<PAGE> 1
FIRST CITIZENS BANC CORP
SANDUSKY, OHIO
ANNUAL REPORT
December 31, 1997
<PAGE> 2
FIRST CITIZENS BANC CORP
CONTENTS
INSIDE
<TABLE>
<CAPTION>
Message to Shareholders
Five Year Consolidated Financial Summary
<S> <C> <C>
Form 10-K ............................................................................................ 1
Index ............................................................................................... 2
PART I
Item 1. Business.................................................................................... 3
Item 2. Properties.................................................................................. 19
Item 3. Legal Proceedings........................................................................... 19
Item 4. Submission of Matters to a Vote
of Security Holders....................................................................... 19
PART II
Item 5. Market for Registrant's Common
Equity and Related Shareholder Matters.................................................... 20
Item 6. Selected Financial Data..................................................................... 21
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations............................................. 22
Item 7a. Quantitative and Qualitative Disclosures About Market Risk.................................. 29
Item 8. Financial Statements and Supplementary Data
Independent Auditors' Report................................................................ 33
Financial Statements........................................................................ 34
Notes to Consolidated Financial Statements ................................................. 38
Item 9. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure.................................................... 55
PART III
Item 10. Directors and Executive Officers of the Registrant.......................................... 56
Item 11. Executive Compensation...................................................................... 57
Item 12. Security Ownership of Certain Beneficial Owners
and Management............................................................................ 57
Item 13. Certain Relationships and Related Transactions.............................................. 57
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K....................................................................... 58
Signatures ........................................................................................ 59
</TABLE>
First Citizens Banc Corp Directors and Officers
Directors of Affiliated Companies
Officers of Affiliated Companies
First Citizens Banc Corp Shareholder Information
<PAGE> 3
[FIRST CITIZENS BANC CORP LETTERHEAD]
Dear Shareholders:
The year 1997 was one of transition for First Citizens Banc Corp.
January brought the acquisition of two branches from EST First Merit and July
brought the merger agreement with the Farmers State Bank of New Washington,
Ohio. In addition to expansion of the corporation's market area through
acquisition, the banks have introduced new products and product lines to better
serve the customer and attract new business.
These efforts to position for the future, however, require an
investment. While our net interest income and non interest income increased by
over $1,000,000 in 1997, our overhead costs increased by approximately
$1,700,000 thus resulting in a reduced net income for the year. A significant
portion of increased costs are non-recurring and associated with the branch
acquisitions, the merger in progress with The Farmers State Bank, and the
introduction of new products and services.
We look forward to welcoming the shareholders of The Farmers State Bank
to First Citizens Banc Corp and are confident it is a merger that will benefit
everyone. As we have stated in the past, we intend to continue our significant
dividend payout subject to continuing strong earnings and a capital base
sufficient to support operations. Your Board of Directors and employees are
committed to the growth and financial strength of First Citizens Banc Corp.
Sincerely,
David A. Voight
President
<PAGE> 4
FIRST CITIZENS BANC CORP
FIVE YEAR CONSOLIDATED FINANCIAL SUMMARY
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Earnings
Net income (000) $ 3,434 $ 3,965 $ 3,682 $ 3,658 $ 3,555
Per Common Share (1):
Earnings $ 1.13 $ 1.30 $ 1.21 $ 1.20 $ 1.16
Book value 11.42 11.28 11.08 10.46 9.67
Dividends paid 1.07 1.02 0.71 0.41 0.36
Balances (in millions)
Assets $ 325.9 $ 302.8 $ 304.0 $ 303.0 $ 288.7
Deposits 265.0 240.5 242.3 244.1 245.5
Net loans 221.8 202.5 193.3 183.6 158.4
Shareholders equity 34.8 34.4 33.8 31.9 29.5
Performance ratios
Return on average assets 1.09% 1.32% 1.23% 1.22% 1.25%
Return on average equity 9.80 11.52 11.34 11.95 12.53
Shareholders' equity to assets ratio 10.69 11.37 11.12 10.53 10.22
Net loans to deposit ratio 83.68 84.20 79.74 75.22 64.52
Allowance for loan losses to total loans 1.25 1.29 1.33 1.28 1.30
</TABLE>
(1) Per share data has been adjusted for a 300% stock split paid in April 1996.
<PAGE> 5
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
-----------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
COMMISSION FILE NUMBER 0 - 25980
---------
FIRST CITIZENS BANC CORP
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 34-1558688
- ---------------------------------- -------------------------
State or other jurisdiction of (IRS Employer
incorporation or organization Identification No.)
100 East Water Street, Sandusky, Ohio 44870
- ---------------------------------------------- -------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (419) 625 - 4121
---------------------------
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, No par value
--------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of January 31, 1998 was $88,286,540.
As of January 31, 1998, there were 3,051,504 shares of no par value common stock
issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement to be dated approximately March 9,
1998, are incorporated by reference into Item 10. Directors and Executive
Officers of the Registrant; Item 11. Executive Compensation; Item 12. Security
Ownership of Certain Beneficial Owners and Management; and Item 13. Certain
Relationships and Related Transactions, of Part III.
This document, including exhibits, contains 59 pages. The Exhibit Index is on
page 58.
1
<PAGE> 6
INDEX
<TABLE>
<S> <C>
PART I
Item 1. Business............................................................................................ 3
Item 2. Properties.......................................................................................... 19
Item 3. Legal Proceedings................................................................................... 19
Item 4. Submission of Matters to a Vote of Security Holders................................................. 19
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters............................... 20
Item 6. Selected Financial Data............................................................................. 21
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................................................... 22
Item 7a. Quantitative and Qualitative Disclosures About Market Risk......................................... 29
Item 8. Financial Statements and Supplementary Data
Independent Auditor's Report........................................................................ 33
Financial Statements................................................................................ 34
Notes to Consolidated Financial Statements.......................................................... 38
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.......................................................................... 55
PART III
Item 10. Directors and Executive Officers of the Registrant.................................................. 56
Item 11. Executive Compensation.............................................................................. 57
Item 12. Security Ownership of Certain Beneficial Owners and Management...................................... 57
Item 13. Certain Relationships and Related Transactions...................................................... 57
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K..................................... 58
Signatures.................................................................................................... 59
</TABLE>
2
<PAGE> 7
FIRST CITIZENS BANC CORP
- --------------------------------------------------------------------------------
PART I
ITEM 1. BUSINESS
- -----------------
(a) General Development of Business
-------------------------------
First Citizens Banc Corp (the "Corporation") was organized under the laws
of the State of Ohio on February 19, 1987 and is registered as a bank
holding company under the Bank Holding Company Act of 1956, as amended. The
principal office of the Corporation is located at 100 East Water Street,
Sandusky, Ohio. The Corporation had total consolidated assets of
$325,923,098 at December 31, 1997.
On July 3, 1997, the Corporation entered into an agreement to acquire all
of the common stock of the Farmers State Bank of New Washington, Ohio
(Farmers). Pending regulatory and shareholder approvals, the acquisition is
expected to be consummated early in the second quarter of 1998 through the
issuance of 6.06 shares of the Corporation for each share of Farmers.
THE CITIZENS BANKING COMPANY (Citizens), owned by the Corporation since
1987, opened for business in 1884 as The Citizens National Bank. In 1898,
Citizens was reorganized under Ohio banking law and was known as The
Citizens Bank and Trust Company. In 1908, Citizens surrendered its trust
charter and began operation under its current name. Citizens is an insured
bank under the Federal Deposit Insurance Act. Citizens maintains its main
office at 100 East Water Street, Sandusky, Ohio and operates three branch
banking offices in Perkins Township (Sandusky, Ohio) and one branch banking
office in Berlin Heights, Ohio. This subsidiary accounts for approximately
83% of the Corporation's consolidated assets at December 31, 1997.
THE CASTALIA BANKING COMPANY (Castalia), owned by the Corporation since
1990, was organized and chartered under the laws of the State of Ohio in
1907. Castalia is an insured bank under the Federal Deposit Insurance Act.
Castalia operates from one location, 208 South Washington Street, Castalia,
Ohio. Castalia, Ohio is located approximately 10 miles from Sandusky, Ohio.
This subsidiary accounts for approximately 16% of the Corporation's
consolidated assets at December 31, 1997.
SCC RESOURCES, INC. (SCC) was organized under the laws of the State of
Ohio. Begun as a joint venture of three local Sandusky, Ohio banks in 1966,
SCC provides data processing services for financial institutions, including
the Banks, and other nonrelated entities. The Corporation acquired total
ownership of SCC in February 1993. This subsidiary accounts for less than
one percent of the Corporation's consolidated assets as of December 31,
1997.
R. A. REYNOLDS APPRAISAL SERVICES, INC. (Reynolds), owned by the
Corporation since 1993, was organized under the laws of the State of Ohio
in September 1993. Reynolds provides real estate appraisal services, for
lending purposes, to the Banks and to other financial institutions. This
subsidiary accounts for less than one percent of the Corporation's
consolidated assets as of December 31, 1997.
(b) Financial Information About Industry Segments
---------------------------------------------
The Corporation is a bank holding company. Through its two subsidiary
banks, the Corporation is primarily engaged in the business of commercial
banking, which accounts for substantially all of its revenue, operating
income and assets. Reference is made to the statistical information
regarding the Corporation included elsewhere herein and to items of this
Form 10K for financial information about the Corporation's banking
business.
3
<PAGE> 8
(c) Narrative Description of Business
---------------------------------
General
-------
The Corporation's primary business is incidental to its two subsidiary
banks. Both Citizens and Castalia, Located in Erie County, Ohio, conduct a
general banking business which involves collecting customer deposits,
making loans and purchasing securities. Neither Citizens nor Castalia has a
trust department.
Interest and fees on loans accounted for 68.9% of total revenue for 1997
and 68.0% of total revenue for 1996. The primary focus of lending is real
estate mortgages. Real estate mortgages comprised 61.6% of the total loan
portfolio in 1997 and 65.1% of the total loan portfolio in 1996. Citizens'
and Castalia's loan portfolios do not include any foreign-based loans,
loans to lesser-developed countries or loans to the Corporation. Citizens
has a loan to SCC, which is secured by real estate.
On a parent company only basis, the Corporation's only source of funds is
the receipt of dividends paid by its subsidiaries, principally the Banks.
The ability of the Banks to pay dividends is subject to limitations under
various laws and regulations and to prudent and sound banking principles.
Generally, subject to certain minimum capital requirements, each Bank may
declare a dividend without the approval of the State of Ohio Division of
Financial Institutions unless the total of the dividends in a calendar year
exceeds the total net profits of the bank for the year combined with the
retained profits of the bank for the two preceding years. Earnings have
been sufficient to support asset growth at the Banks and at the same time
provide funds to the Corporation for shareholder dividends. The Corporation
has no debt service obligations.
The Corporation's business is not seasonal, nor is it dependent on a single
or small group of customers.
In the opinion of management, the Corporation does not have exposure to
material costs associated with environmental hazardous waste cleanup.
Competition
-----------
The primary market area for Citizens and Castalia is Erie County. A
secondary market includes portions of Huron and Ottawa counties. Citizens
and Castalia are operated as independent commercial banks in their market
area. Traditional financial service competition for the Banks consists of
large regional financial institutions, two thrifts and two credit unions. A
growing nontraditional source of competition for deposit dollars comes from
brokerage companies, insurance companies and direct mutual funds.
Employees
---------
The Corporation has no employees. The subsidiary companies employ
approximately 196 full-time equivalent employees to whom a variety of
benefits is provided. The Corporation and its subsidiaries are not parties
to any collective bargaining agreements. Management considers its
relationship with its employees to be good.
4
<PAGE> 9
Supervision and Regulation
--------------------------
The Corporation, as a registered bank holding company, is subject to
regulation by the Board of Governors of the Federal Reserve System under
the Bank Holding Company Act of 1956, as amended (the "Act"). The Act
limits the activities in which the Corporation and the Banks may engage to
those activities that the Federal Reserve Board finds, by order or
regulation, to be so closely related to banking or managing or controlling
banks as to be a proper incident thereto. A favorable determination by the
Federal Reserve Board as to whether any such new activity by the
Corporation or the Banks is in the public interest, taking into account
both the likely adverse effects and the likely benefits, is also necessary
before any such activity may be engaged in. The Federal Reserve Board is
empowered to differentiate between activities which are initiated de novo
by a bank holding company or a subsidiary and activities commenced by
acquisition of a going concern. The Federal Reserve Board also possesses
cease and desist powers over bank holding companies and their nonbank
subsidiaries for activities that are deemed by the Board of Governors to
constitute a serious risk to the financial safety, soundness or stability
of a bank holding company, that are inconsistent with sound banking
principles or that are in violation of law. Further, under Section 106 of
the 1970 Amendments to the Board's regulations, bank holding companies and
their subsidiaries are prohibited from engaging in certain tie-in
arrangements in connection with any extension of credit, lease or sale of
any property or the furnishing of services.
The Act also requires every bank holding company to obtain the prior
approval of the Federal Reserve Board before acquiring all or substantially
all of the assets of any bank, or acquiring ownership or control of any
voting shares of any other bank, if, after such acquisition, it would own
or control any such bank. In making such determinations, the Federal
Reserve Board considers the effect of the acquisition on competition, the
financial and managerial resources of the holding company and the
convenience and needs of affected communities. Furthermore, a bank holding
company is prohibited from acquiring direct or indirect ownership or
control of any company that is not a bank or bank holding company unless
its business and activities would be acceptable for the bank holding
company itself.
The Federal Reserve Board has adopted final risk-based capital guidelines
for purposes of evaluating the adequacy of capital of bank holding
companies and state member banks. The guidelines involve a process of
assigning various risk weights to different classes of assets, then
evaluating the sum of the risk-weighted balance sheet structure against the
holding company's capital base. The risk-based capital ratios of the
Corporation and the Banks at December 31, 1997 were above the minimum
requirements.
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") contains provisions that directly affect thrifts, banks, thrift
holding companies and bank holding companies. First, FIRREA abolished the
Federal Savings and Loan Insurance Corporation and required the Federal
Deposit Insurance Corporation ("FDIC") to establish two separate funds, the
Bank Insurance Fund ("BIF") to insure banks and the Savings Association
Insurance Fund ("SAIF") to insure savings and loan associations. Second,
FIRREA amended the Bank Holding Company Act of 1956 to permit bank holding
companies to acquire thrift institutions; before FIRREA, bank holding
companies were permitted to acquire only failing thrift institutions.
FIRREA also abolished the restrictions on tandem operations of acquired
thrift institutions and the in-state preference for acquisitions of failing
thrifts. Finally, FIRREA increased the authority of bank regulators.
5
<PAGE> 10
Additional Regulation
---------------------
In addition to regulation of the Corporation, the Corporation's banking
subsidiaries are subject to federal regulation as to such matters as
required reserves, limitation as to the nature and amount of its loans and
investments, regulatory approval of any merger or consolidation, issuance
or retirement of their own securities, limitations on the payment of
dividends and other aspects of banking operations.
The activities and operations of Citizens and Castalia are subject to a
number of additional detailed, complex and sometimes overlapping laws and
regulations. These include state usury and consumer credit laws, state laws
relating to fiduciaries, the Federal Truth-in-Lending Act and Regulation Z,
the Federal Equal Credit Opportunity Act and Regulation B, the Fair Credit
Reporting Act, the Truth in Savings Act, the Community Reinvestment Act,
anti-redlining legislation and antitrust laws.
In addition, as Ohio chartered banks, Citizens and Castalia are supervised
and regulated by the Ohio Division of Financial Institutions. The deposits
of Citizens and Castalia are insured by the BIF of the FDIC and both
entities are subject to the applicable provisions of the Federal Deposit
Insurance Act. A subsidiary of a bank holding company can become liable for
reimbursing the FDIC if the FDIC incurs or anticipates a loss because of a
default of another FDIC insured subsidiary of the bank holding company or
FDIC assistance provided to such subsidiary is in danger of default.
Restrictions on Transactions with Affiliates
--------------------------------------------
Each of the Banks is subject to Sections 23A and 23B of the Federal Reserve
Act, which impose certain restrictions on loans and extensions of credit by
a bank to its affiliates, on investments by a bank in the stock or
securities of its affiliates, on acceptance of such stock or securities as
collateral for loans by the bank to any borrower and on leases and service
and other contracts between a bank and its affiliates. For purposes of
Sections 23A and 23B of the Federal Reserve Act, the affiliates of a bank
include its holding company and all other companies (including other banks)
controlled by the holding company. Transactions between banks that are at
least 80% owned by the same holding company (such as the Corporation's
subsidiary banks) are exempt from certain restrictions of Sections 23A and
23B of the Federal Reserve Act under the so-called "sister bank" exemption.
Interstate Banking and Community Development Legislation
--------------------------------------------------------
In September 1994, legislation was enacted that is expected to have a
significant effect in restructuring the banking industry in the United
States. The Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994 facilitates interstate expansion and consolidation of banking
operations by (i) permitting adequately capitalized and managed bank
holding companies, one year after enactment of the legislation, to acquire
banks located in states outside their home states regardless of whether
such acquisitions are authorized under the law of the host state; (ii)
permitting interstate merger of banks after June 1, 1997, subject to the
right of individual states to "opt in" or to "opt out" of this authority
before that date; (iii) permitting banks to establish new branches on an
interstate basis provided such action is specifically authorized by the law
of the host state; (iv) permitting foreign banks to establish, with
approval of regulators in the United States, branches outside their home
states to the same extent that national or state banks located in the home
state would be authorized to do so; and (v) permitting, beginning September
29, 1995, banks to receive deposits, renew time deposits, close loans,
service loans and receive payments on loans and other obligations as agent
for any bank or thrift affiliate, whether the affiliate is located in the
same state or a different state. One effect of this legislation is to
permit the Corporation to acquire banks located in any state and to permit
bank holding companies located in any state to acquire banks and bank
holding companies in Ohio. Overall, this legislation is likely to have the
effect of increasing competition and promoting geographic diversification
in the banking industry.
6
<PAGE> 11
The Riegle Community Development and Regulatory Improvement Act of 1994,
also enacted in September 1994, is intended to (i) increase the flow of
loans to businesses in distressed communities by providing incentives to
lenders to provide credit within those communities; (ii) remove impediments
to the securitization of small business loans; (iii) provide for a
reduction in paperwork and to streamline bank regulation through, for
example, the coordination of examinations in a bank holding company
context, a reduction in the number of currency transaction reports
required, improvements to the National Flood Insurance Program that include
enabling lenders to force place flood insurance; and (iv) increase the
level of consumer protection provided to customers in banking transactions.
The Corporation believes that these provisions of the new law have not had
a material effect on its operations.
Citizens and Castalia, as Ohio chartered banks, are supervised by the State
of Ohio Division of Financial Institutions. The Banks are also members of
the Federal Reserve System and are subject to its supervision. As such, the
Banks are subject to periodic examinations by both the Ohio Division of
Financial Institutions and the Federal Reserve Board. These examinations
are designed primarily for the protection of the depositors of the Banks
and not for their shareholders.
Effects of Government Monetary Policy
-------------------------------------
The earnings of the Banks are affected by general and local economic
conditions and by the policies of various governmental regulatory
authorities. In particular, the Federal Reserve Board regulates money and
credit conditions and interest rates to influence general economic
conditions, primarily through open market acquisitions or dispositions of
United States Government securities, varying the discount rate on member
bank borrowings and setting reserve requirements against member and
nonmember bank deposits. Federal Reserve Board monetary policies have had a
significant effect on the interest income and interest expense of
commercial banks, including the Banks, and are expected to continue to do
so in the future.
(d) Financial Information About Foreign and Domestic Operations and Export
----------------------------------------------------------------------
Sales
-----
The Corporation and its subsidiaries do not have any offices located in a
foreign country, nor do they have any foreign assets, liabilities, or
related income and expense for the years presented.
(e) Statistical Information
-----------------------
Pages 8 through 19 present various statistical disclosures required for
bank holding companies.
7
<PAGE> 12
Distribution of Assets, Liabilities and Shareholders' Equity,
Interest Rates and Interest Differential
----------------------------------------
The following table sets forth, for the years ended December 31, 1997, 1996 and
1995, the distribution of assets, liabilities and shareholders' equity,
including interest amounts and average rates of major categories of
interest-earning assets and interest-bearing liabilities:
<TABLE>
<CAPTION>
1997 1996 1995
---------------------------- ---------------------------- -------------------------
Average Yield/ Average Yield/ Average Yield/
Assets balance Interest rate balance Interest rate balance Interest rate
- ------ ------- -------- ---- ------- -------- ---- ------- -------- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans (1)(2)(3) $ 215,648 $ 18,462 8.56% $ 197,795 $ 17,144 8.67% $191,030 $16,618 8.70%
Taxable securities(4) 43,122 2,513 5.81 46,007 2,721 5.90 50,317 2,839 5.64
Nontaxable securities(4)(5) 24,333 1,307 5.46 25,676 1,431 5.66 27,885 1,630 5.85
Federal funds sold 8,826 483 5.47 9,575 508 5.31 9,827 575 5.85
Interest-bearing deposits in
other banks 719 33 4.59 82 4 4.88 55 3 5.45
--------- -------- --------- -------- -------- -------
Total interest-earning
assets 292,648 22,798 7.80 279,135 21,808 7.82 279,114 21,665 7.76
-------- -------- -------
Noninterest-earning assets:
Cash and due from banks 10,503 11,509 10,701
Office premises and
equipment, net 6,551 6,345 6,289
Accrued interest receivable 1,982 1,908 2,280
Intangible assets 2,935 1,787 1,988
Other assets 2,624 2,026 1,514
Less allowance for
possible loan losses (2,742) (2,638) (2,507)
--------- --------- --------
Total $ 314,501 $ 300,072 $299,379
========= ========= ========
Liabilities and Shareholders' Equity
- ------------------------------------
Interest-bearing liabilities:
Savings, NOW and Money
Market deposit accounts $ 123,190 3,231 2.62 $ 119,449 3,145 2.63 $122,798 3,253 2.65
Time deposits 100,115 5,220 5.21 92,434 4,802 5.20 90,455 4,610 5.10
Federal Home Loan Bank
borrowings 15,126 866 5.73 16,279 932 5.73 17,361 993 5.72
Securities sold under
repurchase agreements 8,432 440 5.28 8,207 335 4.08 6,800 336 4.94
U.S. Treasury demand
notes payable 979 53 5.41 746 37 4.96 963 54 5.61
--------- -------- --------- -------- -------- -------
Total interest-
bearing liabilities 247,842 9,810 3.96 237,115 9,251 3.90 238,377 9,246 3.88
--------- -------- --------- -------- -------- -------
Noninterest-bearing liabilities:
Demand deposits 29,249 25,900 26,264
Other liabilities 2,359 2,627 2,255
--------- --------- --------
31,608 28,527 28,519
Shareholders' equity 35,051 34,430 32,483
--------- --------- --------
Total $ 314,501 $ 300,072 $299,379
========= ========= ========
Net interest income $12,988 $ 12,557 $12,419
======= ======== =======
Net yield on interest-
earning assets 4.44% 4.47% 4.45%
==== ==== ====
</TABLE>
(1) For purposes of these computations, the daily average loan amounts
outstanding are net of unearned income.
(2) Included in loan interest income are loan fees of $865,486 in 1997,
$734,109 in 1996, and $681,038 in 1995.
(3) Nonaccrual loans are included in loan totals and do not have a material
impact on the analysis presented.
(4) Average balance is computed using the carrying value of securities. The
average yield has been computed using the historical amortized cost average
balance for available for sale securities.
(5) Interest income is reported on a historical basis without tax-equivalent
adjustment.
8
<PAGE> 13
Changes in Interest Income and Interest Expense
Resulting from Changes in Volume and Changes in Rate
----------------------------------------------------
The following table sets forth, for the periods indicated, a summary of the
changes in interest income and interest expense resulting from changes in volume
and changes in rate:
<TABLE>
<CAPTION>
1997 compared to 1996 1996 compared to 1995
Increase (decrease) Increase (decrease)
due to (1) due to (1)
-------------------------------------- ---------------------------------------
Volume Rate Net Volume Rate Net
------ ---- --- ------ ---- ---
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Loans $ 1,531 $ (213) $ 1,318 $ 586 $ (60) $ 526
Taxable securities (169) (39) (208) (228) 110 (118)
Nontaxable securities (96) (28) (124) (147) (52) (199)
Federal funds sold (41) 16 (25) (14) (53) (67)
Interest-bearing deposits
in other banks 29 29 1 1
--------- ---------- ---------- ---------- ---------- ----------
Total interest-
earning assets $ 1,254 $ (264) $ 990 $ 198 $ (55) $ 143
========= ========== ========== ========== ========== ==========
Interest expense:
Savings, NOW and
Money Market
deposit accounts $ 98 $ (12) $ 86 $ (88) $ (20) $ (108)
Time deposits 400 18 418 101 91 192
Federal Home Loan
Bank borrowings (66) (66) (62) 1 (61)
Securities sold under
repurchase agreements 9 96 105 63 (64) (1)
U.S. Treasury demand
notes payable 12 4 16 (11) (6) (17)
--------- ---------- ---------- ---------- ---------- ----------
Total interest-
bearing liabilities $ 453 $ 106 $ 559 $ 3 $ 2 $ 5
========= ========== ========== ========== ========== ==========
Net interest income $ 801 $ (370) $ 431 $ 195 $ (57) $ 138
========= ========== ========== ========== ========== ==========
</TABLE>
(1) The change in interest income and interest expense due to changes in both
volume and rate, which cannot be segregated, has been allocated
proportionately to the change due to volume and the change due to rate.
9
<PAGE> 14
Security Portfolio
------------------
The following table sets forth the carrying amount of securities at December 31.
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(Dollars in thousands)
AVAILABLE FOR SALE
<S> <C> <C> <C>
U.S. Treasury securities and obligations
of U.S. Government corporations and agencies $ 33,140 $ 36,904 $ 37,138
Obligations of states and political subdivisions (1) 19,802 18,456 17,198
Other securities, including mortgage-backed securities(1) 5,527 3,611 3,375
----------- ----------- -----------
Total $ 58,469 $ 58,971 $ 57,711
=========== =========== ===========
HELD TO MATURITY
U.S. Treasury securities and obligations of
U.S. Government corporations and agencies $ 1,000 $ 1,000 $ 1,500
Obligations of states and political subdivisions (1) 4,004 6,329 10,380
Other securities, including mortgage-backed securities(1) 1,733 2,461 4,856
----------- ----------- -----------
Total $ 6,737 $ 9,790 $ 16,736
=========== =========== ===========
</TABLE>
(1) The Corporation has no securities of an "issuer" where the aggregate
carrying value of such securities exceeded ten percent of shareholders'
equity.
The following tables set forth the maturities of securities at December 31, 1997
and the weighted average yields of such securities. Maturities are reported
based on stated maturities and do not reflect principal prepayment assumptions.
<TABLE>
<CAPTION>
Maturing
------------------------------------------------------------------------------------
After one After five
Within but within but within After
one year five years ten years ten years
-------- ---------- --------- ---------
Amount Yield Amount Yield Amount Yield Amount Yield
------ ----- ------ ----- ------ ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AVAILABLE FOR SALE (4)
U.S. Treasury securities
and obligations of
U.S. government
corporations and
agencies $ 16,955 5.32% $ 16,185 6.00%
Obligations of states
and political
subdivisions (1) 314 7.36 8,481 5.63 $ 9,872 4.88% $ 1,134 5.44%
Other securities (2) 699 6.26
---------- ------ ---------- ------ --------- ------ --------- -------
Total $ 17,269 5.36% $ 25,365 5.88% $ 9,872 4.88% $ 1,134 5.44%
========== ====== ========== ====== ========= ====== ========= =======
</TABLE>
10
<PAGE> 15
<TABLE>
<CAPTION>
Maturing
-------------------------------------------------------------------------------------
After one After five
Within but within but within After
one year five years ten years ten years
Amount Yield Amount Yield Amount Yield Amount Yield
------ ----- ------ ----- ------ ----- ------ -----
HELD TO MATURITY
<S> <C> <C> <C> <C>
U.S. Treasury securities
and obligations of U.S.
