AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON , 2001
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
FIRST CITIZENS BANC CORP
(Exact name of Registrant as specified in its charter)
OHIO 6022 34-1558688
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification Identification No.)
incorporation or Code No.)
organization)
100 EAST WATER STREET, SANDUSKY, OHIO 44870
(419) 625-4121
(Address, including zip code and telephone number, including area code,
of Registrant's principal executive offices)
------------------------------------------------
DAVID A. VOIGHT
100 EAST WATER STREET
SANDUSKY, OHIO 44870
(419) 625-4121
(Name, address, including zip code
& telephone number, including
area code of agent for service)
-------------------------------------------------
Copies to:
M. PATRICIA OLIVER, ESQ. JOHN C. VORYS, ESQ.
SQUIRE, SANDERS & DEMPSEY L.L.P. VORYS, SATER, SEYMOUR AND PEASE LLP
4900 KEY TOWER, 127 PUBLIC SQUARE 52 EAST GAY STREET
CLEVELAND, OHIO 44114-1304 POST OFFICE BOX 1008
COLUMBUS, OHIO 43216-1008
-------------------------------------------------
Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after the effective date of this Registration
Statement.
If the securities being registered on this form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box: |_|
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering: |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: |_|
CALCULATION OF REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------------------------
Title of Each Proposed Proposed
Class of Maximum Maximum Amount of
Securities To Amount To Be Offering Aggregate Registration
Be Registered Registered (1) Price Per Unit (2) Offering Price (2) Fee
- -----------------------------------------------------------------------------------------------------------------------------
Common Shares 1,080,000 $11.58 $12,507,012 $2,989.18
- -----------------------------------------------------------------------------------------------------------------------------
(1) Based upon the maximum number of shares to be issued in connection with the
acquisition of Independent Community Banc Corp.
(2) Amount arrived at pursuant to Rule 457(f)(2) based on the book value of the
acquired company at November 30, 2001.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
FIRST CITIZENS BANC CORP
100 EAST WATER STREET
SANDUSKY, OHIO 44870
________________, 2002
To Our Shareholders:
A special meeting of shareholders of First Citizens Banc Corp (the
"First Citizens Special Meeting"), a bank holding company organized and existing
under the laws of the State of Ohio ("First Citizens"), has been scheduled for
__________, 2002 at ___:00 _.m. at The Citizens Banking Company, 100 East Water
Street, Sandusky, Ohio. The accompanying Notice of the First Citizens Special
Meeting, Proxy Statement/Prospectus and Proxy Card set forth the formal business
to be transacted at the First Citizens Special Meeting. I encourage you to
review these materials and to attend the First Citizens Special Meeting.
At the First Citizens Special Meeting, holders of First Citizens common
shares, without par value, are being asked to consider and vote upon a proposal
(the "Proposal") to adopt the Agreement and Plan of Merger dated as of November
1, 2001 by and between First Citizens and Independent Community Banc Corp., a
bank holding company organized and existing under the laws of the State of Ohio
("ICBC") (the "Merger Agreement"), and to approve the transactions contemplated
thereby, including the merger (the "Parent Merger") of ICBC with and into First
Citizens. In the Parent Merger, each outstanding common share, without par
value, of ICBC will be converted into the right to receive 1.7 common shares,
without par value, of First Citizens, upon the terms and subject to the
conditions set forth in the Merger Agreement, as described in the accompanying
Proxy Statement/Prospectus (with cash paid in lieu of fractional shares).
Immediately following the Parent Merger and upon the receipt of the required
regulatory approvals, The Citizens Banking Company, a wholly-owned banking
subsidiary of First Citizens ("CBC"), will purchase and assume all of the assets
and liabilities associated with the general banking business (excluding the
assets and liabilities of the trust business) of Citizens National Bank of
Norwalk, a wholly-owned banking subsidiary of ICBC ("CNBN"), and the bank
charter of CNBN will be converted to a trust charter (collectively, the
"Subsidiary Combination"). The new trust company will be a wholly-owned
subsidiary of First Citizens and its products and services will be available to
all customers of First Citizens' banking affiliates.
Consummation of the Parent Merger is subject to certain conditions,
including, but not limited to, obtaining the requisite vote of the shareholders
of ICBC and First Citizens and the approval of the Parent Merger by various
regulatory agencies.
THE FIRST CITIZENS BOARD OF DIRECTORS HAS UNANIMOUSLY CONCLUDED THAT
THE PARENT MERGER IS FAIR TO AND IN THE BEST INTERESTS OF THE FIRST CITIZENS
SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL. First
Citizens' financial advisor, Keefe, Bruyette, & Woods, Inc., has rendered an
opinion dated November 1, 2001 to the First Citizens Board of Directors to the
effect that, as of the date thereof and based upon and subject to certain
matters stated in such opinion, the consideration to be paid by First Citizens
in the Parent Merger is fair, from a financial point of view, to the
shareholders of First Citizens.
If the accompanying Proxy Card is executed properly and returned to
First Citizens in time to be voted at the First Citizens Special Meeting, the
shares represented thereby will be voted in accordance with the instructions
marked thereon. Executed but unmarked proxies will be voted FOR approval of the
Proposal. The presence of a shareholder at the First Citizens Special Meeting
will not automatically revoke such shareholder's proxy. A First Citizens
shareholder may, however, revoke a proxy at any time prior to its exercise by
filing a written notice of revocation with or delivering a duly executed proxy
bearing a later date to Donna J. Dalferro, Secretary, First Citizens Banc Corp,
100 East Water Street, Sandusky, Ohio 44870 or by attending the First Citizens
Special Meeting and advising the Secretary of the shareholder's intent to vote
the shares.
Approval of the Proposal requires the affirmative vote of a majority of
the outstanding common shares of First Citizens. Accordingly, it is very
important that your shares be represented at the First Citizens Special Meeting.
I urge you to vote FOR the Proposal and to sign, date and return the
accompanying Proxy Card as soon as possible, even if you plan to attend the
First Citizens Special Meeting. This procedure will not prevent you from voting
in person, but will ensure that your vote is counted if you are unable to
attend.
Very truly yours,
David A. Voight
President
YOUR VOTE IS IMPORTANT
WE ENCOURAGE YOU TO SIGN, DATE AND PROMPTLY RETURN YOUR PROXY IN THE
ENCLOSED ENVELOPE REGARDLESS OF WHETHER YOU PLAN TO ATTEND
THE FIRST CITIZENS SPECIAL MEETING.
FIRST CITIZENS BANC CORP
100 EAST WATER STREET
SANDUSKY, OHIO 44870
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To the Shareholders of First Citizens Banc Corp:
A special meeting (including any adjournments or reschedulings thereof,
the "First Citizens Special Meeting") of shareholders of First Citizens Banc
Corp, a bank holding company organized and existing under the laws of the State
of Ohio ("First Citizens"), will be held on _____________, 2002 at __:00 _.m.,
at The Citizens Banking Company, 100 East Water Street, Sandusky, Ohio. A Proxy
Card and Proxy Statement/Prospectus for the First Citizens Special Meeting are
enclosed.
The First Citizens Special Meeting will be held for the purpose of
considering and voting upon the following:
1. A proposal (the "Proposal") to adopt the Agreement and Plan of
Merger dated as of November 1, 2001 by and between First Citizens
and Independent Community Banc Corp., a bank holding company
organized and existing under the laws of the State of Ohio
("ICBC") (the "Merger Agreement"), and to approve the
transactions contemplated thereby, including the merger (the
"Parent Merger") of ICBC with and into First Citizens. A copy of
the Merger Agreement is attached as Appendix A to the
accompanying Proxy Statement/Prospectus.
2. Such other business incident to the conduct of the First Citizens
Special Meeting as may properly come before the First Citizens
Special Meeting and any adjournment of the First Citizens Special
Meeting, including adjournment of the First Citizens Special
Meeting to allow for additional solicitation of additional
shareholder votes in order to obtain the required vote to adopt
the Proposal.
THE FIRST CITIZENS BOARD OF DIRECTORS HAS UNANIMOUSLY CONCLUDED THAT
THE PARENT MERGER IS FAIR TO AND IN THE BEST INTERESTS OF THE FIRST CITIZENS
SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL.
The Board of Directors of First Citizens has fixed the close of
business on ____________, 200_ as the record date for determination of the
shareholders of First Citizens entitled to notice of and to vote at the First
Citizens Special Meeting.
It is very important that your shares be represented at the First
Citizens Special Meeting. You are urged to complete and sign the accompanying
Proxy Card, which is solicited by the Board of Directors of First Citizens and
to mail it promptly in the enclosed envelope. All proxies are important, so
please complete each Proxy Card sent to you and return it in the envelope
provided.
David A. Voight
President
__________, 2002
INDEPENDENT COMMUNITY BANC CORP.
16 EXECUTIVE DRIVE
NORWALK, OHIO 44857
______________, 2002
To Our Shareholders:
A special meeting of shareholders of Independent Community Banc Corp.
(the "ICBC Special Meeting"), a bank holding company organized and existing
under the laws of the State of Ohio ("ICBC"), has been scheduled for
____________, 2002 at __:00 _.m. at 16 Executive Drive, Norwalk, Ohio. The
accompanying Notice of the ICBC Special Meeting, Proxy Statement/Prospectus and
Proxy Card set forth the formal business to be transacted at the ICBC Special
Meeting. I encourage you to review these materials and to attend the ICBC
Special Meeting.
At the ICBC Special Meeting, holders of common shares, without par
value, of ICBC are being asked to consider and vote upon a proposal (the
"Proposal") to adopt the Agreement and Plan of Merger dated as of November 1,
2001 by and between ICBC and First Citizens Banc Corp, a bank holding company
organized and existing under the laws of the State of Ohio ("First Citizens")
(the "Merger Agreement"), and to approve the transactions contemplated thereby,
including the merger (the "Parent Merger") of ICBC with and into First Citizens.
In the Parent Merger, each outstanding common share, without par value, of ICBC
will be converted into the right to receive 1.7 common shares, without par
value, of First Citizens, upon the terms and subject to the conditions set forth
in the Merger Agreement, as described in the accompanying Proxy
Statement/Prospectus (with cash paid in lieu of fractional shares). Immediately
following the Parent Merger and upon the receipt of the required regulatory
approvals, The Citizens Banking Company, a wholly-owned banking subsidiary of
First Citizens ("CBC"), will purchase and assume all of the assets and
liabilities associated with the general banking business (excluding the assets
and liabilities of the trust business) of Citizens National Bank of Norwalk, a
wholly-owned banking subsidiary of ICBC ("CNBN"), and the bank charter of CNBN
will be converted to a trust charter (collectively, the "Subsidiary
Combination"). The new trust company will be a wholly-owned subsidiary of First
Citizens and its products and services will be available to all customers of
First Citizens' banking affiliates.
Consummation of the Parent Merger is subject to certain conditions,
including, but not limited to, obtaining the requisite vote of the shareholders
of ICBC and First Citizens and the approval of the Parent Merger by various
regulatory agencies.
THE ICBC BOARD OF DIRECTORS HAS CONCLUDED THAT THE PARENT MERGER IS
FAIR TO AND IN THE BEST INTERESTS OF THE ICBC SHAREHOLDERS AND RECOMMENDS THAT
YOU VOTE FOR THE PROPOSAL. ICBC's financial advisor, Young & Associates, Inc.,
has rendered an opinion dated as of the date hereof to the ICBC Board of
Directors to the effect that, as of the date hereof and based upon and subject
to certain matters stated in such opinion, the consideration to be received by
the shareholders of ICBC in the Parent Merger is fair, from a financial point of
view, to the shareholders of ICBC.
If the accompanying Proxy Card is executed properly and returned to
ICBC in time to be voted at the ICBC Special Meeting, the shares represented
thereby will be voted in accordance with the instructions marked thereon.
Executed but unmarked proxies will be voted FOR approval of the Proposal. The
presence of a shareholder at the ICBC Special Meeting will not automatically
revoke such shareholder's proxy. An ICBC shareholder may, however, revoke a
proxy at any time prior to its exercise by filing a written notice of revocation
with or delivering a duly executed proxy bearing a later date to ______________,
_________, Independent Community Banc Corp., 16 Executive Drive, Norwalk, Ohio
44857 or by attending the ICBC Special Meeting and advising the ____________ of
the shareholder's intent to vote the shares.
Approval of the Proposal requires the affirmative vote of the holders
of two-thirds of the outstanding common shares of ICBC. Accordingly, it is very
important that your shares be represented at the ICBC Special Meeting. I urge
you to vote FOR the Proposal and to sign, date and return the accompanying Proxy
Card as soon as possible, even if you plan to attend the ICBC Special Meeting.
This procedure will not prevent you from voting in person, but will ensure that
your vote is counted if you are unable to attend.
Very truly yours,
James D. Heckelman
Chairman
YOUR VOTE IS IMPORTANT
WE ENCOURAGE YOU TO SIGN, DATE AND PROMPTLY RETURN YOUR PROXY IN
THE ENCLOSED ENVELOPE REGARDLESS OF WHETHER YOU PLAN TO ATTEND
THE ICBC SPECIAL MEETING.
INDEPENDENT COMMUNITY BANC CORP.
16 EXECUTIVE DRIVE
NORWALK, OHIO 44857
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To the Shareholders of Independent Community Banc Corp.:
A special meeting (including any adjournments or reschedulings thereof,
the "ICBC Special Meeting") of shareholders of Independent Community Banc Corp.,
a bank holding company organized and existing under the laws of the State of
Ohio ("ICBC"), will be held on ___________, 2002, at _:00 _.m., at 16 Executive
Drive, Norwalk, Ohio. A Proxy Card and Proxy Statement/Prospectus for the ICBC
Special Meeting are enclosed.
The ICBC Special Meeting will be held for the purpose of considering
and voting upon the following:
1. A proposal (the "Proposal") to adopt the Agreement and Plan of
Merger dated as of November 1, 2001 by and between ICBC and
First Citizens Banc Corp, a bank holding company organized and
existing under the laws of the State of Ohio ("First
Citizens") (the "Merger Agreement"), and to approve the
transactions contemplated thereby, including the merger (the
"Parent Merger") of ICBC with and into First Citizens. A copy
of the Merger Agreement is attached as Appendix A to the
accompanying Proxy Statement/Prospectus.
2. Such other business incident to the conduct of the ICBC
Special Meeting as may properly come before the ICBC Special
Meeting and any adjournment of the ICBC Special Meeting,
including adjournment of the ICBC Special Meeting to allow for
additional solicitation of additional shareholder votes in
order to obtain the required vote to adopt the Proposal.
THE ICBC BOARD OF DIRECTORS HAS CONCLUDED THAT THE PARENT MERGER IS IN
THE BEST INTERESTS OF THE ICBC SHAREHOLDERS AND RECOMMENDS THAT YOU VOTE FOR THE
PROPOSAL.
The Board of Directors of ICBC has fixed the close of business on
_________________, 200_ as the record date for determination of the shareholders
of ICBC entitled to notice of and to vote at the ICBC Special Meeting.
It is very important that your shares be represented at the ICBC
Special Meeting. You are urged to complete and sign the accompanying Proxy Card,
which is solicited by the Board of Directors of ICBC and to mail it promptly in
the enclosed envelope. All proxies are important, so please complete each Proxy
Card sent to you and return it in the envelope provided.
By Order of the Board of Directors
James D. Heckelman
Chairman
_____________, 2002
PROXY STATEMENT/PROSPECTUS OF PROXY STATEMENT OF
FIRST CITIZENS BANC CORP INDEPENDENT COMMUNITY
BANC CORP.
FIRST CITIZENS BANC CORP
and
INDEPENDENT COMMUNITY BANC CORP.
SPECIAL MEETINGS OF SHAREHOLDERS
First Citizens Banc Corp -- January __, 2002
Independent Community Banc Corp. -- January __, 2002
This Proxy Statement/Prospectus is being furnished to shareholders of
record on ______________, 200_ of First Citizens Banc Corp, a bank holding
company organized and existing under the laws of the State of Ohio ("First
Citizens"), and shareholders of record on ______________, 200_ of Independent
Community Banc Corp., a bank holding company organized and existing under the
laws of the State of Ohio ("ICBC"), in connection with the solicitation of
proxies by First Citizens and ICBC for use at the special meetings of their
respective shareholders (the "Special Meetings"). The Special Meeting of First
Citizens shareholders (the "First Citizens Special Meeting") is to be held at
The Citizens Banking Company, 100 East Water Street, Sandusky, Ohio 44870 on
___________, 2002, at _:00 _.m., local time, and at any adjournment or
adjournments thereof; and the Special Meeting of ICBC shareholders (the "ICBC
Special Meeting") is to be held at 16 Executive Drive, Norwalk, Ohio, 44857 on
___________, 2002, at _:00 _.m., local time, and at any adjournment or
adjournments thereof.
At each of the Special Meetings, the respective shareholders of First
Citizens and ICBC will be asked to adopt an Agreement and Plan of Merger dated
as of November 1, 2001 by and between First Citizens and ICBC (the "Merger
Agreement"), and to approve the transactions contemplated thereby, including the
merger (the "Parent Merger") of ICBC with and into First Citizens. Immediately
following the Parent Merger and upon the receipt of the required regulatory
approvals, The Citizens Banking Company, a wholly-owned banking subsidiary of
First Citizens ("CBC"), will purchase and assume all of the assets and
liabilities associated with the general banking business (excluding the assets
and liabilities of the trust business) of Citizens National Bank of Norwalk, a
wholly-owned banking subsidiary of ICBC ("CNBN"), and the bank charter of CNBN
will be converted to a trust charter (collectively, the "Subsidiary
Combination"). The new trust company will be a wholly-owned subsidiary of First
Citizens and its products and services will be available to all customers of
First Citizens' banking affiliates. A copy of the Merger Agreement is attached
to this Proxy Statement/Prospectus as Appendix A and is incorporated herein by
reference.
Upon consummation of the Parent Merger, each outstanding common share,
without par value, of ICBC (the "ICBC Common Shares"), other than shares held by
shareholders who exercise their rights as dissenting shareholders, treasury
shares, and shares held by First Citizens, will be converted into the right to
receive 1.7 common shares, without par value, of First Citizens (the "First
Citizens Common Shares"), upon the terms and subject to the conditions set forth
in the Merger Agreement (the "Exchange Ratio"). Dissenters' rights are described
in the sections entitled "PROPOSED MERGER--Rights of Dissenting First Citizens
Shareholders" and "PROPOSED MERGER--Rights of Dissenting ICBC Shareholders." For
a more detailed description of the Merger Agreement, the Exchange Ratio and the
terms of the Parent Merger, see "PROPOSED MERGER." On
____________, 2001, the closing price of First Citizens Common Shares on the
Nasdaq SmallCap Market was $_______, and the market value of 1.7 First Citizens
Common Shares was $________.
The shares of First Citizens and ICBC represented by proxy will be
voted at the respective Special Meetings of First Citizens and ICBC as specified
by their respective shareholders. In each case, executed but unmarked proxies
will be voted FOR approval of the Parent Merger.
This Proxy Statement/Prospectus constitutes the Proxy Statement of ICBC
and the Proxy Statement/Prospectus of First Citizens covering the First Citizens
Common Shares to be issued pursuant to the Parent Merger.
This Proxy Statement/Prospectus and the accompanying Proxy Card
(relating to the First Citizens Special Meeting or the ICBC Special Meeting, as
the case may be) are first being mailed to First Citizens shareholders on or
about ___________, 2002, and to ICBC shareholders on or about ______________,
2002.
THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR
OTHER OBLIGATIONS OF ANY BANK OR SAVINGS ASSOCIATION AND
ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE BANK INSURANCE FUND, THE
SAVINGS ASSOCIATION INSURANCE FUND OR
ANY OTHER GOVERNMENTAL AGENCY.
THE SECURITIES TO BE OFFERED IN CONNECTION WITH THE PARENT MERGER HAVE NOT BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE REGULATORY AUTHORITY NOR HAS THE COMMISSION OR ANY
STATE REGULATORY AUTHORITY PASSED UPON THE ACCURACY
OR ADEQUACY OF THE INFORMATION CONTAINED IN
THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Proxy Statement/Prospectus is _____________, 2002.
AVAILABLE INFORMATION
---------------------
First Citizens is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "1934 Act") and in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "Commission"), including annual reports on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K and proxy statements. Reports,
proxy statements and other information filed by First Citizens can be inspected
and copied at the public reference facilities maintained by the Commission in
Washington, D.C., and at its Regional Office located at Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
material can also be obtained from the Public Reference Room of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The
public may obtain information on the operation of the Public Reference Room by
calling the Commission at 1-800-SEC-0330. The Commission also maintains an
Internet Web site that contains reports, proxy statements and other information
filed by First Citizens. The Commission's Internet address is
http://www.sec.gov. In addition, First Citizens maintains an Internet Web site
containing certain information filed with the Commission. First Citizens'
Internet address is http://www.fcza.com. First Citizens Common Shares are listed
on the Nasdaq SmallCap Market and reports, proxy statements and other
information concerning First Citizens are available for inspection and copying
at prescribed rates at the office of the National Association of Securities
Dealers, Inc., 1735 K Street, Washington, D.C. 20006.
First Citizens has filed with the Commission a Registration Statement
on Form S-4 under the Securities Act of 1933, as amended (the "1933 Act"),
covering the First Citizens Common Shares to be issued in connection with the
Parent Merger. This Proxy Statement/Prospectus was filed with the Registration
Statement as the Prospectus of First Citizens; however, it does not contain all
of the information set forth in the Registration Statement. The Registration
Statement and the exhibits thereto can be inspected at the Commission's Public
Reference Room and at the Commission's Regional Office, at the addresses listed
above.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE IMPORTANT
BUSINESS AND FINANCIAL INFORMATION ABOUT FIRST CITIZENS THAT IS NOT INCLUDED IN
OR DELIVERED WITH THE PROXY STATEMENT/PROSPECTUS. THIS INFORMATION IS AVAILABLE
WITHOUT CHARGE TO EACH PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM THIS
PROXY STATEMENT/PROSPECTUS IS DELIVERED, UPON WRITTEN OR ORAL REQUEST, FROM
DONNA J. DALFERRO, SECRETARY, FIRST CITIZENS BANC CORP, 100 EAST WATER STREET,
SANDUSKY, OHIO 44870, (419) 625-4121. IN ORDER TO ENSURE TIMELY DELIVERY OF THE
DOCUMENTS, ANY REQUEST SHOULD BE MADE BY [INSERT DATES WHICH ARE 5 BUSINESS DAYS
PRIOR TO ICBC'S OR FIRST CITIZENS' MEETINGS].
No person has been authorized to give any information or make any
representations not contained herein, and, if given or made, such information or
representation must not be relied upon as having been authorized. This Proxy
Statement/Prospectus does not constitute an offer to sell any securities other
than the securities to which it relates or an offer to sell any securities
covered by this Proxy Statement/Prospectus in any jurisdiction where, or to any
person to whom, it is unlawful to make such an offer. Neither the delivery
hereof nor any distribution of securities by First Citizens made hereunder
shall, under any circumstances, create an implication that there has been no
change in the facts herein set forth since the date hereof.
All information concerning First Citizens contained in this Proxy
Statement/Prospectus has been furnished by First Citizens and all information
concerning ICBC has been furnished by ICBC.
-i-
INCORPORATION BY REFERENCE
--------------------------
The following documents filed with the Commission under the 1934 Act by
First Citizens are incorporated by reference into this Proxy
Statement/Prospectus: (a) First Citizens' annual report on Form 10-K for the
year ended December 31, 2000, (b) First Citizens' quarterly reports on Form 10-Q
for the quarters ended March 31, 2001, June 30, 2001 and September 30, 2001 and
(c) First Citizens' current report on Form 8-K dated November 1, 2001. First
Citizens' annual report on Form 10-K for the year ended December 31, 2000 is
attached hereto as Appendix E, and First Citizens' quarterly report on Form 10-Q
for the quarter ended September 30, 2001 is attached hereto as Appendix F.
All documents filed by First Citizens under Sections 13(a), 13(c), 14,
or 15(d) of the 1934 Act after the date of this Proxy Statement/Prospectus and
prior to the date of the ICBC Special Meeting or the First Citizens Special
Meeting shall be deemed to be incorporated by reference in this Proxy
Statement/Prospectus and to be a part hereof from the date of filing such
documents. Any statement contained herein or in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for the purposes of this Proxy Statement/Prospectus to the extent
that a statement contained herein or in any other subsequently filed document
which is also deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded, shall
not be deemed, except as so modified or superseded, to constitute a part of this
Proxy Statement/Prospectus.
The information relating to First Citizens contained in this Proxy
Statement/Prospectus should be read together with the information in the
documents incorporated by reference.
THIS PROXY STATEMENT/PROSPECTUS CONTAINS CERTAIN FORWARD LOOKING
STATEMENTS WITH RESPECT TO THE FINANCIAL CONDITION, RESULTS OF OPERATIONS AND
BUSINESS OF FIRST CITIZENS FOLLOWING THE CONSUMMATION OF THE PARENT MERGER.
THESE FORWARD LOOKING STATEMENTS INVOLVE CERTAIN RISKS AND UNCERTAINTIES.
FACTORS THAT MAY CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE
CONTEMPLATED BY SUCH FORWARD LOOKING STATEMENTS INCLUDE, AMONG OTHERS, THE
FOLLOWING POSSIBILITIES: (1) EXPECTED COST SAVINGS FROM THE PARENT MERGER CANNOT
BE FULLY REALIZED; (2) DEPOSIT ATTRITION, CUSTOMER LOSS OR REVENUE LOSS
FOLLOWING THE PARENT MERGER IS GREATER THAN EXPECTED; (3) COMPETITIVE PRESSURE
IN THE BANKING INDUSTRY INCREASES SIGNIFICANTLY; (4) COSTS OR DIFFICULTIES
RELATED TO THE INTEGRATION OF THE BUSINESSES OF FIRST CITIZENS AND ICBC ARE
GREATER THAN EXPECTED; (5) CHANGES OCCUR IN THE INTEREST RATE ENVIRONMENT WHICH
MAY REDUCE MARGINS; AND (6) GENERAL ECONOMIC CONDITIONS, EITHER NATIONALLY OR IN
THE AREA IN WHICH FIRST CITIZENS AND ICBC WILL BE DOING BUSINESS, ARE LESS
FAVORABLE THAN EXPECTED. FURTHER INFORMATION ON OTHER FACTORS WHICH COULD AFFECT
THE FINANCIAL RESULTS OF FIRST CITIZENS AFTER THE PARENT MERGER IS INCLUDED IN
THE COMMISSION FILINGS INCORPORATED BY REFERENCE HEREIN.
-ii-
INDEPENDENT COMMUNITY BANC CORP.
FIRST CITIZENS BANC CORP
PROXY STATEMENT/PROSPECTUS
TABLE OF CONTENTS
-----------------
PAGE
AVAILABLE INFORMATION.................................................................................. i
INCORPORATION BY REFERENCE............................................................................. ii
SUMMARY................................................................................................ 1
RISK FACTORS........................................................................................... 9
PRO FORMA SELECTED FINANCIAL INFORMATION............................................................... 12
COMPARATIVE PER SHARE DATA............................................................................. 13
COMPARATIVE MARKET VALUE DATA.......................................................................... 15
INFORMATION CONCERNING THE FIRST CITIZENS SPECIAL MEETING.............................................. 16
General........................................................................................... 16
Solicitation, Voting and Revocability of Proxies.................................................. 16
INFORMATION CONCERNING THE ICBC SPECIAL MEETING........................................................ 17
General........................................................................................... 17
Solicitation, Voting and Revocability of Proxies.................................................. 18
PROPOSED MERGER........................................................................................ 19
First Citizens Background and Reasons for the Merger.............................................. 19
Recommendation of the First Citizens Board of Directors........................................... 21
ICBC Background and Reasons for the Merger........................................................ 21
Recommendation of the ICBC Board of Directors..................................................... 24
Description of the Merger......................................................................... 24
Exchange of ICBC Common Shares.................................................................... 24
Fairness Opinion of Keefe, Bruyette, & Woods, Inc................................................. 25
Fairness Opinion of Young & Associates, Inc....................................................... 28
Effective Time of the Merger...................................................................... 33
Payment of Cash in Lieu of Fractional Shares...................................................... 33
Surrender of Certificates......................................................................... 34
Interest of Management in the Merger.............................................................. 34
Rights of Dissenting First Citizens Shareholders.................................................. 35
Rights of Dissenting ICBC Shareholders............................................................ 36
Federal Income Tax Consequences of the Merger..................................................... 36
Regulatory Approvals.............................................................................. 37
Business Pending the Merger....................................................................... 37
Other Provisions of the Merger Agreement.......................................................... 39
-iii-
Representations and Warranties............................................................... 39
Conditions to the Merger..................................................................... 39
Amendments; Waiver; and Termination.......................................................... 40
Expenses of the Merger............................................................................ 41
Operations of ICBC After the Merger............................................................... 41
Accounting Treatment.............................................................................. 42
Resale of First Citizens Common Shares............................................................ 42
DESCRIPTION OF FIRST CITIZENS COMMON SHARES............................................................ 42
General........................................................................................... 42
Provisions Relating to Business Combinations...................................................... 43
Business Combinations........................................................................ 43
Board Considerations......................................................................... 43
Shareholder Approval......................................................................... 43
COMPARATIVE RIGHTS OF ICBC SHAREHOLDERS................................................................ 44
Authorized and Outstanding Shares................................................................. 44
Notice of Shareholder Meetings.................................................................... 44
Quorum............................................................................................ 44
Voting............................................................................................ 45
Nomination of Directors........................................................................... 45
Number of Directors............................................................................... 45
Preemptive Rights................................................................................. 45
PRO FORMA FINANCIAL INFORMATION........................................................................ 46
INFORMATION WITH RESPECT TO FIRST CITIZENS............................................................. 52
Business.......................................................................................... 52
Selected Financial Information.................................................................... 52
Management's Discussion and Analysis of Financial Condition
And Results of Operations for the Quarter and Nine Months Ended September 30, 2001............... 52
Quantitative and Qualitative Disclosures About Market Risk........................................ 53
Certain Statistical Information With Respect to First Citizens.................................... 53
Management........................................................................................ 53
Security Ownership of Management.................................................................. 55
Market Price of First Citizens Common Shares...................................................... 58
Information Incorporated by Reference............................................................. 58
INFORMATION WITH RESPECT TO ICBC....................................................................... 58
Business........................................................................................... 58
Regulation......................................................................................... 70
Market Price and Dividends on ICBC Common Shares................................................... 74
Selected Financial Information..................................................................... 74
ICBC Management's Discussion and Analysis of Financial Condition And Results
of Operations.................................................................................... 76
Forward Looking Statements................................................................... 76
Management's Discussion and Analysis of Financial Condition And Results of Operation
as of September 30, 2001 and December 31, 2000 and for the Nine Months Ended
September 30, 2001 and 2000.................................................................. 76
Financial Condition..................................................................... 76
Results of Operations................................................................... 77
Net Interest Income..................................................................... 77
ICBC Average Balances, Interest and Average Yields/Cost................................. 79
Provision and Allowance for Loan Losses................................................. 80
-iv-
Noninterest Income..................................................................... 81
Noninterest Expense.................................................................... 81
Income Tax Expense...................................................................... 81
Capital Resources....................................................................... 82
Effects of Inflation.................................................................... 82
Management's Discussion and Analysis of Financial Condition And Results of Operation
as of December 31, 2000 and December 31, 1999 and for the Years Ended
December 31, 2000 and 1999................................................................... 82
Financial Condition..................................................................... 82
Results of Operations................................................................... 83
Net Interest Income..................................................................... 83
ICBC Average Balances, Interest and Average Yields/Cost................................. 85
Provision and Allowance for Loan Losses................................................. 86
Noninterest Income...................................................................... 87
Noninterest Expense..................................................................... 87
Income Tax Expense...................................................................... 87
Liquidity Management.................................................................... 88
Capital Resources....................................................................... 88
Effects of Inflation.................................................................... 88
Management................................................................................... 89
Security Ownership of Management and Certain Beneficial Owners............................... 90
EXPERTS................................................................................................ 92
TAX OPINION............................................................................................ 92
INDEMNIFICATION........................................................................................ 92
INDEX TO FINANCIAL INFORMATION......................................................................... 93
APPENDICES:
A. Agreement and Plan of Merger dated November 1, 2001
B. Dissenters' Rights Under Sections 1701.84 and 1701.85 of the Ohio
Revised Code
C. Fairness Opinion of Keefe, Bruyette & Woods, Inc. dated as of November
1, 2001
D. Fairness Opinion of Young & Associates, Inc. dated as of
_____________, 2001
E. First Citizens' Annual Report on Form 10-K for the year ended December
31, 2000
F. First Citizens' Quarterly Report on Form 10-Q for the quarter ended
September 30, 2001
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SUMMARY
-------
This summary is necessarily general and abbreviated and has been
prepared to assist the respective shareholders of First Citizens and ICBC in
their review of the Proxy Statement/Prospectus. The summary is not intended to
be a complete explanation of the matters covered in the Proxy
Statement/Prospectus and is qualified in all respects by reference to the more
detailed information contained in the Proxy Statement/Prospectus and the
Appendices hereto, which the respective shareholders of First Citizens and ICBC
are urged to read carefully.
THE PARTIES
First Citizens Banc Corp First Citizens is a bank holding
company organized and existing under the
laws of the State of Ohio and registered
with the Board of Governors of the Federal
Reserve System (the "Federal Reserve Board")
pursuant to the Bank Holding Company Act of
1956, as amended. First Citizens has three
wholly-owned banking subsidiaries: The
Citizens Banking Company, a commercial bank
organized and existing under the laws of the
State of Ohio ("CBC"); The Castalia Banking
Company, a commercial bank organized and
existing under the laws of the State of Ohio
("Castalia"); and The Farmers State Bank, a
commercial bank organized and existing under
the laws of the State of Ohio. In addition,
First Citizens has five wholly-owned nonbank
subsidiaries which provide services related
to its primary business: SCC Resources,
Inc., a data processing services company;
R.A. Reynolds Appraisal Services, Inc., a
real estate appraisal services company; Mr.
Money Finance Company, a consumer-lending
company; First Citizens Title Insurance
Agency, Inc., a mortgage services company;
and First Citizens Insurance Agency, Inc.,
an insurance agency. As of September 30,
2001 and December 31, 2000, First Citizens
had total consolidated assets of
approximately $504.2 million and $489.3
million and total shareholders' equity of
approximately $51.1 million and $47.9
million, respectively.
First Citizens' primary business is
incidental to its three operating bank
subsidiaries, CBC, Castalia and Farmers.
Located in Erie, Crawford, Huron, Union,
Marion, Richland and Ottawa Counties, Ohio,
CBC, Castalia and Farmers conduct a general
banking business that involves collecting
customer deposits, making loans and
purchasing securities. Commercial banking
accounts for substantially all of the
revenue, operating income and assets of
First Citizens. First Citizens Common Shares
are listed on the Nasdaq SmallCap Market
under the symbol "FCZA." For the nine months
ended September 30, 2001, First Citizens'
annualized return on average assets and
return on average equity was 1.03% and
10.37%, respectively. First Citizens'
principal executive offices are located at
100 East Water Street, Sandusky, Ohio 44870.
The telephone number of First Citizens'
executive offices is (419) 625-4121.
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Independent Community
Banc Corp. ICBC is a bank holding-company
organized and existing under the laws of the
State of Ohio with its principal office
located in Norwalk, Ohio. ICBC owns all of
the outstanding shares of Citizens National
Bank of Norwalk ("CNBN"), Norwalk, Ohio, a
national bank formed in 1865. CNBN provides
a full range of banking services, including
checking and savings accounts; certificates
of deposit; individual retirement accounts;
commercial, real estate, consumer and
agricultural loans; trust products and
services; and safe deposit boxes. As of
September 30, 2001 and December 31, 2000,
ICBC had total assets of approximately
$139.8 million and $136.6 million and total
shareholders' equity of approximately $12.1
million and $11.0 million, respectively.
ICBC's principal executive offices are
located at 16 Executive Drive, Norwalk, Ohio
44857. The telephone number of ICBC's
executive offices is (419) 744-3100.
INFORMATION CONCERNING THE
FIRST CITIZENS SPECIAL MEETING
General The First Citizens Special Meeting will be
held at The Citizens Banking Company, 100
East Water Street, Sandusky, Ohio 44870 on
____________, 2002 at _:00 _.m., local time.
The purpose of the First Citizens
Special Meeting is to consider and vote upon
adoption of the Merger Agreement and
approval of the transactions contemplated
thereby, as hereinafter described, including
the Parent Merger, on the terms described in
this Proxy Statement/Prospectus. A copy of
the Merger Agreement is attached to this
Proxy Statement/Prospectus as Appendix A and
is incorporated in this Proxy
Statement/Prospectus by reference.
Solicitation and Voting
of Proxies All shareholders of record of First
Citizens on ______________, 200_ (the "First
Citizens Record Date") will be entitled to
vote at the First Citizens Special Meeting.
The affirmative vote, in person or by proxy,
of the holders of not less than a majority
of the issued and outstanding First Citizens
Common Shares is required for adoption of
the Merger Agreement and approval of the
Parent Merger.
The directors and executive officers
of First Citizens and their affiliates own,
as of the First Citizens Record Date,
_______ First Citizens Common Shares
(approximately _____% of the total number of
outstanding First Citizens Common Shares at
such date), and have indicated an intention
to vote for adoption of the Merger Agreement
and approval of the Parent Merger.
INFORMATION CONCERNING THE
ICBC SPECIAL MEETING
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General The ICBC Special Meeting will be held at 16
Executive Drive, Norwalk, Ohio on _________
__, 2002 at ___:00 __.m., local time.
The purpose of the ICBC Special
Meeting is to consider and vote upon
adoption of the Merger Agreement and
approval of the transactions contemplated
thereby, as hereinafter described, including
the Parent Merger, on the terms described in
this Proxy Statement/Prospectus. A copy of
the Merger Agreement is attached to this
Proxy Statement/Prospectus as Appendix A and
is incorporated in this Proxy
Statement/Prospectus by reference.
Solicitation and Voting
of Proxies All shareholders of record of ICBC
on _____________, 200__ (the "ICBC Record
Date") will be entitled to vote at the ICBC
Special Meeting. The affirmative vote, in
person or by proxy, of the holders of not
less than two-thirds of the issued and
outstanding ICBC Common Shares is required
for adoption of the Merger Agreement and
approval of the Parent Merger.
Certain directors and executive
officers of ICBC and their affiliates own,
as of the ICBC Record Date, __________ ICBC
Common Shares (approximately ___% of the
total number of outstanding ICBC Common
Shares at such date) and have agreed to vote
such shares in favor of adoption of the
Merger Agreement and approval of the Parent
Merger pursuant to the Voting Agreements
with First Citizens, dated November 1, 2001.
RISK FACTORS There are several risks associated
with an investment in First Citizens Common
Shares by virtue of the adoption of the
Merger Agreement, including a fluctuation in
the market value of the First Citizens
Common Shares to be issued in the Parent
Merger and the potential that First Citizens
may not realize all of the anticipated
benefits of the Parent Merger. See "RISK
FACTORS."
PROPOSED MERGER
Exchange of ICBC
Common Shares Upon consummation of the Parent
Merger, each ICBC shareholder who does not
exercise his or her right to become a
dissenting shareholder will have the right
to receive 1.7 First Citizens Common Shares
for each ICBC Common Share exchanged
therefor, plus cash in lieu of fractional
shares (the "Merger Consideration").
For a complete description of the
consideration to be received by ICBC
shareholders, see "PROPOSED MERGER--Exchange
of ICBC Common Shares."
Background and Reasons
for the Merger First Citizens. First Citizens'
Board of Directors has concluded that the
Parent Merger is fair to and in the best
interests of the First Citizens shareholders
because, among
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other things, (i) the Parent Merger will
facilitate the natural and logical expansion
of First Citizens' business into six
contiguous counties of Erie, Ottawa, Huron,
Crawford, Marion, and Union, (ii) First
Citizens' philosophies toward community
banking, its emphasis on customer service
and strong ongoing commitment to each
community it serves are consistent with
ICBC's management philosophies and its
long-standing reputation of customer service
and community involvement, (iii) ICBC's
current products and services are similar to
and, in many respects, complement products
and services offered by First Citizens and
its banking subsidiaries, and, in addition,
ICBC offers trust services which will become
available to all First Citizens customers,
(iv) each of First Citizens and ICBC will
have the opportunity to expand their
commercial loan portfolios, (v) First
Citizens believes it will be able to
increase non-interest revenues through the
expansion of certain insurance, finance,
securities brokerage and other traditional
banking products, which are not currently
offered to ICBC customers, (vi) the Parent
Merger will potentially improve the trading
market for and increase the liquidity of
First Citizens Common Shares due to the
additional issuance of First Citizens Common
Shares, and (vii) First Citizens believes
that the transaction will be accretive to
the earnings of First Citizens. First
Citizens' Board of Directors did not assign
any particular weight to each of the factors
considered. See "PROPOSED MERGER -- First
Citizens Background and Reasons for the
Merger."
ICBC. ICBC's Board of Directors has
concluded that the Parent Merger is fair to
and in the best interests of ICBC and its
shareholders. See "PROPOSED MERGER -- ICBC
Background and Reasons for the Merger."
Fairness Opinions First Citizens. Keefe, Bruyette, &
Woods, Inc. ("Keefe, Bruyette & Woods") has
rendered an opinion to First Citizens' Board
of Directors that, as of November 1, 2001,
the consideration to be paid by First
Citizens in the Parent Merger is fair, from
a financial point of view, to the
shareholders of First Citizens. For
additional information, see "PROPOSED
MERGER-- Fairness Opinion of Keefe, Bruyette
& Woods." The opinion of Keefe, Bruyette &
Woods is attached as Appendix C to this
Proxy Statement/Prospectus. First Citizens
shareholders are urged to read such opinion
in its entirety for a description of the
procedures followed and matters considered
in connection therewith.
ICBC. Young & Associates, Inc.
("Young & Associates") has rendered a
written opinion to ICBC's Board of Directors
as of _________________, to the effect that
the consideration to be received by the
shareholders of ICBC in the Parent Merger is
fair, from a financial point of view, to the
shareholders of ICBC. For additional
information, see "PROPOSED MERGER --
Fairness Opinion of Young & Associates." The
opinion of Young & Associates is attached as
Appendix D to this Proxy Statement/
Prospectus. ICBC
-4-
shareholders are urged to read such opinion
in its entirety for a description of the
procedures followed and matters considered
in connection therewith.
Interest of Management
in the Merger At the Effective Time of the Parent
Merger, First Citizens will take such
actions as are necessary to increase the
number of directors comprising the First
Citizens Board by two members and will fill
the vacancies resulting from such increase
with two members of the ICBC Board of
Directors recommended by ICBC and selected
by First Citizens. At the Effective Time of
the Subsidiary Combination, First Citizens
will also take such actions as are necessary
to increase the number of directors
comprising the Board of Directors of CBC by
two members and will fill the vacancies
resulting from such increase with two
members of the ICBC Board of Directors
recommended by ICBC and selected by First
Citizens.
First Citizens will indemnify each
person who served as a director or officer
of ICBC, on or before the Effective Time to
the fullest extent permitted pursuant to the
ICBC Articles of Incorporation and the ICBC
Code of Regulations, the Articles of
Association and Bylaws of CNBN, as the case
may be, and applicable provisions of Ohio
and federal law from and against expenses,
including attorneys' fees, judgments, fines
and amounts paid in settlement in connection
with any action, suit, claim or proceeding
threatened, filed, pending or completed
during the three year period after the
Effective Time, by reason of the fact that
such person was a director or officer of
ICBC or CNBN, as the case may be. The
individual making the request for
indemnification, however, must provide First
Citizens with written notice of any such
action, suit, claim or proceeding. First
Citizens will also purchase directors' and
officers' liability insurance for a period
of three years from the Effective Date to
reimburse the present and former officers
and directors of ICBC or any of its
subsidiaries (determined at the Effective
Time) with respect to claims against them
arising from facts or events which occurred
before the Effective Time. In addition, two
executives of ICBC have entered into
retention bonus and/or change in control
agreements with ICBC. See "PROPOSED MERGER
-- Interest of Management in the Merger."
Recommendations of the
Boards of Directors First Citizens. The First Citizens
Board of Directors has unanimously approved
the Merger Agreement and believes that the
Parent Merger is fair to and in the best
interests of the First Citizens
shareholders. The First Citizens Board of
Directors unanimously recommends that the
First Citizens shareholders adopt the Merger
Agreement and approve the Parent Merger.
(See "PROPOSED MERGER--Recommendation of
the First Citizens Board of Directors."
ICBC. The ICBC Board of Directors
has approved the Merger Agreement and
believes that the Parent Merger is fair
-5-
to and in the best interests of the ICBC
shareholders. The ICBC Board of Directors
recommends that ICBC's shareholders adopt
the Merger Agreement and approve the Parent
Merger. See "PROPOSED MERGER
--Recommendation of the ICBC Board of
Directors."
Dissenters' Rights Holders of ICBC Common Shares and
First Citizens Common Shares may exercise
their right to become dissenting
shareholders to the extent, and in strict
compliance with the procedure, specified in
Sections 1701.84 and 1701.85 of the Ohio
Revised Code. HOLDERS OF ICBC COMMON SHARES
OR FIRST CITIZENS COMMON SHARES WHO WANT TO
EXERCISE THEIR DISSENTERS' RIGHTS MUST NOT
VOTE IN FAVOR OF THE MERGER AGREEMENT AT
ICBC'S SPECIAL MEETING OR FIRST CITIZENS'
SPECIAL MEETING, AS THE CASE MAY BE, AND
MUST SEND WRITTEN DEMANDS FOR PAYMENT FOR
THEIR ICBC COMMON SHARES OR FIRST CITIZENS
COMMON SHARES WITHIN TEN DAYS AFTER THE ICBC
SPECIAL MEETING OR THE FIRST CITIZENS'
SPECIAL MEETING. See "PROPOSED MERGER
--Rights of Dissenting Shareholders" and the
text of Sections 1701.84 and 1701.85 of the
Ohio Revised Code attached to this Proxy
Statement/ Prospectus as Appendix B.
Regulatory Approvals First Citizens has filed the
applications necessary to obtain the
approval for the Parent Merger from the
Federal Reserve Board and to obtain the
approval of the Subsidiary Combination from
the Ohio Division of Financial Institutions
(the "ODFI") and the Office of the
Comptroller of the Currency. The Parent
Merger may not be consummated for 15 days
after approval by the Federal Reserve Board,
during which time an action may be brought
by the United States Department of Justice
challenging the Parent Merger on antitrust
grounds. Neither First Citizens nor ICBC has
any reason to believe the Parent Merger will
be challenged on antitrust grounds. [UPDATE
AS NEEDED]
-8-
Federal Income Tax
Consequences of the
Merger It is intended that the Parent
Merger will be treated as a reorganization
within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended,
and that, accordingly, for federal income
tax purposes no gain or loss will be
recognized by ICBC or First Citizens as a
result of the Parent Merger. The obligation
of ICBC and First Citizens to consummate the
Parent Merger is conditioned on the receipt
by ICBC of an opinion of its counsel, Vorys,
Sater, Seymour and Pease LLP, dated as of
the closing date of the Parent Merger,
substantially to the effect that (i) the
Parent Merger will constitute a tax free
reorganization and (ii) no gain or loss will
be recognized by the ICBC shareholders upon
the receipt solely of First Citizens Common
Shares in exchange for ICBC Common Shares,
except with respect to any cash received in
lieu of a fractional share interest in First
Citizens Common Shares. ICBC shareholders
who exercise dissenters' rights and receive
cash for their ICBC Common Shares will be
treated as having received a distribution in
redemption of their shares which will result
in such shareholders recognizing income for
federal income tax purposes.
All ICBC shareholders should read
carefully the description under "PROPOSED
MERGER--Federal Income Tax Consequences of
the Merger," and should consult their own
tax advisors concerning these matters.
Conditions; Termination Completion of the Parent Merger is
contingent upon adoption of the Merger
Agreement by the respective shareholders of
ICBC and First Citizens and certain
regulatory authorities and upon the
satisfaction or waiver of certain other
conditions described in this Proxy
Statement/Prospectus. The Merger Agreement
may be terminated and the Parent Merger
abandoned by (i) mutual agreement of First
Citizens and ICBC, (ii) by First Citizens or
ICBC in the event of a breach of the Merger
Agreement by the other party, (iii) by First
Citizens or ICBC in the event the Parent
Merger is not consummated by April 30, 2002,
(iv) by First Citizens or ICBC if the
approval of any governmental authority
required for consummation of the Parent
Merger shall have been denied or the First
Citizens or ICBC shareholders fail to adopt
the Merger Agreement and (v) by ICBC, if
ICBC executes an agreement in connection
with, or closes, a business combination with
a party other than First Citizens in
accordance with the terms of the Merger
Agreement.
In addition, if the market price of
First Citizens Common Shares falls below
$19.50 per share during a measuring period
prior to the closing, First Citizens will
have the right to increase the per share
Merger Consideration to a value equal to
$19.50. If First Citizens chooses not to
make such an adjustment, ICBC's directors
will have the right to terminate the Merger
Agreement and abandon the transaction. There
is no assurance, however, that the ICBC
directors will
-7-
exercise such right. If the market price of
First Citizens Common Shares falls below
$19.50, the ICBC directors will evaluate the
circumstances and, in the exercise of their
fiduciary duties, determine whether to
terminate the Merger Agreement. The ICBC
Board of Directors may, without the approval
of the ICBC shareholders, waive the right to
terminate the Merger Agreement and proceed
with the Parent Merger even if the market
price of First Citizens Common Shares falls
below $19.50.
Because the number of First
Citizens Commons Shares an ICBC shareholder
will receive in the Parent Merger is fixed
and the market price of First Citizens
Common Shares will fluctuate, ICBC
shareholders cannot be sure of the market
value of the First Citizens Commons Shares
they will receive in the Parent Merger. ICBC
shareholders should obtain current price
quotations for the First Citizens Commons
Shares before casting their votes regarding
the Parent Merger. ICBC shareholders may
obtain current stock quotations for First
Citizens Common Shares, listed under the
symbol "FCZA," from newspapers, the Internet
or stockbrokers.
See "PROPOSED MERGER--Other
Provisions of the Merger Agreement."
Management after the
Merger Upon completion of the Parent
Merger, ICBC will be merged with and into
First Citizens, with First Citizens as the
surviving corporation. At the Effective
Time, the number of directors comprising the
First Citizens Board of Directors will be
increased by (2) members, and the Board of
Directors of First Citizens shall consist of
all of the persons who were directors of
First Citizens immediately prior to the
Effective Time, plus two members of the ICBC
Board of Directors recommended by ICBC and
selected by First Citizens. See "PROPOSED
MERGER--Operations of ICBC After the
Merger."
COMPARATIVE RIGHTS OF
ICBC SHAREHOLDERS The rights of First Citizens
shareholders and ICBC shareholders, while
similar in many respects, also differ in
some respects. For a description of the
relative rights of the First Citizens
shareholders and ICBC shareholders, see
"COMPARATIVE RIGHTS OF ICBC SHAREHOLDERS."
First Citizens' Articles of Incorporation
include provisions governing certain
business combinations involving First
Citizens. For a description of this
provision, see "DESCRIPTION OF FIRST
CITIZENS COMMON SHARES--Provisions Relating
to Business Combinations."
-8-
RISK FACTORS
------------
In considering whether to adopt the Merger Agreement or to approve the
Parent Merger, the shareholders of ICBC should consider, in addition to the
other information contained in this document, the following matters.
Fluctuation in the market price of First Citizens Common Shares will affect the
value of the Merger Consideration received in the Parent Merger.
If the Parent Merger closes, each outstanding ICBC Common Share will be
cancelled on the day of the closing in exchange for 1.7 First Citizens Common
Shares.
The value of the total consideration which ICBC shareholders will
receive on the day of the closing in exchange for each ICBC Common Share will
depend on the market value of First Citizens Common Shares on the Nasdaq
SmallCap Market on the day of the closing. On ________________, the last trading
day before the announcement of the execution of the Merger Agreement, and on
__________, the last trading day before the mailing of this Proxy
Statement/Prospectus, the closing price of First Citizens Common Shares on the
Nasdaq SmallCap Market was $______ and $_______, respectively.
On the day the Parent Merger closes, the market price of First Citizens
Common Shares may be higher or lower than the market price on the date the
Merger Agreement was signed, on the date this document was mailed to ICBC
shareholders or on the date of the ICBC Special Meeting. Therefore, an ICBC
shareholder cannot be assured of receiving any specific market value of First
Citizens Common Shares on the date of the closing of the Parent Merger. ICBC
shareholders should determine the market price of First Citizens Common Shares
on the Nasdaq SmallCap Market prior to making a voting decision regarding the
Parent Merger. However, ICBC will have the right to terminate the Merger
Agreement and abandon the Parent Merger before the closing if the average
closing price per share of First Citizens Common Shares for the twenty trading
days ending five trading days before the closing falls below $19.50. ICBC
shareholders should refer to "PROPOSED MERGER--Other Provisions of the Merger
Agreement" for more information about the value of the consideration an ICBC
shareholder will receive in the Parent Merger.
Although the ICBC Board of Directors has the power to terminate the
Merger Agreement and abandon the Parent Merger if the average closing price of
First Citizens Common Shares for the twenty trading days ending five trading
days before the closing falls below $19.50, there is no assurance that the ICBC
Board of Directors will exercise such power by terminating the Merger Agreement.
If the average closing price falls below $19.50, the ICBC Board of Directors
will evaluate the circumstances existing at the time and, in the exercise of the
directors' fiduciary duties, determine whether a termination is in the best
interest of ICBC shareholders.
First Citizens may not be able to manage its growth successfully by integrating
the operations of ICBC and CNBN.
The earnings, financial condition and prospects of First Citizens after
the Parent Merger will depend in part on First Citizens' ability to integrate
successfully the operations of ICBC and CNBN and to continue to implement its
own business plan. Among the issues which First Citizens could face are:
- unexpected problems with risks, operations, personnel,
technology or credit;
- loss of customers and employees of ICBC and/or CNBN;
- difficulty in working with ICBC's and/or CNBN's employees and
customers;
-9-
- the assimilation of new operations, sites and personnel could
divert resources from regular banking operations; and
- institution and maintenance of uniform standards, controls,
procedures and policies.
Furthermore, although First Citizens' Board of Directors anticipates
that there will be cost savings as a result of the Parent Merger, First Citizens
may be unable to fully realize some of the potential cost savings expected.
Finally, some of the cost savings initially realized by First Citizens may be
offset by initial losses in revenues or other charges to earnings.
Changing economic conditions and the geographic concentration of First Citizens'
markets may unfavorably impact First Citizens.
The operations of First Citizens and ICBC are concentrated in seven
counties in North Central Ohio. As a result of this geographic concentration in
contiguous markets, First Citizens' and ICBC's results depend largely upon
economic conditions in these market areas. A deterioration in economic
conditions in one or more of these markets could result in one or more of the
following:
- an increase in loan delinquencies;
- an increase in problem assets and foreclosures;
- a decrease in the demand for First Citizens' products and
services; and
- a decrease in the value of collateral for loans, especially
real estate, in turn reducing customers' borrowing power, the
value of assets associated with problem loans and collateral
coverage.
First Citizens may be unable to manage interest rate risks, which could reduce
its net interest income.
First Citizens' results of operations are affected principally by net
interest income, which is the difference between interest earned on loans and
investments and interest expense paid on deposits and other borrowings. First
Citizens cannot predict or control changes in interest rates. Regional and local
economic conditions and the policies of regulatory authorities, including
monetary policies of the Board of Governors of the Federal Reserve System,
affect interest income and interest expense. First Citizens has ongoing policies
and procedures designed to manage the risks from changes in market interest
rates. However, changes in interest rates can still have a material adverse
effect on First Citizens' profitability.
In addition, certain assets and liabilities may react in different
degrees to changes in market interest rates. For example, interest rates on some
types of assets and liabilities may fluctuate prior to changes in broader market
interest rates, while interest rates on other types may lag behind. Some of
First Citizens' assets, such as adjustable rate mortgages, have features that
restrict changes in their interest rates, including rate caps.
Interest rates are highly sensitive to many factors that are beyond
First Citizens' control. Some of these factors include:
- inflation;
- recession;
- unemployment;
- money supply;
- international disorders; and
- instability in domestic and foreign financial markets.
-10-
Changes in interest rates may affect the level of voluntary prepayments on First
Citizens' loans and may also affect the timing and level of financing or
refinancing by customers. Although First Citizens pursues an asset-liability
management strategy designed to control its risk from changes in market interest
rates, changes in interest rates can still have a material adverse effect on its
profitability.
-11-
PRO FORMA SELECTED FINANCIAL INFORMATION
----------------------------------------
The table below sets forth selected pro forma combined consolidated
financial information for First Citizens and ICBC as of September 30, 2001 and
for the nine months ended September 30, 2001 and the year ended December 31,
2000. This information is derived from and should be read in conjunction with
the historical financial statements of First Citizens and ICBC that are
incorporated by reference or appear elsewhere in this Proxy
Statement/Prospectus, and with the pro forma condensed combined consolidated
financial statements of First Citizens, which give effect to the Parent Merger
and which appear in this Proxy Statement/Prospectus under the caption "PRO FORMA
FINANCIAL INFORMATION." The pro forma condensed combined consolidated financial
information has been prepared based on the use of the purchase method of
accounting, assuming that 1,063,396 First Citizens Common Shares will be issued
and that no ICBC shareholders will dissent. This information will vary if any
ICBC shareholders exercise dissenter rights with respect to the Parent Merger.
For a discussion of the purchase method of accounting, see "PROPOSED MERGER --
Accounting Treatment" and "PROPOSED MERGER -- Other Provisions of the Merger
Agreement."
Pro Forma Condensed Combined Consolidated Balance Sheet
At September 30, 2001
(In Thousands)
Total assets $657,705
Loans 439,986
Deposits 543,178
Borrowings 33,663
Total shareholders' equity 75,531
Pro Forma Condensed Combined Consolidated Statement of Income
For the nine months For the year ended
ended September 30, 2001 December 31, 2000
(In Thousands, except per (In Thousands, except
share data) per share data)
Net interest income $ 19,003 $ 23,827
Provision for loan losses 870 1,180
Non-interest income 4,552 6,610
Non-interest expense 15,819 19,531
Net Income 4,902 7,009
Earnings per share
Basic $ 0.95 $ 1.36
Diluted $ 0.95 $ 1.36
-12-
COMPARATIVE PER SHARE DATA
--------------------------
The following table sets forth First Citizens' and ICBC's historical
per share data and pro forma combined per share data. The information is based
on the historical financial statements of First Citizens and ICBC. The pro forma
data do not purport to be indicative of the results of future operations or the
actual results that would have occurred had the Parent Merger been consummated
at the beginning of the periods presented. The pro forma data give effect to the
Parent Merger and are based on numerous assumptions and estimates. The pro forma
data are included as required by the rules of the Commission and are provided
for comparative purposes only. The pro forma combined per share data and ICBC
equivalent per share data are prepared assuming 1,063,396 First Citizens Common
Shares will be issued based on the Exchange Ratio. See "PROPOSED
MERGER--Exchange of ICBC Common Shares."
-13-
FIRST CITIZENS BANC CORP AND INDEPENDENT COMMUNITY BANC CORP.
COMPARATIVE PER SHARE DATA
At or for the At or for the
nine months ended year ended
September 30, 2001 December 31, 2000
Basic earnings per share:
First Citizens $ 0.94 $ 1.39
ICBC 1.47 1.97
Consolidated pro forma 0.95 1.36
ICBC equivalent pro forma (1) 1.62 2.31
Diluted earnings per share:
First Citizens $ 0.94 $ 1.39
ICBC 1.47 1.97
Consolidated pro forma 0.95 1.36
ICBC equivalent pro forma (1) 1.62 2.31
Cash dividends declared per share:
First Citizens $ 0.54 $ 1.15
ICBC 0.22 0.60
Consolidated pro forma (2) 0.54 1.15
ICBC equivalent pro forma (1) 0.92 1.96
Book value per share at period end:
First Citizens $ 12.51 N/A
ICBC 19.65 N/A
Consolidated pro forma 14.68 N/A
ICBC equivalent pro forma (1) 24.95 N/A
Tangible book value per share at
period end:
First Citizens $ 12.11 N/A
ICBC 13.98 N/A
Consolidated pro forma 11.22 N/A
ICBC equivalent pro forma (1) 19.07 N/A
(1) ICBC equivalent pro forma amounts for basic earnings per share, diluted
earnings per share, cash dividends, book value per share and tangible
book value per share have been computed by multiplying the respective
consolidated pro forma amounts by the exchange ratio of 1.7.
(2) Consolidated pro forma cash dividends declared per share represent the
historical cash dividends declared by First Citizens and assumes no
changes will occur.
-14-
COMPARATIVE MARKET VALUE DATA
-----------------------------
First Citizens Common Shares are listed on the Nasdaq SmallCap Market
under the symbol "FCZA." ICBC Common Shares are traded on the over the counter
market under the symbol "ICMB." The information presented in the following table
reflects the last reported sale price for First Citizens on ______________, the
last trading day preceding execution of the Merger Agreement; the sale price for
ICBC Common shares in the most recent transaction occurring prior to
___________, of which ICBC's management is aware; and the equivalent per share
basis of ICBC. The equivalent per share basis has been calculated by multiplying
the last reported sale price on such date by the Exchange Ratio. The market
value of the consideration to be received by the ICBC Shareholders will depend
on the market value of a share of First Citizens Common Shares at such time. No
assurance can be given as to what the market price of First Citizens Common
Shares will be if and when the Parent Merger is consummated. See also
"INFORMATION WITH RESPECT TO FIRST CITIZENS-- Market Price of First Citizens
Common Shares" and "INFORMATION WITH RESPECT TO ICBC--Market Price and Dividends
on ICBC Common Shares."
FIRST CITIZENS BANC CORP AND INDEPENDENT COMMUNITY BANC CORP.
COMPARATIVE MARKET VALUE
____________, 2001
ICBC
EQUIVALENT
PER SHARE
FIRST CITIZENS ICBC BASIS
-------------- ------- ----------
Common Shares $_____(1) $_____(2) $______
(1) Based on the closing price of First Citizens Common Shares on
___________, 2001, as listed on the Nasdaq SmallCap Market.
(2) Based on the last trade of ICBC Common Shares prior to __________,
2001, as reported by the over the counter bulletin board.
-15-
INFORMATION CONCERNING THE FIRST CITIZENS SPECIAL MEETING
---------------------------------------------------------
GENERAL
This Proxy Statement/Prospectus is being furnished to holders of First
Citizens Common Shares as part of the solicitation of proxies by the First
Citizens Board of Directors for use at the First Citizens Special Meeting to be
held on __________, 2002 at _:00 _.m., at The Citizens Banking Company, 100 East
Water Street, Sandusky, Ohio 44870, including any adjournments or reschedulings
thereof. This Proxy Statement/Prospectus and the accompanying Proxy Card are
first being mailed to shareholders of First Citizens on or about __________,
2002.
The purpose of the First Citizens Special Meeting is to consider and
vote upon the Proposal to adopt the Merger Agreement and to approve the
transactions contemplated thereby, including the Parent Merger, and to consider
such other business incident to the conduct of the First Citizens Special
Meeting as may properly come before the First Citizens Special Meeting and any
adjournment or postponement of the First Citizens Special Meeting, including
adjournment of the First Citizens Special Meeting to allow for additional
solicitation of additional shareholder votes in order to obtain the required
vote to adopt the Merger Agreement and to approve the Parent Merger.
Completion of the Parent Merger is subject to the satisfaction or
waiver of a number of conditions, including the receipt of required regulatory
and shareholder approvals. (See "PROPOSED MERGER--Regulatory Approvals" and
"PROPOSED MERGER--Other Provisions of the Merger Agreement.")
SOLICITATION, VOTING AND REVOCABILITY OF PROXIES
The First Citizens Board of Directors has fixed the close of business
on __________, 200_ (the "First Citizens Record Date") as the record date for
the determination of the shareholders of First Citizens entitled to notice of
and to vote at the First Citizens Special Meeting. Only holders of record of
First Citizens Common Shares at the close of business on the First Citizens
Record Date will be entitled to vote on each matter properly presented at the
First Citizens Special Meeting. On the First Citizens Record Date, __________
First Citizens Common Shares were issued and outstanding. Votes may be cast in
person or by proxy, and each First Citizens Common Share entitles its holder to
one vote. Pursuant to the First Citizens Code of Regulations and in accordance
with the Ohio Revised Code ("ORC"), the presence of the holders of a majority of
the First Citizens Common Shares issued and outstanding, in person or by proxy,
and entitled to vote at the First Citizens Special Meeting is required for and
shall constitute a quorum for the transaction of business at the First Citizens
Special Meeting. For such purpose, abstentions and broker non-votes will be
counted in establishing the quorum. A majority of the First Citizens Common
Shares present at the First Citizens Special Meeting, in person or by proxy,
whether or not constituting a quorum, may vote to, or the First Citizens Board
in its discretion may, adjourn the First Citizens Special Meeting from time to
time without further notice, including for the purpose of soliciting additional
proxies. Under the First Citizens Articles of Incorporation and the ORC, the
affirmative vote of the holders of at least a majority of the total number of
outstanding First Citizens Common Shares entitled to vote at the First Citizens
Special Meeting is required to adopt the Merger Agreement and to approve the
Parent Merger. An abstention and a broker non-vote would thus have the same
effect as a vote against the adoption of the Merger Agreement and the approval
of the Parent Merger.
Only shareholders of record on the First Citizens Record Date are
eligible to give their proxies. Therefore, shareholders owning shares held in
the name of a brokerage firm, bank, or other institution should sign, date and
return their proxy cards to such brokerage firm, bank or other institution in
the envelope provided by that firm. In addition, under the rules of the New York
Stock Exchange, brokers who hold shares in street name for customers who are the
beneficial owners of such shares are prohibited from giving a proxy to vote
shares held for such customers on the adoption of the Merger Agreement and the
approval of the Parent Merger without specific instructions from such customers.
-16-
Given that the First Citizens Articles of Incorporation require the affirmative
vote of the holders of a majority of the outstanding First Citizens Common
Shares entitled to vote at the First Citizens Special Meeting to adopt the
Merger Agreement and approve the Parent Merger, the failure of such customers to
provide specific instructions with respect to their First Citizens Common Shares
to their broker will have the effect of a vote against the adoption of the
Merger Agreement and the approval of the Parent Merger. Failure to return a
properly executed proxy card or to vote at the First Citizens Special Meeting
will have the same effect as a vote against the adoption of the Merger Agreement
and approval of the Parent Merger.
Proxies in the accompanying form which are properly executed and
returned to First Citizens will be voted at the First Citizens Special Meeting
in accordance with the shareholders' instructions contained in such proxies and,
at the discretion of the Proxy Committee, on such other matters as may properly
come before the meeting. If a shareholder returns a proxy card that is signed,
dated and not marked, that shareholder will be deemed to have voted FOR the
adoption of the Merger Agreement and approval of the Parent Merger. An executed
proxy may be revoked at any time prior to its exercise by submitting another
proxy with a later date, by appearing in person at the First Citizens Special
Meeting and advising the Secretary of the shareholder's intent to vote the
shares or by sending a written, signed and dated revocation which clearly
identifies the proxy being revoked to the principal executive offices of First
Citizens at 100 East Water Street, Sandusky, Ohio 44870, Attention: Donna J.
Dalferro, Vice President and Secretary. A revocation may be in any written form
validly signed by the record holder as long as it clearly states that the proxy
previously given is no longer effective. In addition, shareholders whose First
Citizens Common Shares are not registered in their own name will need additional
documentation from the record holder of such shares to vote in person at the
First Citizens Special Meeting.
Proxies may be solicited by mail, telephone, telegraph, telex,
telecopier and advertisement and in person. Solicitation may be made in the same
manner by directors, officers and other representatives of First Citizens who
will not be specially compensated for such activities, but who may be reimbursed
for reasonable out-of-pocket expenses in connection with such solicitation.
Banks, brokerage houses and other custodians, nominees and fiduciaries
will be requested to forward the solicitation materials to the beneficial owners
of First Citizens Common Shares for which they hold of record, and First
Citizens will reimburse them for their reasonable out-of-pocket expenses.
The expenses related to the proxy solicitation for the First Citizens
Special Meeting will be borne by First Citizens, except that the cost of
preparing and mailing this Proxy Statement/Prospectus will be shared by First
Citizens and ICBC.
The directors and executive officers of First Citizens and their
affiliates own, as of the First Citizens Record Date, _______ First Citizens
Common Shares (approximately _____% of the total number of outstanding shares of
First Citizens Common Shares at such date). See "INFORMATION WITH RESPECT TO
FIRST CITIZENS--Security Ownership of Management."
INFORMATION CONCERNING THE ICBC SPECIAL MEETING
-----------------------------------------------
GENERAL
This Proxy Statement/Prospectus is being furnished to holders of ICBC
Common Shares as part of the solicitation of proxies by the ICBC Board of
Directors for use at the ICBC Special Meeting to be held on ______________, 2002
at ___:00 __.m., at the ICBC offices, 16 Executive Drive, Norwalk, Ohio,
including any adjournments or reschedulings thereof. This Proxy
Statement/Prospectus and the accompanying Proxy Card are first being mailed to
shareholders of ICBC on or about ______________, 2002.
-17-
The purpose of the ICBC Special Meeting is to consider and vote upon
the Proposal to adopt the Merger Agreement and to approve the transactions
contemplated thereby, including the Parent Merger, and to consider such other
business incident to the conduct of the ICBC Special Meeting as may properly
come before the ICBC Special Meeting and any adjournment or postponement of the
ICBC Special Meeting, including adjournment of the ICBC Special Meeting to allow
for additional solicitation of additional shareholder votes in order to obtain
the required vote to adopt the Merger Agreement and to approve the Parent
Merger.
Completion of the Parent Merger is subject to the satisfaction or
waiver of a number of conditions, including the receipt of required regulatory
and shareholder approvals. (See "PROPOSED MERGER--Regulatory Approvals" and
"PROPOSED MERGER--Other Provisions of the Merger Agreement.")
