<PAGE> 1
As filed with the Securities and Exchange Commission on _____________, 1996
Registration No. 333-07611
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 TO FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
SECURITY BANC CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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OHIO 6710 31-1133284
(State or Other Jurisdiction (Primary Standard Industrial (IRS Employer
of Incorporation or Organization) Classification Code Number) Identification No.)
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40 S. LIMESTONE STREET
SPRINGFIELD, OHIO 45502
(513) 324-6846
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
J. WILLIAM STAPLETON COPIES OF COMMUNICATIONS TO:
VICE PRESIDENT MARTIN D. WERNER, ESQ.
SECURITY BANC CORPORATION WERNER & BLANK CO., L.P.A.
40 S. LIMESTONE STREET 7205 W. CENTRAL AVENUE
SPRINGFIELD, OHIO TOLEDO, OH 43617
(513) 324-6846 (419) 841-8051
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
Approximate date of commencement of proposed sale of the securities to the
public:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If the securities being registered on this form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box: [ ]
The registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
Page 1 of _____ pages.
Exhibit Index on Page ____.
<PAGE> 2
SECURITY BANC CORPORATION
CROSS-REFERENCE SHEET
FORM S-4
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Heading in
Item of Form S-4 Prospectus and Proxy Statement
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1. Forepart of Registration Statement and Outside Front Outside Front Cover Page of
Cover Page of Prospectus Prospectus
2. Inside Front and Outside Back Cover Pages of Inside Front and Outside Back
Prospectus Cover Pages of Prospectus;
Table of Contents
3. Risk Factors, Ratio of Earnings to Fixed Charges, SUMMARY
and Other Information
4. Terms of the Transaction SUMMARY; PROPOSED MERGER;
DESCRIPTION AND COMPARISON OF
SECURITY COMMON STOCK
AND CITNAT
COMMON STOCK; and INFORMATION
ABOUT SECURITY
5. Pro Forma Financial Information PRO FORMA FINANCIAL
INFORMATION
6. Material Contracts with the Company Being Acquired SUMMARY; PROPOSED MERGER --
Terms of the Merger;
Resales of Security Stock;
MEETING INFORMATION--Vote
Required;
7. Additional Information Required for Reoffering by Not Applicable
Persons and Parties Deemed to be Underwriters
8. Interests of Named Experts and Counsel EXPERTS
9. Disclosure of Commission Position on Indemnification Not Applicable
for Securities Act Liabilities
10. Information with Respect to S-3 Registrants SUMMARY; AVAILABLE
INFORMATION; INCORPORATION
BY REFERENCE; SELECTED
FINANCIAL DATA; PRO FORMA
FINANCIAL INFORMATION
11. Incorporation of Certain Information by Reference Inside Front Cover Page of Prospectus;
INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE;
SUMMARY -- Selected Financial Data;
PRO
FORMA FINANCIAL INFORMATION
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Heading in
Item of Form S-4 Prospectus and Proxy Statement
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12. Information with Respect to S-2 or S-3 Registrants Not Applicable
13. Incorporation of Certain Information by Reference Not Applicable
14. Information with Respect to Registrants Other Than Not Applicable
S-3 or S-2 Registrants
15. Information with Respect to S-3 Companies Not Applicable
16. Information with Respect to S-2 or S-3 Companies Not Applicable
17. Information with Respect to Companies Other Than SUMMARY -- Vote Required --
S-2 or S-3 Companies INFORMATION
ABOUT CITNAT;
18. Information if Proxies, Consents or Authorizations SUMMARY -- Meeting Information;
are to be Solicited INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE;
PROPOSED MERGER--Dissenters' Rights;
DESCRIPTION AND COMPARISON OF
SECURITY COMMON STOCK
AND CITNAT COMMON STOCK
19. Information if Proxies, Consents or Authorizations Not Applicable
are Not to be Solicited, or in an Exchange Offer
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CITNAT BANCORP, INC.
1 Monument Square
Urbana, Ohio
(513) 653-1200
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To be Held on August 21, 1996
Notice is hereby given that the Special Meeting of Stockholders (the
"Meeting") of CitNat Bancorp, Inc. ("CitNat" or the "Company") will be held at
The Urbana Country Club, 4761 East Route 36, Urbana, Ohio 43078 on August 21,
1996 at 2:00 P.M.
A Proxy Card and a Proxy Statement for the Meeting are enclosed.
The Meeting is for the purpose of considering and acting upon:
1. A proposal to adopt, pursuant to Sections 1701.78 and
1701.831 of the Ohio Revised Code, a Merger Agreement (the "Merger
Agreement"), dated March 14, 1996, by and between CitNat and Security
Banc Corporation ("Security"), a copy of which is included in the
accompanying Proxy Statement-Prospectus as Appendix A. As more fully
described in the Proxy Statement-Prospectus, the Merger Agreement
provides for the Merger of CitNat with and into Security, with Security
surviving the transaction. Pursuant to the Merger Agreement, all of the
outstanding common shares of CitNat will be converted into common
shares of Security in accordance with the Exchange Ratio (as defined in
the Merger Agreement).
2. Such other matters as may properly come before the Meeting,
or any adjournments thereof. The Board of Directors is not aware of any
other business to come before the Meeting.
Notice is also given that CitNat stockholders have the right to dissent
and demand an appraisal of the value of their common shares in the event the
Merger Agreement is adopted and the merger consummated. The right of any
dissenting shareholder to receive the value of his common shares through the
statutory appraisal process is contingent upon strict compliance with the
procedures set forth in Section 1701.85 of the Ohio General Corporation Law, the
relevant portions of which are attached as Appendix C to the accompanying Proxy
Statement-Prospectus.
Any action may be taken on the foregoing proposal at the Meeting on the
date specified above, or on any date or dates to which the Meeting may be
adjourned. Stockholders of record at the close of business on July 8, 1996 will
be entitled to vote at the Meeting, and any adjournments thereof. A complete
list of stockholders entitled to vote at the Meeting will be available at the
Meeting.
You are requested to complete and sign the enclosed Form of Proxy which
is solicited on behalf of the Board of Directors, and to mail it promptly in the
enclosed envelope. The Proxy will not be used if you attend and vote at the
Meeting in person. Attendance at the Meeting will not, in and of itself,
constitute a revocation of a proxy.
By Order of the Board of Directors
James R. Wilson, President, Chief Executive
Officer and Director
Urbana, Ohio
July 23, 1996
- --------------------------------------------------------------------------------
IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE THE COMPANY THE EXPENSE OF
FURTHER REQUESTS FOR PROXIES TO ENSURE A QUORUM AT THE MEETING. A SELF-ADDRESSED
ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED
WITHIN THE UNITED STATES.
<PAGE> 5
PROXY STATEMENT
FOR SPECIAL MEETING OF STOCKHOLDERS
CITNAT BANCORP, INC.
1 MONUMENT SQUARE
URBANA, OHIO
-----------------------
PROSPECTUS
SECURITY BANC CORPORATION
COMMON STOCK
-----------------------
This Prospectus of Security Banc Corporation (Security) relates to the
common shares of Security ("Security Common Stock") issuable to the stockholders
and optionholders of CitNat Bancorp, Inc. ("CitNat") upon consummation of the
proposed merger of Security and CitNat (the "Merger"). Security and CitNat have
entered into a Merger Agreement dated March 14, 1996, (the "Agreement"). The
Agreement is attached as Appendix A and incorporated herein by reference.
THIS PROSPECTUS ALSO SERVES AS THE PROXY STATEMENT OF CITNAT ("PROXY
STATEMENT-PROSPECTUS") FOR ITS SPECIAL MEETING OF STOCKHOLDERS (THE "SPECIAL
MEETING") TO BE HELD ON AUGUST 21, 1996. SEE "MEETING INFORMATION."
If the proposed Merger is consummated, the stockholders of CitNat will
receive shares of Security Common Stock in exchange for their common shares of
CitNat (the "CitNat Common Stock") held by them on the effective date of the
Merger as set forth in the Agreement. Pursuant to the terms of the Agreement,
stockholders of CitNat will exchange each share of CitNat Common Stock held by
them on the effective date of the Merger for 2.1842437 shares of Security Common
Stock and option holders will exchange their options to purchase CitNat Stock at
the rate of .7791283 Share of Security Common Stock for each option to
purchase one share of CitNat Common Stock.
The Merger is intended to be tax-deferred to CitNat stockholders for
federal income tax purposes. For a more complete description of the Agreement
and terms of the Merger see "The PROPOSED MERGER."
This Proxy Statement-Prospectus and form of Proxy are first being
mailed to stockholders of CitNat on or about July 23, 1996.
--------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
ANY SUCH COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROXY STATEMENT-PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------
The date of this Proxy Statement-Prospectus is July 23, 1996.
1
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TABLE OF CONTENTS
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AVAILABLE INFORMATION 6
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE 6
COMPLIANCE WITH THE OHIO CENTRAL SHARE ACQUISITION STATURE 6
SUMMARY 7
The Companies 7
Proposed Merger 8
Special Meeting Information 8
Vote Required 8
Reasons for the Merger; Recommendations of the Boards of Directors 9
Opinion of Financial Advisor 9
Effect on CitNat Shareholders 9
Dissenters' Rights 9
Certain Federal Income Tax Consequences 9
Accounting Treatment 10
Effective Time of the Merger 10
Conditions to the Merger; Regulatory Approval 10
Dividends 10
Termination, Amendment and Waiver 11
Interests of Certain Persons in the Merger 11
Resales of Security Common Stock by Affiliates 11
Markets and Market Prices 11
Pending Acquisitions 13
Selected Financial Data 13
Comparative Per Share Data 19
MEETING INFORMATION 2
General 22
Date, Place and Time 22
Record Date 22
Votes Required 22
Voting and Revocation of Proxies 22
Solicitation of Proxies 23
PROPOSED MERGER 3
Background and Reasons for the Merger 23
Recommendation of the CitNat Board of Directors 24
Opinion of CitNat's Financial Advisor 24
Terms of the Merger 25
Effective Time of the Merger 1
Surrender of CitNat Certificates 27
Conditions to the Merger 28
Regulatory Approval 28
Conduct of Business Pending the Merger 29
Dividends 29
Termination, Amendment and Waiver 29
Termination Fee 30
Management and Operations After the Merger 30
Interests of Certain Persons in the Merger 31
Effect on Employee Benefit Plans 31
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2
<PAGE> 7
TABLE OF CONTENTS (CONTINUED)
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Certain Federal Income Tax Consequences 31
Accounting Treatment 32
Expenses 32
Resale of Security Common Stock 32
Dissenters' Rights 33
PRO FORMA FINANCIAL DATA 33
DESCRIPTION AND COMPARISON OF SECURITY COMMON STOCK 3
AND CITNAT COMMON STOCK
General 41
Dividends 43
Preemptive Rights 43
Voting 44
Cumulative Voting 44
Liquidation 44
Liability of Directors; Indemnification 44
Antitakeover Provisions 44
INFORMATION ABOUT SECURITY 45
General 45
Competition 45
Certain Regulatory Considerations 45
Principal Holder of Security Common Stock 51
Legal Proceedings 51
Pending Acquisitions 52
INFORMATION ABOUT CITNAT 52
General 52
Properties 52
Litigation 53
Voting, Principal Stockholders and Management Information 53
Certain Relationships and Related Transactions 54
Competition 54
Employees 54
CitNat's Financial Statements and Management's Discussion and Analysis of 45
Financial Condition and Results of Operations
LEGAL OPINIONS 61
EXPERTS 61
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3
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CTNAT FINANCIAL STATEMENTS AS OF DECEMBER 31, 1995, AND 1994
AND FOR EACH OF THE THREE YEARS ENDED DECEMBER 31, 1995 F-1
Report of Independent Auditors F-1
Consolidated Financial Statements F-2
Consolidated Balance Sheets F-2
Consolidated Statements of Income F-3
Consolidated Statements of Changes in Shareholders' Equity F-4
Consolidated Statements of Cash Flows F-5
Notes to Consolidated Financial Statements F-6
CITNAT INTERIM FINANCIAL STATEMENTS FOR AS OF AND FOR EACH
OF THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995 F-18
Consolidated Financial Statements F-18
Consolidated Balance Sheets F-18
Consolidated Statements of Income F-19
Consolidated Statements of Changes in Shareholders' Equity F-20
Consolidated Statements of Cash Flows F-21
Notes to Consolidated Financial Statements F-22
THIRD FINANCIAL CORPORATION FINANCIAL STATEMENTS AS OF
AND FOR EACH OF THE THREE YEARS ENDED SEPTEMBER 30, 1995 F-32
Report of Independent Auditors F-32
Consolidated Financial Statements F-33
Consolidated Balance Sheets F-34
Consolidated Statements of Income F-35
Consolidated Statements of Changes in Shareholders' Equity F-36
Consolidated Statements of Cash Flows F-37
Notes to Consolidated Financial Statements F-38
THIRD FINANCIAL CORPORATION INTERIM FINANCIAL STATEMENTS
AS OF AND FOR EACH OF THE THREE AND THE SIX-MONTHS
ENDED MARCH 31, 1996 AND 1995 F-60
Consolidated Financial Statements F-60
Consolidated Balance Sheets F-60
Consolidated Statements of Income F-61
Consolidated Statements of Changes in Shareholders' Equity F-62
Consolidated Statements of Cash Flows F-62
Notes to Consolidated Financial Statements F-65
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4
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TABLE OF CONTENTS (CONTINUED)
APPENDIX A
Merger Agreement dated March 14, 1996
APPENDIX B
Opinion of CitNat's Financial Advisor
APPENDIX C
Ohio Law on Dissenters' Rights
5
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NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION TO OR MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT-PROSPECTUS AND, IF GIVEN OR
MADE, THE INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROXY STATEMENT-PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO PURCHASE THE SECURITIES OFFERED HEREBY, OR THE
SOLICITATION OF A PROXY, IN ANY JURISDICTIONS OR TO OR FROM ANY PERSON TO WHOM
IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION OF AN OFFER OR PROXY IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROXY STATEMENT-PROSPECTUS NOR ANY
DISTRIBUTION OF THE SECURITIES TO WHICH THIS PROXY STATEMENT-PROSPECTUS RELATES
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF CITNAT OR SECURITY SINCE THE DATE OF THIS PROXY
STATEMENT-PROSPECTUS.
AVAILABLE INFORMATION
Security is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements, and other information with the
Securities and Exchange Commission (the "Commission"). The reports, proxy
statements and other information can be inspected and copied at the public
reference facilities of the Commission, Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the regional offices of the Commission located at
Room 1400, 75 Park Place, New York, New York 10007, and at Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
such materials can also be obtained from the public reference section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates.
Security has filed with the Commission a Registration Statement on Form
S-4 (together with any amendments thereto, the "Registration Statement") under
the Securities Act of 1933, as amended (the "Securities Act"), with respect to
the Security Common Stock to be issued pursuant to the Merger described herein.
This Proxy Statement-Prospectus does not contain all the information set forth
in the Registration Statement and the exhibits thereto, certain parts of which
are omitted in accordance with the rules and regulations of the Commission. Such
additional information may be obtained from the Commission's principal office in
Washington, D.C. Statements contained in this Proxy Statement-Prospectus or in
any document incorporated herein by reference as to the contents of any contract
or other document referred to herein or therein are not necessarily complete,
and in each instance where reference is made to the copy of such contract or
other document filed as an exhibit to the Registration Statement or other
document, each such statement is qualified in all respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
THIS PROXY STATEMENT-PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. DOCUMENTS RELATING TO
SECURITY, EXCLUDING EXHIBITS UNLESS SPECIFICALLY INCORPORATED THEREIN, ARE
AVAILABLE WITHOUT CHARGE UPON REQUEST TO J. WILLIAM STAPLETON, CHIEF FINANCIAL
OFFICER, SECURITY BANC CORPORATION, 40 LIMESTONE STREET, SPRINGFIELD, OHIO 45502
(TELEPHONE (513) 324-6846). TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY
REQUESTS SHOULD BE MADE PRIOR TO AUGUST 12, 1996.
The following documents previously filed with the Commission by
Security (Commission File No. 0-13655) are incorporated herein by reference:
(i) Security's Annual Report on Form 10-K for the year ended
December 31, 1995;
(ii) Security's Current Reports on Form 8-K dated March 29,
1996; and
(iii) Security's Quarterly Report on Form 10Q for the three
months ended March 31, 1996.
COMPLIANCE WITH THE OHIO CONTROL SHARE ACQUISITION STATUTE
Consummation of the proposed merger of CitNat with and into Security in
accordance with the terms of the Merger Agreement requires compliance with the
Ohio Control Share Acquisition Act (the "Acquisition Act") The Acquisition Act
requires the advance approval of the stockholders of an Issuing Public
Corporation prior to the purchase of a controlling interest in such corporation.
CitNat is an Issuing Public Corporation within the meaning of the Acquisition
Act and therefore the transactions contemplated by the Merger Agreement must be
approved under the Acquisition Act. A vote For the Merger will also constitute
an affirmative vote to approve the acquisition of 100% of the outstanding shares
of CitNat Common Stock by Security as required by the Acquisition Act.
6
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Presented below is Security's Acquiring Person Statement as required by the
Acquisition Act. Security submitted its Acquiring Person Statement to CitNat on
the date this Proxy Statement was first mailed to CitNat stockholders. Approval
under the Acquisition Act requires the favorable vote of a majority of the
shares entitled to vote in the election of directors as well as a majority vote
of such shares excluding any shares held by interested stockholders, which are
defined to include Security, any corporate officer of CitNat and any employee of
CitNat who is also a director of CitNat. In addition "interested shares" are
defined to include those acquired by any person after the first date of public
disclosure (March 15, 1996) of the Merger and prior to the date of the Special
Meeting, provided such person paid over $250,000 for such purchased shares or
such purchased shares represents greater than .05% of the outstanding shares of
the Issuing Public Corporation. As of the Record Date, Security owns no shares
of CitNat. Officers and employees of CitNat who are interested shareholders
within the meaning of the Acquisition Act owned 63,122 shares of CitNat. Neither
CitNat nor Security are aware of any other shares of CitNat Common Stock which
could be considered as held by an interested shareholder as defined by the
Acquisition Act. Therefore approval of the proposed acquisition of a controlling
interest in CitNat by Security under the provisions of the Acquisition Act
requires the affirmative vote of 195,060 shares which represents a majority of
the shares entitled to vote in the election of directors and 163,699 shares in
connection with the vote which excludes interested shares, as defined by the
Acquisition Act.
Security's Acquiring Person Statement under the Ohio Control Share
Acquisition Act.
1. The identity of the Acquiring Person is Security Banc
Corporation, Springfield, Ohio.
2. This Statement is given pursuant to ORC Section
1701.831(B).
3. Security owns no shares of CitNat Common Stock.
4. If the proposed Merger is consummated, Security will
acquire 100% of the voting power of CitNat Common Stock.
5. Security proposes to acquire CitNat in a merger transaction
pursuant to and in accordance with the provisions of ORC Section
1701.78 and the Merger Agreement. The Merger Agreement is
incorporated into this Acquiring Person Statement as if fully
restated herein.
6. The proposed control share acquisition, if consummated,
will not be contrary to law. The Proxy Statement-Prospectus in
which this Acquiring Person Statement appears sets forth the facts
upon which the forgoing statement is based and is incorporated by
reference into this Acquiring Person Statement as if fully
restated herein.
SUMMARY
The following summary is not intended to be a complete description of
the proposed Merger and is qualified in all respects by the more detailed
information contained in this Proxy Statement-Prospectus, the Exhibits hereto
and the documents incorporated by reference. As used in this Proxy
Statement-Prospectus, the terms Security and CitNat refer to such corporations,
respectively, and where the context requires, such corporations and their
respective subsidiaries on a consolidated basis. All information concerning
Security included in this Proxy Statement-Prospectus has been provided by
Security; all information concerning CitNat included in this Proxy
Statement-Prospectus has been provided by CitNat.
THE COMPANIES
Security Banc Corporation. Security, an Ohio corporation, is a one-bank
holding company organized under Ohio law in 1985. The principal asset of
Security is its investment in The Security National Bank & Trust Company
sometimes referred to herein as "Security Bank." Security's principal offices
are located at 40 S. Limestone, Springfield, Ohio 45502 (telephone (513)
324-6846. For additional information concerning Security see
7
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"INFORMATION ABOUT Security." Additional information concerning Security is
included in the Security documents incorporated herein by reference. See
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
Based on financial information as of March 31, 1996, upon completion of
the Merger Security will have approximately $677 million in consolidated assets
and approximately $92 million in consolidated equity capital on a pro forma
basis. See the pro forma financial information for the combined company under
"Pro Forma Financial Data." In addition, Security executed a definitive
Agreement and Plan of Reorganization to acquire Third Financial Corp., Piqua,
Ohio ("Third") on April, 22, 1996. Third is a savings and loan holding company
which has consolidated assets of $156 million as of March 31, 1996. See
"INFORMATION ABOUT Security - Pending Acquisitions."
CitNat Bancorp, Inc. CitNat, is a bank holding company organized under
Ohio law which owns all of the outstanding capital stock of The Citizens
National Bank of Urbana ("Citizens Bank"). Citizens Bank is a national banking
association . CitNat's main office is located at 1 Monument Square, Urbana, Ohio
43078 (telephone (513) 653-1216).
Based upon financial information as of March 31, 1996, CitNat had total
consolidated assets of approximately $135 million and total consolidated equity
of approximately $18 million.
PROPOSED MERGER
CitNat and Security have entered into a Merger Agreement (the
"Agreement"), dated as of March 14, 1996, providing, among other things, for the
merger of CitNat with and into Security (the "Merger"). See "The Proposed
Merger." Upon consummation of the Merger, all of the outstanding shares of
CitNat Common Stock will be converted into 2.1842437 shares of Security Common
Stock in accordance with the Exchange Ratio as defined in the Agreement and all
of the outstanding options to purchase shares of CitNat Common Stock will be
converted into the right to receive .7791283 shares of Security Common Stock as
set forth in the Agreement. The aggregate number of shares of Security Common
Stock issuable in the Merger is 908,072.
No fractional shares of Security Common Stock will be issued in the
Merger, and Security will pay cash, without interest, for any fractional share
interests resulting from the respective exchange ratios in accordance with the
terms of the Agreement. See "PROPOSED MERGER--Terms of the Merger." Each
outstanding share of Security Common Stock will not change by reason of the
Merger.
SPECIAL MEETING INFORMATION
CitNat Special Meeting The Special Meeting of CitNat's stockholders to
consider and vote on the Agreement (the "Special Meeting") will be held on
August 21, 1996 at 2:00 pm., local time, at The Urbana Country Club, 4761 East
Route 36, Urbana, Ohio 43078. Only holders of record of CitNat Common Stock
at the close of business on July 8, 1996 (the "Record Date") will be entitled
to vote at the Special Meeting. At the Record Date, there were outstanding and
entitled to vote 390,119 shares of CitNat Common Stock.
For additional information relating to the CitNat Special Meeting, see
"SPECIAL MEETING INFORMATION."
VOTE REQUIRED
CitNat. Approval of the Agreement by the CitNat stockholders requires
the affirmative vote, in person or by proxy, of the holders of record of at
least a majority of the outstanding shares of CitNat Common Stock. As of the
Record Date there were 390,119 shares of CitNat Common Stock outstanding and
therefore a vote of at least 195,060 shares is required to adopt the Agreement.
In addition, approval of the proposed acquisition of a controlling interest in
CitNat by Security under the provisions of the Acquisition Act requires the
affirmative vote of 195,060 shares which represents a majority of the shares
entitled to vote in the election of directors and 163,699
8
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shares in connection with the vote which excludes interested shares, as defined
by the Acquisition Act. Each share of CitNat Common Stock is entitled to one
vote.
As of the Record Date, directors and executive officers of CitNat and
their affiliates owned beneficially approximately 16.16% of the shares of CitNat
Common Stock outstanding on such date.
As of the Record Date, directors and executive officers of Security and
their affiliates did not own, beneficially, any shares of CitNat Common Stock.
Security. Adoption of the Agreement and approval of the issuance of
Security Common Stock in the Merger by Security stockholders is not required.
REASONS FOR THE MERGER; RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
The respective Boards of Directors of CitNat and Security have each
unanimously approved the Agreement. The Board of Directors of Security has also
authorized the issuance of a sufficient number of shares of Security Common
Stock in the Merger. Each Board believes that the Merger is in the best
interests of the stockholders and optionholders of its respective company. THE
BOARD OF DIRECTORS OF CITNAT UNANIMOUSLY RECOMMENDS A VOTE FOR THE AGREEMENT.
See "PROPOSED MERGER--Reasons for the Merger; Recommendations of the CitNat
Board of Directors," for a discussion of the factors considered by the
respective Boards in reaching their decisions to approve the Merger Agreement
and the transactions contemplated thereby.
OPINION OF FINANCIAL ADVISOR
CitNat's financial advisor, Professional Bank Services ("PBS"), has
rendered its opinion to the Board of Directors of CitNat to the effect that the
consideration to be received by the stockholders of CitNat upon consummation of
the CitNat Merger is fair and equitable, from a financial perspective, to the
holders of CitNat Common Stock. The opinion of PBS, which is attached as
Appendix B to this Proxy Statement-Prospectus, sets forth the assumptions made,
the information analyzed, and the limitations on the review undertaken in
rendering such opinion. See "PROPOSED MERGER--Opinion of CitNat's Financial
Advisor."
EFFECT ON CITNAT STOCKHOLDERS AND OPTIONHOLDERS
Each outstanding shares of CitNat Common Stock and each outstanding
option to purchase CitNat Common Stock on the effective date of the Merger will
be converted in the Merger into shares of Security Common Stock as provided for
in the Agreement, see "PROPOSED MERGER -- Terms of the Merger." Thereafter, the
rights of CitNat stockholders will be governed by Ohio law and the Articles of
Incorporation, as amended, and Bylaws of Security. See "COMPARISON OF
STOCKHOLDER RIGHTS."
DISSENTERS' RIGHTS
Pursuant to Ohio Law, stockholders of CitNat have appraisal rights and
can demand to be paid the fair cash value of their shares of CitNat Common Stock
if they comply with the procedures of Section 1701.85 of the Ohio General
Corporation Law (OGCL). The full text of Section 1701.85 of the OGCL is attached
to this Proxy Statement as Appendix C. See "PROPOSED MERGER--Dissenters'
Rights." Optionholders have no right to dissent and appraisal.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Merger is expected to qualify for federal income tax purposes as a
tax-free or tax-deferred reorganization. It is a condition to consummation of
the Merger that Security and CitNat each receive an opinion of counsel that the
Merger will qualify as a tax-free or tax-deferred reorganization. Werner & Blank
Co., L.P.A. special counsel to Security has issued such opinion for the benefit
of Security, CitNat and their respective stockholders. Such opinion will not be
binding on the Internal Revenue Service.
9
<PAGE> 14
Stockholders of CitNat will generally recognize no gain or loss for
federal income tax purposes on the exchange of their CitNat Common Stock for
Security Common Stock except to the extent they receive cash as a result of the
exercise of their statutory rights to dissent to the Merger and cash received in
exchange for any fractional share interest resulting from the Exchange Ratio.
See "PROPOSED MERGER - Certain Federal Income Tax Consequences."
CitNat optionholders will experience taxable ordinary income for
federal income tax purposes on the exchange of Security Common Stock for CitNat
options.
CITNAT STOCKHOLDERS SHOULD READ CAREFULLY THE DISCUSSION SET FORTH
UNDER "PROPOSED MERGER - CERTAIN FEDERAL INCOME TAX CONSEQUENCES" AND ARE URGED
TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC CONSEQUENCES TO THEM OF
THE MERGER UNDER FEDERAL, STATE, AND LOCAL AND ANY OTHER APPLICABLE TAX LAWS.
CITNAT OPTIONHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS
TO THE SPECIFIC CONSEQUENCES TO THEM OF THE MERGER UNDER FEDERAL, STATE, AND
LOCAL AND ANY OTHER APPLICABLE TAX LAWS.
ACCOUNTING TREATMENT
Security anticipates that the Merger will be accounted for as a pooling
of interests. See "PROPOSED MERGER - Accounting Treatment."
EFFECTIVE TIME OF THE MERGER
The Agreement provides that the Merger will take place not later than
the first business day of the first or second calendar month after receipt of
the following approvals relating to the Merger (depending upon when such
approvals are received and waiting periods expire): (i) by the Board of
Governors of the Federal Reserve System (the "Federal Reserve Board") and the
expiration of any required waiting periods following regulatory approval and
(ii) by the stockholders of CitNat, unless another time is agreed upon in
writing by the parties. Although there can be no assurance, the Merger is
expected to be consummated during the later part of the third quarter or early
part of the fourth quarter of 1996.
CONDITIONS TO THE MERGER; REGULATORY APPROVAL
The Merger is conditioned upon approval by the stockholders of CitNat,
the receipt of all required regulatory approvals and upon satisfaction of other
terms and conditions, including receipt of assurance that the Merger will
constitute tax-free or tax-deferred reorganization and qualify as a pooling of
interests for accounting purposes. See "PROPOSED MERGER-Conditions to the
Merger."
Security prepared applications and submitted them for filing with the
Federal Reserve Board under the provisions of the Federal Bank Holding Company
Act on April 18, 1996. The application was accepted for filing on May 2, 1996.
On May 30, 1996, the Federal Reserve Board approved the application. See
"PROPOSED MERGER - Regulatory Approval."
DIVIDENDS
Under the Agreement, CitNat is allowed to declare a semi-annual cash
dividend at the rate of $0.45 in July of 1996. The Agreement also provides that
CitNat may pay an additional cash dividend in the amount of $0.45 if the Merger
has not consummated prior to the record date for Security's normal cash dividend
paid in December of each year. See "PROPOSED MERGER -Dividends."
10
<PAGE> 15
TERMINATION, AMENDMENT AND WAIVER
The Merger may be terminated, among other reasons, (i) by mutual
consent of the Boards of Directors of Security and CitNat at any time before the
Merger takes place, or (ii) by either Security or CitNat if (a) the Merger has
not taken place by December 31, 1996, (b) Security does not receive all required
regulatory approvals relating to the Merger, (c) any suit, action or proceeding
is pending or overtly threatened seeking to prevent or inhibit the Merger, (d)
if any warranty or representation made by the other party is discovered to have
been untrue in any material respect, or (e) the other party commits one or more
material breaches of the Agreement. See "PROPOSED MERGER - Termination,
Amendment and Waiver."
Security and CitNat may amend, modify or waive certain terms and
conditions of the Agreement. See "PROPOSED MERGER - Termination, Amendment and
Waiver."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In the Agreement, Security has agreed to cause James R. Wilson, Chief
Executive Officer and a Director of CitNat, to be appointed and elected as a
Director of Security.
Security has also agreed to assume and maintain the nonqualified
deferred compensation plan of CitNat maintained for the benefit of Mr. Wilson.
(See "PROPOSED MERGER--Interest of Certain Persons in the Merger.")
CitNat Optionholders are, pursuant to the terms of the Agreement,
entitled to recieve shares of Security Common Stock at the rate of .7791283
shares of Security Common Stock for each option held by them to purchase one
share of CitNat Common Stock. All Optionholders have agreed to extinguish their
options to purchase CitNat Common Stock in exchange for Shares of Security
Common Stock as provided for in the Agreement. The exchange ratio of Security
Common Stock for options to purchase CitNat Common Stock was determined by
reference to the market value of the Exchange Ratio less the option price.
RESALES OF SECURITY COMMON STOCK BY AFFILIATES
No restrictions on the sale or transfer of the shares of Security
Common Stock issued pursuant to the Merger will be imposed solely as a result of
the Merger, other than restrictions on the transfer of such shares issued to any
CitNat stockholder who may be deemed to be an "affiliate" of CitNat for purposes
of Rule 145 under the Securities Act. Directors, executive officers and 10%
stockholders are generally deemed to be affiliates for purposes of Rule 145.
Resales of Security Common Stock issued to "affiliates" of CitNat have
not been registered under applicable securities laws in connection with the
Merger. Such shares may only be sold (a) under a separate registration by the
affiliates for distribution (which Security has not agreed to provide), (b)
pursuant to Rule 145 under the Securities Act, or (c) pursuant to another
exemption from registration requirements under the Securities Act. For Security
to be able to account for the Merger as a pooling of interests, pursuant to
Commission requirements, certain additional restrictions will be placed on
affiliates of CitNat with respect to dispositions of Security Common Stock and
CitNat Common Stock during the period beginning 30 days before the Merger and
ending when the results for 30 days of post-merger combined operations have been
published.
MARKETS AND MARKET PRICES
CitNat
CitNat's Common Stock is not traded on any exchange nor in the over the
counter market. There are infrequent and sporadic transactions in CitNat Common
Stock. The last trade of which management of CitNat is aware took place on
January 20, 1996 involving 390 shares at a transaction price of $45 per shares.
11
<PAGE> 16
Security Markets and Market Prices and Equivalent Per Share Data
Shares of Security Common Stock are not traded on any exchange. There
are infrequent and sporadic transactions in Security Common Stock. Several
regional brokerage firms do handle requests to conduct transactions in Security
Common Stock. These brokers are not market makers. The following table sets
forth the last reported sale price per share of Security Common Stock on the
dates indicated.
The equivalent per share price of CitNat Common Stock at each specified
date represents the last reported sale price per share of Security Common Stock
on such date multiplied by the Exchange Ratio of 2.1842437 shares of Security
for each share of CitNat.
12
<PAGE> 17
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Equivalent Per Share Information
--------------------------------
Security CitNat
Market Value Per Share At: Common Stock Common Stock
-------------------------- ------------ ------------
Per Share ($) Equivalent
------------- ----------
Per share ($)
-------------
<S> <C> <C>
March 31, 1993 20.50 44.78
June 30, 1993 21.25 46.42
September 30, 1993 21.50 46.96
December 31, 1993 22.00 48.05
March 31, 1994 22.00 48.05
June 30, 1994 22.88 49.98
September 30, 1994 23.00 50.24
December 31, 1994 24.00 52.42
March 31, 1995 25.38 55.44
June 30, 1995 26.25 57.34
September 30, 1995 27.25 59.52
December 31, 1995 28.50 62.25
March 31, 1996 31.00 67.71
- ----------------------------------------------------------------------------------------------------
</TABLE>
On March 14, 1996, the date immediately preceding the public
announcement of the Merger, the reported last sales price of Security Common
Stock was $30.75 per share. There were no reported sales of CitNat Common Stock
on that date. No assurance can be given as to the market price of Security
Common Stock or CitNat Common Stock at or, in the case of Security Common Stock,
after the Effective Time of the Merger.
On March 14, 1996 there were approximately 1,205 holders of record of
Security Common Stock and 344 holders of record of CitNat Common Stock.
PENDING ACQUISITIONS
On April 22, 1996, Security executed a definitive Agreement and Plan of
Reorganization with Third Financial Corp., Piqua, Ohio ("Third" and the "Third
Agreement"). Pursuant to the terms of the Third Agreement, stockholders of Third
will exchange all of the outstanding shares of Third Common Stock on the
effective date of the acquisition of Third by Security (the "Third Merger") for
$40,050,000, in cash, in the aggregate, subject to adjustment. Third is a
Delaware corporation and is a savings and loan holding company which owns as its
principal asset all of the outstanding capital stock of Third Savings and Loan
Association, Piqua, Ohio. The Third Merger will be accounted for as a purchase
under the provisions of Accounting Principles Bulletin 16 and is expected to be
completed in the fourth quarter of 1996.
SELECTED FINANCIAL DATA
The following unaudited tables present selected historical financial
information and selected pro forma combined financial information for Security
and CitNat. This information should be read in conjunction with the historical
and pro forma financial statements and notes thereto included elsewhere in or
incorporated by reference to this Prospectus-Proxy Statement. The pro forma
combined financial information gives effect to the Merger. The pro forma
combined financial information may not be indicative of the results that
actually would have occurred if the Merger had been in effect on the dates
indicated or which may be attained in the future. The pro forma combined
financial information has been prepared on the assumption that the Merger will
be accounted for under the pooling of interests method of accounting and also
sets forth information regarding the Third Merger.
13
<PAGE> 18
SELECTED FINANCIAL DATA
HISTORICAL
SECURITY BANC CORPORATION
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 3 MONTHS ENDED
1991 1992 1993 1994 1995 3/31/95 3/31/96
---- ---- ---- ---- ---- ------- -------
SECURITY BANC CORPORATION
<S> <C> <C> <C> <C> <C> <C> <C>
(Historical)
Income Statement Data:
Net Interest Income $16,894 $20,605 $22,105 $23,882 $25,551 $6,097 $6,125
Provision for Loan Losses 700 1,100 900 800 800 200 200
Noninterest Income 3,297 3,283 3,588 4,161 4,328 1,008 1,080
Invest Sec Gains 1,552 554 714 316 10 0 358
Noninterest Expense 11,056 11,715 12,848 13,234 13,488 3,337 3,360
Provision for Income Tax 1,889 2,707 3,094 4,021 4,519 996 1,157
----- ----- ----- ----- ----- ---- -----
Net Income 8,098 8,920 9,565 10,304 11,082 2,572 2,846
Balance Sheet Data (period end):
Assets $447,330 $465,191 $502,424 $520,981 $535,975 $510,519 $542,012
Deposits 369,879 389,671 419,682 426,767 436,256 420,531 437,328
Loans, Net 237,963 259,333 276,404 310,505 310,834 314,270 314,366
Long-term Debt 0 0 0 0 0 0 0
Shareholders' Equity 44,678 51,077 57,925 64,196 72,786 66,595 74,147
Capital Ratios:
Equity to Assets Ratio 9.99% 10.98% 11.53% 12.32% 13.58% 13.04% 13.68%
Tier 1 Risk-based Capital Ratio 16.98% 18.59% 20.12% 19.69% 20.91% 20.16% 21.56%
Total Risk-based Capital Ratio 18.08% 19.70% 21.23% 20.77% 21.99% 21.28% 22.67%
Other Ratio:
Allowance for Loan Losses to
Underperforming Loans 97.13% 198.81% 138.80% 112.46% 90.14% 83.82% 58.57%
Allowance for Loan Losses $2,779 $3,010 $3,162 $3,546 $3,741 $3,715 $3,828
*Underperforming Loans 2,861 1,514 2,278 3153 4,150 4,432 6,535
</TABLE>
*Loans past due 90 days plus loans on nonaccrual
14
<PAGE> 19
SELECTED FINANCIAL DATA
HISTORICAL
CITNAT BANCORP, INC.
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 3 MONTHS ENDED
1991 1992 1993 1994 1995 3/31/95 3/31/96
---- ---- ---- ---- ---- ------- -------
CITNAT BANCORP, INC.
<S> <C> <C> <C> <C> <C> <C> <C>
(Historical)
Income Statement Data:
Net Interest Income $4,643 $5,011 $5,391 $5,866 $6,152 $1,552 $1,555
Provision for Loan Losses 151 99 150 44 150 38 38
Noninterest Income 776 765 849 878 872 204 271
Invest Sec Gains 0 1 3 0 0 0 0
Noninterest Expense 3,769 4,000 4,282 4,646 4,591 1,186 1,186
Provision for Income Taxes 440 467 511 582 658 152 176
---- ---- --- --- ---- --- ---
Net Income 1,059 1,211 1,300 1,472 1,625 380 426
Balance Sheet Data (period end):
Assets $111,729 $122,679 $129,352 $126,731 $140,131 $130,075 $135,031
Deposits 95,192 108,174 113,458 109,131 119,588 111,607 114,688
Loans, Net 52,330 58,386 68,657 79,391 80,400 80,270 78,622
Long-term Debt 0 0 0 0 0 0 0
Shareholders' Equity 12,350 12,941 14,381 15,306 17,451 15,990 17,704
Capital Ratios:
Equity to Assets Ratio 11.05% 10.55% 11.12% 12.08% 12.45% 12.29% 13.11%
Tier 1 Risk-based Capital Ratio 20.61% 20.55% 19.99% 19.98% 20.91% 19.72% 22.23%
Total Risk-based Capital Ratio 21.87% 21.81% 21.25% 21.24% 22.17% 20.98% 23.50%
Other Ratio:
Allowance for Loan Losses to
Underperforming Loans 1736.11% 5652.17% 595.05% 25916.67% 450.56% 200.88% 815.20%
Allowance for Loan Losses $1,250 $1,300 $1,202 $1,555 $1,595 $1,591 $1,663
Underperforming Loans 72 23 202 6 354 792 204
</TABLE>
15
<PAGE> 20
SELECTED FINANCIAL DATA
HISTORICAL
THIRD FINANCIAL CORPORATION
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADJUSTED FOR CALENDAR YEAR
*YEAR ENDED SEPTEMBER 30, 3 MONTHS ENDED 12 MONTHS ENDED
1991 1992 1993 1994 1995 3/31/95 3/31/96 12/31/95
---- ---- ---- ---- ---- ------- ------- --------
THIRD FINANCIAL CORPORATION
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(Historical)
Income Statement Data:
Net Interest Income $4,339 $5,303 $6,101 $6,277 $6,258 $1,475 $1,680 $6,366
Provision for Loan Losses 1,098 1,365 179 (309) (75) (15) 0 (51)
Noninterest Income 676 357 462 436 461 106 173 505
Noninterest Expense 2,861 2,864 3,460 3,731 3,725 873 1,071 3,679
Provision for Income Taxes 430 735 950 1,119 1,044 240 266 1,132
Change in Acct Principle ** 0 0 0 600 0 0 0 0
- - - ---- -- - - -
Net Income 626 696 1,974 2,772 2,025 483 516 2,111
Balance Sheet Data (period end):
Assets $121,364 $127,009 $136,469 $143,940 $153,080 $147,225 $155,687 $156,981
Deposits 104,816 111,952 107,806 106,054 110,510 108,540 114,506 111,245
Loans, Net 98,783 93,687 97,393 116,935 125,268 122,002 126,192 127,513
Long-term Debt 0 2,530 2,199 8,171 9,653 9,071 7,018 7,076
Shareholders' Equity *** 11,262 11,958 24,377 25,627 27,265 26,313 28,257 27,821
Capital Ratios:
Equity to Assets Ratio 9.16% 9.35% 13.79% 18.08% 17.81% 17.87% 18.15% 17.72%
Tier 1 Risk-based Capital Ratio n/a n/a n/a 19.20% 17.40% 19.20% 18.48% 17.47%
Total Risk-based Capital Ratio 14.60% 15.80% 21.50% 20.50% 18.50% 20.40% 19.60% 18.60%
Other Ratio:
Allowance for Loan Losses to
Underperforming Loans 31.08% 144.35% 60.48% 88.46% 252.53% 330.73% 66.78% 304.80%
Allowance for Loan Losses $959 $2,044 $1,664 $1,227 $1,197 $1,227 $1,182 $1,207
Underperforming Loans 3,086 1,416 2,751 1,387 474 371 1,770 396
</TABLE>
*Financial Information as of September 30
**1994 statements reflect the cumulative effect of adopting SFAS No. 109,
Accounting for Income Taxes
***On March 25, 1993 Third completed a conversion from a mutual to stock form of
ownership, resulting in raising net capital proceeds of $11.8 million
16
<PAGE> 21
SELECTED FINANCIAL DATA
PRO FORMA COMBINED
SECURITY BANC CORPORATION AND CITNAT BANCORP, INC
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 3 MONTHS ENDED
1991 1992 1993 1994 1995 3/31/95 3/31/96
---- ---- ---- ---- ---- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
SECURITY BANC CORPORATION
AND CITNAT BANCORP, INC. (Pro Forma Combined)
Income Statement Data:
Net Interest Income $21,537 $25,616 $27,496 $29,748 $31,703 $7,649 $7,680
Provision for Loan Losses 851 1,199 1,050 844 950 238 238
Noninterest Income 4,073 4,048 4,437 5,039 5,200 1,212 1,351
Invest Sec Gains 1,552 555 717 316 10 0 358
Noninterest Expense 14,825 15,715 17,130 17,880 18,079 4,523 4,546
Provision for Income Tax 2,329 3,174 3,605 4,603 5,177 1,148 1,333
Change in Acct Principle 0 0 0 0 0 0 0
-- -- -- -- -- -- -
Net Income 9,157 10,131 10,865 11,776 12,707 2,952 3,272
Balance Sheet Data (period end):
Assets $559,059 $587,870 $631,776 $647,712 $676,106 $640,594 $677,043
Deposits 465,071 497,845 533,140 535,898 555,844 532,138 552,016
Loans, Net 290,293 317,719 345,061 389,896 391,234 394,540 392,988
Long-term Debt 0 0 0 0 0 0 0
Shareholders' Equity 57,028 64,018 72,306 79,502 90,237 82,585 91,851
Capital Ratios:
Equity to Assets Ratio 10.20% 10.89% 11.44% 12.27% 13.35% 12.89% 13.57%
Tier 1 Risk-based Capital Ratio 17.71% 19.00% 20.09% 19.75% 20.91% 20.07% 21.69%
Total Risk-based Capital Ratio 18.84% 20.14% 21.23% 20.86% 22.03% 21.22% 22.84%
Other Ratio:
Allowance for Loan Losses to
Underperforming Loans 137.37% 280.42% 175.97% 161.48% 118.47% 101.57% 81.48%
Allowance for Loan Losses $4,029 $4,310 $4,364 $5,101 $5,336 $5,306 $5,491
Underperforming Loans 2,933 1,537 2,480 3,159 4,504 5,224 6,739
</TABLE>
17
<PAGE> 22
SELECTED FINANCIAL DATA
PRO FORMA COMBINED
SECURITY BANC CORPORATION, CITNAT BANCORP, INC. AND THIRD FINANCIAL CORP.
(IN THOUSANDS)
<TABLE>
<CAPTION>
SECURITY BANC CORPORATION YEAR ENDED 3 MONTHS ENDED
CITNAT BANCORP, INC. AND THIRD DECEMBER 31, 1995 MARCH 31, 1996
FINANCIAL CORP. (Pro Forma Combined)
<S> <C> <C>
Net Interest Income $35,066 $8,609
Provision for Loan Losses 899 238
Noninterest Income 5,705 1,524
Invest Sec Gains 10 358
Noninterest Expense 22,333 5,761
Provision for Income Tax 5,288 1,344
Change in Acct Principle 0 0
-- -
Net Income 12,261 3,149
Balance Sheet Data (period end):
Assets 835,266 834,472
Deposits $667,089 $666,522
Loans, Net 518,747 519,180
Long-term Debt 37,076 37,018
Shareholders' Equity 90,237 91,851
Capital Ratios:
Equity to Assets Ratio 10.80% 11.01%
Tier 1 Risk-based Capital Ratio 14.94% 15.58%
Total Risk-based Capital Ratio 15.96% 16.65%
Other Ratio:
Allowance for Loan Losses to
Underperforming Loans 133.53% 78.42%
Allowance for Loan Losses $6,543 $6,673
Underperforming Loans 4,900 8,509
</TABLE>
18
<PAGE> 23
COMPARATIVE PER SHARE DATA
The following unaudited table sets forth certain unaudited historical
and pro forma combined per common share information for Security, and certain
historical and equivalent pro forma combined per common share information for
CitNat. The data is derived from financial statements of Security and CitNat
incorporated by reference or included elsewhere in this Prospectus and Proxy
Statement. The pro forma combined per share information for Security and the
equivalent pro forma combined per share information for CitNat are stated as if
CitNat had always been affiliated with Security, giving effect to the proposed
transaction under the pooling of interests method of accounting and assume a
conversion ratio of Security Common Stock for CitNat Common Stock of 2.1842437:1
and CitNat Options for Security Common Stock at the rate of .7791283:1. In
addition to the historical information presented for Third, information prepared
by Security is presented on a pro forma basis for the most recent period
presented reflecting the effect of the acquisition of Third and the accounting
of such as a purchase. The information presented below has been restated to
reflect stock dividends and stock splits.
19
<PAGE> 24
SELECTED FINANCIAL DATA
PER SHARE DATA
HISTORICAL FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 3 MONTHS ENDED
1991 1992 1993 1994 1995 3/31/95 3/31/96
---- ---- ---- ---- ---- ------- -------
HISTORICAL PER SHARE DATA
<S> <C> <C> <C> <C> <C> <C> <C>
Security Banc Corporation (Security)
Net Income per Common Share $1.62 $1.78 $1.89 $2.03 $2.17 $0.51 $0.56
Cash Dividends Paid per Common Share 0.49 0.54 0.60 0.66 0.73 0.17 0.19
Book Value per Common Share (at period 8.92 10.16 11.43 12.59 14.25 13.05 14.52
end)
*CitNat Bancorp, Inc. (CitNat)
Net Income per Common Share $2.70 $3.16 $3.38 $3.71 $4.08 $0.95 $1.07
Cash Dividends Paid per Common Share 0.64 0.73 0.73 *0 *0 0.00 0.00
Book Value per Common Share (at period 34.40 37.05 38.06 39.74 44.69 41.51 45.38
end)
**Third Financial Corporation (Third)
Net Income per Common Share*** N/A N/A $0.88 $2.21 $1.71 $0.41 $0.43
Cash Dividends Paid per Common Share N/A N/A 0.075 0.39 0.515 0.125 0.17
Book Value per Common Share (at period N/A N/A 19.25 22.17 24.13 23.26 24.88
end)
</TABLE>
*1% stock dividend paid in June and December in lieu of cash dividends.
