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As filed with the Securities and Exchange Commission on August 27, 1998
Registration No. 333-_____
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------
SECOND BANCORP INCORPORATED
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
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Ohio 6021 34-1547453
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(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
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108 Main Avenue
Warren, Ohio 44481
(330) 841-0123
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(Address, including zip code, and telephone number,
including area code, of Registrant's
principal executive offices)
Christopher Stanitz, Esq., Executive Vice President and Secretary
Second Bancorp Incorporated
108 Main Avenue
Warren, Ohio 44481
(330) 841-0123
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(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
Charles S. DeRousie, Esq. and Francis X. Grady, Esq. and
Michael D. Martz, Esq. Joseph A. Drain, Esq.
Vorys, Sater, Seymour and Pease LLP Grady & Associates
52 East Gay Street 20800 Center Ridge Road, Suite 116
Columbus, Ohio 43215 Cleveland, Ohio 44116-4306
(614) 464-6400 (440) 356-7255
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable following the effective date of the Registration Statement
and upon the effective date of the merger ("Merger") of Trumbull Financial
Corporation with and into the Registrant pursuant to the Agreement and Plan of
Merger described in the enclosed Prospectus/Proxy Statement included as Part I
of this Registration Statement.
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box:
[ ]
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CALCULATION OF REGISTRATION FEE
----------------------------- ------------------ ----------------------- ----------------------- ----------------
Proposed maximum Proposed maximum Amount of
Title of each class of Amount to be offering aggregate registration
securities being registered registered(1) price per unit offering price (2) fee
----------------------------- ------------------ ----------------------- ----------------------- ----------------
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Common Shares,
without par value........... 4,200,000 N/A $88,675,128 $26,159.16
----------------------------- ------------------ ----------------------- ----------------------- ----------------
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(1) Represents the estimated maximum number of common shares of Registrant that
the Registrant expects would be issuable to shareholders of Trumbull
Financial Corporation pursuant to the terms of the Agreement and Plan of
Merger.
(2) Estimated solely for the purpose of computing the registration fee based
upon $88,675,128, the market value of the Trumbull Financial Corporation
common shares, without par value, to be exchanged in the Merger, as of
August 25, 1998, in accordance with Rules 457(f)(1) and 457(c) of the
General Rules and Regulations under the Securities Act of 1933.
</FN>
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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.
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SECOND BANCORP INCORPORATED
PROSPECTUS
FOR UP TO 4,200,000
COMMON SHARES, NO PAR VALUE, OF
SECOND BANCORP INCORPORATED
TO BE ISSUED IN CONNECTION WITH THE MERGER OF TRUMBULL
FINANCIAL CORPORATION WITH AND INTO SECOND BANCORP
INCORPORATED
SECOND BANCORP INCORPORATED
TRUMBULL FINANCIAL CORPORATION
JOINT PROXY STATEMENT
FOR
THE SPECIAL MEETING OF SHAREHOLDERS OF
SECOND BANCORP INCORPORATED
TO BE HELD ON _____ __, 1998
AT _:__ _.M.
(THE "SECOND BANCORP SPECIAL MEETING")
AND
THE SPECIAL MEETING OF SHAREHOLDERS OF
TRUMBULL FINANCIAL CORPORATION
TO BE HELD ON _____ __, 1998
AT _:__ _.M.
(THE "TRUMBULL SPECIAL MEETING")
This Prospectus/Joint Proxy Statement constitutes a Prospectus of
Second Bancorp Incorporated, a bank holding company and an Ohio corporation
("Second Bancorp"), in respect of the common shares of Second Bancorp, no par
value (the "Shares"), to be issued in connection with the proposed merger of
Trumbull Financial Corporation, a unitary savings and loan holding company and
an Ohio corporation ("Trumbull"), with and into Second Bancorp. This
Prospectus/Joint Proxy Statement also constitutes a Proxy Statement of Second
Bancorp and Trumbull for use in connection with the solicitation of proxies by
the Boards of Directors of Second Bancorp and Trumbull to be used at the Second
Bancorp Special Meeting and the Trumbull Special Meeting, respectively
(collectively the "Shareholder Meetings"), and any adjournment(s) thereof. This
Prospectus/Joint Proxy Statement is first being mailed to shareholders of Second
Bancorp and Trumbull on or about ______ __, 1998.
At the Shareholder Meetings, shareholders of Second Bancorp and
Trumbull will be asked to consider and act upon a proposal to adopt the
Agreement and Plan of Merger, dated May 4, 1998, by and between Second Bancorp
and Trumbull (the "Agreement"), a copy of which is attached hereto as Annex A,
pursuant to which Trumbull will merge with and into Second Bancorp (the
"Merger"). At the Special Meeting of Trumbull Shareholders, Trumbull
shareholders will also be asked to consider and vote upon a proposal to approve
the acquisition by Second Bancorp of a controlling interest in Trumbull pursuant
to the requirements of Section 1701.831 of the Ohio Revised Code. At the Special
Meeting of Second Bancorp Shareholders, Second Bancorp shareholders also will be
asked to adopt proposals to (i) increase the number of directors of Second
Bancorp from seven (7) to eight (8), (ii) to elect Dr. David A. Allen, who is
currently a director of Trumbull, to the fill vacancy created on the Board of
Directors of Second Bancorp as a result of the increase in the number of
directors of Second Bancorp and (iii) amend the Amended Articles of Second
Bancorp to eliminate Second Bancorp's two classes of preferred shares. The
proposals to increase the number of directors of Second Bancorp and to elect Dr.
David A. Allen to the Second Bancorp Board of Directors will not become
effective until immediately after the consummation of the Merger and will be
void if the Merger is not consummated.
If the Merger is consummated and assuming that the proposal to increase
the number of directors of Second Bancorp is adopted by the shareholders at the
Second Bancorp Special Meeting, pursuant to the authority granted the Board of
Directors of Second Bancorp under Article III of Second Bancorp's Amended
Regulations, the Board of Directors of Second Bancorp intends to increase the
number of directors from eight (8) to ten (10) and to appoint James R. Izant and
Phyllis J. Izant, both of whom are currently directors of Trumbull, to the Board
of Directors of Second Bancorp. If elected to the Board of Directors of Second
Bancorp, each of Dr. David A. Allen, James R. Izant and Phyllis J. Izant will
serve terms until the 1999 Annual Meeting of Shareholders of Second
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Bancorp and until their successors are elected and qualified. See "THE MERGER --
Interests of Certain Persons in the Merger."
In accordance with the terms and subject to the conditions of the
Agreement, each of the outstanding common shares of Trumbull (the "Trumbull
Shares") will be canceled and extinguished on the effective date of the Merger
(the "Effective Time") in consideration and exchange for 3.78 Shares (the
"Exchange Ratio"). However, if (a) the average per share closing price of the
Shares over a period of twenty (20) trading days ending seven (7) days before
the Effective Time (the "Second Bancorp Closing Price") is less than $25.00 and
(b) if the number obtained by dividing the Second Bancorp Closing Price by
$36.125 (the closing price of the Shares on May 4, 1998) is less than 90% of the
number obtained by dividing the "Index Price" (defined below) on the seventh
(7th) day immediately preceding the Effective Time by $38.64 (the Index Price on
May 4, 1998), Trumbull may propose to terminate the Agreement at any time until
the second full day immediately prior to the Effective Time (a "Triggering
Event"). Upon the occurrence of a Triggering Event, Second Bancorp would have
the option to elect to issue to Trumbull shareholders for each Trumbull Share to
be exchanged in the Merger, a number of Shares with a value of $94.50. As used
in the Agreement, the "Index Price" is a weighted average of stock prices for 30
peer group bank holding companies which are specified in an exhibit to the
Agreement. See "SUMMARY - Terms of the Merger," "THE MERGER - Exchange of
Trumbull Shares" and Section 11.01(i) of the Agreement contained in Annex A."
TRUMBULL SHAREHOLDERS WHO WISH TO EXERCISE DISSENTERS' RIGHTS MUST, AMONG OTHER
THINGS, NOT VOTE ON THE ENCLOSED BLUE PROXY CARD IN FAVOR OF THE PROPOSAL TO
ADOPT THE AGREEMENT AND APPROVE THE MERGER AND MUST MAKE A WRITTEN DEMAND ON
TRUMBULL ON OR BEFORE ______ __, 1998. ANY VOTE OR LACK OF VOTE BY A TRUMBULL
SHAREHOLDER ON THE ENCLOSED WHITE PROXY CARD WITH RESPECT TO THE PROPOSAL TO
APPROVE THE ACQUISITION BY SECOND BANCORP OF A CONTROLLING INTEREST IN TRUMBULL
PURSUANT TO THE REQUIREMENTS OF SECTION 1701.831 OF THE OHIO REVISED CODE WILL
NOT AFFECT SUCH SHAREHOLDER'S ABILITY TO EXERCISE DISSENTERS' RIGHTS. SEE
"RIGHTS OF DISSENTING SHAREHOLDERS".
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS/JOINT PROXY STATEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES WHICH ARE BEING OFFERED PURSUANT TO THIS PROSPECTUS/JOINT PROXY
STATEMENT, WHICH WILL BE ISSUED UPON THE CONSUMMATION OF THE MERGER, ARE NOT
SAVINGS ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF A BANK OR SAVINGS ASSOCIATION
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
STATE OR FEDERAL AGENCY.
This Prospectus/Joint Proxy Statement shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any state in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of any
such state.
The date of this Prospectus/Joint Proxy Statement is
__________ __, 1998.
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AVAILABLE INFORMATION
Second Bancorp 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"). Second Bancorp has
filed with the Commission a Registration Statement on Form S-4 (the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), in respect of the Shares to be issued to Trumbull
shareholders in the Merger. As permitted by the rules and regulations of the
Commission, this Prospectus/Joint Proxy Statement omits certain information,
exhibits and undertakings contained in the Registration Statement. Reference is
made to the Registration Statement and to the exhibits thereto for further
information. Statements contained herein concerning such documents are not
necessarily complete and, in each instance, reference is made to the copy of
such document filed as an exhibit to the Registration Statement. Each such
statement is qualified in its entirety by such reference.
The Registration Statement and the exhibits thereto, as well as the
reports, proxy statements and other information filed with the Commission by
Second Bancorp under the Exchange Act, may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the regional offices of the
Commission in New York (at 7 World Trade Center, Suite 1300, New York, New York
10048) and Chicago (Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511). Reports, proxy statements and other
information concerning Second Bancorp may be inspected at the offices of the
National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006. In addition, Second Bancorp files its reports, proxy
statements and other information with the Commission electronically, and the
Commission maintains a website located at http://www.sec.gov containing such
information.
This Prospectus/Joint Proxy Statement is accompanied by a copy of
Second Bancorp's Annual Report to Shareholders for 1997 and Second Bancorp's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
This Prospectus/Joint Proxy Statement incorporates by reference certain
documents of Second Bancorp which are not presented herein or delivered
herewith. These documents (without exhibits, unless such exhibits are
specifically incorporated by reference into this Prospectus/Joint Proxy
Statement) are available without charge to each person, including any beneficial
owner, to whom a copy of this Prospectus/Joint Proxy Statement is delivered,
upon written or oral request. Requests for such documents should be directed to
Christopher Stanitz, Executive Vice President and Secretary, Second Bancorp
Incorporated, 108 Main Avenue, Warren, Ohio 44481. In order to ensure timely
delivery of such documents, any request should be made no later than ________
__, 1998.
The following documents filed by Second Bancorp with the Commission
under the Exchange Act are hereby incorporated by reference into this
Prospectus/Proxy Statement: (a) Second Bancorp's Annual Report on Form 10-K for
the year ended December 31, 1997; (b) Second Bancorp's Quarterly Report on Form
10-Q for the quarter ended March 31, 1998; (c) Second Bancorp's Current Report
on Form 8-K dated April 17, 1998; (d) Second Bancorp's Current Report on Form
8-K dated May 7, 1998; (e) Second Bancorp's Current Report on Form 8-KA dated
June 26, 1998; (f) Second Bancorp's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998; and (g) the description of Second Bancorp's common
shares contained in Second Bancorp's Registration Statement on Form S-4
(Registration No. 33-09239) under the caption "Description of Holding Shares" as
filed on October 2, 1986 with the Commission pursuant to the Securities Act,
including all amendments and reports filed for the purpose of updating such
description.
All subsequent documents filed by Second Bancorp under Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act between the date of this Prospectus/Joint
Proxy Statement and the dates of the Shareholder Meetings shall be deemed to be
incorporated by reference in this Prospectus/Joint Proxy Statement and to be a
part hereof from the date of filing of such documents. Any statement contained
herein or in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
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Prospectus/Joint Proxy Statement to the extent that a statement contained herein
or in any other subsequently filed document which is also incorporated or deemed
to be incorporated by reference herein modifies or supersedes such statement.
Any such statement, as so modified or superseded, shall not be deemed, except as
so modified or superseded, to constitute a part of this Prospectus/Joint Proxy
Statement.
The information relating to Second Bancorp contained in this
Prospectus/Joint Proxy Statement should be read together with the information in
the documents incorporated by reference.
Following the Merger, Second Bancorp will continue to be subject to the
information, reporting and proxy statement requirements of the Exchange Act.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION
This Prospectus/Joint Proxy Statement (including information included
or incorporated by reference herein) contains or may contain forward-looking
statements that involve risks and uncertainties. This Prospectus/Joint Proxy
Statement contains forward-looking statements with respect to the financial
condition, results of operations, plans, objectives, future performance and
business of each of Second Bancorp, Trumbull and Enfin, Inc., an Ohio
corporation and bank holding company (See "RECENT DEVELOPMENT INVOLVING SECOND
BANCORP"), including statements preceded by, followed by or that include the
words "believes," "expects," "anticipates" or similar expressions.
These forward-looking statements involve certain risks and
uncertainties. Factors that may cause actual results to differ materially from
those contemplated by such forward-looking statements include, among others, the
following possibilities: (1) expected cost savings from the Merger cannot be
fully realized or realized within the expected time frame; (2) revenues
following the Merger are lower than expected, or deposit attrition, operating
costs or customer pressures among depository and other financial institutions
increase more than anticipated; (3) costs or difficulties related to the
integration of the businesses of Second Bancorp and Trumbull are greater than
expected; (4) changes in the interest rate environment reduce net interest
margins; (5) general economic or business conditions are less favorable than
expected resulting in, among other things, a deterioration in credit quality or
a reduced demand for credit; and (6) legislation or regulatory changes adversely
affect the businesses in which Second Bancorp will be engaged.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION
NOT CONTAINED IN THIS PROSPECTUS/JOINT PROXY STATEMENT AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY SECOND BANCORP OR TRUMBULL. NEITHER THIS PROSPECTUS/JOINT PROXY
STATEMENT, NOR ANY DISTRIBUTION OF THE SECURITIES OFFERED PURSUANT TO THIS
PROSPECTUS/JOINT PROXY STATEMENT, CONSTITUTES AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO PURCHASE, THE SECURITIES OFFERED BY THIS
PROSPECTUS/JOINT PROXY STATEMENT OR THE SOLICITATION OF A PROXY IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER, SOLICITATION OF AN
OFFER OR PROXY SOLICITATION. THE DELIVERY OF THIS PROSPECTUS/JOINT PROXY
STATEMENT SHALL NOT, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF
SECOND BANCORP OR TRUMBULL SINCE THE DATE OF THIS PROSPECTUS/JOINT PROXY
STATEMENT.
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TABLE OF CONTENTS
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AVAILABLE INFORMATION...........................................................................iii
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.................................................iii
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION......................................iv
SUMMARY...........................................................................................1
Introduction.............................................................................1
Parties to the Agreement.................................................................1
Recent Development Involving Second Bancorp..............................................2
Special Meeting of Second Bancorp Shareholders...........................................2
Amendment of Second Bancorp's Articles to Eliminate Second Bancorp's
Two Classes of Preferred Shares....................................................4
Special Meeting of Trumbull Shareholders.................................................4
Reasons for the Merger...................................................................6
Opinion of McDonald & Company Securities, Inc............................................7
Opinion of Sander O'Neill & Partners, L.P................................................7
Terms of the Merger......................................................................7
Recommendation of the Board of Directors of Second Bancorp...............................9
Recommendation of the Board of Directors of Trumbull.....................................9
Interests of Certain Persons in the Merger..............................................10
Comparison of Rights of Holders of The Shares and Trumbull Shares.......................12
Exchange of Certificates Evidencing Shares and Trumbull Shares..........................13
Resale of Shares.......................................................................13
Dissenters' Rights......................................................................13
Market Prices...........................................................................13
RECENT DEVELOPMENT INVOLVING SECOND BANCORP......................................................14
PRO FORMA COMBINED CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)................................15
SELECTED FINANCIAL DATA OF SECOND BANCORP, TRUMBULL AND ENFIN....................................22
COMPARATIVE PER SHARE DATA.......................................................................28
THE MERGER.......................................................................................30
Introduction............................................................................30
Background and Reasons for the Merger...................................................30
Opinion of McDonald & Company Securities, Inc...........................................33
Opinion of Sandler O'Neill & Partners, L.P..............................................37
Recommendation of the Board of Directors of Second Bancorp..............................41
Recommendation of the Board of Directors of Trumbull....................................41
Exchange of Trumbull Shares.............................................................42
Stockholder Voting Agreement............................................................42
Stock Option Agreement..................................................................42
The Bank Merger.........................................................................42
Fractional Shares.......................................................................43
Exchange of Certificates Evidencing Shares and Trumbull Shares..........................43
Representations, Warranties and Covenants...............................................43
Conditions..............................................................................44
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Regulatory Approvals....................................................................45
Effective Time..........................................................................46
Termination and Amendment...............................................................46
Interests of Certain Persons in the Merger..............................................46
Resale of Shares........................................................................48
Income Tax Consequences.................................................................49
Accounting Treatment....................................................................50
MARKET PRICES....................................................................................50
RIGHTS OF DISSENTING SHAREHOLDERS................................................................51
SPECIAL MEETING OF SECOND BANCORP SHAREHOLDERS...................................................53
Date, Time and Place....................................................................53
Purpose of Meeting......................................................................53
Shares Outstanding and Entitled to Vote and Record Date.................................53
Vote Required...........................................................................53
Voting and Solicitation and Revocation of Proxies.......................................53
Amendment of Second Bancorp's Articles to Eliminate Second Bancorp's
Two Classes of Preferred Shares...................................................54
SPECIAL MEETING OF TRUMBULL SHAREHOLDERS.........................................................55
Date, Time and Place....................................................................55
Purpose of Meeting......................................................................55
Shares Outstanding and Entitled to Vote and Record Date.................................55
Vote Required...........................................................................55
Voting and Solicitation and Revocation of Proxies.......................................56
BUSINESS OF SECOND BANCORP.......................................................................57
Market Area.............................................................................57
Competition.............................................................................57
SECURITY OWNERSHIP OF SECOND BANCORP.............................................................58
MANAGEMENT OF SECOND BANCORP.....................................................................59
MANAGEMENT OF TRUMBULL EXPECTED TO SERVE ON THE BOARD OF DIRECTORS OF
SECOND BANCORP...................................................................................61
Trumbull Directors Nominated or to be Appointed to Serve as Second
Bancorp Directors.................................................................61
Director Compensation by Trumbull and Trumbull Savings..................................61
Certain Transactions....................................................................62
TRUMBULL MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS........................................................................62
Forward-looking Statements..............................................................62
Net Interest Income.....................................................................62
Rate / Volume Analysis..................................................................66
Comparison of Operating Results for the Nine Months Ended
June 30, 1998 and 1997............................................................67
Comparison of Operating Results for Years Ended September 30, 1997 and 1996.............68
Comparison of Operating Results for Years Ended September 30, 1996 and 1995.............69
Comparison of June 30, 1998 and September 30, 1997 Financial Condition..................70
Comparison of September 30, 1997 and 1996 Financial Condition...........................71
LIQUIDITY........................................................................................72
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YEAR 2000........................................................................................72
CAPITAL RESOURCES................................................................................73
IMPACT OF INFLATION..............................................................................74
Recent Accounting Pronouncements........................................................74
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.......................................74
Asset Liability Management..............................................................74
BUSINESS OF TRUMBULL.............................................................................76
General.................................................................................76
Lending Activities......................................................................78
Investment Activities...................................................................86
Deposits and Borrowings.................................................................88
Interest Rate Swaps, Caps and Floors....................................................91
Competition.............................................................................91
Taxation................................................................................92
Personnel...............................................................................93
SECURITY OWNERSHIP OF TRUMBULL...................................................................94
DESCRIPTION OF SECOND BANCORP SHARES.............................................................95
General.................................................................................95
Dividend Rights and Restriction on Redemptions and Repurchases..........................95
Director and Officer Liability and Indemnification......................................96
Provisions in Second Bancorp Articles and Second Bancorp Regulations Which May Be
Deemed to Have Anti-Takeover Effects..............................................96
Ohio Statutes that have Anti-Takeover Effects...........................................97
The Class A Series Preferred Shares and the Class B Series Preferred Shares.............98
COMPARISON OF RIGHTS OF HOLDERS OF SECOND BANCORP SHARES AND HOLDERS OF TRUMBULL SHARES..........99
General.................................................................................99
Board of Directors......................................................................99
Voting Rights..........................................................................100
Anti-Takeover Provisions...............................................................101
Preemptive Rights......................................................................101
Dividends..............................................................................101
Preferred Shares.......................................................................101
Anti-Takeover Statutes.................................................................102
Director and Officer Liability and Indemnification.....................................103
REGULATION OF FINANCIAL INSTITUTIONS............................................................103
Regulation of Bank Holding Companies...................................................103
Regulation of a Unitary Savings and Loan Holding Company...............................104
Transactions with Affiliates...........................................................105
Regulation of Nationally Chartered Banks...............................................106
Regulation of Ohio State Chartered Savings Banks.......................................106
Federal Deposit Insurance Corporation..................................................106
Interstate Banking and Branching.......................................................107
Regulatory Capital.....................................................................107
Prompt Corrective Regulatory Action....................................................108
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Limits on Dividends and Other Payments.................................................109
LEGAL MATTERS...................................................................................109
EXPERTS.........................................................................................110
SECOND BANCORP SHAREHOLDER PROPOSALS -- 1999....................................................110
INDEX TO FINANCIAL STATEMENTS OF THE TRUMBULL SAVINGS AND LOAN COMPANY..........................F-1
ANNEXES:
Annex A: Agreement and Plan of Merger, dated May 4, 1998, by and between
Second Bancorp, Inc. and Trumbull Financial Corporation
(excluding exhibits)
Annex B: Form of Proposed Amendment to the Amended Articles of Second Bancorp
Annex C: Fairness Opinion of McDonald & Company Securities, Inc.
Annex D: Fairness Opinion of Sandler O'Neill & Partners, L.P.
Annex E: Section 1701.85 of the Ohio Revised Code
Annex F: Form of Acquiring Person Statement
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SUMMARY
The following is a summary of certain matters to be considered in
connection with the Second Bancorp Special Meeting and the Trumbull Special
Meeting and is qualified in its entirety by reference to the more detailed
information contained elsewhere in this Prospectus/Joint Proxy Statement, the
Annexes attached hereto and the other documents referred to herein.
INTRODUCTION
On May 4, 1998, Second Bancorp Incorporated, an Ohio corporation and
bank holding company ("Second Bancorp"), and Trumbull Financial Corporation, an
Ohio corporation and unitary savings and loan holding company ("Trumbull"),
entered into the Plan and Agreement of Merger (the "Agreement"), pursuant to
which Trumbull will merge with and into Second Bancorp (the "Merger"). If the
Agreement and the Merger are adopted by: (i) the affirmative vote of the holders
of a majority of the issued and outstanding common shares of Second Bancorp,
without par value (the "Shares"), (ii) the affirmative vote of the holders of
two-thirds of the issued and outstanding common shares of Trumbull, without par
value (the "Trumbull Shares"), and (iii) a majority of the voting power of
Trumbull represented in person or by proxy at the Trumbull Special Meeting (as
defined below), excluding any Trumbull Shares owned by any officer of Trumbull
or any director of Trumbull who is also an employee of Trumbull and certain
other "interested Trumbull Shares", and if all other conditions to the
consummation of the Merger are satisfied, the Merger will be consummated. See
"SPECIAL MEETING OF SECOND BANCORP SHAREHOLDERS - Vote Required," "SPECIAL
MEETING OF TRUMBULL SHAREHOLDERS - Vote Required" and "COMPARISON OF RIGHTS OF
HOLDERS OF SECOND BANCORP SHARES AND HOLDERS OF TRUMBULL SHARES - Anti-Takeover
Statutes."
On the date upon which the Merger becomes effective (the "Effective
Time"), each of the outstanding Trumbull Shares will be canceled and
extinguished in consideration and exchange for 3.78 of the Shares, subject to
certain conditions and adjustments (the "Exchange Ratio"). However, if (a) the
average per share closing price of the Shares over a period of twenty (20)
trading days ending seven (7) days before the Effective Time (the "Second
Bancorp Closing Price") is less than $25.00 and (b) if the number obtained by
dividing the Second Bancorp Closing Price by $36.125 (the closing price of the
Shares on May 4, 1998) is less than 90% of the number obtained by dividing the
"Index Price" (defined below) on the seventh (7th) day immediately preceding the
Effective Time by $38.64 (the Index Price on May 4, 1998), Trumbull may propose
to terminate the Agreement at any time until the second full day immediately
prior to the Effective Time (a "Triggering Event"). Upon the occurrence of a
Triggering Event, Second Bancorp would have the option to elect to issue to
Trumbull shareholders for each Trumbull Share to be exchanged in the Merger, a
number of Shares with a value of $94.50. As used in the Agreement, the "Index
Price" is a weighted average of stock prices for 30 peer group bank holding
companies which are specified in an exhibit to the Agreement. See "THE MERGER -
Exchange of Trumbull Shares" and Section 11.01(i) of the Agreement contained in
Annex A."
As of the date of this Prospectus/Joint Proxy Statement, there were
869,364 Trumbull Shares issued and outstanding and [6,859,542] Shares issued and
outstanding.
PARTIES TO THE AGREEMENT
SECOND BANCORP. Second Bancorp is an Ohio corporation and bank holding
company established on August 26, 1986. Second Bancorp is subject to regulation,
supervision and examination by the Board of Governors of the Federal Reserve
System (the "Federal Reserve Board").
Second Bancorp's sole subsidiary is The Second National Bank of Warren
(the "Bank"), located in Warren, Ohio. The Bank was organized in 1880 and is a
nationally-chartered bank. The Bank is subject to regulation, supervision and
examination by the Office of the Comptroller of the Currency (the "OCC") and the
Federal Deposit Insurance Corporation ("FDIC"). The Bank's deposits are insured
up to applicable limits under the Federal Deposit Insurance Act.
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<PAGE> 11
The Bank operates through twenty-eight branches and one loan production
office and offers a wide range of commercial and consumer banking and trust
services primarily to business and individual customers in various communities
in a seven county area of northeastern Ohio. The Bank focuses its marketing
efforts primarily on local independent commercial and professional firms, the
individuals who are the owners and principals of such firms as well as the
low-to-moderate to upper income retail customers in the Bank's trade areas. In
recent years, the Bank has emphasized increased commercial and direct consumer
and real estate lending and market area expansion. See "BUSINESS OF SECOND
BANCORP."
TRUMBULL. Trumbull is an Ohio corporation and unitary savings and loan
holding company established on July 17, 1997. Trumbull is subject to regulation,
supervision and examination by the Office of Thrift Supervision of the United
States Department of the Treasury (the "OTS") and the Ohio Division of Financial
Institutions (the "Division").
Trumbull's sole subsidiary is The Trumbull Savings and Loan Company
("Trumbull Savings"). Trumbull Savings, located in Warren, Ohio, was organized
as an Ohio-chartered savings and loan association in February of 1889. Trumbull
Savings converted from a savings and loan association charter to a savings bank
charter under Ohio law effective June 11, 1997. As a result of that conversion,
Trumbull Savings is subject to regulation, supervision and examination by the
Division and the FDIC. The deposits of Trumbull Savings are insured up to
applicable limits under the Federal Deposit Insurance Act. See "BUSINESS OF
TRUMBULL."
Trumbull Savings is engaged principally in the business of making first
mortgage loans to finance the purchase, construction or improvement of one- to
four-family residential real estate or other real property located in its
primary market areas. Loan funds are obtained primarily from customer deposits,
which are insured up to applicable limits by the FDIC, loan repayments and
advances from the Federal Home Loan Bank of Cincinnati (the "FHLB"). Interest
earned on such loans and investments is the primary source of revenue of
Trumbull Savings. In addition to originating loans, Trumbull Savings invests in
U.S. Government and agency obligations, interest-bearing deposits in other
financial institutions and mortgage-backed securities.
Trumbull Savings conducts its principal business activities through its
main office and four branch offices in Trumbull County, Ohio, and two branch
offices in Jefferson County, Ohio. Trumbull Savings also recently obtained
regulatory approval to establish a new branch facility in Twinsburg in Summit
County, Ohio, which is expected to open for business by the first or second
quarter of 1999. In addition to its branch offices, Trumbull Savings also has a
loan production office in Cuyahoga County, Ohio.
RECENT DEVELOPMENT INVOLVING SECOND BANCORP
On August 20, 1998, Enfin, Inc. was merged with and into Second
Bancorp. See "RECENT DEVELOPMENT INVOLVING SECOND BANCORP."
SPECIAL MEETING OF SECOND BANCORP SHAREHOLDERS
The special meeting of shareholders of Second Bancorp will be held at
_:__ p.m., on ______ __, 1998, in the Board of Directors Room at the main office
of the Bank, 108 Main Avenue, S.W., Warren, Ohio (the "Second Bancorp Special
Meeting"). At the Second Bancorp Special Meeting, Second Bancorp's shareholders
will be asked (i) to consider and act upon a proposal to adopt the Agreement and
approve the Merger, (ii) to adopt a proposal to increase the number of directors
of Second Bancorp from seven (7) to eight (8), (iii) to elect Dr. David A.
Allen, who is currently a director of Trumbull, to serve until the 1999 Annual
Meeting of Shareholders or until his successor is elected and qualified, (iv) to
adopt an amendment to the Amended Articles of Second Bancorp (the "Second
Bancorp Articles") to eliminate Second Bancorp's two classes of preferred shares
and (v) to take such other business as may properly come before the Second
Bancorp Special Meeting and any adjournment thereof. The proposals to increase
the number of directors of Second Bancorp and to elect Dr. David A. Allen to the
Second Bancorp Board of Directors will not become effective until immediately
after the consummation of the Merger and will be void if the Merger is not
consummated. See "MANAGEMENT OF TRUMBULL EXPECTED TO SERVE
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<PAGE> 12
ON THE BOARD OF DIRECTORS OF SECOND BANCORP" for biographical information
regarding Dr. David A. Allen.
Only the holders of record of Shares outstanding at the close of
business on ______ __, 1998 (the "Second Bancorp Record Date"), will be entitled
to notice of and to vote at the Second Bancorp Special Meeting and any
adjournment thereof. The affirmative vote of the holders of a majority of the
outstanding Shares, voting in person or by proxy, is required to adopt the
Agreement and approve the Merger and to amend the Second Bancorp Articles to
eliminate Second Bancorp's two classes of preferred shares. See "SUMMARY -
Amendment of Second Bancorp Articles to Eliminate Second Bancorp's Two Classes
of Preferred Shares." The affirmative vote of the holders of seventy-five
percent of the Shares represented at the Second Bancorp Special Meeting and
entitled to vote on such proposal, voting in person or by proxy, is required to
adopt the proposal to increase the number of directors of Second Bancorp from
seven (7) to eight (8). With respect to the election of Dr. David A. Allen to
fill the vacancy created by the increase in the number of directors, the nominee
receiving the greatest number of votes, cast in person or by proxy, will be
elected. As of the Second Bancorp Record Date, [6,859,542] Shares were
outstanding and entitled to vote and were held of record by [___] shareholders.
As of [August 12, 1998], the directors and executive officers of Second
Bancorp owned, in the aggregate, [366,354.028] Shares, or [5.29%] of the
outstanding Shares. The directors and executive officers of Second Bancorp
intend to vote all of their respective Shares: (i) FOR the adoption of the
Agreement and the approval of the Merger, (ii) FOR the proposal to increase the
number of directors of Second Bancorp from seven (7) to eight (8), (iii) FOR the
election of Dr. David A. Allen to the Board of Directors and (iv) FOR the
amendment of Second Bancorp's Articles to eliminate Second Bancorp's two classes
of preferred shares. See "SPECIAL MEETING OF SECOND BANCORP SHAREHOLDERS -
Shares Outstanding and Entitled To Vote and Record Date - Vote Required."
The holders of not less than a majority of the issued and outstanding
Shares entitled to vote at the Second Bancorp Special Meeting, present in person
or by proxy, will constitute a quorum at the Second Bancorp Special Meeting. If
a quorum of shareholders is not present at the Second Bancorp Special Meeting,
the shareholders entitled to vote at the Second Bancorp Special Meeting and
present in person by proxy, by majority vote, may adjourn the Second Bancorp
Special Meeting and establish the date and time for the readjournment of the
Second Bancorp Special Meeting. Each Second Bancorp shareholder will be entitled
to one vote for each Share held.
Under the rules of the Commission, boxes are provided on the form of
proxy for shareholders to mark if they wish either to abstain on a proposal
presented for shareholder approval or to withhold authority to vote for the
nominee for election as a director of Second Bancorp. In accordance with Ohio
law, Shares as to which the authority to vote is withheld will be counted for
quorum purposes but will not be counted in the election of the director to be
elected at the Second Bancorp Special Meeting. Abstentions will be counted as
present for quorum purposes; however, the effect of an abstention on all matters
to be voted upon by the shareholders at the Second Bancorp Special Meeting will
be the same as a "no" vote.
The election of directors is considered a "discretionary" item upon
which brokerage firms may vote in their discretion on behalf of their clients if
such clients have not furnished voting instructions by the 10th day before the
Second Bancorp Special Meeting. However, the remaining proposals to be voted
upon by the Second Bancorp shareholders at the Second Bancorp Special Meeting
are "non-discretionary," and brokers who have received no instructions from
their clients do not have discretion to vote on these items. Such "broker
non-votes" will not be considered as votes entitled to be cast in determining
the outcome of such proposals.
The Shares represented by each properly executed proxy received before
the Second Bancorp Special Meeting and not revoked prior to use will be voted at
the Second Bancorp Special Meeting, or any adjournment thereof, as specified on
such proxy or, in the absence of specific instructions to the contrary, will be
voted (i) FOR the adoption of the Agreement and the approval of the Merger, (ii)
FOR the proposal to increase the number of directors of Second Bancorp from
seven (7) to eight (8), (iii) FOR the election of Dr. David A. Allen to the
Board of Directors of Second Bancorp and (iv) FOR the amendment to the Amended
Articles of Second Bancorp to eliminate Second Bancorp's two classes of
preferred shares. See "SPECIAL MEETING OF SECOND BANCORP
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<PAGE> 13
SHAREHOLDERS - Shares Outstanding and Entitled To Vote and Record Date - Vote
Required." Any Second Bancorp shareholder who has executed and returned a proxy
may revoke such proxy at any time before it is voted by executing and returning
to Second Bancorp a proxy bearing a later date or by giving notice of revocation
to Second Bancorp in writing or at the Second Bancorp Special Meeting. The mere
presence at the Second Bancorp Special Meeting of a Second Bancorp shareholder
who has executed and returned a proxy will not revoke the proxy. See "SPECIAL
MEETING OF SECOND BANCORP SHAREHOLDERS - Voting and Solicitation and Revocation
of Proxies."
AMENDMENT OF SECOND BANCORP'S ARTICLES TO ELIMINATE SECOND BANCORP'S TWO CLASSES
OF PREFERRED SHARES
Second Bancorp's Articles authorize 1,500,000 shares of Class A Serial
Preferred Shares, without par value, and 1,500,000 shares of Class B Serial
Preferred Shares, without par value (collectively referred to herein as the
"Preferred Shares"). As of the date of this Prospectus/Joint Proxy Statement,
there were no Preferred Shares outstanding. The Preferred Shares were authorized
by an amendment to the Second Bancorp Articles adopted by the shareholders of
Second Bancorp on October 30, 1990.
On May 13, 1997, the shareholders of Second Bancorp adopted an
amendment to the Second Bancorp Articles which increased the authorized number
of Shares of Second Bancorp from 10,000,0000 to 20,000,000, but which did not
affect the terms of the Preferred Shares. On June 25, 1997, a Certificate of
Amendment to the Second Bancorp Articles was filed with the Secretary of State
of Ohio which inadvertently and erroneously purported to eliminate the Preferred
Shares. As a result of this filing, the prospectus/proxy statement provided to
the Enfin, Inc. shareholders in connection with Second Bancorp's acquisition of
Enfin, Inc. did not disclose the existence of the Preferred Shares.
Based upon the determination that the Preferred Shares are not
currently needed, Second Bancorp informed Enfin that the Board of Directors had
adopted resolutions providing that (i) Second Bancorp would not issue any
preferred shares unless and until its shareholders take affirmative action to
authorize the issuance of preferred shares and (ii) would propose to the
shareholders of Second Bancorp an amendment to Second Bancorp's Articles to
eliminate the Preferred Shares. The Board of Directors of Second Bancorp
unanimously recommends that the shareholders of Second Bancorp vote FOR the
proposal to adopt the amendment to the Second Bancorp Articles eliminating the
Preferred Shares. The text of the proposed amendment to the Articles of Second
Bancorp is set forth as Annex B to this Prospectus/Joint Proxy Statement.
SPECIAL MEETING OF TRUMBULL SHAREHOLDERS
The special meeting of shareholders of Trumbull will be held at __:__
_.m., on ______ __, 1998, at the ______________, _____________, Warren, Ohio
(the "Trumbull Special Meeting"). At the Trumbull Special Meeting, Trumbull
shareholders will be asked to consider and act upon (i) a proposal to adopt the
Agreement and approve the Merger; (ii) a proposal to approve the acquisition by
Second Bancorp of a controlling interest in Trumbull pursuant to Section
1701.831 of the Ohio Revised Code (the "Ohio Control Shares Acquisition
Statute"); and (iii) such other business as may properly come before the
Trumbull Special Meeting and any adjournment thereof. Only the holders of record
of Trumbull Shares outstanding at the close of business on ______ __, 1998 (the
"Trumbull Record Date"), will be entitled to notice of and to vote at the
Trumbull Special Meeting and any adjournment thereof. The affirmative vote of
the holders of two-thirds of the outstanding Trumbull Shares, voting in person
or by proxy, is required to adopt the Agreement and approve the Merger. Pursuant
to the requirements of the Ohio Control Share Acquisition Statute, the
acquisition by Second Bancorp of a controlling interest in Trumbull must be
approved by the affirmative vote of the holders of a majority of the Trumbull
Shares represented in person and by proxy, and by a majority of the portion of
such voting power excluding any Trumbull Shares owned by executive officers of
Trumbull and any director of Trumbull who is also an employee of Trumbull and
any other "Interested Trumbull Shares" (defined below) See "SPECIAL MEETING OF
TRUMBULL SHAREHOLDERS - Vote Required" and "COMPARISON OF RIGHTS OF HOLDERS OF
SECOND BANCORP SHARES AND HOLDERS OF TRUMBULL SHARES - Anti-Takeover Statutes."
As of August 12, 1998, 869,364 Trumbull Shares were outstanding and entitled to
vote and were held of record by 183 shareholders.
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<PAGE> 14
As of August 12, 1998, the directors and executive officers of Trumbull
owned, in the aggregate, 384,648 Trumbull Shares, or 44.24% of the outstanding
Trumbull Shares. The directors and executive officers of Trumbull intend to vote
all of their respective Trumbull Shares FOR the adoption of the Agreement and
the approval of the Merger. Assuming the affirmative vote of all Trumbull Shares
owned by the directors and executive officers of Trumbull, the affirmative vote
of the holders of an additional 194,928 Trumbull Shares, representing an
additional 22.42% of the outstanding Trumbull Shares, will be necessary to adopt
the Agreement and approve the Merger.
As of August 12, 1998, the Izant Family Partnership and certain members
of the Izant family (collectively the "Izant Stockholders") collectively hold
[420,639] Trumbull Shares, which represented [48.38%] of the outstanding
Trumbull Shares. The Izant Stockholders have entered into a Stockholder Voting
Agreement with Trumbull and Second Bancorp. Pursuant to the Stockholder Voting
Agreement, the Izant Stockholders have agreed to: (i) vote their Trumbull Shares
in favor of the Merger; (ii) vote against the approval of any Acquisition
Proposal (an "Acquisition Proposal" is defined under the Agreement as a proposal
involving a change in control or similar transaction involving Trumbull other
than the Merger); and (iii) vote against any other transaction which is
inconsistent with the obligation of Trumbull to consummate the Merger. See "THE
MERGER -- Stockholder Voting Agreement."
The affirmative vote of the holders of a majority of the Trumbull
Shares represented in person and by proxy at the Trumbull Special Meeting, and
the affirmative vote of a majority of the portion of such voting power excluding
any Interested Trumbull Shares, will be necessary to approve the acquisition by
Second Bancorp of a controlling interest in Trumbull pursuant to the
requirements of the Ohio Control Share Acquisition Statute . See "SPECIAL
MEETING OF TRUMBULL SHAREHOLDERS - Shares Outstanding and Entitled To Vote and
Record Date - Vote Required" and "COMPARISON OF RIGHTS OF HOLDERS OF SECOND
BANCORP SHARES AND HOLDERS OF TRUMBULL SHARES Anti-Takeover Statutes."
The Trumbull shareholders present, in person or by proxy, at the
Trumbull Special Meeting will constitute a quorum at the Trumbull Special
Meeting. Each Trumbull shareholder will be entitled to one vote for each
Trumbull Share held. Under Ohio law, shares which are held by a nominee for a
beneficial owner and which are represented in person or by proxy at the Trumbull
Special Meeting, but which are not voted with respect to the adoption of the
Agreement and the approval of the Merger ("non-votes"), will be counted as
present for purposes of establishing a quorum. The effect of an abstention or
non-vote will be the same as a vote against the adoption of the Agreement and
the approval of the Merger and against the acquisition by Second Bancorp of a
controlling interest of Trumbull pursuant to the requirements of the Ohio
Control Share Acquisition Statute.
Trumbull shareholders will receive two proxy cards, a BLUE proxy card
and a WHITE proxy card, with this Prospectus/Joint Proxy Statement. The blue
proxy card will be used by Trumbull shareholders to vote upon the proposal to
adopt the Agreement and approve the Merger. The white proxy card will be used by
Trumbull shareholders to vote upon the proposal to approve the acquisition by
Second Bancorp of a controlling interest in Trumbull pursuant to the Ohio
Control Share Acquisition Statute. The Trumbull Shares represented by each
properly executed proxy received before the Trumbull Special Meeting and not
revoked prior to use will be voted at the Trumbull Special Meeting, or any
adjournment thereof, as specified on such proxy or, in the absence of specific
instructions to the contrary, will be voted FOR the adoption of the Agreement
and the approval of the Merger and FOR the approval of the acquisition by Second
Bancorp of a controlling interest in Trumbull pursuant to the Ohio Control Share
Acquisition Statute. Any Trumbull shareholder who has executed and returned a
proxy may revoke such proxy at any time before it is voted by executing and
returning to Trumbull a proxy bearing a later date or by giving notice of
revocation to Trumbull in writing or at the Trumbull Special Meeting. The mere
presence at the Trumbull Special Meeting of an Trumbull shareholder who has
executed and returned a proxy will not revoke the proxy. See "SPECIAL MEETING OF
TRUMBULL SHAREHOLDERS - Voting and Solicitation and Revocation of Proxies."
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<PAGE> 15
REASONS FOR THE MERGER
SECOND BANCORP. Second Bancorp's long-term business strategies include
the strategy to grow the company (i) internally by development and sales
activity in currently served markets and by de novo branching into new markets,
and (ii) externally by in-market and near-market branch and whole bank and
thrift acquisitions. Both Second Bancorp and Trumbull are, and have been since
incorporation, headquartered in Warren, Ohio and their respective operating
subsidiaries, the Bank and Trumbull Savings, have been in-market competitors for
more than 100 years. Second Bancorp's growth strategy and the close competitive
relationship and mutual respect shared by both companies led to informal merger
discussions during the early part of this decade. Though those discussions were
mutually discontinued, the re-institution of merger negotiations at a later time
was not forestalled by either company.
During a January 1998 general review by Second Bancorp executives of
potential acquisition opportunities, the decision was made to seek renewal of
merger discussions with Trumbull. As a consequence of that decision, letters
informally proposing merger discussions were delivered to Trumbull's Board of
Directors and to its President and Chief Executive Officer on February 12, 1998.
Shortly thereafter, Second Bancorp was informed by Trumbull that its Board had
taken the matter under advisement and that it would respond to the initiative in
due course.
In early March 1998, Second Bancorp was contacted by an investment
banker retained by Trumbull and informed of Trumbull's intention to seek
"indications of interest" in acquiring Trumbull from an undisclosed number of
potentially interested parties. Trumbull's offering memorandum containing
detailed information about Trumbull was received by Second Bancorp on or about
March 26, 1998. Following Second Bancorp management's comprehensive review of
the offering material with its Board of Directors on April 3, 1998, and analysis
of the financial impact of an acquisition on Second Bancorp and its
shareholders, a written indication of interest was submitted to Trumbull on
April 6, 1998. Subsequent discussions and a face-to-face meeting between Second
Bancorp Board and management representatives and Trumbull's entire Board of
Directors, led to the commencement of formal merger negotiations. After Second
Bancorp's due diligence examination of Trumbull and approval of the definitive
terms and conditions of the proposed transaction by Second Bancorp's Board of
Directors on May 4, 1998, Second Bancorp entered into the Agreement on May 4,
1998.
Second Bancorp's interest in acquiring Trumbull is primarily based
upon: (i) the natural complement that Trumbull's real estate lending strength
and expertise represents to Second Bancorp's own mortgage loan function as well
as to its commercial lending and trust lines of business; (ii) the opportunity
to acquire and further develop Trumbull's attractive deposit and loan customer
base and to obtain the services of Trumbull's highly qualified and respected
branch, lending and support staffs, (iii) the anticipated enhancement of Second
Bancorp's earnings per share post-acquisition resulting from operating
efficiencies created by combination of the companies and (iv) the anticipated
improvement in Second Bancorp's efficiency ratio and return on equity following
the Merger.
TRUMBULL. During the fall of 1997, Phyllis Izant and James Izant, in
their capacities as shareholders, met with investment bankers, including
representatives of Sandler O'Neill & Partners, L.P., to explore the long term
alternatives available for their family and for Trumbull. At the regular meeting
of the Trumbull Board of Directors on November 17, 1997, the Izants discussed
their exploratory talks with the Board, and recommended to the Board that
Sandler O'Neill & Partners, L.P. be engaged for the purpose of evaluating
Trumbull Savings' budget and strategic plan, as well as for the purpose of
advising Trumbull with respect to the current and future market conditions and
internal plans of Trumbull Savings.
Giving consideration to issues such as maximizing shareholder value,
including consideration of short-and long-term growth potential of an acquiror's
stock, minimizing any adverse effects on employees and customers of Trumbull
Savings, maintaining Trumbull Savings' competitive position, obtaining through
one or more seats on the acquiring institution's board of directors the ability
to influence the direction of the institution into which Trumbull would merge,
and fulfilling the Board's duty to shareholders throughout the sale process, the
Board
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<PAGE> 16
voted unanimously to begin the process of seeking a merger partner. See "THE
MERGER - Background and Reasons for the Merger."
OPINION OF MCDONALD & COMPANY SECURITIES, INC.
McDonald & Company Securities, Inc. ("McDonald & Company") has rendered
a written opinion to the Board of Directors of Second Bancorp as of May 4, 1998
and as of the date of this Prospectus/Joint Proxy Statement that, as of such
dates, the Exchange Ratio was fair from a financial point of view to the
shareholders of Second Bancorp. A general description of the procedures
followed, assumptions and qualifications made and matters considered by McDonald
& Company and a description of the limitations of its opinion is contained in
this Prospectus/Proxy Statement under the caption "THE MERGER - Opinion of
McDonald & Company Securities, Inc."
THE FULL TEXT OF THE OPINION OF MCDONALD & COMPANY, UPDATED AS OF THE
DATE OF THIS PROSPECTUS/JOINT PROXY STATEMENT, WHICH SETS FORTH CERTAIN
ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEWS UNDERTAKEN,
IS ATTACHED AS ANNEX C TO THIS PROSPECTUS/JOINT PROXY STATEMENT, AND SHOULD BE
READ IN ITS ENTIRETY. THE SUMMARY OF THE OPINION OF MCDONALD & COMPANY SET FORTH
IN THIS PROSPECTUS/JOINT PROXY STATEMENT IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE OPINION. MCDONALD & COMPANY'S OPINION SHOULD NOT BE CONSTRUED
BY HOLDERS OF THE SHARES AS A RECOMMENDATION AS TO HOW SUCH HOLDERS SHOULD VOTE
AT THE SECOND BANCORP SPECIAL MEETING.
OPINION OF SANDER O'NEILL & PARTNERS, L.P.
Sander O'Neill & Partners, L.P. ("Sandler O'Neill") has rendered a
written opinion to the Board of Directors of Trumbull as of May 4, 1998 and as
of the date of this Prospectus/Joint Proxy Statement that, as of such dates, the
Exchange Ratio was fair from a financial point of view to the shareholders of
Trumbull. A general description of the procedures followed, assumptions and
qualifications made and matters considered by Sandler O'Neill and a general
description of the limitations of its opinion is contained in this
Prospectus/Joint Proxy Statement under the caption "THE MERGER - Opinion of
Sandler O'Neill & Partners, L.P."
THE FULL TEXT OF THE OPINION OF SANDLER O'NEILL, UPDATED AS OF THE DATE
OF THIS PROSPECTUS/JOINT PROXY STATEMENT, WHICH SETS FORTH THE PROCEDURES
FOLLOWED, ASSUMPTIONS MADE, MATTERS CONSIDERED AND QUALIFICATIONS AND
LIMITATIONS ON THE REVIEWS UNDERTAKEN IN CONNECTION WITH SUCH OPINION, IS
ATTACHED AS ANNEX D TO THIS PROSPECTUS/JOINT PROXY STATEMENT AND IS INCORPORATED
BY REFERENCE. THE DESCRIPTION OF THE OPINION SET FORTH HEREIN IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO ANNEX D. HOLDERS OF TRUMBULL SHARES ARE URGED TO
READ THE SANDLER O'NEILL FAIRNESS OPINION IN ITS ENTIRETY IN CONNECTION WITH
THEIR CONSIDERATION OF THE PROPOSED MERGER.
TERMS OF THE MERGER
EXCHANGE OF TRUMBULL SHARES. At the Effective Time, Trumbull will merge
with and into Second Bancorp and Second Bancorp will thereafter be the
continuing and surviving corporation and Trumbull's separate corporate existence
will terminate. Also at the Effective Time, each of the outstanding Trumbull
Shares will be canceled and extinguished in consideration and exchange for 3.78
Shares, subject to certain conditions and adjustments described below. However,
if (a) the Second Bancorp Closing Price is less than $25.00 and (b) if the
number obtained by dividing the Second Bancorp Closing Price by $36.25 (the
closing price of the Shares on May 4, 1998) is less than 90% of the number
obtained by dividing the Index Price on the seventh (7th) day immediately
preceding the Effective Time by $38.64 (the Index Price on May 4, 1998),
Trumbull may propose to terminate the Agreement at any time until the second
full day immediately prior to the Effective Time (previously defined as a
"Triggering Event"). Upon the occurrence of a Triggering Event, Second Bancorp
would have the option to elect to issue to Trumbull shareholders for each
Trumbull Share to be exchanged in the Merger, a number of Shares with a value of
at least $94.50. As used in the Agreement, the term "Index Price" means a
weighted average of stock prices for 30 peer group bank holding companies which
are specified in an exhibit to the
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<PAGE> 17
Agreement. See "THE MERGER - Exchange of Trumbull Shares" and Section 11.01(i)
of the Agreement contained in Annex A."
As of the date of this Prospectus/Joint Proxy Statement, there were
869,364 Trumbull Shares issued and outstanding and [6,859,542] Shares issued and
outstanding.
STOCKHOLDER VOTING AGREEMENT. As of the Trumbull Record Date, the Izant
Stockholders collectively hold [420,639] Trumbull Shares, which represented
[48.38%] of the outstanding Trumbull Shares. The Izant Stockholders have entered
into a Stockholder Voting Agreement with Trumbull and Second Bancorp. Pursuant
to the Stockholder Voting Agreement, the Izant Stockholders have agreed to: (i)
vote their Trumbull Shares in favor of the Merger; (ii) vote against the
approval of any Acquisition Proposal (an "Acquisition Proposal" is defined under
the Agreement as a proposal involving a change in control or similar transaction
involving Trumbull other than the Merger); and (iii) vote against any other
transaction which is inconsistent with the obligation of Trumbull to consummate
the Merger. See "THE MERGER - Stockholder Voting Agreement."
STOCK OPTION AGREEMENT. Trumbull has granted Second Bancorp an option
to purchase up to 18.9% of the outstanding Trumbull Shares at a price of $105
per Trumbull Share upon the occurrence of certain defined events in connection
with a change in control or similar transaction involving Trumbull. See "THE
MERGER - Stock Option Agreement."
THE BANK MERGER. As soon as possible after the consummation of the
Merger, Trumbull Savings will be merged with and into the Bank (the "Bank
Merger"). The Bank will be the surviving entity of the Bank Merger and Trumbull
Savings' separate corporate existence will terminate. After the consummation of
the Bank Merger, Trumbull Savings existing branches will be operated as branches
of the Bank and the Bank's branch offices in Howland, Ohio and Newton Falls,
Ohio will be consolidated into existing Trumbull branches.
FRACTIONAL SHARES. No fractional Shares will be issued in the Merger.
In lieu of any such fractional Shares, Second Bancorp will pay to each holder of
Trumbull Shares who otherwise would be entitled to receive a fraction of a Share
an amount in cash equal to the product obtained by multiplying (i) the
fractional Share interest to which such holder (after taking into account all
Trumbull Shares held at the Effective Time by such holder) would otherwise be
entitled by (ii) the Second Bancorp Closing Price. No interest will be payable
with respect to such payments for fractional Shares.
REPRESENTATIONS, WARRANTIES AND COVENANTS. Each of Second Bancorp and
Trumbull has made certain representations and warranties in the Agreement in
respect of various matters, including but not limited to, the corporate
organization and financial condition of each and, in the case of Trumbull,
certain of its representations and warranties relate to Trumbull Savings. In
addition, Trumbull has made certain covenants in respect of various matters,
including, but not limited to, the conduct of its business between the date of
the Agreement and the Effective Time. In addition, Trumbull has made a covenant
with respect to the potential payment of a $2,000,000 break-up fee to Second
Bancorp if Trumbull enters into a merger, consolidation or other similar type
transaction involving a change in control of Trumbull with any person(s) or
entities prior to the consummation of the Merger. See "THE MERGER -
Representations, Warranties and Covenants."
CONDITIONS AND EFFECTIVE TIME. The consummation of the Merger is
subject to the satisfaction or waiver of a number of conditions. See "THE MERGER
- - Conditions - Effective Time."
REGULATORY APPROVALS. The Merger is subject to approval by the Federal
Reserve Board. Second Bancorp has filed an application with the Federal Reserve
Board seeking such approval. The Bank Merger is subject to approval by the OCC.
Regulatory applications have been filed with the OCC seeking approval of the
Bank Merger. It is currently anticipated that the Merger and the Bank Merger
will be consummated in the fourth quarter of 1998. In addition, due to the
number of Shares which may be held by the Izant Shareholders if the
8
<PAGE> 18
Merger is consummated, upon the consummation of the Merger, it is likely that
the Izant Shareholders will be required to file an application with the Federal
Reserve Board seeking approval of their acquisition of the Shares.
TERMINATION. The Agreement may be terminated and the Merger abandoned
upon the occurrence of certain events, including, but not limited to, if (a) the
Second Bancorp Closing Price is less than $25.00 and (b) if the number obtained
by dividing the Second Bancorp Closing Price by $36.125 (the closing price of
the Shares on May 4, 1998) is less than 90% of the number obtained by dividing
the Index Price on the seventh (7th) day immediately preceding the Effective
Time by $38.64 (the Index Price on May 4, 1998), Trumbull may propose to
terminate the Agreement at any time until the second full day immediately prior
to the Effective Time (previously defined as a "Triggering Event"). Upon the
occurrence of a Triggering Event, Second Bancorp would have the option, rather
than to terminate, to elect to issue to Trumbull shareholders for each Trumbull
Share to be exchanged in the Merger, a number of Shares with a value of $94.50.
As used in the Agreement, the term "Index Price" means a weighted average of
stock prices for 30 peer group bank holding companies which are specified in an
exhibit to the Agreement. See "THE MERGER - Conditions" and "Exchange of
Trumbull Shares" and "Termination and Amendment."
TAX AND ACCOUNTING TREATMENT. The consummation of the Merger is
conditioned upon the receipt of an opinion of counsel to the effect that the
Merger will constitute a tax-free reorganization under Section 368(a)(1)(A) of
the Internal Revenue Code of 1986, as amended (the "Code"). No gain or loss will
be recognized by the Trumbull shareholders upon the issuance of Shares to them.
A gain or loss will be recognized, however, on cash received by Trumbull
shareholders in lieu of fractional shares or by Second shareholders or Trumbull
Shares upon the exercise of dissenters' rights. Neither the opinion of counsel
nor the discussion of federal income tax consequences in this Prospectus/Joint
Proxy Statement is binding upon either the Internal Revenue Service or the
courts. The Second Bancorp shareholders and the Trumbull shareholders are
advised to consult their own tax advisors. See "THE MERGER - Income Tax
Consequences" and "RIGHTS OF DISSENTING SHAREHOLDERS."
The Merger, if completed as proposed, will qualify as a
pooling-of-interests for financial accounting purposes. Each of the parties to
the Agreement shall have received letters dated as of the Effective Time, from
Ernst & Young LLP and Crowe Chizek and Company LLP regarding the appropriateness
of pooling-of-interests accounting for the Merger under Accounting Principles
Board Opinion No. 16 if closed and consummated in accordance with this
Agreement. See "THE MERGER - Accounting Treatment."
RECOMMENDATION OF THE BOARD OF DIRECTORS OF SECOND BANCORP
The Board of Directors of Second Bancorp, based in part upon the
fairness opinion of McDonald & Company and also upon the reasons articulated in
the section of this Prospectus/Joint Proxy Statement captioned "THE MERGER -
Background and Reasons for the Merger", believes that the consummation of the
Merger is in the best interests of Second Bancorp and its shareholders.
Accordingly, the Board of Directors of Second Bancorp unanimously recommends
that the Second Bancorp shareholders vote FOR the adoption of the Agreement and
the approval of the Merger. In addition, the Board of Directors of Second
Bancorp recommends that its shareholders vote: (i) FOR the proposal to increase
the number of directors of Second Bancorp from seven (7) to eight (8), (ii) FOR
the election of Dr. David A. Allen to the Board of Directors of Second Bancorp
and (iii) FOR the proposal to amend the Second Bancorp Articles to eliminate
Second Bancorp's two classes of preferred shares.
RECOMMENDATION OF THE BOARD OF DIRECTORS OF TRUMBULL
The Board of Directors of Trumbull, based in part upon the fairness
opinion of Sandler O'Neill and also upon the reasons articulated in the section
of this Prospectus/Joint Proxy Statement captioned "THE MERGER Background and
Reasons for the Merger", believes that the consummation of the Merger is in the
best interests of Trumbull and its shareholders. Accordingly, the Board of
Directors of Trumbull unanimously recommends that the Trumbull shareholders vote
FOR the adoption of the Agreement and the approval of the Merger and FOR the
9
<PAGE> 19
approval of the acquisition by Second Bancorp of a controlling interest in
Trumbull pursuant to the Ohio Control Share Acquisition Statute.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
On the Second Bancorp Record Date, the executive officers and directors
of Second Bancorp, as a group, owned an aggregate of [366,354.028] Shares, which
represented [5.29%] of the total of issued and outstanding Shares.
On the Trumbull Record Date, the executive officers and directors of
Trumbull, as a group, owned an aggregate of 384,648 Trumbull Shares, which
represented 44.24% of the total of issued and outstanding Trumbull Shares.
As of the Trumbull Record Date, the Izant Stockholders collectively
held [420,639] Trumbull Shares, which represented [48.38%] of the outstanding
Trumbull Shares. The Izant Stockholders have entered into a Stockholder Voting
Agreement with Trumbull and Second Bancorp. Pursuant to the Stockholder Voting
Agreement, the Izant Stockholders have agreed to: (i) vote their Trumbull Shares
in favor of the Merger; (ii) vote against the approval of any Acquisition
Proposal (an "Acquisition Proposal" is defined under the Agreement as a proposal
involving a change in control or similar transaction involving Trumbull other
than the Merger); and (iii) vote against any other transaction which is
inconsistent with the obligation of Trumbull to consummate the Merger.
See "THE MERGER -- Stockholder Voting Agreement."
The Agreement provides that immediately after consummation of the
Merger, Second Bancorp will increase its number of directors by three (3) and
fill the vacancies created by electing three (3) persons who served as directors
of Trumbull prior to the Merger to the Board of Directors of Second Bancorp. To
satisfy this obligation, the shareholders of Second Bancorp are being asked at
the Second Bancorp Special Meeting to adopt a proposal to increase the number of
directors of Second Bancorp from seven (7) to eight (8) and to elect Dr. David
A. Allen to fill the vacancy created by the increase in the number of directors.
These proposals to increase the number of directors of Second Bancorp and to
elect Dr. David A. Allen to the Second Bancorp Board of Directors will not
become effective until immediately after the consummation of the Merger and will
be void if the Merger is not consummated. In addition, if the Merger is
consummated and assuming that the proposal to increase the number of directors
of Second Bancorp is adopted by the Second Bancorp shareholders at the Second
Bancorp Special Meeting, pursuant to the authority granted the Board of
Directors of Second Bancorp under Article III of Second Bancorp's Regulations,
the Board of Directors of Second Bancorp intends to increase the number of
directors from eight (8) to ten (10) and to appoint James R. Izant and Phyllis
J. Izant, both of whom are currently directors of Trumbull, to the Board of
Directors of Second Bancorp. If elected, each of Dr. David A. Allen, James R.
Izant and Phyllis J. Izant will serve terms until the 1999 Annual Meeting of
Shareholders of Second Bancorp and until their successors are elected and
qualified. See "MANAGEMENT OF TRUMBULL EXPECTED TO SERVE ON THE SECOND BANCORP
BOARD OF DIRECTORS."
The Agreement also provides that Second Bancorp will cause the Bank to
increase its number of directors by three (3) and appoint three (3) members of
Trumbull's Board of Directors to the Bank's Board of Directors. As of the date
of this Prospectus/Joint Proxy Statement, the Trumbull directors who will be
elected to serve on the Board of Directors of the Bank had not been determined.
The following officers of Trumbull, P. Scott Carson, President and
Chief Executive Officer, James R. Izant, Executive Vice President, Arthur E.
Krause, Senior Vice President, and James J. Antal, Chief Financial Officer, are
parties to Change in Control and Severance Agreements (the "Change in Control
Agreements") with Trumbull. Pursuant to the terms of the Change in Control
Agreements, simultaneously with the consummation of the Merger, each of the
aforementioned officers of Trumbull would be entitled to receive a severance
payment in an amount equal to 2.99 times such officer's average annual
compensation over the five years immediately preceding the Merger. If the Merger
is consummated, it is estimated that the severance payments to be received,
respectively, by Mr. Carson, Mr. Izant, Mr. Antal and Mr. Krause under the
Change in Control Agreements will be approximately $597,000, $262,000, $308,000
and $260,000. In addition, if Mr. Carson, Mr. Izant, Mr. Krause
10
<PAGE> 20
and Mr. Antal are not employed by Second Bancorp or the Bank after the Merger,
pursuant to the terms of the Change in Control Agreements, Second Bancorp will
be required to maintain life, health and disability insurance coverage
substantially identical to the coverage maintained by Trumbull or Trumbull
Savings prior to such officer's termination of employment. Second Bancorp's
obligation to provide such coverage will cease upon the earlier of such
officer's employment by another employer or twelve (12) months from the date of
such officer's termination of employment.
P. Scott Carson is party to an employment agreement (the "Employment
Agreement") with Trumbull Savings with a term ending in February 2001. Entered
into on October 7, 1993 for an initial period of three years, the Employment
Agreement provides by its terms for annual extension of one additional year,
provided Trumbull Savings' Board of Directors determines that Mr. Carson's
performance has met the requirements and standards of the Board. Accordingly,
the Employment Agreement has been extended for an additional year annually since
1994, most recently in February 1998.
Should Mr. Carson's employment be terminated by the Board of Directors,
he would be entitled to receive the compensation and other benefits to which he
is entitled under the Employment Agreement for the remainder of the Employment
Agreement's unexpired term, except in the case of termination for cause in
accordance with the Employment Agreement. For purposes of the Employment
Agreement, a "termination" includes failure to reelect or appoint Mr. Carson as
President and Chief Executive officer or failure to nominate, elect or reelect
him to the Board of Directors without his consent. Accordingly, it is expected
that Mr. Carson will be deemed to have been terminated upon completion of the
Merger. If the Merger is consummated, Trumbull estimates that the termination
payment to which Mr. Carson will be entitled under his Employment Agreement will
be approximately $500,000. Trumbull and Mr. Carson believe that the severance
payment to which Mr. Carson would also be entitled under his Change in Control
Agreement is in addition to any termination payment(s) he may receive under the
Employment Agreement.
James R. Izant, Executive Vice President of Trumbull, has entered into
a Consulting and Non-Competition Agreement with Second Bancorp dated August
[__], 1998 (the "Consulting Agreement"). Pursuant to the terms of the Consulting
Agreement, if the Merger is consummated, Mr. Izant will receive the following:
(i) a $90,000 non-compete fee (of which $45,000 will be paid to Mr. Izant at the
Effective Time and $45,000 will be paid to Mr. Izant on the first anniversary of
the date of the Consulting Agreement); (ii) consulting fees in the amount $3,750
per month for 24 consecutive months; and (iii) Second Bancorp will exercise
reasonable best efforts to have Mr. Izant nominated by the Board of Directors
and elected as a Director of Second Bancorp during the two-year term of the
Consulting Agreement. Under the Consulting Agreement, Mr. Izant has agreed to:
(i) advise Second Bancorp regarding conversion issues in connection with the
Merger; (ii) assist Second Bancorp in the preservation of customer relations and
the attraction of new customers; (iii) assist Second Bancorp in attracting high
quality employees; (iv) provide general consulting services on the request of
the Chairman of Second Bancorp for up to forty-five hours per month; and (v) not
compete with Second Bancorp for two (2) years.
Pursuant to the terms of the Agreement, Second Bancorp will cause the
Bank to offer the existing full-time employees of Trumbull Savings the
opportunity to become employees of the Bank or offer reasonable and customary
severance compensation based upon years of service and outplacement consultation
services to employees of Trumbull Savings who are not offered employment (other
than employees who are otherwise parties to employment agreements or change in
control agreements). Second Bancorp and/or the Bank will offer employee benefits
to all Trumbull and Trumbull Savings employees who become employees of Second
Bancorp or the Bank which, taken as a whole, are substantially comparable to the
employee benefits received by the current employees of Second Bancorp and the
Bank at the Effective Time. Employees of Trumbull or Trumbull Savings who become
employees of the Bank will have their years of service credited toward
eligibility and vesting in the Bank's employee benefit plans generally.
In addition, Second Bancorp has agreed to cause the Bank to assume
twenty-five change in control agreements entered into by Trumbull Savings with
certain key managers of Trumbull Savings. The change in control agreements
generally provide that such key managers will receive six-months severance pay
and
11
<PAGE> 21
continuation of certain benefits if terminated within the one year period
following a change in control of Trumbull Savings.
Pursuant to the terms of the Agreement, Second Bancorp has agreed to
keep in effect in the Second Bancorp Articles and Second Bancorp Amended
Regulations (the "Second Bancorp Regulations") and the Articles and Regulations
of the Bank, provisions providing for indemnification of the officers and
directors of Trumbull and Trumbull Savings. In addition, for three years from
the date of the Merger, Second Bancorp will maintain directors' and officers'
liability insurance policies covering the officers and directors of Trumbull and
Trumbull Savings at a cost of not more than 150% of the current premiums paid by
Trumbull for its directors' and officers' liability insurance policies.
COMPARISON OF RIGHTS OF HOLDERS OF THE SHARES AND TRUMBULL SHARES
The rights of the holders of Trumbull Shares are governed by Ohio law
and by Trumbull's Amended and Restated Articles ("Trumbull Articles") and Code
of Regulations ("Trumbull Regulations"). Upon the consummation of the Merger,
Trumbull's shareholders, except holders who exercise and perfect dissenters'
rights, will become shareholders of Second Bancorp and their rights will be
governed thereafter by Ohio law and by Second Bancorp's Articles and the Second
Bancorp Regulations.
The rights of holders of Trumbull Shares and those of holders of the
Shares differ in some respects, but are similar in many material respects. Such
differences are attributable to variation between the Second Bancorp Articles
and Second Bancorp Regulations and the Trumbull Articles and Trumbull
Regulations.
The Second Bancorp Articles provide for a Board of Directors consisting
of not more than eighteen (18) and not less than six (6) directors, classified
into two classes with each class serving a term of two years. Second Bancorp
currently has seven (7) directors. The Trumbull Regulations provide for a Board
of Directors consisting of not less than six (6) and no more than eleven (11)
directors, divided into two (2) classes with each class serving three (3) years.
Trumbull currently has 7 directors.
The holders of the Shares have the right to cumulate votes in the
election of directors. The holders of Trumbull Shares do not have cumulative
voting rights. With cumulative voting, it is possible for the holders of a
minority of the Shares to elect one or more directors to the Second Bancorp
Board of Directors, even though the holders of a majority of the Shares oppose
such directors election to the Board. The absence of cumulative voting
eliminates the ability of a minority of the shareholders of a corporation to
elect one or more director(s) to the corporation's Board and allows the holders
of a majority of the shares of the corporation to elect each of the directors.
Under the Second Bancorp Articles, certain extraordinary transactions
("Business Combinations") require the affirmative vote of the holders of 75% of
the voting power of the Shares. In addition, if certain "minimum price
requirements" are not complied with in connection with any such Business
Combination, the Business Combination may not be consummated. However, if any
such Business Combination is approved by two-thirds of the continuing directors
of Second Bancorp, then any such Business Combination is not required to satisfy
the "minimum price requirements" and is only required to be approved by the
shareholders of Second Bancorp holding a majority of its voting power.
In contrast, under Ohio law, the affirmative vote of holders of at
least two-thirds of the voting power of Trumbull would be required to approve
any merger, business combination or similar transaction involving Trumbull.
The preceding summary is not intended to be a complete description of
the differences between the rights of holders of Trumbull Shares and the rights
of the holders of the Shares. For a comparison of such differences, see
"DESCRIPTION OF SECOND BANCORP SHARES" and "COMPARISON OF RIGHTS OF HOLDERS OF
SECOND BANCORP SHARES AND HOLDERS OF TRUMBULL SHARES."
12
<PAGE> 22
EXCHANGE OF CERTIFICATES EVIDENCING SHARES AND TRUMBULL SHARES
As soon as practicable after the consummation of the Merger, each
Trumbull shareholder will be advised of such consummation by a letter
accompanied by instructions for use in surrendering the certificate or
certificates evidencing Trumbull Shares to American Stock Transfer & Trust
Company (the "Exchange Agent"). CERTIFICATES FOR TRUMBULL SHARES SHOULD NOT BE
FORWARDED TO THE EXCHANGE AGENT UNTIL AFTER RECEIPT OF THE LETTER OF TRANSMITTAL
AND SHOULD NOT BE RETURNED TO TRUMBULL WITH THE ENCLOSED PROXIES. See "THE
MERGER - Exchange of Certificates Evidencing the Shares and Trumbull Shares."
RESALE OF SHARES
The Shares to be issued upon the consummation of the Merger have been
registered with the Commission under the Securities Act and will be freely
transferable, except for Shares received by persons who may be deemed to be
affiliates of Trumbull or Second Bancorp. See "THE MERGER - Resale of Shares."
DISSENTERS' RIGHTS
Any shareholder of Second Bancorp or Trumbull who does not vote in
favor of the adoption of the Agreement and the approval of the Merger and who
delivers a written demand for payment of the fair cash value of such
shareholder's Shares or Trumbull Shares, as the case may be, not later than ten
days after the Second Bancorp Special Meeting or the Trumbull Special Meeting in
the manner provided by Ohio Revised Code ss. 1701.85, a copy of which is
attached hereto as Annex E, shall be entitled, if and when the Merger is
consummated, and upon strict compliance with certain procedures set forth in
Ohio Revised Code ss. 1701.85, to receive the fair cash value of such
shareholder's Shares or Trumbull Shares, as the case may be. A Second Bancorp
shareholder who wishes to submit a written demand for payment of the fair cash
value of his or her Shares should deliver such notice no later than ________ __,
1998 to Second Bancorp Incorporated, 108 Main Avenue, S. W., Warren, Ohio 44482,
Attention: Christopher Stanitz, Executive Vice President and Secretary. A
Trumbull shareholder who wishes to submit a written demand for payment of the
fair cash value of Trumbull Shares should deliver such notice no later than
________ __, 1998 to Trumbull Financial Corporation, 105 High Street, Warren,
Ohio 44139, Attention: James R. Izant, Executive Vice President and Secretary.
Any vote by a Trumbull Shareholder with respect to the proposal to approve the
acquisition by Second Bancorp of a controlling interest in Trumbull pursuant to
the Ohio Control Share Acquisition Statute will not affect such shareholder's
ability to exercise dissenters' rights. See "RIGHTS OF DISSENTING SHAREHOLDERS."
MARKET PRICES
The Shares are quoted on the Nasdaq National Market under the symbol
"SECD." The following table sets forth the high and low last sale price for the
Shares on the Nasdaq National Market for the periods indicated and the cash
dividends per Share declared during such periods:
<TABLE>
<CAPTION>
CASH DIVIDEND
QUARTER ENDED HIGH LOW DECLARED
------------- ---- --- --------
<S> <C> <C> <C>
March 31, 1996 $14.94 $13.75 $.11
June 30, 1996 $14.13 $12.50 $.11
September 30, 1996 $17.00 $13.63 $.11
December 31, 1996 $16.50 $14.88 $.11
March 31, 1997 $18.50 $15.06 $.12
June 30, 1997 $22.25 $17.75 $.12
September 30, 1997 $24.50 $20.75 $.12
December 31, 1997 $28.00 $21.88 $.12
</TABLE>
13
<PAGE> 23
<TABLE>
CASH DIVIDEND
QUARTER ENDED HIGH LOW DECLARED
------------- ---- --- --------
<S> <C> <C> <C>
March 31, 1998 $35.00 $24.88 $.13
June 30, 1998 $38.25 $27.00 $.13
</TABLE>
The Trumbull Shares are not listed on an exchange or authorized for
quotation on the Nasdaq National Market. However, it has come to Trumbull's
attention that sale prices for Trumbull Shares (and, prior to the January 15,
1998 holding company reorganization of Trumbull Savings, common stock of
Trumbull Savings) appear from time to time on the OTC Bulletin Board, an
electronic, screen-based market maintained by the National Association of
Securities Dealers, Inc.'s subsidiary, NASD Regulation, Inc. The information in
the table below presents information obtained by Trumbull from the OTC Bulletin
Board concerning transactions in the stock of Trumbull (and, prior to the
January 15, 1998 holding company reorganization of Trumbull Savings, common
stock of Trumbull Savings).
<TABLE>
<CAPTION>
CASH DIVIDEND
QUARTER ENDED HIGH LOW DECLARED
------------- ---- --- --------
<S> <C> <C> <C>
March 31, 1996 $ 37.37 $35.00 $.00
June 30, 1996 $ 38.75 $35.75 $.37
September 30, 1996 $ 39.25 $36.00 $.00
December 31, 1996 $ 39.75 $36.00 $.45
March 31, 1997 $ 38.75 $36.50 $.23
June 30, 1997 $ 39.00 $37.25 $.24
September 30, 1997 $ 39.50 $38.00 $.26
December 31, 1997 $ 42.00 $38.00 $.31
March 31, 1998 $ 55.00 $41.50 $.36
June 30, 1998 $ 120.00 $54.00 $.41
</TABLE>
NO ASSURANCE CAN BE GIVEN AS TO WHAT THE MARKET PRICE OF THE SHARES
WILL BE IF AND WHEN THE MERGER IS CONSUMMATED OR WHEN THE SHARES ARE ACTUALLY
ISSUED. THE ABILITY OF SECOND BANCORP AND TRUMBULL TO PAY DIVIDENDS TO ITS
RESPECTIVE SHAREHOLDERS IS SUBJECT TO CERTAIN RESTRICTIONS. SEE "REGULATION OF
FINANCIAL INSTITUTIONS."
RECENT DEVELOPMENT INVOLVING SECOND BANCORP
On April 1, 1998, Second Bancorp entered into a Plan and Agreement of
Merger (the "Enfin Merger Agreement"), pursuant to which Enfin, Inc., an Ohio
corporation and bank holding company ("Enfin"), agreed to merge with and into
Second Bancorp (the "Enfin Merger"). On August 20, 1998, the Enfin Merger was
consummated and each of the outstanding Enfin common shares was canceled and
extinguished in consideration and exchange for .95 Shares. Also pursuant to the
terms of the Enfin Merger Agreement, on August 20, 1998, Enterprise Bank, an
Ohio-chartered commercial bank which was wholly owned by Enfin, merged with and
into the Bank and the Bank was the surviving entity of the bank merger. See "PRO
FORMA COMBINED CONSOLIDATED FINANCIAL INFORMATION", which includes consolidated
pro-forma financial information for Second Bancorp assuming the consummation of
both the Merger and the Enfin Merger. See also "SELECTED FINANCIAL DATA OF
SECOND BANCORP, TRUMBULL AND ENFIN" and "COMPARATIVE PER SHARE DATA."
14
<PAGE> 24
Pursuant to the Enfin Merger Agreement, Second Bancorp has agreed to
cause the Bank to increase its number of directors by one (1) and elect Robert
N. Sustar, who prior to the Merger was the Chairman of Enfin, to the Bank's
Board of Directors.
PRO FORMA COMBINED CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)
The unaudited pro forma financial information on the following pages
presents (a) the historical consolidated balance sheets of Second Bancorp and
Trumbull at June 30, 1998 and March 31, 1998, respectively and the unaudited pro
forma combined consolidated balance sheet as of June 30, 1998 giving effect to
the Merger as if it had occurred on that date on a pooling-of-interests
accounting basis; (b) the historical consolidated balance sheet of Enfin at June
30, 1998 and the unaudited pro forma combined consolidated balance sheet as of
June 30, 1998, giving effect to the Merger and the Enfin Merger as if they had
occurred on that date on a pooling-of-interests accounting basis; (c) the
historical consolidated statements of income for the six months ended June 30,
1998 and the years ended December 31, 1997, 1996 and 1995, giving effect to the
Merger and the Enfin Merger of Second Bancorp and Trumbull Financial on a
pooling-of-interests basis. In accordance with the rules of the Securities and
Exchange Commission, Trumbull's financial information for the years ended
September 30, 1993 through 1997 have been combined with Second Bancorp's
financial information for the years ended December 31, 1993 through 1997,
respectively, for purposes of preparing the pro forma financial information. In
addition, Second Bancorp's financial information for the six months ended June
30, 1998 and 1997 was combined with Trumbull's financial information for the six
months ended March 31, 1998 and 1997, respectively, for purposes of preparing
the pro forma financial information.
The unaudited pro forma financial information assumes all of the
outstanding Trumbull Shares and common shares of Enfin are converted into
Shares. The unaudited pro forma financial information is based on the historical
financial statements, giving effect to the Merger and the Enfin Merger under the
pooling-of-interests method of accounting. The pro forma statements exclude the
estimated effect of potential expense savings associated with the consolidation
of operations of Second Bancorp, Trumbull and Enfin, and may not be indicative
of the results that actually would have occurred had the Merger and the Enfin
Merger been consummated on the date(s) indicated, or which may be attained in
the future.
15
<PAGE> 25
<TABLE>
<CAPTION>
SECOND BANCORP INCORPORATED
Pro Forma Combined Consolidated Balance Sheet
(Unaudited)
As of June As of March As of June
30, 1998 31, 1998 (E) 30, 1998
-------------------------- Second --------------------
Second Pro Forma Bancorp Pro Forma Pro Forma
Bancorp Trumbull Adjustments and Trumbull Enfin Adjustments Combined
--------------------------------------------------------------------------------------------
(In thousands)
Assets
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and demand balances due from banks $ 32,726 $ 6,375 $ -- $ 38,651 $ 2,119 $ -- $ 40,770
Interest-bearing balances due from banks -- -- 56 56
Federal funds sold 12,000 12,000 3,070 15,070
Securities, available-for-sale,
(at market value) 302,007 20,819 322,826 2,199 325,025
Securities, held-to-maturity -- 163,102 163,102 247 163,349
Loans 590,387 318,280 908,667 37,638 946,305
Less reserve for loan losses (7,230) (1,429) (8,659) (543) (9,202)
------------------------------------------------------------------------------------------
Net loans 583,157 316,851 -- 900,008 37,095 -- 937,103
Premises and equipment 9,796 5,276 15,072 109 15,181
Accrued interest receivable 6,430 2,651 9,081 212 9,293
Goodwill and intangible assets 2,945 654 3,599 3,599
Other assets 18,864 9,394 1,069(B) 29,327 657 165(C) 30,149
------------------------------------------------------------------------------------------
Total assets $ 967,475 $ 525,122 $ 1,069 $ 1,493,666 $ 45,764 $ 165 $ 1,539,595
==========================================================================================
Liabilities and Shareholders? Equity
Deposits:
Demand - non-interest bearing $ 85,403 $ 12,512 $ -- $ 97,915 $ 5,731 $ -- $ 103,646
Demand - interest bearing 66,410 25,815 92,225 384 92,609
Savings 145,237 100,500 245,737 15,395 261,132
Time deposits 378,412 243,992 622,404 19,170 641,574
------------------------------------------------------------------------------------------
Total deposits 675,462 382,819 -- 1,058,281 40,680 -- 1,098,961
Federal funds purchased and securities
sold under agreements to repurchase 145,718 20,400 166,118 166,118
Other borrowed funds 6,091 6,091 6,091
Federal Home Loan Bank advances 49,844 78,807 128,651 128,651
Accrued interest and other liabilities 6,525 5,015 4,991(B) 16,531 545 1,009(C) 18,085
------------------------------------------------------------------------------------------
Total liabilities 883,640 487,041 4,991 1,375,672 41,225 1,009 1,417,906
Shareholders' equity: (A) -- --
Preferred stock -- -- --
Common stock 30,745 -- 869(A) 31,614 5,183 36,797
Paid in capital in excess of par -- 869 (869)(A) -- --
Treasury stock (793) (793) (793)
Net unrealized gains (losses) on available-
for-sale securities, net of tax 2,685 (124) 2,561 1 2,562
Retained earnings 51,198 37,336 (3,922)(B) 84,612 (645) (844)(C) 83,123
------------------------------------------------------------------------------------------
Total shareholders' equity 83,835 38,081 (3,922) 117,994 4,539 (844) 121,689
------------------------------------------------------------------------------------------
Total liabilities and shareholders'
equity $ 967,475 $ 525,122 $ 1,069 $ 1,493,666 $ 45,764 $ 165 $ 1,539,595
===========================================================================================
</TABLE>
See accompanying notes to pro forma combined consolidated financial information.
16
<PAGE> 26
<TABLE>
<CAPTION>
SECOND BANCORP INCORPORATED
Pro Forma Combined Consolidated Income Statement
(Unaudited)
For the Six Months Ended
----------------------------------------------------------------------------
6/30/98 3/31/98 (E) 6/30/98
--------------------------------------------------------
Second Pro Forma
(In thousands, except per share data) Bancorp Trumbull Enfin Combined
----------------------------------------------------------------------------
INTEREST INCOME
Loans (including fees):
<S> <C> <C> <C> <C>
Taxable $ 25,597 $ 10,950 $ 1,739 $ 38,286
Exempt from federal income taxes 362 - - 362
Securities: -
Taxable 7,086 5,699 93 12,878
Exempt from federal income taxes 1,611 - - 16,611
Federal funds sold 127 - 73 200
----------------------------------------------------------------------------
Total interest income 34,783 16,649 1,905 53,337
INTEREST EXPENSE
Deposits 12,885 8,177 843 21,905
Federal funds purchased and securities
sold under agreements to repurchase 2,908 352 - 3,260
Note payable - 2 - 2
Other borrowed funds 78 - 3 81
Federal Home Loan Bank advances 1,078 1,755 - 2,833
-----------------------------------------------------------------------------
Total interest expense 16,949 10,286 846 28,081
----------------------------------------------------------------------------
Net interest income 17,834 6,363 1,059 25,256
Provision for loan losses 1,591 120 29 1,740
----------------------------------------------------------------------------
Net interest income after
provision for loan losses 16,243 6,243 1,030 23,516
NON-INTEREST INCOME
Service charges on deposit accounts 1,388 646 51 2,085
Trust fees 1,355 - 1,355
Security gains 163 70 - 233
Other operating income 1,729 435 75 2,239
----------------------------------------------------------------------------
Total non-interest income 4,635 1,151 126 5,912
NON-INTEREST EXPENSE
Salaries and employee benefits 7,190 2,016 352 9,558
Net occupancy 1,591 466 84 2,141
Equipment 1,251 393 92 1,736
Professional services 706 106 43 855
Assessment on deposits and other taxes 453 339 44 836
Amortization of goodwill and other intangibles 327 76 - 403
Other operating expenses 2,815 1,002 130 3,947
----------------------------------------------------------------------------
Total non-interest expense 14,333 4,398 745 19,476
----------------------------------------------------------------------------
Income before federal income taxes 6,545 2,996 411 9,952
Income tax expense 1,468 1,035 140 2,643
----------------------------------------------------------------------------
NET INCOME $ 5,077 $ 1,961 $ 271 $ 7,309
============================================================================
EARNINGS PER COMMON SHARE (D)
Basic $ 0.74 $ 2.26 $ 0.49 $ 0.69
Diluted $ 0.73 $ 2.26 $ 0.49 $ 0.68
AVERAGE COMMON SHARES OUTSTANDING (D)
Basic 6,837,407 869,364 547,792 10,644,005
Diluted 6,935,124 869,364 547,792 10,741,722
</TABLE>
See accompanying notes to pro forma combined consolidated financial information.
17
<PAGE> 27
<TABLE>
<CAPTION>
SECOND BANCORP INCORPORATED
Pro Forma Combined Consolidated Income Statement
(Unaudited)
For the Year Ended
---------------------------------------------------------------------------
12/31/97 9/30/97(E) 12/31/97
-----------------------------------------------------
Second Pro Forma
(In thousands, except per share data) Bancorp Trumbull Enfin Combined
----------------------------------------------------------------------------
INTEREST INCOME
Loans (including fees):
<S> <C> <C> <C> <C>
Taxable $ 51,272 $ 18,690 $ 3,267 $ 73,229
Exempt from federal income taxes 636 - - 636
Securities: -
Taxable 12,869 13,791 162 26,822
Exempt from federal income taxes 2,854 - - 2,854
Federal funds sold 616 - 133 749
Other - 100 - 100
----------------------------------------------------------------------------
Total interest income 68,247 32,581 3,562 104,390
Interest Expense
DEPOSITS 26,047 16,001 1,600 43,648
Federal funds purchased and securities
sold under agreements to repurchase 5,175 997 - 6,172
Note payable 276 - - 276
Other borrowed funds 157 - 6 163
Federal Home Loan Bank advances 1,841 3,607 - 5,448
------------------------------------------------------------------------------
Total interest expense 33,496 20,605 1,606 55,707
----------------------------------------------------------------------------
Net interest income 34,751 11,976 1,956 48,683
Provision for loan losses 3,939 140 125 4,204
----------------------------------------------------------------------------
Net interest income after
provision for loan losses 30,812 11,836 1,831 44,479
NON-INTEREST INCOME
Service charges on deposit accounts 3,021 1,068 91 4,180
Trust fees 2,562 - - 2,562
Security gains (losses) 595 (80) - 515
Other operating income 3,026 1,347 144 4,517
----------------------------------------------------------------------------
Total non-interest income 9,204 2,335 235 11,774
NON-INTEREST EXPENSE
Salaries and employee benefits 13,450 4,324 813 18,587
Net occupancy 3,117 899 171 4,187
Equipment 2,069 780 183 3,032
Professional services 1,579 127 60 1,766
Assessment on deposits and other taxes 950 771 90 1,811
Amortization of goodwill and other intangibles 752 184 - 936
Other operating expenses 6,674 1,977 281 8,932
----------------------------------------------------------------------------
Total non-interest expense 28,591 9,062 1,598 39,251
----------------------------------------------------------------------------
Income before federal income taxes 11,425 5,109 468 17,002
Income tax expense (benefit) 2,450 1,744 (449) 3,745
----------------------------------------------------------------------------
NET INCOME $ 8,975 $ 3,365 $ 917 $ 13,257
============================================================================
EARNINGS PER COMMON SHARE (D)
Basic $ 1.33 $ 3.87 $ 1.67 $ 1.26
Diluted $ 1.32 $ 3.87 $ 1.67 $ 1.25
AVERAGE COMMON SHARES OUTSTANDING (D)
Basic 6,749,435 869,364 547,792 10,556,033
Diluted 6,810,266 869,364 547,792 10,616,864
</TABLE>
18
See accompanying notes to pro forma combined consolidated financial information.