SOLICITATION, VOTING AND REVOCABILITY OF PROXIES
The ICBC Board has fixed the close of business on _____________, 200__
(the "ICBC Record Date") as the record date for the determination of the
shareholders of ICBC entitled to notice of and to vote at the ICBC Special
Meeting. Only holders of record of ICBC Common Shares at the close of business
on the ICBC Record Date will be entitled to vote on each matter properly
presented at the ICBC Special Meeting. On the ICBC Record Date, ____________
ICBC Common Shares were issued and outstanding. Votes may be cast in person or
by proxy, and each ICBC Common Share entitles its holder to one vote. Pursuant
to the ORC, the shareholders of ICBC present, in person or by proxy, shall
constitute a quorum for the transaction of business at the ICBC Special Meeting.
A majority of the ICBC Common Shares present at the ICBC Special Meeting, in
person or by proxy, may vote to adjourn the ICBC Special Meeting from time to
time without further notice, including for the purpose of soliciting additional
proxies. Under the ICBC Articles of Incorporation and the ORC, the affirmative
vote of the holders of at least two-thirds of the total number of outstanding
ICBC Common Shares entitled to vote at the ICBC Special Meeting is required to
adopt the Merger Agreement and to approve the Parent Merger. An abstention and a
broker non-vote would thus have the same effect as a vote against the adoption
of the Merger Agreement and the approval of the Parent Merger.
Only shareholders of record on the ICBC Record Date are eligible to
give their proxies. Therefore, shareholders owning shares held in the name of a
brokerage firm, bank, or other institution should sign, date and return their
proxy cards to such brokerage firm, bank or other institution in the envelope
provided by that firm. In addition, under the rules of the New York Stock
Exchange, brokers who hold shares in street name for customers who are the
beneficial owners of such shares are prohibited from giving a proxy to vote
shares held for such customers on the adoption of the Merger Agreement and the
approval of the Parent Merger without specific instructions from such customers.
Given that the ORC requires the affirmative vote of the holders of two-thirds of
the outstanding ICBC Common Shares entitled to vote at the ICBC Special Meeting
to adopt the Merger Agreement and to approve the Parent Merger, the failure of
such customers to provide specific instructions with respect to their ICBC
Common Shares to their broker will have the effect of a vote against the
adoption of the Merger Agreement and the approval of the Parent Merger. Failure
to return a properly executed proxy card or to vote at the ICBC Special Meeting
will have the same effect as a vote against the adoption of the Merger Agreement
and approval of the Parent Merger.
Proxies in the accompanying form which are properly executed and
returned to ICBC will be voted at the ICBC Special Meeting in accordance with
the shareholders' instructions contained in such proxies and, at the discretion
of James D. Heckelman, William F. Boose and John M. Kovesdi, Jr., D.O., on such
other matters as may properly come before the meeting. If a shareholder returns
a proxy card that is signed, dated and not marked, that shareholder will be
deemed to have voted for the adoption of the Merger Agreement and approval of
the Parent Merger. An executed proxy may be revoked at any time prior to its
exercise by submitting another proxy with a later date, by appearing in person
at the ICBC Special Meeting and advising the Secretary of the shareholder's
intent to vote the shares or by sending a written, signed and dated revocation
which clearly identifies the proxy being revoked to the principal executive
offices of ICBC at 16 Executive Drive, Norwalk, Ohio, 44857 Attention:
____________________, Secretary. A revocation may be in any
-18-
written form validly signed by the record holder as long as it clearly states
that the proxy previously given is no longer effective. In addition,
shareholders whose ICBC Common Shares are not registered in their own name will
need additional documentation from the record holder of such shares to vote in
person at the ICBC Special Meeting.
Proxies may be solicited by mail, telephone, telegraph, telex,
telecopier and advertisement and in person. Solicitation may be made in the same
manner by directors, officers and other representatives of ICBC who will not be
specially compensated for such activities, but who may be reimbursed for
reasonable out-of-pocket expenses in connection with such solicitation.
Banks, brokerage houses and other custodians, nominees and fiduciaries
will be requested to forward the solicitation materials to the beneficial owners
of ICBC Common Shares for which they hold of record, and ICBC will reimburse
them for their reasonable out-of-pocket expenses.
The expenses related to the proxy solicitation for the ICBC Special
Meeting will be borne by ICBC, except that the cost of preparing and mailing
this Proxy Statement/Prospectus will be shared by ICBC and First Citizens.
Certain directors and executive officers of ICBC and their affiliates
beneficially own, as of the ICBC Record Date, ____________ ICBC Common Shares
representing approximately ___% of the total number of outstanding shares of
ICBC Common Shares at such date and have agreed to vote such shares in favor of
adoption of the Merger Agreement and approval of the Parent Merger pursuant to
Voting Agreements with First Citizens, dated November 1, 2001. See "INFORMATION
WITH RESPECT TO ICBC--Security Ownership of Management and Certain Beneficial
Owners."
PROPOSED MERGER
---------------
The following description of certain aspects of the Parent Merger does
not purport to be complete and is qualified in its entirety by reference to the
Merger Agreement which is set forth in Appendix A attached to and incorporated
by reference in this Proxy Statement/Prospectus. All shareholders are urged to
read the Merger Agreement in its entirety.
FIRST CITIZENS BACKGROUND AND REASONS FOR THE MERGER
Background of the Merger
On December 20, 2000, management of First Citizens was approached by a
representative of an investment banking firm as to its level of interest in
discussing an acquisition of ICBC. The investment banking firm was acting on its
own initiative and not on behalf of either ICBC or First Citizens. Management
brought the inquiry to the attention of the First Citizens Board. Given ICBC's
size and geographic locations (which were within the parameters set by First
Citizens in its strategic planning process), the First Citizens Board directed
management to obtain additional information about ICBC and a potential
transaction and retain and solicit input from an investment banker on the
viability of such a transaction.
During February and March, 2001, First Citizens retained Keefe,
Bruyette & Woods as its financial advisor, continued discussions regarding a
potential affiliation, and held an informal, introductory meeting with ICBC
directors to discuss the philosophies and strategies of their respective
financial institutions. Following further internal discussions with its
advisors, First Citizens submitted an initial non-binding indication of interest
to ICBC on April 16, 2001, proposing a transaction in which ICBC shareholders
would be entitled to receive First Citizens Common Shares having a then market
value of $32.50 for each ICBC Common Share. On or about June 19, 2001, First
Citizens was advised by ICBC that the ICBC Board had determined that it would be
engaging in a strategic planning process. In view of this information, First
Citizens withdrew its non-binding indication of interest by letter dated June
25, 2001.
-19-
On or about August 2, 2001, management of First Citizens was contacted
by Young & Associates, ICBC's financial advisor, as to its continuing interest
in an affiliation with ICBC. On or about August 7, 2001, First Citizens received
a confidential information memorandum regarding ICBC and details of the process
for submitting an indication of interest. On September 5, 2001, the First
Citizens Board held a meeting at which its financial advisor, Keefe, Bruyette &
Woods, made an initial presentation with respect to a proposed transaction with
ICBC. Subsequently, on September 6, 2001, First Citizens forwarded a non-binding
indication of interest to ICBC's financial advisor outlining the financial
structure and other aspects of a possible business combination with ICBC. On or
about September 11, 2001, First Citizens was advised that it could schedule a
due diligence investigation of ICBC, and this off-site due diligence was
subsequently conducted on October 4-5, 2001. The due diligence process
continued, discussions ensued and, on October 10, 2001, First Citizens delivered
a final non-binding indication of interest to ICBC and its financial advisor.
During the remainder of October, 2001, First Citizens and ICBC and their
respective representatives negotiated the terms of the Merger Agreement and
related documents. On October 30, 2001, the First Citizens Board approved the
Merger Agreement and the transactions contemplated thereby, after receiving an
oral opinion of its financial advisor, Keefe, Bruyette & Woods, that the Parent
Merger would be fair to First Citizens' shareholders from a financial point of
view. On November 1, 2001, First Citizens executed the Merger Agreement and
signed the Voting Agreements with each of the directors of ICBC, with the
exception of Mr. Dauch. See "Information Concerning the ICBC Special Meeting -
Solicitation, Voting and Revocability of Proxies."
Reasons for the Merger
The First Citizens Board has concluded that the Parent Merger is in the
best interests of First Citizens' shareholders. In reaching this determination,
the First Citizens Board consulted with management, as well as its financial and
legal advisors, and considered a number of factors, including without limitation
the following, which include all of the material facts taken into consideration:
(i) The Parent Merger will facilitate the natural and logical
expansion of First Citizens' business into the six contiguous
counties of Erie, Ottawa, Huron, Crawford, Marion, and Union.
(ii) First Citizens' philosophies toward community banking, its
emphasis on customer service and strong ongoing commitment to
each community it serves are consistent with ICBC's management
philosophies and its long-standing reputation of customer
service and community involvement.
(iii) ICBC's current products and services are similar to and, in
many respects, complement products and services offered by
First Citizens and its banking subsidiaries. In addition, ICBC
offers trust services which will become available to all First
Citizens customers.
(iv) Each of First Citizens and ICBC will have the opportunity to
expand their commercial loan portfolios.
(v) First Citizens believes it will be able to increase
non-interest revenues through the expansion of certain
insurance, finance, securities brokerage and other traditional
banking products, which are not currently offered to ICBC
customers.
(vi) The Parent Merger will potentially improve the trading market
for and increase the liquidity of First Citizens Common Shares
due to the additional issuance of First Citizens Common
Shares.
(vii) First Citizens believes that the transaction will be accretive
to the earnings of First Citizens.
-20-
The First Citizens Board considered many different factors in its
evaluation and did not believe it was practical to, and did not quantify or
otherwise assign relative weights to, the individual factors considered in
reaching its determination.
RECOMMENDATION OF THE FIRST CITIZENS BOARD OF DIRECTORS
IN VIEW OF ALL THE CONSIDERATIONS DESCRIBED ABOVE, THE BOARD OF
DIRECTORS OF FIRST CITIZENS UNANIMOUSLY CONCLUDED THAT THE PARENT MERGER IS FAIR
TO AND IN THE BEST INTERESTS OF THE FIRST CITIZENS SHAREHOLDERS AND RECOMMENDS
THAT FIRST CITIZENS SHAREHOLDERS VOTE FOR THE ADOPTION OF THE MERGER AGREEMENT
AND APPROVAL OF THE PARENT MERGER.
ICBC BACKGROUND AND REASONS FOR THE MERGER
The ICBC Board has historically participated with management in the
periodic preparation of strategic plans. The purpose of each strategic plan has
been to project the performance of CNBN over a limited future period. The
directors have monitored the financial performance of ICBC in comparison to the
objectives of the strategic plans and in relation to comparable banks and bank
holding companies. As the strategic plans have been discussed and revised from
time to time by the ICBC Board, the directors have considered the posture of
ICBC as an independent entity, particularly in relation to the ability of CNBN
to meet the competition, to serve the Norwalk community and to enhance
shareholder value.
During late December 2000, a representative of an investment banking
firm initiated discussion with the management of ICBC about the possibility of a
future combination with First Citizens. Management later informed other
directors about the discussion. While the ICBC Board did not take any action on
the possibility, First Citizens submitted in April 2001 a non-binding indication
of interest to ICBC with respect to a possible alliance. The indication
generally proposed a combination of the two entities in a transaction in which
ICBC shareholders would receive First Citizens common shares equal in value to
$32.50 for each share of ICBC. After considering the non-binding proposal in due
course, the directors decided to retain counsel and to employ an investment
banker to advise the directors on an appropriate course of conduct.
On June 19, 2001, the directors met with Young & Associates to discuss
the strategic plan in comparison to the First Citizens indication of interest
and hypothetical proposals from other logical merger partners. Although the
directors recognized the attractiveness of the First Citizens proposal in view
of the $17.25 per share market price of ICBC, they also were interested in
analyzing ICBC's projected performance over the next several years. The
then-existing strategic plan was composed in 2000, however, at a time when the
economic outlook was substantially different than the economic outlook in June
2001. As a result, the directors agreed that the strategic plan required
substantial revision. Accordingly, the ICBC Board charged Young & Associates and
management with the responsibility of updating the plan. At such time, ICBC
notified First Citizens that the ICBC Board was engaged in the strategic
planning process, as a result of which First Citizens withdrew its indication of
interest.
On July 17, 2001, the directors met to review the updated plan.
Discussions among the directors and Young & Associates at the meeting focused on
an analysis of the following: the projected financial performance of ICBC; the
competition for deposits and loans; the market liquidity of the shares of ICBC;
the need to develop substantial additional technology in order to remain
competitive; the status of the current merger market and the relative pricing
thereof; and other limitations and available opportunities. After the
consideration of such information, the directors discussed whether the future
financial performance projected in the revised strategic plan was acceptable.
While none of the directors viewed such projected performance as unacceptable,
the directors compared the value of such future performance to ICBC shareholders
against the possible value which shareholders could reasonably expect to receive
in a hypothetical merger with another bank holding company. Based
-21-
primarily on such comparison, the directors decided to explore the possibility
of combining with another financial institution and to meet on July 26 to
discuss possible candidates.
On July 26, 2001, the ICBC Board met with Young & Associates to
identify institutions which might have a strategic interest in a merger or other
combination with ICBC. Among the institutions reviewed were all publicly traded
Ohio bank holding companies and all out-of-state banks with Ohio offices.
Following an extensive discussion of the various companies, the directors
identified nine possible bank holding companies. Of such nine, five candidates
were placed on a preferred list. The directors agreed that if the five did not
have any interest or if the interest did not meet the expectations of the
directors, then they would focus on the other four. The ICBC Board authorized
the Executive Committee to work with management and Young & Associates to
prepare a confidential memorandum on ICBC and to disseminate such information to
the five candidates upon the receipt of a confidentiality agreement from each.
In early September 2001, three of the five candidates submitted
preliminary non-binding indications of interest, each of which was subject to a
due diligence analysis of the books and records of ICBC. At a meeting on
September 10, 2001, Young & Associates reviewed with the directors the pricing
and terms of each proposal. The first candidate proposed a part cash, part stock
transaction for each share of ICBC. The second candidate proposed an all cash
transaction for each share of ICBC. First Citizens proposed an all stock
transaction in which each share of ICBC would be exchanged for 1.7 shares of
First Citizens. Based upon the market price of First Citizens shares on
September 7, 2001, the value of the First Citizens proposal equaled $39.95 for
each share of ICBC, an amount which was higher than the proposals of the first
and second candidates.
During the extensive discussion and analysis of the three proposals,
the directors decided that the quality of the three proposals precluded the need
to solicit additional proposals from the four other bank holding companies
identified at the July 26 meeting. The directors also noted during the meeting
that the all cash offer from the second candidate was contingent on the sale of
securities to raise the necessary cash and that the value of the proposal was
less than the range of values set forth in the other two proposals. In addition,
the directors recognized that the all cash transaction of the second candidate
and the cash component of the offer of the first candidate would subject each
ICBC shareholder to a tax, in most cases a capital gains tax, on the difference
between the cash received in the transaction and the basis of each such
shareholder in the shares of ICBC. While the receipt of stock in a merger would
not trigger an immediate tax, the directors understood that any gain recognized
on the eventual sale of the stock received in a merger would be taxable at the
time of such sale.
In view of the lower value and the financing contingency of the
proposal of the second candidate, the directors decided to focus primarily on
the proposals of the first candidate and First Citizens. Accordingly, the
directors agreed to invite the first candidate and First Citizens to conduct a
due diligence review of the books and records of ICBC. Between September 10 and
October 16, the two candidates performed their due diligence. At such time, the
ICBC directors interviewed representatives of each company and reviewed publicly
available information and reports on each, including annual reports to
shareholders, annual reports on form 10-K and other information.
The final indications of interest were submitted to Young & Associates
in early October. The first candidate submitted a final proposal calling for
merger consideration consisting of 60% stock and 40% cash. First Citizens again
proposed an all stock transaction in which each share of ICBC would be exchanged
for 1.7 shares of First Citizens. Based on the market price of First Citizens on
October 10, 2001, the value of the First Citizens proposal equaled $41.65 for
each share of ICBC, an amount higher than the proposal of the first candidate.
On October 16, 2001, the directors carefully reviewed each proposal
with Young & Associates, specifically focusing on the risks of a fixed exchange
rate offer. The directors recognized that the value of a proposal based upon a
fixed exchange rate could fluctuate up or down with the movement in the market
price of the acquiror between the time an agreement of merger was signed and the
closing of
-22-
the transaction. While the value of each of the two proposals was subject to
fluctuation, therefore, the directors also recognized that the 40% cash
component of the proposal of the first candidate would stabilize the aggregate
value of the proposal in the event of fluctuations in the first candidate's
market price.
In view of the foregoing, the directors carefully examined the historic
market fluctuations in the stock of each company. In addition, the directors
reviewed the historic financial performance and future prospects of each
company. Upon the completion of such examination and review, the directors
concluded that each company had a solid performance record; that each company
had strong future prospects; and that the market for the stock of each company
had historically been relatively stable. Following a lengthy discussion of all
of the foregoing, the directors ultimately decided to proceed with negotiations
with First Citizens primarily because the difference between the values of each
offer was substantial enough to overcome the relatively few differences between
each company and the relative market risks of each proposal. Accordingly, the
directors authorized counsel, management and the Executive Committee to commence
negotiations with First Citizens.
On October 25, 2001, the directors met with counsel and Young &
Associates to review in detail the drafts of the proposed Merger Agreement.
During the meeting, the directors devoted substantial time to the analysis of
the various financial terms, including the break-up fee and the right of ICBC to
terminate the agreement if the market price of shares of First Citizens fell
below $19.50 during a specified period of time before closing. Upon the
completion of such review, the directors considered the due diligence analysis
of the books and records of First Citizens conducted by management and Young &
Associates. Following such consideration, the directors agreed that negotiations
with First Citizens should continue and that the ICBC Board would meet on
November 1, 2001, to consider the status of the negotiations.
At the October 25 meeting, the ICBC Board also considered an
unsolicited merger proposal which the directors received from a bank holding
company on October 17, 2001. The proposal called for a merger in which each
share of ICBC would be cancelled in exchange for cash in an amount which was
less than the all cash proposal of the original second candidate. The directors
discussed the proposal, recognizing that the cash amount was substantially less
than the value of the First Citizens proposal. While the directors authorized
Young & Associates to prepare a complete financial analysis of the proposal for
subsequent discussion on November 1, 2001, they did not wish to delay
negotiations with First Citizens.
At the meeting on November 1, 2001, the directors first reconsidered
the unsolicited merger proposal in view of an analysis prepared by Young &
Associates. Concluding that there were various uncertainties and contingencies
in the unsolicited proposal and that the value of the cash proposal was
substantially less than the value of the First Citizens proposal, the directors
decided not to pursue the unsolicited proposal. The directors then reviewed the
terms and conditions of the First Citizens merger agreement, all other relevant
documents and the contemplated transaction. Following such review, Young &
Associates again analyzed the financial terms of the transaction at length,
concluding that the Merger Consideration was fair, from a financial point of
view, to the holders of common shares of ICBC. Based upon the foregoing, the
ICBC Board decided that the terms and conditions of the Merger Agreement were
fair to and in the best interest of ICBC and its shareholders, voted to approve
the Parent Merger and Merger Agreement and authorized the execution of the
Merger Agreement and related documents.
The foregoing discussion of the information and factors considered by
the ICBC Board is not intended to be exhaustive, but constitutes the material
factors considered by the ICBC Board. In reaching its determination to approve
and recommend the Merger Agreement, the ICBC Board did not assign any relative
or specific weights to the foregoing factors, and individual directors may have
weighed factors differently. The terms of the Merger Agreement were the product
of arm's length negotiations between representatives of ICBC and First Citizens.
-23-
RECOMMENDATION OF THE ICBC BOARD OF DIRECTORS
FOR THE REASONS SET FORTH ABOVE, THE ICBC BOARD RECOMMENDS THAT THE
ICBC SHAREHOLDERS VOTE FOR THE ADOPTION OF THE MERGER AGREEMENT AND APPROVAL OF
THE PARENT MERGER.
DESCRIPTION OF THE MERGER
Upon consummation of the transactions contemplated under the Merger
Agreement, ICBC will be merged with and into First Citizens. First Citizens will
be the surviving corporation after the Parent Merger and the Articles of
Incorporation of First Citizens will remain in effect as they were immediately
prior to the Parent Merger. Immediately following the Parent Merger and upon the
receipt of the required regulatory approvals, the Subsidiary Combination will
take place pursuant to which CBC will purchase and assume all of the assets and
liabilities associated with the general banking business (excluding the assets
and liabilities of the trust business) of CNBN, and the bank charter of CNBN
will be converted to a trust charter. The new trust company will be a
wholly-owned subsidiary of First Citizens and its products and services will be
available to all customers of First Citizens' banking affiliates. See also
"PROPOSED MERGER--Operations of ICBC After the Merger."
EXCHANGE OF ICBC COMMON SHARES
Upon consummation of the Parent Merger, each shareholder of ICBC (other
than First Citizens) who does not dissent will have the right to receive 1.7
First Citizens Common Shares for each ICBC Common Share exchanged therefor, plus
cash in lieu of the issuance of fractional shares. Based on the average of the
high and low prices for First Citizens Common Shares of $___ reported on the
Nasdaq SmallCap Market on __________, 2001, the value of First Citizens Common
Shares multiplied by the Exchange Ratio as of that date would have been $___.
The market value of First Citizens Common Shares to be received in the Parent
Merger is subject to fluctuation. Fluctuations in the market price of First
Citizens Common Shares would generally result in an increase or decrease in the
value of the consideration to be received by ICBC shareholders in the Parent
Merger. An increase in the market value of First Citizens Common Shares would
generally increase the value of the consideration to be received by ICBC
shareholders in the Parent Merger. A decrease in the market value of First
Citizens Common Shares would generally have the opposite effect.
The following table sets forth a range of possible values of the First
Citizens Common Shares that an ICBC shareholder could receive in the Parent
Merger based upon various market prices for First Citizens Common Shares.
Market Price of First Citizens Market Value of 1.7 First Citizens
Common Shares Common Shares
------------------------------------------------------------------------------
$17.00 $28.90
$18.00 $30.60
$19.00 $32.30
$20.00 $34.00
$21.00 $35.70
$22.00 $37.40
$23.00 $39.10
$24.00 $40.80
$25.00 $42.50
$26.00 $44.20
$27.00 $45.90
$28.00 $47.60
$29.00 $49.30
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In addition, if the market price of First Citizens Common Shares falls
below $19.50 per share during a measuring period prior to the closing, First
Citizens will have the right to increase the per share Merger Consideration to a
value equal to $19.50. If First Citizens chooses not to make such an adjustment,
ICBC's directors will have the right to terminate the Merger Agreement and
abandon the transaction. There is no assurance, however, that the ICBC directors
will exercise such right.
If the market price of First Citizens Common Shares falls below $19.50,
the ICBC directors will evaluate the circumstances and, in the exercise of their
fiduciary duties, determine whether to terminate the Merger Agreement. The ICBC
Board of Directors may, without the approval of the ICBC shareholders, waive the
right to terminate the Merger Agreement and proceed with the Parent Merger even
if the market price of First Citizens Common Shares falls below $19.50.
Because the number of First Citizens Common Shares an ICBC shareholder
will receive in the Parent Merger is fixed and the market price of First
Citizens Common Shares will fluctuate, ICBC shareholders cannot be sure of the
market value of the First Citizens Common Shares they will receive in the Parent
Merger. ICBC shareholders should obtain current price quotations for the First
Citizens Common Shares before casting their votes regarding the Parent Merger.
ICBC shareholders may obtain current stock quotations for First Citizens Common
Shares, listed under the symbol "FCZA," from newspapers, the Internet or
stockbrokers.
If First Citizens changes (or establishes a record date for changing)
the number of First Citizens Common Shares issued and outstanding between the
date of the Merger Agreement and the Effective Time as a result of a stock
split, stock dividend, recapitalization, reclassification, split up,
combination, exchange of shares, readjustment or similar transaction with
respect to the outstanding First Citizens Common Shares and the record date for
any of these matters is prior to the Effective Time, the Exchange Ratio will be
proportionately adjusted. If the average price per share of First Citizens
Common Shares for the 20 trading days immediately preceding the fifth trading
day prior to the consummation of the Parent Merger exceeds $29.50, then First
Citizens, at its option, may adjust the Exchange Ratio payable to the ICBC
shareholders so that the maximum per share value of the First Citizens Common
Shares paid in exchange for the ICBC Common Shares does not exceed $29.50.
FAIRNESS OPINION OF KEEFE, BRUYETTE, & WOODS, INC.
On September 14, 2001, First Citizens retained Keefe, Bruyette, & Woods
to provide investment banking and advisory services to First Citizens in
connection with the acquisition of ICBC, and to provide its opinion as to the
fairness of the transaction to shareholders of First Citizens from a financial
point of view. Keefe, Bruyette, & Woods, as part of its investment banking
business, is regularly engaged in the evaluation of businesses and securities in
connection with mergers and acquisitions, negotiated underwritings, and
distributions of listed and unlisted securities. Keefe, Bruyette, & Woods is
familiar with the market for common stocks of publicly traded banks and thrifts
and bank and thrift holding companies. The First Citizens Board selected Keefe,
Bruyette, & Woods on the basis of the firm's reputation and its experience and
expertise in transactions similar to the Parent Merger.
Pursuant to its engagement, Keefe, Bruyette, & Woods was asked to
render an opinion as to the fairness, from a financial point of view, of the
Merger Consideration to shareholders of First Citizens. Keefe, Bruyette, & Woods
delivered its opinion to the First Citizens Board that, as of November 1, 2001,
the Merger Consideration is fair, from a financial point of view, to the
shareholders of First Citizens. The First Citizens Board imposed no limitations
upon Keefe, Bruyette, & Woods with respect to the investigations made or
procedures followed by it in rendering its opinion. Keefe, Bruyette, & Woods has
consented to the inclusion herein of the summary of its opinion to the First
Citizens Board and to the reference to the entire opinion attached hereto as
Appendix C.
THE FULL TEXT OF THE OPINION OF KEEFE, BRUYETTE, & WOODS, WHICH IS
ATTACHED AS APPENDIX C TO THIS PROXY STATEMENT/PROSPECTUS, SETS FORTH CERTAIN
ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN BY
KEEFE, BRUYETTE, & WOODS, AND SHOULD BE READ IN ITS ENTIRETY. THE SUMMARY OF THE
-25-
OPINION OF KEEFE, BRUYETTE, & WOODS SET FORTH IN THIS PROXY STATEMENT/PROSPECTUS
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE OPINION.
In rendering its opinion, Keefe, Bruyette, & Woods reviewed (i) the
Agreement and Plan of Merger by and among First Citizens and ICBC dated as of
November 1, 2001, (ii) Annual Report, Proxy Statement and Form 10-K for the
years ended December 31, 1999 and 2000, (iii) the quarterly reports on Form 10-Q
for the quarters ended March 31, and June 30, 2001; and (iii) other information
Keefe, Bruyette, & Woods deemed relevant. In addition Keefe, Bruyette, & Woods
reviewed (i) the audited financial statements and Proxy Statements of ICBC for
the years ended December 31, 1999 and 2000, (ii) the quarterly reports for the
quarters ended March 31, and June 30, 2001; and (iii) certain other information
Keefe, Bruyette, & Woods deemed relevant. Keefe, Bruyette, & Woods also (i)
discussed with senior management and the boards of directors of First Citizens
and its wholly-owned subsidiary, CBC, the current position and prospective
outlook for First Citizens to enhance future shareholder value, (ii) discussed
with senior management of First Citizens its operations, financial performance
and future plans and prospects, (iii) considered historical quotations, levels
of activity and prices of recorded transactions in First Citizens' Common
Shares, (iv) discussed with senior management of ICBC and its wholly-owned
subsidiary, Citizens National Bank of Norwalk, the current position and
prospective outlook for ICBC, (v) discussed with senior management of ICBC its
operations, financial performance and future plans and prospects, (vi)
considered the illiquidity of ICBC's Common Shares, (vii) reviewed financial and
stock market data of other banks in a comparable asset range to First Citizens
and ICBC, (viii) reviewed certain recent business combinations of strategic
alliance transactions which Keefe, Bruyette, & Woods deemed comparable in whole
or in part, and (vi) performed other analyses which Keefe, Bruyette, & Woods
considered appropriate.
In rendering its opinion, Keefe, Bruyette, & Woods assumed and relied
upon the accuracy and completeness of the financial information First Citizens
and ICBC provided to it. In its review, with the consent of the First Citizens
Board, Keefe, Bruyette, & Woods did not undertake any independent verification
of the information provided to it, nor did it make any independent appraisal or
evaluation of the assets or liabilities, and potential or contingent liabilities
of First Citizens or ICBC.
Keefe, Bruyette, & Woods presented the following analyses:
Regional Group Analysis.
Keefe, Bruyette, & Woods reviewed the financial performance of First
Citizens based on various financial measures of asset size, earnings
performance, tangible equity/assets, market pricing ratios, and dividend-related
ratios to publicly-traded banks in Ohio (40 in the group) as well as all
publicly traded banks nationwide. This analysis showed among other things that
First Citizens compared as follows:
TANGIBLE PRICE TO
ASSETS EQUITY/ ------------------------------------
($M) ASSETS ROAE QTR EPS BOOK TANGBOOK
- --------------------------------------------------------------------------------------------
FCZA 493.9 9.78% 11.23% 21.4x 196.6% 203.6%
OH Median 556.1 9.19% 10.76% 13.6x 150.0% 162.6%
National Median 484.1 8.36% 11.57% 13.3x 142.6% 148.8%
Analysis of Selected Mergers / Strategic Alliance Transactions.
In rendering its opinion, Keefe, Bruyette, & Woods analyzed the
consideration offered to shareholders of ICBC in relation to certain comparable
merger and acquisition transactions of pending bank deals, comparing merger
consideration relative to tangible book value, last 12 months earnings and
premium to core deposits. Pending and completed bank deals consist of bank
acquisitions with deal
-26-
values between $25 and $50 million, target equity to assets ratios between 5%
and 7% and target return on average equity between 9% and 11%.
The information in the following table summarizes the comparable group
results analyzed by Keefe, Bruyette, & Woods with respect to the Parent Merger.
The summary does not purport to be a complete description of the analysis
performed by Keefe, Bruyette, & Woods and should not be construed independently
of the other information considered by Keefe, Bruyette, & Woods in rendering its
opinion. Selecting portions of Keefe, Bruyette, & Woods' analysis or isolating
certain aspects of the comparable transactions without considering all analyses
and factors could create an incomplete or potentially misleading view of the
evaluation process.
PRICE TO
------------------------------------------------- Core Deposit
Tang. Book(a) EPS (b) Premium
(%) (x) (%)
ICBC Deal Value at 11/1/01 - $37.40: 282.5% 19.3x 15.0%
Median of Pending Deals: 219.5% 19.2x 13.0%
Median of Completed Deals: 180.0% 20.0x 9.4%
(a) ICBC tangible book value of $13.24 as of June 30, 2001
(b) ICBC earnings per share of $.97 for the six months ended June 30, 2001
(annualized).
Based on the above information, Keefe, Bruyette, & Woods concluded that
the above analysis of the transaction with a deal price of $37.40 per share as
of November 1, 2001, is fair from a financial point of view to the shareholders
of First Citizens.
No Company or transaction used in any of the above analyses, as a
comparison is identical to First Citizens, ICBC or the contemplated transaction.
Accordingly, an analysis of the results of the foregoing is not formulaic;
rather, it involves complex considerations and judgments concerning differences
in financial, market and operating characteristics of the companies and other
factors that could affect the public trading value of the companies to which
they are being compared.
Based on the above information Keefe, Bruyette, & Woods concluded that
the Merger Consideration was fair to the shareholders of First Citizens from a
financial point of view relative to comparable transactions. Further, the
fairness analysis considered (i) the relative market performance of the bank
stocks in general over the past year; (ii) the relative historical returns on
equity of First Citizens and ICBC; and (iii) the expected performance of each
company given additional considerations such as the business plan, asset mix,
net interest margin, net interest spread and asset quality. The summary does not
purport to be a complete description of the analysis performed by Keefe,
Bruyette, & Woods and should not be construed independently of the other
information considered by Keefe, Bruyette, & Woods in rendering its opinion.
Selecting portions of Keefe, Bruyette, & Woods' analysis or isolating certain
aspects of the comparable transactions without considering all analysis and
factors, could create an incomplete or potentially misleading view of the
evaluation process.
In preparing its analysis, Keefe, Bruyette, & Woods made numerous
assumptions with respect to industry performance, business and economic
conditions and other matters, many of which are beyond the control of Keefe,
Bruyette, & Woods and First Citizens. The analyses performed by Keefe, Bruyette,
& Woods are not necessarily indicative of actual values or future results, which
may be significantly more or less favorable than suggested by such analyses and
do not purport to be appraisals or reflect the prices at which a business may be
sold.
Keefe, Bruyette, & Woods will receive a fee of $100,000 for services
rendered in connection with advising and issuing a fairness opinion regarding
the Parent Merger. As of the date of the Proxy Statement, Keefe, Bruyette, &
Woods has received $40,000 of such fee, the remainder of the fee is due upon
closing of the Parent Merger. In addition, First Citizens has agreed to
indemnify Keefe, Bruyette, &
-27-
Woods for certain liabilities that may occur in connection with Keefe, Bruyette,
& Woods' services provided in the transaction.
FAIRNESS OPINION OF YOUNG & ASSOCIATES, INC.
ICBC has received an opinion that the consideration to be received by
the shareholders of ICBC in the Parent Merger is fair, from a financial point of
view, to the shareholders of ICBC from Young & Associates, a financial advisory
and consulting firm formed in 1978 that specializes in working with financial
institutions.
Young & Associates has rendered a written opinion to the ICBC Board to
the effect that, as of November 1, 2001, the consideration to be received by
ICBC's shareholders pursuant to the Merger Agreement is fair, from a financial
point of view, to such holders. THE FULL TEXT OF THE FAIRNESS OPINION DATED
NOVEMBER 1, 2001, SETTING FORTH THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED,
MATTERS CONSIDERED AND CERTAIN LIMITATIONS ON THE REVIEW UNDERTAKEN BY YOUNG &
ASSOCIATES IS INCLUDED AS APPENDIX D TO THIS PROXY STATEMENT/PROSPECTUS. HOLDERS
OF ICBC COMMON SHARES ARE URGED TO READ THE FAIRNESS OPINION IN ITS ENTIRETY.
This opinion is directed to the ICBC Board only and does not constitute a
recommendation to any ICBC shareholders as to how such shareholder should vote
at the ICBC Special Meeting. Young & Associates has advised the ICBC Board that
it does not believe any person other than the ICBC Board has the legal right to
rely on the opinion and, absent any controlling precedent, would resist any
assertion otherwise.
In connection with rendering its opinion dated November 1, 2001, Young
& Associates performed a variety of financial analyses, including those
summarized below. The summary set forth below, which has been provided by Young
& Associates, does not purport to be a complete description of the analyses
performed by Young & Associates in this regard. The preparation of a fairness
opinion involves various determinations as to the most appropriate and relevant
methods of financial analysis and the application of these methods to the
particular circumstances and, therefore, such an opinion is not readily
susceptible to a summary description. Accordingly, notwithstanding the separate
factors summarized below, Young & Associates believes that its analyses must be
considered as a whole and that selecting portions of its analyses and factors
considered by it, without considering all analyses and factors, or attempting to
ascribe relative weights to some or all of such analyses or factors, could
create an incomplete view of the evaluation process underlying Young &
Associates' opinion. In addition, Young & Associates may have used the various
analyses for different purposes and may have deemed various assumptions more or
less probable than other assumptions, so that the ranges of valuations resulting
from any particular analysis described below should not be taken to be Young &
Associates' view of the actual value of ICBC. The fact that any specific
analysis has been referred to in the summary below is not meant to indicate that
such analysis was given more weight than any other analyses.
The analyses performed by Young & Associates are not necessarily
indicative of actual values or actual future results, which may be significantly
more or less favorable than those suggested by such analyses. Such analyses were
prepared solely as a part of Young & Associates' analysis of the fairness of the
consideration to be received by ICBC's shareholders pursuant to the Merger
Agreement, from a financial point of view, and were provided to the ICBC Board
in connection with the delivery of Young & Associates' opinion. The analyses do
not purport to be appraisals or to reflect the prices at which ICBC might
actually be sold at the present time or at any time in the future. In addition,
as described above, Young & Associates' opinion is just one of the many factors
taken into consideration by the ICBC Board (See "ICBC Background and Reasons for
the Merger").
In arriving at its opinion dated November 1, 2001, Young & Associates,
among other things, reviewed the draft form of the Merger Agreement dated
October 31, 2001; reviewed certain historical financial and other information
concerning ICBC for the five fiscal years ended December 31, 2000, and for the
three quarters ended March 31, June 30, and September 30, 2001; reviewed certain
historical
-28-
financial and other information concerning First Citizens for the five fiscal
years ended December 31, 2000, and for the three quarters ended March 31, June
30, and September 30, 2000; held discussions with the senior management of ICBC
and First Citizens with respect to their past and current financial performance,
financial condition, and future prospects; reviewed certain internal financial
data, projections, and other information of ICBC, including financial
projections prepared by management; analyzed certain publicly available
information of other financial institutions that Young & Associates deemed
comparable or otherwise relevant to its inquiry and compared ICBC and First
Citizens from a financial point of view with certain of these institutions;
compared the consideration to be received by the shareholders of ICBC pursuant
to the Merger Agreement with the consideration received by shareholders in other
acquisitions of financial institutions that it deemed comparable or otherwise
relevant to its inquiry; reviewed historical trading activity and ownership data
of ICBC and First Citizens Common Shares and considered the prospects for
dividends and price movements; and conducted such other financial studies,
analyses, and investigations and reviewed such other information as it deemed
appropriate to enable it to render its opinion. In its review, Young &
Associates also took into account an assessment of general economic, market, and
financial conditions and certain industry trends and related matters. Young &
Associates' opinion was necessarily based upon conditions as they existed and
could be evaluated on the date thereof and the information made available to
Young & Associates through the date thereof.
The ICBC Board imposed no limitations upon Young & Associates with
respect to the investigations made or procedures followed by Young & Associates
in its review and analysis. In its review and analysis and in arriving at its
opinion, Young & Associates assumed and relied upon the accuracy and
completeness of all the financial information publicly available or provided to
it by ICBC and First Citizens, and did not attempt to verify any of such
information. Young & Associates assumed (i) that the financial projections of
ICBC with respect to the results of operations likely to be achieved by ICBC
have been prepared on a basis reflecting the best currently available estimates
and judgments of ICBC's management as to future financial performance and
results and (ii) that such forecasts and estimates would be realized in the
amounts and in the time periods estimated by management. Young & Associates
further assumed, without independent verification, that the aggregate reserves
for possible loan losses for ICBC and First Citizens were adequate to cover such
losses. Young & Associates did not make or obtain any independent evaluations or
appraisals of any assets or liabilities of ICBC, First Citizens, or any of their
respective subsidiaries, nor did it verify any of ICBC's or First Citizens'
books and records or review any individual loan credit files.
Young & Associates made a presentation to the ICBC Board on November 1,
2001, and rendered a written opinion to the ICBC Board just prior to the
execution and public announcement of the Merger Agreement. Set forth below is a
brief summary of the report presented to the ICBC Board on November 1, 2001.
Historical Financial Performance. Young & Associates examined the financial
performance of ICBC over the five-year period ended December 31, 2000, and for
the three-month interim periods ended March 31, June 30, and September 30, 2001,
and examined the financial performance of First Citizens over the five-year
period ended December 31, 2000, and the three-month interim periods ended March
31, June 30, and September 30, 2001. The analysis of historical performance
showed, among other things, that: (i) over the three-year period ended December
31, 2000, the compound annual growth rate in total assets was 10.9% for ICBC and
0.4% for First Citizens; (ii) the compound annual growth rate in net loans
during the same respective periods was 14.8% for ICBC and 5.9% for First
Citizens; (iii) the compound annual growth rate in total deposits during the
same respective periods was 8.5% for ICBC and -0.9% for First Citizens; (iv)
tangible equity to asset ratio as of September 30, 2001, was 6.1% for ICBC and
9.8% for First Citizens; (v) loan to deposit ratio as of September 30, 2001, was
83.5% for ICBC and 80.0% for First Citizens; (vi) latest twelve months' return
on average assets was 0.89% for ICBC and 1.18% for First Citizens; and (vii)
latest twelve months' return on average equity was 10.84% for ICBC and 11.83%
for First Citizens.
-29-
Stock Trading Analysis. Young & Associates examined the historical trading
prices and volume of First Citizens Common Shares and compared the historical
trading prices of First Citizens Common Shares in relation to movements in
certain stock indices, specifically, a selected peer group index composed of
Ohio Valley Banc. Corp., Macatawa Banc Corp, CoVest Bancshares Inc., Oak Hill
Financial Inc, Princeton National Bancorp, and Firstbank Corp. (collectively,
the "First Citizens Selected Reference Institutions"), and the Nasdaq Bank
Index. Young & Associates also analyzed the historical trading data, price/book
value, and price/earnings multiples of First Citizens Common Shares and compared
them to the First Citizens Selected Reference Institutions as described below.
Young & Associates examined the historical trading prices and volume of
ICBC Common Shares and compared the historical trading prices of ICBC Common
Shares in relation to movements in certain stock indices, specifically, a
selected peer group index composed of Classic Bancshares Inc., Community Bank
Shares, MetroBanCorp, Quad City Holdings Inc, United Bancorp Inc., and United
Bancshares Inc. (collectively, the "ICBC Selected Reference Institutions"), and
the Nasdaq Bank Index. Young & Associates also analyzed the historical trading
data, price/book value, and price/earnings multiples of ICBC Common Shares and
compared them to the ICBC Selected Reference Institutions as described below.
Analysis of Selected Publicly Traded Reference Commercial Banks. Young &
Associates compared the selected financial data and financial ratios of ICBC and
First Citizens to the First Citizens Selected Reference Institutions and ICBC
Selected Reference Institutions, respectively. ICBC Selected Reference
Institutions, as a group, exhibited certain characteristics -- including asset
size (assets between $180 million and $420 million), equity to total assets
ratios between 5.9% and 10.8%, geographic proximity (located in midwestern
United States), and business risk -- similar to those exhibited by ICBC. The
First Citizens Selected Reference Institutions, as a group, exhibited certain
characteristics -- including asset size (assets between $525 million and $745
million), equity to total assets ratios between 7.5% and 10.4%, geographic
proximity (located in midwestern United States), and business risk -- similar to
those exhibited by First Citizens.
The comparison of ICBC to ICBC Selected Reference Institutions showed,
among other things, that: (i) the ratio of ICBC's net loans to deposits was
83.5% as of September 30, 2001, compared to an average of 88.2% for ICBC
Selected Reference Institutions (as of June 30, 2001); (ii) the ratio of ICBC's
non-performing assets to total assets was 0.3%, compared to an average of 0.4%
for ICBC Selected Reference Institutions; (iii) the ratio of ICBC's equity to
total assets was 8.6%, compared to an average of 8.9% for ICBC Selected
Reference Institutions; (iv) the latest twelve months' return on average assets
for ICBC was 0.89%, compared to an average return on assets of 0.74% for ICBC
Selected Reference Institutions; (v) the latest twelve months' return on average
equity for ICBC was 10.84%, compared to an average return on equity of 8.93% for
ICBC Selected Reference Institutions; (vi) as of October 26, 2001, the ratio of
ICBC's market price to its book value per common share was 91.6%, compared to an
average of 100.5% for ICBC Selected Reference Institutions; and (vii) as of
October 26, 2001, the price/earnings ratio for ICBC based on the latest twelve
months' earnings per share was 9.1x compared to an average of 12.4x for ICBC
Selected Reference Institutions for their latest twelve months' earnings per
share.
The comparison of First Citizens to the First Citizens Selected
Reference Institutions showed, among other things, that: (i) the ratio of First
Citizens' net loans to deposits was 80.0% as of September 30, 2001, compared to
an average of 102.6% for the First Citizens Selected Reference Institutions (as
of June 30, 2000); (ii) the ratio of First Citizens' non-performing assets to
total assets was 1.3%, compared to an average of 0.6% for the First Citizens
Selected Reference Institutions; (iii) the ratio of First Citizens' equity to
total assets was 10.1%, compared to an average of 8.6% for the First Citizens
Selected Reference Institutions; (iv) the last twelve months' return on average
assets for First Citizens was 1.18%, compared to an average return on assets of
0.99% for the First Citizens Selected Reference Institutions; (v) the latest
twelve months' return on average equity for First Citizens was 11.8%, compared
to an average return on equity of 11.9% for the First Citizens Selected
Reference Institutions; (vi) as of October 26, 2001, the ratio of First
Citizens' market price to its
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September 30, 2001 book value per common share was 191.9%, compared to an
average of 137.8% for the First Citizens Selected Reference Institutions; and
(vii) as of October 26, 2001, the price/earnings ratio for First Citizens based
on the latest twelve months' earnings per share was 17.1x compared to an average
of 12.5x for the First Citizens Selected Reference Institutions for their latest
twelve months' earnings per share.
Analysis of Selected Reference Merger and Acquisition Transactions. Young &
Associates reviewed and performed an analysis of 123 bank mergers in the Midwest
(the "Selected Midwest Mergers") and 71 bank mergers in the U.S. with a
transaction size between $15 million and $40 million (the "Selected U.S.
Mergers") announced between January 1, 2000, and October 26, 2001, comparing the
selling bank's capital structure and profitability with ICBC's current results
of operations and financial condition. The Selected Midwest Mergers and Selected
U.S. Mergers were chosen because they represented merger and acquisition
transactions which involve selling banks (exclusive of merger of equals
transactions) exhibiting certain characteristics -- including asset size,
geographic proximity, and business risk -- similar to those exhibited by ICBC.
Excluding the highest and lowest ratios, the selling banks involved in the
Selected Midwest Mergers and the Selected U.S. Mergers had an average return on
assets for the latest twelve months prior to announcement date of 0.88% and
1.02%, respectively, and an average return on equity for the latest twelve
months prior to announcement date of 9.37% and 12.08%, respectively, as compared
to 0.89% and 10.84%, respectively, for ICBC.
Set forth below is a summary of the information presented to the ICBC
Board with respect to the Selected Midwest Mergers and the Selected U.S. Mergers
based upon an estimated value of $37.40 per share of ICBC Common Shares.
SELECTED MIDWEST MERGERS SELECTED U.S. MERGERS
------------------------------ -----------------------------
FIRST FIRST FIRST
CITIZENS MEDIAN CITIZENS MEDIAN CITIZENS
OFFER (1) OFFER OFFER
PERCENTILE PERCENTILE
(2) (2)
------------ ------------ ------------- ----------- -------------
Consideration/Latest Twelve Months'
Earnings................... 19.0x 16.5x 57% 17.0x 55%
Consideration/Tangible
Book Value................. 268% 177% 89% 204% 85%
Deposit Premium............ 11.6% 8.8% 68% 10.7% 55%
(1) Based on an assumed merger consideration of $37.40 (1.7 shares of First
Citizens at a market price of $22.00).
(2) Position of the First Citizens offer in relation to percentile ranking of
the Selected Midwest Mergers and the Selected U.S. Mergers, respectively.
Market Pricing and Other Indications of Interest. The consideration of $37.40
(1.7 First Citizens shares at a market price of $22.00) represents a premium of
107.8% to ICBC's most recent trading price of $18.00. The $37.40 consideration
also was higher than the other two indications of interest received from the
other banks that reviewed ICBC's marketing materials as well as the unsolicited
merger proposal received.
Pro Forma Merger Analysis. Based on pro forma calculations developed, Young &
Associates analyzed certain pro forma effects of the Parent Merger. This
analysis indicated that the Parent Merger would be dilutive to First Citizens'
tangible book value per share. However, the Parent Merger will be accretive to
earnings per share in the first full year following the close of the Parent
Merger, assuming that certain synergies are achieved.
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Discounted Cash Flow Analysis. At the ICBC Board meeting on November 1, 2001,
Young & Associates presented the results of a discounted cash flow analysis
calculated through the fiscal year ending December 31, 2011, designed to compare
the present value, under certain assumptions, that would be attained if ICBC
remained independent through the year 2011 and thereafter sold through a merger
at pricing multiples similar to the First Citizens offer. The results produced
in the analysis did not purport to be indicative of actual values or expected
values of ICBC or the ICBC Common Shares.
For the purpose of the analysis Young & Associates made reference to
financial forecasts and projections approved by ICBC's management, the "Base
Case Scenario" and the "Incremental Loan Growth Scenario." The Base Case
Scenario projections assumed, among other things, that ICBC would achieve a
compound annual growth rate in assets of approximately 2.0% per year, a net
interest margin averaging approximately 3.95% per year, operating expenses as a
percentage of average assets averaging approximately 2.94% per year, and annual
return on average assets averaging approximately 1.02% per year. Young &
Associates noted that for the three fiscal years ended December 31, 2000, assets
increased at a compound annual growth rate of 10.9% (including the deposits
acquired from Fifth Third Bank in 1998); however, management indicated that
future deposit growth anticipated would be limited. Additionally, the net
interest margin averaged approximately 4.12% per year over the last three fiscal
years, operating expenses averaged approximately 2.83% of the average assets per
year, and return on average assets averaged approximately 0.85% per year. The
Base Case projections assumed that ICBC would maintain a target equity to assets
ratio of 10.0%. In addition to the Base Case, Young & Associates reviewed the
Incremental Loan Growth Scenario financial forecasts and projections that
projected a 4.0% average annual growth rate in assets. Due to the higher growth
projected, the projected net interest margin was projected to decline to an
average of 3.77%, with operating expenses as a percentage of average assets
averaging approximately 2.71% per year and annual return on average assets
averaging approximately 1.03% per year.
The projected shareholder cash flows from ICBC were composed of the
dividends per share projected in fiscal years ending December 31, 2002 through
2011, plus the estimated terminal value of ICBC Common Shares at fiscal year-end
2011 discounted, calculated as described below. The cash flows were discounted
at a range of rates from 10.0% to 15.0%. Based upon Young & Associates'
experience and judgment, Young & Associates believes that holders of ICBC Common
Shares would typically seek returns within the indicated range of discount
rates, in view of ICBC's operating projections, historical performance,
financial condition and market capitalization, among other matters.
In estimating the appropriate terminal value of ICBC at fiscal year-end
2011, Young & Associates estimated the value of the shares based on multiples of
projected 2011 earnings. Young & Associates applied price to earnings multiples
in the range of 18.0x to 22.0x to the estimated fiscal year December 31, 2011,
earnings per share. The range of multiples is indicative of the estimated range
of prices potentially available to shareholders, assuming a future sale of ICBC.
Acquisition and trading multiples from time to time fluctuate considerably, and
no assurance can be made that future acquisition or trading multiples will be
comparable to historical levels.
Set forth below is a summary of the results of Young & Associates'
discounted cash flow analysis, indicating the range of derived present values
per share of ICBC Common Shares, as presented to the ICBC Board on November 1,
2001, and compared to the Merger Consideration of $37.40 per ICBC Common Share.
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DISCOUNT RATE
TERMINAL ------------------------------------------
P/E 10.0% 12.5% 15.0%
-------------- ---------- --------- ---------------
Base Case Scenario 18.0x $31.28 $25.4 $20.87
6
20.0x $34.14 $27.7 $22.70
5
22.0x $37.00 $30.0 $24.54
3
Incremental Loan Growth Scenario 18.0x $38.15 $30.9 $25.27
5
20.0x $41.77 $33.8 $27.60
4
22.0x $45.40 $36.7 $29.92
4
The summary of the Young & Associates opinion set forth above provides
a description of the main elements of Young & Associates' presentation to the
ICBC Board on November 1, 2001. It does not purport to be a complete description
of the presentation of Young & Associates to the ICBC Board or of the analyses
of Young & Associates.
In performing its analyses, Young & Associates made numerous
assumptions with respect to industry performance, general business and economic
conditions, and other matters, many of which are beyond the control of ICBC.
Such analyses were prepared solely as a part of Young & Associates' analysis of
the fairness of the consideration to be received by ICBC's shareholders from a
financial point of view and were provided to the ICBC Board in connection with
the delivery of Young & Associates' opinion.
Young & Associates will receive a fee equal to seven tenths on one
percent (0.70%) of the purchase price paid by First Citizens to the ICBC
shareholders in connection with the Parent Merger for services rendered in
connection with serving as ICBC's financial advisor and issuing its fairness
opinions regarding the Parent Merger in addition to a $25,000 cash retainer paid
upon the engagement of Young & Associates. As of the date of the Proxy
Statement, Young & Associates has received $75,000 of such fees. In addition,
ICBC has agreed to indemnify Young & Associates for certain liabilities that may
occur in connection with Young & Associates' services provided.
EFFECTIVE TIME OF THE MERGER
As used in this Proxy Statement/Prospectus, "Effective Time" means the
date and time when the Parent Merger becomes effective, which will occur upon
the filing with the Ohio Secretary of State of a certificate of merger in
accordance with Section 1701.81 of the ORC and a certificate of approval from
the ODFI in accordance with Sections 1121.05 and 1121.06 of the ORC.
PAYMENT OF CASH IN LIEU OF FRACTIONAL SHARES
No fractional First Citizens Common Shares will be issued in connection
with the Parent Merger. Each ICBC shareholder who would otherwise have been
entitled to receive a fraction of a First Citizens Common Share will receive, in
lieu thereof, cash therefor, without interest, in an amount determined by
multiplying such fractional First Citizens Common Share to which the holder
would be entitled by the last sale price of First Citizens Common Shares, as
reported by the NASDAQ for the NASDAQ trading day immediately preceding the
Effective Time.
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SURRENDER OF CERTIFICATES
Following the Effective Time of the Parent Merger, each ICBC
shareholder will receive transmittal materials, together with instructions, for
use in surrendering certificates representing ICBC Common Shares ("Old
Certificates") in exchange for First Citizens Common Shares and handling the
payment of cash in lieu of fractional First Citizens Common Shares. The
transmittal materials will instruct surrendering shareholders to send their Old
Certificates to Illinois Stock Transfer Company, as exchange agent (the
"Exchange Agent"), duly endorsed for transfer or accompanied by a duly endorsed
assignment separate from the certificate(s). Thereafter, the Old Certificates
surrendered will be exchanged for one or more certificates representing the
whole number of First Citizens Common Shares based on the Exchange Ratio and
payment of cash in lieu of fractional shares. Until so surrendered, each
outstanding Old Certificate shall be deemed from and after the Effective Time
for all purposes to represent only the right to receive, upon surrender, one or
more certificates for First Citizens Common Shares and cash in lieu of
fractional shares.
If any certificates for First Citizens Common Shares are to be issued
in a name(s) other than that in which an Old Certificate surrendered or
exchanged is issued, the Old Certificate so surrendered must be properly
endorsed and otherwise in proper form for transfer. The person requesting the
exchange must affix any requisite stock transfer tax stamps to the Old
Certificate surrendered, provide funds for their purchase, or establish to the
satisfaction of the Exchange Agent that such taxes have been paid or are not
applicable.
In the event of a lost certificate, the shareholder shall provide, in
lieu of the lost certificate, an affidavit attesting to the loss of said
certificate and, if required by First Citizens or the Exchange Agent, an
indemnification or bond in such reasonable amount as First Citizens or the
Exchange Agent may direct. Unless and until the Old Certificates, or affidavit
and, if required by First Citizens or the Exchange Agent, an indemnification or
bond in lieu thereof, are presented to the Exchange Agent, the holder thereof
shall not be entitled to receive any consideration to be paid in connection with
the Parent Merger or any dividends payable on First Citizens Common Shares, or
to exercise any rights as a holder of First Citizens Common Shares. On or after
the Effective Time, upon surrender of the Old Certificates, or affidavit and an
indemnification or bond in lieu thereof, to the Exchange Agent, the holder
thereof will be paid the consideration to which the holder is entitled under the
Merger Agreement and any dividends which theretofore became payable on any First
Citizens Common Shares to which the holder is entitled. No dividends or other
distributions, if any, payable to the holders of record of First Citizens Common
Shares as of any date subsequent to the Effective Time shall be paid to any
holder of any outstanding Old Certificate until the holder thereof surrenders
such Old Certificate as provided in the Merger Agreement. Subject to applicable
law, no holder of an Old Certificate shall be entitled to vote or exercise any
other rights of a holder of First Citizens Common Shares.
After the consummation of the Parent Merger, there will be no transfers
on the stock transfer books of ICBC of any ICBC Common Shares. If, after the
consummation of the Parent Merger, Old Certificates are properly presented to
First Citizens, they will be canceled and exchanged for the consideration
specified in the Merger Agreement, subject to applicable law and to the extent
that First Citizens has not paid such consideration to a public official
pursuant to applicable abandoned property laws.
INTEREST OF MANAGEMENT IN THE MERGER
At the Effective Time of the Parent Merger, First Citizens will take
such actions as are necessary to increase the number of directors comprising the
First Citizens Board by two members and will fill the vacancies resulting from
such increase with two members of the ICBC Board of Directors recommended by
ICBC and selected by First Citizens. At the Effective Time of the Subsidiary
Combination, First Citizens will also take such actions as are necessary to
increase the number of directors comprising the Board of
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Directors of CBC by two members and will fill the vacancies resulting from such
increase with two members of the ICBC Board of Directors recommended by ICBC and
selected by First Citizens.
First Citizens will indemnify each person who served as a director or
officer of ICBC, on or before the Effective Time to the fullest extent permitted
pursuant to the ICBC Articles of Incorporation and the ICBC Code of Regulations,
and the Articles of Association and Bylaws of CNBN, as the case may be, and
applicable provisions of Ohio and federal law from and against expenses,
including attorneys' fees, judgments, fines and amounts paid in settlement in
connection with any action, suit, claim or proceeding threatened, filed, pending
or completed during the three year period after the Effective Time, by reason of
the fact that such person was a director or officer of ICBC or CNBN, as the case
may be. The individual making the request for indemnification, however, must
provide First Citizens with written notice of any such action, suit, claim or
proceeding. First Citizens will also purchase directors' and officers' liability
insurance for a period of three years from the Effective Date to reimburse the
present and former officers and directors of ICBC or any of its subsidiaries
(determined at the Effective Time) with respect to claims against them arising
from facts or events which occurred before the Effective Time. In addition,
several executives of ICBC have entered into retention bonus and/or change in
control agreements with ICBC.
Each of Michael N. Clemens and Jerry E. Stover are parties to
employment agreements with CNBN which provide for continued payment of
compensation for 24 months, and payment of their family medical insurance
premiums for 18 months, following a termination of employment that occurs within
12 months after a "change in control" (as defined in the employment agreements).
Messrs. Clemens and Stover also are parties to retention agreements which
provide for a bonus payment equal to 100% of base salary if a "change in
control" (as defined in the retention agreements) occurs within the three year
term of the retention agreement and Mr. Clemens or Mr. Stover, as the case may
be, is still employed at the time of the change in control. In connection with
the Parent Merger, each of the employment agreements has been amended and each
of Mr. Clemens and Mr. Stover has entered into a change in control agreement
with CNBN and ICBC. These amendments to the employment agreements and the change
in control agreements provide that all benefits payable to Mr. Clemens and Mr.
Stover, if their employment is terminated within 12 months after a change in
control or if they terminate employment for good reason within 12 months of the
change in control, would equal the lesser of (i) 200% of their compensation
averaged over the five years before the change in control plus payment of their
family medical insurance premiums for 18 months minus the value of change in
control parachute payments from the retention agreements and other plans of CNBN
and ICBC, or (ii) the amount that otherwise would not result in imposition of
tax penalties under Section 280G of the Internal Revenue Code. The change in
control agreements also provide that each of Mr. Clemens and Mr. Stover will
receive an amount equal to 100% of his base salary in exchange for his agreement
that, for 24 months after his employment terminates after a change in control,
he will not engage in any business that competes with CNBN and which is located
within a 50 mile radius of any CNBN office. In the event that the employment of
Mr. Clemens or Mr. Stover is terminated in connection with the consummation of
the Parent Merger, ICBC estimates that, based upon the foregoing contractual
provisions, Mr. Clemens would receive total payments of $375,000 and Mr. Stover
would receive total payments of $265,500.
RIGHTS OF DISSENTING FIRST CITIZENS SHAREHOLDERS
First Citizens Shareholders are entitled to certain dissenters' rights
pursuant to Sections 1701.78, 1701.84(B) and 1701.85 of the ORC. Section 1701.85
generally provides that shareholders of ICBC will not be entitled to such rights
without compliance with Section 1701.85 and failure to take any one of the
required steps may result in the termination or waiver of such rights.
Specifically, any First Citizens shareholder who is a record holder of First
Citizens Common Shares on the First Citizens Record Date and whose shares are
not voted in favor of the Parent Merger may be entitled to be paid the "fair
cash value" of such First Citizens Common Shares after the Effective Time. To be
entitled to such payment, a shareholder must deliver a written demand for
payment therefor to First Citizens on or before the tenth day following the
First Citizens Special Meeting and must otherwise comply with Section 1701.85.
Any written demand must specify the shareholder's name and address, the number
and class of shares held by him or her on the First Citizens Record Date, and
the amount claimed as the "fair cash value" of such First Citizens Common
Shares. See the text of Section 1701.85 of the ORC attached as Appendix B to
this
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Proxy Statement/Prospectus for specific information on the procedure to be
followed in exercising dissenters' rights.
If First Citizens so requests, dissenting shareholders must submit
their share certificates to First Citizens within fifteen days of such request,
for endorsement thereon by First Citizens that demand for appraisal has been
made. Failure to comply with such request will terminate the dissenting
shareholders' rights. Such certificates will be promptly returned to the
dissenting shareholders by First Citizens. If First Citizens and any dissenting
shareholder cannot agree upon the "fair cash value" of the First Citizens Common
Shares, either may, within three months after service of demand by the
shareholder, file a petition in the Court of Common Pleas of Erie County, Ohio
(the "Court") for a determination of the "fair cash value" of said First
Citizens Common Shares. The Court may appoint one or more appraisers to
determine the "fair cash value" and if the Court approves the appraisers'
report, judgment will be entered therefor, and the costs of the proceedings,
including reasonable compensation of the appraisers, will be assessed or
apportioned as the Court considers equitable.
RIGHTS OF DISSENTING ICBC SHAREHOLDERS
Shareholders of ICBC are entitled to certain dissenters' rights
pursuant to Sections 1701.78, 1701.84(A) and 1701.85 of the ORC. Section 1701.85
generally provides that shareholders of ICBC will not be entitled to such rights
without compliance with Section 1701.85 and failure to take any one of the
required steps may result in the termination or waiver of such rights.
Specifically, any ICBC shareholder who is a record holder of ICBC Common Shares
on the ICBC Record Date and whose shares are not voted in favor of the Parent
Merger may be entitled to be paid the "fair cash value" of such ICBC Common
Shares after the Effective Time. To be entitled to such payment, a shareholder
must deliver a written demand for payment therefor to ICBC on or before the
tenth day following the ICBC Special Meeting and must otherwise comply with
Section 1701.85. Any written demand must specify the shareholder's name and
address, the number and class of shares held by him or her on the ICBC Record
Date, and the amount claimed as the "fair cash value" of such ICBC Common
Shares. See the text of Section 1701.85 of the ORC attached as Appendix B to
this Proxy Statement/Prospectus for specific information on the procedure to be
followed in exercising dissenters' rights.
If ICBC so requests, dissenting shareholders must submit their share
certificates to ICBC within fifteen days of such request, for endorsement
thereon by ICBC that demand for appraisal has been made. Failure to comply with
such request will terminate the dissenting shareholders' rights. Such
certificates will be promptly returned to the dissenting shareholders by ICBC.
If ICBC and any dissenting shareholder cannot agree upon the "fair cash value"
of the ICBC Common Shares, either may, within three months after service of
demand by the shareholder, file a petition in the Court of Common Pleas of Huron
County, Ohio (the "Court") for a determination of the "fair cash value" of said
ICBC Common Shares. The Court may appoint one or more appraisers to determine
the "fair cash value" and if the Court approves the appraisers' report, judgment
will be entered therefor, and the costs of the proceedings, including reasonable
compensation of the appraisers, will be assessed or apportioned as the Court
considers equitable.
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following summary of the material federal income tax consequences
of the Parent Merger to holders who hold ICBC Common Shares as capital assets
and deals only with holders who are (i) citizens or residents of the United
States, (ii) domestic corporations or (iii) otherwise subject to United States
federal income tax on a net income basis in respect of Shares ("U.S. Holders").
This summary may not apply to certain classes of taxpayers, including, without
limitation, insurance companies, tax-exempt organizations, financial
institutions, dealers in securities, persons who acquired ICBC Common Shares
pursuant to the exercise of employee stock options or rights or otherwise as
compensation and persons who hold shares of ICBC Common Shares in a hedging
transaction or as part of a straddle or conversion transaction. Also, the
summary does not address state, local or foreign tax consequences of the Parent
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Merger. Consequently, each holder should consult such holder's own tax advisor
as to the specific tax consequences of the Parent Merger to such holder.
This summary is based on current law and the opinion of counsel to
ICBC. Future legislative, judicial or administrative changes or interpretations,
which may be retroactive, could alter or modify the statements set forth herein.
The opinion of Vorys, Sater, Seymour and Pease LLP set forth in this summary is
based, among other things, on assumptions relating to certain facts and
circumstances of, and the intentions of the parties to, the Parent Merger, which
assumptions have been made with the consent of ICBC and First Citizens. Neither
ICBC nor First Citizens has requested, and neither ICBC nor First Citizens will
request, any ruling from the Internal Revenue Service as to the federal income
tax consequences of the Parent Merger.
It is intended that the Parent Merger will be treated as a
reorganization within the meaning of Section 386(a) of the Code, and that,
accordingly, for federal income tax purposes no gain or loss will be recognized
by ICBC or First Citizens as a result of the Parent Merger.
The obligation of ICBC and First Citizens to consummate the Parent
Merger is conditioned on the receipt by ICBC of an opinion of its counsel,
Vorys, Sater, Seymour and Pease LLP, dated as of the closing date of the Parent
Merger, substantially to the effect that (i) the Parent Merger will constitute a
tax free reorganization and (ii) no gain or loss will be recognized by the ICBC
shareholders upon the receipt solely of First Citizens Common Shares in exchange
for ICBC Common Shares, except with respect to any cash received in lieu of a
fractional share interest in First Citizens Common Shares. ICBC shareholders who
exercise dissenters' rights and receive cash for their ICBC Common Shares will
be treated as having received a distribution in redemption of their shares which
will result in such shareholders recognizing income for federal income tax
purposes. The opinion of Vorys, Sater, Seymour and Pease LLP referred to in this
paragraph will be based upon certain facts, assumptions and representations
and/or covenants, including those contained in certificates of officers of ICBC,
First Citizens and, possibly, others. Subject to the receipt of such
representations and/or covenants, Vorys, Sater, Seymour and Pease LLP
anticipates that it will render such opinion.
REGULATORY APPROVALS
First Citizens has filed the applications necessary to obtain the
approval for the Parent Merger from the Federal Reserve Board and to obtain the
approval of the Subsidiary Combination from the ODFI and Office of the
Comptroller of the Currency. The Parent Merger may not be consummated for 15
days after approval by the Federal Reserve Board, during which time an action
may be brought by the United States Department of Justice challenging the Parent
Merger on antitrust grounds. Neither First Citizens nor ICBC has any reason to
believe the Parent Merger will be challenged on antitrust grounds. [UPDATE AS
NEEDED]
BUSINESS PENDING THE MERGER
The Merger Agreement provides that, pending consummation of the Parent
Merger, without the prior written consent of ICBC, First Citizens and its
subsidiaries will not, among other things: (i) conduct the business of First
Citizens and its subsidiaries other than in the ordinary course or take any
action which is reasonably likely to have an adverse effect upon First Citizens'
ability to perform any of its material obligations under the Merger Agreement;
(ii) fail to use reasonable efforts to preserve intact in any material respect
their business organizations and assets and maintain their rights, franchises
and existing relations with customers, suppliers, employees and business
associates; (iii) make, declare, pay or set aside for payment any extraordinary
dividend, except for special dividends paid in accordance with past practice;
(iv) implement or adopt any change in its accounting principles, practices or
methods, other than as may be required by GAAP; (v) settle any claim, action or
proceeding, except in the ordinary course of business consistent with past
practice or under certain circumstances; (vi) take any action while knowing that
such action would prevent or impede the Parent Merger from qualifying as a
reorganization within the meaning of Section 368 of the Code, or take any action
that is intended
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or is reasonably likely to result in any of its representations and warranties
set forth in the Merger Agreement being or becoming untrue, any of the
conditions to the Parent Merger not being satisfied, or a material violation of
any provision of the Merger Agreement; (vii) except pursuant to applicable law
or regulation, fail to follow its existing policies or practices with respect to
managing its exposure to interest rate and other risk; or (viii) agree or commit
to do any of the foregoing.