Fractional shares paid in cash.
**Third's year ended data as of September 30
***1993 results are for the period beginning with 3/25/93, the date of
conversion and ending 9/30/93. 1994 results include the cumulative effect of
adopting SFAS No. 109, Accounting for Income Taxes of $600 M.
20
<PAGE> 25
SELECTED FINANCIAL DATA
PER SHARE DATA
PRO FORMA FINANCIAL INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 3 MONTHS ENDED
Pro Forma Combined, Security and CitNat per 1991 1992 1993 1994 1995 3/31/95 3/31/96
---- ---- ---- ---- ---- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Security Share
Net Income per Common Share $1.55 $1.71 $1.82 $1.96 $2.11 $0.49 $0.54
Cash Dividends Paid per Common Share 0.49 0.54 0.60 0.66 0.73 0.17 0.19
Book Value per Common Share (at period end) 9.64 10.78 12.10 13.23 15.00 13.74 15.27
*Equivalent Pro Forma Combined, Security, and
CitNat per CitNat Share
Net Income per Common Share $3.59 $4.06 $4.30 $4.49 $4.81 $1.12 $1.24
Cash Dividends Paid per Common Share 1.13 1.28 1.42 1.51 1.66 0.39 0.43
Book Value per Common Share (at period end) 24.38 28.03 29.07 31.19 34.89 32.39 35.54
**Pro Forma Combined, Security, CitNat and Third
per Security Share
Net Income per Common Share N.A. N.A. N.A. N.A. $2.04 N.A. $0.52
Cash Dividends Paid per Common Share N.A. N.A. N.A. N.A. 0.73 N.A. 0.19
Book Value per Common Share (at period end) N.A. N.A. N.A. N.A. 15.00 N.A. 15.27
</TABLE>
*All pro forma per share figures are based upon the issuance of 908,072 shares
in connection with the CitNat merger.
**The acquisition of Third is accounted for as a purchase. Presentation of prior
periods is not required.
21
<PAGE> 26
MEETING INFORMATION
GENERAL
This Proxy Statement-Prospectus is being furnished to holders of
CitNat Common Stock in connection with the solicitation of proxies by the Board
of Directors of CitNat for use at the Special Meeting to consider and vote upon
the adoption of the Agreement and to transact such other business as may
properly come before the Special Meeting or any adjournments or postponements
thereof. Each copy of this Proxy Statement-Prospectus mailed to the holders of
CitNat Common Stock is accompanied by a form of Proxy for use at the Special
Meeting.
This Proxy Statement-Prospectus is also furnished by Security to CitNat
stockholders as a Prospectus in connection with the issuance by Security of
shares of Security Common Stock upon consummation of the Merger in accordance
with the Agreement. This Proxy Statement-Prospectus, the attached Notice, and
the form of Proxy enclosed herewith are first being mailed to stockholders of
CitNat on or about July 23, 1996.
DATE, PLACE AND TIME
The CitNat Special Meeting: The Special Meeting will be held
at The Urbana Country Club, 4761 East Route 36, Urbana, Ohio 43078, at
2:00 PM on August 21, 1996.
RECORD DATE
CitNat. The Board of Directors of CitNat has fixed the close of
business on July 8, 1996, as the Record Date for the determination of the
holders of CitNat Common Stock entitled to receive notice of and to vote at the
Special Meeting.
VOTES REQUIRED
CitNat. As of the Record Date, there were 390,119 shares of CitNat
Common Stock outstanding. Holders of CitNat Common Stock are entitled to one
vote per share. Under applicable provisions of Ohio Law and the Amended and
Restated Articles of Incorporation of CitNat, the affirmative vote of at least a
majority of the outstanding shares of CitNat Common Stock is required to approve
the Agreement. In addition, approval of the proposed acquisition of a
controlling interest in CitNat by Security under the provisions of the
Acquisition Act requires the affirmative vote of 195,060 shares which represents
a majority of the shares entitled to vote in the election of directors and
163,699 shares in connection with the vote which excludes interested shares, as
defined by the Acquisition Act. Each share of CitNat Common Stock is entitled to
one vote.
As of the Record Date, directors and executive officers of CitNat and
their affiliates owned beneficially an aggregate of 63,122 shares of CitNat
Common Stock or approximately 16.16% of the shares of CitNat Common Stock
outstanding on such date. As of the Record Date, directors and executive
officers of CitNat beneficially owned less than 1% of Security Common Stock.
As of the Record Date, there were options outstanding to purchase
71,820 shares of CitNat Common Stock. These options are held by executive
officers and directors of CitNat and were granted to them under the terms of
CitNat's Incentive Stock Option Plan. Optionholders have agreed that they will
not exercise their options for shares of CitNat Common Stock prior to the
effective time of the Merger. Pursuant to the terms of the Agreement each option
to purchase one share of CitNat Common Stock which is outstanding at the
effective time of the Merger will be converted into the right to receive
.7791283 share of Security Common Stock.
VOTING AND REVOCATION OF PROXIES
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Shares of CitNat Common Stock represented by a proxy properly signed
and received on or prior to the Special Meeting, unless subsequently revoked,
will be voted in accordance with the instructions thereon. IF A PROXY IS SIGNED
AND RETURNED WITHOUT INDICATING ANY VOTING INSTRUCTIONS, SHARES OF CITNAT COMMON
STOCK REPRESENTED BY SUCH A PROXY WILL BE VOTED FOR THE AGREEMENT. Any proxy
given pursuant to this solicitation may be revoked by the person giving it at
any time before the proxy is voted by the filing of an instrument revoking it or
of a duly executed proxy bearing a later date with the Secretary for CitNat
prior to or at the Special Meeting, or by voting in person at the Special
Meeting. Attendance at the Special Meetings will not in and of itself constitute
a revocation of a proxy.
The Board of Directors of CitNat is not aware of any business to be
acted upon at the Special Meeting other than as described herein. If, however,
other matters properly come before the Special Meeting, or any adjournments or
postponements thereof, the person(s) appointed as proxies will have discretion
to vote or act thereon according to their best judgment.
Ohio law affords dissenters' rights to holders of CitNat Common Stock
in connection with the Merger. For additional information regarding dissenters'
rights see "PROPOSED MERGER -Dissenters' Rights".
SOLICITATION OF PROXIES
In addition to solicitation by mail, directors, officers and employees
of CitNat who will not be specifically compensated for such services, may
solicit proxies from the stockholders of CitNat personally or by telephone or
telegram or other forms of communication. Brokerage houses, nominees,
fiduciaries, and other custodians will be requested to forward soliciting
materials to beneficial owners and will be reimbursed for the reasonable
expenses incurred in doing so.
It is not anticipated that anyone will be specially engaged to solicit
proxies or that special compensation will be paid for that purpose. CitNat
reserves the right to do so should it conclude that such efforts are needed.
CitNat will bear its own expenses in connection with the solicitation of proxies
for its Special Meeting. See "PROPOSED MERGER -- Expenses."
HOLDERS OF CITNAT COMMON STOCK ARE REQUESTED TO COMPLETE, DATE AND SIGN THE
ACCOMPANYING PROXY AND RETURN IT PROMPTLY TO CITNAT IN THE ENCLOSED POSTAGE-
PREPAID ENVELOPE.
PROPOSED MERGER
This section of the Proxy Statement-Prospectus describes certain
aspects of the proposed Merger. The following description does not purport to be
complete and is qualified in its entirety by reference to the Agreement which is
attached as Exhibit A to this Proxy Statement-Prospectus and is incorporated
herein by reference.
BACKGROUND AND REASONS FOR THE MERGER
CitNat. On December 28, 1995, the management of CitNat met to discuss
an indication of interest received from Security with respect to a possible
merger transaction (the "Merger"). At that time the the Board of Directors
authorized CitNat's management to pursue preliminary discussions with Security
with a view to obtaining information regarding the Merger
In February of 1996 the Board of Directors of CitNat engaged
Professional Bank Services, Louisville, Kentucky, ("PBS") as their financial
advisor to provide an opinion to CitNat as to the fairness of the transaction
to the stockholders of CitNat from a financial standpoint, and also to conduct
a due diligence review of Security. During the following weeks, CitNat and
Security and their respective financial and legal advisors engaged
intermittently in negotiations concerning the terms of the Merger and each of
Security and CitNat performed due diligence reviews of the other.
On February 20, 1996, CitNat's Board of Directors met to consider the
proposed terms of the Merger. This Meeting included a presentation by PBS and
CitNat's legal advisor, which included summaries of financial and
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valuation analyses, the terms of the proposed acquisition, regulatory and
accounting matters, the due diligence findings of CitNat's management and
advisors, and PBS's oral opinion relating to the fairness of the Merger to the
stockholders of CitNat from a financial perspective. At the conclusion of this
meeting, the Board of Directors of CitNat authorized CitNat's management to
continue to negotiate the terms of a definitive agreement with Security.
On March 12, 1996, CitNat's Board of Directors again met with PBS and
CitNat's legal advisors to discuss and review the proposed terms of the Merger.
At the Special Meeting PBS presented and discussed its written Fairness Opinion
with the Board of Directors.
On March 13, 1996, CitNat's Board of Directors unanimously approved the
Merger in an action in writing without a meeting based upon the following
factors: (1) PBS's opinion that the terms of the Merger are fair to the
stockholders of CitNat from a financial perspective; (2) the overall financial
terms of the Merger; (3) Security's representations with respect to the
operation of CitNat and Citizens Bank after the Merger; (4) the short-term and
long-term prospects of CitNat; (5) current long-term industry developments and
trends; (6) competitive factors and (7) considerations concerning the CitNat
employees and employees of Citzens Bank.
Security. The Board of Directors of Security has concluded that the
Merger would be in the best interests of Security and its stockholders. Numerous
factors were considered by the Board of Directors of Security in approving and
recommending the terms of the Merger. These factors included information
concerning the financial condition, results of operations, and prospects of
Security and CitNat; the capital adequacy of the resulting entity; the
composition of the businesses of the two organizations in the rapidly changing
banking and financial services industry; the historical and current market
prices of each company's stock and of certain other bank holding companies whose
securities are publicly traded; the relationship of the consideration to be paid
in the Merger to such market prices and to the book value and earnings per share
of CitNat and the financial terms of certain other recent business combinations
in the banking industry. In addition the Board of Directors considered the
advise of its financial advisor, Austin Associates, Inc.
The Board of Directors of Security believes that combining with CitNat
which has established banking operations in Urbana, Ohio is a natural and
desirable extension of Security's market area. The Board of Directors of
Security also believes that the consolidation of resources by reason of the
Merger will enable the resulting organization to provide a wider and improved
array of financial services to customers and to achieve added flexibility in
dealing with the changing competitive environment in the financial services
industry.
RECOMMENDATION OF THE CITNAT BOARD OF DIRECTORS
THE BOARD OF DIRECTORS OF CITNAT UNANIMOUSLY RECOMMENDS THAT THE
STOCKHOLDERS OF CITNAT VOTE FOR APPROVAL OF THE AGREEMENT.
OPINION OF CITNAT'S FINANCIAL ADVISOR
Professional Bank Services, Inc. ("PBS") was engaged by CitNat to
advise the CitNat Board of Directors as to the fairness of the consideration,
from a financial perspective, to be paid by Security to CitNat shareholders as
set forth in the Agreement. PBS is a bank consulting firm with offices in
Louisville, Nashville, Indianapolis, Washington, D.C., and Ocala, Florida. As
part of its investment banking business, PBS is regularly engaged in reviewing
the fairness of financial institution acquisition transactions from a financial
perspective and in the valuation of financial institutions and other businesses
and their securities in connection with mergers, acquisitions, estate
settlements. and other transactions. Neither PBS nor any of its affiliates has a
material financial interest in CitNat or Security. PBS was selected to advise
the CitNat Board of Directors based upon PBS's familiarity with Ohio financial
institutions and knowledge of the banking industry as a whole.
PBS performed certain analyses described herein and discussed the range
of values for CitNat resulting from such analyses with the Board of Directors of
CitNat in connection with its advice as to the fairness of the consideration to
be paid by Security. Based on the results of the various analyses described
above, PBS concluded that the consideration to be received by CitNat
Shareholders under the Agreement is fair and equitable from a financial
perspective to the Shareholders of CitNat.
As previously stated, the Fairness Opinion of PBS was delivered to
the Board of Directors of CitNat on March 12, 1996, at a special meeting of
the Board of Directors.
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In arriving at its Fairness Opinion, PBS reviewed certain publicly
available business and financial information relating to CitNat and Security.
PBS considered certain financial and stock market data of CitNat and Security,
compared that data with similar data for certain other publicly-held bank
holding companies and considered the financial terms of certain other comparable
bank transactions in the states of Ohio, Indiana and Kentucky ("Midwest Region")
that had recently been effected. PBS also considered such other information,
financial studies, analyses and investigations and financial, economic and
market criteria that it deemed relevant. In connection with its review, PBS did
not independently verify the foregoing information and relied on such
information as being complete and accurate in all material respects. Financial
forecasts prepared by PBS were based on assumptions believed by PBS to be
reasonable and to reflect currently available information. PBS did not make an
independent evaluation or appraisal of the assets of CitNat or Security.
As part of preparing the fairness opinion, PBS performed a due
diligence review of Security and its affiliate bank, Security National Bank,
Springfield, Ohio (the "Bank"). As part of the due diligence, PBS reviewed
minutes of Security's and the Bank's Board of Directors meetings; reports filed
with the Securities and Exchange Commission by Security on Forms 10-K and 10-Q
for the year ending December 31, 1994 and quarter ending September 30, 1995;
reports of independent auditors for the years ending December 31, 1994 and 1995;
1994 and 1995 Office of the Comptroller of the Currency ("OCC") and Federal
Reserve Reports of Examination; Uniform Bank Performance Reports; investment
security holdings; listing of pending litigation provided by independent
counsel; analysis and calculation of the allowance for loan and lease losses as
of December 31, 1995; and internally identified special assets and related
reports as of December 31, 1995.
PBS also interviewed senior management, external auditors and general
counsel of Security regarding operations, performance and the future prospects
of Security. PBS compared the historical common stock market activity of
selected financial institutions headquartered in Ohio to Security.
PBS reviewed and analyzed the historical performance of CitNat and its
wholly owned subsidiary Citizens National Bank of Urbana, Urbana, Ohio
("Citizens") contained in: audited financial statements dated December 31, 1992,
1993, 1994 and 1995; December 31, 1995 Consolidated Reports of Condition and
Income filed with the Federal Deposit Insurance Corporation by Citizens;
September 30, 1995 Uniform Bank Performance Report of Citizens; historical
common stock trading activity of CitNat; and the premises and other fixed
assets. PBS reviewed and tabulated statistical data regarding the loan
portfolio, securities portfolio and other performance ratios and statistics.
Financial projections were prepared and analyzed as well as other financial
studies, analyses and investigations as deemed relevant for the purposes of this
opinion. In review of the aforementioned information, PBS took into account its
assessment of general market and financial conditions, its experience in other
similar transactions, and its knowledge of the banking industry generally.
In connection with rendering the Fairness Opinion and preparing its
various written and oral presentations to CitNat's Board of Directors, PBS
performed a variety of financial analyses, including those summarized herein.
The summary does not purport to be a complete description of the analyses
performed by PBS in this regard. 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 and therefore, such an opinion is not readily susceptible to
summary description. Accordingly, notwithstanding the separate factors
summarized below, PBS believes that its analyses must be considered as a whole
and that selecting portions of its analyses and of the factors considered by it,
without considering all analyses and factors, could create an incomplete view of
the evaluation process underlying its opinion. In performing its analyses, PBS
made numerous assumptions with respect to industry performance, business and
economic conditions and other matters, many of which are beyond CitNat's or
Security's control. The analyses performed by PBS are not necessarily indicative
of actual values or future results, which may be significantly more or less
favorable than suggested by such analyses. In addition, analyses relating to the
values of businesses do not purport to be appraisals or to reflect the process
by which businesses actually may be sold.
Acquisition Comparison Analysis: In performing this analysis, PBS
reviewed bank acquisition transactions in the states of Ohio, Indiana, and
Kentucky which encompass the "Midwest Region." There were 138 bank acquisition
transactions in the Midwest Region announced since 1989 for which detailed
financial information
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was available. The purpose of the analysis was to obtain an evaluation range
based on these regional acquisition transactions. Median multiples of earnings
and book value implied by the comparable transactions were utilized in obtaining
a range for the acquisition value of CitNat. In addition to reviewing recent
Midwest Region bank transactions, PBS performed separate comparable analyses for
acquisitions of Midwest Region banks which, like CitNat. had an equity-to-asset
ratio greater than 10%, were located in Ohio and had assets between $75.0 and
$250.0 million.
Pro Forma Merger Analysis: PBS compared the historical performance of
CitNat to that of Security and other regional bank holding companies. This
included, among other things, a comparison of profitability, asset quality and
capital adequacy measures. In addition, the contribution of each of CitNat and
Security to the income statement and balance sheet of the pro forma combined
company was analyzed.
The effect of the affiliation on the historical and pro forma financial
data of CitNat, as well as the projected financial data prepared by PBS, was
analyzed. CitNat's historical financial data was compared to pro forma combined
historical and projected earnings, book value and dividends per share as well as
other measures of profitability, capital adequacy and asset quality.
The Fairness Opinion is directed only to the question of whether the
consideration to be received by CitNat's shareholders under the Agreement is
fair and equitable from a financial perspective and does not constitute a
recommendation to any CitNat shareholder to vote in favor of the Affiliation. No
limitations were imposed on PBS regarding the scope of its investigation or
otherwise by CitNat or any of its affiliates.
Based on the results of the various analyses described above, PBS
concluded that the consideration to be received by CitNat shareholders under the
Agreement is fair and equitable from a financial perspective to the shareholders
of CitNat.
PBS will receive a fee in the amount of $22,500 for all of its services
performed in connection with the Affiliation, including rendering the Fairness
Opinion. In addition, CitNat has agreed to indemnify PBS and its directors,
officers and employees, from liability in connection with the Affiliation, and
to hold PBS harmless from any losses, actions, claims, damages, expenses or
liabilities related to any of PBS' acts or decisions made in good faith and in
the best interest of CitNat.
An updated copy of the Fairness Opinion dated July 23, 1996, which
includes a summary of the assumptions made and information analyzed in
deriving the Fairness Opinion, is attached as Appendix B to this Proxy
Statement - Prospectus and should be read in its entirety.
TERMS OF THE MERGER
At the Effective Time (as defined below), CitNat will merge with
Security with the result that Citizens Bank will become a wholly owned
subsidiary bank of Security. At the Effective Time, the directors and officers
of Citizens Bank serving in such capacity immediately prior to the Effective
Time shall continue to be the directors and officers of Citizens Bank. In
addition, at the Effective Time, the Agreement provides that one additional
person from CitNat will become a member of the Board of Directors of Security.
The Board of Directors of Security has determined that such person will be James
R. Wilson, the President, Chief Executive Officer and a director of CitNat.
At the Effective Time, all of the outstanding shares and options to
purchase shares of CitNat Common Stock will be converted into shares of Security
Common Stock in accordance with the terms of the Agreement and the Exchange
Ratio as defined by the Agreement. The Exchange Ratio provides that each
outstanding share of CitNat Common Stock shall be exchanged for and converted
into the right to receive 2.1842437 shares of Security
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Common Stock and each outstanding option to purchase one share of CitNat Common
Stock will be exchanged for and converted into the right to receive .7791283
shares of Security Common Stock as set forth in the Agreement. In the
transaction, Security expects to issue 908,072 shares of Security Common Stock
in the Merger.
No fractional shares of Security Common Stock will be issued in the
Merger. Rather, each holder of CitNat Common Stock who otherwise would have been
entitled to a fraction of a share of Security Common Stock shall receive in lieu
thereof cash, without interest, in an amount determined by multiplying the
fractional share interest to which such holder would otherwise be entitled by
the average of the bid and asked closing price on the effective date of the
Merger as reported by J. Wolf & Company, a division of McDonald & Company
Securities, Inc.
EFFECTIVE TIME OF THE MERGER
Subject to satisfaction or waiver of all other conditions contained in
the Agreement, the Merger, will become effective on the first business day of
the next calendar month after the later to occur of (i) approval of the
Agreement by the Federal Reserve Board and (ii) approval of the Merger by the
stockholders of CitNat. The Merger will become effective on the first day of the
second calendar month following the events specified in (i) and (ii) above if
the last of such events occurs after the twentieth of the month. An earlier date
may be specified by Security or another time may be agreed upon in writing by
the parties. Upon the filing of executed Articles of Merger, with the Secretary
of State in Ohio the Merger will become effective at such time as is specified
in the Articles of Merger (the "Effective Time"). Subject to the conditions
contained in the Agreement, the Effective Time is currently expected to occur
during the end of the third quarter or the beginning of the fourth quarter of
1996.
SURRENDER OF CITNAT CERTIFICATES
As soon as practicable after the Effective Time of the Merger Security
is required by the Agreement to mail to each holder of record of CitNat Common
Stock a letter of transmittal and instructions for use in surrendering such
holder's CitNat Common Stock certificates.
CITNAT STOCKHOLDERS SHOULD NOT SEND IN THEIR STOCK CERTIFICATES UNTIL
THEY RECEIVE A LETTER OF TRANSMITTAL FORM AND INSTRUCTIONS FROM SECURITY.
Upon surrender to Security of one or more certificates of CitNat Common
Stock together with a properly completed letter of transmittal, Security will
issue and deliver to the holder of record of CitNat Common Stock, a certificate
representing the number of shares of Security Common Stock to which the holder
is entitled and, where applicable, a check for the amount representing any
fractional share interest.
All Security Common Stock issued pursuant to the Agreement will be
issued as of the Effective Time. No dividends or other distributions declared
with respect to Security Common Stock payable to former holders of CitNat Common
Stock, pursuant to the Merger and payable to the holders thereof after the
Effective Time shall be paid until such holder surrenders such holder's CitNat
Common Stock certificates. Subject to the effect of applicable laws, after the
surrender and exchange of such certificates, the holder of certificates for
shares of Security Common Stock into which the shares of CitNat Common Stock
shall have been converted shall be entitled to receive any dividends or other
distributions, but without any interest, which previously became payable by
Security with respect to the shares of CitNat Common Stock represented by such
certificate or certificates.
In the case of any lost, stolen or destroyed CitNat Common Stock
certificate, Security will issue a new certificate representing shares of
Security Common Stock and a check for the cash into which a fractional share of
CitNat Common Stock shall have been converted only if Security receives: (i)
evidence to the reasonable satisfaction of Security that such certificate has
been lost, wrongfully taken or destroyed, (ii) such indemnity agreement as
reasonably may be requested by Security to save it harmless, and (iii) evidence
satisfactory to it of ownership of CitNat Common Stock for which the certificate
has been lost, wrongfully taken or destroyed.
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After the Effective Time, there will be no further registration of
transfers on the stock transfer books of Security of shares of CitNat Common
Stock. Shares of CitNat Common Stock presented to Security for transfer after
the Effective Time will be canceled and exchanged for certificates representing
shares of Security Common Stock and cash in lieu of any fractional share
interest as provided in the Agreement.
CONDITIONS TO THE MERGER
The CitNat Merger will occur only if the Agreement is adopted by the
requisite vote of the stockholders of CitNat and the acquisition of a
controlling interest in CitNat is approved by the stockholders of CitNat as
required by the Acquisition Act. Consummation of the Merger is subject to the
satisfaction of certain other conditions, unless waived to the extent waiver is
permitted by applicable law. Such conditions include, but are not limited to,
the following: (i) the receipt of all necessary regulatory approvals, including
the approval of the Federal Reserve Board; (ii) the effectiveness of the
Registration Statement registering the shares of Security to be issued in the
Merger, and the absence of a stop order suspending such effectiveness or
proceedings seeking a stop order; (iii) the absence of a temporary restraining
order, injunction or other order of any court of competent jurisdiction or other
legal restraint or prohibition preventing the consummation of the Merger; (iv)
the continued accuracy of representations and warranties by CitNat and Security
regarding, among other things, the organization of the parties, financial
statements, capitalization, pending and threatened litigation, enforceability of
the Agreement and compliance with law and tax matters; (v) the performance by
CitNat and Security in all material respects of each of the obligations required
to be performed by them under the Agreement; (vi) the receipt by CitNat and
Security and the continuing effectiveness of opinion of counsel as to certain
federal income tax consequences of the respective Merger; (vii) the receipt of
all consents or approvals from third parties required under agreements for
consummation of the Merger other than those agreements for which failure to
obtain such consents or approval would not have a material adverse effect on
CitNat; (viii) that no event shall have occurred, which, in the reasonable
opinion of Security and its auditors, would prevent the Merger from being
accounted for as a pooling of interests; (ix) the absence of any material
adverse change since December 31, 1995, in the financial condition, results of
operation or business of CitNat and Security in each case, together with their
respective subsidiaries taken as a whole; (x) the absence of any material
action, suit or proceeding commenced against CitNat and Security with respect to
the Merger seeking to restrain, enjoin, prevent, change or rescind the
transaction contemplated by the Agreements or questioning the validity or
legality of any such transaction; (xi) the receipt by CitNat and Security of
opinions of counsel as provided in the Agreement; (xii) the receipt by CitNat of
an opinion, from its financial advisor, dated within two days of the Proxy
Statement-Prospectus, that the Merger is fair to the holders of CitNat Common
Stock from a financial point of view; and (xiii) that not more than ten percent
of the voting power of the issued and outstanding shares of CitNat Common Stock
shall have taken steps, at the time the Merger shall become effective, to
perfect their rights as dissenting shareholders under Ohio law.
The consummation of the Merger is conditioned upon the determination
that the Merger will be accounted for under the pooling of interests method of
accounting. In the event the Merger did not qualify for pooling accounting
treatment, but the parties determined to consummate the Merger and to waive the
condition, the Merger would not be consummated without a resolicitation of the
vote of stockholders of CitNat. In such an event, the revised pro forma
financial information would be materially different than those presented
elsewhere herein.
In addition, unless waived, each party's obligation to consummate the
Merger is subject to performance by the other party of its obligations under the
respective Agreement and the receipt of certain certificates from the other
party.
REGULATORY APPROVAL
The Merger is subject to prior approval by the Federal Reserve Board
under the Bank Holding Company Act of 1956, as amended ("BHC Act"), which
requires that the Federal Reserve Board take into consideration the financial
and managerial resources and future prospects of the respective institutions and
the convenience and needs of the communities to be served. The BHC Act prohibits
the Federal Reserve Board from approving the Merger if it would result in a
monopoly or be in furtherance of any combination or conspiracy to monopolize or
to attempt to monopolize the business of banking in any part of the United
States, or if its effect in any section of the country may
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be substantially to lessen competition or to tend to create a monopoly, or if it
would in any other manner be a restraint of trade, unless the Federal Reserve
Board finds that the anti-competitive effects of the Merger are clearly
outweighed in the public interest by the probable effect of the transaction in
meeting the convenience and needs of the communities to be served. The Federal
Reserve Board has the authority to deny an application if it concludes that the
combined organization would have an inadequate capital position.
Under the BHC Act, the Merger may not be consummated until the 30th day
following the date of Federal Reserve Board approval, during which time the
United States Department of Justice may challenge the Merger on antitrust
grounds. The commencement of an antitrust action would stay the effectiveness of
the Federal Reserve Board's approval unless a court specifically orders
otherwise. The BHC Act provides for the publication of notice and public comment
on the application and authorizes the regulatory agency to permit interested
parties to intervene in the proceedings.
Security filed an application with the Federal Reserve Bank of
Cleveland (the "Federal Reserve Bank") on April 18, 1996, seeking approval of
the Merger. On May 30, 1996, such application was approved.
The approvals of the Federal Reserve Board is not to be interpreted as
the opinion of such regulatory authority that the Merger is fair to the
stockholders of CitNat from a financial point of view or that such regulatory
authority has considered the adequacy of the terms of the Merger. An approval by
such regulatory authority in no way constitutes an endorsement or a
recommendation of the Merger by the Federal Reserve Board.
There can be no assurance that the Department of Justice will not
challenge the Merger or if such a challenge is made, as to the result thereof.
Other than the regulatory approvals described herein and required
compliance with certain federal and state securities laws by Security in
connection with its issuance of shares of Security Common Stock in connection
with the Merger with which Security will comply, Security and CitNat are not
aware of any other governmental approvals or actions that are required for
consummation of the Merger except as described above. Should any other approval
or action be required, it is presently contemplated that such approval or action
would be sought. There can be no assurance that any such approval or action, if
needed, could be obtained and, if such approvals or actions are obtained, there
can be no assurance as to the timing thereof.
CONDUCT OF BUSINESS PENDING THE MERGER
Under the Agreement CitNat and Security are generally obligated to (and
to cause their respective subsidiaries to) operate their respective businesses
only in the usual and ordinary course consistent with past practices; use
reasonable efforts to keep in force current insurance coverage; refrain from any
change in their methods of accounting or certain other policies and refrain from
taking any action that would adversely affect or delay regulatory approval of
the Agreement; give the other party and its representatives access to
information concerning its affairs as may be reasonably requested; and with
respect to CitNat refrain from paying cash dividends except as permitted under
the Agreement, see "Dividends."
DIVIDENDS
Under the Agreement, CitNat may not pay cash dividends prior to the
Effective Time of the Merger except for a semi-annual cash dividend at the rate
of $0.45 per share payable in July 1996, and in the event the Merger shall not
have consummated prior to the record date for the determination of stockholders
entitled to Security's normal cash dividend payable in December of each year,
then an additional semi-annual cash dividend at the rate of $0.45 in December of
1996.
TERMINATION, AMENDMENT AND WAIVER
The Agreement may be terminated at any time prior to the Effective Time
whether before or after approval of the matters presented by the stockholders of
CitNat: (i) by mutual consent of the Boards of Directors of CitNat
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and Security; (ii) by either party to the Merger if all required regulatory
approvals are not received; (iii) by the Board of Directors of either party if
there has been a willful breach of any representation, warranty, covenant or
agreement by the other party which is not cured after 10 days' written notice;
(iv) by either party if the required vote of CitNat stockholders is not
received; or (v) by the Board of Directors of either party if the Merger is not
consummated by December 31, 1996.
The Agreement may not be amended except in writing signed on behalf of
both parties, whether before or after approval of the matters presented in
connection with the Merger by the stockholders of CitNat. At any time prior to
the Effective Time, either party to the Agreement may, to the extent legally
allowed, extend the time for performance of any of the obligations of the other
party, waive any inaccuracies in representations and warranties of the other and
waive compliance with any of the agreements or conditions of the Agreement.
TERMINATION FEE
If CitNat stockholders fail to approve the Agreement and at such time
there is either: (i) a publicly announced offer by a third party to acquire
CitNat at a price at the time of the announcement of such offer equal in value
to at least $62.75 per share of CitNat Common Stock, or (ii) The Board of
Directors of CitNat fails to favorably recommend approval of the Merger, and
within one year after the termination of the Agreement CitNat is acquired, then,
subject to certain other conditions set forth in the Agreement, CitNat shall pay
a termination fee to Security of $1,000,000.
MANAGEMENT AND OPERATIONS AFTER THE MERGER
As a result of the Merger, Citizens Bank will become a wholly owned
subsidiary of Security. Security expects to continue to operate Citizens Bank at
its present locations. Immediately after the Effective Time of Merger, the Board
of Directors of Citizens Bank shall be comprised of all those persons serving as
a director of Citizens Bank immediately prior to the Effective Time of the
Merger. The Board of Directors of Security after the Effective Time of the
Merger shall be comprised of all those persons serving as a director of Security
immediately prior to the Effective Time plus one additional person to be added
to the Board of Directors from CitNat. Security has determined that such person
will be James R. Wilson, President, Chief Executive Officer and a Director of
CitNat.
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INTERESTS OF CERTAIN PERSONS IN THE MERGER
As of the Record Date, executive officers and directors of CitNat are
or may be deemed to be the beneficial owners of less than 1% of the outstanding
shares of Security Common Stock and executive officers and directors of Security
beneficially own no shares of CitNat Common Stock. Certain executive officers
and directors of CitNat hold options to purchase 71,820 shares of CitNat Common
Stock at a price of $40 per share. These options were granted to such persons in
connection with CitNat's Incentive Stock Option Plan. It is not expected that
such options will be exercised prior to the effective date of the Merger. The
Agreement provides that all of such options shall be exchanged for and converted
into the right to receive .7791283 shares of Security Common Stock at the
Effective Time of the Merger.
EFFECT ON EMPLOYEE BENEFIT PLANS
CitNat. The Agreement provides that each employee of Citizens Bank will
be eligible to participate in the employee benefit plans of Security immediately
upon the consummation of the Merger. For purposes of eligibility and vesting in
Security's employee benefits, employees of CitNat and Citizens Bank will be
given credit for their years of service as employees of CitNat and Citizens
Bank. The CitNat Employee Stock Ownership Plan and its related Trust ("ESOP")
will be terminated or amended at or after the Effective Time of the Merger as
directed by Security. If the ESOP is terminated, effective as of such
termination date each participant with an account balance under the ESOP shall
become fully vested in such account regardless of his vested position under the
ESOP.
Security. Employee benefits of Security will not be changed as a result
of the Merger.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary description of the anticipated federal
income tax consequences of the Merger to holders of Security Common Stock and
CitNat Common Stock and to Security and CitNat. The summary is not a complete
description of the federal income tax consequences of the Merger. Each
stockholder's individual circumstances may affect the tax consequences of the
Merger to such stockholder.
Neither Security nor CitNat has requested or will receive an advance
ruling from the Internal Revenue Service (the "Service") as to the tax
consequences of the Merger. With respect to the Merger, Security and CitNat have
received an opinion from special counsel to Security, Werner & Blank Co., L.P.A.
This tax opinion is based upon certain representations made by Security and
CitNat and upon the current law and the current judicial and administrative
interpretations thereof. This opinion will not be binding on the Service or any
court. Consequently, there can be no assurance that the tax consequences set
forth below will continue as described herein, nor can any assurance be given
that the issues discussed below will not be challenged by the Service, or, if so
challenged, will be decided favorably to the parties to the Merger or their
stockholders.
Subject to the foregoing, the opinions of Werner & Blank Co., L.P.A.,
are substantially as follows:
(i) Since the merger of CitNat with and into Security
qualifies as a statutory merger under applicable federal law, the
Merger will qualify as a "reorganization" within the meaning of Section
368(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the
"Code");
(ii) No gain or loss will be recognized by CitNat or Security
upon merger of CitNat with and into Security;
(iii) No gain or loss will be recognized by the CitNat
stockholders who exchange, pursuant to the Merger, their shares of
CitNat Common Stock solely for shares of Security Common Stock;
31
<PAGE> 36
(iv) The federal income tax basis of the Security Common Stock
to be received by the CitNat stockholders in Merger, including
fractional share interests, will be the same as the federal income tax
basis of such CitNat Common Stock surrendered therefor;
(v) The holding period of the Security Common Stock to be
received by the CitNat stockholders in the Merger will include the
period during which the CitNat Common Stock surrendered was held as a
capital asset on the Effective Date of the Merger;
(vi) The payment of cash in lieu of fractional share interests
of Security Common Stock will be treated as if the fractional shares
were distributed as part of the Merger and then were redeemed by
Security. These cash payments will be treated as having been received
as distributions in full payment in exchange for the stock redeemed as
provided in Section 302(a) of the Code; and
(vii) Where a CitNat stockholder dissents to the Merger, and
such stockholder receives solely cash in exchange for his or her CitNat
Common Stock, such cash will be treated as having been received by such
stockholder as a distribution in redemption of his or her shares
subject to the provisions and limitations of Section 302 of the Code.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE HAS NOT BEEN VERIFIED
WITH THE INTERNAL REVENUE SERVICE AND IS BASED UPON THE FEDERAL INTERNAL REVENUE
CODE AS IN EFFECT ON THE DATE OF THIS PROXY STATEMENT-PROSPECTUS WITHOUT
CONSIDERATION OF ANY STATE LAWS OR THE PARTICULAR FACTS OR CIRCUMSTANCES OF ANY
CITNAT STOCKHOLDER.
CitNat Optionholders will experience taxable ordinary income for
Federal income tax purposes on the exchange of Security Common Stock for CitNat
Options.
BECAUSE OF THE COMPLEXITY OF THE FEDERAL, STATE AND LOCAL TAX LAWS IT
IS RECOMMENDED THAT STOCKHOLDERS AND OPTIONHOLDERS OF CITNAT CONSULT THEIR OWN
TAX ADVISORS REGARDING THE TAX CONSEQUENCES RESULTING FROM THE MERGER.
CITNAT OPTIONHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO
THE SPECIFIC CONSEQUENCES TO THEM OF THE MERGER UNDER FEDERAL, STATE AND LOCAL
AND ANY OTHER APPLICABLE TAX LAWS.
ACCOUNTING TREATMENT
The Agreement provides that consummation of the Merger is conditioned
upon the receipt by Security of assurances, satisfactory to it, that the Merger
qualifies for accounting treatment as a pooling of interests if consummated in
accordance with the Agreement. Under the pooling of interests method of
accounting, the historical basis of the assets and liabilities of Security and
CitNat will be combined at the Effective Time and carried forward at their
previously recorded amounts, and the stockholders' equity accounts of CitNat and
Security's will be consolidated on Security's balance sheet. Income and other
financial statements of Security issued after consummation of the Merger will be
restated retroactively to reflect the consolidated operations of Security and
CitNat as if the Merger had taken place prior to the periods covered by such
financial statements.
For the Merger to qualify as a pooling of interests for accounting
purposes, substantially all (90% or more) of the outstanding CitNat Common Stock
must be exchanged for Security Common Stock. All parties have agreed not to take
any action which would disqualify the Merger from pooling of interests treatment
by Security.
EXPENSES
The Agreement provides that whether or not the Merger is consummated,
all costs and expenses incurred in connection with the Agreement and the
transactions contemplated therein shall be paid by the party incurring such
expense.
RESALE OF SECURITY COMMON STOCK
The shares of Security Common Stock to be issued in the Merger to
holders of CitNat Common Stock have been registered under the Securities Act and
may be freely traded by holders of CitNat Common Stock who, at the Effective
Time, are not "affiliates" of CitNat (and who are not affiliates of Security at
the time of the proposed resale). Directors, executive officers, and 10%
stockholders of CitNat are generally deemed to be affiliates under the
Securities Act. Pursuant to the Agreement, Security must have received from each
affiliate of CitNat a written undertaking to the effect that (a) he or she will
not sell or dispose of Security Common Stock acquired in the Merger other than
in accordance with the Securities Act, except under (i) a separate registration
statement for distribution
32
<PAGE> 37
(which Security has not agreed to provide), or (ii) Rule 145 promulgated
thereunder by the SEC, or (iii) some other exemption from registration; and (b)
he or she will not otherwise dispose of the Security Common Stock or otherwise
reduce his or her market risk relative to the Security Common Stock within 30
days prior to the Effective Time of the Merger or prior to the publication by
Security of an earnings statement covering at least 30 days of combined
operations after the Effective Time.
DISSENTERS' RIGHTS
Under the provisions of Ohio Revised Code, Section 1701.85, any
shareholder of CitNat who does not vote in favor of the Agreement is entitled to
receive the fair cash value of his shares, upon perfecting his right of
appraisal. Not later than ten (10) days after the date upon which the
shareholders voted upon the Merger, any shareholder seeking to perfect his
appraisal right must make a written demand upon CitNat for the fair cash value
of those shares so held by him. A negative vote alone is not sufficient to
perfect rights as a dissenter. No notice of the results of the meeting will be
given to shareholders. If CitNat and the shareholder have not come to an
agreement within three (3) months of the shareholder's written demand, the
shareholder or CitNat may file a petition in court for a formal judicial
appraisal. Failure to follow the procedures enumerated in the Ohio Revised Code,
Section 1701.85, Qualifications of and Procedures for Dissenting Shareholders,
which is Appendix C of this Proxy Statement (the Dissenters Statute), will waive
the shareholder's right of appraisal.
THE FOREGOING SUMMARY OF DISSENTERS' STATUTE DOES NOT PURPORT TO BE
COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO DISSENTERS' STATUTE
AND THE OTHER PROVISIONS OF THE OHIO LAW. THE FAILURE OF A STOCKHOLDER OF CITNAT
TO FOLLOW THE PROCEDURES SET FORTH IN DISSENTERS' STATUTE WILL TERMINATE SUCH
STOCKHOLDER'S APPRAISAL RIGHTS. AS A CONSEQUENCE, EACH STOCKHOLDER OF CITNAT WHO
DESIRES TO EXERCISE SUCH RIGHTS SHOULD REVIEW DISSENTERS' STATUTE AND FOLLOW ITS
PROVISIONS. THE COMPLETE TEXT OF THE RELEVANT PROVISIONS OF DISSENTERS' STATUTE
IS ANNEXED TO THIS PROXY STATEMENT AS APPENDIX C.
PRO FORMA FINANCIAL DATA
The following unaudited Pro Forma Combined Condensed Balance Sheets as
of December 31, 1995 and March 31, 1996, and the Pro Forma Combined Condensed
Statements of Income for each of the three-year periods ended December 31, 1995,
and the three months ended March 31, 1996 and 1995, gives effect to the Merger
based on the historical consolidated financial statements of Security and CitNat
under the assumptions and adjustments set forth in the accompanying notes to the
pro forma financial statements.
The Pro Forma Condensed Balance Sheet assumes the Merger was
consummated on the dates indicated, and the Pro Forma Condensed Statements of
Income assume that the Merger was consummated on January 1 of each period
presented. The pro forma statements may not be indicative of the results that
actually would have occurred if the Merger had been in effect on the dates
indicated or which may be obtained in the future. The pro forma financial
statements should be read in conjunction with Security's historical financial
statements and the related notes thereto incorporated by reference herein and
CitNat's historical financial statements and the related notes thereto included
elsewhere in this Proxy Statement-Prospectus. Additionally, the Pro Forma
financial statements prepared by Security reflect the effect of Security's
acquisition of Third for the most recent period shown. The Third Merger will be
accounted for as a purchase. See "INFORMATION ABOUT Security-Pending
Acquisitions."