Government
corporations and
agencies $ 1,000 8.03%
Obligations of states
and political
subdivisions (1) 3,650 6.21 $ 355 4.96
Other securities (3)
---------- ---- ---------- ----
Total $ 4,650 6.60% $ 355 4.96%
========== ==== ========== ====
</TABLE>
(1) Weighted average yields on nontaxable obligations have been computed based
on actual yields stated on the security.
(2) Excludes $1,050,000 of mortgage-backed securities; and $3,165,000 of
Federal Home Loan Bank stock, $588,000 of Federal Reserve stock, and
$25,000 of Independent State Bank of Ohio stock which have no stated
maturity.
(3) Excludes $1,733,000 of mortgage-backed securities.
(4) The weighted average yield has been computed using the historical amortized
cost for available-for-sale securities.
11
<PAGE> 16
Loan Portfolio
--------------
Types of Loans
- --------------
The amounts of gross loans outstanding at December 31 are shown in the following
table according to types of loans:
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Commercial and agricultural $ 47,043 $ 42,038 $ 45,024 $ 45,229 $ 43,129
Real estate mortgage 135,636 131,492 120,783 114,952 93,452
Real estate construction 2,653 2,080 1,130 40 47
Consumer 38,621 29,232 28,984 25,609 23,257
Credit card and other 1,694 1,450 1,117 1,327 1,725
------------ ------------- ------------ ------------ ------------
$ 225,647 $ 206,292 $ 197,038 $ 187,157 $ 161,610
============ ============= ============ ============ ============
</TABLE>
Commercial loans are those made for commercial, industrial and professional
purposes to sole proprietorships, partnerships, corporations and other business
enterprises. Agricultural loans are for financing agricultural production,
including all costs associated with growing crops or raising livestock. These
loans may be secured, other than by real estate, or unsecured, requiring one
single repayment or on an installment repayment schedule. The loans involve
certain risks relating to changes in local and national economic conditions and
the resulting effect on the borrowing entities. Secured loans not collateralized
by real estate mortgages maintain a loan-to-value ratio ranging from 50% as in
the case of certain stocks, to 90% in the case of collateralizing with a savings
or time deposit account. Unsecured credit relies on the financial strength and
previous credit experience of the borrower and in many cases the financial
strength of the principals when such credit is extended to a corporation.
Real estate mortgage loans are made predicated on security interest in real
property and secured wholly or substantially by that lien on real property. Real
estate mortgage loans are primarily loans secured by one- to four-family real
estate. At year-end 1997, loans secured by one- to four-family real estate
represented 84% of total real estate mortgage loans (83% in both 1996 and 1995).
The balance of the loans is mostly for commercial purposes, secured by real
estate. Real estate mortgage loans are secured with a maximum loan to appraisal
value of 80% and generally pose less risk to the Banks.
Real estate construction loans are for the construction of new buildings or
additions to existing buildings. Generally, these loans are secured by one- to
four-family real estate. The Banks control disbursements.
Consumer loans are made to individuals for household, family and other personal
expenditures. These include the purchase of vehicles or furniture, educational
expenses, medical expenses, taxes or vacation expenses. Consumer loans may be
secured, other than by real estate, or unsecured, generally requiring repayment
on an installment repayment schedule. Consumer loans pose a relatively higher
credit risk. This higher risk is moderated by the use of certain loan value
limits on secured credits and aggressive collection efforts. The collectibility
of consumer loans is influenced by local and national economic conditions.
Credit card loans are made as a convenience to existing customers of the Banks.
All such loans are made on an unsecured basis, lines over $5,000 require
documentation on the financial strength of the borrower. As unsecured credit,
they pose the greatest credit risk to the Banks.
12
<PAGE> 17
Letters of credit represent extensions of credit granted in the normal course of
business which are not reflected in the Corporation's consolidated financial
statements. As of December 31, 1997 and 1996, the Banks were contingently liable
for $447,000 and $62,000 of letters of credit. In addition, the Banks had issued
lines of credit to customers. Borrowings under such lines of credit are usually
for the working capital needs of the borrower. At December 31, 1997 and 1996,
the Banks had commitments to extend credit in the aggregate amounts of
approximately $20,114,000 and $18,316,000. Of these amounts, $16,945,000 and
$14,081,000, represented lines of credit and construction loans, and $3,169,000
and $4,235,000, represented credit card commitments. Such amounts represent the
portion of total commitments that had not been used by customers as of December
31, 1997 and 1996.
Maturities and Sensitivities of Loans to Changes in Interest Rates
- ------------------------------------------------------------------
The following table shows the amount of commercial and agricultural loans
outstanding as of December 31, 1997, which, based on the contract terms for
repayments of principal, are due in the periods indicated. In addition, the
amounts due after one year are classified according to their sensitivity to
changes in interest rates.
<TABLE>
<CAPTION>
Maturing
-----------------------------------------------------------------
After one
Within but within After
one year five years five years Total
-------- ---------- ---------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Commercial and agricultural $ 15,806 $ 9,192 $ 22,045 $ 47,043
============ ============= ============ ============
Interest
Sensitivity
------------------------------
Fixed Variable
rate rate
---- ----
(Dollars in thousands)
Due after one but within five years $ 4,999 $ 4,193
Due after five years 3,599 18,446
------------ -------------
$ 8,598 $ 22,639
============ =============
</TABLE>
The preceding maturity information is based on contract terms at December 31,
1997 and does not include any possible "rollover" at maturity date. In the
normal course of business, the Banks consider and act on the borrower's request
for renewal of loans at maturity. Evaluation of such requests includes a review
of the borrower's credit history, the collateral securing the loan and the
purpose for such request.
13
<PAGE> 18
Risk Elements
- -------------
The following table presents information concerning the amount of loans at
December 31 that contain certain risk elements:
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Loans accounted for on a nonaccrual basis (1) $ 1,205 $ 468 $ 1,331 $ 1,155 $ 832
Loans contractually past due 90 days or
more as to principal or interest payments (2) 1,480 501 907 401 691
Loans whose terms have been renegotiated to
provide a reduction or deferral of interest or
principal because of a deterioration in the
financial position of the borrower (3)
---------- --------- --------- --------- ---------
Total $ 2,685 $ 969 $ 2,238 $ 1,556 $ 1,523
========== ========= ========= ========= =========
Impaired loans, including $627,000, $468,000
and $1,034,000 on nonaccrual basis and $-0-,
$501,000 and $186,000 contractually past due 90
days or more at December 31, 1997, 1996 and 1995. $ 1,817 $ 1,982 $ 2,338
========== ========= =========
</TABLE>
Commercial loans totaled approximately 53%, 49% and 35% of the total
nonperforming loans at December 31, 1997, 1996 and 1995. Real estate loans
totaled approximately 45%, 42% and 61% of nonperforming loans at December 31,
1997, 1996 and 1995. Commercial real estate and the personal guarantee of the
principals involved generally secure the commercial loans. Annual net
charge-offs of commercial loans have been less than $53,000 per year for the
years 1993 through 1997. Real estate loans generally have a loan to appraisal
ratio of 80% or lower. Foreclosure proceedings are begun when other collection
efforts are unsuccessful. Net charge-offs (recoveries) on real estate loans were
$(2,000) in 1997, $30,000 in 1996, $(4,000) in 1995, $37,000 in 1994, and
$163,000 in 1993.
There are no loans as of December 31, 1997, other than those disclosed above,
where known information about possible credit problems of borrowers caused
management to have serious doubts as to the ability of such borrowers to comply
with the present loan repayment terms.
No concentrations of loans exceeded 10% of total loans.
14
<PAGE> 19
(1) Loans are placed on nonaccrual status when doubt exists as to the
collectibility of the loan, including any accrued interest. With a few
immaterial exceptions, commercial and real estate loans past due 90 days
are placed on nonaccrual unless they are well collateralized and in the
process of collection. Generally, consumer loans are charged off within 30
days after becoming past due 90 days unless they are well collateralized
and in the process of collection. Credit card loans are charged off before
reaching 120 days of delinquency. Once a loan is placed on nonaccrual,
interest is then recognized on a cash basis where future collections of
principal is probable. The amount of additional interest income that would
have been recorded had all nonaccrual loans been current in accordance with
their terms is shown below:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Interest income, full accrual $ 86,000 $ 75,000 $ 151,000
Actual interest income, cash basis 39,000 13,000 51,000
----------- ----------- ------------
Interest not reported $ 47,000 $ 62,000 $ 100,000
=========== =========== ============
1997 1996 1995
---- ---- ----
Interest income on impaired loans, including interest
income recognized on a cash basis $ 133,000 $ 139,000 $ 225,000
=========== =========== ============
Interest income on impaired loans recognized on
a cash basis $ 133,000 $ 139,000 $ 225,000
=========== =========== ============
</TABLE>
(2) Excludes loans accounted for on a nonaccrual basis.
(3) Excludes loans accounted for on a nonaccrual basis and loans contractually
past due ninety days or more as to principal or interest payments.
15
<PAGE> 20
Summary of Loan Loss Experience
-------------------------------
Analysis of the Allowance for Possible Loan Losses
- --------------------------------------------------
The following table shows the daily average loan balances and changes in the
allowance for possible loan losses for the years indicated:
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Daily average amount of loans,
net of unearned income $ 215,648 $ 197,795 $ 191,030 $ 177,110 $ 153,505
============ ============= ============= ============= ==============
Allowance for possible loan
losses at beginning of year $ 2,642 $ 2,602 $ 2,390 $ 2,083 $ 2,080
Loan charge-offs:
Commercial and agricultural 18 34 94 5
Real estate mortgage 32 24 43 167
Real estate construction
Consumer 365 328 174 150 185
Credit card and other 47 51 42 27 41
------------ ------------- ------------- ------------- --------------
430 445 334 220 398
Recoveries of loans previously
charged off:
Commercial and agricultural 11 32 41 87 5
Real estate mortgage 2 2 28 6 4
Real estate construction
Consumer 121 71 73 95 63
Credit card and other 18 12 27 16 100
------------ ------------- ------------- ------------- --------------
152 117 169 204 172
------------ ------------- ------------- ------------- --------------
Net charge-offs (1) (278) (328) (165) (16) (226)
Additions to allowance charged
to expense (2) 435 368 377 323 229
------------ ------------- ------------- ------------- --------------
Allowance for possible loan
losses at end of year $ 2,799 $ 2,642 $ 2,602 $ 2,390 $ 2,083
============ ============= ============= ============= ==============
Allowance for possible loan
losses as a percent of loans
at year-end 1.25% 1.29% 1.33% 1.28% 1.30%
======== ======= ======== ======== =======
Ratio of net charge-offs during
the year to average loans
outstanding .13% .17% .09% .01% .15%
======== ======= ======== ======== =======
</TABLE>
(1) The amount of net charge-offs fluctuates from year to year due to factors
relating to the condition of the general economy and specific business
segments. Net charge-offs increased in 1997 and 1996 primarily due to an
increase in the write-off of consumer loans.
(2) The determination of the balance of the allowance for loan losses is based
on an analysis of the loan portfolio and reflects an amount that, in
management's judgment, is adequate to provide for probable loan losses.
Such analysis is based on a review of specific loans, the character of the
loan portfolio, current economic conditions, past loan loss experience and
such other factors as management believes require current recognition in
estimating probable loan losses.
16
<PAGE> 21
Allocation of Allowance for Possible Loan Losses
- ------------------------------------------------
The following table allocates the allowance for possible loan losses at December
31 to each loan category. The allowance has been allocated according to the
amount deemed to be reasonably necessary to provide for the probable losses
estimated to be incurred within the following categories of loans at the dates
indicated:
<TABLE>
<CAPTION>
1997 1996
---- ----
Percentage Percentage
of loans to of loans to
(Dollars in thousands) Allowance total loans Allowance total loans
---------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
Commercial and agricultural $ 710 20.9% $ 691 20.4%
Real estate mortgage 315 60.1 146 63.7
Real estate construction 1.2 1.0
Consumer 352 17.1 222 14.2
Credit card and other 15 .7 11 .7
Unallocated 1,407 1,572
----------- -------- ----------- -------------
$ 2,799 100.0% $ 2,642 100.0%
=========== ======== =========== =============
1995 1994
---- ----
Percentage Percentage
of loans to of loans to
Allowance total loans Allowance total loans
--------- ----------- --------- -----------
Commercial and agricultural $ 703 22.9% $ 408 24.2%
Real estate mortgage 418 61.3 315 61.4
Real estate construction .6
Consumer 308 14.7 285 13.7
Credit card and other 11 .5 67 .7
Unallocated 1,162 1,315
----------- -------- ----------- -----------
$ 2,602 100.0% $ 2,390 100.0%
========== ======== =========== =======
1993
Percentage
of loans to
Allowance total loans
--------- -----------
Commercial and agricultural $ 341 26.7%
Real estate mortgage 336 57.8
Real estate construction
Consumer 248 14.4
Credit card and other 58 1.1
Unallocated 1,100
----------- ----------
$ 2,083 100.0%
=========== ==========
</TABLE>
17
<PAGE> 22
The adequacy of the allowance for possible loan losses is determined based on an
analysis of specific credits which are generally selected based on size and
relative risk, portfolio trends, current and historical loss experience,
prevailing economic conditions and other relevant factors. While the allocation
of the allowance has been based on the results of specific credit analysis and
historical charge-off experience, the allowance is available to absorb losses
from any segment of the portfolio. The increase in the allowance and the
unallocated portion since 1993 resulted from average total loans increasing 40%
from $153,505,000 in 1993 to $215,648,000 in 1997.
Deposits
- --------
The average daily amount of deposits (all in domestic offices) and average rates
paid on such deposits is summarized for the years indicated:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------ -------------------------- --------------------------
Average Average Average Average Average Average
balance rate paid balance rate paid balance rate paid
------- --------- ------- --------- ------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing
demand deposits $ 29,249 N/A $ 25,900 N/A $ 26,264 N/A
Interest-bearing demand
deposits 35,165 2.15% 26,311 2.02% 24,584 2.07%
Savings, including Money
Market deposit accounts 88,025 2.81 93,138 2.81 98,214 2.79
Time deposits 100,115 5.21 92,434 5.20 90,455 5.10
------------ ------------ ------------
$ 252,554 $ 237,783 $ 239,517
============ ============ ============
</TABLE>
Maturities of certificates of deposits and individual retirement accounts of
$100,000 or more outstanding at December 31, 1997 are summarized as follows:
<TABLE>
<CAPTION>
Individual
Certificates Retirement
of Deposits Accounts Total
----------- -------- -----
(Dollars in thousands)
<S> <C> <C> <C>
3 months or less $ 2,945 $ 2,945
Over 3 through 6 months 4,223 $ 137 4,360
Over 6 through 12 months 8,640 259 8,899
Over 12 months 1,542 283 1,825
----------- ---------- -----------
$ 17,350 $ 679 $ 18,029
=========== ========== ===========
</TABLE>
Short-term Borrowings
- ---------------------
No short-term borrowings were outstanding in 1997, 1996 or 1995 for which the
average balance exceeded thirty percent of shareholders' equity at the end of
any year.
18
<PAGE> 23
Return on Equity and Assets
- ---------------------------
The ratio of net income to daily average total assets, average shareholders'
equity and certain other ratios, are as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Percentage of net income to:
Average total assets 1.09% 1.32% 1.23%
Average shareholders' equity 9.80 11.52 11.34
Percentage of dividends declared per common share
to net income per common share 94.69 78.46 59.01
Percentage of average shareholders' equity to average total assets 11.14 11.47 10.85
</TABLE>
ITEM 2. PROPERTIES
- -------------------
The Corporation neither owns nor leases any properties. The Citizens Banking
Company maintains its main office at 100 East Water Street, Sandusky, Ohio,
which is also the office of the Corporation. Citizens also owns and operates
three branch banking offices in Perkins Township (Sandusky, Ohio), and one
branch banking office in Berlin Heights, Ohio. The Castalia Banking Company owns
its main office located at 208 South Washington Street, Castalia, Ohio. SCC
Resources, Inc. owns its processing center located at 1845 Superior Street,
Sandusky, Ohio; leases offices in downtown Sandusky, Ohio and leases a
storefront for its retail operations in Perkins Township (Sandusky, Ohio). R. A.
Reynolds Appraisal Services, Inc. leases offices in downtown Sandusky, Ohio.
The Corporation has two wholly owned subsidiary banks, a wholly owned data
processing company subsidiary and a wholly owned real estate appraisal company
subsidiary.
ITEM 3. LEGAL PROCEEDINGS
- -------------------------
Corporation management is aware of no pending or threatened litigation in which
the Corporation or its subsidiaries face potential loss or exposure that will
materially affect the consolidated financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -----------------------------------------------------------
No matters were submitted during the fourth quarter of the fiscal year covered
by this report to a vote of security holders through the solicitation of proxies
or otherwise.
19
<PAGE> 24
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- -----------------------------------------------------------------------------
The Corporation has no established public trading market for its common stock.
On March 21, 1994, shareholders of the Corporation were notified that the
brokerage firms of Kemper Securities, Merrill Lynch, McDonald & Company and The
Ohio Company would handle the sale and purchase of the Corporation's stock.
However, such firms are not "market makers" of such stock since they do not
purchase and hold for investment purposes any such shares. Information below is
the range of sale prices as reported by the brokerage firms.
<TABLE>
<CAPTION>
1997
----
First Quarter Second Quarter Third Quarter Fourth Quarter
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
$30.11 to $33.56 $34.31 to $35.50 $35.75 to $37.19 $38.00 to $39.16
1996
----
First Quarter Second Quarter Third Quarter Fourth Quarter
------------- -------------- ------------- --------------
$19.88 to $20.25 $20.25 to $22.25 $22.81 to $26.38 $26.63 to $28.63
</TABLE>
The Corporation has no outstanding options or warrants to purchase shares of its
common stock or securities convertible into shares of common stock.
The number of holders of record of the Corporation's common stock at December
31, 1997 was 584.
Dividends per share declared by the Corporation on common stock were as follows
as retroactively restated for the effect of the 4-for-1 stock split paid in the
form of a 300% stock dividend approved April 16, 1996.
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
February $ .14 $ .12
May .14 .13
August .14 .13
November .65 .64
-------- -------
$ 1.07 $ 1.02
======== =======
</TABLE>
20
<PAGE> 25
ITEM 6. SELECTED FINANCIAL DATA
- -------------------------------
Five-Year Selected Consolidated Financial Data
- ----------------------------------------------
The following table sets forth certain selected consolidated financial
information of First Citizens Banc Corp and subsidiaries, and is qualified in
its entirety by reference to the detailed information and financial statements
of the Corporation included in Item 8 hereof.
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statements of income:
Total interest income $ 22,798 $ 21,808 $ 21,665 $ 20,031 $ 19,418
Total interest expense 9,810 9,251 9,246 7,949 7,905
------------ ------------- ------------ ------------ ------------
Net interest income 12,988 12,557 12,419 12,082 11,513
Provision for loan losses 435 368 377 323 229
------------ ------------- ------------ ------------ ------------
Net interest income after
provision for loan losses 12,553 12,189 12,042 11,759 11,284
Security gains (losses) (1) 214 53 (221) (700)
Other noninterest income 3,798 3,357 2,957 2,350 2,337
------------ ------------- ------------ ------------ ------------
Total noninterest income 4,012 3,410 2,736 2,350 1,637
Total noninterest expenses 11,839 10,089 9,784 9,329 8,360
------------ ------------- ------------ ------------ ------------
Income before federal
income taxes 4,726 5,510 4,994 4,780 4,561
Federal income tax expense 1,292 1,545 1,312 1,122 1,006
------------ ------------- ------------ ------------ ------------
Net income $ 3,434 $ 3,965 $ 3,682 $ 3,658 $ 3,555
============ ============= ============ ============ ============
Per share of common stock (2):
Net income $ 1.13 $ 1.30 $ 1.21 $ 1.20 $ 1.16
Dividends 1.07 1.02 .71 .41 .36
Book value 11.42 11.28 11.08 10.46 9.67
Average common shares
outstanding (2) 3,051,504 3,051,504 3,051,504 3,051,504 3,051,504
Year-end balances:
Loans, net $ 221,758 $ 202,485 $ 193,267 $ 183,552 $ 158,388
Securities 65,206 68,761 74,447 82,795 95,318
Total assets 325,923 302,778 304,062 302,951 288,725
Deposits 265,003 240,498 242,342 244,104 245,486
Borrowings 24,281 26,218 25,543 25,650 12,616
Shareholders' equity 34,848 34,427 33,807 31,910 29,511
Average balances:
Loans, net $ 212,906 $ 195,157 $ 188,523 $ 174,903 $ 151,364
Securities 67,455 71,683 78,202 93,636 92,083
Total assets 314,501 300,072 299,379 300,402 284,321
Deposits 252,554 237,783 239,517 241,404 241,109
Borrowings 24,537 25,232 25,124 24,297 11,507
Shareholders' equity 35,051 34,430 32,483 30,603 28,377
</TABLE>
21
<PAGE> 26
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Selected ratios:
Net yield on average interest-
earning assets 4.44% 4.47% 4.45% 4.33% 4.35%
Return on average total assets 1.09 1.32 1.23 1.22 1.25
Return on average shareholders'
equity 9.80 11.52 11.34 11.95 12.53
Average shareholders' equity
as a percent of average total
assets 11.14 11.47 10.85 10.19 9.98
Net loan charge-offs as a percent
of average loans .13 .17 .09 .01 .15
Allowance for possible loan losses
as a percent of loans at year-end 1.25 1.29 1.33 1.28 1.30
Shareholders' equity as a percent
of total year-end assets 10.69 11.37 11.12 10.53 10.22
</TABLE>
(1) Other-than-temporary declines in the values of a security of $226,000 and
$700,000 were recorded during 1995 and 1993 respectively. Partial
recoveries of $214,000 and $39,000 were received in 1997 and 1996.
(2) Restated for 1996 stock split.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
- -------------------------------------------------------------------
AND RESULTS OF OPERATIONS - AS OF DECEMBER 31, 1997 AND DECEMBER 31, 1996
-------------------------------------------------------------------------
AND FOR THE YEARS ENDING DECEMBER 31, 1997, 1996 AND 1995
---------------------------------------------------------
General
- -------
At December 31, 1997, total assets were $325,923,000 compared to $302,778,000 at
December 31, 1996. Net income for the year ended December 31, 1997 totaled
$3,434,000 or $1.13 per common share. This is a 13.3% decrease compared to 1996
net income of $3,965,000 or $1.30 per common share. Earnings for 1995 were
$3,682,000 or $1.21 per common share.
On October 3, 1996, Citizens entered an agreement with EST National Bank for the
acquisition of banking offices in Sandusky, Ohio and Berlin Heights, Ohio and
the assumption of $14,577,000 in deposits of the two banking offices. With the
settlement of the transaction in January 1997, Citizens took possession of the
properties and assumed the deposits. The value of properties and equipment was
$956,000 and a deposit premium of 10.25% or $1,494,000 was paid. The transaction
gives Citizens a presence in the southeast area of its market and a facility in
the expanding commercial area along U.S. Route 250.
The following paragraphs more fully discuss the significant highlights, changes
and trends as they relate to the Corporation's financial condition, results of
operations, liquidity and capital resources as of December 31, 1997 and 1996,
and during the three-year period ended December 31, 1997. This discussion should
be read in conjunction with the consolidated financial statements and notes to
consolidated financial statements, which are included elsewhere in this report.
22
<PAGE> 27
Loans, Deposits, Borrowings, Securities and Stockholders' Equity
- ----------------------------------------------------------------
Total loans increased $19,430,000, or 9.5%, from 1996 to 1997. Consumer loans
experienced the greatest growth, increasing $9,389,000, or 32.1%, over 1996 to a
total of $38,621,000. Commercial and agricultural loans increased $5,005,000, or
11.9%, from 1996 to a total of $47,043,000. Real estate mortgages increased by
$4,144,000, or 3.1%, from 1996 to 1997 to a total of $135,636,000.
After two years of heavy demand, the market for conventional real estate
mortgages softened through most of 1997, beginning to increase at the end of the
year. In 1997, the Banks became involved in selling mortgages on the secondary
market. In addition to the $4,144,000 increase in real estate mortgages in 1997,
the Banks sold newly originated mortgages totaling $2,201,000. In general,
30-year fixed-rate loans are being sold in order to reduce interest rate risk.
Many commercial loans and lines of credit are cyclical, depending on the type of
business. However, additional calling and marketing efforts have been made in
the commercial loan area to increase the Corporation's share of the commercial
market.
Increased consumer demand coupled with the Corporation's increasing
competitiveness on rates on new cars and home improvement lending resulted in
consumer lending growth of $9,389,000, or 32.1%, from 1996 to 1997 and totaled
$38,621,000 at December 31, 1997. The Corporation, through its more competitive
pricing as well as increasing marketing efforts, generated $4,191,000 of
installment loans secured by second mortgages in 1997. Also, in 1997, the
Corporation generated $4,722,000 of consumer loans not secured by real estate,
much of which were secured by vehicles.
Average deposit balances for 1997 were $252,554,000, compared to $237,783,000
for 1996, an increase of $14,771,000, or 6.2%. The deposit growth is mainly
attributed to the deposits acquired in the purchase of two EST First Merit
branches. Deposit growth outside of the branch acquisition has been limited as a
result of increased competition for deposit dollars from traditional and
nontraditional financial service providers and increasingly sophisticated
consumers utilizing alternatives to traditional banking deposits.
Noninterest-bearing deposits averaged $29,249,000 for 1997 compared to
$25,900,000 for 1996, increasing $3,349,000, or 12.9%. Savings, NOW, and MMIA
accounts averaged $123,190,000 for 1997 compared to $119,449,000 for 1996.
Average time deposits increased $7,681,000 to a total average balance of
$100,115,000 for 1997.
Borrowings from the Federal Home Loan Bank of Cincinnati decreased from
$15,672,000 at December 31, 1996 to $14,488,000 at December 31, 1997. This
decrease of $1,184,000 was a result of scheduled paydowns on previous advances.
The Corporation had no new advances from the Federal Home Loan Bank in 1997 as
the cash received from the branch purchase provided sufficient liquidity.
The Banks offer repurchase agreements in the form of sweep accounts to
commercial checking account customers. At December 31, 1997, total repurchase
agreements in the form of sweep accounts totaled $6,879,000. This compares to
$9,157,000 at December 31, 1996. The securities pledged as collateral for the
repurchase agreements are United States Treasury Notes maintained under the
Banks' control.
Securities decreased $3,555,000, or 5.2%, from $68,761,000 on December 31, 1996
to $65,206,000 on December 31, 1997. This decrease provided additional funding
for increased loan demand for the same period.
23
<PAGE> 28
Securities held to maturity at December 31, 1997, had unrealized gains of
approximately $67,000 and unrealized losses of approximately $8,000. Since
management intends to hold this portion of the portfolio to maturity, the
unrealized gains and losses have no impact on operations of the Corporation.
Securities available for sale had an estimated fair value at December 31, 1997
of $58,469,000. This fair value includes unrealized gains of approximately
$693,000 and unrealized losses of approximately $63,000. The effect of the
unrealized gains and losses on securities available for sale, net of deferred
taxes, was a positive adjustment to shareholders' equity of $416,000.
Mortgage-backed securities totaled $2,783,000 at December 31, 1997 and none are
considered unusual or "high risk" securities as defined by regulating
authorities. Of this total, $531,000 are pass-through securities issued by the
Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage
Corporation (FHLMC); $1,990,000 are CMOs and REMICs issued by FNMA and FHLMC;
and $262,000 are privately issued and are collateralized by mortgage-backed
securities issued or guaranteed by FNMA, FHLMC, or GNMA. The average interest
rate of the portfolio at December 31, 1997 was 6.6%. Also, 9.4% of the December
31, 1997 portfolio, or $262,000, are floating rate securities adjusting at least
quarterly. The average maturity at December 31, 1997 was approximately 26
months. The Corporation has not invested in any derivative securities such as
step-ups, multi-steps or dual index floaters.
