874 |
|
|
|
4,812 |
|
|
|
6,877 |
|
|
|
7,905 |
|
|
|
1,891 |
|
|
|
1,904 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
10,783 |
|
|
|
11,200 |
|
|
|
12,546 |
|
|
|
13,168 |
|
|
|
13,326 |
|
|
|
3,255 |
|
|
|
3,380 |
|
Provision (credit) for loan
losses |
|
|
(51 |
) |
|
|
423 |
|
|
|
283 |
|
|
|
302 |
|
|
|
472 |
|
|
|
78 |
|
|
|
107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after
provision (credit) for loan
losses |
|
|
10,834 |
|
|
|
10,777 |
|
|
|
12,263 |
|
|
|
12,866 |
|
|
|
12,854 |
|
|
|
3,177 |
|
|
|
3,273 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest income |
|
|
2,155 |
|
|
|
2,680 |
|
|
|
2,580 |
|
|
|
2,592 |
|
|
|
3,035 |
|
|
|
646 |
|
|
|
955 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expenses |
|
|
10,799 |
|
|
|
10,278 |
|
|
|
10,803 |
|
|
|
10,915 |
|
|
|
10,701 |
|
|
|
2,620 |
|
|
|
2,728 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
2,190 |
|
|
|
3,179 |
|
|
|
4,041 |
|
|
|
4,543 |
|
|
|
5,188 |
|
|
|
1,204 |
|
|
|
1,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision |
|
|
130 |
|
|
|
653 |
|
|
|
1,168 |
|
|
|
1,433 |
|
|
|
1,674 |
|
|
|
389 |
|
|
|
498 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
2,060 |
|
|
$ |
2,526 |
|
|
$ |
2,873 |
|
|
$ |
3,110 |
|
|
$ |
3,514 |
|
|
$ |
815 |
|
|
$ |
1,002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share of common stock: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income per share |
|
$ |
0.78 |
|
|
$ |
0.96 |
|
|
$ |
1.09 |
|
|
$ |
1.23 |
|
|
$ |
1.42 |
|
|
$ |
0.33 |
|
|
$ |
0.41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income per share |
|
|
0.78 |
|
|
|
0.95 |
|
|
|
1.09 |
|
|
|
1.23 |
|
|
|
1.42 |
|
|
|
0.33 |
|
|
|
0.41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends |
|
|
0.48 |
|
|
|
0.52 |
|
|
|
0.56 |
|
|
|
0.64 |
|
|
|
0.72 |
|
|
|
.18 |
|
|
|
.18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Book value |
|
|
13.13 |
|
|
|
13.69 |
|
|
|
13.64 |
|
|
|
14.03 |
|
|
|
14.82 |
|
|
|
14.18 |
|
|
|
15.22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average basic common shares
outstanding |
|
|
2,638,360 |
|
|
|
2,644,582 |
|
|
|
2,638,697 |
|
|
|
2,526,914 |
|
|
|
2,467,110 |
|
|
|
2,487,087 |
|
|
|
2,444,597 |
|
Average diluted common shares
outstanding |
|
|
2,641,887 |
|
|
|
2,650,948 |
|
|
|
2,642,301 |
|
|
|
2,532,592 |
|
|
|
2,467,812 |
|
|
|
2,487,087 |
|
|
|
2,444,642 |
|
- 14 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
three months |
|
|
|
As of and for the year ended December 31, |
|
|
ended March 31, |
|
|
|
2003 |
|
|
2004 |
|
|
2005 |
|
|
2006 |
|
|
2007 |
|
|
2007 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share and ratio data) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period-end balances: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net |
|
$ |
210,796 |
|
|
$ |
215,510 |
|
|
$ |
212,574 |
|
|
$ |
229,825 |
|
|
$ |
254,073 |
|
|
$ |
232,922 |
|
|
$ |
244,293 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities |
|
|
67,773 |
|
|
|
76,228 |
|
|
|
81,220 |
|
|
|
70,241 |
|
|
|
74,526 |
|
|
|
69,240 |
|
|
|
66,387 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
306,180 |
|
|
|
317,340 |
|
|
|
320,989 |
|
|
|
327,240 |
|
|
|
350,270 |
|
|
|
322,406 |
|
|
|
344,808 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
|
248,958 |
|
|
|
247,951 |
|
|
|
255,403 |
|
|
|
260,178 |
|
|
|
259,386 |
|
|
|
253,531 |
|
|
|
247,029 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings |
|
|
21,372 |
|
|
|
32,062 |
|
|
|
29,485 |
|
|
|
30,521 |
|
|
|
53,329 |
|
|
|
32,013 |
|
|
|
58,480 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity |
|
|
34,718 |
|
|
|
36,208 |
|
|
|
35,170 |
|
|
|
35,070 |
|
|
|
36,278 |
|
|
|
34,915 |
|
|
|
37,148 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average balances: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net |
|
$ |
206,685 |
|
|
$ |
214,330 |
|
|
$ |
218,187 |
|
|
$ |
222,952 |
|
|
$ |
239,405 |
|
|
$ |
230,801 |
|
|
$ |
251,651 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities |
|
|
70,027 |
|
|
|
73,342 |
|
|
|
71,866 |
|
|
|
74,994 |
|
|
|
66,966 |
|
|
|
69,590 |
|
|
|
68,898 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
302,601 |
|
|
|
312,534 |
|
|
|
316,612 |
|
|
|
319,749 |
|
|
|
327,771 |
|
|
|
323,327 |
|
|
|
343,023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
|
236,525 |
|
|
|
241,674 |
|
|
|
249,007 |
|
|
|
247,543 |
|
|
|
253,221 |
|
|
|
253,398 |
|
|
|
251,060 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings |
|
|
30,981 |
|
|
|
34,540 |
|
|
|
30,083 |
|
|
|
35,824 |
|
|
|
37,278 |
|
|
|
32,868 |
|
|
|
53,642 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity |
|
|
34,360 |
|
|
|
35,332 |
|
|
|
36,290 |
|
|
|
34,766 |
|
|
|
35,772 |
|
|
|
35,269 |
|
|
|
37,021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin |
|
|
3.81 |
% |
|
|
3.83 |
% |
|
|
4.23 |
% |
|
|
4.38 |
% |
|
|
4.31 |
% |
|
|
4.40 |
% |
|
|
4.19 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average total assets |
|
|
0.68 |
|
|
|
0.81 |
|
|
|
0.91 |
|
|
|
0.97 |
|
|
|
1.07 |
|
|
|
1.02 |
|
|
|
1.17 |
|
Return on average
shareholders equity |
|
|
6.00 |
|
|
|
7.15 |
|
|
|
7.92 |
|
|
|
8.95 |
|
|
|
9.82 |
|
|
|
9.37 |
|
|
|
10.89 |
|
Average shareholders equity
as a percent of average total
assets |
|
|
11.35 |
|
|
|
11.31 |
|
|
|
11.46 |
|
|
|
10.87 |
|
|
|
10.91 |
|
|
|
10.91 |
|
|
|
10.79 |
|
Net loan charge-offs as a
percent of average loans |
|
|
0.09 |
|
|
|
0.14 |
|
|
|
0.19 |
|
|
|
0.06 |
|
|
|
0.20 |
|
|
|
0.05 |
|
|
|
0.00 |
|
Allowance for loan losses as a
percent of loans at period-end |
|
|
1.15 |
|
|
|
1.18 |
|
|
|
1.14 |
|
|
|
1.12 |
|
|
|
1.01 |
|
|
|
1.13 |
|
|
|
1.09 |
|
Shareholders equity as a
percent of total period-end
assets |
|
|
11.34 |
|
|
|
11.41 |
|
|
|
10.96 |
|
|
|
10.72 |
|
|
|
10.36 |
|
|
|
10.83 |
|
|
|
10.77 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend payout ratio |
|
|
61.48 |
|
|
|
54.44 |
|
|
|
51.47 |
|
|
|
51.89 |
|
|
|
50.70 |
|
|
|
54.55 |
|
|
|
43.90 |
|
- 15 -
Selected Financial Data of Indian Village Bancorp, Inc. (Historical)
The following table sets forth selected consolidated historical data of Indian Village for the
periods and at the dates indicated. This data has been derived in part from and should be read
together with the audited consolidated financial statements and notes thereto included elsewhere in
this prospectus/proxy statement. Financial data at March 31, 2007 and 2008, and for the nine
months ended March 31, 2007 and 2008, is derived from unaudited financial data included elsewhere
in this prospectus/proxy statement. Indian Village believes that the interim financial data
reflects all adjustments (consisting solely of normal recurring accruals) necessary for a fair
presentation of results of operations for those periods and financial position at those dates. The
results of operations for the nine-month period ended March 31, 2008 are not necessarily indicative
of the operating results to be anticipated for the fiscal year ending June 30, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
nine months |
|
|
|
As of and for the year ended June 30, |
|
|
ended March 31, |
|
|
|
2003 |
|
|
2004 |
|
|
2005 |
|
|
2006 |
|
|
2007 |
|
|
2007 |
|
|
2008 |
|
|
|
|
|
|
|
(In thousands, except per share and ratio data) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statements of Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
$ |
5,054 |
|
|
$ |
5,100 |
|
|
$ |
5,186 |
|
|
$ |
5,708 |
|
|
$ |
6,329 |
|
|
$ |
4,845 |
|
|
$ |
4,213 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
3,281 |
|
|
|
3,030 |
|
|
|
3,022 |
|
|
|
3,586 |
|
|
|
4,244 |
|
|
|
3,252 |
|
|
|
2,815 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
1,773 |
|
|
|
2,070 |
|
|
|
2,164 |
|
|
|
2,122 |
|
|
|
2,085 |
|
|
|
1,593 |
|
|
|
1,398 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses |
|
|
305 |
|
|
|
133 |
|
|
|
120 |
|
|
|
271 |
|
|
|
698 |
|
|
|
396 |
|
|
|
320 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after
provision for loan losses |
|
|
1,468 |
|
|
|
1,937 |
|
|
|
2,044 |
|
|
|
1,851 |
|
|
|
1,387 |
|
|
|
1,197 |
|
|
|
1,078 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest income |
|
|
680 |
|
|
|
293 |
|
|
|
(35 |
) |
|
|
371 |
|
|
|
242 |
|
|
|
202 |
|
|
|
247 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expenses |
|
|
1,733 |
|
|
|
1,871 |
|
|
|
1,968 |
|
|
|
2,221 |
|
|
|
2,317 |
|
|
|
1,785 |
|
|
|
1,663 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income
taxes |
|
|
415 |
|
|
|
359 |
|
|
|
41 |
|
|
|
1 |
|
|
|
(688 |
) |
|
|
(386 |
) |
|
|
(338 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision (benefit) |
|
|
27 |
|
|
|
1 |
|
|
|
18 |
|
|
|
(83 |
) |
|
|
(311 |
) |
|
|
(190 |
) |
|
|
(93 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
388 |
|
|
$ |
358 |
|
|
$ |
23 |
|
|
$ |
84 |
|
|
$ |
(377 |
) |
|
$ |
(196 |
) |
|
$ |
(245 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share of common stock: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income (loss) per share |
|
$ |
0.95 |
|
|
$ |
0.90 |
|
|
$ |
0.06 |
|
|
$ |
0.20 |
|
|
$ |
(0.91 |
) |
|
$ |
(0.47 |
) |
|
$ |
(0.59 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income (loss) per share |
|
|
0.93 |
|
|
|
0.88 |
|
|
|
0.05 |
|
|
|
0.20 |
|
|
|
(0.91 |
) |
|
|
(0.47 |
) |
|
|
(0.59 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends |
|
|
0.29 |
|
|
|
0.29 |
|
|
|
0.31 |
|
|
|
0.24 |
|
|
|
0.04 |
|
|
|
0.04 |
|
|
|
0.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Book value |
|
|
23.37 |
|
|
|
20.32 |
|
|
|
20.42 |
|
|
|
19.14 |
|
|
|
18.84 |
|
|
|
19.74 |
|
|
|
19.36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average basic common shares
outstanding |
|
|
370,628 |
|
|
|
398,843 |
|
|
|
407,258 |
|
|
|
412,779 |
|
|
|
416,087 |
|
|
|
415,509 |
|
|
|
418,585 |
|
Average diluted common shares
outstanding |
|
|
377,623 |
|
|
|
408,976 |
|
|
|
413,109 |
|
|
|
419,363 |
|
|
|
416,087 |
|
|
|
415,509 |
|
|
|
418,585 |
|
- 16 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
nine months |
|
|
|
As of and for the year ended June 30, |
|
|
ended March 31, |
|
|
|
2003 |
|
|
2004 |
|
|
2005 |
|
|
2006 |
|
|
2007 |
|
|
2007 |
|
|
2008 |
|
|
|
|
|
|
|
(In thousands, except per share and ratio data) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period-end Balances: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net |
|
$ |
49,674 |
|
|
$ |
53,915 |
|
|
$ |
64,458 |
|
|
$ |
77,250 |
|
|
$ |
70,812 |
|
|
$ |
73,446 |
|
|
$ |
63,831 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities |
|
|
42,056 |
|
|
|
38,987 |
|
|
|
25,705 |
|
|
|
28,291 |
|
|
|
20,156 |
|
|
|
20,838 |
|
|
|
14,858 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
98,427 |
|
|
|
99,644 |
|
|
|
97,358 |
|
|
|
113,787 |
|
|
|
99,712 |
|
|
|
103,914 |
|
|
|
97,121 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
|
55,881 |
|
|
|
60,541 |
|
|
|
62,134 |
|
|
|
79,365 |
|
|
|
67,950 |
|
|
|
71,849 |
|
|
|
66,034 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings |
|
|
33,350 |
|
|
|
30,542 |
|
|
|
26,593 |
|
|
|
26,141 |
|
|
|
23,423 |
|
|
|
23,617 |
|
|
|
22,560 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity |
|
|
8,400 |
|
|
|
7,422 |
|
|
|
8,364 |
|
|
|
7,903 |
|
|
|
7,839 |
|
|
|
8,204 |
|
|
|
8,126 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average balances: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net |
|
$ |
51,480 |
|
|
$ |
50,039 |
|
|
$ |
58,829 |
|
|
$ |
70,066 |
|
|
$ |
76,249 |
|
|
$ |
77,007 |
|
|
$ |
68,209 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities |
|
|
32,059 |
|
|
|
38,275 |
|
|
|
29,482 |
|
|
|
23,295 |
|
|
|
22,641 |
|
|
|
24,254 |
|
|
|
16,801 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
92,931 |
|
|
|
98,519 |
|
|
|
98,581 |
|
|
|
103,904 |
|
|
|
108,590 |
|
|
|
110,670 |
|
|
|
97,051 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
|
52,666 |
|
|
|
56,155 |
|
|
|
60,150 |
|
|
|
65,643 |
|
|
|
73,749 |
|
|
|
77,037 |
|
|
|
65,966 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings |
|
|
29,768 |
|
|
|
30,575 |
|
|
|
28,093 |
|
|
|
26,388 |
|
|
|
24,409 |
|
|
|
24,699 |
|
|
|
22,921 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity |
|
|
8,193 |
|
|
|
7,618 |
|
|
|
7,996 |
|
|
|
8,131 |
|
|
|
8,219 |
|
|
|
7,977 |
|
|
|
7,753 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin |
|
|
2.11 |
% |
|
|
2.40 |
% |
|
|
2.47 |
% |
|
|
2.30 |
% |
|
|
2.11 |
% |
|
|
1.98 |
% |
|
|
2.07 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average total assets |
|
|
0.42 |
|
|
|
0.36 |
|
|
|
0.02 |
|
|
|
0.08 |
|
|
|
(0.35 |
) |
|
|
(0.17 |
) |
|
|
(0.25 |
) |
Return on average
shareholders equity |
|
|
4.59 |
|
|
|
4.70 |
|
|
|
0.29 |
|
|
|
1.03 |
|
|
|
(4.60 |
) |
|
|
(2.46 |
) |
|
|
(3.16 |
) |
Average shareholders equity
as a percent of average total
assets |
|
|
9.05 |
|
|
|
7.73 |
|
|
|
8.11 |
|
|
|
7.82 |
|
|
|
7.57 |
|
|
|
7.21 |
|
|
|
7.99 |
|
Net loan charge-offs as a
percent of average loans |
|
|
1.54 |
|
|
|
0.33 |
|
|
|
0.11 |
|
|
|
(0.01 |
) |
|
|
0.51 |
|
|
|
0.34 |
|
|
|
0.28 |
|
Allowance for loan losses as a
percent of loans at period-end |
|
|
0.54 |
|
|
|
0.44 |
|
|
|
0.45 |
|
|
|
0.74 |
|
|
|
1.23 |
|
|
|
0.79 |
|
|
|
1.36 |
|
Shareholders equity as a
percent of total period-end
assets |
|
|
8.53 |
|
|
|
7.45 |
|
|
|
8.59 |
|
|
|
6.95 |
|
|
|
7.85 |
|
|
|
7.90 |
|
|
|
8.37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend payout ratio |
|
|
30.00 |
|
|
|
32.32 |
|
|
|
516.67 |
|
|
|
120.00 |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
- 17 -
Selected Pro Forma Financial Information
The table below sets forth selected pro forma combined consolidated financial information for
CSB and Indian Village as of March 31, 2008, and for the three months ended March 31, 2008 and the
year ended December 31, 2007. The information for Indian Village has been converted from a fiscal
year ended June 30 to a calendar year end. CSBs information is derived from and should be read in
conjunction with the historical financial statements of CSB that appear elsewhere in this
prospectus/proxy statement, and with the pro forma condensed combined consolidated financial
statements of CSB, which give effect to the merger and which appear in this prospectus/proxy
statement under the caption Pro Forma Financial Information. The pro forma condensed combined
consolidated financial information has been prepared on the basis of the purchase method of
accounting, assuming that 322,462 CSB common shares will be issued in the merger and that no Indian
Village shareholders will perfect dissenters rights. This information will vary if any Indian
Village shareholders perfect dissenters rights with respect to the merger. For a discussion of
the purchase method of accounting, see The Proposed Merger Accounting treatment beginning on
page 39 of this prospectus/proxy statement.
Pro Forma Condensed Combined Consolidated Balance Sheet
|
|
|
|
|
|
|
At March 31, 2008 |
|
|
|
(In thousands) |
|
Total assets |
|
$ |
441,905 |
|
Loans |
|
|
311,845 |
|
Deposits |
|
|
313,640 |
|
Borrowings |
|
|
59,083 |
|
Total shareholders equity |
|
|
42,806 |
|
Pro Forma Condensed Combined Consolidated Statements of Income
|
|
|
|
|
|
|
|
|
|
|
For the three months |
|
For the year |
|
|
ended March 31, 2008 |
|
ended December 31, 2007 |
|
|
(In thousands, except |
|
(In thousands, except |
|
|
per share data) |
|
per share data) |
|
|
|
Net interest income |
|
$ |
3,950 |
|
|
$ |
15,694 |
|
Provision for loan losses |
|
|
205 |
|
|
|
1,018 |
|
Non-interest income |
|
|
1,044 |
|
|
|
3,280 |
|
Non-interest expense |
|
|
3,400 |
|
|
|
13,256 |
|
Earnings per share |
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.37 |
|
|
$ |
1.15 |
|
Diluted |
|
$ |
0.37 |
|
|
$ |
1.15 |
|
- 18 -
Comparative Per Share Data
The following table sets forth for CSB and Indian Village certain historical, pro forma and
pro forma-equivalent per share financial information. The information is derived from and should
be read together with the respective historical consolidated financial statements of CSB and Indian
Village that appear elsewhere in this prospectus/proxy statement. While helpful in illustrating
the financial characteristics of the combined company under one set of assumptions, the pro forma
data does not reflect certain anticipated costs and benefits of the merger and, accordingly, does
not attempt to predict or suggest future results. It also does not necessarily reflect what the
historical results of the combined company would have been had the merger been consummated at the
beginning of the periods presented. The pro forma data gives effect to the merger and is based on
numerous assumptions and estimates. The pro forma combined per share data and Indian Village
equivalent pro forma per share data are prepared assuming 322,462 common shares will be issued in
the merger based on the exchange ratio of 0.7611. See The Merger Agreement Conversion of Indian
Village common shares on page 41. The equivalent pro forma per share data does not reflect the
payment of $4.375 per share of Indian Village common stock to the shareholders of Indian Village.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At or for the |
|
|
At or for the year |
|
three months |
|
|
ended December |
|
ended March 31, |
|
|
31, 2007 |
|
2008 |
|
CSB Bancorp, Inc. |
|
|
|
|
|
|
|
|
Earnings per share: Basic |
|
|
|
|
|
|
|
|
Historical |
|
$ |
1.42 |
|
|
$ |
0.41 |
|
Pro forma combined |
|
|
1.15 |
|
|
|
0.37 |
|
Earnings per share: Diluted |
|
|
|
|
|
|
|
|
Historical |
|
$ |
1.42 |
|
|
$ |
0.41 |
|
Pro forma combined |
|
|
1.15 |
|
|
|
0.37 |
|
Cash dividends declared per share |
|
|
|
|
|
|
|
|
Historical |
|
$ |
0.72 |
|
|
$ |
0.18 |
|
Pro forma combined(1) |
|
|
0.64 |
|
|
|
0.16 |
|
Book value per share |
|
|
|
|
|
|
|
|
Historical |
|
$ |
14.82 |
|
|
$ |
15.22 |
|
Pro forma combined |
|
|
15.06 |
|
|
|
15.49 |
|
|
|
|
|
|
|
|
|
|
Indian Village Bancorp, Inc. |
|
|
|
|
|
|
|
|
Earnings per share: Basic |
|
|
|
|
|
|
|
|
Historical |
|
$ |
(0.96 |
) |
|
$ |
(0.08 |
) |
Equivalent pro forma for one share of Indian Village
common stock(2) |
|
|
0.88 |
|
|
|
0.28 |
|
Earnings per share: Diluted |
|
|
|
|
|
|
|
|
Indian Village historical |
|
$ |
(0.96 |
) |
|
$ |
(0.08 |
) |
Equivalent pro forma for one share of Indian
Village common stock (2) |
|
|
0.88 |
|
|
|
0.28 |
|
Cash dividends declared per share |
|
|
|
|
|
|
|
|
Indian Village historical |
|
$ |
0.00 |
|
|
$ |
0.00 |
|
Equivalent pro forma for one share of Indian Village
common stock(2) |
|
|
0.55 |
|
|
|
0.14 |
|
Book value per share |
|
|
|
|
|
|
|
|
Historical |
|
$ |
18.89 |
|
|
$ |
19.30 |
|
Equivalent pro forma for one share of Indian
Village common stock(2)
|
|
|
11.51 |
|
|
|
11.84 |
|
|
|
|
(1) |
|
Pro forma dividends per share represent historical
dividends paid by CSB Bancorp. |
|
(2) |
|
Represents CSBs pro forma results multiplied by the stock amount
of 0.7611. |
- 19 -
Comparative Share Prices
Neither the CSB common shares nor the shares of Indian Village common stock are traded on an
established market. CSB common shares and shares of Indian Village common stock are traded through
broker/dealers and in private transactions, and quotations are reported on the OTC Bulletin Board
under the respective symbols CSBB.OB and IDVB.OB.
The information presented in the following table reflects the last reported sale prices on the
OTC Bulletin Board for CSB common shares and shares of Indian Village common stock as of May 13,
2008, the last trading day preceding our public announcement of the
merger, and as of July 31,
2008, the last practicable day for which information was available prior to the date of this
prospectus/proxy statement. OTC Bulletin Board quotations reflect interdealer prices, without
mark-up, mark-down or commission and may not represent actual transactions. The table also
presents the equivalent price per share of Indian Village, giving effect to the merger as of such
dates. The Indian Village Bancorp, Inc. Equivalent Per Share Price reflects the sum of (a) the
product of the exchange ratio of 0.7611 multiplied by the last reported sale price of CSB common
shares on the dates indicated and (b) the per share cash consideration of $4.375. No assurance can
be given as to what the market price of CSB common shares will be if and when the merger is
consummated.
CSB Bancorp, Inc. and Indian Village Bancorp, Inc.
Comparative Market Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indian Village |
|
|
|
|
|
|
|
|
|
|
|
Bancorp, Inc. |
|
|
|
CSB |
|
Indian Village |
|
Equivalent |
|
|
|
Common Shares |
|
Common Stock |
|
Per Share Price |
May 13, 2008 |
|
|
$ |
18.00 |
|
|
$ |
12.00 |
|
|
$ |
18.07 |
|
July 31, 2008 |
|
|
$ |
16.00 |
|
|
$ |
15.00 |
|
|
$ |
16.55 |
|
- 20 -
The Special Meeting of Shareholders of Indian Village
Purpose, time and place of the special meeting
This prospectus/proxy statement is being provided to Indian Village shareholders in connection
with the solicitation of proxies by the Indian Village Board of Directors for use at the special
meeting of shareholders to be held on September 17, 2008, at 5:00 p.m., local time, at the New
Philadelphia branch office of Indian Village Bank, 635 West High Avenue, New Philadelphia, Ohio
44663, including any adjournments of the special meeting. At the special meeting, the shareholders
of Indian Village will be asked to consider and vote upon the following matters:
|
|
|
a proposal to adopt and approve the merger agreement; |
|
|
|
|
a proposal to approve the adjournment of the special meeting, if necessary, to
solicit additional proxies, in the event there are not sufficient votes at the time of
the special meeting to adopt and approve the merger agreement; and |
|
|
|
|
any other business which properly comes before the special meeting or any
adjournment or postponement of the special meeting. The Board of Directors of Indian
Village is unaware of any other business to be transacted at the special meeting. |
The Board of Directors of Indian Village believes that the merger with CSB is in the best
interests of Indian Village shareholders and recommends that you vote (1) FOR the adoption and
approval of the merger agreement and (2) FOR the proposal to adjourn the special meeting of
Indian Village shareholders, if necessary, to solicit additional proxies.
Record date; shares of Indian Village common stock outstanding and entitled to vote
The
Board of Directors of Indian Village has fixed the close of business
on August 4,
2008, as the record date for determining the Indian Village shareholders who are entitled to notice
of and to vote at the Indian Village special meeting of shareholders. Only holders of shares of
Indian Village common stock at the close of business on the record date will be entitled to notice
of and to vote at the Indian Village special meeting.
As
of the close of business on August 4, 2008, there were 423,679 shares of Indian Village
common stock outstanding and entitled to vote at the special meeting. The shares of Indian Village
common stock were held of record by approximately 258 shareholders. Each share of Indian Village
common stock entitles the holder to one vote on all matters properly presented at the special
meeting.
Votes required; quorum
Under Pennsylvania law and Indian Villages Articles of Incorporation, the adoption and
approval of the merger agreement requires the affirmative vote of the holders of a majority of the
shares
of Indian Village common stock outstanding and entitled to vote at the Indian Village special
meeting. Approval of an adjournment of the special meeting requires the affirmative vote of the
holders of a majority of the Indian Village common shares represented, in person or by proxy, at
the special meeting.
- 21 -
As
of August 4, 2008, directors and executive officers of Indian Village and their
respective affiliates beneficially owned an aggregate of 109,084 shares of Indian Village common
stock (excluding shares of Indian Village common stock underlying unexercised stock options), an
amount equal to approximately 24.7% of the outstanding shares of Indian Village common stock. All
of the directors of Indian Village, who collectively had the power to vote approximately 22.3% of
the outstanding shares of Indian Village common stock as of August 4, 2008, entered into a voting
agreement with CSB pursuant to which they agreed, subject to certain terms and conditions, to vote
all of their shares in favor of the adoption and approval of the merger agreement. As of the date
of this prospectus/proxy statement, CSB and its directors, executive officers and affiliates
beneficially owned an aggregate of 12,500 shares of Indian Village common stock.
Brokers who hold shares of Indian Village common stock in street name for the beneficial
owners cannot vote these shares of Indian Village common stock on the adoption and approval of the
merger agreement without specific instructions from the beneficial owners. Because the adoption
and approval of the merger agreement requires the affirmative vote of a majority of the shares of
Indian Village common stock outstanding and entitled to vote at the Indian Village special meeting,
if you fail to vote or mark ABSTAIN on your proxy card, or if your shares of Indian Village
common stock are held in street name and you fail to instruct your broker how to vote, it will
have the same effect as a vote AGAINST the adoption and approval of the merger agreement.
A quorum, consisting of the holders of a majority of the outstanding shares of Indian Village
common stock, must be present in person or by proxy at the Indian Village special meeting before
any action, other than the adjournment of the special meeting, can be taken. A properly executed
proxy card marked ABSTAIN will be counted for purposes of determining whether a quorum is
present.
The Indian Village Board of Directors does not expect any matter other than the adoption and
approval of the merger agreement and, if necessary, the approval of the adjournment of the special
meeting to solicit additional proxies, to be brought before the Indian Village special meeting. If
any other matters are properly brought before the special meeting for consideration, shares of
Indian Village common stock represented by properly executed proxy cards will be voted, to the
extent permitted by applicable law, in the discretion of the persons named in the proxy card in
accordance with their best judgment.
Solicitation and revocation of proxies
A proxy card accompanies each copy of this prospectus/proxy statement mailed to Indian Village
shareholders. Your proxy is being solicited by the Board of Directors of Indian Village. Whether
or not you attend the special meeting, the Indian Village Board of Directors urges you to return
your properly executed proxy card as soon as possible. If you return your properly executed proxy
card prior to the special meeting and do not revoke it prior to its use, the shares of Indian
Village common stock represented by that proxy card will be voted at the special meeting or, if
appropriate, at any adjournment of the special meeting. The Indian Village common shares will be
voted as specified on the proxy card or, in the absence of specific instructions to the contrary,
will be voted FOR the adoption and approval of
the merger agreement and, if necessary, FOR the approval of the adjournment of the special
meeting to solicit additional proxies.
- 22 -
If you have returned a properly executed proxy card, you may revoke it at any time before a
vote is taken at the special meeting by:
|
|
|
filing a written notice of revocation with the Secretary of Indian Village, at
100 South Walnut Street, Gnadenhutten, Ohio 44629; |
|
|
|
|
executing and returning another proxy card with a later date; or |
|
|
|
|
attending the special meeting and giving notice of revocation in person. |
Your attendance at the special meeting will not, by itself, revoke your proxy.
If you hold your shares of Indian Village common stock in street name through a broker, bank
or other nominee, you must provide your broker, bank or nominee (the record holder of your shares
of common stock) with instructions on how to vote your shares of common stock. Your broker, bank
or other nominee will provide you with a proxy card and voting instructions. If you have
instructed your broker, bank or other nominee to vote your common shares, you must follow the
directions received from your broker, bank or other nominee to change or revoke your vote.
Indian Village will bear its own cost of solicitation of proxies on behalf of the Indian
Village Board of Directors, except that Indian Village and CSB have agreed to share equally the
costs incurred in connection with printing and mailing this prospectus/proxy statement. Proxies
will be solicited by mail, and may be further solicited by additional mailings, personal contact,
telephone, facsimile or electronic mail, by directors, officers and employees of Indian Village,
none of whom will receive additional compensation for their solicitation activities. Indian
Village will also pay the standard charges and expenses of brokerage houses, voting trustees,
banks, associations and other custodians, nominees and fiduciaries, who are record holders of
Indian Village common shares not beneficially owned by them, for forwarding this prospectus/proxy
statement and other proxy solicitation materials to, and obtaining proxies from, the beneficial
owners of shares of Indian Village common stock entitled to vote at the special meeting.
Dissenters Rights
General
In accordance with Pennsylvania law, any shareholder of Indian Village has the right to
dissent from the merger, and to obtain payment of the fair value of such holders Indian Village
common stock, in the event that the merger is consummated. The term fair value means the value
of Indian Village common stock immediately before the effectuation of the merger taking into
account all relevant factors, but excluding any appreciation or depreciation in anticipation of the
merger.
Any shareholder of Indian Village who contemplates exercising his right to dissent is urged to
read carefully the provisions of Subchapter D of Chapter 15 of the Pennsylvania Consolidated
Statutes attached as Annex B to this prospectus/proxy statement. The following is a summary of the
steps to be taken if the right to dissent is to be exercised, and should be read in connection with
the full text of the applicable sections of Subchapter D of Chapter 15 of the Pennsylvania
Consolidated Statutes. Each step must be taken in the indicated order and in strict compliance
with the applicable provisions of the statute
- 23 -
in order to perfect dissenters rights. The failure of any shareholder to comply with the
statutorily required steps will result in the forfeiture of such shareholders dissenters rights,
in which case the shareholder will receive the consideration contemplated by the merger agreement
in the event that the merger is consummated. See The Merger
Agreement on page 41 of this
prospectus/proxy statement.
Any written notice or demand which is required in connection with the exercise of dissenters
rights, whether before or after the effective date of the merger, must be sent to Indian Village,
at 100 South Walnut Street, Gnadenhutten, Ohio 44629, Attention: Marty R. Lindon, President and
Chief Executive Officer.
Notice of intention to dissent
An Indian Village shareholder who wishes to dissent must:
|
|
|
file with Indian Village, prior to the vote of shareholders on the merger at the
Indian Village special meeting, a written notice of intention to demand payment of the
fair value of such holders Indian Village common stock if the merger is effected; |
|
|
|
|
effect no change in the beneficial ownership of the shareholders Indian Village
common stock from the date of such written notice through the effective date of the
merger; and |
|
|
|
|
refrain from voting the shareholders Indian Village common stock to adopt and
approve the merger agreement. |
Neither a proxy nor a vote against the adoption and approval of the merger agreement will
constitute the necessary written notice of intention to dissent under the Pennsylvania Consolidated
Statutes.
Notice to demand payment
If the merger agreement is adopted and approved by the required vote of Indian Villages
shareholders, Indian Village will mail a notice to all dissenters who gave due notice of intention
to demand payment and who refrained from voting in favor of the adoption and approval of the merger
agreement. The notice will state where and when a written demand for payment must be sent and
certificates for Indian Village common stock must be deposited in order to obtain payment, and will
include a form for demanding payment and a copy of Subchapter D of Chapter 15 of the Pennsylvania
Consolidated Statutes. The time set for receipt of the demand for payment and deposit of stock
certificates will be not less than 30 days from the date of mailing of the notice.
Failure to comply with notice to demand payment
An Indian Village shareholder who fails to timely demand payment or fails to timely deposit
the shareholders Indian Village common stock certificates, as required by Indian Villages notice,
will forfeit the shareholders dissenters rights.
- 24 -
Payment of fair value of shares
Promptly after the effective date of the merger, or upon timely receipt of demand for payment
if the merger already has been effectuated, Indian Village will either remit to dissenters who have
made demand and have deposited their stock certificates the amount that Indian Village estimates to
be the fair value of the Indian Village common stock or give written notice that no such remittance
is being made. The remittance or notice will be accompanied by (a) a closing balance sheet and
statement of income of Indian Village for a fiscal year ending not more than 16 months before the
date of remittance together with the latest available interim financial statements, (b) a statement
of Indian Villages estimate of the fair value of the Indian Village common stock and (c) a notice
of the right of the dissenter to demand supplemental payment under the Pennsylvania Consolidated
Statutes accompanied by a copy of Subchapter D of Chapter 15 of the Pennsylvania Consolidated
Statutes.
Estimate by dissenter of fair value of shares
If a dissenter believes that the amount stated or remitted by Indian Village is less than the
fair value of the Indian Village common stock, the dissenter may send to Indian Village his or her
own estimate of the fair value of the Indian Village common stock, which will be deemed to be a
demand for payment of the amount of the deficiency. If Indian Village remits payment of its
estimated value of a dissenters Indian Village common stock and the dissenter does not file his or
her own estimate within 30 days after the mailing by Indian Village of its remittance, the
dissenter will be entitled to no more than the amount remitted to him or her by Indian Village.
Valuation proceedings
Within 60 days after the latest to occur of the effectuation of the merger, timely receipt by
Indian Village of any demands for payment, or timely receipt by Indian Village of any estimates by
dissenters of fair value, if any demands for payment remain unsettled, Indian Village may file in
the Court of Common Pleas of Philadelphia County (the Court) an application for relief requesting
that the fair value of the Indian Village common stock be determined by the Court. In such case,
all dissenters, wherever residing, whose demands have not been settled, must be made parties to the
proceeding as in an action against their shares, and a copy of the application must be served on
each such dissenter.
If Indian Village were to fail to file such an application, then any dissenter, on behalf of
all dissenters who have made a demand and who have not settled their claim against Indian Village,
may file an application in the name of Indian Village at any time within the 30-day period after
the expiration of the 60-day period and request that the fair value be determined by the Court. If
no dissenter files such an application, then each dissenter entitled to do so shall be paid Indian
Villages estimate of the fair value of the Indian Village common stock and no more, and may bring
an action to recover any amount not previously remitted.
Costs and expenses
The costs and expenses of any valuation proceedings in the Court, including the reasonable
compensation and expenses of any appraiser appointed by the Court to recommend a decision on the
issue of fair value, will be determined by the Court and assessed against Indian Village except
that any part of
the costs and expenses may be apportioned and assessed by the Court against all or some of the
dissenters
- 25 -
who are parties and whose action in demanding supplemental payment the Court finds to be
dilatory, obdurate, arbitrary, vexatious or in bad faith.
The Proposed Merger
The proposed merger
The merger agreement provides for the merger of Indian Village with and into CSB, with CSB
surviving the merger. Immediately following the merger, and upon the receipt of the required
regulatory approvals, Indian Village Bank will be merged with and into CSB Bank.
The merger agreement is attached to this prospectus/proxy statement as Annex A and is
incorporated in this prospectus/proxy statement by reference. You are encouraged to read the
merger agreement carefully, as it is the legal document that governs the merger.
Indian Villages background and reasons for the merger
Background of the Merger
The Indian Village Board of directors has periodically discussed and reviewed with its
management team and industry consultants, the business of banking, strategic directions, financial
performance, and prospects of Indian Village in the context of its current and prospective
business, including local, regional, and national economic and competitive environments. The Board
of Directors has at times also discussed various potential strategic options, including strategies
to increase Indian Villages market area and products offerings, with the intent of ultimately
creating more value for its shareholders.
A challenge for the Indian Village Board of Directors most recently has been the deterioration
of economic conditions in its market area of Tuscarawas and Stark Counties in northeastern Ohio,
and the general state of the financial services industry regionally and nationally. The economic
conditions in the Indian Village market include increasing unemployment, decreases in local real
estate values, declining business revenues and cash flows especially due to slow- to non-paying
receivables, and stagnant home and building lot sales. The Indian Village Board has also
recognized the environment of heightened regulatory scrutiny of financial institution activities,
and the impact of economic issues on existing loan quality as well as the availability of good
credit opportunities in the market.
The Indian Village Board of Directors also has identified impediments to future growth and
profitability including expensive technological changes, the proliferation of competition by both
bank and non-bank financial services providers, and the increase in cost of doing business due to
heightened regulatory demands.
During January through May of 2007, the Indian Village Board of Directors discussed these
interests and concerns in connection with the trends in the financial services industry and the
likely nature of cost increases on an on-going basis. As a result of these discussions, the Indian
Village Board of
Directors retained Keller & Company, a consulting firm that specializes in financial institutions,
to assist the Board in reviewing strategic options to enhance and maximize the value of shares of
Indian Village
- 26 -
common stock, including examining potential transaction alternatives, at a special
meeting held on May 14, 2007.
As part of that engagement, and following input by Keller & Company with regard to the
strategic alternatives faced by Indian Village, relevant financial projections, and the advantages
and disadvantages of remaining independent, Indian Village decided to seek market input as to
whether there may be parties interested in a strategic combination with Indian Village. During
June through August of 2007, Indian Village officers worked closely with Keller & Company to
formulate and publish its profile and interest through certain solicitation materials (profile
book).
At its September 7, 2007, executive meeting, following a presentation by Keller & Company
concerning the options available to Indian Village and the costs and benefits of the various
options, the Indian Village Board of Directors passed a resolution to authorize its officers and
Keller & Company to progress its chosen strategic direction in the way of finalization of the
profile book. Later that month, the Board of Directors formally acted to proceed with the
solicitation of initial letters of interest from potential strategic combination candidates as
identified by Keller & Company and approved by the Board. Approximately 11 potential strategic
combination candidates were subsequently contacted by Keller & Company.
On October 5, 2007, the Indian Village Board of Directors received updates from Keller &
Company pertaining to the responses from solicited potential strategic combination candidates and
learned of executed confidentiality agreements. The Board discussed the candidates and their
respective asset size, location, and other pertinent facts concerning the candidates.
During the October 18, 2007, regular meeting, the Indian Village Board of Directors considered
a report from Keller & Company disclosing nine potential strategic combination candidates that had
executed confidentiality agreements and were sent profile books.
At its December 7, 2007, executive committee meeting, the Indian Village Board of Directors
met and reviewed additional information provided by Keller & Company. After lengthy discussion,
the Board instructed Keller & Company to expand its search for additional suitable potential
strategic combination candidates. Later that month, the Board approved three additional candidates
to be invited to receive the profile book and to submit initial letters of interest.
At its January 17, 2008, regular meeting, the Indian Village Board of Directors reviewed
information about the candidates, including CSB, that signed confidentiality agreements, and
authorized Keller & Company to make arrangements for on-site due diligence business reviews. Later
that month CSB conducted extensive on-site and off-site due diligence of Indian Villages business.
CSB subsequently submitted an initial letter of interest regarding a proposed business combination
on March 1, 2008.
At its March 4, 2008, special meeting, the Indian Village Board of Directors met with Keller &
Company and discussed the letter of interest received from CSB. Keller & Company provided an
analysis of the proposal, including the potential benefits of the proposal to Indian Village
shareholders, as
well as financial and other information concerning CSB. Later that month, the Indian Village Board
of Directors authorized Keller & Company to proceed with further negotiations with CSB.
- 27 -
At its April 4, 2008, executive committee meeting, the Indian Village Board of Directors
approved the engagement of Bricker & Eckler LLP, to serve as legal counsel for Indian Village with
regard to the potential transaction. The Board, with assistance of management, legal counsel and
Keller & Company, further reviewed the advantages and disadvantages of CSBs proposal and
negotiated the terms and conditions of a transaction with CSB in April and early May of 2008.
Throughout this period and on an ongoing basis, the Indian Village Board of Directors and
management have continued to address regulatory issues as reflected in the agreement entered into
by Indian Village Bank with the Ohio Division of Financial Institutions and the Federal Deposit
Insurance Corporation dated March 5, 2008, and by Indian Village
with the Office of Thrift Supervision dated July 23, 2008. While those matters were being promptly addressed and resolved
by Indian Village, they placed significant additional pressure and distraction on the institution,
its management and its Board as it endeavored to deal in an already-challenging banking and
economic environment.
At its May 12, 2008, special meeting, the Indian Village Board of Directors reviewed and
discussed the proposed merger agreement (and related agreements) with management, Keller & Company,
and legal counsel. After extensive review and discussion, including consideration of the interests
of the shareholders and other constituencies of Indian Village, the analysis of Keller & Company
with regard to the CSB proposal and the opinion of Keller & Company that the merger consideration
was fair, from a financial point of view, to the shareholders of Indian Village, the current
economic and regulatory environment, the history and financial status of CSB, benefits of a
strategic combination with CSB, and the terms of the proposed transaction, the Board of Directors
of Indian Village unanimously agreed to approve the merger agreement and to recommend its adoption
by the shareholders of Indian Village. Later that week, CSBs Board of Directors also unanimously
approved the merger agreement and the parties publicly announced the transaction through a joint
press release and letters to Indian Village shareholders on May 14, 2008.
Indian Villages Reasons for the Merger
The Indian Village Board of Directors has determined that the merger agreement is fair to, and
in the best interests of, Indian Village and its shareholders and other proper constituencies. In
reaching its decision to approve the merger agreement and to recommend adoption of the merger
agreement to its shareholders, the Indian Village Board of Directors consulted with management, as
well as its financial and legal advisors, and considered a number of factors, including, without
limitation, the following:
|
|
|
the merger will provide Indian Village shareholders with immediate liquidity with
respect to the portion of their shares of Indian Village exchanged for cash in the
merger; |
|
|
|
|
the merger will provide Indian Village shareholders with potentially greater
liquidity with respect to the portion of their shares of Indian Village to be exchanged
for CSB common shares in the merger because CSB is a larger corporation and has,
historically, had a more active trading market for its shares; |
|
|
|
|
the long-term interests of Indian Village and its shareholders, as well as the
long-term interests of Indian Village and Indian Village Bank employees, depositors,
borrowers, and the communities served by Indian Village Bank; |
- 28 -
|
|
|
the questionable ability of Indian Village Bank to pay continued dividends to Indian
Village in the foreseeable future in light of regulatory requirements and restrictions;
the corresponding questionable ability of Indian Village to therefore pay dividends to
its shareholders; and the historical dividend payments made by CSB; |
|
|
|
|
CSB and Indian Village have complementary community banking businesses so that the
impact on customers and communities served would be minimized; |
|
|
|
|
the current expectation that CSB will maintain Indian Villages existing community
banking offices and that the merger may provide the opportunity for continued
employment to Indian Villages employees; |
|
|
|
|
the cost of compliance by Indian Village and Indian Village Bank with the regulatory
requirements and directives of the Ohio Division of Financial Institutions, the Federal
Deposit Insurance Corporation, and the Office of Thrift Supervision to which they are
or may be subject; |
|
|
|
|
the fact that Indian Village shareholders will receive a significant equity
ownership in the combined company; |
|
|
|
|
the structure of the merger and the terms of the merger agreement, including the
fact that Indian Village shareholders who receive CSB common shares in exchange for
shares of Indian Village common stock in the merger will recognize no gain or loss,
other than the gain or loss to be recognized as to cash received either (a) in exchange
for a portion of their shares of Indian Village common stock, or (b) in lieu of
fractional CSB common shares; |
|
|
|
|
the Boards belief that combining the two companies will create a larger and more
diversified financial institution that is both better equipped to respond to economic
and industry developments and better positioned to develop and build on its position in
existing markets; and |
|
|
|
|
the financial analyses presented by Keller & Company to the Indian Village Board of
Directors, and the opinion dated as of May 14, 2008, delivered to Indian Village by
Keller & Company to the effect that, as of that date, and subject to and based on the
qualifications and assumptions set forth in the opinion, the consideration to be
received by the holders of shares of Indian Village common stock in the merger was
fair, from a financial point of view, to such shareholders. |
The Indian Village Board of Directors also considered a variety of risks and other potentially
negative factors in deliberations concerning the merger, including:
|
|
|
the costs associated with the regulatory approval process, cost in connection with
the calling of the special meeting of shareholders, and other merger-related costs; |
- 29 -
|
|
|
the risk of a decline in the market price of CSB shares prior to and after the
consummation of the merger; |
|
|
|
|
acceptance of the change by the communities served by Indian Village Bank; and |
|
|
|
|
the loss of Indian Village Banks independence as a separate financial institution. |
The foregoing discussion of the factors considered by the Indian Village Board of Directors is
not intended to be exhaustive, but, rather, includes the material factors considered by the Indian
Village Board of Directors. In reaching its decision to approve the merger agreement, the Indian
Village Board of Directors did not quantify or assign any relative weights to the factors
considered, and individual directors may have given different weights to different factors.
After considering the foregoing and other relevant factors and risks, and their overall impact
on the shareholders and other constituencies of Indian Village, the Indian Village Board of
Directors concluded that the anticipated benefits of the merger outweighed the anticipated
detriments.
Recommendation of the Indian Village Board of Directors
For the reasons set forth above, the Indian Village Board of Directors unanimously determined
that the merger, the merger agreement and the transactions contemplated by the merger agreement are
fair to and in the best interests of Indian Village and its shareholders, and unanimously adopted
and approved the merger agreement. The Indian Village Board of Directors unanimously recommends
that the Indian Village shareholders vote FOR the adoption and approval of the merger agreement.
CSBs reasons for the merger
CSB believes that the merger is in the best interests of CSB and its shareholders. In
reaching this determination, the CSB Board consulted with management, as well as its financial and
legal advisors, and considered the projected pro forma impact of the merger and a number of other
factors, including, without limitation, the following:
(i) The merger will facilitate the expansion of CSBs business in Tuscarawas and Stark
Counties in Ohio;
(ii) Indian Villages management philosophies and reputation for excellent customer service
and community involvement are consistent with CSBs philosophies toward community banking, emphasis
on customer service and strong ongoing commitment to each community served;
(iii) Indian Villages current products and services are similar to and, in many respects,
complement products and services offered by CSB and its banking subsidiaries; and
(iv) The merger will increase CSBs assets size to approximately $441.9 million on a pro forma
basis (as of March 31, 2008), which may create additional opportunities to benefit from
- 30 -
economies
of scale and provide opportunities for asset growth and earnings growth in an extremely competitive
environment.
The CSB Board considered many different factors in its evaluation and did not believe it was
practical to, and did not quantify or otherwise assign relative weights to, the individual factors
considered in reaching its determination.
Opinion of Indian Villages financial advisor
Keller & Company was retained in May 2007, to conduct a review of strategic alternatives for
Indian Village, which could include a potential combination of Indian Village with another
financial institution, and to review and evaluate any specific proposals for a combination that
might be received by Indian Village. Various scenarios and strategic alternatives were reviewed
with Indian Village over the period from May 2007 to May 2008, and various parties were contacted
as potential strategic partners for Indian Village. Those activities culminated in an expression
of interest (and eventually an offer) from CSB and execution and delivery of the merger agreement
on May 14, 2008. Pursuant to Keller & Companys letter agreement with Indian Village, dated May
18, 2007, Keller & Company rendered an opinion to the Indian Village Board of Directors on May 14,
2008, to the effect that, based upon and subject to the considerations and limitations set forth in
the opinion, Keller & Companys work described herein and other factors deemed relevant, as of that
date, the total consideration to be paid by CSB to the shareholders of Indian Village was fair,
from a financial point of view. No limitations were imposed by the Board of Indian Village upon
Keller & Company with respect to the investigations made or procedures followed by it in rendering
its opinion.
Keller & Company, as part of its bank consulting and advisory business, is regularly engaged
in the evaluation of financial institutions and their securities, in connection with mergers and
acquisitions and distributions of listed and unlisted securities. Keller & Company is familiar
with the market for common stocks of publicly-traded banks, thrifts and bank holding companies and
regularly prepares stock valuations for banks and thrifts, which are not publicly-traded. The
Board of Indian Village selected Keller & Company on the basis of the firms reputation, experience
and expertise in transactions similar to the merger. Keller & Company is also knowledgeable of
Indian Village and its operations, having prepared Indian Village Banks conversion appraisal in
1999 and three-year business plan in connection with Indian Villages conversion from a mutual to a
stock institution.
The full text of the Keller & Company fairness opinion, which is attached as Annex C to this
prospectus/proxy statement, sets forth certain assumptions made, matters considered and limitations
on the review undertaken by Keller & Company and should be read in its entirety. The summary of
the opinion of Keller & Company set forth in this proxy statement is qualified in its entirety by
reference to the opinion.
In rendering its opinion, Keller & Company (i) reviewed the merger agreement; (ii) reviewed
Indian Villages annual reports to shareholders for the years ended June 30, 2005, 2006 and 2007,
and CSBs annual reports to shareholders for the years ended December 31, 2005, 2006 and 2007;
(iii) reviewed Indian Villages proxy statements for the years ended June 30, 2005, 2006 and 2007,
and CSBs proxy statements for the years ended December 31, 2005, 2006 and 2007; (iv) reviewed
Indian Villages audited financials for the fiscal years ended June 30, 2005, 2006 and 2007, and
CSBs audited financials
- 31 -
for the years ended December 31, 2005, 2006 and 2007; (v) reviewed Indian
Villages and CSBs unaudited financial statements for the nine months and three months,
respectively; (vi) reviewed Indian Villages FDIC Call Reports for the three months ended March 31,
2007 and 2008, and twelve months ended December 31, 2006 and 2007; (vii) reviewed regulatory
matters relating to Indian Village; (viii) discussed with senior management and the Board of
Directors of Indian Village the current financial position and prospective outlook for Indian
Village; (ix) considered historical levels of activity and prices of Indian Villages common stock;
(x) reviewed the financial and stock market data of other banks and thrifts and the financial and
structural terms of numerous other recent transactions involving mergers and acquisitions of
comparably situated financial institutions; and (xii) performed other analyses which Keller &
Company considered appropriate.
In rendering its opinion, Keller & Company analyzed certain comparable merger and acquisition
transactions, comparing the acquisition price relative to the book value, tangible book value,
latest twelve months earnings, price to assets, and premium to core deposits. The analysis
included a comparison of representative pending and completed acquisitions since December 1, 2006,
reviewing the low, median and high pricing ratios for these transactions, where the selling
institution had an asset size of less than $355 million and was located in the Midwest. Similar to
Indian Village, six of these eight financial institutions had negative earnings, resulting in price
earnings multiples that were not meaningful. As a result of the use of these transaction criteria,
the following financial institutions were used in analyzing comparable transactions:
Selling Institution
Sistersville Bancorp, West Virginia
Cardunal SB FSB, Illinois
Gilman Corp., Wisconsin
First Financial Services, Nebraska
Huron Valley State Bank, Michigan
1st Independence Financial Group, Kentucky
Community First Financial, Ohio
OC Financial, Ohio
For each of these eight transactions, Keller & Company derived and compared the most recent
return on assets for each selling institution, the most recent equity level and equity to asset
ratio, the total deal value and the form of exchange, the most recent price-to-book value ratio,
the most recent price-to-tangible-book value ratio, the most recent price to earnings multiple
based on the latest twelve months earnings, the price to assets ratio and the premium on deposits.
The transaction review and analysis resulted in a range of values for Indian Village based
upon comparable merger and acquisition transactions. Keller & Company derived the low, median and
high pricing levels of the comparable group and summarized the results of comparative merger and
acquisition transactions and compared the range of values to the total consideration to be received
by the shareholders of Indian Village. The comparable merger and acquisition information resulted
in the pricing ranges as noted on the following page.
- 32 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Price to Book |
|
Price to Tangible |
|
Price to |
|
Price to |
|
Deposit |
Pricing Measure |
|
Ratio |
|
Book Ratio |
|
Earnings |
|
Assets |
|
Premium |
Low Pricing Level |
|
|
89.0 |
% |
|
|
89.0 |
% |
|
|
N/M |
|
|
|
10.2 |
% |
|
|
3.9 |
% |
Median Pricing Level |
|
|
106.0 |
% |
|
|
106.0 |
% |
|
|
N/M |
|
|
|
8.0 |
% |
|
|
1.2 |
% |
High Pricing Level |
|
|
142.3 |
% |
|
|
142.3 |
% |
|
|
N/M |
|
|
|
9.0 |
% |
|
|
4.4 |
% |
Indian Village Price
@ $17.50 |
|
|
95.5 |
% |
|
|
95.5 |
% |
|
|
N/M |
|
|
|
8.3 |
% |
|
|
0.5 |
% |
Keller & Company viewed the comparable group as the most appropriate basis in determining a
comparable transaction value based on, among other things, Indian Villages equity level and ratio,
size, negative earnings performance, nonperforming asset level, level of allowance for loan losses,
and absence of dividends to its common shareholders. Keller & Company viewed, as being
statistically significant for purposes of comparison, the fact that the review based on the
previous criteria produced eight transactions with reported pricing ratios in the comparable group.
Keller & Company reviewed each of the pricing ratios (price to book, price to tangible book, price
to last twelve months earnings, price to assets, and core deposit premium) from the comparable
transactions focusing on the low pricing level to the median pricing level as the key basis to use
to evaluate the fairness, from a financial point of view, of the consideration to be paid by CSB to
the shareholders of Indian Village in the merger, recognizing that Indian Villages earnings
position and equity position were definitely in the lower segment of the comparable group. Indian
Village had a negative return on assets of 0.43 percent for the twelve months ended March 31, 2008,
and an equity to asset ratio of 7.99 percent, compared to a positive average return on assets for the
comparable group of a higher 0.04 percent and an average equity to asset ratio of a higher 12.42
percent.
The total value of the consideration to be paid on an aggregate basis in the
merger, as of the date of the opinion, exceeds the low value of the range of comparable
transactions for price to book and price to tangible book value but is less than the
median and high
pricing levels. The total value of the consideration to be paid to the shareholders of
Indian Village recognizes that Indian Village has a lower equity level, a lower ROAA and a
higher level of nonperforming assets than the median level of these ratios for the comparable
group. Keller & Company believes that this analysis supports the fairness, from a financial
point
of view, to Indian Village and its shareholders of the consideration to be paid in the merger.
This summary does not purport to be a complete description of the analysis performed by Keller
& Company and should not be construed independent of the other information considered by Keller &
Company in rendering its opinion. Selecting portions or sections of Keller & Companys analysis or
isolating certain aspects of the comparable transactions without considering all analysis and
factors, could result in an incomplete or potentially misleading view of the evaluation process.
Keller & Company assumed and relied upon the accuracy and completeness of the financial
information provided to it by Indian Village. In its review, with the consent of the Indian
Village Board of Directors, Keller & Company did not undertake any independent verification of the
information provided to it, nor did it make any independent appraisal or evaluation of the assets
or liabilities and potential or contingent liabilities of Indian Village.
The fairness opinion of Keller & Company is limited to the fairness as of its date, from a
financial point of view, of the consideration to be paid in the merger transaction and does not
address the underlying business decision to effect the merger or alternatives thereto, nor does it
constitute a recommendation to any common shareholder of Indian Village as to how such shareholder
should vote with respect to the merger.
- 33 -
Keller & Company is a nationally recognized bank consulting firm and is regularly engaged in
the valuation of financial institutions and their securities in connection with mergers and
acquisitions, secondary distributions of listed and unlisted securities and private placements.
In the completion of its analysis and the rendering of its opinion, Keller & Company made
numerous assumptions with respect to industry performance, business and economic conditions and
other matters, many of which are not within the control of Keller & Company and Indian Village.
The analyses performed by Keller & Company 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.
Keller & Company will receive a fee of $45,000 for services rendered in connection with
issuing its fairness opinion regarding the merger. As of the date of this proxy statement, Keller
& Company received $25,000 of such fee; with $20,000 due at the closing of the transaction.
Indian Village has also agreed to reimburse Keller & Company for all reasonable out-of-pocket
expenses, not to exceed $1,000, incurred in connection with its engagement and to indemnify Keller
& Company and its affiliates and their respective directors, officers, employees, agents and
controlling persons against certain expenses and liabilities, including liabilities under
securities laws. Keller & Company has, in the past, provided valuation, investment banking and consulting
services to Indian Village for which it has received customary compensation.
Regulatory approvals required
CSB and Indian Village have submitted applications to the Board of Governors of the Federal
Reserve System and the Ohio Division of Financial Institutions to obtain their approval of the
transactions contemplated by the merger agreement, including the proposed merger of Indian Village
with and into CSB and the subsequent merger of Indian Village Bank with and into CSB Bank. These
regulatory applications are currently pending.
CSB and Indian Village anticipate that the necessary regulatory approvals will be obtained and
will not contain any materially adverse or unduly burdensome conditions, restrictions or
requirements. However, there can be no assurance that any one or more of the required regulatory
approvals will be obtained, that the approvals will be received on a timely basis, or that the
approvals will not impose conditions or requirements that would so materially reduce the economic
or business benefits of the merger that, had such conditions or requirements been known, either CSB
or Indian Village would not have entered into the merger agreement. The merger may not be
consummated for up to 30 days after approval by the Board of Governors of the Federal Reserve
System, during which time the United States Department of Justice may bring an action challenging
the merger on antitrust grounds.
The approval of any regulatory applications merely implies the satisfaction of regulatory
criteria for approval, which does not include review of the adequacy or fairness of the merger
consideration to shareholders. Furthermore, regulatory approvals do not constitute or imply any
endorsement or recommendation of the proposed merger or the terms of the merger agreement.
Interests of Indian Village directors and executive officers in the merger
As described below, some of Indian Villages directors and executive officers have interests
in the merger that may be different from, or in addition to, the interests of Indian Village
shareholders generally. The Indian Village Board of Directors was aware of these interests and
considered them in approving the merger agreement.
- 34 -
Cash-out of stock options
Under the terms of the merger agreement, each outstanding option granted pursuant to the
Indian Village 2000 Stock-Based Incentive Plan which is not exercised prior to the merger in
accordance with the terms of the merger agreement will, at the effective time of the merger, be
cancelled and converted into the right to receive an amount in cash equal to the product of (1) the
difference between $17.50, less the exercise price of each such option, multiplied by (2) the
number of shares of Indian Village common stock subject to such option. As of the date of this
prospectus/proxy statement, the directors, officers and employees of Indian Village, as a group,
held outstanding options to purchase 23,784 shares of Indian Village common stock with a weighted
average exercise price of $12.74 per share.
Employment Agreement
Kenneth A. Koher, President and Chief Executive Officer of Indian Village Bank, has entered
into an Employment Agreement with Indian Village and Indian Village Bank. Under the terms of this
Employment Agreement, Mr. Koher is entitled to receive a lump sum severance payment equal to 1.00
times his base amount (within the meaning of Section 280G of the Internal Revenue Code of 1986, as
amended) if, following a change in control, either (a) Mr. Kohers employment is involuntarily
terminated or (b) Mr. Koher voluntarily terminates his employment within 12 months of the effective
date of the change of control following any material demotion, loss of title, office or significant
authority; material reduction in his annual compensation or benefits; or the relocation of his
principal place of employment by more than 50 miles from its location immediately prior to the
change in control.
Mr. Kohers Employment Agreement also provides that, for a period of six months following his
termination of employment for any reason, Mr. Koher may not, directly or indirectly, become
associated as an associate, employee, partner, shareholder or member with any individual,
partnership or other entity providing financial products and services in Tuscarawas County. In
addition, during such six-month period, Mr. Koher may not solicit any customer, employee,
independent contractor, recruit, subcontractor, or vendor of Indian Village Bank.
Severance Payment Agreements
As contemplated by the terms of the merger agreement, on May 14, 2008, CSB, Indian Village and
Indian Village Bank entered into Severance Payment Agreements with four executive officers of
Indian Village and Indian Village Bank Marty R. Lindon, Andrea R. Miley, Lori S. Frantz and
Elaine A. Tedrow. Under the terms of each Severance Payment Agreement, if the officer continues to
serve Indian Village as an employee in good standing between the date of the merger agreement and
the effective date of the merger, and the officers employment is voluntarily or involuntarily
terminated on the effective date of the merger, the officer will be entitled to receive a lump sum
payment equal to the officers annual base salary and continued medical insurance coverage for up
to one year. The same severance benefits will be provided to the officer if he or she voluntarily
terminates his or her employment with CSB within 60 days following the effective date of the merger
so long as the officer served Indian Village and CSB as an employee in good standing between the
date of the merger agreement and the date of termination of employment.
The Severance Payment Agreements also provide that, for a period of six months after the date
on which severance benefits are paid, each of the officers will not work for, advise, consult or
otherwise serve with, directly or indirectly, any entity whose business materially competes, within
Tuscarawas County, with the depository, lending or other activities of CSB.
- 35 -
The Severance Payment Agreements will supersede the existing employment agreements between the
officers and Indian Village and Indian Village Bank, which employment agreements will terminate as
of the effective date of the merger and have no further force or effect.
Bank Community Board
Under the terms of the merger agreement, CSB has agreed to establish and maintain, for a
period of one year following the effective date of the merger, a CSB Bank Community Board that will
be comprised of three members of the Indian Village Board of Directors to be selected by Indian
Village and approved by CSB. The members of the CSB Bank Community Board will be entitled to
receive a fee in the amount of $500 for each quarterly meeting attended. As of the date of this
prospectus/proxy statement, the members of the CSB Bank Community Board had not been selected by
Indian Village and/or approved by CSB.
Indemnification and directors and officers liability insurance
For a period of four years following the effective time of the merger and subject to
compliance with applicable state and federal laws, CSB will indemnify each person who served as a
director or officer of Indian Village and/or Indian Village Bank before the effective time of the
merger to the fullest extent provided by Indian Villages governing documents, from and against
expenses, including attorneys fees, judgments, fines and amounts paid in settlement in connection
with any threatened, pending or completed action, suit or proceeding by reason of the fact that the
person was an officer or director of Indian Village and/or Indian Village Bank. In addition, the
merger agreement provides that, prior to the merger, Indian Village will purchase a directors and
officers liability insurance policy to be effective for three years following the merger, on terms
no less advantageous than those contained in Indian Villages existing policy, subject to certain
limitations.
Material federal income tax consequences
General
The obligation of CSB and Indian Village to consummate the merger is conditioned on the
receipt by CSB and Indian Village of an opinion of CSBs counsel, Vorys, Sater, Seymour and Pease
LLP, dated as of the effective date of the merger and substantially to the effect that the federal
income tax consequences of the merger will be as described below. The opinions are based on the
Internal Revenue Code, the applicable Treasury Department regulations (the Treasury Regulations),
judicial authorities, and current administrative rulings and practices as in effect on the date of
the opinion, all of which are subject to change, possibly with retroactive effect, and to differing
interpretations. Opinions of counsel are not binding upon the Internal Revenue Service (IRS) or
the courts, either of which could take a contrary position. No rulings have been, or will be,
sought from the IRS in connection with the merger. The opinion of counsel to CSB will rely on
certain assumptions that customarily are made with respect to transactions of this kind, and on
certain representations and covenants, including those contained in officers certificates of CSB
and Indian Village, which representations and covenants counsel to CSB will assume to be true,
correct, and complete. If any such assumption, representation or covenant is inaccurate, the
opinions could be adversely affected. In addition, the opinions will assume that any Indian
Village shareholder that has asserted, as of the effective time of the merger, dissenters rights
will receive, pursuant to statutory procedures, an amount per dissenting share of Indian Village
common stock that does not exceed $17.50 (which is the cash consideration per share payable to
certain Indian Village shareholders pursuant to the merger). The opinion of Vorys, Sater, Seymour
and Pease LLP set forth as an exhibit to the registration statement of which this prospectus/proxy
statement is a part, as well as the assumptions, representations, and covenants described above,
support the following discussion of the
- 36 -
anticipated material federal income tax consequences of the merger to CSB, Indian Village and
the Indian Village shareholders.
This description of anticipated material federal income tax consequences of the merger
assumes that the merger will be consummated in accordance with the terms and provisions of the
merger agreement. This description does not address, among other matters, the tax consequences to
an Indian Village shareholder who holds shares of Indian Village common stock other than as a
capital asset for federal income tax purposes. The description also does not address all of the
tax consequences that may be relevant to Indian Village shareholders in light of their particular
tax circumstances, including, without limitation, shareholders that are: (i) persons who hold
Indian Village common shares as part of a straddle, hedge, conversion, or other risk-reduction
transaction; (ii) broker-dealers; (iii) persons who have a functional currency other than the
U.S. dollar; (iv) tax-exempt entities; (v) foreign persons; (vi) insurance companies;
(vii) financial institutions; (viii) persons that acquired shares of Indian Village common stock
pursuant to the exercise of employee stock options or otherwise as compensation; (ix) persons who
receive CSB common shares other than in exchange for shares of Indian Village common stock;
(x) retirement plans (including, without limitation, the Indian Village ESOP and the Indian Village
Community Bank 401(k) Plan; or (xi) pass-through entities and investors in those entities. In
addition, this description does not address the tax consequences to the holders of options to
acquire shares of Indian Village common stock. Furthermore, the discussion does not address any
alternative minimum tax or any foreign, state, or local tax consequences of the merger. Indian
Village shareholders with special or particular tax circumstances, or who are subject to special
tax treatment, are strongly urged to consult with their tax advisors regarding their individual tax
consequences.
Reorganization treatment
The merger will be a reorganization within the meaning of Section 368(a)(1)(A) of the Internal
Revenue Code, and CSB and Indian Village each will be a party to the reorganization within the
meaning of Section 368(b) of the Internal Revenue Code.
Tax consequences to CSB and Indian Village
No Gain or Loss. No gain or loss will be recognized by CSB or Indian Village as a result of
the merger.
Tax Basis. The tax basis of the assets of Indian Village in the hands of CSB will be the same
as the tax basis of such assets in the hands of Indian Village immediately prior to the merger.
Holding Period. The holding period of the assets of Indian Village to be received by CSB will
include the period during which such assets were held by Indian Village.
Tax consequences to Indian Village shareholders who receive only cash
An Indian Village shareholder who receives only cash in exchange for such shareholders shares
of Indian Village common stock as a result of such shareholders dissent to the merger will
recognize gain or loss as if such shareholder had received such cash as a distribution in
redemption of such shareholders shares of Indian Village common stock, subject to the provisions
and limitations of Section 302 of the Internal Revenue Code. The gain or loss will be long-term
capital gain or loss if the shares of Indian Village common stock surrendered in the merger were
held as capital assets for a period exceeding one year as of the time of the exchange.
- 37 -
Tax consequences to Indian Village shareholders who receive a combination of cash (other than cash
in lieu of fractional shares) and CSB common shares
An Indian Village shareholder who receives a combination of cash (other than cash in lieu of
fractional CSB common shares) and CSB common shares in exchange for shares of Indian Village common
stock will recognize gain, but not loss, in an amount not to exceed the amount of cash received
(excluding cash received in lieu of fractional CSB common shares). For this purpose, an Indian
Village shareholder generally must calculate gain or loss separately for each identifiable block of
Indian Village common stock exchanged by the shareholder in the merger, and a loss realized on one
block of Indian Village common stock may not be used by the shareholder to offset a gain realized
on another block of its Indian Village common stock. Shareholders should consult their tax
advisors regarding the manner in which cash and CSB common stock should be allocated among their
shares of Indian Village common stock and the specific federal income tax consequences thereof.
For purposes of determining the character of the gain recognized on account of the cash
received by an Indian Village shareholder, such Indian Village shareholder will be treated as
having received only CSB common shares in exchange for such shareholders shares of Indian Village
common stock, and as having immediately redeemed a portion of such CSB common shares for the cash
received (excluding cash received in lieu of fractional CSB common shares). Unless the redemption
is treated as a dividend under the principles of Section 302(d) of the Internal Revenue Code (to
the extent of such shareholders ratable share of the undistributed earnings and profits of Indian
Village), the gain will be capital gain if the shares of Indian Village common stock are held by
such shareholder as a capital asset at the time of the merger.
Cash in lieu of fractional shares
An Indian Village shareholder who receives cash in lieu of a fractional CSB common share will
recognize gain or loss as if such fractional CSB common share were distributed as part of the
merger and then redeemed by CSB, subject to the provisions and limitations of Section 302 of the
Internal Revenue Code.
Tax basis
The aggregate tax basis of the CSB common shares received by an Indian Village shareholder in
the merger (including fractional CSB common shares, if any, deemed to be issued and redeemed by
CSB) generally will be equal to the aggregate tax basis of the Indian Village common stock
surrendered in the merger, reduced by the amount of cash received by the shareholder in the merger
(other than cash in lieu of fractional CSB common shares), and increased by the amount of gain
recognized by the shareholder in the merger (including any portion of the gain that is treated as a
dividend, but excluding any gain or loss resulting from the deemed issuance and redemption of
fractional CSB common shares).
Holding period
The holding period of the CSB common shares received by an Indian Village shareholder will
include the holding period of the shares of Indian Village common stock surrendered in exchange for
the CSB common shares in the merger, provided that the shares of Indian Village common stock were
held as a capital asset at the time of the merger.
Reporting requirements
An Indian Village shareholder owning at least 5% (by vote or value) of the total outstanding
shares of Indian Village common stock, immediately before the merger, is required to file a
statement
-38-
with the shareholders U.S. federal income tax return setting forth the tax basis in the
Indian Village common stock exchanged in the merger, the fair market value of the CSB common shares
and the amount of any cash received in the merger. In addition, all Indian Village shareholders
will be required to retain permanent records relating to the amount, basis, and fair market value
of all property transferred in the merger, and relevant facts regarding any liabilities assumed or
extinguished as part of the merger.
Backup withholding
Under certain circumstances, cash payments made to an Indian Village shareholder pursuant to
the merger may be subject to backup withholding at a rate of 28%. There is no withholding for a
shareholder who provides the exchange agent with such shareholders correct U.S. federal taxpayer
identification number, and who certifies that no loss of exemption from backup withholding has
occurred, on IRS Form W-9 or its substitute. Certain categories of Indian Village shareholders,
such as corporations and some foreign individuals, are not subject to backup withholding. In order
for a foreign individual to qualify as an exempt recipient, such individual generally must provide
the exchange agent with a completed IRS Form W-8BEN or its substitute. Any amounts withheld from
an Indian Village shareholder under the backup withholding rules are not an additional tax.
Rather, any such amounts will be allowed as a credit or refund against such shareholders
U.S. federal income tax liability provided that the shareholder furnishes all required information
to the IRS.
The discussion of material federal income tax consequences of the merger is included in this
prospectus/proxy statement for general information only. Each Indian Village shareholder should
consult with his, her or its own tax advisor regarding the specific tax consequences to the
shareholder of the merger, including the application and effect of state, local, and foreign income
and other tax laws.
Accounting treatment
The merger will be accounted for as a purchase in accordance with U.S. generally accepted
accounting principles. Under the purchase method of accounting, the assets and liabilities of
Indian Village will be recorded at estimated fair values at the time the merger is consummated.
The excess of the estimated fair value of CSB common shares issued and the cash proceeds plus the
direct costs of the acquisition over the assets will be recorded as goodwill. The adjustments
necessary to record assets and liabilities at fair value will be amortized to income and expensed
over the estimated remaining lives of the related assets and liabilities. Remaining goodwill will
be subject to an annual test for impairment and the amount impaired, if any, will be charged to
expense at the time of impairment.
The pro forma results of applying the purchase method of accounting are shown in the unaudited
pro forma financial information appearing elsewhere in this prospectus/proxy statement. See Pro
Forma Financial Information beginning on page 64 of this prospectus/proxy statement.
Resale of CSB common shares
CSB has registered the CSB common shares to be issued in the merger with the Securities and
Exchange Commission under the Securities Act of 1933, as amended. No restrictions on the sale or
other transfer of the CSB common shares issued in the merger will be imposed solely as a result of
the merger, except for restrictions on the transfer of CSB common shares issued to any Indian
Village shareholder who may become an affiliate of CSB for purposes of Rule 144 under the
Securities Act. The term affiliate is defined in Rule 144 under the Securities Act and generally
includes executive officers, directors and shareholders beneficially owning 10% or more of the
outstanding CSB common shares.
-39-
Employee matters
The merger agreement provides that employees of Indian Village who become employees of CSB as
a result of the merger will, as determined by CSB, participate in either Indian Villages employee
benefit plans (for so long as CSB determines necessary or appropriate) or in the employee benefit
plans sponsored by CSB for CSBs employees. Employees of Indian Village will receive credit for
their years of service with Indian Village for participation and vesting purposes under the
applicable CSB employee benefit plans, including credit for years of service and for seniority
under vacation and sick pay plans and programs. In addition, to the extent employees of Indian
Village participate in the CSB group health plan, CSB will waive all restrictions and limitations
for pre-existing conditions under the CSB group health plan.
Subject to any applicable regulatory restrictions, CSB has agreed to pay to each employee of
Indian Village (other than an employee who is covered by a written employment, severance or change
in control agreement) who is not offered continued employment by CSB or any of its subsidiaries
after the effective time of the merger a severance amount. The severance amount will be equal to
one week of the employees base pay multiplied by the number of years of his or her service with
Indian Village and/or any of its subsidiaries, provided that the minimum severance payment will
equal one week of base pay and the maximum severance payment will not exceed 13 weeks of base pay.
Other agreements between CSB and Indian Village
On May 14, 2008, CSB, Indian Village and Indian Village Bank entered into an Administrative
Services Agreement, pursuant to which CSB provides certain administrative and advisory services to
Indian Village Bank. The services to be provided by CSB include, without limitation, consulting
with respect to Indian Village Banks management and oversight of its investment portfolio and
asset management process; consumer lending approval and collection and mortgage loan origination
processes; commercial lending credit review, approval and workout processes; personnel
classification and evaluation processes; coordination of reporting to regulatory authorities on
compliance matters; and coordination of customer retention efforts. CSB receives a fee of $1,000
per week, plus reimbursement of reasonable out-of-pocket costs and expenses, for services rendered
under the agreement. The agreement will terminate upon the earlier of the consummation of the
merger or the termination of the merger agreement.
Adjournment of the Indian Village Special Meeting
In the event there are not sufficient votes to adopt and approve the merger agreement at the
time of the Indian Village special meeting, the Indian Village shareholders cannot adopt and
approve the merger agreement unless the special meeting is adjourned to a later date or dates in
order to permit the solicitation of additional proxies. Pursuant to the provisions of Indian
Villages Second Amended and Restated Bylaws and Pennsylvania law, no notice of a meeting adjourned
for less than 30 days need be given if the time and place to which the meeting is adjourned are
fixed and announced at the meeting.
The proposal to adjourn the special meeting must be approved by the holders of a majority of
the Indian Village common shares present, in person or by proxy, at the special meeting. In order
to permit proxies that have been received by Indian Village at the time of the Indian Village
special meeting to be voted for an adjournment, if necessary, Indian Village has submitted the
proposal to adjourn the special meeting to the Indian Village shareholders as a separate matter for
their consideration.
The Board of Directors of Indian Village recommends that you vote FOR the proposal to
adjourn the special meeting.
