Filed Pursuant to Rule 424(b)(3)
Registration No. 333-268840

PROPOSED MERGER—YOUR VOTE IS VERY IMPORTANT

Dear Shareholder:

On October 18, 2022, the board of directors of Citizens Financial Services, Inc. (“CZFS”), acting on behalf of CZFS and in CZFS’ capacity as the sole member of CZFS Acquisition Company, LLC (“CZFSAC”), and the boards of directors of First Citizens Community Bank, CZFS’ subsidiary bank (“FCCB”), HV Bancorp, Inc. (“HVBC”) and Huntingdon Valley Bank, HVBC’s subsidiary bank (“HVB”), each approved a merger agreement among CZFS, FCCB, CZFSAC, HVBC and HVB pursuant to which (i) HVBC will merge with and into CZFS, with CZFS as the surviving entity and (ii) HVB will merge with and into FCCB, with FCCB as the surviving entity.

HVBC is holding a special meeting for its shareholders to vote on the proposals necessary to complete the merger. The merger cannot be completed unless we receive the affirmative vote of a majority of the votes cast by all HVBC shareholders entitled to vote at the special meeting. At the special meeting of HVBC shareholders, HVBC shareholders will be asked to consider and vote on (i) a proposal to approve the merger agreement (the “merger proposal”), (ii) a proposal to approve, on an advisory (non-binding) basis, specified compensation that may become payable to the named executive officers of HVBC in connection with the merger (the “compensation proposal”), and (iii) a proposal to approve one or more adjournments or postponements of the special meeting, if necessary, to permit further solicitation of proxies if there are not sufficient votes at the time of the special meeting, or at any adjournment or postponement of that meeting, to approve the merger agreement (the “adjournment proposal”). Approval of each of the merger proposal, the compensation proposal and the adjournment proposal requires the affirmative vote of a majority of the votes cast by all HVBC shareholders entitled to vote at the special meeting. The HVBC board of directors recommends that all HVBC shareholders vote “FOR” the merger proposal, “FOR” the compensation proposal and “FOR” the adjournment proposal.

The special meeting of HVBC shareholders will be held at Huntingdon Valley Bank, 2005 South Easton Road, Suite 304, Doylestown, Pennsylvania 18901 on February 15, 2023, at 11:00 a.m., local time.

Under the terms and conditions of the merger, the shareholders of HVBC will be able to elect to receive either (i) $30.50 in cash or (ii) 0.4000 shares of CZFS common stock for each share of HVBC common stock they own. Each HVBC shareholder’s election is subject to proration provisions described in this proxy statement/prospectus that may modify the shareholder’s election to ensure that 20% of the outstanding shares of HVBC common stock (excluding shares of HVBC common stock to be canceled in connection with the merger) are exchanged for cash and 80% of the outstanding shares of HVBC common stock are exchanged for shares of CZFS common stock. The value of the stock consideration will depend on the market price of CZFS common stock on the effective date of the merger. HVBC shareholders will also receive cash in lieu of any fractional shares they would have otherwise received in the merger. CZFS expects to issue up to 716,449 shares of its common stock in the merger.

Although the maximum number of shares of CZFS common stock that holders of HVBC common stock will be entitled to receive is fixed, the market value of the stock consideration will fluctuate with the market price of CZFS common stock and will not be known at the time HVBC shareholders vote on the merger. However, as described in more detail elsewhere in this proxy statement/prospectus, under the terms of the merger agreement, HVBC has the right to terminate the merger agreement if the average closing price of CZFS common stock for a specified period prior to closing is less than $56.00 per share and the decrease in the price of CZFS common stock is more than 20% greater than the decrease in the NASDAQ Bank Index over the same period, provided that CZFS has the option to increase the amount of CZFS common stock issuable to HVBC shareholders or make cash payments to holders of HVBC common stock to prevent such termination.

CZFS common stock is listed on the NASDAQ Stock Market, LLC (“NASDAQ”) under the symbol “CZFS” and HVBC common stock is listed on NASDAQ under the symbol “HVBC.” On October 18, 2022, the last

trading day before the public announcement of the merger, the closing price of CZFS common stock was $70.00 per share and the closing price of HVBC common stock was $19.99 per share. On December 27, 2022, the last practicable trading day before the printing of the attached proxy statement/prospectus, the closing price of CZFS common stock was $78.60 per share and the closing price of HVBC common stock was $27.65 per share. These prices may fluctuate between now and the closing of the merger. We urge you to obtain current market quotations for both CZFS and HVBC common stock.

Your vote is important regardless of the number of shares you own. Whether or not you plan to attend the special meeting, please take the time to vote by completing and mailing the enclosed proxy card as soon as possible to make sure your shares are represented at the special meeting. Alternatively, you may vote through the Internet or by telephone. If you hold shares through a bank or broker, please use the voting instructions you have received from your bank or broker. If you submit a properly signed proxy card without indicating how you want to vote, your proxy will be counted as a vote “FOR” each of the proposals being voted on at HVBC special meeting. The failure to vote by submitting your proxy or attending HVBC’s special meeting and voting in person will have no effect on the merger proposal.

The accompanying document serves as the proxy statement for HVBC’s special meeting and as the prospectus for the shares of CZFS common stock to be issued in the merger. This proxy statement/prospectus describes the HVBC special meeting, the merger, the documents related to the merger and other related matters. Please carefully review and consider this proxy statement/prospectus. Please give particular attention to the discussion under the heading “Risk Factors” beginning on page 19 for risk factors relating to the transaction that you should consider.

HVBC’s board of directors unanimously recommends that shareholders vote “FOR” the merger proposal, “FOR” the compensation proposal and “FOR” the adjournment proposal.

 

Neither the Securities and Exchange Commission nor any state securities commission or bank regulatory agency has approved or disapproved of the securities to be issued in the merger or determined if the attached proxy statement/prospectus is accurate or adequate. Any representation to the contrary is a criminal offense.

The shares of CZFS common stock to be issued in the merger are not savings accounts, deposits or other obligations of any bank or savings association and are not insured by any federal or state governmental agency.

This proxy statement/prospectus is dated December 30, 2022, and is first being mailed to HVBC shareholders on or about January 5, 2023.

2005 South Easton Road, Suite 304

Doylestown, PA 18901

(267) 280-4000

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

TO BE HELD ON FEBRUARY 15, 2023

A special meeting of shareholders of HV Bancorp, Inc. (“HVBC”), a Pennsylvania corporation, will be held at Huntingdon Valley Bank, 2005 South Easton Road, Suite 304, Doylestown, Pennsylvania 18901 on February 15, 2023, at 11:00 a.m., local time, for the following purposes:

 

1.

to consider and vote upon a proposal to approve the Agreement and Plan of Merger by and among Citizens Financial Services, Inc. (“CZFS”), a Pennsylvania corporation, CZFS Acquisition Company, LLC, a Pennsylvania limited liability company and wholly-owned subsidiary of CZFS (“CZFSAC”), First Citizens Community Bank, a Pennsylvania-chartered bank and wholly-owned subsidiary of CZFSAC (“FCCB”), HVBC and Huntingdon Valley Bank, a Pennsylvania-chartered savings bank and wholly-owned subsidiary of HVBC (“HVB”), dated October 18, 2022, pursuant to which (i) HVBC will merge with and into CZFS, with CZFS as the surviving entity and (ii) HVB will merge with and into FCCB, with FCCB as the surviving entity (the “merger proposal”);

 

2.

to consider and vote upon a proposal to approve, on an advisory (non-binding) basis, specified compensation that may become payable to the named executive officers of HVBC in connection with the merger (the “compensation proposal”); and

 

3.

to consider and vote upon a proposal to approve one or more adjournments or postponements of the special meeting, if necessary, to permit further solicitation of proxies if there are not sufficient votes at the time of the special meeting, or at any adjournment or postponement of that meeting, to approve the merger agreement (the “adjournment proposal”).

The merger agreement and proposed merger are more fully described in the attached proxy statement/prospectus, which you should read carefully in its entirety before voting. A copy of the merger agreement is included as Annex A to the attached proxy statement/prospectus.

The board of directors of HVBC has established the close of business on December 27, 2022, as the record date for the special meeting. Only record holders of HVBC common stock as of the close of business on that date will be entitled to notice of and to vote at the special meeting or any adjournment or postponement of that meeting. The affirmative vote of a majority of the votes cast by all HVBC shareholders entitled to vote at the special meeting is required to approve each of the merger proposal, the compensation proposal and the adjournment proposal.

Your vote is important, regardless of the number of shares that you own. Please complete, sign and return the enclosed proxy card promptly in the enclosed postage-paid envelope. Alternatively, you may vote through the Internet or by telephone. Voting by proxy will not prevent you from voting in person at the special meeting, but will assure that your vote is counted if you are unable to attend. You may revoke your proxy at any time before the meeting. If your shares are held in the name of a bank, broker or other nominee, please follow the instructions furnished to you by such record holder with these materials.

The HVBC board of directors unanimously recommends that you vote “FOR” each of the proposals.

 

Doylestown, Pennsylvania

December 30, 2022

PLEASE DO NOT SEND STOCK CERTIFICATES WITH THE PROXY CARD. YOU WILL BE SENT SEPARATE INSTRUCTIONS REGARDING THE SURRENDER OF YOUR STOCK CERTIFICATES, IF APPLICABLE.

ADDITIONAL INFORMATION

Both CZFS and HVBC file annual, quarterly and special reports, proxy statements and other business and financial information electronically with the Securities and Exchange Commission (the “SEC”). In addition, the accompanying proxy statement/prospectus incorporates by reference important business and financial information about CZFS from documents that are not included in or delivered with the proxy statement/prospectus. You can obtain any of the documents filed with or furnished to the SEC by CZFS or HVBC at no cost from the SEC’s website at www.sec.gov. You will also be able to obtain these documents, free of charge, from CZFS at www.firstcitizensbank.com under “Investor Relations” and then under “SEC Filings,” or from HVBC by accessing HVBC’s website at www.myhvb.com under the “Investor Relations” tab and then under “SEC Filings.” These documents are available without charge to you upon written or oral request to the applicable company’s principal executive offices. The respective addresses and telephone numbers of such principal executive offices are listed below:

 

Citizens Financial Services, Inc. 15 South Main Street Mansfield, PA 16933 Attention: Randall E. Black, President and Chief Executive Officer (570) 662-2121		HV Bancorp, Inc. 2005 South Easton Road, Suite 304 Doylestown, Pennsylvania 18901 Attention: Travis J. Thompson, Chairman and Chief Executive Officer (267) 280-4000

To obtain timely delivery of these documents, you must request the information no later than five business days before the HVBC special meeting. This means that you must make your request no later than February 8, 2023.

For a more detailed description of the information incorporated by reference in the accompanying proxy statement/prospectus and how you may obtain it, see “Where You Can Find More Information” beginning on page 108.

The accompanying proxy statement/prospectus provides a detailed description of the merger and the merger agreement. We urge you to read the proxy statement/prospectus, including any documents incorporated by reference into the proxy statement/prospectus, and its annexes carefully and in their entirety. If you have any questions concerning the merger or need assistance voting your shares, please contact Laurel Hill Advisory Group, LLC, HVBC’s proxy solicitor at the address or telephone number listed below:

Laurel Hill Advisory Group

2 Robbins Lane, Suite 201

Jericho, New York 11753

Banks and Brokers Call (516) 933-3100

All Others Call Toll-Free (888) 742-1305

Please do not send your stock certificates at this time. You will be sent separate instructions regarding the surrender of your stock certificates, if applicable.

ABOUT THIS DOCUMENT

This proxy statement/prospectus, which forms part of a registration statement on Form S-4 (Registration Statement No. 333-268840) filed by CZFS with the SEC, constitutes a prospectus of CZFS for purposes of the Securities Act of 1933, as amended (the “Securities Act”), with respect to the CZFS common stock to be issued to HVBC shareholders in exchange for shares of HVBC common stock pursuant to the merger agreement, as such agreement may be amended or modified from time to time. This proxy statement/prospectus also constitutes a proxy statement for HVBC. In addition, it constitutes a notice of special meeting with respect to the special meeting of HVBC.

You should rely only on the information contained or incorporated by reference in this proxy statement/prospectus. No one has been authorized to provide you with information that is different from that contained in, or incorporated by reference into, this proxy statement/prospectus. This proxy statement/prospectus is dated December 30, 2022, and you should not assume that the information contained in, or incorporated by reference into, this proxy statement/prospectus is accurate as of any date other than that date (or, in the case of documents incorporated by reference, their respective dates). Neither the mailing of this proxy statement/prospectus to HVBC’s shareholders nor the issuance by CZFS of shares of CZFS common stock pursuant to the merger agreement will create any implication to the contrary.

The information on CZFS’ and HVBC’s websites is not part of this document. References to CZFS’ and HVBC’s websites in this document are intended to serve as textual references only.

This proxy statement/prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction in which or to any person to whom it is unlawful to make any such offer or solicitation in such jurisdiction. Information contained in this proxy statement/prospectus regarding CZFS has been provided by CZFS and information contained in this proxy statement/prospectus regarding HVBC has been provided by HVBC.

Table of Contents

 

		Page
QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE HVBC SPECIAL MEETING			1
SUMMARY			8
The Companies			8
The Special Meeting of HVBC Shareholders			9
The Merger and the Merger Agreement			10
RISK FACTORS			19
SUMMARY SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED DATA FOR CZFS			24
COMPARATIVE MARKET PRICE DATA			25
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS			26
INFORMATION ABOUT THE COMPANIES			28
THE SPECIAL MEETING OF HVBC SHAREHOLDERS			30
Date, Time and Place of the Special Meeting			30
Purpose of the Special Meeting			30
Recommendation of the HVBC Board of Directors			30
Record Date; Outstanding Shares; Shares Entitled to Vote			30
Quorum; Vote Required			30
Share Ownership of Directors and Management; Voting Agreement			31
Voting of Proxies			31
How to Revoke Your Proxy			31
Voting in Person			32
Abstentions and Broker Non-Votes			32
Proxy Solicitation			33
Stock Certificates and Book-Entry Shares			33
PROPOSAL I—THE MERGER			34
General			34
Background of the Merger			34
HVBC’s Reasons for the Merger; Recommendation of the HVBC Board of Directors			40
Opinion of HVBC’s Financial Advisor			43
Certain HVBC Unaudited Prospective Financial Information			54
Interests of HVBC’s Directors and Executive Officers in the Merger			56
Material U.S. Federal Income Tax Consequences of the Merger			62
Regulatory Approvals Required for the Merger			65
Accounting Treatment of the Merger			66
Dissenters’ Appraisal Rights			67
Restrictions on Sales of Shares by Certain Affiliates			67
Stock Exchange Listing; Delisting and Deregistration of HVBC Common Stock			67
THE MERGER AGREEMENT			68
Structure of the Merger			68
Effective Time and Timing of Closing			69
Boards of Directors of CZFS and FCCB After the Merger			69
Consideration to be Received in the Merger			69
Election Procedures for Shareholders; Surrender of Stock Certificates			71
Treatment of Stock Options			72
Treatment of Restricted Stock Awards			72
Representations and Warranties			72
Conduct of Business Pending the Merger			74
HVBC Shareholder Meeting			77
No Solicitation			78

 

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		Page
Employee Benefits			79
Indemnification and Insurance			81
Voting Agreements			81
Additional Agreements			82
Conditions to Complete the Merger			82
Termination			84
Termination Fee			85
Waiver and Amendment			86
Expenses			86
Specific Performance			86
PROPOSAL II—ADVISORY VOTE ON SPECIFIED COMPENSATION			87
PROPOSAL III—ADJOURNMENT OF THE HVBC SPECIAL MEETING			88
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL INFORMATION			89
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT			97
COMPARISON OF SHAREHOLDER RIGHTS			99
LEGAL MATTERS			106
EXPERTS			106
FUTURE SHAREHOLDER PROPOSALS			107
WHERE YOU CAN FIND MORE INFORMATION			108
ANNEX A—AGREEMENT AND PLAN OF MERGER			A-1
ANNEX B—OPINION OF THE KAFAFIAN GROUP, INC.			B-1
ANNEX C—INFORMATION ABOUT HV BANCORP, INC			C-1
ANNEX D—CONSOLIDATED FINANCIAL STATEMENTS OF HV BANCORP, INC.			D-1

 

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QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE HVBC SPECIAL MEETING

The following questions and answers are intended to address briefly some commonly asked questions regarding the merger and the HV Bancorp, Inc. special meeting. These questions and answers may not address all questions that may be important to you as an HVBC shareholder. To better understand these matters, and for a description of the legal terms governing the merger, you should carefully read this entire proxy statement/prospectus, including the annexes, as well as the documents that have been incorporated by reference in this proxy statement/prospectus.

 

Q:	Why am I receiving this proxy statement/prospectus?

 

A:

The board of directors of Citizens Financial Services, Inc. (“CZFS”), acting on behalf of CZFS and in CZFS’ capacity as the sole member of CZFS Acquisition Company, LLC (“CZFSAC”), and the boards of directors of First Citizens Community Bank, CZFS’ subsidiary bank (“FCCB”), HV Bancorp, Inc. (“HVBC”) and Huntingdon Valley Bank, HVBC’s subsidiary bank (“HVB”), each approved a merger agreement, which is described in this proxy statement/prospectus, among CZFS, FCCB, CZFSAC, a Pennsylvania limited liability company and wholly-owned subsidiary of CZFS, HVBC and HVB pursuant to which (i) HVBC will merge with and into CZFS, with CZFS as the surviving entity and (ii) HVB will merge with and into FCCB, with FCCB as the surviving entity. A copy of the merger agreement is attached to this proxy statement/prospectus as Annex A. In order to complete the merger, HVBC shareholders must vote to approve the merger agreement. HVBC will hold a special meeting of shareholders to obtain this approval. This proxy statement/prospectus contains important information about the merger, the merger agreement, the special meeting of HVBC shareholders and other related matters, and you should read it carefully. The enclosed voting materials for the HVBC special meeting allow you to vote your shares of common stock without attending the special meeting in person.

We are delivering this proxy statement/prospectus to you as both a proxy statement of HVBC and a prospectus of CZFS. It is a proxy statement because the board of directors of HVBC is soliciting proxies from HVBC shareholders to vote on the approval of the merger proposal at the HVBC special meeting of shareholders and adjournments of the special meeting, if necessary, for the purpose of soliciting additional proxies in favor of the foregoing proposal. Your proxy will be used at the HVBC special meeting or at any adjournment or postponement of that special meeting. It is also a prospectus because CZFS will issue CZFS common stock to HVBC shareholders as consideration in the merger, and this prospectus contains information about that common stock.

 

Q:	What will happen in the merger?

 

A:	In the proposed transactions, (i) HVBC will merge with and into CZFS, with CZFS as the surviving entity, and (ii) HVB will merge with and into FCCB, with FCCB as the surviving entity.

 

Q:	What are the proposals on which I am being asked to vote?

 

A:

You are being asked to vote on the following proposals: (i) to approve the merger agreement (the “merger proposal”), (ii) to approve, on an advisory (non-binding) basis, specified compensation that may become payable to the named executive officers of HVBC in connection with the merger (the “compensation proposal”) and (iii) to approve one or more adjournments or postponements of the special meeting, if necessary, for the purpose of soliciting additional proxies in favor of the proposal to approve the merger agreement (the “adjournment proposal”).

 

Q:	What will I receive in the merger?

 

A:

If the merger proposal is approved and the merger is subsequently completed, HVBC shareholders will have the right, with respect to each of their shares of HVBC common stock, to elect to receive, without interest, subject to the proration procedures described below, either (i) $30.50 in cash or (ii) 0.4000 shares of CZFS common stock.

 

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You will have the opportunity to elect the form of consideration to be received for your shares, however, each HVBC shareholder’s election is subject to proration provisions that may modify the shareholder’s election to ensure that 20% of the outstanding shares of HVBC common stock (excluding shares of HVBC common stock to be canceled in connection with the merger) are exchanged for cash and 80% of the outstanding shares of HVBC common stock are exchanged for shares of CZFS common stock, which may result in your receiving a portion or all of the merger consideration in a form other than that which you elected.

CZFS may opt to increase the amount of CZFS common stock issuable to HVBC shareholders or make cash payments to HVBC shareholders in specific circumstances where HVBC could otherwise terminate the merger agreement. For more information regarding these termination rights and the adjustments that may result to the merger consideration, see “The Merger Agreement—Termination” on page 84 for more information.

The value of the stock consideration is dependent upon the value of CZFS common stock and, therefore, will fluctuate with the market price of CZFS common stock. Accordingly, any change in the price of CZFS common stock prior to the merger will affect the market value of the stock consideration that HVBC shareholders may elect to receive as a result of the merger.

 

Q:	What will happen to shares of CZFS common stock in the merger?