Total shareholders' equity increased $421,000, or 1.2%, during 1997 to
$34,848,000. The ratio of total shareholders' equity to total assets was 10.7%
in 1997 and 11.4% in 1996. The decrease in this ratio is a result of
management's strategy of increasing dividend payments to better leverage
shareholders' equity as long as retention of earnings is not necessary to
support asset growth.
Net Interest Income
- -------------------
Net interest income for 1997 was $12,988,000, an increase of $431,000, or 3.4%,
over 1996. Net interest income was $12,557,000 in 1996, an increase of $138,000,
or 1.1%, over 1995. The increase in the net interest income for 1997 was the net
result of an increase in interest income of $990,000 less an increase in
interest expense of $559,000.
Total interest income increased $990,000, or 4.3%, for 1997 compared to an
increase of $143,000, or 0.7%, for 1996. This increase in the growth of interest
income can be attributed to an increase in average interest earning assets from
$279,135,000 to $292,648,000, or $13,513,000 between 1996 and 1997. The increase
in volume of average interest earning assets offset a decrease in the average
yield on earning assets of two basis points, from 7.82% in 1996 to 7.80% in
1997. The increase in interest income for 1996 is primarily a result of a shift
in asset mix from securities to loans, which provide a higher yield.
Total interest expense increased $559,000, or 6.0%, for 1997 compared to an
increase of $5,000, or 0.1%, in 1996. The increase in interest expense can be
attributed to an increase in average interest-bearing liabilities from
$237,115,000 to $247,842,000, or $10,727,000 from 1996 to 1997. Interest expense
for 1996 compared to 1995 reflected no significant change as both the average
balance and the average yield of interest bearing liabilities remained
relatively constant.
Refer to "Distribution of Assets, Liabilities and Shareholders' Equity, Interest
Rates and Interest Differential" and "Changes in Interest Income and Interest
Expense Resulting from Changes in Volume and Changes in Rate" for further
analysis of the impact of changes in interest-bearing assets and liabilities on
the Corporation's net interest income.
24
<PAGE> 29
Allowance for Possible Loan Losses
- ----------------------------------
The following table contains information relating to the provision for loan
losses, activity in and analysis of the allowance for possible loan losses for
the three-year period ended December 31, 1997:
<TABLE>
<CAPTION>
As of and for the year ended December 31,
-----------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net loan charge-offs $ 278,000 $ 328,000 $ 165,000
Provision for loan losses charged to expense 435,000 368,000 377,000
Provision for loan losses more than net loan
charge-offs 157,000 40,000 212,000
Net loan charge-offs as a percent of average
outstanding loans .13% .17% .09%
Allowance for possible loan losses $ 2,799,000 $ 2,642,000 $ 2,602,000
Allowance for possible loan losses as a percent
of year-end outstanding loans 1.25% 1.29% 1.33%
Allowance for possible loan losses as a percent
of impaired loans 154.05 133.30 111.29
Impaired loans $ 1,817,000 $ 1,982,000 $ 2,338,000
Impaired loans as a percent of gross
year-end loans .81% .97% 1.19%
Nonaccrual and 90 days or more past due loans
as a percent of gross year-end loans 1.20 .47 1.14
</TABLE>
The Corporation's policy is to maintain the allowance for possible loan losses
at a level to provide for reasonably foreseeable losses. Management's periodic
evaluation of the adequacy of the allowance is based on past loan loss
experience, known and inherent risks in the portfolio, adverse situations that
may affect the borrower's ability to repay, the estimated value of any
underlying collateral and current economic conditions.
Statement of Financial Accounting Standards Nos. 114 and 118 were effective
January 1, 1995 and require recognition of loan impairment. Loans are considered
impaired if full principal or interest payments are not anticipated. Impaired
loans are carried at the present value of expected cash flows discounted at the
loan's effective interest rate or at the fair value of collateral if the loan is
collateral dependent. A portion of allowance for loan losses is allocated to
impaired loans. The effect of adopting these standards is included in the 1995
provision for loan losses and was not material.
Management analyzes commercial and commercial real estate loans on an individual
basis and classifies a loan as impaired when an analysis of the borrower's
operating results and financial condition indicates that underlying cash flows
are not adequate to meet its debt service requirements. Often this is associated
with a delay or shortfall in payments of 90 days or more. Smaller-balance
homogeneous loans are evaluated for impairment in total. Such loans include
residential first mortgage loans secured by one- to four-family residences,
residential construction loans and consumer automobile, boat, home equity and
credit card loans with balances less than $300,000. In addition, loans held for
sale and leases are excluded from consideration as impaired. Loans are generally
moved to nonaccrual status when 90 days or more past due. These loans are also
often considered impaired. Impaired loans, or portions thereof, are charged off
when deemed uncollectible.
25
<PAGE> 30
Noninterest Income
- ------------------
Noninterest income totaled $4,012,000 in 1997 compared to $3,410,000 in 1996 and
$2,736,000 in 1995. Income from the data processing and computer services
division totaled $2,191,000 for 1997, a 4.7% increase over 1996 income of
$2,092,000. Income for this division for 1995 was $1,806,000.
Service charges on deposit accounts totaled $531,000 in 1997, an increase of
$46,000, or 9.5%, over 1996 income of $485,000. This compares to service charge
income of $445,000 in 1995. Additional services and account features have been
introduced to generate increased noninterest income from the deposit accounts of
the Banks. In addition, service charges are reviewed annually to ensure
reasonable compensation for the services provided. 1997 also included service
charges on the accounts acquired from EST National Bank.
Other noninterest income totaled $1,016,000 in 1997 compared to $780,000 in 1996
and $706,000 in 1995. Increases in other noninterest income are a result of
additional products and services introduced to generate noninterest income. 1997
noninterest income increased $236,000, or 30.2%, from 1996. The increase is
mainly attributed to three areas: Brokerage fees, ATM fee income and Credit Card
Merchant fees. Brokerage fees increased $50,000 in 1997 due to increased volume.
With the purchase of EST National Bank branches, the Corporation acquired three
additional ATMs. The additional volume of the new ATMs, combined with an ATM
surcharge instituted in January of 1997, led to an increase in fee income of
$65,000. Also, in 1997, fees charged to credit card merchants were increased.
The increase in fees, coupled with an increase in the number of credit card
merchants, led to an increase in fee income of $84,000.
For 1997, the Corporation received $214,000 in payments against a previously
written off investment security. As a result of the filing of bankruptcy by the
Towers Financial Corporation (parent company) in 1993, the Corporation
determined that an other than temporary decline in the value of Tower Healthcare
Receivables Corp. bonds had occurred. Accordingly, a $700,000 writedown in the
cost of those bonds was made in 1993, and a writedown of $226,000 was made in
1995. The carrying value of these securities was $ -0- at December 31, 1997 and
1996.
Noninterest Expense
- -------------------
Noninterest expense totaled $11,839,000 in 1997, an increase of $1,750,000, or
17.3%, over 1996. Noninterest expense increased $305,000, or 3.1%, in 1996 as
compared to 1995. The following discussion highlights the significant items that
resulted in increases or decreases in the components of noninterest expense.
Salaries, wages and benefits totaled $5,917,000 in 1997, compared to $5,246,000
in 1996 and $5,071,000 in 1995. Salary increases totaled $556,000 in 1997
compared to 1996, and $97,000 in 1996 compared to 1995. Increases in benefits
totaled $115,000 in 1997 compared to 1996 and $78,000 in 1996 compared to 1995.
The increase for 1997 relates primarily to employees of the two branches
purchased in early 1997.
Net occupancy expense totaled $564,000 in 1997, compared to $546,000 in 1996 and
$548,000 in 1995. The increase in occupancy expense 1997 was also due to the
acquisition of two branches from EST First Merit.
Equipment expense totaled $813,000 in 1997, compared to $630,000 in 1996 and
$565,000 in 1995. Increases in 1997 of $183,000 are attributed to additional
equipment at the two acquired branches, as well as additional image processing
equipment at SCC Resources.
26
<PAGE> 31
FDIC premiums totaled $31,000 in 1997, compared to $3,000 in 1996 and $284,000
in 1995. Changes in the premium rate by the FDIC resulted in the decreases from
1995 to 1996. The increase in FDIC premiums of $28,000 from 1996 to 1997 is a
result of changes in the assessment calculation in the Deposit Insurance Fund
Act of 1996 as well as higher deposit balances.
State of Ohio Franchise taxes were $436,000 in 1997, compared to $419,000 in
1996 and $438,000 in 1995. The franchise taxes are based on the capital
positions of the Banks. The current dividend policy of the Banks, combined with
a lack of growth, results in a relatively constant capital position of the Banks
and hence little changes in the amount of the franchise tax.
Professional fees represent legal, audit and outside consulting fees paid by the
Corporation. Professional fees totaled $641,000 in 1997, compared to $331,000 in
1996 and $309,000 in 1995. Increases in these fees represent the additional
consulting costs involved in the acquisition of the EST First Merit branches by
Citizens, as well as consulting costs involved in the planned acquisition of The
Farmers State Bank of New Washington, scheduled for completion early in the
second quarter of 1998.
Amortization of intangible assets increased $125,000 in 1997. The increase is
attributed to the amortization of the deposit premium paid to EST National Bank
in the acquisition of two branches. The premium paid was 10.25% or $1,494,000
and is being amortized on a straight-line method over 12 years.
Other operating expenses totaled $3,112,000 in 1997 compared to $2,711,000 in
1996 and $2,367,000 in 1995. Increases in 1997 over 1996 represent increased
expenditures in advertising, marketing, and employee education and training in
customer service and cross selling.
Income Tax Expense
- ------------------
Income before federal income taxes amounted to $4,727,000 in 1997, $5,510,000 in
1996 and $4,994,000 in 1995. The Corporation's effective income tax rate was
27.3% in 1997 compared to 28.0% in 1996 and 26.3% in 1995. The effective tax
rate has increased since 1995 due to the Banks having less tax-exempt income on
state and municipal securities and political subdivision loans.
Liquidity and Capital Resources
- -------------------------------
The Banks maintain a conservative liquidity position. Liquidity is evidenced by
1997 year-end balances of $10,400,000 in federal funds sold and by approximately
$58,469,000 in securities available for sale. Additionally, Citizens received
$12,154,000 in cash in January 1997 with the settlement of two branch purchases
from EST National Bank. The Consolidated Statements of Cash Flows contained in
the consolidated financial statements detail the Corporation's cash flows from
operating activities resulting from net earnings.
Cash provided by operations for 1997 was $4,001,000. This includes earnings of
$3,434,000 plus net adjustments of $567,000 to reconcile net earnings to net
cash provided by operations. From the cash generated from operations,
$18,169,000 was the net amount used in investing activities. This includes loans
made to customers net of principal payments received. Cash from financing
activities for 1997 totaled $16,881,000. This includes the settlement of two
branch purchases, the net change in deposits, repayments of FHLB borrowings and
the payments of dividends. Cash generated by operating activities and financing
activities exceeded cash used by investing activities by $2,713,000, which
resulted in an increase in cash and due from banks to $14,328,000.
Future loan demand of the Banks can be funded by proceeds from payments on
existing loans, the maturity of securities, the sale of securities classified as
available for sale and the use of excess funds invested in the federal funds
market. Additional sources of funds may also come from borrowing in the federal
funds market and/or borrowing from the Federal Home Loan Bank.
27
<PAGE> 32
On a separate entity basis, the Corporation's only source of funds is dividends
paid primarily by the subsidiary Banks. The ability of the Banks to pay
dividends is subject to limitations under various laws and regulations, and to
prudent and sound banking principles. Generally, subject to applicable minimum
capital requirements, the Banks may declare a dividend without the approval of
the State of Ohio Division of Financial Institutions, provided the total
dividends in a calendar year do not exceed the total of its profits for that
year combined with its retained profits for the two preceding years. The amount
of unrestricted dividends available to be paid by the Banks to the Corporation
was approximately $1,166,000 at December 31, 1997. Management believes the
future earnings of the Banks will be sufficient to support anticipated asset
growth at the Banks and provide funds to the Corporation to continue dividends
at their current level.
Capital Adequacy
- ----------------
The Corporation's policy is, and always has been, to maintain its capital levels
above the minimum regulatory standards. Under the regulatory capital standards,
total capital has been defined as tier I (core) capital and tier II
(supplementary) capital. The Corporation's tier I capital includes shareholders'
equity (net of unrealized security gains) and tier II capital includes the
allowance for possible loan losses. The definition of assets has also been
modified to include items both on and off the balance sheet. Each item is then
assigned a risk weight or risk adjustment factor to determine ratios of capital
to risk adjusted assets. The standards require that total capital (tier I plus
tier II) be a minimum of 8% of risk adjusted assets, with at least 4% being in
tier I capital. The Corporation's ratios as of December 31, 1997 and 1996 were
19.3% and 22.2% respectively for total capital, and 18.1% and 20.8% respectively
for tier I capital.
Additionally, the Federal Reserve Board has adopted minimum leverage-capital
ratios. These standards were established to supplement the previously issued
risk based capital standards. The leverage ratio standards use the existing tier
I capital definition but the ratio is applied to average total assets instead of
risk adjusted assets. The standards require that tier I capital be a minimum of
4% of total average assets for high rated entities such as the Corporation. The
Corporation's leverage ratio was 9.7% and 10.6% at December 31, 1997 and 1996.
On July 3, 1997, the Corporation entered a definitive agreement to acquire The
Farmers State Bank of New Washington, Ohio. This agreement , as amended,
specifies that the Corporation will issue 6.06 shares of the Corporation's
common stock for each of the 200,000 shares of Farmers outstanding. The merger
is subject to the approval of both companies' regulatory agencies and the
shareholders of both Farmers and First Citizens Bank Corp. The transaction is
also subject to use of the pooling of interest method of accounting. Pending
various approvals, the merger is expected to close sometime in the early part of
the second quarter of 1998. See Note 16 of the consolidated financial statements
for further information regarding the proposed merger.
Effects of Inflation
- --------------------
The Corporation's balance sheet is typical of financial institutions and
reflects a net positive monetary position whereby monetary assets exceed
monetary liabilities. Monetary assets and liabilities are those which can be
converted to a fixed number of dollars and include cash assets, securities,
loans, money market instruments, deposits and borrowed funds.
During periods of inflation, a net positive monetary position may result in an
overall decline in purchasing power of an entity. No clear evidence exists of a
relationship between the purchasing power of an entity's net positive monetary
position and its future earnings. Moreover, the Corporation's ability to
preserve the purchasing power of its net positive monetary position will be
partly influenced by the effectiveness of its asset/liability management
program. Management does not believe that the effect of inflation on its
nonmonetary assets (primarily bank premises and equipment) is material as such
assets are not held for resale and significant disposals are not anticipated.
28
<PAGE> 33
Fair Value of Financial Instruments
- -----------------------------------
The Corporation disclosed the estimated fair value of its financial instruments
at December 31, 1997 and 1996 in Note 15 to the consolidated financial
statements. The fair value of the Corporation's financial instruments generally
increased relative to their carrying values during 1997 as compared to 1996. The
fair value of loans at December 31, 1997 was 100.0% of the carrying value
compared to 99.5% at December 31, 1996. The fair value of securities held to
maturity at December 31, 1997 was 100.9% compared to 101.6% at December 31,
1996. The fair value of deposits at December 31, 1997 was 100.3% of the carrying
value, compared to 100.1% at December 31, 1996.
Year 2000
- ---------
The Corporation has been aware of the potential impact of the Year 2000 on data
processing and technology. The Corporation's data processing subsidiary, SCC, is
totally dependent on its ability to process for the Corporation's subsidiary
banks and other banking customers. SCC developed a Year 2000 project plan which
was introduced in May 1997. This project plan has outlined the approach to the
Year 2000 as being 1) an initial planning phase, 2) an assessment phase, 3) a
strategy phase, and 4) an overall testing phase. Management of SCC has made the
commitment that processing applications classified as high priority and
determined to be essential for the ongoing operation of the Banks and banking
customers will be Year 2000 compatible by December 31, 1998. Other processing
applications having lesser priority or where date calculations have no impact
will be Year 2000 compliant by June 30, 1999. SCC communicates monthly with its
customer banks on the status of its Year 2000 project.
The board of directors of both Citizens and Castalia have named Year 2000
coordinators. Both Banks have conducted assessments to identify hardware,
software and other processes that may be affected by the Year 2000 date change
and that are not included in services provided to the Banks by SCC. Throughout
1998, additional efforts are planned to renovate or replace functions determined
by the assessment to not be Year 2000 compliant.
In addition to the impact on its own systems by the Year 2000, the Banks have
recognized that borrowing customers could be impacted by the Year 2000 and that
impact could impair the customers' ability to meet their obligations. The Banks
are communicating to significant borrowers the need to evaluate their systems.
Management recognizes that costs are associated with the Year 2000 efforts, but
does not believe that these costs will materially affect the operations,
liquidity, or capital resources of the Corporation.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- -------------------------------------------------------------------
The Corporation's primary market risk exposure is interest-rate risk and, to a
lesser extent, liquidity risk. All of the Corporation's transactions are
denominated in U.S. dollars with no specific foreign exchange exposure.
Interest-rate risk (IRR) is the exposure of a banking organization's financial
condition to adverse movements in interest rates. Accepting this risk can be an
important source of profitability and shareholder value. However, excessive
levels of IRR can pose a significant threat to the Corporation's earnings and
capital base. Accordingly, effective risk management that maintains IRR at
prudent levels is essential to the Corporation's safety and soundness.
29
<PAGE> 34
Evaluating a financial institution's exposure to changes in interest rates
includes assessing both the adequacy of the management process used to control
IRR and the organization's quantitative level of exposure. When assessing the
IRR management process, the Corporation seeks to ensure that appropriate
policies, procedures, management information systems and internal controls are
in place to maintain IRR at prudent levels with consistency and continuity.
Evaluating the quantitative level of IRR exposure requires the Corporation to
assess the existing and potential future effects of changes in interest rates on
its consolidated financial condition, including capital adequacy, earnings,
liquidity and, where appropriate, asset quality.
The Federal Reserve Board, together with the Office of the Comptroller of the
Currency and the Federal Deposit Insurance Corporation, adopted a Joint Agency
Policy Statement on Interest-Rate Risk, effective June 26, 1996. The policy
statement provides guidance to examiners and bankers on sound practices for
managing interest-rate risk, which will form the basis for ongoing evaluation of
the adequacy of interest-rate risk management at supervised institutions. The
policy statement also outlines fundamental elements of sound management that
have been identified in prior Federal Reserve guidance and discusses the
importance of these elements in the context of managing interest-rate risk.
Specifically, the guidance emphasizes the need for active board of director and
senior management oversight and a comprehensive risk-management process that
effectively identifies, measures, and controls interest-rate risk. Financial
institutions derive their income primarily from the excess of interest collected
over interest paid. The rates of interest an institution earns on its assets and
owes on its liabilities generally are established contractually for a period of
time. Since market interest rates change over time, an institution is exposed to
lower profit margins (or losses) if it cannot adapt to interest-rate changes.
For example, assume that an institution's assets carry intermediate- or
long-term fixed rates and that those assets were funded with short-term
liabilities. If market interest rates rise by the time the short-term
liabilities must be refinanced, the increase in the institutions interest
expense on its liabilities may not be sufficiently offset if assets continue to
earn at the long-term fixed rates. Accordingly, an institution's profits could
decrease on existing assets because the institution will either have lower net
interest income or, possibly, net interest expense. Similar risks exist when
assets are subject to contractual interest-rate ceilings, or rate sensitive
assets are funded by longer-term, fixed-rate liabilities in a decreasing-rate
environment.
Several techniques may be used by an institution to minimize interest-rate risk.
One approach used by the Corporation is to periodically analyze its assets and
liabilities and make future financing and investment decisions based on payment
streams, interest rates, contractual maturities, and estimated sensitivity to
actual or potential changes in market interest rates. Such activities fall under
the broad definition of asset/liability management. The Corporation's primary
asset/liability management technique is the measurement of the Corporation's
asset/liability gap, that is, the difference between the cash flow amounts of
interest-sensitive assets and liabilities that will be refinanced (or repriced)
during a given period. For example, if the asset amount to be repriced exceeds
the corresponding liability amount for a certain day, month, year, or longer
period, the institution is in an asset-sensitive gap position. In this
situation, net interest income would increase if market interest rates rose or
decrease if market interest rates fell. If, alternatively, more liabilities than
assets will reprice, the institution is in a liability-sensitive position.
Accordingly, net interest income would decline when rates rose and increase when
rates fell. Also, these examples assume that interest-rate changes for assets
and liabilities are of the same magnitude, whereas actual interest-rate changes
generally differ in magnitude for assets and liabilities.
30
<PAGE> 35
Several ways an institution can manage interest-rate risk include selling
existing assets or repaying certain liabilities; matching repricing periods for
new assets and liabilities, for example, by shortening terms of new loans or
securities; and hedging existing assets, liabilities, or anticipated
transactions. An institution might also invest in more complex financial
instruments intended to hedge or otherwise change interest-rate risk.
Interest-rate swaps, futures contracts, options on futures, and other such
derivative financial instruments often are used for this purpose. Because these
instruments are sensitive to interest-rate changes, they require management
expertise to be effective. Financial institutions are also subject to prepayment
risk in falling rate environments. For example, mortgage loans and other
financial assets may be prepaid by a debtor so that the debtor may refund its
obligations at new, lower rates. The Corporation has not purchased derivative
financial instruments in the past and does not intend to purchase such
instruments in the near future. Prepayments of assets carrying higher rates
reduce the Corporation's interest income and overall asset yields. A large
portion of an institution's liabilities may be short term or due on demand,
while most of its assets may be invested in long-term loans or securities.
Accordingly, the Corporation seeks to have in place sources of cash to meet
short-term demands. These funds can be obtained by increasing deposits,
borrowing, or selling assets. Also, FHLB advances and wholesale borrowings may
also be used as important sources of liquidity for the Corporation.
The following table provides information about the Corporation's financial
instruments that are sensitive to changes in interest rates as of December 31,
1997, based on the information and assumptions set forth in the notes. The
Corporation believes that the assumptions utilized, which are based on
statistical data provided by a federal regulatory agency in the Corporation's
market area, are reasonable. The Corporation had no derivative financial
instruments or trading portfolio as of December 31, 1997. Expected maturity date
values for interest-bearing core deposits were calculated based on estimates of
the period over which the deposits would be outstanding as set forth in the
notes. From a risk management perspective, the Corporation believes that
repricing dates for adjustable-rate instruments, as opposed to expected maturity
dates, may be a more relevant measure in analyzing the value of such
instruments. The Corporation's borrowings were tabulated by contractual maturity
dates and without regard to any conversion or repricing dates.
On-Balance-Sheet Financial Instruments (Dollars in thousands)
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002 Thereafter Total Fair Value
---- ---- ---- ---- ---- ---------- ----- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable(1)(2)
Fixed rate $ 14,694 $ 8,073 $ 8,883 $ 6,990 $ 9,326 $ 59,713 $ 107,679 $ 107,692
Avg. int. rate 9.51% 9.71% 9.47% 9.07% 8.34% 7.71% 8.39%
Adj. rate $ 12,852 $ 1,476 $ 1,578 $ 1,795 $ 2,247 $ 98,020 $ 117,968 $ 117,982
Avg. int. rate 9.62% 9.19% 8.95% 8.49% 8.33% 7.68% 7.95%
Mortgage-backed
securities(3)
Fixed rate $ 206 $ 306 $ 1,951 $ 2,463 $ 2,472
Avg. int. rate 8.00% 6.63% 6.41% 6.57%
Adj. rate $ 303 $ 303 $ 305
Avg. int. rate 6.50% 6.50%
Securities(4) $ 26,371 $ 11,765 $ 7,785 $ 4,402 $ 1,372 $ 10,745 $ 62,440 $ 62,488
Avg. int. rate 5.64% 6.20% 6.21% 6.40% 5.05% 5.34% 5.81%
Fed Funds Sold $ 10,400 $ 10,400 $ 10,400
Aug. int. rate 5.47% 5.47%
Total $ 64,523 $ 21,620 $ 18,246 $ 13,187 $ 12,945 $170,732 $ 301,253 $ 301,339
</TABLE>
31
<PAGE> 36
On-Balance-Sheet Financial Instruments (Dollars in thousands)
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002 Thereafter Total Fair Value
---- ---- ---- ---- ---- ---------- ----- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-bearing liabilities:
Interest-bearing
deposits and
escrows(5) $ 128,593 $ 37,896 $ 23,726 $ 14,233 $ 66 $ 29,015 $ 233,529 $ 234,413
Avg. int. rate 3.85% 2.88% 3.10% 2.81% 5.40% 1.77% 3.29%
Borrowings $ 11,046 $ 11,277 $ 559 $ 591 $ 625 $ 183 $ 24,281 $ 24,281
Avg. int. rate 5.02% 5.75% 5.74% 5.81% 6.15% 7.46% 5.44%
Total $ 139,639 $ 49,173 $ 24,285 $ 14,824 $ 691 $ 29,198 $ 257,810 $ 258,694
</TABLE>
Market Risk Disclosure Footnotes
(1) Net of undisbursed loan proceeds and does not include net deferred loan
fees or allowance for loan losses.
(2) Substantially all of the Corporation's adjustable rate loans reprice on an
annual basis based on either the National Average Contract Rate for Major
Lenders on Previously Occupied Homes or Federal National Mortgage
Association's 6/2 rate capped one-year adjustable rate.
(3) Substantially all of the Corporation's adjustable rate mortgage-backed
securities reprice on a monthly basis based on changes in the three-month
LIBOR index.
(4) Totals include the Corporation's investment in Federal Home Loan Bank
stock.
(5) For passbook and statement savings accounts, assumes an annual decay rate
of 31% for year one, 29% for year two, 23% for year three and 17% for year
four.
The table below provides information about the Corporation's anticipated
transactions comprised of firm loan commitments and other commitments, including
undisbursed letters and lines of credit. The Corporation used no derivative
financial instruments to hedge such anticipated transactions as of December 31,
1997.