-40-
The Merger Agreement
The following is a description of the material terms of the merger agreement. A complete copy
of the merger agreement is attached as Annex A to this prospectus/proxy statement and is
incorporated into this prospectus/proxy statement by reference. We encourage you to read the
merger agreement carefully, as it is the legal document that governs the merger.
The merger agreement contains representations and warranties of Indian Village and CSB. The
assertions embodied in those representations and warranties are qualified by information contained
in confidential disclosure schedules that the parties delivered in connection with the execution of
the merger agreement. In addition, certain representations and warranties were made as of a
specific date, may be subject to a contractual standard of materiality different from the standard
of materiality generally applicable to statements made by a corporation to shareholders or may have
been used for purposes of allocating risk between the respective parties rather than establishing
matters as facts. Accordingly, you should not rely on the representations and warranties as
characterizations of the actual state of facts, or for any other purpose, at the time they were
made or otherwise.
The merger
Pursuant to the terms and subject to the conditions of the merger agreement, Indian Village
will merge with and into CSB, with CSB surviving the merger and continuing as an Ohio corporation
and a registered financial holding company.
Effective time
CSB and Indian Village will cause the effective date of the merger of Indian Village with and
into CSB to occur as soon as practicable after the last of the conditions set forth in the merger
agreement has been satisfied or waived. Unless CSB and Indian Village otherwise agree in writing,
the effective date of the merger will not be after November 30, 2008, or after the date on which
any regulatory approval (or any extension thereof) expires. The merger will become effective upon
the latest to occur of (a) the filing of a certificate of merger with the Ohio Secretary of State,
(b) the filing of articles of merger with the Pennsylvania Department of State, or (c) at a later
time that CSB and Indian Village agree to in writing and specify in the certificate and articles of
merger.
CSB and Indian Village currently anticipate closing the transactions contemplated by the
merger agreement and filing the certificate of merger with the Ohio Secretary of State and the
articles of merger with the Pennsylvania Department of State on or
before October 31, 2008.
Conversion of shares of Indian Village common stock
At the effective time of the merger, each issued and outstanding share of Indian Village
common stock, excluding any shares of Indian Village common stock, if any, held by CSB or by Indian
Village as treasury shares and any shares of Indian Village common stock, if any, as to which the
holders have properly exercised dissenters rights, will be converted into the right to receive (a)
0.7611 common shares of CSB, and (b) cash in the amount of $4.375.
CSB will not issue fractional CSB common shares, or certificates or scrip representing
fractional CSB common shares in the merger. Instead, CSB will pay to each holder of shares of
Indian Village common stock who would otherwise be entitled to a fractional CSB common share (after
taking into account all Indian Village stock certificates surrendered by such holder) an amount in
cash, without
-41-
interest, determined by multiplying the fractional CSB common share to which the
holder would be entitled by $17.24.
At the effective time of the merger, the Indian Village common shares will no longer be
outstanding and will automatically be cancelled and cease to exist, and holders of shares of Indian
Village common stock will cease to be, and will have no rights as, shareholders of Indian Village,
other than to receive the merger consideration pursuant to the terms and conditions of the merger
agreement (and dissenters rights under Subchapter D of Chapter 15 of the Pennsylvania Consolidated
Statutes in the case of shares of Indian Village common stock as to which a holder has properly
exercised dissenters rights).
Surrender of certificates
As promptly as practicable after the effective time of the merger, CSBs exchange agent,
Registrar and Transfer Company, will mail to each holder of shares of Indian Village common stock
transmittal materials to be completed and returned with the holders Indian Village stock
certificate(s). Upon the surrender of a Indian Village stock certificate to the exchange agent for
cancellation, CSB will cause new certificates representing the CSB common shares into which a
shareholders shares of Indian Village common stock were converted in the merger, and a check in
respect of cash to be paid as part of the merger consideration and in respect of any fractional
share interests or dividends or distributions which such shareholder is entitled to receive, to be
delivered to the shareholder. No interest will be paid on any cash to be paid in exchange for
shares of Indian Village common stock or in respect of any fractional share interests or dividends
or distributions which any shareholder is entitled to receive under the terms of the merger
agreement.
Until surrendered, each Indian Village stock certificate will be deemed after the effective
time of the merger to represent only the right to receive, upon surrender of such certificate, a
CSB stock certificate and a check in an amount equal to the sum of the cash to be paid to the
holder as part of the merger consideration, any cash to be paid in lieu of any fractional CSB
common shares to which the holder is entitled under the terms of the merger agreement and any cash
to be paid in respect of any dividends or distributions to which the holder may be entitled with
respect to his or her CSB common shares (in each case, without interest).
An Indian Village shareholder will not be entitled to receive payment of any dividends or
distributions with respect to CSB common shares with a record date occurring after the effective
time of the merger until the shareholder has followed the procedures described above for
surrendering his or her Indian Village stock certificates. After an Indian Village shareholder has
properly surrendered his or her Indian Village stock certificates in exchange for CSB common
shares, the shareholder will be entitled to receive any dividends or distributions on the CSB
common shares with a record date occurring on or after the effective time of the merger. No
interest will be paid on any such dividends or distributions.
If any Indian Village stock certificate has been lost, wrongfully taken, or destroyed, the
transmittal materials received from the exchange agent will explain the steps that the Indian
Village shareholder must take. Those steps may include providing the exchange agent or CSB with:
|
|
|
evidence to the reasonable satisfaction of CSB that the Indian Village stock
certificate has been lost, wrongfully taken, or destroyed; |
|
|
|
|
a bond in an amount reasonably requested by CSB or the exchange agent as
indemnity against any claim that may be made against CSB and/or the exchange agent with
respect to the Indian Village stock certificate; and |
-42-
|
|
|
evidence to the reasonable satisfaction of CSB that the person was the owner of
the shares of Indian Village common stock represented by the Indian Village stock
certificate claimed to be lost, wrongfully taken or destroyed and that such person is
the person who would be entitled to present such certificate for exchange pursuant to
the merger agreement. |
Indian Village common stock held in the Indian Village 401(k) and ESOP Plans
Under the terms of the merger agreement, all shares of Indian Village common stock held in the
Indian Village Community Bank 401(k) Plan will be redeemed by Indian Village for cash in the amount
of $17.50 per share prior to the effective date of the merger. No shares of Indian Village common
stock held in the Indian Village Community Bank 401(k) Plan will be converted into CSB common
shares.
The merger agreement provides that a total of 9,573 shares of Indian Village common stock held
in the unallocated account of the Indian Village ESOP will be converted into the right to receive
cash in the amount of $17.50 per share. The cash proceeds will be used to repay the loan
outstanding from Indian Village to the Indian Village ESOP. Each of the remaining shares of Indian
Village common stock held in the Indian Village ESOP will be converted into the right to receive
$4.375 in cash and 0.7611 CSB common shares.
Indian Village stock options
Each outstanding option granted pursuant to the Indian Village 2000 Stock-Based Incentive Plan
which is not exercised in accordance with the terms of the merger agreement will be cancelled at
the effective time of the merger and converted into the right to receive an amount in cash equal to
the product of (1) the difference between $17.50, less the exercise price of each such option,
multiplied by (2) the number of shares of Indian Village common stock subject to such option.
Indemnification and directors and officers liability insurance
For a period of four years following the effective time of the merger and subject to
compliance with applicable state and federal laws, CSB will indemnify each person who served as a
director or officer of Indian Village and/or Indian Village Bank before the effective time of the
merger to the fullest extent provided by Indian Villages governing documents, from and against
expenses, including attorneys fees, judgments, fines and amounts paid in settlement in connection
with any threatened, pending or completed action, suit or proceeding by reason of the fact that the
person was an officer or director of Indian Village and/or Indian Village Bank. In addition, the
merger agreement provides that, prior to the merger, Indian Village will purchase a policy of
directors and officers liability insurance to be effective for up to three years following the
merger, on terms no less advantageous than those contained in Indian Villages existing policy,
subject to and in no event less than one year following the merger, certain limitations.
Conditions to consummation of the merger
Conditions of CSB and Indian Village. The respective obligations of CSB and Indian Village to
complete the merger are subject to the fulfillment or written waiver of each of the following
conditions:
|
|
|
the merger agreement must be duly adopted and approved by the requisite vote of
the shareholders of Indian Village; |
|
|
|
|
we must have received all required regulatory approvals and all applicable
statutory waiting periods must have expired, and no regulatory approval may contain any
conditions, |
-43-
|
|
|
restrictions or requirements (i) that the CSB Board of Directors reasonably
determines would, either before or after the effective time of the merger, have a
material adverse effect on CSB and its subsidiaries taken as a whole after giving
effect to the consummation of the merger or (ii) that are not customary or usual for
approvals of such type and that the CSB Board of Directors reasonably determines would
be, either before or after the effective time of the merger, unduly burdensome; |
|
|
|
|
there must not be any temporary, preliminary or permanent injunction or other
order, statute, rule, regulation, judgment, decree, or other legal restraint issued by
or imposed by any court or any other governmental authority, prohibiting consummation
of the transactions contemplated by the merger agreement; |
|
|
|
|
the registration statement filed with the Securities and Exchange Commission in
connection with the issuance of the CSB common shares in the merger must be effective
with no stop order or similar restraining order suspending such effectiveness initiated
or threatened by the Securities and Exchange Commission; |
|
|
|
|
all permits and other authorizations under state securities laws necessary to
consummate the merger and to issue the CSB common shares in the merger must be in full
force and effect; and |
|
|
|
|
CSBs legal counsel must have delivered a written opinion to the effect that,
on the basis of facts, representations and assumptions set forth in such opinion, the
merger will be treated for federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code. |
Conditions of Indian Village. Indian Village will not be required to complete the merger
unless the following conditions are fulfilled or waived in writing:
|
|
|
the representations and warranties of CSB contained in the merger agreement
must be true and correct as of the date of the merger agreement and as of the effective
time of the merger (or if any representation or warranty speaks as of a specific date,
as of that date), and Indian Village must have received a certificate, dated as of the
effective date, signed on behalf of CSB by its chief executive officer and chief
financial officer to such effect; |
|
|
|
|
CSB must have performed in all material respects all of its obligations under
the merger agreement which are required to be performed at or prior to the effective
time of the merger, and Indian Village must have received a certificate, dated as of
the effective date, signed on behalf of CSB by its chief executive officer and chief
financial officer to such effect; |
|
|
|
|
CSB must have entered into a severance payment agreement reflecting certain
terms and conditions set forth in the merger agreement with each officer who is a party
to an employment agreement with Indian Village and/or Indian Village Bank that, unless
extended, would expire in accordance with its terms prior to the effective time of the
merger; and |
|
|
|
|
there must not have occurred any event, circumstance or development that has
resulted in or could reasonably be expected to result in a material adverse effect on
CSB. |
-44-
Conditions of CSB. CSB will not be required to consummate the merger unless the following
conditions are also fulfilled or waived in writing:
|
|
|
the representations and warranties of Indian Village contained in the merger
agreement must be true and correct as of the date of the merger agreement and as of the
effective time of the merger (or if any representation or warranty speaks as of a
specific date, as of that date), and CSB must have received a certificate, dated as of
the effective date, signed on behalf of Indian Village by its chief executive officer
and chief financial officer to such effect; |
|
|
|
|
Indian Village must have performed in all material respects all of its
obligations under the merger agreement which are required to be performed at or prior
to the effective time of the merger, and CSB must have received a certificate, dated as
of the effective date, signed on behalf of Indian Village by its chief executive
officer and chief financial officer to such effect; |
|
|
|
|
CSB must have received from each holder of an outstanding option to purchase
shares of Indian Village common stock an executed and legally binding agreement
pursuant to which each such option is cancelled and terminated; |
|
|
|
|
Indian Village must have obtained all material third-party consents or
approvals required in connection with the merger; |
|
|
|
|
Indian Village must have satisfied each of the following financial tests as of
the month end immediately preceding the month in which the effective time of the merger
occurs: |
|
o |
|
Indian Villages allowance for loan losses must be at least 1.25% of
the amount of Indian Villages total gross loans and at least 45% of the amount of
Indian Villages total non-performing assets; |
|
|
o |
|
Indian Villages tangible net worth, as calculated in accordance with
generally accepted accounting principles and in a manner consistent with Indian
Villages financial statements, must be at least $7,600,000, excluding the effect
of any action taken by Indian Village pursuant to the merger agreement. A total of
up to $100,000 of fees and costs incurred or accrued by Indian Village in
connection with the merger and the merger agreement, including fees payable to
Indian Villages financial advisor and attorneys, will not be taken into account in
determining Indian Villages tangible net worth; and |
|
|
o |
|
the deposits (excluding any brokered deposits) of Indian Village Bank
as of the month end immediately preceding the effective date of the merger must
include (a) total checking, savings and money market account deposits of not less
than $13,500,000 and
(b) total certificates of deposit (excluding brokered certificates of deposit) of
not less than $43,000,000. |
|
|
|
the holders of not more than 5% of the outstanding shares of Indian Village
common stock may have perfected dissenters rights under Subchapter D of Chapter 15 of
the Pennsylvania Consolidated Statutes in connection with the merger transaction; |
|
|
|
|
CSB must have received a statement executed on behalf of Indian Village, dated
as of the effective date, certifying that the shares of Indian Village common stock do
not represent United States real property interests within the meaning of Section 897
of the Internal Revenue Code and the Treasury Department regulations promulgated
thereunder; |
-45-
|
|
|
Indian Village Bank must have sold, liquidated or otherwise disposed of its
entire ownership interest in Alban Title, LLC without any continuing obligations or
liabilities with respect thereto; |
|
|
|
|
there must not have occurred any event, circumstance or development that has
resulted in or could reasonably be expected to result in a material adverse effect on
Indian Village; and |
|
|
|
|
Indian Village must have purchased the directors and officers policy in
accordance with the terms and conditions set forth in the merger agreement. |
CSB or Indian Village could waive in writing some of the conditions listed above, unless the
waiver is prohibited by law.
Representations and warranties
CSB and Indian Village have each made representations and warranties in the merger agreement
relating to:
|
|
|
corporate organization, standing and authority; |
|
|
|
|
capitalization; |
|
|
|
|
subsidiaries; |
|
|
|
|
corporate power and authority to execute, deliver and perform the merger
agreement; |
|
|
|
|
enforceability of the merger agreement; |
|
|
|
|
regulatory approvals; |
|
|
|
|
accuracy of financial statements and reports; |
|
|
|
|
legal proceedings and regulatory actions; |
|
|
|
|
compliance with laws; |
|
|
|
|
brokers and finders fees; |
|
|
|
|
books and records; |
|
|
|
|
accuracy and completeness of representations and warranties; and |
|
|
|
|
absence of certain material adverse changes or events. |
-46-
In addition, Indian Village has made representations and warranties in the merger agreement
relating to:
|
|
|
material contracts; |
|
|
|
|
employee benefit plans; |
|
|
|
|
labor matters; |
|
|
|
|
takeover laws; |
|
|
|
|
environmental matters; |
|
|
|
|
tax matters; |
|
|
|
|
risk management instruments; |
|
|
|
|
insurance; |
|
|
|
|
absence of undisclosed liabilities; |
|
|
|
|
property and title; |
|
|
|
|
loans and certain transactions; |
|
|
|
|
allowance for loan losses; |
|
|
|
|
repurchase agreements; |
|
|
|
|
deposit insurance; |
|
|
|
|
compliance with the Bank Secrecy Act, anti-money laundering laws and customer
privacy laws; |
|
|
|
|
Community Reinvestment Act compliance; |
|
|
|
|
related party transactions; |
|
|
|
|
prohibited payments; and |
|
|
|
|
receipt of fairness opinion. |
In addition, CSB has made representations and warranties in the merger agreement relating to:
|
|
|
ownership of Indian Village common shares; |
|
|
|
|
validity of the CSB common shares to be issued in the merger; and |
|
|
|
|
sufficiency of funds to pay the cash consideration in the merger. |
-47-
The representations and warranties in the merger agreement terminate upon completion of the
merger.
Indian Villages conduct of business pending the merger
From May 14, 2008, until the effective time of the merger, except as expressly contemplated or
permitted by the merger agreement or required by any applicable law or regulatory order or policy,
without the prior written consent of CSB, Indian Village and its subsidiaries must conduct their
respective businesses in the ordinary and usual course, use reasonable efforts to maintain their
business organizations and assets, use reasonable efforts to maintain their respective rights,
franchises and existing relations with customers, suppliers, employees and business associates, and
not voluntarily take any action which, at the time taken, is reasonably likely to have an adverse
effect upon Indian Villages ability to perform any of its material obligations under the merger
agreement or prevent or materially delay the consummation of the transactions contemplated by the
merger agreement, or enter into any new line of business or materially change its lending,
investment, underwriting, risk, asset liability management or other banking and operating policies.
During the same period, Indian Village has agreed not to, and to cause its subsidiaries not
to, take any of the following actions without the prior written consent of CSB, except as otherwise
expressly contemplated or permitted by the merger agreement or required by any applicable
regulatory order:
|
|
|
other than pursuant to rights previously disclosed to CSB and outstanding on
the date of the merger agreement, issue, sell or otherwise permit to become
outstanding, or authorize the creation of, any additional shares of Indian Village
common stock or enter into any agreement with respect to the same; |
|
|
|
|
permit any additional shares of Indian Village common stock to become subject
to new grants of employee or director stock options or similar stock-based employee
rights; |
|
|
|
|
effect any recapitalization, reclassification, stock split, or similar change
in capitalization; |
|
|
|
|
make, declare, pay or set aside for payment any dividend or distribution on any
shares of its capital stock, other than dividends from wholly-owned Indian Village
subsidiaries to Indian Village, or directly or indirectly adjust, split, combine,
redeem, reclassify, purchase or otherwise acquire any shares of its capital stock; |
|
|
|
|
enter into, modify, amend, renew or terminate any employment, consulting,
severance, retention, change in control or similar agreements or arrangements with
directors, officers or employees of Indian Village or any of its subsidiaries; |
|
|
|
|
hire or engage any full-time employee or consultant, other than as replacements
for positions then existing; |
|
|
|
|
terminate any employee who is a party to an employment agreement with Indian
Village and/or Indian Village Bank other than a Termination for Cause as defined in
such employment agreement; |
|
|
|
|
take or fail to take any action with respect to any employee who is a party to
an employment agreement with Indian Village and/or Indian Village Bank if the
employees resignation |
-48-
|
|
|
based upon such action or failure to act would constitute an Event of Termination
under such employment agreement |
|
|
|
|
enter into, establish, adopt, amend, modify or terminate any pension,
retirement, stock option, stock purchase, savings, profit sharing, deferred
compensation, change in control, consulting, bonus, group insurance or other employee
benefit, incentive or welfare contract, plan or arrangement, or any trust agreement or
similar arrangement, with respect to any director, officer or employee of Indian
Village or any of its subsidiaries, except as may be required by law, to satisfy
contractual obligations or as contemplated in the merger agreement; |
|
|
|
|
sell, transfer, mortgage, pledge, encumber or otherwise dispose of or
discontinue any of its assets, deposits, business or properties other than in the
ordinary course of business for full and fair consideration actually received; |
|
|
|
|
acquire (other than by way of foreclosure or acquisition of control in a bona
fide fiduciary capacity or in satisfaction of debts previously contracted in good faith
and in the ordinary and usual course of business consistent with past practice) all or
any portion of the assets, business, deposits or properties of any other entity; |
|
|
|
|
amend the organizational documents of Indian Village or any of its
subsidiaries; |
|
|
|
|
implement or adopt any change in its accounting principles, practices or
methods other than as required by generally accepted accounting principles; |
|
|
|
|
enter into or terminate any material contract, or amend or modify any material
contract in any material respect, except in the ordinary course of business consistent
with past practice; |
|
|
|
|
except in the ordinary course of business consistent with past practice, settle
any claim, action or proceeding, except for any claim, action or proceeding which does
not involve precedent for other material claims, actions or proceedings and which
involves solely money damages in an amount, individually or in the aggregate for all
such settlements, that is not material to Indian Village and its subsidiaries, taken as
a whole; |
|
|
|
|
knowingly take any action that would, or is reasonably likely to, prevent or
impede the merger from qualifying as a reorganization within the meaning of Section
368(a) of the Code; |
|
|
|
|
knowingly take any action that is intended or is reasonably likely to result in
any representations or warranties in the merger agreement being or becoming untrue in
any material respect at any time at or prior to the effective time of the merger, any
conditions in the merger agreement not being satisfied or a material violation of any
provision of the merger agreement except, in each case, as may be required by
applicable law, rule or regulation; |
|
|
|
|
except pursuant to applicable law or as required by any governmental authority,
implement or adopt any material change in its interest rate and other risk management
policies, procedures or practices, fail to follow its existing policies or practices
with respect to managing its exposure to interest rate and other risk, fail to use
commercially reasonable means to avoid any material increase in its aggregate exposure
to interest rate risk or fail to follow its existing policies or practices with respect
to managing its fiduciary risks; |
-49-
|
|
|
borrow or agree to borrow any funds, including but not limited to pursuant to
repurchase transactions, or directly or indirectly guarantee or agree to guarantee any
obligations of any other person, except in each case in the ordinary course of business
and with a final maturity of less than one year; |
|
|
|
|
make or purchase any indirect or brokered loans; |
|
|
|
|
make any capital expenditure or capital additions or improvements which
individually exceed $5,000 or in the aggregate exceed $25,000, except as previously
disclosed to CSB; |
|
|
|
|
establish any new lending programs or make any changes in the policies of any
subsidiary of Indian Village concerning which persons may approve loans; originate or
renew, or issue a commitment to originate or renew, any loan in a principal amount in
excess of $400,000 for FNMA loans; originate or renew, or issue a commitment to
originate or renew, any commercial loans; originate or renew, or issue a commitment to
originate or renew, any loan secured by 1 4 family real estate in an amount in excess
of $250,000; or originate or renew, or issue a commitment to originate or renew, any
loan secured by non-residential real estate in an amount in excess of $75,000; |
|
|
|
|
fail to prepare and file or cause to be prepared and filed in a timely manner
consistent with past practice all tax returns that are required to be filed at or
before the effective time of the merger, fail to pay any tax shown as due, or required
to be shown as due, on any such tax return, make, change or revoke any tax election or
tax accounting method, file any amended tax return, settle any tax claim or assessment,
consent to the extension or waiver of any statute of limitations with respect to taxes
or offer or agree to do any of the foregoing or surrender its rights to any of the
foregoing or to claim any tax refund or file any amended tax return; |
|
|
|
|
open, close or relocate any offices at which business is conducted (including
any ATMs), or fail to use commercially reasonable efforts to maintain and keep their
respective properties and facilities in their present condition and working order,
ordinary wear and tear excepted; |
|
|
|
|
increase or decrease the rate of interest paid on time deposits or certificates
of deposit, except in a manner consistent with past practices in relation to rates
prevailing in the relevant market; |
|
|
|
|
foreclose upon or otherwise take title to or possession or control of any real
property or entity on such property without first obtaining a Phase I Environmental
Site Assessment performed pursuant to ASTME 1527-05 which indicates that the property
is free of hazardous material; except that no such report will be required to be
obtained with respect to single family residential real property of one acre or less to
be foreclosed upon unless Indian Village or any of its subsidiaries has reason to
believe such real property may contain any such hazardous material; |
|
|
|
|
cause any material adverse change in the amount or general composition of
deposit liabilities other than in the ordinary course of business; |
|
|
|
|
enter into any securities transaction or otherwise acquire any investment
security; or |
|
|
|
|
agree or commit to do any of the foregoing. |
-50-
CSBs conduct of business pending the merger
From May 14, 2008, until the effective time of the merger, except as expressly contemplated or
permitted by the merger agreement or with the prior written consent of Indian Village, CSB and its
subsidiaries must conduct their respective businesses in the ordinary and usual course, use
reasonable efforts to preserve intact their business organizations and assets, use reasonable
efforts to maintain and preserve their respective rights, franchises and existing relations with
customers, suppliers, employees and business associates, and not voluntarily take any action which
is reasonably likely to have an adverse effect upon CSBs ability to perform any of its material
obligations under the merger agreement or prevent or materially delay the consummation of the
transactions contemplated by the merger agreement.
During the same period, CSB has agreed not to, and to cause its subsidiaries not to, take any
of the following actions without the prior written consent of Indian Village, except as otherwise
expressly contemplated or permitted by the merger agreement:
|
|
|
make, declare, pay or set aside for payment any extraordinary or special
dividends or distributions on any shares of it capital stock, other than dividends from
any wholly-owned subsidiary to CSB; |
|
|
|
|
implement or adopt any change in its accounting principles, practices or
methods, other than as may be required by generally accepted accounting principles; |
|
|
|
|
knowingly take any action that would, or is reasonably likely to, prevent or
impede the merger from qualifying as a reorganization within the meaning of Section
368(a) of the Internal Revenue Code; |
|
|
|
|
knowingly take any action that is intended or is reasonably likely to result in
any representations or warranties in the merger agreement being or becoming untrue in
any material respect at any time at or prior to the effective time of the merger, any
conditions in the merger agreement not being satisfied or a material violation of any
provision of the merger agreement except, in each case, as may be required by
applicable law, rule or regulation or relating to the exercise of CSBs rights under
the voting agreements entered into by the directors of Indian Village; |
|
|
|
|
amend the organizational documents of CSB or any of its subsidiaries in a
manner that would adversely affect the economic or other benefits of the merger to the
holders of shares of Indian Village common stock; or |
|
|
|
|
agree or commit to do any of the foregoing. |
Expenses of the merger
CSB and Indian Village are each required to bear their own expenses incurred in connection
with the merger agreement and the transactions contemplated by the merger agreement, except that
printing and mailing expenses will be shared equally between CSB and Indian Village. All fees to
be paid to regulatory authorities and the Securities and Exchange Commission in connection with the
transactions contemplated by the merger agreement will be borne by CSB.
-51-
Termination of the merger agreement
Termination by mutual consent. Pursuant to the merger agreement, CSB and Indian Village may
mutually consent to terminate the merger agreement and abandon the merger at any time before the
merger is effective, if the Board of Directors of each company approves the termination by vote of
a majority of the members of its entire Board.
Termination by either CSB or Indian Village. Either CSB or Indian Village acting alone upon
written notice to the other party may terminate the merger agreement and abandon the merger at any
time before the merger is effective, if the Board of Directors of either company approves the
termination by vote of a majority of the members of its Board in the following circumstances:
|
|
|
if there is a material breach by the other party of any representation,
warranty, covenant or agreement contained in the merger agreement that cannot be or has
not been cured by the breaching party within 30 days of after the giving of written
notice to the breaching party of such breach; |
|
|
|
|
if the merger has not been consummated by November 30, 2008, unless the failure
to complete the merger by that date is due to the knowing action or inaction of the
party seeking to terminate the merger agreement; |
|
|
|
|
if the approval of any governmental authority required for consummation of the
merger and the other transactions contemplated by the merger agreement has been denied
by final, nonappealable action of such governmental authority; or |
|
|
|
|
if the Indian Village shareholders fail to adopt and approve the merger
agreement at the special meeting. |
Automatic termination. The merger agreement will automatically terminate, without further act
or action by either Indian Village or CSB, if Indian Village or any of its subsidiaries executes a
definitive agreement in respect of, or closes, any acquisition or purchase of all or substantially
all of the assets of Indian Village and/or any of its subsidiaries or any merger, consolidation or
business combination business with Indian Village or any of its subsidiaries.
In the event that the merger agreement is terminated and the merger abandoned, neither Indian
Village nor CSB will have any liability or further obligation to the other party, except for
continued compliance with certain surviving covenants and agreements identified in the merger
agreement. In addition, the termination of the merger agreement will not relieve a breaching party
from liability for any willful breach of the merger agreement giving rise to such termination.
Acquisition proposals and termination fee
Pursuant to the merger agreement, Indian Village may not, and must cause its subsidiaries and
its subsidiaries officers, directors, employees and other agents not to, directly or indirectly
take any action to solicit or initiate inquiries or proposals with respect to, or engage in
negotiations concerning, or provide any confidential information to, any person other than CSB
relating to any sale of all or substantially all of the assets of Indian Village and/or any of its
subsidiaries or any merger, consolidation or business combination with Indian Village and/or any of
its subsidiaries, unless Indian Villages Board, after consultation with and based upon the advice
of legal counsel, determines in good faith that it must
-52-
enter into negotiations or discussions with another party that has made an unsolicited
acquisition proposal in order to fulfill its fiduciary duties to Indian Village shareholders under
applicable law.
In the event that Indian Village and/or any of its subsidiaries executes a definitive
agreement in respect of, or closes, any acquisition or purchase of all or substantially all of the
assets of Indian Village and/or any of its subsidiaries or any merger, consolidation or business
combination business with any party other than CSB, Indian Village must pay to CSB in immediately
available funds the sum of $400,000 within ten days after the earlier of such execution or closing.
Amendment
The merger agreement may be amended or modified at any time prior to the effective time of the
merger by an agreement in writing signed by CSB and Indian Village, except that the merger
agreement may not be amended after the Indian Village special meeting if such amendment would
violate Pennsylvania law or the federal securities laws.
Description of CSB Common Shares
General
CSBs authorized capital stock consists of 9,000,000 common shares, with a par value of $6.25
per share. As of July 31, 2008, 2,422,050 CSB common shares were issued and outstanding, and an
additional 40,840 CSB common shares were reserved for issuance upon the exercise of outstanding CSB
stock options. Each outstanding CSB common share is duly authorized, validly issued, fully paid
and nonassessable. The holders of CSB common shares have one vote per share on each matter on
which shareholders are entitled to vote and, in accordance with Ohio law, cumulative voting rights
if properly requested in connection with the election of directors. The Board of Directors of CSB
is divided into three classes with the term of office of one class expiring each year. One class
of directors is elected each year at the annual meeting of shareholders to a three-year term. Upon
liquidation or dissolution of CSB, the holders of CSB common shares are entitled to share ratably
in such assets as remain after creditors have been paid.
Pursuant to the provisions of CSBs Amended Articles of Incorporation, holders of CSB common
shares do not have any pre-emptive rights to purchase shares when issued by CSB.
CSBs Board of Directors determines whether to declare dividends and the amount of any
dividends declared on CSB common shares. Such determinations by the Board of Directors take into
account CSBs financial condition, results of operations and other relevant factors, and the
payment of dividends by CSB is subject to certain limitations. Information concerning the
restrictions on the payment of dividends by CSB is included in Note 10 to the audited consolidated
financial statements of the Company included in this prospectus/proxy statement. No assurances can
be given that dividends on CSB common shares will be declared, or if declared, what the amount of
any such dividends will be in future periods. See Information with Respect to CSB Market Price
and dividends on CSB common shares and related stockholder matters on page 85 of this
prospectus/proxy statement for information regarding dividends declared by the CSB Board of
Directors since January 1, 2006.
Provisions relating to business combinations
Business combinations. Article SIXTH of CSBs Amended Articles of Incorporation sets forth
certain requirements in connection with the approval or authorization of any of the following types
of business combinations:
- 53 -
|
|
|
any merger or consolidation involving CSB or any subsidiary of CSB with or into an
interested shareholder (as defined below), regardless of which person is the
surviving entity; |
|
|
|
|
any sale, lease, exchange, mortgage, pledge or other disposition from CSB or any
subsidiary of CSB to an interested shareholder of assets having an aggregate fair
market value of 10% or more of CSBs total stockholders equity; |
|
|
|
|
any sale, lease, exchange, mortgage, pledge or other disposition from an interested
shareholder to CSB or any subsidiary of CSB of assets having an aggregate fair market
value of 10% or more of CSBs total stockholders equity; |
|
|
|
|
any issuance, sale or other transfer by CSB or any subsidiary of CSB of any
securities of CSB or any subsidiary of CSB to an interested shareholder; |
|
|
|
|
the acquisition by CSB or any subsidiary of CSB of any securities of an interested
shareholder; |
|
|
|
|
any reclassification or recapitalization of CSBs securities that would have the
effect of increasing the voting power of an interested shareholder; |
|
|
|
|
the adoption of any plan or proposal for the liquidation or dissolution of CSB
proposed by or on behalf of an interested shareholder; and |
|
|
|
|
any agreement, contract or other arrangement providing for or resulting in any of
the foregoing transactions. |
For purposes of Article SIXTH, interested shareholder generally means any person, including
any affiliate or associate of such person (other than CSB or any subsidiary of CSB) that, at the
time any business combination is agreed to, authorized or approved, is (i) the beneficial owner,
directly or indirectly, of 10% or more of the voting stock of CSB or was within the two-year period
immediately prior to the time of any business combination the beneficial owner, directly or
indirectly, of 10% or more of the voting stock of CSB; or (ii) an assignee of or other person who
has succeeded to any shares of voting stock of CSB beneficially owned by an interested shareholder
within the two-year period immediately prior to the time of any business combination, if such
assignment or succession occurred in the course of a transaction, or a series of transactions, not
involving a public offering within the meaning of the Securities Act of 1933.
Board considerations. Article SIXTH provides that, when evaluating a business combination, the
Board of Directors of CSB must consider the following (as well as any other factors it deems
relevant):
|
|
|
the social and economic effects of the transaction on CSB and its subsidiaries,
employees, depositors, loan and other customers, creditors and other elements of the
communities in which CSB operates; |
|
|
|
|
the business and financial conditions and earning prospects of the acquiring person
or persons; and |
- 54 -
|
|
|
the competence, experience and integrity of the acquiring person or persons and its
or their management. |
Required approval. Article SIXTH further provides that no business combination may be
effected or consummated unless it is (a) authorized and approved by the continuing directors and,
if otherwise required by law, by the shareholders of CSB by the affirmative vote of the holders of
such number of shares as is mandated by the Ohio Revised Code; or (b) authorized and approved by
the affirmative vote of holders of not less than 80% of the outstanding CSB common shares entitled
to vote, voting together as a single class. In addition, if the cash and fair market value of the
property, securities or other consideration to be received by the independent shareholders in a
business combination do not meet the fair price requirements set forth in Subdivison D of Article
SIXTH, the business combination may not be effected or consummated unless it is also (i) authorized
and approved by the continuing directors; or (ii) authorized and approved by the affirmative vote
of at least 66 2/3% of the outstanding CSB common shares entitled to vote and held by all
independent shareholders, voting together as a single class.
For purposes of Article SIXTH, a director is considered to be a continuing director if he or
she was a member of the CSB Board of Directors and was unaffiliated with the interested shareholder
prior to the time that the interested shareholder became an interested shareholder. A director is
also considered to be a continuing director if he or she is a successor of a continuing director
or is appointed to fill a vacancy on the Board of Directors, is unaffiliated with the interested
shareholder and is approved by the continuing directors.
The foregoing provisions of Article SIXTH do not apply to the proposed merger of Indian
Village with and into CSB because Indian Village is not an interested shareholder of CSB. In
addition, the merger agreement and the transactions contemplated thereby, including the merger of
Indian Village with and into CSB, have been unanimously approved by the Board of Directors of CSB.
Anti-takeover statutes
Certain state laws make a change in control of an Ohio corporation more difficult, even if
desired by the holders of a majority of the corporations shares. Provided below is a summary of
the Ohio anti-takeover statutes.
Ohio Control Share Acquisition Statute. Section 1701.831 of the Ohio Revised Code, known as
the Ohio Control Share Acquisition Statute, provides that specified notice and informational
filings and special shareholder meetings and voting procedures must occur before consummation of a
proposed control share acquisition. A control share acquisition is defined as any acquisition of
shares of an issuing public corporation that would entitle the acquirer, directly or indirectly,
alone or with others, to exercise or direct the voting power of the issuing public corporation in
the election of directors within any of the following ranges:
|
|
|
one-fifth or more, but less than one-third, of the voting power; |
|
|
|
|
one-third or more, but less than a majority, of the voting power; or |
|
|
|
|
a majority or more of the voting power. |
An issuing public corporation is an Ohio corporation with 50 or more shareholders that has
its principal place of business, principal executive offices, or substantial assets within the
State of Ohio, and as to which no close corporation agreement exists. Assuming compliance with the
notice and informational filing requirements prescribed by the Ohio Control Share Acquisition
Statute, the proposed control share
- 55 -
acquisition may take place only if, at a duly convened special
meeting of shareholders, the acquisition is approved by both:
|
|
|
a majority of the voting power of the corporation represented in person or by proxy
at the meeting; and |
|
|
|
|
a majority of the voting power at the meeting exercised by shareholders, excluding: |
|
o |
|
the acquiring shareholder, |
|
|
o |
|
officers of the corporation elected or appointed by the directors of the corporation, |
|
|
o |
|
employees of the corporation who are also directors of the corporation, and |
|
|
o |
|
persons who acquire specified amounts of shares after the first public
disclosure of the proposed control share acquisition. |
The Ohio Control Share Acquisition Statute permits a corporation to opt out of the application
of its provisions in its articles or regulations. CSB has not opted out of the provisions of the
Ohio Control Share Acquisition Statute. However, the provisions of the Ohio Control Share
Acquisition Statute are not applicable to the proposed merger of Indian Village with and into CSB
because CSB will be the surviving corporation in the merger, and the merger will not result in the
acquisition by any acquirer, directly or indirectly, alone or with others, of one-fifth or more of
the voting power of CSB.
Ohio Merger Moratorium Statute. Chapter 1704 of the Ohio Revised Code, known as the Ohio
Merger Moratorium Statute, prohibits specified business combinations and transactions between an
issuing public corporation and a beneficial owner of shares representing 10% or more of the voting
power of the corporation in the election of directors (an interested shareholder) for at least
three years after the interested shareholder became such, unless the board of directors of the
issuing public corporation approves either (1) the transaction or (2) the acquisition of the
corporations shares that resulted in the person becoming an interested shareholder, in each case
before the interested shareholder became such.
For three years after a person becomes an interested shareholder, the following transactions
between the corporation and the interested shareholder (or persons related to the interested
shareholder) are prohibited:
|
|
|
the sale or acquisition of an interest in assets meeting thresholds specified in the
statute; |
|
|
|
|
mergers and similar transactions; |
|
|
|
|
a voluntary dissolution; |
|
|
|
|
the issuance or transfer of shares or any rights to acquire shares having a fair
market value at least equal to 5% of the aggregate fair market value of the
corporations outstanding shares; |
|
|
|
|
a transaction that increases the interested shareholders proportionate ownership of
the corporation; and |
|
|
|
|
any other benefit that is not shared proportionately by all shareholders. |
- 56 -
After the three-year period, transactions between the corporation and the interested
shareholder are permitted if:
|
|
|
the transaction is approved by the holders of shares with at least two-thirds of the
voting power of the corporation in the election of directors (or a different proportion
specified in the corporations articles of incorporation), including at least a
majority of the outstanding shares after excluding shares controlled by the interested
shareholder; or |
|
|
|
|
the business combination results in shareholders, other than the interested
shareholder, receiving a fair market value for their shares determined by the method
described in the statute. |
A corporation may elect not to be covered by the provisions of the Ohio Merger Moratorium
Statute by the adoption of an appropriate amendment to its articles of incorporation. CSB has not
adopted such an amendment to opt out of the provisions of the Ohio Merger Moratorium Statute.
However, the provisions of the Ohio Merger Moratorium Statute are not applicable to the proposed
merger of Indian Village with and into CSB because Indian Village is not an interested shareholder
of CSB as defined in the Ohio Merger Moratorium Statute.
Change in Control of Ohio Banks and Bank Holding Companies. Section 1115.06 of the Ohio
Revised Code and the regulations promulgated thereunder contain change-of-control provisions which
prohibit any person, acting directly or indirectly or in concert with one or more persons, from
acquiring control of any Ohio bank or any bank holding company that has control of any Ohio bank
unless the person has given the Ohio Superintendent of Financial Institutions 60 days prior written
notice and the Superintendent has not disapproved the acquisition. Control, as defined in Section
1115.06, means the power, directly or indirectly, to direct the management or policies of a state
bank or bank holding company or to vote 25% or more of any class of voting securities of a state
bank or bank holding company.
Pursuant to the regulations promulgated under Section 1115.06, it is presumed, subject to
rebuttal, that a person controls an Ohio bank or bank holding company if the person owns or has the
power to vote 10% or more of any class of voting securities and either the bank or bank holding
company has a class of securities registered under Section 12 of the Securities Exchange Act of
1934 or no other person owns or has the power to vote a greater percentage of that class of voting
securities.
The bank holding company provisions of Section 1115.06 are not applicable to the proposed
merger of Indian Village with and into CSB. However, the merger of Indian Village Bank with and
into CSB Bank is subject to the provisions of Section 1115.11 of the Ohio Revised Code, which
requires the approval of the Ohio Superintendent of Financial Institutions of any bank merger in
which the surviving bank will be an Ohio state-chartered bank. CSB Bank has submitted an
application to the Ohio Superintendent of Financial Institutions for approval of the merger of
Indian Village Bank with and into CSB Bank, and this application is currently pending.
Comparison of Certain Rights of CSB and Indian Village Shareholders
Shareholders of Indian Village will receive CSB common shares in the merger and, therefore,
will become shareholders of CSB. Their rights as shareholders of CSB will be governed by the Ohio
Revised Code and by CSBs Amended Articles of Incorporation and Code of Regulations, while Indian
Village shareholders are currently governed by Pennsylvania law and the Articles of
Incorporation and Second Amended and Restated Bylaws of Indian Village. Although the rights of the
holders of CSB common shares and those of the holders of shares of Indian Village common stock are
similar in many
- 57 -
respects, there are some differences. These differences relate to differences
between the provisions of Ohio and Pennsylvania law governing corporations, differences between
provisions of the Amended Articles of Incorporation of CSB and the Articles of Incorporation of
Indian Village, and differences between provisions of the Code of Regulations of CSB and the Second
Amended and Restated Bylaws of Indian Village.
The following summary compares certain rights of the holders of shares of Indian Village
common stock to the rights of holders of CSB common shares in areas where those rights are
materially different. This summary, however, does not purport to be a complete description of such
differences and is qualified in its entirety by reference to the relevant provisions of Ohio and
Pennsylvania law and the respective corporate governance instruments of Indian Village and CSB.
Authorized and outstanding shares
CSBs authorized capital stock consists of 9,000,000 common shares, with a par value of $6.25
per share. As of July 31, 2008, 2,422,050 CSB common shares were issued and outstanding, and an
additional 40,840 CSB common shares were reserved for issuance upon the exercise of outstanding CSB
stock options.
Indian Villages authorized capital stock consists of (i) 5,000,000 shares of common stock,
with a par value of $0.01 per share, of which 441,612 shares were issued and outstanding and an
additional 21,584 shares were reserved for issuance upon the exercise of outstanding Indian Village
stock options as of August 4, 2008; and (ii) 1,000,000 shares of preferred stock, with a par
value of $0.01 per share, none of which is outstanding. Of the 21,584 shares reserved for issuance
upon the exercise of outstanding Indian Village stock options, 2,200 shares were subject to stock
options with an exercise price greater than $17.50.
Notice of shareholder meetings
Pursuant to the provisions of the Code of Regulations of CSB and Ohio law, written notice of
an annual or special meeting of the CSB shareholders must be given to each shareholder of record in
accordance with applicable law at least 10 and not more than 60 days prior to the date of the
meeting. Such notice must state the day, hour and place of the meeting and the purpose or purpose
of the meeting.
Similarly, pursuant to the provisions of the Second Amended and Restated Bylaws of Indian
Village, written notice of an annual or special meeting of the Indian Village shareholders must be
given to each shareholder entitled to vote at such meeting not less than 10 nor more than 60 days
before the date of such meeting. Such notice must state the day, hour and place of the meeting
and, in the case of a special meeting, the purpose or purposes for which the meeting is called.
Calling of special meetings of shareholders
Under the Code of Regulations of CSB, special meetings of the shareholders of CSB may be
called at any time by the Chairman of the Board of Directors, the President, a majority of the
Board of Directors acting with or without a meeting, or by any three or more shareholders owning,
in the aggregate, not less than fifty percent (50%) of the outstanding shares of CSB.
Under the Articles of Incorporation of Indian Village, special meetings of the shareholders of
Indian Village may be called only by the President, the Chairperson of the Board of Directors or by
the directors pursuant to a resolution approved by the affirmative vote of a majority of the
directors then in
- 58 -
office. The Articles of Incorporation of Indian Village do not grant the
shareholders of Indian Village the power to call special meetings of shareholders.
Notice of shareholder proposals
Pursuant to the Second Amended and Restated Bylaws of Indian Village, for a new business
proposal to be properly brought before any annual meeting of shareholders of Indian Village by a
shareholder, the shareholder must deliver notice by first class United States mail, postage
prepaid, to the Secretary of Indian Village not less than 60 days nor more than 90 days prior to
the meeting. However, in the event that less than 75 days notice or prior public disclosure of
the date of the meeting is given to the shareholders, notice by the shareholder must be received by
the Secretary of Indian Village not later than the close of business on the tenth day following the
day on which such notice or prior public disclosure of the date of the meeting was mailed. A
shareholders notice must set forth (i) a brief description of the business desired to be brought
before the meeting and the reasons for conducting such business, (ii) the name and address of such
shareholder, (iii) the class and number of shares of Indian Village common stock which are
beneficially owned by such shareholder and (iv) any material interest of such shareholder in such
business.
The governing documents of CSB do not provide specific procedures for providing notice of
shareholder proposals. However, proposals submitted by shareholders of CSB are subject to the
requirements of the proxy rules adopted under the Securities Exchange Act of 1934, as amended,
including Rule 14a-8.
Voting
Ohio law and CSBs Articles of Incorporation allow shareholders to cumulate their votes in the
election of directors. Accordingly, if, in accordance with Ohio law, any CSB shareholder makes a
proper request for cumulative voting and announcement of such request is made at a meeting to elect
directors, each shareholder will have votes equal to the number of directors to be elected,
multiplied by the number of CSB common shares, owned by such shareholder, and will be entitled to
distribute such votes among the candidates in any manner the shareholder wishes. Except with
respect to an election of directors for which cumulative voting has been properly requested, each
CSB common share entitles its holder to one vote on each matter submitted to the shareholders of
CSB for consideration.
Indian Villages Articles of Incorporation preclude shareholders of Indian Village from
cumulating their votes for the election of directors. In addition, Indian Villages Articles of
Incorporation preclude a shareholder of Indian Village who beneficially owns more than 10% of the
then outstanding shares of Indian Village common stock from voting those shares which exceed 10% of
the then outstanding shares of Indian Village common stock unless a majority of the authorized
number of directors of Indian Village adopt a resolution in advance granting the shareholder
permission to vote such shares. Except with respect to the limitation on votes of a shareholder
owning more than 10% of the then outstanding shares of Indian Village common stock, each share of
Indian Village common stock entitles its holder to one vote on each matter submitted to the
shareholders of Indian Village for consideration.
Special voting requirements
In most instances, matters submitted to the CSB shareholders are decided by a majority of
votes cast with respect to such matters. Under the default provisions of the Ohio Revised Code,
however, certain extraordinary corporate actions, including mergers and other business combinations,
must be approved by the affirmative vote of the holders of common shares entitling them to exercise
at least two-thirds of the voting power of the corporation. In addition, Article SIXTH of CSBs
Amended Articles of
- 59 -
Incorporation contains certain supermajority voting requirements with respect
to business combinations in which an interested shareholder has an interest. See Description of
CSB common shares Provisions relating to business combinations beginning on page 53 of this
prospectus/proxy statement.
In most instances, matters submitted to the Indian Village shareholders are decided by a
majority of votes cast with respect to such matters. However, Article 11 of Indian Villages
Articles of Incorporation contains certain supermajority voting requirements which are similar to
the requirements contained in Article SIXTH of CSBs Amended Articles of Incorporation. The
requirements of Article 11 apply with respect to the following transactions:
|
|
|
any merger or consolidation of Indian Village with or into a Related Person; |
|
|
|
|
any sale, lease, exchange, transfer or other disposition of all or any substantial
part of the assets of Indian Village or of a subsidiary to a Related Person; |
|
|
|
|
any merger or consolidation of a Related Person with or into Indian Village or a
subsidiary; |
|
|
|
|
any sale, lease, exchange, transfer or other disposition of all or any substantial
part of the assets of a Related Person to Indian Village or a subsidiary; |
|
|
|
|
the issuance of any securities of Indian Village or a subsidiary to a Related
Person; |
|
|
|
|
the acquisition by Indian Village or a subsidiary of any securities of a Related
Person; |
|
|
|
|
any reclassification or recapitalization involving the common stock of Indian
Village; and |
|
|
|
|
any agreement, contract or other arrangement providing for any of the foregoing
transactions. |
Pursuant to Article 11, any of the transactions described above must be authorized and
approved by the affirmative vote of the holders of (i) at least 80% of the outstanding shares of
Indian entitled to vote thereon (and, if any class or series of shares is entitled to vote
separately, the affirmative vote of the holders of at least 80% of the outstanding shares of each
such class or series) and (ii) at least a majority of the outstanding shares entitled to vote
thereon, not including shares which are deemed to be beneficially owned by a Related Person. For
purposes of Article 11, a Related Person includes any corporation, partnership or other person or
entity which, together with its affiliates, beneficially owns in the aggregate 10% or more of the
outstanding shares of the common stock of Indian Village and also includes any affiliate of such
person or entity.
The supermajority voting requirements imposed by Article 11 of the Indian Village Articles of
Incorporation are not applicable to any transaction that has been approved by a two-thirds vote of
the continuing directors. For purposes of Article 11, a continuing director means any member of
the Board of Directors of Indian Village who is unaffiliated with the Related Person and was a
member of the Board prior to the time that the Related Person became a Related Person, and any
successor of a continuing director who is unaffiliated with the Related Person and is recommended
to succeed a continuing director by a majority of continuing directors on the Board.
The provisions of Article 11 do not apply to the proposed merger of Indian Village with and
into CSB because CSB is not a Related Person of Indian Village. In addition, the merger agreement
and the transactions contemplated thereby, including the merger of Indian Village with and into
CSB, have been unanimously approved by the Board of Directors of Indian Village.
- 60 -
Amendments to governing documents
CSBs Amended Articles of Incorporation may be amended by the affirmative vote of the holders
of shares entitling them to exercise a majority of the voting power of CSB, except that Article
SIXTH may not be amended, repealed, supplemented or otherwise modified unless it is either (i)
recommended by the continuing directors of CSB and approved by the affirmative vote of the holders
of not less than 66 2/3% of the outstanding voting stock of CSB or (ii) approved by the affirmative
vote of not less than 80% of the outstanding voting stock of CSB and by not less than 66 2/3% of
the outstanding voting stock of CSB held by all shareholders other than interested shareholders.
CSBs Code of Regulations may be amended or repealed at any meeting of shareholders called for that
purpose by the affirmative vote of the holders of shares of CSB entitling them to exercise a
majority of the voting power on such proposal or, without a meeting, by the written consent of the
holders of shares entitling them to exercise two-thirds of the voting power on such proposal.
Any amendment, alteration, change or repeal of Indian Villages Articles of Incorporation
generally must be approved first by an affirmative vote of a majority of the directors then in
office and then approved by the holders of a majority of the shares of Indian Village entitled to
vote in an election of directors, except that the holders of at least 75% of the outstanding shares
of Indian Village are required to approve any amendment, alteration, change or repeal of certain
specified sections of the Indian Village Articles of Incorporation, including Article 11. Indian
Villages Second Amended and Restated Bylaws may be amended, altered, changed or repealed by the
shareholders by the affirmative vote of the holders of a majority of the shares of Indian Village
entitled to vote generally in an election of directors, except that the Indian Village Articles of
Incorporation provide that the affirmative vote of the holders of at least 75% of the outstanding
shares of Indian Village are required to approve any amendment, alteration, change or repeal of
certain specified sections of the Second Amended and Restated Bylaws. Pursuant to Article 12 of
the Indian Village Articles of Incorporation, the Board of Directors is also authorized to amend,
alter, change or repeal the Bylaws without the approval of shareholders under limited circumstances
as authorized by Pennsylvania law.
Number and class of directors
The CSB Board of Directors, which must consist of no fewer than three nor more than 25
directors, currently consists of seven directors. The CSB Board of Directors is divided into three
classes of approximately equal number, with the term of office of one class expiring each year.
One class of directors is elected at each annual meeting of shareholders to a three-year term.
The Indian Village Board of Directors, which must consist of no fewer than five nor more than
15 directors, currently consists of seven directors. The directors of Indian Village are divided
into three classes of approximately equal number, with each class being elected for staggered
three-year terms.
Nomination of directors
Under CSBs Code of Regulations, either the CSB Board of Directors or any shareholder entitled
to vote in the election of directors may nominate a candidate for election to the CSB Board of
Directors by submitting a notice in writing to the Secretary of CSB. To be timely, a shareholders
notice must be delivered to the Secretary of CSB not less than 14 days nor more than 50 days prior
to the meeting.
However, if less than 21 days notice or prior public disclosure of the date of the meeting is
given or made to shareholders, notice by the shareholder must be delivered or mailed to CSB no
later than the close of business on the seventh day prior to the shareholder meeting. A
shareholders notice must set forth:
- 61 -
|
|
|
the name, age, business address and residence address of the proposed nominee; |
|
|
|
|
the principal occupation or employment of the proposed nominee; |
|
|
|
|
the class and number of shares of CSB beneficially owned by the proposed nominee; |
|
|
|
|
the name and record address of the notifying shareholder; and |
|
|
|
|
the class and number of shares of CSB beneficially owned by the notifying
shareholder. |
Under Indian Villages Second Amended and Restated Bylaws, nominations of persons for election
as directors of Indian Village at any annual meeting of shareholders may be made by the directors
or any shareholder entitled to vote for the election of directors at the meeting. Nominations by
shareholders must be made in writing and delivered or mailed by first class United States mail,
postage prepaid, to the Secretary of Indian Village not less than 60 days nor more than 90 days
prior to the meeting. However, if less than 75 days notice of the date of the meeting is given to
shareholders, notice by the shareholder must be delivered to the Secretary of Indian Village no
later than the close of business on the tenth day prior to the shareholder meeting. A
shareholders notice must set forth:
|
|
|
the name, age, business address and, if known, residence address of the
proposed nominee; |
|
|
|
|
the principal occupation of the proposed nominee; |
|
|
|
|
the number of shares of Indian Village common stock beneficially owned by the
proposed nominee; |
|
|
|
|
any other information relating to the proposed nominee that is required to be
disclosed in solicitations for proxies for election of directors pursuant to Regulation
14A under the Securities Exchange Act of 1934, as amended including the proposed
nominees written consent to being named in the proxy statement as a nominee and to
serving as a director; |
|
|
|
|
the name and address of the notifying shareholder as they appear on Indian
Villages books; and |
|
|
|
|
the number of shares of Indian Village common stock beneficially owned by the
shareholder. |
Removal of directors
Directors of CSB may only be removed by (i) the affirmative vote of the holders of not less
than 80% of the voting power of shareholders qualified to vote in the election of directors or
(ii) the affirmative vote of 80% of the then current members of the Board of Directors, excluding
the director who is the subject of the removal action, upon determination by such directors that
the director subject to the removal action is not legally qualified to serve as a director.
Directors of Indian Village may be removed only for cause by the affirmative vote of at least
seventy-five percent (75%) of the votes eligible to be cast by Indian Village shareholders entitled
to vote in the election of directors at a duly constituted meeting of shareholders called expressly
for such purpose.
Indemnification of directors and officers
Pursuant to Article EIGHTH of CSBs Amended Articles of Incorporation, CSB is required to
indemnify its present and past directors, officers, employees and agents, and such other persons as
it has
- 62 -
the power to indemnify, to the fullest extent permitted under the Ohio Revised Code.
Additionally, CSB is required to indemnify its past and present directors for personal liability
for monetary damages resulting from breach of their fiduciary duty, except for (i) any breach of
the directors duty of loyalty to CSB or its shareholders, (ii) acts or omissions not in good faith
or which involve international misconduct or a knowing violation of law, (iii) illegal distribution
of dividends, and (iv) any transaction from which the director derived an improper personal
benefit. Under Ohio law, CSB is also authorized to purchase and maintain insurance on behalf of or
for its present and past directors, officers, employees and agents against any liability asserted
against him or her and incurred by him in any such capacity.
Indian Villages Articles of Incorporation require Indian Village to indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, including actions by or in the right of Indian Village, whether civil,
criminal, administrative or investigative, by reason of the fact that such person is or was a
director, officer, employee or agent of Indian Village, or is or was serving at the request of
Indian Village as a director, officer, employee or agent of another corporation, partnership, joint
venture, trust or enterprise, against expenses, including attorneys fees, judgments, fines and
amounts paid in settlement, actually and reasonably incurred by such person in connection with such
action, suit or proceeding to the full extent permitted by applicable law. The indemnification
permitted by Indian Villages Articles of Incorporation does not restrict the power of the Indian
Village to also purchase and maintain insurance on behalf of any person who is or was a director,
officer, employee or agent of Indian Village, against any liabilities asserted against or incurred
by them in such capacities, (ii) create and find a trust fund or fund of any nature to indemnify or
advance expenses to such persons, and (iii) enter into indemnification agreements with such persons
indemnifying them against any and all liabilities asserted against or incurred by them in such
capacities.
Personal liability of directors
Under Ohio law, a director of an Ohio corporation will not be found to have violated his or
her fiduciary duties to the corporation or its shareholders unless there is proof by clear and
convincing evidence that the director has not acted in good faith, in a manner he or she reasonably
believes to be in or not opposed to the best interests of the corporation, or with the care that an
ordinarily prudent person in a like position would use under similar circumstances. In addition,
under Ohio law, a director is liable in damages for any action or failure to act as a director only
if it is proved by clear and convincing evidence that such act or omission was undertaken either
with deliberate intent to cause injury to the corporation or with reckless disregard for the best
interests of the corporation, unless the corporations articles of incorporation or regulations
make this provision inapplicable by specific reference. The Amended Articles of Incorporation and
Code of Regulations of CSB do not make this provision inapplicable.
Under Indian Villages Articles of Incorporation, a director of Indian Village will not be
personally liable for monetary damages for any action taken, or any failure to take any action, as
a director, except to the extent that by law a directors liability for monetary damages may not be
limited.
Pre-emptive rights
Under the Amended Articles of Incorporation of CSB, shareholders of CSB do not have any
preemptive rights to purchase shares when issued by CSB.
Similarly, Indian Villages Articles of Incorporation provide that no holder of any capital
stock of Indian Village will have any pre-emptive or preferential right to purchase or subscribe to
any part of any new or additional issue of stock of any class whatsoever of securities of Indian
Village, or of securities
- 63 -
convertible into stock of any class whatsoever of securities of Indian
Village, whether now or hereafter authorized or issued for cash or other consideration or by way of
a dividend.
Pro Forma Financial Information
The following unaudited pro forma condensed combined consolidated balance sheet as of March
31, 2008, and the unaudited pro forma condensed combined consolidated statement of income for the
three months ended March 31, 2008, and for the year ended December 31, 2007, have been prepared to
reflect the merger of Indian Village with and into CSB as if the merger had occurred on March 31,
2008, with respect to the balance sheet, and as of January 1, 2007 and January 1, 2008, with
respect to each of the statements of income, in each case giving effect to the pro forma
adjustments described in the accompanying notes. The pro forma adjustments are based on estimates
made for the purpose of preparing these pro forma financial statements. The actual adjustments to
the accounts of CSB will be made based on the underlying historical financial data at the time the
transaction is consummated. CSBs management believes that the estimates used in these pro form
financial statements are reasonable under the circumstances.
The unaudited pro forma condensed combined consolidated financial information has been
prepared based on the purchase method of accounting assuming 322,462 CSB common shares will be
issued and that no Indian Village shareholders will perfect dissenters rights with respect to the
merger. This information will vary if any Indian Village shareholders perfect dissenters rights.
For a discussion of the purchase method of accounting, see The Proposed Merger Accounting
treatment beginning on page 39 of this prospectus/proxy statement.
The unaudited pro forma condensed combined consolidated balance sheet as of March 31, 2008 is
not necessarily indicative of the combined financial position had the merger been effective at that
date. The unaudited pro forma condensed combined consolidated statements of income are not
necessarily indicative of the results of operations that would have occurred had the merger been
effective at the beginning of the periods indicated, or of the future results of operations of CSB.
These pro forma financial statements should be read in conjunction with the historical financial
statements and the related notes incorporated elsewhere in this prospectus/proxy statement.
These pro forma financial statements do not include the effects of any potential cost savings
which management believes will result from operating the Indian Village banking business as
branches and combining certain operating procedures.
- 64 -
CSB Bancorp, Inc.
Indian Village Bancorp, Inc.
Pro Forma Condensed Combined Consolidated Balance Sheet
At March 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical |
|
|
Pro Forma |
|
|
|
|
|
|
|
|
Historical |
|
|
Indian |
|
|
Adjustments |
|
|
Footnote |
|
Proforma |
|
|
|
CSB |
|
|
Village |
|
|
Debit/(Credit) |
|
|
Reference |
|
Combined |
|
|
|
|
|
|
|
|
|
|
|
(Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands except per share data) |
|
|
|
|
ASSETS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
10,486 |
|
|
$ |
12,470 |
|
|
$ |
(2,116 |
) |
|
(1) |
|
$ |
20,840 |
|
Fed Funds sold |
|
|
14,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
14,300 |
|
Securities available for sale |
|
|
63,244 |
|
|
|
12,886 |
|
|
|
(175 |
) |
|
(2) |
|
|
75,955 |
|
Loans, gross |
|
|
246,984 |
|
|
|
64,713 |
|
|
|
148 |
|
|
(3) (4) |
|
|
311,845 |
|
Allowance for loan losses |
|
|
(2,691 |
) |
|
|
(882 |
) |
|
|
|
|
|
|
|
|
(3,573 |
) |
Premises and equipment |
|
|
7,235 |
|
|
|
1,712 |
|
|
|
|
|
|
|
|
|
8,947 |
|
Real estate owned |
|
|
|
|
|
|
340 |
|
|
|
|
|
|
|
|
|
340 |
|
Federal Home Loan Bank stock |
|
|
3,143 |
|
|
|
1,972 |
|
|
|
|
|
|
|
|
|
5,115 |
|
Bank owned life insurance |
|
|
|
|
|
|
2,673 |
|
|
|
|
|
|
|
|
|
2,673 |
|
Loan servicing rights |
|
|
10 |
|
|
|
66 |
|
|
|
|
|
|
|
|
|
76 |
|
Core Deposit Premium |
|
|
|
|
|
|
|
|
|
|
1,350 |
|
|
(5) |
|
|
1,350 |
|
Goodwill |
|
|
|
|
|
|
|
|
|
|
255 |
|
|
(6) |
|
|
255 |
|
Accrued interest and other assets |
|
|
2,097 |
|
|
|
1,171 |
|
|
|
514 |
|
|
(7) |
|
|
3,782 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
344,808 |
|
|
$ |
97,121 |
|
|
$ |
(24 |
) |
|
|
|
$ |
441,905 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
$ |
247,029 |
|
|
$ |
66,034 |
|
|
$ |
(577 |
) |
|
(8) |
|
$ |
313,640 |
|
Repurchase agreements |
|
|
22,604 |
|
|
|
|
|
|
|
|
|
|
|
|
|
22,604 |
|
Federal Home Loan Bank advances |
|
|
35,876 |
|
|
|
22,560 |
|
|
|
(647 |
) |
|
(9) |
|
|
59,083 |
|
Accrued expenses and other liabilities |
|
|
2,151 |
|
|
|
401 |
|
|
|
(1,220 |
) |
|
(10) |
|
|
3,772 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities |
|
|
307,660 |
|
|
|
88,995 |
|
|
|
(2,444 |
) |
|
|
|
|
399,099 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EQUITY: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
|
16,674 |
|
|
|
5 |
|
|
|
(2,010 |
) |
|
(11) |
|
|
18,689 |
|
Additional paid-in capital |
|
|
6,456 |
|
|
|
4,168 |
|
|
|
525 |
|
|
(11) |
|
|
10,099 |
|
Retained earnings |
|
|
18,553 |
|
|
|
4,835 |
|
|
|
4,835 |
|
|
(11) |
|
|
18,553 |
|
Unearned ESOP |
|
|
|
|
|
|
(168 |
) |
|
|
(168 |
) |
|
(11) |
|
|
|
|
Treasury stock |
|
|
(4,713 |
) |
|
|
(687 |
) |
|
|
(687 |
) |
|
(11) |
|
|
(4,713 |
) |
Accumulated other comprehensive
income (loss) |
|
|
178 |
|
|
|
(27 |
) |
|
|
(27 |
) |
|
(11) |
|
|
178 |
|
Total Shareholders Equity |
|
|
37,148 |
|
|
|
8,126 |
|
|
|
2,468 |
|
|
|
|
|
42,806 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities & Shareholders
Equity |
|
$ |
344,808 |
|
|
$ |
97,121 |
|
|
$ |
24 |
|
|
|
|
$ |
441,905 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 65 -
CSB Bancorp, Inc.
Indian Village Bancorp, Inc.
Pro Forma Condensed Combined Consolidated Statement of Income
For the Three Months Ended March 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical |
|
|
Pro Forma |
|
|
|
|
|
|
|
|
Historical |
|
|
Indian |
|
|
Adjustments |
|
|
Footnote |
|
Proforma |
|
|
|
CSB |
|
|
Village |
|
|
Debit/(Credit) |
|
|
Reference |
|
Combined |
|
|
|
|
|
|
|
|
|
|
|
(Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands except per share data) |
|
|
|
|
Interest income |
|
$ |
5,284 |
|
|
$ |
1,385 |
|
|
$ |
57 |
|
|
(4) |
|
$ |
6,612 |
|
Interest expense |
|
|
1,904 |
|
|
|
915 |
|
|
|
(157 |
) |
|
(8) (9) |
|
|
2,662 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
3,380 |
|
|
|
470 |
|
|
|
(100 |
) |
|
|
|
|
3,950 |
|
Provision for loan losses |
|
|
107 |
|
|
|
98 |
|
|
|
|
|
|
|
|
|
205 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after
provision for loan losses |
|
|
3,273 |
|
|
|
372 |
|
|
|
(100 |
) |
|
|
|
|
3,745 |
|
Non-interest income |
|
|
955 |
|
|
|
89 |
|
|
|
|
|
|
|
|
|
1,044 |
|
Non-interest expense |
|
|
2,728 |
|
|
|
588 |
|
|
|
84 |
|
|
(5) |
|
|
3,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
1,500 |
|
|
|
(127 |
) |
|
|
(16 |
) |
|
|
|
|
1,389 |
|
Income tax provision (benefit) |
|
|
498 |
|
|
|
(93 |
) |
|
|
(38 |
) |
|
(12) |
|
|
367 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (loss) |
|
$ |
1,002 |
|
|
$ |
(34 |
) |
|
$ |
(54 |
) |
|
|
|
$ |
1,022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.41 |
|
|
$ |
(0.08 |
) |
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
0.41 |
|
|
$ |
(0.08 |
) |
|
|
|
|
|
|
|
|
|
|
Proforma earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
|
|
|
|
|
|
|
|
|
|
(13) |
|
$ |
0.37 |
|
Diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
(13) |
|
$ |
0.37 |
|
- 66 -
CSB Bancorp, Inc.
Indian Village Bancorp, Inc.
Pro Forma Condensed Combined Consolidated Statement of Income
For the Twelve Months Ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical |
|
|
Pro Forma |
|
|
|
|
|
|
|
|
Historical |
|
|
Indian |
|
|
Adjustments |
|
|
Footnote |
|
Proforma |
|
|
|
CSB |
|
|
Village |
|
|
Debit/(Credit) |
|
|
Reference |
|
Combined |
|
|
|
|
|
|
|
|
|
|
|
(Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands except per share data) |
|
|
|
|
Interest income |
|
$ |
21,231 |
|
|
$ |
5,881 |
|
|
$ |
228 |
|
|
(4) |
|
$ |
26,884 |
|
Interest expense |
|
|
7,905 |
|
|
|
3,915 |
|
|
|
(630 |
) |
|
(8) (9) |
|
|
11,190 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
13,326 |
|
|
|
1,966 |
|
|
|
(402 |
) |
|
|
|
|
15,694 |
|
Provision for loan losses |
|
|
472 |
|
|
|
546 |
|
|
|
|
|
|
|
|
|
1,018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after
provision for loan losses |
|
|
12,854 |
|
|
|
1,420 |
|
|
|
(402 |
) |
|
|
|
|
14,676 |
|
Non-interest income |
|
|
3,035 |
|
|
|
245 |
|
|
|
|
|
|
|
|
|
3,280 |
|
Non-interest expense |
|
|
10,701 |
|
|
|
2,217 |
|
|
|
(338 |
) |
|
(5) |
|
|
13,256 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
5,188 |
|
|
|
(552 |
) |
|
|
(64 |
) |
|
|
|
|
4,700 |
|
Income tax provision (benefit) |
|
|
1,674 |
|
|
|
(153 |
) |
|
|
(28 |
) |
|
(12) |
|
|
1,493 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (loss) |
|
$ |
3,514 |
|
|
$ |
(399 |
) |
|
$ |
(92 |
) |
|
|
|
$ |
3,207 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
1.42 |
|
|
$ |
(0.96 |
) |
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
1.42 |
|
|
$ |
(0.96 |
) |
|
|
|
|
|
|
|
|
|
|
Proforma earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
|
|
|
|
|
|
|
|
|
|
(14) |
|
$ |
1.15 |
|
Diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
(14) |
|
$ |
1.15 |
|
|
|
|
Notes: |
|
|
|
(1) |
|
Represents cash consideration of $2,116 paid to Indian Village shareholders. |
|
(2) |
|
Represents an additional valuation adjustment of $175 due to extraordinary market
dislocations and atypical payment structures in the private label CMO portfolio held. |
|
(3) |
|
Represents estimated fair market value adjustment of $769.
|
|
(4) |
|
Represents SOP 03-3 adjustment of ($621) on impaired commercial loans. |
|
(5) |
|
Represents the establishment of the estimated core deposit intangible and deposit customer
relationship of $1,350. The deposit intangible is assumed to amortize into non-interest
expense over 7 years, using accelerated methods. |
|
(6) |
|
Represents the estimate of the excess of the purchase price plus direct acquisition costs
over the estimated fair value of the net assets acquired. |
|
(7) |
|
Represents the tax savings of expenses recorded. |
|
(8) |
|
Represents the estimated fair market value adjustment related to deposits and is assumed to
amortize into interest expense on a level yield basis over the estimated remaining maturity of
the deposits. |
|
(9) |
|
Represents the estimated fair market value adjustment related to FHLB borrowings and is
assumed to amortize into interest expense on a level basis over the estimated life of the
borrowings. |
|
(10) |
|
Represents accruals for severance and benefits, early termination of contracts, professional
fees and deconversion costs. |
|
(11) |
|
Represents the elimination of Indian Village equity on a historical basis and the issuance of
an estimated 322,462 common shares of CSB based on the exchange ratio of .7611. |
- 67 -
|
|
|
(12) |
|
Represents the income tax effect of the estimated purchase account adjustments using an
effective tax rate of 34%. |
|
(13) |
|
Basic and diluted pro forma earnings per share for the three months ended March 31, 2008 have
been computed based on 2,767,059 and 2,767,104 shares, respectively. |
|
(14) |
|
Basic and diluted pro forma earnings per share for the twelve months ended December 31, 2007
have been computed based on 2,789,572 and 2,790,274 shares, respectively. |
CSB Directors and Executive Officers After the Merger
Directors and executive officers
The following table sets forth information concerning each of the current directors and
executive officers of CSB. Included in the table is information regarding each persons principal
occupation or employment during the past five years.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year First |
|
|
|
|
|
|
|
|
|
|
|
|
Elected or |
|
|
|
|
|
|
|
|
|
|
|
|
Appointed |
|
|
|
|
|
|
|
|
|
|
|
|
Director or |
|
Current |
|
|
|
|
|
|
|
|
|
|
Officer, As |
|
Term to |
Name |
|
|
Age |
|
|
Principal Occupation1 |
|
Positions Held with CSB |
|
Applicable |
|
Expire |
Robert K. Baker
|
|
|
53 |
|
|
Co-owner and Controller,
Bakerwell, Inc.
|
|
Director
|
|
|
2001 |
|
|
|
2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ronald E. Holtman
|
|
|
65 |
|
|
Attorney; Logee, Hostetler,
Stutzman and Lehman
|
|
Director
|
|
|
2001 |
|
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J. Thomas Lang
|
|
|
64 |
|
|
Veterinarian, Dairy Farmer,
Spring Hill Farm, Inc.
|
|
Director
|
|
|
1993 |
|
|
|
2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr. Daniel J. Miller
|
|
|
68 |
|
|
Retired Physician; East Holmes
Family Care, Inc.
|
|
Director
|
|
|
1979 |
|
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeffery A. Robb, Sr.
|
|
|
58 |
|
|
President and Chairman, Robb
Companies, Inc., also formerly
Interim President and Chief
Executive Officer of Exchange
Bancshares, Inc. and The
Exchange Bank (2002-2003)
|
|
Director
|
|
|
2001 |
|
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eddie L. Steiner
|
|
|
52 |
|
|
President and Chief Executive
Officer, CSB Bancorp, Inc.;
formerly Vice President,
Production, Smith Dairy
Products Company (1989 to 2006)
|
|
President and Chief
Executive Officer,
Director
|
|
|
2001 |
|
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John R. Waltman
|
|
|
66 |
|
|
Attorney, Of Counsel;
Critchfield, Critchfield &
Johnston, LLC
|
|
Director
|
|
|
2001 |
|
|
|
2010 |
|
- 68 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year First |
|
|
|
|
|
|
|
|
|
|
|
|
Elected or |
|
|
|
|
|
|
|
|
|
|
|
|
Appointed |
|
|
|
|
|
|
|
|
|
|
|
|
Director or |
|
Current |
|
|
|
|
|
|
|
|
|
|
Officer, As |
|
Term to |
Name |
|
|
Age |
|
|
Principal Occupation1 |
|
Positions Held with CSB |
|
Applicable |
|
Expire |
Rick L. Ginther2
|
|
|
57 |
|
|
Banker
|
|
Senior Vice
President;
Director, President
and Chief Executive
Officer of The
Commercial and
Savings Bank;
formerly, Senior
Vice President and
Chief Lending
Officer (2003-2006)
|
|
|
2003 |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul D. Greig3
|
|
|
62 |
|
|
Banker
|
|
Senior Vice
President and
Chief
Operations/Information
Officer
|
|
|
2003 |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paula J. Meiler4
|
|
|
53 |
|
|
Banker
|
|
Senior Vice
President and Chief
Financial Officer
|
|
|
2004 |
|
|
|
N/A |
|
|
|
|
1 |
|
Unless otherwise noted herein, each of the individuals listed has been engaged in the
occupations and employment described above for the past five years. |
|
2 |
|
Mr. Ginther held the position of President of the Canton region of Bank One N.A.
from 2002 to 2003 and various positions with Bank One Corporation (now JP Morgan Chase & Co.)
or predecessor from 1973 to 2002. |
|
3 |
|
Mr. Greig retired from Bank One Corporation (now JP Morgan Chase & Co.) in 2002 from
the position of National Retail Support Services Manager. During retirement from 2002 through
2003 he was a substitute teacher in two public school systems. |
|
4 |
|
Ms. Meiler held the previous positions of Chief Financial Officer and Treasurer of
Consumers Bancorp Inc. from 1999 through 2004 and Comptroller of The Citizens Banking Company
(aka Sky Bank) and Citizens Bancshares Inc. from 1981 to 1999. |
The Board of Directors of CSB has determined that each of the following Board members are
considered independent as defined under NASDAQ Rule 4200: Mr. Baker, Mr. Holtman, Mr. Lang, Dr.
Miller, Mr. Robb, and Mr. Waltman. In addition, the Board of Directors of CSB has determined that
Samuel M. Steimel, who resigned from the Boards of Directors of CSB and CSB Bank on March 13, 2008,
was considered independent under the above definition at the time he served during 2007.
Director compensation
Each director of CSB also serves as a director of CSB Bank. Outside directors are compensated
for attendance at Board and committee meetings of CSB Bank but receive no separate compensation for
service as directors of CSB. Directors who are employees receive no additional compensation for
serving on the Boards of Directors of CSB or CSB Bank (or committees thereof).
CSB Bank provided the following cash compensation to directors in 2007:
|
|
|
Retainer of $10,000 per year, paid quarterly |
|
|
|
|
$500 for each board or committee meeting attended |
- 69 -
|
|
|
Reimbursement for customary and usual travel expenses (outside of board and
committee meeting attendance). |
No director stock awards or options were granted to any directors in 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees Earned or |
|
Stock |
|
Stock Option |
|
All Other |
|
|
Name |
|
Paid in Cash ($) |
|
Awards ($) |
|
Awards (#) |
|
Compensation ($)1 |
|
Total ($) |
Robert K. Baker |
|
$ |
33,000 |
|
|
|
0 |
|
|
|
0 |
|
|
$ |
1,909 |
|
|
$ |
34,909 |
|
Ronald E. Holtman |
|
|
23,500 |
|
|
|
0 |
|
|
|
0 |
|
|
|
168 |
|
|
|
23,668 |
|
J. Thomas Lang |
|
|
28,500 |
|
|
|
0 |
|
|
|
0 |
|
|
|
6,289 |
|
|
|
34,789 |
|
Dr. Daniel J. Miller |
|
|
30,500 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
30,500 |
|
Jeffery A. Robb, Sr. |
|
|
32,500 |
|
|
|
0 |
|
|
|
0 |
|
|
|
4,086 |
|
|
|
36,586 |
|
Samuel M. Steimel 2 |
|
|
24,500 |
|
|
|
0 |
|
|
|
0 |
|
|
|
10,879 |
|
|
|
35,379 |
|
John R. Waltman |
|
|
31,000 |
|
|
|
0 |
|
|
|
0 |
|
|
|
1,461 |
|
|
|
32,461 |
|
|
|
|
1 |
|
All Other Compensation includes Mssrs. Lang, Robb and Steimel participating in a
grandfathered health and dental benefits program. CSB Bank also provides a 1% reduction of the
standard interest rate charged on certain consumer and primary residence mortgage loans to all
directors, officers and employees during the period of service to CSB or CSB Bank. |
|
2 |
|
Mr. Steimel resigned from the Boards of Directors of CSB and CSB Bank on March 13,
2008. |
Compensation discussion and analysis
The following discusses the material factors involved in CSBs decisions regarding the
compensation of its Named Executive Officers listed in the Summary Compensation Table on page 74
(the NEOs) during 2007.