The Merger Agreement also provides that, pending consummation of the
Parent Merger, without the prior written consent of First Citizens, ICBC and its
subsidiaries will not, among other things: (i) conduct the business of ICBC and
its subsidiaries other than in the ordinary course or voluntarily take any
action which is reasonably likely to have an adverse effect upon ICBC's ability
to perform any of its material obligations under the Merger Agreement; (ii)
issue, sell or otherwise permit to become outstanding, or authorize the creation
of, any additional ICBC Common Shares, except pursuant to the exercise of
outstanding stock options; (iii) make, declare, pay or set aside for payment any
dividend, other than (A) semi-annual cash dividends to holders of ICBC Common
Shares in an amount not to exceed, on an annualized basis, the aggregate per
share amount declared and paid with respect to 2000 (which was $.60 per share),
with record and payment dates consistent with past practice, and (B) dividends
from wholly owned subsidiaries of ICBC to ICBC, or directly or indirectly
adjust, split, combine, redeem, reclassify, purchase or otherwise acquire, any
shares of its capital stock; (iv) enter into or amend or renew any employment,
consulting, severance, retention, change in control, or similar agreements or
arrangements with any director, officer or employee of ICBC or any of its
subsidiaries, or grant any salary or wage increase or increase any employee
benefit, except for normal individual increases in compensation to employees in
the ordinary course of business consistent with past practice or in certain
other cases; (v) enter into, establish, adopt or amend (except in certain
circumstances) any pension, retirement, stock option, stock purchase, savings,
profit sharing, deferred compensation, change in control, consulting, bonus,
group insurance or other employee benefit, incentive or welfare contract, plan
or arrangement, or any trust agreement (or similar arrangement) related thereto,
in respect of any director, officer or employee of ICBC or any of its
subsidiaries, or take any action to accelerate the payment of benefits, or the
vesting or exercisability of stock options, restricted stock or other
compensation or benefits payable thereunder; (vi) sell, transfer, mortgage,
encumber or otherwise dispose of or discontinue any of its assets, deposits,
business or properties except in the ordinary course of business; (vii) acquire
all or any portion of, the assets, business, deposits or properties of any other
entity; (viii) amend the ICBC Articles of Incorporation or Code of Regulations
or the articles of incorporation or regulations any of ICBC's subsidiaries; (ix)
implement or adopt any change in its accounting principles, practices or
methods, other than as may be required by GAAP; (x) except in the ordinary
course of business consistent with past practice, enter into or terminate any
material contract or amend or modify in any material respect any of its existing
material contracts; (xi) settle any claim, action or proceeding, except in the
ordinary course of business consistent with past practice or under certain
circumstances; (xii) take any action while knowing that such action would or
would be reasonably likely to prevent or impede the Parent Merger from
qualifying as a reorganization within the meaning of Section 368 of the Code, or
take any action that is intended or is reasonably likely to result in any of its
representations and warranties set forth in the Merger Agreement being or
becoming untrue, any of the conditions to the Parent Merger not being satisfied,
or a material violation of any provision of the Merger Agreement; (xiii) except
pursuant to applicable law or regulation, implement or adopt any material change
in its interest rate and other risk management policies, procedures or
practices; (xiv) incur any indebtedness for borrowed money other than in the
ordinary course of business; (xv) make or purchase any indirect or brokered
loans; or (xvi) agree or commit to do any of the foregoing.
In addition, in the Merger Agreement, ICBC has agreed that it will not,
directly or indirectly, take any action to solicit, initiate, engage or
negotiate any tender or exchange offer, proposal for a merger, consolidation or
other business combination involving ICBC or any of its subsidiaries or any
proposal or offer to acquire in any manner a substantial equity interest in, or
a substantial portion of the assets or deposits of, ICBC or any of its
subsidiaries, other than the transactions contemplated by the Merger Agreement
(an "Acquisition Proposal"), from any person or entity, other than First
Citizens, or provide any confidential information to, discuss or negotiate with
any such person or entity, other than First
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Citizens, any Acquisition Proposal. However, ICBC may furnish information to, or
enter into discussion, negotiations or an agreement with, any person or entity
which makes an unsolicited Acquisition Proposal if and to the extent that (a)
the ICBC Board, after consultation with and based upon the advice of counsel,
determines in good faith that such action is required to fulfill its fiduciary
duties to the shareholders of ICBC under applicable law and (b) before
furnishing such information to, or entering into discussions or negotiations
with, such person or entity, ICBC provides immediate written notice to First
Citizens of such action, the identity of the bidder and the substance of such
Acquisition Proposal. If ICBC terminates the Merger Agreement because ICBC
executes a definitive agreement in respect of, or closes, an Acquisition
Proposal, ICBC must pay to First Citizens the sum of $1,300,000 within ten days
after the earlier of such execution or closing.
OTHER PROVISIONS OF THE MERGER AGREEMENT
Representations and Warranties
The Merger Agreement contains representations and warranties by the
parties regarding, among other things, their respective organization, authority
to enter into the Merger Agreement, capitalization, subsidiaries, pending and
threatened litigation, compliance with applicable laws and regulations,
financial statements and filings with regulatory agencies. These representations
and warranties will not survive consummation of the Parent Merger. The Merger
Agreement includes certain exceptions to First Citizens' and ICBC's
representations and warranties, none of which are deemed material to this
transaction.
Conditions to the Merger
The obligations of ICBC and First Citizens to consummate the Parent
Merger are subject to, without limitation, the following conditions: (i) the
Merger Agreement and the Parent Merger shall have been duly adopted by the
requisite vote of the shareholders of ICBC and the shareholders of First
Citizens; (ii) all regulatory approvals required to consummate the transactions
contemplated by the Parent Merger Agreement shall have been obtained and shall
remain in full force and effect and all statutory waiting periods in respect
thereof shall have expired and no such approvals shall contain (A) any
conditions, restrictions or requirements which the First Citizens Board
reasonably determines would either before or after the Effective Time have a
Material Adverse Effect (as defined in the Merger Agreement) on First Citizens
and its subsidiaries taken as a whole after giving effect to the consummation of
the Parent Merger, or (B) any conditions, restrictions or requirements that are
not customary and usual for approvals of such type and which the First Citizens
Board reasonably determines would either before or after the Effective Time be
unduly burdensome; (iii) no court, administrative agency or commission or other
federal, state or local governmental authority or instrumentality of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered any
statute, rule, regulation, judgment, decree, injunction or other order (whether
temporary, preliminary or permanent) which is in effect and prohibits
consummation of the transactions contemplated by the Merger Agreement; (iv) the
registration statement of which this Proxy Statement/Prospectus is a part
(registering the exchange of the First Citizens Common Shares for ICBC Common
Shares) shall have become effective under the 1933 Act and no stop order
suspending the effectiveness of the registration statement shall have been
issued and no proceedings for that purpose shall have been initiated or
threatened by the SEC; and (v) all permits and other authorizations under state
securities laws necessary to consummate the transactions contemplated hereby and
to issue the First Citizens Common Shares to be issued in the Parent Merger
shall have been received and be in full force and effect.
The obligation of ICBC to consummate the Parent Merger is also subject
to, without limitation, the satisfaction or waiver of the following conditions:
(i) the representations and warranties of First Citizens set forth in the Merger
Agreement shall be true and correct, subject to the standard set forth in the
Merger Agreement, as of the date of the Merger Agreement and as of the Effective
Time as though made on and as of the Effective Time (except that representations
and warranties that by their terms speak as of the date of the Merger Agreement
or some other date shall be true and correct as of such date), and ICBC shall
have received a certificate, dated the Effective Time, signed on behalf of First
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Citizens by the Chief Executive Officer and the Chief Financial Officer of First
Citizens to such effect; (ii) First Citizens shall have performed in all
material respects all obligations required to be performed by First Citizens
under the Merger Agreement at or prior to the Effective Time, and ICBC shall
have received a certificate, dated the Effective Time, signed on behalf of First
Citizens by the Chief Executive Officer and the Chief Financial Officer of First
Citizens to such effect; and (iii) ICBC shall have received an opinion of Vorys,
Sater, Seymour and Pease LLP, counsel to ICBC, dated the Effective Time, to the
effect that, on the basis of facts, representations and assumptions set forth in
such opinion, (A) the Parent Merger constitutes a "reorganization" within the
meaning of Section 368 of the Code and (B) no gain or loss will be recognized by
shareholders of ICBC who receive First Citizens Common Shares in exchange for
ICBC Common Shares, and cash in lieu of fractional share interests, other than
the gain or loss to be recognized as to cash received in lieu of fractional
share interests.
The obligation of First Citizens to consummate the Parent Merger is
also subject to, without limitation, the satisfaction or waiver of the following
conditions: (i) the representations and warranties of ICBC set forth in the
Merger Agreement shall be true and correct, subject to the standard set forth in
the Merger Agreement, as of the date of the Merger Agreement and as of the
Effective Time as though made on and as of the Effective Time (except that
representations and warranties that by their terms speak as of the date of the
Merger Agreement or some other date shall be true and correct as of such date)
and First Citizens shall have received a certificate, dated the Effective Time,
signed on behalf of ICBC by the Chief Executive Officer and the Treasurer of
ICBC to such effect; (ii) ICBC shall have performed in all material respects all
obligations required to be performed by it under the Merger Agreement at or
prior to the Effective Time, and First Citizens shall have received a
certificate, dated the Effective Time, signed on behalf of ICBC by the Chief
Executive Officer and the Treasurer of ICBC to such effect; and (iii) First
Citizens shall have received an ICBC Affiliate Agreement (in the form attached
to the Merger Agreement) from each affiliate of ICBC.
The foregoing disclosure regarding conditions to the Parent Merger
represents and includes all material conditions to the consummation thereof.
Amendments; Waiver; and Termination
Prior to the Effective Time, any provision of the Merger Agreement may
be amended or modified at any time by an agreement in writing between the
parties, except that after the ICBC Special Meeting, the Merger Agreement may
not be amended if it would violate Ohio corporate law or the federal securities
laws. In addition, any provision of the Merger Agreement may be waived prior to
the Effective Time by the party benefited by such provision.
The Merger Agreement may be terminated as follows: (i) at any time
prior to the Effective Time, by the mutual consent of First Citizens and ICBC,
if the Board of Directors of each so determines by vote of a majority of the
members of its entire Board; (ii) at any time prior to the Effective Time, by
First Citizens or ICBC, if its respective Board of Directors so determines by
vote of a majority of the members of its entire Board, in the event of either:
(A) a breach by the other party of any representation or warranty contained in
the Merger Agreement (subject to the standard set forth in the Merger
Agreement), which breach cannot be or has not been cured within 30 days after
the giving of written notice to the breaching party of such breach; or (B) a
breach by the other party of any of the covenants or agreements contained in the
Merger Agreement, which breach cannot be or has not been cured within 30 days
after the giving of written notice to the breaching party of such breach,
provided that such breach (whether under (A) or (B)) would be reasonably likely,
individually or in the aggregate with other breaches, to result in a Material
Adverse Effect (as defined in the Merger Agreement); (iii) at any time prior to
the Effective Time, by First Citizens or ICBC, if its respective Board of
Directors so determines by vote of a majority of the members of its entire
Board, in the event that the Parent Merger is not consummated by April 30, 2002,
except to the extent that the failure of the Parent Merger then to be
consummated arises out of or results from the knowing action or inaction of the
party seeking to terminate pursuant to this provision of the Merger Agreement;
(iv) by ICBC or First Citizens, if its Board of Directors so determines by a
vote of a majority of the members of its entire Board, in the event (A)
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the approval of any governmental authority required for consummation of the
Parent Merger and the other transactions contemplated by the Merger Agreement
shall have been denied by final nonappealable action of such governmental
authority or (B) the ICBC shareholders or the First Citizens shareholders fail
to adopt the Merger Agreement and the Parent Merger at the ICBC Special Meeting
or the First Citizens Special Meeting, as applicable; and (v) by ICBC, if ICBC
executes a definitive agreement in connection with, or closes, an Acquisition
Proposal in compliance with the terms of the Merger Agreement.
In addition, if the market price of First Citizens Common Shares falls
below $19.50 per share during a measuring period prior to the closing, First
Citizens will have the right to increase the per share Merger Consideration to a
value equal to $19.50. If First Citizens chooses not to make such an adjustment,
ICBC's directors will have the right to terminate the Merger Agreement and
abandon the transaction. There is no assurance, however, that the ICBC directors
will exercise such right.
If the market price of First Citizens Common Shares falls below $19.50,
the ICBC directors will evaluate the circumstances and, in the exercise of their
fiduciary duties, determine whether to terminate the Merger Agreement. The ICBC
Board of Directors may, without the approval of the ICBC shareholders, waive the
right to terminate the Merger Agreement and proceed with the Parent Merger even
if the market price of First Citizens Common Shares falls below $19.50.
Because the number of First Citizens Commons Shares an ICBC shareholder
will receive in the Parent Merger is fixed and the market price of First
Citizens Common Shares will fluctuate, ICBC shareholders cannot be sure of the
market value of the First Citizens Common Shares they will receive in the Parent
Merger. ICBC shareholders should obtain current price quotations for the First
Citizens Common Shares before casting their votes regarding the Parent Merger.
ICBC shareholders may obtain current stock quotations for First Citizens Common
Shares, listed under the symbol "FCZA," from newspapers, the Internet or
stockbrokers.
In the event the Merger Agreement is terminated and the Parent Merger
is abandoned, no party to the Merger Agreement shall have any liability or
further obligation to any other party except under certain circumstances and
except that termination will not relieve a breaching party from liability for
any willful breach of the Merger Agreement giving rise to such termination. The
parties shall be entitled to an injunction or injunctions to prevent breaches or
threatened breaches of the Merger Agreement and to enforce specifically the
terms and provisions of the Merger Agreement in any court of the United States
or any state having jurisdiction, in addition to any other remedy to which they
are entitled by law or in equity.
EXPENSES OF THE MERGER
Each of First Citizens and ICBC shall bear its own expenses in
connection with the Parent Merger, except that printing and mailing expenses
shall be shared between ICBC and First Citizens in proportion to the number of
shareholders of each to whom this Proxy Statement/Prospectus is delivered. All
fees to be paid to regulatory authorities and the Commission in connection with
the Parent Merger shall be paid by First Citizens.
OPERATIONS OF ICBC AFTER THE MERGER
Pursuant to the Merger Agreement, ICBC shall be merged with and into
First Citizens and First Citizens shall be the surviving corporation as of the
Effective Time. The Articles of Incorporation and Code of Regulations of First
Citizens shall remain in effect as they were immediately prior to the Parent
Merger. The number of directors comprising the First Citizens Board of Directors
will be increased by two (2) members by action of the First Citizens directors.
At the Effective Time, the Board of Directors of First Citizens shall
consist of all of the persons who were directors of First Citizens immediately
prior to the Effective Time, plus two members of the
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ICBC Board of Directors recommended by ICBC and selected by First Citizens. Each
such director shall serve for the balance of his term and until his successor is
duly elected and qualified or until his earlier death, resignation or removal in
the manner provided in the Code of Regulations of First Citizens or as otherwise
provided by law. For further information regarding the directors and officers of
First Citizens after the Parent Merger, see "INFORMATION WITH RESPECT TO FIRST
CITIZENS--Management."
Immediately following the Parent Merger and upon the receipt of the
required regulatory approvals, the Subsidiary Combination will take place
pursuant to which CBC will purchase and assume all of the assets and liabilities
associated with the general banking business (excluding the assets and
liabilities of the trust business) of CNBN, and the bank charter of CNBN will be
converted to a trust charter. The new trust company will be a wholly-owned
subsidiary of First Citizens and its products and services will be available to
all customers of First Citizens' banking affiliates.
ACCOUNTING TREATMENT
The Parent Merger will be accounted for as a purchase in accordance
with accounting principles generally accepted in the United States of America.
Under the purchase method of accounting, the tangible and identifiable
intangible assets and liabilities of ICBC will be recorded at estimated fair
values at the time the Merger is consummated, and the excess of the estimated
fair value of shares issued plus the direct costs of the acquisition over the
net tangible and identifiable intangible assets will be recorded as goodwill.
The adjustments necessary to record tangible and identifiable intangible assets
and liabilities at fair value will be amortized to income and expense over the
estimated remaining lives of the related assets and liabilities. Remaining
goodwill will be subject to an annual test for impairment and the amount
impaired, if any, will be charged to expense at the time of impairment.
The pro forma results of applying the purchase method of accounting are
shown in the unaudited pro forma financial information appearing elsewhere in
this Proxy Statement/ Prospectus. See "PRO FORMA FINANCIAL INFORMATION".
RESALE OF FIRST CITIZENS COMMON SHARES
No restrictions on the sale or other transfer of the First Citizens
Common Shares issued pursuant to the Parent Merger will be imposed solely as a
result of the Parent Merger, except for restrictions on the transfer of shares
issued to any ICBC shareholder who may be deemed to be an "affiliate" of ICBC
for purposes of Rule 145 under the 1933 Act. Generally, "affiliates" of ICBC
would include officers, directors and significant shareholders of ICBC. The
Merger Agreement requires ICBC to cause persons who could be considered to be
"affiliates" to enter into an agreement with First Citizens to the effect that
the First Citizens Common Shares to be acquired by such "affiliates" will not be
sold, pledged, transferred or otherwise disposed of except in compliance with
the 1933 Act and the rules and regulations thereunder.
First Citizens Common Shares issued to ICBC shareholders who may be
deemed to be affiliates may be resold only (i) in transactions permitted by Rule
145 promulgated under the 1933 Act, (ii) pursuant to an effective registration
statement, or (iii) in transactions exempt from registration.
DESCRIPTION OF FIRST CITIZENS COMMON SHARES
-------------------------------------------
GENERAL
First Citizens has authorized 10,000,000 Common Shares, without par
value, of which 4,082,619 are issued and outstanding and 180,782 are treasury
shares. Each outstanding First Citizens Common Share is duly authorized, validly
issued, fully paid and nonassessable. The holders of First Citizens Common
Shares have one vote per share on each matter on which shareholders are entitled
to vote and, in accordance with Ohio law, cumulative voting rights may be
requested in
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connection with the election of directors. Directors are elected for staggered,
three year terms. Specifically, the Board is divided into three classes of equal
or near equal number, with the members of one class being elected annually. On
liquidation or dissolution of First Citizens, the holders of First Citizens
Common Shares are entitled to share ratably in such assets as remain after
creditors have been paid. Holders of First Citizens Common Shares have the
preemptive rights described in Section 1701.15 of the ORC. Pursuant to Section
1701.15 of the ORC, no preemptive rights are available in connection with shares
issued or agreed to be issued for considerations other than money, as is the
case in the Parent Merger.
First Citizens' Board of Directors determines whether to declare
dividends and the amount of any dividends declared. Such determinations by the
Board of Directors take into account First Citizens' financial condition,
results of operations and other relevant factors. While management expects to
maintain its policy of paying regular cash dividends, no assurances can be given
that any dividends will be declared, or, if declared, what the amount of such
dividends will be. See "INFORMATION WITH RESPECT TO FIRST CITIZENS--Market Price
of First Citizens Common Shares."
Illinois Stock Transfer Company is the Exchange Agent for First
Citizens Common Shares.
PROVISIONS RELATING TO BUSINESS COMBINATIONS
Business Combinations
Article SIXTH ("Article SIXTH") of First Citizens' Articles of
Incorporation sets forth certain requirements in connection with the approval or
authorization of any of the following (each, a "Business Combination"): (a) any
merger or consolidation involving First Citizens or any subsidiary
("Subsidiary") of First Citizens; (b) any sale or other disposition of all or a
substantial part of the assets of First Citizens or any Subsidiary; (c) any sale
or other disposition of all of a substantial part of the assets of any entity to
First Citizens or any Subsidiary; (d) any sale or other disposition by First
Citizens or any Subsidiary of any corporation; (e) any recapitalization or
reclassification of First Citizens' securities or other transaction that would
have the effect of increasing the voting power of a Related Person (as defined
below); (f) any liquidation, spin-off, split-up or dissolution of First
Citizens; and (g) any agreement or other arrangement providing for any of the
foregoing.
For purposes of Article SIXTH, "Related Person" generally means any
person, entity or group, including any affiliate or associate thereof, (other
than First Citizens, any wholly-owned Subsidiary and any employee benefit plan
sponsored by First Citizens or any such Subsidiary) that, at the time any
Business Combination is agreed to, authorized or approved, is the beneficial
owner of greater than 10% of the First Citizens Common Shares entitled to vote
on such Business Combination.
Board Considerations
Article SIXTH provides that when evaluating a Business Combination or
any tender or exchange offer, the Board of Directors of First Citizens shall
consider, without limitation: (a) the social and economic effects of the
transaction on First Citizens and its Subsidiaries, employees, customers,
creditors and community; (b) the business and financial conditions and earning
prospects of the acquiring person or persons; and (c) the competence, experience
and integrity of the acquiring person or persons and its or their management.
Shareholder Approval
Article SIXTH provides that the affirmative vote of the holders of not
less than 80% of each class of First Citizens Common Shares entitled to vote on
the transaction shall be required for the approval of any Business Combination
in which a Related Person has an interest (except proportionately as a
shareholder); provided, however, the 80% voting requirement shall not be
applicable if (a) the continuing directors, who at the time constitute at least
a majority of the Board of Directors of First
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Citizens, have approved the Business Combination by at least two-thirds vote or
(b) certain conditions relating to the fairness of the transaction have been
satisfied. Pursuant to Article FIFTH, if the 80% voting requirement is
inapplicable, the transaction under consideration may be authorized by the
affirmative vote of the holders of First Citizens Common Shares entitling them
to exercise a majority of the voting power of the corporation.
Article SIXTH further provides that no amendment of First Citizens'
Articles of Incorporation shall be effective to amend, alter or repeal any of
the provisions of Article SIXTH unless such amendment shall receive the
affirmative vote of the holders of not less than 80% of the First Citizens
Common Shares entitled to vote thereon; provided, however, the 80% voting
requirement shall not be applicable if such amendment shall have been proposed
and authorized by the Board of Directors of First Citizens by the affirmative
vote of at least 2/3 of the continuing directors.
COMPARATIVE RIGHTS OF ICBC SHAREHOLDERS
---------------------------------------
As a consequence of the Parent Merger, shareholders of ICBC will become
shareholders of First Citizens, and their rights as shareholders of First
Citizens will be determined by the ORC and by First Citizens' Articles of
Incorporation and Code of Regulations. In many instances, including cumulative
voting rights, waiver of notice of annual meetings, the capacity to take action
without a meeting, and the availability of indemnification for officers and
directors, the rights of ICBC shareholders, which are currently governed by the
ICBC Articles of Incorporation and the ORC, are substantially the same as the
rights of First Citizens shareholders. The following summary compares certain
rights of the holders of ICBC Common Shares to the rights of holders of First
Citizens Common Shares in areas where those rights are materially different.
However, this summary does not purport to be a complete description of such
differences and is qualified in its entirety by reference to the ORC and the
governing corporate instruments of ICBC and First Citizens.
AUTHORIZED AND OUTSTANDING SHARES
ICBC has authorized 1,400,000 ICBC Common Shares, without par value, of
which 614,186 are currently issued and outstanding. First Citizens has
authorized 10,000,000 First Citizens Common Shares, without par value, of which
4,082,619 are currently issued and outstanding. As a result of the Parent
Merger, First Citizens will have up to 5,146,015 First Citizens Common Shares
issued and outstanding.
NOTICE OF SHAREHOLDER MEETINGS
Notice of a special meeting of the ICBC shareholders must be given to
the ICBC shareholders not less than ten (10) nor more than sixty (60) days
before the date of such meeting. By contrast, notice of a special meeting of the
First Citizens shareholders must be given not less than ten (10) nor more than
sixty (60) days before the date of such meeting.
QUORUM
No particular number of ICBC shareholders is needed to
establish a quorum for a meeting of the ICBC shareholders. A quorum at such
meeting consists of the number of ICBC shareholders present in person or by
proxy. By contrast, a majority of outstanding First Citizens Common Shares
present in person or by proxy is required to constitute a quorum for a meeting
of the First Citizens shareholders.
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VOTING
Both ICBC shareholders and First Citizens shareholders are entitled to
one vote per share; and both ICBC shareholders and First Citizens shareholders
are entitled to request cumulative voting in the election of directors.
In most instances, matters submitted to the ICBC shareholders or to the
First Citizens shareholders are decided by a majority of votes cast with respect
thereto. However, pursuant to the default provisions of the ORC, ICBC
shareholders may amend the ICBC Articles of Incorporation and approve certain
business combinations and other change-of-control transactions, by the
affirmative vote of the holders of ICBC Common Shares entitling them to exercise
at least two-thirds of the voting power of the corporation. Further, in certain
instances First Citizens has exercised its right to opt-out of the ORC's default
shareholder voting provisions, such that an 80% affirmative vote is required for
specified shareholder amendments to the First Citizens Articles of Incorporation
and for shareholder approval of certain business combinations. See "DESCRIPTION
OF FIRST CITIZENS COMMON SHARES--Provisions Relating to Business Combinations."
A majority of votes cast by ICBC shareholders entitled to vote in the
election of directors is sufficient to remove a director from the ICBC Board,
except that an individual ICBC director may only be removed by the ICBC
shareholders if the votes cast against his or her removal would not be enough to
elect one director under the cumulative voting scheme. A majority of votes cast
by First Citizens shareholders qualified to vote in the election of directors
may also be sufficient to remove a director from the First Citizens Board,
subject to two qualifications. First, in the event of a proposed Business
Combination, the removal of a First Citizens director by the First Citizens
shareholders requires the affirmative vote of not less than 80% of the First
Citizens Common Shares entitled to vote with respect to such removal. Second, an
individual First Citizens director may only be removed by the First Citizens
shareholders if the votes cast against his or her removal would not be enough to
elect one director under the cumulative voting scheme.
NOMINATION OF DIRECTORS
ICBC has no specific requirements for nomination of a person to its
Board. By contrast, First Citizens only recognizes nominations made by or at the
direction of the Board of Directors, or by any shareholder present at a meeting
of the First Citizens shareholders who complies with specified advance notice
procedures. In most instances, to be timely, a shareholder must submit a
nomination in writing to the secretary of First Citizens not less than 14 nor
more than 50 days prior to the meeting of the First Citizens shareholders.
However, if First Citizens fails to provide its shareholders with at least 21
days prior notice of the meeting, such written nomination need not be submitted
until the earlier of (i) the close of business on the seventh day following
notice of the meeting and (ii) seven days prior to the date of the meeting.
NUMBER OF DIRECTORS
The ICBC Board of Directors, which at all times must consist of no
fewer than nine (9) nor more eighteen (18) directors currently consists of ten
(10) directors. The First Citizens Board of Directors, which at all times must
consist of no fewer than five (5) nor more than twenty-five (25) directors,
currently consists of fifteen directors, fourteen of whom are outside
directors. Each of the First Citizens' Board of Directors and the ICBC' Board
of Directors is divided into three classes of approximately equal number, with
each class being elected for staggered three-year terms.
PREEMPTIVE RIGHTS
Unlike ICBC shareholders, First Citizens shareholders have preemptive
rights to purchase or subscribe for any securities of any class of First
Citizens under certain circumstances as outlined in First Citizens' Articles of
Incorporation and as authorized by Section 1701.15 of the ORC.
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PRO FORMA FINANCIAL INFORMATION
-------------------------------
The following unaudited pro forma condensed combined consolidated
balance sheet as of September 30, 2001 and the unaudited pro forma condensed
combined consolidated statement of income for the nine months ended September
30, 2001, and for the year ended December 31, 2000 have been prepared to reflect
First Citizens' acquisition of ICBC as if the acquisition had occurred on
September 30, 2001 with respect to the balance sheet and as of January 1 with
respect to each of the income statements, in each case giving effect to the pro
forma adjustments described in the accompanying notes. The pro forma adjustments
are based on estimates made for the purpose of preparing these pro forma
financial statements. The actual adjustments to the accounts of First Citizens
will be made based on the underlying historical financial data at the time of
the transaction. First Citizens' management believes that the estimates used in
these pro forma financial statements are reasonable under the circumstances.
The pro forma condensed consolidated financial information has been
prepared based on the purchase transaction method of accounting assuming
1,063,396 First Citizens Common Shares will be issued and that no ICBC
shareholders will dissent with respect to the Parent Merger. This information
will vary if any ICBC shareholders dissent. For a discussion of the purchase
transaction method of accounting, see "PROPOSED MERGER--Accounting Treatment"
and "PROPOSED MERGER--Other Provisions of the Merger Agreement."
The unaudited pro forma condensed combined consolidated balance sheet
as of September 30, 2001 is not necessarily indicative of the combined financial
position had the Parent Merger been effective at that date. The unaudited pro
forma condensed combined consolidated statements of income are not necessarily
indicative of the results of operations that would have occurred had the Parent
Merger been effective at the beginning of the periods indicated, or of the
future results of operations of First Citizens. These pro forma financial
statements should be read in conjunction with the historical financial
statements and the related notes incorporated elsewhere in this Proxy
Statement/Prospectus.
These pro forma financial statements do not include the effects of any
potential cost savings which management believes will result from operating the
ICBC banking business as branches and combining certain operating procedures.
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First Citizens Banc Corp
Independent Community Banc Corp.
Pro Forma Condensed Combined Consolidated Balance Sheet
(Unaudited)
At September 30, 2001 (In thousands except per share data)
Pro Forma
Historical Historical Adjustments Footnote Pro Forma
First Citizens ICBC Debit/(Credit) Reference Combined
ASSETS
Cash and due from banks $ 21,843 $ 3,293 $ 25,136
Federal funds sold 15,100 8,050 23,150
Interest-bearing deposits 999 999
Securities available for sale 115,616 16,663 $ (125) (7) 132,154
Securities held to maturity 219 729 948
Loans, net 335,906 103,457 623 (1) 439,986
Premises and equipment 7,107 1,666 325 (2) 9,098
Goodwill 1,625 15,196 (3) (7) 16,821
Other identified intangible assets 3,485 (2,512) (4) 973
Accrued interest and other assets 6,769 1,457 214 (9) 8,440
Total Assets $ 504,185 $ 139,799 13,721 $657,705
Liabilities
Deposits $ 418,407 $ 123,951 $ (820) (5) $543,178
Securities sold under repurchase
agreements 13,296 310 13,606
Other borrowings 17,772 2,285 20,057
Accrued expenses and other
liabilities 3,637 1,182 (514) (6) 5,333
Total Liabilities 453,112 127,728 (1,334) 582,174
Shareholders' Equity
Common stock 23,258 1,870 (22,588) (8) 47,716
Surplus 1,543 1,543 (8) -
Retained earnings 30,254 8,826 8,826 (8) 30,254
Treasury stock (4,919) (280) (280) (8) (4,919)
Accumulated other
comprehensive income 2,480 112 112 (8) 2,480
Total Shareholders' Equity 51,073 12,071 (12,387) 75,531
Total Liabilities and
Shareholders' Equity $ 504,185 $ 139,799 $ (13,721) $657,705
-47-
First Citizens Banc Corp
Independent Community Banc Corp.
Pro Forma Condensed Combined Consolidated Statement of Income
(Unaudited)
For the nine months ended September 30, 2001 (In thousands except per share
data)
Pro Forma
Historical Historical Adjustments Footnote Pro Forma
First Citizens ICBC Debit/(Credit) Reference Combined
Interest income $27,141 $7,530 $ 201 (1) (10) $34,470
Interest expense 12,290 3,789 (612) (5) 15,467
Net interest income 14,851 3,741 (411) 19,003
Provision for loan losses 656 214 870
Net interest income after
provision 14,195 3,527 (411) 18,133
Non-interest income 3,821 731 4,552
Non-interest expense 12,689 2,957 173 (2) (4) (9) 15,819
Income before income taxes 5,327 1,301 (238) 6,866
Provision for income taxes 1,482 401 81 (11) 1,964
Net Income $ 3,845 $ 899 $ (157) $ 4,902
Earnings Per Share:
Basic $ 0.94 $ 1.47
Diluted $ 0.94 $ 1.47
Pro Forma Earnings Per Share (12)
Basic $ 0.95
Diluted $ 0.95
-48-
First Citizens Banc Corp
Independent Community Banc Corp.
Pro Forma Condensed Combined Consolidated Statement of Income
(Unaudited)
For the year ended December 31, 2000 (In thousands except per share data)
Pro Forma
Historical Historical Adjustments Footnote Pro Forma
First Citizens ICBC Debit/(Credit) Reference Combined
Interest income $34,190 $9,923 $ 279 (1) (10) $43,834
Interest expense 15,756 4,943 (692) (5) 20,007
Net interest income 18,434 4,980 (413) 23,827
Provision for loan losses 807 373 1,180
Net interest income after
provision 17,627 4,607 (413) 22,647
Non-interest income 5,663 947 6,610
Non-interest expense 15,466 3,835 230 (2) (4) (9) 19,531
Income before income taxes 7,824 1,719 (183) 9,726
Provision for income taxes 2,132 523 62 (11) 2,717
Net Income $ 5,692 $1,196 $ (121) $ 7,009
Earnings Per Share:
Basic $ 1.39 $ 1.97
Diluted $ 1.39 $ 1.97
Pro Forma Earnings Per Share (13)
Basic $ 1.36
Diluted $ 1.36
-49-
Notes:
(1) Represents the estimated fair market value adjustment related to the
loan portfolio and is assumed to amortize into interest income on a
level yield basis over the estimated period to maturity or repricing of
the portfolio, which averages 4 1/2 years.
(2) Represents the estimated fair market value adjustment related to the
office properties and is assumed to amortize on a straight line basis
over the estimated life of 40 years.
(3) Represents the excess of the fair value of First Citizens Common Shares
estimated to be issued plus direct acquisition costs over the estimated
fair value of the net assets acquired.
(4) Represents the elimination of the historical core deposit intangible
and goodwill of ICBC in the amount of $3,485 and establishment of the
estimated core deposit intangible related to the proposed acquisition
by First Citizens in the amount of $973, which is assumed to amortize
into non-interest expense on an accelerated basis over 10 years, the
expected average life of core deposits.
(5) Represents the estimated fair market value adjustment related to
deposits and is assumed to amortize into interest expense on a level
yield basis over the estimated remaining maturity of the deposits which
averages 10 months.
(6) Represents accrual of certain estimated acquisition costs of $1,532,
the related estimated tax effect of $280 and deferred taxes related to
estimated purchase accounting adjustments of $783.
(7) Represents an adjustment to reflect the cost of 5,754 ICBC Common
Shares previously acquired by First Citizens as a component of total
transaction cost.
(8) Represents the elimination of ICBC equity on a historical basis and the
issuance of an estimated 1,063,396 shares of First Citizens based on an
exchange multiple of 1.7. The estimate of shares to be issued assumes
the exercise of 17,000 ICBC options which vest upon the change in
control, and excludes 5,754 shares of ICBC common stock currently held
by First Citizens.
(9) Represents estimated value of non-compete agreements which will be
amortized over their lives of 24 months.
(10) Represents amortization of fair value adjustment related to investment
securities on a level yield basis over their estimated remaining lives
which average 2 1/2 years.
(11) Represents the income tax effect of the estimated purchase accounting
adjustments using an effective tax rate of 34%.
(12) Basic and diluted pro forma earnings per share for the nine months
ended September 30, 2001 have been computed based on 5,146,363 weighted
average shares outstanding.
(13) Basic and diluted pro forma earnings per share for the year ended
December 31, 2000 have been computed based on 5,170,665 weighted
average shares outstanding.
-50-
(14) The impact of pro forma adjustments increase/(decrease) on Net Income
for the first five years are as follows (in thousands):
Year 1 $ 121
Year 2 (225)
Year 3 (126)
Year 4 (111)
Year 5 (84)
-51-
INFORMATION WITH RESPECT TO FIRST CITIZENS
------------------------------------------
BUSINESS
First Citizens is a bank holding company organized in 1987 under the
laws of the State of Ohio and registered with the Federal Reserve Board pursuant
to the Bank Holding Company Act of 1956, as amended. First Citizens has three
wholly-owned banking subsidiaries: The Citizens Banking Company, a commercial
bank organized and existing under the laws of the State of Ohio ("CBC"); The
Castalia Banking Company, a commercial bank organized and existing under the
laws of the State of Ohio ("Castalia"); and The Farmers State Bank, a commercial
bank organized and existing under the laws of the State of Ohio ("Farmers"). In
addition, First Citizens has five wholly-owned nonbank subsidiaries which
provide services related to its primary business: SCC Resources, Inc., an Ohio
corporation which provides data processing services; R.A. Reynolds Appraisal
Services, Inc., an Ohio corporation which provides real estate appraisal
services; Mr. Money Finance Company, an Ohio corporation which provides
consumer-lending products; First Citizens Title Insurance Agency, Inc., an Ohio
corporation which provides mortgage services; and First Citizens Insurance
Agency, Inc., an Ohio corporation which provides insurance products. As of
September 30, 2001 and December 31, 2000, First Citizens had total consolidated
assets of approximately $504.2 million and $489.3 million and total
shareholders' equity of $51.1 million and $47.9 million, respectively.
First Citizens' primary business is incidental to its three operating
bank subsidiaries, CBC, Castalia and Farmers. Located in Erie, Crawford, Huron,
Union, Marion, Richland and Ottawa Counties, Ohio, CBC, Castalia and Farmers
conduct a general banking business that involves collecting customer deposits,
making loans and purchasing securities. Commercial banking accounts for
substantially all of the revenue, operating income and assets of First Citizens.
First Citizens Common Shares are listed on the Nasdaq SmallCap Market. For the
nine months ended September 30, 2001, First Citizens' annualized return on
assets and return on equity was 1.03% and 10.37%, respectively. First Citizens'
principal executive offices are located at 100 East Water Street, Sandusky, Ohio
44870. The telephone number of First Citizens' executive offices is (419)
625-4121.
SELECTED FINANCIAL INFORMATION
Selected financial statements with respect to First Citizens can be
found on pages 3 through 7 of First Citizens' quarterly report on Form 10-Q for
the quarter ended September 30, 2001 and are incorporated herein by reference.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 2001
First Citizens' Management's Discussion and Analysis of Financial
Condition and Results of Operations for the quarter and nine months ended
September 30, 2001, as compared to the same periods ended September 30, 2000, is
included in First Citizens' Form 10-Q for the quarter ended September 30, 2001,
which is incorporated herein by reference and attached hereto as Appendix F.
Such discussion should be read in conjunction with (i) the interim consolidated
financial statements and the footnotes thereto included in the Form 10-Q and
(ii) Management's Discussion and Analysis of Financial Condition and Results of
Operations for the Year Ended December 31, 2000 included in First Citizens' Form
10-K for the year ended December 31, 2000, which also is incorporated herein by
reference and attached hereto as Exhibit E.
-52-
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information concerning First Citizens' market risk can be found on
pages 23 through 25 of First Citizens' quarterly report on Form 10-Q for the
quarter ended September 30, 2001, which is incorporated herein by reference and
attached hereto as Appendix F.
CERTAIN STATISTICAL INFORMATION WITH RESPECT TO FIRST CITIZENS
Certain statistical information with respect to First Citizens, such as
information pertaining to the distribution of assets, liabilities and equity,
interest rates and differentials; investment and loan portfolios; loan losses;
deposits; short term borrowings and returns on assets and equity can be found on
pages 4 through 12 of First Citizens' 2000 Annual Report on Form 10-K, which is
incorporated herein by reference and attached hereto as Appendix E.
MANAGEMENT
The following table sets forth certain information concerning the
directors and executive officers of First Citizens:
NAME AGE POSITION WITH FIRST CITIZENS
- ---- --- ----------------------------
John L. Bacon 76 Director
Robert L. Bordner 65 Director
Mary Lee G. Close 86 Director
Blythe A. Friedley 52 Director
Richard B. Fuller 80 Director
H. Lowell Hoffman, M.D. 79 Director
Lowell W. Leech 75 Director and Chairman of the Board
Dean S. Lucal 64 Director
James O. Miller 49 Executive Vice President
W. Patrick Murray 61 Director
George L. Mylander 69 Director
Paul H. Pheiffer 76 Director
Robert L. Ransom 55 Director
David H. Strack, D.D.S. 58 Director
David A. Voight 59 Director and President
Richard O. Wagner 88 Director
Set forth below is a brief description of the business experience of
each director and executive officer of First Citizens:
MR. BACON has served as a Director of First Citizens since 1987, as a
Director of CBC since 1973 and as a Director of Castalia since 1990. In
addition, Mr. Bacon serves as Chairman Emeritus of Mack Iron Works Company, a
metal fabrication company headquartered in Sandusky, Ohio.
MR. BORDNER has served as a Director of First Citizens since 1998 and
as a Director of Farmers since 1979. Mr. Bordner also serves as the President of
Herald Printing Company.
MS. CLOSE has served as a Director of First Citizens since 1987 and as
a Director of CBC since 1983. In addition, Ms. Close manages a portfolio of
personal investments.
MS. FRIEDLEY has served as a Director of First Citizens since 1998 and
as a Director of Farmers since 1986. In addition, Ms. Friedley is the owner and
President of Friedley & Co. Insurance Agency and is also a Director of Union
Banking Company.
-53-
MR. FULLER has served as a Director of First Citizens since 1987, as a
Director of CBC since 1960 and as a Director of Mr. Money Finance Company since
2000. Mr. Fuller is retired from his career in the manufacturing industry.
DR. HOFFMAN has served as a Director of First Citizens since 1987, as a
Director of CBC since 1980, as a Director of SCC Resources, Inc. since 1993. Dr.
Hoffman is retired from his career as a surgeon.
MR. LEECH has served as a Director of First Citizens since 1987
(serving as Chairman of its Board since 1987), as a Director of CBC since 1975
(serving as Chairman of its Board since 1990) and as a Director of Castalia
since 1990 (serving as Chairman of its Board since 1990). Mr. Leech's career in
the banking industry included service as President of CBC.
MR. LUCAL has served as a Director of First Citizens since 1987, as a
Director of CBC since 1973, as a Director of R.A. Reynolds Appraisal Services,
Inc. since 1993, as a Director of Farmers since 1998 and as a Director of Mr.
Money Finance Company since 2000. In addition, Mr. Lucal has been a partner in
the law firm of Buckingham, Lucal, McGookey and Zeiher, L.P.A. (and its
predecessors) since 1965.
MR. MILLER has served as Executive Vice President of First Citizens
since 1998, as Executive Vice President of CBC since 1998, as Treasurer and
Secretary of SCC Resources, Inc. since 1993, as Secretary of Reynolds Appraisal
Services, Inc. since 1994 and as a director of Mr. Money Finance Company since
2000.
MR. MURRAY has served as a Director of First Citizens since 1987, as a
Director of CBC since 1983 and as a Director of Castalia since 1990. In
addition, Mr. Murray has been a partner in the law firm of Murray and Murray
Company, L.P.A. since 1965.
MR. MYLANDER has served as a Director of First Citizens since 1987 and
as a Director of CBC since 1965. Mr. Mylander is retired from his career as an
educator. Mr. Mylander is also the Chairman of Firelands Community Hospital.
MR. PHEIFFER has served as a Director of First Citizens since 1987 and
as a Director of CBC since 1968. In addition, Mr. Pheiffer serves as Chairman of
the Board of Sandusky Bay Investment Company, Ltd., a marina development and
operating company located in Sandusky, Ohio.
MR. RANSOM became a Director of First Citizens in 2001 and has served
as a Director of Castalia since 1991. Mr. Ransom is the owner and operator of
Ransom Funeral Home.
DR. STRACK became a Director of First Citizens in 2001 and has served
as a Director of Castalia since 1993. Dr. Strack is retired from his career in
Dentistry.
MR. VOIGHT has served on the respective Boards of First Citizens and
CBC since 1989, as a Director of SCC Resources, Inc. since 1993, as a Director
of R.A. Reynolds Appraisal Services, Inc. since 1993, as a Director of Farmers
since October 1997 and as a Director of Mr. Money Finance Company since 2000. In
addition, Mr. Voight has served as President of First Citizens since 1992 and
President and Chief Executive Officer of CBC since 1992.
MR. WAGNER has served as a Director of First Citizens since 1987 and as
a Director of CBC since 1968. Mr. Wagner is retired from his career in the
banking industry, which included service as President of CBC.
Certain information relating to the management, executive compensation,
various benefit plans (including stock plans), certain relationships and related
transactions and other related matters as to First Citizens is set forth in
First Citizens' Proxy Statement dated March 16, 2001 which is incorporated by
reference in First Citizens' Annual Report on Form 10-K for the year ended
December 31, 2000. First
-54-
Citizens' 2000 annual report is incorporated by reference in this Proxy
Statement/Prospectus and is attached hereto as Appendix E. See "Information
Incorporated by Reference" below. ICBC shareholders who wish to obtain copies of
these documents may contact First Citizens at its address or telephone number
set forth under "AVAILABLE INFORMATION."
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth (i) as of December 11, 2001 and (ii)
after consummation of the Parent Merger, the total number and percentage of
First Citizens Common Shares beneficially owned by each director of First
Citizens, each executive officer of First Citizens, and all directors and
executive officers of First Citizens as a group. The number of First Citizens
Common Shares shown as being beneficially owned by each such director and
executive officer are those over which he or she has either sole or shared
voting or investment power. As of December 11, 2001, there were 4,082,619 shares
issued and outstanding and 180,782 shares were held in treasury. The percent of
beneficial ownership of management after the Parent Merger was calculated based
on an exchange ratio of 1.7 First Citizens Common Shares for each ICBC Common
Share, assuming that no dissenters' rights will be exercised by ICBC
shareholders and that all 614,186 outstanding ICBC Common Shares will be
exchanged for First Citizens Common Shares in the Parent Merger.
-55-
- -----------------------------------------------------------------------------------------------------------------
AMOUNT AND NATURE OF PERCENT OF CLASS AS OF PERCENT OF CLASS AFTER
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP DECEMBER 11, 2001 PARENT MERGER
- ------------------------ -------------------- ---------------------- ------------------------
John L. Bacon
(9)(10)(12)(14)(15) 1,784 * *
Robert L. Bordner
(11)(16) 17,312 * *
Mary Lee G. Close
(4)(12)(14) 98,562 2.41% 1.92%
Blythe A. Friedley
(7)(10)(16) 250,801 6.14% 4.87%
Richard B. Fuller
(10)(11)(12)(13)(14)(19) 10,400 * *
H. Lowell Hoffman, M.D.
(5)(9)(11)(12)(13)(14)
(15)(17) 21,600 * *
Lowell W. Leech
(6)(9)(13)(14)(15) 24,280 * *
Dean S. Lucal
(1)(9)(11)(12)(13)(14)(16)
(18)(19) 11,420 * *
James O Miller
(8)(10)(14) 2,480 * *
W. Patrick Murray
(2)(12)(13)(14)(15) 131,300 3.21% 2.55%
George L. Mylander
(10)(11)(13)(14) 367,883 9.01% 7.14%
Paul H. Pheiffer
(3)(10)(11) 87,778 2.15% 1.71%
Robert L. Ransom
(9)(10)(15) 80 * *
David H. Strack, D.D.S.
(11)(13)(15) 1,211.42 * *
David A. Voight
(9)(11)(14)(16)(17)(18)(19) 6,834.87 * *
Richard O. Wagner
(9)(10) 12,800 * *
- -----------------------------------------------------------------------------------------------------------------
All directors and executive 1,046,526.28 25.63% 20.34%
officers as a group (16 persons).
- -----------------------------------------------------------------------------------------------------------------
* Shares owned represent less than 1% of class.
-56-
(1) 2,304 shares owned directly by Dean S. Lucal; 9,116 shares owned
jointly with spouse, Martha Jane Lucal.
(2) 30,300 shares owned directly by W. Patrick Murray self-directed
IRA; 101,000 shares owned jointly by W. Patrick Murray with spouse, Louise
Murray.
(3) 3,451 shares held directly by Paul H. Pheiffer; 22,419 shares held
in revocable Trust for Paul H. Pheiffer and spouse, Catharine J. Pheiffer;
61,908 shares held by Catharine J. Pheiffer, Trustee, for J. Richard Dorn Trust.
(4) 96,240 shares owned directly by Mary Lee G. Close; and 2,322 shares
owned by son, David A. Close.
(5) 20,800 shares owned directly by Harry L. Hoffman self-directed IRA;
800 shares owned jointly by Harry L. Hoffman with spouse, Helen A. Hoffman.
(6) 10,800 shares owned directly by Lowell W. Leech Trust; 10,800
shares owned directly by spouse, Betty J. Leech Trust; 800 shares held by Lowell
W. Leech self-directed IRA; and 1,880 shares held by Betty J. Leech
self-directed IRA.
(7) 26,280 shares owned directly by Blythe A. Friedley; 18,276 shares
in the Arlene Friedley Trust, 163,732 shares in the R. W. Friedley Trust; and
14,171 shares each for Ms. Friedley's three sons Scott McDougal, Keith McDougal,
and Todd McDougal.
(8) 2,000 shares held by spouse, Martha M. Miller; and 240 shares each
for Mr. Miller's daughters, Alexis and Allyson.
(9) Member of Asset-Liability Committee.
(10) Member of Nominating Committee.
(11) Member of Executive Committee.
(12) Member of Risk Management (Audit) Committee.
(13) Member of Compensation, Benefits and Liability Committee.
(14) Member of Citizens Banking Company Board of Directors
(15) Member of Castalia Banking Company Board of Directors
(16) Member of Farmers State Bank Board of Directors
(17) Member of SCC Resources, Inc. Board of Directors
(18) Member of Reynolds Appraisal Service, Inc. Board of Directors
(19) Member of Mr. Money Finance Company Board of Directors
-57-
MARKET PRICE OF FIRST CITIZENS COMMON SHARES
First Citizens Common Shares are listed on the Nasdaq SmallCap Market
under the symbol "FCZA." The brokerage firms of McDonald & Company, Salomon
Smith Barney and Stifel, Nicolaus currently act as market makers for First
Citizens Common Shares.
Information regarding the market price and dividends paid on the First
Citizens Common Shares with respect each quarterly period during 1999 and 2000
may be found on pages 2 and 3 of First Citizens' 2000 Annual Report. As of
December 11, 2001 the Nasdaq SmallCap Market closing price of First Citizens
Common Shares was $22.00 and First Citizens Common Shares were held by
approximately 1530 shareholders.
INFORMATION INCORPORATED BY REFERENCE
First Citizens has filed with the Commission its Annual Report on Form
10-K for the year ended December 31, 2000, Quarterly Reports on Form 10-Q for
the quarters ended March 31, 2001, June 30, 2001 and September 30, 2001,
respectively, and a Current Report on Form 8-K dated November 1, 2001. Each of
those documents is also incorporated herein by reference. Certain specific
information contained therein, which is incorporated herein by reference, may be
found in the following places. Specifically, information about First Citizens'
industry segments may be found on page 2 of the 2000 Annual Report; selected
financial information may be found on page 13 of the 2000 Annual Report;
management's discussion and analysis of First Citizens' financial condition and
results of operations for the year ended December 31, 2000 may be found on page
13 of the 2000 Annual Report; management's discussion and analysis of First
Citizens' financial condition and results of operations for the quarter ended
September 30, 2001 may be found on pages 17 through 23 of the Form 10-Q for the
quarter then ended; and information regarding any changes in or disagreements
with accountants on accounting and financial disclosures may be found on page 14
of the 2000 Annual Report. A copy of First Citizens' Annual Report on Form 10-K
for the year ended December 31, 2000 is attached as Appendix E to this Proxy
Statement/Prospectus. A copy of First Citizens' Quarterly Report on Form 10-Q
for the quarter ended September 30, 2001 is attached as Appendix F to this Proxy
Statement/Prospectus.
INFORMATION WITH RESPECT TO ICBC
--------------------------------
BUSINESS
GENERAL. ICBC was incorporated under Ohio law in 1986 as a bank holding
company. ICBC owns all of the outstanding shares of The Citizens National Bank
of Norwalk, a national banking association ("CNBN"). CNBN was originally formed
on June 12, 1902, as The Citizens Banking Company, a state chartered bank. In
1918, The Citizens Banking Company acquired The Norwalk National Bank, a
national bank organized in 1865 and one of the oldest financial institutions in
the State of Ohio. At such time, The Citizens Banking Company converted into a
national banking association under the name of The Citizens National Bank of
Norwalk.
ICBC's principal executive offices are located at 16 Executive Drive,
Norwalk, Ohio 44857. The telephone number of ICBC's executive offices is (419)
744-3100. CNBN conducts its principal business through three branch offices in
Norwalk, Ohio, and provides a full range of commercial banking services,
including trust services, to business firms, professional organizations and
individuals primarily in Huron and Erie Counties of Ohio.
LENDING ACTIVITIES. CNBN's lending activities have historically focused
on commercial loans secured by the various assets of small and medium sized
business enterprises, including commercial and non-residential real estate;
personal installment loans for the purchase of automobiles and other personal
goods; mortgage loans secured by residential real estate; credit card loans; and
home equity loans.
-58-
The extension of credit by CNBN to business firms, professional groups
and individuals is subject to the ordinary risks related to such transactions,
principally the risk that the loan will not be repaid as agreed. Management and
the Board of Directors regularly review CNBN's underwriting standards and loan
policies, both of which are designed to limit the normal risks associated with
lending activities. As of September 30, 2001, over 95% of CNBN's total loan
portfolio was secured by collateral of various types. As of that same date,
there were $375,036 in loans classified as nonperforming, representing 0.36% of
CNBN's total loan portfolio. See "Loan Delinquencies" and "Allowance For Loan
Losses".
The table below contains data relating to the composition of CNBN's
loan portfolio at the dates indicated:
At December 31,
---------------
At September 30, 2001 2000 1999
--------------------- ---- ----
Percent Percent Percent
Amount of Total Amount of Total Amount of Total
------ -------- ------ -------- ------ --------
Business $ 58,214,468 55.61% $ 54,426,758 51.58% $ 44,270,813 46.06%
Personal 20,417,290 19.50 23,913,454 22.66 27,167,649 28.26
Residential real estate 18,092,290 17.28 19,317,151 18.31 17,351,549 18.05
Credit lines 7,589,510 7.25 7,475,740 7.08 6,907,288 7.19
Credit card
and overdrafts 377,367 0.36 395,736 0.37 426,995 0.44
------------ ------ ------------ ------ ------------ ------
Total loans 104,690,925 100.00% 105,528,839 100.00% 96,124,294 100.00%
============ ====== ============ ====== ============ ======
Less:
Allowance for
loan losses (1,234,247) (1,240,777) (1,147,158)
------------- ------------ ------------
Total loans, net $ 103,456,678 $104,288,062 $94,977,136
============= ============ ============
The following table presents certain information at September 30, 2001
regarding the dollar amount of loans maturing in ICBC's portfolio based on their
contractual terms to maturity or scheduled amortization, but does not include
potential prepayments. Demand loans, loans having no stated schedule of
repayments and no stated maturity, and overdrafts are reported as becoming due
in one year or less. Loan balances do not include undisbursed loan proceeds, net
deferred loan origination costs and allowance for loan losses.
At September 30, 2001
---------------------
Credit
Real Credit Cards and Total
Business Personal Estate Lines Overdrafts Loans
-------- -------- ------ ----- ---------- -----
Amount due in:
One year or less $ 6,705,229 $ 672,112 $ 214,723 $ 751,846 $ 377,367 $ 8,721,277
More than one year
to five years 8,313,775 18,478,066 195,939 6,478,975 -- 33,466,755
More than five
years 43,195,464 1,267,112 17,681,628 358,689 -- 62,502,893
------------ ------------ ------------ ------------ ------------ ------------
Total amount
due $ 58,214,468 $ 20,417,290 $ 18,092,290 $ 7,589,510 $ 377,367 $104,690,925
============ ============ ============ ============ ============ ============
-59-
The following table sets forth, at September 30, 2001, the dollar
amount of loans contractually due after September 30, 2002, and whether such
loans have fixed interest rates or adjustable interest rates.
Due After September 30, 2002
----------------------------
Fixed Adjustable Total
----- ---------- -----
Business $ 11,037,414 $ 40,471,825 $ 51,509,239
Personal 19,300,556 444,622 19,745,178
Real estate 7,461,435 10,416,132 17,877,567
Credit lines 6,380,398 457,266 6,837,664
Credit cards and overdrafts - - -
--------------- --------------- ----------------
Total loans $ 44,179,803 $ 51,789,845 $ 95,969,648
=============== =============== ================
BUSINESS LOANS. CNBN offers various business loan products, including
secured and unsecured lines of credit for working capital requirements, term
loans secured by real estate, SBA and US Department of Agriculture guaranteed
loans, loans secured by equipment and vehicles, lease transactions, construction
loans, business manager lines of credit, and loans secured by non-residential,
multifamily and commercial real estate. Business loans are typically secured by
the business assets of the borrower, including accounts receivable, inventory,
equipment and real estate. Business loans frequently have other collateral such
as the personal assets of the business owner. At September 30, 2001, the
$58,214,468 in business loans constituted 55.61% of CNBN's total loans, or
41.64% of CNBN's total assets.
Business loans are generally made at adjustable rates of interest tied
to CNBN's base rate or another interest rate index agreed upon by the borrower
and CNBN. Business loans are typically written for terms of 90 days to five
years; however, certain business loans secured by real estate have terms of up
to twenty-five years. An analysis of cash flow, leverage, liquidity, character,
and collateral is generally performed when CNBN underwrites business loans.
Typically, business loans involve greater levels of credit risk because some
loans are unsecured or secured by rapidly depreciating assets such as accounts
receivable, inventory or equipment, some of which may not provide an adequate
source of repayment of the outstanding loan balance.
PERSONAL LOANS. CNBN makes various types of personal loans, including
automobile loans, home improvement loans, loans secured by deposits or
securities and unsecured personal loans. At September 30, 2001, the $20,417,290
in personal loans constituted 19.50% of CNBN's total loans and 14.60% of total
assets.
Personal loans are made at fixed or variable rates of interest and
generally for terms of 90 days to five years. Personal loans, particularly
unsecured loans or loans secured by rapidly depreciating assets such as
automobiles, may entail greater risk than home improvement loans. Repossessed
collateral for a defaulted personal loan may not provide an adequate source of
repayment of the outstanding loan balance. The risk of default on personal loans
increases during periods of recession, high unemployment and other adverse
conditions. See "Loan Delinquencies" and "Allowance for Loan Losses".
RESIDENTIAL REAL ESTATE LOANS. CNBN offers a wide range of conventional
real estate loans for the acquisition or construction of one- to four-family
residential properties located within CNBN's primary market of Huron County and
neighboring counties. A mortgage or deed of trust on the underlying real estate
and improvements secures each loan. Real estate loans are normally written to
conform to the standards of the secondary mortgage market. At September 30,
2001, the $18,092,290 in real estate loans constituted 17.28% of CNBN's total
loans or 12.94% of CNBN's total assets.
CNBN offers fixed-rate and adjustable-rate mortgage loans ("ARMs"). The
ARMs have initial interest rate adjustment periods generally of one year, three
years or five years. The new rate of interest at
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each adjustment date is determined by adding a stated margin to an index
identified at the time the loan is originated. Fixed rate mortgage loans with
15, 20 and 30-year terms are originated using documentation acceptable to the
secondary mortgage market. CNBN does not approve, fund or retain these loans,
but only acts as the originating party, for which it receives a fee.
CREDIT LINE LOANS. Credit line loans are primarily home equity loans or
personal lines of credit secured by either a first or second mortgage on the
borrower's primary residence. The maximum amount advanced will generally be
limited to 95% of the appraised value of the residence less any prior liens;
however, on a limited basis and for borrowers with extremely strong payment and
credit records, CNBN has made home equity loans up to 100% of the appraised
value of the residence, less the amount of any prior liens. Interest rates are
determined based upon the loan to value relationship and the borrowers' credit
history. All loans and lines above $50,000 require an appraisal performed by a
qualified and Bank approved appraiser. For loans and lines of $50,000 or lower,
125% of the real estate tax appraisal amount may be used when determining the
value of the residence. In addition, credit line loan approvals require
prospective borrowers to complete a standard loan application and have a
satisfactory credit payment history.
CREDIT CARD BALANCES. CNBN operates as a card-issuing bank for both
VISA International, Inc., and Mastercard International, Inc., systems. CNBN must
adhere to all the rules and regulations of each system. Credit card accounts are
opened in stated amounts for qualified applicants upon receipt of a completed
application, confirmation of a satisfactory credit payment history and the
approval by an authorized loan officer. Prospective borrowers must provide
sufficient and accurate credit information that will enable the loan officer to
make an appropriate decision. Examples of standard credit information required
are age, employment history, outstanding indebtedness and income information.
CNBN does not solicit credit card accounts but offers this service to existing
customers as an additional lending convenience.
LOAN PARTICIPATIONS. Under federal regulations, CNBN's loans and
extensions of credit to a person or business firm at any time generally may not
exceed 15% of CNBN's total capital. As a result, CNBN has historically sold the
portion of any loan, which exceeds such limits to other financial institutions.
During the nine month period ended September 30, 2001, CNBN sold $2,851,606 in
participations in loans to others.
CNBN has also purchased loans from other financial institutions. At
September 30, 2001, the $58,214,468 total of CNBN business loans included
$10,970,147 in participations in business loans purchased from others; the
$20,417,290 total of CNBN personal loans included $1,405,128 in loans purchased
from others; and the $18,092,290 total of CNBN real estate loans included
$4,973,045 in real estate loans purchased from others.
GUARANTEED LOANS. CNBN participates in various loan guarantee programs
pursuant to which a portion of a loan made by CNBN will be guaranteed by a
government agency, as a result of which the credit quality of the loan portfolio
will be improved. These loans will normally be underwritten in accordance with
the guidelines of the respective governmental agencies (Small Business
Administration or US Department of Agriculture), as well as CNBN's lending
guidelines. As of September 30, 2001, CNBN had a total of twenty-five guaranteed
loans with a current balance of $5,617,864 and a guaranteed balance of
$5,016,170, leaving CNBN with a non-guaranteed exposure of $601,694.
LOAN SOLICITATION AND PROCESSING. Loan applications are developed from
a number of different sources, including direct solicitations by loan officers,
referrals from customers, direct mail campaigns, walk-in customers, calls on
local realtors and automobile dealers, and continuing business with existing
depositors and borrowers.
Small business loans are underwritten on the basis of the borrower's
historic income and expenses, projections of future cash flows, ability to repay
the loan and credit history, character of the borrower, the ability of
management as well as the value of the collateral, if any. All business loan
approvals in excess of $250,000 require the preparation of a detailed commercial
loan credit summary. The summary includes
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basic information on the customer, an outline of the loan request, the purpose
of the loan and the repayment sources, collateral summary, list of current
borrowings, list of other debts, source of the request or referral, background
information, financial analysis, financial spread sheets, a loan grade, and an
officer recommendation.
Consumer loans, including credit lines and credit cards, are
underwritten on the basis of the borrower's credit history and an analysis of
the borrower's income and expenses, ability to repay the loan, credit and
payment history, as well as the value of the collateral, if any.
Residential real estate loans are underwritten on the basis of the
borrower's credit history, an analysis of the borrower's income and expenses, an
independent appraisal of the property, appropriate title insurance policy, proof
of hazard insurance and other appropriate documents that might be necessary for
the specific loan request. Since construction loans carry a higher degree of
risk, additional documentation is required such as an inspection by an outside
professional in conjunction with each loan draw request and a completion
inspection to obtain a final market value certification prior to final funding
of the loan.
LOAN DELINQUENCIES. When a borrower fails to make a required payment on
a loan, CNBN attempts to cause the deficiency to be cured by contacting the
borrower as soon as possible. In most cases, the deficiencies are cured
promptly. CNBN's loan officers are responsible for the quality of the loan
portfolio, as a result of which officers are directly involved in the collection
process. Attempts to contact a late borrower are made within five days after
payment is due from the borrower. In addition to late notices, loan officers use
letters, telegrams, telephone calls and face-to-face meetings with borrowers in
their efforts to cure any delinquencies.
CNBN attempts to minimize loan delinquencies through the assessment of
late fees and interest rate increases and adherence to its continuous and
ongoing collection process. CNBN's management, lending officers and Board of
Directors review all delinquent loans on a monthly basis. Around the 90th day of
delinquency, CNBN's management will analyze all collection efforts and assess
alternatives that may be available under the circumstances to foreclosing on the
collateral securing the loan. If foreclosure action is taken, the loan is
referred to a designated outside foreclosure attorney.
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The following table reflects the amount of nonperforming loans at the
dates indicated:
September 30, At December 31,
------------- ---------------
2001 2000 1999
---- ---- ----
Accruing loans past due 90 days or more:
Business $ - $ - $ 90,347
Personal - 24,856 22,065
Real estate - - -
Credit lines - - -
Credit cards 673 1,933 479
----------- ----------- -------------
Total 673 26,789 112,891
Nonaccruing loans:
Business 349,394 390,791 938,417
Personal - 9,311 -
Real estate - 246,960 132,919
Credit lines 24,969 - -
Credit cards - - -
----------- ----------- -------------
Total 374,363 647,062 1,071,336
Total non-performing loans 375,036 673,851 1,184,227
Troubled debt restructurings - - -
Real estate owned (REO) - - -
Other repossessed assets 5,000 15,500 18,000
----------- ----------- -------------
Troubled debt restructurings and total
nonperforming assets $ 380,036 $ 689,351 $ 1,202,227
=========== =========== =============
Total nonperforming loans and troubled debt
restructurings as a percentage of total loans 0.36% 0.65% 1.25%
Total nonperforming assets and troubled debt
restructurings as a percentage of total assets 0.27% 0.50% 0.90%
ALLOWANCE FOR LOAN LOSSES. The Board of Directors reviews on a monthly
basis the allowance for loan losses as it relates to a number of relevant
factors, including, but not limited to, trends in the level of nonperforming
assets and classified loans, current economic conditions in the primary lending
area, past loss experience and probable losses arising from specific problem
assets. To a lesser extent, management also considers loan concentrations to
single borrowers and changes in the composition of the loan portfolio. While the
Board of Directors believes that it uses the best information available to
determine the allowance for loan losses, unforeseen market conditions could
result in adjustments, and net earnings could be significantly affected if
circumstances differ substantially from the assumptions used in making the final
determination. For the nine month period ended September 30, 2001, the provision
for loan losses was $214,000, representing 0.20% of the loan portfolio.
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The following table presents an analysis of CNBN's allowance for loan losses:
Nine Months Ended Year Ended
September 30 December 31,
------------ ------------
2001 2000 2000 1999
---- ---- ---- ----
Allowance for loan losses,
beginning of period $ 1,240,777 $ 1,147,158 $ 1,147,158 $ 916,449
Charged-off-loans:
Real estate - (10,659) (10,659) -
Consumer (273,454) (232,884) (307,406) (289,455)
Business (85,661) - (54,302) -
------------- ------------- ------------- --------------
Total charged-off loans (359,115) (243,543) (372,367) (289,455)
Recoveries on loans previously
charged off:
Real estate - 145 145 -
Consumer 124,154 79,100 92,841 125,164
Business 14,431 - - -
------------- ------------- ------------- --------------
Total recoveries 138,585 79,245 92,986 125,164
------------- ------------- ------------- --------------
Net loans charged-off (220,530) (164,298) (279,388) (164,291)
Provision for loan losses 214,000 216,000 373,000 395,000
------------- ------------- ------------- --------------
Allowance for loan losses,
end of period $ 1,234,247 $ 1,198,860 $ 1,240,777 $ 1,147,158
============= ============= ============= ==============
Net loans charged-off to average
interest-earning loans 0.21% 0.18% 0.28% 0.18%
Allowance for loan losses to
total loans 1.18% 1.20% 1.18% 1.19%
Allowance for loan losses to
nonperforming loans and troubled
debt restructurings 329.10% 115.87% 184.13% 96.87%
The following table presents the approximate allocation of the
allowance for loan losses by loan category at the dates indicated. Management
believes that the allowance can be allocated by category only on an approximate
basis. The allocation of the allowance to each category is not indicative of
future losses and does not restrict the use of any of the allowance to absorb
losses in any category.
At December 31,
---------------
September 30, 2001 2000 1999
------------------- ---- ----
% of % of % of
Loans Loans Loans
in Each in each in Each
Category Category Category
to Total to Total to Total
Amount Loans Amount Loans Amount Loans
------ ----- ------ ----- ------ -----
Real estate $ 30,000 17.28% $ 30,000 18.31% $ - 18.05%
Consumer 65,000 27.11 70,291 30.11 223,808 35.89
Business 743,682 55.61 664,230 51.58 417,673 46.06
Unallocated 395,565 N/A 476,256 N.A 505,677 N/A
------------ ------- ------------ ------ ------------ ------
Total allowance for loan losses $ 1,234,247 100.00% $ 1,240,777 100.00% $ 1,147,158 100.00%
============ ======= ============= ====== ============ ======
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LIQUIDITY AND INTEREST RATE RISK MANAGEMENT ACTIVITIES. Liquidity
management is an integral part of CNBN's risk management systems and is directed
by CNBN's Asset and Liability Committee (ALCO). The liquidity management process
has many components, including an evaluation of the trend and stability of
deposits, the availability of assets convertible into cash without undue loss,
access to other sources of funding, the adequacy of liquidity sources to meet
liquidity needs and the diversification of funding sources.
Interest rate risk is the risk that CNBN's financial condition and
results of operations will be adversely affected due to movements in interest
rates. The income of financial institutions is primarily derived from the excess
of interest earned on interest-earning assets over the interest paid on
interest-bearing liabilities. Accordingly, CNBN places great importance on
monitoring and controlling interest rate risk.
CNBN hired BPS Associates, Inc. of Bloomington, Minnesota, to assist it
with its asset and liability management process. BPS is a registered
non-discretionary institutional fixed-income portfolio manager serving community
banks throughout the United States. BPS offers advice, decision support and
transaction management as well as regular management reports, bond accounting
reports and overall risk management reports. As the end of the month following
each quarter (April, July, October and January), BPS produces for CNBN the
following three asset and liability reports: Static Gap Report; Economic Value
of Equity Report; and Dynamic Interest Rate Risk Analysis. The Static Gap Report
looks at assets and liabilities as they reprice in different time periods. The
Economic Value of Equity Report calculates the effect on equity of a shift in
interest rates of +/- 300 basis points. The Dynamic Interest Rate Risk Analysis
calculates risk to net interest income under three different rate scenarios.
As part of CNBN's Funds Management Policy, the Board of Directors has
established guidelines to limit interest rate risk exposure and to protect net
interest margin. CNBN's ALCO and the Board monitor the Net Interest Income At
Risk and the Economic Value of Equity at Risk on a quarterly basis. The Board
has established a maximum acceptable percentage change in Net Interest Income of
10.0%. The Board also established an acceptable percentage change in the
Economic Value of Equity Capital at 25.0%. The ALCO monitors the spread between
short-term and long-term liabilities, and at the appropriate time, lengthens its
interest-bearing liabilities to keep the percent change in Economic Value of
Equity within acceptable limits.
The following chart reflects the potential sensitivity of CNBN's
financial instruments to sudden and sustained +/- 200 basis point change in
interest rates on CNBN's Net Interest Income and Economic Value of Equity:
October 31, December 31, Board
2001 2000 Guidelines
---- ---- ----------
One Year Net Interest
Income Change
+200 Basis points (2.1)% (3.9)% (10.0)%
-200 Basis points 1.8 3.0 (10.0)
Economic Value of Equity
+200 Basis points (5.1)% (23.3) (25.0)%
-200 Basis points (0.6) 17.1 (25.0)
As illustrated in the table, Net Interest Income and Economic Value of
Equity is more sensitive to rising rates than declining rates. This occurs
principally because, as rates rise, the market value of fixed-rate loans
declines due to both the rate increase and slowing prepayments. When rates
decline, CNBN does not experience a significant rise in market value for these
loans because borrowers prepay at relatively faster rates. The projected
volatility of net interest income and of Economic Value of Equity to a +/- 200
basis points change at October 31, 2001 and December 31, 2000, falls within the
Board guidelines.