 

A:

Each share of CZFS common stock outstanding held by CZFS shareholders immediately before the merger will continue to represent one share of CZFS common stock after the effective time. Accordingly, CZFS shareholders will receive no consideration in the merger and the merger will not change the number of shares a CZFS shareholder currently owns.

 

Q:	Will I receive any fractional shares of CZFS common stock as part of the merger consideration?

 

A:

No. CZFS will not issue any fractional shares of CZFS common stock in the merger. Instead, CZFS will pay HVBC shareholders the cash value of a fractional share (without interest) in an amount determined by multiplying the fractional share interest to which such shareholder would otherwise be entitled by the average of the daily closing sales prices of one share of CZFS common stock as reported on the NASDAQ Stock Market, LLC (“NASDAQ”) for the five consecutive trading days ending on the third business day immediately prior to the closing date, rounded to the nearest whole cent.

 

Q:	Is there a termination fee potentially payable under the merger agreement?

 

A:	Yes. Under certain circumstances, HVBC may be required to pay CZFS a termination fee if the merger agreement is terminated. See “The Merger Agreement—Termination Fee” on page 85 for more information.

 

Q:	How do I make an election with respect to my shares of HVBC common stock?

 

A:

Each HVBC shareholder will receive an election form, which you should complete and return according to the instructions printed on the form. The election deadline will be 5:00 p.m., Eastern time, on the 25th calendar day following the date the election form is mailed to HVBC shareholders. If you do not send in the election form by the deadline, you will be deemed not to have made an election and you may be paid CZFS common stock or cash consideration or both. See “The Merger Agreement—Election Procedures for Shareholders; Surrender of Stock Certificates” on page 71 for more information.

 

Q:	Can I change or revoke my election with respect to my shares of HVBC common stock?

 

A:	You may change or revoke your election at any time prior to the election deadline by submitting to Broadridge Corporate Issuer Solutions, Inc. written notice accompanied by a properly completed and

 

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signed, revised election form. Shareholders will not be entitled to change or revoke their elections following the election deadline. All elections will be revoked automatically if the merger agreement is terminated.

 

Q:	As an HVBC shareholder, why am I being asked to cast a non-binding advisory vote to approve the compensation that may become payable to HVBC’s named executive officers in connection with the merger?

 

A:	The SEC’s rules require HVBC to seek a non-binding advisory vote with respect to certain “golden parachute” compensation that may become payable to HVBC’s named executive officers in connection with the merger.

 

Q:	What will happen if HVBC shareholders do not approve the compensation that may become payable to HVBC’s named executive officers in connection with the merger?

 

A:

The vote with respect to the “golden parachute” compensation is an advisory vote and will not be binding on HVBC or CZFS. Approval of the compensation that may become payable to HVBC’s named executive officers is not a condition to completion of the merger. Therefore, if the merger proposal is approved by HVBC’s shareholders and the merger is subsequently completed, the compensation will still be paid to HVBC’s named executive officers, whether or not HVBC shareholders approve the compensation at the HVBC special meeting.

 

Q:	What are the material U.S. federal income tax consequences of the merger to U.S. holders of shares of HVBC common stock?

 

A:

The merger is intended to qualify for U.S. federal income tax purposes as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”). Therefore, for U.S. federal income tax purposes, as a result of the merger, it is expected that a U.S. holder of shares of HVBC common stock generally will only recognize gain (but not loss) in an amount not to exceed the cash (if any) received as part of the merger consideration but will recognize gain or loss (1) if such holder received the entirety of its consideration in cash or (2) with respect to any cash received in lieu of fractional shares of CZFS common stock. A U.S. holder of shares of HVBC common stock who receives solely shares of CZFS common stock (or receives CZFS common stock and cash solely in lieu of a fractional share) in exchange for shares of HVBC common stock in the merger generally will not recognize any gain or loss upon the merger, except with respect to the cash received in lieu of a fractional share of CZFS common stock. See “PROPOSAL I—The Merger—Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 62.

 

Q:	Will I be able to trade the shares of CZFS common stock that I receive in the merger?

 

A:

You may freely trade the shares of CZFS common stock issued in the merger, unless you are an “affiliate” of CZFS as defined by Rule 144 under the Securities Act of 1933, as amended (the “Securities Act”). Affiliates consist of individuals or entities that control, are controlled by, or are under the common control with CZFS and include executive officers and directors and may include significant shareholders of CZFS.

 

Q:	What are the conditions to completion of the merger?

 

A:

The obligations of CZFS and HVBC to complete the merger are subject to the satisfaction or waiver of certain closing conditions contained in the merger agreement, including the receipt of required regulatory approvals and tax opinions, and the approval of the merger proposal by the shareholders of HVBC.

 

Q:	When do you expect the merger to be completed?

 

A:	We will complete the merger when all of the conditions to completion contained in the merger agreement are satisfied or waived, including obtaining required regulatory approvals and the approval of the merger

 

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proposal by HVBC’s shareholders at HVBC’s special meeting. While we expect the merger to be completed in the first half of 2023, because fulfillment of some of the conditions to completion of the merger is not entirely within our control, we cannot assure you of the actual timing.

 

Q:	What HVBC shareholder approval is required to complete the merger?

 

A:	The merger cannot be completed unless HVBC receives the affirmative vote of a majority of the votes cast by all HVBC shareholders entitled to vote at the HVBC special meeting.

 

Q:	Are there any HVBC shareholders already committed to voting in favor of the merger proposal?

 

A:

Yes. Each of the directors and certain executive officers of HVBC, solely in such director’s or officer’s capacity as a shareholder of HVBC, has entered into a voting agreement with CZFS requiring each of them to vote all shares of HVBC common stock owned by such director or executive officer in favor of the merger proposal. As of the record date, these directors and executive officers held 437,305 shares of HVBC common stock, which represented approximately 19.5% of the outstanding shares of HVBC common stock.

 

Q:	When and where is the HVBC special meeting?

 

A:	The special meeting of shareholders of HVBC will be held at Huntingdon Valley Bank, 2005 South Easton Road, Suite 304, Doylestown, Pennsylvania 18901 on February 15, 2023, at 11:00 a.m., local time.

 

Q:	What will happen at the HVBC special meeting?

 

A:

At the HVBC special meeting, HVBC shareholders will consider and vote on the merger proposal and the compensation proposal. If, at the time of the special meeting, there are insufficient votes for the shareholders to approve the merger proposal, you may be asked to consider and vote on the adjournment proposal.

 

Q:	Who is entitled to vote at the HVBC special meeting?

 

A:

All holders of HVBC common stock who held shares at the close of business on December 27, 2022, which is the record date for the special meeting of HVBC shareholders, are entitled to receive notice of and to vote at the HVBC special meeting. Each holder of HVBC common stock is entitled to one vote for each share of HVBC common stock owned as of the record date.

 

Q:	What constitutes a quorum for the HVBC special meeting?

 

A:	The quorum requirement for the special meeting is the presence in person or by proxy of the holders of a majority of the total number of shares of HVBC common stock entitled to vote. Abstentions will be counted for purposes of determining whether a quorum is present.

 

Q:	How does the board of directors of HVBC recommend I vote?

 

A:	After careful consideration, the HVBC board of directors recommends that all shareholders vote “FOR” the merger proposal, “FOR” the compensation proposal and “FOR” the adjournment proposal, if necessary.

 

Q:	Are there any risks that I should consider in deciding whether to vote for approval of the merger proposal?

 

A:

Yes. You should read and carefully consider the risk factors set forth in the section in this proxy statement/prospectus entitled “Risk Factors” beginning on page 19 as well as the other information contained in or incorporated by reference into this proxy statement/prospectus, including the matters addressed in the section of this proxy statement/prospectus titled “Information Regarding Forward-Looking Statements” on page 26.

 

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Q:	What do I need to do now?

 

A:

You should carefully read and consider the information contained in or incorporated by reference into this proxy statement/prospectus, including its annexes. It contains important information about the merger, the merger agreement, CZFS and HVBC. After you have read and considered this information, you should complete and sign your proxy card and return it in the enclosed postage-paid return envelope as soon as possible so that your shares will be represented and voted at the HVBC special meeting. Alternatively, you may vote through the Internet or by telephone.

 

Q:	How may I vote my shares for the special meeting proposals presented in this proxy statement/prospectus?

 

A:

You may vote by completing, signing, dating and returning as soon as possible the proxy card in the enclosed postage-paid envelope. Alternatively, you may vote through the Internet or by telephone. Information and applicable deadlines for voting through the Internet or by telephone are set forth in the enclosed proxy card instructions. You may revoke your proxy at any time prior to its exercise, and you may attend the special meeting and vote, even if you have previously returned your proxy card or voted via the Internet or by telephone. However, if you are a shareholder whose shares are not registered in your own name, you will need additional documentation from your record holder in order to vote at the special meeting.

 

Q:	How will my shares be represented at the HVBC special meeting?

 

A:

At the HVBC special meeting, the individuals named in your proxy card will vote your shares in the manner you requested if you properly signed and submitted your proxy. If you sign your proxy card and return it without indicating how you would like to vote your shares, your proxy will be voted: (1) “FOR” the merger proposal, (2) “FOR” the compensation proposal and (3) “FOR” the adjournment proposal.

 

Q:	If my shares are held in “street name” by my broker, bank or other nominee, will my broker, bank or other nominee automatically vote my shares for me?

 

A:

No. Your broker, bank or other nominee will not vote your shares unless you provide instructions to your broker, bank or other nominee on how to vote. You should instruct your broker, bank or other nominee to vote your shares by following the instructions provided by the broker, bank or nominee with this proxy statement/prospectus.

 

Q:	What if I fail to submit my proxy card or to instruct my broker, or bank or other nominee?

 

A:	If you fail to properly submit your proxy card, and you do not attend the special meeting and vote your shares in person, your shares will not be voted. If a quorum is present at the special meeting, this will not affect the outcome of any of the proposals.

 

Q:	What if I abstain from voting on a matter?

 

A:

For purposes of the special meeting, an abstention occurs when a shareholder attends the special meeting but abstains from voting. Abstentions will be counted for purposes of determining whether a quorum is present. For all proposals, abstentions are not shares “voting” at the special meeting and therefore, will not affect the outcome of any of the proposals.

 

Q:	What is a “broker non-vote”?

 

A:	Banks, brokers, trustees and other nominees who hold shares in street name for a beneficial owner of those shares typically have the authority to vote in their discretion on “routine” proposals when they have not

 

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received instructions from beneficial owners. However, banks, brokers, trustees and other nominees are not allowed to exercise their voting discretion with respect to the approval of matters determined to be “non-routine” without specific instructions from the beneficial owner.

A broker non-vote occurs when a bank, broker, trustee or other nominee is not permitted to vote on a “non-routine” matter without instructions from the beneficial owner of the shares and the beneficial owner fails to provide the bank, broker, trustee or other nominee with such instructions. Broker non-votes only count toward a quorum if at least one (1) proposal is presented with respect to which the bank, broker, trustee or other nominee has discretionary authority. It is expected that all proposals to be voted on at the HVBC special meeting will be “non-routine” matters, and, as such, broker non-votes, if any, will not be counted as present and entitled to vote for purposes of determining a quorum at the HVBC special meeting. If your bank, broker, trustee or other nominee holds your shares of HVBC common stock in “street name,” such entity will vote your shares of HVBC common stock only if you provide instructions on how to vote by complying with the instructions provided to you by your bank, broker, trustee or other nominee with this proxy statement/prospectus.

Your bank, broker, trustee or other nominee may not vote your shares on the merger proposal, the compensation proposal and the adjournment proposal, which broker non-votes, if any, will have no effect on the outcome of such proposals

 

Q:	Can I attend the special meeting and vote my shares in person?

 

A:

Yes. Although the HVBC board of directors requests that you return the proxy card accompanying this proxy statement/prospectus, all HVBC shareholders, including shareholders of record and shareholders who hold their shares in “street name” through banks, brokers or other nominees, are invited to attend the special meeting. Shareholders of record on December 27, 2022 can vote in person at the special meeting. If you are not an HVBC shareholder of record, you must obtain a proxy, executed in your favor, from the record holder of your shares of HVBC common stock, such as a broker, bank or other nominee, to be able to vote in person at the special meeting.

 

Q:	Can I change my vote after I have submitted my proxy?

 

A:	Yes. There are three ways you can change your vote at any time after you have submitted your proxy and before your proxy is voted at the special meeting:

 

•

you may deliver a written notice bearing a date later than the date of your proxy card to HVBC’s Secretary at the address listed below, stating that you revoke your proxy;

 

•

you may submit a new signed proxy card bearing a later date (if you submitted your proxy by Internet or by telephone, you can vote again by Internet or telephone); or

 

•

you may attend the special meeting and vote in person, although attendance at the special meeting will not, by itself, revoke a proxy.

You should send any notice of revocation to:

HV Bancorp, Inc.

2005 South Easton Road, Suite 304

Doylestown, Pennsylvania 18901

(267) 280-4000

Attention: Janice Garner, Secretary

If you hold your shares of HVBC common stock in “street name” through a bank, broker or other nominee, you must follow the directions you receive from your bank, broker or other nominee to change your voting instructions.

 

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Q:	What happens if I sell my shares after the record date but before the special meeting?

 

A:

If you sell or otherwise transfer your shares after the record date, but before the date of the special meeting, you will retain your right to vote at the special meeting, but you will not have the right to receive the merger consideration to be received by shareholders in the merger. In order to receive the merger consideration, a shareholder must hold his or her shares through completion of the merger.

 

Q:	Are shareholders entitled to seek appraisal or dissenters’ rights if they do not vote in favor of the merger proposal?

 

A:	No. HVBC shareholders will not be entitled to appraisal or dissenters’ rights.

 

Q:	What do I do if I receive more than one proxy statement/prospectus or set of voting instructions?

 

A:

If you hold shares directly as a record holder and also in “street name” or otherwise through a nominee, you may receive more than one proxy statement/prospectus and/or set of voting instructions relating to the shareholder meeting. These should each be voted and/or returned separately in order to ensure that all of your shares are voted.

 

Q:	Do I need to do anything with my shares of HVBC common stock certificates now?

 

A:	No. Shareholders will receive an election form and instructions for surrendering their stock certificates prior to the closing of the merger. In the meantime, you should retain your stock certificates because they are still valid. Please do not send in your stock certificates with your proxy card.

 

Q:	What should I do if I hold my shares of HVBC common stock in book-entry form?

 

A:

If your shares of HVBC common stock are held in book-entry form, you will not be required to take any actions to surrender your shares of HVBC common stock. Promptly following the closing of the merger, shares of HVBC common stock held in book-entry form will automatically be exchanged for the merger consideration. If you hold your shares in “street name” through a broker, the broker will provide instructions for making an election with respect to your shares of HVBC common stock.

 

Q:	Where can I find more information about the companies?

 

A:	You can find more information about CZFS and HVBC from the various sources described under “Where You Can Find More Information” beginning on page 108.

 

Q:	Whom should I call with questions?

 

A:	If you have any questions concerning the merger, the other meeting matters or the proxy statement/prospectus, or need assistance voting your shares, please contact Laurel Hill Advisory Group, LLC, HVBC’s proxy solicitor, at the address or telephone number listed below:

Laurel Hill Advisory Group

2 Robbins Lane, Suite 201

Jericho, New York 11753

Banks and Brokers Call (516) 933-3100

All Others Call Toll-Free (888) 742-1305

 

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RISK FACTORS

In addition to the other information contained in or incorporated by reference into this proxy statement/prospectus, including the matters addressed under the caption “Information Regarding Forward-Looking Statements” on page 26 and the risk factors specific to CZFS’ business that will also affect the combined company after the merger described in the sections entitled “Risk Factors” in CZFS’ Annual Report on Form 10-K for the fiscal year ended December 31, 2021 and in other documents incorporated by reference into this proxy statement/prospectus, you should carefully read and consider the following risk factors in deciding whether to vote for approval of the merger proposal.

Risks Related to the Merger

The value of the merger consideration will vary with changes in CZFS’ stock price.

Upon completion of the merger, each share of HVBC common stock will be converted into the right to receive merger consideration consisting of, at the option of the holder of such share, either cash or shares of CZFS common stock. Because the per share stock consideration is fixed at 0.4000 shares of CZFS common stock, the market value of the CZFS common stock to be issued in the merger will depend upon the market price of CZFS common stock. This market price may vary from the closing price of CZFS common stock on the date the merger was announced, on the date that this proxy statement/prospectus was mailed to HVBC shareholders and on the date of the HVBC special meeting. Accordingly, HVBC shareholders who elect to receive stock consideration will not necessarily know or be able to calculate the value of the stock consideration they would be entitled to receive upon completion of the merger.

HVBC shareholders may receive a form of consideration different from what they elect.

While each HVBC shareholder may elect to receive cash or CZFS common stock in the merger, 20% of HVBC common stock outstanding at the completion of the merger will be exchanged for cash consideration and 80% of HVBC common stock outstanding at the completion of the merger will be exchanged for shares of CZFS common stock. Therefore, if HVBC shareholders elect more cash than is available under the merger agreement, their elections will be prorated to permit 80% of HVBC common stock outstanding at the completion of the merger to be exchanged for shares of CZFS common stock. Similarly, if HVBC shareholders elect more stock consideration than is available under the merger agreement, their elections will be prorated to permit 20% of HVBC common stock outstanding at the completion of the merger to be exchanged for cash consideration. As a result, your ability to receive cash or stock consideration in accordance with your election may depend on the elections of other HVBC shareholders.

The merger agreement may not be completed if certain conditions to the merger are not satisfied or waived or if the merger agreement is terminated by the parties in accordance with its terms.

The merger agreement is subject to a number of conditions which must be fulfilled in order to complete the merger. Those conditions include:

 

•

the approval of the merger proposal by HVBC’s shareholders;

 

•

the receipt of required regulatory approvals;

 

•

the absence of orders prohibiting the completion of the merger;

 

•

the effectiveness of the registration statement of which this proxy statement/prospectus is a part;

 

•

the continued accuracy of the representations and warranties by both parties and the performance by both parties of their covenants and agreements; and

 

19

•

the receipt by both parties of legal opinions from their respective tax counsels.

In addition, HVBC has the right to terminate the merger agreement if the average closing price of CZFS common stock for a specified period prior to closing is less than $56.00 and the CZFS common stock underperforms a specified peer-group index by more than 20%. However, CZFS will have the option to increase the amount of CZFS common stock to be provided or make cash payments to HVBC shareholders, in which case no termination will occur. See the section of this proxy statement/prospectus titled “The Merger Agreement—Termination” beginning on page 84 for a more complete discussion of the circumstances under which the merger agreement could be terminated.

Regulatory approvals may not be received, may take longer than expected, or may impose conditions that are not presently anticipated or that could have an adverse effect on CZFS following the merger.

Before the merger may be completed, various approvals or consents must be obtained from state and federal governmental authorities, including the FRB and the PADOBS. These approvals could be delayed or not obtained at all, including due to: an adverse development in either party’s regulatory standing or in any other factors considered by regulators when granting such approvals, including factors not known as of the date of this proxy statement/prospectus; governmental, political or community group inquiries, investigations or opposition; or changes in legislation or the political environment generally.

The approvals that are granted may impose terms and conditions, limitations, obligations or costs, or place restrictions on the conduct of CZFS’ business or require changes to the terms of the transactions contemplated by the merger agreement. There can be no assurance that regulators will not impose any such conditions, limitations, obligations or restrictions and that such conditions, limitations, obligations or restrictions will not have the effect of delaying the completion of any of the transactions contemplated by the merger agreement, imposing additional material costs on or materially limiting the revenues of CZFS following the merger or otherwise reduce the anticipated benefits of the merger if the merger were consummated successfully within the expected timeframe. In addition, there can be no assurance that any such conditions, terms, obligations or restrictions will not result in the delay or abandonment of the merger. CZFS is not required to complete the merger if a governmental agency, as part of its authorization or approval, imposes any term, condition or restriction upon CZFS or its subsidiaries that, in CZFS’ reasonable determination, would prohibit or materially limit the ownership or operation by CZFS of any material portion of HVBC’s or CZFS’ business or assets, or that would compel CZFS to dispose or hold separate any material portion of HVBC’s or CZFS’ assets. Additionally, the completion of the merger is conditioned on the absence of certain orders, injunctions or decrees by any court or regulatory agency of competent jurisdiction that would prohibit or make illegal the completion of any of the transactions contemplated by the merger agreement.

CZFS and HVBC will incur transaction and integration costs in connection with the merger and, if the merger is not completed, CZFS and HVBC will have incurred substantial expenses without realizing the expected benefits of the merger.