The specific amounts paid or payable to the NEOs are disclosed in the tables and narrative
beginning on page 74. The following discussion cross-references those specific tabular and
narrative disclosures where appropriate.
Compensation Overview
Compensation Philosophy and Objectives
We believe that, in order to manage and grow a well run financial services organization, it is
necessary to establish compensation programs and related opportunities that are attractive,
motivating and rewarding to high quality executives, managers and staff. These programs and
opportunities must be balanced with their cost to CSB and its shareholders. In order to arrive at
the appropriate balance, CSB has established the following compensation philosophy and guidelines
for its overall compensation program:
|
1. |
|
In order to attract and retain highly qualified management, we strive to
provide target salaries close to the mean of the market rate paid for comparable
positions by similarly sized bank holding companies. |
- 70 -
|
2. |
|
Where practical, we establish performance-based compensation focused on
individual results, team results, and contributions to CSBs overall performance. |
|
|
3. |
|
We attempt to link and align the wealth creation interests of management and
shareholders by utilizing CSB stock awards or options as a component of the
compensation program. |
Components of Executive Compensation
Total compensation for executives is comprised of base salaries, annual cash incentive awards,
long-term equity awards, retirement saving plan contributions, severance protection, and other
benefits and perquisites. To determine compensation levels for the NEOs and other officers, we
review compensation survey data from independent sources to ensure that our total compensation
program is competitive. We look at compensation data from companies in the financial services
industry by using publicly available peer company disclosures. We target overall compensation
levels competitive with our industry comparison peer group. The various components of executive
compensation reflect the following policies:
Base Salary
The purpose of the base salary program is to pay for the qualifications, experience, and
marketability of the position consistent with market practices. A pay range for each position is
anchored around the mean of the labor market. Individual pay within the range is determined by
individual performance, job proficiency and contributions over a period of years.
Pay adjustments are tied directly to CSBs performance appraisal process, which evaluates the
employee on a series of performance criteria. This process is used for all CSB employees including
the NEOs. Pay adjustments are typically made annually. In addition to these performance-based
base pay adjustments, it is periodically necessary to make additional market adjustments in those
instances where market base salary levels move faster than anticipated or where additional duties
and responsibilities are added to the job.
For 2007, the base salary levels for all CSB NEOs are at or below the median of base salaries
of peers in other similar-sized financial organizations. In 2007, an overall budget of 3.0% for
base salary increases was established and base pay increases ranging from 3.0% to 3.16% were
provided to the NEOs.
The amount of a NEOs base salary is the reference point for much of the other compensation.
For example, the relative ranges of potential annual incentive awards for executives are fairly
proportionate to the NEOs respective base salaries. In addition, base salary is one component of
the contribution formula under the CSB Bank 401(k) Retirement Plan and the key component in CSBs
severance and change in control agreements.
Annual Incentive
The purpose of the annual incentive program is to focus executives on achieving and possibly
exceeding the companys annual performance objectives. In 2007, the performance expectations were
established around performance to current year budget, the attainment of specific performance
ratios, and satisfactory compliance with regulatory and audit reviews.
Each component of the annual incentive program has a separate measurement. The Compensation
Committee retains the flexibility to make discretionary adjustments up or down based on performance
that may be subjective. This discretion is not used to change the targets under the plan, only the
rewards.
- 71 -
The target annual incentive opportunity during the past fiscal year was 30% of actual base
salary for each NEO. For 2007, the companys target budget was $3.27 million, target return on
assets was greater than 1%, target return on equity was greater than 9% and the target efficiency
ratio was less than 70%. All financial targets were met in 2007.
Long-Term Incentive
The purpose of CSBs long-term incentive plan is to align the interests of the NEOs and other
executives with the shareholders by providing them the opportunity to benefit from share price
increases in the future through share option grants or awards under the 2002 CSB Bancorp, Inc.
Share Equity Incentive Plan.
In 2007, the Compensation Committee took into consideration the market pay practices of CSB
peers, the performance of CSB, a general assessment of the contributions of the individual NEOs,
the available shares, and the projected grant values in making its recommendations. The
Compensation Committee also sought input from the Chief Executive Officer on his views of grants
for his direct reports.
Finally, the accounting and tax treatment of stock options is different from cash-based
payments. For awards under the Share Equity Incentive Plan, CSB accrues an expense computed using
the Black-Scholes valuation model on the date of grant pro-ratably over the vesting period. There
were no stock option or grant awards in 2007.
Retirement and Other Post-Employment Benefits
CSB maintains The Commercial & Savings Bank 401(k) Retirement Plan (the 401(k) Plan), a
qualified 401(k) and profit sharing plan. The 401(k) Plan provides a 50% match on the first 4% of
cash compensation taking into account all compensation. There is also a discretionary profit
sharing contribution and the amount may vary directly with CSB profits. The 401(k) Plan provides
investment alternatives in the following categories: CSB stock, large, small and mid cap, indexed,
growth and bond funds.
Other Benefits and Perquisites
While the value of benefits including health and welfare, retirement, disability, and vacation
benefits are not required to be reported in the tables that follow, these benefits are important to
a comprehensive view of the CSB compensation and benefit program. All CSB employees, including the
NEOs, participate in the same comprehensive benefit program, which is intended to provide financial
protection to employees based on health and retirement needs as well as providing for well-deserved
time off. CSB also provides a disability program to all employees including NEOs. Because
financial services is a relationship-driven business, CSB pays country club dues for Mr. Ginther at
a local country club to provide a facility to entertain CSB clients, community leaders and members
of the management staff for business purposes. Certain consumer and primary residence mortgage
loans granted by CSB Bank to directors, officers and all employees receive a 1% reduction to the
standard loan interest rate during the period of service to CSB or CSB Bank.
Termination and Change in Control Terms
CSB has employment agreements with Messrs. Ginther and Greig and Ms. Meiler. The employment
agreements provide both CSB and the executives a mutual understanding of performance expectations,
pay, opportunities and employment terms. The employment agreements discuss how disability and
voluntary and involuntary terminations are handled. In addition, the employment agreements provide
for severance payments in the event of employment termination following a change
- 72 -
in control of CSB.
The purpose of the change in control severance policy is to help participants seek to maximize the
value of CSBs shares without concern about losing their job. The NEOs covered by these agreements
and the maximum cost of these change in control payments at December 31, 2007 for each named
executive is as follows:
|
|
|
|
|
R. Ginther, President and CEO, The Commercial & Savings Bank |
|
$ |
334,227 |
|
P. Greig, Senior Vice President and COO/CIO |
|
|
244,162 |
|
P. Meiler, Senior Vice President and CFO |
|
|
235,162 |
|
Compensation Committee Decision-Making Process
The Compensation Committee is comprised of three non-management Board members whose
responsibilities are the establishment of the companys overall compensation philosophy, the
assessment of the design of CSB compensation and benefit programs, the monitoring of external
market pay levels and practices, review and approval of incentive award opportunities, actual
payments and grants, and review and recommendation for Board of Director approval related to
proposed implementation or material changes to pay or benefit programs.
With the participation of management, including the Chief Executive Officer, the Compensation
Committee evaluated a survey of its pay practices for both directors and NEOs. The list of primary
peers utilized in 2007 is as follows:
|
|
|
Central Federal Corporation
|
|
Fairlawn, Ohio |
Cheviot Financial Corp.
|
|
Cheviot, Ohio |
Commercial Bancshares, Inc.
|
|
Upper Sandusky, Ohio |
Consumers Bancorp, Inc.
|
|
Minerva, Ohio |
Cortland Bancorp Inc.
|
|
Cortland, Ohio |
Croghan Bancshares Inc.
|
|
Fremont, Ohio |
CSB Bancorp, Inc.
|
|
Millersburg, Ohio |
First Franklin Corporation
|
|
Cincinnati, Ohio |
Killbuck Bancshares Inc.
|
|
Killbuck, Ohio |
Middlefield Banc Corp.
|
|
Middlefield, Ohio |
National Bancshares Corporation
|
|
Orrville, Ohio |
Ohio Legacy Corp
|
|
Wooster, Oho |
Wayne Savings Bancshares, Inc.
|
|
Wooster, Ohio |
These financial services firms are all SEC reporting corporations ranging in size from
approximately 51% of CSBs asset level to approximately one and one-half times CSBs asset level as
of December 31, 2007 and are all located and doing business primarily in Ohio.
The Compensation Committee Report
The Compensation Committee has reviewed and discussed the foregoing Compensation Discussion
and Analysis with CSBs management. Based on this review and discussion, the
Compensation Committee has recommended to the Board of Directors that the Compensation
Discussion and Analysis be included in CSBs proxy statement and Annual Report on Form 10-K for the
fiscal year ended December 31, 2007.
THE COMPENSATION COMMITTEE
Robert K. Baker, Chairman
Ronald E. Holtman
Samuel M. Steimel
- 73 -
Executive compensation and other information
The following table shows information concerning the annual compensation paid or accrued for
services to CSB in all capacities of the Chief Executive Officer, Chief Financial Officer and the
other NEOs during 2007.
SUMMARY COMPENSATION TABLE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonqualified |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-equity |
|
|
Deferred |
|
|
|
|
|
|
|
Name and |
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock |
|
|
Option |
|
|
Incentive Plan |
|
|
Compensation |
|
|
All Other |
|
|
|
|
Principal Position |
|
Year |
|
|
Salary |
|
|
Bonus |
|
|
Awards |
|
|
Awards1 |
|
|
Compensation |
|
|
Earnings |
|
|
Compensation |
|
|
Total |
|
Eddie L. Steiner, |
|
|
2007 |
|
|
$ |
164,800 |
|
|
$ |
41,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
15,964 |
|
|
$ |
221,764 |
|
President and CEO |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paula J. Meiler, |
|
|
2007 |
|
|
|
114,000 |
|
|
|
29,000 |
|
|
|
|
|
|
$ |
7,500 |
|
|
|
|
|
|
|
|
|
|
|
22,375 |
|
|
|
172,875 |
|
Sr VP and CFO |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rick L. Ginther, |
|
|
2007 |
|
|
|
164,800 |
|
|
|
41,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,017 |
|
|
|
225,817 |
|
Sr VP;
President and CEO,
The Commercial &
Savings Bank |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul D. Greig, |
|
|
2007 |
|
|
|
120,000 |
|
|
|
30,000 |
|
|
|
|
|
|
|
7,500 |
|
|
|
|
|
|
|
|
|
|
|
7,696 |
|
|
|
165,196 |
|
Sr VP and COO/CIO |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
The option awards include amounts expensed in 2007 for stock option awards granted in
2006. For assumptions related to the valuation of the stock options, see Note 7 to CSBs
consolidated financial statements for the fiscal year ended December 31, 2007, included in this
prospectus/proxy statement. |
Other Compensation Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qualified Plan |
|
|
|
|
|
|
|
|
|
|
|
|
|
Life |
|
|
Disability |
|
|
Matching, |
|
|
Perquisites |
|
|
|
|
|
|
|
|
|
|
Insurance |
|
|
Insurance |
|
|
Profit Sharing |
|
|
and Other |
|
|
|
|
Name |
|
Year |
|
|
Premiums |
|
|
Premiums |
|
|
Contribution |
|
|
Benefits |
|
|
Total |
|
Eddie L. Steiner |
|
|
2007 |
|
|
$ |
480 |
|
|
$ |
535 |
|
|
$ |
9,301 |
|
|
$ |
5,648 |
|
|
$ |
15,964 |
|
Paula J. Meiler |
|
|
2007 |
|
|
|
480 |
|
|
|
403 |
|
|
|
6,460 |
|
|
|
15,032 |
|
|
|
22,375 |
|
Rick L. Ginther |
|
|
2007 |
|
|
|
480 |
|
|
|
535 |
|
|
|
9,301 |
|
|
|
9,701 |
|
|
|
20,017 |
|
Paul D. Greig |
|
|
2007 |
|
|
|
480 |
|
|
|
423 |
|
|
|
6,793 |
|
|
|
|
|
|
|
7,696 |
|
- 74 -
Perquisites and Other Benefits Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Health and |
|
|
|
|
|
|
Loan Interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
Dental |
|
|
Country Club |
|
|
Reduction of |
|
|
Relocation |
|
|
|
|
Name |
|
Year |
|
|
Benefits |
|
|
Dues |
|
|
1% |
|
|
Expenses |
|
|
Total |
|
Eddie L. Steiner |
|
|
2007 |
|
|
$ |
5,347 |
|
|
|
|
|
|
$ |
301 |
|
|
|
|
|
|
$ |
5,648 |
|
Paula J. Meiler |
|
|
2007 |
|
|
|
7,882 |
|
|
|
|
|
|
|
1,395 |
|
|
$ |
5,755 |
|
|
|
15,032 |
|
Rick L. Ginther |
|
|
2007 |
|
|
|
5,347 |
|
|
$ |
4,354 |
|
|
|
|
|
|
|
|
|
|
|
9,701 |
|
Paul D. Greig |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Equity Awards at Fiscal Year-End
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards |
|
Stock Awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
Incentive |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive |
|
Plan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan |
|
Awards: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market |
|
Awards: |
|
Market |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
value |
|
Number |
|
or Payout |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
|
Number |
|
of |
|
of |
|
Value of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive |
|
|
|
|
|
|
|
|
|
of |
|
shares |
|
Unearned |
|
Unearned |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan |
|
|
|
|
|
|
|
|
|
shares |
|
or |
|
Shares, |
|
Shares, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards: |
|
|
|
|
|
|
|
|
|
or units |
|
units of |
|
Units or |
|
Units or |
|
|
|
|
|
|
Number of |
|
Number of |
|
Number of |
|
|
|
|
|
|
|
|
|
of stock |
|
stock |
|
Other |
|
Other |
|
|
|
|
|
|
Securities |
|
Securities |
|
Securities |
|
|
|
|
|
|
|
|
|
that |
|
that |
|
Rights |
|
Rights |
|
|
|
|
|
|
Underlying |
|
Underlying |
|
Underlying |
|
Option |
|
|
|
|
|
have |
|
have |
|
That |
|
That |
|
|
|
|
|
|
Unexercised |
|
Unexercised |
|
Unexercised |
|
Exercise |
|
Option |
|
not |
|
not |
|
Have Not |
|
Have Not |
|
|
Grant |
|
Options (#) |
|
Options (#) |
|
Unearned |
|
Price |
|
Expiration |
|
vested |
|
vested |
|
Vested |
|
Vested |
Name |
|
Date |
|
Exercisable |
|
Unexercisable |
|
Options (#) |
|
($) |
|
Date |
|
(#) |
|
($) |
|
(#) |
|
($) |
Eddie L. Steiner |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paula J. Meiler |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11/29/2006 |
|
|
11,904 |
|
|
|
5,952 |
|
|
|
|
|
|
$ |
18.00 |
|
|
|
3/31/2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/9/2004 |
|
|
1,000 |
|
|
|
|
|
|
|
|
|
|
$ |
19.00 |
|
|
|
8/9/2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rick L. Ginther |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7/21/2003 |
|
|
1,000 |
|
|
|
|
|
|
|
|
|
|
$ |
17.50 |
|
|
|
7/21/2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul D. Greig |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11/29/2006 |
|
|
11,904 |
|
|
|
|
|
|
|
|
|
|
$ |
18.00 |
|
|
|
3/31/2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6/30/2003 |
|
|
1,000 |
|
|
|
|
|
|
|
|
|
|
$ |
17.50 |
|
|
|
7/21/2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grants on Plan-Based Awards
No stock options were granted by the Company during 2007. Information regarding stock options
granted in prior years is included in the Outstanding Equity Awards at Fiscal Year-End table
above.
Option Exercises
There were no exercises of any stock options by NEOs during 2007.
Pension Benefits
The Company does not maintain a qualified or non-qualified pension plan.
- 75 -
Non-Qualified Deferred Compensation
The Company does not maintain a non-qualified deferred compensation plan.
Potential Payments Upon Termination or Change in Control
Certain of the NEOs are party to employment agreements that provide for certain salary and
benefits upon termination of employment under various scenarios. The agreements are all described
more fully in the narrative and tables below.
The tables below set forth the benefits that could be paid to each NEO upon various
termination events, which would only be known at the time that the benefits become payable. The
tables reflect the multiples of base salary amounts that could be payable under the various
arrangements if the event in question occurred as of December 31, 2007.
Upon a qualifying termination after a Change in Control, each NEO will also be entitled to
immediate vesting of all stock options.
The NEOs employment agreements do not provide for any additional payments or benefits for
death, disability, voluntary termination of employment by the executive or involuntary termination
by CSB for cause. Under those scenarios, the NEOs are only entitled to their accrued and unpaid
obligations, such as salary and unused vacation. The following tables contain common information
about CSBs employment agreements and benefit plans.
Potential Payments Change in Control
|
|
|
|
|
|
|
|
|
|
|
Change in |
|
|
|
|
Control |
|
Post |
|
|
Multiple |
|
Termination |
Name |
|
Base Salary |
|
Health Care |
Rick L. Ginther |
|
|
2.0 |
|
1 Year |
Paula J. Meiler |
|
|
2.0 |
|
1 Year |
Paul D. Greig |
|
|
2.0 |
|
1 Year |
Potential Payments Upon Termination Without Cause
|
|
|
|
|
|
|
Termination- |
|
Post Termination |
Name |
|
Without Cause |
|
Health Care |
Rick L. Ginther
|
|
Base Salary Unpaid under agreement + 6 Months
|
|
6 Months |
Paula J. Meiler
|
|
Base Salary Unpaid under agreement + 6 Months
|
|
6 Months |
Paul D. Greig
|
|
Base Salary Unpaid under agreement + 6 Months
|
|
6 Months |
- 76 -
Employment contracts and other arrangements
This section discusses the employment contracts and severance agreements in place for NEOs of
CSB.
Rick L. Ginther, President and Chief Executive Officer, The Commercial and Savings Bank
An employment agreement dated July 21, 2003, was entered into with Rick L. Ginther providing,
among other things, for employment of Mr. Ginther as Senior Vice President and Chief Loan Officer
of CSB Bank pursuant to the terms of the agreement. Mr. Ginther was promoted on April 19, 2006, to
President and Chief Executive Officer of CSB Bank. The agreement is for a two-year term with
annual renewals commencing at the first anniversary, and provides for compensation to Mr. Ginther
consisting of an annual base salary of $120,000, a bonus to be paid at the discretion of the Board
of Directors, vacation, benefits, and certain stock options. In the event that Mr. Ginthers
employment is terminated without cause (as defined in the agreement), the agreement entitles him
to a severance payment equal to the unpaid amount otherwise due under the agreement plus six months
of the base salary in effect on the date of termination and limited continued benefits for a six
month period. The agreement also contains a non-compete provision, prohibiting Mr. Ginther from
competing under terms defined by the agreement for a period of one year following the date of
termination of the agreement, as well as a change in control provision which provides Mr. Ginther
with certain benefits, including continuation of compensation, stock options, and certain health
benefits for stated periods following a change in control as defined therein and termination of
employment within a 90-day period before or after such change in control. Such change in
control benefits are subject to being reduced so that no excess parachute payment (as defined in
Section 280G(b)(1) of the Internal Revenue Code) is received by Mr. Ginther.
Paul D. Greig, Senior Vice President, Chief Operating Officer and Chief Information Officer
An employment agreement dated June 30, 2003, was entered into with Paul D. Greig providing,
among other things, for employment of Mr. Greig as Senior Vice President, Chief Operations Officer,
and Chief Information Officer of CSB Bank pursuant to the terms of the agreement. The agreement is
for a two-year term with annual renewals commencing at the first anniversary, and provides for
compensation to Mr. Greig consisting of an annual base salary of $100,000, a bonus to be paid at
the discretion of the Board of Directors, vacation, benefits, and certain stock options. In the
event that Mr. Greigs employment is terminated without cause (as defined in the agreement), the
agreement entitles him to a severance payment equal to the unpaid amount otherwise due under the
agreement plus six months of the base salary in effect on the date of termination and limited
continued benefits for a six month period. The agreement also contains a non-compete provision,
prohibiting Mr. Greig from competing under terms defined by the agreement for a period of one year
following the date of termination of the agreement, as well as a change in control provision
which provides Mr. Greig with certain benefits, including continuation of compensation, stock
options, and certain health benefits for stated periods following a change in control as defined
therein and termination of employment within a 90-day period before or after such change in
control. Such change in control benefits are subject to being reduced so that no excess
parachute payment (as defined in Section 280G(b)(1) of the Internal Revenue Code) is received by
Mr. Greig.
Paula J. Meiler, Senior Vice President and Chief Financial Officer
An employment agreement dated August 9, 2004, was entered into with Paula J. Meiler providing,
among other things, for employment of Ms. Meiler as Senior Vice President and Chief Financial
Officer of CSB and CSB Bank pursuant to the terms of the agreement. The agreement is for a two-year
term with annual renewals commencing at the second anniversary, and provides for compensation to
Ms. Meiler
- 77 -
consisting of an annual base salary of $100,000, a bonus to be paid at the discretion of the
Board of Directors, vacation, benefits, relocation reimbursement up to a stated amount for a
limited time, and certain stock options. On August 9, 2007, an amendment to the agreement provided
that the agreement be for a two-year term with annual renewals commencing August 9, 2008. In the
event that Ms. Meilers employment is terminated without cause (as defined in the agreement), the
agreement entitles her to a severance payment equal to the unpaid amount otherwise due under the
agreement plus six months of the base salary in effect on the date of termination and limited
continued benefits for a six month period. The agreement also contains a non-compete provision,
prohibiting Ms. Meiler from competing under terms defined by the agreement for a period of one year
following the date of termination of the agreement, as well as a change in control provision
which provides Ms. Meiler with certain benefits, including continuation of compensation, stock
options, and certain health benefits for stated periods following a change in control as defined
therein and termination of employment within a 90-day period before or after such change in
control. Such change in control benefits are subject to being reduced so that no excess
parachute payment (as defined in Section 280G(b)(1) of the Internal Revenue Code) is received by
Ms. Meiler.
Equity compensation plan information
The following table shows, as of December 31, 2007, the number of CSB common shares issuable
upon the exercise of outstanding options, the weighted-average exercise price of those options, and
the number of CSB common shares remaining for future issuance. The 2002 CSB Bancorp, Inc. Share
Equity Incentive Plan was approved by the shareholders of CSB in April 2002.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares |
|
|
Number of shares of |
|
|
|
|
|
remaining available for |
|
|
common stock to be issued |
|
Weighted-average exercise |
|
future issuance under |
|
|
upon exercise of |
|
price of outstanding |
|
equity compensation plans |
|
|
outstanding options, |
|
options, warrants, and |
|
(excluding securities |
|
|
warrants and rights |
|
rights |
|
reflected in column (a)) |
|
|
|
|
|
(a) |
|
(b) |
|
(c) |
|
|
|
Equity compensation
plans
approved by
stockholders |
|
|
40,840 |
|
|
|
17.61 |
|
|
|
159,160 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation
plans not approved
by stockholders |
|
|
10,000 |
|
|
|
17.75 |
|
|
|
0 |
|
|
|
|
|
Total |
|
|
50,840 |
|
|
|
17.64 |
|
|
|
159,160 |
|
|
|
|
Certain relationships and related transactions
CSB has engaged and intends to continue to engage in the lending of money through CSB Bank to
various directors and officers of CSB and CSB Bank and their related interests. These loans were
made in accordance with applicable law and regulation and in the ordinary course of business on
substantially the same terms, including interest rates and collateral, as prevailing at the time
for comparable transactions with other persons and did not involve more than a normal risk of
collectibility or other unfavorable features.
In addition to those banking transactions conducted in the ordinary course, the following
related transactions were conducted. Each of these transactions was made on terms similar to those
that could have been negotiated with an unaffiliated third party.
- 78 -
CSB and CSB Bank hired Holmes County Title Co. from time to time during 2007 for title work
and real estate closing services in connection with various matters arising in the ordinary course
of the business of CSB and CSB Bank. Ronda P. Steimel, owner of Holmes County Title Co., is the
wife of Samuel M. Steimel, who served as a director of CSB and CSB Bank until his resignation on
March 13, 2008. CSB and CSB Bank contemplate using Holmes County Title Co. in the future on
similar terms, as needed.
CSB and CSB Bank hired Critchfield, Critchfield & Johnston, Ltd. and Heartland Title Agency
from time to time during 2007 for legal services, title work and real estate closing services in
connection with various matters arising in the ordinary course of the business of CSB and CSB Bank.
John R. Waltman is of counsel of both Critchfield, Critchfield & Johnston, Ltd. and Heartland
Title Agency. CSB and CSB Bank contemplate using both Critchfield, Critchfield & Johnston, Ltd.
and Heartland Title Agency in the future on similar terms, as needed.
CSB and CSB Bank hired Logee, Hostetler, Stutzman & Lehman from time to time prior to 2006 for
legal services in connection with various matters arising in the ordinary course of the business of
CSB and CSB Bank. Ronald E. Holtman is a partner of Logee, Hostetler, Stutzman & Lehman. CSB and
CSB Bank contemplate using Logee, Hostetler, Stutzman & Lehman in the future on similar terms, as
needed.
CSB and CSB Bank hired Steimel Law Office from time to time prior to 2006 for legal services
in connection with various matters arising in the ordinary course of the business of CSB and the
Bank. Samuel M. Steimel, who served as a director of CSB and CSB Bank until his resignation on
March 13, 2008, is the owner of Steimel Law Office. CSB and CSB Bank contemplate using Steimel Law
Office in the future on similar terms, as needed.
Compensation committee interlocks and insider participation
Messrs. Robert K. Baker (Chairman), Ronald E. Holtman and Samuel M. Steimel served as members
of the Compensation Committee during 2007. None of these individuals is a current or former
executive officer or employee of CSB or CSB Bank or had a business relationship with CSB or CSB
Bank required to be reported pursuant to Item 407(e)(4) of SEC Regulation S-K.
Security Ownership of Certain Beneficial Owners and Management of CSB
The following table sets forth information about each person, group or entity known by CSB to
own beneficially more than five percent of the outstanding CSB common shares as of June 30, 2008:
|
|
|
|
|
|
|
|
|
Name and Address of |
|
Amount and Nature of |
|
|
Percent of Shares |
|
Beneficial Owner |
|
Beneficial Ownership |
|
|
Outstanding |
|
Richard G. Elliott
1450 Fox Run Lane
Canfield, Ohio 44406 |
|
|
125,450.000 |
1 |
|
|
5.18 |
% |
|
|
|
1 |
|
Mr. Elliott has sole voting power over 122,000 shares and shared voting power over
3,450 shares, as reported by an amended Schedule 13D filing with the Securities and Exchange
Commission on March 21, 2007. |
The following table sets forth information regarding the number of CSB common shares
beneficially owned by each director and named executive officer of CSB, and by all directors and
- 79 -
executive officers of CSB as a group, as of June 30, 2008 and on a pro forma basis, assuming an
aggregate of 322,462 additional CSB common shares are issued in the merger:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount and Nature of Beneficial Ownership |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post-Merger |
|
|
Sole Voting or |
|
Shared Voting |
|
Shares |
|
Total Shares |
|
Percent of |
|
Percent of |
|
|
Investment |
|
or Investment |
|
Subject to |
|
Beneficially |
|
Shares |
|
Shares |
Name and Address1 |
|
Power |
|
Power |
|
Options |
|
Owned2 |
|
Outstanding |
|
Outstanding |
Robert K. Baker |
|
|
3,438.0000 |
|
|
|
2,534.3561 |
|
|
|
0 |
|
|
|
5,972.3561 |
|
|
|
* |
|
|
|
* |
|
Ronald E. Holtman |
|
|
1,300.0000 |
|
|
|
0 |
|
|
|
0 |
|
|
|
1,300.0000 |
|
|
|
* |
|
|
|
* |
|
J. Thomas Lang |
|
|
1,295.5481 |
|
|
|
5,827.9781 |
|
|
|
0 |
|
|
|
7,123.5262 |
|
|
|
* |
|
|
|
* |
|
Dr. Daniel J. Miller |
|
|
29,639.0260 |
|
|
|
12,273.0000 |
|
|
|
0 |
|
|
|
41,912.0260 |
|
|
|
1.73 |
% |
|
|
1.53 |
% |
Jeffery A. Robb, Sr. |
|
|
4,086.3448 |
|
|
|
0 |
|
|
|
0 |
|
|
|
4,086.3448 |
|
|
|
* |
|
|
|
* |
|
Eddie L. Steiner |
|
|
18,568.0000 |
|
|
|
1,210.2808 |
|
|
|
0 |
|
|
|
19,778.2808 |
|
|
|
* |
|
|
|
* |
|
John R. Waltman |
|
|
15,385.0000 |
|
|
|
366.2379 |
|
|
|
0 |
|
|
|
15,751.2379 |
|
|
|
* |
|
|
|
* |
|
Rick L. Ginther |
|
|
0 |
|
|
|
3,184.8937 |
|
|
|
1,000.0000 |
|
|
|
4,184.8937 |
|
|
|
* |
|
|
|
* |
|
Paul D. Greig |
|
|
0 |
|
|
|
1,500.0000 |
|
|
|
12,904.0000 |
|
|
|
14,404.0000 |
|
|
|
* |
|
|
|
* |
|
Paula J. Meiler |
|
|
6,137.2120 |
|
|
|
100.0000 |
|
|
|
12,904.0000 |
|
|
|
19,141.2120 |
|
|
|
* |
|
|
|
* |
|
Other Executive Officers (2
persons) |
|
|
2,491.3590 |
|
|
|
792.4854 |
|
|
|
800.0000 |
|
|
|
4,083.8444 |
|
|
|
* |
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Directors and Executive
Officers as a Group (12
persons) |
|
|
82,340.4899 |
|
|
|
27,789.2320 |
|
|
|
27,608.0000 |
|
|
|
137,737.7219 |
|
|
|
5.69 |
% |
|
|
5.02 |
% |
|
|
|
* |
|
Indicates less than 1% of the total shares outstanding. |
|
1 |
|
Each of the individuals listed may be contacted at 91 North Clay Street, Millersburg,
Ohio 44654. |
|
2 |
|
The amounts shown include the total number of CSB common shares beneficially owned by
the individuals listed and includes CSB common shares that may be acquired upon the exercise
of stock options exercisable within 60 days of June 25, 2008. |
- 80 -
Information With Respect to CSB
Description of CSBs business
General
CSB Bancorp, Inc. (CSB or the Company), is a registered financial holding company under
the Bank Holding Company Act of 1956, as amended, and was incorporated under the laws of the State
of Ohio in 1991. The Commercial and Savings Bank of Millersburg, Ohio (CSB Bank), an Ohio
banking corporation chartered in 1879, is a wholly owned subsidiary of the Company. CSB Bank is a
member of the Federal Reserve System, and its deposits are insured up to the maximum provided by
law by the Federal Deposit Insurance Corporation. The primary regulators of CSB Bank are the
Federal Reserve Board and the Ohio Division of Financial Institutions.
CSB Bank provides retail and commercial banking services to its customers, including checking
and savings accounts, time deposits, IRAs, safe deposit facilities, personal loans, commercial
loans, real estate mortgage loans, installment loans, night depository facilities, brokerage and
trust services. CSB Bank grants residential real estate, commercial real estate, consumer and
commercial loans to customers located primarily in Holmes County and portions of surrounding
counties in Ohio.
Certain risks are involved in granting loans, primarily related to the borrowers ability and
willingness to repay the debt. Before CSB Bank extends a new loan or renews an existing loan to a
customer, these risks are assessed through a review of the borrowers past and current credit
history, collateral being used to secure the transaction, borrowers character, and other factors.
For all commercial loan relationships greater than $275,000, CSB Banks internal credit department
performs an annual risk rating review. In addition to this review, an independent outside loan
review firm is engaged to review all watch list and adversely classified credits, commercial loan
relationships greater than $750,000, a sample of commercial loan relationships less than $750,000,
loans within an industry concentration and a sample of consumer/mortgage loans. In addition, any
loan identified as a problem credit by management and/or the external loan review consultants is
assigned to CSB Banks loan watch list, and is subject to ongoing review by CSB Banks credit
department and the assigned loan officer to ensure appropriate action is taken when deterioration
has occurred.
Commercial loan rates are variable as well as fixed, and include operating lines of credit and
term loans made to small businesses primarily based on their ability to repay the loan from the
cash flow of the business. Business assets such as equipment, accounts receivable, and inventory
typically secure such loans. When the borrower is not an individual, CSB Bank generally obtains
the personal guarantee of the business owner. As compared to consumer lending, which includes
single-family residences, personal installment loans and automobile loans, commercial lending
entails significant additional risks. These loans typically involve larger loan balances, are
generally dependent on the cash flow of the business, and thus may be subject to a greater extent
to adverse conditions in the general economy or in a specific industry. Management reviews the
borrowers cash flows when deciding whether to grant the credit, to evaluate whether estimated
future cash flows will be adequate to service principal and interest of the new obligation in
addition to existing obligations.
Commercial real estate loans are primarily secured by borrower-occupied business real estate
and are dependent on the ability of the related business to generate adequate cash flow to service
the debt. Commercial real estate loans are generally originated with a loan-to-value ratio of 80%
or less. Commercial construction loans are secured by commercial real estate and in most cases the
bank also provides the permanent financing. Advances are monitored by CSB Bank and the maximum
loan to value is typically limited to the lesser of 90% of cost or 80% of appraisal. Management
performs much
- 81 -
the same analysis when deciding whether to grant a commercial real estate loan as when
deciding whether to grant a commercial loan.
Residential real estate loans carry both fixed and variable rates and are secured by the
borrowers residence. Such loans are made based on the borrowers ability to make repayment from
employment and other income. Management assesses the borrowers ability and willingness to repay
the debt through review of credit history and ratings, verification of employment and other income,
review of debt-to-income ratios and other measures of repayment ability. CSB Bank generally makes
these loans in amounts of 85% or less of the value of collateral or up to 100% with PMI. An
appraisal from a qualified real estate appraiser or an evaluation based on tax value is obtained
for substantially all loans secured by real estate. Residential construction loans are secured by
residential real estate that generally will be occupied by the borrower on completion. CSB Bank
usually makes the permanent loan at the end of the construction phase. Construction loans also are
made in amounts of 85% or less of the value of the collateral.
Home equity lines of credit are made to individuals and are secured by second or first
mortgages on the borrowers residence. Loans are based on similar credit and appraisal criteria
used for residential real estate loans; however, loans up to 100% of the value of the property may
be approved for borrowers with excellent credit histories. These loans typically bear interest at
variable rates and require certain minimum monthly payments.
Installment loans to individuals include loans secured by automobiles and other consumer
assets, including second mortgages on personal residences. Consumer loans for the purchase of new
automobiles generally do not exceed 100% of the purchase price of the automobile. Loans for used
automobiles generally do not exceed average wholesale or trade-in values as stipulated in a recent
auto-industry used-car price guide. Credit card and overdraft protection loans are unsecured
personal lines of credit to individuals of demonstrated good credit character with reasonably
assured sources of income and satisfactory credit histories. Consumer loans generally involve more
risk than residential mortgage loans because of the type and nature of collateral and, in certain
types of consumer loans, absence of collateral. Since these loans are generally repaid from
ordinary income of the individual or family unit, repayment may be adversely affected by job loss,
divorce, ill health or by general decline in economic conditions. CSB Bank assesses the borrowers
ability and willingness to make repayment through a review of credit history, credit ratings,
debt-to-income ratios and other measures of repayment ability.
While the Companys chief decision-makers monitor the revenue streams of the various Company
products and services, operations are managed and financial performance is evaluated on a
Company-wide basis. Accordingly, all of the Companys banking operations are considered by
management to be aggregated in one reportable operating segment.
Employees
At June 30, 2008, the Company and CSB Bank had a total of 134 employees, 125 of which were
employed on a full-time basis. The Company has no separate employees not also employed by CSB
Bank. No employees are covered by collective bargaining agreements. Management considers its
employee relations to be good.
Competition
CSB Bank operates in a highly competitive industry due, in part, to Ohio law permitting
statewide branching by banks, savings and loan associations and credit unions. Ohio law also
permits nationwide interstate banking on a reciprocal basis. In its primary market area of
Holmes and
- 82 -
surrounding counties, CSB Bank competes for new deposit dollars and loans with several other
commercial banks, both large regional banks and smaller community banks, as well as savings and
loan associations, credit unions, finance companies, insurance companies, brokerage firms and
investment companies. The ability to generate earnings is impacted, in part, by competitive
pricing on loans and deposits and by changes in the rates on various U.S. Treasury and State and
political subdivision issues which comprise a significant portion of CSB Banks investment
portfolio, and which rates are used as indices on several loan products. CSB Bank believes its
presence in the Holmes County area provides CSB Bank with a competitive advantage due to its large
asset base and ability to make loans and provide services to the local community.
On November 12, 1999, President Clinton signed into law the Gramm-Leach-Bliley Act of 1999
(Gramm-Leach) that permits bank holding companies to become financial holding companies and
thereby affiliate with securities firms and insurance companies and engage in other activities that
are financial in nature. Gramm-Leach may significantly change the competitive environment in which
the Company conducts business. See Financial Modernization for further discussion.
Supervision and Regulation
CSB Bank is subject to supervision, regulation and periodic examination by the Federal Reserve
Board and the State of Ohio Division of Financial Institutions. Because the Federal Deposit
Insurance Corporation insures its deposits, CSB Bank is also subject to certain regulations of that
federal agency. As a financial holding company, the Company is subject to supervision, regulation
and periodic examination by the Federal Reserve Board. The earnings of the Company and CSB Bank
are affected by state and federal laws and regulations, and by policies of various regulatory
authorities. These policies include, for example, statutory maximum lending rates, requirements on
maintenance of reserves against deposits, domestic monetary policies of the Board of Governors of
the Federal Reserve System, United States fiscal policy, international currency regulations and
monetary policies, certain restrictions on banks relationships with many phases of the securities
business and capital adequacy and liquidity restraints.
Financial Modernization
Pursuant to Gramm-Leach, a bank holding company may become a financial holding company if each
of its subsidiary banks is well capitalized under regulatory prompt corrective action provisions,
is well managed, and has at least a satisfactory rating under the Community Reinvestment Act
(CRA) by filing a declaration that the bank holding company wishes to become a financial holding
company. No prior regulatory approval will be required for a financial holding company to acquire
a company, other than a bank or savings association, engaged in activities that are financial in
nature or incidental to activities that are financial in nature, as determined by the Federal
Reserve Board.
Gramm-Leach defines financial in nature to include securities underwriting, dealing and
market making; sponsoring mutual funds and investment companies; insurance underwriting and agency;
merchant banking activities; and activities that the Board has determined to be closely related to
banking. Subsidiary banks of a financial holding company must continue to be well capitalized and
well managed in order to continue to engage in activities that are financial in nature without
regulatory actions or restrictions, which could include divestiture of the financial in nature
subsidiary or subsidiaries. In addition, a financial holding company or a bank may not acquire a
company that is engaged in activities that are financial in nature unless each of the subsidiary
banks of the financial holding company or the bank has CRA rating of satisfactory or better.
- 83 -
Sarbanes-Oxley Act
On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of 2002, which
contains important requirements for public companies in the area of financial disclosure and
corporate governance. In accordance with section 302(a) of the Sarbanes-Oxley Act, written
certifications by the Companys Chief Executive Officer and Chief Financial Officer are required.
These certifications attest that the Companys quarterly and annual reports filed with the SEC do
not contain any untrue statement of a material fact or omit to state a material fact. The Company
has also implemented a program designed to comply with Section 404 of the Sarbanes-Oxley Act, which
includes the identification of significant processes and accounts, documentation of the design of
control effectiveness over process and entity level controls, and testing of the operating
effectiveness of key controls. On June 20, 2008, the Securities and Exchange Commission announced
it had approved a further extension for Section 404(b) compliance for non-accelerated filers,
including the Company, relating to the attestation by the external accountants. As a result of
this extension, Section 404(b) will be required to be implemented by the Company for the year ended
December 31, 2009. Managements assessment on internal controls over financial reporting is
included with the audited consolidated financial statements of the Company included in this
prospectus/proxy statement.
Properties
The Company operates ten banking centers and two other properties as noted below:
|
|
|
|
|
|
|
|
|
|
|
|
|
Banking |
|
Other |
|
|
|
|
|
|
Location |
|
Center |
|
Property |
|
Address |
|
Owned |
|
Leased |
Millersburg
|
|
|
|
X
|
|
6 West Jackson Street, Millersburg, Ohio 44654
|
|
X |
|
|
Walnut Creek
|
|
X
|
|
|
|
4980 Old Pump Street, Walnut Creek, Ohio 44687
|
|
X |
|
|
Winesburg
|
|
X
|
|
|
|
2225 U.S. 62, Winesburg, Ohio 44690
|
|
X |
|
|
Sugarcreek
|
|
X
|
|
|
|
127 South Broadway, Sugarcreek, Ohio 44681
|
|
X |
|
|
Charm
|
|
X
|
|
|
|
4440 C.R.70, Charm, Ohio 44617
|
|
|
|
X |
Clinton Commons
|
|
X
|
|
|
|
2102 Glen Drive, Millersburg, Ohio 44654
|
|
|
|
X |
Berlin
|
|
X
|
|
|
|
4587 S.R.39 Suite B, Berlin, Ohio 44610
|
|
|
|
X |
South Clay
|
|
X
|
|
|
|
91 South Clay Street, Millersburg, Ohio 44654
|
|
X |
|
|
Shreve
|
|
X
|
|
|
|
333 West South Street, Shreve, Ohio 44676
|
|
X |
|
|
Orrville
|
|
X
|
|
|
|
461 Wadsworth Road, Orrville, Ohio 44667
|
|
|
|
X |
Operations Center
|
|
X
|
|
|
|
91 North Clay Street, Millersburg, Ohio 44654
|
|
X |
|
|
Wooster Trust
|
|
|
|
X
|
|
146 East Liberty Street, Wooster, Ohio 44691
|
|
|
|
X |
CSB Bank considers its physical properties to be in good operating condition and suitable for
the purposes for which they are being used. All properties owned by CSB Bank are unencumbered by
any mortgage or security interest and in managements opinion, are adequately insured.
Legal proceedings
There is no material pending litigation, other than routine litigation incidental to the
business of the Company and CSB Bank, involving or naming the Company or CSB Bank as a defendant.
Further, there are no material legal proceedings in which any director, executive officer,
principal shareholder or affiliate of the Company is a party or has a material interest that is
adverse to the Company or CSB Bank. None of the routine litigation in which the Company or CSB
Bank is involved is expected to have a material adverse impact on the financial position or results
of operations of the Company or CSB Bank.
- 84 -
Market price of and dividends on CSB common shares and related stockholder matters
CSB common shares are not traded on an established market. CSB common shares are traded
through broker/dealers and in private transactions, and quotations are reported on the OTC Bulletin
Board under the symbol CSBB.OB. OTC Bulletin Board quotations reflect interdealer prices,
without mark-up, mark-down or commission and may not represent actual transactions. The table
below sets forth the range of high and low prices paid for transactions in CSB common shares as
reported on the OTC Bulletin Board for the periods indicated. The table also sets forth the cash
dividends declared by the Company to its shareholders during the same periods. No assurances can
be given that dividends will be declared, or if declared, what the amount of any such dividends
will be in future periods. Additional information concerning restrictions on the payment of
dividends by the Company is included in Note 10 to the audited consolidated financial statements of
the Company included in this prospectus/proxy statement.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Share |
|
|
|
|
|
|
|
|
|
|
Dividends |
Quarter Ended |
|
High |
|
Low |
|
Declared |
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2008
|
|
$ |
17.90 |
|
|
$ |
15.75 |
|
|
$ |
0.18 |
|
June 30, 2008
|
|
|
18.00 |
|
|
|
15.75 |
|
|
|
0.18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2007
|
|
$ |
19.05 |
|
|
$ |
17.50 |
|
|
$ |
0.18 |
|
June 30, 2007
|
|
|
18.25 |
|
|
|
17.42 |
|
|
|
0.18 |
|
September 30, 2007
|
|
|
19.00 |
|
|
|
15.95 |
|
|
|
0.18 |
|
December 31, 2007
|
|
|
17.75 |
|
|
|
15.40 |
|
|
|
0.18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2006
|
|
$ |
21.25 |
|
|
$ |
20.50 |
|
|
$ |
0.16 |
|
June 30, 2006
|
|
|
20.87 |
|
|
|
20.00 |
|
|
|
0.16 |
|
September 30, 2006
|
|
|
20.40 |
|
|
|
18.70 |
|
|
|
0.16 |
|
December 31, 2006
|
|
|
20.25 |
|
|
|
18.00 |
|
|
|
0.16 |
|
As of June 30, 2008, the Company had approximately 1,148 registered shareholders and 2,422,050
common shares outstanding.
- 85 -
CSB managements discussion and analysis of financial condition and results of operations as of
March 31, 2008
The following discussion focuses on the consolidated financial condition of the Company and
its subsidiaries at March 31, 2008 as compared to December 31, 2007, and the consolidated results
of operations for the quarterly period ending March 31, 2008 compared to the same period in 2007.
The purpose of this discussion is to provide the reader with a more thorough understanding of the
consolidated financial statements. This discussion should be read in conjunction with the interim
consolidated financial statements and related footnotes.
Financial Condition
Total assets were $344.8 million at March 31, 2008, compared to $350.3 million at December 31,
2007, representing a decrease of $5.5 million or 1.6%. Cash and cash equivalents increased $12.6
million, or 103.3%, during the three-month period ending March 31, 2008, due to a $14.3 million
increase in Federal funds sold and a $1.7 million decrease in cash and due from banks. Securities
decreased $8.1 million or 10.9% during the first three months of 2008 primarily due to calls within
the US Agency portfolio and principal repayments within the mortgage-backed securities portfolio.
Net loans decreased $9.8 million, or 3.8%, while deposits decreased $12.4 million, or 4.8%, during
the three-month period. Short-term borrowings of Federal funds purchased, securities sold under
repurchase agreement and Federal Home Loan Bank borrowings decreased $2.7 million, while other
borrowings increased $7.9 million during the period as a $10 million investment leverage strategy
was executed during the first quarter 2008.
Net loans decreased $9.8 million, or 3.8%, during the three-month period ended March 31, 2008.
The credit card portfolio with outstanding balances of $2.2 million was sold during the quarter.
The company recognized a net gain on the sale of $261,000. These cards represented less than 1% of
loans outstanding. Additional loan balance decreases occurred due to a payoff of several rate
sensitive commercial loans as very low fixed rate commercial loan rates were being offered within
the Companys market area. Consumer home equity lines recognized a $1.0 million or 4.9% balance
increase for the quarter over December 31, 2007. The allowance for loan losses amounted to
$2,691,000, or 1.09% of total loans at March 31, 2008 compared to $2,586,000 or 1.01% of total
loans at December 31, 2007.
The increase in the allowance for loan losses as a percentage of total loans is attributed to
the additional provision of $107,000 during the quarter, minimal net charge-offs of $2,100 for
the quarter and the decline of outstanding loan balances. The Company continues to reflect
improved credit quality with the reduction of non-performing loans and other real estate owned at
March 31, 2008 in comparison to December 31, 2007 and March 31, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2008 |
|
December 31, 2007 |
|
March 31, 2007 |
Non-performing loans |
|
|
431,000 |
|
|
|
571,000 |
|
|
|
1,536,000 |
|
Other real estate |
|
|
|
|
|
|
101,700 |
|
|
|
49,100 |
|
Allowance for loan losses |
|
|
2,690,800 |
|
|
|
2,585,900 |
|
|
|
2,654,700 |
|
Total loans |
|
|
246,983,900 |
|
|
|
256,659,100 |
|
|
|
235,576,900 |
|
Allowance: loans |
|
|
1.09 |
% |
|
|
1.01 |
% |
|
|
1.13 |
% |
Allowance: non-performing loans |
|
|
6.2 |
x |
|
|
4.5 |
x |
|
|
1.7 |
x |
The ratio of gross loans to deposits was 100.0% at March 31, 2008, compared to 98.93% at
December 31, 2007. The increase in this ratio is primarily the result of deposit shrinkage
experienced during the three months ended March 31, 2008.
- 86 -
The Company had net unrealized gains of $270,000 within its securities portfolio at March 31,
2008, compared to net unrealized losses of $362,000 at December 31, 2007. Management has
considered industry analyst reports, sector credit reports and the volatility within the bond
market in concluding that the gross unrealized losses of $249,000 within the portfolio as of March
31, 2008, were primarily the result of customary and expected fluctuations in the bond market. As
a result, all security impairments as of March 31, 2008, are considered temporary.
Management continues to evaluate the three (3) private label CMOs held within the investment
portfolio for any deterioration of investment quality. As of March 31, 2008, within this
investment sector, the Company has $4.5 million current value investments, original face of $6.5
million, with gross unrealized losses of $62 thousand. All bonds are rated AAA on March 31, 2008,
collateralized primarily by 1-4 family mortgage loans and borrowers in a wide geographical
dispersion. All credit scores and loan to value ratios exceed sub prime status.
Short-term borrowings decreased $2.7 million from December 31, 2007 and other borrowings
increased $7.9 million as the Company borrowed a $10 million in medium-term advances (1-4 years)
from the Federal Home Loan Bank (FHLB) to fund $10 million in an investment leverage strategy.
Deposits decreased $12.4 million, or 4.8% from December 31, 2007 with noninterest bearing
deposits declining $7.4 million and interest-bearing deposit accounts decreasing $5.0 million. By
deposit type, increases were recognized only in money market savings accounts and term deposits
greater than $100 thousand. CSB Bank is subject to a first quarter seasonality decrease within its
deposit accounts due to its commercial customer base reliance on logging, sawmills, and lumber as
well as the tourism and lodging business. On a daily average, deposit balances decreased $4.7
million or 1.8% during the first quarter 2008 to $251.0 million declining from a daily average of
$255.7 million for the fourth quarter 2007.
Total shareholders equity amounted to $37.1 million, or 10.8%, of total assets, at March 31,
2008, compared to $36.3 million, or 10.4% of total assets, at December 31, 2007. The increase in
shareholders equity during the three months ended March 31, 2008 was due net income of $1,002,000
and an increase in unrealized gains on available-for-sale securities. These gains were partially
offset by purchases of $113,000 of treasury shares and dividends declared of $439,000. The Company
and its subsidiary bank met all regulatory capital requirements at March 31, 2008.
Results of Operations
Three months ended March 31, 2008 and 2007
For the quarter ended March 31, 2008, the Company recorded net income of $1,002,000, or $0.41
per share, as compared to net income of $815,000, or $0.33 per share for the quarter ended March
31, 2007. The $187,000 increase in net income for the quarter was principally due to a $261,000
gain on the sale of the credit card portfolio, $124,000 increase in net interest income and an
$48,000 increase in noninterest income. These gains were offset by a $29,000 increase in the
provision for loan losses, a $109,000 increase in the federal income tax provision and a $109,000
increase in noninterest expenses.
Interest income for the quarter ended March 31, 2008, was $5,283,000, representing a $137,000
increase, or 2.7%, compared to the same period in 2007. This increase was primarily due to an
increase in loan volume and both investment volume and interest rate. Interest expense for the
quarter ended March 31, 2008 was $1,904,000, an increase of $13,000, or 0.7%, from the same period
in 2007. The increase in interest expense occurred due to an increase in borrowing volume to
support asset funding for
- 87 -
the quarter ended March 31, 2008. During first quarter 2008, maturing time deposits renewed
at interest rates that were lower.
The provision for loan losses for the quarter ended March 31, 2008, was $107,000, compared to
a $78,000 provision for the same quarter in 2007. The provision for loan losses is determined based
on managements calculation of the adequacy of the allowance for loan losses, which includes
provisions for classified loans as well as for the remainder of the portfolio based on historical
data including past charge-offs and current economic trends.
Noninterest income for the quarter ended March 31, 2008, was $955,000, an increase of
$309,000, or 47.9%, compared to the same quarter in 2007. This increase was primarily due to gain
on the sale of the credit card portfolio of $261,000 while other increases in other core fees and
services were recognized in service charges on deposit accounts of $12,000, Trust and brokerage
fees of $19,000 and a $17,000 increase in debit card interchange income.
Noninterest expenses for the quarter ended March 31, 2008, increased $109,000, or 4.1%,
compared to the first quarter of 2007. An increase in occupancy and equipment expense results from
a full quarters recognition of expenses in 2008 as compared to 2007 from the opening of a branch
office in the Orrville, Ohio market in March 2007. Salaries and employee benefits increased
$130,000, or 9.2%, primarily the result of increased salary levels due to merit increases,
increased medical and retirement benefits and increased bonus accruals based on projections of
incentive goals. Other expenses declined with reductions in postage, paper and printing, and
telephone expense.
Federal income tax expense increased $109,000, or 28.0% for the quarter ended March 31, 2008
as compared to the first quarter of 2007. The provision for income taxes was $498,000 (effective
rate of 33.2%) for the three months ended March 31, 2008, compared to $389,000 (effective rate of
32.3%) for the three months ended March 31, 2007. The increase in the effective tax rate resulted
from a decrease in tax-exempt interest income and increased income generated by the company.
Capital Resources
The Federal Reserve Board has established risk-based capital guidelines that must be observed
by financial holding companies and banks. Failure to meet specified minimum capital requirements
could result in regulatory actions by the Federal Reserve Board or Ohio Division of Financial
Institutions that could have a material effect on the Companys financial condition or results of
operations. Management believes there were no material changes to Capital Resources as previously
presented herein for the year ended December 31, 2007, and as of March 31, 2008 the holding company
and its bank meet all capital adequacy requirements to which they are subject.
Liquidity
Liquidity refers to the Companys ability to generate sufficient cash to fund current loan
demand, meet deposit withdrawals, pay operating expenses and meet other obligations. The Companys
primary sources of liquidity are cash and cash equivalents, which totaled $24.8 million at March
31, 2008, an increase of $12.6 million from $12.2 million at December 31, 2007. Net income,
securities available-for-sale, and loan repayments also serve as sources of liquidity. Cash and
cash equivalents and estimated principal cash flow and maturities on investments maturing within
one year represent 15.7% of total assets as of March 31, 2008 compared to 4.5% of total assets at
year-end 2007. Other sources of liquidity include, but are not limited to, purchase of federal
funds, advances from the FHLB, adjustments of interest rates to attract deposits, and borrowing at
the Federal Reserve discount window. Management believes that its sources of liquidity are
adequate to meet cash flow obligations for the foreseeable future.
- 88 -
Qualitative and Quantitative Disclosures About Market Risk
There have been no material changes in the quantitative and qualitative disclosures about
market risks as of March 31, 2008, from the disclosures included herein for the fiscal year ended
December 31, 2007. Management performs a quarterly analysis of the Companys interest rate risk.
All positions are currently within the Companys board-approved policy.
The following table presents an analysis of the estimated sensitivity of the Companys annual
net interest income to sudden and sustained 100 basis point changes in market interest rates at
March 31, 2008 and December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2008 |
Changes in |
|
|
|
|
|
|
Interest Rates |
|
Net Interest |
|
Dollar |
|
Percentage |
(basis points) |
|
Income |
|
Change |
|
Change |
(Dollars in Thousands) |
+200
|
|
$ |
14,667 |
|
|
$ |
884 |
|
|
|
6.4 |
% |
+100
|
|
|
14,212 |
|
|
|
429 |
|
|
|
3.1 |
|
0
|
|
|
13,783 |
|
|
|
0 |
|
|
|
0.0 |
|
-100
|
|
|
13,449 |
|
|
|
(334 |
) |
|
|
(2.4 |
) |
-200
|
|
|
13,027 |
|
|
|
(756 |
) |
|
|
(5.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007 |
Changes in |
|
|
|
|
|
|
Interest Rates |
|
Net Interest |
|
Dollar |
|
Percentage |
(basis points) |
|
Income |
|
Change |
|
Change |
(Dollars in Thousands) |
+200
|
|
$ |
14,682 |
|
|
$ |
506 |
|
|
|
3.6 |
% |
+100
|
|
|
14,457 |
|
|
|
281 |
|
|
|
2.0 |
|
0
|
|
|
14,176 |
|
|
|
0 |
|
|
|
0.0 |
|
-100
|
|
|
13,988 |
|
|
|
(188 |
) |
|
|
(1.3 |
) |
-200
|
|
|
13,646 |
|
|
|
(530 |
) |
|
|
(3.7 |
) |
- 89 -
CSB managements discussion and analysis of financial condition and results of operations as of
December 31, 2007
The following discussion is presented to aid in understanding the consolidated financial
condition and results of operations of CSB at December 31, 2007 and 2006, and for the three years
ended December 31, 2007, and should be read in conjunction with the audited financial statements of
CSB included elsewhere in this prospectus/proxy statement.
Results of Operations
Net Income
Net income for 2007 was $3,514,000 an increase of $404,000 or 13.0% from 2006. Basic and
diluted net income per share was $1.42 and $1.23 for the years ended December 31, 2007 and 2006,
respectively. Return on average assets was 1.07% in 2007 compared to 0.97% in 2006, and return
on average shareholders equity was 9.82% in 2007 compared to 8.95% in 2006.
Net income for 2006 was $3,110,000 or $1.23 per basic and diluted share as compared to
$2,873,000 or $1.09 per basic and diluted share for 2005. This equated to a return on average
assets of 0.97% in 2006 and 0.91% in 2005, while the return on average shareholders equity for the
same periods was 8.95% and 7.92%, respectively.
Net Interest Income
Net interest income is the largest component of the Companys net income and consists of the
difference between income generated on interest-earning assets and interest expense incurred on
interest-bearing liabilities. Volumes, interest rates and composition of interest-earning assets
and interest-bearing liabilities affect net interest income.
Interest income for the year of 2007 was $21.2 million, an increase of $1.2 million or 5.9%
from $20.0 million reflected for the year ended December 31, 2006. Interest and fees on loans
increased $1.4 million, or 8.3%, to $18.0 million from $16.6 million in 2006. The increase is
mainly attributable to an increase in average loan volume of $16.5 million in 2007 as well as an
increase of seven basis points average yield over 2006. Interest income on securities decreased
$210,000 as the average balance in investments was decreased by $8.0 million in 2007 to provide
funding for loan growth within the Companys market area. Other interest income rose $14,000 to
$27,000 as both the volume and rate of overnight federal funds increased in 2007.
Interest income for 2006 was $20.0 million, increasing $2.7 million from $17.4 million in
2005. Interest and fees on loans was $16.6 million, an increase of $2.3 million, or 16.0%, from
2005. This increase was mainly attributable to an increased yield on loans of 88 basis points.
Interest income on securities increased $521,000, a result of increased volume of average taxable
investments, as well as an increase in yield of 53 basis points on the total portfolio from 2005 to
2006. Mortgage-backed securities were added to the portfolio to provide current cash flow as well
as the ability to use the securities to secure public fund deposits and collateralize the increase
in outstanding balances of customer repurchase agreements as customers expand their usage of cash
management services offered by the Company. Other interest income declined $133,000, the result of
the decreased average balances of federal funds sold as growth in both loans and taxable securities
were funded during 2006.
Interest expense for 2007 was $7.9 million, an increase of $1.0 million or 14.9%, from 2006.
The Companys interest expense on deposits increased $934,000 or 17.2%, due primarily to a 40 basis
point increase in the average rate paid on interest-bearing deposits.
- 90 -
Interest expense for 2006 was $6.9 million, an increase of $2.1 million or 42.9%, from 2005.
The Companys interest expense on deposits increased $1.3 million in 2006, due primarily to a 65
basis point increase in the average rate paid on deposits, as short-term interest rates rose in
2006 partially offset by an average volume decrease of $2.5 million on interest-bearing deposits in
2006. Interest expense on total borrowings rose $775,000 in 2006, primarily due to a $6.5 million
average balance increase in customer repurchase agreements to $19.8 million in 2006 from $13.3
million in 2005, while average rates paid increased to 3.14% in 2006 from 0.81% in 2005.
Net interest income for 2007 increased by $158,000 to $13.3 million. The $8.8 million
increase in average interest-earning assets was offset somewhat by a 7 basis point decrease in the
net interest margin as rates increased faster on interest-bearing liabilities than interest-bearing
assets.
Net interest income for 2006 increased by $622,000 to $13.2 million. The $4.3 million
increase in average interest-earning assets was enhanced by a 15 basis point increase in the net
interest margin as rates increased faster on interest-earning assets than interest-bearing
liabilities.
The following tables provide detailed analysis of changes in average balances, yields, and net
interest income identifying that portion of the changes due to change in average volume versus that
portion due to change in average rates:
AVERAGE BALANCES, RATES AND YIELDS
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Balance1 |
|
Interest |
|
Rate2 |
|
|
Balance1 |
|
Interest |
|
Rate2 |
|
|
Balance1 |
|
Interest |
|
Rate2 |
Interest-earning assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds sold |
|
$ |
458 |
|
|
$ |
25 |
|
|
|
5.44 |
% |
|
|
$ |
250 |
|
|
$ |
11 |
|
|
|
4.28 |
% |
|
|
$ |
3,848 |
|
|
$ |
145 |
|
|
|
3.77 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning deposits |
|
|
62 |
|
|
|
2 |
|
|
|
2.58 |
|
|
|
|
18 |
|
|
|
1 |
|
|
|
9.44 |
|
|
|
|
36 |
|
|
|
1 |
|
|
|
1.39 |
|
Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
|
61,673 |
|
|
|
2,928 |
|
|
|
4.75 |
|
|
|
|
66,951 |
|
|
|
3,006 |
|
|
|
4.49 |
|
|
|
|
57,930 |
|
|
|
2,243 |
|
|
|
3.87 |
|
Tax exempt |
|
|
5,293 |
|
|
|
251 |
|
|
|
4.75 |
|
|
|
|
8,043 |
|
|
|
383 |
|
|
|
4.76 |
|
|
|
|
13,936 |
|
|
|
625 |
|
|
|
4.49 |
|
Loans3 |
|
|
241,979 |
|
|
|
18,025 |
|
|
|
7.45 |
|
|
|
|
225,445 |
|
|
|
16,644 |
|
|
|
7.38 |
|
|
|
|
220,655 |
|
|
|
14,344 |
|
|
|
6.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets |
|
|
309,465 |
|
|
|
21,231 |
|
|
|
6.86 |
% |
|
|
|
300,707 |
|
|
|
20,045 |
|
|
|
6.67 |
% |
|
|
|
296,405 |
|
|
|
17,358 |
|
|
|
5.86 |
% |
Noninterest-earning assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
|
10,980 |
|
|
|
|
|
|
|
|
|
|
|
|
11,027 |
|
|
|
|
|
|
|
|
|
|
|
|
11,821 |
|
|
|
|
|
|
|
|
|
- 91 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Balance1 |
|
Interest |
|
Rate2 |
|
|
Balance1 |
|
Interest |
|
Rate2 |
|
|
Balance1 |
|
Interest |
|
Rate2 |
Bank premises and
equipment, net |
|
|
7,719 |
|
|
|
|
|
|
|
|
|
|
|
|
7,864 |
|
|
|
|
|
|
|
|
|
|
|
|
8,323 |
|
|
|
|
|
|
|
|
|
Other assets |
|
|
2,181 |
|
|
|
|
|
|
|
|
|
|
|
|
2,644 |
|
|
|
|
|
|
|
|
|
|
|
|
2,531 |
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
|
(2,574 |
) |
|
|
|
|
|
|
|
|
|
|
|
(2,493 |
) |
|
|
|
|
|
|
|
|
|
|
|
(2,468 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
327,771 |
|
|
|
|
|
|
|
|
|
|
|
$ |
319,749 |
|
|
|
|
|
|
|
|
|
|
|
$ |
316,612 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
|
$ |
45,606 |
|
|
|
257 |
|
|
|
0.56 |
% |
|
|
$ |
46,096 |
|
|
|
232 |
|
|
|
0.50 |
% |
|
|
$ |
49,021 |
|
|
|
192 |
|
|
|
0.39 |
% |
Savings deposits |
|
|
41,123 |
|
|
|
511 |
|
|
|
1.24 |
|
|
|
|
41,528 |
|
|
|
411 |
|
|
|
0.99 |
|
|
|
|
44,759 |
|
|
|
357 |
|
|
|
0.80 |
|
Time deposits |
|
|
124,752 |
|
|
|
5,585 |
|
|
|
4.48 |
|
|
|
|
120,981 |
|
|
|
4,775 |
|
|
|
3.95 |
|
|
|
|
117,373 |
|
|
|
3,579 |
|
|
|
3.05 |
|
Borrowed funds |
|
|
37,278 |
|
|
|
1,552 |
|
|
|
4.16 |
|
|
|
|
35,824 |
|
|
|
1,459 |
|
|
|
4.07 |
|
|
|
|
30,083 |
|
|
|
684 |
|
|
|
2.27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
|
248,759 |
|
|
|
7,905 |
|
|
|
3.18 |
% |
|
|
|
244,429 |
|
|
|
6,877 |
|
|
|
2.81 |
% |
|
|
|
241,236 |
|
|
|
4,812 |
|
|
|
1.99 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing liabilities and
shareholders equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
|
|
41,740 |
|
|
|
|
|
|
|
|
|
|
|
|
38,938 |
|
|
|
|
|
|
|
|
|
|
|
|
37,855 |
|
|
|
|
|
|
|
|
|
Other liabilities |
|
|
1,500 |
|
|
|
|
|
|
|
|
|
|
|
|
1,616 |
|
|
|
|
|
|
|
|
|
|
|
|
1,231 |
|
|
|
|
|
|
|
|
|
Shareholders equity |
|
|
35,772 |
|
|
|
|
|
|
|
|
|
|
|
|
34,766 |
|
|
|
|
|
|
|
|
|
|
|
|
36,290 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
$ |
327,771 |
|
|
|
|
|
|
|
|
|
|
|
$ |
319,749 |
|
|
|
|
|
|
|
|
|
|
|
$ |
316,612 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
|
|
|
$ |
13,326 |
|
|
|
|
|
|
|
|
|
|
|
$ |
13,168 |
|
|
|
|
|
|
|
|
|
|
|
$ |
12,546 |
|
|
|
|
|
Net interest margin |
|
|
|
|
|
|
|
|
|
|
4.31 |
% |
|
|
|
|
|
|
|
|
|
|
|
4.38 |
% |
|
|
|
|
|
|
|
|
|
|
|
4.23 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest
spread |
|
|
|
|
|
|
|
|
|
|
3.68 |
% |
|
|
|
|
|
|
|
|
|
|
|
3.86 |
% |
|
|
|
|
|
|
|
|
|
|
|
3.87 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Average balances have been computed on an average daily basis. |
|
(2) |
|
Average rates have been computed based on the amortized cost of the corresponding asset or
liability. |
|
(3) |
|
Average loan balances include nonaccrual loans. |
- 92 -
RATE/VOLUME ANALYSIS OF CHANGES IN INCOME AND EXPENSE1
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 v. 2006 |
|
2006 v. 2005 |
|
|
Change in |
|
|
|
|
|
|
|
|
|
|
Change in |
|
|
|
|
|
|
|
|
|
Income/ |
|
|
Volume |
|
|
Rate |
|
|
Income/ |
|
|
Volume |
|
|
Rate |
|
|
|
Expense |
|
|
Effect |
|
|
Effect |
|
|
Expense |
|
|
Effect |
|
|
Effect |
|
|
|
|
Interest Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds sold |
|
$ |
14 |
|
|
$ |
11 |
|
|
$ |
3 |
|
|
$ |
(134 |
) |
|
$ |
(154 |
) |
|
$ |
20 |
|
Interest-earning deposits |
|
|
1 |
|
|
|
2 |
|
|
|
(1 |
) |
|
|
1 |
|
|
|
(2 |
) |
|
|
3 |
|
Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
|
(78 |
) |
|
|
(251 |
) |
|
|
173 |
|
|
|
763 |
|
|
|
405 |
|
|
|
358 |
|
Tax exempt |
|
|
(132 |
) |
|
|
(131 |
) |
|
|
(1 |
) |
|
|
(243 |
) |
|
|
(281 |
) |
|
|
38 |
|
Loans |
|
|
1,381 |
|
|
|
1,231 |
|
|
|
150 |
|
|
|
2,300 |
|
|
|
354 |
|
|
|
1,946 |
|
|
|
|
Total interest income |
|
|
1,186 |
|
|
|
862 |
|
|
|
324 |
|
|
|
2,687 |
|
|
|
322 |
|
|
|
2,365 |
|
|
|
|
Interest Expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
|
|
25 |
|
|
|
(3 |
) |
|
|
28 |
|
|
|
39 |
|
|
|
(15 |
) |
|
|
54 |
|
Savings deposits |
|
|
100 |
|
|
|
(5 |
) |
|
|
105 |
|
|
|
54 |
|
|
|
(32 |
) |
|
|
86 |
|
Time deposits |
|
|
810 |
|
|
|
169 |
|
|
|
641 |
|
|
|
1,196 |
|
|
|
142 |
|
|
|
1,054 |
|
Other borrowed funds |
|
|
93 |
|
|
|
61 |
|
|
|
32 |
|
|
|
776 |
|
|
|
234 |
|
|
|
542 |
|
|
|
|
Total interest expense |
|
|
1,028 |
|
|
|
222 |
|
|
|
806 |
|
|
|
2,065 |
|
|
|
329 |
|
|
|
1,736 |
|
|
|
|
Net interest income |
|
$ |
158 |
|
|
$ |
640 |
|
|
$ |
(482 |
) |
|
$ |
622 |
|
|
$ |
(7 |
) |
|
$ |
629 |
|
|
|
|
|
|
|
(1) |
|
Changes attributable to both volume and rate, which cannot be segregated, have been allocated
based on the absolute value of the change due to volume and the change due to rate. |
The following table reconciles net interest income as shown in the financial statements to
taxable equivalent net interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
Net interest income |
|
$ |
13,326 |
|
|
$ |
13,167 |
|
|
$ |
12,546 |
|
Taxable equivalent adjustment (1) |
|
|
144 |
|
|
|
210 |
|
|
|
333 |
|
Net interest income-fully taxable equivalent |
|
|
13,470 |
|
|
|
13,377 |
|
|
$ |
12,879 |
|
Net interest yield |
|
|
4.31 |
% |
|
|
4.38 |
% |
|
|
4.23 |
% |
Taxable equivalent adjustment (1) |
|
|
.04 |
|
|
|
.07 |
|
|
|
.11 |
|
Net interest yield-taxable equivalent |
|
|
4.35 |
% |
|
|
4.45 |
% |
|
|
4.35 |
% |
|
|
|
(1) |
|
Taxable equivalent adjustments have been computed assuming a 34% tax rate. |
- 93 -
Provision For Loan Losses
During 2007, the Company reported a provision for loan losses of $472,000, compared to a
provision for loan losses of $302,000 in 2006 and a provision for loan losses of $283,000 for 2005.
The provision in 2007 represents Managements calculation on an increasing loan portfolio. See
Financial Condition Allowance for Loan Losses for additional discussion and information
relative to the provision for loan losses.
Noninterest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31 |
|
|
(in thousands of dollars) |
|
|
Change from 2006 |
|
Change from 2005 |
|
|
2007 |
|
|
Amount |
|
% |
|
2006 |
|
|
Amount |
|
% |
|
2005 |
|
|
Service charges on deposit accounts |
|
$ |
1,231 |
|
|
$ |
(48 |
) |
|
|
(3.8 |
)% |
|
$ |
1,279 |
|
|
$ |
242 |
|
|
|
23.3 |
% |
|
$ |
1,037 |
|
Trust services |
|
|
731 |
|
|
|
191 |
|
|
|
35.4 |
|
|
|
540 |
|
|
|
56 |
|
|
|
11.6 |
|
|
|
484 |
|
Debit card interchange fees |
|
|
276 |
|
|
|
65 |
|
|
|
30.8 |
|
|
|
211 |
|
|
|
50 |
|
|
|
31.1 |
|
|
|
161 |
|
Credit card fee income |
|
|
262 |
|
|
|
(29 |
) |
|
|
(10.0 |
) |
|
|
291 |
|
|
|
13 |
|
|
|
4.7 |
|
|
|
278 |
|
Insurance recovery |
|
|
187 |
|
|
|
187 |
|
|
|
N.M. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities gain (loss) |
|
|
17 |
|
|
|
74 |
|
|
|
N.M. |
|
|
|
(57 |
) |
|
|
(304 |
) |
|
|
N.M. |
|
|
|
247 |
|
Gain on sale of loans |
|
|
18 |
|
|
|
6 |
|
|
|
50.0 |
|
|
|
12 |
|
|
|
(12 |
) |
|
|
(50.0 |
) |
|
|
24 |
|
Gain (loss) sale of other real estate |
|
|
(1 |
) |
|
|
25 |
|
|
|
N.M. |
|
|
|
(26 |
) |
|
|
(36 |
) |
|
|
N.M. |
|
|
|
10 |
|
Other |
|
|
314 |
|
|
|
(28 |
) |
|
|
(8.2 |
) |
|
|
342 |
|
|
|
2 |
|
|
|
0.6 |
|
|
|
340 |
|
|
Total noninterest income |
|
$ |
3,035 |
|
|
|
443 |
|
|
|
17.1 |
% |
|
$ |
2,592 |
|
|
|
11 |
|
|
|
0.4 |
% |
|
$ |
2,581 |
|
|
N.M., not a meaningful value
Total noninterest income increased $443,000 or 17.1% to $3.0 million in 2007 from $2.6 million
in 2006. Fees from Trust services and brokerage rose $191,000, a result of both Trust assets under
management and account fees increasing in 2007. Debit card interchange fees rose $65,000 in 2007
over 2006, a result of a mid-year conversion in 2007 to a different third party service provider
that provides increased interchange fees. The $187,000 insurance recovery represents the net
insurance proceeds received in the repayment of the 2006 expense involving a cash irregularity.
Securities gains were recognized in 2007 on the early call and redemption features of bonds called
at a premium.
Decreases in noninterest income recognized in 2007 as compared to 2006 were recorded in total
service charges on deposits as customers used the overdraft privilege program less during the first
half of 2007. Decreases were also recognized in all other credit card fee income of $29,000, and
decreases of $35,000 occurred as the Company recognized lower early redemption interest penalties
on time deposits during a year that began with interest rates remaining steady then declining
during the last five (5) months of 2007.
Total noninterest income increased $11,000 or 0.4% to $2.6 million in 2006 from 2005. The
increase was primarily from the increases in service charges on deposit accounts of $242,000 or
23.3% due to full year implementation and customer usage of the overdraft privilege program.
Additional fee increases were recognized in Trust services revenue with a $56,000 increase due to
additional accounts and increased Trust Assets under management. A minor restructuring of the
Securities portfolio produced realized losses of $57,000, as $4 million in low yielding US Agency
issues were sold and $4 million in higher coupon US Agency mortgage-backed securities were
purchased to provide improved interest revenue in 2007 and position longer-term fixed rate assets
in front of anticipated reductions in the managed interest rates during 2007 by the Federal Reserve
Board.
- 94 -
Noninterest Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31 |
|
|
(in thousands of dollars) |
|
|
Change from 2006 |
|
Change from 2005 |
|
|
2007 |
|
|
Amount |
|
% |
|
2006 |
|
|
Amount |
|
% |
|
2005 |
|
|
Salaries and employee benefits |
|
$ |
5,854 |
|
|
$ |
(32 |
) |
|
|
0.5 |
% |
|
$ |
5,886 |
|
|
$ |
215 |
|
|
|
3.8 |
% |
|
$ |
5,671 |
|
Occupancy expense |
|
|
733 |
|
|
|
47 |
|
|
|
6.9 |
|
|
|
686 |
|
|
|
9 |
|
|
|
1.3 |
|
|
|
677 |
|
Equipment expense |
|
|
504 |
|
|
|
6 |
|
|
|
1.2 |
|
|
|
498 |
|
|
|
(26 |
) |
|
|
(5.0 |
) |
|
|
524 |
|
Professional and directors fees |
|
|
580 |
|
|
|
(79 |
) |
|
|
(12.0 |
) |
|
|
659 |
|
|
|
(18 |
) |
|
|
(2.7 |
) |
|
|
677 |
|
Franchise tax expense |
|
|
417 |
|
|
|
(13 |
) |
|
|
3.0 |
|
|
|
430 |
|
|
|
2 |
|
|
|
0.5 |
|
|
|
428 |
|
Marketing and public relations |
|
|
373 |
|
|
|
39 |
|
|
|
11.7 |
|
|
|
334 |
|
|
|
32 |
|
|
|
10.6 |
|
|
|
302 |
|
Telecommunications |
|
|
225 |
|
|
|
4 |
|
|
|
1.8 |
|
|
|
221 |
|
|
|
(54 |
) |
|
|
(19.6 |
) |
|
|
275 |
|
Cash irregularity |
|
|
|
|
|
|
(237 |
) |
|
|
N.M. |
|
|
|
237 |
|
|
|
237 |
|
|
|
N.M. |
|
|
|
|
|
Other |
|
|
2,015 |
|
|
|
51 |
|
|
|
2.6 |
|
|
|
1,964 |
|
|
|
(285 |
) |
|
|
(12.7 |
) |
|
|
2,249 |
|
|
Total noninterest expenses |
|
$ |
10,701 |
|
|
$ |
(214 |
) |
|
|
(2.0 |
)% |
|
$ |
10,915 |
|
|
$ |
112 |
|
|
|
1.0 |
% |
|
$ |
10,803 |
|
|
N.M., not a meaningful value
Total noninterest expenses decreased $214,000 or 2.0% during 2007. Salaries and employee
benefits expense decreased $32,000 or 0.5%, a result of a reduction of incentive and medical
expenses that were partially offset by the addition of employees to staff the Orrville office.