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In evaluating the Bank's exposure to interest rate risk, certain
shortcomings inherent in the method of analysis presented in the foregoing table
must be considered. For example, although certain assets and liabilities may
have similar maturities for periods of repricing, they may react in different
degrees to changes in market interest rates. Also, the interest rates on certain
types of assets and liabilities may fluctuate in advance of changes in market
interest rates while interest rates on other types may lag behind changes in
market rates. Furthermore, in the event of a change in interest rates,
prepayments and early withdrawal levels would likely deviate significantly from
those assumed in calculating the table. Finally, the ability of many borrowers
to service their debts may decrease in the case of an interest rate increase.
Therefore, the actual effect of changing interest rates may differ substantially
from that presented in the foregoing tables.
CNBN's investment portfolio provides a secondary reserve of liquidity
in support of normal banking activities. The portfolio also provides a stream of
income of the quality and having other characteristics which are consistent with
prudent banking practices. CNBN's investment portfolio totaled $16.7 million as
of September 30, 2001. The following table sets forth details on CNBN's
investment portfolio as of September 30, 2001:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
U.S. Treasury and U.S.
Government agencies $ 9,498,251 $ 85,517 $ (680) $ 9,583,088
Obligations of states and
political subdivisions 4,773,642 85,066 (2,429) 4,856,279
Mortgage-backed securities 2,220,695 11,586 (9,063) 2,223,218
-------------- ----------- ---------- --------------
$ 16,492,588 $ 182,169 $ (12,172) $ 16,662,585
============== =========== ========== ==============
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The table below sets forth certain information regarding the carrying
value, weighted average yields and contractual maturities of ICBC's debt
securities as of September 30, 2001. (Amounts in thousands).
At September 30, 2001
-----------------------------------------------------------------------------------------------
More Than One Year More Than Five Years
One Year or Less to Five Years to Ten Years More Than Ten Years Total
----------------- ------------------ -------------------- ------------------ -----
Weighted Weighted Weighted Weighted Weighted
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield Value Yield Value Yield
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
U.S. Treasury Securities $ -- -% $ 526 6.02% $ -- -% $ -- -% $ 526 6.02%
Obligations of Government agencies 7,489 3.70 519 5.28 1,049 5.42 -- -- 9,057 3.99
Municipals 829 5.71 2,403 5.73 1,456 6.17 168 6.29 4,856 5.88
Mortgage-backed securities -- -- 639 5.30 588 5.95 996 4.49 2,223 5.11
------ ------ ------- ------ ------- ------ ------- ------ --------- -----
Total debt securities at fair value $8,318 3.90% $4,087 5.64% $ 3,093 5.87% $ 1,164 4.75% $ 16,662 4.75%
====== ===== ======= ====== ======= ====== ======= ====== ========= =====
-67-
As of September 30, 2001, a total of $8.8 million in US Government
treasury and agency securities were pledged to secure deposits from local
government enterprises and, therefore, were not available for liquidity purposes
since they cannot be sold until the deposits mature and cannot be pledged for
borrowing purposes.
As of September 30, 2001, CNBN sold over $8.0 million in federal funds
to correspondent banks. All of these federal funds, which are a primary source
of funding for CNBN, were available to meet CNBN's liquidity needs. CNBN also
maintains lines of credit with other financial institutions. On September 30,
2001, CNBN had $17.0 million available on its line of credit with the Federal
Home Loan Bank. At September 30, 2001, CNBN had no outstanding borrowings with
the Federal Home Loan Bank under these borrowing arrangements. For short-term
contingency purposes, CNBN's management has established borrowing lines, for
federal funds, with several large banks. These federal funds lines totaled $6.0
million on September 30, 2001.
TRUST ACTIVITIES. CNBN's Trust Department has been providing fiduciary
services and managing the assets of customers for over 55 years. The Trust
Department offers custodial and agency services and serves as trustee and
successor trustee for trusts. The Trust Department also serves as executor or as
agent when named to perform these duties for an individual's estate.
The Trust Department has approximately 180 trust accounts with a market
value on September 30, 2001, of over $41.0 million. The majority of the accounts
are based upon personal trust relationships. The Trust Department has a limited
number of employee benefit plans and agency relationships and has discretionary
responsibility for approximately 80 accounts.
DEPOSITS AND BORROWINGS
GENERAL USE. Deposits have traditionally been used as the primary
source of CNBN's funds for use in lending and other investment activities.
Principal and interest payments from the loan portfolio also provide a
relatively stable source of funds. Federal Home Loan Bank advances are also used
on a short-term basis as needed to balance deposit and loan fluctuations.
DEPOSITS. Huron and neighboring counties have been the principal source
of deposit accounts for CNBN. A wide variety of deposit accounts such as NOW
accounts, savings accounts, checking accounts, money market accounts, and
certificates of deposit are offered to the Norwalk area community. A courier
service was established in 2000 to enhance deposit gathering among business
customers of CNBN in the outlying service areas of CNBN.
The management of CNBN meets twice a month or as needed to determine
interest rates paid, maturity terms, service fees and other parameters for the
deposit accounts. This management committee also monitors and manages the
interest rate risk policy of CNBN.
On September 30, 2001, CNBN's certificates of deposits totaled $65.6
million, or 52.9% of total deposits. Of this amount, approximately $45.8 million
in certificates of deposit mature within one year. Past experience has shown
that a high percentage of these certificates will renew at maturity.
-68-
The following table sets forth the dollar amount of deposits in the
various types of deposit products offered by CNBN at September 30, 2001:
AMOUNT PERCENT OF
(IN THOUSANDS) TOTAL DEPOSITS
-------------- --------------
Transactions Accounts:
Savings accounts (1) $ 23,458 18.92%
Interest bearing checking accounts (2) 19,649 15.86
Non interest bearing checking accounts 15,206 12.27
------ -----
Total transaction accounts $ 58,313 47.05%
Certificates of deposit: (3)
0.0 - 1.99% 304 00.25
2.00 - 3.99% 10,453 08.43
4.00 - 5.99% 33,424 26.96
6.00 - 7.99% 21,457 17.31
------ -----
Total certificates of deposit $65,638 52.95%
------- -----
Total Deposits $123,951 100.00%
======== ======
- ----------
(1) CNBN's weighted average interest rate on savings accounts fluctuates with
the general movement of interest rates. The weighted average interest rate on
savings accounts was 2.47% at September 30, 2001.
(2) CNBN's weighted average interest rate on interest bearing checking accounts
fluctuates with the general movement of interest rates. The weighted average
interest rate on interest bearing checking accounts was 2.65% at September 30,
2001.
(3) Includes Individual Retirement Accounts and jumbo certificates of deposit
(those with balances in excess of $100,000).
The following table indicates the amount of CNBN's certificates of
deposit by time remaining until maturity as of September 30, 2001.
MATURITY
--------------------------------------------------------------
Over Over Over
3 months 3 to 6 6 to 12 12
or Less months months months Total
------- ------ ------ ------ -----
Certificates of deposit less
than $100,000 $ 6,887,579 $ 11,876,088 $ 10,319,032 $ 17,895,652 $ 46,978,351
Certificates of deposit of
$100,000 or more(1) 3,371,834 5,799,865 3,037,474 634,993 12,844,166
Public funds of $100,000
or more (2) 1,850,000 2,500,000 146,560 1,050,000 5,546,560
IRAs of $100,000 or more - - - 268,618 268,618
------------- ------------- ------------- -------------- ------------
Total certificates of deposit $ 12,109,413 $ 20,175,953 $ 13,503,066 $ 19,849,263 $ 65,637,695
============= ============= ============= ============= ==============
(1) Other than public funds and IRA's.
(2) Deposits from governmental and other public entities.
-69-
The following table presents certain information regarding CNBN's
short-term borrowings which include FHLB advances, federal funds purchased and
repurchase agreements at or for the periods ended on the dates indicated:
Nine Months Ended Year Ended
September 30, December 31,
--------------------------------- ---------------------------------
2001 2000 2000 1999
---- ---- ---- ----
Short term borrowed funds:
Average balance outstanding $ 3,066,329 $ 5,902,723 $ 5,525,572 $ 1,909,579
Maximum amount outstanding
at any month-end during
the period 10,001,927 9,793,901 9,793,901 4,868,392
Balance outstanding at end
of period 310,069 4,147,887 6,300,871 1,304,751
Weighted average interest rate
during the period 5.80% 6.32% 6.62% 4.96%
Weighted average interest rate
at end of period 4.00% 6.69 6.47 4.57
COMPETITION. CNBN competes for deposits with other commercial banks,
savings and loan associations, credit unions and with 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, CNBN competes with other commercial banks,
savings and loan associations, credit unions, personal finance companies,
leasing companies, mortgage brokers and other lenders. CNBN competes for loan
originations primarily through the interest rates and fees it charges and
through the efficiency and quality of services it provides to borrowers.
Competition is affected by many factors, including the general availability of
lendable funds, general and local economic conditions, current interest rate
levels and a number of other factors which are not readily predictable.
REGULATION
GENERAL. Because of its ownership of all the outstanding stock of CNBN,
ICBC is subject to regulation, examination and oversight by the Board of
Governors of the Federal Reserve System (the "FRB") as a bank holding company
under the Bank Holding Company Act of 1956 (the "BHCA"). CNBN, as a national
bank, is subject to regulation, examination and oversight by the Office of the
Comptroller of the Currency (the "OCC") and special examination by the FRB. CNBN
is a member of the Federal Reserve Bank of Cleveland and a member of the Federal
Home Loan Bank of Cincinnati. In addition, since its deposits are insured by the
FDIC, CNBN is also subject to some regulation, oversight and special examination
by the FDIC. CNBN must file periodic financial reports with the FDIC, the OCC
and the Federal Reserve Bank of Cleveland. Examinations are conducted
periodically by these federal regulators to determine whether CNBN and ICBC are
in compliance with various regulatory requirements and are operating in a safe
and sound manner. In general, the FRB may initiate enforcement actions for
violations of law and regulations.
-70-
BANK HOLDING COMPANY REGULATION. The FRB has adopted capital adequacy
guidelines for bank holding companies, pursuant to which, on a consolidated
basis, ICBC must maintain total capital of at least 8% of risk-weighted assets.
Risk-weighted assets consist of all assets, plus credit equivalent amounts of
certain off-balance sheet items, which are weighted at percentage levels ranging
from 0% to 100%, based on the relative credit risk of the asset. At least half
of the total capital to meet this risk-based requirement must consist of core or
"Tier 1" capital, which includes common stockholders' equity, qualifying
perpetual preferred stock (up to 25% of Tier 1 capital) and minority interests
in the equity accounts of consolidated subsidiaries, less goodwill. The
remainder of total capital may consist of supplementary or "Tier 2 capital." In
addition to this risk-based capital requirement, the FRB requires bank holding
companies to meet a leverage ratio of a minimum level of Tier 1 capital to
average total consolidated assets of 3%, if they have the highest regulatory
examination rating, well-diversified risk and minimal anticipated growth or
expansion. All other bank holding companies are expected to maintain a leverage
ratio of at least 4% of average total consolidated assets. ICBC was in
compliance with these capital requirements at September 30, 2001. See the table
below for additional details.
At September 30, 2001 and year-end 2000 and 1999, actual capital levels
(in thousands) and minimum required levels of CNBN were:
Minimum Required
To Be Well
Minimum Required Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Regulations
------ ----------------- ------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
SEPTEMBER 30, 2001
Total capital (to risk $11,985 11.9% $ 8,048 8.0% $ 10,061 10.0%
weighted assets)
Tier 1 capital (to risk 10,751 10.7 4,024 4.0 6,036 6.0
weighted assets)
Tier 1 capital (to average 10,751 8.0 5,405 4.0 6,756 5.0
assets)
DECEMBER 31, 2000
Total capital (to risk $11,329 11.0% $ 8,271 8.0% $ 10,339 10.0%
weighted assets)
Tier 1 capital (to risk 10,088 9.8 4,135 4.0 6,203 6.0
weighted assets)
Tier 1 capital (to average 10,088 7.8 5,147 4.0 6,433 5.0
assets)
DECEMBER 31, 1999
Total capital (to risk $10,198 11.0% $ 7,395 8.0% $ 9,244 10.0%
weighted assets)
Tier 1 capital (to risk 9,051 9.8 3,697 4.0 5,546 6.0
weighted assets)
Tier 1 capital (to average 9,051 7.0 5,170 4.0 6,463 5.0
assets)
At September 30, 2001 and year-end 2000 and 1999, CNBN was categorized as well
capitalized. Management believes that no events have occurred that would change
CNBN's capital category.
A bank holding company is required by law to guarantee the compliance
of any insured depository institution subsidiary that may become
"undercapitalized" (defined in the regulations as not
-71-
meeting minimum capital requirements) with the terms of the capital restoration
plan filed by such subsidiary with its appropriate federal banking agency.
The BHCA restricts ICBC's ownership or control of the outstanding
shares of any class of voting stock of any company engaged in a nonbanking
business, other than companies engaged in certain activities determined by the
FRB to be closely related to banking. In addition, the FRB has the authority to
require a bank holding company to terminate any activity or relinquish control
of any nonbank subsidiary (other than a nonbank subsidiary of a bank) upon the
determination by the FRB that such activity or control constitutes a serious
risk to the financial soundness and stability of any bank subsidiary of the bank
holding company. ICBC currently has no nonbank subsidiaries. The ownership of
subsidiaries of CNBN is regulated by the OCC, rather than the FRB.
On November 12, 1999, President Clinton signed into law the
Gramm-Leach- Bliley Act (also known as the Financial Services Modernization Act
of 1999). The Financial Services Modernization Act permits, effective March 11,
2000, bank holding companies to become financial holding companies and thereby
affiliate with securities firms and insurance companies and engage in other
activities that are financial in nature. A bank holding company may become a
financial holding company if each of its subsidiary banks is well capitalized
under the Federal Deposit Insurance Corporation Act of 1991 prompt corrective
action provisions, is well managed, and has at least a satisfactory rating under
the Community Reinvestment Act. In order to do so, a bank holding company must
file a declaration that it wishes to become a financial holding company. ICBC
has not made such filing.
A national bank also may engage, subject to limitations on investment,
in activities that are financial in nature, other than insurance underwriting,
insurance company portfolio investment, real estate development and real estate
investment, through a financial subsidiary of the bank, if the bank is well
capitalized, well managed and has at least a satisfactory Community Reinvestment
Act rating. Subsidiary banks of a financial holding company or national banks
with financial subsidiaries must continue to be well capitalized and well
managed in order to continue to engage in activities that are financial in
nature without regulatory actions or restrictions, which could include
divestiture of the financial in nature subsidiary or subsidiaries. In addition,
a financial holding company or a bank may not acquire a company that is engaged
in activities that are financial in nature unless each of the subsidiary banks
of the financial holding company or the bank has a Community Reinvestment Act
rating of satisfactory or better.
Transactions between ICBC and CNBN are subject to statutory limits in
Sections 23A and 23B of the Federal Reserve Act (the "FRA") . See "National Bank
Regulation - Office of the Comptroller of the Currency."
The FRB must approve the application of a bank holding company to
acquire any bank or savings association. As a bank holding company, ICBC may be
subject to restrictions on share repurchases.
NATIONAL BANK REGULATION.
OFFICE OF THE COMPTROLLER OF THE CURRENCY. The OCC is an office in the
Department of the Treasury and is subject to the general oversight of the
Secretary of the Treasury. The OCC is responsible for the regulation and
supervision of all national banks, including CNBN. The OCC issues regulations
governing the operation of national banks and, in accordance with federal law,
prescribes the permissible investments and activities of national banks. CNBN is
authorized to exercise trust powers in accordance with OCC guidelines. National
banks are subject to regulatory oversight under various consumer protection and
fair lending laws. These laws govern, among other things, truth-in-lending
disclosure, equal credit opportunity, fair credit reporting and community
reinvestment.
CNBN is required to meet certain minimum capital requirements set by
the OCC. These requirements consist of risk-based capital guidelines and a
leverage ratio, which are substantially the
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same as the capital requirements imposed on ICBC. CNBN was in compliance with
those capital requirements at September 30, 2001. See below. The OCC may adjust
the risk-based capital requirement of a national bank on an individualized basis
to take into account risks due to concentrations of credit or nontraditional
activities.
The OCC has adopted regulations governing prompt corrective action to
resolve the problems of capital deficient and otherwise troubled national banks.
At each successively lower defined capital category, a national bank is subject
to more restrictive and numerous mandatory or discretionary regulatory actions
or limits, and the OCC has less flexibility in determining how to resolve the
problems of the institution. In addition, the OCC generally can downgrade a
national bank's capital category, notwithstanding its capital level, if, after
notice and opportunity for hearing, the national bank is deemed to be engaging
in an unsafe or unsound practice, because it has not corrected deficiencies that
resulted in it receiving a less than satisfactory examination rating on matters
other than capital or it is deemed to be in an unsafe or unsound condition.
A national bank is subject to restrictions on the payment of dividends,
including dividends to a holding company. A dividend may not be paid if it would
cause the bank not to meet its capital requirements. In addition, the dividends
that a Bank subsidiary can pay to its holding company without prior approval of
regulatory agencies is limited to net income plus its retained net income for
the preceding two years. Based on the current financial condition of CNBN, these
provisions are not expected to affect the current ability of CNBN to pay
dividends to ICBC in an amount customary for CNBN.
OCC regulations generally limit the aggregate amount that a national
bank can lend to one borrower or aggregated groups of related borrowers to an
amount equal to 15% of the bank's unimpaired capital and surplus. A national
bank may loan to one borrower an additional amount not to exceed 10% of the
association's unimpaired capital and surplus, if the additional amount is fully
secured by certain forms of "readily marketable collateral." Loans to executive
officers, directors and principal shareholders and their related interests must
conform to the OCC lending limits. All transactions between national banks and
their affiliates, including ICBC, must comply with Sections 23A and 23B of the
FRA, which limit the amounts of such transactions and require that the terms of
the transactions be at least as favorable to CNBN as the terms would be of a
similar transaction between CNBN and an unrelated party. CNBN was in compliance
with these requirements and restrictions at September 30, 2001.
FEDERAL DEPOSIT INSURANCE CORPORATION. The FDIC is an independent
federal agency that insures the deposits, up to prescribed statutory limits, of
federally insured banks and thrifts and safeguards the safety and soundness of
the banking and thrift industries. The FDIC administers two separate insurance
funds, the BIF for commercial banks and state savings banks and the SAIF for
savings associations and for banks that have acquired SAIF deposits. The FDIC is
required to maintain designated levels of reserves in each fund. CNBN is a
member of the BIF and its deposits are insured in the BIF.
The FDIC is authorized to establish separate annual assessment rates
for deposit insurance for members of each of the BIF and the SAIF. The FDIC may
increase assessment rates for either fund if necessary to restore the fund's
ratio of reserves to insured deposits to its target level within a reasonable
time and may decrease such rates if such target level has been met. The FDIC has
established a risk-based assessment system for both SAIF and BIF members. Under
this system, assessments vary based on the risk the institution poses to its
deposit insurance fund. The risk level is determined based on the institution's
capital level and the FDIC's level of supervisory concern about the institution.
Insurance of deposits may be terminated by the FDIC if it finds that the
institution has engaged in unsafe or unsound practices, is in an unsafe or
unsound condition to continue operations, or has violated any applicable law,
regulation, rule, order or condition enacted or imposed by the institution's
regulatory agency.
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FEDERAL RESERVE BOARD. The FRA requires national banks to maintain
reserves against their net transaction accounts (primarily checking and NOW
accounts). The amounts are subject to adjustment by the FRB.
FEDERAL HOME LOAN BANKS. The Federal Home Loan Banks (the FHLBs)
provide credit to their members in the form of advances. As a member, CNBN must
maintain an investment in the capital stock of the FHLB of Cincinnati in an
amount equal to the greater of 1% of the aggregate outstanding principal amount
of CNBN's residential real estate loans, home purchase contracts and similar
obligations at the beginning of each year, or 5% of its advances from the FHLB.
The FHLB advances are secured by collateral in one or more specified categories.
The amount a member may borrow from the FHLB is limited based upon the amounts
of various assets held by the member. All long-term advances by each FHLB must
be made only to provide funds for residential housing finance.
MARKET PRICE AND DIVIDENDS ON ICBC COMMON SHARES
ICBC Common Shares are traded on the over the counter market under the
symbol "ICMB." The brokerage firm of Sweney Cartwright & Co. currently acts as a
market maker for ICBC Common Shares.
The following table sets forth the high and low bid price on the over
the counter market and dividend information for the ICBC Common Shares for each
quarterly period during 1999 and 2000, and for the first three quarters of 2001:
Quarter Ended High Low Dividend
- ------------- ---- --- --------
March 31, 1999 $21.00 $20.00 $0.00
June 30, 1999 21.00 21.00 0.22
September 30, 1999 21.00 21.00 0.00
December 31, 1999 21.50 21.50 0.36
March 31, 2000 22.50 19.50 0.00
June 30, 2000 20.00 19.50 0.22
September 30, 2000 18.50 18.50 0.00
December 31, 2000 18.50 16.75 0.38
March 31, 2001 17.00 15.50 0.00
June 30, 2001 18.00 13.00 0.22
September 30, 2001 17.25 15.00 0.00
As of December __, 2001, the over the counter market closing price of
ICBC Common Shares was $________, and the -- ICBC Common Shares were held by
approximately 450 shareholders.
SELECTED FINANCIAL INFORMATION
The following tables set forth certain selected financial information
of ICBC and are qualified in their entirety by reference to the detailed
information and financial statements of ICBC included elsewhere herein.
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SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------------------- ---------------------------------------------------
2001 2000 2000 1999 1998
Statements of income
Total interest income $ 7,530,357 $ 7,331,674 $ 9,923,584 $ 9,489,973 $ 8,269,110
Total interest expense 3,788,763 3,652,787 4,943,352 4,723,547 3,830,321
Net interest income 3,741,594 3,678,887 4,980,232 4,766,426 4,438,789
Provision for loan losses 214,000 216,000 373,000 395,000 310,400
Net interest income after
provision for loan losses 3,527,594 3,462,887 4,607,232 4,371,426 4,128,389
Security gains (losses) 13,445 (23,036) (23,036) 21,591 20,046
Other noninterest income 717,227 721,276 969,614 1,088,909 1,033,259
Total noninterest income 730,672 698,240 946,578 1,110,500 1,053,305
Total noninterest expense 2,957,374 2,885,612 3,834,848 3,889,218 3,669,546
Income before federal
income taxes 1,300,892 1,275,515 1,718,962 1,592,708 1,512,148
Federal income tax expense 401,405 388,439 523,339 493,021 516,785
Net income 899,487 887,076 1,195,623 1,099,687 995,363
Per share of common stock:
Net income- basic 1.47 1.46 1.97 1.84 1.66
Net income- diluted 1.47 1.46 1.97 1.83 1.65
Dividends 0.22 0.22 0.60 0.58 0.55
Book value 19.65 17.37 17.95 15.58 15.51
Average common shares
outstanding 612,954 606,439 607,158 596,174 600,985
Period-end balances:
Loans, net 103,456,678 98,692,070 104,288,062 94,977,136 83,401,719
Securities 16,662,585 19,971,031 19,538,455 24,733,610 39,905,458
Total assets 139,799,381 131,123,706 136,604,256 133,159,560 136,185,098
Deposits 123,951,337 112,660,165 115,782,293 118,481,929 121,491,185
Borrowings 2,595,069 6,682,887 8,935,871 4,304,751 4,365,810
Shareholders' equity 12,070,872 10,581,731 10,992,874 9,353,593 9,233,767
YEAR ENDED DECEMBER 31,
------------------------------
1997 1996
Statements of income
Total interest income $ 7,491,300 $ 6,731,681
Total interest expense 3,380,828 2,914,766
Net interest income 4,110,472 3,816,915
Provision for loan losses 130,000 --
Net interest income after
provision for loan losses 3,980,472 3,816,915
Security gains (losses) (4,798) 67,410
Other noninterest income 765,731 720,035
Total noninterest income 760,933 787,445
Total noninterest expense 3,387,016 3,029,308
Income before federal
income taxes 1,354,389 1,575,052
Federal income tax expense 447,918 494,367
Net income 906,471 1,080,685
Per share of common stock:
Net income- basic 1.48 1.72
Net income- diluted 1.48 1.72
Dividends 0.43 0.40
Book value 14.47 13.34
Average common shares
outstanding 612,336 629,560
Period-end balances:
Loans, net 68,940,453 63,079,582
Securities 19,412,444 18,587,806
Total assets 100,238,990 93,000,891
Deposits 90,555,890 83,527,030
Borrowings 264,588 327,819
Shareholders' equity 8,713,476 8,388,964
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ICBC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FORWARD LOOKING STATEMENTS
The discussions below include forward-looking statements by ICBC
relating to such matters as anticipated operating results, credit quality
expectations, prospects for new lines of business, technological developments,
economic trends (including interest rates), merger and reorganization
transactions and similar matters. Such statements are based upon current beliefs
and expectations of ICBC's management and are subject to risks and
uncertainties. While ICBC believes that the assumptions underlying the
forward-looking statements contained herein are reasonable, any of the
assumptions could prove to be inaccurate, and accordingly, actual results and
experience could differ materially from the anticipated results or other
expectations expressed by ICBC in its forward-looking statements. Factors that
could cause actual results or experience to differ from results discussed in the
forward-looking statements include, but are not limited to: economic conditions;
volatility and direction of market interest rates; capital investment in and
operating results of business ventures of ICBC; governmental legislations and
regulation; material unforeseen changes in the financial condition or results of
operations of ICBC's customers; customer reaction to and unforeseen
complications with respect to ICBC being acquired by First Citizens;
difficulties associated with data conversions related to the migration to First
Citizens' system; and other risks identified from time-to-time in ICBC's other
public documents on file with the Securities and Exchange Commission. The
Private Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements, and the purpose of this paragraph is to secure the
use of the safe harbor provision.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION - AS OF SEPTEMBER 30, 2001 AND DECEMBER 31, 2000 AND FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
(Dollars in thousands, except per share data)
The following discussion and analysis represents a review of ICBC's
consolidated financial condition and results of operations. This review should
be read in conjunction with the consolidated financial statements presented
elsewhere in this Proxy Statement/Prospectus.
FINANCIAL CONDITION
During the nine months ended September 30, 2001, total assets increased
$3,195, or 2%, to $139,799. The increase in assets in 2001 primarily reflects
growth in cash and cash equivalents resulting from increased deposits. During
2001, net loans decreased $831, or 1% from $104,288 at December 31, 2000 to
$103,457 at September 30, 2001. Securities available for sale decreased $2,876,
or 15%, from $19,538 at December 31, 2000 to $16,662 at September 30, 2001, as a
result of increased calls and maturities partially offset by purchases.
Deposit balances increased $8,169, or 7% from $115,782 at December 31,
2000 to $123,951 at September 30, 2001. The increase in deposits is a result of
soliciting brokered funds and public deposits because rates paid were more
attractive than other forms of borrowing. The funds generated from increased
deposits were not immediately used to fund loans and contributed to an increase
in cash and a decrease in short-term borrowings.
Shareholders' equity of ICBC increased $1,078, or 10% from $10,993 at
December 31, 2000 to $12,071 at September 30, 2001. This increase is the result
of net income during 2001 of $899, offset by cash dividends paid to shareholders
of $135, or $0.22 per share; unrealized
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appreciation on securities available for sale, net of tax of $280; and the net
sale of 2,019 treasury shares for $33.
RESULTS OF OPERATIONS
Net income for the nine months ended September 30, 2001 was $899, or
$1.47 per diluted share, up $12, or 1% from $887, or $1.46 per diluted share
during the same period in 2000. The increase in net income is primarily a result
of increasing net interest income.
NET INTEREST INCOME
Net interest income, the difference between interest income earned on
interest-earning assets and interest expense incurred on interest-bearing
liabilities, is the most significant component of ICBC's earnings. Net interest
income is affected by changes in the volumes, rates and composition of
interest-earning assets and interest-bearing liabilities.
For the nine months ended September 30, 2001, ICBC's net interest
income was $3,741, an increase of $62, or 2%, from $3,679 for the same period in
2000. During the nine months ended September 30, 2001, the net interest margin
decreased 10 basis points (100 basis points equals 1.00%) to 3.92% compared to
4.02% during the same period in 2000. The decrease in net interest margin is
primarily a result of a decrease in the average yield earned on interest-earning
assets and an increase in total interest-bearing liabilities.
Total interest income increased $199, or 3% for the nine months ended
September 30, 2001, due to increases in the average balance of interest-earning
assets. The average yield earned on interest-earning assets decreased 14 basis
points from 8.03% for the nine months ended September 30, 2000 to 7.89% for the
same period in 2001, primarily due to changes in rates and the composition of
interest-earning assets. The composition of interest-earning assets changed
during 2001 as growth in the loan portfolio was funded with matured and sold
securities and increased deposits. The average balance of loans increased
$6,039,or 6%, from $97,602 during the nine months ended September 30, 2000 to
$103,641 during the same period in 2001, while the average balance of securities
decreased $5,251, or 22%, from $23,939 during the nine months ended September
30, 2000 to $18,688 during the same period in 2001. The increase of total
interest income related to changes in the composition of interest-earning assets
was partially offset by a decrease in yields resulting from decreasing interest
rates.
Total interest expense increased $136, or 4% during the nine months
ended September 30, 2001, due to increases in the average rate paid and the
average balances of interest-bearing liabilities. The average rate incurred on
interest-bearing liabilities increased 7 basis points from 4.49% during the nine
months ended September 30, 2000 to 4.56% during the same period in 2001,
primarily due to changes in rates and the composition of interest-bearing
liabilities. The composition of interest-bearing liabilities changed during 2001
as funding from deposits increased and the use of federal funds purchased and
short-term FHLB borrowings decreased. The average balance of deposits increased
$5,648, or 6%, from $99,419 during the nine months ended September 30, 2000 to
$105,068 during the same period in 2001; on the contrary, the average balance of
federal funds purchased and other interest-bearing liabilities decreased $3,257,
or 37%, from $8,816 during the nine months ended September 30, 2000 to $5,559
during the same period in 2001.
The following table reflects the components of ICBC's net interest
income for each of the nine month periods ended September 30, 2001 and 2000,
setting forth: (i) average assets, liabilities, and shareholders' equity, (ii)
interest income earned on interest-earning assets and interest expense incurred
on interest-bearings liabilities, (iii) average yields earned on
interest-earning assets and average rates incurred on interest-bearing
liabilities, (iv) the net interest spread (i.e., the average
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yield earned on interest-earning assets less the average rate incurred on
interest-bearing liabilities), (v) the net interest margin (i.e., net interest
income divided by average interest-earning assets), and (vi) the ratio of
interest-earning assets to interest-bearing liabilities.
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ICBC AVERAGE BALANCES, INTEREST AND AVERAGE YIELDS/COST
Nine Months Ended September 30,
At -------------------------------------------------------------------
September 30, 2001 2001 2000
-------------------- -------------------------------- ---------------------------------
Weighted
Average Average Average Average Average
Balance Rate Balance Interest Rate Balance Interest Rate
--------- -------- -------- --------- -------- -------- -------- ------
Interest-earning assets:
Loans (1)(2)(3) $ 103,457 8.20% $ 103,641 $ 6,680 8.59% $ 97,602 $ 6,297 8.60%
Securities (4) (5) 16,662 4.61 18,688 707 5.05 23,939 1,021 5.69
Fed funds sold and other
interest-earning assets 9,049 3.27 4,964 143 3.84 328 14 5.79
--------- -------- -------- --------- --------
Total interest-earning assets 129,168 7.39 127,293 7,530 7.89 121,869 7,332 8.03
Noninterest-earning assets 10,631 10,063 10,327
--------- -------- ---------
Total assets $ 139,799 $ 137,356 $ 132,197
========= ========= =========
Interest-bearing liabilities:
Checking $ 19,649 2.65% $ 16,282 $ 308 2.52% $ 14,296 $ 252 2.35%
Savings 23,458 2.47 22,032 403 2.44 21,957 403 2.45
CDs 65,638 5.31 66,753 2,809 5.61 63,166 2,526 5.33
Fed funds purchased and other
interest-bearing liabilities 2,595 5.32 5,559 269 6.46 8,816 472 7.13
--------- --------- -------- --------- --------
Total interest-bearing liabilities 111,340 4.24 110,626 3,789 4.56 108,235 3,653 4.49
Noninterest-bearing liabilities 16,388 15,140 14,091
Total equity 12,071 11,590 9,871
--------- --------- ---------
Total liabilities and equity $ 139,799 $ 137,356 $ 132,197
========= ========= =========
Net interest-earning assets $ 17,817 $ 16,644 $ 13,634
========= ========= =========
Net interest/spread 3.15% $ 3,741 3.33% $ 3,679 3.53%
======= ======== ======= ======== ======
Net interest margin 3.92% 4.02%
======== ========
Ratio of interest-earning assets to
interest-bearing liabilities 116.00% 115.07% 112.60%
========= ========= =========
(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 $146 in 2001 and $140
in 2000.
(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 securities available for sale.
(5) Interest income is reported on a historical basis without
tax-equivalent adjustment.
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Net interest income may also be analyzed by segregating the volume and
rate components of changes in interest income and interest expense. The
following table presents an analysis of increases and decreases in interest
income and expense in terms of changes in volume and interest rates during the
nine months ended September 30, 2001 compared to the same period in 2000.
Changes not due solely to either a change in volume or a change in rate have
been allocated proportionately to the change due to volume and the change due to
rate.
Nine Months Ended
September 30, 2001
Compared to
Nine Months Ended
September 30, 2000
---------------------------------------------
Increase (decrease)
Due To
------------------------------
Volume Rate Net
------ ---- ---
Interest-earning assets:
Loans $ 389 $ (6) $ 383
Securities (207) (107) (314)
Fed funds sold and other interest-earning assets 135 (6) 129
----- ----- -----
Total interest-earning assets 317 (119) 198
Interest-bearing liabilities:
Checking 37 19 56
Savings 1 (1) --
CDs 147 136 283
Fed funds purchased and other interest-bearing
liabilities (161) (42) (203)
----- ----- -----
Total interest-bearing liabilities 24 112 136
----- ----- -----
Increase (decrease) in net interest income $ 293 $(231) $ 62
===== ===== =====
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The provision for loan losses represents the charge to income necessary
to adjust the allowance for loan losses to an amount that represents
management's assessment of the estimated probable credit losses in ICBC's loan
portfolio that have been incurred at each balance sheet date. All lending
activity contains associated risks of loan losses. ICBC recognizes these credit
risks as a necessary element of its business activity. The provision for loan
losses for the nine months ended September 30, 2001 was $214, compared with $216
for the same period in 2000. The changes in the provision for loan losses were
attributable to the changes in net loan charge-offs, the recognition of changes
in current risk factors, and the decrease in past due and non-performing loans.
Loans on nonaccrual status, or 90 days past due and still accruing interest were
$375 at September 30, 2001 compared to $674 at December 31, 2000.
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NONINTEREST INCOME
Total noninterest income increased $32 from $698 for the nine months
ended September 30, 2000 to $731 for the same period in 2001. The increase is
primarily due to net gains on securities and increase in other income. The
following table summarizes the sources of ICBC's non-interest income.
Nine Months Ended 2001 vs. 2000
September 30, -------------
------------- Dollar Percentage
2001 2000 Change Change
---- ---- ------ ------
Service charges on deposit accounts $ 348 $ 361 $ (13) (4)%
Trust department income 252 262 (10) (4)
Net securities gains (losses) 13 (23) 36 158
Loan origination agent fee income 45 42 3 7
Other 72 56 16 28
--------- -------- ---------
Total noninterest income $ 731 $ 698 $ 32 5
========= ======== =========
During the nine months ended September 30, 2001, the income from
service charges on deposit accounts decreased primarily as a result of
discontinuance of processing of certain type of payments for Huron County.
During the nine months ended September 30, 2001, ICBC experienced increased
number of securities called. Proceeds from sales and calls of securities during
2001 totaled $9,858; gross gains of $21 and gross losses of $8 were recognized
on these transactions.
NONINTEREST EXPENSE
Total noninterest expense during the nine months ended September 30,
2001 increased $71 as compared with the same period in 2000. The following table
summarizes the sources of ICBC's noninterest expense.
Nine Months Ended 2001 vs. 2000
September 30, -------------
------------- Dollar Percentage
2001 2000 Change Change
---- ---- ------ ------
Salaries and employee benefits $ 1,330 $ 1,363 $ (33) (2)%
Occupancy expense of premises 197 204 (7) (4)
Furniture and equipment expense 225 206 19 9
Legal, professional and
examination expense 223 225 (2) (1)
Intangible amortization 218 218 - -
Other 764 670 94 14
--------- -------- ---------
Total noninterest expense $ 2,957 $ 2,886 $ 71 2
========= ======== =========
The increase in noninterest expense is primarily due to the increase in
other expense partially offset by a decrease in salaries and employee benefits
expenses. Salaries and employee benefits decreased during the nine month period
ended September 30, 2001 due to a reduction of the management workforce, offset
by annual merit increases. Other expenses increased during the nine months ended
September 30, 2001 primarily due to an increase in franchise taxes, directors
fees, and merger related fees.
INCOME TAX EXPENSE
Income before federal income taxes amounted to $1,301 for the nine
months ended September 30, 2001 and $1,276 for the same period in 2000. ICBC's
effective income tax rate
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was 30.9% for the nine months ended September 30, 2001, compared to 30.5% for
the same period in 2000.
CAPITAL RESOURCES
Shareholders' equity at September 30, 2001 totaled $12,071, compared to
$10,993 at December 31, 2000, an increase of 10%. Average equity to average
assets during the nine months ended September 30, 2001, increased to 8.44% from
7.47% for the same period in 2000.
The Federal Reserve Board has established risk-based capital guidelines
that must be observed by bank holding companies and banks. ICBC has consistently
maintained the regulatory capital ratios of the both Independent Community Banc
Corp. and the Citizens National Bank of Norwalk above "well capitialized"
requirements. For further information on capital ratios, see Note 7 of the
consolidated financial statements.
The capital position is managed through balance sheet size and
composition, issuance of equity instruments, treasury stock activities, dividend
policies, and retention of earnings.
EFFECTS OF INFLATION
The assets and liabilities of ICBC are primarily monetary in nature and
are more directly affected by the fluctuation in interest rates than inflation.
Movement in interest rates is a result of the perceived changes in inflation as
well as monetary and fiscal policies. Interest rates and inflation do not
necessarily move with the same velocity or within the same period; therefore, a
direct relationship to the inflation rate cannot be shown. The financial
information presented in this report has been prepared in accordance with
accounting principles generally accepted in the United States of America, which
require that ICBC measure financial position and operating results primarily in
terms of historical dollars.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION - AS OF DECEMBER 31, 2000 AND DECEMBER 31, 1999 AND FOR THE YEARS
ENDED DECEMBER 31, 2000 AND 1999
(Dollars in thousands, except per share data)
The following discussion and analysis represents a review of ICBC's
consolidated financial condition and results of operations. This review should
be read in conjunction with the consolidated financial statements presented
elsewhere in this report.
FINANCIAL CONDITION
During the year ended December 31, 2000, total assets increased $3,445,
or 3%, to $136,604 at December 31, 2000. The increase in assets in 2000
primarily reflects growth in the loan portfolio. During 2000, net loans
increased $9,311, or 10% from $94,977 at December 31, 1999 to $104,288 at
December 31, 2000. The loan portfolio's growth was primarily in commercial
loans, which comprise 52% of the loan portfolio at December 31, 2000 compared to
46% of the loan portfolio at December 31, 1999. The growth of commercial loans
is a result of targeted new business development and increased market demand.
The remaining portion of ICBC's loan portfolio is real estate and installment
loans. During 2000, real estate loans increased $1,966, or 11%, from $17,352 at
December 31, 1999 to $19,317 at December 31, 2000; installment loans decreased
$2,717, or 8%, from $34,502 at December 31, 1999 to $31,785 at December 31,
2000. The
-82-
change in real estate and installment loans reflect normal cyclical business
fluctuations. Securities available for sale decreased $5,195, or 21%, from
$24,734 at December 31, 1999 to $19,538 at December 31, 2000, to help fund the
loan portfolio growth.
The loan portfolio growth during 2000 was also funded by an increase in
total liabilities of $1,805, or 1%, from $123,806 at December 31, 1999 to
$125,611 at December 31, 2000. The increase in liabilities in 2000 primarily
reflects increased use of federal funds purchased and short-term FHLB borrowings
to fund the loan growth on a short-term basis due to declining deposit balances.
During 2000, short-term FHLB borrowings increased $5,000, or 500%, from $1,000
at December 31, 1999 to $6,000 at December 31, 2000. Deposit balances decreased
$2,700, or 2% from $118,482 at December 31, 1999 to $115,782 at December 31,
2000. The decrease in deposits is a result of increased competition from
traditional and nontraditional financial service providers and increasingly
sophisticated consumers using alternatives to traditional bank deposits.
Equity of ICBC increased $1,639, or 18% from $9,354 at December 31,
1999 to $10,993 at December 31, 2000. This increase is the result of net income
during 2000 of $1,196, offset by cash dividends paid to shareholders of $365, or
$0.60 per share; unrealized appreciation on securities available for sale, net
of tax of $600; and the net sale of 11,965 treasury shares for $209.
RESULTS OF OPERATIONS
Net income for 2000 was $1,196, or $1.97 per diluted share, up $96, or
9% from $1,100, or $1.83 per diluted share in 1999. The increase in net income
is primarily a result of increasing net interest income. Return on average
assets and return on average equity increased to 0.90% and 11.91% for 2000
compared to 0.82% and 11.86% for 1999.
NET INTEREST INCOME
Net interest income, the difference between interest income earned on
interest-earning assets and interest expense incurred on interest-bearing
liabilities, is the most significant component of ICBC's earnings. Net interest
income is affected by changes in the volumes, rates and composition of
interest-earning assets and interest-bearing liabilities.
ICBC's net interest income was $4,980 in 2000, an increase of $214, or
4%, from $4,766 in 1999. During 2000, the net interest margin increased 20 basis
points to 4.08% compared to 3.88% during 1999. The increase of net interest
income and net interest margin is primarily a result of an increase in the
average yield earned on interest-earning assets and a decrease in total
interest-bearing liabilities, which was partially offset by an increase of the
rate incurred in interest-bearing liabilities and a decrease in the overall
balance of interest-earning assets.
Total interest income increased $434, or 5% in 2000, due to increases
in the average yield of interest-earning assets and the growth of the loan
portfolio. The average yield earned on interest-earning assets increased 41
basis points from 7.73% during 1999 to 8.14% during 2000, primarily due to
changes in rates and the composition of interest-earning assets. The composition
of interest-earning assets changed during 2000 as growth in the loan portfolio
was funded with matured and sold securities. The average balance of loans
increased $6,219,or 7%, from $92,274 during 1999 to $98,493 during 2000; on the
contrary, the average balance of securities decreased $7,033, or 23%, from
$30,123 during 1999 to $23,089 during 2000. The increase of total interest
income related to changes in rates and the composition of interest-earning
assets was partially offset by a decrease in interest-earning assets of $898, or
1% from $122,815 during 1999 to $121,917 during 2000.
-83-
Total interest expense increased $220, or 5% in 2000, due to increases
in the average rate incurred on interest-bearing liabilities and the increased
use of federal funds purchased. The average rate incurred on interest-bearing
liabilities increased 34 basis points from 4.25% during 1999 to 4.59% during
2000, primarily due to changes in rates and the composition of interest-bearing
liabilities. The composition of interest-bearing liabilities changed during 2000
as funding from deposits decreased and was replaced with federal funds purchased
and short-term FHLB borrowings. The average balance of deposits decreased
$6,853, or 6%, from $106,129 during 1999 to 99,276 during 2000; on the contrary,
the average balance of federal funds purchased and other interest-bearing
liabilities increased $3,479, or 71%, from $4,910 during 1999 to $8,389 during
2000.
The following table reflects the components of ICBC's net interest
income for each of the years ended December 31, 2000 and 1999, setting forth:
(i) average assets, liabilities, and shareholders' equity, (ii) interest income
earned on interest-earning assets and interest expense incurred on
interest-bearings liabilities, (iii) average yields earned on interest-earning
assets and average rates incurred on interest-bearing liabilities, (iv) the net
interest spread (i.e., the average yield earned on interest-earning assets less
the average rate incurred on interest-bearing liabilities), (v) the net interest
margin (i.e., net interest income divided by average interest-earning assets),
and (vi) the ratio of interest-earning assets to interest-bearing liabilities.
-84-
ICBC AVERAGE BALANCES, INTEREST AND AVERAGE YIELDS/COST
Year ended December 31,
-------------------------------------------------------------------------
2000 1999
------------------------------------ ---------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
--------- ---------- ---- --------- -------- ----
Interest-earning assets:
Loans (1) (2) (3) $ 98,493 $ 8,596 8.73% $ 92,274 $ 7,814 8.47%
Securities (4) (5) 23,089 1,307 5.66 30,123 1,656 5.50
Fed funds sold and other interest-earning
assets 335 20 6.11 418 20 4.88
---------- ---------- ---------- ---------
Total interest-earning assets 121,917 9,923 8.14 122,815 9,490 7.73
Noninterest-earning assets 10,268 11,619
---------- ----------
Total assets $ 132,185 $ 134,434
========== ==========
Interest-bearing liabilities:
Checking $ 14,230 $ 340 2.39% $ 16,843 $ 440 2.61%
Savings 21,947 541 2.46 23,674 586 2.47
CDs 63,099 3,451 5.47 65,612 3,375 5.14
Fed funds purchased and other interest-
bearing liabilities 8,389 611 7.29 4,910 323 6.58
---------- ---------- ---------- --------
Total interest-bearing liabilities 107,665 4,943 4.59 111,039 4,724 4.25
Noninterest-bearing liabilities 14,394 14,098
Total equity 10,126 9,297
---------- ----------
Total liabilities and equity $ 132,185 $ 134,434
========== ==========
Net interest-earning assets $ 14,192 $ 11,759
========== ==========
Net interest/spread $ 4,980 3.55% $ 4,766 3.48%
========== ======= ======== ======
Net interest margin 4.08% 3.88%
========== ========
Ratio of interest-earning assets to
interest-bearing liabilities 113.24% 110.60%
========== ==========
(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 $252 in 2000 and $ 85
in 1999.
(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 securities available for sale.
(5) Interest income is reported on a historical basis without
tax-equivalent adjustment.
-85-
Net interest income may also be analyzed by segregating the volume and
rate components of interest income and interest expense. The following table
presents an analysis of increases and decreases in interest income and expense
in terms of changes in volume and interest rates during 2000 compared to 1999.
Changes not due solely to either a change in volume or a change in rate have
been allocated proportionately to the change due to volume and the change due to
rate.
Year Ended December 31, 2000
Compared to
Year Ended
December 31, 1999
---------------------------------------------
Increase (decrease)
Due To
------------------------------
Volume Rate Net
------ ---- ---
Interest-earning assets:
Loans $ 538 $ 244 $ 782
Securities (397) 48 (349)
Fed funds sold and other interest-earning assets (4) 4 -
------------ ------------ ------------
Total interest-earning assets 137 296 433
Interest-bearing liabilities:
Checking (65) (35) (100)
Savings (43) (2) (45)
CDs (132) 208 76
Fed funds purchased and other interest-bearing
liabilities 250 38 288
------------ ------------ ------------
Total interest-bearing liabilities 10 209 219
------------ ------------ ------------
Increase (decrease) in net interest income $ 127 $ 87 $ 214
============ ============ ============
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The provision for loan losses represents the charge to income necessary
to adjust the allowance for loan losses to an amount that represents
management's assessment of the estimated probable credit losses in ICBC's loan
portfolio that have been incurred at each balance sheet date. All lending
activity contains associated risks of loan losses. ICBC recognizes these credit
risks as a necessary element of its business activity. The provision for loan
losses for 2000 was $373, compared with $395 for 1999. The changes in the
provision for loan losses were attributable to the changes in net loan
charge-offs, the recognition of changes in current risk factors, and the
decrease in past due and non-performing loans. While total loans increased by
approximately 10% in 2000, the volume of loans on nonaccrual status or that were
90 days past due and still accruing declined from $1,184 at December 31, 1999 to
$674 at December 31, 2000.
-86-
NONINTEREST INCOME
Total noninterest income in 2000 declined $164 from $1,111 in 1999 to
$947 in 2000. The decline is primarily due to a non-recurring event in 1999. The
following table summarizes the sources of ICBC's non-interest income.
Year Ended 2000 vs. 1999
December 31, -------------
------------ Dollar Percentage
2000 1999 Change Change
---- ---- ------ ------
Service charges on deposit accounts $ 483 $ 474 $ 9 2%
Trust department income 350 318 32 10%
Net securities gains (losses) (23) 21 (44) (210)%
Loan origination agent fee income 57 101 (44) (44)%
Gain on premises sale -- 100 (100) (100)%
Other 80 97 (17) (18)%
--------- -------- ---------
Total noninterest income $ 947 $ 1,111 $ (164) (15)%
========= ======== =========
During 1999 a nonrecurring gain of $100 was recognized related to the sale
of one of ICBC's buildings. Loan origination agent fee income decreased in 2000
primarily due to a decrease in volume of fixed rate loans. In order to fund
loan growth during 2000, securities available for sale were sold. Proceeds from
sales and calls of securities during 2000 totaled $4,272, and gross gains of
$19 and gross losses of $42 were recognized on these transactions.
NONINTEREST EXPENSE
Total noninterest expense in 2000 declined $54. The following table
summarizes the sources of ICBC's noninterest expense.
Year Ended 2000 vs. 1999
December 31, -------------
------------ Dollar Percentage
2000 1999 Change Change
---- ---- ------ ------
Salaries and employee benefits $ 1,815 $ 1,915 $ (100) (5)%
Occupancy expense of premises 275 288 (13) (5)%
Furniture and equipment expense 299 244 55 23%
Legal, professional and
examination expense 272 288 (16) (6)%
Other 1,174 1,154 20 2%
--------- -------- ---------
Total noninterest expense $ 3,835 $ 3,889 $ (54) (1)%
========= ======== =========
The decline in noninterest expense is primarily due to the decrease in
salaries and employee benefits. Salaries and employee benefits decreased in 2000
due a reduction of the management workforce, offset by annual merit increases.
Occupancy expense of premises decreased related to ICBC's sale in 1999 of one of
its buildings. Furniture and equipment expense increased in 2000 primarily due
to remodeling of a building to be ICBC's new main office.
INCOME TAX EXPENSE
Income before federal income taxes amounted to $1,719 in 2000 and
$1,593 in 1999. ICBC's effective income tax rate was 30.4% in 2000, compared to
31.0% in 1999.
-87-
LIQUIDITY MANAGEMENT
Management of liquidity is of growing importance to the banking
industry. The liquidity of a financial institution reflects its ability to meet
loan requests, to accommodate possible outflows of deposits and to take
advantage of interest rate market opportunities. The ability of a financial
institution to meet its current financial obligations is a function of balance
sheet structure, the ability to liquidate assets, and the availability of
alternative sources of funds.
In addition to maintaining a stable core deposit base, ICBC maintains
adequate liquidity primarily through the use of securities and unused borrowing
capacity. At December 31, 2000, securities and other short term investments with
maturities of one year or less totaled $2,334. In addition, ICBC can sell
securities to meet liquidity needs. At December 31, 2000, unpledged securities
available for sale and federal funds sold totaled $8,896. The Citizens National
Bank of Norwalk is a member of the Federal Home Loan Bank of Cincinnati (FHLB).
The FHLB provides a reliable source of funds over and above retail deposits. As
of December 31, 2000, The Citizens National Bank of Norwalk had total credit
availability with the FHLB of $14,000, of which $6,000 was outstanding.
CAPITAL RESOURCES
Shareholders' equity at December 31, 2000 totaled $10,993, compared to
$9,354 at December 31, 1999, an increase of 18%.
The Federal Reserve Board has established risk-based capital guidelines
that must be observed by bank holding companies and banks. ICBC has consistently
maintained the regulatory capital ratios of the both Independent Community Banc
Corp. and the Citizens National Bank of Norwalk above "well capitialized"
requirements. For further information on capital ratios, see Note 14 of the
consolidated financial statements.
The capital position is managed through balance sheet size and
composition, issuance of equity instruments, treasury stock activities, dividend
policies, and retention of earnings.
EFFECTS OF INFLATION
The assets and liabilities of ICBC are primarily monetary in nature and
are more directly affected by the fluctuation in interest rates than inflation.
Movement in interest rates is a result of the perceived changes in inflation as
well as monetary and fiscal policies. Interest rates and inflation do not
necessarily move with the same velocity or within the same period; therefore, a
direct relationship to the inflation rate cannot be shown. The financial
information presented in this report has been prepared in accordance with
accounting principles generally accepted in the United States of America, which
require that ICBC measure financial position and operating results primarily in
terms of historical dollars.
-88-
MANAGEMENT
The following table sets forth certain information concerning the
current directors and executive officers of ICBC.
NAME AGE POSITION WITH ICBC
- ---- --- ------------------
William F. Boose 56 Director
Michael N. Clemens 63 Director and President
William A. Dauch 66 Director
Robin L. DeGraff 44 Director
James D. Heckelman 62 Director and Chairman of the Board
John M. Kovesdi, Jr., D.O. 55 Director
Leslie D. Stoneham 58 Director and Vice Chairman
Jerry E. Stover 58 Director
Richard C. Westhofen 66 Director
Daniel J. White 51 Director
Set forth below is a brief description of the business experience of
each director and executive officer of ICBC:
MR. BOOSE has served as a Director of ICBC since 1985. In addition, Mr.
Boose has been the President of Boose Farm Market since 1973.
MR. CLEMENS has served as a Director of ICBC since 2000 and as a President
of ICBC since 2000. In addition, Mr. Clemens has served as the President and
Chief Executive Officer of Citizens National Bank of Norwalk since 2000.
MR. DAUCH has served as a Director of ICBC since 1989. In addition, Mr.
Dauch has been the President and principal owner of William Dauch Concrete Co.
Inc. since 1966.
MS. DEGRAFF has served as a Director of ICBC since 2001. In addition, Ms.
DeGraff has served as a President of Extol of Ohio, Inc. since 1994.
MR. HECKELMAN has served as a Director of ICBC since 1987. In addition, Mr.
Heckelman has been the President of Dan-Mar Co. Inc. since 1972.
DR. KOVESDI, JR., D.O. has served as a Director of ICBC since 1997. In
addition, Dr. Kovesdi has been the President of Firelands Orthopedic, Inc. since
1993.
MR. STONEHAM has served as a Director of ICBC since 1992. In addition, Mr.
Stoneham has been the President of Stoneham Farms Inc. since 1982.
MR. STOVER has served as a Director of ICBC since 1999. In addition, Mr.
Stover has served as the Executive Vice President and Chief Operating Officer of
Citizens National Bank of Norwalk since 1999.
MR. WESTHOFEN has served as a Director of ICBC since 1994. In addition, Mr.
Westhofen has been the President of Norwalk Health Foundation since 1986.
MR. WHITE has served as a Director of ICBC since 1998. In addition, Mr.
White has served as the President and Chief Executive Officer of Geotrac of
America, Inc. since 1978.
-89-
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
--------------------------------------------------------------
The following table sets forth (i) as of December 11, 2001, the total
number and percentage of ICBC Common Shares beneficially owned by each director
of ICBC, each executive officer of ICBC, and each owner of more than 5% of the
outstanding ICBC Common Shares and all directors and executive officers of ICBC
as a group, and (ii) after consummation of the Parent Merger, the total number
and percentage of First Citizens Common Shares beneficially owned by each
director of ICBC, each executive officer of ICBC, and each owner of more than 5%
of the outstanding ICBC Common Shares and all directors and executive officers
of ICBC as a group. The number of ICBC Common Shares shown as being beneficially
owned by each director are those over which he has either sole or shared voting
or investment power. As of December 11, 2001 there were 614,186 shares issued
and outstanding and 15,256 shares were held in treasury. The percent of
beneficial ownership of management after the Parent Merger was calculated based
on an exchange ratio of 1.7 First Citizens Common Shares for each ICBC Common
Share, assuming that no dissenters' rights will be exercised by ICBC
shareholders and that all 614,186 outstanding ICBC Common Shares, plus 17,000
outstanding options to purchase ICBC Common Shares, will be exchanged for First
Citizens Common Shares in the Parent Merger.
-90-
- ------------------------------------- ------------------------ ------------------------- -------------------------
AMOUNT AND NATURE OF PERCENT OF CLASS AS OF PERCENT OF CLASS AFTER
--------------------- ----------------------- ----------------------
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP DECEMBER 11, 2001** THE PARENT MERGER
- ------------------------ -------------------- ------------------- -----------------
William F. Boose 4,872 * *
Michael N. Clemens(1) 3,540 * *
William A. Dauch(2) 16,560 2.63% *
Robin L. DeGraff 60 * *
James D. Heckelman(3) 12,202 * *
John M. Kovesdi, Jr., D.O. 545 * *
Leslie D. Stoneham 818 * *
Jerry E. Stover(4) 6,119 * *
Richard C. Westhofen 358 * *
Daniel J. White 306 * *
- ------------------------------------- ------------------------ ------------------------- -------------------------
All directors and executive 45,380 7.31% 1.5%
officers as a group (10 persons).
- ------------------------------------- ------------------------ ------------------------- -------------------------
* Shares owned represent less than 1% of class.
** Percent of class is based upon the sum of 614,186 ICBC Common Shares
outstanding as of December 11, 2001, and the number of ICBC Common Shares as to
which the person (or members of the group) has the right to acquire beneficial
ownership upon the exercise of stock options exercisable within sixty (60) days
of December 11, 2001.
- ------------------------
(1) Includes 2,800 ICBC Common Shares which can be acquired upon the exercise of
stock options which are exercisable within sixty (60) days of December 11, 2001.
(2) Includes 2,373 ICBC Common Shares held by Mr. Dauch's wife.
(3) Includes 5,876 ICBC Common Shares held by Mr. Heckelman's wife.
(4) Includes 3,600 ICBC Common Shares which can be acquired upon the exercise of
stock options which are exercisable within sixty (60) days of December 11, 2001.
-91-
EXPERTS
-------
The consolidated financial statements of First Citizens as of December
31, 2000 and 1999 and for the three years ended December 31, 2000 which have
been incorporated by reference in this Proxy Statement/Prospectus, and the
financial statements of ICBC as of December 31, 2000 and 1999 and for the years
then ended, included in this Proxy Statement/Prospectus have been audited by
Crowe, Chizek and Company LLP as set forth in its reports thereon. The financial
statements audited by Crowe, Chizek and Company LLP have been incorporated by
reference or included in this Proxy Statement/Prospectus in reliance upon such
reports given upon their authority as an expert in accounting and auditing.
TAX OPINION
-----------
A tax opinion is to be rendered prior to the Effective Time by Vorys,
Sater, Seymour and Pease LLP substantially to the effect that (i) the Parent
Merger will constitute a tax free reorganization within the meaning of Section
368 of the Internal Revenue Code of 1986, as amended (the "Code") and (ii) no
gain or loss will be recognized by ICBC shareholders who exchange their ICBC
Common Shares for First Citizens Common Shares and cash in lieu of fractional
share interests, other than the gain or loss to be recognized as to cash
received in lieu of fractional share interests.
INDEMNIFICATION
---------------
The Articles of Incorporation of First Citizens provide that First
Citizens shall have the power to indemnify its present and past directors,
officers, employees and agents, and such other persons as it shall have powers
to indemnify, to the full extent permitted under, and subject to the limitations
of, Title 17 of the ORC. Such Articles of Incorporation further provide that
First Citizens may, upon the affirmative vote of a majority of its Board of
Directors, purchase insurance for the purpose of indemnifying its directors,
officers, employees and agents to the extent that such indemnification is
allowed by the Articles of Incorporation.
Insofar as indemnification for liabilities arising under the 1933 Act
may be permitted to directors, officers or persons controlling First Citizens
pursuant to the foregoing provisions, First Citizens has been informed that in
the opinion of the Commission such indemnification is against public policy as
expressed in the 1933 Act and is therefore unenforceable.
-92-
INDEX TO FINANCIAL INFORMATION
PAGE
INDEPENDENT COMMUNITY BANC CORP.
Financial Statements
September 30, 2001:
Consolidated Balance Sheet
as of September 30, 2001.................................................. F-1
Consolidated Statements of Income for the three and nine months ended
September 30, 2001 and 2000............................................... F-2
Consolidated Statements of Changes in Shareholders Equity,
for the nine months ended September 30, 2001.............................. F-3
Consolidated Statements of Cash Flows for the nine months ended
September 30, 2001 and 2000............................................... F-4
Notes to Financial Statements
September 30, 2001........................................................ F-5 - F-12
Financial Statements
December 31, 2000 and 1999:
Report of Independent Auditors...................................................... F-13
Consolidated Balance Sheets
as of December 31, 2000 and 1999.......................................... F-14
Consolidated Statements of Income
as of December 31, 2000 and 1999.......................................... F-15
Consolidated Statements of Changes on Shareholders Equity
as of December 31, 2000 and 1999.......................................... F-16
Consolidated Statements of Cash Flows
as of December 31, 2000 and 1999.......................................... F-17
Notes to Financial Statements
as of December 31, 2000 and 1999.......................................... F-18 - F-33
-93-
INDEPENDENT COMMUNITY BANC CORP.
CONSOLIDATED BALANCE SHEET
September 30, 2001 (unaudited)
- --------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 3,293,644
Interest-earning deposits 9,289
Federal funds 8,050,000
---------------
Total cash and cash equivalents 11,352,933
Interest-earning time deposits 990,000
Securities available for sale, at fair value 16,662,585
Other securities, at cost 728,600
Loans 104,690,925
Allowance for loan losses (1,234,247)
---------------
Loans, net 103,456,678
Premises and equipment, net 1,665,987
Intangibles, net 3,485,001
Accrued interest receivable and other assets 1,457,597
---------------
Total assets $ 139,799,381
===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Noninterest-bearing $ 15,206,631
Interest-bearing 108,744,706
---------------
Total deposits 123,951,337
Securities sold under agreements to repurchase 310,069
Other borrowings 2,285,000
Accrued interest payable and other liabilities 1,182,103
---------------
Total liabilities 127,728,509
Shareholders' equity
Common stock: no par value, 1,400,000 shares
authorized and 629,442 shares issued 1,870,042
Surplus 1,542,894
Retained earnings 8,826,270
Accumulated other comprehensive income, net of tax 112,198
Treasury stock, at cost: 15,161 shares (280,532)
---------------
Total shareholders' equity 12,070,872
---------------
Total liabilities and shareholders' equity $ 139,799,381
===============
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-1
INDEPENDENT COMMUNITY BANC CORP.
CONSOLIDATED STATEMENTS OF INCOME
Three and Nine Months ended September 30, 2001 and 2000 (unaudited)
- --------------------------------------------------------------------------------
Three Months Nine Months
Ended September 30, Ended September 30,
2001 2000 2001 2000
---- ---- ---- ----
Interest income
Loans, including fees $2,184,683 $2,199,234 $ 6,680,238 $ 6,296,561
Securities:
Taxable 160,269 253,326 584,358 874,125
Nontaxable 40,728 47,008 122,815 147,415
Federal funds sold 84,422 7,625 142,946 13,573
---------- ----------- ------------- --------------
2,470,102 2,507,193 7,530,357 7,331,674
Interest expense
Deposits 1,172,317 1,078,323 3,519,592 3,181,109
Other 38,344 170,367 269,171 471,678
---------- ----------- ------------- --------------
1,210,661 1,248,690 3,788,763 3,652,787
------------- --------------
Net interest income 1,259,441 1,258,503 3,741,594 3,678,887
Provision for loan losses 60,000 72,000 214,000 216,000
---------- --------- ------------- --------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 1,199,441 1,186,503 3,527,594 3,462,887
Noninterest income
Service charges on
deposit accounts 116,852 118,274 348,134 361,188
Trust department income 71,750 87,450 252,632 262,450
Net securities gains (losses) (2,104) (18,530) 13,445 (23,036)
Loan origination agent
fee income 19,427 29,849 45,017 41,914
Other income 24,615 13,873 71,444 55,724
--------- --------- ------------- --------------
230,540 230,916 730,672 698,240
Noninterest expense
Salaries and employee benefits 434,950 458,101 1,330,478 1,362,797
Occupancy expense of premises 72,121 65,431 196,688 204,152
Furniture and equipment expense 70,512 75,680 224,625 205,811
Legal, professional and examination
expense 73,988 84,790 223,280 225,017
Intangible amortization 72,651 72,651 217,953 217,953
Other expenses 263,679 221,124 764,350 669,882
--------- --------- ------------- --------------
987,901 977,777 2,957,374 2,885,612
--------- --------- ------------- --------------
INCOME BEFORE INCOME TAXES 442,080 439,642 1,300,892 1,275,515
Provision for income taxes 136,900 133,225 401,405 388,439
--------- --------- ------------- --------------
NET INCOME $ 305,180 $ 306,417 $ 899,487 $ 887,076
======= ======= ============= ==============
Earnings per common share:
Basic $ 0.50 $ 0.50 $ 1.47 $ 1.46
Diluted $ 0.50 $ 0.50 $ 1.47 $ 1.46
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-2
INDEPENDENT COMMUNITY BANC CORP.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Nine Months ended September 30, 2001 (unaudited)
- --------------------------------------------------------------------------------
Accumulated
Other Treasury Total
Common Retained Comprehensive Stock, Shareholders'
Stock Surplus Earnings Income At Cost Equity
----- ------- -------- ------ ------- ------
Balances at
December 31, 2000 $1,870,042 $1,542,894 $8,061,481 $(167,777) $(313,766) $10,992,874
Comprehensive income:
Net income 899,487 899,487
Other comprehensive
income (loss):
Net change in
unrealized gain
(loss) on securities
available for sale,
net of reclassification
adjustments and tax
effects 279,975 279,975
---------
Total comprehensive
income 1,179,462
Dividends declared
($0.22 per share) (134,698) (134,698)
Purchase 5 treasury shares (85) (85)
Sell 2,019 treasury shares to
dividend reinvestment plan 33,319 33,319
---------- ----------- ---------- ------------ ----------- -----------
Balances at
September 30, 2001 $1,870,042 $1,542,894 $8,826,270 $112,198 $(280,532) $12,070,872
========= ========== ========== ======== ========= ===========
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-3
\
INDEPENDENT COMMUNITY BANC CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months ended September 30, 2001 and 2000 (unaudited)
- -------------------------------------------------------------------------------
Nine Months Ended September 30,
------------------------------
2001 2000
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES $ 1,636,899 $ 819,384
CASH FLOWS FROM INVESTING ACTIVITIES
Securities available for sale
Proceeds from maturities, sales,
paydowns and calls 19,717,901 6,173,327
Purchases (16,404,381) (981,170)
Purchases of loans (950,000) (2,925,000)
Net change in loans 1,781,384 (789,934)
Net change in interest-earning time deposits (990,000) --
Sales of premises and equipment -- 1,000,000
Purchases of premises and equipment (50,595) (124,475)
------------ ------------
Net cash from investing
activities 3,104,309 2,352,748
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits 8,169,044 (5,849,885)
Net change in securities sold under
agreement to repurchase 9,198 (6,864)
Net change in FHLB short-term advances (6,000,000) 2,000,000
Net change in federal funds purchased -- 850,000
Proceeds from borrowings -- 2,735,000
Repayments of borrowings (350,000) (3,000,000)
Cash dividends paid (134,698) (133,606)
Proceeds from exercise of stock options -- 119,000
Proceeds from issuance of treasury
stock 33,319 40,083
Acquisition of treasury stock (85) (37)
------------ ------------
Net cash from financing
activities 1,726,778 (3,246,309)
------------ ------------
Net change in cash and cash equivalents 6,467,986 (74,177)
Cash and cash equivalents at beginning
of year 4,884,947 4,340,956
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 11,352,933 $ 4,266,779
============ ============
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-4
INDEPENDENT COMMUNITY BANC CORP.
NOTES TO FINANCIAL STATEMENTS
September 30, 2001 (Unaudited)
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements include the accounts of
Independent Community Banc Corp. and its wholly-owned subsidiary, The Citizens
National Bank of Norwalk (together referred to as "the Company"). All
significant intercompany balances and transactions have been eliminated in
consolidation.
These interim financial statements are prepared without audit and reflect all
adjustments which, in the opinion of management, are necessary to present fairly
the consolidated financial position of the Company at September 30, 2001, and
its results of operations and statement of cash flows for the periods presented.
All such adjustments are normal and recurring in nature. The accompanying
consolidated financial statements do not purport to contain all necessary
financial disclosures required by generally accepted accounting principles that
might otherwise be necessary in the circumstances and should be read in
conjunction with the 2000 consolidated financial statements and notes thereto of
the Company included in its Annual Report for the year ended December 31, 2000.
The Company grants commercial, real estate, installment and personal loans to
customers primarily in Northern Ohio. Substantially all loans are secured by
specific items of collateral including business assets, consumer assets and real
estate. Commercial loans make up approximately 52% of the loan portfolio and
include loans secured by business assets and commercial real estate. Commercial
loans are expected to be repaid from cash flow from operations of businesses.
Real estate loans make up approximately 18% of the loan portfolio and are
secured by residential real estate.
To prepare financial statements in conformity with accounting principles
generally accepted in the United States of America, management makes estimates
and assumptions based on available information. These estimates and assumptions
affect the amounts reported in the financial statements and the disclosures
provided and future results could differ. The collectibility of loans, fair
values of financial instruments and status of contingencies are particularly
subject to change.
Cash and cash equivalents include cash on hand, demand deposits with other
financial institutions and federal funds sold. The Company reports net cash
flows for customer loan and deposit transactions, interest-bearing time deposits
with other financial institutions and short-term borrowings with maturities of
90 days or less. For the nine months ended September 30, 2001 and 2000 the
Company paid interest of $3,900,537 and $3,675,442 and income taxes of $189,000
and $459,000.