Anticipated Transactions
<TABLE>
<CAPTION>
Citizens Castalia Total
-------- -------- -----
(Dollars in thousands)
<S> <C> <C> <C>
UNDISBURSED CONSTRUCTION LOANS
Fixed Rate $ 375 $ 375
7.10% 7.10%
Adjustable Rate $ 279 $ 100 $ 379
7.05% 6.66% 6.95%
LOAN ORIGINATION COMMITMENTS
Fixed Rate $ 2,742 $ 725 $ 3,467
9.02% 8.75% 8.96%
Adjustable Rate $ 15,583 $ 310 $ 15,893
10.56% 8.42% 10.52%
LETTERS OF CREDIT
Fixed Rate $ 21 $ 336 $ 357
7.90% 9.14% 9.07%
Adjustable Rate $ 90 $ 90
9.58% 9.58%
</TABLE>
32
<PAGE> 37
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ---------------------------------------------------
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
First Citizens Banc Corp
Sandusky, Ohio
We have audited the accompanying consolidated balance sheets of First Citizens
Banc Corp as of December 31, 1997 and 1996, and the related consolidated
statements of income, changes in shareholders' equity and cash flows for each of
the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Corporation'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 1997 and 1996 consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of First Citizens Banc Corp as of December 31, 1997 and 1996, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
Crowe, Chizek and Company LLP
Columbus, Ohio
January 30, 1998
33
<PAGE> 38
FIRST CITIZENS BANC CORP
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
---- ----
ASSETS
<S> <C> <C>
Cash and due from banks $ 14,328,125 $ 11,615,060
Federal funds sold 10,400,000 8,521,000
Securities
Available for sale, at fair value 58,468,703 58,971,155
Held to maturity (Estimated fair values of $6,796,389 in 1997 and
$9,948,509 in 1996) 6,737,206 9,789,977
Loans held for sale 690,998
Loans
Total loans 224,557,029 205,127,385
Allowance for loan losses (2,799,000) (2,642,000)
----------------- -----------------
Net loans 221,758,029 202,485,385
Office premises and equipment, net 6,993,953 6,373,506
Accrued interest receivable 2,027,743 1,823,667
Intangible assets 2,847,511 1,679,465
Other assets 1,670,830 1,518,404
----------------- -----------------
Total assets $ 325,923,098 $ 302,777,619
================= =================
LIABILITIES
Deposits
Noninterest bearing $ 31,474,577 $ 24,624,624
Interest bearing 233,528,600 215,873,075
----------------- -----------------
Total deposits 265,003,177 240,497,699
Federal Home Loan Bank borrowings 14,488,034 15,671,686
Securities sold under repurchase agreements 6,879,346 9,157,032
U.S. Treasury interest-bearing demand note payable 2,913,641 1,388,979
Accrued interest, taxes and other expenses 1,790,955 1,634,915
----------------- -----------------
Total liabilities 291,075,153 268,350,311
----------------- -----------------
SHAREHOLDERS' EQUITY
Common stock, no par value, 10,000,000 shares authorized,
3,051,504 shares issued and outstanding 15,257,520 15,257,520
Retained earnings 19,174,257 19,005,014
Unrealized gain on securities available for sale 416,168 164,774
----------------- -----------------
Total shareholders' equity 34,847,945 34,427,308
----------------- -----------------
Total liabilities and shareholders' equity $ 325,923,098 $ 302,777,619
================= =================
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
34
<PAGE> 39
FIRST CITIZENS BANC CORP
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 1997, 1996 and 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 18,461,451 $ 17,143,958 $ 16,617,684
Interest and dividends on securities
Taxable 2,512,639 2,721,126 2,838,512
Nontaxable 1,307,425 1,430,575 1,630,036
Interest on federal funds sold 483,085 508,134 574,835
Other interest income 33,292 4,208 3,620
--------------- --------------- ----------------
Total interest income 22,797,892 21,808,001 21,664,687
--------------- --------------- ----------------
INTEREST EXPENSE
Interest on deposits 8,450,754 7,947,510 7,863,437
Interest of Federal Home Loan Bank borrowings 866,482 931,866 993,255
Interest on other borrowings 492,478 371,774 389,029
--------------- --------------- ----------------
Total interest expense 9,809,714 9,251,150 9,245,721
--------------- --------------- ----------------
NET INTEREST INCOME 12,988,178 12,556,851 12,418,966
Provision for loan losses 434,663 368,350 377,477
--------------- --------------- ----------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 12,553,515 12,188,501 12,041,489
--------------- --------------- ----------------
NONINTEREST INCOME
Computer center data processing fees 2,191,004 2,091,847 1,805,685
Service charges on deposit accounts 530,525 485,316 445,487
Security gain (loss) 213,686 52,599 (221,142)
Loan sale gain 61,317
Other operating income 1,015,627 780,432 706,417
--------------- --------------- ----------------
Total noninterest income 4,012,159 3,410,194 2,736,447
--------------- --------------- ----------------
NONINTEREST EXPENSE
Salaries, wages and benefits 5,917,264 5,246,145 5,071,253
Net occupancy expense 563,504 546,399 547,841
Equipment expense 812,538 630,033 564,949
Federal deposit insurance premiums 31,145 3,000 284,384
State franchise tax 435,788 418,876 437,961
Professional fees 640,585 331,214 308,579
Amortization of intangible assets 326,048 201,528 201,528
Other operating expenses 3,112,097 2,711,416 2,367,030
--------------- --------------- ----------------
Total noninterest expense 11,838,969 10,088,611 9,783,525
--------------- --------------- ----------------
Income before taxes 4,726,705 5,510,084 4,994,411
Provision for income taxes 1,292,352 1,545,198 1,312,184
--------------- --------------- ---------------
NET INCOME $ 3,434,353 $ 3,964,886 $ 3,682,227
=============== =============== ===============
EARNINGS PER COMMON SHARE $ 1.13 $ 1.30 $ 1.21
======== ========== =========
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
35
<PAGE> 40
FIRST CITIZENS BANC CORP
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Years ended December 31, 1997, 1996 and 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Unrealized
Gain on
Securities Total
Common Stock Retained Available Shareholders'
Shares Amount Earnings for Sale Equity
------ ------ -------- -------- ------
<S> <C> <C> <C> <C>
Balance, January 1, 1995 762,876 $ 15,257,520 $ 16,652,732 $ 31,910,252
Net income 3,682,227 3,682,227
Cash dividends
($0.71 per share) (2,174,667) (2,174,667)
Market adjustment at date of
transfer on securities
available for sale $ 388,979 388,979
------------- -------------- -------------- ----------- ---------------
Balance, December 31, 1995 762,876 15,257,520 18,160,292 388,979 33,806,791
Net income 3,964,886 3,964,886
Cash dividends
($1.02 per share) (3,120,164) (3,120,164)
Four-for-one stock split
effected in the form of a
300% stock dividend 2,288,628
Change in unrealized gain
on securities available
for sale (224,205) (224,205)
------------- -------------- -------------- ----------- ---------------
Balance, December 31, 1996 3,051,504 15,257,520 19,005,014 164,774 34,427,308
Net income 3,434,353 3,434,353
Cash dividends
($1.07 per share) (3,265,110) (3,265,110)
Change in unrealized gain
on securities available
for sale 251,394 251,394
------------- -------------- -------------- ----------- ---------------
Balance, December 31, 1997 3,051,504 $ 15,257,520 $ 19,174,257 $ 416,168 $ 34,847,945
============= ============== ============== =========== ===============
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
36
<PAGE> 41
FIRST CITIZENS BANC CORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1997, 1996 and 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,434,353 $ 3,964,886 $ 3,682,227
Adjustments to reconcile net income to net cash from
operating activities
Security amortization, net of accretion 115,563 119,107 124,084
Depreciation 813,401 651,281 597,685
Amortization of intangible assets 326,048 201,536 201,536
Security gains (13,600) (4,500)
Provision for loan losses 434,663 368,350 377,477
Write-down of investment security 225,642
Loans originated for sale (2,892,410)
Proceeds from sale of loans 2,262,728
Gain on sale of loans (61,316)
Deferred income taxes (107,200) 93,700 (57,800)
Change in
Net deferred loan fees (74,794) (4,235) (45,384)
Accrued interest receivable (204,076) 545,974 (224,358)
Other assets (69,227) (68,521) (196,689)
Accrued interest, taxes and other expenses 22,877 (734,628) 940,250
--------------- -------------- ---------------
Net cash from operating activities 4,000,610 5,123,850 5,620,170
--------------- -------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Securities held to maturity
Proceeds from maturities and repayments 3,479,365 7,320,484 22,651,788
Purchases (457,500) (415,000) (14,122,000)
Securities available for sale
Proceeds from maturities and repayments 15,902,360 11,735,600 62,107
Purchases (15,103,668) (13,400,452)
Loan originations, net of loan payments (19,632,513) (9,582,957) (10,078,201)
Proceeds from the sale of property and equipment 32,350 328,094
Property and equipment expenditures (510,053) (894,134) (870,082)
Change in federal funds sold (1,879,000) (606,000) (2,052,000)
--------------- -------------- ---------------
Net cash from investing activities (18,168,659) (5,514,365) (4,408,388)
--------------- -------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Branch acquisition 12,153,945
Net change in deposits 9,928,955 (1,844,485) (1,762,114)
Repayment of Federal Home Loan Bank borrowings (1,183,652) (1,118,267) (1,056,880)
Net change in securities sold under
repurchase agreements (2,277,686) 722,982 1,510,248
Cash dividends paid (3,265,110) (3,120,164) (2,174,667)
Change in U.S. Treasury interest-bearing notes payable 1,524,662 1,069,599 (559,734)
--------------- -------------- ---------------
Net cash from financing activities 16,881,114 (4,290,335) (4,043,147)
--------------- -------------- ---------------
Net change in cash and cash equivalents 2,713,065 (4,680,850) (2,831,365)
Cash and cash equivalents at beginning of year 11,615,060 16,295,910 19,127,275
--------------- -------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 14,328,125 $ 11,615,060 $ 16,295,910
=============== ============== ===============
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
37
<PAGE> 42
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the accounting policies adopted by First Citizens
Banc Corp which have a significant effect on the financial statements.
CONSOLIDATION POLICY: The consolidated financial statements include the accounts
of First Citizens Banc Corp (Corporation) and its wholly-owned subsidiaries, The
Citizens Banking Company (Citizens), The Castalia Banking Company (Castalia),
SCC Resources, Inc. (SCC), and R. A. Reynolds Appraisal Services, Inc.
(Reynolds). All significant intercompany balances and transactions have been
eliminated in consolidation.
NATURE OF OPERATIONS: The Corporation is primarily engaged in the business of
commercial and retail banking in the communities of Sandusky and Castalia, Ohio.
The Banks provide a broad range of banking and financial services including
accepting demand, savings and time deposits and granting commercial, real estate
and consumer loans. Citizens conducts its business through its main office and
four branches, located in Sandusky and the nearby community of Berlin Heights.
Castalia conducts its business through its main office. SCC provides data
processing for 14 financial institutions in addition to the two subsidiary
banks. SCC accounts for 8.2% of the Corporation's total revenues. Reynolds
provides real estate appraisal services for lending purposes to the subsidiary
banks and other financial institutions. Reynolds accounts for less than 1% of
total Corporation revenues.
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. Estimates that are more susceptible to change in the near
term include the collectibility of loans, the fair values of financial
instruments and the status of contingencies.
CASH: For purposes of reporting cash flows, the Corporation considers "cash and
cash equivalents" to include cash on hand and demand deposits with financial
institutions. The Corporation reports net cash flows for federal funds sold,
customer loan transactions, deposit transactions, securities sold under
agreements to repurchase and other short-term borrowings. For the years ended
December 31, 1997, 1996 and 1995, the Corporation paid interest of $9,755,000,
$9,459,000, and $9,056,000, and income taxes of $1,554,000, $1,615,000, and
$975,000. Noncash transactions included transfers from loans to other real
estate owned totaling $32,000 in 1995.
SECURITIES: The Corporation classifies securities as either held to maturity or
available for sale. Securities held to maturity are those the Corporation has
the positive intent and ability to hold to maturity and are reported at
amortized cost. Securities available for sale are those the Corporation may sell
if needed for liquidity, asset-liability management, or other reasons even if
management does not have a present intention of such a sale. Equity securities
that have a readily determinable fair value are also classified as available for
sale. Securities available for sale are reported at fair value, with unrealized
gains or losses included as a separate component of equity, net of tax.
In November 1995, the Financial Accounting Standards Board (FASB) issued a
Question and Answer Implementation Guide to Statement of Financial Accounting
Standards (SFAS) No. 115. Based on the reading thereof and in accordance with
the provisions of the implementation guidance, the Corporation conducted a
one-time reassessment of the appropriateness of its securities classifications
and transferred securities with an amortized cost of $56,541,376 from held to
maturity to available for sale. The unrealized gain at the time of the transfer
was approximately $589,000.
- --------------------------------------------------------------------------------
(Continued)
38
<PAGE> 43
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Realized gains or losses are determined based on the amortized cost of the
specific security sold. Interest and dividend income, adjusted by amortization
of purchase premium or discount, is included in earnings.
LOANS RECEIVABLE: Loans receivable that management has the intent and ability to
hold for the foreseeable future or until maturity or pay-off are reported at
their outstanding principal balance adjusted for any charge-offs and any
deferred fees or costs on originated loans and unamortized premiums or discounts
on purchased loans. Mortgage loans originated and intended for sale in the
secondary market are carried at the lower of cost or estimated market value
taken together. Net unrealized losses are recognized through a valuation
allowance by charges to income. Mortgage servicing rights, representing the
right to service mortgage loans for others, are recorded by allocating the total
cost of the mortgage loans sold to mortgage servicing rights and to loans
(without the mortgage servicing rights) based on their relative fair values.
Mortgage servicing rights recorded as a separate asset are amortized in
proportion to, and over the period of, estimated net servicing income. The
balance of mortgage servicing rights is not material at December 31, 1997.
ALLOWANCE FOR LOAN LOSSES: The allowance for loan losses is increased by charges
to income and decreased by charge-offs, net of recoveries. Management's periodic
evaluation of the adequacy of the allowance is based on past loan loss
experience, known and inherent risks in the portfolio, adverse situations that
may affect the borrower's ability to repay, the estimated value of any
underlying collateral, and current economic conditions.
Loans are considered impaired if full principal or interest payments are not
anticipated. Impaired loans are carried at the present value of expected future
cash flows discounted at the loan's effective interest rate or at the fair value
of collateral if the loan is collateral dependent. A portion of the allowance
for loan losses is allocated to impaired loans.
Management analyzes commercial and commercial real estate loans on an individual
basis and classifies a loan as impaired when an analysis of the borrower's
operating results and financial condition indicates that underlying cash flows
are not adequate to meet its debt service requirements. Often this is associated
with a delay or shortfall in payments of 90 days or more. Smaller-balance
homogeneous loans are evaluated for impairment in total. Such loans include
residential first mortgage loans secured by one- to four-family residences,
residential construction loans, and consumer automobile, boat, home equity and
credit card loans with balances less than $300,000. In addition, loans held for
sale and leases are excluded from consideration as impaired. Nonaccrual loans
are often also considered impaired. Impaired loans, or portions thereof, are
charged off when deemed uncollectible.
INTEREST AND FEES ON LOANS: Interest on loans is accrued over the term of the
loan based on the principal outstanding. Management reviews loans delinquent 90
days or more to determine if interest accrual should be discontinued. 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. Cash payments
representing interest income are reported as such and other cash payments are
reported as reductions in carrying value. 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 bad debt expense.
Loan fees and certain direct costs in the origination of loans are deferred and
amortized over the contractual lives of the related loans as an adjustment of
yield using the interest method.
- --------------------------------------------------------------------------------
(Continued)
39
<PAGE> 44
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
PREMISES AND EQUIPMENT: Premises and equipment are stated at cost less
accumulated depreciation. Depreciation is computed using both straight-line and
accelerated methods over the estimated useful life of the asset. These assets
are reviewed for impairment under SFAS No. 121 when events indicate the carrying
amount may not be recoverable. Maintenance and repairs are expensed and major
improvements are capitalized.
INTANGIBLE ASSETS: Amounts as reported on the consolidated balance sheets
represent goodwill that arose from the purchase of Castalia in 1990 and core
deposit intangibles that arose from the purchase of two branch offices and
assumption of related deposits in 1997. Goodwill is being amortized on the
straight-line method over 15 years and core deposits are being amortized on the
straight-line method over 12 years. The Corporation assesses the recoverability
of intangible assets by determining whether the balance can be recovered through
undiscounted future operating cash flows of Castalia and the branches. At
December 31, 1997, the remaining balances of goodwill and core deposit
intangibles totaled $1,478,000 and $1,370,000.
OTHER REAL ESTATE: Real estate owned, other than that used in the normal course
of business, is included in other assets at fair value less estimated costs to
sell. Any reduction from carrying value of the related loan to fair value at the
time of acquisition is accounted for as a loan loss. Any subsequent reduction in
fair value is recognized in a valuation allowance by charges to income. Other
real estate owned included in other assets totaled approximately $26,000 at
December 31, 1997 and $28,000 at December 31, 1996.
INCOME TAXES: The Corporation follows the liability method in accounting for
income taxes. The liability method provides that deferred tax assets and
liabilities are recorded at enacted tax rates based on the difference between
the tax basis of assets and liabilities and their carrying amounts for financial
reporting purposes, referred to as "temporary differences." A valuation
allowance, if needed, reduces deferred tax assets to the amount expected to be
realized.
CONCENTRATIONS OF CREDIT RISK: Most of the business activity of the subsidiary
banks is with customers located within the Sandusky, Berlin Heights and
Castalia, Ohio areas. As of December 31, 1997 and 1996, the subsidiary banks had
no significant concentration of loans in any one single industry.
RETIREMENT PLANS: The Corporation and its subsidiaries sponsor a noncontributory
defined benefit retirement plan for all full-time employees who have attained
the age of 21 and have a minimum of six months of service. Accrued pension costs
are funded to the extent deductible for federal income tax purposes.
The Corporation and its subsidiaries also provide a savings and retirement
401(k) plan for all full-time eligible employees who elect to participate. The
decision to make contributions to the plan, which represent a match of a portion
of the salary deferred by participants, is made annually by the Board of
Directors. Such contributions are funded as they are accrued.
EARNINGS PER SHARE: A 4-for-1 stock split effected in the form of a 300% stock
dividend was paid to shareholders of record as of April 16, 1996. Earnings per
share is computed based on the weighted average number of shares of capital
stock outstanding during each year as restated for the stock split, which
totaled 3,051,504 shares in 1997, 1996 and 1995. Dividends per share are based
on the number of shares outstanding at the declaration date giving retroactive
effect to the stock split.
- --------------------------------------------------------------------------------
(Continued)
40
<PAGE> 45
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
FINANCIAL STATEMENT PRESENTATION: Certain items in the 1996 and 1995 financial
statements have been reclassified to correspond with the 1997 presentation.
NOTE 2 - SECURITIES
The amortized cost, gross unrealized gains, gross unrealized losses and
estimated fair values of investment securities at December 31, 1997 and 1996 are
as follows:
<TABLE>
<CAPTION>
1 9 9 7
------------------------------- ------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE
U.S. Treasury securities and obligations
of U.S. government corporations and
agencies $ 33,085,104 $ 101,144 $ (46,511) $ 33,139,737
Obligations of state and political
subdivisions 19,233,997 583,780 (16,135) 19,801,642
Other securities, including mortgage-
backed securities 5,519,045 8,537 (258) 5,527,324
--------------- -------------- ------------- ----------------
Total securities available for sale $ 57,838,146 $ 693,461 $ (62,904) $ 58,468,703
=============== ============== ============= ================
HELD TO MATURITY
U.S. Treasury securities and obligations
of U.S. government corporations and
agencies $ 1,000,000 $ 2,500 $ 1,002,500
Obligations of state and political
subdivisions 4,004,519 50,389 $ (5,613) 4,049,295
Other securities, including mortgage-
backed securities 1,732,687 13,974 (2,067) 1,744,594
--------------- -------------- ------------- ----------------
Total securities held to maturity $ 6,737,206 $ 66,863 $ (7,680) $ 6,796,389
=============== ============== ============= ================
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
41
<PAGE> 46
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
- --------------------------------------------------------------------------------
NOTE 2 - SECURITIES (Continued)
<TABLE>
<CAPTION>
1 9 9 6
------------------------------- ------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ 37,000,835 $ 58,526 $ (155,293) $ 36,904,068
Obligations of state and political
subdivisions 18,109,603 433,174 (86,282) 18,456,495
Other securities, including mortgage-
backed securities 3,611,060 (468) 3,610,592
--------------- -------------- ------------- ----------------
Total securities available for sale $ 58,721,498 $ 491,700 $ (242,043) $ 58,971,155
=============== ============== ============= ================
HELD TO MATURITY
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ 1,000,000 $ 23,125 $ 1,023,125
Obligations of state and political
subdivisions 6,329,284 141,366 $ (7,318) 6,463,332
Other securities, including mortgage-
backed securities 2,460,693 12,007 (10,648) 2,462,052
--------------- -------------- ------------- ----------------
Total securities held to maturity $ 9,789,977 $ 176,498 $ (17,966) $ 9,948,509
=============== ============== ============= ================
</TABLE>
The amortized cost and estimated fair value of securities at December 31, 1997,
by contractual maturity, are shown below. Actual maturities may differ from
contractual maturities because issuers may have the right to call or prepay
obligations.
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
---- -----
<S> <C> <C>
AVAILABLE FOR SALE
Due in one year or less $ 17,302,117 $ 17,269,178
Due after one year through five years 24,275,924 24,666,036
Due after five years through ten years 9,620,535 9,871,919
Due after ten years 1,120,525 1,134,246
Mortgage-backed securities 42,388 42,130
Other securities 5,476,657 5,485,194
--------------- ---------------
Total securities available for sale $ 57,838,146 $ 58,468,703
=============== ===============
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
42
<PAGE> 47
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
- --------------------------------------------------------------------------------
NOTE 2 - SECURITIES (Continued)
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
---- -----
<S> <C> <C>
HELD TO MATURITY
Due in one year or less $ 4,649,519 $ 4,696,104
Due after one year through five years 355,000 355,691
Mortgage-backed securities 1,732,687 1,744,594
--------------- ---------------
Total securities held to maturity $ 6,737,206 $ 6,796,389
=============== ===============
</TABLE>
During 1995, management concluded that the remaining bonds of Tower Healthcare
Receivables Corp. had no market value. Therefore, the Corporation eliminated the
remaining carrying value of the bonds which was $226,000 after cash payments
received during 1995. These securities had previously been written down by
$700,000 when Towers Financial Corp. (parent company) filed bankruptcy in 1993.
The Corporation received $214,000 and $39,000 in recoveries from Tower Financial
Corp. in 1997 and 1996.
No securities were sold during 1997, 1996 or 1995. Securities called or settled
by the issuer resulted in gains of $13,600 and $4,500 in 1996 and 1995.
Securities with a carrying value of approximately $36,757,000 and $33,650,000
were pledged as of December 31, 1997 and 1996, to secure public deposits and
other deposits and liabilities as required or permitted by law.
NOTE 3 - LOANS
Loans as presented on the balance sheet are comprised of the following
classifications at December 31:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Commercial and agricultural $ 47,043,354 $ 42,038,299
Real estate mortgage 135,635,917 131,491,632
Real estate construction 2,652,565 2,079,810
Consumer 38,621,281 29,232,380
Credit card and other 1,693,798 1,449,945
Deferred loan fees (1,089,886) (1,164,681)
---------------- -----------------
Total loans $ 224,557,029 $ 205,127,385
================ =================
</TABLE>
Fixed rate loans approximated $108,357,000 at December 31, 1997 and $104,228,000
at December 31, 1996.
Certain directors and executive officers, including their immediate families and
companies in whom they are principal owners, are loan customers of the
subsidiary banks. The following is a summary of activity during 1997 for such
loans.
<TABLE>
<S> <C>
Balance - January 1, 1997 $ 3,795,000
New loans and advances 1,726,000
Repayments (1,529,000)
--------------
Balance - December 31, 1997 $ 3,992,000
==============
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
43
<PAGE> 48
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
- --------------------------------------------------------------------------------
NOTE 4 - ALLOWANCE FOR LOAN LOSSES
A summary of the activity in the allowance for loan losses is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Balance - January 1 $ 2,642,000 $ 2,602,000 $ 2,390,000
Provision for loan losses 434,663 368,350 377,477
Loans charged off (429,539) (444,807) (334,078)
Recoveries 151,876 116,457 168,601
--------------- -------------- --------------
Balance - December 31 $ 2,799,000 $ 2,642,000 $ 2,602,000
=============== ============== ==============
</TABLE>
Information with respect to impaired loans is as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Balance of impaired loans for which no allowance for loss
has been allocated $ -- $ --
Balance of impaired loans for which an allowance for loss
has been allocated 1,817,000 1,982,000
Portion of allowance for loan loss allocated to impaired
loans 466,000 495,000
Average balance of impaired loans during year 1,879,000 1,984,000
Interest income recognized during impairment 133,000 139,000
Interest income recognized on a cash basis 133,000 139,000
</TABLE>
NOTE 5 - PREMISES AND EQUIPMENT
Premises and equipment, at cost, and accumulated depreciation as of December 31,
1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Land and improvements $ 793,294 $ 693,600
Buildings and improvements 6,087,483 5,350,787
Furniture and equipment 6,193,333 5,965,555
--------------- ----------------
Total 13,074,110 12,009,942
Accumulated depreciation 6,080,157 5,636,436
--------------- ----------------
Premises and equipment, net $ 6,993,953 $ 6,373,506
=============== ================
</TABLE>
The Corporation has no material future-lease commitments.
- --------------------------------------------------------------------------------
(Continued)
44
<PAGE> 49
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
- --------------------------------------------------------------------------------
NOTE 6 - INTEREST-BEARING DEPOSITS
Interest-bearing deposits as of December 31, 1997 and 1996 are summarized as
follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Demand $ 38,917,063 $ 37,112,309
Statement and passbook savings 83,840,498 87,909,105
Certificates of deposit:
In excess of $100,000 17,349,836 13,298,419
Other 75,893,000 59,936,503
Individual Retirement Accounts 17,528,203 17,616,739
----------------- -----------------
Total $ 233,528,600 $ 215,873,075
================= =================
</TABLE>
At December 31, 1997, the scheduled maturities of certificates of deposit are as
follows:
<TABLE>
<S> <C>
1998 $ 79,241,000
1999 9,206,000
2000 3,699,000
2001 913,000
2002 and thereafter 184,000
----------------
Total $ 93,243,000
================
</TABLE>
NOTE 7 - FEDERAL HOME LOAN BANK BORROWINGS
The Corporation has fixed-rate and mortgage-matched advances from the Federal
Home Loan Bank. Mortgage-matched advances are utilized to fund-specific
fixed-rate loans with certain prepayment of principal permitted without penalty.
At December 31, 1997 and 1996, Federal Home Loan Bank borrowings consisted of
the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
5.95 percent secured note $ 8,263,827 $ 8,765,213
5.80 percent secured note 588,182 683,083
5.60 percent secured note 1,484,733 1,721,414
5.55 percent secured note 914,167 1,054,956
5.25 percent secured note 3,237,125 3,447,020
--------------- ----------------
$ 14,488,034 $ 15,671,686
=============== ================
</TABLE>
The notes outstanding at December 31, 1997 had required annual principal
payments as follows:
<TABLE>
<S> <C>
1998 $ 1,252,869
1999 11,276,204
2000 558,990
2001 591,260
2002 571,827
Thereafter 236,884
---------------
$ 14,488,034
===============
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
45
<PAGE> 50
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
- --------------------------------------------------------------------------------
NOTE 7 - FEDERAL HOME LOAN BANK BORROWINGS (Continued)
Federal Home Loan Bank borrowings are collateralized by the subsidiary Banks'
Federal Home Loan Bank stock and a blanket pledge of the Banks' residential
mortgage loan portfolio.
NOTE 8 - OTHER BORROWINGS
Securities sold under agreements to repurchase and treasury tax and loan
deposits are financing arrangements. Physical control is maintained for all
securities sold under repurchase agreements. Information concerning securities
sold under agreements to repurchase and treasury tax and loan deposits is
summarized as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Average month-end balance during the year $ 9,411,000 $ 8,953,000
Average interest rate during the year 5.24% 4.15%
Maximum month-end balance during the year $ 11,973,000 $ 12,871,000
</TABLE>
Securities underlying repurchase agreements at year-end were as follows.
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Carrying value of securities $ 14,665,000 $ 10,385,000
Fair Value $ 14,665,000 $ 10,385,000
</TABLE>
NOTE 9 - INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Current $ 1,399,552 $ 1,451,498 $ 1,369,984
Deferred (107,200) 93,700 (57,800)
--------------- -------------- --------------
Total provision for income taxes $ 1,292,352 $ 1,545,198 $ 1,312,184
=============== ============== ==============
</TABLE>
The differences between the financial statement provision and amounts computed
by applying the statutory federal income tax rate of 34% to income before income
taxes are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Income taxes computed at the
statutory federal tax rate $ 1,607,080 $ 1,873,429 $ 1,698,100
Add (subtract) tax effect of
Nontaxable interest income, less
related nondeductible interest
expense (395,537) (436,909) (497,085)
Amortization of goodwill 68,522 68,522 68,522
Other 12,287 40,156 42,647
--------------- -------------- --------------
Total income tax provision $ 1,292,352 $ 1,545,198 $ 1,312,184
=============== ============== ==============
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
46
<PAGE> 51
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
- --------------------------------------------------------------------------------
NOTE 9 - INCOME TAXES (Continued)
The tax effects of principal temporary differences and the resulting deferred
tax assets and liabilities at December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Allowance for loan losses $ 634,600 $ 581,500
Deferred loan fees 370,600 396,000
Other 64,200 22,800
-------------- --------------
Deferred tax asset 1,069,400 1,000,300
-------------- --------------
Tax depreciation in excess of book depreciation (385,000) (486,600)
Discount accretion on investment securities (18,800) (19,400)
Pension costs (96,100) (114,000)
Undistributed equity earnings of computer center (269,700) (269,700)
Federal Home Loan Bank stock dividends (259,300) (185,400)
Unrealized gain on securities available for sale (214,300) (84,900)
Intangible asset amortization (135,400) (136,100)
Other (8,800)
--------------
Deferred tax liability (1,387,400) (1,296,100)
-------------- --------------
Net deferred tax liability $ (318,000) $ (295,800)
============== ==============
</TABLE>
NOTE 10 - RETIREMENT PLANS
The Corporation and its subsidiaries sponsor a savings and retirement 401(k)
plan which covers all employees who meet certain eligibility requirements and
who choose to participate in the plan. The matching contribution to the 401(k)
plan was $47,000, $44,000 and $42,000 in 1997, 1996 and 1995.