Occupancy and equipment expenses rose $53,000 in 2007 from 2006. The increase was primarily the
result of opening the branch facility in the Orrville, Ohio area. Professional and directors
fees decreased $79,000 from 2006 to 2007. Within this category, decreases were recognized in legal
and collection fees of $13,000, directors fees of $13,000, and audit and tax fees of $18,000.
Additional decreases within professional fees were recognized as other outside service fees
decreased $24,000, reflecting the lower amounts paid to the vendor for Overdraft Privilege
services. Other expenses increased $51,000 from 2006. This increase was associated with a $39,000
increase resulting from an ATM and debit card conversion expense as the Company changed debit card
vendors during the last half of 2007.
Total noninterest expenses increased $112,000 or 1.0% during 2006 as compared to 2005.
Salaries and employee benefits expense increased $215,000 or 3.8% as a result of merit and
incentive increases. Occupancy and equipment expenses declined $17,000 in 2006 from 2005. The
decrease was primarily the result of reduced depreciation expense as fewer assets were purchased in
2006 and those assets purchased in previous years became fully depreciated during 2006.
Professional and directors fees decreased $18,000 from 2005 to 2006. Within this category,
decreases were recognized in legal and collection fees of $88,000, directors fees of $22,000, and
audit and tax fees of $5,000. These decreases were partially offset by increases in other outside
service fees for payment on the Overdraft Privilege services of $48,000, $16,000 for shareholder
transfer agent services, and $22,000 professional fees for management and board compensation
issues. Other expenses declined $285,000 in 2006 as compared to 2005, which included decreases of
$37,000 for FDIC assessment, $63,000 decrease for employee education and relations, and a $35,000
decrease for stationery, paper and printing. These gains were partially offset by a $237,000
irregularity of cash assets discovered, recognized and reported in the second quarter of 2006.
Income Taxes
The provision for income taxes amounted to $1,674,000 in 2007 (effective rate of 32.3%) as
compared to $1,433,000 in 2006 (effective rate of 31.5%), and $1,168,000 (effective rate of 28.9%)
in 2005. The increase in the provision in 2007 and 2006 reflects increasing taxable revenues. The
increase in the provision in 2005 is attributable to an overall increase in taxable revenues and
the taxable income recognized from the gain on the sale of tax-free bonds.
- 95 -
Financial Condition
Total assets of the Company were $350.3 million at December 31, 2007, compared to $327.2
million at December 31, 2006, representing an increase of $23 million or 7.0%. Net loans increased
$24.2 million or 10.6% and the increase was funded by $23.5 million increase recorded in other
borrowings from the Federal Home Loan Bank.
Securities
Total securities increased $4.3 million or 6.1% from $70.2 million at year-end 2006 to $74.5
million at year-end 2007. During the first eleven months of 2007, the cash flow from security
maturities and principal repayments on mortgage-backed securities was used to fund increasing loan
demand. During December 2007, the Company implemented a leverage strategy by purchasing $15 million
in Agency mortgage-backed pass through securities funded by various mid-term FHLB advances. The
goal of the strategy is to provide a minimum 1% return on assets after tax for a period of five
years. The securities portfolio at year-end 2007 consisted of U.S. Treasury, U.S. government
corporations and agencies, and obligations of state and political subdivisions and mortgage-backed
securities. Restricted securities consist primarily of FHLB stock. Total mortgage-backed
securities increased $14.3 million from year-end 2006 to $42.4 million at year-end 2007. The
increase in mortgage-backed securities occurred primarily during December 2007 as detailed above.
U.S. Agency debt issues decreased $7.4 million from year-end 2006 as issues were called or matured
in 2007.
There are three (3) private label CMOs held within the investment portfolio. Within this
investment sector, the Company has $4.6 million current value investments, original face of $6.5
million, with gross unrealized losses of $32,000 at December 31, 2007, compared to $5.2 million
current value and gross unrealized losses of $47,000 at December 2006. All bonds are rated AAA on
December 31, 2007, collateralized primarily by fixed-rate 1-4 family mortgage loans with borrowers
in a wide geographical dispersion. All credit scores and loan to value ratios exceed subprime
status.
Since one of the primary functions of the securities portfolio is to provide a source of
liquidity, it is structured such that maturities and cash flows satisfy the Companys liquidity
needs and asset/liability management requirements.
Loans
Gross loans amounted to $256.7 million at year-end 2007, compared to $232.4 million at
year-end 2006, representing an increase of $24.2 million or 10.4%. The loan portfolio at December
31, 2007 was composed of approximately 56% commercial and commercial real estate loans, an increase
from the 55% composition at December 31, 2006. The Company recorded a decrease in commercial loans
of $9.5 million or 17.1% and an increase in commercial real estate loans of $25.3 million or
34.8%. Consumer installment and credit card balances decreased $1.6 million or 15.7%, while
construction credit increased $4.0 million or 51.9% from year-end 2006.
Agriculture production loans totaled approximately $3.4 million at year-end 2007, and are
included in the commercial and commercial real estate categories. Credit card loans, which are
primarily unsecured, totaled $2.4 million, or 1.0% of loans at year-end 2007.
The Companys market reflected increased demand for both commercial real estate and
residential real estate loans in 2007 and 2006. There was continued consumer demand for home equity
loans in 2007. Management believes the Companys local service areas will experience continued
economic strength and a continued need for these types of lending products in 2007.
- 96 -
Most of CSB Banks lending activity is with customers primarily located within Holmes County,
Wayne County, and the western portion of Tuscarawas County. Credit concentrations, as determined
using Standard Industrial Classification (SIC) codes, to the three largest industries compared to
total loans at December 31, 2007 included $15,679,000 or 6.1% of total loans to owners of
non-residential real estate; $12,314,000 or 4.8% of total loans to logging, sawmills and rough cut
lumber industries; $11,326,000 or 4.4% of total loans to borrowers in the hotel, motel and lodging
business. These loans are generally secured by real property and equipment and repayment is
expected from operational cash flow. Credit losses arising from CSB Banks lending experience in
all three industries compare favorably with CSB Banks loss experience on its loan portfolio as a
whole. Credit evaluation is based on an evaluation of cash flow coverage of principal and interest
payments and the adequacy of the collateral received.
Allowance for Loan Losses
The allowance for loan losses is maintained at a level considered adequate to cover loan
losses that are currently anticipated based on past loss experience, general economic conditions,
changes in mix and size of the loan portfolio, information about specific borrower situations, and
other factors and estimates which are subject to change over time. Management periodically reviews
selected large loans, delinquent and other problem loans, and selected other loans. Collectibility
of these loans is evaluated by considering current financial position and performance of the
borrower, estimated market value of the collateral, the Companys collateral position in
relationship to other creditors, guarantees and other potential sources of repayment. Management
forms judgments, which are subjective, as to the probability of loss and the amount of loss on
these loans as well as other loans taken together. CSB Banks Allowance for Loan and Lease Losses
Policy includes, among other items, provisions for classified loans and a provision for the
remainder of the portfolio based on historical data, including past charge-offs.
The allowance for loan losses totaled $2.6 million or 1.01% of total loans at year-end 2007 as
compared to $2.6 million or 1.12% of total loans at year-end 2006. Net charge-offs for 2007
totaled $493,000 as compared to $140,000 and $412,000 in 2006 and 2005, respectively. Net
charge-offs of $437,000, $25,000, $7,000, $8,000 and $16,000 occurred in commercial loans, mortgage
loans, consumer loans, credit cards, and overdrafts, respectively, during 2007.
CSB Bank maintains an internal watch list, on which it places loans where managements
analysis of the borrowers operating results and financial condition indicates that the borrowers
cash flows are inadequate to meet its debt service requirements, and loans where there exists an
increased risk that such a shortfall may occur.
Nonperforming loans, which consist of loans past due 90 days or more and nonaccrual loans
aggregated $571,000, or 0.2% of loans at year-end 2007 as compared to $1.5 million, or 0.6% of
loans at year-end 2006. Impaired loans were $198,000 at year-end 2007 as compared to $988,000 at
year-end 2006 and $565,000 at year-end 2005. The decrease in 2007, results from the addition of
$169,000 (3 credits) while $959,000 in loans classified as impaired at December 2006 were removed
either through payment or charge-off. Management has assigned loss allocations to absorb the
estimated losses on these impaired loans, and these allocations are included in the total allowance
for loan losses balance.
Other Assets
Net premises and equipment decreased $117,000 to $7.3 million at year-end 2007. The decrease
in 2007 was due to depreciation exceeding the volume of leasehold improvements and equipment
purchased. Other real estate owned at December 31, 2007 was $102,000; there was no other real
estate owned at December 31, 2006. At December 31, 2007 the Company recognized a net deferred tax
liability of $54,000 compared to a net deferred tax asset of $10,500 at December 2006. The change
in the Companys net deferred tax position resulted primarily from the decrease in unrealized
losses on securities available for sale.
- 97 -
Deposits
The Companys deposits are obtained primarily from individuals and businesses located in its
market area. For deposits, the Company must compete with products offered by other financial
institutions as well as other investment options such as mutual funds. Total deposits decreased
$792,000 to $259.4 million at year-end 2007 as compared to $260.2 million at year-end 2006.
Noninterest-bearing deposits increased $1.6 million or 3.6% to $46.0 million as compared to $44.5
million at year-end 2006. Interest-bearing deposits decreased $2.4 million or 1.1% to $213.3
million at year-end 2007 as compared to year-end 2006. Interest-bearing demand deposits decreased
to $48.9 million at year-end 2007 as compared to $50.6 million at year-end 2006 while money market
savings accounts increased by $4.3 million and traditional saving deposits declined $2.6 million
from year-end 2006. Time deposits in excess of $100,000 increased $2.0 million while other
certificates of deposit decreased $4.3 million during a time period when the Company adopted
relationship pricing that pays a higher rate of interest on time deposits only if the customer has
additional checking or savings account relationships.
Other Funding Sources
The Company obtains additional funds through securities sold under repurchase agreements and
advances from the FHLB and overnight borrowings from the FHLB or other financial institutions.
These borrowings totaled $53.3 million at year-end 2007 as compared to $30.5 million at year-end
2006. The increase in borrowings was a result of initiating a $15 million investment leverage
strategy during December 2007 discussed above.
Capital Resources
Total shareholders equity increased to $36.3 million at December 31, 2007 as compared to
$35.1 million at December 31, 2006. This increase was primarily due to $3.5 million net income in
2007, which was partially offset by the payment of cash dividends of $1.8 million and the
repurchase of 51,597 shares of treasury stock for $904,000. The Companys Board of Directors
announced a Stock Repurchase Program on July 7, 2005 that would allow the repurchase of up to 10%
of the Companys common shares outstanding. Repurchased shares are to be held as treasury stock
and would be available for general corporate purposes. At December 31, 2007 approximately 67,000
shares could still be repurchased under the current authorized program.
Banking regulations have established minimum capital ratios for banks and bank holding
companies. Therefore, the Company and CSB Bank must meet a risk-based capital requirement, which
defines two tiers of capital and compares each to the Companys risk-weighted assets. The
Companys assets and certain off-balance-sheet items, such as loan commitments, are each assigned a
risk factor such that assets with potentially higher credit risk will require more capital support
than assets with lower risk. These regulations require the Company to have a minimum total
risk-based capital ratio of 8%, at least half of which must be Tier 1 capital. The Companys Tier
1 capital is its shareholders equity before any unrealized gain or loss on securities available
for sale, while total risk-based capital includes Tier 1 capital and a limited amount of the
allowance for loan losses. In addition, a bank or bank holding companys leverage ratio (which for
the Company equals its shareholders equity before any unrealized gain or loss on securities
available for sale divided by average assets) must be maintained at a minimum of 4%. The Companys
and Banks actual and required capital amounts are disclosed in Note 10 to the audited consolidated
financial statements of the Company included elsewhere in this prospectus/proxy statement.
Dividends paid by CSB Bank are the primary source of funds available to the Company for
payment of dividends to shareholders and for other working capital needs. The payment of dividends
by CSB Bank to the Company is subject to restrictions by regulatory authorities, which generally
limit dividends to current year net income and prior two years net retained earnings, as defined by
regulation.
- 98 -
In addition, dividend payments generally cannot reduce regulatory capital levels below the
minimum regulatory guidelines discussed above.
Liquidity
Liquidity refers to the Companys ability to generate sufficient cash to fund current loan
demand, meet deposit withdrawals, pay operating expenses and meet other obligations. The Companys
primary sources of liquidity are cash and cash equivalents, which totaled $12.2 million at December
31, 2007 a decrease of $5.5 million from $17.7 million at December 31, 2006. Net income,
securities available for sale, and loan repayments also serve as sources of liquidity. Cash and
cash equivalents and securities maturing within one year represent 4.5% of total assets at year-end
2007, as compared to 6.3% of total assets at year-end 2006. Other sources of liquidity include,
but are not limited to, purchase of federal funds, advances from the FHLB, adjustments of interest
rates to attract deposits, and borrowing at the Federal Reserve discount window. Management
believes that its sources of liquidity are adequate to meet both the short-term and long-term needs
of the Company.
As summarized in the consolidated statements of cash flows, the most significant investing
activities for the Company in 2007 included net loan originations of $25.0 million, the maturities
and calls of securities totaling $15.6 million offset by $19.4 million in securities purchases, and
the Companys financing activities included a $24.0 million increase in FHLB advances.
Quantitative and Qualitative Disclosures About Market Risk
The most significant market risk to which the Company is exposed is interest rate risk. The
business of the Company and the composition of its balance sheet consists of investments in
interest-earning assets (primarily loans and securities), which are funded by interest-bearing
liabilities (deposits and borrowings). These financial instruments have varying levels of
sensitivity to changes in the market rates of interest, resulting in market risk. None of the
Companys financial instruments are held for trading purposes.
The Board of Directors establishes broad policies and operating limits with respect to
interest rate risk. The Company manages interest rate risk regularly through its Asset Liability
Committee. The Committee meets on a monthly basis and reviews various asset and liability
management information, including but not limited to, CSB Banks liquidity position, projected
sources and uses of funds, interest rate risk position and economic conditions.
The Company monitors its interest rate risk through modeling, whereby it measures potential
changes in its future earnings and the fair values of its financial instruments that may result
from one or more hypothetical changes in interest rates. This analysis is performed by estimating
the expected cash flows of the Companys financial instruments using interest rates in effect at
year-end 2007 and 2006. Income simulation analysis is used to measure the sensitivity of forecasted
net interest income to changes in market rates over a one-year time horizon. The economic value
of equity (EVE) is calculated by subjecting the period-end balance sheet to changes in interest
rates and measuring the impact of the changes on the values of the assets and liabilities.
Hypothetical changes in interest rates are then applied to the financial instruments, and the cash
flows and fair values are again estimated using these hypothetical rates. For the net interest
income estimates, the hypothetical rates are applied to the financial instruments based on the
assumed cash flows. The Company applies these interest rate shocks to its financial instruments
up and down 200 basis points in 100 basis point increments.
- 99 -
Net Interest Income at Risk
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007 |
|
|
|
|
Change in |
|
|
|
|
|
|
|
|
|
|
Interest Rates |
|
Net Interest |
|
Dollar |
|
Percentage |
|
|
|
|
(basis points) |
|
Income |
|
Change |
|
Change |
|
Board policy limits |
|
|
(Dollars in Thousands) |
|
|
|
|
|
|
|
+200 |
|
|
$ |
14,682 |
|
|
$ |
506 |
|
|
|
3.6 |
% |
|
|
+/- 15.0 |
% |
|
|
|
+100 |
|
|
|
14,457 |
|
|
|
281 |
|
|
|
2.0 |
|
|
|
+/- 10.0 |
|
|
|
|
0 |
|
|
|
14,176 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-100 |
|
|
|
13,988 |
|
|
|
(188 |
) |
|
|
(1.3 |
) |
|
|
+/- 10.0 |
|
|
|
|
-200 |
|
|
|
13,646 |
|
|
|
(530 |
) |
|
|
(3.7 |
) |
|
|
+/- 15.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006 |
|
|
|
|
Change in |
|
|
|
|
|
|
|
|
|
|
Interest Rates |
|
Net Interest |
|
Dollar |
|
Percentage |
|
|
|
|
(basis points) |
|
Income |
|
Change |
|
Change |
|
Board policy limits |
|
|
(Dollars in Thousands) |
|
|
|
|
|
|
|
+200 |
|
|
$ |
14,165 |
|
|
$ |
682 |
|
|
|
5.1 |
% |
|
|
+/- 15.0 |
% |
|
|
|
+100 |
|
|
|
13,767 |
|
|
|
284 |
|
|
|
2.1 |
|
|
|
+/- 10.0 |
|
|
|
|
0 |
|
|
|
13,483 |
|
|
|
0 |
|
|
|
0.0 |
|
|
|
|
|
|
|
|
-100 |
|
|
|
13,290 |
|
|
|
(193 |
) |
|
|
(1.4 |
) |
|
|
+/- 10.0 |
|
|
|
|
-200 |
|
|
|
12,937 |
|
|
|
(546 |
) |
|
|
(4.1 |
) |
|
|
+/- 15.0 |
|
Management reviews Net Interest Income at Risk with the Board on a periodic basis. The
Company was within all Board-approved limits at December 31, 2007 and 2006.
Economic Value of Equity at Risk
Economic Value of Equity at Risk (%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basis point change scenario |
|
|
-200 |
|
|
|
-100 |
|
|
|
+100 |
|
|
|
+200 |
|
Board policy limits |
|
|
+/-20 |
% |
|
|
+/-15 |
% |
|
|
+/-15 |
% |
|
|
+/-20 |
% |
December 31, 2007 |
|
|
+5.2 |
% |
|
|
+3.1 |
% |
|
|
-5.6 |
% |
|
|
-17.3 |
% |
December 31, 2006 |
|
|
+7.1 |
% |
|
|
+3.8 |
% |
|
|
-5.2 |
% |
|
|
-11.2 |
% |
Management reviews Economic Value of Equity at Risk with the Board on a periodic basis. The
Company was within all Board-approved limits at December 31, 2007 and 2006.
Significant Assumptions and Other Considerations
The above analysis is based on numerous assumptions, including relative levels of market
interest rates, loan prepayments and reactions of depositors to changes in interest rates, and
should not be relied
- 100 -
upon as being indicative of actual results. Further, the analysis does not necessarily
contemplate all actions the Company may undertake in response to changes in interest rates.
Securities owned by the Company will generally repay at their stated maturity. Many of the
Companys loans permit the borrower to prepay the principal balance prior to maturity without
penalty. The likelihood of prepayment depends on a number of factors, including current interest
rate and interest rate index (if any) on the loan, the financial ability of the borrower to
refinance, the economic benefit to be obtained from refinancing, availability of refinancing at
attractive terms, as well as economic and other factors in specific geographic areas which affect
the sales and price levels of residential property. In a changing interest rate environment,
prepayments may increase or decrease on fixed and adjustable rate loans depending on the current
relative levels and expectations of future short- and long-term interest rates. Prepayments on
adjustable rate residential mortgage loans generally increase when long-term interest rates fall or
are at historically low levels relative to short-term interest rates, thus making fixed rate loans
more desirable. While savings and checking deposits generally may be withdrawn upon the customers
request without prior notice, a continuing relationship with customers resulting in future deposits
and withdrawals is generally predictable, resulting in a dependable and uninterrupted source of
funds. No change in the rates on such deposits is assumed when market rates increase or decrease
100 basis points. When market rates increase or decrease 200 basis points, the analysis assumes a
corresponding 50 basis point change in the rates paid on such deposits. Short-term borrowings have
fixed maturities. Time deposits generally have early withdrawal penalties, which discourage
customer withdrawal prior to maturity. Certain advances from the FHLB carry prepayment penalties
and are expected to be repaid in accordance with their contractual terms.
Fair Value of Financial Instruments
The Company discloses the estimated fair value of its financial instruments at December 31,
2007 and 2006 in Note 13 to the audited consolidated financial statements for the fiscal years
ended December 31, 2007 and 2006, included elsewhere in this prospectus/proxy statement. Fair
value of the Companys financial instruments experienced modest changes in 2007. Estimated fair
value of loans increased slightly to 100.2% of carrying value in 2007 from 98.7% of carrying value
in 2006. Estimated fair value of deposits increased to 100.8% in 2007 compared to a carrying value
of 99.7% in 2006.
Off-Balance Sheet Arrangements, Contractual Obligations, and Contingent Liabilities and Commitments
The following table summarizes CSB Banks loan commitments, including letters of credit, as of
December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Commitment to Expire Per Period |
|
|
|
(Dollars in thousands) |
|
|
|
Total |
|
|
Less than |
|
|
1 to 3 |
|
|
3 to 5 |
|
|
Over 5 |
|
Type of Commitment |
|
Amount |
|
|
1 year |
|
|
Years |
|
|
Years |
|
|
Years |
|
|
Commercial lines-of-credit |
|
$ |
24,823 |
|
|
$ |
24,461 |
|
|
$ |
362 |
|
|
|
|
|
|
|
|
|
Real estate lines-of-credit |
|
|
20,147 |
|
|
|
1,436 |
|
|
|
449 |
|
|
$ |
2,366 |
|
|
$ |
15,896 |
|
Consumer lines-of-credit |
|
|
1,085 |
|
|
|
1,085 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit card lines-of-credit |
|
|
12,413 |
|
|
|
12,413 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Overdraft Privilege |
|
|
5,381 |
|
|
|
5,381 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Letters of credit |
|
|
1,310 |
|
|
|
1,281 |
|
|
|
29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Commitments |
|
$ |
65,159 |
|
|
$ |
46,057 |
|
|
$ |
840 |
|
|
$ |
2,366 |
|
|
$ |
15,896 |
|
|
|
|
As indicated in the preceding table, CSB Bank had $65.2 million in total loan commitments at
the end of 2007, with $46.1 million of that amount expiring within one year. All lines-of-credit
represent
- 101 -
either fee-paid or legally binding loan commitments for the loan categories noted. Letters of
credit are also included in the amounts noted in the table since CSB Bank requires that each letter
of credit be supported by a loan agreement. The commercial and consumer lines represent both
unsecured and secured obligations. The real estate lines are secured by mortgages on residential
and nonresidential property. The credit card lines were all made on an unsecured basis. It is
anticipated that a significant portion of these lines will expire without being drawn upon,
particularly the credit card lines, which represent the maximum amount available to all
cardholders.
The following table summarizes the Companys other contractual obligations, exclusive of
interest, as of December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment Due by Period |
|
|
(Dollars in Thousands) |
|
|
Total |
|
Less than |
|
1 to 3 |
|
3 to 5 |
|
Over 5 |
Contractual Obligations |
|
Amount |
|
1 year |
|
Years |
|
Years |
|
Years |
|
Total time deposits |
|
$ |
123,397 |
|
|
$ |
104,038 |
|
|
$ |
13,100 |
|
|
$ |
6,226 |
|
|
$ |
33 |
|
Short-term borrowings |
|
|
27305 |
|
|
|
27,305 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other borrowings |
|
|
26,024 |
|
|
|
417 |
|
|
|
12,692 |
|
|
|
435 |
|
|
|
12,480 |
|
Capital leases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases |
|
|
403 |
|
|
|
112 |
|
|
|
201 |
|
|
|
90 |
|
|
|
|
|
Unconditional purchase obligations
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Obligations |
|
$ |
177,129 |
|
|
$ |
131,872 |
|
|
$ |
25,993 |
|
|
$ |
6,751 |
|
|
$ |
12,513 |
|
|
|
|
The other borrowings noted in the preceding table represent borrowings from the Federal Home
Loan Bank of Cincinnati. The notes require payment of interest on a monthly basis with principal
due in monthly installments or at maturity, depending upon the issue. The obligations bear stated
fixed interest rates and stipulate a prepayment penalty if the notes interest rate exceeds the
current market rate for similar borrowings at the time of repayment. As the notes mature, CSB Bank
evaluates the liquidity and interest-rate circumstances at that time to determine whether to pay
off or renew the note. The evaluation process typically includes the strength of current and
projected customer loan demand, CSB Banks federal funds sold or purchased position, projected cash
flows from maturing investment securities, the current and projected market interest rate
environment, local and national economic conditions, and customer demand for CSB Banks deposit
product offerings.
Recently Issued Accounting Pronouncements
In September 2006, the FASB issued FAS No. 157, Fair Value Measurements, which provides
enhanced guidance for using fair value to measure assets and liabilities. The standard applies
whenever other standards require or permit assets or liabilities to be measured at fair value. The
Standard does not expand the use of fair value in any new circumstances. FAS No. 157 is effective
for financial statements issued for fiscal years beginning after November 15, 2007 and interim
periods within those fiscal years. Early adoption is permitted. The adoption of this standard is
not expected to have a material effect on the Companys results of operations or financial
position.
In February 2007, the FASB issued FAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities including an amendment of FASB Statement No. 115, which provides all
entities with an option to report selected financial assets and liabilities at fair value. The
objective of the FAS No. 159 is to improve financial reporting by providing entities with the
opportunity to mitigate volatility in earnings caused by measuring related assets and liabilities
differently without having to apply
- 102 -
the complex provisions of hedge accounting. FAS No. 159 is effective as of the beginning of an
entitys first fiscal year beginning after November 15, 2007. Early adoption is permitted as of
the beginning of a fiscal year that begins on or before November 15, 2007 provided the entity also
elects to apply the provisions of FAS No. 157, Fair Value Measurements. The adoption of this
standard is not expected to have a material effect on the Companys results of operations or
financial position.
Critical Accounting Policies
The Companys consolidated financial statements are prepared in accordance with U.S. generally
accepted accounting principles and follow general practices within the commercial banking industry.
Application of these principles requires management to make estimates, assumptions, and judgments
that affect the amounts reported in the financial statements. These estimates, assumptions, and
judgments are based upon the information available as of the date of the financial statements.
The most significant accounting policies followed by the Company are presented in the Summary
of Significant Accounting Policies included with the audited consolidated financial statements of
the Company included elsewhere in this prospectus/proxy statement. These policies, along with the
other disclosures presented in the Notes to the consolidated financial statements of the Company,
provide information about how significant assets and liabilities are valued in the financial
statements and how those values are determined. Management has identified the determination of the
allowance for loan losses as the accounting area that requires the most subjective and complex
estimates, assumptions, and judgments and, as such, could be the most subject to revision as new
information becomes available.
As previously noted in the section entitled Allowance for Loan Losses, management performs
analysis to assess the adequacy of its allowance for loan losses. This analysis encompasses a
variety of factors including the potential loss exposure for individually reviewed loans, the
historical loss experience, the volume of non-performing loans (i.e., loans in nonaccrual status or
past due 90 days or more), the volume of loans past due, any significant changes in lending or loan
review staff, an evaluation of current and future local and national economic conditions, any
significant changes in the volume or mix of loans within each category, a review of the significant
concentrations of credit, and any legal, competitive, or regulatory concerns.
Impact of Inflation and Changing Prices
The audited consolidated financial statements and related data presented herein have been
prepared in accordance with U.S. generally accepted accounting principles, requiring measurement of
financial position and results of operations primarily in terms of historical dollars without
considering changes in the relative purchasing power of money over time due to inflation. Unlike
most industrial companies, most assets and liabilities of the Company are monetary in nature.
Therefore, interest rates have a more significant impact on a financial institutions performance
than the effects of general levels of inflation. Interest rates do not necessarily move in the
same direction or in the same magnitude as prices of goods and services. The liquidity, maturity
structure and quality of the Companys assets and liabilities are critical to maintenance of
acceptable performance levels.
- 103 -
Information With Respect to Indian Village
Description of Indian Villages business
Indian Village is a unitary thrift holding company registered under the Home Owners Loan Act
of 1933, as amended, and was incorporated under the laws of the Commonwealth of Pennsylvania in
1999. Its revenues are primarily derived from the operations of its wholly-owned subsidiary,
Indian Village Bank. Indian Village Bank is a state savings bank chartered under the laws of Ohio
with its main office in Gnadenhutten, Ohio, and two other business offices located in New
Philadelphia and North Canton, Ohio. Indian Village Bank was initially chartered by the State of
Ohio in 1923 under the name Indian Village Savings & Loan Association.
The principal business of Indian Village Bank consists of attracting retail deposits from the
general public and investing those funds in one- to four-family residential mortgage loans,
consumer loans, and business loans, primarily in Tuscarawas and Stark Counties, Ohio. Indian
Village Bank also invests in debt obligations of the United States Government and its agencies and
in municipal securities.
Indian Village Banks revenues are derived primarily from interest on loans, interest and
dividends from its investments, and income from service charges and fees on deposit accounts and
financial services.
As a savings and loan holding company, Indian Village is subject to regulation, examination
and oversight by the Office of Thrift Supervision (the OTS). As a state-chartered savings bank,
Indian Village Bank is subject to regulation by the Ohio Division of Financial Institutions (the
ODFI) and the Federal Deposit Insurance Corporation (the FDIC). In March 2008, Indian Village
Bank entered into a consent agreement with respect to a formal supervisory order (the Order) with
the ODFI and the FDIC. Among other things, Indian Village Bank has agreed under the Order to make
certain significant changes to its lending function, funds management practices, and to make policy
and procedural changes, all consistent with continuing to operate Indian Village Bank in a safe and
sound manner. In July 2008, Indian Village entered into a supervisory agreement with the OTS, pursuant to which Indian Village has agreed not to repurchase shares of Indian Village common stock,
pay dividends, or take certain other actions without prior notice to, and approval by, the OTS.
Market price of and dividends on shares of Indian Village common stock
Indian Village common shares are not traded on an established market. Indian Village common
shares are traded through broker/dealers and in private transactions, and quotations are reported
on the OTC Bulletin Board under the symbol of IDVB.OB. OTC Bulletin Board quotations reflect
interdealer prices, without mark-up, mark-down or commission and may not represent actual
transactions. The table below sets forth the range of high and low prices paid for transactions in
Indian Village common shares as reported on the OTC Bulletin Board for the periods indicated. The
table also sets forth the cash dividends declared by Indian Village to its shareholders during the
same periods. Pursuant to the terms of the Merger Agreement, Indian Village is prohibited from
declaring or paying any dividends prior to the consummation of the merger.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Share |
|
|
|
|
|
|
|
|
|
|
Dividends |
Quarter Ended |
|
High |
|
Low |
|
Declared |
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2008
|
|
$ |
16.50 |
|
|
$ |
11.05 |
|
|
$ |
0.00 |
|
June 30, 2008
|
|
|
15.25 |
|
|
|
11.05 |
|
|
|
0.00 |
|
- 104 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Share |
|
|
|
|
|
|
|
|
|
|
Dividends |
Quarter Ended |
|
High |
|
Low |
|
Declared |
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2007 |
|
$ |
20.25 |
|
|
$ |
17.75 |
|
|
$ |
0.00 |
|
June 30, 2007 |
|
|
21.25 |
|
|
|
18.85 |
|
|
|
0.00 |
|
September 30, 2007 |
|
|
19.00 |
|
|
|
16.65 |
|
|
|
0.00 |
|
December 31, 2007 |
|
|
17.00 |
|
|
|
13.75 |
|
|
|
0.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2006 |
|
$ |
19.87 |
|
|
$ |
17.50 |
|
|
$ |
0.04 |
|
June 30, 2006 |
|
|
19.00 |
|
|
|
16.75 |
|
|
|
0.04 |
|
September 30, 2006 |
|
|
19.00 |
|
|
|
18.00 |
|
|
|
0.04 |
|
December 31, 2006 |
|
|
19.00 |
|
|
|
18.00 |
|
|
|
0.00 |
|
As of June 30, 2008, Indian Village had approximately 258 registered shareholders and 423,679
common shares outstanding.
Indian Village managements discussion and analysis of financial condition and results of
operations as of March 31, 2008
The following discussion focuses on the consolidated financial condition of Indian Village and
its subsidiaries at March 31, 2008 as compared to June 30, 2007, and the consolidated results of
operations for the nine months ending March 31, 2008 compared to the same period in 2007. The
purpose of this discussion is to provide the reader with a more thorough understanding of the
consolidated financial statements.
Financial Condition
Total assets were $97.1 million at March 31, 2008, compared to $99.7 million at June 30, 2007,
representing a decrease of $2.6 million or 2.6%. Cash and cash equivalents increased $10.2
million, or 452.7%, during the nine-month period ending March 31, 2008, due to an increase in
interest-bearing deposits at the Federal Home Loan Bank of Cincinnati. The increase in cash and
cash equivalents resulted from decreases in securities and net loans. Securities decreased $5.3
million or 29.3% during the nine month period of 2008 primarily due to sales of mortgage-backed and
municipal securities. Net loans decreased $7.0 million, or 9.9%. Deposits decreased $1.9 million,
or 2.8%, during the nine-month period. Federal Home Loan Bank borrowings decreased $863,000 from
June 30, 2007.
Net loans decreased $5.3 million, or 29.3%, during the nine-month period ended March 31, 2008.
The decrease in net loans receivable consisted primarily of decreases in one- to four-family
residential and home improvement loans. The allowance for loan losses amounted to $882,000, or
1.36% of total loans at March 31, 2008 compared to $881,000 or 1.23% of total loans at June 30,
2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2008 |
|
June 30, 2007 |
|
June 30, 2006 |
Non-performing loans |
|
|
1,925,000 |
|
|
|
2,139,000 |
|
|
|
847,000 |
|
Other real estate |
|
|
340,000 |
|
|
|
337,000 |
|
|
|
150,000 |
|
Allowance for loan losses |
|
|
882,000 |
|
|
|
881,000 |
|
|
|
572,000 |
|
Total loans |
|
|
63,831,000 |
|
|
|
70,812,000 |
|
|
|
77,250,000 |
|
Allowance: loans |
|
|
1.36 |
% |
|
|
1.23 |
% |
|
|
0.74 |
% |
Allowance: non-performing loans |
|
|
0.5 |
x |
|
|
0.4 |
x |
|
|
0.7 |
x |
- 105 -
The ratio of gross loans to deposits was 98.0% at March 31, 2008, compared to 105.5% at June
30, 2007. The decrease in this ratio is primarily the result of loan shrinkage experienced during
the nine months ended March 31, 2008.
Deposits decreased $1.9 million, or 2.8%, from June 30, 2007 with the decrease consisting
primarily of decreases in certificates of deposits and money market accounts.
Total shareholders equity amounted to $8.1 million, or 8.37%, of total assets, at March 31,
2008, compared to $7.8 million, or 7.85% of total assets, at June 30, 2007. The increase in
shareholders equity during the nine months ended March 31, 2008 was due to an increase in market
value of securities offset by the net loss for the period. Indian Village and its subsidiary bank
met or exceeded all relevant regulatory capital requirements at March 31, 2008.
Results of Operations
Nine months ended March 31, 2008 and 2007
For the nine months ended March 31, 2008, Indian Village recorded a net loss of $245,000, or
$0.59 per share, as compared to a net loss of $196,000, or $0.47 per share, for the nine months
ended March 31, 2007. The $49,000 decrease in net income for the period was principally due to a
decrease in net interest income of $195,000 and a $97,000 increase in federal tax provision,
partially offset by a $76,000 decrease in provision for loan losses and a $122,000 decrease in
noninterest expenses.
Interest income for the nine months ended March 31, 2008, was $4,213,000, representing a
$632,000 decrease, or 13.0%, compared to the same period in 2007. This decrease was primarily due
to a decrease in loan and investment volume. Interest expense for the nine months ended March 31,
2008 was $2,815,000, a decrease of $437,000, or 13.4%, from the same period in 2007. The decrease
in interest expense occurred due to a decrease in deposit balances and rates paid on deposits.
The provision for loan losses for the nine months ended March 31, 2008, was $320,000, compared
to a $396,000 provision for the same period in 2007. The provision for loan losses is determined
based on managements calculation of the adequacy of the allowance for loan losses, which includes
provisions for classified loans as well as for the remainder of the portfolio based on historical
data including past charge-offs and current economic trends.
Noninterest income for the nine months ended March 31, 2008, was $247,000, an increase of
$45,000, or 22.3%, compared to the same period in 2007. This increase was primarily due to
increases in service charges on deposit accounts and gain on sale of loans offset by an increase in
loss on sale of securities available for sale.
Noninterest expenses for the nine months ended March 31, 2008, decreased $122,000, or 6.8%,
compared to the same period in 2007. The majority of the decrease resulted from a decrease in
salaries and employee benefits.
Federal income tax expense increased $97,000, or 51.1%, for the nine months ended March 31,
2008 as compared to the same period in 2007. The primary reason for the increase is the impairment
of Indian Villages deferred tax asset.
Capital Resources
Banks are subject to regulatory capital requirements administered by state and federal banking
agencies. Capital adequacy guidelines and prompt corrective action regulations involve
quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under
regulatory accounting practices. Capital amounts and classifications are also subject to
qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory
action.
- 106 -
Prompt corrective action regulations provide five classifications: well capitalized,
adequately capitalized, undercapitalized, significantly undercapitalized, and critically
undercapitalized, although these terms are not used to represent overall financial condition. If
inadequately capitalized, regulatory approval is required to accept brokered deposits. If
undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital
restoration plans are required. At March 31, 2008, Indian Village Bank was categorized as
adequately capitalized, and at June 30, 2007, Indian Village Bank was categorized as well
capitalized under the regulatory framework for prompt corrective action. There are no conditions
or events that management believes have changed the institutions category.
Banking regulations limit capital distributions by savings banks. Generally, capital
distributions are limited to undistributed net income for the current and prior two years.
Presently, based on current earnings, dividends cannot be paid to Indian Village during the fiscal
year ending June 30, 2008 without prior regulatory approval.
Liquidity
Liquidity refers to Indian Villages ability to generate sufficient cash to fund current loan
demand, meet deposit withdrawals, pay operating expenses and meet other obligations. Indian
Villages primary sources of liquidity are cash and cash equivalents, which totaled $12.5 million
at March 31, 2008, an increase of $10.2 million from June 30, 2007. Securities available-for-sale
and loan repayments also serve as sources of liquidity. Other sources of liquidity include, but
are not limited to, advances from the FHLB and adjustments of interest rates to attract deposits.
Management believes that its sources of liquidity are adequate to meet cash flow obligations for
the foreseeable future.
Indian Village managements discussion and analysis of financial condition and results of
operations as of June 30, 2007
General
The following is managements analysis of Indian Villages consolidated financial condition
and consolidated results of operations as of and for the year ended June 30, 2007, compared to the
year ended June 30, 2006. This discussion is designed to provide a more comprehensive review of
the operating results and financial position than could be obtained from an examination of the
consolidated financial statements alone. This analysis should be read in conjunction with the
consolidated financial statements and related footnotes and the selected financial data included
elsewhere in this prospectus/proxy statement.
Financial Condition
Total assets at June 30, 2007 were $99.7 million compared to $113.8 million at June 30, 2006,
a decrease of $14.1 million, or 12.4%. The decrease in total assets consisted of a decrease in
securities available for sale of $8.2 million and a decrease in net loans of $6.4 million. The
decrease in assets was offset by a decrease in deposits of $11.4 million and a decrease in FHLB
advances of $2.7 million. The decrease in securities available for sale consisted primarily of a
decrease in mortgage-backed securities of $5.1 million and $1.6 and $1.5 million decreases in
federal agency and state and municipal securities, respectively. The decrease in loans consisted
primarily of a decrease in real estate loans of $4.0 million and a $2.1 million decrease in
consumer loans.
The $4.0 million, or 6.9% decrease in the real estate loan portfolio between June 30, 2006 and
June 30, 2007 was spread among all real estate loan categories. The $2.1 million, or 11.8%
decrease in the consumer loan portfolio between June 30, 2006 and June 30, 2007 was spread among
all consumer categories. Consumer loans represented 22.1% and 23.1% of gross loans at June 30,
2007 and June 30, 2006, respectively.
- 107 -
Total deposits were $68.0 million on June 30, 2007 compared to $79.4 million at June 30, 2006,
a decrease of $11.4 million, or 14.4%. The decrease in total deposits is primarily the result of
decreases in certificates of deposit totaling $8.6 million and a $2.2 million decrease in money
market accounts. Management attributes the decrease in overall deposits to not pricing as
aggressively in our market area. Almost all certificates of deposit mature in less than three
years with the majority maturing in the next year.
As a secondary source of liquidity, Indian Village obtains borrowings from the FHLB of
Cincinnati, from which it held advances totaling $23.4 million at June 30, 2007 and $26.1 million
at June 30, 2006. FHLB advances at June 30, 2007 consisted of $3.9 million in fixed-rate
amortizing advances, and $19.5 million in convertible fixed-rate advances. The long-term
convertible advances have specified conversion dates ranging from one to five years at which time
the advances may be converted to a variable rate at the option of the FHLB. Additional advances
may be obtained from the FHLB to fund future loan growth and liquidity.
Nonperforming assets at June 30, 2007 consisted of $2.1 million of nonaccrual loans and
$337,000 of other real estate owned, or 2.5% of total assets, an increase of $1.6 million from June
30, 2006. The nonaccrual loans consisted of $1.6 million in commercial real-estate loans, $304,000
in residential real-estate loans, and $191,000 in consumer loans.
Results of Operations
The general economic conditions, the monetary and fiscal policies of state and federal banking
agencies and the regulatory policies of agencies that regulate financial institutions affect the
operating results of Indian Village. Interest rates on competing investments and general market
rates of interest influence Indian Villages cost of funds. Lending activities are influenced by
the demand for real estate loans and other types of loans, which in turn is affected by the
interest rates at which such loans are made, general economic conditions and the availability of
funds for lending activities.
Indian Villages net income primarily depends on its net interest income, which is the
difference between the interest income earned on interest-earning assets, such as loans and
securities, and interest expense incurred on interest-bearing liabilities, such as deposits and
borrowings. The level of net interest income is dependent on the interest rate environment and the
volume and composition of interest-earning assets and interest-bearing liabilities. Provisions for
loan losses, service charges, gains on the sale of assets, other income, noninterest expense, and
income taxes also affect net income.
Comparison of Results of Operations for the Year Ended June 30, 2007 to the Year Ended June 30,
2006
Net Income. Net income (loss) was ($377,000) for the year ended June 30, 2007, as compared to
$84,000 for the year ended June 30, 2006. The decrease in net income (loss) for the year ended
June 30, 2007 over the prior period was primarily the result of an increase in provision for loan
losses expense.
Net Interest Income. Net interest income after provision for loan losses totaled $1.4 million
for the year ended June 30, 2007, as compared to $1.9 million for the year ended June 30, 2006,
representing a decrease of $464,000, or 25.1%. The change in net interest income after provision
for loan losses between 2007 and 2006 is primarily attributable to an increase in the provision for
loan losses.
Interest and fees on loans increased $569,000, or 12.4%, from $4.6 million for the year ended
June 30, 2006 to $5.2 million for the year ended June 30, 2007. The increase in loan interest
income over the prior period was due to both an increase in yield earned on loans during fiscal
2007 as well as a higher average balance of loans.
Interest earned on securities increased $34,000 during the year ended June 30, 2007. The
increase in 2007 was primarily an increase in the yield earned partially offset by a lower average
balance of securities available for sale.
- 108 -
Interest on interest-bearing deposits and overnight deposits increased by $18,000 compared to
the year ended June 30, 2006, due to higher yield earned on these assets.
Interest paid on deposits increased $742,000 for the year ended June 30, 2007, compared to the
year ended June 30, 2006. The increase in 2007 over 2006 was the result of both an increase in
rate paid on deposits and an increase in average balance of deposits.
Interest on FHLB advances totaled $1.3 million for the year ended June 30, 2007, a decrease of
$84,000 compared to the year ended June 30, 2006 was the result to lower average balances.
Provision for Loan Losses. Indian Village maintains an allowance for loan losses in an amount
that, in managements judgment, is adequate to absorb probable losses in the loan portfolio. While
management utilizes its best judgment and information available, the ultimate adequacy of the
allowance depends on a variety of factors, including past loan loss experience, known and inherent
risks in the nature and volume of the portfolio, information about specific borrower situations and
estimated collateral values, economic conditions, and other factors. The provision for loan losses
is determined by management as the amount to be added to the allowance for loan losses after net
charge-offs have been deducted to bring the allowance to a level which is considered adequate to
absorb probable losses in the loan portfolio.
The provision for loan losses for the year ended June 30, 2007 totaled $698,000 compared to
$271,000, for the year ended June 30, 2006. The provision increased due to increases in impaired
loans as well as nonperforming loans. Indian Village experienced net charge-offs or (recoveries)
of $389,000 during the year ended June 30, 2007 and ($7,000) during the year ended June 30, 2006.
The allowance for loan losses totaled $881,000 or 1.23% of gross loans, at June 30, 2007, compared
with $572,000, or 0.74% of gross loans, at June 30, 2006.
Noninterest income. Noninterest income includes service charges and other fees, net gains on
sales of securities available for sale and other income. For the year ended June 30, 2007,
noninterest income totaled $242,000 compared to $371,000 for the year ended June 30, 2006. During
the 2007 period, Indian Village experienced increases of $70,000 in the net losses on sales of real
estate owned and $37,000 in losses on sale of securities available for sale.
Noninterest expense. Noninterest expense increased $96,000 from the year ended June 30, 2006
compared to the year ended June 30, 2007. The increase in noninterest expense during the 2007
period was primarily in professional and consulting expenses and franchise taxes.
Income Tax Expense. The volatility of income tax expense is primarily attributable to the
change in taxable income. The income tax expense (benefit) totaled ($311,000) for the year ended
June 30, 2007 compared to ($83,000) for the year ended June 30, 2006. The $228,000 increase in the
income tax benefit experienced in the 2007 period was the result of the decrease in income before
taxes and the large amount of tax-exempt income.
Yields Earned and Rates Paid
The following table sets forth certain information relating to Indian Villages average
balance sheet information and reflects the average yield on interest-earning assets and the average
cost of interest-bearing liabilities for the periods indicated. Such yields and costs are derived
by dividing income or expense by the average balances of interest-earning assets or
interest-bearing liabilities for the periods presented. Average balances were derived from daily
balances.
- 109 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended |
|
|
Year ended |
|
|
|
June 30, 2007 |
|
|
June 30, 2006 |
|
|
|
Average |
|
|
Interest |
|
|
Average |
|
|
Average |
|
|
Interest |
|
|
Average |
|
|
|
outstanding |
|
|
earned / |
|
|
yield / |
|
|
outstanding |
|
|
earned / |
|
|
yield / |
|
(Dollars in thousands) |
|
balance |
|
|
paid |
|
|
rate |
|
|
balance |
|
|
paid |
|
|
rate |
|
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans(1) |
|
$ |
76,249 |
|
|
$ |
5,159 |
|
|
|
6.77 |
% |
|
$ |
70,066 |
|
|
$ |
4,591 |
|
|
|
6.55 |
% |
Investment securities(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable |
|
|
18,064 |
|
|
|
990 |
|
|
|
5.34 |
|
|
|
17,474 |
|
|
|
911 |
|
|
|
5.08 |
|
Non-taxable(3) |
|
|
4,577 |
|
|
|
187 |
|
|
|
3.95 |
|
|
|
5,821 |
|
|
|
246 |
|
|
|
4.07 |
|
Interest-bearing deposits and federal funds sold |
|
|
1,357 |
|
|
|
35 |
|
|
|
2.58 |
|
|
|
1,339 |
|
|
|
17 |
|
|
|
1.27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets |
|
|
100,247 |
|
|
|
6,371 |
|
|
|
6.31 |
|
|
|
94,700 |
|
|
|
5,765 |
|
|
|
6.09 |
|
Noninterest-earning assets |
|
|
8,343 |
|
|
|
|
|
|
|
|
|
|
|
9,204 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
108,590 |
|
|
|
|
|
|
|
|
|
|
$ |
103,904 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
|
$ |
4,513 |
|
|
|
49 |
|
|
|
1.09 |
|
|
$ |
4,068 |
|
|
|
42 |
|
|
|
1.03 |
|
Savings accounts |
|
|
5,290 |
|
|
|
26 |
|
|
|
0.49 |
|
|
|
5,659 |
|
|
|
29 |
|
|
|
0.51 |
|
Money market accounts |
|
|
6,579 |
|
|
|
220 |
|
|
|
3.34 |
|
|
|
6,471 |
|
|
|
188 |
|
|
|
2.91 |
|
Certificates of deposit |
|
|
57,367 |
|
|
|
2,637 |
|
|
|
4.60 |
|
|
|
49,445 |
|
|
|
1,931 |
|
|
|
3.91 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits |
|
|
73,749 |
|
|
|
2,932 |
|
|
|
3.97 |
|
|
|
65,643 |
|
|
|
2,190 |
|
|
|
3.34 |
|
FHLB advances |
|
|
24,409 |
|
|
|
1,312 |
|
|
|
5.38 |
|
|
|
26,388 |
|
|
|
1,396 |
|
|
|
5.29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
|
98,158 |
|
|
|
4,244 |
|
|
|
4.32 |
|
|
|
92,031 |
|
|
|
3,586 |
|
|
|
3.90 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing liabilities: |
|
|
2,213 |
|
|
|
|
|
|
|
|
|
|
|
3,743 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
100,371 |
|
|
|
|
|
|
|
|
|
|
|
95,774 |
|
|
|
|
|
|
|
|
|
Equity |
|
|
8,219 |
|
|
|
|
|
|
|
|
|
|
|
8,131 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
$ |
108,590 |
|
|
|
|
|
|
|
|
|
|
$ |
103,904 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income; interest rate spread(4) |
|
|
|
|
|
$ |
2,127 |
|
|
|
1.99 |
% |
|
|
|
|
|
$ |
2,179 |
|
|
|
2.19 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin(5) |
|
|
|
|
|
|
|
|
|
|
2.11 |
% |
|
|
|
|
|
|
|
|
|
|
2.30 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average interest-earning assets to interest-bearing
liabilities |
|
|
|
|
|
|
|
|
|
|
102.13 |
% |
|
|
|
|
|
|
|
|
|
|
102.90 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Net of deferred loan fees and costs and loans in process and includes nonperforming loans.
|
|
(2) |
|
Average balance includes unrealized gains and losses. Yield is based on amortized cost. |
|
(3) |
|
Average yield for municipal securities are presented on a tax equivalent basis based on an
assumed tax rate of 34%. |
|
(4) |
|
Interest rate spread represents the difference between the yield on interest-earning assets
and the cost of interest-bearing liabilities. |
|
(5) |
|
Net interest margin represents net interest income divided by average interest-earning
assets. |
Quantitative and qualitative disclosures about market risk
The most significant market risk to which Indian Village is exposed is interest rate risk.
The business of Indian Village and the composition of its balance sheet consists of investments in
interest-earning assets (primarily loans and securities), which are funded by interest-bearing
liabilities (deposits and borrowings). These financial instruments have varying levels of
sensitivity to changes in the market rates of interest, resulting in market risk. None of Indian
Villages financial instruments are held for trading purposes.
The Indian Village Board of Directors establishes broad policies and operating limits with
respect to interest rate risk. Indian Village manages interest rate risk regularly through its
Risk Committee. The Committee meets on a quarterly basis and reviews various asset and liability
management information, including but not limited to, Indian Village Banks liquidity position,
projected sources and uses of funds, interest rate risk position and economic conditions.
- 110 -
Indian Village monitors its interest rate risk through modeling, whereby it measures potential
changes in its future earnings and the fair values of its financial instruments that may result
from one or more hypothetical changes in interest rates. This analysis is performed by estimating
the expected cash flows of Indian Villages financial instruments using interest rates in effect at
March 31, 2008 and June 30, 2007. Income simulation analysis is used to measure the sensitivity of
forecasted net interest income to changes in market rates over a one-year time horizon. The
economic value of equity (EVE) is calculated by subjecting the period-end balance sheet to changes
in interest rates and measuring the impact of the changes on the values of the assets and
liabilities. Hypothetical changes in interest rates are then applied to the financial
instruments, and the cash flows and fair values are again estimated using these hypothetical rates.
For the net interest income estimates, the hypothetical rates are applied to the financial
instruments based on the assumed cash flows. Indian Village applies these interest rate shocks
to its financial instruments up and down 200 basis points in 100 basis point increments.
The following table presents an analysis of the estimated sensitivity of Indian Villages
annual net interest income to sudden and sustained 100 basis point changes in market interest rates
at March 31, 2008 and June 30, 2007:
March 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in |
|
|
|
|
|
|
|
|
Interest Rates |
|
Net Interest |
|
Dollar |
|
Percentage |
|
|
(basis points) |
|
Income |
|
Change |
|
Change |
|
|
|
(Dollars in Thousands) |
|
|
|
+200 |
|
|
$ |
2,115
|
|
|
$ |
109 |
|
|
|
5.4 |
% |
|
|
|
+100 |
|
|
|
2,069 |
|
|
|
62 |
|
|
|
3.1 |
|
|
|
|
0 |
|
|
|
2,006 |
|
|
|
0 |
|
|
|
0.0 |
|
|
|
|
-100 |
|
|
|
1,929 |
|
|
|
(77 |
) |
|
|
(3.8 |
) |
|
|
|
-200 |
|
|
|
1,834 |
|
|
|
(173 |
) |
|
|
(8.6 |
) |
June 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in |
|
|
|
|
|
|
|
|
Interest Rates |
|
Net Interest |
|
Dollar |
|
Percentage |
|
|
(basis points) |
|
Income |
|
Change |
|
Change |
|
|
|
(Dollars in Thousands) |
|
|
|
+200 |
|
|
$ |
2,180 |
|
|
$ |
(63 |
) |
|
|
(2.8 |
)% |
|
|
|
+100 |
|
|
|
2,215 |
|
|
|
(28 |
) |
|
|
(1.3 |
) |
|
|
|
0 |
|
|
|
2,243 |
|
|
|
0 |
|
|
|
0.0 |
|
|
|
|
-100 |
|
|
|
2,278 |
|
|
|
36 |
|
|
|
1.6 |
|
|
|
|
-200 |
|
|
|
2,288 |
|
|
|
45 |
|
|
|
2.0 |
|
Management reviews Net Interest Income at Risk with the Board on a periodic basis. Indian
Village was within all Board-approved limits at March 31, 2008 and June 30, 2007.
- 111 -
Economic Value of Equity at Risk
Economic Value of Equity at Risk (%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basis point change scenario |
|
|
-200 |
|
|
|
-100 |
|
|
|
+100 |
|
|
|
+200 |
|
Board policy limits |
|
|
+/-30 |
% |
|
|
+/-15 |
% |
|
|
+/-15 |
% |
|
|
+/-30 |
% |
March 31, 2008 |
|
|
-24.0 |
% |
|
|
-8.1 |
% |
|
|
-3.2 |
% |
|
|
-12.6 |
% |
June 30, 2007 |
|
|
-9.9 |
% |
|
|
-1.9 |
% |
|
|
-6.2 |
% |
|
|
-17.3 |
% |
Management reviews Economic Value of Equity at Risk with the Board on a periodic basis. Indian
Village was within all Board-approved limits at March 31, 2008 and June 30, 2007.
Experts
The consolidated financial statements of CSB as of December 31, 2007 and 2006, and for the
three years ended December 31, 2007, have been audited by S.R. Snodgrass, A.C., an independent
registered public accounting firm, as set forth in its report dated March 5, 2008, except for Note
16 as to which the date is July 15, 2008, included in this
prospectus/proxy statement. Such consolidated financial statements are included in this
prospectus/proxy statement in reliance upon such report given on the authority of such firm as
experts in accounting and auditing.
The consolidated financial statements of Indian Village as of June 30, 2007 and 2006, and for
the two years ended June 30, 2007, included in this prospectus/proxy statement, have been audited
by Crowe Chizek and Company LLC, its independent auditors, as set forth in
its reports on such financial statements included in this prospectus/proxy statement. Such
consolidated financial statements are included in this prospectus/proxy statement in reliance upon
such reports given on the authority of such firm as experts in accounting and auditing.
Legal Matters
Vorys, Sater, Seymour and Pease LLP has rendered an opinion that the CSB common shares to be
issued to the Indian Village shareholders in connection with the merger have been duly authorized
and, if issued as contemplated by the merger agreement, will be validly issued, fully paid and
non-assessable under the laws of the State of Ohio. Vorys, Sater, Seymour and Pease LLP also has
rendered an opinion regarding the material federal income tax consequences of the merger.
Where You Can Find More Information
CSB has filed with the Securities and Exchange Commission a Registration Statement on Form S-4
under the Securities Act to register the CSB common shares to be issued to Indian Village
shareholders in the merger. This prospectus/proxy statement is a part of the Registration
Statement on Form S-4. The rules and regulations of the Securities and Exchange Commission permit
us to omit from this prospectus/proxy statement certain information, exhibits and undertakings that
are contained in the Registration Statement on Form S-4.
- 112 -
In addition, CSB files reports, proxy statements and other information with the Securities and
Exchange Commission under the Securities Exchange Act of 1934, as amended. You can read and copy
the Registration Statement on Form S-4 and its exhibits, as well as the reports, proxy statements
and other information filed with the Securities and Exchange
Commission by CSB, at the following location:
Securities and Exchange Commissions Public Reference Room
100 F Street, N.E.
Room 1580
Washington, D.C. 20549
Please call the Securities and Exchange Commission for more information on the operation of
the Public Reference Room at 1-800-SEC-0330.
CSB is an electronic filer, and the Securities and Exchange Commission maintains a Web site
that contains reports, proxy and information statements and other information regarding registrants
that file electronically with the Securities and Exchange Commission at the following website:
http://www.sec.gov. Reports of CSB can also be found on the Internet website maintained by CSB at
http://www.csb1.com (this uniform resource locator, or URL, is an inactive textual reference only
and is not intended to incorporate CSBs website into this prospectus/proxy statement).
If you would like to request documents from CSB or Indian Village, please do so by
September 10, 2008, in order to receive the documents prior to the Indian Village special meeting.
-113-
Index to CSB Financial Information
|
|
|
|
|
|
|
Page |
Financial Statements at and as of March 31, 2008 (Unaudited): |
|
|
|
|
|
|
|
|
|
|
|
|
F-2 |
|
|
|
|
|
|
|
|
|
F-3 |
|
|
|
|
|
|
|
|
|
F-4 |
|
|
|
|
|
|
|
|
|
F-5 |
|
|
|
|
|
|
|
|
|
F-6 |
|
|
|
|
|
|
Financial Statements at and as of December 31, 2007 and 2006 (Audited): |
|
|
|
|
|
|
|
|
|
|
|
|
F-9 |
|
|
|
|
|
|
|
|
|
F-9 |
|
|
|
|
|
|
|
|
|
F-10 |
|
|
|
|
|
|
|
|
|
F-11 |
|
|
|
|
|
|
|
|
|
F-12 |
|
|
|
|
|
|
|
|
|
F-13 |
|
|
|
|
|
|
|
|
|
F-15 |
|
|
|
|
|
|
|
|
|
F-21 |
|
F-1
CSB BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2008 AND DECEMBER 31, 2007
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2008 |
|
|
2007 |
|
ASSETS |
|
|
|
|
|
|
|
|
Cash and due from bank |
|
$ |
10,445,660 |
|
|
$ |
12,111,807 |
|
Interest-earning deposits in other banks |
|
|
40,052 |
|
|
|
81,555 |
|
Federal funds sold |
|
|
14,300,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents |
|
|
24,785,712 |
|
|
|
12,193,362 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available-for-sale, at fair value |
|
|
63,243,672 |
|
|
|
71,419,830 |
|
Restricted stock, at cost |
|
|
3,142,900 |
|
|
|
3,105,900 |
|
|
|
|
|
|
|
|
Total securities |
|
|
66,386,572 |
|
|
|
74,525,730 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
|
246,983,893 |
|
|
|
256,659,059 |
|
Less allowance for loan losses |
|
|
218,084,479 |
|
|
|
2,574,945 |
|
|
|
|
|
|
|
|
Less allowance for loan losses |
|
|
2,690,830 |
|
|
|
2,585,901 |
|
|
|
|
|
|
|
|
Net loans |
|
|
244,293,063 |
|
|
|
254,073,158 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premises and equipment, net |
|
|
7,235,361 |
|
|
|
7,273,238 |
|
Accrued interest receivable and other assets |
|
|
2,107,609 |
|
|
|
2,204,257 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
344,808,317 |
|
|
$ |
350,269,745 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
|
Deposits |
|
|
|
|
|
|
|
|
Noninterest-bearing |
|
$ |
38,665,336 |
|
|
$ |
46,038,976 |
|
Interest-bearing |
|
|
208,364,076 |
|
|
|
213,347,066 |
|
|
|
|
|
|
|
|
Total deposits |
|
|
247,029,412 |
|
|
|
259,386,042 |
|
Short-term borrowings |
|
|
24,604,161 |
|
|
|
27,305,157 |
|
Other borrowings |
|
|
33,875,513 |
|
|
|
26,023,888 |
|
Accrued interest payable and other liabilities |
|
|
2,151,610 |
|
|
|
1,276,610 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
307,660,696 |
|
|
|
313,991,697 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
Common stock, $6.25 par value: Authorized 9,000,000
shares; issued 2,667,786 shares |
|
|
16,673,667 |
|
|
|
16,673,667 |
|
Additional paid-in capital |
|
|
6,455,819 |
|
|
|
6,452,319 |
|
Retained earnings |
|
|
18,552,852 |
|
|
|
17,990,445 |
|
Treasury stock at cost: 226,936 shares in 2008 and
220,162 shares in 2007 |
|
|
(4,712,735 |
) |
|
|
(4,599,282 |
) |
Accumulated other comprehensive income (loss) |
|
|
178,018 |
|
|
|
(239,101 |
) |
|
|
|
|
|
|
|
Total shareholders equity |
|
|
37,147,621 |
|
|
|
36,278,048 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders Equity |
|
$ |
344,808,317 |
|
|
$ |
350,269,745 |
|
|
|
|
|
|
|
|
See notes to unaudited consolidated financial statements.
F-2
CSB BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED
MARCH 31, 2008 AND 2007
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2008 |
|
|
2007 |
|
Interest income |
|
|
|
|
|
|
|
|
Loans, including fees |
|
$ |
4,412,704 |
|
|
$ |
4,314,520 |
|
Taxable securities |
|
|
804,622 |
|
|
|
750,057 |
|
Nontaxable securities |
|
|
43,878 |
|
|
|
68,511 |
|
Other |
|
|
22,207 |
|
|
|
13,194 |
|
|
|
|
|
|
|
|
Total interest income |
|
|
5,283,411 |
|
|
|
5,146,282 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
|
|
|
|
|
|
Deposits |
|
|
1,427,758 |
|
|
|
1,553,362 |
|
Short-term borrowings |
|
|
199,042 |
|
|
|
|
|
Other |
|
|
276,846 |
|
|
|
337,628 |
|
|
|
|
|
|
|
|
Total interest expense |
|
|
1,903,646 |
|
|
|
1,890,990 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
3,379,765 |
|
|
|
3,255,292 |
|
Provision for loan losses |
|
|
107,032 |
|
|
|
78,005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision
for loan losses |
|
|
3,272,733 |
|
|
|
3,177,287 |
|
|
|
|
|
|
|
|
|
|
Non-interest income |
|
|
|
|
|
|
|
|
Service charges on deposit accounts |
|
|
287,152 |
|
|
|
275,471 |
|
Trust and financial services |
|
|
188,664 |
|
|
|
169,638 |
|
Credit card fee income |
|
|
64,052 |
|
|
|
63,447 |
|
Debit card interchange |
|
|
70,821 |
|
|
|
53,982 |
|
Gain on sale of credit cards |
|
|
261,072 |
|
|
|
|
|
Other income |
|
|
83,725 |
|
|
|
83,563 |
|
|
|
|
|
|
|
|
Total non-interest income |
|
|
955,486 |
|
|
|
646,101 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest expenses |
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
|
1,536,903 |
|
|
|
1,407,180 |
|
Occupancy expense |
|
|
197,881 |
|
|
|
184,553 |
|
Equipment expense |
|
|
125,450 |
|
|
|
115,918 |
|
State franchise tax |
|
|
107,430 |
|
|
|
101,338 |
|
Professional and director fees |
|
|
139,556 |
|
|
|
141,382 |
|
Other expenses |
|
|
621,239 |
|
|
|
669,505 |
|
|
|
|
|
|
|
|
Total non-interest expenses |
|
|
2,728,459 |
|
|
|
2,619,876 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
1,499,760 |
|
|
|
1,203,512 |
|
Federal income tax provision |
|
|
498,000 |
|
|
|
389,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
1,001,760 |
|
|
$ |
814,512 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings per share |
|
$ |
0.41 |
|
|
$ |
0.33 |
|
|
|
|
|
|
|
|
See notes to unaudited consolidated financial statements.
F-3
CSB BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
FOR THE THREE MONTHS ENDED
MARCH 31, 2008 AND 2007
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2008 |
|
|
2007 |
|
Balance at beginning of period |
|
$ |
36,278,048 |
|
|
$ |
35,070,320 |
|
|
|
|
|
|
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
Net income |
|
|
1,001,760 |
|
|
|
814,512 |
|
Change in net unrealized
gain, net of reclassification
adjustments and related
income tax benefit of $214,879
and $59,265, respectively |
|
|
417,119 |
|
|
|
115,045 |
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
1,418,879 |
|
|
|
929,557 |
|
|
|
|
|
|
|
|
|
|
Issuance of 40 shares from treasury |
|
|
|
|
|
|
641 |
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense |
|
|
3,500 |
|
|
|
11,250 |
|
|
|
|
|
|
|
|
|
|
Purchase of treasury shares |
|
|
(113,453 |
) |
|
|
(653,222 |
) |
|
|
|
|
|
|
|
|
|
Cash dividends declared
($0.18 per share in
2008 and 2007) |
|
|
(439,353 |
) |
|
|
(443,320 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period |
|
$ |
37,147,621 |
|
|
$ |
34,915,226 |
|
|
|
|
|
|
|
|
See notes to unaudited consolidated financial statements.
F-4
CSB BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED
MARCH 31, 2008 AND 2007
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2008 |
|
|
2007 |
|
Net cash from operating activities |
|
$ |
1,216,242 |
|
|
$ |
896,368 |
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
Securities available-for-sale: |
|
|
|
|
|
|
|
|
Proceeds from maturities, calls and repayments |
|
|
22,403,914 |
|
|
|
1,331,608 |
|
Purchases |
|
|
(13,611,007 |
) |
|
|
(167,061 |
) |
Purchase of FHLB stock |
|
|
(37,000 |
) |
|
|
|
|
Proceeds from sale of other real estate |
|
|
105,000 |
|
|
|
10,000 |
|
Loan originations, net of repayments |
|
|
7,446,531 |
|
|
|
(3,234,547 |
) |
Proceeds from sale of credit cards |
|
|
2,513,671 |
|
|
|
|
|
Net change in loans held for sale |
|
|
|
|
|
|
(241,000 |
) |
Premises and equipment expenditures, net |
|
|
(125,547 |
) |
|
|
(171,964 |
) |
|
|
|
|
|
|
|
Net cash provided by (used for) investing activities |
|
|
18,695,562 |
|
|
|
(2,472,964 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
Net change in deposits |
|
|
(12,356,630 |
) |
|
|
(6,646,411 |
) |
Net change in short-term borrowings |
|
|
(2,700,996 |
) |
|
|
(3,334,306 |
) |
Proceeds from other borrowings |
|
|
8,000,000 |
|
|
|
5,000,000 |
|
Repayment of other borrowings |
|
|
(148,375 |
) |
|
|
(174,111 |
) |
Purchase of treasury shares |
|
|
(113,453 |
) |
|
|
(653,222 |
) |
Issuance of treasury shares |
|
|
|
|
|
|
641 |
|
Cash dividends paid |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used for) financing activities |
|
|
(7,319,454 |
) |
|
|
(5,807,409 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents |
|
|
12,592,350 |
|
|
|
(7,384,005 |
) |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period |
|
|
12,193,362 |
|
|
|
17,653,188 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
24,785,712 |
|
|
$ |
10,269,183 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures |
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
1,918,857 |
|
|
$ |
1,911,848 |
|
Income taxes paid |
|
|
|
|
|
|
250,000 |
|
Non-cash investing activity-transfer of loans to OREO |
|
|
|
|
|
|
59,096 |
|
See notes to unaudited consolidated financial statements.
F-5
CSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying condensed consolidated financial statements include the accounts of CSB Bancorp,
Inc. and its wholly-owned subsidiaries, The Commercial and Savings Bank and CSB Investment
Services, LLC (together referred to as the Company or CSB). All significant intercompany
transactions and balances have been eliminated in consolidation.
The condensed consolidated financial statements have been prepared without audit. In the opinion
of management, all adjustments (which include normal recurring adjustments) necessary to present
fairly the Companys financial position at March 31, 2008, and the results of operations and
changes in cash flows for the periods presented have been made.
Certain information and footnote disclosures typically included in financial statements prepared in
accordance with U.S. generally accepted accounting principles have been omitted. The Annual Report
for CSB for the year ended December 31, 2007, contains consolidated financial statements and
related footnote disclosures, which should be read in conjunction with the accompanying
consolidated financial statements. The results of operations for the period ended March 31, 2008
are not necessarily indicative of the operating results for the full year or any future interim
period.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In February 2007, the FASB issued FAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities Including an amendment of FASB Statement No. 115, which provides all
entities with an option to report selected financial assets and liabilities at fair value. The
objective of the FAS No. 159 is to improve financial reporting by providing entities with the
opportunity to mitigate volatility in earnings caused by measuring related assets and liabilities
differently without having to apply the complex provisions of hedge accounting. FAS No. 159 is
effective as of the beginning of an entitys first fiscal year beginning after November 15, 2007.
The adoption of this standard is not expected to have a material effect on the Companys results of
operations or financial position.
F-6
CSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2
SECURITIES
Securities consist of the following at March 31, 2008 and December 31, 2007:
March 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
Amortized |
|
|
unrealized |
|
|
Unrealized |
|
|
Fair |
|
|
|
Cost |
|
|
gains |
|
|
losses |
|
|
Value |
|
Available-for-sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury security |
|
$ |
99,953 |
|
|
$ |
2,742 |
|
|
$ |
|
|
|
$ |
102,695 |
|
Obligations of U.S.
government
corporations and agencies |
|
|
7,000,000 |
|
|
|
64,400 |
|
|
|
|
|
|
|
7,064,400 |
|
Mortgage-backed securities |
|
|
50,862,757 |
|
|
|
360,711 |
|
|
|
88,362 |
|
|
|
51,135,106 |
|
Obligations of states and
political subdivisions |
|
|
4,609,484 |
|
|
|
90,250 |
|
|
|
24,992 |
|
|
|
4,674,742 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities |
|
|
62,572,194 |
|
|
|
518,103 |
|
|
|
113,354 |
|
|
|
62,976,943 |
|
Equity Securities |
|
|
401,752 |
|
|
|
779 |
|
|
|
135,802 |
|
|
|
266,729 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale |
|
|
62,973,946 |
|
|
|
518,882 |
|
|
|
249,156 |
|
|
|
63,243,672 |
|
Restricted stock |
|
|
3,142,900 |
|
|
|
|
|
|
|
|
|
|
|
3,142,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities |
|
$ |
66,116,846 |
|
|
$ |
518,882 |
|
|
$ |
249,156 |
|
|
$ |
66,386,572 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
|
|
Cost |
|
|
gains |
|
|
losses |
|
|
Value |
|
Available-for-sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury security |
|
$ |
99,944 |
|
|
$ |
1,704 |
|
|
$ |
|
|
|
$ |
101,648 |
|
Obligations of U.S.
government
corporations and agencies |
|
|
25,498,979 |
|
|
|
18,190 |
|
|
|
7,904 |
|
|
|
25,509,265 |
|
Mortgage-backed securities |
|
|
42,682,972 |
|
|
|
15,639 |
|
|
|
333,666 |
|
|
|
42,364,945 |
|
Obligations of states and
political subdivisions |
|
|
3,098,457 |
|
|
|
60,088 |
|
|
|
|
|
|
|
3,158,545 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities |
|
|
71,380,352 |
|
|
|
95,621 |
|
|
|
341,570 |
|
|
|
71,134,403 |
|
Equity Securities |
|
|
401,752 |
|
|
|
665 |
|
|
|
116,990 |
|
|
|
285,427 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale |
|
|
71,782,104 |
|
|
|
96,286 |
|
|
|
458,560 |
|
|
|
71,419,830 |
|
Restricted stock |
|
|
3,105,900 |
|
|
|
|
|
|
|
|
|
|
|
3,105,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities |
|
$ |
74,888,004 |
|
|
$ |
96,286 |
|
|
$ |
458,560 |
|
|
$ |
74,525,730 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-7
CSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3 FAIR VALUE MEASUREMENTS (FAS NO. 157)
Effective January 1, 2008, the Company adopted FAS No. 157, which, among other things, requires
enhanced disclosures about assets and liabilities carried at fair value. FAS No. 157 establishes a
hierarchal disclosure framework associated with the level of pricing observability utilized in
measuring assets and liabilities at fair value. The three broad levels defined by FAS No. 157
hierarchy are as follows:
|
|
|
Level I:
|
|
Quoted prices are available in active markets for identical
assets or liabilities as of the reported date. |
|
|
|
Level II:
|
|
Pricing inputs are other than quoted prices in active markets,
which are either directly or indirectly observable as of the
reported date. The nature of these assets and liabilities
include items for which quoted prices are available but traded
less frequently, and items that are fair valued using other
financial instruments, the parameters of which can be directly
observed. |
|
|
|
Level III:
|
|
Assets and liabilities that have little to no pricing
observability as of the reported date. These items do not have
two-way markets and are measured using managements best
estimate of fair value, where the inputs into the determination
of fair value require significant management judgment or
estimation. |
The following table presents the assets reported on the consolidated statements of financial
condition at their fair value as of March 31, 2008 by level within the fair value hierarchy. No
liabilities are carried at fair value. As required by FAS No. 157, financial assets and
liabilities are classified in their entirety based on the lowest level of input that is significant
to the fair value measurement.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2008 |
|
|
Level I |
|
Level II |
|
Level III |
|
Total |
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale |
|
$ |
266,729 |
|
|
$ |
62,976,943 |
|
|
$ |
|
|
|
$ |
63,243,672 |
|
F-8
REPORT ON MANAGEMENTS ASSESSMENT OF INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of CSB Bancorp, Inc. is responsible for establishing and maintaining adequate
internal control over financial reporting. CSBs internal control over financial reporting is a
process designed under the supervision of CSBs chief executive officer and chief financial officer
to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted
accounting principles.
Any system of internal control, no matter how well designed, has inherent limitations, including
the possibility that a control can be circumvented or overridden and misstatements due to error or
fraud may occur and not be detected. Also because of changes in conditions, internal control
effectiveness may vary over time. Accordingly, even an effective system of internal control will
provide only reasonable assurance with respect to financial statement preparation.
As of December 31, 2007 CSBs management, including the chief executive officer and the chief
financial officer, assessed the effectiveness of CSBs internal controls over financial reporting,
using as its framework for that evaluation the criteria set forth by the Committee of Sponsoring
Organizations (COSO) of the Treadway Commission in Internal Control Integrated Framework. Based
upon this assessment, management believes that CSBs internal control over financial reporting is
effective as of December 31, 2007.
|
|
|
|
|
|
|
/s/ Eddie L. Steiner
Eddie L Steiner
|
|
|
|
/s/ Paula J. Meiler
Paula J. Meiler
|
|
|
President and CEO
|
|
|
|
Senior Vice President and Chief Financial Officer |
|
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
CSB Bancorp, Inc.
We have audited the accompanying consolidated balance sheets of CSB Bancorp, Inc. and subsidiaries
as of December 31, 2007 and 2006, and the related consolidated statement of income, shareholders
equity, and cash flows for each of the years in the three-year period ended December 31, 2007.
These consolidated financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of CSB Bancorp, Inc. and subsidiaries as of December 31,
2007 and 2006, and the consolidated results of their operations and their cash flows for each of
the years in the three-year period ended December 31, 2007, in conformity with U.S. generally
accepted accounting principles.
We were not engaged to examine managements assertions about the effectiveness of CSB Bancorp,
Inc.s internal control over financial reporting as of December 31, 2007, included in the
accompanying Report on Managements Assessment of Internal Control Over Financial Reporting and,
accordingly, we do not express an opinion thereon.
/s/ S.R. Snodgrass A.C.