- --------------------------------------------------------------------------------
(Continued)
F-5
INDEPENDENT COMMUNITY BANC CORP.
NOTES TO FINANCIAL STATEMENTS
September 30, 2001 (Unaudited)
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Basic earnings per common share are net income divided by the weighted average
number of shares outstanding during the period. Diluted earnings per share
include the dilutive effect of additional potential common shares issuable under
stock options. The weighted average number of common shares outstanding for
basic and diluted earnings per share was as follows:
Nine Months
Ended September 30,
-------------------
2001 2000
---- ----
Weighted average shares
outstanding - basic 612,954 606,439
Effect of stock options -- 244
----------- -----------
Weighted average shares
outstanding - diluted 612,954 606,683
=========== ===========
At September 30, 2001 and 2000, there were 17,000 and 13,500 outstanding options
not included in the weighted average shares outstanding for diluted earnings per
share because the effect of the options was not dilutive.
Beginning January 1, 2001, a new accounting standard required all derivatives to
be recorded at fair value. Unless designated as hedges, changes in these fair
values will be recorded in the income statement. Fair value changes involving
hedges will generally be recorded by offsetting gains and losses on the hedge
and on the hedged item, even if the fair value of the hedged item is not
otherwise recorded. Adoption of this standard on January 1, 2001 did not have a
material effect because the Company did not hold any derivatives at December 31,
2000.
In June 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 141. "Business Combinations." SFAS
No. 141 requires all business combinations within its scope to be accounted for
using the purchase method, rather than the pooling-of-interests method. The
provisions of this Statement apply to all business combinations initiated after
June 30, 2001. The adoption of this Statement will only impact the Company's
financial statements if it enters into a business combination.
Also in June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets," which addresses the accounting for such assets arising from prior and
future business combinations. Upon the adoption of this Statement, goodwill
arising from business combinations will no longer be amortized, but rather will
be assessed regularly for impairment, with any such impairment recognized as a
reduction to earnings in the period identified. Other identified intangible
assets, such as core deposit intangible assets, will continue to be amortized
over their estimated useful lives. The Company is required to adopt this
Statement on January 1, 2002 and early adoption is not permitted. Management has
not yet evaluated the potential future impact of adopting this new statement.
- --------------------------------------------------------------------------------
(Continued)
F-6
INDEPENDENT COMMUNITY BANC CORP.
NOTES TO FINANCIAL STATEMENTS
September 30, 2001 (Unaudited)
- --------------------------------------------------------------------------------
NOTE 2 - SECURITIES
The amortized cost and fair value of securities available for sale as of
September 30, 2001 are as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
U.S. Treasury and U.S.
Government agencies $ 9,498,251 $ 85,517 $ (680) $ 9,583,088
Obligations of states and
political subdivisions 4,773,642 85,066 (2,429) 4,856,279
Mortgage-backed securities 2,220,695 11,586 (9,063) 2,223,218
-------------- ----------- ---------- --------------
$ 16,492,588 $ 182,169 $ (12,172) $ 16,662,585
============== =========== ========== ==============
The amortized cost and fair value of debt securities available for sale at
September 30, 2001, by contractual maturity, are shown below. Securities not due
at a single maturity date, primarily mortgage-backed securities, are shown
separately.
Amortized Fair
Cost Value
---------- ----------
Due in one year or less $ 8,313,323 $ 8,318,755
Due after one year through five years 3,346,089 3,447,417
Due after five years through ten years 2,441,890 2,505,033
Due after ten years 170,591 168,162
Mortgage-backed securities 2,220,695 2,223,218
------------- -------------
$ 16,492,588 $ 16,662,585
============= =============
Proceeds from sales and calls of securities available for sale during the nine
months ended September 30, 2001 and 2000 were $9,857,713 and $4,271,958. Gross
gains of $21,753 and $18,643 and gross losses of $8,308 and $41,679 were
recognized on these sales.
Securities with an amortized cost of approximately $8,757,000 at September 30,
2001 were pledged to secure public deposits and securities sold under agreements
to repurchase.
- --------------------------------------------------------------------------------
(Continued)
F-7
INDEPENDENT COMMUNITY BANC CORP.
NOTES TO FINANCIAL STATEMENTS
September 30, 2001 (Unaudited)
- --------------------------------------------------------------------------------
NOTE 3 - ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses is as follows:
Nine Months
Ended September 30,
-------------------
2001 2000
---- ----
Balance - January 1 $ 1,240,777 $ 1,147,158
Provision for loan losses
charged to expense 214,000 216,000
Loans charged-off (359,115) (243,543)
Recoveries 138,585 79,245
------------- -------------
Ending Balance $ 1,234,247 $ 1,198,860
============= =============
Impaired and Nonperforming loans are as follows:
September 30,
2001
----
Period-end impaired loans with allowance
for loan losses allocated $ 371,383
Amount of the allowance allocated 80,237
Average of impaired loans during the period 419,241
Loans past due 90 days and still accruing 673
Nonaccrual loans 374,363
At September 30, 2001 all impaired loans had allowance for loan losses
allocated.
- --------------------------------------------------------------------------------
(Continued)
F-8
INDEPENDENT COMMUNITY BANC CORP.
NOTES TO FINANCIAL STATEMENTS
September 30, 2001 (Unaudited)
- --------------------------------------------------------------------------------
NOTE 4 - COMMITMENTS AND CONTINGENCIES AND FINANCIAL INSTRUMENTS
WITH OFF-BALANCE-SHEET RISK
Some financial instruments are used in the normal course of business to meet the
financing needs of customers and to reduce exposure to interest rate changes.
These financial instruments include commitments to extend credit and standby
letters of credit. These involve, to varying degrees, credit and interest-rate
risk more than the amount reported in the consolidated financial statements.
The Company had $16,016,000 (at market rates) of unused commitments outstanding
as of September 30, 2001. Exposure to credit loss if the other party does not
perform is represented by the contractual amount of these items.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the commitment and
generally have fixed expiration dates. Collateral or other security is normally
not obtained for these financial instruments before their use, and many of the
commitments are expected to expire without being used. Standby letters of credit
are conditional commitments to guarantee a customer's performance to a third
party.
The Company is required by the Federal Reserve to maintain reserves consisting
of cash on hand and noninterest-bearing balances on deposit with the Federal
Reserve Bank. The required reserve balance at September 30, 2001 was $687,000.
At September 30, 2001, the Company had holdings of $8,119,000 in demand deposits
and federal funds sold due from Bank One, N.A.
NOTE 5 - STOCK OPTIONS
In 1997, the shareholders approved an incentive stock-option plan for the
Company's executive officers, which provides for issue of up to 25,000 options.
In 2000, shareholders increased the amount of options available for grants to
50,000. Exercise price is the market price at the date of grant. The maximum
option term is ten years, and options vest over five years or upon the death or
disability of a participant. In addition, options vest immediately upon a change
in control of the Company, as defined in the plan.
A summary of the activity in the plan is as follows:
Weighted
Average
Exercise
Shares Price
------ -----
Outstanding at January 1, 2001 17,000 19.82
Granted -- --
Forfeited -- --
----------
Outstanding at September 30, 2001 17,000 19.82
==========
Options exercisable at September 30, 2001 5,200 $18.85
- --------------------------------------------------------------------------------
(Continued)
F-9
INDEPENDENT COMMUNITY BANC CORP.
NOTES TO FINANCIAL STATEMENTS
September 30, 2001 (Unaudited)
- --------------------------------------------------------------------------------
NOTE 5 - STOCK OPTIONS (CONTINUED)
Options outstanding at September 30, 2001 were as follows.
Outstanding
Weighted Average
Remaining
Exercise Contractual
Price Number Life (Years) Exercisable
----- ------ ------------- -----------
$ 17.00 4,500 6.2 2,700
20.00 5,500 8.8 1,100
21.50 7,000 8.3 1,400
Had compensation cost for stock options been measured using FASB Statement No.
123, net income and earnings per share would have been the pro forma amounts
indicated below. The pro forma effect may increase in the future if more options
are granted.
September 30,
2001 2000
---- ----
Net income as reported $ 899,487 $ 887,076
Pro forma net income 890,549 890,025
Basic earnings per common share as reported $ 1.47 $ 1.46
Proforma basic earnings per common share 1.45 1.47
Diluted earnings per common share as reported $ 1.47 $ 1.46
Proforma diluted earnings per common share 1.45 1.47
The pro forma effects of options granted in 2000 and 1997 are computed using
option-pricing models, using the following weighted-average assumptions as of
the grant date.
2000 1997
---- ----
Risk-free interest rate 6.41% 5.84%
Expected option life 10 years 10 years
Dividend yield 3.74% 2.35%
Expected stock price volatility - -
- --------------------------------------------------------------------------------
(Continued)
F-10
INDEPENDENT COMMUNITY BANC CORP.
NOTES TO FINANCIAL STATEMENTS
September 30, 2001 (Unaudited)
- --------------------------------------------------------------------------------
NOTE 6 - OTHER COMPREHENSIVE INCOME
Other comprehensive income components and related taxes were as follows:
Nine Months Ended
September 30,
-------------
2001 2000
---- ----
Unrealized holding gain
on securities available for sale $ 437,650 $ 455,187
Reclassification adjustments
for (gains) losses included in net income (13,445) 23,036
----------- -----------
Net unrealized gain 424,205 478,223
Tax effects (144,230) (162,596)
----------- -----------
Total other comprehensive income 279,975 315,627
Net Income 899,487 887,076
----------- -----------
Total Comprehensive Income $ 1,179,462 $ 1,202,703
=========== ===========
NOTE 7 - REGULATORY MATTERS
The Bank is subject to regulatory capital requirements administered by federal
banking agencies. Capital adequacy guidelines and prompt corrective-action
regulations involve quantitative and qualitative measures of assets,
liabilities, and certain off-balance-sheet items calculated under regulatory
accounting practices.
The prompt corrective action regulations provide five classifications, including
well capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized, although these terms are not
used to represent overall financial condition. If only adequately capitalized,
regulatory approval is required to accept brokered deposits. If
undercapitalized, capital distributions are limited, as is asset growth and
expansion, and plans for capital restoration are required.
At September 30, 2001, actual capital levels (in thousands) and minimum required
levels of the Bank were:
Minimum Required
To Be Well
Minimum Required Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Regulations
------ ----------------- ------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
September 30, 2001
- ------------------
Total capital (to risk weighted assets) $ 11,985 11.91% $ 8,048 8.0% $ 10,061 10.0%
Tier 1 capital (to risk weighted assets) 10,751 10.69 4,024 4.0 6,036 6.0
Tier 1 capital (to average assets) 10,751 7.96 5,405 4.0 6,756 5.0
At September 30, 2001, the Bank was categorized as well capitalized. Management
believes that no events have occurred since September 30, 2001 that would change
the capital category.
- --------------------------------------------------------------------------------
(Continued)
F-11
INDEPENDENT COMMUNITY BANC CORP.
NOTES TO FINANCIAL STATEMENTS
September 30, 2001 (Unaudited)
- --------------------------------------------------------------------------------
NOTE 8 - RELATED PARTY LOANS
In the normal course of business, the Company has made loans to certain
directors, executive officers and their associates under terms consistent with
the Company's general lending policies. Loan activity related to these
individuals for 2001 is as follows:
Aggregate balance - January 1, 2001 $ 178,305
New loans 1,079,978
Repayments (102,695)
Other changes 656,121
-------
Aggregate balance - September 30, 2001 $ 1,811,709
===============
Other changes relate to new individuals becoming a director or executive
officer.
NOTE 9 - ACQUISITION
On November 2, 2001 the Company announced that it had entered into an Agreement
and Plan of Merger with First Citizens Banc Corp., Sandusky, Ohio, (First
Citizens). Under the terms of the Agreement, the Company would merge with and
into First Citizens. In return, shareholders of the Company would receive 1.7
shares of First Citizens common stock for each share of the Company's common
stock that they hold. The agreement is subject to approval by regulatory
authorities as well as the shareholders of both First Citizens and the Company.
- --------------------------------------------------------------------------------
F-12
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Independent Community Banc Corp.
Norwalk, Ohio
We have audited the accompanying consolidated balance sheets of Independent
Community Banc Corp. as of December 31, 2000 and 1999, and the related
consolidated statements of income, changes in shareholders' equity and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Independent
Community Banc Corp. as of December 31, 2000 and 1999, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
Crowe, Chizek and Company LLP
Columbus, Ohio
February 9, 2001
F-13
INDEPENDENT COMMUNITY BANC CORP.
CONSOLIDATED BALANCE SHEETS
December 31, 2000 and 1999
- --------------------------------------------------------------------------------
2000 1999
---- ----
ASSETS
Cash and demand deposits with
other financial institutions $ 3,484,947 $ 3,830,941
Federal funds sold 1,400,000 510,015
----------------- -----------------
Total cash and cash equivalents 4,884,947 4,340,956
Securities available for sale, at fair value 19,538,455 24,733,610
Other securities, at cost 700,300 663,900
Loans 105,528,839 96,124,294
Allowance for loan losses (1,240,777) (1,147,158)
----------------- -----------------
Loans, net 104,288,062 94,977,136
Premises and equipment, net 1,734,098 2,719,374
Intangibles, net 3,702,954 3,993,558
Accrued interest receivable and other assets 1,755,440 1,731,026
----------------- -----------------
Total assets $ 136,604,256 $ 133,159,560
================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Noninterest-bearing $ 16,191,734 $ 14,025,125
Interest-bearing 99,590,559 104,456,804
----------------- -----------------
Total deposits 115,782,293 118,481,929
Securities sold under agreements to repurchase 300,871 304,751
Federal Home Loan Bank (FHLB) short-term advances 6,000,000 1,000,000
Other borrowings 2,635,000 3,000,000
Accrued interest payable and other liabilities 893,218 1,019,287
----------------- -----------------
Total liabilities 125,611,382 123,805,967
Shareholders' equity
Common stock: no par value, 1,400,000 shares
authorized and 629,442 shares issued 1,870,042 1,870,042
Surplus 1,542,894 1,529,836
Retained earnings 8,061,481 7,231,001
Accumulated other comprehensive loss, net of tax (167,777) (767,907)
Treasury stock, at cost: 17,175 shares in 2000
and 29,140 shares in 1999 (313,766) (509,379)
----------------- -----------------
Total shareholders' equity 10,992,874 9,353,593
----------------- -----------------
Total liabilities and shareholders' equity $ 136,604,256 $ 133,159,560
================= =================
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-14
INDEPENDENT COMMUNITY BANC CORP.
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 2000 and 1999
- --------------------------------------------------------------------------------
2000 1999
---- ----
Interest income
Loans, including fees $ 8,595,983 $ 7,813,864
Securities:
Taxable 1,116,407 1,452,858
Nontaxable 191,663 203,169
Federal funds sold 19,531 20,082
-------------- ---------------
9,923,584 9,489,973
Interest expense
Deposits 4,331,748 4,400,274
Other 611,604 323,273
-------------- ---------------
4,943,352 4,723,547
-------------- ---------------
NET INTEREST INCOME 4,980,232 4,766,426
Provision for loan losses 373,000 395,000
-------------- ---------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 4,607,232 4,371,426
Noninterest income
Service charges on deposit accounts 482,664 473,659
Trust department income 350,000 318,000
Net securities gains (losses) (23,036) 21,591
Loan origination agent fee income 56,698 100,788
Gain on premises sale -- 99,694
Other income 80,252 96,768
-------------- ---------------
946,578 1,110,500
Noninterest expense
Salaries and employee benefits 1,814,830 1,915,067
Occupancy expense of premises 275,145 287,539
Furniture and equipment expense 298,864 244,158
Legal, professional and examination expense 271,545 288,495
Other expenses 1,174,464 1,153,959
-------------- ---------------
3,834,848 3,889,218
-------------- ---------------
INCOME BEFORE INCOME TAXES 1,718,962 1,592,708
Provision for income taxes 523,339 493,021
-------------- ---------------
NET INCOME $ 1,195,623 $ 1,099,687
============== ===============
Earnings per common share:
Basic $ 1.97 $ 1.84
------------- ---------------
Diluted $ 1.97 $ 1.83
------------- ---------------
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-15
INDEPENDENT COMMUNITY BANC CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Years ended December 31, 2000 and 1999
- --------------------------------------------------------------------------------
Accumulated
Other Treasury Total
Common Retained Comprehensive Stock, Shareholders'
Stock Surplus Earnings Loss At Cost Equity
----- ------- -------- ---- ------- ------
Balances at January 1, 1999 $1,870,042 $1,500,000 $6,477,220 $ (30,883) $(582,612) $ 9,233,767
Comprehensive income:
Net income 1,099,687 1,099,687
Other comprehensive income (loss):
Net change in unrealized gain (loss) on securities
available for sale, net of reclassification
adjustments and tax effects (737,024) (737,024)
-----------
Total comprehensive income 362,663
Dividends declared ($0.58 per share) (345,906) (345,906)
Purchase 300 treasury shares (6,000) (6,000)
5,118 treasury shares sold to dividend reinvestment plan 29,836 79,233 109,069
---------- ---------- ---------- --------- --------- -----------
Balances at December 31, 1999 1,870,042 1,529,836 7,231,001 (767,907) (509,379) 9,353,593
Comprehensive income:
Net income 1,195,623 1,195,623
Other comprehensive income (loss):
Net change in unrealized gain (loss) on
securities available for sale, net of
reclassification adjustments and tax effects 600,130 600,130
-----------
Total comprehensive income 1,795,753
Dividends declared ($0.60 per share) (365,143) (365,143)
Purchase 2 treasury shares (37) (37)
Issue 7,000 treasury shares for exercise of stock options 5,303 113,697 119,000
Sell 4,967 treasury shares to dividend reinvestment plan 7,755 81,953 89,708
---------- ---------- ---------- --------- --------- -----------
Balances at December 31, 2000 $1,870,042 $1,542,894 $8,061,481 $(167,777) $(313,766) $10,992,874
========== ========== ========== ========= ========= ===========
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-16
INDEPENDENT COMMUNITY BANC CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2000 and 1999
- --------------------------------------------------------------------------------
2000 1999
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,195,623 $ 1,099,687
Adjustments to reconcile net income to net cash from
operating activities
Depreciation 152,246 191,728
Provision for loan losses 373,000 395,000
Change in deferred tax asset (2,314) (99,308)
Net amortization on securities 65,765 99,892
Amortization of intangibles 290,604 287,954
Loss (gain) on sales and calls of investments 23,036 (21,591)
Gain on disposal of premises and equipment -- (99,694)
FHLB stock dividends (36,400) (32,500)
Changes in accrued interest, other assets and
other liabilities (457,328) 238,177
------------ ------------
Net cash from operating activities 1,604,232 2,059,345
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Securities available for sale
Proceeds from maturities, sales, paydowns and calls 6,996,813 14,472,154
Purchases (981,170) (495,312)
Purchases of loans (3,319,128) (6,212,564)
Net change in loans (6,364,798) (5,757,853)
Proceeds from sales of premises and equipment 1,000,000 100,000
Purchases of premises and equipment (166,970) (58,754)
------------ ------------
Net cash from investing activities (2,835,253) 2,047,671
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits (2,699,636) (3,009,256)
Net change in securities sold under agreement to repurchase (3,880) (411,059)
Net change in FHLB short-term advances 5,000,000 350,000
Proceeds from borrowings 2,735,000 --
Repayments of borrowings (3,100,000)
Cash dividends paid (365,143) (345,906)
Proceeds from exercise of stock options 119,000 --
Proceeds from issuance of treasury stock 89,708 109,069
Acquisition of treasury stock (37) (6,000)
------------ ------------
Net cash from financing activities 1,775,012 (3,313,152)
------------ ------------
Net change in cash and cash equivalents 543,991 793,864
Cash and cash equivalents at beginning of year 4,340,956 3,547,092
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 4,884,947 $ 4,340,956
============ ============
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-17
INDEPENDENT COMMUNITY BANC CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000 and 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION: The accompanying consolidated financial statements
include the accounts of Independent Community Banc Corp. and its wholly-owned
subsidiary, The Citizens National Bank of Norwalk (together referred to as "the
Company"). All significant intercompany balances and transactions have been
eliminated in consolidation.
NATURE OF OPERATIONS: The Company grants commercial, real estate, installment
and personal loans to customers primarily in Northern Ohio. Substantially all
loans are secured by specific items of collateral including business assets,
consumer assets and real estate. Commercial loans make up approximately 52% of
the loan portfolio and include loans secured by business assets and commercial
real estate. Commercial loans are expected to be repaid from cash flow from
operations of businesses. Real estate loans make up approximately 18% of the
loan portfolio and are secured by residential real estate. Management considers
the Company to operate in one segment, banking.
USE OF ESTIMATES: To prepare financial statements in conformity with generally
accepted accounting principles, management makes estimates and assumptions based
on available information. These estimates and assumptions affect the amounts
reported in the financial statements and the disclosures provided, and future
results could differ. The allowance for loan losses, fair values of financial
instruments, and status of contingencies are particularly subject to change.
SECURITIES: Securities are classified as held to maturity and carried at
amortized cost when management has the positive intent and ability to hold them
to maturity. Securities are classified as available for sale when they might be
sold before maturity. Securities available for sale are carried at fair value,
with unrealized holding gains and losses reported separately in shareholders'
equity, net of tax. Other securities such as Federal Home Loan Bank and Federal
Reserve stock are carried at cost.
Realized gains and losses resulting from the sale of securities are computed by
the specific identification method. Interest and dividend income, adjusted by
amortization of purchase premium or discount, is included in earnings.
Securities are written down to fair value when a decline in fair value is not
temporary.
LOANS: Loans are reported at the principal balance outstanding, net of unearned
interest, deferred loan fees and costs, the allowance for loan losses and
charge-offs. Interest income is reported on the interest method and includes
amortization of net deferred loan fees and costs over the loan term. Interest
income may not be reported when full loan repayment is in doubt, typically when
payments are past due over 90 days. Payments received on such loans are reported
as principal reductions.
- --------------------------------------------------------------------------------
(Continued)
F-18
INDEPENDENT COMMUNITY BANC CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000 and 1999
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
ALLOWANCE FOR LOAN LOSSES: The allowance for loan losses is a valuation
allowance for probable credit losses, increased by the provision for loan losses
and decreased by charge-offs less recoveries. Management estimates the allowance
balance required based on past loan loss experience, known and probable risks in
the portfolio, information about specific borrower situations and estimated
collateral values, economic conditions, and other factors. Allocations of the
allowance may be made for specific loans, but the entire allowance is available
for any loan that, in management's judgment, should be charged off.
A loan is impaired when full payment under the loan terms is not expected.
Impairment is evaluated in total for smaller-balance loans of similar nature
such as residential mortgage, consumer, and credit card loans, and on an
individual loan basis for other loans. If a loan is impaired, a portion of the
allowance is allocated so that the loan is reported, net, at the present value
of estimated future cash flows using the loan's existing rate or at the fair
value of collateral if repayment is expected solely from the collateral. Loans
are evaluated for impairment when payments are delayed, typically 90 days or
more, or when it is probable that not all principal and interest amounts will be
collected according to the original terms of the loan.
PREMISES AND EQUIPMENT: Premises and equipment are stated at cost less
accumulated depreciation. Depreciation expense is computed on the straight-line
method over asset useful lives. Maintenance and repairs are charged to expense
and improvements are capitalized.
OTHER REAL ESTATE OWNED: Real estate properties, other than Company premises,
acquired in collection of a loan are recorded at fair value at acquisition. Any
reduction to fair value from the carrying value of the related loan at the time
of acquisition is accounted for as a loan loss. After acquisition, a valuation
allowance reduces the reported amount to the lower of the initial amount or fair
value less costs to sell. Expenses, gains and losses on disposition, and changes
in the valuation allowance are reported in other expenses.
INCOME TAXES: Income tax expense is the sum of the current-year income tax due
or refundable and the change in deferred tax assets and liabilities. Deferred
tax assets and liabilities are the expected future tax consequences of temporary
differences between the carrying amounts and tax bases of assets and
liabilities, computed using enacted tax rates. A valuation allowance, if needed,
reduces deferred tax assets to the amount expected to be realized.
SERVICING RIGHTS: Servicing rights represent the allocated value of servicing
rights retained on loans sold. Servicing rights are expensed in proportion to,
and over the period of, estimated net servicing revenues. Impairment is
evaluated based on the fair value of the rights, using groupings of the
underlying loans as to interest rates and then, secondarily, as to geographic
and prepayment characteristics. Any impairment of a grouping is reported as a
valuation allowance.
- --------------------------------------------------------------------------------
(Continued)
F-19
INDEPENDENT COMMUNITY BANC CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000 and 1999
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
LONG-TERM ASSETS: These assets are reviewed for impairment when events indicate
the carrying amount may not be recoverable from future undiscounted cash flows.
If impaired, the assets are recorded at discounted amounts.
COMPREHENSIVE INCOME: Comprehensive income consists of net income and other
comprehensive income (loss). Other comprehensive income (loss) includes the net
change in net unrealized gains and losses on securities available for sale, net
of tax, which are also recognized as separate components of equity.
STOCK OPTION PLAN: The Company sponsors a stock option plan for executive
officers. Expense for employee compensation under the stock option plan is based
on Accounting Principles Board ("APB") Opinion 25 with expense reported only if
options are granted below market price at grant date. Proforma disclosures of
net income and earnings per common share are provided as if the fair value
method of Statement of Financial Accounting Standards ("SFAS") No. 123 was used
to measure expense for stock-based compensation. For further discussion see Note
12.
FAIR VALUES OF FINANCIAL INSTRUMENTS: Fair values of financial instruments are
estimated using relevant market information and other assumptions, as more fully
disclosed in a separate note. Fair value estimates involve uncertainties and
matters of significant judgment regarding interest rates, credit risk,
prepayments, and other factors, especially in the absence of broad markets for
particular items. Changes in assumptions or in market conditions could
significantly affect the estimates.
CASH FLOW REPORTING: Cash and cash equivalents include cash on hand, demand
deposits with other financial institutions and federal funds sold. The Company
reports net cash flows for customer loan and deposit transactions,
interest-bearing time deposits with other financial institutions and short-term
borrowings with maturities of 90 days or less. For the years ended December 31,
2000 and 1999, the Company paid interest of $4,914,748 and $4,763,103 and income
taxes of $685,000 and $542,000.
DIVIDEND RESTRICTION: Banking regulations, which require the maintenance of
certain capital levels, may limit the amount of dividends that may be paid. For
regulatory capital requirements, see Note 16.
LOSS CONTINGENCIES: Loss contingencies, including claims and legal action
arising in the ordinary course of business, are recorded as liabilities when the
likelihood of loss is probable and an amount or range of loss can be reasonably
estimated. Management does not believe there now are such matters that will have
a material effect on the financial statements.
- --------------------------------------------------------------------------------
(Continued)
F-20
INDEPENDENT COMMUNITY BANC CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000 and 1999
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
EARNINGS PER COMMON SHARE: Basic earnings per common share is net income divided
by the weighted average number of shares outstanding during the period. Diluted
earnings per share include the dilutive effect of additional potential common
shares issuable under stock options. The weighted average number of common
shares outstanding for basic and diluted earnings per share was as follows:
2000 1999
---- ----
Weighted average shares outstanding - basic 607,158 596,174
Effect of stock options -- 3,829
------------ ------------
Weighted average shares outstanding - diluted 607,158 600,003
============ ============
At December 31, 2000, there were 17,000 outstanding options not included in the
weighted average shares outstanding for diluted earnings per share because the
effect of the options was not dilutive.
NEW ACCOUNTING PRONOUNCEMENT: Beginning January 1, 2001, a new accounting
standard requires all derivatives to be recorded at fair value. Unless
designated as hedges, changes in these fair values will be recorded in the
income statement. Fair value changes involving hedges will generally be recorded
by offsetting gains and losses on the hedge and on the hedged item, even if the
fair value of the hedged item is not otherwise recorded. Adoption of this
standard on January 1, 2001 did not have a material effect because the Company
did not hold any derivatives at December 31, 2000.
NOTE 2 - SECURITIES
The amortized cost and fair value of securities available for sale as of
December 31, 2000 are as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
U.S. Treasury and U.S.
Government agencies $ 12,005,315 $ 10,923 $ (136,446) $ 11,879,792
Obligations of states and
political subdivisions 6,407,674 3,283 (85,124) 6,325,833
Mortgage-backed securities 1,379,674 -- (46,844) 1,332,830
--------------- -------------- --------------- ---------------
$ 19,792,663 $ 14,206 $ (268,414) $ 19,538,455
=============== ============== =============== ===============
- --------------------------------------------------------------------------------
(Continued)
F-21
INDEPENDENT COMMUNITY BANC CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000 and 1999
- --------------------------------------------------------------------------------
NOTE 2 - SECURITIES (Continued)
The amortized cost and fair value of securities available for sale as of
December 31, 1999 are as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
U.S. Treasury and U.S.
Government agencies $ 13,032,467 $ - $ (750,991) $ 12,281,476
Obligations of states and
political subdivisions 7,195,336 8,163 (295,129) 6,908,370
Mortgage-backed securities 5,669,304 - (125,540) 5,543,764
--------------- -------------- --------------- ---------------
$ 25,897,107 $ 8,163 $ (1,171,660) $ 24,733,610
=============== ============== =============== ===============
The amortized cost and fair value of debt securities available for sale at
December 31, 2000, by contractual maturity, are shown below. Securities not due
at a single maturity date, primarily mortgage-backed securities, are shown
separately.
Amortized Fair
Cost Value
Due in one year or less $ 934,085 $ 933,027
Due after one year through five years 12,358,315 12,258,713
Due after five years through ten years 4,949,946 4,850,638
Due after ten years 170,643 163,247
Mortgage-backed securities 1,379,674 1,332,830
--------------- ----------------
$ 19,792,663 $ 19,538,455
=============== ================
Proceeds from sales and calls of securities available for sale during 2000 were
$4,271,958. Gross gains of $18,643 and gross losses of $41,679 were realized on
those sales. Proceeds from sales and calls of securities available for sale
during 1999 were $10,595,625. Gross gains of $25,162 and gross losses of $3,571
were realized on those sales.
Securities with an amortized cost of approximately $12,042,000 and $8,677,000 at
December 31, 2000 and 1999 were pledged to secure public deposits and securities
sold under agreements to repurchase.
- --------------------------------------------------------------------------------
(Continued)
F-22
INDEPENDENT COMMUNITY BANC CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000 and 1999
- --------------------------------------------------------------------------------
NOTE 3 - LOANS
Year-end loans are as follows:
2000 1999
---- ----
Business loans $ 54,426,758 $ 44,270,813
Real estate loans 19,317,151 17,351,549
Consumer loans 31,784,930 34,501,932
---------------- -----------------
Total loans $ 105,528,839 $ 96,124,294
================ =================
In the normal course of business, the Company has made loans to certain
directors, executive officers and their associates under terms consistent with
the Company's general lending policies. Loan activity related to these
individuals for 2000 is as follows:
Aggregate balance - January 1, 2000 $ $264,388
New loans -
Repayments (86,083)
----------------
Aggregate balance - December 31, 2000 $ $178,305
================
NOTE 4 - ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses is as follows:
2000 1999
---- ----
Balance - January 1 $ 1,147,158 $ 916,449
Provision for loan losses charged to expense 373,000 395,000
Loans charged-off (372,367) (289,455)
Recoveries 92,986 125,164
-------------- --------------
Balance - December 31 $ 1,240,777 $ 1,147,158
============== ==============
- --------------------------------------------------------------------------------
(Continued)
F-23
INDEPENDENT COMMUNITY BANC CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000 and 1999
- --------------------------------------------------------------------------------
NOTE 4 - ALLOWANCE FOR LOAN LOSSES (Continued)
Impaired loans are as follows:
2000 1999
---- ----
Year-end loans with allowance for loan losses
allocated $ 219,361 $ 938,418
Amount of the allowance allocated 54,840 171,859
Average of impaired loans during the year 794,668 127,450
At year-ends 2000 and 1999, all impaired loans had allowance for loan losses
allocated. Interest income related to impaired loans recognized during the years
ended December 31, 2000 and 1999 was not material.
At December 31, 2000 and 1999, loans in which the Company is not accruing
interest income totaled $647,062 and $1,071,336, respectively. In addition,
accruing loans that are more than 90 days past due totaled $26,789 and $112,891
at December 31, 2000 and 1999, respectively.
NOTE 5 - PREMISES AND EQUIPMENT
Year-end premises and equipment are as follows:
2000 1999
---- ----
Land $ 670,442 $ 957,542
Buildings and improvements 947,692 2,818,533
Furniture and equipment 1,159,392 1,157,896
Construction in progress 23,058 --
-------------- --------------
Total cost 2,800,584 4,933,971
Accumulated depreciation and amortization (1,066,486) (2,214,597)
-------------- --------------
$ 1,734,098 $ 2,719,374
============== ==============
- --------------------------------------------------------------------------------
(Continued)
F-24
INDEPENDENT COMMUNITY BANC CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000 and 1999
- --------------------------------------------------------------------------------
NOTE 6 - DEPOSITS
Time deposits of $100,000 or more were $19,373,812 and $21,733,232 at year-end
2000 and 1999.
At year-end 2000, maturities of interest-bearing time deposits were as follows:
2001 $ 41,399,214
2002 16,451,013
2003 3,243,947
2004 1,636,543
2005 446,152
-----------------
$ 63,176,869
=================
NOTE 7 - OTHER BORROWINGS
In 1998, the Company borrowed $3,000,000 from another financial institution in
conjunction with the acquisition of a branch banking facility. At the discretion
of the Company, the interest rate on the loan adjusted every 30, 90 or 180 days
based on either the current London Interbank Offering Rate or Prime Rate. Only
interest payments were required for the first two years. At the end of two
years, the Company was required to make 11 quarterly principal and interest
payments with a final balloon payment due at the end of the loan term. The
Company pledged all common stock of the Citizens National Bank of Norwalk as
collateral for the borrowing.
On July 26, 2000, the Company refinanced the outstanding balance of $2,735,000.
At the discretion of the Company, the interest rate on the loan adjusted every
90 or 180 days based on either the current London Interbank Offering Rate or
Prime Rate. The rate at December 31, 2000 was 8.93% per annum. Starting December
1, 2000, the Company will make 27 quarterly principal and interest payments with
a final balloon payment due at the end of the loan term. The Company pledged all
common stock of the Citizens National Bank of Norwalk as collateral for the
borrowing. At December 31, 2000, required annual principal payments were as
follows:
2001 $ 200,000
2002 200,000
2003 200,000
2004 200,000
2005 200,000
Thereafter 1,635,000
-----------------
$ 2,635,000
=================
- --------------------------------------------------------------------------------
(Continued)
F-25
INDEPENDENT COMMUNITY BANC CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000 and 1999
- --------------------------------------------------------------------------------
NOTE 7 - OTHER BORROWINGS (Continued)
Additionally at December 31, 2000, a $14 million cash management advance
revolving line of credit was approved with the Federal Home Loan Bank. At
December 31, 1999, a $10 million revolving line of credit and a $2 million
letter of credit were approved with the Federal Home Loan Bank. At December 31,
2000 and 1999, the Company had $6,000,000 and $1,000,000 outstanding on the
revolving line of credit. Collateral for the line and letter of credit consists
of a blanket pledge of all first mortgage loans secured by one to four family
residential properties and all Federal Home Loan Bank stock.
NOTE 8 - COMMITMENTS AND CONTINGENCIES AND FINANCIAL INSTRUMENTS
WITH OFF-BALANCE SHEET RISK
Some financial instruments are used in the normal course of business to meet the
financing needs of customers and to reduce exposure to interest rate changes.
These financial instruments include commitments to extend credit and standby
letters of credit. These involve, to varying degrees, credit and interest rate
risk more than the amount reported in the consolidated financial statements.
The Company has the following commitments outstanding (at market rate) as of
December 31:
2000 1999
---- ----
Unused commitments $ 15,796,000 $ 12,493,000
Exposure to credit loss if the other party does not perform is represented by
the contractual amount of these items.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the commitment and
generally have fixed expiration dates. Collateral or other security is normally
not obtained for these financial instruments before their use, and many of the
commitments are expected to expire without being used. Standby letters of credit
are conditional commitments to guarantee a customer's performance to a third
party.
The Company is required by the Federal Reserve to maintain reserves consisting
of cash on hand and noninterest-bearing balances on deposit with the Federal
Reserve Bank. The required reserve balance at December 31, 2000 and 1999 was
$686,000 and $705,000.
At December 31, 2000, the Company had holdings of $1,454,000 in demand deposits
and federal funds sold due from Bank One, N.A.
NOTE 9 - EMPLOYEE BENEFITS
The Bank has established a 401(k) plan covering substantially all employees. The
annual expense of the plan is based on 100% matching of voluntary employee
contributions for the first 4% of individual compensation deferred and 50%
matching on the next 2% of voluntary employee compensation deferred. Employee
voluntary and employer matching contributions are vested at all times. In
addition, the employer may elect to make discretionary "Basic" and "Integrated"
contributions, which are fully vested after 5 years of service. The expense
related to this plan was $60,360 and $63,840 for 2000 and 1999.
- --------------------------------------------------------------------------------
(Continued)
F-26
INDEPENDENT COMMUNITY BANC CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000 and 1999
- --------------------------------------------------------------------------------
NOTE 10 - INCOME TAXES
The provision for income taxes is as follows:
2000 1999
---- ----
Federal
Current $ 525,653 $ 592,329
Deferred (2,314) (99,308)
-------------- --------------
$ 523,339 $ 493,021
============== ==============
The sources of gross deferred tax assets and liabilities are as follows:
December 31,
---------------------------------
2000 1999
---- ----
Total deferred tax assets
Allowance for loan losses $421,864 $ 390,034
Deferred compensation 121,379 130,301
Net unrealized loss on securities
available for sale 86,431 395,589
Other 3,849 3,966
Total deferred tax liabilities
FHLB stock dividends (51,170) (38,794)
Depreciation (17,931) (6,963)
Deferred loan fees/cost (7,362) (8,129)
Other (3,297) (5,397)
------------ ------------
Net deferred tax asset $ 553,763 $ 860,607
============ ============
The bank has sufficient taxes paid in current and prior years to warrant
recording the full deferred tax asset without a valuation allowance.
- --------------------------------------------------------------------------------
(Continued)
F-27
INDEPENDENT COMMUNITY BANC CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000 and 1999
- --------------------------------------------------------------------------------
NOTE 10 - INCOME TAXES (Continued)
Total provision for federal income tax differs from the expected amounts
computed by applying the statutory federal tax rate of 34% to income before
taxes. The reasons for this difference are as follows:
Years Ended December 31,
------------------------------------------------
2000 1999
---------------------- --------------------
Amount Rate Amount Rate
---------- ------- ---------- ------
Tax provision at statutory rate $ 584,447 34.0% $ 541,521 34.0%
Tax-exempt interest income (65,135) (3.8) (68,866) (4.3)
Other 4,027 0.2 20,366 1.3
---------- ------- ---------- ------
Tax provision at effective rate $ 523,339 30.4% $ 493,021 31.0%
========== ======= ========== ======
The differences between the financial statement provision for income taxes and
amounts computed by applying the statutory federal income tax rate to income
before income taxes are primarily due to tax-exempt income.
NOTE 11 - STOCK OPTIONS
In 1997, the shareholders approved an incentive stock option plan for the
Company's executive officers, which provides for issue of up to 25,000 options.
In 2000, shareholders increased the amount of options available for grants to
50,000 options. Exercise price is the market price at the date of grant. The
maximum option term is ten years, and options vest over five years or upon the
death or disability of a participant.
A summary of the activity in the plan is as follows:
2000 1999
---- ----
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------ ----- ------ -----
Outstanding at beginning
of year 17,800 $ 17.00 20,500 $ 17.00
Granted 13,500 20.78 1,500 20.00
Exercised (7,000) 17.00 -- --
Forfeited (7,300) 17.41 (4,200) 18.07
----------- -----------
Outstanding at end of year 17,000 19.82 17,800 17.00
=========== ===========
Options exercisable at year-end 2,700 $ 17.00 11,400 $ 17.00
- --------------------------------------------------------------------------------
(Continued)
F-28
INDEPENDENT COMMUNITY BANC CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000 and 1999
- --------------------------------------------------------------------------------
NOTE 11 - STOCK OPTIONS (Continued)
Options outstanding at year-end 2000 were as follows.
Outstanding
-----------
Weighted Average
Remaining
Exercise Contractual
Price Number Life (Years) Exercisable
----- ------ ------------ -----------
$ 17.00 4,500 6.9 2,700
20.00 5,500 9.5 --
21.50 7,000 9.1 --
Had compensation cost for stock options been measured using FASB Statement No.
123, net income and earnings per share would have been the pro forma amounts
indicated below. The pro forma effect may increase in the future if more options
are granted.
2000 1999
---- ----
Net income as reported $ 1,195,263 $ 1,099,687
Pro forma net income 1,195,731 1,088,971
Basic earnings per common share as reported $ 1.97 $ 1.84
Proforma basic earnings per common share 1.97 1.83
Diluted earnings per common share as reported $ 1.97 $ 1.83
Proforma diluted earnings per common share 1.97 1.81
The pro forma effects of options granted in 2000 were computed using option
pricing models, using the following weighted average assumptions as of the grant
date.
2000
----
Risk free interest rate 6.41%
Expected option life 10 years
Dividend yield 3.74%
Expected stock price volatility --
The fair value of options granted in 2000 was $3.34 per option. The fair value
of options granted in 1999 was not material.
- --------------------------------------------------------------------------------
(Continued)
F-29
INDEPENDENT COMMUNITY BANC CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000 and 1999
- --------------------------------------------------------------------------------
NOTE 12 - FAIR VALUES OF FINANCIAL INSTRUMENTS
The following table shows the estimated fair values and the related carrying
values of the Company's financial instruments at December 31, 2000 and 1999.
Items that are not financial instruments are not included.
2000 1999
---- ----
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------ ---------- ------ ----------
Financial assets:
Cash and cash equivalents $ 4,884,947 $ 4,885,000 $ 4,340,956 $ 4,341,000
Securities available for sale 19,538,455 19,539,000 24,733,610 24,734,000
Other securities 700,300 700,000 663,900 664,000
Loans, net 104,288,062 103,343,000 94,977,136 94,474,000
Accrued interest receivable 936,684 937,000 856,786 857,000
Financial liabilities:
Demand and savings deposits (52,605,424) (52,605,000) (52,352,872) (52,353,000)
Time deposits (63,176,869) (63,296,000) (66,129,057) (66,133,000)
Securities sold under agreements
to repurchase (300,871) (301,000) (304,751) (305,000)
Federal funds purchased (6,000,000) (6,000,000) (1,000,000) (1,000,000)
Other borrowings (2,635,000) (2,635,000) (3,000,000) (3,000,000)
Accrued interest payable (477,464) (477,000) (469,470) (469,000)
For purposes of the above disclosures of estimated fair values, the following
assumptions were used. The estimated fair value approximates carrying amount for
all items except those described below. The estimated fair value for securities
available for sale is based on quoted market values for the individual
securities or for equivalent securities. The estimated fair value for loans is
based on estimates of the difference in interest rates the Company would charge
the borrowers for similar such loans with similar maturities, applied for an
estimated time period until the loan is assumed to reprice or be paid. The
estimated fair value for time deposits is based on estimates of the rate the
Company would pay on such deposits, applied for the time period until maturity.
The estimated fair value for other financial instruments and off-balance sheet
loan commitments approximate cost and is not considered significant to this
presentation.
While these estimates of fair value are based on management's judgment of the
most appropriate factors, there is no assurance that were the Company to have
disposed of such items, the estimated fair values would necessarily have been
achieved at those dates, since market values may differ depending on various
circumstances. The estimated fair values at December 31, 2000 and 1999 should
not necessarily be considered to apply at subsequent dates.
- --------------------------------------------------------------------------------
(Continued)
F-30
INDEPENDENT COMMUNITY BANC CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000 and 1999
- --------------------------------------------------------------------------------
NOTE 12 - FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued)
In addition, other assets and liabilities of the Company that are not defined as
financial instruments are not included in the above disclosures, such as
property and equipment and intangibles. In addition, nonfinancial instruments
typically not recognized in the financial statements nevertheless may have value
but are not included in the above disclosures. These include, among other items,
the estimated earnings power of core deposit accounts, the earnings potential of
loan servicing rights, the earnings potential of the Company's trust department,
the trained work force, customer goodwill and similar items.
NOTE 13 - OTHER COMPREHENSIVE INCOME (LOSS)
Other comprehensive income (loss) components and related taxes were as follows:
2000 1999
---- ----
Unrealized holding gain (loss) on securities
available for sale $ 886,252 $ (1,095,114)
Less reclassification adjustments for gains (loss)
included in net income (23,036) 21,591
--------------- --------------
Net unrealized gains (losses) 909,288 (1,116,705)
Tax effects (309,158) 379,681
-------------- --------------
Total other comprehensive income (loss) $ 600,130 $ (737,024)
============== ==============
NOTE 14 - REGULATORY MATTERS
The Bank is subject to regulatory capital requirements administered by federal
banking agencies. Capital adequacy guidelines and prompt corrective action
regulations involve quantitative and qualitative measures of assets,
liabilities, and certain off-balance sheet items calculated under regulatory
accounting practices.
The prompt corrective action regulations provide five classifications, including
well capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized, although these terms are not
used to represent overall financial condition. If only adequately capitalized,
regulatory approval is required to accept brokered deposits. If
undercapitalized, capital distributions are limited, as is asset growth and
expansion, and plans for capital restoration are required.
- --------------------------------------------------------------------------------
(Continued)
F-31
INDEPENDENT COMMUNITY BANC CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000 and 1999
- --------------------------------------------------------------------------------
NOTE 14 - REGULATORY MATTERS (Continued)
At year-end 2000 and 1999, actual capital levels (in thousands) and minimum
required levels of the Citizens National Bank of Norwalk were:
Minimum Required
To Be Well
Minimum Required Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Regulations
------ ----------------- ------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
December 31, 2000
- -----------------
Total capital (to risk weighted assets) $ 11,329 11.0% $ 8,271 8.0% $ 10,339 10.0%
Tier 1 capital (to risk weighted assets) 10,088 9.8 4,135 4.0 6,203 6.0
Tier 1 capital (to average assets) 10,088 7.8 5,147 4.0 6,433 5.0
December 31, 1999
- -----------------
Total capital (to risk weighted assets) $ 10,198 11.0% $ 7,395 8.0% $ 9,244 10.0%
Tier 1 capital (to risk weighted assets) 9,051 9.8 3,697 4.0 5,546 6.0
Tier 1 capital (to average assets) 9,051 7.0 5,170 4.0 6,463 5.0
At year-end 2000 and 1999, the Bank was categorized as well capitalized.
Management believes that no events have occurred since December 31, 2000 that
would change the capital category.
NOTE 15 - PARENT COMPANY CONDENSED FINANCIAL STATEMENTS
CONDENSED BALANCE SHEETS
December 31, 2000 and 1999
2000 1999
---- ----
ASSETS
Cash $ 24,992 $ 3,034
Investment in subsidiary bank 13,623,492 12,277,758
Other assets -- 77,000
---------------- ---------------
Total assets $ 13,648,484 $ 12,357,792
================ ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Borrowings $ 2,635,000 $ 3,000,000
Other liabilities 20,610 4,199
---------------- ---------------
Total liabilities 2,655,610 3,004,199
Total shareholders' equity 10,992,874 9,353,593
---------------- ---------------
Total liabilities and shareholders' equity $ 13,648,484 $ 12,357,792
================ ===============
- --------------------------------------------------------------------------------
(Continued)
F-32
INDEPENDENT COMMUNITY BANC CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000 and 1999
- --------------------------------------------------------------------------------
NOTE 15 - PARENT COMPANY CONDENSED FINANCIAL STATEMENTS (Continued)
CONDENSED STATEMENTS OF INCOME
Years ended December 31, 2000 and 1999
2000 1999
---- ----
Dividends from subsidiary bank $ 621,500 $ 447,283
Other income 1,323 365
-------------- --------------
622,823 447,648
Interest expense 254,264 226,313
Operating expenses 7,101 59
-------------- --------------
INCOME BEFORE INCOME TAX BENEFIT AND EQUITY IN UNDISTRIBUTED
NET INCOME OF SUBSIDIARY BANK 361,458 221,276
Income tax benefit 88,561 77,000
-------------- --------------
INCOME BEFORE EQUITY IN UNDISTRIBUTED
NET INCOME OF SUBSIDIARY BANK 450,019 298,276
Equity in undistributed income of subsidiary bank 745,604 801,411
-------------- --------------
NET INCOME $ 1,195,623 $ 1,099,687
============== ==============
CONDENSED STATEMENTS OF CASH FLOWS
Years ended December 31, 2000 and 1999
2000 1999
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,195,623 $ 1,099,687
Adjustments to reconcile net income to net cash from operating
activities
Change in other assets and liabilities (271,589) (55,591)
Equity in undistributed net income of bank subsidiary (380,604) (801,411)
------------- --------------
Net cash from operating activities 543,430 242,685
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings 2,735,000 --
Repayments of borrowings (3,100,000) --
Cash dividends paid to shareholders (365,143) (345,906)
Proceeds from sale of treasury stock 208,708 109,069
Acquisition of treasury stock (37) (6,000)
------------- --------------
Net cash from financing activities (521,472) (242,837)
------------- --------------
Net change in cash and cash equivalents 21,958 (152)
Cash and cash equivalents at beginning of year 3,034 3,186
------------- --------------
Cash and cash equivalents at end of year $ 24,992 $ 3,034
============= ==============
F-33
APPENDIX A
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER
dated as of
November 1, 2001
by and between
FIRST CITIZENS BANC CORP.
and
INDEPENDENT COMMUNITY BANC CORP.
TABLE OF CONTENTS
PAGE
RECITALS..........................................................................................................1
ARTICLE I - CERTAIN DEFINITIONS...................................................................................1
1.01 Certain Definitions.................................................................................1
ARTICLE II - THE MERGER...........................................................................................7
2.01 The Parent Merger...................................................................................7
2.02 The Subsidiary Merger...............................................................................7
2.03 Effectiveness of Parent Merger......................................................................7
2.04 Effective Date and Effective Time...................................................................7
ARTICLE III - CONSIDERATION; EXCHANGE PROCEDURES..................................................................8
3.01 Merger Consideration................................................................................8
3.02 Rights as Shareholders; Share Transfers.............................................................8
3.03 Fractional Shares...................................................................................8
3.04 Exchange Procedures.................................................................................9
3.05 Anti-Dilution Provisions; Other Adjustments........................................................10
ARTICLE IV - ACTIONS PENDING CONSUMMATION OF MERGER..............................................................10
4.01 Forbearances of ICBC...............................................................................10
4.02 Forbearances of First Citizens.....................................................................12
ARTICLE V - REPRESENTATIONS AND WARRANTIES.......................................................................13
5.01 Disclosure Schedules...............................................................................13
5.02 Standard...........................................................................................14
5.03 Representations and Warranties of ICBC.............................................................14
5.04 Representations and Warranties of First Citizens...................................................26
ARTICLE VI - COVENANTS...........................................................................................31
6.01 Reasonable Best Efforts............................................................................31
6.02 Shareholder Approvals..............................................................................31
6.03 Registration Statement.............................................................................32
6.04 Press Releases.....................................................................................33
6.05 Access; Information................................................................................33
6.06 Acquisition Proposals; Break Up Fee................................................................34
6.07 Affiliate Agreements...............................................................................34
6.08 Certain Policies...................................................................................35
6.09 NASDAQ Listing.....................................................................................35
6.10 Regulatory Applications............................................................................35
6.11 Employment Matters; Employee Benefits..............................................................36
6.12 Notification of Certain Matters....................................................................36
6.13 Dividend Coordination..............................................................................36
6.14 Accounting and Tax Treatment.......................................................................36
6.15 No Breaches of Representations and Warranties......................................................36
6.16 Consents...........................................................................................36
i
6.17 Insurance Coverage.................................................................................37
6.18 Correction of Information..........................................................................37
6.19 Confidentiality....................................................................................37
6.20 Supplemental Assurances............................................................................37
6.21 Regulatory Matters.................................................................................38
6.22 Employment Agreements and Retention Arrangements...................................................38
6.23 Financial Statements...............................................................................38
6.24 First Citizens Board of Directors Structure Following the Parent Merger............................38
6.25 First Citizens Bank Board of Directors Following the Subsidiary Merger.............................38
6.26 Establishment of Bank Community Board..............................................................38
6.27 Bank Signage.......................................................................................38
6.28 Voting Agreements..................................................................................39
6.29 Indemnification; Directors' and Officers' Liability Insurance......................................39
ARTICLE VII - CONDITIONS TO CONSUMMATION OF THE MERGER...........................................................39
7.01 Conditions to Each Party's Obligation to Effect the Merger.........................................39
7.02 Conditions to Obligation of ICBC...................................................................40
7.03 Conditions to Obligation of First Citizens.........................................................41
ARTICLE VIII - TERMINATION.......................................................................................41
8.01 Termination........................................................................................41
8.02 Effect of Termination and Abandonment, Enforcement of Agreement....................................42
ARTICLE IX - MISCELLANEOUS.......................................................................................43
9.01 Survival...........................................................................................43
9.02 Waiver; Amendment..................................................................................43
9.03 Counterparts.......................................................................................43
9.04 Governing Law......................................................................................43
9.05 Expenses...........................................................................................43
9.06 Notices............................................................................................43
9.07 Entire Understanding; No Third Party Beneficiaries.................................................45
9.08 Interpretation; Effect.............................................................................45
9.09 Waiver of Jury Trial...............................................................................45
EXHIBIT A Form of Voting Agreement
EXHIBIT B Form of ICBC Affiliate Agreement
</Table>
ii
AGREEMENT AND PLAN OF MERGER, dated as of November 1, 2001 (this
"Agreement"), by and between First Citizens Banc Corp. ("First Citizens") and
Independent Community Banc Corp. ("ICBC").
RECITALS
A. Independent Community Banc Corp. ICBC is an Ohio corporation, having its
principal place of business in Norwalk, Ohio.
B. First Citizens Banc Corp. First Citizens is an Ohio corporation, having
its principal place of business in Sandusky, Ohio.
C. Voting Agreements. As an inducement to the willingness of First Citizens
to continue to pursue the transactions contemplated by this Agreement, First
Citizens has entered into a Voting Agreement with each of certain shareholders
of ICBC named therein (the "Shareholders"), in substantially the form of Exhibit
A (collectively, the "Voting Agreements"), pursuant to which the Shareholders
have agreed, among other things, to vote all of ICBC Common Shares (as defined
below) owned by the Shareholders (i) in favor of the Parent Merger (as defined
below) and (ii) against any Acquisition Proposal (as defined below), or any
other action or agreement that would result in a breach of any of the terms of
this Agreement by ICBC.
D. Intentions of the Parties. It is the intention of the parties to this
Agreement that the business combinations contemplated hereby be accounted for
under the purchase accounting method and that each be treated as a
"reorganization" under Section 368 of the Code (as defined below).
E. Board Action. The respective Boards of Directors of each of First
Citizens and ICBC have determined that it is in the best interests of their
respective companies and their respective shareholders to consummate the
strategic business combinations provided for herein.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants, representations, warranties and agreements contained herein the
parties agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
1.01 CERTAIN DEFINITIONS. The following terms are used in this Agreement
with the meanings set forth below:
"Acquisition Proposal" means any tender or exchange offer, proposal
for a merger, consolidation or other business combination involving ICBC or
any of its Subsidiaries or any proposal or offer to acquire in any manner a
substantial equity interest in, or a substantial portion of the assets or
deposits of, ICBC or any of its Subsidiaries, other than the transactions
contemplated by this Agreement.
"Agreement" means this Agreement, as amended or modified from time to
time in accordance with Section 9.02.
"Agreement to Merge" has the meaning set forth in Section 2.02.
"Average First Citizens Price" has the meaning set forth in Section
8.01(e).
"Bank" means Citizens National Bank of Norwalk, a wholly owned
subsidiary of ICBC.
"BHCA" means the Bank Holding Company Act of 1956, as amended.
"Code" means the Internal Revenue Code of 1986, as amended.
"Compensation and Benefit Plans" has the meaning set forth in Section
5.03(m)(i).
"Consultants" has the meaning set forth in Section 5.03(m)(i).
"Directors" has the meaning set forth in Section 5.03(m)(i).
"Disclosure Schedule" has the meaning set forth in Section 5.01.
"Dissenting Shares" means any ICBC Common Shares held by a holder who
properly demands and perfects appraisal rights with respect to such shares
in accordance with applicable provisions of the OGCL.
"Effective Date" has the meaning set forth in Section 2.04.
"Effective Time" has the meaning set forth in Section 2.04.
"Employees" has the meaning set forth in Section 5.03(m)(i).
"Environmental Laws" means all applicable local, state and federal
environmental, health and safety laws and regulations, including, without
limitation, the Resource Conservation and Recovery Act, the Comprehensive
Environmental Response, Compensation, and Liability Act, the Clean Water
Act, the Federal Clean Air Act, and the Occupational Safety and Health Act,
each as amended, the regulations promulgated thereunder, and any state
counterparts.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" has the meaning set forth in Section 5.03(m)(iii).
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
-2-
"Exchange Agent" has the meaning set forth in Section 3.04(a).
"Exchange Fund" has the meaning set forth in Section 3.04(a).
"Exchange Ratio" has the meaning set forth in Section 3.01(a).
"FDIA" means the Federal Deposit Insurance Act.
"FDIC" means the Federal Deposit Insurance Corporation.
"FFIEC" means Federal Financial Institutions Examination Committee.
"First Citizens" has the meaning set forth in the preamble to this
Agreement.
"First Citizens 2001 Financial Statements" has the meaning set forth
in Section 6.23.
"First Citizens Articles" means the Articles of Incorporation of First
Citizens, as amended.
"First Citizens Bank" means The Citizens Banking Company, an Ohio
banking corporation which is a wholly owned subsidiary of First Citizens.
"First Citizens Board" means the Board of Directors of First Citizens.
"First Citizens Code" means the Code of Regulations of First Citizens,
as amended.
"First Citizens Common Shares" means the common shares, without par
value per share, of First Citizens.
"First Citizens Meeting" has the meaning set forth in Section 6.02.
"First Citizens SEC Documents" has the meaning set forth in Section
5.04(h)(i).
"GAAP" means generally accepted accounting principles.
"Governmental Authority" means any court, administrative agency or
commission or other federal, state or local governmental authority or
instrumentality.
"ICBC" has the meaning set forth in the preamble to this Agreement.
"ICBC 2001 Financial Statements" has the meaning set forth in Section
6.23.
-3-
"ICBC Affiliate" has the meaning set forth in Section 6.07.
"ICBC Articles" means the Articles of Incorporation of ICBC, as
amended.
"ICBC Board" means the Board of Directors of ICBC.
"ICBC Code" means the Code of Regulations of ICBC.
"ICBC Common Shares" means the common shares, without par value, of
ICBC.
"ICBC DRIP" means ICBC's Dividend Reinvestment and Stock Purchase
Plan.
"ICBC Meeting" has the meaning set forth in Section 6.02.
"IRS" has the meaning set forth in Section 5.03(m)(ii).
The term "knowledge" means, with respect to First Citizens, actual
knowledge of any officer of First Citizens with the title of not less than
a senior vice president and, with respect to ICBC, actual knowledge of any
officer of ICBC with the title of not less than vice president.
"Lien" means any charge, mortgage, pledge, security interest,
restriction, claim, lien, or encumbrance.
"Material Adverse Effect" means, with respect to First Citizens or
ICBC, any effect that (i) is material and adverse to the financial
position, results of operations or business of First Citizens and its
Subsidiaries taken as a whole or ICBC and its Subsidiaries taken as a
whole, respectively, or (ii) would materially impair the ability of either
First Citizens or ICBC to perform its obligations under this Agreement or
otherwise materially threaten or materially impede the consummation of the
Merger and the other transactions contemplated by this Agreement; provided,
however, that Material Adverse Effect shall not be deemed to include the
impact of (a) changes in banking and similar laws of general applicability
or interpretations thereof by courts or governmental authorities or other
changes affecting depository institutions generally, including changes in
general economic conditions and changes in prevailing interest and deposit
rates and changes as a result of the terrorist attack on the United States
on September 11, 2001, (b) any modifications or changes to valuation
policies and practices in connection with the Merger or restructuring
charges taken in connection with the Merger, in each case in accordance
with GAAP, (c) changes resulting from expenses (such as legal, accounting
and investment bankers' fees) incurred in connection with this Agreement or
the transactions contemplated herein, or (d) actions or omissions of a
party which have been waived in accordance with Section 9.02.
-4-
"Merger" collectively refers to the Parent Merger and the Subsidiary
Merger, as set forth in Section 2.02.
"Merger Consideration" has the meaning set forth in Section 2.01.
"NASD" means The National Association of Securities Dealers.
"NASDAQ" means The Nasdaq Stock Market, Inc.'s SmallCap Market System.
"New Certificate" has the meaning set forth in Section 3.04(a).
"OCC" means The Office of the Comptroller of the Currency.
"OGCL" means the Ohio General Corporation Law.
"Old Certificate" has the meaning set forth in Section 3.04(a).
"ORC" means the Ohio Revised Code.
"OSS " means the Office of the Secretary of State of the State of
Ohio.
"Parent Merger" has the meaning set forth in Section 2.01.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Person" means any individual, bank, corporation, partnership,
association, joint-stock company, business trust, limited liability company
or unincorporated organization.
"Pension Plan" has the meaning set forth in Section 5.03(m)(ii).
"Previously Disclosed" by a party shall mean information set forth in
its Disclosure Schedule.
"Proxy/Prospectus" has the meaning set forth in Section 6.03(a).
"Proxy Statement" has the meaning set forth in Section 6.03(a).
"Registration Statement" has the meaning set forth in Section 6.03(a).
"Regulatory Authority" has the meaning set forth in Section
5.03(i)(i).
"Representatives" means, with respect to any Person, such Person's
directors, officers, employees, managers, legal or financial advisors or
any representatives of such legal or financial advisors.
"Resulting Bank" has the meaning set forth in Section 2.02.
-5-
"Rights" means, with respect to any Person, securities or obligations
convertible into or exercisable or exchangeable for, or giving any person
any right to subscribe for or acquire, or any options, warrants, calls or
commitments relating to, or any stock appreciation right or other
instrument the value of which is determined in whole or in part by
reference to the market price or value of, shares of capital stock of such
Person.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Shareholders" has the meaning set forth in Recital C.
"Subsidiary" and "Significant Subsidiary" have the meanings ascribed
to them in Rule 1-02 of Regulation S-X of the SEC.
"Surviving Corporation" has the meaning set forth in Section 2.01.
"Tax" and "Taxes" means all federal, state, local or foreign taxes,
charges, fees, levies or other assessments, however denominated, including,
without limitation, all net income, gross income, gains, gross receipts,
sales, use, ad valorem, goods and services, capital, production, transfer,
franchise, windfall profits, license, withholding, payroll, employment,
disability, employer health, excise, estimated, severance, stamp,
occupation, property, environmental, unemployment or other taxes, custom
duties, fees, assessments or charges of any kind whatsoever, together with
any interest and any penalties, additions to tax or additional amounts
imposed by any taxing authority whether arising before, on or after the
Effective Date.
"Tax Returns" means any return, amended return or other report
(including elections, declarations, disclosures, schedules, estimates and
information returns) required to be filed with respect to any Tax.
"Treasury Shares", with respect to ICBC, shall mean ICBC Common Shares
held by ICBC or any of its Subsidiaries or, with respect to First Citizens,
shall mean First Citizens Common Shares held by First Citizens or any of
its Subsidiaries, in each case other than in a fiduciary capacity or as a
result of debts previously contracted in good faith.
"Valuation Period" has the meaning set forth in Section 8.01(e).
"Voting Agreements" has the meaning set forth in Recital C.
-6-
ARTICLE II
THE MERGER
2.01 THE PARENT MERGER. At the Effective Time, ICBC shall merge with
and into First Citizens (the "Parent Merger"), the separate corporate existence
of ICBC shall cease and First Citizens shall survive and continue to exist as an
Ohio corporation (First Citizens, as the surviving corporation in the Parent
Merger, sometimes being referred to herein as the "Surviving Corporation").
Notwithstanding the provisions of Section 9.02, but subject to the final clause
thereof, First Citizens may at any time prior to the Effective Time change the
method of effecting the Merger (including, without limitation, the provisions of
this Article II) if and to the extent it deems such change to be necessary,
appropriate or desirable; provided, however, that no such change shall (i) alter
or change the amount or kind of consideration to be issued to holders of ICBC
Common Shares as provided for in Article III of this Agreement (the "Merger
Consideration"), (ii) adversely affect the tax treatment of ICBC's shareholders
as a result of receiving the Merger Consideration; or (iii) materially impede or
delay consummation of the transactions contemplated by this Agreement.
2.02 THE SUBSIDIARY MERGER. At the time specified by First Citizens
Bank in its Certificate of Merger filed with the OSS (which shall not be earlier
than the Effective Time), Bank shall merge with and into First Citizens Bank
(the "Subsidiary Merger") pursuant to an agreement to merge (the "Agreement to
Merge") to be executed by Bank and First Citizens Bank and filed with the OSS
and the OCC, as required. Upon consummation of the Subsidiary Merger, the
separate corporate existence of Bank shall cease and First Citizens Bank shall
survive and continue to exist as a state banking corporation (First Citizens
Bank, as the resulting bank in the Subsidiary Merger, sometimes being referred
to herein as the "Resulting Bank"). (The Parent Merger and the Subsidiary Merger
shall sometimes collectively be referred to as the "Merger".) Notwithstanding
the foregoing, it is understood and agreed that First Citizens shall reserve the
right to change the method of effecting the Subsidiary Merger.
2.03 EFFECTIVENESS OF PARENT MERGER. Subject to the satisfaction or
waiver, in accordance with the terms of this Agreement, of the conditions set
forth in Article VII, the Parent Merger shall become effective upon the
occurrence of the filing in the office of the OSS of a certificate of merger in
accordance with Section 1701.81 of the OGCL or such later date and time as may
be set forth in such filing. The Parent Merger shall have the effects prescribed
in the OGCL.
2.04 EFFECTIVE DATE AND EFFECTIVE TIME. Subject to the satisfaction or
waiver, in accordance with the terms of this Agreement, of the conditions set
forth in Article VII, the parties shall cause the effective date of the Parent
Merger (the "Effective Date") to occur (i) as soon as practicable after the last
of the conditions set forth in Article VII shall have been satisfied or waived,
or (ii) on such other date to which the parties may agree in writing. The time
on the Effective Date when the Parent Merger shall become effective is referred
to as the "Effective Time."
-7-
ARTICLE III
CONSIDERATION; EXCHANGE PROCEDURES
3.01 MERGER CONSIDERATION. Subject to the provisions of this
Agreement, at the Effective Time, automatically by virtue of the Parent Merger
and without any action on the part of any Person:
(a) OUTSTANDING ICBC COMMON SHARES AND ICBC RIGHTS. Each ICBC
Common Share (including those ICBC Common Shares that have been issued to ICBC
shareholders pursuant to the ICBC DRIP but excluding Treasury Shares, Dissenting
Shares and ICBC Common Shares held by First Citizens immediately prior to the
Effective Time), issued and outstanding immediately prior to the Effective Time
shall become and be converted into 1.7 First Citizens Common Shares (the
"Exchange Ratio"). The Exchange Ratio shall be subject to adjustment as set
forth in Section 3.05.
(b) TREASURY SHARES. Each ICBC Common Share held as Treasury
Shares and each ICBC Common Share held by First Citizens immediately prior to
the Effective Time shall be canceled and retired at the Effective Time and no
consideration shall be issued in exchange therefor.
(c) DISSENTING SHARES. Dissenting Shares shall not be
exchanged for First Citizens Common Shares but rather shall be entitled to the
rights set forth in Sections 1701.84 and 1701.85 of the OGCL. Notwithstanding
any other provision of this Agreement, any Dissenting Shares shall not, after
the Effective Time, be entitled to vote for any purpose or receive any dividends
or other distributions (except dividends or other distributions payable to
shareholders of record of ICBC at a date which is prior to the Effective Date)
and shall be entitled only to such rights as are afforded in respect of
Dissenting Shares pursuant to the OGCL.
(d) OUTSTANDING FIRST CITIZENS COMMON SHARES. Each First
Citizens Common Share issued and outstanding immediately prior to the Effective
Time shall remain issued and outstanding and be unaffected by the Parent Merger.
3.02 RIGHTS AS SHAREHOLDERS; SHARE TRANSFERS. At the Effective Time,
holders of ICBC Common Shares shall cease to be, and shall have no rights as,
shareholders of ICBC, other than to receive any dividend or other distribution
with respect to such ICBC Common Shares with a record date occurring prior to
the Effective Time and the consideration provided under this Article III, and
appraisal rights in the case of Dissenting Shares. After the Effective Time,
there shall be no transfers on the stock transfer books of ICBC or the Surviving
Corporation of any ICBC Common Shares.
3.03 FRACTIONAL SHARES. Notwithstanding any other provision hereof, no
fractional First Citizens Common Shares and no certificates or scrip therefor,
or other evidence of ownership thereof, will be issued in the Parent Merger.
Instead, First Citizens shall pay to each holder of ICBC Common Shares who would
otherwise be entitled to a fractional First Citizens Common Share (after taking
into account all Old Certificates delivered by such holder) an amount in cash
(without interest) determined
-8-
by multiplying such fractional First Citizens Common Share to which the holder
would be entitled by the last sale price of First Citizens Common Shares, as
reported by the NASDAQ (as reported in The Wall Street Journal or, if not
reported therein, in another authoritative source), for the NASDAQ trading day
immediately preceding the Effective Date.
3.04 EXCHANGE PROCEDURES.
(a) At or prior to the Effective Time, First Citizens shall
deposit, or shall cause to be deposited, with Illinois Stock Transfer Company
(in such capacity, the "Exchange Agent"), for the benefit of the holders of
certificates formerly representing ICBC Common Shares ("Old Certificates"), for
exchange in accordance with this Article III, certificates representing First
Citizens Common Shares ("New Certificates") and an estimated amount of cash
(such cash and New Certificates, together with any dividends or distributions
with a record date occurring on or after the Effective Date with respect thereto
(without any interest on any such cash, dividends or distributions), being
hereinafter referred to as the "Exchange Fund") to be paid pursuant to this
Article III in exchange for outstanding ICBC Common Shares.