<PAGE> 28
<TABLE>
<CAPTION>
SECOND BANCORP INCORPORATED
Pro Forma Combined Consolidated Income Statement
(Unaudited)
For the Year Ended
---------------------------------------------------------------------------------
12/31/96 9/30/96(E) 12/31/96
-----------------------------------------------------
Second Pro Forma
(In thousands, except per share data) Bancorp Trumbull Enfin Combined
-------------------------------------------------------------------------------
INTEREST INCOME
Loans (including fees):
<S> <C> <C> <C> <C>
Taxable $ 50,621 $ 16,419 $ 2,631 $ 69,671
Exempt from federal income taxes 740 - - 740
Securities: -
Taxable 11,789 15,634 120 27,543
Exempt from federal income taxes 2,205 - - 2,205
Federal funds sold 291 - 150 441
Other - 66 - 66
-------------------------------------------------------------------------------
Total interest income 65,646 32,119 2,901 100,666
INTEREST EXPENSE
Deposits 26,343 16,419 1,326 44,088
Federal funds purchased and securities
sold under agreements to repurchase 3,917 449 - 4,366
Note payable 371 - - 371
Other borrowed funds 144 - 6 150
Federal Home Loan Bank advances 1,010 4,168 - 5,178
-------------------------------------------------------------------------------
Total interest expense 31,785 21,036 1,332 54,153
-------------------------------------------------------------------------------
Net interest income 33,861 11,083 1,569 46,513
Provision for loan losses 4,956 60 56 5,072
-------------------------------------------------------------------------------
Net interest income after
provision for loan losses 28,905 11,023 1,513 41,441
NON-INTEREST INCOME
Service charges on deposit accounts 2,684 754 140 3,578
Trust fees 2,335 - - 2,335
Security gains 462 - - 462
Other operating income 2,998 1,071 102 4,171
-------------------------------------------------------------------------------
Total non-interest income 8,479 1,825 242 10,546
NON-INTEREST EXPENSE
Salaries and employee benefits 12,618 4,013 716 17,347
Net occupancy 3,017 827 164 4,008
Equipment 1,546 722 186 2,454
Professional services 1,400 171 75 1,646
Assessment on deposits and other taxes 891 1,289 72 2,252
SAIF Special Assessment - 2,471 - 2,471
Amortization of goodwill and other intangibles 864 226 - 1,090
Other operating expenses 5,940 1,858 259 8,057
-------------------------------------------------------------------------------
Total non-interest expense 26,276 11,577 1,472 39,325
-------------------------------------------------------------------------------
Income before federal income taxes 11,108 1,271 283 12,662
Income tax expense 2,556 437 - 2,993
-------------------------------------------------------------------------------
NET INCOME $ 8,552 $ 834 $ 283 $ 9,669
===============================================================================
Preferred stock dividend (456) - - (456)
-------------------------------------------------------------------------------
Net income applicable to common stock $ 8,096 $ 834 $ 283 $ 9,213
===============================================================================
EARNINGS PER COMMON SHARE (D)
Basic $ 1.33 $ 0.96 $ 0.52 $ 0.93
Diluted $ 1.27 $ 0.96 $ 0.52 $ 0.92
AVERAGE COMMON SHARES OUTSTANDING (D)
Basic 6,070,666 869,364 546,762 9,876,286
Diluted 6,749,552 869,364 546,762 10,555,172
</TABLE>
See accompanying notes to pro forma combined consolidated financial information.
19
<PAGE> 29
<TABLE>
<CAPTION>
SECOND BANCORP INCORPORATED
Pro Forma Combined Consolidated Income Statement
(Unaudited)
For the Year Ended
------------------------------------------------------------------------------
12/31/95 9/30/95(E) 12/31/95
-----------------------------------------------------
Second Pro Forma
(In thousands, except per share data) Bancorp Trumbull Enfin Combined
-------------------------------------------------------------------------------
INTEREST INCOME
Loans (including fees):
<S> <C> <C> <C> <C>
Taxable $ 48,303 $ 14,098 $ 2,140 $ 64,541
Exempt from federal income taxes 810 - - 810
Securities: -
Taxable 11,167 17,951 100 29,218
Exempt from federal income taxes 1,635 - - 1,635
Federal funds sold 629 4 209 842
Other - 64 - 64
-------------------------------------------------------------------------------
Total interest income 62,544 32,117 2,449 97,110
INTEREST EXPENSE
Deposits 25,415 15,844 1,055 42,314
Federal funds purchased and securities
sold under agreements to repurchase 4,307 1,706 - 6,013
Note payable 434 - - 434
Other borrowed funds 181 - 4 185
Federal Home Loan Bank advances 466 3,768 - 4,234
--------------------------------------------------------------------------------
Total interest expense 30,803 21,318 1,059 53,180
-------------------------------------------------------------------------------
Net interest income 31,741 10,799 1,390 43,930
Provision for loan losses 3,000 60 115 3,175
-------------------------------------------------------------------------------
Net interest income after
provision for loan losses 28,741 10,739 1,275 40,755
NON-INTEREST INCOME
Service charges on deposit accounts 2,406 508 106 3,020
Trust fees 2,227 - - 2,227
Security gains 634 202 - 836
Other operating income 2,278 996 74 3,348
-------------------------------------------------------------------------------
Total non-interest income 7,545 1,706 180 9,431
NON-INTEREST EXPENSE
Salaries and employee benefits 11,702 3,957 667 16,326
Net occupancy 2,955 787 155 3,897
Equipment 1,340 693 179 2,212
Professional services 1,534 191 40 1,765
Assessment on deposits and other taxes 1,932 1,294 82 3,308
Amortization of goodwill and other intangibles 1,000 567 - 1,567
Other operating expenses 5,563 1,829 270 7,662
-------------------------------------------------------------------------------
Total non-interest expense 26,026 9,318 1,393 36,737
-------------------------------------------------------------------------------
Income before federal income taxes 10,260 3,127 62 13,449
Income tax expense 2,695 1,123 - 3,818
-------------------------------------------------------------------------------
NET INCOME $ 7,565 $ 2,004 $ 62 $ 9,631
===============================================================================
Preferred stock dividend (1,066) - - (1,066)
-------------------------------------------------------------------------------
Net income applicable to common stock $ 6,499 $ 2,004 $ 62 $ 8,565
===============================================================================
EARNINGS PER COMMON SHARE (D)
Basic $ 1.29 $ 2.31 $ 0.12 $ 0.97
Diluted $ 1.13 $ 2.31 $ 0.12 $ 0.92
AVERAGE COMMON SHARES OUTSTANDING (D)
Basic 5,056,242 869,364 537,037 8,852,623
Diluted 6,685,384 869,364 537,037 10,481,765
</TABLE>
See accompanying notes to pro forma combined consolidated financial information.
20
<PAGE> 30
The table below presents the pro forma combined consolidated risk-based
capital information as of June 30, 1998 as it relates to the mergers and
indicates the pro forma combined risk-based capital ratios will be in excess of
regulatory minimums.
<TABLE>
<CAPTION>
Other Information as of: 6/30/98 3/31/98(E) 6/30/98
----------------------------------------
Second Pro Forma Pro Forma
Bancorp Trumbull Enfin Adjustments Combined
--------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Tier I risk-based capital $ 78,268 $ 37,204 $ 4,206 $ (4,766) $114,912
Total risk-based capital $ 85,498 $ 38,633 $ 4,659 $ (4,766) $124,024
Risk-based assets $ 648,895 $ 254,528 $ 36,147 $ 1,234 $940,804
(Ratio:)
Tier I risk-based capital 12.06% 14.62% 11.64% 12.21%
Total risk-based capital 13.18% 15.18% 12.89% 13.18%
</TABLE>
NOTES TO PRO FORMA COMBINED CONSOLIDATED FINANCIAL INFORMATION
(Unaudited)
(A) The pro forma combined consolidated balance sheet gives effect to the
Merger and the Enfin Merger at June 30, 1998 on a pooling-of-interests
accounting basis. The capital accounts have been adjusted to reflect
the issuance of 3,286,196 Shares (based upon an exchange ratio of 3.78
Shares for 1 Trumbull Share) and 520,402 Shares (based upon an exchange
ratio of .95 Shares for 1 Enfin common share) in exchange for all of
the outstanding Trumbull Shares and Enfin common shares, respectively.
(B) A liability of $4,991,000 has been recorded in the pro forma combined
consolidated balance sheet to reflect Second Bancorp management?s
estimate of anticipated expenses related to the Merger. This liability
resulted in a $3,922,000 after-tax adjustment to retained earnings and
a $1,069,000 adjustment to deferred taxes in the pro forma combined
consolidated balance sheet. The following table provides detail of the
estimated expenses:
<TABLE>
<CAPTION>
(In thousands, pre-tax)
<S> <C>
Investment banker and other professional fees $1,406
Personnel related 2,148
Other 1,437
------
Total $4,991
======
</TABLE>
Personnel related costs consist primarily of expenses related to
employment contracts, severance and other employee costs. Other
expenses include termination costs for Trumbull?s data processing
agreement, lease terminations for duplicate facilities, conversion
related and other miscellaneous fees and expenses. It is anticipated
that the majority of the expenses will be recognized within a short
period after consummation of the merger of Second Bancorp and Trumbull
and that all of the expenses will be recognized by December 31, 1998.
Management continues to review these estimates and there can be no
assurance that the actual costs will not differ in amount and type from
the amounts provided above.
(C) A liability of $1,009,000 has been recorded in the pro forma combined
consolidated balance sheet to reflect Second Bancorp management?s
estimate of anticipated expenses related to the Enfin Merger. This
liability resulted in a $844,000 after-tax adjustment to retained
earnings and a $165 adjustment to deferred taxes in the pro forma
combined consolidated balance sheet. The following table provides
detail of the estimated expenses:
21
<PAGE> 31
<TABLE>
<CAPTION>
(In thousands, pre-tax)
<S> <C>
Investment banker and other professional fees $530
Personnel related 401
Other 78
------
Total $1,009
======
</TABLE>
Personnel related costs consist primarily of expenses related to
employment contracts, severance and other employee costs. Other
expenses include primarily conversion related and other miscellaneous
fees and expenses. It is anticipated that the majority of the expenses
will be recognized within a short period after consummation of the
Enfin Merger and that all of the expenses will be recognized by
December 31, 1998. Management continues to review these estimates and
there can be no assurance that the actual costs will not differ in
amount and type from the amounts provided above.
(D) The historical share and per share information for Second Bancorp has
been restated for a two-for-one stock split effective May 1, 1997 and a
three-for-two stock split effective May 1, 1995.
(E) In accordance with the rules of the Securities and Exchange Commission,
Trumbull's financial statements and selected financial data for the
years ended September 30, 1993 through 1997 have been combined with
Second Bancorp's financial statements and selected financial data for
the year ended December 31, 1993 through 1997, respectively, for
purposes of preparing the pro forma financial information. In addition,
Second Bancorp's financial statements and selected financial data for
the six months ended June 30, 1998 and 1997 was combined with
Trumbull's financial statements and selected financial data for the six
months ended March 31, 1998 and 1997, respectively, for purposes of
preparing the pro forma financial information.
SELECTED FINANCIAL DATA OF SECOND BANCORP, TRUMBULL AND ENFIN
The following table presents selected consolidated financial data for
(a) Second Bancorp on a historical basis, (b) Trumbull on a historical basis,
(c) Enfin on a historical basis and (d) Second Bancorp, Trumbull and Enfin on an
unaudited pro forma basis. The pro forma data in the table assumes that the
acquisitions of both Trumbull and Enfin will be accounted for as
pooling-of-interests. This table should be read in conjunction with the
financial statements and other financial information on Second Bancorp and
Enfin, respectively, incorporated herein by reference and Trumbull included
elsewhere in this Prospectus/Proxy Statement and the unaudited pro forma
combined consolidated financial information giving effect to the Merger and the
Enfin Merger. See "PRO FORMA COMBINED CONSOLIDATED FINANCIAL INFORMATION
(UNAUDITED)" and "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE". The
unaudited pro forma data presented below is not necessarily indicative of the
results which actually would have been attained if the Merger and the Enfin
Merger had been consummated in the past or which may be attained in the future.
All share and per share information for Second Bancorp has been restated for a
two-for-one stock split effective May 1, 1997 and a three-for-two stock split
effective May 1, 1995.
22
<PAGE> 32
<TABLE>
<CAPTION>
Six Months Ended June 30, Year Ended December 31,
------------------------------- ----------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
------------------------------- ----------------------------------------------------------------
HISTORICAL SECOND BANCORP:
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings (In thousands,
except per share data)
Net interest income $ 17,834 $ 17,126 $ 34,751 $ 33,861 $ 31,741 $ 30,051 $ 27,263
Provision for loan losses 1,591 1,543 3,939 4,956 3,000 2,370 2,555
Net income 5,077 4,341 8,975 8,552 7,565 6,643 6,007
Net income applicable to common
shareholders 5,077 4,341 8,975 8,096 6,499 5,565 4,929
Earnings per common share:
Basic 0.74 0.65 1.33 1.33 1.29 1.11 0.99
Diluted 0.73 0.64 1.32 1.27 1.13 1.00 0.91
Cash dividends declared:
Per common share 0.26 0.24 0.48 0.44 0.38 0.32 0.29
Per preferred share - - - 0.75 1.50 1.50 1.50
Average common shares outstanding
Basic 6,837,407 6,716,961 6,749,435 6,070,666 5,056,242 4,998,408 4,976,278
Diluted 6,935,124 6,795,602 6,810,266 6,749,552 6,685,384 6,624,652 6,597,452
Average Balances
Assets 924,288 874,499 897,104 850,662 807,215 717,904 640,516
Earning assets 866,115 818,037 841,333 792,239 750,355 675,257 602,965
Deposits 668,988 656,626 669,678 663,544 637,453 580,012 532,896
Stockholders' equity 81,658 69,870 73,077 66,149 59,805 54,917 52,491
</TABLE>
23
<PAGE> 33
<TABLE>
<CAPTION>
Nine Month Period Six Months
Ended June 30, Ended June 30,
--------------------------- --------------------------
1998 1997 1998 1997
---------------------------- ---------------------------
HISTORICAL TRUMBULL:
<S> <C> <C> <C> <C>
Earnings (In thousands, except per share data)
Net interest income $ 9,589 $ 8,923 $ 6,363 $ 5,914
Provision for loan losses 180 46 120 30
Income before cumulative effect of a change
in accounting method 2,618 2,515 1,961 1,700
Net income 2,618 2,515 1,961 1,700
Earnings per common share before cumulative
effect of a change in accounting method
Basic 3.01 2.89 2.26 1.96
Diluted 3.01 2.89 2.26 1.96
Cash dividends declared per common share 1.08 0.92 .67 0.68
Average common shares outstanding:
Basic 869,364 869,364 869,364 869,364
Diluted 869,364 869,364 869,364 869,364
Average Balances
Assets 501,798 496,647 495,001 496,669
Earning assets 475,526 475,846 468,583 471,798
Deposits 377,608 371,660 376,167 371,685
Stockholders' equity 37,651 34,946 37,328 34,485
<CAPTION>
Year Ended September 30,
---------------------------------------------------------------------
1997 1996 1995 1994 1993
---------------------------------------------------------------------
Historical Trumbull:
<S> <C> <C> <C> <C> <C>
Earnings (In thousands, except per share data)
Net interest income $ 11,976 $ 11,083 $ 10,798 $ 11,911 $ 10,112
Provision for loan losses 141 60 60 60 72
Income before cumulative effect of a change
in accounting method 3,365 834 2,004 3,134 3,396
Net income 3,365 834 2,004 3,003 3,396
Earnings per common share before cumulative
effect of a change in accounting method
Basic 3.87 0.96 2.31 3.60 3.91
Diluted 3.87 0.96 2.31 3.60 3.91
Cash dividends declared per common share 1.18 0.74 0.70 0.70 0.55
Average common shares outstanding:
Basic 869,364 869,364 869,364 869,364 869,364
Diluted 869,364 869,364 869,364 869,364 869,364
Average Balances
Assets 482,359 493,697 495,011 479,818 345,017
Earning assets 458,494 471,411 473,402 461,272 325,017
Deposits 372,823 373,927 379,899 386,690 277,178
Stockholders' equity 36,369 33,829 33,732 31,659 28,944
</TABLE>
24
<PAGE> 34
<TABLE>
<CAPTION>
Six Months Ended June 30, (1)
---------------------------------
1998 1997
---------------------------------
PRO FORMA SECOND BANCORP
AND TRUMBULL COMBINED:
Earnings (In thousands, except per share data)
<S> <C> <C>
Net interest income $ 24,197 $ 23,040
Provision for loan losses 1,711 1,573
Income before cumulative effect of a change
in accounting method 7,038 6,041
Net income 7,038 6,041
Net income applicable to common shareholders 7,038 6,041
Earnings per common share before cumulative
effect of a change in accounting method
Basic 0.70 0.60
Diluted 0.69 0.60
Average common shares outstanding:
Basic 10,123,603 10,003,157
Diluted 10,221,320 10,081,798
Average Balances
Assets 1,419,289 1,371,168
Earning assets 1,334,698 1,289,835
Deposits 1,045,155 1,028,311
Stockholders' equity 118,986 104,355
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------------
1997 1996 1995 1994 1993
-----------------------------------------------------------------------------
PRO FORMA SECOND BANCORP
AND TRUMBULL COMBINED:
<S> <C> <C> <C> <C> <C>
Earnings (In thousands, except per share data)
Net interest income $ 46,727 $ 44,944 $ 42,539 $ 41,962 $ 37,375
Provision for loan losses 4,080 5,016 3,060 2,430 2,627
Income before cumulative effect of a change
in accounting method 12,340 9,386 9,569 9,777 9,403
Net income 12,340 9,386 9,569 9,646 9,403
Net income applicable to common shareholders 12,340 8,930 8,503 8,568 8,325
Earnings per common share before cumulative
effect of a change in accounting method
Basic 1.23 0.95 1.02 1.03 1.01
Diluted 1.22 0.94 0.96 0.97 0.95
Average common shares outstanding:
Basic 10,035,631 9,356,862 8,342,438 8,284,604 8,262,474
Diluted 10,096,462 10,035,748 9,971,580 9,910,848 9,883,648
Average Balances
Assets 1,379,463 1,344,359 1,302,226 1,197,722 985,533
Earning assets 1,299,827 1,263,650 1,223,757 1,136,529 927,982
Deposits 1,042,501 1,037,471 1,017,352 966,702 810,074
Stockholders' equity 109,446 99,978 93,537 86,576 81,435
</TABLE>
25
<PAGE> 35
<TABLE>
<CAPTION>
Six Months Ended June 30, (1)
---------------------------------
1998 1997
---------------------------------
HISTORICAL ENFIN:
<S> <C> <C>
Earnings (In thousands, except per share data)
Net interest income $ 1,059 $ 902
Provision for loan losses 29 69
Net income (loss) 271 146
Earnings per common share:
Basic 0.49 0.27
Diluted 0.49 0.27
Cash dividends declared per common share - -
Average common shares outstanding
Basic 547,792 547,792
Diluted 547,792 547,792
Average Balances
Assets 44,297 38,355
Earning assets 42,461 37,022
Deposits 39,729 39,432
Stockholders' equity 4,401 3,408
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------------
1997 1996 1995 1994 1993
-----------------------------------------------------------------------------
Historical Enfin:
<S> <C> <C> <C> <C> <C>
Earnings (In thousands, except per share data)
Net interest income $ 1,956 $ 1,569 $ 1,390 $ 963 $ 589
Provision for loan losses 125 56 115 33 253
Net income (loss) 917 283 62 (159) (703)
Earnings per common share:
Basic 1.67 0.52 0.12 (0.34) (1.49)
Diluted 1.67 0.52 0.12 (0.34) (1.49)
Cash dividends declared per common share - - - - -
Average common shares outstanding
Basic 547,792 546,762 537,037 472,368 472,346
Diluted 547,792 546,762 537,037 472,368 472,346
Average Balances
Assets 40,857 34,510 28,688 23,659 18,149
Earning assets 39,354 32,980 27,167 22,028 17,023
Deposits 36,936 30,997 25,389 20,688 15,103
Stockholders' equity 3,556 3,187 2,940 2,565 3,097
</TABLE>
26
<PAGE> 36
<TABLE>
<CAPTION>
Six Months Ended June 30, (1)
--------------------------------
1998 1997
--------------------------------
PRO FORMA SECOND BANCORP,
TRUMBULL AND ENFIN COMBINED:
Earnings (In thousands, except per share data)
<S> <C> <C>
Net interest income $ 25,256 $ 23,942
Provision for loan losses 1,740 1,642
Income before cumulative effect of a change
in accounting method 7,309 6,187
Net income 7,309 6,187
Net income applicable to common
shareholders 7,309 6,187
Earnings per common share before cumulative
effect of a change in accounting method
Basic 0.69 0.59
Diluted 0.68 0.58
Average common shares outstanding:
Basic 10,644,005 10,523,559
Diluted 10,741,722 10,602,200
Average Balances
Assets 1,463,586 1,409,523
Earning assets 1,377,159 1,326,857
Deposits 1,084,884 1,067,743
Stockholders' equity 123,387 107,763
<CAPTION>
Year Ended December 31, (1)
-----------------------------------------------------------------------------
1997 1996 1995 1994 1993
-----------------------------------------------------------------------------
Pro Forma Second Bancorp,
Trumbull and Enfin Combined:
Earnings (In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Net interest income $ 48,683 $ 46,513 $ 43,930 $ 42,925 $ 37,964
Provision for loan losses 4,205 5,072 3,175 2,463 2,880
Income before cumulative effect of a change
in accounting method 13,257 9,669 9,631 9,618 8,700
Net income 13,257 9,669 9,631 9,487 8,700
Net income applicable to common
shareholders 13,257 9,213 8,565 8,409 7,622
Earnings per common share before cumulative
effect of a change in accounting method
Basic 1.26 0.93 0.97 0.96 0.87
Diluted 1.25 0.92 0.92 0.92 0.84
Average common shares outstanding:
Basic 10,556,033 9,876,286 8,852,623 8,733,354 8,711,203
Diluted 10,616,864 10,555,172 10,481,765 10,359,598 10,332,377
Average Balances
Assets 1,421,817 1,380,577 1,333,131 1,222,430 1,005,839
Earning assets 1,339,181 1,296,630 1,250,924 1,158,555 945,005
Deposits 1,081,439 1,068,468 1,042,741 987,384 825,177
Stockholders' equity 113,002 103,165 96,477 89,141 84,532
<FN>
(1) In accordance with the rules of the Securities and Exchange Commission,
Trumbull's selected financial data for the years ended September 30,
1993 through 1997 has been combined with Second Bancorp's selected
financial data for the year ended December 31, 1993 through 1997,
respectively, for purposes of preparing the pro forma financial
information. In addition, Second Bancorp's selected financial data for
the six months ended June 30, 1998 and 1997 was combined with
Trumbull's selected financial data for the six months ended March 31,
1998 and 1997, respectively, for purposes of preparing the pro forma
financial information.
</FN>
</TABLE>
27
<PAGE> 37
COMPARATIVE PER SHARE DATA
The following table sets forth certain per share data, adjusted for all
applicable stock splits, relating to net income, cash dividends declared and
book value: (i) on a historical basis for Second Bancorp, Trumbull and Enfin,
(ii) on an unaudited pro forma basis per Share, reflecting Second Bancorp's
consummation of (a) the Merger and (b) the Enfin Merger, (iii) on an unaudited
pro forma equivalent basis per Trumbull Share, reflecting Second Bancorp's
consummation of (a) the Merger and (b) the Enfin Merger, and (iv) on an
unaudited pro forma equivalent basis per common share of Enfin, reflecting
Second Bancorp's consummation of the Merger and the Enfin Merger. Such unaudited
pro forma information has been prepared (i) assuming an Exchange Ratio of 3.78
Shares and .95 Shares for each Trumbull Share and common share of Enfin,
respectively, outstanding immediately prior to the Merger and the Enfin Merger,
and (ii) giving effect to the Merger and the Enfin Merger on a
pooling-of-interests accounting basis. The unaudited pro forma income statement
assumes that the Merger and the Enfin Merger were consummated as of the
beginning of each of the periods indicated. The unaudited pro forma balance
sheet information assumes the Merger and the Enfin Merger occurred on December
31, 1997.
The following information should be read in conjunction with the
historical financial statements of Second Bancorp and Enfin incorporated by
reference in the Prospectus/Proxy Statement and the historical financial
statements of Trumbull included elsewhere in the Prospectus/Proxy Statement and
the unaudited pro forma combined consolidated financial information giving
effect to the Merger and the Enfin Merger included elsewhere in the
Prospectus/Proxy Statement. See "PRO FORMA COMBINED CONSOLIDATED FINANCIAL
INFORMATION (UNAUDITED)" and "SELECTED FINANCIAL DATA OF SECOND BANCORP,
TRUMBULL AND ENFIN" and "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
The earnings data presented below does not include merger-related
charges and/or anticipated cost savings from the consolidation of the operations
of Second Bancorp, Trumbull and Enfin, and is not necessarily indicative of the
results which actually would have been attained had the Merger and Enfin Merger
been consummated in the past or which may be attained in the future.
<TABLE>
<CAPTION>
Six Months
Ended June 30, Year ended December 31,
--------------------------------------------------------------
1998 1997 1997 1996 1995
--------------------------------------------------------------
SECOND BANCORP COMMON STOCK
Earnings per common share before cumulative
effect of accounting changes:
Historical
<S> <C> <C> <C> <C> <C>
Basic $ 0.74 $ 0.65 $ 1.33 $ 1.33 $ 1.29
Diluted 0.73 0.64 1.32 1.27 1.13
Pro forma Second Bancorp and Trumbull
Basic 0.70 0.60 1.23 .95 1.02
Diluted 0.69 0.60 1.22 .94 .96
Pro forma Second Bancorp, Trumbull and Enfin (1)
Basic 0.69 0.59 1.26 0.93 0.97
Diluted 0.68 0.58 1.25 0.92 0.92
Cash dividends declared per common share (2)
Historical 0.26 0.24 0.48 0.44 0.38
Book value per common share at period-end (1)
Historical 12.22 10.73 11.68 10.34 10.40
Pro forma Second Bancorp and Trumbull 12.01 10.72 11.51 10.32 10.35
Pro forma Second Bancorp, Trumbull and Enfin 11.85 10.52 11.35 10.13 10.09
</TABLE>
28
<PAGE> 38
<TABLE>
<CAPTION>
Six Months
Ended March 31, Year ended December 31,
--------------------------------------------------------------
1998 1997 1997 1996 1995
--------------------------------------------------------------
TRUMBULL SHARES
Earnings per common share before cumulative
effect of accounting changes:
<S> <C> <C> <C> <C> <C>
Historical $ 2.26 $ 1.96 $ 3.87 $ 0.96 $ 2.31
Basic 2.26 1.96 3.87 0.96 2.31
Diluted
Pro forma equivalent Second Bancorp and Trumbull (4)
Basic 2.65 2.27 4.65 3.59 3.86
Diluted 2.61 2.27 4.61 3.55 3.63
Pro forma equivalent Second Bancorp,
Trumbull and Enfin (1)(4)
Basic 2.61 2.23 4.76 3.52 3.67
Diluted 2.57 2.19 4.73 3.48 3.48
Cash dividends declared per common share (2)
Historical 0.67 0.68 1.18 0.74 0.70
Pro forma equivalent 0.98 0.91 1.81 1.66 1.44
Book value per common share at period-end (1)
Historical 43.80 40.38 42.14 38.91 38.80
Pro forma equivalent Second Bancorp and Trumbull (4) 45.41 40.50 43.22 38.01 37.76
Pro forma equivalent Second Bancorp, Trumbull 44.80 39.76 42.89 38.30 38.14
and Enfin (4)
<CAPTION>
Six Months
Ended June 30, Year ended December 31,
--------------------------------------------------------------
1998 1997 1997 1996 1995
--------------------------------------------------------------
ENFIN COMMON STOCK
Earnings per common share before cumulative
effect of accounting changes:
Historical
<S> <C> <C> <C> <C> <C>
Basic $ 0.49 $ 0.27 $ 1.67 $ 0.52 $ 0.12
Diluted 0.49 0.27 1.67 0.52 0.12
Pro forma equivalent Second Bancorp and Enfin (3)
Basic 0.69 0.59 1.29 1.21 1.12
Diluted 0.68 0.58 1.28 1.16 1.01
Pro forma equivalent Second Bancorp,
Trumbull and Enfin (1) (3)
Basic 0.66 0.56 1.20 0.88 0.92
Diluted 0.65 0.55 1.19 0.87 0.87
Cash dividends declared per common share (2)
Historical -- -- -- -- --
Pro forma equivalent 0.25 0.23 0.46 0.42 0.36
Book value per common share at period-end (1)
Historical 8.29 6.37 7.80 6.11 5.61
Pro forma equivalent Second Bancorp and Enfin (3) 11.41 10.18 10.86 9.55 9.49
Pro forma equivalent Second Bancorp, 11.26 9.99 10.78 9.62 9.59
Trumbull and Enfin (3)
</TABLE>
29
<PAGE> 39
<TABLE>
<S> <C>
<FN>
(1) In accordance with the rules of the Securities and Exchange Commission, Trumbull's financial information for the years
ended September 30, 1995 through 1997 have been combined with Second Bancorp's financial information for the years ended
December 31, 1995 through 1997, respectively.
(2) No assurance can be given that equivalent dividends will be declared in the future. The amount of future dividends payable
by Second Bancorp will depend upon the earnings and financial condition of Second Bancorp, and other factors, including
applicable regulations and policies.
(3) The equivalent pro forma combined per share data for Trumbull Shares represents, in the case of book value and earnings per
common share, the pro forma per share data for the Shares multiplied by the Exchange Ratio (i.e., 3.78), and in the case of
dividends declared, the historical per share data of the Shares multiplied by the Exchange Ratio (i.e., 3.78).
(4) The equivalent pro forma combined per share data for Enfin represents, in the case of book value and earnings per common
share, the pro forma per share data for the Shares multiplied by the Exchange Ratio (i.e., .95), and in the case of
dividends declared, the historical per share data of the Shares multiplied by the Exchange Ratio (i.e., .95). </FN>
</TABLE>
Second Bancorp will list the Shares to be issued in the Merger on the
Nasdaq National Market under the symbol SECD.
THE MERGER
INTRODUCTION
This Prospectus/Joint Proxy Statement constitutes both a Prospectus of
Second Bancorp in respect of the Shares to be issued in connection with the
Merger and the Proxy Statements of Second Bancorp and Trumbull for use in
connection with the solicitation of proxies by the Boards of Directors of Second
Bancorp and Trumbull to be used at the Second Bancorp Special Meeting and the
Trumbull Special Meeting, respectively. This Prospectus/Joint Proxy Statement is
being mailed to shareholders of Second Bancorp and Trumbull commencing on or
about _______ __, 1998.
All information contained in this Prospectus/Joint Proxy Statement
relating to Second Bancorp has been furnished by Second Bancorp, except for the
information relating to Second Bancorp included in the sections of this
Prospectus/Joint Proxy Statement entitled "SUMMARY - Opinion of McDonald &
Company Securities, Inc." and "THE MERGER - Opinion of McDonald & Company
Securities, Inc." which was furnished by McDonald & Company. All information
relating to Trumbull has been furnished by Trumbull. The party furnishing any
such information is responsible for the accuracy thereof.
BACKGROUND AND REASONS FOR THE MERGER
SECOND BANCORP. Second Bancorp's long-term business strategies include
the strategy to grow the company (i) internally by development and sales
activity in currently served markets and by de novo branching into new markets,
and (ii) externally by in-market and near-market branch and whole bank and
thrift acquisitions. Both Second Bancorp and Trumbull are, and have been since
incorporation, headquartered in Warren, Ohio and their respective operating
subsidiaries, the Bank and Trumbull Savings, have been in-market competitors for
more than 100 years. Second Bancorp's growth strategy and the close competitive
relationship and mutual respect shared by both companies led to informal merger
discussions during the early part of this decade. Though those discussions were
mutually discontinued, the re-institution of merger negotiations at a later time
was not forestalled by either company.
30
<PAGE> 40
During a January 1998 general review by Second Bancorp executives of
potential acquisition opportunities, the decision was made to seek renewal of
merger discussions with Trumbull. As a consequence of that decision, letters
informally proposing merger discussions were delivered to Trumbull's Board of
Directors and to its President and Chief Executive Officer on February 12, 1998.
Shortly thereafter, Second Bancorp was informed by Trumbull that its Board had
taken the matter under advisement and that it would respond to the initiative in
due course.
In early March 1998, Second Bancorp was contacted by an investment
banker retained by Trumbull and informed of Trumbull's intention to seek
"indications of interest" in acquiring Trumbull from an undisclosed number of
potentially interested parties. Trumbull's offering memorandum containing
detailed information about Trumbull was received by Second Bancorp on or about
March 26, 1998. Following Second Bancorp management's comprehensive review of
the offering material with its Board of Directors on April 3, 1998, and analysis
of the financial impact of an acquisition on Second Bancorp and its
shareholders, a written indication of interest was submitted to Trumbull on
April 6, 1998. Subsequent discussions and a face-to-face meeting between Second
Bancorp Board and management representatives and Trumbull's entire Board of
Directors, led to the commencement of formal merger negotiations. After Second
Bancorp's due diligence examination of Trumbull and approval of the definitive
terms and conditions of the proposed transaction by Second Bancorp's Board of
Directors on May 4, 1998, Second Bancorp entered into the Agreement on May 4,
1998.
Second Bancorp's interest in acquiring Trumbull is primarily based
upon: (i) the natural complement that Trumbull's real estate lending strength
and expertise represents to Second Bancorp's own mortgage loan function as well
as to its commercial lending and trust lines of business; (ii) the opportunity
to acquire and further develop Trumbull's attractive deposit and loan customer
base and to obtain the services of Trumbull's highly qualified and respected
branch, lending and support staffs, (iii) the anticipated enhancement of Second
Bancorp's earnings per share post-acquisition resulting from operating
efficiencies created by combination of the companies and (iv) the anticipated
improvement in Second Bancorp's efficiency ratio and return on equity following
the Merger.
TRUMBULL. The following discussion refers to certain provisions of the
Agreement. The discussion to follow is qualified in its entirety by reference to
the full text of the Agreement, a copy of which is included as Annex A to this
Prospectus/Joint Proxy Statement. All shareholders are urged to read the
Agreement in its entirety. See also "BUSINESS OF TRUMBULL" for a discussion of
the historical development of Trumbull and Trumbull Savings.
In the summer of 1997, Trumbull Savings was reorganized by converting
its charter from a savings association to a savings bank charter, and into a
holding company format so that Trumbull Savings became a wholly owned subsidiary
of Trumbull. The former shareholders of Trumbull Savings became the shareholders
of Trumbull. This reorganization was intended to create opportunities for
business expansion that would not have been available to Trumbull Savings or
would have been available at substantially higher costs. The management and
Directors of Trumbull believed that the reorganized company would provide
significant opportunities to enter new product and service markets, which was
especially important in light of the consolidation of the financial services
industry. In 1997, Trumbull also commenced a geographic expansion through
applying for regulatory approval for the opening of a branch office outside its
traditional territory, to be located in Twinsburg, Ohio, approval for which was
obtained in January 1998. Trumbull's strategic plan envisioned continuation of
the business as an independently run institution.
During the fall of 1997, Phyllis Izant and James Izant, in their
capacities as shareholders, met with investment bankers, including
representatives of Sandler O'Neill & Partners, L.P., to explore the long term
alternatives available for their family and for Trumbull. At the regular meeting
of the Trumbull Board of Directors on November 17, 1997, the Izants discussed
their exploratory talks with the Board, and recommended to the Board that
Sandler O'Neill & Partners, L.P. be engaged for the purpose of evaluating
Trumbull Savings' budget and strategic plan, as well as for the purpose of
advising Trumbull with respect to the current and future market conditions and
internal plans of Trumbull Savings.
31
<PAGE> 41
As a result of discussions at the November 17, 1997 regular meeting of
the Board, President P. Scott Carson and James R. Izant were authorized by the
Board of Directors to identify an investment banker to make a presentation to
the Board at the regular meeting in December. At the invitation of Trumbull
Savings, Sandler O'Neill made a presentation at the December meeting concerning
Trumbull Savings, including analyses of Trumbull Savings' competitive position
in its market, comparison of Trumbull Savings to other institutions regionally,
earnings projections for Trumbull Savings and analyses of merger trends
nationwide and in the Midwest. The December 1997 regular Board meeting concluded
without a determination by the Board to pursue a sale strategy or, on the other
hand, to pursue a strategy of independence consistent with the strategic plan
adopted in September 1997.
At the January 21, 1998 regular meeting of the Board, Phyllis Izant and
James Izant advised the Board that they and their sisters had concluded, as
shareholders, that they believed that it would be appropriate for Trumbull to
seek a merger partner. Giving consideration to issues such as maximizing
shareholder value, including consideration of short- and long-term growth
potential of an acquiror's stock, minimizing any adverse effects on employees
and customers of Trumbull Savings, maintaining Trumbull Savings' competitive
position, obtaining through one or more seats on the acquiring institution's
board of directors the ability to influence the direction of the institution
into which Trumbull would merge, and fulfilling the Board's duty to shareholders
throughout the sale process, the Board voted unanimously to begin the process of
seeking a merger partner.
The Board voted unanimously at the January 21, 1998 meeting to retain
Sandler O'Neill as investment banker on behalf of Trumbull Savings and Trumbull.
At the January 21, 1998 meeting, the Board also authorized creation of a special
committee to act as principal contact with and to negotiate the terms of
engagement of Sandler O'Neill, and to make recommendations for engagement of a
law firm to represent Trumbull in merger negotiations. The members of the
special committee were James R. and Phyllis J. Izant and President P. Scott
Carson.
Prior to the Board's regular meeting held on February 18, 1998,
President Carson had received an unsolicited indication of interest and letter
of intent from Mr. Alan G. Brant, Chairman and President of Second Bancorp and
Director, President and Chief Executive Officer of The Second National Bank of
Warren. At the February 18, 1998 regular meeting, Sandler O'Neill presented the
Board with a list of potential merger partners, including Second Bancorp.
Following discussion, the Board authorized Sandler O'Neill to initiate contact
with approximately eight to ten institutions.
By April 9, 1998, Sandler O'Neill had evaluated proposals received from
five potential merger partners, one of which was Second Bancorp and the other
four of which were also commercial bank or commercial bank holding company
organizations. Sandler O'Neill made a presentation concerning the five proposals
to Trumbull's Board at a special meeting held on April 9, 1998. After
consideration of such factors as financial analyses of the five organizations,
analyses of their individual proposals, industry merger and acquisition trends,
the recent history of merger pricing and analyses of the financial aspects of a
combination with each of the five institutions projected over a five-year
period, and the potential impact of the transactions on the community and on
Trumbull's employees and customers, the Board decided to pursue two of the
proposals in greater detail.
The five proposals received by Trumbull bore many similarities,
although they were not identical in their form. All proposals contemplated
acquisition by the end of 1998 in a tax-free, stock-for-stock merger to be
accounted for as a pooling-of-interests. Similar to the acquisition structure
proposed by two other potential acquirors, the proposal of Second Bancorp
provided for merger of Trumbull with and into Second Bancorp, and merger of
Trumbull Savings with and into The Second National Bank of Warren, with Second
Bancorp and its subsidiary bank being the surviving entities in such mergers.
Two proposals would have provided for continuation of Trumbull Savings as a
separate depository institution subsidiary.
Finally, all five proposals contemplated that at least one Trumbull
director would serve as director of the acquiring company, and all five
proposals contemplated multiple director seats at the subsidiary institution
level.
32
<PAGE> 42
Following evaluation of the five separate proposals at the April 9,
1998 special meeting of the Trumbull Board and Sandler O'Neill's presentation
concerning the proposals, the Trumbull Board decided to pursue the two proposals
representing the greatest merger prices, arranging to meet with representatives
of the two potential acquirors the following day. Immediately after the Board's
meeting with representatives of the two potential acquirors on the following
day, the Trumbull Board held another special meeting, voting unanimously to
proceed with acquisition discussions with Second Bancorp.
Second Bancorp's bid was the highest of the five proposals.
Commencing immediately after the April 10, 1998 special meeting of the
Trumbull Board, Trumbull and Second Bancorp entered into arm's-length
negotiations in respect of the terms and conditions of the Agreement. On Friday,
May 1, 1998, the Trumbull Board held a special meeting to consider the
transaction terms and conditions memorialized in the Agreement. At that meeting
on May 1, 1998, the Board of Directors again reviewed the Second Bancorp
proposal, including the financial terms and conditions of the fixed exchange
rate, and revisited the financial, market and dividend history of Trumbull and
Second Bancorp. After extensive consideration of the terms and conditions of the
Agreement and other related matters, and after Second Bancorp agreed to certain
changes to the Agreement proposed at that May 1, 1998 special meeting, the
Trumbull Board unanimously approved the revised terms and conditions of the
Agreement at a special meeting on Monday, May 4, 1998, at which time the
Agreement was executed. Based upon the $37.25 closing price of the Shares on May
1, 1998 (the last full trading day preceding the Board meeting on May 4, 1998),
the value of the 3.78 Shares to be issued in exchange for each Trumbull Share
equaled $140.81, for a total aggregate value of $122.4 million for all issued
and outstanding Trumbull Shares.
THE TRUMBULL BOARD BELIEVES THAT THE MERGER IS IN THE BEST INTERESTS OF
TRUMBULL AND ITS SHAREHOLDERS. ACCORDINGLY, THE TRUMBULL BOARD RECOMMENDS
UNANIMOUSLY THAT TRUMBULL SHAREHOLDERS VOTE FOR APPROVAL AND ADOPTION OF THE
AGREEMENT AND THE MERGER. For information regarding interests of directors and
executive officers of Trumbull in the Merger, see "THE MERGER -- Interests of
Certain Persons in the Merger."
OPINION OF MCDONALD & COMPANY SECURITIES, INC.
Second Bancorp has retained McDonald & Company Securities, Inc.
("McDonald & Company") as its financial advisor in connection with the Merger
and requested that McDonald & Company render its opinion with respect to the
fairness, from a financial point of view, of the Exchange Ratio to the holders
of Shares. McDonald & Company rendered its oral opinion to the Board of
Directors of Second Bancorp on May 4, 1998, which it subsequently confirmed in
writing, that as of the date of such opinion, the Exchange Ratio pursuant to the
Merger was fair, from a financial point of view, to the holders of the Shares.
THE FULL TEXT OF THE OPINION OF MCDONALD & COMPANY, UPDATED AS OF THE
DATE OF THIS PROSPECTUS/JOINT PROXY STATEMENT, WHICH SETS FORTH CERTAIN
ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEWS UNDERTAKEN,
IS ATTACHED AS ANNEX C TO THIS PROSPECTUS/JOINT PROXY STATEMENT, AND SHOULD BE
READ IN ITS ENTIRETY. THE SUMMARY OF THE OPINION OF MCDONALD & COMPANY SET FORTH
IN THIS PROSPECTUS/JOINT PROXY STATEMENT IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE OPINION. MCDONALD & COMPANY'S OPINION SHOULD NOT BE CONSTRUED
BY HOLDERS OF THE SHARES AS A RECOMMENDATION AS TO HOW SUCH HOLDERS SHOULD VOTE
AT THE SPECIAL MEETING.
In arriving at its opinion, McDonald & Company reviewed, among other
things, the Agreement together with exhibits and schedules thereto, certain
publicly available information relating to the business, financial condition and
operations of Second Bancorp and Trumbull as well as certain other non-public
information, primarily financial in nature, furnished to it by Second Bancorp
and Trumbull relating to the respective businesses, earnings, assets, financial
forecasts and prospects. McDonald & Company also held discussions with members
of senior management of Second Bancorp and Trumbull concerning their respective
businesses, assets, financial forecasts and prospects. McDonald & Company also
reviewed certain publicly available information concerning the trading of, and
the trading market for, the Shares and Trumbull Shares and certain publicly
available information concerning comparable companies and transactions, all as
more fully set forth in McDonald & Company's opinion.
33
<PAGE> 43
McDonald & Company was not engaged to and did not conduct a physical
inspection of any of the assets, properties or facilities of either Second
Bancorp or Trumbull, and was not engaged to conduct and has not made, obtained
or been furnished with any independent evaluation or appraisal of any such
assets, properties or facilities or any of the liabilities of Second Bancorp or
Trumbull. McDonald & Company has assumed and relied, without independent
investigation, upon the accuracy and completeness of the financial and other
information provided to it or publicly available, has relied upon the
representations and warranties of Second Bancorp and Trumbull contained in the
Agreement, and has not independently attempted to verify any such information.
McDonald & Company has also assumed that all of the conditions to the Merger as
set forth in the Agreement, including the tax-free nature of the reorganization
for federal income tax purposes, would be consummated on a timely basis in the
manner contemplated by the Agreement. No limitations were imposed by Second
Bancorp upon McDonald & Company with respect to the scope of its investigation
nor were any specific instructions given to McDonald & Company in connection
with its opinion.
In connection with rendering its opinion dated May 4, 1998, and as
updated to the date of this Prospectus/Joint Proxy Statement, McDonald & Company
considered a variety of financial analyses, which are summarized below. McDonald
& Company believes that its analyses must be considered as a whole and that
selecting portions of such analyses and of the factors considered by McDonald &
Company without considering all such analyses and factors may create an
incomplete view of the analytical process underlying McDonald & Company's
opinion. In its analyses, McDonald & Company made numerous assumptions with
respect to industry performance, business and economic conditions and other
matters. Any estimates contained in McDonald & Company's analyses are not
necessarily indicative of future results or values, which may be significantly
more or less favorable than such estimates.
The following is a summary of selected analyses considered by McDonald
& Company and discussed with the Second Bancorp Board of Directors, in
connection with McDonald & Company's opinion dated May 4, 1998:
Introduction. McDonald & Company calculated the offer price per share,
offer price to March 31, 1998 book value, offer price to last twelve months
earnings per share at March 31, 1998, and offer price to estimated fiscal 1998
and fiscal 1999 earnings per share for Trumbull implied by the Exchange Ratio.
Using Second Bancorp's May 1, 1998 closing price of $37.25, the Exchange Ratio
implied a price per share for Trumbull of $140.81, a price to diluted book value
of 321.4%, a price to last twelve months earnings per share of 33.8x and a price
to estimated 1998 and 1999 (including estimated costs savings) earnings per
share of 31.6x and 18.4x, respectively. Earnings per share estimates were based
upon the financial forecasts of management of Second Bancorp and Trumbull.
Comparison with Selected Companies. McDonald & Company compared the
financial performance and stock market valuation of Second Bancorp with
corresponding data for the following selected companies: Area Bancshares Corp.,
BancFirst Ohio Corp., Brenton Banks Inc., Citizens Bancshares, Inc., Community
Trust Bancorp, F&M Bancorp., First Financial Corp., First Oak Brook Bancshares,
FirstFederal Financial Services Corp, Independent Bank Corp, Irwin Financial
Corp., Lakeland Financial Corp., Merchants Bancorp, Inc., Mid-America Bancorp,
Midwest Banc Holdings Inc., Mississippi Valley Bancshares, Old Second Bancorp
Inc, Peoples Bancorp Inc., Shoreline Financial Corp. and Wintrust Financial
Corp. (collectively, the "Second Bancorp Peer Group"). This analysis indicated,
among other things, that (i) the median price to last twelve months earnings per
share for the Second Bancorp Peer Group was 21.9x as compared to Second
Bancorp's multiple of price to last twelve months earnings per share of 27.2x,
and (ii) the median price to book value per share for the Second Bancorp Peer
Group was 289.6% as compared to Second Bancorp's multiple of price to book value
per share of 314.3%.
McDonald & Company also compared the financial performance and stock
market valuation of Trumbull with corresponding data for the following selected
companies: 1st Bancorp, Camco Financial Corp., Emerald Financial Corp.,
Enterprise Federal Bancorp, Fidelity Financial of Ohio, Glenway Financial Corp,
Hallmark Capital Corp., Harrington Financial Group, HF Financial Corp., Home
Federal Bancorp, NASB Financial Inc., Permanent Bancorp Inc., PVF Capital Corp.
and Winton Financial Corp. (collectively, the "Trumbull Peer Group"). This
analysis indicated, among other things, that (i) the median price to last twelve
months earnings per share for the Trumbull Peer Group was 18.0x as compared to
Trumbull's multiple of price to last twelve months
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earnings per share of 13.6x, and (ii) the median price to book value per share
for the Trumbull Peer Group was 184.0% as compared to Trumbull's multiple of
price to book value per share of 129.0%.
At the time, none of the companies in the Second Bancorp Peer Group or
the Trumbull Peer Group had announced a merger transaction or disclosed a
possible interest in pursuing a possible merger transaction which could have
significantly affected such companies' stock market valuations.
Contribution Analysis. McDonald & Company analyzed the contribution of
each of Trumbull and Second Bancorp to, among other things, the shareholders'
equity and after-tax net income of the pro forma combined company. This analysis
showed that, among other factors, Trumbull would have contributed 36.1%, 32.0%,
and 28.0% of the assets, shareholders' equity, and net income of the pro forma
combined company as of and for the twelve months ended March 31, 1998,
respectively. This compared with a proposed ownership of 32.5% of the combined
company to be held by holders of Trumbull Shares.
Pro Forma Merger Analyses. McDonald & Company analyzed certain pro
forma effects resulting from the Merger on the pro forma combined company over a
five year period from 1999 through 2003. This analysis, based upon the financial
forecasts of management of Second Bancorp and Trumbull and including estimates
of cost savings provided by the management of Second Bancorp and Trumbull,
showed approximately 8.3% accretion for Second Bancorp in pro forma earnings per
share in 1999 and approximately 8.8% accretion in pro forma earnings per share
in 2000. McDonald & Company also analyzed the changes in per share amount of
book value, tangible book value and indicated dividend represented by one Share
after the Merger. The analysis was performed on the basis of financial
information for both companies as of and for the years ended December 31, 1998
through December 31, 2002. The analysis indicated, among other things, that
exchanging one share of Trumbull Shares at the Exchange Ratio for 3.78 Shares on
a pro forma basis would have resulted in a 1.2% decrease in book value per share
for each Share at December 31, 1998, a 0.7% decrease in tangible book value per
share for each Share at December 31, 1998, and no change in dividends per Share
based on Second Bancorp's indicated annual dividend rate as of May 4, 1998.
Analysis of Selected Merger Transactions. McDonald & Company reviewed
five groups of selected pending and completed thrift merger transactions
involving (i) selling thrifts headquartered in the states of Indiana, Illinois,
Kentucky, Michigan, New York, Ohio, Pennsylvania, and West Virginia; (ii)
selling thrifts having total assets of between $250 million and $750 million;
(iii) selling thrifts having an equity to assets ratio of between 7.00% and
9.00%; (iv) selling thrifts having a return on average assets ratio of between
0.50% and 0.90%; and (v) selling thrifts having non-performing assets as a
percent of total assets of less than 0.50%. McDonald & Company reviewed the
ratios of the offer value to stated book value and tangible book value, the
multiple of the last twelve months earnings of the acquired company, and the
ratio of the offer value to assets in each such transaction and computed median
ratios and multiples for each group. The calculations yielded ranges of median
ratios of price to stated book value of 177% to 234%. Median ratios of price to
tangible book value ranged from 197% to 236%. Median multiples of earnings among
the five groups ranged from 22.5x to 27.2x. Median ratios of offer value to
assets ranged from 18.8% to 24.5%. Applying the median of the medians for each
of these four ratios to Trumbull's actual per share financial data as of March
31, 1998 showed an imputed reference range of $89 to $109 per share of Trumbull
Shares.
No company or transaction used in the above analyses as a comparison is
identical to Second Bancorp, Trumbull, or the Merger. Accordingly, an analysis
of the results of the foregoing necessarily involves complex considerations and
judgments concerning the differences in financial and operating characteristics
of the companies and other factors that could affect the public trading values
or acquisition values of the companies to which they are being compared.
Mathematical analysis (such as determining the mean or median) is not, in
itself, a meaningful method of using comparable company or comparable
transaction data.
Discounted Cash Flow Analysis. Using a discounted cash flow analysis,
McDonald & Company estimated the present value of the future streams of
after-tax cash flows that Trumbull could produce over a five year period from
1999 through 2003, under various assumptions, based upon Second Bancorp's and
Trumbull's management forecasts. McDonald & Company then estimated the terminal
value of Trumbull after the five year period by
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applying an estimated perpetual growth rate to the terminal year's projected
after-tax cash flow and then applied to this multiples ranging from 10.0x to
16.7x. The five year cash flow streams and terminal values were then discounted
to present values using different discount rates chosen to reflect different
assumptions regarding the required rates of return of prospective buyers of
Trumbull. On the basis of such varying assumptions, this discounted cash flow
analysis indicated a reference range of $92 to $146 per share of Trumbull
Shares. This analysis was based upon Second Bancorp's and Trumbull's management
forecasts including variations and assumptions made by McDonald & Company, which
included adjustments to reflect the anticipated effects of potential
merger-related cost savings estimated by Second Bancorp and Trumbull.
Management's projections are based upon many factors and assumptions, many of
which are beyond the control of Second Bancorp or Trumbull. As indicated above,
this analysis is not necessarily indicative of actual values or actual future
results and does not purport to reflect the prices at which any securities may
trade at the present time or at any time in the future.
Other Analysis. In addition to performing the analyses summarized
above, McDonald & Company also considered its analysis of the general market for
bank and thrift mergers, Trumbull's relative share of the deposit market that it
serves and the general economic conditions and prospects of those markets.
In arriving at it opinion, McDonald & Company placed significant weight
on the Pro Forma Merger Analysis and Contribution Analysis. The disparity
between the valuation levels of Second Bancorp's Common Stock and the Second
Bancorp Peer Group (and other bank stocks) affects the comparison of the value
of the Merger in nominal terms to the value indicated in the Analysis of
Comparable Companies, Selected Merger Transactions and Discounted Cash Flow
above. Application of these three valuation techniques to the proposed Merger
indicated that an Exchange Ratio lower than that contemplated by the Agreement
would have been appropriate. However, the relative illiquidity of the market for
Shares, the lack of abundant equity research coverage, the relatively small
number of market makers for the Shares, as well as the relationship of various
measures of Second Bancorp's financial performance to those for companies
included in the Second Bancorp Peer Group led McDonald & Company to give more
weight to valuation methods in which the market valuation of the Shares was not
a central component of the analysis. In rendering its oral opinion to the Board
of Directors of Second Bancorp on May 4, 1998, McDonald & Company discussed with
the Second Bancorp Board of Directors its determination that the Shares were
valued at higher multiples of earnings and book value as compared to both the
Second Bancorp Peer Group and other potential acquirors of Trumbull. McDonald &
Company also extensively discussed with the Second Bancorp Board of Directors
the implications that such trading multiples would have on Second Bancorp's
ability to offer Trumbull a nominally higher offer value in a stock for stock
exchange while limiting the dilution in ownership and enhancing the accretion to
earnings per share to the current Second Bancorp shareholders.
In performing its analyses, McDonald & Company made numerous
assumptions with respect to industry performance, general business and economic
conditions and other matters. The analyses performed by McDonald & Company are
not necessarily indicative of actual values, which may be significantly more or
less favorable than the values suggested by such analyses. Such analyses were
prepared solely as part of McDonald & Company's opinion.
The term "fair from a financial point of view" is a standard phrase
contained in investment banker fairness opinions and refers to the fact that
McDonald & Company's opinion as to the fairness of the Exchange Ratio is
addressed solely to the financial attributes of the Exchange Ratio. The analyses
do not purport to be appraisals or to reflect the prices at which a company
might actually be sold. In addition, as described above, McDonald & Company's
fairness opinion was one of many factors taken into consideration by the Second
Bancorp Board of Directors in making its determination to approve the Agreement.
Consequently, the McDonald & Company analyses described above should not be
viewed as determinative of the Second Bancorp Board of Directors' conclusions
with respect to the value of Trumbull or of the decision of the Second Bancorp
Board of Directors to agree to the Exchange Ratio.
McDonald & Company's opinion is based on economic and market conditions
and other circumstances existing on, and information made available as of, the
date of such opinion. In addition, the opinion does not address Second Bancorp's
underlying business decision to effect the Merger or any other terms of the
Merger.
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McDonald & Company is not rendering any opinion as to the value of the Shares or
Trumbull Shares at the Effective Time.
In connection with its opinion dated as of the date of this
Prospectus/Joint Proxy Statement, McDonald & Company performed procedures to
update certain of its analyses and reviewed the assumptions on which such
analyses were based and the factors considered therewith.
McDonald & Company, as part of its investment banking business, is
customarily engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes. McDonald & Company has
extensive experience with the valuation of financial institutions. Second
Bancorp's Board of Directors selected McDonald & Company as its financial
advisor because of McDonald & Company's industry expertise with respect to
financial institutions and because of McDonald & Company's experience in
transactions similar to the Merger. McDonald & Company is not affiliated with
either Second Bancorp or Trumbull.
In the ordinary course of business, McDonald & Company makes a market
in the Shares and may actively trade the securities of Second Bancorp and
Trumbull for its own account and for the accounts of its customers. Accordingly,
at any time McDonald & Company may hold a long or short position in such
securities. In addition, McDonald & Company has provided investment banking
services to Second Bancorp in the past, for which it has received customary
compensation, and may provide such services to Second Bancorp in the future.
For its services as financial advisor, Second Bancorp has paid McDonald
& Company a fee of $75,000 upon the rendering of McDonald & Company's May 4,
1998 fairness opinion and an additional fee of $75,000 upon the rendering of the
opinion dated as of the date of this Prospectus/Joint Proxy Statement.
Additional fees equal to approximately $50,000 will be payable to McDonald &
Company upon consummation of the Merger. Second Bancorp has also agreed to
reimburse McDonald & Company for its reasonable out-of-pocket expenses and to
indemnify McDonald & Company against certain liabilities, including certain
liabilities under federal securities laws.
OPINION OF SANDLER O'NEILL & PARTNERS, L.P.
Pursuant to an engagement letter dated as of January 22, 1998 (the
"Sandler Agreement"), Trumbull retained Sandler O'Neill as an independent
financial advisor in connection with Trumbull's consideration of a possible
business combination with a second party. Sandler O'Neill is a nationally
recognized investment banking firm whose principal business specialty is banks
and savings institutions, and as part of its investment banking business, is
regularly engaged in the valuation of such businesses and their securities in
connection with mergers and acquisitions and other corporate transactions.
Pursuant to the terms of the Sandler O'Neill Agreement, Sandler O'Neill
acted as financial advisor to Trumbull in connection with the Merger. In
connection therewith, the Trumbull Board requested Sandler O'Neill to render its
opinion as to the fairness, from a financial point of view, of the Exchange
Ratio to the holders of Trumbull Shares. At the May 4, 1998 meeting at which
Trumbull's Board approved and adopted the Merger Agreement, Sandler O'Neill
delivered to the Trumbull Board its oral opinion, subsequently confirmed in
writing, that, as of such date, the Exchange Ratio was fair, from a financial
point of view, to the holders of Trumbull Shares. Sandler O'Neill has also
delivered to the Trumbull Board a written opinion dated as of the date of this
Joint Proxy Statement/Prospectus (the "Sandler O'Neill Fairness Opinion") which
is substantially identical to the May 4, 1998 opinion. The full text of the
Sandler O'Neill Fairness Opinion, which sets forth the procedures followed,
assumptions made, matters considered and qualifications and limitations on the
review undertaken in connection with such opinion, is attached as Annex D to
this Joint Proxy Statement/ Prospectus and is incorporated herein by reference.
The description of the opinion set forth herein is qualified in its entirety by
reference to Annex D. Holders of Trumbull Shares are urged to read the Sandler
O'Neill Fairness Opinion in its entirety in connection with their consideration
of the proposed Merger.
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The Sandler O'Neill Fairness Opinion was provided to Trumbull's Board
for its information and is directed only to the fairness, from a financial point
of view, of the Exchange Ratio to the holders of shares of Trumbull Shares. It
does not address the underlying business decision of Trumbull to engage in the
Merger or any other aspect of the Merger and does not constitute a
recommendation to any holder of shares of Trumbull Shares as to how such
shareholder should vote at any meeting of Trumbull shareholders called to
consider the Merger Agreement or any other matter related thereto.
In connection with rendering its May 4, 1998 opinion, Sandler O'Neill
performed a variety of financial analyses. The following is a summary of the
material analyses performed by Sandler O'Neill, but does not purport to be a
complete description of all the analyses underlying Sandler O'Neill's opinion.
The preparation of a fairness opinion is a complex process involving subjective
judgments and is not necessarily susceptible to a partial analysis or summary
description. Accordingly, Sandler O'Neill believes that its analyses must be
considered as a whole and that selecting portions of such analyses and the
factors considered by it, without considering all factors and analyses, could
create an incomplete view of the evaluation processes underlying its opinion. In
performing its analyses, Sandler O'Neill made numerous assumptions with respect
to industry performance, business and economic conditions and various other
matters, many of which cannot be predicted and are beyond the control of
Trumbull, Second Bancorp and Sandler O'Neill. Any estimates contained in Sandler
O'Neill's analyses are not necessarily indicative of future results or values,
which may be significantly more or less favorable than such estimates. Estimates
on the values of companies do not purport to be appraisals or necessarily
reflect the prices at which companies or their securities may actually be sold.
Because such estimates are inherently subject to uncertainty, neither Trumbull,
Second Bancorp or Sandler O'Neill assumes responsibility for their accuracy.
Summary of Proposal. Sandler O'Neill reviewed the financial terms of
the proposed transaction. Based on the closing price of Second Bancorp Common
Stock on April 30, 1998 of $37.00, Sandler O'Neill calculated an implied
transaction value per share of Trumbull common stock of $139.86. Based upon
Trumbull's March 31, 1998 financial information, Sandler O'Neill calculated the
price to tangible book value, price to last twelve months' earnings and core
deposit premium. This analysis yielded a price to tangible book value multiple
of 3.55x, a price to last twelve months' earnings multiple of 33.3x and a core
deposit premium of 21.8%.
Stock Trading History. Sandler O'Neill reviewed the history of the
reported trading prices and volume of the Shares and the relationship between
the movements in its price to movements in certain stock indices, including the
Standard & Poor's 500 Index, the NASDAQ Banking Index and a composite group of
publicly traded commercial banks (identified below). During the one-year period
ended April 29, 1998, the Shares outperformed each of the indices to which it
was compared.
Analysis of Selected Publicly Traded Companies. Sandler O'Neill used
publicly available information to compare selected financial and market trading
information, including balance sheet composition, asset quality ratios, loan
loss reserve levels, profitability, capital adequacy, dividends and trading
multiples, for Trumbull and two different groups of savings institutions. The
first group consisted of Trumbull and the following 12 publicly traded regional
savings institutions (the "Regional Group"): FFY Financial Corp., Emerald
Financial Corp., TF Financial Corp., First Defiance Financial, Fidelity
Financial of Ohio, Camco Financial Corp., Progress Financial Corp., PVF Capital
Corp., Fidelity Bancorp Inc., First Keystone Financial, Western Ohio Financial
Corp. and Industrial Bancorp Inc. Sandler O'Neill also compared Trumbull to a
group of 8 publicly traded savings institutions which had a return on average
equity (based on last twelve months' earnings) of greater than 15% and a price
to tangible book value of greater than 235% (the "Highly Valued Group"). The
Highly Valued Group included the following institutions: American Bank of
Connecticut, FMS Financial Corp., MetroWest Bank, Coastal Financial Corp.,
Progress Financial Corp., First Mutual Savings Bank, Warren Bancorp Inc. and
First Citizens Corp. The analysis compared publicly available financial
information for Trumbull for each of the years ended September 30, 1992 through
September 30, 1997 and as of and for the twelve months ended December 31, 1997
and each of the groups as of and for each of the years ended December 31, 1992
through December 31, 1997.
Sandler O'Neill also used publicly available information to perform a
similar comparison of selected financial and market trading information for
Second Bancorp and two different groups of commercial banks. The first group
consisted of Second Bancorp and the following 10 publicly traded regional
commercial banks (the
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"Commercial Regional Group"): Citizens Bancshares, Harleysville National Corp.,
BancFirst Ohio Corp., Omega Financial Corp., Prime Bancorp Inc., Patriot Bank
Corp., Sterling Financial Corp., Mahoning Financial Bancorp Inc., Peoples
Bancorp Inc. and Southwest National Corp. Sandler O'Neill also compared Second
Bancorp to a group of 10 publicly traded commercial banks which had a return on
average equity (based on last twelve months' earnings) of greater than 16.6% and
a price to tangible book value of greater than 227% (the "Commercial Highly
Valued Group"). The Commercial Highly Valued Group included the following
institutions: CVB Financial Corp., Sterling Bancshares Inc., Citizens
Bancshares, USB Holding Co. Inc., Midwest Banc Holdings Inc., Suffolk Bancorp,
West Coast Bancorp, First Oak Brook Bancshares, Lakeland Financial Corp. and
Premier Bancshares Inc. The analysis compared publicly available financial
information for Second Bancorp and each of the groups as of and for each of the
years ended December 31, 1992 through December 31, 1997.
Analysis of Selected Merger Transactions. Sandler O'Neill reviewed 20
transactions announced from January 1, 1998 to April 30, 1998 involving public
savings institutions nationwide as acquired institutions with transaction values
over $15 million ("Nationwide Transactions"), 4 transactions announced from
January 1, 1998 to April 30, 1998 involving public savings institutions in the
Midwest (Iowa, Illinois, Indiana, Kansas, Kentucky, Michigan, Minnesota,
Missouri, North Dakota, Nebraska, Ohio, South Dakota and Wisconsin) as acquired
institutions with transaction values over $15 million ("Midwest Transactions"),
and 9 transactions announced from January 1, 1997 to April 30, 1998 involving
public savings institutions in Pennsylvania, Ohio and West Virginia as acquired
institutions with transaction values over $15 million ("Regional Transactions").
Sandler O'Neill reviewed the ratios of price to last twelve months' earnings,
price to book value, price to tangible book value, price to deposits, price to
assets and deposit premium paid in each such transaction and computed high, low,
mean, and median ratios and premiums for the respective groups of transactions.
These multiples were applied to Trumbull's financial information as of and for
the twelve months ended March 31, 1998. Based upon the median multiples for
Nationwide Transactions, Sandler O'Neill derived an imputed range of values per
share of the Trumbull common stock of $97.83 to $148.59. Based upon the median
multiples for Midwest Transactions, Sandler O'Neill derived an imputed range of
values per share of the Trumbull common stock of $114.95 to $188.09. Based upon
the median multiples for Regional Transactions, Sandler O'Neill derived an
imputed range of values per share of the Trumbull Shares of $88.17 to $170.52.
No company involved in the transactions included in the above analysis
is identical to Trumbull and no transaction included in the above analysis is
identical to the Merger. Accordingly, an analysis of the results of the
foregoing analysis is not mathematical; rather, it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the companies and other factors that could affect the trading
value of Trumbull and Second Bancorp and the companies to which they are being
compared.
Discounted Dividend Stream and Terminal Value Analysis. Sandler O'Neill
also performed an analysis which estimated the future stream of after-tax
dividend flows of Trumbull through September 30, 2002 under various
circumstances, assuming Trumbull performed in accordance with information
regarding potential future earnings provided by its management and certain
variations thereof (including variations with respect to the levels of assets,
net interest spread, non-interest income, non-interest expense and dividend
payout ratio). To approximate the terminal value of the Trumbull shares at the
end of the five-year period, Sandler O'Neill applied price to earnings multiples
ranging from 16x to 34x and applied multiples of tangible book value ranging
from 180% to 360%. The dividend income streams and terminal values were then
discounted to present values using different discount rates (ranging from 9% to
14%) chosen to reflect different assumptions regarding required rates of return
of holders or prospective buyers of the Trumbull Shares. This analysis, assuming
the current dividend payout ratio, indicated an imputed range of values per
share of the Trumbull Shares of between $78.81 and $191.66 when applying the
price to earnings multiples, and an imputed range of values per share of the
Trumbull Shares of between $71.14 and $162.22 when applying multiples of
tangible book value. In connection with its analysis, Sandler O'Neill used
sensitivity analyses to illustrate the effects changes in the underlying
assumptions would have on the resulting present value, and discussed these
changes with the Trumbull Board. Sandler O'Neill noted that the discounted
dividend stream and terminal value analysis is a widely used valuation
methodology, but the results of such methodology are highly dependent upon the
numerous assumptions that must be made, and the results thereof are not
necessarily indicative of actual values or actual future results.
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Pro Forma Merger Analysis. Based upon earnings forecasts of Trumbull
and Second Bancorp, expected one-time merger related charges, projected cost
savings and certain other assumptions discussed with Trumbull's and Second
Bancorp's respective managements, Sandler O'Neill analyzed certain potential pro
forma effects of the Merger on Second Bancorp over a six-year period. This
analysis indicated that the Merger would be accretive to Second Bancorp's
earnings per share in the first full year following the Merger and in each of
the periods analyzed thereafter. The Merger would be slightly dilutive to
tangible book value per share at closing and at the end of fiscal years 1999 and
2000 and accretive thereafter. From the perspective of a shareholder of
Trumbull, as compared to the projected stand-alone performance of Trumbull, the
Merger would be accretive to earnings per share for all periods analyzed. The
Merger would be slightly dilutive to tangible book value per share at closing
and at the end of fiscal year 1999 and accretive for all other periods analyzed.
The actual results achieved by Second Bancorp may vary from projected results
and the variations may be material.
Contribution Analysis. Sandler O'Neill reviewed the relative
contributions to, among other things, total assets, total loans, total deposits,
total equity, total tangible equity and last twelve months' ("LTM") net income
to be made by Trumbull and Second Bancorp to the combined institution based on
data at and for the twelve months ended March 31, 1998. This analysis indicated
that Trumbull's implied contribution was 36.1% of total assets, 35.9% of total
loans, 36.5% of total deposits, 30.6% of total tangible equity and 28.2% of LTM
net income. Based upon an Exchange Ratio of 3.78, holders of the Trumbull Shares
would own approximately 32.5% of the outstanding shares of the combined
institution.
In connection with rendering its May 4, 1998 opinion, Sandler O'Neill
reviewed, among other things: (i) the Merger Agreement and exhibits thereto;
(ii) the Stock Option Agreement; (iii) certain financial statements of Trumbull
and its subsidiary, The Trumbull Savings and Loan Company, and other historical
financial information provided by Trumbull that it deemed relevant; (iv) certain
publicly available financial statements of Second Bancorp and other historical
financial information provided by Second Bancorp that it deemed relevant; (v)
certain financial analyses and forecasts of Trumbull prepared by and reviewed
with management of Trumbull and the views of senior management of Trumbull
regarding Trumbull's past and current business operations, results thereof,
financial condition and future prospects; (vi) certain financial analyses and
forecasts of Second Bancorp prepared by and reviewed with management of Second
Bancorp and the views of senior management of Second Bancorp regarding Second
Bancorp's past and current business operations, results thereof, financial
condition and future prospects; (vii) the pro forma impact of the Merger; (viii)
a comparison of certain financial information for Trumbull and certain financial
and stock market information for Second Bancorp with similar publicly available
information for certain other companies the securities of which are publicly
traded; (ix) the financial terms of recent business combinations in the savings
institution industry, to the extent publicly available; (x) the current market
environment generally and the banking environment in particular; and (xi) such
other information, financial studies, analyses and investigations and financial,
economic and market criteria as it considered relevant.
In connection with rendering the Sandler O'Neill Fairness Opinion,
Sandler O'Neill confirmed the appropriateness of its reliance on the analyses
used to render the May 4, 1998 opinion by performing procedures to update
certain of such analyses and by reviewing the assumptions upon which such
analyses were based and the factors considered in connection therewith.
In performing its reviews and analyses, Sandler O'Neill assumed and
relied upon, without independent verification, the accuracy and completeness of
all the financial information, analyses and other information that was publicly
available or otherwise furnished to, reviewed by or discussed with it, and
Sandler O'Neill does not assume any responsibility or liability therefor.
Sandler O'Neill did not make an independent evaluation or appraisal of the
specific assets, the collateral securing assets or the liabilities (contingent
or otherwise) of Trumbull or Second Bancorp or any of their subsidiaries, or the
collectibility of any such assets, nor was it furnished with any such
evaluations or appraisals. Sandler O'Neill is not an expert in the evaluation of
allowances for loan losses and it has not made an independent evaluation of the
adequacy of the allowance for loan losses of Trumbull or Second Bancorp, nor has
it reviewed any individual credit files relating to Trumbull or Second Bancorp.
With Trumbull's consent, Sandler O'Neill has assumed that the respective
aggregate allowances for loan losses for both Trumbull and Second Bancorp are
adequate to cover such losses and will be adequate on a pro forma basis for the
combined
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entity. In addition, Sandler O'Neill has not conducted any physical inspection
of the properties or facilities of Trumbull or Second Bancorp. With respect to
all financial information and projections reviewed with each company's
management, Sandler O'Neill assumed that they had been reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
respective managements of the respective future financial performances of
Trumbull and Second Bancorp and that such performances will be achieved. Sandler
O'Neill expressed no opinion as to such financial projections or the assumptions
on which they were based.
Sandler O'Neill's opinion was necessarily based upon market, economic
and other conditions as they existed on, and could be evaluated as of, the date
of such opinion. For purposes of rendering its opinion, Sandler O'Neill assumed,
in all respects material to its analysis, that all of the representations and
warranties contained in the Merger Agreement and all related agreements are true
and correct, that each party to such agreements will perform all of the
covenants required to be performed by such party under such agreements and that
the conditions precedent in the Merger Agreement are not waived. Sandler O'Neill
also assumed, with Trumbull's consent, that there has been no material change in
Trumbull's or Second Bancorp's assets, financial condition, results of
operations, business or prospects since the date of the last financial
statements made available to them, that the Merger will be accounted for as a
pooling of interests, that Trumbull and Second Bancorp will remain as going
concerns for all periods relevant to its analyses and that the Merger will
qualify as a tax-free reorganization for federal income tax purposes.
Under the Sandler O'Neill Agreement, Trumbull has agreed to pay Sandler
O'Neill a transaction fee in connection with the Merger, a substantial portion
of which is contingent upon the consummation of the Merger. Under the terms of
the Sandler O'Neill Agreement, Trumbull has agreed to pay Sandler O'Neill a
transaction fee equal to 0.75% of the aggregate transaction value, of which
approximately 25% has been paid and the remainder is payable upon closing of the
transaction. Sandler O'Neill has also received a fee of $50,000 for rendering
its fairness opinion. Trumbull has also agreed to reimburse Sandler O'Neill for
its reasonable out-of-pocket expenses incurred in connection with its engagement
and to indemnify Sandler O'Neill and its affiliates and their respective
partners, directors, officers, employees, agents, and controlling persons
against certain expenses and liabilities, including liabilities under securities
laws.
In the ordinary course of its business, Sandler O'Neill may actively
trade the debt and/or equity securities of Second Bancorp for its own account
and for the accounts of its customers and, accordingly, may at any time hold a
long or short position in such securities.
RECOMMENDATION OF THE BOARD OF DIRECTORS OF SECOND BANCORP
The Board of Directors of Second Bancorp, based in part upon the
fairness opinion of McDonald & Company and also upon the reasons articulated in
the section of this Prospectus/Joint Proxy Statement captioned "THE MERGER -
Background and Reasons for the Merger," unanimously recommends that the
shareholders of Second Bancorp vote FOR the adoption of the Agreement and the
approval of the Merger. The Board of Directors of Second Bancorp believes that
the terms of the Merger are fair to, and in the best interests of, Second
Bancorp's shareholders. In addition, the Board of Directors of Second Bancorp
recommends that its shareholders vote: (i) FOR the proposal to increase the
number of directors of Second Bancorp from seven (7) to eight (8), (ii) FOR the
election of Dr. David A. Allen to the Board of Directors of Second Bancorp and
(iii) FOR the proposal to amend the Second Bancorp Articles to eliminate Second
Bancorp's two classes of preferred shares.
RECOMMENDATION OF THE BOARD OF DIRECTORS OF TRUMBULL
The Board of Directors of Trumbull, based in part upon the fairness
opinion of Sandler O'Neill and also upon the reasons articulated in the section
of this Prospectus/Joint Proxy Statement captioned "THE MERGER - Background and
Reasons for the Merger," unanimously recommends that the shareholders of
Trumbull vote FOR the adoption of the Agreement and the approval of the Merger
and FOR the proposal to approve the acquisition by Second Bancorp of a
controlling interest in Trumbull pursuant to the terms of the Ohio Control Share
Acquisition Statute. The Board of Directors of Trumbull believes that the terms
of the Merger are fair to, and in the best interests of, Trumbull's
shareholders.
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EXCHANGE OF TRUMBULL SHARES
At the Effective Time, Trumbull will merge with and into Second Bancorp
and Second Bancorp will thereafter be the continuing and surviving corporation
and Trumbull's separate corporate existence will terminate. Also at the
Effective Time, each of the outstanding Trumbull Shares will be canceled and
extinguished in consideration and exchange for 3.78 Shares, subject to certain
adjustments described below. However, if (a) the Second Bancorp Closing Price is
less than $25.00 and (b) if the number obtained by dividing the Second Bancorp
Closing Price by $36.125 (the closing price of the Shares on May 4, 1998) is
less than 90% of the number obtained by dividing the Index Price on the seventh
(7th) day immediately preceding the Effective Time by $38.64 (the Index Price on
May 4, 1998), Trumbull may propose to terminate the Agreement at any time until
the second full day immediately prior to the Effective Time (previously defined
as a "Triggering Event"). Upon the occurrence of a Triggering Event, Second
Bancorp would have the option to elect to issue to Trumbull shareholders for
each Trumbull Share to be exchanged in the Merger, a number of Shares with a
value of $94.50. As used in the Agreement, the term "Index Price" means a
weighted average of stock prices for 30 peer group bank holding companies which
are specified in an exhibit to the Agreement. See "THE MERGER - Exchange of
Trumbull Shares" and Section 11.01(i) of the Agreement contained in Annex A."
As of the date of this Prospectus/Joint Proxy Statement, there were
869,364 Trumbull Shares issued and outstanding and [6,859,542] Shares issued and
outstanding.
STOCKHOLDER VOTING AGREEMENT
As of the Trumbull Record Date, the Izant Stockholders collectively
hold [420,639] Trumbull Shares, which represented [48.38%] of the outstanding
Trumbull Shares. The Izant Stockholders have entered into a Stockholder Voting
Agreement with Trumbull and Second Bancorp dated as of May 4, 1998. Pursuant to
the Stockholder Voting Agreement, the Izant Stockholders have agreed to: (i)
vote their Trumbull Shares in favor of the Merger; (ii) vote against the
approval of any Acquisition Proposal (an "Acquisition Proposal" is defined under
the Agreement as a proposal involving a change in control or similar transaction
involving Trumbull other than the Merger); and (iii) vote against any other
transaction which is inconsistent with the obligation of Trumbull to consummate
the Merger.
STOCK OPTION AGREEMENT
Pursuant to the terms of a Stock Option Agreement (the "Stock Option
Agreement"), dated as of May 4, 1998, Trumbull has granted Second Bancorp an
option to purchase up to 18.9% of the outstanding Trumbull Shares at a price of
$105 per share, subject to certain adjustments, upon the occurrence of certain
specified events in connection with a change in control or similar type
transaction involving Trumbull other than the Merger. Under the terms of the
Stock Option Agreement, if Second Bancorp exercises the option, Second Bancorp
may request that Trumbull file a Registration Statement pursuant to the
Securities Act of 1933 in order to permit the sale of the Trumbull Shares
acquired by Second Bancorp. The costs associated with any such registration
statement would be borne by Trumbull, except for underwriting commissions and
the fees and disbursements of Second Bancorp's legal counsel. Second Bancorp may
also request a second registration at its own expense, however, Trumbull cannot
be required to effect more than two registrations under the terms of the Stock
Option Agreement.
THE BANK MERGER
THE BANK MERGER. As soon as possible after the consummation of the
Merger, Trumbull Savings will be merged with and into the Bank (the "Bank
Merger"). The Bank will be the surviving entity of the Bank Merger and Trumbull
Savings' separate corporate existence will terminate. After the consummation of
the Bank Merger, Trumbull Savings existing branches will be operated as branches
of the Bank and the Bank's branch offices in Howland, Ohio and Newton Falls,
Ohio will be consolidated into existing branches of Trumbull.
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FRACTIONAL SHARES
No fractional Shares will be issued in the Merger. In lieu of any such
fractional Shares, Second Bancorp will pay to each holder of Trumbull Shares who
otherwise would be entitled to receive a fraction of a Share an amount in cash
equal to the product obtained by multiplying (i) the fractional Share interest
to which such holder (after taking into account all Trumbull Shares held at the
Effective Time by such holder) would otherwise be entitled by (ii) the Second
Bancorp Closing Price. No interest will be payable with respect to such payments
for fractional Shares.
EXCHANGE OF CERTIFICATES EVIDENCING SHARES AND TRUMBULL SHARES
As soon as practicable after the consummation of the Merger, each
Trumbull shareholder will be advised of such consummation by a letter of
transmittal accompanied by instructions for use in surrendering the certificate
or certificates (the "Certificates") evidencing Trumbull Shares to American
Stock Transfer & Trust Company (previously defined as the "Exchange Agent").
CERTIFICATES FOR TRUMBULL SHARES SHOULD NOT BE FORWARDED TO THE EXCHANGE AGENT
UNTIL AFTER RECEIPT OF THE LETTER OF TRANSMITTAL AND SHOULD NOT BE RETURNED TO
TRUMBULL WITH THE ENCLOSED PROXIES. The letter of transmittal will contain
instructions for effecting the surrender of the Certificates in exchange for
certificates evidencing Shares. Upon surrender of a Certificate, together with
such letter of transmittal, duly executed, to the Exchange Agent for exchange
and cancellation, the holder of such Certificate will be entitled to receive a
certificate evidencing the number of whole Shares to which such Certificate
holder will have become entitled pursuant to the provisions of the Agreement and
cash in return for any fractional Shares. Unless and until Certificates are
surrendered for exchange, no dividend or other distribution declared or payable
to holders of record of Shares as of any time subsequent to the consummation of
the Merger will be paid to the holder of any such unsurrendered Certificate.
Any shareholder of Trumbull who has lost or misplaced a Certificate
should immediately contact James R. Izant, Secretary of Trumbull, 105 High
Street, N.E., Warren, Ohio 44481, at (330) 373-1800. A written statement
detailing the procedures for replacing the lost Certificate will be mailed to
the shareholder following such contact.
REPRESENTATIONS, WARRANTIES AND COVENANTS
Each of Second Bancorp and Trumbull has made certain representations
and warranties in the Agreement in respect of various matters. Such matters
include but are not limited to, as to each of Second Bancorp and Trumbull,
representations and warranties in respect of corporate organization and
corporate proceedings, authority and capital, financial condition and financial
statements, past conduct of business, legal proceedings, regulatory compliance,
brokers and finders' fees, governmental proceedings and business condition and
activities which would affect the accounting treatment of the Merger. In
addition, Trumbull has made certain other representations and warranties
relating to itself and the Bank in respect of investments, properties, taxes,
contracts, employee benefit plans, employment agreements, environmental matters,
undisclosed liabilities, loans and allowance for loan losses, insurance and
other matters.
Second Bancorp and Trumbull have also each made certain covenants in
the Agreement. During the period between May 4, 1998 and the Effective Time, for
example, Trumbull must conduct its business only in the ordinary and usual
course consistent with past practice, except to the extent authorized in writing
by Second Bancorp. In addition, Trumbull must not solicit or initiate any
proposals or offers from any person, or discuss or negotiate with any such
person or entity, in respect of any acquisition or purchase of all or a material
amount of the assets of, any equity security of, or any merger, tender offer,
consolidation or business combination with, Trumbull (collectively, an
"Acquisition Proposal"), subject to the good faith exercise of the fiduciary
duties of the Board of Directors of Trumbull. In the event that Trumbull becomes
aware of any Acquisition Proposal, it must promptly notify Second Bancorp and
keep Second Bancorp advised as to the status of the Acquisition Proposal. If the
Board of Directors of Trumbull accepts any Acquisition Proposal (including any
acceptance which occurs after
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termination of the Agreement and before December 31, 1999), Trumbull is required
to pay to Second Bancorp $2,000,000 upon the execution of any agreement in
respect of such Acquisition Proposal.
The Agreement provides that immediately after consummation of the
Merger, Second Bancorp will increase its number of directors by three (3) and
fill the vacancies created by electing three (3) persons who served as directors
of Trumbull prior to the Merger to the Board of Directors of Second Bancorp. To
satisfy this obligation, the shareholders of Second Bancorp are being asked at
the Second Bancorp Special Meeting to adopt a proposal to increase the number of
directors of Second Bancorp from seven (7) to eight (8) and to elect Dr. David
A. Allen to fill the vacancy created by the increase in the number of directors.
These proposals to increase the number of directors of Second Bancorp and to
elect Dr. David A. Allen to the Second Bancorp Board of Directors will not
become effective until immediately after the consummation of the Merger and will
be void if the Merger is not consummated. In addition, if the Merger is
consummated and assuming that the proposal to increase the number of directors
of Second Bancorp is adopted by the shareholders of Second Bancorp at the Second
Bancorp Special Meeting, pursuant to the authority granted the Board of
Directors of Second Bancorp under Article III of Second Bancorp's Regulations,
the Board of Directors of Second Bancorp intends to increase the number of
directors from eight (8) to ten (10) and to appoint James R. Izant and Phyllis
J. Izant, both of whom are currently Directors of Trumbull, to the Board of
Directors of Second Bancorp. If elected, each of Dr. David A. Allen, James R.
Izant and Phyllis J. Izant, will serve terms until the 1999 Annual Meeting of
Shareholders of Second Bancorp and until their successors are elected and
qualified. See "MANAGEMENT OF TRUMBULL EXPECTED TO SERVE ON THE SECOND BANCORP
BOARD OF DIRECTORS."
The Agreement also provides that Second Bancorp will cause the Bank to
increase its number of directors by three (3) and appoint three (3) members of
Trumbull's Board of Directors. As of the date of this Prospectus/Joint Proxy
Statement, the Trumbull directors who will be elected to serve on the Board of
Directors of the Bank had not been determined.
Pursuant to the terms of the Agreement, Second Bancorp will cause the
Bank to offer the existing full-time employees of Trumbull Savings the
opportunity to become employees of the Bank or offer reasonable and customary
severance compensation based upon years of service and outplacement consultation
services to employees of Trumbull Savings who are not offered employment (other
than employees who are otherwise parties to employment agreements or change in
control agreements). Second Bancorp and/or the Bank will offer employee benefits
to all Trumbull and Trumbull Savings employees who become employees of Second
Bancorp or the Bank which, taken as a whole, are substantially comparable to the
employee benefits received by the current employees of Second Bancorp and the
Bank at the Effective Time. Employees of Trumbull or Trumbull Savings who become
employees of the Bank will have their years of service credited toward
eligibility and vesting in the Bank's employee benefit plans generally.