Wexford, Pennsylvania
March 5, 2008
except for Note 16, as to which
the date is July 15, 2008
F-9
CSB BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 2007 and 2006
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
12,111,807 |
|
|
$ |
12,643,440 |
|
Interest-earning deposits in other banks |
|
|
81,555 |
|
|
|
9,748 |
|
Federal funds sold |
|
|
|
|
|
|
5,000,000 |
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents |
|
|
12,193,362 |
|
|
|
17,653,188 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities |
|
|
|
|
|
|
|
|
Available-for-sale, at fair value |
|
|
71,419,830 |
|
|
|
67,135,126 |
|
Restricted stock, at cost |
|
|
3,105,900 |
|
|
|
3,105,900 |
|
|
|
|
|
|
|
|
Total securities |
|
|
74,525,730 |
|
|
|
70,241,026 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
|
256,659,059 |
|
|
|
232,431,938 |
|
Less allowance for loan losses |
|
|
2,585,901 |
|
|
|
2,607,118 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans |
|
|
254,073,158 |
|
|
|
229,824,820 |
|
|
|
|
|
|
|
|
|
Premises and equipment, net |
|
|
7,273,238 |
|
|
|
7,390,182 |
|
Accrued interest receivable and other assets |
|
|
2,204,257 |
|
|
|
2,130,631 |
|
|
|
|
|
|
|
|
TOTAL ASSETS |
|
$ |
350,269,745 |
|
|
$ |
327,239,847 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
Noninterest-bearing |
|
$ |
46,038,976 |
|
|
$ |
44,455,131 |
|
Interest-bearing |
|
|
213,347,066 |
|
|
|
215,722,541 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits |
|
|
259,386,042 |
|
|
|
260,177,672 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowings |
|
|
27,305,157 |
|
|
|
28,022,077 |
|
Other borrowings |
|
|
26,023,888 |
|
|
|
2,499,399 |
|
Accrued interest payable and other liabilities |
|
|
1,276,610 |
|
|
|
1,470,379 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
313,991,697 |
|
|
|
292,169,527 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
Common stock, $6.25 par value. Authorized 9,000,000
shares; issued 2,667,786 shares |
|
|
16,673,667 |
|
|
|
16,673,667 |
|
Additional paid-in capital |
|
|
6,452,319 |
|
|
|
6,427,765 |
|
Retained earnings |
|
|
17,990,445 |
|
|
|
16,248,608 |
|
Treasury stock at cost 220,162 shares in 2007
and 168,605 shares in 2006 |
|
|
(4,599,282 |
) |
|
|
(3,696,102 |
) |
Accumulated other comprehensive loss |
|
|
(239,101 |
) |
|
|
(583,618 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
36,278,048 |
|
|
|
35,070,320 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY |
|
$ |
350,269,745 |
|
|
$ |
327,239,847 |
|
|
|
|
|
|
|
|
These consolidated financial statements should be read only in connection with
the accompanying summary of significant accounting policies
and notes to consolidated financial statements.
F-10
CSB BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 2007, 2006 and 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
INTEREST AND DIVIDEND INCOME |
|
|
|
|
|
|
|
|
|
|
|
|
Loans, including fees |
|
$ |
18,025,190 |
|
|
$ |
16,643,728 |
|
|
$ |
14,343,888 |
|
Taxable securities |
|
|
2,927,840 |
|
|
|
3,006,055 |
|
|
|
2,243,081 |
|
Nontaxable securities |
|
|
251,551 |
|
|
|
382,479 |
|
|
|
624,911 |
|
Other |
|
|
26,540 |
|
|
|
12,490 |
|
|
|
145,395 |
|
|
|
|
|
|
|
|
|
|
|
Total interest and dividend income |
|
|
21,231,121 |
|
|
|
20,044,752 |
|
|
|
17,357,275 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST EXPENSE |
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
|
6,352,732 |
|
|
|
5,418,616 |
|
|
|
4,128,130 |
|
Short-term borrowings |
|
|
1,185,377 |
|
|
|
1,265,850 |
|
|
|
331,540 |
|
Other borrowings |
|
|
366,630 |
|
|
|
192,825 |
|
|
|
352,026 |
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
7,904,739 |
|
|
|
6,877,291 |
|
|
|
4,811,696 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INTEREST INCOME |
|
|
13,326,382 |
|
|
|
13,167,461 |
|
|
|
12,545,579 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PROVISION FOR LOAN LOSSES |
|
|
472,100 |
|
|
|
301,667 |
|
|
|
282,664 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income, after provision
for loan losses |
|
|
12,854,282 |
|
|
|
12,865,794 |
|
|
|
12,262,915 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NONINTEREST INCOME |
|
|
|
|
|
|
|
|
|
|
|
|
Service charges on deposit accounts |
|
|
1,231,020 |
|
|
|
1,278,842 |
|
|
|
1,037,377 |
|
Trust services |
|
|
730,715 |
|
|
|
540,299 |
|
|
|
484,468 |
|
Debit card interchange fees |
|
|
276,467 |
|
|
|
210,615 |
|
|
|
160,509 |
|
Credit card other fee income |
|
|
261,784 |
|
|
|
290,778 |
|
|
|
277,990 |
|
Insurance recovery |
|
|
186,526 |
|
|
|
|
|
|
|
|
|
Securities gain (loss) |
|
|
16,830 |
|
|
|
(56,800 |
) |
|
|
247,047 |
|
Gain on sale of loans, net |
|
|
18,348 |
|
|
|
12,078 |
|
|
|
23,502 |
|
Gain (loss) on sale of other real estate owned, net |
|
|
(994 |
) |
|
|
(25,640 |
) |
|
|
10,000 |
|
Other |
|
|
313,929 |
|
|
|
341,754 |
|
|
|
339,596 |
|
|
|
|
|
|
|
|
|
|
|
Total non-interest income |
|
|
3,034,625 |
|
|
|
2,591,926 |
|
|
|
2,580,489 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NONINTEREST EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
|
5,853,523 |
|
|
|
5,885,857 |
|
|
|
5,671,149 |
|
Occupancy expense |
|
|
732,850 |
|
|
|
685,728 |
|
|
|
677,067 |
|
Equipment expense |
|
|
504,356 |
|
|
|
498,517 |
|
|
|
524,112 |
|
Professional and director fees |
|
|
579,923 |
|
|
|
658,843 |
|
|
|
677,252 |
|
Franchise tax expense |
|
|
416,712 |
|
|
|
430,050 |
|
|
|
427,435 |
|
Marketing and public relations |
|
|
372,902 |
|
|
|
333,753 |
|
|
|
302,331 |
|
Cash irregularity |
|
|
|
|
|
|
236,547 |
|
|
|
|
|
Telecommunications |
|
|
225,284 |
|
|
|
221,223 |
|
|
|
274,618 |
|
Other expenses |
|
|
2,015,243 |
|
|
|
1,964,097 |
|
|
|
2,248,801 |
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expenses |
|
|
10,700,793 |
|
|
|
10,914,615 |
|
|
|
10,802,765 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
5,188,114 |
|
|
|
4,543,105 |
|
|
|
4,040,639 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FEDERAL INCOME TAX PROVISION |
|
|
1,674,200 |
|
|
|
1,433,000 |
|
|
|
1,168,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME |
|
$ |
3,513,914 |
|
|
$ |
3,110,105 |
|
|
$ |
2,872,639 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME PER SHARE |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
1.42 |
|
|
$ |
1.23 |
|
|
$ |
1.09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
1.42 |
|
|
$ |
1.23 |
|
|
$ |
1.09 |
|
|
|
|
|
|
|
|
|
|
|
These consolidated financial statements should be read only in connection with
the accompanying summary of significant accounting policies
and notes to consolidated financial statements.
F-11
CSB BANCORP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
Years Ended December 31, 2007, 2006 and 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
|
|
|
|
other |
|
|
|
|
|
|
Common |
|
|
paid-in |
|
|
Retained |
|
|
Treasury |
|
|
comprehensive |
|
|
|
|
|
|
stock |
|
|
capital |
|
|
earnings |
|
|
stock |
|
|
income (loss) |
|
|
Total |
|
BALANCE AT
DECEMBER 31, 2004 |
|
$ |
16,673,667 |
|
|
$ |
6,413,915 |
|
|
$ |
13,358,321 |
|
|
$ |
(627,119 |
) |
|
$ |
388,723 |
|
|
$ |
36,207,507 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
2,872,639 |
|
|
|
|
|
|
|
|
|
|
|
2,872,639 |
|
Change in net unrealized loss,
net of reclassification
adjustments and related
income tax benefit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(971,610 |
) |
|
|
(971,610 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,901,029 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of 6 shares from treasury |
|
|
|
|
|
|
|
|
|
|
(64 |
) |
|
|
185 |
|
|
|
|
|
|
|
121 |
|
Purchase of 66,469 treasury shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,459,752 |
) |
|
|
|
|
|
|
(1,459,752 |
) |
Cash dividends declared,
$.56 per share |
|
|
|
|
|
|
|
|
|
|
(1,478,646 |
) |
|
|
|
|
|
|
|
|
|
|
(1,478,646 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT
DECEMBER 31, 2005 |
|
|
16,673,667 |
|
|
|
6,413,915 |
|
|
|
14,752,250 |
|
|
|
(2,086,686 |
) |
|
|
(582,887 |
) |
|
|
35,170,259 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
3,110,105 |
|
|
|
|
|
|
|
|
|
|
|
3,110,105 |
|
Change in net unrealized loss,
net of reclassification
adjustments and related
income tax benefit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(731 |
) |
|
|
(731 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,109,374 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense |
|
|
|
|
|
|
13,850 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,850 |
|
Purchase of 79,318 treasury shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,609,416 |
) |
|
|
|
|
|
|
(1,609,416 |
) |
Cash dividends declared,
$.64 per share |
|
|
|
|
|
|
|
|
|
|
(1,613,747 |
) |
|
|
|
|
|
|
|
|
|
|
(1,613,747 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT
DECEMBER 31, 2006 |
|
|
16,673,667 |
|
|
|
6,427,765 |
|
|
|
16,248,608 |
|
|
|
(3,696,102 |
) |
|
|
(583,618 |
) |
|
|
35,070,320 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
3,513,914 |
|
|
|
|
|
|
|
|
|
|
|
3,513,914 |
|
Change in net unrealized gain,
net of reclassification
adjustments and related
income tax provision |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
344,517 |
|
|
|
344,517 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38,928,751 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense |
|
|
|
|
|
|
24,554 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,554 |
|
Issuance of 40 shares from treasury |
|
|
|
|
|
|
|
|
|
|
(586 |
) |
|
|
1,230 |
|
|
|
|
|
|
|
644 |
|
Purchase of 51,597 treasury shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(904,410 |
) |
|
|
|
|
|
|
(904,410 |
) |
Cash dividends declared,
$.72 per share |
|
|
|
|
|
|
|
|
|
|
(1,771,491 |
) |
|
|
|
|
|
|
|
|
|
|
(1,771,491 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT
DECEMBER 31, 2007 |
|
$ |
16,673,667 |
|
|
$ |
6,452,319 |
|
|
$ |
17,990,445 |
|
|
$ |
(4,599,282 |
) |
|
$ |
(239,101 |
) |
|
$ |
36,278,048 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
These consolidated financial statements should be read only in connection with
the accompanying summary of significant accounting policies
and notes to consolidated financial statements.
F-12
CSB BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2007, 2006 and 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
3,513,914 |
|
|
$ |
3,110,105 |
|
|
$ |
2,872,639 |
|
Adjustments to reconcile net income to net cash
provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization of
premises, equipment and software |
|
|
685,832 |
|
|
|
692,461 |
|
|
|
758,310 |
|
Deferred income taxes |
|
|
(131,300 |
) |
|
|
198,675 |
|
|
|
408,837 |
|
Provision for loan losses |
|
|
472,100 |
|
|
|
301,667 |
|
|
|
282,664 |
|
Gain on sale of loans,net |
|
|
(18,348 |
) |
|
|
(12,078 |
) |
|
|
(23,502 |
) |
Securities (gain) loss |
|
|
(16,830 |
) |
|
|
56,800 |
|
|
|
(247,047 |
) |
(Gain) loss on sale of other real estate owned,net |
|
|
994 |
|
|
|
25,640 |
|
|
|
(10,000 |
) |
Security amortization, net of accretion |
|
|
26,141 |
|
|
|
47,328 |
|
|
|
83,699 |
|
Federal Home Loan Bank stock dividends |
|
|
|
|
|
|
(158,900 |
) |
|
|
(156,600 |
) |
Secondary market loan sale proceeds |
|
|
1,474,148 |
|
|
|
1,231,578 |
|
|
|
2,868,967 |
|
Originations of secondary market loans
held-for-sale |
|
|
(1,455,800 |
) |
|
|
(1,219,500 |
) |
|
|
(2,845,465 |
) |
Stock compensation expense |
|
|
24,554 |
|
|
|
13,850 |
|
|
|
|
|
Effects of changes in operating assets
and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred loan (fees) costs |
|
|
7,495 |
|
|
|
21,130 |
|
|
|
(39,536 |
) |
Accrued interest receivable |
|
|
4,717 |
|
|
|
(82,270 |
) |
|
|
(201,106 |
) |
Accrued interest payable |
|
|
24,910 |
|
|
|
106,691 |
|
|
|
41,649 |
|
Other assets and liabilities |
|
|
(317,533 |
) |
|
|
485,802 |
|
|
|
125,107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
$ |
4,294,994 |
|
|
$ |
4,818,979 |
|
|
$ |
3,918,616 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Securities available-for-sale: |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from maturities and repayments |
|
$ |
15,634,028 |
|
|
$ |
12,867,830 |
|
|
$ |
15,056,944 |
|
Proceeds from sale |
|
|
|
|
|
|
3,943,200 |
|
|
|
5,094,640 |
|
Purchases |
|
|
(19,406,047 |
) |
|
|
(5,778,145 |
) |
|
|
(26,295,553 |
) |
Loan originations, net of repayments |
|
|
(25,027,508 |
) |
|
|
(17,606,716 |
) |
|
|
(2,067,227 |
) |
Proceeds from sale of other real estate |
|
|
196,881 |
|
|
|
454,000 |
|
|
|
195,000 |
|
Property, equipment and software acquisitions |
|
|
(492,856 |
) |
|
|
(283,749 |
) |
|
|
(624,692 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
$ |
(29,095,502 |
) |
|
$ |
(6,403,580 |
) |
|
$ |
(4,506,434 |
) |
|
|
|
|
|
|
|
|
|
|
F-13
CSB BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2007, 2006 and 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Net change in deposits |
|
$ |
(791,630 |
) |
|
$ |
4,774,955 |
|
|
$ |
7,451,998 |
|
Net change in short-term borrowings |
|
|
(300,000 |
) |
|
|
|
|
|
|
5,000,000 |
|
Net change in securities sold under
repurchase agreements |
|
|
(416,920 |
) |
|
|
6,604,461 |
|
|
|
3,101,143 |
|
Federal Home Loan Bank borrowings: |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds |
|
|
24,000,000 |
|
|
|
|
|
|
|
|
|
Repayments |
|
|
(475,511 |
) |
|
|
(5,568,441 |
) |
|
|
(10,667,396 |
) |
Purchase of treasury shares |
|
|
(904,410 |
) |
|
|
(1,609,416 |
) |
|
|
(1,459,752 |
) |
Issuance of treasury shares |
|
|
644 |
|
|
|
|
|
|
|
|
|
Cash dividends paid |
|
|
(1,771,491 |
) |
|
|
(1,613,747 |
) |
|
|
(1,822,491 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
$ |
19,340,682 |
|
|
$ |
2,587,812 |
|
|
$ |
1,593,502 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS |
|
|
(5,459,826 |
) |
|
|
1,003,212 |
|
|
|
1,005,684 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR |
|
|
17,653,188 |
|
|
|
16,649,976 |
|
|
|
15,644,292 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT
END OF YEAR |
|
$ |
12,193,362 |
|
|
$ |
17,653,188 |
|
|
$ |
16,649,976 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES |
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
$ |
7,879,829 |
|
|
$ |
6,770,600 |
|
|
$ |
4,770,048 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes |
|
|
2,065,000 |
|
|
|
965,000 |
|
|
|
665,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncash investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Transfer of loans to other real estate owned |
|
$ |
299,575 |
|
|
$ |
39,640 |
|
|
$ |
625,000 |
|
|
|
|
|
|
|
|
|
|
|
These consolidated financial statements should be read only in connection with
the accompanying summary of significant accounting policies
and notes to consolidated financial statements.
F-14
CSB BANCORP, INC.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CSB Bancorp, Inc. (the Company) was incorporated in 1991 in the State of Ohio and is a registered
bank holding company for its wholly-owned subsidiaries, The Commercial and Savings Bank (the Bank)
and CSB Investment Services, LLC. The Company, through its subsidiaries, operates in one industry
segment; the commercial banking industry.
The Bank, an Ohio-chartered bank organized in 1879, provides financial services through its ten
Banking Centers located in Millersburg, Ohio, and nearby communities. These communities are the
source of substantially all deposit, loan and trust activities. The majority of the Banks income
is derived from commercial and retail lending activities and investments in securities. Its
primary deposit products are checking, savings, and term certificate accounts, and its primary
lending products are residential mortgage, commercial, and installment loans. Substantially, all
loans are secured by specific items of collateral including business assets, consumer assets and
real estate. Commercial loans are expected to be repaid from cash flow from operations of
business. Real estate loans are secured by both residential and commercial real estate.
Significant accounting policies followed by the Company are presented below:
USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS
In preparing consolidated financial statements in conformity with U.S. generally accepted
accounting principles, management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the date of the balance sheet and reported amounts
of revenues and expenses during each reporting period. Actual results could differ from those
estimates. The most significant estimate susceptible to change in the near term relates to
managements determination of the allowance for loan losses.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and its wholly-owned
subsidiaries. All significant inter-company balances and transactions have been eliminated in
consolidation.
The Bank has established a trust department and the assets held by the Bank in fiduciary or agency
capacities for its customers are not included in the consolidated balance sheets as such items are
not assets of the Bank.
CASH AND CASH EQUIVALENTS
For purposes of the consolidated statements of cash flows, cash and cash equivalents include cash
on hand, amounts due from banks, and federal funds sold which mature overnight or within three
days.
CASH RESERVE REQUIREMENTS
The Bank is required by the Federal Reserve to maintain reserves consisting of cash on hand and
noninterest-earning balances on deposit with the Federal Reserve Bank. The required reserve
balance at December 31, 2007 and 2006 was $3,128,000 and $2,780,000, respectively.
F-15
CSB BANCORP, INC.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SECURITIES
Securities designated as available-for-sale are carried at fair value with unrealized gains and
losses, net of applicable income taxes, on such securities recognized as other comprehensive income
(loss).
The amortized cost of debt securities is adjusted for amortization of premiums and accretion of
discounts to maturity based on the interest method. Such amortization and accretion is included in
interest and dividends on securities.
Investments in Federal Home Loan Bank and Federal Reserve Bank stock are classified as restricted
securities, carried at cost, and evaluated for impairment.
Gains and losses on sales of securities are accounted for on a trade date basis, using the specific
identification method, and are included in non-interest income. Securities are written down to
fair value when a decline in fair value is considered other than temporary.
LOANS
Loans that management has the intent and ability to hold for the foreseeable future, or until
maturity or pay-off, generally are stated at their outstanding principal amount, adjusted for
charge-offs, the allowance for loan losses and any deferred loan fees or costs on originated loans.
Interest is accrued based upon the daily outstanding principal balance. Loan origination fees and
certain direct origination costs are capitalized and recognized as an adjustment of the yield over
the life of the related loan.
Interest income is not reported when full repayment is in doubt, typically when the loan is
impaired or payments are past due over 90 days. All interest accrued but not collected for loans
that are placed on nonaccrual or charged-off is reversed against interest income. The interest on
these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return
to accrual. Loans are returned to accrual status when all the principal and interest amounts
contractually due are brought current and future payments are reasonably assured.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established as losses are estimated to have occurred through a
provision for loan losses charged to income. Loan losses are charged against the allowance when
management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if
any, are credited to the allowance.
The allowance for loan losses is evaluated on a regular basis by management and is based upon
managements periodic review of the collectibility of the loans in light of historical experience,
the nature and volume of the loan portfolio, adverse situations that may affect the borrowers
ability to repay, estimated value of any underlying collateral and prevailing economic conditions.
This evaluation is inherently subjective as it requires estimates that are susceptible to
significant revision as more information becomes available.
F-16
CSB BANCORP, INC.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ALLOWANCE FOR LOAN LOSSES (CONTINUED)
A loan is considered impaired when, based on current information and events, it is probable that
the Bank will be unable to collect the scheduled payments of principal or interest when due
according to the contractual terms of the loan agreement. Factors considered by management in
determining impairment include payment status, collateral value, and the probability of collecting
scheduled principal and interest payments when due. Loans that experience insignificant payment
delays and payment shortfalls generally are not classified as impaired. Management determines the
significance of payment delays and payment shortfalls on a case-by-case basis, taking into
consideration all of the circumstances surrounding the loan and the borrower, including the length
of the delay, the reasons for the delay, the borrowers prior payment record, and the amount of the
shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan
basis for commercial, commercial real estate, and construction loans by either the present value of
expected future cash flows discounted at the loans effective interest rate, the loans obtainable
market price, or the fair value of the collateral if the loan is collateral dependent.
Large groups of smaller balance homogeneous loans are collectively evaluated for impairment.
Accordingly, the Bank does not separately identify individual consumer and residential loans for
impairment disclosures.
OTHER REAL ESTATE OWNED
Other real estate acquired through or in lieu of foreclosure is initially recorded at the lower of
cost or fair value, less estimated costs to sell, and any loan balance in excess of fair value is
charged to the allowance for loan losses. Subsequent valuations are periodically performed and
write-downs are included in other operating expense, as are gains or losses upon sale and expenses
related to maintenance of the properties. Other real estate owned amounted to $101,700 at December
31, 2007. There was no other real estate owned at December 31, 2006.
PREMISES AND EQUIPMENT
Premises and equipment is stated at cost less accumulated depreciation and amortization. Upon the
sale or disposition of the assets, the difference between the depreciated cost and proceeds is
charged or credited to income. Depreciation and amortization is determined based on the estimated
useful lives of the individual assets (typically 20 to 40 years for buildings and 3 to 10 years for
equipment) and is computed using both accelerated and straight-line methods.
REPURCHASE AGREEMENTS
Substantially all securities sold under repurchase agreements represent amounts advanced by various
customers. Securities owned by the Bank are pledged to cover those obligations, which are not
deposits and not covered by federal deposit insurance.
ADVERTISING COSTS
All advertising costs are expensed as incurred.
F-17
CSB BANCORP, INC.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FEDERAL INCOME TAXES
The Company and its subsidiaries file a consolidated tax return. Deferred income taxes are
provided on temporary differences between financial statement and income tax reporting. Temporary
differences are differences between the amounts of assets and liabilities, reported for financial
statement purposes and their tax bases. Deferred tax assets are recognized for temporary
differences that will be deductible in future years tax returns and for operating loss and tax
credit carryforwards. Deferred tax assets are reduced by a valuation allowance if it is deemed
more likely than not that some or all of the deferred tax assets will not be realized. Deferred
tax liabilities are recognized for temporary differences that will be taxable in future years tax
returns.
The Bank is not currently subject to state and local income taxes.
STOCK-BASED COMPENSATION
The Company sponsors a stock-based compensation plan, administered by a committee, under which
incentive stock options may be granted periodically to certain employees. Effective January 1,
2006, CSB adopted FASB Statement No. 123 (revised 2004), Share-Based Payment (FASB No. 123r), using
the modified prospective application method. The modified prospective application method applies to
new awards, to any outstanding liability awards, and to awards modified, repurchased, or cancelled
after January 1, 2006. For all awards granted prior to January 1, 2006, unrecognized compensation
cost, on the date of adoption, will be recognized as an expense in future periods. The results for
prior periods have not been restated.
The adoption of FASB No. 123r reduced net income by $24,554 and $13,850 for the years ended
December 31, 2007 and 2006, respectively. The following table illustrates the effect on net income
and earnings per share if CSB had applied the fair value recognition provisions to stock-based
employee compensation during the prior period presented. For purposes of this pro forma disclosure,
the value of the options is estimated using the Black-Scholes option-pricing model and amortized to
expense over the options vesting period.
Pro forma disclosures of compensation cost of stock-based awards have been determined using the
fair value method that considers the time value of the option considering the volatility of the
Companys stock and the risk-free interest rate over the expected life of the option using a
Black-Scholes valuation model. Had compensation cost for stock options been measured using
Statement of Financial Accounting Standards No. 123r Share-Based Payment, net income and earnings
per share would have been the pro forma amounts indicated below.
|
|
|
|
|
|
|
2005 |
Net income as reported |
|
$ |
2,872,639 |
|
|
|
|
|
|
Pro forma net income |
|
|
2,867,223 |
|
|
|
|
|
|
Basic earnings per share as reported |
|
|
1.09 |
|
|
|
|
|
|
Pro forma basic earnings per share |
|
|
1.09 |
|
|
|
|
|
|
Diluted earnings per share as reported |
|
|
1.09 |
|
|
|
|
|
|
Pro forma diluted earnings per share |
|
|
1.09 |
|
F-18
CSB BANCORP, INC.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
STOCK-BASED COMPENSATION (CONTINUED)
The effects are computed using option pricing models, using the following weighted-average
assumptions as of grant date.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
|
2005 |
Risk-free interest rate |
|
|
n/a |
|
|
|
4.57 |
% |
|
|
n/a |
|
Dividend yield |
|
|
|
|
|
|
3.56 |
% |
|
|
|
|
Volatility |
|
|
|
|
|
|
9 |
% |
|
|
|
|
Expected option life |
|
|
|
|
|
|
3.0 |
yrs. |
|
|
|
|
As of December 31, 2007, there was approximately $18,000 of unrecognized compensation cost related
to unvested share-based compensation awards granted. That cost is expected to be recognized over
the next two years.
Options are granted to certain employees at prices equal to the market value of the stock on the
date the options are granted. The 2002 Plan authorizes the issuance of 75,000 shares. The Plan was
amended April 27, 2005 to authorize the issuance of 200,000 shares. The time period during which
any option is exercisable under the Plan is determined by the committee but shall not continue
beyond the expiration of ten years after the date the option is awarded.
The fair value of each option is amortized into compensation expense on a straight-line basis
between the grant date for the option and each vesting date. CSB estimated the fair value of stock
options on the date of the grant using the Black-Scholes option pricing model. The model requires
the use of numerous assumptions, many of which are highly subjective in nature. Options grants of
29,760 were awarded for the year ended December 31, 2006. No options were granted for the years
ended December 31, 2007 and 2005.
COMPREHENSIVE INCOME
U.S. generally accepted accounting principles require that recognized revenue, expenses, gains and
losses be included in net income. Although certain changes in assets and liabilities, such as
unrealized gains and losses on available-for-sale securities, are reported as a separate component
of the equity section of the balance sheet, such items, along with net income, are components of
comprehensive income.
TRANSFERS OF FINANCIAL ASSETS
Transfers of financial assets are accounted for as sales, when control over the assets has been
surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have
been isolated from the Company, (2) the transferee obtains the right (free of conditions that
constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and
(3) the Bank does not maintain effective control over the transferred assets through an agreement
to repurchase them before their maturity.
F-19
CSB BANCORP, INC.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PER SHARE DATA
Basic net income per share is computed based on the weighted average number of shares of common
stock outstanding during each year. Diluted income per common share includes the dilutive effect
of additional potential common shares issuable under stock options.
The weighted average number of common shares outstanding for basic and diluted earnings per share
computations were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Weighted average common shares
outstanding |
|
|
2,667,786 |
|
|
|
2,667,786 |
|
|
|
2,667,786 |
|
Average treasury shares |
|
|
(200,676 |
) |
|
|
(140,872 |
) |
|
|
(29,089 |
) |
|
|
|
|
|
|
|
|
|
|
Total weighted average common
shares outstanding (basic) |
|
|
2,467,110 |
|
|
|
2,526,914 |
|
|
|
2,638,697 |
|
Dilutive effect of assumed exercise
of stock options |
|
|
702 |
|
|
|
5,678 |
|
|
|
3,604 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding (diluted) |
|
|
2,467,812 |
|
|
|
2,532,592 |
|
|
|
2,642,301 |
|
|
|
|
|
|
|
|
|
|
|
Dividends per share are based on the number of shares outstanding at the declaration date.
There were 42,760 stock options to purchase common stock for $17.50 to $19.00 per share that were
antidilutive at December 31, 2007. There were no antidilutive shares at December 31, 2006 and
2005.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In September 2006, the FASB issued FAS No. 157, Fair Value Measurements, which provides enhanced
guidance for using fair value to measure assets and liabilities. The standard applies whenever
other standards require or permit assets or liabilities to be measured at fair value. The Standard
does not expand the use of fair value in any new circumstances. FAS No. 157 is effective for
financial statements issued for fiscal years beginning after November 15, 2007 and interim periods
within those fiscal years. Early adoption is permitted. The adoption of this standard is not
expected to have a material effect on the Companys results of
operations or financial position.
In February 2007, the FASB issued FAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities including an amendment of FASB Statement No. 115, which provides all
entities with an option to report selected financial assets and liabilities at fair value. The
objective of the FAS No. 159 is to improve financial reporting by providing entities with the
opportunity to mitigate volatility in earnings caused by measuring related assets and liabilities
differently without having to apply the complex provisions of hedge accounting. FAS No. 159 is
effective as of the beginning of an entitys first fiscal year beginning after November 15, 2007.
Early adoption is permitted as of the beginning of a fiscal year that begins on or before November
15, 2007 provided the entity also elects to apply the provisions of FAS No. 157, Fair Value
Measurements. The adoption of this standard is not expected to have a material effect on the
Companys results of operations or financial position.
RECLASSIFICATION OF COMPARATIVE AMOUNTS
Certain comparative amounts from the prior years have been reclassified to conform to current year
classifications. Such classifications had no effect on net income or shareholders equity.
F-20
CSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 SECURITIES
Securities consist of the following at December 31, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
Amortized |
|
|
unrealized |
|
|
unrealized |
|
|
Fair |
|
|
|
cost |
|
|
gains |
|
|
losses |
|
|
value |
|
December 31, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury security |
|
$ |
99,944 |
|
|
$ |
1,704 |
|
|
$ |
|
|
|
$ |
101,648 |
|
Obligations of U.S. Government corporations and
agencies |
|
|
25,498,979 |
|
|
|
18,190 |
|
|
|
7,904 |
|
|
|
25,509,265 |
|
Mortgage-backed securities |
|
|
42,682,972 |
|
|
|
15,639 |
|
|
|
333,666 |
|
|
|
42,364,945 |
|
Obligations of states and
political subdivisions |
|
|
3,098,457 |
|
|
|
60,088 |
|
|
|
|
|
|
|
3,158,545 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities |
|
|
71,380,352 |
|
|
|
95,621 |
|
|
|
341,570 |
|
|
|
71,134,403 |
|
Equity securities |
|
|
401,752 |
|
|
|
665 |
|
|
|
116,990 |
|
|
|
285,427 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
available for-sale |
|
|
71,782,104 |
|
|
|
96,286 |
|
|
|
458,560 |
|
|
|
71,419,830 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock |
|
|
3,105,900 |
|
|
|
|
|
|
|
|
|
|
|
3,105,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities |
|
$ |
74,888,004 |
|
|
$ |
96,286 |
|
|
$ |
458,560 |
|
|
$ |
74,525,730 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury security |
|
$ |
99,992 |
|
|
$ |
|
|
|
$ |
172 |
|
|
$ |
99,820 |
|
Obligations of U.S. Government corporations and
agencies |
|
|
33,493,189 |
|
|
|
|
|
|
|
576,494 |
|
|
|
32,916,695 |
|
Mortgage-backed securities |
|
|
28,453,336 |
|
|
|
591 |
|
|
|
405,963 |
|
|
|
28,047,964 |
|
Obligations of states and
political subdivisions |
|
|
5,666,915 |
|
|
|
103,482 |
|
|
|
1,103 |
|
|
|
5,769,294 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities |
|
|
67,713,432 |
|
|
|
104,073 |
|
|
|
983,732 |
|
|
|
66,833,773 |
|
Equity securities |
|
|
305,965 |
|
|
|
8,194 |
|
|
|
12,806 |
|
|
|
301,353 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available for-sale |
|
|
68,019,397 |
|
|
|
112,267 |
|
|
|
996,538 |
|
|
|
67,135,126 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock |
|
|
3,105,900 |
|
|
|
|
|
|
|
|
|
|
|
3,105,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities |
|
$ |
71,125,297 |
|
|
$ |
112,267 |
|
|
$ |
996,538 |
|
|
$ |
70,241,026 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-21
CSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 SECURITIES (CONTINUED)
The amortized cost and fair value of securities at December 31, 2007, by contractual maturity, are
shown below. Actual maturities may differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment penalties.
|
|
|
|
|
|
|
|
|
|
|
Amortized |
|
|
Fair |
|
|
|
cost |
|
|
value |
|
Available-for-sale: |
|
|
|
|
|
|
|
|
Due in one year or less |
|
$ |
3,579,935 |
|
|
$ |
3,604,660 |
|
Due after one through five years |
|
|
25,739,772 |
|
|
|
25,775,551 |
|
Due after five years through ten years |
|
|
3,131,836 |
|
|
|
3,091,771 |
|
Due after ten years |
|
|
38,928,809 |
|
|
|
38,662,421 |
|
|
|
|
|
|
|
|
Total available-for-sale |
|
$ |
71,380,352 |
|
|
$ |
71,134,403 |
|
|
|
|
|
|
|
|
Securities with a carrying value of approximately $50,385,000 and $52,567,000 were pledged at
December 31, 2007 and 2006, respectively, to secure public deposits, as well as other deposits and
borrowings as required or permitted by law.
Restricted stock primarily consists of investments in Federal Home Loan Bank of Cincinnati and
Federal Reserve Bank of Cleveland stock. The Banks investment in Federal Home Loan Bank stock
amounted to $2,835,900 at December 31, 2007 and 2006.
Gross gains realized from sales of previous impairment write-offs of securities available-for-sale
amounted to $16,830 in 2007, $0 in 2006, and $247,047 in 2005, with the income tax provision
applicable to such gains amounting to $5,700 in 2007, $0 in 2006, and $84,000 in 2005. Gross
realized losses of $56,800 from sales of securities available-for-sale were realized in 2006. There
were no gross realized losses in 2007 or 2005. The income tax credit applicable to the loss
recognized in 2006 amounted to $19,300.
F-22
CSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 SECURITIES (CONTINUED)
The following table presents gross unrealized losses and fair value of securities, aggregated by
investment category and length of time that individual securities have been in a continuous
unrealized loss position, at December 31, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities in a Continuous Unrealized Loss Position |
|
|
|
Less Than |
|
|
12 Months |
|
|
|
|
|
|
12 Months |
|
|
or More |
|
|
Total |
|
|
|
Gross |
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
|
Losses |
|
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
|
Value |
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of U.S.
Government
corporations
and agencies |
|
$ |
|
|
|
$ |
|
|
|
$ |
7,904 |
|
|
$ |
14,491,455 |
|
|
$ |
7,904 |
|
|
$ |
14,491,455 |
|
Mortgage-backed
securities |
|
|
112,399 |
|
|
|
21,664,006 |
|
|
|
221,267 |
|
|
|
15,868,261 |
|
|
|
333,666 |
|
|
|
37,532,267 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
securities |
|
|
112,399 |
|
|
|
21,664,006 |
|
|
|
229,171 |
|
|
|
30,359,716 |
|
|
|
341,570 |
|
|
|
52,023,722 |
|
Equity securities |
|
|
54,790 |
|
|
|
171,875 |
|
|
|
62,200 |
|
|
|
109,183 |
|
|
|
116,990 |
|
|
|
281,058 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily
impaired
securities |
|
$ |
167,189 |
|
|
$ |
21,835,881 |
|
|
$ |
291,371 |
|
|
$ |
30,468,899 |
|
|
$ |
458,560 |
|
|
$ |
52,304,780 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of U.S.
Government
corporations
and agencies |
|
$ |
5,620 |
|
|
$ |
1,994,380 |
|
|
$ |
570,874 |
|
|
$ |
30,922,315 |
|
|
$ |
576,494 |
|
|
$ |
32,916,695 |
|
Mortgage-backed
securities |
|
|
34,629 |
|
|
|
7,768,042 |
|
|
|
371,334 |
|
|
|
15,384,068 |
|
|
|
405,963 |
|
|
|
23,152,110 |
|
Obligations of states
and political
subdivisions |
|
|
|
|
|
|
|
|
|
|
1,103 |
|
|
|
250,313 |
|
|
|
1,103 |
|
|
|
250,313 |
|
U.S. Treasury
Security |
|
|
|
|
|
|
|
|
|
|
172 |
|
|
|
99,820 |
|
|
|
172 |
|
|
|
99,820 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
securities |
|
|
40,249 |
|
|
|
9,762,422 |
|
|
|
943,483 |
|
|
|
46,656,516 |
|
|
|
983,732 |
|
|
|
56,418,938 |
|
Equity securities |
|
|
145 |
|
|
|
1,445 |
|
|
|
12,661 |
|
|
|
128,500 |
|
|
|
12,806 |
|
|
|
129,945 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily
impaired
securities |
|
$ |
40,394 |
|
|
$ |
9,763,867 |
|
|
$ |
956,144 |
|
|
$ |
46,785,016 |
|
|
$ |
996,538 |
|
|
$ |
56,548,883 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were thirty-one securities in an unrealized loss position at December 31, 2007, twenty-two of
which were in a continuous loss position for twelve months or more. Management reviews these
securities quarterly. Management has considered industry analyst reports, sector credit reports and
volatility in the bond and equity markets in concluding that the unrealized losses as of
December 31, 2007 were primarily the result of customary and expected fluctuations in the markets.
As a result, all security impairments as of December 31, 2007 are not considered other than
temporary.
F-23
CSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 LOANS
Loans consist of the following at December 31, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
Commercial |
|
$ |
46,000,089 |
|
|
$ |
55,512,802 |
|
Commercial real estate |
|
|
97,984,830 |
|
|
|
72,706,863 |
|
Residential real estate |
|
|
92,084,807 |
|
|
|
85,933,260 |
|
Installment and credit card |
|
|
8,862,456 |
|
|
|
10,509,913 |
|
Construction |
|
|
11,700,889 |
|
|
|
7,735,618 |
|
Deferred loan costs (fees), net |
|
|
25,988 |
|
|
|
33,482 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans |
|
$ |
256,659,059 |
|
|
$ |
232,431,938 |
|
|
|
|
|
|
|
|
The following represents a summary of the activity in the allowance for loan losses for the years
ended December 31, 2007, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Beginning balance |
|
$ |
2,607,118 |
|
|
$ |
2,445,494 |
|
|
$ |
2,574,945 |
|
Provision for loan losses |
|
|
472,100 |
|
|
|
301,667 |
|
|
|
282,664 |
|
Loans charged-off |
|
|
(612,723 |
) |
|
|
(309,644 |
) |
|
|
(575,556 |
) |
Recoveries |
|
|
119,406 |
|
|
|
169,601 |
|
|
|
163,441 |
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
2,585,901 |
|
|
$ |
2,607,118 |
|
|
$ |
2,445,494 |
|
|
|
|
|
|
|
|
|
|
|
Impaired loans were as follows for December 31, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
Year-end loans with no allowance for
loan losses allocated |
|
$ |
|
|
|
$ |
|
|
Year-end loans with allowance for loan
losses allocated |
|
|
198,286 |
|
|
|
987,897 |
|
Amount of the allowance allocated |
|
|
42,773 |
|
|
|
326,705 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
|
2005 |
Average of impaired loans during the year |
|
$ |
729,699 |
|
|
$ |
700,202 |
|
|
$ |
576,907 |
|
Interest income recognized during impairment |
|
|
25,876 |
|
|
|
25,717 |
|
|
|
2,764 |
|
Cash-basis interest income recognized |
|
|
25,674 |
|
|
|
24,762 |
|
|
|
472 |
|
Accrued interest not recognized |
|
|
35,166 |
|
|
|
33,188 |
|
|
|
36,404 |
|
Nonperforming loans, including certain impaired loans and smaller balance homogenous loans such as
residential mortgage and consumer loans that are collectively evaluated for impairment, were as
follows at December 31, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
Loans past due over 90 days still accruing interest |
|
$ |
144,339 |
|
|
$ |
|
|
Nonaccrual loans |
|
|
426,706 |
|
|
|
1,508,577 |
|
Loans serviced for others approximated $19,349,000 and $20,675,900 at December 31, 2007 and 2006,
respectively.
F-24
CSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 PREMISES AND EQUIPMENT
Premises and equipment consist of the following at December 31, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
Land and improvements |
|
$ |
1,007,927 |
|
|
$ |
1,007,927 |
|
Buildings and improvements |
|
|
8,499,044 |
|
|
|
8,616,211 |
|
Furniture and equipment |
|
|
4,753,393 |
|
|
|
5,453,248 |
|
Leasehold improvements |
|
|
172,483 |
|
|
|
79,979 |
|
|
|
|
|
|
|
|
|
|
|
14,432,847 |
|
|
|
15,157,365 |
|
Accumulated depreciation |
|
|
7,159,609 |
|
|
|
7,767,183 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premises and equipment, net |
|
$ |
7,273,238 |
|
|
$ |
7,390,182 |
|
|
|
|
|
|
|
|
The Bank leases certain office locations. Total rental expense under these leases approximated
$125,000, $87,000, and $84,000 in 2007, 2006, and 2005, respectively. Future minimum lease
payments at December 31, 2007 aggregate $403,000 and are due as follows: 2008, $111,500; 2009,
$100,200; 2010, $101,400; 2011, $78,200; and 2012, $11,700.
Depreciation expense amounted to $583,012, $565,389, and $594,620 for the years ended December 31,
2007, 2006, and 2005, respectively.
NOTE 4 INTEREST-BEARING DEPOSITS
Interest-bearing deposits at December 31, 2007 and 2006 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
Demand |
|
$ |
48,922,949 |
|
|
$ |
50,602,872 |
|
Savings |
|
|
41,027,057 |
|
|
|
39,370,654 |
|
Time deposits: |
|
|
|
|
|
|
|
|
In excess of $100,000 |
|
|
34,282,194 |
|
|
|
32,304,548 |
|
Other |
|
|
89,114,866 |
|
|
|
93,444,467 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits |
|
$ |
213,347,066 |
|
|
$ |
215,722,541 |
|
|
|
|
|
|
|
|
At December 31, 2007, stated maturities of time deposits were as follows:
|
|
|
|
|
2008 |
|
$ |
104,037,947 |
|
2009 |
|
|
5,368,426 |
|
2010 |
|
|
7,731,092 |
|
2011 |
|
|
1,816,232 |
|
2012 |
|
|
4,410,151 |
|
2013 and beyond |
|
|
33,212 |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
123,397,060 |
|
|
|
|
|
F-25
CSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5
BORROWINGS
Short-term borrowings
Short-term borrowings include overnight repurchase agreements, Federal funds purchased and
short-term advances through the Federal Home Loan Bank (FHLB). The outstanding balances and related
information for short-term borrowings are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
Balance at year-end |
|
$ |
27,305,157 |
|
|
$ |
28,022,077 |
|
Average balance outstanding |
|
|
29,950,025 |
|
|
|
32,974,064 |
|
Maximum month-end balance |
|
|
34,371,093 |
|
|
|
41,468,292 |
|
Weighted-average rate at year-end |
|
|
3.49 |
% |
|
|
3.71 |
% |
Weighted-average rate during the year |
|
|
3.96 |
|
|
|
3.84 |
|
Average balances outstanding during the year represent daily average balances, and average interest
rates represent interest expenses divided by the related average balances.
Other borrowings
The following table sets forth information concerning other borrowings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
average |
|
Stated interest rate |
|
|
|
|
Maturity range |
|
interest |
|
range |
|
At December 31, |
Description |
|
from |
|
To |
|
rate |
|
from |
|
to |
|
2007 |
|
2006 |
|
Fixed rate |
|
|
11/23/09 |
|
|
|
12/21/17 |
|
|
|
3.97 |
% |
|
|
3.48 |
% |
|
|
4.60 |
% |
|
$ |
24,000,000 |
|
|
$ |
|
|
Fixed rate
amortizing |
|
|
1/01/08 |
|
|
|
3/01/17 |
|
|
|
6.45 |
% |
|
|
5.60 |
% |
|
|
7.15 |
% |
|
|
2,023,888 |
|
|
|
2,499,399 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
26,023,888 |
|
|
$ |
2,499,399 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturities of other borrowings at December 31, 2007, are summarized as follows:
|
|
|
|
|
|
|
|
|
Year Ending |
|
|
|
|
| |
Weighted- |
|
December 31, |
|
Amount |
|
| |
Average Rate |
|
2008 |
|
$ |
417,127 |
|
|
|
6.42 |
% |
2009 |
|
|
6,369,517 |
|
|
|
4.20 |
|
2010 |
|
|
6,322,234 |
|
|
|
4.65 |
|
2011 |
|
|
247,456 |
|
|
|
6.47 |
|
2012 |
|
|
187,551 |
|
|
|
6.47 |
|
2013 and beyond |
|
|
12,480,003 |
|
|
|
3.73 |
|
|
|
|
|
|
|
|
|
|
|
$ |
26,023,888 |
|
|
|
4.06 |
% |
|
|
|
|
| |
|
|
Monthly principal and interest payments are due on the fixed rate amortizing borrowings;
additionally a 10% principal curtailment is due on the borrowings anniversary date. FHLB
borrowings are secured by a blanket collateral agreement. At December 31, 2007 the Company has the
capacity to borrow an additional $36.7 million from the FHLB.
F-26
CSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 INCOME TAXES
The provision for income taxes consists of the following for the years ended December 31, 2007,
2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Current |
|
$ |
1787,250 |
|
|
$ |
1,234,325 |
|
|
$ |
759,163 |
|
Deferred |
|
|
(113,050 |
) |
|
|
198,675 |
|
|
|
408,837 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax provision |
|
$ |
1,674,200 |
|
|
$ |
1,433,000 |
|
|
$ |
1,168,000 |
|
|
|
|
|
|
|
|
|
|
|
The income tax provision attributable to income from operations differs from the amounts computed
by applying the statutory federal income tax rate of 34% to income before income taxes as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Expected provision using statutory
federal income tax rate |
|
$ |
1,763,900 |
|
|
$ |
1,544,700 |
|
|
$ |
1,373,800 |
|
Tax-exempt income on state and municipal
securities and political subdivision loans |
|
|
(94,760 |
) |
|
|
(138,600 |
) |
|
|
(218,400 |
) |
Interest expense associated with carrying
certain state and municipal securities
and political subdivision loans |
|
|
9,400 |
|
|
|
11,800 |
|
|
|
14,300 |
|
Other |
|
|
(4,340 |
) |
|
|
15,100 |
|
|
|
(1,700 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax provision |
|
$ |
1,674,200 |
|
|
$ |
1,433,000 |
|
|
$ |
1,168,000 |
|
|
|
|
|
|
|
|
|
|
|
The tax effects of temporary differences that give rise to deferred tax assets and deferred tax
liabilities at December 31, 2007 and 2006 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
Allowance for loan losses |
|
$ |
722,900 |
|
|
$ |
626,600 |
|
Unrealized loss on securities available-for-sale |
|
|
123,200 |
|
|
|
300,650 |
|
Other |
|
|
15,900 |
|
|
|
26,950 |
|
|
|
|
|
|
|
|
Deferred tax assets |
|
|
862,000 |
|
|
|
954,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation of premises and equipment |
|
|
(309,300 |
) |
|
|
(334,200 |
) |
Federal Home Loan Bank stock dividends |
|
|
(459,600 |
) |
|
|
(459,600 |
) |
Deferred loan fees |
|
|
(80,500 |
) |
|
|
(81,700 |
) |
Other |
|
|
(66,500 |
) |
|
|
(68,200 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities |
|
|
(915,900 |
) |
|
|
(943,700 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax (liability) asset |
|
$ |
(53,900 |
) |
|
$ |
10,500 |
|
|
|
|
|
|
|
|
F-27
CSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 INCOME TAXES (CONTINUED)
The Company had no available alternative minimum tax credit carry forwards at December 31, 2007.
Tax credit carry forwards of approximately $296,000 were utilized during 2006 as the computed
regular tax exceeded the alternative minimum tax.
The Company believes it is more likely than not that the benefit of deferred tax assets will be
realized. Consequently, no valuation allowance for deferred tax assets is deemed necessary at
December 31, 2007 and 2006 in view of certain tax strategies, coupled with the anticipated future
taxable income as evidenced by the Companys earnings potential.
The Company adopted the provisions of FIN No. 48, Accounting for Uncertainty in Income Taxes, an
interpretation of FASB Statement 109, effective January 1, 2007. FIN No. 48 prescribes a
recognition threshold and a measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return. Benefits from tax
positions should be recognized in the financial statements only when it is more likely than not
that the tax position will be sustained upon examination by the appropriate taxing authority that
would have full knowledge of all relevant information. A tax position that meets the
more-likely-than-not recognition threshold is measured at the largest amount of benefit that is
greater than fifty percent likely of being realized upon ultimate settlement. Tax positions that
previously failed to meet the more-likely-than-not recognition threshold should be recognized in
the first subsequent financial reporting period in which that threshold is met. Previously
recognized tax positions that no longer meet the more-likely-than-not recognition threshold should
be derecognized in the first subsequent financial reporting period in which that threshold is no
longer met. FIN No. 48 also provides guidance on the accounting for and disclosure of unrecognized
tax benefits, interest and penalties. Adoption of FIN No. 48 did not have a significant impact on
the Companys financial statements.
NOTE 7 EMPLOYEE BENEFITS
The Company sponsors a contributory 401(k) profit-sharing plan covering substantially all employees
who meet certain age and service requirements. The Plan permits investing in the Companys common
stock subject to various limitations and provides for discretionary profit sharing and matching
contributions. The discretionary profit sharing contribution is determined annually by the Board
of Directors and amounted to 2.75% of each eligible participants compensation for 2007, 2.5% for
2006, and 2% of each eligible participants compensation for 2005. The Plan also provides for a 50%
Bank match of participant contributions up to a maximum of 2% of each participants annual
compensation. Expense under the Plan amounted to approximately $166,700, $232,000, and $159,000
for 2007, 2006 and 2005, respectively.
No stock options were granted in 2007. During 2006, the Board of Directors granted options to
various executive officers of the Company, including options to purchase 29,760 shares of the
Companys common shares at an exercise price of $18.00 per share through March 2016. There were no
stock options granted during 2005.
F-28
CSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 EMPLOYEE BENEFITS (CONTINUED)
The following summarizes stock options activity for the years ended December 31, 2007, 2006 and
2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
Exercise |
|
|
|
|
|
|
Exercise |
|
|
|
|
|
|
Exercise |
|
|
|
Shares |
|
|
Price |
|
|
Shares |
|
|
Price |
|
|
Shares |
|
|
Price |
|
Outstanding at beginning
of year |
|
|
51,245 |
|
|
$ |
17.63 |
|
|
|
21,970 |
|
|
$ |
17.09 |
|
|
|
42,820 |
|
|
$ |
16.09 |
|
Granted |
|
|
|
|
|
|
|
|
|
|
29,760 |
|
|
|
18.00 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(40 |
) |
|
|
(16.05 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(365 |
) |
|
|
(16.05 |
) |
|
|
(485 |
) |
|
|
(16.05 |
) |
|
|
(20,850 |
) |
|
|
(15.04 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end
of year |
|
|
50,840 |
|
|
$ |
17.64 |
|
|
|
51,245 |
|
|
$ |
17.63 |
|
|
|
21,970 |
|
|
$ |
17.09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable
at year-end |
|
|
32,984 |
|
|
$ |
17.45 |
|
|
|
19,788 |
|
|
$ |
17.20 |
|
|
|
18,361 |
|
|
$ |
17.29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average fair
value of options
granted during year |
|
|
|
|
|
|
N/A |
|
|
|
|
|
|
$ |
1.26 |
|
|
|
|
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at December 31, 2007 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Exercisable |
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Weighted |
|
Range of |
|
|
|
|
|
Remaining |
|
|
|
|
|
|
Average |
|
Exercisable |
|
|
|
|
Contractual Life |
|
|
|
|
|
Exercise |
|
Prices |
|
Number |
|
|
(Years) |
|
|
Number |
|
|
Price |
|
$16.05 |
|
|
8,080 |
|
|
|
4.93 |
|
|
|
8,080 |
|
|
$ |
16.05 |
|
17.50 |
|
|
2,000 |
|
|
|
.58 |
|
|
|
2,000 |
|
|
|
17.50 |
|
17.75 |
|
|
10,000 |
|
|
|
.38 |
|
|
|
10,000 |
|
|
|
17.75 |
|
18.00 |
|
|
29,760 |
|
|
|
8.14 |
|
|
|
11,904 |
|
|
|
18.00 |
|
19.00 |
|
|
1,000 |
|
|
|
1.59 |
|
|
|
1,000 |
|
|
|
19.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at year-end |
|
|
50,840 |
|
|
|
5.68 |
|
|
|
32,984 |
|
|
$ |
17.45 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The cash proceeds, tax benefits and intrinsic value related to total stock options exercised during
2007 were $644, $0 and $225. There were no stock options exercised in 2006 or 2005.
F-29
CSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Bank is 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 are primarily
loan commitments to extend credit and letters of credit. These instruments involve, to varying
degrees, elements of credit risk in excess of the amounts recognized in the consolidated balance
sheets. The contract amount of these instruments reflects the extent of involvement the Bank has
in these financial instruments.
The Banks exposure to credit loss in the event of the nonperformance by the other party to the
financial instruments for loan commitments to extend credit and letters of credit is represented by
the contractual amounts of these instruments. The Bank uses the same credit policies in making
loan commitments as it does for on-balance sheet loans.
The following financial instruments whose contract amount represents credit risk were outstanding
at December 31, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
Contract amount |
|
|
|
2007 |
|
|
2006 |
|
Commitments to extend credit |
|
$ |
63,849,000 |
|
|
$ |
69,989,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Letters of credit |
|
$ |
1,310,000 |
|
|
$ |
882,000 |
|
|
|
|
|
|
|
|
Commitments to extend credit are agreements to lend to a customer as long as there is no violation
of any condition established in the contract. Commitments generally have fixed expiration dates or
other termination clauses and may require payment of a fee. Since many of the commitments are
expected to expire without being drawn upon, the total commitment amount does not necessarily
represent future cash requirements. The Bank evaluates each customers credit worthiness on a
case-by-case basis. The amount of collateral, obtained if deemed necessary by the Bank upon
extension of credit, is based on managements credit evaluation of the customer. Collateral held
varies but may include accounts receivable; recognized inventory; property, plant and equipment;
and income-producing commercial properties.
Letters of credit are written conditional commitments issued by the Bank to guarantee the
performance of a customer to a third party and are reviewed for renewal at expiration. All letters
of credit outstanding at December 31, 2007 are due on demand or expire in 2008. The credit risk
involved in issuing letters of credit is essentially the same as that involved in extending loans
to customers. The Bank requires collateral supporting these commitments when deemed appropriate.
F-30
CSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 RELATED-PARTY TRANSACTIONS
In the ordinary course of business, loans are granted by the Bank to executive officers, directors
and their related business interests consistent with Federal Reserve Regulation O. The following
is an analysis of activity of related-party loans for the year ending December 31, 2007:
|
|
|
|
|
|
|
2007 |
|
Balance at beginning of year |
|
$ |
5,147,458 |
|
New loans and advances |
|
|
1,631,913 |
|
Repayments, including loans sold |
|
|
(824,480 |
) |
|
|
|
|
|
|
|
|
|
Balance at end of year |
|
$ |
5,954,891 |
|
|
|
|
|
Deposits from executive officers, directors and their related business interests at December 31,
2007 and 2006 were approximately $3,139,000 and $3,803,000, respectively.
NOTE 10 REGULATORY MATTERS
The Company (on a consolidated basis) and Bank are subject to various regulatory capital
requirements administered by the federal and state banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory, and possibly additional discretionary, actions
by regulators that, if undertaken, could have a direct material effect on the Companys and Banks
financial statements. Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Company and Bank must meet specific capital guidelines that involve
quantitative measures of the assets, liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. The capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Company and
Bank to maintain minimum amounts and ratios (set forth in the following table) of total and Tier 1
capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital
to average assets (as defined). Management believes, as of December 31, 2007 and 2006, that the
Company and Bank met or exceeded all capital adequacy requirements to which they are subject.
As of December 31, 2007, the most recent notification from federal and state banking agencies
categorized the Bank as well capitalized under the regulatory framework for prompt corrective
action. To be categorized as well capitalized an institution must maintain minimum total risk-
based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the following tables. There
are no conditions or events since that notification that Management believes have changed the
Banks category.
F-31
CSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 REGULATORY MATTERS (CONTINUED)
The actual capital amounts and ratios of the Company and Bank as of December 31, 2007 and 2006, are
also presented in the following table (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum |
|
Minimum required |
|
|
|
|
|
|
|
|
|
|
required |
|
to be well |
|
|
|
|
|
|
|
|
|
|
for capital |
|
capitalized under |
|
|
|
|
|
|
|
|
|
|
adequacy |
|
prompt corrective |
|
|
Actual |
|
purposes |
|
action regulations |
|
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
As of December 31, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital (to risk-
weighted assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
39,101 |
|
|
|
16.4 |
% |
|
$ |
19,069 |
|
|
|
8.0 |
% |
|
$ |
23,836 |
|
|
|
10.0 |
% |
Bank |
|
|
36,736 |
|
|
|
15.4 |
|
|
|
19,041 |
|
|
|
8.0 |
|
|
|
23,801 |
|
|
|
10.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier I capital (to risk-
weighted assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
36,515 |
|
|
|
15.3 |
|
|
|
9,534 |
|
|
|
4.0 |
|
|
|
14,301 |
|
|
|
6.0 |
|
Bank |
|
|
34,150 |
|
|
|
14.4 |
|
|
|
9,520 |
|
|
|
4.0 |
|
|
|
14,280 |
|
|
|
6.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier I capital (to
average assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
36,515 |
|
|
|
11.0 |
|
|
|
13,290 |
|
|
|
4.0 |
|
|
|
16,612 |
|
|
|
5.0 |
|
Bank |
|
|
34,150 |
|
|
|
10.3 |
|
|
|
13,271 |
|
|
|
4.0 |
|
|
|
16,589 |
|
|
|
5.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital (to risk-
weighted assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
38,259 |
|
|
|
17.7 |
% |
|
$ |
17,337 |
|
|
|
8.0 |
% |
|
$ |
21,671 |
|
|
|
10.0 |
% |
Bank |
|
|
35,460 |
|
|
|
16.4 |
|
|
|
17,298 |
|
|
|
8.0 |
|
|
|
21,623 |
|
|
|
10.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier I capital (to risk-
weighted assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
35,652 |
|
|
|
16.5 |
|
|
|
8,668 |
|
|
|
4.0 |
|
|
|
13,002 |
|
|
|
6.0 |
|
Bank |
|
|
32,853 |
|
|
|
15.2 |
|
|
|
8,649 |
|
|
|
4.0 |
|
|
|
12,974 |
|
|
|
6.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier I capital (to
average assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
35,652 |
|
|
|
11.1 |
|
|
|
12,816 |
|
|
|
4.0 |
|
|
|
16,020 |
|
|
|
5.0 |
|
Bank |
|
|
32,853 |
|
|
|
10.3 |
|
|
|
12,781 |
|
|
|
4.0 |
|
|
|
15,976 |
|
|
|
5.0 |
|
The Companys primary source of funds with which to pay dividends, are dividends received from the
Bank. The payment of dividends by the Bank to the Company is subject to restrictions by its
regulatory agencies. These restrictions generally limit dividends to current year net income and
prior two-years net retained earnings. Also, dividends may not reduce capital levels below the
minimum regulatory requirements disclosed above. Under these provisions, at January 1, 2008, the
Bank could dividend $1,033,000 to the Company. The Company does not anticipate the financial need
to obtain this approval due to its current cash balances and ability to access the credit markets.
Federal law prevents the Company from borrowing from the Bank unless loans are secured by specific
obligations.
Further, such secured loans are limited to an amount not exceeding 10 percent of the Banks common
stock and capital surplus.
F-32
CSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 CONDENSED PARENT COMPANY FINANCIAL INFORMATION
A summary of condensed financial information of the parent company as of December 31, 2007 and 2006
and for each of the three years in the period ended December 31, 2007 are as follows:
|
|
|
|
|
|
|
|
|
CONDENSED BALANCE SHEETS |
|
2007 |
|
|
2006 |
|
ASSETS |
|
|
|
|
|
|
|
|
Cash deposited with subsidiary bank |
|
$ |
1,748,248 |
|
|
$ |
1,793,833 |
|
Investment in subsidiary bank |
|
|
33,990,029 |
|
|
|
32,271,581 |
|
Securities available-for-sale |
|
|
285,427 |
|
|
|
805,281 |
|
Other assets |
|
|
261,769 |
|
|
|
199,625 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
36,285,473 |
|
|
$ |
35,070,320 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
Other liabilities |
|
$ |
7,425 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
36,278,048 |
|
|
|
35,070,320 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
36,285,473 |
|
|
$ |
35,070,320 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED STATEMENTS |
|
|
|
|
|
|
|
|
|
OF INCOME |
|
2007 |
|
|
2006 |
|
|
2005 |
|
Interest on securities |
|
$ |
16,672 |
|
|
$ |
27,230 |
|
|
$ |
25,273 |
|
Dividends from subsidiary |
|
|
2,500,000 |
|
|
|
3,600,000 |
|
|
|
3,910,886 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income |
|
|
2,516,672 |
|
|
|
3,627,230 |
|
|
|
3,936,159 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
450,030 |
|
|
|
377,769 |
|
|
|
377,211 |
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes and
undistributed equity income
of subsidiary |
|
|
2,066,642 |
|
|
|
3,249,461 |
|
|
|
3,558,948 |
|
|
Income tax benefit |
|
|
(150,000 |
) |
|
|
(125,000 |
) |
|
|
(128,000 |
) |
Equity earnings in subsidiary, net of dividends |
|
|
1,297,272 |
|
|
|
(264,356 |
) |
|
|
(814,309 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
3,513,914 |
|
|
$ |
3,110,105 |
|
|
$ |
2,872,639 |
|
|
|
|
|
|
|
|
|
|
|
F-33
CSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 CONDENSED PARENT COMPANY FINANCIAL INFORMATION (CONTINUED)
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED STATEMENTS OF CASH FLOWS |
|
2007 |
|
|
2006 |
|
|
2005 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
3,513,914 |
|
|
$ |
3,110,105 |
|
|
$ |
2,872,639 |
|
Adjustments to reconcile net income to
cash provided by operations: |
|
|
|
|
|
|
|
|
|
|
|
|
Security accretion |
|
|
(508 |
) |
|
|
(187 |
) |
|
|
(187 |
) |
Securities gain |
|
|
(5,430 |
) |
|
|
|
|
|
|
|
|
Software amortization |
|
|
6,667 |
|
|
|
6,667 |
|
|
|
5,000 |
|
Equity earnings in subsidiary,
net of dividends |
|
|
(1,297,272 |
) |
|
|
264,356 |
|
|
|
814,309 |
|
Stock compensation expense |
|
|
24,554 |
|
|
|
13,850 |
|
|
|
|
|
Change in other assets, liabilities |
|
|
(21,451 |
) |
|
|
3,000 |
|
|
|
(73,879 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating
activities |
|
|
2,220,474 |
|
|
|
3,397,791 |
|
|
|
3,617,882 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of investment securities |
|
|
(95,787 |
) |
|
|
(1,590 |
) |
|
|
(304,376 |
) |
Maturities, calls of investment securities |
|
|
504,985 |
|
|
|
|
|
|
|
|
|
Purchase of software |
|
|
|
|
|
|
|
|
|
|
(20,000 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
investing activities |
|
|
409,198 |
|
|
|
(1,590 |
) |
|
|
(324,376 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of treasury shares |
|
|
(904,410 |
) |
|
|
(1,609,416 |
) |
|
|
(1,459,752 |
) |
Issuance of treasury shares |
|
|
644 |
|
|
|
|
|
|
|
|
|
Cash dividends paid |
|
|
(1,771,491 |
) |
|
|
(1,613,747 |
) |
|
|
(1,822,491 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash used in financing
activities |
|
|
(2,675,257 |
) |
|
|
(3,223,163 |
) |
|
|
(3,282,243 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash |
|
|
(45,585 |
) |
|
|
173,038 |
|
|
|
11,263 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at beginning of year |
|
|
1,793,833 |
|
|
|
1,620,795 |
|
|
|
1,609,532 |
|
|
|
|
|
|
|
|
|
|
|
Cash at end of year |
|
$ |
1,748,248 |
|
|
$ |
1,793,833 |
|
|
$ |
1,620,795 |
|
|
|
|
|
|
|
|
|
|
|
NOTE 12 OTHER COMPREHENSIVE INCOME (LOSS)
The components of other comprehensive income (loss) and related tax effects are as follows for the
years ended December 31, 2007, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Unrealized holding (losses) gain on
available-for-sale securities |
|
$ |
538,825 |
|
|
$ |
(57,908 |
) |
|
$ |
(1,225,090 |
) |
Less reclassification adjustment for securities
Losses (gains) recognized in income |
|
|
(16,830 |
) |
|
|
56,800 |
|
|
|
(247,047 |
) |
|
|
|
|
|
|
|
|
|
|
Net unrealized holding
gains (losses) |
|
|
521,995 |
|
|
|
(1,108 |
) |
|
|
(1,472,137 |
) |
Federal income tax provision (benefit) |
|
|
177,478 |
|
|
|
(377 |
) |
|
|
(500,527 |
) |
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) |
|
$ |
344,517 |
|
|
$ |
(731 |
) |
|
$ |
(971,610 |
) |
|
|
|
|
|
|
|
|
|
|
F-34
CSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 FAIR VALUES OF FINANCIAL INSTRUMENTS
The estimated fair values of recognized financial instruments as of December 31, 2007 and 2006 are
as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
|
|
Carrying |
|
Fair |
|
Carrying |
|
Fair |
|
|
amounts |
|
value |
|
amounts |
|
value |
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
12,193 |
|
|
$ |
12,193 |
|
|
$ |
17,653 |
|
|
$ |
17,653 |
|
Securities |
|
|
74,526 |
|
|
|
74,526 |
|
|
|
70,241 |
|
|
|
70,241 |
|
Loans, net |
|
|
254,073 |
|
|
|
254,623 |
|
|
|
229,825 |
|
|
|
226,830 |
|
Accrued Interest Receivable |
|
|
1,409 |
|
|
|
1,409 |
|
|
|
1,414 |
|
|
|
1,414 |
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
$ |
259,386 |
|
|
$ |
259,612 |
|
|
$ |
260,178 |
|
|
$ |
259,403 |
|
Short-term borrowings |
|
|
27,305 |
|
|
|
27,305 |
|
|
|
28,022 |
|
|
|
28,022 |
|
Other borrowings |
|
|
26,024 |
|
|
|
25,915 |
|
|
|
2,499 |
|
|
|
2,515 |
|
Accrued Interest Payable |
|
|
375 |
|
|
|
375 |
|
|
|
350 |
|
|
|
350 |
|
For purposes of the above disclosures of estimated fair value, the following assumptions were used.
Estimated fair value for cash and due from banks was considered to be carrying value. Estimated
fair value of securities was based on quoted market values for the individual securities or
equivalent securities. Fair value for loans was estimated for portfolios of loans with similar
financial characteristics. Fair value of loans was estimated by discounting future cash flows using
the current rates at which similar loans would be made to borrowers with similar credit ratings and
for similar anticipated maturities. Fair value of non-accrual loans was based on carrying value.
Fair value of core deposits, including demand deposits, savings accounts and certain money market
deposits, was the amount payable on demand. Fair value of fixed-maturity certificates of deposit
was estimated using the rates offered at December 31, 2007 and 2006, for deposits of similar
remaining maturities. Estimated fair value does not include the benefit that results from low-cost
funding provided by the deposit liabilities compared to the cost of borrowing funds in the market.
Overnight federal funds purchased and securities sold under repurchase agreement, classified as
short-term borrowings, are valued at carrying value as they represent liabilities that are due on
demand. Federal Home Loan Bank Advances with terms greater than overnight are fair valued based
upon a discounted cash flow approach. Estimated fair value of accrued interest was determined to
be the carrying amounts since these financial instruments generally represent obligations that are
due on demand.
The Company also has unrecognized financial instruments at December 31, 2007 and 2006. These
financial instruments relate to commitments to extend credit and letters of credit. The aggregated
contract amount of such financial instruments was approximately $65,159,000 at December 31, 2007
and $70,871,000 at December 31, 2006. Such amounts are also considered to be the estimated fair
values.
F-35
CSB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
The fair value estimates of financial instruments are made at a specific point in time based on
relevant market information. These estimates do not reflect any premium or discount that could
result from offering for sale at one time the entire holdings of a particular financial instrument
over the value of anticipated future business and the value of assets and liabilities that are not
considered financial instruments. Since no ready market exists for a significant portion of the
financial instruments, fair value estimates are largely based on judgments after considering such
factors as future expected credit losses, current economic conditions, risk characteristics of
various financial instruments, and other factors. These estimates are subjective in nature and
involve uncertainties and matters of significant judgment and therefore, cannot be determined with
precision. Changes in assumptions could significantly affect these estimates.
NOTE 14 CONTINGENT LIABILITIES
In the normal course of business, the Company and its subsidiary may be involved in various legal
actions, but in the opinion of management and its legal counsel, the ultimate disposition of such
matters is not expected to have a material adverse effect on the consolidated financial statements.
The Company has entered into employment agreements with various officers. Upon the occurrence of
certain types of termination of employment, the Company may be required to make specified severance
payments if termination occurs within a specified period of time, generally two years from the date
of the agreement, or pursuant to certain change in control transactions.
NOTE 15 QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of selected quarterly financial data (unaudited) for the years ended
December 31, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
Diluted |
|
|
|
|
|
|
Net |
|
|
|
|
|
earnings |
|
earnings |
|
|
Interest |
|
interest |
|
Net |
|
per |
|
per |
|
|
income |
|
income |
|
income |
|
share |
|
share |
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First quarter |
|
$ |
5,146,282 |
|
|
$ |
3,255,292 |
|
|
$ |
814,512 |
|
|
$ |
.33 |
|
|
$ |
.33 |
|
Second quarter |
|
|
5,288,509 |
|
|
|
3,275,353 |
|
|
|
956,467 |
|
|
|
.39 |
|
|
|
.39 |
|
Third quarter |
|
|
5,418,095 |
|
|
|
3,389,682 |
|
|
|
863,090 |
|
|
|
.35 |
|
|
|
.35 |
|
Fourth quarter |
|
|
5,378,235 |
|
|
|
3,406,055 |
|
|
|
879,845 |
|
|
|
.35 |
|
|
|
.35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First quarter |
|
$ |
4,708,719 |
|
|
$ |
3,294,273 |
|
|
$ |
773,906 |
|
|
$ |
.30 |
|
|
$ |
.30 |
|
Second quarter |
|
|
5,006,077 |
|
|
|
3,272,933 |
|
|
|
676,653 |
|
|
|
.27 |
|
|
|
.27 |
|
Third quarter |
|
|
5,156,066 |
|
|
|
3,294,090 |
|
|
|
813,564 |
|
|
|
.32 |
|
|
|
.32 |
|
Fourth quarter |
|
|
5,173,890 |
|
|
|
3,306,165 |
|
|
|
845,982 |
|
|
|
.34 |
|
|
|
.34 |
|
F-36
NOTE 16 SUBSEQUENT EVENT
On May 14, 2008, CSB Bancorp, Inc. entered into a definitive agreement and plan of merger whereby
CSB Bancorp, Inc. will acquire Indian Village Bancorp, Inc. (Indian Village), and its
wholly-owned subsidiary, Indian Village Community Bank. Subject to approval by Indian Village
shareholders, receipt of regulatory approvals and satisfaction of other customary closing
conditions, Indian Village will be merged with and into CSB Bancorp, Inc., followed immediately by
the merger of Indian Village Community Bank with and into The Commercial and Savings Bank. Indian
Village Community Bank has banking centers located in each of Gnadenhutten, New Philadelphia and
North Canton, Ohio, and offers a wide range of bank products and services. Under the term of the
agreement, the Company will pay a combination of stock and cash as set forth in the definitive
agreement and plan of merger for each outstanding common share of Indian Village, resulting in
aggregate merger consideration of approximately $7.9 million. The transaction is expected to close
late in the third quarter or early in the fourth quarter of 2008. This transaction will be
accounted for using the purchase method of accounting.
