<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
ON DECEMBER 22, 1997 REGISTRATION NO. _________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
CITIZENS BANCSHARES, INC.
(Exact name of Registrant as specified in its charter)
OHIO 6022 34-1372535
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification Identification No.)
incorporation or Code No.)
organization)
10 EAST MAIN STREET, SALINEVILLE, OHIO 43945
(330) 679-2328
(Address, including zip code and telephone number, including area code,
of Registrant's principal executive offices)
------------------------------------------------
MARTY E. ADAMS
10 EAST MAIN STREET
SALINEVILLE, OHIO 43945
(330) 679-2328
(Name, address, including zip code
& telephone number, including
area code of agent for service)
-------------------------------------------------
Copies to:
M. PATRICIA OLIVER, ESQ.
SQUIRE, SANDERS & DEMPSEY L.L.P.
4900 KEY TOWER
127 PUBLIC SQUARE
CLEVELAND, OHIO 44114-1304
-------------------------------------------------
Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after the effective date of this Registration
Statement.
If the securities being registered on this form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box: [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Title of Each Proposed Proposed
Class of Maximum Maximum Amount of
Securities To Amount To Be Offering Aggregate Registration
Be Registered Registered(1) Price Per Unit(2) Offering Price(2) Fee
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock 945,056 $19.56 $18,485,295.36 $5,453.16
- --------------------------------------------------------------------------------------------------
<FN>
(1) Based upon the maximum number of shares to be issued in connection with the
acquisition of UniBank.
(2) Amount arrived at pursuant to Rule 457(f)(2) based on the book value of the
acquired company of $246.41 on December 17, 1997.
</TABLE>
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
CROSS-REFERENCE SHEET
---------------------
<TABLE>
<CAPTION>
Items of Part I, Form S-4 Heading in Proxy Statement/Prospectus
------------------------- -------------------------------------
<S> <C> <C>
1. Forepart of Registration Forepart of Registration Statement and Outside Front
Statement and Outside Front Cover Page of Prospectus
Cover Page of Prospectus
2. Inside Front and Outside Inside Front Cover and Outside Back Cover Pages of Pro-
Back Cover Pages of spectus; "AVAILABLE INFORMATION"
Prospectus
3. Risk Factors, Ratio of "SUMMARY"; "RISK FACTORS"; "INFORMATION WITH RESPECT TO BANCSHARES-- "Business",
Earnings to Fixed Charges "Security Ownership of Management" "Supplementary Financial
and Other Information Information", and "Information Incorporated by Reference"; "INFORMATION WITH RESPECT TO
UNIBANK-- "Business" and "Security Ownership of Management and Certain Beneficial Owners";
"PROPOSED MERGER"; "PRO FORMA SELECTED FINANCIAL INFORMATION"; "PRO FORMA FINANCIAL
INFORMATION"; "COMPARATIVE PER SHARE DATA"; "COMPARATIVE MARKET VALUE DATA"; "INDEX TO
FINANCIAL INFORMATION"
4. Terms of the Transaction "PROPOSED MERGER"; "DESCRIPTION OF BANCSHARES CAPITAL
SHARES"; "COMPARATIVE RIGHTS OF UNIBANK SHAREHOLDERS"
5. Pro Forma Financial "PRO FORMA SELECTED FINANCIAL INFORMATION";
Information "PRO FORMA FINANCIAL INFORMATION"
6. Material Contacts with the Not Applicable
Company Being Acquired
7. Additional Information Not Applicable
Required for Reoffering by
Persons and Parties Deemed
to be Underwriters
8. Interests of Named Experts "EXPERTS"; "LEGAL OPINIONS"
and Counsel
9. Disclosure of Commission "INDEMNIFICATION"
Position on Indemnification
for Securities Act Liabilities
10. Information with Respect Not Applicable
to S-3 Registrants
11. Incorporation of Certain Not Applicable
Information by Reference
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
12. Information with Respect "INFORMATION WITH RESPECT TO BANCSHARES"
to S-2 or S-3 Registrants
13. Incorporation of Certain "INFORMATION WITH RESPECT TO BANCSHARES"
Information by Reference
14. Information with Respect Not Applicable
to Registrants other than S-2
or S-3 Registrants
15. Information with Respect Not Applicable
to S-3 Companies
16. Information with Respect Not Applicable
to S-2 or S-3 Companies
17. Information with Respect "INFORMATION WITH RESPECT TO UNIBANK"; "INDEX
to Companies other than TO FINANCIAL INFORMATION"
S-2 or S-3 Companies
18. Information if Proxies, "INFORMATION CONCERNING THE SPECIAL MEETING";
Consents or Authorizations "PROPOSED MERGER -- Rights of Dissenting
Are to be Solicited Shareholders"; "PROPOSED MERGER -- Interest of
Management in the Merger"; "INFORMATION WITH
RESPECT TO BANCSHARES--Security Ownership of
Management"; "INFORMATION WITH RESPECT TO
UNIBANK--Security Ownership of Management and
Certain Beneficial Owners"
19. Information if Proxies, Not Applicable
Consents or Authorizations
Are Not to be Solicited
or in an Exchange Offer
</TABLE>
<PAGE> 4
UNIBANK
100 NORTH FOURTH STREET
STEUBENVILLE, OHIO 43592
______________, 1997
To Our Shareholders:
A special meeting (the "Special Meeting") of shareholders of UniBank
has been scheduled for ____________, 1998 at 2:00 p.m. in UniBank's main office
located in the Sinclair Building (lower level) at 100 North Fourth Street,
Steubenville, Ohio. The accompanying Notice of the Special Meeting, Proxy
Statement/Prospectus and Proxy Card set forth the formal business to be
transacted at the Special Meeting. I encourage you to review these materials and
to attend the Special Meeting.
At the Special Meeting, holders of UniBank common shares, par value
$10.00 per share, are being asked to consider and vote upon a proposal (the
"Proposal") to adopt the Affiliation Agreement and Agreement of Merger (the
"Affiliation Agreement"), dated as of September 12, 1997 by and among UniBank,
Citizens Bancshares, Inc. ("Bancshares") and The Citizens Banking Company
("Citizens"), providing for the affiliation and merger (the "Merger") of UniBank
with and into Citizens, and to approve the transactions contemplated thereby. In
the Merger, each outstanding common share of UniBank will be converted into the
right to receive common shares, without par value, of Bancshares in accordance
with the exchange ratio set forth in the Affiliation Agreement and described in
the accompanying Proxy Statement/Prospectus (with cash paid in lieu of
fractional shares).
Consummation of the Merger is subject to certain conditions, including,
but not limited to, obtaining the requisite vote of the shareholders of UniBank
and the approval of the Merger by various regulatory agencies.
THE UNIBANK BOARD OF DIRECTORS HAS UNANIMOUSLY CONCLUDED THAT THE
MERGER IS FAIR TO, AND IN THE BEST INTERESTS OF, THE UNIBANK SHAREHOLDERS AND
UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL. UniBank's financial
advisor, Danielson Associates, Inc., has rendered an opinion dated September 12,
1997, and updated to the date hereof, to the UniBank Board of Directors to the
effect that, as of the date hereof and based upon and subject to certain matters
stated in such opinion, the Merger contemplated by the Affiliation Agreement is
fair to the shareholders of UniBank from a financial point of view.
If the accompanying Proxy Card is executed properly and returned to
UniBank in time to be voted at the Special Meeting, the shares represented
thereby will be voted in accordance with the instructions marked thereon.
Executed but unmarked proxies will be voted for approval of the Proposal. The
presence of a shareholder at the Special Meeting will not automatically revoke
such shareholder's proxy. A UniBank shareholder may, however, revoke a proxy at
any time prior to its exercise by filing a written notice of revocation with or
delivering a duly executed proxy bearing a later date to William W. McElwain,
UniBank, 100 North Fourth Street, Steubenville, Ohio 43592-5640 or by attending
the Special Meeting and advising the Secretary of the shareholder's intent to
vote the shares.
Approval of the Proposal requires the affirmative vote of the holders
of 60% of the outstanding common shares of UniBank. Accordingly, it is very
important that your shares be represented at the Special Meeting. I urge you to
vote FOR the Proposal and to sign, date and return the accompanying Proxy Card
as soon as possible, even if you plan to attend the Special Meeting. This
procedure will
<PAGE> 5
not prevent you from voting in person, but will ensure that your vote is counted
if you are unable to attend.
Very truly yours,
H. Lee Kinney
Chairman and Chief Executive Officer
YOUR VOTE IS IMPORTANT
WE ENCOURAGE YOU TO SIGN, DATE AND PROMPTLY RETURN YOUR PROXY IN THE ENCLOSED
ENVELOPE REGARDLESS OF WHETHER YOU PLAN TO ATTEND THE SPECIAL MEETING.
<PAGE> 6
UNIBANK
100 NORTH FOURTH STREET
STEUBENVILLE, OHIO 43592
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
______________, 1997
To the Shareholders of UniBank:
A special meeting (including any adjournments or reschedulings thereof,
the "Special Meeting") of shareholders of UniBank, an Ohio corporation, will be
held on ____________, 1998, at 2:00 p.m. in UniBank's main office located in the
Sinclair Building (lower level) at 100 North Fourth Street, Steubenville, Ohio.
A Proxy Card and Proxy Statement/Prospectus for the Special Meeting are
enclosed.
The Special Meeting is for the purpose of considering and voting upon a
proposal (the "Proposal") to:
Adopt the Affiliation Agreement and Agreement of Merger (the
"Affiliation Agreement"), dated as of September 12, 1997, by and among
UniBank, Citizens Bancshares, Inc. ("Bancshares") and The Citizens
Banking Company ("Citizens"), providing for the affiliation and merger
(the "Merger") of UniBank with and into Citizens, and approve the
transactions contemplated thereby, including the Merger. A copy of the
Affiliation Agreement is attached as Appendix A to the accompanying
Proxy Statement/Prospectus.
No other business will be transacted at the Special Meeting other than
possible adjournments or reschedulings thereof.
THE UNIBANK BOARD OF DIRECTORS HAS UNANIMOUSLY CONCLUDED THAT THE
MERGER IS IN THE BEST INTERESTS OF THE UNIBANK SHAREHOLDERS AND UNANIMOUSLY
RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL.
The Board of Directors of UniBank has fixed the close of business on
_________, 1997, as the record date for determination of the shareholders of
UniBank entitled to notice of and to vote at the Special Meeting.
It is very important that your shares be represented at the Special
Meeting. You are urged to complete and sign the accompanying Proxy Card, which
is solicited by the Board of Directors of UniBank and to mail it promptly in the
enclosed envelope. All proxies are important, so please complete each Proxy Card
sent to you and return it in the envelope provided.
H. Lee Kinney, Chairman
and Chief Executive Officer
<PAGE> 7
PROSPECTUS PROXY STATEMENT
OF OF
CITIZENS BANCSHARES, INC. UNIBANK
UNIBANK
SPECIAL MEETING OF SHAREHOLDERS
-------------------------------
______________, 1997
This Proxy Statement/Prospectus is being furnished to shareholders of
record on ______________, 1997 of UniBank, in connection with the solicitation
of proxies by UniBank for use at the Special Meeting of shareholders of UniBank
to be held in UniBank's main office located in the Sinclair Building (lower
level) at 100 North Fourth Street, Steubenville, Ohio, on ____________, 1998, at
2:00 p.m., local time, and at any adjournment or adjournments thereof (the
"Special Meeting").
At the Special Meeting, UniBank's shareholders will be asked to approve
an Affiliation Agreement and Agreement of Merger, dated as of September 12, 1997
(the "Affiliation Agreement"), by and among UniBank, Citizens Bancshares, Inc.
("Bancshares"), and The Citizens Banking Company ("Citizens"), a wholly owned
subsidiary of Bancshares, and the transactions contemplated thereby, including
the affiliation and merger of UniBank with and into Citizens (the "Merger"). A
copy of the Affiliation Agreement is attached to this Proxy Statement/Prospectus
as Appendix A and is incorporated herein by reference.
The shares represented by proxy will be voted as specified by the
respective shareholders. Executed but unmarked proxies will be voted for
approval of the Merger. Upon consummation of the Merger, each outstanding common
share of UniBank (consisting of 75,000 common shares), other than shares held by
shareholders who exercise their right to be dissenting shareholders
(collectively, the "UniBank Common Shares"), will be converted into the right to
receive 13.25 common shares of Bancshares, without par value ("Bancshares Common
Shares"), upon the terms and subject to the conditions set forth in the
Affiliation Agreement. Dissenters' rights are described in the section entitled
"PROPOSED MERGER--Rights of Dissenting Shareholders." For a more complete
description of the Affiliation Agreement and the terms of the Merger, see
"PROPOSED MERGER."
This Proxy Statement/Prospectus constitutes the Proxy Statement of
UniBank and the Prospectus of Bancshares covering the Bancshares Common Shares
to be issued pursuant to the Merger.
This Proxy Statement/Prospectus and the accompanying Proxy Card are
first being mailed to UniBank shareholders on or about _________, 1997.
1
<PAGE> 8
SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN MATTERS THAT YOU SHOULD
CAREFULLY CONSIDER IN DETERMINING WHETHER TO VOTE TO APPROVE THE
AFFILIATION AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY,
INCLUDING THE MERGER.
THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR
OTHER OBLIGATIONS OF ANY BANK OR SAVINGS ASSOCIATION AND
ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE BANK INSURANCE FUND, THE
SAVINGS ASSOCIATION INSURANCE FUND OR
ANY OTHER GOVERNMENTAL AGENCY.
THE SECURITIES TO BE OFFERED IN CONNECTION WITH THE MERGER HAVE NOT BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE REGULATORY AUTHORITY NOR HAS THE COMMISSION OR ANY
STATE REGULATORY AUTHORITY PASSED UPON THE ACCURACY
OR ADEQUACY OF THE INFORMATION CONTAINED IN
THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Proxy Statement/Prospectus is ______________, 1997.
-2-
<PAGE> 9
AVAILABLE INFORMATION
---------------------
Bancshares is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "1934 Act") and in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "Commission"). Reports, proxy statements and other information
filed by Bancshares can be inspected and copied at the public reference
facilities maintained by the Commission in Washington, D.C., and at its Regional
Office located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such material can also be obtained from the
Public Reference Section of the Commission, Washington, D.C. 20549 at prescribed
rates. The Commission also maintains a Web site that contains reports, proxy
statements and other information filed by Bancshares. The Commission's Internet
address is http://www.sec.gov. Bancshares Common Shares are quoted on the NASDAQ
National Market and reports, proxy statements and other information concerning
Bancshares are available for inspection and copying at prescribed rates at the
office of the National Association of Securities Dealers, Inc., 1735 K Street,
Washington, D.C. 20006.
Bancshares has filed with the Commission a Registration Statement on
Form S-4 under the Securities Act of 1933, as amended (the "1933 Act"), covering
the Bancshares Common Shares to be issued in connection with the Merger. This
Proxy Statement/Prospectus was filed with the Registration Statement as the
Prospectus of Bancshares; however, it does not contain all of the information
set forth in the Registration Statement. The Registration Statement and the
exhibits thereto can be inspected at the Commission's public reference room,
Room 1024, 450 5th Street, N.W., Judiciary Plaza, Washington, D.C. 20549, as
well as the Commission's Regional Office listed above.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE
AVAILABLE WITHOUT CHARGE TO EACH PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM
THIS PROXY STATEMENT/PROSPECTUS IS DELIVERED, UPON WRITTEN OR ORAL REQUEST, FROM
TRACEY L. REEDER, ASSISTANT CORPORATE SECRETARY, CITIZENS BANCSHARES, INC., 10
EAST MAIN STREET, SALINEVILLE, OHIO 43945, (330) 679-2328. IN ORDER TO ENSURE
TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY JANUARY 25,
1998.
No person has been authorized to give any information or make any
representations not contained herein, and, if given or made, such information or
representation must not be relied upon as having been authorized. This Proxy
Statement/Prospectus does not constitute an offer to sell any securities other
than the securities to which it relates or an offer to sell any securities
covered by this Proxy Statement/Prospectus in any jurisdiction where, or to any
person to whom, it is unlawful to make such an offer. Neither the delivery
hereof nor any distribution of securities by Bancshares made hereunder shall,
under any circumstances, create an implication that there has been no change in
the facts herein set forth since the date hereof.
All information concerning Bancshares and Citizens contained in this
Proxy Statement/Prospectus has been furnished by Bancshares and Citizens,
respectively and all information concerning UniBank has been furnished by
UniBank.
INCORPORATION BY REFERENCE
--------------------------
Bancshares' Annual Report on Form 10-K for the three years ended
December 31, 1996, Bancshares' Quarterly Reports on Form 10-Q for the quarters
ended March 31, 1997, June 30, 1997 and September 30, 1997, and Bancshares'
current report on Form 8-K, dated November 10, 1997, which were filed with the
Commission prior to the mailing date of this Proxy Statement/Prospectus pursuant
to Section 13(a) of the 1934 Act, and all other reports filed pursuant to
Section 13(a) or 15(d)
-i-
<PAGE> 10
of the 1934 Act since the end of the fiscal year covered by the Form 10-K
referred to above are incorporated herein by reference. Except as set forth in
this Proxy Statement/Prospectus, there have been no material changes in the
information set forth in such reports.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for the purposes hereof to the extent that a statement contained herein or in
any other subsequently filed document which is also deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Proxy Statement/Prospectus.
THIS PROXY STATEMENT/PROSPECTUS CONTAINS CERTAIN FORWARD LOOKING
STATEMENTS WITH RESPECT TO THE FINANCIAL CONDITION, RESULTS OF OPERATIONS AND
BUSINESS OF BANCSHARES FOLLOWING THE CONSUMMATION OF THE MERGER. 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; (2) DEPOSIT
ATTRITION, CUSTOMER LOSS OR REVENUE LOSS FOLLOWING THE MERGER IS GREATER THAN
EXPECTED (3) COMPETITIVE PRESSURE IN THE BANKING INDUSTRY INCREASES
SIGNIFICANTLY; (4) COSTS OR DIFFICULTIES RELATED TO THE INTEGRATION OF THE
BUSINESSES OF BANCSHARES AND UNIBANK ARE GREATER THAN EXPECTED; (5) CHANGES IN
THE INTEREST RATE ENVIRONMENT REDUCE MARGINS; AND (6) GENERAL ECONOMIC
CONDITIONS, EITHER NATIONALLY OR IN THE AREA IN WHICH THE COMBINED COMPANY WILL
BE DOING BUSINESS, ARE LESS FAVORABLE THAN EXPECTED. FURTHER INFORMATION ON
OTHER FACTORS WHICH COULD AFFECT THE FINANCIAL RESULTS OF BANCSHARES AFTER THE
MERGER IS INCLUDED IN THE COMMISSION FILINGS INCORPORATED BY REFERENCE HEREIN.
- ii -
<PAGE> 11
UNIBANK
CITIZENS BANCSHARES, INC.
PROXY STATEMENT/PROSPECTUS
TABLE OF CONTENTS
-----------------
PAGE
----
AVAILABLE INFORMATION.................................................... i
INCORPORATION BY REFERENCE .............................................. i
SUMMARY.................................................................. 1
RISK FACTORS............................................................. 8
PRO FORMA SELECTED FINANCIAL INFORMATION ................................ 8
COMPARATIVE PER SHARE DATA .............................................. 9
COMPARATIVE MARKET VALUE DATA ........................................... 10
INFORMATION CONCERNING THE SPECIAL MEETING............................... 10
General ....................................................... 10
Solicitation, Voting and Revocability of Proxies................ 10
PROPOSED MERGER.......................................................... 12
UniBank Background and Reasons for the Merger................... 12
Recommendation of the UniBank Board of Directors................ 12
Opinion of UniBank's Financial Advisor.......................... 12
Pro Forma Merger Analyses.............................. 13
Comparable Companies................................... 13
Comparable Transaction Analysis........................ 14
Other Analysis......................................... 14
Bancshares Background and Reasons for the Merger................ 14
Description of the Merger....................................... 15
Consideration for UniBank Common Shares......................... 15
Payment of Cash in Lieu of Fractional Shares.................... 15
Other Provisions of the Affiliation Agreement................... 15
Representations and Warranties......................... 15
Conditions to the Merger............................... 16
Amendments; Termination................................ 16
Federal Income Tax Consequences of the Merger................... 17
Accounting Treatment............................................ 17
Interest of Management in the Merger............................ 18
Expenses of the Merger.......................................... 18
Regulatory Approvals............................................ 18
Effective Time of the Merger.................................... 18
Operations of UniBank After the Merger.......................... 18
Business Pending the Merger..................................... 19
Surrender of Certificates ...................................... 20
Resale of Bancshares Common Shares.............................. 20
Rights of Dissenting Shareholders............................... 21
- iii -
<PAGE> 12
DESCRIPTION OF BANCSHARES CAPITAL SHARES................................. 21
General ....................................................... 21
Description of Control Share Acquisition Provisions............. 22
Procedures............................................. 23
Requirements for Approval.............................. 23
Violation of Restriction............................... 24
COMPARATIVE RIGHTS OF UNIBANK SHAREHOLDERS............................... 24
Voting ........................................................ 24
Preemptive Rights............................................... 25
Directors....................................................... 25
Authorized Shares............................................... 25
Shareholder Meetings............................................ 25
PRO FORMA FINANCIAL INFORMATION.......................................... 25
Citizens Bancshares, Inc. and UniBank........................... 25
Citizens Bancshares, Inc., UniBank and
Century Financial Corporation .................................. 33
INFORMATION WITH RESPECT TO BANCSHARES................................... 43
Business........................................................ 43
Supplementary Financial Information............................. 44
Management's Discussion and Analysis of Financial Condition
and Results of Operations for the Quarter Ended
September 30, 1997 ........................................... 45
Recent Developments.................................... 45
Certain Statistical Information With Respect
to Bancshares................................................. 45
Management...................................................... 46
Directors.............................................. 46
Directors of Citizens.................................. 47
Executive Officers..................................... 47
Security Ownership of Management................................ 48
Market Price of Bancshares Common Shares........................ 48
Information Incorporated by Reference........................... 49
INFORMATION WITH RESPECT TO UNIBANK...................................... 49
Business........................................................ 49
Market Price and Dividends on UniBank Common Shares............. 49
Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... 54
EXPERTS.................................................................. 76
LEGAL OPINIONS........................................................... 76
INDEMNIFICATION.......................................................... 76
INDEX TO FINANCIAL INFORMATION
- iv -
<PAGE> 13
APPENDICES:
A. Affiliation Agreement
B. Dissenters' Rights Under Sections 1121.09 and 1701.85 of the Ohio
Revised Code
C. Fairness Opinion dated as of September 12, 1997, and updated as of
the date hereof.
- v -
<PAGE> 14
SUMMARY
-------
This summary is necessarily general and abbreviated and has been
prepared to assist UniBank shareholders in their review of the Proxy
Statement/Prospectus. The summary is not intended to be a complete explanation
of the matters covered in the Proxy Statement/Prospectus and is qualified in all
respects by reference to the more detailed information contained in the Proxy
Statement/Prospectus and the Appendices hereto, which UniBank shareholders are
urged to read carefully.
THE PARTIES
Citizens Bancshares, Inc. Bancshares is a bank holding company
organized under the laws of the State of Ohio
and registered with the Board of Governors of
the Federal Reserve System (the "Federal
Reserve Board") pursuant to the Bank Holding
Company Act of 1956, as amended. Bancshares
is a holding company for Citizens, a
wholly-owned commercial bank subsidiary
organized and existing under the banking laws
of the State of Ohio; First National Bank of
Chester, a wholly owned commercial bank
subsidiary organized under the laws of the
United States, ("FNB"); Freedom Express,
Inc., a wholly owned courier company; and
Freedom Financial Life Insurance Company, a
wholly owned reinsurance company. As of
September 30, 1997 and December 31, 1996,
Bancshares had total consolidated assets of
approximately $1 billion and $947.9 million
and total shareholders' equity of
approximately $99.9 million and $89.7
million, respectively.
A part of Bancshares' long term strategy
is to be an active acquiror of financial
institutions so as to leverage its operations
and position itself to enhance shareholder
value. Since 1984, Bancshares has made twelve
acquisitions totaling $647 million in assets.
Bancshares' stock price has increased 3,025%
from 1984 to December 2, 1997. Since June of
1993, Bancshares' Common Shares have been
traded on the NASDAQ National Market. Prior
to June, 1993, Bancshares' stock was traded
over the counter. For the nine months ended
September 30, 1997, Bancshares' annualized
return on assets and return on equity was
1.70% and 18.3%, respectively.
On December 3, 1997, Century Financial
Corporation ("Century"), of Rochester,
Pennsylvania, and Bancshares executed a
definitive Agreement and Plan of Merger (the
"Century Agreement"), which provides for the
affiliation of Century with Bancshares. The
Century Agreement provides that the
affiliation will be effected by means of a
merger of Century with and into Bancshares.
In the merger, each outstanding share of
Century common stock, par value $0.835 per
share, will be converted into 0.425 shares of
Bancshares common shares, in a tax-free
exchange, subject to certain adjustments
based on the then current closing price of
Bancshares common shares on the NASDAQ
National Market System. See "Management's
Discussion and Analysis of Financial
Condition and Results of Operations for the
Quarter
-1-
<PAGE> 15
Ended September 30, 1997 - Recent
Developments" for a more detailed description
of the Century Agreement.
Bancshares' principal executive offices
are located at 10 East Main Street,
Salineville, Ohio 43945. The telephone number
of Bancshares' executive offices is (330)
679-2328.
UniBank UniBank is an Ohio state chartered
financial institution. The beginnings of
UniBank date back to the mid 1850's when the
bank was established and known as the Union
Deposit Bank. In 1976, the Cleveland Trust
Corporation, now known as Key Corporation,
purchased the bank and retained ownership
until May 17, 1985, at which time UniBank
began business. UniBank is an independent
community financial institution with offices
in East Liverpool, Columbiana County and
eleven offices (including service facilities)
in the primary market of Jefferson County.
They are Steubenville Main; Amsterdam;
Hollywood Plaza; Kroger Sav-On
(Wintersville); Mingo Junction (Longview
Avenue); Mingo Junction (Commercial Street);
Tiltonsville; Toronto; Toronto Drive-In;
Wintersville Main; and Wintersville Drive-In
(Springdale).
UniBank offers a wide range of
commercial and retail products. The
commercial products consist of: term loans,
commercial real estate loans, demand loans,
lines of credit, revolving lines of credit,
letters of credit, MasterCard/Visa merchant
accounts, business checking accounts, SBA
loans, county/municipal and school district
lending, loans in conjunction with the State
of Ohio Programs and cash sweep services. The
retail loan products consist of fixed rate
mortgages, adjustable rate mortgages,
bi-weekly mortgages, jumbo mortgages, home
equity loans, direct installment loans,
indirect installment loans, collateral loans
and personal loans. In addition to the retail
loan products, the following are some of the
retail services offered by UniBank: IRA's,
certificates of deposit, ATM's,
MasterCard/Visa, money market accounts, NOW
checking accounts, overdraft protection,
student checking, passbook savings, personal
checking, safe deposit boxes, statement
savings, UniPrime: senior citizens services,
UniPlan: employee services and wire
transfers.
UniBank has endeavored to ascertain the
local credit needs and keep members of the
community informed of its credit services via
education, financial assessment surveys,
credit need questionnaires, officer call
programs, account closing reports, and high
school presentation and sponsorship of an
educational program entitled "How to Do Your
Banking."
UniBank is very committed to the
communities it serves by contributing
financially to a variety of non-profit
-2-
<PAGE> 16
organizations and by having its officers
actively participate in nearly every social
and civic organization within its market.
CONTRIBUTION BY THE The following table summarizes the
PARTIES percentage of net interest income, net
income, total assets and shareholders' equity
to be contributed by Bancshares and UniBank,
respectively, using information as of and for
the nine months ended September 30, 1997, and
the voting percentage each group of
shareholders will have after the Merger,
assuming the exchange of 13.25 Bancshares
Common Shares for each UniBank Common Share.
<TABLE>
<CAPTION>
Bancshares UniBank Total
---------- ------- -----
<S> <C> <C> <C>
Net interest income 83.7% 16.3% 100.0%
Net income 88.2% 11.8% 100.0%
Total assets 82.7% 17.3% 100.0%
Shareholders' equity 84.5% 15.5% 100.0%
Voting percentage
after Merger 86.2% 13.8% 100.0%
</TABLE>
INFORMATION CONCERNING THE
SPECIAL MEETING
General The Special Meeting of UniBank
shareholders will be held in UniBank's main
office located in the Sinclair Building
(lower level) at 100 North Fourth Street,
Steubenville, Ohio, on ____________, 1998 at
2:00 p.m., local time. The purpose of the
Special Meeting is to consider and vote upon
the Affiliation Agreement by and among
Bancshares, Citizens and UniBank and the
transactions contemplated thereby, as
hereinafter described, including the exchange
of Bancshares Common Shares for UniBank
Common Shares and the affiliation and merger
of UniBank with and into Citizens on the
terms described in this Proxy
Statement/Prospectus. A copy of the
Affiliation Agreement is attached to this
Proxy Statement/Prospectus as Appendix A and
is incorporated in this Proxy Statement/
Prospectus by reference.
Solicitation and Voting
of Proxies All shareholders of record of UniBank on
______________, 1997 (the "Record Date") will
be entitled to vote at the Special Meeting.
The affirmative vote, in person or by proxy,
of the holders of not less than 60% of the
issued and outstanding UniBank Common Shares
are required for approval of the Affiliation
Agreement.
The directors and executive officers of
UniBank and their affiliates owned, as of the
Record Date, 44,176 UniBank Common Shares,
which represented 58.89% of the total
-3-
<PAGE> 17
number of outstanding shares of UniBank
Common Shares at such date.
PROPOSED MERGER
The Affiliation Agreement Bancshares and UniBank have entered into
an Affiliation Agreement, pursuant to which
Bancshares and UniBank will affiliate with
one another through a merger of UniBank with
and into Citizens. Consummation of the
Merger, however, is subject to the approval
of the UniBank shareholders of the
Affiliation Agreement and the transactions
contemplated thereby (including the Merger).
The Merger is expected to qualify as a
"pooling of interests" for accounting and
financial reporting purposes.
For a complete description of the
Affiliation Agreement, which is incorporated
by reference herein in its entirety, see
"Proposed Merger."
Consideration for UniBank
Common Shares Upon consummation of the Merger, each
UniBank shareholder who does not exercise his
or her right to become a dissenting
shareholder will have the right to receive
13.25 Bancshares Common Shares in exchange
for each UniBank Common Share held. In the
event, however, that the holders of UniBank
Common Shares, in the aggregate, do not
receive Bancshares Common Shares with a total
value (as that term is defined in the
Affiliation Agreement), plus cash in lieu of
fractional shares, that is at least 2.7
times the book value of UniBank Common Shares
on December 31, 1997, the parties will adjust
the number of Bancshares Common Shares into
which each UniBank Common Share shall be
converted, although Bancshares may elect to
terminate the Affiliation Agreement if the
book value of UniBank Common Shares exceeds
$250 per share.
For a complete description of the
consideration to be received by UniBank
shareholders, see "PROPOSED MERGER--
Consideration for UniBank Common Shares."
UniBank Background
and Reasons for the Merger UniBank entered into the Affiliation
Agreement to further strengthen two very
sound community banks, thereby providing
greater advancement opportunity for its
employees, a wider range of financial
services for its customers, larger lending
limits for individuals, businesses and
industries in its trade area, and optimum
economic advantage for its stockholders.
Bancshares Background
and Reasons for the Merger Bancshares' Board of Directors has
concluded that the Merger would be in the
best interest of Bancshares' shareholders and
the depositors, other customers and
-4-
<PAGE> 18
employees of its subsidiary banks. The Merger
is consistent with Bancshares' overall
strategic acquisition program and, in
particular, its interest in expanding
Citizens' facilities and services in
Jefferson County, Ohio. Bancshares' and
Citizens' philosophies of emphasizing
customer service and satisfaction, promoting
local and branch level decision-making power
by employees and making strong, ongoing
commitments to each community they serve are
consistent with UniBank's management
philosophies and its long-standing reputation
of service to Jefferson County. In addition,
the current products and services offered by
UniBank are similar to, and in many respects
complements, the products and services
provided by Citizens. Bancshares anticipates
that the additional products and services of
Citizens that will become available to
UniBank customers as a result of the Merger
will provide opportunities for expanded and
new customer relationships. Bancshares also
believes that the Merger can be accomplished
with little or no resulting dilution in the
value of Bancshares Common Shares. See
"PROPOSED MERGER -- Bancshares' Background
and Reasons for the Merger."
Fairness Opinion Danielson Associates, Inc. has rendered
an original opinion to UniBank's Board of
Directors, dated September 12, 1997, and
updated to the date hereof, that the Exchange
Ratio was fair from a financial point of view
to the UniBank shareholders. For additional
information, see "PROPOSED MERGER--Fairness
Opinion of Danielson Associates, Inc." The
opinion of Danielson Associates, Inc. is
attached as Appendix C to this Proxy
Statement/Prospectus. UniBank shareholders
are urged to read such opinion in its
entirety for a description of the procedures
followed and matters considered in connection
therewith.
Interest of Management
in the Merger Bancshares will offer the existing full
time employees of UniBank the opportunity to
become full time employees of Citizens or one
of Bancshares' other affiliates for a minimum
period of six months. In addition, Bancshares
will offer the existing part time employees
of UniBank the opportunity to become part
time employees of Citizens or one of
Bancshares other affiliates for minimum
period of six months; provided, however, that
Bancshares may determine in its sole
discretion the number of hours that the part
time employee will be scheduled to work. See
"PROPOSED MERGER--Operations of UniBank After
the Merger" and "Interest of Management in
the Merger."
Recommendation of the
Board of Directors The UniBank Board of Directors has
unanimously approved the Affiliation
Agreement and believes that the Affiliation
Agreement is fair to and in the best
interests of UniBank shareholders. The
UniBank Board of Directors
-5-
<PAGE> 19
unanimously recommends that UniBank
shareholders adopt the Affiliation Agreement.
See "PROPOSED MERGER--Recommendation of the
UniBank Board of Directors."
Dissenters' Rights Holders of UniBank Common Shares may
exercise their right to become dissenting
shareholders to the extent, and in strict
compliance with the procedure, specified in
Sections 1121.09 and 1701.85 of the Ohio
Revised Code. HOLDERS OF UNIBANK COMMON
SHARES WHO WANT TO EXERCISE THEIR DISSENTERS'
RIGHTS MUST NOT VOTE IN FAVOR OF THE
AFFILIATION AGREEMENT AT THE SPECIAL MEETING
AND MUST SEND WRITTEN DEMANDS FOR PAYMENT FOR
THEIR UNIBANK COMMON SHARES WITHIN TEN DAYS
AFTER THE SPECIAL MEETING. See "PROPOSED
MERGER--Rights of Dissenting Shareholders"
and the text of Sections 1701.85 and 1121.09
of the Ohio Revised Code attached to this
Proxy Statement/Prospectus as Appendix B.
Federal Income Tax
Consequences of the
Merger It is intended that the Merger will be
treated as a reorganization within the
meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended, and that,
accordingly, for federal income tax purposes
no gain or loss will be recognized by
UniBank, Bancshares or Citizens as a result
of the Merger. The obligations of UniBank to
consummate the Merger are conditioned upon
the receipt by it of a letter from Rick Hull,
Esq., Bancshares' general counsel, advising
that based on his review of the Affiliation
Agreement nothing has come to his attention
that would lead him to believe that the
Merger will not be tax free with respect to
the holders of UniBank Common Shares.
Shareholders who exercise dissenters' rights
and receive cash for their UniBank Common
Shares will be treated as having received a
distribution in redemption of their shares
which will result in such shareholders
receiving income for federal income tax
purposes.
All UniBank shareholders should read
carefully the description under "PROPOSED
MERGER--Federal Income Tax Consequences of
the Merger," and should consult their own tax
advisors concerning these matters.
Conditions; Amendments;
Termination Completion of the Merger is contingent
upon approval of the Affiliation Agreement by
UniBank shareholders and certain regulatory
authorities and upon certain other conditions
described in this Proxy Statement/
Prospectus. The Affiliation Agreement may not
be amended except by a written agreement
executed by the party to be charged with the
amendment.
The Affiliation Agreement may be
terminated as follows: (i) by either
Bancshares or UniBank as a result of a
-6-
<PAGE> 20
breach of the Affiliation Agreement;
(ii) by Bancshares or UniBank if the
conditions precedent to their respective
obligations to consummate the Merger have not
been satisfied or waived by the appropriate
party; (iii) by mutual consent of Bancshares
and UniBank; or (iv) by UniBank if the
average NMS closing price of Bancshares
Common Shares is 20% or more lower than the
average National Market System closing price
of those banks set forth in Exhibit 9.1 to
the Affiliation Agreement; (iv) by Bancshares
if the average NMS closing price of
Bancshares Common Shares is less than $46.00;
or (v) by Bancshares in the event that the
number of Bancshares Common Shares into which
each UniBank Common Share is to be converted
will be adjusted pursuant to Section 1.2(a)
of the Affiliation Agreement and the book
value of UniBank Common Shares exceeds $250
per share; or (vi) by Bancshares or UniBank
if the Merger has not occurred by June 30,
1998.
See "PROPOSED MERGER--Other Provisions
of the Affiliation Agreement."
Management after the
Merger Upon completion of the Merger, it is
anticipated that the directors and executive
officers of Bancshares and Citizens will
remain directors and executive officers
thereof. In addition, one member of UniBank's
Board of Directors, namely H. Lee Kinney,
shall have the right to serve on the Board of
Directors of both Bancshares and Citizens,
each for a one year term. See "PROPOSED
MERGER--Operations of UniBank After the
Merger."
COMPARATIVE RIGHTS OF
UNIBANK
SHAREHOLDERS The rights of shareholders of Bancshares
and shareholders of UniBank, while similar in
many respects, also differ in some respects.
For a description of the relative rights of
the holders of Bancshares Common Shares and
UniBank Common Shares, see "COMPARATIVE
RIGHTS OF UNIBANK SHAREHOLDERS." Bancshares'
Articles of Incorporation include a provision
governing the acquisition of certain
controlling interests in Bancshares. For a
description of this provision, see
"DESCRIPTION OF BANCSHARES CAPITAL
SHARES--Description of Control Share
Acquisition Provisions."
-7-
<PAGE> 21
RISK FACTORS
------------
IN ADDITION TO THE OTHER INFORMATION CONCERNING BANCSHARES AND ITS
SUBSIDIARY BANKS IN THIS JOINT PROXY STATEMENT/PROSPECTUS, THE FOLLOWING RISK
FACTORS SHOULD BE CONSIDERED CAREFULLY.
Impact of Government Monetary Policies
- --------------------------------------
The earnings of banks and bank holding companies such as Bancshares are
affected by the policies of regulatory authorities, including the Federal
Reserve Board, which regulates the money supply. Among the methods employed by
the Federal Reserve Board are open market operations in U.S. Government
securities, changes in the discount rate on member bank borrowings, and changes
in reserve requirements against member bank deposits. These methods are used in
varying combinations to influence overall growth and distribution of bank loans,
investments and deposits, and their use may also affect interest rates charged
on loans or paid on deposits. The monetary policies of the Federal Reserve Board
have had a significant effect on the operating results of commercial and savings
banks in the past and are expected to continue to do so in the future.
Allowance for Loan Losses
- -------------------------
Bancshares' allowance for loan losses is maintained at a level
considered adequate by management to absorb anticipated losses. The amount of
future losses is susceptible to changes in economic, operating and other
conditions, including changes in interest rates, that may be beyond Bancshares'
control and such losses may exceed current estimates. At September 30, 1997,
Bancshares had total nonperforming loans of approximately $3,078,000. At the
same date, Bancshares' allowance for loan losses was $11,961,000, or 1.91% of
total loans 389% of total nonperforming loans. There can be no assurance,
however, that such allowance will be adequate to cover actual losses.
Competitive Banking Environment
- -------------------------------
Intense competition exists in all aspects of business in which
Bancshares is presently engaged, not only with other commercial banks and trust
companies but also with thrifts, finance companies, personal loan companies,
credit unions, leasing companies, money market mutual funds, investment firms,
mortgage bankers, and other financial institutions serving Bancshares' market
area.
Financial institutions compete on the basis of price, including
interest rates paid on deposits and charged on loans, convenience and quality of
service. This competition includes banks which are many times larger than
Bancshares' banking subsidiaries. Bancshares is encountering increased
competition from non-bank financial institutions. Thrift institutions, credit
unions and small loan companies each are significant factors in the traditional
lending and deposit gathering business of Bancshares. Insurance companies,
investment firms and retailers all are significant competitors for various types
of business. Many of Bancshares' competitors are larger and have greater
resources than Bancshares, and there are no assurances that Bancshares will be
able to compete effectively against such companies in the future.
Government Regulation
- ---------------------
Bancshares and its banking subsidiaries are subject to extensive
governmental supervision, regulations and control. Future legislation and
government policy could adversely affect the banking industry and the operations
of Bancshares. There can be no assurance that the profitability of Bancshares
will not be adversely affected by changes in applicable laws, regulations and
policies.
Ability to Integrate Operations and Achieve Cost Savings After the Merger
- -------------------------------------------------------------------------
The earnings and financial condition of Bancshares after the Merger
will depend in part on its ability to successfully integrate the operations and
management of UniBank with and into The Citizens Banking Company. There can be
no assurance that Bancshares will be able to effectively and profitably
integrate the operations and management of UniBank. Further, although Bancshares
anticipates cost savings as a result of the Merger, there can be no assurance
that it will be able to fully realize any of the potential cost savings expected
as a result of Bancshares and UniBank being able to share administrative and
other resources when their operations are integrated. Finally, there can be no
assurance that any cost savings which are realized will not be offset by
decreases in revenues or other charges to earnings.
PRO FORMA SELECTED FINANCIAL INFORMATION
- ----------------------------------------
The table below sets forth selected pro forma financial information for
Bancshares and UniBank combined as of and for the nine months ended September
30, 1997 and 1996, and as of and for the years ended December 31, 1996, 1995 and
1994. This information is derived from and should be read in conjunction with
the historical financial statements of Bancshares and UniBank that are
incorporated by reference or appear elsewhere in this Proxy
Statement/Prospectus, and with the pro forma condensed consolidated financial
statements of Bancshares, which give effect to the Merger and which appear in
this Proxy Statement/Prospectus under the caption "PRO FORMA FINANCIAL
INFORMATION." The pro forma condensed consolidated financial information has
been prepared based on the use of "pooling of interests" method of accounting
assuming that 945,056 Bancshares Common Shares will be issued and that no
UniBank shareholders will dissent. The number of Bancshares Common Shares issued
assumes an exchange ratio such that one UniBank Common Share will be exchanged
for 13.25 Bancshares Common Shares. This information will vary if any UniBank
shareholders dissent or if the total value of Bancshares Common Shares to be
issued for a UniBank Common Share plus cash in lieu of fractional shares is less
than 2.7 times the book value of a UniBank Common Share at December 31, 1997.
The historical financial information of Bancshares and UniBank has been combined
for each period presented. For a discussion of the pooling of interests method
of accounting and the condition to Bancshares' and UniBank's obligations under
the Affiliation Agreement that the Merger qualify for the pooling of interests
method of accounting, see "PROPOSED MERGER--Accounting Treatment" and "Other
Provisions of the Affiliation Agreement."
Pro Forma Selected Financial Information
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
As of and for the
Nine Months Ended As of and for the
September 30, Year Ended December 31,
----------------- -----------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Net interest income $ 37,940 $ 37,171 $ 49,867 $ 47,108 $ 45,115
Provision for loan losses $ 1,257 $ 1,284 $ 1,654 $ 2,264 $ 2,625
Net income $ 14,614 $ 12,415 $ 16,824 $ 14,526 $ 12,265
Cash dividends declared $ 5,114 $ 3,740 $ 5,551 $ 3,580 $ 2,252
PER SHARE DATA:
Net income $ 2.14 $ 1.81 $ 2.45 $ 2.11 $ 1.78
Cash Dividends $ 0.74 $ 0.54 $ 0.81 $ 0.52 $ 0.33
Book value at period end $ 17.29 $ 14.95 $ 15.57 $ 13.88 $ 11.50
Weighted average shares
outstanding 6,842,596 6,871,208 6,846,016 6,891,290 6,891,290
BALANCE SHEET DATA (AT PERIOD END):
Total assets $1,268,909 $1,121,467 $1,131,298 $1,064,696 $1,028,957
Net loans $ 736,592 $ 673,680 $ 682,049 $ 657,549 $ 607,933
Total deposits $ 926,067 $ 873,055 $ 868,950 $ 851,074 $ 815,920
Total shareholders' equity $ 117,191 $ 102,326 $ 106,552 $ 95,683 $ 79,235
</TABLE>
-8-
<PAGE> 22
COMPARATIVE PER SHARE DATA
--------------------------
The following table sets forth Bancshares' and UniBank's historical per
share data and pro forma combined per share data. The information is based on
the historical financial statements of Bancshares and UniBank. The pro forma
data do not purport to be indicative of the results of future operations or the
actual results that would have occurred had the Merger been consummated at the
beginning of the periods presented. The pro forma data give effect to the Merger
and are based on numerous assumptions and estimates. The pro forma data are
included as required by the rules of the Commission and are provided for
comparative purposes only. The pro forma combined per share data and UniBank
equivalent per share data are prepared assuming 945,056 Bancshares Common Shares
will be issued based on an exchange ratio such that one UniBank Common Share
will be exchanged for 13.25 Bancshares Common Shares. This information will vary
if any UniBank Shareholders dissent or if the total value of Bancshares Common
Shares to be issued for a UniBank Common Share plus cash in lieu of fractional
shares is less than 2.7 times the book value of a UniBank Common Share at
December 31, 1997.
CITIZENS BANCSHARES, INC. AND UNIBANK
COMPARATIVE PER SHARE DATA
<TABLE>
<CAPTION>
================================================================================================
As of and for
the Nine As of and for As of and for As of and for
Months ended the Year ended the Year ended the Year ended
9/30/97 12/31/96 12/31/95 12/31/94
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET INCOME PER COMMON
SHARE:
HISTORICAL:
Bancshares $ 2.18 $ 2.49 $ 2.13 $ 1.78
UniBank 23.08 28.24 26.18 23.51
PRO FORMA COMBINED 2.14 2.45 2.11 1.78
EQUIVALENT AMOUNT OF
UNIBANK 28.36 32.46 27.96 23.59
- ------------------------------------------------------------------------------------------------
DIVIDENDS PER COMMON SHARE:
HISTORICAL:
Bancshares $ 0.81 $ 0.83 $ 0.50 $ 0.29
UniBank 4.50 9.00 8.10 7.25
PRO FORMA COMBINED
0.74 0.81 0.52 0.33
EQUIVALENT AMOUNT OF
UNIBANK 9.81 10.73 6.89 4.37
- ------------------------------------------------------------------------------------------------
BOOK VALUE PER COMMON
SHARE:
HISTORICAL:
Bancshares $ 16.94 $ 15.21 $ 13.58 $ 11.19
UniBank 245.29 224.53 207.63 176.29
PRO FORMA COMBINED
17.29 15.57 13.88 11.50
EQUIVALENT AMOUNT OF
UNIBANK 229.09 206.30 183.91 152.38
================================================================================================
</TABLE>
-9-
<PAGE> 23
COMPARATIVE MARKET VALUE DATA
-----------------------------
Bancshares Common Shares began trading on the NASDAQ National Market
under the symbol "CICS" as of June 1, 1993. The information presented in the
following table reflects the last reported sale price for Bancshares on
September 11, 1997, the last trading day preceding execution of the Affiliation
Agreement. No assurance can be given as to what the market price of Bancshares
Common Shares will be if and when the Merger is consummated.
There is no public trading market for UniBank Common Shares and there
is no published information with respect to its market price. The equivalent per
share basis has been circulated by multiplying the last reported sale price of
Bancshares Common Shares on September 11, 1997, by the exchange ratio, assuming
a 13.25 exchange ratio (which exchange ratio would be applicable if Bancshares
Common Shares has an average closing price of $53.00). See also "INFORMATION
WITH RESPECT TO BANCSHARES--Market Price of Bancshares Common Shares" and
"INFORMATION WITH RESPECT TO UNIBANK--Market Price and Dividends on UniBank
Common Shares."
Citizens Bancshares, Inc. and UniBank
Comparative Market Value
----------------
UniBank
Equivalent
Per Share
Bancshares UniBank Basis
---------- ------- ----------
Common Shares $53.00(1) $185.00(2) $702.25
(1) Based on the last trade of Bancshares Common Shares on September 11,
1997, as reported on the Nasdaq National Market.
(2) Based on the last known trade of UniBank Common Shares prior to September
11, 1997, for which a price per share can be determined, which trade
occurred on November 12, 1996. However, in June, 1996, Bancshares
purchased 3,675 shares of UniBank Common Shares for a per share purchase
price of $306.80 ($1,127,490 total purchase price).
INFORMATION CONCERNING THE SPECIAL MEETING
------------------------------------------
General
- -------
This Proxy Statement/Prospectus is being furnished to holders of
UniBank Common Shares as part of the solicitation of proxies by the UniBank
Board of Directors for use at the Special Meeting to be held on ____________,
1998 at 2:00 p.m. in UniBank's main office located in the Sinclair Building
(lower level) at 100 North Fourth Street, Steubenville, Ohio, including any
adjournments or reschedulings thereof. This Proxy Statement/Prospectus and the
accompanying Proxy Card are first being mailed to shareholders of UniBank on or
about __________, 1997.
The purpose of the Special Meeting is to consider and vote upon the
Proposal to adopt the Affiliation Agreement and to approve the transactions
contemplated thereby, including the Merger. No other business will be transacted
at the Special Meeting other than possible adjournments or reschedulings
thereof.
The Merger is subject to a number of conditions, including the receipt
of required regulatory and shareholder approvals. (See "PROPOSED
MERGER--"Regulatory Approvals" and "Other Provisions of the Affiliation
Agreement.")
Solicitation, Voting and Revocability of Proxies
- ------------------------------------------------
The UniBank Board has fixed the close of business on ______________,
1997 (the "Record Date") as the record date for the determination of the
shareholders of UniBank entitled to notice of and to vote at the Special
Meeting. Only holders of record of UniBank Common Shares at the close of
business on the Record Date will be entitled to vote on each matter properly
presented at the Special Meeting. On the Record Date, 75,000 UniBank Common
Shares were issued and outstanding. Votes may be cast in person or by proxy, and
each UniBank Common Share entitles its holder to one vote. Pursuant to the
UniBank Code of Regulations and in accordance with the Ohio Revised Code
("ORC"), the presence of the holders of a majority of the UniBank Common Shares
issued and outstanding, in person or by proxy, and entitled to vote at the
Special Meeting is required for and shall constitute a quorum for the
transaction of business at the Special Meeting. For such purpose, abstentions
and broker non-votes will be counted in establishing the quorum. A majority of
the UniBank Common Shares present at the Special Meeting, in person or by proxy,
whether or not constituting a quorum, may vote to, or the UniBank Board in its
discretion may, adjourn the Special Meeting from time to time without further
notice, including for the purpose of soliciting additional proxies. Pursuant to
the UniBank Code
-10-
<PAGE> 24
of Regulations, the affirmative vote of the holders of at least 60% of the total
number of outstanding UniBank Common Shares entitled to vote at the Special
Meeting is required to approve the Proposal. An abstention and a broker non-vote
would thus have the same effect as a vote against the Proposal.
Only shareholders of record on the Record Date are eligible to give
their proxies. Therefore, shareholders owning shares held in the name of a
brokerage firm, bank, or other institution should sign, date and return their
proxy cards to such brokerage firm, bank or other institution in the envelope
provided by that firm. In addition, brokers who hold shares in street name for
customers who are the beneficial owners of such shares are prohibited from
giving a proxy to vote shares held for such customers on the approval of the
Proposal without specific instructions from such customers. Given that the
UniBank Code of Regulations requires the affirmative vote of the holders of 60%
of the outstanding UniBank Common Shares entitled to vote at the Special Meeting
in order to approve the Proposal, the failure of such customers to provide
specific instructions with respect to their UniBank Common Shares to their
broker will have the effect of a vote against the approval of the Proposal.
Failure to return a properly executed proxy card or to vote at the Special
Meeting will have the same effect as a vote against the Proposal.
Proxies in the accompanying form which are properly executed and
returned to UniBank will be voted at the Special Meeting in accordance with the
shareholders' instructions contained in such proxies and, at the discretion of
the Proxy Committee, on such other matters as may properly come before the
meeting. If a shareholder returns a proxy card that is signed, dated and not
marked, that shareholder will be deemed to have voted for the Proposal. An
executed proxy may be revoked at any time prior to its exercise by submitting
another proxy with a later date, by appearing in person at the Special Meeting
and advising the Secretary of the shareholder's intent to vote the shares or by
sending a written, signed and dated revocation which clearly identifies the
proxy being revoked to the principal executive offices of UniBank at 100 North
Fourth Street, Steubenville, Ohio 43592-5640. A revocation may be in any written
form validly signed by the record holder as long as it clearly states that the
proxy previously given is no longer effective. In addition, shareholders whose
UniBank Common Shares are not registered in their own name will need additional
documentation from the record holder of such shares to vote in person at the
Special Meeting.
Proxies may be solicited by mail, telephone, telegraph, telex,
telecopier and advertisement and in person. Solicitation may be made in the same
manner by directors, officers and other representatives of UniBank who will not
be specially compensated for such activities, but who may be reimbursed for
reasonable out-of-pocket expenses in connection with such solicitation.
Banks, brokerage houses and other custodians, nominees and fiduciaries
will be requested to forward the solicitation materials to the beneficial owners
of UniBank Common Shares for which they hold of record, and UniBank will
reimburse them for their reasonable out-of-pocket expenses.
The expenses related to the proxy solicitation for the Special Meeting
will be borne by UniBank, except that the cost of preparing and mailing this
Proxy Statement/Prospectus will be borne by UniBank and Bancshares.
The directors and executive officers of UniBank and their affiliates
owned, as of the Record Date, 44,176 UniBank Common Shares (58.89% of the total
number of outstanding shares of UniBank Common Shares at such date).
SHAREHOLDERS OF UNIBANK WHO DO NOT INTEND TO ASSERT THEIR RIGHTS AS
DISSENTING SHAREHOLDERS SHOULD COMPLETE THE ENCLOSED LETTER OF TRANSMITTAL AND
RETURN IT ALONG WITH THEIR OLD CERTIFICATE DULY ENDORSED FOR TRANSFER OR
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<PAGE> 25
ACCOMPANIED BY A DULY ENDORSED ASSIGNMENT SEPARATE FROM THE CERTIFICATES TO THE
EXCHANGE AGENT. IF THE MERGER IS NOT CONSUMMATED, THE EXCHANGE AGENT WILL
RETURN SUCH OLD CERTIFICATE.
PROPOSED MERGER
---------------
The following description of certain aspects of the Merger does not
purport to be complete and is qualified in its entirety by reference to the
Affiliation Agreement which is set forth in Appendix A, attached to and
incorporated by reference in this Proxy Statement/Prospectus. All shareholders
are urged to read the Affiliation Agreement in its entirety.
UniBank Background and Reasons for the Merger
- ---------------------------------------------
UniBank entered into the Affiliation Agreement to further strengthen
two very sound community banks, thereby providing greater advancement
opportunity for its employees, a wider range of financial services for its
customers, larger lending limits for individuals, businesses and industries in
its trade area, and optimum economic advantage for its stockholders.