The Corporation and its subsidiaries also sponsor a pension plan which is a
noncontributory defined benefit retirement plan for all employees who have
attained the age of 21, completed six months of service and work 1,000 or more
hours per year. Annual payments, subject to the maximum amount deductible for
federal income tax purposes, are made to a pension trust fund. No contributions
were allowable in 1997, 1996 or 1995.
Pension expense included the following components:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Service cost - benefits earned during the year $ 253,096 $ 210,335 $ 189,997
Interest cost on projected benefit obligation 259,514 216,600 227,899
Actual return on plan assets (580,437) (265,410) (553,914)
Net amortization and deferral 120,351 (105,368) 94,970
------------ ------------ ------------
Net pension expense (income) $ 52,524 $ 56,157 $ (41,048)
============ ============ ============
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
47
<PAGE> 52
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
- --------------------------------------------------------------------------------
NOTE 10 - RETIREMENT PLANS (Continued)
The following table sets forth the funded status of the plan as of December 31,
1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested benefits of
$2,575,544 in 1997 and $2,097,524 in 1996. $ (2,611,524) $ (2,157,628)
Provision for future salary increases (1,021,817) (1,283,318)
-------------- ---------------
Projected benefit obligation (3,633,341) (3,440,946)
Plan assets at fair value, representing fixed income
and equity fund investments of insurance company 4,935,505 4,450,990
-------------- ---------------
Net excess of plan assets over projected benefit obligation 1,302,164 1,010,044
Unrecognized prior service cost 129,421 142,479
Unrecognized net loss (gain) (534,344) (123,453)
Unrecognized net transition asset at January 1, 1989, being
recognized over 17 years (654,266) (733,571)
-------------- ---------------
Prepaid pension expense included in other assets $ 242,975 $ 295,499
============== ===============
</TABLE>
<TABLE>
<CAPTION>
Significant assumptions used: 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Discount rate 7.71% 7.71% 6.89%
Rate of increase in compensation levels 5.00 5.00 5.00
Long-term rate of return on assets 9.00 9.00 9.00
</TABLE>
NOTE 11 - COMMITMENTS, CONTINGENCIES AND OFF-BALANCE SHEET RISK
The Bank subsidiaries are parties to financial instruments with
off-balance-sheet risk in the normal course of business to meet financing needs
of their customers. These include commitments to make or purchase loans,
undisbursed lines of credit, undisbursed credit card balances and letters of
credit. The Banks' exposure to credit loss in case of nonperformance by the
other party to the financial instrument is represented by the contractual amount
of those instruments. The Banks follow the same credit policy to make such
commitments as they use for loans recorded on the balance sheet. Since many
commitments to make loans expire without being used, the amount does not
necessarily represent future cash commitments. Collateral obtained relating to
the commitments is determined using management's credit evaluation of the
borrower and may include real estate, vehicles, business assets, deposits and
other items. The Banks do make fixed rate loan commitments for short periods of
time. However, such commitments were immaterial as of and for the years ending
December 31, 1997 and 1996.
- --------------------------------------------------------------------------------
(Continued)
48
<PAGE> 53
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
- --------------------------------------------------------------------------------
NOTE 11 - COMMITMENTS, CONTINGENCIES AND OFF-BALANCE SHEET RISK (Continued)
Commitments to extend credit and letters of credit approximated the following
amounts at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
Contract Amount
---------------
1997 1996
---- ----
<S> <C> <C>
Commitments to extend credit:
Lines of credit and construction loans $ 16,945,000 $ 14,081,000
Credit cards 3,169,000 4,235,000
Letters of credit 447,000 62,000
--------------- ----------------
$ 20,561,000 $ 18,378,000
=============== ================
</TABLE>
Citizens and Castalia are required to maintain certain daily reserve balances on
hand in accordance with Federal Reserve Board requirements. The average reserve
balance maintained in accordance with such requirements for the years ended
December 31, 1997 and 1996 approximated $1,682,000 and $1,702,000.
In the normal course of business, the Corporation and its subsidiaries are
involved in various legal actions but, in the opinion of management and its
legal counsel, ultimate disposition of such matters is not expected to have a
material adverse effect on the consolidated financial statements.
NOTE 12 - RESTRICTIONS ON RETAINED EARNINGS
The Corporation's primary source of funds for paying dividends to its
shareholders and for operating expenses is dividends received from the Banks.
Payment of dividends by the Banks to the Corporation is subject to restrictions
by their regulatory agencies. 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 minimum regulatory
requirements. Under the most restrictive of these requirements, the Corporation
estimates that retained earnings available for payment of dividends by the Banks
to the Corporation approximates $1,166,000 and $2,549,000 at December 31, 1997
and 1996.
NOTE 13 - REGULATORY MATTERS
The Corporation and its subsidiary Banks are subject to various regulatory
capital requirements administered by the federal banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have a
direct material effect on the Corporation's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Corporation and the Banks must meet specific capital guidelines that involve
quantitative measures of assets, liabilities and certain off-balance-sheet items
as calculated under regulatory accounting practices. The Corporation's and the
Banks' capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings and other factors.
- --------------------------------------------------------------------------------
(Continued)
49
<PAGE> 54
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
- --------------------------------------------------------------------------------
NOTE 13 - REGULATORY MATTERS (Continued)
Quantitative measures established by regulation to ensure capital adequacy
require the Corporation and the Banks to maintain minimum amounts and ratios
(set forth in the table below) of total and Tier I capital (as defined in the
regulations) to risk-weighted assets (as defined) and of Tier I capital (as
defined) to average assets (as defined).
As of December 31, 1997, the most recent notification from the Federal Reserve
categorized the Corporation as well capitalized under the regulatory framework
for prompt corrective action. There are no conditions or events since that
notification that management believes have changed the institution's category.
At December 31, 1997 and 1996, the Corporation's actual capital levels (in
millions) and minimum required levels were:
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------ ----------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
1997
----
<S> <C> <C> <C> <C> <C> <C>
Total capital
(to risk weighted
assets) $ 33.1 19.3% $ 13.7 8.0% $ 17.0 10.0%
Tier I capital
(to risk weighted
assets) $ 31.0 18.1% $ 6.8 4.0% $ 10.3 6.0%
Tier I capital
(to average assets) $ 31.0 9.7% $ 12.8 4.0% $ 15.9 5.0%
1996
----
Total capital $ 34.3 22.2% $ 12.4 8.0% $ 15.5 10.0%
(to risk weighted
assets)
Tier I capital $ 32.0 20.8% $ 6.2 4.0% $ 9.3 6.0%
(to risk weighted
assets)
Tier I capital $ 32.0 10.6% $ 12.0 4.0% $ 15.0 5.0%
(to average assets)
</TABLE>
The regulatory capital ratios of the Banks' are similar to the Corporation
ratios.
- --------------------------------------------------------------------------------
(Continued)
50
<PAGE> 55
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
- --------------------------------------------------------------------------------
NOTE 14 - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION
A summary of condensed financial information of the parent company at December
31, 1997 and 1996 and for each of the three years in the period ended December
31, 1997 are as follows:
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEETS 1997 1996
---- ----
Assets:
<S> <C> <C> <C>
Cash $ 3,937,595 $ 4,483,894
Investment in subsidiaries 30,878,600 30,332,695
Other assets 426,322 119,749
--------------- ----------------
Total assets $ 35,242,517 $ 34,936,338
=============== ================
Liabilities and Shareholders' Equity:
Deferred income taxes and other liabilities $ 394,572 $ 509,030
Common stock 15,257,520 15,257,520
Retained earnings 19,174,257 19,005,014
Unrealized gain on securities available for sale 416,168 164,774
--------------- ----------------
Total liabilities and shareholders' equity $ 35,242,517 $ 34,936,338
=============== ================
CONDENSED STATEMENTS OF INCOME 1997 1996 1995
---- ---- ----
Dividends from subsidiaries $ 3,413,249 $ 3,964,820 $ 3,699,618
Other income 24,417 7,448 8,333
Expenses - other, net (297,824) (154,283) (45,313)
-------------- -------------- ---------------
Earnings before equity in undistributed
net earnings of subsidiaries 3,139,842 3,817,985 3,662,638
Equity in undistributed net earnings of subsidiaries 294,511 146,901 19,589
-------------- -------------- ---------------
Net income $ 3,434,353 $ 3,964,886 $ 3,682,227
============== ============== ===============
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
51
<PAGE> 56
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
- --------------------------------------------------------------------------------
NOTE 14 - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION (Continued)
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF CASH FLOWS 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Operating activities:
Net income $ 3,434,353 $ 3,964,886 $ 3,682,227
Adjustment to reconcile net income to net cash
provided by operating activities:
Change in other assets and other liabilities (121,031) 272,720 (70,729)
Equity in undistributed net earnings of
subsidiaries (294,511) (146,901) (19,589)
-------------- -------------- ---------------
Net cash from operating activities 3,018,811 4,090,705 3,591,909
-------------- -------------- ---------------
Investing activities:
Loan to subsidiary (300,000) 50,000 (100,000)
-------------- -------------- ---------------
Net cash from investing activities (300,000) 50,000 (100,000)
-------------- -------------- ---------------
Financing activities:
Cash dividends paid (3,265,110) (3,120,164) (2,174,666)
-------------- -------------- ---------------
Net cash from financing activities (3,265,110) (3,120,164) (2,174,666)
-------------- -------------- ---------------
Net increase in cash (546,299) 1,020,541 1,317,243
Cash at beginning of year 4,483,894 3,463,353 2,146,110
-------------- -------------- ---------------
Cash at end of year $ 3,937,595 $ 4,483,894 $ 3,463,353
============== ============== ===============
</TABLE>
NOTE 15 - FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amount and estimated fair values of financial instruments are as
follows at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks $ 14,328,000 $ 14,328,000 $ 11,615,000 $ 11,615,000
Federal funds sold 10,400,000 10,400,000 8,521,000 8,521,000
Securities available for sale 58,469,000 58,469,000 58,971,000 58,971,000
Securities held to maturity 6,737,000 6,796,000 9,790,000 9,949,000
Loans, net of allowance for
loan losses 221,758,000 221,785,000 202,485,000 201,554,000
Accrued interest receivable 2,028,000 2,028,000 1,824,000 1,824,000
Financial liabilities:
Deposits (265,003,000) (265,888,000) (240,498,000) (240,239,000)
Federal Home Loan Bank
borrowings (14,488,000) (14,488,000) (15,672,000) (15,672,000)
Securities sold under
repurchase agreements
and other borrowings (9,793,000) (9,793,000) (10,546,000) (10,546,000)
Accrued interest payable (444,000) (444,000) (389,000) (389,000)
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
52
<PAGE> 57
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
- --------------------------------------------------------------------------------
NOTE 15 - FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued)
The estimated fair value approximates carrying amount for all items except those
described below. Estimated fair value for securities is based on quoted market
values for the individual securities or for equivalent securities. Estimated
fair value for loans is based on the rates charged at year end for new loans
with similar maturities, applied until the loan is assumed to reprice or be
paid. Estimated fair value for time deposits is based on the rates paid at year
end for new deposits, applied until maturity. Estimated fair value for other
financial instruments and off-balance-sheet loan commitments are considered
nominal.
NOTE 16 - PROPOSED MERGER
On July 3, 1997, the Corporation entered a definitive agreement to acquire The
Farmers State Bank ("Farmers") of New Washington, Ohio. This agreement, as
amended, specifies that the Corporation will issue 6.06 shares of the
Corporation's common stock for each of the 200,000 shares of Farmers
outstanding. The merger is subject to the approval of both companies' regulatory
agencies and the shareholders of both Farmers and First Citizens Bank Corp. The
transaction is also subject to use of the pooling of interest method of
accounting. Pending various approvals, the merger is expected to close sometime
in the early part of the second quarter of 1998.
The following unaudited pro forma condensed combined financial statements have
been prepared to reflect the transaction had it occurred in the earliest period
presented. They are not necessarily indicative of the financial condition or
results of operations that would have occurred had the transaction actually been
effective at the beginning of the periods indicated.
Pro forma combined net income per share is based on the issuance of 1,212,000
shares of the Corporation, assuming that none of the Farmers shareholders
exercise dissenters rights and demand payment in cash.
- --------------------------------------------------------------------------------
(Continued)
53
<PAGE> 58
FIRST CITIZENS BANC CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
- --------------------------------------------------------------------------------
NOTE 16 - PROPOSED MERGER (Continued)
Pro forma condensed balance sheet (unaudited) (in thousands) December 31, 1997
Pro forma
<TABLE>
<CAPTION>
Combined
--------
<S> <C>
Assets
Cash and due from banks $ 17,696
Federal Funds sold 17,600
Interest-bearing deposits 347
Securities available for sale 84,510
Securities held to maturity 58,724
Net loans 288,429
Premises and equipment 7,563
Other assets 8,442
--------------
Total assets $ 483,311
==============
Liabilities and Shareholders' equity
Deposits $ 402,722
Securities sold under repurchase
agreements and other borrowed funds 10,711
Federal Home Loan Bank advances 14,488
Other liabilities 4,389
Shareholders' equity 51,001
--------------
Total liabilities and shareholders' equity $ 483,311
==============
</TABLE>
Pro forma condensed statement of income (unaudited) (in thousands)
<TABLE>
<CAPTION>
December 31,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Interest income
Loans, including fees $ 23,659 $ 21,967 $ 20,765
Securities, federal funds sold and other 10,463 10,374 10,403
------------ ------------ ------------
Total interest income 34,122 32,341 31,168
Interest expense
Deposits 15,247 14,498 13,698
Repurchase agreements and other
borrowed funds 1,428 1,358 1,423
------------ ------------ ------------
Total interest expense 16,675 15,856 15,121
Net interest income 17,447 16,485 16,047
Provision for loan losses 1,129 733 458
Net interest income after provision for
loan losses 16,318 15,752 15,589
Other income 4,291 3,643 2,976
Other expenses 14,191 11,900 11,572
------------ ------------ ------------
Income before income taxes 6,418 7,495 6,993
Income taxes 1,701 1,927 1,715
------------ ------------ ------------
Net income $ 4,717 $ 5,568 $ 5,278
=========== ============ ============
Net income per share $ 1.11 $ 1.31 $ 1.24
============ ============ ============
</TABLE>
- --------------------------------------------------------------------------------
54
<PAGE> 59
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- -----------------------------------------------------------------------
FINANCIAL DISCLOSURE
- --------------------
The Corporation has had no disagreements with the independent accountants on
matters of accounting principles or financial statement disclosure required to
be reported under this item.
55
<PAGE> 60
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -----------------------------------------------------------
The following information is furnished with respect to directors and executive
officers of the Corporation as of December 31, 1997:
<TABLE>
<CAPTION>
Director
Name Age Position since (1)
---- --- -------- --------
DIRECTORS
- ---------
<S> <C> <C> <C>
John L. Bacon 72 Chairman Emeritus 1973
Mack Iron Works Company
Mary Lee G. Close 82 Personal Investments 1983
Richard B. Fuller 76 Retired, former President of Universal 1960
Clay Products, Inc.
H. Lowell Hoffman, M.D. 74 Retired, former Surgeon 1980
Lowell W. Leech 71 Chairman of the Board, 1975
First Citizens Banc Corp
The Citizens Banking Company
The Castalia Banking Company
Dean S. Lucal 60 Attorney, Lucal & McGookey 1973
W. Patrick Murray 57 Attorney, Murray and Murray 1983
Company, L.P.A.
George L. Mylander 65 Retired Educator 1965
Chairman, Firelands Community
Hospital
Paul H. Pheiffer 72 Chairman of the Board, 1968
Sandusky Bay Development Company
(operates the Battery Park Marina in
Sandusky, Ohio)
David A. Voight 55 President, First Citizens Banc Corp 1989
President, Chief Executive Officer
The Citizens Banking Company
Richard O. Wagner 84 Retired, former Chairman of First Citizens 1968
Bank Corp and former President of
The Citizens Banking Company
</TABLE>
56
<PAGE> 61
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
EXECUTIVE OFFICERS
- ------------------
<S> <C> <C>
Donald E. Gosser 61 Senior Vice President and Treasurer,
First Citizens Banc Corp
The Citizens Banking Company
James O. Miller 45 Senior Vice President and Controller
First Citizens Banc Corp
The Citizens Banking Company
Jay R. Pressler 53 Senior Vice President
First Citizens Banc Corp
The Citizens Banking Company
</TABLE>
(1) Directorships were with The Citizens Banking Company alone until 1984 and
with the Corporation since such date.
ITEM 11. EXECUTIVE COMPENSATION.
- --------------------------------
The information contained under the caption "Executive Compensation" in the
Proxy Statement, to be dated approximately March 9, 1998 utilized in connection
with the Company's Annual Shareholders' Meeting is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
- ------------------------------------------------------------------------
The information contained under the caption "Nominees for Election as Directors"
and "Directors Continuing in Office" in the Proxy Statement, to be dated
approximately March 9, 1998 utilized in connection with the Company's Annual
Shareholders' Meeting is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
- --------------------------------------------------------
The information contained under the caption "Certain Relationships and Related
Transactions" in the Proxy Statement, to be dated approximately March 9, 1998
used concerning the Company's Annual Shareholders' Meeting is incorporated
herein by reference.
57
<PAGE> 62
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- ------------------------------------------------------------------------
(a) DOCUMENTS FILED AS A PART OF THE REPORT
1 FINANCIAL STATEMENTS. The following financial statements, together with the
applicable report of independent auditors, can be located on the indicated pages
of this 1997 Annual Report.
<TABLE>
<CAPTION>
PAGE IN ANNUAL REPORT
<S> <C>
Independent Auditors' Report..................................................................... 33
Consolidated Balance Sheets...................................................................... 34
Consolidated Statements of Income................................................................ 35
Consolidated Statements of Shareholders' Equity.................................................. 36
Consolidated Statements of Cash Flows............................................................ 37
Notes to Consolidated Financial Statements....................................................... 38
</TABLE>
2 FINANCIAL STATEMENT SCHEDULES. All schedules are omitted because they are
not applicable or the required information is shown in the financial
statements or notes thereto.
3 EXHIBITS
*(3)(i) Articles of Incorporation of First Citizens Banc Corp
*(3)(ii) Code of Regulations of First Citizens Banc Corp
*(4) Certificate for Registrant's Common Stock
*(10)(i) Supplemental Retirement Benefit Agreement - Donald E. Gosser
**(10)(ii) Agreement and Plan of Reorganization by and between First
Citizens Banc Corp and The Farmers State Bank (incorporated by
reference in Exhibit 2(1) to the Form S-4 Registration Statement
No. 333-42299 of First Citizens Banc Corp.
**(10)(iii)Administrative Services Agreement by and between First Citizens
Banc Corp and The Farmers State Bank.
***(20) Proxy Statement for the 1997 Annual Meeting of the Shareholders
*(21) Subsidiaries of the Registrant
**(27) Financial Data Schedule
**(99) Safe Harbor Under the Private Securities Litigation Reform Act
of 1995
* The indicated exhibits were previously filed by the Corporation as Exhibits
to the Corporation's Application for Registration on Form 10 or on prior
years' Form 10K and such documents are incorporated herein by reference.
** The indicated exhibit has been filed as separate pages of the 1997 Form
10-K and is available to shareholders on request.
*** The indicated exhibit was previously filed by the Corporation and such
document is incorporated herein by reference.
(b) REPORTS ON FORM 8-K. The Company filed no reports on Form 8-K during the
fourth quarter of the year ended December 31, 1997.
58
<PAGE> 63
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
(Registrant) First Citizens Banc Corp
--------------------------------------------------------------------
By /s/ David A. Voight
-----------------------------------------------------------------------------
David A. Voight, President (Principal Executive Officer)
By /s/ James O. Miller
-----------------------------------------------------------------------------
James O. Miller, Senior Vice President and Controller (Principal
Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed on this twenty-eighth day of February 1997 by the following
persons (including a majority of the Board of Directors of the Registrant) in
the capacities indicated:
/s/ Lowell W. Leech /s/ David A. Voight
- ---------------------------------- ----------------------------
Lowell W. Leech David A. Voight
Chairman of the Board President, Director
/s/ John L. Bacon /s/ W. Patrick Murray
- ---------------------------------- ----------------------------
John L. Bacon W. Patrick Murray
Director Director
/s/ Mary Lee G. Close /s/ George L. Mylander
- ---------------------------------- ----------------------------
Mary Lee G. Close George L. Mylander
Director Director
/s/ Richard B. Fuller /s/ Paul H. Pheiffer
- ---------------------------------- ----------------------------
Richard B. Fuller Paul H. Pheiffer
Director Director
/s/ H. Lowell Hoffman, M.D. /s/ Richard O. Wagner
- ---------------------------------- ----------------------------
H. Lowell Hoffman, M.D. Richard O. Wagner
Director Director
/s/ Dean S. Lucal
- ----------------------------------
Dean S. Lucal
Director
59
<PAGE> 64
FIRST CITIZENS BANC CORP
<TABLE>
<CAPTION>
DIRECTORS
---------
<S> <C>
JOHN L. BACON W. PATRICK MURRAY
Chairman Emeritus Attorney, Murray and Murray Company, L.P.A.
Mack Iron Works Company GEORGE L. MYLANDER
MARY LEE G. CLOSE Retired Educator and City Official
RICHARD B. FULLER Chairman, Firelands Community Hospital
H. LOWELL HOFFMAN, M.D. PAUL H. PHEIFFER
LOWELL W. LEECH Sandusky Bay Development Company
Chairman of the Board DAVID A. VOIGHT
The Citizens Banking Company President, Chief Executive Officer
The Castalia Banking Company The Citizens Banking Company
DEAN S. LUCAL RICHARD O. WAGNER
Attorney, Lucal & McGookey
OFFICERS
--------
LOWELL W. LEECH DONNA J. DALFERRO
Chairman of the Board Vice President and Secretary
DAVID A. VOIGHT MARY K. SCHLESSMAN
President Vice President and Compliance Officer
DONALD E. GOSSER KAREN S. RUTGER
Senior Vice President and Treasurer Assistant Vice President and Personnel Officer
JAMES O. MILLER BRENDA R. LEAL
Senior Vice President and Controller Auditor
JAY R. PRESSLER
Senior Vice President
</TABLE>
<PAGE> 65
DIRECTORS OF AFFILIATED COMPANIES
<TABLE>
<CAPTION>
The Citizens Banking Company
- ----------------------------------------------------------- ---------------------------------------------------------
<S> <C>
JOHN L. BACON GRADY MCDONALD
Chairman Emeritus W. PATRICK MURRAY
Mack Iron Works Company Attorney, Murray and Murray Company, L.P.A.
MARY LEE G. CLOSE GEORGE L. MYLANDER
RICHARD B. FULLER Retired Educator and City Official
ANTHONY S. GUERRA Chairman, Firelands Community Hospital
President, LEWCO, Inc. PAUL H. PHEIFFER
H. LOWELL HOFFMAN, M.D. Sandusky Bay Development Company
LOWELL W. LEECH DAVID A. VOIGHT
Chairman of the Board President, Chief Executive Officer
The Citizens Banking Company The Citizens Banking Company
DEAN S. LUCAL RICHARD O. WAGNER
Attorney, Lucal & McGookey
Director Emeritus
LELAND J. WELTY, CPA
The Castalia Banking Company
- ----------------------------------------------------------- ---------------------------------------------------------
JOHN L. BACON LOWELL W. LEECH
Chairman Emeritus Chairman of the Board
Mack Iron Works Company The Castalia Banking Company
JACK D. BOHN W. PATRICK MURRAY
Partner, Bohn Implement Company Attorney, Murray and Murray Company L.P.A.
Farmer ROBERT L. RANSOM
JOYCE A. KELLER Funeral Director, Ransom Funeral Home
President and Secretary DAVID H. STRACK, D.D.S.
The Castalia Banking Company Bay Area Dental, Inc.
SCC Resources, Inc.
- ----------------------------------------------------------- ---------------------------------------------------------
H. LOWELL HOFFMAN, M.D. MELVIN J. ROHRBACHER
LEROY C. LINK DAVID A. VOIGHT
President, SCC Resources, Inc. President, Chief Executive Officer
The Citizens Banking Company
R. A. Reynolds Appraisal Services, Inc.
- ----------------------------------------------------------- ---------------------------------------------------------
DEAN S. LUCAL DAVID A. VOIGHT
Attorney, Lucal & McGookey President, Chief Executive Officer
ROBERT A. REYNOLDS The Citizens Banking Company
President, R. A. Reynolds Appraisal Services, Inc.
</TABLE>
<PAGE> 66
OFFICERS OF AFFILIATED COMPANIES
The Citizens Banking Company
- --------------------------------------------------------------------------------
Chairman of the Board Lending Officers
- --------------------- ----------------
Lowell W. Leech Richard C. Finneran, Jr.
President, Chief Executive Officer James P. Greek
- ---------------------------------- Connie M. Heuberger
David A. Voight David G. Majoy
Senior Vice Presidents Donna M. Miller
- ---------------------- Christina A. Raftery
Donald E. Gosser Brenda J. Stallard
James O. Miller Suellen M. Williams
Jay R. Pressler Mortgage Loan Administrator
Vice Presidents ---------------------------
- --------------- Kenneth C. Hahn
Donna J. Dalferro, Secretary Operations Officers
Lee A. Jordan -------------------
David L. Ott Ann E. Baum
Charles C. Riesterer Joann M. Geis
Assistant Vice President Shirley J. Hoover
- ------------------------ Susan A. Winkel
Judy A. Burkey Personal Banking Officer
Marcia A. Gasteier ------------------------
Robin J. Grathwol Phyllis L. Bransky
Karen S. Rutger Sales, Marketing and CRA Officer
Cashier --------------------------------
- ------- Christine J. Kane
Douglas A. Greulich Senior Operations Officer
Controller -------------------------
- ---------- David J. Dillon
Todd A. Michel Paula J. York
Credit Card Administrator
- -------------------------
Paul D. Mesenburg
Customer Service Officer
- ------------------------
Linda G. Kelley
Beverly A. Knupke
Deborah E. Morrow
The Castalia Banking Company
- --------------------------------------------------------------------------------
Chairman of the Board Assistant Vice President
- --------------------- ------------------------
Lowell W. Leech Sharon K. Keimer
President & Secretary Lending Officer
- --------------------- ---------------
Joyce A. Keller Virginia L. Bluhm
Senior Vice President Operations Officers
- --------------------- -------------------
Bruce A. Bravard, Cashier Rae L. Cox
Vice President Mary K. Meyer
- --------------
Kenneth R. Lehrer
Mary K. Schlessman
<PAGE> 67
OFFICERS OF AFFILIATED COMPANIES, CON'T.
SCC Resources, Inc.
- --------------------------------------------------------------------------------
President Secretary-Treasurer
- --------- -------------------
LeRoy C. Link James O. Miller
Vice Presidents Operations Officer
- --------------- ------------------
William E. Couch Geriann M. Sartor
Ralph M. Chicotel
Thomas C. York, Jr.