33
<PAGE> 38
PRO FORMA COMBINED CONDENSED BALANCE SHEET
(UNAUDITED)
DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
SECURITY,
SECURITY CITNAT
AND CITNAT AND THIRD
PRO FORMA PRO FORMA PRO FORMA PRO FORMA
ASSETS SECURITY CITNAT ADJUSTMENTS COMBINED THIRD ADJUSTMENTS COMBINED
-------- ------ ----------- -------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and due from banks $ 21,658 $ 11,600 $ 33,258 $ 1,479 $ 34,737
Federal funds sold 34,800 8,700 43,500 0 (10,050) 33,450
Interest bearing deposits in other banks 0 582 582 4,501 5,083
Investment securities 150,013 33,848 183,861 16,813 200,674
Assets held for sale 0 0 0 1,698 1,698
Loans 314,575 81,995 396,570 128,720 525,290
Less allowance for loan losses (3,741) (1,595) 0 (5,336) (1,207) (6,543)
-------- -------- -------- -------- -------- --------
Net loans 310,834 80,400 391,234 127,513 518,747
Premises and equipment, net 5,182 2,478 7,660 1,696 9,356
Goodwill and Other Intangibles 0 0 0 0 12,229 12,229
Other assets 13,488 2,523 16,011 3,281 19,292
-------- -------- -------- -------- --------
Total assets 535,975 140,131 0 676,106 156,981 2,179 835,266
======== ======== ======== ======== ======== ======== ========
LIABILITIES
Noninterest bearing deposits 86,682 25,320 112,002 3,615 115,617
Interest-bearing deposits 349,574 94,268 443,842 107,630 551,472
-------- -------- -------- -------- --------
Total deposits 436,256 119,588 0 555,844 111,245 0 667,089
Federal funds purchased and
securities sold under
agreements to repurchase 24,293 1,513 25,806 0 25,806
Notes payable 0 378 378 0 30,000 30,378
FHLB advances 0 0 0 14,676 14,676
Other liabilities 2,640 1,201 3,841 3,239 7,080
-------- -------- -------- -------- --------
Total liabilities 463,189 122,680 0 585,869 129,160 30,000 745,029
SHAREHOLDERS' EQUITY
Preferred stock 0 0 0 0 0
Common stock 16,710 1,963 875 19,548 12 (12) 19,548
Capital surplus 17,883 3,054 (875) 20,062 12,068 (12,068) 20,062
Retained earnings 41,178 12,435 53,613 17,888 (17,888) 53,613
Shares held in the treasury (3,193) (94) (3,287) (1,792) 1,792 (3,287)
Shares held by management
retention plan 0 0 0 (246) 246 0
Employee stock ownership plan 0 0 0 (389) 389 0
Net unrealized (losses) gains on securities
available for sale 208 93 301 280 (280) 301
Total shareholders' equity 72,786 17,451 0 90,237 27,821 90,237
-------- -------- -------- -------- -------- --------
Total liabilities and shareholders' equity $535,975 $140,131 $ 0 $676,106 $156,981 $ 2,179 $835,266
======== ======== ======== ======== ======== ======== ========
</TABLE>
SEE ACCOMPANYING NOTES TO PRO FORMA FINANCIAL STATEMENTS
34
<PAGE> 39
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
(UNAUDITED)
YEAR ENDED DECEMBER 31, 1993
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SECURITY AND
CITNAT
PRO FORMA PRO FORMA
SECURITY CITNAT ADJUSTMENTS COMBINED
-------- ------ ----------- --------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 23,372 $ 5,884 $ 29,256
Interest on deposits 108 65 173
Interest on federal funds sold 841 148 989
Interest on investment securities 10,215 2,510 12,725
---------- ---------- ----------
Total interest income 34,536 8,607 0 43,143
INTEREST EXPENSE:
Interest on deposits 11,967 3,203 15,170
Interest on borrowings 464 13 477
---------- ---------- ----------
Total interest expense 12,431 3,216 0 15,647
---------- ---------- ----------
NET INTEREST INCOME 22,105 5,391 0 27,496
Provision for loan losses 900 150 1,050
---------- ---------- ----------
Net interest income after provision for
loan losses 21,205 5,241 0 26,446
Noninterest income 3,588 849 4,437
Security Gains 714 3 717
Noninterest expense 12,848 4,282 17,130
---------- ---------- ----------
Income before income taxes 12,659 1,811 0 14,470
Income taxes 3,094 511 3,605
---------- ---------- ----------
NET INCOME $ 9,565 $ 1,300 $ 0 $ 10,865
========== ========== ========== ==========
Net income per common share $ 1.89 $ 3.38
Pro forma net income per common share $ 1.82
AVERAGE SHARES OUTSTANDING 5,056,012 384,404 5,964,084
CONVERSION RATIO 2.36
</TABLE>
SEE ACCOMPANYING NOTES TO PRO FORMA FINANCIAL STATEMENTS
35
<PAGE> 40
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
(UNAUDITED)
YEAR ENDED DECEMBER 31, 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SECURITY AND
CITNAT
PRO FORMA PRO FORMA
SECURITY CITNAT ADJUSTMENTS COMBINED
-------- ------ ----------- --------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 25,309 $ 6,640 $ 31,949
Interest on deposits 120 29 149
Interest on federal funds sold 372 97 469
Interest on investment securities 9,618 2,103 11,721
---------- ---------- ----------
Total interest income 35,419 8,869 0 44,288
INTEREST EXPENSE:
Interest on deposits 10,724 2,970 13,694
Interest on borrowings 813 33 846
---------- ---------- ----------
Total interest expense 11,537 3,003 0 14,540
NET INTEREST INCOME 23,882 5,866 0 29,748
Provision for loan losses 800 44 844
---------- ---------- ----------
Net interest income after provision for
loan losses 23,082 5,822 0 28,904
Noninterest income 4,161 878 5,039
Invest Sec Gains 316 0 316
Noninterest expense 13,234 4,646 17,880
---------- ---------- ----------
Income before income taxes 14,325 2,054 0 16,379
Income taxes 4,021 582 4,603
---------- ---------- ----------
NET INCOME $ 10,304 $ 1,472 $ 0 $ 11,776
========== ========== ========== ==========
Net income per common share $ 2.03 $ 3.71
Pro forma net income per common share $ 1.96
AVERAGE SHARES OUTSTANDING 5,089,496 396,764 5,997,568
CONVERSION RATIO 2.29
</TABLE>
SEE ACCOMPANYING NOTES TO PRO FORMA FINANCIAL STATEMENTS
36
<PAGE> 41
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
(UNAUDITED)
YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SECURITY
SECURITY AND CITNAT, AND
CITNAT THIRD
PRO FORMA PRO FORMA PRO FORMA PRO FORMA
INTEREST INCOME: SECURITY CITNAT ADJUSTMENTS COMBINED THIRD ADJUSTMENTS COMBINED
-------- ------ ----------- ---------- ----- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest and fees on loans $ 29,042 $ 7,670 $ 36,712 $ 10,536 $ 47,248
Interest on deposits 5 37 42 109 151
Interest on federal funds sold 1,327 237 1,564 0 (603) 961
Interest on investment securities 9,371 2,017 11,388 1,152 12,540
---------- -------- ---------- --------- ----------
Total interest income 39,745 9,961 0 49,706 11,797 (603) 60,900
---------- -------- ---------- --------- -------- ----------
INTEREST EXPENSE:
Interest on deposits 12,916 3,706 16,622 4,595 21,217
Interest on borrowings 1,278 103 1,381 836 2,400 4,617
---------- -------- ---------- --------- -------- ----------
Total interest expense 14,194 3,809 0 18,003 5,431 2,400 25,834
---------- -------- ---------- --------- -------- ----------
NET INTEREST INCOME 25,551 6,152 0 31,703 6,366 (3,003) 35,066
Provision for loan losses 800 150 950 (51) 899
---------- -------- ---------- --------- ----------
Net interest income after provision for
loan losses 24,751 6,002 0 30,753 6,417 (3,003) 34,167
Noninterest income 4,328 872 5,200 505 5,705
Invest Sec Gains 10 0 10 0 10
Noninterest expense 13,488 4,591 18,079 3,679 575 22,333
---------- -------- ---------- --------- -------- ----------
Income before income taxes 15,601 2,283 0 17,884 3,243 (3,578) 17,549
Income taxes 4,519 658 5,177 1,132 (1,021) 5,288
---------- -------- ---------- --------- -------- ----------
NET INCOME $ 11,082 $ 1,625 $ 0 $ 12,707 $ 2,111 ($ 2,557) $ 12,261
========== ======== ======== ========== ========= ======== ==========
Net Income per common share $ 2.17 $ 4.08 $ 1.78
Pro forma net income per common share $ 2.11 $ 2.04
AVERAGE SHARES OUTSTANDING 5,104,943 398,704 6,013,015 1,185,827 6,013,015
CONVERSION RATIO FOR COMMON STOCK 2.28
</TABLE>
SEE ACCOMPANYING NOTES TO PRO FORMA FINANCIAL STATEMENTS
37
<PAGE> 42
PRO FORMA COMBINED CONDENSED BALANCE SHEET
(UNAUDITED)
MARCH 31, 1996
<TABLE>
<CAPTION>
SECURITY,
SECURITY AND CITNAT, AND
CITNAT THIRD
PRO FORMA PRO FORMA PRO FORMA PRO FORMA
ASSETS SECURITY CITNAT ADJUSTMENTS COMBINED THIRD ADJUSTMENTS COMBINED
-------- ------ ----------- --------- ----- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and due from banks $ 18,176 $ 5,690 $ 23,866 $ 1,275 $ 25,141
Federal funds sold 27,450 6,245 33,695 0 (10,050) 23,645
Interest bearing deposits in other banks 0 2,482 2,482 8,165 10,647
Investment securities 162,556 36,827 199,383 13,747 213,130
Assets held for sale 0 0 0 2,697 2,697
Loans 318,194 80,285 398,479 127,374 525,853
Less allowance for loan losses (3,828) (1,663) (5,491) (1,182) (6,673)
-------- -------- -------- --------- ---------
Net loans 314,366 78,622 0 392,988 126,192 519,180
Premises and equipment, net 5,075 2,412 7,487 1,661 9,148
Goodwill and Other Intangibles 0 0 0 0 11,793 11,793
Other assets 14,389 2,753 17,142 1,949 19,091
-------- -------- -------- --------- ---------
Total assets 542,012 135,031 0 677,043 155,686 1,743 834,472
======== ======== ========= ======== ========= ========= =========
LIABILITIES
Noninterest bearing deposits 81,117 21,912 103,029 3,813 106,842
Interest-bearing deposits 356,211 92,776 448,987 110,693 559,680
-------- -------- -------- --------- ---------
Total deposits 437,328 114,688 0 552,016 114,506 0 666,522
Federal funds purchased and
securities sold under
agreements to repurchase 26,587 629 27,216 0 27,216
Notes payable 0 700 700 0 30,000 30,700
FHLB advances 0 0 0 11,518 11,518
Other liabilities 3,950 1,310 5,260 1,405 6,665
-------- -------- -------- --------- ---------
Total liabilities 467,865 117,327 0 585,192 127,429 30,000 742,621
SHAREHOLDERS' EQUITY
Preferred stock 0 0 0 0 0
Common stock 16,714 1,963 875 19,552 12 (12) 19,552
Capital surplus 17,894 3,054 (875) 20,073 12,151 (12,151) 20,073
Retained earnings 43,052 12,861 55,913 18,211 (18,211) 55,913
Shares held in the treasury (3,193) (112) (3,305) (1,792) 1,792 (3,305)
Shares held by management (232) 232 0
retention plan 0 0 0 (346) 346 0
Net unrealized (losses) gains on securities
available for sale (320) (62) (382) 253 (253) (382)
-------- -------- -------- --------- --------- ---------
Total shareholders' equity 74,147 17,704 0 91,851 28,257 91,851
-------- -------- -------- --------- ---------
Total liabilities and shareholders' equity $542,012 $135,031 $ 0 $677,043 $ 155,686 $ 1,743 $ 834,472
======== ======== ========= ======== ========= ========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO PRO FORMA FINANCIAL STATEMENTS
38
<PAGE> 43
PRO FORMA COMBINED CONDENSED BALANCE SHEET
(UNAUDITED)
MARCH 31, 1995
<TABLE>
<CAPTION>
SECURITY AND CITNAT
PRO FORMA PRO FORMA
ASSETS SECURITY CITNAT ADJUSTMENTS COMBINED
-------- ------ ----------- --------
<S> <C> <C> <C> <C>
Cash and due from banks $ 19,338 $ 6,628 $ 25,966
Federal funds sold 36,450 5,030 41,480
Interest bearing deposits in other banks 0 560 560
Investment securities 122,364 32,509 154,873
Assets held for sale 0 0 0
Loans 317,985 81,861 399,846
Less allowance for loan losses (3,715) (1,591) (5,306)
--------- --------- ---------
Net loans 314,270 80,270 0 394,540
Premises and equipment, net 5,234 2,537 7,771
Goodwill 0 0 0
Other assets 12,863 2,541 15,404
--------- --------- ---------
Total assets 510,519 130,075 0 640,594
========= ========= ========= =========
LIABILITIES
Noninterest bearing deposits 74,296 21,012 95,308
Interest-bearing deposits 346,235 90,595 436,830
--------- --------- ---------
Total deposits 420,531 111,607 0 532,138
Federal funds purchased and
securities sold under
agreements to repurchase 20,592 370 20,962
Notes payable 0 39 39
FHLB advances 0 1,000 1,000
Other liabilities 2,801 1,069 3,870
--------- --------- ---------
Total liabilities 443,924 114,085 0 558,009
SHAREHOLDERS' EQUITY
Preferred stock 0 0 0
Common stock 16,697 1,926 912 19,535
Capital surplus 17,853 2,756 (912) 19,697
Retained earnings 35,527 11,538 47,065
Shares held in the treasury (3,193) 0 (3,193)
Shares held by management
retention plan 0 0 0
Net unrealized (losses) gains on securities
available for sale (289) (230) (519)
--------- --------- ---------
Total shareholders' equity 66,595 15,990 0 82,585
--------- --------- ---------
Total liabilities and shareholders' equity $ 510,519 $ 130,075 $ 0 $ 640,594
========= ========= ========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO PRO FORMA FINANCIAL STATEMENTS
39
<PAGE> 44
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
(UNAUDITED)
MARCH 31, 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SECURITY AND
CITNAT
PRO FORMA PRO FORMA
SECURITY CITNAT ADJUSTMENTS COMBINED
-------- ------ ----------- --------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 7,107 $ 1,872 $ 8,979
Interest on deposits 5 9 14
Interest on federal funds sold 57 33 90
Interest on investment securities 2,217 499 2,716
---------- ---------- ----------
Total interest income 9,386 2,413 0 11,799
INTEREST EXPENSE:
Interest on deposits 2,994 841 3,835
Interest on borrowings 295 20 315
---------- ---------- ----------
Total interest expense 3,289 861 0 4,150
---------- ---------- ----------
NET INTEREST INCOME 6,097 1,552 0 7,649
Provision for loan losses 200 38 238
---------- ---------- ----------
Net interest income after provision for
loan losses 5,897 1,514 0 7,411
Noninterest income 1,008 204 1,212
Security Gains 0 0 0
Noninterest expense 3,337 1,186 4,523
---------- ---------- ----------
Income before income taxes 3,568 532 0 4,100
Income taxes 996 152 1,148
NET INCOME $ 2,572 $ 380 $ 0 $ 2,952
========== ========== ========== ==========
Net income per common share $ 0.51 $ 0.95
Pro forma net income per common share $ 0.49
AVERAGE SHARES OUTSTANDING 5,102,071 398,927 6,010,143
CONVERSION RATIO FOR COMMON STOCK 2.28
SEE ACCOMPANYING NOTES TO PRO FORMA FINANCIAL STATEMENTS
</TABLE>
40
<PAGE> 45
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
(UNAUDITED)
MARCH 31, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SECURITY,
SECURITY AND CITNAT AND
CITNAT THIRD
PRO FORMA PRO FORMA PRO FORMA PRO FORMA
SECURITY CITNAT ADJUSTMENTS COMBINED THIRD ADJUSTMENTS COMBINED
-------- ------ ----------- --------- ----- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 7,104 $ 1,846 $ 8,950 $ 2,805 $ 11,755
Interest on deposits 0 36 36 56 92
Interest on federal funds sold 468 114 582 0 (151) 431
Interest on investment securities 2,216 502 2,718 224 2,942
---------- -------- ---------- ----------- ----------
Total interest income 9,788 2,498 0 12,286 3,085 (151) 15,220
INTEREST EXPENSE:
Interest on deposits 3,391 931 4,322 1,186 5,508
Interest on borrowings 272 12 284 219 600 1,103
---------- -------- ---------- ----------- -------- ----------
Total interest expense 3,663 943 0 4,606 1,405 600 6,611
---------- -------- --------- ----------- -------- ----------
NET INTEREST INCOME 6,125 1,555 0 7,680 1,680 (751) 8,609
Provision for loan losses 200 38 238 0 238
---------- -------- ---------- ----------- ----------
Net interest income after provision for
loan losses 5,925 1,517 0 7,442 1,680 (751) 8,371
Noninterest income 1,080 271 1,351 173 1,524
Security Gains 358 0 358 0 358
Noninterest expense 3,360 1,186 4,546 1,070 144 5,760
---------- -------- ---------- ----------- -------- ----------
Income before income taxes 4,003 602 0 4,605 783 (895) 4,494
Income taxes 1,157 176 1,333 267 (255) 1,345
---------- -------- ---------- ----------- -------- ----------
NET INCOME $ 2,846 $ 426 $ 0 $ 3,272 $ 516 ($ 639) $ 3,149
========== ======== ====== ========== =========== ======== ==========
Net income per common share $ 0.56 $ 1.07 $ 0.43
Pro forma net income per common share $ 0.54 $ 0.52
AVERAGE SHARES OUTSTANDING 5,107,370 396,863 6,015,442 1,187,234 6,015,442
CONVERSION RATIO FOR COMMON STOCK 2.29
</TABLE>
SEE ACCOMPANYING NOTES TO PRO FORMA FINANCIAL STATEMENTS
41
<PAGE> 46
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
On April 22, 1996, Third entered into an Agreement and Plan of Merger with the
Company. Under the terms of the Merger Agreement, Security has agreed to pay
Merger Consideration of $33.23 per share or $40.05 million, subject to
adjustment. All outstanding shares of Third Common Stock will be surrendered in
consummation of the Merger.
The transaction will be accounted for by the purchase method of accounting.
Accordingly, book values of Third will be adjusted to estimated fair values at
the date the transaction is consummated. For purposes of preliminary valuation
and the pro forma financial statements, the book value of Third's assets and
liabilities are estimated to approximate fair market value. Final purchase
accounting adjustments will be made on the basis of facts and circumstances as
of the date of the consummation of the proposed transaction and therefore may
differ from those reflected herein.
The adjustments in the pro forma condensed financial statements assume the
following:
(a) The planned special dividend from Subsidiary Bank of $10,050,000.
Security proposes to cause its Subsidiary Bank to declare a special
cash dividend of $10,050,000 in the third quarter of 1996.
(b) The planned borrowing of $30,000,000 by Security.
(c) Estimated purchase accounting adjustments and the payment of the cost
of acquisition as follows:
<TABLE>
<S> <C>
Cost of acquisition $ 40,050,000
Net assets acquired $ 28,256,999
------------
$ 11,793,001
------------
</TABLE>
Fair value adjustments to record increases (decreases) to asset book
values and decreases (increases) to liability book values:
<TABLE>
<S> <C>
Goodwill $ 9,193,001
Core deposit intangible $ 2,300,000
Mortgage servicing $ 300,000
------------
$ 11,793,001
============
</TABLE>
The amortization period for the above-listed intangibles are as
follows:
<TABLE>
<S> <C>
Goodwill 25 years
Core deposit intangible 14 years
Mortgage servicing 7 years
</TABLE>
(d) The amortization of purchase accounting intangibles as if the Merger
has been in effect of January 1, 1995 and 1996.
(e) The net reduction in short-term investment securities that would have
been forgone had the Merger been in effect as of January 1, 1995 and
1996 (using an effective rate of 6%).
(f) The interest expense on the planned $30,000,000 of borrowings as if the
borrowings had occurred on January 1, 1995 and 1996 (using an effective
rate of 8%).
(g) The applicable income tax effect of the Pro Forma Adjustments listed in
notes (c) through (f) above.
42
<PAGE> 47
DESCRIPTION AND COMPARISON OF SECURITY COMMON STOCK
AND CITNAT COMMON STOCK
GENERAL
Security is an Ohio corporation governed by and subject to the Ohio
General Corporation Law ("OGCL"). CitNat is an Ohio corporation organized under
and governed by the provisions of the OGCL. If the proposed Merger is
consummated, stockholders of CitNat who receive Security Common Stock will
become stockholders of Security and, as such, their rights as stockholders will
be governed by the OGCL and by Security's Articles, Code of Regulations and
other corporate documents. The rights of holders of shares of CitNat Common
Stock differ in certain respects from the rights of holders of Security Common
Stock. A summary of the material differences between the respective rights of
CitNat from that of Security stockholders is set forth below.
As of the date of the Agreement Security was authorized to issue
11,000,000 shares of $3.215 par value common stock ("Security Common Stock"). As
of the date of the Agreement, Security had 5,106,384 shares of Security Common
Stock issued and outstanding, which left 5,893,616 shares available for future
issuance. Pursuant to the terms of the Merger Security will issue an aggregate
of 908,072 shares of Security Common Stock to stockholders and option holders of
CitNat.
The authorized Common Stock of CitNat consists of 720,000 shares of
Common Stock, $5 par value per share, of which 390,119 are issued and
outstanding as of the Record Date.
Security Common Stock is not traded on any exchange. Certain
broker/dealers make a market in Security Common Stock and handle purchase and
sale transactions. Trading volume in Security Common Stock for the twelve months
ended December 31, 1995, was 150,846 shares.
CitNat Common Stock is not traded on any exchange nor in the market.
Management is aware of trades involving 5,108 shares of CitNat Common Stock
during the twelve month period ended December 31, 1995.
While there are a substantial number of similarities between the
Security Common Stock and the CitNat Common Stock, the rights of stockholders of
CitNat will be different after the Effective Date of the Merger. Stockholders
will be affected by differences in the Articles of Incorporation and Code of
Regulations of Security and CitNat. Listed below are the more important
attributes of the Security Common Stock and the differences, if any, from the
CitNat Common Stock.
DIVIDENDS
Holders of Security Common Stock are entitled to dividends out of funds
legally available therefor, as governed by the OGCL, and if declared by the
Board of Directors. The amount and timing of dividends on Security Common Stock
is subject to the earnings of its subsidiaries and the amounts available for
payment of dividends by such subsidiaries under federal banking laws and
regulations. Generally, dividends from Security's banking subsidiaries are
restricted to net profits of the current year plus the preceding two years less
dividends paid.
PREEMPTIVE RIGHTS
Pursuant to the OGCL, stockholders of Security have the preemptive
right to subscribe to additional shares of common stock when issued by Security.
Stockholders of CitNat currently do not have preemptive rights pursuant to the
CitNat's Articles of Incorporation. Preemptive rights permit a stockholder to
purchase their pro rata share of any offering by the company, subject to certain
exceptions and limitations as provided by law.
VOTING
On all matters to properly come before stockholders, each share of
stock of Security and CitNat entitles the holder thereof to one vote, except,
with respect to the right to vote cumulatively in the election of Directors, and
for
43
<PAGE> 48
the effect of certain "supermajority vote" requirements regarding business
combinations contained in the Articles of Incorporation of Security and CitNat
(see "Cumulative Voting" and "Antitakeover Provisions"). The affirmative vote of
the holders of a majority of the outstanding Security Common Stock is required
to amend the Articles of Incorporation of Security and CitNat, except the
amendment of the provision contained in each company's Articles of Incorporation
requiring a supermajority vote in certain business combination transactions,
which amendment requires, in certain circumstances, the affirmative vote of the
holders of eighty percent (80%) of the Security Common Stock.
CUMULATIVE VOTING
Stockholders of CitNat have the right to vote cumulatively in the
election of Directors. Stockholders of Security do not have the right to vote
cumulatively in the election of directors pursuant to Security's Articles of
Incorporation. In cumulative voting, a stockholder may cumulate a number of
votes equal to the number of directors to be elected times the number of shares
held by the stockholder and cast all of such votes for one nominee for director,
or allocate such votes among the nominees as the stockholder sees fit.
Cumulative voting rights afford stockholders controlling a minority stock
position the opportunity to have representation on the Board of Directors.
LIQUIDATION
Holders of Security and CitNat stock are entitled to a pro rata
distribution of the corporation's assets upon liquidation.
LIABILITY OF DIRECTORS; INDEMNIFICATION
Under their respective Articles of Incorporation Security and CitNat
may indemnify present or past directors, officers, employees or agents to the
full extent permitted by law.
The Articles of Incorporation of Security and CitNat both provide as
follows:
The Corporation shall indemnify its present and past Directors,
officers, employees and agents, and such other persons as it shall have
powers to indemnify to the full extent permitted under, and subject to
the limitations of, Title 17 of the Ohio Revised Code. Additionally,
and subject to the limitations set forth below, the Corporation shall
indemnify its present and past Directors for personal liability for
monetary damages resulting from breach of their fiduciary duty as
Directors. Notwithstanding the above, no indemnification for personal
liability shall be provided for: (i) any breach of the Directors' duty
of loyalty to the Corporation or its shareholders; (ii) acts or
omissions not in good faith or which involve intentional misconduct or
a knowing violation of law; and (iii) any transaction from which the
Director derived an improper personal benefit.
ANTITAKEOVER PROVISIONS
Ohio Law applicable to Security and CitNat
Both CitNat and Security are Ohio-chartered corporations and are
"issuing public corporations" under the laws of Ohio, and subject to the
provisions of the Ohio Control Share Acquisition Statute (ORC Section 1701.831)
and the Merger Moratorium Act (ORC Section 1704). Pursuant to the Ohio Control
Share Acquisition Statute, the purchase of certain levels of voting power of
acompany (one-fifth or more, one-third or more, or a majority) can be made only
with the prior authorization of at least a majority of the total voting power of
such company and a separate prior authorization of the holders of at least a
majority of the voting power held by shareholders other than the proposed
purchaser, officers of the company and Directors of the company who are also
employees. This law has the potential effect of deterring certain potential
acquisitions of the company which might be beneficial to shareholders. The
Merger Moratorium Act, enacted in 1990, prohibits certain Ohio corporations from
engaging in specified types of transactions with an "interested shareholder" for
a period of three years after the shareholder becomes an "interested
shareholder" unless the shareholder receives the approval of the corporation's
board of directors prior to
44
<PAGE> 49
the acquisition of shares or the consummation of the specified type of
transaction. The anticipated effect of the Merger Moratorium Act is to encourage
a potential acquiror to negotiate with a target corporation's board of directors
prior to obtaining a 10 percent or greater block of shares in the corporation.
Security's and CitNat's Articles of Incorporation
Security's and CitNat's Articles of Incorporation contain two
provisions which can be characterized as antitakeover in nature. These
provisions are identical for each company and are summarized below:
Supermajority Vote and Fair Price Provision
Security and CitNat have a provision in their respective Articles of
Incorporation which provide that in certain business combination transactions,
which are not approved by the incumbent board of directors, a supervote is
required by shareholders in order to approve such a business combination. In the
case of Security the vote of shareholders required under such circumstances is
80% and in the case of CitNat the vote required is 80%. In addition the Articles
of Incorporation of each of Security and CitNat contain a "fair price" provision
which requires an acquiror to pay the same level of consideration for all shares
of the company acquired during the preceding two years. The supermajority and
fair price provisions do not apply to transactions which are approved by the
incumbent board of directors of the company nor to a transaction approved by a
vote of at least 66 2/3% of the shares excluding those owned by the acquiror.
Classified Board Provision
Security and CitNat currently have in operation, a classified election
system for electing their Board of Directors. Directors are elected to a
designated class and shall serve until the expiration of the term for which they
are elected, and until their successors have been duly elected and qualified.
Each of Security and CitNat have three (3) classes and each director is elected
to a three (3) year term such that one-third of the Board is elected each year.
Authorized Shares
The availability of authorized and unissued shares for future issuance
by Security may be deemed to have an antitakeover effect. As of the date of the
Agreement, Security had 5,106,384 authorized shares available for future
issuance. The authorized and unissued shares are available for issuance, subject
to stockholders' preemptive rights as provided by Ohio law, and thereby could be
issued into "friendly hands" to dilute the ownership of an individual or
corporation that has acquired shares of Security and intends to conduct an
acquisition of Security that is deemed to be undesirable by the Board of
Directors of Security.
These provisions are not the result of management's knowledge of any
effort to obtain control of Security by any means. Security's Articles of
Incorporation and Code of Regulations currently contain no other provisions that
were intended to be or could fairly be considered as antitakeover in nature or
effect. Further, the Board of Directors has no intention to amend the Articles
of Incorporation or Code of Regulations to add any additional antitakeover
provisions.
INFORMATION ABOUT SECURITY
GENERAL
Security, through its affiliate, Security Bank, conducts the business
of a commercial banking organization. At March 31, 1996, Security and its
subsidiaries had consolidated total assets of approximately $542 million,
consolidated total deposits of approximately $432 million and consolidated total
equity of approximately $74 million.
Security, through its banking affiliate, offers a broad range of
banking services to the commercial, industrial and consumer market segments
which it serves. Services include commercial, real estate and personal
45
<PAGE> 50
loans; checking, savings and time deposits and other customer services such as
safe deposit facilities. Security does not have any foreign operations, assets
or investments.
Security Bank is a national banking association. Security Bank is
regulated by the Office of the Comptroller of the Currency ("OCC") and its
deposits are insured by the Federal Deposit Insurance Corporation to the extent
permitted by law and, as a subsidiary of Security, is regulated by the Federal
Reserve Board.
THIS PROXY STATEMENT-PROSPECTUS, AS MAILED TO STOCKHOLDERS OF CITNAT IS
ACCOMPANIED BY SECURITY'S ANNUAL REPORT TO STOCKHOLDERS FOR THE YEAR ENDED
DECEMBER 31, 1995 (THE "SECURITY 1995 ANNUAL REPORT"). ADDITIONAL INFORMATION
CONCERNING SECURITY IS CONTAINED IN DOCUMENTS INCORPORATED IN THIS PROXY
STATEMENT BY REFERENCE. THESE DOCUMENTS, INCLUDING THE SECURITY 1995 ANNUAL
REPORT AND SECURITY'S FIRST QUARTER REPORT FORM 10Q, ARE AVAILABLE WITHOUT
CHARGE UPON WRITTEN REQUEST TO J. WILLIAM STAPLETON, 40 S. LIMESTONE STREET,
SPRINGFIELD, OHIO 45502. IN ORDER TO ASSURE TIMELY DELIVERY OF THESE DOCUMENTS,
ANY REQUEST SHOULD BE MADE BY AUGUST 12, 1996.
COMPETITION
The commercial banking and trust business in the market areas served by
Security Bank is very competitive. Security and Security Bank are all in
competition with commercial banks located in their own service areas. Some
competitors of Security and Security Bank are substantially larger than Security
Bank. In addition to local bank competition, Security Bank competes with larger
commercial banks located in metropolitan areas, savings banks, savings and loan
associations, credit unions, finance companies and other financial institutions
for loans and deposits.
CERTAIN REGULATORY CONSIDERATIONS
The following is a summary of certain statutes and regulations
affecting Security and its subsidiaries. This summary is qualified in its
entirety by such statutes and regulations.
Security
Security is a registered bank holding company under the Bank Holding
Company Act as amended, ("BHC Act") and as such is subject to regulation by the
Federal Reserve Board. A bank holding company is required to file with the
Federal Reserve Board quarterly reports and other information regarding its
business operations and those of its subsidiaries. A bank holding company and
its subsidiary banks are also subject to examination by the Federal Reserve
Board.
The BHC Act requires every bank holding company to obtain the prior
approval of the Federal Reserve Board before acquiring substantially all the
assets of any bank or bank holding company or ownership or control of any voting
shares of any bank or bank holding company, if, after such acquisition, it would
own or control, directly or indirectly, more than five percent (5%) of the
voting shares of such bank or bank holding company. Bank holding companies are
also prohibited from acquiring shares of any bank located outside the state in
which the operations of the bank holding company's banking subsidiaries are
principally conducted unless such an acquisition is specifically authorized by a
statute of the state in which the bank whose shares are to be acquired is
located. However, the BHC Act does not place territorial restrictions on the
activities of nonbank subsidiaries of a bank holding company.
In approving acquisitions by bank holding companies of companies
engaged in banking-related activities, the Federal Reserve Board considers
whether the performance of any such activity by a subsidiary of the holding
company reasonably can be expected to produce benefits to the public, such as
greater convenience, increased competition, or gains in efficiency, which
outweigh possible adverse effects, such as over concentration of resources,
decrease of competition, conflicts of interest, or unsound banking practices.
46
<PAGE> 51
Bank holding companies are restricted in, and subject to, limitations
regarding transactions with subsidiaries and other affiliates.
In addition, bank holding companies and their subsidiaries are
prohibited from engaging in certain "tie in" arrangements in connection with any
extensions of credit, leases, sales of property, or furnishing of services.
Security Subsidiaries
Security operates a single national bank, namely, Security Bank. As a
national bank Security Bank is supervised and regulated by the OCC, and subject
to laws and regulations applicable to national banks.
Capital
The Federal Reserve Board, OCC, and FDIC require banks and holding
companies to maintain minimum capital ratios.
The Federal Reserve Board has adopted final "risk-adjusted" capital
guidelines for bank holding companies. The new guidelines became fully
implemented as of December 31, 1992. The OCC and FDIC have adopted substantially
similar risk-based capital guidelines. These ratios involve a mathematical
process of assigning various risk weights to different classes of assets, then
evaluating the sum of the risk-weighted balance sheet structure against
Security's capital base. The rules set the minimum guidelines for the ratio of
capital to risk-weighted assets (including certain off-balance sheet activities,
such as standby letters of credit) at 8%. At least half of the total capital is
to be composed of common equity, retained earnings, and a limited amount of
perpetual preferred stock less certain goodwill items ("Tier 1 Capital"). The
remainder may consist of a limited amount of subordinated debt, other preferred
stock, or a limited amount of loan loss reserves. At March 31, 1996 Security's
consolidated risk-adjusted Tier 1 Capital and total capital, as defined by the
regulatory agencies based on the fully phased in 1992 guidelines, were 21.54%
and 22.65% of risk-weighted assets, respectively, well above the 4% and 8%
minimum standards mandated by the regulatory agencies.
In addition, the federal banking regulatory agencies have adopted
leverage capital guidelines for banks and bank holding companies. Under these
guidelines, banks and bank holding companies must maintain a minimum ratio of
three percent (3%) Tier 1 Capital (as defined for purposes of the year-end 1992
risk-based capital guidelines) to total assets. The Federal Reserve Board has
indicated, however, that banking organizations that are experiencing or
anticipating significant growth, are expected to maintain capital ratios well in
excess of the minimum levels. As of March 31, 1996, Security's core leverage
ratio was 13.7%, well above the regulatory minimum.
Regulatory authorities may increase such minimum requirements for all
banks and bank holding companies or for specified banks or bank holding
companies. Increases in the minimum required ratios could adversely affect
Security and Security Banks, including their ability to pay dividends.
Additional Regulation
Security Bank is also subject to federal regulation as to such matters
as required reserves, limitation as to the nature and amount of its loans and
investments, regulatory approval of any merger or consolidation, issuance or
retirement of their own securities, limitations upon the payment of dividends
and other aspects of banking operations. In addition, the activities and
operations of Security Bank are subject to a number of additional detailed,
complex and sometimes overlapping laws and regulations. These include state
usury and consumer credit laws, state laws relating to fiduciaries, the Federal
Truth-in-Lending Act and Regulation Z, the Federal Equal Credit Opportunity Act
and Regulation B, the Fair Credit Reporting Act, the Truth in Savings Act, the
Community Reinvestment Act, anti-redlining legislation and antitrust laws.
47
<PAGE> 52
Dividend Regulation
The ability of Security to obtain funds for the payment of dividends
and for other cash requirements is largely dependent on the amount of dividends
which may be declared by Security Bank. Generally, Security Bank may not declare
a dividend, without the approval, if the total of dividends declared in a
calendar year exceeds the total of its net profits for that year combined with
its retained profits of the preceding two years.
Government Policies and Legislation
The policies of regulatory authorities, including the OCC, Federal
Reserve Board, FDIC and the Depository Institutions Deregulation Committee, have
had a significant effect on the operating results of commercial banks in the
past and are expected to do so in the future. An important function of the
Federal Reserve System is to regulate aggregate national credit and money supply
through such means as open market dealings in securities, establishment of the
discount rate on member bank borrowings, and changes in reserve requirements
against member bank deposits. Policies of these agencies may be influenced by
many factors, including inflation, unemployment, short-term and long-term
changes in the international trade balance and fiscal policies of the United
States government.
The United States Congress has periodically considered and adopted
legislation which has resulted in further deregulation of both banks and other
financial institutions, including mutual funds, securities brokerage firms and
investment banking firms. No assurance can be given as to whether any additional
legislation will be adopted or as to the effect such legislation would have on
the business of Security or Security Bank.
In addition to the relaxation or elimination of geographic restrictions
on banks and bank holding companies, a number of regulatory and legislative
initiatives have the potential for eliminating many of the product line barriers
presently separating the services offered by commercial banks from those offered
by nonbanking institutions. For example, Congress recently has considered
legislation which would expand the scope of permissible business activities for
bank holding companies (and in some cases banks) to include securities
underwriting, insurance services and various real estate related activities as
well as allowing interstate branching.
Deposit Insurance
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") was enacted in 1991. Among other things, FDICIA, requires federal
bank regulatory authorities to take "prompt corrective action" with respect to
banks that do not meet minimum capital requirements. For these purposes, FDICIA
establishes five capital tiers: well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized, and critically
undercapitalized.
The Federal Reserve Board, the OCC and the FDIC have adopted
regulations to implement the prompt corrective action provisions of FDICIA,
effective December 19, 1992. Among other things, the regulations define the
relevant capital measures for the five capital categories. An institution is
deemed to be "well capitalized" if it has a total risk-based capital ratio
(total capital to risk-weighted assets) of 10% or greater, a Tier 1 risk-based
capital ratio (Tier 1 Capital to risk-weighted assets) of 6% or greater, and a
Tier 1 leverage capital ratio (Tier 1 Capital to total assets) of 5% or greater,
and is not subject to a regulatory order, agreement or directive to meet and
maintain a specific capital level for any capital measure. An institution is
deemed to be "adequately capitalized" if it has a total risk-based capital ratio
of 8% or greater, a Tier 1 risk-based capital of 4% or greater, and (generally)
a Tier 1 leverage capital ratio of 4% or greater, and the institution does not
meet the definition of a "well capitalized" institution. An institution is
deemed to be "critically undercapitalized" if it has a ratio of tangible equity
(as defined in the regulations) to total assets that is equal to or less than
2%. "Undercapitalized" banks are subject to growth limitations and are required
to submit a capital restoration plan. If an "undercapitalized" bank fails to
submit an acceptable plan, it is treated as if it is significantly
undercapitalized. "Significantly undercapitalized" banks may be subject to a
number of requirements and restrictions, including orders to sell sufficient
voting stock to become adequately capitalized, requirements to reduce total
assets, and cessation of receipt of deposits from correspondent
48
<PAGE> 53
banks. "Critically undercapitalized" institutions may not, beginning 60 days
after becoming "critically undercapitalized," make any payment of principal or
interest on their subordinated debt.
Security and Security Bank currently exceed the regulatory definition
of a "well capitalized" financial institution.
On June 17, 1993, the FDIC issued regulations establishing a permanent
risk-based assessment system. These regulations took effect October 1, 1993, and
were first used to determine assessments for the assessment period commencing
January 1, 1994. During 1994, Security Bank was assessed at the rate of .23% of
deposits under the transitional assessment system. During 1995 the FDIC reduced
the assessment payable on deposits insured by the Bank Insurance Fund ("BIF") to
$2,000 per BIF insured institution. The FDIC has maintained the rate payable on
deposits insured by the Saving Association Insurance Fund ("SAIF") at .23%. This
created a significant disparity between the deposit insurance premiums paid by
BIF and SAIF members. The deposits of Third are insured by the SAIF.
The United States Congress and the federal banking agencies are
actively considering several options to address this disparity, including a
one-time assessment of up to 0.90% of insured deposits to be imposed on all SAIF
members. While it is uncertain whether this or any proposal for addressing the
insurance premium disparity will be adopted, assuming the Third Merger is
consummated and based upon the deposits of Third at March 31, 1995 (as
proposed), the proposed one-time assessment would be approximately $645,000
after taxes.
Among other various proposals currently being considered by the FDIC
and Congress, in connection with the recent premium disparity between BIF and
SAIF insured depository institutions, is is a requirement that savings
institutions convert to commercial banks. Under current federal income tax laws,
a savings institution converting to commercial bank must "recapture" into
taxable income the amount of its tax bad debt reserve that would not have been
allowed if the savings institution had operated as a commercial bank. The tax
associated with the recapture of all or part of its tax bad debt reserve would
immediately reduce the capital of the savings institution, even though such tax
would actually be paid out over the succeeding years. It is impossible to
predict whether the foregoing proposal will be adopted in its current form or,
if adopted, whether such proposed might be amended to remove some or all of the
adverse financial and tax effect from the recapture.
The FDIC may terminate the deposit insurance of any insured depository
institution if the FDIC determines, after a hearing, that the institution has
engaged or is engaging in unsafe or unsound practices, is in an unsafe or
unsound condition to continue operations or has violated any applicable law,
regulation, order, or any condition imposed in writing by, or written agreement
with, the FDIC. The FDIC may also suspend deposit insurance temporarily during
the hearing process for a permanent termination of insurance if the institution
has no tangible capital. Management of Security is not aware of any activity or
condition that could result in termination of the deposit insurance of the
Security Bank.
Recent Legislation
On September 29, 1994, the Reigle/Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Interstate Act") was signed into law. This
Interstate Act effectively permits nationwide banking. The Interstate Act
provides that one year after enactment, adequately capitalized and adequately
managed bank holding companies may acquire banks in any state, even in those
jurisdictions that currently bar acquisitions by out-of-state institutions,
subject to deposit concentration limits. The deposit concentration limits
provide that regulatory approval by the Federal Reserve Board may not be granted
for a proposed interstate acquisition if after the acquisition, the acquiror on
a consolidated basis would control more than 10% of the total deposits
nationwide or would control more than 30% of deposits in the state where the
acquiring institution is located. The deposit concentration state limit does not
apply for initial acquisitions in a state and in every case, may be waived by
the state regulatory authority. Interstate acquisitions are subject to
compliance with the Community Reinvestment Act ("CRA"). States are permitted to
impose age requirements not to exceed five years on target banks for interstate
acquisitions. States are not allowed to opt-out of interstate banking.
49
<PAGE> 54
Branching between states may be accomplished either by merging separate
banks located in different states into one legal entity, or by establishing de
novo branches in another state. Consolidation of banks is not permitted until
June 1, 1997, provided that the state has not passed legislation "opting-out" of
interstate branching. If a state opts-out prior to June 1, 1997, then banks
located in that state may not participate in interstate branching. A state may
opt-in to interstate branching by bank consolidation or by de novo branching by
passing appropriate legislation earlier than June 1, 1997. Interstate branching
is also subject to a 30% statewide deposit concentration limit on a consolidated
basis, and a 10% nationwide deposit concentration limit. The laws of the host
state regarding community reinvestment, fair lending, consumer protection
(including usury limits) and establishment of branches shall apply to the
interstate branches.
De novo branching by an out-of-state bank is not permitted unless the
host state expressly permits de novo branching by banks from out-of-state. The
establishment of an initial de novo branch in a state is subject to the same
conditions as apply to initial acquisition of a bank in the host state other
than the deposit concentration limits.
Effective one year after enactment, the Interstate Act permits bank
subsidiaries of a bank holding company to act as agents for affiliated
depository institutions in receiving deposits, renewing time deposits, closing
loans, servicing loans and receiving payments on loans and other obligations. A
bank acting as agent for an affiliate shall not be considered a branch of the
affiliate. Any agency relationship between affiliates must be on terms that are
consistent with safe and sound banking practices. The authority for an agency
relationship for receiving deposits includes the taking of deposits for an
existing account but is not meant to include the opening or origination of new
deposit accounts. Subject to certain conditions, insured savings associations
which were affiliated with banks as of June 1, 1994, may act as agents for such
banks. An affiliate bank or savings association may not conduct any activity as
an agent which such institution is prohibited from conducting as principal. If
an interstate bank decides to close a branch located in a low or moderate-income
area, it must comply with additional branch closing notice requirements. The
appropriate regulatory agency is authorized to consult with community
organizations to explore options to maintain banking services in the affected
community where the branch is to be closed.
To ensure that interstate branching does not result in taking deposits
without regard to a community's credit needs, the regulatory agencies are
directed to implement regulations prohibiting interstate branches from being
used as "deposit production offices." The regulations to implement its
provisions are due by June 1, 1997. The regulations must include a provision to
the effect that if loans made by an interstate branch are less than fifty
percent of the average of all depository institutions in the state, then the
regulator must review the loan portfolio of the branch. If the regulator
determines that the branch is not meeting the credit needs of the community, it
has the authority to close the branch and to prohibit the bank from opening new
branches in that state.
When the interstate banking provisions become effective in one year,
Security will have enhanced opportunities to acquire banks in any state subject
to approval by the appropriate federal and state regulatory agencies. When the
interstate branching provisions become effective in June 1997, Security will
have the opportunity to consolidate affiliate banks located in different states
to create one legal entity with branches in more than one state should
management decide to do so, or to establish branches in different states,
subject to any state opt-out provisions. The agency authority permitting
Security affiliate banks to act as agents for each other in accepting deposits
or servicing loans should make it more convenient for customers of one Security
bank to transact their banking business at a Security affiliate in another
state provided that operations are in place to facilitate these out of state
transactions. Security does not presently own nor does it have any present plans
or commitments to own any out of state affiliates.
On November 18, 1993, the FDIC, together with the Federal Reserve, the
OCC and the Office of Thrift Supervision (the "OTS"), published for comment
proposed rules implementing the FDICIA requirement that the federal banking
agencies establish operational and managerial standards to promote the safety
and soundness of federally insured depository institutions. The proposal would
establish standards for internal controls, information systems, internal audit
systems, loan documentation, credit underwriting, interest rate exposure, asset
growth, and compensation, fees and benefits. In general, the standards set forth
in the proposal consist of the goals to be achieved in each area, and each
institution would be responsible for establishing its own procedures to achieve
those goals. Additionally, the proposal would establish a maximum permissible
ratio of classified assets to capital and a
50
<PAGE> 55
minimum required earnings ratio. If an institution failed to comply with any of
the standards set forth in the proposal, the institution would be required to
submit to its primary federal regulator a plan for achieving and maintaining
compliance. Failure to submit an acceptable plan, or failure to comply with a
plan that has been accepted by the appropriate regulator, would constitute
grounds for further enforcement action. Based upon a review of the proposal,
management of the Bank believes that the proposal, if adopted in substantially
the form proposed, will not have a material adverse effect on the Bank
On May 17, 1995, the FDIC, together with the Federal Reserve, the OCC
and the OTS issued new regulations under the Community Reinvestment Act ("CRA").
Under the proposal, an institution's performance in meeting the credit needs of
its entire community, including low and moderate income areas, as required by
the CRA, would generally be evaluated under three tests: the "lending test,"
which would consider the extent to which the institution makes loans in the low
and moderate income areas of its market; the "service test," which would
consider the extent to which the institution makes branches accessible to low
and moderate income areas of its market and provides other services that promote
credit availability; and the "investment test," which would consider the extent
to which the institution invests in community and economic development
activities.
Proposed Legislation
In addition to the above, there have been proposed a number of
legislative and regulatory proposals designed to strengthen the federal deposit
insurance system and to improve the overall financial stability of the U.S.
banking system. It is impossible to predict whether or in what form these
proposals may be adopted in the future, and if adopted, what their effect would
be on Security.
PRINCIPAL HOLDER OF SECURITY COMMON STOCK
The following table sets forth information concerning the number of
shares of Security Common Stock held as of December 31, 1995, by each
stockholder who is known to Security management to have been the beneficial
owners of more than five percent of the outstanding shares of Security Common
Stock as of that date:
<TABLE>
<CAPTION>
Name and Address of Shares Beneficially Percent
Beneficial Owner(1) Owned(2) of Class(3)
<S> <C> <C>
Security National Bank and Trust Co.
Trustee 904,125(1) 18%
40 S. Limestone Street
Springfield, OH 44502
Dwight W. Hollenbeck 428,384 8.4%
c/o Cede & Co.
Box 20
Bowling Green Station, New York, NY 10004
Mr. and Mrs. Richard L. Kuss 333,940 6.5%
1130 Vester Avenue, Suite A
Springfield, OH 45503
</TABLE>
(1) Held as trustee in a fiduciary capacity under various trust
agreements. The trustee has advised Security that it has sole voting power for
794,895 of such shares and shared voting power with respect to 97,078 shares.
LEGAL PROCEEDINGS
Security and its subsidiary are from time to time subject to various pending and
threatened lawsuits in which claims for monetary damages are asserted in the
ordinary course of business. While any litigation involves an element of
51
<PAGE> 56
uncertainty, management of the Company does not anticipate that any currently
pending or threatened litigation has the potential to materially affect the
financial condition or results of operations of Security.
As of the date of this Proxy-Statement Prospectus management is aware of no
pending litigation against Security or any of its subsidiaries.
PENDING ACQUISITION
On April 22, 1996, Security executed a definitive Agreement and Plan of
Reorganization with Third Financial Corp., Piqua, Ohio ("Third" and the "Third
Agreement"). Pursuant to the terms of the Third Agreement stockholders of Third
will exchange all of the outstanding shares of Third Common Stock on the
effective date of the acquisition of Third by Security (the "Third Merger") for
$40,050,000, in cash, in the aggregate, subject to adjustment. Third is a
Delaware corporation and is a savings and loan holding company which owns as its
principal asset all of the outstanding capital stock of Third Savings and Loan
Association, Piqua, Ohio. The Third Merger will be accounted for as a purchase
under the provisions of Accounting Principles Bulletin 16 and is expected to be
completed in the fourth quarter of 1996.
Third's audited financial statements as of September 30, 1995 and 1994
and for the three years ended September 30, 1995 are presented at page F-32.
Third's interim financial statements as of and for the six-months ended March
31, 1996 and March 31, 1995 are presented at page F-60.
INFORMATION ABOUT CITNAT
GENERAL
CitNat is an Ohio general business corporation and a registered bank
holding company with its main office located in Urbana, Ohio. Citizens Bank is a
national banking association and a wholly owned subsidiary of CitNat. Citizens
Bank operates its main office at 1 Monument Square, Urbana, Ohio. Citizens Bank
operates 5 branches.
The principal business of Citizens Bank consists of attracting retail
deposits from the general public and investing those funds in one to four family
residential mortgage loans, consumer loans, commercial real estate, construction
and commercial business loans primarily in its market area. Citizens Bank also
purchases mortgage-backed securities and loan participations, and invests in
U.S. Government and agency obligations and other permissible investments.
Citizens Bank's revenues are derived primarily from interest on loans,
investments, income from service charges and loan originations, and loan
servicing fee income.
PROPERTIES
CitNat owns no real or personal property of a material nature other
than its main office, branch locations, and the furniture, fixtures and
equipment used in its banking business. The main office of CitNat is located at
1 Monument Square, Urbana, Ohio and its branch offices are located at the
following addresses.
<TABLE>
Address County
------- ------
<S> <C>
2 S. Main St., Mechanicsburg, OH, 43044 Champaign, Ohio
8 W. Maple St., N. Lewisburg, OH 43060 Champaign,Ohio
105 West Main St., Plain City, OH 43064 Madison, Ohio
1 Monument Square, Urbana, OH 43078 Champaign, Ohio
828 Scioto St., Urbana, OH 43078 Champaign, Ohio
</TABLE>
52
<PAGE> 57
CitNat owns the land and buildings on which its main office and branch
offices are located, free and clear of any major encumbrances.
LITIGATION
There is no pending litigation of a material nature in which CitNat is
a party or to which any of its property is subject. Further, there is no
material legal proceeding in which any director, executive officer, principal
stockholder or affiliate of CitNat, or any associate of any such director,
executive officer, principal stockholder or affiliate, is a party or has a
material interest adverse to CitNat. None of the ordinary routine litigation in
which CitNat is involved is expected to have a material adverse effect on the
financial condition, results of operations or business of CitNat.
VOTING, PRINCIPAL STOCKHOLDERS AND MANAGEMENT INFORMATION
Holders of record of CitNat Common Stock at the close of business on
the Record Date will be entitled to vote at the Special Meeting of stockholders
on August 21, 1996. On the Record Date there were 390,119 shares of
CitNat Common Stock issued and outstanding. Each share of CitNat Common Stock is
entitled to one vote on each matter presented for stockholder action.
The following table sets forth information concerning the number of
shares of CitNat Common Stock held as of, March 31, 1996, by each stockholder
who is known to CitNat management to have been the beneficial owner of more
than five percent of the outstanding shares of CitNat Common Stock as of
that date:
53
<PAGE> 58
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Beneficially
owned at Percent
Beneficial Owners March 31,,1996 of Class
<S> <C> <C>
Robert B. McConnell 23,158 5.94%
Trustees of Mercy Memorial Hospital Association 39,433 10.11
</TABLE>
- --------------------------------------------------------------------------------
The following table shows certain information concerning the number of
shares of CitNat Common Stock held as of March 31, 1996, by each director of
CitNat and by all of CitNat's directors and executive officers as a group:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares of
Common Stock
Beneficially owned at Percent
Name March 31, 1996 of Class
---- -------------- --------
<S> <C> <C>
Leroy Blazer 15,428 3.95
Dr. Walter Bumgarner 654 .17
Grover C. Foulk 381 .10
Henry Houston 472 .12
John G. Kagamas 3,120 .80
Robert B. McConnell 23,158 5.94
Charles R. Saxbe 660 .17
Charles Stradler 3,774 .97
Ronald L. Welch 7,487 1.92
James R. Wilson 5,680 1.46
John C. Wing 654 .17
Richard Anderson 987 .25
Tim Bunnell 182 .05
Steven A. Glock 154 .04
Judy Markin 331 .08
------
All officers and directors (15 persons) as a group 63,122 16.16
</TABLE>
- --------------------------------------------------------------------------------
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Directors and executive officers of CitNat and their associates are
customers of and have had transactions with CitNat from time to time in the
ordinary course of business. Such transactions have been made on substantially
the same terms, including interest rates and collateral on loans, as those
prevailing at the time for comparable transactions with other persons and did
not and will not involve more than the normal risk of collectibility or present
other unfavorable features. Similar transactions may be expected to take place
in the ordinary course of business in the future.
COMPETITION
The principal markets in which CitNat competes is Champaign, Union
Madison, Logan and Clark Counties in Ohio. For deposits and loans CitNat
competes with other banks, savings institutions, credit unions, finance
companies, factoring companies, insurance companies, governmental agencies and
other financial institutions.
EMPLOYEES
54
<PAGE> 59
At March 31, 1996, CitNat had 69 full time equivalent employees. CitNat
is not a party to any collective bargaining agreement and employee relations are
considered to be excellent by CitNat management.
CITNAT'S FINANCIAL STATEMENTS AND MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
This discussion is intended to focus on certain financial information
regarding CitNat Bancorp, Inc. ("Company") and its wholly owned subsidiary, The
Citizens National Bank of Urbana ("Bank"). This discussion should be read in
conjunction with the consolidated financial statements and accompanying notes
approving elsewhere herein.