In addition, Second Bancorp has agreed to cause the Bank to assume
twenty-five change in control agreements entered into by Trumbull Savings with
certain key managers of Trumbull Savings. The change in control agreements
generally provide that such key managers will receive six-months severance pay
and continuation of certain benefits if terminated within the one year period
following a change in control of Trumbull Savings.
Pursuant to the terms of the Agreement, Second Bancorp has agreed to
retain in the Second Bancorp Articles and the Second Bancorp Regulations and the
Articles and Regulations of the Bank, provisions providing for indemnification
of the officers and directors of Trumbull and Trumbull Savings. In addition, for
three years from the date of the Merger, Second Bancorp will maintain directors'
and officers' liability insurance policies covering the officers and directors
of Trumbull and Trumbull Savings so long as the cost does not exceed 150% of the
current premiums paid by Trumbull for its directors' and officers' liability
insurance policies.
CONDITIONS
The obligation of each of Second Bancorp and Trumbull to consummate the
Merger is subject to a number of conditions, including, but not limited to: (i)
the adoption of the Agreement and the approval of the Merger by
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the affirmative vote of the holders of a majority of the issued and outstanding
Shares and by two-thirds of the issued and outstanding Trumbull Shares; (ii) the
receipt of all necessary regulatory approvals in connection with the Merger and
the Bank Merger; (iii) the Form S-4 Registration Statement under the Securities
Act shall have become effective and no stop orders or similar restraining orders
suspending the effectiveness of the Form S-4 Registration Statement shall have
been issued; (iv) Second Bancorp shall have received all state securities
permits and other authorizations in connection with the Merger; (v) the Shares
to be issued in connection with the Merger shall have been approved for listing
on The Nasdaq National Market; (vi) there shall not be in effect any
governmental order or decision or any federal or state law or regulation which
prevents or materially delays consummation of the Merger; (viii) each of the
parties to the Agreement shall have received letters, dated as of the Effective
Time, from Ernst & Young LLP and Crowe Chizek and Company LLP regarding the
appropriateness of pooling-of-interests accounting for the Merger under
Accounting Principles Board Opinion No. 16 if closed and consummated in
accordance with the Agreement; and (ix) pursuant to the requirements of the Ohio
Control Share Acquisition Statute, the Merger must be approved by the
affirmative vote of the holders of a majority of the Trumbull Shares represented
in person and by proxy at the Trumbull Special Meeting, and by a majority of the
portion of such voting power excluding any Trumbull Shares owned by executive
officers of Trumbull and any director of Trumbull who is also an employee of
Trumbull and any other "Interested Trumbull Shares". See "SPECIAL MEETING OF
TRUMBULL SHAREHOLDERS - Vote Required" and "COMPARISON OF RIGHTS OF HOLDERS OF
SECOND BANCORP SHARES AND HOLDERS OF TRUMBULL SHARES - Anti-Takeover Statutes."
The obligation of Second Bancorp to consummate the Merger is subject to
a number of additional conditions, including, but not limited to: (i) less than
10% of the number of Shares to be issued in the Merger shall be (a) subject to
purchase as fractional Shares and (b) subject to perfected dissenters' rights
pursuant to Ohio Revised Code Section 1701.85; (ii) the representations and
warranties of Trumbull contained in the Agreement shall be true and correct in
all material respects at the Effective Time; (iii) all covenants and conditions
required to be performed under the Agreement by Trumbull must have been
performed; (iv) a minimum Trumbull shareholders' equity in the amount of $38
million, exclusive of certain expenses of the Merger and certain expenses
described in the Agreement, at the Effective Time; (v) Second Bancorp shall have
received an opinion from Vorys, Sater, Seymour and Pease LLP to the effect that
the Merger will constitute a tax-free reorganization within the meaning of
Section 368(a)(1)(A) of the Code; and (vi) Second Bancorp shall have received
from McDonald & Company its opinion, as of the date of this Prospectus/Joint
Proxy Statement, to the effect that, the Exchange Ratio was fair to Second
Bancorp's shareholders from a financial point of view.
The obligation of Trumbull to consummate the Merger is also subject to
a number of additional conditions, including, but not limited to, (i) the
representations and warranties of Second Bancorp contained in the Agreement
shall be true and correct in all material respects at the Effective Time; (ii)
all covenants and conditions required to be performed under the Agreement by
Second Bancorp must have been performed; (iii) Trumbull shall have received the
opinion of Sandler O'Neill to the effect that, as of the date of this
Prospectus/Joint Proxy Statement, the Exchange Ratio was fair to Trumbull's
shareholders from a financial point of view; and (iv) Trumbull shall have
received an opinion from Jones, Day, Reavis & Pogue, or other counsel acceptable
to it, to the effect that the Merger will constitute a tax-free reorganization
within the meaning of Section 368(a)(1)(A) of the Code.
Any of the foregoing conditions may be waived by the party which is
entitled to the benefits thereof.
REGULATORY APPROVALS
The Merger is subject to the approval of the Federal Reserve Board. An
application has been filed by Second Bancorp with the Federal Reserve Board
seeking approval of the Merger. The Bank Merger is subject to approval by the
OCC. A regulatory application has been filed with the OCC seeking approval of
the Bank Merger. In addition, due to the number of Shares which may be held by
the Izant Shareholders if the Merger is consummated, upon the consummation of
the Merger, it is likely that the Izant Shareholders will be required to file an
application with the Federal Reserve Board seeking approval of their acquisition
of the Shares.
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EFFECTIVE TIME
Following the satisfaction or waiver of all conditions set forth in the
Agreement, Certificates of Merger in respect of the Merger and the Bank Merger
will be filed as soon as practicable with the Ohio Secretary of State, after
which the Merger and the Bank Merger will be consummated. It is currently
anticipated that the Merger and the Bank Merger will be consummated during the
fourth quarter of 1998.
TERMINATION AND AMENDMENT
The Agreement may be terminated and the Merger abandoned upon the
occurrence of certain events, including, but not limited to: (i) the mutual
consent and action of the Board of Directors of Second Bancorp and Trumbull;
(ii) by either party if the other party has failed to satisfy all of the
conditions of the Agreement and such conditions have not been waived; (iii) by
either party if the Merger is not consummated on or before February 28, 1999;
(iv) by a majority vote of the respective Board of Directors of Second Bancorp
or Trumbull in the event of a material breach by the other party of any
representation, warranty, covenant or agreement, which breach is not cured, or
cannot be cured, within 30 days after written notice thereof is given to the
party committing the breach; (v) by Second Bancorp if the Board of Directors of
Trumbull fails to recommend the Merger or withdraws its recommendation of the
Merger; (vi) by Trumbull if the Board of Directors of Second Bancorp fails to
recommend the Merger or withdraws its recommendation of the Merger; (vii) by
Second Bancorp or Trumbull upon written notice to the other 30 or more days
after the date upon which any application for a regulatory or governmental
approval necessary to consummate the Merger and the other transactions
contemplated hereby shall have been denied or withdrawn at the request or
recommendation of the applicable regulatory agency or governmental authority,
unless within such 30-day period a petition for rehearing or an amended
application is filed or noticed, or 30 or more days after any petition for
rehearing or amended application is denied; and (viii) if (a) the Second Bancorp
Closing Price is less than $25.00 and (b) if the number obtained by dividing the
Second Bancorp Closing Price by $36.125 (the closing price of the Shares on May
4, 1998) is less than 90% of the number obtained by dividing the Index Price on
the seventh (7th) day immediately preceding the Effective Time by $38.64 (the
Index Price on May 4, 1998), Trumbull may propose to terminate the Agreement at
any time until the second full day immediately prior to the Effective Time
(previously defined as a "Triggering Event"). Upon the occurrence of a
Triggering Event, Second Bancorp would have the option to elect to issue to
Trumbull shareholders for each Trumbull Share to be exchanged in the Merger, a
number of Shares with a value of $94.50. As used in the Agreement, the term
"Index Price" means a weighted average of stock prices for 30 peer group bank
holding companies which are specified in an exhibit to the Agreement. See "THE
MERGER - Exchange of Trumbull Shares" and Section 11.01(i) of the Agreement
contained in Annex A."
The Agreement may be amended by Second Bancorp and Trumbull by action
of their respective Boards of Directors and in an instrument in writing signed
by both Second Bancorp and Trumbull. An amendment of the Agreement which
materially and adversely affects the rights of the shareholders of Second
Bancorp or Trumbull and which takes place after the Second Bancorp Special
Meeting or the Trumbull Special Meeting, however, will not be made without
further approval of the Second Bancorp shareholders or the Trumbull
shareholders, as the case may be.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
As of [August 12, 1998], the executive officers and directors of Second
Bancorp, as a group, owned an aggregate of [366,354.028] Shares, which
represented [5.29%] of the total of issued and outstanding Shares.
As of August 12, 1998, the executive officers and directors of
Trumbull, as a group, owned an aggregate of 384,648 Trumbull Shares, which
represented 44.24% of the total of issued and outstanding Trumbull Shares.
As of August 12, 1998, the Izant Family Partnership and certain members
of the Izant family (collectively the "Izant Stockholders") collectively hold
[420,639] Trumbull Shares, which represented [48.38%] of the outstanding
Trumbull Shares. The Izant Stockholders have entered into a Stockholder Voting
Agreement with Trumbull and Second Bancorp. Pursuant to the Stockholder Voting
Agreement, the Izant Stockholders have
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agreed to: (i) vote their Trumbull Shares in favor of the Merger; (ii) vote
against the approval of any Acquisition Proposal (an "Acquisition Proposal" is
defined under the Agreement as a proposal involving a change in control or
similar transaction involving Trumbull other than the Merger); and (iii) vote
against any other transaction which is inconsistent with the obligation of
Trumbull to consummate the Merger. See "THE MERGER -- Stockholder Voting
Agreement."
The Agreement provides that immediately after consummation of the
Merger, Second Bancorp will increase its number of directors by three (3) and
fill the vacancies created by electing three (3) persons who served as directors
of Trumbull prior to the Merger to the Board of Directors of Second Bancorp. To
satisfy this obligation, the shareholders of Second Bancorp are being asked at
the Second Bancorp Special Meeting to adopt a proposal to increase the number of
directors of Second Bancorp from seven (7) to eight (8) and to elect Dr. David
A. Allen to fill the vacancy created by the increase in the number of directors.
These proposals to increase the number of directors of Second Bancorp and to
elect Dr. David A. Allen to the Second Bancorp Board of Directors will not
become effective until immediately after the consummation of the Merger and will
be void if the Merger is not consummated. In addition, if the Merger is
consummated and assuming that the proposal to increase the number of directors
of Second Bancorp is adopted by the shareholders at the Second Bancorp Special
Meeting, pursuant to the authority granted the Board of Directors of Second
Bancorp under Article III of Second Bancorp's Regulations, the Board of
Directors of Second Bancorp intends to increase the number of directors from
eight (8) to ten (10) and to appoint James. R. Izant and Phyllis J. Izant, both
of whom are currently directors of Trumbull, to the Board of Directors of Second
Bancorp. If elected, each of Dr. David A. Allen, James R. Izant and Phyllis J.
Izant will serve terms until the 1999 Annual Meeting of Shareholders of Second
Bancorp and until their successors are elected and qualified. See "MANAGEMENT OF
TRUMBULL EXPECTED TO SERVE ON THE SECOND BANCORP BOARD OF DIRECTORS."
The Agreement also provides that Second Bancorp will cause the Bank to
increase its number of directors by three (3) and appoint three (3) members of
Trumbull's Board of Directors to the Bank's Board of Directors. As of the date
of this Prospectus/Joint Proxy Statement, the Trumbull Directors who will be
elected to serve on the Board of Directors of the Bank had not been determined.
The following officers of Trumbull, P. Scott Carson, President and
Chief Executive Officer, James R. Izant, Executive Vice President, Arthur E.
Krause, Senior Vice President, and James J. Antal, Chief Financial Officer, are
parties to Change in Control and Severance Agreements (the "Change in Control
Agreements") with Trumbull. Pursuant to the terms of the Change in Control
Agreements simultaneously with the consummation of the Merger, each of the
aforementioned officers of Trumbull would be entitled to receive a severance
payment in an amount equal to 2.99 times such officer's annual compensation over
the five years immediately preceding the Merger. If the Merger is consummated,
it is estimated that the severance payments to be received, respectively, by Mr.
Carson, Mr. Izant, Mr. Antal and Mr. Krause under the Change in Control
Agreements will be approximately $597,000, $262,000, $308,000 and $260,000. In
addition, if Mr. Carson, Mr. Izant, Mr. Krause and Mr. Antal are not employed by
Second Bancorp or the Bank after the Merger, pursuant to the terms of the Change
in Control Agreements, Second Bancorp will be required to maintain life, health
and disability insurance coverage substantially identical to the coverage
maintained by Trumbull or Trumbull Savings prior to such officer's termination
of employment. Second Bancorp's obligation to provide such coverage will cease
upon the earlier of such officer's employment by another employer or twelve (12)
months from the date of such officer's termination of employment.
P. Scott Carson is party to an employment agreement (the "Employment
Agreement") with Trumbull Savings with a term ending in February 2001. Entered
into on October 7, 1993 for an initial period of three years, the Employment
Agreement provides by its terms for annual extension of one additional year,
provided Trumbull Savings' Board of Directors determines that Mr. Carson's
performance has met the requirements and standards of the Board. Accordingly,
the Employment Agreement has been extended for an additional year annually since
1994, most recently in February 1998.
Should Mr. Carson's employment be terminated by the Board of Directors,
he would be entitled to receive the compensation and other benefits to which he
is entitled under the Employment Agreement for the remainder of
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the Employment Agreement's unexpired term, except in the case of termination for
cause in accordance with the Employment Agreement. For purposes of the
Employment Agreement, a "termination" includes failure to reelect or appoint Mr.
Carson as President and Chief Executive officer or failure to nominate, elect or
reelect him to the Board of Directors without his consent. Accordingly, it is
expected that Mr. Carson will be deemed to have been terminated upon completion
of the Merger. If the Merger is consummated, Trumbull estimates that the
termination payment to which Mr. Carson will be entitled under his Employment
Agreement will be approximately $500,000. Trumbull and Mr. Carson believe that
the severance payment to which Mr. Carson would also be entitled under his
Change in Control Agreement is in addition to any termination payment(s) he may
receive under the Employment Agreement.
James R. Izant, Executive Vice President of Trumbull, has entered into
a Consulting and Non-Competition Agreement with Second Bancorp dated August __,
1998 (the "Consulting Agreement"). Pursuant to the terms of the Consulting
Agreement, if the Merger is consummated, Mr. Izant will receive the following:
(i) a $90,000 non-compete fee (of which $45,000 will be paid to Mr. Izant at the
Effective Time and $45,000 will be paid to Mr. Izant on the first anniversary of
the date of the Consulting Agreement); (ii) consulting fees in the amount $3,750
per month for 24 consecutive months; and (iii) Second Bancorp will exercise
reasonable best efforts to have Mr. Izant nominated by the Board of Directors
and elected as a Director of Second Bancorp during the two-year term of the
Consulting Agreement. Under the Consulting Agreement, Mr. Izant has agreed to:
(i) advise Second Bancorp regarding conversion issues in connection with the
Merger; (ii) assist Second Bancorp in the preservation of customer relations and
the attraction of new customers; (iii) assist Second Bancorp in attracting high
quality employees; (iv) provide general consulting services on the request of
the Chairman of Second Bancorp for up to forty-five hours per month and (v) not
compete with Second Bancorp for two (2) years.
Pursuant to the terms of the Agreement, Second Bancorp will cause the
Bank to offer the existing full-time employees of Trumbull Savings the
opportunity to become employees of the Bank or offer reasonable and customary
severance compensation based upon years of service and outplacement consultation
services to employees of Trumbull Savings who are not offered employment (other
than employees who are otherwise parties to employment agreements or change in
control agreements). Second Bancorp and/or the Bank will offer employee benefits
to all Trumbull and Trumbull Savings employees who become employees of Second
Bancorp or the Bank which, taken as a whole, are substantially comparable to the
employee benefits received by the current employees of Second Bancorp and the
Bank at the Effective Time. Employees of Trumbull or Trumbull Savings who become
employees of the Bank will have their years of service credited toward
eligibility and vesting in the Bank's employee benefit plans generally.
In addition, Second Bancorp has agreed to cause the Bank to assume
twenty-five change in control agreements entered into by Trumbull Savings with
certain key managers of Trumbull Savings. The change in control agreements
generally provide that such key managers will receive six-months severance pay
and continuation of certain benefits if terminated within the one year period
following a change in control of Trumbull Savings.
Pursuant to the terms of the Agreement, Second Bancorp has agreed to
retain in effect in the Second Bancorp Articles and Second Bancorp Regulations
and the Articles and Regulations of the Bank, provisions providing for
indemnification of the officers and directors of Trumbull and Trumbull Savings.
In addition, for three years from the date of the Merger, Second Bancorp will
maintain directors' and officers' liability insurance policies covering the
officers and directors of Trumbull and Trumbull Savings so long as the cost does
not exceed 150% of the current premiums paid by Trumbull for its directors' and
officers' liability insurance policies.
RESALE OF SHARES
The Shares to be issued upon the consummation of the Merger have been
registered with the Commission under the Securities Act and will be freely
transferable, except for Shares received by persons who may be deemed to be
affiliates of Trumbull or Second Bancorp. The term "affiliate" is defined in
Rule 145 promulgated under the Securities Act and generally includes executive
officers and directors. For a period of one year after the Merger, former
affiliates of Trumbull may not sell their Shares, except pursuant to an
effective registration statement under
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the Securities Act covering such Shares or in compliance with Rule 145 or
another applicable exemption from the registration requirements of the
Securities Act. In addition, Trumbull and Second Bancorp will obtain customary
agreements with all of their respective directors, officers and affiliates under
which those persons will agree not to dispose of their Shares in a manner that
would adversely affect the ability of Second Bancorp to treat the Merger as a
pooling of interests for accounting purposes.
INCOME TAX CONSEQUENCES
THE FOLLOWING IS A SUMMARY DISCUSSION OF THE MATERIAL FEDERAL INCOME
TAX CONSEQUENCES OF THE MERGER. THIS SUMMARY DOES NOT PURPORT TO DISCUSS ALL
ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE APPLICABLE TO PARTICULAR
SHAREHOLDERS, SOME OF WHOM MAY BE SUBJECT TO SPECIAL RULES, NOR DOES IT ADDRESS
ANY ASPECTS OF STATE, LOCAL OR FOREIGN TAX LAWS. THIS SUMMARY IS BASED UPON
CURRENT LAW, WHICH IS SUBJECT TO CHANGE.
The Merger will produce the following material federal income tax
consequences:
1. The Merger will constitute a tax-free reorganization under Section
368(a)(l)(A) of the Code.
2. No gain or loss will be recognized by Second Bancorp or Trumbull as
a result of the Merger.
3. No gain or loss will be recognized by the Trumbull shareholders upon
the receipt of the Shares in exchange for their Trumbull Shares.
4. The basis of the Shares to be received by a Trumbull shareholder
will be the same as the basis of the Trumbull Shares surrendered by such
shareholder in exchange therefor.
5. The holding period for the Shares to be received by a Trumbull
shareholder will include, in each instance, the period during which the Trumbull
Shares surrendered in exchange therefor were held, provided the Trumbull Shares
are a capital asset in the hands of the Trumbull shareholder on the date of the
exchange.
6. Payment of cash to a Trumbull shareholder in lieu of fractional
Shares will be treated as if such fractional Shares were distributed as part of
the exchange and then redeemed by Second Bancorp. This cash payment will be
treated as a distribution in full payment and exchange for the fractional Shares
redeemed as provided in Section 302(a) of the Code, unless such distribution is
essentially equivalent to a dividend within the meaning of Section 302(b)(1) of
the Code.
7. If a Second Bancorp or a Trumbull shareholder dissents to the Merger
and receives solely cash in exchange for such shareholder's Shares or Trumbull
Shares, as the case may be, such cash will be treated as having been received by
such shareholder as a distribution in redemption of such shareholder's Shares or
Trumbull Shares, subject to the provisions and limitations of Section 302 of the
Code. See "RIGHTS OF DISSENTING SHAREHOLDERS." Unless the redemption is treated
as a dividend under Section 302(d) of the Code, such shareholder will recognize
gain or loss measured by the difference between the amount of cash received and
the tax basis of the Shares or Trumbull Shares, as the case may be, so redeemed.
This gain or loss will be capital gain or loss if the Shares or Trumbull Shares
were held by such shareholder as a capital asset at the time of the Merger. If,
on the other hand, the redemption is treated as a dividend under Section 302(d)
of the Code, the full amount of cash received by such shareholder will be
treated as ordinary income to the extent of the current or accumulated earnings
and profits of Second Bancorp or Trumbull, as the case may be.
Under the tests of Section 302 of the Code, the redemption of a
dissenting Second Bancorp shareholder's Shares or a Trumbull shareholder's
Trumbull Shares generally will be treated as a dividend unless the redemption
(i) results in a "complete termination" of such shareholder's direct or indirect
stock interest in Second Bancorp under Section 302(b)(3) of the Code, (ii) is
"substantially disproportionate" with respect to such shareholder under Section
302(b)(2) of the Code or (iii) is "not essentially equivalent to a dividend"
with respect to such shareholder under Section 302(b)(1) of the Code.
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In order to determine whether there has been a complete termination, a
substantially disproportionate redemption or a redemption not essentially
equivalent to a dividend with respect to a dissenting Second Bancorp shareholder
or a dissenting Trumbull shareholder, it is necessary to consider the Shares
owned by persons from whom ownership is attributed to such shareholder under the
rules of Section 318 of the Code. Under Section 318 of the Code, a shareholder
is considered to own shares that are directly or indirectly owned by certain
members of such shareholder's family or by certain trusts, partnerships or
corporations in which such shareholder has an ownership or beneficial interest.
Such shareholder is also considered to own any shares with respect to which he
holds exercisable options. In certain cases, a dissenting Second Bancorp
shareholder or a dissenting Trumbull shareholder may be deemed to own
constructively Shares held by persons who do not exercise dissenters' rights.
Second Bancorp and Trumbull shall have received an opinion of Vorys,
Sater, Seymour and Pease LLP that the Merger will be a tax-free reorganization
within the meaning of Section 368(a)(1)(A) of the Code.
BECAUSE OF THE COMPLEXITIES OF THE FEDERAL, STATE AND LOCAL TAX LAWS,
IT IS RECOMMENDED THAT THE TRUMBULL SHAREHOLDERS CONSULT THEIR OWN TAX ADVISORS
CONCERNING THE APPLICABLE FEDERAL, STATE AND LOCAL TAX CONSEQUENCES OF THE
MERGER.
ACCOUNTING TREATMENT
The Merger, if completed as proposed, will qualify as a
pooling-of-interests for financial accounting purposes. The Agreement provides
as a condition to the parties' obligations to consummate the Merger that each of
the parties to the Agreement shall have received letters, dated as of the
Effective Time, from Ernst & Young LLP and Crowe Chizek and Company LLP
regarding the appropriateness of pooling-of-interests accounting for the Merger
under Accounting Principles Board Opinion No. 16 if closed and consummated in
accordance with the Agreement.
MARKET PRICES
The Shares are quoted on the Nasdaq National Market under the symbol
"SECD." The following table sets forth the high and low sale prices for the
Shares on the Nasdaq National Market for the periods indicated and the cash
dividends per Shares declared during such periods:
<TABLE>
<CAPTION>
CASH DIVIDEND
QUARTER ENDED HIGH LOW DECLARED
------------- ---- --- --------
<S> <C> <C> <C>
March 31, 1996 $14.94 $13.75 $.11
June 30, 1996 $14.13 $12.50 $.11
September 30, 1996 $17.00 $13.63 $.11
December 31, 1996 $16.50 $14.88 $.11
March 31, 1997 $18.50 $15.06 $.12
June 30, 1997 $22.25 $17.75 $.12
September 30, 1997 $24.50 $20.75 $.12
December 31, 1997 $28.00 $21.88 $.12
March 31, 1998 $35.00 $24.88 $.13
June 30, 1998 $38.25 $29.00 $.13
</TABLE>
The Trumbull Shares are not listed on an exchange or authorized for
quotation on the Nasdaq National Market. However, it has come to Trumbull's
attention that sale prices for Trumbull Shares (and, prior to the January 15,
1998 holding company reorganization of Trumbull Savings, common stock of
Trumbull Savings) appear from time to time on the OTC Bulletin Board, an
electronic, screen-based market maintained by the National Association of
Securities Dealers, Inc.'s subsidiary, NASD Regulation, Inc. The information in
the table below presents information obtained by Trumbull from the OTC Bulletin
Board concerning transactions in the
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stock of Trumbull (and, prior to the January 15, 1998 holding company
reorganization of Trumbull Savings, common stock of Trumbull Savings).
<TABLE>
<CAPTION>
CASH DIVIDEND
QUARTER ENDED HIGH LOW DECLARED
------------- ---- --- --------
<S> <C> <C> <C>
March 31, 1996 $37.375 $35.00 $.00
June 30, 1996 $38.75 $35.75 $.37
September 30, 1996 $39.25 $36.00 $.00
December 31, 1996 $39.75 $36.00 $.45
March 31, 1997 $38.75 $36.50 $.23
June 30, 1997 $39.00 $37.25 $.24
September 30, 1997 $39.50 $38.00 $.26
December 31, 1997 $42.00 $38.00 $.31
March 31, 1998 $55.00 $41.50 $.36
June 30, 1998 $120.00 $54.00 $.41
</TABLE>
NO ASSURANCE CAN BE GIVEN AS TO WHAT THE MARKET PRICE OF THE SHARES
WILL BE IF AND WHEN THE MERGER IS CONSUMMATED OR WHEN THE SHARES ARE ACTUALLY
ISSUED. THE ABILITY OF SECOND BANCORP AND TRUMBULL TO PAY DIVIDENDS TO ITS
RESPECTIVE SHAREHOLDERS IS SUBJECT TO CERTAIN RESTRICTIONS. SEE "REGULATION OF
FINANCIAL INSTITUTIONS."
RIGHTS OF DISSENTING SHAREHOLDERS
Holders of Shares and holders of Trumbull Shares are entitled to relief
as dissenting shareholders under Ohio Revised Code ss. 1701.85. A shareholder of
Second Bancorp or Trumbull, as the case may be, will be entitled to such relief,
however, only if such shareholder strictly complies with all of the procedural
and other requirements of ss. 1701.85. The following summary does not purport to
be a complete statement of the method of compliance with ss. 1701.85 and is
qualified in its entirety by reference to the copy of ss. 1701.85 attached
hereto as Annex E.
A shareholder of Second Bancorp or Trumbull who wishes to perfect his
rights as a dissenting shareholder in the event the Agreement is adopted and the
Merger is approved:
(a) must have been a record holder of the Shares or the Trumbull
Shares, as the case may be, as to which he seeks relief on the
Second Bancorp Record date or the Trumbull Record Date;
(b) must not have voted his Shares or his Trumbull Shares in favor
of adoption of the Agreement and the approval of the Merger;
and
(c) must deliver to the company of which he is a shareholder, not
later than ten (10) days after the date of the applicable
shareholder meeting, a written demand for payment of the fair
cash value of the Shares or the Trumbull Shares as to which he
seeks relief. Such written demand must state the name of the
shareholder, his address, the number of Shares or Trumbull
Shares as to which he seeks relief and the amount claimed as
the fair cash value thereof.
A vote against the adoption of the Agreement and the approval of the
Merger will not satisfy the requirements of a written demand for payment. Any
written demand for payment should be mailed or delivered, (i) in the case of a
dissenting Second Bancorp shareholder, to: Second Bancorp, 108 Main Avenue,
S.W., Warren, Ohio 44481, Attention: Christopher Stanitz, Executive Vice
President and Secretary, by no later than _______ __, 1998 and (ii) in the case
of a dissenting Trumbull shareholder, to: Trumbull Financial Corporation, 105
High Street, N.E., Warren, Ohio 44481, Attention: James R. Izant, Executive Vice
President and Secretary, by no later than _______ __, 1998. Because the written
demands must be delivered no later than within the ten (10) day
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<PAGE> 61
period following the applicable shareholders meetings, it is recommended,
although not required, that a shareholder using the mails should use certified
or registered mail, return receipt requested, to confirm that he has made a
timely delivery.
If Second Bancorp or Trumbull sends the dissenting shareholder, at the
address specified in his demand, a request for the certificate(s) representing
his Shares or Trumbull Shares, such dissenting shareholder must deliver the
certificate(s) to Second Bancorp or Trumbull within 15 days of the sending of
such request. Second Bancorp or Trumbull may endorse the certificate(s) with a
legend to the effect that the shareholder has demanded the fair cash value of
the Shares or the Trumbull Shares represented by the certificate(s). Failure to
deliver the certificate(s) within 15 days of the request would terminate the
shareholder's rights as a dissenting shareholder. Second Bancorp or Trumbull, as
the case may be, must notify the shareholder of its election to terminate his
rights as a dissenting shareholder within 20 days after the lapse of the 15 day
period.
Unless the dissenting shareholder agrees on the fair cash value per
share of the Shares or the Trumbull Shares, he may, within three (3) months
after the service of the written demand by the shareholder, file a petition in
the Court of Common Pleas of Trumbull County, Ohio. If the court finds that the
shareholder is entitled to be paid the fair cash value of any Shares or Trumbull
Shares, as the case may be, the court may appoint one or more appraisers to
receive evidence and to recommend a decision on the amount of the fair cash
value.
Fair cash value: (i) will be determined as of the day prior to the
applicable shareholder meeting, (ii) will be the amount a willing seller and
willing buyer would accept or pay with neither being under compulsion to sell or
buy, (iii) will not exceed the amount specified in the shareholder's written
demand and (iv) will exclude any appreciation or depreciation in market value
resulting from the Merger. The court will make a finding as to the fair cash
value of a Share or Trumbull Share, as the case may be, and render judgment
against Second Bancorp or Trumbull, for its payment with interest at such rate
and from such date as the court considers equitable. The costs of proceedings
shall be assessed or apportioned as the court considers equitable.
The rights of any dissenting shareholder will terminate if: (a) the
dissenting shareholder has not complied with Sec. 1701.85, unless Second Bancorp
or Trumbull, as the case may be, by its Board of Directors, waives such failure,
(b) Second Bancorp or Trumbull abandons or is finally enjoined or prevented from
carrying out, or the shareholders of Second Bancorp or Trumbull rescind their
adoption of, the Agreement, (c) the dissenting shareholder withdraws his written
demand, with the consent of Second Bancorp or Trumbull, as the case may be, by
its Board of Directors, or (d) Second Bancorp or Trumbull, as the case may be,
and the dissenting shareholder have not agreed upon the fair cash value per
Share or Trumbull Share and neither has timely filed or joined in a petition in
an appropriate court for a determination of the fair cash value of the Shares or
the Trumbull Shares. For a discussion of the tax consequences to a shareholder
who exercises dissenters' rights, see "THE MERGER - Income Tax Consequences."
Because a BLUE proxy card which does not contain voting instructions
will be voted for the adoption of the Agreement and approval of the Merger, a
shareholder who wishes to exercise dissenters' rights must either (i) not sign
and return his BLUE proxy card or (ii) if he signs and returns his BLUE proxy
card, vote against or abstain from voting on the adoption of the Agreement and
the approval of the Merger. Any vote or lack of a vote by a Trumbull shareholder
on the enclosed WHITE proxy card with respect to the proposal to approve the
acquisition by Second Bancorp of a controlling interest in Trumbull pursuant to
the terms of the Ohio Control Share Acquisition Statute will not affect such
shareholder's ability to exercise dissenters' rights.
Second Bancorp and Trumbull shareholders who are not in favor of the
Merger but who do not wish to exercise dissenters' rights may, in the
alternative, attempt to sell their Shares or Trumbull Shares, as the case may
be, in the open market at the then current market price. There is, however, no
active trading market for Trumbull Shares.
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<PAGE> 62
SPECIAL MEETING OF SECOND BANCORP SHAREHOLDERS
DATE, TIME AND PLACE
The special meeting of shareholders of Second Bancorp will be held at
_:__ p.m., on ______ __, 1998, in the Board of Directors Room at the main office
of the Bank, 108 Main Avenue, S.W., Warren, Ohio (as previously defined, the
"Second Bancorp Special Meeting").
PURPOSE OF MEETING
At the Second Bancorp Special Meeting, Second Bancorp's shareholders
will be asked (i) to consider and act upon a proposal to adopt the Agreement and
approve the Merger, (ii) to adopt a proposal to increase the number of directors
of Second Bancorp from seven (7) to eight (8), (iii) to elect Dr. David A.
Allen, who is currently a director of Trumbull, to serve until the 1999 Annual
Meeting of Shareholders or until his successor is elected and qualified, (iv) to
adopt an amendment to the Amended Articles of Incorporation of Second Bancorp to
eliminate Second Bancorp's two classes of preferred shares and (v) to take such
other business as may properly come before the Second Bancorp Special Meeting
and any adjournment thereof. The proposals to increase the number of directors
of Second Bancorp and to elect Dr. David A. Allen to the Second Bancorp Board of
Directors will not become effective until immediately after the consummation of
the Merger and will be void if the Merger is not consummated. See "MANAGEMENT OF
TRUMBULL EXPECTED TO SERVE ON THE BOARD OF DIRECTORS OF SECOND BANCORP" for
biographical information regarding Dr. David A. Allen.
SHARES OUTSTANDING AND ENTITLED TO VOTE AND RECORD DATE
Only the holders of record of Shares outstanding at the close of
business on ______ __, 1998 (the "Second Bancorp Record Date"), will be entitled
to notice of and to vote at the Second Bancorp Special Meeting and any
adjournment thereof.
VOTE REQUIRED
The affirmative vote of the holders of a majority of the outstanding
Shares, voting in person or by proxy, is required to adopt the Agreement and
approve the Merger and to amend the Second Bancorp Articles to eliminate the
Preferred Shares. The affirmative vote of the holders of seventy-five percent of
the Shares represented at the Second Bancorp Special Meeting and entitled to
vote on such proposal, voting in person or by proxy, is required adopt the
proposal to increase the number of directors of Second Bancorp from seven (7) to
eight (8). With respect to the election of Dr. David A. Allen to fill the
vacancy created by the increase in the number of directors, the nominee
receiving the greatest number of votes, cast in person or by proxy, will be
elected. As of the Second Bancorp Record Date, [_______] Shares were outstanding
and entitled to vote and were held of record by ___ shareholders.
As of [August 12, 1998] the directors and executive officers of Second
Bancorp owned, in the aggregate, [366,354.028] Shares, or [5.29%]of the
outstanding Shares. The directors and executive officers of Second Bancorp
intend to vote all of their respective Shares: (i) FOR the adoption of the
Agreement and the approval of the Merger, (ii) FOR the proposal to increase the
number of directors of Second Bancorp from seven (7) to eight (8), (iii) FOR the
election of Dr. David A. Allen to the Board of Directors and (iv) FOR the
amendment of Second Bancorp's Articles of Incorporation to eliminate Second
Bancorp's two classes of preferred shares. See "SPECIAL MEETING OF SECOND
BANCORP SHAREHOLDERS - Amendment of Second Bancorp's Articles to Eliminate
Second Bancorp's Two Classes of Preferred Shares."
VOTING AND SOLICITATION AND REVOCATION OF PROXIES
The holders of not less than a majority of the issued and outstanding
Shares entitled to vote at the Second Bancorp Special Meeting, present in person
or by proxy, will constitute a quorum at the Second Bancorp Special Meeting. If
a quorum of shareholders is not present at the Second Bancorp Special Meeting,
the shareholders
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entitled to vote at the Second Bancorp Special Meeting and present in person by
proxy, by majority vote, may adjourn the Second Bancorp Special Meeting and
establish the date and time for the readjournment of the Second Bancorp Special
Meeting. Each Second Bancorp shareholder will be entitled to one vote for each
Share held.
Under the rules of the SEC, boxes are provided on the form of proxy for
shareholders to mark if they wish either to abstain on a proposal presented for
stockholder approval or to withhold authority to vote for the nominee for
election as a director of Second Bancorp. In accordance with Ohio law, Shares as
to which the authority to vote is withheld will be counted for quorum purposes
but will not be counted in the election of the director to be elected at the
Second Bancorp Special Meeting. Abstentions will be counted as present for
quorum purposes; however, the effect of an abstention on all matters to be voted
upon by the shareholders at the Second Bancorp Special Meeting will be the same
as a "no" vote.
The election of directors is considered a "discretionary" item upon
which brokerage firms may vote in their discretion on behalf of their clients if
such clients have not furnished voting instructions by the 10th day before the
Second Bancorp Special Meeting. However, the remaining proposals to be voted
upon by the Second Bancorp shareholders at the Second Bancorp Special Meeting
are "non-discretionary," and brokers who have received no instructions from
their clients do not have discretion to vote on these items. Such "broker
non-votes" will not be considered as votes entitled to be cast in determining
the outcome of such proposals.
The Shares represented by each properly executed proxy received before
the Second Bancorp Special Meeting and not revoked prior to use will be voted at
the Second Bancorp Special Meeting, or any adjournment thereof, as specified on
such proxy or, in the absence of specific instructions to the contrary, will be
voted (i) FOR the adoption of the Agreement and the approval of the Merger, (ii)
FOR the proposal to increase the number of directors of Second Bancorp from
seven (7) to eight (8), (iii) FOR the election of Dr. David A. Allen to the
Board of Directors of Second Bancorp and (iv) FOR the amendment to the Second
Bancorp Articles to eliminate the Preferred Shares. See "SPECIAL MEETING OF
SECOND BANCORP SHAREHOLDERS - Shares Outstanding and Entitled To Vote and Record
Date - Vote Required." Any Second Bancorp shareholder who has executed and
returned a proxy may revoke such proxy at any time before it is voted by
executing and returning to Second Bancorp a proxy bearing a later date or by
giving notice of revocation to Second Bancorp in writing or at the Second
Bancorp Special Meeting. The mere presence at the Second Bancorp Special Meeting
of a Second Bancorp shareholder who has executed and returned a proxy will not
revoke the proxy. See "SPECIAL MEETING OF SECOND BANCORP SHAREHOLDERS - Voting
and Solicitation and Revocation of Proxies."
As of the date of this Prospectus/Joint Proxy Statement, the Board of
Directors of Second Bancorp did not know of any business to be brought before
the Second Bancorp Special Meeting, other than as set forth in this
Prospectus/Joint Proxy Statement. If, however, any matters other than those
referred to in this Prospectus/Joint Proxy Statement should properly come before
such Second Bancorp Special Meeting, or any adjournment thereof, the persons
named as proxies in the enclosed proxy intend to vote the Shares represented by
such proxy on such matters in accordance with their best judgment in light of
the conditions then prevailing.
Second Bancorp will pay the expenses incurred by Second Bancorp in
connection with copying and mailing this Prospectus/Joint Proxy Statement, the
accompanying proxy and any other related materials to the shareholders of Second
Bancorp and all other costs incurred in connection with the solicitation of
proxies on behalf of the Board of Directors of Second Bancorp. Proxies will be
solicited by mail and may be further solicited, for no additional compensation,
by officers, directors or employees of Second Bancorp by further mailing, by
telephone or by personal contact. Second Bancorp will also pay the standard
charges and expenses of brokerage houses, voting trustees, banks, associations
and other custodians, nominees and fiduciaries, who are record holders of Second
Bancorp Shares not beneficially owned by them, for forwarding such materials to
and obtaining proxies from the beneficial owners of Second Bancorp Shares
entitled to vote at the Second Bancorp Special Meeting.
AMENDMENT OF SECOND BANCORP'S ARTICLES TO ELIMINATE SECOND BANCORP'S TWO CLASSES
OF PREFERRED SHARES
Second Bancorp's Articles authorize 1,500,000 shares of Class A Serial
Preferred Shares, without par value, and 1,500,000 shares of Class B Serial
Preferred Shares, without par value (collectively referred to herein as
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<PAGE> 64
the "Preferred Shares"). As of the date of this Prospectus/Joint Proxy
Statement, there were no Preferred Shares outstanding. The Preferred Shares were
authorized by an amendment to the Second Bancorp Articles adopted by the
shareholders of Second Bancorp on October 30, 1990.
On May 13, 1997, the shareholders of Second Bancorp adopted an
amendment to the Second Bancorp Articles which increased the authorized number
of Shares of Second Bancorp from 10,000,0000 to 20,000,000, but which did not
affect the terms of the Preferred Shares. On June 25, 1997, a Certificate of
Amendment to the Second Bancorp Articles was filed with the Secretary of State
of Ohio which inadvertently and erroneously purported to eliminate the Preferred
Shares. As a result of this filing, the prospectus/proxy statement provided to
the Enfin, Inc. shareholders in connection with Second Bancorp's acquisition of
Enfin, Inc. did not disclose the existence of the Preferred Shares.
Based upon the determination that the Preferred Shares are not
currently needed, Second Bancorp informed Enfin that the Board of Directors had
adopted resolutions providing that Second Bancorp (i) would not issue any
preferred shares unless and until its shareholders take affirmative action to
authorize the issuance of preferred shares and (ii) would propose to the
shareholders of Second Bancorp an amendment to Second Bancorp's Articles to
eliminate the Preferred Shares. The Board of Directors of Second Bancorp
unanimously recommends that the shareholders of Second Bancorp vote FOR the
proposal to adopt the amendment to the Second Bancorp Articles eliminating the
Preferred Shares. The text of the proposed amendment to the Second Bancorp
Articles is set forth as Annex B to this Prospectus/Joint Proxy Statement.
SPECIAL MEETING OF TRUMBULL SHAREHOLDERS
DATE, TIME AND PLACE
The Trumbull Special Meeting will be held on __________ __, 1998,
commencing at 10:00 a.m., at the _______________, ____________, Warren, Ohio
44122.
PURPOSE OF MEETING
The purpose of the Trumbull Special Meeting is to consider and act upon
(i) a proposal to adopt the Agreement and approve the Merger, (ii) a proposal to
approve the acquisition by Second Bancorp of a controlling interest in Trumbull
pursuant to the terms of the Ohio Control Share Acquisition Statute and (iii)
such other business as may properly come before the Trumbull Special Meeting and
any adjournment thereof.
SHARES OUTSTANDING AND ENTITLED TO VOTE AND RECORD DATE
The close of business on ________ __, 1998, has been fixed by the Board
of Directors of Trumbull as the Trumbull Record Date for the determination of
holders of Trumbull Shares entitled to notice of and to vote at the Trumbull
Special Meeting and any adjournment thereof. At the close of business on the
Trumbull Record Date, there were 869,364 Trumbull Shares outstanding and
entitled to vote and held of record by __ shareholders. Each Trumbull Share
entitles the holder thereof to one vote on each matter to be submitted to the
Trumbull shareholders at the Trumbull Special Meeting.
VOTE REQUIRED
The affirmative vote of the holders of two-thirds of the outstanding
Trumbull Shares, voting in person or by proxy, will be necessary to adopt the
Agreement and approve the Merger. The affirmative vote, therefore, of the
holders of 579,576 Trumbull Shares will be necessary to adopt the Agreement and
approve the Merger. As of the Trumbull Record Date, the directors and executive
officers of Trumbull owned, in the aggregate, 384,648, or 44.24%, of the
outstanding Trumbull Shares. Assuming the affirmative vote of all Trumbull
Shares owned by the directors and executive officers of Trumbull, the
affirmative vote of the holders of an additional 194,928 Trumbull
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Shares, representing an additional 22.42% of the outstanding Trumbull Shares,
will be necessary to adopt the Agreement and approve the Merger.
As of August 12, 1998, the Izant Stockholders collectively hold
[420,639] Trumbull Shares, which represents [48.38%] of the outstanding Trumbull
Shares. The Izant Stockholders have entered into a Stockholder Voting Agreement
with Trumbull and Second Bancorp dated as of May 4, 1998. Pursuant to the
Stockholder Voting Agreement, the Izant Stockholders have agreed to: (i) vote
their Trumbull Shares in favor of the Merger; (ii) vote against the approval of
any Acquisition Proposal (an "Acquisition Proposal" is defined under the
Agreement as a proposal involving a change in control or similar transaction
involving Trumbull other than the Merger); and (iii) vote against any other
transaction which is inconsistent with the obligation of Trumbull to consummate
the Merger.
The affirmative vote of the holders of a majority of the Trumbull
Shares represented in person and by proxy at the Trumbull Special Meeting, and
the affirmative vote of a majority of the portion of such voting power excluding
any Interested Trumbull Shares, will be necessary to approve the acquisition by
Second Bancorp of a controlling interest in Trumbull pursuant to the
requirements of the Ohio Control Share Acquisition Statute. See "COMPARISON OF
RIGHTS OF HOLDERS OF SECOND BANCORP SHARES AND HOLDERS OF TRUMBULL SHARES -
Anti-Takeover Statutes".
The Trumbull shareholders present, in person or by proxy, at the
Trumbull Special Meeting will constitute a quorum at the Trumbull Special
Meeting. Each Trumbull shareholder is entitled to one vote for each Trumbull
Share held. Under Ohio law, shares which are held by a nominee for a beneficial
owner and which are represented in person or by proxy at the Trumbull Special
Meeting but which are not voted with respect to the adoption of the Agreement
and the approval of the Merger ("non-votes") will be counted as present for
purposes of establishing a quorum. The effect of an abstention or non-vote will
be the same as a vote against the adoption of the Agreement and the approval of
the Merger and against the proposal to approve the acquisition by Second Bancorp
of a controlling interest in Trumbull pursuant to the Ohio Control Share
Acquisition Statute. If a proxy is signed and dated by a shareholder, but no
vote is specified thereon, the shares held by such shareholder will be voted FOR
the adoption of the Agreement and the approval of the Merger and FOR the
proposal to approve the acquisition by Second Bancorp of a controlling interest
in Trumbull pursuant to the Ohio Control Share Acquisition Statute.
VOTING AND SOLICITATION AND REVOCATION OF PROXIES
A blue proxy card and a white proxy card accompany this
Prospectus/Joint Proxy Statement and are solicited by the Board of Directors of
Trumbull. The blue proxy card relates to the proposal to adopt the Agreement and
approve the Merger. The white proxy card relates to the proposal to approve the
acquisition by Second Bancorp of a controlling interest in Trumbull pursuant to
the Ohio Control Share Acquisition Statute.
A shareholder of Trumbull may use his proxy cards if he is unable to
attend the Trumbull Special Meeting in person or wishes to have his Trumbull
Shares voted by proxy even if he does attend the Trumbull Special Meeting in
person. Without affecting any vote previously taken, any shareholder of Trumbull
who has executed either proxy may revoke either executed proxy at any time
before the vote by filing with Trumbull, at the address of Trumbull set forth on
the Notice of Special Meeting, written notice of such revocation; by executing a
later-dated proxy which is received by Trumbull prior to the Trumbull Special
Meeting; or by attending the Trumbull Special Meeting and giving notice of such
revocation in person. ATTENDANCE AT THE TRUMBULL SPECIAL MEETING WILL NOT, IN
AND OF ITSELF, REVOKE EITHER PROXY. The Trumbull Shares represented by each
properly executed proxy received prior to the Trumbull Special Meeting and not
revoked will be voted at the Trumbull Special Meeting, or any adjournment
thereof, as specified on the applicable proxy card. In the absence of specific
instructions to the contrary on a blue proxy card, such Trumbull Shares will be
voted FOR the adoption of the Agreement and the approval of the Merger. In the
absence of specific instructions on a white proxy card, such Trumbull Shares
will be voted FOR the proposal to approve the acquisition by Second Bancorp of a
controlling interest in Trumbull pursuant to the Ohio Control Share Acquisition
Statute.
56
<PAGE> 66
As of the date of this Prospectus/Joint Proxy Statement, the Board of
Directors of Trumbull did not know of any business to be brought before the
Trumbull Special Meeting, other than as set forth in this Prospectus/Joint Proxy
Statement. If, however, any matters other than those referred to in this
Prospectus/Joint Proxy Statement should properly come before such Trumbull
Special Meeting, or any adjournment thereof, the persons named as proxies in the
enclosed proxies intend to vote the Trumbull Shares represented by such proxies
on such matters in accordance with their best judgment in light of the
conditions then prevailing.
Trumbull will pay the expenses incurred by Trumbull in connection with
copying and mailing this Prospectus/Joint Proxy Statement, the accompanying
proxies and any other related materials to the shareholders of Trumbull and all
other costs incurred in connection with the solicitation of proxies on behalf of
the Board of Directors of Trumbull. Proxies will be solicited by mail and may be
further solicited, for no additional compensation, by officers, directors or
employees of Trumbull by further mailing, by telephone or by personal contact.
Trumbull will also pay the standard charges and expenses of brokerage houses,
voting trustees, banks, associations and other custodians, nominees and
fiduciaries, who are record holders of Trumbull Shares not beneficially owned by
them, for forwarding such materials to and obtaining proxies from the beneficial
owners of Trumbull Shares entitled to vote at the Trumbull Special Meeting. In
addition, Trumbull has engaged a proxy solicitation company to assist Trumbull
in distributing proxy materials and contacting record and beneficial owners of
Trumbull Shares. Trumbull has agreed to pay Corporate Investor Communications,
Inc. approximately $3,000 plus $3 for each Shareholder contacted plus out of
pocket expenses for such proxy solicitation services to be rendered on behalf of
Trumbull.
BUSINESS OF SECOND BANCORP
Second Bancorp is an Ohio corporation and one-bank holding company
located in Warren, Ohio. The Bank is a nationally-chartered bank and is wholly
owned by Second Bancorp. The Bank operates through twenty-eight branches and one
loan production office. The Bank offers a wide range of commercial and consumer
banking and trust services primarily to business and individual customers in
various communities in a seven county area in northeastern Ohio. At June 30,
1998, Second Bancorp had consolidated total assets of $967 million, deposits of
$664 million and shareholders' equity of $83 million.
The Bank focuses its marketing efforts primarily on local independent
commercial and professional firms, the individuals who are the owners and
principals of such firms as well as the low-to-moderate to upper income retail
customers in the Bank's trade areas. In recent years, Second Bancorp has
emphasized increased commercial and direct consumer and real estate lending and
market area expansion. The Bank has de-emphasized its previous focus on indirect
consumer loan lending through local automobile dealers.
MARKET AREA
The Bank's primary market area consists of Trumbull, Mahoning, Portage,
Summit, Ashtabula, Cuyahoga and Medina Counties in the northeastern corner of
Ohio. The market economy is heavily influenced by the manufacturing sector with
an emphasis on steel and auto manufacturing and a variety of related and smaller
industries.
COMPETITION
There is significant competition in the financial services industry in
northeastern Ohio among bank holding companies and banks. As a result of
deregulation of the financial services industry, Second Bancorp competes with
providers of financial services such as savings and loan associations, credit
unions, commercial companies, brokerage and securities firms, insurance
companies, commercial finance and leasing companies and the mutual fund
industry. Some of Second Bancorp's competitors, including certain regional bank
companies which have operations in Second Bancorp's market area, have
substantially greater resources than Second Bancorp, and as such, may have
higher lending limits and may offer other services not available through the
Bank. Second Bancorp also faces significant competition, particularly with
respect to interest rates paid on deposit
57
<PAGE> 67
accounts, from well-capitalized local thrift institutions. The Bank competes on
the basis of rates of interest charged on loans, the rates of interest paid on
funds, the availability of services and responsiveness to the needs of its
customers.
The foregoing discussion of the business of Second Bancorp and
the Bank is not complete and Trumbull shareholders are referred to Second
Bancorp's Annual Report on Form 10-K for the 1997 fiscal year for a more
comprehensive discussion of Second Bancorp's and the Bank's businesses. Second
Bancorp's Annual Report on Form 10-K for 1997 is incorporated by reference into
this Prospectus/Joint Proxy Statement.
SECURITY OWNERSHIP OF SECOND BANCORP
As of [August 12, 1998], the table below identifies the persons or
"groups," as the term is used in Section 13(d)(3) of the Exchange Act, who own
of record or beneficially more than the five percent of the Shares and the
number of Shares thereof owned directly or beneficially by all Second Bancorp
directors and executive officers as a group as of [August 12, 1998] (unless
otherwise indicated).
<TABLE>
<CAPTION>
Name of Record Amount and Nature Percent
Title of Class or Beneficial Owner of Beneficial Ownership of Class
- -------------- ------------------- ----------------------- --------
<S> <C> <C> <C>
Common Stock Market Main & Co. (Nominee for [552,365] (1) [7.98%]
the Bank's Trust Department)
Common Stock Second Bancorp's executive officers [366,354.028] (3) [5.29%]
and directors as a group(2)
<FN>
(1) Shares held of record as of August 12, 1998, in fiduciary capacity for
various trust customers of the Bank. None of the beneficial owners
through the Bank's trust department owns or controls five percent or
more of the Shares of Second Bancorp.
(2) The executive officer and director group is comprised of 15 individuals.
(3) Officer shareholdings include outstanding stock options exercisable as
of [August 12, 1998]. Figure includes all directly owned Shares and all
Shares deemed beneficially owned by individuals in the officers and
director group, whether or not disclaimed by the officer or director in
question.
</FN>
</TABLE>
58
<PAGE> 68
MANAGEMENT OF SECOND BANCORP
The following is a list of the directors and certain of the executive
officers of Second Bancorp, together with specific information about each of
them, as of August 12, 1998:
<TABLE>
<CAPTION>
Number Percentage
Principal Occupation of Shares Owned of Shares Owned
During the Past Five Beneficially As of Beneficially As of Director
Name Age Years and Directorships [August 12, 1998] [August 12, 1998](1) Since
- ---- --- ----------------------- ------------------- ------------------- -------
<S> <C> <C> <C> <C> <C>
Alan G. Brant 66 Chairman and President, 108,431.26 (2,3,4) 1.57% 1987
Second Bancorp and
President, Director, and
Chief Executive Officer, the
Bank
John A. Anderson 60 Chairman and Chief Executive [16,793.611] 1987
Officer; The Taylor-Winfield
Corporation, Ravenna
Manufacturing Company and
Hubparts, Inc.
John C. Gibson 70 Chairman of the Board, Jack [24,807.893] (5,6) 1987
Gibson Construction Company,
Director, Sovereign
Circuits, Inc.
Robert J. Webster 75 Retired. Past President and [41,820] (7) 1987
Chief Executive Officer of
Denman Corporation,
manufacturer of automobile
tires and rubber rolls
Norman G. Harbert 64 Chairman and President, and [11,999.504] (8) 1987
Chief Executive Officer of
the Hawk Corporation, owner
of several manufacturing
firms. Mr. Harbert is also
a director of Caliber
Systems, Inc. and New West
Eyeworks.
John L. Pogue 53 Partner, Harrington, Hoppe & [1,655.707] (9) 1987
Mitchell, LTD (attorneys).
Raymond John Wean, 49 President and Chief [6,697.526] (10) 1987
III Executive Officer of Barto
Technical Services, Inc. Prior to
January 1995, President of Danieli
Wean, Inc., and President and Chief
Executive Officer of Wean,
Incorporated, formerly, Wean
United, Inc., designer and
manufacturer of industrial
machinery.
William Hanshaw 45 Executive Officer of Second [21,115.222] (11) --
Bancorp and Senior Vice
President of Second National
Bank of Warren
</TABLE>
59
<PAGE> 69
<TABLE>
<S> <C> <C> <C> <C>
David L. Kellerman 40 Treasurer of Second Bancorp [11,399.65] (12) --
and Executive Vice
President, Chief Financial
Officer and Director of
Second National Bank of
Warren.
Diane C. Bastic 54 Executive Officer of Second [34,219.141] (13) --
Bancorp and Senior Vice
President of Second National
Bank of Warren.
Christopher Stanitz 49 Executive Vice President and [34,856.855] (14) --
Secretary of Second Bancorp
and Vice President of Second
National Bank of Warren.
<FN>
- --------------
(1) Unless otherwise stated, ownership of the Shares is less than 1%.
(2) Includes 15,706 Shares held by Mr. Brant's wife, the beneficial ownership of which he has
disclaimed.
(3) Includes 26,253.26 Shares held for Mr. Brant's benefit by the Bank's Savings Plan. Mr. Brant
is 100% vested in these Shares.
(4) Includes 19,500 Shares representing a like number of currently exercisable options and 4,300
unexercisable options owned by Mr. Brant.
(5) Includes 1,591.476 Shares owned by, or for the benefit of, Mr. Gibson's wife, the beneficial
ownership of which he has disclaimed.
(6) Includes 4,447.734 Shares which are owned by the Jack Gibson Construction Company which
company is controlled by Mr. Gibson and 800 shares held in an IRA for Mr. Gibson's benefit.
(7) Includes 10,232 Shares owned by Mr. Webster's wife, the beneficial ownership of which he has
disclaimed.
(8) Includes 4,079.297 Shares held by the trustee of Mr. Harbert's defined benefit plan and
2,256.625 Shares held in a personal trust for his benefit.
(9) Includes 446 Shares held in a SEP IRA account for Mr. Pogue's benefit.
(10) Includes 997.526 Shares owned by Mr. Wean's minor children, the beneficial ownership of which
he has disclaimed.
(11) In addition to directly owned Shares, total includes 5,274.73 shares beneficially owned
through Second Bancorp's 401(k) plan, 470 Shares held in an IRA for his benefit, 7,650
currently exercisable options to purchase Shares, and 4,100 currently unexercisable options to
purchase Shares.
(12) In addition to directly owned Shares, total includes 2,636.48 Shares beneficially owned
through Second Bancorp's 401(k) plan, 4,500 currently exercisable options to purchase Shares,
and 4,200 currently unexercisable options to purchase Shares.
(13) In addition to directly owned Shares, total includes 11,793.49 Shares beneficially owned
through Second Bancorp's 401(k) plan, 16,900 currently exercisable options to purchase Shares,
and 4,100 currently unexercisable options to purchase Shares.
(14) In addition to directly owned Shares, total includes 3,161.33 Shares beneficially owned
through Second Bancorp's 401(k) plan, 27,400 currently exercisable options to purchase Shares,
and 4,200 currently unexercisable options to purchase Shares.
</FN>
</TABLE>
For information concerning (i) the compensation of executive officers
and directors of Second Bancorp, (ii) certain employment arrangements and
agreements among Second Bancorp, the Bank and certain executive officers and
directors of Second Bancorp and/or the Bank and (iii) transactions among Second
Bancorp, the Bank and certain officers of Second Bancorp and/or the Bank and
other related persons, reference is made to Second Bancorp's Annual Report on
Form 10-K for the year ended December 31, 1997, which is incorporated herein by
reference. See "AVAILABLE INFORMATION" and "INCORPORATION OF CERTAIN DOCUMENTS
BY REFERENCE."
60
<PAGE> 70
Certain officers and/or directors of Trumbull own Shares, but no officer
or director of Trumbull has beneficial ownership of Shares representing 5% or
more of the outstanding Shares.
MANAGEMENT OF TRUMBULL EXPECTED TO SERVE ON THE
BOARD OF DIRECTORS OF SECOND BANCORP
TRUMBULL DIRECTORS NOMINATED OR TO BE APPOINTED TO SERVE AS SECOND BANCORP
DIRECTORS
Assuming approval of shareholders is received and that all other
conditions to consummation of the Merger are satisfied, Dr. David A. Allen has
been nominated and will serve as a director of Second Bancorp, and Phyllis J.
and James R. Izant will be appointed to serve as directors of Second Bancorp
following consummation of the Merger. See "THE MERGER - Representations,
Warranties and Covenants." Dr. Allen and Phyllis J. and James R. Izant currently
serve as directors of Trumbull and Trumbull Savings. James R. Izant also serves
as Trumbull and Trumbull Savings' Executive Vice President and Secretary.
Brief biographical information concerning these individuals follows.
Dr. David A. Allen, Jr., age 57, has been a director of Trumbull
Savings since 1993. Dean of the Trumbull Campus of Kent State University since
1990, Dr. Allen had previously served as Chair of the Aerospace Studies
Department and Associate Director of Undergraduate Admissions, Pennsylvania
State University, and prior to that in the United States Air Force, retiring at
the rank of Colonel. Dr. Allen earned a masters degree in Higher Education from
George Washington University and a Ph.D. in Education Administration from the
University of Southern California. Dr. Allen has been active in community
affairs, serving as a board member of Leadership Mahoning Valley, American Red
Cross of Trumbull County, Valley Counseling, Inc., St. Joseph's Riverside
Hospital Foundation, Industrial Information Institute for Education, Inc.,
Trumbull 100 for the Future of Trumbull County and the Youngstown-Warren
Regional Chamber of Commerce Economic Development Committee.
James R. Izant, age 40, has been a director of Trumbull Savings since
1985, Corporate Secretary since 1986 and Executive Vice President since 1991.
Mr. Izant has twenty years of experience in banking, beginning in 1978 with
Second National Bank of Warren and continuing with Trumbull Savings since 1984.
Mr. Izant's specialized training in the banking industry also includes degrees
from banking schools sponsored by Ohio State University, Ohio University and the
University of Texas, Austin. James R. Izant is a member of the Board of
Directors of the Warren Trumbull Community Service Agency and the Trumbull
County Historical Society, and is on the fund-raising committee of the national
Packard Museum.
Phyllis J. Izant, age 35, has been a director of Trumbull Savings since
1996. Her principal occupation since 1994 is Development Associate for
Leadership Gifts, Purdue University Central Development Office, West Lafayette,
Indiana. As a Development Associate for a major university that has an annual
operating budget of nearly one billion dollars, Ms. Izant shares responsibility
for the university's fund-raising efforts as one of four members of the
university's leadership team. From 1991 to 1994 Ms. Izant was assistant Director
of Development at the Kent School in Kent, Connecticut, where she had primary
responsibility for the school's capital-raising efforts. Ms. Izant earned a
Masters in Business Administration from Purdue University's Krannert School of
Management in 1997, and previously earned a Master of Theological Studies degree
from Boston University in 1989. Phyllis J. Izant is also a member of the Capital
Campaign Committee of the Unitarian-Universalist Church of Lafayette, Indiana.
Phyllis J. and James R. Izant are brother and sister, and each has a
one-fourth interest in the Izant Family Partnership. With his sister Elizabeth
A. Izant, James R. Izant is a co-manager of the Izant Family Partnership. See
"BUSINESS OF TRUMBULL - General."
DIRECTOR COMPENSATION BY TRUMBULL AND TRUMBULL SAVINGS
Each of Trumbull Savings' seven directors has also served as a director
of Trumbull since its inception in 1997. Non-employee directors of Trumbull
Savings receive monthly director fees of $1,200, $200 for each Board
61
<PAGE> 71
and committee meeting attended and reimbursement of expenses of attendance at
Board and committee meetings. Directors of Trumbull have received fees of $500
for Trumbull Board meetings attended.
CERTAIN TRANSACTIONS
Various executive officers and directors of Trumbull and Trumbull
Savings, affiliates and members of their families are customers of and have
entered into banking transactions with Trumbull Savings in the ordinary course
of Trumbull Savings' business. All loans and commitments to loans included in
such transactions were made on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with other persons and, in the opinion of the management of
Trumbull Savings, did not involve more than a normal risk of collectibility or
present other unfavorable features.
TRUMBULL MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Because Trumbull has no significant operations independent of Trumbull
Savings, the discussion herein concerns the financial condition and results of
operations of Trumbull Savings, except as may be otherwise specifically
indicated. This discussion is intended to focus on certain financial information
regarding Trumbull and its wholly owned subsidiary, Trumbull Savings. The
purpose of this discussion is to provide the reader with a more thorough
understanding of the financial statements. This discussion should be read in
conjunction with the financial statements and accompanying notes.
The reported results of Trumbull are dependent on a variety of factors,
including the general interest rate environment, competitive conditions in the
industry, government policies and regulations and conditions in the markets for
financial assets. Management of Trumbull 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. Also, management is not aware of any current recommendations
by its regulatory authorities that would have such effect if implemented.
FORWARD-LOOKING STATEMENTS
The following Management's Discussion and Analysis of Financial
Condition and Results of Operations of Trumbull contains certain forward-looking
statements, meaning statements that relate to present or future trends or
factors affecting the banking industry and specifically the operations, markets
and products of Trumbull and its subsidiary, Trumbull Savings. Because of a
variety of factors, including but not limited to those related to the economic
environment (particularly in the market areas in which Trumbull Savings
operates), competitive products and pricing, fiscal and monetary policies of the
U.S. Government, changes in government regulations affecting financial
institutions, including regulatory capital requirements, changes in prevailing
interest rates, asset/liability and credit risk management, the financial and
securities markets and the availability of and costs associated with sources of
liquidity, actual results could differ materially from those set forth in
forward-looking statements.
NET INTEREST INCOME
Trumbull Savings' profitability depends primarily on net interest
income, which is the difference between (a) interest income generated by
interest-earning assets (i.e., loans and investments) and (b) interest expense
incurred on interest-bearing liabilities (i.e., customer deposits and borrowed
funds). Net interest income is affected by the difference between the rates of
interest earned on interest-earning assets and the rates of interest paid on
interest-bearing liabilities, which is commonly referred to as the "net interest
rate spread." Net interest income is also affected by the relative amounts of
interest-earning assets and interest-bearing liabilities. If the total of
interest-earning assets approximates or exceeds the total of interest-bearing
liabilities, any positive interest rate spread will generate net interest
income. Financial institutions have traditionally used interest rate spreads as
a measure of net interest income. Another indication of an institution's net
interest income is its "net yield on
62
<PAGE> 72
interest-earning assets" or "net interest margin," which is net interest income
divided by average interest-earning assets.
As market interest rates change, asset yields and liability costs do
not generally change simultaneously. Due to maturity, repricing and timing
differences of interest-earning assets and interest-bearing liabilities,
earnings are affected differently under various interest rate scenarios.
Trumbull Savings has sought to limit these net earnings fluctuations and manage
interest rate risk by originating adjustable-rate loans and purchasing
relatively short-term and variable-rate investments and securities. The
following tables present for the periods indicated, the total amount of interest
income from average interest-earning assets and the resultant yields, as well as
the interest expense on average interest-bearing liabilities, expressed both in
dollars and rates, and net interest margin. All average balances are daily
average balances. Non-accruing loans are included in average loan balances.
63
<PAGE> 73
<TABLE>
<CAPTION>
YIELD ANALYSIS
Year ended September 30 1997 1996 1995
---------------------------------------------------------------------------------------
Average Yield / Average Yield / Average Yield /
Balance Interest Rate Balance Interest Rate Balance Interest Rate
- -------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest earning assets:
Taxable loans $239,202 $ 18,690 7.81% $210,561 $16,419 7.80% $182,425 $14,098 7.73%
Taxable securities 231,800 13,891 5.99% 265,252 15,700 5.92% 303,076 18,019 5.95%
--------------------------------------------------------------------------------------
Total interest earning assets 471,002 $ 32,581 6.92% 475,813 $32,119 6.75% 485,501 $32,117 6.62%
Non-interest earning assets 24,069 23,358 21,382
--------------------------------------------------------------------------------------
TOTAL $495,071 $499,171 $506,883
======================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing liabilities:
Demand deposits- int bearing $ 24,516 $ 380 1.55% $ 22,267 $ 391 1.76% 20,279 436 2.15%
Savings deposits 105,732 2,790 2.64% 110,775 2,946 2.66% 119,572 3,385 2.83%
Time deposits 231,174 12,831 5.55% 235,766 13,082 5.55% 234,176 12,024 5.13%
Securities sold under agreements
to repurchase 18,488 997 5.32% 8,386 449 5.32% 29,924 1,706 5.66%
Federal Home Loan Bank 63,926 3,607 5.58% 71,993 4,168 5.76% 60,449 3,767 6.36%
advances
---------------------------------------------------------------------------------------
Total interest bearing liabilities 443,836 $ 20,605 4.64% 449,187 $21,036 4.68% 464,400 21,318 4.59%
Non-interest bearing liabilities 16,019 15,595 9,618
Shareholders' equity 35,216 34,389 32,865
---------------------------------------------------------------------------------------
TOTAL $495,071 $499,171 $506,883
=======================================================================================
Net Interest Income $ 11,976 $11,083 10,799
======== ======= =======
Net Interest Spread 2.28% 2.07% 2.03%
======= ======== ========
Net Interest Margin 2.54% 2.33% 2.22%
======= ======== ========
</TABLE>
64
<PAGE> 74
<TABLE>
<CAPTION>
YIELD ANALYSIS
Nine Month Period Ended June 30,
---------------------------------------------------------------------------
1998 1997
Average Yield / Average Yield /
Balance Interest Rate Balance Interest Rate
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest earning assets:
Taxable loans $294,472 $16,957 7.68% $233,474 $13,624 7.78%
Taxable securities 181,054 8,274 6.09% 242,372 10,743 5.91%
---------------------------------------------------------------------------
Total interest earning assets 475,526 $25,231 7.07% 475,846 $24,367 6.83%
Non-interest earning assets 26,272 20,801
---------------------------------------------------------------------------
TOTAL $501,798 $496,647
===========================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing liabilities:
Demand deposits- int bearing $26,502 $308 1.55% $24,410 $283 1.55%
Savings deposits 100,678 1,991 2.64% 106,313 2,098 2.63%
Time deposits 238,894 9,938 5.55% 230,635 9,550 5.52%
Securities sold under agreements
to repurchase 15,552 627 5.38% 15,567 633 5.42%
Note payable 31 2 8.50%
Federal Home Loan Bank advances 63,003 2,707 5.73% 68,877 2,880 5.58%
Amortization of Interest Cap Contract 68
---------------------------------------------------------------------------
Total interest bearing liabilities 444,660 $15,641 4.69% 445,802 $15,444 4.62%
---------------------------------------------------------------------------
Non-interest bearing liabilities 19,487 15,899
Shareholders' equity 37,651 34,946
---------------------------------------------------------------------------
TOTAL $501,798 $496,647
===========================================================================
Net Interest Income $9,590 $8,923
======== ==========
Net Interest Spread 2.38% 2.21%
========= =========
Net Interest Margin 2.69% 2.50%
========= =========
</TABLE>
65
<PAGE> 75
RATE / VOLUME ANALYSIS
The table below describes the extent to which changes in interest rates
and changes in volume of interest-earning assets and interest-bearing
liabilities have affected Trumbull Savings' interest income and expense during
the periods indicated. For each category of interest-earning assets and
interest-bearing liabilities, information is provided on changes attributable to
(i) changes in volume (change in volume multiplied by prior year rate) and (ii)
changes in rate (change in rate multiplied by prior year volume). Changes
attributable to the combined impact of volume and rate have been allocated
proportionately to changes due to volume and changes due to rate.
<TABLE>
<CAPTION>
RATE / VOLUME ANALYSIS
Twelve month Period: 1997 compared to 1996 1996 compared to 1995
Due to Changes in Due to Changes in
----------------------------------- ---------------------------------------
Volume Rate Total Volume Rate Total
----------------------------------- ---------------------------------------
(Dollars in thousands)
Increase (decrease) in interest income:
<S> <C> <C> <C> <C> <C> <C>
Taxable loans $2,233 $38 $2,271 $2,174 $147 $2,321
Taxable securities (1,980) 171 (1,809) (2,249) (70) (2,319)
----------------------------------- ---------------------------------------
Total interest income $253 $209 $462 $(75) $77 $2
----------------------------------- ---------------------------------------
Increase (decrease) in interest expense:
Demand Deposits- int bearing $39 $(50) $(11) $43 $(88) $(45)
Savings deposits (134) (22) (156) (249) (190) (439)
Time deposits (255) 4 (251) 82 976 1,058
Securities sold under agreements
to repurchase 541 7 548 (1,228) (29) (1,257)
Federal Home Loan Bank advances (467) (94) (561) 719 (318) 401
----------------------------------- ---------------------------------------
Total interest expense $(276) $(155) $(431) $(633) $351 $(282)
----------------------------------- ---------------------------------------
----------------------------------- ---------------------------------------
Total effect on net interest income $529 $364 $893 $558 $(274) $284
----------------------------------- ---------------------------------------
</TABLE>
66
<PAGE> 76
<TABLE>
<CAPTION>
Nine Month Period ended June 30 1998 compared to 1997
Due to Changes in
-----------------------------------
Volume Rate Total
-----------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Increase (decrease) in interest income:
Taxable loans $3,513 $(180) $3,333
Taxable securities (2,802) 333 (2,469)
-----------------------------------
Total interest income $711 $153 $864
===================================
Increase (decrease) in interest expense:
Demand Deposits- int bearing $25 $0 $25
Savings deposits (111) 4 (107)
Time deposits 344 44 388
Securities sold under agreements
to repurchase (1) (5) (6)
Note Payable 2 2
Federal Home Loan Bank advances (252) 79 (173)
Amortization of Interest Rate Caps 68 68
-----------------------------------
Total interest bearing liabilities $7 $190 $197
===================================
-----------------------------------
Total effect on net interest income $704 $(37) $667
-----------------------------------
</TABLE>
COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED JUNE 30, 1998 AND 1997
Net Income. Net income for the nine month period ended June 30, 1998
was $2,618,000 compared to $2,515,000 reported for the comparable period in
1997, resulting in an increase of $103,000 or 4.1%. The increase in earnings is
primarily due to the company's continuing strategy of changing its asset mix by
increasing net loan balances outstanding and decreasing investments in
mortgage-backed securities, resulting in a higher overall yield on interest
earning assets and ultimately spread. This increased net interest income was
partially off-set by an increase in the provision for loan losses and interest
expense.
Interest Income. Interest income for the nine month period ended June
30, 1998 was $25,231,000, up $863,000 or approximately 3.5% from $24,368,000 for
the nine month period ended June 30, 1997. Total average interest earning assets
declined slightly, from $475.8 million during the nine month period ended June
30, 1997 to $475.5 million for the comparable period during 1998 due to an
increase in average net loans outstanding of $61 million while average net
investments decreased by $61.3 million. This resulted in an overall yield
increase of 24 basis points when comparing total yield on earning assets of
7.07% for the nine month period ended June 30, 1998 to 6.83% for the nine month
period ended June 30, 1997.
Interest Expense. Interest expense rose to $15,641,000 for the nine
month period ended June 30, 1998 from $15,444,000 for the comparable period in
1997. This $197,000 increase was due to a combination of a 7 basis point
increase in cost of funds partially offset by a small volume variance of
approximately $1.1 million as total average interest bearing liabilities
decreased from $445.8 million for the nine months ended June 30, 1997 to $444.7
million for the same period in 1998.
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<PAGE> 77
Net Interest Income. Net interest income increased 7.5% to $9,590,000
during the nine month period ended June 30, 1998, up from $8,923,000 during the
same period in 1997. The increase was due primarily to the increase in yield on
average interest earning assets, resulting from the change in asset mix as
discussed above.
Provision for Loan Losses. The provision for loan losses increased by
$134,000 to $180,000 for the nine month period ended June 30, 1998 as compared
to $46,000 for the nine month period ended June 30, 1997. This increase was
primarily the result of increasing net charge-offs in consumer loans. Net loans
outstanding at June 30, 1998 increased by $79 million to $329.2 million as
compared to $250.2 million at June 30, 1997. As a percentage of total assets,
net loans outstanding at June 30, 1998 was 64.7% as compared to 51% at June 30,
1997. Most of the increase in loans results from increases in real estate loans,
yet net charge-offs are occurring primarily on consumer loans. Management feels
that the credit risk is acceptable, but is also currently reviewing loan loss
reserve levels specifically as they relate to consumer lending activities.
Noninterest Income. Noninterest income was $1,747,000 for the nine
month period ended June 30, 1998 which was an increase of $56,000 as compared to
$1,691,000 reported for the comparable period in 1997. Although the net increase
was minor, it resulted from a net amount of several larger items. During the
nine month period ended June 30, 1998, service charges on deposit accounts was
$224,000 higher, net gain on sale of securities was $104,000 higher, net gain on
sale of loans was $107,000 higher and other operating income was $61,000 higher
than the comparable period in 1997. These increases were offset by a decrease in
loan servicing fees net of valuation of $440,000 during the nine month period
ended June 30, 1998 as compared to the nine month period ended June 30, 1997.
The decrease in loan servicing fees net of valuation was due to a combination of
an increase in the market valuation allowance of $334,000 due to a low interest
rate environment and increased prepayment risk, and the remaining decrease of
$106,000 was due to lower loan servicing balances.
Noninterest Expense. Noninterest expense was $7,001,000 for the nine
month period ended June 30, 1998 compared to $6,746,000 for the comparable
period in 1997 resulting in a $255,000 increase. The $255,000 increase in
noninterest expense was primarily due to an increase of $349,000 in professional
fees, which included legal, accounting and investment banking expenses related
to the proposed merger with Second Bancorp.
Provision for Income Taxes. Provision for income taxes was $1,537,000
for the nine month period ended June 30, 1998 as compared to $1,307,000 for the
nine month period ended June 30, 1997 resulting in a $230,000 increase. This
increase was a result of increased pre-tax income, as well as certain merger
related expenses that are not deductible for federal income tax purposes, during
the nine month period ended June 30, 1998 as compared to the comparable period
in 1997.
COMPARISON OF OPERATING RESULTS FOR YEARS ENDED SEPTEMBER 30, 1997 AND 1996
Net Income. Net income for 1997 was $3,365,000 as compared to $834,000
for 1996 resulting in an increase of $2,531,000 or $2.91 per share. In 1996 all
SAIF (Savings Association Insurance Fund of the FDIC) insured institutions were
required to take a one time charge against income to recapitalize the insurance
fund. Trumbull's contribution amounted to $2,470,000 on a pre-tax basis,
resulting in an after tax charge against earnings of $1,630,000 or $1.87 per
share. The remaining increase in 1997 compared to 1996 came primarily from net
interest income, due to the company's continuing strategy of changing its asset
mix by increasing net loan balances outstanding and decreasing investments in
mortgage-back securities, thereby contributing to the increase in spread from
2.07% in 1996 to 2.27% in 1997. Noninterest income also contributed to the
increase in earnings, primarily due to the growth in fees earned on deposit
accounts resulting from the continued success of the "High Performance Checking"
program first implemented in January 1995.
Interest Income. Interest income for 1997 was $32,581,000 compared to
$32,119,000 for 1996, resulting in a $462,000 increase. Although total average
interest earnings assets decreased slightly in 1997 to $471.0 million as
compared to $475.8 million for 1996, average net loans outstanding increased by
$28.6 million while average net investments decreased by $33.5 million. This
resulted in an overall yield increase of 0.17% when comparing 1997's total yield
on interest earning assets of 6.92% to 1996's yield of 6.75%.
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<PAGE> 78
Interest Expense. Total interest expense decreased $431,000 to
$20,605,000 in 1997 from $21,036,000 in 1996. This decrease is due to a
combination of a decrease in average interest bearing liabilities outstanding of
approximately $5.4 million and a decrease in average cost of funds of
approximately 0.04%. With regard to average cost of funds, Trumbull lowered its
rate paid on interest bearing checking accounts from 2.15% to 1.75% on October
31, 1995 and again from 1.75% to 1.55% on April 15, 1996. The remaining interest
bearing liabilities adjusted with general market interest rates. The Federal
Open Market Committee (FOMC) lowered the discount rate by 0.25% on December 20,
1995 and again by another 0.25% on January 31, 1996. The FOMC raised the rate by
0.25% on March 25, 1997 where it remains unchanged to date.
Provision for Loan Losses. The provision for loan losses increased by
$80,000 to $140,000 in 1997 as compared to $60,000 in 1996. This increase was
primarily the result of increased net charge-offs on consumer loans. Net loans
outstanding as a percentage of total assets at September 30, 1997 was 54.3%
compared to 44.5% at September 30, 1996.
Noninterest Income. Noninterest income totaled $2,335,000 in 1997
compared to $1,825,000 in 1996 resulting in an increase of $510,000. The primary
component contributing to this increase was service charges on deposit accounts
which increased by $314,000 in 1997 compared to 1996. This 41.7% increase was
due to the successful implementation and growth of the "High Performance
Checking" program implemented in January 1995. Net gain on the sale of loans
increased by approximately $208,000 in 1997 compared to 1996. There was also an
increase in loan service fees of $23,000 and other operating income increased by
$45,000 during 1997 as compared to 1996. The increases in noninterest income
were partially offset by an increase in loss on sale of securities of $80,000.
Noninterest Expense. Noninterest expense was $9,062,000 in 1997
compared to $11,577,000 in 1996 resulting in a $2,515,000 decrease. In 1996 all
SAIF insured institutions were required to take a one time charge against income
to recapitalize the insurance fund. Trumbull's contribution was $2,470,000 which
was expensed in 1996.
Provision for Income Taxes. The provision for income taxes increased
$1,307,000 to $1,744,000 in 1997 from $437,000 in 1996. This increase was a
result of increased pre-tax income during 1997 as compared to 1996.
COMPARISON OF OPERATING RESULTS FOR YEARS ENDED SEPTEMBER 30, 1996 AND 1995
Net Income. Net income for 1996 was $834,000 as compared to $2,004,000
for 1995 resulting in an decrease of $1,170,000 or $1.35 per share. In 1996 all
SAIF insured institutions were required to take a one time charge against income
to recapitalize the insurance fund. Trumbull's contribution amounted to
$2,470,000 on a pre-tax basis, resulting in an after tax charge against earnings
of $1,630,000 or $1.87 per share.
Interest Income. Interest income for 1996 was $32,119,000 compared to
$32,117,000 for 1995 resulting in a $2,000 increase. This increase was due to a
combination of a decrease in average interest bearing assets in 1996 compared to
1995 resulting in a decreasing effect on interest income of $75,000, offset by
an increase in average yield in 1996 compared to 1995 of 0.13% resulting in an
increasing effect on interest income of $77,000. The increase in overall yield
is primarily a result of the continuing shift in interest earning assets from
investments, which tend to be lower yielding assets, to loans which tend to be
higher yielding assets.
Interest Expense. Total interest expense decreased $282,000 to
$21,036,000 in 1996 from $21,318,000 in 1995. This decrease is due to a decrease
in average interest bearing liabilities in 1996 compared to 1995 resulting in a
decreasing effect on interest expense of $633,000 which was partially offset by
an increase in cost of funds in 1996 compared to 1995 of 0.09% resulting in an
increasing effect on interest expense of $351,000.
Provision for Loan Losses. The provision for loan losses remained the
same for 1996 and 1995 at $60,000 for each year. Net charge-offs on real estate
loans for both years was minor. Net charge-offs on consumer loans increased from
approximately $36,000 in 1995 to $132,000 in 1996, however management felt that
the loan
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<PAGE> 79
loss reserve balance at year end 1996, although less than the reserve balance at
year end 1995, was adequate for the risk characteristics of the loan portfolio.
Noninterest Income. Noninterest income total was $1,825,000 in 1996
compared to $1,706,000 in 1995 resulting in an increase of $119,000. Service
charges on deposit accounts increased $246,000 in 1996 compared to 1995
representing a 48.4% increase. This increase was due to the successful
implementation and growth of the "High Performance Checking" program implemented
in January 1995. Other operating income also increased by $225,000 in 1996
compared to 1995, partly due to increased late fee income earned on the
company's growing portfolio of loans owned and loans serviced for others.
Somewhat offsetting these increases was the decrease in the net gain on the sale
of securities available for sale which decreased by $202,000 in 1996 compared to
1995. In addition, the net loss on the sale of loans increased by $105,000 in
1996 compared to 1995 and loan service fees decreased by $44,000 in 1996
compared to 1995.
Noninterest Expense. Noninterest expense was $11,577,000 in 1996
compared to $9,318,000 in 1995 resulting in an increase of $2,259,000. In 1996
all SAIF insured institutions were required to take a one time charge against
income to recapitalize the insurance fund. Trumbull's contribution was
$2,470,000 which was expensed in 1996.
Provision for Income Taxes. The provision for income taxes decreased
$686,000 to $437,000 in 1996 from $1,123,000 in 1995. This decrease was a result
of decreased pre-tax earnings in 1996 as compared to 1995. In addition,
Trumbull's effective tax rate decreased from 35.9% in 1995 to 34.4% in 1996.
COMPARISON OF JUNE 30, 1998 AND SEPTEMBER 30, 1997 FINANCIAL CONDITION
Total assets increased to $508,515,000 at June 30, 1998 as compared to
$482,403,000 at September 30, 1997, resulting in an increase of $26,112,000 or
5.4%. This increase was funded by a $24.7 million increase in borrowed funds
offset by a $1 million decrease in deposits, and a $1.8 million increase in
shareholders' equity, primarily due to the retention of earnings.
Total net loans outstanding increased to $329,249,000 at June 30, 1998
as compared to $262,781,000 at September 30, 1997, resulting in an increase of
$66,468,000 or 25.3%. Most of this increase was due to single family home loans
which increased approximately $60.2 million, consumer loans also increased by
approximately $8.7 million, while commercial loans increased by $0.1 million.
Included in total net loans outstanding are single family home loans held for
sale of $9.8 million at June 30, 1998 and $0.9 million at September 30, 1997.
Much of the increased activity in single family home lending is due to
Trumbull's Loan Production Office which opened for business in February 1997 as
well as the favorable interest rate environment. During the nine month period
ended June 30, 1998 Trumbull originated a total of $112 million of single family
first mortgage home loans from all sources and purchased an additional $9.2
million through brokers. During this period Trumbull sold $22.4 million of these
loans in the secondary market retaining the servicing rights. During the nine
month period ended June 30, 1997 Trumbull originated a total of $42.8 million of
single family first mortgage home loans from all sources and purchased an
additional $5.3 million through brokers. During this period Trumbull sold $5.1
million of these loans in the secondary market.
Total securities decreased to $154,619,000 at June 30, 1998 as compared
to $195,713,000 at September 30, 1997 resulting in a decrease of $41.1 million
or 21%. During the nine month period ended June 30, 1998 Trumbull purchased
$40.1 million and sold $15.5 million of securities, and approximately $65.9
million was received as repayment of principal. Trumbull's continuing strategy
is to change the interest earning asset mix over time by decreasing security
balances outstanding and increasing investments in real estate loans and
consumer lending. Of the $154,619,000 of total securities outstanding at June
30, 1998, $20,515,000, or 13.3%, are classified as available-for-sale with the
remainder classified as held-to-maturity. Of the $195,713,000 of total
securities outstanding at September 30, 1997, $25,195,000, or 12.9%, are
classified as available-for-sale with the remainder classified as
held-to-maturity.
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Investment in premises and equipment increased to $5,299,000 at June
30, 1998 as compared to $4,899,000 at September 30, 1997 resulting in an
increase of $400,000. In January 1998 Trumbull purchased land for $450,000 in
Twinsburg, Ohio with the intention of building a new full service branch office.
The branch is expected to be opened by the first or second quarter of 1999.
Total deposits decreased to $371,829,000 at June 30, 1998 as compared
to $372,823,000 at September 30, 1997, a decrease of approximately $1 million.
Trumbull continues to emphasize several marketing plans including cross selling
efforts related to the "High Performance Checking" program, to minimize deposit
shrinkage and encourage growth.
Total borrowings increased to $93,062,000 at June 30, 1998 as compared
to $68,339,000 at September 30, 1997 resulting in an increase of $24.7 million.
Trumbull increased its borrowings as a means to fund its efforts to grow the
loan portfolio.
Total shareholders' equity increased to $38,375,000 at June 30, 1998 as
compared to $36,618,000 at September 30, 1997, an increase of $1,757, 000. The
increase was due to year-to-date net income of $2.6 million, a $0.08 million
decrease in unrealized loss on securities available for sale, and was partially
offset by payment of cash dividends totaling $1.08 per share or $0.9 million.
Total shareholders' equity as a percentage of total assets at June 30, 1998 was
7.55% compared to 7.59% at September 30, 1997. Trumbull's equity exceeded all
regulatory capital requirements at June 30, 1998 and September 30, 1997.
COMPARISON OF SEPTEMBER 30, 1997 AND 1996 FINANCIAL CONDITION
Total assets decreased to $482,359,000 at September 30, 1997 as
compared to $493,697,000 at September 30, 1996, resulting in a decrease of
$11,338,000 or 2.3%. This decrease was used to fund a $1.1 million decrease in
deposits and to contribute to the repayment of $12 million in borrowed funds.