R. A. Reynolds Appraisal Services, Inc.
- --------------------------------------------------------------------------------
President Secretary
- --------- ---------
Robert A. Reynolds Jay R. Pressler
Executive Vice President Treasurer
- ------------------------ ---------
John F. Stauffer James O. Miller
<PAGE> 68
FIRST CITIZENS BANC CORP
SHAREHOLDER INFORMATION
The Annual Meeting of the Shareholders of First Citizens Banc Corp will be held
at The Citizens Banking Company, 100 East Water Street, Sandusky, Ohio on April
21, 1998 at 2:00 p.m. Notice of the meeting and a proxy statement will be sent
to shareholders in a separate mailing.
REGISTRAR AND TRANSFER AGENT
Fifth Third Bank
Corporate Trust Stock Transfer Division
38 Fountain Square Plaza
Cincinnati, Ohio 45202
FIRST CITIZENS BANC CORP
100 East Water Street
Sandusky, Ohio 44870
Tel: (419) 625-4121 Fax: (419) 627-0103
AFFILIATE
The Citizens Banking Company
100 East Water Street
Sandusky, Ohio 44870
Tel: (419) 625-4121 Fax: (419) 627-0103
The Castalia Banking Company
208 South Washington Street
Castalia, Ohio 44824
Tel: (419) 684-5333 Fax: (419) 684-7051
SCC Resources, Inc.
165 East Water Street
Sandusky, Ohio 44870
Tel: (419) 625-1605 Fax: (419) 625-0081
R. A. Reynolds Appraisal Services, Inc.
165 East Water Street
Sandusky, Ohio 44870
Tel: (419) 627-4543 Fax: (419) 625-0081
<PAGE> 1
FIRST CITIZENS BANC CORP
EXHIBIT NO. 10ii
- -------------------------------------------------------------------------------
THIRD AMENDMENT TO AGREEMENT AND PLAN OF REORGANIZATION
This Third Amendment to Agreement and Plan of Reorganization is made and
entered into this 26th day of January, 1998 by and between First Citizens Banc
Corp ("First Citizens") and The Farmers State Bank of New Washington, Ohio
("Farmers").
WHEREAS, First Citizens and Farmers have entered into an Agreement and Plan
of Reorganization dated July 3, 1997, as amended November 25, 1997 and November
26, 1997, respectively (as amended, the "Reorganization Agreement"), providing
for the merger ("Merger") of Farmers Interim Bank, a wholly-owned subsidiary of
First Citizens, with and into Farmers; and
WHEREAS, the Reorganization Agreement is terminable by either party upon
written notice to the other party in the event that the Merger is not
consummated by February 28, 1998 ("Right of Termination Date");
WHEREAS, the parties desire to amend the Reorganization Agreement to extend
the Right of Termination Date to April 30, 1998.
NOW THEREFORE, in consideration of the foregoing and the mutual agreements
set forth herein, the parties agree as follows:
1. The last sentence of Section 17(a) of the Reorganization Agreement is
hereby amended to read as follows:
"In addition to the other grounds for termination of this
Agreement set forth herein, this Agreement can be terminated
by written notice by either party to the other, in each case
authorized by its Board of Directors, if the Merger shall not
have been consummated by April 30, 1998, or the date of such
notice, whichever is later."
2. Notwithstanding anything to the contrary in the Reorganization Agreement
or in any other instrument or agreement executed and delivered by First Citizens
or Farmers, the Right of Termination Date shall be April 30, 1998.
3. Except as provided herein, the Reorganization Agreement shall remain in
full force and effect and the remaining provisions thereof are hereby ratified
and confirmed.
4. Each of the parties shall execute such documents and take such further
actions as may be reasonably required or desirable to carry out the provisions
of this Third Amendment to Agreement and Plan of Reorganization.
IN WITNESS WHEREOF, the parties have executed this Third Amendment to
Agreement and Plan of Reorganization as of the date and year first above
written.
THE FARMERS STATE BANK OF NEW
FIRST CITIZENS BANC CORP WASHINGTON, OHIO
/s/ DAVID A. VOIGHT /s/ WILLIAM SHEAFFER
- ---------------------------------- -----------------------------------
David A. Voight, President William Sheaffer, Interim President
and Chief Executive Officer
A-1
<PAGE> 2
FIRST CITIZENS BANC CORP
EXHIBIT NO. 10ii
- -------------------------------------------------------------------------------
SECOND AMENDMENT TO AGREEMENT AND PLAN OF REORGANIZATION
This Second Amendment to Agreement and Plan of Reorganization is made and
entered into this 26th day of November, 1997 by and between First Citizens Banc
Corp ("First Citizens") and The Farmers State Bank of New Washington, Ohio
("Farmers").
WHEREAS, First Citizens and Farmers have entered into an Agreement and Plan
of Reorganization dated July 3, 1997 ("Reorganization Agreement"), providing for
the merger ("Merger") of Farmers Interim Bank, a wholly-owned subsidiary of
First Citizens, with and into Farmers; and
WHEREAS, the Reorganization Agreement (i) provides for an exchange ratio of
6.5 shares of First Citizens Common Stock for each share of Farmers Common Stock
(the "Exchange Ratio"), (ii) requires the Merger to be consummated within a
specified period after the occurrence of certain events ("Consummation
Deadline") and (iii) is terminable by either party upon written notice to the
other party in the event that the Merger is not consummated by February 1, 1998
("Right of Termination Date");
WHEREAS, the parties desire to amend the Reorganization Agreement to (i)
change the Exchange Ratio to 6.06, (ii) eliminate the Consummation Deadline and
(iii) extend the Right of Termination Date to February 28, 1998.
NOW THEREFORE, in consideration of the foregoing and the mutual agreements
set forth herein, the parties agree as follows:
1. The last sentence of Section 1 of the Reorganization Agreement is hereby
amended to read as follows:
"Upon consummation of the Merger, each share of Farmers Common Stock (other
than Dissenter Shares, as defined in Section 5) shall be converted into the
right to receive 6.06 duly authorized, validly issued, fully paid and
non-assessable First Citizens Common Shares, in accordance with the
provisions regarding the
exchange of shares set forth in the Merger Agreement."
2. The last sentence of Section 4(e) of the Reorganization Agreement is
hereby deleted in its entirety.
3. The last sentence of Section 17(a) of the Reorganization Agreement is
hereby amended to read as follows:
"In addition to the other grounds for termination of this Agreement set
forth herein, this Agreement can be terminated by written notice by either
party to the other, in each case authorized by its Board of Directors, if
the Merger shall not have been consummated by February 28, 1998, or the
date of such notice, whichever is later."
4. Notwithstanding anything to the contrary in the Reorganization Agreement
or in any other instrument or agreement executed and delivered by First Citizens
or Farmers, the Right of Termination Date shall be February 28, 1998.
5. Except as provided herein, the Reorganization Agreement shall remain in
full force and effect and the remaining provisions thereof are hereby ratified
and confirmed.
6. Each of the parties shall execute such documents and take such further
actions as may be reasonably required or desirable to carry out the provisions
of this Amendment to Agreement and Plan of Reorganization.
A-2
<PAGE> 3
FIRST CITIZENS BANC CORP
EXHIBIT NO. 10ii
- -------------------------------------------------------------------------------
IN WITNESS WHEREOF, the parties have executed this Amendment to Agreement
and Plan of Reorganization as of the date and year first above written.
FIRST CITIZENS BANC CORP
/s/ DAVID A. VOIGHT
----------------------------------------
David A. Voight, President
THE FARMERS STATE BANK OF NEW
WASHINGTON, OHIO
/s/ WILLIAM SHEAFFER
----------------------------------------
William Sheaffer, Executive Vice
President
and Chief Executive Officer
A-3
<PAGE> 4
FIRST CITIZENS BANC CORP
EXHIBIT NO. 10ii
- -------------------------------------------------------------------------------
AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF REORGANIZATION
THIS AMENDMENT TO AGREEMENT AND PLAN OF REORGANIZATION dated July 3, 1997
between First Citizens Banc Corp (hereinafter called "First Citizens") and The
Farmers State Bank (hereinafter called "Farmers"), dated November 25, 1997;
WITNESSETH:
First Citizens and Farmers have determined that it will be in their mutual
best interests to amend Agreement to provide that the effective date of the
Merger, provided for in said Agreement, shall be not earlier than February 28,
1998.
THEREFORE, in consideration of the mutual covenants and agreements herein
contained, First Citizens and Farmers hereby agree as follows:
(1) Paragraph 4.(e) of Agreement shall be amended to read as follows:
"(e) After (i) receipt of the Board's prior approval of First Citizens'
acquisition of Farmers; (ii) the approval of the Stockholders of
Farmers and First Citizens; and (iii) the regulatory waiting period(s)
have expired, First Citizens shall designate the date as of which
First Citizens desires the Merger to become effective and the time the
Merger shall become effective shall occur at the time and on the date
so designated. However, any date so specified unless otherwise agreed
to by Farmers and First Citizens, shall not be later than either (a)
the first of the month immediately following the month in which the
last of the events described above (i-iii) occurs if said event occurs
before the twenty first day of such month or (b) the first day of the
second month immediately following such month if the last of the
events described above occurs after the twentieth day of such month;
provided, however, that in no event, shall such date so specified be
earlier than February 28, 1998."
(2) In all respects, Agreement is hereby ratified and confirmed.
IN WITNESS WHEREOF, the Amendment to Agreement has been executed the day
and year first above written.
<TABLE>
<S> <C>
SIGNED IN THE PRESENCE OF: FIRST CITIZENS BANC CORP
[illegible] By: /s/ DAVID VOIGHT
- --------------------------------------------- ------------------------------------------
Witness David Voight, President
[illegible]
- ---------------------------------------------
Witness
THE FARMERS STATE BANK
[illegible] By: /s/ WILLIAM SHEAFFER
- --------------------------------------------- ------------------------------------------
Witness William Sheaffer,
Executive Vice President
[illegible]
- ---------------------------------------------
Witness
</TABLE>
A-4
<PAGE> 5
FIRST CITIZENS BANC CORP
EXHIBIT NO. 10ii
- -------------------------------------------------------------------------------
AGREEMENT AND PLAN OF REORGANIZATION
This is an AGREEMENT dated July 3, 1997, between First Citizens Banc Corp.
(hereinafter called "First Citizens") and The Farmers State Bank (hereinafter
called "Farmers").
WITNESSETH:
First Citizens is a corporation duly organized under the laws of the State
of Ohio. Its principal office is located at 100 East Water St., Sandusky, Ohio.
As of the date hereof, First Citizens had authorized capital stock consisting of
10,000,000 shares of common stock, without par value ("First Citizens Common
Shares") of which a total of 3,051,504 shares are issued and outstanding and
none are shares of treasury stock owned by First Citizens. First Citizens owns
all of the outstanding capital stock of The Castalia Banking Company, The
Citizens Banking Company, R. A. Reynolds Appraisal Service, Inc. and SCC
Resources, Inc. (hereinafter referred to as the "Subsidiaries").
Farmers is an Ohio state banking corporation duly organized under the laws
of the State of Ohio. Its principal office is located at 102 S. Kibler St., New
Washington, Crawford County, Ohio. As of the date hereof, Farmers has authorized
capital stock consisting of 200,000 authorized shares of common stock, $20 par
value per share ("Farmers Common Stock"), all of which shares are issued and
outstanding and none are shares of treasury stock owned by Farmers.
At least a majority of the entire Board of Directors of First Citizens and
at least a majority of the entire Board of Directors of Farmers, respectively,
have approved the entering into of this Agreement and have authorized the
execution and delivery of this Agreement. The Boards of Directors of First
Citizens and Farmers have determined that it is in the best interests of their
respective corporations and Stockholders that Farmers become a wholly owned
subsidiary corporation of First Citizens. After the execution of this Agreement,
First Citizens will undertake to cause the formation of a new banking
corporation to be organized under the laws of the State of Ohio ("New Bank"),
and thereafter First Citizens and Farmers will cause, subject to the terms and
conditions set forth in this Agreement, the merger of New Bank with and into
Farmers, in accordance with the terms set forth in the Merger Agreement attached
hereto and designated Appendix A (the "Merger Agreement"). From and after the
time the merger of Farmers and New Bank shall become effective, (the "Merger")
and as and when required by this Agreement and the Merger Agreement, First
Citizens will issue its Common Shares in exchange for all of the issued and
outstanding shares of Farmers Common Stock.
In consideration of mutual covenants and agreements herein contained, First
Citizens and Farmers hereby make this Agreement and prescribe the terms and
conditions of the Merger and the mode of carrying the Merger into effect as
follows:
1. Formation of New Bank. As soon as practicable after the date
hereof, First Citizens shall commence and proceed with due diligence in the
formation of the New Bank, all of the outstanding shares of which will be
acquired by First Citizens prior to the merger of Farmers and the New Bank.
The New Bank will merge with and into Farmers as the surviving bank
corporation thereof, pursuant to the Merger Agreement. Upon consummation of
the Merger, each share of Farmers Common Stock, (other than Dissenter
Shares, as defined in Section 5) shall be converted into the right to
receive 6.5 duly authorized, validly issued, fully paid and non-assessable
First Citizens Common Shares, in accordance with the provisions regarding
the exchange of shares set forth in the Merger Agreement.
2. The Merger Agreement. Promptly following the commencement of the
corporate existence of the New Bank, Farmers and First Citizens shall enter
into, and First Citizens shall cause the New Bank to enter into, the Merger
Agreement.
3. Discussions with Others; Other Offers. On and after the date
hereof, except with the written consent of First Citizens, Farmers shall
not directly or indirectly solicit or encourage (nor shall Farmers 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 Farmers or for the acquisition of the stock
or all or substantially all
A-5
<PAGE> 6
FIRST CITIZENS BANC CORP
EXHIBIT NO. 10ii
- -------------------------------------------------------------------------------
of the assets or business of Farmers, or discuss with or enter into
conversations with any person, other than Farmers stockholders or
employees, concerning any such merger, consolidation, share exchange,
acquisition or other transaction, other than the share exchange with First
Citizens; provided, however, that Farmers may communicate information about
any such proposals or inquiries to its stockholders if and to the extent
that it is required to do so in order to reasonably comply with its legal
obligations. Farmers will promptly notify First Citizens 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 First Citizens to enter into this Agreement and
incur the substantial expenses involved in effectuating the transactions
contemplated herein, Farmers agrees and does hereby promise to pay to First
Citizens the sum of $500,000, upon First Citizens' demand therefor, in the
event that the Farmers stockholders fail to approve this Agreement or the
Merger Agreement as a result of Farmer's decision to entertain offers from
and negotiate with a bona fide offeree other than First Citizens.
4. Undertakings of the Parties. First Citizens and Farmers further
covenant and agree as follows:
(a) As soon as the Registration Statement referenced in (c) below
shall become effective, this Agreement and the Merger Agreement shall be
submitted to the Stockholders of Farmers for approval and adoption at a
special meeting of Stockholders to be called and held in accordance with
law and the Articles of Incorporation and Code of Regulations of
Farmers.
(b) As promptly as possible after the date hereof, each of First
Citizens and Farmers shall use its best efforts, separately and jointly
with the other party, 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 "Board"), the approval of the
Ohio Department of Commerce (Division of Financial Institutions Office
of Banks and Savings & Loans) and the approval of the Federal Deposit
Insurance Corporation, and shall do any and all acts and things
reasonably necessary or advisable in order to cause the share exchange
to be consummated on the terms provided in this Agreement and the Merger
Agreement as promptly as practicable. First Citizens and Farmers will
cooperate in complying with and in the preparation of proxy and
registration statements under federal and state securities laws so as to
facilitate the exchange of shares as contemplated by this Agreement and
the Merger Agreement.
(c) Each party will assume and pay all of its fees and expenses
incurred by it incident to the negotiation, preparation and execution of
this Agreement, obtaining of the requisite regulatory and shareholder
consents and approvals and all other acts incidental to, contemplated by
or in pursuance of this Agreement. First Citizens shall be responsible
for preparing and filing at no expense to Farmers: (i) any and all
required regulatory applications necessary in connection with the
transactions contemplated by this Agreement; and (ii) an S-4
Registration Statement to be filed with the Securities and Exchange
Commission to register the First Citizens Common Shares to be issued in
connection with the transactions contemplated by this Agreement;
provided, however, that such registration statement will not cover
resales by any persons who may be considered "underwriters" under Rule
145(c) of the Securities Act of 1933, as amended (the "1933 Act") and
(iii) any documents to be filed or action required to be taken under any
applicable state securities or "Blue Sky" laws in connection with the
Merger.
(d) Between the date of this Agreement and the effective time of
the Merger, Farmers will afford to the representatives of First
Citizens, including its counsel and auditors, during normal business
hours, full access to any and all assets of, or information with respect
to, Farmers to the end that First Citizens may have full opportunity to
make an investigation, in advance of the effective time as it shall
reasonably desire in order to effectuate the purposes of this Agreement.
To the extent reasonable under the circumstances, the officers of
Farmers will confer with the representatives of First Citizens and will
furnish to First Citizens either orally or by means of such records,
documents, and memoranda as are reasonably available or capable of
preparation (all of which First Citizens will be permitted to make
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copies of) and such other information as First Citizens may reasonably
request. All information furnished by one party to another party in
connection with this Agreement and the transactions contemplated hereby
will be kept confidential by such other party and will be used only in
connection with this Agreement and the transactions contemplated hereby,
except to the extent that such information: (i) is already known to such
other party when received; (ii) thereafter becomes lawfully obtainable
from other sources; or (iii) is required to be disclosed in any document
filed with the Securities and Exchange Commission, the Board, or any
other governmental agency or authority. In the event that this Agreement
is terminated, each party will return to the other party or destroy any
documents received by it from the other party that contain any such
confidential information.
(e) After (i) receipt of the Board's prior approval of First
Citizens' acquisition of Farmers; (ii) the approval of the Stockholders
of Farmers and First Citizens; and (iii) the regulatory waiting
period(s) have expired, First Citizens shall designate the date as of
which First Citizens desires the Merger to become effective and the time
the Merger shall become effective shall occur at the time and on the
date so designated. However, any date so specified unless otherwise
agreed to by Farmers and First Citizens, shall not be later than either
(a) the first of the month immediately following the month in which the
last of the events described above (i-iii) occurs if said event occurs
before the twenty-first day of such month or (b) the first day of the
second month immediately following such month if the last of the events
described above occurs after the twentieth day of such month.
(f) Subject to the terms and conditions of this Agreement, First
Citizens and Farmers each agree that, subject to applicable laws and to
the fiduciary duties of its respective directors, each will promptly
take or cause to be taken all action, and promptly do or cause to be
done all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the Merger and other
transactions contemplated by this Agreement.
(g) First Citizens shall offer the existing employees of Farmers
the opportunity to become employees of Farmers (i.e. the surviving
corporation under the Merger Agreement) following consummation of the
Merger; provided, however, that nothing in this section or elsewhere in
this Agreement shall be deemed to be a contract of employment or be
construed to give said employees any rights other than as employees at
will under Ohio law and said employees shall not be deemed to be
third-party beneficiaries of this provision. Farmers' employees who
become employees of Farmers after the Merger will have their years of
service credited toward eligibility and vesting in Pension Plan for the
Employees of First Citizens Banc Corp. and its Affiliates and the
Savings and Retirement Plan for First Citizens Banc Corp. and its
Affiliates and will be entitled to participate in a variety of on-going
educational and training programs offered by First Citizens and its
Subsidiaries.
(h) Farmers shall, prior to the time the Merger shall become
effective, take such actions, in consultation with First Citizens, as
shall be necessary or desirable to cause termination of any qualified
retirement plans of Farmers at or after the effective date of Merger.
(i) Two (2) member(s) of Farmers' current Board of Directors shall
have the right to serve on the Board of Directors of First Citizens.
Farmers hereby agrees to cause its Board of Directors to provide First
Citizens, at least seventy-five (75) days prior to the annual meeting of
First Citizens, with nominees, subject to First Citizens' approval, to
serve as directors of First Citizens effective at or prior to First
Citizens' 1998 annual shareholder meeting. Pursuant to the Merger
Agreement, all of the current directors of Farmers shall continue as
directors thereof after the Merger.
(j) First Citizens and Farmers 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. First Citizens
agrees to prepare and file, as soon as practicable after the execution
of this Agreement, the Registration Statement under and pursuant to the
provisions of the Act for the purposes of registering the First Citizens
Common Shares to be issued in connection with the transactions
contemplated hereby. Farmers agrees to provide promptly to First
Citizens information concerning the business and financial condition and
affairs of Farmers as may be required or appropriate for inclusion in
the Registration Statement and to cause its counsel and auditors to
cooperate with First Citizens counsel
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and auditors in the preparation of such Registration Statement. First
Citizens agrees to use its best efforts to have such Registration
Statement declared effective under the Act as soon as may be
practicable, and Farmers agrees to distribute the prospectus/proxy
statement (to be prepared by and furnished at First Citizen's expense)
contained in such Registration Statement (the Farmers "Prospectus/Proxy
Statement") to Farmers stockholders not less than ten (10) days prior to
the scheduled meeting of Farmers stockholders that will be held to
consider approval of this Agreement and the Merger Agreement. Except to
the extent permitted by Rule 145(b), First Citizens and Farmers agree
not to publish any communication other than the Prospectus/Proxy
Statement, in respect of this Agreement, the Merger Agreement, 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. First Citizens and Farmers agree that, between the date the
Registration Statement becomes effective and the effective time of the
Merger, 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. First Citizens
shall not be required to maintain the effectiveness of the Registration
Statement for the purpose of resale of First Citizens Common Shares by
Farmers stockholders who may be deemed to be affiliates of Farmers, as
such term is defined in Rule 144 promulgated under the Act (the
"Affiliates").
(k) Each Affiliate of Farmers shall furnish to First Citizens a
certificate representing that such Affiliate will not sell, assign, or
transfer any of the First Citizens 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 or other counsel
satisfactory to First Citizens, or in accordance with a "no action"
letter from the staff of the Securities and Exchange Commission, the
First Citizens 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 First Citizens. With respect to such representations, each
Affiliate shall agree to hold harmless and indemnify First Citizens and
First Citizens' officers and directors from and against any losses,
claims, damages, expenses (including reasonable attorneys' fees), or
liabilities to which First Citizens or any officer or director of First
Citizens 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 First Citizens 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 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."
First Citizens covenants and agrees to remove the foregoing
restrictive legend from the certificate or certificates representing the
First Citizens Common Shares issued to an Affiliate and to cancel any
stop order instructions with respect thereto upon (i) receipt of advice
from its counsel that such actions are appropriate under the then
existing circumstances, or (ii) upon request of the holder thereof at
anytime after that period ending two years following the Merger,
provided that the holder thereof is not,
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and has not for at least the thirty day period ending prior to the
request been an affiliate of First Citizens.
(l) First Citizens shall, to the extent required by applicable
state securities or "blue sky" laws, as promptly as practicable after
the furnishing by Farmers of all information regarding Farmers required
or desirable to be reflected therein file with applicable state
securities or blue sky administrators, 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
First Citizens Common Shares in connection with the Agreement of Merger.
(m) On the date the Registration Statement becomes effective and at
the effective time of the Merger, Farmers shall deliver to First
Citizens a certificate signed by the principal executive officer and by
the principal financial officer of Farmers to the effect that the
information contained in the Registration Statement relating to the
business and financial condition and affairs of Farmers 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. On the date the Registration Statement becomes
effective and at the effective time of the Merger, First Citizens shall
deliver to Farmers a certificate signed by the chief executive officer
and by the chief financial officer of First Citizens to the effect that
the Registration Statement (other than the information contained therein
relating to the business and financial condition and affairs of Farmers)
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.
(n) First Citizens will maintain "current public information"
within the meaning of Rule 144 of the Securities and Exchange Commission
for two (2) years following the effective date.
5. Dissenting Stockholders. Holders of Farmers Common Stock, who do
not vote their shares in favor of the Merger and otherwise comply in all
respects to perfect dissenters' rights, will be entitled to dissenters' or
appraisal rights, if any, pursuant to and solely upon strict compliance
with, the applicable provisions of Ohio law (collectively, the "Dissenting
Shares").
6. Tax Opinion. Farmers, for the benefit of its Stockholders, shall
obtain a written opinion of it's counsel, to the effect that:
(a) The statutory merger of New Bank with and into Farmers will
constitute a reorganization within the meaning of Section 368(a)(1)(A)
and (a)(2)(E) of the Internal Revenue Code;
(b) No gain or loss will be recognized by Farmers as a consequence
of the transactions herein contemplated;
(c) No gain or loss will be recognized by the Stockholders of
Farmers on the exchange of their shares of Farmers Common Stock for
First Citizens Common Shares (disregarding for this purpose any cash
received for fractional share interests to which they may be entitled);
(d) The federal income tax basis of the First Citizens Common
Shares received by the Stockholders of Farmers for their shares of
Farmers Common Stock will be the same as the federal income tax basis of
the Farmers Common Stock surrendered in exchange therefor; and
(e) The holding period of the First Citizens Common Shares received
by a shareholder of Farmers in exchange for shares of Farmers Common
Stock will include the period for which the Farmers Common Stock
exchanged therefor was held, provided the exchanged Farmers Common Stock
was held as a capital asset by such shareholder on the date of the
exchange.
7. Representations and Warranties of First Citizens. First Citizens
represents and warrants to Farmers as follows:
(a) First Citizens is a corporation duly organized and validly
existing under the laws of the State of Ohio, is a registered bank
holding company under the Bank Holding Company Act of 1956, as amended,
and is qualified to do business in the State of Ohio, together with all
other jurisdictions where
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it is both required to so qualify and the failure to so qualify would
have material and adverse consequences to First Citizens. First Citizens
has full power and authority (including all licenses, franchises,
permits and other governmental authorizations which are legally
required) to engage in the businesses and activities now conducted by
it. As of March 31, 1997, the authorized capital stock of First Citizens
consisted of 10,000,000 shares of common stock, without par value, of
which a total of 3,051,504 shares were issued and outstanding and no
shares were held by First Citizens as treasury stock. All of said shares
of capital stock are fully paid and nonassessable and are not issued in
violation of the preemptive rights of any shareholder.
(b) First Citizens has furnished to Farmers copies of the following
financial statements relating to First Citizens and its consolidated
subsidiaries: (i) the audited Consolidated Balance Sheets of First
Citizens as of December 31, 1996, and 1995, and the Consolidated
Statements of Income, Stockholders' Equity and Statements of Cash Flows
for the three years ended December 31, 1996, 1995 and 1994, together
with the notes thereto; and (ii) the unaudited Consolidated Balance
Sheet of First Citizens as of March 31, 1997, and the unaudited
Consolidated Statements of Income and Stockholders' equity for the
period then ended. Each of the aforementioned financial statements was
prepared in accordance with Generally Accepted Accounting Principles,
consistently applied and is true and correct in all material respects
and together present fairly the consolidated financial position and
results of operations of First Citizens as of the dates and for the
periods therein set forth (subject, in the case of such interim
financial statements, to normal year-end audit adjustments). Such
financial statements do not, as of the dates thereof, include any
material asset or omit any material liability, absolute or contingent,
or other fact, the inclusion or omission of which renders such financial
statements, in light of the circumstances under which they were made,
misleading in any material respect. Since December 31, 1996, there has
not been any material adverse change in the financial condition, results
of operations, business or prospects of First Citizens and the
Subsidiaries on a consolidated basis.
(c) The Board of Directors of First Citizens has authorized
execution of this Agreement and the Merger Agreement and approved the
merger of the New Bank and Farmers as contemplated herein and therein.