The Company is not aware of any market or institutional trends, events
or uncertainties that are expected to have a material effect on liquidity,
capital resources or operations, except as discussed herein. The Company is also
not aware of any current recommendations by its regulatory authorities that
would have such impact if implemented.
RESULTS OF OPERATIONS - DECEMBER 31, 1995, 1994 AND 1993
Net income in 1995 of $1,625,000 represents a 9 percent increase over
the net income of $1,472,000 in 1994 which in turn increased by 12 percent over
the net income of $1,300,000 reported in 1993. The primary factors which have
influenced these positive operating results are discussed below.
Net interest income is the primary source of earnings for the Company
and consists of the difference between the interest income earned on loans and
investments and the interest expense incurred on deposits and short-term
borrowings. Changes in the mix and volume of interest-earnings assets and
interest-bearing liabilities and their related yields have a major impact on
earnings. Management attempts to manage the repricing of assets and liabilities
so as to achieve a stable level of net interest income and minimize the effect
of significant changes in the market level of interest rates. This is
accomplished through the pricing and promotion of loan and deposit products.
Net interest income computed on a fully taxable equivalent basis
increased by $276,000 in 1995 over 1994. The source of this increase can be
attributed to an increase in the average volume of earnings assets, particularly
commercial and real estate loans. A portion of the increase in loans represents
a shift of funds from lower yielding U.S. Government and Agency securities which
also contributed to the increased net interest income.
Net interest income computed on a fully taxable equivalent basis
increased by $490,000 in 1994 compared to 1993. This increase is due largely to
a change in the mix of earning assets as the proceeds from maturing investment
securities were used to fund new loans. Investment securities declined by
$9,274,000 from December 31, 1993 to 1994, while loans, primarily real estate
and commercial loans, increased by slightly over $11,000,000 during the same
period. Since the average yield earned on the loan portfolio has exceeded the
average yield earned on the investment portfolio by 200 to 300 basis points over
the last several years, this shift in asset mix increased net interest income.
The provision for loan losses for years ended December 31, 1995, 1994
and 1993 were $150,000, $44,000 and $150,000, respectively. The reduced
provision in 1994 is a result of net recoveries, experienced in that year, of
previously charged-off loans.
Other operating income includes service charges and fees on loan and
deposit accounts, safe deposit box rental income and other miscellaneous fee
income. This has been a relatively stable source of revenue for the Company with
no significant fluctuations experienced from 1993 through 1995. The Company has
historically held its portfolio of investment securities to maturity so gains or
losses from the sale of securities have not had any significant impact on
earnings. While management has classified the majority of the investment
portfolio as available for sale under the provisions of Statement of Financial
Accounting Standards No. 115, this was done for liquidity purposes and
management has no current plans for significant sales of securities.
55
<PAGE> 60
Total other operating expenses have also been relatively stable for the
Company over the last three years reflecting an increase of approximately 8.5
percent for 1994 over 1993 and a decline of approximately 1 percent for 1995
compared to 1994. Individual components of other operating expenses which
fluctuated during the period were salaries and employee benefits which increased
by 10.6 percent in 1994 over 1993 and federal deposit insurance expense which
declined by 51.2 percent in 1995. This increase in salaries and benefits was a
result of additional staff from the Farmers National Bank of Plain City,
purchased in May of 1993 being employed for a full year in 1994 and general
merit increases. The reduction in federal deposit insurance expense occurred in
mid-1995 when the FDIC reduced insurance assessments from $.23 per $100 of
deposits to $.04 per $100 of deposits.
The Company's effective federal income tax rate has been approximately
28 percent for 1995, 1994 and 1993. This is less than the stated corporate tax
rate of 34 percent due to the Company's investment in nontaxable securities of
states and municipal governments.
FINANCIAL CONDITION
Total assets of the Company increased from $126,731,000 at December 31,
1994 to $140,131,000 at December 31, 1995, an increase of 10.6 percent. This
growth was primarily in the area of cash and cash equivalents which increased
from $6,299,000 at the end of 1994 to $20,300,000 at the end of 1995.
Contributing to this unusual increase in cash and cash equivalents were
unexpected increases in deposits from commercial business customers received at
the end of 1995. A portion of these deposits were subsequently withdrawn and, as
reflected elsewhere herein, total assets of the Company at March 31, 1996 were
$135,031,000.
Total investment securities declined by $1,900,000 from 1994 to 1995 as
maturities of securities were used to fund increased loan demand.
The distribution of the investment portfolio consists of U.S. Treasury
Securities representing 25 percent, U.S. Government Agency Securities
representing 47 percent, Corporate bonds and equity securities representing 12
percent and securities of States and Political Subdivisions representing 16
percent. The Company holds no mortgage-backed securities or other types of
derivative securities.
Effective January 1, 1994, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 115 and accordingly classified
securities as either held to maturity or available for sale. All municipal
securities have been classified as held to maturity because they are purchased
for the benefit of the tax-free yield. These securities are carried at amortized
cost on the Company's balance sheet. All remaining securities are classified as
available for sale and are carried at fair value. While securities classified as
available for sale could be sold to meet liquidity needs, management has
historically not sold significant amounts of securities prior to maturity.
The Company's loan portfolio consisted of the following loan types at
December 31, 1995 and 1994 (in thousands):
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Loans secured by real estate:
Construction and land development $ 1,200 $ 1,242
Secured by farmland 5,100 5,807
Secured by residential properties 32,269 31,548
Secured by nonfarm, nonresidential properties 3,951 4,112
Loans to finance agricultural production 12,379 12,481
Commercial and industrial loans 10,197 7,183
Loans to individuals for household, family, and other 16,312 18,063
Tax exempt obligations 587 510
-------- -------
Total loans $ 81,995 $80,946
======== =======
</TABLE>
56
<PAGE> 61
At December 31, 1995 and 1994, the loan portfolio included
approximately $17,479,000 and $18,288,000 of loans for agricultural purposes. No
other concentrations of loans are known to exist for a single industry or group
of related borrowers which exceeds 10 percent of the loan portfolio. The Company
also has no foreign loans outstanding.
Using salaried loan officers, the Company originates loans from
customers located principally in Champaign County and portions of surrounding
counties. The Company has not purchased significant participations in loans
originated by others and it has not sold significant participations in loans to
others.
Nonaccrual, past due and restructured loans at December 31, 1995 and
1994 are summarized below (in thousands). The policy for placing loans on
nonaccrual status is to cease accruing interest on loans when management
believes that the collection of interest is doubtful, or when loans are past due
as to principal and interest ninety days or more, except that in certain
circumstances interest accruals are continued on loans deemed by management to
be fully collectible. In such cases, the loans are individually evaluated to
determine whether to continue income recognition after ninety days beyond the
due dates. When loans are charged off, any accrued interest recorded in the
fiscal year is charged against interest income. The remaining balance is treated
as a loan charge-off.
<TABLE>
<CAPTION>
1995 1994
---- ----
(000) (000)
<S> <C> <C>
Loans accounted for on a nonaccrual basis $ 256 $ 6
Accruing loans which are contractually past due 90
days or more 98 -0-
Troubled debt restructurings -0- -0-
Impaired loans -0- N/A
</TABLE>
The amount of interest income foregone on nonaccrual and restructured
loans is not material for either period. At December 31, 1995 and 1994, the Bank
had other loans totalling approximately $520,000 and $314,000, respectively,
that do not meet criteria for disclosure above, but for which management has
doubt about the ability of the borrowers to comply with loan repayment terms.
Such loans have been considered by management in evaluating the adequacy of the
allowance for loan losses.
The allowance for loan losses is maintained by management at a level
considered adequate to cover loan losses that are currently anticipated based on
past loss experience, general economic conditions, changes in the mix and size
of the loan portfolio, information about specific borrower situations and other
factors and estimates which are subject to change over time. Management
periodically reviews and grades selected large loans, delinquent and other
problem loans and loans which have been adversely rated by regulatory agencies.
The collectibility of these loans is evaluated by considering the current
financial position and performance of the borrower, the estimated value of
collateral, the Company's collateral position in relationship to other
creditors, guarantees and other sources of repayment. Management forms
judgements which are subjective as to the probability of loss and the amount of
loss on these loans as well as other loans in the aggregate.
The allowance for loan losses totalled $1,595,000 at December 31, 1995
and $1,555,000 at December 31, 1994, representing 1.95 percent and 1.92 percent
of total loans, respectively.
57
<PAGE> 62
A summary of loan charge-offs and recoveries by loan type is as follows for 1995
and 1994 (in thousands):
<TABLE>
<CAPTION>
1995 1994
---- ----
(000) (000)
<S> <C> <C>
Allowance for loan losses at beginning of year $1,555 $1,202
Charge-offs - Commercial and agricultural 26 18
Real estate 0 0
Consumer 183 106
------ ------
Total 209 124
Recoveries - Commercial and agricultural 35 385
Real estate 0 0
Consumer 64 48
------ ------
Total 99 433
Provision for loan losses 150 44
------ ------
Allowance for loan losses at end of year $1,595 $1,555
====== ======
Ratio of net charge-offs (recoveries) to average loans
outstanding for period .13% (.40)%
</TABLE>
At December 31, 1995, total deposits were $119,588,000 compared to
$109,131,000 at December 31, 1994 for an increase of 9.6 percent. The
significant deposit growth which was realized in 1995 is higher than the growth
experienced in the previous several years and is not attributable to any special
promotional activities by the Company. The composition of deposits by account
type is summarized as follows at December 31, 1995 and 1994 (in thousands):
<TABLE>
<CAPTION>
1995 1994
---- ----
(000) (000)
<S> <C> <C>
Noninterest-bearing demand $ 25,320 $ 22,427
Interest-bearing demand 21,002 19,878
Savings 28,840 30,393
Time deposits of $100,000 and over 14,032 9,771
Other time deposits 30,394 26,662
------ ------
Total $119,588 $109,131
======== ========
</TABLE>
Total shareholders' equity increased from $15,306,000 at December 31,
1994 to $17,451,000 at December 31, 1995 for an increase of 14 percent.
Contributing to this increase were earnings of $1,625,000 in 1995 and a change
in the unrealized gain/loss on securities available for sale of $627,000. For
both 1995 and 1994, the Company has paid semiannual stock dividends of 1 percent
to shareholders, in lieu of cash dividends.
Banking regulations have established minimum capital requirements for
banks and bank holding companies including risk-based capital ratios and
leverage ratios. As of December 31, 1995, risk-based capital regulations require
a minimum total risk-based capital ratio of 8 percent, with half of the capital
composed of core capital. Minimum leverage ratios range from 3 percent to 5
percent of total assets. Conceptually, risk-based capital requirements assess
the riskiness of a financial institution's balance sheet and off-balance sheet
commitments in relation to its capital. Core capital, or Tier 1 capital,
includes common equity, perpetual preferred stock and minority interests that
are held by others in consolidated subsidiaries minus intangible assets.
Supplementary capital, or Tier 2 capital, includes core capital and such items
as mandatory convertible securities, subordinated debt and the allowance for
loans and lease losses, subject to certain limitations. Qualified Tier 2 capital
can equal up to
58
<PAGE> 63
100 percent of an institution's Tier 1 capital with certain limitations in
meeting the total risk-based capital requirements. During 1994, the regulatory
authorities determined that the adjustment to shareholders' equity resulting
from the adoption of SFAS No. 115 would not be considered in the determination
of regulatory capital.
At December 31, 1995, the Company's total risk-based capital ratio and leverage
ratio were 27.17 percent and 12.40 percent, respectively, thus significantly
exceeding the minimum regulatory requirements. At December 31, 1994, the
respective ratios were 21.24 percent and 12.42 percent.
LIQUIDITY
Liquidity management for the Company centers around the assurance that funds are
available to meet the loan and deposit needs of its customers and the Bank's
other financial commitments.
Cash and noninterest-bearing deposits with banks and federal funds sold totalled
$20,300,000 at December 31, 1995 and $6,299,000 at December 31, 1994. These
assets provide the primary source of liquidity for the Company. In addition, the
Company has designated a substantial portion of its investment portfolio as
available for sale to provide an additional source of liquidity.
A standard measure of liquidity is the relationship of loans to deposits. Lower
ratios indicate greater liquidity. At December 31, 1995 and 1994, the ratio of
loans to deposits was 68.6 percent and 74.2 percent, respectively, considered an
acceptable level of liquidity by management.
IMPACT OF INFLATION
The financial data included herein has been prepared in accordance with
generally accepted accounting principles which generally do not recognize
changes in the relative value of money due to inflation or deflation.
In management's opinion, changes in interest rates affect the financial
condition of a financial institution to a far greater degree than changes in the
inflation rate. While interest rates are greatly influenced by changes in the
inflation rate, they do not change at the same rate or in the same magnitude as
the inflation ratio. Rather, interest rate volatility is based on changes in
monetary and fiscal policy. A financial institution's ability to be relatively
unaffected by changes in interest rates is a good indicator of its capability to
perform in today's volatile economic environment. The Company seeks to insulate
itself from interest rate volatility by ensuring that rate-sensitive assets and
rate-sensitive liabilities respond to changes in interest rates in a similar
time frame and to a similar degree.
RESULTS OF OPERATIONS - MARCH 31, 1996 AND 1995
Net income for the three months ended March 31, 1996 was $426,000, an increase
of $46,000 or 12.1 percent over the $380,000 recorded for the three months ended
March 31, 1995. The primary cause of this increase was an increase in other
income related to greater fee revenue earned from the sale of credit life and
accident and health insurance policies to loan customers.
As reflected in the accompanying financial statements, the Company's net
interest income was virtually unchanged at $1,555,000 for the first quarter of
1996 compared to $1,552,000 for the first quarter of 1995.
The provision for loan losses was $38,000 for both the first quarter of 1996 and
1995 as the Company continued to experience modest loan charge-offs and the
level of nonperforming loans continued to be low.
Total other operating expenses were $1,186,000 for both the three months ended
March 31, 1996 and 1995. Within this category, an increase in other
miscellaneous expense attributed primarily to advertising and postage was offset
by a reduction in federal deposit insurance expense. The FDIC eliminated deposit
insurance assessments beginning in 1996 for well-capitalized banks as the Bank
Insurance Fund reached its required level of reserves.
59
<PAGE> 64
FINANCIAL CONDITION - MARCH 31, 1996
Total assets declined to $135,031,000 at March 31, 1996, compared to
$140,131,000 at December 31, 1995. This decline is consistent with the change in
total deposits which were $114,688,000 at March 31, 1996 compared to
$119,588,000 as of December 31, 1995. As previously indicated, the Company
experienced an unexpected inflow of deposits near the end of 1995. Also,
year-end deposit balances are typically higher than other periods of the year as
agricultural customers build deposit balances from the sale of farm products.
Cash and cash equivalents declined from $20,300,000 at year-end 1995 to
$11,935,000 at March 31, 1996. This change related to the funding of deposit
withdrawals and an increase in interest-bearing balances with other banks.
Investment securities available for sale increased from $28,523,000 at
the end of 1995 to $31,507,000 at March 31, 1996. Maturities of U.S. Government
Agencies and Corporate securities were invested in U.S. Treasury securities. As
noted below, loan demand was soft for the first quarter of 1996 and funds
received from net loan repayments contributed to the increase in securities.
Total loans were $80,285,000 at March 31, 1996 compared to $81,995,000
at December 31, 1995. The composition of the loan portfolio at March 31, 1996,
is reflected below (in thousands):
<TABLE>
<S> <C>
Loans secured by real estate
Construction and land development $ 1,163
Secured by farmland 5,078
Secured by residential properties 31,651
Secured by nonfarm, nonresidential properties 4,024
Loans to finance agricultural production 11,675
Commercial and industrial loans 10,597
Loans to individuals for household, family and other 15,532
Tax exempt obligations 565
-------
Total loans $80,285
-------
-------
</TABLE>
Most loan categories declined for the quarter with the largest change occurring
in consumer loans which declined by $780,000 or 5 percent. Competition for loans
in the Company's primary lending area has become more intense, particularly
competition for agricultural loans from government-sponsored lenders and
insurance funds. Also, the Company generally does not aggressively pursue
indirect automobile loans which comprise a significant portion of the local
consumer loan market. At March 31, 1996, the loan portfolio included
approximately $16,753,000 of loans for agricultural purposes. Nonaccrual, past
due and restructured loans at March 31, 1996 are summarized below (in
thousands):
<TABLE>
<S> <C>
Loans accounted for on a nonaccrual basis $154
Accruing loans which are contractually past due 90 days or more 50
Troubled debt restructurings -0-
Impaired loans -0-
</TABLE>
The amount of interest income foregone on nonaccrual and restructured loans is
not material for the three months ended March 31, 1996.
60
<PAGE> 65
The allowance for loan losses totalled $1,663,000 at March 31, 1996 compared to
$1,595,000 at December 31, 1995 representing 2.07 percent and 1.95 percent of
total loans, respectively. Loans charged-off in the first quarter of 1996
totalled $28,000 while recoveries of previously charged-off loans totalled
$58,000.
Total shareholders' equity increased to $17,704,000 at March 31, 1996 from
$17,451,000 at December 31, 1995. The change results from earnings for the
quarter of $426,000, a decline in the estimated fair value of securities
available for sale, net of tax effect, of $155,000 and treasury stock
repurchases of $18,000. The Company's total risk-based capital and leverage
ratio were 23.50 percent and 13.15 percent at March 31, 1996, continuing to be
well-above the minimum regulatory requirements.
LEGAL OPINIONS
Certain legal matters in connection with the Merger will be passed upon
for Security by Werner & Blank Co., L.P.A., Toledo, Ohio and by Vorys, Sater,
Seymour and Pease, Columbus, Ohio, for CitNat.
EXPERTS
The consolidated financial statements of Security as of December 31,
1995 and 1994 and for each of the three years in the period ended December 31,
1995 incorporated by reference into this Proxy Statement-Prospectus have been
audited by Ernst & Young, LLP independent auditors, as stated in their reports
which are incorporated herein by reference, and have been so incorporated in
reliance upon reports of such firms given upon their authority as experts in
accounting and auditing.
The consolidated financial statements of CitNat as of December 31, 1995
and 1994, and for each of the three years in the period ended December 31, 1995,
included in this Proxy Statement-Prospectus have been audited by Crowe, Chizek &
Company LLP independent auditors, as stated in their report which is contained
herein in reliance upon the report of such firm given upon their authority as
experts in accounting and auditing.
The consolidated financial statements of Third as of September 30, 1995
and 1994, and for each of the three years in the period ended September 30,
1995, included in this Proxy Statement-Prospectus have been audited by KPMG Peat
Marwick LLP independent auditors, as stated in their report which is contained
herein in reliance upon the report of such firm given upon their authority as
experts in accounting and auditing.
61
<PAGE> 66
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
CitNat Bancorp, Inc.
Urbana, Ohio
We have audited the accompanying consolidated balance sheets of CitNat Bancorp,
Inc. as of December 31, 1995 and 1994, and the related consolidated statements
of income, changes in shareholders' equity, and cash flows for the years ended
December 31, 1995, 1994 and 1993. These consolidated financial statements are
the responsibility of management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of CitNat Bancorp, Inc.
as of December 31, 1995 and 1994, and the results of its operations and cash
flows for the years ended December 31, 1995, 1994 and 1993 in conformity with
generally accepted accounting principles.
As discussed in Note 1 to the financial statements, the Company changed its
method of accounting for impaired loans in 1995 and certain investment
securities in 1994 to comply with new accounting guidance.
Crowe, Chizek and Company LLP
Columbus, Ohio
January 5, 1996
F-1
<PAGE> 67
CITNAT BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 1995 and 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(In Thousands) 1995 1994
---- ----
<S> <C> <C>
ASSETS
Cash and due from banks (Note 11) $ 11,600 $ 6,299
Federal funds sold 8,700
--------- ---------
Cash and cash equivalents 20,300 6,299
Interest-bearing deposits in other banks 582 547
Investment securities available for sale (Note 2) 28,523 29,906
Investment securities held to maturity (Fair values of $5,513 in 1995
and $5,644 in 1994) (Note 2) 5,325 5,842
Total loans (Notes 3 and 14) 81,995 80,946
Less allowance for loan losses (Note 4) (1,595) (1,555)
--------- ---------
Loans, net 80,400 79,391
Premises and equipment - net (Note 5) 2,478 2,538
Cash surrender value (Note 8) 704 377
Accrued income and other assets 1,819 1,831
--------- ---------
Total assets $ 140,131 $ 126,731
========= =========
LIABILITIES
Noninterest-bearing deposits $ 25,320 $ 22,427
Interest-bearing deposits (Note 6) 94,268 86,704
--------- ---------
Total deposits 119,588 109,131
Short-term borrowings (Notes 2 and 7) 1,891 1,340
Accrued expense and other liabilities 1,201 954
--------- ---------
Total liabilities 122,680 111,425
--------- ---------
Commitments and contingencies (Note 11)
SHAREHOLDERS' EQUITY
Common stock, $5 par value - 720,000 shares authorized, 392,601 and
385,162 shares issued in 1995 and 1994 (Note 1) 1,963 1,926
Surplus 3,054 2,756
Retained earnings (Note 12) 12,435 11,158
Treasury stock, 2,082 shares at cost (94)
Unrealized gain/(loss) on securities available for sale 93 (534)
--------- ---------
Total shareholders' equity 17,451 15,306
--------- ---------
Total liabilities and shareholders' equity $ 140,131 $ 126,731
========= =========
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
F-2
<PAGE> 68
CITNAT BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 1995, 1994 and 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(In thousands except for per share data) 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 7,670 $ 6,640 $ 5,884
Interest on investment securities
Taxable 1,688 1,756 2,192
Tax exempt 329 347 318
Interest on deposits in other banks 37 29 65
Interest on federal funds sold 237 97 148
------- ------- -------
Total interest income 9,961 8,869 8,607
------- ------- -------
INTEREST EXPENSE
Interest on deposits $100 and over 582 398 451
Interest on other deposits 3,124 2,572 2,752
Interest on short-term borrowings 103 33 13
------- ------- -------
Total interest expense 3,809 3,003 3,216
------- ------- -------
NET INTEREST INCOME 6,152 5,866 5,391
Provision for loan losses (Note 4) (150) (44) (150)
------- ------- -------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 6,002 5,822 5,241
------- ------- -------
OTHER OPERATING INCOME
Service charges 472 483 483
Other income 400 395 369
------- ------- -------
Total other operating income 872 878 852
------- ------- -------
OTHER OPERATING EXPENSES
Salaries and employee benefits (Note 8) 2,418 2,369 2,142
Occupancy and equipment 767 755 716
Federal deposit insurance 126 246 238
State franchise taxes 185 184 180
Data processing 232 222 200
Other expenses 863 870 806
------- ------- -------
Total other operating expenses 4,591 4,646 4,282
------- ------- -------
Income before federal income taxes 2,283 2,054 1,811
Federal income taxes (Note 10) 658 582 511
------- ------- -------
NET INCOME $ 1,625 $ 1,472 $ 1,300
======= ======= =======
Earnings per common share and common share equivalent
(Note 1) $ 4.08 $ 3.73 $ 3.38
======= ======= =======
Fully diluted earnings per common share (Note 1) $ 4.08 $ 3.71 $ 3.38
======= ======= =======
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
F-3
<PAGE> 69
CITNAT BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
(In thousands) Unrealized loss
on Securities
Common Retained Treasury Available
Stock Surplus Earnings Stock for Sale Total
----- ------- -------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1993 $ 1,800 $ 1,804 $ 9,712 $ (375) $ 12,941
Net income 1,300 1,300
Purchase of 95 treasury
shares (4) (4)
Sale of 10,819 treasury shares 54 379 433
Cash dividends ( $.73 per
share) (284) (284)
Stock dividends 90 625 (715)
Cash paid in lieu of
fractional shares (5) (5)
-------- -------- -------- -------- -------- --------
Balance, December 31,
1993 1,890 2,483 10,008 14,381
Effect of adopting new
method of accounting
for investment
securities (Note 1) $ 775 775
Net income 1,472 1,472
Purchase of 4,657
treasury shares $ (186) (186)
Sale of 4,657 treasury shares 186 186
Stock dividends 36 273 (309)
Cash paid in lieu of
fractional shares (13) (13)
Change in unrealized loss
on securities available
for sale (1,309) (1,309)
-------- -------- -------- -------- -------- --------
Balance, December 31,
1994 1,926 2,756 11,158 -0- (534) 15,306
Net income 1,625 1,625
Purchase of 6,231
treasury shares (280) (280)
Sale of 4,149 treasury shares 186 186
Stock dividends 37 298 (335)
Cash paid in lieu of
fractional shares (13) (13)
Change in unrealized loss on
securities available for sale 627 627
-------- -------- -------- -------- -------- --------
Balance, December 31,
1995 $ 1,963 $ 3,054 $ 12,435 $ (94) $ 93 $ 17,451
======== ======== ======== ======== ========= ========
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
F-4
<PAGE> 70
CITNAT BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1995, 1994 and 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(In thousands) 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,625 $ 1,472 $ 1,300
Adjustments to reconcile net income to net cash from
operating activities
Depreciation 339 344 344
Provision for loan losses 150 44 150
Amortization/(accretion) (217) (212) (41)
Deferred income taxes (56) (19) (113)
FHLB stock dividends received (25) (10)
Changes in
Income taxes payable 43 (38) 41
Interest receivable (137) 4 128
Interest payable 92 41 (143)
Other assets and liabilities, net (6) 180 (160)
-------- -------- --------
Net cash from operating activities 1,808 1,806 1,506
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Maturities of investment securities held to maturity 822 362 26,661
Sale of investment securities 1,011
Purchases of investment securities held to maturity (326) (713) (25,097)
Maturities of investments securities available for sale 22,200 26,729
Purchases of investment securities available for sale (19,605) (17,706)
Purchases of interest-bearing deposits (1,146) (1,081) (2,836)
Maturities of interest-bearing deposits 1,111 1,110 3,565
Net increase in loans (1,158) (10,778) (7,179)
Property and equipment expenditures (279) (403) (96)
Purchase life insurance policies (326) (325)
Cash and cash equivalents received in excess
of cash paid for acquisition 2,893
-------- -------- --------
Net cash from investing activities 1,293 (2,805) (1,078)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase/(decrease) in deposits 10,457 (4,327) (2,137)
Net change in short term borrowings 551 640
Cash dividends paid (14) (17) (284)
Purchase of treasury stock (281) (186) (4)
Sale of treasury stock 187 186 433
-------- -------- --------
Net cash from financing activities 10,900 (3,704) (1,992)
-------- -------- --------
Net change in cash and cash equivalents 14,001 (4,703) (1,564)
Cash and cash equivalents at beginning of year 6,299 11,002 12,566
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 20,300 $ 6,299 $ 11,002
======== ======== ========
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
F-5
<PAGE> 71
CITNAT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed in the
preparation of the accompanying consolidated financial statements.
Basis of Presentation: The consolidated financial statements include the
accounts of CitNat Bancorp, Inc. (Company) and its wholly owned subsidiary, The
Citizens National Bank of Urbana (Bank). All material intercompany transactions
and balances have been eliminated.
Use of Estimates in the Preparation of Financial Statements: The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Statement of Cash Flows: For purposes of reporting cash flows, cash and cash
equivalents include cash, short-term interest-bearing deposits with financial
institutions and federal funds sold. Generally, federal funds are sold for
one-day periods. The Company reports net cash flows for customer loan
transactions, deposits transactions and short-term borrowings. For the years
ended December 31, 1995, 1994 and 1993, the Company paid interest of $3,717,000,
$2,962,000 and $3,360,000 and income taxes of $672,000, $629,000 and $583,000,
respectively.
Investment Securities: Effective January 1, 1994, the Company adopted the
provisions of Statement of Financial Accounting Standards (SFAS) No. 115,
"Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 115
requires corporations to classify debt securities as held to maturity, trading
or available for sale. The effect of adjusting securities available for sale to
fair value, net of applicable income tax effects is reported as a separate
component of shareholders' equity in the balance sheet. The effect of adopting
SFAS No. 115 on January 1, 1994 was to increase shareholders' equity by
$775,000.
Securities classified as held to maturity are those that management has the
positive intent and ability to hold to maturity. Securities classified as
available for sale are those that management intends to sell or that would be
sold for liquidity, investment management, or similar reasons, even if
management does not presently intend such a sale.
Securities held to maturity are stated at cost, adjusted for amortization of
premiums and accretion of discounts. Securities available for sale are carried
at fair value using the specific identification method. Unrealized gains and
losses are recorded as a net amount in a separate component of shareholders'
equity, net of tax effects. Gains or losses on dispositions are based on net
proceeds and the adjusted carrying amount of securities sold, using the specific
identification method.
- --------------------------------------------------------------------------------
(Continued)
F-6
<PAGE> 72
CITNAT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Interest Income on Loans: Interest income on loans is accrued over the term of
the loans based on the principal balance outstanding. When substantial doubt
exists as to the collectibility of a loan, the interest accrual is discontinued.
Loan origination fees, net of direct loan origination costs, are deferred and
recognized over the life of the loan as a yield adjustment. The net amount
deferred is reported in the Balance Sheet as a reduction of loans.
The carrying values of impaired loans are periodically adjusted to reflect cash
payments, revised estimates of future cash flows and increases in the present
value of expected cash flows due to the passage of time. Cash payments
representing interest income are reported as such. Other cash payments are
reported as reductions in carrying value, while increases or decreases due to
changes in estimates of future payments and due to the passage of time are
reported as part of the provision for loan losses.
Allowance for Possible Loan Losses: The allowance for possible loan loss, which
is reported as a deduction from loans, is available for loan charge-offs. This
allowance is increased by provisions charged to earnings and is reduced by loan
charge-offs, net of recoveries. The adequacy of the allowance is based on
management's evaluation of several key factors including information about
specific borrower situations, their financial position and collateral values,
current economic conditions, changes in the mix and levels of the various types
of loans, past charge-off experience, and other pertinent information. The
allowance for possible loan losses is based on estimates using currently
available information, and ultimate losses may vary from current estimates due
to changes in circumstances. These estimates are reviewed periodically and, as
adjustments become necessary, they are reported in earnings in the periods in
which they become known. Charge-offs are made against the allowance for possible
loan loss when management concludes that loan amounts are likely to be
uncollectible.
On January 1, 1995, the Company adopted SFAS 114, "Accounting by Creditors for
Impairment of a Loan" and SFAS 118, "Accounting by Creditors for Impairment of a
Loan - Income Recognition and Disclosures." SFAS 114 specifies that allowances
for loan losses on impaired loans should be determined using the present value
of estimated future cash flows of the loan, discounted at the loan's effective
interest rate, or the fair value of the collateral. A loan is impaired when all
principal and interest amounts will not likely be collected according to the
loan contract. The impact of adoption of SFAS 114 and SFAS 118 on the financial
position or results of operations of the Company was not significant.
Premises and Equipment: Premises and equipment are stated at cost less
accumulated depreciation. Premises and equipment are depreciated on the
straight-line and declining-balance methods over the estimated useful lives of
the assets. Maintenance and repairs are expensed and major improvements are
capitalized.
- --------------------------------------------------------------------------------
(Continued)
F-7
<PAGE> 73
CITNAT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Other Real Estate: Real estate acquired through foreclosure is initially
recorded at the lower of the recorded loan amount or the fair market value of
the asset received. If management later determines that the total capitalized
cost of the property cannot be recovered through sale or use, the loss is
recognized in the current period by a charge to income with a corresponding
writedown of the asset.
Per Share Amounts: The Company declared 1% stock dividends payable to
shareholders of record as of June 20, 1995 and November 21, 1995, and 1% stock
dividends payable to shareholders as of June 21, 1994 and December 1, 1994. The
Company also paid a 5% stock dividend payable to shareholders of record as of
December 31, 1993. Fractional shares were paid in cash. These stock dividends
resulted in the issuance of 3,704, 3,735, 3,609, 3,670 and 17,883 shares of
common stock, respectively. Dividends per share and earnings per share amounts
have been computed as though the additional shares had always been outstanding.
In addition, earnings per share amounts take into consideration the dilutive
effects of the stock option plan adopted by the Board of Directors on April 6,
1994. Earnings per common share and common share equivalent has been computed
assuming the exercise of dilutive stock options, less the treasury shares
assumed to be purchased from the proceeds using the average market price of the
Company's stock for the period options were outstanding. Fully diluted earnings
per common share represents the additional dilution related to the stock options
due to the use of the market price as of the end of the year if it exceeds the
average price for the year.
The weighted average common and common equivalent shares and fully diluted
shares outstanding as of December 31, 1995 was 398,704 for both calculations.
The weighted average common and common equivalent shares and fully diluted
shares outstanding as of December 31, 1994 were 394,206 and 396,764,
respectively. The weighted average common and common equivalent shares
outstanding at December 31, 1993 was 384,404 for both calculations.
- --------------------------------------------------------------------------------
(Continued)
F-8
<PAGE> 74
CITNAT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
- -------------------------------------------------------------------------------
NOTE 2 - INVESTMENT SECURITIES
A comparison of the amortized cost and estimated fair value of investment
securities at December 31, 1995 and 1994 follows (in thousands):
<TABLE>
<CAPTION>
----------------------1995-------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
INVESTMENT SECURITIES
AVAILABLE FOR SALE
U.S. Treasury $ 8,434 $ 41 $ 8,475
U.S. Government agencies 15,794 85 $ 34 15,845
Corporate bonds 2,203 39 3 2,239
-------- ------ ---- --------
Total debt securities 26,431 165 37 26,559
Equity investments 1,952 12 1,964
-------- ------ ---- --------
Total investment securities
available for sale $ 28,383 $ 177 $ 37 $ 28,523
======== ====== ==== ========
INVESTMENT SECURITIES
HELD TO MATURITY
States and political
subdivision $ 5,325 $ 190 $ 2 $ 5,513
======== ====== ==== ========
</TABLE>
<TABLE>
<CAPTION>
---------------------1994-----------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
INVESTMENT SECURITIES
AVAILABLE FOR SALE
U.S. Treasury $ 8,743 $ 1 $ 6 $ 8,739
U.S. Government agencies 18,191 4 756 17,438
Corporate bonds 1,955 48 1,907
-------- ---- ----- --------
Total debt securities 28,889 5 810 28,084
Equity investments 1,827 5 1,822
-------- ---- ----- --------
Total investment securities
available for sale $ 30,716 $ 5 $ 815 $ 29,906
======== ==== ===== ========
INVESTMENT SECURITIES
HELD TO MATURITY
States and political
subdivision $ 5,842 $ 24 $ 222 $ 5,644
======== ==== ===== ========
</TABLE>
- -------------------------------------------------------------------------------
(Continued)
F-9
<PAGE> 75
CITNAT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
- --------------------------------------------------------------------------------
NOTE 2 - INVESTMENT SECURITIES (Continued)
The amortized cost and estimated market value of investments in debt securities
at December 31, 1995, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
Estimated
Amortized Fair
(In thousands) Cost Value
---- -----
<S> <C> <C>
Debt securities available for sale
Due in one year or less $ 12,633 $ 12,652
Due after one year through five years 13,798 13,907
-------- --------
Total debt securities $ 26,431 $ 26,559
======== ========
Debt securities held to maturity
Due in one year or less $ 639 $ 651
Due after one year through five years 3,076 3,174
Due after five years through ten years 1,413 1,479
Due after ten years 197 209
-------- --------
Total debt securities $ 5,325 $ 5,513
======== ========
</TABLE>
No investment securities were sold during 1995 or 1994. Proceeds from sales of
investment securities during 1993 were $1,001,000. A gross gain of $3,000 was
realized.
Investment securities with an amortized cost of approximately $13,197,000 and
$12,493,000 at December 31, 1995 and 1994 were pledged to secure public
deposits, securities sold under agreements to repurchase and for other purposes
as required or permitted by law.
NOTE 3 - LOANS
Loans as presented on the consolidated balance sheet are comprised of the
following as of December 31 (in thousands):
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Loans secured by real estate:
Construction and land development $ 1,200 $ 1,242
Secured by farmland 5,100 5,807
Secured by residential properties 32,269 31,548
Secured by nonfarm, nonresidential properties 3,951 4,112
Loans to finance agricultural production 12,379 12,481
Commercial and industrial loans 10,197 7,183
Loans to individuals for household, family and other 16,312 18,063
Tax exempt obligations 587 510
-------- --------
Total loans $ 81,995 $ 80,946
======== ========
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
F-10
<PAGE> 76
CITNAT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
- --------------------------------------------------------------------------------
NOTE 3 - LOANS (Continued)
The following table presents the aggregate amount of loans outstanding to
directors and executive officers (including their related interests) and an
analysis of activity in such loans for the 12 months ended December 31, 1995 (in
thousands):
<TABLE>
<S> <C>
Balance, December 31, 1994 $ 743
New loans 147
Repayments (247)
-----
Balance, December 31, 1995 $ 643
=====
</TABLE>
The Bank grants residential, consumer and commercial loans to customers located
primarily in Champaign County, Ohio.
NOTE 4 - ALLOWANCE FOR LOAN LOSSES
The activity in the allowance for loan losses is as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Balance - January 1 $ 1,555 $ 1,202 $ 1,300
Provision charged to expense 150 44 150
Loans charged off (209) (124) (371)
Recoveries 99 433 118
Change incident to acquisition 5
------- ------- -------
Balance December 31 $ 1,595 $ 1,555 $ 1,202
======= ======= =======
</TABLE>
As of and for the year ending December 31, 1995, no impaired loans were within
the scope of SFAS No. 114.
- --------------------------------------------------------------------------------
(Continued)
F-11
<PAGE> 77
CITNAT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
- --------------------------------------------------------------------------------
NOTE 5 - PREMISES AND EQUIPMENT
A summary of premises and equipment by major category follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Land $ 194 $ 194
Buildings and improvements 3,178 3,045
Furniture and equipment 2,889 2,804
------- -------
Total cost 6,261 6,043
Accumulated depreciation 3,783 3,505
------- -------
Total, net $ 2,478 $ 2,538
======= =======
</TABLE>
NOTE 6 - INTEREST-BEARING DEPOSITS
Interest-bearing deposits as presented on the consolidated balance sheet are
comprised of the following as of December 31 (in thousands):
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Interest-bearing demand deposits $ 21,002 $ 19,878
Savings deposits 28,840 30,393
Time deposits, $100,000 and over 14,032 9,771
Other time deposits 30,394 26,662
-------- --------
Total interest-bearing deposits $ 94,268 $ 86,704
======== ========
</TABLE>
NOTE 7 - SHORT-TERM BORROWINGS
Short-term borrowings consist of the following (in thousands):
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Interest-bearing account with U.S. Treasury $ 379 $ 315
Securities sold under agreement to repurchase 1,512
Federal funds purchased 1,025
------- -------
Total $ 1,891 $ 1,340
======= =======
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
F-12
<PAGE> 78
CITNAT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
- --------------------------------------------------------------------------------
NOTE 8 - PROFIT SHARING RETIREMENT PLAN
During 1994, the Company amended and restated the Salary Reduction 401(k) Profit
Sharing Retirement Plan to add features permitting employees to invest a portion
of their account balances in common stock of the Company. The new Employee Stock
Ownership Plan with 401(k) provisions (KSOP), which covers substantially all
employees, permits employee voluntary contributions and provides for
discretionary Company matching, basic and optional contributions. Employee
voluntary contributions, Company basic contributions and 50% of Company matching
contributions are fully vested at all times. Company optional contributions and
the remaining matching contributions vest over a seven-year period. The expense
associated with the plan amounted to $99,000 in 1995, $100,000 in 1994 and
$84,000 in 1993.
Also during 1994, the Company adopted nonqualified salary deferral and executive
supplemental income plans for certain officers and directors. The liability for
benefits to be provided under these plans is being accrued over the expected
period of service of the covered officers and directors. Plan expense totaled
$115,000 and $57,000 in 1995 and 1994, respectively. As an informal means of
funding these plans and to provide earnings to offset expected plan costs, the
Bank purchased life insurance policies on the lives of the covered officers and
directors. The Bank is both the owner and beneficiary of the life insurance
policies. The cash surrender value of these and other policies totaled $704,000
and $377,000 at December 31, 1995 and 1994, respectively.
NOTE 9 - STOCK OPTION PLAN
On April 6, 1994, the Board of Directors adopted a stock option plan authorizing
the grant of incentive stock options to key employees and nonstatutory stock
options to members of the Board. The maximum number of shares subject to option
is 71,820. The option exercise price is not less than the estimated fair market
value of the Company's stock at the date of grant. As of December 31, 1995, a
total of 71,820 options at an exercise price of $40 per share were outstanding.
No options were exercised in 1995 or 1994. The options expire if they have not
been exercised within a ten-year period.
NOTE 10 - FEDERAL INCOME TAXES
Federal income taxes consist of the following components (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Current expense $ 714 $ 600 $ 624
Deferred expense (56) (18) (113)
----- ----- -----
Total federal income tax expense $ 658 $ 582 $ 511
===== ===== =====
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
F-13
<PAGE> 79
CITNAT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
NOTE 10 - FEDERAL INCOME TAXES (Continued)
The difference between the financial statement tax provision and amounts
computed by applying the statutory federal income tax rate is due principally to
the benefit of nontaxable interest on state and municipal obligations.
At December 31, 1995 and 1994, net deferred taxes included in accrued interest
receivable and other assets in the accompanying consolidated balance sheets
consisted of the following (in thousands):
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Deferred tax assets $ 480 $ 660
Deferred tax liabilities (158) (72)
------------ ------------
Net $ 322 $ 588
============ =========
</TABLE>
Deferred taxes arise primarily from differences in the recording, for financial
statement and tax reporting purposes, of bad debt deductions with respect to
deferred tax assets and depreciation expense with respect to deferred tax
liabilities. The Company has sufficient taxes paid in prior years to support
recognition of the net deferred tax asset.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
The Company is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet financing needs of its customers. These
financial instruments include commitments to make loans. The Company's exposure
to credit loss in the event of nonperformance by the other party to the
financial instrument for commitments to make loans is represented by the
contractual amount of those instruments. The Company follows the same credit
policy to make such commitments as it uses for on-balance-sheet items.
As of December 31, 1995, outstanding loan commitments, customers' unused lines
of credit and standby letters of credit totaled approximately $13,667,000.
Since many commitments to make loans expire without being used, the amount does
not necessarily represent future cash commitments. Collateral obtained upon
exercise of the commitment is determined using management's credit evaluation of
the borrower and may include real estate, vehicles, business assets, deposits
and other items.
At December 31, 1995, federal regulations required the Bank to have $1,052,000
cash on hand or on deposit with the Federal Reserve.
(Continued)
F-14
<PAGE> 80
CITNAT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
NOTE 12 - DIVIDENDS
The Company's primary source of funds with which to pay dividends is The
Citizens National Bank of Urbana. The Bank is restricted by national banking
laws from paying dividends in any calendar year which exceed retained net
profits (as defined) for that year and the two preceding years, without prior
approval of the Comptroller of the Currency. This limitation does not currently
restrict the Company's ability to pay customary dividends.
NOTE 13 - ACQUISITION
Effective May 1, 1993, the Bank paid $1,750,000 to acquire the Farmers National
Bank of Plain City and Plain City Home and Savings Company, thereby assuming all
assets and liabilities of the acquired financial institutions. The acquisitions
have been accounted for using the purchase method of accounting and accordingly,
the acquired assets and liabilities have been recorded based on their estimated
fair value. The assets and liabilities acquired totaled approximately
$9,450,000. The effect of these acquisitions are included in the results of
operations, prospectively from May 1, 1993.
NOTE 14 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
On December 31, 1995, the Company was required to adopt SFAS No. 107,
"Disclosure about Fair Values of Financial Instruments." This standard
prescribes that the Company disclose the estimated fair values of its financial
instruments.
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which estimating that value is
practicable.
Cash and Short-term Investments: For short-term instruments, the carrying amount
is a reasonable estimate of fair value.
Investment Securities: For securities held as investments, fair value equals
quoted market price, if available. If a quoted market price is not available,
fair value is estimated using quoted market prices for similar instruments.
Loans: The fair value of loans is estimated by discounting future cash flows
using the current rates at which similar loans would be made to borrowers with
similar credit ratings and for the same remaining maturities. Carrying value is
considered to approximate fair value for loans that contractually reprice at
intervals less than one year. The fair market value of commitments is not
material at December 31, 1995.
(Continued)
F-15
<PAGE> 81
CITNAT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
NOTE 14 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
(Continued)
Cash Surrender Value: The amount which would be received by the Company upon
cancellation of the insurance policies has been used as an estimate of fair
value.
Deposit Liabilities: The fair value of demand deposits, savings accounts and
certain money market deposits is the amount payable on demand at the reporting
date. The fair value of fixed-maturity certificates of deposit is estimated
using the rates currently offered for deposits of similar remaining maturities.
Securities Sold Under Agreements to Repurchase and Other Borrowed Funds: Because
of the short-term nature of these obligations, the carrying amount is a
reasonable estimate of fair value.
Accrued Interest Receivable and Payable: For accrued interest receivable and
payable, the carrying amount is a reasonable estimate of fair value.
The estimated fair values of the Bank's financial instruments at December 31,
1995 are as follows: (In thousands)
<TABLE>
<CAPTION>
Estimated
Carrying Fair
Value Value
----- -----
<S> <C> <C>
Financial assets:
Cash and short-term investments $ 20,300 $ 20,300
Investment securities available for sale 28,523 28,523
Investment securities held to maturity 5,325 5,513
Loans 81,995 81,071
Cash surrender value 704 704
Accrued interest receivable 1,292 1,292
Financial liabilities
Deposits (119,588) (120,351)
Short-term borrowings (1,891) (1,891)
Accrued interest payable (506) (506)
</TABLE>
(Continued)
F-16
<PAGE> 82
CITNAT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
NOTE 14 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
(Continued)
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates do not reflect any premium or discount that could result from offering
for sale at one time the Company's entire holdings of a particular financial
instrument. Because no market exists for a significant portion of the Company's
financial instruments, fair value estimates are based on judgments regarding
future expected loss experience, current economic conditions, risk
characteristics of various financial instruments and other factors. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.
F-17
<PAGE> 83
CITNAT BANCORP, INC.
CONSOLIDATED BALANCE SHEET
March 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
March 31,
(In thousands) 1996
----
<S> <C>
ASSETS
Cash and due from banks (Note 11) $ 5,690
Federal funds sold 6,245
------------
Cash and cash equivalents 11,935
Interest-bearing deposits in other banks 2,482
Investment securities available for sale (Note 2) 31,507
Investment securities held to maturity (Fair value
of $5,473) (Note 2) 5,319
Total loans (Notes 3 and 13) 80,285
Less allowance for loan losses (Note 4) 1,663
------------
Loans, net 78,622
Premises and equipment, net (Note 5) 2,412
Cash surrender value (Note 8) 697
Accrued income and other assets 2,057
------------
Total assets $ 135,031
============
LIABILITIES
Noninterest-bearing deposits $ 21,912
Interest-bearing deposits (Note 6) 92,776
------------
Total deposits 114,688
Short-term borrowings (Notes 2 and 7) 1,329
Accrued expense and other liabilities 1,310
------------
Total liabilities 117,327
------------
Commitments and contingencies (Note 11)
SHAREHOLDERS' EQUITY
Common stock, $5 par value - 720,000 shares authorized,
392,601 shares issued in 1996 (Note 1) 1,963
Surplus 3,054
Retained earnings (Note 12) 12,861
Treasury stock, 2,482 shares at cost (112)
Unrealized gain/(loss) on securities available for sale (62)
------------
Total shareholders' equity 17,704
------------
Total liabilities and shareholders' equity $ 135,031
============
</TABLE>
See accompanying notes to financial statements.
F-18
<PAGE> 84
CITNAT BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
Three months ended March 31, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
(In thousands except per share data) 1996 1995
---- ----
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 1,846 $ 1,872
Interest on investment securities
Taxable 427 417
Tax exempt 75 82
Interest on deposits in other banks 36 9
Interest on federal funds sold 114 33
---------- ----------
Total interest income 2,498 2,413
---------- ----------
INTEREST EXPENSE
Interest on deposits $100,000 and over 173 129
Interest on other deposits 758 712
Interest on short-term borrowings 12 20
---------- ----------
Total interest expense 943 861
---------- ----------
NET INTEREST INCOME 1,555 1,552
Provision for loan losses (Note 4) 38 38
---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 1,517 1,514
---------- ----------
OTHER OPERATING INCOME
Service charges 118 110
Other income 153 94
---------- ----------
Total other operating income 271 204
---------- ----------
OTHER OPERATING EXPENSES
Salaries and employee benefits (Note 8) 644 655
Occupancy and equipment 201 182
Federal deposit insurance 1 61
State franchise taxes 48 43
Data processing 51 45
Other expenses 241 200
---------- ----------
Total other operating expenses 1,186 1,186
---------- ----------
Income before federal income taxes 602 532
Federal income taxes (Note 10) 176 152
---------- ----------
NET INCOME $ 426 $ 380
========== ==========
Earnings per common share and common share equivalent (Note 1) $ 1.07 $ .95
========== =========
Fully diluted earnings per common share (Note 1) $ 1.07 $ .95
========== =========
</TABLE>
See accompanying notes to financial statements.