(b) As promptly as practicable after the Effective Date, First
Citizens shall send or cause to be sent to each former holder of record of ICBC
Common Shares immediately prior to the Effective Time transmittal materials for
use in exchanging such shareholder's Old Certificates for the Merger
Consideration. First Citizens shall cause the New Certificates into which ICBC
Common Shares are converted on the Effective Date and/or any check in respect of
any fractional share interests or dividends or distributions which such
shareholder shall be entitled to receive to be delivered to such shareholder
upon delivery to the Exchange Agent of Old Certificates representing such ICBC
Common Shares (or indemnity reasonably satisfactory to First Citizens and the
Exchange Agent, if any of such certificates are lost, stolen or destroyed) owned
by such shareholder. No interest will be paid on any such cash to be paid in
lieu of fractional share interests or in respect of dividends or distributions
which any such shareholder shall be entitled to receive pursuant to this Article
III upon such delivery.
(c) Notwithstanding the foregoing, neither the Exchange Agent,
nor any party hereto shall be liable to any former holder of ICBC Common Shares
for any amount properly delivered to a public official pursuant to applicable
abandoned property, escheat or similar laws.
(d) No dividends or other distributions with respect to First
Citizens Common Shares with a record date occurring on or after the Effective
Date shall be paid to the holder of any unsurrendered Old Certificate converted
in the Parent Merger into the right to receive First Citizens Common Shares
until the holder thereof shall be entitled to receive New Certificates in
exchange therefor in accordance with the procedures set forth in this Section
3.04. After becoming so entitled in accordance with this Section 3.04, the
record holder thereof also shall be entitled to receive any such dividends or
other distributions, without any interest thereon, which theretofore had become
payable with respect to First Citizens Common Shares such holder had the right
to receive upon surrender of the Old Certificates.
-9-
(e) Any portion of the Exchange Fund that remains unclaimed by
the shareholders of ICBC for six months after the Effective Time shall be paid
to First Citizens. Any shareholders of ICBC who have not theretofore complied
with this Article III shall thereafter look only to First Citizens for payment
of the First Citizens Common Shares, cash in lieu of any fractional shares and
unpaid dividends and distributions on First Citizens Common Shares deliverable
in respect of each ICBC Common Share such shareholder holds as determined
pursuant to this Agreement, in each case, without any interest thereon.
3.05 ANTI-DILUTION PROVISIONS; OTHER ADJUSTMENTS.
(a) In the event First Citizens changes (or establishes a
record date for changing) the number of First Citizens Common Shares issued and
outstanding between the date hereof and the Effective Date as a result of a
stock split, stock dividend, recapitalization, reclassification, split up,
combination, exchange of shares, readjustment or similar transaction with
respect to the outstanding First Citizens Common Shares and the record date
therefor shall be prior to the Effective Date, the Exchange Ratio shall be
proportionately adjusted.
(b) In the event that the Average First Citizens Price during
the Valuation Period (as such terms are defined in Section 8.01(e) of this
Agreement) exceeds $29.50 (the "Base Value"), then First Citizens, at its
option, may adjust the Exchange Ratio payable to the ICBC shareholders and pay
an adjusted Exchange Ratio in accordance with the following formula: (Base Value
x 1.7) divided by Average First Citizens Price = Adjusted Exchange Ratio.
ARTICLE IV
ACTIONS PENDING CONSUMMATION OF MERGER
4.01 FORBEARANCES OF ICBC. From the date hereof until the Effective
Time, except as expressly contemplated by this Agreement, without the prior
written consent of First Citizens, ICBC will not, and will cause each of its
Subsidiaries not to:
(a) Ordinary Course. Except as Previously Disclosed, conduct
the business of ICBC and its Subsidiaries other than in the ordinary and usual
course or fail to use reasonable efforts to preserve intact their business
organizations and assets and maintain their rights, franchises and existing
relations with customers, suppliers, employees and business associates, or
voluntarily take any action which, at the time taken, is reasonably likely to
have an adverse effect upon ICBC's ability to perform any of its material
obligations under this Agreement.
(b) Capital Stock. Other than pursuant to Rights Previously
Disclosed and outstanding on the date hereof, (i) issue, sell or otherwise
permit to become outstanding, or authorize the creation of, any additional ICBC
Common Shares or any Rights, (ii) enter into any agreement with respect to the
foregoing, or (iii) permit any additional ICBC Common Shares to become subject
to new grants of Rights to any employee or director of ICBC or any of its
Subsidiaries.
-10-
(c) Dividends, Etc. (i) Make, declare, pay or set aside for
payment any dividend, other than (A) semi-annual cash dividends to holders of
ICBC Common Shares in an amount not to exceed, on an annualized basis, the
aggregate per share amount declared and paid with respect to 2000 (which was
$.60 per share), with record and payment dates consistent with past practice,
and (B) dividends from wholly owned Subsidiaries of ICBC to ICBC, or (ii)
directly or indirectly adjust, split, combine, redeem, reclassify, purchase or
otherwise acquire, any shares of its capital stock.
(d) Compensation; Employment Agreements; Etc. Enter into or
amend or renew any employment, consulting, severance, retention, change in
control, or similar agreements or arrangements with any director, officer or
employee of ICBC or any of its Subsidiaries, or grant any salary or wage
increase or increase any employee benefit, (including incentive or bonus
payments) except (i) for normal individual increases in compensation to
employees in the ordinary course of business consistent with past practice as
Previously Disclosed to First Citizens, (ii) for other changes that are required
by applicable law, or (iii) to satisfy Previously Disclosed contractual
obligations existing as of the date hereof.
(e) Benefit Plans. Except as Previously Disclosed, enter into,
establish, adopt or amend (except (i) as may be required by applicable law, (ii)
to satisfy Previously Disclosed contractual obligations existing as of the date
hereof or (iii) the regular annual renewal of insurance contracts) any pension,
retirement, stock option, stock purchase, savings, profit sharing, deferred
compensation, change in control, consulting, bonus, group insurance or other
employee benefit, incentive or welfare contract, plan or arrangement, or any
trust agreement (or similar arrangement) related thereto, in respect of any
director, officer or employee of ICBC or any of its Subsidiaries, or take any
action to accelerate the payment of benefits, or the vesting or exercisability
of stock options, restricted stock or other compensation or benefits payable
thereunder.
(f) Dispositions. Sell, transfer, mortgage, encumber or
otherwise dispose of or discontinue any of its assets, deposits, business or
properties except in the ordinary course of business.
(g) Acquisitions. Acquire (other than by way of foreclosures
or acquisitions of control in a bona fide fiduciary capacity or in satisfaction
of debts previously contracted in good faith, in each case in the ordinary and
usual course of business consistent with past practice) all or any portion of,
the assets, business, deposits or properties of any other entity.
(h) Governing Documents. Amend the ICBC Articles, ICBC Code
or the articles of incorporation or bylaws (or similar governing documents) of
any of ICBC's Subsidiaries.
(i) Accounting Methods. Implement or adopt any change in its
accounting principles, practices or methods, other than as may be required by
GAAP.
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(j) Contracts. Except in the ordinary course of business
consistent with past practice, enter into or terminate any material contract (as
defined in Section 5.03(k)) or amend or modify in any material respect any of
its existing material contracts.
(k) Claims. Except in the ordinary course of business
consistent with past practice, settle any claim, action or proceeding, except
for any claim, action or proceeding which does not involve precedent for other
material claims, actions or proceedings and which involves solely money damages
in an amount, individually or in the aggregate for all such settlements, that is
not material to ICBC and its Subsidiaries, taken as a whole.
(l) Adverse Actions. (a) Take any action while knowing that
such action would, or is reasonably likely to, prevent or impede the Merger from
qualifying as a reorganization within the meaning of Section 368 of the Code; or
(b) knowingly take any action that is intended or is reasonably likely to result
in (i) any of its representations and warranties set forth in this Agreement
being or becoming untrue in any material respect at any time at or prior to the
Effective Time, (ii) any of the conditions to the Merger set forth in Article
VII not being satisfied or (iii) a material violation of any provision of this
Agreement except, in each case, as may be required by applicable law or
regulation.
(m) Risk Management. Except pursuant to applicable law or
regulation, (i) implement or adopt any material change in its interest rate and
other risk management policies, procedures or practices; (ii) fail to follow its
existing policies or practices with respect to managing its exposure to interest
rate and other risk; (iii) fail to use commercially reasonable means to avoid
any material increase in its aggregate exposure to interest rate risk; or (iv)
fail to follow its existing policies or practices with respect to managing its
fiduciary risks.
(n) Indebtedness. Incur any indebtedness for borrowed money
other than in the ordinary course of business.
(o) Indirect and Brokered Loans. Except as Previously
Disclosed, make or purchase any indirect or brokered loans.
(p) Commitments. Agree or commit to do any of the foregoing.
4.02 FORBEARANCES OF FIRST CITIZENS. From the date hereof until the
Effective Time, except as expressly contemplated by this Agreement, without the
prior written consent of ICBC, First Citizens will not, and will cause each of
its Subsidiaries not to:
(a) Ordinary Course. Conduct the business of First Citizens
and its Subsidiaries other than in the ordinary and usual course or fail to use
reasonable efforts to preserve intact their business organizations and assets
and maintain their rights, franchises and existing relations with customers,
suppliers, employees and business associates, or voluntarily take any action
which, at the time taken, is reasonably likely
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to have an adverse effect upon First Citizens' ability to perform any of its
material obligations under this Agreement.
(b) Preservation. Fail to use reasonable efforts to preserve
intact in any material respect their business organizations and assets and
maintain their rights, franchises and existing relations with customers,
suppliers, employees and business associates.
(c) Extraordinary Dividends. Make, declare, pay or set aside
for payment any extraordinary dividend, except for special dividends paid in
accordance with past practice.
(d) Accounting Methods. Implement or adopt any change in its
accounting principles, practices or methods, other than as may be required by
GAAP.
(e) Claims. Except in the ordinary course of business
consistent with past practice, settle any claim, action or proceeding, except
for any claim, action or proceeding which does not involve precedent for other
material claims, actions or proceedings and which involve solely money damages
in an amount, individually or in the aggregate for all such settlements, that is
not material to First Citizens and its Subsidiaries, taken as a whole.
(f) Adverse Actions. (a) Take any action while knowing that
such action would, or is reasonably likely to, prevent or impede the Merger from
qualifying as a reorganization within the meaning of Section 368 of the Code; or
(b) knowingly take any action that is intended or is reasonably likely to result
in (i) any of its representations and warranties set forth in this Agreement
being or becoming untrue in any material respect at any time at or prior to the
Effective Time, (ii) any of the conditions to the Merger set forth in Article
VII not being satisfied or (iii) a material violation of any provision of this
Agreement except, in each case, as may be required by applicable law or
regulation; provided, however, that nothing contained herein shall limit the
ability of First Citizens to exercise its rights under the Voting Agreements.
(g) Risk Management. Except pursuant to applicable law or
regulation, (i) fail to follow its existing policies or practices with respect
to managing its exposure to interest rate and other risk, or (ii) fail to use
commercially reasonable means to avoid any material increase in its aggregate
exposure to interest rate risk.
(h) Commitments. Agree or commit to do any of the foregoing.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.01 DISCLOSURE SCHEDULES. On or prior to the date hereof, First
Citizens has delivered to ICBC a schedule and ICBC has delivered to First
Citizens a schedule (respectively, its "Disclosure Schedule") setting forth,
among other things, items, the disclosure of which are necessary or appropriate
either in response to an express
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disclosure requirement contained in a provision hereof or as an exception to one
or more representations or warranties contained in Section 5.03 or 5.04 or to
one or more of its respective covenants contained in Article IV; provided, that
(a) no such item is required to be set forth in a Disclosure Schedule as an
exception to a representation or warranty if its absence would not be reasonably
likely to result in the related representation or warranty being deemed untrue
or incorrect under the standard established by Section 5.02, and (b) the mere
inclusion of an item in a Disclosure Schedule as an exception to a
representation or warranty shall not be deemed an admission by a party that such
item represents a material exception or fact, event or circumstance or that such
item is reasonably likely to have or result in a Material Adverse Effect on the
party making the representation. ICBC's representations, warranties and
covenants contained in this Agreement shall not be deemed to be untrue,
incorrect or to have been breached as a result of effects on ICBC arising solely
from actions taken in compliance with a written request of First Citizens.
5.02 STANDARD. No representation or warranty of ICBC or First Citizens
contained in Section 5.03 or 5.04 shall be deemed untrue or incorrect, and no
party hereto shall be deemed to have breached a representation or warranty, as a
consequence of the existence of any fact, event or circumstance unless such
fact, circumstance or event (either individually or taken together with all
other facts, events or circumstances inconsistent with such or with any
representation or warranty contained in Section 5.03 or 5.04) has had, or is
reasonably likely to have, a Material Adverse Effect.
5.03 REPRESENTATIONS AND WARRANTIES OF ICBC. Subject to Sections 5.01
and 5.02 and except as Previously Disclosed in a paragraph of its Disclosure
Schedule corresponding to the relevant paragraph below, ICBC hereby represents
and warrants to First Citizens:
(a) ORGANIZATION, STANDING AND AUTHORITY. ICBC is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Ohio and any foreign jurisdictions where its ownership or
leasing of property or assets or the conduct of its business requires it to be
so qualified. ICBC is registered as a bank holding company under the BHCA. Bank
is a national banking association duly organized, validly existing and in good
standing under the laws of the United States of America.
(b) CAPITAL STRUCTURE OF ICBC. As of the date hereof, the
authorized capital stock of ICBC consists solely of 1,400,000 ICBC Common
Shares, of which 614,281.308 shares are outstanding. As of the date hereof,
15,160.692 Treasury Shares were held by ICBC or otherwise owned by ICBC or its
Subsidiaries. The outstanding ICBC Common Shares have been duly authorized, are
validly issued and outstanding, fully paid and nonassessable, and are not
subject to any preemptive rights (and were not issued in violation of any
preemptive rights). As of the date hereof, except as Previously Disclosed, (i)
there are no ICBC Common Shares authorized and reserved for issuance, (ii) ICBC
does not have any Rights issued or outstanding with respect to ICBC Common
Shares, and (iii) other than pursuant to the ICBC DRIP, ICBC does not have any
commitment to authorize, issue or sell any ICBC Common Shares or
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Rights. ICBC has an option plan pursuant to which Rights to purchase ICBC Common
Shares are outstanding and there are outstanding options to purchase 17,000 ICBC
Common Shares under such option plan.
(c) SUBSIDIARIES.
(i)(A) Bank is ICBC's only subsidiary, (B) ICBC owns,
directly or indirectly, all the issued and outstanding equity
securities of each of its Subsidiaries, (C) no equity securities of any
of its Subsidiaries are or may become required to be issued (other than
to ICBC or any of its wholly-owned Subsidiaries) by reason of any Right
or otherwise, (D) there are no contracts, commitments, understandings
or arrangements by which any of such Subsidiaries is or may be bound to
sell or otherwise transfer any equity securities of any such
Subsidiaries (other than to ICBC or any of its wholly-owned
Subsidiaries), (E) there are no contracts, commitments, understandings,
or arrangements relating to its rights to vote or to dispose of such
securities and (F) all the equity securities of each Subsidiary held by
ICBC or any of its Subsidiaries are fully paid and nonassessable
(except pursuant to 12 U.S.C. Section 55) and are owned by ICBC or its
Subsidiaries, except as Previously Disclosed, free and clear of any
Liens.
(ii) ICBC does not own beneficially, directly or
indirectly, any equity securities or similar interests of any Person,
or any interest in a partnership or joint venture of any kind, other
than its Subsidiaries.
(d) CORPORATE AUTHORITY. Each of ICBC and Bank has full
corporate power and authority to carry on its business as it is now being
conducted and to own all its properties and assets. Subject to the receipt by
ICBC of the approval of this Agreement and the Merger from their respective
shareholders and the approval of applicable federal and state banking
authorities, as set forth in subsection (f) below, ICBC has the corporate power
and authority to execute, deliver and perform its obligations under this
Agreement, and Bank has the corporate power and authority to consummate the
Subsidiary Merger in accordance with the terms of this Agreement.
(e) CORPORATE POWER; AUTHORIZED AND EFFECTIVE AGREEMENT.
Subject to receipt of the requisite adoption of this Agreement and the Parent
Merger by the holders of the outstanding ICBC Common Shares entitled to vote
thereon, this Agreement and the transactions contemplated hereby have been
authorized by all necessary corporate action of ICBC and the ICBC Board on or
prior to the date hereof. This Agreement is a valid and legally binding
obligation of ICBC, enforceable against ICBC in accordance with its terms
(except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and similar laws of general
applicability relating to or affecting creditors' rights or by general equity
principles, and except to the extent such enforceability may be limited by laws
relating to safety and soundness of insured depository institutions as set forth
in 12 U.S.C. Section 1818(b) or by appointment of a conservator by the FDIC).
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(f) REGULATORY APPROVALS; NO DEFAULTS.
(i) Except as Previously Disclosed, no consents or
approvals of, or filings or registrations with, any Governmental
Authority or with any third party are required to be made or obtained
by ICBC or any of its Subsidiaries in connection with the execution,
delivery or performance by ICBC of this Agreement or the consummation
of the Merger, except for (A) the filings of applications, notices and
the Agreement to Merge, as applicable, with federal and state banking
authorities to approve the transactions contemplated by this Agreement
and to continue ICBC's trust powers and trust activities, (B) the
filings with the SEC and state securities authorities, (C) the filing
of the certificate of merger with the OSS pursuant to the OGCL, and (D)
receipt of approvals set forth in Section 7.01(b). As of the date
hereof, ICBC is not aware of any reason why the approvals set forth in
Section 7.01(b) will not be received without the imposition of a
condition, restriction or requirement of the type described in Section
7.01(b).
(ii) Subject to receipt of the regulatory and
shareholder approvals referred to above and expiration of related
regulatory waiting periods, and required filings under federal and
state securities laws, the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby
do not and will not (A) except as Previously Disclosed, constitute a
breach or violation of, or a default under, or give rise to any Lien,
any acceleration of remedies or any right of termination under, any
law, rule or regulation or any judgment, decree, order, governmental
permit or license, or agreement, indenture or instrument of ICBC or of
any of its Subsidiaries or to which ICBC or any of its Subsidiaries or
properties is subject or bound, (B) constitute a breach or violation
of, or a default under, the ICBC Articles or the ICBC Code or (C)
except as Previously Disclosed, require any consent or approval under
any such law, rule, regulation, judgment, decree, order, governmental
permit or license, agreement, indenture or instrument.
(g) FINANCIAL STATEMENTS; MATERIAL ADVERSE EFFECT.
(i) ICBC has delivered or will deliver to First
Citizens (a) financial statements for each of the fiscal years ended
December 31, 1996, 1997, 1998, 1999 and 2000, respectively, consisting
of balance sheets and the related statements of income and retained
earnings and cash flows for the fiscal years ended on such date, all as
certified by Crowe, Chizek, L.L.P., ICBC's independent auditors, and
(b) unaudited consolidated financial statements for the interim periods
ended March 31, 2001 and June 30, 2001, consisting of balance sheets
and the related statements of income. The aforesaid financial
statements, as of the dates thereof and for the periods covered
thereby, have been prepared in conformity with GAAP, consistently
applied throughout the periods indicated, and fairly present the
financial position of ICBC as of the dates thereof and the results of
operations and cash flows for the periods indicated, except in the case
of the interim financial statements, normal year-end adjustments and
the absence of notes thereto.
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(ii) Since June 30, 2001, ICBC and its Subsidiaries
have not incurred any material liability not disclosed in ICBC's
financial statements that would be required to be disclosed therein
pursuant to GAAP.
(iii) Since June 30, 2001, (A) ICBC and its
Subsidiaries have conducted their respective businesses in the ordinary
and usual course consistent with past practice (excluding matters
related to this Agreement and the transactions contemplated hereby) and
(B) no event has occurred or circumstance arisen that, individually or
taken together with all other facts, circumstances and events
(described in any paragraph of Section 5.03 or otherwise), is
reasonably likely to have a Material Adverse Effect with respect to
ICBC.
(iv) The ICBC 2001 Financial Statements will not (i)
reveal one or more matters that are inconsistent with any of the
representations and warranties of ICBC and which constitute or are
reasonably likely to have a Material Adverse Effect on ICBC or any of
its Subsidiaries or (ii) deviate materially and adversely from the
financial statements for the fiscal year ended December 31, 2000 or the
three (3) months ended March 31, 2001 or six (6) months ended June 30,
2001, respectively, of ICBC.
(h) LITIGATION. Except as Previously Disclosed, no litigation,
claim or other proceeding before any court or governmental agency is pending
against ICBC or any of its Subsidiaries and, to ICBC's knowledge, no such
litigation, claim or other proceeding has been threatened.
(i) REGULATORY MATTERS.
(i) Neither ICBC nor any of its Subsidiaries or
properties is a party to or is subject to any order, decree, agreement,
memorandum of understanding or similar arrangement with, or a
commitment letter or similar submission to, or extraordinary
supervisory letter from, any federal or state governmental agency or
authority charged with the supervision or regulation of financial
institutions (or their holding companies) or issuers of securities or
engaged in the insurance of deposits (including, without limitation,
the Office of the Comptroller of the Currency, the Federal Reserve
System and the FDIC) or engaged in the supervision or regulation of
ICBC or any of its Subsidiaries (collectively, the "Regulatory
Authorities").
(ii) Neither ICBC nor any of its Subsidiaries has
been advised by any Regulatory Authority that such Regulatory Authority
is contemplating issuing or requesting (or is considering the
appropriateness of issuing or requesting) any such order, decree,
agreement, memorandum of understanding, commitment letter, supervisory
letter or similar submission.
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(j) COMPLIANCE WITH LAWS. Except as Previously Disclosed,
each of ICBC and its Subsidiaries:
(i) is in compliance in all material respects with
all applicable federal, state, local and foreign statutes, laws,
regulations, ordinances, rules, judgments, orders or decrees applicable
thereto, including those relating to the conduct of trust activities or
to the employees conducting such businesses, including, without
limitation, the Equal Credit Opportunity Act, the Fair Housing Act, the
Community Reinvestment Act, the Home Mortgage Disclosure Act, the
Financial Services Modernization Act and all other applicable fair
lending laws and other laws relating to discriminatory business
practices;
(ii) has all material permits, licenses,
authorizations, orders and approvals of, and has made all material
filings, applications and registrations with, all Governmental
Authorities that are required in order to permit them to own or lease
their properties and to conduct their businesses as presently
conducted; all such permits, licenses, certificates of authority,
orders and approvals are in full force and effect and, to ICBC's
knowledge, no suspension or cancellation of any of them is threatened;
and
(iii) has not received, since June 30, 2001, any
notification or communication from any Governmental Authority (A)
asserting that ICBC or any of its Subsidiaries is not in compliance
with any of the statutes, regulations, or ordinances which such
Governmental Authority enforces or (B) threatening to revoke any
license, franchise, permit, or governmental authorization (nor, to
ICBC's knowledge, do any grounds for any of the foregoing exist).
(k) MATERIAL CONTRACTS; DEFAULTS. Except for this Agreement
and those agreements and contracts Previously Disclosed, neither ICBC nor any of
its Subsidiaries is a party to, bound by or subject to any agreement, contract,
arrangement, commitment or understanding (whether written or oral) (i) that
would constitute a "material contract" within the meaning of Item 601(b)(10) of
the SEC's Regulation S-K, (ii) that is a "material contract" (as defined above)
and is up for renewal or extension (either by notice, lack of notice or
otherwise) between the date of this Agreement and the Effective Date, or (iii)
that restricts or limits in any way the conduct of business by ICBC or any of
its Subsidiaries (including without limitation a non-compete or similar
provision). Neither ICBC nor any of its Subsidiaries is in default in any
material respect under any contract, agreement, commitment, arrangement, lease,
insurance policy or other instrument to which it is a party, by which its
respective assets, business, or operations may be bound or affected in any way,
or under which it or its respective assets, business, or operations receive
benefits, and there has not occurred any event that, with the lapse of time or
the giving of notice or both, would constitute such a default.
(l) BROKERAGE AND FINDER'S FEES. Except for fees payable to
Young & Associates, Inc., ICBC has not employed any broker, finder, or agent, or
agreed to pay or incurred any brokerage fee, finder's fee, commission or other
similar form of
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compensation in connection with this Agreement or the transactions contemplated
hereby.
(m) EMPLOYEE BENEFIT PLANS.
(i) Section 5.03(m) of ICBC's Disclosure Schedule
contains a complete and accurate list of all existing bonus, incentive,
deferred compensation, pension, retirement, profit-sharing, thrift,
savings, employee stock ownership, stock bonus, stock purchase,
restricted stock, stock option, severance, welfare and fringe benefit
plans, employment, retention, change in control, severance agreements,
and all similar practices, policies and arrangements in which any
employee or former employee (the "Employees"), consultant or former
consultant (the "Consultants") or director or former director (the
"Directors") of ICBC or any of its Subsidiaries participates, sponsors
or contributes, or to which any such Employees, Consultants or
Directors are a party (the "Compensation and Benefit Plans"), other
than individual retirement arrangements or HR 10 plans maintained
solely by the Employee, Consultant or Director, programs sponsored by
previous employers or any program described in DOL Regulation Section
2510.3-1(b). Neither ICBC nor any of its Subsidiaries has any
commitment to create any additional Compensation and Benefit Plan or to
modify or change any existing Compensation and Benefit Plan.
(ii) Each Compensation and Benefit Plan has been
operated and administered in all material respects in accordance with
its terms and with applicable law, including, but not limited to,
ERISA, the Code, the Securities Act, the Exchange Act, the Age
Discrimination in Employment Act, or any regulations or rules
promulgated thereunder, and all filings, disclosures and notices
required by ERISA, the Code, the Securities Act, the Exchange Act, the
Age Discrimination in Employment Act and any other applicable law have
been timely made. Each Compensation and Benefit Plan which is an
"employee pension benefit plan" within the meaning of Section 3(2) of
ERISA (a "Pension Plan") and which is intended to be qualified under
Section 401(a) of the Code has received a favorable determination
letter (including a determination that the related trust under such
Compensation and Benefit Plan is exempt from tax under Section 501(a)
of the Code) from the Internal Revenue Service ("IRS"), and ICBC is not
aware of any circumstances likely to result in revocation of any such
favorable determination letter. There is no material pending or, to the
knowledge of ICBC, threatened legal action, suit or claim relating to
the Compensation and Benefit Plans, other than routine claims for
benefits. Neither ICBC nor any of its Subsidiaries has engaged in a
transaction, or omitted to take any action, with respect to any
Compensation and Benefit Plan that would reasonably be expected to
subject ICBC or any of its Subsidiaries to a tax or penalty imposed by
either Section 4975 of the Code or Section 502 of ERISA.
(iii) None of the Compensation and Benefits Plans
currently in effect is subject to Title IV of ERISA. No liability under
Title IV of ERISA has been or is expected to be incurred by ICBC or any
of its Subsidiaries with respect to any terminated "single-employer
plan", within the meaning of
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Section 4001(a)(15) of ERISA, formerly maintained by any of them, or
any single-employer plan of any entity (an "ERISA Affiliate") which is
considered one employer with ICBC under Section 4001(a)(14) of ERISA or
Section 414(b) or (c) of the Code (an "ERISA Affiliate Plan"). Except
as listed in Section 5.03(m) of ICBC's Disclosure Schedule, none of
ICBC, any of its Subsidiaries or any ERISA Affiliate has contributed,
or has been obligated to contribute, to either a defined benefit
pension plan subject to Title IV of ERISA or to a multiemployer plan
under Subtitle E of Title IV of ERISA at any time since September 26,
1980. No notice of a "reportable event", within the meaning of Section
4043 of ERISA, has been required to be filed for any Compensation and
Benefit Plan or by any ERISA Affiliate Plan. Except as Previously
Disclosed, to the knowledge of ICBC, there is no pending investigation
or enforcement action by the U.S. Department of Labor (the "DOL") or
the IRS or any other Governmental Authority with respect to any
Compensation and Benefit Plan.
(iv) All contributions required to be made under the
terms of any Compensation and Benefit Plan or ERISA Affiliate Plan or
any employee benefit arrangements under any collective bargaining
agreement to which ICBC or any of its Subsidiaries was or is a party
have been timely made or have been reflected on ICBC's financial
statements. Neither any Pension Plan nor any ERISA Affiliate Plan has
an "accumulated funding deficiency" (whether or not waived) within the
meaning of Section 412 of the Code or Section 302 of ERISA and all
required payments to the PBGC with respect to each Pension Plan or
ERISA Affiliate Plan have been made on or before their due dates. None
of ICBC, any of its Subsidiaries or any ERISA Affiliate (x) has
provided, or would reasonably be expected to be required to provide,
security to any Pension Plan or to any ERISA Affiliate Plan pursuant to
Section 401(a)(29) of the Code, and (y) has taken any action, or
omitted to take any action, that has resulted, or would reasonably be
expected to result, in the imposition of a Lien under Section 412(n) of
the Code or pursuant to ERISA.
(v) Neither ICBC nor any of its Subsidiaries has any
obligations to provide retiree health and life insurance or other
retiree death benefits under any Compensation and Benefit Plan, other
than benefits mandated by Section 4980B of the Code, and each such
Compensation and Benefit Plan may be amended or terminated without
incurring liability thereunder. There has been no communication to
Employees by ICBC or any of its Subsidiaries that would reasonably be
expected to promise or guarantee such Employees retiree health or life
insurance or other retiree death benefits on a permanent basis.
(vi) ICBC and its Subsidiaries do not maintain any
Compensation and Benefit Plans covering foreign (i.e., non-United
States) Employees.
(vii) With respect to each Compensation and Benefit
Plan, if applicable, ICBC has provided or made available to First
Citizens, true and complete copies of existing: (A) Compensation and
Benefit Plan documents and amendments thereto; (B) trust instruments
and insurance contracts; (C) the two most recent Forms 5500 filed with
the IRS; (D) the most recent actuarial report
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and financial statement; (E) the most recent summary plan description;
(F) forms filed with the PBGC (other than for premium payments); (G)
the most recent determination letter issued by the IRS; (H) any Form
5310 or Form 5330 filed with the IRS; and (I) the most recent
nondiscrimination tests performed under ERISA and the Code (including
401(k) and 401(m) tests).
(viii) Except as disclosed on Section 5.03(m) of
ICBC's Disclosure Schedule, the consummation of the transactions
contemplated by this Agreement would not, directly or indirectly
(including, without limitation, as a result of any termination of
employment prior to or following the Effective Time) reasonably be
expected to (A) entitle any Employee, Consultant or Director to any
payment (including severance pay or similar compensation) or any
increase in compensation, (B) result in the vesting or acceleration of
any benefits under any Compensation and Benefit Plan or (C) result in
any material increase in benefits payable under any Compensation and
Benefit Plan.
(ix) Except as disclosed on Section 5.03(m) of ICBC's
Disclosure Schedule, neither ICBC nor any of its Subsidiaries maintains
any compensation plans, programs or arrangements the payments under
which would not reasonably be expected to be deductible as a result of
the limitations under Section 162(m) of the Code and the regulations
issued thereunder.
(x) Except as disclosed on Section 5.03(m) of ICBC's
Disclosure Schedule, as a result, directly or indirectly, of the
transactions contemplated by this Agreement (including, without
limitation, as a result of any termination of employment prior to or
following the Effective Time), none of First Citizens, ICBC or the
Surviving Corporation, or any of their respective Subsidiaries will be
obligated to make a payment that would be characterized as an "excess
parachute payment" to an individual who is a "disqualified individual"
(as such terms are defined in Section 280G of the Code) of ICBC on a
consolidated basis, without regard to whether such payment is
reasonable compensation for personal services performed or to be
performed in the future.
(n) LABOR MATTERS. Neither ICBC nor any of its Subsidiaries is
a party to or is bound by any collective bargaining agreement, contract or other
agreement or understanding with a labor union or labor organization, nor is ICBC
or any of its Subsidiaries the subject of a proceeding asserting that it or any
such Subsidiary has committed an unfair labor practice (within the meaning of
the National Labor Relations Act) or seeking to compel ICBC or any such
Subsidiary to bargain with any labor organization as to wages or conditions of
employment, nor is there any strike or other labor dispute involving it or any
of its Subsidiaries pending or, to ICBC's knowledge, threatened, nor is ICBC
aware of any activity involving its or any of its Subsidiaries' employees
seeking to certify a collective bargaining unit or engaging in other
organizational activity.
(o) FIRST CITIZENS COMMON SHARE OWNERSHIP. Except as
Previously Disclosed, neither ICBC nor any of its "affiliates" or "associates,"
as the terms "affiliates" and "associates" are defined in Section 1704.01(C)(1)
and (C)(3) of the ORC, are
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"beneficial owners," as the term "beneficial owners" is defined in Section
1704.01(C)(4) of the ORC, of any of the outstanding First Citizens Common
Shares.
(p) ENVIRONMENTAL MATTERS. To ICBC's knowledge, neither the
conduct nor operation of ICBC or its Subsidiaries nor any condition of any
property presently owned, leased or operated by any of them (including, without
limitation, in a fiduciary or agency capacity), or on which any of them holds a
Lien, violates Environmental Laws and to ICBC's knowledge, no condition has
existed or event has occurred with respect to any of them or any such property
that is reasonably likely to result in liability under Environmental Laws. To
ICBC's knowledge, neither ICBC nor any of its Subsidiaries has received any
notice from any person or entity that ICBC or its Subsidiaries or the operation
or condition of any property owned, leased, operated, or held as collateral or
in a fiduciary capacity by any of them are or were in violation of or otherwise
are alleged to have liability under any Environmental Law, including, but not
limited to, responsibility (or potential responsibility) for the cleanup or
other remediation of any pollutants, contaminants, or hazardous or toxic wastes,
substances or materials at, on, beneath, or originating from any such property.
(q) TAX MATTERS.
(i)(A) All Tax Returns that are required to be filed
by or with respect to ICBC and its Subsidiaries have been duly and
timely filed and all such Tax Returns are true, correct and complete in
all material respects, (B) all Taxes shown to be due on the Tax Returns
referred to in clause (i)(A) have been paid in full, (C) the Tax
Returns referred to in clause (i)(A) have been examined by the Internal
Revenue Service or the appropriate state, local or foreign taxing
authority or the period for assessment of the Taxes in respect of which
such Tax Returns were required to be filed has expired for all tax
years ending on or before December 31, 1997, (D) all deficiencies
asserted or assessments made as a result of any examination of the Tax
Returns of ICBC and its Subsidiaries for tax years ending on or before
December 31, 1997 have been paid in full, and (E) no waivers of
statutes of limitation have been given by or requested with respect to
any Taxes of ICBC or its Subsidiaries. ICBC has provided or made
available to First Citizens true and correct copies of the United
States federal income Tax Returns filed by ICBC and its Subsidiaries
for each of the three most recent fiscal years ended on or before
December 31, 2000. Neither ICBC nor any of its Subsidiaries has any
liability with respect to income, franchise or similar Taxes in excess
of the amounts accrued with respect thereto that are reflected in
ICBC's June 30, 2001 financial statements. As of the date hereof,
neither ICBC nor any of its Subsidiaries has any reason to believe that
any conditions exist that might prevent or impede the Parent Merger
from qualifying as a reorganization within the meaning of Section
368(a) of the Code.
(ii) No Tax is required to be withheld pursuant to
Section 1445 of the Code as a result of the transfer contemplated by
this Agreement.
(iii) No claim has ever been made by an authority in
a jurisdiction where ICBC or any of its Subsidiaries does not file Tax
Returns that ICBC or
-22-
such Subsidiary is or may be subject to taxation by that jurisdiction
nor, to the knowledge of ICBC, is there any factual basis for any such
claim.
(iv) Neither ICBC nor any of its Subsidiaries has
applied for any ruling from any Tax authority with respect to Taxes nor
entered into a closing agreement (or similar arrangement) since
December 31, 1996 with any Tax authority.
(v) Except as Previously Disclosed, neither ICBC nor
any of its Subsidiaries has been audited by any Tax authority for
taxable years ending on or subsequent to December 31, 1995.
(vi) Neither ICBC nor any of its Subsidiaries is a
party to any Tax allocation or sharing agreement (other than a Tax
sharing agreement with each other), nor do ICBC or any of its
Subsidiaries have any liability for the Taxes of any person (other than
ICBC or any of its Subsidiaries) as a transferee or successor, by
contract, or otherwise.
(vii) Neither ICBC nor any of its Subsidiaries has
waived any statute of limitations in respect of Taxes or agreed to any
extension of time with respect to a Tax assessment or deficiency.
(viii) Neither ICBC nor any of its Subsidiaries is a
United States real property holding corporation within the meaning of
Section 897(c)(2) of the Code during the applicable period specified in
Code Section 897(c)(1)(A)(ii).
(ix) ICBC (and each of its Subsidiaries, to the
extent applicable) has disclosed on its federal income Tax Return all
positions taken therein that could give rise to a substantial
understatement of income Tax within the meaning of Code Section 6662.
(x) Neither ICBC nor any of its Subsidiaries has
agreed, nor is it required, to make any adjustment under Section 481(a)
of the Code by reason of a change in accounting method or otherwise
that will affect its liability for Taxes.
(xi) Neither ICBC nor any of its Subsidiaries has
made an election, nor is it required, to treat any asset as owned by
another person pursuant to the provisions of Section 168(f) of the Code
or as tax-exempt bond financed property or tax-exempt use property
within the meaning of Section 168 of the Code.
(xii) Neither ICBC nor any of its Subsidiaries has
filed an election under Section 338(g) or 338(h)(10) of the Code.
(xiii) Neither ICBC nor any of its Subsidiaries owns
an interest in any (A) domestic international sales corporation, (B)
foreign sales corporation, (C) controlled foreign corporation, or (D)
passive foreign investment company, as such terms are defined in the
Code.
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(xiv) There are no joint ventures, partnerships,
limited liability companies, or other arrangements or contracts to
which ICBC or any of its Subsidiaries is a party that could be treated
as a partnership for Tax purposes.
(xv) All tax returns, of any kind relating to trust
activities, that are required to be filed by ICBC, have been duly
filed, taxes timely paid and no issues have been raised, by the
relevant taxing authority, in connection with the examination of any
said tax returns.
(r) RISK MANAGEMENT INSTRUMENTS. Neither ICBC nor any of its
Subsidiaries has any interest rate swaps, caps, floors, option agreements,
futures and forward contracts or other similar risk management arrangements.
(s) BOOKS AND RECORDS. The books of account, minute books,
(except minutes relating to the process leading to this Agreement and the
transactions contemplated hereunder) stock record books, and other records of
ICBC and its Subsidiaries, are complete and correct in all material respects and
have been maintained in accordance with sound business practices and, in
reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the issuer, including the maintenance of an
adequate system of internal controls that is sufficient to provide reasonable
assurances that transactions are executed in accordance with management's
authorization, that transactions are recorded as necessary, that access to
assets is permitted only in accordance with management's authorization, and that
the recorded accountability for assets is compared at reasonable intervals and
appropriate action is taken with respect to any differences. All of the books of
account, minute books, stock record books, and other records of ICBC and its
Subsidiaries have been or will be made available to First Citizens promptly upon
their completion. The minute books of ICBC contain accurate and complete records
of all meetings held of, and corporate action taken by, the shareholders, the
Board of Directors, and committees of the Board of Directors of Bank, and no
meeting of any such shareholders, Board of Directors, or committee has been held
for which minutes have been prepared and are not contained in such minute books,
except for the minutes related to the process leading to and approving this
Agreement and the transactions contemplated hereunder. The fiduciary books and
records of ICBC, from trust activities, have been fully, properly and accurately
maintained in all material respects, have been maintained in accordance with
applicable fiduciary accounting practices and there are no material inaccuracies
or discrepancies of any kind contained or reflected therein, and they fairly
present, in all material respects, the substance of trust events and
transactions included therein.
(t) INSURANCE. ICBC's Disclosure Schedule sets forth all of
the insurance policies, binders, or bonds maintained by ICBC or its
Subsidiaries. ICBC and its Subsidiaries are insured with reputable insurers
against such risks and in such amounts as the management of ICBC reasonably has
determined to be prudent in accordance with industry practices. All such
insurance policies are in full force and effect; ICBC and its Subsidiaries are
not in material default thereunder; and all claims thereunder have been filed in
due and timely fashion.
-24-
(u) DISCLOSURE. The representations and warranties contained
in this Section 5.03 do not contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements and
information contained in this Section 5.03 not misleading.
(v) MATERIAL ADVERSE CHANGE. ICBC has not, on a consolidated
basis, suffered a change in its business, financial condition or results of
operations since June 30, 2001, that has had a Material Adverse Effect on ICBC.
(w) ABSENCE OF UNDISCLOSED LIABILITIES. Neither ICBC nor any
of its Subsidiaries has any liability (contingent or otherwise) that is material
to ICBC on a consolidated basis, or that, when combined with all liabilities as
to similar matters would be material to ICBC on a consolidated basis, except as
disclosed in the ICBC Financial Statements.
(x) PROPERTIES. ICBC and its Subsidiaries have good and, as to
real estate, marketable title, free and clear of all Liens, defaults or
equitable interests to all of the properties and assets, real and personal,
reflected on the ICBC Financial Statements as being owned by ICBC as of June 30,
2001, or acquired after such date, except (i) statutory Liens for amounts not
yet due and payable, (ii) pledges to secure deposits and other Liens incurred in
the ordinary course of banking business, (iii) such Liens, if any, as do not
materially adversely impair the value of such properties or the business
operations conducted at such properties, (iv) dispositions and encumbrances in
the ordinary course of business, (v) Liens on properties acquired in foreclosure
or on account of debts previously contracted, and (vi) the Lien as Previously
Disclosed in the paragraph of the Disclosure Schedules corresponding to Section
5.03(c). All leases pursuant to which ICBC or any of its Subsidiaries, as
lessee, leases real or personal property (except for leases that have expired by
their terms or that ICBC or any such Subsidiary has agreed to terminate since
the date hereof) are valid without default thereunder by the lessee or, to
ICBC's knowledge, the lessor.
(y) LOANS; CERTAIN TRANSACTIONS. Each loan reflected as an
asset in the ICBC Financial Statements as of June 30, 2001, and each balance
sheet date subsequent thereto, other than loans the unpaid balance of which does
not exceed $50,000 in the aggregate, (i) is evidenced by notes, agreements or
other evidences of indebtedness which are true, genuine and what they purport to
be, (ii) to the extent secured, has been secured by valid Liens and security
interests which have been perfected, and (iii) is the legal, valid and binding
obligation of the obligor named therein, enforceable in accordance with its
terms, subject to bankruptcy, insolvency, fraudulent conveyance and other laws
of general applicability relating to or affecting creditors' rights and to
general equity principles. Except as Previously Disclosed, as of June 30, 2001,
Bank is not a party to a loan, including any loan guaranty, with any director,
executive officer or 5% shareholder of ICBC or any of its Subsidiaries or any
person, corporation or enterprise controlling, controlled by or under common
control with any of the foregoing. All loans and extensions of credit that have
been made by Bank and that are subject to Section 22(b) of the Federal Reserve
Act, as amended, comply therewith.
-25-
(z) ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses
reflected on the ICBC financial statements, as of their respective dates, is, in
the opinion of ICBC's management, adequate in all material respects under the
requirements of GAAP to provide for reasonably anticipated losses on outstanding
loans, net of recoveries.
(aa) REPURCHASE AGREEMENTS. With respect to all agreements
pursuant to which ICBC or any of its Subsidiaries has purchased securities
subject to an agreement to resell, if any, ICBC or such Subsidiary, as the case
may be, has a valid, perfected first Lien or security interest in or evidence of
ownership in book entry form of the government securities or other collateral
securing the repurchase agreement, and the value of such collateral equals or
exceeds the amount of the debt secured thereby.
(bb) DEPOSIT INSURANCE. The deposits of Bank are insured by
the FDIC in accordance with The Federal Deposit Insurance Act ("FDIA"), and Bank
has paid all assessments and filed all reports required by the FDIA and under
the National Housing Act prior to the enactment of the Financial Institutions
Reform, Recovery, and Enforcement Act of 1989.
5.04 REPRESENTATIONS AND WARRANTIES OF FIRST CITIZENS. Subject to
Sections 5.01 and 5.02 and except as Previously Disclosed in a paragraph of its
Disclosure Schedule corresponding to the relevant paragraph below, First
Citizens hereby represents and warrants to ICBC as follows:
(a) ORGANIZATION, STANDING AND AUTHORITY. First Citizens is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Ohio. First Citizens is duly qualified to do business and is in
good standing in the State of Ohio and any foreign jurisdictions where its
ownership or leasing of property or assets or the conduct of its business
requires it to be so qualified. First Citizens is registered as a bank holding
company under the BHCA. First Citizens Bank is a state banking association duly
organized, validly existing and in good standing under the laws of the State of
Ohio. First Citizens Bank is duly qualified to do business and is in good
standing in the State of Ohio and any foreign jurisdictions where its ownership
or leasing of property or assets or the conduct of its business requires it to
be so qualified.
(b) FIRST CITIZENS COMMON SHARES.
(i) As of the date hereof, the authorized capital
stock of First Citizens consists solely of First Citizens Common
Shares, of which 4,263,401 shares were outstanding. As of the date
hereof, except as Previously Disclosed, First Citizens does not have
any Rights issued or outstanding with respect to First Citizens Common
Shares and First Citizens does not have any commitment to authorize,
issue or sell any First Citizens Common Shares or Rights, except
pursuant to this Agreement. The outstanding First Citizens Common
Shares have been duly authorized and are validly issued and
outstanding, fully paid and nonassessable. Under the First Citizens
Articles, First Citizens Common Shares are subject to preemptive rights
under certain circumstances.
-26-
(ii) The First Citizens Common Shares to be issued in
exchange for ICBC Common Shares in the Parent Merger, when issued in
accordance with the terms of this Agreement, will be duly authorized,
validly issued, fully paid and nonassessable, will be subject to
preemptive rights, but will not be issued in violation of such
preemptive rights.
(c) ICBC COMMON SHARE OWNERSHIP. Except as Previously
Disclosed, neither First Citizens nor any of its "affiliates" or "associates,"
as the terms "affiliates" and "associates" are defined in Section 1704.01(C)(1)
and (C)(3) of the ORC, are "beneficial owners," as the term "beneficial owners"
is defined in Section 1704.01(C)(4) of the ORC, of any of the outstanding ICBC
Common Shares.
(d) SIGNIFICANT SUBSIDIARIES. Each of First Citizens'
Significant Subsidiaries has been duly organized and is validly existing in good
standing under the laws of the jurisdiction of its organization, and is duly
qualified to do business and is in good standing in the jurisdictions where its
ownership or leasing of property or the conduct of its business requires it to
be so qualified and First Citizens owns, directly or indirectly, all the issued
and outstanding equity securities of each of its Significant Subsidiaries.
(e) CORPORATE AUTHORITY. Each of First Citizens and its
Significant Subsidiaries has the corporate power and authority to carry on its
business as it is now being conducted and to own all its properties and assets.
Subject to the receipt by First Citizens of the approval of this Agreement and
the Merger from their respective shareholders and the approval of applicable
federal and state banking authorities, First Citizens has the corporate power
and authority to execute, deliver and perform its obligations under this
Agreement, and the Voting Agreements and to consummate the transactions
contemplated hereby and thereby, and First Citizens Bank has the corporate power
and authority to consummate the Subsidiary Merger in accordance with the terms
of this Agreement.
(f) CORPORATE AUTHORITY; AUTHORIZED AND EFFECTIVE AGREEMENT.
Subject to the receipt of the requisite adoption of this Agreement and the
Parent Merger by the holders of the outstanding First Citizens Common Shares
entitled to vote thereon, this Agreement and the Voting Agreements and the
transactions contemplated hereby and thereby have been authorized by all
necessary corporate action of First Citizens and the First Citizens Board on or
prior to the date hereof. This Agreement is a valid and legally binding
agreement of First Citizens, enforceable in accordance with its terms (except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and similar laws of general
applicability relating to or affecting creditors' rights or by general equity
principles, and except to the extent such enforceability may be limited bylaws
relating to safety and soundness of insured depository institutions as set forth
in 12 U.S.C. Section 1818(b) or by appointment of a conservator by the FDIC).
-27-
(g) REGULATORY APPROVALS; NO DEFAULTS.
(i) No consents or approvals of, or filings or
registrations with, any Governmental Authority or with any third party
are required to be made or obtained by First Citizens or any of its
Significant Subsidiaries in connection with the execution, delivery or
performance by First Citizens of this Agreement or to consummate the
Merger except for (A) the filing of applications, notices, and the
Agreement to Merge, as applicable, with the federal and state banking
authorities to approve the transactions contemplated by this Agreement
and to continue ICBC's trust powers and trust activities; (B) the
filing and declaration of effectiveness of the Registration Statement;
(C) the filing of the certificate of merger with the OSS pursuant to
the OGCL; (D) such filings as are required to be made or approvals as
are required to be obtained under the securities or "Blue Sky" laws of
various states in connection with the issuance of First Citizens Common
Shares in the Parent Merger; and (E) receipt of the approvals set forth
in Section 7.01(b). As of the date hereof, First Citizens is not aware
of any reason why the approvals set forth in Section 7.01(b) will not
be received without the imposition of a condition, restriction or
requirement of the type described in Section 7.01(b).
(ii) Subject to the satisfaction of the requirements
referred to in the preceding paragraph and expiration of the related
waiting periods, and required filings under federal and state
securities laws, the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby
do not and will not (A) constitute a breach or violation of, or a
default under, or give rise to any Lien, any acceleration of remedies
or any right of termination under, any law, rule or regulation or any
judgment, decree, order, governmental permit or license, or agreement,
indenture or instrument of First Citizens or of any of its Significant
Subsidiaries or to which First Citizens or any of its Significant
Subsidiaries or properties is subject or bound, (B) constitute a breach
or violation of, or a default under, the First Citizens Articles or
First Citizens Code, or (C) require any consent or approval under any
such law, rule, regulation, judgment, decree, order, governmental
permit or license, agreement, indenture or instrument.
(h) FINANCIAL REPORTS AND SEC DOCUMENTS; MATERIAL
ADVERSE EFFECT.
(i) First Citizens' Annual Reports on Form 10-K for
the fiscal years ended December 31, 1999 and 2000, Quarterly Reports on
Form 10-Q for the quarters ended March 31, 2001 and June 30, 2001 and
all other reports, registration statements, definitive proxy statements
or other statements filed or to be filed by it or any of its
Significant Subsidiaries with the SEC subsequent to June 30, 2001 under
the Securities Act, or under Section 13(a), 13(c) 14 or 15(d) of the
Exchange Act, in the form filed or to be filed (collectively, "First
Citizens SEC Documents") as of the date filed, (A) complied or will
comply in all material respects with the applicable requirements under
the Securities Act or the Exchange Act, as the case may be, and (B) did
not and will not contain any untrue statement of a material fact or
omit to state a material fact required to be
-28-
stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading; and each
of the balance sheets or statements of condition contained in or
incorporated by reference into any such First Citizens SEC Document
(including the related notes and schedules thereto) fairly presents, or
will fairly present, the financial position of First Citizens and its
Significant Subsidiaries as of its date, and each of the statements of
income or results of operations and changes in shareholders' equity and
cash flows or equivalent statements in such First Citizens SEC
Documents (including any related notes and schedules thereto) fairly
presents, or will fairly present, the results of operations, changes in
shareholders' equity and cash flows, as the case may be, of First
Citizens and its Significant Subsidiaries for the periods to which they
relate, in each case in accordance with GAAP consistently applied
during the periods involved, except in each case as may be noted
therein, subject to normal year-end audit adjustments in the case of
unaudited statements.
(ii) Since June 30, 2001, First Citizens and its
Subsidiaries have not incurred any material liability not disclosed in
First Citizens' financial statements that would be required to be
disclosed therein pursuant to GAAP.
(iii) Since June 30, 2001, (A) First Citizens and its
Subsidiaries have conducted their respective businesses in the ordinary
and usual course consistent with past practice (excluding matters
related to this Agreement and the transactions contemplated hereby),
and (B) no event has occurred or circumstance arisen that, individually
or taken together with all other facts, circumstances and events
(described in any paragraph of Section 5.04 or otherwise), is
reasonably likely to have a Material Adverse Effect with respect to
First Citizens.
(i) LITIGATION; REGULATORY ACTION.
(i) No litigation, claim or other proceeding before
any Governmental Authority is pending against First Citizens or any of
its Significant Subsidiaries and, to First Citizens' knowledge, no such
litigation, claim or other proceeding has been threatened.
(ii) Neither First Citizens nor any of its
Significant Subsidiaries or properties is a party to or is subject to
any order, decree, agreement, memorandum of understanding or similar
arrangement with, or a commitment letter or similar submission to, or
extraordinary supervisory letter from a Regulatory Authority, nor has
First Citizens or any of its Significant Subsidiaries been advised by a
Regulatory Authority that such agency is contemplating issuing or
requesting (or is considering the appropriateness of issuing or
requesting) any such order, decree, agreement, memorandum of
understanding, commitment letter, supervisory letter or similar
submission.
(j) COMPLIANCE WITH LAWS. Each of First Citizens and
its Significant Subsidiaries:
-29-
(i) is in compliance in all material respects with
all applicable federal, state, local and foreign statutes, laws,
regulations, ordinances, rules, judgments, orders or decrees applicable
thereto or to the employees conducting such businesses, including,
without limitation, the Equal Credit Opportunity Act, the Fair Housing
Act, the Community Reinvestment Act, the Home Mortgage Disclosure Act,
the Financial Services Modernization Act and all other applicable fair
lending laws and other laws relating to discriminatory business
practices; and
(ii) has all material permits, licenses,
authorizations, orders and approvals of, and has made all material
filings, applications and registrations with, all Governmental
Authorities that are required in order to permit them to conduct their
businesses substantially as presently conducted; all such permits,
licenses, certificates of authority, orders and approvals are in full
force and effect and, to the best of its knowledge, no suspension or
cancellation of any of them is threatened; and
(iii) has not received, since June 30, 2001, any
notification or communication from any Governmental Authority (A)
asserting that First Citizens or any of its Significant Subsidiaries is
not in compliance with any of the statutes, regulations, or ordinances
which such Governmental Authority enforces or (B) threatening to revoke
any license, franchise, permit, or governmental authorization (nor, to
First Citizens' knowledge, do any grounds for any of the foregoing
exist).
(k) BROKERAGE AND FINDER'S FEES. Except for fees payable to
Keefe, Bruyette & Woods, First Citizens has not employed any broker, finder, or
agent, or agreed to pay or incurred any brokerage fee, finder's fee, commission
or other similar form of compensation in connection with this Agreement or the
transactions contemplated hereby.
(l) TAX MATTERS. Except as Previously Disclosed, (i) all Tax
Returns that are required to be filed by or with respect to First Citizens and
its Subsidiaries have been duly filed, (ii) all Taxes shown to be due on the Tax
Returns referred to in clause (i) have been paid in full, (iii) the Tax Returns
referred to in clause (i) have been examined by the Internal Revenue Service or
the appropriate state, local or foreign taxing authority or the period for
assessment of the Taxes in respect of which such Tax Returns were required to be
filed has expired for all tax years ending on or before December 31, 1997, (iv)
all deficiencies asserted or assessments made as a result of such examinations
have been paid in full, (v) no issues that have been raised by the relevant
taxing authority in connection with the examination of any of the Tax Returns
referred to in clause (i) that would have a material impact on the financial
condition of First Citizens or any of its Subsidiaries are currently pending,
and (vi) no waivers of statutes of limitation have been given by or requested
with respect to any Taxes of First Citizens or its Significant Subsidiaries.
Neither First Citizens nor any of its Subsidiaries has any liability with
respect to income, franchise or similar Taxes that accrued on or before the end
of the most recent period covered by First Citizens SEC Documents filed prior to
the date hereof in excess of the amounts accrued with respect thereto that are
reflected in the financial statements included in First Citizens SEC Documents
filed on
-30-
or prior to the date hereof. As of the date hereof, First Citizens has no reason
to believe that any conditions exist that might prevent or impede the Parent
Merger from qualifying as reorganization with the meaning of Section 368(a) of
the Code.
(m) BOOKS AND RECORDS. The books and records of First Citizens
and its Subsidiaries have been fully, properly and accurately maintained in all
material respects, have been maintained in accordance with sound business
practices and the requirements of Section 13(b)(2) of the Exchange Act and there
are no material inaccuracies or discrepancies of any kind contained or reflected
therein, and they fairly present the substance of events and transactions
included therein.
(n) DISCLOSURE. The representations and warranties contained
in this Section 5.04 do not contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements and
information contained in this Section 5.04 not misleading.
(o) MATERIAL ADVERSE CHANGE. First Citizens has not, on a
consolidated basis, suffered a change in its business, financial condition or
results of operations since June 30, 2001, that has had a Material Adverse
Effect on First Citizens.
(p) DEPOSIT INSURANCE. The deposits of First Citizens Bank are
insured by the FDIC in accordance with the FDIA, and First Citizens Bank has
paid all assessments and filed all reports required by the FDIA and under the
National Housing Act prior to the enactment of the Financial Institutions
Reform, Recovery, and Enforcement Act of 1989.
ARTICLE VI
COVENANTS
6.01 REASONABLE BEST EFFORTS. Subject to the terms and conditions of
this Agreement, each of ICBC and First Citizens agrees to use its reasonable
best efforts in good faith to take, or cause to be taken, all actions, and to
do, or cause to be done, all things necessary, proper or desirable, or advisable
under applicable laws, so as to permit consummation of the Merger as promptly as
practicable and otherwise to enable consummation of the transactions
contemplated hereby and shall cooperate fully with the other party hereto to
that end.
6.02 SHAREHOLDER APPROVALS. ICBC and First Citizens each agree to take,
in accordance with applicable law, the ICBC Articles and ICBC Code, and the
First Citizens Articles and First Citizens Code, respectively, all action
necessary to convene an appropriate meeting of its shareholders to consider and
vote upon the adoption of this Agreement and any other matters required to be
approved or adopted by ICBC's and First Citizens' shareholders for consummation
of the Parent Merger (including any adjournment or postponement, the "ICBC
Meeting" and the "First Citizens Meeting," respectively), as promptly as
practicable after the Registration Statement is declared effective. The ICBC
Board shall recommend that its shareholders adopt this Agreement at the ICBC
Meeting, unless otherwise necessary under the applicable fiduciary duties
-31-
of the ICBC Board, as determined by the ICBC Board in good faith after
consultation with and based upon advice of independent legal counsel. The First
Citizens Board shall recommend that its shareholders adopt this Agreement at the
First Citizens Meeting, unless otherwise necessary under the applicable
fiduciary duties of the First Citizens Board, as determined by the First
Citizens Board in good faith after consultation with and based upon advice of
independent legal counsel.
6.03 REGISTRATION STATEMENT.
(a) First Citizens agrees to prepare pursuant to all
applicable laws, rules and regulations a registration statement on Form S-4 (the
"Registration Statement") to be filed by First Citizens with the SEC in
connection with the issuance of First Citizens Common Shares in the Parent
Merger (including the proxy statement and prospectus and other proxy
solicitation materials of ICBC and of First Citizens constituting a part thereof
(the "Proxy Statement") and all related documents). ICBC agrees to cooperate,
and to cause its Subsidiaries to cooperate, with First Citizens, its counsel and
its accountants, in preparation of the Registration Statement and the Proxy
Statement; and provided that ICBC and its Subsidiaries have cooperated as
required above, First Citizens agrees to file the Proxy Statement and the
Registration Statement (together, the "Proxy/Prospectus") with the SEC as
promptly as reasonably practicable. Each of ICBC and First Citizens agrees to
use all reasonable efforts to cause the Proxy/Prospectus to be declared
effective under the Securities Act as promptly as reasonably practicable after
filing thereof. First Citizens also agrees to use all reasonable efforts to
obtain, prior to the effective date of the Registration Statement, all necessary
state securities law or "Blue Sky" permits and approvals required to carry out
the transactions contemplated by this Agreement. ICBC agrees to furnish to First
Citizens all information concerning ICBC, its Subsidiaries, officers, directors
and shareholders as may be reasonably requested in connection with the
foregoing.
(b) Each of ICBC and First Citizens agrees, as to itself and
its Subsidiaries, that none of the information supplied or to be supplied by it
for inclusion or incorporation by reference in (i) the Registration Statement
will, at the time the Registration Statement and each amendment or supplement
thereto, if any, becomes effective under the Securities Act, 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, and
(ii) the Proxy Statement and any amendment or supplement thereto will, at the
date of mailing and at the time of the First Citizens Meeting and the ICBC
Meeting, as the case may be, 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 or any statement which, in the light
of the circumstances under which such statement is made, will be false or
misleading with respect to any material fact, or which will omit to state any
material fact necessary in order to make the statements therein not false or
misleading or necessary to correct any statement in any earlier statement in the
Proxy Statement or any amendment or supplement thereto. Each of ICBC and First
Citizens further agrees that if it shall become aware prior to the Effective
Date of any information furnished by it that would cause any of the statements
in the Proxy Statement to be false or misleading with respect to any material
fact, or to omit to state any material fact necessary to make the
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statements therein not false or misleading, to promptly inform the other party
thereof and to take the necessary steps to correct the Proxy Statement.
(c) First Citizens agrees to advise ICBC, promptly after First
Citizens receives notice thereof, of the time when the Registration Statement
has become effective or any supplement or amendment has been filed, of the
issuance of any stop order or the suspension of the qualification of First
Citizens Common Shares for offering or sale in any jurisdiction, of the
initiation or threat of any proceeding for any such purpose, or of any request
by the SEC for the amendment or supplement of the Registration Statement or for
additional information.
6.04 PRESS RELEASES. Each of ICBC and First Citizens agrees that it
will not, without the prior approval of the other party, issue any press release
or written statement for general circulation relating to the transactions
contemplated hereby, except as otherwise required by applicable law or
regulation or the NASDAQ rules.
6.05 ACCESS; INFORMATION.
(a) Each of ICBC and First Citizens agrees that upon
reasonable notice and subject to applicable laws relating to the exchange of
information, it shall afford the other party and the other party's officers,
employees, counsel, accountants and other authorized representatives, such
access during normal business hours throughout the period prior to the Effective
Time to the books, records (including, without limitation, tax returns and work
papers of independent auditors), properties, personnel and to such other
information as any party may reasonably request and, during such period, it
shall furnish promptly to such other party (i) a copy of each material report,
schedule and other document filed by it pursuant to federal or state securities
or banking laws, and (ii) all other information concerning the business,
properties and personnel of it as the other may reasonably request. In addition,
ICBC agrees to (i) provide First Citizens with notice and copies of written
materials provided to ICBC and Bank directors in connection with all of their
board meetings held after the date of this Agreement, other than any information
relating to the transactions contemplated hereunder, and (ii) invite
representatives of First Citizens to attend ICBC and Bank directors' meetings,
as mutually agreed upon by First Citizens and ICBC.
(b) Each of ICBC and First Citizens agrees that it will not,
and will cause its representatives not to, use any information obtained pursuant
to this Section 6.05 (as well as any other information obtained prior to the
date hereof in connection with the entering into of this Agreement) for any
purpose unrelated to the consummation of the transactions contemplated by this
Agreement. Subject to the requirements of law, each party will keep
confidential, and will cause its representatives to keep confidential, all
information and documents obtained pursuant to this Section 6.05 (as well as any
other information obtained prior to the date hereof in connection with the
entering into of this Agreement) unless such information (i) was already known
to such party, (ii) becomes available to such party from other sources not known
by such party to be bound by a confidentiality obligation, (iii) is disclosed
with the prior written approval of the party to which such information pertains
or (iv) is or becomes readily ascertainable from published information or trade
sources. In the event that this
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Agreement is terminated or the transactions contemplated by this Agreement shall
otherwise fail to be consummated, each party shall promptly cause all copies of
documents or extracts thereof containing information and data as to another
party hereto to be returned to the party which furnished the same. No
investigation by either party of the business and affairs of the other shall
affect or be deemed to modify or waive any representation, warranty, covenant or
agreement in this Agreement, or the conditions to either party's obligation to
consummate the transactions contemplated by this Agreement.
(c) During the period from the date of this Agreement to the
Effective Time, each party shall promptly furnish the other with copies of all
monthly and other interim financial statements produced in the ordinary course
of business as the same shall become available.
6.06 ACQUISITION PROPOSALS; BREAK UP FEE.
(a) ICBC shall not, and shall cause its Subsidiaries and its
and its Subsidiaries' officers, directors, employees, advisors and other agents
not to, directly or indirectly, take any action to solicit, initiate, engage or
negotiate any proposals or offers from any person or entity, other than First
Citizens, or provide any confidential information to, discuss or negotiate with
any such person or entity, other than First Citizens, any Acquisition Proposal;
provided, however, that nothing contained in this section shall prohibit ICBC
from furnishing information to, or entering into discussion, negotiations or an
agreement with, any person or entity which makes an unsolicited Acquisition
Proposal if and to the extent that (a) the ICBC Board, after consultation with
and based upon the advice of counsel, determines in good faith that such action
is required to fulfill its fiduciary duties to the shareholders of ICBC under
applicable law and (b) before furnishing such information to, or entering into
discussions or negotiations with, such person or entity, ICBC provides immediate
written notice to First Citizens of such action, the identity of the bidder and
the substance of such Acquisition Proposal.
(b) In the event ICBC executes a definitive agreement in
respect of, or closes, an Acquisition Proposal, within two (2) years after the
date of termination of this Agreement pursuant to the provisions of Section
8.01(f), ICBC shall pay to First Citizens in immediately available funds the sum
of One Million Three Hundred Thousand Dollars ($1,300,000) within ten (10) days
after the earlier of such execution or closing.
6.07 AFFILIATE AGREEMENTS. Not later than the 15th day prior to the
mailing of the Proxy Statement, ICBC shall deliver to First Citizens a schedule
of each person that, to its knowledge, is or is reasonably likely to be, as of
the date of the ICBC Meeting, deemed to be an "affiliate" of ICBC (each, an
"ICBC Affiliate") as that term is used in Rule 145 under the Securities Act or
SEC Accounting Series Releases 130 and 135. ICBC shall use its reasonable best
efforts to cause each person who may be deemed to be an ICBC Affiliate to
execute and deliver to ICBC on or before the date of mailing of the Proxy
Statement an agreement in the form attached hereto as Exhibit B.
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6.08 CERTAIN POLICIES. Prior to the Effective Date, ICBC shall,
consistent with GAAP and on a basis mutually satisfactory to it and First
Citizens, (i) modify and change its loan, investment portfolio and real estate
valuation policies and practices (including loan classifications and levels of
reserves) so as to be applied on a basis that is consistent with that of First
Citizens and (ii) evaluate the need for any reserves including, but not limited
to, reserves relating to any outstanding litigation, any tax audits or any
liabilities to be incurred upon cancellation of any contracts as a result of the
Merger; provided, however, that ICBC shall not be obligated to take any such
action pursuant to this Section 6.08 unless and until First Citizens
acknowledges that all conditions to its obligation to consummate the Merger have
been satisfied and certifies to ICBC that First Citizens' representations and
warranties, subject to Section 5.02, are true and correct as of such date and
that First Citizens is otherwise material in compliance with this Agreement.
ICBC's representations, warranties and covenants contained in this Agreement
shall not be deemed to be untrue or breached in any respect for any purpose as a
consequence of any modifications or changes undertaken solely on account of this
Section 6.08.
6.09 NASDAQ LISTING. First Citizens shall file a listing application,
or a NASDAQ Notification Form for Change in the Number of Shares Outstanding, as
required by NASDAQ, with respect to the First Citizens Common Shares to be
issued to the holders of ICBC Common Shares in the Merger.
6.10 REGULATORY APPLICATIONS.
(a) First Citizens and ICBC and their respective Subsidiaries
shall cooperate and use their respective reasonable best efforts to prepare all
documentation, to timely effect all filings and to obtain all permits, consents,
approvals and authorizations of all third parties and Governmental Authorities
necessary to consummate the transactions contemplated by this Agreement. Each of
First Citizens and ICBC shall have the right to review in advance, and to the
extent practicable each will consult with the other, in each case subject to
applicable laws relating to the exchange of information, with respect to, and
shall be provided in advance so as to reasonably exercise its right to review in
advance, all material written information submitted to any third party or any
Governmental Authority in connection with the transactions contemplated by this
Agreement. In exercising the foregoing right, each of the parties hereto agrees
to act reasonably and as promptly as practicable. Each party hereto agrees that
it will consult with the other party hereto with respect to the obtaining of all
material permits, consents, approvals and authorizations of all third parties
and Governmental Authorities necessary or advisable to consummate the
transactions contemplated by this Agreement and each party will keep the other
party apprised of the status of material matters relating to completion of the
transactions contemplated hereby.
(b) Each party agrees, upon request, to furnish the other
party with all information concerning itself, its Subsidiaries, directors,
officers and shareholders and such other matters as may be reasonably necessary
or advisable in connection with any filing, notice or application made by or on
behalf of such other party or any of its Subsidiaries to any third party or
Governmental Authority.
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6.11 EMPLOYMENT MATTERS; EMPLOYEE BENEFITS. It is understood and agreed
that nothing in this Section 6.11 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 applicable law and said employees shall
not be deemed to be third-party beneficiaries of this Agreement. Employees of
ICBC who become employees of First Citizens as a result of the Merger shall, as
determined by First Citizens, participate in either ICBC's Compensation and
Benefit Plans (for so long as First Citizens determines necessary or
appropriate) or in the employee benefit plans sponsored by First Citizens for
First Citizens' employees (with credit for their years of service with ICBC for
participation and vesting purposes under First Citizens' applicable plans),
including credit for years of service and for seniority under vacation and sick
pay plans and programs. In addition, to the extent ICBC employees participate in
First Citizens' group health plan (instead of continued participation in ICBC's
group health plan), First Citizens agrees to waive all restrictions and
limitations for pre-existing conditions under First Citizens' group health plan.