First Citizens has all requisite power and authority to enter into this
Agreement and the Merger Agreement and First Citizens has the authority
to consummate the transactions contemplated hereby. This Agreement
constitutes the valid and legally binding obligation of First Citizens
and this Agreement and the consummation of the transactions contemplated
herein have been duly authorized and approved on behalf of First
Citizens by all requisite corporate action. Provided the required
approvals are obtained from the Board, neither the execution and
delivery of this Agreement or the Merger Agreement nor the consummation
of the Merger will conflict with, result in the breach of, constitute a
default under or accelerate the performance provided by the terms of any
law, or any rule or regulation of any governmental agency or authority
or any judgment, order or decree of any court or other governmental
agency to which First Citizens may be subject, any contract, agreement
or instrument to which First Citizens is a party or by which First
Citizens is bound or committed, or the Articles of Incorporation or Code
of Regulations of First Citizens, or constitute an event which with the
lapse of time or action by a third party, could, to the best of First
Citizens' knowledge, result in the default under any of the foregoing or
result in the creation of any lien, charge or encumbrance upon any of
the assets or properties of First Citizens or upon any of the stock of
First Citizens; except, however, in the case of contracts, agreements or
instruments, such defaults, conflicts or breaches which either (i) will
be cured or waived prior to the time the Merger becomes effective, or
(ii) if not so cured or waived would not, in the aggregate, have any
material adverse effect on the financial condition, results of
operations or business of First Citizens on a consolidated basis.
(d) There is no litigation, action, suit, investigation or
proceeding pending or, to the best of the knowledge after due inquiry of
First Citizens and its executive officers, threatened, against or
affecting First Citizens and/or the Subsidiaries or involving any of
their respective properties or assets, at law or in equity, before any
federal, state, municipal, local or other governmental authority,
involving a material amount which, if resolved adversely to the interest
of First Citizens and the Subsidiaries, would materially affect the
financial conditions or operations of First Citizens and the
Subsidiaries
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and/or its ability to perform under this Merger Agreement, and to the
best of the knowledge and belief after due inquiry of First Citizens and
its executive officers, no one has asserted and no one has reasonable or
valid grounds on which it reasonably can be expected that anyone will
assert any such claims against First Citizens and the Subsidiaries based
upon the wrongful action or inaction of First Citizens and the
Subsidiaries or any of their respective officers, directors or
employees.
(e) At the time the Merger shall become effective and on such
subsequent date when the former Stockholders of Farmers surrender their
Farmers share certificates for cancellation, the First Citizens Common
Shares to be received by Stockholders of Farmers will have been duly
authorized and validly issued by First Citizens and will be fully paid
and nonassessable.
(f) Except for a fee to McDonald & Company Securities, Inc., First
Citizens has not incurred and will not incur directly or indirectly any
liability for brokerage, finders', agents' or investment bankers' fees
or commissions in connection with this Agreement or the transactions
contemplated thereby.
(g) The Pension Plan for the Employees of First Citizens Banc Corp.
and its Affiliates and the Savings and Retirement Plan for First
Citizens Banc and its Affiliates (hereinafter referred to collectively
as the "plans") which purport to be qualified plans under Section 401(a)
of the Internal Revenue Code is so qualified and is in compliance in all
material respects with the applicable requirements of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"). All
material notices, reports and other filings required under applicable
law to be given or made to or with any governmental agency with respect
to the plans have been timely filed or delivered where failure to file
will result in a penalty or result in disqualification of the plan.
First Citizens has no knowledge either of any circumstances which would
adversely affect the qualifications of the plans or their compliance
with the applicable requirements of ERISA, or of any "reportable event"
(as such term is defined in Section 4043(b) of ERISA) or any "prohibited
transaction" (as such term is defined in Section 406 of ERISA and
Section 4975(c) of the Internal Revenue Code) which has occurred since
the date on which said section became applicable to the plans. With
respect to those plans which are defined benefit plans within the
meaning of ERISA, such plans meet the minimum funding standards set
forth in the Internal Revenue Code and ERISA.
(h) First Citizens has delivered to Farmers copies of the Annual
Report on Form 10-K filed with the Securities and Exchange Commission by
First Citizens for its fiscal years ended December 31, 1996, 1995, and
1994 including exhibits and all documents incorporated by reference
therein, and the proxy materials disseminated by First Citizens to its
Shareholders in connection with the 1997 Annual Meeting of Shareholders
of First Citizens. Such Annual Report and proxy materials do not
misstate a material fact or omit to state a material fact necessary in
order to make the statements contained therein, in light of the
circumstances under which they are made, not misleading.
(i) Since December 31, 1996, each of First Citizens and the
Subsidiaries has conducted business only in the ordinary course, and has
preserved its corporate existence, business and goodwill intact.
(j) First Citizens and the Subsidiaries each have good and
marketable title to all assets and properties, whether real or personal,
tangible or intangible, including without limitation the capital stock
of the Subsidiary Banks and all other assets and properties reflected in
First Citizens' Balance Sheet of December 31, 1996 or acquired
subsequent thereto (except to the extent that such assets and properties
have been disposed of for fair value in the ordinary course of business
since December 31, 1996) subject to no liens, mortgages, security
interests, encumbrances, pledges or charges of any kind, except: (i)
those items that secure liabilities that are reflected in said Balance
Sheet; (ii) statutory liens for taxes not yet delinquent; and (iii)
minor defects and irregularities in title and encumbrances which do not
materially impair the use thereof for the purposes for which they are
held; and such liens, mortgages, security interests, encumbrances and
charges are not in the aggregate, material to the assets and properties
of First Citizens. First Citizens or one of the Subsidiaries as lessee
has the contractual right under valid leases to occupy, use, possess and
control all material property leased by First Citizens or one of the
Subsidiaries.
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(k) To the best of the knowledge after due inquiry of First
Citizens and its executive officers, First Citizens and the Subsidiaries
have complied with all laws, regulations and orders applicable to them
and to the conduct of their respective businesses, including without
limitation, all statutes, rules and regulations pertaining to the
conduct of banking activities except for possible technical violations
which together with any penalty which results therefrom are or will be
of no material consequence to either First Citizens or the Subsidiaries.
Neither First Citizens nor any of the Subsidiaries is the subject of,
nor a party to, any regulatory action or agreement such as letter
agreements, memorandum of understanding, cease and desist orders or like
agreements. Neither First Citizens nor the Subsidiaries are in default
under, and no event has occurred which, with the lapse of time or action
by a third party, could, to the best of First Citizens' knowledge after
due inquiry, result in the default under the terms of any judgment,
decree, order, writ, rule or regulation of any governmental authority or
court, whether federal, state or local and whether at law or in equity,
where the default(s) could reasonably be expected to have a material
adverse effect on the financial conditions, results of operations or
business of First Citizens and the Subsidiaries on a consolidated basis.
(l) First Citizens has duly filed all federal, state, county and
local income, excise, real and personal property and other tax returns
and reports (including, but not limited to, social security,
withholding, unemployment insurance, and sales and use taxes) required
to have been filed by First Citizens up to the date hereof. To the best
of the knowledge and belief of First Citizens all such returns are true
and correct in all material respects, and First Citizens has paid or,
prior to the time the Merger shall become effective, will pay all taxes,
interest and penalties shown on such return or reports or claimed (other
than those claims being contested in good faith and which have been
disclosed to Farmers) to be due to any federal, state, county, local or
other taxing authority, and there is, and at the time the Merger shall
become effective will be, no basis for any additional claim or
assessment which might materially and adversely affect First Citizens or
the Subsidiaries, and for which an adequate reserve has not been
established. To the best of its knowledge and belief, First Citizens has
paid or made adequate provision in its financial statements or its books
and records for all taxes payable in respect of all periods ending as of
the date thereof. To the best of its knowledge and belief First Citizens
has, or at the time the Merger shall become effective will have, no
material liability for any taxes, interest or penalties of any nature
whatsoever, except for those taxes which may have arisen up to the time
the Merger shall become effective in the ordinary course of business and
are properly accrued on the books of First Citizens as of the time the
Merger shall become effective.
(m) To the best of its knowledge and belief, but without having
undertaken an environmental audit, First Citizens has no knowledge of
any underground storage tanks, any hazardous substances, hazardous
waste, pollutant or contaminant, including, but not limited to, asbestos
(except as previously disclosed to Farmers in a letter of even date
herewith), PCB's or urea formaldehyde, having been generated, released
into, stored or deposited over, upon or below (in storage tanks or
otherwise) First Citizens' premises or any other real property owned or
leased by First Citizens other than other real estate owned, for which
no investigation was conducted by First Citizens, but for which First
Citizens has no knowledge of such, or into any water systems on or below
the surface of the First Citizens premises or any other real property
owned or leased by First Citizens other than other real estate owned,
for which no investigation was conducted by First Citizens, but for
which First Citizens has no knowledge of such from any source
whatsoever. As used in this Agreement, the terms "hazardous substance,"
"hazardous waste," pollutant" and "contaminant" mean any substance,
waste, pollutant or contaminant included within such terms under any
applicable Federal, state or local statute or regulation.
8. Representations and Warranties of Farmers. Farmers represents and
warrants to First Citizens that, except as set forth in the disclosure
letter dated of even date herewith (the "Disclosure Letter") and attached
hereto and made a part hereof, as follows:
(a) Farmers is a banking corporation duly organized and validly
existing in good standing under the laws of the State of Ohio. Farmers
has full power and authority (including all licenses, franchises,
permits and other governmental authorizations which are legally
required) to engage in the businesses
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and activities now conducted by it. As of the date of this Agreement,
the authorized capital stock of Farmers consists of 200,000 shares of
common stock with $20 par value, all of which shares are issued and
outstanding and none are shares of treasury stock owned by Farmers. All
of said shares of capital stock are fully paid and nonassessable and are
not issued in violation of the preemptive rights of any shareholder.
There are no outstanding options, warrants or commitments of any kind
relating to Farmer's capital stock.
(b) Farmers has furnished to First Citizens copies of all financial
statements relating to Farmers, as filed with the appropriate regulatory
agencies, as of and for the years ended December 31, 1996 and 1995.
Farmers has furnished to First Citizens copies of all financial
statements relating to Farmers, as filed with the appropriate regulatory
agencies, as of and for the period ended March 31, 1997 and will furnish
to First Citizens monthly financial statements for the period thereafter
through the effective time of the Merger. Each of the aforementioned
financial statements is and shall be prepared in accordance with
Generally Accepted Accounting Principles or applicable regulatory
accounting principles applicable to Farmers consistently applied and is
and shall be true and correct in all material respects and together
present fairly the consolidated financial position and results of
operations of Farmers as of the dates and for the periods therein set
forth (subject, in the case of such interim financial statements, to
normal year-end adjustments). Farmers financial statements do not and
will not, as of the dates thereof, include any asset in excess of $5,000
or omit any liability in excess of $5,000, absolute or contingent, or
other fact, the inclusion or omission of which renders such financial
statements, in light of the circumstances under which they were made,
misleading in any material respect. Since December 31, 1996, there has
not been any change in the financial condition, results of operations,
business or prospects of Farmers (including, without limitation, any
adverse trend in the loan loss experience of Farmers) which in the
aggregate, has had a material adverse effect on Farmer's condition.
(c) The Board of Directors of Farmers has authorized execution of
this Agreement. Subject to the approval by the Stockholders of Farmers,
Farmers has all requisite power and authority to enter in this Agreement
and the Merger Agreement. Farmers has the authority to consummate the
transactions contemplated hereby so that, provided all required
corporate and regulatory approvals are obtained, neither the execution
and delivery of this Agreement, the Merger Agreement nor the
consummation of the Merger will conflict with, result in the breach of,
constitute a default under or accelerate the performance provided by the
terms of any law, or any rule or regulation of any governmental agency
or authority or any judgment, order or decree of any court or other
governmental agency to which Farmers may be subject, any contract,
agreement or instrument to which Farmers is a party or by which Farmers
is bound or committed, or the Articles of Incorporation or Code of
Regulations of Farmers, or constitute an event which with the lapse of
time or action by a third party, could, to the best of Farmer's
knowledge, result in the default under any of the foregoing or result in
the creation of any lien, charge, encumbrance upon any of the assets,
property or capital stock of Farmers, except, however, in the case of
contracts, agreements or instruments, such defaults, conflicts or
breaches which either (i) will be cured or waived prior to the time the
Merger becomes effective, or (ii) if not so cured or waived would not,
in the aggregate, have any material adverse effect on the financial
condition, results of operations or business of Farmers.
(d) Except as disclosed in Subsection (d) of the Disclosure Letter,
there is no litigation, action, suit, investigation or proceeding
pending or, to the best of their knowledge after due inquiry of Farmers
and its executive officers, overtly threatened, against or affecting
Farmers or involving any of their respective properties or assets, at
law or in equity, before any federal, state, municipal, local or other
governmental authority, involving in excess of $5,000, and to the best
of the knowledge and belief after due inquiry of Farmers and its
executive officers, no one has asserted and no one has reasonable or
valid ground on which it reasonably can be expected that anyone will
assert any such claims against Farmers based upon the wrongful action or
inaction of Farmers or its respective officers, directors or employees.
(e) Farmers has good and marketable title to all assets and
properties, whether real or personal, tangible or intangible reflected
in Farmer's Balance Sheet of December 31, 1996 or acquired subsequent
thereto (except to the extent that such assets and properties have been
disposed of for fair
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value in the ordinary course of business since December 31, 1996)
subject to no liens, mortgages, security interests, encumbrances,
pledges or charges of any kind, except: (i) those items that secure
liabilities that are reflected in said Balance Sheet; (ii) statutory
liens for taxes not yet delinquent; and (iii) minor defects and
irregularities in title and encumbrances which do not impair the use
thereof for the purposes for which they are held; and such liens,
mortgages, security interests, encumbrances and charges are not in the
aggregate, material to the assets and properties of Farmers. Farmers as
lessee has the contractual right under valid leases to occupy, use,
possess and control all material property leased by Farmers.
(f) To the best of the knowledge after due inquiry of Farmers and
its executive officers, Farmers has complied with all laws, regulations
and orders applicable to it and to the conduct of its business,
including without limitation, all statutes, rules and regulations
pertaining to the conduct of its banking activities except for possible
technical violations which together with any penalty which results
therefrom are or will be of no material consequence to Farmers. Except
as disclosed in Subsection (f) of the Disclosure Letter, Farmers is not
the subject of, nor is a party to, any regulatory actions or agreement
such as letter agreements, memorandum of understanding, cease and desist
order or like agreements. Farmers is not in default under, and no event
has occurred which, with the lapse of time or action by a third party,
could, to the best of Farmer's knowledge after due inquiry, result in
the default under the terms of any judgment, decree, order, writ, rule
or regulation of any governmental authority or court, whether federal,
state or local and whether at law or in equity.
(g) Except as disclosed in Subsection (g) of the Disclosure Letter,
Farmers has not, since December 31, 1996 to the date hereof: (i) issued
or sold any of its capital stock or any corporate debt securities; (ii)
granted any option for the purchase of capital stock; (iii) declared or
set aside or paid any dividend or other distribution in respect of its
capital stock except as permitted pursuant to Section 9(a) hereof or,
directly or indirectly, purchased, redeemed or otherwise acquired any
shares of such stock; (iv) incurred any obligation or liability
(absolute or contingent), except for obligations reflected in this
Agreement or the Merger Agreement, and except for obligations or
liabilities incurred in the ordinary course of business, or mortgaged,
pledged or subjected to lien or encumbrance (other than statutory liens
for taxes not yet delinquent) any of its assets or properties; (v)
discharged or satisfied any lien or encumbrance or paid any obligation
or liability (absolute or contingent), other than the current portion of
any long term liabilities which become due after December 31, 1996,
current liabilities included in its financial statements as of December
31, 1996, current liabilities incurred since the date thereof in the
ordinary course of business and liabilities incurred in carrying out the
transactions contemplated by this Agreement or the Merger Agreement;
(vi) sold, exchanged or otherwise disposed of any of its capital assets
worth in excess of $5,000 outside the ordinary course of business; (vii)
made any officers' salary increase or wage increase other than in the
ordinary course of business, entered into any employment contract with
any officer or salaried employee or, instituted any employee welfare,
bonus, stock option, profit-sharing, retirement or similar plan or
arrangement; (viii) suffered any damage, destruction or loss, whether or
not covered by insurance, involving in excess of $5,000, affecting its
business, property or assets or waived (except for fair consideration)
any rights of value which are material in the aggregate, considering its
business taken as a whole; or (ix) entered or agreed to enter into any
agreement or arrangement granting any preferential right to purchase any
of its assets, properties or rights or requiring the consent of any
party to the transfer and assignment of any such assets, properties or
rights.
(h) Except as disclosed in Subsection (h) of the Disclosure Letter,
Farmers is not a party to or bound by any written or oral: (i)
employment or consulting contract which is not terminable by it on 60
days or less notice, (ii) employee bonus, deferred compensation,
pension, stock bonus or purchase, profit-sharing, retirement or stock
option plan, (iii) other employee benefit or welfare plan, or (iv) other
executory material agreements which in any case obligate Farmers to make
any payment(s) which in the aggregate exceed $5,000 per year except for
contracts terminable on 60 days notice. All such pension, stock bonus or
purchase, profit-sharing, defined benefit and retirement plans set forth
under the caption "Qualified Plans" in the Farmers Document List
(hereinafter referred to collectively as the
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"plan") are qualified plans under Section 401(a) of the Internal Revenue
Code and in compliance in all material respects with ERISA. All material
notices, reports and other filings required under applicable law to be
given or made to or with any governmental agency with respect to the
plans have been timely filed or delivered where failure to file would
result in a penalty and/or result in disqualification of the plan.
Farmers has no knowledge either of any circumstances which would
adversely affect the qualification of the plans or their compliance with
ERISA, or of any unreported "reportable event" (as such term is defined
in Section 4043(b) of ERISA) or, any "prohibited transaction" (as such
term is defined in Section 406 of ERISA and Section 4975(c) of the
Internal Revenue Code) which has occurred since the date on which said
sections became applicable to the plans. The plans meet the minimum
funding standards set forth in the Internal Revenue Code and ERISA.
(i) Farmers has duly filed all federal, state, county and local
income, excise, real and personal property and other tax returns and
reports (including, but not limited to, social security, withholding,
unemployment insurance, and sales and use taxes) required to have been
filed by Farmers up to the date hereof. Except as set forth in
Subsection (i) of the Disclosure Letter, to the best of the knowledge
and belief of Farmers all such returns are true, are correct in all
material respects, and Farmers has paid or, prior to the time the Merger
shall become effective, will pay all taxes, interest and penalties shown
on such return or reports or claimed together than those claims being
contested in good faith and which have been disclosed to First Citizens
to be due to any federal, state, county, local or other taxing
authority, and there is, and at the time the Merger shall become
effective will be, no basis for any additional claim or assessment in
excess of $5,000 and for which an adequate reserve has not been
established. To the best of its knowledge and belief, Farmers has paid,
made or will make adequate provision in its financial statements or its
books and records for all taxes payable in respect of all periods ending
as of the date thereof. To the best of its knowledge and belief, Farmers
has, or at the time the Merger shall become effective will have, no
liability for any taxes, interest or penalties of any nature whatsoever,
in excess of $5,000 except for those taxes which may have arisen up to
the time the Merger shall become effective in the ordinary course of
business and are properly accrued on the books of Farmers as of the time
the Merger shall become effective.
(j) To the best of its knowledge and belief, but without having
undertaken an environmental audit, Farmers has no knowledge of any
underground storage tanks, any hazardous substances, hazardous waste,
pollutant or contaminant, including, but not limited to, asbestos
(except as disclosed in Subsection (j) of the Disclosure Letter), PCB's
or urea formaldehyde, having been generated, released into, stored or
deposited over, upon or below (in storage tanks or otherwise) Farmer's
premises or any other real property owned or leased by Farmers other
than other real estate owned, for which no investigation was conducted
by Farmers, but for which Farmers has no knowledge of such, or into any
water systems on or below the surface of the Farmers premises or any
other real property owned or leased by Farmers other than other real
estate owned, for which no investigation was conducted by Farmers, but
for which Farmers has no knowledge of such from any source whatsoever.
As used in this Agreement, the terms "hazardous substance," "hazardous
waste," pollutant" and "contaminant" mean any substance, waste,
pollutant or contaminant included within such terms under any applicable
Federal, state or local statute or regulation.
(k) Except for its obligation to its financial advisor Austin
Associates, Inc., as previously disclosed to First Citizens, Farmers has
not incurred and will not incur any liability for brokerage, finders',
agents', or investment bankers' fees or commissions in connection with
this Agreement or the Merger Agreement or the transactions contemplated
hereby and thereby.
(l) Subject to their fiduciary duties, the directors of Farmers
executing this Agreement shall vote the shares of Farmers held directly
by them in favor of adoption of the Agreement.
(m) All contracts and commitments (whether written or oral) that
may have a material effect on the business of Farmers are disclosed in
subsection (m) of the Disclosure Letter and copies of any such written
contracts or commitments have been provided to First Citizens. All
contracts and commitments for the lease or purchase of equipment or
services have been entered into on an arm's length basis.
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(n) The deposits of Farmers are insured by the Federal Deposit
Insurance Corporation in accordance with the Federal Deposit Insurance
Act ("FDIA"). Farmers has paid all assessments and filed all reports
required under the FDIA and is in compliance, in all material respects,
with all regulatory requirements imposed in connection with the
insurance of its deposits.
(o) To the best of Farmer's knowledge and belief, the reserves for
possible loan losses on the outstanding loans of Farmers (if any, as
reflected in the balance sheet of Farmers as of December 31, 1996 (the
"1996 Balance Sheet") are adequate to absorb all known and anticipated
loan losses in the loan portfolio of Farmers, net of recoveries relating
to loans previously charged off. Except as set forth in subsection (o)
of the Disclosure Letter, there are no loans of Farmers the present
principal balance of which is in excess of $5,000 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 is
concluded). To the best of Farmer's knowledge and belief, each loan in
the principal amount of $5,000 or greater reflected as an asset of
Farmers in the 1996 Balance Sheet or acquired by Farmers 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, to the best of Farmer's knowledge and belief, none of the
investments reflected in the 1996 Balance Sheet under the heading
"Investment Securities," and none of the investments made by Farmers
since December 31, 1996, is subject to any restriction, whether
contractual or statutory, which impairs the ability of Farmers freely to
dispose of such investment at any time. Farmers is not a party to any
repurchase agreements. Except as set forth in subsection (o) of the
Disclosure Letter, and except for transactions aggregating less than
$5,000, Farmers 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 Farmers to
repurchase or otherwise re acquire any such assets.
(p) Prior to the Closing, Farmers will have provided First 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 Farmers and their
affiliates as of the last day of the calendar month immediately prior to
the Closing. In addition, Farmers shall provide First Citizens with a
list of (i) all certificates of deposit, checking, savings or other
deposits in excess of $100,000 and (ii) all customers with aggregate
deposits in excess of $100,000.
(q) Subsection (q) of the Disclosure Letter contains a list and a
brief description of all insurance policies currently in force with
respect to Farmers. All premiums due on such policies have been paid,
and such policies will continue to remain in force through the Effective
Time. Subsection (q) the disclosure letter 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.
(r) Except to the extent reflected or reserved against in the 1996
Balance Sheet or in the notes thereto, as of the date of such Balance
Sheet, Farmers has no liabilities or obligations, secured or unsecured,
whether accrued, absolute, contingent or otherwise, which would
materially and adversely affect the financial condition, results of
operations, assets, or business of Farmers.
(s) Except for loans made in the ordinary course of business,
Farmers has no business relationships, business transactions or
indebtedness with or to any of its officers and directors.
9. Action by Farmers Pending Effective Time. Farmers agrees that from
the date of this Agreement until the time the Merger shall become
effective, except with prior written permission of First Citizens:
(a) Beginning with the date hereof and until such time as the
Merger shall become effective, Farmers will not declare or pay any
dividends or make any distributions other than regular cash dividends,
payable at such times and in amounts consistent with past practice and
not to exceed the per share rate paid in the prior calendar year,
provided that if the merger shall occur prior to the payment of
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the regular annual cash dividend of Farmers, Farmers may pay a cash
dividend in an amount equal to the per share rate paid in the prior
calendar year, prorated to the date of the Merger. If, prior to the
consummation of the Merger, Farmers shall declare a stock dividend or
make distributions upon or subdivide, split up, reclassify or combine
its shares of common stock in any security convertible into its common
stock, appropriate adjustment or adjustments will be made in the
foregoing per share dividend rate.
(b) Farmers will not issue, sell, grant any option for, or acquire
for value any shares of its capital stock or otherwise effect any change
in connection with its capitalization.
(c) Except as otherwise set forth in or contemplated by this
Agreement or the Merger Agreement, Farmers will carry on its businesses
in substantially the same manner as heretofore, keep in full force and
effect insurance comparable in amount and scope of coverage to that now
maintained by it and use its best efforts to maintain and preserve its
business organization intact.
(d) Farmers will not: (i) enter into any transaction other than in
the ordinary course of business or incur or agree to incur any
obligation or liability except liabilities incurred and obligations
entered into in the ordinary course of business; (ii) change its
lending, investment, liability management and other policies in any
respect; (iii) except as committed for adjustment as of the date hereof
and consistent with prior practice, grant any general or uniform
increase in the rates of pay of employees; (iv) incur or commit to any
capital expenditures other than in the ordinary course of business, or
(v) merge into, consolidate with or sell its assets to any other
corporation or person, or permit any other corporation to be merged or
consolidated with it or acquire all of the assets of any other
corporation or person.
(e) Farmers will not change its method of accounting in effect at
December 31, 1996 except as required by changes in generally accepted
accounting principles and concurred in by Farmer's independent auditors,
or change any of its methods of reporting income and deductions for
Federal income tax purposes from those employed in the preparation of
Farmer's Federal income tax returns for the taxable year ending December
31, 1996, except for changes required by law.
(f) Farmers will promptly advise First Citizens in writing of all
material actions taken by the directors and Stockholders of Farmers,
furnish First Citizens with copies of all minutes of such action and
monthly interim financial statements of Farmers as they become
available, commencing with the April 1997 statements, and keep First
Citizens fully informed concerning all developments which in the opinion
of Farmers may have a material effect upon the business, properties or
condition (either financial or otherwise) of Farmers.
10. Action by First Citizens Pending Effective Time. First Citizens
agrees that from the date of this Agreement until the time the Merger shall
become effective:
(a) First Citizens will carry on its business in substantially the
same manner as heretofore except as otherwise set forth in or
contemplated by this Agreement, and First Citizens will keep in full
force and effect insurance comparable in amount and scope of coverage to
that now maintained by it and use its best efforts to maintain and
preserve its business organization intact.
(b) First Citizens will not change its methods of accounting in
effect at December 31, 1996, except as required by changes in generally
accepted accounting principles as concurred in by First Citizens'
independent auditors, or change any of its methods of reporting income
and deductions for Federal income tax purposes from those employed in
the preparation of the Federal income tax returns of First Citizens'
Subsidiaries for the taxable year ended December 31, 1996, except for
changes required by law or take any action which could jeopardize the
tax free nature of the Merger or the pooling of interests accounting
treatment for the Merger.
(c) First Citizens will furnish Farmers with copies of interim
financial statements of First Citizens and all reports, schedules and
statements filed by or delivered for First Citizens pursuant to the
Securities and Exchange Act of 1934 and the rules and regulations
promulgated thereunder, as they become available, and keep Farmers fully
informed concerning all developments which in the opinion
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of First Citizens may have a material effect upon the business,
properties or condition (either financial or otherwise) of First
Citizens.
11. Conditions to Obligations of First Citizens. The obligations of
First Citizens under this Agreement and the Merger Agreement are subject,
unless waived by First Citizens, to the satisfaction of the following
conditions on or prior to the time the Merger shall become effective:
(a) There shall not have been any material adverse change or
discovery of a condition or the occurrence of an event which has or is
likely to result in such a change, in the financial condition, aggregate
net assets, Stockholders' equity, business or operating results of
Farmers from December 31, 1996 to the time the Merger shall become
effective.
(b) Farmers shall not have paid cash dividends from the date hereof
to the time the Merger shall become effective except as permitted under
this Agreement.