F-19
<PAGE> 85
CITNAT BANCORP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Three months ended March 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
Unrealized loss
on Securities
Common Retained Treasury Available
(In thousands) Stock Surplus Earnings Stock for Sale Total
----- ------- -------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1,
1996 $ 1,963 $ 3,054 $ 12,435 $ (94) $ 93 $ 17,451
Net income 426 426
Purchase of 400
treasury shares (18) (18)
Change in unrealized
loss on securities
available for sale (155) (155)
----------- ----------- ----------- ----------- ----------- -----------
Balance March 31,
1996 $ 1,963 $ 3,054 $ 12,861 $ (112) $ (62) $ 17,704
=========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-20
<PAGE> 86
CITNAT BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended March 31, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
(In thousands) 1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 426 $ 380
Adjustments to reconcile net income to net cash from operating
activities
Depreciation 85 94
Provision for loan losses 38 38
Accretion (86) (64)
FHLB stock dividends received (7) (6)
Changes in
Income taxes payable 150 145
Interest receivable (22) (179)
Interest payable (13) (16)
Other assets and liabilities, net (164) (333)
----------- -----------
Net cash from operating activities 407 59
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Maturities of investment securities held to maturity 225
Purchases of investment securities held to maturity (326)
Sales of investment securities available for sale 2,500
Maturities of investment securities available for sale 7,600 9,000
Purchases of investment securities available for sale (13,213) (5,120)
Purchases of interest-bearing deposits (1,900)
Net (increase) decrease in loans 1,740 (916)
Property and equipment expenditures (19) (94)
----------- -----------
Net cash from investing activities (3,292) 2,769
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase/(decrease) in deposits (4,900) 2,476
Net change in short-term borrowings (562) 69
Purchase of treasury stock (18) (67)
Sale of treasury stock 67
----------- -----------
Net cash from financing activities (5,480) 2,545
----------- -----------
Net change in cash and cash equivalents (8,365) 5,373
Cash and cash equivalents at beginning of period 20,300 6,299
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 11,935 $ 11,672
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-21
<PAGE> 87
CITNAT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31,1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed in the
preparation of the accompanying consolidated financial statements.
Basis of Presentation: The consolidated financial statements include the
accounts of CitNat Bancorp, Inc. (Company) and its wholly owned subsidiary, The
Citizens National Bank of Urbana (Bank). All material intercompany transactions
and balances have been eliminated. All information included in these interim
period financial statements is unaudited.
Use of Estimates in the Preparation of Financial Statements: The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Statement of Cash Flows: For purposes of reporting cash flows, cash and cash
equivalents include cash, short-term interest-bearing deposits with financial
institutions and federal funds sold. Generally, federal funds are sold for
one-day periods. The Company reports net cash flows for customer loan
transactions, deposit transactions and short-term borrowings. For the three
months ended March 31, 1996 and 1995, the Company paid interest of $957 and $846
and income taxes of $24 and $0, respectively.
Investment Securities: Securities classified as held to maturity are those that
management has the positive intent and ability to hold to maturity. Securities
classified as available for sale are those that management intends to sell or
that would be sold for liquidity, investment management, or similar reasons,
even if management does not presently intend such a sale.
Securities held to maturity are stated at cost, adjusted for amortization of
premiums and accretion of discounts. Securities available for sale are carried
at fair value using the specific identification method. Unrealized gains and
losses are recorded as a net amount in a separate component of shareholders'
equity, net of tax effects. Gains or losses on dispositions are based on net
proceeds and the adjusted carrying amount of securities sold, using the specific
identification method.
Interest Income on Loans: Interest income on loans is accrued over the term of
the loans based on the principal balance outstanding. When substantial doubt
exists as to the collectibility of a loan, the interest accrual is discontinued.
Loan origination fees, net of direct loan origination costs, are deferred and
recognized over the life of the loan as a yield adjustment. The net amount
deferred is reported in the balance sheet as a reduction of loans.
(Continued)
F-22
<PAGE> 88
CITNAT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31,1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The carrying values of impaired loans are periodically adjusted to reflect cash
payments, revised estimates of future cash flows and increases in the present
value of expected cash flows due to the passage of time. Cash payments
representing interest income are reported as such. Other cash payments are
reported as reductions in carrying value, while increases or decreases due to
changes in estimates of future payments and due to the passage of time are
reported as part of the provision for loan losses.
Allowance for Possible Loan Losses: The allowance for possible loan losses,
which is reported as a deduction from loans, is available for loan charge-offs.
This allowance is increased by provisions charged to earnings and is reduced by
loan charge-offs, net of recoveries. The adequacy of the allowance is based on
management's evaluation of several key factors including information about
specific borrower situations, their financial position and collateral values,
current economic conditions, changes in the mix and levels of the various types
of loans, past charge-off experience, and other pertinent information. The
allowance for possible loan losses is based on estimates using currently
available information and ultimate losses may vary from current estimates due to
changes in circumstances. These estimates are reviewed periodically and, as
adjustments become necessary, they are reported in earnings in the periods in
which they become known. Charge-offs are made against the allowance for possible
loan losses when management concludes that loan amounts are likely to be
uncollectible.
On January 1, 1995, the Company adopted SFAS 114, "Accounting by Creditors for
Impairment of a Loan" and SFAS 118, "Accounting by Creditors for Impairment of a
Loan - Income Recognition and Disclosures." SFAS 114 specifies that allowances
for loan losses on impaired loans should be determined using the present value
of estimated future cash flows of the loan, discounted at the loan's effective
interest rate, or the fair value of the collateral. A loan is impaired when all
principal and interest amounts will not likely be collected according to the
loan contract. The impact of adoption of SFAS 114 and SFAS 118 on the financial
position or results of operations of the Company was not significant.
Premises and Equipment: Premises and equipment are stated at cost less
accumulated depreciation. Premises and equipment are depreciated on the
straight-line and declining-balance methods over the estimated useful lives of
the assets. Maintenance and repairs are expensed and major improvements are
capitalized.
Other Real Estate: Real estate acquired through foreclosure is initially
recorded at the lower of the recorded loan amount or the fair market value of
the asset received. If management later determines that the total capitalized
cost of the property cannot be recovered through sale or use, the loss is
recognized in the current period by a charge to income with a corresponding
writedown of the asset.
(Continued)
F-23
<PAGE> 89
CITNAT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31,1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Per Share Amounts: The Company declared 1% stock dividends payable to
shareholders of record as of June 20, 1995 and November 21, 1995. Fractional
shares were paid in cash. These stock dividends resulted in the issuance of
3,704 and 3,735 shares of common stock, respectively. Dividends per share and
earnings per share amounts have been computed as though the additional shares
had always been outstanding.
In addition, earnings per share amounts take into consideration the dilutive
effects of the stock option plan adopted by the Board of Directors on April 6,
1994. Earnings per common share and common share equivalent has been computed
assuming the exercise of dilutive stock options, less the treasury shares
assumed to be purchased from the proceeds using the average market price of the
Company's stock for the period options were outstanding. Fully diluted earnings
per common share represents the additional dilution related to the stock options
due to the use of the market price as of the end of the year if it exceeds the
average price for the year.
The weighted average common and common equivalent shares and fully diluted
shares outstanding as of March 31, 1996 and 1995 were 396,863 and 398,927,
respectively.
NOTE 2 - INVESTMENT SECURITIES
A comparison of the amortized cost and estimated fair value of investment
securities at March 31, 1996 are as follows:
<TABLE>
<CAPTION>
(In thousands) ----------------------------March 31, 1996--------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
INVESTMENT SECURITIES AVAILABLE
FOR SALE
U.S. Treasury $ 14,239 $ 20 $ 70 $ 14,189
U.S. Government agencies 13,194 28 104 13,118
Corporate bonds 1,703 26 1 1,728
--------------- ------------ ------------ ----------------
Total debt securities 29,136 74 175 29,035
Equity investments 2,468 4 -- 2,472
--------------- ------------ ------------ ----------------
Total investment securities
available for sale $ 31,604 $ 78 $ 175 $ 31,507
=============== ============ ============ ================
</TABLE>
(Continued)
F-24
<PAGE> 90
CITNAT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31,1996
NOTE 2 - INVESTMENT SECURITIES (Continued)
<TABLE>
<CAPTION>
(In thousands) ----------------------------March 31, 1996--------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
INVESTMENT SECURITIES HELD
TO MATURITY
Obligations of states and
political subdivisions $ 5,319 $ 163 $ 9 $ 5,473
=============== ============ ============ ================
</TABLE>
The amortized cost and estimated market value of investments in debt securities
at March 31, 1996, by contractual maturity, are shown below. Expected maturities
will differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
---- -----
<S> <C> <C>
Debt securities available for sale
Due in one year or less $ 14,723 $ 14,729
Due after one year through five years 12,918 12,806
Due after five years through ten years 1,495 1,500
--------------- ----------------
Total debt securities $ 29,136 $ 29,035
=============== ================
Debt securities held to maturity
Due in one year or less $ 703 $ 711
Due after one year through five years 3,005 3,084
Due after five years through ten years 1,413 1,465
Due after ten years 198 213
--------------- ----------------
Total debt securities $ 5,319 $ 5,473
=============== ================
</TABLE>
Proceeds from the sale of investment securities during the three months ended
March 31, 1996 were $2,500,000. No gain or loss was realized. No investment
securities were sold during the three months ended March 31, 1995.
Investment securities with an amortized cost of approximately $14,602,000 at
March 31, 1996 were pledged to secure public deposits, securities sold under
agreements to repurchase and for other purposes as required or permitted by law.
(Continued)
F-25
<PAGE> 91
CITNAT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31,1996
NOTE 3 - LOANS
The Bank grants residential, consumer and commercial loans to customers located
primarily in Champaign County, Ohio. Loans as presented on the consolidated
balance sheet are comprised of the following as of March 31, 1996 (in
thousands):
<TABLE>
<S> <C>
Loans secured by real estate:
Construction and land development $ 1,163
Secured by farmland 5,078
Secured by residential properties 31,651
Secured by nonfarm, nonresidential properties 4,024
Loans to finance agricultural production 11,675
Commercial and industrial loans 10,597
Loans to individuals for household, family and
other 15,532
Tax exempt obligations 565
-----------
Total loans $ 80,285
===========
</TABLE>
The following table presents the aggregate amount of loans outstanding to
directors and executive officers (including their related interests) and an
analysis of activity in such loans for the three months ended March 31, 1996 (in
thousands):
<TABLE>
<S> <C>
Balance, January 1, 1996 $ 643
New loans 42
Repayments (22)
-----------
Balance, March 31, 1996 $ 663
===========
</TABLE>
NOTE 4 - ALLOWANCE FOR LOAN LOSSES
The activity in the allowance for loan losses is as follows for the three months
ended March 31 (in thousands):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Balance, January 1 $ 1,595 $ 1,555
Provision charged to expense 38 38
Loans charged off (28) (21)
Recoveries 58 19
-------------- --------------
Balance, March 31 $ 1,663 $ 1,591
============== ==============
</TABLE>
(Continued)
F-26
<PAGE> 92
CITNAT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31,1996
NOTE 4 - ALLOWANCE FOR LOAN LOSSES (Continued)
As of and for the periods ending March 31, 1996 and 1995, the Bank classified no
loans as impaired within the scope of SFAS 114.
NOTE 5 - PREMISES AND EQUIPMENT
A summary of premises and equipment by major category follows as of March 31,
1996 (in thousands):
<TABLE>
<S> <C>
Land $ 194
Buildings and improvements 3,178
Furniture and equipment 2,903
--------------
Total cost 6,275
Accumulated depreciation 3,863
--------------
Total, net $ 2,412
==============
</TABLE>
NOTE 6 - INTEREST-BEARING DEPOSITS
Interest-bearing deposits as presented on the consolidated balance sheet are
comprised of the following as of March 31, 1996 (in thousands):
<TABLE>
<S> <C>
Interest-bearing demand deposits $ 19,762
Savings deposits 28,598
Time deposits, $100,000 and over 14,160
Other time deposits 30,256
----------------
Total interest-bearing deposits $ 92,776
================
</TABLE>
(Continued)
F-27
<PAGE> 93
CITNAT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31,1996
NOTE 7 - SHORT-TERM BORROWINGS
Short-term borrowings consist of the following as of March 31, 1996 (in
thousands):
<TABLE>
<S> <C>
Interest-bearing account with U.S. Treasury $ 700
Securities sold under agreement to repurchase 629
--------------
Total $ 1,329
==============
</TABLE>
NOTE 8 - PROFIT SHARING RETIREMENT PLAN
During 1994, the Company amended and restated the Salary Reduction 401(k) Profit
Sharing Retirement Plan to add features permitting employees to invest a portion
of their account balances in common stock of the Company. The new Employee Stock
Ownership Plan with 401(k) provisions (KSOP), which covers substantially all
employees, permits employee voluntary contributions and provides for
discretionary Company matching, basic and optional contributions. Employee
voluntary contributions, Company basic contributions and 50% of Company matching
contributions are fully vested at all times. Company optional contributions and
the remaining matching contributions vest over a seven-year period. The expense
associated with the plan amounted to $26,000 and $27,000 for the three months
ended March 31, 1996 and 1995, respectively.
Also during 1994, the Company adopted nonqualified salary deferral and executive
supplemental income plans for certain officers and directors. The liability for
benefits to be provided under these plans is being accrued over the expected
period of service of the covered officers and directors. Plan expense totaled
$35,000 and $27,000 for the three months ended March 31, 1996 and 1995,
respectively. As an informal means of funding these plans and to provide
earnings to offset expected plan costs, the Bank purchased life insurance
policies on the lives of the covered officers and directors. The Bank is both
the owner and beneficiary of the life insurance policies. The cash surrender
value of these and other policies totaled $697,000 at March 31, 1996.
NOTE 9 - STOCK OPTION PLAN
On April 6, 1994, the Board of Directors adopted a stock option plan authorizing
the grant of incentive stock options to key employees and nonstatutory stock
options to members of the Board. The maximum number of shares subject to option
is 71,820. The option exercise price is not less than the estimated fair market
value of the Company's stock at the date of grant. As of March 31, 1996, a total
of 71,820 options at an exercise price of $40 per share were outstanding. No
options were exercised during the three months ended March 31, 1996. The options
expire if they have not been exercised within a ten-year period.
(Continued)
F-28
<PAGE> 94
CITNAT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31,1996
NOTE 10 - FEDERAL INCOME TAXES
The Company files a consolidated federal income tax return. The Bank pays to the
Company its tax liability computed on a separate return basis. Taxes are
provided for in these interim period financial statements based upon the
effective tax rates expected to be incurred.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
The Company is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet financing needs of its customers. These
financial instruments include commitments to make loans. The Company's exposure
to credit loss in the event of nonperformance by the other party to the
financial instrument for commitments to make loans is represented by the
contractual amount of those instruments. The Company follows the same credit
policy to make such commitments as it uses for on-balance-sheet items.
As of March 31, 1996, outstanding loan commitments, customers' unused lines of
credit and standby letters of credit totaled approximately $13,358,000.
Since many commitments to make loans expire without being used, the amount does
not necessarily represent future cash commitments. Collateral obtained upon
exercise of the commitment is determined using management's credit evaluation of
the borrower and may include real estate, vehicles, business assets, deposits
and other items.
At March 31, 1996, federal regulations required the Bank to have $1,067,000 cash
on hand or on deposit with the Federal Reserve.
NOTE 12 - DIVIDENDS
The Company's primary source of funds with which to pay dividends is The
Citizens National Bank of Urbana. The Bank is restricted by national banking
laws from paying dividends in any calendar year which exceed retained net
profits (as defined) for that year and the two preceding years, without prior
approval of the Comptroller of the Currency. This limitation does not currently
restrict the Company's ability to pay customary dividends.
NOTE 13 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which estimating that value is
practicable.
(Continued)
F-29
<PAGE> 95
CITNAT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31,1996
NOTE 13 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
(Continued)
Cash and Short-term Investments: For short-term instruments, the carrying amount
is a reasonable estimate of fair value.
Investment Securities: For securities held as investments, fair value equals
quoted market price, if available. If a quoted market price is not available,
fair value is estimated using quoted market prices for similar instruments.
Loans: The fair value of loans is estimated by discounting future cash flows
using the current rates at which similar loans would be made to borrowers with
similar credit ratings and for the same remaining maturities. Carrying value is
considered to approximate fair value for loans that contractually reprice at
intervals of less than one year. The fair market value of commitments is not
material at December 31, 1995.
Cash Surrender Value: The amount which would be received by the Company upon
cancellation of the insurance policies has been used as an estimate of fair
value.
Deposit Liabilities: The fair value of demand deposits, savings accounts and
certain money market deposits is the amount payable on demand at the reporting
date. The fair value of fixed-maturity certificates of deposit is estimated
using the rates currently offered for deposits of similar remaining maturities.
Securities Sold Under Agreements to Repurchase and Other Borrowed Funds: Because
of the short-term nature of these obligations, the carrying amount is a
reasonable estimate of fair value.
Accrued Interest Receivable and Payable: For accrued interest receivable and
payable, the carrying amount is a reasonable estimate of fair value.
(Continued)
F-30
<PAGE> 96
CITNAT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31,1996
NOTE 13 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
(Continued)
The estimated fair values of the Bank's financial instruments at March 31, 1996
are as follows:
<TABLE>
<CAPTION>
Estimated
Carrying Fair
Value Value
----- -----
<S> <C> <C>
Financial assets
Cash and short-term investments $ 11,935 $ 11,935
Investment securities available for sale 31,507 31,507
Investment securities held to maturity 5,319 5,473
Loans 80,285 79,667
Cash surrender value 697 697
Accrued interest receivable 1,313 1,313
Financial liabilities
Deposits (114,688) (114,886)
Short-term borrowings (1,329) (1,329)
Accrued interest payable (492) (492)
</TABLE>
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates do not reflect any premium or discount that could result from offering
for sale at one time the Company's entire holdings of a particular financial
instrument. Because no market exists for a significant portion of the Company's
financial instruments, fair value estimates are based on judgments regarding
future expected loss experience, current economic conditions, risk
characteristics of various financial instruments and other factors. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.
NOTE 14 - PROPOSED ACQUISITION
The Company has entered into a merger agreement dated March 14, 1996 providing
for the merger of the Company with and into Security Banc Corporation,
Springfield, Ohio (Security). Upon consummation of the merger, each of the
outstanding shares of the Company will be converted to 2.1842437 shares of
Security common stock and all of the outstanding stock options of the Company
will be converted into the right to receive .7791283 shares of Security common
stock. The merger is subject to approval by the Company's shareholders and
various regulatory agencies.
F-31
<PAGE> 97
INDEPENDENT AUDITORS' REPORT
[KPMG PEAT MARWICK LLP LOGO]
The Board of Directors
Third Financial Corporation:
We have audited the accompanying consolidated balance sheets of Third
Financial Corporation and Subsidiary (the Company) as of September 30, 1995 and
1994, and the related consolidated statements of income, shareholders' equity
and cash flows for each of the years in the three-year period ended September
30, 1995. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Third Financial
Corporation and Subsidiary as of September 30, 1995 and 1994, and the results
of their operations and their cash flows for each of the years in the
three-year period ended September 30, 1995 in conformity with generally
accepted accounting principles.
As discussed in notes 1(d) and 2 of the consolidated financial statements, in
1995 the Company adopted the provisions of the Financial Accounting Standards
Board's Statement of Financial Accounting Standards No. 115, Accounting for
Certain Investments in Debt and Equity Securities.
As discussed in note 11 of the consolidated financial statements, in 1995 the
Company adopted the provisions of the American Institute of Certified Public
Accountants' Statement of Position 93-6, Employers' Accounting for Employee
Stock Ownership Plans.
As discussed in notes 1(k) and 10 to the consolidated financial statements, in
1994 the Company adopted the provisions of the Financial Accounting Standards
Board's Statement of Financial Accounting Standards No. 109, Accounting for
Income Taxes.
/s/ KPMG Peat Marwick LLP
-----------------------------------
Columbus, Ohio
November 10, 1995
[LOGO]
F-32
<PAGE> 98
THIRD FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1995 AND 1994
<TABLE>
<CAPTION>
Assets 1995 1994
------ ---- ----
<S> <C> <C>
Cash and amounts due from depository institutions $ 1,323,015 $ 1,595,653
Interest-bearing deposits in other banks 1,720,117 1,364,266
Certificates of deposit 299,000 1,073,000
Securities available for sale (amortized cost of $4,010,429 in 1995) 4,420,381 --
Securities held to maturity (market value of $14,341,339 in 1995 and
$15,985,483 in 1994) 14,402,052 16,317,323
Stock in Federal Home Loan Bank (FHLB) of Cincinnati, at cost 1,007,800 943,700
Assets held for sale, at lower of amortized cost or market 900,078 1,101,866
Loans receivable, net 125,268,342 116,935,269
Office properties and equipment 1,719,472 1,835,751
Real estate owned, net of allowance of $164,244 in 1994 -- 1,011,347
Accrued interest receivable 1,000,400 854,765
Federal income taxes receivable 69,772 171,390
Deferred federal income taxes -- 313,737
Other assets 950,059 421,877
------------- -----------
Total assets $ 153,080,488 $ 143,939,944
============= ===========
Liabilities and Shareholders' Equity
------------------------------------
Liabilities:
Deposits $ 110,510,286 $ 106,054,013
Federal Home Loan Bank advances 13,752,653 11,271,478
Accrued expenses and other liabilities 1,143,007 720,097
Deferred federal income taxes 65,917 --
Advance payments by borrowers for taxes and insurance 343,152 267,256
------------- -----------
Total liabilities 125,815,015 118,312,844
------------- -----------
Shareholders' equity:
Serial preferred stock, $.01 par value, 500,000 shares authorized; none
outstanding -- --
Common stock, $.01 par value, 2,000,000 shares authorized; 1,235,000
shares issued 12,350 12,350
Additional paid-in capital 11,997,848 11,827,650
Retained earnings, substantially restricted 17,568,355 16,149,741
Unrealized gains on securities available for sale, net 276,174 --
Treasury stock, at cost (1,896,908) (1,413,464)
Employee stock ownership plan (432,250) (605,150)
Management recognition and retention plan (260,096) (344,027)
------------- -----------
Net shareholders' equity 27,265,473 25,627,100
------------- -----------
Commitments and contingencies ------------- -----------
Total liabilities and shareholders' equity $ 153,080,488 $ 143,939,944
============= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-33
<PAGE> 99
THIRD FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Interest income:
Loans receivable $ 10,226,572 9,045,290 9,379,367
Mortgage-backed securities 518,013 505,906 678,368
Investment securities 608,250 634,073 546,380
Other 113,928 160,571 175,822
------------ ----------- -----------
Total interest income 11,466,763 10,345,840 10,779,937
------------ ----------- -----------
Interest expense:
Deposits 4,434,578 3,728,467 4,453,501
Federal Home Loan Bank advances 774,643 340,296 225,515
------------ ----------- -----------
Total interest expense 5,209,221 4,068,763 4,679,016
------------ ----------- -----------
Net interest income 6,257,542 6,277,077 6,100,921
Provision for loan losses (75,309) (308,503) 179,092
------------ ----------- -----------
Net interest income after provision for loan losses 6,332,851 6,585,580 5,921,829
------------ ----------- -----------
Noninterest income:
Service charges and other fees 235,353 238,183 241,215
Gain on sale of securities available for sale, net 150,313 -- --
Gain on sale of assets held for sale, net 65,750 188,730 271,980
Lower of cost or market adjustment on assets held for sale -- (2,897) (81,702)
Other 9,589 12,548 30,315
------------ ----------- -----------
461,005 436,564 461,808
------------ ----------- -----------
Noninterest expense:
Compensation and benefits 2,197,198 2,085,807 1,866,937
Occupancy expense 416,523 433,016 462,058
Other real estate expense (income), net (163,284) 26,277 82,485
Data processing 248,840 245,888 229,566
Federal insurance premiums 288,353 291,984 254,122
State of Ohio franchise taxes 332,091 301,744 181,058
Other 404,931 346,050 383,244
------------ ----------- -----------
3,724,652 3,730,766 3,459,470
------------ ----------- -----------
Income before federal income taxes and cumulative effect
of change in accounting for income taxes 3,069,204 3,291,378 2,924,167
------------ ----------- -----------
Federal income taxes:
Current 799,000 673,000 890,000
Deferred 245,000 446,000 60,000
------------ ----------- -----------
1,044,000 1,119,000 950,000
Income before cumulative effect of change in accounting
for income taxes 2,025,204 2,172,378 1,974,167
Cumulative effect of change in accounting for income taxes -- 600,000 --
------------ ----------- -----------
Net income $ 2,025,204 2,772,378 1,974,167
============ =========== ===========
Earnings per share before cumulative effect of change in accounting
for income taxes $ 1.71 1.73 .88
Cumulative effect of change in accounting for income taxes -- .48 --
------------ ------------ -----------
Earnings per share $ 1.71 2.21 .88
============ =========== ===========
Dividends per share $ .515 .39 .075
============ =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-34
<PAGE> 100
THIRD FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended September 30, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Additional
Common paid-in Retained
stock capital earnings
----- ------- --------
<S> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1992 - - 11,957,884
Net Income - - 1,974,167
Issuance of common stock, net of
conversion costs 12,350 11,827,650 -
Dividends on common stock at $.075
per share - - (92,625)
Obligation under employee stock
ownership plan - - -
Amortization of employee stock
ownership plan - - -
Management recognition and
retention plan - - -
Amortization of management
recognition and retention plan - - -
-------- ---------- ----------
BALANCE AT SEPTEMBER 30, 1993 $ 12,350 11,827,650 13,839,426
Net income - - 2,772,378
Dividends on common stock at $.39
per share - - (472,293)
Purchase of common stock - - -
Amortization of employee stock
ownership plan - - -
Tax benefit on dividends paid to
the employee stock ownership - - 10,230
plan
Amortization of management
recognition and retention plan - - -
-------- ---------- ----------
BALANCE AT SEPTEMBER 30, 1994 $ 12,350 11,827,650 16,149,741
Net income - - 2,025,204
Dividends on common stock at $.515
per share - - (587,776)
Purchase of common stock - - -
Common shares issued on exercise
of stock options - - (18,814)
Unrealized gains on securities
available for sale - - -
Amortization of employee stock
ownership plan - - -
Recognition of expense on employee
stock ownership plan - 170,198 -
Amortization of management
recognition and retention plan - - -
-------- ---------- ----------
BALANCE AT SEPTEMBER 30, 1995 $ 12,350 11,997,848 17,568,355
======== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Management
Employee recognition
stock and Net
Unrealized Treasury ownership retention shareholders'
gains stock plan plan equity
----- ----- ---- ---- ------
<S> <C> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1992 - - - 11,957,884
Net Income - - - - 1,974,167
Issuance of common stock, net of
conversion costs - - - - 11,840,000
Dividends on common stock at $.075
per share - - - - (92,625)
Obligation under employee stock
ownership plan - - (864,500) - (864,500)
Amortization of employee stock
ownership plan - - 86,450 - 86,450
Management recognition and
retention plan - - - (642,184) (642,184)
Amortization of management
recognition and retention plan - - - 117,444 117,444
------- ---------- -------- -------- ----------
BALANCE AT SEPTEMBER 30, 1993 - - (778,050) (524,740) 24,376,636
Net income - - - - 2,772,378
Dividends on common stock at $.39
per share - - - - (472,293)
Purchase of common stock - (1,413,464) - - (1,413,464)
Amortization of employee stock
ownership plan - - 172,900 - 172,900
Tax benefit on dividends paid to
the employee stock ownership - - - - 10,230
plan
Amortization of management
recognition and retention plan - - - 180,713 180,713
------- ---------- -------- -------- ----------
BALANCE AT SEPTEMBER 30, 1994 - (1,413,464) (605,150) (344,027) 25,627,100
Net income - - - - 2,025,204
Dividends on common stock at $.515
per share - - - - (587,776)
Purchase of common stock - (525,719) - - (525,719)
Common shares issued on exercise
of stock options - 42,275 - - 23,461
Unrealized gains on securities
available for sale 276,174 - - - 276,174
Amortization of employee stock
ownership plan - - 172,900 - 172,900
Recognition of expense on employee
stock ownership plan - - - - 170,198
Amortization of management
recognition and retention plan - - - 83,931 83,931
------- ---------- -------- -------- ----------
BALANCE AT SEPTEMBER 30, 1995 276,174 (1,896,908) (432,250) (260,096) 27,265,473
======= ========= ========= ========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-35
<PAGE> 101
THIRD FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended September 30, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
----- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 2,025,204 2,772,378 1,974,167
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation of office properties and equipment 165,711 179,228 174,369
Depreciation of real estate owned -- 34,800 6,000
Amortization of premiums and accretion of discounts, net 110,134 170,686 53,739
FHLB stock dividends (64,100) (47,800) (38,900)
Provision for loan losses (75,309) (308,503) 179,092
Provision for loss on real estate owned -- 10,000 164,244
Gain on sale of real estate owned (116,851) (91,215) (95,032)
Gain on sale of securities available for sale (150,313) -- --
Lower of cost or market adjustment on assets held for sale -- 2,897 81,702
Amortization of employee stock ownership plan 172,900 172,900 86,450
Recognition of expense on employee stock ownership
plan 170,198 -- --
Amortization of management recognition and retention plan 83,931 180,713 117,444
Purchase of investment securities held for sale -- (6,011,923) (3,048,671)
Proceeds from sale or maturity of investment securities held
for sale -- 6,182,159 66,218
Gain on sale of investment securities held for sale -- (153,788) (65,790)
Net originations of loans held for sale (5,794,017) (13,602,561) (18,032,970)
Proceeds from sale of loans held for sale 6,058,370 16,853,618 18,689,303
Gain on sale of loans (65,750) (34,942) (206,190)
Loan fees deferred on loans held for sale, net 107 (23,736) (21,053)
Amortization of deferred loan fee income (67,631) (213,016) (375,953)
Deferred federal income tax expense 245,000 446,000 60,000
Cumulative effect of change in accounting for income taxes -- (600,000) --
Other, net (70,563) (7,104) 357,681
----------- ----------- -----------
Net cash provided by operating activities $ 2,627,021 5,910,791 125,850
----------- ----------- -----------
Cash flows from investing activities:
Net loan originations (8,262,454) (16,276,176) (5,381,141)
Recoveries of loans previously charged off 95,246 111,420 36,413
Loan fees deferred, net of direct origination costs (22,925) (132,198) 189,065
Purchase of securities available for sale (5,508,602) -- --
Proceeds from sale or maturity of securities available for sale 1,646,776 -- --
Purchase of securities held to maturity (1,973,442) (2,904,275) (11,766,891)
Proceeds from maturity of securities held to maturity 3,783,367 7,885,771 9,370,062
(Increase) decrease in certificates of deposit 774,000 1,299,000 (704,000)
Proceeds from sales of real estate owned 1,128,198 581,169 326,216
Purchase of office properties and equipment, net (49,432) (63,813) (189,498)
----------- ----------- -----------
Net cash used by investing activities $(8,389,268) (9,499,102) (8,119,774)
----------- ----------- -----------
</TABLE>
(Continued)
F-36
<PAGE> 102
THIRD FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOW, CONTINUED
Years Ended September 30, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from financing activities:
Net proceeds from issuance of common stock $ -- -- 11,840,000
Net proceeds from exercise of stock options 23,461 -- --
Purchase of common stock for treasury (525,719) (1,413,464) --
Dividends paid (587,776) (472,293) (92,625)
Loan to employee stock ownership plan -- -- (864,500)
Tax benefit on dividends paid to the employee stock ownership plan -- 10,230 --
Contribution to management recognition and retention plan for
purchase of common stock -- -- (642,184)
Net increase (decrease) in deposits 4,454,319 (1,751,516) (4,158,660)
Advances from the FHLB of Cincinnati 9,100,000 20,100,000 1,261,000
Repayment of advances from the FHLB of Cincinnati (6,618,825) (12,327,496) (291,991)
----------- ----------- -----------
Net cash provided by financing activities 5,845,460 4,145,461 7,051,040
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents 83,213 557,150 (942,884)
Cash and cash equivalents at beginning of year 2,959,919 2,402,769 3,345,653
----------- ----------- -----------
Cash and cash equivalents at end of year $ 3,043,132 2,959,919 2,402,769
=========== =========== ===========
Noncash activity:
Additions to real estate owned -- -- 1,670,413
Loans originated to finance the sale of real estate owned -- -- 116,000
Loan losses charged against allowance $ 50,503 239,628 595,856
Transfer from held for sale portfolio to held for investment portfolio, at
lower of amortized cost or market:
Mortgage-backed securities -- -- 6,040,188
Investment securities -- -- 495,000
Loans receivable -- 2,699,541 --
----------- ----------- -----------
Supplemental disclosures:
Interest paid on savings deposits $ 4,432,624 3,729,404 4,440,299
Interest paid on FHLB advances 824,019 310,462 213,170
Income taxes paid 705,000 900,000 858,000
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-37
<PAGE> 103
THIRD FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Third Financial Corporation (the
Company) conform to generally accepted accounting principles and to
general practice within the savings and loan industry. The following is
a description of the more significant policies the Company follows in
preparing and presenting its financial statements.
(A) PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and Third Savings, its wholly owned subsidiary. All
significant intercompany transactions and balances are eliminated in
consolidation.
(B) CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include
cash and amounts due from depository institutions and interest-bearing
deposits in other banks. Interest-bearing deposits in other banks
include certificates of deposit with original maturities of three
months or less.
(C) CERTIFICATES OF DEPOSIT
Certificates of deposit include certificates with original maturities of
greater than three months.
(D) MORTGAGE-BACKED AND OTHER INVESTMENT SECURITIES
The Company adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 115, Accounting for Certain Investments in Debt
and Equity Securities (Statement 115) effective October 1, 1994. Under
Statement 115, the Company classifies its marketable debt and equity
securities in one of three categories: trading, available for sale, or
held to maturity.
Securities are classified as securities held to maturity based on
management's intent and the Company's ability to hold them to maturity.
Such securities are stated at cost, adjusted for unamortized purchase
premiums and discounts. Purchase premiums and discounts are amortized
over the life of the related security using a method which approximates
the level yield method.
Securities that are bought and held principally for the purpose of selling
them in the near term are classified as trading account securities,
which are carried at market value. Realized gains and losses and gains
and losses from marking the portfolio to market value are included in
trading revenue. The Company holds no trading assets at September 30,
1995.
Securities not classified as securities held to maturity or trading account
securities are classified as securities available for sale, and are
stated at fair value. Unrealized gains and losses are excluded from
earnings, and are reported as a separate component of shareholders'
equity, net of taxes. Such securities include those that may be sold in
response to changes in interest rates, changes in prepayment risk or
other factors.
Gains or losses on the sale of securities are credited or charged to
earnings when realized based on the specific identification method.
(Continued)
F-38
<PAGE> 104
THIRD FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
Federal Home Loan Bank stock is valued at cost. This investment is
maintained in accordance with Federal Home Loan Bank regulations.
(E) PROVISIONS FOR LOSSES
Management provides for and determines the adequacy of the allowance for
loan losses based on the Company's past loan loss experience, review of
individual problem loans, inherent risks in the portfolio, adverse
situations that may affect the borrower's ability to repay, the
estimated value of the underlying collateral and current economic
conditions.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Company's allowances for
losses on loans. Such agencies may require the Company to recognize
additions to the allowances based on their judgments about information
available to them at the time of the examination. In the opinion of
management, the allowance, when taken as a whole, is adequate to absorb
reasonably foreseeable losses.
In May, 1993, the Financial Accounting Standards Board (FASB) issued SFAS
No. 114, Accounting by Creditors for Impairment of Loans (Statement
114). Statement 114 is applicable to all creditors and to all types of
lending except for loans that are measured at fair value or at the
lower of cost or fair value in accordance with specialized industry
practice. The statement applies to all loans that are restructured in a
troubled debt restructuring involving a modification of terms. It
requires that impaired loans be measured based on the present value of
expected future cash flows discounted at the loan's effective interest
rate or, as a practical expedient, at the loan's observable market
price or the fair value of the collateral if the loan is collateral
dependent.
Statement 114 applies to financial statements for fiscal years beginning
after December 15, 1994. Statement 114 was amended in October of 1994
by SFAS No. 118, Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosure. This amendment allows for interest
income to be recognized by existing methods and deletes those income
recognition provisions described in Statement 114. Management does not
believe that the implementation of these statements will have a
materially adverse effect on the operations of the Company.
Accrual of interest on potential problem loans is excluded from income by an
offsetting increase in a specific allowance for loss when, in the
opinion of management, this is warranted.
(F) UNEARNED LOAN DISCOUNTS AND LOAN ORIGINATION FEES
In accordance with the provisions of SFAS No. 91, Accounting for
Nonrefundable Fees and Costs Associated with Originating or Acquiring
Loans and Initial Direct Costs of Leases, the Company defers loan
origination fees and initial direct origination costs of loans. Such
fees and costs are accreted into interest income using the level yield
method over the contractual lives of the loans. This accretion is
suspended on nonperforming loans.
(Continued)
F-39
<PAGE> 105
THIRD FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(g) LOANS HELD FOR SALE
Mortgage loans originated and intended for the secondary market are
carried at the lower of cost or estimated market value in the
aggregate.
(h) LOAN SERVICING
The Company services for investors mortgage loans that are not included
in the consolidated balance sheet. Fees earned for servicing loans
owned by investors are reported as income when the related mortgage
loan payments are collected. Loan servicing costs are charged to
expense as incurred.
In May 1995, the FASB issued SFAS No. 122, Accounting for Mortgage
Servicing Rights (Statement 122). This statement amends SFAS No. 65,
Accounting for Certain Mortgage Banking Activities, to require a
mortgage banking enterprise to recognize as separate assets the
rights to service mortgage loans for others regardless how those
servicing rights are acquired. A mortgage banking enterprise that
acquires mortgage servicing rights through either the purchase or
origination of mortgage loans and subsequently sells or securitizes
those loans with servicing rights retained should allocate the total
cost of the mortgage loans between the mortgage servicing rights and
the loans themselves, based on their relative fair values.
This statement requires a mortgage banking enterprise to assess its
capitalized mortgage servicing rights for impairment based on the
fair value of such rights. A mortgage banking enterprise should
stratify its capitalized mortgage servicing rights upon adoption of
this statement based on one or more of the primary risk
characteristics of the underlying loans. Impairment should be
recognized through a valuation allowance for each category of loans.
This statement is to be applied prospectively in fiscal years beginning
after December 15, 1995, to transactions in which an entity sells or
securitizes mortgage loans with servicing rights retained and to
impairment evaluations of all amounts capitalized as mortgage
servicing rights, including those purchased before the adoption of
this statement. Earlier application is encouraged. Retroactive
capitalization of mortgage servicing rights retained in transactions
incurred before the adoption of this statement is prohibited. The
Company will adopt the provisions of Statement 122 in fiscal 1997
and does not anticipate the impact of the adoption to be material.
(i) DEPRECIATION
Depreciation of office properties and equipment is computed on a
straight-line basis over the estimated useful lives of the related
assets.
(Continued)
F-40
<PAGE> 106
THIRD FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(J) REAL ESTATE OWNED
Property acquired by foreclosure or deed in lieu of foreclosure (REO) is
stated at the lower of cost or fair value at the date of acquisition.
Subsequent to the acquisition date, charges to income are made if it is
determined that the carrying value exceeds the fair value less
estimated costs to sell. Costs to develop or improve the property are
capitalized; costs of holding the property are charged to expense. The
specific-identification method is used to determine gain or loss on the
sale of REO.
Loans secured by property, for which there is an indication that the
borrower no longer has the ability to repay the loan and it is doubtful
that equity will be rebuilt in the foreseeable future, are classified
as in-substance foreclosures and accounted for as REO.
(K) FEDERAL INCOME TAXES
In February 1992, the FASB issued SFAS No. 109, Accounting for Income
Taxes (Statement 109). Statement 109 requires a change from the
deferred method of accounting for income taxes under Accounting
Principles Bulletin (APB) Opinion 11 to the asset and liability method
of accounting for income taxes. Under the asset and liability method of
Statement 109, deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities
and their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to be
recovered or settled. Under Statement 109, the effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income
in the period that includes the enactment date.
Effective October 1, 1993, the Company adopted Statement 109 and has
reported the cumulative effect of that change in the method of
accounting for income taxes in the 1994 consolidated statement of
income.
Pursuant to the deferred method under APB Opinion 11, which was applied in
1993 and prior years, deferred income taxes are recognized for income
and expense items that are reported in different years for financial
reporting purposes and income tax purposes using the tax rate
applicable for the year of the calculation. Under the deferred method,
deferred taxes are not adjusted for subsequent changes in tax rates.
(L) EARNINGS PER SHARE
Earnings per share have been computed using the "if-converted" method by
dividing net income applicable to common stock by the average number of
shares of common stock and common stock equivalents outstanding, net of
shares assumed to be repurchased using the treasury stock method.
Common stock equivalents arise from the assumed conversion of
outstanding stock options. The average number of shares of common stock
and common stock equivalents outstanding was 1,184,243, 1,252,776 and
1,271,028 in 1995, 1994 and 1993, respectively. For the year ended
September 30, 1993, earnings per share are based on historical earnings
from the date of conversion, March 25, 1993 through September 30, 1993.
F-41
(Continued)
<PAGE> 107
THIRD FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(M) RECLASSIFICATIONS
Certain amounts in the 1994 and 1993 consolidated financial
statements have been reclassified to conform with the 1995 presentation.
(2) SECURITIES AVAILABLE FOR SALE
As discussed in note 1(d), the Company adopted Statement 115 as of
October 1, 1994. Upon adoption, the Company recorded $230,800 in
unrealized gains on securities available for sale, net of federal
income taxes, as a component of shareholders' equity.
The amortized cost and approximate market value of securities available
for sale at September 30, 1995 are summarized as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED APPROXIMATE
Description COST GAINS LOSSES MARKET VALUE
----------- ---- ----- ------ ------------
<S> <C> <C> <C> <C>
Marketable equity securities --
Student Loan Marketing Association
(SLMA) stock $ 1,935 362,060 - 363,995
United States government and agency
obligations 3,002,515 36,685 - 3,039,200
Corporate bonds 1,005,979 11,207 - 1,017,186
--------- -------- ----------- ---------
$4,010,429 409,952 - 4,420,381
========= ======= =========== =========
</TABLE>
Proceeds from sales of securities available for sale for the year ended
September 30, 1995 totaled $646,776 resulting in gross realized gains
of $150,313.
The following table shows the contractual maturity distribution of
securities available for sale at September 30, 1995. Expected
maturities may differ from contractual maturities because issuers may
have the right to call or prepay obligations with or without call or
prepayment penalties.
<TABLE>
<CAPTION>
MATURITY DISTRIBUTION
-----------------------------------------------------------------------------
WITHIN ONE TO FIVE SIX TO TEN OVER
ONE YEAR YEARS YEARS 10 YEARS TOTAL
-------- ----- ----- -------- -----
<S> <C> <C> <C> <C> <C>
Amortized cost $ 504,179 3,504,315 - 1,935 4,010,429
======== ========= ====== ========== =========
Market values $ 513,075 3,543,311 - 363,995 4,420,381
======== ========= ====== ========== =========
</TABLE>
(Continued)
F-42
<PAGE> 108
THIRD FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(3) SECURITIES HELD TO MATURITY
The amortized cost and approximate market value of securities held to
maturity at September 30 are summarized as follows:
<TABLE>
<CAPTION>
1995
---------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED APPROXIMATE
Description COST GAINS LOSSES MARKET VALUE
----------- ---- ----- ------ ------------
<S> <C> <C> <C> <C>
United States government and agency
obligations $1,499,927 9,874 (12,286) 1,497,515
Corporate bonds 4,500,563 27,525 (14,798) 4,513,290
Federal Home Loan Mortgage
Corporation (FHLMC) pass-through
certificates 2,407,142 25,588 (28,740) 2,403,990
Federal National Mortgage Association
(FNMA) pass-through certificates 1,804,626 - (40,676) 1,763,950
Collateralized Mortgage Obligations
(CMOs) 4,189,794 7,092 (34,292) 4,162,594
----------- ------- ---------- -----------
$14,402,052 70,079 (130,792) 14,341,339
========== ====== ========= ==========
</TABLE>
<TABLE>
<CAPTION>
1994
--------------------------------------------------------------------
Gross Gross
Amortized unrealized unrealized Approximate
Description cost gains losses market value
----------- ---- ----- ------ ------------
<S> <C> <C> <C> <C>
United States government and agency
obligations $ 1,004,222 6,265 (38,142) 972,345
Corporate bonds 5,707,258 2,062 (57,629) 5,651,691
FHLMC pass-through certificates 1,544,936 176 (50,849) 1,494,263
FNMA pass-through certificates 1,956,217 - (73,160) 1,883,057
CMOs 6,104,690 6,106 (126,669) 5,984,127
----------- ------- ------- -----------
$ 16,317,323 14,609 (346,449) 15,985,483
========== ====== ========= ==========
</TABLE>
Mortgage-backed securities with an amortized cost of $1,621,445 at September
30, 1995 were pledged to secure public deposits.
(Continued)
F-43
<PAGE> 109
THIRD FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
The following table shows the contractual final maturity distribution of
securities held to maturity at September 30, 1995. Expected maturities
may differ from contractual final maturities because issuers may have
the right to call or prepay obligations with or without call or
prepayment penalties and scheduled principal paydowns.
<TABLE>
<CAPTION>
MATURITY DISTRIBUTION
----------------------------------------------------------------------------
WITHIN ONE TO FIVE SIX TO TEN OVER
ONE YEAR YEARS YEARS 10 YEARS TOTAL
-------- ----- ----- -------- -----
<S> <C> <C> <C> <C> <C>
Amortized cost $ 4,009,191 4,411,279 1,497,380 4,484,202 14,402,052
========== ========= ========= ========== ==========
Market values $ 4,011,640 4,438,954 1,496,820 4,393,925 14,341,339
========== ========= ========= ========= ==========
</TABLE>
(4) ASSETS HELD FOR SALE
The amortized cost and approximate market value of assets held for sale at
September 30 are summarized as follows:
<TABLE>
<CAPTION>
1995
--------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED APPROXIMATE
Description COST GAINS LOSSES MARKET VALUE
----------- ---- ----- ------ ------------
<S> <C> <C> <C> <C>
Loans $901,083 10,807 (1,387) 910,503
======== ====== ======= =======
</TABLE>
<TABLE>
<CAPTION>
1994
---------------------------------------------------------------------
Gross Gross
Amortized unrealized unrealized Approximate
Description cost gains losses market value
----------- ---- ----- ------ ------------
<S> <C> <C> <C> <C>
Marketable equity securities --
Student Loan Marketing
Association (SLMA) stock $ 3,078 449,346 - 452,424
========== ======= ====== =========
Loans $1,101,685 2,759 (5,656) 1,098,788
========== ======= ===== =========
</TABLE>
Proceeds from the sales of marketable debt securities held for sale for the
year ended September 30, 1994 totaled $5,929,042. This resulted in
gross realized gains of $1,192 and gross realized losses of $98,806 for
the year ended September 30, 1994. There were no sales of marketable
debt securities held for sale for the year ended September 30, 1993.
Additionally, gross realized gains on sales of marketable equity securities
in 1994 and 1993 amounted to $251,402 and $65,790, respectively.
(Continued)
F-44
<PAGE> 110
THIRD FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(5) LOANS RECEIVABLE
Loans receivable at September 30 are summarized as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Mortgage loans on existing real estate:
Residential single family units $74,414,832 76,687,229
Other residential and commercial 17,603,768 14,146,255
---------- ----------
Total real estate loans 92,018,600 90,833,484
Real estate construction 7,777,882 12,075,848
Commercial 15,217,518 8,096,645
Mobile home 2,973,093 3,656,009
Consumer and other 12,543,094 10,352,561
----------- ------------
130,530,187 125,014,547
Less:
Unearned discounts 246,567 341,611
Loans in process 3,336,246 5,937,513
Deferred loan fees 482,482 573,038
Allowance for loan losses 1,196,550 1,227,116
----------- -----------
$125,268,342 116,935,269
=========== ===========
</TABLE>
Changes in the allowance for loan losses are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Allowance at beginning of the year $1,227,116 1,663,827 2,044,178
Provision charged to income (75,309) (308,503) 179,092
Recoveries of amounts previously
charged off 95,246 111,420 36,413
Losses charged to allowance (50,503) (239,628) (595,856)
---------- ---------- ----------
Allowance at end of the year $1,196,550 1,227,116 1,663,827
========= ========= =========
</TABLE>
(Continued)
F-45
<PAGE> 111
THIRD FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
The negative provision for loan losses for the years ended September 30,
1995 and 1994 and the corresponding decrease in the allowance for loan
losses at September 30, 1995 and 1994 is due to the successful
disposition of several loans specifically reserved for at September 30,
1994 and 1993 as well as an overall improvements in delinquency rates
for the underlying loan portfolios.