Recommendation of the UniBank Board of Directors
- ------------------------------------------------
IN VIEW OF ALL THE CONSIDERATIONS DESCRIBED ABOVE, THE BOARD OF
DIRECTORS OF UNIBANK UNANIMOUSLY CONCLUDED THE MERGER IS IN THE BEST INTERESTS
OF AND IS FAIR TO THE UNIBANK SHAREHOLDERS AND RECOMMENDS THAT UNIBANK
SHAREHOLDERS VOTE FOR THE MERGER.
Opinion of UniBank's Financial Advisor
- --------------------------------------
UniBank retained Danielson Associates, Inc. ("Danielson Associates") to
advise the UniBank Board of Directors as to its "fair" sale value and the
fairness to its shareholders of the financial terms of the offer to acquire
UniBank. Danielson Associates is regularly engaged in the valuation of banks,
bank holding companies, and thrifts in the connection with mergers,
acquisitions, and other securities transactions; and has knowledge of, and
experience with, the Ohio banking markets and banking organizations operating in
those markets. Danielson Associates was selected by UniBank because of its
knowledge of, expertise with, and reputation in the financial services industry.
In such capacity, Danielson Associates reviewed the Merger Agreement
with respect to the pricing and other terms and conditions of the Merger, but
the decision as to accepting the offer was ultimately made by the Board of
Directors of UniBank. Danielson Associates rendered its oral opinion to the
UniBank Board of Directors, and subsequently confirmed in writing, that as
of the date of such opinion, the financial terms of the Citizens offer were
"fair" to UniBank and its shareholders. No limitations were imposed by the
UniBank Board of Directors upon Danielson Associates with respect to the
investigation made or procedures followed by it in arriving at its opinion.
In arriving at its opinion, Danielson Associates (a) reviewed certain
business and financial information relating to UniBank and Citizens, including
annual reports for the fiscal year ended December 31, 1996 and call report data
from 1989 to 1996 including quarterly reports for 1997; (b) discussed the past
and current operations, financial condition and prospects of UniBank with its
senior executives; (c) analyzed the pro forma impact of the merger on Citizens'
earnings per share, capitalization, and financial ratios; (d) reviewed the
reported prices and trading activity for the UniBank and the Citizens Common
Stock and compared them to similar bank holding companies; (e) reviewed and
compared the financial terms, to the extent publicly available, with comparable
transactions; (f)
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<PAGE> 26
reviewed the Merger Agreement and certain related documents; and (g) considered
such other factors as were deemed appropriate.
Danielson Associates did not obtain any independent appraisal of assets
or liabilities of UniBank or Citizens or their respective subsidiaries. Further,
Danielson Associates did not independently verify the information provided by
UniBank or Citizens and assumed the accuracy and completeness of all such
information.
In arriving at its opinion, Danielson Associates performed a variety of
financial analyses. Danielson Associates believes that its analyses must be
considered as a whole and that consideration of portions of such analyses and
the factors considered therein, without considering all the factors and
analyses, could create an incomplete view of the analyses and the process
underlying Danielson Associates' opinion. The preparation of a fairness opinion
is a complex process involving subjective judgements and is not necessarily
susceptible to partial analysis and summary description.
In its analyses, Danielson Associates made certain assumptions with
respect to industry performance, business and economic conditions, and other
matters, many of which were beyond UniBank's or Citizens' control. Any estimates
contained in Danielson Associates' analyses are not necessarily indicative of
the future results of value, which may be significantly more or less favorable
than such estimates. Estimates of values of companies do not purport to be
appraisals or necessarily reflect the prices at which companies or their
securities may actually be sold.
The following is a summary of selected analyses considered by Danielson
Associates in connection with its opinion letter.
Pro Forma Merger Analyses
Danielson Associates analyzed the changes in the amount of earnings and
book value represented by the receipt of about $52.7 million for all of the
outstanding shares of UniBank Common Stock, which will be paid in Citizens
common stock. The analysis evaluated, among other things, possible dilution in
earnings and capital per share for Citizens Common Stock.
Comparable Companies
Danielson Associates compared UniBank's (a) tangible capital of 7.05%
of assets as of June 30, 1997, (b) .17% of assets nonperforming as of June 30,
1997, and (c) net operating income of 1.65% of average assets for the trailing
twelve month period ended June 30, 1997, with the medians for selected Ohio
banks which Danielson Associates deemed comparable. These banks included Andover
Bancorp, Belmont Savings Bank, CSB Bancorp, FNB Financial, Killbuck Bancshares,
Mechanics Financial, National Bancshares and United Bancorp. Their medians were
(a) tangible capital of 10.16% of assets, (b) .37% of assets nonperforming, and
(c) net operating income of 2.07% of average assets.
Danielson Associates also compared Citizens' (a) stock price as of
September 12, 1997 equal to 20.1 times earnings and 330% of book, (b) dividend
yield based on trailing four quarters as of June 30, 1997 and stock price as of
September 12, 1997 of 2.00%, (c) tangible capital as of June 30, 1997 of 8.94%
of assets, (d) nonperforming assets as of June 30, 1997 equal to .41% of total
assets, (e) return on average assets during the trailing four quarters ended
June 30, 1997 of 1.70% and (f) return on average equity during the same period
of 18.18%, with the medians for selected banks and bank holding companies that
Danielson Associates deemed to be comparable to Citizens. The selected
institutions included BancFirst Ohio Corp., City Holding Company, CoBancorp,
Inc., First Financial Bancorp, Horizon Bancorp, Inc., Matewan Bancshares, Inc.,
Mid Am Inc., Park National Corporation, Second Bancorp, Incorporated and United
Bancshares, Inc.. The comparable medians were (a) stock
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<PAGE> 27
price of 18.8 times earnings and 244% of book, (b) dividend yield of 2.57%, (c)
tangible capital of 8.65% of assets, (d) .59% of assets nonperforming, (e)
return on average assets of 1.18% and (f) return on average equity 13.36%.
Danielson Associates also compared other income, expense, and balance sheet
information of such companies with similar information about Citizens.
Comparable Transaction Analysis
Danielson Associates compared the consideration to be paid in the
merger to the latest twelve months earnings and equity capital of UniBank with
earnings and capital multiples paid in acquisitions of MidAtlantic banks in 1996
and 1997 through the opinion date. Of these, the most applicable recent
transactions included Fulton Financial Corporation buying Keystone Heritage
Group, Inc., Area Bancshares Corporation's purchase of Cardinal Bancshares,
Inc., and a 1996 West Virginia transaction, Horizon Bancorp, Inc. buying
Twentieth Bancorp, Inc.. At the time Danielson Associates made its analysis, the
consideration to be paid in the merger was 296% of UniBank's September 12, 1997
book value and 24.2 times UniBank's earnings for the trailing four quarters as
of June 30, 1997. This compares to the median multiples of 247% of book value
and 20.8 times earnings for the comparable acquisitions.
The transaction price was also compared to the prices paid for seven
sales involving banks from Kentucky, Maryland, Ohio, Pennsylvania and West
Virginia with assets over $100 million during 1997. The median comparable deal
prices in these transactions were 297% of book and 22.6 times earnings.
Other Analysis
In addition to performing the analyses summarized above, Danielson
Associates also considered the general market for bank and thrift mergers, the
historical financial performance of UniBank and Citizens, the deposit market
shares of both banks, and the general economic conditions and prospects of those
banks.
No company or transaction used in this composite analysis is identical
to UniBank or Citizens. Accordingly, an analyses of the results of the foregoing
is not mathematical; rather it involved complex consideration and judgements
concerning differences in financial and operating characteristics of the
companies and other factors that could affect the public trading values of the
company or companies to which they are being compared.
The summary set forth above does not purport to be a complete
description of the analyses and procedures performed by Danielson Associates in
the course of arriving at its opinions. In payment for its services as the
financial advisor to UniBank, Danielson Associates is to be paid a fee of
$50,000.
The full text of the opinion of Danielson Associates dated as of
September 12, 1997, and updated to the date hereof, which sets forth assumptions
made and matters considered, is attached hereto as Exhibit C to this Proxy
Statement/Prospectus. UniBank shareholders are urged to read this opinion in its
entirety. Danielson Associates' opinion is directed only to the consideration to
be received by UniBank shareholders in the Merger and does not constitute a
recommendation to any UniBank shareholder as to how such shareholder should vote
at the Shareholders Meeting.
Bancshares Background and Reasons for the Merger
- ------------------------------------------------
Bancshares' Board of Directors has concluded that the Merger would be
in the best interest of Bancshares' shareholders and the depositors, other
customers and employees of its subsidiary banks. The Merger is consistent with
Bancshares' overall strategic acquisition program and, in particular, its
interest in expanding Citizens' facilities and services in Jefferson County,
Ohio. Bancshares' and
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<PAGE> 28
Citizens' philosophies of emphasizing customer service and satisfaction,
promoting local and branch level decision-making power by employees and making
strong, ongoing commitments to each community they serve are consistent with
UniBank's management philosophies and its long-standing reputation of service to
Jefferson County. In addition, the current products and services offered by
UniBank are similar to, and in many respects, complement the products and
services provided by Citizens. Bancshares anticipates that the additional
products and services of Citizens that will become available to UniBank
customers as a result of the Merger will provide opportunities for expanded and
new customer relationships. Bancshares also believes that the Merger can be
accomplished with little or no resulting dilution in the value of Bancshares
Common Shares.
Description of the Merger
- -------------------------
Upon consummation of the transactions contemplated under the
Affiliation Agreement, UniBank will be merged with and into Citizens. Citizens
will be the surviving bank after the Merger ("Resulting Bank") and the Articles
of Incorporation and Code of Regulations of Citizens will remain in effect as
they were immediately prior to the Merger. After the Merger, Citizens will
remain a wholly-owned subsidiary of Bancshares. See also "PROPOSED
MERGER--Operations of UniBank After the Merger."
Consideration for UniBank Common Shares
- ---------------------------------------
Upon consummation of the Merger, each shareholder of UniBank who does
not dissent will have the right to receive 13.25 Bancshares Common Shares for
each of his or her UniBank Common Shares held, plus cash in lieu of the issuance
of fractional shares.
Notwithstanding the foregoing, in no event, however, will the holders
of UniBank Common Shares receive, in the aggregate, Bancshares Common Shares
with a total value plus cash in lieu of fractional shares that is less than 2.7
times the book value of UniBank Common Shares on December 31, 1997. In such
event, the parties have agreed to adjust the number of Bancshares Common Shares
into which each UniBank Common Share shall be converted; further provided,
however, that in the event the book value of UniBank Common Shares exceeds $250
per share, Bancshares may elect to terminate the Affiliation Agreement.
The term "Total Value" means the arithmetic mean of the NMS Closing
Prices for the 20 trading days immediately prior to the tenth trading day,
inclusive, immediately prior to the Effective Time. The term "NMS Closing Price"
shall mean the price per share of the last sale of Bancshares Common Shares
reported on the NASDAQ National Market at the close of the trading day by the
National Association of Securities Dealers, Inc.
Payment of Cash in Lieu of Fractional Shares
- --------------------------------------------
No fractional Bancshares Common Shares will be issued in connection
with the Merger. Each UniBank shareholder who would otherwise have been entitled
to receive a fraction of a Bancshares Common Share will receive, in lieu
thereof, cash therefor, without interest, at a price based upon the NMS Closing
Price.
Other Provisions of the Affiliation Agreement
- ---------------------------------------------
Representations and Warranties
The Affiliation Agreement contains representations and warranties by
the parties regarding, among other things, their respective organization,
authority to enter into the Affiliation Agreement, capitalization, pending and
threatened litigation, contractual obligations, compliance with applicable
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<PAGE> 29
laws and regulations, financial statements and filings with regulatory agencies.
These representations and warranties will not survive consummation of the
Merger. The Affiliation Agreement includes certain exceptions to UniBank's
representations and warranties, none of which are deemed material to this
transaction. Such exceptions are contained in the Disclosure Schedule to the
Affiliation Agreement which may be reviewed upon request to William W. McElwain
of UniBank, 100 North Fourth Street, Steubenville, Ohio 43592-5640.
Conditions to the Merger
The obligations of UniBank and Bancshares to consummate the Merger are
subject to, but not limited to the following conditions: (1) the accuracy of
UniBank's and Bancshares' representations and warranties on and as of the
closing date of the Merger; (2) UniBank and Bancshares shall each have performed
or complied with the covenants and conditions that each is required to perform
or comply with under the terms of the Affiliation Agreement; (3) the granting of
all necessary regulatory approvals, including but not limited to the Board of
Governors of the Federal Reserve System, the Ohio Department of Commerce
(Division of Financial Institutions, Office of Banks and Savings & Loans) and
the Securities and Exchange Commission; (4) the issuance by Bancshares' general
counsel and UniBank's counsel of opinions covering certain matters with respect
to Bancshares and UniBank, (5) the consummation nor performance of the
transactions under the Affiliation Agreement will not conflict with, or result
in a material violation of, or cause Bancshares or UniBank or their respective
affiliates to suffer any material adverse consequences under any law or order
applicable to, or proposed to be applicable to them; (6) the registration
statement with the Securities and Exchange Commission registering the exchange
of the Bancshares Common Shares for UniBank Common Shares and all state
securities and "blue sky" permits have become effective and no stop orders or
similar restraining orders shall have been issued; and (7) the receipt by
Bancshares of an opinion letter from Crowe, Chizek and Company LLP stating that
the transaction qualifies for treatment as a "pooling of interests" for
financial statement reporting purposes.
Bancshares' obligations under the Affiliation Agreement are also
conditioned on, among other conditions, UniBank's shareholders having approved
the Affiliation Agreement and the Merger; the holders of no more than 10% of the
UniBank Common Shares having asserted dissenters' rights; and there having been
no event constituting an event of default under any material indenture,
agreement, note, mortgage or guaranty which materially adversely affects
UniBank's financial condition.
UniBank's obligations under the Affiliation Agreement are also subject
to, among other conditions, the adoption of the Affiliation Agreement and the
Merger by the requisite vote of UniBank shareholders; the receipt of a letter
from Bancshares' general counsel, Rick Hull, Esq., advising that, based on his
review of the Affiliation Agreement, nothing has come to his attention that
would lead him to believe the exchange of Bancshares Common Shares for UniBank
Common Shares will not be tax free with respect to UniBank shareholders; and the
receipt of a fairness opinion from Danielson Associates, Inc. dated as of the
date of this Proxy Statement/Prospectus stating that the Merger is fair from a
financial point of view to UniBank shareholders.
The foregoing disclosure regarding conditions to the Merger represents
and includes all material conditions to the consummation thereof.
Amendments; Termination
The Affiliation Agreement may not be amended except by a written
agreement executed by the party to be charged with the amendment. The
Affiliation Agreement may be terminated as follows: (i) by either Bancshares or
UniBank as a result of a breach of the Affiliation Agreement; (ii) by Bancshares
or UniBank if the conditions precedent to their respective obligations to
consummate the Merger have
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<PAGE> 30
not been satisfied or waived by the appropriate party; (iii) by mutual consent
of Bancshares and UniBank; or (iv) by UniBank if the average NMS closing price
of Bancshares Common Shares is 20% or more lower than the average National
Market System closing price of those banks set forth in Exhibit 9.1 to the
Affiliation Agreement; (iv) by Bancshares if the average NMS closing price of
Bancshares Common Shares is less than $46.00; or (v) by Bancshares in the event
that the number of Bancshares Common Shares into which each UniBank Common Share
is to be converted will be adjusted pursuant to Section 1.2(a) of the
Affiliation Agreement and the book value of UniBank Common Shares on December
31, 1997 exceeds $250 per share; or (vi) by Bancshares or UniBank if the Merger
has not occurred by June 30, 1998.
Federal Income Tax Consequences of the Merger
- ---------------------------------------------
The Merger is structured to qualify as a tax free reorganization under
Section 368 of the Internal Revenue Code of 1986, as amended, such that it is
anticipated that no gain or loss will be recognized by UniBank, Citizens or
Bancshares as a result of the Merger. Nor is it expected that shareholders of
UniBank will recognize gain or loss upon the exchange of their UniBank Common
Shares for newly issued Bancshares Common Shares, except for cash received in
exchange for fractional interests. Assuming the Merger is treated as a tax-free
reorganization, the federal income tax basis of the Bancshares Common Shares
received by the shareholders of UniBank will be the same as the federal income
tax basis of the UniBank Common Shares surrendered in exchange therefor and the
holding period of the Bancshares Common Shares received by the shareholders of
UniBank will include the holding period of the UniBank Common Shares surrendered
in exchange therefor, provided that the UniBank Common Shares were held as a
capital asset on the date of the exchange.
Shareholders who exercise their dissenters' rights of appraisal and
receive cash for their UniBank Common Shares will be treated as having received
a distribution in redemption of their shares, which will result in such
shareholders realizing income for federal income tax purposes. Furthermore,
shareholders of UniBank who receive cash in lieu of fractional interests in
Bancshares Common Shares as a result of the exchange will also be treated as
having received a distribution in redemption of their proportionate interest in
UniBank, which will result in such shareholders realizing income for federal
income tax purposes. The amount of such income and the tax treatment thereof
will depend on a number of factual considerations particular to the individual
shareholder.
The discussion of federal income taxes is included herein for general
information only. EACH UNIBANK SHAREHOLDER SHOULD CONSULT HIS OR HER OWN TAX
ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE PROPOSED
MERGER, INCLUDING THE APPLICATION AND EFFECT OF STATE AND LOCAL INCOME AND OTHER
TAX LAWS.
Accounting Treatment
- --------------------
The Merger is expected to qualify as a "pooling of interests" for
accounting and financial reporting purposes. The pro forma results of this
accounting treatment are shown in the unaudited pro forma financial information
appearing elsewhere in this Proxy Statement/Prospectus. See "PRO FORMA FINANCIAL
INFORMATION."
As noted above, it is a condition to the obligation of Bancshares and
UniBank to consummate the Merger that Bancshares shall have received a letter
from its auditors, Crowe, Chizek and Company LLP, to the effect that the Merger
will qualify as a pooling of interests transaction under generally accepted
accounting principles. Among the conditions which must be met in order for the
Merger to qualify for "pooling of interests" accounting treatment, generally
accepted accounting principles require that, in the aggregate, no more than
3,457 UniBank Common Shares (based on 75,000 shares currently outstanding and
3,675 shares owned by Bancshares) be held by
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<PAGE> 31
UniBank shareholders who have exercised dissenters' rights in connection with
the Merger and demanded payment in cash for the value of their UniBank common
shares under the ORC or receive cash in lieu of fractional shares. In the event
such condition is not met, the Merger would not be consummated unless the
condition was waived by Bancshares and UniBank. Furthermore, in order to qualify
for "pooling of interests" accounting treatment, no affiliate of either
Bancshares or UniBank may reduce his or her risk relative to the Bancshares
Common Shares received in the Merger until such time as financial results
covering at least 30 days of post-merger combined operations have been
published.
Interest of Management in the Merger
- ------------------------------------
Bancshares will offer the existing full time employees of UniBank the
opportunity to become full time employees of Citizens or one of Bancshares'
other affiliates for a minimum period of six months. In addition, Bancshares
will offer the existing part-time employees of UniBank the opportunity to become
part-time employees of Citizens or one of Bancshares' other affiliates for a
minimum period of six months; provided, however, that Citizens may determine in
its sole discretion that number of hours that the part time employees will be
scheduled to work. UniBank employees who become employees of Citizens or one of
Bancshares' other affiliates will have their years of service with UniBank and
its predecessors credited for eligibility and vesting purposes, but not for
accrual of benefit purposes, under all Bancshares' employee pension benefit
plans, (as defined in Section 3(2) of ERISA), except with respect to Bancshares'
ESOP plan.
Expenses of the Merger
- ----------------------
Bancshares, Citizens and UniBank shall each bear its respective
expenses incurred in connection with the Merger and the transactions
contemplated thereby. Bancshares shall be responsible for all expenses incident
to obtaining requisite regulatory approvals and UniBank shall be responsible for
all amounts payable to Danielson Associates, Inc. in connection with the
Affiliation Agreement and the transactions contemplated thereby.
Regulatory Approvals
- --------------------
Bancshares has filed the applications necessary to obtain the approval
for the Merger from the Federal Reserve Board and the Ohio Department of
Commerce (Division of Financial Institutions, Office of Banks and Savings &
Loans). The Merger may not be consummated for 15 days after approval by the
Federal Reserve Board, during which time an action may be brought by the United
States Department of Justice challenging the Merger on antitrust grounds.
Bancshares has no reason to believe the Merger will be challenged on antitrust
grounds.
Effective Time of the Merger
- ----------------------------
As used in this Proxy Statement/Prospectus, "Effective Time" means the
date and time when the Merger becomes effective, which will occur upon the
filing with the Ohio Secretary of State of a certified copy of the Affiliation
Agreement together with a certificate of approval from the Ohio Department of
Commerce, Division of Financial Institutions, Office of Banks and Savings &
Loans in accordance with Section 1121.06 of the ORC.
Operations of UniBank After the Merger
- --------------------------------------
Pursuant to the terms of the Affiliation Agreement, UniBank shall be
merged with and into Citizens and Citizens shall be the Resulting Bank as of the
Effective Time. The Articles of Incorporation and Code of Regulations of
Citizens shall become the Articles of Incorporation and Code of Regulations
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<PAGE> 32
of the Resulting Bank until thereafter duly altered, amended or repealed in
accordance with applicable law. The offices of UniBank shall become branches of
Citizens.
Each director of Citizens immediately prior to the Effective Time shall
remain a director of the Resulting Bank and shall serve for the balance of his
term and until his successor is duly elected and qualified or until his earlier
death, resignation or removal in the manner provided in the Code of Regulations
or as otherwise provided by law. Furthermore, each person who is an officer of
Citizens prior to the Effective Time shall remain an officer of the Resulting
Bank. It is anticipated that one member of UniBank's Board of Directors, namely
H. Lee Kinney, shall serve on the Board of Directors of Citizens and Bancshares.
The members of the Board of Directors of UniBank will also be given the
opportunity to serve on the Jefferson County Advisory Board for Citizens. For
further information regarding the directors and officers of Bancshares and the
Resulting Bank, see "INFORMATION WITH RESPECT TO BANCSHARES--Management."
In addition, each common share of Citizens issued and outstanding
immediately prior to the Effective Time shall thereafter continue to be one
common share of the Resulting Bank.
Upon completion of the Merger, it is also anticipated that the branches
of UniBank will be operated as branches of Citizens and that the UniBank name
will continue to be featured at the UniBank main office only. The UniBank name
may also be used in other applications to be determined by Citizens.
Business Pending the Merger
- ---------------------------
The Affiliation Agreement provides that, pending consummation of the
Merger, UniBank will continue to operate in the ordinary course. In addition,
any lending activities other than in the ordinary course, any 1-4 family unit
residential real estate loans in excess of $75,000, any equity credit lines in
excess of $50,000, any consumer installment or construction loans in excess of
$35,000 and any commercial loans in excess of $100,000 (taking into account
existing borrowings but excluding renewals) must be consented to in writing by
Bancshares, who shall respond to any request for such consent within 24 hours of
the request. Furthermore, the Affiliation Agreement provides that UniBank may
not declare, set aside, pay or make any dividend or other distribution or
payment (whether in cash, stock or property) with respect to, or purchase or
redeem, any shares of the capital stock other than (i) regular quarterly cash
dividends in an amount not to exceed the amount paid per share of UniBank Common
Shares for the same quarter during 1996, and (ii) a special year-end cash
dividend in an amount not to exceed the special year-end cash dividend paid in
1996.
In the Affiliation Agreement, UniBank has agreed that it will not,
directly or indirectly, through any of its officers, directors, employees,
agents or advisors or other representatives or consultants, solicit or initiate
or knowingly encourage, including by means of furnishing information, any
proposals or offers from any person (other than Bancshares) 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, UniBank. UniBank has agreed to promptly notify Bancshares,
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. In the event that the UniBank
shareholders fail to approve the Affiliation Agreement and the transactions
contemplated thereby by September 12, 1998 as a result of the decision of
UniBank's Board of Directors to entertain offers from and to negotiate with a
bona fide offeree other than Bancshares, UniBank has agreed to pay Bancshares
$500,000.
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<PAGE> 33
Surrender of Certificates
- -------------------------
A Letter of Transmittal, together with instructions, for use in
surrendering certificates representing UniBank Common Shares ("Old
Certificates") in exchange for Bancshares Common Shares and handling the payment
of cash in lieu of fractional shares of Bancshares Common Shares is enclosed
herewith. Shareholders should send their Old Certificates to Bancshares, as
exchange agent (the "Exchange Agent"), duly endorsed for transfer or accompanied
by a duly endorsed assignment separate from the certificate(s). If the Merger is
consummated, the Old Certificates surrendered will be exchanged for one or more
certificates representing the whole number of Bancshares Common Shares (and
payment of cash in lieu of fractional shares) based on the Exchange Ratio. Until
so surrendered, each outstanding Old Certificate shall be deemed from and after
the Effective Time for all purposes to represent only the right to receive, upon
surrender, one or more certificates for Bancshares Common Stock and cash in lieu
of fractional shares. If the Merger is not consummated, the Exchange Agent will
return any Old Certificates it has received to the persons surrendering such Old
Certificates in accordance with the Letter of Transmittal and instructions.
If any certificates for Bancshares Common Shares are to be issued in a
name(s) other than that in which an Old Certificate surrendered or exchanged is
issued, the Old Certificate so surrendered must be properly endorsed and
otherwise in proper form for transfer. The person requesting the exchange must
affix any requisite stock transfer tax stamps to the Old Certificate
surrendered, provide funds for their purchase, or establish to the satisfaction
of the Exchange Agent that such taxes have been paid or are not applicable.
In the event of a lost certificate, the shareholder shall provide, in
lieu of the lost certificate, an affidavit attesting to the loss of said
certificate and, if required by the Resulting Bank or the Exchange Agent, an
indemnification or bond in such reasonable amount as the Resulting Bank or the
Exchange Agent may direct. Unless and until the Old Certificates, or affidavit
and, if required by the Resulting Bank or the Exchange Agent, an indemnification
or bond in lieu thereof, are presented to the Exchange Agent, the holder thereof
shall not be entitled to receive any consideration to be paid in connection with
the Merger or any dividends payable on Bancshares Common Shares, or to exercise
any rights as a holder of Bancshares Common Shares. On or after the Effective
Time, upon surrender of the Old Certificates, or affidavit and an
indemnification or bond in lieu thereof, to the Exchange Agent, the holder
thereof will be paid the consideration to which the holder is entitled under the
Affiliation Agreement and any dividends which theretofore became payable on any
Bancshares Common Shares to which the holder is entitled. No dividends or other
distributions, if any, payable to the holders of record of Bancshares Common
Shares as of any date subsequent to the Effective Time shall be paid to any
holder of any outstanding Old Certificate until the holder thereof surrenders
such Old Certificate as provided in the Affiliation Agreement. Subject to
applicable law, no holder of an Old Certificate shall be entitled to vote or
exercise any other rights of a holder of Bancshares Common Shares.
After the consummation of the Merger, there will be no transfers on the
stock transfer books of UniBank of any UniBank Common Shares. If, after the
consummation of the Merger, Old Certificates are properly presented to
Bancshares, they will be canceled and exchanged for the consideration specified
in the Affiliation Agreement, subject to applicable law and to the extent that
Bancshares has not paid such consideration to a public official pursuant to
applicable abandoned property laws.
Resale of Bancshares Common Shares
- ----------------------------------
No restrictions on the sale or other transfer of the Bancshares Common
Shares issued pursuant to the Merger will be imposed solely as a result of the
Merger, except for restrictions on the transfer of shares issued to any UniBank
shareholder who may be deemed to be an "affiliate" of UniBank for purposes of
Rule 145 under the 1933 Act. Generally, "affiliates" of UniBank would include
officers,
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<PAGE> 34
directors and significant shareholders of UniBank. The Affiliation Agreement
requires UniBank to cause persons who could be considered to be "affiliates" to
enter into an agreement with Bancshares to the effect that the Bancshares Common
Shares to be acquired by such "affiliates" will not be sold, pledged,
transferred or otherwise disposed of except in compliance with the 1933 Act and
the rules and regulations thereunder. Sales of Bancshares Common Shares by
affiliates of Bancshares are subject to similar transfer restrictions.
Bancshares Common Shares issued to UniBank shareholders who may be
deemed to be affiliates may be resold only (i) in transactions permitted by Rule
145 promulgated under the 1933 Act, (ii) pursuant to an effective registration
statement, or (iii) in transactions exempt from registration. Rule 145, as
currently in effect, imposes restrictions on the manner in which such affiliates
may make resales and also on the quantity of resales that such affiliates, and
others with whom they might act in concert, may make within any three month
period.
Rights of Dissenting Shareholders
- ---------------------------------
Shareholders of UniBank are entitled to certain dissenters' rights
pursuant to Section 1701.85 of the ORC. Sections 1701.85 and 1115.19 generally
provide that shareholders of UniBank will not be entitled to such rights absent
compliance with Section 1701.85 and failure to take any one of the required
steps may result in the termination or waiver of such rights. Specifically, any
UniBank shareholder who is a record holder of UniBank Common Shares on the
Record Date and whose shares are not voted in favor of the Merger may be
entitled to be paid the "fair cash value" of such UniBank Common Shares after
the Effective Time. To be entitled to such payment, a shareholder must deliver a
written demand for payment therefor to UniBank on or before the tenth day
following the Special Meeting and must otherwise comply with Section 1701.85.
Any written demand must specify the shareholder's name and address, the number
and class of shares held by him or her on the Record Date, and the amount
claimed as the "fair cash value" of said UniBank Common Shares. See the text of
Sections 1115.19 and 1701.85 of the ORC attached as Appendix B to this Proxy
Statement/Prospectus for specific information on the procedure to be followed in
exercising dissenters' rights.
If the Resulting Bank so requests, dissenting shareholders must submit
their share certificates to UniBank within fifteen days of such request, for
endorsement thereon by UniBank that demand for appraisal has been made and
failure to comply with such request could terminate the dissenting shareholders
rights. Such certificates will be promptly returned to the dissenting
shareholders by UniBank. If UniBank and any dissenting shareholder cannot agree
upon the "fair cash value" of the UniBank Common Shares, either may, within
three months after service of demand by the shareholder, file a petition in the
Court of Common Pleas of Jefferson County, Ohio (the "Court") for a
determination of the "fair cash value" of said UniBank Common Shares. The Court
may appoint one or more appraisers to determine the "fair cash value" and if the
Court approves the appraisers' report, judgment will be entered therefor, and
the costs of the proceedings, including reasonable compensation of the
appraisers, will be assessed or apportioned as the Court considers equitable.
DESCRIPTION OF BANCSHARES CAPITAL SHARES
----------------------------------------
General
- -------
Bancshares has authorized 12,000,000 Common Shares, without par value,
of which 5,897,540 are issued and outstanding and 2,250 are held in treasury.
Each outstanding Bancshares Common Share is duly authorized, validly issued,
fully paid and nonassessable. The holders of Bancshares Common Shares have one
vote per share on each matter on which shareholders are entitled
-21-
<PAGE> 35
to vote and, in accordance with Ohio law, cumulative voting rights may be
requested in connection with the election of directors. Directors are elected
for staggered, three year terms. Specifically, the Board is divided into three
classes with three to four directors per class and with the members of one class
being elected annually. On liquidation or dissolution of Bancshares, the holders
of Bancshares Common Shares are entitled to share ratably in such assets as
remain after creditors have been paid.
In addition, Bancshares has authorized 200,000 shares of serial
preferred stock ("Serial Shares"), none of which are currently outstanding. The
terms of the Serial Shares are to be established by Bancshares' Board of
Directors; therefore, if Bancshares were to issue Serial Shares in the future,
holders thereof might have preference over the holders of Bancshares Common
Shares in the event of a liquidation or dissolution and may have other rights
which are superior to or in addition to the rights of holders of Bancshares
Common Shares. Serial Shares have a par value of $10.00 per share. Bancshares
Common Shares have no par value. Holders of Bancshares Common Shares have no
preemptive rights, subscription rights or conversion rights.
Bancshares' Board of Directors determines whether to declare dividends
and the amount of any dividends declared. Such determinations by the Board of
Directors take into account Bancshares' financial condition, results of
operations and other relevant factors. While management expects to maintain its
policy of paying regular cash dividends, no assurances can be given that any
dividends will be declared, or, if declared, what the amount of such dividends
will be. See "INFORMATION WITH RESPECT TO BANCSHARES--Market Price of Bancshares
Common Shares."
Bancshares is the transfer agent and registrar for Bancshares Common
Shares.
Description of Control Share Acquisition Provisions
- ---------------------------------------------------
Bancshares' Articles of Incorporation restrict certain acquisitions of
Bancshares Common Shares that meet the definition of a Control Share
Acquisition. A Control Share Acquisition is defined as the acquisition, directly
or indirectly, by any person, of Bancshares Common Shares that, when added to
all other shares of Bancshares in respect of which such person may exercise or
direct the exercise of voting power, would entitle such person, immediately
after such acquisition, directly or indirectly, to exercise or direct the
exercise of the voting power in the election of directors within any of the
following ranges of such voting power:
(a) One-fifth or more but less than one-third of such voting power;
(b) One-third or more but less than a majority of such voting power;
(c) A majority or more of such voting power.
The Articles of Incorporation provide for certain exceptions to this definition,
such as good faith acquisitions not for the purpose of circumventing the
Articles of Incorporation, bequests, inheritances and gifts, pledges or other
security interests created in good faith and not for the purpose of
circumventing the Articles of Incorporation, or pursuant to certain
shareholder-approved mergers, consolidations or majority share acquisitions. If
an acquisition of Bancshares Common Shares qualifies as a Control Share
Acquisition, authorization for such transaction must be obtained at a special
shareholder meeting held in accordance with procedures contained in the Articles
of Incorporation. If these procedures are violated, the person making such
acquisition loses certain shareholder rights.
-22-
<PAGE> 36
Procedures
In order to obtain authorization for a Control Share Acquisition, the
person proposing to make such acquisition must deliver a notice to Bancshares
(the "Notice") including the following information:
(a) The identity of the person who is giving the Notice;
(b) A statement that the Notice is given pursuant to the
Articles of Incorporation;
(c) The number and class of shares of Bancshares owned,
directly or indirectly, by the person who gives the Notice;
(d) The range of voting power under which the proposed Control
Share Acquisition would, if consummated, fall;
(e) A description in reasonable detail of the terms of the
proposed Control Share Acquisition; and
(f) Reasonable evidence that the proposed Control Share
Acquisition, if consummated, would not be contrary to law and that the
person who is giving the Notice has the financial capacity to make the
proposed Control Share Acquisition.
Within ten days of receiving the Notice, the Board of Directors must call a
special meeting of shareholders to be held not later than 50 days after receipt
of the Notice. The purpose of the special meeting of shareholders is to consider
the proposed Control Share Acquisition; provided, that the Board of Directors
shall have no obligation to call such meeting if they make a determination
within ten days after receipt of the Notice (i) that the Notice was not given in
good faith, (ii) that the proposed Control Share Acquisition would not be in the
best interests of Bancshares and its shareholders or (iii) that the proposed
Control Share Acquisition could not be consummated for financial or legal
reasons.
Requirements for Approval
The person who delivered the Notice may make the proposed Control Share
Acquisition if both of the following occur: (i) the shareholders authorize such
acquisition at the special meeting called by the Board of Directors for that
purpose, at which a quorum is present, by an affirmative vote of a majority of
the shares entitled to vote in the election of directors ("Voting Shares")
represented at such meeting in person or by proxy and by a majority of the
portion of such Voting Shares represented at such meeting in person or by proxy
excluding the votes of "Interested Shares"; and (ii) such acquisition is
consummated, in accordance with the terms so authorized, not later than 360 days
following shareholder authorization of the Control Share Acquisition.
"Interested Shares" are Voting Shares with respect to which any of the following
persons may exercise or direct the exercise of the voting power:
(a) any person whose Notice prompted the calling of the
meeting of shareholders;
(b) any officer of Bancshares elected or appointed by the
directors of Bancshares; and
(c) any employee of Bancshares who is also a director of
Bancshares.
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<PAGE> 37
Violation of Restriction
Bancshares Common Shares issued or transferred to any person in
violation of this restriction are valid only with respect to such amount of
shares as does not result in a violation of the Articles of Incorporation, and
such issuance or transfer is null and void with respect to the remainder of such
shares. Any such remainder of shares are called "Excess Shares." Excess Shares
are not entitled to any voting rights, are not considered to be outstanding for
quorum or voting purposes, and are not entitled to receive dividends, interest
or any other distribution with respect to the Excess Shares. Any person who
receives dividends, interest or any other distribution in respect to Excess
Shares holds the distribution as agent for Bancshares and, following a permitted
transfer, for the transferee. Any holder of Excess Shares may transfer the
Excess Shares (together with any distributions thereon) to any person who,
following such transfer, would not own shares in violation of the Articles of
Incorporation. Upon a permitted transfer, Bancshares will pay or distribute to
the transferee any distributions on the Excess Shares not previously paid or
distributed.
COMPARATIVE RIGHTS OF UNIBANK SHAREHOLDERS
------------------------------------------
As a consequence of the Merger, shareholders of UniBank will become
shareholders of Bancshares. The following is a summary of certain similarities
and all material differences between the rights of holders of UniBank Common
Shares and the rights of holders of Bancshares Common Shares. As UniBank is a
bank and Bancshares is a corporation, both organized under the laws of Ohio,
these differences arise from various provisions of the Articles of Incorporation
and Code of Regulations of each of UniBank and Bancshares.
The following summary does not purport to be a complete statement of
the rights of shareholders under the UniBank Articles of Incorporation ("UniBank
Articles") and the Code of Regulations of UniBank as compared with the rights of
Bancshares shareholders under the Bancshares Articles of Incorporation
("Bancshares Articles") and the Bancshares Codes of Regulations, or a complete
description of the specific provisions referred to herein. The summary is
qualified in its entirety by reference to the governing corporate instruments,
including the aforementioned instruments, of UniBank and Bancshares.
Voting
- ------
Holders of both UniBank Common Shares and Bancshares Common Shares are
entitled to one vote per share. Pursuant to the UniBank Code of Regulations,
however, holders of UniBank Common Shares are not entitled to cumulative voting
for directors, whereas holders of Bancshares Common Shares are entitled to
cumulative voting for directors. Moreover, pursuant to the UniBank Code of
Regulations, the affirmative vote of the holders of record of sixty (60%)
percent of the issued and outstanding UniBank Common Shares in attendance or
represented at any meeting at which a quorum is present is required for
mergers, consolidations and the disposition of all or substantially all of
UniBank's assets, and all other UniBank shareholder acts. According to the
Bancshares Articles, however, the affirmative vote of two thirds of the shares
entitled to vote is required for mergers, consolidations and the disposition of
all or substantially all of Bancshares' assets. The Bancshares Articles also
provide for special voting procedures in the event of a Control Share
Acquisition. See "DESCRIPTION OF BANCSHARES CAPITAL STOCK -- Description of
Control Share Acquisition Provisions."
-24-
<PAGE> 38
Preemptive Rights
- -----------------
Holders of UniBank Common Shares have preemptive rights to purchase
UniBank Common Shares to be issued by UniBank. The Bancshares Articles have
eliminated preemptive rights for holders of Bancshares Common Shares.
Directors
- ---------
The UniBank Code of Regulations provides for no fewer than nine (9) or
more than fifteen (15) directors, all of the same class. The Bancshares Code of
Regulations provides for no fewer than nine (9) or more than eleven (11)
directors who are elected for staggered three year terms.
Authorized Shares
- -----------------
The UniBank Articles provide for 75,000 shares of common stock with a
par value of ten dollars ($10.00) per share. The Bancshares Articles provide for
12,000,000 shares of common stock, without par value, and 200,000 shares of
serial preferred stock, with a par value of ten dollars ($10.00) per share. The
rights of the holders of the serial preferred stock when issued could be
superior to the rights of the holders of the Bancshares Common Shares.
Shareholder Meetings
- --------------------
A special meeting of the UniBank shareholders can be called by the
UniBank Board of Directors or by the Chairman or President of the bank. A
special meeting may also be called at the written request of holders of record
of not less than forty percent (40%) of the UniBank Common Shares. A special
meeting of the Bancshares shareholders can be called by the Bancshares Board of
Directors, the Chairman of the Board, the President, a vice president or by
shareholders owning fifty percent (50%) or more of the Bancshares Common Shares.
The UniBank Code of Regulations contain no provisions for shareholder
proposals. Bancshares Code of Regulations require a shareholder to notify
Bancshares of any proposal at least sixty (60) days prior to the shareholders
meeting. Such notice must include a brief description of the proposal, an
explanation for why it is being proposed, and the name, share ownership and
material interest of the shareholder in the proposal, if any.
PRO FORMA FINANCIAL INFORMATION
-------------------------------
Citizens Bancshares and UniBank
- -------------------------------
The following unaudited pro forma condensed consolidated balance sheet
as of September 30, 1997 and the unaudited pro forma condensed consolidated
statements of income for the nine months ended September 30, 1997 and 1996, and
for the years ended December 31, 1996, 1995 and 1994 have been prepared to
reflect Bancshares' acquisition of UniBank as if the acquisition had occurred on
September 30, 1997 with respect to the balance sheet and as of January 1, 1994
with respect to the income statements, in each case giving effect to the pro
forma adjustments described in the accompanying notes. The pro forma adjustments
are based on estimates made for the purpose of preparing these pro forma
financial statements. The actual adjustments to the accounts of Bancshares will
be made based on the underlying historical financial data at the time of the
transaction. Bancshares' management believes that the estimates used in these
pro forma financial statements are reasonable under the circumstances.
The pro forma condensed consolidated financial information has been
prepared based on the "pooling of interests" method of accounting assuming
945,056 Bancshares Common Shares will be
-25-
<PAGE> 39
issued and that no UniBank shareholders will dissent with respect to the Merger.
This information will vary if any UniBank shareholders dissent or if the total
value of Bancshares Common Shares to be issued for a UniBank Common Share plus
cash in lieu of fractional shares is less than 2.7 times the book value of a
UniBank Common Share at December 31, 1997. For a discussion of the pooling of
interests method of accounting, see "PROPOSED Merger--Accounting Treatment" and
"Other Provisions of the Affiliation Agreement."
The unaudited pro forma condensed consolidated balance sheet as of
September 30, 1997 is not necessarily indicative of the combined financial
position had the Merger been effective at that date. The unaudited pro forma
condensed consolidated statements of income are not necessarily indicative of
the results of operations that would have occurred had the Merger been effective
at the beginning of the periods indicated, or of the future results of
operations of Bancshares. These pro forma financial statements should be read in
conjunction with the historical financial statements and the related notes
incorporated elsewhere in this Proxy Statement/Prospectus. See also "Pro Forma
Financial Information - Citizens Bancshares, Inc., UniBank and Century Financial
Corporation."
No adjustments to the pro forma financial statements were necessary to
conform accounting methods as contemplated by Accounting Principles Board
Opinion No. 16.
-26-
<PAGE> 40
CITIZENS BANCSHARES, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
(Dollars in thousands, except per share data) (Unaudited)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
BANCSHARES UNIBANK ADJUSTMENTS COMBINED
---------- ------- ----------- --------
<S> <C> <C> <C> <C>
ASSETS
Cash and non-interest bearing balances
with banks $ 30,090 $ 8,721 $ - $ 38,811
Federal funds sold 1,170 2,450 - 3,620
----------- ----------- ---------- -----------
Total cash and cash equivalents 31,260 11,171 - 42,431
Interest-bearing deposits with financial institutions 223 2,823 - 3,046
Securities held to maturity 50,595 40,562 - 91,157
Securities available for sale 301,365 33,968 (1,127)B 334,206
Total loans 625,965 123,497 - 749,462
Less allowance for loan losses (11,961) (909) - (12,870)
----------- ----------- ---------- -----------
Net loans 614,004 122,588 - 736,592
Premises and equipment, net 15,255 3,354 - 18,609
Accrued interest receivable and other assets 37,257 5,611 - 42,868
----------- ----------- ---------- -----------
Total assets $ 1,049,959 $ 220,077 $ (1,127) $ 1,268,909
=========== =========== ========== ===========
LIABILITIES
Deposits $ 729,750 $ 196,317 $ - $ 926,067
Federal funds and repurchase agreements 78,492 4,568 - 83,060
Federal Home Loan Bank advances 129,530 - - 129,530
Accrued interest payable and other liabilities 11,639 795 - 12,434
----------- ----------- ---------- -----------
Total liabilities 949,411 201,680 - 1,151,091
----------- ----------- ---------- -----------
MINORITY INTEREST IN SUBSIDIARY 627 - - 627
SHAREHOLDERS' EQUITY
Serial preferred stock - - - -
Common stock 16,514 750 6,750A 24,014
Additional paid-in capital - 6,750 (6,750)A -
Retained earnings 80,923 10,943 - 91,866
Less treasury stock (5) - (1,127)B (1,132)
ESOP obligations and unearned shares (350) - - (350)
Unrealized gain (loss) on securities available for sale 2,839 (46) - 2,793
----------- ----------- ---------- -----------
Total shareholders' equity 99,921 18,397 (1,127) 117,191
----------- ----------- ---------- -----------
Total liabilities and shareholders' equity $ 1,049,959 $ 220,077 $ (1,127) $ 1,268,909
=========== =========== ========== ===========
<FN>
(A) Issuance of 993,750 Bancshares Common Shares in exchange for 75,000
UniBank Common Shares, 945,056 to non-affiliates and 48,694 as treasury
shares (see Note B).
(B) To reflect as 48,694 treasury shares the 3,675 UniBank common shares owned
by Bancshares as of September 30, 1997.
</TABLE>
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<PAGE> 41
CITIZENS BANCSHARES, INC.
PRO FORMA CONSOLIDATED INCOME STATEMENT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(Dollars in thousands, except per share data) (Unaudited)
<TABLE>
<CAPTION>
PRO FORMA
BANCSHARES UNIBANK COMBINED
---------- ------- --------
<S> <C> <C> <C>
INTEREST INCOME
Loans, including fees $ 44,116 $ 7,317 $ 51,433
Investment and mortgage backed securities
Taxable 15,631 2,934 18,565
Non-taxable 828 19 847
Federal funds sold and other 60 785 845
----------- ----------- -----------
Total interest income 60,635 11,055 71,690
----------- ----------- -----------
INTEREST EXPENSE
Deposits 20,880 4,709 25,589
Federal funds and repurchase agreements 4,597 144 4,741
Federal Home Loan Bank advances and other 3,420 - 3,420
----------- ----------- -----------
Total interest expense 28,897 4,853 33,750
----------- ----------- -----------
NET INTEREST INCOME 31,738 6,202 37,940
PROVISION FOR LOAN LOSSES 1,232 25 1,257
----------- ----------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 30,506 6,177 36,683
----------- ----------- -----------
OTHER INCOME
Service charges and fee on deposits 1,877 376 2,253
Investment securities gains (losses) - (2) (2)
Other income 3,134 295 3,429
----------- ----------- -----------
Total other income 5,011 669 5,680
----------- ----------- -----------
OTHER EXPENSE
Salaries and employee benefits 8,787 2,118 10,905
Occupancy and equipment expense 2,630 570 3,200
Merger, integration and restructuring expense 200 - 200
Other operating expense 4,863 1,637 6,500
----------- ----------- -----------
Total other expense 16,480 4,325 20,805
----------- ----------- -----------
INCOME BEFORE INCOME TAXES 19,037 2,521 21,558
INCOME TAXES 6,154 790 6,944
----------- ----------- -----------
NET INCOME $ 12,883 $ 1,731 $ 14,614
=========== =========== ===========
EARNINGS PER COMMON SHARE $ 2.18 $ 23.08 $ 2.14
=========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 5,897,540 75,000 6,842,596
=========== =========== ===========
</TABLE>
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<PAGE> 42
CITIZENS BANCSHARES, INC.
PRO FORMA CONSOLIDATED INCOME STATEMENT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(Dollars in thousands, except per share data) (Unaudited)
<TABLE>
<CAPTION>
PRO FORMA
BANCSHARES UNIBANK COMBINED
---------- ------- --------
<S> <C> <C> <C>
INTEREST INCOME
Loans, including fees $ 42,756 $ 6,280 $ 49,036
Investment and mortgage backed securities
Taxable 11,325 2,132 13,457
Non-taxable 891 10 901
Federal funds sold and other 341 1,064 1,405
----------- ----------- -----------
Total interest income 55,313 9,486 64,799
----------- ----------- -----------
INTEREST EXPENSE
Deposits 20,054 3,916 23,970
Federal funds and repurchase agreements 1,297 163 1,460
Federal Home Loan Bank advances and other 2,198 - 2,198
----------- ----------- -----------
Total interest expense 23,549 4,079 27,628
----------- ----------- -----------
NET INTEREST INCOME 31,764 5,407 37,171
PROVISION FOR LOAN LOSSES 1,244 40 1,284
----------- ----------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 30,520 5,367 35,887
----------- ----------- -----------
OTHER INCOME
Service charges and fee on deposits 1,644 339 1,983
Investment securities gains (losses) (15) - (15)
Other income 1,808 280 2,088
----------- ----------- -----------
Total other income 3,437 619 4,056
----------- ----------- -----------
OTHER EXPENSE
Salaries and employee benefits 8,184 2,082 10,266
Occupancy and equipment expense 2,762 449 3,211
Merger, integration and restructuring expense 463 - 463
Other operating expense 6,294 1,326 7,620
----------- ----------- -----------
Total other expense 17,703 3,857 21,560
----------- ----------- -----------
INCOME BEFORE INCOME TAXES 16,254 2,129 18,383
INCOME TAXES 5,305 663 5,968
----------- ----------- -----------
NET INCOME $ 10,949 $ 1,466 $ 12,415
=========== =========== ===========
EARNINGS PER COMMON SHARE $ 1.85 $ 19.55 $ 1.81
=========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 5,897,540 75,000 6,871,208
=========== =========== ===========
</TABLE>
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<PAGE> 43
CITIZENS BANCSHARES, INC.
PRO FORMA CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1996
(Dollars in thousands, except per share data) (Unaudited)
<TABLE>
<CAPTION>
PRO FORMA
BANCSHARES UNIBANK COMBINED
---------- ------- --------
<S> <C> <C> <C>
INTEREST INCOME
Loans, including fees $ 57,166 $ 8,557 $ 65,723
Investment and mortgage backed securities
Taxable 15,826 2,831 18,657
Non-taxable 1,173 16 1,189
Federal funds sold and other 391 1,458 1,849
----------- ----------- -----------
Total interest income 74,556 12,862 87,418
----------- ----------- -----------
INTEREST EXPENSE
Deposits 26,810 5,294 32,104
Federal funds and repurchase agreements 2,295 234 2,529
Federal Home Loan Bank advances and other 2,918 - 2,918
----------- ----------- -----------
Total interest expense 32,023 5,528 37,551
----------- ----------- -----------
NET INTEREST INCOME 42,533 7,334 49,867
PROVISION FOR LOAN LOSSES 1,614 40 1,654
----------- ----------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 40,919 7,294 48,213
----------- ----------- -----------
OTHER INCOME
Service charges and fee on deposits 2,239 545 2,784
Investment securities gains (losses) (22) - (22)
Other income 2,609 648 3,257
----------- ----------- -----------
Total other income 4,826 1,193 6,019
----------- ----------- -----------
OTHER EXPENSE
Salaries and employee benefits 11,029 2,775 13,804
Occupancy and equipment expense 3,660 627 4,287
Merger, integration and restructuring expense 838 - 838
Other operating expense 8,201 1,994 10,195
----------- ----------- -----------
Total other expense 23,728 5,396 29,124
----------- ----------- -----------
INCOME BEFORE INCOME TAXES 22,017 3,091 25,108
INCOME TAXES 7,311 973 8,284
----------- ----------- -----------
NET INCOME $ 14,706 $ 2,118 $ 16,824
=========== =========== ===========
EARNINGS PER COMMON SHARE $ 2.49 $ 28.24 $ 2.45
=========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 5,897,540 75,000 6,864,016
=========== =========== ===========
</TABLE>
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<PAGE> 44
CITIZENS BANCSHARES, INC.
PRO FORMA CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1995
(Dollars in thousands, except per share data) (Unaudited)
<TABLE>
<CAPTION>
PRO FORMA
BANCSHARES UNIBANK COMBINED
---------- ------- --------
<S> <C> <C> <C>
INTEREST INCOME
Loans, including fees $ 53,164 $ 8,157 $ 61,321
Investment and mortgage backed securities
Taxable 15,896 3,290 19,186
Non-taxable 1,090 54 1,144
Federal funds sold and other 674 781 1,455
---------- ---------- ----------
Total interest income 70,824 12,282 83,106
---------- ---------- ----------
INTEREST EXPENSE
Deposits 25,519 4,660 30,179
Federal funds and repurchase agreements 1,726 154 1,880
Federal Home Loan Bank advances and other 3,939 - 3,939
---------- ---------- ----------
Total interest expense 31,184 4,814 35,998
---------- ---------- ----------
NET INTEREST INCOME 39,640 7,468 47,108
PROVISION FOR LOAN LOSSES 2,024 240 2,264
---------- ---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 37,616 7,228 44,844
---------- ---------- ----------
OTHER INCOME
Service charges and fee on deposits 2,026 455 2,481
Investment securities gains (losses) 67 (155)
Other income 2,400 164 2,564
---------- ---------- ----------
Total other income 4,493 464 4,957
---------- ---------- ----------
OTHER EXPENSE
Salaries and employee benefits 11,076 2,518 13,594
Occupancy and equipment expense 3,438 595 4,033
Merger, integration and restructuring expense 711 - 711
Other operating expense 8,354 1,740 10,094
---------- ---------- ----------
Total other expense 23,579 4,853 28,432
---------- ---------- ----------
INCOME BEFORE INCOME TAXES 18,530 2,839 21,369
INCOME TAXES 5,967 876 6,843
---------- ---------- ----------
NET INCOME $ 12,563 $ 1,963 $ 14,526
========== ========== ----------
EARNINGS PER COMMON SHARE $ 2.13 $ 26.18 $ 2.11
========== ========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING 5,897,540 75,000 6,891,290
========== ========== ==========
</TABLE>
-31-
<PAGE> 45
CITIZENS BANCSHARES, INC.