Each of CZFS and HVBC has incurred substantial expenses in connection with the transactions described in this proxy statement/prospectus. CZFS also expects to incur substantial expenses in connection with consummation of the merger and integrating the business, operations, networks, systems, technologies, policies and procedures of HVBC with those of CZFS. Some of these costs are payable by either CZFS or HVBC regardless of whether the merger is completed.

While CZFS and HVBC have assumed that a certain level of costs will be incurred, there are many factors beyond their control that could affect the total amount or the timing of the integration costs. Moreover, many of the costs that will be incurred are, by their nature, difficult to estimate accurately. These integration costs may result in the combined company taking charges against earnings following the completion of the merger, and the

 

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amount and timing of such charges are uncertain at present. There can be no assurances that the expected benefits and efficiencies related to the integration of the businesses will be realized to offset these transaction and integration costs over time. These factors and similar risks could have an adverse effect on the results of operation, business and stock prices of CZFS and HVBC.

HVBC’s directors and executive officers have financial interests in the merger that may be different from, or in addition to, the interests of HVBC shareholders.

In considering the information contained in this proxy statement/prospectus, you should be aware that HVBC’s executive officers and directors have financial interests in the merger that are different from, or in addition to, the interests of HVBC shareholders generally. These interests include, among other things:

 

•

the right to receive cash payments in exchange for cancellation of outstanding stock options, including unvested stock options;

 

•

the right to accelerated vesting of restricted stock awards;

 

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new agreements that provide cash payments to Travis J. Thompson, Chairman and Chief Executive Officer of HVBC, and Robert J. Marino, President of HVBC, upon the closing of the merger in exchange for the termination of their existing agreements with HVBC and complying with non-competition and non-solicitation restrictions;

 

•

employment agreements with Charles Hutt, Executive Vice President and Chief Operations Officer—Mortgage Division, and Chris Jacobsen, Executive Vice President and Chief Operating Officer of HVBC, which provide cash severance payments and continued employee benefits in the event that the executive officer has a qualifying termination of employment following the closing of the merger;

 

•

a retention bonus payable to Mr. Hutt provided that Mr. Hutt remains employed with CZFS and FCCB for, at least, 90 days following the closing of the merger;

 

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the right of certain other executive officers to receive cash severance and continued employee benefits under certain circumstances;

 

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the right to continued indemnification and liability insurance coverage by CZFS after the merger for acts or omissions occurring before the merger;

 

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in the case of one director of HVBC, a seat on the CZFS board of directors, and in the case of each of two directors of HVB, a seat on the FCCB board of directors, and any related compensation for such services on the CZFS board of directors or the FCCB board of directors, if applicable; and

 

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in the case of each of Travis J. Thompson and Robert J. Marino , a position as a senior officer of FCCB.

HVBC will be subject to business uncertainties and contractual restrictions while the merger is pending.

Uncertainty about the effect of the merger on employees, suppliers and customers may have an adverse effect on HVBC. These uncertainties may impair HVBC’s and/or HVB’s ability to attract, retain and motivate key personnel until the merger is completed, and could cause customers, suppliers and others who deal with HVBC and/or HVB to seek to change existing business relationships with HVBC and/or HVB. HVBC and HVB employee retention and recruitment may be particularly challenging prior to the effective time of the merger, as employees and prospective employees may experience uncertainty about their future roles with the combined company.

The pursuit of the merger and the preparation for the integration may place a significant burden on management and internal resources of HVBC. Any significant diversion of management attention away from ongoing business and any difficulties encountered in the transition and integration process could affect the financial results of HVBC and HVB and, following the merger, the combined company. In addition, the merger agreement requires

 

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that HVBC and HVB operate in the ordinary course of business consistent with past practice and restricts HVBC and HVB from taking certain actions prior to the effective time of the merger or termination of the merger agreement without the prior written consent of CZFS. These restrictions may prevent HVBC and/or HVB from pursuing attractive business opportunities that may arise prior to the completion of the merger.

The termination fee and the restrictions on solicitation contained in the merger agreement may discourage other companies from trying to acquire HVBC.

Until the completion of the merger, HVBC is prohibited from soliciting, initiating, encouraging, or with some exceptions, considering any inquiries or proposals that may lead to a proposal or offer for a merger or other business combination transaction with any person other than CZFS. In addition, HVBC has agreed to pay a termination fee of $2.7 million to CZFS in specified circumstances. These provisions could discourage other companies from trying to acquire HVBC even though those other companies might be willing to offer greater value to HVBC shareholders than CZFS has offered in the merger. The payment of the termination fee also could have a material adverse effect on HVBC’s results of operations.

The fairness opinion obtained by HVBC from its financial advisor will not reflect changes in circumstances subsequent to the date of the fairness opinion.

TKG orally delivered to the board of directors of HVBC its opinion, which was subsequently confirmed in writing, dated as of October 18, 2022, to the effect that, as of such date and based upon and subject to the factors, qualifications and assumptions set forth therein, the merger consideration set forth in the merger agreement was fair to the holders of HVBC common stock from a financial point of view. Because HVBC does not currently anticipate asking TKG to update its opinion, the opinion will not address the fairness of the merger consideration from a financial point of view at the time the merger is completed. Accordingly, the opinion does not reflect changes that may occur or may have occurred after the date of the opinion, including changes to the operations and prospects of CZFS or HVBC, changes in general market and economic conditions or regulatory or other factors which may be beyond the control of CZFS and HVBC. Any such changes, or changes in other factors on which the opinion was based, may materially alter or affect the relative values of CZFS or HVBC.

If the merger is not consummated by June 30, 2023, CZFS or HVBC may terminate the merger agreement.

Either CZFS or HVBC may terminate the merger agreement under certain circumstances, including if the merger has not been consummated by June 30, 2023. However, this termination right will not be available to a party if the failure to consummate the transaction by such is due to a material breach of the merger agreement by the party seeking to terminate the merger agreement.

The tax consequences of the merger to an HVBC shareholder will be dependent upon the merger consideration received.

The merger is intended to qualify for U.S. federal income tax purposes as a “reorganization” within the meaning of Section 368(a) of the Code. Therefore, for U.S. federal income tax purposes, as a result of the merger, it is expected that a U.S. holder of shares of HVBC common stock generally will only recognize gain (but not loss) in an amount not to exceed the cash (if any) received as part of the merger consideration and will recognize gain or loss if such holder received the entirety of its consideration in cash or with respect to any cash received in lieu of fractional shares of CZFS common stock.

Risks Related to the Combined Company if the Merger is Completed

CZFS may fail to realize the anticipated benefits of the merger.

The success of the merger will depend on, among other things, CZFS’ ability to realize anticipated cost savings and to combine the businesses of CZFS and HVBC in a manner that does not materially disrupt the existing

 

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customer relationships of HVBC and/or HVB nor result in decreased revenues from any loss of customers. The success of the merger will also depend upon the integration of employees, systems, operating procedures and information technologies, as well as the retention of key employees. Additionally, the success of the merger is to an extent dependent upon HVBC and/or HVB customers choosing to continue their relationships with the combined company following the consummation of the transaction. If CZFS is not able to successfully achieve its objectives, or if HVBC and/or HVB customers choose not to continue their relationships with the combined company, the anticipated benefits of the merger may not be realized fully or at all or may take longer to realize than expected.

CZFS and HVBC have operated and, until the completion of the merger, will continue to operate, independently. It is possible that the integration process could result in the loss of key employees, the disruption of HVBC’s ongoing businesses or inconsistencies in standards, controls, procedures and policies that adversely affect the ability of CZFS to maintain relationships with customers and employees or to achieve the anticipated benefits of the merger.

Unanticipated costs relating to the merger could reduce CZFS’ future earnings per share.

CZFS believes that it has reasonably estimated the likely costs of integrating the operations of CZFS and HVBC, and the incremental costs of operating as a combined company. However, it is possible that unexpected transaction costs such as taxes, fees or professional expenses or unexpected future operating expenses such as increased personnel costs or increased taxes, as well as other types of unanticipated adverse developments, could have a material adverse effect on the results of operations and financial condition of the combined company. If unexpected costs are incurred, the merger could have a dilutive effect on the combined company’s earnings per share. In other words, if the merger is completed, the earnings per share of CZFS common stock could be less than they would have been if the merger had not been completed.

After the merger is completed, HVBC shareholders who receive stock compensation will become CZFS shareholders and will have different rights that may be less advantageous than their current rights.

Upon completion of the merger, HVBC shareholders who receive stock compensation will become CZFS shareholders. Differences in HVBC’s articles of incorporation and by-laws and CZFS’ articles of incorporation and by-laws will result in changes to the rights of HVBC shareholders who become CZFS shareholders. For more information, see “Comparison of Shareholder Rights,” beginning on page 99 of this document.

Both CZFS and HVBC shareholders will have a reduced ownership and voting interest after the merger and will exercise less influence over management of the combined organization.

HVBC shareholders currently have the right to vote in the election of the board of directors of HVBC and on various other matters affecting HVBC. After the merger, each HVBC shareholder will hold a percentage ownership of the combined organization that is much smaller than such shareholder’s current percentage ownership of HVBC. It is expected that the former shareholders of HVBC as a group will receive shares in the merger constituting less than approximately 18% of the outstanding shares of CZFS common stock immediately after the merger. Because of this, HVBC’s shareholders will have significantly less influence on the management and policies of CZFS than they now have on the management and policies of HVBC. Additionally, CZFS’ shareholders will have less influence on the management and policies of CZFS than they now have on the management and policies of CZFS.

 

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SUMMARY SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED DATA FOR CZFS

On October 18, 2022, CZFS, CZFSAC, FCCB, HVBC and HVB entered into a merger agreement pursuant to which (i) HVBC will merge with and into CZFS, with CZFS as the surviving entity, and (ii) HVB will merge with and into FCCB, with FCCB as the surviving entity (the “Proposed Merger”). The Proposed Merger is expected to close in the first half of 2023, subject to approval by HVBC’s shareholders and customary closing conditions and regulatory approvals.

The following table shows selected financial information on a pro forma condensed combined basis giving effect to the Proposed Merger and related transactions (the “Proposed Transactions”), which is known as “pro forma” information, as if the Proposed Transactions had occurred on September 30, 2022, in the case of the balance sheet information, and at the beginning of the period presented, in the case of the income statement information. The pro forma information reflects the acquisition method of accounting.

CZFS anticipates that the Proposed Merger will provide the combined company with financial benefits that include reduced operating expenses and greater revenue. The pro forma information, while helpful in illustrating the financial characteristics of CZFS following the Proposed Merger under one set of assumptions, does not reflect these benefits and, accordingly, does not attempt to predict or suggest future results. The pro forma information also does not necessarily reflect what the historical results of CZFS would have been had the companies been combined during these periods.

The exchange ratio of 0.4000 was used in preparing this selected pro forma information. You should read this summary selected unaudited pro forma information in conjunction with the information included under “Unaudited Pro Forma Condensed Combined Consolidated Financial Information” and with the historical consolidated financial statements and the related notes of CZFS, which are incorporated in this proxy statement/prospectus by reference, and of HVBC, which are included in the proxy statement/prospectus.

The unaudited pro forma shareholders’ equity and net income are qualified by the statements set forth under this caption and should not be considered indicative of the market value of CZFS common stock or the actual or future results of operations of CZFS for any period. Actual results may be materially different than the pro forma information presented.

 

		At September 30, 2022 (in thousands)
Pro forma combined balance sheet data
Total assets		$	2,966,004
Total loans, net			2,142,598
Deposits			2,371,549
Total stockholders’ equity			231,655

 

		Nine Months Ended September 30, 2022				Year Ended December 31, 2021
		(in thousands, except  per share data)
Pro forma condensed combined income statement data
Interest income		$	79,221			$	96,443
Interest expense			11,094				13,299
Net interest income			68,127				83,144
Provision for loan losses			6,136				5,455
Net interest income after provision for loan losses			61,991				77,689
Non-interest income			14,434				25,729
Non-interest expense			51,562				65,898
Income before income taxes			24,863				37,520
Provision for income taxes			4,355				6,967
Net income		$	20,508			$	30,553
Pro forma per share data
Basic earnings		$	4.38			$	6.50
Diluted earnings		$	4.38			$	6.50

 

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COMPARATIVE MARKET PRICE DATA

CZFS and HVBC common stock are each listed and traded on NASDAQ under the symbol “CZFS” and “HVBC,” respectively.

On December 27, 2022, the last practicable trading day prior to the date of this proxy statement/prospectus, there were 3,971,209 shares of CZFS common stock outstanding and 1,837 shareholders of record. On December 27, 2022, the last practicable trading day prior to the date of this proxy statement/prospectus, there were 2,242,421 shares of HVBC common stock outstanding and 108 shareholders of record. Such numbers of shareholders do not reflect the number of individuals or institutional investors holding stock in nominee name through banks, brokerage firms and others.

The following table presents the last reported sale price of a share of CZFS and last reported sale price of a share of HVBC common stock, as reported on NASDAQ, on October 18, 2022, the last full trading day prior to the public announcement of the proposed merger, and December 27, 2022, the last practicable trading day prior to the date of this proxy statement/prospectus. The following table also presents the equivalent per share value of the CZFS common stock that HVBC shareholders would receive for each share of their HVBC common stock if the merger was completed on those dates:

 

		CZFS Common Stock				HVBC Common Stock				Equivalent Value Per Share of HVBC Common Stock(1)
October 18, 2022		$	70.00			$	21.00			$	28.00
December 27, 2022		$	78.60			$	27.65			$	31.44

 

(1)	Calculated by multiplying the closing price of CZFS common stock as of the specified date by the exchange ratio of 0.400.

The market value of the CZFS common stock to be issued in exchange for shares of HVBC common stock upon the completion of the merger will not be known at the time of the HVBC special meeting. HVBC shareholders are encouraged to obtain current market quotations for CZFS common stock and HVBC common stock and to review carefully the other information contained in this proxy statement/prospectus or incorporated by reference in this proxy statement/prospectus. See “Where You Can Find More Information” beginning on page 108.

The holders of CZFS common stock receive dividends as and when declared by CZFS’ board of directors out of statutory surplus or from net profits. Following the completion of the merger, subject to approval and declaration by CZFS’ board of directors, CZFS expects to continue paying quarterly cash dividends on a basis consistent with past practice. The current annualized rate of distribution on a share of CZFS common stock is $1.92 per share. However, the payment of dividends by CZFS is subject to numerous factors, and no assurance can be given that CZFS will pay dividends following the completion of the merger or that dividends will not be reduced in the future.

 

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INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

This proxy statement/prospectus, including information included or incorporated by reference in this proxy statement/prospectus, may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, statements about the benefits of the merger between CZFS and HVBC, including future financial and operating results and performance; statements about CZFS’ and HVBC’s plans, objectives, expectations and intentions with respect to future operations, products and services; and other statements identified by words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “will,” “should,” “may” or words of similar meaning. These forward-looking statements are based upon the current beliefs and expectations of CZFS’ and HVBC’s managements and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are difficult to predict and generally beyond the control of CZFS and HVBC. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. Actual results may differ materially from the anticipated results discussed in these forward-looking statements.

Forward-looking statements are neither historical facts, nor assurance of future performance. Instead, the statements are based on current beliefs, expectations and assumptions regarding the future of the businesses of CZFS and HVBC, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Therefore, you should not unduly rely on any of these forward-looking statements.

All forward-looking statements included in this proxy statement/prospectus are based on information available at the time of the proxy statement/prospectus. Pro forma, projected and estimated numbers are used for illustrative purposes only and are not forecasts, and actual results may differ materially. CZFS and HVBC are under no obligation to (and expressly disclaim any such obligation to) update or alter these forward-looking statements, whether as a result of new information, future events or otherwise except as required by law.

The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

 

•

the businesses of CZFS and HVBC may not be combined successfully, or such combination may take longer to accomplish than expected;

 

•

the cost savings from the merger may not be fully realized or may take longer to realize than expected;

 

•

operating costs, customer loss and business disruption following the merger, including adverse effects on relationships with employees, may be greater than expected;

 

•

governmental approvals of the merger may not be obtained, or adverse regulatory conditions may be imposed in connection with governmental approvals of the merger;

 

•

the shareholders of HVBC may fail to approve the merger;

 

•

the possibility that the merger may be more expensive to complete than anticipated, including as a result of unexpected factors or events;

 

•

diversion of management’s attention from ongoing business operations and opportunities;

 

•

the possibility that the parties may be unable to achieve expected synergies and operating efficiencies in the merger within the expected timeframes or at all and to successfully integrate HVBC’s operations and those of CZFS;

 

•

such integration may be more difficult, time consuming or costly than expected;

 

•

revenues following the proposed transaction may be lower than expected;

 

•

CZFS’ and HVBC’s success in executing their respective business plans and strategies and managing the risks involved in the foregoing;

 

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•

the dilution caused by CZFS’ issuance of additional shares of its capital stock in connection with the proposed transaction;

 

•

changes in general economic conditions, including inflation, changes in market interest rates and changes in monetary and fiscal policies of the federal government;

 

•

legislative and regulatory changes; and

 

•

uncertainty as to the extent of the duration, scope, and impacts of the COVID-19 pandemic on CZFS, HVBC and the proposed transaction.

Additional factors that could cause CZFS’ and HVBC’s results to differ materially from those described in the forward-looking statements can be found in the section of this proxy statement/prospectus titled “Risk Factors” beginning on page 19 and CZFS’ and HVBC’s filings with the SEC, including CZFS’ Annual Report on Form 10-K for the fiscal year ended December 31, 2021 and HVBC’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

You are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this proxy statement/prospectus or the date of any document incorporated by reference in this proxy statement/prospectus. All subsequent written and oral forward-looking statements concerning the merger or other matters addressed in this proxy statement/prospectus and attributable to CZFS or HVBC or any person acting on their behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Except to the extent required by applicable law or regulation, CZFS and HVBC undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date of this proxy statement/prospectus or to reflect the occurrence of unanticipated events.

 

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INFORMATION ABOUT THE COMPANIES

Citizens Financial Services, Inc.

CZFS is a Pennsylvania corporation, incorporated on April 30, 1984 to be the holding company for its wholly owned subsidiary, FCCB, a Pennsylvania-chartered bank. CZFS is a bank holding company under the Bank Holding Company Act of 1956, as amended. CZFS is regulated by the FRB and the PADOBS. During 2020, CZFSAC was formed as a wholly owned subsidiary of the CZFS, and subsequently CZFS’ interest in FCCB was transferred to CZFSAC to facilitate the merger with MidCoast Community Bancorp, Inc. and its wholly owned subsidiary, MidCoast Community Bank, which was completed on April 17, 2020. CZFS is primarily engaged in the ownership and management of CZFSAC, its subsidiary, FCCB and FCCB’s wholly owned subsidiaries, First Citizens Insurance Agency, Inc. and 1^st Realty of PA LLC (“Realty”). Realty was formed in March of 2019 to manage and sell properties acquired by FCCB in the settlement of a bankruptcy filing with a commercial customer, as well as other properties FCCB obtains in foreclosure.

At September 30, 2022, CZFS had total assets of approximately $2.35 billion, total deposits of approximately $1.87 billion, net loans of approximately $1.72 billion, and stockholders’ equity of approximately $191.4 million. The principal executive office of CZFS is located at 15 South Main Street, Mansfield, Pennsylvania 16933, and its telephone number is (570) 662-2121 and its website is www.firstcitizensbank.com. Information that is included in this website does not constitute part of this proxy statement/prospectus.

First Citizens Community Bank

FCCB is a Pennsylvania-chartered bank headquartered in Mansfield, Pennsylvania, and it is a member bank in the Federal Reserve System. FCCB is subject to regulation by the PADOBS and the FRB. FCCB is a full-service bank engaged in a broad range of banking activities and services for individual, business, governmental and institutional customers. These activities and services principally include checking, savings, and time deposit accounts; residential, commercial and agricultural real estate, commercial and industrial, state and political subdivision and consumer loans; and a variety of other specialized financial services. The Trust and Investment division of FCCB offers a full range of client investment, estate, mineral management and retirement services.

FCCB has a primary market area of Potter, Tioga, Clinton, Bradford and Centre counties in north central Pennsylvania, Lebanon, Berks, Schuylkill, Lancaster and portions of Chester counties in south central Pennsylvania, Allegany County in southern New York and Wilmington and Dover, Delaware, and operates 33 branch offices and two banking facilities. Through this branch network and its electronic delivery channels, FCCB provides deposit and loan products and financial services to local businesses, consumers and municipalities. First Citizens Insurance Agency, Inc., a wholly-owned subsidiary of FCCB, offers products such as mutual funds, annuities, and health and life insurance. First Citizens’ Investment and Trust Services Division offers professional trust administration, investment management services, estate planning and administration, and custody of securities. The principal executive office of FCCB is located at 15 South Main Street, Mansfield, Pennsylvania 16933, and its telephone number is (570) 662-2121.

HV Bancorp, Inc.