Total net loans outstanding increased to $262,781,000 at September 30,
1997 as compared to $220,105,000 at September 30, 1996, resulting in an increase
of $42,676,000 or 19.4%. Most of this increase was due to single family home
loans which increased approximately $40.5 million. Consumer loans also increased
by approximately $2.3 million, while commercial real estate loans decreased by
$0.8 million. Included in total net loans outstanding are single family home
loans held for sale of $0.9 million at September 30, 1997 and $0.3 million at
September 30, 1996. Much of the increased activity in single family home lending
is due to Trumbull's Loan Production Office which opened for business in
February 1997, as well as the favorable interest rate environment. During the
twelve month period ended September 30, 1997 Trumbull originated a total of $64
million of single family first mortgage home loans from all sources and
purchased an additional $5.4 million through brokers. During this period
Trumbull sold $11.7 million of these loans in the secondary market retaining the
servicing rights. During the twelve month period ended September 30, 1996
Trumbull originated a total of $46.9 million of single family first mortgage
home loans from all sources and purchased an additional $9.9 million through
brokers. During this period Trumbull sold $12.6 million of these loans in the
secondary market.
Total securities decreased to $195,713,000 at September 30, 1997 as
compared to $251,306,000 at September 30, 1996, a decrease of $55.6 million or
22.1%. During the twelve month period ended September 30, 1997 Trumbull
purchased $3 million and sold $19.7 million of securities, and approximately
$38.7 million was received as repayment of principal. Trumbull's continuing
strategy is to change the interest earning asset mix over time by decreasing
security balances outstanding and increasing investments in real estate loans
and consumer lending. Of the $195,713,000 of total securities outstanding at
September 30, 1997, $25,195,000, or 12.9%, are classified as available-for-sale
with the remainder classified as held-to-maturity. Of the $251,306,000 of total
securities outstanding at September 30, 1996, $53,564,000, or 21.3%, are
classified as available-for-sale with the remainder classified as
held-to-maturity.
Total deposits decreased to $372,823,000 at September 30, 1997 as
compared to $373,927,000 at September 30, 1996, a decrease of $1.1 million.
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Total borrowings decreased to $68,274,000 at September 30, 1997 as
compared to $80,367,000 at September 30, 1996 resulting in a decrease of $12
million. Trumbull used cash flows generated from its security portfolios to
repay borrowings with the intent to redeploy the funds into loans.
Total shareholders' equity increased to $36,639,000 at September 30,
1997 as compared to $33,829,000 at September 30, 1996 resulting in an increase
of $2,810,000. The increase was due to 1997 net income of $3.4 million, a $0.4
million decrease in unrealized loss on securities available for sale, and was
partially offset by payment of cash dividends totaling $1.18 per share or $1
million. Total shareholders' equity as a percentage of total assets at September
30, 1997 was 7.59% compared to 6.85% at September 30, 1996. Trumbull's equity
exceeded all regulatory capital requirements at September 30, 1997 and 1996.
LIQUIDITY
Management of Trumbull's liquidity position is necessary to ensure that
funds are available to meet the cash flow needs of depositors and borrowers as
well as the operating cash needs of Trumbull. Trumbull's asset liability
committee ("ALCO") is responsible for measuring, monitoring and managing
liquidity. Funds are available from a number of sources including maturing
securities, payments made on loans, the acquisition of new deposits, the sale of
packaged loans, the sale of securities in Trumbull's available-for-sale
portfolio, borrowings through reverse repurchase agreements and borrowing from
the FHLB (current capacity of $97 million, could be extended to $165 million
with additional FHLB stock purchases). The parent company's only major source of
funding is dividends received from Trumbull Savings. Trumbull Savings is subject
to regulation and may be limited in its ability to pay dividends to the parent
company. Accordingly, consolidated cash flows may not represent cash available
to common stockholders.
YEAR 2000
The Year 2000 ("2K") issue refers to computer programs being written
using two digits rather than four to define an applicable year. Any of a
company's hardware, data-driven automated equipment or computer programs that
have a two-digit field to define the year may recognize a date using "00" as the
year 1900 rather than the year 2000. This faulty recognition could result in a
system failure, disruption of operations, or inaccurate information or
calculations. Similar to other companies, Trumbull faces the challenge of
ensuring that all computer-related functions will work properly in the year 2000
and beyond.
As a result of the recognition of this potential problem, Trumbull had
initially addressed the issue by forming a task force to plan and implement any
changes necessary to ensure year 2000 readiness. However, this task force
suspended its activities subsequent to the announcement of the Merger.
Management of Trumbull anticipates that all data processing applications will be
converted to systems maintained by Second Bancorp subsequent to the Merger, and
prior to January 1, 2000. Based on the anticipated conversion to systems
maintained by Second Bancorp, management has not prepared formal contingency
plans relative to Y2K. In addition, Trumbull has not, nor does it expect to,
incur any direct costs related to the Y2K issue.
In the event the Merger would not be approved by stockholders, Trumbull
would resume the activities of the Y2K task force. Management has been informed
that the data center which processes its core data processing systems is
currently in the testing phase of its year 2000 readiness plan and that the
service provider anticipates achieving year 2000 readiness by December 31, 1998.
If it was determined that this data center could not be year 2000 ready,
Trumbull anticipates that the parent company of the data center would convert
Trumbull's core processing applications to another data center in its network
which is or will be year 2000 ready.
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CAPITAL RESOURCES
Total shareholders' equity increased from $33,829,0000 at September 30,
1996 to $36,618,000 at September 30, 1997. Most of this increase resulted from
net income and was partially offset by the payment of cash dividends and the
impact of changes in market values on the securities available-for-sale. Future
volatility in shareholders' equity is expected, as changes in market rates of
interest impact the market value of Trumbull's securities held in the
available-for-sale portfolio.
Banking regulations have established minimum capital ratios for banks.
As a result, Trumbull Savings must meet a risk-based capital requirement, which
defines the two tiers of capital and compares each to Trumbull Savings'
"risk-weighted assets." Trumbull Savings' assets and certain off-balance sheet
items, such as loan commitments, are each assigned a risk factor so that assets
with potentially higher credit risk will require more capital support than
assets with lower risk. These regulations require Trumbull Savings to have a
minimum total risk-based capital ratio of 8%, at least half of which must be
Tier 1 capital. Trumbull Savings' Tier 1 capital is its shareholders' equity
before any gain or loss on securities available-for-sale, less certain
intangibles and the non-qualifying portion of mortgage loan servicing rights
asset, while total risk-based capital includes Tier 1 capital and a limited
amount of the allowance for loan losses.
The following table summarizes Trumbull Savings' capital ratios in
comparison to minimum requirements.
<TABLE>
<CAPTION>
September 30, 1997 September 30, 1996 September 30, 1995
------------------------ -------------------------- ---------------------------
Amount Percent Amount Percent Amount Percent
------------------------ -------------------------- ---------------------------
Leverage
<S> <C> <C> <C> <C> <C> <C>
Actual $35,772 7.34% $33,164 6.72% $32,832 6.64%
Minimum Required 14,622 3.00% 14,801 3.00% 14,832 3.00%
Tier 1 Risk-based Capital
- -------------------------
Actual 35,772 15.70% 33,164 16.05% 32,832 15.89%
Minimum Required 9,116 4.00% 8,264 4.00% 7,864 4.00%
Total Risk-based Capital
Actual 37,231 16.34% 34,626 16.76% 34,381 17.49%
Minimum Required 18,231 8.00% 16,527 8.00% 15,728 8.00%
Risk Adjusted Assets 227,889 206,590 196,603
</TABLE>
The payment of dividends by Trumbull to its shareholders is subject to
restrictions by its regulatory authorities, which generally limit dividends to
the current and prior two years retained earnings, as defined by regulation. In
addition, banks are precluded from paying dividends that would reduce regulatory
capital below established minimums. See "REGULATION OF FINANCIAL INSTITUTIONS --
Limits on Dividend and Other
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Payments." The Agreement also sets forth certain limitations on the payment of
dividends by Trumbull to its shareholders.
IMPACT OF INFLATION
Consolidated financial data included herein has been prepared in
accordance with generally accepted accounting principles (GAAP). Presently, GAAP
requires the measurement of financial position and operating results in terms of
historical dollars, except for securities available for sale which are carried
at fair value. Changes in the relative value of money due to inflation or
recession are generally not considered.
In management's opinion, changes in interest rates affect the financial
condition of Trumbull 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 move concurrently. Rather, interest rate volatility is based
on changes in the expected rate of inflation, as well as 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. In an effort to protect itself from the
effects of interest rate volatility, Trumbull reviews its interest rate risk
position frequently, monitoring its exposure and taking necessary steps to
minimize any detrimental effects on Trumbull's profitability.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 131 "Disclosures about Segments
of an Enterprise and Related Information." SFAS No. 131 establishes standards
for the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
This statement is effective for financial statements for periods beginning after
December 15, 1997.
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 addresses the accounting for
derivative instruments and certain derivative instruments embedded in other
contracts, and hedging activities. The statement standardizes the accounting for
derivative instruments by requiring that an entity recognize those items as
assets or liabilities in the statement of financial position and measure them at
fair value. This statement is effective for all fiscal years beginning after
June 15, 1999.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ASSET LIABILITY MANAGEMENT
The asset/liability committee ("ALCO") includes Trumbull's chief
executive officer, chief financial officer, chief lending officer and the
executive officer responsible for retail deposit operations. The ALCO meets at
least once per month to monitor and discuss lending strategies, funding
strategies, investment strategies, monitor adherence to and analyze significant
variances with Trumbull's business plan, as well as interest rate risk exposure
and strategies. Trumbull measures and monitors interest rate risk from the
perspectives of acceptable levels of changes in the economic value of equity,
also referred to as net portfolio value ("NPV") and net interest income.
On a quarterly basis, Trumbull's chief financial officer prepares the
interest rate risk report using computer simulation. The computer model uses the
concepts of duration analysis and discounted cash flows. Changes to Trumbull's
NPV and net interest income is simulated using instant and permanent interest
rate shocks of plus and minus 400 basis points ("bps") in increments of 100 bps.
These results are then compared to the limits imposed by the Board of Directors
to determine compliance, and also compared to prior periods to determine the
effect of previously implemented strategies. These reports are monitored and
analyzed by the ALCO and the Board
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of Directors on at least a quarterly basis. If estimated changes to NPV and/or
net interest income are not within the limits established by the Board of
Directors, the Board may direct management to adjust its asset and liability mix
to bring interest rate risk within Board approved limits.
Historically, Trumbull has had higher interest rate risk as compared to
an OTS regulated Thrift peer group. Trumbull believes that the interest rate
risk component in the overall risk profile of the entity is acceptable primarily
due to lower levels of other component risk factors. Specifically, Trumbull
believes its credit risk is relatively low primarily because of the asset mix.
Approximately 53% ($260 million) of its interest earning assets at June 30,
1998, is invested in single family home loans, with low to moderate credit risk
and approximately 32% ($154 million) is invested in U.S. Government
agency-backed securities with little if any credit risk. Trumbull's business
strategy continues to concentrate on increasing the loan portfolios while
decreasing the security portfolios. Because the increase in loans in recent
months has been primary long-term fixed rate residential real estate loans,
interest rate risk has also been increasing. Management has purchased three
interest rate cap contracts as a means of managing the growing exposure. In
addition, management has recently decided to sell substantially all new 30 year
fixed rate mortgage loans and increase sales of 15 year fixed rate mortgage
loans. This will result in a smaller asset size and will help lessen the growing
interest rate risk exposure to potential future interest rate increases.
However, by initiating these techniques to control and/or lower the company's
interest rate risk, the company will be foregoing some current income, which
management believes is a prudent trade-off.
Although Trumbull Savings' loan portfolio has increased in terms of
dollars and in terms of a percentage of total assets, due to the strategy of
changing the asset mix, and therefor overall delinquencies have increased, loan
loss reserves have not increased. Most of the increase in Trumbull Savings' loan
portfolio is from real estate loans. Management is aware that increased
delinquencies in real estate loans does not necessarily mean an increase in loan
losses. However, management is also aware that the reserve for loan losses as a
percentage of total loans have been decreasing over the five year period ended
September 30, 1997. SEE "SUMMARY OF LOAN LOSS EXPERIENCE AND CHARGE-OFFS." Net
charge-offs on real estate loans have been consistently minor over this period,
but net charge-offs on consumer loans have increased substantially. During 1997,
Trumbull Savings' loan loss provision charged to current earnings was
approximately $141,000. Yet during 1997 net charge-offs on real estate loans
totaled approximately $11,000 while net charge-offs on consumer loans totaled
approximately $176,000. Management further increased the provision for loan
losses by $180,000 charge to current earnings during the nine month period ended
June 30, 1998. During this nine month period, net charge-offs on real estate
loans totaled approximately $46,000 and net charge-offs on consumer loans
totaled approximately $222,000. Management feels that the credit risk is
acceptable, and is currently reviewing loan loss reserve levels relative to
consumer lending activities. Trumbull's interest rate risk exposure during the
past three years is summarized below:
<TABLE>
<CAPTION>
PERCENTAGE CHANGE IN NET PORTFOLIO VALUE
Change in
Board Interest 6-30-98 9-30-97 9-30-96 9-30-95
Limit Rates
<S> <C> <C> <C> <C> <C>
-80% 4.00% -76% -66% -68% -81%
-60% 3.00% -56% -47% -50% -59%
-40% 2.00% -37% -30% -31% -37%
-20% 1.00% -17% -13% -14% -18%
0% 0.00% 0% 0% 0% 0%
-20% -1.00% -1% 6% 11% 10%
-40% -2.00% -8% 1% 14% 14%
-60% -3.00% -5% 1% 18% 19%
-80% -4.00% 0% 9% 25% 27%
</TABLE>
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<PAGE> 85
<TABLE>
<CAPTION>
PERCENTAGE CHANGE IN NET INTEREST INCOME (12 month horizon)
Change in
Board Interest 6-30-98 9-30-97 9-30-96 9-30-95
Limit Rates
<S> <C> <C> <C> <C> <C>
40% 4.00% -18% -25% -34% -22%
-30% 3.00% -10% -15% -22% -15%
-20% 2.00% -3% -5% -14% -8%
-10% 1.00% -1% -1% -6% -3%
0% 0.00% 0% 0% 0% 0%
-10% -1.00% -2% -1% 5% 0%
-20% -2.00% -4% -3% 8% -2%
-30% -3.00% -8% -7% 6% -6%
-40% -4.00% -12% -10% 3% -10%
</TABLE>
The NPV calculations are based on the net present value of discounted
cash flows utilizing market prepayment assumptions provided by a financial
consulting firm and market rates of interest for each asset and liability
product type based on their characteristics. The NPV data presented above for
periods September 30, 1996 and 1995 have been calculated by OTS based on
information provided by Trumbull. The NPV data presented for September 30, 1997
and June 30, 1998 has been calculated by Trumbull using computer simulation. The
theoretical projected change in net interest income over a twelve month period
under each of the instantaneous and permanent rate shocks have been calculated
by Trumbull using computer simulation.
Computation of prospective effects of hypothetical interest rate
changes are based on numerous assumptions, including relative levels of market
interest rates, loan prepayments and deposit decay, and should not be relied
upon as indicative of actual results. Deposit decay rate is an internal estimate
of deposit run off based on certain variables including interest rate scenarios.
Further, the computations do not contemplate any actions Trumbull may undertake
in response to changes in interest rates.
Substantially all long-term, fixed-rate mortgages are underwritten
according to guidelines of the Federal Home Loan Mortgage Corporation ("FHLMC")
and the Federal National Mortgage Association ("FNMA"). From time to time
Trumbull may sell portions or all of its current long-term fixed-rate mortgage
loan production as a means of managing interest rate risk as well as generating
fee income. Sales are executed through either swapping the loans with FHLMC or
FNMA in exchange for mortgage-backed securities secured by such loans which are
then sold, or the loans are sold directly for cash in the secondary market.
Trumbull also uses interest rate caps as a means of managing interest
rate risk. At June 30, 1998 Trumbull had the following interest rate caps on its
books: two 5 year 6% LIBOR caps maturing December 2002 with combined notional
value of $20.9 million, and one 3 year 6% LIBOR cap maturing January 2001 with a
notional value of $10 million.
BUSINESS OF TRUMBULL
GENERAL
Headquartered in Warren, Ohio, Trumbull is a unitary savings and loan
holding company registered with the Office of Thrift Supervision of the United
States Department of the Treasury ("OTS"). Trumbull was organized under Ohio law
on July 17, 1997 for the purpose of serving as the holding company for Trumbull
Savings. The holding company reorganization of Trumbull Savings was approved by
shareholders at an August 20, 1997 special meeting and completed on January 15,
1998. As a result of the holding company
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<PAGE> 86
reorganization of Trumbull Savings, shareholders of Trumbull Savings became
shareholders of Trumbull and Trumbull Savings became a wholly owned subsidiary
of Trumbull. The principal asset of Trumbull is the common stock of Trumbull
Savings. Trumbull has no significant business operations independent of Trumbull
Savings.
The Second National Bank of Warren, a commercial bank and wholly owned
subsidiary of Second Bancorp, provided financing in the form of a $65,000 line
of credit to Trumbull in order for Trumbull to finance the costs and expenses
associated with the holding company reorganization. The line of credit was
retired promptly following completion of the holding company reorganization. The
line of credit was extended on arm's-length terms and in the ordinary course of
business by The Second National Bank of Warren.
Organized as an Ohio-chartered savings and loan association in February
of 1889 under the name, "The Trumbull Building and Loan Association," Trumbull
Savings' name was changed to "The Trumbull Savings and Loan Company" in 1900.
The great-grandfather of Director Phyllis J. Izant and Director James R. Izant
was Robert T. Izant, a founder of Trumbull Savings. After serving as President
of Trumbull Savings since 1900, Robert T. Izant was succeeded as President in
1934 by his son, James Izant, who in turn was succeeded as President in 1960 by
his son, Robert Izant, II. Robert Izant, II, father of James R. and Phyllis J.
Izant, served as President until his death in 1985. James R. and Phyllis J.
Izant are two of the seven members of the Trumbull Board of Directors. James R.
Izant also serves as Trumbull's and Trumbull Savings' Executive Vice President
and Secretary. James R. and Phyllis J. Izant and their two sisters are all of
the partners of the Izant Family Partnership. Each of the four Izant siblings
owns an equal share of the Izant Family Partnership. James R. and Phyllis J.
Izant, their two sisters and the Izant Family Partnership are collectively the
largest shareholders of Trumbull, with combined ownership of 420,639 shares, or
48.38% of Trumbull's outstanding shares (including shares as to which any of the
four Izant siblings has voting or investment control). See "SECURITY OWNERSHIP
OF TRUMBULL."
According to regulatory filings made with the OTS by the Izant Family
Partnership, the Izant Family Partnership was created for estate administration
purposes by the four Izant siblings. According to the regulatory filings, upon
the death in 1995 of the Izants' mother, Trumbull Savings shares held by their
mother in separate trusts of which she was trustee were distributed to the four
Izant children, who thereafter formed and contributed such shares of Trumbull
Savings common stock to the Izant Family Partnership. James R. Izant and his
sister, Elizabeth A. Izant, are co-managers of the Izant Family Partnership.
Because the Izant Family Partnership owned substantially in excess of 25% of
Trumbull Savings' shares, the technical requirements of OTS regulations are such
that the Izant Family Partnership was required to register with the OTS as a
holding company of Trumbull Savings, which the Izant Family Partnership did in
1997.
With shareholder approval, Trumbull Savings converted from a savings
and loan association charter to a savings bank charter under Ohio law effective
June 11, 1997. Prior to the charter conversion, Trumbull Savings' principal
federal regulator was the OTS. As a result of the conversion, Trumbull Savings'
principal federal regulator is the Federal Deposit Insurance Corporation (the
"FDIC"). Trumbull Savings is also subject to regulation by the Division of
Financial Institutions of the Ohio Department of Commerce (the "Division").
Through its subsidiary Trumbull Savings, Trumbull is engaged
principally in the business of making mortgage loans to finance the purchase,
construction or improvement of one- to four-family residential real estate or
other real property located in its primary market areas. Loan funds are obtained
primarily from customer deposits, which are insured up to applicable limits by
the FDIC, loan repayments, advances from the Federal Home Loan Bank of
Cincinnati (the "FHLB of Cincinnati") and other borrowings. Interest earned on
such loans and investments is the primary source of revenue of Trumbull Savings.
In addition to originating and purchasing loans, Trumbull Savings invests in
U.S. Government and agency obligations and mortgage-backed securities.
Trumbull Savings conducts its principal business activities through its
main office and four branch offices in Trumbull County, Ohio, and two branch
offices in Jefferson County, Ohio. Trumbull Savings also recently obtained
regulatory approval to establish a new branch facility in Twinsburg in Summit
County, Ohio, which is expected to open for business by the first or second
quarter of 1999. In addition to its branch offices, Trumbull Savings also has a
loan production office in Solon, Ohio.
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<PAGE> 87
As a savings and loan holding company, Trumbull is subject to
regulation, examination, and supervision by the OTS and by the Division. As a
savings bank incorporated under the laws of the State of Ohio, Trumbull Savings
is subject to regulation, supervision and examination by the FDIC and the
Division. Trumbull Savings is also a member of the FHLB of Cincinnati. See
"SUPERVISION AND REGULATION."
LENDING ACTIVITIES
General. The principal lending activity of Trumbull Savings is the
origination of conventional fixed-rate and adjustable-rate mortgage loans for
the acquisition or construction of one- to four-family residences located in the
primary markets of Trumbull Savings. Trumbull Savings is also approved to
originate mortgage loans insured by the Federal Housing Administration and
guaranteed by the Veterans Administration, but has only originated a few such
loans, substantially all of which have been sold in the secondary market with
servicing released. Trumbull's secondary lending activities are the origination
of consumer loans (secured and unsecured), including automobile, home
improvement, credit card and home equity line of credit loans, as well as small
business loans, including lines of credit and term loans. In addition to single
family residential real estate lending and consumer lending, and to a much
lesser extent, Trumbull also originates loans secured by multi-family
properties, including mortgage loans on condominiums and apartment buildings,
and by nonresidential properties, including retail, office and other types of
business facilities. Trumbull Savings' total loans at June 30, 1998 totaled
approximately $329.2 million which represented approximately 65% of total
assets.
Loan Portfolio Composition. The following table sets forth certain
information concerning the composition of the loan portfolio of Trumbull Savings
at the dates indicated.
<TABLE>
<CAPTION>
(IN DOLLARS)
At September 30,
At ------------------------------------------------------------------------------
June 30, 1998 1997 1996 1995 1994 1993
------------- ---- ----- ----- ----- ----
Real Estate Loans:
<S> <C> <C> <C> <C> <C> <C>
Residential $243,532,050 196,133,432 $157,485,914 $147,472,355 $118,189,384 $114,662,066
Commercial 8,995,162 8,892,022 9,696,177 10,689,222 11,061,659 10,510,693
Construction 6,799,094 2,919,543 1,684,254 905,560 1,208,400 62,000
Consumer 63,746,218 55,054,295 52,786,692 40,919,638 31,179,005 25,269,976
Loans held-for-sale 9,830,630 918,493 295,800 801,440 917,850 4,092,800
---------------------------------------------------------------------------------------------
332,903,154 263,917,785 221,948,837 200,788,215 162,556,298 154,597,535
---------------------------------------------------------------------------------------------
Undistributed portion of
loans in process (3,675,614) (821,132) (1,312,348) (587,073) (1,973,560) (1,398,607)
Net deferred loan
origination costs 1,354,911 1,143,600 974,286 723,483 285,965 (138,339)
Allowance for loan losses (1,333,281) (1,459,408) (1,506,000) (1,587,000) (1,567,000) (1,522,744)
---------------------------------------------------------------------------------------------
Balance end of period $329,249,170 $262,780,845 $220,104,775 $199,337,625 $159,301,703 $151,537,845
=============================================================================================
</TABLE>
Real Estate Loans -- Residential. The primary lending activity of
Trumbull Savings is the origination of conventional loans for the acquisition or
construction of one- to four-family residential properties located within the
primary markets of Trumbull Savings. Each of such loans is secured by a mortgage
or deed of trust on the underlying real estate and improvements thereon.
FDIC regulations and Ohio law limit the amount Trumbull Savings may
lend in relationship to the appraised value of the real estate and improvements
thereon at the time of loan origination. In accordance with such regulations,
Trumbull Savings makes loans on single-family residences up to 97% of the value
of the real estate improvements (the "Loan-to-Value Ratio" or "LTV"). Although
Trumbull Savings makes loans in excess of a 95% LTV, most of such loans are
insured by a third party to reduce exposure to a 80% LTV or less. Generally,
Trumbull Savings requires private mortgage insurance and/or charges premium
interest rates for loans over 80% LTV. See "Non-accrual, past due and
restructured loans - Potential problem loans."
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<PAGE> 88
Trumbull Savings offers fixed-rate loans and adjustable-rate mortgage
loans ("ARMs") with initial interest rate adjustment periods generally of one
year, three years, five years or seven years. The new rate of interest at each
adjustment date is determined by adding a stated margin to an index identified
at the time the loan is originated: the longer the period before adjustment, the
higher the rate of interest to compensate Trumbull Savings for the increased
exposure to risk resulting from interest-rate fluctuations during the fixed-rate
period. The maximum adjustment at each adjustment date for one-year ARMs is
usually 2%, with a maximum adjustment of 6% over the life of the loan.
Residential mortgage loans offered by Trumbull Savings are usually for
terms of 10 to 30 years. Due to the long-term nature of an investment in
mortgage loans, such loans could have an adverse effect upon the net interest
margin of a lender if such loans do not reprice as quickly as the lender's cost
of funds. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF TRUMBULL." Experience during recent years demonstrates
that, as a result of prepayments in connection with refinancing and sales of the
underlying properties, residential loans generally remain outstanding for
periods that are substantially shorter than the stated maturity of such loans.
Trumbull also originates single family second mortgage real estate
loans. Second mortgage loans are generally fixed rate amortizing loans with
maturities of ten to fifteen years. At June 30, 1998 Trumbull had approximately
$10 million of second mortgage loans.
At June 30, 1998, Trumbull Savings had a total of approximately $270
million real estate loans of which approximately $112 million are adjustable
rate loans (approximately 41%) and approximately $158 million (approximately
59%) are fixed rate loans.
Real Estate Loans -- Commercial. Trumbull Savings originates loans
secured by other real estate, including multifamily dwellings, land and lots for
single-family homes, land for commercial uses, and office, retail and other
types of facilities.
Nonresidential real estate loans are made primarily as five year
balloons with amortization generally between twenty and twenty-five years
resulting in a final balloon payment due at the end of the five year term. Such
loans are typically made at a maximum 80% LTV. To enable Trumbull Savings to
monitor the loans, Trumbull Savings requests rent rolls and financial
statements.
Because of the relatively larger loan amounts and effects of general
economic conditions on the successful operation of income-producing properties,
loans secured by multifamily dwellings and commercial facilities generally are
regarded as having a higher degree of risk than loans secured by one- to
four-family dwellings. If the cash flow on income-producing property is reduced,
for example as leases are not obtained or renewed, the borrower's ability to
repay may be impaired. Trumbull Savings endeavors to reduce such risk by
evaluating the credit history and past performance of the borrower, the location
of the real estate, the quality of the management constructing and operating the
property, the debt service ratio, the quality and characteristics of the income
stream generated by the property and appraisals confirming the property's
valuation.
Trumbull Savings also offers business loans including lines of credit,
term loans and SBA loans to individuals, which are not material.
Real Estate Loans - Construction. Trumbull Savings offers residential
construction loans both to owner-occupants and to homebuilders. Trumbull Savings
does not originate construction loans for nonresidential or multifamily
properties. Trumbull Savings also does not lend for the development of raw land.
At June 30, 1998, Trumbull Savings had approximately $6.8 million of
construction loans, none of which were nonperforming.
Construction loans generally involve greater underwriting and default
risks than do loans secured by mortgages on properties with finished structures.
This is largely due to the concentration of principal in a limited number of
loans and borrowers and the effects of general economic conditions on real
estate developments, developers, managers and builders. In addition,
construction loans are more difficult to evaluate and monitor.
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<PAGE> 89
Loan funds are advanced upon the security of the project under construction,
which is more difficult to value before the completion of construction.
Moreover, because of uncertainties inherent in estimating construction costs,
the accurate evaluation of the LTVs and the total loan funds required to
complete a project is difficult. In the event a default on a construction loan
occurs and foreclosure follows, Trumbull Savings would have to take control of
the project and attempt either to arrange for completion of construction or
dispose of the unfinished project. Almost all of Trumbull Savings' construction
loans are secured by properties in Trumbull Savings' primary market. Trumbull
Savings has not foreclosed on any construction loans during the three year
period ended September 30, 1997.
Generally, construction loans have terms ranging up to nine months.
After the loan's initial construction period, the loan then converts to an
amortizing permanent loan which amortizes over the original loan term less the
construction period. Construction loans can be originated under any of the
company's existing permanent loan programs and generally a slightly higher
interest rate is charged to compensate for the additional risk.
Consumer Loans. Consumer lending is Trumbull Savings' secondary lending
focus after single family real estate lending, in terms of volume. Trumbull
Savings makes various types of consumer loans, including loans made to
depositors secured by their savings deposits, automobile loans, home equity
lines of credit, credit cards and unsecured personal loans. On June 30, 1998,
total consumer loans totaled approximately $63.7 million. Of this amount
approximately $11 million are adjustable rate equity lines of credit loans
secured by second liens on single family homes. Approximately $45.9 million are
automobile loans originated primarily through local automobile dealers. The
remaining amount (approximately $6.8 million) are made up of credit card loans,
student loans, loans made to depositors secured by their savings deposits, and
other secured and unsecured personal loans.
Equity lines of credit loans secured by single family homes are made at
an adjustable rate of interest tied to the Wall Street prime lending rate.
Substantially all other consumer loans are made on the basis of a fixed rate of
interest. Consumer loans may entail greater risk than residential loans,
particularly consumer loans that are unsecured or are secured by rapidly
depreciating assets such as automobiles. Repossessed collateral for a defaulted
consumer loan may not provide an adequate source of repayment of the outstanding
loan balance. For second mortgages, amounts due on prior mortgages have a prior
claim. The risk of default on consumer loans increases during periods of
recession, higher unemployment and other adverse economic conditions that limit
the borrower's ability to repay.
Loan Solicitation and Processing. Trumbull's primary lending focus is
first mortgage real estate loans secured by single family homes. This type of
lending is originated from three primary sources; (1) through Trumbull's branch
system and local loan originators, (2) A Loan Production Office ("LPO") located
in Solon, Ohio, and (3) through correspondent and broker relationships,
collectively referred to as "wholesale" lending. In addition, Trumbull will
occasionally purchase a package of loans, usually with servicing retained by the
seller, from a mortgage loan broker. Second mortgage real estate loans and
equity lines of credit loans, both secured by single family homes are originated
through commissioned loan brokers, through the branch system, or via
telemarketing efforts generated in Trumbull's consumer loan department.
Trumbull's telemarketers generally solicit the company's first mortgage
customers for second mortgages, equity lines of credit loans, or other consumer
lending products.
After single family real estate loans, Trumbull's secondary lending
focus in terms of volume is consumer loans. Exclusive of second mortgage loans
and equity lines of credit loans discussed above, consumer loans outstanding at
June 30, 1998 approximate $52.7 million of which approximately $45.9 million, or
87% are short-term fixed rate loans secured by automobiles or light trucks.
These loans are primarily originated through local automobile dealerships who
are paid an origination commission, generally around 2% of the loan amount.
Approximately $42.5 million of the $45.9 million, or 93% of automobile loans
outstanding at June 30, 1998 were originated through this source. The remaining
$3.4 million or 7% of this amount was originated through Trumbull's branch
system and internal sales force.
Multifamily residential real estate loans, commercial real estate loans
and business loans collectively referred to as commercial loans or commercial
lending is a very small piece of Trumbull's lending activity. These
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<PAGE> 90
loans are originated by Trumbull's commercial loan department, which consist of
one commercial loan officer and his secretary/assistant. At June 30, 1998 the
company had approximately $11.4 million of these types of loans representing
approximately 2% of total assets.
Loan applications for permanent mortgage loans are taken by loan
personnel. Trumbull Savings generally obtains a credit report, verification of
employment and other documentation concerning the credit worthiness of the
borrower. Each appraisal of the fair market value of the real estate that will
be used as security for the loan is generally prepared by either Trumbull's
internal appraisal department or an independent fee appraiser approved by the
Appraisal Committee of Trumbull Savings, comprised of the president, chief
lending officer and chief appraiser. An environmental study is conducted if the
appraiser or management has reason to believe that an environmental problem
might exist.
For multifamily and nonresidential mortgage loans, a personal guarantee
is generally required. Trumbull Savings also obtains information with respect to
prior projects completed by the borrower. Upon the completion of the appraisal
and the receipt of information on the borrower, the application for a loan is
submitted either to a Loan Committee or its designees or the Boards of Directors
of Trumbull Savings for approval or denial.
If a mortgage loan application is approved, a title insurance policy or
title report is obtained on the real estate that will secure the mortgage loan.
Borrowers are required to carry fire and casualty insurance and flood insurance,
if applicable, and to name Trumbull Savings as loss payee.
The procedure for approval of construction loans is the same as the
approval procedure for permanent first mortgage loans secured by single family
home loans, except that building plans, construction specifications and
estimates of construction costs are analyzed. Trumbull does not originate
construction loans secured by multifamily or nonresidential real estate.
Consumer loans are underwritten on the basis of the borrower's credit
history and an analysis of the borrower's income and expenses, ability to repay
the loan and the value of the collateral, if any.
Small business loans are underwritten on the basis of the borrower's
historic income and expenses, projections of future cash flows, and credit
history, as well as on the value of the collateral, if any.
Most Trumbull Savings loans carry provisions that the entire balance of
the loan is due upon sale of the property securing the loan.
Loan Originations, Purchases and Sales. Trumbull Savings has been
actively originating new 30-year, 20-year and 15-year fixed-rate and
adjustable-rate loans. Virtually all residential fixed-rate loans made by
Trumbull Savings (excluding second mortgages) are originated on documentation
that will permit a possible sale of such loans to FNMA, FHLMC or other secondary
mortgage market participants. When mortgage loans are sold to FNMA, FHLMC or
other secondary mortgage market participants, Trumbull Savings either (i)
retains the servicing on such loans by collecting monthly payments of principal
and interest and forwarding such payments to the investor or other secondary
mortgage market participants, net of a servicing fee, or (ii) sells both the
loan and its servicing into the secondary market. Fixed-rate loans not sold in
the secondary market and generally all of the ARMs originated by Trumbull
Savings are primarily held in Trumbull Savings' held-to-maturity portfolio.
Trumbull Savings sold approximately $11 million of whole loans during
the 1997 fiscal year, compared to sales of approximately $12.7 million of whole
loans in 1996. Management believes secondary market activities will increase as
single family lending increases and as total investments continue to shrink in
terms of a percentage of total assets.
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<PAGE> 91
The following table sets forth certain information in respect of loan
originations, repayments and sales:
<TABLE>
<CAPTION>
(IN THOUSANDS)
Nine Month Year ended September 30,
Period Ended
June 30, 1998 1997 1996 1995
--------------- --------------------------------------------------------
Amount $ % Amount $ % Amount $ % Amount $ %
-------- - -------- - -------- - -------- -
<S> <C> <C> <C> <C> <C> <C> <C>
LOAN ORIGINATION ACTIVITY
Beginning Balance $262,781 $220,105 $199,338 $159,302
Loans Originated:
Real Estate Loans 118,566 83% 70,171 70% 53,452 69% 45,708 68%
Consumer Loans:
Automobile and Misc 20,566 14% 25,065 25% 22,467 29% 21,127 31%
Equity Lines of Credit, net 4,087 3% 3,809 4% 618 1% -377 0%
change
Credit Card Loans, net change -37 0% 43 0% 101 0% 203 0%
Student Loans, net change 430 0% 623 1% 810 1% 634 1%
----------- ----------- ---------- -----------
Total Consumer Loans 25,046 17% 29,540 30% 23,996 31% 21,587 32%
----------- ---------- ---------- -----------
Total Loans Originated 143,612 100% 99,711 100% 77,448 100% 67,295 100%
----------- ---------- ---------- -----------
Loans Purchased 9,222 5,267 9,939 17,823
Loans Sold -22,368 -11,138 -13,049 -12,319
Principal Repayments -63,998 -51,164 -53,571 -32,763
----------- ----------- ---------- -----------
Ending Balance $329,249 $262,781 $220,105 $199,338
=========== =========== ========== ===========
</TABLE>
Note 1: Construction loans are included with real estate loans.
Lending Limit. Ohio law imposes a lending limit on the aggregate amount
that an institution may lend to one borrower. In summary terms, the lending
limit is an amount equal to 15% of the institution's total capital for
risk-based capital purposes, plus any loan reserves not already included in
total capital (the "Lending Limit Capital"). An institution may lend to one
borrower an additional amount not in excess of 10% of the institution's Lending
Limit Capital, provided the additional amount is fully secured by certain forms
of "readily marketable collateral." Real estate is not considered "readily
marketable collateral." In applying this limit, the regulations require that
loans to certain related or affiliated borrowers be aggregated. Trumbull Savings
has no outstanding loans or related borrowing arrangements in excess of its
lending limit as of June 30, 1998.
Loan Origination and Other Fees. Trumbull Savings realizes loan
origination fee and other fee income from its lending activities. Trumbull
Savings also realizes income from late payment charges, default interest,
application fees, and fees for other miscellaneous services.
Loan origination fees and other fees are a volatile source of income,
varying with the volume of lending, loan repayments and general economic
conditions. All nonrefundable loan origination fees and certain direct loan
origination costs are deferred and recognized in accordance with SFAS No. 91 as
an adjustment to yield over the life of the related loan.
Delinquent Loans, Nonperforming Assets and Classified Assets. When a
borrower fails to make a required payment on a loan, Trumbull Savings attempts
to cause the deficiency to be cured by contacting the borrower. In most cases,
deficiencies are cured promptly.
Trumbull Savings attempts to minimize loan delinquencies through the
assessment of late charges and interest rate increases and adherence to its
established collection procedures. After a mortgage loan payment is 15 days
delinquent, a late charge of 5% of the amount of the payment is usually
assessed, and Trumbull Savings will contact the borrower by mail or phone to
request payment. In certain limited instances, Trumbull Savings may
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<PAGE> 92
modify the loan or grant a limited moratorium on loan payments to enable the
borrower to reorganize his or her financial affairs. If the loan continues in a
delinquent status for 90 days or more, Trumbull Savings generally will initiate
foreclosure proceedings.
Real estate acquired by Trumbull Savings as a result of foreclosure or
by deed in lieu of foreclosure is classified as "real estate owned" until it is
sold. When property is so acquired, it is recorded at the lower of the loan's
unpaid principal balance or fair value at the date of foreclosure less estimated
selling expenses. Periodically, real estate owned is reviewed to ensure that
fair value less estimated costs to sell is not less than carrying value, and any
allowance resulting therefrom is charged to earnings as a provision for losses
on real estate acquired through foreclosure. Costs to develop or improve real
estate are capitalized; costs of holding real estate are expensed.
The following table reflects the amount of loans in delinquent status
as of June 30, 1998:
<TABLE>
<CAPTION>
30-59 DAYS 60-89 DAYS 90 DAYS OR MORE
------------------------- ---------------------------- ----------------------------
NUMBER AMOUNT NUMBER AMOUNT NUMBER AMOUNT
------------ ------------ --------------- ------------ ------------ ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Real Estate Loans 29 $1,332 14 $ 475 38 $1,495
Consumer 53 507 17 158 20 140
Total 82 $1,839 31 633 58 $1,636
============ ============ =============== ============ ============ ===============
Percentage of total to total 0.06% 0.02% 0.05%
loans ============ ============ ===============
</TABLE>
All delinquent loans are reviewed on a regular basis and are placed on
nonaccrual status when the loans are 90 days or more past due. Interest accrued
and unpaid at the time a loan is placed on nonaccrual status is charged against
interest income via increases to reserve for uncollected interest. Subsequent
payments are recorded as a reduction to the reserve for uncollected interest
until the loan is brought current or delinquent less than 90 days and management
feels that the collectability of future interest payments is reasonably
probable.
Non-accrual, past due and restructured loans
Nonaccrual, past due and restructured loans - The following schedule
summarizes nonaccrual, past due and restructured loans at September 30,:
<TABLE>
<CAPTION>
(IN DOLLARS)
September 30,
------------------------------------------------------------------
at June 30,
1998 1997 1996 1995 1994 1993
---- ----- ----- ----- ----- ----
<S> <C> <C> <C> <C> <C> <C>
Non-accrual Loans $890,141 $1,103,689 $221,119 $733,079 $474,499 $497,000
Accrual loans past due 90 days 899,398 52,640 55,924 131,425 13,022 109,000
Restructured Loans 0 0 0 0 0 0
------------------------------------------------------------------------------------
$1,789,539 $1,156,329 $277,043 $864,504 $487,521 $606,000
------------------------------------------------------------------------------------
Percentage of loans at year 0.54% 0.44% 0.13% 0.43% 0.30% 0.40%
end
Real Estate Owned $69,000 $0 $0 $0 $49,000 $50,000
</TABLE>
High Loan-to-Value Loans - At September 30, 1997, there are approximately
$2,020,991 of loans not otherwise identified above which are included on
management's watch list. These loans were included on management's watch list
due to the fact that the loans have a loan to value ratio greater than or equal
to 80% and do not carry any private mortgage insurance. There were no loans
included on management's watch list due to doubt as to the borrower's ability to
comply with the present repayment terms which were not identified above. These
loans
83
<PAGE> 93
and their potential loss exposure have been considered in Management's analysis
of the adequacy of the allowance for loan losses.
Summary of Loan Loss Experience and Charge-offs
Regulations of the FDIC and the Division require that institutions
classify their assets on a regular basis. Problem assets are classified as
"substandard," "doubtful" or "loss." "Substandard" assets have one or more
defined weaknesses and are characterized by the distinct possibility that the
insured institution will sustain some loss if the deficiencies are not
corrected. "Doubtful" assets have the same weaknesses as "substandard" assets,
with the additional characteristics that (1) the weaknesses make collection or
liquidation in full on the basis of currently existing facts, conditions and
values questionable and (2) there is a high possibility of loss. An asset
classified "loss" is considered uncollectible and of such little value that its
continuance as an asset of the institution is not warranted. The regulations
also provide for a "special mention" category, consisting of assets that do not
currently expose an institution to a sufficient degree of risk to warrant
classification but which possess credit deficiencies or potential weaknesses
deserving management's close attention.
Generally, Trumbull Savings classifies as "substandard" all loans that
are delinquent more than 90 days, real estate owned ("REO"), loans to facilitate
workouts and the sale of REO and other loans if the credit problems of the
borrowers have caused management to have doubts as to the ability of the
borrowers to comply with present loan repayment terms.
The aggregate amount of Trumbull Savings' classified assets at June 30,
1998, was as follows:
<TABLE>
<CAPTION>
at June 30,
1998
----------
(IN THOUSANDS)
<S> <C>
Special mention................................................... $ 1,040
Substandard....................................................... 1,830
Doubtful.......................................................... 20
Loss.............................................................. 153
-------
Total classified assets........................................... $ 3,043
=======
</TABLE>
Federal examiners are authorized to classify an institution's assets.
If an institution does not agree with an examiner's classification of an asset,
it may appeal this determination to the Regional Director of the FDIC. Trumbull
Savings had no disagreements with the examiners regarding the classification of
assets at the time of the last examination. Trumbull Savings has no restructured
loans as of June 30, 1998.
FDIC regulations require that Trumbull Savings establish prudent
general allowances for loan losses. If an asset or portion thereof is classified
as loss, the institution must either establish specific allowances for losses in
the amount of 100% of the portion of the asset classified loss, or charge off
such amount.
Allowance for Loan Losses. Trumbull's business strategy continues to
focus on increasing its loan portfolio while decreasing its security portfolios.
Most of the increases in the loan portfolio is from real estate loans.
Management expects that an increase in loans will increase delinquencies,
however, management is aware that increased delinquencies in real estate loans
does not necessarily mean an increase in loan losses. Reserve for loan losses as
a percentage of total loans have been decreasing over the five and a half year
period ended June 30, 1998. Net charge-offs on real estate loans have been
consistently minor over this period, but net charge-offs on consumer loans have
grown substantially as indicated in the table below. Although management feels
that the credit risk is acceptable and that the loan loss reserves are adequate,
consumer loan activity is monitored closely and loan loss reserve amounts
relative to the company's consumer loan activity is being reviewed.
84
<PAGE> 94
The Board of Directors of Trumbull Savings reviews on a monthly basis
the allowance for loan losses as it relates to a number of relevant factors,
including but not limited to trends in the level of nonperforming assets and
classified loans, current and anticipated economic conditions in the primary
lending areas, past loss experience, possible losses arising from specific
problem assets and loan concentrations by collateral type and to single
borrowers. To a lesser extent, management considers loan underwriting, off
balance sheet items, loan renewals and modifications and management expertise
and collection practices. Although the Board of Directors and management believe
that they use the best information available to determine the allowances for
loan losses, unforeseen market conditions could result in adjustments, and net
earnings could be significantly affected if circumstances differ substantially
from the assumptions used in making the final determination. At June 30, 1998,
Trumbull Savings' allowance for loan losses totaled $1.3 million.
The following table sets forth an analysis of the allowance for loan
losses and charge-offs of Trumbull Savings for the periods indicated:
<TABLE>
<CAPTION>
(IN DOLLARS)
Nine Months Year ended September 30
Period Ended -----------------------------------------------------------------------
June 30, 1998 1997 1996 1995 1994 1993
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at October 1, $1,459,408 $1,506,000 $1,587,000 $1,567,000 $1,522,744 $1,461,586
Charge-offs:
Residential Real Estate 47,790 11,535 54,947 21,254 67,148 141,565
Commercial Real Estate 37,247
Consumer 243,506 246,750 362,219 248,934 203,810 203,803
-----------------------------------------------------------------------------------------
328,543 258,285 417,166 270,188 270,958 345,368
Recoveries:
Residential Real Estate 1,313 433 46,027 18,010 44,035 118,515
Commercial Real Estate
Consumer 21,103 70,518 230,129 212,517 210,704 216,011
-----------------------------------------------------------------------------------------
22,416 70,951 276,156 230,527 254,739 334,526
Net charge-offs
Residential Real Estate 46,477 11,102 8,920 3,244 23,113 23,050
Commercial Real Estate 37,247 0 0 0 0 0
Consumer 222,403 176,232 132,090 36,417 (6,894) (12,208)
-----------------------------------------------------------------------------------------
306,127 187,334 141,010 39,661 16,219 10,842
Additions:
Charges to operations 180,000 140,742 60,010 59,661 60,475 72,000
-----------------------------------------------------------------------------------------
ENDING BALANCE $1,333,281 $1,459,408 $1,506,000 $1,587,000 $1,567,000 $1,522,744
=========================================================================================
Reserve for loan losses as
a percentage of year end 0.40% 0.55% 0.68% 0.79% 0.96% 0.98%
loans
Reserve for loan losses as a
percentage of
non-performing 35.56% 29.69% 27.49% 51.16% 70.13% 45.85%
assets
</TABLE>
85
<PAGE> 95
The following schedule is a breakdown of the allowance for loan losses allocated
by type of loan and related ratios:
<TABLE>
<CAPTION>
June 30, 1998 September 30, 1997 September 30, 1996
------------------------------- ----------------------------- -----------------------------
Percent of Percent of Percent of
Loans in Loans in Loans in
Allowance Each Category Allowance Each Category Allowance Each Category
(Dollars in thousands) Amount to Total Loans Amount to Total Loans Amount to Total Loans
------------------------------- ----------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
Residential Real Estate $ 489 78.2% $ 482 75.8% $ 589 71.8%
Commercial Real Estate 177 2.7% 247 3.4% 194 4.4%
Consumer 667 19.1% 730 20.8% 723 23.8%
----------------------------------------------------------------------------------------------
$1,333 100.0% $1,459 100.0% $1,506 100.0%
==============================================================================================
<CAPTION>
September 30, 1995 September 30, 1994 September 30, 1993
------------------------------- ----------------------------- -----------------------------
Percent of Percent of Percent of
Loans in Loans in Loans in
Allowance Each Category Allowance Each Category Allowance Each Category
(Dollars in thousands) Amount to Total Loans Amount to Total Loans Amount to Total Loans
------------------------------- ----------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
Residential Real Estate $552 74.3% $461 74.0% $445 76.9%
Commercial Real Estate 214 5.3% 285 6.8% 300 6.8%
Consumer 821 20.4% 821 19.2% 778 16.3%
----------------------------------------------------------------------------------------------
$1,587 100.0% $1,567 100.0% $1,523 100.0%
==============================================================================================
</TABLE>
INVESTMENT ACTIVITIES
Trumbull purchases securities for their held-to-maturity portfolio and
available-for-sale portfolio for purposes of earning spread interest income, in
addition to, as well as a substitute for, available and acceptable loan
products. Trumbull's continuing business strategy has been to increase its loan
portfolio and decrease its security portfolios. As the company becomes more
successful in originating loan products, securities as a percentage of total
assets will continue to decrease. Trumbull primarily invests in U.S. Government
and agency obligations, and mortgage-backed securities including CMOs. Trumbull
Savings does not make any investments in securities that are rated less than
investment grade by a nationally recognized statistical rating organization. A
goal of Trumbull Savings' investment policy is to manage interest rate risk.
All securities-related activity is reported to the Board of Directors
of Trumbull Savings. General changes in investment strategy are required to be
reviewed and approved by the Trumbull Savings Board of Directors. Trumbull
Savings' senior management can purchase and sell securities on behalf of
Trumbull Savings in accordance with Trumbull Savings' stated investment policy.
Mortgage-backed and Related Securities. In the ordinary course of
business, Trumbull Savings purchases mortgage-backed securities for both its
Held-to-Maturity portfolio and its Available-for-Sale portfolio. Occasionally,
Trumbull will securitize a pool of loans to facilitate the sale of these loans
in the secondary market. The mortgage backed security created is sold by
Trumbull and is not retained in the company's portfolio. Mortgage-backed
securities generally entitle Trumbull Savings to receive the cash flows from an
identified pool of mortgages underlying the securities. Freddie Mac ("FHLMC"),
Ginnie Mae ("GNMA") and Fannie Mae ("FNMA") mortgage-backed securities owned by
Trumbull Savings are each guaranteed or insured by the respective agencies as to
principal and interest.
86
<PAGE> 96
Trumbull Savings has also invested in collateralized mortgage
obligations ("CMOs"), securities that are backed by pools of mortgages that are,
in most instances, insured or guaranteed by FNMA or FHLMC. A CMO investor has no
ownership interest in the mortgages themselves, except to the extent the
mortgages serve as collateral for the CMO security. Payment streams from the
mortgages serving as collateral are reconfigured with varying terms and timing
of payment to the CMO investor. Though they can be used for hedging and
investment, CMOs can expose investors to higher risk of loss than direct
investments in mortgage-backed pass-through securities, particularly with
respect to price and average life sensitivity in such securities. The Federal
Financial Institutions Examination Council ("FFIEC") has developed methods of
measuring the suitability of CMOs and other mortgage derivative products
intended for financial institution portfolios. CMOs that do not meet the
standards of the FFIEC test are deemed "high-risk." Trumbull has not purchased a
CMO that fails the FFIEC stress test at date of purchase. However, external
market forces including market interest rates will cause a CMO to fail the test
from time to time. At June 30, 1998, a total of $1.2 million was classified as
"high-risk."
At June 30, 1998, mortgage backed securities, CMOs and other US
government agency securities totaled approximately $154.6 million (approximately
30% of total assets). Of this amount, approximately $94.6 million are mortgage
backed securities of which approximately $86.8 million pay a fixed rate of
interest and approximately $7.8 million are adjustable rate. Total CMOs are
approximately $26 million of which approximately $16 million pay a fixed rate of
interest and approximately $10 million are adjustable rate. Total US government
agency securities total approximately $33.9 million, which are comprised of a
$10 million ten year non amortizing bond with various call provisions, and
approximately $23.9 million of 20 year zero coupon agency bonds also with call
provisions. The zero coupon bonds have a book value of approximately $23.9
million and a related notional amount of approximately $103 million.
In accordance with Statement of Financial Accounting Standards ("SFAS
115") No. 115, the mortgage backed securities, CMOs and other US government
agency backed securities designated as being held for sale are carried on
Trumbull Savings' balance sheet at estimated fair value, with unrealized gains
and/or losses carried as an adjustment to shareholders' equity, net of
applicable taxes. At June 30, 1998, Trumbull Savings' available-for-sale
portfolio totaled approximately $20.5 million. The remaining $134.1 million were
designated as held-to-maturity which had an estimated fair market value of
approximately $134 million at June 30, 1998.
See "Asset/Liability Management" and "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF TRUMBULL -
Liquidity and Market Risk." The following table sets forth certain information
regarding Trumbull Savings' mortgage-backed securities, CMOs and other U.S.
government agencies securities at the dates indicated:
87
<PAGE> 97
<TABLE>
<CAPTION>
(IN DOLLARS)
June 30, 1998 September 30, 1997
-------------------------------------------- ----------------------------------------------
Available Held to Available Held to
for Sale Yield Maturity Yield for Sale Yield Maturity Yield
------------ -------- -------------- ------- -------------- -------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and other
U.S. Government
agencies &
corporations
Under 1 year - -
1 to 5 years - - -
5 to 10 years - $10,000,000 7.00% - $7,988,000 7.29%
Over 10 years $12,572,850 7.49% 11,317,874 7.80% - 0
----------- ----- ------------ ------------
$12,572,850 7.49% $21,317,874 7.42% - $7,988,000 7.29%
=========== =========== ============
Mortgaged-backed Securities $7,942,569 6.50% $86,691,765 5.56% $25,194,744 6.30% $105,962,139 5.82%
Collateralized Mortgage 26,093,635 6.23% - 56,568,247 6.04%
Obligations
----------- ------------ ----------- ------------
$7,942,569 6.50% $112,785,400 5.71% $25,194,744 6.30% $162,530,386 5.90%
=========== ============ =========== ============
<CAPTION>
September 30, 1996 September 30, 1995
-------------------------------------------- ----------------------------------------------
Available Held to Available Held to
for Sale Yield Maturity Yield for Sale Yield Maturity Yield
------------ -------- -------------- ------- -------------- -------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and other
U.S. Government
agencies &
corporations
Under 1 year - $ 500,789 7.52%
1 to 5 years - $ 2,000,000 7.02% 1,996,344 6.63%
5 to 10 years - 7,986,500 7.29% 2,000,000 7.40%
Over 10 years - -
----------- ------------ ---------- ------------
- 9,986,500 7.24% 4,497,133 7.08%
Mortgaged-backed Securities $53,564,125 5.99% 123,811,950 5.82% 8,557,850 6.13% 192,262,515 5.77%
Collateralized Mortgage - 63,943,360 5.97% 68,746,538 6.02%
Obligations
----------- ------------ ---------- ------------
$53,564,125 5.99% $187,755,310 5.87% $8,557,850 6.13% $261,009,053 5.84%
=========== ============ ========== ============
</TABLE>
Mortgage-backed securities and collateralized mortgage obligations have
various stated maturities through March, 2027.
The estimated weighted-average maturity of this segment of the
portfolio is 3.2 years.
DEPOSITS AND BORROWINGS
General. Deposits have traditionally been the primary source of
Trumbull Savings' funding for lending and other investment activities. In
addition to deposits, Trumbull Savings derives funds from interest payments and
principal repayments on loans and mortgage-backed securities, advances from the
FHLB, reverse repurchase agreements, income on earning assets, service charges
and gains on the sale of assets. Loan payments are a relatively stable source of
funds, while deposit inflows and outflows fluctuate in response to general
interest rates and money market conditions. FHLB advances and reverse repurchase
agreements are used as an ancillary source of funding as well as to compensate
for reductions in the availability of funds from other sources.
Deposits. Historically, deposits have been attracted principally from
within Trumbull Savings' primary market areas through the offering of a broad
selection of deposit instruments, including checking accounts (both interest
bearing and noninterest bearing), regular passbook savings accounts, statement
savings accounts, money
88
<PAGE> 98
market demand accounts, and term certificate of deposit accounts including
individual retirement accounts ("IRAs").
Interest rates paid, maturity terms, service fees and withdrawal
penalties for the various types of accounts are established periodically by
management of Trumbull Savings based on Trumbull Savings' liquidity
requirements, growth goals and local competition. During periods of rising
interest rates, Trumbull Savings attempts to manage its interest rate risk by
lengthening the term to maturity or repricing of its deposit liabilities.
Trumbull Savings has not solicited or purchased broker deposits.
At June 30, 1998, Trumbull Savings' certificates of deposit totaled
$243.9 million, or 63.7% of total deposits. Of such amount, approximately $89.8
million in certificates of deposit mature within one year. Based on experience
and Trumbull Savings' prevailing pricing strategies, management believes that a
substantial percentage of such certificates will renew with Trumbull Savings at
maturity. If there is a significant deviation from historical experience,
Trumbull Savings can use borrowings from the FHLB as an alternative to this
source of funds. The following table sets forth the dollar amount of deposits in
the various types of savings programs offered by Trumbull Savings at the dates
indicated.
<TABLE>
<CAPTION>
June 30, 1998 September 30, 1997 September 30, 1996 September 30, 1995
Average Average Average Average
Rate Amount Percent Rate Amount Percent Rate Amount Percent Rate Amount Percent
---------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Passbook/Statement 2.50% $77,289 21% 2.50% $78,258 22% 2.50% $81,602 $22% 2.75% $83,641 22%
NOW and Demand 1.11% 36,034 10% 1.08% 35,167 9% 1.11% 32,564 9% 1.50% 28,627 8%
Money Market Accounts 3.25% 23,195 6% 3.21% 24,210 6% 3.17% 26,301 7% 3.14% 28,121 7%
------- ------- ------- -------
2.19% 136,518 37% 2.23% 137,635 37% 2.25% 140,467 38% 2.72% 140,389 37%
------- ------- ------- -------
Certificates of
Deposits
1 year or less 5.45% 142,386 38% 5.54% 141,879 38% 5.52% 175,209 47% 5.19% 118,275 31%
1 to 3 years 5.81% 83,332 22% 5.86% 84,516 23% 5.74% 49,022 13% 5.96% 109,370 29%
> 3 or more years 5.84% 9,546 3% 5.96% 8,706 2% 5.94% 9,049 2% 5.96% 11,558 3%
------- ------- ------- -------
5.59% 235,264 63% 5.67% 235,101 63% 5.58% 233,280 6% 5.67% 239,203 63%
------- ------- ------- -------
Total Deposits 4.34% 371,782 100% 4.40% 372,736 100% 4.33% 373,747 100% 4.36% 379,592 100%
------- ------- ------- -------
Purchase Acctg 47 87 180 307
Adjustment
------- ------- ------- -------
Total Deposit
per Financial Statements $371,829 $372,823 $373,927 $379,899
------- ------- ------- -------
</TABLE>
The following table sets forth rate and maturity information for Trumbull
Savings' certificates of deposit as of June 30, 1998.
<TABLE>
<CAPTION>
AS OF
JUNE 30, 1998
--------------
(IN THOUSANDS)
<S> <C> <C>
Less than 1 year............................... $142,386
1 to 2 years................................... 76,940
2 to 3 years................................... 6,392
Thereafter..................................... 9,546
------
$235,264
</TABLE>
89
<PAGE> 99
The following is a schedule of average amounts and average rates paid on each
category for the periods included:
<TABLE>
<CAPTION>
Nine Month Twelve Month Period Ended
Period Ended -----------------------------------------------------------------------
(Dollars in Thousands) June 30, 1998 September 30, 1997 September 30, 1996 September 30, 1995
-------------------- --------------------- ---------------------- -----------------------
Amount Rate Amount Rate Amount Rate Amount Rate
-------------------- --------------------- ---------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Noninterest bearing
Demand deposits $11,533 $10,151 $8,954 $6,120
Interest bearing
Demand deposits 26,502 1.55% 24,516 1.55% 22,267 1.76% 20,279 2.15%
Savings deposits 100,678 2.64% 105,732 2.64% 110,775 2.66% 119,572 2.83%
Time deposits 238,894 5.55% 231,174 5.55% 235,766 5.55% 234,176 5.13%
----------- ------------ ----------- -----------
377,607 4.32% $371,573 4.31% $377,762 4.35% $380,147 4.16%
=========== ============ =========== ===========
</TABLE>
Borrowings. Trumbull Savings primarily borrows from the Federal Home
Loan Bank of Cincinnati ("FHLB") and occasionally will borrow via reverse
repurchase agreements and/or dollar rolls generally through national brokerage
firms. At June 30, 1998, Trumbull had total debt of approximately $93.1 million.
Of this amount, $20.4 million was reverse repurchase agreements with a national
brokerage firm with maturity dates between December 2002 and January 2003 and
initial call dates of December 15, 1999 ($10.75 million) and January 13, 2000
($9.65 million). The $10.75 million has an interest rate of 5.52% and the $9.65
million has an interest rate of 5.08%. The remaining $72.7 million are FHLB
advances, which include $3.1 million of long-term fixed rate advances at
interest rates ranging between 6.70% and 6.95%, $22 million of monthly
adjustable rate advances with interest rates of approximately 5.60%, and $47.6
million of overnight advances averaging approximately 5.55%.
The following is a schedule of reverse repurchase agreements, including dollar
rolls for the periods indicated:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
September 30, 1997 September 30, 1996 September 30, 1995
------------------ ------------------ ------------------
<S> <C> <C> <C>
(Dollars in thousands)
- ----------------------
Balance at year ended: $19,800 - $14,187
Average balance during the year $18,415 $8,436 $30,091
Maximum month-end balance during year $19,800 $23,887 $58,043
Average interest rate during the year 5.32% 5.32% 5.66%
Average interest rate at period end 5.22% 0.00% 5.81%
</TABLE>
The following is a schedule of FHLB Advances for the periods indicated:
90
<PAGE> 100
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
September 30, 1997 September 30, 1996 September 30, 1995
------------------ ------------------ ------------------
<S> <C> <C> <C>
(Dollars in thousands)
- ----------------------
Balance at year ended: $48,474 $80,367 $64,498
Average balance during the year $63,451 $71,874 $60,449
Maximum month-end balance during year $70,795 $85,161 $94,534
Average interest rate during the year 5.58% 5.76% 6.36%
Average interest rate at period end 5.65% 5.54% 6.12%
</TABLE>
INTEREST RATE SWAPS, CAPS AND FLOORS
Trumbull does not use interest rate swaps or floors, but has purchased
interest rate caps. During fiscal years 1997, 1996 and 1995 Trumbull did not
purchase nor have any interest rate caps. Trumbull purchased two interest rate
cap contracts in December 1997 and one in January 1998. Information as to these
cap contracts as of June 30, 1998 is as follows:
<TABLE>
<CAPTION>
(IN DOLLARS)
Interest Rate Caps
- ------------------
6-30-98
6-30-98 Estimated
Purchase Purchase Notional Cap Book Market
Date Price Amount Term Index Rate Value Value
---- ----- ------ ---- ----- - ---- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
12-04-97 $280,800 $10,800,000 5 years 3 mo LIBOR 6.00% $248,040 $121,808
12-29-97 $238,865 $10,100,000 5 years 3 mo LIBOR 6.00% $214,979 $127,364
01-22-98 $ 76,000 $10,000,000 3 years 3 mo LIBOR 6.00% $ 64,741 $ 43,756
--------- ----------- --------- ---------
$595,665 $30,900,000 $527,760 $292,928
======== =========== ======== ========
</TABLE>
Interest rate caps serve to hedge Trumbull's short-term borrowings and
deposits. The interest rate caps have cap rates, also referred to as strike
rates based on three month London Interbank Banking Rate ("LIBOR"). When LIBOR
increases above the cap rate, Trumbull receives interest on the difference
between the LIBOR and the cap rate on the notional principal amount, if LIBOR
doesn't increase beyond the cap rate, Trumbull does not receive any payments.
Trumbull's interest expense is reduced by the interest received on the interest
rate caps.
Counterparties to the above financial instruments expose Trumbull
Savings to credit-related losses in the event of non-performance. However,
Trumbull Savings deals with primary dealers only and does not anticipate
nonperformance by the counterparty.
COMPETITION
Trumbull Savings competes for deposits with other savings banks and
savings associations, commercial banks and credit unions and with the issuers of
commercial paper and other securities, such as shares in money market mutual
funds. The primary factors in competing for deposits are terms, interest rates
and convenience of office location. In making loans, Trumbull Savings competes
with other savings banks and savings associations, commercial banks, consumer
finance companies, credit unions, leasing companies, mortgage brokers and other
lenders. Trumbull Savings competes for loan originations primarily through the
interest rates and loan fees it charges and through the efficiency and quality
of services it provides to borrowers. Competition is affected by,
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<PAGE> 101
among other things, the general availability of lendable funds, general and
local economic conditions, current interest rate levels and other factors which
are not readily predictable.
TAXATION
Federal Taxation. Trumbull and Trumbull Savings are subject to the
federal tax laws and regulations that apply to corporations generally.
Trumbull's tax year is the same as its fiscal year, September 30. Trumbull is a
new corporation that has not yet filed its first federal income tax return. It
is expected that Trumbull will file a consolidated return with its wholly owned
subsidiary Trumbull Savings for federal tax purposes. That decision will be made
by the due date of the 1997 (tax year ended 9/30/98) federal return.
Prior to the enactment of the Small Business Jobs Protection Act (the
"Act"), which was signed into law on August 21, 1996, certain thrift
institutions were allowed deductions for bad debts under methods more favorable
than those granted to other taxpayers. Qualified thrift institutions could
compute deductions for bad debts using either the specific charge-off method of
Section 166 of the Code or one of two reserve methods of Section 593 of the
Code. The reserve methods under Section 593 of the Code permitted a thrift
institution annually to elect to deduct bad debts under either (i) the
"percentage of taxable income" method applicable only to thrift institutions, or
(ii) the "experience" method that also was available to small banks. Under the
"percentage of taxable income" method, a thrift institution generally was
allowed a deduction for an addition to its bad debt reserve equal to 8% of its
taxable income (determined without regard to this deduction and with additional
adjustments). Under the "experience" method, a thrift institution was generally
allowed a deduction for an addition to its bad debt reserve equal to the greater
of (i) an amount based on its actual average experience for losses in the
current and five preceding taxable years, or (ii) an amount necessary to restore
the reserve to its balance as of the close of the base year. A thrift
institution could elect annually to compute its allowable addition to bad debt
reserves for qualifying loans either under the experience method or the
percentage of taxable income method. For tax years ended 9/30/96, 9/30/95 and
9/30/94, Trumbull used the percentage of taxable income method for computing its
allowable bad debt deduction.
The Act eliminated the percentage of taxable income method of
accounting for bad debts by thrift institutions, effective for taxable years
beginning after December 31, 1995. Thrift institutions that are treated as small
banks are allowed to use the experience method applicable to such institutions,
while thrift institutions that are treated as large banks are required to use
the specific charge off method.
A thrift institution required to change its method of computing
reserves for bad debt will treat such change as a change in the method of
accounting, initiated by the taxpayer and having been made with the consent of
the Secretary of the Treasury. Section 481(a) of the Code requires certain
amounts to be recaptured with respect to such change. Generally, the amounts to
be recaptured will be determined solely with respect to the "applicable excess
reserves" of the taxpayer. The amount of the applicable excess reserves will be
taken into account ratably over a six-taxable year period, beginning with the
first taxable year beginning after December 31, 1995, subject to the residential
loan requirement described below. In the case of a thrift institution that is
treated as a large bank, the amount of the institution's applicable excess
reserves generally is the excess of (i) the balances of its reserve for losses
on qualifying real property loans (generally loans secured by improved real
estate) and its reserve for losses on nonqualifying loans (all other types of
loans) as of the close of its last taxable year beginning before January 1,
1996, over (ii) the balances of such reserves as of the close of its last
taxable year beginning before January 1, 1988 (i.e., the "pre-1988 reserves").
For taxable years that begin after December 31, 1995, and before
January 1, 1998, if a thrift meets the residential loan requirement for a tax
year, the recapture of the applicable excess reserves otherwise required to be
taken into account as a Code Section 481(a) adjustment for the year will be
suspended. A thrift meets the residential loan requirement if, for the tax year,
the principal amount of residential loans made by the thrift during the year is
not less than its base amount. The "base amount" generally is the average of the
principal amounts of the residential loans made by the thrift during the six
most recent tax years beginning before January 1, 1996. A residential loan is a
loan as described in Section 7701(a)(19)(C)(v) (generally a loan secured by
residential or church property and certain mobile homes), but only to the extent
that the loan is made to the owner of the
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property. Trumbull has provided deferred taxes of approximately $644,000 and
will be permitted to amortize the recapture of the bad debt reserve over a six
year period commencing in fiscal 1999.
The balance of the pre-1988 reserves is subject to the provisions of
Section 593(e), as modified by the Act, which require recapture in the case of
certain excessive distributions to shareholders. The pre-1988 reserves may not
be used for payment of cash dividends or other distributions to a shareholder
(including distributions in dissolution or liquidation) or for any other purpose
(except to absorb bad debt losses). Distribution of a cash dividend by a thrift
institution to a shareholder is treated as made: first, out of the institution's
post-1951 accumulated earnings and profits; second, out of the pre-1988
reserves; and third, out of such other accounts as may be proper. To the extent
a distribution by Trumbull Savings to Trumbull is deemed paid out of its
pre-1988 reserves under these rules, the pre-1988 reserves would be reduced and
the gross income of Trumbull for tax purposes would be increased by the amount
which, when reduced by the income tax, if any, attributable to the inclusion of
such amount in its gross income, equals the amount deemed paid out of the
pre-1988 reserves. As of September 30, 1997, the pre-1988 reserves of Trumbull
Savings for tax purposes totaled approximately $6.1 million in the aggregate. No
representation can be made as to whether Trumbull Savings will have current or
accumulated earnings and profits in subsequent years.
The tax returns of Trumbull Savings have been closed without audit
through the tax year ending 9/30/94. In the opinion of management, any
examination of open returns would not result in a deficiency that could have a
material adverse effect on the financial condition of Trumbull or Trumbull
Savings.
Ohio Taxation. Trumbull Savings is a "financial institution" for State
of Ohio tax purposes. As such, it is subject to the Ohio corporate franchise tax
on "financial institutions," which is imposed annually at a rate of 1.5% of book
net worth as determined in accordance with generally accepted accounting
principles. For tax year 1999, however, the franchise tax on financial
institutions will be 1.4% of the book net worth and for tax year 2000 and years
thereafter the tax will be 1.3% of the book net worth. As a "financial
institution," Trumbull Savings is not subject to any tax based upon net income
or net profits imposed by the State of Ohio.
Personnel
As of June 30, 1998, Trumbull Savings had 141 full-time equivalent
employees. Trumbull Savings believes that relations with its employees are good.
Trumbull Savings offers health, disability, life, dependent care benefits and
qualified retirement program among other benefits. None of the employees of
Trumbull Savings is represented by a collective bargaining unit.
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SECURITY OWNERSHIP OF TRUMBULL
The following table sets forth as of [August 12, 1998], certain
information as to those persons who were known by Trumbull management to be
beneficial owners of more than five percent of the Trumbull Shares outstanding,
as well as the beneficial ownership of the Trumbull Shares of each director and
the aggregate beneficial ownership of all Trumbull directors and executive
officers as a group.
<TABLE>
<CAPTION>
Name Shares Beneficially Owned (1) Percent
- ---- ----------------------------- -------
<S> <C> <C>
Izant Family Partnership....................... [297,951](2) [34.27%]
3872 Northwood Drive, SE
Warren, Ohio 44484
Dr. David A. Allen, Director................... [100] [0.01%]
Randall P. Baker, Director..................... [171] [0.02%]
P. Scott Carson, Director, President and
Chief Executive Officer................... [600] [0.07%]
William Everett, Director...................... [5,196] [0.60%]
James R. Izant, Director, Executive
Vice President and Secretary.............. [115,941.75](3) [13.34%]
105 High Street, N.E.
Warren, Ohio 44481
Phyllis J. Izant, Director..................... [111,449.75](3) [12.82%]
P.O. Box 2825
West Lafayette, Indiana 47906
Robert K. Van Fossan, Director................. [2,114] [0.24%]
Elizabeth A. Izant............................. [91,960.75](3) [10.58%]
3872 Northwood Drive, S.E.
Warren, Ohio 44484
Holly Izant McSharry........................... [101,286.75] [11.65%]
10 Dialstone Lane
Riverside, Connecticut 06878
Margaret Jean McCarthy......................... [45,486] [5.23%]
1943 Huntington Blvd.
Grusse Pointe Woods, Michigan 48236
CEDE & Company................................. [148,655] [17.10%]
P.O. Box 20
Bowling Green Station
New York, New York 10274
All directors and executive officers
as a group (9 persons)......................... [384,648](4) [44.24%]
- -------------------------------------
<FN>
(1) All shares are owned directly or indirectly by the named individuals or by their spouses and minor
children, over which Trumbull Shares the named individuals effectively exercise voting and investment
power.
(2) Elizabeth A. Izant and James R. Izant are co-managers of the Izant Family Partnership. Each of the
four Izant siblings who comprise all of the partners of the Izant Family Partnership holds an equal
interest in the Izant Family Partnership. This figure does not include certain shares held by the
four Izant siblings outside of the Izant Family Partnership in each such partner's individual
capacity.
</TABLE>
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(3) Includes their proportionate interest in Trumbull Shares held by the
Izant Family Partnership. James R. Izant's shares include 511 Trumbull
Shares held by him as trustee for his minor child. Elizabeth A. Izant's
shares include 511 Trumbull Shares held by her as trustee for her minor
child. Phyllis J. Izant's Trumbull Shares include 5,000 shares held by
her as trustee for each of Elizabeth A. Izant's two children.
(4) This figure includes (i) the [297,951] shares held by the Izant Family
Partnership, two of whose four members serve as directors of Trumbull,
and (ii) shares held in an individual capacity by those two directors:
James R. and Phyllis J. Izant.
Certain officers and/or directors of Second Bancorp and Market Main &
Co. (Nominee for the Bank's Trust Company) own Trumbull Shares, but no officer,
director or affiliate of Second Bancorp has beneficial ownership of Trumbull
Shares representing 5% or more of the outstanding Trumbull Shares.
DESCRIPTION OF SECOND BANCORP SHARES
Second Bancorp is authorized to issue 20,000,000 Shares, each without
par value, of which [6,859,542] Shares were issued and outstanding on [August
12, 1998]. The Shares are quoted on The Nasdaq National Market. Second Bancorp's
Amended Articles of Incorporation also authorize 1,500,000 shares of Class A
Serial Preferred Shares, without par value, and 1,500,000 shares of Class B
Serial Preferred Shares, without par value (as previously defined the Class A
Series Preferred Shares and the Class B Series Preferred Shares will be
collectively referred to as the "Preferred Shares"). As of the date of this
Prospectus/Joint Proxy Statement, there were no Preferred Shares outstanding. A
discussion of the terms of the Preferred Shares follows the discussion of the
terms of Shares. See "DESCRIPTION OF SECOND BANCORP SHARES -- The Class A Series
Preferred Shares and Class B Preferred Shares. The following is a summary of the
material attributes of the Shares and is conditioned upon the premise that no
Preferred Shares are outstanding and no Preferred Shares will be issued by
Second Bancorp unless and until Second Bancorp's shareholders take action to
affirmatively authorize the issuance of any Preferred Shares.
GENERAL
Holders of the Shares are entitled: (1) to receive dividends when and
as declared by the Board of Directors out of funds legally available for
distribution; (2) to one vote per Share on each matter properly submitted to
shareholders for their vote; and (3) to participate ratably in the net assets of
Second Bancorp in the event of liquidation, after the payment of liabilities.
Holders of the Shares have the right to vote cumulatively for the election of
directors. Holders of the Shares do not have preemptive or conversion rights and
are not subject to further calls or assessments by Second Bancorp.
Second Bancorp has the right to repurchase, if and when any shareholder
desires to sell, or on the happening of any event is required to sell, Shares
previously issued; however, Second Bancorp may not repurchase its Shares if
immediately thereafter its assets would be less than its liabilities plus its
stated capital, if any, or if Second Bancorp is insolvent or would be rendered
insolvent by such a purchase.
DIVIDEND RIGHTS AND RESTRICTION ON REDEMPTIONS AND REPURCHASES
As an Ohio corporation, Second Bancorp, may, in the discretion of its
Board of Directors, generally pay dividends to its shareholders provided that
the dividend does not exceed the combination of the surplus of Second Bancorp
(defined generally as the excess of Second Bancorp's assets plus stated capital
over its liabilities).
The ability of Second Bancorp 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 the Bank. In addition, the Federal Reserve
Board expects Second Bancorp to serve as a source of strength to the Bank, which
may require it to retain capital for further investments in the Bank, rather
than for dividends for shareholders of Second Bancorp.
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The Bank may not pay dividends to Second Bancorp out of its surplus if,
after paying such dividends, it would fail to meet the required minimum levels
under certain risk-based capital guidelines and minimum leverage ratio
requirements established by the FDIC. In addition, the Bank must have the
approval of its regulatory authorities if a dividend in any year would cause the
total dividends for that year to exceed the sum of the current year's net
profits and the retained net profits for the preceding two years, less required
transfers to surplus. Payment of dividends by the Bank may be restricted at any
time at the discretion of the regulatory authorities, if they deem such
dividends to constitute an unsafe and/or unsound banking practice or if
necessary to maintain adequate capital for the Bank. These provisions could have
the effect of limiting Second Bancorp's ability to pay dividends on its
outstanding Shares.
Pursuant to a Credit Agreement with The Northern Trust Company dated
September 15, 1995 (the "Credit Agreement"), Second Bancorp may not repurchase
or redeem any of the Shares without the consent of The Northern Trust Company.
Second Bancorp does not currently anticipate any additional repurchases of the
Shares in the near future.
DIRECTOR AND OFFICER LIABILITY AND INDEMNIFICATION
Article Seventh of the Second Bancorp Articles provides that Second
Bancorp shall indemnify, to the fullest extent permitted by the laws of the
State of Ohio, any director, officer, employee or agent of Second Bancorp for
any costs or expenses incurred by him in his capacity, or arising out of his
status, as a director, officer, employee or agent of Second Bancorp. Such
indemnification is not exclusive of any other rights to which any such
indemnified person may be entitled, as a matter of law or otherwise.
Section 1701.13(E) of the Ohio Revised Code (which is applicable to
Second Bancorp) permits a corporation to indemnify its officers and directors
and to pay their expenses subject to certain limitations and exceptions. Section
1701.13(E) of the Ohio Revised Code is very similar, but not identical, to the
language contained in Article Seventh of the Second Bancorp Articles.
Second Bancorp has purchased a liability insurance policy which insures
directors and officers of Second Bancorp against certain liabilities which might
be incurred by them in such capacities.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "1933 Act"), may be permitted to directors,
officers or persons controlling Second Bancorp pursuant to the foregoing
provisions, Second Bancorp has been informed that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the 1933 Act and is, therefore, unenforceable.
PROVISIONS IN SECOND BANCORP ARTICLES AND SECOND BANCORP REGULATIONS WHICH MAY
BE DEEMED TO HAVE ANTI-TAKEOVER EFFECTS
The Second Bancorp Articles and the Second Bancorp Regulations contain
the following provisions which may be deemed to have anti-takeover effects:
SUPERMAJORITY VOTE AND FAIR PRICE PROVISION. Under the Second Bancorp
Articles, the following actions ("Business Combinations") require the
affirmative vote of the holders of 75% of the voting power of Second Bancorp:
(i) any merger or consolidation of Second Bancorp or any subsidiary of Second
Bancorp with any person who holds 10% or more of the voting power of Second
Bancorp (a "Related Person") or any affiliates of any Related Person; (ii) any
sale lease, exchange, mortgage, pledge, transfer or other disposition to or with
any Related Person or any affiliate of any Related Person of any assets of
Second Bancorp having an aggregate fair market value equal to 10% or more of the
consolidated net worth of Second Bancorp; (iii) the issuance or transfer by
Second Bancorp of any securities of Second Bancorp or any subsidiary of Second
Bancorp to any Related Person or any affiliate of any Related Person in exchange
for cash, securities or other property (or a combination thereof) having an
aggregate fair market value equal to 10% of the consolidated net worth of Second
Bancorp; (iv) the adoption of any plan or proposal for the liquidation or
dissolution of Second Bancorp; (v) any reclassification of securities of Second
Bancorp or any merger or consolidation of Second Bancorp with any of its
subsidiaries or any other transaction which has the effect of increasing the
proportionate number of the outstanding Shares of any class of equity security
of Second Bancorp or any subsidiary of Second Bancorp which is directly or
indirectly owned by any Related Person or any affiliate of any Related Person;
and (vi) an amendment of Article Sixth (Number of Directors), Article Seventh
(Indemnification) and Article Eighth (Supermajority Vote and Fair Price
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Provision) of the Second Bancorp Articles. In addition, if certain "minimum
price requirements" are not complied with in connection with any Business
Combination, such Business Combination may not be consummated. However, if the
Business Combination is approved by two-thirds of the continuing directors of
Second Bancorp, then any such Business Combination is not required to satisfy
the "minimum price requirements" and is only required to be approved by the
shareholders of Second Bancorp holding a majority of its voting power.
The Second Bancorp Regulations may be amended by the affirmative vote
of a majority of the voting power of Second Bancorp, except that any amendment
of Article III, Section 1 (Number of Directors) and Article VI (Indemnification
of Directors and Officers) requires the affirmative vote of 75% of the voting
power of Second Bancorp.
Classification of Directors. The Second Bancorp Articles classify the
Board of Directors by providing for two classes of directors with each class
serving a two-year term.
PREFERRED SHARES. The availability for issuance of the Preferred
Shares, particularly in conjunction with certain other provisions of Second
Bancorp's Articles, could have potential antitakeover effects, and might render
more difficult or discourage potential change-of-control transactions of Second
Bancorp or removal of incumbent management. For example, the Board of Directors
could decide to sell a block of the Preferred Shares to persons who are loyal to
current management, thereby diluting the share ownership of persons seeking to
obtain control. See "SPECIAL MEETING OF SECOND BANCORP SHAREHOLDERS -- Amendment
of Second Bancorp's Articles to Eliminate Second Bancorp's Two Classes of
Preferred Shares."
OHIO STATUTES THAT HAVE ANTI-TAKEOVER EFFECTS
Second Bancorp is an Ohio chartered corporation and, therefore, is
subject to the provisions of Section 1701.831 of the Ohio Revised Code (the
"Ohio Control Share Acquisition Statute"). Pursuant to the Ohio Control Share
Acquisition Statute, the "control share acquisition" of an Ohio issuing public
corporation shall be made only with the prior authorization of the shareholders
of the issuing public corporation in accordance with the provisions of the Ohio
Control Share Acquisition Statute. A "control share acquisition" is defined to
mean the acquisition, directly or indirectly, by any person of shares of an
issuing public corporation that, when added to all other shares of the issuing
public corporation such person owns, would entitle such person, directly or
indirectly, to exercise voting power in the election of directors within the
following ranges: more than 20%, more than 33-l/3%, and a majority. The control
share acquisition must be approved in advance by the holders of at least a
majority of the voting power of the Ohio issuing public corporation in the
election of directors represented at a meeting at which a quorum is present and
by the holders of a majority of such voting power remaining after excluding the
voting shares owned by the acquiring shareholder and certain "interested
shares," including shares owned by officers elected or appointed by the
directors of the issuing public corporation and by directors of the issuing
public corporation who are also employees of the issuing public corporation.
"Interested shares" also include those shares acquired by a person or group
between the date of the first disclosure of a proposed control share acquisition
or change-in-control transaction and the date of the special meeting of
shareholders held pursuant to the Ohio Control Share Acquisition Statute. Shares
acquired during that period by a person or group will be deemed "interested
shares" only if (i) the amount paid for the shares by such person or group
exceeds $250,000 or (ii) the number of shares acquired by such person or group
exceeds 1/2 of 1% of the outstanding voting shares. See "COMPARISON OF RIGHTS OF
HOLDERS OF SECOND BANCORP SHARES AND TRUMBULL SHARES - Anti-Takeover Statutes."
Second Bancorp is also subject to Chapter 1704 of the Ohio Revised Code
(the "Ohio Merger Moratorium Statute") which prohibits certain business
combinations and transactions between "an issuing public corporation" (Second
Bancorp is one) and a beneficial owner of shares representing 10% or more of the
voting power of the corporation (an "Interested Shareholder") for at least three
years after the Interested Shareholder becomes such, unless the Board of
Directors of Second Bancorp approves either (i) the transaction or (ii) the
acquisition of the Shares that resulted in the person becoming an "Interested
Shareholder", in each case before the Interested Shareholder became such.
Examples of transactions regulated by the Ohio Merger Moratorium Statute include
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asset sales, mergers, consolidations, loans, voluntary dissolutions, and the
transfer of shares ("Moratorium Transactions"). After the three-year period, a
Moratorium Transaction may take place provided that certain conditions are
satisfied, including that (a) the Board of Directors approves the transaction,
(b) the transaction is approved by the holders of shares with at least
two-thirds of the voting power of Second Bancorp (or a different proportion set
forth in the articles of incorporation) including a majority of the outstanding
common shares after excluding shares controlled by the Interested Shareholder,
or (c) the business combination results in shareholders, other than the
Interested Shareholder, receiving a "fair price" plus interest for their shares.
Ohio law provides that an offeror may not make a tender offer or
request or invitation for tenders that would result in the offeror beneficially
owning more than ten percent of any class of the target company's equity
securities unless such offeror files certain information with the Ohio Division
of Securities (the "Securities Division") and provides such information to the
target company and the offerees within Ohio. The Securities Division may suspend
the continuation of the control bid if the Securities Division determines that
the offeror's filed information does not provide full disclosure to the offerees
of all material information concerning the control bid. The statute also
provides that an offeror may not acquire any equity securities of a target
company within two years of the offeror's previous acquisition of any equity
security of the same target company pursuant to a control bid unless the Ohio
offerees may sell such security to the offeror on substantially the same terms
as provided by the previous control bid.
Pursuant to Ohio Revised Code Section 1707.043, a public corporation
incorporated in Ohio may recover profits that a shareholder makes from the sale
of the corporation's securities within 18 months after making a proposal to
acquire control or publicly disclosing the possibility of a proposal to acquire
control. The corporation may not, however, recover from a person who proves
either (i) that his sole purpose in making the proposal was to succeed in
acquiring control of the corporation and there were reasonable grounds to
believe that he would acquire control of the corporation or (ii) that his
purpose was not to increase any profit or decrease any loss in the stock of the
corporation. Also, before the corporation may obtain any recovery, the aggregate
amount of the profit realized by such person must exceed $250,000. Any
shareholder may bring an action on behalf of the corporation if a corporation
refuses to bring an action to recover these profits. The party bringing such an
action may recover his attorneys' fees if the court having jurisdiction over
such action orders recovery of any profits. An Ohio corporation may elect not to
be covered by the "anti-greenmail" statute with an appropriate amendment to its
articles of incorporation. Second Bancorp has not taken any corporate action to
opt out of the "anti-greenmail" statute.
THE CLASS A SERIES PREFERRED SHARES AND THE CLASS B SERIES PREFERRED SHARES
The Board of Directors are authorized to issue, from time to time,
Class A Serial Preferred Shares in one or more series and Class B Serial
Preferred Shares in one or more series and to fix the designation and authorized
number of shares of each such series without shareholder action. As of the date
of this Prospectus/Joint Proxy Statement, there are no outstanding Preferred
Shares. If Preferred Shares were issued, the Board of Directors of Second
Bancorp would be empowered to fix or change by resolution: (a) the dividend or
distribution rate; (b) the dates of payment of dividends or distributions and,
in the case of Class A Serial Preferred Shares the dates from which they are
cumulative; (c) the liquidation price; (d) redemption rights and price; (e)
sinking fund requirements; (f) conversion rights; and (g) restrictions on the
issuance of shares of any class or series.
If issued, the Preferred Shares would rank senior to the Shares with
respect to the payment of dividends and payment upon liquidation, dissolution or
winding up of the corporation. Dividends on the Shares (other than stock
dividends), if and when declared, would be paid after payment of (a) all accrued
and unpaid dividends on all Preferred Shares and (b) current dividends on all
Preferred Shares. Additionally, no cash dividends on the Shares could be issued
unless dividends on the Preferred Shares for each of the four consecutive
preceding quarterly dividend periods were paid on the date fixed for such
payment by the Board of Directors and there was no arrearage with respect to any
redemption or sinking fund obligation of Second Bancorp on any Preferred Shares.