PRO FORMA CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1994
(Dollars in thousands, except per share data) (Unaudited)
<TABLE>
<CAPTION>
PRO FORMA
BANCSHARES UNIBANK COMBINED
<S> <C> <C> <C>
INTEREST INCOME
Loans, including fees $ 47,852 $ 6,866 $ 54,718
Investment and mortgage backed securities
Taxable 15,324 3,448 18,772
Non-taxable 1,107 134 1,241
Federal funds sold and other 365 550 915
----------- ----------- -----------
Total interest income 64,648 10,998 75,646
----------- ----------- -----------
INTEREST EXPENSE
Deposits 22,083 4,019 26,102
Federal funds and repurchase agreements 1,242 92 1,334
Federal Home Loan Bank advances and other 3,095 - 3,095
----------- ----------- -----------
Total interest expense 26,420 4,111 30,531
----------- ----------- -----------
NET INTEREST INCOME 38,228 6,887 45,115
PROVISION FOR LOAN LOSSES 2,365 260 2,625
----------- ----------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 35,863 6,627 42,490
----------- ----------- -----------
OTHER INCOME
Service charges and fee on deposits 2,002 403 2,405
Investment securities gains (losses) (222) 155 (67)
Other income 1,907 200 2,107
----------- ----------- -----------
Total other income 3,687 758 4,445
----------- ----------- -----------
OTHER EXPENSE
Salaries and employee benefits 11,005 2,292 13,297
Occupancy and equipment expense 3,436 668 4,104
Merger, integration and restructuring expense 514 - 514
Other operating expense 9,266 1,863 11,129
----------- ----------- -----------
Total other expense 24,221 4,823 29,044
----------- ----------- -----------
INCOME BEFORE INCOME TAXES 15,329 2,562 17,891
INCOME TAXES 4,827 799 5,626
----------- ----------- -----------
NET INCOME $ 10,502 $ 1,763 $ 12,265
=========== =========== ===========
EARNINGS PER COMMON SHARE $ 1.78 $ 23.51 $ 1.78
=========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 5,897,540 75,000 6,891,290
=========== =========== ===========
</TABLE>
-32-
<PAGE> 46
Citizens Bancshares, Inc., UniBank and Century Financial Corporation
- --------------------------------------------------------------------
On December 3, 1997, Bancshares entered into an Agreement and Plan of
Merger with Century Financial Corporation ("Century"), which Agreement calls
for the affiliation of Century and Bancshares. The affiliation will be effected
by means of a merger of Century with and into Bancshares, in which each
outstanding share of Century Common Stock will be converted into 0.425 shares
of Bancshares Common Shares, in a tax free exchange, subject to certain
adjustments based on the then current closing price of Bancshares Common Shares
on the NASDAQ National Market System. The following pro forma information is
presented because Bancshares believes it is probable the transaction with
Century will occur. See "Information with Respect to Bancshares - Business" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations for the Quarter Ended September 30, 1997 -- Recent Developments" for
a more detailed description of Bancshares' pending acquisition of Century,
which is expected to be consummated on or about June 30, 1998.
The following unaudited pro forma condensed consolidated balance sheet
as of September 30, 1997 and the unaudited pro forma condensed consolidated
statements of income for the nine months ended September 30, 1997 and 1996, and
for the years ended December 31, 1996, 1995 and 1994 have been prepared to
reflect Bancshares' potential acquisition of UniBank and Century Financial
Corporation as if the acquisitions had occurred on September 30, 1997 with
respect to the balance sheet and as of January 1, 1994 with respect to the
income statements, in each case giving effect to the pro forma adjustments
described in the accompanying notes. The pro forma adjustments are based on
estimates made for the purpose of preparing these pro forma financial
statements. The actual adjustments to the accounts of Bancshares will be made
based on the underlying historical financial data at the time of the
transactions. Bancshares' management believes that the estimates used in these
pro forma financial statements are reasonable under the circumstances.
The pro forma condensed consolidated financial information has been
prepared based on the "pooling of interests" method of accounting. It has been
assumed that, in the UniBank transaction, 945,056 Bancshares Common Shares will
be issued and that no UniBank shareholders will dissent with respect to the
Merger. This information will vary if any UniBank shareholders dissent or if the
total value of Bancshares Common Shares to be issued for a UniBank Common Share
plus cash in lieu of fractional shares is less than 2.7 times the book value of
a UniBank Common Share at December 31, 1997. For a discussion of the pooling of
interests method of accounting, see "PROPOSED Merger--Accounting Treatment" and
"Other Provisions of the Affiliation Agreement." It has also been assumed that,
in the Century transaction, 2,234,934 Bancshares Common Shares will be issued
(including in connection with the exercise of outstanding options to purchase
Century Common Shares) and that no Century shareholders will dissent. This
information will vary if any Century shareholders dissent or if the Average NMS
Closing Price (as defined in the Agreement and Plan of Merger between Bancshares
and Century) is greater than $67.50 or less than $56.50.
The unaudited pro forma condensed consolidated balance sheet as of
September 30, 1997 is not necessarily indicative of the combined financial
position had the acquisitions been effective at that date. The unaudited pro
forma condensed consolidated statements of income are not necessarily indicative
of the results of operations that would have occurred had the acquisitions been
effective at the beginning of the periods indicated, or of the future results of
operations of Bancshares. These pro forma financial statements should be read in
conjunction with the historical financial statements and the related notes
incorporated elsewhere in this Proxy Statement/Prospectus.
No adjustments to the pro forma financial statements were necessary to
conform accounting methods as contemplated by Accounting Principles Board
Opinion No. 16.
-33-
<PAGE> 47
CITIZENS BANCSHARES, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET - UNIBANK AND CENTURY
SEPTEMBER 30, 1997
(Dollars in thousands, except per share data) (Unaudited)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
BANCSHARES UNIBANK CENTURY ADJUSTMENTS COMBINED
----------- ----------- ----------- ----------- -----------
ASSETS
<S> <C> <C> <C> <C> <C>
Cash and non-interest bearing balances
with banks $ 30,090 $ 8,721 $ 11,713 $ - $ 50,524
Federal funds sold 1,170 2,450 7,745 - 11,365
----------- ----------- ----------- ----------- -----------
Total cash and cash equivalents 31,260 11,171 19,458 - 61,889
Interest-bearing deposits with financial institutions 223 2,823 - - 3,046
Investment securities held to maturity 50,595 40,562 - - 91,157
Investment securities available for sale 301,365 33,968 71,477 (1,127)B 405,683
Total loans 625,965 123,497 354,903 - 1,104,365
Less allowance for loan losses (11,961) (909) (3,436) - (16,306)
----------- ----------- ----------- ----------- -----------
Net loans 614,004 122,588 351,467 - 1,088,059
Premises and equipment, net 15,255 3,354 11,170 - 29,779
Accrued interest receivable and other assets 37,257 5,611 5,116 - 47,984
----------- ----------- ----------- ----------- -----------
Total assets $ 1,049,959 $ 220,077 $ 458,688 $ (1,127) $ 1,727,597
=========== =========== =========== =========== ===========
LIABILITIES
Deposits $ 729,750 $ 196,317 $ 392,581 $ - $ 1,318,648
Federal funds and repurchase agreements 78,492 4,568 4,000 - 87,060
Federal Home Loan Bank advances 129,530 - 20,000 - 149,530
Accrued interest payable and other liabilities 11,639 795 5,428 - 17,862
----------- ----------- ----------- ----------- -----------
Total liabilities 949,411 201,680 422,009 - 1,573,100
----------- ----------- ----------- ----------- -----------
MINORITY INTEREST IN SUBSIDIARY 627 - - - 627
SHAREHOLDERS' EQUITY
Serial preferred stock - - - - -
Common stock 16,514 750 4,266 9,814 A 31,344
Additional paid-in capital - 6,750 3,064 (9,814)A -
Retained earnings 80,923 10,943 29,256 - 121,122
Less treasury stock (5) - (447) (1,127)B (1,579)
ESOP obligations and unearned shares (350) - - - (350)
Unrealized gain (loss) on securities available for sale 2,839 (46) 540 - 3,333
----------- ----------- ----------- ----------- -----------
Total shareholders' equity 99,921 18,397 36,679 (1,127) 153,870
----------- ----------- ----------- ----------- -----------
Total liabilities and shareholders' equity $ 1,049,959 $ 220,077 $ 458,688 $ (1,127) $ 1,727,597
=========== =========== =========== =========== ===========
<FN>
(A) Issuance of 993,750 Bancshares Common Shares in exchange for 75,000
UniBank Common Shares, 945,056 to non-affiliates and 48,694 as treasury
shares (see Note B); and issuance of 2,234,934 Bancshares Common Shares;
2,156,756 in exchange for 5,074,720 Century Common Shares outstanding and
78,178 for Century stock options outstanding to purchase Century Common
Shares.
(B) To reflect as 48,694 treasury shares the 3,675 UniBank common shares owned
by Bancshares as of September 30, 1997.
</TABLE>
-34-
<PAGE> 48
CITIZENS BANCSHARES, INC.
PRO FORMA CONSOLIDATED INCOME STATEMENT - UNIBANK AND CENTURY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(Dollars in thousands, except per share data) (Unaudited)
<TABLE>
<CAPTION>
PRO FORMA
BANCSHARES UNIBANK CENTURY COMBINED
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees $ 44,116 $ 7,317 $ 21,813 $ 73,246
Investment and mortgage backed securities
Taxable 15,631 2,934 2,897 21,462
Non-taxable 828 19 483 1,330
Federal funds sold and other 60 785 342 1,187
----------- ----------- ----------- -----------
Total interest income 60,635 11,055 25,535 97,225
----------- ----------- ----------- -----------
INTEREST EXPENSE
Deposits 20,880 4,709 11,924 37,513
Federal funds and repurchase agreements 4,597 144 348 5,089
Federal Home Loan Bank advances and other 3,420 - 279 3,699
----------- ----------- ----------- -----------
Total interest expense 28,897 4,853 12,551 46,301
----------- ----------- ----------- -----------
NET INTEREST INCOME 31,738 6,202 12,984 50,924
PROVISION FOR LOAN LOSSES 1,232 25 630 1,887
----------- ----------- ----------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 30,506 6,177 12,354 49,037
----------- ----------- ----------- -----------
OTHER INCOME
Service charges and fee on deposits 1,877 376 1,089 3,342
Investment securities gains (losses) - (2) - (2)
Other income 3,134 295 1,215 4,644
----------- ----------- ----------- -----------
Total other income 5,011 669 2,304 7,984
----------- ----------- ----------- -----------
OTHER EXPENSE
Salaries and employee benefits 8,787 2,118 5,199 16,104
Occupancy and equipment expense 2,630 570 1,609 4,809
Merger, integration and restructuring expense 200 - - 200
Other operating expense 4,863 1,637 2,749 9,249
----------- ----------- ----------- -----------
Total other expense 16,480 4,325 9,557 30,362
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 19,037 2,521 5,101 26,659
INCOME TAXES 6,154 790 1,040 7,984
----------- ----------- ----------- -----------
NET INCOME $ 12,883 $ 1,731 $ 4,061 $ 18,675
=========== =========== =========== ===========
EARNINGS PER COMMON SHARE $ 2.18 $ 23.08 $ 0.80 $ 2.06
=========== =========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 5,897,540 75,000 5,060,246 9,071,379
=========== =========== =========== ===========
</TABLE>
-35-
<PAGE> 49
CITIZENS BANCSHARES, INC.
PRO FORMA CONSOLIDATED INCOME STATEMENT - UNIBANK AND CENTURY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(Dollars in thousands, except per share data) (Unaudited)
<TABLE>
<CAPTION>
PRO FORMA
BANCSHARES UNIBANK CENTURY COMBINED
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees $ 42,756 $ 6,280 $ 18,234 $ 67,270
Investment and mortgage backed securities
Taxable 11,325 2,132 3,736 17,193
Non-taxable 891 10 518 1,419
Federal funds sold and other 341 1,064 111 1,516
----------- ----------- ----------- -----------
Total interest income 55,313 9,486 22,599 87,398
----------- ----------- ----------- -----------
INTEREST EXPENSE
Deposits 20,054 3,916 9,516 33,486
Federal funds and repurchase agreements 1,297 163 431 1,891
Federal Home Loan Bank advances and other 2,198 - 162 2,360
----------- ----------- ----------- -----------
Total interest expense 23,549 4,079 10,109 37,737
----------- ----------- ----------- -----------
NET INTEREST INCOME 31,764 5,407 12,490 49,661
PROVISION FOR LOAN LOSSES 1,244 40 415 1,699
----------- ----------- ----------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 30,520 5,367 12,075 47,962
----------- ----------- ----------- -----------
OTHER INCOME
Service charges and fee on deposits 1,644 339 1,077 3,060
Investment securities gains (losses) (15) - 1 (14)
Other income 1,808 280 899 2,987
----------- ----------- ----------- -----------
Total other income 3,437 619 1,977 6,033
----------- ----------- ----------- -----------
OTHER EXPENSE
Salaries and employee benefits 8,184 2,082 4,989 15,255
Occupancy and equipment expense 2,762 449 1,539 4,750
Merger, integration and restructuring expense 463 - - 463
Other operating expense 6,294 1,326 2,916 10,536
----------- ----------- ----------- -----------
Total other expense 17,703 3,857 9,444 31,004
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 16,254 2,129 4,608 22,991
INCOME TAXES 5,305 663 1,005 6,973
----------- ----------- ----------- -----------
NET INCOME $ 10,949 $ 1,466 $ 3,603 $ 16,018
=========== =========== =========== ===========
EARNINGS PER COMMON SHARE $ 1.86 $ 19.55 $ 0.71 $ 1.76
=========== =========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 5,897,540 75,000 5,057,609 9,098,870
=========== =========== =========== ===========
</TABLE>
-36-
<PAGE> 50
CITIZENS BANCSHARES, INC.
PRO FORMA CONSOLIDATED INCOME STATEMENT - UNIBANK AND CENTURY
FOR THE YEAR ENDED DECEMBER 31, 1996
(Dollars in thousands, except per share data) (Unaudited)
<TABLE>
<CAPTION>
PRO FORMA
BANCSHARES UNIBANK CENTURY COMBINED
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees $ 57,166 $ 8,557 $ 24,933 $ 90,656
Investment and mortgage backed securities
Taxable 15,826 2,831 4,785 23,442
Non-taxable 1,173 16 681 1,870
Federal funds sold and other 391 1,458 165 2,014
----------- ----------- ----------- -----------
Total interest income 74,556 12,862 30,564 117,982
----------- ----------- ----------- -----------
INTEREST EXPENSE
Deposits 26,810 5,294 13,054 45,158
Federal funds and repurchase agreements 2,295 234 494 3,023
Federal Home Loan Bank advances and other 2,918 - 318 3,236
----------- ----------- ----------- -----------
Total interest expense 32,023 5,528 13,866 51,417
----------- ----------- ----------- -----------
NET INTEREST INCOME 42,533 7,334 16,698 66,565
PROVISION FOR LOAN LOSSES 1,614 40 625 2,279
----------- ----------- ----------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 40,919 7,294 16,073 64,286
----------- ----------- ----------- -----------
OTHER INCOME
Service charges and fee on deposits 2,239 545 1,448 4,232
Investment securities gains (losses) (22) - 1 (21)
Other income 2,609 648 1,267 4,524
----------- ----------- ----------- -----------
Total other income 4,826 1,193 2,716 8,735
----------- ----------- ----------- -----------
OTHER EXPENSE
Salaries and employee benefits 11,029 2,775 6,708 20,512
Occupancy and equipment expense 3,660 627 2,090 6,377
Merger, integration and restructuring expense 838 - - 838
Other operating expense 8,201 1,994 3,815 14,010
----------- ----------- ----------- -----------
Total other expense 23,728 5,396 12,613 41,737
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 22,017 3,091 6,176 31,284
INCOME TAXES 7,311 973 1,270 9,554
----------- ----------- ----------- -----------
NET INCOME $ 14,706 $ 2,118 $ 4,906 $ 21,730
=========== =========== =========== ===========
EARNINGS PER COMMON SHARE $ 2.49 $ 28.24 $ 0.97 $ 2.39
=========== =========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 5,897,540 75,000 5,054,070 9,090,174
=========== =========== =========== ===========
</TABLE>
-37-
<PAGE> 51
CITIZENS BANCSHARES, INC.
PRO FORMA CONSOLIDATED INCOME STATEMENT - UNIBANK AND CENTURY
FOR THE YEAR ENDED DECEMBER 31, 1995
(Dollars in thousands, except per share data) (Unaudited)
<TABLE>
<CAPTION>
PRO FORMA
BANCSHARES UNIBANK CENTURY COMBINED
---------- ---------- ---------- ----------
INTEREST INCOME
<S> <C> <C> <C> <C>
Loans, including fees $ 53,164 $ 8,157 $ 21,806 $ 83,127
Investment and mortgage backed securities
Taxable 15,896 3,290 5,012 24,198
Non-taxable 1,090 54 633 1,777
Federal funds sold and other 674 781 234 1,689
---------- ---------- ---------- ----------
Total interest income 70,824 12,282 27,685 110,791
---------- ---------- ---------- ----------
INTEREST EXPENSE
Deposits 25,519 4,660 12,234 42,413
Federal funds and repurchase agreements 1,726 154 148 2,028
Federal Home Loan Bank advances and other 3,939 - 243 4,182
---------- ---------- ---------- ----------
Total interest expense 31,184 4,814 12,625 48,623
---------- ---------- ---------- ----------
NET INTEREST INCOME 39,640 7,468 15,060 62,168
PROVISION FOR LOAN LOSSES 2,024 240 240 2,504
---------- ---------- ---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 37,616 7,228 14,820 59,664
---------- ---------- ---------- ----------
OTHER INCOME
Service charges and fee on deposits 2,026 455 1,496 3,977
Investment securities gains (losses) 67 (155) (14) (102)
Other income 2,400 164 1,092 3,656
---------- ---------- ---------- ----------
Total other income 4,493 464 2,574 7,531
---------- ---------- ---------- ----------
OTHER EXPENSE
Salaries and employee benefits 11,076 2,518 5,950 19,544
Occupancy and equipment expense 3,438 595 1,947 5,980
Merger, integration and restructuring expense 711 - - 711
Other operating expense 8,354 1,740 3,843 13,937
---------- ---------- ---------- ----------
Total other expense 23,579 4,853 11,740 40,172
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 18,530 2,839 5,654 27,023
INCOME TAXES 5,967 876 1,386 8,229
---------- ---------- ---------- ----------
NET INCOME $ 12,563 $ 1,963 $ 4,268 $ 18,794
========== ========== ========== ==========
EARNINGS PER COMMON SHARE $ 2.13 $ 26.18 $ 0.84 $ 2.06
========== ========== ========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING 5,897,540 75,000 5,059,983 9,119,961
========== ========== ========== ==========
</TABLE>
-38-
<PAGE> 52
CITIZENS BANCSHARES, INC.
PRO FORMA CONSOLIDATED INCOME STATEMENT - UNIBANK AND CENTURY
FOR THE YEAR ENDED DECEMBER 31, 1994
(Dollars in thousands, except per share data) (Unaudited)
<TABLE>
<CAPTION>
PRO FORMA
BANCSHARES UNIBANK CENTURY COMBINED
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees $ 47,852 $ 6,866 $ 19,260 $ 73,978
Investment and mortgage backed securities
Taxable 15,324 3,448 3,255 22,027
Non-taxable 1,107 134 547 1,788
Federal funds sold and other 365 550 240 1,155
----------- ----------- ----------- -----------
Total interest income 64,648 10,998 23,302 98,948
----------- ----------- ----------- -----------
INTEREST EXPENSE
Deposits 22,083 4,019 9,184 35,286
Federal funds and repurchase agreements 1,242 92 40 1,374
Federal Home Loan Bank advances and other 3,095 - 230 3,325
----------- ----------- ----------- -----------
Total interest expense 26,420 4,111 9,454 39,985
----------- ----------- ----------- -----------
NET INTEREST INCOME 38,228 6,887 13,848 58,963
PROVISION FOR LOAN LOSSES 2,365 260 270 2,895
----------- ----------- ----------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 35,863 6,627 13,578 56,068
----------- ----------- ----------- -----------
OTHER INCOME
Service charges and fee on deposits 2,002 403 1,432 3,837
Investment securities gains (losses) (222) 155 11 (56)
Other income 1,907 200 1,296 3,403
----------- ----------- ----------- -----------
Total other income 3,687 758 2,739 7,184
----------- ----------- ----------- -----------
OTHER EXPENSE
Salaries and employee benefits 11,005 2,292 5,994 19,291
Occupancy and equipment expense 3,436 668 1,874 5,978
Merger, integration and restructuring expense 514 - - 514
Other operating expense 9,266 1,863 3,648 14,777
----------- ----------- ----------- -----------
Total other expense 24,221 4,823 11,516 40,560
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 15,329 2,562 4,801 22,692
INCOME TAXES 4,827 799 1,120 6,746
----------- ----------- ----------- -----------
NET INCOME $ 10,502 $ 1,763 $ 3,681 $ 15,946
=========== =========== =========== ===========
EARNINGS PER COMMON SHARE $ 1.78 $ 23.51 $ 0.73 $ 1.75
=========== =========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 5,897,540 75,000 5,046,659 9,114,298
=========== =========== =========== ===========
</TABLE>
-39-
<PAGE> 53
========================================================
CITIZENS BANCSHARES, INC.
UNIBANK AND CENTURY FINANCIAL
CORPORATION
COMPARATIVE PER SHARE DATA (A)
========================================================
<TABLE>
<CAPTION>
============================================================================================================================
As of and for
the nine
months ended
September
30, 1997 As of and for the year ended December 31,
----------------------------------------------------------
1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET INCOME PER COMMON SHARE
HISTORICAL
Bancshares $ 2.18 $ 2.49 $ 2.13 $ 1.78
UniBank 23.08 28.24 26.18 23.51
Century 0.80 0.97 0.84 0.73
PRO FORMA COMBINED 2.06 2.39 2.06 1.75
EQUIVALENT AMOUNT OF UNIBANK 27.30 31.67 27.30 23.19
EQUIVALENT AMOUNT OF CENTURY 0.88 1.02 0.88 0.75
- ----------------------------------------------------------------------------------------------------------------------------
DIVIDENDS PER COMMON SHARE
HISTORICAL
Bancshares $ 0.81 $ 0.83 $ 0.50 $ 0.29
UniBank 4.50 9.00 8.10 7.25
Century 0.32 0.39 0.37 0.26
PRO FORMA COMBINED 0.74 0.83 0.60 0.39
EQUIVALENT AMOUNT OF UNIBANK 9.81 11.00 7.95 5.17
EQUIVALENT AMOUNT OF CENTURY 0.31 0.35 0.26 0.17
- ----------------------------------------------------------------------------------------------------------------------------
BOOK VALUE PER COMMON SHARE
HISTORICAL
Bancshares $ 16.94 $ 15.21 $ 13.58 $ 11.19
UniBank 245.29 224.53 207.63 176.29
Century 7.23 6.75 6.27 5.48
PRO FORMA COMBINED 17.07 15.51 13.97 11.73
EQUIVALENT AMOUNT OF UNIBANK 226.18 205.51 185.10 155.42
EQUIVALENT AMOUNT OF CENTURY 7.25 6.59 5.94 4.99
============================================================================================================================
</TABLE>
(A) See "Comparative Per Share Data" for similar information with respect to
just Bancshares and UniBank.
-40-
<PAGE> 54
CITIZENS BANCSHARES, INC.
PRO FORMA SELECTED FINANCIAL INFORMATION - UNIBANK AND CENTURY FINANCIAL
CORPORATION (A)
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
As of and for the
Nine Months Ended As of and for the
September 30, Year Ended December 31,
------------- -----------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Net interest income $ 50,924 $ 49,661 $ 66,565 $ 62,168 $ 58,963
Provision for loan losses 1,887 1,699 2,279 2,504 2,895
Net income 18,675 16,018 21,730 18,794 15,946
Cash dividends declared 6,737 5,188 7,503 5,472 3,570
PER SHARE DATA:
Net income $ 2.06 $ 1.76 $ 2.39 $ 2.06 $ 1.75
Cash dividends 0.74 0.57 0.83 0.60 0.39
Book value at period end 17.07 14.92 15.51 13.97 11.73
Weighted average shares outstanding 4,071,379 9,098,870 9,090,174 9,119,961 9,114,298
BALANCE SHEET DATA (AT PERIOD END):
Total assets $1,727,597 $1,521,242 $1,544,156 $1,441,685 $1,360,737
Net loans 1,088,059 970,434 986,825 912,158 839,993
Total deposits 1,318,648 1,213,909 1,232,344 1,179,399 1,113,959
Total shareholders' equity 153,870 135,225 140,588 127,425 106,891
</TABLE>
(A) See "Pro Forma Selected Financial Information" for similar information
with respect to just Bancshares and UniBank.
-41-
<PAGE> 55
CITIZENS BANCSHARES, INC.
UNIBANK AND CENTURY FINANCIAL CORPORATION
CONTRIBUTION BY THE PARTIES
AS OF AND FOR THE NINE
MONTHS ENDED
SEPTEMBER 30, 1997 (A)
<TABLE>
<CAPTION>
BANCSHARES UNIBANK CENTURY TOTAL
---------- ------- ------- -----
<S> <C> <C> <C> <C>
Net interest income 62.3% 12.2% 25.5% 100.0%
Net income 69.0% 9.3% 21.7% 100.0%
Total assets 60.7% 12.7% 26.6% 100.0%
Shareholders' equity 64.2% 12.0% 23.8% 100.0%
Voting percentage
after mergers 65.0% 10.4% 24.6% 100.0%
</TABLE>
(A) See "Summary - Contribution By The Parties" for similar information with
respect to just Bancshares and UniBank.
-42-
<PAGE> 56
INFORMATION WITH RESPECT TO BANCSHARES
--------------------------------------
Business
- --------
Bancshares is a bank holding company organized in 1982 under the laws
of the State of Ohio and registered with the Federal Reserve Board pursuant to
the Bank Holding Company Act of 1956, as amended, and engaged in the business of
commercial and retail banking. These activities account for substantially all of
Bancshares revenue, operating income and assets. Bancshares is a holding company
for two wholly owned subsidiary banks, a wholly owned reinsurance company and a
wholly owned courier company. Citizens, owned by Bancshares since 1982, was
organized and chartered under the banking laws of the State of Ohio in 1902.
Citizens is an insured bank under the Federal Deposit Insurance Act ("FDIA").
This subsidiary accounts for approximately 95% of Bancshares' consolidated
assets. The primary market area for Citizens is eastern Ohio and consists of all
of Columbiana County, all of Carroll County, portions of Stark and Mahoning
counties and the northern 75% of Jefferson County. A secondary market is the
southern portion of Jefferson County, the panhandle of West Virginia north of
Follansbee, and a smaller portion of Pennsylvania south of Beaver and west of
Darlington to the Ohio border. Citizens competes not only with locally owned
commercial banks and savings and loans, but also with larger regional financial
institutions in offering consumer and commercial financial service products.
FNB, owned by Bancshares since January 1, 1990, was organized and chartered as a
national banking association under the laws of the United States on December 29,
1969 and formally opened for business on January 2, 1970. FNB is insured under
the FDIA and accounts for approximately four percent of Bancshares' consolidated
assets. FNB's primary market area is Hancock County, West Virginia, with overlap
in the East Liverpool, Ohio market. FNB competes with locally owned commercial
banks, credit unions and savings and loan associations. Freedom Financial Life
Insurance Company ("Freedom Financial"), owned by Bancshares since August, 1985,
was organized and chartered under the laws of the State of Arizona in that same
year. Freedom Financial provides credit life and accident and health insurance
coverage to Citizens' and FNB's loan customers. Freedom Financial accounts for
less than one percent of Bancshares' consolidated assets. Freedom Express, Inc.
("Freedom Express"), owned by Bancshares since August 5, 1994, was organized and
chartered under the laws of the State of Ohio in 1984. Freedom Express
transports papers and documents between and among Ohio, Pennsylvania and West
Virginia. Freedom Express accounts for less than one percent of Bancshares'
consolidated assets. As of September 30, 1997 and December 31, 1996, Bancshares
had total consolidated assets of approximately $1.0 billion and $947.9 million
and total shareholders' equity of $99.9 million and $89.7 million, respectively.
Bancshares' principal executive offices are located at 10 East Main Street,
Salineville, Ohio 43945. The telephone number of Bancshares' executive offices
is (330) 679-2328.
On December 3, 1997, Bancshares entered into an Agreement and Plan of
Merger with Century Financial Corporation ("Century"), which agreement calls for
the affiliation of Century and Bancshares. The affiliation will be effected by
means of a merger of Century with and into Bancshares, in which each outstanding
share of Century common stock will be converted into 0.425 shares of Bancshares
common shares, in a tax free exchange, subject to certain adjustments based on
the then average closing price of Bancshares common shares on the NASDAQ
National Market System. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations for the Quarter Ended September 30, 1997 -
Recent Developments" for a more detailed description of the affiliation.
In order to assess the Year 2000 issue (the fact that many computer
applications, if not corrected, could fail or create erroneous results by or at
the year 2000 because many existing computer programs use only two digits to
identify a year in the date field and these programs were not designed or
developed while considering the impact of the upcoming change in the century),
Bancshares has established a project group that represents functional areas to
be affected by Year 2000 changes. The
-43-
<PAGE> 57
Year 2000 project group meets regularly to review Bancshares' progress. All data
processing systems have been identified and all major systems and most lesser
systems have been assessed for Year 2000 compliance. This assessment indicates
that there will be no material impact on Bancshares' operations or budgets to
bring systems into compliance by year end 1998. Most security and environmental
systems have also been assessed with no material impact indicated.
Supplementary Financial Information
- -----------------------------------
The following is a summary of consolidated quarterly financial data
with respect to Bancshares for the years 1995, 1996 and 1997.
Citizens Bancshares, Inc.
Quarterly Selected Financial Data (Unaudited)
Dollars in thousands, except per share data
<TABLE>
<CAPTION>
Quarter Ended
March 31, June 30, September 30, December 31,
--------- -------- ------------- ------------
1997
<S> <C> <C> <C>
Interest income $19,287 $20,643 $20,705 N/A
Net interest income 10,472 10,684 10,582 N/A
Provision for loan losses 418 407 407 N/A
Net income 4,109 4,333 4,441 N/A
Earnings per share 0.70 0.73 0.75 N/A
1996
Interest income $18,001 $18,778 $18,534 $19,243
Net interest income 10,178 11,141 10,445 10,769
Provision for loan losses 387 469 388 370
Net income 3,598 3,978 3,373 3,757
Earnings per share 0.61 0.67 0.57 0.64
1995
Interest income $16,984 $17,526 $18,006 $18,308
Net interest income 9,744 9,824 9,934 10,138
Provision for loan losses 554 557 457 456
Net income 3,071 3,136 3,340 3,016
Earnings per share 0.52 0.53 0.57 0.51
</TABLE>
-44-
<PAGE> 58
Management's Discussion and Analysis of Financial Condition and Results of
- --------------------------------------------------------------------------
Operations for the Quarter Ended September 30, 1997
- ---------------------------------------------------
Bancshares' Management's Discussion and Analysis of Financial Condition
as of September 30, 1997 compared to December 31, 1996 and Results of Operations
for the quarter and nine months ended September 30, 1997, as compared to the
same periods ended September 30, 1996, is included in Bancshares' Form 10-Q for
the quarter ended September 30, 1997, which accompanies this Proxy
Statement/Prospectus and is incorporated herein by reference. Such discussion
should be read in conjunction with (i) the interim consolidated financial
statements and the footnotes thereto included in the Form 10-Q and (ii)
Management's Discussion and Analysis of Financial Condition and Results of
Operations for the Year Ended December 31, 1996 included in Bancshares' 1996
Annual Report which also accompanies this Proxy Statement/Prospectus and is
incorporated by reference.
Recent Developments
On November 17, 1997, Century Financial Corporation ("Century"), of
Rochester, Pennsylvania, and Bancshares entered into a letter of intent (the
"Letter of Intent") calling for the affiliation of Century with Bancshares. In
furtherance of the potential acquisition, Century granted to Bancshares a
binding option, exercisable under certain conditions, to purchase up to 19.9% of
Century's outstanding common shares.
On December 3, 1997, Century and Bancshares executed a definitive
Agreement and Plan of Merger (the "Century Agreement"), which provides for the
affiliation of Century with Bancshares. The Century Agreement provides that the
affiliation will be effected by means of a merger of Century with and into
Bancshares. In the merger, each outstanding share of Century common stock, par
value $0.835 per share, will be converted into 0.425 shares of Bancshares common
shares, in a tax-free exchange, subject to certain adjustments based on the then
average closing price of Bancshares common shares on the NASDAQ National Market
System.
The Century Agreement further provides that, following the merger, the
employment of no former Century employee will be terminated, other than for
cause, for a period ending December 31, 1998. Moreover, three former directors
from Century's Board of Directors will be invited to join the Board of Directors
of Bancshares, one of whom will be designated for membership on the Board's
Executive Committee. Four former Century Board members will also be invited to
join the Citizens' Board of Directors. The remaining former Century Board
members will be asked to serve on the Century Advisory Board.
The Century Agreement may only be terminated in one of the following
manners: (i) by mutual consent of the parties; (ii) by Century if the Average
NMS Closing Price (as that term is defined in the Century Agreement) is less
than $46.50; (iii) by Century if (a) the Average NMS Closing Price is less than
$54.25 and (b) Bancshares' Average NMS Closing Price is more than ten percent
lower than the average of the NMS Closing Price of an index of selected,
publicly traded, peer group, commercial banking institutions in Ohio,
Pennsylvania and West Virginia; or (iv) by either party if the transactions
contemplated by the Century Agreement are not consummated by September 30, 1998
or in the event of a material breach by the other party.
Completion of the transactions contemplated by the Century Agreement is
contingent upon approval of the Century Agreement by the shareholders of both
Century and Bancshares and upon the approval of certain regulatory authorities.
Certain Statistical Information With Respect to Bancshares
- ----------------------------------------------------------
Certain statistical information with respect to Bancshares, such as
information pertaining to the distribution of assets, liabilities and equity,
interest rates and differentials; investment and loan portfolios; loan losses;
deposits; short term borrowings and returns on assets and equity can be found
-45-
<PAGE> 59
on pages 29 through 31 of Bancshares' 1996 Annual Report and pages 6 through 16
of its 1996 Form 10-K and is incorporated herein by reference.
Management
- ----------
Directors
MARTY E. ADAMS (45). Vice Chairman of the Board, President and Chief
Executive Officer of Bancshares and Citizens, Director since 1984; Director and
Chairman of the Board of FNB since 1990. Mr. Adams has been employed by Citizens
for 20 years in positions of increasing responsibility and as President and
Chief Executive Officer since 1987. (Term expires in 1998).
KEITH D. BURGETT (54). Director since 1988. Dr. Burgett is a
veterinarian and the owner of Carrollton Animal Hospital, Carrollton, Ohio. He
is the owner of Burgett Angus Farms, Carrollton, Ohio. Dr. Burgett is a member
of the Ohio State Veterinary Medical Board. (Term expires in 1998).
WILLARD L. DAVIS (68). Director since 1991. Mr. Davis is the President
of Steel Valley Leasing, Inc. (an auto leasing company) in Steubenville, Ohio,
Vice President of State Park Motors, Inc. (an auto dealership) in Richmond,
Ohio, and co-owner of Cardinal Motors, Inc. (an auto dealership) in Cadiz, Ohio.
(Term expires in 1998).
FRED H. JOHNSON (81). Director since 1965. Mr. Johnson served as
Chairman of the Board of Bancshares from 1984 through March 30, 1995 and
Chairman of the Board of Citizens from 1984 through 1994. Mr. Johnson is the
retired former owner of Summitville Tile and former President of Summitcrest,
Inc. (Term expires in 2000).
FRED H. JOHNSON, III (36). Corporate Secretary, Director since 1988.
Mr. Johnson is a director and President of Summitcrest, Inc. (a cattle farm) in
Summitville, Ohio. Mr. Johnson is the son of Fred H. Johnson. (Term expires
1999).
GERARD P. MASTROIANNI (41). Director of Citizens since May 23, 1993.
Mr. Mastroianni was appointed by the Board of Directors to fill the vacancy
created by the death of Mr. Raymond J. Lowry. Mr. Mastroianni is the President
of the Buckeye Village Market, Inc. (a grocery store chain), Alliance, Ohio,
President of Alliance Ventures (a real estate holding company), Alliance, Ohio.
(Term expires in 2000).
JAMES C. MCBANE (58). Chairman of the Boards of Bancshares and Citizens
since September 17, 1996; Director since 1964; Director of FNB since 1990.
Principal and executive of McBane Insurance Agency, Inc., of Bergholz, Ohio.
(Term expires in 2000).
KENNETH E. MCCONNELL (61). Director since 1973. Mr. McConnell owns and
operates McConnell's Farms and is a partner in McConnell's Farm Market (a meat
market), Richmond, Ohio. (Term expires in 1998).
ELDEN L. SURBEY (69). Director since March, 1997. Mr. Surbey was
formerly a director and Chairman of the Board of The Navarre Deposit Bank Co.
until its affiliation with Bancshares in October, 1996. Mr. Surbey is founder
and former owner of Surbey Feed & Supply Company. (Term expires in 2000).
-46-
<PAGE> 60
GLENN F. THORNE (69). Director since March, 1994. Mr. Thorne was
formerly a director of The Firestone Bank from 1985 until its affiliation with
Bancshares in February, 1994. Mr. Thorne is the President and Chief Executive
Officer of Thorne Management, Inc., which owns and operates supermarkets in Ohio
and Pennsylvania and a leasing company in Ohio; Manager of Bias Realty, Ltd.,
which owns and operates a supermarket and commercial rental properties in Ohio;
and general partner of CPW Properties, Ltd., which owns and operates commercial
and residential properties in Ohio. Mr. Thorne is also a Trustee of Mount Vernon
Nazarene College. (Term expires in 1999).
Directors of Citizens
All of the foregoing, except Mr. Thorne, are also directors of
Citizens. The directors of Citizens are elected for terms of one year. In
addition, Lee A. Smith and Jonathan A. Levy serve as Directors of Citizens.
LEE A. SMITH (45). Director since May 23, 1996. Mr. Smith was appointed
by the Board of Directors of Citizens to fill the vacancy created by the death
of Mr. Thomas W. Liggett. Mr. Smith is the President and owner of Pleasant View
Nursing Home in Lisbon, Ohio. He practiced law in Lisbon from 1978 until 1996.
JONATHAN A. LEVY (37). Director since April, 1996. Mr. Levy was
formerly a director of Western Reserve Bank of Ohio until its affiliation with
Citizens in 1995. Mr. Levy is a partner of Redstone Investments, Youngstown,
Ohio, a real estate development, construction, and management company.
Executive Officers
In addition to Mr. Adams, Vice Chairman of the Board, President and
Chief Executive Officer, with respect to whom information is provided above in
the subsection pertaining to Directors, the following persons serve as executive
officers of Bancshares and/or one of its banking subsidiaries:
FRANK J. KOCH (44). Executive Vice President, Citizens, since 1988.
LAWRENCE P. CROW (50). Senior Vice President and Branch Administrator,
Citizens since 1987; previously Vice President, Citizens.
THOMAS G. LEEK (49). Senior Vice President of Bank Operations,
Citizens, since 1989.
WILLIAM L. WHITE III (39). Senior Vice President and Chief Financial
Officer, Citizens, since 1991.
JAYSON M. ZATTA (37). Senior Vice President and Manager, Commercial
Banking Department, Citizens, since 1993; Vice President and Manager, Commercial
Banking Department, Citizens, from 1989 to 1993.
Certain information relating to the management, executive compensation,
various benefit plans (including stock plans), certain relationships and related
transactions and other related matters as to Bancshares is set forth in
Bancshares' Proxy Statement dated March 27, 1997 which is incorporated by
reference in Bancshares' Annual Report on Form 10-K for the year ended December
31, 1996. Bancshares' Annual Report on Form 10-K for the year ended December 31,
1996 is incorporated by reference in this Proxy Statement/Prospectus. See
"Information Incorporated by Reference" below. UniBank shareholders who wish to
obtain copies of these documents may contact Bancshares at its address or
telephone number set forth under "AVAILABLE INFORMATION."
-47-
<PAGE> 61
Security Ownership of Management
- --------------------------------
The following table sets forth (i) as of December 2, 1997 and (ii)
after consummation of the Merger, the total number and percentage of Bancshares
Common Shares beneficially owned by each director of Bancshares and Citizens,
each executive officer named in the Summary Compensation Table and by all
directors and executive officers of Bancshares as a group. The number of
Bancshares Common Shares shown as being beneficially owned by each director are
those over which he has either sole or shared voting or investment power. As of
December 2, 1997 there were 5,897,540 shares issued and outstanding and 2,250
shares held in treasury. The percent of beneficial ownership of management after
the Merger was calculated assuming an exchange ratio of 13.25 Bancshares Common
Shares for each UniBank Common Share and assuming no dissenters' rights will be
exercised by UniBank stockholders. No executive officer or director owns more
than five percent of the outstanding Bancshares Common Shares.
<TABLE>
<CAPTION>
============================================================================================================================
Amount and Nature of Percent of Class as of Percent of Class after
-------------------- ---------------------- ----------------------
Name of Beneficial Owner Beneficial Ownership(a) December 2, 1997 Merger
- ------------------------ ------------------------ ---------------- ------
<S> <C> <C> <C>
Marty E. Adams 32,764 * *
Keith D. Burgett 10,539 * *
Willard L. Davis 53,847 * *
Fred H. Johnson 21,450 * *
Fred H. Johnson, III 64,186 1.09 *
Jonathan A. Levy** 4,360 * *
Gerard Mastroianni 6,102 * *
James C. McBane 76,542 1.30 1.12
Kenneth E. McConnell 44,207 * *
Lee A. Smith** 7,632 * *
Elden L. Surbey 1,844 * *
Glenn F. Thorne 56,775 * *
Frank J. Koch 3,287 * *
William L. White, III 1,948 * *
============================================================================================================================
All directors and executive officers 385,483 6.53 5.63
as a group (17 persons).
============================================================================================================================
<FN>
* Bancshares Common Shares owned represent less than 1% of class.
** Directors of Citizens only.
(a) Unless otherwise indicated, the person has sole voting and
investment power as to the common shares held. Does not include
common shares owned individually by spouses.
</TABLE>
Market Price of Bancshares Common Shares
- ----------------------------------------
Bancshares Common Shares trade on the NASDAQ National Market under the
symbol "CICS." Six brokerage firms currently act as market makers for Bancshares
Common Shares: Parker/Hunter Incorporated, Advest, Inc., The Ohio Company,
McDonald & Company, Sandler O'Neill & Partners, L.P., and Herzog, Heine, Geduld
Inc. There is no assurance that such firms will continue to make a market in
Bancshares Common Shares.
Information regarding the market price and dividends paid on Bancshares
Common Shares with respect to each quarterly period during 1995 and 1996 may be
found on page 35 of Bancshares' 1996 Annual Report. As of September 11, 1997,
the day immediately preceding the date on which the parties executed the
Affiliation Agreement, the NASDAQ National Market closing price of Bancshares
Common Shares was $53.00 and Bancshares Common Shares were held by approximately
3,451 shareholders. As of December 2, 1997, the NASDAQ National Market closing
price of Bancshares
-48-
<PAGE> 62
Common Shares was $62.50 and Bancshares Common Shares were held by approximately
3,426 shareholders.
Information Incorporated by Reference
- -------------------------------------
This Proxy Statement/Prospectus is accompanied by a copy of Bancshares'
1996 Annual Report and a copy of Bancshares' quarterly report on Form 10-Q for
the quarter ended September 30, 1997. Certain of the information contained
therein is incorporated herein by reference. Furthermore, Bancshares filed with
the Commission an annual report on Form 10-K on March 18, 1997, quarterly
reports on Form 10-Q for the quarters ended March 31, 1997, June 30, 1997, and
September 30, 1997, on May 15, 1997, July 24, 1997 and October 27, 1997
respectively, and a current report on Form 8-K on November 10, 1997. Certain of
the information contained therein is also incorporated herein by reference.
Specifically, information about Bancshares' industry segments may be found on
pages 2, 4 through 16 and 22 of the Form 10-K; selected financial information
may be found on pages 28 and 29 of the Annual Report; management's discussion
and analysis of Bancshares' financial condition and results of operations for
the year ended December 31, 1996 may be found on pages 29 through 35 of the
Annual Report; management's discussion and analysis of Bancshares' financial
condition and results of operations for the quarter ended September 30, 1997 may
be found on pages 14 through 18 of the Form 10-Q for the quarter then ended; and
information regarding any changes in or disagreements with accountants on
accounting and financial disclosures, of which there were none, may be found on
page 22 of the Form 10-K. Furthermore, the financial statements of Century
Financial Corporation contained in Century Financial Corporation's 1996 Annual
Report on Form 10-K and quarterly reports on Form 10-Q for the quarters ended
March 31, 1997, June 30, 1997, and September 30, 1997 are also incorporated
herein by reference.
INFORMATION WITH RESPECT TO UNIBANK
-----------------------------------
Business
- --------
UniBank is a commercial bank chartered under the laws of the State of
Ohio and is regulated and supervised by the Ohio Division of Financial
Institutions and the Federal Deposit Insurance Corporation.
On May 17, 1985, UniBank was established as a result of a purchase of
four branch offices (in Steubenville, Ohio, Toronto, Ohio, Hollywood Shopping
Plaza, Steubenville, Ohio, and Wintersville, Ohio), from AmeriTrust. In January,
1989, UniBank opened an office in Mingo Junction, Ohio followed in May, 1989 by
an office in the Kroger Sav-On Store in Wintersville, Ohio. In July, 1989,
UniBank purchased the assets and assumed the liabilities of The Amsterdam State
Bank. In May 1997, UniBank purchased three branch offices (in Mingo Junction,
Ohio, Tiltonsville, Ohio and East Liverpool, Ohio) from National City Bank.
UniBank conducts a general banking business. As of September 30, 1997 and
December 31, 1996, UniBank had total assets of approximately $220.1 million and
$183.4 million and shareholders' equity of approximately $18.4 million and $16.8
million, respectively. UniBank's principal executive offices are located at 100
North Fourth Street, Steubenville, Ohio 43952-2147. The telephone number of
UniBank's executive offices are (614) 283-8130.
Market Price and Dividends on UniBank Common Shares
- ---------------------------------------------------
UniBank Common Shares are not traded in any established market.
The following table sets forth the per share cash dividends declared on
UniBank Common Shares each quarter since January 1, 1994:
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<PAGE> 63
<TABLE>
<CAPTION>
1994
----
<S> <C>
First quarter $ 1.30
Second quarter 1.30
Third quarter 1.30
Fourth quarter 3.35
1995
----
First quarter $ 1.40
Second quarter 1.40
Third quarter 1.40
Fourth quarter 3.90
1996
----
First quarter $ 1.50
Second quarter 1.50
Third quarter 1.50
Fourth quarter 4.50
1997
----
First quarter $ 1.50
Second quarter 1.50
Third quarter 1.50
</TABLE>
Dividends by UniBank may be declared by UniBank by its Board of
Directors out of surplus. An Ohio bank must generally maintain surplus in an
amount which is equal to the amount of its capital. In addition to other
limitations under Ohio law with respect to the payment of dividends, approval of
the Division is required for the declaration of dividends by an Ohio bank if the
total of all dividends declared by such bank in any year exceeds the total of
its net profits (as defined in Section 1117.02 of the ORC) for that year
combined with its retained net profits for the preceding two years, less any
required transfers to surplus or a fund for the requirement of any preferred
stock or capital securities.
If, in the opinion of the applicable federal bank regulatory authority,
a bank under its jurisdiction is engaged in or is about to engage in an unsafe
or unsound practice (which, depending on the financial condition of the bank,
could include the payment of dividends), such authority may require, after
notice and hearing, that such bank cease and desist from such practice. In
addition, the Federal Reserve Board and the FDIC have issued policy statements
which provide that banks should generally only pay dividends out of current
operating earnings. Finally, the federal bank regulatory authorities have
established guidelines with respect to the maintenance of appropriate levels of
capital by a bank under their jurisdiction. Compliance with standards set forth
in such policy statements and guidelines could limit the amounts which a bank
can pay as dividends. For discussions of the restrictions on the payment of
dividends on UniBank Common Shares, see INFORMATION WITH RESPECT TO UNIBANK
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."
-50-
<PAGE> 64
Selected Financial Information
- ------------------------------
UniBank
Selected Financial Information
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
For the 9 months ended For the year ended
September 30, December 31,
-------------------- ------------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Interest Income $11,055 $ 9,486 $12,862 $12,282 $10,998 $10,679 $11,776
Interest Expense 4,853 4,079 5,528 4,814 4,111 4,193 5,675
------- ------- ------- ------- ------- ------- -------
Net interest income 6,202 5,407 7,334 7,468 6,887 6,486 6,101
Provision for loan losses 25 40 40 240 260 1,220 240
------- ------- ------- ------- ------- ------- -------
Net interest income after
provision for loan losses 6,177 5,367 7,294 7,228 6,627 5,266 5,861
Other income 669 619 1,193 464 758 883 627
Other expenses 4,325 3,857 5,396 4,853 4,823 5,887 4,277
------- ------- ------- ------- ------- ------- -------
Income before income taxes 2,521 2,129 3,091 2,839 2,562 262 2,211
Income taxes 790 663 973 876 799 28 871
------- ------- ------- ------- ------- ------- -------
Income before cumulative effect
of change in accounting for
income taxes 1,731 1,466 2,118 1,963 1,763 234 1,340
Cumulative effect of change in
accounting for income taxes 0 0 0 0 0 0 183
------- ------- ------- ------- ------- ------- -------
Net Income $ 1,731 $ 1,466 $ 2,118 $ 1,963 $ 1,763 $ 234 $ 1,523
======= ======= ======= ======= ======= ======= =======
Cash dividends declared $ 338 $ 338 $ 675 $ 608 $ 544 $ 390 $ 525
======= ======= ======= ======= ======= ======= =======
PER SHARE DATA:
Net income $ 23.08 $ 19.55 $ 28.24 $ 26.18 $ 23.51 $ 3.12 $ 20.31
Cash dividends declared $ 4.50 $ 4.50 $ 9.00 $ 8.10 $ 7.25 $ 5.20 $ 7.00
Shareholders' equity $245.29 $220.31 $224.53 $207.63 $176.29 $173.76 $175.37
Weighted average shares
outstanding 75,000 75,000 75,000 75,000 75,000 75,000 75,000
Shares outstanding at period end 75,000 75,000 75,000 75,000 75,000 75,000 75,000
</TABLE>
-51-
<PAGE> 65
<TABLE>
<CAPTION>
For the 9 months ended For the year ended
September 30, December 31,
---------------------- ----------------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets $220,077 $189,395 $183,368 $173,727 $166,745 $154,905 $146,662
Securities available for sale 33,968 24,891 22,903 25,465 12,637 0 0
Securities held-to maturity 40,562 19,804 23,141 21,145 44,869 58,104 63,212
Total loans, net of unearned income 123,497 97,011 99,197 94,628 89,339 78,415 66,310
Allowance for loan losses (909) (1,068) (1,045) (958) (2,094) (1,917) (851)
Deposits 196,317 165,570 159,358 153,410 143,921 138,050 129,444
Short term borrowings 4,568 6,494 6,038 3,925 3,518 2,402 1,947
Total shareholders' equity 18,397 16,523 16,840 15,572 13,222 13,032 13,153
AVERAGE BALANCES:
Total assets $208,878 $181,366 $183,185 $169,120 $168,024 $155,976 $149,814
Total earning assets 193,942 167,974 169,854 157,843 157,270 145,045 139,864
Deposits 167,780 143,209 144,499 135,000 135,494 139,703 134,389
Net loans 108,472 93,230 94,346 91,545 82,333 70,758 66,189
Shareholders' equity 17,521 16,034 16,235 14,442 13,330 13,434 12,612
FOR THE PERIOD
SIGNIFICANT RATIOS:
Return on average assets(2) 1.11% 1.08% 1.16% 1.16% 1.05% 0.15% 1.02%
Return on average
shareholders' equity(2) 13.21 12.21 13.05 13.59 13.23 1.74 12.08
Average loans as a percent
of average deposits 64.65 65.10 65.29 67.81 60.77 50.65 49.25
Shareholders' equity as of
percent of year-end assets 8.36 8.72 9.18 8.96 7.93 8.41 8.97
Allowance for loan losses
as a percent of loans 0.74 1.10 1.05 1.01 2.34 2.44 1.28
Net charge-offs as a percent
of average loans(2) 0.20 -0.09 0.05 1.47 0.10 0.21 0.09
Dividends declared as a
percent of net income 19.53 23.06 31.87 30.97 30.86 166.67 34.47
Net interest margin(2) 4.28 4.30 4.32 4.73 4.38 4.47 4.36
Nonperforming assets to
total assets 0.68 1.16 0.93 1.12 2.12 1.48 0.14
Allowance for loan losses
</TABLE>
-52-
<PAGE> 66
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
to nonperforming loans 60.36% 203.04% 343.75% 389.43% 59.44% 84.67% 417.16%
Non interest expense as a
percent of average assets(2) 2.76% 2.84% 2.95% 2.87% 2.87% 3.77% 2.85%
Operating efficiency ratio(2) 61.87% 63.01% 62.75% 59.36% 63.65% 82.94% 64.54%
</TABLE>
(2) Interim information annualized for comparability
-53-
<PAGE> 67
Management's Discussion and Analysis of Financial Condition and Results of
- --------------------------------------------------------------------------
Operations.
- -----------
Introduction
This discussion is intended to focus on certain financial information
regarding UniBank. 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 contained elsewhere in this Proxy Statement/Prospectus.
Management of UniBank 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.
Overview - Rate and Volume Variances
The reported results of UniBank are dependent on a variety of factors,
including the general interest rate environment, competitive conditions in the
industry, governmental policies and regulations and conditions in the markets
for financial assets. Net interest income is the largest component of UniBank's
net income, and consists of the difference between income generated on
interest-earning assets and interest expense incurred on interest-bearing
liabilities. Net interest income is primarily affected by the volumes, interest
rates and composition of interest-earning assets and interest-bearing
liabilities.
Average Balances and Yields. 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 the net
interest margin. Net interest margin refers to the net interest income divided
by total interest-earning assets and is influenced by the level and relative mix
of interest-earning assets and interest-bearing liabilities. All average
balances are daily average balances. Non-accruing loans are included in average
loan balances.