HV Bancorp, Inc., a Pennsylvania corporation, is the holding company of Huntingdon Valley Bank. HVBC is a bank holding company under the Bank Holding Company Act of 1956, as amended. HVBC is regulated by the FRB and the PADOBS. Shares of HVBC began trading on NASDAQ on January 12, 2017. At September 30, 2022, HVBC had approximately $603.3 million in consolidated assets, approximately $504.1 million in deposits and approximately $41.4 million of shareholders’ equity. The principal executive office of HVBC is located at 2005 South Easton Road, Suite 304, Doylestown, PA, 18901, and its telephone number is (267) 280-4000.

 

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Huntingdon Valley Bank

Huntingdon Valley Bank is a Pennsylvania-chartered savings bank headquartered in Huntingdon Valley, Pennsylvania, and it is not a member of the Federal Reserve System. It is subject to regulation by the PADOBS and the FDIC. HVB was organized in 1871, and currently provides residential and commercial loans to its general service area (Montgomery, Bucks and Philadelphia Counties, Pennsylvania, Burlington County, New Jersey and New Castle County, Delaware) as well as offering a wide variety of savings, checking and certificate of deposit accounts to its retail and business customers. HVB’s principal business consists of attracting retail deposits from the general public in its market area and investing those deposits, together with funds generated from operations and borrowings, primarily in one- to four-family residential mortgage loans, commercial real estate loans (including multi-family loans) and other commercial business, construction loans and, to a lesser extent, home equity loans and home equity lines of credit and consumer loans. HVB’s website address is www.myhvb.com. Information that is included in this website does not constitute part of this proxy statement/prospectus.

 

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THE SPECIAL MEETING OF HVBC SHAREHOLDERS

This proxy statement/prospectus is being furnished to holders of HVBC common stock for use at a special meeting of HVBC’s shareholders and any adjournments or postponements thereof.

Date, Time and Place of the Special Meeting

The special meeting of shareholders of HVBC will be held at Huntingdon Valley Bank, 2005 South Easton Road, Suite 304, Doylestown, Pennsylvania 18901 on February 15, 2023, at 11:00 a.m., local time.

Purpose of the Special Meeting

At the special meeting, HVBC’s shareholders as of the record date will be asked to consider and vote on the following:

 

1.

the merger proposal;

 

2.

the compensation proposal; and

 

3.

the adjournment proposal, if necessary.

Recommendation of the HVBC Board of Directors

The HVBC board of directors has approved the merger agreement and recommends that you vote your shares as follows:

 

•

“FOR” the merger proposal;

 

•

“FOR” the compensation proposal; and

 

•

“FOR” the adjournment proposal, if necessary.

Record Date; Outstanding Shares; Shares Entitled to Vote

Only holders of record of HVBC common stock at the close of business on the record date of December 27, 2022, are entitled to notice of and to vote at HVBC’s special meeting. As of the record date, there were 2,242,421 shares of HVBC common stock outstanding, held of record by 108 shareholders. Each holder of HVBC common stock is entitled to one vote for each share of HVBC common stock owned as of the record date.

Quorum; Vote Required

A quorum of HVBC shareholders is necessary to hold a valid meeting. If the holders of at least a majority of the shares of HVBC common stock entitled to vote are represented in person or by proxy at the special meeting, a quorum will exist. Abstentions will be counted for purposes of determining whether a quorum is present. If you fail to submit a proxy prior to the special meeting or to vote at the HVBC special meeting, your shares of HVBC common stock will not be counted towards a quorum.

Assuming a quorum is present, the affirmative vote of a majority of the votes cast by all HVBC shareholders entitled to vote at the special meeting is required to approve each of the merger proposal, the compensation proposal and the adjournment proposal.

For all proposals, abstentions are not shares “voting” at the special meeting and therefore, will not affect the outcome of any of the proposals. Similarly, broker non-votes will have no effect on the merger proposal, compensation proposal and adjournment proposal.

 

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Share Ownership of Directors and Management; Voting Agreement

As of the record date, the directors and executive officers of HVBC and their affiliates collectively beneficially owned 538,705 shares of HVBC common stock, or approximately 24.0% of HVBC’s outstanding shares. Each of the directors and certain executive officers of HVBC, solely in their capacity as a shareholder of HVBC, has entered into a voting agreement with CZFS requiring each of them to vote all shares of HVBC common stock owned by such director or executive officer in favor of the merger proposal. As of the record date, these directors and certain executive officers of HVBC held 437,305 shares of HVBC common stock, which represented approximately 19.5% of the outstanding shares of HVBC common stock.

When considering the HVBC board of directors’ recommendation that you vote in favor of the merger proposal, you should be aware that the executive officers and directors of HVBC have financial interests in the merger that may be different from, or in addition to, the interests of shareholders of HVBC. See “PROPOSAL I—The Merger—Interests of HVBC’s Directors and Executive Officers in the Merger” beginning on page 56.

Voting of Proxies

If you are an HVBC shareholder, the HVBC board of directors requests that you return the proxy card accompanying this document for use at the HVBC special meeting. Please complete, date and sign the proxy card and promptly return it in the enclosed postage-paid envelope. Alternatively, you may vote through the Internet or by telephone.

All properly signed proxies received prior to the special meeting and not revoked before the vote at the special meeting will be voted at the special meeting according to the instructions indicated on the proxies or, if no instructions are given, the shares will be voted “FOR” the merger proposal, “FOR” the compensation proposal and “FOR” the adjournment proposal, if necessary.

If you have any questions concerning the merger, the other meeting matters or this proxy statement/prospectus or need assistance voting your shares, please contact Laurel Hill Advisory Group, LLC, HVBC’s proxy solicitor, at the address or telephone number listed below:

Laurel Hill Advisory Group

2 Robbins Lane, Suite 201

Jericho, New York 11753

Banks and Brokers Call (516) 933-3100

All Others Call Toll-Free (888) 742-1305

If you hold your shares of HVBC common stock in “street name,” meaning in the name of a bank, broker or other nominee who is the record holder, you must either direct the record holder of your shares of HVBC common stock how to vote your shares or obtain a proxy from the record holder to vote your shares in person at the special meeting.

If you fail to properly submit your proxy card or to instruct your broker, bank or other nominee to vote your shares of HVBC common stock and you do not attend the special meeting and vote your shares in person, your shares will not be voted. This will have no effect on the merger proposal.

How to Revoke Your Proxy

If you are an HVBC shareholder, you may revoke your proxy at any time by taking any of the following actions before your proxy is voted at the special meeting:

 

•

delivering a written notice bearing a date later than the date of your proxy card to the Secretary of HVBC, stating that you revoke your proxy;

 

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•

submitting a new signed proxy card bearing a later date (if you submitted your proxy by Internet or by telephone, you can vote again by Internet or telephone) (any earlier proxies will be revoked automatically); or

 

•

attending the special meeting and voting in person, although attendance at the special meeting will not, by itself, revoke a proxy.

 

•

You should send any notice of revocation to:

HV Bancorp, Inc.

2005 South Easton Road, Suite 304

Doylestown, Pennsylvania 18901

(267) 280-4000

Attention: Janice Garner, Secretary

If you hold your shares of HVBC common stock in “street name” through a bank, broker or other nominee, you must follow the directions you receive from your bank, broker or other nominee to change your vote.

Voting in Person

If you are an HVBC shareholder and plan to attend the HVBC special meeting and wish to vote in person, you will be given a ballot at the special meeting. Please note, however, that if your shares are held of record by a broker, bank or other nominee and you wish to vote at the special meeting, you must obtain a proxy from the broker, bank or other nominee in order to vote your shares.

Whether or not you plan to attend the special meeting, HVBC requests that you complete, sign, date and return the enclosed proxy card as soon as possible in the enclosed postage-paid envelope. This will not prevent you from voting in person at the special meeting but will assure that your vote is counted if you are unable to attend.

Abstentions and Broker Non-Votes

Only shares affirmatively voted for the merger proposal, including shares represented by properly executed proxies that do not contain voting instructions, will be counted as votes “FOR” the merger proposal, “FOR” the compensation proposal and “FOR” the adjournment proposal.

Brokers who hold shares of HVBC common stock in “street name” for a customer who is the beneficial owner of those shares may not exercise voting authority on the customer’s shares with respect to the actions proposed in this document without specific instructions from the customer. Proxies submitted by a broker that do not exercise this voting authority are referred to as broker non-votes. It is expected that all proposals to be voted on at the HVBC special meeting will be “non-routine” matters, and, as such, broker non-votes, if any, will not be counted as present and entitled to vote for purposes of determining a quorum at the HVBC special meeting. If your bank, broker, trustee or other nominee holds your shares of HVBC common stock in “street name,” such entity will vote your shares of HVBC common stock only if you provide instructions on how to vote by complying with the instructions provided to you by your bank, broker, trustee or other nominee with this proxy statement/prospectus.

Accordingly, you are urged to mark and return the enclosed proxy card to indicate your vote, or fill out the voter instruction form, if applicable.

Abstentions will be counted for purposes of determining whether a quorum is present. For all proposals, abstentions are not shares “voting” at the special meeting and therefore, will not affect the outcome of any of the proposals.

 

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Proxy Solicitation

If you are an HVBC shareholder, the enclosed proxy is solicited by and on behalf of the HVBC board of directors. HVBC will pay the expenses of soliciting proxies to be voted at the special meeting. CZFS and HVBC will share equally any printing expenses and SEC filing and registration fees for this proxy statement/prospectus. Following the original mailing of the proxies and other soliciting materials, HVBC and its agents also may solicit proxies by mail, telephone, facsimile or in person. No additional compensation will be paid to directors, officers or other employees of HVBC for making these solicitations.

HVBC has retained a proxy solicitation firm, Laurel Hill Advisory Group, LLC, to aid it in the solicitation process. HVBC estimates it will pay Laurel Hill Advisory Group, LLC a fee of approximately $6,000 plus certain expenses and has agreed to indemnify Laurel Hill Advisory Group, LLC against certain losses. HVBC intends to reimburse persons who hold HVBC common stock of record but not beneficially, such as brokers, custodians, nominees and fiduciaries, for their reasonable expenses in forwarding copies of proxies and other soliciting materials to, and requesting authority for the exercise of proxies from, the persons for whom they hold the shares.

This proxy statement/prospectus and the proxy card are first being sent to HVBC shareholders on or about January 5, 2023.

Stock Certificates and Book-Entry Shares

If you are an HVBC shareholder, you should not send in any certificates representing HVBC common stock. Shareholders will receive an election form and instructions for surrendering their stock certificates prior to the closing of the merger. Please do not send in your stock certificates with your proxy card.

If your shares of HVBC common stock are held in book-entry form, you will not be required to take any actions to surrender your shares of HVBC common stock. Promptly following the completion of the merger, shares of HVBC common stock held in book-entry form will automatically be exchanged for the merger consideration. If you hold your shares in “street name” through a broker, the broker will provide instructions for making an election with respect to your shares of HVBC common stock.

 

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PROPOSAL I—THE MERGER

The following discussion contains material information about the merger. The discussion is subject, and qualified in its entirety by reference, to the merger agreement and financial advisors’ opinions attached as annexes to this proxy statement/prospectus. We urge you to read carefully this entire proxy statement/prospectus, including the merger agreement and HVBC’s financial advisor’s opinion attached as annexes to this proxy statement/prospectus, for a more complete understanding of the merger.

General

On October 18, 2022, the board of directors of CZFS, acting on behalf of CZFS and in CZFS’ capacity as the sole member of CZFSAC, and the boards of directors of FCCB, HVBC and HVB, each approved a merger agreement among CZFS, FCCB, CZFSAC, HVBC and HVB pursuant to which (i) HVBC will merge with and into CZFS, with CZFS as the surviving entity and (ii) HVB will merge with and into FCCB, with FCCB as the surviving entity.

Upon completion of the merger, holders of HVBC common stock (other than stock held by HVBC or CZFS) will be entitled to elect to receive, for each share of HVBC common stock that is issued and outstanding, without interest, (i) $30.50 in cash or (ii) 0.4000 shares of CZFS common stock, subject to proration provisions described herein and set forth in the merger agreement. Specifically, each HVBC shareholder’s election is subject to proration provisions that may modify the shareholder’s election to ensure that 20% of the outstanding shares of HVBC common stock (excluding shares of HVBC common stock to be canceled in connection with the merger) are exchanged for cash and 80% of the outstanding shares of HVBC common stock are exchanged for shares of CZFS common stock.

See “The Merger Agreement,” beginning on page 68, for additional and more detailed information regarding the legal documents that govern the merger, including information about the conditions to the merger and the provisions for terminating or amending the merger agreement.

Background of the Merger

Since its mutual to stock conversion and raising $21.8 million of gross proceeds in January 2017, HVBC has managed its capital through stock repurchases and controlled organic growth, primarily in its commercial and residential mortgage loan portfolios. HVBC’s traditional banking model consisted of originating and selling the majority of its one- to four-family residential real estate loans into the secondary market. Beginning in 2019, HVBC established a new business banking division that greatly expanded the Bank’s commercial real estate and commercial business portfolios. At September 30, 2022, HVBC had $230.2 million in commercial real estate and commercial business loans (excluding Paycheck Protection Program loans) as compared to $46.3 million of such loans at December 31, 2019. In order to support HVBC’s continued loan growth, HVBC issued $10.0 million in subordinated debt in May 2021.

As HVBC management reviewed its strategic and capital plan for 2022 to 2024 with the HVBC board of directors in January 2022, management discussed the competitive landscape in HVBC’s markets and the challenges of continuing loan and deposit growth. They discussed the persistence of a flat yield curve and low interest rate environment and its impact on earnings. Management also discussed the need for continuing investments in technology that would be required to keep pace with larger competitors. Management believed HVBC would need to consider a capital raise in order to continue its growth strategy with its new focus on its commercial loan portfolios. Management, in consultation with its financial advisors, estimated that a $20.0 million to $25.0 million common stock issuance would be the probable amount necessary for HVBC to execute on its strategic plan. Management and the HVBC board of directors considered the significant dilution of the proposed offering to HVBC’s current stockholders. Accordingly, the HVBC board and management believed

 

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that as HVBC pursued its strategic objectives, HVBC concurrently needed to consider strategic alternatives to further enhance stockholder value, including seeking a comparable-sized financial institution for a strategic business combination or a larger financial institution as a strategic acquirer.

Robert Marino, President and board member of HVBC and HVB arranged a lunch meeting on March 9, 2022 between himself, Travis J. Thompson, Chairman and Chief Executive Officer of HVBC and HVB, Randall E. Black, President and Chief Executive Officer of CZFS and FCCB, Mickey L. Jones, Executive Vice President and Chief Operating Officer of CZFS and FCCB, and David Z. Richards, Jr., Executive Vice President of FCCB. The initial discussion was to consider the possible interest of CZFS in a potential common stock offering by HVBC. During that meeting, Mr. Black expressed an interest in expanding CZFS’ presence into the Philadelphia market area. The discussion then turned to how HVBC’s franchise would fit with CZFS’ strategic plans. The parties discussed CZFS’ acquisition history, including its successes in integrating the operations and business cultures of the banks CZFS had acquired. Mr. Thompson and Mr. Black agreed to continue to have future discussions on both HVBC’s potential capital raise and the possibility of a business combination.

On March 12, 2022, Mr. Thompson had a meeting with the President and Chief Executive Officer of Company A, a similarly sized financial institution also located in Pennsylvania. Mr. Thompson discussed Company A’s interest in a potential common stock offering by HVBC or a potential merger of equals with a capital raise. The President and Chief Executive Officer of Company A expressed interest in learning more about the metrics of a potential merger of equals transaction and agreed to future discussions with Mr. Thompson.

On March 14, 2022, Messrs. Thompson and Marino met for lunch with the Chairman of the Board and the President and Chief Executive Officer of Company B, a financial institution located in Pennsylvania. The purpose of the meeting was to discuss possible interest of Company B in a potential common stock offering by HVBC. They also discussed each company’s management team, operations, business culture and prospects. The parties discussed Company B’s general growth and acquisition strategy.

On March 30, 2022, Mr. Richards met with Mr. Marino and expressed that CZFS was interested in acquiring HVBC. Mr. Richards believed CZFS would consider making a proposal to acquire HVBC at approximately $30.00 per share if HVBC had interest in a strategic combination. Mr. Marino agreed to discuss the concept of such a proposal with management and the board of HVBC.

In early April 2022, Mr. Thompson contacted Investment Banking Firm A to prepare some preliminary valuation modeling to better understand the current state of the banking market as well as illustrative merger transaction pricing ratios and multiples. This information was provided to Mr. Thompson on April 21, 2022. Concurrently with that initiative, Mr. Thompson also engaged TKG in late April to begin modeling a potential merger of equals transaction with Company A.

At the April 20, 2022, HVBC regular board meeting, Messrs. Thompson and Marino discussed with the HVBC board that they would be investigating potential merger partners as previously discussed and were having preliminary ongoing discussions with CZFS and Company A. Additional information on these initiatives would be provided for board consideration and discussion in the future.

Mr. Marino had a telephone call with Mr. Richards on May 13, 2022 and indicated that HVBC would consider a proposal for a merger with CZFS if provided in writing so it could be reviewed by the HVBC board of directors. Mr. Richards responded that he would follow up with the CZFS board and senior management to begin work on a proposal.

During the month of May 2022, Mr. Thompson had numerous telephone conversations with the President and Chief Executive Officer of Company A regarding the potential merger of equals transaction. They had preliminary discussions on how the two companies might integrate their management teams and agreed to have a meeting to formally discuss the potential transaction on May 31, 2022.

 

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Following consideration of Investment Banking Firm A’s valuation materials, Mr. Thompson instructed Investment Banking Firm A to set up a meeting with Company B to continue discussions that began in March 2022. Prior to establishing a meeting date, Mr. Thompson and the President and Chief Executive Officer of Company B both signed a mutual confidentiality agreement on May 20, 2022. The confidentiality agreement did not contain a standstill or similar provision. A meeting was then set for June 9, 2022.

On May 31, 2022, Mr. Thompson met with the President and Chief Executive Officer of Company A at the offices of TKG to discuss the potential for a merger of equals transaction. They discussed their vision for a combined company and executive leadership possibilities and the possible timing of a transaction, as well as their understanding that pricing should be based on an appropriate level of ownership of their respective stockholders in the combined entity, an acceptable tangible book value dilution earn back period and earnings per share accretion for both HVBC and Company A stockholders while also recognizing that the proforma company would need to raise up to $20.0 million of common equity to support the vision for the proforma company. Mr. Thompson agreed to discuss the potential transaction with the HVBC board.

On June 9, 2022, Messrs. Thompson, Marino and a representative from Investment Banking Firm A met with the President and Chief Executive Officer and Chief Financial Officer from Company B along with a representative of an investment banking firm. The parties discussed further the possible interest of Company B in a potential common stock offering by HVBC. The representatives of Company B also discussed Company B’s operations, business culture and prospects. Messrs. Thompson and Marino did raise the topic of a strategic combination, but Company B did not indicate strong initial interest. Company B advised it would require significant due diligence to consider participating in a common stock offering or a strategic combination.

In early June 2022, Mr. Black indicated to Mr. Thompson that CZFS’ board would be meeting to finalize a non-binding indication of interest to present to HVBC later that month. Mr. Thompson advised Mr. Black that HVBC would consider a proposal from CZFS and that any indication of interest would be presented to the HVBC board of directors for review. During the June 15, 2022 HVBC regular board meeting, Mr. Thompson updated the board that CZFS was interested in submitting a non-binding indication of interest with a price per share between $30.00 and $32.00 to acquire HVBC.

On June 23, 2022, Messrs. Thompson and Marino and a representative from Investment Banking Firm A met with the Chief Executive Officer and another executive officer of a credit union based in Pennsylvania. The purpose of the meeting was to discuss the possible interest of the credit union in a potential common stock offering by HVBC. They also discussed each entity’s management team, operations, business culture and prospects.

On June 23, 2022, CZFS submitted a written non-binding indication of interest letter in which it proposed to acquire 100% of the common stock of HVBC for between $30.00 and $32.00 per share, in an 80% stock and 20% cash transaction with a stockholder election. The stock consideration would be based on a fixed exchange ratio of CZFS common stock for each share of HVBC common stock to be determined at or near the time of announcement. CZFS offered one board seat for an HVBC director and at least one board seat on its bank subsidiary, FCCB, to an HVB director. In addition, CZFS expressed a desire to retain Mr. Thompson and Mr. Marino in senior executive roles with the combined institution. The non-binding indication of interest letter did not contain any exclusivity provision.

Following some minor modifications, CZFS resubmitted the written non-binding indication of interest letter dated June 29, 2022. Mr. Thompson indicated to CZFS that the indication of interest would be considered by the HVBC board of directors at a special meeting on July 5, 2022.

