1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington D.C. 20549 FORM 8-K/A CURRENT REPORT Pursuant to section 13 or 15(d) of The Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) April 28, 1998 First Citizens Banc Corp ------------------------ (Exact name of Registrant as specified in its charter) Ohio 0-25980 34-1558688 ---- ------- ---------- (State or other jurisdiction of (Commission File Number) (IRS Employer incorporation or organization) Identification No.) 100 East Water Street, P.O. Box 5016, Sandusky, Ohio 44870 ---------------------------------------------------------- (Address of principle executive offices) Registrant's telephone number, including area code: (419) 625-4121 N/A --- (Former name or former address, if changed since last report) Date of report: July 10, 1998 ------------- 2 ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS As previously reported by First Citizens Banc Corp ("First Citizens") on its current report on Form 8-K filed with the Securities and Exchange Commission on May 13, 1998, on April 28, 1998, First Citizens acquired Farmers State Bank of New Washington, Ohio ("Farmers"). First Citizens had previously announced that an Agreement and Plan of Merger (the "Agreement") was signed by First Citizens and Farmers on July 3, 1997. The terms of the transaction were negotiated by First Citizens with the Board of Directors of Farmers and Austin Associates, Inc., which represented Farmers. The transaction was completed when Farmers became a wholly owned subsidiary of First Citizens. Farmers will continue its present business of providing banking services to the local and surrounding communities. Farmers operates banking offices in New Washington, Tiro, and Chatfield in Crawford County; Green Camp in Marion County; and Richwood in Union County. Under the terms of the agreement, First Citizens exchanged 6.06 shares (the "Exchange Ratio") of its common stock for each of the 200,000 shares of Farmers outstanding stock. Based on the closing bid price of First Citizens on July 1, 1997 of $34.50, the transaction would be valued at approximately $41.8 million, or $209.07 per share of Farmers stock. In accordance with Item 7 of Form 8-K, First Citizens is submitting with this filing the required historical financial information of Farmers. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (a)(i) The following audited financial statements of Farmers required by item 7(a) of Form 8-K are incorporated herein: Farmers State Bank, Balance Sheets December 31, 1997 and 1996...............................5 Farmers State Bank, Statements of Income The years ended December 31, 1997 and 1996...............6 Farmers State Bank, Statement of Shareholders' Equity The years ended December 31, 1997 and 1996...............7 Farmers State Bank, Statements of Cash Flows The years ended December 31, 1997 and 1996...............8 Notes to Farmers State Bank's Financial Statements.......9-24 2 3 (ii) The following unaudited financial statements of Farmers, required by Item 7(a) of Form 8-K, are incorporated herein: Unaudited Farmers State Bank Condensed Interim Balance Sheet March 31, 1998..............................................25 Unaudited Farmers State Bank Condensed Interim Statements of Income The three months ended March 31, 1998 and 1997..............26 Unaudited Farmers State Bank Condensed Interim Statements of Cash Flows The three months ended March 31, 1998 and 1997..............27 Notes to Farmers State Bank's Condensed Interim Financial Statements....................................................28 Unaudited Pro Forma Consolidated Balance Sheet March 31, 1998..............................................29 Unaudited Pro Forma Consolidated Balance Sheet December 31, 1997...........................................30 Unaudited Pro Forma Consolidated Statement of Income March 31, 1998..............................................31 Unaudited Pro Forma Consolidated Statement of Income December 31, 1997...........................................32 Unaudited Pro Forma Consolidated Statement of Income March 31, 1997................................................33 (b) Exhibits The Agreement and Plan of Merger signed by First Citizens and Farmers was filed as an exhibit to First Citizens Report on Form 8-K dated July 3, 1997 and filed on July 10, 1997. Financial Data Schedules for the fiscal year ended December 31, 1997 and for the interim year to date period ended March 31, 1998 are incorporated herein. 