-54-
<PAGE> 68
UniBank
Average Balance Sheet and Related Yields
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1 9 9 6 1 9 9 5 1 9 9 4
-------------------------------- ------------------------------- ---------------------------------
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ---- ------- -------- ----
(Dollars In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EARNING ASSETS
Interest earning deposits $ 1,605 $ 87 5.42% $ 1,467 $ 83 5.66% $ 3,866 $ 170 4.40%
Federal Funds Sold 25,788 1,371 5.32 11,996 698 5.82 9,203 380 4.13
Securities:
Taxable 46,714 2,831 6.03 49,630 3,290 6.52 55,701 3,448 6.13
Tax exempt 336 16 4.76 1,261 54 4.28 4,215 134 3.18
Loans:
Taxable 90,990 8,329 9.15 89,597 7,943 8.87 81,869 6,761 8.26
Tax exempt 4,421 228 5.16 3,892 214 5.50 2,416 105 4.35
-------- ------ -------- ------ -------- ------
Total interest-
bearing assets $169,854 12,862 7.56 $157,843 12,282 7.74 $157,270 10,998 6.97
------ ------ ------
Non earning assets 13,331 11,277 10,754
------ ------ ------
Total assets $183,185 $169,120 $168,024
======== ======== ========
INTEREST-BEARING
LIABILITIES
Demand deposits $ 50,233 1,196 2.38 $ 47,120 1,127 2.39 $ 50,861 1,229 2.42
Savings 32,561 995 3.06 32,504 995 3.06 33,564 1,040 3.10
Time 61,705 3,103 5.03 55,376 2,538 4.58 51,069 1,750 3.43
Short-term borrowings 5,728 234 4.09 3,484 154 4.42 3,141 92 2.93
-------- ----- -------- ------ -------- -----
Total interest-
bearing liabilities $150,227 5,528 3.68 $138,484 4,814 3.48 $138,635 4,111 2.97
----- ----- -----
Noninterest
bearing liabilities 16,723 16,194 16,059
Shareholders' equity 16,235 14,442 13,330
------ ------ ------
Total liabilities
and equity $183,185 $169,120 $168,024
======== ======== ========
Net interest income $ 7,334 $ 7,468 $ 6,887
======= ======== =======
Net interest spread 3.88% 4.26% 4.00%
Net interest margin 4.31% 4.71% 4.36%
</TABLE>
-55-
<PAGE> 69
<TABLE>
<CAPTION>
UniBank
Rate and Volume Variances
December 31, 1996, 1995 and 1994
1 9 9 6 vs. 1 9 9 5 1 9 9 5 vs. 1 9 9 4
------------------------------ -------------------------------
Change Change Change Change
Total Due to Due to Total Due To Due To
Change Volume Rate Change Volume Rate
------ ------ ---- ------ ------ ----
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
EARNING ASSETS
Interest earning deposits $ 4 $ 8 $ (4) $ (87) $ (126) $ 39
Federal Funds Sold 673 738 (65) 318 135 183
Securities:
Taxable (459) (220) (239) (158) (370) 212
Tax exempt (38) (43) 5 (80) (116) 36
Loans:
Taxable 386 125 261 1,182 665 517
Tax exempt 14 28 (14) 109 76 33
------- ------- ------- ------- ------- -------
580 636 (56) 1,284 264 1,020
------- ------- ------- ------- ------- -------
INTEREST-BEARING LIABILITIES
Demand deposits 69 74 (5) (102) (90) (12)
Savings - 2 (2) (45) (33) (12)
Time 565 305 260 788 158 630
Short-term borrowings 80 92 (12) 62 11 51
------- ------- ------- ------- ------- -------
714 473 241 703 46 657
------- ------- ------- ------- ------- -------
Net interest income $ (134) $ 163 $ (297) $ 581 $ 218 $ 363
======= ======= ======= ======= ======= =======
</TABLE>
-56-
<PAGE> 70
UniBank
Average Balance Sheet and Related Yields
Nine months ended September 30, 1997 and 1996
<TABLE>
<CAPTION>
September 30, 1997 September 30, 1996
-------------------------------- ----------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ----
(Dollars In thousands)
<S> <C> <C> <C> <C> <C> <C>
EARNING ASSETS
Interest earning deposits $ 2,636 $ 116 5.88% $ 1,621 $ 66 5.44%
Federal Funds Sold 16,502 669 5.42 25,083 998 5.31
Securities:
Taxable 64,774 2,934 6.03 46,711 2,132 6.06
Tax exempt 594 19 4.27 264 10 5.08
Loans:
Taxable 105,562 7,165 9.07 89,808 6,107 9.08
Tax exempt 3,874 152 5.25 4,487 173 5.15
-------- -------- -------- --------
Total interest
earning assets $193,942 11,055 7.61 $167,974 9,486 7.53
-------- --------
Nonearning assets 14,936 13, 392
------ -------
Total assets $208,878 $181,366
======== ========
INTEREST-BEARING
LIABILITIES
Demand deposits $ 57,262 1,030 2.40 $ 49,959 891 2.38
Savings 36,301 841 3.10 32,799 755 3.07
Time 74,217 2,838 5.11 60,451 2,270 5.02
Short-term borrowings 4,528 144 4.25 5,550 163 3.92
-------- -------- -------- --------
Total interest
bearing liabilities $172,308 4,853 3.77 $148,759 4,079 3.66
-------- --------
Noninterest
bearing liabilities 19,049 16,573
Shareholders' equity 17,521 16,034
-------- --------
Total liabilities
and equity $208,878 $181,366
======== ========
Net interest income $6,202 $ 5,407
====== ========
Net interest spread 3.84% 3.87%
Net interest margin 4.27% 4.29%
</TABLE>
-57-
<PAGE> 71
UniBank
Rate and Volume Variances
September 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 vs. 1996
---------------------------------------------
Change Change
Total Due to Due to
Change Volume Rate
------ ------ ----
(In thousands)
<S> <C> <C> <C>
EARNING ASSETS
Interest earning deposits $ 50 $ 59 $ (9)
Federal Funds Sold (329) (465) 136
Securities:
Taxable 802 1,093 (291)
Tax exempt 9 14 (5)
Loans
Taxable 1,058 1,430 (372)
Tax exempt (21) (32) 11
---------- ---------- ---------
1,569 2,099 (530)
--------- --------- ----------
INTEREST-BEARING LIABILITIES
Demand deposits 139 176 (37)
Savings 86 108 (22)
Time 568 703 (135)
Short-term borrowings (19) (42) 23
--------- --------- ---------
774 945 (171)
--------- --------- ---------
Net interest income $ 795 $ 1,154 $ (359)
========= ========= =========
</TABLE>
-58-
<PAGE> 72
Net interest income on a fully taxable equivalent basis was $7,460,000
in 1996, equating to a 4.39% taxable equivalent net interest margin on earning
assets. Taxable equivalent net interest income in 1995 was $7,606,000 or 4.82%
of average earning assets. Net interest income in 1994 was $7,010,000 or 4.46%
of average earning assets. The following table reconciles net interest income as
shown in the financial statements to taxable equivalent net interest income (in
thousands of dollars):
UniBank
Net Interest Income
Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net interest income $ 7,334 $ 7,468 $ 6,887
Taxable equivalent adjustments
to net interest income 126 138 123
-------- -------- --------
Net interest income, fully taxable
equivalent $ 7,460 $ 7,606 $ 7,010
======== ======== ========
Net interest margin 4.32% 4.73% 4.38%
Taxable equivalent adjustment .07 .09 .08
-------- -------- --------
Net interest margin, fully taxable
equivalent 4.39% 4.82% 4.46%
======== ======== ========
</TABLE>
Comparison of Operating Results for Nine Months Ended September 30, 1997 and
1996
Net Income. Net income for the nine months ended September 30, 1997 was
$1,731,000 a $265,000 or 18.1% increase from $1,466,000 reported for the
comparable period in 1996. Earnings per share for the nine months ended
September 30, 1997 was $23.08, an increase of 18.1% over earnings per share of
$19.55 for the nine months ended September 30, 1996. This strong increase in
earnings was the result of increases in net interest income and other income and
a reduction in the provision for loan losses. These effects were partially
offset by an increase in other expenses and an increase in the provision for
income taxes.
Interest Income. Interest income for the nine months ended September
30, 1997 was $11,055,000, up 16.5% from $9,486,000 for the nine months ended
September 30, 1996. This increase was the result of a large increase in earning
assets and an increase in the average rate earned during the period. The
increase in earning assets was due to the funds received in connection with the
branch purchases which was utilized to purchase and originate loans and
securities purchases.
Interest Expense. Interest expense rose to $4,853,000 for the nine
months ended September 30, 1997 from $4,079,000 for the comparable period in
1996, an increase of $774,000 or 19.0%. The rise in interest expense was due to
an increase in the average balance of interest-bearing liabilities, primarily
deposits, and an increase in the average cost of funds.
Net interest income increased 14.7% to $6,202,000 in the first nine
months of 1997, up from $5,407,000 in the same period of 1996. This increase
resulted from a 15.5% increase in average earning assets which was slightly
offset by a decrease in the net interest margin (FTE) to 4.27% in the first nine
months of 1997, down 2 basis points from 4.29% for the comparable period in
1996. UniBank benefitted from increased yields on interest-earning assets, but
the benefit was more than offset by increased rates on interest-bearing
liabilities.
-59-
<PAGE> 73
Provision for Loan Losses. The provision for loan losses decreased to
$25,000 for the nine months ended September 30, 1997, down 37.5% from $40,000
for the same period in 1996. This decrease was primarily the result of a
reduction in the level of non-performing loans.
Other Income. Other income was $669,000 for the nine months ended
September 30, 1997, an increase of $50,000 or 8.1% over $619,000 reported for
the comparable period in 1996. This increase was the result of a 10.9% increase
in service charges on deposit accounts and other fees as well as a modest
increase in other income.
Other Expense. Other expense was $4,325,000 for the nine months ended
September 30, 1997 compared to $3,857,000 for the comparable period in 1996, or
a 12.1% increase. Other expenses increased primarily as a result of a $121,000
or 26.9% increase in occupancy primarily due to the impact of the additional
branches acquired during 1997. In addition, other expenses increased $311,000 or
23.5% due to expenses related to the branch acquisitions, including amortization
of the intangible expenses, due to expenses related to the proposed merger and
due to general increases in other expenses. Future other expense will increase
due to the impact of the amortization of the $1.75 million intangible asset
related to the branch purchases.
Provision for Income Taxes. Provision for income taxes was $790,000 for
the nine months ended September 30, 1997, a 19.2% increase from $663,000 for the
first nine months of 1996. This was the result of an increase in pretax income
as well as an increase in UniBank's effective tax rate of 31.3% for the first
nine months of 1997, up from 31.1% for the first nine months of 1996.
Comparison of Operating Results for Years Ended December 31, 1996 and 1995
Net Income. Net income for 1996 was $2,118,000, as compared to
$1,963,000 for 1995, an increase of $155,000 or 7.9%. Earnings per share for
1996 was $28.24 up from $26.18 for 1995. The increase in net income was
primarily due to the decrease in the provision for loan losses and increase in
other income and was partially offset by the increase in interest expense and
the increase in other expenses.
Interest Income. Interest income for 1996 was $12,862,000, an increase
from $12,282,000 in 1995. This is an increase of $580,000 or 4.7%. This increase
was primarily due to an increase in average interest-earning assets offset by a
18 basis point decrease in the yield on earning assets in 1996 from 1995.
Interest income also increased partially due to a shift in the composition of
interest-earning assets including an increase in higher yielding loans.
Interest Expense. Total interest expense increased $714,000 or 14.8% to
$5,528,000 in 1996 from $4,814,000 in 1995. This increase was due a 20 basis
point increase in interest rates paid and due to a $11,743,000 or 8.5% increase
in the amount of average interest-bearing liabilities. Most of the increase was
from time deposits, due both to an increase in volume and an increase in rates
paid.
Provision for Loan Losses. The provision for loan losses decreased to
$40,000 in 1996 from $240,000 in 1995, a decrease of $200,000 or 83.3%. UniBank
was able to reduce the provision for loan losses due to its improved charge-off
experience in 1996 and a reduction in nonperforming loans from the 1995 and 1994
year end levels. The Bank had net recoveries of $47,000 in 1996, a decline from
charge-offs of $1,377,000 in 1995.
Other Income. Other income totaled $1,193,000 in 1996, an increase of
$729,000 or 157.1% from $464,000 reported in 1995. Service charges and fees on
deposit accounts increased by $90,000 or 19.8% in 1996 to $545,000 from $455,000
in 1995, due a general increase in fees. Other income increased dramatically to
$648,000 in 1996 from $164,000 in 1995, a difference of $484,000 due to $460,000
of rental income from a REO property acquired in 1996. The REO was sold in 1997
and the rental income is not expected to continue in future periods. In
addition, other income increased as a
- 60 -
<PAGE> 74
result of no security sales in 1996 versus security losses of $155,000 on the
sale of securities available for sale in 1995.
Other Expense. Other expenses were $5,398,000 in 1996 an increase of
$543,000 or 11.2% from $4,853,000 in 1995. This increase was primary due to the
increase in the salaries and employee benefits which increased by $257,000 or
10.2% to $2,775,000 in 1996 from $2,518,000 in 1995. Other expenses increased
$254,000 primarily due to the writedown of REO of $260,000 in 1996, but was
partially offset by a $191,000 decrease in the FDIC assessment.
Provision for Income Taxes. The provision for income taxes increased to
$973,000 in 1996 from $876,000 in 1995, a $97,000 or 11.1% increase. UniBank's
effective tax rate in 1996 was 31.5% in 1996 and 30.8% in 1995.
Comparison of Operating Results for the Years Ended December 31, 1995 and 1994
Net Income. Net income for 1995 was $1,963,000, an 11.3% increase over
earnings for 1994 of $1,763,000. Earnings per share reported in 1995 were
$26.18, up 11.4% from $23.51 for 1994. This increase in net income was the
result of the combination of an increase in net interest income and a decrease
in the provision for loan losses. These contributors to the increase in earnings
were partially offset by a decrease in other income and an increase in other
expenses.
Interest Income. Interest income increased $1,284,000 or 11.7% in 1995
to $12,282,000, up from $10,998,000 in 1994. The increase is primarily due to a
77 basis point increase in the yield for earning assets in 1995 from 1994 and
due to a change in the mix of interest earning assets. To a lesser degree,
interest income increased as a result of the increase in average earning assets
to $157,843,000 in 1995 from $157,270,000 in 1994. Loans, the largest component
of interest earning assets and the highest yielding assets, increased $9,204,000
from an average loan balance of $84.3 million in 1994 to $85.7 million in 1995.
Interest Expense. Total interest expense was $4,814,000 in 1995
compared to $4,111,000 for the year ended December 31, 1994. This $703,000 or
17.1% increase occurred with almost no change to the average interest bearing
liabilities, which was at $138,484 in 1995 an increase from $138,635 in 1994, a
difference of only 0.1%. The increase in interest expense was primarily due to
the increased rates paid for time deposits and a change in the mix from lower
rate demand and savings deposits to the higher rate time deposits.
Provision for Loan Losses. The provision for loan losses decreased to
$240,000 in 1995 from $260,000 in 1994, a difference of $20,000 or 7.7%. The
decrease in the provision was due to management's evaluation of the adequacy of
the allowance for loan losses which was determined sufficient in part due to the
$1.2 million provision recorded in 1993 due to a significant problem credit
relationship. Commercial loan charge-offs in 1995 consisted primarily of two
credit relationships. One credit was secured by a personal residence which the
Bank foreclosed on in 1995. The value of the property was determined to be
substantially below the appraised value of the property when the loan was
granted and the Bank charged-off $975,000 at the time of foreclosure. This
credit was identified as a problem loan in 1993 at which time management
provided $1.1 million to the allowance. The second credit relationship resulted
in a $325,000 charge-off after a commercial business declared bankruptcy. Both
loans were identified as problem loans prior to 1995 and were classified as
non-accrual loans at December 31, 1994.
Other Income. For the year ended December 31, 1995, other income was
$464,000, down $294,000 or 38.8% from $758,000 for the prior year. This decrease
was primarily the result of the $155,000 loss on securities sold and the result
of a decrease in other income of $36,000 or 18.0%. The decline was partially
offset by the 12.9% increase in service charges and fees.
- 61 -
<PAGE> 75
Other Expense. Other expenses increased to $4,853,000 in 1995 from
$4,823,000 in 1994, an increase of $77,000 or 0.6%. The rise in other expense
was due to an increase of $226,000 or 9.9% in salaries and employee benefits,
offset by a $123,000 or 6.6% decrease in other expenses.
Provision for Income Taxes. The provision for income taxes increased in
1995 to $876,000, up $77,000 or 9.6% from $799,000 in 1994. The effective tax
rate in 1995 is 30.9% down from 31.2% in 1994.
Asset Quality - Non-Performing Assets. Non-performing loans consist of
loans past due 90 days or more and loans for which the accrual of interest has
been discontinued. Non-performing loans totaled approximately $304,000 or .31%
of total loans at December 31, 1996, as compared to $224,000 or .24% of total
loans at December 31, 1995 and $3,523,000 or 3.94% at December 31, 1994.
Non-accrual loans in 1994 consisted primarily of two credit relationships.
Charge-offs for the deficiencies were recorded in 1995 and 1996 and the
collateral had been liquidated by early 1997. The allowance for loan losses as a
percentage of non-performing loans was 343.71%, 389.29% and 59.44% at year end
1996, 1995 and 1994, respectively. The following table sets forth non-accrual,
past due and restructured loans at December 31:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
(a) Loans accounted for on a nonaccrual basis $ 108 $ 224 $ 3,323
(b) Accruing loans which are contractually past due
90 days or more as to interest or principal payments 196 23 200
(c) Loans which are "troubled debt restructurings"
as defined in Statement of Financial Accounting
Standards No. 15 exclusive of loans in (a) or (b)
above - - -
-------- --------- --------
Total nonperforming loans $ 304 $ 246 $ 3,523
======== ========= ========
</TABLE>
<TABLE>
<CAPTION>
1996
----
<S> <C>
Gross interest income that would have been recorded on
nonaccrual loans in the period if the loans had been
current, in accordance with their original terms and had
been outstanding throughout the period or since
origination, if held for part of the period. $ 16
Less:
Interest income actually recorded on nonaccrual loans and
included in net income for the period. 9
--------
Interest income not recognized during the period. $ 7
========
</TABLE>
The Bank did not identify any loans as impaired at or during the year ended
December 31, 1996 and at December 31, 1995. The average balance of impaired
loans during 1995 was $2,640,000. Interest income recognized on impaired loans
during 1995 was $128,000, all on a cash basis.
The policy for placing loans on nonaccrual status is to cease accruing
interest on loans when management believes that the collection of interest is
doubtful, or when loans are past due as to
- 62 -
<PAGE> 76
principal or interest ninety days or more, except that in certain circumstances
interests accruals are continued on loans deemed by management to be fully
collectible. In such cases, the loans are individually evaluated in order to
determine whether to continue income recognition after ninety days beyond the
due dates. When loans are charged-off, any interest accrued in the current
fiscal year is charged against interest income.
Potential Problem Loans. As of December 31, 1996, there were
approximately $2,440,000 of loans representing the remaining balances of loans
classified as substandard for regulatory purposes that have not been disclosed
above as a nonperforming or impaired loan. These loans and their potential loss
exposure have been considered in management's analysis of the adequacy of the
allowance for loan losses. These loans do not represent trends or uncertainties
which management reasonably expects will materially impact future operating
results, liquidity, or capital resources.
Foreign Outstanding. There were no foreign loans outstanding for any
year presented.
Loan Concentrations. Most of UniBank's business activity is with
customers located in Eastern Ohio. As of December 31, 1996, there were no other
concentrations of loans greater than 10% of total loans which were not otherwise
disclosed as a category of loans pursuant to III A. above.
Other Interest Bearing Assets. As of December 31, 1996, there were no
other interest bearing assets that would be required to be discussed in the
foregoing tables or if such assets were loans.
Allowance and Provision for Loan Losses. The allowance for loan losses
is maintained at a level considered adequate to cover loan losses that are
currently anticipated based on past loss experience, general economic
conditions, changes in mix and size of the loan portfolio, information about
specific borrower situations, and other factors and estimates that are subject
to change over time. Management periodically reviews selected large loans,
delinquent, impaired and other problem loans, and other selected loans. The
collectibility of these loans is evaluated by considering the current financial
position and performance of the borrower, the estimated fair value of the
collateral, UniBank's collateral position in relation to other creditors,
guarantees, and other potential sources of repayment. Management forms
judgments, which are subjective, as to the probability of loss and the amount of
loss on these loans as well as other loans in the aggregate.
The allowance for loan losses totaled $1,045,000 at December 31, 1996,
which was 1.05% of total loans net of unearned income. This was up from $958,000
or 1.01% of total loans at December 31, 1995. This increased allowance is the
result of increases in the size of the loan portfolio and the increase in
indirect lending which has a higher degree of risk than UniBank's traditional
consumer lending and which is expected to produce a higher level of charge-offs
than UniBank's historical consumer loan charge-off experience. The allowance for
loan losses was 0.74% of total loans at September 30, 1997. The decrease was
primarily due to the decline in nonperforming commercial loans. Loans on
nonaccrual status were approximately $518,000, or .42% of outstanding balances
at September 30, 1997, compared to $108,000 or .10% of total loans at December
31, 1996. The allowance for loan losses as a percentage of non-performing loans
was 60.4% at September 30, 1997, compared to 343.8% at December 31, 1996.
- 63 -
<PAGE> 77
Summary of Loan Loss Experience
The following schedule presents an analysis of the allowance for loan
loss, average loan data and related ratio for the years ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
Loans
Loans outstanding at end of period (1) $ 99,197 $ 94,628 $ 89,340
Average loans outstanding during period $ 95,411 $ 93,489 $ 84,285
Allowance for loan losses $ 958 $ 2,094 $ 1,917
Charge-Offs:
Commercial and agricultural 1 1,420 53
Real estate - mortgage - 5 6
Consumer 165 90 61
---------- ---------- ----------
Total loans charged-off 166 1,515 120
---------- ---------- ----------
Recoveries:
Commercial and agricultural 170 102 15
Real estate - mortgage - - -
Consumer 43 37 22
---------- ---------- ----------
Total loan recoveries 213 139 37
---------- ---------- ----------
Net loans charged-off (47) 1,376 83
----------- ---------- ----------
Provision charged to operating expense 40 240 260
---------- ---------- ----------
Balance at the end of period $ 1,045 $ 958 $ 2,094
========== ========== ==========
Ratio of net charge-offs to average loans
outstanding for period (.05%) 1.47% .10%
</TABLE>
(1) Net of unearned income
- 64 -
<PAGE> 78
The following schedule is a breakdown of the allowance for loan losses
allocated by type of loan and related percentages.
<TABLE>
<CAPTION>
Percentage of
Loans in
Each
Allowance Category to
Amount Total Loans
------ -----------
(Dollars in Thousands)
<S> <C> <C>
December 31, 1996
Commercial, financial and agricultural $ 493 35.9%
Real estate mortgage 28 33.2
Consumer 421 30.9
Unallocated 103 -
-------- --------
Total $ 1,045 100.0%
======== =====
December 31, 1995
Commercial, financial and agricultural $ 626 41.8%
Real estate mortgage 40 35.1
Consumer 220 23.1
Unallocated 72 -
-------- --------
Total $ 958 100.0%
======== =====
December 31, 1994
Commercial, financial and agricultural $ 1,605 46.0%
Real estate mortgage 152 37.5
Consumer 188 16.5
Unallocated 149 -
-------- --------
Total $ 2,094 100.0%
======== =====
December 31, 1993
Commercial, financial and agricultural $ 1,525 47.2%
Real estate mortgage 190 37.2
Consumer 182 15.6
Unallocated 20 -
-------- --------
Total $ 1,917 100.0%
======== =====
December 31, 1992
Commercial, financial and agricultural $ 395 49.5%
Real estate mortgage 288 36.8
Consumer 142 13.7
Unallocated 26 -
-------- --------
Total $ 851 100.0%
======== =====
</TABLE>
- 65 -
<PAGE> 79
Comparison of September 30, 1997 and December 31, 1996 Financial Condition
Total assets increased to $220,077,000 at September 30, 1997, compared
to $183,368,000 at December 31, 1996, an increase of $36,709,000 or 20.0%. This
increase in assets was funded by an increase in deposits and shareholders'
equity. The increase in deposits was substantially due to the assumption of
deposits in connection with the acquisition of three branches from National City
Bank, Northeast (NCB).
Total securities increased $28,486,000 or 61.9% to $74,530,000 at
September 30, 1997 compared to $46,044,000 at December 31, 1996, as purchases
exceeded maturities and payments received. Of the $74,530,000 of total
securities on the balance sheet at September 30, 1997, $40,562,000, or 54.4%,
are classified as held-to-maturity with the remainder classified as
available-for-sale.
Total loans increased $24.3 million, or 24.5% to $123,497,000 at
September 30, 1997 compared to total loans outstanding at December 31, 1996 of
$99,197,000. This was primarily the result of real estate loans purchased from
a community financial institution in North Central Ohio and partially due
to stronger loan demand for commercial, mortgage and installment loans. No
significant changes in loan demand are anticipated in the near term.
UniBank's investment in premises and equipment increased $592,000 or
21.4% from $2,762,000 at December 31, 1996 to $3,354,000 at September 30, 1997.
This was primarily due to the fixed assets purchased in connection with the
branches purchased from NCB.
Total deposits increased $36,959,000 or 23.2%, to $196,317,000 at
September 30, 1997, compared to $159,358,000 at December 31, 1996. The increase
was substantially due to the assumption of deposit liabilities in connection
with the three branches purchased from NCB.
UniBank's shareholders' equity increased $1,557,000 or 9.3% to
$18,397,000 at September 30, 1997. The increase was primarily due to year to
date net income of $1.7 million and decrease in the unrealized loss on
securities available for sale and was partially offset by the payment of cash
dividends. UniBank's $18,397,000 in shareholders' equity at September 30, 1997,
represented 8.4% of total assets which was a decrease from the 9.2% equity ratio
at December 31, 1997. UniBank's equity exceeded all regulatory capital
requirements at September 30, 1997.
Comparison of December 31, 1996 and 1995 Financial Condition
Total assets of UniBank were $183,368,000 at December 31, 1996 compared
to $173,727,000 at year-end 1995, representing an increase of 5.6%. This growth
was primarily in fed funds sold and loans, which were funded by increases in
UniBank's deposits and repurchase agreements from its local customer base, and
by maturities of securities.
Total securities decreased $566,000, or 1.2%, from $46,044,000 at
year-end 1996 to $46,610,000 at year-end 1995. The distribution within the
investment portfolio has changed as U.S. Treasury securities represented 30.3%
of the portfolio at December 31, 1996, compared to 8.7% at December 31, 1995.
The increase in U. S. Treasury securities was funded by maturities in U.S.
government agency securities which decreased from 58.4% of the portfolio at
December 31, 1995 to 36.1% at December 31, 1996.
- 66 -
<PAGE> 80
Gross loans totaled $99,197,000 at December 31, 1996, as compared to
$94,628,000 at year-end December 31, 1995, representing an increase of
$4,569,000 or 4.8%. The mix of UniBank's loan portfolio changed somewhat during
1996, with commercial loans comprising 35.9% of total loans at December 31,
1996, compared to 41.8% at year-end 1995. Commercial loans decreased $3,940,000,
or 10.0%, ending with a $35,574,000 balance as of December 31, 1996 as compared
to $39,514,000 at year-end 1995. The decrease was the result of increased
competition in the market and loan payments in excess of new loans.
Installment loans increased $8,814,000 or 40.4% from December 31, 1995
to December 31, 1996. The $30,649,000 of installment loans represented 30.9% of
total loans at December 31, 1996, an increase over the 23.0% of total loans at
December 31, 1995. Substantially all of the growth in installment loans relates
to indirect automobile loans.
Real estate loans decreased less than 1% from year-end 1995, to
$32,974,000 or 33.2% of total loans at December 31, 1996. Real estate loans
comprised 35.2% of total loans at December 31, 1995.
Types of Loans. Total loans on the balance sheet are comprised of the
following classification at December 31:
<TABLE>
<CAPTION>
1 9 9 6 1 9 9 5
------- -------
Amount % Amount %
------ - ------ -
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Commercial, financial and agricultural $ 35,574 35.9% $ 39,514 41.8%
Real estate mortgage 32,974 33.2 33,279 35.1
Consumer 30,649 30.9 21,835 23.1
----------- ---- ----------- ----
Total loans $ 99,197 100.0% $ 94,628 100.00%
=========== ===== =========== =======
</TABLE>
Total deposits increased 3.9% to $159,358,000 at December 31, 1996,
compared to $153,410,000 at December 31, 1995. Noninterest bearing balances
decreased $1,085,000 or 6.7% to $15,032,000 at December 31, 1996 as compared to
$16,117,000 at December 31, 1995. Interest bearing deposits increased $7,033,000
or 5.1% to $144,326,000 at December 31,1996 primarily due to the growth in time
deposits. Time deposits represented 43.3% of total interest bearing deposits at
December 31, 1996 compared to 39.9% at December 31, 1995.
Liquidity and Capital Resources
Liquidity refers to UniBank's ability to generate sufficient cash to
fund current loan demand, meet deposit withdrawals, pay operating expenses and
meet the other obligations. UniBank's primary sources of liquidity are cash and
cash equivalents, which totaled $30,070,000 at year-end 1996. Net income,
securities available-for-sale, and securities and loan repayments also serve as
forms of liquidity. Other sources of liquidity which UniBank could use to help
to ensure that funds are available when needed include, but are not limited to,
the purchase of federal funds sold, adjustments of interest rates to attract
deposits, borrowings from unused lines of credit, and borrowings at the Federal
Reserve discount window. Management believes that its sources of liquidity are
adequate to meet the needs of UniBank.
As summarized in the statements of cash flow, the most significant
investing cash flows in 1996 were purchases of available for sale securities and
held to maturity securities of $35.8 million, maturity of available for sale and
held to maturity securities of $36.3 million and an increase in net loan
obligations of $4.5 million. UniBank's primary financing activity is accepting
deposits, which accounted for a cash infusion of $5.9 million in 1996. An
additional $2.1 million of cash was provided by
- 67 -
<PAGE> 81
increases in securities sold under agreements to repurchase during 1996. Cash
and cash equivalents increased $5.8 million from $24.3 million at year-end 1995
to $30.1 million at year-end 1996.
Total shareholders' equity increased from $15,572,000 at December 31,
1995 to $16,840,000 at December 31, 1996. Most of this increase resulted from
net income and was partially offset by the payment of cash dividends and the
impact of decreased market values on the fair value of securities
available-for-sale. Future volatility in shareholders' equity is expected, as
changes in market rates of interest impact the fair value of UniBank's
investment portfolio.
Banking regulations have established minimum capital ratios for banks.
As a result, UniBank must meet a risk-based capital requirement, which defines
the two tiers of capital and compares each to UniBank's "risk-weighted assets."
UniBank's 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 UniBank to have a minimum total risk-based capital ratio of
8%, at least half of which must be Tier 1 capital. UniBank's Tier 1 capital is
its shareholders' equity before any gain or loss on securities
available-for-sale, while total risk-based capital includes Tier 1 capital and a
limited amount of the allowance for loan losses. In addition, a bank's leverage
ratio (which for UniBank equals its shareholders' equity, before any gain or
loss on securities available-for-sale, divided by total assets) must be
maintained at a minimum of 3% to 5%.
The following table summarizes UniBank's capital ratios in comparison
with minimum requirements.
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
Amount Percent Amount Percent
------ ------- ------ -------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Leverage Ratio
Actual $ 17,032 9.04% $ 15,570 8.85%
Minimum required 5,658 3.00 5,280 3.00
Total risk-based capital
Actual $ 18,077 16.63% $ 16,528 15.85%
Required 8,697 8.00 8,344 8.00
Tier 1 risk-based capital
Actual $ 17,032 15.67% $ 15,570 14.93%
Required 4,349 4.00 4,172 4.00
Risk adjusted assets $ 108,717 $ 104,295
</TABLE>
The payment of dividends by UniBank 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, dividend payments may not reduce regulatory capital levels below the
minimum regulatory guidelines discussed above. At December 31, 1996,
approximately $3,150,000 was available for payment of dividends under the most
restrictive of these guidelines. The Merger Agreement also sets forth certain
limitations on the payment of dividends by UniBank to its shareholders. See
"PROPOSED MERGER--Business Pending the Merger."
Asset/Liability Management
Asset/liability management is the process of managing UniBank's
exposure to changes in interest rates. The primary measure of interest rate risk
exposure is UniBank's "gap," or the difference between interest rate sensitive
assets and liabilities that mature or reprice within a certain period of
- 68 -
<PAGE> 82
time. In a rising interest rate environment, banks with negative interest rate
sensitivity gaps, such as UniBank, will generally experience greater increases
in their cost of funds than in the yield of their assets. Conversely, in an
environment of falling interest rates, the cost of funds of banks with negative
interest rate sensitivity gaps will decrease more rapidly than the yield on
their assets. The table below provides a measure of UniBank's interest rate
sensitivity at December 31, 1996. This table may not reflect the actual impact
of general movements in interest rates on UniBank's net interest income because
the repricing of various categories of rate sensitive assets and liabilities are
subject to other factors, such as competition, customer performance, and
management influence.
<TABLE>
<CAPTION>
Maturity or Next Rate Adjustment Date
-------------------------------------
0-3 3-12 One through Over five
Months Months Five Years Years Total
------ ------ ---------- ----- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
ASSETS
Loan (a) $ 16,728 $ 18,120 $ 44,445 $ 19,904 $ 99,197
Investments (a)(b) 18,121 8,639 14,072 5,529 46,361
Interest earning deposits 1,397 100 1,497
Federal funds sold 22,000 22,000
----------- ----------- ---------- ------------ -----------
Rate sensitive assets
(RSA) $ 58,246 $ 26,759 $ 58,617 $ 25,433 $ 169,055
=========== =========== ========== ============ ===========
LIABILITIES
Interest-bearing demand
deposits $ 47,512 $ 47,512
Interest-bearing savings
deposits 34,320 34,320
Interest-bearing time
deposits 17,358 $ 29,441 $ 15,686 $ 9 62,494
Securities sold under re-
purchase agreements 6,038 6,038
----------- ----------- ---------- ------------ -----------
Rate sensitive liabilities
(RSL) $ 105,228 $ 29,441 $ 15,686 $ 9 $ 150,364
=========== =========== ========== ============ ===========
Gap (c) (46,982) (2,682) 42,931 25,424 18,691
Cumulative Gap (46,982) (49,664) (6,733) 18,691 18,691
RSA/RSL 55.4% 90.9% 273.7% NM 12.4%
Cumulative Gap/RSA (d) (27.8%) (29.4%) (4.0%) 11.1% 11.1%
<FN>
(a) Expected maturities will likely differ from contractual maturities because
some borrowers and issuers have the right to call or prepay obligations
with or without call or prepayment penalties.
(b) Includes securities held to maturity and available for sale.
(c) Gap is defined as rate sensitive assets less rate sensitive liabilities
and may be expressed in dollars or as a percentage.
(d) Computation is based on total RSA of $169,055
</TABLE>
NM - Not Meaningful
Impact of Inflation on Changing Prices
The financial statements included herein have been prepared in
accordance with generally accepted accounting principles, which requires UniBank
to measure 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.
- 69 -
<PAGE> 83
In Management's opinion, changes in interest rates affect the financial
condition of UniBank 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, UniBank reviews its interest rate risk
position frequently, monitoring its exposure and taking necessary steps to
minimize any detrimental effects on the Bank's profitability.
Certain Statistical Information
The following schedules present, for the periods indicated, certain
financial and statistical information of UNIBANK under the Commission's Industry
Guide 3, or a specific reference as to the location of the required disclosures
elsewhere in this Proxy Statement/Prospectus.
Distribution of Assets, Liabilities and Shareholders' Equity, Interest Rates and
Interest Differential
Average Balance Sheet and Related Analysis of Net Interest Earnings.
See the information set forth under the heading "Overview - Average Balances and
Yields" in "INFORMATION WITH RESPECT TO UNIBANK - Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Interest Differential. See the information set forth under the heading
"Overview - Rate and Volume Variances" in "INFORMATION WITH RESPECT TO UNIBANK -
Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Taxable Equivalent Basis. See the information set forth under the table
labeled "Net Interest Income" under the heading "Overview - Rate and Volume
Variances" in "INFORMATION WITH RESPECT TO UNIBANK - Management's Discussion and
Analysis of Financial Condition and Results of Operations."
- 70 -
<PAGE> 84
Investment Portfolio
A. The amortized costs, unrealized gains and losses and estimated fair values
are as follows at December 31:
<TABLE>
<CAPTION>
Gross Gross Estimated
(Dollars in Thousands) Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
1996
- ----
Securities available for sale
U.S. Treasury securities $ 8,961 $ 6 $ (36) $ 8,931
U.S. Government agencies 3,486 9 (213) 3,282
Mortgage-backed securities 1,997 138 - 2,135
Corporate bonds 8,030 - (221) 7,809
----------- ------- -------- -----------
Total debt securities - available for sale 22,474 153 (470) 22,157
Equity securities 746 - - 746
----------- ------- -------- -----------
Total securities - available for sale $ 23,220 $ 153 $ (470) $ 22,903
=========== ======= ======== ===========
Held to maturity
U.S. Treasury securities $ 4,997 $ 2 $ (17) $ 4,982
U.S. Government agencies 13,359 - (127) 13,232
Obligations of states and political
subdivisions 840 11 - 851
Mortgage-backed securities 2,452 208 - 2,660
Corporate bonds 1,493 - (45) 1,448
----------- ------- -------- -----------
Total debt securities -
held to maturity $ 23,141 $ 221 $ (189) $ 23,173
=========== ======= ======== ===========
Gross Gross Estimated
(Dollars in Thousands) Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
1995
- ----
Securities available for sale
U.S. Treasury securities $ 1,997 $ 47 $ - $ 2,044
U.S. Government agencies 12,981 65 (203) 12,843
Obligations of states and political
subdivisions 165 2 - 167
Mortgage-backed securities 3,256 166 (3) 3,419
Corporate bonds 6,643 38 (166) 6,515
--------- ------- -------- ----------
Total debt securities - available for sale 25,042 318 (372) 24,988
Equity securities 475 2 - 477
--------- ------- -------- ----------
Total securities - available for sale $ 25,517 $ 320 $ (372) $ 25,465
========= ======= ======== ==========
</TABLE>
- 71 -
<PAGE> 85
<TABLE>
<CAPTION>
Gross Gross Estimated
(Dollars in Thousands) Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
1995
- ----
Held to maturity
U.S. Treasury securities $ 1,993 $ 18 $ (9) $ 2,002
U.S. Government agencies 14,382 4 (117) 14,269
Obligations of states and political
subdivisions 342 13 - 355
Mortgage-backed securities 2,934 227 - 3,161
Corporate bonds 1,494 - (41) 1,453
---------- ------- ---------- -----------
Total debt securities - held to maturity $ 21,145 $ 262 $ (167) $ 21,240
========== ======= ========== ===========
Gross Gross Estimated
(Dollars in Thousands) Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
1994
- ----
Securities available for sale
U.S. Government agencies $ 6,998 - $ (1,253) $ 5,745
Mortgage-backed securities 3,726 $ 89 (81) 3,734
Corporate bonds 2,997 - (317) 2,680
---------- ------- ---------- -----------
Total debt securities - available for sale 13,721 89 (1,651) 12,159
Equity securities 475 3 - 478
---------- ------- ---------- -----------
Total securities - available for sale $ 14,196 $ 92 $ (1,651) $ 12,637
========== ======= ========== ===========
Held to maturity
U.S. Treasury securities $ 4,943 - $ (134) $ 4,809
U.S. Government agencies 24,263 - (1,131) 23,132
Obligations of states and political
subdivisions 2,508 - (57) 2,451
Mortgage-backed securities 3,319 $ 74 - 3,393
Corporate bonds 9,837 66 (107) 9,796
---------- ------- ---------- -----------
Total debt securities - held to maturity $ 44,870 $ 140 $ (1,429) $ 43,581
========== ======= ========== ===========
</TABLE>
- 72 -
<PAGE> 86
The following is a schedule of maturities or next rate adjustment date
of securities available-for-sale and the related weighted average yield as of
December 31, 1996. This schedule is prepared using the estimated fair value
except for the yields which are calculated using the amortized cost of the
related securities.
Available for Sale
Maturity or Next Rate Adjustment Date
(In Thousands)
<TABLE>
<CAPTION>
0-3 Months 3 Months-1 Yr 1-5 Years 5-10 Years Over 10 Years
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury - - - - $ 8,931 5.64% - - - -
U.S. Government
agencies - - - - 2,787 4.20 - - $ 495 7.46%
Obligation of state
and political
subdivisions - - - - - - - - - -
Mortgage-backed
securities - - - - - - - - 2,135 8.75
Corporate bonds - - - - 3,975 6.19 $1,922 5.39% 1,912 6.74
------ ------ ------ ------ ----- ---- ----- ---------- ------ ----
Total available
For sale - - - - $ 15,693 5.52% $1,922 5.39% $4,542 7.76%
===== ==== ==== ===== ======== ==== ====== ==== ====== ====
</TABLE>
The following is a schedule of maturities or next rate adjustment date of
securities held-to-maturity and the related weighted average yield as of
December 31, 1996. This schedule is prepared using the amortized cost maturing
or being placed within the time bracket at the next interest rate adjustment
without regard to principal payment.
Held to Maturity
Maturity or Next Rate Adjustment Date
(In Thousands)
<TABLE>
<CAPTION>
0-3 Months 3 Months-1 Yr 1-5 Years 5-10 Years Over 10 Years
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury - - $3,999 5.94% $ 998 4.87% - - - -
U.S. Government
agencies $5,476 5.14% 1,000 4.95 6,883 4.96 - - - -
Obligation of state
and political
subdivisions - - 497 4.16 98 5.50 - - $ 245 7.38%
Mortgage-backed
securities - - - - - - - - 2,452 9.11
Corporate bonds - - - - 480 5.37 $1,013 5.40% - -
------ ---- ------ ---- ------ ---- ------ ---- ------ ----
Total available
For sale $5,476 5.14% $5,496 5.60% $8,459 4.98% $1,013 5.40% $2,697 8.95%
====== ==== ====== ==== ====== ==== ====== ==== ====== ====
</TABLE>
The weighted average yield is based on the effective yield for all
bonds. The yields on the tax exempt portfolio have been adjusted for a tax
equivalency rate of 34%. Mortgage-backed securities have been classified at
their final state maturity date, except for variable rate securities which are
classified at their next rate adjustment date.
Excluding those holdings of the investment portfolio in U.S. Treasury
and other agencies and corporations of the U.S. Government, there were no
investments in securities of any one issuer which exceeded 10% of shareholders'
equity of UniBank at December 31, 1996.
- 73 -
<PAGE> 87
Loan Portfolio
Types of Loans. Total loans on the balance sheet are comprised of the
following classifications at December 31:
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Commercial, financial
and agricultural $ 35,574 $ 39,514 $ 41,115 $ 37,022 $ 32,837
Real estate mortgage 32,974 33,279 33,514 29,126 24,377
Consumer 30,649 21,835 14,711 12,266 9,096
------------ ------------ ------------- ------------ ------------
Total loans $ 99,197 $ 94,628 $ 89,340 $ 78,414 $ 66,310
============ ============ ============= ============ ============
</TABLE>
Maturities and Sensitivities of Loans to Changes in Interest Rates. The
following is a schedule of maturities and sensitivities of loans to changes in
interest rates as of December 31, 1996:
<TABLE>
<CAPTION>
3 Months One After
Through Through Five
0-3 Months 1 Year Five Years Years Total
---------- ------ ---------- ----- -----
(In thousands)
<S> <C> <C> <C> <C> <C>
Fixed rate $ 4,220 $ 8,459 $ 35,703 $ 18,185 $ 65,567
Variable rate 12,508 9,661 8,742 1,719 32,630
------------ ------------ ------------- ------------ ------------
Total $ 16,728 $ 18,120 $ 44,445 $ 19,904 $ 99,197
============ ============ ============= ============ ============
</TABLE>
<TABLE>
<CAPTION>
One
One Year Through After
or Less Five Years Five Years Total
------- ---------- ---------- -----
(In thousands)
<S> <C> <C> <C> <C>
Commercial, financial
and agricultural $ 21,919 $ 10,558 $ 3,097 $ 35,574
Other 12,929 33,887 16,807 63,623
------------ ------------- ------------ ------------
$ 34,848 $ 44,445 $ 19,904 $ 99,197
============ ============= ============ ============
</TABLE>
Risk Elements
The information required by this section is set forth under the heading
"Asset Quality - Non-Performing Assets" in "INFORMATION WITH RESPECT TO
UNIBANK - Management's discussion and Analysis of Financial Condition and
Results of Operations."
Summary of Loan Loss Experience
The information required under this section is set forth under the
heading "Summary of Loan Loss Experience" in "INFORMATION WITH RESPECT TO
UNIBANK - Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Deposits
The schedule of average deposit amounts and average rates is set forth
under the heading "Overview - Average Balance Sheet and Related Yields" in
"INFORMATION WITH RESPECT TO UNIBANK - Management's Discussion and Analysis of
Financial Condition and Results of Operations."
- 74 -
<PAGE> 88
The following is a schedule of maturities of time deposits in amounts
of $100,000 or more as of December 31, 1996:
<TABLE>
<CAPTION>
(Dollars in Thousands)
<S> <C>
Three months or less $ 3,295
Three through six months 1,931
Six through twelve months 3,164
Over twelve months 945
------------
Total $ 9,335
============
</TABLE>
Return on Equity and Assets
The information required by this section is set forth under the heading
"Selected Financial Information" in "INFORMATION WITH RESPECT TO UNIBANK."
Short-Term Borrowings
This information is not required to be presented because the average
balance of all short-term borrowings was less than shareholders' equity at the
end of each period.
- 75 -
<PAGE> 89
EXPERTS
-------
The consolidated financial statements of Bancshares as of December 31,
1996 and 1995 and for the years ended December 31, 1996, 1995 and 1994,
incorporated by reference in this Proxy Statement/Prospectus have been audited
by Crowe, Chizek and Company LLP, as set forth in its report thereon
incorporated by reference herein. The financial statements audited by Crowe,
Chizek and Company LLP have been incorporated by reference in reliance upon such
report given upon their authority as experts in accounting and auditing.
The financial statements of UniBank as of December 31, 1996 and 1995
and for the years ended December 31, 1996, 1995 and 1994, included in this Proxy
Statement/Prospectus have been audited by Crowe, Chizek and Company LLP, as set
forth in its report thereon included herein. The financial statements 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.
The consolidated financial statements of Century Financial Corporation
incorporated by reference in Century's Annual Report on Form 10-K as of December
31, 1996 and 1995 and for each of the three years in the period ended December
31, 1996, have been audited by S.R. Snodgrass, A.C. independent auditors, as set
forth in their report thereon 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.
LEGAL OPINIONS
--------------
A legal opinion has been rendered by Squire, Sanders & Dempsey to the
effect that the issuance of the shares of Bancshares Common Shares offered
hereby has been duly authorized by Bancshares and that the Shares, when issued
in accordance with the Merger Agreement, will be duly issued and outstanding and
fully paid and non-assessable.
INDEMNIFICATION
---------------
The Regulations of Bancshares provide that Bancshares will indemnify
any director or officer of Bancshares or any person who is or has served at the
request of Bancshares as a director, officer or trustee of another corporation,
joint venture, trust or other enterprise (and his heirs, executors and
administrators) against expenses, including attorneys' fees, judgments, fines
and amounts paid in settlement, actually or reasonably incurred because he or
she is or was such director, officer or trustee in connection with any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative. This indemnification is to the full
extent and according to the procedures and requirements of the Ohio General
Corporation Law.
Insofar as indemnification for liabilities arising under the 1933 Act
may be permitted to directors, officers or persons controlling Bancshares
pursuant to the foregoing provisions, Bancshares has been informed that in the
opinion of the Commission such indemnification is against public policy as
expressed in the 1933 Act and is therefore unenforceable.
- 76 -
<PAGE> 90
UNIBANK
FINANCIAL STATEMENT
<PAGE> 91
INDEX TO FINANCIAL INFORMATION
<TABLE>
<S> <C>
REPORT OF INDEPENDENT AUDITORS...................................................................F-1
FINANCIAL STATEMENTS
BALANCE SHEETS--1996 and 1995...........................................................F-2
STATEMENTS OF INCOME - 1996, 1995 AND 1994..............................................F-3
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
-1996, 1995 and 1994....................................................................F-4
STATEMENTS OF CASH FLOWS--1996, 1995 and 1994...........................................F-5
NOTES TO FINANCIAL STATEMENTS...........................................................F-6
BALANCE SHEETS (UNAUDITED)--September 30, 1997 and
December 31, 1996.......................................................................F-20
STATEMENTS OF INCOME (UNAUDITED)--Three and Nine Months Ended
September 30, 1997 and 1996...........................................................F-21
CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS'
EQUITY (UNAUDITED)--Nine Months Ended
September 30, 1997 and 1996...........................................................F-22
STATEMENTS OF CASH FLOWS (UNAUDITED)--Nine Months
Ended September 30, 1997 and 1996.....................................................F-23
NOTES TO FINANCIAL STATEMENTS...........................................................F-24
</TABLE>
<PAGE> 92
REPORT OF INDEPENDENT AUDITORS
Board of Directors
UniBank
Steubenville, Ohio
We have audited the accompanying balance sheets of UniBank as of December 31,
1996 and 1995, and related statements of income, changes in shareholders' equity
and cash flows for the years ended December 31, 1996, 1995 and 1994. These
financial statements are the responsibility of the Bank'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 UniBank, as of December 31,
1996 and 1995, and the results of its operations and cash flows for the years
ended December 31, 1996, 1995 and 1994 in conformity with generally accepted
accounting principles.
Crowe, Chizek and Company LLP
Columbus, Ohio
February 26, 1997
F-1
<PAGE> 93
UNIBANK
BALANCE SHEETS
December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
(Dollars in thousands)
<S> <C> <C>
ASSETS
Cash and due from banks $ 8,070 $ 6,953
Federal funds sold 22,000 17,350
------------ ------------
Total cash and cash equivalents 30,070 24,303
Interest-bearing deposits with financial institutions 1,497 700
Securities available for sale (Note 2) 22,903 25,465
Securities held to maturity (Fair value of
$23,173 in 1996 and $21,240 in 1995) (Note 2) 23,141 21,145
Total loans (Note 3) 99,197 94,628
Less allowance for loan losses (Note 3) (1,045) (958)
------------ ------------
Net loans 98,152 93,670
Premises and equipment, net (Note 4) 2,762 2,695
Accrued interest receivable and other assets 4,843 5,749
------------ ------------
Total assets $ 183,368 $ 173,727
============ ============
LIABILITIES
Deposits
Noninterest bearing deposits $ 15,032 $ 16,117
Interest bearing deposits (Note 5) 144,326 137,293
------- -------
Total deposits 159,358 153,410
Securities sold under repurchase agreements
and Federal Funds purchased (Note 6) 6,038 3,925
Accrued interest payable and other liabilities 1,132 820
------------ ------------
Total liabilities 166,528 158,155
------------ ------------
Commitments and contingencies (Note 9)
SHAREHOLDERS' EQUITY (Note 11)
Common stock, $10.00 par value; 75,000 shares authorized,
issued and outstanding 750 750
Additional paid-in capital 6,750 6,750
Retained earnings 9,549 8,107
Net unrealized loss on securities available for sale,
net of tax (209) (35)
------------ ------------
Total shareholders' equity 16,840 15,572
------------ ------------
Total liabilities and shareholders' equity $ 183,368 $ 173,727
============ ============
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE> 94
UNIBANK
STATEMENTS OF INCOME
December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(Dollars in thousands, except per share data)
<S> <C> <C> <C>
INTEREST INCOME
Loans, including fees $ 8,557 $ 8,157 $ 6,866
Investment and mortgage backed securities
Taxable 2,831 3,290 3,448
Nontaxable 16 54 134
Federal funds sold 1,371 698 380
Other 87 83 170
------------- ------------ ------------
Total interest income 12,862 12,282 10,998
------------- ------------ ------------
INTEREST EXPENSE
Deposits 5,294 4,660 4,019
Federal funds and repurchase agreements 234 154 92
------------- ------------ ------------
Total interest expense 5,528 4,814 4,111
------------- ------------ ------------
NET INTEREST INCOME 7,334 7,468 6,887
PROVISION FOR LOAN LOSSES (Note 3) 40 240 260
------------- ------------ ------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 7,294 7,228 6,627
------------- ------------ ------------
OTHER INCOME
Service charges and fees on deposits 545 455 403
Securities gains (losses) (155) (155)
Other income (Note 12) 648 164 200
------------- ------------ ------------
Total other income 1,193 464 758
------------- ------------ ------------
OTHER EXPENSE
Salaries and employee benefits (Note 7) 2,775 2,518 2,292
Occupancy and equipment expense 627 595 668
Other operating expenses (Note 12) 1,994 1,740 1,863
------------- ------------ ------------
Total other expense 5,396 4,853 4,823
------------- ------------ ------------
INCOME BEFORE INCOME TAXES 3,091 2,839 2,562
INCOME TAXES (Note 8) 973 876 799
------------- ------------ ------------
NET INCOME $ 2,118 $ 1,963 $ 1,763
============= ============ ============
EARNINGS PER COMMON SHARE (Note 1) $ 28.24 $ 26.18 $ 23.51
============= ============ ============
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 95
UNIBANK STATEMENTS OF
CHANGES IN SHAREHOLDERS' EQUITY Years ended
December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Unrealized
Loss on
Additional Securities Total
Common Paid-In Retained Available Shareholders'
Stock Capital Earnings For Sale Equity
----- ------- -------- -------- ------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
BALANCES AT JANUARY 1, 1994 $ 750 $ 6,750 $ 5,532 $ 13,032
Net income 1,763 1,763
Unrealized gain on securities
available for sale upon adoption
of SFAS No. 115, net of tax $ 263 263
Cash dividends declared
($7.25 per share) (544) (544)
Change in unrealized gain on
securities available for sale,
net of tax (1,292) (1,292)
--------- --------- --------- --------- ----------
BALANCES AT DECEMBER 31, 1994 750 6,750 6,751 (1,029) 13,222
Net income 1,963 1,963
Cash dividends declared
($8.10 per share) (607) (607)
Change in unrealized loss on
securities available for sale 994 994
--------- --------- --------- --------- ----------
BALANCES AT DECEMBER 31, 1995 750 6,750 8,107 (35) 15,572
Net income 2,118 2,118
Cash dividends declared
($9.00 per share) (676) (676)
Change in unrealized loss on
securities available for sale (174) (174)
--------- --------- --------- --------- ----------
BALANCES AT DECEMBER 31, 1996 $ 750 $ 6,750 $ 9,549 $ (209) $ 16,840
========= ========= ========= ========= ==========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 96
UNIBANK
STATEMENTS OF CASH FLOWS
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,118 $ 1,963 $ 1,763
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 311 341 397
Securities amortization and accretion, net (240) (84) (21)
Provision for loan losses 40 240 260
Provisions for losses on other real estate 260
Deferred tax expense (benefit) (73) (570) (35)
Increase in cash value of life insurance (84) (55) (61)
Gain on sale of other real estate (2) (11)
Securities (gains) losses 155 (155)
Gain on sale of loans (19)
Changes in other assets and liabilities 1,167 (913) (247)
-------- -------- --------
Net cash provided by operating activities 3,497 2,217 1,913
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in interest-bearing deposits
with financial institutions (797) 2,996 402
Securities available for sale:
Proceeds from sales 1,845 5,587
Proceeds from maturities
and payments 22,584 3,480 787
Purchases (20,141 (6,934) (2,014)
Securities held to maturity:
Proceeds from maturities
and payments 13,762 13,941 18,269
Purchases (15,663) (5,094) (18,361)
Net increase in loans (4,521) (8,363) (12,251)
Proceeds from sale of loans 1,185
Sale of other real estate 37 7 81
Purchase of premises and equipment (377) (376) (197)
Life insurance contracts purchased (724)
-------- -------- --------
Net cash used by investing activities (5,116) 778 (6,512)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits 5,948 9,489 5,871
Net increase in securities sold under
agreements to repurchase 2,113 407 1,117
Cash dividends paid (675) (608) (544)
-------- -------- --------
Net cash provided by financing activities 7,386 9,288 6,444
-------- -------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 5,767 12,283 1,845
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 24,303 12,020 10,175
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 30,070 $ 24,303 $ 12,020
======== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 97
UNIBANK
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of the Bank are based on generally
accepted accounting principles and conform to general practices within the
banking industry. The following is a description of the more significant
accounting policies followed by UniBank ("Bank").
ORGANIZATION: On May 17, 1985, UniBank was established as a result of a purchase
of four branch offices from AmeriTrust. Effective July 1, 1989 the Bank
purchased the assets and assumed the liabilities of the Amsterdam State Bank.
UniBank is state chartered and insured by the Federal Deposit Insurance
Corporation. It is regulated and supervised by the Ohio Division of Banks and
the Federal Deposit Insurance Corporation.
NATURE OF OPERATIONS: The Bank is engaged in the business of commercial and
retail banking and grants commercial, real estate and installment loans to
customers mainly in Jefferson County, Ohio, the eastern-central region of Ohio
and northwestern West Virginia. These communities are the source of
substantially all the Bank's deposit and loan activities. The majority of the
Bank's income is derived from commercial and retail lending activities.
USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS: In preparing financial
statements, management must make estimates and assumptions. These estimates and
assumptions affect the amounts reported for assets, liabilities, revenue and
expenses, as well as the disclosures provided. Future results could differ from
the current estimates.
Areas involving the use of management's estimates and assumptions include the
allowance for loan losses, realization of deferred tax assets, fair value of
certain securities, determination and carrying value of impaired loans, the
carrying value of other real estate owned, recognition and measurement of loss
contingencies, depreciation of premises and equipment and carrying value and
amortization of intangible assets. Estimates that are more susceptible to change
in the near term include the allowance for loan losses, the carrying value of
other real estate owned and the fair value of certain securities.