The Preferred Shares generally have the same voting powers as the Shares and
would vote with the Shares as one class on all matters presented to the
shareholders, except that the Class A Serial Preferred Shares are entitled to
certain special class voting rights with respect to the election of directors
and the Preferred Shares would also
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possess certain class voting rights which are exercisable with respect to
matters uniquely affecting the terms of the Preferred Shares.
The Class A Serial Preferred Shares and the Class B Serial Preferred
Shares are of equal rank as to the payment of dividends and payment upon
liquidation, dissolution or winding up of Second Bancorp. Both classes of
Preferred Shares have essentially the same terms, except that the Class A Serial
Preferred Shares are entitled to cumulative dividends.
Based upon the determination that the Preferred Shares are not
currently needed, on August 17, 1998, the Board of Directors of Second Bancorp
adopted resolutions providing that Second Bancorp (i) would not issue any
preferred shares unless and until its shareholders take affirmative action to
authorize the issuance of preferred shares and (ii) would propose to the
shareholders of Second Bancorp an amendment to Second Bancorp's Articles to
eliminate the Preferred Shares. See "SPECIAL MEETING OF SECOND BANCORP
SHAREHOLDERS -- Amendment of Second Bancorp's Articles to Eliminate Second
Bancorp's two Classes of Preferred Shares."
COMPARISON OF RIGHTS OF HOLDERS OF SECOND BANCORP SHARES
AND HOLDERS OF TRUMBULL SHARES
GENERAL
As a result of the Merger, all of the holders of Trumbull Shares will
become shareholders of Second Bancorp, except holders of Trumbull Shares who
exercise and perfect dissenters' rights. There are certain differences between
the rights of holders of the Shares and the rights of holders of Trumbull Shares
arising from the distinctions between the Second Bancorp Articles and the Second
Bancorp Regulations and the Trumbull Articles and Trumbull Regulations. However,
the rights of holders of the Shares and those of holders of Trumbull Shares are
similar in many material respects. The differences are addressed below.
BOARD OF DIRECTORS
GENERAL. The Second Bancorp Articles provide for a Board of Directors
consisting of not more than eighteen (18) and not less than six (6) directors,
classified into two classes with each class serving a term of two years. Second
Bancorp currently has seven (7) directors. The Trumbull Regulations provide for
a Board of Directors consisting of not less than six (6) and no more than eleven
(11) directors, divided into two (2) classes with each class serving three (3)
years. Trumbull currently has seven (7) directors.
The Second Bancorp Regulations require the affirmative vote of the
holders of 75% of the Shares represented in person or by proxy at any
shareholder meeting to change the number of directors. In addition, a majority
of the Second Bancorp directors then in office may change the number of
directors of Second Bancorp by no more than two (2) directors during any year.
Under the Trumbull Regulations, the number of directors may be set or changed by
the affirmative vote of the holders of a majority of shares represented at a
meeting called for the purpose of electing directors and entitled to vote on
such proposal.
REMOVAL. A Second Bancorp director may be removed (i) by the directors
if such director is found by a court to be of unsound mind or if he is
adjudicated, a bankrupt or he fails to meet the qualifications set forth in
Section 1701.53(B)(2) or (ii) with or without cause by the affirmative vote of
the holders of a majority of the voting power of Second Bancorp entitled to
elect directors, except that, unless all directors are removed, no individual
director shall be removed if the votes of a sufficient number of Shares are cast
against his removal that, if cumulatively voted at an election of all of the
directors, would be sufficient to elect at least one director. The Trumbull
Regulations provide that all of the directors may be removed from office (i)
without assigning any cause, by the vote of the holders of two-thirds of the
voting power of Trumbull entitled to elect directors and (ii) in the
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event of removal for cause, by the affirmative vote of holders of a majority of
the voting power of Trumbull entitled to elect directors.
Vacancies. Pursuant to the Second Bancorp Regulations, vacancies on the
Board of Directors of Second Bancorp, including vacancies resulting from a
Board-created increase in the number of directors, may be filled by Second
Bancorp's Board of Directors, acting by a vote of the majority of the directors
then in office, even if less than a quorum or by a sole remaining director. Any
Second Bancorp director chosen to fill a vacancy shall serve until the next
election of the class for which such director was chosen and until his successor
is elected and qualified. Under the Trumbull Regulations, the remaining
directors, though less than a majority of the whole authorized number of
directors, may, by a vote of the majority of their number, fill any vacancy in
the Board of Directors for the unexpired term. Any director so chosen shall
serve until the next election of directors by shareholders.
VOTING RIGHTS
CUMULATIVE VOTING. The holders of the Shares have the right to cumulate
votes in the election of directors. The holders of Trumbull Shares do not have
cumulative voting rights. With cumulative voting, it is possible for the holders
of a minority of the Shares to elect one or more directors to the Second Bancorp
Board, even though the holders of a majority of the Shares oppose such
director(s) election to the Board. The absence of cumulative voting eliminates
the ability of a minority of the shareholders of a corporation to elect one or
more director(s) to the corporation's Board and allows the holders of a majority
of the shares of the corporation to elect each of the directors.
SPECIAL VOTING REQUIREMENTS. The Second Bancorp Articles contain
special voting requirements which may be deemed to have anti-takeover effects.
The following actions ("Business Combinations") require the affirmative vote of
the holders of 75% of the voting power of the Shares: (i) any merger or
consolidation of Second Bancorp or any subsidiary of Second Bancorp with any
person who holds 10% or more of the voting power of Second Bancorp (a "Related
Person") or any affiliates of any Related Person; (ii) any sale lease, exchange,
mortgage, pledge, transfer or other disposition to or with any Related Person or
any affiliate of any Related Person of any assets of Second Bancorp having an
aggregate fair market value equal to 10% or more of the consolidated net worth
of Second Bancorp; (iii) the issuance or transfer by Second Bancorp of any
securities of Second Bancorp or any subsidiary of Second Bancorp to any Related
Person or any affiliate of any Related Person in exchange for cash, securities
or other property (or a combination thereof) having an aggregate fair market
value equal to 10% of the consolidated net worth of Second Bancorp; (iv) the
adoption of any plan or proposal for the liquidation or dissolution of Second
Bancorp; (v) any reclassification of securities of Second Bancorp or any merger
or consolidation of Second Bancorp with any of its subsidiaries or any other
transaction which has the effect of increasing the proportionate number of the
outstanding Shares of any class of equity security of Second Bancorp or any
subsidiary of Second Bancorp which is directly or indirectly owned by any
Related Person or any affiliate of any Related Person; and (vi) an amendment of
Article Sixth, Article Seventh and Article Eighth of the Second Bancorp
Articles. In addition, if certain "minimum price requirements" are not complied
with in connection with any such Business Combination, any such Business
Combination may not be consummated. However, if any such Business Combination is
approved by two-thirds of the continuing directors of Second Bancorp, then any
such Business Combination is not required to satisfy the "minimum price
requirements" and is only required to be approved by the shareholders of Second
Bancorp holding a majority of its voting power. In addition, the affirmative
vote of two thirds of the voting power of Second Bancorp is required to amend
the Second Bancorp Articles other than Article Sixth, Article Seventh and
Article Eighth.
In contrast, under the general corporate law of Ohio, the affirmative
vote of holders of at least two-thirds of the voting power of Trumbull is
required to approve any merger, business combination or similar transaction
involving Trumbull or to amend the Trumbull Articles.
The Second Bancorp Regulations may be amended by the affirmative vote
of a majority of the voting power of Second Bancorp, except that any amendment
of Article III, Section 1 (Number of Directors) and Article
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VI (Indemnification of Directors and Officers) requires the affirmative vote of
75% of the voting power of Second Bancorp. The Trumbull Regulations may be
amended by the affirmative vote of a majority of the voting power of Trumbull at
a meeting held for such purpose or without a meeting by the written consent of a
majority of the voting power of Trumbull.
VOTE TO CALL A SPECIAL MEETING. The Second Bancorp Regulations require
the Chairman of the Board of Directors, a majority of the Board of Directors or
the affirmative vote of the holders of 25% of the voting power of Second Bancorp
to call a special meeting of shareholders. The Trumbull Regulations require the
Chairman of the Board, the President or the affirmative vote of the holders of
25% of the voting power of Trumbull to call a special meeting.
ANTI-TAKEOVER PROVISIONS
The Trumbull Articles and Trumbull Regulations contain no provisions
similar to the Supermajority Provision and Fair Price provision contained in the
Second Bancorp Articles. See, "DESCRIPTION OF SECOND BANCORP SHARES - Provisions
in the Second Bancorp Articles and Second Bancorp Regulations which may be
deemed to have Anti-Takeover Effects."
PREEMPTIVE RIGHTS
The shareholders of Second Bancorp and Trumbull do not have preemptive
rights.
DIVIDENDS
As Ohio corporations, Trumbull and Second Bancorp, may, in the
discretion of their respective Board of Directors, generally pay dividends to
their shareholders provided that the any such dividends do not exceed their
surplus.
The ability of Second Bancorp and Trumbull 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 the Bank and Trumbull Savings,
respectively. In addition, the Federal Reserve Board expects Second Bancorp to
serve as sources of strength to its subsidiary bank, which may require it to
retain capital for further investments in its subsidiary banks, rather than for
dividends for its shareholders. See "REGULATION OF FINANCIAL INSTITUTIONS --
Limits on Dividends and Other Payments."
PREFERRED SHARES
Second Bancorp's Articles authorize 1,500,000 shares of Class A Serial
Preferred Shares, without par value, and 1,500,000 shares of Class B Serial
Preferred Shares, without par value. As of the date of this Prospectus/Joint
Proxy Statement, there were no Preferred Shares outstanding. The availability
for issuance of the Preferred Shares, particularly in conjunction with certain
other provisions of the corporation's Amended Articles of Incorporation, could
have potential antitakeover effects, and might render more difficult or
discourage potential transactions involving a sale or change in control of
Second Bancorp or removal of incumbent management. For example, the Board of
Directors could decide to sell a block of the Preferred Shares to persons who
are loyal to current management, thereby diluting the share ownership of persons
seeking to obtain control. Management is a not aware of any effort on the part
of any person to acquire control of Second Bancorp. See "SPECIAL MEETING OF
SECOND BANCORP SHAREHOLDERS -- Amendment of Second Bancorp's Amended Articles of
Incorporation to Eliminate Second Bancorp's two Classes of Preferred Shares."
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ANTI-TAKEOVER STATUTES
The Ohio Control Share Acquisition Statute, the Ohio Merger Moratorium
Statute and the Ohio statutes regulating tender offers apply to both Second
Bancorp and Trumbull. See "DESCRIPTION OF SECOND BANCORP SHARES - Ohio Statutes
that have Anti-Takeover Effects."
Pursuant to the Ohio Control Share Acquisition Statute, the control
share acquisition of an Ohio issuing public corporation shall be made only with
the prior authorization of the shareholders of the issuing public corporation in
accordance with the provisions of the Ohio Control Share Acquisition Statute. A
"control share acquisition" is defined to mean the acquisition, directly or
indirectly, by any person of shares of an issuing public corporation that, when
added to all other shares of the issuing public corporation such person owns,
would entitle such person, directly or indirectly, to exercise voting power in
the election of directors within the following ranges: more than 20%, more than
33-l/3%, and a majority. Second Bancorp and Trumbull are proceeding on the
assumption that the proposed acquisition by Second Bancorp of Trumbull through
the Merger may be deemed to be a "control share acquisition" under the Ohio
Control Share Acquisition Statute.
The Ohio Control Share Acquisition Statute requires that the acquiring
person must deliver an acquiring person statement to the issuing public
corporation. The issuing public corporation must then call a special meeting of
its shareholders to vote upon the proposed acquisition within 50 days after
receipt of such acquiring person statement, unless the acquiring person agrees
to a later date. Trumbull received an acquiring person statement from Second
Bancorp on ________, 1998, a copy of which is attached hereto as Annex F, and
Trumbulls' shareholders will have the opportunity to vote upon Second Bancorp's
proposed acquisition of a controlling interest in Trumbull at the Trumbull
Special Meeting.
The Ohio Control Share Acquisition Statute further specifies that the
shareholders of the Ohio issuing public corporation must approve the proposed
control share acquisition by certain percentages at a special meeting of
shareholders at which a quorum is present. Accordingly, in order to comply with
the Ohio Control Share Acquisition Statute, Second Bancorp may only acquire
Trumbull through the Merger upon the affirmative vote of (i) a majority of the
voting power of Trumbull that is represented in person or by proxy at the
Trumbull Special Meeting, and (ii) a majority of the voting power of Trumbull
Shares that is represented in person or by proxy at the Trumbull Special
Meeting, excluding those Trumbull Shares deemed to be "Interested Trumbull
Shares" for purposes of the Ohio Control Share Acquisition Statute.
"Interested Trumbull Shares" are defined under the Ohio Control Share
Acquisition Statute to mean shares in respect of which the voting power is
controlled by any of the following persons: (1) an acquiring person (in this
case, Second Bancorp); (2) any officer of Trumbull; and (3) any director of
Trumbull who is also an employee of Trumbull. "Interested Trumbull Shares" also
include Trumbull Shares that are acquired by any person after the date of the
first public disclosure of the proposed Merger (in this case, May 4, 1998) and
the date of the Trumbull Special Meeting, if either (i) the aggregate
consideration paid by such person, and any person acting in concert with him,
for such Trumbull Shares exceeds $250,000, or (ii) the number of Trumbull Shares
acquired by such person, and any person acting in concert with him, exceeds
one-half of one percent of the outstanding Trumbull Shares. In order to
determine whether any Trumbull Shares acquired after May 4, 1998 constitute
"Interested Trumbull Shares" pursuant to the preceding sentence, Trumbull will
examine its stock records as of May 4, 1998, as of the Trumbull Record Date and
as of the last business day preceding the Trumbull Special Meeting. If any
record holder (other than a broker, bank or other nominee) has increased his
ownership interest by more than one-half of one percent of the outstanding
Trumbull Shares, or by a number of Trumbull Shares in excess of $250,000 divided
by the value of a Trumbull Share during the period from May 4, 1998 through the
Trumbull Record Date, such additional Trumbull Shares held by such holder will
be deemed "Interested Trumbull Shares." A record holder may rebut a presumption
that Trumbull Shares are "Interested Trumbull Shares" by providing Trumbull with
documentation satisfactory to Trumbull's legal counsel establishing that such
Trumbull Shares are not "Interested Trumbull Shares" within the definition of
Section 1701.01(CC)(2) of the Ohio Revised Code.
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DIRECTOR AND OFFICER LIABILITY AND INDEMNIFICATION
Second Bancorp. Article Seventh of the Second Bancorp Articles provides
that Second Bancorp shall indemnify, to the full extent permitted by the laws of
the State of Ohio, any director, officer, employee or agent of Second Bancorp
for any costs or expenses incurred by him in his capacity, or arising out of his
status, as a director, officer, employee or agent of Second Bancorp. Such
indemnification is not exclusive of any other rights to which any such
indemnified person may be entitled, as a matter of law or otherwise.
Section 1701.13(E) of the Ohio Revised Code (which is applicable to
Second Bancorp) permits a corporation to indemnify its officers and directors
and to pay their expenses subject to certain limitations and exceptions. Section
1701.13(E) of the Ohio Revised Code is very similar, but not identical, to the
language contained in Article Seventh of the Second Bancorp Articles.
Second Bancorp has purchased a liability insurance policy which insures
directors and officers of Second Bancorp against certain liabilities which might
be incurred by them in such capacities.
Insofar as indemnification for liabilities arising under the Securities
Act, may be permitted to directors, officers or persons controlling Second
Bancorp pursuant to the foregoing provisions, Second Bancorp has been informed
that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the 1933 Act and is,
therefore, unenforceable.
Trumbull. Although indemnification of Trumbull directors and officers
is permitted under Trumbull's Regulations, indemnification is not required,
except to the extent indemnification would be required under Ohio Revised Code
Section 1701.13(E). Trumbull has purchased a liability insurance policy insuring
directors and officers against liabilities that may be incurred by them in their
capacities as directors and officers.
Pursuant to the terms of the Agreement, Second Bancorp has agreed to
keep in effect in the Second Bancorp Articles and the Second Bancorp Regulations
and the Articles and Regulations of the Bank, provisions providing for
indemnification of officers and directors of Trumbull. In addition, for three
years from the date of the Merger, Second Bancorp will maintain directors' and
officers' liability insurance policies covering the officers and directors of
Trumbull and Trumbull Savings so long as the cost does not exceed 150% of the
current premiums paid by Trumbull for its directors' and officers' liability
insurance policies.
REGULATION OF FINANCIAL INSTITUTIONS
Second Bancorp, as a bank holding company, and Trumbull, as a unitary
savings and loan holding company, and the Bank and Trumbull Savings, as a
nationally-chartered bank and a state-chartered savings bank, are regulated
extensively under federal and state law. Second Bancorp and Trumbull are subject
to regulation, supervision and examination by the Federal Reserve Board and the
OTS, respectively. The Bank is subject to regulation by the OCC and the FDIC and
Trumbull Savings is subject to regulation, supervision and examination by the
Division and the FDIC. The following information describes certain federal and
Ohio statutory and regulatory provisions and is qualified in its entirety by
reference to the particular statutory or regulatory provisions.
REGULATION OF BANK HOLDING COMPANIES
Second Bancorp is registered with the Federal Reserve Board as a bank
holding company under the Bank Holding Company Act of 1956, as amended (the
"BHCA"). Bank holding companies and their activities are subject to extensive
regulation by the Federal Reserve Board. Bank holding companies are required to
file reports with the Federal Reserve Board and such additional information as
the Federal Reserve Board may require, and are subject to regular examinations
by the Federal Reserve Board. The Federal Reserve Board also has extensive
enforcement authority over bank holding companies, including, among other
things, the ability to assess civil money penalties, to issue cease and desist
or removal orders and to require that a holding company divest
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subsidiaries (including its bank subsidiaries). In general, enforcement actions
may be initiated for violations of law and regulations and unsafe or unsound
practices.
Under Federal Reserve Board policy, a bank holding company is expected
to act as a source of financial strength to each subsidiary bank and to commit
resources to support such subsidiary banks. Under this policy the Federal
Reserve Board may require a bank holding company to contribute additional
capital to an undercapitalized subsidiary bank.
The BHCA requires the prior approval of the Federal Reserve Board in
any case where a bank holding company proposes to acquire direct or indirect
ownership or control of more than 5% of the voting shares of any bank that is
not already majority-owned by it, to acquire all or substantially all of the
assets of another bank or bank holding company, or to merge or consolidate with
any other bank holding company. Section 4 of the BHCA also prohibits a bank
holding company, with certain exceptions, from acquiring more than 5% of the
voting shares of any company that is not a bank and from engaging in any
business other than banking or managing or controlling banks. The primary
exception allows the ownership of shares by a bank holding company in any
company the activities of which the Federal Reserve Board has determined to be
so closely related to banking or to managing or controlling banks as to be a
proper incident thereto. The Federal Reserve Board has by regulation determined
that certain activities are closely related to banking within the meaning of the
BHCA. These activities include: operating a savings association, mortgage
company, finance company, credit card company or factoring company; performing
certain data processing operations; providing investment and financial advice;
and acting as an insurance agent for certain types of credit-related insurance.
Subsidiary banks of a bank holding company are subject to certain
restrictions imposed by the Federal Reserve Act on maintenance of reserves
against deposits, extensions of credit to the bank holding company or any of its
subsidiaries, on investments in the stock or other securities of the bank
holding company or its subsidiaries and on the taking of such stock or
securities as collateral for loans to any borrower. Further, a bank holding
company and its subsidiaries are prohibited from engaging in certain tie-in
arrangements in connection with any extension of credit, lease or sale of
property or furnishing of any services. Various consumer laws and regulations
also affect the operations of these subsidiaries.
REGULATION OF A UNITARY SAVINGS AND LOAN HOLDING COMPANY
Because Trumbull owns one and only one savings bank - Trumbull Savings
- - and because Trumbull Savings satisfies the "qualified thrift lender" test
described hereinafter (see, " - Qualified Thrift Lender Test"), Trumbull is
eligible under the Home Owners' Loan Act ("HOLA") for treatment as a unitary
savings and loan holding company. Trumbull has elected to be treated as a
unitary savings and loan holding company, rather than being subject to BHCA
regulation and supervision as a bank holding company. In marked contrast to bank
holding companies and to other forms of savings and loan holding companies,
there are generally no restrictions under HOLA on the activities of a unitary
savings and loan holding company, provided the subsidiary institution maintains
its "qualified thrift lender" status. In addition, a unitary savings and loan
holding company is not subject to any capital maintenance requirements under
federal law (although its subsidiary savings bank or savings association is).
If Trumbull were to acquire control of another institution (other than
through merger or other business combination with Trumbull Savings), Trumbull
would become a bank holding company if the other institution is a bank, or a
multiple savings and loan holding company if the newly acquired institution is a
savings and loan association or savings bank. In either event Trumbull would
lose its status as a unitary holding company and become subject to activities
restrictions as a result. In very general terms, no multiple savings and loan
holding company or subsidiary thereof that is not a savings institution may
commence or continue any business activity other than: (i) furnishing or
performing management services for a subsidiary savings institution; (ii)
conducting an insurance agency or escrow business; (iii) holding, managing, or
liquidating assets owned by or acquired from a subsidiary savings institution;
(iv) holding or managing properties used or occupied by a subsidiary savings
institution; (v) acting as trustee under deeds of trust; (vi) activities
authorized by regulation as of March 5, 1987 to be engaged in by multiple
savings and loan holding companies; or (vii) activities authorized by the Board
of
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Governors of the Federal Reserve System as permissible for bank holding
companies, unless the Director of the OTS by regulation prohibits or limits such
activities for savings and loan holding companies. Activities described in
clause (vii) also must be approved in advance by the Director of the OTS.
Moreover, if the savings bank or savings association subsidiary of a
unitary holding company fails to satisfy the qualified thrift lender test
discussed hereinafter, then the unitary holding company becomes subject to the
activities restrictions applicable under HOLA to multiple savings and loan
holding companies. Unless the subsidiary institution requalifies under the
qualified thrift lender test within one year, the holding company must register
as a bank holding company. The activities restrictions applicable to bank
holding companies under the Bank Holding Company Act of 1956 are generally more
confining than the activities restrictions applicable under HOLA to multiple
savings and loan holding companies.
Trumbull is subject to the regulatory oversight, examination and
enforcement authority of, and is required to file periodic reports with, the
OTS. If the OTS determines that the continuation of a particular activity by a
savings and loan holding company constitutes a serious threat to the financial
condition of its subsidiary institution(s), the OTS may impose restrictions on
the holding company. Such restrictions may include limiting the payment of
dividends, transactions with affiliates or any other activities deemed to pose a
serious threat to the subsidiary institutions.
Congress is considering legislation that would limit savings and loan
holding companies, including unitary savings and loan holding companies, to the
same activities as other financial institution holding companies and permit
financial institution holding companies generally to engage in commercial
activities and expanded securities and insurance activities. Trumbull cannot
predict whether or in what form these proposals will become law. Although such
legislation may change the activities in which Trumbull and Trumbull Savings are
authorized to engage, neither anticipates that the current activities of
Trumbull or Trumbull Savings will be materially affected by activity limitations
that may be contained within the new legislation.
Qualified Thrift Lender Test. In order for Trumbull to maintain its
advantaged status as a unitary savings and loan holding company, Trumbull
Savings would have to continue to satisfy the qualified thrift lender ("QTL")
test under federal law. Under the QTL test, 65% of an institution's "portfolio
assets" (total assets less goodwill and other intangibles, property used to
conduct business and certain liquid assets) must consist of qualified thrift
investments on a monthly average basis in 9 out of every 12 months. "Qualified
thrift investments" generally means investments related to domestic residential
real estate and manufactured housing and includes credit card, student and small
business loans, and stock issued by any FHLB, the FHLMC or the FNMA.
Although the preceding QTL test remains effective, it is no longer the
exclusive QTL Test. With the enactment on September 30, 1996 of the Economic
Growth and Regulatory Paperwork Reduction Act of 1996, including the Deposit
Insurance Funds Act of 1996 set forth in Subtitle G thereof, Congress created an
alternative QTL test, pursuant to which an institution may also be treated as a
qualified thrift lender if the institution qualifies as a "domestic building and
loan association" under the Code. That is, at least 60% of the institution's
assets (on a tax basis) must consist of specified assets (generally loans
secured by residential real estate or deposits, educational loans, cash and
certain governmental obligations).
An institution that fails to meet the QTL test will not be eligible for
new FHLB advances. With qualified thrift investments of approximately 89.87% of
portfolio assets at June 30, 1998, Trumbull Savings is in compliance with the
original and the alternative QTL tests.
TRANSACTIONS WITH AFFILIATES
Sections 23A and 23B of the Federal Reserve Act (the "FRA") restrict
transactions by insured depository institutions and their subsidiaries with
their affiliates. An affiliate of an institution is any company or entity which
controls, is controlled by or is under common control with the institution.
Generally, Sections 23A and 23B (i) limit the extent to which an institution or
its subsidiaries may engage in "covered transactions" with any one
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affiliate to an amount equal to 10% of such institution's capital stock and
surplus (i.e., tangible capital) and (ii) require that all such transactions be
on terms substantially the same, or at least as favorable to the institution or
subsidiary, as those provided to a non-affiliate. The term "covered transaction"
includes the making of loans, purchase of assets, issuance of a guarantee and
other similar types of transactions.
A financial institution's authority to extend credit to executive
officers, directors and greater than 10% shareholders, as well as entities such
persons control, is subject to Sections 22(g) and 22(h) of the FRA and
Regulation O promulgated thereunder by the Federal Reserve Board. Among other
things, such loans must be made on terms substantially similar to those offered
to unaffiliated individuals, the amount of loans an institution may make to such
persons is based, in part, on the institution's capital position, and certain
approval procedures must be followed in making such loans.
REGULATION OF NATIONALLY CHARTERED BANKS
The Bank is subject to regulation under the National Banking Act and is
periodically examined by the OCC and is subject, as a member bank, to the rules
and regulations of the Federal Reserve Board. The Bank is an insured institution
and a member of the Bank Insurance Fund ("BIF") and also has approximately $52
million in deposits acquired through acquisitions of branches of savings and
loan institutions that are insured through the Savings Association Insurance
Fund ("SAIF"). As a result, the Bank also is subject to regulation by the FDIC.
The establishment of branches of the Bank is subject to approval of the OCC.
REGULATION OF OHIO STATE CHARTERED SAVINGS BANKS
FDIC REGULATION. The FDIC is the primary federal regulator of Trumbull
Savings. The FDIC issues regulations governing the operations of Trumbull and
examines Trumbull. The FDIC may initiate enforcement actions against
institutions and certain persons affiliated with them for violations of laws and
regulations or for engaging in unsafe or unsound practices. If the grounds
provided by law exist, the FDIC may appoint a conservator or a receiver for a
nonmember bank or savings bank.
OHIO SAVINGS BANK REGULATION. As a savings bank incorporated under Ohio
law, Trumbull Savings is subject to regulation and supervision by the Division.
Division regulation and supervision affects the internal organization of
Trumbull Savings, as well as its savings, mortgage lending and other investment
activities. The Division may initiate supervisory measures or formal enforcement
actions against Ohio savings banks. Ultimately, if the grounds provided by law
exist, the Division may place an Ohio savings bank in conservatorship or
receivership. Whenever the Superintendent of the Division considers it necessary
or appropriate, the Superintendent may also examine the affairs of any holding
company or any affiliate or subsidiary of an Ohio savings bank.
FEDERAL DEPOSIT INSURANCE CORPORATION
The FDIC is an independent federal agency which insures the deposits,
up to prescribed statutory limits, of federally-insured banks and savings
associations and safeguards the safety and soundness of the financial
institution industry. Two separate insurance funds are maintained and
administered by the FDIC. In general, banking institutions are members of BIF
and savings associations are SAIF members. The insurance fund conversion
provisions do not prohibit a SAIF member from either converting to a bank
charter, as long as the resulting bank remains a SAIF member, or merging with a
bank, as long as the bank continues to pay the SAIF insurance assessments on the
deposits acquired. Exit and entrance fees must be paid to the FDIC in full
conversions.
Insurance premiums for SAIF and BIF members are determined during each
semi-annual assessment period based upon the members' respective categorization
as either (1) well capitalized, (2) adequately capitalized or (3)
undercapitalized. An institution is also assigned by the FDIC to one of three
supervisory subgroups within each capital group. The supervisory subgroup to
which an institution is assigned is based on a supervisory
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evaluation provided to the FDIC by the institution's primary federal regulator
and information which the FDIC determines to be relevant to the institution's
financial condition and the risk posed to the deposit insurance funds (which may
include, if applicable, information provided by the institution's state
supervisor). An institution's assessment rate depends on the capital category
and supervisory category to which it is assigned.
Insurance of deposits may be terminated by the FDIC upon a finding that
the institution has engaged in unsafe or unsound practices, is in an unsafe or
unsound condition to continue operations, or has violated any applicable law,
regulation, rule, order or condition imposed by the FDIC.
INTERSTATE BANKING AND BRANCHING
In 1994, the Riegle-Neal Act was enacted to ease restrictions on
interstate banking. Effective September 29, 1995, the Riegle-Neal Act allows the
Federal Reserve Board to approve an application of an adequately capitalized and
adequately managed bank holding company to acquire control of, or acquire all or
substantially all of the assets of, a bank located in a state other than such
holding company's home state, without regard to whether the transaction is
prohibited by the laws of any state. The Federal Reserve Board may not approve
the acquisition of a bank that has not been in existence for the minimum time
period (not exceeding five years) specified by the statutory law of the host
state. The Riegle-Neal Act also prohibits the Federal Reserve Board from
approving an application if the applicant (and its depository institution
affiliates) controls or would control more than 10% of the insured deposits in
the United States or 30% or more of the deposits in the target bank's home state
or in any state in which the target bank maintains a branch. The Riegle-Neal Act
does not affect the authority of states to limit the percentage of total insured
deposits in the state which may be held or controlled by a bank or bank holding
company to the extent such limitation does not discriminate against out-of-state
banks or bank holding companies. Individual states may also waive the 30%
statewide concentration limit contained in the Riegle-Neal Act.
Additionally, beginning on June 1, 1997, the federal banking agencies
were authorized to approve interstate merger transactions without regard to
whether such transaction is prohibited by the law of any state, unless the home
state of one of the banks opts out of the Riegle-Neal Act by adopting a law
after the date of enactment of the Riegle-Neal Act and prior to June 1, 1997
which applies equally to all out-of-state banks and expressly prohibits merger
transactions involving out-of-state banks. A state could have permitted such
transactions before such time by enacting authorizing legislation. Interstate
acquisitions of branches are permitted only if the law of the state in which the
branch is located permits such acquisitions. Interstate mergers and branch
acquisitions will also be subject to the nationwide and statewide insured
deposit concentration amounts described above.
The Riegle-Neal Act authorizes the FDIC to approve interstate branching
de novo by national and state banks, respectively, only in states which
specifically allow for such branching. The Riegle-Neal Act also required the
appropriate federal banking agencies to prescribe regulations by June 1, 1997
which prohibited any out-of-state bank from using the interstate branching
authority primarily for the purpose of deposit production. These regulations
include guidelines to ensure that interstate branches operated by an
out-of-state bank in a host state are reasonably helping to meet the credit
needs of the communities which they serve.
REGULATORY CAPITAL
Capital Requirements for Second Bancorp. The Federal Reserve Board has
adopted risk-based capital guidelines for bank holding companies. The guidelines
provide a systematic analytical framework which makes regulatory capital
requirements sensitive to differences in risk profiles among banking
organizations, takes off-balance sheet exposures expressly into account in
evaluating capital adequacy, and minimizes disincentives to holding liquid,
low-risk assets. Capital levels as measured by these standards also are used to
categorize financial institutions for purposes of certain prompt corrective
action regulatory provisions. See "REGULATION OF FINANCIAL INSTITUTIONS - Prompt
Corrective Regulatory Action."
107
<PAGE> 117
The minimum guideline for the ratio of total capital ("Total Capital")
to risk-weighted assets (including certain off-balance sheet items such as
standby letters of credit) is 8% ("Total Risk-Based Capital"). This Total
Risk-Based Capital ratio must be at least 10% to be considered well capitalized.
At least half of the minimum Total Risk-Based Capital ratio (4%) must be
composed of common stockholders' equity, minority interests in the equity
accounts of consolidated subsidiaries and a limited amount of perpetual
preferred stock, less goodwill and certain other intangibles ("Tier 1 Risk-Based
Capital"). To be considered well capitalized, the Tier 1 Risk-Based Capital
ratio must be at least 6%. See "REGULATION OF FINANCIAL INSTITUTIONS - Prompt
Corrective Regulatory Action." The remainder of Total Risk-Based Capital may
consist of subordinated debt, other preferred stock and a limited amount of loan
and lease loss allowance.
The Federal Reserve Board has established minimum leverage ratio
guidelines for bank holding companies. The Federal Reserve Board guidelines
provide for a minimum ratio of Tier 1 Risk-Based Capital to average assets
(excluding the loan and lease loss allowance, goodwill and certain other
intangibles) ("Leverage Ratio") of 3% for bank holding companies that meet
certain criteria, including having the highest regulatory rating. To be
considered well capitalized, the Leverage Ratio for a bank holding company must
be at least 5%. The guidelines further provide that bank holding companies
making acquisitions will be expected to maintain strong capital positions
substantially above the minimum levels.
Second Bancorp is in compliance with the current applicable capital
guideline ratios. As of June 30, 1998, Second Bancorp had a Total Risk-Based
Capital Ratio of 13.18%, a Tier 1 Risk-Based Capital Ratio of 12.06% and a
Leverage Ratio of 8.46%. Second Bancorp anticipates that it will continue to
meet current capital guideline ratios after the consummation of the Merger and
the Trumbull Merger.
CAPITAL REQUIREMENTS FOR TRUMBULL. As a unitary savings and loan
holding company, Trumbull is not subject to regulatory capital requirements, as
Trumbull Savings is. Trumbull Savings is required by applicable law and
regulations to meet certain minimum capital requirements. The regulatory capital
requirements applicable to Trumbull Savings include a leverage limit and a
risk-based capital requirement.
CAPITAL REQUIREMENTS FOR THE BANK AND TRUMBULL SAVINGS. The Bank is
subject to capital requirements similar to those discussed above for Second
Bancorp adopted by the FDIC. At August 12, 1998, the Bank and Trumbull Savings
satisfied these minimum capital ratio requirements under the applicable capital
ratio guidelines. Failure by the Bank to comply in the future with the
applicable capital standards may subject the Bank to sanctions and limitations
upon operations.
PROMPT CORRECTIVE REGULATORY ACTION
The federal banking agencies have established a system of prompt
corrective action to resolve certain of the problems of undercapitalized
institutions. This system is based on five capital level categories for insured
depository institutions - "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized," and "critically
undercapitalized." The federal banking agencies may (or in some cases must) take
certain supervisory actions depending upon an insured institution's capital
level. For example, the banking agencies must appoint a receiver or conservator
for an institution within 90 days after it becomes "critically undercapitalized"
unless the institution's primary regulator determines, with the concurrence of
the FDIC, that other action would better achieve regulatory purposes. Banking
operations otherwise may be significantly affected depending on an institution's
capital category. For example, an institution that is not "well capitalized"
generally is prohibited from accepting brokered deposits and offering interest
rates on deposits higher than the prevailing rate in its market, and the holding
company of any undercapitalized depository institution must guarantee, in part,
certain aspects of such depository institution's capital plan for such plan to
be acceptable.
Under the final rules implementing the prompt corrective action
provisions, a financial institution that has a Total Risk-Based Capital of 10%
or greater, a Tier 1 Risk-Based Capital ratio of 6% or greater and a Leverage
Ratio of 5% or greater is deemed to be "well capitalized." An institution with a
Total Risk-Based Capital ratio of 8% or greater, a Tier 1 Risk-Based Capital
ratio of 4% or greater and a Leverage Ratio of 4% or greater (or a
108
<PAGE> 118
Leverage Ratio of 3% or greater and a CAMEL 1 rating), is considered to be
"adequately capitalized." An institution that has a Total Risk-Based Capital of
less than 8%, a Tier 1 Risk-Based Capital ratio of less than 4%, and a Leverage
Ratio that is less than 4% (or a Leverage Ratio of less than 3% and a CAMEL 1
rating), is considered "undercapitalized." An institution that has a Total
Risk-Based Capital less than 6%, a Tier 1 Risk-Based Capital ratio of less than
3% or a Leverage Ratio that is less than 3% is considered to be "significantly
undercapitalized." An institution that has tangible equity (core capital minus
intangible assets other than qualifying supervisory goodwill and purchased
mortgage servicing rights) to total assets ratio equal to or less than 2% is
deemed to be "critically undercapitalized."
LIMITS ON DIVIDENDS AND OTHER PAYMENTS
There are various legal limitations on the extent to which subsidiary
banks may finance or otherwise supply funds to their parent holding companies.
Under federal and Ohio law, subsidiary banks may not, subject to certain limited
exceptions, make loans or extensions of credit to, or investments in the
securities of, their bank holding companies. Subsidiary banks are also subject
to collateral security requirements for any loans or extension of credit
permitted by such exceptions.
Neither the Bank nor Trumbull Savings may pay dividends out of their
surplus if, after paying such dividends, they would fail to meet the required
minimum levels under certain risk-based capital guidelines and minimum leverage
ratio requirements established by the FDIC. In addition, the Bank and Trumbull
Savings must have the approval of their respective regulatory authorities if a
dividend in any year would cause the total dividends for that year to exceed the
sum of their current year's net profits and the retained net profits for the
preceding two years, less required transfers to surplus. Payment of dividends by
the Bank and Trumbull Savings may be restricted at any time at the discretion of
their respective regulatory authorities, if such regulatory authorities deem
such dividends to constitute unsafe and/or unsound banking practices or if
necessary to maintain adequate capital
The ability of a bank holding company and a unitary savings and loan
holding company 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 their subsidiary bank(s). However, the Federal Reserve Board expects
bank holding companies to serve as a source of strength to their subsidiary
bank(s), which may require them to retain capital for further investment in
their subsidiary bank(s), rather than for dividends for shareholders of the bank
holding company. As stated previously, neither the Bank nor Trumbull Savings may
pay dividends to Second Bancorp and Trumbull, respectively, if, after paying
such dividends, either the Bank or Trumbull Savings would fail to meet the
required minimum levels under the risk-based capital guidelines and the minimum
leverage ratio requirements. Payment of dividends by the Bank and Trumbull
Savings may be restricted at any time at the discretion of their applicable
regulatory authorities, if they deem such dividends to constitute an unsafe
and/or unsound banking practice. These provisions could have the effect of
limiting the Second Bancorp's ability to pay dividends on the Shares.
The foregoing discussion of the regulation of Second Bancorp, Trumbull,
the Bank and Trumbull Savings is not complete. Trumbull shareholders are
referred to Second Bancorp's Annual Report on Form 10-K for the 1997 fiscal year
for a more complete discussion of the regulation of Second Bancorp's and the
Bank's businesses. Second Bancorp's Annual Report on Form 10-K for 1997 is
incorporated by reference into this Prospectus/Proxy Statement.
LEGAL MATTERS
The federal income tax consequences of the Merger, along with other
legal matters in connection with the Merger, will be passed upon for Second
Bancorp by Vorys, Sater, Seymour and Pease LLP. The federal income tax
consequences of the Merger, will be passed upon for Trumbull by Vorys, Sater,
Seymour and Pease LLP. Grady & Associates has acted as special regulatory
counsel for Trumbull. Neither Vorys, Sater, Seymour and Pease LLP nor Gray &
Associates have received nor will they receive a substantial interest, direct or
indirect, in Second Bancorp or Trumbull, nor were their counsel compensated on a
contingency fee basis for the rendering of their services.
109
<PAGE> 119
EXPERTS
The consolidated financial statements of Second Bancorp Incorporated
included in Second Bancorp Incorporated's Annual Report (Form 10-K) for the year
ended December 31, 1997, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon included therein and incorporated
herein by reference. Such consolidated financial statements are incorporated
herein by reference in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing.
The consolidated financial statements of The Trumbull Savings and Loan
Company at September 30, 1997, and for each of the three years ended September
30, 1997, incorporated into this Prospectus/Joint Proxy Statement by reference,
have been audited by Crowe, Chizek and Company LLP, as set forth in its report
thereon. The financial statements of The Trumbull Savings and Loan Company
audited by Crowe, Chizek and Company LLP have been included in reliance upon
such report given upon their authority as an expert in accounting and auditing.
SECOND BANCORP SHAREHOLDER PROPOSALS -- 1999
In order for Second Bancorp shareholders proposals to be considered for
presentation at the 1999 Annual Meeting of Shareholders, such proposals must be
received by Second Bancorp by December 1, 1998. If a shareholder intends to
present a proposal at the 1999 Annual Meeting of Shareholders, but has not
sought the inclusion of such proposal in Second Bancorp's proxy materials, such
proposal must be received by Second Bancorp prior to February 16, 1999 or Second
Bancorp's management proxies for the 1999 Annual Meeting of Shareholders will be
entitled to use their discretionary voting authority should such proposal then
be raised, without any discussion of the matter in Second Bancorp's proxy
materials.
110
<PAGE> 120
INDEX TO FINANCIAL STATEMENTS OF TRUMBULL SAVINGS AND LOAN COMPANY
<TABLE>
<S> <C>
Report of Independent Auditors.................................................... F-2
Statements of Financial Condition at September 30, 1997 and 1996.................. F-3
Statements of Income for the years ended September 30, 1997, 1996 and 1995........ F-4
Statements of Stockholders' Equity for the years ended
September 30, 1997, 1996 and 1995............................................ F-5
Statements of Cash Flows for the years ended September 30, 1997, 1996 and 1995.... F-6
Notes to Financial Statements..................................................... F-8
Unaudited Consolidated Statements of Financial Condition June 30, 1998 and
September 30, 1997........................................................... F-29
Unaudited Consolidated Statements of Income For the Nine Months ended
June 30, 1998 and 1997....................................................... F-30
Unaudited Consolidated Statements of Stockholders' Equity For the Period ended
June 30, 1998 and September 30, 1997......................................... F-31
Unaudited Consolidated Statements of Cash Flows For the Nine Months ended
June 30, 1998 and 1997....................................................... F-32
Notes to Consolidated Statements of Financial Condition June 30, 1998 and
September 30, 1997........................................................... F-34
</TABLE>
F-1
<PAGE> 121
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
The Trumbull Savings and Loan Company
Warren, Ohio
We have audited the accompanying statements of financial condition of The
Trumbull Savings and Loan Company as of September 30, 1997 and 1996, and the
related statements of income, stockholders' equity and cash flows for the three
years ended September 30, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Trumbull Savings and Loan
Company as of September 30, 1997 and 1996, and the results of its operations and
its cash flows for the three years ended September 30, 1997 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 to comply with new accounting guidance
in the fiscal year ended September 30, 1996.
Crowe, Chizek and Company LLP
Cleveland, Ohio
October 31, 1997
F-2
<PAGE> 122
THE TRUMBULL SAVINGS AND LOAN COMPANY
STATEMENTS OF FINANCIAL CONDITION
SEPTEMBER 30, 1997 AND 1996
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
1997 1996
---- ----
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 6,038,577 $ 4,020,625
Investment securities held to maturity 7,988,000 9,986,500
Mortgage-backed securities available for sale 25,194,744 53,564,125
Mortgage-backed securities held to maturity 162,530,386 187,755,314
Loans held for sale, net 918,493 295,800
Loans receivable, net 261,862,352 219,808,975
Federal Home Loan Bank stock, at cost 4,687,800 4,368,500
Accrued interest receivable 2,634,105 2,723,505
Premises and equipment 4,899,399 5,121,023
Loan servicing rights 3,598,455 3,844,136
Prepaid expenses and other assets 2,006,607 2,208,980
------------- -------------
$ 482,358,918 $ 493,697,483
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Demand and NOW accounts $ 35,167,341 $ 32,563,617
Money market accounts 24,210,124 26,300,526
Savings accounts 78,258,019 81,602,201
Certificates of deposit 235,187,246 233,460,295
------------- -------------
Total deposits 372,822,730 373,926,639
------------- -------------
Borrowed funds 68,273,553 80,366,966
Advances from borrowers for taxes and insurance 1,302,457 1,113,768
Accrued expenses and other liabilities 3,321,278 4,461,151
------------- -------------
445,720,018 459,868,524
------------- -------------
Stockholders' equity
Common stock, no par value, 5,000,000 shares
authorized, 869,364 shares issued and outstanding
Paid in capital in excess of par 869,364 869,364
Retained earnings 35,977,823 33,638,877
Unrealized loss on securities available for sale, net of tax (208,287) (679,282)
------------- -------------
36,638,900 33,828,959
------------- -------------
$ 482,358,918 $ 493,697,483
============= =============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-3
<PAGE> 123
THE TRUMBULL SAVINGS AND LOAN COMPANY
STATEMENTS OF INCOME
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Interest income
Interest and fees on loans $ 18,690,196 $ 16,419,152 $ 14,097,735
Interest on mortgage-backed securities 13,069,663 15,103,065 17,200,880
Interest on investment securities 720,950 530,814 750,584
Interest on other interest-earning
investments 100,369 66,076 67,519
------------ ------------ ------------
Total interest income 32,581,178 32,119,107 32,116,718
------------ ------------ ------------
Interest expense
Interest on deposits 16,000,966 16,418,966 15,844,513
Interest on borrowed funds 4,603,940 4,617,309 5,473,736
------------ ------------ ------------
Total interest expense 20,604,906 21,036,275 21,318,249
------------ ------------ ------------
Net interest income 11,976,272 11,082,832 10,798,469
Provision for loan losses 140,742 60,010 59,661
------------ ------------ ------------
Net interest income after provision
for loan losses 11,835,530 11,022,822 10,738,808
------------ ------------ ------------
Noninterest income
Service charges on deposit accounts 1,067,633 753,638 508,022
Net gain/(loss) on sale of securities available
for sale (79,810) 202,391
Net gain/(loss) on sale of loans 106,056 (101,724) 3,417
Loan servicing fees 279,059 256,088 300,186
Other operating income 962,436 916,985 692,282
------------ ------------ ------------
Total noninterest income 2,335,374 1,824,987 1,706,298
------------ ------------ ------------
Noninterest expense
Salaries and employee benefits 4,323,853 4,013,014 3,956,887
Office, occupancy and equipment expense 1,679,093 1,548,762 1,479,412
Deposit insurance expense 347,178 3,341,284 868,221
Ohio franchise taxes 423,620 418,642 426,217
Data processing expense 426,546 417,512 416,960
Marketing expense 341,104 271,114 404,377
Deposit account expense 441,842 371,214 296,892
Amortization of intangibles 184,193 225,902 567,131
Professional fees 126,779 171,330 190,873
Other operating expenses 767,900 797,925 711,104
------------ ------------ ------------
Total noninterest expense 9,062,108 11,576,699 9,318,074
------------ ------------ ------------
Income before income taxes 5,108,796 1,271,110 3,127,032
Provision for income taxes 1,744,000 437,000 1,123,000
------------ ------------ ------------
Net income $ 3,364,796 $ 834,110 $ 2,004,032
============ ============ ============
Earnings per share $ 3.87 $ 0.96 $ 2.31
============ ============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-4
<PAGE> 124
THE TRUMBULL SAVINGS AND LOAN COMPANY
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1997, 1996, AND 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Unrealized
Loss on
Paid in Capital Securities Total
Common in Excess Retained Available Stockholders'
Stock of Par Earnings For Sale Equity
----- ------ -------- -------- ------
<S> <C> <C> <C> <C> <C>
Balance,
October 1, 1994 $ 869,364 $ 32,052,618 $ (820,293) $ 32,101,689
Change in par value
from $1 per share to
no par value (Note 1) (869,364) $ 869,364
Net income for the
year ended
September 30, 1995 2,004,032 2,004,032
Dividends paid,
$.70 per share (608,554) (608,554)
Unrealized gain
on securities available
for sale, net of tax 234,837 234,837
------------ ------------ --------------- ------------ ----------------
Balance,
September 30, 1995 869,364 33,448,096 (585,456) 33,732,004
Net income for the
year ended
September 30, 1996 834,110 834,110
Dividends paid,
$.74 per share (643,329) (643,329)
Unrealized loss
on securities available
for sale, net of tax (93,826) (93,826)
------------ --------------- -------- --------------
Balance,
September 30, 1996 869,364 33,638,877 (679,282) 33,828,959
Net income for the
year ended
September 30, 1997 3,364,796 3,364,796
Dividends paid,
$1.18 per share (1,025,850) (1,025,850)
Unrealized gain
on securities available
for sale, net of tax 470,995 470,995
------------ --------------- ------------ ----------------
Balance,
September 30, 1997 $ 869,364 $ 35,977,823 $ (208,287) $ 36,638,900
============ =============== ============ ================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-5
<PAGE> 125
THE TRUMBULL SAVINGS AND LOAN COMPANY
STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 3,364,796 $ 834,110 $ 2,004,032
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation 544,340 530,347 504,712
Amortization of intangibles 184,193 225,902 567,131
Amortization of mortgage servicing rights 656,945 612,543 360,676
Accretion of deposit market value adjust (100,200) (128,225) (180,107)
Net amortization of investment securities 793,520 1,001,861 810,555
Net amortization of premium/accretion of
discount on loans purchased 1,612 (27,412) (45,079)
Provision for loan losses 140,742 60,010 59,661
Provision for loss on servicing rights 18,000
Deferred taxes 934,257 (775,182) 156,639
Deferred loan fees (469,314) (250,803) (446,518)
(Gain)/loss on sale of securities 79,810 (202,391)
available for sale
Proceeds from sale of loans held for sale 11,137,787 13,049,145 12,318,929
Loans originated for sale (11,654,424) (12,645,229) (12,199,102)
(Gain)/loss on sale of loans (106,056) 101,724 (3,417)
Gain on sale of servicing rights (66,394)
Gain on sale of real estate owned and
premises and equipment (168,593) (4,826)
FHLB stock dividend (319,300) (292,100) (308,900)
Changes in other assets and other
liabilities (2,318,037) 2,877,230 (1,747,772)
------------ ------------ ------------
Net cash provided by operating activities 2,822,277 5,005,328 1,644,223
------------ ------------ ------------
Cash flows from investing activities Purchase of securities:
Held to maturity (3,000,000) (9,985,250) (11,058,569)
Available for sale (10,328,058)
Proceeds from sales of securities
available for sale 19,694,057 15,044,654
Proceeds from calls, maturities and
principal repayments of securities:
Held to maturity 30,564,980 24,904,970 31,105,885
Available for sale 8,176,867 17,023,352 21,032,128
Purchase of loans (5,361,061) (9,939,262) (17,809,752)
Net change in loans originated (36,259,300) (11,115,323) (21,910,644)
Proceeds from sales of real estate owned
and premises and equipment 11,718 254,238 53,826
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-6
<PAGE> 126
THE TRUMBULL SAVINGS AND LOAN COMPANY
STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
- --------------------------------------------------------------------------------
Cash flows from investing activities (Continued)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C>
Purchase of Federal Home Loan Bank stock (13,300) (997,100)
Redemption of Federal Home Loan Bank stock 997,100
Purchases of premises and equipment (334,434) (241,580) (938,068)
Sales of mortgage servicing rights 285,608
Purchases and originations of mortgage
servicing rights (648,478) (1,217,191) (2,370,068)
------------- ------------- -------------
Net cash used in investing activities 13,129,957 (657,404) (1,895,262)
------------- ------------- -------------
Cash flows from financing activities
Net change in deposit accounts (1,003,709) (5,844,582) 5,229,893
Proceeds from borrowed funds 34,300,000 340,447,000 467,096,000
Repayments of borrowed funds (46,393,412) (338,765,098) (473,692,357)
Net increase in escrow accounts 188,689 156,847 9,481
Payment of dividends on common stock (1,025,850) (643,329) (608,554)
------------- ------------- -------------
Net cash used in financing activities (13,934,282) (4,649,162) (1,965,537)
------------- ------------- -------------
Net change in cash and cash equivalents 2,017,952 (301,238) (2,216,576)
Cash and cash equivalents at beginning of year 4,020,625 4,321,863 6,538,439
------------- ------------- -------------
Cash and cash equivalents at end of year $ 6,038,577 $ 4,020,625 $ 4,321,863
============= ============= =============
Supplemental disclosures of cash flow information
Cash paid during the year
Interest on deposits and borrowings $ 20,260,423 $ 21,327,472 $ 21,378,053
Income taxes 1,440,000 1,194,000 986,000
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-7
<PAGE> 127
THE TRUMBULL SAVINGS AND LOAN COMPANY
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997, 1996, AND 1995
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies of The Trumbull Savings and Loan Company conform to
generally accepted accounting principles and prevailing practices within the
savings and loan industry. A summary of the more significant accounting policies
follow:
NATURE OF OPERATIONS: The Company is engaged primarily in the business of
accepting consumer savings deposits and making residential real estate loans,
with operations conducted through its main office located in Warren, Ohio and
six branches located in Trumbull and Jefferson counties. The Company has
established loan production offices to service Summit, Cuyahoga, Geauga and
other surrounding counties. The majority of the Company's income is derived from
investment and lending activities.
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 affecting the reported
amount of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates. Areas involving use of management's estimates and
assumptions include allowance for loan losses, realization of deferred tax
assets, determination and carrying value of impaired loans, value of certain
investment securities and loans held for sale, accrued liability for deferred
compensation, recognition and measurement of loan servicing rights, loss
contingencies, depreciation of premises and equipment and carrying value and
amortization of intangibles. Estimates that are more susceptible to change in
the near term include the allowance for loan losses, the fair value of certain
securities and loans and the recognition and measurement of loan servicing
rights.
CASH AND CASH EQUIVALENTS: For purposes of reporting cash flows, cash and cash
equivalents include cash on hand, amounts due from banks, interest-bearing
demand deposits in financial institutions, federal funds sold and overnight
deposits. The Company reports net cash flows for customer loan transactions,
deposit transactions and interest-bearing time deposits with banks and FHLB
overnight advances.
SECURITIES: The Company classifies debt and marketable equity securities as held
to maturity, trading or available for sale. Securities classified as held to
maturity are those management has the positive intent and ability to hold to
maturity. Securities held to maturity are reported at cost, adjusted for
amortization of premiums and accretion of discounts, which are recognized into
income on the interest method. Securities classified as trading are recorded at
fair value with unrealized gains and losses charged to income. Management has
not classified any securities as trading as of September 30, 1997. Securities
classified as available for sale are those management intends to sell or could
be sold for liquidity, investment management, or similar reasons, even if there
is not a present intention for such a sale.
(CONTINUED)
F-8
<PAGE> 128
THE TRUMBULL SAVINGS AND LOAN COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997, 1996, AND 1995
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Securities available for sale are carried at fair value with unrealized gains
and losses included as a separate component of stockholders' equity, net of tax.
Gains or losses on dispositions are based on net proceeds and the adjusted
carrying amount of securities sold, using the specific identification method.
To provide additional flexibility to meet liquidity and asset-liability
management needs, the Company reclassified certain investment securities from
held-to-maturity to available-for-sale. The securities, with an amortized cost
of $50,588,734, were transferred on December 31, 1995, as allowed by the
Statement of Financial Accounting Standards (SFAS) No. 115 implementation guide
issued by the Financial Accounting Standards Board in November 1995.
Loans Held for Sale: Mortgage loans originated and intended for sale in the
secondary market are carried at the lower of cost or estimated market value in
aggregate. Net unrealized losses are recognized in a valuation allowance by
charges to income.
Allowance for Losses on Loans: In May 1993, the Financial Accounting Standards
Board issued SFAS 114, Accounting by Creditors for Impairment of a Loan, which
was amended by SFAS 118, Accounting by a Creditor for Impairment of a Loan -
Income Recognition and Disclosures, issued in October 1994. The Company adopted
the provisions of SFAS 114 and 118 effective October 1, 1995.
Under SFAS 114 and 118, a loan is considered impaired when, based on current
information and events, it is probable that the Company will be unable to
collect the scheduled payments of principal and interest according to the
contractual terms of the loan agreement. Since the Company's loans are primarily
collateral-dependent, measurement of impairment is based on the fair value of
the collateral. Large groups of homogeneous loans such as credit card consumer
loans and residential mortgages are collectively evaluated for impairment. The
allowance for loan losses is increased by charges to income and decreased by
charge-offs (net of recoveries) based on the Company's evaluation of impairment
of its loans.
The adequacy of the allowance for loan losses is periodically evaluated by the
Company based upon the overall portfolio composition and general market
conditions. While management uses what it believes to be the best information
available to make these evaluations, future adjustments to the allowance may be
necessary if economic conditions change substantially from assumptions used in
making evaluations. Future adjustments to the allowance may also be required by
regulatory examiners based on their judgments about information available to
them at the time of their examination.
(CONTINUED)
F-9
<PAGE> 129
THE TRUMBULL SAVINGS AND LOAN COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997, 1996, AND 1995
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Uncollectible interest on loans that are contractually over 90 days past due is
charged-off, or an allowance is established. The allowance is established by a
charge to interest income equal to all interest previously accrued, and income
is subsequently recognized only to the extent cash is received until, in
management's judgment, the borrower's ability to make periodic interest and
principal payments is back to normal, in which case the loan is returned to
accrual status.
PREMISES AND EQUIPMENT: Premises and equipment are stated at cost less
accumulated depreciation. Premises are depreciated using the straight-line
method over a 10 to 20 year period. Equipment is depreciated using the
straight-line method, with lives ranging primarily from 5 to 15 years.
Maintenance and repairs are expensed and major improvements are capitalized.
REAL ESTATE OWNED: Real estate owned, other than that used in the normal course
of business, is initially recorded at fair market value less estimated costs to
sell. Any reduction to fair market value at the time of acquisition is accounted
for as a loan loss. Additional provisions for losses are made when the
realizable value of the property is determined to be less than the recorded
value. Also, gains or losses are recorded when the property is sold and are
reflected in the Statement of Income.
LOAN SERVICING RIGHTS: The cost of loan servicing rights acquired is amortized
in proportion to, and over the period of, estimated net servicing revenues. The
cost of loan servicing rights purchased and the amortization thereon is
periodically evaluated in relation to estimated future net servicing revenues.
The Company evaluates the carrying value of the servicing portfolio by
estimating the future net servicing income of the portfolio based on
management's best estimate of remaining loan lives.
Effective October 1, 1996, the company adopted SFAS No. 122, "Accounting for
Mortgage Servicing Rights." SFAS No. 122 requires lenders who sell or securitize
originated loans and retain the servicing rights to recognize as separate assets
the rights to service mortgage loans for others. Effective January 1, 1997, SFAS
No. 125 "Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities" superseded SFAS No. 122 and was adopted by
Trumbull. SFAS No. 125 provided new guidance on the determination of the value
of mortgage servicing rights and when to recognize the sale of loans without
changing the concept of assigning value to mortgage servicing rights when a loan
is sold or securitized and the servicing is retained. Both statements were
adopted prospectively.
Purchased mortgage servicing rights are initially valued at cost. When loans are
sold or securitized and servicing rights are retained, those rights are valued
by allocating the book value of the loans between the loans or securities and
the servicing rights based on the relative fair value of each. Servicing rights
that have been capitalized are amortized in proportion to and over the
(CONTINUED)
F-10
<PAGE> 130
THE TRUMBULL SAVINGS AND LOAN COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997, 1996, AND 1995
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
period of estimated servicing income. Servicing rights are assessed for
impairment periodically by estimating the future net servicing income of the
portfolio based on management's estimate of remaining loan lives. For purposes
of measuring impairment, management stratifies loans by loan type.
INTEREST ON LOANS: Interest on loans is accrued primarily over their term based
on the scheduled loan amortization, except where a mortgage loan is delinquent
more than 90 days. Fees and costs associated with originating loans are deferred
and amortized over the life of the loans as a yield adjustment.
The net amount of fees and costs deferred for mortgage and consumer loans is
reported as part of loans.
INCOME TAXES: The Company follows the liability method in accounting for income
taxes. The liability method provides that deferred tax assets and liabilities
are recorded based on the difference between the tax basis of assets and
liabilities and their carrying amounts for financial reporting purposes,
referred to as "temporary differences."
PENSION PLAN: The Company has a noncontributory defined benefit retirement plan
covering substantially all of its employees. The Company's policy is to fund
normal annual costs currently. The plan is a multi-employer plan and separate
actuarial valuations are not made with respect to each employer, nor are the
plan assets so segregated. The Company contributed approximately $71,000 in
1997, $79,000 in 1996 and $10,000 in 1995.
The Company has a 401(k) defined contribution plan covering substantially all
employees. Participants are allowed to make voluntary contributions up to 15% of
individual compensation and the Company matches 50% of those contributions up to
6%. The expense related to this plan was $76,000, $70,000 and $63,900 for the
years ended September 30, 1997, 1996 and 1995, respectively.
CONCENTRATION OF CREDIT RISK: The Company grants residential, commercial real
estate, and consumer loans to customers located primarily in Trumbull County.
First mortgage loans comprise approximately 79% of the loan portfolio and the
remaining 21% consists of consumer loans.
The Company, in the normal course of business, makes commitments to originate
loans which are not reflected in the financial statements. A summary of these
commitments is disclosed in Note 14.
RECLASSIFICATION: Certain amounts in the 1996 and 1995 financial statements have
been reclassified to conform to the 1997 presentation.
(CONTINUED)
F-11
<PAGE> 131
THE TRUMBULL SAVINGS AND LOAN COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997, 1996, AND 1995
- --------------------------------------------------------------------------------
NOTE 2 - SECURITIES
The amortized cost and estimated fair value of securities are as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
Available-for-sale securities:
September 30, 1997:
Mortgage-backed
securities $ 25,074,089 $ 237,634 $ 116,979 $ 25,194,744
============ ============ ============ ============
September 30, 1996:
Mortgage-backed
securities $ 53,969,164 $ 292,851 $ 697,890 $ 53,564,125
============ ============ ============ ============
Held-to-maturity securities:
September 30, 1997:
U.S. Treasury and
government agency
securities $ 7,988,000 $ 7,615 $ 35,940 $ 7,959,675
Mortgage-backed
securities 162,530,386 394,760 1,676,400 161,248,746
------------ ------------ ------------ ------------
$170,518,386 $ 402,375 $ 1,712,340 $169,208,421
============ ============ ============ ============
September 30, 1996:
U.S. Treasury and
government agency
securities $ 9,986,500 $ 10,000 $ 184,022 $ 9,812,478
Mortgage-backed
securities 187,755,314 331,030 4,457,109 183,629,235
------------ ------------ ------------ ------------
$197,741,814 $ 341,030 $ 4,641,131 $193,441,713
============ ============ ============ ============
</TABLE>
(CONTINUED)
F-12
<PAGE> 132
THE TRUMBULL SAVINGS AND LOAN COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997, 1996, AND 1995
- --------------------------------------------------------------------------------
NOTE 2 - SECURITIES (CONTINUED)
The scheduled maturities of securities held-to-maturity and securities
available-for-sale at September 30, 1997 were as follows:
<TABLE>
<CAPTION>
Held-to-maturity securities Available-for-sale securities
--------------------------- -----------------------------
Estimated Estimated
Amortized Fair Amortized Fair
Cost Value Cost Value
---- ----- ---- -----
<S> <C> <C> <C> <C>
Due from one to five years $ 62,068,477 $ 61,237,445 $ 10,509,530 $ 10,424,974
Due from five to ten years 19,611,833 19,499,480
Due after ten years 88,838,076 88,471,496 14,564,559 14,769,770
------------ ------------ ------------ ------------
$170,518,386 $169,208,421 $ 25,074,089 $ 25,194,744
============ ============ ============ ============
</TABLE>
For purposes of the maturity table, mortgage-backed securities, which are not
due at a single maturity date, have been allocated over maturity groupings based
on the weighted-average contractual maturities of the underlying mortgage pools.
The mortgage-backed securities may mature earlier than the weighted-average
contractual maturities because of principal prepayments.
Proceeds from sale of investments in debt securities available for sale during
1997 and 1995 were $19,694,057 and $15,044,654, respectively. Gross gains of
$16,892 and $203,967 and gross losses of $96,702 and $1,576 were realized on
sales in 1997 and 1995, respectively. There were no sales of securities
available for sale during 1996.
At September 30, 1997, $4,895,333 of securities were pledged to secure public
deposits.
(CONTINUED)
F-13
<PAGE> 133
THE TRUMBULL SAVINGS AND LOAN COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997, 1996, AND 1995
- --------------------------------------------------------------------------------
NOTE 3 - LOANS RECEIVABLE
The composition of the loan portfolio at September 30, 1997 and 1996 consisted
of the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Residential real estate $ 196,133,432 $ 157,485,914
Commercial real estate 8,892,022 9,696,177
Real estate construction 2,919,543 1,684,254
Consumer 55,054,295 52,786,692
------------- -------------
262,999,292 221,653,037
------------- -------------
Undistributed portion of loans in process (821,132) (1,312,348)
Net deferred loan origination costs 1,143,600 974,286
Allowance for loan losses (1,459,408) (1,506,000)
------------- -------------
$ 261,862,352 $ 219,808,975
============= =============
</TABLE>
Activity in the allowance for loan losses is summarized as follows for the years
ended September 30:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $ 1,506,000 $ 1,587,000 $ 1,567,000
Provision charged to income 140,742 60,010 59,661
Charge-offs, net (187,334) (141,010) (39,661)
----------- ----------- -----------
Balance at end of year $ 1,459,408 $ 1,506,000 $ 1,587,000
=========== =========== ===========
</TABLE>
Nonaccrual loans for which recognition of interest income has been discontinued
totaled approximately $1,100,000, $221,000 and $733,000 at September 30, 1997,
1996 and 1995, respectively. In addition, the Company had no impaired loans
included in total real estate or total consumer loans at or during the years
ended September 30, 1997, 1996 and 1995.
(CONTINUED)
F-14
<PAGE> 134
THE TRUMBULL SAVINGS AND LOAN COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997, 1996, AND 1995
- --------------------------------------------------------------------------------
NOTE 4 - PREMISES AND EQUIPMENT
Premises and equipment consists of the following at September 30:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Land $1,131,537 $1,131,537
Office buildings and improvements 5,362,090 5,332,445
Land improvements 234,619 234,619
Furniture, fixtures, and equipment 3,075,896 2,794,172
---------- ----------
Total 9,804,142 9,492,773
Accumulated depreciation 4,904,743 4,371,750
---------- ----------
$4,899,399 $5,121,023
========== ==========
</TABLE>
Obligations under noncancelable operating leases on certain office facilities
expire in the year 2003. At September 30, 1997, the total future minimum rental
commitments under the leases are summarized as follows:
<TABLE>
<S> <C>
1998 $ 82,111
1999 83,236
2000 64,925
2001 51,240
2002 51,240
Thereafter 64,050
---------
$ 396,802
=========
</TABLE>
The total rent expense charged to operations during 1997 amounted to $69,533,
and $51,240 during both 1996 and 1995.
NOTE 5 - LOAN SERVICING
Mortgage loans serviced for others are not included in the accompanying
statements of financial condition. The unpaid principal balance of mortgage
loans serviced for others was approximately $338,237,000 and $351,033,000 at
September 30, 1997 and 1996.
Custodial account balances, included in demand deposits, maintained in
connection with the foregoing loan servicing were approximately $3,715,000 and
$4,315,000 at September 30, 1997 and 1996.
(CONTINUED)
F-15
<PAGE> 135
THE TRUMBULL SAVINGS AND LOAN COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997, 1996, AND 1995
- --------------------------------------------------------------------------------
NOTE 5 - LOAN SERVICING (CONTINUED)
Following is an analysis of the activity in the cost of purchased loan servicing
rights for the years ended September 30:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Balance at beginning of year $ 3,844,136 $ 3,239,488
Additions 541,327 1,217,191
Sales (219,214)
Amortization (655,068) (612,543)
Less: Valuation Allowance (18,000)
----------- -----------
$ 3,493,181 $ 3,844,136
=========== ===========
</TABLE>
The Company did not have a valuation allowance associated with loan servicing
rights at any time during 1995.
Following is an analysis of the changes in loan servicing rights originated for
the year ended September 30:
1997
----
Additions $ 107,151
Amortization (1,877)
---------
$ 105,274
During 1997, the Company sold servicing rights in the amount of $219,214 with a
resulting gain on the sale of $66,394.
NOTE 6 - DEPOSITS
The aggregate amount of deposits with a minimum denomination of $100,000 was
approximately $17,363,000 and $23,548,000 at September 30, 1997 and 1996.
At September 30, 1997, scheduled maturities of certificates of deposit were as
follows:
<TABLE>
<S> <C>
1998 $ 141,986,493
1999 66,462,896
2000 18,031,770
2001 3,725,382
2002 4,980,705
-------------
$ 235,187,246
</TABLE>
(CONTINUED)
F-16
<PAGE> 136
THE TRUMBULL SAVINGS AND LOAN COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1997, 1996, and 1995
- --------------------------------------------------------------------------------
NOTE 7 - BORROWED FUNDS
Borrowed funds as of September 30 are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Advances from Federal Home Loan Bank $ 48,473,553 $ 80,366,966
Borrowings under reverse repurchase
agreements 19,800,000
--------------- ----------------
$ 68,273,553 $ 80,366,966
=============== ================
</TABLE>
Additional information on borrowed funds is as follows as of September 30:
<TABLE>
<CAPTION>
Fixed Rate
----------------------------------------------------------------------------------
Maturity Interest
Date Rate 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Demand note October 1, 1997 6.50% $ 29,500,000
Term note October 18, 1999 5.42 9,800,000
Term note November 4, 1999 5.21 10,000,000
Demand note October 1, 1996 6.03 $ 28,200,000
Term note October 18, 1996 5.40 20,000,000
Amortizing debt March 1, 2002 6.70 244,300 329,521
Amortizing debt May 1, 2002 6.95 1,872,866 2,552,668
Amortizing debt March 1, 2007 6.85 1,856,387 2,284,777
---------------- ---------------
53,273,553 53,366,966
</TABLE>
<TABLE>
<CAPTION>
Variable Rate
----------------------------------------------------------------------------------
Maturity Interest
Date Rate 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Term note February 24, 1997 5.39 12,000,000
Term note May 24, 1999 5.61 15,000,000 15,000,000
---------------- ---------------
15,000,000 27,000,000
Total $ 68,273,553 $ 80,366,966
================ ===============
</TABLE>
At September 30, 1997, $72,711,000 of qualifying one- to four-family residential
loans and mortgage-backed securities were pledged to collateralize advances from
the Federal Home Loan Bank.
- --------------------------------------------------------------------------------
(Continued)
F-17
<PAGE> 137
THE TRUMBULL SAVINGS AND LOAN COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997, 1996, AND 1995
- --------------------------------------------------------------------------------
NOTE 7 - BORROWED FUNDS (CONTINUED)
Mortgage-backed securities sold under reverse repurchase agreements were
delivered to the broker-dealers who arranged the transactions. The
broker-dealers may have sold, loaned, or otherwise disposed of such securities
to other parties in the normal course of their operations and agreed to resell
to the Company substantially identical securities at the maturities of the
agreements. At September 30, 1997, there were mortgage-backed securities
underlying the agreements with a book value of $20,639,496 and an estimated fair
value of $20,225,938. At September 30, 1996, the Company was not a party to such
agreements.
Information concerning securities sold under agreements to repurchase during the
year is summarized below:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Average balance during the year $ 18,415,300 $ 8,436,389
Average interest rate during the year 5.32% 5.32%
Maximum month-end balance during the year $ 19,800,000 $ 23,887,000
</TABLE>
NOTE 8 - FEDERAL INCOME TAXES
The provision for income taxes for the year ended September 30 consists of the
following components:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Current federal income tax expense $ 809,743 $ 1,212,182 $ 966,361
Deferred federal income tax expense/
(benefit) 934,257 (775,182) 156,639
--------------- --------------- ----------------
$ 1,744,000 $ 437,000 $ 1,123,000
=============== =============== ================
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
F-18
<PAGE> 138
THE TRUMBULL SAVINGS AND LOAN COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997, 1996, AND 1995
- --------------------------------------------------------------------------------
NOTE 8 - FEDERAL INCOME TAXES (CONTINUED)
The sources of gross deferred tax assets and gross deferred tax liabilities at
September 30 are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
Items giving rise to deferred tax assets
<S> <C> <C>
Unrealized loss on investment securities $ 105,930 $ 349,513
FDIC Assessment 840,058
Intangible asset amortization 341,979 333,172
Deferred compensation 98,600 86,360
Purchased mortgage servicing amortization 97,912 69,881
Self insurance accrual 17,193 11,341
Employee annuity 11,516 12,321
Prepaid interest 10,673 12,699
Other 313 5,564
-------------- ---------------
684,116 1,720,909
-------------- ---------------
Items giving rise to deferred tax liabilities
FHLB stock dividends (653,123) (544,561)
Depreciation (78,085) (100,644)
Change in accounting method (38,704) (77,407)
Deferred loan costs (385,879) (331,752)
Allowance for loan losses in excess of book
reserves (148,053) (131,485)
Market value adjustments (7,686) (20,209)
Originated mortgage servicing (35,793)
Other (934) (1,152)
-------------- ---------------
(1,348,257) (1,207,210)
Net deferred tax asset/(liability) $ (664,141) $ 513,699
============== ===============
</TABLE>
A valuation allowance is established to reduce the deferred tax asset if it is
more likely than not that the related tax benefits will not be realized. In
management's opinion, it is more likely than not that the tax benefits will be
realized; consequently, no valuation allowance has been established at September
30, 1997 and 1996.
The difference between the financial statement provision and amounts computed by
using the statutory rate is immaterial for fiscal 1997, 1996 and 1995.
- --------------------------------------------------------------------------------
(Continued)
F-19
<PAGE> 139
THE TRUMBULL SAVINGS AND LOAN COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997, 1996, AND 1995
- --------------------------------------------------------------------------------
NOTE 9 - FDIC ASSESSMENT
The Company was affected by the undercapitalization of the Savings Association
Insurance Fund ("SAIF") of the Federal Deposit Insurance Corporation ("FDIC").
On September 30, 1996, the President of the United States signed legislation
which required federally insured institutions such as the Company to pay a
one-time assessment of $0.657 per $100 of deposits held by the institution at
March 31, 1995 to bring the SAIF to the required 1.25% reserve level.
The Company had an assessment base of deposits of $376,067,000 at March 31,
1995. The one-time assessment required the Company to record an additional
liability of $2,470,000 during 1996, which reduced net income by approximately
$1,630,000 after applicable income taxes.
NOTE 10 - RESTRICTIONS ON CASH AND RETAINED EARNINGS
Federal regulations require institutions to set aside specified amounts of cash
as reserves against transaction and time deposits. These reserves may be held as
vault cash, in a non-interest bearing account with a district Federal Reserve
Bank or FHLB, or as deposits with correspondent banks. At September 30, 1997,
the Company was required to and maintained reserves of $1,038,000 in vault cash
and in deposits with the Federal Reserve Bank of Cleveland.
Retained earnings at September 30, 1997 and 1996 include approximately
$6,126,000 for which no deferred federal income tax liability has been recorded.
This amount represents an allocation of income to bad-debt deductions for tax
purposes alone. Reduction of amounts so allocated for purposes other than tax
bad-debt losses or adjustments from carryback of net operating losses would
create income for tax purposes only, which would be subject to current tax. The
unrecorded deferred tax liability on the above amounts at September 30, 1997 and
1996 was approximately $2,083,000.
By regulation, banks are limited in the amount of retained earnings available
for the payment of dividends. These limitations generally restrict dividend
payments to current and prior two years earnings. In addition, banks are
precluded from paying dividends that would reduce regulatory capital below
established minimums. As of September 30, 1997, the Corporation was not
precluded from making normal dividend payments under the more restrictive of the
two limitations.
- --------------------------------------------------------------------------------
(Continued)
F-20
<PAGE> 140
THE TRUMBULL SAVINGS AND LOAN COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997, 1996, AND 1995
- --------------------------------------------------------------------------------
NOTE 11 - REGULATORY MATTERS
During 1997, the Company changed its charter from a state chartered savings and
loan regulated by the Office of Thrift Supervision and the Ohio Division of
Financial Institutions to a state chartered savings bank regulated by the Ohio
Division of Financial Institutions and the Federal Deposit Insurance
Corporation.
The Company is subject to various regulatory capital requirements administered
by the federal banking agencies. The Federal Deposit Insurance Corporation
Improvement Act (FDICIA) was signed into law on December 19, 1991. Regulations
implementing the prompt corrective action provisions of FDICIA became effective
December 19, 1991. In addition to the prompt corrective action requirements,
FDICIA includes significant changes to the legal and regulatory environment for
insured depository institutions, including reductions in insurance coverage for
certain kinds of deposits, increased supervision by the federal regulatory
agencies, increased reporting requirements for insured institutions and new
regulations concerning internal controls, accounting and operations.
The prompt corrective action regulations define specific capital categories
based on an institution's capital ratios. The capital categories, in declining
order, are "well capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized" and "critically undercapitalized." At September
30, 1997 and 1996, the Company was in compliance with regulatory capital
requirements and is considered "well capitalized."
- --------------------------------------------------------------------------------
(Continued)
F-21
<PAGE> 141
THE TRUMBULL SAVINGS AND LOAN COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997, 1996, AND 1995
- --------------------------------------------------------------------------------
NOTE 11 - REGULATORY MATTERS (CONTINUED)
At September 30, 1997:
<TABLE>
<CAPTION>
To be Well
Capitalized for
Minimum for Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------------------- -------------------- ------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Shareholders' equity and
ratio to total assets $ 36,638,900 7.60%
====
Unrealized losses on
certain available-for-sale
securities 208,287
Intangible assets (729,782)
Nonqualifying purchased
mortgage servicing rights (345,630)
----------------
Tier 1 (Core) capital, and
ratio to adjusted
Total Average Assets $ 35,771,775 7.34% $ 14,621,820 3.00% $ 24,369,700 5.00%
================ ====== ============== ======= ============== ======
Tier 1 capital, and ratio to
Risk-Weighted Assets $ 35,771,775 15.70% $ 9,115,560 4.00% $ 13,673,340 6.00%
====== ============== ======= ============== ======
General allowance for loan
losses 1,459,408
----------------
Total Risk-based capital and
ratio to Risk-Weighted
Assets $ 37,231,183 16.34% $ 18,231,120 8.00% $ 22,788,900 10.00%
================ ====== ============== ======= ============== ======
Total Assets $ 482,358,918
================
Adjusted Total Average
Assets $ 487,394,000
================
Risk-Weighted Assets $ 227,889,000
================
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
F-22
<PAGE> 142
THE TRUMBULL SAVINGS AND LOAN COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997, 1996, AND 1995
- --------------------------------------------------------------------------------
NOTE 11 - REGULATORY MATTERS (CONTINUED)
At September 30, 1996:
<TABLE>
<CAPTION>
To be Well
Capitalized for
Minimum for Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------------------------- ------------------------- ---------------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Shareholders' equity and
ratio to total assets $ 33,828,959 6.85%
====
Unrealized losses on
certain available-for-sale
securities 679,282
Intangible assets (913,975)
Nonqualifying purchased
mortgage servicing rights (430,458)
----------------
Tangible capital and ratio
to adjusted total assets $ 33,163,808 6.72% $ 7,400,715 1.50%
================ ====== ============== =======
Tier 1 (Core) capital, and
ratio to adjusted
Total Average Assets $ 33,163,808 6.72% $ 14,801,431 3.00% $ 24,669,052 5.00%
================ ====== ============== ======= ============== ======
Tier 1 capital, and ratio to
Risk-Weighted Assets $ 33,163,808 16.05% $ 12,395,400 6.00%
====== ============== ======
General allowance for loan
losses 1,461,977
----------------
Total Risk-based capital and
ratio to Risk-Weighted
Assets $ 34,625,785 16.76% $ 16,527,200 8.00% $ 20,659,000 10.00%
================ ====== ============== ======= ============== ======
Total Assets $ 493,697,483
================
Adjusted Total Average
Assets $ 493,381,031
================
Risk-Weighted Assets $ 206,590,000
================
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
F-23
<PAGE> 143
THE TRUMBULL SAVINGS AND LOAN COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997, 1996, AND 1995
- --------------------------------------------------------------------------------
NOTE 12 - RELATED PARTY TRANSACTIONS
In the ordinary course of business, the Company makes loans to its directors and
executive officers. These loans are made on substantially the same terms,
including interest rates and collateral, as those prevailing at the same time
for comparable transactions with unrelated parties. The following is a summary
of the related party loan transactions for the years ended September 30:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Principal balance at beginning of year $ 1,007,717 $ 1,059,364
New loans 241,000 142,000
Repayments (174,619) (193,647)
-------------- --------------
Principal balance at end of year $ 1,074,098 $ 1,007,717
============== ==============
</TABLE>
At September 30, 1997, related parties had unused lines of credit of $20,505.
NOTE 13 - FINANCIAL INSTRUMENTS
The Company can be party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to make and sell loans,
commitments under credit card arrangements, and letters of credit. The Company's
exposure to credit loss in the event of nonperformance by the other party to the
financial instrument for commitments to make or sell loans, letters of credit or
financial guarantees written is represented by the contractual amount of those
instruments. The Company follows the same credit policy to make such commitments
as is followed for those loans recorded in the financial statements.
The estimated fair value amounts have been determined by the Company using
available market information and appropriate valuation methodologies. However,
considerable judgment is required to interpret market data to develop the
estimates of fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts the Company could realize in a current
market exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.
- --------------------------------------------------------------------------------
(Continued)
F-24
<PAGE> 144
THE TRUMBULL SAVINGS AND LOAN COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997, 1996, AND 1995
- --------------------------------------------------------------------------------
NOTE 13 - FINANCIAL INSTRUMENTS (CONTINUED)
<TABLE>
<CAPTION>
September 30, 1997 September 30, 1996
------------------------------------- --------------------------------------
Carrying Estimated Carrying Estimated
Amounts Fair Value Amounts Fair Value
------- ---------- ------- ----------
<S> <C> <C> <C> <C>
Financial assets
Cash and cash
equivalents $ 6,038,577 $ 6,039,000 $ 4,020,625 $ 4,021,000
Investment securities:
Available for sale 25,194,744 25,195,000 53,564,125 53,564,000
Held to maturity 170,518,386 169,208,000 197,741,814 193,442,000
Loans held for sale 918,493 926,000 295,800 297,000
Loans receivable, net 261,862,352 266,238,000 219,808,975 221,022,000
Federal Home Loan
Bank stock 4,687,800 4,688,000 4,368,500 4,369,000
Accrued interest
receivable 2,634,105 2,634,000 2,723,505 2,724,000
Cost of loan servicing
receivables 3,598,455 3,614,000 3,844,136 4,302,000
Financial liabilities
Deposits (372,822,730) (373,697,000) (379,926,639) (373,968,000)
Borrowed funds (68,273,553) (68,300,000) (80,366,966) (80,229,000)
Accrued interest payable (670,149) (670,000) (325,666) (326,000)
</TABLE>
The carrying amounts of cash and cash equivalents approximate their fair value.
The fair values for securities are based on quoted market prices. Fair values
for mortgage loans, credit card loans and other consumer loans are approximated
by discounting cash flows utilizing estimated market interest rates. Loans which
are held for sale have fair values based on quoted market prices. The fair value
for Federal Home Loan Bank stock and accrued interest receivable and payable is
approximated by their carrying value. The fair value of the cost of loan
servicing receivables is established using discounted cash flows.
The fair values disclosed for demand deposits are, by definition, equal to the
amount payable on demand at the reporting date (their carrying value). The
carrying amounts of variable-rate, fixed-term certificates of deposit (CD's)
approximate their fair values at the reporting date. Fair values for fixed-rate
CD's are estimated using a discounted cash flow calculation that applies
interest rates currently being offered on certificates to a schedule of
aggregated expected monthly maturities on timed deposits. The fair values of the
Company's borrowings are estimated using discounted cash flow analyses based on
the Company's current incremental borrowing rates for similar types of borrowing
arrangements.
- --------------------------------------------------------------------------------
(Continued)
F-25
<PAGE> 145
THE TRUMBULL SAVINGS AND LOAN COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997, 1996, AND 1995
- --------------------------------------------------------------------------------
NOTE 13 - FINANCIAL INSTRUMENTS (CONTINUED)
The fair value of commitments, credit card arrangements and letters of credit is
estimated using the fees currently charged to enter similar agreements, taking
into account the remaining terms of the agreements and the counterparty's credit
standing. At September 30, 1997 and 1996, the fair value of off-balance
sheet-assets and liabilities is not significant.
Other assets and liabilities of the Company that are not defined as financial
instruments are not included in the above disclosures. These would include,
among others, such items as property and equipment, financing leases, and the
intangible value of the Company's customer base and profit potential.
NOTE 14 - COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, the Company has various outstanding
commitments and contingent liabilities that are not reflected in the
accompanying financial statements. In addition, the Company is involved in
certain claims and legal actions arising in the ordinary course of business. In
the opinion of management and counsel, the outcome of these legal actions will
not have a material adverse affect on the financial condition of the Company.
The notional amount of the Company's financial instruments with
off-balance-sheet risk at September 30, 1997 was:
<TABLE>
<CAPTION>
Asset/
(Liability)
-----------
<S> <C>
Commitments to extend credit
Fixed rate, 7.125% to 9.250% $ (6,580,486)
Variable rate (1,629,800)
Commitments to sell loans 656,000
Credit card arrangements (3,878,670)
Consumer letters of credit (8,736,507)
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
F-26
<PAGE> 146
THE TRUMBULL SAVINGS AND LOAN COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997, 1996, AND 1995
- --------------------------------------------------------------------------------
NOTE 15 - BRANCH ACQUISITION
The intangible assets and deposit valuation adjustment arising from a prior
acquisition and included in other assets and deposits in the accompanying
Statements of Financial Condition are summarized as follows at September 30, net
of accumulated amortization:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Core deposit intangibles $ 515,042 $ 663,231
Goodwill 214,740 250,744
-------------- ---------------
Total intangible assets $ 729,782 $ 913,975
============== ===============
Deposit valuation adjustment $ 86,800 $ 179,474
============== ===============
</TABLE>
The core deposit intangible is being amortized on an accelerated method over 10
years and goodwill is being amortized on a straight-line basis over 10 years.
The deposit valuation adjustment is being accreted on an accelerated basis over
8 years and included in deposit interest expense.
NOTE 16 - SUBSEQUENT EVENT, HOLDING COMPANY FORMATION
On August 20, 1997, shareholders of the Company approved the formation of a
thrift holding company. The formation of the holding company, Trumbull Financial
Corporation, represents an internal reorganization whereby each shareholder of
the Company receives one share of Trumbull Financial Corporation common stock
for each share of Company common stock owned. The transaction is expected to
close in December of 1997 and is being accounted for similar to a pooling of
interests, whereby the historical carrying values of the assets and liabilities
of the Company are carried forward to the consolidated financial statements of
Trumbull Financial Corporation.