3 4 REPORT OF INDEPENDENT AUDITORS Shareholders and Board of Directors The Farmers State Bank New Washington, Ohio We have audited the accompanying balance sheets of The Farmers State Bank as of December 31, 1997 and 1996, and the related statements of income, changes in shareholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Bank's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Farmers State Bank as of December 31, 1997 and 1996, and the results of its operations, and its cash flows for the years then ended, in conformity with generally accepted accounting principles. /s/ Crowe, Chizek and Company LLP Crowe, Chizek and Company LLP Columbus, Ohio June 10, 1998 4 5 THE FARMERS STATE BANK BALANCE SHEETS December 31, 1997 and 1996 - -------------------------------------------------------------------------------- 1997 1996 ---- ---- ASSETS Cash and due from banks $ 3,367,509 $ 2,531,372 Federal funds sold 7,200,000 900,000 Interest-bearing deposits 347,282 1,033,282 Securities available for sale 78,748,373 54,850,367 Securities held to maturity (Estimated fair value of $34,778,689 at December 31, 1996) 33,831,385 Loans Total loans 67,888,080 58,830,332 Allowance for loan losses (1,908,051) (1,293,038) ------------- ------------- Net loans 65,980,029 57,537,294 Office premises and equipment, net 569,035 602,352 Accrued interest and other assets 1,983,046 1,844,716 ------------- ------------- Total assets $ 158,195,274 $ 153,130,768 ============= ============= LIABILITIES Deposits Noninterest-bearing $ 5,361,649 $ 4,958,736 Interest-bearing 131,818,415 130,353,188 ------------- ------------- Total deposits 137,180,064 135,311,924 Securities sold under repurchase agreements 900,000 800,000 U.S. Treasury interest-bearing demand note payable 461,817 387,522 Accrued interest, taxes and other liabilities 3,301,903 2,370,292 ------------- ------------- Total liabilities 141,843,784 138,869,738 ------------- ------------- SHAREHOLDERS' EQUITY Common stock, $20.00 par value: 200,000 shares authorized, issued and outstanding at December 31, 1997 and 1996 4,000,000 4,000,000 Additional paid-in capital 4,000,000 4,000,000 Retained earnings 6,340,596 5,614,405 Unrealized gain on securities available for sale, net of tax 2,010,894 646,625 ------------- ------------- Total shareholders' equity 16,351,490 14,261,030 ------------- ------------- Total liabilities and shareholders' equity $ 158,195,274 $ 153,130,768 ============= ============= See accompanying notes to financial statements. 5 6 THE FARMERS STATE BANK STATEMENTS OF INCOME Years ended December 31, 1997 and 1996 - -------------------------------------------------------------------------------- 1997 1996 ---- ---- INTEREST INCOME Loans, including fees $ 5,812,836 $ 4,822,646 Taxable securities 4,024,769 4,377,844 Nontaxable securities 858,718 880,366 Federal funds sold 99,760 156,267 Interest bearing deposits 31,069 93,012 Other, including dividends 283,194 240,850 ------------ ------------ Total interest income 11,110,346 10,570,985 INTEREST EXPENSE Deposits 6,796,697 6,549,900 Other borrowings 68,589 54,514 ------------ ------------ Total interest expense 6,865,286 6,604,414 ------------ ------------ NET INTEREST INCOME 4,245,060 3,966,571 Provision for loan losses 694,805 365,000 ------------ ------------ NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 3,550,255 3,601,571 NONINTEREST INCOME Service charges on deposit accounts 134,206 128,049 Security gains (losses), net (106,629) 6,172 Other 46,388 60,722 ------------ ------------ Total noninterest income 73,965 194,943 NONINTEREST EXPENSE Salaries, wages and benefits 1,156,761 1,137,062 Occupancy expense 97,653 82,163 Equipment expense 48,445 73,711 Federal deposit insurance premiums 16,805 2,000 State franchise tax 195,273 175,041 Professional fees 469,223 8,613 Other operating expenses 367,282 332,852 ------------ ------------ Total noninterest expense 2,351,442 1,811,442 ------------ ------------ Income before taxes 1,272,778 1,985,072 Income tax expense 266,587 381,720 ------------ ------------ NET INCOME $ 1,006,191 $ 1,603,352 ============ ============ EARNINGS PER COMMON SHARE $ 5.03 $ 8.02 ============ ============ See accompanying notes to financial statements. 6 7 THE FARMERS STATE BANK STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY Years ended December 31, 1997 and 1996 - -------------------------------------------------------------------------------- ` Unrealized Gain on Additional Securities Total Common Paid-in Retained Available Shareholders' Stock Capital Earnings For Sale Equity ----- ------- -------- -------- ------ Balance, January 1, 1996 $ 3,000,000 $ 5,000,000 $ 4,291,053 $ 464,761 $ 12,755,814 Stock split, (50,000 shares issued) 1,000,000 (1,000,000) Net income 1,603,352 1,603,352 Cash dividends ($ 1.40 per share) (280,000) (280,000) Change in unrealized gain on securities available for sale 181,864 181,864 ------------- ------------- -------------- ------------- --------------- Balance, December 31, 1996 4,000,000 4,000,000 5,614,405 646,625 14,261,030 Net income 1,006,191 1,006,191 Cash dividends ($ 1.40 per share) (280,000) (280,000) Change in unrealized gain on securities available for sale 1,364,269 1,364,269 ------------- ------------- -------------- ------------- --------------- Balance, December 31, 1997 $ 4,000,000 $ 4,000,000 $ 6,340,596 $ 2,010,894 $ 16,351,490 ============= ============= ============== ============= =============== See accompanying notes to financial statements. 