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Loans on non-accrual status $ 23,000 53,000 652,000
======= ====== =======
Foregone interest on non-accrual
loans 1,300 4,800 52,000
===== ===== ======
Interest income on non-accrual loans
included in net income 2,500 4,400 64,000
===== ===== ======
</TABLE>
At September 30, 1995, 1994 and 1993, the Company serviced approximately
$38,659,000, $36,085,000 and $24,296,000, respectively, in loans for
the benefit of others.
(6) OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment, valued at cost less accumulated
depreciation, at September 30 are summarized as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Land $ 308,895 308,895
Buildings 1,966,746 1,966,746
Furniture, fixtures and equipment 615,807 566,375
----------- ----------
2,891,448 2,842,016
Less accumulated depreciation 1,171,976 1,006,265
---------- ---------
$ 1,719,472 1,835,751
========== =========
</TABLE>
(7) ACCRUED INTEREST RECEIVABLE
Accrued interest receivable at September 30 is summarized as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Loans receivable $ 792,947 687,661
Mortgage-backed securities 45,586 40,227
Investment securities 161,867 126,877
---------- -------
$1,000,400 854,765
========= =======
</TABLE>
Accrued interest on loans receivable is net of an allowance for
uncollectible interest of $24,781 and $23,477 at September 30, 1995 and
1994, respectively.
(Continued)
F-46
<PAGE> 112
THIRD FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(8) DEPOSITS
Savings deposit balances at September 30 are summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
YIELD AT
SEPTEMBER 30,
1995 1995 1994
---- ------------------------ ------------------------
Amount % Amount %
------ - ------ -
<S> <C> <C> <C> <C> <C>
Passbook savings 2.63% $29,996,277 27.2% 33,979,759 32.0%
NOW accounts 1.11 11,507,759 10.4 10,137,580 9.6
Christmas Club 2.63 568,620 0.5 619,185 0.6
Money market accounts 3.44 5,829,625 5.3 6,067,885 5.7
----------- ---- ----------- -----
47,902,281 43.4 50,804,409 47.9
----------- ---- ----------- -----
Certificate accounts maturing within:
3 months 5.55 13,825,029 12.5 9,727,084 9.2
3 to 6 months 5.59 9,551,927 8.7 8,854,196 8.3
6 to 12 months 6.30 17,827,498 16.1 20,696,108 19.5
1 to 2 years 5.78 15,484,987 14.0 12,377,153 11.7
Over 2 years 6.67 5,902,963 5.3 3,581,416 3.4
----------- --- ----------- -----
62,592,404 56.6 55,235,957 52.1
---------- ---- ----------- -----
Accrued interest 15,601 - 13,647 -
----------- ----- ----------- -----
$110,510,286 100.0% $106,054,013 100.0
=========== ===== =========== =====
</TABLE>
At September 30, 1995, there were 78 deposit accounts totaling
approximately $10,914,000 with balances of $100,000 or more.
Interest expense on deposits is summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Passbook savings $ 824,177 999,258 1,160,725
NOW accounts 125,304 136,982 182,764
Christmas Club 8,044 8,817 13,413
Money market accounts 177,016 174,496 205,549
Certificates of deposit 3,300,037 2,408,914 2,891,050
--------- --------- ---------
$4,434,578 3,728,467 4,453,501
========= ========= =========
</TABLE>
(Continued)
F-47
<PAGE> 113
THIRD FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(9) FEDERAL HOME LOAN BANK ADVANCES
Advances from the FHLB of Cincinnati at September 30, are summarized as
follows:
<TABLE>
<CAPTION>
Maturity date Interest rate 1995 1994
------------- ------------- ---- ----
<S> <C> <C> <C>
October 11, 1994 6.50% - 1,000,000
August 3, 1995 5.70% - 2,100,000
October 12, 1995 6.90% $1,000,000 -
October 24, 1995 6.90% 1,000,000 -
March 1, 1996 6.00% 2,100,000 -
December 27, 1996 6.55% 2,500,000 2,500,000
September 26, 1997 6.80% 2,000,000 2,000,000
September 29, 1997 6.80% 1,000,000 1,000,000
January 1, 2000 7.40% 813,142 -
June 1, 2000 7.40% 827,023 -
September 1, 2004 5.60% 461,611 500,000
September 1, 2004 5.65% 461,706 500,000
May 1, 2007 6.95% 601,214 633,557
February 1, 2008 6.55% 987,957 1,037,921
----------- ----------
$13,752,653 11,271,478
=========== ==========
</TABLE>
The advances maturing in September 2004, May 2007 and February 2008 were
obtained under the Mortgage Matched Advances Program. In addition to
monthly interest and principal payments, the Company has the option of
making one annual partial prepayment of principal on each advance
without a prepayment fee. The prepayable amount is determined based on
mortgage prepayment speeds.
The advances maturing in October 1995 were obtained at variable interest
rates.
The Company is required to pledge all stock in the FHLB of Cincinnati and
all eligible mortgages as collateral in an amount equal to 150% of the
unpaid principal balance in accordance with its Blanket Agreement for
Advances and Security Agreement with the FHLB.
F-48
(Continued)
<PAGE> 114
THIRD FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(10) FEDERAL INCOME TAXES
As discussed in note 1(k), the Company adopted Statement 109 as of October 1,
1993. The cumulative effect of this change in accounting for income taxes of
$600,000 was determined as of October 1, 1993 and was reported separately in
the consolidated statement of earnings for the year ended September 30,
1994. Prior years' financial statements were not restated to apply the
provisions of Statement 109.
The actual income tax expense for 1995, 1994 and 1993 differs from the
"expected" amounts for those years (computed by applying the statutory U.S.
federal corporate tax rate of 34% to income before federal income taxes) as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
------------------------ --------------------- -------------------
% of % of % of
pretax pretax pretax
AMOUNT income Amount income Amount income
---------- ------ ---------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
Computed "expected" tax expense $1,043,529 34.0% 1,119,069 34.0 994,217 34.0
Increase (decrease) in income taxes
resulting from:
Difference between statutory tax
bad debt deduction and book
loan losses and losses on real
estate owned - - - - (25,476) (0.9)
Other 471 0.0 (69) (0.0) (18,741) (0.6)
---------- ----- ---------- ----- -------- -----
$1,044,00 34.0% 1,119,00 34.0 950,000 32.5
========== ===== ========== ===== ======== =====
</TABLE>
In addition to income taxes applicable to income before taxes, a deferred tax
liability of $133,778 has been recorded to reflect the tax effects of
unrealized gains on securities available for sale for the year ended
September 30, 1995.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
September 30, 1995 are presented below:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 381,327 395,799
Deferred loan fees 164,386 197,638
Management retention/recognition expense 47,295 100,803
Accrued pension liability 68,673 74,037
Other 8,426 37,623
-------- -------
Total gross deferred tax assets 670,107 805,900
Deferred tax liabilities:
Basis difference in FHLB stock 197,126 175,316
Basis difference in office properties and equipment 74,647 74,647
Tax bad debt reserves 289,797 198,142
Unamortized penalty interest 40,676 44,058
Unrealized gains on securities available for sale 133,778 -
-------- -------
Total gross deferred tax liabilities 736,024 492,163
-------- -------
Net deferred tax asset (liability) $ (65,917) 313,737
======== =======
</TABLE>
F-49
(Continued)
<PAGE> 115
THIRD FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
The Company has not established a valuation allowance at September 30, 1995
and 1994 as it believes that all deferred tax assets are fully realizable.
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. Management considers the scheduled reversal
of deferred tax liabilities and tax planning strategies in making the
assessment.
The components of deferred federal income tax expense (benefit) for the year
ended September 30, 1993 is as follows:
<TABLE>
<CAPTION>
1993
----
<S> <C>
Deferred loan fees $79,076
Lower of cost or market adjustment on assets held for
sale -
Other (19,076)
------
$60,000
=======
</TABLE>
The Company and its subsidiary file a consolidated federal income tax return
on a calendar year basis. The Company is permitted under the Internal
Revenue Code (the Code) to deduct an annual addition to a reserve for bad
debts in determining taxable income, subject to certain limitations. Bad
debt deductions for income tax purposes are included in taxable income of
later years only if the bad debt reserve is used subsequently for purposes
other than to absorb bad debt losses. Because the Company does not intend to
use the reserve for purposes other than to absorb losses, no deferred income
taxes have been provided prior to 1987. Retained earnings at September 30,
1995 includes approximately $5,200,000 representing such bad debt deductions
for which no deferred income taxes have been provided.
(11) EMPLOYEE BENEFIT PLANS
PENSION PLAN
The Company maintains a defined benefit pension plan for substantially all of
its employees. Pension expense for 1995, 1994 and 1993 is $81,915, $105,174,
and $74,715, respectively. The plan benefits are funded through a trust. The
Company's policy is to fund pension costs in accordance with Internal
Revenue Service requirements.
F-50
(Continued)
<PAGE> 116
THIRD FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
Information regarding the defined benefit plan's funded status at September
30, 1995 and 1994 and net periodic pension cost for each of the years in the
three-year period ended September 30, 1995 follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Accumulated Benefit Obligation:
Vested $(396,560) (381,949)
Nonvested (21,450) (27,770)
--------- --------
(418,010) (409,719)
========= =========
Projected Benefit Obligation (PBO) for service rendered to date (578,662) (823,093)
Fair value of plan assets 495,504 435,493
-------- ---------
Excess PBO over assets (83,158) (387,600)
Unrecognized net (gain) loss (110,895) 177,086
Unrecognized net transition asset (7,925) (8,544)
---------- ---------
Accrued pension costs $(201,978) (219,058)
========= =========
</TABLE>
Net periodic pension cost is comprised of the following:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Service cost (benefits earned during the period) $ 79,244 94,984 70,225
Interest cost on PBO 37,472 40,098 30,290
Actual return on plan assets (48,517) 3,243 (49,962)
Other 13,716 (33,151) 24,162
------ ------ ------
Net periodic pension cost $ 81,915 105,174 74,715
====== ======= ======
</TABLE>
In 1995, the discount rate and the rate of increase in future compensation
levels used in determining the actuarial present value of projected
obligations were 6.50% and 4.0%, respectively. The expected long-term rate
of return on investments was 7.5%. In 1994, the discount rate and the rate
of increase in future compensation levels were 6.25 % and 5.0%,
respectively. The assumed long-term rate of return on investments was 7.5%
in 1994. During 1995, ammendments were made to the Company's pension plan in
accordance with Internal Revenue Service requirements.
F-51
(Continued)
<PAGE> 117
THIRD FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
EMPLOYEE STOCK OWNERSHIP PLAN
Effective October 1992, the Company established the Employee Stock Ownership
Plan (ESOP) which purchased 86,450 shares of common stock of the Company in
March 1993. The ESOP was capitalized with a loan from the Company for
$864,500.
Third Savings intends to make contributions to the ESOP in an amount to be
determined by the Board of Directors, but not less than the amount needed to
pay any currently maturing obligations under the loan made to the ESOP. The
loan requires semiannual payments and has a term of five years. Benefits
under the ESOP become 100% vested after five years of service and prior
service is includable. During 1995 and 1994 and 1993, Third Savings made a
contribution to the ESOP in the amount of $206,616, $217,183 and $113,250,
respectively, and recognized compensation expense of $142,608, $142,801 and
$86,450, respectively. Compensation expense for 1995 and 1994 differs from
the required principal payment of $172,900 due to dividends on unallocated
ESOP shares which were applied to the outstanding principal balance.
Interest payments are eliminated in consolidation.
The Company adopted the provisions of The American Institute of Certified
Public Accountant's Statement of Position 93-6, Employers Accounting for
Employee Stock Ownership Plans, as of October 1, 1994. This statement
requires that the company recognize compensation expense related to shares
allocated in the current year to the extent current market value of the
shares exceeds the cost of those shares to the ESOP. During 1995, the
Company recognized $170,198 in compensation expense related to this change
in accounting for the ESOP.
At September 30, 1995, 40,399 unallocated shares remain in the ESOP and will
be allocated to participants over the next 2 1/2 years.
MANAGEMENT RECOGNITION AND RETENTION PLAN
The Company's Board of Directors established Management Recognition and
Retention Plan and Trusts (MRRPs) as a method of providing key employees and
directors with a proprietary interest in the Company in a manner designed to
encourage such individuals to remain with the Company. The awards for
outside directors and employees vest at the annual rate of 33 1/3% and 20%,
respectively, of the restricted stock granted. The unearned compensation
under the MRRPs is recorded as a reduction of shareholders' equity and is
amortized to operations as the shares are earned. During 1995 and 1994, the
Company recognized $83,931 and $180,713, respectively, in compensation
expense related to the MRRPs.
In accordance with approval from the Office of Thrift Supervision, Third
Savings contributed $642,184 to the MRRPs for the purpose of purchasing
common stock. On March 26, 1993, the MRRP trusts purchased 40,867 shares of
common stock. At September 30, 1995, 29,115 shares have been awarded to
directors and employees and 11,752 shares remain reserved in the trusts. At
September 30, 1994, 29,831 shares had been awarded to directors and
employees and 11,036 shares remained reserved in the trusts.
STOCK OPTION AND INCENTIVE PLAN
In connection with the conversion to a stock savings and loan association, the
Company's Board of Directors adopted a stock option and incentive plan (the
Plan). Under the Plan, options to purchase a total of 123,500 shares of
common stock may be granted to the Company's directors and officers.
F-52
(Continued)
<PAGE> 118
THIRD FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
All of the options are nontransferable stock options and have a term of 10
years. Options granted to outside directors and employees vest at the annual
rate of 33 1/3% and 20% per year, respectively, except options granted for
11,115 shares which vested immediately upon shareholder approval in August
1993.
Information regarding shares under option plans is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
EMPLOYEE
<S> <C> <C>
Outstanding at beginning of year 65,343 58,743 -
Awarded 9,500 8,000 58,743
Exercised (2,346) (140) -
Expired (9,386) (1,260) -
------ ------ ------
Outstanding at end of year 63,111 65,343 58,743
====== ====== ======
Exercisable at end of year 19,844 11,469 -
======= ====== ======
Average option price at end of year $ 12.36 10.93 10.00
======= ====== ======
DIRECTORS
Outstanding at beginning of year 48,165 48,165 -
Awarded - - 48,165
Exercised - - -
Expired - - -
------- ------ ------
Outstanding at end of year 48,165 48,165 48,165
====== ====== ======
Exercisable at end of year 35,815 23,465 11,115
====== ====== ======
Average option price at end of year $ 10.00 10.00 10.00
====== ====== ======
</TABLE>
(12) FINANCIAL INSTRUMENTS
OFF-BALANCE SHEET RISK
The Company is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers
and to reduce its exposure to fluctuations in interest rates. These
financial instruments involve, to varying degrees, elements of credit risk
that are not recognized in the balance sheet.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
recourse agreements is represented by the contractual amount of those
instruments. The Company uses the same credit policies in making these
commitments and obligations as it does for on-balance sheet instruments. In
extending commitments, the Company evaluates each customer's credit
worthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Company upon extension of credit, is based on
management's credit evaluation of the counterparty.
F-53
(Continued)
<PAGE> 119
THIRD FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses, and may require payment of a fee. Since a portion of the
commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements.
The Company uses forward commitments to sell residential first mortgage loans
which are entered into for the purpose of reducing the market risk
associated with originating loans for sale. The types of risk that may arise
are from the possible inability of the Company to fulfill the contracts or
adverse movement of market rates.
Financial instruments with off-balance sheet risk as of September 30, 1995
were approximately as follows:
<TABLE>
<CAPTION>
Contract or
notional amount
---------------
<S> <C>
Financial instruments whose contract amounts represent credit risk:
Unadvanced lines of credit $ 10,186,750
Mortgage loans sold and serviced with recourse 1,065,762
Commercial loan commitments 6,225,000
Mortgage loan commitments:
Variable (7.50% to 8.25%) 362,800
Fixed (7.50% to 8.50%) 322,000
============
Financial instruments whose contract amounts do not represent credit
risk --
Forward contracts to sell loans $ 325,000
============
</TABLE>
CONCENTRATION OF CREDIT RISK
The Company considers its primary market area for lending and savings
activities to be the immediate geographic area of Miami County, Ohio and
surrounding counties. Although the Company has a diversified loan portfolio,
a substantial portion of its debtors' ability to honor their contractual
obligation is reliant upon the economic stability of the region.
LEGAL CONTINGENCIES
At September 30, 1995, the Company was party, both as plaintiff and defendant,
to legal actions and claims arising out of the normal conduct of its
business. It is the best judgment of management that the financial position
of the Company will not be materially affected by the final outcome of these
legal proceedings.
F-54
(Continued)
<PAGE> 120
THIRD FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(13) STOCK CONVERSION
On March 25, 1993, Third Savings completed a conversion from a mutual to stock
form of ownership whereby Third Savings converted from an Ohio mutual
savings and loan association to an Ohio stock savings and loan association
with the concurrent formation of a holding company. Pursuant to the
conversion, shares of capital stock of the holding company were offered to
eligible account holders and such other persons as defined by the plan. The
price was determined by an independent appraisal of Third Savings and
reflected its estimated pro forma market value, as converted. As part of the
conversion, nontransferable subscription rights to purchase stock were
offered first to the Company's tax-qualified employee plans; then to
eligible savings account holders; then, to the extent the stock was
available, to other Company members; and then to the directors, officers,
and employees.
Savings account holders and borrowers do not have voting rights in the
Company. Voting rights are vested exclusively with the stockholders of the
Company. Savings deposits continue to be insured by the Savings Association
Insurance Fund (SAIF) of the Federal Deposit Insurance Corporation.
All costs associated with the conversion were deferred and deducted from the
proceeds of the sale of stock. The Company issued 1,235,000 shares of $.01
par value common stock for proceeds totaling $12,350,000. Costs of $510,000
related to the conversion were deducted from additional paid-in capital,
resulting in net proceeds of $11,840,000.
At the time of conversion, Third Savings established a "Liquidation Account"
in an amount equal to Third Savings' net worth as of September 30, 1992. The
Liquidation Account is maintained for the benefit of depositors who continue
to maintain their deposits in Third Savings after conversion. In the event
of a complete liquidation (and only in such an event), each eligible
depositor will be entitled to receive a liquidation distribution from the
Liquidation Account, in the proportionate amount of the then-current
adjusted balance for deposits then held, before any liquidation distribution
may be made with respect to the stockholders. Except for the purchase of
stock and payment of dividends by the Company, the existence of the
liquidation account will not restrict use or application of net worth.
Third Savings may not declare or pay a cash dividend to the Company if the
effect would cause the net worth of Third Savings to be reduced below either
the amount required for the Liquidation Account or the net worth requirement
imposed by the Office of Thrift Supervision (OTS), and, if all fully
phased-in capital requirements continue to be met, may not declare or pay a
cash dividend in an amount in excess of Third Savings' net earnings for the
fiscal year in which the dividend is declared plus one-half of the surplus
over the fully phased-in capital requirements, without prior approval of the
OTS. OTS approval is required for Third Savings to pay dividends in excess
of these limitations.
F-55
(Continued)
<PAGE> 121
THIRD FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(14) THIRD FINANCIAL CORPORATION (PARENT CORPORATION)
Condensed financial statements for Third Financial Corporation at and for the
period ended September 30, 1995 are as follows:
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEET
<S> <C>
Assets:
Cash and amounts due from depository institutions $ 868,921
Securities available for sale 1,547,375
Securities held to maturity 3,651,938
Investment in subsidiary 17,095,336
Loans receivable 3,887,552
Accrued interest receivable 55,151
Other assets 164,936
------------
Total assets $ 27,271,209
============
Liabilities and shareholders' equity:
Accrued expenses and other liabilities $ 165,164
Common stock 12,350
Additional paid-in capital 11,827,650
Retained earnings 17,568,355
Unrealized gains on securities available for sale 26,848
Treasury stock (1,896,908)
Employee stock ownership plan loan (432,250)
------------
Total liabilities and shareholders' equity $ 27,271,209
============
CONDENSED STATEMENT OF INCOME AND RETAINED EARNINGS
Interest income:
Loans receivable $ 351,530
Mortgage-backed securities 90,287
Investment securities 152,964
------------
Total interest income 594,781
Noninterest income -- equity in earnings of subsidiary 1,725,589
Gain on sale of investments available for sale 461
Noninterest expenses (158,627)
------------
Income before federal income tax expense 2,162,204
Federal income tax expense 137,000
------------
Net income 2,025,204
Retained earnings at beginning of period 16,149,741
------------
Common shares issued on stock options (18,814)
Dividends paid (587,776)
------------
Retained earnings at end of period $ 17,568,355
============
</TABLE>
(Continued)
F-56
<PAGE> 122
THIRD FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
<TABLE>
<CAPTION>
CONDENSED STATEMENT OF CASH FLOWS
<S> <C>
Cash flows from operating activities:
Net income $ 2,025,204
Adjustments to reconcile net income to net cash provided by operating
activities:
Income from subsidiary (1,725,589)
Amortization of premiums and accretion of discounts, net 28,565
Amortization of employee stock ownership plan 172,900
Gain on sale of securities available for sale (461)
Cash dividend from subsidiary 151,509
Other, net 12,331
-----------
Net cash provided by operating activities 639,797
-----------
Cash flows from investing activities:
Loan repayments 329,709
Purchase of securities available for sale (2,006,172)
Proceeds from sale of securities available for sale 495,781
Purchase of securities held to maturity (482,504)
Principal collected on securities held to maturity 324,627
Proceeds from maturity of securities held to maturity 1,500,000
-----------
Net cash provided by investing activities 161,441
-----------
Cash flows from financing activities:
Net proceeds from exercise of stock options 23,461
Purchase of common stock for treasury (525,719)
Dividends paid (587,776)
-----------
Net cash used in financing activities (1,090,034)
-----------
Net decrease in cash and cash equivalents (288,796)
Cash and cash equivalents at beginning of period 1,157,717
-----------
Cash and cash equivalents at end of period $ 868,921
===========
Noncash activity:
Dividend paid by the subsidiary to the parent corporation in the form of
loans receivable and securities held to maturity $ 2,009,741
==========
</TABLE>
(Continued)
F-57
<PAGE> 123
THIRD FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(15) REGULATORY REQUIREMENTS
Regulations currently require thrift institutions to have a minimum 1.5%
tangible capital ratio, a 3% core capital ratio, and an 8% risk-based
capital ratio. Third Savings currently meets its minimum regulatory capital
requirements and management believes it will continue to meet them in the
future.
On December 19, 1992, the prompt corrective action regulations of the Federal
Deposit Insurance Corporation (FDIC) Improvement Act became effective. These
regulations define specific capital categories based on an institution's
capital ratios. The capital categories are "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized" and
"critically undercapitalized." Institutions categorized as
"undercapitalized" or worse are subject to certain restrictions, including
the requirement to file a capital plan with the Office of Thrift Supervision
(OTS), prohibitions on the payment of dividends and management fees,
restrictions on executive compensation and increased supervisory monitoring,
among other things. Other restrictions may be imposed on the institution
either by the OTS or the FDIC, including requirements to raise additional
capital, sell assets or sell the entire institution. Once an institution
becomes "critically undercapitalized" it is generally placed in receivership
or conservatorship within 90 days.
To be considered "well capitalized," an institution must generally have a
leverage ratio of at least 5%, a Tier 1 risk-based capital ratio of at least
6% and a total risk-based capital ratio of at least 10%.
F-58
(Continued)
<PAGE> 124
THIRD FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
Third Savings' compliance with the fully phased-in capital requirements in
effect at September 30, 1995 is as follows (unaudited):
<TABLE>
<CAPTION>
Tier 1 Tier 1 Total
Tangible Leverage leverage risk-based risk-based
capital capital capital capital capital
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Capital
determined
under generally
accepted $ 17,514,860 17,514,860 17,514,860 17,514,860 17,514,860
accounting
principles
Adjustments:
Unrealized
gains on
securities
available
for sale, (249,325) (249,325) (249,325) (249,325) (249,325)
net
General
valuation - - - - 1,121,000
reserves ----------- ----------- ----------- ---------- ----------
Regulatory capital 17,265,535 17,265,535 17,265,535 17,265,535 18,386,535
Minimum capital
requirement 2,160,723 4,321,447 7,202,411 5,966,460 7,955,280
----------- ----------- ----------- ---------- ----------
Excess regulatory
capital $ 15,104,812 12,944,088 10,063,124 11,299,075 10,431,255
=========== =========== =========== ========== ==========
Adjusted or risk-
weighted assets
applicable to
calculation $ 144,048,222 144,048,222 144,048,222 99,441,000 99,441,000
=========== =========== =========== ========== ==========
Capital ratio 12.0% 12.0% 12.0% 17.4% 18.5%
==== ==== ==== ==== ====
Required minimum
regulatory 1.5% 3.0% 8.0%
capital ==== ==== ====
Ratio required
to meet the
well capitalized 5.0% 6.0% 10.0%
definition ==== ==== ====
</TABLE>
F-59
(Continued)
<PAGE> 125
THIRD FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Balance Sheets
<TABLE>
<CAPTION>
3/31/96 9/30/95
------- -------
Assets (Unaudited)
---------
<S> <C> <C>
Cash and amounts due from depository institutions $ 1,275,313 1,323,015
Interest-bearing deposits in other banks 8,165,245 1,720,117
Certificates of deposit 0 299,000
Securities available for sale ( amortized cost of $8,518,810 and $4,010,429
at March 31, 1996, and September 30, 1995, respectively) 8,901,961 4,420,381
Securities held to maturity (market value of $3,800,714 and $14,341,339 at
March 31, 1996, and September 30, 1995, respectively) 3,801,684 14,402,052
Stock in Federal Home Loan Bank (FHLB) of Cincinnati, at cost 1,043,300 1,007,800
Assets held for sale, at lower of amortized cost or market 2,696,988 900,078
Loans receivable, net 126,192,385 125,268,342
Office properties and equipment, net 1,661,388 1,719,472
Real estate owned, net -- --
Accrued interest receivable 1,020,491 1,000,400
Federal income taxes receivable 69,772 69,772
Other assets 858,003 950,059
------------- ------------
Total assets $ 155,686,530 153,080,488
============= ============
Liabilities
Deposits $ 114,506,435 110,510,286
Federal Home Loan Bank advances 11,517,772 13,752,653
Accrued expenses and other liabilities 1,026,021 1,143,007
Deferred federal income taxes 89,275 65,917
Accrued federal income taxes 10,641 --
Advance payments by borrowers for taxes and insurance 279,387 343,152
------------- ------------
Total liabilities 127,429,531 125,815,015
------------- ------------
Shareholders' Equity
Serial preferred stock: $.01 par value; 500,000 shares authorized;
none outstanding
Common stock: $.01 par value; 2,000,000 shares authorized;
1,235,000 shares issued 12,350 12,350
Additional paid-in capital 12,151,298 11,997,848
Retained earnings 18,210,858 17,568,355
Unrealized gains on securities available for sale, net 252,881 276,174
Treasury stock, at cost (1,791,986) (1,896,908)
Employee stock ownership plan (345,800) (432,250)
Management recognition and retention plan (232,602) (260,096)
------------- ------------
Total shareholders' equity 28,256,999 27,265,473
------------- ------------
Total liabilities and shareholders' equity $ 155,686,530 153,080,488
============= ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-60
<PAGE> 126
THIRD FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31 March 31
-------- --------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income:
Loans receivable $2,805,005 2,450,196 5,555,886 4,892,089
Mortgage-backed securities 101,712 126,983 220,512 264,031
Investment securities 122,868 144,329 293,892 271,804
Other 55,541 21,824 86,338 57,195
---------- --------- --------- ---------
Total interest income 3,085,126 2,743,332 6,156,628 5,485,119
---------- --------- --------- ---------
Interest expense:
Deposits 1,185,878 1,085,058 2,370,963 2,109,851
Federal Home Loan Bank advances 218,924 182,807 450,277 353,059
---------- --------- --------- ---------
Total interest expense 1,404,802 1,267,865 2,821,240 2,462,910
---------- --------- --------- ---------
Net interest income 1,680,324 1,475,467 3,335,388 3,022,209
Provision for loan losses, net of recoveries - (14,627) - (39,018)
---------- --------- --------- ---------
Net interest income after provision
for loan losses 1,680,324 1,490,094 3,335,388 3,061,227
---------- --------- --------- ---------
Non-interest income:
Service charges and other fees 68,789 65,347 126,594 117,725
Gain on sale of securities, net 90,595 36,252 152,738 85,521
Gain (loss) on sale of loans, net 32,878 3,255 66,332 10,675
Adjustment of assets held for sale to
the lower of cost or market (21,125) - (21,125) -
Other 1,972 1,413 3,608 3,082
---------- --------- --------- ---------
173,109 106,267 328,147 217,003
---------- --------- --------- ---------
Non-interest expense:
Compensation and benefits 605,941 575,643 1,190,360 1,149,758
Occupancy expense 116,131 100,237 214,340 205,738
Other real estate expense, net - (148,827) - (165,568)
Data processing 69,647 61,996 144,058 122,203
Federal insurance premiums 74,202 71,850 148,527 143,739
Franchise taxes 72,986 83,322 99,094 177,114
Other 131,780 129,052 219,095 230,912
---------- --------- --------- ---------
1,070,687 873,273 2,015,474 1,863,896
---------- --------- --------- ---------
Income before federal income taxes 782,746 723,088 1,648,061 1,414,334
Federal income tax expense 266,500 240,000 596,000 481,000
---------- --------- --------- ---------
Net income $ 516,246 483,088 1,052,061 933,334
========== ========= ========= =========
Earnings per share $ 0.43 0.41 0.88 0.79
========== ========= ========= =========
Dividends per share $ 0.17 0.125 0.32 0.24
========== ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-61
<PAGE> 127
THIRD FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Shareholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
Additional
Common paid-in Retained Treasury
stock capital earnings stock
------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1993 $12,350 11,827,650 13,839,426 --
Net income -- -- 2,772,378 --
Dividends on common stock at
$.39 per share -- -- (472,293) --
Purchase of common stock -- -- -- (1,413,464)
Amortization of employee stock
ownership plan -- -- -- --
Tax benefit on dividends paid
to the ESOP -- -- 10,230 --
Amortization of management
recognition and retention plan -- -- -- --
------- ---------- ---------- ----------
BALANCE AT SEPTEMBER 30, 1994 $12,350 11,827,650 16,149,741 (1,413,464)
Net income -- -- 2,025,204 --
Dividends on common stock at
$.515 per share -- -- (587,776) --
Purchase of common stock -- -- -- (525,719)
Common shares issued on
exercise of stock options -- -- (18,814) 42,275
Unrealized gains on securities
available for sale -- -- -- --
Amortization of employee stock
ownership plan -- -- -- --
Recognition of expense on
employee stock ownership plan -- 170,198 -- --
Amortization of management
recognition and retention plan -- -- -- --
------- ---------- ----------- ----------
BALANCE AT SEPTEMBER 30, 1995 $12,350 11,997,848 17,568,355 (1,896,908)
Net income -- -- 1,052,061 --
Dividends on common stock at
$.32 per share -- -- (362,636) --
Purchase of common stock -- -- -- --
Common shares issued on
exercise of stock options -- -- (46,922) 104,922
Unrealized gains on securities
available for sale -- -- -- --
Amortization of employee stock
ownership plan -- -- -- --
Recognition of expense on
employee stock ownership plan -- 153,450 -- --
Amortization of management
recognition and retention plan -- -- -- --
------- ---------- ----------- ----------
BALANCE AT MARCH 31, 1996 12,350 12,151,298 18,210,858 (1,791,986)
======= ========== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
Management Net
Unrealized Employee stock recognition and shareholders'
Gains ownership plan retention plan equity
---------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1993 -- (778,050) (524,740) 24,376,636
Net income -- -- -- 2,772,378
Dividends on common stock at
$.39 per share -- -- -- (472,293)
Purchase of common stock -- -- -- (1,413,464)
Amortization of employee stock
ownership plan -- 172,900 -- 172,900
Tax benefit on dividends paid
to the ESOP -- -- -- 10,230
Amortization of management
recognition and retention plan -- -- 180,713 180,713
--------- -------- -------- ----------
BALANCE AT SEPTEMBER 30, 1994 -- (605,150) (344,027) 25,627,100
Net income -- -- -- 2,025,204
Dividends on common stock at
$.515 per share -- -- -- (587,776)
Purchase of common stock -- -- -- (525,719)
Common shares issued on
exercise of stock options -- -- -- 23,461
Unrealized gains on securities
available for sale 276,174 -- -- 276,174
Amortization of employee stock
ownership plan -- 172,900 -- 172,900
Recognition of expense on
employee stock ownership plan -- -- -- 170,198
Amortization of management
recognition and retention plan -- -- 83,931 83,931
-------- -------- -------- -----------
BALANCE AT SEPTEMBER 30, 1995 276,174 (432,250) (260,096) 27,265,473
Net income -- -- -- 1,052,061
Dividends on common stock at
$.32 per share -- -- -- (362,636)
Purchase of common stock -- -- -- 0
Common shares issued on
exercise of stock options -- -- -- 58,000
Unrealized gains on securities
available for sale (23,293) -- -- (23,293)
Amortization of employee stock
ownership plan -- 86,450 -- 86,450
Recognition of expense on
employee stock ownership plan -- -- -- 153,450
Amortization of management
recognition and retention plan -- -- 27,494 27,494
-------- -------- -------- -----------
BALANCE AT MARCH 31, 1996 252,881 (345,800) (232,602) 28,256,999
======== ======== ======== ===========
</TABLE>
F-62
<PAGE> 128
THIRD FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows, Continued
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31 March 31
-------- --------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 516,246 483,088 1,052,061 933,334
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation of office properties and equipment 39,401 41,254 79,317 83,034
Amortization of premiums and accretion of discounts, net 25,132 (359) 70,908 34,435
FHLB stock dividends (17,800) (15,600) (35,500) (30,700)
Provision for loan losses, net of recoveries - (14,627) - (39,018)
Gain on sale of real estate owned - (116,851) - (116,851)
Gain on sale of securities available for sale (90,595) (36,252) (152,738) (85,521)
Amortization of management recognition and retention plan 13,747 17,711 27,494 48,507
Amortization of employee stock ownership plan 43,245 171,763 86,450 257,076
Recognition of expense on employee stock ownership plan 83,208 0 153,450 0
Net originations of loans held for sale (5,074,889) (276,650) (8,316,002) (739,650)
Proceeds from sale of loans held for sale 4,055,494 286,942 6,524,226 704,075
Gain on sale of loans (32,878) (3,255) (66,332) (10,675)
Lower of cost or market adjustment on assets held for sale 21,125 - 21,125 -
Loan fees deferred on loans held for sale, net 847 (1,270) 8,889 (5,054)
Amortization of deferred loan fee income (12,773) (16,490) (27,348) (34,212)
Deferred federal income tax expense (benefit) - 6,250 - 12,500
Other, net (81,556) (487,263) 537,353 684,335
------------- ----------- --------- ------------
Net cash provided (used) by operating activities (512,046) 38,391 (36,647) 1,695,615
------------- ----------- --------- ------------
Cash flows from investing activities:
Net loan (originations) repayments 1,366,685 (2,196,224) (855,156) (5,066,850)
Recoveries of loans previously charged off 3,180 5,803 24,070 23,126
Loan fees deferred, net of direct origination costs (20,508) 11,845 (34,904) 23,734
Purchase of securities available for sale - (1,505,711) - (3,505,711)
Proceeds from sale or maturity of securities available for sale 2,590,938 1,041,026 3,652,809 1,090,723
Purchase of securities held to maturity - - - (1,000,000)
Proceeds from maturity of securities held to maturity 127,636 105,583 1,917,934 2,249,777
(Increase) decrease in certificates of deposit 299,000 500,000 299,000 475,000
Proceeds from sales of real estate owned - 1,128,198 - 1,128,198
Purchase of office properties and equipment, net (4,899) (19,585) (21,233) (34,747)
------------- ----------- --------- ------------
Net cash provided (used) by investing activities 4,362,032 (929,065) 4,982,520 (4,616,750)
------------- ----------- --------- ------------
</TABLE>
F-63
<PAGE> 129
THIRD FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash FLows, Continued
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31
--------
1996 1995
---- ----
<S> <C> <C>
Cash flows from financing activities:
Net proceeds from exercise of stock options $ -- 23,460
Purchase of common stock for treasury -- (360,436)
Dividends paid (193,112) (143,256)
Net increase (decrease) in deposits 3,261,093 1,074,700
Advances from the FHLB of Cincinnati -- --
Repayment of advances from the FHLB of Cincinnati (3,158,433) (1,061,915)
----------- ----------
Net cash provided (used) by financing activities (90,452) (467,447)
----------- ----------
Net increase (decrease) in cash and cash equivalents 3,759,534 (1,358,121)
Cash and cash equivalents at beginning of period 5,681,024 3,027,667
----------- ----------
Cash and cash equivalents at end of period $ 9,440,558 1,669,546
=========== ==========
Noncash activity:
Additions to real estate owned $ -- --
Loans originated to finance the sale of real estate owned -- --
Loan losses charged against allowance 28,619 9,525
Transfer from held for sale portfolio to held for investment portfolio at
lower of amortized cost or market:
Mortgage-backed securities -- --
Investment securities -- --
Loans receivable -- --
=========== ==========
Supplemental disclosures:
Interest paid on savings deposits $ 1,185,545 1,085,085
Interest paid on FHLB advances 218,924 182,807
Income taxes paid 550,000 275,000
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
<CAPTION>
Six Months Ended
March 31
--------
1996 1995
---- ----
<S> <C> <C>
Cash flows from financing activities:
Net proceeds from exercise of stock options 58,000 23,460
Purchase of common stock for treasury -- (500,577)
Dividends paid (362,636) (277,341)
Net increase (decrease) in deposits 3,991,070 2,485,968
Advances from the FHLB of Cincinnati 3,000,000 2,000,000
Repayment of advances from the FHLB of Cincinnati (5,234,881) (2,100,748)
---------- ----------
Net cash provided (used) by financing activities 1,451,553 1,630,762
---------- ----------
Net increase (decrease) in cash and cash equivalents 6,397,426 (1,290,373)
Cash and cash equivalents at beginning of period 3,043,132 2,959,919
---------- ----------
Cash and cash equivalents at end of period 9,440,558 1,669,546
========== ==========
Noncash activity:
Additions to real estate owned -- --
Loans originated to finance the sale of real estate owned -- --
Loan losses charged against allowance 38,842 13,417
Transfer from held for sale portfolio to held for investment portfolio at
lower of amortized cost or market:
Mortgage-backed securities -- --
Investment securities 9,560,087 --
Loans receivable -- --
========== ==========
Supplemental disclosures:
Interest paid on savings deposits 2,365,885 2,017,012
Interest paid on FHLB advances 450,277 353,059
Income taxes paid 550,000 475,000
========== ==========
</TABLE>
F-64
<PAGE> 130
THIRD FINANCIAL CORPORATION
Notes to Consolidated Financial Statements
For the Quarter Ended March 31, 1996
(Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies followed by Third Financial Corporation (the
Company) and its wholly owned subsidiary, The Third Savings and Loan Company
(Third Savings or the Bank), for interim financial reporting are consistent with
the accounting policies followed for annual financial reporting. All adjustments
which are, in the opinion of management, necessary for a fair presentation of
the results for the periods reported have been included in the accompanying
unaudited consolidated financial statements and all such adjustments are of a
normal recurring nature. The accompanying financial statements do not purport to
contain all the necessary financial disclosures required by generally accepted
accounting principles that might otherwise be necessary in the circumstances and
should be read in conjunction with the 1995 financial statements and notes
thereto of Third Financial Corporation for the year ended September 30, 1995.
NOTE 2 - CONSUMMATION OF THE CONVERSION TO A STOCK SAVINGS AND LOAN
COMPANY
On March 25, 1993, Third Financial Corporation completed the stock subscription
offering. The conversion was consummated with the sale of common stock in an
amount equal to the market value of Third Savings after giving effect to the
stock conversion. The sale of the subscription offering resulted in the issuance
of 1,235,000 shares of common stock, raising net proceeds of $11.8 million. In
accordance with the Plan of Conversion, $5.9 million of the proceeds were
utilized to purchase 100% of the stock of The Third Savings and Loan Company in
conjunction with its conversion from a mutual savings and loan company to a
stock savings and loan company.
NOTE 3 - LOANS RECEIVABLE
Loans receivable is net of the allowance for loan losses of $1,181,777 at March
31, 1996 and $1,196,550 at September 30, 1995.
NOTE 4 - REAL ESTATE OWNED
The Company had no real estate owned properties as of March 31, 1996 and
September 30, 1995.
NOTE 5 - DIVIDENDS
A quarterly cash dividend of $.17 per common share was declared to stockholders
of record on February 15, 1996, payable on February 29, 1996. A quarterly cash
dividend of $.15 per common share was declared to stockholders of record on
November 16, 1995, payable on November 30,1995.
NOTE 6 - EARNINGS PER SHARE
Earnings per common share is calculated by dividing net income by the weighted
average number of common and common equivalent shares, including shares issuable
upon exercise of dilutive options outstanding, excluding treasury stock. The
weighted average number of common and common equivalent shares outstanding for
the three months ended March 31, 1996 and March 31, 1995, were 1,187,234 and
1,177,336, respectively. The weighted average number of common and common
equivalent shares outstanding for the six months ended March 31, 1996 and March
31, 1995, were 1,190,337 and 1,184,532, respectively.
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<PAGE> 131
NOTE 7 - EMPLOYEE BENEFIT PLANS
Stock Option and Incentive Plan:
In connection with the conversion to a stock savings and loan association, the
Company's Board of Directors adopted a stock option and incentive plan (the
Plan). Under the Plan, options to purchase a total of 123,500 shares of common
stock may be granted to the Company's directors and officers.
On March 25, 1993, upon consummation of the conversion of Third Savings, stock
options were granted for the purchase of 106,908 shares, exercisable at the
market price at the date of grant of $10.00 per share. All of the options are
nontransferable stock options and have a term of 10 years. Options granted to
outside directors and employees vest at the annual rate of 33 1/3% and 20% per
year, respectively, except options granted of 11,115 shares which vested
immediately upon shareholder approval in August 1993. In December 1995, 5,800
options were exercised. At March 31, 1996, options remain outstanding for
105,476 shares.
Management Recognition and Retention Plan:
The Board of Directors of the Company established Management Recognition and
Retention Plan and Trusts (MRRPs) as a method of providing key officers and
directors with a proprietary interest in the Company in a manner designed to
encourage such individuals to remain with the Company. The awards for outside
directors and management vest at the annual rate of 33 1/3% and 20%,
respectively, of the restricted stock granted. The unearned compensation under
the MRRPs is recorded as a reduction of shareholders' equity and is amortized to
operations as the shares are earned. During the three months ended March 31,
1996, the Company recognized $13,747 in compensation expense related to the
MRRPs, and $27,494 for the six months ended March 31, 1996.
In accordance with approval from the Office of Thrift Supervision, the Bank
contributed $642,184 to the MRRPs for the purpose of purchasing common stock. On
March 26, 1993, the MRRP trusts purchased 40,867 shares of common stock, at an
average price of $15.71, in the open market. At March 31, 1996, 29,115 shares
have been awarded to directors and employees and 11,752 shares remain reserved
in the trusts.
Employee Stock Ownership Plan:
Effective October, 1992, the Company established the Employee Stock Ownership
Plan (ESOP) which purchased 86,450 shares of common stock of the Company in
March 1993. The ESOP was capitalized with a loan from the Company for $864,500.
Third Savings intends to make contributions to the ESOP in an amount to be
determined by the Board of Directors, but not less than the amount needed to pay
any currently maturing obligations under the loan made to the ESOP. The loan
requires semi-annual payments and has a term of five years. Benefits under the
ESOP become 100% vested after five years of service and prior service is
includable. Third Savings recognized, for the ESOP, compensation expense of
$43,205 for the three months ended March 31, 1996, and $86,450 for the six
months ended March 31, 1996.
NOTE 8 - CHANGE IN ACCOUNTING STANDARDS
In May 1993, the FASB issued Statement of Financial Accounting Standards No. 115
(SFAS No. 115), Accounting for Certain Investments in Debt and Equity
Securities. SFAS No. 115 addresses the accounting and reporting for investments
in equity securities that have readily determinable fair values and all
investments in debt securities. Under this statement, debt securities may be
reported at amortized cost only if there is the positive intent and ability to
hold the security to maturity. The Company adopted SFAS No. 115 as of October 1,
1994, the impact was an increase to shareholder's equity of $252,881, net of
tax, for the period ended March 31, 1996.
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<PAGE> 132
The Financial Accounting Standards Board ("FASB") agreed to permit companies a
one-time reclassification for investment securities under SFAS No. 115. This
one-time reclassification had to occur before December 31, 1995. As such,
Management reclassified $9.6 million in securities classified as
held-to-maturity, to securities classified as available for sale, to provide
greater flexibility in the management of the investment portfolio.
In November 1993, the AICPA issued Statement of Position 93-6 (SOP 93-6),
Employers' Accounting for Employee Stock Ownership Plans. Under SOP 93-6, when
shares acquired by the Plan after December 31, 1992 are allocated to employees,
expense is recorded using fair value of the shares. The Company adopted SOP 93-6
as of October 1, 1994, the Company recognized $83,208 as compensation expense
for the three months ended March 31, 1996, and $153,450 for the six months ended
March 31, 1996.
In May, 1993, the FASB issued SFAS No. 114, Accounting by Creditors for
Impairment of a Loan (Statement 114). Statement 114 applies to financial
statements for fiscal years beginning after December 15, 1994. Statement 114 was
amended in October of 1994 by SFAS No. 118, Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosure. This amendment allows
for interest income to be recognized by existing methods and deletes those
income recognition provisions described in Statement 114. The Company adopted
the provisions of this statement during the quarter ended December 31, 1995. The
Company did not have a material amount of impaired loans as of March 31, 1996.
However, refer to the discussion of the Bennett Funding loans in the Management
Discussion and Analysis section of this 10-Q. The Company had no commercial
loans or commercial real estate loans 90 days past due as of March 31, 1996.
In October 1995, the FASB issued SFAS No. 123, Accounting for Stock-Based
Compensation (Statement 123). Statement 123 applies to all transaction in which
an entity acquires goods or services by issuing equity instruments or by
incurring liabilities where the payment amounts are based on the entity's common
stock price, except for employee stock ownership plans. Statement 123 is
effective for fiscal years beginning after December 15, 1995. The Company has
not yet determined its method of adoption of Statement 123 and it's not required
to do so until October 1, 1996.
NOTE 9 - TREASURY STOCK
In Fiscal 1994, the Company announced its intention to acquire a total of 10
percent of the Company's common stock, subject to market conditions. The
repurchased stock will be available for general corporate purposes, including
the issuance of shares in connection with the exercise of stock options. At
March 31, 1996, Third Financial held 99,046 shares at a cost of $1,791,986.
F-67
<PAGE> 133
EXHIBIT A
MERGER AGREEMENT
This is a MERGER AGREEMENT dated March 14, 1996, between Security Banc
Corporation (hereinafter called "Security") and CitNat Bancorp, Inc.
(hereinafter called "CitNat").
WITNESSETH:
Security is a corporation duly organized under the laws of the State of
Ohio. Its principal office is located at 40 S. Limestone Street, Springfield,
Ohio, 45502-1222. As of December 31, 1995, Security had authorized capital stock
consisting of 11,000,000 shares of common stock, par value $3.125 per share,
("Security Common Stock") of which a total of 5,106,384 shares were issued and
outstanding. Security owns all of the outstanding capital stock of The Security
National Bank and Trust Co. ("Security Bank"); a national banking association
organized under the laws of the United States of America and Security Urban
Redevelopment Corporation ("Dev. Co."), a corporation organized under the laws
of the State of Ohio; and
CitNat is a corporation duly organized under the laws of the State of
Ohio. Its principal office is located at 1 Monument Square, Urbana, Ohio
43078-2001. As of December 31, 1995, CitNat had authorized capital stock
consisting of 720,000 shares of common stock, par value $5 per share ("CitNat
Common Stock"), of which 390,519 shares were issued and outstanding, 2,082
shares were held as treasury shares, and options to purchase 71,820 shares of
CitNat Common Stock ("CitNat Options") were outstanding. CitNat owns all of the
outstanding capital stock of The Citizens National Bank of Urbana (hereinafter
referred to as the "Citizens Bank"), a national banking association organized
under the laws of the United States of America.
At least a majority of the entire Board of Directors of Security and at
least a majority of the entire Board of Directors of CitNat, respectively, have
approved the entering into of this Merger Agreement and have authorized the
execution and delivery of this Merger Agreement.