At the July 5, 2022 special meeting of the HVBC board, representatives of TKG made a presentation comparing the proposed CZFS transaction and the proposed merger of equals transaction with Company A. TKG reviewed the financial aspects of both transactions, including a comparison of illustrative transaction pricing ratios and multiples. TKG discussed the strategic rationales for both transactions and the potential pro forma characteristics

 

36

of the combined company in both scenarios. Representatives of Luse Gorman, PC (“Luse Gorman”) attended this meeting and reviewed and discussed the directors’ fiduciary duties under Pennsylvania law. In evaluating both transactions, and after a discussion about soliciting interest from Company B or other potential partners, the HVBC board of directors concluded the transaction with CZFS would be more favorable to stockholders, customers and employees than Company A. Further, the potential CZFS transaction offered a premium to HVBC stockholders that would be significant as compared to HVBC’s trading price. In order to complete the merger of equals transaction with Company A, HVBC would need to condition the transaction on completing a $20.0 million capital raise, which would increase execution risk. The HVBC board discussed that the proforma company in a transaction with CZFS would be significantly larger than the proforma company in a combination with Company A, with the proforma CZFS being able to provide more services to customers and, with CZFS’ expansion into a new market area, provide many opportunities for HVBC employees continuing with the combined entity. The board also believed with the rapidly increasing interest rate environment and the related uncertain operating environment, it was an appropriate time to consider the potential sale of the company. At the conclusion of the discussion, the HVBC board directed management to execute the non-binding indication of interest and evaluate a transaction exclusively with CZFS, and with the assistance of TKG and Luse Gorman, to continue discussions and to begin due diligence regarding a possible merger with CZFS. Following the HVBC board meeting, Mr. Thompson informed Company A that HVBC’s board of directors had determined not to proceed with a merger of equals transaction.

On July 9, 2022, Mr. Thompson signed the non-binding indication of interest on behalf of HVBC. On July 13, 2022, HVBC formally engaged TKG to act as its exclusive financial advisor.

On July 13, 2022, HVBC sent a nondisclosure agreement to CZFS for the purpose of facilitating further discussion and due diligence regarding a potential merger. The nondisclosure agreement contained a one-year restriction on the solicitation of certain customers and employees of HVBC by CZFS. The nondisclosure agreement had a standstill provision which expired the earlier of one year from the date of execution of the nondisclosure agreement or the execution of a definitive merger agreement. The nondisclosure agreement contained no exclusivity provision. CZFS signed the nondisclosure agreement on July 25, 2022.

On July 27, 2022, Mr. Thompson had a meeting with Mr. Black, Mr. Jones and the Chairman of the Board of CZFS. The meeting was to discuss the roles of senior management at both institutions, the culture of both work forces, the timing of the transaction and a process for due diligence.

Following the execution of the nondisclosure agreement, the parties agreed to proceed with CZFS’ due diligence review of HVBC. During the last week of July 2022, HVBC established and began populating with due diligence documents a virtual data room in response to a request list provided by Janney Montgomery Scott (“Janney”), CZFS’ financial advisor, on behalf of CZFS. During the month of August 2022, CZFS continued reviewing due diligence materials, made additional requests and commenced a third-party loan review of HVBC’s loan portfolio.

On August 24, 2022, senior management of HVBC and representatives of TKG met for due diligence discussions with senior management of CZFS and representatives of Janney. The parties discussed a wide range of topics regarding HVBC’s business, including its financial performance, loan portfolio, technology, expectations for the future and employee matters.

On August 31, 2022, Hogan Lovells US LLP (“Hogan Lovells”), CZFS’ legal advisor, provided Luse Gorman with an initial draft of the proposed merger agreement. Luse Gorman, following discussions with HVBC and TKG, provided proposed revisions to the merger agreement to Hogan Lovells on September 9, 2022.

On September 19, 2022, the CZFS board of directors held a regular meeting where it met with senior management, Janney and Hogan Lovells to review the results of the due diligence investigation of HVBC, to discuss the proposed revisions from HVBC’s counsel on the draft merger agreement and to establish pricing

 

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parameters for the merger consideration. The CZFS board of directors authorized $30.00 per share for the cash consideration and an exchange ratio of 0.4000 shares of CZFS common stock per share of HVBC common stock for the stock consideration. CZFS valued the transaction at $30.00 per share based on an 80% stock and 20% cash transaction with a stockholder election. The exchange ratio was based on a $75.00 volume weighted average price for CZFS common stock.

On September 21, 2022, the HVBC board of directors held a regular meeting and met with TKG and Luse Gorman to review the status of the transaction, to discuss the merger consideration and to review the merger agreement. Following the discussion, the HVBC board authorized Mr. Thompson to negotiate further with CZFS to seek a higher valuation based on CZFS’ assumptions as the merger consideration was on the low end of the $30.00 to $32.00 per share range outlined in the July 9, 2022 non-binding indication of interest. However, the HVBC board was prepared to accept $30.00 per share based on CZFS’ assumptions if negotiations were unable to increase the price.

On September 22, 2022, Mr. Thompson and Mr. Black had further discussions on the merger consideration, including increasing the value per share and possibly eliminating the stockholder election. TKG and Janney also had discussions on the valuation of the transaction and compared modeling assumptions. Mr. Black advised Mr. Thompson that he would discuss the potential increase and change in the consideration mix of the merger consideration with CZFS’ board of directors.

On September 29, 2022, the CZFS board of directors held a special meeting to discuss an increase in the merger consideration. The CZFS board authorized $30.25 per share for the cash consideration but did not increase the exchange ratio. The stockholder election was also removed from the proposal. Based on the revised cash consideration and the other assumptions from the September 19, 2022 CZFS board meeting, CZFS valued the transaction at $30.05 per share.

During late September 2022 and continuing into early October 2022, Luse Gorman and Hogan Lovells continued to negotiate and finalize the terms of the merger agreement. In addition, Luse Gorman and Hogan Lovells worked to finalize Settlement and Non-Competition and Non-Solicitation Agreements with Mr. Thompson and Mr. Marino in exchange for the termination of their employment agreements, which would be effective following the closing of the proposed merger.

During late September 2022 and continuing into early October 2022, CZFS established and began populating with due diligence documents a virtual data room in response to a request list provided by TKG on behalf of HVBC for reverse due diligence. On October 11, 2022, senior management for HVBC and representatives of TKG met for reverse due diligence discussions with senior management for CZFS and representatives of Janney. The parties discussed a wide range of topics regarding CZFS’ business, including its financial performance, commercial loan process, Delaware portfolio loans, technology, expectations for the future and employee matters.

On October 13, 2022, representatives of TKG and Janney along with Mr. Thompson and Mr. Black held a conference call to finalize the price and exchange ratio mechanism for the proposed merger. This discussion led to an increase in the per share price as CZFS valued the transaction at $30.10 per share based on an increase in the cash price per share to $30.50, the use of $75.00 as the value for CZFS common stock based on a 25-day volume weighted average price for CZFS common stock and an exchange ratio of 0.4000 shares of CZFS common stock per share of HVBC common stock. The proposed transaction remained an 80% stock and 20% cash transaction with a stockholder election. CZFS also agreed to one board seat for a director of HVBC on its board and two seats (one being the same as on the CZFS’ board) for directors of HVB on FCCB’s board. CZFS also invited Mr. Thompson and Mr. Marino to be senior officers of FCCB following completion of the merger.

On October 14, 2022, the HVBC board of directors held a special meeting, at which it discussed the status of the due diligence investigation of CZFS and a summary of the terms of the merger agreement, including the increase

 

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in the merger consideration. Management and TKG reported favorably on their due diligence review of CZFS. Representatives of Luse Gorman presented a summary of the legal terms of the merger agreement, including a review of the transaction structure, the merger consideration, the methodology for allocating shares between the stock and cash consideration, the parties’ respective representations and warranties and covenants, the composition of the board of directors of the combined company, employee benefits matters, the Settlement and Non-Competition and Non-Solicitation Agreements, closing conditions, and termination provisions, including the potential liability for a termination fee. The HVBC board of directors further discussed the required stockholder and regulatory approvals required to complete the transaction, as well as the possible timeframe for obtaining such approvals and completing the merger. The HVBC board of directors also discussed the long-term benefits to stockholders investing in the combined institution.

On October 18, 2022, the HVBC board of directors held a special meeting, with members of HVBC management and representatives of Luse Gorman and TKG in attendance. The board discussed and reviewed with management and its outside advisors the final pricing provisions, minor revisions to the merger agreement that had been made since the October 14, 2022 board meeting, and the disclosure schedules that each party had prepared. Representatives of Luse Gorman again reviewed with the directors their fiduciary duties under Pennsylvania law. TKG then presented a summary of the financial aspects of the transaction, including a comparison of certain historical financial measures for the parties and pro forma estimates for the combined company. TKG highlighted pricing measures for the proposed transaction and compared them to merger transactions involving comparably sized financial institutions in Pennsylvania, the Mid-Atlantic Region and Nationally that had been completed since January 1, 2019. The HVBC board discussed potential scenarios that could trigger HVBC’s right to terminate the merger agreement, including a significant decline in CZFS’ stock price. TKG then delivered TKG’s oral opinion to the effect that, as of October 18, 2022, and subject to the assumptions made, procedures followed, matters considered, qualifications and limitations on the review undertaken by TKG, as set forth in the opinion, the Merger Consideration was fair to the holders of HVBC common stock, from a financial point of view. TKG’s written opinion, dated October 18, 2022, was delivered to the HVBC board of directors following the meeting. See “—Opinion of HVBC’s Financial Advisor.”

Following consideration of this information, including those factors described under “—HVBC’s Reasons for the Merger; Recommendation of the HVBC Board of Directors,” the HVBC board of directors determined that the merger agreement and the transactions contemplated thereby were advisable and in the best interest of HVBC and its stockholders. The HVBC board of directors on October 18, 2022 then unanimously voted to approve and adopt the merger agreement and the transactions contemplated thereby and recommend that HVBC stockholders vote to approve the merger agreement and the transactions contemplated thereby.

Also on October 18, 2022, the CZFS board of directors met to discuss the final merger agreement and the other transaction documents and the proposed transaction. Representatives of Janney and Hogan Lovells participated in the meeting. At the meeting, members of CZFS senior management, together with representatives of Janney and Hogan Lovells, discussed the outcome of negotiations with HVBC and provided the CZFS board of directors with a summary of the terms and conditions of the merger agreement and the other transaction documents. The CZFS board of directors then discussed the proposed transaction and its effect on CZFS. Taking into consideration the matters discussed during that meeting and prior meetings of the CZFS board of directors, the CZFS board of directors unanimously determined that the merger, the merger agreement and the other transactions contemplated by the merger agreement were in the best interests of CZFS and its shareholders, and the directors unanimously approved and adopted the merger agreement and the transactions contemplated thereby.

Following the receipt of HVBC and CZFS board approvals, on October 18, 2022, HVBC and CZFS executed the merger agreement. The directors and certain executive officers of HVBC executed and delivered the stockholder voting agreements. On October 19, 2022, prior to the opening of the stock market, HVBC and CZFS issued a joint press release announcing the execution of the merger agreement.

 

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HVBC’s Reasons for the Merger; Recommendation of the HVBC Board of Directors

After careful consideration, the HVBC board, at a special meeting held on October 18, 2022, unanimously (i) determined that the merger agreement and the transactions contemplated thereby, including the merger, are in the best interests of HVBC and its shareholders, (ii) declared the merger agreement advisable and (iii) approved the execution, delivery and performance of the merger agreement and the consummation of the transactions contemplated thereby, including the merger. Accordingly, the HVBC board unanimously recommends that the HVBC shareholders vote “FOR” the merger proposal, “FOR” the compensation proposal and “FOR” the adjournment proposal.

In reaching its decision to approve the merger agreement and the transactions contemplated thereby, including the merger, and to recommend that HVBC shareholders adopt the merger agreement, the HVBC board evaluated the merger agreement, the merger and the other transactions contemplated by the merger agreement in consultation with HVBC management, as well as with HVBC’s financial and legal advisors, and considered a number of factors, including the following:

 

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the fact that the implied value of the merger consideration based on the closing price of CZFS common stock as of October 17, 2022 of $70.98 for each share of HVBC common stock represented a 44% premium over the closing price of HVBC common stock on October 17, 2022 (the last trading day prior to the board meeting to approve the merger);

 

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each of HVBC’s and CZFS’ business, operations, financial condition, stock performance, asset quality, earnings and prospects. In reviewing these factors, including the information obtained through due diligence, the HVBC board considered that CZFS’ and HVBC’s respective business, operations and risk profile complement each other and that the companies’ separate earnings and prospects, and the synergies and scale potentially available in the proposed transaction, create the opportunity for the combined company to leverage complementary and diversified revenue streams and to have superior future earnings and prospects compared to HVBC’s earnings and prospects on a stand-alone basis;

 

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national and local economic conditions, particularly the uncertainty as to future economic conditions given the recent rise in market interest rates, expected future increases in market interest rates, growing inflation expectations, and other factors, and the expected effect of these conditions on HVBC’s financial condition, earnings, and prospects, as well as the stock prices of financial institutions, including HVBC;

 

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the combined company’s position as a leading community-focused bank in the Mid-Atlantic region, with the technology, scale and market share to compete effectively and the benefits of the merger for HVBC’s customers;

 

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the fact that, upon the closing, the combined company’s board of directors will include one legacy HVBC director, and the combined bank’s board of directors will include two legacy HVB directors, which the HVBC board believes enhances the likelihood that the strategic benefits HVBC expects to achieve as a result of the merger will be realized;

 

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the fact that, upon the closing, Travis J. Thompson, currently the Chairman and Chief Executive Officer of HVBC, and Robert J. Marino, currently the President of HVBC, will be employed as senior officers of FCCB, which the HVBC board believes enhances the likelihood that the strategic benefits HVBC expects to achieve as a result of the merger will be realized;

 

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its knowledge of the current regulatory and competitive environment in the financial services industry, including increasing operating costs resulting from regulatory, technology and compliance mandates, increasing competition from both banks and non-bank financial and financial technology firms and the likely effects of these factors on HVBC’s and the combined company’s potential growth, development, productivity and strategic options;

 

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•

its views with respect to other strategic alternatives potentially available to HVBC, including continuing as a stand-alone company and a transformative transaction with another potential acquiror or merger partner, and its belief that a transaction with such other potential transaction partners would not deliver the financial and operational benefits that could be achieved in the proposed merger with CZFS;

 

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the fact that 80% of the merger consideration will be in CZFS common stock, which offers HVBC shareholders the opportunity to participate as shareholders of CZFS in the future earnings and performance of the combined company;

 

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the anticipated pro forma financial impact of the merger on the combined company, including earnings, earnings per share accretion, dividends, return on equity, tangible book value, asset quality, operational efficiency, liquidity and regulatory capital levels;

 

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the complementary nature of HVBC’s and CZFS’ businesses and prospects given the markets they serve and products they offer, and the expectation that the transaction would provide economies of scale, cost savings opportunities and enhanced opportunities for growth;

 

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its belief that the two companies’ corporate cultures are similar and compatible, which would facilitate integration and implementation of the transaction;

 

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HVBC’s and CZFS’ shared views regarding the best approach to combining and integrating the two companies, structured to maximize the potential for synergies and positive impact to local communities and minimize the loss of customers and employees and to further diversify the combined company’s operating risk profile compared to the risk profile of either company on a stand-alone basis;

 

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its review and discussions with HVBC’s management concerning HVBC’s due diligence examination of the operations, financial condition and regulatory compliance programs and prospects of CZFS;

 

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the expectation that the required regulatory approvals could be obtained in a timely fashion;

 

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the HVBC board’s understanding that the merger will qualify as a “reorganization” under Section 368(a) of the Internal Revenue Code and that, as a result, HVBC’s shareholders will not recognize gain or loss with respect to their receipt of CZFS common stock in the merger;

 

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the fact that the exchange ratio would be fixed, which the HVBC board believed was consistent with market practice for transactions of this type and with the strategic purpose of the transaction;

 

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the fact that 20% of the merger consideration will be comprised of cash, which provides HVBC shareholders the opportunity for immediate certainty of value;

 

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its expectation that, upon consummation of the merger, HVBC common shareholders would own approximately 15.3% of the combined company on a fully diluted basis;

 

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the historical performance of CZFS common stock, CZFS’ greater market capitalization and the fact that CZFS pays a quarterly cash dividend to its shareholders, while HVBC currently does not pay a cash dividend to its shareholders;

 

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the fact that HVBC’s common shareholders will have an opportunity to vote on the approval of the merger agreement and the merger;

 

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the impact of the merger on HVBC’s employees, including the compensation and employee benefits agreed to be provided by CZFS pursuant to the merger agreement;

 

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the opinion of TKG to the HVBC board, which was dated October 18, 2022, as to the fairness, from a financial point of view, and as of the date of the opinion and subject to the procedures followed,

 

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assumptions made, matters considered and qualifications and limitations on the review undertaken by TKG in rendering its opinion, to the holders of HVBC common stock of the merger consideration in the proposed merger. (see the section below entitled “—Opinion of HVBC’s Financial Advisor”); and

 

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the HVBC board’s review with its independent legal advisor, Luse Gorman, of the material terms of the merger agreement, including (i) the board’s ability, under certain circumstances, to consider an unsolicited acquisition proposal, subject to the required payment by HVBC of a termination fee to CZFS, which the HVBC board of directors concluded was reasonable in the context of termination fees in comparable transactions and in light of the overall terms of the merger agreement, and (ii) the board’s ability to terminate the merger agreement if CZFS’ common stock declined by 20% during a measurement period prior to the closing and underperformed the NASDAQ Bank Index by 20% during a measurement period prior to the closing, as well as the nature of the covenants, representations and warranties and termination provisions in the merger agreement.

The HVBC board also considered the potential risks related to the transaction, but concluded that the anticipated benefits of combining with CZFS were likely to outweigh these risks. These potential risks include:

 

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the possible diversion of management attention and resources from other strategic opportunities and operational matters while working to implement the transaction and integrate the two companies;

 

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the risk of losing key HVBC employees during the pendency of the merger and thereafter;

 

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the risk that the consideration to be paid to HVBC shareholders could be adversely affected by a decrease in the trading price of CZFS common stock during the pendency of the merger;

 

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the restrictions on the conduct of HVBC’s business during the period between execution of the merger agreement and the consummation of the merger, which could potentially delay or prevent HVBC from undertaking business opportunities that might arise or certain other actions it might otherwise take with respect to its operations absent the pendency of the merger;

 

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the potential effect of the merger on HVBC’s overall business, including its relationships with customers, employees, suppliers and regulators;

 

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the possibility of encountering difficulties in achieving cost savings and synergies in the amounts currently estimated or within the time frame currently contemplated;

 

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certain anticipated merger-related costs, which could also be higher than expected;

 

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the regulatory and other approvals required in connection with the merger and the bank merger and the risk that such regulatory approvals will not be received or will not be received in a timely manner or may impose burdensome or unacceptable conditions;

 

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the fact that: (i) HVBC would be prohibited from affirmatively soliciting acquisition proposals after execution of the merger agreement; and (ii) HVBC would be obligated to pay to CZFS a termination fee of $2.7 million if the merger agreement is terminated under certain circumstances, which may discourage other parties potentially interested in a strategic transaction with HVBC from pursuing such a transaction;

 

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the potential for legal claims challenging the merger;

 

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the fact that HVBC shareholders would not be entitled to appraisal or dissenters’ rights in connection with the merger;

 

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the risk that the merger may not be completed despite the combined efforts of HVBC and CZFS or that completion may be unduly delayed, including as a result of delays in obtaining the required regulatory approvals; and

 

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•

the other risks described under the sections entitled “Risk Factors” and “Information Regarding Forward-Looking Statements” beginning on pages 19 and 26, respectively.

The foregoing discussion of the information and factors considered by the HVBC board is not intended to be exhaustive, but includes the material factors considered by the board. In reaching its decision to approve the merger agreement and the transactions contemplated thereby, including the merger, the HVBC board did not quantify or assign any relative weights to the factors considered, and individual directors may have given different weights to different factors. The HVBC board considered all these factors as a whole in evaluating the merger agreement and the transactions contemplated thereby, including the merger.

For the reasons set forth above, the HVBC board determined that the merger agreement and the transactions contemplated by the merger agreement are advisable and fair to and in the best interests of HVBC and its shareholders, and approved the merger agreement and the transactions contemplated thereby, including the merger.

In considering the recommendation of the HVBC board, you should be aware that certain directors and executive officers of HVBC may have interests in the merger that are different from, or in addition to, interests of shareholders of HVBC generally and may create potential conflicts of interest. The HVBC board was aware of these interests and considered them when evaluating and negotiating the merger agreement and the transactions contemplated thereby, including the merger, and in recommending to HVBC’s common shareholders that they vote in favor of the HVBC merger proposal. See “—Interests of HVBC Directors and Executive Officers in the Merger” beginning on page 56.