F-37
Index to Indian Village Financial Information
|
|
|
|
|
|
|
Page |
|
Financial Statements at and as of March 31, 2008 (Unaudited): |
|
|
|
|
|
|
|
|
|
|
|
|
F-39 |
|
|
|
|
|
|
|
|
|
F-40 |
|
|
|
|
|
|
|
|
|
F-41 |
|
|
|
|
|
|
|
|
|
F-42 |
|
|
|
|
|
|
|
|
|
F-43 |
|
|
|
|
|
|
Financial Statements at and as of June 30, 2007 and 2006 (Audited): |
|
|
|
|
|
|
|
|
|
|
|
|
F-46 |
|
|
|
|
|
|
|
|
|
F-47 |
|
|
|
|
|
|
|
|
|
F-48 |
|
|
|
|
|
|
|
|
|
F-50 |
|
|
|
|
|
|
|
|
|
F-51 |
|
|
|
|
|
|
|
|
|
F-52 |
|
F-38
INDIAN VILLAGE BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(dollars in thousands, except for per share amounts)
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
June 30, |
|
|
|
2008 |
|
|
2007 |
|
ASSETS |
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
12,470 |
|
|
$ |
2,256 |
|
Federal funds sold |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents |
|
|
12,470 |
|
|
|
2,256 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available-for-sale, at fair value |
|
|
12,886 |
|
|
|
18,223 |
|
Restricted stock, at cost |
|
|
1,972 |
|
|
|
1,933 |
|
|
|
|
|
|
|
|
Total securities |
|
|
14,858 |
|
|
|
20,156 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
|
64,713 |
|
|
|
72,033 |
|
Less allowance for loan losses |
|
|
882 |
|
|
|
881 |
|
|
|
|
|
|
|
|
Net loans |
|
|
63,831 |
|
|
|
71,152 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank owned life insurance |
|
|
2,673 |
|
|
|
2,595 |
|
Premises and equipment, net |
|
|
1,712 |
|
|
|
1,761 |
|
Accrued interest receivable and other assets |
|
|
1,577 |
|
|
|
1,792 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
97,121 |
|
|
$ |
99,712 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
|
Deposits |
|
|
|
|
|
|
|
|
Noninterest-bearing |
|
$ |
1,606 |
|
|
$ |
1,609 |
|
Interest-bearing |
|
|
64,428 |
|
|
|
66,341 |
|
|
|
|
|
|
|
|
Total deposits |
|
|
66,034 |
|
|
|
67,950 |
|
|
|
|
|
|
|
|
|
|
Other borrowings |
|
|
22,560 |
|
|
|
23,423 |
|
Accrued interest payable and other liabilities |
|
|
401 |
|
|
|
500 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
88,995 |
|
|
|
91,873 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
Common stock, $0.01 par value; 5,000,000 authorized
shares; issued 485,237 shares |
|
|
5 |
|
|
|
5 |
|
Additional paid-in capital |
|
|
4,168 |
|
|
|
4,151 |
|
Retained earnings |
|
|
4,835 |
|
|
|
5,080 |
|
Unearned ESOP |
|
|
(168 |
) |
|
|
(189 |
) |
Treasury stock at cost: 46,361 shares in 2008 and
47,805 shares in 2007 |
|
|
(687 |
) |
|
|
(701 |
) |
Accumulated other comprehensive loss |
|
|
(27 |
) |
|
|
(507 |
) |
|
|
|
|
|
|
|
Total shareholders equity |
|
|
8,126 |
|
|
|
7,839 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders Equity |
|
$ |
97,121 |
|
|
$ |
99,712 |
|
|
|
|
|
|
|
|
F-39
INDIAN VILLAGE BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(dollars in thousands, except for per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Interest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, including fees |
|
$ |
1,116 |
|
|
$ |
1,295 |
|
|
$ |
3,459 |
|
|
$ |
3,928 |
|
Securities |
|
|
208 |
|
|
|
271 |
|
|
|
665 |
|
|
|
901 |
|
Other |
|
|
61 |
|
|
|
6 |
|
|
|
89 |
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
|
1,385 |
|
|
|
1,572 |
|
|
|
4,213 |
|
|
|
4,845 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
|
606 |
|
|
|
702 |
|
|
|
1,872 |
|
|
|
2,257 |
|
Short-term borrowings |
|
|
309 |
|
|
|
321 |
|
|
|
943 |
|
|
|
995 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
915 |
|
|
|
1,023 |
|
|
|
2,815 |
|
|
|
3,252 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
470 |
|
|
|
549 |
|
|
|
1,398 |
|
|
|
1,593 |
|
Provision for loan losses |
|
|
98 |
|
|
|
22 |
|
|
|
320 |
|
|
|
396 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision
for loan losses |
|
|
372 |
|
|
|
527 |
|
|
|
1,078 |
|
|
|
1,197 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges on deposit accounts |
|
|
51 |
|
|
|
40 |
|
|
|
170 |
|
|
|
142 |
|
Gain or loss on securities |
|
|
(9 |
) |
|
|
(10 |
) |
|
|
(55 |
) |
|
|
(41 |
) |
Gain on sale of loans |
|
|
9 |
|
|
|
|
|
|
|
36 |
|
|
|
20 |
|
Other income |
|
|
38 |
|
|
|
14 |
|
|
|
96 |
|
|
|
81 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest income |
|
|
89 |
|
|
|
44 |
|
|
|
247 |
|
|
|
202 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
|
235 |
|
|
|
276 |
|
|
|
696 |
|
|
|
806 |
|
Occupancy and equipment expense |
|
|
60 |
|
|
|
91 |
|
|
|
188 |
|
|
|
229 |
|
State franchise tax |
|
|
23 |
|
|
|
23 |
|
|
|
71 |
|
|
|
84 |
|
Professional and director fees |
|
|
69 |
|
|
|
38 |
|
|
|
199 |
|
|
|
196 |
|
Other expenses |
|
|
201 |
|
|
|
182 |
|
|
|
509 |
|
|
|
470 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expenses |
|
|
588 |
|
|
|
610 |
|
|
|
1,663 |
|
|
|
1,785 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
(127 |
) |
|
|
(39 |
) |
|
|
(338 |
) |
|
|
(386 |
) |
Federal income tax provision (benefit) |
|
|
(93 |
) |
|
|
(32 |
) |
|
|
(93 |
) |
|
|
(190 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(34 |
) |
|
$ |
(7 |
) |
|
$ |
(245 |
) |
|
$ |
(196 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings per share |
|
$ |
(0.08 |
) |
|
$ |
(0.02 |
) |
|
$ |
(0.59 |
) |
|
$ |
(0.47 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
F-40
INDIAN VILLAGE BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Balance at beginning of period |
|
$ |
7,921 |
|
|
$ |
8,147 |
|
|
$ |
7,839 |
|
|
$ |
7,903 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
(34 |
) |
|
|
(7 |
) |
|
|
(245 |
) |
|
|
(196 |
) |
Change in net unrealized
gain, net of reclassification
adjustments and related
income tax provision |
|
|
218 |
|
|
|
37 |
|
|
|
480 |
|
|
|
472 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
184 |
|
|
|
30 |
|
|
|
235 |
|
|
|
276 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends paid |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options exercised |
|
|
11 |
|
|
|
|
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Release of Esop shares |
|
|
10 |
|
|
|
27 |
|
|
|
34 |
|
|
|
42 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period |
|
$ |
8,126 |
|
|
$ |
8,204 |
|
|
$ |
8,126 |
|
|
$ |
8,204 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-41
INDIAN
VILLAGE BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
March 31, |
|
|
|
2008 |
|
|
2007 |
|
Net cash from operating activities |
|
$ |
233 |
|
|
$ |
(269 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
Securities available-for-sale: |
|
|
|
|
|
|
|
|
Proceeds from maturities, calls and repayments |
|
|
2,479 |
|
|
|
1,709 |
|
Sales |
|
|
4,690 |
|
|
|
6,483 |
|
Purchases |
|
|
(1,070 |
) |
|
|
|
|
Proceeds from sale of other real estate |
|
|
94 |
|
|
|
30 |
|
Loan originations, net of repayments |
|
|
6,561 |
|
|
|
3,074 |
|
Premises and equipment expenditures, net |
|
|
(12 |
) |
|
|
(14 |
) |
|
|
|
|
|
|
|
Net cash provided by investing activities |
|
|
12,742 |
|
|
|
11,282 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
Net change in deposits |
|
|
(1,916 |
) |
|
|
(7,516 |
) |
Net change in short-term borrowings |
|
|
|
|
|
|
(1,550 |
) |
Repayment of borrowings |
|
|
(863 |
) |
|
|
(974 |
) |
Cash
dividends paid |
|
|
|
|
|
|
(17 |
) |
Issuance of treasury shares |
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used for) financing activities |
|
|
(2,761 |
) |
|
|
(10,057 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents |
|
|
10,214 |
|
|
|
956 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period |
|
|
2,256 |
|
|
|
2,427 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
12,470 |
|
|
$ |
3,383 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures |
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
2,939 |
|
|
$ |
3,198 |
|
Income taxes paid |
|
|
|
|
|
|
|
|
Non-cash investing activity-transfer of loans to OREO |
|
|
100 |
|
|
|
334 |
|
F-42
INDIAN VILLAGE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These interim financial statements are prepared without audit and reflect all adjustments which, in
the opinion of management, are necessary to present fairly the financial position of Indian Village
Bancorp, Inc. (Corporation) at March 31, 2008, and its results of operations and cash flows for
the periods presented. All such adjustments are normal and recurring in nature. The accompanying consolidated financial statements do not purport to
contain all the necessary financial disclosures required by accounting principles generally accepted in the United States of America that might
otherwise be necessary in the circumstances, and should be read in conjunction with the financial statements and notes thereto of the Corporation for
the year ended June 30, 2007. The accounting policies of the
Corporation described in the notes to financial statements contained in the Corporations June 30,
2007 annual report have been consistently followed in preparing these financial statements. The
results of operations for the nine months ended March 31, 2008 are not necessarily indicative of
the results of operations that may be expected for the full year.
The consolidated financial statements include the accounts of the Corporation and its wholly-owned
subsidiaries, Indian Village Community Bank (the Bank) and the Delaware Valley Title, LLC (the
Title Company). The Bank is a one-third owner of Alban Title, LLC (Alban) which is accounted
for under the equity method of accounting. All significant intercompany transactions and balances
have been eliminated.
The Corporations and the Banks revenues, operating income and assets are derived primarily from
the financial institution industry. The Bank is engaged in the business of residential mortgage
lending and consumer banking with operations conducted through its main office located in
Gnadenhutten, Ohio and branch offices in New Philadelphia and North Canton, Ohio. These communities
and the contiguous areas are the source of substantially all the Banks loan and deposit
activities. The majority of the Banks income is derived from residential and consumer lending
activities and investments. The business of the Title Company is to issue title insurance
underwritten by a third party. The Title Company, which was formed on September 12, 2001, did not
have any significant assets or activity as of or for the three and nine months ended March 31,
2008.
To prepare financial statements in conformity with accounting principles generally accepted in the
United States of America, management makes estimates and assumptions based on available
information. These estimates and assumptions affect the amounts reported in the financial
statements and disclosures provided, and future results could differ. The allowance for loan losses
and fair values of financial instruments are particularly subject to change.
The provision for income taxes is based on the effective tax rate expected to be applicable for the
entire year. Income tax expense is the total of the current-year income tax due or refundable and
the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the
F-43
expected future tax amounts for the temporary differences between carrying amounts and tax bases of
assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces
deferred tax assets to the amount expected to be realized. For the three and nine month periods
ended March 31, 2008, the Corporation recorded a valuation allowance to reduce the deferred tax
benefits that would otherwise have been recognized to zero. In the nine month period ended March
31, 2008, the Corporation reversed a valuation allowance for a deferred tax asset related to a
capital-loss carryforward in the amount of approximately $93,000, resulting in an income tax
benefit for the period.
Basic earnings (loss) per common share is net income (loss) divided by the weighted average number
of common shares outstanding during the period. The weighted average number of shares outstanding
during the three and nine months ended March 31, 2008 and used for this calculation was 419,803 and
418,585. The weighted average number of shares outstanding during the three and nine months ended
March 31, 2007 used for this calculation was 416,353 and 415,509. Employee Stock Ownership Plan
(ESOP) shares are considered outstanding for this calculation unless unallocated. Diluted
earnings (loss) per share shows the dilutive effect of additional common shares issuable under
stock options. The weighted average number of shares outstanding during the three and nine months
ended March 31, 2008 used for this calculation was 419,803 and 418,585. The weighted average number
of shares outstanding during the three and nine months ended March 31, 2007 used for this
calculation was 416,353 and 415,509. There was no per share dilution as the result of considering
the stock options for the periods presented. The number of common share equivalents not considered
dilutive for the periods presented were 3,262 for both the three and nine months ended March 31,
2008 and 7,072 for both the three and nine months ended March 31, 2007.
NOTE 2 REGULATORY MATTERS
As a savings and loan holding company, Indian Village is subject to regulation, examination and
oversight by the Office of Thrift Supervision (the OTS). As a state-chartered savings bank,
Indian Village Bank is subject to regulation by the Ohio Division of Financial Institutions (the
ODFI) and the Federal Deposit Insurance Corporation (the FDIC). In March 2008, Indian Village
Bank entered into a consent agreement with respect to a formal supervisory order (the Order) with
the ODFI and the FDIC. Among other things, Indian Village Bank has agreed under the Order to make
certain significant changes to its lending function, funds management practices, and to make policy
and procedural changes, all consistent with continuing to operate Indian Village Bank in a safe and
sound manner. In July 2008, Indian Village entered into a supervisory agreement with the OTS, pursuant to which Indian Village has agreed not to repurchase shares of Indian Village common stock,
pay dividends, or take certain other actions without prior notice to, and approval by, the OTS.
NOTE 3 UNCERTAIN INCOME TAX POSITIONS
The Corporation adopted FASB Interpretation 48 Accounting for Uncertainty in Income Taxes (FIN
48) as of July 1, 2007. A tax position is recognized as a benefit only if it is more likely than
not that the tax position would be sustained in a tax examination, with a tax examination being
presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than
50% likely of being realized on examination. For tax positions not meeting the more likely than
not test, no tax benefit is recorded. The adoption had no effect on the Corporations financial
statements. The Corporation and its subsidiaries are subject to U.S. federal income tax.
F-44
The Corporation is no longer subject to examination by taxing authorities for years before 2003.
The Corporation does not expect the total amount of unrecognized tax benefits to significantly
increase in the next twelve months. The Corporation recognizes interest and/or penalties related to
income tax matters in income tax expense. The Corporation did not have any amounts accrued for
interest and penalties at July 1, 2007.
NOTE 4 ADOPTION OF NEW ACCOUNTING STANDARDS
In February 2006, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 155,
Accounting for Certain Hybrid Financial Instruments, an amendment of SFAS No. 133 and 140. This
Statement changes the accounting for various derivatives and securitized financial assets. This
Statement is effective for all financial instruments acquired, issued, or subject to a
remeasurement (new basis) event occurring after July 1, 2007. Adoption of this standard did not
have a material impact on the Corporations financial statements.
In March 2006, the FASB issued SFAS No. 156, Accounting for Servicing of Financial Assets, an
amendment of SFAS No. 140, which changes the accounting for all loan servicing rights which are
recorded as the result of selling a loan where the seller undertakes an obligation to service the
loan, usually in exchange for compensation. SFAS No. 156 amends current accounting guidance by
requiring the servicing right to be recorded initially at fair value and also permits the
subsequent reporting of these assets at fair value. SFAS No. 156 became effective for the
Corporation as of July 1, 2007. The adoption of this standard did not have a material impact on the
Corporations financial statements.
On November 5, 2007, the SEC issued Staff Accounting Bulletin No. 109, Written Loan Commitments
Recorded at Fair Value through Earnings (SAB 109). Previously, SAB 105, Application of Accounting
Principles to Loan Commitments, stated that in measuring the fair value of a derivative loan
commitment, a company should not incorporate the expected net future cash flows related to the
associated servicing of the loan. SAB 109 supersedes SAB 105 and indicates that the expected net
future cash flows related to the associated servicing of the loan should be included in measuring
fair value for all written loan commitments that are accounted for at fair value through earnings.
SAB 105 also indicated that internally-developed intangible assets should not be recorded as part
of the fair value of a derivative loan commitment, and SAB 109 retains that view. SAB 109 became
effective for the Corporation for derivative loan commitments issued or modified after January 1,
2008. The adoption of this standard did not have a material impact on the Corporations financial
statements.
F-45
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Indian Village Bancorp, Inc.
Gnadenhutten, Ohio
We have audited the accompanying consolidated balance sheets of Indian Village Bancorp, Inc. as of
June 30, 2007 and 2006, and the related consolidated statements of operations, comprehensive income
(loss), shareholders equity and cash flows for the years then ended. These financial statements
are the responsibility of the Corporations management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United
States of America. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Indian Village Bancorp, Inc. as of June 30, 2007 and
2006, and the results of its operations and its cash flows for the years then ended in conformity
with accounting principles generally accepted in the United States of America.
|
|
|
|
|
|
|
|
|
/s/ Crowe Chizek and Company LLC
|
|
|
|
|
|
Crowe Chizek and Company LLC |
|
|
Cleveland, Ohio
October 3, 2007
F-46
INDIAN VILLAGE BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
Years ended June 30, 2007 and 2006
(Dollar amounts in thousands except per share data)
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
ASSETS |
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
1,057 |
|
|
$ |
1,711 |
|
Interest-bearing and overnight deposits in other banks |
|
|
1,199 |
|
|
|
716 |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
2,256 |
|
|
|
2,427 |
|
Securities available for sale, at fair value |
|
|
18,223 |
|
|
|
26,414 |
|
Loans held for sale |
|
|
340 |
|
|
|
|
|
Loans, net of allowance for loan losses |
|
|
70,812 |
|
|
|
77,250 |
|
Federal Home Loan Bank stock |
|
|
1,933 |
|
|
|
1,877 |
|
Loan servicing rights |
|
|
66 |
|
|
|
64 |
|
Real estate owned |
|
|
337 |
|
|
|
150 |
|
Premises and equipment, net |
|
|
1,761 |
|
|
|
1,839 |
|
Bank-owned life insurance |
|
|
2,595 |
|
|
|
2,498 |
|
Accrued interest receivable |
|
|
489 |
|
|
|
540 |
|
Other assets |
|
|
900 |
|
|
|
728 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
99,712 |
|
|
$ |
113,787 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
Deposits |
|
|
|
|
|
|
|
|
Non-interest bearing |
|
$ |
1,609 |
|
|
$ |
1,828 |
|
Interest bearing |
|
|
66,341 |
|
|
|
77,537 |
|
|
|
|
|
|
|
|
Total deposits |
|
|
67,950 |
|
|
|
79,365 |
|
Federal Home Loan Bank advances |
|
|
23,423 |
|
|
|
26,141 |
|
Accrued interest payable |
|
|
362 |
|
|
|
288 |
|
Other liabilities |
|
|
138 |
|
|
|
90 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
91,873 |
|
|
|
105,884 |
|
|
|
|
|
|
|
|
|
|
Shareholders equity |
|
|
|
|
|
|
|
|
Common stock, $.01 par value; 5,000,000 shares
authorized; 485,237 shares issued |
|
|
5 |
|
|
|
5 |
|
Additional paid-in capital |
|
|
4,151 |
|
|
|
4,126 |
|
Retained earnings |
|
|
5,080 |
|
|
|
5,474 |
|
Accumulated other comprehensive income (loss) |
|
|
(507 |
) |
|
|
(781 |
) |
Unearned employee stock ownership plan shares |
|
|
(189 |
) |
|
|
(220 |
) |
Treasury stock, at cost 47,805 and 47,800 shares at
June 30, 2007 and 2006 |
|
|
(701 |
) |
|
|
(701 |
) |
|
|
|
|
|
|
|
Total shareholders equity |
|
|
7,839 |
|
|
|
7,903 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
99,712 |
|
|
$ |
113,787 |
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-47
INDIAN VILLAGE BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Years ended June 30, 2007 and 2006
(Dollar amounts in thousands except per share data)
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
Interest and dividend income |
|
|
|
|
|
|
|
|
Loans, including fees |
|
|
|
|
|
|
|
|
Taxable |
|
$ |
5,142 |
|
|
$ |
4,567 |
|
Tax-exempt |
|
|
13 |
|
|
|
19 |
|
Securities |
|
|
|
|
|
|
|
|
Taxable |
|
|
990 |
|
|
|
911 |
|
Tax-exempt |
|
|
149 |
|
|
|
194 |
|
Interest-bearing deposits and Federal funds sold |
|
|
35 |
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
6,329 |
|
|
|
5,708 |
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
|
|
|
|
|
|
Deposits |
|
|
2,932 |
|
|
|
2,190 |
|
Federal Home Loan Bank advances |
|
|
1,312 |
|
|
|
1,396 |
|
|
|
|
|
|
|
|
|
|
|
4,244 |
|
|
|
3,586 |
|
|
|
|
|
|
|
|
Net interest income |
|
|
2,085 |
|
|
|
2,122 |
|
|
|
|
|
|
|
|
|
|
Provision for loan losses |
|
|
698 |
|
|
|
271 |
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses |
|
|
1,387 |
|
|
|
1,851 |
|
|
|
|
|
|
|
|
|
|
Noninterest income |
|
|
|
|
|
|
|
|
Service charges and other fees |
|
|
202 |
|
|
|
179 |
|
Net gains on sales of loans |
|
|
26 |
|
|
|
59 |
|
Loan servicing fees |
|
|
24 |
|
|
|
34 |
|
Net gains (losses) on sales of securities |
|
|
(40 |
) |
|
|
(3 |
) |
Net gains
(losses) on sales / write-downs of real estate owned |
|
|
(77 |
) |
|
|
(7 |
) |
Increase in cash surrender value of life insurance |
|
|
97 |
|
|
|
85 |
|
Other income |
|
|
10 |
|
|
|
24 |
|
|
|
|
|
|
|
|
|
|
|
242 |
|
|
|
371 |
|
|
|
|
|
|
|
|
|
|
Noninterest expense |
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
|
1,038 |
|
|
|
1,029 |
|
Occupancy and equipment |
|
|
306 |
|
|
|
317 |
|
Professional and consulting fees |
|
|
171 |
|
|
|
110 |
|
Franchise taxes |
|
|
105 |
|
|
|
82 |
|
Data processing |
|
|
193 |
|
|
|
184 |
|
Directors and committee fees |
|
|
71 |
|
|
|
82 |
|
Other expense |
|
|
433 |
|
|
|
417 |
|
|
|
|
|
|
|
|
|
|
|
2,317 |
|
|
|
2,221 |
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
(688 |
) |
|
|
1 |
|
Income tax expense (benefit) |
|
|
(311 |
) |
|
|
(83 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(377 |
) |
|
$ |
84 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per common share |
|
$ |
(0.91 |
) |
|
$ |
0.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per common share |
|
$ |
(0.91 |
) |
|
$ |
0.20 |
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-48
INDIAN VILLAGE BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Years ended June 30, 2007 and 2006
(Dollar amounts in thousands except per share data)
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
Net income (loss) |
|
$ |
(377 |
) |
|
$ |
84 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
Unrealized gains and (losses) on securities available
for sale arising during the period, net of tax of $(127) and $269 |
|
|
248 |
|
|
|
(524 |
) |
Reclassification adjustment for (gains) and
losses included in net income, net of tax benefit of $14 and $1 |
|
|
26 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
274 |
|
|
|
(522 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) |
|
$ |
(103 |
) |
|
$ |
(438 |
) |
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-49
INDIAN VILLAGE BANCORP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
Years ended June 30, 2007 and 2006
(Dollar amounts in thousands except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
Other |
|
|
Unearned |
|
|
|
|
|
|
Total |
|
|
|
Common |
|
|
Paid-In |
|
|
Retained |
|
|
Comprehensive |
|
|
ESOP |
|
|
Treasury |
|
|
Shareholders |
|
|
|
Stock |
|
|
Capital |
|
|
Earnings |
|
|
Income (Loss) |
|
|
Shares |
|
|
Stock |
|
|
Equity |
|
Balance at July 1, 2005 |
|
$ |
5 |
|
|
$ |
4,093 |
|
|
$ |
5,502 |
|
|
$ |
(259 |
) |
|
$ |
(251 |
) |
|
$ |
(726 |
) |
|
$ |
8,364 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
84 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
84 |
|
Change in net unrealized gain (loss) on
securities available for sale, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(522 |
) |
|
|
|
|
|
|
|
|
|
|
(522 |
) |
Purchase of treasury stock, 50 shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
(1 |
) |
Stock options exercised, 940 shares |
|
|
|
|
|
|
|
|
|
|
(13 |
) |
|
|
|
|
|
|
|
|
|
|
26 |
|
|
|
13 |
|
Stock options expense |
|
|
|
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9 |
|
Cash dividends $0.24 per share |
|
|
|
|
|
|
|
|
|
|
(99 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(99 |
) |
Release of 3,201 ESOP shares |
|
|
|
|
|
|
24 |
|
|
|
|
|
|
|
|
|
|
|
31 |
|
|
|
|
|
|
|
55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2006 |
|
|
5 |
|
|
|
4,126 |
|
|
|
5,474 |
|
|
|
(781 |
) |
|
|
(220 |
) |
|
|
(701 |
) |
|
|
7,903 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
(377 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(377 |
) |
Change in net unrealized gain (loss) on
securities available for sale, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
274 |
|
|
|
|
|
|
|
|
|
|
|
274 |
|
Cash dividends $0.04 per share |
|
|
|
|
|
|
|
|
|
|
(17 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17 |
) |
Release of 3,101 ESOP shares |
|
|
|
|
|
|
25 |
|
|
|
|
|
|
|
|
|
|
|
31 |
|
|
|
|
|
|
|
56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2007 |
|
$ |
5 |
|
|
$ |
4,151 |
|
|
$ |
5,080 |
|
|
$ |
(507 |
) |
|
$ |
(189 |
) |
|
$ |
(701 |
) |
|
$ |
7,839 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-50
INDIAN VILLAGE BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended June 30, 2007 and 2006
(Dollar amounts in thousands except per share data)
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
Cash flows from operating activities |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(377 |
) |
|
$ |
84 |
|
Adjustments to reconcile net income
to net cash from operating activities |
|
|
|
|
|
|
|
|
Provision for loan losses |
|
|
698 |
|
|
|
271 |
|
Depreciation |
|
|
92 |
|
|
|
85 |
|
Net amortization of securities |
|
|
(12 |
) |
|
|
(30 |
) |
Federal Home Loan Bank stock dividends |
|
|
(56 |
) |
|
|
(100 |
) |
Increase in cash surrender value of life insurance |
|
|
(97 |
) |
|
|
(85 |
) |
Net realized (gain) loss on sales of securities |
|
|
40 |
|
|
|
3 |
|
Loss on
sales / write-downs of real estate owned |
|
|
77 |
|
|
|
|
|
Loss on sale of fixed assets |
|
|
|
|
|
|
6 |
|
Stock options expense |
|
|
|
|
|
|
9 |
|
Compensation expense on ESOP shares |
|
|
56 |
|
|
|
55 |
|
Net change in: |
|
|
|
|
|
|
|
|
Loans held for sale |
|
|
(340 |
) |
|
|
212 |
|
Accrued interest receivable and other assets |
|
|
(265 |
) |
|
|
(264 |
) |
Accrued expenses and other liabilities |
|
|
122 |
|
|
|
206 |
|
|
|
|
|
|
|
|
Net cash from operating activities |
|
|
(62 |
) |
|
|
452 |
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
Available-for-sale securities: |
|
|
|
|
|
|
|
|
Sales |
|
|
6,483 |
|
|
|
2,217 |
|
Calls and paydowns |
|
|
2,096 |
|
|
|
4,352 |
|
Purchases |
|
|
|
|
|
|
(9,818 |
) |
Loan originations and payments, net |
|
|
5,406 |
|
|
|
(13,213 |
) |
Proceeds from sales of real estate owned |
|
|
70 |
|
|
|
|
|
Proceeds from disposal of premises and equipment |
|
|
|
|
|
|
60 |
|
Premises and equipment expenditures |
|
|
(14 |
) |
|
|
(650 |
) |
|
|
|
|
|
|
|
Net cash from investing activities |
|
|
14,041 |
|
|
|
(17,052 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
Net change in deposits |
|
|
(11,415 |
) |
|
|
17,231 |
|
Net change in short-term FHLB advances |
|
|
(1,550 |
) |
|
|
1,550 |
|
Principal payments on long-term FHLB advances |
|
|
(1,168 |
) |
|
|
(2,002 |
) |
Cash dividends paid |
|
|
(17 |
) |
|
|
(99 |
) |
Tax benefit from stock options exercised |
|
|
|
|
|
|
2 |
|
Proceeds from exercise of stock options |
|
|
|
|
|
|
11 |
|
|
|
|
|
|
|
|
Net cash from financing activities |
|
|
(14,150 |
) |
|
|
16,693 |
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents |
|
|
(171 |
) |
|
|
93 |
|
|
|
|
|
|
|
|
|
|
Beginning cash and cash equivalents |
|
|
2,427 |
|
|
|
2,334 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending cash and cash equivalents |
|
$ |
2,256 |
|
|
$ |
2,427 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information: |
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
4,170 |
|
|
$ |
3,431 |
|
Income taxes paid |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncash transaction: |
|
|
|
|
|
|
|
|
Transfers from loans to real estate owned |
|
$ |
334 |
|
|
$ |
150 |
|
See accompanying notes to consolidated financial statements.
F-51
INDIAN VILLAGE BANCORP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2007 and 2006
(Dollar amounts in thousands except per share data)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations and Principles of Consolidation: The consolidated financial
statements include the accounts of Indian Village Bancorp, Inc. (IVB) and its wholly-owned
subsidiaries, Indian Village Community Bank (Bank), a state chartered bank, and Delaware Valley
Title, LLC (Delaware Valley). The Title Company, which was formed on September 12, 2001, did not
have any significant assets or activity as of or for the years ended June 30, 2007 and 2006. The
Bank is a one-third owner of Alban Title, LLC (Alban) which is accounted for under the equity
method of accounting. These entities are together referred to as the Corporation. Intercompany
transactions and balances are eliminated in consolidation.
The Corporation provides financial services through its offices in Gnadenhutten, New Philadelphia,
and North Canton, Ohio. Its primary deposit products are checking, savings, and term certificate
accounts, and its primary lending products are residential mortgage, installment and commercial
loans. Substantially all loans are secured by specific items of collateral including business
assets, consumer assets, and commercial and residential real estate. Commercial and commercial
real estate loans are expected to be repaid from cash flow from operations of business or
properties. The majority of the Banks income is derived from residential, commercial and consumer
lending activities and investments.
Use of Estimates: To prepare financial statements in conformity with accounting principles
generally accepted in the United States of America, management makes estimates and assumptions
based on available information. These estimates and assumptions affect the amounts reported in the
financial statements and the disclosures provided, and actual results could differ. The allowance
for loan losses, loan servicing rights, and fair values of financial instruments are particularly
subject to change.
Cash Flows: Cash and cash equivalents include cash, deposits with other financial
institutions under 90 days, and federal funds sold. Net cash flows are reported for loan and
deposit transactions and borrowings with original maturities less than 90 days.
Securities: Debt securities are classified as held to maturity and carried at amortized
cost when management has the positive intent and ability to hold them to maturity. Debt securities
are classified as available for sale when they might be sold before maturity. Equity securities
with readily determinable fair values are classified as available for sale. Securities available
for sale are carried at fair value, with unrealized holding gains and losses reported in other
comprehensive income, net of tax.
Interest income includes amortization of purchase premium or discount. Gains and losses on sales
are recorded on the trade date based on the amortized cost of the security sold.
(Continued)
F-52
INDIAN VILLAGE BANCORP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2007 and 2006
(Dollar amounts in thousands except per share data)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Declines in the fair value of the securities below their cost that are other than temporary are
reflected as realized losses. In estimating other-than-temporary losses, management considers the
length of time and extent that fair value has been less than cost, the financial condition and near
term prospects of the issuer, and the Corporations ability and intent to hold the security for a
period sufficient to allow for any anticipated recovery in fair value.
Loans Held for Sale: Loans originated and intended for sale in the secondary market are
carried at the lower of cost or market in the aggregate. Net unrealized losses, if any, are
recorded as a valuation allowance and charged to earnings.
Mortgage loans held for sale are generally sold with servicing rights retained. The carrying value
of mortgage loans sold is reduced by the cost allocated to the servicing right. Gains and losses
on sales of mortgage loans are based on the difference between the selling price and the carrying
value of the related loan sold.
Loans: Loans that management has the intent and ability to hold for the foreseeable future
or until maturity or payoff are reported at the principal balance outstanding, net of deferred loan
fees and costs, and an allowance for loan losses. Interest income is reported on the interest
method and includes amortization of net deferred loan fees and costs over the loan term. Interest
income on mortgage and commercial loans is discontinued at the time the loan is 90 days delinquent
unless the loan is well-secured and in process of collection. Past due status is based on the
contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged-off at an
earlier date if collection of principal or interest is considered doubtful.
All interest accrued but not received for loans placed on nonaccrual is reversed against interest
income. Interest received on such loans is accounted for on the cash-basis or cost-recovery
method, until qualifying for return to accrual. Loans are returned to accrual status when all the
principal and interest amounts contractually due are brought current and future payments are
reasonably assured.
Allowance for Loan Losses: The allowance for loan losses is a valuation allowance for
probable incurred credit losses. Loan losses are charged against the allowance when management
believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are
credited to the allowance. Management estimates the allowance balance required using past loan loss
experience, the nature and volume of the portfolio, information about specific borrower situations
and estimated collateral values, economic conditions, and other factors.
Allocations of the allowance may be made for specific loans, but the entire allowance is available
for any loan that, in managements judgment, should be charged-off.
(Continued)
F-53
INDIAN VILLAGE BANCORP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2007 and 2006
(Dollar amounts in thousands except per share data)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The allowance consists of specific and general components. The specific component relates to loans
that are individually classified as impaired or loans otherwise classified as substandard or
doubtful. The general component covers non-classified loans and is based on historical loss
experience adjusted for current factors.
A loan is impaired when full payment under the loan terms is not expected. Commercial and
commercial real estate loans are individually evaluated for impairment. If a loan is impaired, a
portion of the allowance is allocated so that the loan is reported, net, at the present value of
estimated future cash flows using the loans existing rate or at the fair value of collateral if
repayment is expected solely from the collateral. Large groups of smaller balance homogeneous
loans, such as consumer and residential real estate loans, are collectively evaluated for
impairment, and accordingly, they are not separately identified for impairment disclosures.
Federal Home Loan Bank (FHLB) stock: The Bank is a member of the FHLB system. Members are
required to own a certain amount of stock based on the level of borrowings and other factors, and
may invest in additional amounts. FHLB stock is carried at cost, classified as a restricted
security, and periodically evaluated for impairment based on ultimate recovery of par value. Both
cash and stock dividends are reported as income.
Loan Servicing Rights: Servicing assets represent the allocated value of retained
servicing rights on loans sold. Servicing assets are expensed in proportion to, and over the
period of, estimated net servicing revenues. Fair value is determined using prices for similar
assets with similar characteristics, when available, or based upon discounted cash flows using
market-based assumptions. Any impairment of a grouping is reported as a valuation allowance, to
the extent that fair value is less than the capitalized amount for a grouping.
Servicing fee income is recorded for fees earned for servicing loans. The fees are based on a
contractual percentage of the outstanding principal; or a fixed amount per loan and are recorded as
income when earned.
Real Estate Owned: Real estate acquired through or instead of loan foreclosure is
initially recorded at fair value less estimated costs to sell when acquired, establishing a new
cost basis. If the fair value declines, a valuation allowance is recorded through expense. Costs
after acquisition are expensed.
Premises and Equipment: Land is carried at cost. Premises and equipment are stated at
cost less accumulated depreciation. Depreciation expense is calculated using primarily the
straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized
over the shorter of the life of the asset or the lease term including renewal options that are
reasonably assured. These assets are reviewed for impairment when events indicate the carrying
amount may not be recoverable.
(Continued)
F-54
INDIAN VILLAGE BANCORP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2007 and 2006
(Dollar amounts in thousands except per share data)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Bank Owned Life Insurance: The Corporation has purchased life insurance policies on
certain key executives. Bank owned life insurance is recorded at its cash surrender value, or the
amount that can be realized.
Long-term Assets: Premises and equipment and other long-term assets are reviewed for
impairment when events indicate their carrying amount may not be recoverable from future
undiscounted cash flows. If impaired, the assets are recorded at fair value.
Loan Commitments and Related Financial Instruments: Financial instruments include
off-balance sheet credit instruments, such as commitments to make loans and commercial letters of
credit, issued to meet customer financing needs. The face amount for these items represents the
exposure to loss, before considering customer collateral or ability to repay. Such financial
instruments are recorded when they are funded.
Stock Compensation: Prior to July 1, 2005, the Corporation accounted for stock-based
compensation expense using the intrinsic value method as required by Accounting Principles Board
Opinion 25, Accounting for Stock Issued to Employees and as permitted by Statement of Financial
Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation. As of July 1,
2005, the Corporation adopted SFAS No. 123(R) (revised version of SFAS No. 123) which requires
measurement of compensation cost for all stock-based awards be based on the grant-date fair value
and recognition of compensation cost over the service period of stock-based awards, which is
usually the same as the vesting period. The fair value of stock options is determined using the
Black-Scholes valuation model, which is consistent with the Corporations valuation methodology
previously utilized for options in footnote disclosures required under SFAS No. 123. The
Corporation has adopted SFAS No. 123(R) using the modified prospective method, which provides for
no restatement of prior periods and no cumulative adjustment to equity accounts.
It also provides for expense recognition, for both new and existing stock-based awards, as the
required services are rendered. SFAS No. 123(R) also amends SFAS No. 95, Statement of Cash
Flows, and requires tax benefits relating to excess stock-based compensation deductions be
presented in the statement of cash flows as financing cash inflows.
(Continued)
F-55
INDIAN VILLAGE BANCORP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2007 and 2006
(Dollar amounts in thousands except per share data)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes: Income tax expense is the total of the current year income tax due or
refundable and the change in deferred tax assets and liabilities. Deferred tax assets and
liabilities are the expected future tax amounts for the temporary differences between carrying
amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation
allowance, if needed, reduces deferred tax assets to the amount expected to be realized.
Employee Stock Ownership Plan: The cost of shares issued to the ESOP, but not yet
allocated to participants, is shown as a reduction of shareholders equity. Compensation expense
is based on the market price of shares as they are committed to be released to participant
accounts. Dividends on allocated ESOP shares reduce retained earnings; dividends on unearned ESOP
shares reduce debt and accrued interest.
Earnings Per Common Share: Basic earnings per common share is net income divided by the
weighted average number of common shares outstanding during the period. ESOP shares are considered
outstanding for this calculation unless unearned. Diluted earnings per common share include the
dilutive effect of additional potential common shares issuable under stock options. Earnings and
dividends per share are restated for stock splits and dividends through the date of issue of the
financial statements.
Comprehensive Income: Comprehensive income consists of net income and other comprehensive
income. Other comprehensive income includes unrealized gains and losses on securities available
for sale which are also recognized as a separate component of equity.
Loss Contingencies: Loss contingencies, including claims and legal actions arising in the
ordinary course of business, are recorded as liabilities when the likelihood of loss is probable
and an amount or range of loss can be reasonably estimated. Management does not believe there now
are such matters that will have a material effect on the financial statements.
Dividend Restriction: Banking regulations require maintaining certain capital levels and
may limit or prohibit the amount of dividends to be paid.
Fair Value of Financial Instruments: Fair values of financial instruments are estimated
using relevant market information and other assumptions, as more fully disclosed in a separate
note. Fair value estimates involve uncertainties and matters of significant judgment regarding
interest rates, credit risk, prepayments, and other factors, especially in the absence of broad
markets for particular items. Changes in assumptions or in market conditions could significantly
affect the estimates.
Reclassifications: Some items in the prior year financial statements were reclassified to
conform to the current presentation.
(Continued)
F-56
INDIAN VILLAGE BANCORP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2007 and 2006
(Dollar amounts in thousands except per share data)
NOTE 2 SECURITIES
The fair value of available for sale securities and the related gross unrealized gains and losses
recognized in accumulated other comprehensive income (loss) were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
Fair |
|
|
Unrealized |
|
|
Unrealized |
|
|
|
Value |
|
|
Gains |
|
|
Losses |
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and federal agency |
|
$ |
4,219 |
|
|
$ |
|
|
|
$ |
(165 |
) |
State and municipal |
|
|
4,032 |
|
|
|
|
|
|
|
(202 |
) |
Mortgage-backed |
|
|
9,972 |
|
|
|
4 |
|
|
|
(406 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
18,223 |
|
|
$ |
4 |
|
|
$ |
(773 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and federal agency |
|
$ |
5,806 |
|
|
$ |
4 |
|
|
$ |
(259 |
) |
State and municipal |
|
|
5,557 |
|
|
|
|
|
|
|
(315 |
) |
Mortgage-backed |
|
|
15,051 |
|
|
|
7 |
|
|
|
(620 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
26,414 |
|
|
$ |
11 |
|
|
$ |
(1,194 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
Sales of available for sale securities were as follows: |
|
|
|
|
|
|
Proceeds |
|
$ |
6,483 |
|
|
$ |
2,217 |
|
Gross gains |
|
|
15 |
|
|
|
7 |
|
Gross losses |
|
|
(55 |
) |
|
|
(10 |
) |
(Continued)
F-57
INDIAN VILLAGE BANCORP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2007 and 2006
(Dollar amounts in thousands except per share data)
NOTE 2 SECURITIES (Continued)
The fair value of securities at year end 2007 by contractual maturity were as follows. Actual
maturities may differ from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties. Securities not due at a single
maturity date, primarily mortgage-backed securities are shown separately.
|
|
|
|
|
|
|
Fair |
|
|
|
Value |
|
Due in one year or less |
|
$ |
|
|
Due from one to five years |
|
|
3,008 |
|
Due from five to ten years |
|
|
3,651 |
|
Due after ten years |
|
|
1,592 |
|
Mortgage-backed |
|
|
9,972 |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
18,223 |
|
|
|
|
|
Securities pledged at year end 2007 and 2006 had a carrying amount of $8,451 and $11,800. These
securities were pledged to secure FHLB advances and FHLB stand-by letters of credit.
Securities with unrealized losses at year end 2007 and 2006 aggregated by investment category and
length of time that individual securities have been in a continuous loss position are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 Months |
|
|
12 Months or More |
|
|
Total |
|
2007 |
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
Description of Securities |
|
Value |
|
|
Loss |
|
|
Value |
|
|
Loss |
|
|
Value |
|
|
Loss |
|
U.S.
Government and federal agency |
|
$ |
|
|
|
$ |
|
|
|
$ |
4,219 |
|
|
$ |
(165 |
) |
|
$ |
4,219 |
|
|
$ |
(165 |
) |
State and municipal |
|
|
|
|
|
|
|
|
|
|
4,032 |
|
|
|
(202 |
) |
|
|
4,032 |
|
|
|
(202 |
) |
Mortgage-backed |
|
|
343 |
|
|
|
(2 |
) |
|
|
9,091 |
|
|
|
(404 |
) |
|
|
9,434 |
|
|
|
(406 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired |
|
$ |
343 |
|
|
$ |
(2 |
) |
|
$ |
17,342 |
|
|
$ |
(771 |
) |
|
$ |
17,685 |
|
|
$ |
(773 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Continued)
F-58
INDIAN VILLAGE BANCORP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2007 and 2006
(Dollar amounts in thousands except per share data)
NOTE 2 SECURITIES (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 Months |
|
|
12 Months or More |
|
|
Total |
|
2006 |
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
Description of Securities |
|
Value |
|
|
Loss |
|
|
Value |
|
|
Loss |
|
|
Value |
|
|
Loss |
|
U.S.
Government and federal agency |
|
$ |
1,286 |
|
|
$ |
(19 |
) |
|
$ |
4,135 |
|
|
$ |
(240 |
) |
|
$ |
5,421 |
|
|
$ |
(259 |
) |
State and municipal |
|
|
|
|
|
|
|
|
|
|
5,557 |
|
|
|
(315 |
) |
|
|
5,557 |
|
|
|
(315 |
) |
Mortgage-backed |
|
|
7,627 |
|
|
|
(167 |
) |
|
|
6,332 |
|
|
|
(453 |
) |
|
|
13,959 |
|
|
|
(620 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired |
|
$ |
8,913 |
|
|
$ |
(186 |
) |
|
$ |
16,024 |
|
|
$ |
(1,008 |
) |
|
$ |
24,937 |
|
|
$ |
(1,194 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized losses on debt securities have not been recognized into income because the issuer bonds
are of high credit quality, management has the intent and ability to hold for the foreseeable
future, and the decline in fair value is largely due to changes in market interest rates. The fair
value is expected to recover as the bonds approach their maturity date.
(Continued)
F-59
INDIAN VILLAGE BANCORP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2007 and 2006
(Dollar amounts in thousands except per share data)
NOTE 3 LOANS
Loans at year end were as follows:
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
Real estate loans |
|
|
|
|
|
|
|
|
One- to four-family residential |
|
$ |
37,979 |
|
|
$ |
39,429 |
|
Multi-family residential |
|
|
2,904 |
|
|
|
3,004 |
|
Nonresidential |
|
|
10,417 |
|
|
|
11,603 |
|
Construction and land |
|
|
3,305 |
|
|
|
4,594 |
|
|
|
|
|
|
|
|
|
|
|
54,605 |
|
|
|
58,630 |
|
|
|
|
|
|
|
|
|
|
Consumer loans |
|
|
|
|
|
|
|
|
Home equity loans and lines of credit |
|
|
7,437 |
|
|
|
8,105 |
|
Home improvement |
|
|
3,447 |
|
|
|
3,786 |
|
Automobile |
|
|
1,422 |
|
|
|
2,096 |
|
Loans on deposit accounts |
|
|
521 |
|
|
|
621 |
|
Unsecured |
|
|
339 |
|
|
|
542 |
|
Other |
|
|
2,575 |
|
|
|
2,707 |
|
|
|
|
|
|
|
|
|
|
|
15,741 |
|
|
|
17,857 |
|
|
Municipal loans |
|
|
219 |
|
|
|
197 |
|
Commercial business loans |
|
|
791 |
|
|
|
747 |
|
|
|
|
|
|
|
|
|
|
|
1,010 |
|
|
|
944 |
|
|
|
|
|
|
|
|
|
|
|
71,356 |
|
|
|
77,431 |
|
|
|
|
|
|
|
|
|
|
Less: |
|
|
|
|
|
|
|
|
Net deferred loan fees and costs |
|
|
337 |
|
|
|
391 |
|
Allowance for loan losses |
|
|
(881 |
) |
|
|
(572 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net |
|
$ |
70,812 |
|
|
$ |
77,250 |
|
|
|
|
|
|
|
|
Mortgage loans sold in the secondary market but serviced for others are not reported as assets.
The principal balance of these loans at year-end 2007 and 2006 totaled $8,406 and $7,508.
(Continued)
F-60
INDIAN VILLAGE BANCORP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2007 and 2006
(Dollar amounts in thousands except per share data)
NOTE 3 LOANS (Continued)
Activity in the allowance for loan losses was as follows:
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
Beginning balance |
|
$ |
572 |
|
|
$ |
294 |
|
Provision for loan losses |
|
|
698 |
|
|
|
271 |
|
Loans charged-off |
|
|
(394 |
) |
|
|
(33 |
) |
Recoveries |
|
|
5 |
|
|
|
40 |
|
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
881 |
|
|
$ |
572 |
|
|
|
|
|
|
|
|
Impaired loans were as follows:
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
Year-end
loans with no allocated allowance for loan losses |
|
$ |
676 |
|
|
$ |
|
|
Year-end
loans with allocated allowance for loan losses |
|
|
1,129 |
|
|
|
761 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,805 |
|
|
$ |
761 |
|
|
|
|
|
|
|
|
Amount of the allowance for loan losses allocated |
|
$ |
300 |
|
|
$ |
114 |
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
Average of impaired loans during the year |
|
$ |
1,161 |
|
|
$ |
379 |
|
Interest income recognized during impairment |
|
|
19 |
|
|
|
60 |
|
Cash-basis interest income recognized |
|
|
14 |
|
|
|
53 |
|
Nonperforming assets were as follows:
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
Loans past due over 90 days still on accrual |
|
$ |
|
|
|
$ |
|
|
Other real estate owned |
|
|
337 |
|
|
|
150 |
|
Nonaccrual loans |
|
|
2,139 |
|
|
|
847 |
|
Nonperforming loans includes both smaller balance homogeneous loans that are collectively evaluated
for impairment and individually classified impaired loans. The Board of Directors has prohibited
the Bank from extending any additional funds to any borrowers that have been classified.
(Continued)
F-61
INDIAN VILLAGE BANCORP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2007 and 2006
(Dollar amounts in thousands except per share data)
NOTE 4 PREMISES AND EQUIPMENT
Year-end premises and equipment were as follows:
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
Land |
|
$ |
260 |
|
|
$ |
260 |
|
Buildings and improvements |
|
|
1,212 |
|
|
|
1,212 |
|
Leasehold improvements |
|
|
509 |
|
|
|
509 |
|
Furniture, fixtures and equipment |
|
|
865 |
|
|
|
851 |
|
|
|
|
|
|
|
|
|
|
|
2,846 |
|
|
|
2,832 |
|
Less: Accumulated depreciation |
|
|
(1,085 |
) |
|
|
(993 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,761 |
|
|
$ |
1,839 |
|
|
|
|
|
|
|
|
Depreciation expense was $92 and $85 for 2007 and 2006, respectively.
The Bank has entered into a five year lease agreement for its branch in North Canton, Ohio which
opened in the first quarter of fiscal 2006. The Bank has the option to renew the lease for an
additional five years and also has an option to buy the property until 2013 at $360. Rent
commitments under the operating lease after considering the renewal option are as follows:
|
|
|
|
|
June 30, 2008 |
|
$ |
35 |
|
2009 |
|
|
37 |
|
2010 |
|
|
41 |
|
2011 |
|
|
43 |
|
2012 |
|
|
47 |
|
Thereafter |
|
|
75 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
278 |
|
|
|
|
|
Rent expense for 2007 and 2006 was $32 and $29.
(Continued)
F-62
INDIAN VILLAGE BANCORP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2007 and 2006
(Dollar amounts in thousands except per share data)
NOTE 5 DEPOSITS
Deposits consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
Non-interest bearing demand deposit accounts |
|
$ |
1,609 |
|
|
$ |
1,828 |
|
NOW accounts |
|
|
4,441 |
|
|
|
4,626 |
|
Money market accounts |
|
|
4,843 |
|
|
|
7,064 |
|
Savings accounts |
|
|
5,241 |
|
|
|
5,458 |
|
Certificates of deposit |
|
|
51,816 |
|
|
|
60,389 |
|
|
|
|
|
|
|
|
|
|
|
$ |
67,950 |
|
|
$ |
79,365 |
|
|
|
|
|
|
|
|
Time deposits of $100,000 or more were $20,552 and $25,675 at year end 2007 and 2006, respectively.
Scheduled maturities of time deposits for the next five years were as follows:
|
|
|
|
|
June 30, 2008 |
|
$ |
38,514 |
|
2009 |
|
|
8,857 |
|
2010 |
|
|
1,917 |
|
2011 |
|
|
1,126 |
|
2012 |
|
|
422 |
|
Thereafter |
|
|
980 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
51,816 |
|
|
|
|
|
The Bank had certificates of deposit totaling $5,224 and $9,333 at year-end 2007 and 2006 from a
wholesale funding source.
(Continued)
F-63
INDIAN VILLAGE BANCORP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2007 and 2006
(Dollar amounts in thousands except per share data)
NOTE 6 FEDERAL HOME LOAN BANK ADVANCES
At year end, advances from the Federal Home Loan Bank were as follows:
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
Short-term cash management advances,
variable rate of 5.43% at June 30, 2006 |
|
$ |
|
|
|
$ |
1,550 |
|
Convertible advances, rates ranging from 5.44% to
6.23%, maturities from April 2008 to December 2010 |
|
|
19,500 |
|
|
|
19,500 |
|
Fixed-rate advance, rate of 2.50%, amortizing advance with maturity of March 2009 |
|
|
350 |
|
|
|
550 |
|
Mortgage-matched advances, rates ranging from 3.40%
to 4.80%, amortizing advances with maturities from
November 2011 to November 2016 |
|
|
3,573 |
|
|
|
4,541 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
23,423 |
|
|
$ |
26,141 |
|
|
|
|
|
|
|
|
Required payments over the next five years are:
|
|
|
|
|
June 30, 2008 |
|
$ |
3,095 |
|
2009 |
|
|
1,891 |
|
2010 |
|
|
9,648 |
|
2011 |
|
|
8,066 |
|
2012 |
|
|
442 |
|
Thereafter |
|
|
281 |
|
|
|
|
|
|
|
|
$ |
23,423 |
|
|
|
|
|
As a member of the Federal Home Loan Bank system, the Bank has the ability to obtain borrowings up
to a maximum total of 50% of Bank assets subject to the level of qualified, pledgable one- to
four-family residential real estate loans and Federal Home Loan Bank stock. The interest rates on
the convertible fixed-rate advances are fixed for a specified number of years, then convertible at
the option of the FHLB. If the convertible option is exercised, the advance may be prepaid without
penalty.
Advances under the borrowing agreements were collateralized by approximately $37,548 and $41,579 of
the Banks residential mortgage loans under a blanket lien arrangement at year end 2007 and 2006,
and FHLB stock and other securities as noted in Note 2.
(Continued)
F-64
INDIAN VILLAGE BANCORP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2007 and 2006
(Dollar amounts in thousands except per share data)
NOTE 7 PROFIT SHARING PLAN
Effective January 1, 2000, the Corporation implemented a 401(k) and profit sharing plan for all
eligible employees. To be eligible, an individual must have at least one year of service and must
be 21 or more years old. Eligible employees may contribute up to 15% of their compensation subject
to a maximum statutory limitation. The Corporation matches 100% of those contributions up to a
maximum of 3% of the participants compensation. The Corporation may also make a discretionary
contribution. Employee contributions are always 100% vested. Employer contributions become 20%
vested after the participant completes two years of service. Participant vesting increases 20% for
each additional year of service. The expense related to this plan was approximately $47 for the
year ended 2007 and $43 for the year ended 2006.
NOTE 8 ESOP PLAN
The Corporation has established an employee stock ownership plan (ESOP) for the benefit of
substantially all employees of the Corporation and the Bank. The ESOP borrowed funds from the
Corporation with which to acquire 35,637 common shares of the Corporation. The loan is secured by
the shares purchased with the loan proceeds and will be repaid by the ESOP with funds from the
Banks discretionary contributions to the ESOP, dividends on unallocated shares and earnings on
ESOP assets. The shares purchased with the loan proceeds are held in a suspense account for
allocation among participants as the loan is repaid. When loan payments are made, ESOP shares are
allocated to participants based on relative compensation.
In September 2000, the Corporation declared and paid a $2.00 per share special distribution. The
ESOP purchased an additional 5,783 shares with the proceeds from the special distribution. The
additional shares purchased are held in suspense and allocated to participants in a manner similar
to the original ESOP shares. Additionally, the ESOP purchased and allocated an additional 476
shares in fiscal 2001 with the proceeds from the special distribution, as well as regular
dividends, on allocated shares. In 2005, the ESOP received 4,190 shares of which 1,664 were
associated with allocated shares and 2,526 were associated with unallocated shares from a 10% stock
dividend. There have been 1,296 shares distributed from the plan.
Participants receive shares at the end of employment. A participant may require stock received to
be repurchased by the Corporation unless the stock is traded on an established market.
Contributions to the ESOP during 2007 and 2006 were $41 and $45. ESOP compensation expense was $56
and $55 for years ended 2007 and 2006, respectively.
(Continued)
F-65
INDIAN VILLAGE BANCORP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2007 and 2006
(Dollar amounts in thousands except per share data)
NOTE 8 ESOP PLAN (Continued)
Shares held by the ESOP were as follows:
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
Allocated to participants |
|
|
24,958 |
|
|
|
21,857 |
|
Unearned |
|
|
19,832 |
|
|
|
22,933 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ESOP shares |
|
|
44,790 |
|
|
|
44,790 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of unearned shares |
|
$ |
374 |
|
|
$ |
436 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of allocated shares subject
to repurchase obligation |
|
$ |
470 |
|
|
$ |
415 |
|
|
|
|
|
|
|
|
NOTE 9 INCOME TAXES
Income tax expense (benefit) was as follows:
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
Current tax expense |
|
$ |
(11 |
) |
|
$ |
14 |
|
Deferred tax expense (benefit) |
|
|
(300 |
) |
|
|
(95 |
) |
Change in deferred tax valuation allowance |
|
|
|
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
(311 |
) |
|
$ |
(83 |
) |
|
|
|
|
|
|
|
The difference between the financial statement income tax expense (benefit) and amounts computed by
applying the statutory federal income tax rate of 34% to income before income taxes was as follows:
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
Income taxes computed at the
statutory tax rate on pretax income |
|
$ |
(234 |
) |
|
$ |
|
|
Tax effect of: |
|
|
|
|
|
|
|
|
Tax-exempt income |
|
|
(42 |
) |
|
|
(57 |
) |
Bank-owned life insurance income |
|
|
(33 |
) |
|
|
(29 |
) |
Deferred tax valuation allowance |
|
|
|
|
|
|
(2 |
) |
Nondeductible expenses and other |
|
|
(2 |
) |
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
(311 |
) |
|
$ |
(83 |
) |
|
|
|
|
|
|
|
(Continued)
F-66
INDIAN VILLAGE BANCORP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2007 and 2006
(Dollar amounts in thousands except per share data)
NOTE 9 INCOME TAXES (Continued)
The sources of gross deferred tax assets and gross deferred tax liabilities were as follows:
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
$ |
299 |
|
|
$ |
192 |
|
Unrealized loss on securities
available for sale |
|
|
261 |
|
|
|
402 |
|
Net loan fees |
|
|
18 |
|
|
|
19 |
|
Non-accrual loan interest income |
|
|
38 |
|
|
|
20 |
|
ESOP loan payments |
|
|
29 |
|
|
|
27 |
|
Net operating loss carryforward |
|
|
351 |
|
|
|
171 |
|
Capital loss carryforward |
|
|
93 |
|
|
|
93 |
|
Other |
|
|
31 |
|
|
|
7 |
|
|
|
|
|
|
|
|
Total deferred tax assets |
|
|
1,120 |
|
|
|
931 |
|
Valuation allowance |
|
|
(93 |
) |
|
|
(93 |
) |
|
|
|
|
|
|
|
|
|
|
1,027 |
|
|
|
838 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Depreciation |
|
|
(52 |
) |
|
|
(43 |
) |
FHLB stock dividends |
|
|
(211 |
) |
|
|
(191 |
) |
Other |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities |
|
|
(264 |
) |
|
|
(234 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset |
|
$ |
763 |
|
|
$ |
604 |
|
|
|
|
|
|
|
|
The total net operating loss carryforward of $1,032, which can be used to offset future taxable
income, expires as follows: $200 by June 30, 2023 and $127 by June 30, 2024, and $122 by June 30,
2025, $55 by June 30, 2026 and $528 by June 30, 2027.
Equity securities were sold during fiscal 2006 which produced a net capital loss that can only be
used to offset capital gains through the June 30, 2011 fiscal year. Given that the Corporation
would likely find it difficult to generate the necessary level of capital gains to offset the loss
within this limited utilization period, a valuation allowance has been established against the
deferred tax benefit related to the capital loss carryforward.
(Continued)
F-67
INDIAN VILLAGE BANCORP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2007 and 2006
(Dollar amounts in thousands except per share data)
NOTE 10 RELATED PARTY TRANSACTIONS
Loans to principal officers, directors, and their affiliates in 2007 were as follows:
|
|
|
|
|
Beginning balance |
|
$ |
540 |
|
New loans |
|
|
|
|
Repayments |
|
|
(120 |
) |
|
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
420 |
|
|
|
|
|
Deposits from principal officers, directors, and their affiliates at year end 2007 and 2006 were
$2,240 and $1,174.
NOTE 11 STOCK OPTIONS
Options to buy stock are granted to directors, officers and employees of the Corporation under the
2000 Stock Based Incentive Plan, which provides for the issue of up to 44,558 options. The maximum
option term is ten years. The options vest ratably over five years. Treasury shares are used to
satisfy option exercises.
A summary of the activity in the plan is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
Exercise |
|
|
|
|
|
|
Exercise |
|
|
|
Shares |
|
|
Price |
|
|
Shares |
|
|
Price |
|
Outstanding at
beginning of year |
|
|
30,414 |
|
|
$ |
13.11 |
|
|
|
31,354 |
|
|
$ |
13.08 |
|
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised |
|
|
|
|
|
|
|
|
|
|
(940 |
) |
|
|
12.10 |
|
Forfeited or expired |
|
|
(2,200 |
) |
|
|
19.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at
end of year |
|
|
28,214 |
|
|
$ |
12.64 |
|
|
|
30,414 |
|
|
$ |
13.11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable
at year end |
|
|
27,334 |
|
|
|
|
|
|
|
19,919 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Continued)
F-68
INDIAN VILLAGE BANCORP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2007 and 2006
(Dollar amounts in thousands except per share data)
NOTE 11 STOCK OPTIONS (Continued)
Proceeds and related tax benefits realized from options exercised were as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
June 30, |
|
|
2007 |
|
2006 |
Proceeds of options exercised |
|
|
|
|
|
|
11 |
|
Related tax benefit recognized |
|
|
|
|
|
|
2 |
|
Intrinsic value of options exercised |
|
|
|
|
|
|
6 |
|
As of June 30, 2007, the aggregate intrinsic value of all options outstanding was $176. The
aggregate intrinsic value of all options exercisable was $176.
As of June 30, 2007, there was no compensation expense related to unvested awards not yet
recognized in the financial statements.
Options outstanding at year end 2007 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding |
|
Exercisable |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
Weighted |
|
|
|
|
|
Weighted |
Range of |
|
|
|
|
|
Remaining |
|
Average |
|
|
|
|
|
Average |
Exercise |
|
|
|
|
|
Contractual |
|
Exercise |
|
|
|
|
|
Exercise |
Prices |
|
Number |
|
Life |
|
Price |
|
Number |
|
Price |
$ 12.10 |
|
|
26,014 |
|
|
|
4.25 |
|
|
$ |
12.10 |
|
|
|
26,014 |
|
|
$ |
12.10 |
|
19.05 |
|
|
2,200 |
|
|
|
6.64 |
|
|
|
19.05 |
|
|
|
1,320 |
|
|
|
19.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at year end |
|
|
28,214 |
|
|
|
|
|
|
|
|
|
|
|
27,334 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Continued)
F-69
INDIAN VILLAGE BANCORP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2007 and 2006
(Dollar amounts in thousands except per share data)
NOTE 12 CAPITAL REQUIREMENTS AND RESTRICTIONS ON RETAINED
EARNINGS
Banks are subject to regulatory capital requirements administered by federal banking agencies.
Capital adequacy guidelines and prompt corrective action regulations involve quantitative measures
of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting
practices. Capital amounts and classifications are also subject to qualitative judgments by
regulators. Failure to meet capital requirements can initiate regulatory action.
Prompt corrective action regulations provide five classifications: well capitalized, adequately
capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized,
although these terms are not used to represent overall financial condition. If inadequately
capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized,
capital distributions are limited, as is asset growth and expansion, and capital restoration plans
are required. At year end 2007 and 2006, the most recent regulatory notifications categorized the
Bank as well capitalized under the regulatory framework for prompt corrective action. There are no
conditions or events since that notification that management believes have changed the
institutions category.
Banking regulations limit capital distributions by savings banks. Generally, capital distributions
are limited to undistributed net income for the current and prior two years. Presently, based on
current earnings, dividends cannot be paid to the holding company during the fiscal year ending
June 30, 2008 without regulatory approval.
(Continued)
F-70
INDIAN VILLAGE BANCORP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2007 and 2006
(Dollar amounts in thousands except per share data)
NOTE
12 CAPITAL REQUIREMENTS AND RESTRICTIONS ON RETAINED EARNINGS (Continued)
Actual and required capital amounts and ratios for the Bank are presented below at year end.
Additionally, the Board of Directors has determined that the Bank will maintain Tier 1 capital to
adjusted total assets at or greater than 7%.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To Be Well |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized Under |
|
|
|
|
|
|
|
|
|
|
For Capital |
|
Prompt Corrective |
|
|
Actual |
|
Adequacy Purposes |
|
Action Provisions |
|
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Capital to risk weighted assets |
|
$ |
8,900 |
|
|
|
14.3 |
% |
|
$ |
4,995 |
|
|
|
8.0 |
% |
|
$ |
6,244 |
|
|
|
10.0 |
% |
Tier 1 (Core) Capital to risk
weighted assets |
|
|
8,118 |
|
|
|
13.0 |
|
|
|
2,498 |
|
|
|
4.0 |
|
|
|
3,747 |
|
|
|
6.0 |
|
Tier 1
(Core) Capital to adjusted total assets |
|
|
8,118 |
|
|
|
7.9 |
|
|
|
4,089 |
|
|
|
4.0 |
|
|
|
5,111 |
|
|
|
5.0 |
|
Tangible Capital to
adjusted total assets |
|
|
8,118 |
|
|
|
7.9 |
|
|
|
1,533 |
|
|
|
1.5 |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To Be Well |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized Under |
|
|
|
|
|
|
|
|
|
|
For Capital |
|
Prompt Corrective |
|
|
Actual |
|
Adequacy Purposes |
|
Action Provisions |
|
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Capital to risk weighted assets |
|
$ |
8,983 |
|
|
|
12.9 |
% |
|
$ |
5,554 |
|
|
|
8.0 |
% |
|
$ |
6,492 |
|
|
|
10.0 |
% |
Tier 1
(Core) Capital to risk weighted assets |
|
|
8,411 |
|
|
|
12.1 |
|
|
|
2,777 |
|
|
|
4.0 |
|
|
|
4,165 |
|
|
|
6.0 |
|
Tier 1 (Core) Capital to
adjusted total assets |
|
|
8,411 |
|
|
|
7.5 |
|
|
|
4,492 |
|
|
|
4.0 |
|
|
|
5,615 |
|
|
|
5.0 |
|
Tangible Capital to
adjusted total assets |
|
|
8,411 |
|
|
|
7.5 |
|
|
|
1,685 |
|
|
|
1.5 |
|
|
|
N/A |
|
|
|
|
|
(Continued)
F-71
INDIAN VILLAGE BANCORP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2007 and 2006
(Dollar amounts in thousands except per share data)
NOTE 13 LOAN COMMITMENTS AND CONTINGENCIES
Some financial instruments, such as loan commitments, credit lines, letters of credit, and
overdraft protection, are issued to meet customer financing needs. These are agreements to provide
credit or to support the credit of others, as long as conditions established in the contract are
met, and usually have expiration dates. Commitments may expire without being used.
Off-balance-sheet risk to credit loss exists up to the face amount of these instruments, although
material losses are not anticipated. The same credit policies are used to make such commitments as
are used for loans, including obtaining collateral at exercise of the commitment.
As of year end 2007, variable and fixed rate commitments to make loans or fund outstanding lines of
credit amounted to approximately $2,691 and $2,104. As of year end 2006, variable and fixed rate
commitments to make loans or fund outstanding lines of credit amounted to approximately $3,034 and
$2,553. Since loan commitments may expire without being used, the amounts do not necessarily
represent future cash commitments.
The Corporation has entered into employment agreements with four officers of IVB and the Bank. The
agreements provide for a term of three years and one year and for extensions for a period of one
year on each anniversary date, subject to review and approval of the extensions by disinterested
members of the Board of Directors. The employment agreements also provide for a severance payment
and other benefits upon involuntary termination of employment in connection with any change in
control of IVB and the Bank. A severance package will also be paid on a similar basis in
connection with a voluntary termination of employment where, after the change in control, the
officer is assigned duties inconsistent with his or her position, duties, responsibilities and
status immediately before a change in control. The employment agreements restrict the officers
right to compete against IVB and the Bank for a period of one year from the date of termination of
the agreement if the officer voluntarily terminated employment, except upon a change in control.
(Continued)
F-72
INDIAN VILLAGE BANCORP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2007 and 2006
(Dollar amounts in thousands except per share data)
NOTE 14 FAIR VALUES OF FINANCIAL INSTRUMENTS
Carrying amount and estimated fair values of financial instruments were as follows at year end:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
|
|
Carrying |
|
Fair |
|
Carrying |
|
Fair |
|
|
Amount |
|
Value |
|
Amount |
|
Value |
Financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
2,256 |
|
|
|
2,256 |
|
|
$ |
2,427 |
|
|
$ |
2,427 |
|
Securities available for sale |
|
|
18,223 |
|
|
|
18,223 |
|
|
|
26,414 |
|
|
|
26,414 |
|
Loans held for sale |
|
|
340 |
|
|
|
340 |
|
|
|
|
|
|
|
|
|
Loans, net |
|
|
70,812 |
|
|
|
68,807 |
|
|
|
77,250 |
|
|
|
74,703 |
|
Federal Home Loan Bank stock |
|
|
1,933 |
|
|
|
1,933 |
|
|
|
1,877 |
|
|
|
1,877 |
|
Accrued interest receivable |
|
|
489 |
|
|
|
489 |
|
|
|
540 |
|
|
|
540 |
|
|
Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand and savings deposits |
|
|
(16,134 |
) |
|
|
(16,134 |
) |
|
$ |
(18,976 |
) |
|
|
(18,976 |
) |
Certificates of deposit |
|
|
(51,816 |
) |
|
|
(52,136 |
) |
|
|
(60,389 |
) |
|
|
(60,679 |
) |
Federal Home Loan Bank
advances |
|
|
(23,423 |
) |
|
|
(22,800 |
) |
|
|
(26,141 |
) |
|
|
(25,035 |
) |
Accrued interest payable |
|
|
(362 |
) |
|
|
(362 |
) |
|
|
(288 |
) |
|
|
(288 |
) |
The methods and assumptions used to estimate fair value are described as follows.
Carrying amount is the estimated fair value for cash and cash equivalents, short-term borrowings,
Federal Home Loan Bank stock, accrued interest receivable and payable, demand deposits and variable
rate loans or deposits that reprice frequently and fully. Security fair values are based on market
prices or dealer quotes, and if no such information is available, on the rate and term of the
security and information about the issuer. For fixed rate loans or deposits and for variable rate
loans or deposits with infrequent repricing or repricing limits, fair value is based on discounted
cash flows using current market rates applied to the estimated life and credit risk. Fair values
for impaired loans are estimated using discounted cash flow analysis or underlying collateral
values. Fair value of debt is based on current rates for similar financing. The fair value of
off-balance-sheet items is insignificant.
(Continued)
F-73
INDIAN VILLAGE BANCORP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30, 2007 and 2006
(Dollar amounts in thousands except per share data)
NOTE 15 EARNINGS PER SHARE
The factors used in the earnings per share computation follow.
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
Basic |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(377 |
) |
|
$ |
84 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding |
|
|
437,433 |
|
|
|
437,289 |
|
Less: Average unallocated ESOP shares |
|
|
(21,346 |
) |
|
|
(24,510 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average shares |
|
|
416,087 |
|
|
|
412,779 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per common share |
|
$ |
(0.91 |
) |
|
$ |
0.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(377 |
) |
|
$ |
84 |
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding for basic earnings per
common share |
|
|
416,087 |
|
|
|
412,779 |
|
Add: Dilutive effects of assumed
exercises of stock options |
|
|
|
|
|
|
6,584 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average shares and dilutive potential
common shares |
|
|
416,087 |
|
|
|
419,363 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per common share |
|
$ |
(0.91 |
) |
|
$ |
0.20 |
|
|
|
|
|
|
|
|
28,214 and 4,400 stock options in 2007 and 2006 respectively, were anti-dilutive and not considered
in computing diluted earnings (loss) per share because the Corporation had a loss from continuing
operations, or the exercise price of the options was greater than the average stock price for the
period.
F-74
ANNEX
A
EXECUTION COPY
AGREEMENT AND PLAN OF MERGER
dated as of
MAY 14, 2008
by and between
CSB BANCORP, INC.
and
INDIAN VILLAGE BANCORP, INC.
TABLE OF CONTENTS
|
|
|
|
|
|
|
Page |
|
RECITALS |
|
|
A-1 |
|
|
|
|
|
|
ARTICLE I CERTAIN DEFINITIONS |
|
|
A-1 |
|
1.01 Certain Definitions |
|
|
A-1 |
|
|
|
|
|
|
ARTICLE II THE MERGER |
|
|
A-7 |
|
2.01 The Parent Merger |
|
|
A-7 |
|
2.02 The Subsidiary Merger |
|
|
A-8 |
|
2.03 Effectiveness of Parent Merger |
|
|
A-8 |
|
2.04 Effective Date and Effective Time |
|
|
A-8 |
|
|
|
|
|
|
ARTICLE III MERGER CONSIDERATION; SURRENDER OF CERTIFICATES |
|
|
A-9 |
|
3.01 Merger Consideration |
|
|
A-9 |
|
3.02 Rights as Shareholders; Share Transfers |
|
|
A-9 |
|
3.03 Exchange Procedures |
|
|
A-10 |
|
3.04 Conversion of Indian Village Stock Options |
|
|
A-11 |
|
3.05 Anti-Dilution Provisions and Other Adjustments |
|
|
A-12 |
|
3.06 Dissenting Shares |
|
|
A-12 |
|
3.07 Tax Consequences |
|
|
A-13 |
|
|
|
|
|
|
ARTICLE IV ACTIONS PENDING CONSUMMATION OF MERGER |
|
|
A-13 |
|
4.01 Forbearances of Indian Village |
|
|
A-13 |
|
4.02 Forbearances of CSB |
|
|
A-16 |
|
|
|
|
|
|
ARTICLE V REPRESENTATIONS AND WARRANTIES |
|
|
A-17 |
|
5.01 Disclosure Schedules |
|
|
A-17 |
|
5.02 Standard |
|
|
A-17 |
|
5.03 Representations and Warranties of Indian Village |
|
|
A-17 |
|
5.04 Representations and Warranties of CSB |
|
|
A-33 |
|
|
|
|
|
|
ARTICLE VI COVENANTS |
|
|
A-38 |
|
6.01 Reasonable Best Efforts |
|
|
A-38 |
|
6.02 Shareholder Approval |
|
|
A-38 |
|
6.03 Registration Statement |
|
|
A-39 |
|
6.04 Press Releases |
|
|
A-40 |
|
6.05 Access; Information |
|
|
A-40 |
|
6.06 Acquisition Proposals; Break Up Fee |
|
|
A-41 |
|
6.07 Takeover Laws |
|
|
A-41 |
|
6.08 Certain Policies |
|
|
A-41 |
|
6.09 Regulatory Applications |
|
|
A-42 |
|
6.10 Employment Matters; Employee Benefits |
|
|
A-42 |
|
6.11 Notification of Certain Matters |
|
|
A-44 |
|
A-i
|
|
|
|
|
|
|
Page |
|
6.12 Accounting and Tax Treatment |
|
|
A-44 |
|
6.13 No Breaches of Representations and Warranties |
|
|
A-44 |
|
6.14 Consents |
|
|
A-44 |
|
6.15 Insurance Coverage |
|
|
A-44 |
|
6.16 Correction of Information |
|
|
A-44 |
|
6.17 Confidentiality |
|
|
A-45 |
|
6.18 Supplemental Assurances |
|
|
A-45 |
|
6.19 Regulatory Matters |
|
|
A-45 |
|
6.20 Establishment of Bank Community Board |
|
|
A-45 |
|
6.21 Indemnification; Directors and Officers Liability Insurance |
|
|
A-46 |
|
6.22 Non-Solicitation |
|
|
A-46 |
|
|
|
|
|
|
ARTICLE VII CONDITIONS TO CONSUMMATION OF THE MERGER |
|
|
A-46 |
|
7.01 Conditions to Each Partys Obligation to Effect the Merger |
|
|
A-46 |
|
7.02 Conditions to Obligation of Indian Village |
|
|
A-47 |
|
7.03 Conditions to Obligation of CSB |
|
|
A-48 |
|
|
|
|
|
|
ARTICLE VIII TERMINATION |
|
|
A-49 |
|
8.01 Termination |
|
|
A-49 |
|
8.02 Effect of Termination and Abandonment, Enforcement of Agreement |
|
|
A-50 |
|
|
|
|
|
|
ARTICLE IX MISCELLANEOUS |
|
|
A-50 |
|
9.01 Survival |
|
|
A-50 |
|
9.02 Waiver; Amendment |
|
|
A-50 |
|
9.03 Counterparts |
|
|
A-51 |
|
9.04 Governing Law |
|
|
A-51 |
|
9.05 Expenses |
|
|
A-51 |
|
9.06 Notices |
|
|
A-51 |
|
9.07 Entire Understanding; No Third Party Beneficiaries |
|
|
A-52 |
|
9.08 Interpretation; Effect |
|
|
A-52 |
|
9.09 Waiver of Jury Trial |
|
|
A-52 |
|
|
|
|
|
|
EXHIBIT A Form of Voting Agreement |
|
|
|
|
A-ii
AGREEMENT AND PLAN OF MERGER, dated as of May 14, 2008 (hereinafter referred to as this
Agreement), by and between CSB Bancorp, Inc., an Ohio corporation (hereinafter referred
to as CSB), and Indian Village Bancorp, Inc., a Pennsylvania corporation (hereinafter
referred to as Indian Village);
WITNESSETH:
WHEREAS, CSB is a registered bank holding company and owns all of the outstanding shares of
The Commercial and Savings Bank of Millersburg, Ohio, an Ohio commercial bank (hereinafter referred
to as CSB Bank);
WHEREAS, Indian Village is a registered unitary thrift holding company and owns all of the
outstanding shares of Indian Village Community Bank, an Ohio savings bank (hereinafter referred to
as Indian Village Bank);
WHEREAS, the Boards of Directors of CSB and Indian Village believe that the merger of Indian
Village with and into CSB, followed by the merger of Indian Village Bank with and into CSB Bank,
each in accordance with the terms and subject to the conditions of this Agreement, would be in the
best interests of the shareholders of CSB and Indian Village; and
WHEREAS, the Boards of Directors of CSB and Indian Village have each unanimously approved this
Agreement and the transactions contemplated hereby;
NOW, THEREFORE, in consideration of the premises and of the mutual covenants, representations,
warranties and agreements contained herein, CSB and Indian Village, intending to be legally bound,
hereby agree as follows:
ARTICLE I
Certain Definitions
1.01 Certain Definitions. The following terms are used in this Agreement with the meanings
set forth below:
Acquisition Proposal has the meaning set forth in Section 6.06(a).
Affiliate means, with respect to any Person, another Person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or is under
common control with, such first Person.
Agreement means this Agreement, as amended or modified from time to time in
accordance with Section 9.02.
Agreement to Merge has the meaning set forth in Section 2.02.
Associate has the meaning set forth in Rule 12b-2 under the Exchange Act.
BHCA means the Bank Holding Company Act of 1956, as amended.
A-1
Code means the Internal Revenue Code of 1986, as amended.
Compensation and Benefit Plans has the meaning set forth in Section
5.03(m)(i).
Consultants has the meaning set forth in Section 5.03(m)(i).
CSB has the meaning set forth in the preamble to this Agreement.
CSB Articles means the Articles of Incorporation of CSB, as amended.
CSB Bank has the meaning set forth in the recitals to this Agreement.
CSB Board means the Board of Directors of CSB.
CSB Code means the Code of Regulations of CSB, as amended.
CSB Common Shares means the common shares, par value $6.25 per share, of CSB.
CSB SEC Documents has the meaning set forth in Section 5.04(h)(i).
CSB Shares means the CSB Common Shares.
D&O Policy has the meaning set forth in Section 6.21(b).
Delaware Valley Title means Delaware Valley Title, LLC, an Ohio corporation
and wholly-owned subsidiary of Indian Village.
Directors has the meaning set forth in Section 5.03(m)(i).
Disclosure Schedule has the meaning set forth in Section 5.01.
Dissenting Shares means any Indian Village Common Shares held by a holder who
properly demands and perfects appraisal rights with respect to such shares in accordance
with applicable provisions of the PBCL.
Effective Date means the date on which the Effective Time occurs.
Effective Time means the effective time of the Parent Merger, as provided for
in Section 2.04.
Employees has the meaning set forth in Section 5.03(m)(i).
Environmental Laws means all applicable local, state and federal
environmental, health and safety laws and regulations, including, without limitation, the
Resource Conservation and Recovery Act, the Comprehensive Environmental Response,
Compensation and Liability Act, the Clean Water Act, the Federal Clean Air Act, and the
A-2
Occupational Safety and Health Act, each as amended, regulations promulgated
thereunder, and state counterparts.
ERISA means the Employee Retirement Income Security Act of 1974, as amended.
ERISA Affiliate has the meaning set forth in Section 5.03(m)(iii).
Exchange Act means the Securities Exchange Act of 1934, as amended, and the
rules and regulations thereunder.
Exchange Agent has the meaning set forth in Section 3.03(a).
Exchange Fund has the meaning set forth in Section 3.03(a).
FDIC means the Federal Deposit Insurance Corporation.
FRB means the Board of Governors of the Federal Reserve System.
Governmental Authority means any court, arbitration panel, administrative
agency or commission or other federal, state or local governmental authority or
instrumentality (including, without limitation, any Regulatory Authority).