7 8 THE FARMERS STATE BANK STATEMENTS OF CASH FLOWS Years ended December 31, 1997 and 1996 - -------------------------------------------------------------------------------- 1997 1996 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 1,006,191 $ 1,603,352 Adjustments to reconcile net income to net cash from operating activities Security amortization, net 40,523 32,006 Depreciation 73,532 71,049 Amortization of goodwill 10,017 11,836 Security (gains) losses, net 106,629 (6,172) Provision for loan losses 694,805 365,000 Deferred income taxes (150,342) (86,672) Change in Net deferred loan fees 12,867 35,109 Accrued interest receivable 96,698 (129,203) Other assets (245,045) 25,580 Accrued interest, taxes and other liabilities 379,150 53,024 ------------ ------------ Net cash from operating activities 2,025,025 1,974,909 CASH FLOWS FROM INVESTING ACTIVITIES Securities held to maturity Proceeds from maturities and repayments 2,077,889 990,789 Purchases (4,447,289) (991,858) Sales 1,329,289 Securities available for sale Proceeds from maturities and repayments 7,038,591 6,419,674 Purchases (4,572,779) (9,106,711) Sales 10,427,598 158,857 Maturity of interest-bearing deposit 686,000 588,749 Loan originations, net of loan payments (9,150,407) (10,845,599) Property and equipment expenditures (40,215) (161,268) Change in federal funds sold (6,300,000) 900,000 ------------ ------------ Net cash from investing activities (2,951,323) (12,047,367) CASH FLOWS FROM FINANCING ACTIVITIES Net change in deposits 1,868,140 8,412,849 Net change in securities sold under repurchase agreements 100,000 100,000 Cash dividends paid (280,000) (240,000) Change in U.S. Treasury interest-bearing notes payable 74,295 169,122 ------------ ------------ Net cash from financing activities 1,762,435 8,441,971 ------------ ------------ Net change in cash and cash equivalents 836,137 (1,630,487) Cash and cash equivalents at beginning of period 2,531,372 4,161,859 ------------ ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,367,509 $ 2,531,372 ============ ============ See accompanying notes to financial statements. 8 9 THE FARMERS STATE BANK NOTES TO FINANCIAL STATEMENTS December 31, 1997 and 1996 - -------------------------------------------------------------------------------- NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The following is a summary of the accounting policies adopted by The Farmers State Bank which have a significant effect on the financial statements. NATURE OF OPERATIONS: The Bank is primarily engaged in the business of commercial and retail banking in Crawford County, Ohio and the communities of Richwood and Green Camp, Ohio. The Bank provides a broad range of banking and financial services including accepting demand, savings and time deposits and granting commercial, real estate and consumer loans. USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS: 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. Future results could differ from these estimates. The allowance for loan losses, fair values of financial instruments and status of contingencies are particularly subject to change. CASH: For purposes of reporting cash flows, the Bank considers "cash and cash equivalents" to include cash on hand and demand deposits with financial institutions. The Bank reports net cash flows for federal funds sold, customer loan transactions, deposit transactions, securities sold under agreements to repurchase and other short-term borrowings. For the years ended December 31, 1997, and 1996, the Bank paid interest of $6,839,000 and $6,521,000, and income taxes of $480,000 and $382,000. Noncash transactions included transfers from loans to other real estate owned totaling $82,000 and transfers of securities held to maturity to securities available for sale of $34,998,000 in the year ended December 31, 1997. 