It should be noted that this explanation of the reasoning of the HVBC board and all other information presented in this section is forward-looking in nature and, therefore, should be read in light of the factors discussed in the section entitled “Information Regarding Forward-Looking Statements” beginning on page 26.

For the reasons set forth above, the HVBC board unanimously recommends that the holders of HVBC common stock vote “FOR” the merger proposal and “FOR” the other proposals to be considered at the HVBC special meeting.

Vote Required for Approval

The affirmative vote of a majority of votes cast by all the HVBC shareholders entitled to vote at the special meeting is required to approve the merger proposal. Abstentions are not shares “voting” at the special meeting and therefore will not affect the outcome of this proposal.

Recommendation of the HVBC Board of Directors

THE HVBC BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE MERGER PROPOSAL.

Opinion of HVBC’s Financial Advisor

By letter dated July 13, 2022, HVBC engaged The Kafafian Group, Inc. (“TKG”) as its exclusive financial advisor and to render an opinion as to the fairness, from a financial point of view, to the holders of HVBC common shares (“Common Shares”), of the merger consideration to be paid pursuant to the merger agreement.

The HVBC board of directors engaged TKG based on TKG’s qualifications, industry experience, reputation and past assistance with providing financial advisory services to financial institutions. TKG, as part of its financial advisory business, is regularly engaged in the valuation of depository institutions and financial services industry firms and their securities in connection with mergers and acquisitions, and valuations for corporate and other purposes. In the ordinary course of business TKG provides consulting services to financial institutions, including

 

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performance measurement; profitability outsourcing; strategic, capital, and business planning; regulatory assistance; profit improvement; and various other financial advisory services. TKG has provided advisory and business planning services to HVBC within the past two years and received approximately $80,000 for such services, but has not provided any services to CZFS over the past two years.

At the request of the HVBC board of directors, representatives of TKG participated in a regular board meeting held on October 18, 2022, at which the HVBC board of directors considered the proposed merger with CZFS. At that meeting, representatives of TKG made a presentation to the HVBC board of directors of TKG’s analyses relating to the proposed merger and, in particular, of TKG’s determination regarding the fairness, from a financial point of view, of the proposed merger consideration to be paid by CZFS to the holders of the HVBC Common Shares. At that meeting, TKG issued its written opinion that the merger consideration in the proposed merger was fair, from a financial point of view, to the holders of HVBC Common Shares. Except as discussed herein, no limitations were imposed by the HVBC board of directors upon TKG with respect to investigations made or procedures followed in rendering TKG’s fairness opinion.

TKG’s opinion speaks only as of the date of the opinion. The opinion was for the information of, and was directed to, the HVBC board of directors (in its capacity as such) in connection with its consideration of the financial terms of the merger. The opinion addressed only the fairness, from a financial point of view, of the merger consideration. It did not address the underlying business decision of HVBC to enter into the merger or enter into the merger agreement or constitute a recommendation to the HVBC board of directors in connection with the merger, and it does not constitute a recommendation to any holder of the HVBC Common Shares or any shareholder of any other entity as to how to vote in connection with the merger or any other matter, nor does it constitute a recommendation as to whether or not any such holder of HVBC Common Shares should enter into a voting, shareholders’, affiliates’ or other agreement with respect to the merger or exercise any dissenters’ or appraisal rights that may be available to such shareholder.

In rendering its opinion, TKG, among other things:

 

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reviewed the merger agreement;

 

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analyzed publicly available regulatory filings and other financial information concerning HVBC;

 

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analyzed publicly available regulatory filings and other financial information concerning CZFS;

 

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discussed past, present, and future financial performance and operating philosophies with HVBC and CZFS senior managements;

 

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reviewed certain internal financial data and projections of HVBC;

 

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reviewed publicly available analyst net income estimate for CZFS for the year ending December 31, 2023;

 

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compared the financial condition and financial performance of HVBC and CZFS to similar financial institutions;

 

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compared the merger consideration to be paid to the holders of HVBC Common Shares pursuant to the merger agreement with the consideration paid in comparable merger transactions of other financial institutions;

 

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reviewed the pro forma impact of the merger on the earnings and book values of HVBC and CZFS and compared the contributions of each institution to the proposed combined company in a number of key financial categories; and

 

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considered other financial studies, analyses, and investigations and reviewed other information it deemed appropriate by TKG to render its opinion.

TKG spoke with certain members of senior management and other representatives of CZFS and HVBC to discuss the foregoing, as well as matters TKG deemed relevant. As part of its analyses, TKG took into account its

 

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assessment of general economic, market and financial conditions, its experience in similar transactions, as well as its experience in and knowledge of the banking industry. TKG’s opinion is based upon conditions as they existed and could be evaluated on the respective dates thereof and the information made available to TKG through the respective dates thereof.

TKG assumed and relied upon the accuracy and completeness of all of the financial and other information reviewed and/or discussed for the purposes of its opinion, without independent investigation of such information. TKG assumed that the financial forecasts relied upon by TKG were prepared on a basis that reflected the best currently available estimates and judgments of senior management of each of CZFS and HVBC and were based on reasonable assumptions, estimates and judgments. Any estimates contained in the analyses performed by TKG are not necessarily indicative of actual values or future results, which may be significantly more or less favorable than those suggested by these analyses. Additionally, estimates of the values of businesses or securities do not purport to be appraisals or to reflect the prices at which such businesses or securities might actually be bought or sold.

TKG did not make any independent evaluation or appraisals of either CZFS’ or HVBC’s respective assets or liabilities, nor was it furnished with any such appraisals. TKG has not made a review of the loans or loan loss reserves or reviewed any individual loan files of CZFS or HVBC. TKG also assumed, without independent verification, that the aggregate allowances for loan losses (including any prospective amounts that may materialize for either CZFS or HVBC upon the January 1, 2023 adoption of ASC Topic 326 “Financial Instruments—Credit Losses”) for CZFS and HVBC were adequate. TKG did not conduct a physical inspection of any properties or facilities of either CZFS or HVBC.

On October 18, 2022, TKG rendered its written fairness opinion to the HVBC board of directors, a copy of which is included in this Registration Statement as Annex B. The summary set forth below does not purport to be a complete description of the analyses performed by TKG in connection with the merger or its review of the merger consideration. The preparation of a fairness opinion involves various determinations as to the most appropriate and relevant methods of financial analysis and the application of these methods to the particular circumstances. Therefore, the fairness opinion is not readily translated to a summary description and as such, TKG believes that its analyses must be considered as a whole. Only selecting portions of TKG’s analyses and of the factors considered by TKG could create for a reader of the materials an incomplete view of the evaluation process underlying the fairness opinion. No one component of the analyses performed by TKG was assigned a greater significance than another component. Taken as a whole, TKG believes these analyses support the conclusion that the merger consideration to be paid by CZFS to the holders of HVBC Common Shares is fair, from a financial point of view, to the holder of Common Shares of HVBC.

Proposal Summary. Pursuant to the terms of the merger agreement, each holder of HVBC Common Shares will have the opportunity to elect to receive for each Common Share of HVBC they own, either 0.4000 shares of CZFS common stock or $30.50 in cash. All shareholder elections will be subject to the allocation and proration procedures set forth in the merger agreement which are intended to ensure that 80% of the Common Shares of HVBC will be exchanged for shares of CZFS common stock and 20% of the Common Shares of HVBC will be exchanged for cash. All shareholder elections will be subject to the allocation and proration procedures set forth in the merger agreement. The merger is expected to be a tax-free exchange for holders of HVBC Common Shares receiving CZFS common stock.

Contribution Analysis. TKG reviewed the contribution made by each of CZFS and HVBC to various balance sheet and income statement categories of the combined company based on balance sheet data as of the quarter ended June 30, 2022 and income statement information estimated for the latest twelve months ended June 30, 2022. Given the merger consideration was comprised of 80% stock and 20% cash to the holders of the Common Shares of HVBC, at an exchange ratio of 0.4000 and a stock price for CZFS of $70.98 as of October 17, 2022, with an

 

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implied stock consideration value of $28.39 per share and the cash consideration of $30.50 per share, the analysis showed that HVBC would contribute the following percentages to the combined company:

Relative Contribution Analysis (prior to fair value adjustments)

 

Balance Sheet (as of 6/30/2022)		CZFS				HVBC
Gross Loans			79.6	%			20.4	%
Total Assets			79.5	%			20.5	%
Total Deposits			79.6	%			20.4	%
Total Common Equity			82.6	%			17.4	%
Income Statement (for latest twelve months ended 6/30/22)
Net Interest Income			81.1	%			18.9	%
Non-Interest Income			48.8	%			51.2	%
Operating Expense			65.8	%			34.2	%
Net Income			91.1	%			8.9	%
Estimated Ownership			84.7	%			15.3	%

Going-Concern Range of Value Analysis. TKG used a capitalized earnings method to evaluate the range of value for HVBC Common Shares. The capitalized earnings model for HVBC uses a projected net income stream, applies a terminal earnings multiple to the last period’s net income and then discounts the net income stream and terminal value to arrive at a present value for a Common Share of HVBC. The range of value produced by the capitalized earnings model analysis was then compared to the merger consideration that was offered by CZFS to holders of the Common Shares of HVBC.

The following additional assumptions were made by TKG in preparing a range of value for HVBC on a going-concern basis:

 

•

The financial projections and net income estimates (for the years ended December 31, 2023 through the year ended December 31, 2027) as prepared by HVBC management were reasonable and assumed 2027 net income of $8.384 million;

 

•

TKG evaluated various scenarios where the 2027 net income for HVBC would be either higher or lower than the projected $8.384 million;

 

•

Price-to-earnings terminal multiples of 9.0 to 15.0 times earnings were used and were based on publicly traded institutions that were comparable to HVBC;

 

•

Using various methodologies, TKG developed discount rates that ranged between 9.00% and 13.00%, with a primary assumption of an 11.00% discount rate; and

 

•

TKG did not apply any discounts for lack of marketability or apply premiums for control.

The following table summarizes the results of the capitalized earnings model for a Common Share of HVBC, assuming a discount rate of 11.00%:

 

		Trading Price /Earnings Multiple (x) (1)
2027 Net Income ($000s)		9.0				12.0				15.0
$8,384		$	13.52			$	18.02			$	22.53

 

(1)	Assumes a common stock offering of 1,000,000 HVBC common shares during the projection period.

TKG noted that the stock consideration of $28.39 per share as of October 17, 2022 was 58% greater than the midpoint value per common share of $18.02 and the cash consideration of $30.50 per share was 69% greater than the midpoint value per common share of $18.02. Assuming a holder of a Common Share of HVBC would have elected to receive 80% of the consideration in shares of CZFS stock and 20% of the consideration in cash, the

 

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merger consideration was $28.81 and was 60% greater than the midpoint value per common share of $18.02. TKG also noted that the sale of 1,000,000 additional HVBC Common Shares at a price near or potentially below HVBC’s book value would result in the sale of approximately 30.85% of HVBC for potentially no premium as opposed to the aforementioned premiums that would be received by the holders of HVBC Common Shares in the form of stock consideration, cash consideration and the merger consideration.

Although the capitalized earnings method is a widely used valuation methodology, it relies on numerous assumptions, including balance sheet and earnings growth rates, discount rates, and market trading multiples that may ultimately be materially different than those actually realizable or available in the capital markets. Therefore, the range of value developed by TKG does not purport to be indicative of the actual values or expected values of HVBC common stock.

Peer Group Analysis. An integral part of the evaluation of HVBC is to compare the financial condition and financial performance of HVBC to banking organizations that possess characteristics that are believed to be similar to that of HVBC. For the purpose of the peer analysis, TKG used financial information for HVB. HVBC’s primary asset. The primary difference in financial data between HVBC and HVB is the portion of a $10.0 million subordinated debt instrument that was downstreamed by HVBC as common equity into HVB. HVBC incurs the interest expense of servicing the subordinated debt.

TKG undertook a series of “Peer Group” comparisons as part of its analyses of the financial performance of HVBC and an imputed potential range of value of HVBC on a going-concern basis. For the purposes of TKG’s analysis, two peer groups were prepared (the “HVBC Peers”). In the following Peer Group discussion, “HVBC” and “HVB” may be used interchangeably.

HVBC. TKG compared certain of HVBC’s financial condition and financial performance measures to two groups of financial institutions. The financial condition and financial performance data for HVBC and all companies in the peer groups was as of or for the annualized three months ended June 30, 2022. For those peer group members that were publicly traded companies, market data was as of October 14, 2022.

The first peer group was termed by TKG as “Relational Peers.” Companies in this peer group were included based on three screening criteria (i) publicly traded financial institutions or holding companies (ii) headquartered in Maryland, New Jersey, New York and Pennsylvania, (iii) total assets between $350 million and $750 million and, (iv) a branch network of less than ten branches. Nineteen (19) companies are listed under the column heading Relational Peers in the table labeled “HVBC Peer Group Members.”

The second peer group was termed by TKG as “Competitors of Interest Peers.” Companies in this peer group were included based on two screening criteria (i) financial institutions that operate a branch within a five-mile radius of any HVBC branch, and (ii) had total assets of less than or equal to $25 billion. The thirty-one (31) companies that comprise the Competitors of Interest Peers are listed below.

Relational Peers:

 

1st Colonial Bancorp Commercial National Financial Corporation Community Bankers’ Corporation Delhi Bank Corp. Fleetwood Bank Corporation Generations Bancorp NY Glen Burnie Bancorp Glenville Bank Holding Company Hamlin Bank and Trust Company Mars Bancorp		Mauch Chunk Trust Financial Corp. Mifflinburg Bancorp Muncy Bank Financial NBC Bancorp Neffs Bancorp New Tripoli Bancorp Susquehanna Community Financial Woodlands Financial Services Company WVS Financial Corp.

 

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Competitors of Interest Peers:

 

1st Colonial Bancorp, Inc. Abacus Federal Savings Bank Ambler Savings Bank Asian Bank Citizens & Northern Corporation Columbia Financial, Inc. Cornerstone Financial Corporation Customers Bancorp, Inc. First Bank FNB Bancorp, Inc. Haddon Savings Bank Hatboro Federal Savings Hyperion Bank Meridian Corporation OceanFirst Financial Corp. Parke Bancorp, Inc.		Penn Community Bank Provident Financial Services, Inc. QNB Corp. Quaint Oak Bancorp, Inc. Republic First Bancorp, Inc. Second Federal Savings & Loan Association of Philadelphia Firstrust Savings Bank Sharon Bank The Bank of Princeton The Philadelphia Trust Company Tioga-Franklin Savings Bank Tompkins Financial Corporation United Savings Bank Univest Financial Corporation William Penn Bancorporation WSFS Financial Corporation

Data for the two peer groups is presented in the table below titled “HVBC Peer Group Comparison.”

 

HVBC Peer Group Comparison (1)
		HVBC				Relational Peers (Median)				COI Peers (Median)
Total Assets ($000s)		$	570,647			$	484,621			$	1,482,150
Equity/ Assets (%)			7.22				7.13				10.87
Tang. Equity/ Tang. Assets (%)			7.22				7.13				9.31
Loans/ Deposits (%)			81.27				68.49				87.32
NPAs/ Total Assets (%)			0.49				0.27				0.34
Reserves/ NPAs (%)			107.75				186.25				193.83
Net Interest Margin (%)			3.34				3.12				3.22
Non-Int. Income/ Average Assets (%)			1.57				0.42				0.41
Non-Int. Expense/ Average Assets (%)			3.67				2.45				2.29
Efficiency Ratio (FTE basis) (%)			77.80				67.52				62.95
Non-Int. Income/ Operating Rev. (%)			33.21				13.22				11.92
Return on Average Assets (%)			0.46				0.83				0.96
Return on Average Common Equity (%)			6.23				8.91				8.89
Market Capitalization ($millions)		$	47.06			$	39.01			$	257.12
Price/ Book (%)			114.22				105.29				101.48
Price/ Tangible Book (%)			114.22				105.29				120.04
Price/ LTM Earnings (x)			16.03				10.03				8.88
Dividend Yield (%)			NA				4.00				3.27

 

(1)	Financial data as of or annualized for three months ended June 30, 2022, market data as of close of business ended October 14, 2022.

The following table compares HVBC’s June 30, 2022 book value per share to (i) the low, midpoint and high values from the capitalized earnings model using the projected 2027 net income for HVBC and (ii) the imputed value of HVBC common stock based on the median price/book value for each of the two peer groups that comprise the HVBC Peers.

 

HVBC Book Value per Share 06/30/2022		Values from Capitalized Earnings Model												Valuations Imputed from HVBC Peers (Price/Book)
		Min				Mid				Max				Relational				COI
$18.39		$	13.52			$	18.02			$	22.53			$	19.36			$	18.66

 

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TKG noted that the stock consideration of $28.39, the cash consideration of $30.50 and the merger consideration of $28.81 per share were above the imputed values per share for HVBC.

Citizens Financial Services, Inc. TKG compared certain of CZFS’ financial condition and financial performance measures to three groups of financial institutions that are believed to possess characteristics similar to that of CZFS (the “CZFS Peers”). The financial condition and financial performance data for CZFS and all companies in the peer groups was as of or for the annualized three months ended June 30, 2022. For those peer group members that were publicly traded companies, market data was as of October 14, 2022.

The first peer group was termed by TKG as “CZFS Proxy Peers.” Companies in this peer group were included by TKG as these institutions have been used by CZFS for the purposes of inclusion in the CZFS proxy statement filings. Fourteen (14) companies comprised the CZFS Proxy Peers in the table labeled “CZFS Peer Group Members.” The second peer group was termed by TKG as “Relational Peers” based on four screening criteria (i) financial institutions headquartered in the Mid-Atlantic region, (ii) with total assets between $1 billion and $3 billion, (iii) commercial real estate loans / total loans greater than 30%, and (iv) had more than twenty branches. Eleven (11) companies comprised the Relational Peers in the table labeled “CZFS Peer Group Members.”

The third peer group was termed by TKG as “Competitors of Interest Peers.” Companies in this peer group were included based on two screening criteria (i) financial institutions that operate a branch within a five-mile radius of any CZFS branch, and (ii) had total assets of less than or equal to $50 billion. The thirty-one (31) companies that comprise the Competitors of Interest Peers are shown in the table below labeled “CZFS Peer Group Members.”

CZFS Proxy Peers:

 

Relational Peers:

 

 

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Competitors of Interest Peers:

 

The following table provides a summary comparison of CZFS financial condition and financial performance to that of the median for each of the CZFS Peers:

CZFS Peer Group Comparison (1)

		CZFS				Proxy Peers (Median)				Relational Peers(Median)				COI Peers (Median)
Total Assets ($000)		$	2,212,862			$	1,869,098			$	2,288,723			$	1,770,345
Equity/ Assets (%)			8.81				8.23				8.41				9.12
Tang. Equity/ Tang. Assets (%)			7.49				7.40				7.56				7.68
Loans/ Deposits (%)			84.92				79.31				78.02				81.40
NPAs/ Total Assets (%)			0.67				0.49				0.43				0.25
Reserves/ NPAs (%)			117.71				167.90				239.25				222.50
Net Interest Margin (%)			3.42				3.14				3.33				3.11
Non-Int. Income/ Avg. Assets (%)			0.44				0.70				0.72				0.69
Non-Int. Expense/ Avg. Assets (%)			2.03				2.32				2.26				2.37
Efficiency Ratio (FTE basis) (%)			54.07				62.27				58.44				63.18
Non-Int. Income/ Operating Rev. (%)			12.09				19.44				19.00				20.13
Return on Avg. Assets (%)			1.25				1.10				1.24				1.03
Return on Avg. Common Equity (%)			12.49				11.18				12.32				10.15
Market Capitalization ($millions)		$	277.93			$	176.63			$	224.68			$	262.41
Price/ Book (%)			142.49				110.55				114.19				112.05
Price/ Tangible Book (%)			170.20				120.01				139.03				127.39
Price/ LTM Earnings (x)			9.61				8.70				8.74				10.20
Dividend Yield (%)			2.74				3.64				3.37				3.49

 

(1)	Financial data as of or annualized for three months ended June 30, 2022, market data as of close of business ended October 14, 2022.

TKG also noted that if CZFS’ accumulated other comprehensive loss as of June 30, 2022 was added back to the CZFS’ stated shareholders’ common equity and CZFS’ stated shareholders’ tangible common equity, then CZFS’ price / book value would have been 127.2% and price / tangible book value was 148.4% as of October 14, 2022.