- --------------------------------------------------------------------------------
(Continued)
F-27
<PAGE> 147
NOTE 17 - QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of quarterly financial information:
<TABLE>
Trumbull Savings
(In Thousands)
<CAPTION>
1996 Qrt 12/95 Qrt 3/96 Qrt 6/96 Qrt 9/96
<S> <C> <C> <C> <C>
Interest Income 8,020 8,056 8,017 8,026
Interest Expense 5,460 5,303 5,097 5,176
Net Interest Income 2,560 2,753 2,920 2,850
Provision for loan losses 15 15 15 15
Other Income 420 511 393 501
Security gains 0 0 0 0
Other expenses 2,314 2,213 2,219 4,831
Income before extraordinary items
and cumulative effect of accounting
change 651 1,036 1,079 (1,495)
Federal Income Taxes 222 352 366 (503)
Net Income 429 684 713 (992)
Earnings per share:
Basic $0.49 $0.79 $0.82 ($1.14)
Diluted $0.49 $0.79 $0.82 ($1.14)
</TABLE>
<TABLE>
<CAPTION>
1997 Qrt 12/96 Qrt 3/97 Qrt 6/97 Qrt 9/97
<S> <C> <C> <C> <C>
Interest Income 8,057 8,130 8,181 8,213
Interest Expense 5,164 5,109 5,171 5,161
Net Interest Income 2,893 3,021 3,010 3,052
Provision for loan losses 15 15 15 96
Other Income 574 598 551 693
Security gains 0 0 (35) (45)
Other expenses 2,286 2,184 2,275 2,317
Income before extraordinary items
and cumulative effect of accounting
change 1,166 1,420 1,236 1,287
Federal Income Taxes 399 487 421 437
Net Income 767 933 815 850
Earnings per share:
Basic $0.88 $1.07 $0.94 $0.98
Diluted $0.88 $1.07 $0.94 $0.98
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
F-28
<PAGE> 148
THE TRUMBULL FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
JUNE 30, 1998 (UNAUDITED) AND SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, September 30,
1998 1997
---- ----
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 7,644,630 $ 6,083,029
Securities available for sale 12,572,850 0
Securities held to maturity 21,317,874 7,988,000
Mortgage-backed securities available for sale 7,942,569 25,194,744
Mortgage-backed securities held to maturity 112,785,400 162,530,386
Loans held for sale, net 9,830,630 918,493
Loans receivable, net 319,418,540 261,862,352
Federal Home Loan Bank stock, at cost 4,946,500 4,687,800
Accrued interest receivable 2,311,103 2,634,105
Premises and equipment 5,299,202 4,899,399
Real Estate Owned 69,000 0
Loan servicing rights acquired 2,155,440 3,598,455
Prepaid expenses and other assets 2,221,150 2,006,607
------------- -------------
$ 508,514,888 $ 482,403,370
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Demand and NOW accounts $ 36,033,566 $ 35,167,341
Money market accounts 23,195,134 24,210,124
Savings accounts 77,289,213 78,258,019
Certificates of deposit 235,310,716 235,187,246
------------- -------------
Total deposits 371,828,629 372,822,730
------------- -------------
Borrowed funds 93,061,967 68,273,553
Advances from borrowers for taxes and insurance 1,235,199 1,302,457
Accrued expenses and other liabilities 4,013,702 3,386,278
------------- -------------
470,139,497 445,785,018
------------- -------------
Stockholders' equity
Common stock, no par value, 5,000,000 shares authorized,
869,364 shares issued and outstanding 0
Paid in capital in excess of par 869,364 869,364
Retained earnings 37,636,542 35,957,275
Unrealized loss on investment securities, net of tax (130,515) (208,287)
------------- -------------
38,375,391 36,618,352
------------- -------------
$ 508,514,888 $ 482,403,370
============= =============
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
F-29
<PAGE> 149
THE TRUMBULL FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
FOR THE NINE MONTHS ENDED JUNE 30, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 16,956,701 $ 13,624,267
Interest on mortgage-backed securities 6,588,077 10,133,769
Interest on securities 1,587,342 542,175
Interest on other interest earning investments 98,622 67,379
------------ ------------
Total interest income 25,230,742 24,367,590
------------ ------------
INTEREST EXPENSE
Interest on deposits 12,237,679 11,931,690
Interest on borrowed funds 3,403,611 3,512,600
------------ ------------
Total interest expense 15,641,290 15,444,290
------------ ------------
NET INTEREST INCOME 9,589,452 8,923,300
Provision for loan losses 180,000 45,741
------------ ------------
Net interest income after provision for loan losses 9,409,452 8,877,559
------------ ------------
NONINTEREST INCOME
Service charges on deposit accounts 984,906 761,366
Net gain on sale of securities 69,858 (34,539)
Net gain on sale of loans 142,653 35,759
Loan servicing fees net of valuation (232,956) 207,085
Other operating income 782,085 721,633
------------ ------------
Total noninterest income 1,746,546 1,691,304
------------ ------------
NONINTEREST EXPENSE
Salaries, benefits and other employee related expenses 3,091,802 3,210,396
Office, occupancy and equipment expense 1,268,906 1,232,317
Deposit insurance expense 174,411 288,827
Professional fees 462,832 113,907
Ohio franchise taxes 337,973 317,593
Data processing expense 331,500 317,221
Marketing expense 200,024 232,595
Deposit account fees 343,846 313,436
Amortization of intangibles 114,106 138,145
Other operating expenses 675,418 582,032
------------ ------------
Total noninterest expenses 7,000,818 6,746,469
------------ ------------
INCOME BEFORE INCOME TAXES 4,155,180 3,822,394
Provision for income taxes 1,537,000 1,307,000
------------ ------------
NET INCOME $ 2,618,180 $ 2,515,394
------------ ------------
Other comprehensive income, net of tax:
Change in unrealized gains on securities 77,772 348,408
------------ ------------
Comprehensive Income
$ 2,695,952 $ 2,863,802
============ ============
EARNINGS PER SHARE $ 3.01 $ 2.89
============ ============
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE> 150
THE TRUMBULL FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
FOR THE PERIOD ENDED JUNE 30, 1998 AND SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Paid in Unrealized
Capital in Loss on Total
Common Excess Retained Investment Stockholders'
Stock of Par Earnings Securities Equity
----- ------ -------- ---------- ------
<S> <C> <C> <C> <C> <C>
Balance, October 1, 1997 $ 869,364 $35,957,275 $ (208,287) $36,618,352
Net income for the nine months 2,618,180
ended June 30, 1998 2,618,180
Dividends paid, $1.08 per share (938,913) (938,913)
Unrealized loss on investment
securities, net of tax 77,772 77,772
---------- ---------- ----------- ----------- -----------
Balance, June 30, 1998 $ 0 $ 869,364 $37,636,542 $ (130,515) $38,375,391
========== ========== =========== =========== ===========
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
F-31
<PAGE> 151
THE TRUMBULL FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED JUNE 30, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,618,180 $ 2,515,394
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation 385,881 405,158
Amortization of intangibles 114,106 138,145
Amortization mortgage servicing rights 465,927 444,178
Accretion of deposit market value adjustments (40,200) (66,800)
Net amortization of investment securities (471,025) 601,745
Net amortization of premium/accretion of
discounts on loans purchased 2,995 2,489
Loss on the sale of mortgage-backed securities 34,539
Provision for loan losses 180,000 45,742
Provision for loss on servicing rights 334,000
Deferred loan fees (547,202) (434,706)
Proceeds from sale of loans available for sale 22,367,826 2,962,660
Loans originated for sale (31,279,963) (3,166,860)
Gain on sale of securities (69,858)
Gain on sale of loans (142,653) (35,759)
Gain on sale of servicing rights (66,394)
FHLB stock dividend (258,700) (235,200)
Changes in other assets and other liabilities
Prepaid expenses and other assets (5,647) 476,100
Other liabilities 651,624 97,606
------------ ------------
Net cash provided by operating activities (5,694,709) 3,718,037
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investment securities:
Held-to-maturity (27,933,333) (3,000,000)
Available-for-sale (12,134,639)
Proceeds from sale of securities available for sale 15,489,877
Proceeds from calls, maturities and principal
repayments of investment securities:
Held-to-maturity 64,525,773 31,354,994
Available-for-sale 1,806,214 7,050,684
Purchase of loans (5,361,061)
Net change in loans originated (57,118,328) (24,057,844)
Proceeds from sales of real estate owned and premises
and equipment 11,718
Purchases of premises and equipment (785,684) (275,915)
Sales of mortgage servicing rights 925,340 285,608
Purchases of mortgage servicing rights (282,252) (536,685)
------------ ------------
Net cash provided by investing activities (15,507,032) (5,471,499)
------------ ------------
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
F-32
<PAGE> 152
THE TRUMBULL FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED JUNE 30, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposit accounts (953,901) (1,683,605)
Proceeds from borrowed funds 45,500,000 34,300,000
Repayments of borrowed funds (20,776,586) (38,163,652)
Net increase in escrow accounts (67,258) (139,941)
Payment of dividends on common stock (938,913) (799,515)
------------- -------------
Net cash used in financing activities $ 22,763,342 $ (6,486,713)
------------- -------------
Net change in cash and cash equivalents 1,561,601 2,702,823
Cash and cash equivalents at beginning of period 6,083,029 4,020,625
------------- -------------
Cash and cash equivalents at end of period $ 7,644,630 $ 6,723,448
============= =============
Supplemental disclosures of cash flow information
Cash paid during the year
Interest on deposits and borrowings $ 15,523,805 $ 15,288,321
Income taxes 1,537,000 1,307,000
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
F-33
<PAGE> 153
THE TRUMBULL FINANCIAL CORPORATION
NOTES TO CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
JUNE 30, 1998 AND SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies of The Trumbull Financial Corporation conform to
generally accepted accounting principles and prevailing practices within the
savings and loan industry. A summary of the more significant accounting policies
follow:
NATURE OF OPERATIONS: The Company is engaged primarily in the business of
accepting consumer savings deposits and making residential real estate loans,
with operations conducted through its main office located in Warren, Ohio and
six branches located in Trumbull and Jefferson counties. The company also has
established loan production offices to service Summit, Cuyahoga, Geauga and
other surrounding counties. The majority of the Company's income is derived from
investment and lending activities.
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
amount of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates. Areas involving the use of management's estimates and
assumptions include the allowance for loan losses, the realization of deferred
tax assets, benefit obligations and plan assets of the pension plan, the
determination and carrying value of impaired loans, the value of certain
investment securities and loans held for sale, the accrued liability for
deferred compensation, recognition and measurement of loan servicing rights,
loss contingencies, depreciation of premises and equipment and the carrying
value and amortization of intangibles.
CASH AND CASH EQUIVALENTS: For purposes of reporting cash flows, cash and cash
equivalents include cash on hand, amounts due from banks, interest-bearing
demand deposits in financial institutions, federal funds sold and overnight
deposits. The Company reports net cash flows for customer loan transactions,
deposit transactions, interest-bearing time deposits with banks and FHLB
overnight advances.
SECURITIES: The Company classifies debt and marketable equity securities as
held-to-maturity, trading or available-for-sale. Securities classified as
held-to-maturity are those that management has the positive intent and ability
to hold to maturity. Securities held-to-maturity are reported at cost, adjusted
for amortization of premiums and accretion of discounts, which are recognized
into income on the interest method. Securities classified as trading are
recorded at fair value with unrealized gains and losses charged to income.
Management has not classified any securities as trading as of June 30, 1998.
Securities classified as available for sale are those management intends to sell
or could be sold for liquidity, investment, management, or similar reasons, even
if there is not a present intention for such a sale. Securities
available-for-sale are carried at fair value with unrealized gains and losses
included in other comprehensive income. 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-34
<PAGE> 154
THE TRUMBULL FINANCIAL CORPORATION
NOTES TO CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
JUNE 30, 1998 AND SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LOANS HELD FOR SALE: Mortgage loans originated and intended for sale in the
secondary market are carried at the lower of cost or estimated market value in
aggregate. Net unrealized losses are recognized in a valuation allowance by
charges to income.
ALLOWANCE FOR LOAN LOSSES: In May 1993, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 114, Accounting by
Creditors for Impairment of a Loan, which was amended by Statement of Financial
Accounting Standards No. 118, Accounting by a Creditor for Impairment of a Loan
- - Income Recognition and Disclosures, issued in October 1994. The Company
adopted the provisions of Statements 114 and 118 effective October 1, 1995.
Under Statements 114 and 118, a loan is considered impaired when, based on
current information and events, it is probable that the Company will be unable
to collect the scheduled payments of principal and interest according to the
contractual terms of the loan agreement. Since the Company's loans are primarily
collateral-dependent, measurement of impairment is based on the fair value of
the collateral. Large groups of homogeneous loans such as credit cards, consumer
loans and residential mortgages are collectively evaluated for impairment. The
allowance for loan losses is increased by charges to income and decreased by
charge-offs (net of recoveries) based on the Company's evaluation of impairment
of its loans.
The adequacy of the allowance for loan losses is periodically evaluated by the
Company based upon the overall portfolio composition and general market
conditions. While management uses the best information available to make these
evaluations, future adjustments to the allowance may be necessary if economic
conditions change substantially from assumptions used in making evaluations.
Future adjustments to the allowance may also be required by regulatory examiners
based on their judgments about information available to them at the time of
their examination.
Uncollectible interest on loans that are contractually over 90 days past due is
charged off, or an allowance is established. The allowance is established by a
charge to interest income equal to all interest previously accrued, and income
is substantially recognized only to the extent cash is received until, in
management's judgment, the borrower's ability to make periodic interest and
principal payments is back to normal, in which case the loan is returned to
accrual depreciated using the straight-line method over a 10 to 20 year period.
Equipment is depreciated using the straight-line method, with lives ranging
primarily from 5 to 15 years. Maintenance and repairs are expensed and major
improvements are capitalized.
REAL ESTATE OWNED: Real estate owned, other than that used in the normal course
of business, is initially recorded at fair market value less estimated costs to
sell. Any reduction to fair market value at the time of acquisition is accounted
for as a loan loss. Additional provisions for losses are made when the
realizable value of the property is determined to be less than the recorded
value. Also, gains and losses are recorded when the property is sold and are
reflected in the Statement of Income.
- --------------------------------------------------------------------------------
(Continued)
F-35
<PAGE> 155
THE TRUMBULL FINANCIAL CORPORATION
NOTES TO CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
JUNE 30, 1998 AND SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LOAN-SERVICING RIGHTS: The cost of loan servicing rights acquired is amortized
in proportion to, and over the period of, estimated net servicing revenues. The
cost of loan servicing rights purchased and amortized thereon is periodically
evaluated in relation to estimated future net servicing revenues. The Company
evaluates the carrying value of the servicing portfolio by estimating the future
net servicing income of the individual portfolios based on management's best
estimate of remaining loan lives.
INTEREST ON LOANS: Interest on loans is accrued primarily over their term based
on the scheduled loan amortization, except where a mortgage loan is delinquent
more than 90 days. Fees and costs associated with originating loans are deferred
and amortized over the life of the loans as a yield adjustment.
The net amount of fees and costs deferred for mortgage and consumer loans is
reported as part of loans.
INCOME TAXES: The Company follows the liability method in accounting for income
taxes. The liability method provides that deferred tax assets and liabilities
are recorded based on the difference between the tax basis of assets and
liabilities and their carrying amounts for financial reporting purposes,
referred to as "temporary differences".
PENSION PLAN: The Company has a noncontributory retirement savings plan covering
substantially all of its employees. The Company's policy is to fund normal
annual costs currently. The plan is a multi-employer plan and separate actuarial
valuations are not made with respect to each employer, nor are the plan assets
so segregated. The company expensed approximately $9,000 and $52,000 in the nine
month periods ended June 30, 1998 and June 30, 1997 respectively.
The Company implemented a 401(k) defined contribution plan in 1994 covering
substantially all employees. Participants are allowed to make voluntary
contributions up to 15% of individual compensation and the Company matches 50%
of those contributions up to 6%. The expense related to the plan was $59,000 and
$58,000 for the nine month periods ended June 30, 1998 and 1997, respectively.
CONCENTRATION OF CREDIT RISK: The Company grants residential, commercial real
estate, and consumer loans to customers located primarily in Trumbull County.
First mortgage loans comprise approximately 81% of the loan portfolio and the
remaining 19% consist of consumer loans.
COMPREHENSIVE INCOME: SFAS 130 requires the reporting of comprehensive income
for fiscal years beginning after December 15, 1997 beginning with the first
interim period. Comprehensive income includes both net income and other
comprehensive income. The company includes the change in unrealized gains and
losses on securities available for sale in other comprehensive income.
- --------------------------------------------------------------------------------
(Continued)
F-36
<PAGE> 156
THE TRUMBULL FINANCIAL CORPORATION
NOTES TO CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
JUNE 30, 1998 AND SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------
NOTE 2 - SECURITIES
The amortized cost and estimated fair value of securities are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
---- ----- ------ ----------
<S> <C> <C> <C> <C>
AVAILABLE-FOR-SALE SECURITIES:
June 30, 1998:
U.S. Treasury and government agency
securities $ 12,583,774 $ 2,354 $ 13,278 $ 12,572,850
Mortgage-backed securities 7,842,093 108,264 7,788 7,942,569
--------------- --------- ----------- --------------
$ 20,425,867 $ 110,618 $ 21,066 $ 20,515,419
=============== ========= =========== ==============
September 30, 1997:
Mortgage-backed securities $ 25,074,089 $ 237,634 $ 116,979 $ 25,194,744
=============== ========= ============ ==============
HELD-TO-MATURITY SECURITIES:
June 30, 1998:
U.S. Treasury and government agency
securities $ 21,317,874 $ 106,426 $ 0 $ 21,424,300
Mortgage-backed securities 112,785,400 381,095 547,873 112,618,622
--------------- --------- ----------- --------------
$ 134,103,274 $ 487,521 $ 547,873 $ 134,042,922
=============== ========= =========== ==============
September 30, 1997:
U.S. Treasury and government agency
securities $ 7,988,000 $ 7,615 $ 35,940 $ 7,959,675
Mortgage-backed securities 162,530,386 394,760 1,676,400 161,248,746
--------------- --------- ----------- --------------
$ 170,518,386 $ 402,375 $ 1,712,340 $ 169,208,421
=============== ========= =========== ==============
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
F-37
<PAGE> 157
THE TRUMBULL FINANCIAL CORPORATION
NOTES TO CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
JUNE 30, 1998 AND SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------
NOTE 2 - SECURITIES (CONTINUED)
The scheduled maturities of securities held-to-maturity and securities
available-for-sale at June 30, 1998 were as follows:
<TABLE>
<CAPTION>
Held-to-maturity securities Available-for-sale securities
-------------------------------- ------------------------------
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
-------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Due from one to five years $ 49,748,160 $ 49,415,459 $ 0 $ 0
Due from five to ten years 22,822,000 23,028,788 0 0
Due after ten years 61,533,114 61,598,675 20,425,867 20,515,419
-------------- ------------- ------------ -------------
$ 134,103,274 $ 134,042,922 $ 20,425,867 $ 20,515,419
============== ============= ============ =============
</TABLE>
For purposes of the maturity table, mortgaged-back securities, which are not due
at a single maturity date, have been allocated over maturity groupings based on
the weighted-average contractual maturities of the underlying collateral. The
mortgage-backed securities may mature earlier than the weighted-average
contractual maturities because of principal prepayments.
At June 30, 1998, $4,005,433 of securities were pledged to secure public
deposits.
- --------------------------------------------------------------------------------
(Continued)
F-38
<PAGE> 158
THE TRUMBULL FINANCIAL CORPORATION
NOTES TO CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
JUNE 30, 1998 AND SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------
NOTE 3 - LOANS RECEIVABLE
The composition of the loan portfolio at June 30, 1998 and September 30, 1997
consisted of the following:
<TABLE>
<CAPTION>
June 30, September 30,
1998 1997
---- ----
<S> <C> <C>
Residential real estate $ 243,532,050 $ 196,133,432
Commercial real estate 8,423,530 8,892,022
Real estate construction 6,799,094 2,919,543
Commercial 571,632 0
Consumer 63,746,218 55,054,295
------------- -------------
323,072,524 262,999,292
Undistributed portion of loans in process (3,675,614) (821,132)
Net deferred loan origination costs 1,354,911 1,143,600
Allowance for loan losses (1,333,281) (1,459,408)
------------- -------------
$ 319,418,540 $ 261,862,352
============= =============
</TABLE>
Activity in the allowance for loan losses is summarized as follows for the nine
month periods ended June 30, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Balance at beginning of year $ 1,459,408 $ 1,506,000
Provision charged to income 180,000 30,291
Charge-offs, net (306,127) (105,291)
------------- -------------
Balance at end of year $ 1,333,281 $ 1,431,000
------------- =============
</TABLE>
Nonaccrual loans for which recognition of interest income has been discontinued
totaled approximately $890,000 and $1,104,000 at June 30, 1998 and September 30,
1997, respectively. In addition, the Company had no impaired loans included in
total real estate or total consumer loans at June 30, 1998.
- --------------------------------------------------------------------------------
(Continued)
F-39
<PAGE> 159
THE TRUMBULL FINANCIAL CORPORATION
NOTES TO CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
JUNE 30, 1998 AND SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------
NOTE 4 - LOANS SERVICING
Mortgage loans serviced for others are not included in the accompanying
statements of financial condition. The unpaid principal balance of mortgage
loans serviced for others was $245,893,000 and $338,237,000 at June 30, 1998 and
September 30, 1997, respectively.
Following is an analysis of the activity in the cost of loan servicing rights
acquired for the nine month periods ending June 30:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Balance at October 1, $ 3,598,455 $ 3,858,562
Additions purchased 541,276
Additions originated 282,252 18,253
Sales (925,340) (219,163)
Amortization (465,927) (382,409)
Change in valuation allowance (334,000)
------------- -------------
Balance at June 30, $ 2,155,440 $ 3,816,519
============= =============
</TABLE>
Following is an analysis of the aggregate changes in the valuation allowances
for mortgage servicing rights for the nine month periods ending June 30, 1998
and 1997:
<TABLE>
<S> <C> <C>
Balance at October 1, $ 18,000 $ 0
Additions 334,000
--------------
Balance at June 30, $ 352,000 $ 0
============== ==============
</TABLE>
During the nine months ended June 30, 1997, the Company sold servicing in the
amount of $219,164 with a resulting gain of approximately $66,000. During the
nine months ended June 30, 1998 the company sold servicing in the amount of
$925,340 with a resulting loss of $92,750.
- --------------------------------------------------------------------------------
(Continued)
F-40
<PAGE> 160
THE TRUMBULL FINANCIAL CORPORATION
NOTES TO CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
JUNE 30, 1998 AND SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------
NOTE 5 - DEPOSITS
The aggregate amount of deposits with a minimum denomination of $100,000 was
approximately $19,067,000 and $17,363,000 at June 30, 1998 and September 30,
1997, respectively.
At June 30, 1998, scheduled maturities of certificates of deposit were as
follows:
<TABLE>
<S> <C>
1998 $ 62,994,087
1999 134,327,368
2000 25,956,465
2001 7,178,266
2002 4,854,530
---------------
$ 235,310,716
===============
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
F-41
<PAGE> 161
THE TRUMBULL FINANCIAL CORPORATION
NOTES TO CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
JUNE 30 1998 AND SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------
NOTE 6 - BORROWED FUNDS
Borrowed funds as of June 30, 1998 and September 30, 1997 are summarized as
follows:
<TABLE>
<CAPTION>
June 30, September 30,
1998 1997
---- ----
<S> <C> <C>
Advances from Federal Home Loan Bank $ 72,661,967 $ 48,473,553
Borrowings under reverse repurchase agreements 20,400,000 19,800,000
-------------- --------------
$ 93,061,967 $ 68,273,553
============== ==============
</TABLE>
Federal Home Loan Bank Advances are summarized as follows at June 30:
<TABLE>
<CAPTION>
Fixed Rate
-------------------------------------------------------------------------------------------
June 30 September 30
Maturity Date Interest Rate 1998 1997
------------- ------------- ---- ----
<S> <C> <C> <C> <C>
Demand note October 1, 1997 6.50% $ $ 29,500,000
Demand note July 1, 1998 6.50% 47,600,000
Term note October 18, 1999 5.42% 9,800,000
Term note November 4, 1999 5.21% 10,000,000
Amortizing Debt March 1, 2002 6.70% 180,757 244,300
Amortizing Debt May 1, 2002 6.95% 1,348,256 1,872,866
Term note December 15, 2002 5.52% 10,750,000
Term note January 13, 2003 5.08% 9,650,000
Amortizing Debt March 1, 2007 6.85% 1,532,954 1,856,387
--------------- ---------------
$ 71,061,967 $ 53,273,553
=============== ===============
</TABLE>
<TABLE>
<CAPTION>
Variable Rate
-------------------------------------------------------------------------------------------
Maturity Date Interest Rate 1998 1997
------------- ------------- ---- ----
<S> <C> <C> <C> <C>
Term Note January 21, 2005 5.60% 7,000,000
Term Note May 24, 1999 5.60% $ 15,000,000 $ 15,000,000
--------------- ---------------
$ 22,000,000 $ 15,000,000
=============== ===============
$ 93,061,967 $ 68,273,553
=============== ===============
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
F-42
<PAGE> 162
THE TRUMBULL FINANCIAL CORPORATION
NOTES TO CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
JUNE 30, 1998 AND SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------
NOTE 6 - BORROWED FUNDS (CONTINUED)
At June 30, 1998, $163,393,000 of qualifying one-to-four family residential
loans and mortgage-backed securities were pledged to collateralize advances from
the Federal Home Loan Bank.
Agency-backed securities sold under reverse repurchase agreements were delivered
to the broker-dealers who arranged the transactions. The broker-dealers may not
sell or otherwise dispose of such securities to other parties in the normal
course of their operations and have agreed to resell to the Company the same
securities at the maturities of the agreements. At June 30, 1998 there were
agency-backed securities underlying agreements with a book value of $21,843,698
and an estimated fair value of $21,904,875.
Information concerning securities sold under agreements to repurchase during the
nine month periods ended June 30, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Average balance during the year $ 15,554,000 $ 18,016,000
Average interest rate during the year 5.33% 5.32%
Maximum month-end balance during the year $ 20,400,000 $ 19,800,000
</TABLE>
NOTE 7 - ACQUISITION
On May 4, 1998, Trumbull and Second Bancorp entered into the Agreement. The
transaction is structured as a tax-free exchange of stock and is expected to be
accounted for using the pooling-of-interests method of accounting. The exchange
ratio at which the Trumbull Shares will be exchanged for the Shares will be a
fixed exchange of 3.78 Shares for each Trumbull Share subject to certain
conditions and adjustments. Should the Second Bancorp "Closing Price" (as
defined by the average closing price per Share reported in the Wall Street
Journal for the most recent 20 days on which actual trades of Shares occur,
ending on the seventh date immediately preceding the closing date) be less than
$25.00 and if the number obtained by dividing the Second Bancorp Closing Price
by $36.25 is less than 90% of the number obtained by dividing the Index Price
(defined as the weighted average of stock prices for 30 specified peer group
bank holding companies) on the seventh day immediately preceding the Effective
Time by $38.64, Trumbull may propose to terminate the Agreement. Upon the
occurrence of a Triggering Event, Second Bancorp would have the option to elect
to issue to Trumbull shareholders for each Trumbull Share to be exchanged in the
Merger, a number of Shares with a value of at least $94.50. Should Trumbull
stockholders fail to approve the Merger and accept a subsequent acquisition
prior to December 31, 1999, Trumbull promises to pay Second Bancorp $2,000,000
upon Second Bancorp demand. The Shares to be issued to the Trumbull Shareholders
will be registered with the Securities and Exchange Commission. The Merger is
expected to be consummated in the fourth calendar quarter of 1998 and is subject
to approvals by various regulatory authorities and by the shareholders of
Trumbull and Second Bancorp.
NOTE 8 - QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of quarterly financial information:
<TABLE>
<CAPTION>
1998 Qrt 12/97 Qrt 3/98 Qrt 6/98
<S> <C> <C> <C>
Interest Income 7,916 8,662 8,653
Interest Expense 4,911 5,373 5,357
Net Interest Income 3,005 3,289 3,296
Provision for loan losses 60 60 60
Other Income 624 528 524
Security gains 70 0 0
Other expenses 2,204 2,168 2,629
Income before extraordinary items
and cumulative effect of accounting
change 1,435 1,589 1,131
Federal Income Taxes 495 540 502
Net Income 940 1,049 629
Earnings per share:
Basic $1.08 $1.21 $0.72
Diluted $1.08 $1.21 $0.72
</TABLE>
- --------------------------------------------------------------------------------
F-43
<PAGE> 163
ANNEX A
-------
AGREEMENT AND PLAN OF MERGER
----------------------------
THIS AGREEMENT AND PLAN OF MERGER ("Agreement"), entered into
as of May 4, 1998, by and between Second Bancorp Incorporated, an Ohio
corporation (the "Corporation"), and Trumbull Financial Corporation, an Ohio
corporation ("Trumbull") (the Corporation and Trumbull are sometimes hereinafter
collectively referred to as the "Constituent Corporations");
W I T N E S S E T H:
WHEREAS, the Boards of Directors of Trumbull and the
Corporation have determined that it is in the best interests of their respective
shareholders for Trumbull to merge with the Corporation (the "Merger"), upon the
terms and subject to the conditions set forth herein and pursuant to the terms
of this Agreement;
WHEREAS, the Boards of Directors of Trumbull and the
Corporation have approved this Agreement and the consummation of the
transactions contemplated hereby;
WHEREAS, as a result of the Merger, in accordance with the
terms of this Agreement, Trumbull will cease to have a separate corporate
existence, and shareholders of Trumbull will receive from the Corporation in
exchange for each common share, without par value, of Trumbull (the "Trumbull
Shares"), common shares, no par value, of the Corporation in the amount
calculated in accordance with this Agreement;
WHEREAS, after the Merger, The Trumbull Savings and Loan
Company, an Ohio-chartered savings bank wholly owned by Trumbull (the "Bank"),
will merge with and into The Second National Bank of Warren, a national banking
association wholly owned by the Corporation ("Second National");
WHEREAS, Trumbull has previously provided to the Corporation a
schedule disclosing additional information about Trumbull (hereinafter referred
to in this Agreement as the "Trumbull Disclosure Schedule");
NOW, THEREFORE, in consideration of the premises and the
respective representations, warranties, covenants, agreements, and conditions
hereinafter set forth, Trumbull and the Corporation, intending to be legally
bound hereby, agree as follows:
ARTICLE ONE
The Merger
----------
1.01. Merger; Surviving Corporation
At the time when the Merger shall become effective (sometimes
hereinafter called the "Merger Date"), Trumbull will merge with and into the
Corporation and the Corporation will be the continuing and surviving corporation
in the Merger, will continue to exist under the laws of the State of Ohio, and
will be the only one of the Constituent Corporations to continue its separate
corporate existence after the Merger Date. As used in this Agreement, the term
"Surviving Corporation" refers to the Corporation at and after the Merger Date.
A-1
<PAGE> 164
1.02. Effective Time
The Merger shall become effective upon the later of (a) the
filing of the Certificate of Merger with the Secretary of State of the State of
Ohio or (b) at such time thereafter as is agreed to in writing by the parties
hereto and so provided in the Certificate of Merger.
1.03. Effects of the Merger
At the Merger Date:
(a) the articles of the Corporation as in effect
immediately prior to the Merger Date shall be the
articles of the Surviving Corporation; and
(b) the regulations of the Corporation as in effect
immediately prior to the Merger Date shall be the
regulations of the Surviving Corporation.
ARTICLE TWO
Conversion Of Shares; Exchange Of Certificates
2.01. Conversion of Trumbull Shares
As of the Merger Date, by virtue of the Merger and without any
action on the part of any holder of Trumbull Shares:
(a) Conversion of Trumbull Shares. Subject to Section
2.02, each Trumbull Share issued and outstanding
immediately prior to the Merger Date shall be
canceled and extinguished and, in substitution and
exchange therefor, the holders of Trumbull Shares
shall be entitled to receive the number of common
shares, no par value, of the Corporation ("Shares")
equal to the Exchange Ratio as defined in Section
2.01(b) of this Agreement. After the Merger Date, all
such Trumbull Shares shall no longer be outstanding
and each certificate previously representing any such
shares shall thereafter represent the Shares into
which such Trumbull Shares have been converted.
Certificates previously representing Trumbull Shares
shall be exchanged for certificates representing
whole Shares (and cash in lieu of fractional Shares)
issued in consideration therefor upon the surrender
of such certificates in accordance with Section 2.02,
without interest.
(b) As used in this Agreement Exchange Ratio shall mean
3.78 Shares unless the Exchange Ratio is revised
under Section 11.01(i).
2.02. Exchange of Certificates
(a) Exchange Agent. As of the Merger Date, the
Corporation shall deposit, or shall cause to be
deposited, with American Stock Transfer & Trust
Company (the "Exchange Agent"), for the benefit of
the holders of certificates which immediately prior
to the Merger Date evidenced Trumbull Shares (the
"Trumbull Certificates"), for exchange in accordance
with this Article Two, certificates representing the
Shares and an amount of cash necessary to pay cash in
lieu of fractional Shares in accordance with Section
2.02(e) (such certificates for Shares,
A-2
<PAGE> 165
together with any dividends or distributions with
respect thereto, and such cash for fractional Share
interests being hereinafter referred to as the
"Exchange Fund") issuable pursuant to Section 2.01 in
exchange for such Trumbull Shares.
(b) Exchange Procedures. As soon as reasonably
practicable after the Merger Date, the Exchange Agent
shall mail to each holder of record of Trumbull
Shares immediately prior to the Merger Date whose
shares were converted into Shares pursuant to Section
2.01, (i) a letter of transmittal (which shall
specify that delivery shall be effected, and risk of
loss and title to the Trumbull Certificates shall
pass, only upon delivery of such certificates to the
Exchange Agent, and which shall be in such form and
have such other provisions as the Corporation may
reasonably specify) and (ii) instructions for use in
effecting the surrender of the Trumbull Certificates
in exchange for certificates representing Shares.
Upon surrender by such holder of an Trumbull
Certificate or Certificates evidencing all Trumbull
Shares standing in such holder's name for
cancellation to the Exchange Agent together with such
letter of transmittal, duly executed, the holder of
such Trumbull Certificate or Certificates shall be
entitled to receive in exchange therefor a
certificate representing that number of whole Shares
which such holder has the right to receive in respect
of the Trumbull Certificate or Certificates
surrendered pursuant to the provisions of this
Article Two (after taking into account all Trumbull
Shares then held by such holder), and the Trumbull
Certificate or Certificates so surrendered shall
forthwith be canceled. In the event of a transfer of
ownership of Trumbull Shares which is not registered
in the transfer records of Trumbull, a certificate
representing the proper number of Shares may be
issued to a transferee if the Trumbull Certificate
representing such Trumbull Shares is presented to the
Exchange Agent, accompanied by all documents required
to evidence and effect such transfer and by evidence
that any applicable share transfer taxes have been
paid. Until surrendered as contemplated by this
Section 2.02, each Trumbull Certificate shall be
deemed at any time after the Merger Date for all
corporate purposes (except as provided in Section
2.02(c)) to represent only the number of whole Shares
into which the Trumbull Shares represented by such
certificate or certificates have been converted as
provided in this Article Two and the right to receive
upon such surrender cash in lieu of any fractional
Shares as contemplated by this Section 2.02.
(c) Distributions with Respect to Unexchanged Shares.
Dividends or other distributions declared or made
after the Merger Date with respect to Shares with a
record date after the Merger Date shall be paid to
the holder of any unsurrendered Trumbull Certificate
with respect to the Shares represented thereby and
any cash payment in lieu of fractional Shares shall
be paid to any such holder pursuant to Section
2.02(e), only after surrender of such certificate by
the holder thereof. Subject to the effect of
applicable laws, following surrender of any such
Trumbull Certificate, there shall be paid to the
holder of the certificates representing whole Shares
issued in exchange therefor, without interest, (A) as
promptly as practicable after the time of such
surrender, the amount of any cash payable with
respect to a fractional Share to which such holder is
entitled pursuant to Section 2.02(e) and the amount
of dividends or other distributions with a record
date after the Merger Date theretofor paid (but
withheld pursuant to the immediately
A-3
<PAGE> 166
preceding sentence) with respect to such whole
Shares, and (B) at the appropriate payment date, the
amount of dividends or other distributions with a
record date after the Merger Date but prior to
surrender and a payment date subsequent to surrender
payable with respect to such whole Shares.
(d) No Further Ownership Rights in Trumbull Shares. All
Shares issued upon conversion of Trumbull Shares in
accordance with the terms hereof (including any cash
paid pursuant to Section 2.02(c) or 2.02(e)) shall be
deemed to have been issued in full satisfaction of
all rights pertaining to such Trumbull Shares,
respectively, subject, however, to the Surviving
Corporation's obligation to pay any dividends or make
any other distributions with a record date prior to
the Merger Date which may have been declared or made
by Trumbull on such Trumbull Shares in accordance
with the terms of this Agreement on or prior to the
Merger Date and which remain unpaid at the Merger
Date. If, after the Merger Date, Trumbull
Certificates are presented to the Surviving
Corporation for any reason, they shall be canceled
and exchanged as provided in this Article Two.
(e) No Fractional Shares.
(i) No certificates or scrip representing
fractional Shares shall be issued upon the
surrender for exchange of Trumbull
Certificates evidencing Trumbull Shares, and
such fractional Share interests will not
entitle the owner thereof to vote or to any
rights of a shareholder of the Surviving
Corporation.
(ii) Each holder of Trumbull Shares who would
otherwise be entitled to receive a
fractional Share shall receive from the
Exchange Agent an amount in cash equal to
the product obtained by multiplying (a) the
fractional Share interest to which such
holder (after taking into account all
Trumbull Shares held at the Merger Date by
such holder) would otherwise be entitled by
(b) the Corporation Closing Price. No
interest shall be payable with respect to
such cash payment.
(f) Termination of Exchange Fund. Any portion of the
Exchange Fund which remains undistributed to the
shareholders of Trumbull for six months after the
Merger Date shall be delivered to the Surviving
Corporation, upon demand, and any shareholders of
Trumbull who have not theretofore complied with this
Article Two shall thereafter look only to the
Surviving Corporation for payment of their claim for
Shares, any cash in lieu of fractional Shares and any
dividends or distributions with respect to Shares,
without interest.
(g) No Liability. None of the Corporation, Trumbull, the
Exchange Agent or the Surviving Corporation shall be
liable to any holder of Trumbull Shares or Shares, as
the case may be, for such Shares (or dividends or
distributions with respect thereto) or cash in lieu
of fractional shares delivered to a public official
pursuant to any applicable abandoned property,
escheat or similar law.
(h) Share Transfer Books. The share transfer books of
Trumbull shall be closed as of the close of business
on the day that is two (2) days prior to the Closing
Date.
A-4
<PAGE> 167
After the Closing Date, there shall be no further
registration of transfers on the share transfer books
of the Surviving Corporation of the Trumbull Shares,
which were outstanding immediately prior to the
Merger Date.
(i) Lost Certificates. If there shall be delivered to the
Exchange Agent by any person who is unable to produce
any such certificate for Trumbull Shares for
surrender to such agent in accordance with this
Section 2.02:
(a) Evidence to the satisfaction of the
Corporation that such certificate has been
lost, wrongfully taken, or destroyed;
(b) Such security or indemnity as may be
requested by the Corporation to save it
harmless; and
(c) Evidence to the satisfaction of the
Corporation that such person was the owner
of the shares theretofore represented by
each such certificate claimed by him to be
lost, wrongfully taken or destroyed and that
he is the person who would be entitled to
present such certificate for exchange
pursuant to this Agreement;
then the Exchange Agent, in the absence of actual
notice to it that any Trumbull Shares theretofore
represented by any such certificate have been
acquired by a bona fide purchaser, shall deliver to
such person the Shares (and cash in lieu of
fractional Shares) that such person would have been
entitled to receive upon surrender of each such lost,
wrongfully taken, or destroyed certificate.
(j) Waiver. The Corporation may from time to time, in the
case of one or more persons, waive one or more of the
rights provided to it in this Article Two of this
Agreement to withhold certain payments, deliveries
and distributions; and no such waiver shall
constitute a waiver of its rights thereafter to
withhold any such payment, delivery or distribution
in the case of any person.
(k) Trumbull Dissenters' Rights. Anything contained in
this Agreement or elsewhere to the contrary
notwithstanding, if any holder of Trumbull Shares
shall perfect dissenters' rights in respect of one or
more Trumbull Shares in accordance with Ohio Revised
Code Sec. 1701.85 (sometimes hereinafter called the
"Statute"), then:
(i) Each such Trumbull Share shall nevertheless
be deemed to be extinguished at the Merger
Date as provided elsewhere in this
Agreement;
(ii) Each person perfecting such dissenter's
rights shall thereafter have only such
rights (and shall have such obligations) as
are provided in the Statute, and (unless
such rights and such obligations of such
person are terminated in accordance with
division (D) of ss. 1701.85) the Corporation
shall not be required to deliver any Shares
or cash payments to such person in
substitution for each such Trumbull Share in
accordance with this Agreement.
A-5
<PAGE> 168
No person entitled to relief as a dissenting
shareholder shall be entitled to submit a letter of
transmittal, and any letter of transmittal submitted
by a dissenting shareholder shall be invalid.
(l) Corporation Shareholders' Dissenters' Rights.
Anything contained in this Merger to the contrary
notwithstanding, if any person shall perfect
dissenters' rights in respect of one or more Shares
of the Corporation in accordance with the Statute,
then all of the rights accruing from the Shares which
are outstanding immediately before the Merger Date
and which are held by any shareholders who shall not
have voted such Shares in favor of this Agreement and
who shall have delivered to the Corporation a written
demand for appraisal of such shares in the manner
provided in the Statute shall be suspended at the
Merger Date; provided, however, that (i) the holders
of such Shares (hereinafter referred to as
"Corporation Dissenting Shares"), upon compliance
with the provisions of the Statute, shall be entitled
to payment of the appraised value of such shares in
accordance with the Statute and (ii) the rights
accruing from Corporation Dissenting Shares shall
remain suspended until the earlier of (A) the date on
which such holder, upon compliance with the
provisions of the Statute, establishes the right to
the payment of the appraised value of such Shares in
accordance with the provisions of the Statute and
such value if paid to such holder, at which time such
Shares shall be canceled and extinguished in
consideration and exchange for such payment, and (B)
the date on which either the demand for appraisal of
such Shares is withdrawn with the consent of the
Corporation or such holder forfeits the right to
appraisal of such Shares by failing to establish such
holder's entitlement to appraisal rights in
accordance with the Statute, at which time such
Shares shall be deemed to be issued and outstanding.
(m) Changes in Shares. In the event the Corporation
changes (or establishes a record date for changing)
the number of Shares issued and outstanding prior to
the Merger Date as a result of a stock split, stock
dividend, recapitalization or similar transaction
with respect to the outstanding Shares and the record
date therefor shall be prior to the Merger Date, or
exchanges the Shares for a different number or kind
of shares or securities or is involved in any
transaction resulting in any of the foregoing, the
Exchange Ratio shall be proportionately adjusted.
2.03. Corporation Shares
The issued and outstanding Shares immediately prior to the
Merger Date shall continue to be issued and outstanding.
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ARTICLE THREE
Warranties of Trumbull
----------------------
3.01. Warranties of Trumbull
In order to induce the Corporation to enter into this
Agreement and to perform its obligations hereunder, Trumbull hereby warrants and
represents to the Corporation that:
(a) CORPORATE STATUS. Trumbull is an Ohio corporation and
unitary savings and loan holding company under the
Home Owners Loan Act; is duly organized, validly
existing, and in good standing under the laws of
Ohio; and has the full power and authority, corporate
or otherwise, to own its property, to carry on its
business as presently conducted, and to enter into
and perform the transactions contemplated by this
Agreement. Copies of the articles and regulations of
Trumbull and all amendments thereto have been
delivered to the Corporation by Trumbull in Section
3.01(a) of the Trumbull Disclosure Schedule. The
corporate minute books of Trumbull and the Bank as
presented to the Corporation contain, in all material
respects, records of all meetings and other corporate
actions of their respective shareholders, Boards of
Directors and committees of Boards of Directors.
Trumbull owns 100% of the outstanding capital stock
of The Trumbull Savings and Loan Company, an
Ohio-chartered savings bank (the "Bank"). The Bank is
a corporation, duly organized, validly existing, and
in good standing under the laws of Ohio 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. Neither Trumbull nor the Bank is qualified
to do business in any other state or is required to
be qualified to do business in any other state except
where the failure to be so qualified would not have a
material adverse effect on Trumbull or the Bank.
Copies of the articles, constitution, and bylaws of
the Bank and all amendments thereto have been
delivered to the Corporation in Section 3.01(a) of
the Trumbull Disclosure Schedule. The Bank is a
member bank of the Federal Home Loan Bank of
Cincinnati and is regulated by the Federal Deposit
Insurance Corporation ("FDIC") and the Division of
Financial Institutions of the Ohio Department of
Commerce (the "Division").
(b) CAPITALIZATION. The authorized capital of Trumbull
consists solely of 5,000,000 shares of common stock,
without par value, of which 869,364 Trumbull Shares
are issued and outstanding. All Trumbull Shares have
been duly authorized and are validly issued, fully
paid, and non-assessable, and no Trumbull Shares have
been issued in violation of the preemptive rights of
any person. Trumbull has no commitment or obligation
to issue, deliver or sell, under any warrant,
subscription, option, stock purchase plan, stock
incentive plan, conversion right or otherwise, or to
purchase, redeem or otherwise acquire, any of the
Trumbull Shares. All Trumbull Shares have been issued
in full compliance with all applicable federal and
state securities laws, except where the failure to
comply with applicable state securities laws would
not have a material adverse effect upon Trumbull or
the transactions contemplated by this Agreement.
(c) CORPORATE PROCEEDINGS. All corporate proceedings of
Trumbull necessary to authorize the execution,
delivery, and performance of this Agreement by
Trumbull
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and the consummation of the transactions contemplated
hereby have been duly and validly taken except for
the adoption of this Agreement by the shareholders of
Trumbull. This Agreement has been validly executed by
duly authorized officers of Trumbull.
(d) AUTHORITY. This Agreement constitutes the legal,
valid, and binding obligation of Trumbull,
enforceable against Trumbull in accordance with its
terms, except as limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other
similar laws affecting creditors' rights generally,
and except that the availability of equitable
remedies (including, without limitation, specific
performance) is within the discretion of the
appropriate court. Trumbull has the absolute and
unrestricted right, power, authority, and capacity to
execute and deliver this Agreement and, subject to
the required adoption of this Agreement by the
Trumbull shareholders and the required regulatory
approvals, to perform its obligations under this
Agreement.
(e) FINANCIAL STATEMENTS OF TRUMBULL. Trumbull has
furnished to the Corporation, financial statements of
the Bank consisting of statements of financial
condition as of September 30, 1995, 1996 and 1997,
and the related statements of income, shareholders'
equity and cash flows for the years then ended
including accompanying notes and the report thereon
of Crowe, Chizek and Company, LLP and the unaudited
financial statements of Trumbull consisting of a
statement of financial condition and statements of
income and shareholders' equity as of March 31, 1998
(the "Balance Sheet Date") and for the six months
then ended (collectively, the "Trumbull Financial
Statements"). The Trumbull Financial Statements were
prepared in accordance with generally accepted
accounting principles consistently applied with prior
periods and present fairly the financial position of
The Bank and Trumbull at the dates indicated and the
results of their operations and their cash flows for
the periods then ended except as to the absence from
the financial statements of Trumbull of notes and
normal year end adjustments.
(f) ABSENCE OF UNDISCLOSED LIABILITIES. Except as
disclosed in Section 3.01(f) of the Trumbull
Disclosure Schedule, neither Trumbull nor the Bank
had any debt, obligation, guarantee, or liability at
the Balance Sheet Date, whether absolute, accrued,
contingent, or otherwise in excess of $50,000 in the
aggregate, which is not adequately reflected and
reserved in the Trumbull Financial Statements. Except
as disclosed in Section 3.01(f) of the Trumbull
Disclosure Schedule, all debts, liabilities,
guarantees and obligations of Trumbull and the Bank
incurred since the Balance Sheet Date, have been
incurred in the ordinary course of business and are
usual and normal in amount both individually and in
the aggregate. Except as disclosed in Section 3.01(f)
of the Trumbull Disclosure Schedule, neither Trumbull
nor the Bank is in default or breach of any material
agreement to which Trumbull or the Bank is a party.
To the best knowledge of Trumbull and the Bank and
except for events occurring after the date of this
Agreement that are disclosed in the Updated Trumbull
Disclosure Schedule described in Section 5.02 and
that do not have a material adverse effect on
Trumbull or the Bank, no other party to any material
agreement to which Trumbull or the Bank is a party is
in default or breach of such agreement.
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(g) ABSENCE OF CHANGES. Except as set forth in Section
3.01(g) of the Trumbull Disclosure Schedule, since
the Balance Sheet Date: (i) there has not been any
material adverse change in the business, operations,
prospects, assets or financial condition of Trumbull
and the Bank taken as a whole, and, to the knowledge
of Trumbull, no fact or condition exists which
Trumbull believes will cause such a material adverse
change in the future; (ii) there has been no damage,
destruction, loss, or event (whether or not insured
against) which in the aggregate has had or might
reasonably be expected to have a material adverse
effect on the business or operations of Trumbull or
the Bank; (iii) neither Trumbull nor the Bank has
made any material investment (except investments made
in the ordinary course of business) and (iv) Trumbull
has not taken or permitted any of the actions set
forth in Section 5.01(b) of this Agreement.
(h) LOAN DOCUMENTATION. The documentation ("Loan
Documentation") governing or relating to the loan and
credit-related assets ("Loan Assets") representing
the loan portfolio of the Bank is legally sufficient
for the purposes intended thereby and creates
enforceable rights of the Bank in accordance with the
terms of such Loan Documentation, subject to
applicable bankruptcy, insolvency, reorganization and
moratorium laws and other laws of general
applicability affecting the enforcement of creditors'
rights generally, and the effect of rules of law
governing specific performance, injunctive relief and
other equitable remedies on the enforceability of
such documents. Except as set forth in Section
3.01(h) of the Trumbull Disclosure Schedule and
except for events occurring after the date of this
Agreement that are disclosed in the Updated Trumbull
Disclosure Schedule and that do not have a material
adverse effect on Trumbull or the Bank, no debtor
under any of the Loan Documentation has asserted any
claim or defense with respect to the subject matter
thereof.
(i) ALLOWANCE FOR LOAN LOSSES. Except as set forth in
Section 3.01(h) of the Trumbull Disclosure Schedule
and except for events occurring after the date of
this Agreement that are disclosed in the Updated
Trumbull Disclosure Schedule and that do not have a
material adverse effect on Trumbull or the Bank,
there is no loan which was made by the Bank and which
is reflected as an asset of the Bank on the Trumbull
Financial Statements that (i) is ninety (90) days or
more delinquent or (ii) has been classified by
examiners (regulatory or internal) as "Substandard,"
"Doubtful" or "Loss."
(j) REPORTS AND RECORDS. Trumbull and the Bank have filed
all reports and maintained all records required to be
filed or maintained by them under various rules and
regulations of the Office of Thrift Supervision, the
FDIC and the Division. All such documents and reports
complied in all material respects with applicable
requirements of law and regulations in effect at the
time of filing such documents and contained in all
material respects the information required to be
stated therein. None of such documents, when filed,
contained any untrue statement of a material fact or
omitted to state a material fact required to be
stated therein or necessary in order to make the
statements therein, in light of the circumstances
under which they were made, not misleading.
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(k) TAXES. Except as set forth in Section 3.01(k) of the
Trumbull Disclosure Letter, Trumbull and the Bank
have timely filed all returns, statements, reports
and forms (the "Tax Returns") with respect to all
federal, state, local and foreign income, gross
income, gross receipts, gains, premium, sales, use,
ad valorem, transfer, franchise, profits,
withholding, payroll, employment, excise, severance,
stamp, occupation, license, lease, environmental,
customs, duties, property, windfall profits and all
other taxes (including any interest, penalties or
additions to tax with respect thereto, individually,
a "Tax" and, collectively, "Taxes") required to be
filed with the appropriate tax authority through the
date of this Agreement. Such Tax Returns are and will
be true, correct and complete in all material
respects. Trumbull and the Bank have paid and
discharged all Taxes due from them, other than such
Taxes that are adequately reserved as shown on the
Trumbull Financial Statements. Neither the Internal
Revenue Service nor any other taxing agency or
authority, domestic or foreign, has asserted, is now
asserting or, to the knowledge of Trumbull, is
threatening to assert against Trumbull or the Bank
any deficiency or claim for additional Taxes. There
are no unexpired waivers by Trumbull or the Bank of
any statute of limitations with respect to Taxes. The
accruals and reserves for Taxes reflected in the
Trumbull Financial Statements are adequate for the
periods covered. Trumbull and the Bank have withheld
or collected and paid over to the appropriate
governmental authorities or are properly holding for
such payment all Taxes required by law to be withheld
or collected. There are no liens for Taxes upon the
assets of Trumbull or the Bank, other than liens for
current Taxes not yet due and payable. Neither
Trumbull nor the Bank has agreed to make, or is
required to make, any adjustment under Section 481(a)
of the Internal Revenue Code of 1986, as amended
("IRC"). Except as set forth in Section 3.01(k) of
the Trumbull Disclosure Letter, or as may be caused
by any agreement entered into by the Corporation,
neither Trumbull nor the Bank is a party to any
agreement, contract, arrangement or plan that has
resulted, or could result, individually or in the
aggregate, in the payment of "excess parachute
payments" within the meaning of Section 280G of the
IRC. Neither Trumbull nor the Bank has ever been a
member of an affiliated group of corporations, within
the meaning of Section 1504 of the IRC, other than an
affiliated group of which Trumbull is or was the
common parent corporation.
(l) PROPERTY AND TITLE. Section 3.01(l) of the Trumbull
Disclosure Schedule lists and describes all real
property, and any leasehold interest in real
property, owned or held by Trumbull and the Bank (the
"Trumbull Real Properties"). The Trumbull Real
Properties constitute all of the real property and
interests in real property used in Trumbull's and the
Bank's businesses. Copies of all Leases of real
property to which Trumbull or the Bank is a party
have been provided to the Corporation in Section
3.01(l) of the Trumbull Disclosure Schedule. Such
leasehold interests have not been assigned or
subleased. All Trumbull Real Properties are free and
clear of all mortgages, liens, security interests,
defects, encumbrances, easements, restrictions,
reservations, conditions, covenants, or agreements,
encroachments, rights of way and zoning laws, except
(i) those set forth in the Trumbull Financial
Statements or Section 3.01(l) of the Trumbull
Disclosure Schedule; (ii) easements, restrictions,
reservations, conditions, covenants, rights of way,
zoning laws and other defects and irregularities in
title
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and encumbrances which do not materially impair the
use thereof for the purposes for which they are held;
and (iii) the lien of current taxes not yet due and
payable. Trumbull and the Bank own, and are in
rightful possession of, and have good title to, all
of the other assets indicated in the Trumbull
Financial Statements, free and clear of all
mortgages, security interests, liens, pledges,
options, hypothecations, charges, encumbrances, or
interests of any persons whatsoever except those
described in the Trumbull Financial Statements or
Section 3.01(l) of the Trumbull Disclosure Schedule
and except for those assets disposed of in the
ordinary course of business. All of the assets of
Trumbull and the Bank are in good operating condition
and repair, ordinary wear and tear excepted, and are
adequate to continue to conduct Trumbull's and the
Bank's businesses as such businesses are presently
being conducted.
(m) LEGAL PROCEEDINGS. Except as set forth in Section
3.01(m) of the Trumbull Disclosure Schedule and
except for events occurring after the date of this
Agreement that are disclosed in the Updated Trumbull
Disclosure Schedule and that do not have a material
adverse effect on Trumbull or the Bank, there are no
actions, suits, proceedings, claims, or
investigations pending, or, to the best knowledge of
Trumbull and the Bank, threatened in any court,
before any governmental agency or instrumentality or
in any arbitration proceeding (i) against or by
Trumbull or the Bank, or (ii) against or by Trumbull
or the Bank which would prevent the consummation of
this Agreement or of any of the transactions
contemplated hereby or declare the same to be
unlawful or cause the rescission thereof. Except as
set forth in Section 3.01(m) of the Trumbull
Disclosure Schedule and except for events occurring
after the date of this Agreement that are disclosed
in the Updated Trumbull Disclosure Schedule and that
do not have a material adverse effect on Trumbull or
the Bank, neither Trumbull nor the Bank is a party to
any judgment, order, writ, injunction, or decree of
any court or governmental entity which affects the
businesses, operations, properties or financial
condition of Trumbull or the Bank.
(n) NO CONFLICT. Neither the execution or delivery of
this Agreement by Trumbull nor consummation of the
transactions contemplated by this Agreement
(including the Merger of the Bank and Second
National) will (i) violate any provision of or result
in the breach of or default (or which with notice or
lapse of time would result in a default) under: (a)
any provision of any federal, state or local law,
regulation, ordinance, order, rule or administrative
ruling of any governmental authority or
instrumentality applicable to Trumbull or the Bank or
any of their respective properties so long as the
approvals of the Federal Reserve, the Office of the
Comptroller of the Currency ("Comptroller") and the
Division are obtained; (b) the articles or the
regulations of Trumbull or the Bank; (c) except as
otherwise disclosed in Section 3.01(n) of the
Trumbull Disclosure Schedule, any material written
agreement or instrument to which Trumbull or the Bank
is a party or by which it may be bound; or (d) any
order, judgment, writ, injunction, or decree of any
court, arbitration panel, or any governmental agency
or instrumentality applicable to Trumbull or the
Bank; (ii) result in the creation or acceleration of
any security interest, claim, lien, charge, or
encumbrance upon any property of Trumbull or the
Bank; or (iii) violate the terms or conditions of or
result in the
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cancellation, modification, revocation, or suspension
of any license, approval, certificate, permit, or
authorizations held by Trumbull or the Bank, except
with respect to (ii) and (iii) above, such as
individually or in the aggregate will not have a
material adverse effect on the business, operations,
assets or financial condition of Trumbull and the
Bank taken as a whole and which will not prevent or
delay the consummation of the transactions
contemplated by this Agreement.
(o) INVESTMENTS. Except for the capital shares of the
Bank and except as disclosed in Section 3.01(o) of
the Trumbull Disclosure Schedule or the Trumbull
Financial Statements, neither Trumbull nor the Bank
owns, directly or indirectly, any shares of any
corporation or any interest or investment in any
limited liability company, partnership, business
trust, or other unincorporated entity. All of the
capital shares of the Bank owned by Trumbull are
fully paid and nonassessable and are owned by
Trumbull, free and clear of any adverse interest,
claim, lien, encumbrance, or restrictive agreement
with respect thereto.
(p) BROKERS, FINDERS, AND OTHERS. Except for the fee paid
or payable to Sandler O'Neill & Partners, L.P., there
are no fees or commissions of any sort whatsoever
claimed by, or payable by Trumbull or the Bank to,
any broker, finder, intermediary, or any other
similar person in connection with effecting this
Agreement or the transactions contemplated hereby.
(q) EMPLOYMENT AGREEMENTS. Except as disclosed in Section
3.01(q) of the Trumbull Disclosure Schedule, neither
Trumbull nor the Bank is a party to any employment,
change in control, severance or consulting agreements
not terminable at will. Neither Trumbull nor the Bank
is a party to, or negotiating, any collective
bargaining agreements, nor are any of its employees
represented by any labor union or similar
organization. Trumbull and the Bank are in compliance
in all material respects with all applicable laws
respecting employment and employment practices, terms
and conditions of employment and wages and hours, and
neither Trumbull nor the Bank has engaged in any
unfair labor practice.
(r) PENSION, PROFIT SHARING AND RETIREMENT AND EMPLOYEE
BENEFIT PLANS. Except as set forth in Section 3.01(r)
of the Trumbull Disclosure Schedule, neither Trumbull
nor the Bank is a party to, or is obligated by, any
agreement to make contributions to or to provide
benefits under any pension, retirement, profit
sharing, welfare or other employee benefit plan, as
defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA").
(i) Trumbull and the Bank have performed in all
material respects all obligations required
to be performed by them under, and are not
in default under or in violation of, and
have no knowledge of any such default or
violation by any other party to, any
employee pension plan, as defined in Section
3(2) of ERISA (the "Pension Plans"), any
employee welfare plan, as defined in Section
3(1) of ERISA (the "Welfare Plans") or any
other employee benefit plan arrangement or
program (the "Other Plans") offered to their
respective employees (hereinafter, the
Pension Plans, the Welfare Plans and the
Other Plans shall be referred to
collectively as the "Plans").
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(ii) Trumbull and the Bank have made available to
the Corporation, with respect to each of the
Plans (to the extent available on the date
of this Agreement), accurate and complete
copies of all current plan documents,
including amendments and related trusts, if
any, descriptions, summary plan
descriptions, the most recent annual
actuarial valuation reports, if any, the
last filed Form 5500, the most recent
completed annual and periodic accounting of
related Plan assets, if any, all rulings, if
any, of the Internal Revenue Service (the
"IRS"), the documents relating to the most
recent request for an IRS determination
letter if such a determination is necessary,
and the most recent IRS determination
letters, if any.
(iii) Each Pension meets the requirements for
qualification under Section 401(a) of the
IRC in all material respects and each trust
which forms a part of each such Pension Plan
is now, and since the date of the most
recent determination letter has been, exempt
from taxation under Section 501(a) of the
IRC.
(iv) The IRS has issued a favorable determination
letter with respect to the qualification of
each of the Pension Plans and has not taken
any action to revoke any such letter.
(v) The only Pension Plans that are subject to
Title IV of ERISA (the "Title IV Plans") are
specifically identified in the Trumbull
Disclosure Schedule. As of the date of this
Agreement, the fair market value of the
assets of each Title IV Plan (excluding for
these purposes any accrued but unpaid
contributions) exceeded the present value of
all benefits accrued under such Title IV
Plan determined on a termination basis using
the assumptions established by the Pension
Benefit Guaranty Corporation (the "PBGC") as
in effect on such date.
(vi) No "accumulated funding deficiency", as
defined in Section 412 of the IRC, has been
incurred with respect to any Pension Plan,
whether or not waived. Neither Trumbull nor
the Bank knows of any "reportable event",
within the meaning of Section 4043 of ERISA,
and no event described in Section 4041,
4042, 4062 or 4063 of ERISA has occurred in
connection with any Plan.
(vii) No condition exists and no event has
occurred that could constitute grounds for
termination of any Title IV Plan or, with
respect to any Plan which is a multiemployer
plan (as defined in Section 3(37) of ERISA),
presents a material risk of a complete or
partial withdrawal under Title IV of ERISA
and neither Trumbull nor the Bank has
incurred any material liability under Title
IV of ERISA arising in connection with the
termination of, or complete or partial
withdrawal from, any plan covered or
previously covered by Title IV of ERISA. If
a "complete withdrawal" by Trumbull and/or
the Bank were to occur as of the Closing
Date with respect to all Plans which are
multiemployer plans, neither Trumbull nor
the Bank would incur any withdrawal
liability under Title IV of ERISA.
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(viii) Neither the Bank nor any other "disqualified
person" or "party in interest" (as defined
in Section 4975 of the IRC and Section 3(14)
of ERISA, respectively) has engaged in any
"prohibited transaction," as such term is
defined in Section 4975 of the IRC and
Section 406 of ERISA, which could subject
any Pension Plan (or any related trust), any
Welfare Plan, the Bank, Trumbull, or any
other plan fiduciary, to any excise tax or
civil penalty imposed under Section 4975(a)
of the IRC or Section 502(i) of ERISA.
(ix) There are no actions, suits or claims
pending (other than routine claims for
benefits) or, to the best of Trumbull's or
the Bank's knowledge, threatened against any
Plan or against the assets of any Plan.
(x) The Plans have been operated in accordance
with their provisions and in compliance with
the rules and regulations governing employee
benefit plans, including, without
limitation, the rules and regulations
promulgated by the Department of Labor, and
the Department of the Treasury pursuant to
the provisions of ERISA and the Code.
(s) LICENSES, PERMITS, ETC. Trumbull and the Bank possess
all of the rights, privileges, licenses, permits, and
governmental authorizations required to operate their
respective businesses except where the failure to
possess such rights, privileges, licenses, permits or
governmental authorizations would not have a material
adverse effect on either Trumbull or the Bank.
Trumbull and the Bank have complied with all laws,
regulations, orders, licenses, permits, and
government authorizations applicable to them and to
the conduct of their respective businesses except
where noncompliance would not have a material adverse
effect on either Trumbull or the Bank.
(t) TRUMBULL INFORMATION. None of the information
relating to Trumbull and the Bank to be contained in
(i) the Registration Statement will, at the time the
Registration Statement becomes effective, contain any
untrue statement of a material fact or omit to state
a material fact necessary to make the statements
therein, in light of the circumstances under which
they were made, not misleading, and (ii) the Trumbull
Proxy Statement, as of the date such Trumbull Proxy
Statement is mailed to shareholders of Trumbull and
up to and including the date of the meeting of
stockholders to which such Trumbull Proxy Statement
relates, will contain any untrue statement of a
material fact or omit to state a material fact
necessary to make the statements therein, in light of
the circumstances under which they were made, not
misleading, provided that information as of a later
date shall be deemed to modify information as of an
earlier date.
(u) INSURANCE. The Bank is an insured bank under the
Federal Deposit Insurance Act. Section 3.01(u) of the
Trumbull Disclosure Schedule sets forth a description
of all insurance policies maintained by Trumbull and
the Bank.
(v) GOVERNMENTAL PROCEEDINGS. No consent, approval,
authorization of or filing with any governmental
authority is required on the part of Trumbull or the
Bank in
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connection with the execution or delivery of this
Agreement or the consummation of the transactions
contemplated hereby, except for the approval of the
Division.
(w) CONTRACTS. Section 3.01(w) of the Trumbull Disclosure
Schedule sets forth a list, identifying by dates,
subject matter and parties, all contracts, agreements
and instruments to which Trumbull or the Bank is a
party or by which either of them are bound, and which
involve the payment by or to Trumbull or the Bank of
more than $100,000 in connection with the purchase of
property or goods or the performance of services and
which are not in the ordinary course of their
respective businesses. Copies of all such contracts,
agreements and instruments have been delivered to the
Corporation.
(x) ENVIRONMENTAL MATTERS. Except as otherwise disclosed
on Section 3.01(x) of the Trumbull Disclosure
Schedule and except for matters arising after the
date of this Agreement that do not have a material
adverse effect on Trumbull or the Bank: (i) Trumbull
and the Bank are and have been at all times in
compliance in all material respects with all
applicable Environmental Laws, and Trumbull and the
Bank have not engaged in any activity in violation of
any applicable Environmental Law; (ii) no
investigations, inquiries, orders, hearings, actions
or other proceedings by or before any court or
governmental agency are pending or, to the best
knowledge of Trumbull, threatened in connection with
any of Trumbull's and Bank's activities, any real
properties owned or leased by the Bank or Trumbull
("Bank Real Properties") or improvements thereon, and
any real properties in respect of which the Bank
holds a mortgage or mortgages (hereinafter referred
to as the "Bank Real Estate Collateral"); (iii) no
claims at any time have been made or threatened by
any third party against Trumbull or the Bank, or with
respect to the Bank Real Properties or improvements
thereon, or the Bank Real Estate Collateral, relating
to damage, contribution, cost recovery, compensation,
loss or injury resulting from any Hazardous
Substance; (iv) no Hazardous Substances have been
integrated into the Bank Real Properties or
improvements thereon, or the Bank Real Estate
Collateral or any component thereof in such manner or
quantity as may reasonably be expected to or in fact
would pose a threat to human health or the value of
the real property and improvements; (v) no portion of
the Bank Real Properties or improvements thereon, or
the Bank Real Estate Collateral is located within
2000 feet of (A) a release of Hazardous Substance
which has been reported or is required to be reported
under any Environmental Law or (B) the location of
any site used, in the past or presently, for the
disposal of any Hazardous Substances; and (vi)
neither Trumbull nor the Bank has knowledge, based
upon commercially reasonable inquiry, that (A) any of
the Bank Real Properties or improvements thereon, or
the Bank Real Estate Collateral has been used for the
storage or disposal of Hazardous Substances or has
been contaminated by Hazardous Substances, (B) any of
its business operations have contaminated lands,
waters or other property of others with Hazardous
Substances, except routine, office-generated solid
waste, or (C) any of the Bank Real Properties or
improvements thereon, or the Bank Real Estate
Collateral have in the past or presently contain
underground storage tanks, asbestos materials, or
PCB-containing equipment.
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For purposes of this Agreement, (i) "Environmental
Law" means the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"), 42 U.S.C.
Sec.9601 et seq., the Resource Conservation and
Recovery Act, 42 U.S.C. Sec.6901 et seq., the
Hazardous Materials Transportation Act, 49 U.S.C.
Sec.1802 et seq., the Toxic Substances Control Act,
15 U.S.C. Sec.2601 et seq., the Federal Water
Pollution Control Act, 33 U.S.C. Sec.1251 et seq.,
the Clean Water Act, 33 U.S.C. Sec.1321 et seq., the
Clean Air Act, 42 U.S.C. Sec.7401 et seq.,
regulations promulgated thereunder, and any other
federal, state, county, municipal, local or other
statute, law, ordinance or regulation which may
relate to or deal with human health or the
environment, as of the date of this Agreement, and
(ii) "Hazardous Substances" means, at any time:
(a) any "hazardous substance" as defined in
Sec.101(14) of CERCLA or regulations promulgated
thereunder; (b) any "solid waste," "hazardous waste,"
or "infectious waste," as such terms are defined in
any other Environmental Law as of the date of this
Agreement; and (c) asbestos, urea-formaldehyde,
polychlorinated biphenyls ("PCBs"), nuclear fuel or
material, chemical waste, radioactive material,
explosives, known carcinogens, petroleum products and
by-products, and other dangerous, toxic or hazardous
pollutants, contaminants, chemical, materials or
substances listed or identified in, or regulated by,
any Environmental Law.
(y) POOLING. Neither Trumbull nor the Bank has taken,
permitted or agreed to take any action that would
prevent the Corporation from accounting for the
business combination to be effected by the Merger as
a "pooling of interests."
(z) SHARES AND SHARE OWNERSHIP. Trumbull does not have
any securities registered or traded on any national
securities exchange or registered under Sec.12(g) of
the Securities Exchange Act of 1934, nor is it
required to file reports and information pursuant to
Sec.15(d) of such act. Except for Shares held by
Directors of Trumbull that in the aggregate are less
than five percent (5%) of the Corporation's
outstanding Shares, neither Trumbull nor any of its
"affiliates" or "associates", as the terms
"affiliates and "associates" are defined in
Sec.1704.01(C) of the Ohio Revised Code, are
"beneficial owners," as the term "beneficial owners"
is defined in Sec.1704.01 of the Ohio Revised Code,
of any of the outstanding shares of any class of the
Corporation.
(aa) DISCLOSURE. No representation or warranty by Trumbull
contained in this Agreement and no statement
contained in the Trumbull Disclosure Schedule
contains any untrue statement of a material fact or
omits to state a material fact necessary to make the
statements contained therein and herein not
misleading, in the light of such circumstances.
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ARTICLE FOUR
Warranties of the Corporation
-----------------------------
4.01. Warranties of the Corporation
In order to induce Trumbull to enter into this Agreement and
to perform its obligations hereunder, the Corporation hereby warrants and
represents to Trumbull that:
(a) CORPORATE STATUS. The Corporation is a corporation
duly organized, validly existing, and in good
standing under the laws of the State of Ohio. The
Corporation has the full corporate power and
authority to own its property, to carry on its
business as presently conducted and to enter into and
perform this Agreement and the transactions
contemplated hereby. Second National is a national
banking association 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) CORPORATE PROCEEDINGS. All corporate proceedings of
the Corporation necessary to authorize the execution,
delivery, and performance of this Agreement by the
Corporation and the consummation of the transactions
contemplated by this Agreement have been duly and
validly taken, except for the adoption of this
Agreement by the shareholders of the Corporation.
This Agreement has been validly executed by duly
authorized officers of the Corporation.
(c) CAPITALIZATION. The authorized capital of the
Corporation consists solely of 20,000,000 common
shares, no par value, of which 6,837,689 Shares are
issued and outstanding at the date of this Agreement.
All of the Shares are validly issued, fully paid, and
non-assessable, and no Shares have been issued in
violation of the preemptive rights of any person.
Except as disclosed in the disclosure letter executed
by the Corporation dated and delivered to Trumbull on
May 4, 1998 (the "Corporation Disclosure Letter"),
the Corporation has no commitment or obligation to
issue, deliver or sell, under any warrant,
subscription, option, share purchase plan, share
incentive plan, conversion right or otherwise, or to
purchase, redeem or otherwise acquire, any of the
Shares. When issued to the former Trumbull
shareholders in accordance with this Agreement, the
Shares will be validly issued, fully paid,
nonassessable and not issued in violation of the
preemptive rights of any person.
(d) AUTHORITY. This Agreement constitutes the legal,
valid, and binding obligation of the Corporation,
enforceable against the Corporation in accordance
with its terms, except as limited by applicable
bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting creditors' rights
generally, and except that the availability of
equitable remedies (including, without limitation,
specific performance) is within the discretion of the
appropriate court. The Corporation has the absolute
and unrestricted right, power, authority, and
capacity to execute and deliver this Agreement and,
subject to the required adoption of this Agreement by
the Corporation's shareholders and the required
regulatory approvals, to perform its obligations
under this Agreement.
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(e) NO CONFLICT. Neither the execution and delivery of
this Agreement nor the consummation of the
transactions contemplated herein will conflict with
or result in the breach of the terms, conditions, or
provisions of the Corporation's or Second National's
articles, regulations, or by-laws, any material
agreement, instrument or restriction to which the
Corporation or its subsidiary is a party or by which
the Corporation or Second National or its or their
assets is or may be bound; or the terms of any law,
rule or regulation or any governmental agency or
authority to which the Corporation or Second National
may be subject, nor constitute a default or event of
default under any such material agreement,
instrument, restriction, law, rule or regulation.
(f) FINANCIAL STATEMENTS OF THE CORPORATION. The
Corporation has furnished to Trumbull, consolidated
financial statements of the Corporation consisting of
consolidated balance sheets as of December 31, 1995,
1996 and 1997 (December 31, 1997 is referred to
herein as the "Financial Statement Date") and the
related consolidated statements of income,
shareholders' equity and cash flows for the years
then ended including accompanying notes and the
report thereon of Ernst & Young LLP and the
Corporation's unaudited consolidated balance sheet as
March 31, 1998 and the related consolidated statement
of income for the three months then ended (the
"Corporation's Financial Statements"). The
Corporation's Financial Statements were prepared in
conformity with generally accepted accounting
principles consistently applied with prior periods
and present fairly, in all material respects, the
consolidated financial condition of the Corporation
and its subsidiary at the dates indicated and the
results of their operations and cash flows for the
periods then ended except as to the absence from the
March 31, 1998 financial statements of notes and
normal year end adjustments.
(g) ABSENCE OF CHANGES. Since the Financial Statement
Date: (i) the businesses of the Corporation and
Second National have been conducted only in the
ordinary course consistent with past practice; (ii)
there has been no material adverse change in the
assets, liabilities, business or operations of the
Corporation or Second National taken as a whole; 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 be expected to
have a material adverse effect on the business or
operations of the Corporation or Second National; and
(iv) the Corporation has announced its proposed
acquisition of Enfin, Inc., an Ohio corporation,
pursuant to a merger.
(h) LEGAL PROCEEDINGS. Except as disclosed in the
Corporation Disclosure Letter and except for events
occurring after the date of this Agreement that are
disclosed to Trumbull and that do not have a material
adverse effect on the Corporation or Second National,
there are no actions, suits, proceedings, claims, or
investigations pending, or to the best knowledge of
the Corporation and Second National, threatened in
any court, before any governmental agency or
instrumentality or in any arbitration proceeding (i)
against or by the Corporation or Second National,
which would have a material adverse effect upon their
respective business, prospects, condition (financial
or otherwise) or any of their properties; or (ii)
against or by the Corporation or Second National
which would prevent the consummation of this
Agreement or of any of the transactions contemplated
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hereby or declare the same to be unlawful or cause
the rescission thereof except for events occurring
after the date of this Agreement that are disclosed
to Trumbull and that do not have a material adverse
effect on the Corporation or Second National neither
the Corporation nor Second National is a party to any
judgment, order, writ, injunction, or decree of any
court or governmental entity, which materially
adversely affects the business, operations,
properties or financial condition of the Corporation
or Second National.
(i) REPORTS AND RECORDS. The Shares are registered with
the Securities and Exchange Commission ("SEC")
pursuant to Section 12(g) of the Securities Exchange
Act of 1934 (the "1934 Act"). The Corporation has
filed all reports and proxy materials required to be
filed by it with the SEC pursuant to the 1934 Act,
except for any reports or proxy materials the failure
to file which would not have a material adverse
effect upon the Corporation and Second National taken
as a whole. All such filings, at the time of filing,
complied as to form and included all exhibits
required to be filed under the applicable rules of
the SEC, except where the failure to comply or
include would not have a material adverse effect upon
the Corporation. None of such documents, when filed,
contained any untrue statement of a material fact or
omitted to state a material fact required to be
stated therein or necessary in order to make the
statements therein, in light of the circumstances
under which they were made, not misleading. The
Corporation Disclosure Letter includes a true and
correct list of each person or group of persons who
beneficially own more than five percent (5%) of the
Shares. There are no arrangements known to the
Corporation's executive officers for the election of
directors of the Corporation other than this
Agreement.
(j) BROKERS, FINDERS, AND OTHERS. Except for fees paid or
payable to McDonald & Company Securities, Inc., there
are no fees or commissions of any sort whatsoever
claimed by, or payable by the Corporation to, any
broker, finder, intermediary, or any other similar
person in connection with effecting this Agreement or
the transactions contemplated hereby.
(k) GOVERNMENTAL PROCEEDINGS. No consent, approval,
authorization of or filing with any governmental
authority is required on the part of the Corporation
or any of its subsidiaries in connection with the
execution or delivery of this Agreement or the
consummation of the transactions contemplated hereby,
except for the approval of the Federal Reserve, the
Comptroller, the Ohio Superintendent of Financial
Institutions and the SEC.
(l) POOLING. Neither the Corporation nor Second National
has taken or permitted any action which would prevent
the Merger from being accounted for as a pooling of
interests.
(m) CORPORATION INFORMATION. None of the information
relating to the Corporation to be contained in (i)
the Registration Statement will, at the time the
Registration Statement becomes effective, contain any
untrue statement of a material fact or omit to state
a material fact necessary to make the statements
therein, in light of the circumstances under which
they were made, not misleading, and (ii) the
Corporation Proxy Statement, as of the date such
Corporation Proxy Statement is
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mailed to shareholders of the Corporation and up to
and including the date of the meeting of stockholders
to which such Corporation Proxy Statement relates,
will contain any untrue statement of a material fact
or omit to state a material fact necessary to make
the statements therein, in light of the circumstances
under which they were made, not misleading, provided
that information as of a later date shall be deemed
to modify information as of an earlier date.
(n) DISCLOSURE. No representation or warranty by the
Corporation contained in this Agreement, and no
statement contained in any certificate or other
document (including the Corporation Disclosure
Letter) furnished by the Corporation to Trumbull
pursuant hereto contains any untrue statement of a
material fact or omits to state a material fact
necessary to make the statements contained therein
and herein not misleading, in the light of such
circumstances.
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ARTICLE FIVE
Further Covenants of Trumbull
-----------------------------
5.01. Operation of Business
Trumbull covenants with the Corporation that throughout the
period from the date of this Agreement to and including the Closing:
(a) CONDUCT OF BUSINESS. Trumbull's business and the
business of the Bank will be conducted only in the
ordinary and usual course consistent with past
practice.
(b) CHANGES IN BUSINESS AND CAPITAL STRUCTURE. Except
with the consent of the Corporation or as provided
for by this Agreement, Trumbull will not, and will
cause the Bank not to: (i) sell, transfer, mortgage,
pledge, or subject to any lien or otherwise encumber
any of the assets of Trumbull or the Bank, tangible
or intangible, except in the ordinary course of
business for full and fair consideration actually
received; (ii) make any capital expenditure or
capital additions or betterments which, in the
aggregate, exceed $50,000; (iii) become bound by,
enter into, or perform any material contract,
commitment, or transaction which is other than in the
ordinary course of its business or which would cause
or result in its being unable to perform its
obligations under this Agreement; (iv) declare or pay
any dividends or make any distributions on its common
shares issued and outstanding other than $.41 per
share payable June 30, 1998 and $.41 per share per
fiscal quarter thereafter and those payable by the
Bank to Trumbull which are consistent with the past
practice of Trumbull and the Bank; (v) purchase,
redeem, retire or otherwise acquire any of its
capital shares; (vi) issue or grant any option or
right to acquire any of its capital shares or effect
any stock split, recapitalization, combination,
exchange of shares, readjustment or other
reclassification; (vii) amend its articles,
constitution, regulations or by-laws; (viii) merge or
consolidate with any other corporation or otherwise
reorganize; (ix) pay any general wage or salary
increase, other than normal pay increases consistent
with past practices, or enter into any employment
agreement with any officer, director or employee
which is not terminable, with or without cause,
without penalty, premiums or other payment, upon 30
days or less notice; (x) incur any material
obligation or liability other than current
liabilities and obligations incurred in the ordinary
course of business; (xi) waive or cancel any right of
material value or material debts, except loan or
interest charge-offs, debts or related fees in the
ordinary course of business consistent with past
practices; (xii) take any action that would result in
any of its representations or warranties contained in
this Agreement not being true and correct; or (xiii)
cause any material adverse change in the amount or
general composition of deposit liabilities; (xiv)
make any material investment (except in the ordinary
course of business); or (xv) enter into any agreement
to do any of the foregoing.
(c) MAINTENANCE OF PROPERTY. Trumbull and the Bank will
use their commercially reasonable efforts to maintain
and keep their respective property and facilities in
their present condition and working order, ordinary
wear and tear excepted.
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(d) PERFORMANCE OF OBLIGATIONS. Trumbull and the Bank
will perform all of their obligations under all
agreements relating to or affecting their properties,
rights, and business, except where nonperformance
would not have a material adverse effect on Trumbull
or the Bank or the transactions contemplated by this
Agreement.
(e) MAINTENANCE OF BUSINESS ORGANIZATION. Trumbull will,
and will cause the Bank to, use their commercially
reasonable efforts to maintain and preserve their
respective business organizations intact; to retain
present key employees; and to maintain the respective
relationships of customers, suppliers and others
having business relationships with them. Trumbull
will not, and will cause the Bank not to, take any
action or omit to take any action which would
terminate or enable any employee of Trumbull or the
Bank to terminate their employment or employment
agreement without cause and continue thereafter to
receive compensation.
(f) INSURANCE. Trumbull and the Bank will maintain
insurance coverage with reputable insurers, which in
respect of amounts, premiums, types and risks
insured, were maintained by them at the Balance Sheet
Date, and upon the renewal or termination of such
insurance Trumbull and the Bank will use commercially
reasonable best efforts to renew or replace such
insurance coverage with reputable insurers, which in
respect of amounts, premiums, types and risks insured
were maintained by them at the Balance Sheet Date.
(g) ACCESS TO INFORMATION. Trumbull will, and will cause
the Bank to, take all action necessary to (i) afford
the officers and designated representatives of the
Corporation full access during normal business hours
upon reasonable notice to all of Trumbull's and the
Bank's properties (including for purposes of
inspection and investigation for soil and groundwater
tests), books, records, tax returns and reports,
financial statements, contracts and commitments, and
any work papers relating to any of the foregoing;
(ii) furnish to the Corporation all such documents,
copies of documents, and information (A) concerning
compliance and/or noncompliance with Environmental
Laws and with respect to the past, present or
suspected future presence of Hazardous Substances on
the Trumbull Real Properties and Bank Real Estate
Collateral, including but not limited to
environmental audit and Phase I reports, and (B)
concerning Trumbull and the Bank's affairs as the
Corporation may reasonably request; (iii) afford full
access to the Corporation to Trumbull's and the
Bank's officers, directors, employees and agents in
order that the Corporation may have full opportunity
to make such investigation as it shall desire to make
of the business and affairs of Trumbull and the Bank;
and (iv) authorize the Corporation's representatives
to inquire of government agencies, and inspect the
files of those agencies, with respect to the
environment conditions on and about the Trumbull Real
Properties and Bank Real Estate Collateral.
(h) PAYMENT OF TAXES. Trumbull shall timely file all Tax
Returns required to be filed on or before the Closing
Date and pay any Tax shown on such Tax Returns to be
due.
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(i) SHAREHOLDER'S EQUITY. Trumbull will cause the Bank to
have at the last day of the month preceding the
Closing Date total shareholders' equity of not less
than $38,000,000.
5.02. Notification
Between the date of this Agreement and the Closing Date,
Trumbull will promptly notify the Corporation in writing if Trumbull becomes
aware of any fact or condition that (i) causes or constitutes a breach of any of
its representations and warranties, or (ii) would (except as expressly
contemplated by this Agreement) cause or constitute a breach of any such
representation or warranty had such representation or warranty been made as of
the time of occurrence or discovery of such fact or condition. Should any such
fact or condition require any change in the Trumbull Disclosure Schedule,
Trumbull will promptly deliver to the Corporation a supplement to the Trumbull
Disclosure Schedule specifying such change ("Updated Trumbull Disclosure
Schedule"). During the same period, Trumbull will promptly notify the
Corporation of the occurrence of any breach of any of its covenants contained in
this Agreement or of the occurrence of any event that may make the satisfaction
of the conditions in this Agreement impossible or unlikely. In addition, if at
any time prior to the Merger Date any event or circumstances relating to
Trumbull or any of its officers or directors should be discovered which should
be set forth in an amendment to the Registration Statement or a supplement to
the proxy statement-prospectus, Trumbull shall promptly inform the Corporation.
5.03. Acquisition Proposals
(a) From and after the date hereof, Trumbull will not,
directly or indirectly, through any of its officers,
directors, employees, agents or advisors or other
representatives or consultants, (i) solicit or
initiate or knowingly encourage, including by means
of furnishing information, any proposals or offers
from any person relating to any acquisition or
purchase of all or a material amount of the assets
of, or any securities of, or any merger, tender
offer, consolidation or business combination with,
Trumbull or the Bank (an "Acquisition Proposal") or
(ii) unless the directors of Trumbull determine in
good faith that such action is required for them to
fulfill their fiduciary duties and obligations to the
Trumbull shareholders under Ohio law as advised by
counsel to Trumbull and Trumbull gives prior notice
to the Corporation of such action (in which event
Trumbull may furnish information), engage in
negotiations with or disclose any nonpublic
information relating to Trumbull or the Bank or
afford access to the Trumbull Real Properties, books
or records of Trumbull or the Bank to any person that
may be considering or has made an Acquisition
Proposal. Trumbull shall promptly notify the
Corporation, orally and in writing, if any such
proposal or offer is made and shall, in any such
notice, indicate the identity and terms and
conditions of any proposal or offer, or any such
inquiry or contact. Trumbull shall keep the
Corporation advised of the progress and status of any
such proposals or offers.
(b) If the Board of Directors of Trumbull or the Bank
accepts in any manner an Acquisition Proposal
(including any acceptance which occurs after the
termination of this Agreement and before December 31,
1999), Trumbull shall pay to the Corporation
$2,000,000 in immediately available federal funds
upon the execution of any agreement in respect of the
Acquisition Proposal.
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5.04. Delivery of Information
Trumbull will promptly furnish to the Corporation all
information requested by the Corporation regarding Trumbull's assets,
properties, business, affairs, operations, condition (financial or otherwise),
prospects and corporate organization as shall be required by the rules and
regulations under the Securities Act or by the SEC for inclusion in the
Registration Statement described in Section 7.02 and shall otherwise reasonably
assist the Corporation in the preparation and filing of such Registration
Statement.
5.05. Accounting Policies
After the shareholders of Trumbull and the Corporation have
approved the Merger and after the receipt of necessary regulatory approvals, on
or before the Merger Date and at the request of the Corporation, Trumbull shall
cause the Bank to promptly establish and take such reserves and accruals to
conform the Bank's loan, accrual and reserve policies to Second National
policies; shall cause the Bank to promptly establish and take such accruals,
reserves and charges in order to implement such polices in respect of excess
facilities and equipment capacity, severance costs, litigation matters,
write-off or write down of various assets and other appropriate accounting
adjustments; and Trumbull shall promptly recognize for financial accounting
purposes such expenses of the Merger and restructuring charges related to or to
be incurred in connection with the Merger, to the extent permitted by law and
consistent with generally accepted accounting principles and with the fiduciary
duties of the officers and directors of Trumbull and the Bank.
5.06. Affiliates Compliance with The Securities Act
(a) Within 30 days after the date of this Agreement,
Trumbull shall identify to the Corporation all
persons whom Trumbull reasonably believes are its
"affiliates" as that term is used in paragraphs (c)
and (d) of Rule 145 under the Securities Act and/or
Accounting Series, Releases 130 and 135, as amended,
of the SEC (the "Rule 145 Affiliates"). Thereafter
and until the Merger Date, Trumbull shall identify to
the Corporation each additional person whom it
reasonably believes to have thereafter become its
Rule 145 Affiliate.