A-1
<PAGE> 134
From and after the time the merger of CitNat into Security shall become
effective, the "Merger" as defined in Section 1 of this Merger Agreement, and as
and when required by this Merger Agreement, Security will issue shares of
Security Common Stock in exchange for all of the issued and outstanding shares
of CitNat Common Stock and CitNat Options in accordance with the provisions
hereinafter set forth. It is understood by each of the parties hereto that
Security seeks to acquire CitNat and all of the operating assets of CitNat
including the Citizens Bank and the entities and assets which CitNat and the
Citizens Bank may acquire prior to the time the Merger shall become effective,
through the Merger of CitNat with and into Security under the charter of
Security and Citizens Bank will, immediately after the effective date of the
Merger, remain an independent operating subsidiary of Security. The parties will
exert their best efforts to obtain such regulatory approvals and to complete
such other actions as are necessary or appropriate to effect the Merger.
In consideration of mutual covenants and premises herein contained,
Security and CitNat hereby make this Merger Agreement and prescribe the terms
and conditions of the Merger and the mode of carrying the Merger into effect as
follows:
1. Merger. Subject to the terms and conditions hereinafter set forth, CitNat
shall be merged with and into Security under the Articles of Incorporation
of Security pursuant to and in accordance with the applicable provisions of
the laws of the State of Ohio ("Merger").
2. Name. The name of the surviving corporation (hereinafter called the
"Surviving Corporation" whenever reference is made to it as of the time the
Merger shall become effective, as hereinafter provided, or thereafter) shall
be "Security Banc Corporation."
3. Business. The business of Security as the Surviving Corporation shall be
that of a bank holding company. The Surviving Corporation shall exist by
virtue of, and be governed by the laws of the State of Ohio, shall have its
principal office in Ohio at 40 S. Limestone Street, Springfield, Ohio,
45502-1222.
A-2
<PAGE> 135
4. Effective Time of Merger: Articles of Merger. The Merger shall become
effective upon the date of the filing of the appropriate Certificate of
Merger with the Ohio Secretary of State (the "time the Merger shall become
effective") in accordance with applicable provisions of the laws of the
State of Ohio.
The Articles of Incorporation of Security in effect immediately prior to the
time the Merger shall become effective, shall be the Articles of
Incorporation of the Surviving Corporation, and the Code of Regulations of
Security in effect immediately prior to the time the Merger shall become
effective, shall be the Code of Regulations of the Surviving Corporation.
5. Effect of Merger. At the time the Merger shall become effective, the
separate corporate existence of CitNat shall, in accordance with applicable
provisions of the laws of the State of Ohio, be merged into and continued in
Security as the Surviving Corporation, with the effect as provided by
Section 1701.82 of the Ohio Revised Code.
6. Liabilities upon Merger. The Surviving Corporation shall be responsible for
all of the liabilities and obligations of each of the corporations so merged
in the same manner and to the same extent as if such single corporation had
itself incurred the same or contracted therefor, all in the manner and as
provided for by Sections 1701.82(A)(1),(2),(3),(4), and (5).
7. Conversion of Shares.
(a) At the time the Merger shall become effective;
(i) All of the outstanding shares of CitNat Common Stock plus all options
to purchase shares of CitNat Common Stock shall be exchanged for
908,072 shares of Security Common Stock (or cash for fractional
shares). Each outstanding share of CitNat Common Stock plus each
outstanding CitNat Option shall, at the time the Merger shall become
effective, automatically and without any act or deed on the part of
the holder thereof, be converted
A-3
<PAGE> 136
into the right to receive shares of Security Common Stock as provided
for below (the "Exchange Ratio"): (a) CitNat Common Stock shall be
converted, pro rata, into 852,115 shares of Security Common Stock in
the aggregate and each share of CitNat Common Stock shall be
converted into 2.1842437 shares of Security Common Stock. (b) CitNat
Options shall be converted, pro rata, into 55,957 shares of Security
Common Stock in the aggregate and each of the underlying shares of
CitNat Common Stock subject to purchase pursuant to CitNat Options,
shall be converted into .7791283 shares of Security Common Stock.
(ii) The shares of Security Common Stock issued and outstanding
immediately prior to the time the Merger shall become effective shall
continue to be issued and outstanding shares of the Surviving
Corporation.
(iii) If prior to the Merger, shares of Security Common Stock shall be
changed into a different number of shares or a different class of
shares by reason of any reclassification, recapitalization, split-up,
combination, exchange of shares or readjustment, or there occurs a
distribution of warrants or rights with respect to the Security
Common Stock or a stock dividend, stock split or other general
distribution of Security Common Stock is declared with a record date
prior to the effective time of the Merger, then in any event the
Exchange Ratio shall be appropriately adjusted. (b) No fractional
shares of Security Common Stock will be issued by Security in
connection with the Merger, but in lieu thereof, holders of CitNat
Common Stock A
A-4
<PAGE> 137
and CitNat Options shall, upon surrender of the certificate or
certificates formerly representing such CitNat Common Stock or
delivery of documentation regarding the exchange and cancellation of
CitNat Options, as the case may be, be paid cash without interest by
Security for such fractional share(s). The cash paid for each
fractional share shall be the same fraction of the average bid and
asked closing price per share of Security Common Stock on the Closing
Date as reported by S. J. Wolf & Company, a division of McDonald &
Company Securities, Inc.
(c) As soon as practicable, but not later than ten (10) days after the
time the Merger shall become effective, and subject to the provisions
set forth above relating to the fractional shares, Security, or an
Exchange Agent designated thereby and approved by CitNat, will
distribute to the former holders of CitNat Common Stock in exchange
for and upon surrender for cancellation by such holders of a
certificate or certificates formerly representing shares of CitNat
Common Stock the certificate(s) for shares of Security Common Stock
in accordance with the Exchange Ratio and any cash payment in lieu of
fractional shares. Each certificate formerly representing CitNat
Common Stock (other than certificates representing shares of CitNat
Common Stock subject to the rights of dissenting shareholders) shall
be deemed for all purposes to evidence the ownership of the number of
whole shares of Security Common Stock and cash for fractional share
interests in Security Common Stock into which such shares have been
converted pursuant to the Exchange Ratio. Until surrender of the
certificate or certificates formerly representing shares of CitNat
Common Stock, the holder thereof shall not be entitled to receive any
dividend or other payment or distribution payable to holders of
Security Common Stock. Upon such surrender (or in lieu of surrender
other provisions reasonably satisfactory to Security as are made as
set forth in the next following paragraph), there shall be paid to
the person entitled thereto the
A-5
<PAGE> 138
aggregate amount of dividends or other payments or distributions (in
each case without interest) which became payable after the time the
Merger shall become effective on the whole shares of Security Common
Stock represented by the certificates issued upon such surrender and
exchange or in accordance with such other provisions, as the case may
be. After the time the Merger shall become effective, the holders of
certificates formerly representing shares of CitNat Common Stock
shall cease to have rights with respect to such shares (except such
rights, if any, as a holder of certificates formerly representing
shares of CitNat Common Stock may have as dissenting shareholders
pursuant to the Ohio General Corporation Law) and except as
aforesaid, their sole rights shall be to exchange said certificates
for certificates for shares of Security Common Stock in accordance
with this Merger Agreement.
Certificates formerly representing shares of CitNat Common Stock
surrendered for cancellation by each shareholder entitled to exchange
shares of CitNat Common Stock for shares of Security Common Stock by
reason of the Merger shall be accompanied by such appropriate
instruments of transfer as Security may reasonably require, provided,
however, that if there be delivered to Security by any person who is
unable to produce any such certificate formerly representing shares
of CitNat Common Stock for transfer (i) evidence to the reasonable
satisfaction of Security that any such certificate has been lost,
wrongfully taken or destroyed, and (ii) such indemnity agreement as
reasonably may be requested by Security to save it harmless, and
(iii) evidence to the reasonable satisfaction of Security that such
person is the owner of the shares theretofore represented by each
certificate claimed by him to be lost, wrongfully taken or destroyed
and that he is the person who would be entitled to present each such
certificate and to receive shares of Security Common Stock pursuant
to this Merger Agreement,
A-6
<PAGE> 139
then Security, in the absence of actual notice to it that any
shares theretofore represented by any such certificate have
been acquired by a bona fide purchaser, shall deliver to such
person the certificate(s) representing shares of Security
Common Stock which such person would have been entitled to
receive upon surrender of each such lost, wrongfully taken or
destroyed certificate representing shares of CitNat Common
Stock.
(d) Holders of CitNat Options shall execute such documents as Security
shall reasonably request to evidence the conversion of their CitNat
Options to shares of Security Common Stock as herein provided for.
8. Board of Directors. The Board of Directors of Security as constituted
at the time the Merger shall become effective shall serve as the Board
of Directors of Security as the Surviving Corporation plus one
additional member from CitNat's board of directors to be named by
Security.
9. Discussions with Others. Subject to their fiduciary duties, CitNat or
its officers, directors or agents will not solicit inquiries or
proposals or initiate any discussions or negotiations leading to any
acquisition or purchase of all or a substantial portion of the assets
or stock of CitNat or Citizens Bank or any merger or consolidation of
CitNat or Citizens Bank or with any third party without prior written
notice to Security, so long as this Agreement is pending.
10. Undertakings of the Parties. Security and CitNat further agree as
follows:
(a) This Merger Agreement shall be submitted to the shareholders of
CitNat and, if required by law, Security for approval and adoption
at separate meetings to be called and held in accordance with law
and the Articles of Incorporation and Code of Regulations of
CitNat and Security.
(b) Security and CitNat will cooperate in the preparation by Security
of the application to the Board of Governors of the Federal
Reserve System (the
A-7
<PAGE> 140
"Board") under the appropriate provisions of Section 3 of the Bank
Holding Company Act of 1956, as amended, and to any other state or
federal regulatory agency which may be required to facilitate the
Merger. Security will file such applications within forty-five
(45) days after the date of this Merger Agreement and shall afford
CitNat and its counsel reasonable opportunity to comment on the
applications prior to filing. Security and CitNat will cooperate
in the preparation of proxy and registration statements under
federal and state securities laws so as to facilitate the exchange
of shares as contemplated by this Merger Agreement. The CitNat
Proxy Statement will not be mailed to shareholders of CitNat until
such time as the Board of Directors of CitNat has approved the
CitNat Proxy Statement.
(c) Each party will assume and pay all of its fees and expenses
incurred by it incident to the negotiation, preparation and
execution of this Agreement, obtaining of the requisite regulatory
and shareholder consents and approvals and all other acts
incidental to, contemplated by or in pursuance of this Agreement.
Security shall promptly prepare and file at no expense to CitNat:
(i) any and all required regulatory applications necessary in
connection with the transactions contemplated by this Agreement;
and (ii) an S-4 Registration Statement to be filed with the
Securities and Exchange Commission to register the shares of
Security Common Stock to be issued in connection with the
transactions contemplated by this Agreement. Such registration
statement will not cover resales by any persons who may be
considered "underwriters" under Rule 145(c) of the Securities Act
of 1933, as amended (the "1933 Act"). Security will also take any
action required to be taken under any applicable state securities
or "Blue Sky" laws in connection with the Merger. Security will
provide CitNat and it counsel with a copy of the S
A-8
<PAGE> 141
-4 Registration Statement for review and comment prior to filing
with the Securities and Exchange Commission.
(d) All information furnished by one party to another party in
connection with this Merger Agreement and the transactions
contemplated hereby will be kept confidential by such other party
and will be used only in connection with this Merger Agreement and
the transactions contemplated hereby, except to the extent that
such information: (i) is already known to such other party when
received; (ii) thereafter becomes lawfully obtainable from other
sources; or (iii) is required to be disclosed in any document
filed with the Securities and Exchange Commission, the Board, or
any other governmental agency or authority (except under a claim
of confidentiality). In the event the Merger Agreement is
terminated, all such information shall be promptly returned by
each party to the other party or be destroyed.
(e) After: (i) receipt of the Board's prior approval of Security's
acquisition of CitNat; (ii) the approval of the shareholders of
CitNat and, if required, Security as provided in Section 10(a) has
occurred; and (iii) the regulatory waiting period(s) have expired,
Security shall designate the date as of which Security desires the
Merger to become effective and shall file the appropriate
Certificate of Merger with the Ohio Secretary of State in
accordance herewith and the time the Merger shall become effective
shall occur at the time and on the date so designated, consistent
with the terms of Section 4 hereof. However, any date so specified
shall not be later than either (a) the first day of the month
immediately following the month in which the last of the events
described above (i-iii) occurs if said event occurs before the
twenty-first day of such month or (b) the first day of the second
month immediately following such month if the last of the events
described above occurs after the twentieth day of such month.
A-9
<PAGE> 142
(f) Subject to the terms and conditions of this Merger Agreement,
Security and CitNat each agree that, subject to applicable laws
and to the fiduciary duties of its Directors, each will promptly
take or cause to be taken all action, and promptly do or cause to
be done all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the Merger
and other transactions contemplated by this Merger Agreement.
(g) As soon as practicable following the time the Merger shall become
effective, employees of Citizens Bank shall be entitled to
participate in all employee benefit plans of Security. Employee
benefits of Security will not be changed by this Merger. For
purposes of eligibility and vesting in Security's employee
benefits, employees of CitNat and Citizens Bank will be given
credit for their years of service as employees of CitNat and
Citizens Bank
(h) The CitNat Bancorp, Inc. Employee Stock Ownership Plan and its
related Trust ("ESOP") shall be terminated or amended at or after
the effective time of the Merger as directed by Security. If
terminated, effective as of such termination date each participant
with an account balance under the ESOP shall become fully vested
in such account regardless of his vested position under the ESOP.
CitNat and Security shall cooperate in making any amendments to
and terminating the ESOP and for making application to the
Internal Revenue Service for a determination letter to the effect
that the termination or amendment of the ESOP will not adversely
affect its tax-qualified status. If terminated, any shares of
CitNat Common Stocks which are unallocated to participant accounts
as of the termination date of the ESOP Plan shall be allocated to
the accounts of participants under the ESOP in such manner as does
not violate the limitations contained in Section 415 of the Code.
If terminated, participants'
A-10
<PAGE> 143
benefits under the ESOP shall be distributed, in connection with
the termination, in a single lump sum.
(i) Security undertakes to cause, immediately after the effective date
of the Merger, the election as Directors of Citizens Bank, all
those persons serving as Directors immediately prior to the
effective time of the Merger.
(j) Security will maintain and make available "current public
information" within the meaning of Rule 144 for three (3) years
following the effective date, of the Merger.
(k) Security, CitNat, and their respective Directors and Executive
Officers shall not cause any trades, transfers or other
transactions in Security Common Stock during the 20 business days
immediately preceding the effective date of the Merger.
(l) Following the effective time of the Merger, with respect to acts
or omissions occurring prior to the effective time of the Merger,
Security shall indemnify those persons who were Directors and
Officers of CitNat immediately prior to the Effective Time, to the
extent such persons would be entitled to indemnification under the
Articles of CitNat or as a matter of right under the Ohio General
Corporation Law, as amended from time to time and Security shall
indemnify such persons against any liability to the fullest extent
permitted under Security's Articles of Incorporation or the Ohio
General Corporation Law.
(m) Following the date of this Merger Agreement and until the time the
Merger shall become effective or until this Merger Agreement shall
be terminated as provided herein, Security shall provide to
CitNat, promptly following the filing thereof, all reports, proxy
statements, registration statements and other information filed
with the SEC.
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<PAGE> 144
11. Dissenting Shareholders. Holders of CitNat Common Stock shall have the
rights accorded to dissenting shareholders under Section 1701.85 of the
Ohio Code, as amended.
12. Representations and Warranties of Security. Security represents and
warrants to CitNat as follows:
(a) Security is a corporation duly organized and validly existing
under the laws of the State of Ohio, is a registered bank holding
company under the Bank Holding Company Act of 1956, as amended,
and is qualified to do business and is in good standing in the
State of Ohio, together with all other jurisdictions where it is
both required to so qualify and the failure to so qualify would
have material and adverse consequences to Security. Security has
full power and authority (including all licenses, franchises,
permits and other governmental authorizations which are legally
required) to engage in the businesses and activities now conducted
by it. As of the date of this Agreement, the authorized capital
stock of Security consisted of 11,000,000 shares of common stock,
par value $3.125 per share of which a total of 5,107,834 shares
were issued and outstanding. All of said shares of capital stock
are fully paid and nonassessable and are not issued in violation
of the preemptive rights of any shareholder. Security owns all of
the outstanding capital stock of Security Bank and Dev. Co., and
Security has no subsidiaries, whether or not wholly-owned, other
than Security Bank and Dev. Co. Except as disclosed in the letter
to CitNat of even date herewith, there are not outstanding
options, warrants or commitments of any kind relating to the issue
or sale of Security's capital stock.
The corporate minute books of Security have been made available to
CitNat and contain, in all material respects, records of all
meetings and other corporate
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actions of Security's shareholders, directors and committees of
directors. Security has delivered to CitNat copies of the articles
and regulations of Security, including all amendments thereto.
Security Bank is a national banking association duly organized and
validly existing under the laws of the United States and has the
full power and authority, corporate or otherwise, to own its
property and to carry on its business activities as such
activities are presently conducted.
(b) Security has furnished to CitNat and its counsel copies of the
following financial statements relating to Security and its
consolidated subsidiaries: (i) the audited Consolidated Statements
of Financial Position of Security as of December 31, 1995 and 1994
and the Consolidated Statements of Income, Shareholders' Equity
and Statements of Cash Flows for the years then ended, together
with the notes and report of Ernst & Young, LLP thereto. Each of
the aforementioned financial statements is true and correct in all
material respects and together present fairly the consolidated
financial position and results of operations of Security as of the
dates and for the periods therein set forth in conformity with
generally accepted accounting principles ("GAAP"). Such financial
statements do not, as of the dates thereof, include any material
asset or omit any material liability, absolute or contingent, or
other fact, the inclusion or omission of which renders such
financial statements, in light of the circumstances under which
they were made, misleading in any material respect. Since December
31, 1995, there has not been any material adverse change in the
financial condition, results of operations, business or prospects
of Security and its subsidiaries on a consolidated basis.
(c) The Board of Directors of Security has authorized execution of
this Merger Agreement and approved the merger of CitNat and
Security as contemplated by said Merger Agreement. Security has
all requisite power and authority to enter
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into this Merger Agreement and Security has the authority to
consummate the transactions contemplated hereby. This Merger
Agreement constitutes the valid and legally binding obligation of
Security and this Merger Agreement and the consummation hereof has
been duly authorized and approved on behalf of Security by all
requisite corporate action. Provided the required approvals are
obtained from the Board, neither the execution and delivery of
this Merger Agreement nor the consummation of the Merger will
conflict with, result in the breach of, constitute a default under
or accelerate the performance provided by the terms of any law, or
any rule or regulation of any governmental agency or authority or
any judgment, order or decree of any court or other governmental
agency to which Security may be subject, any contract, agreement
or instrument to which Security is a party or by which Security is
bound or committed, or the Articles of Incorporation or Code of
Regulations of Security or the Articles of Association or Bylaws
of Security Bank, or constitute an event which, including with the
lapse of time or action by a third party, could, to the best of
Security's knowledge, result in the default under any of the
foregoing or result in the creation of any lien, charge or
encumbrance upon any of the assets or properties of Security or
any of its subsidiaries or upon any of the stock of Security or
any of its subsidiaries, except, however, in the case of
contracts, agreements or instruments, such defaults, conflicts or
breaches which either (i) will be cured or waived prior to the
time the Merger becomes effective, or (ii) if not so cured or
waived would not, in the aggregate, have any material adverse
effect on the financial condition, results of operations or
business of Security on a consolidated basis.
(d) There is no litigation, action, suit, investigation or proceeding
pending or, to the best of the knowledge after due inquiry of
Security and its executive officers,
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threatened, against Security or its subsidiaries or involving any
of their respective properties or assets, at law or in equity,
before any federal, state, municipal, local or other governmental
authority, involving a material amount which, if resolved
adversely to the interest of Security or its subsidiaries, would
materially affect the financial condition or operations of
Security or its subsidiaries on a consolidated basis and/or
Security's ability to perform under this Merger Agreement, and to
the best of the knowledge and belief after due inquiry of Security
and its executive officers, no one has asserted and no one has
reasonable or valid grounds on which it reasonably can be expected
that anyone will assert any such claims against Security or its
subsidiaries based upon the wrongful action or inaction of
Security or its subsidiaries or any of their respective officers,
directors or employees.
(e) At the time the Merger shall become effective and on such
subsequent date when the former shareholders of CitNat surrender
their CitNat share certificates for cancellation and the CitNat
Option holders deliver documents evidencing the surrender and
cancellation of their CitNat Options, the shares of Security
Common Stock to be received therefore will have been duly
authorized and validly issued by Security and will be fully paid
and nonassessable and be issued free of preemptive rights.
(f) Security has not incurred and will not incur directly or
indirectly any liability for brokerage, finders', agents' or
investment bankers' fees or commissions in connection with this
Merger Agreement or the transactions contemplated thereby.
(g) The Security National Bank & Trust Company 401K Profit Sharing and
Savings Plan (the "Profit Plan") and The Security National Bank &
Trust Company Pension Plan and Trust (the "Pension Plan")
(hereinafter referred to collectively as the "plans") which
purport to be qualified plans under Section 401(a) of the Internal
Revenue Code of 1986, as amended, ("Code") are so qualified and
are in
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compliance in all material respects with the applicable
requirements of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"). All material notices, reports and
other filings required under applicable law to be given or made to
or with any governmental agency with respect to the plans have
been timely filed or delivered where failure to file could result
in a penalty or result in disqualification of the plan. Security
has no knowledge either of any circumstances which would adversely
affect the qualification of the plans or their compliance with the
applicable requirements of ERISA, or of any "reportable event" (as
such term is defined in Section 4043(b) of ERISA) or any
"prohibited transaction" (as such term is defined in Section 406
of ERISA and Section 4975(c) of the Code) which has occurred, or
to the best knowledge of Security is likely to occur, with respect
to either plan since the date on which said sections became
applicable to the plans. The plans meet any minimum funding
standards set forth in the Code and ERISA which are applicable to
them.
(h) Security has timely filed all reports and registration statements
(collectively, "SEC Documents") required to be filed by it
pursuant to the Securities Act of 1933, as amended, and the
Securities Exchange Act of 1934, as amended, for periods ending
after January 1, 1992, and such SEC Documents complied in all
material respects with the Securities Act of 1933 and the
Securities Exchange Act of 1934 and all applicable rules and
regulations promulgated thereunder (the "SEC Laws"). Security has
delivered to CitNat copies of the Annual Report on Form 10-K filed
with the Securities and Exchange Commission by Security for its
fiscal year ended December 31, 1994, including exhibits and all
documents incorporated by reference therein, and the proxy
materials disseminated by Security to its shareholders in
connection with the 1995 Annual Meeting of Shareholders of
Security; such Annual Report and proxy materials and the SEC
Documents do not
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misstate a material fact or omit to state a material fact
necessary in order to make the statements contained therein, in
light of the circumstances under which they are made, not
misleading.
(i) Since December 31, 1995: (i) each of Security and its subsidiaries
has conducted business only in the ordinary course, and has
preserved its corporate existence, business and goodwill intact;
(ii) there has been no material adverse change in the assets,
liabilities, business or operations of Security or its
subsidiaries; and (iii) there has been no damage, destruction,
loss, or event whether or not insured against) which in the
aggregate has had or might reasonably by expected to have a
material adverse effect on the business or operations of Security
or any of its subsidiaries.
(j) Security and Security Bank each have good and marketable title to
all assets and properties, whether real or personal, tangible or
intangible, including without limitation the capital stock of
Security Bank and all other assets and properties reflected in
Security's Balance Sheet of December 31, 1995 or acquired
subsequent thereto (except to the extent that such assets and
properties have been disposed of for fair value in the ordinary
course of business since December 31, 1995) subject to no liens,
mortgages, security interests, encumbrances, pledges or charges of
any kind, except: (i) those items that secure liabilities that are
reflected in said Balance Sheet; (ii) statutory liens for taxes
not yet delinquent; (iii) minor defects and irregularities in
title and encumbrances which do not materially impair the use
thereof for the purposes for which they are held; (iv) pledges or
liens required to be granted in connection with the acceptance of
government deposits or granted in connection with repurchase
agreements; and (v) easements, encumbrances, liens, mortgages and
security interests of record which do not impair the use thereof
for the purposes intended and such liens, mortgages,
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security interests, encumbrances and charges are not, in the
aggregate, material to the assets and properties of Security.
Security or Security Bank as lessee has the contractual right
under valid leases to occupy, use, possess and control all
property leased by Security or Security Bank which is material to
their operations.
(k) To the best of the knowledge after due inquiry of Security and its
executive officers, Security and Security Bank have complied with
all laws, regulations and orders applicable to Security and
Security Bank and to the conduct of their businesses, including
without limitation, all statutes, rules and regulations pertaining
to the conduct of banking activities except for possible technical
violations which together with any penalty which results therefrom
do not or will not have a material adverse effect on the financial
condition, results of operations or business of Security and
Security Bank on a consolidated basis. Neither Security nor
Security Bank are in default under, and no event has occurred
which, with the lapse of time or action by a third party, could,
to the best of Security's knowledge after due inquiry, result in
the default under the terms of any judgment, decree, order, writ,
rule or regulation of any governmental authority or court, whether
federal, state or local and whether at law or in equity, where the
default(s) could reasonably be expected to have a material adverse
effect on the financial conditions, results of operations or
business of Security and Security Bank on a consolidated basis.
(l) Security has duly and timely filed all federal, state, county and
local income, excise, real and personal property and other tax
returns and reports (including, but not limited to, social
security, withholding, unemployment insurance, and sales and use
taxes) required to have been filed by Security up to the date
hereof. To the best of the knowledge and belief of Security all
such returns are true and correct in all material respects, and
Security has paid or, prior to the time the
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Merger shall become effective, will pay all taxes, interest and
penalties shown on such return or reports or claimed (other than
those claims being contested in good faith and which have been
disclosed to CitNat) to be due to any federal, state, county,
local or other taxing authority, and there is, and at the time the
Merger shall become effective will be, no basis for any additional
claim or assessment which might materially and adversely affect
Security or Security Bank, and for which an adequate reserve has
not been established. To the best of its knowledge and belief,
Security has paid or made adequate provision in its financial
statements or its books and records for all taxes payable in
respect of all periods ending as of the date thereof. To the best
of its knowledge and belief Security has, or at the time the
Merger shall become effective will have, no material liability for
any taxes, interest or penalties of any nature whatsoever, except
for those taxes which may have arisen up to the time the Merger
shall become effective in the ordinary course of business and are
properly accrued on the books of Security as of the time the
Merger shall become effective.
(m) The deposits of Security Bank are insured by the Federal Deposit
Insurance Corporation and Security Bank has paid all premiums and
assessments with respect to such deposit insurance.
(n) Security has no knowledge of any hazardous substances, hazardous
waste, pollutant or contaminant, including, but not limited to,
asbestos (except as previously disclosed to CitNat in a letter of
even date herewith), PCB's or urea formaldehyde, having been
generated, released into, stored or deposited over, upon or below
(in storage tanks or otherwise) the premises of Security or
Security Bank or any other real property owned or leased by
Security or Security Bank, or into any water systems on or below
the surface of Security or Security Bank premises or any other
real property owned or leased by Security or Security Bank
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in violation of any law, regulation or requirement or in any
manner which could result in a material adverse impact on the
value of the premises or property or present a threat to human
health or the environment. As used in this Merger Agreement, the
terms "hazardous substance," "hazardous waste, "pollutant" and
"contaminant" mean any substance, waste, pollutant or contaminant
included within such terms under any applicable Federal, state or
local statute or regulation.
(o) Security and Security Bank have in effect insurance coverage with
reputable insurers, which in respect of amounts, premiums, types
and risks insured, constitutes reasonably adequate coverage
against all risks customarily insured against by companies
comparable in size and operation to Security or Security Bank.
13. Representations and Warranties of CitNat. CitNat represents and
warrants to Security as follows:
(a) CitNat is a corporation duly organized and validly existing under
the laws of the State of Ohio, and is a registered bank holding
company under the Bank Holding Company Act of 1956, as amended.
CitNat has full power and authority (including all licenses,
franchises, permits and other governmental authorizations which
are legally required which, if not obtained or possessed, would
have a materially adverse effect on the business and operations of
CitNat) to engage in the businesses and activities now conducted
by it. As of the date of this Merger Agreement, the authorized
capital stock of CitNat consists of 720,000 shares of common stock
with $5 par value per share, of which a total of 390,119 shares
are issued and outstanding, 2,482 shares are held as treasury
shares and options have been granted to purchase 71,820 shares of
CitNat Common Stock. All of said shares of capital stock are fully
paid and nonassessable and were not issued in violation of the
preemptive rights of any shareholder. There are no outstanding
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options, warrants or commitments of any kind relating to CitNat's
authorized but unissued capital stock except the CitNat Options
disclosed in the letter to Security of even date herewith.
(b) CitNat has furnished to Security copies of the following financial
statements relating to CitNat and its consolidated subsidiaries:
(i) the audited Consolidated Balance Sheets of CitNat as of
December 31, 1995 and 1994 and the Consolidated Statements of
Income, Changes in Shareholders' Equity and Statements of Cash
Flows for the years then ended, together with the notes and report
of Crowe, Chizek and Company, LLP thereto, (ii) copies of all
reports of CitNat and Citizens Bank as filed with the appropriate
regulatory agencies, as of and for the years ended December 31,
1995 and 1994. Each of the aforementioned financial statements is
true and correct in all material respects and together present
fairly in all material respects the consolidated financial
position and results of operations of CitNat as of the dates and
for the periods therein set forth in conformity with GAAP. Such
financial statements do not, as of the dates thereof, include any
material asset or omit any material liability, absolute or
contingent, or other fact, required to be included or omitted as
the case may be, by GAAP. Since December 31, 1995, there has not
been any material adverse change in the financial condition,
results of operations, or business of CitNat and Citizens Bank on
a consolidated basis.
(c) The Board of Directors of CitNat has authorized execution of this
Merger Agreement. Subject to the approval by the shareholders of
CitNat, CitNat has all requisite power and authority to enter in
this Merger Agreement. CitNat owns all of the shares of Citizens
Bank and CitNat has the authority to consummate the transactions
contemplated hereby so that, provided all required corporate and
regulatory approvals are obtained and all conditions to CitNat's
obligations as set
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forth in this Merger Agreement are satisfied, neither the
execution and delivery of this Merger Agreement nor the
consummation of the Merger will conflict with, result in the
breach of, constitute a default under or accelerate the
performance provided by the terms of any law, or any rule or
regulation of any governmental agency or authority or any
judgment, order or decree of any court or other governmental
agency to which CitNat may be subject, any contract, agreement or
instrument to which CitNat is a party or by which CitNat is bound
or committed, or the Articles of Incorporation or Code of
Regulations of CitNat, or constitute an event which with the lapse
of time or action by a third party, could, to the best of CitNat's
knowledge, result in the default under any of the foregoing or
result in the creation of any lien, charge, encumbrance upon any
of the assets, property or capital stock of CitNat, except,
however, in the case of contracts, agreements or instruments, such
defaults, conflicts or breaches which either (i) will be cured or
waived prior to the time the Merger becomes effective, or (ii) if
not so cured or waived would not, in the aggregate, have any
material adverse effect on the financial condition, results of
operations or business of CitNat and Citizens Bank on a
consolidated basis.
(d) There is no litigation, action, suit, investigation or proceeding
pending or, to the best of their knowledge after due inquiry of
CitNat and its executive officers, overtly threatened, against
CitNat or Citizens Bank or involving any of their respective
properties or assets, at law or in equity, before any federal,
state, municipal, local or other governmental authority, involving
a material amount which, if resolved adversely to the interest of
CitNat or Citizens Bank would materially affect the financial
condition or operations of CitNat and Citizens Bank on a
consolidated basis and/or CitNat's ability to perform under this
Merger Agreement. To the best knowledge after due inquiry of
CitNat and its executive
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officers, no one has asserted and no one has reasonable or
valid ground on which it reasonably can be expected that
anyone will assert any such claims against CitNat or Citizens
Bank or be based upon the wrongful action or inaction of
CitNat or Citizens Bank or any of their respective officers,
directors or employees.
(e) CitNat and Citizens Bank have good and marketable title to all
assets and properties, whether real or personal, tangible or
intangible, including without limitation the capital stock of
Citizens Bank, reflected in CitNat's Balance Sheet of December
31, 1995 or acquired subsequent thereto (except to the extent
that such assets and properties have been disposed of for fair
value in the ordinary course of business since December 31,
1995) subject to no liens, mortgages, security interests,
encumbrances, pledges or charges of any kind, except: (i)
those items that secure liabilities that are reflected in said
Balance Sheet; (ii) statutory liens for taxes not yet
delinquent; (iii) minor defects and irregularities in title
and encumbrances which do not materially impair the use
thereof for the purposes for which they are held; (iv) pledges
or liens required to be granted in connection with the
acceptance of government deposits or granted in connection
with repurchase agreements; and (v) easements, encumbrances,
liens, mortgages and security interests of record which do not
impair the use thereof for the purposes intended and such
liens, mortgages, security interests, encumbrances and charges
are not in the aggregate, material to the assets and
properties of CitNat. CitNat or Citizens Bank have as lessee
the contractual right under valid leases to occupy, use,
possess and control all material property leased by CitNat or
Citizens Bank.
(f) To the best of the knowledge after due inquiry of CitNat and
its executive officers, CitNat and Citizens Bank have complied
with all laws, regulations and orders applicable to CitNat and
Citizens Bank and to the conduct of their
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businesses, including without limitation, all statutes, rules
and regulations pertaining to the conduct of banking
activities except for possible technical violations which
together with any penalty which results therefrom do not or
will not have a material adverse effect on the financial
condition, results of operations or business of CitNat and
Citizens Bank on a consolidated basis. Neither CitNat nor
Citizens Bank are in default under, and no event has occurred
which, with the lapse of time or action by a third party,
could, to the best of CitNat's knowledge after due inquiry,
result in the default under the terms of any judgment, decree,
order, writ, rule or regulation of any governmental authority
or court, whether federal, state or local and whether at law
or in equity, where the default(s) could reasonably be
expected to have a material adverse effect on the financial
conditions, results of operations or business of CitNat and
Citizens Bank on a consolidated basis.
(g) Except as disclosed in CitNat's letter to Security of even
date herewith, receipt of which is acknowledged by Security,
CitNat and Citizens Bank have not, since December 31, 1995 to
the date hereof: (i) issued or sold any of its capital stock
or any issued any corporate debt securities other than in the
ordinary course of its banking business; (ii) granted any
option for the purchase of capital stock; (iii) declared or
set aside or paid any dividend or other distribution in
respect of its capital stock except as permitted pursuant to
Section 15(a) hereof or, directly or indirectly, purchased,
redeemed or otherwise acquired any shares of such stock; (iv)
incurred any obligation or liability (absolute or contingent),
except for obligations reflected in this Merger Agreement, and
except for obligations or liabilities incurred in the ordinary
course of business, or mortgaged, pledged or subjected to lien
or encumbrance (other than statutory liens for taxes not yet
delinquent or other than in the ordinary course of business)
any of its assets or
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properties; (v) discharged or satisfied any lien or
encumbrance or paid any obligation or liability (absolute or
contingent), other than the current portion of any long term
liabilities which become due after December 31, 1995,
business, liabilities incurred in carrying out the
transactions contemplated by this Merger Agreement and
obligations and liabilities paid in the ordinary course of
business; (vi) sold, exchanged or otherwise disposed of any of
its material capital assets outside the ordinary course of
business; (vii) made any extraordinary officers' salary
increase or wage increase, entered into any employment
contract with any officer or salaried employee or, instituted
any employee welfare, bonus, stock option, profit-sharing,
retirement or similar plan or arrangement; (viii) suffered any
damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting its business,
property or assets or waived (except for fair consideration)
any rights of value which are material in the aggregate,
considering CitNat's business taken as a whole; or (ix)
entered or agreed to enter into any agreement or arrangement
granting any preferential right to purchase any of its assets,
properties or rights or requiring the consent of any party to
the transfer and assignment of any such assets, properties or
rights.
(h) Except as set forth in the CitNat Document List attached to
CitNat's letter to Security of even date herewith, receipt of
which is acknowledged by Security, neither CitNat nor Citizens
Bank is a party to or bound by any written or, to the best of
its knowledge after due inquiry, oral: (i) employment or
consulting contract which is not terminable by CitNat or
Citizens Bank on 60 days or less notice, (ii) employee bonus,
deferred compensation, pension, stock bonus or purchase,
profit-sharing, retirement or stock option plan, (iii) other
employee benefit or welfare plan, or (iv) other executory
material agreements which in any case obligate CitNat or
Citizens Bank to make any payment(s) which in the
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aggregate exceed $25,000 per year except for contracts
terminable on 60 days' notice. All such pension, stock bonus
or purchase, profit-sharing, defined benefit and retirement
plans set forth under the caption "Qualified Plans" in the
CitNat Document List (hereinafter referred to collectively as
the "plans") are qualified plans under Section 401(a) of the
Internal Revenue Code and in compliance in all material
respects with ERISA. All material notices, reports and other
filings required under applicable law to be given or made to
or with any governmental agency with respect to the plans have
been timely filed or delivered where failure to file could
result in a penalty of $25,000 and/or result in
disqualification of the plan. CitNat has no knowledge either
of any circumstances which would adversely affect the
qualification of the plans or their compliance with ERISA, or
of any unreported "reportable event" (as such term is defined
in Section 4043(b) of ERISA) or, except as indicated in the
CitNat Document List attached to CitNat's letter to Security
of even date herewith, any "prohibited transaction" (as such
term is defined in Section 406 of ERISA and Section 4975(c) of
the Internal Revenue Code) which has occurred since the date
on which said sections became applicable to the plans. No such
plan is subject to the minimum funding standards set forth in
the Code and ERISA.
(i) CitNat has duly filed all federal, state, county and local
income, excise, real and personal property and other tax
returns and reports (including, but not limited to, social
security, withholding, unemployment insurance, and sales and
use taxes) required to have been filed by CitNat up to the
date hereof. Except as set forth in CitNat's letter to
Security of even date herewith, receipt of which is
acknowledged by Security, to the best of the knowledge and
belief of CitNat all such returns are true and correct in all
material respects, and CitNat has paid or, prior to the time
the Merger shall become effective, will pay all taxes,
interest and
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penalties shown on such return or reports or claimed (other
than those claims being contested in good faith and which have
been disclosed to Security) to be due to any federal, state,
county, local or other taxing authority, and there is, and at
the time the Merger shall become effective will be, no basis
for any additional claim or assessment which might materially
and adversely affect CitNat or Citizens Bank and for which an
adequate reserve has not been established. To the best of its
knowledge and belief, CitNat has paid or made adequate
provision in its financial statements or its books and records
for all taxes payable in respect of all periods ending as of
the date thereof. To the best of its knowledge and belief,
CitNat has, or at the time the Merger shall become effective
will have, no material liability for any taxes, interest or
penalties of any nature whatsoever, except for those taxes
which may have arisen up to the time the Merger shall become
effective in the ordinary course of business and are properly
accrued on the books of CitNat as of the time the Merger shall
become effective.
(j) CitNat has no knowledge of any hazardous substances, hazardous
waste, pollutant or contaminant, including, but not limited
to, asbestos (except as previously disclosed to Security in a
letter of even date herewith), PCB's or urea formaldehyde,
having been generated, released into, stored or deposited
over, upon or below (in storage tanks or otherwise) the
Citizens Bank premises or any other real property owned or
leased by CitNat or Citizens Bank, or into any water systems
on or below the surface of the Citizens Bank premises or any
other real property owned or leased by CitNat or the Citizens
Bank in violation of any law, regulation or requirement or in
any manner which could result in a material adverse impact on
the value of the premises or property or present a threat to
human health or the environment. As used in this Merger
Agreement, the terms "hazardous substance," "hazardous waste,
"pollutant" and "contaminant" mean
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any substance, waste, pollutant or contaminant included within
such terms under any applicable Federal, state or local
statute or regulation.
(k) CitNat or Citizens Bank has in effect insurance coverage with
reputable insurers, which in respect of amounts, premiums,
types and risks insured, constitutes reasonably adequate
coverage against all risks customarily insured against by
companies comparable in size and operation to CitNat or
Citizens Bank.
(l) Other than as previously disclosed to Security, in writing,
with respect to the fairness opinion relating to the Merger
and other than professional fees and disbursements of its
accountants and attorneys, CitNat has not incurred and will
not incur any liability for brokerage, finders', agents', or
investment bankers' fees or commissions in connection with
this Merger Agreement or the transactions contemplated hereby.
14. Action by CitNat Pending Effective Time. CitNat agrees that from the
date of this Merger Agreement until the time the Merger shall become
effective, or until this Merger Agreement is terminated as provided for
herein, except with prior written permission of Security:
(a) Beginning with the date hereof and until such time as the
Merger shall become effective, CitNat will not declare or pay
any dividends or make any distributions other than a cash
dividend at the rate of $0.45 per share payable in July 1996,
and, in the event the Merger shall not have consummated and
holders of CitNat Common Stock shall not have become holders
of Security Common Stock prior to the record date for the
determination of Security stockholders entitled to receive
Security's cash dividend normally paid in December of each
year, then a cash dividend at the rate $0.45 per share payable
in December, 1996. If, prior to the consummation of the
Merger, CitNat shall declare a stock dividend or make
distributions upon or subdivide, split up, reclassify or
combine its shares of
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common stock in any security convertible into its common
stock, appropriate adjustment or adjustments will be made in
the foregoing dividend ratio.
(b) CitNat will not issue, sell, grant any option for, or acquire
for value any shares of its capital stock or otherwise effect
any change in connection with its capitalization.
(c) Except for the closing and disposition of the Southtown branch
and as otherwise set forth in or contemplated by this Merger
Agreement, CitNat and Citizens Bank will carry on their
respective businesses in substantially the same manner as on
the date hereof, keep in full force and effect insurance
comparable in amount and scope of coverage to that now
maintained by it and use its best efforts to maintain and
preserve its business organization intact.
(d) CitNat and Citizens Bank will not: (i) enter into any
transaction other than in the ordinary course of business or
incur or agree to incur any obligation or liability except
liabilities incurred and obligations entered into in the
ordinary course of business; (ii) change Citizens Bank's
lending, investment, liability management and other material
banking policies in any material respect; (iii) except as
committed for adjustment as of the date hereof and consistent
with prior practice, grant any general or uniform increase in
the rates of pay of employees; (iv) incur or commit to any
capital expenditures other than in the ordinary course of
business (which in no event shall include the establishment of
new branches and such other facilities) or any capital
expenditures for any purpose which exceed $170,000, or (v)
except as provided in Section 9 hereof, merge into,
consolidate with or sell its assets to any other corporation
or person, or permit any other corporation to be merged or
consolidated with it or acquire all of the assets of any other
corporation or person; except for the closing and disposition
of the Southtown branch.
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(e) CitNat will not change its or Citizens Bank's methods of
accounting in effect at December 31, 1995 except as required
by changes in generally accepted accounting principles and
concurred in by CitNat's independent auditors, or change any
of its methods of reporting income and deductions for Federal
income tax purposes from those employed in the preparation of
CitNat's Federal income tax returns for the taxable year
ending December 31, 1995, except for changes required by law.
(f) CitNat will afford Security, its officers and other authorized
representatives, subject to the confidentiality requirements
of Section 10(d) hereof, such access to all books, records,
tax returns, leases, contracts and documents of CitNat or
Citizens Bank and will furnish to Security such information
with respect to the assets and business of CitNat and Citizens
Bank as Security may from time to time reasonably request in
connection with this Merger Agreement and the transactions
contemplated hereby.
(g) CitNat will promptly furnish Security with copies of all
interim financial statements of CitNat as they become
available, and keep Security fully informed concerning all
developments which in the opinion of CitNat may have a
material effect upon the business, properties or condition
(either financial or otherwise) of CitNat.
15. Action by Security Pending Effective Time. Security agrees that from
the date of this Agreement until the time the Merger shall become
effective or until this Merger Agreement is terminated as provided for
herein:
(a) Security will carry on its business in substantially the same
manner as heretofore except as otherwise set forth in or
contemplated by this Merger Agreement, and Security will keep
in full force and effect insurance comparable in amount and
scope of coverage to that now maintained by it and use its
best efforts to maintain
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and preserve its business organization intact. CitNat
acknowledges that, in the ordinary course of its business as a
bank holding company, Security from time-to-time, enters into
an agreement(s) to acquire by merger, stock purchase or like
means, another financial institution or its holding company.
(b) Security will not change its methods of accounting in effect
at December 31, 1995, except as required by changes in
generally accepted accounting principles as concurred in by
Security's independent auditors, or change any of its methods
of reporting income and deductions for Federal income tax
purposes from those employed in the preparation of the Federal
income tax returns of Security Bank for the taxable year
ending December 31, 1995, except for changes required by law
or take any action which could jeopardize the tax free nature
of the Merger or the pooling of interests accounting treatment
for the Merger.
(c) Security will promptly furnish CitNat with copies of press
releases, interim financial statements of Security and all
reports, schedules and statements filed by or delivered to
Security pursuant to the Securities and Exchange Act of 1934
and the rules and regulations promulgated thereunder, as they
become available.
(d) Security will afford CitNat, its officers and other authorized
representatives, subject to the confidentiality requirements
of Section 10(d) hereof, such access to all books, records,
tax returns, leases, contracts and documents of Security and
will furnish to CitNat such information with respect to the
assets and business of Security as CitNat may from time to
time reasonably request in connection with this Merger
Agreement and the transactions contemplated hereby.
16. Conditions to Obligations of Security. The obligations of Security
under this Merger Agreement are subject, unless waived by Security, to
the satisfaction of the following conditions on or prior to the time
the Merger shall become effective:
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(a) There shall not have been any material adverse change or
discovery of a condition or the occurrence of an event (other
than events similarly affecting all financial institutions)
which has or is likely to result in such a material adverse
change, in the financial condition, aggregate net assets,
shareholders' equity, business or operating results of CitNat
on a consolidated basis from December 31, 1995 to the time the
Merger shall become effective.
(b) CitNat shall not have paid cash dividends from the date hereof
to the time the Merger shall become effective, except as
permitted under this Merger Agreement.
(c) All representations by CitNat contained in this Merger
Agreement shall be true in all material respects at, or as of,
the time the Merger shall become effective as though such
representations were made at and as of said date, except for
changes contemplated by the Merger Agreement and except also
for representations as of a specified time other than the time
the Merger shall become effective, which shall be true in all
material respects at such specified time.
(d) Security shall have received the opinion of legal counsel for
CitNat, dated the time the Merger shall become effective,
substantially to the effect set forth in Exhibit A hereto.
(e) CitNat shall have performed or satisfied in all material
respects all agreements and conditions required by this Merger
Agreement to be performed or satisfied by it at or prior to
the time the Merger shall become effective.
(f) At the time the Merger shall become effective, no suit, action
or proceeding shall be pending or overtly threatened before
any court or other governmental agency of the federal or state
government in which it is sought to restrain or prohibit the
consummation of the Merger, and no other suit, action or
proceeding shall be pending or overtly threatened and no
liability or claim shall have been asserted against CitNat or
Citizens Bank which Security shall in good faith determine,
with
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advice of counsel: (i) has a reasonable likelihood of being
successfully prosecuted and (ii) if successfully prosecuted,
would materially and adversely affect the financial condition,
results of operations or shareholders' equity of CitNat on a
consolidated basis.
(g) Prior to the time the Merger shall become effective, Security
shall not have been deprived of adequate opportunity to
conduct such review and examination of the business,
properties, and condition (financial or otherwise) of CitNat
and Citizens Bank as Security shall have deemed prudent, and
such review and examination subsequent to the date of this
Merger Agreement shall not have disclosed matters which are
inconsistent in any material respect with any of the
representations and warranties of CitNat contained in this
Merger Agreement.
(h) Holders of CitNat Common Stock who are entitled to exercise in
the aggregate not more than 10% of the voting power of the
issued and outstanding CitNat Common Stock as of the time the
Merger shall become effective shall have taken steps to
perfect their rights as dissenting shareholders pursuant to
the provisions of Section 1701.85 of the Ohio Revised Code so
that if, at the time the Merger shall become effective,
holders of more than 10% of such shares shall have taken such
steps, Security may, at its option, terminate this Merger
Agreement.
(i) CitNat shall have furnished Security certificates, signed on
its behalf by the Chairman or President and the Secretary or
an Assistant Secretary of CitNat and dated the time the Merger
shall become effective, to the effect that to the best of
their knowledge, after due inquiry, the conditions described
in Paragraphs (a), (b), (c), and (f) of this Section 16 have
been fully satisfied.
(j) Security shall have received assurances, satisfactory to it,
that the Merger will be accounted for as a pooling of
interests transaction.
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(k) CitNat shall have taken action necessary to cause Citizens
Bank to terminate its Executive Supplemental Income Plans and
the agreements between Citizens Bank and its Officers entered
into pursuant thereto, except for its agreement dated November
20, 1990, with James R. Wilson, which shall remain in effect,
in a manner and at such cost as is satisfactory to Security
and which is consistent with the terms of such agreements.