Comparable Transaction Analysis. TKG reviewed various financial condition, financial performance and acquisition multiples for three groups of institutions that TKG believed to have characteristics similar to that of HVBC (the “HVBC Comparable Deal Groups”). TKG then compared the median acquisition multiples for the

 

50

CZFS and HVBC transaction relative to the median acquisition multiples derived from the transactions that comprised the HVBC Comparable Deal Groups.

The first set of transactions included bank transactions announced after January 1, 2019 where the target bank was (i) located in Pennsylvania, (ii) had a transaction value at deal announcement between $40 million and $150 million and, (iii) excluded any transactions involving private equity investors or government assisted transactions. The criteria resulted in a list of eleven (11) merger and acquisition transactions (the “PA Comp. Deals”). The median transaction pricing metrics for this group are shown in the “HVBC Comparable Transactions” table below.

The second set of transactions included bank transactions announced after January 1, 2019 where the transaction (i) target was located in the Mid-Atlantic region, (ii) had a transaction value at announcement between $50 million and $100 million, (iii) where the target company had an ROA of 0.50% or greater for the LTM prior to the announcement, (iv) where the target had a non performing assets / total assets (“NPAs/Assets”) ratio of less than 2.00% at announcement, and (v) excluded any transactions involving private equity investors or government assisted transactions. The criteria resulted in a list of sixteen (16) merger and acquisition transactions that possessed characteristics similar to that of the merger (“Regional Comp. Deals”). The median transaction pricing metrics for this group are shown in the “HVBC Comparable Transactions” table below.

The third set of transactions included bank transactions announced after January 1, 2019 where the transaction (i) target was located anywhere in the United States, (ii) had a transaction value at announcement between $50 million and $100 million, (iii) where the target company had an ROA of 0.50% or greater for the LTM prior to the announcement, (iv) where the target had a non performing assets / total assets (“NPAs/Assets”) ratio of less than 1.00% at announcement, and (v) excluded any transactions involving private equity investors or government assisted transactions. The criteria resulted in a list of forty-four (44) merger and acquisition transactions that possessed characteristics similar to that of the merger (“National Comp. Deals”). The median transaction pricing metrics for this group are shown in the “HVBC Comparable Transactions” table below.

The following tables present the listing of the transactions that comprise each of the PA Comp. Deals, the Regional Comp. Deals and the National Comp. Deals.

 

List of PA Comp. Deals
Date Announced		Buyer		Target
08/30/22		First Commonwealth Financial Corporation		Centric Financial Corporation
03/24/22		Farmers National Banc Corp.		Emclaire Financial Corp
03/02/22		Fulton Financial Corporation		Prudential Bancorp, Inc.
10/20/21		Raymond James Financial, Inc.		TriState Capital Holdings, Inc.
06/30/21		Mid Penn Bancorp, Inc.		Riverview Financial Corporation
03/10/21		WSFS Financial Corporation		Bryn Mawr Bank Corporation
02/26/21		Fidelity D & D Bancorp, Inc.		Landmark Bancorp, Inc.
09/25/20		Dollar Mutual Bancorp		Standard AVB Financial Corp.
12/18/19		Citizens & Northern Corporation		Covenant Financial Inc.
12/10/19		Fidelity D & D Bancorp, Inc.		MNB Corporation
06/05/19		S&T Bancorp, Inc.		DNB Financial Corporation

 

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List of Regional Comp. Deals
Date Announced		Buyer		Target
07/25/22		Somerset Savings Bank, SLA		Regal Bancorp, Inc.
01/28/22		Rosedale Federal Savings & Loan Association		CBM Bancorp, Inc.
10/03/21		Community Bank System, Inc.		Elmira Savings Bank
07/16/21		Spencer Savings Bank, SLA		Mariner’s Bank
08/27/20		Hanover Bancorp Inc.		Savoy Bank
06/18/20		BV Financial, Inc. (MHC)		Delmarva Bancshares, Inc.
01/09/20		Norwood Financial Corp.		UpState New York Bancorp, Inc.
12/23/19		Northfield Bancorp, Inc.		VSB Bancorp, Inc.
12/18/19		Kearny Financial Corp.		MSB Financial Corp.
12/18/19		Citizens & Northern Corporation		Covenant Financial Inc.
12/18/19		CNB Financial Corporation		Bank of Akron
12/10/19		Fidelity D & D Bancorp, Inc.		MNB Corporation
07/24/19		Investors Bancorp, Inc.		Gold Coast Bancorp, Inc.
07/02/19		ACNB Corporation		Frederick County Bancorp, Inc.
06/24/19		1st Constitution Bancorp		Shore Community Bank
01/22/19		Community Bank System, Inc.		Kinderhook Bank Corp.

 

List of National Comp. Deals
Date Announced		Buyer		Target
09/30/22		Taichung Commercial Bank Co., Ltd.		American Continental Bancorp
07/25/22		HomeTrust Bancshares, Inc.		Quantum Capital Corp.
07/25/22		Somerset Savings Bank, SLA		Regal Bancorp, Inc.
06/13/22		CrossFirst Bankshares, Inc.		Farmers & Stockmens Bank
05/26/22		Middlefield Banc Corp.		Liberty Bancshares, Inc. (Ada, OH)
05/23/22		Cambridge Bancorp		Northmark Bank
03/10/22		Arizona Federal Credit Union		Horizon Community Bank
12/15/21		Home Bancorp, Inc.		Friendswood Capital Corporation
12/08/21		Alerus Financial Corporation		MPB BHC, INC.
11/10/21		Georgia Banking Company, Inc.		Peoples Banktrust, Inc.
11/01/21		BancFirst Corporation		Worthington National Bank
09/07/21		BayCom Corp		Pacific Enterprise Bancorp
08/23/21		Seacoast Banking Corporation of Florida		Sabal Palm Bancorp, Inc.
07/29/21		Finward Bancorp		Royal Financial, Inc.
06/16/21		Lake Michigan Credit Union		Pilot Bancshares, Inc.
05/17/21		Equity Bancshares, Inc.		American State Bancshares, Inc.
04/27/21		Southern California Bancorp		Bank of Santa Clarita
04/22/21		Colony Bankcorp, Inc.		SouthCrest Financial Group, Inc.
08/27/20		Hanover Bancorp Inc.		Savoy Bank
04/30/20		Tinker Federal Credit Union		Prime Bank
01/23/20		Seacoast Banking Corporation of Florida		Fourth Street Banking Company
12/23/19		Northfield Bancorp, Inc.		VSB Bancorp, Inc.
12/18/19		Citizens & Northern Corporation		Covenant Financial Inc.
12/18/19		First Bancshares, Inc.		Southwest Georgia Fin. Corp.
12/10/19		Fidelity D & D Bancorp, Inc.		MNB Corporation
09/17/19		FB Financial Corporation		FNB Financial Corp.
08/13/19		Level One Bancorp, Inc.		Ann Arbor Bancorp, Inc.

 

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List of National Comp. Deals
Date Announced		Buyer		Target
08/12/19		Professional Holding Corp.		Marquis Bancorp, Inc.
07/25/19		Wintrust Financial Corporation		SBC, Incorporated
07/25/19		First Financial Banc Corporation		First National Corporation of Wynne
07/25/19		South Plains Financial, Inc.		West Texas State Bank
07/25/19		Associated Banc-Corp		First Staunton Bancshares, Inc.
07/24/19		Spirit of Texas Bancshares, Inc.		Chandler Bancorp, Inc.
07/22/19		First Bancshares, Inc.		First Florida Bancorp, Inc.
07/15/19		Carolina Financial Corporation		Carolina Trust BancShares, Inc.
07/02/19		ACNB Corporation		Frederick County Bancorp, Inc.
06/24/19		1st Constitution Bancorp		Shore Community Bank
05/31/19		Dickinson Financial Corporation II		KCB Bank
05/28/19		Santa Cruz County Bank		Lighthouse Bank
05/17/19		Capitol Bancorporation, Inc.		Advantage Bank
05/08/19		Southern States Bancshares, Inc.		East Alabama Financial Group, Inc.
03/05/19		BancorpSouth Bank		Van Alstyne Financial Corporation
02/21/19		German American Bancorp, Inc.		Citizens First Corporation
02/05/19		United Community Banks, Inc.		First Madison Bank & Trust

The following table compares certain financial metrics of HVBC relative to the median financial metrics for the HVBC Comparable Deal Groups:

HVBC Comparable Transactions

 

Transaction Financial Metric (HVBC data as of or for the latest twelve months ended June 30, 2022)		HVBC				PA Comp. Deals				Regional Comp. Deals				National Comp. Deals
						(median values)
Total Assets ($000s)		$	570,647			$	1,061,381			$	441,103			$	439,058
Total Deposits ($000s)		$	481,510			$	878,895			$	376292			$	376,910
Tangible Equity/ Total Assets (%)			7.22				9.51				10.01				10.25
NPAs/ Total Assets (%)			0.45				0.53				0.76				0.35
Non-Interest Income/ Avg. Assets (%)			1.91				0.45				0.38				0.53
Non-Interest Expense/ Avg. Assets (%)			4.01				1.96				2.11				2.41
Return on Average Assets (%)			0.49				0.75				0.90				1.19
Return on Average Equity (%)			6.55				9.26				10.14				11.47

 

Transaction Valuation Metric		CZFS/HVBC (1)				PA Comp. Deals				Regional Comp. Deals				National Comp. Deals
						(median values)
Deal Value ($M)		$	64.6			$	136.7			$	54.7			$	65.6
Price/ Book (%)			156.72				130.82				121.25				149.24
Price/ Tangible Book (%)			156.72				137.09				117.43				154.72
Price/ LTM EPS (x)			23.85				16.20				14.61				13.53
Price/ Deposits (%)			13.42				15.02				14.00				17.61
Franchise Premium/ Core Deposits (%)			4.97				4.12				2.82				7.64

 

(1)	Assumes merger consideration is valued at $28.39 per HVBC Common Share (excludes value of cashed out options).

 

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TKG then compared the merger consideration to the imputed value per common share for HVBC based on the median transaction metrics for all three (3) of the HVBC Comparable Deal Groups. The following table (the “HVBC Imputed Deal Values per Share”) summarizes the imputed value for HVBC on a change-of-control basis using certain transaction valuation metrics from the PA Comp. Deals, Regional Comp. Deals and the National Comp. Deals:

HVBC Imputed Deal Values per Share

 

		PA Comp. Deals												Regional Comp. Deals												National Comp. Deals
		Price/ Book				Price/ Tang. Book				Price/ LTM EPS				Price/ Book				Price/ Tang. Book				Price/L TM EPS				Price/ Book				Price/ Tang. Book				Price/L TM EPS
HVBC per Share Imputed Value		$	24.05			$	25.20			$	20.82			$	22.29			$	21.59			$	18.72			$	27.44			$	28.45			$	17.65

TKG noted that the stock consideration of $28.39 compared favorably to eight of nine of the imputed values, while the cash consideration of $30.50 and the merger consideration of $28.81 compared favorably to all nine of the imputed values.

In evaluating the various financial condition, financial performance, trading multiples and acquisition multiples for the merger and the merger considerations, it is important to note that no company or transaction in the preceding analyses is identical to CZFS, HVBC, or the merger. Accordingly, an analysis of the results of the foregoing is not mathematically precise; rather, it involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies and other factors that could affect the public trading value of the companies to which they are being compared. The range of value resulting from the foregoing analyses should not be taken to represent TKG’s view of the actual value of CZFS, HVBC or the combined company.

Compensation of TKG and Other Relationships. HVBC paid TKG a fee of $75,000 upon the rendering of TKG’s written fairness opinion. TKG will be reimbursed for reasonable out-of-pocket expenses incurred in connection with its engagement and HVBC has agreed to indemnify TKG against certain liabilities. TKG will also receive a success fee of approximately $505,800 upon closing of the merger.

TKG did not provide any other investment banking services to HVBC in the two years preceding the date of TKG’s opinion. TKG did not provide any investment banking services to CZFS in the two years preceding the date of its opinion.

Certain HVBC Unaudited Prospective Financial Information

HVBC does not as a matter of course make public long-term projections as to future revenues, earnings or other results due to, among other reasons, the uncertainty of the underlying assumptions and estimates. However, in connection with the merger, HVBC’s management prepared and provided to the HVBC board of directors in connection with its evaluation of the transaction, and to its financial advisor TKG, including in connection with TKG’s financial analyses described above under the section entitled “ —Opinion of HVBC’s Financial Advisor,” certain unaudited prospective financial information regarding HVBC’s operations for fiscal years 2023 through 2027 (the “HVBC Projections”). The below summary of the HVBC Projections is included for the purpose of providing HVBC shareholders access to certain nonpublic information that was furnished to certain parties in connection with the merger, and such information may not be appropriate for other purposes, and is not included to influence the voting decision of any HVBC shareholder.

HVBC’s unaudited prospective financial information was not prepared with a view toward public disclosure, nor was it prepared with a view toward compliance with published guidelines of the Securities and Exchange Commission (the “SEC”) or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information. The inclusion of this unaudited prospective

 

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financial information should not be regarded as an indication that such information is predictive of actual future events or results and such information should not be relied upon as such, and readers of this proxy statement/prospectus are cautioned not to place undue reliance on the unaudited prospective financial information. The unaudited prospective financial information included in this proxy statement/prospectus has been prepared by, and is the responsibility of, HVBC management.

While presented with numeric specificity, this unaudited prospective financial information was based on numerous variables and assumptions (including assumptions related to industry performance and general business, economic, market and financial conditions and additional matters specific to HVBC’s business) that are inherently subjective and uncertain and are beyond the control of HVBC’s management. Important factors that may affect actual results and cause this unaudited prospective financial information not to be achieved include, but are not limited to, risks and uncertainties relating to HVBC’s business (including their ability to achieve strategic goals, objectives and targets over applicable periods), industry performance, general business and economic conditions and other factors described in the sections entitled “Information Regarding Forward-Looking Statements” and “Risk Factors.” This unaudited prospective financial information also reflects numerous variables, expectations and assumptions available at the time they were prepared as to certain business decisions that are subject to change. As a result, actual results may differ materially from those contained in this unaudited prospective financial information. Accordingly, there can be no assurance that the projected results summarized below will be realized.

None of HVBC, CZFS or their respective officers, trustees, directors, affiliates, advisors or other representatives can give you any assurance that actual results will not differ materially from this unaudited prospective financial information.

HVBC UNDERTAKES NO OBLIGATION TO UPDATE OR OTHERWISE REVISE OR RECONCILE THIS UNAUDITED PROSPECTIVE FINANCIAL INFORMATION TO REFLECT CIRCUMSTANCES EXISTING AFTER THE DATE THIS UNAUDITED PROSPECTIVE FINANCIAL INFORMATION WAS GENERATED OR TO REFLECT THE OCCURRENCE OF FUTURE EVENTS, EVEN IN THE EVENT THAT ANY OR ALL OF THE ASSUMPTIONS UNDERLYING SUCH INFORMATION ARE SHOWN TO BE IN ERROR. SINCE THE UNAUDITED PROSPECTIVE FINANCIAL INFORMATION COVERS MULTIPLE YEARS, SUCH INFORMATION BY ITS NATURE BECOMES LESS PREDICTIVE WITH EACH SUCCESSIVE YEAR.

HVBC has not made and makes no representation to CZFS or any CZFS shareholder, in the merger agreement or otherwise, concerning this unaudited prospective financial information or regarding HVBC’s ultimate performance compared to the unaudited prospective financial information or that the projected results will be achieved. In light of the foregoing factors and the uncertainties inherent in the unaudited prospective financial information, HVBC urges all HVBC shareholders not to place undue reliance on such information.

The following table presents selected unaudited prospective financial data for the fiscal years ending December 31, 2023 through December 31, 2027 for HVBC on a standalone basis. The HVBC Projections were prepared by HVBC’s management solely for internal purposes. The HVBC Projections were not updated to account for any circumstances or events occurring after the date they were initially prepared and therefore should not be relied on as predictive of actual future results.

HVBC Projections⁽¹⁾ (unaudited, dollars in thousands)

As of or for the years ended December 31,

 

Financial Item		2023				2024				2025				2026				2027
Total assets		$	809,655			$	887,160			$	953,697			$	1,025,225			$	1,102,116
Net income		$	4,142			$	6,816			$	7,255			$	7,779			$	8,384
Return on average assets			0.53	%			0.79	%			0.78	%			0.78	%			0.78	%

 

(1)	Excludes the effect of any capital raise that may be executed by HVBC during the above periods.

 

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Interests of HVBC’s Directors and Executive Officers in the Merger

In considering the recommendation of HVBC’s board of directors with respect to the merger, HVBC’s shareholders should be aware that the executive officers and directors of HVBC and HVB have certain interests in the merger that may be different from, or in addition to, the interests of HVBC shareholders generally. These interests are described below. HVBC’s board of directors was aware of these interests and considered them, among other matters, in making its recommendation that HVBC vote to adopt the merger proposal.

Treatment of Stock Options

Under the terms of the merger agreement, stock options to purchase shares of HVBC common stock, whether vested or unvested, that are outstanding and unexercised as of the effective time will be canceled at the effective time and converted into the right to receive a cash payment equal to the product of (x) the number of shares of HVBC common stock subject to such option at the effective time multiplied by (y) the amount by which $30.50 exceeds the exercise price per share of such option, less applicable taxes and withholdings and without interest. Set forth below is the number of outstanding and unexercised stock options held by each director, each named executive officer and four other executive officers of HVBC as of October 18, 2022, the date the merger agreement was executed, and the cash-out value of the stock options as determined under the terms of the merger agreement. As of October 18, 2022, all but 55,300 HVBC stock options held by the executive officers and directors were vested.

 

Name		HVBC Stock Options (#)				Exercise Price ($)				Aggregate Stock Option Value ($)
Carl Hj. Asplundh III			10,000				15.92				145,800
Joseph F. Kelly(1)			10,000				14.80				157,000
John D. Behm			10,000				14.80				157,000
Scott W. Froggatt			10,000				14.80				157,000
Michael L. Hammer			—				—				—
Robert J. Marino			10,000				15.92				145,800
Travis J. Thompson			50,000				14.80				785,000
Joseph O’Neill, Jr.			25,000				14.80				392,500
Barton Skurbe			—				—				—
J. Chris Jacobsen			25,000				14.80				392,500
Charles Hutt			25,000				14.80				392,500
Hugh W. Connelly			5,000				15.21				76,450
Derek P. B. Warden			10,000				20.11				103,900

 

(1)	Mr. Kelly passed away on December 27, 2022.

Treatment of Restricted Stock Awards

Under the terms of the merger agreement, any vesting restrictions on the HVBC restricted stock awards that have not yet vested will lapse as of immediately prior to the effective time, and such awards will be treated as issued and outstanding shares of HVBC for purposes of the merger agreement, subject to applicable taxes and withholdings. The following table sets forth the number of unvested restricted stock awards held by each director, each named executive officer and other executive officers of HVBC as of October 18, 2022, the date the merger agreement was executed, that will become vested as a result of the merger. The estimated value of the restricted stock is based on (i) the average closing market price of HVBC common stock over the first five (5) business days following the first public announcement of the transaction beginning on October 20, 2022 for a per share merger consideration of $25.57, multiplied by (ii) the total number of shares subject to each restricted stock award.

 

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Name		Unvested HVBC Restricted Stock Awards (#)				Aggregate Restricted Stock Award Value ($)
Carl Hj. Asplundh, III			2,800				71,596
Joseph F. Kelly(1)			2,100				53,697
John D. Behm			2,100				53,697
Scott W. Froggatt			2,100				53,697
Michael L. Hammer			—				—
Robert J. Marino			27,800				710,846
Travis J. Thompson			28,400				726,188
Joseph O’Neill, Jr.			4,200				107,394
Barton Skurbe			—				—
J. Chris Jacobsen			4,200				107,394
Charles Hutt			4,200				107,394
Hugh W. Connelly			25,000				639,250
Derek P. B. Warden			5,000				127,850

 

(1)	Mr. Kelly passed away on December 27, 2022.

Current Agreements and Benefit Plans with HVBC’s Directors and Executive Officers

Employment Agreement with Travis J. Thompson

HVB entered into an employment agreement with Travis J. Thompson, Chairman and Chief Executive Officer of HVBC and HVB, originally effective as of July 1, 2016. The employment agreement provides that in the event of Mr. Thompson’s involuntary termination of employment “without cause”, or in the event of his resignation for “good reason” (as such terms are defined in the agreement), on or after the effective date of a change in control of HVBC or HVB, Mr. Thompson will be entitled to a severance payment equal to three times the sum of (i) his highest annual rate of base salary, plus (ii) his highest annual cash bonus paid, or earned, during the calendar year of the change in control or either of the two calendar years immediately preceding the change in control. Such payment will be payable in a lump sum within 30 days following the executive’s date of termination of employment. In addition, HVB (or its successor) will continue to provide him with life insurance and non-taxable medical and dental insurance coverage substantially comparable to the coverage provided to him immediately prior to his date of termination at no cost to him. Such continued coverage will cease upon the earlier of: (1) the date which is three years after the executive’s date of termination of employment; or (2) the date on which he becomes eligible for comparable health and welfare benefits as a full-time employee of another employer.