(c) All representations by Farmers contained in this Agreement and
the Merger Agreement shall be true in all material respects at, or as
of, the time the Merger shall become effective as though such
representations were made at and as of said date, except for changes
contemplated by this Agreement or the Merger Agreement and except also
for representations as of a specified time other than the time the
Merger shall become effective, which shall be true in all material
respects at such specified time. In addition, all amendments to the
Disclosure Letter shall have been approved by First Citizens in
accordance with Section 19.
(d) First Citizens shall have received the opinion of legal counsel
for Farmers, dated the time the Merger shall become effective,
substantially to the effect set forth in Exhibit A hereto.
(e) Farmers shall have performed or satisfied in all material
respects all undertakings, agreements and conditions required by this
Agreement or the Merger Agreement to be performed or satisfied by it at
or prior to the time the Merger shall become effective.
(f) At the time the Merger shall become effective, no suit, action
or proceeding shall be pending or overtly threatened before any court or
other governmental agency by the federal or state government in which it
is sought to restrain or prohibit the consummation of the Merger, and no
other suit, action or proceeding shall be pending or overtly threatened
and no liability or claim shall have been asserted against Farmers which
First Citizens shall in good faith determine, with advice of counsel:
(i) has a reasonable likelihood of being successfully prosecuted and
(ii) if successfully prosecuted, would materially and adversely affect
the benefits hereunder intended for First Citizens.
(g) Prior to the time the Merger shall become effective, First
Citizens shall not have been deprived of adequate opportunity to conduct
such review and examination of the business, properties, and condition
(financial or otherwise) of Farmers as First Citizens shall have deemed
prudent. In the event Farmers receives a written examination report or
written agreement with a state or federal banking regulatory agency,
First Citizens shall have an opportunity to review such examination
report or written agreement for a period of thirty days and may, at its
option, elect to terminate its obligations under this Agreement during
such review period.
(h) Holders of Farmers Common Stock who are entitled to exercise in
the aggregate not more than 10% of the voting power of the issued and
outstanding Farmers Common Stock as of the time the Merger shall become
effective shall have taken steps to perfect their rights as dissenting
Stockholders pursuant to the provisions the Sections 1115.19 and 1701.85
of the Ohio Revised Code so that if, at the time the Merger shall become
effective, holders of more than 10% of such shares shall have taken such
steps, First Citizens may, at its option, refuse to consummate the
Merger.
(i) Farmers shall have furnished First Citizens certificates,
signed on its behalf by the Chairman or President and the Secretary or
an Assistant Secretary of Farmers and dated the time the Merger shall
become effective, to the effect that to the best of their knowledge,
after due inquiry, the conditions described in Paragraphs (a), (b), (c),
and (f) of this Section 11 have been fully satisfied.
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(j) First Citizens shall have received from each Affiliate a
certificate in the form specified by First Citizens.
(k) First Citizens shall have received from Farmers the officers'
certificates required pursuant to Section 4 (m) hereof.
(l) Each of (i) the Board of Directors of Farmers, (ii) Farmers'
stockholders and (iii) First Citizens' shareholders shall have approved
this Agreement and the Agreement of Merger.
(m) First Citizens shall have received from Crowe, Chizek and
Company, a letter dated the effective time, in substance reasonably
acceptable to First Citizens, stating its opinion that based upon the
information furnished that the transactions contemplated by this
Agreement should be accounted for by First Citizens as a "pooling of
interests" for financial statement reporting purposes and that such
accounting treatment is in accordance with generally accepted accounting
principles.
(n) Pursuant to Section 4(1) hereof, First Citizens 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.
12. Conditions to Obligations of Farmers. The obligations of Farmers
under this Agreement or the Merger Agreement are subject, unless waived by
Farmers, to the satisfaction on or prior to the time the Merger shall
become effective of the following conditions:
(a) There shall not have been any material adverse change or
discovery of a condition or the occurrence of an event which has or is
likely to result in such a change, in the financial condition, aggregate
net assets, Stockholders' equity, business, or operating results of
First Citizens from December 31, 1996, to the time the Merger shall
become effective.
(b) All representations by First Citizens contained in this
Agreement and the Merger Agreement shall be true in all material
respects at, or as of, the time the Merger shall become effective as
though such representations were made at and as of said date, except for
changes contemplated by this Agreement and the Merger Agreement, and
except also for representations as of a specified time other than the
time the Merger shall become effective, which shall be true in all
material respects at such specified time.
(c) Farmers shall have received the opinion of Counsel for First
Citizens dated the time the Merger shall become effective substantially
to the effect set forth in Exhibit B hereto.
(d) First Citizens shall have performed or satisfied in all
material respects all undertakings, agreements and conditions required
by this Agreement and the Merger Agreement to be performed or satisfied
by it at or prior to the time the Merger shall become effective.
(e) At the time the Merger shall become effective, no suit, action
or proceeding shall be pending or overtly threatened before any court or
other governmental agency of the federal or state government in which it
is sought to restrain, prohibit or set aside consummation of the Merger
and no other suit, action or proceeding shall be pending or overtly
threatened and no liability or claim shall have been asserted against
First Citizens which Farmers shall in good faith determine, with advice
of counsel: (i) has a reasonable likelihood of being successfully
prosecuted and (ii) if successfully prosecuted, would materially and
adversely affect the benefits hereunder intended for Farmers and its
Stockholders.
(f) First Citizens shall have furnished Farmers a certificate,
signed by the Chairman or President and by the Secretary or Assistant
Secretary of First Citizens and dated the time the Merger shall become
effective to the effect that to the best of their knowledge after due
inquiry the conditions described in Paragraphs (a), (b), and (e) of this
Section 12 have been fully satisfied.
(g) First Citizens and Farmers shall have received the opinion
called for pursuant to Section 6 of this Agreement and there shall exist
as of, at or immediately prior to the time the Merger shall become
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effective no facts or circumstances which would render such opinion
inapplicable in any respect to the transactions to be consummated
hereunder.
13. Conditions to Obligations of All Parties. In addition to the
provisions of Sections 11 and 12 hereof, the obligations of First Citizens
and Farmers to cause the transactions contemplated herein to be consummated
shall be subject to the satisfaction of the following conditions on or
prior to the time the Merger shall become effective:
(a) The parties hereto shall have received all necessary approvals
of governmental agencies and authorities of the transactions
contemplated by this Agreement and each of such approvals shall remain
in full force and effect at the time the Merger shall become effective
and such approvals and the transactions contemplated thereby shall not
have been contested by any federal or state governmental authority by
formal proceeding, or contested by any other third party by formal
proceeding which the Board of Directors or the party asserting a failure
of a condition under this Section 13(a) shall in good faith determine,
with the advice of counsel: (i) has a reasonable likelihood of being
successfully prosecuted and (ii) if successfully prosecuted, would
materially and adversely affect the benefits hereunder intended for such
party. It is understood that, if any contest as aforesaid is brought by
formal proceedings, First Citizens may, but shall not be obligated to,
answer and defend such contest. First Citizens shall notify Farmers
promptly upon receipt of all necessary governmental approvals.
(b) The registration statement required to be filed by First
Citizens pursuant to Section 4(c) of this Agreement shall have become
effective by an order of the Securities and Exchange Commission, the
shares of First Citizens Common Shares to be exchanged in the Merger
shall have been qualified or exempted under all applicable state
securities laws, and there shall have been no stop order issued or
threatened by the Securities and Exchange Commission that suspends or
would suspend the effectiveness of the registration statement, and no
proceeding shall have been commenced, pending or overtly threatened for
such purpose.
(c) This Agreement and the Merger Agreement shall have been duly
adopted, ratified and confirmed by the requisite affirmative votes of
the Stockholders of Farmers.
14. Non-survival of Representations and Warranties. The respective
representations and warranties of First Citizens and Farmers set forth
shall expire at the effective time of the Merger.
15. Governing Law. This Agreement shall be construed and interpreted
according to the applicable laws of the State of Ohio.
16. Assignment. This Agreement and the Merger Agreement and all of
the provisions hereof and thereof shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and permitted
assigns, but neither this Agreement nor the Merger Agreement nor any of the
rights, interest, or obligations hereunder or thereunder shall be assigned
by either of the parties hereto without the prior written consent of the
other party.
17. Satisfaction of Conditions; Termination.
(a) First Citizens agrees to use its best effort to obtain
satisfaction of the conditions insofar as they relate to First Citizens,
and Farmers agrees to use its best efforts to obtain the satisfaction of
the conditions insofar as they relate to Farmers. If any material
condition to the obligations of First Citizens set forth in Section 11
or 13 is not substantially satisfied at the time or times contemplated
thereby and such condition is not waived by First Citizens, or if any
material condition to the obligations of Farmers set forth in Section 12
or 13 is not substantially satisfied at the time or times contemplated
thereby and such condition is not waived by Farmers, or if at any time
prior to the time the Merger shall become effective, it shall become
reasonably certain that such condition will not be substantially
satisfied and such condition is not waived by First Citizens or Farmers,
as the case may be, either First Citizens or Farmers may terminate this
Agreement by written notice to the other party after the expiration of
fifteen (15) days written notice to the other party during which time
such other party shall have an opportunity to cure such defect in said
condition. This Agreement may be terminated and abandoned (either before
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or after the meetings of Stockholders contemplated hereby) by mutual
written consent of First Citizens and Farmers authorized by their
respective Boards of Directors. In the event of such termination caused
otherwise than by breach of this Agreement by any of the parties hereto,
this Agreement shall cease and terminate, the acquisition of Farmers as
provided herein shall not be consummated, and neither First Citizens nor
Farmers shall have any further liability under this Agreement of any
nature whatever, including any liability for damages. In the event this
Agreement is terminated, the duties of both parties with respect to
confidential information set forth in Sections 4(d) shall survive any
such termination. In addition to the other grounds for termination of
this Agreement set forth herein, this Agreement can be terminated by
written notice by either party to the other, in each case authorized by
its Board of Directors, if the Merger shall not have been consummated by
February 1, 1998, or the date of such notice, whichever is later.
(b) If termination of this Agreement shall be judicially determined
to have been caused by breach of this Agreement, then, in addition to
other remedies at law or equity for breach of this Agreement, the party
so found to have breached this Agreement shall indemnify the other
parties for their respective costs, fees and expenses of its counsel,
accountants and other experts and advisors as well as fees and expenses
incident to negotiation, preparation and execution of this Agreement and
related actions and its Stockholders' meetings and actions.
18. Waivers, Amendments. Any of the provisions of this Agreement may
be waived at any time by the party which is, or the Stockholders of which
are, entitled to the benefit thereof, by resolution of the Board of
Directors of such party. This Agreement may be amended or modified in whole
or in part by an agreement in writing executed in the same manner (but not
necessarily by the same person) as this Agreement and which makes reference
to this Agreement, pursuant to a resolution, adopted by the Boards of
Directors of the respective parties, provided, however, such amendment or
modification may be made in this manner by the respective Boards of
Directors of First Citizens and Farmers at anytime prior to a favorable
vote of such party's Stockholders, but may be made after a favorable vote
by the Stockholders of such party, only if, in the opinion of its Board of
Directors, such amendment or modification will not have any material
adverse effect on the benefits intended under this Agreement for the
Stockholders of such party and will not require resolicitation of any
proxies from such Stockholders.
19. Entire Agreement. This Agreement supersedes any other agreement,
whether written or oral, that may have been made or entered into by First
Citizens and Farmers or by any officer or officers of such parties relating
to the acquisition of the business or the capital stock of Farmers by First
Citizens. This Agreement, including the exhibits and schedules hereto
(which shall include the Disclosure Letter and the Merger Agreement)
together constitute the entire agreement of the parties, and there are no
agreements or commitments except as set forth herein and therein. This
Agreement and the Merger Agreement may only be amended in a writing signed
by the parties hereto and thereto. The Disclosure Letter may be amended by
Farmers from time to time after the date hereof upon the prior written
consent of First Citizens.
20. Captions; Counterparts. 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. This
Agreement may be executed in several counterparts, each of which shall
constitute one and the same instrument.
21. Notices. All notices and other communications hereunder shall be
deemed to have been duly given if forwarded by regular First Class United
States Mail, postage prepaid, or a nationally recognized overnight courier
service. All notices and other communications hereunder given to any party
shall be communicated to the remaining party to this Agreement by mail in
the same manner as herein provided.
a) If to First Citizens, to:
David Voight, President
First Citizens Banc Corp.
100 East Water Street
Sandusky, OH 44870
A-21
<PAGE> 22
FIRST CITIZENS BANC CORP
EXHIBIT NO. 10ii
- -------------------------------------------------------------------------------
With copies to:
Dean S. Lucal, Esq.
Lucal & McGookey
502 West Washington St.
Sandusky, OH 44870
and
M. Patricia Oliver, Esq.
Squire, Sanders & Dempsey, LLP
4490 Key Tower
127 Public Square
Cleveland, OH 44414-1304
(b) If to Farmers, to:
Ms. Dorothy L. Robey
The Farmers State Bank
102 S. Kibler
New Washington, OH 44854-9401
With copies to:
Martin D. Werner, Esq.
Werner & Blank Co., L.P.A.
7205 W. Central Avenue
Toledo, Ohio 43617
22. Publicity. First Citizens and Farmers agree to consult with and
obtain the consent of the other, prior to any media release or other public
disclosures as to the matters covered by this Agreement, except as may be
required by law.
24. 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.
25. The corporate trust department of Fifth Third Bank, as transfer
agent for the First Citizens Common Shares (or such other bank or trust
company as First Citizens selects) shall act as exchange agent in respect
of the conversion of Farmers common stock into First Citizens common
shares.
A-22
<PAGE> 23
FIRST CITIZENS BANC CORP
EXHIBIT NO. 10ii
- -------------------------------------------------------------------------------
IN WITNESS WHEREOF, this Agreement has been executed the day and year first
above written.
<TABLE>
<S> <C>
ATTEST: First Citizens Banc Corp.
- ----------------------------------------- By: /s/ DAVID VOIGHT
By: /s/ JAMES MILLER -------------------------------------
- ------------------------------------- David Voight, President
Its: Senior Vice President
- ------------------------------------- The Farmers State Bank
ATTEST: By: /s/ DOROTHY ROBEY
- ----------------------------------------- -------------------------------------
By: /s/ WILLIAM SHEAFFER Dorothy Robey, President
- -------------------------------------
Its: Vice President
- -------------------------------------
</TABLE>
As individuals and with respect solely to the understanding made in Section 8(l)
of this Agreement.
<TABLE>
<S> <C>
/s/ DOROTHY ROBEY /s/ RONALD DENTINGER
- ----------------------------------------- -----------------------------------------
/s/ ROBERT L. BORDNER /s/ ROBERT M. OBRINGER
- ----------------------------------------- -----------------------------------------
/s/ RICHARD NIEDERMIER
- ----------------------------------------- -----------------------------------------
/s/ BLYTHE FRIEDLEY
- ----------------------------------------- -----------------------------------------
/s/ WILLIAM SHEAFFER
- ----------------------------------------- -----------------------------------------
/s/ LUTHER SHAFER
- ----------------------------------------- -----------------------------------------
</TABLE>
A-23
<PAGE> 1
FIRST CITIZENS BANC CORP
EXHIBIT NO. 10iii
- --------------------------------------------------------------------------------
ADMINISTRATIVE SERVICES AGREEMENT
This Administrative Services Agreement (the "Agreement" is made and
entered into this 18th day of September, 1997, by and between FIRST CITIZENS
BANC CORP, an Ohio corporation ("First Citizens"), and THE FARMERS STATE BANK,
an Ohio bank located in New Washington, Ohio ("Farmers").
R E C I T A L S
---------------
In connection with the transactions contemplated by that certain
Agreement and Plan of Reorganization dated July 3, 1997 (the "Reorganization
Agreement" and the "Reorganization") by and between First Citizens and Farmers
and as an inducement for the parties to perform thereunder, and to consummate
the Reorganization, it was determined that First Citizens would provide certain
advisory and administrative services for Farmers. This Agreement memorializes
such pre-existing agreement with respect to the rendering of such services and
the anticipated range of services to be provided by First Citizens.
1. RETENTION OF FIRST CITIZENS. Farmers hereby retains First Citizens
to provide certain administrative, operational, and other support services to
Farmers (as enumerated more fully below and collectively referred to herein as
the "Services") and First Citizens hereby agrees to provide, or cause to be
provided, such Services on the terms set forth in this Agreement.
2. RANGE OF SERVICES TO BE PROVIDED. The Services to be provided to
Farmers shall include assistance in the following areas of Farmer's business,
all as more particularly identified by the parties from time to time:
(a) Loan administration and processing;
(b) Review of the process employed in the portfolio
analysis and investment management;
(c) Operational matters;
(d) Review of appraisal process and procedures;
(e) Review of data processing for banking applications;
(f) Compliance matters arising out of requirements
reports and examinations by regulators of Farmers'
business; and
(g) Other administrative and support services as may be
mutually agreed upon from time to time.
It is understood and agreed that the specific Services to be provided
hereunder shall be approved in advance by Farmers' Board of Directors. It is
also understood and agreed that such services to be provided by First Citizens
are advisory only, and any actions taken by Farmers in implementing any
recommendations made will be taken by Farmers only upon specific authority
granted, or actions taken, by Farmers Board of Directors.
<PAGE> 2
3. INDEPENDENT CONTRACTOR, USE OF FIRST CITIZENS PERSONNEL. It is
understood and agreed that First Citizens shall be rendering the Services to
Farmers as an independent contractor and that non of its directors, officers or
employees shall be deemed or construed to be an employee of Farmers. This
Agreement does not constitute or involve a joint venture, a partnership or a
profit-sharing arrangement between the parties hereto. All personnel used in
rendering the Services shall be employed by and compensated by First Citizens.
4. EQUIPMENT. First Citizens will provide, or contract for, all the
equipment necessary to perform the Services under this Agreement.
5. COMPENSATION. Farmers shall pay to First Citizens, as and for the
services to be rendered hereunder, the sum of $1,739.40 per week during the term
of this Agreement.
6. TERM AND TERMINATION. The term of this Agreement shall extend from
the date hereof until the earlier of (1) the consummation of the Reorganization,
or (ii) the termination of the Reorganization Agreement, at which time this
Agreement shall terminate automatically without any action required by either of
the parties and shall have no further force or effect.
7. LIABILITY. Subject to the provisions of Section 10 (d) hereof, First
Citizens shall be liable to Farmers for, and shall defend, indemnify and hold
Farmers harmless from and against any loss or liability caused by First
Citizens' negligence or failure to comply with its respective obligations
hereunder. Farmers shall be liable to First Citizens and shall defend, indemnify
and hold First Citizens harmless from and against any loss or liability caused
by Farmer's negligence or failure to comply with its obligations hereunder.
8. CONFIDENTIALITY. First Citizens understands that in the performance
of the Services under this Agreement, it must conduct its activities in a manner
designated to protect information of a proprietary nature and information
regarding Farmers' business, from improper use or disclosure.
9. DESIGNATION OF LIAISON. First Citizens and Farmers will each
designate a liaison for the purposes of facilitating the rendering of the
Services contemplated by this Agreement.
10. EFFECT OF TERMINATION. Within thirty (30) days after termination of
this Agreement, First Citizens shall turn over to Farmers all funds, books and
records which are the property of Farmers. Termination of this Agreement shall
not affect the claims of any of the parties for obligations accruing, or alleged
defaults occurring, prior to termination.
11. MISCELLANEOUS.
--------------
(a) COMPLETE AGREEMENT. This document contains the entire
agreement between the parties and memorializes and
supersedes any prior discussions, negotiations,
representations or agreements between them relating
to the matters described herein. No additions or
other changes to this Agreement shall be made or be
binding on a party unless made in writing and signed
by each party to this Agreement.
2
<PAGE> 3
(b) ASSIGNMENT, SUCCESSOR. This Agreement shall not be
assignable by either of the parties hereto. This
Agreement shall be binding upon and inure to the
benefit of the successors and assigns of each party
to this Agreement.
(c) NOTICES. All statements, notices and other
communications to be given under this Agreement will
be in writing and will be deemed to have been duly
given when delivered in person or via facsimile or
mail be registered or certified mail, return receipt
requested, to the address set forth below.
David Voight, President
First Citizens Banc Corp
100 E. Water Street
Sandusky, Ohio 44870
Dorothy L Robey, President
Farmers State Bank
102 S. Kibler Street
New Washington, Ohio 44854-9401
(d) CONSEQUENTIAL DAMAGES. Notwithstanding any provision
of this Agreement to the contrary, First Citizens
shall not, under any circumstances, be responsible or
liable to Farmers, for any consequential damages
(including, but not limited to, loss of customers,
deposits, income, profits, attorneys' fees, etc.)
(e) GOVERNING LAW. This Agreement shall be deemed to be
an agreement made under the laws of the State of
Ohio, and for all purposes shall be construed and
enforced in accordance with and governed by the laws
of the State of Ohio.
(f) COUNTERPARTS. This Agreement may be executed in
multiple counterparts, each of which shall be deemed
an original, but all of which together shall
constitute one and the same instrument.
(g) WAIVERS. The failure of a party to exercise any of
its rights under this agreement on one occasion shall
not waive such party's right to exercise the exercise
on another occasion.
3
<PAGE> 4
IN WITNESS WHEREOF, the parties, by their duly authorized officers,
have executed this Agreement as of the date first above written.
FIRST CITIZENS BANC CORP
By: /s/ David A. Voight
-------------------
David A. Voight, President
THE FARMERS STATE BANK
By: /s/ Dorothy L. Robey
--------------------
Dorothy L. Robey, President
4
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000944745
<NAME> First Citizens Banc Corp
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 14,328,125
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 10,400,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 58,468,703
<INVESTMENTS-CARRYING> 6,737,206
<INVESTMENTS-MARKET> 6,796,389
<LOANS> 221,758,029
<ALLOWANCE> 2,799,000
<TOTAL-ASSETS> 325,923,098
<DEPOSITS> 265,003,177
<SHORT-TERM> 9,792,987
<LIABILITIES-OTHER> 1,790,955
<LONG-TERM> 14,488,034
0
0
<COMMON> 15,257,520
<OTHER-SE> 19,590,425
<TOTAL-LIABILITIES-AND-EQUITY> 325,923,098
<INTEREST-LOAN> 18,461,451
<INTEREST-INVEST> 3,820,064
<INTEREST-OTHER> 516,377
<INTEREST-TOTAL> 22,797,892
<INTEREST-DEPOSIT> 8,450,754
<INTEREST-EXPENSE> 9,809,714
<INTEREST-INCOME-NET> 12,988,178
<LOAN-LOSSES> 434,663
<SECURITIES-GAINS> 213,686
<EXPENSE-OTHER> 11,838,969
<INCOME-PRETAX> 4,726,705
<INCOME-PRE-EXTRAORDINARY> 3,434,353
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,434,353
<EPS-PRIMARY> 1.13
<EPS-DILUTED> 1.13
<YIELD-ACTUAL> 4.44
<LOANS-NON> 1,205,000
<LOANS-PAST> 1,480,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,642,000
<CHARGE-OFFS> 429,539
<RECOVERIES> 151,876
<ALLOWANCE-CLOSE> 2,799,000
<ALLOWANCE-DOMESTIC> 2,799,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,407,000
</TABLE>
<PAGE> 1
FIRST CITIZENS BANC CORP
EXHIBIT NO. 99
- --------------------------------------------------------------------------------
SAFE HARBOR UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The Private Securities Litigation Reform Act of 1995 (the "Act")
provides a "safe harbor" for forward-looking statements to encourage companies
to provide prospective information about their companies, so long as those
statements are identified as forward-looking and are accompanied by meaningful
cautionary statements identifying important factors that could cause actual
results to differ materially from those discussed in the statement. First
Citizens Banc Corp ("FCBC") desires to take advantage of the "safe harbor"
provisions of the Act. Certain information, particularly information regarding
future economic performance and finances and plans and objectives of management,
contained or incorporated by reference in FCBC's Annual Report on Form 10-K for
fiscal year 1996 is forward-looking. In some cases, information regarding
certain important factors that could cause actual results of operations or
outcomes of other events to differ materially from any such forward-looking
statement appear together with such statement. In addition, forward-looking
statements are subject to other risks and uncertainties affecting the financial
institutions industry, including, but not limited to, the following:
Interest Rate Risk
- ------------------
FCBC's operating results are dependent to a significant degree on its
net interest income, which is the difference between interest income from loans,
investments and other interest-earning assets and interest expense on deposits,
borrowings and other interest-bearing liabilities. The interest income and
interest expense of FCBC change as the interest rates on interest-earning assets
and interest-bearing liabilities change. Interest rates may change because of
general economic conditions, the policies of various regulatory authorities and
other factors beyond FCBC's control. In a rising interest rate environment,
loans tend to prepay slowly and new loans at higher rates increase slowly, while
interest paid on deposits increases rapidly because the terms to maturity of
deposits tend to be shorter than the terms to maturity or prepayment of loans.
Such differences in the adjustment of interest rates on assets and liabilities
may negatively affect FCBC's income.
Adequacy of the Allowance for Loan Losses
- -----------------------------------------
FCBC maintains an allowance for loan losses based upon a number of
relevant factors, including, but not limited to, trends in the level of
nonperforming assets and classified loans, current and anticipated economic
conditions in the primary lending area, past loss experience, possible losses
arising from specific problem loans and changes in the composition of the loan
portfolio. While the Board of Directors of FCBC believes that it uses the best
information available to determine the allowance for loan losses, unforeseen
market conditions could result in material adjustments, and net earnings could
be significantly adversely affected if circumstances differ substantially from
the assumptions used in making the final determination.
Loans not secured by one-to-four family residential real estate are
generally considered to involve greater risk of loss than loans secured by
one-to-four family residential real estate due, in part, to the effects of
general economic conditions. The repayment of multifamily residential and
nonresidential real estate loans generally depends upon the cash flow from the
operation of the property, which may be negatively affected by national and
local economic conditions. Construction loans may also be negatively affected by
such economic conditions, particularly loans made to developers who do not have
<PAGE> 2
a buyer for a property before the loan is made. The risk of default on consumer
loans increases during periods of recession, high unemployment and other adverse
economic conditions. When consumers have trouble paying their bills, they are
more likely to pay mortgage loans than consumer loans. In addition, the
collateral securing such loans, if any, may decrease in value more rapidly than
the outstanding balance of the loan.
Competition
- -----------
The Citizens Banking Company and The Castalia Banking Company (the Banks)
compete for deposits with other commercial banks, credit unions and issuers of
commercial paper and other securities, such as shares in money market mutual
funds. The primary factors in competing for deposits are interest rates and
convenience of office location. In making loans, the Banks compete with other
commercial banks, consumer finance companies, credit unions, leasing companies,
mortgage companies and other lenders. Competition is affected by, among other
things, the general availability of lendable funds, general and local economic
conditions, current interest rate levels and other factors which are not readily
predictable. The size of financial institutions competing with the Banks is
likely to increase as a result of changes in statutes and regulations
eliminating various restrictions on interstate and inter-industry branching and
acquisitions. Such increased competition may have an adverse effect upon FCBC.
Legislation and Regulation that may Adversely Affect FCBC's Earnings
- --------------------------------------------------------------------
The Banks are subject to extensive regulation by the Federal Reserve
Bank (the "FRB") and the Federal Deposit Insurance Corporation (the "FDIC") and
are periodically examined by such regulatory agencies to test compliance with
various regulatory requirements. As a bank holding company, FCBC is also subject
to regulation and examination by the FRB. Such supervision and regulation of the
banks and FCBC are intended primarily for the protection of depositors and not
for the maximization of shareholder value and may affect the ability of the
company to engage in various business activities. The assessments, filing fees
and other costs associated with reports, examinations and other regulatory
matters are significant and may have an adverse effect on the Company's net
earnings.
The FDIC is authorized to establish separate annual assessment rates
for deposit insurance of members of the Bank Insurance fund (the "BIF") and the
Savings Association Insurance Fund (the "SAIF"). The FDIC has established a
risk-based assessment system for both SAIF and BIF members. Under such system,
assessments may vary depending on the risk the institution poses to its deposit
insurance fund. Such risk level is determined by reference to the institution's
capital level and the FDIC's level of supervisory concern about the institution.