(b) Trumbull shall use its diligent efforts to cause each
person who is identified as a Rule 145 Affiliate
pursuant to clause (a) above to deliver to the
Corporation not later than the date on which the
Merger is approved by Trumbull's shareholders, a
written agreement, substantially in the form of
Exhibit 5.06. Because the Merger is intended to
qualify for "pooling-of-interests" accounting
treatment, the Shares received by such Rule 145
Affiliates in the Merger shall not be transferable
from 30 days before the Merger Date until such time
as financial results covering at least 30 days of
post-Merger operations have been published within the
meaning of Section 201.01 of the SEC's Codification
of Financial Reporting Policies, regardless of
whether each such Rule 145 Affiliate has provided the
written agreement referred to in this Section, and
the certificates representing such shares will bear
an appropriate restrictive legend.
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5.07. Takeover Statutes and Provisions
Trumbull shall take all necessary steps to (i) exempt this
Agreement and the Merger from the requirements of any state takeover law
(including without limitation, statutes relating to business combinations,
control share acquisitions and merger moratoriums) and from any provisions under
its articles and regulations, as applicable, by action of the Board of Directors
of Trumbull or otherwise, and (ii) assist in any challenge by the Corporation to
the applicability to the Merger of any state takeover law.
ARTICLE SIX
Further Covenants of the Corporation
------------------------------------
6.01. Current Information
The Corporation shall furnish to Trumbull promptly after such
documents are available: (i) all reports, proxy statements or other
communications by the Corporation to its shareholders generally, and (ii) all
press releases relating to any transactions.
6.02. Employee Benefits
Following the consummation of the transactions contemplated
hereby, the Corporation will provide or cause to be provided to employees of
Trumbull and the Bank who become direct or indirect employees of the Corporation
and Second National benefits which, when taken as whole, are substantially
comparable as those provided by the Corporation and Second National to its or
their respective employees on the Closing Date. Employees of the Bank who become
employees of Second National will have their years of service credited toward
eligibility and vesting in Second National's benefit plans generally made
available to its employees and will be entitled to participate in, subject to
the terms of, such benefit plans. Any pre-existing condition exclusion under any
such benefit plans providing medical or dental benefits shall be waived for any
employees of the Bank who, immediately prior to commencing participation in such
benefit plans, was participating in a benefit plan providing medical or dental
benefits and had satisfied any pre-existing condition provision under such
benefit plan. Any expenses that were taken into account under a benefit plan
providing medical or dental benefits in which any such employee of the Bank
participated immediately prior to commencing participation in a benefit plan of
Second National providing medical or dental benefits shall be taken into account
to the same extent under such benefit plan of Second National, in accordance
with the terms of such benefit plan, for purposes of satisfying applicable
deductible, co-insurance and maximum out-of-pocket provisions and life-time
benefit limits.
6.03. Directors
Immediately following the Closing, the Corporation will: (a)
increase the number of its Directors by three (3) to a total of not more than
twelve (12) and elect three (3) persons who currently serve on the Board of
Directors of Trumbull to the Corporation's Board of Directors and (b) cause
Second National to increase the number of its Directors by three (3) to a total
of not more than nineteen (19) and elect to Second National's Board of Directors
three (3) persons who currently serve on the Board of Directors of Trumbull.
6.04. Registration Statement; Proxy Statement-Prospectus
(a) As promptly as practicable after the execution of
this Agreement, the Corporation shall prepare and
file with the SEC the Registration Statement and the
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Corporation shall use all reasonable efforts to have
the Registration Statement declared effective by the
SEC as promptly as practicable and to maintain the
effectiveness of the Registration Statement through
the Merger Date. The Corporation will also take any
action required to be taken under any applicable
state blue sky or securities laws in connection with
the issuance of the Shares.
(b) The Corporation shall file a listing application with
the National Association of Securities Dealers, Inc.
(the "NASD") for the Shares to be issued in the
Merger at the time prescribed by applicable rules and
regulations. In addition, the Corporation will use
its best efforts to maintain its listing on the
NASDAQ Stock Market.
(c) The Corporation will furnish Trumbull, its counsel
and accountants drafts of all such filings
sufficiently in advance of filing so as to afford a
reasonable opportunity for review and comment.
6.05. Opportunity of Employment
The Corporation shall cause Second National to offer the
existing full time employees of the Bank the opportunity to become employees of
Second National or offer reasonable and customary severance compensation based
upon years of service and outplacement consultation services to employees of
Bank who are not offered employment (other than employees who are otherwise
parties to employment or change in control agreements). Nothing in this section
or elsewhere in this Agreement shall be deemed to be a contract of employment or
be construed to give said employees any rights other than as employees at will
under Ohio law and said employees shall not be deemed to be third-party
beneficiaries of this provision. In addition, as of the Closing Date, the
Corporation shall cause Second National to assume the employment agreements
described in Section 3.01(q) of the Trumbull Disclosure Schedule.
6.06. Takeover Statutes and Provisions
The Corporation shall take all necessary steps to (i) exempt
this Agreement and the Merger from the requirements of any state takeover law
(including without limitation, statutes relating to business combinations,
control share acquisitions and merger moratoriums) and from any provisions under
its articles and regulations, as applicable, by action of the Board of Directors
of the Corporation or otherwise, and (ii) assist in any challenge by Trumbull to
the applicability to the Merger of any state takeover law.
6.07. Notification
Between the date of this Agreement and the Closing Date, the
Corporation will promptly notify Trumbull in writing if the Corporation becomes
aware of any fact or condition that (i) causes or constitutes a breach of any of
its representations and warranties, or (ii) would (except as expressly
contemplated by this Agreement) cause or constitute a breach of any such
representation or warranty had such representation or warranty been made as of
the time of occurrence or discovery of such fact or condition. Should any such
fact or condition require any change in the Corporation Disclosure Letter, the
Corporation will promptly deliver to Trumbull a supplement to the Corporation
Disclosure Letter specifying such change. During the same period, the
Corporation will promptly notify Trumbull of the occurrence of any breach of any
of the covenants contained in this Agreement or of the occurrence of any event
that may make the satisfaction of the conditions in this Agreement impossible.
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6.08 Officers' and Directors' Indemnification
(a) The Corporation shall keep in effect in its articles
and regulations and the articles and regulations of
its subsidiaries, provisions providing for
exculpation and indemnification of the respective
officers and directors of Trumbull and the Bank to
the fullest extent permitted under such articles and
regulations for the Corporation's officers and
directors.
(b) The Corporation shall cause to be maintained in
effect for not less than three years from the Merger
Date directors' and officers' liability insurance
policies of at least the same coverage, containing
terms and conditions which are no less advantageous
to the directors, officers, agents and employees who
are covered thereby, as those policies maintained by
Trumbull with respect to matters occurring prior to
the Merger Date; provided, however that (i) the
Corporation will not be required to maintain or
obtain policies providing such coverage except to the
extent that such coverage can be provided at an
annual cost no greater than 150% of current premiums,
and (ii) if the Corporation is unable to maintain or
obtain such insurance coverage, the Corporation will
maintain or obtain for such three-year period as much
comparable insurance as is available at an annual
cost of 150% of current premiums.
(c) In the event the Corporation or any of its successors
or assigns (i) consolidates with or merges into any
other person and shall not be the continuing or
surviving corporation or entity of such consolidation
or merger, or (ii) transfers or conveys all or
substantially all of its properties and assets to any
person, then, and in each such case, to the extent
necessary to effectuate the purposes of this Section
6.08 proper provision shall be made so that the
successors and assigns of the Corporation assume the
obligations set forth in this Section 6.08 and none
of the actions described in clauses (i) or (ii) shall
be taken until such provision is made.
ARTICLE SEVEN
Further Obligations of the Parties
----------------------------------
7.01. Necessary Further Action
Trumbull and the Corporation will enter into and take all
necessary action to consummate the transactions contemplated in this Agreement.
7.02. Covenants Regarding Shareholder Approvals
Trumbull and the Corporation covenant that:
(a) The respective Board of Directors of each of Trumbull
and the Corporation will recommend the approval of
this Agreement and the transactions contemplated
hereby to their respective shareholders, subject to
their fiduciary obligations under Ohio law.
(b) Trumbull and the Corporation will each call a meeting
of its shareholders to be held as soon as reasonably
practicable after the Registration Statement is
declared
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effective by the SEC, for the purpose of approving
this Agreement and the transactions contemplated
hereby and each will use its best efforts to obtain
such shareholder approval. Trumbull and the
Corporation will each prepare appropriate proxy
solicitation materials in respect of the meeting of
its shareholders, which materials will include a
proxy statement of Trumbull and a proxy statement of
the Corporation (each, a "Proxy Statement") and which
will be part of the submission by the Corporation to
the SEC of a registration statement ("Registration
Statement") under the Securities Act of 1933, as
amended ("Securities Act").
7.03. Cooperation in Bank Merger
Trumbull and the Bank will cooperate with the Corporation and
take all actions reasonably requested by the Corporation to assist the
Corporation in securing all required regulatory approvals to merge the Bank with
and into Second National and to take such corporate actions as are necessary or
desirable to implement such merger, provided such actions shall be conditioned
upon the consummation of the Merger.
7.04. Cooperative Action
Trumbull and the Corporation will take all further action and
execute all additional documents, agreements and instruments which may be
reasonably required, in the opinion of counsel for Trumbull and counsel for the
Corporation, to satisfy all legal requirements of the State of Ohio and the
United States, so that this Agreement and the transactions contemplated hereby
will become effective.
7.05. Satisfaction of Conditions
The Corporation and Trumbull shall each use its reasonable
best efforts to satisfy all of the conditions to this transaction and to cause
the consummation of the transactions described in this Agreement, including
making all governmental applications, notices, and filings and taking all steps
to secure promptly all government consents, rulings, and approvals which are
necessary for the performance by each party of each of its obligations under
this Agreement and the transactions contemplated thereby.
7.06. Accounting and Tax Treatment
Trumbull and the Corporation agree not to take any actions
subsequent to the date of this Agreement that would adversely affect the ability
of the Surviving Corporation to treat the Merger as a "pooling-of-interests" in
accordance with GAAP or the characterization of the Merger as a tax-free
reorganization under Section 368(a) of the IRC. Trumbull and the Corporation
agree to take such action as may be reasonably required, if such action may be
reasonably taken to reverse the impact of any past actions which would adversely
impact the ability of the Surviving Corporation to treat the Merger as a
"pooling-of-interests" for accounting purposes or of the Merger to be
characterized as a tax-free reorganization under Section 368(a) of the IRC.
7.07. Confidentiality
The Corporation and Trumbull agree for themselves, and their
representatives, successors and assigns, that any and all information each
obtains (including information obtained by their subsidiaries) from the other
will be kept strictly confidential and not be disclosed by them or their
representatives,
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agents, successors and assigns to any other person or group, except among their
attorneys, accountants and other representatives; except for any disclosure of
such information to which the other consents in writing or which in the opinion
of counsel for the disclosing party is required to be made under the Securities
Act, the 1934 Act, or other applicable laws or orders in order to permit any
transaction in their securities; and except for information already in the
public domain not as a result of the actions of the disclosing person or its
representatives in violation of this provision. In the event that the
transactions contemplated by this Agreement shall fail to be consummated for any
reason, each party to this Agreement shall promptly cause all information
relating to the other party, and furnished by the other party or prepared
pursuant to information provided by the other party regardless of who prepared
the information, to be returned to the other party or be destroyed.
7.08. Press Releases
The Corporation and Trumbull shall not make any press release
or other public announcement concerning the transactions contemplated by this
Agreement without the consent of the other party hereto as to the form and
contents of such press release or announcement, except to the extent that such
press release or announcement may be required by law to be made before such
consent can be obtained.
7.09. Regulatory Applications
The Corporation and Trumbull shall promptly file all reports
and applications required to be filed with the SEC, the Federal Reserve and such
other governmental entities (the "Regulatory Authorities") as may have
jurisdiction for such approvals as may be required to be obtained from such
governmental entities in order to carry out the transactions contemplated by
this Agreement as soon as practicable between the date of this Agreement and the
Merger Date.
7.10 Dividends
After the date of this Agreement, each of Trumbull and the
Corporation shall coordinate with the other the payment of dividends with
respect to the Trumbull Shares and the Shares and the record dates and payment
dates relating thereto, it being the intention of the parties hereto that
holders of Trumbull Shares and the Shares shall not receive two dividends, or
fail to receive one dividend, for any single calendar quarter with respect to
their Trumbull Shares and/or the Shares or any Shares that any such holder
receives in exchange for such Trumbull Shares in the Merger.
ARTICLE EIGHT
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE PARTIES
------------------------------------------------------
8.01. Conditions to Obligations of the Corporation
The obligations of the Corporation under this Agreement shall
be subject to the satisfaction of each of the following conditions precedent:
(a) The representations and warranties of Trumbull set
forth in this Agreement shall be true and complete in
all material respects at the Closing Date as though
such representations and warranties were also made as
of the Closing Date, except to the extent such
representation or warranty is by its express
provision made as of a specified date.
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(b) Trumbull shall have performed in all material
respects all of its covenants and obligations under
this Agreement to be performed on or prior to the
Closing Date, including those relating to the
Closing.
(c) In the aggregate, an amount of less than ten percent
(10%) of the number of Shares to be issued in the
Merger shall be (i) subject to purchase as fractional
shares, (ii) proposed to be issued to shareholders of
Trumbull who have taken such actions as are required
by Ohio Revised Code Section 1701.85 to be entitled
to relief as a dissenting shareholder in connection
with the transactions contemplated by this Agreement
and (iii) held by shareholders of the Corporation who
have demanded payment of the appraised value of their
Shares under Ohio Revised Code Section 1701.85 in
connection with the Merger.
(d) There shall not be any action or proceeding commenced
by or before any court or governmental agency or
authority in the United States, or threatened by any
governmental agency or authority in the United
States, that challenges or seeks to prevent or delay
the consummation of the Merger or seeks to impose
material limitations on the ability of the
Corporation to exercise full rights of ownership of
the assets or business of the Bank.
(e) The Corporation shall have received an opinion of
Vorys, Sater, Seymour and Pease LLP, reasonably
satisfactory in form and substance to the Corporation
and dated as of Closing, to the effect that the
Merger will constitute a tax-free reorganization
within the meaning of Section 368(a)(1)(A) of the
IRC.
(f) The Corporation shall have received an opinion of
McDonald & Company Securities, Inc., dated as of the
date of the Corporation's Proxy Statement, to the
effect that the Exchange Ratio is, as of such date,
fair to the shareholders of the Corporation from a
financial point of view.
(g) There shall not be in effect or proposed any order
with respect to the transactions contemplated by this
Agreement that in the reasonable judgment of the
Corporation would (i) materially adversely affect the
ability of the Corporation to enjoy the economic or
other benefits of the Merger; or (ii) impose any
material adverse condition, limitation or requirement
on the Corporation or Second National in connection
with the Merger or the merger of the Bank and Second
National.
(h) At the last day of the month preceding the Closing
Date, the shareholders' equity of Trumbull shall be
not less than $38,000,000, calculated in accordance
with generally accepted accounting principles; except
that such calculation shall exclude any reduction in
shareholders' equity:
(i) that would otherwise be required as a result
of changing interest rates by application of
SFAS 115 to Trumbull's existing portfolio;
(ii) as a result of charges taken at the request
of the Corporation; and
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(iii) as a result of expenses associated with the
transactions contemplated by this Agreement
(including, without limitation, legal,
accounting and investment bankers' fees and
expenses).
8.02. Conditions to the Obligations of Trumbull
The obligations of Trumbull under this Agreement shall be
subject to satisfaction of each of the following conditions precedent:
(a) The representations and warranties of the Corporation
set forth in this Agreement shall be true and
complete in all material respects as though such
representations and warranties were also made as of
the Closing Date; except to the extent such
representation or warranty is by its express
provision made as of a specified date.
(b) The Corporation shall have performed in all material
respects all of its covenants and obligations under
this Agreement to be performed by it on or prior to
the Closing Date, including those related to the
Closing.
(c) Trumbull shall have received a letter from Sandler
O'Neill & Partners, L.P., dated as of the date of the
Trumbull Proxy Statement, to the effect that, in its
opinion as of such date, the Exchange Ratio is fair
to Trumbull's shareholders from a financial point of
view.
(d) Trumbull shall have received an opinion of Jones,
Day, Reavis & Pogue or other counsel acceptable to
it, which may be Vorys, Sater, Seymour and Pease LLP,
reasonably satisfactory in form and substance to
Trumbull and dated as of Closing, to the effect that
the merger will constitute a tax-free reorganization
within the meaning of Section 368(a)(1)(A) of the
Code.
8.03. Mutual Conditions
The obligations of Trumbull and the Corporation under this
Agreement shall be subject to the satisfaction of each of the following
conditions precedent:
(a) All necessary governmental approvals, consents,
rulings, and notices pertaining to the Merger and the
merger of the Bank and Second National shall have
been received, and such approvals and consents shall
not be the subject of any unresolved proceeding
contesting such approval or consent maintained by
federal or state governmental authority or third
party and no such approval shall have imposed any
condition, requirement or restriction which the Board
of Directors of the Corporation reasonably determines
in good faith would so materially adversely impact
the economic or business benefits of the Merger to it
as to render inadvisable the consummation of the
Merger.
(b) The shareholders of the Corporation and Trumbull
shall have duly adopted this Agreement by the
required vote.
(c) The Registration Statement shall have become
effective under the Securities Act and no stop orders
or similar restraining orders suspending the
effectiveness of the
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Registration Statement shall have been issued and no
proceedings for that purpose shall have been
initiated or, to the knowledge of the parties,
threatened by the SEC.
(d) The Corporation shall have received all state
securities and "blue sky" permits and other
authorizations and approvals necessary to consummate
the Merger and the transactions contemplated hereby
and no order restraining the ability of the
Corporation to issue Shares pursuant to the Merger
shall have been issued and no proceedings for that
purpose shall have been initiated or threatened by
any state securities administrator.
(e) The Corporation and Trumbull shall have received from
Ernst & Young LLP, a letter dated the Closing Date,
substantially in the Form of Exhibit 8.03, stating
its opinion that, based upon the information
furnished, the transactions contemplated by this
Agreement should be accounted for by the Corporation
as a pooling of interests for financial statement
reporting purposes and that such accounting treatment
is in accordance with generally accepted accounting
principles.
(f) The Shares to be issued by the Corporation pursuant
to the Merger shall have been approved for listing on
the NASDAQ Stock Market subject to official notice of
issuance.
(g) There shall not be in effect an order or decision of
a court of competent jurisdiction which prevents or
materially delays the consummation of the Merger or
the merger of the Bank and Second National.
(h) There shall not be in effect any federal or state
law, rule or regulation which prevents or materially
delays consummation of the Merger or the merger of
the Bank and Second National.
ARTICLE NINE
Closing
-------
9.01. Closing
The closing (the "Closing") of the transactions contemplated
by this Agreement shall be held at the offices of the Corporation, 108 Main
S.W., Warren, Ohio 44481 commencing at 10:00 a.m., local time on the date
designated by the Corporation but not before 15 days after the Federal Reserve
shall have approved the merger of Trumbull and the Corporation and not later
than 75 days after all regulatory approvals have been obtained. Time shall be of
the essence of this Agreement. The date of the Closing is sometimes herein
called the "Closing Date."
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9.02. Closing Transactions Required of the Corporation
At the Closing, the Corporation shall cause all of the
following to be delivered to Trumbull:
(a) A Certificate of Merger duly executed by the
Corporation in accordance with Section 1701.81 of the
Ohio Revised Code and in appropriate form for filing
with the Ohio Secretary of State.
(b) A certificate of the chairman of the board of
directors, the president or a vice president of the
Corporation, dated as of the Closing Date and
certifying that (i) the warranties and
representations of the Corporation set forth in this
Agreement are true and complete in all material
respects as of the Closing Date, except to the extent
such representation or warranty is by its express
provision made as of a specified date; and (ii) the
Corporation has caused all of its covenants set forth
in this Agreement to be fully performed and satisfied
in all material respects.
(c) Copies of resolutions adopted by the directors and
shareholders of the Corporation, approving and
adopting this Agreement and authorizing the
consummation of the transactions described herein
accompanied by a certificate of the secretary or
assistant secretary of the Corporation dated as of
the Closing Date and certifying (1) the date and
manner of adoption of each such resolution; and (2)
that each such resolution is in full force and
effect, without amendment, as of the Closing Date.
(d) The written opinion of Vorys, Sater, Seymour and
Pease LLP, or other counsel satisfactory to Trumbull,
addressed to Trumbull to the effect of the opinions
set forth in Exhibit 9.02(d) hereto.
9.03. Closing Transactions Required of Trumbull
At the Closing, Trumbull shall cause all of the following to
be delivered to the Corporation:
(a) A Certificate of Merger duly executed by Trumbull in
accordance with Section 1701.81 of the Ohio Revised
Code and in appropriate form for filing with the Ohio
Secretary of State.
(b) A certificate of the chairman of the board of
directors, the president or a vice president of
Trumbull, dated as of the Closing Date and certifying
that (i) the warranties and representations of
Trumbull set forth in this Agreement are true and
complete in all material respects as of the Closing
Date, except to the extent such representation or
warranty is by its express provision made as of a
specified date; and (ii) Trumbull has caused all its
covenants set forth in this Agreement to be fully
performed and satisfied in all material respects.
(c) Copies of all resolutions adopted by the directors
and shareholders of Trumbull approving and adopting
this Agreement and authorizing the consummation of
the
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transactions described therein, accompanied by a
certificate of the secretary or the assistant
secretary of Trumbull, dated as of the Closing Date,
and certifying (i) the date and manner of the
adoption of each such resolution, and (ii) that each
such resolution is in full force and effect, without
amendment, as of the Closing Date.
(d) The written opinion of Jones, Day, Reavis & Pogue, or
other counsel satisfactory to the Corporation,
addressed to the Corporation to the effect of the
opinions set forth in Exhibit 9.03(d) hereto.
(e) The original, complete minute books of Trumbull
containing at least the Articles, the Code of
Regulations, and Bylaws, if any, and all of the
minutes and actions of the shareholders, directors
and committees or directors and share transfer and
registration records of Trumbull.
ARTICLE TEN
Non-Survival of Warranties
--------------------------
10.01. Non-Survival of Warranties, Covenants
The representations, warranties and covenants of the
Corporation and Trumbull set forth in this Agreement, or in any document
delivered pursuant to the terms hereof or in connection with the transactions
contemplated hereby, shall not survive the Closing and the consummation of the
transactions referred to herein, other than covenants which by their terms are
to survive or be performed after the Merger Date; except that no such
representations, warranties or covenants shall be deemed to be terminated or
extinguished so as to deprive the Corporation (or any director, officer or
controlling person thereof) of any defense in law or equity which otherwise
would be available against the claims of any person, including, without
limitation, any shareholder or former shareholder of either Trumbull or the
Corporation.
ARTICLE ELEVEN
Termination
-----------
11.01. Termination
Notwithstanding favorable action on this Agreement by the
Boards of Directors or shareholders of the parties hereto, this Agreement may be
terminated and the Merger abandoned:
(a) By the mutual consent and action of the Boards of
Directors of Trumbull and the Corporation at any
time;
(b) By Trumbull at the Closing if any of the conditions
precedent to its obligations set forth in Sections
8.02 and 8.03 of this Agreement shall not have been
performed and satisfied or if Trumbull shall not have
expressly waived satisfaction thereof;
(c) By the Corporation at or prior to the Closing if any
of the conditions precedent to its obligations set
forth in Sections 8.01 and 8.03 of this Agreement
shall not have been performed and satisfied or if the
Corporation shall not have expressly waived
satisfaction thereof;
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(d) By Trumbull or the Corporation if, for reasons beyond
the reasonable control of the terminating party, the
Closing shall not have been consummated on or before
February 28, 1999, unless otherwise agreed to by the
parties hereto in writing;
(e) By the vote of a majority of the Board of Directors
of either Trumbull or the Corporation in the event of
a material breach by the other party of any
representation, warranty, covenant or agreement,
which breach is not cured, or cannot be cured, within
30 days after written notice thereof is given to the
party committing such breach;
(f) By the Corporation if the Board of Directors of
Trumbull fails to recommend the Merger or withdraws
its recommendation of the Merger;
(g) By Trumbull if the Board of Directors of the
Corporation fails to recommend the Merger or
withdraws its recommendation of the Merger;
(h) By the Corporation or by Trumbull upon written notice
to the other 30 or more days after the date upon
which any application for a regulatory or
governmental approval necessary to consummate the
Merger and the other transactions contemplated hereby
shall have been denied or withdrawn at the request or
recommendation of the applicable regulatory agency or
governmental authority, unless within such 30-day
period a petition for rehearing or an amended
application is filed or noticed, or 30 or more days
after any petition for rehearing or amended
application is denied; and
(i) By the vote of a majority of the Board of Directors
of Trumbull at any time prior to the second full day
immediately prior to the Closing Date with immediate
notice to the Corporation, if the following three
conditions are satisfied:
(i) the Corporation Closing Price of the Shares is
less than $25.00; and
(ii) the number obtained by dividing the Corporation
Closing Price by the closing price of the Shares on
May 4, 1998 (on the NASDAQ Stock Market as reported
by THE WALL STREET JOURNAL or, if not reported
thereby, another authoritative source) is less than
90% of the quotient obtained by dividing the Index
Price on the seventh (7th) day immediately preceding
the Closing Date by the Index Price on May 4, 1998;
and
(iii) the Corporation shall not have given written
notice to Trumbull prior to the third full day
immediately prior to the Closing Date which notice
states that the Corporation agrees that the Exchange
Ratio shall be calculated by dividing $94.50 by the
Corporation Closing Price.
For purposes of this Subsection 11.01(i):
"Corporation Closing Price" shall mean the average closing
price per Share on the NASDAQ Stock Market (as reported by THE
WALL STREET JOURNAL or, if not reported thereby, another
authoritative source) for the most recent twenty (20) days on
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which actual trades of Shares occur ending on the seventh
(7th) day immediately preceding the Closing Date.
"Index Group" shall mean the 30 bank holding companies listed
on Exhibit 11.01(i), the common stocks of all of which must be
publicly traded and as to which there must not have been,
since May 4, 1998 and before the seventh (7th) day immediately
preceding the Closing Date, any public announcement of a
proposal for such company to be acquired. In the event that
any such company or companies are removed from the Index Group
as a result of any such proposed acquisition or the cessation
of public trading of common stock, the weights (which have
been determined based upon the relative market capitalization
of the 30 companies as of May 4, 1998) shall be redistributed
proportionately among the remaining companies on Exhibit
11.01(i) for purposes of determining the Index Price.
"Index Price" on a given date shall mean the weighted average
(weighted in accordance with the "Market Weighting" listed on
Exhibit 11.01(i) as adjusted pursuant to the definition of
"Index Group") of the closing sales prices of the companies
composing the Index Group.
If the Corporation or any company belonging to the Index Group
declares or effects a stock dividend, reclassification,
recapitalization, split-up, combination, exchange of shares,
or other similar transaction between May 4, 1998 and the
seventh (7th) day immediately preceding the Closing Date, the
prices for the common stock of the Corporation or such company
and any calculations hereunder will be appropriately adjusted
for the purposes of applying this section.
11.02. Notice of Termination
In the event of any termination of this Agreement pursuant to
Section 11.01, the terminating party shall give written notice of such
termination to the other party to this Agreement and upon the giving of such
notice, such termination shall automatically become effective. Such termination
shall have no effect upon (a) the rights or remedies of the terminating party,
including those for breach occurring prior to termination; or (b) the obligation
of Trumbull to pay the fee set forth in Section 5.03(b).
ARTICLE TWELVE
Miscellaneous
-------------
12.01. Notices
All notices, requests, demands, and other communications
required or permitted to be given under this Agreement shall be given in writing
and shall be deemed to have been given if delivered by hand, by express service
or sent by certified mail, postage prepaid, return receipt requested, to the
following addresses:
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If to Trumbull, to:
105 High Street, N.E.
Warren, OH 44481
Attention: President
with a copy to:
Jones, Day, Reavis & Pogue
North Point
901 Lakeside Avenue
Cleveland, OH 44114
Attention: David P. Porter
If to the Corporation, to:
108 Main Avenue, S.W.
P.O. Box 1311
Warren, Ohio 44482
Attention: Chairman and President
with a copy to:
Vorys, Sater, Seymour and Pease LLP
52 East Gay Street
P.O. Box 1008
Columbus, OH 43216-1008
Attention: Charles S. DeRousie
Any party to this Agreement may, by notice given in accordance with this
section, designate a new address for notices, requests, demands, and other
communications to such party.
12.02. Counterparts
This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be a duplicate original, but all of which taken
together shall be deemed to constitute a single instrument.
12.03. Entire Agreement
This Agreement, the Stock Option Agreement, the Stockholder
Voting Agreement (including each exhibit and schedule provided pursuant hereto)
constitutes the entire agreement between the parties hereto in respect of the
subject matter of this Agreement (including each exhibit and schedule) and
supersedes all prior and contemporaneous agreements between the parties hereto
in connection with the subject matter of this Agreement, other than the Letter
Agreements dated March 10, and April 21, 1998 exchanged by the Corporation and
Trumbull.
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12.04. Successors and Assigns
This Agreement shall inure to the benefit of and be binding
upon the respective successors and assigns (including successive, as well as
immediate, successors and assigns) of the parties hereto. This Agreement may not
be assigned by either party hereto without the prior written consent of the
other party.
12.05. Captions
The captions contained in this Agreement are included only for
convenience of reference and do not define, limit, explain, or modify this
Agreement or its interpretation, construction, or meaning and are in no way to
be construed as part of this Agreement.
12.06. Governing Law
This Agreement shall be governed by and construed in
accordance with the laws of the State of Ohio, without giving effect to
principles of conflicts or choice of laws.
12.07. Payment of Fees and Expenses
Except as otherwise agreed in writing, each party hereto shall
pay all costs and expenses, including legal and accounting fees, and all
expenses relating to its performance of, and compliance with, its undertakings
herein.
12.08. Amendment
From time to time and at any time prior to the Merger Date,
this Agreement may be amended only by an agreement in writing executed in the
same manner as this Agreement, after authorization of such action by the Boards
of Directors of the Constituent Corporations; but no such amendment shall alter
or change the amount or kind of shares, evidences of indebtedness, other
securities, cash, rights or any other property to be received by the Trumbull
shareholders or materially adversely affect the shareholders of Trumbull or the
Corporation without their approval or be prohibited by law.
12.09. Waiver
The rights and remedies of the parties to this Agreement are
cumulative and not alternative. Neither the failure nor any delay by any party
in exercising any right, power, or privilege under this Agreement or the
documents referred to in this Agreement will operate as a waiver of such right,
power, or privilege, and no single or partial exercise of any such right, power,
or privilege will preclude any other or further exercise of such right, power,
or privilege or the exercise of any other right, power or privilege.
12.10. Disclosure Schedule and Letter
In the event of any inconsistency between the statements in
the body of this Agreement and those in the respective Disclosure Schedule or
Letter (other than an exception expressly set forth as such in the Disclosure
Schedule or Letter with respect to a specifically identified representation or
warranty), the statements in the body of this Agreement will control.
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12.11. No Third-Party Rights
Except as specifically set forth herein, nothing expressed or
referred to in this Agreement will be construed to give any person other than
the parties to this Agreement any legal or equitable right, remedy, or claim
under or with respect to this Agreement or any provision of this Agreement. This
Agreement and all of its provisions and conditions are for the sole and
exclusive benefit of the parties to this Agreement and their successors and
assigns.
12.12. Severability
If any provision of this Agreement is held invalid or
unenforceable by any court of competent jurisdiction, the other provisions of
this Agreement will remain in full force and effect. Any provision of this
Agreement held invalid or unenforceable only in part or degree will remain in
full force and effect to the extent not held invalid or unenforceable.
IN WITNESS WHEREOF, this Agreement and Plan of Merger has been
executed on behalf of Second Bancorp Incorporated and Trumbull Financial
Corporation to be effective as of the date set forth in the first paragraph
above.
ATTEST: SECOND BANCORP INCORPORATED
/s/ Christopher Stanitz By: /s/ Alan G. Brant
- ----------------------- ------------------
Title: Alan G. Brant, Chairman and President
ATTEST: TRUMBULL FINANCIAL CORPORATION
/s/ By: /s/ James R. Izant
- ----------------------- --------------------
Title: Executive Vice President
A-39
<PAGE> 202
Exhibit 11.01(i) of the Merger Agreement
SECOND BANCORP INDEX GROUP
<TABLE>
<CAPTION>
Ticker Short Name City State
- -------------- ---------------------------------------------------- ----------------------- --------
<S> <C> <C> <C>
AREA Area Bancshares Corporation Owensboro KY
BFOH BancFirst Ohio Corp. Zanesville OH
BLMT Belmont Bancorp. Bridgeport OH
BTFC BT Financial Corporation Johnstown PA
CICS Citizens Bancshares, Inc. Salineville OH
CHCO City Holding Company Cross Lanes WV
FBAN F.N.B. Corporation Hermitage PA
FCF First Commonwealth Financial Corporation Indiana PA
FFBC First Financial Bancorp. Hamilton OH
FWBI First Western Bancorp, Inc. New Castle PA
FFSW FirstFederal Financial Services Corp. Wooster OH
HNBC Harleysville National Corporation Harleysville PA
HZWV Horizon Bancorp, Inc. Beckley WV
MGNB Mahoning National Bancorp, Incorporated Youngstown OH
MATE Matewan BancShares, Inc. Williamson WV
MIAM Mid Am, Inc. Bowling Green OH
NCBE National City Bancshares, Inc. Evansville IN
NPBC National Penn Bancshares, Inc. Boyertown PA
OMEF Omega Financial Corporation State College PA
PRK Park National Corporation Newark OH
PEBO Peoples Bancorp Inc. Marietta OH
RBNC Republic Bancorp, Inc. Owosso MI
STBA S&T Bancorp, Inc. Indiana PA
SLFC Shoreline Financial Corporation Benton Harbor MI
SWPA Southwest National Corporation Greensburg PA
SLFI Sterling Financial Corporation Lancaster PA
SUBI Sun Bancorp, Inc. Selinsgrove PA
UBAN USBANCORP, Inc. Johnstown PA
WNNB Wayne Bancorp, Inc. Wooster OH
WSBC WesBanco, Inc. Wheeling WV
---------------------------------------------------- ----------------------- --------
TOTAL
---------------------------------------------------- ----------------------- --------
</TABLE>
A-40
<PAGE> 203
ANNEX B
-------
FORM OF RESOLTUION TO BE VOTED UPON BY THE SHAREHOLDERS OF SECOND BANCORP
TO AMEND THE AMENDED ARTICLES OF SECOND BANCORP TO ELIMINATE SECOND
BANCORP'S TWO CLASSES OF PREFERRED SHARES
RESOLVED, that Articles Fourth of the Amended Articles of
Second Bancorp Incorporated be amended by deleting, replacing
and superseding in its entirety the present Article Fourth
with the following:
ARTICLE FOURTH
The maximum number of capital shares which
this Corporation is authorized to issue or to have
outstanding at any time shall be twenty million
(20,000,000) shares, all of which shall be common
shares. The shares will have no par value stated. The
Board of Directors of the Corporation is hereby
empowered to issue from time to time shares of its
capital shares, whether now or hereafter authorized.
No holders of any class of shares of the Corporation
shall have any preemptive rights to purchase or to
have offered to them for purchase any shares or other
securities of the Corporation.
B-1
<PAGE> 204
ANNEX C
-------
FAIRNESS OPINION OF MCDONALD AND COMPANY SECURITIES, INC.
___________, 1998
Board of Directors
Second Bancorp Incorporated
108 Main Avenue, SW
Warren, OH 44481
Gentlemen:
You have requested our opinion with respect to the fairness, from a
financial point of view, as of the date hereof, to the holders of common stock,
no par value (the "Shares"), of Second Bancorp Incorporated ("Second Bancorp")
of the exchange ratio as set forth in Article Two, Section 2.01 of the Agreement
and Plan of Merger dated May 4, 1998 (the "Agreement"), by and between Second
Bancorp and Trumbull Financial Corporation ("Trumbull").
The Agreement provides for the merger (the "Merger") of Trumbull with
and into Second Bancorp, pursuant to which, among other things, at the Merger
Date (as defined in the Agreement), outstanding shares of Trumbull common stock,
without par value ("Trumbull Shares"), will be exchanged for 3.78 Shares as set
forth in Article Two, Section 2.01 (b) of the Agreement (the "Exchange Ratio").
The terms and conditions of the Merger are more fully set forth in the
Agreement.
McDonald & Company Securities, Inc., as part of its investment banking
business, is customarily engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, secondary distributions of listed and unlisted securities,
private placements and valuations for estate, corporate and other purposes.
We have acted as Second Bancorp's financial advisor in connection with,
and have participated in certain negotiations leading to, the execution of the
Agreement. In connection with rendering our opinion set forth herein, we have
among other things:
(i) Reviewed Second Bancorp's Annual Reports to Shareholders and
Annual Reports on Form 10-K for each of the years ended
December 31, 1997, December 31, 1996 and December 31, 1995,
including the audited financial statements contained therein;
and Second Bancorp's Quarterly Reports on Form 10-Q for the
three month periods ended March 31, 1998 and June 30, 1998;
(ii) Reviewed Trumbull's audited financial statements for the
fiscal years ended September 30, 1997, September 30, 1996 and
September 30, 1995; and Trumbull's unaudited financial
statements for the nine month period ended June 30, 1998;
(iii) Reviewed certain other public and non-public information,
primarily financial in nature, relating to the respective
businesses, earnings, assets and prospects of Second Bancorp
and Trumbull provided to us or publicly available;
(iv) Participated in meetings and telephone conferences with
members of senior management of Second Bancorp and Trumbull
concerning the financial condition, business, assets,
financial forecasts and prospects of the respective companies,
as well as other matters we believed relevant to our inquiry;
C-1
<PAGE> 205
(v) Reviewed certain stock market information for the Shares and
Trumbull Shares and compared it with similar information for
certain companies, the securities of which are publicly
traded;
(vi) Compared the results of operations and financial condition of
Second Bancorp and Trumbull with that of certain companies
which we deemed to be relevant for purposes of this opinion;
(vii) Reviewed the financial terms, to the extent publicly
available, of certain acquisition transactions which we deemed
to be relevant for purposes of this opinion;
(viii) Reviewed the Agreement and its schedules and exhibits and
certain related documents; and
(ix) Performed such other reviews and analyses as we have deemed
appropriate.
In our review and analysis and in arriving at our opinion, we have
assumed and relied upon the accuracy and completeness of all of the financial
and other information reviewed by us and have relied upon the accuracy and
completeness of the representations, warranties and covenants of Second Bancorp
and Trumbull contained in the Agreement. We have not been engaged to undertake,
and have not assumed any responsibility for, nor have we conducted, an
independent investigation or verification of such matters. We have not been
engaged to and we did not conduct a physical inspection of any of the assets,
properties or facilities of either Second Bancorp or Trumbull, nor have we made
or obtained or been furnished with any independent evaluation or appraisal of
any of such assets, properties or facilities or any of the liabilities of either
Second Bancorp or Trumbull. With respect to financial forecasts used in our
analysis, we have assumed that such forecasts have been reasonably prepared by
management of Second Bancorp and Trumbull, as the case may be, on a basis
reflecting the best currently available estimates and judgments of the
management of Second Bancorp and Trumbull as to the future performance of Second
Bancorp, Trumbull, and Second Bancorp and Trumbull combined, as the case may be.
We have not been engaged to assess the reasonableness or achievability of such
financial forecasts or the assumptions on which they are based, and we express
no view as to such financial forecasts or assumptions. We have also assumed that
all of the conditions to the consummation of the Merger, as set forth in the
Agreement, including the tax-free nature of the reorganization for federal
income tax purposes, would be satisfied and that the Merger would be consummated
on a timely basis in the manner contemplated by the Agreement.
We will receive a fee for our services as financial advisor to Second
Bancorp, a portion of which is contingent upon closing of the Merger. We will
also receive a fee for our services in rendering this opinion.
In the ordinary course of business, we may actively trade securities of
Second Bancorp and Trumbull for our own account and for the accounts of
customers and, accordingly, we may at any time hold a long or short position in
such securities.
This opinion is based on economic and market conditions and other
circumstances existing on, and information made available as of, the date
hereof. In addition, our opinion is, in any event, limited to the fairness, as
of the date hereof, from a financial point of view, of the Exchange Ratio, to
the holders of the Shares does not address the underlying business decision by
Second Bancorp's Board of Directors to effect the Merger or any other terms of
the Merger, and does not constitute a recommendation to any Second Bancorp
shareholder as to how such shareholder should vote with respect to the Merger.
This opinion does not represent our opinion as to what the value of the Shares
or Trumbull Shares may be at the effective date of the Merger or as to the
prospects of Second Bancorp's business or Trumbull's business.
This opinion is directed to and has been prepared for the confidential
use of the Board of Directors of Second Bancorp. We do not believe that we are
acting as agents of the Second Bancorp Board of Directors nor the holders of the
Shares, and we do not believe that any person other than the Second Bancorp
Board of Directors has any legal right under state law to rely on this opinion.
This opinion shall not be reproduced, summarized, described or referred to or
given to any other person without our prior written consent. Notwithstanding the
foregoing, this opinion may be included in a proxy statement to be mailed to the
holders of the Shares in
C-2
<PAGE> 206
connection with the Merger, provided that this opinion will be reproduced in
such proxy statement in full, and any description of or reference to us or our
actions, or any summary of the opinion in such proxy statement will be in a form
acceptable to us and our counsel.
Based upon and subject to the foregoing, it is our opinion that, as of
the date hereof, the Exchange Ratio is fair to the holders of the Shares from a
financial point of view.
Very truly yours,
MCDONALD & COMPANY SECURITIES, INC.
-------------------------------------
McDonald & Company Securities, Inc.
C-3
<PAGE> 207
ANNEX D
-------
FAIRNESS OPINION OF SANDLER O'NEILL & PARTNERS, L.P.
[Sandler O'Neill & Partners, L.P. Letterhead]
______________,1998
Board of Directors
Trumbull Financial Corporation
105 High Street, N.E.
Warren, Ohio 44481
Ladies and Gentlemen:
Trumbull Financial Corporation ("Trumbull") and Second Bancorp
Incorporated ("Second") have entered into an Agreement and Plan of Merger, dated
as of May 4, 1998 (the "Agreement"), pursuant to which Trumbull will be merged
with and into Second (the "Merger"). Upon consummation of the Merger, each share
of Trumbull common stock, no par value, issued and outstanding immediately prior
to the effective time of the Merger (the "Trumbull Shares"), other than certain
shares specified in the Agreement, will be converted into 3.78 shares (the
"Exchange Ratio") of common stock, no par value, of Second. The terms and
conditions of the Merger are more fully set forth in the Agreement. You have
requested our opinion as to the fairness, from a financial point of view, of the
Exchange Ratio to the holders of the Trumbull Shares.
Sandler O'Neill & Partners, L.P., as part of its investment banking
business, is regularly engaged in the valuation of financial institutions and
their securities in connection with mergers and acquisitions and other corporate
transactions. In connection with this opinion, we have reviewed, among other
things: (i) the Agreement and exhibits thereto; (ii) the Stock Option Agreement,
dated as of May 4, 1998, by and between Trumbull and Second; (iii) certain
financial statements of Trumbull and its subsidiary, The Trumbull Savings and
Loan Company, and other historical financial information provided by Trumbull
that we deemed relevant; (iv) certain publicly available financial statements of
Second and other historical financial information provided by Second that we
deemed relevant; (v) certain financial analyses and forecasts of Trumbull
prepared by and reviewed with management of Trumbull and the views of senior
management of Trumbull regarding Trumbull's past and current business
operations, results thereof, financial condition and future prospects; (vi)
certain financial analyses and forecasts of Second prepared by and reviewed with
management of Second and the views of senior management of Second regarding
Second's past and current business operations, results thereof, financial
condition and future prospects; (vii) the pro forma impact of the Merger; (viii)
a comparison of certain financial information for Trumbull and certain financial
and stock market information for Second with similar publicly available
information for certain other companies the securities of which are publicly
traded; (ix) the financial terms of recent business combinations in the savings
institution industry, to the extent publicly available; (x) the current market
environment generally and the banking environment in particular; and (xi) such
other information, financial studies, analyses and investigations and financial,
economic and market criteria as we considered relevant.
In performing our review, we have assumed and relied upon, without
independent verification, the accuracy and completeness of all the financial
information, analyses and other information that was publicly available or
otherwise furnished to, reviewed by or discussed with us, and we do not assume
any responsibility or liability therefor. We did not make an independent
evaluation or appraisal of the specific
D-1
<PAGE> 208
assets, the collateral securing assets or the liabilities (contingent or
otherwise) of Trumbull or Second or any of their subsidiaries, or the
collectibility of any such assets, nor have we been furnished with any such
evaluations or appraisals (relying, where relevant, on the analyses and
estimates of Trumbull and Second). With respect to the financial projections
reviewed with management, we have assumed that they have been reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the respective managements of the respective future financial
performances of Trumbull and Second and that such performances will be achieved,
and we express no opinion as to such financial projections or the assumptions on
which they are based. We have also assumed that there has been no material
change in Trumbull's or Second's assets, financial condition, results of
operations, business or prospects since the dates of the last financial
statements made available to us. We have assumed in all respects material to our
analysis that Trumbull and Second will remain as going concerns for all periods
relevant to our analyses, that all of the representations and warranties
contained in the Agreement and all related agreements are true and correct, that
each party to such agreements will perform all of the covenants required to be
performed by such party under such agreements, that the Merger will be accounted
for as a pooling of interests and that the conditions precedent in the Agreement
are not waived.
Our opinion is necessarily based on financial, economic, market and
other conditions as in effect on, and the information made available to us as
of, the date hereof. Events occurring after the date hereof could materially
affect this opinion. We have not undertaken to update, revise or reaffirm this
opinion or otherwise comment upon events occurring after the date hereof. We are
expressing no opinion herein as to what the value of Second common stock will be
when issued to Trumbull's shareholders pursuant to the Agreement or the prices
at which Second's common stock may trade at any time.
We have acted as Trumbull's financial advisor in connection with the
Merger and will receive a fee for our services, a significant portion of which
is contingent upon consummation of the Merger. We have also received a fee for
rendering this opinion. In the past, we have also provided certain other
investment banking services for Trumbull and have received compensation for such
services.
Our opinion is directed to the Board of Directors of Trumbull in
connection with its consideration of the Merger and does not constitute a
recommendation to any stockholder of Trumbull as to how such stockholder should
vote at any meeting of stockholders called to consider and vote upon the Merger.
Our opinion is not to be quoted or referred to, in whole or in part, in a
registration statement, prospectus, proxy statement or in any other document,
nor shall this opinion be used for any other purposes, without Sandler O'Neill's
prior written consent; provided, however, that we hereby consent to the
inclusion of this opinion as an appendix to Trumbull's and Second's Joint Proxy
Statement/Prospectus dated the date hereof and to the references to this opinion
therein.
Based upon and subject to the foregoing, it is our opinion, as of the
date hereof, that the Exchange Ratio is fair, from a financial point of view, to
the holders of Trumbull Shares.
Very truly yours,
--------------------------------
Sandler O'Neill & Partners, L.P.
D-2
<PAGE> 209
ANNEX E
-------
OHIO REVISED CODE
TITLE XVII CORPORATIONS-PARTNERSHIPS
CHAPTER 1701: GENERAL CORPORATION LAW
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 described 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 ten days after the date
on which the vote on the proposal was taken at the meeting of the shareholders,
the dissenting 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,
which demand shall state 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 1701.84 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 twenty days after he has been sent the notice provided in
section 1701.80 or 1701.801 of the Revised Code, the dissenting 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 entity, whether the demand is 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, the dissenting shareholder, within
fifteen days from the date of the sending of such request, shall deliver to the
corporation the certificates requested so 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 dissenting shareholder, at the option of the corporation,
exercised by written notice sent to the dissenting shareholder within twenty
days after the lapse of the fifteen-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 for 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
E-1
<PAGE> 210
shares shall bear the legend required for certificated 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.
A request under this paragraph by the 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 have come to
an agreement on the fair cash value per share of the shares as to which the
dissenting shareholder seeks relief, the dissenting shareholder or the
corporation, which in the case of a merger or consolidation may be the surviving
or new entity, within three months after the service of the demand by the
dissenting shareholder, may file a complaint in the court of common pleas of the
county in which the principal office of the corporation that issued the shares
is located or was located 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 that three-month period, 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 a complaint is required. Upon the filing of
such a 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 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 dissenting 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 dissenting 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 appointed 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
that is agreed upon by the parties or 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 the payment is made.
(C) If the proposal was required to be submitted to the shareholders of
the corporation, a fair cash value as to those shareholders shall be determined
as of the date prior to the day 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
E-2
<PAGE> 211
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 who is under no
compulsion to sell would be willing to accept and that a willing buyer who is
under no compulsion to purchase would be willing to pay, but in no event shall
the fair cash value of a share 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.
(D) (1) 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 any of the following applies:
(a) The dissenting shareholder has not complied with
this section, unless the corporation by its directors waives
such failure;
(b) The corporation abandons the action involved or
is finally enjoined or prevented from carrying it out, or the
shareholders rescind their adoption of the action involved;
(c) the dissenting shareholder withdraws his demand,
with the consent of the corporation by its directors;
(d) The corporation and the dissenting shareholder
have not come to an agreement as to the fair cash value per
share, and neither the shareholder nor the corporation has
filed or jointed in a complaint under division (B) of this
section within the period provided in that division.
(2) For purposes of division (D)(1) of this section, if the
merger or consolidation has become effective and the surviving or new entity is
not a corporation, action required to be taken by the directors of the
corporation shall be taken by the general partners of a surviving or new
partnership or the comparable representatives of any other surviving or new
entity.
(E) From the time of the dissenting shareholder's giving of 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 other
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.
E-3
<PAGE> 212
ANNEX F
-------
ACQUIRING PERSON STATEMENT
1. The identity of the "Acquiring Person" is Second Bancorp Incorporated,
a corporation organized and existing under the laws of the State of
Ohio and registered as a bank holding company under the Bank Holding
Company Act of 1956, as amended (the "Acquiring Person").
2. This Acquiring Person Statement is being given by the Acquiring Person
pursuant to Section 1701.831 of the Ohio Revised Code
3. The number of common shares, without par value, of Trumbull Financial
Corporation, a corporation organized and existing under the laws of the
State of Ohio and a bank holding company, owned, directly or
indirectly, by the Acquiring Person on the date of this statement is:
[insert].
4. The range of voting power, described in division (Z)(1) of Section
1701.01 of the Ohio Revised Code, under which the proposed control
share acquisition will, if and on the date it is consummated, fall is:
a majority or more of such voting power.
5. The proposed control share acquisition is to be consummated on the
terms contained in the Plan Agreement and Plan of Merger (the
"Agreement"), a copy of which is attached to this Prospectus/Joint
Proxy Statement, dated May 4, 1998 as Annex A.
6. The acquiring Person hereby represents that the proposed control share
acquisition, if consummated in accordance with the terms of the
Agreement, will not be contrary to law and hereby further represents
that the Acquiring Person has the financial capacity to make the
proposed control share acquisition.
IN WITNESS WHEREOF, the undersigned has caused this Acquiring Person
Statement to be executed and delivered to Trumbull Financial Corporation this
___ day of ________, 1998.
SECOND BANCORP INCORPORATED
By:
-----------------------------------
Name: Alan G. Brant
Title: Chairman and President
F-1
<PAGE> 213
INFORMATION NOT REQUIRED IN PROSPECTUS
INDEMNIFICATION OF DIRECTORS AND OFFICERS
See "DESCRIPTION OF SECOND BANCORP SHARES - Director and Officer
Liability and Indemnification" included in the Prospectus/Proxy Statement
portion of this Registration Statement.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
Document Exhibit Document Reference
- -------- ------- ------------------
<S> <C> <C>
Agreement and Plan of Merger (excluding exhibits except
Exhibit 11.01(i)) dated May 4, 1998, by and between Second
Bancorp Incorporated and Trumbull Financial Corporation (set
forth as Annex A to the Prospectus/Joint Proxy Statement included
in this Registration Statement)...................................... 2.1 Included as Annex A
Agreement and Plan of Merger (excluding exhibits) dated as of April 1,
1998, by and between Second Bancorp Incorporated and Enfin, Inc...... 2.2 Incorporated by Reference (1)
Amended Articles of Incorporation of Second Bancorp Incorporated........ 3.1 *
Code of Regulations of Second Bancorp Incorporated...................... 3.2 Incorporated by Reference (2)
Stock Option Agreement, dated as of May 4, 1998, by and between Second
Bancorp Incorporated and Trumbull Financial Corporation.............. 4.1 *
Stockholder Voting Agreement, dated as of May 4, 1998, by and between 4.2 *
Second Bancorp Incorporated, Trumbull Financial Corporation, the
Izant Family Partnership, Elizabeth A. Izant, Trustee of Elizabeth
A. Izant Trust, James R. Izant, Holly Izant McSherry and Phyllis
Izant
Consulting Agreement, dated as of August __, 1998, by and between James 4.3 *
R. Izant and Second Bancorp Incorporated
Description of Second Bancorp Incorporated's common shares.............. 4.4 Incorporated by Reference (3)
Form of opinion of Vorys, Sater, Seymour and Pease LLP as to the
legality of the securities being issued.............................. 5 *
Form of opinion of Vorys, Sater, Seymour and Pease LLP as to tax
matters ............................................................. 8.1 *
1998 Non-Qualified Stock Option Plan.................................... 10.1 Incorporated by Reference (4)
Amended Stock Option Incentive Plan..................................... 10.2 Incorporated by Reference (2)
Form of Incentive Stock Option Agreement................................ 10.3 Incorporated by Reference (2)
Stock Appreciation Rights Agreement by and between Second Bancorp
Incorporated and Alan G. Brant, dated April 1, 1987, as amended...... 10.4 Incorporated by Reference (2)
Form of Amendment to April 1, 1987 Stock Appreciation Rights Agreement
by and between Second Bancorp Incorporated and Alan G. Brant,
effective December 18, 1996.......................................... 10.5 Incorporated by Reference (6)
Employment Agreement by and between Second Bancorp Incorporated and
Alan G. Brant, dated April 1, 1985................................... 10.6 Incorporated by Reference (2)
Amendments to Employment Agreement by and between Second Bancorp
Incorporated and Alan G. Brant, dated April 1, 1985.................. 10.7 Incorporated by Reference (5)
Consulting Agreement by and between Second Bancorp Incorporated and
Alan G. Brant, dated April 1, 1985................................... 10.8 Incorporated by Reference (2)
Amendment to Consulting Agreement by and between Second Bancorp
Incorporated and Alan G. Brant, dated April 1, 1985.................. 10.9 Incorporated by Reference (5)
</TABLE>
II-1
<PAGE> 214
<TABLE>
<CAPTION>
Document Exhibit Document Reference
- -------- ------- ------------------
<S> <C> <C>
Deferred Compensation Agreement between Second Bancorp Incorporated and
Alan G. Brant, dated November 9, 1995................................ 10.10 Incorporated by Reference (5)
Lease Agreement between Arden Associates Limited Partnership and The
Second National Bank of Warren, dated October 1, 1979................ 10.11 Incorporated by Reference (2)
Amendment to Lease Agreement between Arden Associates Limited
Partnership and the Second National Bank of Warren................... 10.12 Incorporated by Reference (5)
Form of Amended Management Severance Agreement with executive
officers............................................................. 10.13 Incorporated by Reference (5)
Credit Agreement, dated September 15, 1998, between Second Bancorp
Incorporated and The Northern Trust Company.......................... 10.14 **
Subsidiaries of Second Bancorp Incorporated............................. 21 Incorporated by Reference (6)
Consent of Ernst & Young LLP (with respect to Second Bancorp
Incorporated)........................................................ 23.1 *
Consent of Crowe Chizek and Company LLP (with respect to Trumbull
Financial Corporation)............................................... 23.2 *
Form of Consent of McDonald & Company Securities, Inc................... 23.3 *
Form of Consent of Sandler O'Neill & Partners, L.P...................... 23.4 *
Consent of Vorys, Sater, Seymour and Pease LLP (with respect to its
opinion relating to the legality of the securities being issued)..... 23.5 Included in Exhibit 5
Consent of Vorys, Sater, Seymour and Pease LLP (with respect to tax
Opinion)............................................................. 23.6 Included in Exhibit 8.1
A power of attorney where various individuals authorize the signing of
their names to any and all amendments to this registration Statement
and other documents submitted in connection herewith is contained on
the first page of the signature pages following Part II of this
Registration Statement............................................... 24 *
Form of Fairness Opinion of McDonald & Company Securities, Inc. (set
forth in Annex C to the Prospectus/Joint Proxy Statement included in
this Registration Statement)......................................... 99.1 Included in Annex C
Form of Fairness Opinion of Sandler O'Neill & Partners, L.P. (set forth
in Annex D to the Prospectus/Joint Proxy Statement included in this
Registration Statement).............................................. 99.2 Included in Annex D
Form of Letter to Trumbull Financial Corporation Shareholders.......... 99.3 *
Form of Notice of Special Meeting of Shareholders of Trumbull Financial 99.4 *
Corporation ........................................................
Form of Notice of Special Meeting of Shareholders of Second 99.5 *
Bancorp ................................................................
Form of Acquiring Person Statement (set forth in Annex F to the
Prospectus/Proxy Statement included in this Registration Statement).. 99.6 Included as Annex F
Form of Proxy to be used in connection with the Second Bancorp Special
Meeting of Shareholders.............................................. 99.7 *
Form of Proxy to be used in connection with the Trumbull Special
Meeting of Shareholders.............................................. 99.8 *
Form of Proxy to be used in connection with the Trumbull Special
Meeting of Shareholders to satisfy the requirements of the Ohio
Control Share Acquisition Statute.................................... 99.9 *
</TABLE>
- -----------------------------
* Filed herewith.
** To be filed by Amendment.
(1) Filed with the Securities and Exchange Commission as an exhibit to
Registrant's Registration Statement on Form S-4, Registration No.
333-56559, as filed with the Securities and Exchange Commission on June
24, 1998.
II-2
<PAGE> 215
(2) Incorporated by reference to the exhibit filed with the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1994.
(3) Incorporated by reference to the exhibit filed with the Registrant's
Registration Statement on Form S-4 (Registration No. 33-09239) under
the caption "Description of Holding Shares" as filed on October 2,
1986, including all amendments filed for the purpose of updating such
information.
(4) Incorporated by reference to Exhibit A of the Registrant's Proxy
Statement dated April 1, 1998, as filed with the Securities and
Exchange Commission on April, 1998.
(5) Incorporated by reference to the exhibit filed with the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1995.
(6) Incorporated by reference to the exhibit filed with the Registrant's
Annual Report on Form 10-K filed for the year ended December 31, 1997.
UNDERTAKINGS
(1) 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 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be initial bona fide offering thereof.
(2) The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of a
prospectus which is part of this registration statement, by any person or party
who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer
undertakes that such reoffering prospectus will contain the information called
for by the applicable registration form with respect to reofferings by persons
who may be deemed underwriters, in addition to the information called for by the
other Items of the applicable form.
(3) The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (2) immediately preceding, or (ii) that purports to meet
the requirements of section 10(a)(3) of the Securities Act of 1933 and is used
in connection with an offering of securities subject to rule 415, will be filed
as a part of an amendment to the registration statement and will not be used
until such amendment is effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(4) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933 and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
(5) The undersigned Registrant hereby undertakes to supply by means of
a post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
<PAGE> 216
(6) The undersigned Registrant hereby undertakes to deliver or cause to
be delivered with the prospectus, to each person to whom the prospectus is sent
or given, the latest annual report to security holders that is furnished
pursuant to and meeting the requirements of Rule 14a-3 or Rule 14c-3 under the
Securities Exchange Act of 1934; and, where interim financial information
required to be present by Article 3 of Regulation S-X are not set forth in the
prospectus, to deliver, or cause to be delivered to each person to whom the
prospectus is sent or given, the latest quarterly report that is specifically
incorporated by reference in the prospectus to provide such interim financial
information.
(7) The undersigned Registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Items 4, 10(b), 11 or 13 of this Form within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registrant statement through the
date of responding to the request.
II-4
<PAGE> 217
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
the requirements for filing on Form S-4, and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Warren, State of Ohio, on August 26, 1998.
SECOND BANCORP INCORPORATED
/s/ Alan G. Brant
-----------------------------------------
By: A.G. Brant, Chairman and President
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints ALAN G. BRANT his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign and
execute on behalf of the undersigned any and all amendments to this Registration
Statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent full power and authority to do and perform
each and every act and thing requisite and necessary to be done in connection
with any such amendments, as fully to all intents and purposes as he might or
could do in person, and does hereby ratify and confirm all that said
attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Principal Executive Officer:
/s/ Alan G. Brant Date: August 26, 1998
- --------------------------------------------
Alan G. Brant
Chairman and President
Principal Financial Officer and Principal Accounting Officer:
/s/ David L. Kellerman Date: August 26, 1998
- --------------------------------------------
David L. Kellerman
Chief Financial Officer and
Principal Accounting Officer
/s/ John C. Gibson, Sr. Date: August 26, 1998
- --------------------------------------------
John C. Gibson, Sr., Director
/s/ John A. Anderson Date: August 26, 1998
- --------------------------------------------
John A. Anderson, Director
/s/ Robert J. Webster Date: August 26, 1998
- --------------------------------------------
Robert J. Webster, Director
/s/ Norman C. Harbert Date: August 26, 1998
- --------------------------------------------
Norman C. Harbert, Director
/s/ John L. Pogue Date: August 26, 1998
- --------------------------------------------
John L. Pogue, Director
/s/ Raymond John Wean, III Date: August 26, 1998
- ------------------------------------
Raymond John Wean, III, Director
II-5
<PAGE> 1
Exhibit 3.1
AMENDED ARTICLES OF INCORPORATION OF
SECOND BANCORP INCORPORATED
The undersigned, acting as the incorporator of a corporation
for profit under the general corporation laws of the State of Ohio, adopts the
following Articles of Incorporation:
FIRST: The name of the Corporation shall be Second Bancorp
Incorporated.
SECOND: The place in Ohio where its principal office is to be located
is at 108 Main Avenue S.W., in the City of Warren, Trumbull
County, Ohio, but the Corporation may establish and maintain
its principal office, or other offices, at other places in the
United States of America, as its Board of Directors may from
time to time determine.
THIRD: The purpose of which the Corporation is formed is to engage in
business as a "bank holding company" in accordance with, and
to the extent permitted by, the Bank Holding company Act of
1956 (Pub. Law 511, 84th Cong. 2d Sess., approved May 9th,
1956) as amended, and consistent therewith to engage in any
other lawful act or activity for which corporations may be
formed under Chapter 1701 of the Ohio Revised Code, to the
extent that such act or activity is not then prohibited by the
Bank Holding Company Act of 1956, as amended. The Corporation
may from time to time, pursuant to authorization by the Board
of Directors and without action by the shareholders, purchase
or otherwise acquire shares of the Corporation of any class or
classes in such manner, upon such terms and in such amounts as
the Board of Directors shall determine; subject, however, to
such limitation or restriction, if any, as is contained in the
express terms of any class of shares of the Corporation
outstanding at the time of the purchase or acquisition in
question.
FOURTH: The maximum number of shares of capital stock which this
Corporation is authorized to have issued or to have
outstanding at any time shall be thirteen million (23,000,000)
shares, consisting of twenty million (20,000,000) shares of
Common Stock, without par value ("Common Shares"), one and
one-half million (1,500,000) shares of Class A Serial
Preferred Stock, without par value ("Class A Serial Preferred
Shares"), and one and one-half million (1,500,000) shares of
Class B Serial Preferred Stock, without par value ("Class B
Serial Preferred Shares"). The Board of Directors of the
Corporation is hereby empowered to issue, from time to time,
shares of its stock, whether now or hereafter authorized. No
holders of any class of shares of the Corporation shall have
any pre-emptive rights to purchase or to have offered to them
for purchase any shares or other securities of the
Corporation.
(A) EXPRESS TERMS OF THE COMMON SHARES
The Common Shares shall be subject to the terms of the Class A Serial
Preferred Shares and the Class B Serial Preferred Shares (collectively, the
"Serial Preferred Shares") and the express terms of any series thereof. Each of
the Common Shares shall be equal to all other Common Shares and the holders
thereof shall be entitled to one vote for each share on all questions presented
to the shareholders.
(B) EXPRESS TERMS OF THE CLASS A SERIAL PREFERRED SHARES
Section 1. Series.
Class A Serial Preferred Shares may be issued from time to time in one
or more series. All Class A Serial Preferred Shares shall be of equal rank and
shall be identical, except in respect of matters as may be fixed or
1
<PAGE> 2
changed by the Board of Directors as hereinafter provided, and each share of
each series shall be identical with all other shares of such series, except as
to the date from which dividends are cumulative. All Class A Serial Preferred
Shares shall be of equal rank to all Class B Serial Preferred Shares with
respect to payment of dividends and payment upon liquidation, dissolution or
winding up of the Corporation. Subject to the provisions of this paragraph (B),
which provisions shall apply to all Class A Serial Preferred Shares, the Board
of Directors hereby is authorized to adopt amendments to the Articles of
Incorporation in respect of any unissued or treasury shares of Class A Serial
Preferred Shares and thereby fix or change:
(a) the division of such shares into series and the designation
and authorized number of shares of each series;
(b) the dividend or distribution rate;
(c) the dates of payment of dividends or distributions and the
dates from which they are cumulative;
(d) sinking fund requirements;
(e) redemption rights and price;
(f) liquidation price;
(g) conversion rights; and
(h) restrictions on the issuance of shares of any class or series.
In the event that the Ohio Revised Code is hereafter amended to grant the
directors of a corporation additional authority to establish the express terms
of any unissued or treasury shares, this paragraph (B) shall be deemed to be
amended to grant the Board of Directors of the Corporation the authority to fix
or change all such other express terms of the Class A Serial Preferred Shares as
from tine to time may be permitted by applicable law.
Section 2. Voting.
(a) The holders of Class A Serial Preferred Shares shall be entitled to
one vote for each Class A Serial Preferred Share held by them upon all matters
presented to the shareholders and, except as required by law or the Articles of
Incorporation of the Corporation, the holders of Class A Serial Preferred
Shares, the holders of Class B Serial Preferred Shares and the holders of Common
Shares shall vote together as one class on all matters.
(b) During any period in which dividends on any Class A Serial
Preferred Shares are cumulatively in arrears in the amount of six or more full
quarterly dividends, the holders of each series of the Class A Serial Preferred
Shares, voting together as a class, will have the right to elect two directors
which two directorships shall be in addition to that number of directors then
determined as constituting the number of members of the Board of Directors
pursuant to the Articles of Incorporation of the Corporation.
(c) The approval of the holders of a majority of the outstanding Class
A Serial Preferred Shares of all series, voting together as a class, shall be
required in order to amend the Articles of Incorporation of the Corporation to
affect adversely the rights of the holders of the Class A Serial Preferred
Shares or to take any action that would result in the creation of or an increase
in the number of authorized shares senior or superior with respect to dividends
or upon liquidation to the Class A Serial Preferred Shares.
Section 3. Dividends.
(a) The holders of Class A Serial Preferred Shares of each series, in
preference to the holders of Common Shares and of any other class of shares
ranking junior to the Class A Serial Preferred shares, shall be entitled to
receive dividends, when and as declared by the Board of Directors, out of the
assets of the Corporation which are by law available for the payment of
dividends. Such dividends shall be payable quarterly at the rate per share per
annum as shall have been fixed by the Board of Directors pursuant to Section I
of this paragraph (B).
(b) Dividends on the Class A Serial Preferred Shares shall be
cumulative from and after the date or dates fixed by the Board of Directors
pursuant to Section I of this paragraph (B).
(c) All dividends declared on the Class A Serial Preferred Shares for
any dividend period and on the Class B Serial Preferred Shares and any other
class or series of shares ranking on a parity with the Class A Serial
2
<PAGE> 3
Preferred Shares as to dividends shall be declared pro rata so that the amounts
of dividends per share declared for such period on the Class A Serial Preferred
Shares and on the Class B Serial Preferred Shares and any other class or series
of shares ranking on a parity with the Class A Serial Preferred Shares as to
dividends that were outstanding during such period shall in all cases bear to
each other the same proportions that the respective dividend rates of such
shares for such period bear to each other.
(d) No dividends (other than a dividend payable in Common Shares or
other shares ranking junior to the Class A Serial Preferred Shares) or other
distribution shall be paid or declared, in respect of the Common Shares or any
other shares ranking junior to the Class A Serial Preferred Shares, nor shall
any Common Shares or any other shares ranking junior to the Class A Serial
Preferred Shares be purchased, or otherwise acquired by the Corporation, unless:
(i) all accrued and unpaid dividends on all series of Class A
Serial Preferred Shares, including the full dividends for the current
quarterly dividend period, shall have been declared and paid or
provision shall have been made for such payment; and
(ii) there shall be no arrearages with respect to any
redemption or sinking fund obligations of the Corporation on any series
of Class A Serial Preferred Shares.
Section 4. Liquidation.
(a) In the event of a voluntary or involuntary dissolution,
liquidation, or winding up of the affairs of the Corporation, before any payment
shall be made to the holders of Common Shares or of any other shares ranking
junior to the Class A Serial Preferred Shares, the holders of the Class A Serial
Preferred Shares shall be entitled to be paid from the assets available therefor
the liquidation price fixed by the Board of Directors pursuant to Section I of
this paragraph (B), and all accrued and unpaid dividends thereon. In the event
the net assets of the Corporation legally available therefor are insufficient to
permit the payment upon all outstanding Class A Serial Preferred Shares of the
full preferential amount to which they are respectively entitled, then such
remaining net assets shall be distributed ratably upon outstanding Class A
Serial Preferred Shares in proportion to the full preferential amount to which
each such share is entitled.
(b) After payment to the holders of Class A Serial Preferred Shares of
the full preferential amounts as aforesaid, the holders of Class A Serial
Preferred Shares, as such, shall have no right or claim to any of the remaining
assets of the Corporation.
(c) The merger or consolidation of the Corporation into or with any
other corporation, the merger of any other corporation into it, or the sale,
lease or conveyance of all or substantially all the property or business of the
Corporation, shall not be deemed to be a dissolution, liquidation or winding up
for the purposes of this Section 4.
C) EXPRESS TERMS OF THE CLASS B SERIAL PREFERRED SHARES
Section 1. Series.
Class B Serial Preferred Shares may be issued from time to time in one
or more series. All Class B Serial Preferred Shares shall be of equal rank and
shall be identical, except in respect of matters as may be fixed or changed by
the Board of Directors as hereinafter provided, and each share of each series
shall be identical with all other shares of such series. All Class B Serial
Preferred Shares shall be of equal rank to all Class A Serial Preferred Shares
with respect to payment of dividends and payment upon liquidation, dissolution
or winding up of the Corporation. Subject to the provisions of this paragraph
(C), which provisions shall apply to all Class B Serial Preferred Shares, the
Board of Directors hereby is authorized to adopt amendments to the Articles of
Incorporation in respect of any unissued or treasury shares of Class B Serial
Preferred Shares and thereby fix or change:
(a) the division of such shares into series and the designation
and authorized number of shares of each series;
3
<PAGE> 4
(b) the dividend or distribution rate;
(c) the dates of payment of dividends or distributions;
(d) sinking fund requirements;
(e) redemption rights and price;
(f) liquidation price;
(g) conversion rights; and
(h) restrictions on the issuance of shares of any class or series.
In the event that the Ohio Revised Code is hereafter amended to grant the
directors of a corporation additional authority to establish the express terms
of any unissued or treasury shares, this paragraph (C) shall be deemed to be
amended to grant the Board of Directors of the Corporation the authority to fix
or change all such other express terms of the Class B Serial Preferred Shares as
from tine to time may be permitted by applicable law.
Section 2. Voting.
(a) The holders of Class B Serial Preferred Shares shall be entitled to
one vote for each Class B Serial Preferred Share held by them upon all matters
presented to the shareholders and, except as required by law or the Articles of
Incorporation of the Corporation, the holders of Class B Serial Preferred
Shares, the holders of Class A Serial Preferred Shares and the holders of Common
Shares shall vote together as one class on all matters.
(b) The approval of the holders of a majority of the outstanding Class
B Serial Preferred Shares of all series, voting together as a class, shall be
required in order to amend the Articles of Incorporation of the Corporation to
affect adversely the rights of the holders of the Class B Serial Preferred
Shares or to take any action that would result in the creation of or an increase
in the number of authorized shares senior or superior with respect to dividends
or upon liquidation to the Class B Serial Preferred Shares.
Section 3. Dividends.
(a) The holders of Class B Serial Preferred Shares of each series, in
preference to the holders of Common Shares and of any other class of shares
ranking junior to the Class B Serial Preferred Shares, shall be entitled to
receive dividends, when and as declared by the Board of Directors, out of the
assets of the Corporation which are by law available for the payment of
dividends. Such dividends shall be payable quarterly at the rate per share per
annum as shall have been fixed by the Board of Directors pursuant to Section 1
of this paragraph (C).
(b) Dividends on the Class B Serial Preferred Shares shall not be
cumulative.
(c) All dividends declared on the Class B Serial Preferred Shares for
any dividend period and on the Class A Serial Preferred Shares and any other
class or series of shares ranking on a parity with the Class B Serial Preferred
Shares as to dividends shall be declared pro rata so that the amounts of
dividends per share declared for such period on the Class B Serial Preferred
Shares and on the Class A Serial Preferred Shares and any other class or series
of shares ranking on a parity with the Class B Serial Preferred Shares as to
dividends that were outstanding during such period shall in all cases bear to
each other the same proportions that the respective dividend rates of such
shares for such period bear to each other.
(d) No dividends (other than a dividend payable in Common Shares or
other shares ranking junior to the class B Serial Preferred Shares) or other
distribution shall be paid or declared, in respect of Common Shares or any other
shares ranking junior to the Class B Serial Preferred Shares, nor shall any
Common Shares or any other shares junior to the Class B Serial Preferred Shares
be purchased, retired or otherwise by the Corporation, unless:
4
<PAGE> 5
(i) the full dividends on all series of Class B Serial
Preferred Shares for the current quarterly dividend period, shall have
been declared and paid or provision shall have been made for such
payment;
(ii) the full dividends on all series of Class B Serial
Preferred Shares for each of the four consecutive, immediately
quarterly dividend periods shall have been declared and paid on the
dates fixed for such payment by the Board of Directors or provision
shall have been made for such payments;
and
(iii) there shall be no arrearages with respect to any
redemption or sinking fund obligations of the Corporation on any series
on Class B Serial Shares.
Section 4. Liquidation.
(a) In the event of a voluntary or involuntary dissolution,
liquidation, or winding up of the affairs of the Corporation, before any payment
shall be made to the holders of Common Shares or of any other shares ranking
junior to the Class B Serial Preferred Shares, the holders of the Class B Serial
Preferred Shares shall be entitled to be paid from the assets available,
therefor the liquidation price fixed by the Board of Directors pursuant to
Section 1 of this paragraph (C), and all current dividends payable thereon. In
the event the net assets of the Corporation legally available therefor are
insufficient to permit the payment upon all outstanding Class B Serial Preferred
Shares of the full preferential amount to which they are respectively entitled,
then such re net assets shall be distributed ratably upon outstanding Class B
Serial Preferred Shares in proportion to the full preferential amount to which
each such share is entitled.
(b) After payment to the holders of Class B Serial Preferred Shares of
the full preferential amounts as aforesaid, the holders of Class B Serial
Preferred Shares, as such, shall have no right or claim to any of the re g
assets of the Corporation.
(c) The merger or consolidation of the Corporation into or with any
other corporation, the merger of any other corporation into it, or the sale,
lease or conveyance of all or substantially all the property or business of the
Corporation, shall not be deemed to be a dissolution, liquidation or winding up
for the purposes of this Section 4.
FIFTH: The amount of stated capital with which this Corporation will
begin business shall be five hundred dollars ($500.00).
SIXTH: (A) The number of directors constituting the Board of
Directors shall be such number, not more than eighteen (18),
as shall be fixed from time to time in accordance with the
Regulations of the Corporation and the number so fixed shall
constitute the Board of Directors until the number of
directors is thereafter changed pursuant to the provisions of
the Regulations, but the number thereof shall in no event be
less than six (6) and the number of directors in each class
shall in no event be less than three (3).
(B) The Board of Directors shall be and is divided
into two classes, Class I and Class II, which shall be as
nearly equal in number as possible. Each director shall serve
for a term ending on the date of the second annual meeting
following the annual meeting at which such director was
elected, provided, however, that each initial director in
Class I shall hold office until the annual meeting of
shareholders in 1987; and each initial director in Class II
shall hold office until the annual meeting of shareholders in
1988.
5
<PAGE> 6
(C) In the event of any increase or decrease in the
authorized number of directors, (i) each director then serving
as such shall nevertheless continue as a director of the class
of which he or she is a member until the expiration of his or
her current term, or his or her prior death, retirement,
resignation or removal and (ii) the newly created or
eliminated directorship resulting from such increase or
decrease shall be apportioned by the Board of Directors among
the two classes of directors so as to maintain such classes as
nearly equal as possible.
(D) Notwithstanding any of the foregoing provisions
of this Article SIXTH, each director shall serve until his or
her successor is elected and qualified or until his or her
death, retirement, resignation, or removal. Should a vacancy
occur or be created, whether arising through death,
resignation or removal of a director, or through an increase
in the number of directors of any class, such vacancy shall be
filled by a majority vote of the remaining directors of the
class in which such vacancy occurs, or by the sole remaining
director of the class if only one such director remains, or by
the majority vote of the remaining directors of the other
class if there be no remaining member of the class in which
the vacancy occurs. A director so elected to fill a vacancy
shall serve for the remainder of the then present term of
office of the class to which he or she was elected.
(E) Wherever the term "Board of Directors" is used in
these Articles of Incorporation, such terms shall mean the
Board of Directors of the Corporation; provided, however,
that, to the extent any committee of directors of the
Corporation is lawfully entitled to exercise the powers of the
Board of Directors, such committee, to the extent provided by
resolution of the Board of Directors or the Regulations, may
exercise any power or authority of the Board of Directors
under these Articles of Incorporation in management of the
business and affairs of the Corporation, including without
limitation, the declaration of a dividend or the authorization
of the issuance of shares.
SEVENTH: Each person who is or was a director, officer, employee or
agent of the Corporation shall be indemnified by the
Corporation to the full extent permitted by the corporation
laws of the State of Ohio, now or hereafter in force, against
any liability, cost or expense incurred by him in his capacity
as a director, officer, employee, or agent, or arising out of
his status as a director, officer, employee, or agent. The
corporation may, but shall not be obligated to maintain
insurance at its expense, to protect itself and any such
person against any such liability cost or expense. The rights
of indemnification provided in this Article SEVENTH shall be
in addition to any rights to which any person concerned may
otherwise be entitled by the Regulations of the Corporation
from time to time in effect, by contract or as a matter of
law, and shall inure to the benefit of the heirs, executors
and administrators of any such person.
EIGHTH: 1) A. In addition to any affirmative vote
required by law:
(i) any merger or consolidation of the
Corporation or any Subsidiary (as hereinafter
defined) with (a) any Related Person (as hereinafter
defined) or (b) any other corporation (whether or not
itself a Related Person) which is, or after such
merger or consolidation would be, an Affiliate (as
hereinafter defined) of a Related Person; or
(ii) any sale, lease, exchange, mortgage,
pledge, transfer or other disposition (in one
transaction of a series of transactions) to or with
any Related
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Person or any Affiliate of any Related Person of any
assets of the Corporation or any Subsidiary having an
aggregate Fair Market Value (as hereinafter defined)
equal to 10% or more of the consolidated net worth
of the Corporation; or
(iii) the issuance or transfer by the
Corporation or any Subsidiary (in one transaction or
a series of transactions) of any securities of the
Corporation or any Subsidiary to any Related Person
or any Affiliate of any Related Person in exchange
for cash, securities or other property (or a
combination thereof) having an aggregate Fair Market
Value equal to 10% or more of the consolidated net
worth of the Corporation; or
(iv) the adoption of any plan or proposal
for the liquidation or dissolution of the
Corporation; or
(v) any reclassification of securities
(including any reverse share split), or
recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its
Subsidiaries or any other transaction (whether or not
with or into or otherwise involving a Related Person)
which has the effect, directly or indirectly, of
increasing the proportionate share of the outstanding
shares of any class of Equity Security (as
hereinafter defined) of the Corporation or any
Subsidiary which is directly or indirectly owned by
any Related Person or any Affiliate of any Related
Person, shall require the affirmative vote of the
holders of at least 75% of the voting power of the
then outstanding shares of capital shares of the
Corporation entitled to vote generally in the
election of directors. Such affirmative vote shall be
required notwithstanding the fact that no vote may be
required or that a lesser percentage may be
specified, by law or otherwise.
B. The term "Business Combination" used in
this Article EIGHTH shall mean any transaction which
is referred to in any one or more of clauses (i)
through (v) of paragraph A of this Section.
2) Notwithstanding the requirements of the previous
Section, no Business Combination between the Corporation (or
any Subsidiary) and a Related Person or any Affiliate of a
Related Person may be effected unless all of the following
conditions are met:
A. The aggregate amount of the cash and the
Fair Market Value as of the date of the consummation
of the Business Combination of consideration other
than cash to be received per share by holders of any
class of Equity Security in such Business Combination
shall be at least equal to the highest per share
price (including any brokerage commissions, transfer
taxes and soliciting dealer's fees) paid by the
Related Person for any shares of the same class of
Equity Security previously acquired by it, PLUS
interest on such amount compounded annually from the
date that the Related Person became a Related Person
(the "Determination Date") through the date of
consummation of the Business Combination (the
"Consummation Date") at the rate publicly announced
as the "Prime Rate" of interest (announced by such
major bank as may be selected by a majority of the
Continuing Directors), from time to time in effect,
LESS the aggregate amount of any cash dividends paid
and the Fair Market Value of any dividends paid in
other than cash on each share from the Determination
Date through the Consummation Date, up to, but not
exceeding, the amount of interest payable per share.
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<PAGE> 8
B. The consideration to be received by
holders of a particular class of Equity Security
shall, except to the extent a shareholder agrees
otherwise, be in cash or in the same form as the
Related Person has previously paid for shares of such
class of Equity Security. If the Related Person has
paid for shares of any class of Equity Security with
varying forms of consideration, the form of
consideration for such class of Equity Security. If
the Related Person has paid for shares of any class
of Equity Security with varying forms of
consideration, the form of consideration for such
class of Equity Security shall be either cash or in
the form used to acquire the largest number of shares
of such class of Equity Security previously acquired
by it. The price determined in accordance with
paragraph A of this Section shall be subject to
appropriate adjustment in the event of any share
dividend, share split, combination of shares or
similar event.
3) The provisions of Sections (1) and (2) of this
Article EIGHTH shall not apply to a Business Combination if:
A. The Continuing Directors of the
Corporation by a two-thirds vote (i) have expressly
approved a memorandum of understanding with the
Related Person with respect to the Business
Combination prior to the time that the Related Person
became a Related Person and the Business Combination
is effected on substantially the same terms and
conditions as are provided by the memorandum of
understanding, or (ii) have otherwise approved the
Business Combination (this provision is incapable of
satisfaction unless there is at least one Continuing
Director); or
B. The Business Combination is solely
between the Corporation and another corporation, one
hundred percent of the Voting Shares of which is
owned directly or indirectly by the Corporation.
In the event the Continuing Directors shall
approve a Business Combination as set forth in
paragraph A above, or the Business Combination is
solely between the Corporation and another
corporation described in paragraph B above, such
Business Combination shall require only such
shareholder vote, if any, as is required by law.
4) For the purpose of this Article EIGHTH:
A. "Person" shall mean any individual, firm,
corporation or other entity.
B. "Related Person" shall mean any Person
who or which:
(i) is the beneficial owner, directly or
indirectly, of 10% or more of the voting power of the
outstanding Voting Shares; or
(ii) is an Affiliate or Associate of the
Corporation and at any time within the two-year
period immediately prior to the date in question was
the beneficial owner, directly or indirectly, of 10%
or more of the voting power of the then outstanding
Voting Shares; or
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<PAGE> 9
(iii) is an assignee of or has otherwise
succeeded to any shares of Voting Shares which were
at any time within the two-year period immediately
prior to the date in question beneficially owned by
any Related Person, if such assignment or succession
shall have occurred in the course of a transaction or
series of transactions not involving a public
offering within the meaning of the Securities Act of
1933, as amended.
Provided, however, that the term "Related Person"
shall not include (i) the Corporation or any
Subsidiary, (ii) any one or any group of the
Continuing Directors, or (iii) any profit-sharing,
employee shares ownership or other employee benefit
plan of the corporation or any Subsidiary of the
Corporation or any trustee of or other fiduciary with
respect to any such plan when acting in that
capacity.
C. A Person shall be a "beneficial owner" of
any Voting Shares:
(i) which such Person or any of its
Affiliates or Associates (as hereinafter defined)
beneficially owns, directly or indirectly; or
(ii) which such Person or any of its
Affiliates or Associates has (a) the right to acquire
(whether such right is exercisable immediately or
only after the passage of time) pursuant to any
agreement, arrangement or understanding or upon the
exercise of conversion rights, exchange rights,
warrants or options, or otherwise, or (b) the right
to vote pursuant to any agreement, arrangement or
understanding; or
(iii) which is beneficially owned, directly
or indirectly, by any other Person with which such
Person or any of its Affiliates or Associates has any
agreement, arrangement or understanding for the
purpose of acquiring, holding, voting or disposing of
any shares of Voting Shares.
D. For the purpose of determining whether a
Person is a Related Person pursuant to paragraph B of
this Section, the number of shares of Voting Shares
deemed to be outstanding shall include shares deemed
owned through application of paragraph C of this
Section, but shall not include any other shares of
Voting Shares which may be issuable pursuant to any
agreement, arrangement or understanding, or upon
exercise of conversion rights, warrants or options,
or otherwise.
E. "Affiliate" or "Associate" shall have the
respective meanings ascribed to such terms in Rule
12b-2 of the General Rules and Regulations under the
Securities Exchange Act of 1934, as in effect on
January 1, 1986.
F. "Subsidiary" means any corporation of
which a majority of any class of Equity Security is
owned, directly or indirectly, by the Corporation;
provided, however, that for the purposes of the
definition of Related Person set forth in paragraph B
of this Section, the term "Subsidiary" shall mean
only a corporation of which a majority of each class
of Equity Security is owned, directly or indirectly,
by the Corporation.
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<PAGE> 10
G. "Continuing Director" means any member of
the Board of Directors who is unaffiliated with the
"Related Person" and was a member of the Board of
Directors prior to the time that the Related Person
became a Related Person, and any successor of a
Continuing Director who is unaffiliated with the
Related Person and is recommended to succeed a
Continuing Director by two-thirds of the Continuing
Directors then on the Board of Directors.
H. "Fair Market Value" means: (1) in the
case of stock, the highest closing sales price during
the 30-day period immediately preceding the date in
question of a share of such stock on the Composite
Tape for New York Stock Exchange -- Listed Stocks,
or, if such stock is not quoted on the composite
Tape, on the New York Stock Exchange, or, if such
stock is not listed on the Exchange, on the principal
United States securities exchange registered under
the Securities Exchange Act of 1934 on which such
stock is listed, or, if such stock is not listed on
any such exchange, the highest closing bid quotation
with respect to a share of such stock during the
30-day period preceding the date in question on the
National Association of Securities Dealers, Inc.
Automated Quotations Systems or any system then in
use, or if no such quotations are available, the fair
market value on the date in question of a share of
such stock as determined by a two-thirds vote of the
Continuing Directors; and (ii) in the case of
property other than cash or stock, the fair market
value of such property on the date in question as
determined by a two-thirds vote of the Continuing
Directors.
I. In the event of any Business Combination
in which the Corporation survives, the phrase
"consideration other than cash to be received" as
used in paragraph A of this Section shall include the
shares of any class of Equity Security retained by
the holders of such shares.
J. "Equity Security" shall have the meaning
ascribed to such term in Section 3(a)(11) of the
Securities Exchange Act of 1934, as in effect on
January 1, 1986.
K. "Voting Shares" means shares of any
Equity Security of a corporation which are entitled
to vote in the election of Directors of such
corporation.
L. The phrase "series of related
transactions" shall be deemed to include not only a
series of transactions with the same Related Person
but also a series of separate transactions with a
Related Person or any Affiliate or Associate of such
Related Person.