SECURITIES: Held-to-maturity securities are those which management has the
positive intent and the Bank has the ability to hold to maturity, and are
reported at cost, adjusted for amortization of premiums and accretion of
discounts. Available-for-sale securities are those which the Bank may decide to
sell, if needed, for liquidity, asset-liability management or other reasons.
Available-for-sale securities are reported at fair value with unrealized gains
or losses included as a separate component of shareholders' equity, net of tax.
Realized gains or losses are determined based on the amortized cost of the
specific security sold.
(Continued)
F-6
<PAGE> 98
UNIBANK
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
ALLOWANCE FOR LOAN LOSSES: The allowance for loan losses, which is reported as a
deduction from loans, is available for loan charge-offs. This allowance is
increased by provisions charged to earnings and is reduced by loan charge-offs,
net of recoveries. The adequacy of the allowance is based on management's
evaluation of several key factors including information about specific borrower
situations, their financial condition, collateral values, current economic
conditions, changes in the mix and levels of the various types of loans, past
charge-off experience and other pertinent information. The allowance for loan
losses is based on estimates using currently available information and the
ultimate losses may vary from current estimates due to changes in circumstances.
These estimates are reviewed periodically and, as adjustments become necessary,
they are reported in earnings in the periods in which they become known.
Charge-offs are made against the allowance for loan losses when management
concludes that loan amounts are likely to be uncollectible.
Smaller balance homogeneous loans are evaluated for impairment in total. Such
loans include residential first mortgage loans secured by one- to four-family
residences, automobile, home equity and second mortgage loans less than
$200,000. Commercial loans and mortgage loans secured by other properties are
evaluated individually for impairment. When analysis of a borrower's operating
results and financial condition indicate that underlying cash flows of the
borrower's business are not adequate to meet its debt service requirements, the
loan is evaluated for impairment. Loans are generally moved to nonaccrual status
when 90 days or more past due. Loans considered to be impaired are reduced to
the present value of expected future cash flows or to the fair value of
collateral by allocating a portion of the allowance for loan losses to such
loans.
INTEREST AND FEES ON LOANS: Interest income from commercial, real estate and
installment loans is computed using the simple interest method and is credited
to income daily. The accrual of interest on loans is suspended when, in
management's opinion, the collection of all or a portion of the loan principal
has become doubtful. The carrying value of impaired loans is periodically
adjusted to reflect cash payments, revised estimates of future cash flows and
increases in the present value of expected cash flows due to the passage of
time. Increases or decreases in carrying value due to changes in estimates of
future payments or the passage of time are reported as reductions or increases
in the unallocated portion of the allowance and, to the extent necessary, the
provision for loan losses. Cash payments representing interest income are
reported as such. Other cash payments are reported as reductions in carrying
value.
Loan fees and direct costs associated with originating or acquiring loans are
deferred over the life of the related loans as an adjustment of the yield.
Premiums and discounts on acquired loans are being amortized and accreted over
the estimated lives of the related loans, as an adjustment of the yield.
(Continued)
F-7
<PAGE> 99
UNIBANK
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
PREMISES AND EQUIPMENT: Bank premises and equipment are stated at cost less
accumulated depreciation. Depreciation is provided principally on the
straight-line method over the estimated useful lives of the assets. Costs of
major additions and improvements are capitalized, while maintenance and repairs
are charged to operating expense when incurred. The asset accounts are relieved
of the costs and the accumulated depreciation is charged with the applicable
amount when the property is disposed of or retired. Any resulting gain or loss
is reflected in the results of operations.
REAL ESTATE OWNED: Real estate acquired through foreclosure or
deed-in-lieu-of-foreclosure is initially recorded at the estimated fair value at
the date of foreclosure. The costs of preparing properties for their intended
use are capitalized, whereas costs relating to the holding of property are
expensed. Any subsequent reductions in the estimated fair value are reflected
through a charge to operations.
INCOME TAXES: The Bank 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.
PER SHARE DATA: Earnings and dividends per share amounts reflected herein have
been computed based on the weighted average shares outstanding which is 75,000
for the years ended December 31, 1996, 1995 and 1994.
STATEMENTS OF CASH FLOWS: The Bank reports net cash flows for customer loan
transactions, deposit transactions and time deposits made with other financial
institutions. The Bank considers cash, noninterest-bearing deposits with banks
and federal funds sold to be cash equivalents. For the years ended December 31,
1996, 1995, and 1994 the Bank paid interest of $5,520,000, $5,163,000, and
$4,066,000, respectively, and income taxes of $982,000, $601,000, and $850,000,
respectively.
RECLASSIFICATIONS: Certain amounts appearing in the financial statements and
notes thereto for the year ended December 31, 1995 and 1994 have been
reclassified to conform with the December 31, 1996 presentation.
(Continued)
F-8
<PAGE> 100
UNIBANK
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
NOTE 2 - SECURITIES
The amortized costs and estimated fair values of securities are as follows:
<TABLE>
<CAPTION>
December 31, 1996
-------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE (Dollars in Thousands)
U.S. Treasury securities $ 8,961 $ 6 $ (36) $ 8,931
U.S. government agencies 3,486 9 (213) 3,282
Mortgage-backed securities 1,997 138 2,135
Corporate bonds 8,030 (221) 7,809
--------------- ------------ ------------ ---------------
Total debt securities
available for sale 22,474 153 (470) 22,157
Equity securities 746 746
--------------- ------------ ------------ ---------------
Total securities
available for sale $ 23,220 $ 153 $ (470) $ 22,903
=============== ============ ============ ===============
HELD TO MATURITY
U.S. Treasury securities $ 4,997 $ 2 $ (17) $ 4,982
U.S. government agencies 13,359 (127) 13,232
Obligations of states and
political subdivisions 840 11 851
Mortgage-backed securities 2,452 208 2,660
Corporate bonds 1,493 (45) 1,448
--------------- ------------ ------------ ---------------
Total debt securities
held to maturity $ 23,141 $ 221 $ (189) $ 23,173
=============== ============ ============ ===============
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995
-------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE
U.S. Treasury securities $ 1,997 $ 47 $ 2,044
U.S. government agencies 12,981 65 $ (203) 12,843
Obligations of states and
political subdivisions 165 2 167
Mortgage-backed securities 3,256 166 (3) 3,419
Corporate bonds 6,643 38 (166) 6,515
--------------- ------------ ------------ ---------------
Total debt securities
available for sale 25,042 318 (372) 24,988
Equity securities 475 2 477
--------------- ------------ ------------ ---------------
Total securities
available for sale $ 25,517 $ 320 $ (372) $ 25,465
=============== ============ ============ ===============
</TABLE>
(Continued)
F-9
<PAGE> 101
UNIBANK
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
NOTE 2 - SECURITIES (Continued)
<TABLE>
<CAPTION>
(Dollars in thousands)
December 31, 1995
--------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
HELD TO MATURITY
U.S. Treasury securities $ 1,993 $ 18 $ (9) $ 2,002
U.S. government agencies 14,382 4 (117) 14,269
Obligations of states and
political subdivisions 342 13 355
Mortgage-backed securities 2,934 227 3,161
Corporate bonds 1,494 (41) 1,453
--------------- ------------ ------------ ---------------
Total debt securities
held to maturity $ 21,145 $ 262 $ (167) $ 21,240
=============== ============ ============ ===============
</TABLE>
The amortized cost and estimated fair value of debt securities at December 31,
1996 by contractual maturity are shown below. Expected maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
---- -----
(Dollars in thousands)
<S> <C> <C>
AVAILABLE FOR SALE
Due after one year through five years $ 15,997 $ 15,694
Due after five years through ten years 2,016 1,922
Due after ten years 2,464 2,406
Mortgage-backed securities 1,997 2,135
--------------- ---------------
Total available for sale $ 22,474 $ 22,157
=============== ===============
</TABLE>
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
---- -----
(Dollars in thousands)
<S> <C> <C>
HELD TO MATURITY
Due in one year or less $ 10,972 $ 10,958
Due after one year through five years 8,459 8,330
Due after five years through ten years 1,013 973
Due after ten years 245 252
Mortgage-backed securities 2,452 2,660
--------------- ---------------
Total held to maturity $ 23,141 $ 23,173
=============== ===============
</TABLE>
(Continued)
F-10
<PAGE> 102
UNIBANK
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
NOTE 2 - SECURITIES (Continued)
Proceeds from sales of securities during 1995 and 1994 were $1,845,000 and
$5,587,000. Gross losses of $155,000 were realized in 1995. Gross gains of
$155,000 were realized in 1994. No securities were sold during 1996.
Securities with a carrying value of $34,385,000 and $36,618,000 at December 31,
1996 and 1995, respectively, were pledged to secure deposits and repurchase
agreements.
During 1995, $9,815,000 of securities were reclassified from held to maturity to
available for sale, based on new interpretations issued for Financial Accounting
Standard No. 115.
NOTE 3 - LOANS
Loan balances at December 31, 1996 and 1995 are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
(Dollars in thousands)
<S> <C> <C>
Commercial $ 35,574 $ 39,514
Real estate 32,974 33,279
Installment 30,649 21,835
----------------- -----------------
Total loans $ 99,197 $ 94,628
================= =================
</TABLE>
At December 31, 1996 and 1995, certain officers and directors, their immediate
families and their related business interests were indebted to the Bank in the
aggregate amount of approximately $2,136,000 and $2,686,000, respectively.
The activity in the allowance for loan losses for the years ended December 31,
1996, 1995 and 1994 is summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Beginning balance $ 958 $ 2,094 $ 1,917
Provision for loan losses 40 240 260
Loans charged off (166) (1,515) (120)
Recoveries on previously
charged off loans 213 139 37
----------------- ----------------- ----------------
Ending balance $ 1,045 $ 958 $ 2,094
================= ================= ================
</TABLE>
The Bank did not identify any loans as impaired at or during the year ended
December 31, 1996 and at December 31, 1995. The average balance of impaired
loans during 1995 was $2,640,000. Interest income recognized on impaired loans
during 1995 was $128,000, all on a cash basis.
(Continued)
F-11
<PAGE> 103
UNIBANK
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
Other real estate owned at December 31, 1996 was $1,402,000. The carrying value
of this property was $1,662,000 at December 31, 1995. The reduction in carrying
value of $260,000 was recorded in the statement of income during 1996. The
property was subsequently sold in 1997 with no significant loss.
NOTE 4 - PREMISES AND EQUIPMENT
Major classifications of premises and equipment at December 31, 1996 and 1995
are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
(Dollars in thousands)
<S> <C> <C>
Land $ 831 $ 831
Building 2,065 1,892
Equipment, furniture and fixtures 3,101 2,900
Leasehold improvements 245 242
------------ ------------
Total cost 6,242 5,865
Accumulated depreciation 3,480 3,170
------------ ------------
Premises and equipment, net $ 2,762 $ 2,695
============ ============
</TABLE>
Rental commitments under noncancelable operating leases are:
<TABLE>
<CAPTION>
(Dollars in thousands)
<S> <C>
1997 $ 60
1998 60
1999 60
2000 60
2001 60
Thereafter 690
------------
$ 990
============
</TABLE>
(Continued)
F-12
<PAGE> 104
UNIBANK
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
NOTE 5 - INTEREST-BEARING DEPOSITS
At December 31, 1996 and 1995, total interest-bearing deposits as presented on
the balance sheet is comprised of the following classifications:
<TABLE>
<CAPTION>
1996 1995
---- ----
(Dollars in thousands)
<S> <C> <C>
Interest-bearing demand $ 47,512 $ 47,952
Savings 34,320 34,554
Time
Denominations under $100,000 53,159 47,024
Denominations of $100,000 or more 9,335 7,763
------------ ------------
Total interest-bearing deposits $ 144,326 $ 137,293
============ ============
</TABLE>
At December 31, 1996, scheduled maturities of time deposits are as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
<S> <C>
1997 $ 46,185
1998 14,379
1999 1,226
2000 677
2001 and thereafter 27
------------
$ 62,494
============
</TABLE>
NOTE 6 - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Repurchase agreements generally mature within three months from the transaction
date. Physical control is maintained for all securities sold under repurchase
agreements. Information concerning securities sold under agreements to
repurchase is summarized as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
(Dollars in thousands)
<S> <C> <C>
Average daily balance
during the year $ 5,728 $ 3,473
Average interest rate during the year 3.96% 4.34%
Maximum month-end balance
during the year $ 6,877 $ 5,171
</TABLE>
(Continued)
F-13
<PAGE> 105
UNIBANK
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
NOTE 7 - EMPLOYEE BENEFIT PLAN
The Bank has a contributory 401(k) plan that covers substantially all employees.
Eligibility requirements for the plan are one year of service and at least 21
years of age. The annual expense of the Plan is based on the discretionary
contribution determined by the Board of Directors, which was 7% of salary for
the years ended December 31, 1996, 1995 and 1994, respectively. Employee
voluntary contributions are vested at all times whereas employer contributions
are 20% vested after three years service and vesting increases 20% per year
through year seven when the employer contributions are fully vested. The 1996,
1995, and 1994 expenses related to the plan were $133,000 and $128,000, and
$115,000 respectively.
NOTE 8 - INCOME TAXES
The provision for income taxes for the year ended December 31, 1996 and 1995
consists of the following:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Current $ 1,046 $ 305 $ 835
Deferred tax expense (benefit) (73) 571 (36)
------------ ------------ -------------
Total provision for income taxes $ 973 $ 876 $ 799
============ ============ ============
</TABLE>
The difference between the financial statement tax provision and amounts
computed by applying the statutory federal income tax rate of 34% to income
before taxes are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Income tax computed at statutory
federal income tax rate $ 1,051 $ 965 $ 871
Tax exempt income (83) (91) (70)
Other 5 2 (2)
------------ ------------ ------------
Income tax expense $ 973 $ 876 $ 799
============ ============ ============
</TABLE>
(Continued)
F-14
<PAGE> 106
UNIBANK
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
NOTE 8 - INCOME TAXES (Continued)
The sources of gross deferred tax assets and liabilities at December 31, 1996,
1995, and 1994 were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
Items giving rise to deferred tax assets:
Allowance for loan losses in excess
of tax reserve $ 130 $ 123 $ 633
Depreciation 71 68 32
REO writedowns and rental income 160 61 -
Unrealized loss on securities
available for sale 107 18 530
Other 103 95 166
------------ ------------ ------------
571 365 1,361
Items giving rise to deferred tax Liabilities:
Deferred loan fees 133 84 15
Other 33 39 22
------------ ------------ ------------
166 123 37
Net deferred tax asset $ 405 $ 242 $ 1,324
============ ============ ============
</TABLE>
NOTE 9 - COMMITMENTS AND CONTINGENCIES
The Bank is a party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to make loans. The Bank's exposure to
credit loss in the event of nonperformance by the other party to the financial
instrument for commitments to make loans is represented by the contractual
amount of those instruments. The Bank follows the same credit policy to make
such commitments as is followed for those loans recorded in the financial
statements.
At December 31, 1996 and 1995, the Bank had commitments to make loans at market
rates approximating $13,770,000 and $13,740,000, respectively. At December 31,
1996, approximately $12,564,000 of commitments had adjustable rates and
$1,206,000 had fixed rates.
Commitments generally have fixed expiration dates of less than twelve months.
Since many commitments to make loans expire without being used, the amount does
not necessarily represent future cash commitments. Collateral obtained upon
exercise of the commitment is determined using management's credit evaluation of
the borrower and may include real estate, vehicles, business assets or other
items.
(Continued)
F-15
<PAGE> 107
UNIBANK
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
NOTE 9 - COMMITMENTS AND CONTINGENCIES (Continued)
At December 31, 1996 and 1995, the Bank was required to have $1,461,000 and
$1,561,000, respectively, on deposit with the Federal Reserve Bank or as cash on
hand. These reserves do not earn interest.
The Bank entered into a Branch Purchase and Assumption Agreement dated October
31, 1996 with National City Bank, Northeast (NCB) to purchase from NCB, banking
offices located in Tiltonsville, Mingo Junction and East Liverpool, Ohio. The
Bank will acquire the real estate and buildings of these offices and assume
deposit liabilities of approximately $37 million in 1997. The Bank will pay NCB
premiums ranging between 2.5% to 6.5% of deposits, or approximately $2 million
on the date of closing.
NOTE 10 - FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amount and estimated fair values of financial instruments are as
follows at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1 9 9 6 1 9 9 5
------- -------
(Dollars in thousands)
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Cash and equivalents $ 30,070 $ 30,070 $ 24,303 $ 24,303
Interest-bearing deposits
with banks 1,497 1,497 700 700
Securities
available for sale 22,903 22,903 25,465 25,465
Securities
held to maturity 23,141 23,173 21,145 21,240
Loans, net of allowance
for loan losses 98,152 99,530 93,670 93,386
Accrued interest receivable 1,037 1,037 1,127 1,127
Cash value of life insurance 1,790 1,790 1,707 1,707
FINANCIAL LIABILITIES
Demand and savings
deposits $ (96,864) $ (96,864) $ (96,864) $ (98,623)
Time deposits (62,494) (62,718) (54,789) (54,799)
Repurchase agreements (6,038) (6,038) (3,925) (3,925)
Accrued interest payable (205) (205) (199) (199)
</TABLE>
(Continued)
F-16
<PAGE> 108
UNIBANK
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
NOTE 10 - FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued)
For purposes of the above disclosures of estimated fair value, the following
assumptions were used. The estimated fair value for cash and cash equivalents is
considered to approximate cost. The estimated fair value of securities is based
on quoted market values for the individual securities or for equivalent
securities. Carrying value is considered to approximate fair value for loans
that contractually reprice at intervals of less than six months, cash value of
life insurance, short-term borrowings, deposit liabilities subject to immediate
withdrawal and accrued interest. The fair values of fixed rate loans, loans that
reprice less frequently than each six months and time deposits have been
approximated by a discount rate value technique utilizing estimated market
interest rates as of December 31, 1996 and 1995. The fair value of unrecorded
commitments at December 31, 1996 and 1995 is not material.
While these estimates of fair value are based on management's judgment of the
most appropriate factors, no assurance can be given that, were the Bank to have
disposed of such items at December 31, 1996 and 1995, the estimated fair values
would necessarily have been achieved at these dates, since market values may
differ depending on various circumstances. The estimated fair values at December
31, 1996 and 1995 should not necessarily be considered to apply at subsequent
dates.
Other assets and liabilities of the Bank may have value but are not included in
the above disclosures, such as property and equipment. Also, nonfinancial
instruments typically not recognized in these financial statements nevertheless
may have value, but are not included in the above disclosures. These include,
among other items, the estimated earnings power of core deposit accounts, the
earnings potential of loan servicing rights, the value of a trained work force,
customer goodwill and similar items.
NOTE 11 - REGULATORY MATTERS
The Bank is subject to regulatory capital requirements administered by federal
banking agencies. Capital adequacy guidelines and prompt corrective action
regulations involve quantitative measures of assets, liabilities and certain
off-balance-sheet items calculated under regulatory accounting practices.
Capital amounts and classifications are also subject to qualitative judgments by
regulators about components, risk weightings and other factors and the
regulators can lower classifications in certain cases. Failure to meet various
capital requirements can initiate regulatory action that could have a direct
material effect on the financial statements.
(Continued)
F-17
<PAGE> 109
UNIBANK
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
NOTE 11 - REGULATORY MATTERS (Continued)
The prompt corrective action regulations provide five classifications, including
well capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized, although these terms are not
used to represent overall financial condition. If adequately capitalized,
regulatory approval is required to accept brokered deposits. If
undercapitalized, capital distributions are limited, as is asset growth and
expansion and plans for capital restoration are required. The minimum
requirements are:
<TABLE>
<CAPTION>
Capital to Risk-
Weighted Assets
--------------- Tier I Capital
Total Tier 1 to Average Assets
----- ------ -----------------
(Dollars in thousands)
<S> <C> <C> <C>
Well capitalized 10% 6% 5%
Adequately capitalized 8% 4% 4%
Undercapitalized 6% 3% 3%
</TABLE>
The Bank met the requirements of well capitalized institutions, as defined
above, at December 31, 1996. The Bank's actual capital and the required amount
of capital for capital adequacy purposes and to be considered well capitalized
at December 31, 1996 was:
<TABLE>
<CAPTION>
Minimum
Required to be
Well Capitalized
Minimum Required Under Prompt
for Capital Corrective
Actual Adequacy Purposes Action Regulations
------ ----------------- ------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Total capital (to
risk-weighted assets) $ 18,077 16.6% $ 8,697 8.0% $ 10,872 10.0%
Tier 1 capital (to
risk-weighted assets) $ 17,032 15.7% $ 4,349 4.0% $ 6,523 6.0%
Tier 1 capital
(to average assets) $ 17,032 9.0% $ 7,543 4.0% $ 9,429 5.0%
</TABLE>
The payment of dividends by the Bank is subject to restrictions by its
regulatory agency. These restrictions generally limit dividends to the current
and prior two years retained earnings as defined by the regulations. In
addition, dividends may not reduce capital levels below the minimum regulatory
requirements disclosed above. Under the most restrictive of these requirements,
the Bank estimates that retained earnings available for payment of dividends
approximates $3,150,000 at December 31, 1996.
(Continued)
F-18
<PAGE> 110
UNIBANK
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
NOTE 12 - OTHER INCOME AND EXPENSES
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Other income
Income from REO $ 460 $ - $ -
Other income 188 164 200
------------- ------------ ------------
Total other income $ 648 $ 164 $ 200
============= ============ ============
Other expenses
Computer processing $ 295 $ 276 $ 271
Franchise tax 224 194 198
Writedown of REO 260 - -
FDIC assessment 2 193 351
Other expense 1,213 1,077 1,043
------------- ------------ ------------
Total other expenses $ 1,994 $ 1,740 $ 1,863
============= ============ ============
</TABLE>
NOTE 13 - QUARTERLY INFORMATION
<TABLE>
<CAPTION>
Quarter Ended
Mar. 31 Jun. 30 Sept. 30 Dec. 31
------- ------- -------- -------
(Dollars in thousands, except per share data )
<S> <C> <C> <C> <C>
1996:
Interest income $ 3,098 $ 3,126 $ 3,262 $ 3,364
Net interest income 1,785 1,783 1,838 1,917
Provision for loan losses 40 - -
Net income 522 554 390 652
Earnings per common share $ 6.95 $ 7.39 $ 5.21 $ 8.69
1995:
Interest income $ 2,881 $ 3,018 $ 3,174 $ 3,189
Net interest income 1,799 1,868 1,898 1,883
Provision for loan losses 60 60 60 60
Net income 453 499 500 511
Earnings per common share $ 6.04 $ 6.66 $ 6.67 $ 6.81
</TABLE>
See accompanying notes to financial statements.
F-19
<PAGE> 111
UNIBANK
BALANCE SHEETS (UNAUDITED)
September 30, 1997 and December 31, 1996
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
---- ----
(Dollars in thousands)
<S> <C> <C>
ASSETS
Cash and due from banks $ 8,721 $ 8,070
Federal funds sold 2,450 22,000
--------- ---------
Total cash and cash equivalents 11,171 30,070
Interest-bearing deposits with financial institutions 2,823 1,497
Securities available for sale (Note 2) 33,968 22,903
Securities held to maturity (fair value
of $23,173 in 1996 and $21,240 in 1995) (Note 2) 40,562 23,141
Total loans (Note 3) 123,497 99,197
Less allowance for loan losses (909) (1,045)
--------- ---------
Net loans 122,588 98,152
Premises and equipment, net 3,354 2,762
Intangible assets 1,753 20
Accrued interest receivable and other assets 3,858 4,823
--------- ---------
Total assets $ 220,077 $ 183,368
========= =========
LIABILITIES
Deposits
Non Interest bering deposits $ 17,289 $ 15,032
Interest bearing deposits 179,028 144,326
--------- ---------
Total Deposits 196,317 159,358
Securities sold under repurchase agreements and
federal funds purchased 4,568 6,038
Accrued interest payable and other liabilities 795 1,132
--------- ---------
Total liabilities 201,680 166,528
--------- ---------
Commitments and contingencies (Note 4)
SHAREHOLDERS' EQUITY
Common stock, $10.00 par value; 75,000 share
authorized, issued and outstanding 750 750
Additional paid-in capital 6,750 6,750
Retained earnings 10,943 9,549
Net unrealized loss on securities available for sale,
net of tax (46) (209)
--------- ---------
Total shareholders' equity 18,397 16,840
--------- ---------
Total liabilities and shareholders' equity $ 220,077 $ 183,368
========= =========
</TABLE>
See accompanying notes to financial statements.
F-20
<PAGE> 112
UNIBANK
STATEMENTS OF INCOME (UNAUDITED)
Three and Nine Months ended September 30, 1997 and 1996
<TABLE>
<CAPTION>
For the Three For the Nine
Months Ended Months Ended
September 30, September 30,
1997 1996 1997 1996
---- ---- ---- ----
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees $ 2,719 $ 2,119 $ 7,317 $ 6,280
Investments and mortgage backed
securities
Taxable 1,167 736 2,934 2,132
Nontaxable 6 3 19 10
Federal funds sold 181 380 669 998
Other 47 24 116 66
------------ ------------- ------------ ------------
Total interest income 4,120 3,262 11,055 9,486
------------ ------------- ------------ ------------
INTEREST EXPENSE
Deposits 1,803 1,370 4,709 3,916
Federal funds and repurchase
agreements 44 53 144 163
------------ ------------ ------------ ------------
Total interest expense 1,847 1,423 4,853 4,079
------------ ------------- ------------ ------------
NET INTEREST INCOME 2,273 1,839 6,202 5,407
PROVISION FOR LOAN LOSSES
(Note 3) 25 - 25 40
------------ ------------- ------------ ------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 2,248 1,839 6,177 5,367
------------ ------------- ------------ ------------
OTHER INCOME
Service charges and fees on deposits 137 118 376 339
Securities gains (losses) (2)
Other income 103 88 295 280
------------ ------------- ------------ ------------
Total other income 240 206 669 619
------------ ------------- ------------ ------------
OTHER EXPENSE
Salaries and employee benefits 768 853 2,118 2,082
Occupancy and equipment expense 205 162 570 449
Other operating expenses 656 460 1,637 1,326
------------ ------------- ------------ ------------
Total other expense 1,629 1,475 4,325 3,857
------------ ------------- ------------ ------------
INCOME BEFORE INCOME TAXES 859 570 2,521 2,129
INCOME TAXES 527 483 790 663
------------ ------------- ------------ ------------
NET INCOME $ 332 $ 87 $ 1,731 $ 1,466
============ ============= ============ ============
EARNINGS PER COMMON SHARE
(Note 1) 4.43 1.16 23.08 19.55
============ ============= ============ ============
</TABLE>
See accompanying notes to financial statements.
F-21
<PAGE> 113
UNIBANK
CONDENSED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY (UNAUDITED)
Nine Months ended September 30, 1997 and 1996
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30
1997 1996
---- ----
(Dollars in thousands, except per share data)
<S> <C> <C>
Balances at January 1, $ 16,840 $ 15,572
Net income 1,731 1,466
Cash dividends declared
($4.50 in 1997 and 1996) (338) (338)
Change in unrealized loss
on securities available-for-sale 164 (177)
------------ ------------
Balances at September 30, $ 18,397 $ 16,523
============ ============
</TABLE>
See accompanying notes to financial statements.
F-22
<PAGE> 114
UNIBANK
STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months ended September 30, 1997 and 1996
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1997 1996
---- ----
(Dollars in Thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,731 $ 1,466
Adjustments to reconcile net income
to net cash provided by operating activities
Depreciation and amortization 410 245
Securities amortization and accretion, net (170) (190)
Provision for loan losses 25 40
Loss (gain) on sale of other real estate 2 (2)
Securities losses 2 -
Changes in other assets and liabilities (857) 558
-------- --------
Net cash from operating activities 1,143 2,117
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in interest-bearing deposits with financial institutions (1,325) (997)
Securities available for sale
Proceeds from sales 398
Proceeds from maturities and payments 288 15,278
Purchases (11,428) (14,837)
Securities held to Maturity:
Proceeds from maturities and payments 14,823 10,624
Purchases (32,168) (9,229)
Net increase in loans (15,706) (2,313)
Purchase of loans (8,739)
Sale of other real estate 1,400 38
Purchase of premises and equipment (879) (260)
-------- --------
Net cash used by investing activities (53,336) (1,696)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits 2,874 12,160
Cash, cash equivalents and funds received in assumption 32,227
of deposits, net of assets acquired
Net increase in securities sold
under agreements to repurchase (1,470) 2,568
Cash dividends paid (337) (337)
-------- --------
Net cash provided by financing activities 33,294 14,391
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS (18,899) 14,812
Cash and cash equivalents at beginning of period 30,070 24,303
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 11,171 $ 39,115
======== ========
</TABLE>
See accompanying notes to financial statements.
F-23
<PAGE> 115
UNIBANK
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
September 30, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These interim financial statements are prepared without audit and reflect all
adjustments which, in the opinion of management, are necessary to present fairly
the financial position of UniBank at September 30, 1997 and its results of
operations and cash flows for the periods presented. All such adjustments are of
a normal recurring nature. The financial statements do not purport to contain
all the necessary financial disclosures required by generally accepted
accounting principles that might otherwise be necessary in the circumstances and
should be read in conjunction with the December 31, 1996 audited financial
statements.
The provision from income taxes is based upon the effective tax rate expected to
be applicable for the entire year.
Earnings per share are calculated on the basis of the weighted average number of
shares outstanding. The weighted average number of shares used in the
computation for both 1997 and 1996 was 75,000.
NOTE 2 - SECURITIES
The amortized costs and estimated fair values of investment securities are as
follows:
<TABLE>
<CAPTION>
......................September 30, 1997.....................
------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE
U.S. Treasury securities $ 8,981 $ 12 $ (2) $ 8,991
U.S. government agencies 3,482 16 (171) 3,327
Mortgage-backed securities 1,706 120 - 1,826
Corporate bonds 18,834 82 (125) 18,791
------------ ------------- ------------ ---------
Total debt securities
available for sale 33,003 230 (298) 32,935
Equity securities 1,035 - (2) 1,033
------------ ------------- ------------ ---------
Total securities
available for sale $ 34,038 $ 230 $ (300) $ 33,968
============ ============= ============ =========
</TABLE>
(Continued)
F-24
<PAGE> 116
UNIBANK
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
September 30, 1997
NOTE 2 - SECURITIES (Continued)
<TABLE>
<CAPTION>
......................September 30, 1997........................
------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C>
HELD TO MATURITY
U.S. Treasury securities $ 5,992 $ 23 $ (7) $ 6,008
U.S. government agencies 30,107 69 (26) 30,150
Obligations of states and political
subdivisions 839 11 850
Mortgage-backed securities 2,132 207 2,339
Corporate bonds 1,492 - (28) 1,464
------------ ------------- ------------ ----------
Total debt securities
held to maturity $ 40,562 $ 310 $ (61) $ 40,811
============ ============= ============ ==========
</TABLE>
The amortized cost and estimated fair value of debt securities at September 30,
1997 by contractual maturity are shown below. Expected maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
.......................December 31, 1996.....................
-----------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE
U.S. Treasury securities $ 8,961 $ 6 $ (36) $ 8,931
U.S. government agencies 3,486 9 (213) 3,282
Mortgage-backed securities 1,997 138 - 2,135
Corporate bonds 8,030 - (221) 7,809
------------ ------------- ------------ ----------
Total debt securities
available for sale 22,474 153 (470) 22,157
Equity securities 746 - - 746
------------ ------------- ------------ ----------
Total securities
available for sale $ 23,220 $ 153 $ (470) $ 22,903
============ ============= ============ ==========
HELD TO MATURITY
U.S. Treasury securities $ 4,997 $ 2 $ (17) $ 4,982
U.S. government agencies 13,359 - (127) 13,232
Obligations of states and political
subdivisions 840 11 - 851
Mortgage-backed securities 2,452 208 - 2,660
Corporate bonds 1,493 - (45) 1,448
------------ ------------- ------------ ----------
Total debt securities
held to maturity $ 23,141 $ 221 $ (189) $ 23,173
============ ============= ============ ==========
</TABLE>
(Continued)
F-25
<PAGE> 117
UNIBANK
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
September 30, 1997
NOTE 2 - SECURITIES (Continued)
The amortized cost and estimated fair value of debt securities at September 30,
1997 by contractual maturity are shown below. Expected maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
---- -----
AVAILABLE FOR SALE (Dollars in thousands)
<S> <C> <C>
Due in one year or less $ 10,929 $ 10,932
Due after one year through five years 15,894 15,764
Due after fives years through ten years 2,015 1,948
Due after ten years 2,459 2,465
Mortgage-backed securities 1,706 1,826
------------ ------------
Total available for sale $ 33,003 $ 32,935
============ ============
</TABLE>
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
---- -----
HELD TO MATURITY (Dollars in thousands)
<S> <C> <C>
Due in one year or less $ 11,839 $ 11,814
Due after one year through five years 25,334 25,420
Due after fives years through ten years 1,012 985
Due after ten years 245 253
Mortgage-backed securities 2,132 2,339
------------ ------------
Total held to maturity $ 40,562 $ 40,811
============ ============
</TABLE>
For the nine months ended September 30, 1997, UniBank sold a security
available-for-sale for total proceeds of $398,000 resulting in a gross
unrealized loss of $2,000. There were no sales of available-for-sale securities
during the nine months ended September 30, 1996, or the quarters ended September
30, 1997 and 1996.
(Continued)
F-26
<PAGE> 118
UNIBANK
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
September 30, 1997
NOTE 3 - LOANS
Loan balances are summarized as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
---- ----
(Dollars in thousands)
<S> <C> <C>
Commercial $ 40,378 $ 35,574
Real estate 42,193 32,974
Installment 40,926 30,649
------------ ------------
Total loans $ 123,497 $ 99,197
============ ============
</TABLE>
The activity in the allowance for loan losses for the nine months ended
September 30, 1997 and 1996 is summarized as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
(Dollars in thousands)
<S> <C> <C>
Balance at January 1, $ 1,045 $ 958
Provision for loan losses 25 40
Loans charged off (200) (128)
Recoveries on previously charged off loans 39 198
------------ ------------
Balance at September 30, $ 909 $ 1,068
============ ===========
</TABLE>
The Bank did not identify any loans as impaired at or during the nine months
ended September 30, 1997 or during the year ended December 31, 1996.
NOTE 4 - COMMITMENTS AND CONTINGENCIES
The Bank is a party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to make loans. The Bank's exposure to
credit loss in the event of nonperformance by the other party to the financial
instrument for commitments to make loans is represented by the contractual
amount of those instruments. The Bank follows the same credit policy to make
such commitments as is followed for those loans recorded in the financial
statements.
At September 30, 1997 and December 31, 1996, the Bank had commitments to make
loans at market rates approximating $11,885,000 and $13,770,000, respectively.
At September 30, 1997, approximately $9,812,000 of commitments had adjustable
rates and $2,073,000 had fixed rates.
Commitments generally have fixed expiration dates of less than twelve months.
Since many commitments to make loans expire without being used, the amount does
not necessarily represent
(Continued)
F-27
<PAGE> 119
UNIBANK
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
September 30, 1997
future cash commitments. Collateral obtained upon exercise of the commitment is
determined using management's credit evaluation of the borrower and may include
real estate, vehicles, business assets or other items.
NOTE 5 - ACQUISITION
On September 12, 1997, UniBank and Citizens Bancshares, Inc. ("Bancshares")
entered into a plan and agreement of merger. 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 UniBank will be
exchanged for Bancshares common shares will be 13.25 shares of Bancshares stock
for each share of UniBank Stock. In no event will the exchange ratio be less
than 2.7 times the book value of the Banks equity at December 31, 1997. In the
event the book value per share exceeds $250 per share, Bancshares may elect to
terminate the agreement of merger. In addition, the bank may terminate the
merger agreement if the average NASDAQ National Market System (NMS) price of
Bancshares is 20% or more lower than the average NMS price of 24 defined
financial institutions located throughout Ohio, Pennsylvania and West Virginia.
The Bancshares common shares to be issued to the UniBank shareholders will be
registered with the Securities and Exchange Commission. The merger is expected
to be consummated during the first quarter of 1998 and is subject to approvals
by various regulatory authorities and by the shareholders of UniBank.
(Continued)
F-28
<PAGE> 120
APPENDIX A
AFFILIATION AGREEMENT
A-1
<PAGE> 121
AFFILIATION AGREEMENT
THIS AFFILIATION AGREEMENT ("Agreement") is entered into as of the 12th day
of September, 1997, by and among CITIZENS BANCSHARES, INC. ("Bancshares"), 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 "BHCA"), THE CITIZENS BANKING COMPANY ("Citizens"), a state
banking association organized and existing under the banking laws of the State
of Ohio and a wholly-owned subsidiary of Bancshares, and UNIBANK ("Bank"), a
state banking association organized and existing under the banking laws of the
State of Ohio.
RECITALS
--------
Bancshares and Bank desire that Bank shall be merged with and into Citizens
pursuant to an Agreement of Merger substantially in the form attached as Exhibit
A hereto and made a part hereof (the "Merger" and the "Agreement of Merger,"
respectively).
NOW THEREFORE, in consideration of the premises and mutual covenants herein
contained, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
PLAN OF AFFILIATION
-------------------
Pursuant to this Agreement, Bancshares and Bank have agreed to a plan of
affiliation intended to result in a tax-free plan of reorganization pursuant to
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code").
Upon consummation of the transactions contemplated by this Agreement, at the
Effective Time (as hereinafter defined in Section 1.1), Bank will be merged into
Citizens pursuant to the terms and conditions set forth herein and in the
Agreement of Merger. Upon consummation of the Merger, the separate existence of
Bank shall cease and Citizens shall continue as the surviving corporation and
the offices of Bank will become branches of Citizens.
ARTICLE I
THE MERGER AND THE SHARE EXCHANGE
---------------------------------
Section 1.1. EFFECTIVE TIME. As soon as practicable after each of the
conditions set forth in Article VIII of this Agreement and in the Agreement of
Merger have been satisfied or waived, Bancshares will file or cause to be filed
(i) a certificate of merger with the Secretary of State of the State of Ohio,
and
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(ii) a certificate of merger with the Superintendent of the Division of
Financial Institutions, which shall in each case be in the form required by and
executed in accordance with applicable laws and regulations. The Merger shall
become effective at the time the certificate of merger shall be filed with the
Secretary of State of the State of Ohio (the "Effective Time").
Section 1.2. CONVERSION OF BANK COMMON SHARES INTO BANCSHARES COMMON
SHARES.
(a) At the Effective Time, each issued and outstanding share of Bank
("Bank Common Shares"), other than treasury shares (if any) and Bank Common
Shares as to which dissenters' rights have been exercised (collectively,
"Excluded Stock"), thereupon and without further action shall be converted into
and become 13.25 Bancshares common shares, without par value ("Bancshares Common
Shares"). The foregoing conversion of Bank Common Shares into Bancshares Common
Shares shall hereinafter be referred to as the "Share Exchange."
Notwithstanding the foregoing, in no event shall the holders of Bank
Common Shares receive, in the aggregate, in Bancshares Common Shares with a
Total Value (as hereinafter defined) plus cash in lieu of fractional shares that
is less than 2.7 times the book value of Bank Common Shares on December 31,
1997. In such event, the parties shall adjust the number of Bancshares Common
Shares into which each Bank Common Share shall be converted; provided, however,
solely for purposes of this Section 1.2(a), in the event the book value of Bank
Common Shares shall exceed Two Hundred and Fifty Dollars ($250.00) per share,
Bancshares may elect to terminate this Agreement.
(b) The term "NMS Closing Price" shall mean the price per share of the
last sale of Bancshares Common Shares reported on the NASDAQ National Market
System at the close of the trading day by the National Association of Securities
Dealers, Inc. The term "Total Value" shall mean the arithmetic mean of the NMS
Closing Prices for the twenty (20) trading days immediately preceding the tenth
trading day, inclusive, immediately preceding the Effective Time.
(c) No fractional Bancshares Common Share or certificate or scrip
therefor shall be issued as a result of the conversion of Bank Common Shares
into Bancshares Common Shares. To the extent an outstanding Bank Common Share
would otherwise have become a fractional Bancshares Common Share, the holder
thereof shall be entitled to receive a cash payment therefor in accordance with
the provisions of the Agreement of Merger. Such purchases of fractional
interests are merely intended as
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a mechanism for "rounding off" fractional shares and do not constitute
separately bargained for consideration in connection with the transactions
contemplated by this Agreement.
Section 1.3. EXCHANGE OF CERTIFICATES. After the Effective Time, each
holder of an outstanding certificate or certificates for Bank Common Shares
converted to Bancshares Common Shares shall be entitled to receive a certificate
or certificates representing the number of whole Bancshares Common Shares into
which such holder's Bank Common Shares shall have been converted and, if
applicable, a cash payment in lieu of any fractional share determined in
accordance with the Agreement of Merger. In order to effect such surrender and
exchange, each such holder of Bank Common Shares shall surrender the outstanding
certificate(s) therefor to Bancshares' designated exchange agent (the "Exchange
Agent"), duly endorsed for transfer or accompanied by a duly endorsed assignment
separate from the certificate(s). In the event of a lost certificate, the Bank
shareholder shall provide in lieu of the lost certificate an affidavit and a
bond as required by Bank's Code of Regulations. Pending such surrender and
exchange, such holder's certificate(s) for Bank Common Shares shall be deemed,
for all corporate purposes (other than as set forth in Section 1.4 of this
Agreement), to evidence the number of whole Bancshares Common Shares into which
such Bank Common Shares shall have been converted by the Share Exchange. The
Exchange Agent shall, upon receipt of the duly endorsed Bank certificate or
certificate with a duly endorsed separate assignment, issue the Bancshares'
Common Shares certificate to the surrendering Bank certificate holder, together
with any cash payment in lieu of fractional shares, as applicable.
Section 1.4. PAYMENT OF DIVIDENDS. Unless and until any such outstanding
certificate(s) for Bank Common Shares shall be so surrendered, no dividend (cash
or stock) payable to holders of record of Bancshares Common Shares as of any
date subsequent to the Effective Time shall be paid to the holder of such
outstanding certificate(s). Upon the surrender of the Bank Common Share
certificate(s), Bancshares shall pay to the record holder of Bancshares Common
Shares issued in exchange therefor, the amount of dividends, if any, but without
interest, that have theretofore become payable to such record holder.
Section 1.5. CHANGES IN BANCSHARES COMMON SHARES. If, during the interim
period between the date of this Agreement and the Closing Date, the shares of
Bancshares Common Shares shall be
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changed into a different number of shares or a different class or a different
type of security by reason of any reclassification, recapitalization, pro rata
rights offering, subdivision, split, combination or exchange of shares, or if a
stock dividend thereon shall be declared with a record date within such interim
period, the Share Exchange shall be adjusted appropriately to preserve the
aggregate consideration to be exchanged for the Bank Common Shares.
ARTICLE II
REPRESENTATIONS AND WARRANTIES BY BANCSHARES AND CITIZENS
---------------------------------------------------------
Bancshares and Citizens, as applicable, hereby represent and warrant to
Bank that the following are true and correct on the date of this Agreement and
shall be true and correct on the Closing Date (as hereinafter defined):
Section 2.1. DUE ORGANIZATION AND GOOD STANDING. Bancshares is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of Ohio and is registered as a bank holding company under the
BHCA and has full corporate authority and power to carry on its business as it
is now being conducted. Citizens is a corporation duly organized, validly
existing, and in good standing as a state banking association under the banking
laws of the State of Ohio and is duly authorized to conduct the banking business
in which it is engaged.
Section 2.2. AUTHORITY FOR TRANSACTION. The execution and performance of
this Agreement and the Agreement of Merger by Bancshares and Citizens and their
delivery to Bank have been duly authorized by all requisite corporate action
(including, with respect to the Agreement of Merger, approval by Bancshares as
the sole shareholder of Citizens) and are valid and binding upon Bancshares and
Citizens, subject to receipt of required regulatory approvals and satisfaction
of the other conditions contained herein and therein.
Section 2.3. BANCSHARES COMMON SHARES TO BE ISSUED. The Bancshares Common
Shares to be issued to Bank shareholders pursuant to the Agreement of Merger,
when so issued, will have been duly authorized and validly issued by Bancshares
and will be fully paid and nonassessable.
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Section 2.4. BANCSHARES COMMON SHARES OUTSTANDING.
(a) STOCK. The authorized capital stock of Bancshares consists of (i)
12,000,000 Bancshares Common Shares, without par value, of which 5,897,540
shares are issued and outstanding and 2,250 shares are held in the treasury and
(ii) 200,000 serial preferred shares, par value $10.00 per share, none of which
are issued and outstanding and none of which are held in the treasury. Each
outstanding Bancshares Common Share is duly authorized, validly issued, fully
paid and nonassessable.
(b) OPTIONS AND OTHER SECURITIES. Except as set forth in Schedule
2.4(b) hereto, no options, warrants or other rights to purchase, agreements or
other obligations to issue, or other rights to convert any obligation into any
shares of Bancshares Common Shares have been authorized, granted or entered into
by Bancshares. Other than as set forth in Section 2.4(a), there are no
Bancshares debt or equity securities authorized or outstanding.
Section 2.5. FINANCIAL STATEMENTS; NO MATERIAL ADVERSE CHANGE. Bancshares
has furnished to Bank (a) consolidated balance sheets of Bancshares and its
subsidiaries as of December 31, 1995 and 1996, respectively, and consolidated
statements of income, consolidated statements of cash flows and consolidated
statements of changes in shareholders' equity for the years ended December 31,
1994, 1995 and 1996, respectively, all as certified by Crowe, Chizek and Company
LLP, Bancshares' independent auditors, and (b) unaudited consolidated balance
sheets and income statements of Bancshares and its subsidiaries for the periods
ended March 31, 1997 and June 30, 1997. The aforesaid financial statements have
been prepared in conformity with generally accepted accounting principles
applied on a consistent basis and present fairly the consolidated financial
position of Bancshares as of the dates thereof and for the periods covered
thereby. Since December 31, 1996, there has not been any material adverse change
in the financial condition, results of operations, assets, or business of
Bancshares and its subsidiaries taken as a whole.
Section 2.6. ABSENCE OF CONFLICTS. To the best of Bancshares' and Citizens'
knowledge, neither the execution, performance or delivery of this Agreement or
the Agreement of Merger by Bancshares or Citizens, respectively, nor the
consummation of the transactions contemplated hereby or thereby will result in a
violation or breach of, or permit any third party to modify or rescind any term
or provision of, or constitute a default under, any indenture, mortgage, deed of
trust, promissory note or other
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material contract, license or other agreement to which Bancshares or Citizens is
a party or to which any of their respective properties is subject or will result
in a breach of Bancshares' or Citizens' Articles of Incorporation or
Regulations.
Section 2.7. BROKERAGE AND FINDER'S FEES. Bancshares has not employed any
broker, finder, or agent, or agreed to pay or incurred any brokerage fee,
finder's fee, commission or other similar form of compensation in connection
with this Agreement or the transactions contemplated hereby.
Section 2.8. COMPLIANCE WITH SECURITIES LAWS. Bancshares has delivered to
Bank true and correct copies of its Form 10-K (Annual Report) for the year ended
December 31, 1996, and its Forms 10-Q (Quarterly Report) for the quarters ended
March 31, 1997 and June 30, 1997, as filed with the SEC, all of which were
prepared and filed in accordance with the applicable requirements and
regulations of the SEC. Bancshares has also delivered to Bank true and correct
copies of all documents and reports filed by Bancshares with the SEC pursuant to
the Exchange Act since January 1, 1996 (the "Bancshares Reports"). Bancshares
has filed and will continue to file all reports and other documents required to
be filed with the SEC pursuant to the Exchange Act in a timely manner. All of
the Bancshares Reports complied in all material respects with the Act and did
not contain, as of their respective dates, any untrue statement of a material
fact or omit to state any material fact necessary to make the statements therein
not misleading in light of the circumstances under which they were made. To the
best of its knowledge, Bancshares is in compliance with all federal and state
securities laws and regulations, including but not limited to all filing
requirements, except to the extent that additional filings will be required in
connection with the transactions contemplated by this Agreement and the
Agreement of Merger. All information provided in such filings is accurate and
complete, in all material respects, to the extent required by such laws and
regulations.
ARTICLE III
REPRESENTATIONS AND WARRANTIES BY BANK
--------------------------------------
Bank hereby represents and warrants to Bancshares and Citizens that, except
to the extent set forth in the Disclosure Schedule delivered to Bancshares and
Citizens at the signing of this Agreement, which is attached hereto and made a
part hereof, the following are true and correct on the date of this Agreement
and shall be true and correct on the Closing Date:
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Section 3.1. OUTSTANDING SECURITIES.
(a) STOCK. The authorized capital stock of Bank consists solely of
75,000 Bank Common Shares, par value $10.00 per share, of which 75,000 shares
are issued and outstanding and none are held in the treasury. Each outstanding
Bank Common Share is duly authorized, validly issued, fully paid, and
nonassessable.
(b) OPTIONS AND OTHER SECURITIES. No options, warrants or other rights
to purchase, agreements or other obligations to issue, or other rights to
convert any obligation into any shares of Bank Common Shares have been
authorized, granted or entered into by Bank. Other than as set forth in Section
3.1(a), there are no Bank debt or equity securities authorized or outstanding.
Bank does not have, nor will it have at any time from the execution of this
Agreement through the time of Closing (as hereinafter defined), any obligations
or commitments related to the Common Shares which may require or permit Bank to
issue or change the number of its issued or authorized Common Shares.
Section 3.2. DUE ORGANIZATION AND GOOD STANDING. Bank is a corporation duly
organized, validly existing, and in good standing as a state banking association
under the banking laws of the State of Ohio and is duly authorized to conduct
the banking business in which it is engaged. Bank does not have any subsidiaries
or affiliates (as such term is defined under Rule 405 of the Securities Act of
1933, as amended).
Section 3.3. AUTHORITY FOR TRANSACTION. The execution of this Agreement and
the Agreement of Merger by Bank and their delivery to Bancshares and Citizens
have been authorized by all requisite corporate action, other than approval by
Bank shareholders. When this Agreement and the Agreement of Merger shall be
approved and adopted in accordance with law by the Bank shareholders, no further
corporate action will be necessary on the part of Bank to make them valid and
binding upon Bank.
Section 3.4. ABSENCE OF CONFLICTS. Neither the execution, delivery or
performance of this Agreement or the Agreement of Merger by Bank, nor the
consummation of the transactions contemplated hereby or thereby will result in a
violation or breach of, or permit any third party to modify or rescind any term
or provision of, or constitute a default under, any indenture, mortgage, deed of
trust, promissory note or other material contract, license or other agreement to
which Bank is a party
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or to which any of its properties is subject or will result in a breach of
Bank's Articles of Incorporation or Code of Regulations.
Section 3.5. FINANCIAL STATEMENTS. Bank has delivered to Bancshares (a)
consolidated financial statements for each of the fiscal years ended December
31, 1993, 1994, 1995 and 1996, respectively, consisting of balance sheets and
the related statements of income and retained earnings and cash flows for the
fiscal years ended on such date, all as certified by Crowe, Chizek and Company
LLP, Bank's independent auditors, and (b) unaudited consolidated financial
statements for the interim periods ended March 31, 1997 and June 30, 1997,
consisting of balance sheets and the related statements of income. The aforesaid
financial statements, as of the dates thereof and for the periods covered
thereby, have been prepared in conformity with generally accepted accounting
principles, consistently applied throughout the periods indicated, and fairly
present the financial position of Bank as of the dates thereof and the results
of operations and cash flows for the periods indicated.
Section 3.6. TITLE TO ASSETS. Bank has good and marketable title in and to
all of its assets, free and clear of any mortgage, conditional sale agreement,
security interest, lease, pledge, hypothecation, lien or other encumbrance. All
buildings and other structures material to Bank's business conform with all
applicable ordinances, codes and regulations.
Section 3.7. CONDITION OF ASSETS. All of the assets necessary for the
conduct of the business (whether real or personal, owned or leased) of Bank have
been well maintained and are in normal operating condition, free from defects
other than normal wear and tear and such minor defects as do not interfere with
the continued use thereof in the conduct of normal operations.
Section 3.8. CONTRACTS. All contracts and commitments (whether written or
oral) that may have a material effect on the business of Bank are disclosed on
the Disclosure Schedules and copies of any such written contracts or commitments
have been provided to Bancshares. All contracts and commitments for the lease or
purchase of equipment or services have been entered into on an arm's length
basis.
Section 3.9. INSURANCE OF DEPOSITS. The deposits of Bank are insured by the
Federal Deposit Insurance Corporation in accordance with the Federal Deposit
Insurance Act ("FDIA"). Bank has paid
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all assessments and filed all reports required under the FDIA and is in
compliance with all regulatory requirements imposed in connection with the
insurance of its deposits.
Section 3.10. LOANS AND INVESTMENTS. The reserves for possible loan losses
on the outstanding loans of Bank, as reflected in the balance sheets of Bank as
of December 31, 1996 (the "1996 Balance Sheet") and as of the Closing Date are,
or will be, as the case may be, adequate to absorb all known and anticipated
loan losses in the loan portfolio of Bank (net of recoveries relating to loans
previously charged off). In addition, the reserves for possible loan losses on
the outstanding loans of Bank, as reflected in the balance sheet of Bank as of
the Closing Date, will be in amount(s) that, as a percentage of the Bank's
loans, are at least equal to the reserves set forth on the 1996 Balance Sheet.
Except as set forth in the Disclosure Schedule, there are no loans of Bank, the
present principal balance of which is in excess of $10,000, that have been
classified orally or in writing by bank examiners (regulatory or internal) as
"Other Loans Specifically Mentioned," "Substandard," "Doubtful," or "Loss," as
of the last examination date (which shall include the date on which any
examination prior to the Effective Time). Each loan in the principal amount of
$2,500 or greater reflected as an asset of Bank in the 1996 Balance Sheet or
acquired by Bank since December 31, 1996, is the legal, valid and binding
obligation of the obligor and any guarantor named therein, and no such loan is
subject to any defense, offset or counterclaim. Except for pledges to secure
public and trust deposits, none of the investments reflected in the 1996 Balance
Sheet under the heading "Investment Securities," and, except as set forth on the
Disclosure Schedule, none of the investments made by Bank since December 31,
1996, is subject to any restriction, whether contractual or statutory, which
impairs the ability of Bank freely to dispose of such investment at any time.
With respect to all repurchase agreements to which Bank is a party, Bank has a
valid, perfected first lien or security interest in the government securities or
other collateral securing the repurchase agreement and the value of the
collateral securing each such repurchase agreement equals or exceeds the amount
of the debt secured by such collateral under such agreement. Except as set forth
in the Disclosure Schedule, and except for transactions aggregating less than
$1,000, Bank has not sold or otherwise disposed of any assets in a transaction
in which the acquirer of such assets or any other person has the right, either
conditionally or absolutely, to require Bank to repurchase or otherwise
re-acquire any such assets.
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Section 3.11. LARGE DEPOSITS. Prior to the Closing, Bank will have provided
Bancshares and Citizens with a list of all certificates of deposit or checking,
savings or other deposits and a list of all certificates of deposit or checking,
savings or other deposits owned by directors and officers of Bank and their
affiliates as of the last day of the calendar month immediately prior to the
Closing. In addition, Bank shall provide Bancshares and Citizens with a list of
(i) all certificates of deposit, checking, savings or other deposits in excess
of $25,000 and (ii) all customers with aggregate deposits in excess of $50,000.