(l) Security shall have been afforded the opportunity to conduct a
phase I environmental audit of any real property owned by
CitNat or its subsidiaries. In the event a matter is
discovered which if known by CitNat as of the date of this
Agreement would have violated the representation contained in
paragraph 13(j) hereof, involves an amount in excess of
$15,000, and CitNat shall fail to remedy such matter to the
reasonable satisfaction of Security, then Security may
terminate this Agreement and neither party shall thereafter
have any liability resulting from this Agreement or the
transactions contemplated thereby. Security shall complete any
phase I examination within 60 days of this Agreement.
(m) Holders of CitNat Options shall have executed such documents
as Security shall reasonably request to ensure the conversion
of their CitNat Options to shares of Security Common Stock as
herein provided for.
17. Conditions to Obligations of CitNat. The obligations of CitNat under
this Merger Agreement are subject, unless waived by CitNat, to the
satisfaction on or prior to the time the Merger shall become effective
of the following conditions:
(a) There shall not have been any material adverse change or
discovery of a condition or the occurrence of an event which
has or is likely to result in such a material adverse change,
in the financial condition, aggregate net assets,
shareholders' equity, business, or operating results of
Security on a consolidated basis from December 31, 1995 to the
time the Merger shall become effective.
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(b) All representations and warranties by Security contained in
this Merger Agreement shall be true in all material respects
at, or as of, the time the Merger shall become effective as
though such representations and warranties were made at and as
of said date, except for changes contemplated by this Merger
Agreement, and except also for representations as of a
specified time other than the time the Merger shall become
effective, which shall be true in all material respects at
such specified time.
(c) CitNat shall have received the opinion of Counsel for Security
dated the time the Merger shall become effective substantially
to the effect set forth in Exhibit B hereto.
(d) Security shall have performed or satisfied in all material
respects all agreements and conditions required by this Merger
Agreement to be performed or satisfied by it at or prior to
the time the Merger shall become effective.
(e) At the time the Merger shall become effective, no suit, action
or proceeding shall be pending or overtly threatened before
any court or other governmental agency of the federal or state
government in which it is sought to restrain, prohibit or set
aside consummation of the Merger and no other suit, action or
proceeding shall be pending or overtly threatened and no
liability or claim shall have been asserted against Security
or Security Bank which CitNat shall in good faith determine,
with advice of counsel: (i) has a reasonable likelihood of
being successfully prosecuted and (ii) if successfully
prosecuted, would materially and adversely affect the
financial condition, results of operations or shareholders'
equity of Security, on a consolidated basis.
(f) Security shall have furnished CitNat a certificate, signed by
the Chairman or President and by the Secretary or Assistant
Secretary of Security and dated the time the Merger shall
become effective to the effect that to the best of their
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knowledge after due inquiry the conditions described in
Paragraphs (a), (b), and (e) of this Section 17 have been
fully satisfied.
(g) Prior to the time the Merger shall become effective, CitNat
shall not have been deprived of adequate opportunity to
conduct such review and examination of the business,
properties and condition (financial or otherwise) of Security
and its subsidiaries as CitNat shall have deemed prudent, and
such review and examination shall not have disclosed matters
which are inconsistent in any material respect with any of the
representations and warranties of Security contained in this
Merger Agreement.
(h) Professional Bank Services Incorporated ("PBS") shall have
issued its written fairness opinion stating that the terms of
the Merger are fair and equitable to the shareholders of
CitNat from a financial perspective. Such written fairness
opinion shall be: (a) in form and substance reasonably
satisfactory to CitNat; (b) dated as of a date not later than
the mailing date of the Proxy Statement/Prospectus relating to
the Merger to be mailed to CitNat shareholders; (c) included
in the Proxy Statement/Prospectus; and (d) confirmed by PBS as
of the time the Merger shall become effective that the terms
of the Merger continue to be fair and equitable to the
shareholders of CitNat from a financial perspective.
(i) There shall not have been a change in control or acquisition
of Security or any of its subsidiaries, or an announcement of
a proposed change in control or acquisition of Security or any
of its subsidiaries, requiring regulatory approval under the
Change in Bank Control Act or the Bank Holding Company Act.
18. Conditions to Obligations of All Parties. In addition to the provisions
of Sections 16 and 17 hereof, the obligations of Security and CitNat to
cause the transactions contemplated herein to be consummated shall be
subject to the satisfaction of the following conditions on or prior to
the time the Merger shall become effective:
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(a) The parties hereto shall have received all necessary approvals
of governmental agencies and authorities of the transactions
contemplated by this Merger Agreement and each of such
approvals shall remain in full force and effect at the time
the Merger shall become effective and such approvals and the
transactions contemplated thereby shall not have been
contested by any federal or state governmental authority by
formal proceeding, or contested by any other third party by
formal proceeding which the Board of Directors of the party
asserting a failure of a condition under this Section 18(a)
shall in good faith determine, with the advice of counsel: (i)
has a reasonable likelihood of being successfully prosecuted
and (ii) if successfully prosecuted, would materially and
adversely affect the benefits hereunder intended for such
party. It is understood that, if any contest as aforesaid is
brought by formal proceedings, Security may, but shall not be
obligated to, answer and defend such contest. Security shall
notify CitNat promptly upon receipt of all necessary
governmental approvals.
(b) The registration statement required to be filed by Security
pursuant to Section 10(c) of this Merger Agreement shall have
become effective by an order of the Securities and Exchange
Commission, the shares of Security Common Stock to be
exchanged in the Merger shall have been qualified or exempted
under all applicable state securities laws, and there shall
have been no stop order issued or threatened by the Securities
and Exchange Commission that suspends or would suspend the
effectiveness of the registration statement, and no proceeding
shall have been commenced, pending or overtly threatened for
such purpose.
(c) This Merger Agreement shall have been duly adopted, ratified
and confirmed by the requisite affirmative votes of the
shareholders of CitNat and, if required, Security.
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(d) Security and CitNat shall have received the opinion and there
shall exist as of, at or immediately prior to the time the
Merger shall become effective no facts or circumstances which
would render such opinion inapplicable in any respect to the
transactions to be consummated hereunder.of Werner & Blank
Co., LPA substantially to the effect that:
(i) The statutory merger of CitNat with and into Security
will constitute a reorganization within the meaning
of Section 368(a)(1)(A) of the Internal Revenue Code;
(ii) No gain or loss will be recognized by CitNat or
Security as a consequence of the transactions herein
contemplated;
(iii) No gain or loss will be recognized by the
shareholders of CitNat on the exchange of their
shares of CitNat Common Stock for shares of Security
Common Stock (disregarding for this purpose any cash
received for fractional share interests to which they
may be entitled);
(iv) The federal income tax basis of the Security Common
Stock received by the shareholders of CitNat Common
Stock for their shares of CitNat Common Stock will be
the same as the federal income tax basis of the
CitNat Common Stock surrendered in exchange therefor;
and
(v) The holding period of the Security Common Stock
received by a shareholder of CitNat for his shares of
CitNat Common Stock will include the period for which
the CitNat Common Stock exchanged therefor was held,
provided the exchanged CitNat Common Stock was held
as a capital asset by such shareholder on the date of
the exchange.
19. Nonsurvival of Representations and Warranties and Survival of Certain
Covenants. The respective representations and warranties of Security
and CitNat set forth in Sections 13 and 14 shall not survive the time
the Merger shall become effective. It is specifically
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agreed that the following undertakings and covenants shall survive the
time the Merger shall become effective: 10(g), 10(h) 10(i), 10(j), and
10(l).
20. Governing Law. This Merger Agreement shall be construed and interpreted
according to the applicable laws of the State of Ohio.
21. Assignment. This Merger Agreement and all of the provisions hereof
shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and permitted assigns, but neither this
Merger Agreement nor any of the rights, interests, or obligations
hereunder shall be assigned by either of the parties hereto without the
prior written consent of the other party.
22. Satisfaction of Conditions; Termination.
(a) Security agrees to use its best effort to obtain satisfaction
of the conditions insofar as they relate to Security, and
CitNat agrees to use its best efforts to obtain the
satisfaction of the conditions insofar as they relate to
CitNat. If any condition to the obligations of Security set
forth in Section 16 or 18 is not substantially satisfied at
the time or times contemplated thereby and such condition is
not waived by Security, or if any condition to the obligations
of CitNat set forth in Section 17 or 18 is not substantially
satisfied at the time or times contemplated thereby and such
condition is not waived by CitNat, or if at any time prior to
the time the Merger shall become effective, it shall become
reasonably certain that such condition will not be
substantially satisfied and such condition is not waived by
Security or CitNat, as the case may be, either Security or
CitNat may terminate this Merger Agreement by written notice
to the other party after the expiration of fifteen (15) days
written notice to the other party during which time such other
party shall have an opportunity to cure such defect in said
condition. This Merger Agreement may be terminated and
abandoned (either before or after the meetings of shareholders
contemplated hereby) by mutual written consent of Security and
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CitNat authorized by their respective Boards of Directors. In
the event of such termination caused otherwise than by breach
of this Merger Agreement by any of the parties hereto, this
Merger Agreement shall cease and terminate, the acquisition of
CitNat as provided herein shall not be consummated, and
neither Security nor CitNat shall have any further liability
under this Merger Agreement of any nature whatever, including
any liability for damages. In the event this Merger Agreement
is terminated, the duties of both parties with respect to
confidential information set forth in Sections 10(d) shall
survive any such termination. In addition to the other grounds
for termination of this Merger Agreement set forth herein,
this Merger Agreement can be terminated by written notice by
either party to the other, in each case authorized by its
Board of Directors, if the Merger shall not have been
consummated by December 31, 1996 or the date of such notice,
whichever is later.
(b) If termination of this Merger Agreement shall be judicially
determined to have been caused by breach of this Merger
Agreement, then, in addition to other remedies at law or
equity for breach of this Merger Agreement, the party so found
to have breached this Merger Agreement shall indemnify the
other parties for their respective costs, fees and expenses of
its counsel, accountants and other experts and advisors as
well as fees and expenses incident to negotiation, preparation
and execution of this Merger Agreement and related actions and
its shareholders' meetings and actions.
(c) In the event of the failure of the CitNat shareholders to
approve the Merger and this Agreement, provided at the time of
the CitNat shareholders' meeting to vote upon the Merger
either (a) there is outstanding a publicly announced offer by
a third-party to acquire CitNat, by merger consolidation,
exchange offer or asset purchase, or a tender offer for at
least fifty-one percent (51%) of the outstanding
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CitNat common stock in either case providing a per share
purchase valued at the time of its announcement of at least
$62.75 per share to the CitNat shareholders, or (b) the Board
of Directors of CitNat fails to favorably recommend approval
of the Merger, then in any such event, CitNat shall pay One
Million Dollars ($1,000,000) to Security as an agreed upon
termination fee upon the occurrence of either of the following
events within one (1) year after termination of this
Agreement:
(i) any person or group of persons (other than
Security and/or its affiliates) shall
acquire more than fifty percent (50%) of the
outstanding CitNat common stock at a per
share price equal to or greater than $62.75;
or
(ii) upon the entry by CitNat into a definitive
agreement with a person or group of persons
(other than Security and/or its affiliates)
for such person or group of persons to
acquire, merge or consolidate with CitNat or
to acquire all or substantially all of
CitNat's assets and wherein the per share
purchase price at the time of the initial
public announcement thereof equals or
exceeds $62.75; except for such transaction
in which the shareholders of CitNat
immediately prior to the transaction control
a majority of the voting stock of the
resulting entity of such transaction.
23. Waivers Amendments. Any of the provisions of this Merger Agreement may
be waived at any time by the party which is, or the shareholders of
which are, entitled to the benefit thereof, by such party. This Merger
Agreement may be amended or modified in whole or in part by an
agreement in writing executed in the same manner (but not necessarily
by the same person) as this Merger Agreement and which makes reference
to this Merger Agreement, pursuant to a resolution, adopted by the
Boards of Directors of the respective
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parties, provided, however, such amendment or modification may be made
in this manner by the respective Boards of Directors of Security and
CitNat at any time prior to a favorable vote of such party's
shareholders, but may be made after a favorable vote by the
shareholders of such party, only if, in the opinion of its Board of
Directors, such amendment or modification will not have any material
adverse effect on the benefits intended under this Merger Agreement for
the shareholders of such party and will not require resolicitation of
any proxies from such shareholders or further shareholder approval is
obtained.
24. Entire Agreement. This Agreement supersedes any other agreement,
whether written or oral, that may have been made or entered into by
Security and CitNat or by any officer or officers of such parties
relating to the acquisition of the business or the capital stock of
CitNat by Security. Except for the letters specified in this Merger
Agreement and of even date herewith, this Agreement constitutes the
entire agreement by the parties, and there are no agreements or
commitments except as set forth herein and therein.
25. Captions; Counterparts. The captions in this Merger Agreement are for
convenience only and shall not be considered a part of or affect the
construction or interpretation of any provision of this Merger
Agreement. This Merger Agreement may be executed in several
counterparts, each of which shall constitute one and the same
instrument.
26. Notices. All notices and other communications hereunder shall be deemed
to have been duly given if forwarded by a nationally recognized
overnight courier service. All notices and other communications
hereunder given to any party shall be communicated to the remaining
party to this Merger Agreement by mail in the same manner as herein
provided.
(a) If to Security, to:
Mr. Harry O. Egger
Chairman, President and CEO
Security Banc Corporation
40 S. Limestone St.
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Springfield, OH 45502-1222
With copies to:
Martin D. Werner, Esq.
Werner & Blank Co., L.P.A.
7205 W. Central Avenue
Toledo, Ohio 43617
(b) If to CitNat, to:
Mr. James R. Wilson
President and CEO
CitNat Bancorp, Inc.
1 Monument Square
Urbana, Ohio 43078-2001
With copies to:
Charles DeRousie, Esq.
Vorys, Sater, Seymour and Pease
52 East Gay Street
P.O. Box 1008
Columbus, OH 43216-1008
27. Undertakings of Affiliates. Security shall have received undertakings
in writing from each of such persons, if any, as counsel for Security
believes might reasonably be considered "affiliates" of CitNat within
the meaning of Rule 145 of the Securities and Exchange Commission
pursuant to the Securities Act of 1933, in each case in form and
substance satisfactory to counsel for Security, to the effect that so
long as Security complies with its obligations under Section 10(j)
hereof, (i) any disposition made by such person of any share of
Security Common Stock received by such person pursuant to this Merger
Agreement shall be made within the limits and in accordance with the
applicable provisions of said Rule 145, as such Rule may be amended
from time to time, and (ii) such person will not sell, assign or
transfer any of such Security Common Stock until Security shall have
published financial results including the combined operations of
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Security and CitNat for a period of at least 30 days following the time
the Merger shall become effective.
28. Publicity. Security and CitNat agree to consult with and obtain the
consent of the other, prior to any media release or other public
disclosures as to the matters covered by this Agreement, except to
such parties' respective shareholders or as may be required by
law.
IN WITNESS WHEREOF, this Merger Agreement has been executed the day and
year first above written.
ATTEST: Security Banc Corporation.
By: /s/J. William Stapleton By: /s/ Harry O. Egger
----------------------------- -------------------------
Its: Vice President & CFO Harry O. Egger, Chairman,
President, and CEO
ATTEST: CitNat Bancorp, Inc.
By: /s/ Judy Markin By: /s/ James R. Wilson
------------------------------ -------------------------
Its:Vice President and Secretary James R. Wilson,
President and CEO
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EXHIBIT A
(614) 464-6400
__________, 1996
Security Banc Corporation
40 S. Limestone St.
Springfield, OH 45502-1222
Ladies and Gentlemen:
We have acted as special counsel to CitNat Bancorp, Inc. ("CitNat"), an
Ohio corporation and bank holding company, solely in connection with certain
transactions contemplated by the Agreement of Merger (the "Agreement of
Merger"), dated March __, 1996, by and between CitNat and Security Banc
Corporation ("Security"), an Ohio corporation and bank holding company.
This opinion is furnished to you pursuant to Section __ of the Merger
Agreement.
In connection with this opinion, we have examined the following:
(a) The Merger Agreement;
(b) The Articles of Incorporation of CitNat, with amendments thereto,
as certified by the Ohio Secretary of State on _______, 1996 (the
"CitNat Articles");
(c) The Code of Regulations of CitNat, as certified by the Secretary
of CitNat on _________, 1996 (the "CitNat Regulations");
(d) A Certificate from the Ohio Department of Taxation dated
________, 1996, with respect to the payment of all taxes by
CitNat;
(e) A Certificate from the Ohio Secretary of State dated ________,
1996, with respect to the good standing of CitNat;
(f) The Articles of Association of The Citizens National Bank of
Urbana (the "Citizens Bank"), with amendments thereto, as
certified by the Secretary of the Citizens Bank on _________,
1996 (the "Bank Articles");
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(g) The Bylaws of the Citizens Bank, as certified by the Secretary of
the Citizens Bank on _________, 1996 (the "Bank Bylaws");
(h) Selected minutes of the Boards of Directors and the shareholders
of CitNat and the Citizens Bank and other corporate records of
CitNat and the Citizens Bank as in our judgment are necessary or
appropriate to enable us to render the opinions expressed below;
(i) The S-4 Registration Statement and the proxy materials of the
Citizens Bank included therein and relating to the special
meeting of the shareholders of the Citizens Bank held for the
purpose of adopting the Agreement of Merger; and
(j) The Certificates of certain officers of CitNat and the Citizens
Bank (the "Officers' Certificates").
Unless otherwise defined herein, all capitalized terms used in this
opinion have the meanings set forth in the Merger Agreement.
In our examinations, we have assumed, without independent investigation
or verification, the following:
(a) that all documents, forms or drafts submitted to us as copies
(whether or not certified) conform to the originals of these
documents, and the originals of such documents are authentic; and
all signatures of all persons are genuine; and
(b) the due authorization, execution and delivery of all documents by
Security and the taking by Security of all appropriate action
required by and related to the transactions contemplated by the
Merger Agreement.
Whenever any matter is indicated to be based on our knowledge, we are
referring to the actual knowledge of the Vorys, Sater, Seymour and Pease
attorneys who have represented CitNat in connection with the matters recited in
the first paragraph of this opinion on page 1. We have relied solely on the
examinations and inquiries recited in this opinion, and we have not undertaken
any other independent investigation to determine the existence or absence of any
facts, and no inference as to our knowledge concerning such facts should be
drawn. As used herein, the phrases "corporate power and authority," "duly
authorized by all necessary corporate action," and "by all necessary shareholder
action" refer and are limited to Chapter 1701, Ohio Revised Code, (the Ohio
General Corporation Law) and the CitNat Articles and CitNat Regulations.
Based on and subject to the foregoing and the further qualifications
and limitations described below, as of the date of this opinion (or as of the
date of any assumption made or any certificate, schedule, exhibit, or inquiry
stated to have been examined, made or otherwise relied upon by us), we are of
the opinion that:
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1. CitNat is a corporation validly existing and in good standing under
the laws of the State of Ohio with full corporate power and authority to own its
properties and to carry on its business as now conducted.
2. CitNat's authorized capital stock consists of 720,000 common shares
(the "CitNat Common Stock"), par value $5.00 per share, of which 390,119 shares
are issued and outstanding and 2,482 shares are held as treasury shares.
3. Options to purchase 71,820 shares of CitNat Common Stock (the
"CitNat Options") are outstanding. To our knowledge, there are not any
outstanding subscriptions, warrants, options, rights, commitments or agreement
by which CitNat is bound which provide for the issuance of CitNat Common Stock
or for the issuance of any securities convertible into CitNat Common Stock,
except as disclosed above.
4. The Citizens Bank is a national banking association validly existing
under the laws of the United States with full corporate power and authority to
own its properties and to carry on its business as now conducted.
5. CitNat is the record owner of all the capital stock of the Citizens
Bank.
6. CitNat has all requisite corporate power and authority to enter into
and perform all of its obligations under the Merger Agreement. The execution and
delivery of the Merger Agreement and the performance by CitNat of its
obligations under the Merger Agreement have been duly authorized by all
necessary corporate action by CitNat and by all necessary shareholder action.
7. The Merger Agreement is the valid and binding obligation of CitNat,
enforceable against it in accordance with its terms.
8. CitNat is not, and will not be by execution and delivery of the
Merger Agreement or by the performance of its obligations under the Merger
Agreement, in violation of any (a) material term or provision of the CitNat
Articles or the CitNat Regulations; or (b) material agreement to which CitNat or
the Citizens Bank is a party and which is known to us.
9. Based solely upon the Officers' Certificates, we have no knowledge
of any: (a) material actions, suits or proceedings instituted, pending or
threatened against CitNat or the Citizens Bank or against any material asset,
interest or right of CitNat or the Citizens Bank; and (b) actual or threatened
actions, suits or proceedings against CitNat which present a claim to restrain
or prohibit CitNat's performance of its obligations under the Merger Agreement.
The opinions expressed above are subject to the following additional
qualifications:
We have not conducted requisite factual or legal examinations and
accordingly we express no opinion with respect to the application, if any, of
laws concerning or promulgated by (a) environmental effects or agencies; (b)
securities laws; (c) any order of any court or other
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authority directed specifically to any party to the Merger Agreement of which we
do not have knowledge; and (d) any taxes or tax effects.
All of our opinions herein are subject to the limitations, if any, of
Title 11, U.S.C., as amended, and of any applicable insolvency, reorganization,
moratorium or other laws affecting creditors' rights generally and by principles
of equity. In addition, certain remedial and other provisions of the Merger
Agreement may be limited by (a) implied covenants of good faith, fair dealing
and commercially reasonable conduct; (b) judicial discretion, in the instance of
equitable remedies; and (c) the public policies of the State of Ohio, to the
extent applicable to the Merger Agreement.
This opinion is limited to the laws of Ohio and the federal laws of the
United States of America having effect at the date hereof. This opinion is
furnished to you solely for your benefit specifically in connection with the
matters described in the first paragraph of page 1 of this opinion and may not
be relied upon by any person, assigned, quoted or otherwise used without our
specific prior written consent.
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EXHIBIT B
CitNat Bancorp, Inc.
1 Monument Square
Urbana, OH 43078-2001
Re: Security Banc Corporation.
Gentlemen:
We have acted as special counsel to Security Banc Corporation ("Security") an
Ohio corporation, in connection with the contemplated Merger Agreement dated
______, 1996 (the "Agreement") between CitNat Bancorp, Inc. ("CitNat") and
Security. This Opinion Letter is rendered to you pursuant to Section _____ of
the Agreement. Capitalized terms not otherwise defined herein shall have the
meanings ascribed to them in the Agreement.
You have requested our opinion regarding certain matters in connection with the
Agreement. In our capacity as special counsel for Security and Security Bank, we
have examined the originals or copies of such certificates, documents and
corporate records upon which we have relied regarding our opinion expressed
below. We have assumed the genuineness of all signatures, the authenticity of
all items submitted to us as certified or photostatic copies and the
authenticity of the originals of such copies. We have further assumed the due
authorization of such documents by all parties other than Security and Security
Bank and the taking of all requisite action respecting such documents, the due
execution and delivery of such documents by each party and have additionally
assumed that all agreements are the valid and binding agreement of all parties
to such agreements, other than Security and Security Bank.
Wherever a statement herein is qualified by "to the best of our knowledge," or a
similar phrase, it is intended to indicate that, during the course of our
representation of Security and Security Bank, no information has been provided
to those partners and associates in this firm who have had substantive
involvement in rendering legal services in connection with the representation
described in the introductory paragraph of this opinion letter that would give
us knowledge of the inaccuracy of such statement.
This Opinion Letter is governed by, and shall be interpreted in accordance with,
the Legal Opinion Accord (the "Accord") of the ABA Section of Business Law
(1991). As a consequence, it is subject to a number of qualifications,
exceptions, definitions, limitations on coverage and other limitations, all as
more particularly described in the Accord, and this Opinion Letter should be
read in conjunction therewith. The law addressed by this opinion is limited to
the law of the State of Ohio and the federal law of the United States of
America.
The opinions hereinafter expressed are subject to the following qualifications,
notwithstanding anything herein to the contrary:
B-1
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(a) Our opinions in paragraphs (1) and (4) below as to the valid
existence of Security and Security Bank are based solely upon certificates from
public officials as to valid existence, copies of which certificates are
attached hereto.
(b) Our opinions below are limited to the matters expressly set forth
in this opinion letter, and no opinion is to be implied or may be inferred
beyond the matters expressly so stated. Without limiting the foregoing, we
express no opinion as to the antifraud provisions of federal and state
securities laws.
(c) We disclaim any obligation to update this opinion letter for events
occurring after the date of this opinion letter.
(d) Our opinions below are limited to the effect of the laws of Ohio
and the federal laws of the United States of America. We express no opinion with
respect to the effect of the laws of any other jurisdiction on the transactions
contemplated by the Agreement.
(e) In rendering this opinion, we have relied as to all matters of fact
on certificates or responsible officers of Security and Security Bank and of
public officials, copies of which are attached hereto.
Based upon and subject to the foregoing and in reliance thereon, and
subject to the assumptions, exceptions and qualifications set forth herein, it
is our opinion that:
1. Security is a corporation validly existing and in good standing under the
laws of the State of Ohio and has the requisite corporate power and authority
to own its properties and to carry on the business in which it is now
engaged. Security owns all of the capital stock of Security Bank free and
clear of all liens and security interests.
2. All necessary corporate proceedings of Security have been duly taken to
authorize the execution, delivery and performance of the Agreement by
Security and the consummation of the transactions contemplated by the
Agreement, subject in all events to any conditions stated in said Agreement.
The Agreement constitutes the legal, valid and binding obligation of
Security, enforceable in accordance with its terms, except:
a. as such enforceability may be limited by bankruptcy, insolvency,
reorganization, fraudulent conveyance or similar laws affecting creditors'
rights; and
b. that the remedy of specific performance and injunctive and other forms of
equitable relief are subject to certain equitable defenses and to the
discretion of the court before which any proceedings may be brought.
3. The execution, delivery and performance of the Agreement by Security will not
violate or result in a breach of any term of Security's Articles of
Incorporation or Code of Regulations, or violate, result in a breach of, or
constitute a default under any term of any material agreement known to us to
which Security is a party.
B-2
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4. Security Bank is a national banking association validly existing under the
laws of the United States of America and has the requisite corporate power
and authority to own its properties and carry on the business in which it is
now engaged.
5. The authorized capital stock of Security consists of 11,000,000, shares of
common stock, par value $3.125 per share, 5,106,384 of which are outstanding
To our knowledge, there are no outstanding options, warrants, or other rights
to acquire, or securities convertible into any capital stock of Security. The
outstanding shares of common stock of Security are, and the shares to be
issued in accordance with the Agreement will be, validly authorized and
issued, and non-assessable, and not, to the best of our knowledge, issued in
violation of the pre-emptive rights of any person.
6. To our knowledge, except as disclosed herein, there is no litigation, action,
suit, investigation or proceeding pending or, to the best of our knowledge
after due inquiry of Security and its executive officers, overtly threatened
against or affecting Security or involving any of its respective properties
or assets, at law or in equity, before any federal, state, municipal, local
or other governmental authority.
7. All consents or approvals of any regulatory authority having jurisdiction
over Security or its subsidiaries that are required to be obtained in
connection with the Merger and the transactions contemplated by the Agreement
have been obtained.
8. The Registration Statement on Form S-4 filed by Security pursuant to the
Agreement has become effective and no stop order revoking such effectiveness
has been issued or has been threatened.
This opinion is solely for the benefit of the addressee hereof and may not be
relied upon by any other person or party or in any other context without our
prior written consent. This opinion is delivered as of the date hereof, and we
expressly disclaim any undertaking to update it.
Very truly yours,
B-3
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Appendix B
Opinion of Financial Advisor
February 20, 1996
Board of Directors
CitNat Bancorp, Inc.
1 Monument Square
Urbana, OH 43078-2001
Dear Members of the Board:
You have requested our opinion as investment bankers as to the fairness, from a
financial perspective, to the common shareholders of CitNat Bancorp, Inc.,
Urbana, Ohio (the "Company") of the proposed merger of the Company with Security
Banc Corporation, Springfield, Ohio ("Security"). In the proposed merger,
Company shareholders will receive Security common shares equal to 2.1704 per
Company common share and Security common shares equal to 0.7791 per Company
option share for a total of 908,072 Security shares equal to an aggregate value
of $26,107,070.
Professional Bank Services, Inc. ("PBS") is a bank consulting firm and as part
of its investment banking business is continually engaged in reviewing the
fairness, from a financial perspective, of bank acquisition transactions and in
the valuation of banks and other businesses and their securities in connection
with mergers, acquisitions, estate settlements and other purposes. We are
independent with respect to the parties of the proposed transaction.
For purposes of this opinion, PBS reviewed and analyzed the historical
performance of the Company and its wholly owned subsidiary, The Citizens
National Bank of Urbana, Urbana, Ohio (the "Bank") contained in: (i) Audited
Financial Statements of the Company as of December 31, 1992, 1993, 1994 and
1995; (ii) December 31, 1995 Consolidated Reports of Condition and Income filed
with the Federal Deposit Insurance Corporation by the Bank; (iii) September 30,
1995 Uniform Bank Performance Report of the Bank; (iv) historical common stock
trading activity of the Company; and (v) the premises and other fixed assets. We
have reviewed and tabulated statistical data regarding the loan portfolio,
securities portfolio and other performance
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ratios and statistics. Financial projections were prepared and analyzed as well
as other financial studies, analyses and investigations as deemed relevant for
the purposes of this opinion. In review of the aforementioned information, we
have taken into account our assessment of general market and financial
conditions, our experience in other transactions, and our knowledge of the
banking industry generally.
In conjunction with our opinion, we have evaluated the historical performance
and current financial condition of Security contained in: (i) September 30, 1995
financial information; (ii) Annual Report to Shareholders for the years ending
December 31, 1994 and 1995; (iii) historical common stock trading and dividend
activity to date; and (iv) the financial terms of certain other comparable
transactions. We have prepared and analyzed the pro forma consolidated financial
condition of the Company and Security. We have reviewed and tabulated
consolidated statistical data regarding growth, growth prospects for service
markets, liquidity, asset composition and quality, profitability, leverage and
capital adequacy.
We have not compiled, reviewed or audited the financial statements of the
Company or Security, nor have we independently verified any of the information
reviewed; we have relied upon such information as being complete and accurate in
all material respects. We have not made independent evaluation of the assets of
the Company or Security.
Based on the foregoing and all other factors deemed relevant, it is our opinion
as investment bankers, that, as of the date hereof, the consideration proposed
to be received by the shareholders of the Company is fair and equitable from a
financial perspective.
PROFESSIONAL BANK SERVICES, INC.
By: /s/ Chirstoper L. Hargrove
----------------------------------
Christopher L. Hargrove
Vice President
B-5
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EXHIBIT C
Ohio Revised Code Section 1701.85
Qualifications of and Procedures for Dissenting Shareholders
Section 1701.85 - Qualifications of and Procedures for
Dissenting Shareholders.
(A) (1) A shareholder of a domestic corporation is entitled to relief as
a dissenting shareholder in respect of the proposals in Sections
1701.74, 1701.76, and 1701.84 of the Revised Code, only in
compliance with this section.
(2) If the proposal must be submitted to the shareholders of the
corporation involved, the dissenting shareholder shall be a record
holder of the shares of the corporation as to which he seeks relief
as of the date fixed for the determination of shareholders entitled
to notice of a meeting of the shareholders at which the proposal is
to be submitted, and such shares shall not have been voted in favor
of the proposal. Not later than 10 days after the date on which the
vote on such proposal was taken at the meeting of the shareholders,
the shareholder shall deliver to the corporation a written demand
for payment to him of the fair cash value of the shares as to which
he seeks relief, stating his address, the number and class of such
shares, and the amount claimed by him as the fair cash value of the
shares.
(3) The dissenting shareholder entitled to relief under division (C) of
Section 1701.84 of the Revised Code in the case of a merger pursuant
to Section 1701.80 of the Revised Code and a dissenting shareholder
entitled to relief under division (E) of Section 1701.801 of the
Revised Code in the case of a merger pursuant to Section 1701.801 of
the Revised Code shall be a record holder of the shares of the
corporation as to which he seeks relief as of the date on which the
agreement of merger was adopted by the directors of that
corporation. Within 20 days after he has been sent the notice
provided in Section 1701.80 or 1701.801 of the Revised Code, the
shareholder shall deliver to the corporation a written demand for
payment with the same information as that provided for in division
(A)(2) of this section.
(4) In the case of a merger or consolidation, a demand served on the
constituent corporation involved constitutes service on the
surviving or the new corporation, whether served before, on, or
after the effective date of the merger or consolidation.
(5) If the corporation sends to the dissenting shareholder, at the
address specified in his demand, a request for the certificates
representing the shares as to which he seeks relief, he, within 15
days from the date of the sending of such request, shall deliver to
the corporation the certificates requested, in order that the
corporation may forthwith endorse on them a legend to the effect
that demand for the fair cash value of such shares has been made.
The corporation promptly shall return such endorsed certificates to
the shareholder. Failure on the part of the shareholder to deliver
such certificates terminates his rights as a dissenting shareholder,
at the option of the corporation, exercised by written notice sent
to him within 20 days after the lapse of the 15 day period, unless a
court for good cause shown otherwise directs. If shares represented
by a certificate on which such a legend has been endorsed are
transferred, each new certificate issued for them shall bear a
similar legend, together with the name of the original dissenting
holder of such shares. Upon receiving a demand for payment from a
dissenting shareholder who is the record holder of uncertificated
securities, the corporation shall make an appropriate notation of
the demand for payment in its shareholder records. If uncertificated
shares for which payment has been demanded are to be transferred,
any new certificate issued for the shares shall bear the legend
required for certificate securities as provided in this paragraph. A
transferee of the shares so endorsed, or of uncertificated
securities where such notation has been made, acquires only such
rights in the corporation as the original dissenting holder of such
shares had immediately after the service of a demand for payment of
the fair cash value of the shares. Such request by the
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corporation is not an admission by the corporation that the
shareholder is entitled to relief under this section.
(B) Unless the corporation and the dissenting shareholder shall have come to an
agreement on the fair cash value per share of the shares as to which he
seeks relief, the shareholder or the corporation, which in case of a merger
or consolidation may be the surviving or the new corporation, within three
months after the service of the demand by the shareholder, may file a
complaint in the court of common pleas of the county in which the principal
office of the corporation which issued such shares is located, or was
located at the time when the proposal was adopted by the shareholders of
the corporation, or, if the proposal was not required to be submitted to
the shareholders, was approved by the directors. Other dissenting
shareholders, within the period of three months, may join as plaintiffs, or
may be joined as defendants in any such proceeding, and any two or more
such proceedings may be consolidated. The complaint shall contain a brief
statement of the facts, including the vote and the facts entitling the
dissenting shareholder to the relief demanded. No answer to such complaint
is required. Upon the filing of the complaint, the court, on motion of the
petitioner, shall enter an order fixing a date for a hearing on the
complaint, and requiring that a copy of the complaint and a notice of the
filing and of the date for hearing be given to the respondent or defendant
in the manner in which the summons is required to be served or substituted
service is required to be made in other cases. On the day fixed for the
hearing on the complaint or any adjournment of it, the court shall
determine from the complaint and from such evidence as is submitted by
either party whether the shareholder is entitled to be paid the fair cash
value of any shares and, if so, the number and class of such shares. If the
court finds that the shareholder is so entitled, the court may appoint one
or more persons as appraisers to receive evidence and to recommend a
decision on the amount of the fair cash value. The appraisers have such
power and authority as is specified in the order of their appointment. The
court thereupon shall make a finding as to the fair cash value of a share,
and shall render judgment against the corporation for the payment of it,
with interest at such rate and from such date as the court considers
equitable. The costs of the proceeding, including reasonable compensation
to the appraisers to be fixed by the court, shall be assessed or
apportioned as the court considers equitable. The proceeding is a special
proceeding, and final orders in it may be vacated, modified, or reversed on
appeal pursuant to the Rules of Appellate Procedure and, to the extent not
in conflict with those rules, Chapter 2505 of the Revised Code. If, during
the pendency of any proceeding instituted under this section, a suit or
proceeding is or has been instituted to enjoin or otherwise to prevent the
carrying out of the action as to which the shareholder has dissented, the
proceeding instituted under this section shall be stayed until the final
determination of the other suit or proceeding. Unless any provision in
Division (D) of this section is applicable, the fair cash value of the
shares as agreed upon by the parties or as fixed under this section shall
be paid within thirty days after the date of final determination of such
value under this division, the effective date of the amendment to the
articles, or the consummation of the other action involved, whichever
occurs last. Upon the occurrence of the last such event, payment shall be
made immediately to a holder of uncertificated securities entitled to such
payment. In the case of holders of shares represented by certificates,
payment shall be made only upon and simultaneously with the surrender to
the corporation of the certificates representing the shares for which such
payment is made.
(C) If the proposal was required to be submitted to the shareholders of the
corporation, fair cash value as to those shareholders shall be determined
as of the day prior to that on which the vote by the shareholders was taken
and, in the case of a merger pursuant to Section 1701.80 or 1701.801 of the
Revised Code, fair cash value as to shareholders of a constituent
subsidiary corporation shall be determined as of the day before the
adoption of the agreement of merger by the directors of the particular
subsidiary corporation. The fair cash value of a share for the purposes of
this section is the amount that a willing seller, under no compulsion to
sell, would be willing to accept, and that a willing buyer, under no
compulsion to purchase, would be willing to pay, but in no event shall the
fair cash value of it exceed the amount specified in the demand of the
particular shareholder. In computing such fair cash value, any appreciation
or depreciation in market value resulting from the proposal submitted to
the directors or to the shareholders shall be excluded.
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(D) The right and obligation of a dissenting shareholder to receive such fair
cash value and to sell such shares as to which he seeks relief, and the
right and obligation of the corporation to purchase such shares and to pay
the fair cash value of them terminates if:
(1) Such shareholder has not complied with this section, unless the
corporation by its directors waives such failure;
(2) The corporation abandons, or is finally enjoined or prevented from
carrying out, or the shareholders rescind their adoption, of the action
involved;
(3) The shareholder withdraws his demand, with the consent of the
corporation by its directors;
(4) The corporation and the dissenting shareholder shall not have come to
an agreement as to the fair cash value per share, and neither the
shareholder nor the corporation shall have filed or joined in a
complaint under Division (B) of this section within the period
provided.
(E) From the time of giving the demand, until either the termination of the
rights and obligations arising from it or the purchase of the shares by the
corporation, all other rights accruing from such shares, including voting
and dividend or distribution rights, are suspended. If during the
suspension, any dividend or distribution is paid in money upon shares of
such class, or any dividend, distribution, or interest is paid in money
upon any securities issued in extinguishment of or in substitution for such
shares, an amount equal to the dividend, distribution, or interest which,
except for the suspension, would have been payable upon such shares or
securities, shall be paid to the holder of record as a credit upon the fair
cash value of the shares. If the right to receive fair cash value is
terminated otherwise than by the purchase of the shares by the corporation,
all rights of the holder shall be restored and all distributions which,
except for the suspension, would have been made shall be made to the holder
of record of the shares at the time of termination.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Ohio General Corporation Law ("OGCL") provides that Ohio corporations
may indemnify an individual made a party to any threatened, pending, or
completed action, suit or proceeding whether civil, criminal, administrative or
investigative, because the individual is or was a director, officer, employee or
agent of the corporation, against liability incurred in the proceeding if the
person: (i) acted in good faith and (ii) the individual believes his conduct was
in the corporation's best interest or was not opposed to the corporation's best
interest.
The OGCL further provides that a corporation shall indemnify an
individual who was fully successful on the merits or otherwise in any proceeding
to which the director, officer, employee or agent was a party because the
individual was or is a director, officer, employee or agent of the corporation,
for reasonable expenses incurred by the director in connection with the
proceeding. The OGCL also provides that a corporation may purchase and maintain
insurance on behalf of the individual who is or was a director, officer,
employee or agent of the corporation or who, while a director, officer, employee
or agent of the corporation is or was serving at the request of the corporation
as a director, officer, partner, trustee, employer or agent of another foreign
or domestic corporation, partnership, joint venture, trust, employee benefit
plan or other enterprises, against liability asserted against or incurred by the
individual in that capacity or arising from the individual status as a director,
officer, employee, or agent.
Registrant maintains a directors' and officers' liability insurance
policy, including bank reimbursement, for the purpose of providing
indemnification to its directors and officers in the event of such a threatened,
pending or completed action.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENTS
The exhibits filed pursuant to this Item 21 immediately follow the
Exhibit Index. The following is a description of the applicable exhibits
required for Form S-4 provided by Item 601 of Regulation S-K.
Exhibit Number Description
- -------------- -----------
(1) Not Applicable.
(2) The Merger Agreement by and between Security Banc Corporation
and CitNat Bancorp, Inc. dated March 14, 1996, is attached
hereto as Exhibit.
Part II page 1
<PAGE> 190
Exhibit Number Description
- -------------- -----------
(3) Articles of Incorporation and Code of Regulations.
A. A copy of the Amended Articles of Incorporation (as
amended) of the Registrant included herein as an Exhibit.
B. A copy of the Amended Code of Regulations of the
Registrant as currently in effect is included herein as
an Exhibit.
(4) Instruments defining the rights of security holders, including
indentures.
A. Instruments defining the rights of security holders are
included in the Articles of Incorporation and Code of
Regulations.
(5) Opinion of Werner & Blank Co., L.P.A., regarding Security Banc
Corporation Common Stock, and Consent
(6) Not Applicable.
(7) Not Applicable.
(8) Opinion of Werner & Blank Co., L.P.A., regarding certain tax
matters, and Consent.
(9) Not Applicable.
(10) A copy of the Security Banc Corporation 1987 Stock Option Plan
is included herein as an Exhibit.
(11) Not Applicable.
(12) Not Applicable.
(13) Registrant's Annual Report to security holders for the year
ended December 31, 1995 and its Quarterly Report on Form 10Q
for the Quarter ended March 31, 1996 are included herein as an
Exhibit.
(14) Not Applicable.
(15) Not Applicable
(16) Not Applicable.
Exhibit Number Description
- -------------- -----------
Part II page 2
<PAGE> 191
(21) List of the subsidiaries of the Registrant and their
jurisdictions of incorporation or organization as of December
31, 1995 is presented in Registrant's Annual Report on form
10-K incorporated herein by reference.
(22) None.
(23) Consents of Experts and Counsel.
A. Consent of Ernst & Young LLP
B. Consent of Crowe Chizek and Company LLP
C. Consent of Werner & Blank Co., L.P.A. (the consent is
contained in that firm's opinions filed as Exhibits (5)
and (8).
D. Consent of Professional Bank Services
E. Consent of KPMG Peat Marwick LLP
(24) Power of Attorney.
(25) Not Applicable.
(26) Not Applicable.
(27) Not Applicable.
(28) Not Applicable.
(29) Not Applicable.
(99) Additional Exhibits.
A. Form of Proxy to be delivered to Shareholders of CitNat
Bancorp, Inc.
Part II page 3
<PAGE> 192
ITEM 22. UNDERTAKINGS.
A. The undersigned Registrant hereby undertakes as follows:
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales
are being made, a post-effective amendment to this
Registration Statement:
(i) To include any prospectus required by
Section 10(a)(3) of the Securities Act of
1933;
(ii) To reflect in the Prospectus any facts or
events arising after the Effective Date of
the Registration Statement (or the most
recent post-effective amendment thereof)
which, individually or in the aggregate,
represent a fundamental change in the
information set forth in the Registration
Statement;
(iii) To include any material information with
respect to the plan of distribution not
previously disclosed in the Registration
Statement or any material change to the
information set forth in the Registration
Statement;
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new
Registration Statement relating to the securities
offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a
post-effective amendment any of the securities being
registered which remain unsold at the termination of
the offering.
(b) The undersigned Registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act
of 1933, each filing of the Registrant's annual report
pursuant to Section 13(a) or Section 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in this
Registration Statement shall be deemed to be a new
Registration Statement relating to the securities offered
therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to officers,
directors, and controlling persons of the Registrant pursuant
to the foregoing provisions, or otherwise, the Registrant has
been advised that in the opinion of the Securities and
Exchange Commission such
Part II page 4
<PAGE> 193
indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of
expenses incurred or paid by a director, officer, or
controlling person of the Registrant in the successful defense
of any action, suit, or proceeding) is asserted by such
director, officer, or controlling person in connection with
the securities being registered, the Registrant will, unless
in the opinion of its counsel that matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by
it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
B. The undersigned Registrant hereby undertakes to respond to requests for
information that are incorporated by reference into the
Prospectus/Proxy Statement pursuant to Items 4, 10(b), 11, or 13 of
this form, within one business day of receipt of such request, and to
send the incorporated documents by first class mail or other equally
prompt means. This includes information contained in the documents
filed subsequent to the Effective Date of this Registration Statement
through the date of responding to the request.
C. The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and
the company being acquired involved therein, that was not the subject
of and included in this Registration Statement when it became
effective.
Part II page 5
<PAGE> 194
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-4 and has duly caused this Amended
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Springfield, State of Ohio, this
16th day of July, 1996.
Security Banc Corporation
/s/ Harry O. Egger
------------------------------------
Harry O. Egger
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Amended Registration Statement has been signed below by the following persons
in the capacities indicated on the 16th day of July, 1996.
*Larry D. Ewald
*Richard E. Kramer
*Larry E. Kaffenbarger
*Jane N. Scarff
*W. Dean Sweet
*Thomas J. Veskauf
*Chester L. Walthall
*By: /s/ Harry O. Egger
-------------------
Harry O. Egger
Attorney-in-Fact
Part II page 6
<PAGE> 195
EXHIBIT INDEX
EXHIBIT 3.a ARTICLES OF INCORPORATION OF SECURITY BANC CORPORATION *
EXHIBIT 3.b CODE OF REGULATIONS OF SECURITY BANC CORPORATION *
EXHIBIT 5 LEGAL OPINION - WERNER & BLANK CO., LPA *
EXHIBIT 8 TAX OPINION - WERNER & BLANK CO., LPA *
EXHIBIT 10 SECURITY BANC CORPORATION 1987 STOCK OPTION PLAN *
EXHIBIT 13 1995 SECURITY BANC CORPORATION ANNUAL REPORT AND QUARTERLY REPORT ON
FORM 10Q FOR MARCH 31, 1996 *
EXHIBIT 23A CONSENT OF ERNST & YOUNG LLP
EXHIBIT 23B CONSENT OF CROWE CHIZEK AND COMPANY LLP
EXHIBIT 23D CONSENT OF PROFESSIONAL BANK SERVICES
EXHIBIT 23E CONSENT OF KPMG PEAT MARWICK
EXHIBIT 24 POWER OF ATTORNEY *
EXHIBIT 99 FORM OF PROXY CARD *
* Previously filed.
<PAGE> 1
EXHIBIT 23 - A CONSENT OF ERNST & YOUNY LLP
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4) and related Prospectus of Security Banc
Corporation for the registration of shares of its common stock and to the
incorporation by reference therein of our report dated January 11, 1996, with
respect to the consolidated financial statements of Security Banc Corporation
included in its Annual Report (Form 10-K) for the year ended December 31, 1995,
filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Columbus, Ohio
July 12, 1996
<PAGE> 1
EXHIBIT 23 - B CONSENT OF CROWE CHIZEK AND COMPANY LLP
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement on
Form S-4 of Security Banc Corporation, of our report dated January 5, 1996 on
the 1995, 1994 and 1993 consolidated financial statements of CitNat Bancorp,
Inc. We also consent to the reference to us under the heading "Experts" in the
Prospectus, which is part of the registration statement.
/s/ Crowe Chizek and Company LLP
----------------------------------------------
Crowe, Chizek and Company LLP
Columbus, Ohio
July 12, 1996
<PAGE> 1
EXHIBIT 23-D CONSENT OF PROFESSIONAL BANK SERVICES
CONSENT OF INVESTMENT BANKER
We consent to the inclusion of our letter dated as of the date of the
Prospectus-Proxy Statement contained in the Registration Statement addressed to
the Board of Directors of CitNat Bancorp, Inc. and opining as to the fairness
from a financial point of view, to consultation described in the Proxy
Statement.
PROFESSIONAL BANK SERVICES, INC.
By: /s/ Chirstopher L. Hargrove
--------------------------------------
Christopher L. Hargrove
Vice President
Louisville, Kentucky
July 12, 1996
<PAGE> 1
EXHIBIT 23-E CONSENT OF KPMG PEAT MARWICK
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Third Financial Corporation:
We consent to the inclusion of our report dated November 10, 1995 with respect
to the consolidated balance sheets of Third Financial Corporation and Subsidiary
as of September 30, 1995 and 1994, and the related consolidated statements of
income, shareholders' equity, and cash flows for each of the years in the
three-year period ended September 30, 1995 which report appears in the Form S-4
of Security Banc Corporation dated June 28, 1996 and to the reference to our
firm under the heading "Experts" in the prospectus. Our report refers to a
change in accounting for Certain Investments in Debt and Equity Securities,
Employee Stock Ownership Plans, and Income Taxes.
/s/ KPMG Peat Marwick LLP
------------------------------------------
KPMG Peat Marwick LLP
Columbus, Ohio
July 12, 1996