In the event an ICBC employee is terminated by First Citizens, other than for
cause, within a reasonable period of time after the Merger, such terminated ICBC
employee shall be entitled to receive up to a maximum of six (6) months of
severance pay based upon a formula of two (2) weeks' base pay for each year of
service.
6.12 NOTIFICATION OF CERTAIN MATTERS. Each of ICBC and First Citizens
shall give prompt notice to the other of any fact, event or circumstance known
to it that (i) is reasonably likely, individually or taken together with all
other facts, events and circumstances known to it, to result in any Material
Adverse Effect with respect to it or (ii) would cause or constitute a material
breach of any of its representations, warranties, covenants or agreements
contained herein.
6.13 DIVIDEND COORDINATION. It is agreed by the parties hereto that
they will cooperate to assure that as a result of the Parent Merger, during any
applicable period, there shall not be a payment of both a First Citizens and an
ICBC dividend to the ICBC shareholders.
6.14 ACCOUNTING AND TAX TREATMENT. Each of First Citizens and ICBC
agrees not to take any actions subsequent to the date of this Agreement that
would adversely affect (i) the ability of First Citizens and ICBC to treat the
Merger as a purchase in accordance with GAAP, or (ii) adversely affect the
ability of ICBC and the ability of the shareholders of ICBC to characterize the
Merger as a tax-free reorganization under Section 368(a) of the Code.
6.15 NO BREACHES OF REPRESENTATIONS AND WARRANTIES. Between the date of
this Agreement and the Effective Time, without the written consent of the other
party, each of First Citizens and ICBC will not do any act or suffer any
omission of any nature whatsoever which would cause any of the representations
or warranties made in Article V of this Agreement to become untrue or incorrect
in any material respect.
6.16 CONSENTS. Each of First Citizens and ICBC shall use its reasonable
best efforts to obtain any required consents to the transactions contemplated by
this Agreement.
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6.17 INSURANCE COVERAGE. ICBC shall use its best efforts to cause the
policies of insurance listed in the Disclosure Schedule to remain in effect
between the date of this Agreement and the Effective Date.
6.18 CORRECTION OF INFORMATION. Each of First Citizens and ICBC shall
promptly correct and supplement any information furnished under this Agreement
so that such information shall be correct and complete in all material respects
at all times, and shall include all facts necessary to make such information
correct and complete in all material respects at all times.
6.19 CONFIDENTIALITY. Except for the use of information in connection
with the Registration Statement described in Section 6.03 hereof and any other
governmental filings required in order to complete the transactions contemplated
by this Agreement, all information (collectively, the "Information") received by
each of ICBC and First Citizens, pursuant to the terms of this Agreement shall
be kept in strictest confidence; provided that, subsequent to the filing of the
Registration Statement with the Securities and Exchange Commission, this Section
6.19 shall not apply to information included in the Registration Statement or to
be included in the Proxy Statement to be sent to the shareholders of ICBC and
First Citizens under Section 6.03. ICBC and First Citizens agree that the
Information will be used only for the purpose of completing the transactions
contemplated by this Agreement. ICBC and First Citizens agree to hold the
Information in strictest confidence and shall not use, and shall not disclose
directly or indirectly any of such Information except when, after and to the
extent such Information (i) is or becomes generally available to the public
other than through the failure of ICBC or First Citizens to fulfill its
obligations hereunder, (ii) was already known to the party receiving the
Information on a nonconfidential basis prior to the disclosure or (iii) is
subsequently disclosed to the party receiving the Information on a
nonconfidential basis by a third party having no obligation of confidentiality
to the party disclosing the Information. In the event the transactions
contemplated by this Agreement are not consummated, ICBC and First Citizens
agree to return all copies of the Information provided to the other promptly.
6.20 SUPPLEMENTAL ASSURANCES.
(a) On the date the Registration Statement becomes effective
and on the Effective Date, ICBC shall deliver to First Citizens a certificate
signed by its principal executive officer and its principal financial officer to
the effect, to such officers' knowledge, that the information contained in the
Registration Statement relating to the business and financial condition and
affairs of ICBC, 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.
(b) On the date the Registration Statement becomes effective
and on the Effective Date, First Citizens shall deliver to ICBC a certificate
signed by its chief executive officer and its chief financial officer to the
effect, to such officers' knowledge, that the Registration Statement (other than
the information contained therein relating to the business and financial
condition and affairs of ICBC) does not contain any untrue
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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.
6.21 REGULATORY MATTERS. First Citizens, ICBC and each of their
respective Subsidiaries shall cooperate and each of them agrees to use its
reasonable best efforts to remediate any order, decree, agreement, memorandum of
understanding or similar agreement by First Citizens, ICBC or any of their
respective Subsidiaries with, or a commitment letter, board resolution or
similar submission by First Citizens, ICBC or any of their respective
Subsidiaries to, or supervisory letter from any Regulatory Authority to First
Citizens, ICBC or any of their respective Subsidiaries, to the satisfaction of
such Regulatory Authority.
6.22 EMPLOYMENT AGREEMENTS AND RETENTION ARRANGEMENTS. First Citizens
shall assume all of ICBC's obligations pursuant to those employment agreements
and retention bonus agreements, set out in the paragraph of ICBC's Disclosure
Schedule corresponding to Section 5.03(m).
6.23 FINANCIAL STATEMENTS. ICBC shall deliver to First Citizens,
promptly upon their completion, the financial statements of ICBC for the fiscal
year ended December 31, 2001 (the "ICBC 2001 Financial Statements"), and First
Citizens shall deliver to ICBC, promptly upon their completion, the financial
statements of First Citizens for the fiscal year ended December 31, 2001 (the
"First Citizens 2001 Financial Statements").
6.24 FIRST CITIZENS BOARD OF DIRECTORS STRUCTURE FOLLOWING THE PARENT
MERGER. At the Effective Time of the Parent Merger, First Citizens shall take
such actions as are necessary to increase the number of directors comprising the
First Citizens Board by two (2) members and shall fill the vacancies resulting
from such increase with two (2) members of the ICBC Board recommended by ICBC
and selected by First Citizens.
6.25 FIRST CITIZENS BANK BOARD OF DIRECTORS FOLLOWING THE SUBSIDIARY
MERGER. At the Effective Time of the Subsidiary Merger, First Citizens shall
take such actions as are necessary to increase the number of directors
comprising First Citizens Bank's Board of Directors by two (2) members and shall
fill the vacancies resulting from such increase with (2) members of the ICBC
Board recommended by ICBC and selected by First Citizens.
6.26 ESTABLISHMENT OF BANK COMMUNITY BOARD. First Citizens will
establish a Bank Community Board to be comprised of all current members of the
ICBC Board who wish to participate (other than those ICBC directors serving as
First Citizens or First Citizens Bank directors as provided for in Sections 6.24
and 6.25 above).
6.27 BANK SIGNAGE. Following the Effective Time, First Citizens would
anticipate, given the notable recognition associated with the "Citizens" and
"Norwalk" names, that it would continue to be featured in all signage at Bank
branches.
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6.28 VOTING AGREEMENTS. On the date of this Agreement, ICBC shall
forward to First Citizens Voting Agreements which have been executed by each of
the persons listed on the Form of Voting Agreement set forth on Exhibit A
hereto.
6.29 INDEMNIFICATION; DIRECTORS' AND OFFICERS' LIABILITY INSURANCE.
First Citizens shall indemnify each Person who served as a director or officer
of ICBC or Bank, as the case may be, on or before the Effective Time to the
fullest extent permitted pursuant to the ICBC Articles and the ICBC Code, and
the articles of association and bylaws of Bank, as the case may be, and
applicable provisions of Ohio and federal law from and against expenses,
including attorneys' fees, judgments, fines and amounts paid in settlement in
connection with any action, suit, claim or proceeding threatened, filed, pending
or completed during the three (3) year period after the Effective Time, by
reason of the fact that such Person was a director or officer of ICBC or Bank,
as the case may be; provided, however, that the individual making the request
for indemnification under this Section 6.29 provides First Citizens with written
notice of any such action, suit, claim or proceeding. First Citizens agrees to
purchase directors' and officers' liability insurance for a period of three
years from the Effective Date under commercially reasonable terms for such
insurance that serves to reimburse the present and former officers and directors
of ICBC or any of its Subsidiaries (determined at the Effective Time) with
respect to claims against such directors and officers arising from facts or
events which occurred before the Effective Time.
ARTICLE VII
CONDITIONS TO CONSUMMATION OF THE MERGER
7.01 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligation of each of First Citizens and ICBC to consummate the
Merger is subject to the fulfillment or written waiver by First Citizens and
ICBC prior to the Effective Time of each of the following conditions:
(a) SHAREHOLDER APPROVALS. This Agreement and the Parent
Merger shall have been duly adopted by the requisite vote of (i) the
shareholders of ICBC and (ii) the shareholders of First Citizens.
(b) REGULATORY APPROVALS. All regulatory approvals required to
consummate the transactions contemplated hereby shall have been obtained and
shall remain in full force and effect and all statutory waiting periods in
respect thereof shall have expired and no such approvals shall contain (i) any
conditions, restrictions or requirements which the First Citizens Board
reasonably determines would either before or after the Effective Time have a
Material Adverse Effect on First Citizens and its Subsidiaries taken as a whole
after giving effect to the consummation of the Merger, or (ii) any conditions,
restrictions or requirements that are not customary and usual for approvals of
such type and which the First Citizens Board reasonably determines would either
before or after the Effective Time be unduly burdensome.
(c) NO INJUNCTION. No Governmental Authority of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered any
statute, rule, regulation, judgment, decree, injunction or other order (whether
temporary, preliminary
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or permanent) which is in effect and prohibits consummation of the transactions
contemplated by this Agreement.
(d) REGISTRATION STATEMENT. The Registration Statement shall
have become effective under the Securities Act and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been initiated or threatened by the SEC.
(e) BLUE SKY APPROVALS. All permits and other authorizations
under state securities laws necessary to consummate the transactions
contemplated hereby and to issue the First Citizens Common Shares to be issued
in the Parent Merger shall have been received and be in full force and effect.
7.02 CONDITIONS TO OBLIGATION OF ICBC. The obligation of ICBC to
consummate the Merger is also subject to the fulfillment or written waiver by
ICBC prior to the Effective Time of each of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of First Citizens set forth in this Agreement shall be true and
correct, subject to Section 5.02, as of the date of this Agreement and as of the
Effective Date as though made on and as of the Effective Date (except that
representations and warranties that by their terms speak as of the date of this
Agreement or some other date shall be true and correct as of such date), and
ICBC shall have received a certificate, dated the Effective Date, signed on
behalf of First Citizens by the Chief Executive Officer and the Chief Financial
Officer of First Citizens to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF FIRST CITIZENS. First
Citizens shall have performed in all material respects all obligations required
to be performed by First Citizens under this Agreement at or prior to the
Effective Time, and ICBC shall have received a certificate, dated the Effective
Date, signed on behalf of First Citizens by the Chief Executive Officer and the
Chief Financial Officer of First Citizens to such effect.
(c) TAX OPINION. ICBC shall have received an opinion of Vorys,
Sater, Seymour and Pease LLP, counsel to ICBC, dated the Effective Date, to the
effect that, on the basis of facts, representations and assumptions set forth in
such opinion, (i) the Parent Merger constitutes a "reorganization" within the
meaning of Section 368 of the Code and (ii) no gain or loss will be recognized
by shareholders of ICBC who receive First Citizens Common Shares in exchange for
ICBC Common Shares, and cash in lieu of fractional share interests, other than
the gain or loss to be recognized as to cash received in lieu of fractional
share interests. In rendering its opinion, counsel to ICBC may require and rely
upon representations contained in letters from ICBC.
(d) OPINION OF YOUNG & ASSOCIATES, INC. ICBC shall have
received the written opinion of Young & Associates, Inc., dated the date of the
Proxy/Prospectus, to the effect that the Merger Consideration is fair to the
holders of ICBC Common Shares from a financial point of view as of such date.
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7.03 CONDITIONS TO OBLIGATION OF FIRST CITIZENS. The obligation of
First Citizens to consummate the Merger is also subject to the fulfillment or
written waiver by First Citizens prior to the Effective Time of each of the
following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of ICBC set forth in this Agreement shall be true and correct,
subject to Section 5.02, as of the date of this Agreement and as of the
Effective Date as though made on and as of the Effective Date (except that
representations and warranties that by their terms speak as of the date of this
Agreement or some other date shall be true and correct as of such date) and
First Citizens shall have received a certificate, dated the Effective Date,
signed on behalf of ICBC by the Chief Executive Officer and the Chief Financial
Officer of ICBC to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF ICBC. ICBC shall have
performed in all material respects all obligations required to be performed by
it under this Agreement at or prior to the Effective Time, and First Citizens
shall have received a certificate, dated the Effective Date, signed on behalf of
ICBC by the Chief Executive Officer and the Chief Financial Officer of ICBC to
such effect.
(c) AFFILIATE AGREEMENTS. First Citizens shall have received
the agreements referred to in Section 6.07 from each affiliate of ICBC.
ARTICLE VIII
TERMINATION
8.01 TERMINATION. This Agreement may be terminated, and the Merger
may be abandoned:
(a) MUTUAL CONSENT. At any time prior to the Effective Time,
by the mutual consent of First Citizens and ICBC, if the Board of Directors of
each so determines by vote of a majority of the members of its entire Board.
(b) BREACH; MATERIAL ADVERSE EFFECT. At any time prior to the
Effective Time, by First Citizens or ICBC, if its respective Board of Directors
so determines by vote of a majority of the members of its entire Board, in the
event of either: (i) a breach by the other party of any representation or
warranty contained herein (subject to the standard set forth in Section 5.02),
which breach cannot be or has not been cured within 30 days after the giving of
written notice to the breaching party of such breach; or (ii) a breach by the
other party of any of the covenants or agreements contained herein, which breach
cannot be or has not been cured within 30 days after the giving of written
notice to the breaching party of such breach, provided that such breach (whether
under (i) or (ii)) would be reasonably likely, individually or in the aggregate
with other breaches, to result in a Material Adverse Effect.
(c) DELAY. At any time prior to the Effective Time, by First
Citizens or ICBC, if its respective Board of Directors so determines by vote of
a majority of the members of its entire Board, in the event that the Parent
Merger is not consummated by April 30, 2002, except to the extent that the
failure of the Parent Merger then to be
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consummated arises out of or results from the knowing action or inaction of the
party seeking to terminate pursuant to this Section 8.01(c).
(d) NO APPROVAL. By ICBC or First Citizens, if its Board of
Directors so determines by a vote of a majority of the members of its entire
Board, in the event (i) the approval of any Governmental Authority required for
consummation of the Merger and the other transactions contemplated by this
Agreement shall have been denied by final nonappealable action of such
Governmental Authority or (ii) the ICBC shareholders or the First Citizens
shareholders fail to adopt this Agreement and the Parent Merger at the ICBC
Meeting or First Citizens Meeting, as applicable.
(e) AVERAGE PRICE OF FIRST CITIZENS COMMON SHARES DURING
VALUATION PERIOD. If the Average First Citizens Price (as defined below) of
First Citizens Common Shares is less than $19.50, then either ICBC or First
Citizens may, at its option, terminate this Agreement; provided, however, that
in the event that ICBC notifies First Citizens of its intent to terminate under
this Section 8.01(e) then prior to ICBC exercising any right of termination
hereunder, First Citizens may, at its option, for a period of ten (10) business
days, offer to distribute to ICBC shareholders, in connection with the share
exchange under Section 3.01 hereof, an additional number of First Citizens
Common Shares to offset the amount by which the Average First Citizens Closing
Price is below $19.50 ("First Citizens' Offer"). Thereafter, for a period of ten
(10) business days, ICBC shall have the opportunity to accept or reject First
Citizens' Offer. If ICBC rejects First Citizens' Offer, ICBC may terminate this
Agreement in accordance with the provisions hereof. For purposes of this
Agreement, the term "First Citizens Price" shall mean either (i) the price per
share of the last sale of First Citizens Common Shares or (ii) as to those
trading days in which no sales of First Citizens Common Shares are made, the
average of the bid and ask price for a First Citizens Common Share, all as
reported on NASDAQ at the close of the trading day by the NASD. The term
"Average First Citizens Price" shall mean the arithmetic mean of the First
Citizens Prices for the twenty (20) trading days immediately preceding the fifth
(5th) trading day prior to the consummation of the Merger (the "Valuation
Period").
(f) ACQUISITION PROPOSAL. By ICBC, if in compliance with the
provisions of Section 6.06(a), ICBC executes a definitive agreement in
connection with, or closes, an Acquisition Proposal.
8.02 EFFECT OF TERMINATION AND ABANDONMENT, ENFORCEMENT OF AGREEMENT.
In the event of termination of this Agreement and the abandonment of the Merger
pursuant to this Article VIII, no party to this Agreement shall have any
liability or further obligation to any other party hereunder except (i) as set
forth in Section 9.01 and (ii) that termination will not relieve a breaching
party from liability for any willful breach of this Agreement giving rise to
such termination. Notwithstanding anything contained herein to the contrary, the
parties hereto agree that irreparable damage will occur in the event that a
party breaches any of its obligations, duties, covenants and agreements
contained herein. It is accordingly agreed that the parties shall be entitled to
an injunction or injunctions to prevent breaches or threatened breaches of this
Agreement and to enforce specifically the terms and provisions of this Agreement
in any court of
-42-
the United States or any state having jurisdiction, this being in addition to
any other remedy to which they are entitled by law or in equity.
ARTICLE IX
MISCELLANEOUS
9.01 SURVIVAL. No representations, warranties, agreements and covenants
contained in this Agreement shall survive the Effective Time (other than
Sections 6.11, 6.24, 6.25, 6.26, 6.27, and 6.29 and this Article IX which shall
survive the Effective Time) or the termination of this Agreement if this
Agreement is terminated prior to the Effective Time (other than Sections 6.04,
6.05(b), 6.06(b), 6.19, and 8.02, and this Article IX which shall survive such
termination).
9.02 WAIVER; AMENDMENT. Prior to the Effective Time, any provision of
this Agreement may be (i) waived by the party benefited by the provision, or
(ii) amended or modified at any time, by an agreement in writing between the
parties hereto executed in the same manner as this Agreement, except that after
the ICBC Meeting, this Agreement may not be amended if it would violate the OGCL
or the federal securities laws.
9.03 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to constitute an original.
9.04 GOVERNING LAW. This Agreement shall be governed by, and
interpreted in accordance with, the laws of the State of Ohio applicable to
contracts made and to be performed entirely within such State (except to the
extent that mandatory provisions of Federal law are applicable).
9.05 EXPENSES. Each party hereto will bear all expenses incurred by it
in connection with this Agreement and the transactions contemplated hereby,
except that printing and mailing expenses shall be shared between ICBC and First
Citizens in proportion to the number of shareholders of each to whom the
Proxy/Prospectus is delivered. All fees to be paid to Regulatory Authorities and
the SEC in connection with the transactions contemplated by this Agreement shall
be borne by First Citizens.
9.06 NOTICES. All notices, requests and other communications hereunder
to a party shall be in writing and shall be deemed given if personally
delivered, telecopied (with confirmation) or mailed by registered or certified
mail (return receipt requested) to such party at its address set forth below or
such other address as such party may specify by notice to the parties hereto.
-43-
If to ICBC, to:
Independent Community Banc Corp.
16 Executive Drive
Norwalk, Ohio 44857
Phone: (419) 744-3100
Fax: (419) 663-7745
Attention: Michael N. Clemens, President
James D. Heckelman, Chairman
With a copy to:
Vorys, Sater, Seymour and Pease LLP
2100 One Cleveland Center
1375 East Ninth Street
Cleveland, Ohio 44114-1724
Phone: (216) 479-6100
Fax: (216) 479-6060
Attention: John M. Saganich, Esq.
If to First Citizens, to:
First Citizens Banc Corp.
100 East Water Street
Sandusky, Ohio 44870
Phone: (419) 625-4121
Fax: (419) 627-3359
Attention: David A. Voight, President
With a copy to:
Buckingham, Lucal, McGookey & Zeiher Co., L.P.A.
414 Wayne Street
P.O. Box 929
Sandusky, Ohio 44870
Phone: (800) 410-0414
Fax: (419) 627-0009
Attention: James E. McGookey, Esq.
Squire, Sanders & Dempsey L.L.P.
4900 Key Tower
127 Public Square
Cleveland, Ohio 44114-1304
Phone: (216) 479-8500
Fax: (216) 479-8780
Attention: M. Patricia Oliver, Esq.
-44-
9.07 ENTIRE UNDERSTANDING; NO THIRD PARTY BENEFICIARIES. This
Agreement, the Voting Agreements and any separate agreement entered into by the
parties on even date herewith represent the entire understanding of the parties
hereto with reference to the transactions contemplated hereby and thereby and
this Agreement supersedes any and all other oral or written agreements
heretofore made (other than such Voting Agreements or any such separate
agreement). Except as provided in Section 6.29, nothing in this Agreement,
whether express or implied, is intended to confer upon any person, other than
the parties hereto or their respective successors, any rights, remedies,
obligations or liabilities under or by reason of this Agreement.
9.08 INTERPRETATION; EFFECT. When a reference is made in this Agreement
to Sections, Exhibits or Schedules, such reference shall be to a Section of, or
Exhibit or Schedule to, this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and are not part of this Agreement. Whenever the words "include",
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation."
9.09 WAIVER OF JURY TRIAL. Each of the parties hereto hereby
irrevocably waives any and all right to trial by jury in any legal proceeding
arising out of or related to this Agreement or the transactions contemplated
hereby.
[REST OF THIS PAGE HAS BEEN LEFT INTENTIONALLY BLANK]
-45-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in counterparts by their duly authorized officers, all as of the day
and year first above written.
INDEPENDENT COMMUNITY BANC CORP.
By /s/ Michael N. Clemens
-----------------------------------------------
Michael N. Clemens
President
By /s/ James D. Heckelman
-----------------------------------------------
James D. Heckelman
Chairman
FIRST CITIZENS BANC CORP.
By /s/ David A. Voight
-----------------------------------------------
David A. Voight
President
-46-
EXHIBIT A - FORM OF VOTING AGREEMENT
VOTING AGREEMENT
This Voting Agreement is entered into on __________, 2001 (this
"Agreement") by and between First Citizens Banc Corp. ("First Citizens") and
__________________ (the "Shareholder").
WHEREAS, the Shareholder owns _____________ common shares, without par
value (the "Common Shares"), of Independent Community Banc Corp., a corporation
organized and existing under the laws of the State of Ohio ("ICBC") and a bank
holding company registered under the Bank Holding Company Act of 1956, as
amended (all such Common Shares now owned and which may hereafter be acquired by
the Shareholder prior to the termination of this Agreement shall be referred to
herein as the ("Shares");
WHEREAS, First Citizens and ICBC propose to enter into an Agreement and
Plan of Merger, dated as of the date hereof (the "Merger Agreement"), which
provides, among other things, that ICBC will merge with and into First Citizens
and ICBC's wholly-owned bank subsidiary will merge with and into First Citizens'
bank subsidiary (this and other capitalized terms used and not defined herein
shall have the meanings given to such terms in the Merger Agreement);
WHEREAS, it is a condition to First Citizens entering into the Merger
Agreement that the Shareholder agree, and in order to induce First Citizens to
enter into the Merger Agreement, the Shareholder has agreed, to enter into this
Agreement; and
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained herein, and intending to be legally bound
hereby, the parties hereby agree as follows:
ARTICLE 1
VOTING OF CONTROL SHARES
1.1 VOTING AGREEMENT. The Shareholder hereby agrees that during the
time this Agreement is in effect, at any meeting of the shareholders of ICBC,
however called, and in any action by consent of the shareholders of ICBC, the
Shareholder shall, subject to the Shareholder's fiduciary duty under Ohio law,
vote the Shares: (i) in favor of the Parent Merger and the Merger Agreement (as
amended from time to time) and (ii) against any proposal for any
recapitalization, merger, sale of assets or other business combination between
ICBC and any person or entity other than First Citizens or any other action or
agreement that would result in a breach of any covenant, representation or
warranty or any other obligation or agreement of ICBC under the Merger Agreement
or that would result in any of the conditions to the obligations of ICBC under
the Merger Agreement not being fulfilled.
ARTICLE 2
REPRESENTATION AND WARRANTIES
The Shareholder hereby represents and warrants to First Citizens as
follows:
2.1 AUTHORITY RELATIVE TO THIS AGREEMENT. The Shareholder has all
necessary power and authority or capacity, as the case may be, to execute and
deliver this Agreement, to perform the Shareholder's obligations hereunder and
to consummate the transactions contemplated hereby. This Agreement has been duly
and validly executed and delivered by the Shareholder and constitutes a legal,
valid and binding obligation of the Shareholder, enforceable against the
Shareholder in accordance with its terms.
2.2 % VOTING POWER. The Shares represent ___% of the voting power of
the outstanding shares of capital stock of ICBC.
2.3 NO CONFLICT.
(a) The execution and delivery of this Agreement by the
Shareholder does not, and the performance of this Agreement by the
Shareholder will not (i) conflict with or violate any law, rule,
regulation, order, judgment or decree applicable to the Shareholder or
by which the Shares are bound, or (ii) result in any breach of or
constitute a default (or event that with notice or lapse of time or
both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in
the creation of a lien or encumbrance on any of the Shares pursuant to,
any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which
the Shareholder is a party or by which the Shareholder is or any of the
Shares are bound, except, in the case of clauses (i) and (ii), for any
such conflicts, violations, breaches, defaults or other occurrences
which would not prevent or delay the performance by the Shareholder of
the Shareholder's obligations under this Agreement.
(b) The execution and delivery of this Agreement by the
Shareholder does not, and the performance of this Agreement by the
Shareholder will not, require any consent, approval, authorization or
permit of, or filing with or notification to, any federal, state, local
or foreign regulatory body.
2.4 TITLE TO THE SHARES. The Shareholder is the sole owner of the
number and class of shares of the capital stock of ICBC specified on Exhibit A
hereto, free and clear of all security interests, liens, claims, pledges,
options, rights of first refusal, agreements, limitations on voting rights,
charges and other encumbrances of any nature whatsoever. The Shareholder has not
appointed or granted any proxy, which appointment or grant is still effective,
with respect to the Shares. The Shareholder has sole voting power with respect
to the Shares.
2
ARTICLE 3
MISCELLANEOUS
3.1 TERMINATION. This Agreement shall terminate on the earlier to occur
of (i) the date of consummation of the Merger and (ii) the date of the
termination of the Merger Agreement.
3.2 SPECIFIC PERFORMANCE. The Shareholder agrees that irreparable
damage would occur in the event any provision of this Agreement was not
performed in accordance with the terms hereof and that First Citizens shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or in equity.
3.3 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties and supersedes all prior agreements and understandings with
respect to the subject matter hereof.
3.4 AMENDMENT. This Agreement may not be amended except by an
instrument in writing signed by both of the parties hereto.
3.5 SEVERABILITY. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that the transactions contemplated hereby are fulfilled to the fullest extent
possible.
3.6 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Ohio.
3.7 COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed to be an original, but all of which shall constitute
one and the same agreement.
3.8 ASSIGNMENTS. This Agreement shall not be assigned by operation of
law or otherwise.
3.9 PARTIES IN INTEREST. This Agreement shall be binding upon and inure
solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to or shall confer upon any person, any right,
benefit or remedy of any nature whatsoever under or by reason of this Agreement.
3
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed on the day first written above.
FIRST CITIZENS BANC CORP.
By:
-------------------------------------
Name:
-------------------------------
Title:
------------------------------
SHAREHOLDER
Name:
-----------------------------------
[ATTACHED TO THIS EXHIBIT A IS A LIST OF SHAREHOLDERS WHO WILL EXECUTE
A VOTING AGREEMENT AND THE NUMBER OF SHARES THAT THEY EACH OWN]
4
SHAREHOLDERS WHO WILL EXECUTE A VOTING AGREEMENT
AND THE NUMBER OF SHARES THAT THEY EACH OWN
SHAREHOLDER SHARES
- ----------- ------
William F. Boose 4,872
Michael L. Clemens 690.32183627
Robin L. Degraff 60
James D. Heckelman 6,325.12795408
John M. Kovesdi, Jr. 545.73466461
Leslie D. Stoneham 818.76065961
Jerry E. Stover 2,519.08926835
Richard C. Westhofen 358.13951878
Daniel J. White 306.77256439
5
EXHIBIT B - FORM OF ICBC AFFILIATE AGREEMENT
_____________, 200_
First Citizens Banc Corp.
100 East Water Street
Sandusky, Ohio 44870
Ladies and Gentlemen:
I have been advised that as of the date hereof I may be deemed to be an
"affiliate" of Independent Community Banc Corp. ("ICBC"), as that term is
defined for purposes of Paragraphs (c) and (d) of Rule 145 of the Rules and
Regulations (the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") promulgated under the Securities Act of 1933, as
amended (the "Act").
Pursuant to the terms of the Agreement and Plan of Merger by and
between First Citizens Banc Corp. ("First Citizens") and ICBC dated as of
November 1, 2001 (the "Merger Agreement"), providing for the merger of ICBC with
and into First Citizens (the "Merger"), and as a result of the Merger, I will
receive shares of First Citizens common shares ("First Citizens Common Shares")
in exchange for ICBC common shares ("ICBC Stock") owned by me at the Effective
Time (as defined and determined pursuant to the Merger Agreement). This letter
is being delivered pursuant to Section 6.07 of the Merger Agreement. I represent
and warrant to First Citizens that in such event:
A. I will not sell, assign or transfer the First Citizens Common Shares
which I receive as aforesaid in violation of the Act or the Rules and
Regulations.
B. I have carefully read this letter and the Merger Agreement and have
discussed their requirements and other applicable limitations upon my ability to
sell, transfer or otherwise dispose of the First Citizens Common Shares, to the
extent I feel necessary, with my counsel or counsel for ICBC. I understand that
First Citizens is relying on the representations I am making in this letter and
I hereby agree to hold harmless and indemnify First Citizens and its officers
and directors from and against any losses, claims, damages, expenses (including
reasonable attorneys' fees), or liabilities ("Losses") 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.
C. I have been advised that the issuance of the First Citizens Common
Shares issued to me pursuant to the Merger will have been registered with the
Commission under
__________, 200_
Page 2
the Act on a Registration Statement on Form S-4. However, I have also been
advised that since I may be deemed to be an affiliate under the Rules and
Regulations at the time the Merger was submitted for a vote of the shareholders
of ICBC, that the First Citizens Common Shares must be held by me indefinitely
unless (i) my subsequent distribution of First Citizens Common Shares has been
registered under the Act; (ii) a sale of the First Citizens Common Shares is
made in conformity with the volume and other applicable limitations of a
transaction permitted by Rule 145 promulgated by the Commission under the Act
and as to which First Citizens has received satisfactory evidence of the
compliance and conformity with said Rule, or (iii) a transaction in which, in
the opinion of Squire, Sanders & Dempsey L.L.P. (or other counsel reasonably
acceptable to First Citizens) or in accordance with a no-action letter from the
Commission, some other exemption from registration is available with respect to
any such proposed sale, transfer or other disposition of the First Citizens
Common Shares.
D. I also understand that stop transfer instructions will be given to
First Citizens' transfer agent with respect to any First Citizens Common Shares
which I receive in the Merger and that there will be placed on the certificates
for such First Citizens Common Shares, a legend stating in substance:
"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)
an effective registration statement under the Act, (ii) a
transaction permitted by Rule 145 and as to which the issuer
has received reasonable and satisfactory evidence of
compliance with the provisions of Rule 145, or (iii) a
transaction in which, in the opinion of Squire, Sanders &
Dempsey L.L.P. or other counsel satisfactory to the issuer or
in accordance with a "no action" letter from the staff of the
Securities and Exchange Commission, such shares are not
required to be registered under the Act."
__________, 200_
Page 3
It is understood and agreed that the legend set forth in Paragraph D
above shall be removed and any stop order instructions with respect thereto
shall be canceled upon receipt of advice from Squire, Sanders & Dempsey L.L.P.
or other counsel satisfactory to First Citizens that such actions are
appropriate under the then-existing circumstances.
Very truly yours,
Date: , 200_
------------------------------ ----------------------------
(Name of Affiliate)
PLEASE PRINT YOUR NAME HERE:
----------------------------
Accepted this _____ day of
__________, 200_
FIRST CITIZENS BANC CORP.
By
-------------------------------------------------
David A. Voight, President
APPENDIX B
DISSENTERS' RIGHTS UNDER SECTIONS 1701.84 AND 1701.85 OF
THE OHIO REVISED CODE
SS.1701.84 PERSONS ENTITLED TO RELIEF AS DISSENTING SHAREHOLDERS.
The following are entitled to relief as dissenting shareholders under
section 1701.85 of the Revised Code:
(A) Shareholders of a domestic corporation that is being merged or
consolidated into a surviving or new entity, domestic or foreign, pursuant to
section 1701.78, 1701.781, 1701.79, 1701.791, or 1701.801 of the Revised Code;
(B) In the case of a merger into a domestic corporation, shareholders
of the surviving corporation who under section 1701.78 or 1701.781 of the
Revised Code are entitled to vote on the adoption of an agreement of merger, but
only as to the shares so entitling them to vote;
(C) Shareholders, other than the parent corporation, of a domestic
subsidiary corporation that is being merged into the domestic or foreign parent
corporation pursuant to section 1701.80 of the Revised Code;
(D) In the case of a combination or a majority share acquisition,
shareholders of the acquiring corporation who under section 1701.83 of the
Revised Code are entitled to vote on such transaction, but only as to the shares
so entitling them to vote;
(E) Shareholders of a domestic subsidiary corporation into which one or
more domestic or foreign corporations are being merged pursuant to section
1701.801 of the Revised Code.
SS.1701.85 DISSENTING SHAREHOLDER'S DEMAND FOR FAIR CASH VALUE OF SHARES.
(A)(1) A shareholder of a domestic corporation is entitled to relief as
a dissenting shareholder in respect of the proposals described in sections
1701.74, 1701.76, and 1701.84 of the Revised Code, only in compliance with this
section.
(2) If the proposal must be submitted to the shareholders of the
corporation involved, the dissenting shareholder shall be a record holder of the
shares of the corporation as to which he seeks relief as of the date fixed for
the determination of shareholders entitled to notice of a meeting of the
shareholders at which the proposal is to be submitted, and such shares shall not
have been voted in favor of the proposal. Not later than ten days after the date
on which the vote on the proposal was taken at the meeting of the shareholders,
the dissenting shareholder shall deliver to the corporation a written demand for
payment to him of the fair cash value of the shares as to which he seeks relief,
which demand shall state his address, the number and class of such shares, and
the amount claimed by him as the fair cash value of the shares.
(3) The dissenting shareholder entitled to relief under division (C) of
section 1701.84 of the Revised Code in the case of a merger pursuant to section
1701.80 of the Revised Code and a dissenting shareholder entitled to relief
under division (E) of section 1701.84 of the Revised Code in the case of a
merger pursuant to section 1701.801 of the Revised Code shall be a record holder
of the shares of the corporation as to which he seeks relief as of the date on
which the agreement of merger was adopted by the directors of that corporation.
Within twenty days after he has been sent the notice provided in section 1701.80
or 1701.801 of the Revised Code, the dissenting shareholder shall deliver to the
corporation a written demand for payment with the same information as that
provided for in division (A)(2) of this section.
(4) In the case of a merger or consolidation, a demand served on the
constituent corporation involved constitutes service on the surviving or the new
entity, whether the demand is served before, on, or after the effective date of
the merger or consolidation.
(5) If the corporation sends to the dissenting shareholder, at the
address specified in his demand, a request for the certificates representing the
shares as to which he seeks relief, the dissenting shareholder, within fifteen
days from the date of the sending of such request, shall deliver to the
corporation the certificates requested so that the corporation may forthwith
endorse on them a legend to the effect that demand for the fair cash value of
such shares has been made. The corporation promptly shall return such endorsed
certificates to the dissenting shareholder. A dissenting shareholder's failure
to deliver such certificates terminates his rights as a dissenting shareholder,
at the option of the corporation, exercised by written notice sent to the
dissenting shareholder within twenty days after the lapse of the fifteen-day
period, unless a court for good cause shown otherwise directs. If shares
represented by a certificate on which such a legend has been endorsed are
transferred, each new certificate issued for them shall bear a similar legend,
together with the name of the original dissenting holder of such shares. Upon
receiving a demand for payment from a dissenting shareholder who is the record
holder of uncertificated securities, the corporation shall make an appropriate
notation of the demand for payment in its shareholder records. If uncertificated
shares for which payment has been demanded are to be transferred, any new
certificate issued for the shares shall bear the legend required for
certificated securities as provided in this paragraph. A transferee of the
shares so endorsed, or of uncertificated securities where such notation has been
made, acquires only such rights in the corporation as the original dissenting
holder of such shares had immediately after the service of a demand for payment
of the fair cash value of the shares. A request under this paragraph by the
corporation is not an admission by the corporation that the shareholder is
entitled to relief under this section.
(B) Unless the corporation and the dissenting shareholder have come to
an agreement on the fair cash value per share of the shares as to which the
dissenting shareholder seeks relief, the dissenting shareholder or the
corporation, which in case of a merger or consolidation may be the surviving or
new entity, within three months after the service of the demand by the
dissenting shareholder, may file a complaint in the court of common pleas of the
county in which the principal office of the corporation that issued the shares
is located or was located when the proposal was adopted by the shareholders of
the corporation, or, if the proposal was not required to be submitted to the
shareholders, was approved by the directors. Other dissenting shareholders,
within that three-month period, may join as plaintiffs or may be joined as
defendants in any such proceeding, and any two or more such proceedings may be
consolidated. The complaint shall contain a brief statement of the facts,
including the vote and the facts entitling the dissenting shareholder to the
relief demanded. No answer to such a complaint is required. Upon the filing of
such a complaint, the court, on motion of the petitioner, shall enter an order
fixing a date for a hearing on the complaint and requiring that a copy of the
complaint and a notice of the filing and of the date for hearing be
given to the respondent or defendant in the manner in which summons is
required to be served or substituted service is required to be made in other
cases. On the day fixed for the hearing on the complaint or any adjournment of
it, the court shall determine from the complaint and from such evidence as is
submitted by either party whether the dissenting shareholder is entitled to be
paid the fair cash value of any shares and, if so, the number and class of such
shares. If the court finds that the dissenting shareholder is so entitled, the
court may appoint one or more persons as appraisers to receive evidence and to
recommend a decision on the amount of the fair cash value. The appraisers have
such power and authority as is specified in the order of their appointment. The
court thereupon shall make a finding as to the fair cash value of a share and
shall render judgment against the corporation for the payment of it, with
interest at such rate and from such date as the court considers equitable. The
costs of the proceeding, including reasonable compensation to the appraisers to
be fixed by the court, shall be assessed or apportioned as the court considers
equitable. The proceeding is a special proceeding and final orders in it may be
vacated, modified, or reversed on appeal pursuant to the Rules of Appellate
Procedure and, to the extent not in conflict with those rules, Chapter 2505. of
the Revised Code. If, during the pendency of any proceeding instituted under
this section, a suit or proceeding is or has been instituted to enjoin or
otherwise to prevent the carrying out of the action as to which the shareholder
has dissented, the proceeding instituted under this section shall be stayed
until the final determination of the other suit or proceeding. Unless any
provision in division (D) of this section is applicable, the fair cash value of
the shares that is agreed upon by the parties or fixed under this section shall
be paid within thirty days after the date of final determination of such value
under this division, the effective date of the amendment to the articles, or the
consummation of the other action involved, whichever occurs last. Upon the
occurrence of the last such event, payment shall be made immediately to a holder
of uncertificated securities entitled to such payment. In the case of holders of
shares represented by certificates, payment shall be made only upon and
simultaneously with the surrender to the corporation of the certificates
representing the shares for which the payment is made.
(C) If the proposal was required to be submitted to the shareholders of
the corporation, fair cash value as to those shareholders shall be determined as
of the day prior to the day on which the vote by the shareholders was taken and,
in the case of a merger pursuant to section 1701.80 or 1701.801 of the Revised
Code, fair cash value as to shareholders of a constituent subsidiary corporation
shall be determined as of the day before the adoption of the agreement of merger
by the directors of the particular subsidiary corporation. The fair cash value
of a share for the purposes of this section is the amount that a willing seller
who is under no compulsion to sell would be willing to accept and that a willing
buyer who is under no compulsion to purchase would be willing to pay, but in no
event shall the fair cash value of a share exceed the amount specified in the
demand of the particular shareholder. In computing such fair cash value, any
appreciation or depreciation in market value resulting from the proposal
submitted to the directors or to the shareholders shall be excluded.
(D)(1) The right and obligation of a dissenting shareholder to receive
such fair cash value and to sell such shares as to which he seeks relief, and
the right and obligation of the corporation to purchase such shares and to pay
the fair cash value of them terminates if any of the following applies:
(a) The dissenting shareholder has not complied with this
section, unless the corporation by its directors waives such failure;
(b) The corporation abandons the action involved or is finally
enjoined or prevented from carrying it out, or the shareholders rescind their
adoption of the action involved;
(c) The dissenting shareholder withdraws his demand, with the
consent of the corporation by its directors;
(d) The corporation and the dissenting shareholder have not
come to an agreement as to the fair cash value per share, and neither the
shareholder nor the corporation has filed or joined in a complaint under
division (B) of this section within the period provided in that division.
(2) For purposes of division (D)(1) of this section, if the merger or
consolidation has become effective and the surviving or new entity is not a
corporation, action required to be taken by the directors of the corporation
shall be taken by the general partners of a surviving or new partnership or the
comparable representatives of any other surviving or new entity.
(E) From the time of the dissenting shareholder's giving of the demand
until either the termination of the rights and obligations arising from it or
the purchase of the shares by the corporation, all other rights accruing from
such shares, including voting and dividend or distribution rights, are
suspended. If during the suspension, any dividend or distribution is paid in
money upon shares of such class or any dividend, distribution, or interest is
paid in money upon any securities issued in extinguishment of or in substitution
for such shares, an amount equal to the dividend, distribution, or interest
which, except for the suspension, would have been payable upon such shares or
securities, shall be paid to the holder of record as a credit upon the fair cash
value of the shares. If the right to receive fair cash value is terminated other
than by the purchase of the shares by the corporation, all rights of the holder
shall be restored and all distributions which, except for the suspension, would
have been made shall be made to the holder of record of the shares at the time
of termination.
APPENDIX C
FAIRNESS OPINION OF KEEFE, BRUYETTE, & WOODS, INC.
November 1, 2001
Board of Directors
First Citizens Banc Corp.
100 East Water Street
Sandusky, Ohio 44870
Dear Members of the Board:
You have requested our opinion as an independent investment banking firm
regarding the fairness, from a financial point of view, to the stockholders of
First Citizens Banc Corp. ("FCZA"), of the consideration to be paid by FCZA in
the merger (the "Merger") between FCZA and Independent Community Banc Corp.
("ICBC"). We have not been requested to opine as to, and our opinion does not in
any manner address, FCZA's underlying business decision to proceed with or
effect the Merger.
Pursuant to the Agreement and Plan of Merger, dated November 1, 2001, by and
among FCZA and ICBC (the "Agreement"), at the effective time of the Merger, FCZA
will acquire all of ICBC's issued and outstanding shares of common stock. ICBC
shareholders will receive 1.7 shares of FCZA stock for each share of ICBC's
common stock outstanding. In addition, the Merger Agreement limits the value of
the consideration to be received by ICBC shareholders in the event the market
value of FCZA stock increases to or above $29.50 and permits the Board of ICBC
to terminate the transaction in the event the average market value of the FCZA
stock over the defined period of time falls below $19.50, subject to the right
of FCZA to pay additional consideration to ICBC shareholders. The compete terms
of the proposed transaction are described in the Agreement, and this summary is
qualified in its entirety by reference thereto.
Keefe, Bruyette & Woods, Inc., as part of its investment banking business, is
regularly engaged in the evaluation of businesses and securities in connection
with mergers and acquisitions, negotiated underwritings, and distributions of
listed and unlisted securities. We are familiar with the market for common
stocks of publicly traded banks, savings institutions and bank and savings
institution holding companies.
In connection with this opinion we reviewed certain financial and other business
data supplied to us by FCZA including (i) the Agreement and Plan of Merger by
and among FCZA and ICBC, dated November 1, 2001, (ii) Annual Report, Proxy
Statement and Form 10-K for the years ended December 31, 1999, and 2000, (iii)
Form 10-Q for the quarters ended March 31, and June 30, 2001 and other
information we deemed relevant. We discussed with senior management and the
boards of directors of FCZA and its wholly owned subsidiary, The Citizens
Banking Company, the current position and prospective outlook for FCZA. We
considered historical quotations and the prices of recorded transactions in
FCZA's common stock. We reviewed financial and stock market data of other banks,
particularly those located in Ohio, and the financial and structural terms of
several other recent transactions involving mergers and acquisitions of banks or
proposed changes of control of comparably situated companies.
For ICBC, we reviewed the audited financial statements, and Proxy Statements for
the years ended December 31, 1999 and 2000, quarterly financial information for
the quarters ended March 31, and June 30, 2001 and certain other information
deemed relevant. We also discussed with senior management of ICBC, the current
position and prospective outlook for ICBC.
Board of Directors
First Citizens Banc Corp.
November 1, 2001
Page 2
For purposes of this opinion we have relied, without independent verification,
on the accuracy and completeness of the material furnished to us by FCZA and
ICBC and the material otherwise made available to us, including information from
published sources, and we have not made any independent effort to verify such
data. With respect to the financial information, including forecasts and asset
valuations we received from FCZA, we assumed (with your consent) that they had
been reasonably prepared reflecting the best currently available estimates and
judgment of FCZA's management. In addition, we have not made or obtained any
independent appraisals or evaluations of the assets or liabilities, and
potential and/or contingent liabilities of FCZA or ICBC. We have further relied
on the assurances of management of FCZA and ICBC that they are not aware of any
facts that would make such information inaccurate or misleading. We express no
opinion on matters of a legal, regulatory, tax or accounting nature or the
ability of the Merger, as set forth in the Agreement, to be consummated.
In rendering our opinion, we have assumed that in the course of obtaining the
necessary approvals for the Merger, no restrictions or conditions will be
imposed that would have a material adverse effect on the contemplated benefits
of the Merger to FCZA or the ability to consummate the Merger. Our opinion is
based on the market, economic and other relevant considerations as they exist
and can be evaluated on the date hereof.
Consistent with the engagement letter with you, we have acted as financial
advisor to FCZA in connection with the Merger and will receive a fee for such
services. In addition, FCZA has agreed to indemnify us for certain liabilities
arising out of our engagement by FCZA in connection with the Merger.
Based upon and subject to the foregoing, as outlined in the foregoing paragraphs
and based on such other matters as we considered relevant, it is our opinion
that as of the date hereof, the consideration to be paid by FCZA in the Merger
is fair, from a financial point of view, to the stockholders of FCZA.
This opinion may not, however, be summarized, excerpted from or otherwise
publicly referred to without our prior written consent, although this opinion
may be included in its entirety in the proxy statement of FCZA used to solicit
stockholder approval of the Merger. It is understood that this letter is
directed to the Board of Directors of FCZA in its consideration of the
Agreement, and is not intended to be and does not constitute a recommendation to
any stockholder as to how such stockholder should vote with respect to the
Merger.
Very truly yours,
/S/ Keefe, Bruyette & Woods, Inc.
- ---------------------------------
Keefe, Bruyette, & Woods, Inc.
APPENDIX D
FAIRNESS OPINION OF YOUNG & ASSOCIATES, INC.
November 1, 2001
Board of Directors
Independent Community Banc Corporation
16 Executive Drive
Norwalk, Ohio 44857
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, of the consideration to be received by the common shareholders of
Independent Community Banc Corporation (the "Company") pursuant to the Agreement
and Plan of Merger dated November 1, 2001 (the "Agreement") by and between the
Company and First Citizens Banc Corp ("FCB"). At the Effective Time, as defined
in the Agreement, the Company will be merged with and into FCB (the "Merger")
and each share of Common Stock held by the Company's shareholders shall be
converted into the right to receive 1.7 shares of FCB common shares, subject to
certain adjustments as provided in the Agreement. The complete terms of the
proposed transaction are described in the Agreement, and this summary is
qualified in its entirety by reference thereto.
Young & Associates, Inc. ("Young & Associates") as part of its business is
regularly engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions and valuations for corporate and other
purposes. We are familiar with the market for common stocks of publicly traded
financial institutions. We are acting as financial advisor to the Company in
connection with the Merger and will receive a fee for our services, a
significant portion of which is payable upon the consummation of the Merger.
In arriving at our opinion, we have among other things:
(i) Reviewed the draft form of the Agreement dated October 31, 2001;
(ii) Reviewed certain historical financial and other information concerning
the Company for the five fiscal years ended December 31, 2000, and for
the three quarters ended March 31, June 30, and September 30, 2001;
(iii) Reviewed certain historical financial and other information concerning
FCB for the five fiscal years ended December 31, 2000, and for the
three quarters ended March 31, June 30, and September 30, 2001;
(iv) Held discussions with the senior management of the Company and FCB with
respect to their past and current financial performance, financial
condition and future prospects;
(v) Reviewed certain internal financial data, projections and other
information of the Company including financial projections
prepared by management;
(vi) Analyzed certain publicly available information of other financial
institutions that we deemed comparable or otherwise relevant to our
inquiry, and compared the Company and FCB from a financial point of
view with certain of these institutions;
(vii) Compared the consideration to be received by the stockholders of the
Company pursuant to the Agreement with the consideration received by
stockholders in other acquisitions of financial institutions that we
deemed comparable or otherwise relevant to our inquiry;
(viii) Reviewed historical trading activity and ownership data of FCB common
stock and considered the prospects for dividends and price movement;
(ix) Reviewed historical trading activity and ownership data of the
Company's common stock and considered the prospects for dividends
and market pricing; and
(x) Conducted such other financial studies, analyses and investigations and
reviewed such other information as we deemed appropriate to enable us
to render our opinion. In our review, we have also taken into account
an assessment of general economic, market and financial conditions and
certain industry trends and related matters.
In our review and analysis and in arriving at our opinion we have assumed and
relied upon the accuracy and completeness of all the financial information
publicly available or provided to us by the Company and FCB and have not
attempted to verify any of such information. We have assumed (i) that the
financial projections of the Company provided to us with respect to the results
of operations likely to be achieved by the Company have been prepared on a basis
reflecting the best currently available estimates and judgments of the Company's
management as to future financial performance and results and (ii) that such
forecasts and estimates will be realized in the amounts and in the time periods
currently estimated by management. We have also assumed, without independent
verification, that the aggregate reserves for possible loan losses for the
Company and FCB are adequate to cover such losses. We did not make or obtain any
independent evaluations or appraisals of any assets or liabilities of the
Company, FCB or any of their respective subsidiaries nor did we verify any of
the Company's or FCB's books or records or review any individual loan credit
files.
Our opinion is necessarily based upon market, economic and other conditions as
they exist and can be evaluated as of the date of this letter. In rendering our
opinion, we have assumed that in the course of obtaining the necessary approvals
for the Merger, no restrictions or conditions will be imposed that would have a
material adverse effect on the contemplated benefits of the merger to FCB or the
ability to consummate the Merger. This opinion is being furnished for the use
and benefit of the Board of Directors of the Company and is not a recommendation
to any shareholder as to how such shareholder should vote with respect to the
Merger. Young & Associates has advised the Board that it does not believe any
person other than the Board has the legal right to rely on the opinion and,
absent any controlling precedent, would resist any assertion otherwise. This
opinion may be included in its entirety in the proxy statement of the Company
used to solicit shareholder approval of the Merger. We express no opinion on
matters of a legal, regulatory, tax or accounting nature or the ability of the
merger, as set forth in the Agreement, to be consummated.
Based upon and subject to the foregoing, it is our opinion that as of the date
hereof the consideration to be received by holders of the Common Stock pursuant
to the Agreement is fair to such holders from a financial point of view.
Very truly yours,
/s/ Young & Associates, Inc.
----------------------------
Young & Associates, Inc.
APPENDIX E
FIRST CITIZENS' ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2000
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
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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. [ ]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant based upon the closing market price as of January 31, 2001 was
$64,790,542.
As of January 31, 2001, there were 4,082,619 shares of no par value common stock
issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrants 2000 Annual Report to Shareholders are incorporated
by reference into Parts I, II and IV of this Form 10K. Portions of the
registrant's Proxy Statement, to be dated approximately March 16, 2001, are
incorporated by reference into Part III of this Form 10K
INDEX
PART I
Item 1. Description of Business............................................................................. 1
Item 2. Description of Properties........................................................................... 13
Item 3. Legal Proceedings................................................................................... 13
Item 4. Submission of Matters to a Vote of Security Holders................................................. 13
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters............................... 13
Item 6. Selected Financial Data............................................................................. 13
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operation.......................................................................... 13
Item 7a. Quantitative and Qualitative Disclosures About Market Risk.......................................... 14
Item 8. Financial Statements and Supplementary Data......................................................... 14
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.......................................................................... 14
PART III
Item 10. Directors and Executive Officers of the Registrant.................................................. 14
Item 11. Executive Compensation.............................................................................. 14
Item 12. Security Ownership of Certain Beneficial Owners and Management...................................... 14
Item 13. Certain Relationships and Related Transactions...................................................... 14
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.................................... 15
Signatures.................................................................................................... 16
PART I
ITEM 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS
First Citizens Banc Corp (FCBC) was organized under the laws of the State
of Ohio on February 19, 1987 and is a registered financial holding company
under the Graham-Leech-Bliley Act of 1999 (GLB Act), as amended. The
Corporation's office is located at 100 East Water Street, Sandusky, Ohio.
The Corporation had total consolidated assets of $489,259 at December 31,
2000. FCBC and its subsidiaries are referred to together as the
Corporation.
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), one branch banking
office in Berlin Heights, Ohio, one branch banking office in Huron, Ohio
and one Loan Production office in Port Clinton, Ohio. This subsidiary
accounts for 60% of the Corporation's consolidated assets at December 31,
2000.
THE FARMERS STATE BANK (Farmers), acquired by the Corporation in 1998, was
organized and chartered under the laws of the State of Ohio in 1916.
Farmers is an insured bank under the Federal Deposit Insurance Act. Farmers
maintains its main office at 102 South Kibler Street, New Washington, Ohio
and operates branch offices in Willard, Ohio and the Ohio villages of
Chatfield, Tiro, Richwood and Green Camp. Farmers accounts for 28% of the
Corporation's consolidated assets at December 31, 2000.
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.
Castalia accounts for 10% of the Corporation's consolidated assets at
December 31, 2000.
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 item-processing services for financial institutions, including the
Banks, and other nonrelated entities. The Corporation acquired total
ownership of SCC in February 1993. On June 19, 1998, SCC entered into an
agreement with Jack Henry & Associates, Inc. (JHA) to sell all of their
contracts for providing data processing services to community banks. JHA
agreed to pay SCC a fee based upon annual net revenue under a new JHA
contract for each bank that signed a five-year contract with JHA by January
31, 1999. This subsidiary accounts for less than one percent of the
Corporation's consolidated assets as of December 31, 2000.
R. A. REYNOLDS APPRAISAL SERVICE, 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. Reynolds accounts for less than one percent of the
Corporation's consolidated assets as of December 31, 2000.
- -------------------------------------------------------------------------------
1
MR. MONEY FINANCE COMPANY (Mr. Money) was formed in year 2000 to provide
consumer-lending products to customers who may not qualify for
conventional commercial bank lending products. Mr. Money has its main
office in Sandusky, Ohio and an office in Norwalk, Ohio. Loans for Mr.
Money come from direct consumer lending to customers, acquisition of
loans from brokers and from home improvement contractors and automobile
dealerships. The primary focus of lending for Mr. Money is in the
mortgage and home improvement type of credits. Mr. Money accounts for
less than three percent of the Corporation's consolidated assets as of
December 31, 2000.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
FCBC is a bank financial holding company. Through the three 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 10-K for financial information about the Corporation's banking
business.
(c) NARRATIVE DESCRIPTION OF BUSINESS
GENERAL
The Corporation's primary business is incidental to the three
subsidiary banks. Citizens, Farmers and Castalia, located in Erie,
Crawford, Huron, Union, Marion, Richland and Ottawa Counties, Ohio, conduct
a general banking business that involves collecting customer deposits,
making loans and purchasing securities. The subsidiary banks do not operate
a trust department.
Interest and fees on loans accounted for 67% of total revenue for 2000
and 61% of total revenue for 1999. The primary focus of lending is real
estate mortgages. Residential real estate mortgages comprised 63% of the
total loan portfolio in 2000 and 62% of the total loan portfolio in 1999.
Citizens', Farmers' and Castalia's loan portfolios do not include any
foreign-based loans, loans to lesser-developed countries or loans to FCBC.
On a parent company only basis, FCBC'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 FCBC for shareholder dividends.
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, Farmers and Castalia is Erie and
Crawford counties. A secondary market includes portions of Huron, Union,
Marion, Richland and Ottawa counties. Citizens, Farmers and Castalia are
operated as independent commercial banks in their respective market area.
Traditional financial service competition for the Banks consists of large
regional financial institutions, community banks, thrifts and credit unions
operating within the Corporation's market area. A growing nontraditional
source of competition for loan and deposit dollars comes from captive auto
finance companies, mortgage banking companies, internet banks, brokerage
companies, insurance companies and direct mutual funds.
- -------------------------------------------------------------------------------
2
EMPLOYEES
FCBC has no employees. The subsidiary companies employ approximately 208
full-time equivalent employees to whom a variety of benefits are provided.
FCBC and its subsidiaries are not parties to any collective bargaining
agreements. Management considers its relationship with its employees to be
good.
SUPERVISION AND REGULATION
On November 12, 1999, President Clinton signed the Graham-Leach-Bliley Act
of 1999 (GLB Act), which is intended to modernize the financial services
industry. The GLB Act sweeps away large parts of a regulatory framework
that had its origins in the Depression Era of the 1930s. Effective March
11, 2000, new opportunities became available for banks, other depository
institutions, insurance companies and securities firms to enter into
combinations that permit a single financial services organization to offer
customers a more complete array of financial products and services.
The GLB Act introduced the concept of functional regulation. Functional
regulation mandates that the Board of Governors of the Federal Reserve
System give deference to the Securities and Exchange Commission and
relevant state securities and insurance authorities with respect to
interpretations and enforcement of activities within their respective
jurisdictions.
The GLB Act provides a federal right to privacy of non-public personal
information of individual customers. Federal regulatory agencies with
primary supervisory authority over numerous financial institutions have
responsibility for implementing this privacy provision. FCBC and its
subsidiaries are also subject to certain state laws that deal with the use
and distribution of non-public personal information.
FCBC, registered as a financial holding company in 2000 and therefore is
subject to the GLB Act. The Federal Reserve Board will serve as the
umbrella regulator for financial holding companies while the financial
holding company's separately regulated subsidiaries will be regulated by
their primary functional regulators. In addition to meeting "well
capitalized" and "well managed" standards, the GLB Act makes satisfactory
or above Community Reinvestment Act compliance for insured depository
institutions necessary in order for them to engage in new financial
activities. Financial subsidiaries of banks may also be formed to engage in
a new range of activities under the GLB Act.
Prior to enactment of the Interstate Banking and Branch Efficiency Act of
1994, neither FCBC nor its subsidiaries could acquire banks outside Ohio,
unless the laws of the state in which the target bank was located
specifically authorized the transaction. The Interstate Banking and Branch
Efficiency Act has eased restrictions on interstate expansion and
consolidation of banking operations by, among other things: (i) permitting
interstate bank acquisitions regardless of host state laws, (ii) permitting
interstate merger of banks unless specific states have opted out of this
provision and (iii) permitting banks to establish new branches outside the
state provided the law of the host state specifically allows interstate
bank branching.
The Federal Reserve Board has adopted risk-based capital guidelines to
evaluate 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. Failure to meet capital guidelines could subject a banking
institution to various penalties, including termination of FDIC deposit
insurance. Both FCBC and its subsidiary Banks had risk-based capital ratios
above minimum requirements at December 31, 2000.
- -------------------------------------------------------------------------------
3
REGULATION OF BANK SUBSIDIARIES
In addition to regulation of FCBC, FCBC's banking subsidiaries are subject
to federal regulation regarding such matters as reserves, limitations on
the nature and amount of loans and investments, issuance or retirement of
their own securities, limitations on the payment of dividends and other
aspects of banking operations.
As Ohio chartered banks, all three of FCBC's banking subsidiaries,
Citizens, Castalia and Farmers, are supervised and regulated by the State
of Ohio Department of Commerce, Division of Financial Institutions. In
addition, Citizens and Castalia are members of the Federal Reserve System.
All three banks are subject to periodic examinations by the State of Ohio
Department of Commerce, Division of Financial Institutions and Citizens and
Castalia are additionally subject to periodic examinations by the Federal
Reserve Board. These examinations are designed primarily for the protection
of the depositors of the banks and not for their shareholders. In addition,
Mr. Money is supervised and regulated by, and is subject to periodic
examinations by, the State of Ohio Department of Commerce, Division of
Financial Institutions.
The deposits of Citizens, Castalia and Farmers are insured by the Bank
Insurance Fund of the Federal Deposit Insurance Corporation (FDIC), and all
three entities are subject to the Federal Deposit Insurance Act. Farmers is
subject to periodic examinations by the FDIC. Pursuant to the Financial
Institutions Reform, Recovery and Enforcement Act of 1989, a subsidiary of
a financial holding company may be required to reimburse the FDIC for any
loss incurred due to the default of another FDIC insured subsidiary of the
financial holding company or for FDIC assistance provided to such a
subsidiary in danger of default.
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 does 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
The following section contains certain financial disclosures related to the
Registrant as required under the Securities and Exchange Commission's
Industry Guide 3, "Statistical Disclosures by Bank Holding Companies", or a
specific reference as to the location of the required disclosures in the
Registrant's 2000 Annual Report to Shareholders, portions of which are
incorporated in this Form 10-K by reference.
- -------------------------------------------------------------------------------
4
I. Distribution of Assets, Liabilities and Shareholders' Equity, Interest
Rates and Interest Differential
Average balance sheet information and the related analysis of net interest
income for the years ended December 31, 2000, 1999 and 1998 is included on pages
12 through 14 - "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 Rates", within
Management's Discussion and Analysis of Financial Condition and Results of
Operations of the Registrant's 2000 Annual Report to Shareholders and is
incorporated into this Item I by reference.
II. Investment Portfolio
The following table sets forth the carrying amount of securities at December 31.
2000 1999 1998
---- ---- ----
(Dollars in thousands)
AVAILABLE FOR SALE
U.S. Treasury securities and obligations
of U.S. Government corporations and agencies $ 48,029 $ 63,224 $ 70,125
Corporate Bonds 5,413 13,012 18,117
Obligations of states and political subdivisions (1) 43,919 52,606 54,404
Other securities, including mortgage-backed securities (1) 18,153 21,413 29,307
----------- ----------- -----------
Total $ 115,514 $ 150,255 $ 171,953
=========== =========== ===========
HELD TO MATURITY
Obligations of states and political subdivisions (1) $ 155 $ 232 $ 355
Other securities, including mortgage-backed securities (1) 123 174 455
----------- ----------- -----------
Total $ 278 $ 406 $ 810
=========== =========== ===========
(1) The Corporation has no securities of an "issuer" where the aggregate
carrying value of such securities exceeded ten percent of shareholders'
equity.
- -------------------------------------------------------------------------------
5
The following tables set forth the maturities of securities at December 31, 2000
and the weighted average yields of such securities. Maturities are reported
based on stated maturities and do not reflect principal prepayment assumptions.
Maturing
----------------------------------------------------------------
After one After five
Within but within but within
ONE YEAR FIVE YEARS TEN YEARS
-------- ---------- ---------
Amount Yield Amount Yield Amount Yield
------ ----- ------ ----- ------ -----
(Dollars in thousands)
AVAILABLE FOR SALE (4)
U.S. Treasury securities and obligations
of U.S. government corporations
and agencies $ 10,901 5.41% $ 37,128 5.94% $ - -
Obligations of states and political
subdivisions (1) 6,206 4.77 25,445 4.57 12,027 4.51
Other securities (2) 3,037 5.82 2,616 6.12 -
---------- --------- ---------
Total $ 20,145 5.28% $ 65,189 5.41% $ 12,027 4.51%
========== ========= =========
HELD TO MATURITY
Obligations of states and political subdivisions (1) $ 155 4.54% $ - -
Other securities (3) 47 4.50%
--------- ---------
Total $ 155 4.54% $ 47 4.50%
========= =========
(1) Weighted average yields on nontaxable obligations have been computed based
on actual yields stated on the security.
(2) Excludes $11,077 of mortgage-backed securities and $7,076 of equity
securities.
(3) Excludes $76 of mortgage-backed securities.
(4) The weighted average yield has been computed using the historical amortized
cost for available-for-sale securities.
- -------------------------------------------------------------------------------
6
III. 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.
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(Dollars in thousands)
Commercial and agricultural $ 26,416 $ 26,077 $ 24,140 $ 26,657 $ 24,053
Commercial real estate 60,546 48,301 53,804 49,428 44,599
Residential real estate 217,344 178,876 173,789 183,031 165,148
Real estate construction 9,684 4,482 3,493 3,923 3,449
Consumer 29,509 28,106 27,490 28,759 25,949
Leases 590 392 589 736 883
Credit card and other 2,979 3,576 1,426 1,694 1,850
------------ ------------- ------------ ------------ ------------
$ 347,068 $ 289,810 $ 284,731 $ 294,228 $ 265,931
============ ============= ============ ============ ============
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.
Commercial real estate mortgage loans are made predicated on security interest
in real property and secured wholly or substantially by that lien on real
property. Commercial real estate mortgage loans generally maintain a
loan-to-value ratio of 75%.
Residential real estate mortgage loans are made predicated on security interest
in real property and secured wholly or substantially by that lien on real
property. Such real estate mortgage loans are primarily loans secured by one- to
four-family real estate. Residential real estate mortgage loans generally pose
less risk to the Corporation due to the nature of the collateral being less
susceptible to sudden changes in value.
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 Corporation controls 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.
- -------------------------------------------------------------------------------
7
Credit card loans are made as a convenience to existing customers of the
Corporation. 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 Corporation.
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, 2000 and 1999, the Corporation was contingently
liable for $339 and $507 of letters of credit. In addition, the Corporation 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, 2000 and
1999, the Corporation had commitments to extend credit in the aggregate amounts
of approximately $32,734 and $27,060. Of these amounts, $28,170 and $23,982
represented lines of credit and construction loans, and $4,564 and $3,078
represented credit card commitments. Such amounts represent the portion of total
commitments that had not been used by customers as of December 31, 2000 and
1999.
MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES IN INTEREST RATES
The following table shows the amount of commercial and agricultural, commercial
real estate and real estate construction loans outstanding as of December 31,
2000, 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.
Maturing
------------------------------------------------------------------
After one
Within but within After
One Year Five Years Five Years Total
-------- ---------- ---------- -----
(Dollars in thousands)
Commercial and agricultural $ 11,748 $ 9,751 $ 4,917 $ 26,416
Commercial real estate 3,450 12,760 44,336 60,546
Real estate construction 899 3,476 5,309 9,684
------------ ------------- ------------ ------------
$ 16,097 $ 25,987 $ 54,562 $ 96,646
============ ============= ============ ============
Interest
Sensitivity
------------------------------
Fixed Variable
Rate Rate
---- ----
(Dollars in thousands)
Due after one but within five years $ 19,795 $ 6,192
Due after five years 17,356 37,206
------------ -------------
$ 37,152 $ 43,398
============ =============
The preceding maturity information is based on contract terms at December 31,
2000 and does not include any possible "rollover" at maturity date. In the
normal course of business, the Corporation considers and acts 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.
- --------------------------------------------------------------------------------
8
RISK ELEMENTS
The following table presents information concerning the amount of loans at
December 31 that contain certain risk elements.
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(Dollars in thousands)
Loans accounted for on a nonaccrual basis (1) $ 1,368 $ 1,682 $ 1,693 $ 1,969 $ 921
Loans contractually past due 90 days or
more as to principal or interest payments (2) 558 834 1,235 1,717 1,308
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) 634 693 305 308 --
---------- --------- --------- --------- ---------
Total $ 2,560 $ 3,209 $ 3,233 $ 3,994 $ 2,229
========== ========= ========= ========= =========
Impaired loans included in above totals $ 2,778 $ 994 $ 1,196 $ 864 $ 1,745
Impaired loans not included in above totals 2,374 3,166 2,963 3,571 1,470
---------- --------- --------- --------- ---------
Total impaired loans $ 5,152 $ 4,160 $ 4,159 $ 4,435 $ 3,215
========== ========= ========= ========= =========
There are no loans as of December 31, 2000, 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. There are no other interest-bearing
assets that would be required to be disclosed in the table above, if such assets
were loans as of December 31, 2000.
(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 agricultural, commercial real estate,
residential real estate and construction 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.
(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.
Interest income recognition associated with impaired loans was as follows.
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Interest income on impaired loans, including
interest income recognized on a cash basis $ 344 $ 320 $ 273 $ 227 $ 242
========== ========== ========== ========= ==========
Interest income on impaired loans recognized on
a cash basis $ 344 $ 320 $ 273 $ 182 $ 141
========== ========== ========== ========= ==========
There were no foreign outstandings for any period presented.
No concentrations of loans exceeded 10% of total loans.
- -------------------------------------------------------------------------------
9
IV. Summary of Loan Loss Experience
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
The following table shows the daily average loan balances and changes in the
allowance for loan losses for the years indicated.