Section 3.12. INSURANCE POLICIES. The Disclosure Schedule contains a list
and a brief description of all insurance policies currently in force with
respect to Bank. All premiums due on such policies have been paid, and such
policies will continue to remain in force through the Effective Time. The
Disclosure Schedule also contains a description of all claims in excess of
$1,000 currently pending under such insurance policies, together with a list of
all other claims in excess of $1,000 which have been filed during the last three
(3) years and a description of the disposition thereof.
Section 3.13. EMPLOYMENT CONTRACTS AND EMPLOYEE BENEFIT PLANS. The
Disclosure Schedule contains a complete list of each employee contract, bonus,
savings, profit sharing, stock bonus, consulting, pension, retirement,
insurance, severance or any union or collective bargaining agreements or any
contract or agreement with any labor organization and other similar, analogous
or related arrangement or plan, written or oral, including, without limitation,
each "employee benefit plan" within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") (all of the
foregoing hereinafter collectively referred to as the "Plans") with respect to
any one or more employees of Bank. To the extent Plans have been reduced to
writing, complete and accurate copies of all such Plans have been delivered to
Bancshares. Each oral Plan, if any, has been accurately described in the
Disclosure Schedule. A complete list (as of August 1, 1997) of all employees of
Bank, their respective dates of hire, cash compensation, compensation pursuant
to participation in each of the Plans and the amount of any indebtedness to Bank
has been delivered to Bancshares. On or before the Closing Date, the Bank shall
fully accrue for all amounts payable under any of the Plans. Bank has also
delivered to Bancshares a list of all employees who are currently entitled to
perquisites (including, but not limited to, automobiles and club memberships) as
well as a
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brief description of each such perquisite. Since the date of such list, no
employment contract or Plan has been instituted, agreed to, or changed by Bank,
nor has there been any increase in the compensation payable or to become payable
by Bank to any employee, whose total compensation for services rendered
currently exceeds $15,000.00 annually, except with respect to certain merit
increases set forth on the Disclosure Schedule which will be given by Bank on or
before December 31, 1997.
Section 3.14. COMPLIANCE OF EMPLOYEE BENEFIT PLANS WITH ERISA AND INTERNAL
REVENUE CODE. Bank hereby represents and warrants that:
(a) The Disclosure Schedule contains a complete list of all of Bank's
retirement plans subject to ERISA and the Code (each such plan being referred to
individually as a "Pension Plan" and collectively, as the "Pension Plans".
(1) A complete copy of each Pension Plan (including all amendments
thereto) and all related documents, including without limitation, trust
agreements, annuity contracts, insurance contracts, investment management
agreements, indemnification agreements, collective bargaining agreements;
forms of application, other forms and notices used in the administration of
the plan, and summary plan descriptions, have been delivered to Bancshares;
(2) Each of the Pension Plans, from its inception, has been determined
by the Internal Revenue Service ("IRS") to be qualified under Section
401(a) of the Code and, to the best of Bank's knowledge, has been
administered in all respects in accordance with Sections 401, 402(f), 410,
411, 414, 415, 416, and 417 and the regulations and rulings issued
thereunder; and, to the best of Bank's knowledge, nothing has occurred
prior to the Closing that could reasonably be expected to cause the IRS to
revoke such determination, or that would adversely affect the continued
qualified status of such plan under Section 401(a) of the Code;
(3) Each trust established in connection with a Pension Plan, from its
inception, has been determined to be exempt from federal income tax under
Section 501(a) of the Code and no facts or circumstances exist that could
adversely affect the continuing tax-exempt status of such trust, or subject
any such trust to a tax on unrelated business income under the Code;
(4) Bank has caused to be delivered to Bancshares prior to the date
hereof, with respect to each Pension Plan: (i) a true and complete copy of
each determination letter and ruling issued by IRS, (ii) all applications
for determination letters filed with IRS after December 31, 1987, (iii) all
applications for rulings filed with IRS, and (iv) all correspondence to or
from the IRS relating to such application and relating to any audit of the
plan by IRS;
(5) To the best of Bank's knowledge, each Pension Plan has been
administered in accordance with its terms and in compliance with ERISA, the
Code federal and state securities laws, and ADEA and the applicable
regulations and rulings of the U.S. Department of Labor ("DOL"), the
Internal Revenue Service ("IRS"), the Pension Benefit Guaranty Corporation
("PBGC"), the Equal Employment Opportunity Commission ("EEOC") and the
Securities and Exchange Commission ("SEC"); and Bank has caused to be
delivered to Bancshares prior to the date hereof, a true and complete copy
of all correspondence to or from the DOL, the IRS, the EEOC, the PBGC
(including,
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without limitation, all notices of reportable events under Section 4043 of
ERISA) and the SEC concerning each Pension Plan;
(6) Complete Annual Reports (Form 5500 series) have been properly filed
when due each year for each Pension Plan, and Bank has caused to be
delivered to Bancshares prior to the date hereof, true and complete copies
of such Annual Reports and of financial statements (audited and unaudited)
for each Pension Plan for each of the last six (6) plan years ending prior
to the Closing;
(7) All contributions to the Pension Plans have been completely and
timely made, have been fully deducted by Bank for income tax purposes, and,
to the best of Bank's knowledge, have not been disallowed by any
governmental entity;
(8) All administration fees due in connection with the Pension Plans on
or prior to the Closing Date have been, and will be, paid when due;
(9) To the best of Bank's knowledge, any notices required by ERISA or
the Code or any other state or federal law or any ruling or regulation of
any state or federal administrative agency with respect to each Pension
Plan have been appropriately given, other than the filing of Form 5310-A
with the IRS with respect to the transfer of assets from the National City
Savings and Investment Plan to the UniBank Retirement Savings and
Investment Plan.
(10) All accrued contributions for each Pension Plan for all periods
ending prior to Closing (including periods from the first day of the
current plan year to Closing) will be made to each Pension Plan prior to
the Closing by Bank;
(11) No action, suit, grievance, arbitration or other manner of
litigation, or claim with respect to the assets of any Pension Plan (other
than routine claims for benefits made in the ordinary course of plan
administration for which plan administrative review procedures have not
been exhausted) are pending, threatened or imminent against or with respect
to any Pension Plan, fiduciary (as defined in ERISA ss.3(21)) of any
Pension Plan (including any action, suit, grievance, arbitration or other
manner of litigation, or claim regarding conduct which allegedly interferes
with the attainment of rights under the Plan);
(12) To the best of Bank's knowledge, there are no facts which would
give rise to or could give rise to any action, suit, grievance, arbitration
or other manner of litigation, or claim;
(13) No Pension Plan has a reportable event (as defined in ERISA
ss.4043) as to which a notice would be required to be filed with the PBGC;
and
(14) To the best of Bank's knowledge, there is no pending or threatened
legal action, proceeding or investigation against or involving any Pension
Plan and there is no basis for any legal action, proceeding or
investigation.
(15) No defined benefit pension plan, money purchase pension plan or
Employee Stock Ownership Plan constitute a Pension Plan hereunder.
(16) There is no defined benefit pension plan, no money purchase
pension plan or no employee stock ownership plan which would constitute a
Pension Plan as defined in section 3.14(h)(3).
(b) All welfare plans of Bank are listed and identified on the
Disclosure Schedule (individually hereinafter referred to as a "Welfare Plan"
and, collectively, as the "Welfare Plans") and:
(1) A complete copy of each Welfare Plan (including all amendments
thereto) and all related documents, including without limitation, trust
agreements, contracts, insurance policies, funding
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or rate stabilization agreements, investment management agreements,
indemnification agreements, collective bargaining agreements, forms of
application, other forms and notices used in the administration of the
plan, and summary plan descriptions, have been delivered to Bancshares;
(2) The Disclosure Schedule contains lists identifying separately with
respect to each Welfare Plan: (i) each employer that has sponsored the plan
at any time, (ii) the categories of employees, dependents and beneficiaries
who are covered by the plan, (iii) each present or former employee of Bank
or of any prior employer-sponsor of the Plan who is receiving or has a
right to receive present or future benefits from the Plan, his dependents
who are eligible for present or future benefits from the Plan and, in each
case, the amount and type of such benefits, and (iv) beneficiaries of
deceased participants in the Plan who are receiving or have the right to
receive present or future benefits from the Plan and the amount and type of
such benefits;
(3) No Welfare Plan is funded through a voluntary employee's
beneficiary association (as referred to in Section 501(c)(9) of the Code)
or through a trust. No welfare benefit fund (as defined in Section 419(e)
of the Code) has been established or maintained with respect to any Welfare
Plan;
(4) To the best of Bank's knowledge, each Welfare Plan has been
administered in accordance with its terms and in compliance with ERISA, the
Code and the ADEA and the applicable regulations and rulings of the DOL,
the EEOC and the IRS, including but not limited to provisions of ERISA and
the Code relating to the COBRA continuation requirements set forth in
Sections 601 through 609 and Sections 701 and 702 of ERISA and Section
4980B of the Code; Bank has caused to be delivered to Bancshares prior to
the date hereof, a true and complete copy of all correspondence to or from
the DOL, the EEOC and the IRS concerning each Welfare Plan; and each
Welfare Plan has been operated in compliance with all agreements and
policies of any insurance company which is providing benefits thereunder
pursuant to an agreement with Bank;
(5) Complete Annual Reports (Form 5500 series) have been properly filed
when due each year for each Welfare Plan for which such reports are
required, and Bank has caused to be delivered to Bancshares prior to the
date hereof, true and complete copies of such Annual Reports and of all
such financial statements (audited and unaudited) for each Welfare Plan for
each of the last six (6) plan years ending prior to the Closing;
(6) Each Welfare Plan is now and has been established in writing.
(c) Bank has not at any time contributed or had an obligation to
contribute to any "multiemployer plan" (as defined in section 4001(a)(3) of
ERISA). Bank has not incurred any liability for a withdrawal or partial
withdrawal from a multiemployer plan.
(d) Bank has no liability arising under Title IV of ERISA (i)
attributable to the termination or partial termination on or before the Closing
Date of any "single employer plan" (as defined in Section 4001(a)(15) of ERISA),
or (ii) for any unpaid premiums under Section 4007 of ERISA. In addition, the
PBGC has not instituted or threatened to institute a proceeding to terminate any
Pension Plan pursuant to ERISA.
(e) To the best of Bank's knowledge, neither Bank nor any administrator
or fiduciary of any Employee Benefit Plan (i) has engaged in a transaction with
respect to any Bank Employee Benefit Plan
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that is prohibited under Section 406 of ERISA or Section 4975 of the Code, or
(ii) participated in any breach of fiduciary duty to any Bank Employee Benefit
Plan. No assets of any Pension Plan are (i) invested in any security or
obligation of Bank other than 880 shares of UniBank Stock, or (ii) invested in
the real or personal property used by Bank. To the best of Bank's knowledge,
neither Bank nor any of its current directors, current officers, current
employees or any other fiduciary has any liability for failure to comply with
ERISA or the Code for any action or failure to act in connection with the
administration or investment of any Pension Plan.
(f) To the best of Bank's knowledge, no tax has been imposed on Bank
under Section 4980B of the Code, nor will any such tax be imposed in the future
as a result of any failure of Bank to satisfy the continuing coverage
requirements of 4980B(f) of the Code with respect to any "qualifying event" (as
defined in such Section 4980B) that shall have occurred on or before the Closing
Date.
(g) To the best of Bank's knowledge, neither Bank nor the administrator
of any Bank Employee Benefit Plan ("Administrator") has incurred any liability
for taxes, fines or penalties, including joint and several liability, under any
of the provisions of the Code or ERISA, listed in paragraph (1) or (2), below,
or liability under Section 409 of ERISA for breach of fiduciary duty with
respect to any Bank Employee Benefit Plan, nor will any such liability be
imposed on Bank or any Administrator at any time under such Section of the Code
or ERISA as a result of (i) facts or circumstances existing on the Closing Date;
or (ii) any action or failure to act or violation of any requirements,
standards, restrictions or limitation of the Code or ERISA by Bank or the
Administrator on or before the Closing Date:
(1) Code Sections 4971, 4972, 4975, 4976, 4977, 4978, 4979, 4980, 5000,
6652(d), (e), (g), (h) and (i), 6690, 6692 and 6693, and 6074.
(2) ERISA Sections 502(c), 502(i) and 4302.
(i) As used in this Section 3.14:
(1) The term "ADEA" means the federal Age Discrimination in Employment
Act and any state law prohibiting discrimination on account of age.
(2) The term "CODE" refers to both the Internal Revenue Code of 1954
and the Internal Revenue Code of 1986, as amended unless otherwise specified.
(3) The term "BANK EMPLOYEE BENEFIT PLAN" means any present or prior
(including terminated and transferred) "employee benefit plan" (as defined in
Section 3(3) of ERISA) that, on or before the Closing Date, is or has been
sponsored or maintained by Bank or to which Bank has contributed or have had an
obligation to contribute. The term "BANK PENSION PLAN" means any present or
prior (including
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terminated and transferred) "employee pension benefit plan" (as defined in
Section 3(2) of ERISA) that, on or before the Closing, is or has been sponsored
or maintained by Bank or to which Bank contributed or has had an obligation to
contribute (including, in addition to tax-qualified plans, all other plans of
deferred compensation and all severance pay plans). The term "BANK WELFARE PLAN"
means any present or prior (including terminated and transferred) "employee
welfare benefit plan" (as defined in Section 3(1) of ERISA) and any other fringe
benefit, incentive compensation, bonus or executive compensation plan, program,
agreement, method of compensation, or arrangement (other than a Pension Plan or
a multiemployer plan within the meaning of Section 3(37) of ERISA) that, on or
before the Closing Date, is or has been sponsored or maintained by Bank, or to
which Bank has contributed or has had an obligation to contribute.
(4) The term "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended.
(5) The term "FIDUCIARY" shall mean any person defined in Section 3(21)
of ERISA.
Section 3.15. ABSENCE OF UNDISCLOSED LIABILITIES. Except to the extent
reflected or reserved against in the 1996 Balance Sheet or in the notes thereto,
and except as set forth on the Disclosure Schedule, as of the date of such
Balance Sheet, the Bank has no liabilities or obligations, secured or unsecured,
whether accrued, absolute, contingent or otherwise, in excess of $10,000.
Section 3.16. ABSENCE OF ADVERSE CHANGE. Since December 31, 1996, except as
set forth on the Disclosure Schedule, there has been no change in or to Bank's
business, operations, financial position, earnings, prospects, liabilities, or
relationships with suppliers, service companies or customers, which would
materially and adversely affect the financial condition, results of operations,
assets, or business of Bank.
Section 3.17. ABSENCE OF CERTAIN CHANGES. Since December 31, 1996, Bank has
not (a) paid or declared payable any distribution of cash or any other asset to
any shareholder, in the nature of a dividend (except as otherwise permitted
pursuant to Section 5.9 hereof), in redemption, or as the purchase price of any
of its capital stock, or in discharge or cancellation, whether in part or in
whole, of any indebtedness owing to any shareholder; (b) made any changes in its
lending policies, except for the most recent change in rates of interest which
is set forth on the Disclosure Schedule; (c) made any purchase, redemption,
retirement, sale, issuance, or other acquisition of any stock, notes, or other
securities other than in the ordinary course of business and consistent with
past practices; provided however that after the date hereof, there shall be no
acquisition of notes or securities with maturities greater than twelve (12)
months or in excess of $100,000 per note or security; or (d) entered into any
transaction other than in the ordinary course of business and consistent with
past practices, including,
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but not necessarily limited to, any transaction relating to the (i) borrowing of
money; (ii) purchase, lease (as lessor or lessee), sale or encumbering of assets
or properties with a book value in excess of $2,500; (iii) cancellation,
termination, amendment, or waiver of any material agreement or of any rights or
claims arising thereunder or otherwise; or (iv) payment or accrual of bonuses or
special compensation of any kind (including payments made pursuant to any
employment or severance agreement), except for officer and employee bonuses and
a holiday party payable prior to the Closing Date in an aggregate amount not to
exceed $137,000, or an increase in the rate of any and all other forms of
compensation payable to officers, directors, employees, agents, or independent
contractors, except as listed on the Disclosure Schedules.
Section 3.18. TAXES. Bank has (i) timely filed all tax returns, schedules,
and declarations required to be filed on or before the date of this Agreement by
any jurisdiction to which they are or have been subject; (ii) timely paid in
full all taxes due, and all taxes claimed to be due, by each such jurisdiction,
and any interest and penalties with respect thereto, subject to audit by the
taxing authorities of such jurisdiction, and timely made any deposits of tax
required by taxing jurisdictions; (iii) fully accrued on Bank's balance sheet
all taxes for any period that are not yet due; and (iv) made timely payments of
the taxes required to be deducted and withheld from the wages paid to their
employees. Bank has delivered to Bancshares copies of their federal and state
tax returns for their taxable years beginning in calendar years 1989 through
1996, inclusive, as well as for any other "open years." All federal, state,
local, and other tax returns, schedules, and declarations filed by Bank
correctly reflects in all material respects the matters required to be reported
therein, including where appropriate income, expense, deductions, credits, loss
carryovers, and taxes due of Bank and have not been amended. The most recent
taxable year for which the statute of limitations for the assessment and
collection of federal income tax has expired is the fiscal year ended December
31, 1993. Bank has not agreed to any extension that has not expired by its terms
of the period or periods of limitation for which any assessment of taxes may be
made by the Internal Revenue Service. Bank has no knowledge that an audit of any
of their federal income tax returns is in progress and have no reason to believe
that any such audit is contemplated. There are no other pending controversies,
nor claims that have been asserted or that Bank has reasonable basis to
anticipate will be asserted, with respect to taxes or
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assessments in the nature of taxes of Bank by any federal, state, county, local,
or other governmental agency.
Section 3.19. COMPLIANCE WITH LAWS; LICENSES. Bank is not engaged in or a
party to, nor does it have any basis to anticipate, any legal action,
investigation, arbitration, or other proceeding before any court, administrative
agency, arbitrator or other forum. Bank has not been charged with nor is it
under investigation with respect to, and Bank has no basis to anticipate any
charge or investigation with respect to, any violation of any provision of
federal, state, or other applicable law or administrative regulation (including,
without limitation, the Bank Secrecy Act, the Community Reinvestment Act and
applicable consumer protection and disclosure laws, rules and regulations) which
may materially adversely affect the financial condition, results of operations,
assets, or business of Bank. There is no litigation, proceeding, or governmental
investigation pending or threatened (or which Bank has any basis to anticipate)
which relates to any of the transactions contemplated by this Agreement or the
Agreement of Merger. Bank has responded to and satisfied all exceptions, if any,
arising out of any federal, state or other regulatory examination. Bank
possesses all licenses, franchises, permits and other governmental
authorizations and all material patents, trademarks, service marks, trade names,
copyrights or rights thereto necessary for the continued conduct of Bank's
banking business without material interference or interruption.
Section 3.20. NO FINDER'S FEES. Except for Danielson Associates, Inc., Bank
has not employed any broker, finder, or agent, or agreed to pay or incurred any
brokerage fee, finder's fee, commission or other similar form of compensation in
connection with this Agreement or the transactions contemplated hereby.
Section 3.21. AUTHORIZATION FOR THIS AGREEMENT. Other than as contemplated
in Articles VI and VII hereof, no authorization, approval, or consent of any
governmental department, bureau or agency, or other public board or authority is
required for the consummation by Bank of the transactions contemplated by this
Agreement.
Section 3.22. BOARD APPROVAL; SUBMISSION TO SHAREHOLDERS. The board of
directors of Bank has duly approved this Agreement and the Agreement of Merger,
and will direct that this Agreement and the Agreement of Merger be submitted to
a vote of Bank's shareholders at a special meeting of
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shareholders to be called for that purpose, all in accordance with and as
required by law and in accordance with the Articles of Incorporation and Code of
Regulations of Bank.
Section 3.23. CERTAIN TRANSACTIONS. Except as set forth in the Disclosure
Schedule, Bank has no business relationships, business transactions or
indebtedness with or to any of its Related Persons, its officers or directors,
or any of such officers' or directors' Related Persons. For the purposes of this
Section 3.23, "Related Person" shall mean, with respect to a particular
individual, (a) each other member of such individual's Family, (b) any Person
that is directly or indirectly controlled by such individual or one or more
members of such individual's Family, (c) any Person in which such individual or
members of such individual's Family hold (individually or in the aggregate) a
Material Interest, and (d) any Person with respect to which such individual or
one or more members of such individual's Family serves as a director, officer,
partner, executor, or trustee (or in a similar capacity). With respect to a
specified Person other than an individual, "Related Person" shall mean (a) any
Person that directly or indirectly controls, is directly or indirectly
controlled by, or is directly or indirectly under common control with such
specified Person, (b) any Person that holds a Material Interest in such
specified Person, (c) each Person that serves as a director, officer, partner,
executor, or trustee of such specified Person (or in a similar capacity), (d)
any Person in which such specified Person holds a Material Interest, (e) any
Person with respect to which such specified Person serves as a general partner
or a trustee (or in a similar capacity), and (f) any Related Person of any
individual described in clause (b) or (c). For purposes of the definition of
"Related Person," (A) the "Family" of an individual includes (i) the individual,
(ii) the individual's spouse and former spouses, (iii) any other natural person
who is related to the individual or the individual's spouse within the second
degree, and (iv) any other natural person who resides with such individual, (B)
"Material Interest" means direct or indirect beneficial ownership (as defined in
Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of voting
securities or other voting interests representing at least 5% of the outstanding
voting power of a Person or equity securities or other equity interests
representing at least 5% of the outstanding equity securities or equity
interests in a Person, and (C) "Person" means any individual, corporation,
general or limited partnership, limited liability company, joint venture,
estate, trust, association, organization, labor union or other entity or
governmental entity.
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Section 3.24. NO VIOLATION OF ENVIRONMENTAL LAWS. To the best of the Bank's
knowledge, the business as currently being conducted by Bank and all real
property in which Bank has an interest, complies in all material respects with
any applicable law or regulation relating to air, water, or noise pollution or
the production, storage, treatment, labeling, transportation, or disposition of
wastes or hazardous or toxic substances or waste materials.
Section 3.25. MATERIAL MISSTATEMENTS OR OMISSIONS. No representation or
warranty by Bank in this Agreement or any document, statement, certificate,
schedule, or exhibit furnished or to be furnished to Bancshares or Citizens by
or on behalf of Bank pursuant hereto contains, or will when furnished contain,
any untrue statement of a material fact, or omits, or will then omit to state, a
material fact necessary to make the statements of facts contained therein not
misleading.
ARTICLE IV
COVENANTS OF BANCSHARES AND CITIZENS
------------------------------------
Bancshares and Citizens, as applicable, covenant and agree with Bank as
follows:
Section 4.1. NO BREACHES OF REPRESENTATIONS AND WARRANTIES. Between the
date of this Agreement and the Effective Time, without the written consent of
Bank, neither Bancshares nor Citizens will do any act or suffer any omission of
any nature whatsoever which would cause any of the representations or warranties
made in Article II of this Agreement to be breached.
Section 4.2. INFORMATION REGARDING BANCSHARES. Bancshares shall furnish to
Bank all information concerning Bancshares and its subsidiaries required by
applicable securities or corporation laws to be set forth in the proxy materials
required to be delivered by Bank to its shareholders in connection with this
Agreement and the Agreement of Merger and the transactions contemplated hereby
and thereby.
Section 4.3. CORRECTION OF INFORMATION. Bancshares shall promptly correct
and supplement any information furnished under this Agreement to Bank so that
such information shall be correct and complete in all material respects at all
times, and shall include all facts necessary to make such information correct
and complete in all material respects at all times.
Section 4.4. CONSENTS. Bancshares and Citizens shall use their respective
best efforts to obtain any required consents to the transactions contemplated by
this Agreement.
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Section 4.5. ACCESS TO INFORMATION. Between the date of this Agreement and
the Closing Date, to the extent reasonable under the circumstances, the officers
of Bancshares will confer with the representatives of Bank and will furnish to
Bank either orally or by means of such records, documents, and memoranda as are
reasonably available or capable of preparation (all of which Bank will be
permitted to make copies of) and such other information as Bank may reasonably
request. Bancshares will confer with representatives of Danielson Associates,
Inc. ("Danielson"), will cooperate to the fullest extent reasonably possible
with Danielson, and will furnish such records, documents, memoranda and all such
other information as Danielson may reasonably request in order for Danielson to
prepare and provide a "fairness opinion".
Section 4.6. DIRECTOR NOMINEE. One member of Bank's Board of Directors,
namely, H. Lee Kinney, shall be nominated to serve on the Board of Directors of
(i) Bancshares for a one (1) year term at the first annual meeting of
shareholders which occurs after the Effective Time ("Annual Meeting"), which is
anticipated to be the March/April, 1998 meeting and (ii) Citizens for a one (1)
year term at the organizational meeting following the Annual Meeting.
Thereafter, management of Bancshares and Citizens shall cause the Nominating
Committees of Bancshares and Citizens to consider Mr. Kinney's nomination for
further terms as a director, subject to applicable qualification criteria,
retirement policies, etc. from time to time utilized by such committees.
Section 4.7. ADVISORY BOARD. The members of the Board of Directors of Bank
will be given the opportunity to serve on the Jefferson County Advisory Board of
Citizens.
Section 4.8. OPPORTUNITY OF EMPLOYMENT; BENEFITS AND TRAINING. Bancshares
shall offer the existing full-time employees of Bank the opportunity to become
employees of Citizens or one of Bancshares' other affiliates, on the Closing
Date, for a minimum period of six (6) months. All such employees shall receive a
salary equal in amount to that salary received by them immediately prior to the
Closing Date, and all existing officers of Bank shall be offered the opportunity
to become an officer of Citizens or one of Bancshares' other affiliates.
Bancshares shall offer the existing part-time employees of Bank the
opportunity to become part-time employees of Citizens or one of Bancshares'
other affiliates, on the Closing Date, for a minimum period of six (6) months
(such part-time employees, together with existing full-time employees of Bank
offered
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the opportunity to become employees of Citizens or one of Bancshares' other
affiliates, collectively known as "Citizens Employees"). All such part-time
employees shall earn an hourly wage equal in amount to that wage earned by the
employee immediately prior to the Closing Date; provided, however, that
Bancshares may determine in its sole discretion the number of hours that the
part-time employee shall be scheduled to work.
All Bank employees who become Citizens Employees shall have their years of
service with Bank and its predecessors credited for eligibility and vesting
purposes, but not for accrual of benefit purposes, under all Bancshares'
employee pension benefit plans (as defined in Section 3(2) of ERISA), except
with respect to Bancshares' ESOP plan.
It is understood and agreed that nothing in this Section 4.8 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.
As soon as practicable after the Closing (and provided that the merger of
the account balances in the National City Savings and Investment Plan with
respect to the 16 National City Bank employees hired by Bancshares into the
UniBank Retirement, Savings and Investment Trust shall have been completed),
Bancshares, at its option, shall do one of the following with respect to the
UniBank Retirement, Savings & Investment Plan and Trust ("Savings Plan"):
(a) Terminate the Savings Plan;
(b) Freeze the Savings Plan, provided that the cost of plan administration
shall be borne by each plan participant on a pro rata basis; or (c) Merge
the Savings Plan assets (after all of the assets have been liquidated,
including the 880 shares of UniBank stock owned by the Savings Plan) into
the Citizens Bancshares Profit-Sharing Trust.
Section 4.9. ADDITIONAL COVENANTS. Except as otherwise contemplated by this
Agreement, Bancshares covenants and agrees:
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(a) to deliver to Bank all forms 10-K, 10-Q and 8-K filed for periods
ending in the interim period between the date of this Agreement and the Closing
Date within seven (7) days after the filing of each such report with the SEC;
(b) to promptly advise Bank of any material adverse change occurring
during the interim period between the date of this Agreement and the Closing
Date in the financial conditions, assets, business or operations of Bancshares
or any of its subsidiaries, or any material changes or inaccuracies in data
provided to Bank pursuant to this Agreement.
Section 4.10. SURVIVAL OF COVENANTS. The covenants made by Bancshares or
Citizens, as the case may be, in Sections 4.6, 4.7 and 4.8 shall survive for a
period of six (6) months from the date of consummation of the Merger.
ARTICLE V
COVENANTS OF BANK
-----------------
Bank covenants and agrees with Bancshares and Citizens as follows:
Section 5.1. CARRY ON BUSINESS IN NORMAL MANNER. From the date of this
Agreement to the Closing Date, Bank will carry on its business in substantially
the same manner as heretofore and, without the written consent of Bancshares,
Bank will not (a) do any of the things which its represents and warrants herein
have not been done since December 31, 1996 or the date hereof, as the case may
be, except as necessary to carry out this Agreement on the part of Bank; (b)
engage in any transaction which would be inconsistent with any other
representation or warranty of Bank set forth herein or which would cause a
breach of any such representation or warranty if made at or immediately
following such transaction; (c) engage in any lending activities other than in
the ordinary course of business consistent with past practice; (d) make any 1-4
family unit residential real estate loans in excess of $75,000 to any borrower;
(e) make any consumer installment or construction loans in excess of $35,000 to
any borrower; (f) extend any equity lines of credit in excess of $50,000 to any
borrower; (g) make any commercial loans in excess of $100,000 to any borrower
(taking into account existing borrowings but not including renewals); or (h)
hire any new full-time employees. Bancshares shall respond to any request for
Bancshares' consent with respect to any of the above-listed items within 24
hours of the request. Bank also agrees to use its best efforts to keep its
business organizations intact, to keep
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available the services of its present employees, and to preserve the goodwill of
its customers, suppliers, and others having business relations with them.
Section 5.2. ACCESS TO INFORMATION. Between the date of this Agreement and
the Closing Date, Bank will afford to the representatives of Bancshares,
including its counsel and auditors, during normal business hours, full access to
any and all assets of, or information with respect to, Bank to the end that
Bancshares may have full opportunity to make such investigation, in advance of
the Closing Date, as it shall reasonably desire in order to effectuate the
purposes of this Agreement. To the extent reasonable under the circumstances,
the officers of Bank will confer with the representatives of Bancshares and will
furnish to Bancshares either orally or by means of such records, documents, and
memoranda as are reasonably available or capable of preparation (all of which
Bancshares will be permitted to make copies of) and such other information as
Bancshares may reasonably request.
Section 5.3. CONSENTS. Bank shall use its best efforts to obtain any
required consents to the transactions contemplated by this Agreement.
Section 5.4. INSURANCE COVERAGE. Bank shall cause the policies of insurance
listed in the Disclosure Schedule to remain in effect between the date of this
Agreement and the Closing Date.
Section 5.5. COMPLIANCE WITH SECURITIES LAWS. Bank shall cooperate with
Bancshares in doing all things necessary to comply with the state and federal
securities laws applicable to the transactions contemplated by this Agreement.
Section 5.6. SHAREHOLDERS' MEETING. As soon as the Registration Statement
described in Section 7.1 hereof shall have become effective, Bank shall promptly
take all actions necessary under applicable law to convene a shareholders'
meeting at the earliest practicable date for the purpose of adopting and
approving this Agreement and the Agreement of Merger. Bank agrees to use its
best efforts to encourage the requisite favorable vote of the Bank shareholders
with respect to this Agreement and the Agreement of Merger.
Section 5.7. CORRECTION OF INFORMATION. Bank shall promptly correct and
supplement any information furnished under this Agreement to Bancshares so that
such information shall be correct and complete in all material respects at all
times, and shall include all facts necessary to make such information correct
and complete in all material respects at all times.
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Section 5.8. OTHER OFFERS. On and after the date hereof, except with the
written consent of Bancshares, Bank shall not directly or indirectly solicit or
encourage (nor shall Bank permit any of its officers, directors, employees or
agents directly or indirectly to solicit or encourage), including by way of
furnishing information, any inquiries or proposals for a merger, consolidation,
share exchange or similar transaction involving Bank or for the acquisition of
the shares or all or substantially all of the assets or business of Bank, or
discuss with or enter into conversations with any person, other than Bank
shareholders or employees, concerning any such merger, consolidation, share
exchange, acquisition or other transaction, other than the Share Exchange with
Bancshares. Bank will promptly notify Bancshares orally (to be confirmed in
writing as soon as practicable thereafter) of all of the relevant details
relating to any inquiries or proposals that it may receive relating to any such
matters, including actions it intends to take with respect to such matters.
In order to induce Bancshares to enter into this Agreement and incur the
substantial expenses involved in effectuating the transactions contemplated
herein, Bank agrees and does hereby promise to pay to Bancshares the sum of
$500,000, upon Bancshares' demand therefor, in the event that the Bank
shareholders fail, within 12 months of the date of this Agreement, to approve
this Agreement or the Agreement of Merger as a result of the decision of the
Bank's Board of Directors to entertain offers from and negotiate with a bona
fide offeree other than Bancshares.
Section 5.9. DIVIDENDS. On and after the date hereof, Bank shall not
declare, set aside, pay or make any dividend or other distribution or payment
(whether in cash, stock or property) with respect to, or purchase or redeem, any
shares of its capital stock other than (i) regular quarterly cash dividends in
an amount not to exceed the amount paid per share of Bank Common Share for the
same quarter during 1996 and (ii) a special year-end cash dividend in the amount
not to exceed the special year-end cash dividend paid in 1996. It is agreed by
the parties hereto that they will cooperate to assure that as a result of the
Merger, during any quarter, there shall not be a payment of both a Bancshares
and Bank dividend. The parties further agree that if the Closing Date is at the
end of a fiscal quarter, then they will cooperate to assure that the Bank
shareholders receive the dividend, if any, declared by Bank rather than the
dividend for that quarter, if any, declared by Bancshares.
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Section 5.10. PROVISION FOR POSSIBLE LOAN LOSSES. For each of the months of
September through the month in which the Closing Date shall occur, Bank shall
take a provision in the amount of $25,000 for loan losses on the outstanding
loans of Bank and will add that same amount to the reserves for possible loan
losses on the outstanding loans of Bank.
ARTICLE VI
JOINT COVENANTS OF BANK, BANCSHARES AND CITIZENS
------------------------------------------------
Section 6.1. CONFIDENTIALITY. Except for the use of information in
connection with the Registration Statement described in Section 7.1 hereof and
any other governmental filings required in order to complete the transactions
contemplated by this Agreement and the Agreements of Merger, all information
(collectively, the "Information") received by each of Bank, Bancshares and
Citizens pursuant to the terms of this Agreement shall be kept in strictest
confidence; provided that, subsequent to the filing of the Registration
Statement with the Securities and Exchange Commission, this Section 6.1 shall
not apply to information included in the Registration Statement or to be
included in the official proxy/prospectus (the"Proxy/Prospectus") to be sent to
the shareholders of Bank under Section 7.1 hereafter. Bank, Bancshares and
Citizens agree that the Information will be used only for the purpose of
completing the transactions contemplated by this Agreement and the Agreement of
Merger. Bank, Bancshares, and Citizens agree to hold the Information in
strictest confidence and shall not use, and shall not disclose directly or
indirectly any of such Information except when, after and to the extent such
Information (i) is or becomes generally available to the public other than
through the failure of Bank, Bancshares or Citizens, as the case may be, to
fulfill its obligations hereunder, (ii) was already known to the party receiving
the Information on a nonconfidential basis prior to the disclosure or (iii) is
subsequently disclosed to the party receiving the Information on a
nonconfidential basis by a third party having no obligation of confidentiality
to the party disclosing the Information. It is agreed and understood that the
obligations of Bank contained in this Section 6.1 shall survive the Closing. In
the event the transactions contemplated by this Agreement are not consummated,
Bank, Bancshares and Citizens agree to return all copies of the Information
provided to the other promptly.
Section 6.2. REGULATORY APPROVALS. As promptly as possible after the date
hereof, each of Bancshares, Citizens and Bank shall use its best efforts,
separately and jointly with the other parties,
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in good faith to take or cause to be taken all such steps as shall be necessary
or advisable to obtain all consents and approvals of governmental authorities as
are required by law or otherwise to effect the Share Exchange, including without
limitation the approval of the Federal Reserve Board, the Superintendent of the
Division of Financial Institutions and the Ohio Secretary of State and shall do
any and all acts and things reasonably necessary or advisable in order to cause
the Share Exchange to be completed on the terms provided in this Agreement and
the Agreement of Merger as soon as reasonably practicable thereafter.
Section 6.3. ANNOUNCEMENTS. Except as may be required by law or as
otherwise contemplated herein, no party shall make any public announcements or
filing or disclosure to third parties of the transaction contemplated herein or
the other party's involvement therein without the prior written approval of the
other party. The restrictions contained in this Section shall not apply to
disclosures made by either party to its stockholders, suppliers or customers to
the extent appropriate to consummate the transactions contemplated by this
Agreement. Each party shall endeavor to give the other at least one (1) business
day's prior notice of announcements to the public, which notice shall be
accompanied by a copy of the text of the proposed disclosure.
ARTICLE VII
REGISTRATION OF BANCSHARES COMMON SHARES
UNDER THE SECURITIES ACT OF 1933, AS AMENDED
--------------------------------------------
Section 7.1. REGISTRATION STATEMENT. Bancshares and Bank acknowledge that
the transactions contemplated hereby are subject to the provisions of the
Securities Act of 1933, as amended (the "Act") and Rule 145 thereunder.
Bancshares agrees to prepare and file, as soon as practicable after the
execution of this Agreement, a registration statement on Form S-4 (the
"Registration Statement") under and pursuant to the provisions of the Act for
the purposes of registering the Bancshares Common Shares to be issued in
connection with the transactions contemplated hereby. Bank agrees to provide
promptly to Bancshares, information concerning the business and financial
condition and affairs of Bank as may be required or appropriate for inclusion in
the Registration Statement and to cause its counsel and auditors to cooperate
with Bancshares' counsel and auditors in the preparation of such Registration
Statement. Bancshares agrees to use its best efforts to have such Registration
Statement declared
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effective under the Act as soon as may be practicable, and Bank agrees to
distribute the prospectus/proxy statement (to be prepared by and furnished at
Bancshares' expense) contained in such Registration Statement (the
"Prospectus/Proxy Statement") to Bank shareholders not less than ten (10) days
prior to the scheduled meeting of Bank shareholders that will be held to
consider approval of this Agreement and the Agreement of Merger. Except to the
extent permitted by Rule 145(b), Bancshares and Bank agree not to publish any
communication other than the Prospectus/Proxy Statement, in respect of this
Agreement, the Agreement of Merger, or the transactions contemplated therein.
Any communication by either party under Rule 145(b) will be made only upon the
written approval of the other. Bancshares and Bank agree that, between the date
the Registration Statement becomes effective and the Closing Date, they will
keep each other advised on a current basis of material developments concerning
their respective businesses, including any event which would cause the
Prospectus/Proxy Statement to contain an untrue statement of a material fact or
omit to state any material fact necessary to make the statements therein not
misleading. Bancshares shall not be required to maintain the effectiveness of
the Registration Statement for the purpose of resale of Bancshares Common Shares
by Bank shareholders who may be deemed to be affiliates of Bank, as such term is
defined in Rule 145 promulgated under the Act (individually, an "Affiliate" and
collectively, the "Affiliates").
Section 7.2. AFFILIATES' CERTIFICATES. Each Affiliate of Bank shall furnish
to Bancshares a letter representing that such Affiliate will not sell, assign,
or transfer any of the Bancshares Common Shares received by such Affiliate as a
result of the transactions contemplated by this Agreement, except pursuant to
(a) registration under the Act or (b) a transaction permitted by Rule 145 under
the Act, or (c) a transaction in which, in the opinion of Squire, Sanders &
Dempsey L.L.P. or other counsel satisfactory to Bancshares, or in accordance
with a "no action" letter from the staff of the Securities and Exchange
Commission, the Bancshares Common Shares are not required to be registered under
the Act; and in the event of sale or other disposition pursuant to Rule 145 such
Affiliate will supply satisfactory evidence of compliance with such Rule to
Bancshares. With respect to such representations, each Affiliate shall agree to
hold harmless and indemnify Bancshares and Bancshares' officers and directors
from and against any losses, claims, damages, expenses (including reasonable
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attorneys' fees), or liabilities to which Bancshares or any officer or director
of Bancshares may become subject under the Act or otherwise as a result of the
untruth, breach, or failure of such representations. Each Affiliate shall
further agree that the certificate or certificates representing the Bancshares
Common Shares issued to such Affiliate upon the consummation of the Share
Exchange may bear the following restrictive legend:
The shares represented by this certificate have been issued or
transferred to the registered holder as a result of a transaction to which
Rule 145 under the Securities Act of 1933, as amended (the "Act"), applies.
The shares represented by this certificate may not be sold, transferred or
assigned, and the issuer shall not be required to give effect to any
attempted sale, transfer or assignment, except pursuant to (i) current
registration under the Act, (ii) a transaction permitted by Rule 145 and as
to which the issuer has received reasonable and satisfactory evidence of
compliance with the provisions of Rule 145, or (iii) a transaction in
which, in the opinion of Squire, Sanders & Dempsey L.L.P. or other counsel
satisfactory to the issuer or in accordance with a "no action" letter from
the staff of the Securities and Exchange Commission, such shares are not
required to be registered under the Act.
Bancshares covenants and agrees to remove the foregoing restrictive legend
from the certificate or certificates representing the Bancshares Common Shares
issued to an Affiliate and to cancel any stop order instructions with respect
thereto upon receipt of advice from its counsel that such actions are
appropriate under the then-existing circumstances.
Section 7.3. BLUE SKY REGISTRATION. Bancshares shall, to the extent
required by applicable state securities or "blue sky" laws, as promptly as
practicable after the furnishing by Bank of all information regarding Bank
required or desirable to be reflected therein, file with applicable state
securities or blue sky administrators, and use its best efforts to cause to
become effective or be approved, all registration statements or applications
required to be so filed with respect to the issuance of the Bancshares Common
Shares in connection with the Agreement of Merger.
Section 7.4. SUPPLEMENTAL ASSURANCES.
(a) On the date the Registration Statement becomes effective and on the
Closing Date, Bank shall deliver to Bancshares a certificate signed by its
principal executive officer and its principal financial officer to the effect
that the information contained in the Registration Statement relating to the
business and financial condition and affairs of Bank, does not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading.
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(b) On the date the Registration Statement becomes effective and on the
Closing Date, Bancshares shall deliver to Bank a certificate signed by the chief
executive officer and by the chief financial officer of Bancshares to the effect
that the Registration Statement (other than the information contained therein
relating to the business and financial condition and affairs of Bank) does not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading.
ARTICLE VIII
CONDITIONS
----------
Section 8.1. CONDITIONS TO BANCSHARES' AND CITIZENS' OBLIGATIONS. The
obligation of Bancshares and Citizens to consummate the transactions
contemplated by this Agreement and the Agreement of Merger, respectively, shall
be subject to the following conditions, except as Bancshares and/or Citizens, as
applicable, may waive the same in writing:
(a) NO MATERIAL ADVERSE CHANGE. From December 31, 1996, to the Closing
Date, there shall have been no material adverse change in the financial
condition, results of operations, business, or assets of Bank, and there shall
have been no occurrence or circumstances (whether arising heretofore or
hereafter) which might reasonably be expected to result in any such material
adverse change.
(b) CONDUCT OF BUSINESS IN ORDINARY COURSE. From December 31, 1996, to
the Closing Date, Bank will have conducted business only in the ordinary and
usual course except for matters expressly referred to in this Agreement or the
Disclosure Schedule, matters incident to carrying out this Agreement and such
further matters as may be consented to in writing by Bancshares.
(c) OPINION OF BANK'S COUNSEL. Bank's counsel, King, Hargrave, Scurti &
Jack, shall have delivered to Bancshares and Citizens its opinion, dated the
Closing Date, to the effect that (i) Bank is a corporation duly organized as a
state banking association under the laws of the State of Ohio and is in good
standing under the laws of the State of Ohio, (ii) this Agreement and the
Agreement of Merger has been duly executed by Bank, and constitutes binding
obligations on the part of Bank, and (iii) the Bank Common Shares have been duly
authorized, validly issued and are fully paid and nonassessable.
(d) ACCURACY OF REPRESENTATIONS AND WARRANTIES AND COMPLIANCE WITH
COVENANTS ON CLOSING DATE. The representations and warranties made herein by
Bank shall be correct in all material respects
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on and as of the Closing Date, with the same force and effect as though such
representations and warranties were being made on and as of the Closing Date,
and Bank shall have fully complied with all the terms and conditions hereof, and
Bank shall have delivered to Bancshares a certificate to that effect, which
certificate shall be signed by the President of Bank and shall be in a form
reasonably satisfactory to Bancshares.
(e) AFFILIATES' CERTIFICATES. Bancshares shall have received from each
Affiliate a certificate in the form specified in Section 7.2 hereof.
(f) OFFICERS' CERTIFICATES REGARDING REGISTRATION STATEMENT. Bancshares
shall have received from Bank the officers' certificates required pursuant to
Section 7.4(a) hereof.
(g) DISSENTERS' RIGHTS. Holders of no more than ten percent (10%) of
the issued and outstanding Bank Common Shares shall have taken such actions as
are required by Ohio Revised Code Section 1701.85 to assert dissenters' rights.
(h) NO DEFAULT. There shall have occurred no event constituting a
default under any material indenture, agreement, note, mortgage, guaranty or
other writing which evidences or relates to any loan of money to, or
indebtedness for money borrowed by Bank which materially adversely affects
Bank's financial condition.
(i) BOARD AND SHAREHOLDER APPROVAL. The Board of Directors of Bank and
Bank shareholders shall have approved this Agreement and the Agreement of
Merger.
(j) ACCOUNTING TREATMENT. Bancshares shall have received from Crowe,
Chizek and Company LLP, a letter dated the Closing Date, in substance reasonably
acceptable to Bancshares, stating its opinion that based upon the information
furnished that the transactions contemplated by this Agreement should be
accounted for by Bancshares as a "pooling of interests" for financial statement
reporting purposes and that such accounting treatment is in accordance with
generally accepted accounting principles.
Section 8.2. CONDITIONS TO BANK'S OBLIGATIONS. The obligation of Bank to
consummate the transactions contemplated by this Agreement and the Agreement of
Merger shall be subject to the following conditions, except as Bank may waive
the same in writing:
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(a) NO MATERIAL ADVERSE CHANGE. From December 31, 1996, through the
Closing Date, there shall have been no material adverse change in the financial
condition, results of operation, business or assets of Bancshares and Citizens
and there shall have been no occurrence or circumstance (whether arising
heretofore or hereafter) which might reasonably be expected to result in any
such material adverse change.
(b) OPINION OF BANCSHARES' AND CITIZENS' COUNSEL. Bancshares' and
Citizens' general counsel, Rick Hull, Esq., shall have delivered to Bank an
opinion dated the Closing Date to the effect that (i) Bancshares is a
corporation duly organized and in good standing under the State of Ohio, (ii)
Citizens is a corporation duly organized and in good standing as a state banking
association under the laws of the State of Ohio, (iii) this Agreement and the
Agreement of Merger have been duly executed by Bancshares and Citizens, as
applicable and constitute binding obligations, (iv) all of the Bancshares Common
Shares to be issued to the shareholders of Bank have been validly authorized.
(c) ACCURACY OF REPRESENTATIVES AND WARRANTIES AND COMPLIANCE WITH
COVENANTS ON CLOSING DATE. The representations and warranties made herein by
Bancshares and Citizens, as the case may be, shall be correct in all material
respects on and as of the Closing Date, with the same force and effect as though
such representations and warranties were being made on and as of the Closing
Date (provided, however, that nothing herein contained shall be construed to
place any limitations upon the issuance of additional shares or other securities
of Bancshares) and Bancshares and Citizens shall have fully complied with all
the terms and conditions hereof, and Bancshares and Citizens shall have
delivered to Bank a certificate to that effect, which certificate shall be
signed by the President of each of Bancshares and Citizens and shall be in a
form reasonably satisfactory to Bank.
(d) OFFICERS' CERTIFICATES REGARDING REGISTRATION STATEMENT. Bancshares
shall have furnished to Bank the officers' certificates required pursuant to
Section 7.4(b) hereof.
(e) BOARD AND SHAREHOLDER APPROVAL. The Board of Directors of each of
Bancshares and Citizens shall have approved this Agreement and the Agreement of
Merger and Bancshares, as the sole stockholder of Citizens, shall have approved
the Agreement of Merger.
(f) FAIRNESS OPINION. Bank shall have received from Danielson a
favorable report as to the fairness of the Share Exchange.
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(g) TAX-FREE EXCHANGE. Bank shall have received a letter from
Bancshares' general counsel, Rick Hull, Esq., advising that based on his review
of this Agreement and the Agreement of Merger, nothing has come to his attention
that would lead him to believe that the Share Exchange will not be tax free with
respect to Bank's stockholders.
Section 8.3. CONDITIONS TO THE OBLIGATIONS OF ALL PARTIES. The respective
obligations of Bancshares, Citizens and Bank to consummate the transactions
contemplated by this Agreement and the Agreement of Merger shall be subject to
the following conditions, except as any of them may waive the same in writing:
(a) NO ADVERSE GOVERNMENTAL ACTION. On or before the Closing Date, no
action shall have been taken or threatened by any governmental entity which, in
the opinion of counsel for any of the parties, would make it inadvisable for
legal reasons to complete the transactions contemplated by this Agreement.
(b) COMMON SHARE REGISTRATION. The Bancshares Common Shares into which
the Bank Common Shares are to be converted pursuant to this Agreement and the
Agreement of Merger shall have been registered with the Securities and Exchange
Commission and no stop order shall be threatened or in effect with respect
thereto.
(c) BLUE SKY LAWS. Pursuant to Section 7.3 hereof, Bancshares shall
have filed such registration statements or applications as may be required under
applicable blue sky laws and such registration statements or applications shall
have become effective or approved and no stop order shall be threatened or in
effect with respect thereto.
(d) SHAREHOLDER ACTION. Prior to the Closing Date, this Agreement and
the Agreement of Merger shall have been approved by the affirmative vote of the
holders of sixty percent (60%) of the outstanding Bank Common Shares.
(e) REGULATORY APPROVALS. All regulatory approvals, including but not
limited to the approvals of each of the Federal Reserve Board and the Ohio
Division of Banks necessary for the consummation of the transactions
contemplated by this Agreement and the Agreement of Merger shall have been
obtained and be in force.
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(f) AGREEMENTS. H. Lee Kinney and William McElwain shall each have
executed and delivered an employment agreement with Citizens substantially in
the form of the draft of such agreements agreed to between the parties and dated
as of September 12, 1997.
Section 8.4. CLOSING DATE. The closing ("Closing") of the transactions
contemplated by this Agreement shall occur on a date mutually agreed to by
Bancshares and Bank after satisfaction of all the conditions set forth in
Sections 8.l, 8.2 and 8.3 hereof and in the Agreements of Merger and the
expiration of all waiting periods imposed by any and all regulatory authorities
(the "Closing Date").
ARTICLE IX
TERMINATION AND ABANDONMENT
---------------------------
Section 9.1. RIGHT TO TERMINATION. This Agreement and the Agreements of
Merger may be terminated and the Share Exchange abandoned prior to the Closing
Date in the following manner:
(a) MUTUAL CONSENT. By mutual consent of Bank and Bancshares,
authorized by their respective Boards of Directors; or
(b) BY BANK. By Bank if (i) the conditions provided in Sections 8.2 and
8.3 shall not have been satisfied or waived by the appropriate party(ies), (ii)
Bancshares or Citizens shall be in breach of performance of its respective
obligations hereunder or under the Agreements of Merger, or (iii) the Average
NMS Closing Price of Bancshares Common Shares shall be 20% or more lower than
the average National Market System closing price (calculated for the same period
as the Bancshares Common Shares) of those banks set forth in the list attached
hereto as Exhibit 9.1 and made a part hereof; or
(c) BY BANCSHARES. By Bancshares if (i) the conditions provided in
Sections 8.1 and 8.3 shall not have been satisfied or waived by the appropriate
party(ies) or (ii) if Bank shall be in breach of performance of its respective
obligations hereunder or under the Agreements of Merger, (iii) the Average NMS
Closing Price of Bancshares Common Shares shall be less than $46.00, or (iv)
Bancshares elects to terminate pursuant to, and in accordance with, Section
1.2(a); or
(d) BY BANCSHARES OR BANK. By either Bancshares or Bank in the event
the transactions contemplated by this Agreement are not consummated on or before
June 30, 1998.
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Section 9.2. EFFECT OF TERMINATION. If for any reason this Agreement and
the Agreement of Merger shall be terminated and the Share Exchange abandoned as
provided in Section 9.1, this Agreement shall become null and void, without any
further action by the shareholders of either of the parties. In the event of any
such termination, the Directors of Bancshares and Bank shall each direct their
officers not to file the Agreement of Merger in the offices of the Secretary of
State of the State of Ohio or the offices of the Division of Banks of the State
of Ohio, notwithstanding favorable action by the shareholders of Bank. In the
event of any such termination, neither party hereto nor any of its respective
shareholders, directors, or officers shall have any obligation to the other in
damages or for costs, expenses, or otherwise in connection with this Agreement
or the transactions contemplated herein, other than the return to Bank, by
Bancshares, of all such copies of Bank's records as may have been provided to
Bancshares and Citizens, as the case may be, under Section 5.2 or other Sections
of this Agreement.
ARTICLE X
MISCELLANEOUS
-------------
Section 10.1. NO SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties contained in this Agreement and in any
certificate delivered hereunder, other than those contained in Section 2.3
hereof, shall expire on the Closing Date and thereafter neither Bancshares nor
Bank shall have any further liability or obligation with respect thereto.
Section 10.2. REPRESENTATIONS TO THE KNOWLEDGE OF A PARTY. Whenever a
representation or warranty is made herein as being "to the knowledge of" a party
hereto or the officers or directors thereof, it is understood that an officer
has made or caused to be made by personnel or representatives competent to
determine the accuracy thereof (and the results thereof reported to him) an
investigation which is appropriate to determine the accuracy of such
representation or warranty.
Section 10.3. NOTICES. Any notice required or permitted to be given under
this Agreement shall be in writing and mailed, first class postage prepaid and
addressed as follows:
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(a) If to Bank:
UniBank
P.O. Box 640
Steubenville, Ohio 43952-5640
Attention: H. Lee Kinney
With copies to:
Robert C. Hargrave, Esq.
King, Hargrave, Scurti & Jack
200 Sinclair Bldg.
P.O. Box 249
Steubenville, Ohio 43952
(b) If to Bancshares or Citizens:
Citizens Bancshares, Inc.
10 East Main Street
Salineville, Ohio 43945
Attention: Marty E. Adams
With copies to:
M. Patricia Oliver, Esq.
Squire, Sanders & Dempsey L.L.P.
4900 Key Tower
127 Public Square
Cleveland, Ohio 44114-1304
or at such other address or addresses as the party addressed may from time to
time designate in writing. Any such notice shall be deemed given when received.
Section 10.4. ENTIRE AGREEMENT AND MODIFICATIONS. This Agreement and the
Agreement of Merger and all exhibits and schedules attached thereto, together
constitute the entire agreement among Bancshares, Citizens and Bank with respect
to the subject matter hereof, and supersede any prior oral or written agreement
and any other written or oral representations, including but not limited to the
letters dated July 22, 1997 and August 22, 1997, and there are no agreements or
commitments except as set forth herein and therein. Bank shall have the right,
with the prior consent of Bancshares, from time to time prior to the Closing
Date, to supplement the Disclosure Schedules with respect to any matter
hereafter arising that, if existing or known as of the date of this Agreement,
would have been required to be set forth or described in the Disclosure
Schedules. This Agreement and the Agreement of Merger may be amended only by
instrument in writing executed by the parties hereto and thereto and authorized
as provided herein or therein. Nothing expressed or implied in this Agreement is
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intended, or shall be construed, to confer upon or give any person, firm, or
corporation other than the parties hereto and their respective shareholders any
rights or remedies under or by reason of this Agreement. The captions in this
Agreement are for convenience only and shall not be considered a part of or
affect the construction or interpretation of any provision of this Agreement.