5) The Continuing Directors shall, by two-thirds
vote, have the power and duty to determine for the purposes of
this Article EIGHTH on the basis of information known to them
after reasonable inquiry, (A) whether a Person is a Related
Person, (B) the number of shares of Voting Shares beneficially
owned by any Person, (C) whether a Person is an Affiliate or
Associate of another, (D) whether the assets which are the
subject of any Business Combination have, or the consideration
to be received for the issuance or transfer of securities by
the Corporation or any Subsidiary in any Business Combination
has, an aggregate Fair Market Value equal to 10% or more of
the consolidated net worth
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of the corporation. The Continuing Directors shall, by
two-thirds vote, have the further power to interpret all other
terms and provisions of this Article EIGHTH.
6) Nothing contained in this Article EIGHTH shall be
construed to relieve any Related Person from any fiduciary
obligation imposed by law.
NINTH: Notwithstanding any statutory provision now or hereafter in
force requiring for any purpose the vote, consent, waiver or
release of the holders of shares entitling them to exercise
two-thirds, or any other proportion, of the voting power of
the Corporation or of any class or classes of shares thereof,
such action, unless otherwise expressly required by statute or
by these Articles, may be taken by the vote, consent, waiver
or release of the holders of shares entitling them to exercise
a majority of the voting power of the Corporation or of such
class or classes. Each of Articles SIXTH, SEVENTH and EIGHTH
and this Article NINTH, of these Articles of Incorporation may
be amended at any regular or special meeting of the
shareholders only by the affirmative vote of the holders of at
least 75% of the voting power of the outstanding shares of
this Corporation.
TENTH: Any and every statute of the State of Ohio hereafter enacted,
whereby the rights, powers or privileges of corporations or of
the shareholders of corporations organized under the laws of
the State of Ohio are increased or diminished or in any way
affected, or whereby effect is given to the action taken by
any number, less than all, of the shareholders of any such
corporation, shall apply to the Corporation and shall be
binding not only upon the Corporation, but upon every
shareholder of the Corporation to the same extent as if such
statute had been in force at the date of filing these Articles
of Incorporation of the Corporation in the office of the
Secretary of State of Ohio. The right to alter, amend, change
or repeal any clause or provision of these Articles of
Incorporation, in the manner now or hereafter prescribed by
law, is hereby reserved to the Corporation; and all rights
conferred on officers, Directors and shareholders herein are
granted subject to such reservation.
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Exhibit 4.1
STOCK OPTION AGREEMENT
This STOCK OPTION AGREEMENT ("Agreement"), dated to be effective as of
May 4, 1998, between Trumbull Financial Corporation, an Ohio corporation
("Grantor"); and Second Bancorp Incorporated, an Ohio corporation ("Grantee");
WITNESSETH:
A. Grantor and Grantee intend to negotiate and execute a definitive
agreement providing for their merger or consolidation into a single entity.
B. As further inducement for the parties to engage in such negotiations
and to spend the resources necessary to arrive at a mutually acceptable
definitive agreement, the parties hereto desire the grant of the options
described herein.
NOW, THEREFORE, the parties agree as follows:
1. Definitions.
"Applicable Price" shall mean the highest of (i) the highest price per
share of Grantor Common Stock paid for any such share by the person or groups
described in the definition of "Purchase Event" in this section, (ii) the price
per share of Grantor Common Stock received by holders of Grantor Common Stock in
connection with any merger or other business combination transaction which is a
Purchase Event, or (iii) the highest bid price per share of Grantor Common Stock
as quoted on the principal trading market or securities exchange, if any, on
which such shares are traded as reported by a recognized source chosen by
Grantee during the 60 business days preceding the Request Date; provided,
however, that in the event of a sale of less than all of Grantor's assets, the
Applicable Price shall be the sum of the price paid in such sale for such assets
and the current market value of the remaining assets of Grantor as determined by
a nationally recognized investment banking firm selected by Grantee, divided by
the number of shares of Grantor Common Stock outstanding at the time of such
sale. If the consideration to be offered, paid or received pursuant to either of
the foregoing clauses (i) or (ii) shall be other than in cash, the value of such
consideration shall be determined in good faith by an independent nationally
recognized investment banking firm selected by Grantee and reasonably acceptable
to Grantor, which determination shall be conclusive for all purposes of this
Agreement.
"Grantor Bank" shall mean a financial institution subsidiary of
Grantor.
"Grantor Common Stock" shall mean the common shares, without par value,
of Grantor.
"Burdensome Condition" shall mean, in connection with the grant of a
requisite regulatory approval or otherwise, imposition by a governmental entity
of any condition or restriction upon the party or its Banks which would
reasonably be expected to either (i) have a material adverse effect after the
effective time of the Merger Agreement on the present or prospective
consolidated financial condition, business or operating results of the party, or
(ii) prevent Grantee from realizing the economic benefits of the transactions
contemplated by the Merger Agreement that they currently anticipate obtaining.
"Commission" shall mean the Securities and Exchange Commission.
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<PAGE> 2
"Exchange Act" shall mean the Securities Exchange Act of 1934.
"Izant Family Event" shall mean any event that would otherwise
constitute a Purchase Event that consists solely of a redistribution of some or
all of the Shares held by members of the Izant family among members of such
family, including trusts established for members of such family, so long as the
person receiving such Shares either is a party to the Stockholder Voting
Agreement or executes and delivers a written instrument to become a party to the
Stockholder Voting Agreement.
"Merger Agreement" shall mean the definitive agreement (when executed
by Grantor and Grantee) pursuant to which the parties hereto intend to merge or
consolidate.
"Option" shall mean the option granted by Grantor under this Agreement.
"Person" shall have the meanings specified in Sections 3(a)(9) and
13(d)(3) of the Exchange Act.
"Purchase Event" shall mean any of the following events or transactions
occurring after the date of this Agreement with respect to the Grantor:
(i) Grantor or Grantor Bank, without having received Grantee's
prior written consent, shall have entered into an agreement with any person (x)
to merge or consolidate, or enter into any similar transaction, (y) to purchase,
lease or otherwise acquire all or substantially all of the assets of Grantor or
Grantor Bank, or (z) to purchase or otherwise acquire (including by way of
merger, consolidation, share exchange or any similar transaction) securities
representing 20% or more of the voting power of Grantor or Grantor Bank;
(ii) other than through an Izant Family Event, any person
(other than the Grantor or Grantor Bank in a fiduciary capacity or Grantee or
its bank in a fiduciary capacity) shall have acquired beneficial ownership or
the right to acquire beneficial ownership of 20% or more of the outstanding
shares of such Grantor Common Stock after the date of this Agreement (the term
"beneficial ownership" for purposes of this Agreement having the meaning
assigned thereto in Section 13(d) of the Exchange Act and the regulations
promulgated thereunder);
(iii) any person shall have made a bona fide Takeover Proposal
to Grantor by public announcement or written communication that is or becomes
the subject of public disclosure, and following such bona fide Takeover Proposal
the stockholders of Grantor vote not to adopt the Merger Agreement; or
(iv) Grantor shall have breached the Merger Agreement before
or after a bona fide Takeover Proposal to Grantor or Grantor Bank, which breach
would entitle Grantee to terminate the Merger Agreement (without regard to the
cure periods provided for therein) and such breach shall not have been cured
prior to the Notice Date (as defined below).
If more than one of the transactions giving rise to a Purchase Event
under this Agreement is undertaken or effected, then all such transactions shall
be deemed to give rise only to one Purchase Event with respect to the Option,
which Purchase Event shall be deemed continuing for all purposes hereunder until
all such transactions are abandoned.
"Repurchase Event" shall mean if (i) any person (other than Grantee or
any subsidiary of Grantee) shall have acquired actual ownership or control, or
any "group" (as such term is defined under the Exchange Act) shall have been
formed which shall have acquired actual ownership or control, of 50% or
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<PAGE> 3
more of the then outstanding shares of Grantor Common Stock, or (ii) any
Purchase Event shall be consummated.
"Stockholder Voting Agreement" shall mean the Agreement dated the date
of this Agreement among Grantor; Grantee; Izant Family Partnership, an Ohio
general partnership; Elizabeth A. Izant, Trustee of Elizabeth A. Izant Trust
dated 4-12-94; James R. Izant, Holly Izant McSherry and Phyllis Izant.
"Takeover Proposal" shall mean any tender or exchange offer, proposal
for a merger, consolidation or other business combination involving Grantor or
Grantor Bank or any proposal or offer to acquire in any manner 20% or more of
the outstanding shares of any class of voting securities, or 15% or more of the
consolidated assets, of Grantor or Grantor Bank, other than the transactions
contemplated by this Agreement. If Grantor receives an unsolicited Takeover
Proposal, it shall notify Grantee as soon as possible of the receipt of such
Takeover Proposal.
2. Grant of Options.
Subject to the terms and conditions set forth herein,
(a) Grantor hereby grants to Grantee an option to purchase up
to 18.9% of the shares of Grantor Common Stock at an exercise price of $105 per
share payable in cash as provided in Section 4; and
(b) in the event Grantor issues or agrees to issue any shares
of Grantor Common Stock (other than as permitted under the Merger Agreement) at
a price less than the exercise price per share set forth in this section (as
adjusted pursuant to Section 6), the respective exercise price shall be such
lesser price.
3. Exercise of Options.
(a) Unless Grantee shall have breached in any material respect
any material covenant, representation or warranty contained in this Agreement or
the Merger Agreement and such breach shall not have been cured, Grantee may
exercise the Option, in whole or part, at any time or from time to time if a
Purchase Event shall have occurred with respect to the Grantor; provided that,
to the extent the Option shall not have been exercised, it shall terminate and
be of no further force and effect (i) on the effective date of the transaction
set forth in the Merger Agreement, or (ii) upon termination of the Merger
Agreement in accordance with the provisions thereof (other than a termination
resulting from a breach by Grantor of the Merger Agreement or, following the
occurrence of a Purchase Event, failure of the Grantor's stockholders to approve
the Merger Agreement by the vote required under applicable law or under the
Grantor's articles), or (iii) 12 months after termination of the Merger
Agreement due to a willful breach by the Grantor of the Merger Agreement or,
following the occurrence of a Purchase Event, failure of the Grantor's
stockholders to approve the Merger Agreement by the vote required under
applicable law or under the Grantor's articles. Any exercise of an Option shall
be subject to compliance with applicable provisions of law.
(b) In the event Grantee wishes to exercise the Option, it
shall send to the Grantor notice (the date of which being herein referred to as
the "Notice Date") specifying (i) the total number of shares it will purchase
pursuant to such exercise, and (ii) a place and date not earlier than three
business days nor later than 60 business days after the Notice Date for the
closing of such purchase ("Closing Date"). If prior notification to or approval
of any federal or state regulatory agency is required in
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<PAGE> 4
connection with such purchase, the Grantee shall promptly file the required
notice or application for approval and shall expeditiously process the same and
the period of time that otherwise would run pursuant to this section shall run
instead from the date on which any required notification period has expired or
been terminated or any requisite approval has been obtained and any requisite
waiting period shall have passed.
4. Payment and Delivery of Certificates.
(a) At the closing referred to in Section 3, the Grantee shall
pay to the Grantor the aggregate purchase price for the shares of Grantor Common
Stock purchased pursuant to the exercise of the Option in immediately available
funds by a wire transfer to a bank account designated by the Grantor.
(b) At such closing, simultaneously with the delivery of funds
as provided in Section 4(a), the Grantor shall deliver to the Grantee a
certificate or certificates representing the number of shares of Grantor Common
Stock purchased by Grantee, and Grantee shall deliver to the Grantor a letter
agreeing that Grantee will not offer to sell or otherwise dispose of such shares
in violation of applicable law or the provisions of this Agreement.
(c) Certificates for Grantor Common Stock delivered at a
closing hereunder shall be endorsed with a restrictive legend which shall read
substantially as follows:
The transfer of the shares represented by this certificate is
subject to certain provisions of a Stock Option Agreement
dated May 4, 1998, between the registered holder hereof and
[Grantor] (a copy of which agreement is on file at the
principal office of [Grantor]). A copy of such agreement will
be provided to the holder hereof without charge within five
days after receipt by [Grantor] of a written request therefor.
The shares evidenced by this certificate have not been
registered under the Securities Act of 1933, as amended, and
may not be sold, pledged, transferred, or hypothecated except
pursuant to an opinion of counsel satisfactory to the
corporation that such transfer is lawful.
The above legend shall be removed or modified as appropriate
by delivery of substitute certificate(s) without such legend if the Grantee
shall have delivered to the Grantor a copy of a letter from the staff of the
Commission, or an opinion of counsel, in form and substance satisfactory to
Grantor, to the effect that such legend is not required for purposes of the
Securities Act of 1933, as amended.
5. Representations.
Grantor represents, warrants and covenants to the Grantee as follows:
(a) Grantor shall at all times maintain sufficient authorized
but unissued shares of Grantor Common Stock so that the Option may be exercised
without authorization of additional shares of Grantor Common Stock.
(b) The shares to be issued upon due exercise, in whole or in
part, of the Option, when paid for as provided herein, will be duly authorized,
validly issued, fully paid and nonassessable.
(c) Grantor has full corporate power and authority to execute,
deliver and perform this Agreement and all corporate action necessary for
execution, delivery and performance of this Agreement has been duly taken by
Grantor.
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<PAGE> 5
(d) Neither the execution and delivery of this Agreement nor
consummation of the transactions contemplated hereby (assuming all appropriate
shareholder and regulatory approvals) will violate or result in any violation of
or be in conflict with or constitute a default under any term of the articles,
regulations or by-laws of Grantor or any agreement, instrument, judgment,
decree, statute, rule or order applicable to Grantor.
6. Adjustment Upon Changes in Capitalization.
In the event of any change in Grantor Common Stock by reason of stock
dividends, split-ups, mergers, recapitalizations, combinations, reverse stock
split, recombinations, reclassifications, exchanges of shares or the like, the
type and number of shares subject to the Option, and the purchase price per
share shall be adjusted appropriately. Grantor agrees that, in the event that
any additional shares of its Grantor Common Stock are issued or otherwise become
outstanding after the date of this Agreement (other than pursuant to this
Agreement), the number of shares of its Grantor Common Stock subject to the
Option shall be adjusted so that, after such issuance, it equals the same
percentage (as that on the date of this Agreement) of the number of shares of
Grantor Common Stock then issued and outstanding without giving effect to any
shares subject to or issued pursuant to the Option. Nothing contained in this
Section 6 shall be deemed to authorize Grantor to breach any provision of the
Merger Agreement.
7. Registration Rights.
If requested by Grantee after exercise of the Option, Grantor shall as
expeditiously as possible file a registration statement on a form of general use
under the Securities Act of 1933 if necessary in order to permit the sale or
other disposition of the shares of Grantor Common Stock that have been acquired
upon exercise of the Option in accordance with the intended method of sale or
other disposition requested by Grantee. Grantee shall provide all information
reasonably requested by Grantor for inclusion in any registration statement to
be filed hereunder. Grantor will use its best efforts to cause such registration
statement first to become effective and then to remain effective for such period
not in excess of 270 days from the day such registration statement first becomes
effective as may be reasonably necessary to effect such sales or other
dispositions. The first registration effected under this Section 7 shall be at
the Grantor's expense except for underwriting commissions and the fees and
disbursements of Grantee's counsel attributable to the registration of such
Grantor Common Stock. A second registration may be requested hereunder at
Grantee's expense. In no event shall Grantor be required to effect more than two
registrations hereunder. The filing of any registration statement hereunder may
be delayed for such period of time as may reasonably be required to facilitate
any public distribution by Grantor of other Grantor Common Stock or for up to 90
days if the Grantor's Board of Directors determines that such delay is
reasonably necessary to avoid disruption of the Grantor's affairs. If requested
by Grantee, in connection with any such registration, Grantor will become a
party to any underwriting agreement relating to the sale of such shares, but
only to the extent of obligating itself in respect of representations,
warranties, indemnities and other agreements customarily included in such
underwriting agreements in respect of issuers of shares being sold by a selling
shareholder. Upon receiving any request from Grantee or permitted assignee
thereof under this Section 7, Grantor agrees to send a copy of the registration
statement and prospectus and each amendment to Grantee and to any permitted
assignee thereof known to Grantor, in each case by promptly mailing the same,
postage prepaid, to the address of record of the persons entitled to receive
such copies.
8. Repurchase at the Option of Grantee.
(a) At the request of Grantee at any time commencing upon the
first occurrence of a Repurchase Event and ending 12 months immediately
thereafter, Grantor shall repurchase from Grantee (i)
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<PAGE> 6
the Option and (ii) all shares of Grantor Common Stock purchased by Grantee
pursuant hereto with respect to which Grantee then has beneficial ownership. The
date on which Grantee exercises its rights under this section is referred to as
the "Request Date." Such repurchase shall be at an aggregate price (the
"Repurchase Consideration") equal to the lesser of (X) the sum of:
(i) the aggregate exercise price paid by Grantee for
any shares of Grantor Common Stock acquired pursuant to the Option with
respect to which Grantee then has beneficial ownership;
(ii) the excess, if any, of (x) the Applicable Price
for each share of Grantor Common Stock over (y) the exercise price (subject to
adjustment under Section 6, multiplied by the number of shares of Grantor Common
Stock with respect to which the Option has not been exercised; and
(iii) the excess, if any, of the Applicable Price
over the exercise price (subject to adjustment pursuant to Section 6 paid (or,
in the case of Option Shares with respect to which the Option has been exercised
but the Closing Date has not occurred, payable) by Grantee for each share of
Grantor Common Stock with respect to which the Option has been exercised and
with respect to which Grantee then has beneficial ownership, multiplied by the
number of such shares.
or (Y) the aggregate dollar amount equal to the difference between $4.5 million
and the break-up fee paid in accordance with Section 5.03(b) of the Merger
Agreement.
(b) If Grantee exercises its rights under this section,
Grantor shall, within 10 business days after the Request Date, pay the Grantor
Repurchase Consideration to Grantee in immediately available funds, and
contemporaneously with such payment Grantee shall surrender to Grantor the
Option and the certificates evidencing the shares of Grantor Common Stock
purchased thereunder with respect to which Grantee then has beneficial
ownership, and Grantee shall warrant that it has sole record and beneficial
ownership of such shares and that the same are then free and clear of all liens,
claims, charges and encumbrances of any kind whatsoever.
Notwithstanding anything herein to the contrary, all of Grantee's
rights under this section shall terminate on the date of termination of this
Option.
9. Termination.
This Agreement may be terminated at any time prior to the effective
date of the transaction set forth in the Merger Agreement, by action taken or
authorized by the Board of Directors of the terminating party or parties,
whether before or after approval by the stockholders of the matters presented in
connection with the Merger Agreement:
(a) by mutual consent of Grantor and Grantee;
(b) by Grantee if the Office of Thrift Supervision or Federal
Reserve Board shall have issued an order denying approval of the transaction set
forth in the Merger Agreement or if any governmental entity of competent
jurisdiction shall have issued a final nonappealable permanent order enjoining
or otherwise prohibiting the consummation of the transactions contemplated by
this Agreement or the Merger Agreement, or imposing a Burdensome Condition, and
in any such case the time for appeal or petition for reconsideration of such
order shall have expired without such appeal or petition being granted;
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<PAGE> 7
(c) by Grantor or Grantee if the transaction set forth in the
Merger Agreement shall not have been consummated on or before February 28, 1999
unless such date is extended by mutual consent of the parties hereto;
(d) by Grantor or Grantee if no Purchase Event has occurred,
if Grantor is not in breach of the Merger Agreement and if any approval of their
stockholders required for the consummation of the transactions set forth in the
Merger Agreement shall not have been obtained by reason of the failure to obtain
the required vote at a duly called and held meeting of shareholders or at any
adjournment thereof.
10. Effect of Termination.
(a) In the event of termination of this Agreement by any party
as provided in Section 9, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of any party or their respective
officers or directors except (i) in the event the Option is exercised, Sections
7 and 8 shall survive the termination, and (ii) with respect to any liabilities
or damages incurred or suffered by a party as a result of the breach by another
party of any of its representations, warranties, covenants or agreements set
forth in this Agreement.
(b) If a Purchase Event occurs with respect to a party, then
in such event such party shall pay to the other parties, within five business
days after a termination of this Agreement following such an event, the expenses
of such parties incurred in connection with this Agreement and the transactions
set forth in the Merger Agreement.
11. Costs.
Except as otherwise expressly agreed, each party will be responsible
for and bear all of its own costs and expenses (including any broker's or
finder's fees and the expenses of its representatives) incurred at any time in
connection with pursuing or consummating the Merger Agreement.
12. Severability.
If any term, provision, covenant or restriction contained in this
Agreement is held by a court or a federal or state regulatory agency of
competent jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions, covenants and restrictions contained in this Agreement
shall remain in full force and effect, and shall in no way be affected, impaired
or invalidated. If for any reason such court or regulatory agency determines
that applicable law will not permit the Grantee to acquire the full number of
shares of Grantor Common Stock provided in Section 2 (as adjusted pursuant to
Section 6), it is the express intention of Grantor to allow Grantee to acquire
such lesser number of shares as may be permissible, without any amendment or
modification hereof.
13. Miscellaneous.
(a) Third Parties. Nothing in this Agreement, expressed or
implied, is intended to confer upon any party, other than the parties hereto,
and their respective permitted successors and assigns, any rights, remedies,
obligations or liabilities under or by reason of this Agreement, except as
expressly provided herein.
(b) Entire Agreement. Except as otherwise expressly provided
herein or in the Merger Agreement, this Agreement contains the entire agreement
among the parties with respect to the transactions contemplated hereunder and
supersedes all prior arrangements or understandings with respect
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<PAGE> 8
thereto, written or oral. The terms and conditions of this Agreement shall inure
to the benefit of and be binding upon the parties hereto and their respective
permitted successors and assigns.
(c) Assignment. Neither of the parties hereto may assign any
of its rights or obligations under this Agreement or the Option created
hereunder to any other person, without the express written consent of the other
party, except that in the event a Purchase Event shall have occurred and be
continuing Grantee may assign in whole or in part its rights and obligations
hereunder; provided, however, that to the extent required by applicable
regulatory authorities, Grantee may not assign its rights under the Option
except in (i) a widely dispersed public distribution, (ii) a private placement
in which no one party acquires the right to purchase in excess of 2% of the
voting shares of Grantor, (iii) an assignment to a single party (e.g., a broker
or investment banker) for the purpose of conducting a widely dispersed public
distribution on Grantee's behalf, or (iv) any other manner approved by
applicable regulatory authorities.
(d) Notices. All notices or other communications which are
required or permitted hereunder shall be in writing and sufficient if delivered
by registered or certified mail, postage prepaid, express service, personal
delivery, telecopy or telefacsimile to the following addresses:
If to Grantor, to:
105 High Street, N.E.
Warren, OH 44481
Attention: President
with a copy to:
Jones, Day, Reavis & Pogue
North Point
901 Lakeside Avenue
Cleveland, Ohio 44114
Attention: David P. Porter
If to Grantee, to:
108 Main Avenue S.W.
P. O. Box 1311
Warren, Ohio 44482
Attention: Chairman and President
with a copy to:
Charles S. DeRousie
Vorys, Sater, Seymour & Pease LLP
52 East Gay Street
P. O. Box 1008
Columbus, Ohio 43216-1008
(e) Counterparts. This Agreement may be executed in any number
of counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
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<PAGE> 9
(f) Specific Performance. The parties agree that damages would
be an inadequate remedy for a breach of the provisions of this Agreement by any
party hereto and that this Agreement may be enforced by a party hereto through
injunctive or other equitable relief.
(g) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of Ohio applicable to agreements made and
entirely to be performed within such state and such federal laws as may be
applicable.
IN WITNESS WHEREOF, each of the parties hereto has executed
this Agreement to be effective as of the day and year set forth in the first
paragraph above.
TRUMBULL FINANCIAL CORPORATION
By: /s/ James R. Izant
------------------
Its: Executive Vice President
SECOND BANCORP INCORPORATED
By: /s/ Alan G. Brant
-----------------
Its: President and Chairman
9
<PAGE> 1
Exhibit 4.2
STOCKHOLDER VOTING AGREEMENT
----------------------------
This Agreement, made to be effective the 4th day of May, 1998,
by and among Izant Family Partnership, an Ohio general partnership; Elizabeth A.
Izant, Trustee of Elizabeth A. Izant Trust dated 4-12-94; Phyllis Jean Izant,
Trustee for Irrevocable Trust for Annika Izant Mueller created April 23, 1998;
Phyllis Jean Izant, Trustee for Irrevocable Trust for Preston Izant Mueller
created April 23, 1998; James R. Izant, Holly Izant McSherry, and Phyllis Izant
(each of whom is individually designated herein as a "Stockholder" and
collectively referred to herein as the "Stockholders"); Trumbull Financial
Corporation, an Ohio corporation (the "Company"); and Second Bancorp
Incorporated, an Ohio corporation ("Second Bancorp");
W I T N E S S E T H:
WHEREAS, the Stockholders own or have the power to vote common
shares, without par value, of the Company (listed as follows and collectively
referred to herein as the "Shares"):
<TABLE>
<CAPTION>
Stockholder Number of Shares Owned
----------- ----------------------
<S> <C>
Izant Family Partnership 297,951
Elizabeth A. Izant, Trustee of the Elizabeth A. Izant 16,962
Trust dated 4-12-93
Phyllis Jean Izant, Trustee for Irrevocable Trust for 5,000
Annika Izant Mueller created April 23, 1998
Phyllis Jean Izant, Trustee for Irrevocable Trust for 5,000
Preston Izant Mueller created April 23, 1998
James R. Izant 40,643
Phyllis J. Izant 26,962
Holly Izant McSherry 26,799
</TABLE>
WHEREAS, Elizabeth A. Izant, Holly Izant McSherry, James R.
Izant and Phyllis J. Izant are the general partners of the Izant Family
Partnership;
WHEREAS, the Company and Second Bancorp are concurrently with
the execution of this Agreement entering into an Agreement and Plan of Merger
(the "Merger Agreement");
WHEREAS, it is the belief of each Stockholder that the Merger
is in the best interests of the Stockholders and the Company;
WHEREAS, under the terms of the Merger Agreement, the Company
has agreed to call a meeting of its stockholders for the purpose of voting upon
the approval of the merger described in the
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<PAGE> 2
Merger Agreement (the "Merger") (such meeting, together with any adjournments
thereof, the "Stockholders' Meeting"); and
WHEREAS, the Company and Second Bancorp have made it a
condition to entering into the Merger Agreement that the Stockholders shall have
agreed to vote their stock in favor of the Merger;
NOW, THEREFORE, in consideration of the Company and Second
Bancorp entering into the Merger Agreement and to encourage the Company and
Second Bancorp to enter into the Merger Agreement and complete the Merger, the
parties hereto agree as follows:
I. AGREEMENT TO VOTE. Each Stockholder agrees, except as set
forth in Section 2 below, to vote their Shares and the Shares of any person
controlled by the Stockholder as follows:
A. in favor of the adoption of the Merger
Agreement at the Stockholder's Meeting;
B. against the approval of an Acquisition
Proposal (as defined in the Merger
Agreement); and
C. against any other transaction which is
inconsistent with the obligation of the
Company to consummate the Merger in
accordance with the Merger Agreement.
II. LIMITATION ON VOTING POWER. The parties hereto acknowledge
and agree that nothing contained herein is intended to restrict a Stockholder
from voting on any matter, or otherwise from acting, in the Stockholder's
capacity as a director of the Company with respect to any matter, including but
not limited to, the management or operation of the Company.
III. TERMINATION. This Agreement shall terminate on the
earlier of:
A. February 28, 1999,
B. by mutual consent of Second Bancorp, the
Company, and the Stockholders;
C. the date on which the Merger Agreement is
terminated in accordance with its terms, or
D. the date on which the Merger is consummated.
Upon any such termination, the obligations of each party to this Agreement shall
be extinguished.
IV. REPRESENTATIONS, WARRANTIES AND ADDITIONAL COVENANTS OF
THE STOCKHOLDERS. Each Stockholder hereby covenants, represents and warrants to
the Company and Second Bancorp that:
A. such Stockholder has the capacity and all
necessary power and authority to vote the
stock;
B. this Agreement constitutes a legal, valid
and binding obligation of the Stockholder,
enforceable in accordance with its terms,
except as
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<PAGE> 3
enforcement may be limited by bankruptcy,
insolvency or similar laws affecting
enforcement of creditors' rights generally;
C. this Agreement has been duly authorized,
executed and delivered by the person
executing this Agreement on behalf of the
Stockholder;
D. the Stockholder further agrees that, during
the term of this Agreement, the Stockholder
will not, without the prior written consent
of Second Bancorp or through an Izant Family
Event, sell, pledge or otherwise voluntarily
dispose of any of the shares owned by the
Stockholder or take any other voluntary
action which would have the effect of
removing the Stockholder's power to vote the
Shares or which would be inconsistent with
this Agreement;
E. the Stockholder will not take any action
that would adversely affect the ability of
the surviving corporation under the Merger
Agreement to treat the Merger as a
"pooling-of-interests" in accordance with
generally accepted accounting principles;
and
F. this Agreement shall apply to all additional
shares of capital stock of the Company
acquired by the Stockholder after the date
of this Agreement.
As used herein, "Izant Family Event" shall mean any sale or disposition of
shares to another Stockholder or to the family of any Stockholder, including
trusts for the benefit of such family members, provided that the person
receiving such shares either is a party to this Agreement or executes and
delivers a written instrument to become a party hereto.
V. AFFILIATE'S AGREEMENT. Each Stockholder who is determined
by the Company to be an affiliate of the Company in accordance with Section 5.06
of the Merger Agreement agrees to sign an agreement in the form of Exhibit 5.06
to the Merger Agreement.
VI. SPECIFIC PERFORMANCE. Each Stockholder hereby acknowledges
that damages would be an inadequate remedy for any breach of the provisions of
this Agreement and agrees that the obligations of the Stockholder shall be
specifically enforceable and that Second Bancorp and the Company shall be
entitled to injunctive or other equitable relief upon such a breach by each
Stockholder. Each Stockholder further agrees to waive any bond in connection
with the obtaining of any such injunctive or equitable relief. This provision is
without prejudice to any other rights that Second Bancorp and the Company may
have against each Stockholder for any failure to perform the Stockholder's
obligations under this Agreement.
VII. GOVERNING LAW. This Agreement shall be enforceable under
and construed in accordance with the laws of the State of Ohio.
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<PAGE> 4
IN WITNESS WHEREOF, each Stockholder has executed this
Agreement to be effective as of the date set forth in the first paragraph above.
<TABLE>
<S> <C>
IZANT FAMILY PARTNERSHIP
By: /s/ Elizabeth A. Izant
-----------------------
Elizabeth A. Izant, Managing Partner
By: /s/ James R. Izant
-----------------------
James R. Izant, Managing Partner
/s/ Phyliss Jean Izant /s/ Elizabeth A. Izant
- -------------------------- -------------------------
Phyllis Jean Izant, Trustee for Elizabeth A. Izant, Trustee of Elizabeth A. Izant
Irrevocable Trust for Annika Izant Trust dated 4-12-93
Mueller created April 23, 1998
/s/ Phyllis Jean Izant /s/ James R. Izant
- -------------------------- -------------------------
Phyllis Jean Izant, Trustee for James R. Izant
Irrevocable Trust for Preston Izant
Mueller created April 23, 1998
/s/ Phyllis Jean Izant /s/ Holly Izant McSharry
- -------------------------- -------------------------
Phyllis J. Izant Holly Izant McSharry
TRUMBULL FINANCIAL CORPORATION
By: /s/ James R. Izant
------------------
James R. Izant, Executive Vice President
SECOND BANCORP INCORPORATED
By: /s/ Alan G. Brant
------------------
Alan G. Brant, Chairman and President
</TABLE>
4
<PAGE> 1
Exhibit 4.3
CONSULTING AND NON-COMPETITION AGREEMENT
----------------------------------------
This Consulting and Non-Competition Agreement, made and
entered into this __ day of August, 1998, by and between Second Bancorp
Incorporated (the "Company"), and James R. Izant ("Consultant");
WITNESSETH:
WHEREAS, the Company is a bank holding company operating in
Ohio and Western Pennsylvania; and
WHEREAS, Consultant has extensive business contacts,
experience and expertise as an executive officer and director in the financial
institution industry; and
WHEREAS, the Company and Consultant desire that Consultant
assist in certain activities of the Company as described herein if and when the
Company and Trumbull Financial Corporation merge; and
WHEREAS, Consultant, by reason of his extensive business
contacts, experience and expertise, would be able to compete with the Company
and its affiliates, thereby materially harming their business; and
WHEREAS, the parties desire to provide that Consultant will
not compete with the business of the Company and its affiliates as set forth
herein in accordance with the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants contained herein, Consultant and the Company hereby agree as
follows, intending to be legally bound:
I. CONSULTING SERVICES. The Company shall engage Consultant to
provide services and advice to the Company's business and to promote the best
interests of the Company during the Term of this Agreement (as defined below).
Consultant shall perform his duties hereunder faithfully, to the best of his
ability, realistically gauged to conform with the time limitations governing the
consulting services to be provided by the Consultant and in the furtherance of
the best interests of the Company in conformity with the policies of the Company
and under and subject to such direction, instruction, and oversight as the
Chairman of the Board of
1
<PAGE> 2
Directors of the Company (the "Chairman") may reasonably issue in furtherance of
the business objectives of the Company from time to time. Specifically,
Consultant shall:
A. Serve on the Board of Directors of Second Bancorp
Incorporated so long as he shall be nominated by the Board and elected as a
director by the shareholders. So long as Consultant is not in breach of this
Agreement and acts in conformity to his fiduciary obligations as a Director, the
Company shall exercise its reasonable best efforts to have the Consultant
nominated by the Board and elected as a Director by the Shareholders during the
Term of this Agreement;
B. Advise the Company regarding conversion issues in
connection with the merger of Trumbull Savings and Loan Association ("Trumbull")
into Second National Bank of Warren (the "Bank"), thrift financial institutions
practices and procedures, consolidation issues related to the merger and
business development;
C. Assist in the preservation of customer relations with the
Company and the attraction of new customers to the Company;
D. Assist the Company in attracting and retaining high quality
employees;
E. Provide general consulting services on the request of the
Chairman for up to forty-five (45) hours per month.
II. NON-COMPETITION.
A. During the Term of this Agreement, Consultant shall not
become a shareholder, employee, officer, director, partner, lender, investor,
advisor, agent, consultant or (whether or not being compensated in any way in
any such capacity) otherwise engaged directly or indirectly in any Banking or
Financial Industry Business in which the Company is engaged at the time or to
which the Company has devoted resources for possible participation, within the
State of Ohio, in the area of the Commonwealth of Pennsylvania west of a
north/south line through the center of Kittaning, Pennsylvania, or in the area
of the State of West
2
<PAGE> 3
Virginia north and west of a line connecting the cities of Morgantown, and
Charleston in West Virginia, such line extending to the borders of West Virginia
(the "Trade Area"). For purposes of this Agreement, Banking or Financial
Industry Business shall mean engaging in or rendering services as a bank,
savings association, holding company, mortgage company, finance company, loan
company, brokerage company, insurance agency of Company or other financial
institution or business which is in competition with the Company (or its
subsidiaries or affiliates or their successors or assigns) and which bank,
savings association, holding company, mortgage company, finance company, loan
company, financial institution, brokerage company, insurance agency or company
or other business has a main office, branch office, loan production office or
which otherwise solicits business directly or indirectly within the Trade Area.
Notwithstanding the foregoing, nothing herein contained shall prevent Consultant
from purchasing and holding for investment less than 3% of the securities of any
publicly-held corporation which is in direct or indirect competition with the
Company, the shares of which are regularly traded on a national securities
exchange. Consultant shall remove himself from any meeting involving any
consideration by the Board of Directors of any activity in the event Consultant
has a conflict of interest. Further, Consultant shall not:
1. Request or advise any customer, client, or other
person, firm, partnership, association, corporation or business organization,
entity or enterprise having business dealings with the Bank or its affiliates or
the business of the Bank to withdraw, curtail or cancel such business or such
business dealings; or
2. Induce or attempt to influence any employee of the
Company or any of its subsidiaries or affiliates to terminate the employee's
employment.
B. To ensure the greatest likelihood of enforceability of the
covenant not to compete in this section (the "Covenant"), the parties agree that
(i) the duration and area for which the Covenant is to be effective are
reasonable; (ii) if any court determines that the time period or the area, or
both of them, are unreasonable and that the Covenant is to that extent
unenforceable, then the Covenant shall remain in full force
3
<PAGE> 4
and effect for the greatest time period and in the greatest area that would not
render it unenforceable; and (iii) the Covenant shall be deemed to be a series
of separate covenants, one for each and every county in the Trade Area.
III. CONFIDENTIALITY.
A. Consultant agrees and acknowledges that the results and
proceeds of his consultation services, and any data, ideas, plans or other
information disclosed directly or indirectly to him by the Company or its
affiliates in the course of his engagement with the Company and in the course of
providing the consulting services hereunder shall be considered confidential and
proprietary information of the Company. During the Term of this Agreement and
thereafter, Consultant agrees to maintain such confidential and proprietary
information in confidence, in the absence of written authority to the contrary
by the Company. The foregoing obligation to maintain information in confidence
shall not apply to any information which is or becomes part of the public
domain, other than by or through the actions of Consultant. Upon the termination
of this Agreement, Consultant shall deliver to the Company all documents,
information, drawings, blueprints, reports, manuals, letters, notes, notebooks,
and all copies of the foregoing, and all other materials of a secret or
confidential nature relating to the Company's business which are in the
possession or in the control of Consultant. By way of example and not
limitation, Consultant shall not:
1. Disclose to any person, firm, partnership,
association, corporation or business organization, entity or enterprise, any
confidential information, including the names of customers or clients of, or
other persons, firms, partnerships, associations, corporations or business
organization, entities or enterprises having business dealings with the Company;
or
2. Disclose to any competitor, or potential
competitor of the Company or its affiliates or the business of the Company or
its affiliates, any trade secrets or confidential information of any kind
relating to or developed in the course of such business or the development or
sale of the products or services thereof.
4
<PAGE> 5
B. By way of example and not limitation, "confidential
information" shall include matters of a technical nature such as "know-how",
innovations, research projects, methods; matters of a business nature, such as
information about costs, prices, profits, markets, marketing, sales, customers,
suppliers, business processes, computer programs, accounting methods or data,
information systems, business or financial plans and reports, employee
compensation, personnel and any other information of a similar nature; and trade
secrets and confidential matter or information as defined by the statutory and
common law of Ohio or federal legislation and regulations.
C. Consultant agrees not to use confidential information for
Consultant's own benefit, in violation of federal or Ohio securities laws or
otherwise, or to divulge, disclose or communicate any confidential information
to any person or entity, in violation of federal or Ohio securities laws or
otherwise, except that Consultant may communicate confidential information to
other employees, representatives or agents of the Company or any of its
affiliates having a need to know such confidential information, and then only to
the extent necessary for those employees, representatives or agents to perform
their employment or agency responsibilities to the Company.
IV. COMPENSATION.
A. In consideration for the obligations of Consultant set
forth in this Agreement, Company shall pay Consultant (i) a non-compete fee in
the aggregate amount of $90,000 of which $45,000 shall be payable on the first
day of the Term of this Agreement and $45,000 shall be payable on the first
anniversary of the first day of the Term of this Agreement, and (ii) consulting
fees in the amount of $3,750 per month for 24 consecutive months, the first such
consulting fee payment to be due and payable on the first day of the Term of
this Agreement and each subsequent payment to be due and payable on the same day
of each succeeding month. In the event the Company determines in good faith that
Consultant is in breach of this Agreement, the Company may suspend payments to
the Consultant under this Agreement only upon failure of Consultant to cure such
breach
5
<PAGE> 6
within 10 days of the receipt of written notice of the breach of this Agreement.
If, prior to termination of this Agreement under Section 5, Consultant cures
such breach, including by being reasonably available to render previously
unserved consultant services upon the request of the Company, then the Company
shall resume payment and make up past payments. The obligation of the Company to
pay the Consultant the non-compete fee described in Section 4(a)(i) above shall
survive and shall in no event be impacted by the death or total or partial
disability of the Consultant.
B. In performing the consulting services required in
accordance with this Agreement, Consultant shall be reimbursed his actual and
reasonable documented expenses incurred in performing such services against
presentation of receipts or invoices evidencing such expenses. The Company shall
not be obligated to reimburse any expenses which have not been approved in
advance which exceed expenses of a kind otherwise paid by the Company for its
executive officers.
V. TERM. The term of this Agreement ("Term") shall commence on the
effective date of the merger of the Company and Trumbull Financial Corporation
and shall continue for a period of two (2) years thereafter. Either party may
terminate this Agreement in the event of a breach by the other party, by giving
60 days written notice of the breach and the intention to terminate to the
breaching party if such breach is not cured within such 60 day period.
VI. WAIVER. Failure to insist upon a strict compliance with any of the
terms, covenants or conditions hereof shall not be deemed a waiver or
relinquishment of any such term, covenant or condition, nor shall any such
failure at any one time or more times be deemed a waiver or relinquishment at
any other time or times of any right under the terms, covenants or conditions
hereof.
VII. BENEFITS OF AGREEMENT. This Agreement shall inure to the benefit
of and be binding upon the Company, its successors and assigns. With the
exception of the obligation upon the Consultant to provide consulting services
which are personal unto the Consultant, this Agreement shall inure to the
benefit of and be
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<PAGE> 7
binding upon Consultant and Consultant's heirs, legatees, personal
representatives, administrators, executors, successors and assigns.
VIII. ASSIGNMENT. Neither the Company nor Consultant's rights and
obligations under this Agreement may be assigned or otherwise transferred
without the prior written consent of the other party; except that Company may
assign its rights and obligations hereunder without the consent of the
Consultant to any affiliate of the Company or to any successor of the Company by
merger or similar transaction.
IX. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Ohio.
X. HEADINGS. The headings of the various sections of this Agreement
have been inserted for convenience only. Interpretation hereof shall be based
strictly upon the text without reference to such headings.
XI. MODIFICATIONS. No modification hereof shall be effective unless the
same shall be in writing duly executed by the party to be bound thereby.
XII. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties with respect to the matters set forth herein.
XIII. EQUITABLE RELIEF. Consultant's obligations contained in this
Agreement are of a special and unique character which gives them a peculiar
value to the Company. The Company cannot be reasonably or adequately compensated
in damages in an action at law in the event Consultant breaches such
obligations. Consultant therefore expressly agrees that, in addition to any
other rights or remedies which the Company may possess, the Company shall be
entitled to injunctive and other equitable relief in the form of preliminary and
permanent injunctions without bond or other security in the event of any actual
or threatened breach of said obligations by Consultant.
XIV. NOTICES. All notices, requests, demands, payments and other
communications required or permitted to be given under this Agreement shall be
given in writing and shall be deemed to have been given if
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<PAGE> 8
delivered by hand, by express service or by certified mail, postage prepaid:
A. If to Consultant, to:
James R. Izant
8755 Cardiff Lane, S.E.
Warren, OH 44484-3104
with a copy to:
David M. Hunter
Brouse & McDowell
500 First National Tower
Akron, OH 44308
B. If to Company, to:
108 Main Avenue, S.W.
P.O. Box 1311
Warren, Ohio 44482
Attention: Chairman
Any party to this Agreement may, by notice given in accordance with this
section, designate a new address for notices and other communications to such
party.
XV. EXECUTION OF AGREEMENT. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be a duplicate original, but
all counterparts taken together shall constitute duplicate originals of one and
the same agreement.
XVI. JURISDICTION AND VENUE. Any actions or proceedings instituted
under this Agreement with respect to any matters arising under or related to
this Agreement shall be brought and tried only in courts located in the State of
Ohio. By entering into this Agreement, the Company and Consultant consent to the
jurisdiction over their person in both federal and state court systems of Ohio
and expressly waive any right to cause any such action or proceeding to be
brought or tried elsewhere.
8
<PAGE> 9
IN WITNESS WHEREOF, the Company and Consultant have executed this
Agreement to be effective as of the date set forth in the first paragraph above.
SECOND BANCORP INCORPORATED
By:
--------------------------------------
Alan G. Brant, Chairman and President
------------------------------------------
James R. Izant
9
<PAGE> 1
Exhibit 5
LEGAL OPINION
[Vorys, Sater, Seymour and Pease LLP Letterhead]
[Introductory paragraphs to be included, with such assumptions, qualifications
and limitations as are consistent with firm practice.]
Based upon and subject to the foregoing and the further
limitations, qualifications and exceptions set forth herein, as of the date
hereof, we are of the opinion that:
1. The Corporation is a corporation validly existing under the
laws of the State of Ohio and in good standing on the records of the Secretary
of State of Ohio and is registered as a bank holding company under the Bank
Holding Company Act of 1956.
2. The execution and delivery of, and the performance of its
obligations under, the Merger Agreement are validly authorized by all necessary
corporate action of the Corporation. The Agreement has been validly executed and
delivered by the Corporation. The Agreement constitutes a valid and binding
obligation of the Corporation, enforceable in accordance with its terms.
3. The execution and delivery of the Agreement by the
Corporation and the consummation and performance thereof do not violate any
provision of either the Corporation's articles or regulations and do not violate
any order, writ, judgment, injunction, decree, determination or award which is
presently in effect and known by us and to which the Corporation or its
subsidiary is a party.
4. No authorization or approval of any governmental
department, agency or instrumentality of the United States or of any state which
has not been obtained by the Corporation is necessary for the execution or
delivery of, or the performance of its obligations under, the Agreement by the
Corporation or otherwise is necessary to effect the Merger in accordance with
the terms of the Agreement.
5. The Shares to be issued in connection with the Merger in
accordance with Article Two of the Agreement, when so issued, will be duly
authorized, validly issued, fully paid, non-assessable, and issued free of
preemptive rights of any person.
Very truly yours,
VORYS, SATER, SEYMOUR AND PEASE LLP
<PAGE> 1
Exhibit 8.1
(614) 464-6400
_____________, 1998
Second Bancorp Incorporated Trumbull Financial Corporation
108 Main Street, S.W. 105 High Street, N.E.
P.O. Box 1311 Warren, Ohio 44481
Warren, Ohio 44482 Attention: P. Scott Carson
Attention: Christopher Stanitz, Esq.
Ladies and Gentlemen:
We have acted as special counsel to Second Bancorp Incorporated
("Second Bancorp"), an Ohio corporation, in connection with the transactions
described in the Agreement and Plan of Merger dated as of May 4, 1998 (the
"Agreement") by and between Second Bancorp and Trumbull Financial Corporation
("Trumbull"), an Ohio corporation. As a condition to the closing of the merger,
under the laws of the State of Ohio, by and between Trumbull and Second Bancorp
pursuant to the terms of the Agreement (the "Merger"), you have requested our
opinion regarding certain of the federal income tax consequences of the Merger.
In rendering this opinion, we have examined the originals or certified,
conformed, or reproduction copies of, and have relied upon the accuracy of,
without independent verification or investigation, (i) the Agreement, (ii) the
Second Bancorp Incorporated Officer's Certificate dated as of _________, 1998,
and (iii) the Trumbull Financial Corporation Officer's Certificate dated as of
________, 1998.
In connection with our review of the Agreement and the officers'
certificates described above (collectively, the "Officers' Certificates"), we
have assumed the genuineness of all signatures, the authenticity of all items
submitted to us as originals, the uniformity with authentic originals of all
items submitted to us as copies, and the conformity to final versions of all
items submitted to us in draft version. We also have assumed, without
independent verification or investigation, that (i) we have been provided with
true, correct, and complete copies of all such documents, (ii) none of such
documents has been amended or modified, (iii) all such documents are in full
force and effect in accordance with the terms thereof, (iv) there are no other
documents which affect the opinions hereinafter set forth, and (v) the documents
reviewed by us reflect the entire agreement of the parties thereto with respect
to the subject matter thereof.
The Agreement provides that the Merger will constitute a merger, under
the laws of the State of Ohio, of Trumbull with and into Second Bancorp. Second
Bancorp will be the surviving corporation, and the separate corporate existence
of Trumbull will cease. After the Merger, Trumbull Savings and Loan Company, an
Ohio-chartered savings bank wholly owned by Trumbull, will merge with and into
The Second National Bank of Warren ("Second National"), a
<PAGE> 2
national banking association wholly owned by Second Bancorp. Second National
will continue the banking business of Trumbull Savings and Loan Company.
As of May 4, 1998 (the "Agreement Date"), the authorized capital stock
of Second Bancorp consisted of 20,000,000 shares of common stock, no par value
("Second Bancorp Common"), of which 6,837,689 shares were issued and
outstanding. As of the Agreement Date, the authorized capital stock of Trumbull
consisted of 5,000,000 common shares, without a par value ("Trumbull Common"),
of which 869,364 shares were issued and outstanding.
On the date the Merger becomes effective (the "Effective Date"), each
share of Trumbull then issued and outstanding, other than shares of Trumbull
Common (i) held in treasury of Trumbull, (ii) held by Second Bancorp, (iii) held
by any wholly-owned subsidiary of Second Bancorp or Trumbull or (iv) as to which
the holder has commenced as of the Effective Date all procedures necessary
through the Effective Date to assert dissenters' rights in accordance with the
provisions of Section 1701.85 of the Ohio Revised Code ("Dissenting Shares"),
shall be converted into 3.78 shares of Second Bancorp Common.
Each share of Trumbull Common held (i) in the treasury of Trumbull,
(ii) by Second Bancorp or (iii) by any wholly-owned subsidiary of Second Bancorp
or Trumbull immediately prior to the Effective Date of the Merger shall, by
virtue of the Merger, be canceled and retired and all rights in the respect
thereof shall cease to exist. Holders of Dissenting Shares shall, upon the
effectiveness of the Merger with respect to such Dissenting Shares, have only
such rights, if any, as they may have pursuant to Sections 1701.84 and 1701.85
of the Ohio Revised Code, and any amounts required by Section 1701.85 to be paid
to any holder of Dissenting Shares shall be paid by Second Bancorp as the
surviving corporation.
Neither fractional shares nor scrip for fractional shares of Second
Bancorp Common will be issued by Second Bancorp in the Merger. In lieu thereof,
each holder of shares of Trumbull Common shall receive cash in an amount
determined by multiplying the fractional share interest to which such holder
otherwise would be entitled by the Corporation Closing Price, as defined by the
Agreement, of a share of Second Bancorp Common on The Nasdaq National Market.
As a condition precedent to the obligations of the parties under the
Agreement, less than ten percent (10%) of the shares of Second Bancorp Common to
be issued, in the aggregate, will be (i) subject to purchase as fractional
shares, (ii) paid to any holder of Dissenting Shares and (iii) held by
shareholders of Second Bancorp who have demanded payment of the appraised value
of their shares of Second Bancorp Common under Section 1701.85 of the Ohio
Revised Code in connection with the Merger.
In connection with the Merger, the Officers' Certificates set forth the
following representations:
1. The Merger is being effected for bona fide business reasons.
2. The fair market value of the shares of Second Bancorp Common to be
received by the shareholders of Trumbull will be approximately equal to the fair
market value of the shares of Trumbull Common exchanged therefor.
<PAGE> 3
3. All the shares of Trumbull Common outstanding immediately prior to
the Merger will be exchanged solely for shares of Second Bancorp Common, except
for cash paid to dissenters or in lieu of fractional shares. To the best
knowledge of the management of Trumbull, the shareholders of Trumbull have no
plan or intention to sell, exchange, or otherwise dispose of a number of shares
of Second Bancorp Common received in the transaction to Second Bancorp or a
person related to Second Bancorp that would reduce the Trumbull shareholders'
ownership of Second Bancorp Common to a number of shares having a value, as of
the date of the transaction, of less than fifty percent (50%) of the value of
all formerly outstanding stock of Trumbull as of the same date. For purposes of
this representation, any shares of Trumbull Common surrendered by dissenters, or
exchanged for cash in lieu of fractional shares of Second Bancorp Common, will
be treated as outstanding on the date of the transaction. Furthermore, any
redemptions or extraordinary distributions by Trumbull, prior to and in
connection with the Merger, will be considered in making this representation.
Finally, any acquisitions of Trumbull Common by a person related to Trumbull,
prior to and in connection with the Merger, with consideration other than stock
of either the acquired corporation or the acquiring corporation, will be
considered in making this representation.
4. Neither Second Bancorp nor a related person has any plan or
intention to reacquire any shares of Second Bancorp Common issued in the Merger
other than to acquire a small amount of shares of Second Bancorp Common in
ordinary business transactions (including, but not limited to, open market
purchases in brokers' transactions).
5. Second Bancorp has no plan or intention to sell or otherwise dispose
of any of the assets of Trumbull acquired in the Merger, except for dispositions
made in the ordinary course of business or transfers described in Section
368(a)(2)(C) of the Internal Revenue Code of 1986, as amended (the "Code").
6. The liabilities of Trumbull assumed by Second Bancorp in the Merger
and the liabilities to which the transferred assets of Trumbull are subject were
incurred by Trumbull in the ordinary course of its business.
7. Following the Merger, Second Bancorp or a related person will
continue the historic business of Trumbull or use a significant portion of
Trumbull's historic assets in a business.
8. Second Bancorp, Trumbull and the shareholders of Trumbull will pay
their respective expenses, if any, incurred in connection with the Merger.
9. There is no intercorporate indebtedness existing between Trumbull
and Second Bancorp that was issued, acquired, or will be settled at a discount.
10. Neither Second Bancorp nor Trumbull is an investment company as
defined in Section 368(a)(2)(F)(iii) and (iv) of the Code.
11. Trumbull is not under the jurisdiction of a court in a title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code.
<PAGE> 4
12. The fair market value of the assets of Trumbull transferred to
Second Bancorp will equal or exceed the sum of the liabilities assumed by Second
Bancorp plus the amount of the liabilities, if any, to which the transferred
assets are subject.
13. The payment of cash in lieu of fractional shares of Second Bancorp
Common is solely for the purpose of avoiding the expense and the inconvenience
to Second Bancorp of issuing fractional shares and does not represent separately
bargained for consideration. The total cash that will be paid in the Merger to
the shareholders of Trumbull instead of issuing fractional shares of Second
Bancorp Common will not exceed one percent (1%) of the total consideration that
will be issued in the Merger to the Trumbull shareholders in exchange for their
shares of Trumbull Common. The fractional share interests of each Trumbull
shareholder will be aggregated, and no shareholder will receive cash in an
amount equal to or greater than the value of one full share of Second Bancorp
Common.
14. None of the compensation received by any shareholder-employees of
Trumbull will be separate consideration for, or allocable to, any of their
shares of Trumbull Common; none of the shares of Second Bancorp Common received
by any shareholder-employees will be separate consideration for, or allocable
to, any employment agreement; and the compensation paid to any
shareholder-employees will be for services actually rendered and will be
commensurate with amounts paid to third parties bargaining at arm's length for
similar services.
15. The Merger will qualify as a statutory merger under the Ohio
Revised Code.
DISCUSSION
----------
Section 368(a)(1)(A) of the Code defines a tax-free reorganization to
include a statutory merger. Since the Merger will be a statutory merger under
the laws of the State of Ohio, the statutory requirement is satisfied. Moreover,
Trumbull and Second Bancorp each will be a "party to the reorganization" within
the meaning of Section 368(b) of the Code.
In addition, certain non-statutory requirements have been imposed by
the courts and by the Internal Revenue Service (the "Service") in determining
whether reorganizations are in compliance with Section 368 of the Code. These
include requirements that there be a business purpose for the reorganization,
that there be a continuity of the business enterprise of the acquired
corporation, and that the shareholders of the acquired corporation emerge with
some continuing proprietary interest in the entity resulting from the
reorganization.
Section 1.368-2(g) of the Treasury Regulations (the "Regulations")
provides that a reorganization must be undertaken for reasons germane to the
continuance of the business of a corporation which is a party to the
reorganization. As indicated in the Officers' Certificates, the Merger is being
effected for bona fide business reasons. Accordingly, the Merger satisfies the
business purpose requirement as set forth in the Regulations.
<PAGE> 5
Section 1.368-1(b) of the Regulations provides that a continuity of
business enterprise is a prerequisite to a reorganization. Section 1.368-1(d) of
the Regulations (and as modified by T.D. 8760) provides that continuity of
business enterprise requires that the acquiring corporation or a related person
either continue the acquired corporation's historic business or use a
significant portion of the acquired corporation's historic assets in a business.
Revenue Ruling 85-197, 1985-2 C.B. 120, provides that for purposes of the
continuity of business enterprise requirement, the historic business of a
holding company is the business of its operating subsidiary. Similarly, Revenue
Ruling 85-198, 1985-2 C.B. 120, held that the continuity of business enterprise
requirement was met where the business of a former subsidiary of the acquired
holding company was continued through a subsidiary of the acquiring corporation.
Accordingly, the continuity of business enterprise requirement is met with
regard to the Merger because Second Bancorp's wholly-owned subsidiary, Second
National, will continue the banking business indirectly conducted by Trumbull.
Generally, the continuity of interest test requires the owners of the
acquired corporation to receive and maintain a meaningful equity in the
surviving entity. The Service has issued final and temporary regulations (T.D.
8760 and 8761) providing rules for satisfying the continuity of interest
requirement. These regulations substantially liberalize the historic rules,
generally providing that continuity of interest is satisfied if a substantial
part of the value of the proprietary interest in the acquired corporation is
preserved in the reorganization. In determining whether a substantial part of
the value of the proprietary interest is preserved, the following transactions,
in connection with the reorganization, are considered. First, under Section
1.368-1 of the Regulations, any acquisition by the acquiring corporation of
acquired corporation stock for consideration other than stock, or, in connection
with the reorganization, the redemption of acquiring corporation stock received
by the shareholders of the acquired corporation (or the purchase of such
acquiring corporation stock by a person related to the acquiring corporation),
will be considered in determining whether a substantial proprietary interest is
preserved. Second, under Section 1.368-1T of the Regulations, the acquisition by
the acquired corporation, prior to and in connection with the plan of
reorganization, of the stock of the acquired corporation with consideration
other than stock of the acquired corporation or an extraordinary distribution
made by the acquired corporation with respect to its stock, will be considered
in determining whether a substantial proprietary interest is preserved. Third,
under Section 1.368-1T of the Regulations, the acquisition by a person related
to the acquired corporation, prior to and in connection with the plan of
reorganization, of the stock of the acquired corporation with consideration
other than stock of the acquired corporation or stock of the acquiring
corporation, will be considered in determining whether a substantial proprietary
interest is preserved. Generally, two corporations are related persons either if
the corporations are members of the same affiliated group (without regard to the
exceptions in Section 1504(b) of the Code) or the purchase of stock of one
corporation by another corporation would result in the purchase being treated as
a redemption of stock of the first corporation under Section 304(a)(2) of the
Code (determined without regard to Section 1.1502-80(b) of the Regulations).
Sales by the shareholders of the acquired corporation of stock of the acquiring
corporation received in the transaction to unrelated persons occurring before or
after a reorganization are disregarded.
The Merger will satisfy the continuity of interest requirement. Second
Bancorp has represented that all the shares of Trumbull Common outstanding
immediately prior to the Merger will be exchanged solely for shares of Second
Bancorp Common, except for cash paid to
<PAGE> 6
dissenters or in lieu of fractional shares. As a condition precedent to the
obligations of the parties under the Agreement, such cash paid to dissenters, in
lieu of fractional shares or to Second Bancorp shareholders who have demanded
the appraised value of their shares of Second Bancorp Common will constitute, in
the aggregate, less than ten percent (10%) of the total consideration payable in
connection with the Merger. Second Bancorp has represented further that neither
Second Bancorp nor a related person has any plan or intention, in connection
with the plan of reorganization, to reacquire any shares of Second Bancorp
Common issued in the Merger, other than to acquire a small amount of shares of
Second Bancorp Common in ordinary business transactions (including, but not
limited to, open market purchases in brokers' transactions). In addition,
Trumbull has represented that neither Trumbull nor a related person has any plan
or intention, prior to and in connection with the plan of reorganization, to
redeem, acquire, or make an extraordinary distribution with respect to
Trumbull's stock for consideration other than stock of Trumbull (or in the case
of a related person, for consideration other than stock of Trumbull or stock of
Second Bancorp), that would cause a substantial part of the value of the
proprietary interest in the acquired corporation not to be preserved.
Even though the Merger qualifies as a tax-free reorganization under
Section 368(a)(1)(A) of the Code, Trumbull shareholders receive tax free only
shares of Second Bancorp Common in accordance with Section 354 of the Code.
Because Trumbull shareholders will be exchanging their stock for stock of Second
Bancorp, both of which corporations are parties to the reorganization, no gain
or loss will be recognized under Section 354(a) of the Code.
If a Trumbull shareholder dissents to the Merger and receives solely
cash in exchange for such shareholder's Trumbull Common shares, such cash will
be treated as having been received by such shareholder as a distribution in
redemption of such shareholder's Trumbull Common shares, subject to the
provisions and limitations of Section 302 of the Code. Unless the redemption is
treated as a dividend under Section 302(d) of the Code, such shareholder will
recognize gain or loss measured by the difference between the amount of cash
received and the tax basis of the Trumbull Common shares so redeemed. This gain
or loss will be capital gain or loss if the shares of Trumbull Common were held
by such shareholder as a capital asset at the time of the Merger. If, on the
other hand, the redemption is treated as a dividend under Section 302(d) of the
Code, the full amount of cash received by such shareholder will be treated as
ordinary income to the extent of Trumbull's current or accumulated earnings and
profits.
Under the tests of Section 302 of the Code, the redemption of a
dissenting Trumbull shareholder's Trumbull Common generally will be treated as a
dividend unless the redemption (i) results in a "complete termination" of such
shareholder's direct or indirect stock interest in Second Bancorp under Section
302(b)(3) of the Code, (ii) is "substantially disproportionate" with respect to
such shareholder under Section 302(b)(2) of the Code or (iii) is "not
essentially equivalent to a dividend" with respect to such shareholder under
Section 302(b)(1) of the Code.
In order to determine whether there has been a complete termination, a
substantially disproportionate redemption or a redemption not essentially
equivalent to a dividend with respect to a dissenting Trumbull shareholder, it
is necessary to consider the shares of Second Bancorp Common owned by persons
from whom ownership is attributed to such shareholder under the rules of Section
318 of the Code. Under Section 318 of the Code, a shareholder is considered to
own shares that are directly or indirectly owned by certain members of such
shareholder's family
<PAGE> 7
or by certain trusts, partnerships or corporations in which such shareholder has
an ownership or beneficial interest. Such shareholder is also considered to own
any shares with respect to which he holds exercisable options. In certain cases,
a dissenting Trumbull shareholder may be deemed to own constructively the shares
of Second Bancorp Common held by persons who do not exercise dissenters' rights.
Payment of cash to a Trumbull shareholder in lieu of fractional Second
Bancorp Common shares will be treated as if such shares were distributed as part
of the exchange and then redeemed by Second Bancorp. The payment received by a
Trumbull shareholder will be treated as having been received as a distribution
in full payment and exchange for the share redeemed as provided in Section
302(a) of the Code.
OPINIONS
--------
Therefore, based on the description of the Merger in the Agreement, the
representations set forth in the Officers' Certificates, the foregoing legal
authorities, and the assumptions stated above, it is our opinion that:
1. The Merger will be a reorganization within the meaning of Section
368(a)(1)(A) of the Code. Trumbull and Second Bancorp each will be a "party to
the reorganization" within the meaning of Section 368(b) of the Code.
2. No gain or loss will be recognized by Trumbull upon the transfer of
its assets to Second Bancorp in exchange for shares of Second Bancorp Common and
the assumption by Second Bancorp of the liabilities of Trumbull.
3. No gain or loss will be recognized by Second Bancorp on the receipt
of the assets of Trumbull in exchange for shares of Second Bancorp Common and
the assumption by Second Bancorp of the liabilities of Trumbull.
4. The basis of the assets of Trumbull in the hands of Second Bancorp
will be the same as the basis of such assets in the hands of Trumbull
immediately prior to the Merger.
5. The holding period of the assets of Trumbull to be received by
Second Bancorp will include the period during which the assets were held by
Trumbull.
6. No gain or loss will be recognized by the Trumbull shareholders upon
the receipt of shares of Second Bancorp Common in exchange for their shares of
Trumbull Common.
7. The basis of the shares of Second Bancorp Common to be received by a
Trumbull shareholder will be the same as the basis of the shares of Trumbull
Common surrendered in exchange therefor.
8. The holding period of the shares of Second Bancorp Common to be
received by a Trumbull shareholder will include the period during which the
shares of Trumbull Common surrendered in exchange therefor were held, provided
the shares of Trumbull Common are a capital asset in the hands of the Trumbull
shareholder at the time of the Merger.
<PAGE> 8
9. If a Trumbull shareholder dissents to the Merger and receives solely
cash in exchange for such shareholder's Trumbull Common, such cash will be
treated as having been received by such shareholder as a distribution in
redemption of such shareholder's Trumbull Common, subject to the provisions and
limitations of Section 302 of the Code. Unless the redemption is treated as a
dividend under Section 302(d) of the Code, such shareholder will recognize gain
or loss measured by the difference between the amount of cash received and the
tax basis of the Trumbull Common so redeemed. This gain or loss will be capital
gain or loss if the shares of Trumbull Common are held by such shareholder as a
capital asset at the time of the Merger. If, on the other hand, the redemption
is treated as a dividend under Section 302(d) of the Code, the full amount of
cash received by such shareholder will be treated as ordinary income to the
extent of Trumbull's current or accumulated earnings and profits.
10. Payment of cash to a Trumbull shareholder in lieu of fractional
Second Bancorp Common shares will be treated as if such fractional shares were
distributed as part of the exchange and then redeemed by Second Bancorp. The
payment received by a Trumbull shareholder will be treated as having been
received as a distribution in full payment and exchange for the share redeemed
as provided in Section 302(a) of the Code, unless such distribution is
essentially equivalent to a dividend within the meaning of Section 302(b)(1) of
the Code.
* * *
Our opinion is limited to the foregoing federal income tax consequences
of the Merger, which are the only matters as to which you have requested our
opinion. We do not address any other federal income tax consequences of the
Merger or other matters of federal law and have not considered matters
(including state or local tax consequences) arising under the laws of any
jurisdiction other than matters of federal law arising under the laws of the
United States.
Our opinion is based on the understanding that the relevant facts are,
and will be on the Effective Date, as set forth in this letter. If this
understanding is incorrect or incomplete in any respect, our opinion could be
affected. Our opinion is also based on the Code, Regulations, case law, and
Service rulings as they now exist. These authorities are all subject to change
and such change may be made with retroactive effect. We can give no assurance
that after any such change, our opinion would not be different. Our opinion is
not binding on the Service, and no ruling has been, or will be, requested from
the Service as to any federal income tax consequence described above. We
undertake no responsibility to update or supplement this opinion.
The opinion expressed herein is furnished specifically for you and your
respective shareholders, and may not be relied upon, assigned, quoted, or
otherwise used in any manner or for any purpose by any other person or entity
without our specific prior written consent.
Respectfully,
Vorys, Sater, Seymour and Pease LLP
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in
the Registration Statement (Form S-4) and related Prospectus/Joint Proxy
Statement of Second Bancorp Incorporated for the registration of 4,200,000
shares of its common stock for the merger of Trumbull Financial Corporation and
to the incorporation by reference therein of our report dated January 19, 1998,
with respect to the consolidated financial statements of Second Bancorp
Incorporated included in its Annual Report (Form 10-K) for the year ended
December 31, 1997, filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
------------------------------
Ernst & Young LLP
Cleveland, Ohio
August 24, 1998
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in this registration
statement of Second Bancorp Incorporated on Form S-4, of our report dated
October 31, 1997 on the financial statements of The Trumbull Savings and Loan
Company as of September 30, 1997 and 1996 and for each of the three years in the
period ended September 30, 1997. We also consent to the reference to our firm
under the heading "Experts" in the prospectus, which is part of this
registration statement.
/s/ Crowe, Chizek and Company LLP
-----------------------------------------
Crowe, Chizek and Company LLP
Cleveland, Ohio
August 25, 1998
<PAGE> 1
Exhibit 23.3
CONSENT OF MCDONALD & COMPANY SECURITIES, INC.
We consent to the inclusion in this Registration Statement on Form S-4
of Second Bancorp Incorporated of our opinion set forth as Annex C to the
Prospectus and Proxy Statement, which is part of the Registration Statement, and
to the reference to our firm and summarization of our opinion in the Prospectus
and Proxy Statement under the captions "Opinion of McDonald & Company
Securities, Inc."
/s/ McDonald & Company Securities, Inc.
------------------------------------------------
McDonald & Company Securities, Inc.
Cleveland, Ohio
August 26, 1998
<PAGE> 1
Exhibit 23.4
CONSENT OF SANDLER O'NEILL & PARTNERS, L.P.
We consent to the inclusion in this Registration Statement on Form S-4
of Second Bancorp Incorporated of our opinion set forth as Annex D to the
Prospectus and Proxy Statement, which is part of the Registration Statement, and
to the reference to our firm and summarization of our opinion in the Prospectus
and Proxy Statement under the captions "Opinion of Sandler O'Neill & Partners,
L.P."
/s/ Sandler O'Neill & Partners, L.P.
---------------------------------------------
Sandler O'Neill & Partners, L.P.
New York, New York
August 26, 1998
<PAGE> 1
Exhibit 99.3
TRUMBULL FINANCIAL CORPORATION
105 HIGH STREET, N.E.
WARREN, OHIO 44481
(330) 373-1800
_______________, 1998
Dear Shareholder:
You are cordially invited to attend the special meeting of shareholders
(the "Trumbull Special Meeting") of Trumbull Financial Corporation, an Ohio
corporation ("Trumbull"), to be held on [__________], 1998, at 10:00 a.m. (local
time) at the ____________, __________, Warren, Ohio 44481. At the Trumbull
Special Meeting, holders of Trumbull common stock will be asked to adopt the May
4, 1998 Agreement and Plan of Merger between Second Bancorp Incorporated, an
Ohio corporation ("Second Bancorp"), and Trumbull (the "Agreement"). On the date
upon which the merger of Trumbull with and into Second Bancorp (the "Merger")
becomes effective, each outstanding share of Trumbull common stock (other than
shares held by Trumbull shareholders who properly perfect dissenters' rights)
will be canceled and exchanged for the right to receive 3.78 shares of Second
Bancorp common stock, subject to possible adjustment under the Merger Agreement.
Your Board of Directors has concluded that the Merger is in the best
interests of Trumbull's shareholders. Accordingly, the Board of Directors
unanimously recommends that Trumbull shareholders vote FOR the adoption of the
Merger Agreement proposal and FOR the proposal to approve the acquisition by
Second Bancorp of a controlling interest in Trumbull pursuant to the terms of
Section 1701.831 of the Ohio Revised Code. The terms of the proposed Merger, and
important information relating to Trumbull, Second Bancorp and the combined
company, are explained in the accompanying Prospectus/Joint Proxy Statement.
Please give this document your prompt attention.
The Board of Directors has received an opinion from Sandler O'Neill &
Partners, L.P. ("Sandler O'Neill"), Trumbull's financial advisor, to the effect
that, as of the date the Merger Agreement was signed, the Merger consideration
was fair to the holders of Trumbull common stock from a financial point of view.
TO APPROVE THE PROPOSED MERGER, IT WILL BE NECESSARY TO OBTAIN THE
AFFIRMATIVE VOTE OF THE HOLDERS OF AT LEAST TWO THIRDS OF THE OUTSTANDING SHARES
OF TRUMBULL COMMON STOCK, THE AFFIRMATIVE VOTE OF A MAJORITY OF THE SHARES
ENTITLED TO VOTE IN THE ELECTION OF DIRECTORS, AND A MAJORITY OF SUCH SHARES
EXCLUDING ANY SHARES HELD BY CERTAIN INTERESTED SHAREHOLDERS. AN ABSTENTION OR
FAILURE TO VOTE HAS THE SAME EFFECT AS A VOTE AGAINST THE PROPOSED MERGER.
THEREFORE, IT IS IMPORTANT THAT YOU VOTE ON THE MERGER.
A blue proxy card and a white proxy card are enclosed for your use. The
blue proxy card relates to the proposal to adopt the Agreement and approve the
Merger. The white proxy card relates to the proposal to approve the acquisition
by Second Bancorp of a controlling interest in Trumbull pursuant to the Ohio
Control Share Acquisition Statute. Please indicate your voting instructions and
sign, date and mail
<PAGE> 2
both the blue and the white proxy cards promptly in the postage-paid envelope
provided. Regardless of whether you plan to attend the Trumbull Special Meeting
in person, it is important that you return the enclosed blue and white proxy
cards in order to ensure that your shares of Trumbull common stock are voted on
both proposals.
Trumbull shareholders are entitled to exercise dissenters' rights with
respect to their shares of Trumbull common stock, as discussed in the
accompanying Prospectus/Joint Proxy Statement.
Thank you for your attention to this important matter.
Sincerely,
P. Scott Carson
President and Chief Executive Officer
2
<PAGE> 1
Exhibit 99.4
TRUMBULL FINANCIAL CORPORATION
105 HIGH STREET, N.E.
WARREN, OHIO 44481
(330) 373-1800
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To be Held on _______________, 1998
Notice is hereby given that a special meeting (the "Trumbull Special
Meeting") of holders of the common stock, without par value, of Trumbull
Financial Corporation, an Ohio corporation ("Trumbull"), will be held on , 1998,
at __:_0 _.m. (local time) at the ____________, ___________ , Warren, Ohio
44481, for the following purposes:
1. To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger dated as of May 4, 1998 (the
"Merger Agreement"), by and between Second Bancorp,
Incorporated and Trumbull Financial Corporation, pursuant to
Section 1701.78, whereby, provided all conditions to
consummation of the transactions contemplated by the Merger
Agreement are satisfied, (i) Trumbull will be merged with and
into Second Bancorp, which will be the surviving entity in
such merger, and (ii) on the date that such merger becomes
effective, each issued and outstanding share of Trumbull
common stock will be cancelled and extinguished in
consideration and exchange for 3.78 shares of Second Bancorp
common stock, subject to adjustment, all as described in
detail in the accompanying Prospectus/Joint Proxy Statement;
2. To consider and vote upon a proposal to approve the
acquisition by Second Bancorp of a controlling interest in
Trumbull pursuant to the terms of Section 1701.831 of the Ohio
Revised Code; and
3. To transact such other business as may properly come before
the Trumbull Special Meeting or any adjournments or
postponements thereof.
The Board of Directors of Trumbull has set the close of business on
____________, 1998, as the record date for the determination of shareholders
entitled to notice of and vote at the Trumbull Special Meeting and at any
adjournments or postponements thereof. Your vote is important regardless of the
number of shares you own. Each shareholder is requested to complete, date, sign
and return both the enclosed blue proxy card and the enclosed white proxy card
without delay in the postage-paid envelope provided.
A copy of the Agreement is attached to the accompanying
Prospectus/Joint Proxy Statement as Annex A.
By Order of the Board of Directors
James R. Izant
Executive Vice President and Secretary
Warren, Ohio
___________, 1998
THE BOARD OF DIRECTORS OF TRUMBULL RECOMMENDS THAT YOU VOTE FOR THE APPROVAL AND
ADOPTION OF THE AGREEMENT AND FOR THE PROPOSAL TO APPROVE THE ACQUISITION BY
SECOND BANCORP OF A CONTROLLING INTEREST IN TRUMBULL PURSUANT TO THE TERMS OF
SECTION 1701.831 OF THE OHIO REVISED CODE . PLEASE DO NOT SEND YOUR TRUMBULL
STOCK CERTIFICATES AT THIS TIME.
<PAGE> 1
Exhibit 99.5
SECOND BANCORP INCORPORATED
108 MAIN AVENUE, S.W.
WARREN, OHIO 44481
(330) 841-0123
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To be Held on _____________, 1998
Notice is hereby given that a special meeting (the "Second Bancorp
Special Meeting") of holders of the common shares, without par value, of Second
Bancorp, an Ohio corporation ("Second Bancorp"), will be held on ____________,
1998, at __:_0 _.m. (local time) in the Directors Room of The Second National
Bank of Warren, 108 Main Avenue, S.W., Warren, Ohio 44481, for the following
purposes:
1. To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger dated as of May 4, 1998 (the
"Agreement"), by and between Second Bancorp, Incorporated and
Trumbull Financial Corporation, pursuant to Section 1701.78,
whereby, provided all conditions to consummation of the
transactions contemplated by the Merger Agreement are
satisfied, (i) Trumbull will be merged with and into Second
Bancorp, which will be the surviving entity in such merger,
and (ii) on the date that such merger becomes effective, each
issued and outstanding share of Trumbull common stock will be
cancelled and extinguished in consideration and exchange for
3.78 shares of Second Bancorp common stock, subject to
adjustment, all as described in detail in the accompanying
Prospectus/Joint Proxy Statement;
2. To consider and vote upon a proposal to increase the number of
Directors of Second Bancorp from seven (7) to eight (8);
3. To elect one director to fill the vacancy created by the
increase in the number of Directors to serve for a term until
the 1999 Annual Meeting of Shareholder of Second Bancorp and
until his successor is elected and qualified;
4. To consider and vote upon a proposal to amend the Amended
Articles of Second Bancorp to eliminate Second Bancorp's two
classes of preferred shares; and
5. To transact such other business as may properly come before
the Trumbull Special Meeting or any adjournments or
postponements thereof.
The Board of Directors of Second Bancorp has set the close of business
on __________, 1998, as the record date for the determination of shareholders
entitled to notice of and vote at the Second Bancorp Special Meeting and at any
adjournments or postponements thereof. Your vote is important regardless of the
number of shares you own. Each shareholder is requested to complete, date, sign
and return the enclosed proxy card without delay in the postage-paid envelope
provided.
<PAGE> 2
A copy of the Agreement is attached to the accompanying
Prospectus/Joint Proxy Statement as Annex A.
By Order of the Board of Directors
Alan G. Brant
Chairman and President
Warren, Ohio
______________, 1998
THE BOARD OF DIRECTORS OF SECOND BANCORP RECOMMENDS THAT YOU VOTE (I) FOR THE
ADOPTION OF THE AGREEMENT AND APPROVAL OF THE MERGER, (II) FOR THE PROPOSAL TO
INCREASE THE NUMBER OF DIRECTORS OF SECOND BANCORP FROM SEVEN (7) TO EIGHT (8);
(III) FOR THE ELECTION TO THE BOARD OF DIRECTORS OF THE NOMINEE RECOMMENDED BY
THE BOARD OF DIRECTORS IN THE PROXY MATERIALS; AND (IV) FOR THE PROPOSAL TO
AMEND THE AMENDED ARTICLES OF SECOND BANCORP TO ELIMINATE SECOND BANCORP'S TWO
CLASSES OF PREFERRED SHARES.
<PAGE> 1
Exhibit 99.7
SECOND BANCORP INCORPORATED
REVOCABLE PROXY
SPECIAL MEETING OF SHAREHOLDERS
____________, 1998
The undersigned hereby appoints each of _______ and ______, and the
survivors of each of them, each with full powers of substitution, each to act
individually or together as attorney and proxy for the undersigned to vote all
common shares of Second Bancorp, no par value, which the undersigned is entitled
to vote at the Special Meeting of Shareholders of Second Bancorp (the
"Meeting"), to be held on __________, 1998 at __:_0 _.m., and at any and all
postponements or adjournments thereof, as follows:
1. Adoption of the Agreement and Plan of Merger dated as of May 4, 1998,
by and between Second Bancorp Incorporated and Trumbull Financial
Corporation and approval of the merger of Trumbull Financial
Corporation with an into Second Bancorp Incorporated (the "Merger") in
accordance with Section 1701.78 of the Ohio Revised Code.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
2. To consider and vote upon a proposal to increase the number of
Directors of Second Bancorp from seven (7) to eight (8).
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. To elect Dr. David A. Allen to the vacancy created by the increase in
the number of Directors to serve for a term until the 1999 Annual
Meeting of Shareholder of Second Bancorp and until his successor is
elected and qualified.
FOR WITHHOLD
[ ] [ ]
(Proposals No. 2 and No. 3 will not become effective until immediately after the
consummation of the Merger and if the Merger is not consummated, Proposals No. 2
and No. 3 will be void)
4. To adopt the resolution set forth in Annex B to the Prospectus/Joint
Proxy Statement which, if adopted, will amend the Amended Articles of
Second Bancorp by eliminating Second Bancorp's two classes of preferred
shares.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
In their discretion, the proxies are authorized to vote on such other
matters as may properly come before the Meeting or any postponement or
adjournment thereof.
THE BOARD OF DIRECTORS OF SECOND BANCORP RECOMMENDS THAT YOU VOTE (I) "FOR" THE
ADOPTION OF THE AGREEMENT AND APPROVAL OF THE MERGER, (II) "FOR" THE PROPOSAL TO
INCREASE THE NUMBER OF DIRECTORS OF SECOND BANCORP FROM SEVEN (7) TO EIGHT (8);
(III) "FOR" THE ELECTION TO THE BOARD OF DIRECTORS OF THE NOMINEE LISTED ABOVE.;
AND (IV) FOR THE PROPOSAL TO AMEND THE AMENDED ARTICLES OF SECOND BANCORP TO
ELIMINATE SECOND BANCORP'S TWO CLASSES OF PREFERRED SHARES.
<PAGE> 2
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED, THIS
PROXY WILL BE VOTED (I) "FOR" THE FOR THE ADOPTION OF THE AGREEMENT AND APPROVAL
OF THE MERGER, (II) "FOR" THE PROPOSAL TO INCREASE THE NUMBER OF DIRECTORS OF
SECOND BANCORP FROM SEVEN (7) TO EIGHT (8); (III) "FOR" THE ELECTION TO THE
BOARD OF DIRECTORS OF THE NOMINEE LISTED ABOVE; AND (IV) FOR THE PROPOSAL TO
AMEND THE AMENDED ARTICLES OF SECOND BANCORP TO ELIMINATE SECOND BANCORP'S TWO
CLASSES OF PREFERRED SHARES.
THIS PROXY IS SOLICITED ON BEHALF OF THE SECOND BANCORP BOARD OF
DIRECTORS.
Should the undersigned be present and elect to vote at the Meeting or
any adjournment thereof, and after notification to the Secretary of Second
Bancorp at the Meeting of the shareholder's decision to terminate this Proxy,
then the power of such attorneys and proxies shall be deemed terminated and of
no further force and effect.
The undersigned acknowledges receipt from Second Bancorp, prior to the
execution of this Proxy, of Notice of the Meeting and a Prospectus/Joint Proxy
Statement dated , 1998.
Dated: _____________, 1998
------------------------------------------
SIGNATURE OF SECOND BANCORP SHAREHOLDER
------------------------------------------
SIGNATURE OF SECOND BANCORP SHAREHOLDER
Please sign exactly as your name(s) appear(s) above on this card. When signing
as attorney, executor, administrator, trustee or guardian, please give your full
title. If shares are held jointly, each holder should sign.
PLEASE PROMPTLY COMPLETE, DATE, SIGN AND MAIL THIS PROXY
IN THE ENCLOSED POSTAGE-PAID ENVELOPE
7
<PAGE> 1
Exhibit 99.8
TRUMBULL FINANCIAL CORPORATION
REVOCABLE PROXY
SPECIAL MEETING OF SHAREHOLDERS
__________, 1998
The undersigned hereby appoints each of the Board of Directors of
Trumbull Financial Corporation (the "Company"), and the survivor of each of
them, with full powers of substitution, each to act, individually or together,
as attorney and proxies for the undersigned to vote all shares of common stock
of the Company which the undersigned is entitled to vote at the Special Meeting
of Shareholders of the Company (the "Meeting"), to be held on ___________, 1998
at 10:00 a.m., and at any and all postponements or adjournments thereof, as
follows:
1. Adoption of the Agreement and Plan of Merger, dated as of May 4, 1998,
by and between Second Bancorp, Incorporated and Trumbull Financial
Corporation and the Merger of Trumbull Financial Corporation with and
into Second Bancorp Incorporated in accordance with Section 1701.78 of
the Ohio Revised Code.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
In their discretion, the proxies are authorized to vote on such other
matters as may properly come before the Meeting or any postponement or
adjournment thereof.
THE BOARD OF DIRECTORS OF TRUMBULL RECOMMENDS A VOTE "FOR" THE PROPOSAL STATED
ABOVE.
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED, THIS
PROXY WILL BE VOTED "FOR" THE PROPOSAL STATED. IF ANY OTHER BUSINESS IS
PRESENTED AT SUCH MEETING, THIS PROXY WILL BE VOTED BY THOSE NAMED IN THIS PROXY
IN THEIR BEST JUDGMENT. AT THE PRESENT TIME, THE BOARD OF DIRECTORS OF TRUMBULL
KNOWS OF NO OTHER BUSINESS TO BE PRESENTED AT THE MEETING.
THIS PROXY IS SOLICITED ON BEHALF OF THE TRUMBULL BOARD OF DIRECTORS
Should the undersigned be present and elect to vote at the Meeting or
any adjournment thereof, and notify the Secretary of the Company at the Meeting
of the shareholder's decision to terminate this Proxy, then the power of such
attorneys and proxies shall be deemed terminated and of no further force and
effect.
The undersigned acknowledges receipt from the Company, prior to the
execution of this Proxy, of Notice of the Meeting and a Prospectus/Joint Proxy
Statement dated __________, 1998.
Dated: _________________, 1998
-----------------------------------------
SIGNATURE OF SECOND BANCORP SHAREHOLDER
-----------------------------------------
SIGNATURE OF SECOND BANCORP SHAREHOLDER
Please sign exactly as your name(s) appear(s) above on this card. When signing
as attorney, executor, administrator, trustee or guardian, please give your full
title. If shares are held jointly, each holder should sign.
PLEASE PROMPTLY COMPLETE, DATE, SIGN AND MAIL THIS
PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE
<PAGE> 1
Exhibit 99.9
TRUMBULL FINANCIAL CORPORATION
REVOCABLE PROXY
SPECIAL MEETING OF SHAREHOLDERS
____________, 1998
The undersigned hereby appoints each of the Board of Directors of
Trumbull Financial Corporation (the "Company"), and the survivor of each of
them, with full powers of substitution, each to act, individually or together,
to act as attorney and proxies for the undersigned to vote all shares of common
stock of the Company which the undersigned is entitled to vote at the Special
Meeting of Shareholders of the Company (the "Meeting"), to be held on
__________________, 1998 at __:_0 _.m., and at any and all postponements or
adjournments thereof, as follows:
1. Approval of the acquisition by Second Bancorp Incorporated of a
controlling interest in Trumbull Financial Corporation pursuant to and
in accordance with Section 1701.831 of the Ohio Revised Code.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
In their discretion, the proxies are authorized to vote on such other
matters as may properly come before the Meeting or any postponement or
adjournment thereof.
THE BOARD OF DIRECTORS OF TRUMBULL RECOMMENDS A VOTE "FOR" THE PROPOSAL STATED
ABOVE.
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED, THIS
PROXY WILL BE VOTED "FOR" THE PROPOSAL STATED. IF ANY OTHER BUSINESS IS
PRESENTED AT SUCH MEETING, THIS PROXY WILL BE VOTED BY THOSE NAMED IN THIS PROXY
IN THEIR BEST JUDGMENT. AT THE PRESENT TIME, THE BOARD OF DIRECTORS OF TRUMBULL
KNOWS OF NO OTHER BUSINESS TO BE PRESENTED AT THE MEETING.
THIS PROXY IS SOLICITED ON BEHALF OF THE TRUMBULL BOARD OF DIRECTORS
Should the undersigned be present and elect to vote at the Meeting or
any adjournment thereof, and notify the Secretary of the Company at the Meeting
of the shareholder's decision to terminate this Proxy, then the power of such
attorneys and proxies shall be deemed terminated and of no further force and
effect.
The undersigned acknowledges receipt from the Company, prior to the
execution of this Proxy, of Notice of the Meeting and a Prospectus/Joint Proxy
Statement dated _________, 1998.
Dated: ____________, 1998
--------------------------------------------
SIGNATURE OF SECOND BANCORP SHAREHOLDER
--------------------------------------------
SIGNATURE OF SECOND BANCORP SHAREHOLDER
Please sign exactly as your name(s) appear(s) above on this card. When signing
as attorney, executor, administrator, trustee or guardian, please give your full
title. If shares are held jointly, each holder should sign.
PLEASE PROMPTLY COMPLETE, DATE, SIGN AND MAIL THIS PROXY
IN THE ENCLOSED POSTAGE-PAID ENVELOPE