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(Dollars in thousands)
Daily average amount of loans,
net of unearned income $ 314,071 $ 284,080 $ 288,108 $ 280,141 $ 250,719
============ ============= ============= ============= ==============
Allowance for possible loan
losses at beginning of year $ 4,274 $ 4,567 $ 4,707 $ 3,935 $ 3,585
Loan charge-offs:
Commercial and agricultural and
commercial real estate 612 63 134 53 90
Real estate mortgage 166 95 40 70 32
Real estate construction - - - - -
Consumer 447 582 490 387 344
Leases - - - - 3
Credit card and other 46 49 61 47 51
------------ ------------- ------------- ------------- --------------
1,271 789 725 557 520
Recoveries of loans previously
Charged-off:
Commercial and agricultural and
commercial real estate 75 29 32 48 41
Real estate mortgage 57 13 31 2 2
Real estate construction - - - - -
Consumer 148 170 133 132 82
Leases - - - - -
Credit card and other 17 17 27 18 12
------------ ------------- ------------- ------------- --------------
297 229 223 200 137
------------ ------------- ------------- ------------- --------------
Net charge-offs (1) (974) (559) (502) (357) (383)
Provision for loan losses (2) 807 267 362 1,129 733
------------ ------------- ------------- ------------- --------------
Allowance for loan losses
at end of year $ 4,107 $ 4,274 $ 4,567 $ 4,707 $ 3,935
============ ============= ============= ============= ==============
Allowance for loan losses
as a percent of loans
at year-end 1.19% 1.48% 1.60% 1.60% 1.48%
======== ======= ======== ======== =======
Ratio of net charge-offs during
the year to average loans
outstanding .31% .20% .17% .13% .15%
======== ======= ======== ======== =======
(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.
(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.
- -------------------------------------------------------------------------------
10
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
The following table allocates the allowance for 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.
2000 1999
---- ----
Percentage Percentage
of loans to of loans to
(Dollars in thousands) Allowance Total Loans Allowance Total Loans
--------- ----------- --------- -----------
Commercial and agricultural $ 316 7.8% $ 531 9.0%
Commercial real estate 969 17.4 152 16.7
Real estate mortgage 1,439 62.6 1,447 61.7
Real estate construction 12 2.8 - 1.6
Consumer 327 8.5 544 9.7
Credit card and other 8 0.8 12 1.2
Leases - 0.1 23 0.1
Unallocated 1,036 1,565
----------- -------- ----------- -------
$ 4,107 100.0% $ 4,274 100.0%
=========== ======== =========== =======
1998 1997
---- ----
Percentage Percentage
of loans to of loans to
Allowance Total Loans Allowance Total Loans
--------- ----------- --------- -----------
Commercial and agricultural and commercial
real estate $ 932 27.4% $ 768 25.9%
Real estate mortgage 1,202 61.0 1,509 62.2
Real estate construction - 1.2 - 1.3
Consumer 784 9.7 377 9.8
Credit card and other 22 0.5 15 0.6
Leases 24 0.2 29 0.2
Unallocated 1,603 2,009
----------- -------- ----------- -------
$ 4,567 100.0% $ 4,707 100.0%
=========== ======== =========== =======
1996
----
Percentage
of loans to
Allowance Total Loans
--------- -----------
Commercial and agricultural and commercial
real estate $ 1,152 25.8%
Real estate mortgage 308 62.1
Real estate construction - 1.3
Consumer 235 9.8
Credit card and other 11 0.7
Leases 35 0.3
Unallocated 2,194
----------- ---------
$ 3,935 100.0%
=========== ========
- --------------------------------------------------------------------------------
11
DEPOSITS
The average daily amount of deposits (all in domestic offices) and average rates
paid on such deposits is summarized for the years indicated.
2000 1999 1998
------------------------ -------------------------- --------------------------
Average Average Average Average Average Average
Balance Rate Paid Balance Rate Paid Balance Rate Paid
------- --------- ------- --------- ------- ---------
(Dollars in thousands)
Noninterest-bearing
demand deposits $ 44,270 N/A $ 39,123 N/A $ 36,327 N/A
Interest-bearing demand
deposits 58,612 2.71% 49,189 1.36% 40,798 2.12%
Savings, including Money
Market deposit accounts 109,316 2.56% 115,057 2.78 114,282 2.87
Certificates of deposit,
including IRAs 188,723 5.19% 206,296 5.01 212,081 5.55
------------ ------------ ------------
$ 400,921 $ 409,665 $ 403,488
============ ============ ============
Maturities of certificates of deposits and individual retirement accounts of
$100,000 or more outstanding at December 31, 2000 are summarized as follows.
Individual
Certificates Retirement
of Deposits Accounts Total
----------- -------- -----
(Dollars in thousands)
3 months or less $ 13,779 $ 623 $ 14,402
Over 3 through 6 months 7,956 103 8,059
Over 6 through 12 months 6,169 801 6,970
Over 12 months 5,912 793 6,705
----------- ---------- -----------
$ 33,816 $ 2,320 $ 36,136
=========== ========== ===========
SHORT-TERM BORROWINGS
See Note 8 to the consolidated financial statements (located at page 8 of the
Annual Report to Shareholders) and "Distribution of Assets, Liabilities and
Shareholders' Equity, Interest Rates and Interest Differential" (located at
pages 12 and 13 of the Annual Report to Shareholders) for the statistical
disclosures for short-term borrowings for 2000, 1999 and 1998.
RETURN ON EQUITY AND ASSETS
Information required by this section is incorporated by reference to the
information appearing under the caption "Five-Year Selected Consolidated
Financial Data" located on page 1 and 2 of First Citizens Banc Corp's Annual
Report to Shareholders.
- --------------------------------------------------------------------------------
12
ITEM 2. PROPERTIES
FCBC neither owns nor leases any properties. Citizens maintains its main office
at 100 East Water Street, Sandusky, Ohio, which is also the office of FCBC.
Citizens also owns and operates three branch banking offices in Perkins Township
(Sandusky, Ohio), branch banking office in the Ohio communities of Berlin
Heights and Huron, and a loan production office in Port Clinton, Ohio. Farmers
maintains its main office at 102 South Kibler Street, New Washington, Ohio.
Farmers also owns and operates a branch banking office in the Ohio communities
of Willard, Chatfield, Tiro, Richwood and Green Camp. Castalia owns its main
office located at 208 South Washington Street, Castalia, Ohio. SCC owns its
processing center located at 1845 Superior Street, Sandusky, Ohio. Reynolds
leases offices in downtown Sandusky, Ohio. Mr. Money leases two properties, one
in downtown Sandusky and the other in downtown Norwalk, Ohio.
FCBC has three wholly-owned subsidiary banks, a wholly-owned item processing
company subsidiary, a wholly owned finance company and a wholly-owned real
estate appraisal company subsidiary.
ITEM 3. LEGAL PROCEEDINGS
The Corporation's management is aware of no pending or threatened litigation in
which the Corporation faces 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.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Information required by this section is incorporated by reference to the
information appearing under the caption "Common Stock and Stockholder Matters"
located on page 2 and 3 of First Citizens Banc Corp's Annual Report to
Shareholders.
ITEM 6. SELECTED FINANCIAL DATA
Information required by this section is incorporated by reference to the
information appearing under the caption "Five-Year Selected Consolidated
Financial Data" located on page 1 and 2 of First Citizens Banc Corp's Annual
Report to Shareholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION - AS OF DECEMBER 31, 2000 AND DECEMBER
31, 1999 AND FOR THE YEARS ENDING DECEMBER 31, 2000, 1999 AND 1998
"Management's Discussion and Analysis if Financial Condition and Results of
Operations" appears on pages 4 through 16 of First Citizens Banc Corp's 2000
Annual Report to Shareholders and is incorporated herein by reference.
- --------------------------------------------------------------------------------
13
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Quantitative and Qualitative Disclosures About Market Risk is incorporated
herein by reference to pages 16 through 18 of First Citizens Banc Corp's 2000
Annual Report to Shareholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL DATA
First Citizens Banc Corp's Report of Independent Auditors and Consolidated
Financial Statements and accompanying notes are listed below and are
incorporated herein by reference to First Citizens Banc Corp's 2000 Annual
Report to Shareholders (Exhibit 13, pages 19 through 45). The supplementary
financial information specified by Item 302 of Regulation S-K, selected
quarterly financial data, is included in Note 19 - "Quarterly Financial Data
(Unaudited)" to the consolidated financial statements found on page 45.
Report of Independent Auditors
Consolidated Balance Sheets
December 31, 2000 and 1999
Consolidated Statements of Income
For the three years ended December 31, 2000
Consolidated Statements of Changes in Shareholders' Equity
For the three years ended December 31, 2000
Consolidated Statements of Cash Flows
For the three years ended December 31, 2000
Notes to Consolidated Financial Statements
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.
PART III
Information relating to the following items in included in First Citizens Banc
Corp's Proxy statement and Notice of Annual Meeting of Shareholders to be held
Tuesday, April 17, 2001, ("2000 Proxy Statement") dated March 16, 2001, filed
with the Commission on Form DEF 14-A, pursuant to Section 14(A) of the
Securities Exchange Act of 1934 and is incorporated by reference into this Form
10-K Annual Report (Exhibit 22).
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- --------------------------------------------------------------------------------
14
ITEM 11. EXECUTIVE COMPENSATION.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
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 under Item 8
of this Form 10-K.
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, as amended, of First Citizens Banc Corp
are incorporated by reference to First Citizens Banc Corp's Form
10-K for the year ended December 31, 1999, filed on March 24,
2000.
(3)(ii) Code of Regulations of First Citizens Banc Corp is incorporated by
reference to First Citizens Banc Corp's Form 10-K for the year
ended December 31, 1999, filed on March 24, 2000.
(4) Certificate for Registrant's Common Stock is incorporated by
reference to First Citizens Banc Corp's Form 10-K for the year
ended December 31, 1999, filed on March 24, 2000.
(10) Employment Agreement with Arthur J. Pucci, dated April 3, 2000.
(11) Statement regarding earnings per share is included in Note 1 to
the Consolidated Financial Statements and can be located under
Item 8 of this Form 10-K.
(13) First Citizens Banc Corp 2000 Annual Report to Shareholders
(21) Subsidiaries of the Registrant.
(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, 2000.
- -------------------------------------------------------------------------------
15
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, Executive Vice President (Principal Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed on March 30, 2001 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/ Dean S. Lucal
- ------------------------------------------ -----------------
John L. Bacon Dean S. Lucal
Director Director
/S/ Robert L. Bordner /s/ W. Patrick Murray
- ------------------------------------------ ---------------------
Robert L. Bordner W. Patrick Murray
Director Director
/S/ Mary Lee G. Close /s/ George L. Mylander
- ------------------------------------------ ----------------------
Mary Lee G. Close George L. Mylander
Director Director
/S/ Blythe A. Friedley /s/ Paul H. Pheiffer
- ------------------------------------------ --------------------
Blythe A. Friedley Paul H. Pheiffer
Director Director
/S/ Richard B. Fuller /s/ Richard O. Wagner
- ------------------------------------------ ---------------------
Richard B. Fuller Richard O. Wagner
Director Director
/S/ H. Lowell Hoffman, M.D.
- ---------------------------
H. Lowell Hoffman, M.D.
Director
- -------------------------------------------------------------------------------
16
APPENDIX F
FIRST CITIZENS' QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2001
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2001
------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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 incorporation (I.R.S. Employer
or organization) Identification Number)
100 East Water Street, Sandusky, Ohio 44870
------------------------------------- -----------
(Address of principle executive offices) (Zip Code)
Registrant's telephone number, including area code: (419) 625-4121
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.
X Yes
-----
No
-----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, no par value
Outstanding at November 13, 2001
4,082,619 common shares
FIRST CITIZENS BANC CORP
Index
PART I. Financial Information
ITEM 1. Financial Statements:
Consolidated Balance Sheets (unaudited)
September 30, 2001 and December 31, 2000............................. 3
Consolidated Statements of Income (unaudited)
Three and nine months ended September 30, 2001 and 2000.............. 4
Consolidated Statements of Comprehensive Income (unaudited)
Three and nine months ended September 30, 2001 and 2000.............. 5
Consolidated Statement of Shareholders' Equity (unaudited)
For the year ended December 31, 2000 and
nine months ended September 30, 2001................................. 6
Consolidated Statement of Cash Flows (unaudited)
Nine months ended September 30, 2001 and 2000........................ 7
Notes to Consolidated Financial Statements (unaudited)................... 8-16
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................... 17-23
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk............... 23-25
PART II. Other Information
ITEM 1. Legal Proceedings........................................................ 26
ITEM 2. Changes in Securities and Use of Proceeds................................ 26
ITEM 3. Defaults Upon Senior Securities.......................................... 26
ITEM 4. Submission of Matters to a Vote of Security Holders...................... 26
ITEM 5. Other Information........................................................ 26
ITEM 6. Exhibits and Reports on Form 8-K......................................... 26
SIGNATURES........................................................................ 27
FIRST CITIZENS BANC CORP
Consolidated Balance Sheets
(In thousands, except share data)
(Unaudited)
September 30, December 31,
2001 2000
------------- ------------
Assets
Cash and due from banks $ 21,843 $ 15,735
Federal funds sold 15,100 0
Interest-bearing deposits 0 51
Securities
Available-for-sale 115,616 115,514
Held-to-maturity (Estimated Fair Value of $224 at
September 30, 2001, and $278 at December 31, 2000) 219 278
---------- ----------
Total securities 115,835 115,792
Loans held for sale 1,256 571
Loans 338,940 346,089
Less: Allowance for loan losses (4,290) (4,107)
---------- ----------
Net loans 334,650 341,982
Office premises and equipment, net 7,107 7,221
Intangible assets 1,625 1,869
Accrued interest and other assets 6,769 6,038
---------- ----------
Total assets $ 504,185 $ 489,259
========== ==========
Liabilities
Deposits
Noninterest-bearing deposits $ 42,639 $ 42,306
Interest-bearing deposits 375,768 349,662
---------- ----------
Total deposits 418,407 391,968
Federal Home Loan Bank borrowings 960 1,400
Securities sold under agreements to repurchase 13,296 12,946
U. S. Treasury interest-bearing demand deposit note payable 2,812 1,207
Notes payable to other financial institutions 14,000 10,600
Federal funds purchased 0 20,000
Accrued interest, taxes and other expenses 3,637 3,213
---------- ----------
Total liabilities 453,112 441,334
Shareholders' Equity
Common stock, no par value; 10,000,000 shares authorized,
4,263,401 shares issued 23,258 23,258
Retained earnings 30,254 28,614
Treasury stock, 180,782 shares at cost at September 30, 2001,
175,782 shares at cost at December 31, 2000 (4,919) (4,818)
Accumulated other comprehensive income 2,480 871
---------- ----------
Total shareholders' equity 51,073 47,925
---------- ----------
Total liabilities and shareholders' equity $ 504,185 $ 489,259
========== ==========
See notes to interim consolidated financial statements Page 3
FIRST CITIZENS BANC CORP
Consolidated Statements of Income (Unaudited)
(In thousands, except share data)
Three months ended Nine months ended
September 30, September 30,
------------------------ -------------------------
2001 2000 2001 2000
---------- ------------ ----------- -----------
INTEREST INCOME:
Loans, including fees $ 7,238 $ 6,923 $ 22,141 $ 19,263
Taxable securities 1,065 1,280 3,317 4,211
Nontaxable securities 416 537 1,304 1,631
Federal funds sold 191 0 352 41
Other 14 10 27 34
---------- ----------- ----------- -----------
Total interest income 8,924 8,750 27,141 25,180
INTEREST EXPENSE:
Deposits 3,467 3,658 10,836 10,528
FHLB Borrowings 15 22 51 74
Other 386 358 1,403 856
---------- ----------- ----------- -----------
Total interest expense 3,868 4,038 12,290 11,458
---------- ----------- ----------- -----------
NET INTEREST INCOME 5,056 4,712 14,851 13,722
PROVISION FOR LOAN LOSSES 135 284 656 499
---------- ----------- ----------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 4,921 4,428 14,195 13,223
NONINTEREST INCOME:
Computer center data processing fees 283 274 889 837
Service charges 427 450 1,240 1,350
Net gain/(loss) on sale of securities 5 10 5 (34)
Net gain/(loss) on sale of loans 148 15 289 (50)
Other 559 504 1,398 1,288
Total noninterest income 1,422 1,253 3,821 3,391
NONINTEREST EXPENSE:
Salaries, wages and benefits 1,904 1,795 5,822 5,150
Net occupancy expense 209 214 678 611
Equipment expense 291 280 813 801
Data processing expense 186 164 554 518
State franchise tax 190 117 553 419
Professional services 194 110 556 467
Other operating expenses 1,334 1,343 3,713 3,475
---------- ----------- ----------- -----------
Total noninterest expense 4,308 4,023 12,689 11,441
---------- ----------- ----------- -----------
Income before taxes 2,035 1,658 5,327 5,173
Income tax expense 531 422 1,482 1,368
---------- ----------- ----------- -----------
Net Income $ 1,504 $ 1,236 $ 3,845 $ 3,805
========== =========== =========== ===========
Earnings per share $ 0.37 $ 0.30 $ 0.94 $ 0.92
Dividends declared per share $ 0.18 $ 0.17 $ 0.54 $ 0.51
Wtd. avg. shares during the period 4,082,619 4,094,548 4,082,967 4,113,867
See notes to interim consolidated financial statements Page 4
FIRST CITIZENS BANC CORP
Consolidated Statements of Comprehensive Income (Unaudited)
(In thousands)
Three months ended Nine months ended
September 30, September 30,
------------------- -----------------
2001 2000 2001 2000
-------- --------- ------- -------
Net income $ 1,504 $ 1,236 $ 3,845 $ 3,805
Other Comprehensive Income (Loss):
Unrealized holding gains and (losses) on
available for sale securities 704 1,566 2,443 1,220
Reclassification adjustment for (gains)
and losses (5) (10) (5) 34
-------- -------- ------- -------
later recognized in income
Net unrealized gains and (losses) 699 1,556 2,438 1,254
Tax effect (238) (529) (829) (426)
-------- -------- ------- -------
Total other comprehensive income (loss) 461 1,027 1,609 828
-------- -------- ------- -------
Comprehensive income $ 1,965 $ 2,263 $ 5,454 $ 4,633
======== ======== ======= =======
See notes to interim consolidated financial statements Page 5
FIRST CITIZENS BANC CORP
Condensed Consolidated Statement of Shareholders' Equity (Unaudited)
Form 10-Q
(In thousands, except share data)
Common Stock Accumulated
---------------------- Other Total
Outstanding Retained Treasury Comprehensive Shareholders'
Shares Amount Earnings Stock Income/(Loss) Equity
------------ ------- ---------- --------- -------------- -------------
Balance, January 1, 2000 4,162,815 $23,258 $ 28,010 $(2,877) $ (196) $ 48,195
Net income 5,692 5,692
Change in unrealized gain/(loss) on
securities available for sale,
net of reclassifications and
tax effects 1,067 1,067
Purchase of treasury stock, at cost (75,196) (1,941) (1,941)
Cash dividends ($1.24 per share) (5,088) (5,088)
--------- ------- -------- ------- ------ --------
Balance, December 31, 2000 4,087,619 23,258 28,614 (4,818) 871 47,925
Net income 3,845 3,845
Change in unrealized gain/(loss) on
securities available for sale,
net of reclassifications and
tax effects 1,609 1,609
Purchase of treasury stock, at cost (5,000) (101) (101)
Cash dividends ($.54 per share) (2,205) (2,205)
--------- ------- -------- ------- ------ --------
Balance, September 30, 2001 4,082,619 $23,258 $ 30,254 $(4,919) $2,480 $ 51,073
========= ======= ======== ======= ====== ========
See notes to interim consolidated financial statements Page 6
FIRST CITIZENS BANC CORP
Consolidated Statement of Cash Flows (Unaudited)
(In thousands)
Nine months ended September 30,
-------------------------------
2001 2000
------------- ----------
Net cash from operating activities $ 3,955 $ 3,817
Cash flows from investing activities
Maturities of deposits held in other institutions 51 -
Maturities and calls of securities, held-to-maturity 58 39
Maturities and calls of securities, available-for-sale 18,895 13,614
Purchases of securities, available-for-sale 16,609) (4,551)
Proceeds from sale of securities, available-for-sale - 11,688
Loans made to customers, net of principal collected 6,410 (29,901)
Loans purchased - (7,364)
Change in federal funds sold 15,100) 4,600
Proceeds from sale of property and equipment 5 44
Purchases of office premises and equipment (604) (593)
-------- ---------
Net cash from investing activities (6,894) (12,424)
Cash flows from financing activities
Repayment of FHLB borrowings (440) (417)
Net change in deposits 26,438 (805)
Change in securities sold under agreements to repurchase 349 (3,325)
Change in U. S. Treasury interest-bearing demand note payable 1,606 (1,551)
Change in federal funds purchased 20,000) 13,700
Change in notes payable 3,400 6,000
Purchases of treasury stock (101) (1,941)
Cash dividends paid (2,205) (2,105)
-------- ---------
Net cash from financing activities 9,047 9,556
-------- ---------
Net change in cash and due from banks 6,108 949
Cash and due from banks at beginning of period 15,735 14,599
-------- ---------
Cash and due from banks at end of period $ 21,843 $ 15,548
======== =========
Cash paid during the period for:
Interest $ 13,286 $ 12,586
Income taxes $ 1,360 $ 1,178
Supplemental noncash disclosures:
Transfer of loans held-for-sale to portfolio $ - $ 2,138
Transfer of loans to other real estate owned $ 372 $ 89
See notes to interim consolidated financial statements Page 7
First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
- -------------------------------------------------------------------------------
(1) Consolidated Financial Statements
The consolidated financial statements include the accounts of First
Citizens Banc Corp (First Citizens) and it wholly-owned subsidiaries,
The Citizens Banking Company (Citizens), The Castalia Banking Company
(Castalia), The Farmers State Bank of New Washington (Farmers), SCC
Resources, Inc. (SCC), R. A. Reynolds Appraisal Service, Inc.,
(Reynolds), Mr. Money Finance Company, (Mr. Money), First Citizens
Title Insurance Agency, and First Citizens Insurance Agency, together
referred to as the Corporation. All significant inter-company balances
and transactions have been eliminated in consolidation.
The consolidated financial statements have been prepared by the
Corporation without audit. In the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary
to present fairly the Corporation's financial position as of September
30, 2001 and its results of operations and changes in cash flows for
the periods ended September 30, 2001 and 2000 have been made. The
accompanying consolidated financial statements have been prepared in
accordance with instructions of Form 10-Q, and therefore certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been omitted. The results of operations for the period
ended September 30, 2001 are not necessarily indicative of the
operating results for the full year. Reference is made to the
accounting policies of the Corporation described in the notes to
financial statements contained in the Corporation's 2000 annual report.
The Corporation has consistently followed these policies in preparing
this Form 10-Q.
The Corporation provides financial services through its offices in the
Ohio counties of Erie, Crawford, Huron, Marion, Ottawa, Richland and
Union. Its primary deposit products are checking, savings, and term
certificate accounts, and its primary lending products are residential
mortgage, commercial, and installment loans. Substantially all loans
are secured by specific items of collateral including business assets,
consumer assets and real estate. Commercial loans are expected to be
repaid from cash flow from operations of businesses. Real estate loans
are secured by both residential and commercial real estate. Other
financial instruments that potentially represent concentrations of
credit risk include deposit accounts in other financial institutions.
In 2001, SCC provided item processing for 10 financial institutions in
addition to the three subsidiary banks. Through September 30, 2001, SCC
accounted for 4.3% of the Corporation's total revenues. Reynolds
provides real estate appraisal services for lending purposes to
subsidiary banks and other financial institutions. Reynolds accounts
for less than 1.0% of total Corporation revenues. Mr. Money provides
consumer and real estate financing that the Banks would not normally
provide to B and C credits at a rate commensurate with the risk. Mr.
Money accounts for 5.1% of total Corporation revenues. In September
2000 the Corporation formed two new affiliates; First Citizens Title
Insurance Agency Inc. and First Citizens Insurance Agency Inc. First
Citizens Title Insurance Agency Inc. has been formed to provide
customers with a seamless mortgage product with improved service. First
Citizens Insurance Agency Inc
Page 8
First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
- -------------------------------------------------------------------------------
was formed to allow the Corporation to participate in commission
revenue generated through its third party insurance agreement.
Insurance commission revenue is less than 1 percent of total revenue
for the period ended September 30, 2001. Management considers the
Corporation to operate primarily in one reportable segment, banking.
To prepare financial statements in conformity with accounting
principles generally accepted in the United States of America,
management makes estimates and assumptions based on available
information. These estimates and assumptions affect the amounts
reported in financial statements and the disclosures provided, and
future results could differ. The allowance for loan losses, fair values
of financial instruments, and status of contingencies are particularly
subject to change.
Income tax expense is based on the effective tax rate expected to be
applicable for the entire year. Income tax expense is the total of the
current year income tax due or refundable and the change in deferred
tax assets and liabilities. Deferred tax assets and liabilities are the
expected future tax amounts for the temporary differences between
carrying amounts and tax basis of assets and liabilities, computed
using enacted tax rates. A valuation allowance, if needed, reduces
deferred tax assets to the amount expected to be realized.
Certain items in the 2000 financial statements have been reclassified
to correspond with the 2001 presentation.
In September 2000, the Financial Accounting Standards Board issued SFAS
No.140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." SFAS No. 140 replaces SFAS No. 125 and
resolves various implementation issues while carrying forward most of
the provisions of SFAS No. 125 without change. SFAS No. 140 revises
standards for transfers of financial assets by clarifying criteria and
expanding guidance for determining whether the transferor has
relinquished control and the transfer is therefore accounted for as a
sale. SFAS No. 140 also adopts new accounting requirements for pledged
collateral and requires new disclosures about securitizations and
pledged collateral. SFAS No. 140 was effective for transfers occurring
after March 31, 2001 and for disclosures relating to securitization
transactions and collateral for fiscal years ending after December 15,
2000. The adoption of this standard has not had a material effect on
the Corporation's financial statements.
In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 141. "Business
Combinations." SFAS No. 141 requires all business combinations within
its scope to be accounted for using the purchase method, rather than
the pooling-of-interests method. The provisions of this Statement apply
to all business combinations initiated after June 30, 2001. The
adoption of this statement will only impact the Company's financial
statements if it enters into a business combination.
Also in June 2001, the FASB issued SFAS No. 142, "Goodwill and Other
Intangible Assets", which addresses the accounting for such assets
arising from prior and future business
Page 9
First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
- -------------------------------------------------------------------------------
combinations. Upon the adoption of this Statement, goodwill arising
from business combinations will no longer be amortized, but rather will
be assessed regularly for impairment, with any such impairment
recognized as a reduction to earnings in the period identified. The
Company is required to adopt this Statement on January 1, 2002 and
early adoption is not permitted. Prior to the adoption of SFAS No. 142,
the Corporation's annual amortization of goodwill is $201.
(2) Securities
Securities at September 30, 2001 and December 31, 2000 were as follows:
September 30, 2001
-------------------------------------------------------
AVAILABLE FOR SALE Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
----------- ---------- ---------- -----------
U.S. Treasury securities and obligations of
U.S. Government corporations and agencies $ 44,335 $ 1,375 $ 0 $ 45,710
Obligations of state and political subdivisions 39,918 1,359 0 41,277
Corporate obligations 12,965 95 (18) 13,042
Other securities, including mortgage-backed
securities and equity securities 14,640 954 (7) 15,587
--------- --------- ------- ----------
$ 111,858 $ 3,783 $ (25) $ 115,616
========= ========= ======= ==========
September 30, 2001
-------------------------------------------------------
HELD TO MATURITY Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
----------- ---------- ---------- -----------
Obligations of state and political subdivisions $ 154 $ 3 $ 0 $ 157
Other securities, including mortgage-backed
securities and equity securities 65 2 0 67
------- ----- ------ -------
$ 219 $ 5 $ 0 $ 224
======= ===== ====== =======
Page 10
First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
- -------------------------------------------------------------------------------
December 31, 2000
-------------------------------------------------------
AVAILABLE FOR SALE Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
----------- ---------- ---------- -----------
U.S. Treasury securities and obligations of
U.S. Government corporations and agencies $ 47,834 $ 325 $ (130) $ 48,029
Obligations of state and political subdivisions 43,500 516 (97) 43,919
Corporate obligations 5,630 9 (226) 5,413
Other securities, including mortgage-backed
securities and equity securities 17,230 1,024 (101) 18,153
--------- -------- -------- ---------
$ 114,194 $ 1,874 $ (554) $ 115,514
========= ========= ======== =========
December 31, 2000
-------------------------------------------------------
HELD TO MATURITY Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
----------- ---------- ---------- -----------
Obligations of state and political subdivisions $ 155 $ 1 $ 0 $ 156
Other securities, including mortgage-backed
securities and equity securities 123 0 (1) 122
------ ------ ------- ------
$ 278 $ 1 $ (1) $ 278
====== ====== ======= ======
Page 11
First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
- --------------------------------------------------------------------------------
The amortized cost and fair value of securities at September 30, 2001, by
contractual maturity, are shown below. Actual maturities may differ from
contractual maturities because issuers may have the right to call or prepay
obligations. Securities not due at a single maturity date, primarily
mortgage-backed securities and equity securities are shown separately.
AVAILABLE FOR SALE Amortized Cost Fair Value
-------------- ----------
Due in one year or less $ 36,488 $ 36,817
Due after one year through five years 52,150 54,228
Due after five years through ten years 8,580 8,984
Due after ten years 0 0
Mortgage-backed securities 8,327 8,521
Equity securities 6,313 7,066
-------- --------
Total securities available for sale $111,858 $115,616
======== ========
HELD TO MATURITY Amortized Estimated
Cost Fair Value
--------- ----------
Due in one year or less $ 77 $ 78
Due after one year through five years 77 79
Mortgage-backed securities 65 67
---- ----
Total securities held to maturity $219 $224
==== ====
Proceeds from sales of securities, gross realized gains and gross realized
losses were as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- ----------------------
2001 2000 2001 2000
------ ------ ------ --------
Proceeds $ -- $ -- $ -- $ 11,688
Gross gains -- 10 -- 33
Gross losses -- -- -- (661)
Security gains due to calls
prior to maturity 5 -- 5 4
Page 12
First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
- --------------------------------------------------------------------------------
Securities with a carrying value of approximately $69,312 and $58,088 were
pledged as of September 30, 2001 and December 31, 2000, respectively, to secure
public deposits, other deposits and liabilities as required by law.
(3) Loans
Loans at September 30, 2001 and December 31, 2000 were as follows:
9/30/2001 12/31/2000
--------- ----------
Commercial and Agriculture $ 25,791 $ 26,416
Commercial real estate 65,545 60,546
Real Estate - mortgage 209,128 217,344
Real Estate - construction 9,440 9,684
Consumer 27,439 29,509
Credit card and other 1,825 2,979
Leases 638 590
--------- ---------
Total loans 339,806 347,068
Allowance for loan losses (4,290) (4,107)
Deferred loan fees (852) (957)
Unearned interest (14) (22)
--------- ---------
Net loans $ 334,650 $ 341,982
========= =========
Page 13
First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
- --------------------------------------------------------------------------------
(4) Allowance for Loan Losses
A summary of the activity in the allowance for loan losses was as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ---------------------
2001 2000 2001 2000
------- ------- ------- -------
Balance beginning of period $ 4,353 $ 4,287 $ 4,107 $ 4,274
Loans charged-off (324) (294) (792) (645)
Recoveries 126 54 319 203
Provision for loan losses 135 284 656 499
------- ------- ------- -------
Balance June 30, $ 4,290 $ 4,331 $ 4,290 $ 4,331
======= ======= ======= =======
Information regarding impaired loans was as follows for the three and nine
months ended September 30.
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
2001 2000 2001 2000
------ ------ ------ ------
Average investment in impaired loans $2,863 $4,186 $2,993 $4,082
Interest income recognized on impaired loans
including interest income recognized on cash basis 41 103 142 247
Interest Income recognized on impaired loans
on cash basis 41 103 142 247
Page 14
First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
- --------------------------------------------------------------------------------
Information regarding impaired loans at September 30, 2001 and December 31, 2000
was as follows:
9/30/01 12/31/00
------- --------
Balance impaired loans $1,968 $5,152
Less portion for which no allowance for loan
losses is allocated -- --
------ ------
Portion of impaired loan balance for which an
allowance for credit losses is allocated $1,968 $5,152
====== ======
Portion of allowance for loan losses allocated to
the impaired loan balance $ 296 $1,179
====== ======
Nonperforming loans were as follows.
September 30, December 31,
2001 2000
----------------- ----------------
Loans past due over 90 days still on accrual $1,911 $ 558
Nonaccrual 4,818 1,368
Nonperforming loans would include some loans, which are classified as impaired,
and smaller balance homogeneous loans, such as residential mortgages and
consumer loans, that are collectively evaluated for impairment.
(5) Commitments, Contingencies and Off-Balance Sheet Risk
Some financial instruments, such as loan commitments, credit lines,
letters of credit and overdraft protection are issued to meet customers
financing needs. These are agreements to provide credit or to support the
credit of others, as long as the conditions established in the contract
are met, and usually have expiration dates. Commitments may expire without
being used. Off-balance-sheet risk of credit loss exists up to the face
amount of these instruments, although material losses are not anticipated.
The same credit policies are used to make such commitments as are used for
loans, including obtaining collateral at exercise of commitment.
Page 15
First Citizens Banc Corp
Notes to Interim Consolidated Financial Statements (Unaudited)
Form 10-Q
(Amounts in thousands, except share data)
- --------------------------------------------------------------------------------
The contractual amount of financial instruments with off-balance-sheet
risk was as follows for September 30, 2001 and December 31, 2000.
Contract Amount
------------------------------------------
September 30, December 31,
2001 2000
------------------ -----------------
Commitment to extend credit:
Lines of credit and construction loans $ 25,248 $ 28,170
Credit cards 3,645 4,564
Letters of credit 398 339
-------- --------
$ 29,291 $ 33,073
======== ========
Commitments to make loans are generally made for a period of one year or
less. Fixed rate loan commitments included above totaled $4,213 at
September 30, 2001 and had interest rates ranging from 4.00% to 12.50%
with maturities extended up to 30 years. Fixed rate loan commitments
included above totaled $6,064 at December 31, 2000 with interest rates
ranging from 5.00% to 12.50% with maturities extended up to 30 years.
The Banks are required to maintain certain reserve balances on hand in
accordance with the Federal Reserve Board requirements. The average
reserve balance maintained in accordance with such requirements for the
periods ended September 30, 2001 and December 31, 2000 approximated $4,843
and $4,148.
Effective November 2, 2001, the Corporation agreed to acquire Independent
Community Banc Corp ("Independent"). The transaction will be accounted for
as a purchase. The Corporation will issue approximately 1 million shares
of common stock to the shareholders of Independent based upon an exchange
ratio of 1.7 shares of the Corporation for each outstanding share of
Independent common stock. Independent has total assets of approximately
$140 million. The acquisition is expected to close early in the second
quarter of 2002.
Page 16
First Citizens Banc Corp
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Form 10-Q
(Amounts in thousands, except share data)
- --------------------------------------------------------------------------------
Introduction
The following discussion focuses on the consolidated financial condition
of First Citizens Banc Corp at September 30, 2001, compared to December
31, 2000 and the consolidated results of operations for the three-month
and nine-month periods ending September 30, 2001 compared to the same
periods in 2000. This discussion should be read in conjunction with the
consolidated financial statements and footnotes included in this Form
10-Q.
The registrant is not aware of any trends, events or uncertainties that
will have, or are reasonably likely to have, a material effect on the
liquidity, capital resources, or operations except as discussed herein.
Also, the registrant is not aware of any current recommendation by
regulatory authorities, which would have a material effect if implemented.
When used in this Form 10-Q or future filings by the Corporation with the
Securities and Exchange Commission, in press releases or other public or
shareholder communications, or in oral statements made with the approval
of an authorized executive officer, the words or phrases "will likely
result," "are expected to," "will continue," "is anticipated," "estimate,"
"project," "believe," or similar expressions are intended to identify
"forward looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. The Corporation wishes to caution readers
not to place undue reliance on any such forward-looking statements, which
speak only as of the date made, and to advise readers that various
factors, including regional and national economic conditions, changes in
levels of market interest rates, credit risks of lending activities and
competitive and regulatory factors, could effect the Corporation's
financial performance and could cause the Corporation's actual results for
future periods to differ materially from those anticipated or projected.
The Corporation does not undertake, and specifically disclaims, any
obligation to publicly release the result of any revisions, which may be
made to any forward-looking statements to reflect occurrence of
anticipated or unanticipated events or circumstances after the date of
such statements.
See Exhibit 99, which is incorporated herein by reference.
Financial Condition
Total assets of the Corporation at September 30, 2001 totaled $504,185
compared to $489,259 at December 31, 2000. This was a increase of $14,925
or 3.1 percent. Within the structure of the assets, net loans have
decreased $7,332, or 2.1 percent since December 31, 2000, primarily in the
area of residential real estate loans. The Corporation has shifted its
focus from seeking residential real estate loans to seeking commercial
loan products. This shift in focus will help improve the yield on the
Corporation's loan portfolio, as well as reduce the interest rate risk on
the loan portfolio. Mr. Money was formed in 2000 to service the needs of B
and C credit customers for
Page 17
First Citizens Banc Corp
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Form 10-Q
(Amounts in thousands, except share data)
- --------------------------------------------------------------------------------
consumer and real estate financing that the Banks would not normally
provide, and at a rate commensurate with the risk. Mr. Money had loans
outstanding of $16,578 at September 30, 2001 compared to $12,143 at
December 31, 2000. Loans held for sale increased $685, or 120.00 percent
from December 31, 2000. The balance in loans held for sale is a function
of the demand for fixed rate mortgages. As rates fell in the first nine
months of 2001, the demand for fixed rate mortgages increased. In May of
2001, Farmers State Bank sold $2,613 in fixed rate loans. Farmers State
Bank sold the loans in its portfolio to decrease interest rate risk
inherent with fixed rate long-term mortgages. In September of 2001, The
Citizens Banking Company also sold $4,952 in fixed rate loans. Citizens
Banking Company sold the loans for the same reason stated above. At
September 30, 2001, the net loan to deposit ratio was 80.0 percent
compared to 87.2 percent at December 31, 2000.
At September 30, 2001, $115,616 or 99.8 percent of the security portfolio
was classified as available for sale. The $219 remainder of the portfolio
was classified as held to maturity. Securities increased $43 from December
31, 2000.
For the nine months of operations in 2001, $656 was placed into the
allowance for loan losses from earnings compared to $499 for the same
period of 2000. The increased provision is due to an increase in net
charge-offs as well as an increase in nonperforming loans. Additionally,
Mr. Money established allowance for loan losses at a higher level than the
banks due to the higher credit risks associated with the loans they
originate. To evaluate the adequacy of the allowance for loan losses to
cover probable losses in the portfolio, management considers specific
reserve allocations for identified portfolio loans, reserves for
delinquencies and historical reserve allocations. The composition and
overall level of the loan portfolio and charge-off activity are also
factors used to determine provisions to the reserve. Charge-offs for the
first nine months of 2001 were $792 compared to $645 for the same period
of 2000. The September 30, 2001 allowance for loan losses as a percent of
total loans was 1.27 percent compared to 1.19 percent at December 31,
2000.
Office premises and equipment have decreased $114 and intangible assets
have decreased $244 since December 31, 2000. The decrease in office
premises and equipment is attributed to new purchases of $603, disposals
of $5 and depreciation of $712. Intangible assets decreased due to
amortization.
Accrued interest and other assets totaled $6,769 at September 30, 2001
compared to $6,038 at December 31, 2000, an increase of $731. This
increase was primarily due to increases in other assets at Citizens of
$249 and an increase of interest receivable at Mr. Money of $177. The
increase in other assets at Citizens was due mainly to an increase in
other real estate owned. Mr. Money interest receivable is largely due to
timing of receipt of interest payments on loans.
Page 18
First Citizens Banc Corp
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Form 10-Q
(Amounts in thousands, except share data)
- --------------------------------------------------------------------------------
Total deposits at September 30, 2001 increased $26,439 from year-end 2000.
Noninterest-bearing deposits, representing demand deposit balances,
increased $332 from year-end 2000. Interest-bearing deposits, including
savings and time deposits, increased $26,106 from year-end 2000. The
majority of the total increase in deposits can be explained by the
following. Both Citizens and Farmers participated in a program called
Bid-Ohio. The program consists of bidding on depository funds from the
State Treasurer of Ohio. The two banks successfully received $10,000 of
bids during the first nine-months of 2001. These funds were used to
decrease the use of fed funds purchased. The two banks also experienced an
$8,000 increase in public fund accounts. These balances can and do
fluctuate daily. Also, savings balances at the three banks increased
$3,000 since December 31, 2000. The year to date 2001 average balance of
savings deposits has decreased $5,099 compared to the average balance of
the same period for 2000. The growth in deposits was used to reduce the
amount of borrowed funds. The current average rate of savings deposits is
2.27 percent compared to 2.36 percent in 2000. The year to date 2001
average balance of time certificates has increased $16,025 compared to the
average balance for the same period for 2000. In conjunction with market
conditions and in order to remain competitive, the banks have offered
special rates on various certificates of deposit. As a result, the banks
have experienced shifting toward the special rate certificates of deposit.
The current average rate on total interest-bearing deposits is 4.66
percent compared to 5.37 percent for the same period for 2000.
Total borrowed funds have decreased $15,085 from December 31, 2000 to
September 30, 2001. Federal funds purchased have decreased $20,000 since
December 31, 2000. The need for federal funds purchased has decreased, due
to increased deposits. However, in the short term, there may still be a
need to supplement traditional funding sources with non-deposit funding.
In addition, the Corporation has notes outstanding with other financial
institutions totaling $14,000 at September 30, 2001. These notes were used
to fund the loan growth at Mr. Money. Federal Home Loan Bank borrowings
have decreased $440 as a result of scheduled pay downs. Securities sold
under agreements to repurchase, which tend to fluctuate, have increased
$350 and U.S. Treasury Tax Demand Notes have increased $1,605.
Shareholders' equity at September 30, 2001 was $51,073, which was 10.1
percent of total assets. Shareholders' equity at December 31, 2000 was
$47,925, which was 9.8 percent of total assets. The increase in
shareholders' equity is made up of earnings of $3,845, less dividends paid
of $2,205 and the purchase of 5,000 treasury shares for $101, and the
increase in the market value of securities available for sale, net of tax,
of $1,609. The Corporation paid cash dividends on February 1, 2001, May 1,
2001, and August 1, 2001, each at a rate of $.18 per share. Total
outstanding shares at September 30, 2000 were 4,082,619.
Page 19
First Citizens Banc Corp
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Form 10-Q
(Amounts in thousands, except share data)
- --------------------------------------------------------------------------------
Results of Operations
Nine Months Ended September 30, 2001 and 2000
Net income for the nine months ended September 30, 2001 was $3,845, or
$.94 per common share compared to $3,805, or $.92 per common share for the
same period in 1999. This was a increase of $40, or 1.0 percent. Some of
the reasons for the changes are explained below.
Total interest income for the first nine months of 2001 increased $1,961,
or 7.8 percent compared to the same period in 2000. The average rate on
earning assets on a tax equivalent basis for the first nine months of 2001
was 7.51 percent and 2000 was 7.50 percent. Total interest expense for the
first nine months of 2001 has increased $832, or 7.3 percent compared to
the same period of 2000. This increase is mainly attributed to an increase
in interest on deposits of $308 and an increase in interest on other
borrowings of $547. Interest on FHLB borrowings is down $23 due to
balances borrowed being lower in 2001. The average rate on
interest-bearing liabilities for the first nine months of 2001 was 4.09
percent compared to 4.06 percent for the same period of 2000. The net
interest margin on a tax equivalent basis was 4.26 percent for the
nine-month period ended September 30, 2001 and 4.08 percent for the same
period ended September 30, 2000.
Noninterest income for the first nine months of 2001 totaled $3,821,
compared to $3,391 for the same period of 2000, an increase of $430, or
12.7 percent. The main reason for the increase was due to gain on sales of
loans which were $289 for the nine months ended September 30, 2001, versus
a loss of $50 in the prior year due to a write down of loans held for sale
to the lower of cost or market. Gain on the sale of loans increased
because falling interest rates increased the demand for fixed rate
mortgages. This increased the volume of loans sold, including Farmers'
sale of $2,613 in fixed rate mortgages and Citizens' sale of $4,952 in
fixed rate mortgages. Net gain on securities for the first nine months of
2001 increased $39 compared to 2000. Additionally, revenue from computer
operations increased $52. SCC provides item processing for 10 financial
institutions in addition to the three subsidiary banks. Other operating
income increased $110. This increase was mainly due to a $64 increase in
revenues by the corporation's appraisal company.
Noninterest expense for the nine months ended September 30, 2001 totaled
$12,689 compared to $11,441 for the same period in 2000. This was an
increase of $1,248, or 10.9 percent. Salaries and benefits increased $672,
or 13.0 percent compared to the first nine months of 2000 as a result of
the Corporation adding employees at the affiliates, primarily related to
the operation of Mr. Money. Computer processing increased by $36 compared
to last year. Also, net occupancy expense increased $67 compared to the
first nine months of 2000. The formation of Mr. Money, the relocating of
and opening of a new Citizens branch attributed to $81 of the increase of
net occupancy expense. SCC experienced a decrease of $13 in net occupancy,
primarily due to moving offices from a leased site to the Citizens'
downtown offices.
Page 20
First Citizens Banc Corp
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Form 10-Q
(Amounts in thousands, except share data)
- --------------------------------------------------------------------------------
Income tax expense for the first nine months of 2001 totaled $1,482
compared to $1,368 for the first nine months of 2000. This was an increase
of $114, or 8.3 percent. The increase in the federal income taxes is a
result of the increase in total income before taxes of $154. The effective
tax rates were comparable for the nine-month periods ended September 30,
2001 and September 30, 2000, at 27.8% and 26.4% respectively.
Three Months Ended September 30, 2001 and 2000
Net income for the three months ended September 30, 2001 was $1,504, or
$.37 per common share compared to $1,236, or $.30 per common share for the
same period in 2000. This was an increase of $268, or 21.7 percent. Some
of the reasons for the changes are explained below. Total interest income
for the third quarter of 2001 increased $174, or 2.0 percent compared to
the same period in 2000. The average rate on earning assets on a tax
equivalent basis for the third quarter of 2001 was 7.26 percent and 7.68
percent for the same period of 2000. Total interest expense for the third
quarter of 2001 decreased $170, or 4.2 percent compared to the same period
of 2000. Interest on deposits decreased $191, primarily due to decreases
in the rates paid on the deposits. The average rate on interest-bearing
liabilities for the third quarter of 2001 was 3.71 percent compared to
4.24 percent for the same period of 2000. The net interest margin on a tax
equivalent basis was 4.34 percent for the three-month period ended
September 30, 2001 and 4.12 percent for the same period ended September
30, 2000.
Noninterest income for the third quarter of 2001 totaled $1,422, compared
to $1,253 for the same period of 2000, an increase of $169. Gain on sale
of loans third quarter of 2001 increased $133 compared to 2000. Gain on
the sale of loans increased because falling interest rates increased the
demand for fixed rate mortgages. Citizens' sale of $4,952 in fixed rate
mortgages occurred during the third quarter of 2001. Gain on the sale of
securities decreased $5 in the third quarter of 2001. Revenue from
computer operations increased $9. Other operating income increased $55.
Service charges on deposit accounts decreased $23 as a result of decreased
customer overdrafts due to the customers' use of products such as
overdraft protection.
Noninterest expense for the three months ended September 30, 2001 totaled
$4,308 compared to $4,023 for the same period in 2000. This was an
increase of $285, or 7.1 percent. Salaries and benefits increased $110, or
6.1 percent compared to the third quarter of 2000 as a result of the
Corporation adding employees at the existing affiliates as well as
employees at the banks receiving commissions on products that they sell.
Other expenses decreased by $9 compared to 2000. Professional fees
increased by $84, or 76.4 percent compared to the same period of 2000, due
to an increase of $72 in legal and audit fees. Net occupancy expense
decreased $5, or 2.3 percent compared to the same period of 2000.
Page 21
First Citizens Banc Corp
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Form 10-Q
(Amounts in thousands, except share data)
- --------------------------------------------------------------------------------
Income tax expense for the third quarter of 2001 totaled $531 compared to
$422 for the same period of 2000. This was an increase of $109, or 25.8
percent. The effective tax rates for the three-month periods ended
September 30, 2001 and September 30, 2000, were 26.1% and 25.4%
respectively.
Capital Resources
Shareholders' equity totaled $51,073 at September 30, 2001 compared to
$47,925 at December 31, 2000. All of the capital ratios exceed the
regulatory minimum guidelines as identified in the following table:
Corporation Ratios
---------------------- Regulatory
9/30/01 12/31/00 Minimums
------- -------- ----------
Tier I Risk Based Capital 14.3% 14.1% 4.0%
Total Risk Based Capital 15.8% 15.3% 8.0%
Leverage Ratio 9.5% 9.3% 4.0%
The Corporation paid a cash dividend of $.18 per common share each on
February 1, May 1, and August 1, 2001 compared to $.17 per common share
each on February 1, May 1, and August 1, 2000.
Capital expenditures totaled $604 for the first nine months of 2001
compared to $593 for the same period of 2000.
Liquidity
Liquidity as it relates to the banking entities of the Corporation is the
ability to meet the cash demand and credit needs of its customers. The
Banks, through their respective correspondent banks, maintain federal
funds borrowing lines totaling $45,261 and the Banks have additional
borrowing availability at the Federal Home Loan Bank of Cincinnati of
$77,231 at September 30, 2001. Finally, 99.8% of the Corporation's
security portfolio has been classified as available for sale, which
provides additional liquidity.
Page 22
First Citizens Banc Corp
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Form 10-Q
(Amounts in thousands, except share data)
- --------------------------------------------------------------------------------
ITEM 3.
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. The Banks do not maintain a trading
account for any class of financial instrument and the Corporation is not
affected by foreign currency exchange rate risk or commodity price risk.
Due to the basis in equities held by Farmers being so much less than the
current fair value at this time, the Corporation is not subject to
significant equity price risk.
Interest rate risk is the risk that the Corporation's financial condition
will be adversely affected due to movements in interest rates. The
Corporation, like other financial institutions, is subject to interest
rate risk to the extent that its interest-earning assets reprice
differently than interest-bearing liabilities. The income of financial
institutions is primarily derived from the excess of interest earned on
interest-earning assets over interest paid on interest-bearing
liabilities. One of the Corporation's principal financial objectives is to
achieve long-term profitability while reducing its exposure to
fluctuations in interest rates. Accordingly, the Corporation places great
importance on monitoring and controlling interest rate risk.
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.
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,
Page 23
First Citizens Banc Corp
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Form 10-Q
(Amounts in thousands, except share data)
- --------------------------------------------------------------------------------
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.
Management measures the Corporation's interest rate risk by computing
estimated changes in net interest income and the net portfolio value
("NPV") of its cash flows from assets, liabilities and off-balance sheet
items in the event of a range of assumed changes in market interest rates.
The following tables present an analysis of the potential sensitivity of
the Corporation's new present value of its financial instruments to sudden
and sustained changes in the prevailing interest rates.
NET PORTFOLIO VALUE -- SEPTEMBER 30, 2001
CHANGE IN RATES $ AMOUNT $ CHANGE % CHANGE
--------------- -------- -------- --------
+200 bp $ 40,586 $ (9,945) (20)%
+100 bp 45,816 (4,715) (9)%
Base 50,531 -- --
-100 bp 55,391 4,860 10%
-200 bp 59,496 8,965 18%
NET PORTFOLIO VALUE - DECEMBER 31, 2000
CHANGE IN RATES $ AMOUNT $ CHANGE % CHANGE
--------------- -------- -------- --------
+200 bp $ 34,391 $ (7,728) (18)%
+100 bp 37,261 (5,627) (13)%
Base 42,888 -- --
-100 bp 48,549 5,661 13%
-200 bp 53,576 10,668 25%
Page 24
First Citizens Banc Corp
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Form 10-Q
(Amounts in thousands, except share data)
- --------------------------------------------------------------------------------
The reduction in the relative change in net portfolio value from December 31,
2000 to September 30, 2001, given the assumed immediate change in interest rates
is primarily a result of two factors. First, the reduction in long-term interest
rates during 2001 served to increase the base level of net portfolio value due
to the corresponding increase in the fair value of loans and investments. In
addition, the majority of new loans originated in 2001 have interest rate
adjustment features, which lessens the impact of future rate changes.
Page 25
First Citizens Banc Corp
Other Information
Form 10-Q
- --------------------------------------------------------------------------------
Part II - Other Information
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. (A) EXHIBIT NO. 99 Safe Harbor under the Private Securities
Litigation Reform Act of 1995
(B) REPORTS ON FORM 8-K - None.
Page 26
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, The
registrant has caused this report to be signed on its behalf the undersigned
thereunto duly authorized.
First Citizens Banc Corp
/s/ David A. Voight November 14, 2001
- ------------------------------------ -----------------
David A. Voight Date
President
/s/ James O. Miller November 14, 2001
- ------------------------------------ -----------------
James O. Miller Date
Executive Vice President
Page 27
First Citizens Banc Corp
Index to Exhibits
Form 10-Q
- --------------------------------------------------------------------------------
Exhibit
Number Description Page Number
- ------- ----------- -----------
99 Safe Harbor Under the Private Incorporated by reference to
Securities Litigation Reform Act Exhibit 99 to Annual Report on
of 1995 Form 10-K for the Year Ended
December 31, 1999 filed by the
registrant on March 24, 2000
Page 28
PART II INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Articles of Incorporation of First Citizens provide that First
Citizens shall have the power to indemnify its present and past directors,
officers, employees and agents, and such other persons as it shall have powers
to indemnify, to the full extent permitted under, and subject to the limitations
of, Title 17 of the ORC. Such Articles of Incorporation further provide that
First Citizens may, upon the affirmative vote of a majority of its Board of
Directors, purchase insurance for the purpose of indemnifying its directors,
officers, employees and agents to the extent that such indemnification is
allowed by the Articles of Incorporation.
Section 1701.13(E) of the Ohio Revised Code grants corporations broad
powers to indemnify directors, officers, employees and agents. Section
1701.13(E) provides:
(1) A corporation may indemnify or agree to indemnify any
person who was or is a party, or is threatened to be made a party, to
any threatened, pending, or completed action, suit, or proceeding,
whether civil, criminal, administrative, or investigative, other than
an action by or in the right of the corporation, by reason of the fact
that he is or was a director, officer, employee, or agent of the
corporation, or is or was serving at the request of the corporation as
a director, trustee, officer, employee, member, manager, or agent of
another corporation, domestic or foreign, nonprofit or for profit, a
limited liability company, or a partnership, joint venture, trust, or
other enterprise, against expenses, including attorney's fees,
judgments, fines, and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit, or
proceeding, if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, if
he had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit, or proceeding by judgment, order,
settlement, or conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person
did not act in good faith and in a manner he reasonably believed to be
in or not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, he had reasonable cause
to believe that his conduct was unlawful.
(2) A corporation may indemnify or agree to indemnify any
person who was or is a party, or is threatened to be made a party, to
any threatened, pending, or completed action or suit by or in the right
of the corporation to procure a judgment in its favor, by reason of the
fact that he is or was a director, officer, employee, or agent of the
corporation, or is or was serving at the request of the corporation as
a director, trustee, officer, employee, member, manager, or agent of
another corporation, domestic or foreign, nonprofit or for profit, a
limited liability company, or a partnership, joint venture, trust, or
other enterprise, against expenses, including attorney's fees, actually
and reasonably incurred by him in connection with the defense or
settlement of such action or suit, if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification shall be
made in respect of any of the following:
(a) Any claim, issue, or matter as to which such person is
adjudged to be liable for negligence or misconduct in the performance
of his duty to the corporation unless, and only to the extent that, the
court of common pleas or the court in which such action or suit was
brought determines, upon application, that, despite the adjudication of
liability, but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses
as the court of common pleas or such other court shall deem proper;
(b) Any action or suit in which the only liability asserted
against a director is pursuant to section 1701.95 of the Revised Code.
(3) To the extent that a director, trustee, officer, employee,
member, manager, or agent has been successful on the merits or
otherwise in defense of any action, suit, or proceeding referred to in
division (E)(1) or (2) of this section, or in defense of any claim,
issue, or matter therein, he shall be indemnified against expenses,
including attorney's fees, actually and reasonably incurred by him in
connection with the action, suit, or proceeding.
(4) Any indemnification under division (E)(1) or (2) of this
section, unless ordered by a court, shall be made by the corporation
only as authorized in the specific case, upon a determination that
indemnification of the director, trustee, officer, employee, member,
manager, or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in division (E)(1) or (2) of
this section. Such determination shall be made as follows:
(a) By a majority vote of a quorum consisting of directors of
the indemnifying corporation who were not and are not parties to or
threatened with the action, suit, or proceeding referred to in division
(E)(1) or (2) of this section;
(b) If the quorum described in division (E)(4)(a) of this
section is not obtainable or if a majority vote of a quorum of
disinterested directors so directs, in a written opinion by independent
legal counsel other than an attorney, or a firm having associated with
it an attorney, who has been retained by or who has performed services
for the corporation or any person to be indemnified within the past
five years;
(c) By the shareholders;
(d) By the court of common pleas or the court in which the
action, suit, or proceeding referred to in division (E)(1) or (2) of
this section was brought.
Any determination made by the disinterested directors under division
(E)(4)(a) or by independent legal counsel under division (E)(4)(b) of this
section shall be promptly communicated to the person who threatened or brought
the action or suit by or in the right of the corporation under division (E)(2)
of this section, and, within ten days after receipt of such notification, such
person shall have the right to petition the court of common pleas or the court
in which such action or suit was brought to review the reasonableness of such
determination.
(5)(a) Unless at the time of a director's act or omission that
is the subject of an action, suit, or proceeding referred to in
division (E)(1) or (2) of this section, the articles or the regulations
of a corporation state, by specific reference to this division, that
the provisions of this division do not apply to the corporation and
unless the only liability asserted against a director in an action,
suit, or proceeding referred to in division (E)(1) or (2) of this
section is pursuant to section 1701.95 of the Revised Code, expenses,
including attorney's fees, incurred by a director in defending the
action, suit, or proceeding shall be paid by the corporation as they
are incurred, in advance of the final disposition of the action, suit,
or proceeding, upon receipt of an undertaking by or on behalf of the
director in which he agrees to do both of the following:
(i) Repay such amount if it is proved by clear and
convincing evidence in a court of competent
jurisdiction that his action or failure to act
involved an act or omission undertaken with
deliberate intent to cause injury to the corporation
or undertaken with reckless disregard for the best
interests of the corporation;
(ii) Reasonably cooperate with the corporation concerning
the action, suit, or proceeding.
(b) Expenses, including attorney's fees, incurred by a
director, trustee, officer, employee, member, manager, or agent in
defending any action, suit, or proceeding referred to in division
(E)(1) or (2) of this section, may be paid by the corporation as they
are incurred, in advance of the final disposition of the action, suit,
or proceeding, as authorized by the directors in the specific case,
upon receipt of an undertaking by or on behalf of the director,
trustee, officer, employee, member, manager, or agent to repay such
amount, if it ultimately is determined that he is not entitled to be
indemnified by the corporation.
(6) The indemnification authorized by this section shall not
be exclusive of, and shall be in addition to, any other rights granted
to those seeking indemnification under the articles, the regulations,
any agreement, a vote of shareholders or disinterested directors, or
otherwise, both as to action in their official capacities and as to
action in another capacity while holding their offices or positions,
and shall continue as to a person who has ceased to be a director,
trustee, officer, employee, member, manager, or agent and shall inure
to the benefit of the heirs, executors, and administrators of such a
person.
(7) A corporation may purchase and maintain insurance or
furnish similar protection, including, but not limited to, trust funds,
letters of credit, or self-insurance, on behalf of or for any person
who is or was a director, officer, employee, or agent of the
corporation, or is or was serving at the request of the corporation as
a director, trustee, officer, employee, member, manager, or agent of
another corporation, domestic or foreign, nonprofit or for profit, a
limited liability company, or a partnership, joint venture, trust, or
other enterprise, against any liability asserted against him and
incurred by him in any such capacity, or arising out of his status as
such, whether or not the corporation would have the power to indemnify
him against such liability under this section. Insurance may be
purchased from or maintained with a person in which the corporation has
a financial interest.
(8) The authority of a corporation to indemnify persons
pursuant to division (E)(1) or (2) of this section does not limit the
payment of expenses as they are incurred, indemnification, insurance,
or other protection that may be provided pursuant to divisions (E)(5),
(6), and (7) of this section. Divisions (E)(1) and (2) of this section
do not create any obligation to repay or return payments made by the
corporation pursuant to division (E)(5), (6), or (7).
(9) As used in division (E) of this section, "corporation"
includes all constituent entities in a consolidation or merger and the
new or surviving corporation, so that any person who is or was a
director, officer, employee, trustee, member, manager, or agent of such
a constituent entity, or is or was serving at the request of such
constituent entity as a director, trustee, officer, employee, member,
manager, or agent of another corporation, domestic or foreign,
nonprofit or for profit, a limited liability company, or a partnership,
joint venture, trust, or other enterprise, shall stand in the same
position under this section with respect to the new or surviving
corporation as he would if he had served the new or surviving
corporation in the same capacity.
Insofar as indemnification for liabilities arising under the 1933 Act
may be permitted to directors, officers or persons controlling First Citizens
pursuant to the foregoing provisions, First Citizens has been informed that in
the opinion of the Commission such indemnification is against public policy as
expressed in the 1933 Act and is therefore unenforceable.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following exhibits are being filed as part of this Registration
Statement:
Exhibit No. Exhibit
- ----------- -------
(2) Agreement and Plan of Merger dated as of November 1, 2001
(included as Appendix A to the Proxy Statement/Prospectus)
(3.1) Registrant's Articles of Incorporation, as amended
(incorporated by reference in Exhibit (3)(i) to the Form 10-K of
the Registrant for the year ended December 31, 1999, filed on
March 24, 2000)
(3.2) Registrant's Code of Regulations (incorporated by reference
in Exhibit (3)(ii) to the Form 10-K of the Registrant for the
year ended December 31, 1999, filed on March 24, 2000)
(5) Opinion of Squire, Sanders & Dempsey L.L.P. regarding legality
of common shares
(8) Opinion of Vorys, Sater, Seymour and Pease LLP regarding
tax matters [TO BE PROVIDED WITH THE AMENDED FORM S-4
REGISTRATION STATEMENT]
(9) Voting Agreements, dated as of November 1, 2001, between
the Registrant and each of William F. Boose, Michael L.
Clemens, Robin L. DeGraff, James D. Heckelman, John M.
Kovesdi, Jr., Leslie D. Stoneham, Jerry E. Stover, Richard C.
Westhofen and Daniel J. White (the Form of which is included as
Exhibit A to the Agreement and Plan of Merger dated as of
November 1, 2001, which is included as Appendix A to the Proxy
Statement/Prospectus)
(10) Material Contracts (incorporated by reference in Exhibit (10)
to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 2000, which is included as Appendix E
to the Proxy Statement/Prospectus)
(13.1) Registrant's Annual Report on Form 10-K for the year ended
December 31, 2000 (included as Appendix E to the Proxy
Statement/Prospectus)
(13.2) Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 2001 (included as Appendix F to the
Proxy Statement/Prospectus)
(21) Subsidiaries of the Registrant (incorporated by reference in
Exhibit (21) to the Form 10-K of the Registrant for the year
ended December 31, 1999, filed on March 24, 2000)
(23.1) Consent of Squire, Sanders & Dempsey L.L.P. regarding legality
of common shares (included in Exhibit (5))
(23.2) Consent of Vorys, Sater, Seymour and Pease LLP regarding tax
matters (included in Exhibit (8)) [TO BE PROVIDED WITH THE
AMENDED FORM S-4 REGISTRATION STATEMENT]
(23.3.1) Consent of Crowe, Chizek and Company LLP
(23.3.2) Consent of Crowe, Chizek and Company LLP
(23.4) Consent of Keefe, Bruyette & Woods, Inc.
(23.5) Consent of Young & Associates, Inc.
(24) Power of Attorney
(99.1) First Citizens' Form of Proxy
(99.2) ICBC's Form of Proxy
(99.3) Fairness opinion dated as of November 1, 2001 delivered by Keefe,
Bruyette & Woods, Inc. (included as Appendix C to the Proxy
Statement/Prospectus)
(99.4) Fairness opinion dated ___________, 2001 delivered by Young &
Associates, Inc. (included as Appendix D to the Proxy
Statement/Prospectus)
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes to deliver or cause
to be delivered with the prospectus, to each person to whom the prospectus is
sent or given, the latest annual report to security holders that is incorporated
by reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim information.
The undersigned registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder through
use of a prospectus which is a part of this registration statement, by any
person or party who is deemed to be an underwriter within the meaning of Rule
145(c), the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other Items of the applicable form.
The registrant undertakes that every prospectus (i) that is filed
pursuant to the immediately preceding paragraph, or (ii) that purports to meet
the requirements of section 10(a)(3) of the Securities Act of 1933 and is used
in connection with an offering of securities subject to Rule 415, will be filed
as a part of an amendment to the registration statement and will not be used
until such amendment is effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes to respond to
requests for information that is incorporated by reference into the prospectus
pursuant to Items 4, 10(b), 11 or 13 of this Form, within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of registration statement
through the date of responding to the request.
The undersigned registrant hereby undertakes to supply by means
of a post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
The undersigned registrant hereby undertakes that, for purposes
of determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
SIGNATURES
Pursuant to the requirements of the 1933 Act, the registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Sandusky, Ohio, on December 14, 2001.
FIRST CITIZENS BANC CORP
By: /s/ David A. Voight
-----------------------------------------------
David A. Voight, President
(Principal Executive Officer)
By: /s/ James O. Miller
-----------------------------------------------
James O. Miller, Executive Vice President
(Principal Financial Officer)
By: /s/ Todd A. Michel
-----------------------------------------------
Todd A. Michel, Senior Vice President
(Controller/Principal Accounting Officer)
Pursuant to the requirements of the 1933 Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
* December 14, 2001
- ----------------------------------- -----------------
Lowell W. Leech Date
Chairman of the Board and Director
* December 14, 2001
- ----------------------------------- -----------------
John L. Bacon Date
Director
* December 14, 2001
- ----------------------------------- -----------------
Robert L. Bordner Date
Director
* December 14, 2001
- ----------------------------------- -----------------
Mary Lee G. Close Date
Director
* December 14, 2001
- ----------------------------------- -----------------
Blythe A. Friedley Date
Director
* December 14, 2001
- ----------------------------------- -----------------
Richard B. Fuller Date
Director
* December 14, 2001
- ----------------------------------- -----------------
H. Lowell Hoffman, M.D. Date
Director
* December 14, 2001
- ----------------------------------- -----------------
Dean S. Lucal Date
Director
* December 14, 2001
- ------------------------------------ -----------------
W. Patrick Murray Date
Director
* December 14, 2001
- ------------------------------------ -----------------
George S. Mylander Date
Director
* December 14, 2001
- ------------------------------------ -----------------
Paul H. Pheiffer Date
Director
* December 14, 2001
- ------------------------------------ -----------------
Robert L. Ransom Date
Director
* December 14, 2001
- ------------------------------------ -----------------
David A. Voight Date
Director
* December 14, 2001
- ------------------------------------ -----------------
David A. Voight Date
President and Director
* December 14, 2001
- ------------------------------------ -----------------
Richard O. Wagner Date
Director
* The undersigned attorney-in-fact, by signing his name below,
does hereby sign this Registration Statement on Form S-4 on behalf of the
above-named officers and directors pursuant to a power of attorney executed by
such persons and filed with the Securities and Exchange Commission
contemporaneously herewith.
/s/ David A. Voight
-----------------------------------
David A. Voight
Attorney-in-Fact
EXHIBIT INDEX
Exhibit No. Exhibit
- ----------- -------
(2) Agreement and Plan of Merger dated as of November 1, 2001
(included as Appendix A to the Proxy Statement/Prospectus)
(3.1) Registrant's Articles of Incorporation, as amended (incorporated
by reference in Exhibit (3)(i) to the Form 10-K of the Registrant
for the year ended December 31, 1999, filed on March 24, 2000)
(3.2) Registrant's Code of Regulations (incorporated by reference
in Exhibit (3)(ii) to the Form 10-K of the Registrant for the
year ended December 31, 1999, filed on March 24, 2000)
(5) Opinion of Squire, Sanders & Dempsey L.L.P. regarding legality
of common shares
(8) Opinion of Vorys, Sater, Seymour and Pease LLP regarding tax
matters [TO BE PROVIDED WITH THE AMENDED FORM S-4
REGISTRATION STATEMENT]
(9) Voting Agreements, dated as of November 1, 2001, between
the Registrant and each of William F. Boose, Michael L.
Clemens, Robin L. DeGraff, James D. Heckelman, John M.
Kovesdi, Jr., Leslie D. Stoneham, Jerry E. Stover, Richard C.
Westhofen and Daniel J. White (the Form of which is included as
Exhibit A to the Agreement and Plan of Merger dated as
of November 1, 2001, which is included as Appendix A to the
Proxy Statement/Prospectus)
(10) Material Contracts (incorporated by reference in Exhibit (10)
to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 2000, which is included as Appendix E
to the Proxy Statement/Prospectus)
(13.1) Registrant's Annual Report on Form 10-K for the year ended
December 31, 2000 (included as Appendix E to the Proxy
Statement/Prospectus)
(13.2) Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 2001 (included as Appendix F to the
Proxy Statement/Prospectus)
(21) Subsidiaries of the Registrant (incorporated by reference in
Exhibit (21) to the Form 10-K of the Registrant for the year
ended December 31, 1999, filed on March 24, 2000)
(23.1) Consent of Squire, Sanders & Dempsey L.L.P. regarding legality
of common shares (included in Exhibit (5))
(23.2) Consent of Vorys, Sater, Seymour and Pease LLP regarding tax
matters (included in Exhibit (8)) [TO BE PROVIDED WITH THE
AMENDED FORM S-4 REGISTRATION STATEMENT]
(23.3.1) Consent of Crowe, Chizek and Company LLP
(23.3.2) Consent of Crowe, Chizek and Company LLP
(23.4) Consent of Keefe, Bruyette & Woods, Inc.
(23.5) Consent of Young & Associates, Inc.
(24) Power of Attorney
(99.1) First Citizens' Form of Proxy
(99.2) ICBC's Form of Proxy
(99.3) Fairness opinion dated as of November 1, 2001 delivered by Keefe,
Bruyette & Woods, Inc. (included as Appendix C to the Proxy
Statement/Prospectus)
(99.4) Fairness opinion dated ___________, 2001 delivered by Young &
Associates, Inc. (included as Appendix D to the Proxy
Statement/Prospectus)