Hazardous Materials means, collectively, (a) any hazardous substance as
defined by the Comprehensive Environmental Response, Compensation and Liability Act, as
amended, and regulations promulgated thereunder, (b) any hazardous waste as defined by the
Resource Conservation and Recovery Act, as amended through the date hereof, or regulations
promulgated thereunder, and (c) any pollutant or contaminant or hazardous, dangerous or
toxic chemical, material or substance within the meaning of any applicable federal, state or
local law relating to or imposing liability or standards of conduct concerning any
hazardous, toxic or dangerous waste, substance or material.
HOLA means the Home Owners Loan Act of 1933, as amended.
Indian Village has the meaning set forth in the preamble to this Agreement.
Indian Village 401(k) Plan has the meaning set forth in Section 6.10(d).
Indian Village 401(k) Shares has the meaning set forth in Section 6.10(d).
Indian Village Articles means the Articles of Incorporation of Indian
Village, as amended.
Indian Village Bank has the meaning set forth in the preamble to this
Agreement.
Indian Village Board means the Board of Directors of Indian Village.
Indian Village Bylaws means the Bylaws of Indian Village, as amended.
A-3
Indian Village Common Shares means the shares of common stock, par value $.01
per share, of Indian Village.
Indian Village ESOP has the meaning set forth in Section 6.10(e).
Indian Village ESOP Shares means the Indian Village Common Shares held by the
Indian Village ESOP.
Indian Villages Financial Statements has the meaning set forth in Section
5.03(g)(i).
Indian Village Meeting has the meaning set forth in Section 6.02.
Indian Village Option Plan has the meaning set forth in Section 3.04(a).
Indian Village Shareholder Adoption has the meaning set forth in Section
5.03(d).
Information has the meaning set forth in Section 6.17.
IRS has the meaning set forth in Section 5.03(m)(ii).
Knowledge means, with respect to CSB, the Knowledge of any officer of CSB
with the title of not less than a senior vice president and, with respect to Indian Village,
the Knowledge of any officer of Indian Village and/or Indian Village Bank with the title of
Chairman, Chief Executive Officer, President, Chief Operating Officer, Chief Financial
Officer, or Vice President Administration. An officer of CSB or Indian Village shall be
deemed to have knowledge of a particular fact or matter if such officer is actually aware
of such fact or matter or a prudent individual would be reasonably expected to discover or
otherwise become aware of such fact or matter in the course of conducting a reasonably
comprehensive investigation concerning the existence of such fact or matter.
Lien means any charge, mortgage, pledge, security interest, restriction,
claim, lien, or encumbrance.
Material Adverse Effect means, with respect to CSB or Indian Village, as the
context may require, any effect that (i) is or is reasonably likely to be material and
adverse to the financial position, results of operations or business of CSB and its
Subsidiaries, taken as a whole, or Indian Village and its Subsidiaries taken as a whole,
respectively, or (ii) would materially impair the ability of either CSB or Indian Village to
perform its obligations under this Agreement or otherwise materially threaten or materially
impede the consummation of the Merger and the other transactions contemplated by this
Agreement; provided, however, that Material Adverse Effect shall not be
deemed to include the impact of (a) changes in banking and similar laws of general
applicability or interpretations thereof by courts or Governmental Authorities or other
changes affecting depository institutions generally, including changes in general economic
conditions and changes in prevailing interest and deposit rates; (b) changes
A-4
resulting from expenses (such as legal, accounting and investment bankers fees)
incurred in connection with this Agreement or the transactions contemplated herein; or (c)
actions or omissions of a party which have been waived in accordance with Section 9.02
hereof.
Material Contracts has the meaning set forth in Section 5.03(k)(ii).
Merger collectively refers to the Parent Merger and the Subsidiary Merger, as
set forth in Section 2.02.
Merger Consideration has the meaning set forth in Section 3.01(a)(i)(B).
New Certificate has the meaning set forth in Section 3.03(a).
ODFI means the Ohio Division of Financial Institutions.
OGCL means the Ohio General Corporation Law.
Old Certificate has the meaning set forth in Section 3.03(a).
OSS means the Office of the Secretary of State of the State of Ohio.
OTS means the Office of Thrift Supervision.
Outstanding Options has the meaning set forth in Section 3.04(a).
Parent Merger has the meaning set forth in Section 2.01(a).
PBCL means the Pennsylvania Business Corporation Law (Title 15 of the
Pennsylvania Consolidated Statutes).
PBGC means the Pension Benefit Guaranty Corporation.
PDS means the Department of State of the Commonwealth of Pennsylvania.
Per Share Cash Consideration has the meaning set forth in Section
3.01(a)(i)(B).
Per Share Stock Consideration has the meaning set forth in Section
3.01(a)(i)(A).
Person means any individual, bank, corporation, partnership, association,
joint-stock company, business trust or unincorporated organization.
Pension Plan has the meaning set forth in Section 5.03(m)(ii).
Previously Disclosed by a party shall mean information set forth in its
Disclosure Schedule.
Proxy Statement/Prospectus has the meaning set forth in Section 6.03(a).
A-5
Registration Statement has the meaning set forth in Section 6.03(a).
Regulatory Authorities has the meaning set forth in Section 5.03(i)(i).
Regulatory Orders has the meaning set forth in Section 5.03(i)(i).
Representatives means, with respect to any Person, such Persons directors,
officers, employees, legal or financial advisors or any representatives of such legal or
financial advisors.
Resulting Bank has the meaning set forth in Section 2.02.
Rights means, with respect to any Person, securities or obligations
convertible into or exercisable or exchangeable for, or giving any person any right to
subscribe for or acquire, or any options, calls or commitments relating to, or any stock
appreciation right or other instrument the value of which is determined in whole or in part
by reference to the market price or value of, shares of capital stock of such person.
SEC means the Securities and Exchange Commission.
Securities Act means the Securities Act of 1933, as amended, and the rules
and regulations thereunder.
Severance Payment Agreements has the meaning set forth in Section 6.10(b).
Subsidiary and Significant Subsidiary have the meanings ascribed to
them in Rule 1-02 of Regulation S-X of the SEC.
Surviving Corporation has the meaning set forth in Section 2.01(a).
Takeover Laws has the meaning set forth in Section 5.03(o).
Tax and Taxes means all federal, state, local or foreign taxes,
charges, fees, levies or other assessments, however denominated, including, without
limitation, all net income, gross income, commercial activity, gains, gross receipts, sales,
use, ad valorem, goods and services, capital, production, transfer, franchise, windfall
profits, license, withholding, payroll, employment, disability, employer health, excise,
estimated, severance, stamp, occupation, property, environmental, unemployment or other
taxes, custom duties, fees, assessments or charges of any kind whatsoever, together with any
interest and any penalties, additions to tax or additional amounts imposed by any taxing
authority whether arising before, on or after the Effective Date.
Tax Returns means any return, amended return, claim for refund or other
report (including elections, declarations, disclosures, schedules, estimates and information
returns) with respect to any Tax, including any amendments thereof.
Termination Date has the meaning set forth in Section 6.10(e).
A-6
Treasury Shares means Indian Village Common Shares held by Indian Village or
any of its Subsidiaries or by CSB or any of its Subsidiaries, in each case other than in a
fiduciary capacity or as a result of debts previously contracted in good faith.
Voting Agreement means the Voting Agreement in the form attached hereto as
Exhibit A entered into as of the date hereof by and among CSB and certain
shareholders of Indian Village.
ARTICLE II
The Merger
2.01 The Parent Merger.
(a) The Corporate Merger. Upon the terms and subject to the conditions of this
Agreement, at the Effective Time, Indian Village shall merge with and into CSB (the Parent
Merger), CSB shall survive the Parent Merger and continue to exist as an Ohio corporation
(CSB, as the surviving corporation in the Parent Merger, is sometimes referred to herein as the
Surviving Corporation), and the separate corporate existence of Indian Village shall
cease. At the Effective Time:
(i) The CSB Articles, as in effect immediately prior to the Effective Time, shall be
the articles of incorporation of the Surviving Corporation until amended in accordance with
the OGCL;
(ii) The CSB Code, as in effect immediately prior to the Effective Time, shall be the
code of regulations of the Surviving Corporation until amended in accordance with the OGCL;
and
(iii) Each individual serving as a director of CSB immediately prior to the Effective
Time shall become a director of the Surviving Corporation for the balance of the term for
which such individual was elected and shall serve as such until his or her successor is duly
elected and qualified in the manner provided for in the CSB Articles and the CSB Code or as
otherwise provided by the OGCL or until his or her earlier death, resignation or removal in
the manner provided in the CSB Articles of CSB Code or as otherwise provided by the OGCL.
(b) Option to Change Method of Merger. CSB may at any time prior to the Effective
Time change the method of effecting the Parent Merger and/or the Subsidiary Merger (including,
without limitation, the provisions of this Article II), if and to the extent CSB deems such change
to be necessary, appropriate or desirable; provided, however, that no such change
shall:
(i) Alter or change the amount or kind of consideration to which the holders of Indian
Village Common Shares are entitled in accordance with the terms and subject to the
conditions of this Agreement (the Merger Consideration);
A-7
(ii) Adversely affect the Tax consequences to the Indian Village shareholders (as
described in Section 3.07) as a result of receiving the Merger Consideration;
(iii) Result in any change in the respective rights and obligations of Indian Village
or Indian Village Bank or their respective shareholders, officers, employees, or directors
or, in the reasonable opinion of Indian Village, create any additional obligation or
liability for Indian Village, Indian Village Bank, or its or their officers, directors,
employees, or shareholders; or
(iv) Materially impede or delay consummation of the transactions contemplated by this
Agreement.
Indian Village, if requested by CSB, shall enter into one or more amendments to this Agreement in
order to effect any such change. CSB shall bear all expenses attributable to any change in the
method of effecting the Parent Merger and/or the Subsidiary Merger pursuant to this Section
2.01(b).
2.02 The Subsidiary Merger. At the time specified by CSB Bank in its certificate of merger
filed with the OSS (which shall not be earlier than the Effective Time), Indian Village Bank shall
merge with and into CSB Bank (the Subsidiary Merger) pursuant to an agreement to merge
(the Agreement to Merge) to be executed by Indian Village Bank and CSB Bank and filed
with the ODFI and the OSS. Upon the consummation of the Subsidiary Merger, the separate corporate
existence of Indian Village Bank shall cease and CSB Bank shall survive the Subsidiary Merger and
continue to exist as a state bank (CSB Bank, as the resulting bank in the Subsidiary Merger, is
sometimes referred to herein as the Resulting Bank) and the separate corporate existence
of Indian Village Bank shall cease. (The Parent Merger and the Subsidiary Merger shall sometimes
collectively be referred to herein as the Merger.)
2.03 Effectiveness of Parent Merger. Subject to the satisfaction or waiver of the conditions
set forth in Article VII of this Agreement, the Parent Merger shall become effective upon the
latest to occur of the following: (a) the filing of a certificate of merger with the OSS; (b) the
filing of articles of merger with the PDS; or (c) such later date and time as may be set forth in
such certificate of merger and articles of merger filed as set forth above. The Parent Merger
shall have the effects prescribed in the OGCL and the PBCL.
2.04 Effective Date and Effective Time. Subject to the satisfaction or waiver of the
conditions set forth in Article VII of this Agreement, CSB and Indian Village shall cause the
effective date of the Parent Merger (the Effective Date) to occur as soon as practicable
after the last of the conditions set forth in Article VII shall have been satisfied or waived in
accordance with the terms of this Agreement; provided, however, that the Effective
Date shall not fall after the date specified in Section 8.01(c) or after the date or dates on which
any Regulatory Authority approval or any extension thereof expires. The time on the Effective Date
when the Parent Merger shall become effective is referred to herein as the Effective
Time.
A-8
ARTICLE III
Merger Consideration; Surrender of Certificates
3.01 Merger Consideration.
(a) Conversion of Indian Village Common Shares. At the Effective Time, by virtue of
the Parent Merger and without any action on the part of the holder thereof:
(i) Subject to Section 3.03, and except as otherwise provided by paragraphs (a)(ii),
(b), (c) and (d) of this Section 3.01 and by Section 3.06, each Indian Village Common Share
issued and outstanding immediately prior to the Effective Time shall be converted into the
right to receive the following:
(A) 0.7611 CSB Common Shares, subject to adjustment as set forth in Section 3.05 (the
Per Share Stock Consideration; and
(B) Cash in the amount of $4.375 (the Per Share Cash Consideration and,
together with the Per Share Stock Consideration, the Merger Consideration).
(ii) Notwithstanding Section 3.01(a) above, 9,573 of the Indian Village Common Shares
held in the unallocated account of the Indian Village ESOP shall be converted into the right
to receive cash in the amount of $17.50 per share to provide cash proceeds to repay the
Indian Village ESOP loan as contemplated by Section 6.10(e), and each remaining Indian
Village Common Shares held in the unallocated account of the Indian Village ESOP shall be
converted into the right to receive the Per Share Stock Consideration and the Per Share Cash
Consideration pursuant to Section 3.01(a).
(b) Fractional Shares. Notwithstanding any other provision hereof, no fractional CSB
Common Shares and no certificates or scrip therefor, or other evidence of ownership thereof, will
be issued in the Parent Merger. Each holder of Indian Village Common Shares who would otherwise be
entitled to receive a fractional CSB Common Share shall receive an amount equal to the product of
(i) the fractional CSB Common Share interest to which such holder would otherwise be entitled
(after taking into account all Indian Village Common Shares held at the Effective Time by such
holder), multiplied by (ii) $17.24.
(c) Treasury Shares. Any Indian Village Common Shares held as Treasury Shares by
Indian Village or any of its Subsidiaries or by CSB or any of its Subsidiaries shall be canceled
and retired at the Effective Time and no consideration shall be issued in exchange therefor.
(d) Outstanding CSB Common Shares. Each CSB Common Share issued and outstanding
immediately prior to the Effective Time shall remain issued and outstanding and unaffected by the
Merger.
3.02 Rights as Shareholders; Share Transfers. At the Effective Time, holders of Indian
Village Common Shares shall cease to be, and shall have no rights as, shareholders of Indian
Village, other than (a) to receive any dividend or other distribution with respect to such
A-9
Indian Village Common Shares with a record date occurring prior to the Effective Time, (b) to receive the
consideration provided under this Article III and (c) appraisal rights in the case of Dissenting
Shares. After the Effective Time, there shall be no transfers on the stock transfer books of
Indian Village or the Surviving Corporation of any Indian Village Common Shares.
3.03 Exchange Procedures.
(a) Exchange Fund. At or prior to the Effective Time, CSB shall deposit, or shall
cause to be deposited, with Registrar and Transfer Company (in such capacity, the Exchange
Agent"), for the benefit of the holders of certificates formerly representing Indian Village
Common Shares (Old Certificates), for exchange in accordance with this Article III,
certificates representing CSB Common Shares (New Certificates) and an estimated amount of
cash (such cash and New Certificates, together with any dividends or distributions with a record
date occurring on or after the Effective Time with respect thereto [without any interest on any
such cash, dividends or distributions], being hereinafter referred to as the Exchange
Fund) to be paid pursuant to this Article III in exchange for outstanding Indian Village
Common Shares.
(b) Transmittal Materials. As promptly as practicable after the Effective Time, CSB
shall send or cause to be sent to each holder of record of an Old Certificate transmittal materials
for use in exchanging such shareholders Old Certificates for the consideration set forth in this
Article III. The transmittal materials shall specify that risk of loss and title to the Old
Certificates shall pass only upon delivery of such certificates as specified in the transmittal
materials.
(c) Surrender of Certificates. Upon surrender of an Old Certificate for cancellation,
together with properly completed transmittal materials, the holder of such Old Certificate shall be
entitled to receive in exchange therefor (i) a New Certificate representing the number of CSB
Common Shares into which the aggregate number of Indian Village Common Shares represented by such
surrendered Old Certificate shall have been converted pursuant to Section 3.01(a)(i)(A); and (ii) a
check in respect of the cash amount into which the aggregate number of Indian Village Common Shares
represented by such surrendered Old Certificate shall have been converted pursuant to Section
3.01(a)(i)(B) and in respect of any fractional share interests or dividends or distributions which
such holder is entitled to receive pursuant to this Article III, and the Old Certificate shall
thereafter be cancelled. No interest will be paid on any cash to be paid in exchange for Indian
Village Common Shares or in respect of any fractional share interests or dividends or distributions
which any such holder shall be entitled to receive pursuant to this Article III upon such delivery.
(d) Lost Certificates. If there shall be delivered to the Exchange Agent by any
person who is unable to produce any Old Certificate for surrender to the Exchange Agent in
accordance with this Article III:
(i) Evidence to the reasonable satisfaction of the Surviving Corporation that such Old
Certificate has been lost, wrongfully taken, or destroyed;
(ii) A bond in such amount as the Surviving Corporation or the Exchange Agent may
reasonably request as indemnity against any claim that may be
A-10
made against the Surviving
Corporation and/or the Exchange Agent with respect to such Old Certificate; and
(iii) Evidence to the reasonable satisfaction of the Surviving Corporation that such
person was the owner of the Indian Village Common Shares represented by each such Old
Certificate claimed by him or her to be lost, wrongfully taken or destroyed and that he or
she is the person who would be entitled to present such Old Certificate for exchange
pursuant to this Agreement;
then the Exchange Agent, in the absence of actual notice to it that any Indian Village Common
Shares represented by any Old Certificate has been acquired by a bona fide purchaser, shall deliver
to such person the cash and/or CSB Common Shares (and cash in lieu of fractional CSB Common Share
interests, if any) that such person would have been entitled to receive upon surrender of each such
lost, wrongfully taken or destroyed Old Certificate.
(e) Dividends and Distributions. No dividends or other distributions with respect to
CSB Common Shares with a record date occurring after the Effective Time shall be paid to the holder
of any unsurrendered Old Certificate representing Indian Village Common Shares converted in the
Parent Merger into the right to receive shares of such CSB Common Shares until the holder thereof
shall be entitled to receive New Certificates in exchange therefor in accordance with the
procedures set forth in this Section 3.03(e). After becoming so entitled in accordance with this
Section 3.03(e), the record holder thereof also shall be entitled to receive any such dividends or
other distributions, without any interest thereon, which theretofore had become payable after the
Effective Time with respect to shares of CSB Common Shares such holder had the right to receive
upon surrender of the Old Certificates.
(f) Release of Exchange Fund. Any portion of the Exchange Fund that remains unclaimed
by the shareholders of Indian Village for six months after the Effective Time shall be paid to CSB.
Any shareholders of Indian Village who have not theretofore complied with this Article III shall
thereafter look only to CSB for payment of the Merger Consideration or cash in lieu of fractional
shares without any interest thereon. Notwithstanding the foregoing, neither the Exchange Agent nor
CSB shall be liable to any former holder of Indian Village Common Shares for any amount properly
delivered to a public official pursuant to applicable abandoned property, escheat or similar laws.
3.04 Conversion of Indian Village Stock Options.
(a) Conversion of Outstanding Options. At the Effective Time and in connection with
the Merger, each outstanding option to purchase Indian Village Common Shares granted pursuant to
the Indian Village Bancorp, Inc. 2000 Stock-Based Incentive Plan (the Indian Village Option
Plan) which has not been exercised before the date that is three (3) calendar days prior to
the Effective Date (the Outstanding Options) shall, at the Effective Time, be
surrendered, cancelled and extinguished and converted into the right to receive an amount in cash
equal to the product of (i) the difference between $17.50 less the exercise price of
each such option, multiplied by (ii) the number of Indian Village Common Shares subject to
each such option.
A-11
(b) Expiration of Outstanding Options. Any option to purchase Indian Village Common
Shares granted pursuant to the Indian Village Option Plan which will expire prior to the Effective
Time shall be exercised by the holder thereof no later than the date that is three (3) calendar
days prior to the Effective Date in accordance with the terms of the Indian Village Option Plan and
any applicable option award agreement before the expiration thereof or shall expire and terminate
in accordance with the terms thereof. Indian Village shall take all actions necessary to prevent
any options to purchase Indian Village Common Shares which are outstanding as of the date of this
Agreement from being exercised by the holders thereof before the Effective Time; provided,
however, that (i) any options which will expire prior to the Effective Time shall be
exercisable in accordance with the previous sentence and (ii) Indian Village may permit options
covering not more than 10,000 Indian Village Shares in the aggregate (excluding the options
referred to in clause (i)) to be exercised on or before the date which is the earlier of the date
of option expiration or June 15, 2008, in accordance with the terms of the Indian Village Option
Plan and the applicable option award agreements.
(c) Withholding. CSB or the Exchange Agent shall be entitled to deduct and withhold
from the consideration otherwise payable pursuant to this Section 3.04 to any holder of Outstanding
Options such amounts as CSB or the Exchange Agent is required to deduct and withhold with respect
to the making of such payment under the Code and Treasury Department regulations, or any other
provision of federal, state, local or foreign Tax laws. To the extent that amounts are so withheld
and paid over to the appropriate taxing authority by CSB or the Exchange Agent, such withheld
amounts shall be treated for all purposes of this Agreement as having been paid to the holder of
the Outstanding Options in respect of which such deduction and withholding were made.
3.05 Anti-Dilution Provisions and Other Adjustments.
In the event CSB changes (or establishes a record date for changing) the number of CSB Common
Shares issued and outstanding between the date hereof and the Effective Time as a result of a stock
split, stock dividend, recapitalization, reclassification, split up, combination, exchange of
shares, readjustment or similar transaction with respect to the outstanding CSB Common Shares and
the record date therefor shall be prior to the Effective Time, the Per Share Stock Consideration
shall be proportionately adjusted.
3.06 Dissenting Shares.
Anything contained in this Agreement or elsewhere to the contrary notwithstanding, any holder
of an outstanding Indian Village Common Share that seeks relief as a dissenting shareholder under
Section 1930 and Subchapter D of Chapter 15 of the PBCL shall thereafter have only such rights (and
shall have such obligations) as are provided therein, and the Surviving Corporation shall be
required to deliver only such cash payments to which the Dissenting Shares are entitled pursuant to
Subchapter D of Chapter 15 of the PBCL. If any holder of Dissenting Shares shall forfeit such
right to payment of the fair value under Subchapter D of Chapter 15 of the PBCL, each holders
Dissenting Shares shall thereupon be deemed to
have been converted as of the Effective Time into the right to receive the Merger
Consideration, without interest, in the form of CSB Common Shares or cash, as determined by the
Surviving Corporation.
A-12
3.07 Tax Consequences. For federal income tax purposes, the Parent Merger is intended to
constitute a reorganization within the meaning of Section 368(a) of the Code. The parties hereto
hereby adopt this Agreement as a plan of reorganization within the meaning of Treasury Department
regulation section 1.368-2(g).
ARTICLE IV
Actions Pending Consummation of Merger
4.01 Forbearances of Indian Village. From the date hereof until the Effective Time, except as
expressly contemplated or permitted by this Agreement or required by any applicable Regulatory
Order, without the prior written consent of CSB, Indian Village shall not, and shall cause each of
its Subsidiaries not to:
(a) Ordinary Course. Conduct the business of Indian Village and its Subsidiaries
other than in the ordinary and usual course or fail to use reasonable efforts to preserve intact
their respective business organizations and assets and maintain their respective rights, franchises
and existing relations with customers, suppliers, employees and business associates, or voluntarily
take any action which, at the time taken, is reasonably likely to have an adverse effect upon
Indian Villages ability to perform any of its material obligations under this Agreement or prevent
or materially delay the consummation of the transactions contemplated by this Agreement, or enter
into any new line of business or materially change its lending, investment, underwriting, risk,
asset liability management or other banking and operating policies, except as required by
applicable law or policies imposed by any Governmental Authority or by any applicable Regulatory
Order.
(b) Capital Stock. Other than pursuant to Rights Previously Disclosed and outstanding
on the date hereof, (i) issue, sell or otherwise permit to become outstanding, or authorize the
creation of, any additional Indian Village Common Shares or any Rights, (ii) enter into any
agreement with respect to the foregoing, (iii) permit any additional Indian Village Common Shares
to become subject to new grants of employee or director stock options, other Rights or similar
stock-based employee rights, or (iv) effect any recapitalization, reclassification, stock split, or
similar change in capitalization.
(c) Dividends, Etc. (i) Make, declare, pay or set aside for payment any dividend or
distribution on any shares of its capital stock, other than dividends from wholly-owned
Subsidiaries to Indian Village, or (ii) directly or indirectly adjust, split, combine, redeem,
reclassify, purchase or otherwise acquire, any shares of its capital stock.
(d) Compensation; Employment Agreements; Etc. Except as contemplated by Section 6.10
of this Agreement, as required by applicable law or regulation, or to satisfy Previously Disclosed
contractual obligations existing as of the date hereof: (i) enter into, modify, amend, renew or
terminate any employment, consulting, severance, retention, change in control,
or similar agreements or arrangements with any director, officer or employee of Indian Village
or its Subsidiaries; (ii) hire or engage any full-time employee or consultant, other than as
replacements for positions then existing; (iii) terminate any employee who is a party to an
employment agreement with Indian Village and/or Indian Village Bank other than a Termination for
Cause as defined in such employment agreement; or (iv) take or fail to take
A-13
any action with
respect to any employee who is a party to an employment agreement with Indian Village and/or Indian
Village Bank if the employees resignation based upon such action or failure to act would
constitute an Event of Termination under such employment agreement.
(e) Benefit Plans. Enter into, establish, adopt, amend, modify or terminate (except
(i) as may be required by applicable law, (ii) to satisfy Previously Disclosed contractual
obligations existing as of the date hereof, (iii) as contemplated by this Agreement or (iv) the
regular annual renewal of insurance contracts) any pension, retirement, stock option, stock
purchase, savings, profit sharing, deferred compensation, change in control, consulting, bonus,
group insurance or other employee benefit, incentive or welfare contract, plan or arrangement, or
any trust agreement (or similar arrangement) related thereto, in respect of any director, officer
or employee of Indian Village or its Subsidiaries, or take any action to accelerate the payment of
benefits or the vesting or exercisability of stock options, restricted stock or other compensation
or benefits payable thereunder.
(f) Dispositions. Sell, transfer, mortgage, pledge, encumber or otherwise dispose of
or discontinue any of its assets, deposits, business or properties except in the ordinary course of
business for full and fair consideration actually received.
(g) Acquisitions. Acquire (other than by way of foreclosures or acquisitions of
control in a bona fide fiduciary capacity or in satisfaction of debts previously contracted in good
faith, in each case in the ordinary and usual course of business consistent with past practice) all
or any portion of the assets, business, deposits or properties of any other Person.
(h) Governing Documents. Amend the Indian Village Articles, the Indian Village Bylaws
or the articles of incorporation, constitution or bylaws (or similar governing documents) of any of
Indian Villages Subsidiaries.
(i) Accounting Methods. Implement or adopt any change in its accounting principles,
practices or methods, other than as may be required by generally accepted accounting principles.
(j) Material Contracts. Except in the ordinary course of business consistent with
past practice, enter into or terminate any Material Contract (as defined in Section 5.03(k)) or
amend or modify in any material respect any of its existing Material Contracts.
(k) Claims. Except in the ordinary course of business consistent with past practice,
settle any claim, action or proceeding, except for any claim, action or proceeding which does not
involve precedent for other material claims, actions or proceedings and which involves solely money
damages in an amount, individually or in the aggregate for all such settlements, that is not
material to Indian Village and its Subsidiaries, taken as a whole.
(l) Adverse Actions. (i) Take any action while knowing that such action would, or is
reasonably likely to, prevent or impede the Merger from qualifying as a reorganization within the
meaning of Section 368(a) of the Code; or (ii) knowingly take any action that is intended or is
reasonably likely to result in (I) any of its representations and warranties set forth in this
Agreement being or becoming untrue in any material respect at any time at or prior to the Effective
Time, (II) any of the conditions to the Merger set forth in Article
A-14
VII not being satisfied or
(III) a material violation of any provision of this Agreement except, in each case, as may be
required by applicable law or by any Governmental Authority.
(m) Risk Management. Except pursuant to applicable law or as required by any
Governmental Authority, (i) implement or adopt any material change in its interest rate and other
risk management policies, procedures or practices; (ii) fail to follow its existing policies or
practices with respect to managing its exposure to interest rate and other risk; (iii) fail to use
commercially reasonable means to avoid any material increase in its aggregate exposure to interest
rate risk; or (iv) fail to follow its existing policies or practices with respect to managing its
fiduciary risks.
(n) Borrowings. Borrow or agree to borrow any funds, including but not limited to
pursuant to repurchase transactions, or directly or indirectly guarantee or agree to guarantee any
obligations of any other Person, except in each case in the ordinary course of business and with a
final maturity of less than one year.
(o) Indirect Loans. Make or purchase any indirect or brokered loans.
(p) Capital Expenditures. Except as Previously Disclosed, make any capital
expenditure or capital additions or improvements which individually exceed $5,000 or in the
aggregate exceed $25,000.
(q) Lending. (i) Establish any new lending programs or make any changes in the
policies of any Subsidiary of Indian Village concerning which Persons may approve loans; (ii)
originate or renew, or issue a commitment to originate or renew, any loan in a principal amount in
excess of $400,000 for FNMA loans; (iii) originate or renew, or issue a commitment to originate or
renew, any commercial loans; (iv) originate or renew, or issue a commitment to originate or renew,
any loan secured by 1 4 family real estate in an amount in excess of $250,000; or (v) originate
or renew, or issue a commitment to originate or renew, any loan secured by non-residential real
estate in an amount in excess of $75,000.
(r) Taxes. (i) Fail to prepare and file or cause to be prepared and filed in a timely
manner consistent with past practice all Tax Returns that are required to be filed (with
extensions) at or before the Effective Time; (ii) fail to pay any Tax shown as due, or required to
be shown as due, on any such Tax Return; or (iii) make, change or revoke any Tax election or Tax
accounting method, file any amended Tax return, settle any Tax claim or assessment or consent to
the extension or waiver of any statute of limitations with respect to Taxes (or offer or agree to
do any of the foregoing or surrender its rights to do any of the foregoing or to claim any refund
of Taxes or file any amended Tax Return).
(s) Offices and Facilities. (i) Open, close or relocate any offices at which business
is conducted (including any ATMs); or (ii) fail to use commercially reasonable efforts
to maintain and keep their respective properties and facilities in their present condition and
working order, ordinary wear and tear excepted.
(t) Interest Rates. Increase or decrease the rate of interest paid on time deposits
or certificates of deposit, except in a manner consistent with past practices in relation to rates
prevailing in the relevant market.
A-15
(u) Foreclosures. Foreclose upon or otherwise take title to or possession or control
of any real property or entity thereon without first obtaining a Phase I Environmental Site
Assessment performed pursuant to ASTME 1527-05 thereon which indicates that the property is free of
Hazardous Material; provided, however, that no such report shall be required to be
obtained with respect to single family residential real property of one acre or less to be
foreclosed upon unless Indian Village or its Subsidiary has reason to believe such real property
may contain any such Hazardous Material.
(v) Deposit Liabilities. Cause any material adverse change in the amount or general
composition of deposit liabilities other than in the ordinary course of business.
(w) Securities Transactions. Enter into any securities transaction or otherwise
acquire any investment security.
(x) Commitments. Agree or commit to do any of the foregoing.
4.02 Forbearances of CSB. From the date hereof until the Effective Time, except as expressly
contemplated or permitted by this Agreement, without the prior written consent of Indian Village,
CSB shall not, and shall cause each of its Subsidiaries not to:
(a) Ordinary Course. (i) Conduct the business of CSB and its Subsidiaries other than
in the ordinary and usual course, (ii) fail to use reasonable efforts to preserve intact their
respective business organizations and assets and maintain their respective rights, franchises and
existing relations with customers, suppliers, employees and business associates, or (iii)
voluntarily take any other action, if such conduct, failure or action is reasonably likely to have
an adverse effect upon CSBs ability to perform any of its material obligations under this
Agreement or prevent or materially delay the consummation of the transactions contemplated by this
Agreement.
(b) Extraordinary Dividends. Make, declare, pay or set aside for payment any
extraordinary or special dividends or distributions on any shares of its capital stock, other than
dividends from wholly-owned Subsidiaries to CSB.
(c) Accounting Methods. Implement or adopt any change in its accounting principles,
practices or methods, other than as may be required by generally accepted accounting principles.
(d) Adverse Actions. (i) Take any action while knowing that such action would, or is
reasonably likely to, prevent or impede the Merger from qualifying as a reorganization within the
meaning of Section 368(a) of the Code; or (ii) knowingly take any
action that is intended or is reasonably likely to result in (I) any of its representations
and warranties set forth in this Agreement being or becoming untrue in any material respect at any
time at or prior to the Effective Time, (II) any of the conditions to the Merger set forth in
Article VII not being satisfied or (III) a material violation of any provision of this Agreement
except, in each case, as may be required by applicable law or by any Governmental Authority;
provided, however, that nothing contained herein shall limit the ability of CSB to
exercise its rights under the Voting Agreement.
A-16
(e) Governing Documents. Amend the CSB Articles, the CSB Code or any of the governing
documents or the articles of incorporation or regulations (or similar governing documents) of any
of the CSB Subsidiaries in a manner that would adversely affect the economic or other benefits of
the Merger to the holders of the Indian Village Common Shares.
(f) Commitments. Agree or commit to do any of the foregoing.
ARTICLE V
Representations and Warranties
5.01 Disclosure Schedules. On or prior to the date hereof, CSB delivered to Indian Village a
schedule, and Indian Village delivered to CSB a schedule (each respectively, its Disclosure
Schedule), setting forth, among other things, items, the disclosure of which are necessary or
appropriate either in response to an express disclosure requirement contained in a provision hereof
or as an exception to one or more representations or warranties contained in Section 5.03 or 5.04
or to one or more of its respective covenants contained in Article IV; provided,
however, that the mere inclusion of an item in a Disclosure Schedule as an exception to a
representation or warranty shall not be deemed an admission by a party that such item represents a
material exception or fact, event or circumstance or that such item is reasonably likely to have or
result in a Material Adverse Effect on the party making the representation.
5.02 Standard. No representation or warranty of Indian Village or CSB contained in Section
5.03 or 5.04 shall be deemed untrue or incorrect, and no party hereto shall be deemed to have
breached a representation or warranty, as a consequence of the existence of any fact, event or
circumstance unless such fact, circumstance or event, individually or taken together with all other
facts, events or circumstances inconsistent with any representation or warranty contained in
Section 5.03 or 5.04, has had, or is reasonably likely to have, a Material Adverse Effect.
5.03 Representations and Warranties of Indian Village. Subject to Sections 5.01 and 5.02 and
except as Previously Disclosed in a Section of its Disclosure Schedule corresponding to the
relevant Section below, Indian Village hereby represents and warrants to CSB that the following are
true and correct:
(a) Organization, Standing and Authority. Indian Village is a corporation duly
organized, validly existing and in good standing under the laws of the Commonwealth of
Pennsylvania and is duly qualified to do business and is in good standing in the State of Ohio
and any other foreign jurisdictions where its ownership or leasing of property or assets or the
conduct of its business requires it to be so qualified. Indian Village is registered as a unitary
thrift holding company under the HOLA. Indian Village Bank is a state savings bank duly organized,
validly existing and in good standing under the laws of the State of Ohio. Indian Village Bank is
duly qualified to do business and is in good standing in any foreign jurisdictions where its
ownership or leasing of property or assets or the conduct of its business requires it to be so
qualified.
(b) Capital Structure of Indian Village. As of the date of this Agreement, the
authorized capital stock of Indian Village consists solely of (i) 5,000,000 Indian Village Common
Shares, of which 438,876 shares are outstanding and 26,520 shares are subject to
A-17
Outstanding
Options; and (ii) 1,000,000 shares of preferred stock, par value $.01 per share, none of which is
outstanding. As of the date of this Agreement, 8,360 Indian Village Common Shares were held in the
Indian Village 401(k) Plan, 44,790 Indian Village Common Shares were held by the Indian Village
ESOP (of which 18,204 shares are unallocated), and 46,361 shares of Treasury Stock were held by
Indian Village or otherwise owned by Indian Village or its Subsidiaries. Section 5.03(b) of Indian
Villages Disclosure Schedule contains a schedule of Outstanding Options setting forth the name of
each option holder, the number of Indian Village Common Shares subject to Outstanding Options, the
vesting dates, the grant dates, the expiration dates and the exercise prices for all Outstanding
Options. The outstanding Indian Village Common Shares have been duly authorized, are validly
issued and outstanding, fully paid and nonassessable, and are not subject to any preemptive rights
(and were not issued in violation of any preemptive rights). As of the date hereof, except as
Previously Disclosed in its Disclosure Schedule and except for the Outstanding Options, (A) there
are no Indian Village Common Shares authorized and reserved for issuance, (B) Indian Village does
not have any Rights issued or outstanding with respect to Indian Village Common Shares, and (C)
Indian Village does not have any commitment to authorize, issue or sell any Indian Village Common
Shares or Rights, except pursuant to this Agreement.
(c) Subsidiaries.
(i)(A) Indian Village Bank and Delaware Valley Title are the only Subsidiaries of
Indian Village, (B) except as Previously Disclosed, Indian Village owns, directly or
indirectly, all of the issued and outstanding equity securities of each of its Subsidiaries,
(C) no equity securities of any of its Subsidiaries are or may become required to be issued
(other than to it or its wholly-owned Subsidiaries) by reason of any Right or otherwise,
(D) there are no contracts, commitments, understandings or arrangements by which any of such
Subsidiaries is or may be bound to sell or otherwise transfer any equity securities of any
such Subsidiaries (other than to it or its wholly-owned Subsidiaries), (E) there are no
contracts, commitments, understandings, or arrangements relating to Indian Villages rights
to vote or to dispose of such securities and (F) all of the equity securities of each
Subsidiary held by Indian Village or its Subsidiaries are fully paid and nonassessable
(except pursuant to 12 U.S.C. Section 55) and are owned by Indian Village or its
Subsidiaries free and clear of any Liens.
(ii) Except as Previously Disclosed, Indian Village does not own beneficially, directly
or indirectly, any equity securities or similar interests of any Person, or any interest in
a partnership or joint venture of any kind, other than its Subsidiaries.
(iii) Indian Village Bank is an insured depository institution as defined in the
Federal Deposit Insurance Act and applicable regulations thereunder and is a member of the
Federal Home Loan Bank of Cincinnati. Indian Village Bank is not a member of the Federal
Reserve System.
(iv) Except as Previously Disclosed, no Subsidiary of Indian Village owns beneficially,
directly or indirectly, any equity securities or similar interests of any Person, or any
interest in a partnership or joint venture of any kind, other than, in the case of Indian
Village Bank, its stock of the Federal Home Loan Bank of Cincinnati.
A-18
(v) Each of Indian Villages Subsidiaries is duly organized, validly existing and in
good standing under the laws of the jurisdiction of its organization, and is duly qualified
to do business and is in good standing in any foreign jurisdictions where its ownership or
leasing of property or assets or the conduct of its business requires it to be so qualified.
(vi) Delaware Valley Title has never engaged in any business activities and has no
liabilities (whether accrued, absolute, contingent or otherwise).
(d) Corporate Power. Each of Indian Village and Indian Village Bank has full
corporate power and authority to carry on its business as it is now being conducted and to own all
of its properties and assets. Subject to the adoption of this Agreement by the holders of the
requisite majority of outstanding Indian Village Common Shares entitled to vote thereon (the
Indian Village Shareholder Adoption) and the approval of this Agreement and the Merger by
applicable Regulatory Authorities, Indian Village has the corporate power and authority to execute,
deliver and perform its obligations under this Agreement, and Indian Village Bank has the corporate
power and authority to consummate the Subsidiary Merger in accordance with the terms of this
Agreement.
(e) Corporate Authority; Authorized and Effective Agreement. Subject to the Indian
Village Shareholder Adoption, this Agreement and the transactions contemplated hereby have been
authorized by all necessary corporate action of Indian Village and the Indian Village Board prior
to the date of this Agreement. The Agreement to Merge, when executed by Indian Village Bank, shall
have been approved by the Board of Directors of Indian Village Bank and by Indian Village, as the
sole shareholder of Indian Village Bank. This Agreement is a valid and legally binding obligation
of Indian Village, enforceable against Indian Village in accordance with its terms (except as
enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer and similar laws of general applicability relating to or affecting creditors
rights or by general equity principles).
(f) Regulatory Approvals; No Defaults.
(i) Except as Previously Disclosed, no consents or approvals of, or filings or
registrations with, any Governmental Authority or with any third party are
required to be made or obtained by Indian Village or any of its Subsidiaries in
connection with the execution, delivery or performance by Indian Village of this Agreement
or the consummation of the transactions contemplated hereby, including the Merger, except
for (A) the filings of applications, notices and the Agreement to Merge, as applicable, with
federal and state banking authorities to approve the transactions contemplated by the
Agreement, (B) the filings with the SEC and state securities authorities, (C) the filings of
the certificate of merger with the OSS pursuant to the OGCL and the articles of merger with
the PDS pursuant to the PBCL, and (D) the receipt of the approvals set forth in Section
7.01(b). As of the date hereof, Indian Village has no Knowledge of any reason why the
approvals set forth in Section 7.01(b) will not be received without the imposition of a
condition, restriction or requirement of the type described in Section 7.01(b).
(ii) Subject to the Indian Village Shareholder Adoption, the receipt of the approvals
set forth in Section 7.01(b), the expiration of related regulatory waiting
A-19
periods, and the
required filings under federal and state securities laws, the execution, delivery and
performance of this Agreement and the consummation of the transactions contemplated hereby,
including the Merger, do not and will not (A) result in a breach or violation of, or a
default under, or give rise to any Lien, any acceleration of remedies or any right of
termination under, any law, rule or regulation or any judgment, decree, order, governmental
permit or license, or agreement, indenture or instrument of Indian Village or of any of its
Subsidiaries or to which Indian Village or any of its Subsidiaries or properties is subject
or bound, (B) constitute a breach or violation of, or a default under, the Indian Village
Articles or the Indian Village Bylaws or (C) except as Previously Disclosed in Indian
Villages Disclosure Schedule, require any consent or approval under any such law, rule,
regulation, judgment, decree, order, governmental permit or license, agreement, indenture or
instrument.
(g) Financial Statements; Material Adverse Effect; Internal Controls.
(i) Indian Village has delivered or will deliver to CSB (a) audited consolidated
financial statements for each of the fiscal years ended June 30, 2003, 2004, 2005, 2006 and
2007, respectively, consisting of consolidated balance sheets and the related consolidated
statements of income and shareholders equity and cash flows for the fiscal years ended on
such date, including the footnotes thereto and the report prepared with respect thereto by
Crowe Chizek and Company LLC, Indian Villages independent registered public accounting
firm, and (b) unaudited consolidated financial statements for the interim period ended March
31, 2008, consisting of balance sheets and the related statements of income (collectively,
Indian Villages Financial Statements). Indian Villages Financial Statements, as
of the dates thereof and for the periods covered thereby, have been prepared in conformity
with generally accepted accounting principles, consistently applied throughout the periods
indicated, and fairly present the financial position of Indian Village as of the dates
thereof and the results of operations and cash flows for the periods indicated, subject in
the case of the interim financial statements to normal year-end adjustments and the absence
of notes thereto. Except as set forth in Indian Villages Financial Statements or as
Previously Disclosed in Indian Villages Disclosure Schedule, Indian Village and its
Subsidiaries have no liabilities or obligations as of the date hereof, other than
liabilities and obligations that individually or in the
aggregate could not reasonably be expected to have a Material Adverse Effect on Indian
Village or Indian Village Bank.
(ii) Since June 30, 2007, Indian Village and its Subsidiaries have not incurred any
material liability not disclosed in Indian Villages Financial Statements, except as
Previously Disclosed.
(iii) Since June 30, 2007, (A) Indian Village and its Subsidiaries have conducted their
respective businesses in the ordinary and usual course consistent with past practice
(excluding matters related to this Agreement and the transactions contemplated hereby) and
(B) no event has occurred or circumstance arisen that, individually or taken together with
all other facts, circumstances and events (described in any paragraph of Section 5.03 or
otherwise), is reasonably likely to have a Material Adverse Effect with respect to Indian
Village, except as Previously Disclosed.
A-20
(iv) Management of Indian Village has established and maintains a system of internal
accounting controls sufficient to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles, including policies and procedures
that (A) pertain to the maintenance of records that in reasonable detail accurately and
fairly reflect the transactions and dispositions of the assets of Indian Village and its
Subsidiaries; (B) provide reasonable assurance that transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally accepted
accounting principles, and that receipts and expenditures of Indian Village and its
Subsidiaries are being made only in accordance with authorizations of management and
directors of Indian Village and its Subsidiaries; and (C) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use or disposition of
the assets of Indian Village and its Subsidiaries that could have a material effect on the
financial statements. Management of Indian Village has evaluated the effectiveness of
Indian Villages and its Subsidiaries internal controls over financial reporting as of the
end of the periods covered by Indian Villages Financial Statements and, based on such
evaluations, has Previously Disclosed to CSB (I) any significant deficiencies and material
weaknesses in the design or operation of the internal controls over financial reporting
which are reasonably likely to adversely affect Indian Villages ability to record, process,
summarize and report financial information and (II) any fraud, whether or not material, that
involves management or other employees who have a significant role in Indian Villages
internal control over financial reporting. Indian Village has provided to CSB access to all
documentation related to Indian Villages internal control over financial reporting. Since
June 30, 2006, neither Indian Village nor any of its Subsidiaries nor, to Indian Villages
Knowledge, any director, officer, employee, auditor, accountant or representative of Indian
Village or any of its Subsidiaries has received or otherwise had or obtained Knowledge of
any material complaint, allegation, assertion or claim, whether written or oral, regarding
the accounting or auditing practices, procedures, methodologies or methods of Indian Village
or any of its Subsidiaries or their respective internal accounting controls, including any
material complaint, allegation, assertion or claim that Indian Village or any of its
Subsidiaries has engaged in questionable accounting or auditing practices.
(h) Litigation. Except as Previously Disclosed, no litigation, claim or other
proceeding before any court or governmental agency is pending against Indian Village or any of its
Subsidiaries and, to Indian Villages Knowledge, no such litigation, claim or other proceeding has
been threatened. Except as Previously Disclosed, there is no judgment, decree, injunction, rule or
order of any Governmental Authority outstanding against Indian Village or any of its Subsidiaries.
(i) Regulatory Matters.
(i) Except as Previously Disclosed, neither Indian Village nor any of its Subsidiaries
or any of their respective properties is a party to or is subject to any order, decree,
agreement, memorandum of understanding or similar arrangement with, or a commitment letter
or similar submission to, or extraordinary supervisory letter from (any of the foregoing, a
Regulatory Order), any federal or state governmental agency or
A-21
authority charged
with the supervision or regulation of financial institutions (or their holding companies) or
issuers of securities or engaged in the insurance of deposits (including, without
limitation, the OTS, the FDIC and the ODFI) or the supervision or regulation of it or any of
its Subsidiaries (collectively, the Regulatory Authorities).
(ii) Except as Previously Disclosed, neither Indian Village nor any of its Subsidiaries
has been advised by any Regulatory Authority that such Regulatory Authority is contemplating
issuing or requesting (or is considering the appropriateness of issuing or requesting) any
such order, decree, agreement, memorandum of understanding, commitment letter, supervisory
letter or similar submission.
(j) Compliance with Laws. Except as Previously Disclosed, each of Indian Village and
its Subsidiaries:
(i) is in compliance with all applicable federal, state, local and foreign statutes,
laws, regulations, ordinances, rules, judgments, orders or decrees applicable thereto,
including those relating to the conduct of trust activities or to the employees conducting
such businesses, including, without limitation, the Patriot Act, the International Money
Laundering Abatement and Anti-Terrorist Financing Act of 2001, the Equal Credit Opportunity
Act, the Fair Housing Act, the Community Reinvestment Act, the Home Mortgage Disclosure Act,
the Financial Services Modernization Act and all other applicable fair lending laws and
other laws relating to discriminatory business practices;
(ii) has all permits, licenses, authorizations, orders and approvals of, and has made
all filings, applications and registrations with, all Governmental Authorities and
Regulatory Authorities that are required in order to permit them to own or lease their
properties and to conduct their businesses as presently conducted; all such permits,
licenses, certificates of authority, orders and approvals are in full force and effect and,
to Indian Villages Knowledge, no suspension or cancellation of any of them is threatened;
and
(iii) has not received, since December 31, 2006, any notification or communication from
any Governmental Authority (A) asserting that Indian Village or
any of its Subsidiaries is not in compliance with any of the statutes, regulations, or
ordinances which such Governmental Authority enforces or (B) threatening to revoke any
license, franchise, permit, or governmental authorization (nor, to Indian Villages
Knowledge, do any grounds for any of the foregoing exist).
(k) Material Contracts; Defaults.
(i) Except as set forth in Indian Villages Disclosure Schedule, neither Indian Village
nor any of its Subsidiaries is a party to or is bound by any contract of the following types
as of the date of this Agreement, nor is any such contract presently being negotiated or
discussed:
A-22
(A) Any contract involving commitments to others to make capital expenditures
or purchases or sales in excess of $5,000 in any one case or $25,000 in the
aggregate in any period of twelve (12) consecutive months;
(B) Any contract relating to any direct or indirect indebtedness of Indian
Village or any of its Subsidiaries for borrowed money (including loan agreements,
lease purchase arrangements, guarantees, agreements to purchase goods or services or
to supply funds or other undertakings relating to the extension of credit), or any
conditional sales contracts, equipment lease agreements and other security
arrangements with respect to personal property with an obligation in excess of
$5,000 in any one case or $25,000 in the aggregate in any period of twelve
(12) consecutive months;
(C) Any employment, severance, consulting or management services contract or
any confidentiality or nondisclosure contract with any director, officer, employee
or consultant of Indian Village or any of its Subsidiaries;
(D) Any contract containing covenants limiting the freedom of Indian Village or
any of its Subsidiaries to compete in any line of business or with any Person or in
any area or territory;
(E) Any partnership, joint venture, limited liability company arrangement or
other similar agreement;
(F) Any profit sharing, stock option, stock purchase, stock appreciation,
deferred compensation, issuance, or other plan or arrangement for the benefit of
Indian Villages or any of its Subsidiaries current or former directors, officers,
employees or consultants;
(G) Any license agreement, either as licensor or licensee, or any other
contract of any type relating to any intellectual property, except for license
agreements relating to off-the-shelf software or software components pursuant to a
non-negotiable standard form or shrink wrap license agreement;
(H) Any contract with any director, officer, employee or consultant of Indian
Village or any of its Subsidiaries or any Associate of any such director, officer,
employee or consultant, or any arrangement under which Indian Village or any of its
Subsidiaries has advanced or loaned any amount to any of their respective directors,
officers, employees and consultants or any of their respective Associates;
(I) Any contract, whether exclusive or otherwise, with any sales agent,
representative, franchisee or distributor;
(J) Other than this Agreement and any ancillary agreements being executed in
connection with this Agreement, any contract providing for the
A-23
acquisition or
disposition of any portion of the assets, properties or securities of Indian Village
or any of its Subsidiaries;
(K) Any contract that requires the payment of royalties;
(L) Any contract under which the consequences of a breach, violation or default
would reasonably be expected to have a Material Adverse Effect on the business of
Indian Village or any of its Subsidiaries as presently conducted;
(M) Any contract pursuant to which Indian Village or any of its Subsidiaries
has any obligation to share revenues or profits derived from Indian Village or any
of its Subsidiaries with any other Person;
(N) Any contract between (i) Indian Village or any of its Subsidiaries, on the
one hand, and any officer, director, employee or consultant of Indian Village or any
of its Subsidiaries, on the other hand, and (ii) Indian Village or any of its
Subsidiaries, on the one hand, and any Associate or other Affiliate of any director,
officer, employee or consultant of Indian Village or any of its Subsidiaries, on the
other hand;
(O) Any contract that would constitute a material contract within the meaning
of Item 601 of SEC Regulation S-K; and
(P) Any other legally binding contract not of the type covered by any of the
other items of this Section 5.03(k) involving money or property and having an
obligation in excess of $5,000 in the aggregate in any period of twelve (12)
consecutive months or which is otherwise not in the ordinary course of business.
(ii) Material Contracts shall mean those contracts on Indian Villages
Disclosure Schedule listed under Section 5.03(k). True, complete and correct copies of all
of the Material Contracts have been made available to CSB. All of the Material Contracts
are in full force and effect and are legal, valid, binding and enforceable in accordance
with their terms (A) as to Indian Village or any of its Subsidiaries, as the case may be,
and (B) to the Knowledge of Indian Village, as to the
other parties to such Material Contracts. Except as disclosed in Indian Village
Disclosure Schedule, Indian Village and/or each of its Subsidiaries, as applicable, and to
the Knowledge of Indian Village, each other party to the Material Contracts, has performed
and is performing all material obligations, conditions and covenants required to be
performed by it under the Material Contracts. Neither Indian Village nor any of its
Subsidiaries, and to the Knowledge of
Indian Village, no other party, is in violation,
breach or default of any material obligation, condition or covenant under any of the
Material Contracts, and neither Indian Village nor any of its Subsidiaries, and to the
Knowledge of Indian Village, no other party, has received any notice that any of the
Material Contracts will be terminated or will not be renewed. Neither Indian Village nor
any of its Subsidiaries has received from or given to any other Person any notice of default
or other violation under any of the Material Contracts, nor, to the Knowledge of
A-24
Indian Village, does any condition exist or has any event occurred which with notice or lapse of
time or both would constitute a default under any of the Material Contracts.
(l) Brokerage and Finders Fees. Except for the fees payable to Keller & Company,
Inc., neither Indian Village nor any of its Subsidiaries has engaged or employed any broker,
finder, or agent, or agreed to pay or incurred any brokerage fee, finders fee, commission or other
similar form of compensation (including any break-up or termination fee) in connection with this
Agreement or the transactions contemplated hereby.
(m) Employee Benefit Plans. Except as Previously Disclosed:
(i) Section 5.03(m) of Indian Villages Disclosure Schedule contains a complete and
accurate list of all existing bonus, incentive, deferred compensation, pension, retirement,
profit-sharing, thrift, savings, employee stock ownership, stock bonus, stock purchase,
restricted stock, stock option, severance, welfare and fringe benefit plans, employment,
retention, change in control, severance agreements, and all similar practices, policies and
arrangements in which any employee or former employee (the Employees), consultant
or former consultant (the Consultants) or director or former director (the
Directors) of Indian Village or any of its Subsidiaries participates, sponsors or
contributes, or to which any such Employees, Consultants or Directors are a party or under
which Indian Village or any of the Subsidiaries has any present or future liability (the
Compensation and Benefit Plans). Neither Indian Village nor any of its
Subsidiaries has any commitment to create any additional Compensation and Benefit Plan or to
modify or change any existing Compensation and Benefit Plan.
(ii) Each Compensation and Benefit Plan has been operated and administered in all
material respects in accordance with its terms and with applicable law, including, but not
limited to, ERISA, the Code, the Securities Act, the Exchange Act, the Age Discrimination in
Employment Act, or any regulations or rules promulgated thereunder, and all filings,
disclosures and notices required by ERISA, the Code, the Securities Act, the Exchange Act,
the Age Discrimination in Employment Act and any other applicable law have been timely made.
Each Compensation and Benefit Plan which is an employee pension benefit plan within the
meaning of Section 3(2) of ERISA (a Pension Plan) and which is intended to be
qualified under Section 401(a) of the Code has received a favorable determination letter
(including a determination that the
related trust under such Compensation and Benefit Plan is exempt from tax under Section
501(a) of the Code) from the Internal Revenue Service (IRS), and to the Knowledge
of Indian Village, no circumstances exist which are likely to result in revocation of any
such favorable determination letter. There is no pending or, to the Knowledge of Indian
Village, threatened legal action, suit or claim relating to the Compensation and Benefit
Plans. Neither Indian Village nor any of its Subsidiaries has engaged in a transaction, or
omitted to take any action, with respect to any Compensation and Benefit Plan that would
reasonably be expected to subject Indian Village or any of its Subsidiaries to a tax or
penalty imposed by either Section 4975 of the Code or Section 502 of ERISA.
(iii) None of the Compensation and Benefit Plans is subject to Title IV of ERISA. No
liability under Title IV of ERISA has been or is expected to be incurred
A-25
by Indian Village
or any of its Subsidiaries with respect to any terminated single-employer plan, within the
meaning of Section 4001(a)(15) of ERISA, formerly maintained by any of them, or any
single-employer plan of any entity (an ERISA Affiliate) which is considered one
employer with Indian Village under Section 4001(a)(14) of ERISA or Section 414(b) or (c) of
the Code (an ERISA Affiliate Plan). None of Indian Village, any of its
Subsidiaries or any ERISA Affiliate has contributed, or has been obligated to contribute, to
either a defined benefit pension plan subject to Title IV of ERISA or to a multiemployer
plan under Subtitle E of Title IV of ERISA at any time since September 26, 1980. No notice
of a reportable event, within the meaning of Section 4043 of ERISA, has been required to
be filed for any Compensation and Benefit Plan or by any ERISA Affiliate Plan. To the
Knowledge of Indian Village, there is no pending investigation or enforcement action by the
U.S. Department of Labor (the DOL) or the IRS or any other governmental agency
with respect to any Compensation and Benefit Plan.
(iv) All contributions required to be made under the terms of any Compensation and
Benefit Plan or ERISA Affiliate Plan or any employee benefit arrangements under any
collective bargaining agreement to which Indian Village or any of its Subsidiaries was or is
a party have been timely made or have been reflected on Indian Villages financial
statements. Neither any Pension Plan nor any ERISA Affiliate Plan has an accumulated
funding deficiency (whether or not waived) within the meaning of Section 412 of the Code or
Section 302 of ERISA and all required payments to the PBGC with respect to each Pension Plan
or ERISA Affiliate Plan have been made on or before their due dates. None of Indian
Village, any of its Subsidiaries or any ERISA Affiliate (x) has provided, or would
reasonably be expected to be required to provide, security to any Pension Plan or to any
ERISA Affiliate Plan pursuant to Section 401(a)(29) of the Code, and (y) has taken any
action, or omitted to take any action, that has resulted, or would reasonably be expected to
result, in the imposition of a lien under Section 412(n) of the Code or pursuant to ERISA.
(v) Neither Indian Village nor any of its Subsidiaries has any obligations to provide
retiree health and life insurance or other retiree death benefits under any Compensation and
Benefit Plan, other than benefits mandated by Section 4980B of the Code, and each such
Compensation and Benefit Plan may be amended or terminated without incurring liability
thereunder. There has been no
communication to Employees by Indian Village or any of its Subsidiaries that would
reasonably be expected to promise or guarantee such Employees retiree health or life
insurance or other retiree death benefits on a permanent basis.
(vi) Indian Village and its Subsidiaries do not maintain any Compensation and Benefit
Plans covering foreign (i.e., non-United States) Employees.
(vii) With respect to each Compensation and Benefit Plan, if applicable, Indian Village
has provided or made available to CSB, true and complete copies of existing:
(A) Compensation and Benefit Plan documents and amendments thereto; (B) trust instruments
and insurance contracts; (C) the two most recent Forms 5500 filed with the IRS; (D) the most
recent actuarial report and financial statement; (E) the most
A-26
recent summary plan
description; (F) forms filed with the PBGC (other than for premium payments); (G) the most
recent determination letter issued by the IRS; (H) any Form 5310 or Form 5330 filed with the
IRS; and (I) the most recent nondiscrimination tests performed under ERISA and the Code
(including 401(k) and 401(m) tests).
(viii) Except as disclosed on Section 5.03(m) of Indian Villages Disclosure Schedule,
the consummation of the transactions contemplated by this Agreement would not, directly or
indirectly (including, without limitation, as a result of any termination of employment
prior to or following the Effective Time) reasonably be expected to (A) entitle any
Employee, Consultant or Director to any payment (including severance pay or similar
compensation) or any increase in compensation, (B) result in the vesting or acceleration of
any benefits under any Compensation and Benefit Plan or (C) result in any material increase
in benefits payable under any Compensation and Benefit Plan.
(ix) Neither Indian Village nor any of its Subsidiaries maintains any compensation
plans, programs or arrangements the payments under which would not reasonably be expected to
be deductible as a result of the limitations under Section 162(m) of the Code and the
Treasury Department regulations issued thereunder.
(x) As a result, directly or indirectly, of the transactions contemplated by this
Agreement (including, without limitation, as a result of any termination of employment prior
to or following the Effective Time), none of CSB, Indian Village or the Surviving
Corporation, or any of their respective Subsidiaries will be obligated to make a payment
that would be characterized as an excess parachute payment to an individual who is a
disqualified individual (as such terms are defined in Section 280G of the Code) of Indian
Village on a consolidated basis, without regard to whether such payment is reasonable
compensation for personal services performed or to be performed in the future.
(n) Labor Matters. Neither Indian Village nor any of its Subsidiaries is a party to
or is bound by any collective bargaining agreement, contract or other agreement or understanding
with a labor union or labor organization, nor is Indian Village or any of its Subsidiaries the
subject of a proceeding asserting that it or any such Subsidiary has committed an unfair labor
practice (within the meaning of the National Labor Relations Act) or seeking to compel Indian
Village or any such Subsidiary to bargain with any labor organization as to wages
or conditions of employment, nor is there any strike or other labor dispute involving it or
any of its Subsidiaries pending or, to Indian Villages Knowledge, threatened, nor is Indian
Village aware of any activity involving its or any of its Subsidiaries employees seeking to
certify a collective bargaining unit or engaging in other organizational activity. Indian Village
and its Subsidiaries are in compliance with all applicable laws respecting employment and
employment practices, terms and conditions of employment and wages and hours.
(o) Takeover Laws. Indian Village has taken all action required to be taken by Indian
Village in order to exempt this Agreement, the Voting Agreement and the transactions contemplated
hereby and thereby from, and this Agreement, the Voting Agreement and the transactions contemplated
hereby and thereby are exempt from, (i) the requirements of any
A-27
moratorium, control share,
fair price, affiliate transaction, business combination or other antitakeover laws and
regulations of any state (collectively, Takeover Laws) applicable to it, including,
without limitation, such Takeover Laws of the Commonwealth of Pennsylvania; and (ii) any applicable
provisions of the Indian Village Articles, the Indian Village Bylaws and/or the governing documents
of any of Indian Villages Subsidiaries. Indian Village is not a registered corporation as
defined in Section 2502 of the PBCL.
(p) Environmental Matters. Neither the conduct nor the operation of Indian Village or
its Subsidiaries nor any condition of any property presently or previously owned, leased or
operated by any of them (including, without limitation, in a fiduciary or agency capacity), or on
which any of them holds a Lien, violates or violated Environmental Laws and to Indian Villages
Knowledge, no condition exists or has existed or event has occurred with respect to any of them or
any such property that is reasonably likely to result in liability under Environmental Laws. To
Indian Villages Knowledge, neither Indian Village nor any of its Subsidiaries has received any
notice from any person or entity that Indian Village or its Subsidiaries or the operation or
condition of any property ever owned, leased, operated, or held as collateral or in a fiduciary
capacity by any of them are or were in violation of or otherwise are alleged to have liability
under any Environmental Law, including, but not limited to, responsibility (or potential
responsibility) for the cleanup or other remediation of any Hazardous Materials at, on, beneath, or
originating from any such property.
(q) Tax Matters.
(i)(A) All Tax Returns that were or are required to be filed by or with respect to
Indian Village and its Subsidiaries have been duly and timely filed, or an appropriate
extension has been granted, and all such Tax Returns are true, correct and complete in all
material respects, (B) all Taxes required to be shown to be due on the Tax Returns referred
to in clause (i)(A) have been paid in full, and (C) no unexpired waivers of statutes of
limitation have been given by or requested with respect to any Taxes of Indian Village or
its Subsidiaries. Indian Village has made available to CSB true and correct copies of the
United States federal income Tax Returns filed by Indian Village and its Subsidiaries for
each of the three (3) most recent fiscal years. Neither Indian Village nor any of its
Subsidiaries has any liability with respect to any Taxes in excess of the amounts accrued
with respect thereto that are reflected in Indian Villages Financial Statements or that
have arisen in the ordinary course of business since March 31, 2008. The accruals for Taxes
reflected in Indian Villages Financial Statements are adequate for
the periods covered. There are no Liens for Taxes upon the assets of Indian Village or
any of its Subsidiaries other than Liens for current Taxes not yet due and payable. As of
the date hereof, neither Indian Village nor any of its Subsidiaries has Knowledge of any
conditions which exist or which may fail to exist that might prevent or impede the Parent
Merger from qualifying as a reorganization within the meaning of Section 368(a) of the Code.
(ii) No Tax is required to be withheld pursuant to Section 1445 of the Code as a result
of the transfer contemplated by this Agreement.
A-28
(iii) Indian Village and its Subsidiaries have withheld or collected and paid over to
the appropriate Governmental Authorities, or are properly holding for such payment, all
Taxes required by law to be withheld or collected.
(iv) No claim has ever been made by any Governmental Authority in a jurisdiction where
Indian Village or any of its Subsidiaries does not file Tax Returns that Indian Village or
such Subsidiary is or may be subject to taxation by that jurisdiction nor, to the Knowledge
of Indian Village, is there any factual basis for any such claim.
(v) Neither Indian Village nor any Subsidiary has applied for any ruling from any
Governmental Authority with respect to Taxes nor entered into a closing agreement (or
similar arrangement) since December 31, 1996 with any Governmental Authority.
(vi) Except as Previously Disclosed, neither Indian Village nor any Subsidiary has been
audited by any Governmental Authority for taxable years ending on or subsequent to December
31, 2003, and, to the Knowledge of Indian Village, no such audit or other proceeding has
been threatened. Except as Previously Disclosed, no Governmental Authority has asserted, is
now asserting, or, to the Knowledge of Indian Village, is threatening to assert against
Indian Village or any of its Subsidiaries any deficiency or claim for additional Taxes.
(vii) Neither Indian Village nor any Subsidiary is a party to any Tax allocation or
sharing agreement, nor do Indian Village or any Subsidiary have any liability for the Taxes
of any person (other than Indian Village or a Subsidiary) under Section 1.1502-6 (or any
similar provision of state, local, or foreign law) as a transferee or successor, by
contract, or otherwise.
(viii) Except as Previously Disclosed, neither Indian Village nor any Subsidiary has
agreed to any extension of time with respect to any Tax Return or a Tax assessment or
deficiency.
(ix) Neither Indian Village nor any Subsidiary has agreed, nor is it required, to make
any adjustment under Section 481(a) of the Code by reason of a change in accounting method
or otherwise that will affect its liability for Taxes.
(x) Neither Indian Village nor any Subsidiary has ever been a member of an affiliated
group of corporations, other than an affiliated group of which Indian Village is or was the
common parent.
(xi) Neither Indian Village nor any Subsidiary has filed an election under Section
338(g) or 338(h)(10) of the Code.
(xii) Neither Indian Village nor any Subsidiary owns an interest in any (A) domestic
international sales corporation, (B) foreign sales corporation, (C) controlled foreign
corporation, or (D) passive foreign investment company, as such terms are defined in the
Code.
A-29
(xiii) There are no joint ventures, partnerships, limited liability companies, or other
arrangements or contracts to which Indian Village or any Subsidiary is a party that could be
treated as a partnership for Tax purposes.
(r) Risk Management Instruments. Neither Indian Village nor any of its Subsidiaries
is a party to or otherwise bound by any interest rate swaps, caps, floors, option agreements,
futures or forward contracts or other similar risk management arrangements.
(s) Books and Records. The books of account, minute books, stock record books, and
other records of Indian Village and its Subsidiaries, all of which have been made available to CSB,
are complete and correct in all material respects and have been maintained in accordance with sound
business practices and, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of Indian Village and its Subsidiaries, including the maintenance of an
adequate system of internal controls that is sufficient to provide reasonable assurances that
transactions are executed in accordance with managements authorization, that transactions are
recorded as necessary, that access to assets is permitted only in accordance with managements
authorization, and that the recorded accountability for assets is compared at reasonable intervals
and appropriate action is taken with respect to any differences. The minute books of Indian
Village and its Subsidiaries contain accurate and complete records of all meetings held of, and
corporate action taken by, the shareholders, the Board of Directors, and committees of the Board of
Directors of Indian Village and its Subsidiaries, and no meeting of any such shareholders, Board of
Directors, or committee has been held for which minutes have been prepared and are not contained in
such minute books, except for the minutes of the meetings of Indian Villages Board of Directors
held on April 15, April 17, April 29, May 6, and May 12, 2008 to consider and approve this
Agreement and the transactions contemplated hereby, which minutes have not yet been prepared.
(t) Insurance. Indian Villages Disclosure Schedule sets forth all of the insurance
policies, binders, or bonds maintained by Indian Village or its Subsidiaries. Indian Village and
its Subsidiaries are insured with reputable insurers against such risks and in such amounts as the
management of Indian Village reasonably has determined to be prudent in accordance with industry
practices. All such insurance policies are in full force and effect; Indian Village and its
Subsidiaries are not in material default thereunder; and all known claims thereunder have been
filed in due and timely fashion.
(u) Properties. Section 5.03(x) of Indian Villages Disclosure Schedule lists and
describes all real property, and any leasehold interest in real property, owned or held by Indian
Village or any of its Subsidiaries and used in the business of Indian Village or any of its
Subsidiaries. Indian Village and its Subsidiaries have good and (with respect to real property)
marketable title, free and clear of all Liens, to all of the properties and assets, real and
personal, reflected on the Indian Village Financial Statements as being owned by Indian Village as
of March 31, 2008, or acquired after such date, except (i) statutory Liens for amounts not yet due
and payable, (ii) pledges to secure deposits and other Liens incurred in the ordinary course of
banking business, (iii) with respect to real property, such imperfections of title, easements,
encumbrances, liens, charges, defaults or equitable interests, if any, as do not affect the use of
properties or assets subject thereto or affected thereby or otherwise materially impair business
operations at such properties, (iv) dispositions and encumbrances in the ordinary course of
A-30
business, and (v) liens on properties acquired in foreclosure or on account of debts previously
contracted. All leases pursuant to which Indian Village or any of its Subsidiaries, as lessee,
leases real or personal property (except for leases that have expired by their terms or that Indian
Village or any such Subsidiary has agreed to terminate since the date hereof) are valid without
default thereunder by the lessee or, to Indian Villages Knowledge, the lessor.
(v) Loans; Certain Transactions. Each loan reflected as an asset in the Indian
Village Financial Statements as of March 31, 2008, and each balance sheet date subsequent thereto
(i) is evidenced by notes, agreements or other evidences of indebtedness which are true, genuine
and what they purport to be, (ii) to the extent secured, has been secured by valid liens and
security interests which have been perfected, and (iii) is the legal, valid and binding obligation
of the obligor named therein, enforceable in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent conveyance and other laws of general applicability relating to or affecting
creditors rights and to general equity principles. No obligor under any of such loans has
asserted any claim or defense with respect to the subject matter thereof. Except as Previously
Disclosed, as of March 31, 2007, Indian Village Bank is not a party to a loan, including any loan
guaranty, with any director, executive officer or 5% shareholder of Indian Village or any of its
Subsidiaries or any person, corporation or enterprise controlling, controlled by or under common
control with any of the foregoing. All loans and extensions of credit that have been made by
Indian Village Bank and that are subject to 12 C.F.R. Part 31, comply therewith.
(w) Allowance for Loan Losses. Except as set forth in Section 5.03(w) of Indian
Villages Disclosure Schedule, there is no loan which was made by Indian Village Bank and which is
reflected as an asset of Indian Village or Indian Village Bank on Indian Villages Financial
Statements that (i)(A) is 90 days or more delinquent, (B) has been classified by examiners
(regulatory or internal) or by management of Indian Village or Indian Village Bank as
Substandard, Doubtful, Loss or Special Mention, or (C) has been identified by accountants
or auditors (regulatory or internal) as having a significant risk of uncollectability. The
allowance for loan losses reflected on Indian Villages Financial Statements was, as of each
respective date, determined in accordance with generally accepted accounting principles
consistently applied and in accordance with all rules and regulations applicable to Indian Village
and its Subsidiaries and was, as of the respective date thereof, adequate in all material respects
under the requirements of generally accepted accounting principles and applicable regulatory
requirements and guidelines to provide for reasonably anticipated losses on outstanding loans,
net of recoveries.
(x) Repurchase Agreements. With respect to all agreements pursuant to which Indian
Village or any of its Subsidiaries has purchased securities subject to an agreement to resell, if
any, Indian Village or such Subsidiary, as the case may be, has a valid, perfected first lien or
security interest in or evidence of ownership in book entry form of the government securities or
other collateral securing the repurchase agreement, and the value of such collateral equals or
exceeds the amount of the debt secured thereby.
(y) Deposit Insurance. The deposits of Indian Village Bank are insured by the FDIC in
accordance with The Federal Deposit Insurance Act (FDIA), and Indian Village Bank has
paid all assessments and filed all reports required by the FDIA and under the National
A-31
Housing Act
prior to the enactment of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989.
(z) Bank Secrecy Act, Anti-Money Laundering and OFAC and Customer Information. Indian
Village has no Knowledge of, has not been advised in writing of, and has no reason to believe that
any facts or circumstances exist, which would cause Indian Village or any of its Subsidiaries to be
deemed (i) to be operating in violation of the Bank Secrecy Act, the Patriot Act, any order issued
with respect to anti-money laundering by the U.S. Department of the Treasurys Office of Foreign
Assets Control, or any other applicable anti-money laundering Law; or (ii) not to be in
satisfactory compliance in any material respect with the applicable privacy and customer
information requirements contained in any federal and state privacy Laws, including without
limitation, in Title V of the Gramm-Leach-Bliley Act of 1999. Indian Village is not aware of any
facts or circumstances that would cause Indian Village to believe that any non-public customer
information has been disclosed to or accessed by an unauthorized third party in a manner that would
cause Indian Village or any of its Subsidiaries to undertake any material remedial action. The
Indian Village Board (or, where appropriate, the board of directors of one of Indian Villages
Subsidiaries) has adopted and implemented an anti-money laundering program that contains adequate
and appropriate customer identification verification procedures that comply with Section 326 of the
Patriot Act and such anti-money laundering program meets the requirements in all material respects
of Section 352 of the Patriot Act and the regulations thereunder, and Indian Village (or the
appropriate Subsidiary) has complied in all material respects with any requirements to file reports
and other necessary documents as required by the Patriot Act and the regulations thereunder.
(aa) CRA Compliance. Neither Indian Village nor any of its Subsidiaries has received
any notice of non-compliance with the applicable provisions of the Community Reinvestment Act and
the regulations promulgated thereunder, and Indian Village Bank has received a CRA rating of
satisfactory or better from the FDIC as a result of its most recent CRA examination. Neither
Indian Village nor any of its Subsidiaries knows of any fact or circumstance or set of facts or
circumstances which would be reasonably likely to cause Indian Village or one of its Subsidiaries
to receive notice of non-compliance with such provisions or cause the CRA rating of Indian Village
Bank to fall below satisfactory.
(bb) Related Party Transactions. Except as Previously Disclosed, neither Indian
Village nor any of its Subsidiaries has entered into any transactions with any Affiliate or
Associate of Indian Village or any of its Subsidiaries (or any Affiliate or Associate of any
director, officer or employee of Indian Village or any of its Subsidiaries).
(cc) Prohibited Payments. Indian Village and its Subsidiaries have not, directly or
indirectly: (i) made or agreed to make any contribution, payment or gift to any government
official, employee or agent where either the contribution, payment or gift or the purpose thereof
was illegal under the laws of any federal, state, local or foreign jurisdiction; (ii) established
or maintained any unrecorded fund or asset for any purpose or made any false entries on the books
and records of Indian Village or any of its Subsidiaries for any reason; (iii) made or agreed to
make any contribution, or reimbursed any political gift or contribution made by any other Person,
to any candidate for federal, state, local or foreign public office; or (iv) paid or delivered any
fee, commission or other sum of money or item of property, however
A-32
characterized, to any finder,
agent, government official or other party, in the United States or any other country, which in any
manner relates to the assets, business or operations of Indian Village or its Subsidiaries, which
Indian Village or any of its Subsidiaries knows or has reason to believe have been illegal under
any federal, state or local laws of the United States or any other country having jurisdiction.
(dd) Fairness Opinion. The Indian Village Board has received the written opinion of
Keller & Company, Inc., to the effect that, as of the date hereof, the Merger Consideration is fair
to the holders of Indian Village Common Shares from a financial point of view.
(ee) Absence of Undisclosed Liabilities. Neither Indian Village nor any of its
Subsidiaries has any liability (whether accrued, absolute, contingent or otherwise) that, either
individually or when combined with all liabilities as to similar matters, would have a Material
Adverse Effect on Indian Village on a consolidated basis, except as disclosed in the Indian Village
Financial Statements.
(ff) Material Adverse Change. Except as Previously Disclosed, Indian Village has not,
on a consolidated basis, suffered a change in its business, financial condition or results of
operations since June 30, 2007, that has had a Material Adverse Effect on Indian Village.
(gg) Disclosure. The representations and warranties contained in this Section 5.03 do
not contain any untrue statement of a material fact or omit to state any material fact necessary in
order to make the statements and information contained in this Section 5.03 not misleading.