Section 10.5. EXECUTION OF COUNTERPARTS. For the convenience of the parties
and to facilitate any required filing, this Agreement may be executed in one or
more counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same document.
Section 10.6. EXPENSES. The parties hereto each shall bear their own
expenses incurred in connection with this Agreement, the Agreement of Merger and
the Share Exchange herein contemplated (whether or not such Share Exchange shall
be consummated), including, without limitation, all fees of their respective
legal counsel, investment advisers and accountants.
Section 10.7. CONSTRUCTION. This Agreement shall be construed and enforced
in accordance with the laws of the State of Ohio.
Section 10.8. EXCHANGE AGENT. Citizens Bancshares, Inc., 10 East Main
Street, Salineville, Ohio, as transfer agent for the Bancshares Common Shares
shall act as Exchange Agent in respect of the conversion of Bank Common Shares
into Bancshares Common Shares.
Section 10.9 SUCCESSORS AND ASSIGNS. This Agreement is binding on the
successors and assigns of Bancshares.
[THIS SPACE LEFT INTENTIONALLY BLANK]
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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their respective officers thereunder duly authorized, all as of the date
first above written.
<TABLE>
<CAPTION>
<S> <C>
CITIZENS BANCSHARES, INC.
Attest:
By: /s/ Tracey L. Reeder By: /s/ Marty E. Adams
--------------------------------------------- ---------------------------------------------
Tracey L. Reeder, Assistant Secretary Marty E. Adams, President
THE CITIZENS BANKING COMPANY
Attest:
By: /s/ Tracey L. Reeder By: /s/ Marty E. Adams
--------------------------------------------- ---------------------------------------------
Tracey L. Reeder, Assistant Secretary Marty E. Adams, President
UNIBANK
Attest:
By: /s/ William McElwain By: /s/ H. Lee Kinney
--------------------------------------------- ---------------------------------------------
William McElwain, Secretary H. Lee Kinney, Chairman & Chief
Executive Officer
</TABLE>
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EXHIBIT A
AGREEMENT OF MERGER
-------------------
AGREEMENT OF MERGER ("Merger Agreement") dated as of ____________,
199_, by and between THE CITIZENS BANKING COMPANY, an Ohio bank having its
principal office at 50 East Main Street, Salineville, Ohio 43945 ("Citizens"),
and UNIBANK, an Ohio bank having its principal office at P.O. Box 640,
Steubenville, Ohio 43592-5640 ("UniBank") and joined in by Citizens Bancshares,
Inc., an Ohio corporation and registered bank holding company having its
principal office at 10 East Main Street, Salineville, Ohio 43945 ("Bancshares"),
which is the sole shareholder of Citizens. Citizens and UniBank are hereinafter
sometimes referred to as the "Constituent Banks."
The respective Boards of Directors of Citizens and Bancshares have
determined that it is advisable and in the best interests of each of the
respective Constituent Banks that UniBank merge with and into Citizens upon the
terms and subject to the conditions herein provided and the Board of Directors
of UniBank has determined that such action is fair to, and in the best interests
of, the UniBank shareholders.
The respective Boards of Directors of Citizens and UniBank have,
by resolutions duly adopted, (i) authorized this Merger Agreement as part of the
plan of affiliation and merger set forth in an Affiliation Agreement dated as of
the date hereof (the "Affiliation Agreement") (collectively, the "Plan"), and
(ii) authorized that it be executed by the undersigned officers.
The transactions contemplated by the Plan and this Merger
Agreement have been submitted to, and adopted and approved by, the shareholders
of UniBank.
In consideration of the mutual agreements herein contained, the
parties agree that UniBank shall be merged with and into Citizens and that the
terms and conditions of the merger, the mode of carrying the merger into effect,
the manner of converting the common shares of the Constituent Banks and certain
other provisions relating thereto shall be as hereinafter set forth.
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ARTICLE I
THE MERGER
----------
1.01 RESULTING BANK. Subject to the terms and provisions of this
Merger Agreement, and in accordance with Chapters 1101, 1121 and 1701 of the
Ohio Revised Code, at the Effective Time (as defined in Section 1.07 hereof)
UniBank shall be merged with and into Citizens (the "Merger"). The Citizens
Banking Company shall be the resulting bank (hereinafter called the "Resulting
Bank") of the Merger and shall continue its existence as a bank under the laws
of the State of Ohio under the name "The Citizens Banking Company". At the
Effective Time, the separate existence of UniBank shall cease. The principal
place of business of the Resulting Bank shall be Salineville, Columbiana County,
Ohio.
1.02 EFFECT OF THE MERGER. At the Effective Time, the Merger shall
have the effects provided for herein and in Sections 1121.06 and 1701.82 of the
Ohio Revised Code.
1.03 ARTICLES OF INCORPORATION. As of the Effective Time, the
Articles of Incorporation of Citizens, as in effect immediately prior to the
Effective Time, shall become the Articles of Incorporation of the Resulting Bank
until thereafter duly altered, amended, or repealed in accordance with the
provisions thereof and applicable law.
1.04 CODE OF REGULATIONS. As of the Effective Time, the Code of
Regulations of Citizens, as in effect immediately prior to the Effective Time,
shall become the Code of Regulations of the Resulting Bank until thereafter duly
altered, amended or repealed in accordance with the provisions thereof, the
Articles of Incorporation of the Resulting Bank and applicable law.
1.05 DIRECTORS OF THE RESULTING BANK. At the Effective Time, each
person who is a director of Citizens immediately prior to the Effective Time
shall remain a director of the Resulting Bank and each such person shall serve
as a director of the Resulting Bank for the balance of the term for which such
person was elected a director of Citizens and until his successor is duly
elected and qualified in the manner provided in the Code of Regulations of the
Resulting Bank or as otherwise provided by law or until his earlier death,
resignation or removal in the manner provided in the Code of Regulations of the
Resulting Bank or as otherwise provided by law. The names and addresses of the
directors of the Resulting Bank are as follows:
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<TABLE>
<CAPTION>
<S> <C> <C>
Mr. Marty E. Adams Mr. Lee A. Smith Mr. James C. McBane
14Q435 State Route 164 401 East Chestnut Street School Street - Box 340
Salineville, OH 43945 Lisbon, Ohio 44432 Bergholz, OH 43908
Mr. Fred H. Johnson Dr. Keith D. Burgett Mr. Willard L. Davis
Box 61 1225 Canton Road, NW R.D. #1 - Box 28
Summitville, OH 43962 Carrollton, OH 44615 Richmond, OH 43944
Mr. Gerard P. Mastroianni Mr. Fred H. Johnson III Mr. Jonathan A. Levy
1800 West State Street Box 5 40 Redfern Drive
Alliance, OH 44601 Summitville, OH 43962 Youngstown, OH 44505
Mr. Kenneth E. McConnell Mr. Elden L. Surbey
R.D. #1 - Box 514 614 Brinker, SW
Richmond, Ohio 43944 Navarre, Ohio 44622
</TABLE>
1.06 OFFICERS OF THE RESULTING BANK. At the Effective Time, each
person who is an officer of Citizens immediately prior to the Effective Time
shall remain an officer of the Resulting Bank and hold the same office as he or
she held immediately prior to the Effective Time. At the Effective Time, each
person who is an officer of UniBank immediately prior to the Effective Time
shall be offered employment as an officer of the Resulting Bank or of one of its
affiliates.
1.07 EFFECTIVE TIME. The Merger shall become effective in
accordance with the provisions of Section 1121.06 of the Ohio Revised Code, upon
the filing of a certified copy of the Merger Agreement together with a
certificate of approval from the Superintendent of the Division of Financial
Institutions, with the Secretary of State of the State of Ohio. The date and
time when the Merger shall become effective is herein referred to as the
"Effective Time."
1.08 ADDITIONAL ACTIONS. If, at any time after the Effective Time,
the Resulting Bank shall consider or be advised that any further assignments or
assurances in law or any other acts are necessary or desirable to carry out the
purposes of this Merger Agreement, UniBank and its proper officers and directors
shall be deemed to have granted hereby to the Resulting Bank an irrevocable
power of attorney to execute and deliver any and all assignments and assurances
in law and to do all acts necessary or proper to carry out the purposes of this
Merger Agreement; and the proper officers and directors of the Resulting Bank
are hereby fully authorized in the name of UniBank or otherwise to take any and
all such action.
A-41
<PAGE> 161
ARTICLE II
CONVERSION AND EXCHANGE OF UNIBANK COMMON SHARES;
-------------------------------------------------
FRACTIONAL SHARE INTERESTS
--------------------------
2.01 CONVERSION AND EXCHANGE. At the Effective Time:
(a) Each common share of Citizens, without par value, issued
and outstanding immediately prior to the Effective Time shall continue to be one
common share of the Resulting Bank after the Merger.
(b) Other than UniBank common shares as to which dissenters'
rights have been exercised, all common shares of UniBank that shall be issued
and outstanding at the Effective Time (the "UniBank Common Shares") shall
thereupon and without further action be converted into and become 13.25
Bancshares common shares having the same rights and privileges as all other
Bancshares Common Shares (individually hereinafter referred to as a "Bancshares
Common Share" and collectively, as the "Bancshares Common Shares").
Notwithstanding the foregoing, in no event shall the holders of
Bank Common Shares receive, in the aggregate, in Bancshares Common Shares with a
Total Value (as hereinafter defined) plus cash in lieu of fractional shares that
is less than 2.7 times the book value of Bank Common Shares on December 31,
1997. In such event, the parties shall adjust the number of Bancshares Common
Shares into which each Bank Common Share shall be converted; provided, however,
solely for purposes of this Section 1.2(a), in the event the book value of Bank
Common Shares shall exceed Two Hundred and Fifty Dollars ($250.00) per shares,
Bancshares may elect to terminate this Agreement.
It is understood and agreed that following the conversion of the
UniBank Common Shares into Bancshares Common Shares, the UniBank Common Shares
will be canceled.
(c) The term "NMS Closing Price" shall mean the price per
share of the last sale of Bancshares Common Shares reported on the NASDAQ
National Market System at the close of the trading day by the National
Association of Securities Dealers, Inc. The term "Total Value" shall mean the
arithmetic mean of the NMS Closing Prices for the twenty (20) trading days
immediately preceding the tenth trading day, inclusive, immediately preceding
the Effective Time.
A-42
<PAGE> 162
(d) Other than as provided for in Section 2.01(b) hereof, at
the Effective Time, all authorized but unissued shares of UniBank Common Shares
shall be canceled and no stock, cash or other property shall be delivered in
exchange therefor.
(e) No fractional Bancshares Common Share or certificate or
scrip therefor shall be issued as a result of the conversion of UniBank Common
Shares into Bancshares Common Shares. To the extent an outstanding UniBank
Common Share would otherwise have become a fractional Bancshares Common Share,
the holder thereof shall receive, in lieu thereof, an amount of cash (rounded to
the nearest whole-cent) equal to the product of such fraction multiplied by the
Average NMS Closing Price of Bancshares Common Shares. Such purchases of
fractional interests are merely intended as a mechanism for "rounding off"
fractional shares and do not constitute separately bargained for consideration
in connection with the transactions contemplated by the Plan and by this Merger
Agreement.
(f) At the Effective Time, the share transfer books of
UniBank shall be closed and no transfer of UniBank Common Shares shall
thereafter be made or recognized. Notwithstanding any other provision of this
Merger Agreement, neither Bancshares or its agent nor any party hereto shall be
liable to a holder of UniBank Common Shares for any amount properly delivered in
good faith to a public official pursuant to any applicable abandoned property,
escheat or similar law.
(g) No conversion under subsection (b) of this Section 2.01
shall be made in respect of any UniBank Common Share as to which a UniBank
shareholder has elected to exercise dissenters' rights under applicable Ohio
law, if any, until such time as such rights have been lost or extinguished.
ARTICLE III
MISCELLANEOUS
-------------
3.01 AMENDMENT. Subject to applicable law, this Merger Agreement
may be amended, modified, or supplemented by written agreement of the
Constituent Banks and Bancshares at any time prior to the Effective Time.
3.02 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original and the same
agreement.
A-43
<PAGE> 163
IN WITNESS WHEREOF, Citizens, UniBank and Bancshares have caused
this Merger Agreement to be signed by their respective duly authorized officers
as of the date first above written.
<TABLE>
<CAPTION>
<S> <C>
THE CITIZENS BANKING COMPANY,
an Ohio bank
Attest:
By_____________________________________ By_____________________________________
Tracey L. Reeder, Marty E. Adams, President
Assistant Secretary
UNIBANK,
an Ohio bank
Attest:
By_____________________________________ By_____________________________________
William McElwain, Secretary H. Lee Kinney, Chairman and
Chief Executive Officer
CITIZENS BANCSHARES, INC.,
an Ohio corporation
Attest:
By_____________________________________ By_____________________________________
Tracey L. Reeder, Marty E. Adams, President
Assistant Secretary
</TABLE>
A-44
<PAGE> 164
<TABLE>
<CAPTION>
EXHIBIT 9.1
-----------
Short Name Location
<S> <C>
American Bancorp............................................................................Wheeling, West Virginia
BCB Financial Services Corp...................................................................Reading, Pennsylvania
BancFirst Ohio Corp................................................................................Zanesville, Ohio
Belmont Bancorp....................................................................................Bridgeport, Ohio
City Holding..............................................................................Charleston, West Virginia
Comm Bancorp Inc..........................................................................Forest City, Pennsylvania
Commercial National Financial.................................................................Latrobe, Pennsylvania
CoBancorp Inc..........................................................................................Elyria, Ohio
Codorus Valley Bancorp Inc..................................................................Glen Rock, Pennsylvania
Commercial Bancshares Inc................................................................Parkersburg, West Virginia
Century Financial Corp......................................................................Rochester, Pennsylvania
First Financial......................................................................................Hamilton, Ohio
Horizon Bancorp Inc..........................................................................Beckley, West Virginia
Matewan BancShares Inc....................................................................Williamson, West Virginia
Mid Am..........................................................................................Bowling Green, Ohio
NSD Bancorp Inc............................................................................Pittsburgh, Pennsylvania
Oak Hill Financial Inc................................................................................Jackson, Ohio
Ohio Valley Banc Corp..............................................................................Gallipolis, Ohio
Park...................................................................................................Newark, Ohio
Peoples Bancorp Inc..................................................................................Marietta, Ohio
Second Bancorp Inc.....................................................................................Warren, Ohio
Southwest National Corp....................................................................Greensburg, Pennsylvania
United Bancorp Inc..............................................................................Martins Ferry, Ohio
Wayne Bancorp.........................................................................................Wooster, Ohio
</TABLE>
A-45
<PAGE> 165
DISCLOSURE SCHEDULE
-------------------
[Intentionally Omitted]
A-46
<PAGE> 166
APPENDIX B
DISSENTERS' RIGHTS UNDER SECTIONS 1115.19 AND 1701.85 OF THE OHIO REVISED CODE
B-1
<PAGE> 167
DISSENTERS' RIGHTS UNDER SECTIONS 1115.19 AND 1701.85 OF THE OHIO REVISED CODE
1115.19 PAYMENT OF FAIR CASH VALUE OF SHARES TO DISSENTING SHAREHOLDERS
Unless the articles of incorporation of the state bank otherwise
provide, any shareholder of a state bank that has been consolidated or merged
with, or whose assets have been transferred to, another state or a national
bank, savings bank, or savings association pursuant to provision of this chapter
other than section 1115.15 of the Revised Code, who did not vote in favor of the
consolidation, merger, or transfer, shall be paid the fair cash value, as of the
day before the vote was taken authorizing the action, of the shares held,
excluding from the fair cash value any appreciation or depreciation in
consequence of the consolidation, merger, or transfer which entitled the
shareholder to this relief. Section 1701.85 of the Revised Code shall govern
with respect to the shareholder's rights and any limitations on those rights.
Any shareholder who does not object and demand in writing the payment of the
fair cash value of the shares in the manner and at the time provided in section
1701.85 of the Revised Code, shall be bound by the vote of the board of
directors or the assenting shareholders of the state bank.
1701.85 DISSENTING SHAREHOLDER'S DEMAND FOR FAIR CASH VALUE OF SHARES
(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 [1701.80.1] 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 [1701.80.1] 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. A dissenting shareholder's failure
to deliver such certificates terminates his rights as a dissenting shareholder,
at the option of the corporation, exercised by written notice sent to the
dissenting shareholder within twenty
B-2
<PAGE> 168
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 from a dissenting
shareholder who is the record holder of uncertificated securities, the
corporation shall make an appropriate notation of the demand for payment in its
shareholder records. If uncertificated shares for which payment has been
demanded are to be transferred, any new certificate issued for the shares shall
bear the legend required for 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 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 apportioned as the court considers equitable.
The proceeding is a special proceeding and final orders in it may be vacated,
modified, or reversed on appeal pursuant to the Rules of Appellate Procedure
and, to the extent not in conflict with those rules, Chapter 2505 of the Revised
Code. If, during the pendency of any proceeding instituted under this section, a
suit or proceeding is or has been instituted to enjoin or otherwise to prevent
the carrying out of the action as to which the shareholder has dissented, the
proceeding instituted under this section shall be stayed until the final
determination of the other suit or proceeding. Unless any provision in division
(D) of this section is applicable, the fair cash value of the shares 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.
B-3
<PAGE> 169
(C) If the proposal was required to be submitted to the
shareholders of the corporation, fair cash value as to those shareholders shall
be determined as of the day prior to 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 [1701.80.1] of the Revised Code, fair cash value as to shareholders
of a constituent subsidiary corporation shall be determined as of the day before
the adoption of the agreement of merger by the directors of the particular
subsidiary corporation. The fair cash value of a share for the purposes of this
section is the amount that a willing seller 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 joined 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.
B-4
<PAGE> 170
APPENDIX C
FAIRNESS OPINION OF DANIELSON ASSOCIATES, INC.
C-1
<PAGE> 171
UNIBANK
STEUBENVILLE, OHIO
FAIRNESS OPINION
AS OF SEPTEMBER 12, 1997
------------------------
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Introduction....................................................................................................C-3
Description.....................................................................................................C-4
Financial Performance...........................................................................................C-5
Acquisition Pricing............................................................................................C-11
Market Value Adjustments.......................................................................................C-16
Citizens.......................................................................................................C-17
Valuation......................................................................................................C-25
APPENDICES
----------
Tab
---
UniBank Corporate Report 1993 to 1996.............................................................................I
UniBank Consolidated Financial Statement June 30, 1997...........................................................II
Citizens Bancshares 1996 Annual Report..........................................................................III
Citizens Bancshares Consolidated Financial Statement June 30, 1997...............................................IV
</TABLE>
C-2
<PAGE> 172
UNIBANK
STEUBENVILLE, OHIO
FAIRNESS OPINION
AS OF SEPTEMBER 12, 1997
------------------------
Set forth herein is Danielson Associates Inc.'s ("Danielson
Associates") independent opinion as to the "fairness" of the offer by Citizens
Bancshares, Inc. ("Citizens") of Salineville, Ohio to acquire all of the
outstanding common stock of UniBank (also the "Bank") of Steubenville, Ohio
through an exchange of stock with a value at the time of the offer of about
$52.7 million. The "fair" sale value is defined as the price at which all of the
shares of UniBank's common stock would change hands between a willing seller and
a willing buyer, each having reasonable knowledge of the relevant facts. In
opining to the "fairness" of the offer, it also had to be determined if the
Citizens common stock to be exchanged for UniBank common stock was "fairly"
valued.
In preparing the opinion, the markets served by UniBank have been
analyzed; its business and prospects have been reviewed; its financial
performance has been compared with banks in the region; and the acquisition
prices of comparable banks have been analyzed. In addition, any unique
characteristics have been considered.
This opinion is based on data supplied by UniBank, and relies on some
public information, all of which is believed to be reliable, but the accuracy or
the completeness of such information cannot be guaranteed. The opinion assumes
that there are no significant loan problems beyond what is stated in recent
reports to regulatory agencies.
In determining the "fair" sale value of UniBank, the emphasis has been
on prices paid for banks and bank holding companies with similar financial,
structural and market characteristics. These sale prices were then related to
earnings, assets and equity capital, also referred to as "book."
In determining the "fairness" of the offer, we compared the common
stock to be exchanged by Citizens for UniBank common stock with the common stock
of other, similar bank holding companies. In so doing, we also compared
Citizens' financial performance with these comparable financial institutions.
Based on the foregoing, we are of the opinion on the date hereof that
the offer made by Citizens to acquire all of the common stock of UniBank
pursuant to the merger agreement is "fair" from a financial point of view to
UniBank and its shareholders.
Respectfully submitted,
Arnold G. Danielson
Chairman
Danielson Associates Inc.
C-3
<PAGE> 173
DESCRIPTION
-----------
General
- -------
UniBank is a state-chartered bank that commenced operation in Jefferson
County, Ohio in 1985 in conjunction with the purchase of the Ameritrust
Corporation ("Ameritrust") banking offices in that county. It has ten banking
offices, including the three branches recently acquired from National City
Corporation ("National City"). The Bank is regulated by the Ohio State Banking
Department, and its deposits are insured by the Federal Deposit Insurance
Company ("FDIC").
The Bank conducts a normal banking business. This includes making
commercial, consumer and real estate loans; providing checking accounts, savings
deposits, and certificates of deposit ("CDs"); and offering safe deposit
services.
Market
- ------
UniBank's primary market is Jefferson County, which includes the city
of Steubenville. It had seven branches in the county including two in
Steubenville and Toronto and one each in Amsterdam, Winterville and Mingo
Junction prior to acquiring the three National City branches. The three branches
purchased from National City encompass two in Jefferson County, including a
second Mingo Junction office and an office in Tiltonsville. The third National
City branch is in East Liverpool in Columbiana County.
Jefferson and Columbiana counties, and particularly Jefferson, have
seen better days. In the last census period, 1980 to 1990, Jefferson lost
population at the rate of 1.3% per annum, and its median household income in
1995 of $25,001 was more than $3,500 below the national average.
The demographics are little better in Columbiana County whose
population of 108,276 in 1990 was about 28,000 more than in Jefferson.
Columbiana had a population outflow in the eighties of .5% per annum and a
median household income of $26,289 in 1995.
<TABLE>
<CAPTION>
Selected Demographics on Home Market
------------------------------------
Population
----------
Annual Median
1990 Growth Household
Amount Rate* Income**
------ ----- --------
County
------
<S> <C> <C> <C>
Columbiana 108,276 (.5)% $26,289
Jefferson*** 80,298 (1.3) 25,001
Ohio 10,847,115 .1% $28,706
<FN>
* 1980 to 1990
** 1995
*** Accounts for 97% of UniBank's business.
Source: SOURCEBOOK AMERICA, CACI, Arlington, Virginia and 1990 Census of
Population and Housing, Bureau of the Census, Washington, D.C.
</TABLE>
UniBank was the second largest bank in Jefferson County with $190
million in deposits and a 20.8% deposit share as of June 30, 1996, including the
acquired National City branches. National City, excluding the subsequently sold
branches, was the market leader with $230 million in deposits and a 25.1% market
share.
C-4
<PAGE> 174
Three other banking organizations - Banc One Corporation ("Banc One"),
Citizens and Trumbull Savings and Loan Association ("Trumbull S&L") - also have
significant positions in Jefferson County. Each had between $120 and $140
million in county deposits in mid-1996 and deposit shares between 13% and 16%.
Jefferson County has three other banks - Peoples National Bank of Mount
Pleasant ("Peoples"), Steel Valley Bank, N.A. ("Steel Valley") and American
Bancorporation ("American") - that are minor factors. American is a mid-sized
bank headquartered in Wheeling. Peoples and Steel Valley are locally-based.
Deposit Share In Jefferson County
---------------------------------
<TABLE>
<CAPTION>
Market Share
----------------------------------------
June 30,
Deposits ----------------------------------------
1996 1996 1995 1994 1992 1990
---- ---- ---- ---- ---- ----
(In mill.)
<S> <C> <C> <C> <C> <C> <C>
MARKET LEADERS
NATIONAL CITY $230 25.1% 29.0% 29.2% -- --
UNIBANK 190* 20.8* 16.3 16.8 14.1% 13.9%
BANC ONE 139 15.2 15.8 15.8 15.1 16.6
CITIZENS 128 13.9 13.6 13.4 12.7 12.1
TRUMBULL S&L 122 13.4 14.0 13.7 -- --
---- ----- ----- ----- ----- -----
SUBTOTAL $809 88.4% 88.7% 88.9% 41.9% 42.6%
SECOND TIER
PEOPLES $ 35 3.8% 3.7% 3.8% 3.6% 3.2%
STEEL VALLEY 25 2.8 2.6 2.3 -- --
AMERICAN 16 1.7 1.8 -- -- --
---- ----- ----- ----- ----- -----
SUBTOTAL $ 76 8.3% 8.1% 6.1% 3.6% 3.2%
OTHER COMM. BANKS -- -- 2.0% .3% 6.3% 4.9%
OTHER THRIFTS -- -- -- 1.6 45.3 46.7
CREDIT UNIONS $ 30 3.3% 1.2 3.4 2.9 2.6
---- ----- ----- ----- ----- -----
TOTAL $915 100.0% 100.0% 100.0% 100.0% 100.0%
<FN>
*Includes branches acquired from National City.
</TABLE>
Source: SNL Securities L.P., Charlottesville, Virginia.
Credit unions have a small but growing presence in the county. In
mid-1996, four small credit unions had a combined $30 million in deposits and a
3.3% deposit share.
FINANCIAL PERFORMANCE
---------------------
UniBank commenced operating in 1985, and in so doing, took over the
Jefferson County branches of Ameritrust. This gave it a running start with
assets of $99 million, and it had capital of approximately $8 million as of
December 31, 1985.
C-5
<PAGE> 175
UniBank's Financial History
---------------------------
<TABLE>
<CAPTION>
Percent Of Assets
------------------------ Return
Tangible Net Tangible Net on Avg.
Assets Capital Income Capital Income Equity
------ ------- ------ ------- ------ ------
(In millions)
<S> <C> <C> <C> <C> <C> <C>
1997* $226** $15.9 $2,270 7.05% 1.15% 13.15
1996 183 16.8 2,118*** 9.17 1.16 13.07
1995 174 15.5 1,963 8.94 1.16 13.58
1994 167 13.2 1,763 7.88 1.05 13.29
1993 155 13.0 300 8.38 .19 2.29
1992 147 13.0 1,523 8.84 1.02 12.05
1991 146 11.8 1,036 8.08 .74 8.74
1990 133 11.0 894 8.30 .66 7.92
1989 137 10.2 1,113 7.50 .88 10.51
1988 116 9.6 1,168 8.23 1.00 11.97
1987 119 8.4 1,064 7.09 .94 11.93
1986 108 8.5 763 7.84 .74 9.42
1985**** 99 7.8 236 7.85 .31 3.13
<FN>
* June 30, 1997 or six months annualized.
** Includes the three branches acquired from National City.
*** Includes a one-time gain of about $450,000, but this was offset by a
similar amount of "unusual" expenses.
**** First year of operating after acquiring Ameritrust's Jefferson County
branches.
</TABLE>
Source: SNL Securities L.P., Charlottesville, Virginia.
In its first full year of operating, 1986, UniBank earned $763,000,
which was a return of .74% and 9.42% on average assets and equity, respectively.
At the end of that year, assets had grown to $108 million.
Since 1986, UniBank's growth has been slow, but it still almost doubled
its asset base in the ten years prior to its 1997 acquisition of the National
City branches. Its assets passed $150 million in 1993, and by the end of 1996,
it had assets of about $183 million, and with the branch acquisitions, UniBank's
assets should be about $230 million at year-end 1997.
Except for 1993 when UniBank made a large contribution to reserves, it
has been a good, if not spectacular, earner. It earned $1 million for the first
time in 1987, and by 1995, earnings were approaching $2 million. In 1996, it
surpassed $2 million, and through the first six months of 1997, UniBank's
annualized net income was about $2.3 million, which was 1.15% of average assets
and 13.15% of average equity.
Until 1995, though, earnings were not at a level that increased capital
as a percent of assets, despite the moderate asset growth. Capital was 7.85% of
assets in 1985, and at year-end 1994, it was 7.88%. The strong earnings in 1995
and 1996, however, pushed capital above 9% of assets, and absent the cash
purchase of the National City branches, capital would be approaching 10% of
assets by year-end 1997.
UniBank's earnings have been constrained by narrow margins resulting
from a low loan-to-assets relationship without an accompanying below average net
overhead that would be expected from its asset mix. Its net interest income
usually has been only marginally above 4% of average assets, and in the first
quarter of 1997, it dipped to 3.88%. Net overhead, even after the
C-6
<PAGE> 176
virtual elimination of deposit insurance payments in 1996, has been in the
vicinity of 2.25% to 2.30% of average assets.
With its margin-expense relationship, UniBank would be hardpressed to
produce earnings much in excess of 1% of average assets if it made a normal
contribution to reserves. Its contribution in 1996 was .02% of average assets,
and it made no contribution in the first half of 1997.
UniBank's Income and Expense Change
-----------------------------------
<TABLE>
<CAPTION>
Percent of Average Assets
----------------------------------------------------------------------------
Net Int. Net Oper. Net Oper. Contr. to Net
Income Expense* Income Reserves Income
------ -------- ------ -------- ------
<S> <C> <C> <C> <C> <C>
1997
2nd Qtr. 4.05% 2.31% 1.74% - 1.19%
1st Qtr. 3.88 2.27 1.61 - 1.09
1996 4.00% 2.28% 1.72% .02% 1.16%
1995 4.41 2.49 1.92 .14 1.16
1994 4.09 2.51 1.58 .15 1.05
1993 4.16 3.44 .72 .72 .19**
1992 4.32 2.94 1.38 .16 1.02
1991 4.15 2.67 1.48 .26 .74
1990 4.04 2.66 1.38 .27 .66
<FN>
* Operating expense less noninterest income.
** Includes securities gains equal to .24% of average assets.
</TABLE>
Source: SNL Securities L.P., Charlottesville, Virginia.
When viewed in the context of eight comparable banks, UniBank had a 44
basis point advantage in its cost of funds in 1997's first quarter, which, when
combined with net overhead that was only seven basis points higher than the
comparable banks, created a favorable variance of 37 basis points in total
expense. This cost advantage, however, was lost in a 79 basis point negative
variance in interest income that was less than 7% of average assets. The end
result was net operating income of 1.65% of average assets that was 42 basis
points below the comparable banks.
The Bank had a similar interest expense advantage and interest income
disadvantage vis-a-vis Ohio's big banks in the first quarter, and it compounded
the negative variance in net operating income with a net overhead that was 70
basis points higher. This resulted in UniBank's net operating income being
almost a full percentage point lower than the large banks.
C-7
<PAGE> 177
<TABLE>
<CAPTION>
Income and Expense Comparison
Twelve Months Ending March 31, 1997
-----------------------------------
Percent of Average Assets
---------------------------------------------------------------------------
Interest Net Oper. Total Interest Net Oper.
Expense Expense Expense Income Income
------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
UniBank* 3.03% 2.31% 5.34% 6.99% 1.65%
Comparable Banks** 3.47% 2.24% 5.71% 7.78% 2.07%
Large Banks*** 3.50 1.61 5.12 7.76 2.64
Citizens 3.88% 2.16% 6.04% 8.91% 2.87%
<FN>
* Twelve months ending June 30, 1997.
** Andover Bancorp, Belmont Savings Bank, CSB Bancorp, FNB Financial,
Killbuck Bancshares, Mechanics Financial, National Bancshares and United
Bancorp in this and subsequent tables.
*** Banc One, Fifth Third Bancorp, Huntington Bankshares Incorporated,
KeyCorp, National City and Star Banc Corporation in this and subsequent
tables.
</TABLE>
Source: SNL Securities L.P., Charlottesville, Virginia.
Citizens also is included in the comparisons, and it had interest
expense that was much higher than UniBank and comparative bank averages and net
operating expense that was only slightly less than UniBank and its comparable
banks. It, though, had better net operating income than even the large banks
because of interest income as a percent of average assets that was 192 basis
points higher than UniBank and 123 and 125 basis points, respectively, above the
comparable and large banks.
The reasons for the income and expense variances between UniBank, the
comparable and large banks and Citizens can be seen in some of the key margin
determinants. They reflect some very different banking patterns.
UniBank's low yields are partially a result of having only 52% of its
assets committed to loans as of March 31, 1997. The comparable banks are 60%
loaned-out and the large banks 71%. The Bank's average yield on loans in the
first quarter of 1997 was similar to the big banks, but it was 47 basis points
less than the comparable banks.
Selected Margin Determinant Comparisons
March 31, 1997 or Twelve Months Ending on March 31, 1997
--------------------------------------------------------
<TABLE>
<CAPTION>
Percent of Assets Yield or Rate Paid
------------------------- ------------------------
Total Trans. Int.-Bearing
Loans Deposits* Loans Deposits
----- --------- ----- --------
<S> <C> <C> <C> <C>
UniBank 52% 55% 8.94% 3.68%
Comparable Banks 60% 43% 9.41% 4.23%
Large Banks 71 42 8.98 4.27
Citizens 60% 38% 10.50% 4.51%
<FN>
*Includes regular savings.
</TABLE>
Source: SNL Securities L.P., Charlottesville, Virginia.
C-8
<PAGE> 178
On the deposit side, UniBank had an advantage over the comparable and
large banks with transaction deposits and regular savings equalling 55% of its
assets. The comparable banks had these deposits equal to 43% of assets and the
large banks 42%. This contributed to UniBank's low average rate paid on
interest-bearing deposits of 3.68% of average assets, which was 55 basis points
less than the comparable banks and 59 less than the big banks.
When the loans and deposits are segregated into their major categories,
these differences are accentuated. On both sides of the balance sheet, though,
the difference between UniBank and the others is primarily in a single loan or
deposit type.
On the loan side, UniBank is roughly equivalent with the comparable and
large bank averages in assets committed to home mortgages, commercial and
industrial loans and consumer loans. Loans secured by commercial real estate,
though, were only 1% of assets as of March 31, 1997 compared to 11% and 12%,
respectively, for the comparable and large banks. This was the primary
difference in the total amount of assets committed to loans between UniBank and
the others, and since they are normally higher yielding loans than most other
types, their lack created a negative variance in loan yield.
<TABLE>
<CAPTION>
Loan and Deposit Mix Comparison
March 31, 1997
-------------------------------
Percent of Assets
----------------------------------------------------------------
Loans
----------------------------------------------------------------
Res. Comm. Con-
Mtge. R.e. Comm. Sumer Total
----- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C>
UniBank 19% 1% 15% 17% 52%
Comparable Banks 25% 11% 14% 10% 60%
Large Banks 13 12 30 17 71
Citizens 26% 12% 17% 5% 60%
Deposits
----------------------------------------------------------------
Other Cons. Jumbo
Demand Trans.* Cds Cds Total
------ ------- --- --- -----
UniBank 8% 47% 29% 5% 89%
Comparable Banks 8% 35% 33% 7% 84%
Large Banks 13 29 23 5 70
Citizens 6% 32% 27% 6% 71%
<FN>
*Includes regular savings.
</TABLE>
Source: SNL Securities L.P., Charlottesville, Virginia.
On the deposit side, UniBank's major difference from others is a
greater commitment to interest-bearing checking accounts and regular savings. It
had 47% of its assets supported by this type of deposit compared to 35% for the
comparable banks and 29% for the large banks as of March 31, 1997. This meant
less bought money and a lower cost of funds.
Citizens is generally similar to the comparable banks in loan and
deposit mix. Its major difference is fewer transaction deposits and greater
dependence on borrowed funds.
C-9
<PAGE> 179
UniBank's asset quality is now exemplary after having struggled in the
mid-nineties. On June 30, 1997, .17% of its assets were not performing. This was
low even by Ohio standards as the percent of assets not performing was .37% and
.63%, respectively, for the comparable and large banks. As recently as 1994,
though, UniBank had nonperforming assets ("NPAs") in excess of 2% of total
assets.
<TABLE>
<CAPTION>
Capital and Asset Quality Comparison
March 31, 1997*
------------------------------------
Percent Of Assets NPAs/
---------------------------------------
Tangible Reserves/ Primary
Capital Reserves NPAs Npls Capital
------- -------- ---- ---- -------
UniBank
-------
<S> <C> <C> <C> <C> <C>
1997** 7.05% .41% .17% 247% 2%
1996*** 9.17 .57 .93 347 10
1995 8.94 .55 1.12 387 12
1994 7.88 1.25 2.07 61 23
1993 8.38 1.17 1.43 82 15
1992 8.84 .58 .14 417 15
1991 8.08 .46 .23 250 3
1990 8.30 .53 .44 135 5
Comparable Banks 10.16% .82% .37% 658% 3%
Large Banks 6.80 1.16 .63 213 8
Citizens 8.82% 1.13% .35% 406% 4%
<FN>
* Unless otherwise stated.
** June 30, 1997.
*** December 31st in this and preceding years.
</TABLE>
Source: SNL Securities L.P., Charlottesville, Virginia.
Even with such good asset quality UniBank is marginally reserved. As of
June 30, 1997, reserves were .41% of assets and .79% of loans. They also were
247% of nonperforming loans ("NPL"), and are not a cause for real concern, but
UniBank cannot continue to bolster earnings by foregoing contribution to
reserves.
Until recently, the level of reserves also was mitigated by a
highly-capitalized position. As of December 31, 1996, the Bank's capital was
9.17% of assets and headed toward excess. This was ample protection from a
safety and soundness perspective that could justify a below-average reserve
position, but with the addition of the National City branches, tangible capital
fell to 7.05% of assets as of June 30, 1997. This was still adequate
capitalization, but it was not capital that would justify marginal reserves.
What do all of these numbers mean? They depict a solid, but slightly
underperforming, small-town Midwest bank. It has never reached the earnings
level of similar Midwest banks despite a very good deposit base, and in the most
recent years, UniBank's net income has looked a little better than it really was
because of minimal, if any, contributions to reserves. The problems are too few
loans and an above-average net overhead. Also complicating future earnings gains
is that increasing loans as a percent of assets would require large increases to
reserves and put upward pressure on overhead.
C-10
<PAGE> 180
From an acquisition perspective, though, these problems are not likely
to be major concerns. A buyer will view the cheap deposits as a big plus and is
likely to assume that it can improve the loan relationship, and hence margins,
without increasing overhead. The biggest buyer negative would be the need to
bring reserves to a level consistent with its own.
ACQUISITION PRICING
-------------------
The "fair" sale value of UniBank, or any banking organization, is
usually determined by the marketplace through the prices being paid for similar
banks or bank holding companies. Since no two banks are exactly the same,
though, there are always comparability problems. Valuations also can be
complicated by either a sudden change in economic or market conditions or by
limited acquisition activity.
The sharp decline in stock prices in late 1987 and deterioration of
asset quality in the early nineties are examples of events that radically
changed bank acquisition pricing. In each case, the stock prices of large
acquirers were adversely impacted, and their ability to pay up to the sellers'
expectations was constrained.
Another method of valuation, and an important form of measurement when
there are few applicable comparisons, is to calculate the value based on
discounted future earnings or dividends. This best indicates what a buyer can
afford when paying cash rather than exchanging a stock that has a value well in
excess of book, but it is a benchmark for stock transactions as well. Like all
statistical projections, though, discounting future earnings or dividends is
only as accurate as the assumptions used, and they can result in prices
significantly different than the realities of the marketplace.
Regional Bank Pricing
- ---------------------
Bank acquisition pricing in Ohio and neighboring states has been very
cyclical and has followed the market relative to the pricing of bank stocks.
When bank stocks traded at high multiples of earnings and book, then the prices
paid for banks also were high.
Thus, when bank stocks were at record levels in 1987, acquisition
prices peaked in UniBank's extended region - Kentucky, Maryland, Ohio, West
Virginia and Pennsylvania - with a median price of 252% of book and 15.9 times
earnings for banks with assets in excess of $100 million. When bank stocks went
out of favor after 1987, acquisition pricing drifted down to median offers of
154% of book and 12 times earnings by 1991.
C-11
<PAGE> 181
<TABLE>
<CAPTION>
UniBank's Extended Region*
Bank Merger Activity and Pricing
--------------------------------
Median Price
------------------------------------------
Deal Times Percent Of
Number Value Earnings Book Assets
------ ----- -------- ---- ------
(In mill.)
<S> <C> <C> <C> <C> <C>
1997** 7 $1,922 22.6X 297% 27.7%
1996 11 1,610 20.0 201 20.2
1995 11 5,573 18.0 199 16.2
1994 12 908 17.0 213 18.8
1993 20 8,432 17.2 196 17.1
1992 13 1,725 15.0 178 14.2
1991 12 2,177 12.0 154 11.6
1990 6 187 13.9 147 11.7
1989*** 11 2,188 13.2 204 18.3
1988 7 226 15.4 200 13.5
1987 12 2,576 15.9 252 17.5
1986 12 1,398 14.9 199 17.1
1985 13 1,419 14.3 163 9.9
1984 15 477 9.1 146 10.7
1983 15 560 13.3 146 10.4
<FN>
* Acquiree assets over $100 million in Kentucky, Maryland, Ohio, Pennsylvania and West Virginia.
** Through September 11, 1997.
*** Excludes Kentucky prior to 1990.
</TABLE>
Source: SNL Securities L.P., Charlottesville, Virginia and Danielson Associates'
compilations.
Since that low point, bank acquisition prices have moved up steadily,
and the median went above 190% of book and 17 times earnings in 1993. Pricing
was fairly steady relative to book from 1993 through 1996, but the multiples of
earnings paid climbed, albeit erratically, to 20 times earnings in 1996. In
1997, pricing continued to rise with the median value being almost 23 times
earnings and 297% of book.
The median price times earnings of bank sales nationwide for acquirees
with assets between $100 million and $5 billion in 1997, except California,
which has its own dynamics because of its late emergence from the recession, has
increased in every month. The increases between late spring and July were
particularly large relative to both earnings and book.
C-12
<PAGE> 182
<TABLE>
<CAPTION>
Summary Of 1997 Mid-sized Bank Pricing*
Median Price
------------------------------------------
As a Percent of
No. of Times ---------------------- Stock
Deals Earnings Book Assets Pe**
----- -------- ---- ------ ----
<S> <C> <C> <C> <C> <C>
August 9 20.7X 268% 20.6% 16.6X
July 7 21.9 265 21.5 17.0
June 7 21.0 247 24.3 16.2
May 7 17.8 222 21.9 15.2
April 1 15.8 175 15.3 14.6
March 6 15.7 217 18.7 14.8
February 10 14.8 222 19.6 15.3
January 3 14.0 226 19.9 14.6
<FN>
* Acquiree assets between $100 million and $5 billion nationwide excluding California.
** National median for bank stock prices.
</TABLE>
Source: SNL Securities L.P., Charlottesville, Virginia.
After modest gains from January through April when the median price
times earnings was below 1996 levels, the median price rose to 17.8 times
earnings in May, in June it was 21 times earnings, and by July, it was 21.9
times earnings. Corresponding percentages of book in those three months were
222%, 247% and 265%. In August, the median prices paid for a bank of this size
were 20.7 times earnings and 268% of book.
Changes in acquisition pricing usually reflect the stock prices of the
acquirers, and this relationship can be seen in 1997. From January through
April, the median bank stock price as a multiple of earnings was generally
between 14 and 15 times earnings. In May, the national median bank stock was
selling at 15.2 times earnings. In June, it was 16.2 times earnings, and by
July, the median had reached 17 times earnings before dipping slightly in
August.
The most applicable recent transactions to the sale value of UniBank
were Fulton Financial Corporation ("Fulton") buying Keystone Heritage Group,
Inc. ("Keystone Heritage"); Area Bancshares Corporation's ("Area") purchase of
Cardinal Bancshares, Inc. ("Cardinal") in 1997; and a 1996 West Virginia
transaction, Horizon Bancorp, Inc. ("Horizon") buying Twentieth Bancorp, Inc.
("Twentieth"). Two of these acquirees received more than 20 times earnings, and
Keystone Heritage was paid over 300% of book. Not every bank gets that high a
price, though, as Cardinal was paid only 16.9 times earnings and 188% of book.
<TABLE>
<CAPTION>
Most Applicable Recent Transactions
Price
------------------------------------------
Percent of
Offer Times ----------------------
Price Earnings Book Assets
----- -------- ---- ------
(In mill.)
<S> <C> <C> <C> <C>
Fulton-Keystone Heritage $212 20.8X 319% 33.1%
Area-Cardinal 105 16.9 188 16.6
Horizon-Twentieth* 78 22.6 247 24.7
<FN>
*1996 transaction.
</TABLE>
Source: SNL Securities L.P., Charlottesville, Virginia.
C-13
<PAGE> 183
These and other deals would suggest the present sale value of quality
banks of UniBank's size is at least 20 to 22 times earnings and 230% to 270% of
book. Applying the mid-points to UniBank results in an unadjusted sale value of
$45.7 million, or $610 per share, based on earnings and $44.4 million, or $593
per share, using book value.
<TABLE>
<CAPTION>
Recent Pricing Applied to UniBank*
Price
-------------------------------------------
Percent of
Times -----------------------
Earnings Book Assets
-------- ---- ------
<S> <C> <C> <C>
High 22X 270% 25%
Mid-Point 21 250 23
Low 20 230 21
Applied to UniBank*
-------------------------------------------
(in millions)
<S> <C> <C> <C>
High $47.9 $48.0 $56.5
- Per share 638.88 640.04 753.76
Mid-Point $45.7 $44.4 $52.0
- Per share 609.84 592.63 693.45
Low $43.6 $40.9 $46.7
- Per share 580.80 545.22 622.09
<FN>
* June 30, 1997 or twelve months ending June 30, 1997.
** Net income of $2,178,000 and assumes 75,000 shares outstanding.
</TABLE>
It is earnings, though, and not book that will determine the price.
Thus, the most meaningful comparison for UniBank is the $45.7 million, or $610
per share, which is 257% of book.
Investment Valuation
- --------------------
Since acquisitions based on comparable sale prices include a number of
variables such as the acquirer's stock price, capital of the acquiree, asset
quality and the condition of the equity markets, they may not reflect the true
long-term value to the acquirer. Thus, sale valuations also should consider the
value based on the expected return on the investment absent the benefit of a
stock with a high multiple. Two of the most widely used methods for doing this
are discounted future earnings and dividends.
In applying discounted future earnings to UniBank, several variables
were used relative to growth, earnings and acceptable returns on investments.
Annual asset growth was calculated at 6%; the return on average assets at 1.20%,
1.10% and 1.00%; and the discount rates utilized were 11%, 13% and 15%.
The discount rate is an approximate equivalent to the return desired on
the initial investment. In other words, a discount rate of 13% is about a 13%
return on the initial investment.
UniBank has had modest growth recently, and earnings have been in the
vicinity of 1.15% of average assets range. A 6% asset growth should be
sustainable, but the need to make more normal contributions to reserve could
push earnings in the next couple of years into the 1% to 1.10% range unless
there are significant positive changes elsewhere.
C-14
<PAGE> 184
<TABLE>
<CAPTION>
UniBank's Value Based on
Discounted Future Earnings
--------------------------
Value
--------------------------------------
Discount Rate*
--------------------------------------
11% 13% 15%
--- --- ---
(In millions)
6% Asset Growth
---------------
Return on Average Assets
------------------------
<S> <C> <C> <C>
1.20 $43.1 $35.0 $29.2
1.10 39.5 32.1 26.7
1.00 34.9 28.4 23.6
<FN>
*The rate of return of a cash investment calculated over a 30 year period.
</TABLE>
Using a 6% rate of asset growth and a 1.10% return on average assets,
which approximates expectations with a normal contribution to reserves, the
investment value at a discount rate of 13% is $32.1 million. At an 11% discount
rate, the investment value would be $39.5 million. These values translate into
187% and 230% of book, respectively. In our analysis, we have determined these
are the appropriate discount rates in this environment for large bank
acquisitions. This projection, however, determines value based on a stand-alone
basis and has not factored in the cost savings of a merger.
Similar in approach to discounted future earnings is discounted
dividend analysis, which discounts dividends to shareholders based on the
theoretical approach that it is cash put into the hands of shareholders that
really counts. This approach assumes that all excess earnings are returned to
the shareholders as dividends for a set period of time and then the shares are
sold at market value.
<TABLE>
<CAPTION>
UniBank's Discounted Dividend Value Including Cost Savings
----------------------------------------------------------
Value
--------------------------------------
Discount Rate*
--------------------------------------
11% 13% 15%
--- --- ---
(In millions)
<S> <C> <C> <C>
Terminal Value
--------------
12 times earnings $41.3 $38.2 $35.4
14 times earnings 46.2 42.7 39.6
Per Share
--------------------------------------
<S> <C> <C> <C>
Terminal Value
--------------
12 times earnings $550.06 $509.05 $472.00
14 times earnings 616.57 569.88 527.73
<FN>
* Assumes 6% stand alone annual growth rate and 1.00% ROA with equity in
excess of 7.00% of assets dividended out, 15% cost savings phased in over
two years and 7% operating expense growth.
</TABLE>
The key difference between this approach and discounted future earnings
is that retained earnings are not valued until the termination of the models
forecast, which means investments that do not produce sufficient returns as
measured by the discount rate are penalized even further than by discounted
future earnings.
Using the discounted dividend analysis and assuming a 6% stand alone
growth rate, which is the recent history of UniBank, equity in excess of 7% of
assets dividended out annually, a smaller 1% return on average assets to adjust
for the lower capitalization, a 7% operating expense growth with
C-15
<PAGE> 185
a 15% cost savings phased in over a two year period, 12 times earnings terminal
value at the end of five years and a 13% discount rate produced a sale value for
UniBank of $38.2 million. At an 11% discount rate and 14 times earnings terminal
value, UniBank's value is approximately $46.2 million.
Summary
- -------
Recent acquisition pricing suggests the "fair" value for normal banks
in Ohio is at least 20 to 22 times earnings, which is higher than the value
produced by investment calculations. How this translates into book value is
determined by the return on equity of the acquired institutions, but the most
recent offers have been above 250% of book.
MARKET VALUE ADJUSTMENTS
------------------------
To determine the "fair" sale value of UniBank, it is necessary to
consider how it differs from other banks and bank holding companies that were
sold recently, and then make adjustments based on the differences, if any. Some
areas that should be considered are profitability, capital, growth, size,
market, asset mix, asset quality, deposit mix and management. Also, if there are
any unique circumstances, they also should be considered.
Profitability
- -------------
Earnings are the primary determinant of sale value and have been used
to determine UniBank's "fair" value, but relationships based on earnings also
have to consider their sustainability. Assuming UniBank can get some improvement
in either loans as a percent of assets or net overhead to offset it again making
more normal contributions to reserves, which should be doable, it is likely that
the present level of earnings as a percent of assets could be maintained. Since
net income was used to determine UniBank's "fair" sale value and is a fair
representation of future earning power, no change in value is needed based on
profitability.
Capitalization
- --------------
UniBank is adequately-capitalized, even after the branch acquisitions,
and is not being close to "excess," as is the case with so many small and
mid-size banks, which is a plus. Normal capital, though, does not effect an
earnings-derived value, and, as a result, no adjustment is merited based on
capital.
Growth Momentum
- ---------------
In recent years, UniBank's assets have been growing at about 5% to 6%
per annum, which is good, but not spectacular, and this growth reflects the
markets being served. This modest growth is typical of small Midwest banks, in
general, and, as a result, the growth on its own is not a cause for a value
adjustment.
Size
- ----
The comparable bank acquisitions take into account UniBank's size. As a
result, size is not a reason for a value adjustment.
Market
- ------
The market served, which is primarily Jefferson County, is a low growth
area, but it also offers minimal asset quality risk. This, however, is the case
with most markets in the east central part of the country and is not a cause for
a downward value adjustment.
C-16
<PAGE> 186
Asset Mix And Quality
- ---------------------
UniBank is underloaned for a bank its size, but it has good asset
quality. The lower than normal loan-to-asset ratio, though, is a major
determinant of profitability and is included in a profit-derived price. The
asset quality, albeit excellent, also is no longer a major differentiating
factor between banks. Thus, there is no reason for value adjustments relative to
asset quality or mix.
Deposit Mix
- -----------
UniBank's strong point is its deposit mix, but deposits also are a
major ingredient in profitability and, as such, are already impacting a value
that is earnings-driven. As a result, deposits do not merit a value adjustment.
Management
- ----------
Since UniBank is a fair performer, and has been so for a long time, its
management is adequate. Management, though, would not be a major concern to a
buyer as large as Citizens, and, thus, management does not merit a value
adjustment on its own.
Unique Considerations
- ---------------------
UniBank is a fairly typical small-town Midwest bank, and it has no
unique characteristics.
Conclusion
- ----------
When the various components of UniBank's sale value are considered, it
is generally similar to other banks of its size. If there is a difference, it is
in earnings, and earnings are reflected in valuation. Thus, there is no cause
for adjusting the "fair" value of UniBank relative to a normal profit-driven
value.
CITIZENS
--------
The Offer
- ---------
Citizens has offered to acquire UniBank by exchanging 13.25 shares of
Citizens common stock for each share of UniBank's common stock outstanding. This
offer had a monetary value of $52.7 million as of September 12, 1997.
Description Of Acquirer
- -----------------------
Citizens is a multi-bank holding company headquartered in Salineville,
Ohio. It has two bank subsidiaries, The Citizens Banking Company ("Citizens
Banking"), which includes all of its Ohio banking offices, and First National
Bank of Chester ("First Chester") in West Virginia. Its other subsidiaries are
Freedom Financial Insurance Company and Freedom Express, Inc.
The primary banking affiliate is Citizens Banking, which has 27 of its
28 banking offices, and it began operating in 1902. It is regulated by the Ohio
State Bank Department, and its deposits are insured by the FDIC.
Citizens moved into West Virginia on January 1, 1990 by acquiring First
Chester in an exchange of stock valued at $2.7 million. This was about 139% of
First Chester's book value.
In its largest acquisition to date, Citizens in September 1990 acquired
from the Resolution Trust Company ("RTC") certain assets and assumed certain
deposits and liabilities of the failed Midland
C-17
<PAGE> 187
Buckeye Federal Savings and Loan ("Midland Buckeye") of Alliance, Ohio. The
deposits acquired were about $145 million. Citizens subsequently sold two of the
Midland Buckeye branches with combined deposits of $16 million.
In October 1990, Citizens consummated a second transaction with the RTC
whereby it purchased certain assets and assumed the deposits of a branch of
Union Federal Savings Bank ("Union Federal"). At the time of acquisition, the
branch had deposits of $20 million. It was located in Leetonia, Ohio.
<TABLE>
<CAPTION>
Citizens' Recent Merger History*
--------------------------------
Price
--------------------------
Offer Times Percent
Year* Assets Price Earnings of Book
----- ------ ----- -------- -------
(In millions) (In millions)
<S> <C> <C> <C> <C> <C>
Citizens
- --------
Navarre Deposit 1996 $76 $16 21.9X 220%
Western Reserve 1995 63 11 16.1 232
Unity 1994 71 5 - 107
Firestone Bank 1993 72 7 - 169
Midland-Buckeye S&L 1990 151 RTC Purchase
<FN>
* Whole banks and thrifts.
** Year announced.
</TABLE>
Source: SNL Securities L.P., Charlottesville, Virginia.