Concurrent with the signing of the merger agreement, Mr. Thompson entered into a settlement and non-competition and non-solicitation agreement with HVBC, HVB, and CZFS that will terminate and supersede his employment agreement effective as of the closing date of the merger. As a result, Mr. Thompson will not receive any payments or benefits under the employment agreement in connection with the merger.

Employment Agreement with Robert J. Marino

HVBC and HVB entered into an employment agreement with Robert J. Marino, President of HVBC and HVB, originally effective as of December 1, 2021. The employment agreement provides that, if a change in control of HVBC occurs and if Mr. Marino experiences an involuntary termination of employment, or he resigns for “good reason” (as defined in the agreement), and if Mr. Marino has completed fewer than three full years of service, Mr. Marino will be entitled to a severance payment equal to two times his annual rate of base salary. The payment will be payable in a lump sum within 30 days following his date of termination of employment. In addition, HVB (or its successor) will continue to provide him with all life, disability, medical insurance and other normal health and welfare benefits in effect with respect to Executive at the time of termination of employment. Such continued coverage will cease upon the earlier of: (1) the date which is one year after his date of termination of employment; or (2) the date on which he secures comparable coverage though other employment. If the aggregate amount of payments to Mr. Marino in connection with a change in control would be subject to an

 

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excise tax under Sections 280G and 4999 of the Code, the amount payable to Mr. Marino under his employment agreement would be reduced as necessary to avoid the imposition of such excise tax.

Concurrent with the signing of the merger agreement, Mr. Marino entered into a settlement and non-competition and non-solicitation agreement with HVBC, HVB, and CZFS that will terminate and supersede his employment agreement effective as of the closing date of the merger. As a result, Mr. Marino will not receive any payments or benefits under the employment agreement in connection with the merger.

Employment Agreements with Non-Named Executive Officers

HVB entered into individual employment agreements with Charles Hutt, Executive Vice President and Chief Operations Officer-Mortgage Division, and Chris Jacobsen, Executive Vice President and Chief Operating Officer, who are non-named executive officers. The employment agreements provide that in the event of the executive’s termination “without cause”, or in the event of his resignation “with good reason” (as such terms are defined in the agreement), on or after the effective date of a change in control of HVBC or HVB, the executive will be entitled to a severance payment equal to three times the sum of (i) the executive’s highest annual rate of base salary, plus (ii) highest annual cash bonus paid, or earned, during the calendar year of the change in control or either of the two calendar years immediately preceding the change in control. Such payment will be payable in a lump sum within 30 days following the executive’s date of termination of employment. In addition, HVB (or its successor) will continue to provide the executive with life insurance and non-taxable medical and dental insurance coverage substantially comparable to the coverage provided to the executive immediately prior to his date of termination at no cost to the executive. Such continued coverage will cease upon the earlier of: (1) the date which is three years after the executive’s date of termination of employment; or (2) the date on which the executive becomes eligible for comparable health and welfare benefits as a full-time employee of another employer.

Huntingdon Valley Bank Employee Stock Ownership Plan

The Huntingdon Valley Bank Employee Stock Ownership Plan (the “ESOP”) is a tax-qualified plan that covers substantially all of the employees of HVB who have attained age 21 and completed 1,000 hours of service. The ESOP received a loan from HVBC, the proceeds of which were used to acquire shares of HVBC common stock for the benefit of ESOP participants. The ESOP has pledged the shares acquired with the loan as collateral for the loan and holds them in a suspense account, releasing them to participants’ accounts as the loan is repaid, using contributions received from HVB. At least five (5) business days prior to the effective time, the outstanding ESOP loan will be repaid by the ESOP by delivering a sufficient number of unallocated shares of HVBC common stock to HVBC. Any unallocated shares remaining in the ESOP suspense account (after the repayment of the outstanding loan) will be allocated to the active plan participants as earnings, pro rata, based on each participant’s account balance. As of the effective time, the ESOP will be terminated and all allocated shares of common stock held by the ESOP will be converted into the merger consideration.

As a result of the foregoing, HVBC’s executive officers, including Messrs. Thompson, Marino, Hutt and Jacobsen and Joseph O’Neill, Jr., Executive Vice President and Chief Financial Officer, Barton Skurbe, Executive Vice President and Director of Sales—Mortgage Division, Hugh W. Connelly, Executive Vice President and Chief Lending Officer, and Derek P.B. Warden, Executive Vice President and Chief Credit Officer, as well as other employees who participate in the ESOP, will receive a benefit in connection with the ESOP’s termination to the extent that the stock price of HVBC common stock multiplied by the number of shares held in the suspense account exceeds the outstanding loan used to acquire those shares. Based on account levels as of October 18, 2022, and a stock price of $25.57, which is the average closing price of HVBC common stock over the first five (5) business days following the first public announcement of the merger beginning on October 20, 2022, the estimated value of the additional benefits that the executive officers would receive, as a group, is approximately $202,016.

For an estimate of the additional benefits that HVBC’s named executive officers and Mr. Marino would receive upon the effective time, see “—Potential Payments and Benefits to HVBC’s Named Executive Officers and Robert Marino in Connection with the Merger” below.

 

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New Arrangements with HVBC, HVB, and CZFS

New Settlement and Non-Competition and Non-Solicitation Agreements

In connection with the execution of the merger agreement, HVBC, HVB and CZFS entered into individual settlement and non-competition and non-solicitation agreements with each of Messrs. Thompson and Marino. The agreements become effective as of the closing date of the merger and supersede and terminate the executives’ prior employment agreements with HVBC and/or HVB.

Pursuant to each settlement and non-competition and non-solicitation agreement, for a two-year period (one-year period, for Mr. Marino) following the date on which the executive ceases to perform services for CZFS, the executive will be prohibited from providing services to a company that competes with CZFS and FCCB (subject to limited exception) within twenty-five (25) miles of any location where CZFS or FCCB has business operations, or within twenty-five (25) miles of any office for which CZFS or FCCB has filed an application for regulatory approval to establish an office. In addition, for a two-year period (one-year period, for Mr. Marino) following the date in which the executive ceases to perform services for CZFS, the executive is prohibited from soliciting employees and customers of CZFS and FCCB. The agreements provide that Messrs. Thompson and Marino will receive a lump sum cash payment in the amount of $1,500,000 and $300,000, respectively, payable on or immediately prior to the closing date of the merger. In addition, the agreement for Mr. Thompson provides for a $400,000 transaction bonus, which is payable on or immediately prior to the closing date of the merger.

For an estimate of the amounts that would be payable to Messrs. Thompson and Marino under the settlement and non-competition and non-solicitation agreements, see “—Potential Payments and Benefits to HVBC’s Named Executive Officers and Robert Marino in Connection with the Merger” below.

Retention Bonus for Charles Hutt

Concurrent with the signing of the merger agreement, HVB and Mr. Hutt entered into a letter agreement providing that if Mr. Hutt remains employed with HVB, HVBC (or their respective successors) through the 90-day anniversary of the closing date, Mr. Hutt will receive a $50,000 retention bonus paid in a single lump sum within seven days following the 90-day anniversary of the closing date.

Severance Provided under Section 5.13(d) of the Merger Agreement

Under the terms of the merger agreement, CZFS has agreed to pay to each employee of HVBC or HVB that is not covered by a written employment or severance agreement and is either (i) not offered, or not retained in, comparable employment (i.e., a position of generally similar job description, responsibilities and pay where the employee is not required to commute a distance greater than thirty (30) miles more than the employee’s commute as of the effective time of the merger) by CZFS or any of its subsidiaries after the effective time, or (ii) terminated by CZFS or any of its subsidiaries, without cause, within twelve (12) months following the effective time of the merger, a severance payment equal to two (2) weeks of his or her then current base salary multiplied by the number of total completed years of service with HVBC or HVB; provided, however, that the minimum severance payment will equal four (4) weeks of his or her base salary and the maximum severance payment will not exceed twenty-six (26) weeks of his or her base salary; and provided further, that such employee enters into a release of claims in a form reasonably satisfactory to CZFS and that such employee does not voluntarily leave employment with HVBC or HVB prior to the effective time of the merger. The severance payment will be payable in a cash lump sum within fifteen (15) days following the date that the release of claims becomes irrevocable. Messrs. O’Neill, Skurbe, Connelly, and Warden will be eligible for the severance under the merger agreement. Mr. O’Neill has been employed by HVBC and HVB since January 2010; Mr. Skurbe has been employed by HVBC and HVB since December 2018; Mr. Connelly has been employed by HVBC and HVB since February 2019; and Mr. Warden has been employed by HVBC and HVB since December 2019. For an estimate of the amount that would be payable to Messrs. O’Neill and Skurbe under the merger agreement, see “— Potential Payments and Benefits to HVBC’s Named Executive Officers and Robert Marino in Connection with the Merger” below.

 

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Directors’ and Officers’ Indemnification; Directors’ and Officers’ Insurance

Pursuant to the merger agreement, CZFS has agreed that, for a period of six years after the effective date of the merger, it will indemnify, defend and hold harmless each present and former director and officer of HVBC or HVB against any reasonable costs, expenses or fees (including reasonable attorneys’ fees), judgments, amounts paid in settlement, fines, penalties, losses, claims, damages or liabilities incurred in connection with any claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative, and whether formal or informal, arising out of matters existing or occurring at or prior to the effective time of the merger, whether asserted or claimed prior to, at or after the effective time of the merger, arising in whole or part out of or pertaining to the fact that he or she was a director or officer of HVBC or HVB is or was serving at the request of HVBC or HVB as a director, officer, employee or other agent of any other organization or in any capacity with respect to any employee benefit plan of HVBC or HVB, including without limitation matters related to the negotiation, execution and performance of the merger agreement or any of the related transactions, to the fullest extent which such person would have been entitled to indemnification under the articles of incorporation and bylaws of HVBC or HVB prior to the effective date of the merger.

In addition, CZFS has agreed to maintain a directors’ and officers’ liability insurance policy for six years after the effective time of the merger to cover the present officers and directors of HVBC with respect to claims against such directors and officers arising from facts or events that occurred before the effective time of the merger; provided that, CZFS is not obligated to pay more than 250% of HVBC’s annual premiums for such coverage.

Membership on the Board of Directors of CZFS and FCCB and Appointment of Senior Officers

Effective at the effective time of the merger, CZFS, upon consultation with HVBC, will designate (i) one member of the HVBC board of directors to serve as a member of the CZFS board of directors and (ii) two members of the HVB board of directors to serve as members of the FCCB board of directors. In addition, Messrs. Thompson and Marino will be employed as senior officers of FCCB following the effective time of the merger. For additional information, see “The Merger Agreement—Boards of Directors of CZFS and FCCB After the Merger” beginning on page 69.

Potential Payments and Benefits to HVBC’s Named Executive Officers and Robert Marino in Connection with the Merger

This section sets forth the information required by Item 402(t) of the SEC’s Regulation S-K regarding compensation for each named executive officer of HVBC and Robert Marino that is based on, or otherwise relates to, the merger. This compensation is referred to as “golden parachute” compensation by the applicable SEC disclosure rules, and in this section such term is used to describe the merger-related compensation payable to HVBC’s named executive officers and Mr. Marino. The “golden parachute” compensation payable to these individuals is subject to a non-binding advisory vote of holders of HVBC common stock, as described in the section entitled “Proposal II—Advisory Vote on Specified Compensation.” The table below sets forth, for the purposes of this golden parachute disclosure, the amount of payments and benefits (on a pre-tax basis) that each of HVBC’s named executive officers and Mr. Marino would receive, using the following assumptions:

 

•

the effective time of the merger will occur on December 15, 2022 (which is the assumed date solely for purposes of this golden parachute compensation disclosure);

 

•

the base salary rates for the named executive officers and Mr. Marino remain unchanged from those in place as of October 18, 2022;

 

•

for purposes of calculating the value of non-vested equity awards that will become vested as of the effective time of the merger, equity awards are those that are outstanding as of October 18, 2022; and

 

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•

a price per share of HVBC Common Stock of $25.57 (the average closing market price of HVBC common stock over the first five (5) business days following the public announcement of the merger beginning on October 20, 2022).

The calculations in the table do not include amounts that HVBC’s named executive officers and Mr. Marino were already entitled to receive or vested in as of the date of this proxy statement/prospectus. The calculations in the table also do not include certain compensation that may occur after the effective time of the merger since such payments are contingent upon and will vest based on services to be provided to the resulting company following the closing of the merger. In addition, these amounts do not attempt to forecast any additional equity award grants, issuances or forfeitures that may occur prior to the completion of the merger. As a result of the foregoing assumptions, which may or may not actually occur or be accurate on the relevant date, including the assumptions described in the footnotes to the table, the actual amounts, if any, to be received by a named executive officer and Mr. Marino may materially differ from the amounts set forth below:

Golden Parachute Compensation

 

Name		Cash ($)(1)				Equity ($)(2)				Other ($)(3)				Total ($)
Travis Thompson			1,900,000				1,055,888				48,726				3,004,614
Robert Marino			300,000				792,494				—				1,092,494
Joseph O’Neill, Jr.			100,000				272,244				39,465				411,709
Barton Skurbe			28,462				—				13,196				41,657

 

(1)

The cash payments consist of: (a) for Mr. Thompson, the transaction bonus payment of $400,000, and (b) non-competition payment of $1,500,000 for Mr. Thompson and $300,000 for Mr. Marino in exchange for entering into the settlement and non-competition and non-solicitation agreements, (c) for Messrs. O’Neill and Skurbe, severance payments of $100,000, which represents 26 weeks of base salary, and $28,462, which represents eight weeks of base salary, respectively, provided under section 5.13(d) of the merger agreement. The payments under (a) and (b) above are considered “single trigger” benefits since the amounts are payable upon the merger without regard to the executives’ termination of employment, and the payments under (c) above are considered “double trigger” benefits since the amounts are payable only upon the executives’ termination of employment (other than for cause) within twelve months following the effective time of the merger. For more information regarding these payments, see “—New Arrangements with HVBC, HVB, and CZFS” above.

(2)

Represents the estimated value of the unvested restricted stock that will become vested at the effective time of the merger and the unvested stock options that will be converted into the right to receive a cash payment equal to the product of (x) such number of unvested shares of HVBC common stock multiplied by (y) the amount by which $30.50 exceeds the exercise price per share of such option, which are considered “single trigger” benefits because they are payable upon the merger without regard to the executives’ termination of employment. The value of the restricted stock is based on a per share price of HVBC common stock of $25.57, which is the average closing market price of HVBC common stock over the first five business days following the public announcement of the merger. For more information regarding these payments, see “—Treatment of Stock Options” and “—Treatment of Restricted Stock Awards” above. The following is a break-out of the amounts reported in the above table:

 

Name		Restricted Stock ($)				Unvested Stock Options ($)
Travis Thompson			726,188				329,700
Robert Marino			710,846				81,648
Joseph O’Neill, Jr.			107,394				164,850

 

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(3)

Represents the estimated dollar value of additional allocations to the named executive officers and Mr. Marino in connection with the termination of the ESOP and repayment of the outstanding ESOP loan balance at closing. Following the repayment of the ESOP loan with unallocated shares, the remaining shares in the ESOP suspense account will be exchanged for the merger consideration and will be allocated to all eligible employees, including the named executive officers and Mr. Marino, as earnings of the ESOP based on the eligible employee’s account balance. The estimated dollar value attributable to each named executive officer and Mr. Marino as set forth above is based on a number of assumptions that may or may not be accurate at the closing of the merger, including that eligible participants who are currently employed by HVB will remain employed by HVB through the ESOP’s termination date and that the merger consideration value is $25.57 per share.

Material U.S. Federal Income Tax Consequences of the Merger

The following is a general summary of the anticipated material U.S. federal income tax consequences of the merger to U.S. holders (as defined below) of HVBC’s common stock. The following summary is based upon the Internal Revenue Code of 1986, as amended, (the “Code”), its legislative history, existing and proposed regulations thereunder and published rulings and decisions, all as currently in effect as of the date hereof, and all of which are subject to change, possibly with retroactive effect. No assurance can be given that the U.S. Internal Revenue Service (the “IRS”) would not assert, or that a court would not sustain, a position contrary to any of the tax consequences set forth below. Any such change could affect the validity of this discussion. The tax discussion set forth below is included for general information only. It is not intended to be, nor should it be construed to be, legal or tax advice to particular HVBC shareholders.

No attempt has been made to comment on all U.S. federal income tax consequences of the merger that may be relevant to HVBC shareholders. Tax considerations under state, local and foreign laws, under federal laws other than those pertaining to income tax, and under federal laws applicable to alternative minimum taxes are not addressed in this proxy statement/prospectus.

For purposes of this summary, we use the term “U.S. holder” to mean a beneficial owner which is:

 

•

an individual citizen or resident of the United States;

 

•

a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or organized under the laws of the United States or any of its political subdivisions;

 

•

a trust that (1) is subject to the supervision of a court within the United States and the control of one or more U.S. persons or (2) has a valid election in effect under applicable U.S. Treasury Regulations to be treated as a U.S. person; or

 

•

an estate that is subject to U.S. federal income taxation on its income regardless of its source.

If a partnership or other entity taxed as a partnership holds HVBC common stock, the tax treatment of a partner in the partnership generally will depend upon the status of the partner and the activities of the partnership. Partnerships and partners in such partnerships should consult their tax advisors about the tax consequences of the merger to them.

This summary addresses only those U.S. holders of HVBC common stock that hold their HVBC common stock as a capital asset within the meaning of Section 1221 of the Code and does not address all the U.S. federal income tax consequences that may be relevant to particular holders of HVBC common stock in light of their individual circumstances or to holders of HVBC common stock that are subject to special rules, such as:

 

•

financial institutions;

 

•

S-corporations, pass-through entities and investors in pass-through entities;

 

•

insurance companies;

 

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•

tax-exempt organizations;

 

•

dealers in securities or currencies;

 

•

traders in securities that elect to use a mark to market method of accounting;

 

•

persons that hold HVBC common stock as a hedge or as part of a straddle, constructive sale or conversion transaction, or other risk management transaction;

 

•

regulated investment companies;

 

•

mutual funds

 

•

real estate investment trusts;

 

•

expatriates or persons whose “functional currency” is not the U.S. dollar;

 

•

persons who are not U.S. citizens;

 

•

foreign corporations, foreign partnerships and other foreign entities;

 

•

person subject to the alternative minimum tax;

 

•

persons eligible for tax treaty benefits;

 

•

trusts and estates;

 

•

individual retirement and other tax-deferred accounts; and

 

•

holders who acquired their shares of HVBC common stock through the exercise of an employee stock option or otherwise as compensation.

The actual tax consequences of the merger to you may be complex and will depend on your specific situation and on factors that are not within the control of CZFS, HVBC or their advisors. You should consult with your own tax advisor as to the tax consequences of the merger in your particular circumstances, including the applicability and effect of the alternative minimum tax and any state, local and foreign and other tax laws, and of changes in those laws.

Tax Consequences of the Merger Generally. The merger is intended to qualify as a “reorganization” within the meaning of Section 368(a) of the Code. If, as intended, the merger qualifies as a reorganization, the material U.S. federal income tax consequences will be as follows:

 

•

no gain or loss will be recognized by CZFS or HVBC as a result of the merger;

 

•

no gain or loss will be recognized by U.S. holders who exchange all of their HVBC common stock solely for CZFS common stock pursuant to the merger (with respect to cash received instead of a fractional share of CZFS common stock, see below under “Receipt of Cash Consideration Only and Cash Received Instead of a Fractional Share of CZFS Common Stock”);

 

•

gain (but not loss) will be recognized by U.S. holders of HVBC common stock who receive both shares of CZFS common stock and cash in exchange for shares of HVBC common stock pursuant to the merger, in an amount equal to the lesser of (1) the amount by which the sum of the fair market value of the CZFS common stock and cash received by a U.S. holder of HVBC common stock exceeds such U.S. holder’s basis in its HVBC common stock and (2) the amount of cash received by such U.S. holder of HVBC common stock (except with respect to U.S. holders who receive cash only or cash instead of a fractional share of CZFS common stock, which is discussed below under “Receipt of Cash Consideration Only and Cash Received Instead of a Fractional Share of CZFS Common Stock”);

 

•

the aggregate basis of the CZFS common stock received by a U.S. holder of HVBC common stock in the merger (including the basis of fractional shares of CZFS common stock deemed received, prior to their deemed redemption as described below) will be the same as the aggregate basis of HVBC common stock for

 

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