5.04 Representations and Warranties of CSB. Subject to Sections 5.01 and 5.02 and except as
Previously Disclosed in a Section of its Disclosure Schedule corresponding to the relevant Section
below, CSB hereby represents and warrants to Indian Village that the following are true and
correct:
(a) Organization, Standing and Authority. CSB is a corporation duly organized,
validly existing and in good standing under the laws of the State of Ohio. CSB is duly qualified
to do business and is in good standing in the State of Ohio and any foreign
jurisdictions where its ownership or leasing of property or assets or the conduct of its
business requires it to be so qualified. CSB is registered as a bank holding company under the
BHCA. CSB Bank is a state commercial bank duly organized, validly existing and in good standing
under the laws of the State of Ohio. CSB Bank is duly qualified to do business and is in good
standing in the State of Ohio and any foreign jurisdictions where its ownership or leasing of
property or assets or the conduct of its business requires it to be so qualified.
(b) CSB Common Shares.
(i) As of the date of this Agreement, the authorized capital stock of CSB consists of
9,000,000 CSB Common Shares, of which 2,440,850 CSB Common Shares are outstanding. As of
the date of this Agreement, except as Previously Disclosed, CSB does not have any Rights
issued or outstanding with respect to CSB Common Shares and CSB does not have any commitment
to authorize, issue or sell any
A-33
CSB Common Shares or Rights, except pursuant to this
Agreement. The outstanding CSB Common Shares have been duly authorized and are validly
issued and outstanding, fully paid and nonassessable, and are not subject to any preemptive
rights (and were not issued in violation of any preemptive rights).
(ii) The CSB Common Shares to be issued in exchange for Indian Village Common Shares in
the Parent Merger, when issued in accordance with the terms of this Agreement, will be duly
authorized, validly issued, fully paid and nonassessable, and will not be subject to any
preemptive rights.
(c) Ownership of Indian Village Common Shares. As of the date of this Agreement, CSB
and its Subsidiaries are the beneficial owners of 12,500 of the outstanding Indian Village Common
Shares.
(d) Significant Subsidiaries. Each of CSBs Significant Subsidiaries has been duly
organized and is validly existing in good standing under the laws of the jurisdiction of its
organization, and is duly qualified to do business and is in good standing in the jurisdictions
where its ownership or leasing of property or the conduct of its business requires it to be so
qualified, and CSB owns, directly or indirectly, all the issued and outstanding equity securities
of each of its Significant Subsidiaries.
(e) Corporate Power. Each of CSB and its Significant Subsidiaries has full corporate
power and authority to carry on its business as it is now being conducted and to own all its
properties and assets. Subject to the approval of this Agreement and the Merger by applicable
Regulatory Authorities, CSB has the corporate power and authority to execute, deliver and perform
its obligations under this Agreement and the Voting Agreement and to consummate the transactions
contemplated hereby and thereby.
(f) Corporate Authority; Authorized and Effective Agreement. This Agreement and the
transactions contemplated hereby, including the Merger, have been authorized by all necessary
corporate action of CSB and the CSB Board prior to the date hereof. The Agreement to Merge, when
executed by CSB Bank, shall have been approved by the Board of Directors of CSB Bank and by CSB, as
the sole shareholder of CSB Bank. This Agreement is a valid and legally binding agreement of CSB,
enforceable against CSB in accordance with its
terms (except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and similar laws of general applicability relating
to or affecting creditors rights or by general equity principles).
(g) Regulatory Approvals; No Defaults.
(i) Except as Previously Disclosed, no consents or approvals of, or filings or
registrations with, the shareholders of CSB, any Governmental Authority or with any third
party are required to be made or obtained by CSB or any of its Significant Subsidiaries in
connection with the execution, delivery or performance by CSB of this Agreement or to
consummate the Merger except for (A) the filing of applications, notices, and the Agreement
to Merge, as applicable, with the federal and state banking authorities to approve the
transactions contemplated by this Agreement; (B) the filing and declaration of effectiveness
of the Registration Statement; (C) the filings of the certificate
A-34
of merger with the OSS
pursuant to the OGCL and the articles of merger with the PDS pursuant to the PBCL; (D) such
filings as are required to be made or approvals as are required to be obtained under the
securities or Blue Sky laws of various states in connection with the issuance of CSB
Common Shares in the Parent Merger; and (E) receipt of the approvals set forth in Section
7.01(b). As of the date hereof, CSB has no Knowledge of any reason why the approvals set
forth in Section 7.01(b) will not be received without the imposition of a condition,
restriction or requirement of the type described in Section 7.01(b).
(ii) Subject to the approvals set forth in Section 7.01(b), the expiration of related
regulatory waiting periods, and required filings under federal and state securities laws,
the execution, delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby do not and will not (A) result in a breach or violation of,
or a default under, or give rise to any Lien, any acceleration of remedies or any right of
termination under, any law, rule or regulation or any judgment, decree, order, governmental
permit or license, or agreement, indenture or instrument of CSB or of any of its Significant
Subsidiaries or to which CSB or any of its Significant Subsidiaries or properties is subject
or bound, (B) constitute a breach or violation of, or a default under, the CSB Articles or
CSB Code, or (C) require any consent or approval under any such law, rule, regulation,
judgment, decree, order, governmental permit or license, agreement, indenture or instrument.
(h) Financial Reports and SEC Documents; Material Adverse Effect.
(i) CSBs Annual Reports on Form 10-K for the fiscal years ended December 31, 2007 and
2006 and all other reports, registration statements, definitive proxy statements or other
statements filed or to be filed by it or any of its Significant Subsidiaries with the SEC
subsequent to December 31, 2007 under the Securities Act, or under Section 13(a), 13(c) 14
or 15(d) of the Exchange Act, in the form filed or to be filed (collectively, CSB SEC
Documents) as of the date filed (or if amended or superseded by a filing prior to the
date hereof then on the date of such amended or superseded filing), (A) complied or will
comply in all material respects with the applicable requirements under the Securities Act or
the Exchange Act, as the case may
be, and (B) did not and will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made, not
misleading; and each of the balance sheets or statements of condition contained in or
incorporated by reference into any such CSB SEC Document (including the related notes and
schedules thereto) fairly presents, or will fairly present, the financial position of CSB
and its Significant Subsidiaries as of its date, and each of the statements of income or
results of operations and changes in shareholders equity and cash flows or equivalent
statements in such CSB SEC Documents (including any related notes and schedules thereto)
fairly presents, or will fairly present, the results of operations, changes in shareholders
equity and cash flows, as the case may be, of CSB and its Significant Subsidiaries for the
periods to which they relate, in each case in accordance with generally accepted accounting
principles consistently applied during the periods involved, except in each
A-35
case as may be
noted therein, subject to normal year-end audit adjustments in the case of unaudited
statements.
(ii) Since March 31, 2008, no event has occurred or circumstance arisen that,
individually or taken together with all other facts, circumstances and events (described in
any paragraph of Section 5.04 or otherwise), is reasonably likely to have a Material Adverse
Effect with respect to CSB.
(iii) Management of CSB has established and maintains a system of internal accounting
controls sufficient to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles, including policies and procedures that (A)
pertain to the maintenance of records that in reasonable detail accurately and fairly
reflect the transactions and dispositions of the assets of CSB and its Subsidiaries; (B)
provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted accounting
principles, and that receipts and expenditures of CSB and its Subsidiaries are being made
only in accordance with authorizations of management and directors of CSB and its
Subsidiaries; and (C) provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use or disposition of the assets of CSB and its Subsidiaries
that could have a material effect on the financial statements. Management of CSB has
evaluated the effectiveness of CSBs and its Subsidiaries internal controls over financial
reporting as of the end of the fiscal year ended December 31, 2007 and the fiscal quarter
ended March 31, 2008 and, based on such evaluations, has disclosed in the CSB SEC Documents
(I) any significant deficiencies and material weaknesses in the design or operation of the
internal controls over financial reporting which are reasonably likely to adversely affect
CSBs ability to record, process, summarize and report financial information and (II) any
fraud, whether or not material, that involves management or other employees who have a
significant role in CSBs internal control over financial reporting. Since December 31,
2007, neither CSB nor any of its Subsidiaries nor, to CSBs Knowledge, any director,
officer, employee, auditor, accountant or representative of CSB or any of its Subsidiaries
has received or otherwise had or obtained Knowledge of any material complaint, allegation,
assertion or claim, whether written or oral, regarding the accounting or auditing practices,
procedures, methodologies or methods of
CSB or any of its Subsidiaries or their respective internal accounting controls,
including any material complaint, allegation, assertion or claim that CSB or any of its
Subsidiaries has engaged in questionable accounting or auditing practices.
(i) Litigation; Regulatory Action.
(i) No litigation, claim or other proceeding before any court or governmental agency is
pending against CSB or any of its Significant Subsidiaries and, to CSBs Knowledge, no such
litigation, claim or other proceeding has been threatened.
(ii) Neither CSB nor any of its Significant Subsidiaries or any of their respective
properties is a party to or is subject to any order, decree, agreement, memorandum of
understanding or similar arrangement with, or a commitment letter or
A-36
similar submission to,
or extraordinary supervisory letter from a Regulatory Authority, nor has CSB or any of its
Significant Subsidiaries been advised by a Regulatory Authority that such agency is
contemplating issuing or requesting (or is considering the appropriateness of issuing or
requesting) any such order, decree, agreement, memorandum of understanding, commitment
letter, supervisory letter or similar submission.
(j) Compliance with Laws. Except as Previously Disclosed, each of CSB and its
Significant Subsidiaries:
(i) is in compliance with all applicable federal, state, local and foreign statutes,
laws, regulations, ordinances, rules, judgments, orders or decrees applicable thereto or to
the employees conducting such businesses, including, without limitation, the Patriot Act,
the International Money Laundering Abatement and Anti-Terrorist Financing Act of 2001, the
Equal Credit Opportunity Act, the Fair Housing Act, the Community Reinvestment Act, the Home
Mortgage Disclosure Act, the Financial Services Modernization Act and all other applicable
fair lending laws and other laws relating to discriminatory business practices;
(ii) has all permits, licenses, authorizations, orders and approvals of, and has made
all filings, applications and registrations with, all Governmental Authorities and
Regulatory Authorities that are required in order to permit them to conduct their businesses
substantially as presently conducted; all such permits, licenses, certificates of authority,
orders and approvals are in full force and effect and, to the best of its Knowledge, no
suspension or cancellation of any of them is threatened; and
(iii) has not received, since December 31, 2006, any notification or communication from
any Governmental Authority (A) asserting that CSB or any of its Significant Subsidiaries is
not in compliance with any of the statutes, regulations, or ordinances which such
Governmental Authority enforces or (B) threatening to revoke any license, franchise, permit,
or governmental authorization (nor, to CSBs Knowledge, do any grounds for any of the
foregoing exist).
(k) Brokerage and Finders Fees. Except for the fees payable to Sandler ONeill &
Partners, L.P., neither CSB nor any of its Subsidiaries has engaged or employed any
broker, finder, or agent, or agreed to pay or incurred any brokerage fee, finders fee,
commission or other similar form of compensation in connection with this Agreement or the
transactions contemplated hereby.
(l) Tax Matters. (i) All Tax Returns that were or are required to be filed by or with
respect to CSB and its Subsidiaries have been duly and timely filed, or an appropriate extension
has been granted, (ii) all Taxes shown to be due on the Tax Returns referred to in clause (i) have
been paid in full, and all such Tax Returns are true, correct and complete in all material
respects, and (iii) no unexpired waivers of statutes of limitation have been given by or requested
with respect to any Taxes of CSB or its Significant Subsidiaries. Neither CSB nor any of its
Subsidiaries has any liability with respect to any Taxes that accrued on or before the end of the
most recent period covered by CSBs SEC Documents filed prior to the date hereof in excess of the
amounts accrued with respect thereto that are reflected in the financial statements included in
CSBs SEC Documents filed on or prior to the date hereof or that have arisen in the ordinary course
of business subsequent to the periods covered by such filings. As of the date hereof, CSB has no
reason to believe that any conditions exist that might prevent or impede the Parent Merger from
qualifying as reorganization with the meaning of Section 368(a) of the Code.
A-37
in
CSBs SEC Documents filed on or prior to the date hereof or that have arisen in the ordinary course
of business subsequent to the periods covered by such filings. As of the date hereof, CSB has no
reason to believe that any conditions exist that might prevent or impede the Parent Merger from
qualifying as reorganization with the meaning of Section 368(a) of the Code.
(m) Books and Records. The books of account, minute books, stock record books, and
other records of CSB and its Subsidiaries are complete and correct in all material respects, have
been maintained in accordance with sound business practices and the requirements of Section
13(b)(2) of the Exchange Act, and fairly present the substance of events and transactions included
therein.
(n) Disclosure. The representations and warranties contained in this Section 5.04 do
not contain any untrue statement of a material fact or omit to state any material fact necessary in
order to make the statements and information contained in this Section 5.04 not misleading.
(o) Material Adverse Change. CSB has not, on a consolidated basis, suffered a change
in its business, financial condition or results of operations since December 31, 2007, that has had
a Material Adverse Effect on CSB.
(p) Cash Consideration. CSB has available to it sufficient funds to pay the aggregate
Per Share Cash Consideration pursuant to Article III.
ARTICLE VI
Covenants
6.01 Reasonable Best Efforts. Subject to the terms and conditions of this Agreement, each of
Indian Village and CSB shall use its reasonable best efforts in good faith 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, so as to permit
consummation of the Merger as promptly as practicable and otherwise to enable consummation of
the transactions contemplated hereby and shall cooperate fully with the other party hereto to that
end.
6.02 Shareholder Approval. Indian Village a shall take, in accordance with applicable law and
the Indian Village Articles and Indian Village Bylaws, all action necessary to convene an
appropriate meeting of its shareholders to consider and vote upon the adoption of this Agreement
and any other matters required to be approved or adopted by the Indian Village shareholders for
consummation of the Parent Merger (including any adjournment or postponement, the Indian
Village Meeting), as promptly as practicable after the Registration Statement is declared
effective. The Indian Village Board shall unanimously recommend that its shareholders adopt this
Agreement at the Indian Village Meeting, unless otherwise necessary because of the applicable
fiduciary duties of the Indian Village Board, as determined by the Indian Village Board in good
faith after consultation with and based upon advice of independent legal counsel.
A-38
6.03 Registration Statement.
(a) CSB shall prepare pursuant to all applicable laws, rules and regulations a registration
statement on Form S-4 (such registration statement and all amendments or supplements thereto, the
Registration Statement) to be filed by CSB with the SEC in connection with the issuance
of CSB Common Shares in the Parent Merger (including the proxy statement/prospectus and other proxy
solicitation materials of Indian Village constituting a part thereof (the Proxy
Statement/Prospectus) and all related documents). Indian Village agrees to cooperate, and to
cause its Subsidiaries to cooperate, with CSB, its legal counsel and its accountants, in
preparation of the Registration Statement and the Proxy Statement/Prospectus. Each of Indian
Village and CSB shall use all reasonable efforts to cause the Registration Statement to be declared
effective under the Securities Act as promptly as reasonably practicable after filing thereof. CSB
shall use all reasonable efforts to obtain all necessary state securities law or Blue Sky permits
and approvals required to carry out the transactions contemplated by this Agreement. Indian
Village agrees to furnish to CSB all information concerning Indian Village, its Subsidiaries,
officers, directors and shareholders as may be reasonably requested in connection with the
foregoing.
(b) None of the information supplied or to be supplied by Indian Village or CSB, respectively,
for inclusion or incorporation by reference in (i) the Registration Statement, at the time the
Registration Statement and each amendment or supplement thereto, if any, becomes effective under
the Securities Act, shall contain any untrue statement of a material fact or shall omit to state
any material fact required to be stated therein or necessary to make the statements therein not
misleading, and (ii) the Proxy Statement/Prospectus and any amendment or supplement thereto, at the
date of mailing to the Indian Village shareholders and at the time of the Indian Village Meeting,
as the case may be, shall contain any untrue statement of a material fact or shall omit to state
any material fact required to be stated therein or necessary to make the statements therein not
misleading or any statement which, in the light of the circumstances under which such statement is
made, will be false or misleading with respect to any material fact, or which will omit to state
any material fact necessary in order to make the statements therein not false or misleading or
necessary to correct any statement in any earlier statement in the Proxy
Statement or any amendment or supplement thereto. If Indian Village shall become aware prior
to the Effective Time of any information furnished by Indian Village that would cause any of the
statements in the Proxy Statement/Prospectus to be false or misleading with respect to any material
fact, or to omit to state any material fact necessary to make the statements therein not false or
misleading, Indian Village shall promptly inform CSB thereof and take the necessary steps to
correct the Proxy Statement/Prospectus. If CSB shall become aware prior to the Effective Time of
any information furnished by CSB that would cause any of the statements in the Proxy
Statement/Prospectus to be false or misleading with respect to any material fact, or to omit to
state any material fact necessary to make the statements therein not false or misleading, CSB shall
promptly inform Indian Village thereof and take the necessary steps to correct the Proxy
Statement/Prospectus.
(c) CSB shall advise Indian Village, promptly after CSB receives notice thereof, of the time
when the Registration Statement has become effective or any supplement or amendment has been filed,
of the issuance of any stop order or the suspension of the qualification of CSB Common Shares for
offering or sale in any jurisdiction, of the initiation or
A-39
threat of any proceeding for any such
purpose, or of any request by the SEC for the amendment or supplement of the Registration Statement
or for additional information.
6.04 Press Releases. Upon the execution of this Agreement, CSB and Indian Village shall issue
a joint press release regarding this Agreement and the transactions contemplated hereby, which
joint press release shall be subject to the prior approval of CSB and Indian Village. Neither
Indian Village nor CSB will, without the prior approval of the other party, issue any other press
release or written statement for general circulation relating to the transactions contemplated
hereby, except as otherwise may be required to be made by applicable law or regulation before such
consent can be obtained.
6.05 Access; Information.
(a) Indian Village shall afford, upon reasonable notice and subject to applicable laws
relating to the exchange of information, CSB and its officers, employees, legal counsel,
accountants and other authorized representatives, such access during normal business hours
throughout the period prior to the Effective Time to the books, records (including, without
limitation, tax returns and work papers of independent auditors), properties and personnel and such
other information as CSB may reasonably request and, during such period, (i) shall furnish promptly
to CSB a copy of each material report, schedule and other document filed by it pursuant to federal
or state securities or banking laws, to the extent permitted by applicable law and regulations; and
(ii) shall grant access to all other information concerning the business, properties and personnel
of Indian Village as CSB may reasonably request.
(b) CSB will not, and will cause its representatives not to, use any information obtained
pursuant to this Section 6.05 (as well as any other information obtained prior to the date hereof
in connection with the entering into of this Agreement) for any purpose unrelated to the
consummation of the transactions contemplated by this Agreement, and such information will be
subject to the confidentiality provisions of Section 6.17.
(c) In the event that this Agreement is terminated or the transactions contemplated by this
Agreement shall otherwise fail to be consummated, each party shall
promptly cause all copies of documents or extracts thereof containing information and data as
to another party hereto to be returned to the party which furnished the same. No investigation by
either party of the business and affairs of the other shall affect or be deemed to modify or waive
any representation, warranty, covenant or agreement in this Agreement, or the conditions to either
partys obligation to consummate the transactions contemplated by this Agreement.
(d) During the period from the date of this Agreement to the Effective Time, Indian Village
shall deliver to CSB the monthly and quarterly unaudited consolidated financial statements of
Indian Village prepared for its internal use and the report of condition and income of Indian
Village Bank for each quarterly period completed prior to the Effective Date as the same shall
become available.
(e) During the period from the date of this Agreement to the Effective Time, CSB shall deliver
to Indian Village any and all published financial statements of CSB and its Subsidiaries as the
same shall become publicly available and shall furnish promptly to Indian Village a copy of each
material report, schedule and other document filed by CSB or any of its
A-40
Subsidiaries pursuant to
federal or state securities or banking laws, to the extent permitted by applicable law and
regulations.
6.06 Acquisition Proposals; Break Up Fee.
(a) Indian Village shall not, and shall cause its Subsidiaries and the officers, directors,
employees, advisors and other agents of Indian Village and its Subsidiaries not to, directly or
indirectly, take any action to solicit or initiate inquiries or proposals with respect to, or
engage in negotiations concerning, or provide any confidential information to, any Person, other
than CSB, relating to (i) any acquisition or purchase of all or substantially all of the assets of
Indian Village and/or any of its Subsidiaries or (ii) any merger, consolidation or business
combination with Indian Village and/or any of its Subsidiaries (hereinafter collectively referred
to as an Acquisition Proposal); provided, however, that nothing contained
in this section shall prohibit Indian Village from furnishing information to, or entering into
discussion or negotiations with, any Person which makes an unsolicited Acquisition Proposal if and
to the extent that (I) the Indian Village Board, after consultation with and based upon the advice
of legal counsel, determines in good faith that such action is required to fulfill its fiduciary
duties to the shareholders of Indian Village under applicable law and (II) before furnishing such
information to, or entering into discussions or negotiations with, such Person, Indian Village
provides immediate written notice to CSB of such action, the identity of the bidder and the
substance of such Acquisition Proposal.
(b) In the event that Indian Village and/or any of its Subsidiaries executes a definitive
agreement in respect of, or closes, an Acquisition Proposal, Indian Village shall pay to CSB in
immediately available funds the sum of $400,000 within ten (10) days after the earlier of such
execution or closing.
6.07 Takeover Laws. No party hereto shall take any action that would cause the transactions
contemplated by this Agreement or the Voting Agreement to be subject to requirements imposed by any
Takeover Law and each of them shall take all necessary steps within its control to exempt (or
ensure the continued exemption of) this
Agreement, the Voting Agreement and the transactions contemplated by this Agreement from or,
if necessary, challenge the validity or applicability of, any applicable Takeover Law, as now or
hereafter in effect.
6.08 Certain Policies. Before the Effective Time, Indian Village shall, upon the request of
CSB, (i) modify and change its loan, investment portfolio, asset liability management and real
estate valuation policies and practices (including, but not limited to, loan classifications and
levels of reserves) so that such policies and practices may be applied on a basis that is
consistent with those of CSB and (ii) evaluate the need for any reserves including, but not limited
to, reserves relating to any outstanding litigation, any Tax audits or any liabilities to be
incurred upon cancellation of any contracts as a result of the Merger; provided,
however, that Indian Village shall not be obligated to take any such action pursuant to
this Section 6.08 unless and until CSB acknowledges that all conditions to its obligation to
consummate the Merger have been satisfied (including, but not limited to, the receipt of the
regulatory approvals required by Section 7.01(b)) and certifies to Indian Village that CSBs
representations and warranties, subject to Section 5.02, are true and correct as of such date and
that CSB is otherwise in material compliance with this Agreement; provided further,
however, that Indian Village shall not be
A-41
obligated to take any such action pursuant to
this Section 6.08 if such action would be clearly inconsistent with generally accepted accounting
principles, or if the Indian Village Board determines in good faith after consultation with and
based upon advice of legal counsel that such action would be contrary to applicable law or
regulation or inconsistent with applicable fiduciary duties of the Indian Village Board. Indian
Villages representations, warranties and covenants contained in this Agreement shall not be deemed
to be untrue or breached in any respect for any purpose as a consequence of any modifications or
changes undertaken solely on account of this Section 6.08.
6.09 Regulatory Applications.
(a) CSB and Indian Village and their respective Subsidiaries shall cooperate and use their
respective reasonable best efforts to prepare all applications and requests for regulatory
approval, to timely effect all filings and to obtain all permits, consents, approvals and
authorizations of all third parties and Governmental Authorities necessary to consummate the
transactions contemplated by this Agreement. Each of CSB and Indian Village shall have the right
to review in advance, and to the extent practicable each will consult with the other, in each case
subject to applicable laws relating to the exchange of information, with respect to, and shall be
provided in advance so as to reasonably exercise its right to review in advance, all material
written information submitted to any third party or any Governmental Authority in connection with
the transactions contemplated by this Agreement. In exercising the foregoing right, each of the
parties hereto agrees to act reasonably and as promptly as practicable. Each party hereto agrees
that it will consult with the other party hereto with respect to the obtaining of all material
permits, consents, approvals and authorizations of all third parties and Governmental Authorities
necessary or advisable to consummate the transactions contemplated by this Agreement and each party
will keep the other party apprised of the status of material matters relating to completion of the
transactions contemplated hereby.
(b) Each party agrees, upon request, to furnish the other party with all information
concerning itself, its Subsidiaries, directors, officers and shareholders and such other
matters as may be reasonably necessary or advisable in connection with any filing, notice or
application made by or on behalf of such other party or any of its Subsidiaries to any third party
or Governmental Authority.
6.10 Employment Matters; Employee Benefits.
(a) General. It is understood and agreed that nothing in this Section 6.10 or
elsewhere in this Agreement shall be deemed to be a contract of employment or be construed to give
Indian Village employees any rights other than as employees at will under applicable law, and
Indian Village employees shall not be deemed to be third-party beneficiaries of this Agreement.
Employees of Indian Village who become employees of CSB as a result of the Merger shall, as
determined by CSB, participate in either Indian Villages Compensation and Benefit Plans (for so
long as CSB determines necessary or appropriate) or in the employee benefit plans sponsored by CSB
for CSBs employees (with credit for their years of service with Indian Village for participation
and vesting purposes under CSBs applicable plans), including credit for years of service and for
seniority under vacation and sick pay plans and programs. In addition, to the extent Indian
Village employees participate in CSBs group health plan (instead of continued participation
A-42
in Indian Villages group health plan), CSB agrees to waive all restrictions and limitations for
pre-existing conditions under CSBs group health plan.
(b) Employment Agreements. Contemporaneously with the execution of this Agreement,
CSB, Indian Village and Indian Village Bank will enter into a Severance Payment Agreement with each
officer who is a party to an employment agreement with Indian Village and/or Indian Village Bank
that, unless extended, would expire in accordance with its terms before the Effective Time
(collectively, the Severance Payment Agreements). Nothing contained herein shall prohibit or
restrict Indian Village and/or Indian Village Bank from entering into an extension of any
Previously Disclosed employment agreement on such terms and conditions as the Indian Village Board
deems appropriate; provided, however, that (i) Indian Village and/or Indian Village
Bank must obtain all necessary approvals from Regulatory Authorities in connection with such
extension; (ii) the terms and conditions of each such employment agreement, as extended, shall
provide that the employment agreement shall terminate upon the earlier of the Effective Time or the
date specified therein; and (iii) such employment agreement, as extended, shall not create, confirm
or extend any liability or obligation of CSB, Indian Village or Indian Village Bank (including any
liability or obligation to make any payments or provide any benefits) after the Effective Date,
except as provided by the Severance Payment Agreements.
(c) Employee Severance. Subject to any applicable regulatory restrictions, CSB shall
pay to each employee of Indian Village or any of its Subsidiaries immediately before the Effective
Time who is not covered by a written employment, severance or change in control agreement and who
is not offered continued employment by CSB or any of its Subsidiaries after the Effective Time a
severance amount equal to one (1) week of his or her base pay multiplied by the number of years of
service with Indian Village and/or any of its Subsidiaries; provided, however, that
the minimum severance payment shall equal one (1) week of base pay and the maximum severance
payment shall not exceed thirteen (13) weeks of base pay.
(d) Indian Village 401(k) Plan. Prior to the Effective Date, but after the receipt of
the last to be obtained of the Indian Village Shareholder Adoption and the regulatory approvals
required by Section 7.01(b) of this Agreement, the Indian Village Board shall adopt a resolution
approving the termination of the Indian Village Community Bank 401(k) Plan (the Indian Village
401(k) Plan) effective as of a date immediately preceding the Effective Date. Following the
adoption of such resolution, Indian Village shall (i) amend the Indian Village 401(k) Plan to
provide for distributions in cash only as permitted by Section 411(d)(6)(C) of the Code, (ii) begin
the process of requesting from the IRS a determination that the termination of the Indian Village
401(k) Plan is in compliance with Section 401(a) of the Code (the Determination Letter),
and (iii) prior to the Effective Date, repurchase any Indian Village Shares owned by the Indian
Village 401(k) Plan (the Indian Village 401(k) Shares) in exchange for cash in the amount
of $17.50 per share. Following the receipt of the Determination Letter, Indian Village or the
Surviving Corporation, as applicable, shall distribute benefits under the Indian Village 401(k)
Plan to plan participants. CSB agrees to take all steps necessary or appropriate to accept
roll-overs of benefits from the Indian Village 401(k) Plan to the CSB 401(k) plan for employees of
Indian Village and its Subsidiaries who continue as employees of CSB and its Subsidiaries after the
Effective Time.
A-43
(e) Indian Village ESOP. Prior to the Effective Date, the Indian Village Board shall
amend the Indian Village Community Bank Employee Stock Ownership Plan (the Indian Village
ESOP) to provide for (i) the termination of the Indian Village ESOP as of an effective date
prior to the Effective Date (Termination Date); (ii) the full vesting of the benefits
held by the participants of the Indian Village ESOP as of the Termination Date; and (iii) the
allocation of securities and funds held in the unallocated account after the repayment of the
outstanding ESOP loan. From and after the date of this Agreement, Indian Village shall make no
further contributions to the Indian Village ESOP. From and after the date of this Agreement,
Indian Village and CSB shall cooperate with each other and use their best efforts to obtain a
Determination Letter with respect to the termination of the Indian Village ESOP. As soon after the
Effective Date as is practicable, the Surviving Corporation will cause the outstanding balance of
the Indian Village ESOP loan to be repaid using the proceeds received in the Merger by the Indian
Village ESOP in exchange for the unallocated Indian Village Common Shares. After the Director,
Employee Plans Rulings and Agreements of the IRS issues a Determination letter with respect to the
termination of the Indian Village ESOP, the Surviving Corporation, as soon thereafter as
practicable, shall (a) cause the Indian Village ESOP to make all final allocations to participants
in accordance with the terms of the Indian Village ESOP, and (b) distribute the Indian Village ESOP
benefits to the Indian Village ESOP participants pursuant to the terms of the Indian Village ESOP.
6.11 Notification of Certain Matters. Each of Indian Village and CSB shall give prompt notice
to the other of any fact, event or circumstance known to it that (i) is reasonably likely,
individually or taken together with all other facts, events and circumstances known to it, to
result in any Material Adverse Effect with respect to it or (ii) would cause or constitute a
material breach of any of its representations, warranties, covenants or agreements contained
herein.
6.12 Accounting and Tax Treatment. Each of CSB and Indian Village agrees not to take any
actions subsequent to the date of
this Agreement that would adversely affect the characterization of the Merger as a tax-free
reorganization under Section 368(a) of the Code.
6.13 No Breaches of Representations and Warranties. Between the date of this Agreement and
the Effective Time, without the written consent of the other party, each of CSB and Indian Village
will not do any act or suffer any omission of any nature whatsoever which would cause any of the
representations or warranties made in Article V of this Agreement to become untrue or incorrect in
any material respect.
6.14 Consents. Each of CSB and Indian Village shall use its best efforts to obtain any
required consents to the transactions contemplated by this Agreement.
6.15 Insurance Coverage. Indian Village shall cause the policies of insurance listed in the
Disclosure Schedule to remain in effect between the date of this Agreement and the Effective Date.
6.16 Correction of Information. Each of CSB and Indian Village shall promptly correct and
supplement any information furnished under this Agreement so that such information shall be correct
and complete in all material respects at all times, and shall include all facts necessary to make
such information correct and complete in all material respects at all times.
A-44
6.17 Confidentiality. Except for the use of information in connection with the Registration
Statement described in Section 6.03 hereof and any other governmental filings required in order to
complete the transactions contemplated by this Agreement, all information (collectively, the
Information) received by each of Indian Village and CSB pursuant to the terms of this
Agreement shall be kept in strictest confidence; provided that, subsequent to the filing of the
Registration Statement with the SEC, this Section 6.17 shall not apply to information included in
the Registration Statement or to be included in the Proxy Statement/Prospectus to be sent to the
shareholders of Indian Village and CSB under Section 6.03. Indian Village and CSB agree that the
Information will be used only for the purpose of completing the transactions contemplated by this
Agreement. Indian Village and CSB agree to hold the Information in strictest confidence and shall
not use, and shall not disclose directly or indirectly any of such Information except when, after
and to the extent such Information (i) is or becomes generally available to the public other than
through the failure of Indian Village or CSB to fulfill its obligations hereunder, (ii) was already
known to the party receiving the Information on a nonconfidential basis prior to the disclosure or
(iii) is subsequently disclosed to the party receiving the Information on a nonconfidential basis
by a third party having no obligation of confidentiality to the party disclosing the Information.
In the event the transactions contemplated by this Agreement are not consummated, Indian Village
and CSB agree to return all copies of the Information provided to the other promptly.
6.18 Supplemental Assurances.
(a) On the date the Registration Statement becomes effective and on the Effective Date, Indian
Village shall deliver to CSB a certificate signed by its principal executive
officer and its principal financial officer to the effect, to such officers Knowledge, that
the information contained in the Registration Statement relating to the business and financial
condition and affairs of Indian Village, does not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to make the
statements therein not misleading.
(b) On the date the Registration Statement becomes effective and on the Effective Date, CSB
shall deliver to Indian Village a certificate signed by its chief executive officer and its chief
financial officer to the effect, to such officers Knowledge, that the Registration Statement
(other than the information contained therein relating to the business and financial condition and
affairs of Indian Village) does not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the statements therein
not misleading.
6.19 Regulatory Matters. CSB, Indian Village and each of their Subsidiaries shall cooperate
and each of them agrees to use its reasonable best efforts to remediate any order, decree,
agreement, memorandum of understanding or similar agreement by Indian Village or any of its
Subsidiaries with, or a commitment letter, board resolution or similar submission by Indian Village
or any of its Subsidiaries to, or supervisory letter from any Regulatory Authority to Indian
Village or any of its Subsidiaries, to the satisfaction of such Regulatory Authority.
6.20 Establishment of Bank Community Board. At the Effective Time, and for a period of one
(1) year thereafter, CSB shall establish and maintain a Bank Community Board to be comprised of
three (3) members of the Indian Village Board selected by Indian Village and
A-45
approved by CSB. The
Bank Community Board will meet quarterly, and the members thereof will be entitled to receive a fee
in the amount of $500 for each meeting attended.
6.21 Indemnification; Directors and Officers Liability Insurance.
(a) For a period of four (4) years after the Effective Time, CSB shall indemnify each Person
who served as a director or officer of Indian Village and/or Indian Village Bank on or before the
Effective Time, to the fullest extent provided by the Indian Village Articles and the Indian
Village Bylaws, from and against expenses, including attorneys fees, judgments, fines and amounts
paid in settlement in connection with any threatened, pending or completed action, suit or
proceeding by reason of the fact that such Person was a director or officer of Indian Village;
provided, however, that any such indemnification shall be subject to compliance
with the provisions of applicable state and federal laws, including, without limitation, the
provisions of 12 U.S.C. § 1828(k) and Part 359 of the FDICs regulations (12 C.F.R. Part 359).
(b) Before the Effective Time, Indian Village shall purchase a policy of Directors and
Officers Liability Insurance (D&O Policy) to be effective for a period of up to three
(3) years following the Effective Date, and in no event less than (1) year following the Effective
Date, on terms no less advantageous than those contained in Indian Villages existing
officers and directors liability insurance policy; provided, however, that
Indian Village shall not be required to pay an annual premium for the D&O Policy that is in excess
of $30,000.
6.22 Non-Solicitation. CSB agrees that, if this Agreement is terminated pursuant to Article
VIII, neither it nor any of its Subsidiaries will, for a period of twelve (12) months following the
effective date of such termination, solicit any officer or employee of Indian Village or any of its
Subsidiaries to leave the employment of Indian Village or any of its Subsidiaries, other than by
way of general solicitations not targeted to the officers or employees of Indian Village and its
Subsidiaries specifically.
ARTICLE VII
Conditions to Consummation of the Merger
7.01 Conditions to Each Partys Obligation to Effect the Merger. The respective obligation of
each of CSB and Indian Village to consummate the Merger is subject to the fulfillment or written
waiver by CSB and Indian Village prior to the Effective Time of each of the following conditions:
(a) Shareholder Approval. This Agreement and the Merger shall have been duly adopted
and approved by the requisite vote of the shareholders of Indian Village.
(b) Regulatory Approvals. All regulatory approvals required to consummate the
transactions contemplated hereby shall have been obtained and shall remain in full force and effect
and all statutory waiting periods in respect thereof shall have expired and no such approvals shall
contain (i) any conditions, restrictions or requirements which the CSB Board reasonably determines
would either before or after the Effective Time have a Material Adverse Effect on CSB and its
Subsidiaries taken as a whole after giving effect to the consummation of
A-46
the Merger, or (ii) any
conditions, restrictions or requirements that are not customary and usual for approvals of such
type and which the CSB Board reasonably determines would either before or after the Effective Time
be unduly burdensome. For purposes of this Section 7.01(b), any regulatory approval that does not
result in the termination of all outstanding Regulatory Orders applicable to Indian Village and/or
its Subsidiaries prior to or at the Effective Time shall be deemed to have a Material Adverse
Effect on CSB and its Subsidiaries taken as a whole after giving effect to the consummation of the
Merger (unless the lack of termination is a result of action or inaction by CSB).
(c) No Injunction. No Governmental Authority of competent jurisdiction shall have
enacted, issued, promulgated, enforced or entered any statute, rule, regulation, judgment, decree,
injunction or other order (whether temporary, preliminary or permanent) which is in effect and
prohibits consummation of the transactions contemplated by this Agreement.
(d) Registration Statement. The Registration Statement shall have become effective
under the Securities Act, no stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for that purpose shall have been initiated
or threatened by the SEC.
(e) Blue Sky Approvals. All permits and other authorizations under state securities
laws necessary to consummate the transactions contemplated hereby and to issue the shares of CSB
Common Shares to be issued in the Parent Merger shall have been received and be in full force and
effect.
(f) Tax Opinion. Indian Village and CSB shall have received an opinion of Vorys,
Sater, Seymour and Pease LLP, counsel to CSB, dated the Effective Date, to the effect that, on the
basis of facts, representations and assumptions set forth in such opinion, the Parent Merger
constitutes a reorganization within the meaning of Section 368(a) of the Code. In rendering its
opinion, counsel to CSB shall require, and CSB and Indian Village shall supply, reasonable and
customary written representations.
7.02 Conditions to Obligation of Indian Village. The obligation of Indian Village to
consummate the Merger is also subject to the fulfillment or written waiver by Indian Village prior
to the Effective Time of each of the following conditions:
(a) Representations and Warranties. The representations and warranties of CSB set
forth in this Agreement shall be true and correct, subject to Section 5.02, as of the date of this
Agreement and as of the Effective Time as though made on and as of the Effective Time (except that
representations and warranties that by their terms speak as of the date of this Agreement or some
other date shall be true and correct as of such date), and Indian Village shall have received a
certificate, dated the Effective Date, signed on behalf of CSB by the Chief Executive Officer and
the Chief Financial Officer of CSB, to such effect.
(b) Performance of Obligations of CSB. CSB shall have performed in all material
respects all obligations required to be performed by CSB under this Agreement at or prior to the
Effective Time, and Indian Village shall have received a certificate, dated the
A-47
Effective Date,
signed on behalf of CSB by the Chief Executive Officer and the Chief Financial Officer of CSB to
such effect.
(c) No Material Adverse Effect. From the date of this Agreement, there shall not have
occurred any event, circumstance or development that has had or could reasonably be expected to
have a Material Adverse Effect on CSB.
(d) Execution of Severance Pay Agreements. CSB shall have entered into a severance
pay agreement reflecting the terms and conditions of Section 6.10(b) with each officer who is a
party to an employment agreement with Indian Village and/or Indian Village Bank that, unless
extended, would expire in accordance with its terms prior to the Effective Time.
7.03 Conditions to Obligation of CSB. The obligation of CSB to consummate the Merger is also
subject to the fulfillment or written waiver by CSB prior to the Effective Time of each of the
following conditions:
(a) Representations and Warranties. The representations and warranties of Indian
Village set forth in this Agreement shall be true and correct, subject to Section 5.02, as of the
date of this Agreement and as of the Effective Time as though made on and as of the Effective Time
(except that representations and warranties that by their terms speak as of the date of this
Agreement or some other date shall be true and correct as of such date) and CSB shall have received
a certificate, dated the Effective Date, signed on behalf of Indian Village by the Chief Executive
Officer and the Chief Financial Officer of Indian Village to such effect.
(b) Performance of Obligations of Indian Village. Indian Village shall have performed
in all material respects all obligations required to be performed by it under this Agreement at or
prior to the Effective Time, and CSB shall have received a certificate, dated the Effective Date,
signed on behalf of Indian Village by the Chief Executive Officer and the Chief Financial Officer
of Indian Village to such effect.
(c) Outstanding Option Cancellation Agreements. CSB shall have received from each
holder of an Outstanding Option an executed and legally binding agreement pursuant to which each
such option is cancelled and terminated.
(d) Consents. Indian Village shall have obtained the consent or approval of each
person (other than Governmental Authorities) whose consent or approval shall be required in
connection with the transactions contemplated hereby under any loan or credit agreement, note,
mortgage, indenture, lease, license or other agreement or instrument, except those for which
failure to obtain such consents and approvals would not, individually or in the aggregate, have a
Material Adverse Effect, after the Effective Time, on the Surviving Corporation.
(e) FIRPTA Certification. CSB shall have received a statement executed on behalf of
Indian Village, dated as of the Effective Date, certifying that the Indian Village Common Shares do
not represent United States real property interests within the meaning of Section 897 of the Code
and the Treasury Department regulations promulgated thereunder.
(f) Financial Tests. Indian Village shall have satisfied the following financial
tests as of the month end immediately preceding the month in which the Effective Time occurs:
A-48
(i)
Indian Villages allowance for loan losses shall be at least 1.25% of the amount of Indian
Villages total gross loans and at least 45% of the amount of Indian Villages total non-performing
assets; (ii) Indian Villages tangible net worth, as calculated in accordance with generally
accepted accounting principles and in a manner consistent with Indian Villages Financial
Statements, shall be at least $7,600,000, excluding the effect of any action taken by Indian
Village pursuant to Section 6.08; provided, however, that an aggregate
amount of up to $100,000 of fees and costs incurred or accrued by Indian Village in connection with
the Merger and this Agreement, including fees payable to Indian Villages financial advisor and
attorneys, shall not be taken into account in determining Indian Villages tangible net worth; and
(iii) the deposits (excluding any brokered deposits) of Indian Village Bank as of the month end
immediately preceding the Effective Date shall include (A) total checking, savings and money market
account deposits of not less than $13,500,000 and (B) total certificates of deposit (excluding
brokered certificates of deposit) of not less than $43,000,000.
(g) Dissenting Shares. The holders of not more than five percent (5%) of the
outstanding Indian Village Common Shares shall have perfected their dissenters rights under
Subchapter D of Chapter 15 of the PBCL in connection with the transactions contemplated by this
Agreement.
(h) Disposition of Interest in Alban Title, LLC. Indian Village Bank shall have sold,
liquidated or otherwise disposed of its entire ownership interest in Alban Title, LLC without any
continuing obligations or liabilities with respect thereto.
(i) No Material Adverse Effect. From the date of this Agreement, there shall not have
occurred any event, circumstance or development that has had or could reasonably be expected to
have a Material Adverse Effect on Indian Village.
(j) D&O Policy. Indian Village shall have procured the D&O Policy in accordance with
the terms and subject to the conditions of Section 6.21(b).
ARTICLE VIII
Termination
8.01 Termination. This Agreement may be terminated, and the Merger may be abandoned:
(a) Mutual Consent. At any time prior to the Effective Time, by the mutual consent of
CSB and Indian Village, if the Board of Directors of each so determines by vote of a majority of
the members of its entire Board.
(b) Breach. At any time prior to the Effective Time, by CSB or Indian Village upon
written notice to the other party, if its respective Board of Directors so determines by vote of a
majority of the members of its entire Board, in the event of either: (i) a breach by the other
party of any representation or warranty contained herein (subject to the standard set forth in
Section 5.02), which breach cannot be or has not been
A-49
cured within thirty (30) days after the
giving of written notice to the breaching party of such breach; or (ii) a breach by the other party
of any of the covenants or agreements contained herein, which breach cannot be or has not been
cured within thirty (30) days after the giving of written notice to the breaching party of such
breach; provided, however, that such breach (whether under (i) or (ii))
would be reasonably likely, individually or in the aggregate with other breaches, to result in a
Material Adverse Effect.
(c) Delay. At any time prior to the Effective Time, by CSB or Indian Village upon
written notice to the other party, if its respective Board of Directors so determines by vote of a
majority of the members of its entire Board, in the event that the Parent Merger is not consummated
by November 30, 2008, except to the extent that the failure of the Parent Merger then to be
consummated arises out of or results from the knowing action or inaction of the party seeking to
terminate pursuant to this Section 8.01(c).
(d) No Approval. By Indian Village or CSB upon written notice to the other party, if
its Board of Directors so determines by a vote of a majority of the members of its entire Board, in
the event (i) the approval of any Governmental Authority required for consummation of the Merger
and the other transactions contemplated by this Agreement shall have been denied by final
nonappealable action of such Governmental Authority or (ii) the Indian Village shareholders fail to
adopt this Agreement and approve the Merger at the Indian Village Meeting.
(e) Payment Pursuant to Section 6.06. Upon a payment made to CSB in accordance with
Section 6.06, this Agreement shall automatically terminate without further act or action by either
Indian Village or CSB.
8.02 Effect of Termination and Abandonment, Enforcement of Agreement. In the event of
termination of this Agreement and the abandonment of the Merger pursuant to this Article VIII, no
party to this Agreement shall have any liability or further obligation to any other party hereunder
except (i) as set forth in Section 9.01 and (ii) that termination will not relieve a breaching
party from liability for any willful breach of this Agreement giving rise to such termination.
Notwithstanding anything contained herein to the contrary, the parties hereto agree that
irreparable damage will occur in the event that a party breaches any of its obligations, duties,
covenants and agreements contained herein. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent breaches or threatened breaches of this
Agreement and to enforce specifically the terms and provisions of this Agreement in any court of
the United States or any state having jurisdiction, this being in addition to any other remedy to
which they are entitled by law or in equity.
ARTICLE IX
Miscellaneous
9.01 Survival. No representations, warranties, agreements and covenants contained in this
Agreement shall survive the Effective Time (other than Sections 6.10, 6.20 and 6.21 and this
Article IX, which shall survive the Effective Time) or the termination of this Agreement if this
Agreement is terminated prior to the Effective Time (other than Sections 2.01(b), 6.04, 6.05(b),
6.05(c), 6.17, 6.22, 8.02, and this Article IX, which shall survive such termination).
9.02 Waiver; Amendment. Prior to the Effective Time, any provision of this Agreement may be
(i) waived by the party benefited by the provision, or (ii) amended or
A-50
modified at any time, by an
agreement in writing between the parties hereto executed in the same manner as this Agreement,
except that after the Indian Village Meeting, this Agreement may not be amended if it would violate
the PBCL or the federal securities laws.
9.03 Counterparts. This Agreement may be executed in one or more counterparts, each of which
shall be deemed to constitute an original.
9.04 Governing Law. This Agreement shall be governed by, and interpreted in accordance with,
the laws of the State of Ohio applicable to contracts made and to be performed entirely within such
State (except to the extent that mandatory provisions of federal law are applicable).
9.05 Expenses. Each party hereto will bear all expenses incurred by it in connection with
this Agreement and the transactions contemplated hereby, except as provided in Section 2.01(b) and
except that printing and mailing expenses shall be shared equally between Indian Village and CSB.
All fees to be paid to Regulatory Authorities and the SEC in connection with the transactions
contemplated by this Agreement shall be borne by CSB.
9.06 Notices. All notices, requests and other communications hereunder to a party shall be in
writing and shall be deemed given if personally delivered, telecopied (with confirmation) or mailed
by registered or certified mail (return receipt requested) to such party at its address set forth
below or such other address as such party may specify by notice to the parties hereto.
If to Indian Village, to:
Indian Village Bancorp, Inc.
100 South Walnut Street
Gnadenhutten, Ohio 44629
Attention: Marty R. Lindon, President and CEO
With a copy to:
Jeffery E. Smith, Esq
Bricker & Eckler LLP
100 South Third Street
Columbus, Ohio 43215
If to CSB, to:
CSB Bancorp, Inc.
91 North Clay Street
P.O. Box 232
Millersburg, Ohio 44654
Attention: Eddie Steiner, President and CEO
A-51
With a copy to:
John C. Vorys, Esq.
Vorys, Sater, Seymour and Pease LLP
52 East Gay Street, P.O. Box 1008
Columbus, Ohio 43216-1008
9.07 Entire Understanding; No Third Party Beneficiaries. This Agreement, the Voting Agreement
and any separate agreement entered into by the parties on even date herewith represent the entire
understanding of the parties hereto with respect to the transactions contemplated hereby and
thereby and this Agreement supersedes any and all other oral or written agreements heretofore made
(other than such Voting Agreement or any such separate agreement). Nothing in this Agreement,
whether express or implied, is intended to confer upon any person, other than the parties hereto or
their respective successors, any rights, remedies, obligations or liabilities under or by reason of
this Agreement.
9.08 Interpretation; Effect. When a reference is made in this Agreement to Sections, Exhibits
or Schedules, such reference shall be
to a Section of, or Exhibit or Schedule to, this Agreement unless otherwise indicated. The
table of contents and headings contained in this Agreement are for reference purposes only and are
not part of this Agreement. Whenever the words include, includes or including are used in
this Agreement, they shall be deemed to be followed by the words without limitation.
9.09 Waiver of Jury Trial. Each of the parties hereto hereby irrevocably waives any and all
right to trial by jury in any legal proceeding arising out of or related to this Agreement or the
transactions contemplated hereby.
[Remainder of Page Intentionally Left Blank]
A-52
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed in
counterparts by their duly authorized officers, all as of the day and year first above written.
|
|
|
|
|
|
INDIAN VILLAGE BANCORP, INC.
|
|
|
By |
/s/ Marty R. Lindon
|
|
|
|
Name: |
Marty R. Lindon |
|
|
|
Title: |
President and CEO |
|
|
|
|
|
|
|
|
CSB BANCORP, INC.
|
|
|
By |
/s/ Eddie L. Steiner
|
|
|
|
Name: |
Eddie L. Steiner |
|
|
|
Title: |
President and CEO |
|
|
A-53
EXHIBIT A
FORM OF VOTING AGREEMENT
THIS VOTING AGREEMENT (this Agreement) is entered into as of May ___, 2008, by and among
CSB Bancorp, Inc., a bank holding company incorporated under Ohio law (CSB), and the
undersigned shareholders (collectively, the Shareholders) of Indian Village Bancorp, Inc., a
unitary thrift holding company incorporated under Pennsylvania law (Indian Village).
WHEREAS, the Shareholders collectively own [ ] shares of common stock, par value $.01
per share, of Indian Village (such common shares, together with all shares of Indian Village which
may hereafter be acquired by the Shareholders prior to the termination of this Agreement, shall be
referred to herein as the Shares);
WHEREAS, CSB and Indian Village propose to enter into an Agreement and Plan of Merger, dated
as of the date hereof (the Merger Agreement), which provides, among other things, that Indian
Village will merge with and into CSB pursuant to the Parent Merger (this and other capitalized
terms used and not defined herein shall have the meanings given to such terms in the Merger
Agreement); and
WHEREAS, CSB and Indian Village have made it a condition to their entering into the Merger
Agreement that the Shareholders agree to vote the Shares in favor of the adoption of the Merger
Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements
contained herein, and intending to be legally bound hereby, the parties hereby agree as follows:
ARTICLE 1
Voting of Shares
1.1 Voting Agreement. The Shareholders hereby agree that, during the time this
Agreement is in effect, at any meeting of the shareholders of Indian Village, however called, and
in any action by consent of the shareholders of Indian Village, they shall vote their Shares: (i)
in favor of the adoption of the Merger Agreement (as amended from time to time) and (ii) against
any proposal for any recapitalization, merger, sale of assets or other business combination between
Indian Village or any of its Subsidiaries and any person or entity other than CSB or any of its
Subsidiaries, or any other action or agreement that would result in a breach of any covenant,
representation or warranty or any other obligation or agreement of Indian Village under the Merger
Agreement or that would result in any of the conditions to the obligations of Indian Village under
the Merger Agreement not being fulfilled. The parties hereto acknowledge and agree that nothing
contained herein is intended to restrict any Shareholder from voting or otherwise acting in the
Shareholders capacity as a fiduciary or director of Indian Village or Indian Village Bank with
respect to any matter.
A-54
ARTICLE 2
Representations and Warranties
Each of the Shareholders hereby represents and warrants to CSB as follows:
2.1 Authority Relative to this Agreement. Each of the Shareholders has all necessary
power and authority or capacity, as the case may be, to execute and deliver this Agreement, to
perform his, her or its obligations hereunder and to consummate the transaction contemplated
hereby. This Agreement has been duly and validly executed and delivered by each of the
Shareholders and constitutes a legal, valid and binding obligation of each such Shareholder,
enforceable against each such Shareholder in accordance with its terms.
2.2 No Conflict.
(a) The execution and delivery of this Agreement by the Shareholders do not, and the
performance of this Agreement by them will not (i) conflict with or violate any law, rule,
regulation, order, judgment or decree applicable to them or by which the Shares are bound, or (ii)
result in any breach of or constitute a default (or event that with notice or lapse of time or both
would become a default) under, or give to others any rights of termination, amendment, acceleration
or cancellation of, or result in the creation of a lien or encumbrance on any of the Shares
pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which any such Shareholder is a party or by which
any such Shareholder or any Shares are bound, except, in the case of clauses (i) and (ii), for any
such conflicts, violations, breaches, defaults or other occurrences which would not prevent or
delay the performance by any Shareholder of his, her or its obligations under this Agreement.
(b) The execution and delivery of this Agreement by the Shareholders do not, and the
performance of this Agreement by them will not, require any consent, approval, authorization or
permit of, or filing with or notification to, any federal, state, local or foreign regulatory body.
2.3 Title to the Shares. Each of the Shareholders is the owner of the number and
class of Shares specified on Exhibit A hereto, free and clear of all security interests,
liens, claims, pledges, options, rights of first refusal, agreements, limitations on voting rights,
charges and other encumbrances of any nature whatsoever except as otherwise specified on
Exhibit A. No Shareholder has appointed or granted any proxy, which appointment or grant
is still effective, with respect to the Shares. Each Shareholder has sole voting power with
respect to his, her or its Shares except as otherwise specified on Exhibit A.
ARTICLE 3
Additional Covenants
3.1 Transfer of the Shares. Each of the Shareholders hereby covenants and agrees
that, during the term of this Agreement, the Shareholder will not, without the prior written
consent of CSB, sell, pledge, transfer, or otherwise voluntarily dispose of any of the Shares which
are owned by the Shareholder or take any other voluntary action which would have the effect of
removing the
A-55
Shareholders power to vote his, her or its Shares or which would otherwise be inconsistent with
this Agreement.
ARTICLE 4
Miscellaneous
4.1 Termination. This Agreement shall terminate on the earlier to occur of (i) the
date of consummation of the Merger and (ii) the date of termination of the Merger Agreement for any
reason whatsoever.
4.2 Specific Performance. The Shareholders agree that irreparable damage would occur
in the event any provision of this Agreement was not performed in accordance with the terms hereof
and that CSB shall be entitled to specific performance of the terms hereof, in addition to any
other remedy at law or in equity.
4.3 Entire Agreement. This Agreement constitutes the entire agreement between the
parties and supersedes all prior agreements and understandings with respect to the subject matter
hereof.
4.4 Amendment. This Agreement may not be amended except by an instrument in writing
signed by all the parties hereto.
4.5 Severability. If any term or other provision of this Agreement is invalid,
illegal or incapable of being enforced by any rule of law or public policy, all other conditions
and provisions of this Agreement shall nevertheless remain in full force and effect so long as the
economic or legal substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other provision is
invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith
to modify this Agreement so as to effect the original intent of the parties as closely as possible
in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the
fullest extent possible.
4.6 Governing Law. This Agreement shall be governed by and construed in accordance
with the laws of the State of Ohio.
4.7 Counterparts. This Agreement may be executed in counterparts, each of which shall
be deemed to be an original, but all of which shall constitute one and the same agreement.
4.8 Assignment. This Agreement shall not be assigned by operation of law or
otherwise.
4.9 Parties in Interest. This Agreement shall be binding upon and inure solely to the
benefit of each party hereto, and nothing in this Agreement, express or implied, is intended to or
shall confer upon any other person any right, benefit or remedy of any nature whatsoever under or
by reason of this Agreement.
A-56
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed on the day
first written above.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS |
|
CSB BANCORP, INC. |
|
|
|
|
|
|
|
|
|
|
|
By: |
|
|
|
|
|
|
|
|
|
|
|
[Name]
|
|
Name: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Title: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
[Name] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
[Name] |
|
|
|
|
|
|
A-57
ANNEX B
Dissenters Rights Under Subchapter D of Chapter 15 of the Pennsylvania Consolidated Statutes
Section 1571. Application and effect of subchapter.
(a) General rule.Except as otherwise provided in subsection (b), any shareholder (as defined
in section 1572 (relating to definitions)) of a business corporation shall have the right to
dissent from, and to obtain payment of the fair value of his shares in the event of, any corporate
action, or to otherwise obtain fair value for his shares, only where this part expressly provides
that a shareholder shall have the rights and remedies provided in this subchapter. See:
Section 1906(c) (relating to dissenters rights upon special treatment).
Section 1930 (relating to dissenters rights).
Section 1931(d) (relating to dissenters rights in share exchanges).
Section 1932(c) (relating to dissenters rights in asset transfers).
Section 1952(d) (relating to dissenters rights in division).
Section 1962(c) (relating to dissenters rights in conversion).
Section 2104(b) (relating to procedure).
Section 2324 (relating to corporation option where a restriction on transfer of a security is
held invalid).
Section 2325(b) (relating to minimum vote requirement).
Section 2704(c) (relating to dissenters rights upon election).
Section 2705(d) (relating to dissenters rights upon renewal of election).
Section 2904(b) (relating to procedure).
Section 2907(a) (relating to proceedings to terminate breach of qualifying conditions).
Section 7104(b)(3) (relating to procedure).
(b) Exceptions.
(1) Except as otherwise provided in paragraph (2), the holders of the shares of any class or
series of shares shall not have the right to dissent and obtain payment of the fair value of the
shares under this subchapter if, on the record date fixed to determine the shareholders entitled to
notice of and to vote at the meeting at which a plan specified in any of section 1930, 1931(d),
1932(c) or 1952(d) is to be voted on or on the date of the first public announcement that such a
plan has been approved by the shareholders by consent without a meeting, the shares are either:
B-1
(i) listed on a national securities exchange or designated as a national market system
security on an interdealer quotation system by the National Association of Securities Dealers,
Inc.; or
(ii) held beneficially or of record by more than 2,000 persons.
(2) Paragraph (1) shall not apply to and dissenters rights shall be available without regard
to the exception provided in that paragraph in the case of:
(i) (Repealed.)
(ii) Shares of any preferred or special class or series unless the articles, the plan or the
terms of the transaction entitle all shareholders of the class or series to vote thereon and
require for the adoption of the plan or the effectuation of the transaction the affirmative vote of
a majority of the votes cast by all shareholders of the class or series.
(iii) Shares entitled to dissenters rights under section 1906(c) (relating to dissenters
rights upon special treatment).
(3) The shareholders of a corporation that acquires by purchase, lease, exchange or other
disposition all or substantially all of the shares, property or assets of another corporation by
the issuance of shares, obligations or otherwise, with or without assuming the liabilities of the
other corporation and with or without the intervention of another corporation or other person,
shall not be entitled to the rights and remedies of dissenting shareholders provided in this
subchapter regardless of the fact, if it be the case, that the acquisition was accomplished by the
issuance of voting shares of the corporation to be outstanding immediately after the acquisition
sufficient to elect a majority or more of the directors of the corporation.
(c) Grant of optional dissenters rights.The bylaws or a resolution of the board of directors
may direct that all or a part of the shareholders shall have dissenters rights in connection with
any corporate action or other transaction that would otherwise not entitle such shareholders to
dissenters rights.
(d) Notice of dissenters rights.Unless otherwise provided by statute, if a proposed
corporate action that would give rise to dissenters rights under this subpart is submitted to a
vote at a meeting of shareholders, there shall be included in or enclosed with the notice of
meeting:
(1) a statement of the proposed action and a statement that the shareholders have a right to
dissent and obtain payment of the fair value of their shares by complying with the terms of this
subchapter; and
(2) a copy of this subchapter.
(e) Other statutes.The procedures of this subchapter shall also be applicable to any
transaction described in any statute other than this part that makes reference to this subchapter
for the purpose of granting dissenters rights.
(f) Certain provisions of articles ineffective.This subchapter may not be relaxed by any
provision of the articles.
(g) Computation of beneficial ownership.For purposes of subsection (b)(1)(ii), shares that
are held beneficially as joint tenants, tenants by the entireties, tenants in common or in trust by
two or more persons, as fiduciaries or otherwise, shall be deemed to be held beneficially by one
person.
B-2
(h) Cross references.--See sections 1105 (relating to restriction on equitable relief), 1904
(relating to de facto transaction doctrine abolished), 1763(c) (relating to determination of
shareholders of record) and 2512 (relating to dissenters rights procedure).
Section 1572. Definitions.
The following words and phrases when used in this subchapter shall have the meanings given to
them in this section unless the context clearly indicates otherwise:
Corporation. The issuer of the shares held or owned by the dissenter before the corporate
action or the successor by merger, consolidation, division, conversion or otherwise of that issuer.
A plan of division may designate which one or more of the resulting corporations is the successor
corporation for the purposes of this subchapter. The designated successor corporation or
corporations in a division shall have sole responsibility for payments to dissenters and other
liabilities under this subchapter except as otherwise provided in the plan of division.
Dissenter. A shareholder who is entitled to and does assert dissenters rights under this
subchapter and who has performed every act required up to the time involved for the assertion of
those rights.
Fair value. The fair value of shares immediately before the effectuation of the corporate
action to which the dissenter objects, taking into account all relevant factors, but excluding any
appreciation or depreciation in anticipation of the corporate action.
Interest. Interest from the effective date of the corporate action until the date of payment
at such rate as is fair and equitable under all the circumstances, taking into account all relevant
factors, including the average rate currently paid by the corporation on its principal bank loans.
Shareholder. A shareholder as defined in section 1103 (relating to definitions) or an
ultimate beneficial owner of shares, including, without limitation, a holder of depository
receipts, where the beneficial interest owned includes an interest in the assets of the corporation
upon dissolution
Section 1573. Record and beneficial holders and owners.
(a) Record holders of shares.A record holder of shares of a business corporation may assert
dissenters rights as to fewer than all of the shares registered in his name only if he dissents
with respect to all the shares of the same class or series beneficially owned by any one person and
discloses the name and address of the person or persons on whose behalf he dissents. In that event,
his rights shall be determined as if the shares as to which he has dissented and his other shares
were registered in the names of different shareholders.
(b) Beneficial owners of shares.A beneficial owner of shares of a business corporation who
is not the record holder may assert dissenters rights with respect to shares held on his behalf and
shall be treated as a dissenting shareholder under the terms of this subchapter if he submits to
the corporation not later than the time of the assertion of dissenters rights a written consent of
the record holder. A beneficial owner may not dissent with respect to some but less than all shares
of the same class or series owned by the owner, whether or not the shares so owned by him are
registered in his name.
B-3
Section 1574. Notice of intention to dissent.
If the proposed corporate action is submitted to a vote at a meeting of shareholders of a
business corporation, any person who wishes to dissent and obtain payment of the fair value of his
shares must file with the corporation, prior to the vote, a written notice of intention to demand
that he be paid the fair value for his shares if the proposed action is effectuated, must effect no
change in the beneficial ownership of his shares from the date of such filing continuously through
the effective date of the proposed action and must refrain from voting his shares in approval of
such action. A dissenter who fails in any respect shall not acquire any right to payment of the
fair value of his shares under this subchapter. Neither a proxy nor a vote against the proposed
corporate action shall constitute the written notice required by this section.
Section 1575. Notice to demand payment.
(a) General rule.If the proposed corporate action is approved by the required vote at a
meeting of shareholders of a business corporation, the corporation shall mail a further notice to
all dissenters who gave due notice of intention to demand payment of the fair value of their shares
and who refrained from voting in favor of the proposed action. If the proposed corporate action is
to be taken without a vote of shareholders, the corporation shall send to all shareholders who are
entitled to dissent and demand payment of the fair value of their shares a notice of the adoption
of the plan or other corporate action. In either case, the notice shall:
(1) State where and when a demand for payment must be sent and certificates for certificated
shares must be deposited in order to obtain payment.
(2) Inform holders of uncertificated shares to what extent transfer of shares will be
restricted from the time that demand for payment is received.
(3) Supply a form for demanding payment that includes a request for certification of the date
on which the shareholder, or the person on whose behalf the shareholder dissents, acquired
beneficial ownership of the shares.
(4) Be accompanied by a copy of this subchapter.
(b) Time for receipt of demand for payment.The time set for receipt of the demand and
deposit of certificated shares shall be not less than 30 days from the mailing of the notice.
Section 1576. Failure to comply with notice to demand payment, etc.
(a) Effect of failure of shareholder to act.A shareholder who fails to timely demand
payment, or fails (in the case of certificated shares) to timely deposit certificates, as required
by a notice pursuant to section 1575 (relating to notice to demand payment) shall not have any
right under this subchapter to receive payment of the fair value of his shares.
(b) Restriction on uncertificated shares.If the shares are not represented by certificates,
the business corporation may restrict their transfer from the time of receipt of demand for payment
until effectuation of the proposed corporate action or the release of restrictions under the terms
of section 1577(a) (relating to failure to effectuate corporate action).
(c) Rights retained by shareholder.The dissenter shall retain all other rights of a
shareholder until those rights are modified by effectuation of the proposed corporate action.
B-4
Section 1577. Release of restrictions or payment for shares.
(a) Failure to effectuate corporate action.Within 60 days after the date set for demanding
payment and depositing certificates, if the business corporation has not effectuated the proposed
corporate action, it shall return any certificates that have been deposited and release
uncertificated shares from any transfer restrictions imposed by reason of the demand for payment.
(b) Renewal of notice to demand payment.When uncertificated shares have been released from
transfer restrictions and deposited certificates have been returned, the corporation may at any
later time send a new notice conforming to the requirements of section 1575 (relating to notice to
demand payment), with like effect.
(c) Payment of fair value of shares.Promptly after effectuation of the proposed corporate
action, or upon timely receipt of demand for payment if the corporate action has already been
effectuated, the corporation shall either remit to dissenters who have made demand and (if their
shares are certificated) have deposited their certificates the amount that the corporation
estimates to be the fair value of the shares, or give written notice that no remittance under this
section will be made. The remittance or notice shall be accompanied by:
(1) The closing balance sheet and statement of income of the issuer of the shares held or
owned by the dissenter for a fiscal year ending not more than 16 months before the date of
remittance or notice together with the latest available interim financial statements.
(2) A statement of the corporations estimate of the fair value of the shares.
(3) A notice of the right of the dissenter to demand payment or supplemental payment, as the
case may be, accompanied by a copy of this subchapter.
(d) Failure to make payment.If the corporation does not remit the amount of its estimate of
the fair value of the shares as provided by subsection (c), it shall return any certificates that
have been deposited and release uncertificated shares from any transfer restrictions imposed by
reason of the demand for payment. The corporation may make a notation on any such certificate or on
the records of the corporation relating to any such uncertificated shares that such demand has been
made. If shares with respect to which notation has been so made shall be transferred, each new
certificate issued therefore or the records relating to any transferred uncertificated shares shall
bear a similar notation, together with the name of the original dissenting holder or owner of such
shares. A transferee of such shares shall not acquire by such transfer any rights in the
corporation other than those that the original dissenter had after making demand for payment of
their fair value.
Section 1578. Estimate by dissenter of fair value of shares.
(a) General rule.If the business corporation gives notice of its estimate of the fair value
of the shares, without remitting such amount, or remits payment of its estimate of the fair value
of a dissenters shares as permitted by section 1577(c) (relating to payment of fair value of
shares) and the dissenter believes that the amount stated or remitted is less than the fair value
of his shares, he may send to the corporation his own estimate of the fair value of the shares,
which shall be deemed a demand for payment of the amount or the deficiency.
(b) Effect of failure to file estimate.Where the dissenter does not file his own estimate
under subsection (a) within 30 days after the mailing by the corporation of its remittance or
notice, the dissenter shall be entitled to no more than the amount stated in the notice or remitted
to him by the corporation.
B-5
Section 1579. Valuation proceedings generally.
(a) General rule.Within 60 days after the latest of:
(1) effectuation of the proposed corporate action;
(2) timely receipt of any demands for payment under section 1575 (relating to notice to demand
payment); or
(3) timely receipt of any estimates pursuant to section 1578 (relating to estimate by
dissenter of fair value of shares); if any demands for payment remain unsettled, the business
corporation may file in court an application for relief requesting that the fair value of the
shares be determined by the court.
(b) Mandatory joinder of dissenters.All dissenters, wherever residing, whose demands have
not been settled shall be made parties to the proceeding as in an action against their shares. A
copy of the application shall be served on each such dissenter. If a dissenter is a nonresident,
the copy may be served on him in the manner provided or prescribed by or pursuant to 42 Pa.C.S. Ch.
53 (relating to bases of jurisdiction and interstate and international procedure).
(c) Jurisdiction of the court.The jurisdiction of the court shall be plenary and exclusive.
The court may appoint an appraiser to receive evidence and recommend a decision on the issue of
fair value. The appraiser shall have such power and authority as may be specified in the order of
appointment or in any amendment thereof.
(d) Measure of recovery.Each dissenter who is made a party shall be entitled to recover the
amount by which the fair value of his shares is found to exceed the amount, if any, previously
remitted, plus interest.
(e) Effect of corporations failure to file application.If the corporation fails to file an
application as provided in subsection (a), any dissenter who made a demand and who has not already
settled his claim against the corporation may do so in the name of the corporation at any time
within 30 days after the expiration of the 60-day period. If a dissenter does not file an
application within the 30-day period, each dissenter entitled to file an application shall be paid
the corporations estimate of the fair value of the shares and no more, and may bring an action to
recover any amount not previously remitted.
Section 1580. Costs and expenses of valuation proceedings.
(a) General rule.The costs and expenses of any proceeding under section 1579 (relating to
valuation proceedings generally), including the reasonable compensation and expenses of the
appraiser appointed by the court, shall be determined by the court and assessed against the
business corporation except that any part of the costs and expenses may be apportioned and assessed
as the court deems appropriate against all or some of the dissenters who are parties and whose
action in demanding supplemental payment under section 1578 (relating to estimate by dissenter of
fair value of shares) the court finds to be dilatory, obdurate, arbitrary, vexatious or in bad
faith.
(b) Assessment of counsel fees and expert fees where lack of good faith appears.Fees and
expenses of counsel and of experts for the respective parties may be assessed as the court deems
appropriate against the corporation and in favor of any or all dissenters if the corporation failed
to comply substantially
B-6
with the requirements of this subchapter and may be assessed against either the corporation or
a dissenter, in favor of any other party, if the court finds that the party against whom the fees
and expenses are assessed acted in bad faith or in a dilatory, obdurate, arbitrary or vexatious
manner in respect to the rights provided by this subchapter.
(c) Award of fees for benefits to other dissenters.If the court finds that the services of
counsel for any dissenter were of substantial benefit to other dissenters similarly situated and
should not be assessed against the corporation, it may award to those counsel reasonable fees to be
paid out of the amounts awarded to the dissenters who were benefited.
B-7
ANNEX C
KELLER & COMPANY, INC.
FINANCIAL INSTITUTION CONSULTANTS
555 METRO PLACE NORTH
SUITE 524
DUBLIN, OHIO 43017
(614) 766-1426 (614) 766-1459 FAX
May 14, 2008
Board of Directors
Indian Village Bancorp, Inc.
100 S. Walnut St.
Gnadenhutten, OH 44629
Ladies and Gentlemen:
You have requested our opinion as to the fairness, from a financial point of view, of the
consideration (defined below) to be paid to the stockholders of Indian Village Bancorp, Inc.
(Indian Village), Gnadenhutten, Ohio, set forth in the Agreement of Merger and Plan of
Reorganization, as presented to the Board on May 14, 2008, (the Agreement) to be entered into
between Indian Village and CSB Bancorp, Inc. (CSB), Millersburg, Ohio. We have not been
requested to opine as to, and our opinion does not in any manner address, Indian Villages
underlying decision to proceed with or effect the Agreement.
As more fully described in the Agreement, Indian Village will be merged with CSB (the Merger).
Pursuant to the Agreement, by and between Indian Village and CSB, at the effective time of the
merger, each outstanding share of Indian Village common stock, par value of $.01, will be converted
into the right to receive a combination of $4.375 in cash (Cash Consideration) and 0.7611 shares
of CSB common stock (Stock Consideration) based on a combination of the Average Closing Price of
CSB common stock for the last ten trades of CSB common stock ended May 9, 2008, and the Average
Listed Price of CSB common stock for the last ten market days ended May 9, 2008. The total amount
to be paid for all the issued and outstanding shares of common stock of Indian Village,
representing 438,876 shares will be $7,680,330 (Merger Consideration) comprised of 25.0% cash
consideration and 75.0% stock consideration and representing a price per share of $17.50. Each
holder of Indian Village common stock who would otherwise be entitled to receive a fractional CSB
common share shall receive cash equal to the product of the fractional CSB common share interest
multiplied by $17.24, the combination of the Average Closing Price of CSB common stock for the last
ten trades of CSB common stock ended May 9, 2008, and the Average Listed Price of CSB common stock
for the last ten market days ended May 9, 2008. In addition, the holders of Indian Village common
stock options which have not been exercised before the date that is three calendar days prior to
the Effective Date shall receive an amount in cash equal to the product of the difference between
$17.50 less the exercise price of each such option multiplied by the number of Indian Village
common shares.
C-1
Board of Directors
Indian Village Bancorp, Inc.
May 14, 2008
Page 2
Keller & Company, Inc. (Keller), as part of its bank consulting and advisory business, is
regularly engaged in the evaluation of financial institutions and their securities in connection
with mergers and acquisitions and distributions of listed and unlisted securities. Keller is
familiar with the market for common stocks of publicly-traded banks, savings institutions and bank
and savings institution holding companies. In arriving at our opinion, we reviewed key financial
data on Indian Village and CSB, the Agreement, and held discussions with certain senior officers
and other representatives and advisors of Indian Village and CSB concerning the businesses and
operations of Indian Village and CSB.
We examined certain publicly available business and financial information relating to Indian
Village and CSB that we deemed relevant, including information relating to the financial condition
of CSB. We reviewed the financial terms of the Merger as set forth in the Agreement in relation
to, among other things: current and historical market prices and trading volumes of Indian Village
common stock; the historical and projected earnings and other operating data of Indian Village and
CSB; and the capitalization and financial condition of Indian Village and CSB.
We considered, to the extent publicly available, the financial terms of certain other transactions,
which we considered relevant in evaluating the Merger, and analyzed certain financial, stock market
and other publicly available information relating to the business of other companies whose
operations are considered relevant in evaluating the merger of Indian Village and CSB. In addition
to the foregoing, we conducted such other analyses and examinations and considered such other
information and financial, economic and market criteria as we deemed appropriate in arriving at our
opinion.
During the completion of our review, we have assumed and relied upon the accuracy and completeness
of all the financial information, analyses and other information that was publicly-available or
otherwise furnished to, reviewed by or discussed with us, and we do not assume any responsibility
or liability for independently verifying the accuracy or completeness thereof. We did not make an
independent evaluation or appraisal of the specific assets, the collateral securing assets or the
liabilities (contingent or otherwise) of Indian Village or CSB or any of their subsidiaries, or the
collectability of any such assets. We have further relied on the assurances of management of
Indian Village and CSB that they are not aware of any facts that would make such information
inaccurate or misleading. We have also assumed that there has been no material change in Indian
Villages or CSBs assets, financial condition, results of operations, business or prospects since
the date of the most recent financial statements made available to us. We have assumed in all
respects material to our analysis that Indian Village and CSB will remain as going concerns for all
periods relevant to our analyses, that all of the representations and warranties contained in the
Agreement and all related agreements are true and correct, that each party to such agreements will
perform all of the covenants required to be performed by such party under such agreements and that
the conditions precedent in the Agreement are not waived. 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.
C-2
Board of Directors
Indian Village Bancorp, Inc.
May 14, 2008
Page 3
This opinion is necessarily based on financial, economic, market and other conditions as in effect
on, and the information made available to us as of, the date hereof. 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 with
CSB or the ability to consummate the Merger.
The opinion of Keller is directed to the Board of Directors of Indian Village in connection with
its consideration of the Merger and does not constitute a recommendation to any stockholder of
Indian Village as to how a stockholder should vote at any meeting of stockholders called to
consider and vote upon the Merger. The opinion of Keller is not to be quoted or referred to, in
whole or in part, in a registration statement prospectus, proxy statement or in any other document,
nor shall this opinion be used for any other purposes, without Kellers prior written consent
provided; however, that we hereby consent to the inclusion of this opinion as an annex to Indian
Villages Proxy Statement and to the references to this opinion therein.
Based upon and subject to the foregoing, our experience, our work as described above and other
factors deemed relevant, we are of the opinion, as of the date hereof, that the Merger
Consideration to be received by the holders of Indian Villages common stock is fair, from a
financial point of view, to such stockholders.
Very truly yours,
/s/ Keller & Company, Inc.
KELLER & COMPANY, INC.
C-3