In 1994, Citizens acquired two small banks. The first was the Firestone
Bank ("Firestone") in Lisbon, Ohio that merged with Citizens in an exchange of
stock valued at $6.9 million, which was 169% of book. The second was Unity
Bancorp ("Unity") and its affiliate, New Waterford Bank ("New Waterford"), of
New Waterford, Ohio that was acquired in an exchange of stock valued at $5
million, which was 107% of book. Each was merged into Citizens Banking.
In 1996, Citizens acquired Western Reserve Bank ("Western Reserve") of
Lowellville, Ohio and the Navarre Deposit Bank Company ("Navarre Deposit") of
Navarre, Ohio. The Western Reserve acquisition was an exchange of stock valued
at $10.8 million, or 222% of book. The Navarre Deposit acquisition was
accomplished through an exchange of stock valued at $15.6 million, or 221% of
book.
On June 10, 1997, Citizens announced the purchase of three Belmont
County, Ohio branches of F.N.B. Corp. ("F.N.B."). These branches had deposits of
about $66 million at the time of the announcement.
The branches acquired as well as those of Firestone, New Waterford,
Western Reserve and Navarre Deposit are being operated as offices of Citizens.
First Chester has operated independently because of the interstate banking
regulations, but this will change in the future.
Market
- ------
Citizens' principal subsidiary, Citizens Banking, is headquartered in
Salineville, Ohio, which is in Columbiana County, but it is also very close to
the Jefferson County line. More than 50% of Citizens' deposits are in these two
counties. The large deposit share in Columbiana County is due in part to the
purchase of failed thrift deposits.
C-18
<PAGE> 188
<TABLE>
<CAPTION>
Citizens' Market Position by County
-----------------------------------
Market Share
----------------------
Deposits 1996 1988 Rank*
-------- ---- ---- -----
(In mill.)
Ohio
----
<S> <C> <C> <C> <C>
Columbiana $277 25.5% 13.4% 1st
Stark 139 3.4 - 6th
Jefferson 128 14.0 15.2 4th
Mahoning 88 2.7 - 9th
Belmont 70 7.2 - 6th
Carroll 33 33.0 20.6 1st
<S> <C> <C> <C> <C>
West Virginia
-------------
Hancock $21 3.3% 3.5% 5th
<FN>
* Among banks only.
</TABLE>
Source: SNL Securities L.P., Charlottesville, Virginia.
Citizens is a marginal factor in Stark and Mahoning counties, two large
counties to the north. It does not have branches in these counties' major
business centers, Canton and Youngstown.
In Carroll County, Citizens has a single branch located in the largest
city, Carrollton, that holds 30% of the county deposits. Carroll, however, is a
small, rural county with a limited deposit base.
It recently entered Belmont County via the branch purchases from F.N.B.
The $70 million in deposits these branches held in mid-1996 represented about a
7.2% share.
First Chester has a single branch in Hancock County. This ranks it
fourth in size, but it is still a marginal factor with less than 4% of the
county's deposits.
The overall market has been economically stagnant for years, and two
counties from which Citizens derives over 50% of its business have the lowest
per household incomes in the immediate region. Of the six Ohio and one West
Virginia counties in which Citizens is present, only Carroll gained population
during the eighties. Columbiana, Stark and Jefferson counties had population
declines of .5%, .3% and 1.3% per annum, respectively.
Financial Performance
- ---------------------
Citizens has been an exceptional financial performer. In less than ten
years, it has increased assets more than four-fold to a little over $1 billion,
and it has had a return on average equity in excess of 16% in each of those
years. Only in 1991 did its return on average assets fall below 1.22% of average
assets, and then it was still a respectable 1.00%; and in that year, it was
absorbing a major thrift acquisition.
Its performance in the last three years has been particularly
impressive. Through 1995, 1996 and the first half of 1997, Citizens had average
returns on average assets and equity of 1.64% and 18.46%, respectively. In the
first six months of 1997, the return on average assets was 1.72% and the return
on average equity was 18.40%.
C-19
<PAGE> 189
<TABLE>
<CAPTION>
Citizens' Financial Performance
-------------------------------
Percent of Assets Return
Tangible Net Net Tangible on Avg.
Assets Capital Income Income Capital Equity
------ ------- ------ ------ ------- ------
(In millions)
<S> <C> <C> <C> <C> <C> <C>
1997* $1,046 $93.4 $16.9 1.72% 8.94% 18.40%
1996 945 88.2 14.7 1.64 9.32 17.65
1995 814 71.5 11.9 1.61 8.78 19.30
1994 728 54.1 9.1 1.27 7.44 16.95
1993 572 39.8 7.4 1.39 6.98 19.44
1992 512 31.6 6.0 1.23 6.20 18.84
1991 464 25.9 4.6 1.00 5.62 16.87
1990 461 20.7 4.2 1.22 4.54 17.63
1989 265 20.1 3.9 1.48 7.71 19.94
1988 244 18.1 3.6 1.48 7.44 21.12
<FN>
*June 30, 1997 or first six months annualized.
</TABLE>
Source: SNL Securities L.P., Charlottesville, Virginia.
Citizens' rapid growth and the Midland-Buckeye cash purchase had kept
the strong earnings from creating excess capitalization. After buying
Midland-Buckeye from the RTC, its capital was reduced below 5% of assets, and
even though growing rapidly as a percent of assets after that, capital did not
go above 7% of assets until 1994. By the end of 1995, though, capital was
nearing 9% of assets, and it went above 9% in 1996. Capital fell somewhat in the
first half of 1997 as Citizens leveraged its asset base, but tangible capital
was still almost 9% of assets.
Citizens' good earnings were historically a product of wide margins
that were primarily yield-driven. Net interest income has been above 4.50% of
average assets since 1990, and had increased every year after 1990 until it
reached 5.00% in 1995. In 1996, it dipped slightly to 4.87% of average assets,
but this still was a very wide margin.
<TABLE>
<CAPTION>
Citizens' Income and Expense Change
-----------------------------------
Percent of Average Assets
----------------------------------------------------------------------------
Net Int. Net Oper. Net Oper. Contr. to Net
Income Expense Income Reserves Income
------ ------- ------ -------- ------
<S> <C> <C> <C> <C> <C>
1997* 4.32%** 1.59%** 2.73% .17% 1.72%
1996 4.87 2.03 2.84 .18 1.73
1995 5.00 2.35 2.65 .26 1.61
1994 4.93 2.53 2.40 .34 1.37
1993 4.68 2.19 2.49 .53 1.39
1992 4.78 2.44 2.34 .62 1.23
1991 4.52 2.54 1.98 .58 .99
1990 4.50 2.42 2.08 .47 1.21
<FN>
* Six months annualized.
** Assets leveraged by an approximate $80 million increase in securities and
borrowed funds.
</TABLE>
Source: SNL Securities L.P., Charlottesville, Virginia.
C-20
<PAGE> 190
These margins were enough to cover net operating expense that was
generally in the 2.40% to 2.60% of average assets range in the early nineties
and still produce good earnings. It was when net overhead, helped by the
industry-wide reduction in deposit insurance costs, fell to 2.35% of average
assets in 1995 and then 2.03% in 1996 that its return on average assets was able
to climb to very high levels.
Citizens' leveraging in 1997 was reflected in sharp declines in both
net interest income and net operating expense. In the first half of the year,
net operating expense fell to 4.32% of average assets, or 55 basis points below
1996. Meanwhile net overhead declined to 1.59% of average assets, which was 44
basis points below 1996. The net result, though, was virtually no change in net
income as a percent of average assets.
Stock Performance
- -----------------
Citizens' strong financial performance has been reflected in a stock
price that as of September 12, 1997 was trading at a price of $53 per share.
This was a very high 20.1 times earnings and 330% of book.
<TABLE>
<CAPTION>
Citizens' Stock Performance
---------------------------
Price
Per Share ------------------------
Stock ------------------------- Times Percent Dividend
Price Earnings Capital Earnings of Book Yield
----- -------- ------- -------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
1997* $53.00 $2.92 $16.06 20.1X 330% 2.00%
1996** 33.25 2.49 15.21 13.4 219 2.55
1995 29.50 2.13 13.58 13.8 217 1.79
1994 24.00 1.78 11.19 13.5 214 1.20
1993 20.67 1.55 10.29 13.3 201 .74
1992 11.92 1.34 7.87 8.9 151 1.20
1991 8.33 1.01 6.69 8.2 125 1.56
1990 8.41 .93 5.81 9.0 145 1.35
<FN>
* September 12, 1997.
** December 31st in this and preceding years.
</TABLE>
Source: SNL Securities L.P., Charlottesville, Virginia.
Since 1990, the pricing of Citizens stock has gone through three
distinct phases. From 1990 to 1992, it was an unlisted stock that was selling
between 8 and 9 times earnings and usually below 150% of book. During this
period, the price rose from a little over $8 per share to almost $12. Then from
1993 through 1996, with the stock listed on a national exchange, its price was
usually in the 13 to 14 times earnings and 200% to 220% of book range. During
this period the stock rose from that almost $12 per share at the end of 1992 to
a little over $33 at the end of 1996. The third period is 1997 with the $53
price and very high multiples of earnings and book.
Citizens has had low dividend yields during the nineties as it
concentrated on growth and rewarding shareholders through tangible capital per
share and stock price appreciation. Prior to 1996, the dividend yield was less
than 2% even though the stock price was quite low during some of these years. In
1996, the dividend was increased substantially, and the yield based on the
year-end stock price was 2.55%. The almost 60% increase in the stock price since
then has lowered the yield to about 2%.
C-21
<PAGE> 191
Financial Performance and Stock Price Comparison
------------------------------------------------
To determine the "fair" value of the Citizens common stock to be
exchanged for the common stock of UniBank, Citizens has been compared to eleven
publicly-traded bank holding companies ("comparable banks" or the "comparative
group"). These comparable banks have assets in the $500 million to $3 billion
range and have no extraordinary characteristics.
Summary and Description of Comparable Banks
-------------------------------------------
<TABLE>
<CAPTION>
Assets* Headquarters
------- ------------
(In mill.)
<S> <C> <C>
Citizens $1,736 Salineville, Ohio
Comparable Banks**
- ------------------
BancFirst $1,099 Zanesville, Ohio
City Holding 1,148 Charleston, W.Va.
CoBancorp 654 Elyria, Ohio
First Financial 2,394 Hamilton, Ohio
Horizon 955 Beckley, W.Va.
Matewan 639 Matewan, W.Va.
Mid Am 2,192 Bowling Green, Ohio
Park National 2,266 Newark, Ohio
Second 904 Warren, Ohio
United 2,373 Parkersburg, W.Va.
WesBanco 1,686 Wheeling, W.Va.
<FN>
* June 30, 1997.
** Publicly-traded with assets between $500 million and $3 billion in Ohio and West Virginia.
</TABLE>
Source: SNL Securities L.P., Charlottesville, Virginia.
The comparable banks are all in Ohio and West Virginia. The Ohio
members of the comparative group include BancFirst Ohio Corp. ("BancFirst");
CoBancorp, Inc. ("CoBancorp"); First Financial Bancorp ("First Financial"); Mid
Am Inc. ("Mid Am"); Park National Corporation ("Park National"); and Second
Bancorp, Incorporated ("Second"). From West Virginia comes City Holding Company
("City Holding"), Horizon Bancorp, Inc. ("Horizon"), Matewan Bancshares, Inc.
("Matewan"), United Bankshares, Inc. ("United") and WesBanco, Inc. ("WesBanco").
C-22
<PAGE> 192
<TABLE>
<CAPTION>
Income and Expense Comparison
June 30, 1997 or Twelve Months Ending June 30, 1997
---------------------------------------------------
Percent Of Assets*
--------------------------------------------------------- Return
Net Net Oper. Tangible On Avg.
Income Income Capital NPAs Equity
------ ------ ------- ---- ------
<S> <C> <C> <C> <C> <C>
Citizens 1.70% 2.73% 8.94% .41% 18.18%
COMPARABLE BANKS
BancFirst .96% 1.53% 6.18% .35% 12.90%
City Holding 1.00 1.74 7.18 .58 13.83
CoBancorp 1.15 1.14 7.77 .40 13.36
First Financial 1.68 2.64 11.08 .35 14.56
Horizon 1.33 2.36 11.65 .80 11.53
Matewan 1.06 2.07 8.65 1.03 10.10
Mid Am 1.16 1.99 7.56 .61 13.37
Park National 1.73 2.90 8.84 .19 18.77
Second 1.04 1.83 7.67 1.02 13.10
United 1.84 2.70 10.69 .59 16.48
WesBanco 1.31 2.07 13.16 .99 9.69
---- ---- ----- ---- -----
Average 1.33% 2.09% 9.13% .63% 13.43%
Median 1.18 2.07 8.65 .59 13.36
<FN>
*Or average assets.
</TABLE>
Source: SNL Securities L.P., Charlottesville, Virginia.
When Citizens' financial performance is compared with these banks as of
June 30, 1997, or the twelve months ending that date, it is superior in every
criteria, and in most cases, far superior. Its returns on average assets and
equity of 1.70% and 18.18%, respectively, are more than one-third higher than
the comparative group medians, and only one of the comparable banks, Park
National, had a higher return on equity. These high returns were solidly-based
with net operating income at 2.73% of average assets, which was substantially
higher than comparable bank median of 2.07%.
The only area in which Citizens was not far superior to the comparative
group median was tangible capital as a percent of assets. With capital at 8.94%
of assets in mid-1997, it was marginally higher and trending toward excess
capitalization, but with an 18.18% return on equity, its capital is being well
utilized.
Asset quality also was a strong point for Citizens. With only .41% of
its assets not performing, it was significantly below the comparable bank median
of .59%.
Citizens' strong financial performance is reflected in its stock price.
As of September 12, 1997, its stock was trading at 20.1 times earnings and 330%
of book. These were both above the comparative group medians, although the
multiple of earnings, which normally is the primary determinant of value, was
only slightly higher.
When a bank has a high return on equity, a modest favorable variance in
the multiple of earnings will result in a large advantage in the price as a
percent of book. In Citizens' case, a 20.1 earnings multiple translated into a
price of 330% of book. This was substantially higher than the 244% comparative
group median.
C-23
<PAGE> 193
Citizens does not pay as much of its earnings out in dividends as these
other banks - i.e., a 37% payout ratio compared to a 47% median - and this is
reflected in a lower dividend yield. Its dividend as of September 12, 1997 was
2.00% compared to a 2.57% comparative group median. A lower dividend yield,
though, often reflects a higher growth situation, which is true of Citizens.
When its dividend is added to its annual increase in tangible capital per share,
it has delivered a gain of more than 18% annually to its shareholders since
1990.
<TABLE>
<CAPTION>
Stock Performance Comparison
September 12, 1997
----------------------------
Price
-----------------------
Stock Times Percent Dividend Payout
Price Earnings* Of Book Yield Ratio** Liquidity***
----- --------- ------- ----- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Citizens $53.00 20.1X 330% 2.00% 37% .58%
Comparable Banks
- ----------------
BancFirst $37.00 18.8X 183% 2.81% 52% .24%
City Holding 43.25 22.6 300 1.71 36 .11
CoBancorp 28.50 13.6 173 2.50 32 .52
First Financial 46.25 20.7 296 2.57 48 .28
Horizon 33.75 25.0 281 2.16 49 .17
Matewan 24.50 17.9 186 1.96 35 .09
Mid Am 18.50 16.1 259 3.11 50 .45
Park National 76.13 19.7 340 2.03 41 .14
Second 22.75 17.9 212 2.14 36 .16
United 43.31 15.9 244 3.09 47 .67
WesBanco 28.00 20.4 186 2.77 55 .30
----- ---- --- ---- -- ---
Average - 19.0X 242% 2.45% 44% .27%
Median - 18.8 244 2.57 47 .24
<FN>
* Adjusted for nonrecurring income and expense.
** Twelve months ending June 30, 1997.
*** Average weekly shares traded in the last three months as a percent of total shares outstanding.
</TABLE>
Source: SNL Securities L.P., Charlottesville, Virginia.
Its stock also has a relatively high degree of liquidity. The average
shares traded weekly over the last three months was .58% of total shares
outstanding. Only one of the comparable banks, United, did better, and the
comparative group median was .24%.
From an overall perspective, Citizens' financial performance merits a
premium over the comparable bank median stock price, and the only "pull" in the
other direction is a low dividend, which is to be expected considering the rapid
rate of growth. How much of a premium it deserves, though, is a moot point
relative to the "fairness" of its stock price since it is trading within the
normal range of the comparative group, albeit on the high end. Thus, Citizens'
stock is "fairly" priced.
Dilution Impact
- ---------------
Since Citizens is paying a higher multiple of earnings for UniBank than
the stock being exchanged is selling at relative to its own earnings, it will be
absorbing some earnings dilution as part of this acquisition. It is almost
always a plus for a seller to get the highest price, but there is a point at
which a high price can have such a negative impact relative to earnings per
share ("EPS") dilution for the buyer that the stock the seller receives could be
devalued.
C-24
<PAGE> 194
<TABLE>
<CAPTION>
Pro Forma Dilution Analysis Summary
-----------------------------------
Shares Earnings EPS Dilution Percent
------ -------- --- -------- -------
(In thous.)
<S> <C> <C> <C> <C> <C>
Citizens 5,898* $15,535 $2.63 - -
UniBank 994 2,178 - - -
---- ------- ---- ---- ------
Total 6,892 $17,713 $2.57 $ .06 2.4%
Shares Earnings CPS Dilution Percent
------ -------- --- -------- -------
(In thous.)
<S> <C> <C> <C> <C> <C>
Citizens 5,898* $93,363 $15.83 - -
UniBank 994 15,940 - - -
---- ------- ---- -- -----
Total 6,892 $109,303 $15.86 $(.03) (.2)%
<FN>
*Average fully diluted shares for year ended June 30, 1997.
</TABLE>
The EPS dilution in this case is not large, and should not negatively
impact Citizens' stock price. Based on data for the twelve months ending June
30, 1997, Citizens' earnings per share will decline by $.06, or 2.4% as a result
of acquiring UniBank. This is below the 5% to 6% that is often considered the
upper limit for a substantial acquisition, and UniBank is a substantial
acquisition. This dilution also should be recoverable through cost savings
within a year making the acquisition accretive to Citizens' EPS in 1999.
The dilution in Citizens' capital per share ("CPS") is accretive. Based
on June 30, 1997 capital, the CPS accretion was $.03, or .2%.
VALUATION
---------
There are numerous methodologies for determining the "fair" sale value
of a bank or bank holding company. These include a) the "sale" prices of similar
institutions, b) return on investment calculations with specific growth and
earnings assumptions, c) premiums over a "fair" stock price and d) the
liquidation value.
The recent sale prices of similar institutions is the most commonly
used methodology when there are sufficient comparisons as it, in effect, lets
the market determine the "fair" sale value. This approach normally assumes an
exchange of stock, and when acquirer stock prices are high, the reported sale
prices may exceed "fair" investment value calculations.
Using the "sale" prices of other banks is the preferred method in this
instance. It is dictated by the current acquisition environment, which has been
dominated by transactions involving an exchange of stock.
The best measurement tool is earnings if they are normal or can be
normalized, and they are the primary determinant of "fair" sale value. Since
UniBank's earnings have been consistent in recent years, earnings clearly are
the best determinant of its "fair" sale value. Book and asset value are only
used as a value determinant when earnings are not meaningful. Values quoted as a
percent of book are the result of the book relationship to earnings.
C-25
<PAGE> 195
In determining the "fair" sale value of UniBank, the key factor is the
acquisition prices in 1997 for banks in its region with assets in excess of $100
million. There were seven such acquisitions, with a median price of 22.6 times
earnings and 297% of book.
Also playing a major role in determining the "fair" value are the three
most applicable acquisitions. One of them, Horizon buying Twentieth was in 1996,
but was in a similar Ohio Valley market and was priced at 22.6 times earnings
and 247% of book. The other two, Fulton acquiring Keystone Heritage and Area
buying Cardinal, were outside of the Ohio Valley, but were in 1997 and within
UniBank's extended region. These mergers reflect the most recent acquisition
dynamics and were priced at 16.9 and 20.8 times earnings.
<TABLE>
<CAPTION>
Valuation Of UniBank
--------------------
Median Price
------------------------------------------
As Percent of
Times ----------------------
Earnings Book Assets
-------- ---- ------
<S> <C> <C> <C>
Mid-Size Banks-1997*
UniBank's Extended Region 22.6X 297% 27.7%
Most Applicable
Fulton-Keystone Heritage 20.8X 319% 33.9%
Area-Cardinal 16.9 188 16.6
Horizon-Twentieth Bancorp 22.6 247 24.7
Discounted Future Earnings
13% Discount Rate 14.7X 187% 14.2%
Discounted Dividends
13% Discount Rate 17.5X 215% 16.9%
Application to UniBank**
------------------------
21.0X 250% 23%
----- ---- ---
(In millions)
Dollar Value $45.7 $44.4 $52.0
Per Share*** 609.84 592.63 693.45
<FN>
* Assets between $100 million and $5 billion.
** Based on June 30, 1997 or trailing four quarters, book value of
$17,779,000, assets of $226,127,000 and net income of $2,178,000.
*** 75,000 shares outstanding.
</TABLE>
Using investment calculations, discounted future earnings and
dividends, to determine UniBank's sale value, we feel the proper discount rate
is 13%, which creates values ranging from 14.7 to 17.5 times earnings. This
translated into 187% to 215% of book.
Based on the comparable transactions primarily, but also the investment
calculations, the "fair" sale value for UniBank, absent adjustments, is 20 to 22
times earnings, or $43.6 to $47.9 million. This is $581 to $639 per share and
equates to 245% to 269% of book. The mid-point is a $45.7 million or $610 per
share.
The offer by Citizens of $52.7 million, or $703 per share, is a) well
above the unadjusted "fair" value, b) should result in accretion to Citizens'
earnings as early as 1999, and c) the Citizens' stock to
C-26
<PAGE> 196
be exchanged is "fairly" valued. Thus, the Citizens offer is "fair" from a
financial point of view to UniBank and its shareholders.
C-27
<PAGE> 197
PART II INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 1701.13(E) of the Ohio Revised Code grants corporations broad
powers to indemnify directors, officers, employees and agents. Section
1701.13(E) provides:
(E)(1) A corporation may indemnify or agree to indemnify any
person who was or is a party, or is threatened to be made a party, to
any threatened, pending, or completed action, suit, or proceeding,
whether civil, criminal, administrative, or investigative, other than
an action by or in the right of the corporation, by reason of the fact
that he is or was a director, officer, employee, or agent of the
corporation, or is or was serving at the request of the corporation as
a director, trustee, officer, employee, member, manager, or agent of
another corporation, domestic or foreign, nonprofit or for profit, a
limited liability company, or a partnership, joint venture, trust, or
other enterprise, against expenses, including attorney's fees,
judgments, fines, and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit, or
proceeding, if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, if
he had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit, or proceeding by judgment, order,
settlement, or conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person
did not act in good faith and in a manner he reasonably believed to be
in or not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, he had reasonable cause
to believe that his conduct was unlawful.
(2) A corporation may indemnify or agree to indemnify any
person who was or is a party, or is threatened to be made a party, to
any threatened, pending, or completed action or suit by or in the right
of the corporation to procure a judgment in its favor, by reason of the
fact that he is or was a director, officer, employee, or agent of the
corporation, or is or was serving at the request of the corporation as
a director, trustee, officer, employee, member, manager, or agent of
another corporation, domestic or foreign, nonprofit or for profit, a
limited liability company, or a partnership, joint venture, trust, or
other enterprise, against expenses, including attorney's fees, actually
and reasonably incurred by him in connection with the defense or
settlement of such action or suit, if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification shall be
made in respect of any of the following:
(a) Any claim, issue, or matter as to which such person is
adjudged to be liable for negligence or misconduct in the performance
of his duty to the corporation unless, and only to the extent that, the
court of common pleas or the court in which such action or suit was
brought determines, upon application, that, despite the adjudication of
liability, but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses
as the court of common pleas or such other court shall deem proper;
(b) Any action or suit in which the only liability asserted
against a director is pursuant to section 1701.95 of the Revised Code.
(3) To the extent that a director, trustee, officer, employee,
member, manager, or agent has been successful on the merits or
otherwise in defense of any action, suit, or proceeding referred to in
division (E)(1) or (2) of this section, or in defense of any claim,
issue, or matter therein, he shall be indemnified against expenses,
including attorney's fees, actually and reasonably incurred by him in
connection with the action, suit, or proceeding.
S-1
<PAGE> 198
(4) Any indemnification under division (E)(1) or (2) of this
section, unless ordered by a court, shall be made by the corporation
only as authorized in the specific case, upon a determination that
indemnification of the director, trustee, officer, employee, member,
manager, or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in division (E)(1) or (2) of
this section. Such determination shall be made as follows:
(a) By a majority vote of a quorum consisting of directors of
the indemnifying corporation who were not and are not parties to or
threatened with the action, suit, or proceeding referred to in division
(E)(1) or (2) of this section;
(b) If the quorum described in division (E)(4)(a) of this
section is not obtainable or if a majority vote of a quorum of
disinterested directors so directs, in a written opinion by independent
legal counsel other than an attorney, or a firm having associated with
it an attorney, who has been retained by or who has performed services
for the corporation or any person to be indemnified within the past
five years;
(c) By the shareholders;
(d) By the court of common pleas or the court in which the
action, suit, or proceeding referred to in division (E)(1) or (2) of
this section was brought.
Any determination made by the disinterested directors under
division (E)(4)(a) or by independent legal counsel under division
(E)(4)(b) of this section shall be promptly communicated to the person
who threatened or brought the action or suit by or in the right of the
corporation under division (E)(2) of this section, and, within ten days
after receipt of such notification, such person shall have the right to
petition the court of common pleas or the court in which such action or
suit was brought to review the reasonableness of such determination.
(5)(a) Unless at the time of a director's act or omission that
is the subject of an action, suit, or proceeding referred to in
division (E)(1) or (2) of this section, the articles or the regulations
of a corporation state, by specific reference to this division, that
the provisions of this division do not apply to the corporation and
unless the only liability asserted against a director in an action,
suit, or proceeding referred to in division (E)(1) or (2) of this
section is pursuant to section 1701.95 of the Revised Code, expenses,
including attorney's fees, incurred by a director in defending the
action, suit, or proceeding shall be paid by the corporation as they
are incurred, in advance of the final disposition of the action, suit,
or proceeding upon receipt of an undertaking by or on behalf of the
director in which he agrees to do both of the following:
(i) Repay such amount if it is proved by clear and convincing
evidence in a court of competent jurisdiction that his action or
failure to act involved an act or omission undertaken with deliberate
intent to cause injury to the corporation or undertaken with reckless
disregard for the best interests of the corporation;
(ii) Reasonably cooperate with the corporation concerning the
action, suit, or proceeding.
(b) Expenses, including attorney's fees, incurred by a
director, trustee, officer, employee, member, manager, or agent in
defending any action, suit, or proceeding referred to in division
(E)(1) or (2) of this section, may be paid by the corporation as they
are incurred, in advance of the final disposition of the action, suit,
or proceeding, as authorized by the directors in the specific case,
upon receipt of an undertaking by or on behalf of the director,
trustee, officer, employee, member, manager, or agent to repay such
amount, if it ultimately is determined that he is not entitled to be
indemnified by the corporation.
S-2
<PAGE> 199
(6) The indemnification authorized by this section shall not
be exclusive of, and shall be in addition to, any other rights granted
to those seeking indemnification under the articles, the regulations,
any agreement, a vote of shareholders or disinterested directors, or
otherwise, both as to action in their official capacities and as to
action in another capacity while holding their offices or positions,
and shall continue as to a person who has ceased to be a director,
trustee, officer, employee, member, manager, or agent and shall inure
to the benefit of the heirs, executors, and administrators of such a
person.
(7) A corporation may purchase and maintain insurance or
furnish similar protection, including, but not limited to, trust funds,
letters of credit, or self-insurance, on behalf of or for any person
who is or was a director, officer, employee, or agent of the
corporation, or is or was serving at the request of the corporation as
a director, trustee, officer, employee, member, manager, or agent of
another corporation, domestic or foreign, nonprofit or for profit, a
limited liability company, or a partnership, joint venture, trust, or
other enterprise, against any liability asserted against him and
incurred by him in any such capacity, or arising out of his status as
such, whether or not the corporation would have the power to indemnify
him against such liability under this section. Insurance may be
purchased from or maintained with a person in which the corporation has
a financial interest.
(8) The authority of a corporation to indemnify persons
pursuant to division (E)(1) or (2) of this section does not limit the
payment of expenses as they are incurred, indemnification, insurance,
or other protection that may be provided pursuant to divisions (E)(5),
(6), and (7) of this section. Divisions (E)(1) and (2) of this section
do not create any obligation to repay or return payments made by the
corporation pursuant to division (E)(5), (6), or (7).
(9) As used in division (E) of this section, "corporation"
includes all constituent entities in a consolidation or merger and the
new or surviving corporation, so that any person who is or was a
director, officer, employee, trustee, member, manager, or agent of such
a constituent entity, or is or was serving at the request of such
constituent entity as a director, trustee, officer, employee, member,
manager, or agent of another corporation, domestic or foreign,
nonprofit or for profit, a limited liability company, or a partnership,
joint venture, trust, or other enterprise, shall stand in the same
position under this section with respect to the new or surviving
corporation as he would if he had served the new or surviving
corporation in the same capacity.
Section 33 of the Regulations of Citizens Bancshares, Inc. states as
follows:
Section 33. INDEMNIFICATION. The Corporation shall indemnify any
director or officer and any former director or officer of the Corporation and
any such director or officer who is or has served at the request of the
Corporation as a director, officer or trustee of another corporation,
partnership, joint venture, trust or other enterprise (and his heirs, executors
and administrators) against expenses, including attorney's fees, judgments,
fines and amounts paid in settlement, actually and reasonably incurred by him by
reason of the fact that he is or was such director, officer or trustee in
connection with any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative to the full extent
permitted by applicable law. The indemnification provided for herein shall not
be deemed to restrict the power of the Corporation (i) to indemnify employees,
agents and others to the extent not prohibited by law, (ii) to purchase and
maintain insurance or furnish similar protection on behalf of or for any person
who is or was a director, officer or employee of the Corporation, or any person
who is or was serving at the request of the Corporation as a director, officer,
trustee, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise against any liability asserted against him or incurred
by him in any such capacity or arising out of his status as such, and (iii) to
enter into agreements with persons of the class identified in clause (ii) above
indemnifying them against any and all liabilities (or such lesser
indemnification as may be provided in such agreements) asserted against or
incurred by them in such capacities.
S-3
<PAGE> 200
In addition, Bancshares has entered into indemnification agreements
with each of its directors and executive officers which expand the indemnitees'
rights in the event that Ohio law and Bancshares' Regulations are further
changed. Pursuant to the agreements, indemnitees receive the highest available
of the following: (i) the benefits provided by Bancshares' Regulations as of the
date of the agreement; (ii) the benefits provided by Bancshares' Regulations in
effect at the time that indemnification expenses are incurred; (iii) the
benefits allowable under Ohio law which is in effect on the date of the
agreement; (iv) the benefits allowable under the law of the jurisdiction under
which Bancshares exists at the time indemnifiable expenses are incurred; (v) the
benefits available under liability insurance obtained by Bancshares; (vi) the
benefits which would have been available to the indemnitee under a Bancshares
insurance policy which was in effect prior to and expired on May 8, 1986; or
(vii) such other benefits are or may be otherwise available to the indemnitee.
The indemnification rights available under the agreements are subject to certain
exclusions, including a provision that no indemnification shall be made if a
court determines by clear and convincing evidence that the indemnitee has acted
or failed to act with deliberate intent to cause injury to, or with reckless
disregard for the best interests of, Bancshares.
S-4
<PAGE> 201
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following exhibits are being filed as part of this Registration
Statement:
<TABLE>
<CAPTION>
Exhibit No. Exhibit
- ----------- -------
<S> <C>
(2) Affiliation Agreement, dated September 12, 1997, by and among Citizens Bancshares,
Inc., The Citizens Banking Company and UniBank, together with Form of Agreement of
Merger (included as APPENDIX A to the Prospectus).
(3) Articles of Incorporation and By-Laws
(3.1) Registrant's Fourth Amended Articles of Incorporation (incorporated by
reference in Exhibit 3(1) to the Form 10-K of Registrant for the year
ended December 31, 1996.)
(3.2) Registrant's Code of Regulations, as amended (incorporated by reference in
Exhibit 3(2) to the Form S-4 Registration Statement No. 0-18209 of
Registrant).
(5) Opinion of Squire, Sanders & Dempsey L.L.P. regarding legality.
(10) Material Contracts (Exhibits 10(1)-(14) of Registrant's
Quarterly Report on Form 10-Q for the Quarter Ended September
30, 1997 are incorporated herein by reference).
(13) Annual Report to Security Holders, Form 10-Q or Quarterly Report to Security Holders.
(13.1) Registrant's Annual Report to Shareholders for the Fiscal Year Ended
December 31, 1996 (incorporated by reference in Exhibit 13 to Registrant's
Form 10-K for the Fiscal Year ended December 31, 1996).
(13.2) Registrant's Form 10-Q for the Quarter Ended March 31, 1997 filed with the
Commission on May 15, 1997.
(13.3) Registrant's Form 10-Q for the Quarter Ended June 30, 1997 filed with the
Commission on July 24, 1997.
(13.4) Registrant's Form 10-Q for the Quarter Ended September 30, 1997 filed with
the Commission on October 27, 1997.
(21) Subsidiaries of the Registrant.
(23) Consents of Experts and Counsel
(23.1) Consent of Squire, Sanders & Dempsey L.L.P. (included in Exhibit (5.1)).
(23.2) Consent of Danielson Associates Inc.
(23.3) Consent of Independent Public Accountants.
(23.4) Consent of Independent Public Accountants.
(23.5) Consent of Independent Auditors.
(27) Financial Data Schedule (EDGAR filing).
(99) Additional Exhibits
(99.1) Form of Proxy
(99.2) Letter of Transmittal to accompany Certificates for UniBank Shares.
</TABLE>
S-5
<PAGE> 202
(99.3) Fairness opinion dated September 12, 1997 delivered
by Danielson Associates, Inc. (included as Appendix C
to the Prospectus).
ITEM 22. UNDERTAKINGS
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 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.
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 incorporated by
reference in the prospectus and 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 presented 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 information.
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 a 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.
The registrant undertakes that every prospectus (i) that is filed
pursuant to the immediately preceding paragraph, 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.
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 Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant, will, unless in the opinion of its counsel 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 Act and will be governed by the final
adjudication of such issue.
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
S-6
<PAGE> 203
or other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of registration statement through the
date of responding to the request.
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.
S-7
<PAGE> 204
SIGNATURES
Pursuant to the requirements of the 1933 Act, the registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Salineville, Ohio on December 22,
1997.
<TABLE>
<CAPTION>
<S> <C>
CITIZENS BANCSHARES, INC.
By: /s/ Marty E. Adams
-------------------------------------------------
Marty E. Adams,
President and Chief Executive Officer
</TABLE>
Pursuant to the requirements of the 1933 Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
<S> <C>
/s/ Marty E. Adams December 22, 1997
- ----------------------------------------------------- ---------------------------------
Marty E. Adams, President, Date
Chief Executive Officer and
Director
/s/ William L. White December 22, 1997
- ----------------------------------------------------- ---------------------------------
William L. White, III Date
Chief Financial Officer and
Principal Accounting Officer
/s/ James C. Mcbane December 22, 1997
- ----------------------------------------------------- ---------------------------------
James C. McBane, Director Date
/s/ Fred H. Johnson, III December 22, 1997
- ----------------------------------------------------- ---------------------------------
Fred H. Johnson, III, Director Date
/s/ Keith D. Burgett December 22, 1997
- ----------------------------------------------------- ---------------------------------
Keith D. Burgett, Director Date
/s/ Willard L. Davis December 22, 1997
- ----------------------------------------------------- ---------------------------------
Willard L. Davis, Director Date
</TABLE>
S-8
<PAGE> 205
<TABLE>
<CAPTION>
<S> <C>
/s/ Fred H. Johnson December 22, 1997
- ----------------------------------------------------- ---------------------------------
Fred H. Johnson, Date
Director
/s/ Kenneth E. Mcconnell December 22, 1997
- ----------------------------------------------------- ---------------------------------
Kenneth E. McConnell, Date
Director
/s/ Glenn F. Thorne December 22, 1997
- ----------------------------------------------------- ---------------------------------
Glenn F. Thorne, Date
Director
/s/ Gerard P. Mastroianni December 22, 1997
- ----------------------------------------------------- ---------------------------------
Gerard P. Mastroianni, Date
Director
/s/ Lee A. Smith December 22, 1997
- ----------------------------------------------------- ---------------------------------
Lee A. Smith, Director Date
of The Citizens Banking Company
/s/ Jonathan A. Levy December 22, 1997
- ----------------------------------------------------- ---------------------------------
Jonathan A. Levy, Director Date
of The Citizens Banking Company
/s/ Elden L. Surbey December 22, 1997
- ----------------------------------------------------- ---------------------------------
Elden L. Surbey, Director Date
of The Citizens Banking Company
</TABLE>
S-9
<PAGE> 206
<TABLE>
<CAPTION>
EXHIBIT INDEX
Exhibit No. Exhibit
- ----------- -------
<S> <C>
(2) Affiliation Agreement, dated September 12, 1997, by and among Citizens Bancshares,
Inc., The Citizens Banking Company and UniBank, together with Form of Agreement of
Merger (included as Appendix A to the Prospectus).
(3) Articles of Incorporation and By-Laws
(3.1) Registrant's Fourth Amended Articles of Incorporation (incorporated by
reference in Exhibit 3(1) to the Form 10-K of Registrant for the year
ended December 31, 1996.)
(3.2) Registrant's Code of Regulations, as amended (incorporated by reference in
Exhibit 3(2) to the Form S-4 Registration Statement No. 0-18209 of
Registrant).
(5) Opinion of Squire, Sanders & Dempsey L.L.P. regarding legality.
(10) Material Contracts (Exhibits 10(1)-(14) of Registrant's Quarterly Report on Form
10-Q for the Quarter Ended September 30, 1997 are incorporated herein by
reference).
(13) Annual Report to Security Holders, Form 10-Q or Quarterly Report to Security Holders.
(13.1) Registrant's Annual Report to Shareholders for the Fiscal Year Ended
December 31, 1996 (incorporated by reference in Exhibit 13 to Registrant's
Form 10-K for the Fiscal Year ended December 31, 1996).
(13.2) Registrant's Form 10-Q for the Quarter Ended March 31, 1997 filed with the
Commission on May 15, 1997.
(13.3) Registrant's Form 10-Q for the Quarter Ended June 30, 1997 filed with the
Commission on July 24, 1997.
(13.4) Registrant's Form 10-Q for the Quarter Ended September 30, 1997 filed with
the Commission on October 27, 1997.
(21) Subsidiaries of the Registrant.
(23) Consents of Experts and Counsel
(23.1) Consent of Squire, Sanders & Dempsey L.L.P. (included in Exhibit (5.1)).
(23.2) Consent of Danielson Associates Inc.
(23.3) Consent of Independent Public Accountants.
(23.4) Consent of Independent Public Accountants.
(23.5) Consent of Independent Auditors.
(27) Financial Data Schedule (Exhibit 27 of Registrant's Quarterly
Report in Form 10-Q for the Quarter Ended September 30, 1997
is incorporated herein by reference).
(99) Additional Exhibits
(99.1) Form of Proxy
(99.2) Letter of Transmittal to accompany Certificates for UniBank Shares.
(99.3) Fairness opinion dated September 12, 1997 delivered by Danielson
Associates, Inc. (included as Appendix C to the Prospectus).
</TABLE>
E-1
<PAGE> 1
EXHIBIT 5
November ____, 1997
Citizens Bancshares, Inc.
10 East Main Street
Salineville, Ohio 43945
RE: CITIZENS BANCSHARES, INC./UNIBANK
Ladies and Gentlemen:
We have acted as counsel for Citizens Bancshares, Inc., an Ohio
corporation (the "Corporation") in connection with a Registration Statement on
Form S-4 (Registration No. ________________) (the "Registration Statement")
filed with the Securities and Exchange Commission under the Securities Act of
1933, as amended, with respect to the offer and sale by the Corporation of up to
_____________ shares of its common stock, without par value (the "Shares"), to
be issued to shareholders of UniBank upon consummation of the merger of UniBank
with and into The Citizens Banking Company, a wholly-owned subsidiary of the
Corporation, all as further described in the Registration Statement.
We have reviewed the Registration Statement and the exhibits thereto
and have examined such other documents and matters of law as we have deemed
necessary for the purposes of this opinion. In rendering this opinion, we have
assumed there will be no changes in applicable law between the date of this
opinion and any date of issuance or delivery of the Shares.
Based upon the foregoing, it is our opinion that when issued and sold
in the manner described in the Registration Statement (including all exhibits
thereto) and in compliance with the Securities Act of 1933, as amended, and all
applicable state securities laws, (i) the Shares will be duly authorized and
validly issued; (ii) the Shares will be fully paid and nonassessable, and (iii)
issuance of the Shares is not subject to any preemptive rights.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and the reference to us under the caption "Legal
Opinions" in the Proxy Statement and Prospectus included as part of the
Registration Statement.
Respectfully submitted,
/s/ Squire, Sanders & Dempsey L.L.P.
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
<TABLE>
<CAPTION>
Name Under Which
Subsidiary Does
Subsidiary State of Incorporation Business
- ---------- ---------------------- ----------------
<S> <C> <C>
The Citizens Banking Ohio The Citizens
Company Banking Company
The First National United States The First
Bank of Chester National Bank of
Chester
Freedom Financial Life Arizona Freedom Financial
Insurance Company Life Insurance
Company
Freedom Express, Inc. Ohio Freedom Express, Inc.
</TABLE>
<PAGE> 1
EXHIBIT 23.2
CONSENT OF DANIELSON ASSOCIATES INC.
We hereby consent to the reference in the Joint Proxy
Statement/Prospectus forming a part of this Registration Statement on Form S-4
of Citizens Bancshares, inc. to our opinion, dated September 12, 1997, with
respect to the merger of Citizens Bancshares, Inc. and UniBank, and to our firm,
respectively, and to the inclusion of such opinion as an annex to the Joint
Proxy Statement/Prospectus.
DANIELSON ASSOCIATES INC.
By /s/ Arnold G. Danielson
-----------------------
Arnold G. Danielson, Chairman
Rockville, Maryland
November 13, 1997
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in this registration statement of
Citizens Bancshares, Inc. on Form S-4, of our report dated January 17, 1997 on
the consolidated financial statements of Citizens Bancshares, Inc. as of
December 31, 1996 and 1995 and for each of the three years in the period ended
December 31, 1996. We also consent to the reference to our firm under the
heading "Expert" in the prospectus, which is part of this registration
statement.
/s/ Crowe, Chizek and Company LLP
Crowe, Chizek and Company LLP
Columbus, Ohio
December 18, 1997
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation in this registration statement of Citizens
Bancshares, Inc. on Form S-4, of our report dated February 26, 1997 on the
financial statements of UniBank as of December 31, 1996 and 1995 and for each
of the three years in the period ended December 31, 1996. We also consent to
the reference to our firm under the heading "Expert" in the prospectus, which
is part of this registration statement.
/s/ Crowe, Chizek and Company LLP
Crowe, Chizek and Company LLP
Columbus, Ohio
December 18, 1997
<PAGE> 1
EXHIBIT 23.5
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in this Registration Statement of Citizens Bancshares,
Inc. on Form S-4 of our report dated February 7, 1997 (relative to the
consolidated financial statements of Century Financial Corporation as of
December 31, 1996 and 1995 and for each of the three years in the period ended
December 31, 1996) appearing in the proxy statement/prospectus, which is part of
this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
proxy statement/prospectus.
/s/ S.R. Snodgrass, A.C.
------------------------
S.R. Snodgrass, A.C.
Wexford, PA.
December 15, 1997
<PAGE> 1
EXHIBIT 99.1
UNIBANK
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS CALLED FOR
____________, 1998
The undersigned having received, together with the Proxy
Statement/Prospectus dated ______________, 1997, notice of the Special Meeting
of Shareholders of UniBank, Steubenville, Ohio, to be held ____________, 1998 at
2:00 p.m., hereby designates and appoints H. Lee Kinney and William W. McElwain
as proxies for the undersigned, with full power of substitution, to exercise all
the powers that the undersigned would have if personally present to act and to
vote all of the shares that the undersigned is entitled to vote at the Special
Meeting of Shareholders, unless revoked, and at any adjournment or postponement
thereof, such proxies being directed to vote as specified below on the following
proposal:
MANAGEMENT RECOMMENDS A VOTE "FOR" PROPOSAL 1.
PROPOSAL 1: To approve and adopt the Affiliation Agreement and Agreement of
Merger by and among Citizens Bancshares, Inc., The Citizens Banking
Company, a wholly-owned subsidiary of Citizens Bancshares, Inc., and
UniBank, providing for the merger of UniBank with and into The
Citizens Banking Company.
FOR __________ AGAINST __________ ABSTAIN __________
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS SPECIFIED. IF NO
SPECIFICATION IS MADE, THE SHARES WILL BE VOTED FOR PROPOSAL 1. ALL PROXIES
PREVIOUSLY GIVEN ARE HEREBY REVOKED. RECEIPT OF THE ACCOMPANYING PROXY STATEMENT
AND PROSPECTUS IS HEREBY ACKNOWLEDGED.
The aforesaid proxies are hereby authorized to vote on any other
matter that may properly come before the meeting at their discretion. An
executed proxy may be revoked at any time prior to its exercise by submitting
another proxy with a later date, by appearing in person at the UniBank Special
Meeting and advising the Secretary of the shareholder's intent to vote the
share(s) or by sending a written, signed and dated revocation that clearly
identifies the proxy being revoked to the principal executive offices of UniBank
at 100 North Fourth Street, Steubenville, Ohio 43592, attention: William W.
McElwain, Secretary. A revocation may be in any written form validly signed by
the record holder as long as it clearly states that the proxy previously given
is no longer effective.
Dated:______________________ _____________________________________________
Signature
_____________________________________________
Signature
Please sign exactly as your name appears on your stock certificate(s) and return
this proxy promptly in the accompanying envelope. If the share(s) are issued in
the names of two or more persons, all persons should sign the proxy. If the
shares are issued in the name of a corporation or partnership, please sign in
the corporate name, by the president or other authorized officer, or in the
partnership name, by an authorized person. When signing as attorney, executor,
administrator, trustee, guardian or in any other representative capacity, please
give your full title as such.
PLEASE DATE, SIGN AND MAIL THIS PROXY TO UNIBANK, ATTENTION WILLIAM W. MCELWAIN,
100 NORTH FOURTH STREET, STEUBENVILLE, OHIO 43592. AN ENVELOPE IS ENCLOSED FOR
YOUR CONVENIENCE.
<PAGE> 1
EXHIBIT 99.2
PLEASE READ CAREFULLY THE ACCOMPANYING INSTRUCTIONS
LETTER OF TRANSMITTAL
TO ACCOMPANY CERTIFICATES
FOR COMMON SHARES OF
UNIBANK
Citizens Bancshares, Inc.
Exchange Agent
Attn: Tracey Reeder, Assistant Secretary
66 East Main Street
Salineville, Ohio 43945
Telephone Number: (330) 679-2328
<TABLE>
<CAPTION>
==========================================================================================================================
NAME AND ADDRESS OF UNIBANK SHARE
REGISTERED HOLDER - CERTIFICATES ENCLOSED
PLEASE FILL IN IF BLANK (PLEASE ATTACH ADDITIONAL LIST IF NECESSARY)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CERTIFICATE NUMBERS NUMBER OF SHARES
-----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------
TOTAL SHARES
==========================================================================================================================
</TABLE>
The undersigned hereby deposits and surrenders the above-referenced
certificates representing common shares of UniBank, par value $10.00 per share
("UniBank Shares"), in exchange for certificates representing common shares of
Citizens Bancshares, Inc. ("Bancshares"), without par value ("Bancshares
Shares") at the rate established in accordance with the terms of the proposed
acquisition of UniBank by Bancshares and the merger of UniBank with and into The
Citizens Banking Company (the "Merger"). In the event the proposed acquisition
is not consummated, Bancshares will return the certificates to the undersigned
at the address set forth above.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to surrender the UniBank Shares described above and
will, upon request, execute and deliver any additional documents deemed by
Bancshares to be necessary or desirable to complete the surrender of such
UniBank Shares.
All authority herein conferred or agreed to be conferred shall survive
the death or incapacity of the undersigned, and any obligations of the
undersigned hereunder shall be binding upon the heirs, executors,
administrators, legal and personal representatives, successors and assigns of
the undersigned.
Please issue the certificate for the Bancshares Shares to which the
undersigned is entitled and a check for the cash, if any, in lieu of any
fractional Bancshares Shares, in the name in which the UniBank Shares owned by
the undersigned has been recorded on the books of UniBank, and deliver the same
by mail to the address of record, unless other instructions as to certificate
denominations, identity of the registered holder, or mailing address are
indicated below.
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<PAGE> 2
Under penalty of perjury, the undersigned certifies that the tax
identification number or Social Security Number provided below is true, correct
and complete.
PLEASE SIGN HERE
x ________________________________________
x ________________________________________
(Signature(s) of Registered Holder(s))
Signatures of registered holders must be signed exactly as the names
appear on certificates or by persons authorized to become registered holders by
certificates and documents transmitted herewith.
Dated: ________________________, 199_
Telephone Number, including Area Code (___) _ __________________
Tax Identification or Social Security Number __________________
- --------------------------------------------------------------------------------
SIGNATURES GUARANTEED BY:
(If required, see General Instruction 3)
x ________________________________________
x ________________________________________
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<PAGE> 3
<TABLE>
<CAPTION>
========================================== ==============================================
FILL IN ONLY IF FILL IN ONLY IF MORE THAN ONE
ISSUANCE OR DELIVERY CERTIFICATE IS TO BE ISSUED
IS TO BE MADE OTHER
THAN TO THE NAME AND MULTIPLE CERTIFICATES
ADDRESS OF RECORD AS
SHOWN ABOVE (See General Instruction 4C)
______________________________________________
<S> <C> <C>
(Please print or type)
Denominations Number of
Certificates
______________________________________________
SPECIAL ISSUANCE 100 shares
INSTRUCTIONS ______________________________________________
Other
ISSUE TO: ______________________________________________
Name:
_______________________________________ ______________________________________________
Address:
_______________________________________ ______________________________________________
_______________________________________
_______________________________________ ______________________________________________
Tax ID or Social ______________________________________________
Security Number:
_______________________________________ ______________________________________________
______________________________________________
______________________________________________
SPECIAL DELIVERY
INSTRUCTIONS ______________________________________________
(See General ______________________________________________
Instruction 4B)
______________________________________________
MAIL TO:
Name: ______________________________________________
_______________________________________
Address: ______________________________________________
_______________________________________
_______________________________________ ______________________________________________
_______________________________________
______________________________________________
======================================= ==============================================
</TABLE>
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<PAGE> 4
GENERAL INSTRUCTIONS
FOR DEPOSIT AND SURRENDER OF CERTIFICATES
REPRESENTING COMMON SHARES OF
UNIBANK
1. COMPLETION OF LETTER OF TRANSMITTAL AND DEPOSIT AND SURRENDER OF
CERTIFICATES.
The Letter of Transmittal must be properly filled out,
executed and mailed or delivered, accompanied by the certificate(s) for UniBank
Shares to be deposited and surrendered, to the Assistant Secretary of
Bancshares, at the address set forth on the front of the Letter of Transmittal.
You may also bring your certificate(s) and the completed Letter of Transmittal
to the Special Meeting of UniBank shareholders which will be held on
____________, 1998. No certificate(s) for UniBank Shares may be issued until a
properly completed Letter of Transmittal, accompanied by the certificate(s) for
UniBank Shares to be deposited and surrendered, has been received by Bancshares.
2. METHOD OF DELIVERY.
The method of delivery of certificate(s) for UniBank Shares to
be deposited and surrendered to Bancshares, at the address set forth on the
front of the Letter of Transmittal, is at the option and risk of the
shareholder. Delivery will be deemed effective only when received by Bancshares
at such address. If the certificate(s) are sent by mail, registered mail is
suggested.
3. SIGNATURE AND ENDORSEMENT.
A. CERTIFICATE(S) IN NEW NAME(S). If any certificate(s) representing
Bancshares Shares are to be issued in a name different from that in which the
deposited and surrendered certificate(s) are registered, such certificate(s)
must be endorsed or accompanied by an appropriate stock power, with the
signature guaranteed by a commercial bank or a trust company or by a member firm
of a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc., and the signature on the Letter of
Transmittal must be accompanied by a certified check in payment of any transfer
or other taxes required by reason of such issuance in such different name, or
proper evidence that such tax has been paid or is not payable.
B. CERTIFICATE(S) IN SAME NAME(S). If the certificate(s) representing
the Bancshares Shares are to be issued in the name of the registered holder of
the certificate(s), such certificate(s) need not be endorsed and the signature
on the Letter of Transmittal need not be guaranteed.
C. PERSONS ACTING IN A FIDUCIARY CAPACITY. Letters of Transmittal
executed by trustees, executors, administrators, guardians, officers of
corporations, attorneys-in-fact, or others acting in a fiduciary capacity must
be accompanied by proper evidence of the signers' authority to act.
4. PARTICULAR INSTRUCTIONS CONCERNING ISSUANCE, DELIVERY AND CERTIFICATE
DENOMINATIONS.
A. ISSUANCE INSTRUCTIONS. Indicate in the box labeled "Special Issuance
Instructions" the information requested therein with respect to any person to
whom any certificate(s) for Bancshares Shares and/or a check payable in lieu of
fractional Bancshares Shares to be issued if different from the name and address
of the person(s) which is recorded on the books of UniBank.
B. DELIVERY INSTRUCTIONS. Indicate in the box labeled "Special Delivery
Instructions" the name and address of the person(s) to whom any certificate(s)
for Bancshares Shares and/or a check payable in lieu of fractional Bancshares
Shares are to be sent if different from the name or address of the person(s)
which is recorded on the books of UniBank.
C. MULTIPLE CERTIFICATES. One certificate representing the number of
Bancshares Shares to which a shareholder is entitled will be issued for each
separate Letter of Transmittal submitted, unless instructions to the
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<PAGE> 5
contrary are given by completion of the box labeled "Multiple Certificates." If
multiple certificates are desired, indicate in that box the respective
certificate denominations and number of certificates for Bancshares Shares
represented thereby.
5. LOST CERTIFICATES.
If any certificates representing UniBank Shares have been
lost, stolen or destroyed, please notify Tracey Reeder, (330) 679-2328, for
instructions on how to proceed. The Letter of Transmittal and related documents
cannot be processed until an affidavit with indemnification, in lieu of a lost,
stolen or destroyed certificate has been received.
6. MISCELLANEOUS.
Bancshares will not be under any duty to give notification of
defects in the deposit and surrender of any UniBank Shares certificate(s) and it
shall not incur any liability for failure to give such notification. Bancshares
shall have the absolute right to reject any and all of such deposits which are
not in proper form and to waive any irregularities or conditions of such
deposits. All questions with respect to the Letter of Transmittal, including,
without limitation, questions relating to the timeliness or effectiveness of any
election, will be determined by Bancshares, which determination shall be final
and binding.
<TABLE>
<CAPTION>
PLEASE DO NOT WRITE IN THE SPACE BELOW
=================================================================================================================================
Shares Price of Certificate Check Date
Entitled To Full Fraction Fraction Number Number Mailed Mail No.
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<S> <C> <C> <C> <C> <C> <C> <C>
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</TABLE>
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