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. Securities are written down to fair value when a decline in fair value is not temporary. Interest and dividend income, adjusted by amortization of purchase premium or discount, is included in earnings. Realized gains or losses are determined based on the amortized cost of the specific security sold. LOANS: Loans are reported at the principal balance outstanding, net of unearned interest and deferred loan fees and costs. Interest income is reported on the interest method and includes amortization of net deferred loan fees and costs over the loan term. Interest income is not 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) 9 10 THE FARMERS STATE BANK NOTES TO FINANCIAL STATEMENTS December 31, 1997 and 1996 - -------------------------------------------------------------------------------- NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) ALLOWANCE FOR LOAN LOSSES: The allowance for loan losses is a valuation allowance, increased by the provision for loan losses and decreased by charge-offs, net of recoveries. Management estimates the allowance balance required based on past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower's ability to repay, the estimated value of any underlying collateral, current economic conditions and other factors. Loan impairment is reported 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 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 is computed using both straight-line and accelerated methods over the estimated useful life of the asset. These assets are reviewed for impairment under SFAS No. 121 when events indicate the carrying amount may not be recoverable. Maintenance and repairs are expensed and major improvements are capitalized. OTHER REAL ESTATE OWNED: Real estate properties acquired in collection of a loan are recorded at fair value at acquisition. Any reduction from carrying value of the related loan to fair value 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. Other real estate owned included in other assets totaled approximately $82,000 at December 31, 1997. The Bank did not own any other real estate at December 31, 1996. 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 or 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. (Continued) 10 11 THE FARMERS STATE BANK NOTES TO FINANCIAL STATEMENTS December 31, 1997 and 1996 - -------------------------------------------------------------------------------- NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) CONCENTRATIONS OF CREDIT RISK: Most of the business activity of the Bank is with customers located within Crawford County, Ohio and the communities of Richwood and Green Camp, Ohio. Loans secured by one- to four-family residential properties approximated $39,414,000 and $33,607,000 at December 31, 1997 and 1996. Agricultural loans approximated $8,406,000 and $7,826,000 at December 31, 1997 and 1996. Other than agricultural loans, the Bank had no significant concentrations of loans in any one industry as of December 31, 1997 and 1996. The Bank has not experienced any unusual losses in any type of loan category or industry. FAIR VALUE 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. DIVIDEND RESTRICTION: Banking regulations require the maintenance of certain capital levels and may limit the amount of dividends which may be paid. For regulatory capital requirements, see a separate note. EARNINGS PER SHARE: Earnings per share is computed based on the weighted average number of shares of capital stock outstanding during each period which totaled 200,000 shares for the years ended December 31, 1997 and 1996. Dividends per share are based on the number of shares outstanding at the declaration date giving retroactive effect to stock splits. RECLASSIFICATIONS: Certain items in the 1996 financial statements have been reclassified to conform to the 1997 presentation. (Continued) 11 12 THE FARMERS STATE BANK NOTES TO FINANCIAL STATEMENTS December 31, 1997 and 1996 - -------------------------------------------------------------------------------- NOTE 2 - SECURITIES The amortized cost, gross unrealized gains, gross unrealized losses and estimated fair values of securities at December 31, 1997 and 1996 are as follows: December 31, 1997 ------------------------------------------------------------------------ Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value ---- ----- ------ ----- AVAILABLE FOR SALE U.S. Treasury securities and obligations of U.S. government corporations and agencies $ 39,072,312 $ 207,279 $ (133,020) $ 39,146,571 Mortgage-backed securities 14,574,434 29,763 (34,094) 14,570,103 Obligations of state and political Subdivisions 14,094,477 690,539 14,785,016 Corporate bonds 4,551,174 29,706 (8,371) 4,572,509 Equity securities 3,234,209 2,460,081 (20,116) 5,674,174 ---------------- -------------- -------------- ---------------- $ 75,526,606 $ 3,417,368 $ (195,601) $ 78,748,373 ================ ============== ============= ================ December 31, 1996 ------------------------------------------------------------------------ Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value ---- ----- ------ ----- AVAILABLE FOR SALE U.S. Treasury securities and obligations of U.S. government corporations and agencies $ 35,026,307 $ 98,764 $ (440,674) $ 34,684,397 Mortgage-backed securities 15,000,755 24,189 (60,881) 14,964,063 Equity securities 3,548,130 1,832,926 (179,149) 5,201,907 ---------------- -------------- ------------- ---------------- $ 53,575,192 $ 1,955,879 $ (680,704) $ 54,850,367 ================ ============== ============= ================ HELD TO MATURITY U.S. Treasury securities and obligations of U.S. government corporations and agencies $ 14,898,233 $ 380,536 $ (240,394) $ 15,038,375 Obligations of state and political subdivisions 15,376,100 765,457 (367) 16,141,190 Mortgage-backed securities 512,041 24,446 (18) 536,469 Corporate bonds 3,045,011 27,585 (9,941) 3,062,655 ---------------- -------------- ------------- ---------------- $ 33,831,385 $ 1,198,024 $ (250,720) $ 34,778,689 ================ ============== ============= ================ (Continued) 12 13 THE FARMERS STATE BANK NOTES TO FINANCIAL STATEMENTS December 31, 1997 and 1996 - -------------------------------------------------------------------------------- NOTE 2 - SECURITIES (Continued) The following table sets forth the amortized cost and estimated fair values of mortgage-backed securities by issuing agency as of December 31, 1997 and 1996. December 31, 1997 December 31, 1996 ------------------------------------ -------------------------- Amortized Estimated Amortized Estimated Cost Fair Value Cost Fair Value ---- ---------- ---- ---------- AVAILABLE FOR SALE FHLMC $ 5,758,525 $ 5,754,385 $ 5,935,124 $ 5,927,968 FNMA 8,553,015 8,532,128 9,065,631 9,036,095 GNMA 262,894 283,590 ---------------- ---------------- $ 14,574,434 $ 14,570,103 $ 15,000,755 $ 14,964,063 ================ ================ =============== =============== HELD TO MATURITY FNMA $ 176,941 $ 176,941 GNMA 335,100 359,528 --------------- --------------- $ 512,041 $ 536,469 =============== =============== The amortized cost and estimated fair value of securities at December 31, 1997, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. December 31, 1997 ----------------- Estimated Amortized Fair Cost Value ---- ----- AVAILABLE FOR SALE Due in one year or less $ 7,861,050 $ 7,844,124 Due after one year through five years 28,845,430 29,274,879 Due after five years through ten years 20,896,556 21,261,186 Due after ten years 114,927 123,907 Mortgage-backed securities 14,574,434 14,570,103 Equity securities 3,234,209 5,674,174 --------------- ---------------- $ 75,526,606 $ 78,748,373 =============== ================ (Continued) 13 14 THE FARMERS STATE BANK NOTES TO FINANCIAL STATEMENTS December 31, 1997 and 1996 - -------------------------------------------------------------------------------- NOTE 2 - SECURITIES (Continued) Proceeds from sales of securities, gross realized gains and gross realized losses for the years ended December 31, 1997 and 1996 are as follows: Gross Gross Realized Realized Sales Proceeds Gains Losses -------------- ----- ------ Year ended December 31, 1997 $11,757,000 $ 63,000 $ 170,000 Year ended December 31, 1996 159,000 6,000 During 1997, the Bank sold securities classified as held to maturity for interest rate risk management purposes. As a result, all remaining held-to-maturity securities were transferred to the available-for-sale portfolio as of December 31, 1997. Proceeds from these sales totaled $1,329,289, resulting in gross realized gains of $45,289. These sales are included in the above totals. The amortized cost of the remaining held-to-maturity portfolio transferred to available for sale was $34,998,000. The net unrealized gain on these securities was $720,000 on the date of transfer. Securities with a carrying value of approximately $11,561,000 and $8,660,000 were pledged as of December 31, 1997 and 1996 to secure public deposits, and other deposits and liabilities as required or permitted by law. NOTE 3 - LOANS Loans as presented on the balance sheet are comprised of the following classifications at December 31, 1997 and 1996: 1997 1996 ---- ---- Commercial and agricultural $ 21,926,200 $ 19,958,639 Real estate - mortgage 42,142,615 34,018,581 Real estate - construction 1,270,203 1,368,501 Consumer 2,506,301 3,009,473 Other 400,000 Leases 736,042 882,540 --------------- ---------------- 68,581,361 59,637,734 Deferred loan fees (213,134) (200,267) Unearned interest (480,147) (607,135) --------------- ---------------- Total loans $ 67,888,080 $ 58,830,332 =============== ================ (Continued) 14 15 THE FARMERS STATE BANK NOTES TO FINANCIAL STATEMENTS December 31, 1997 and 1996 - -------------------------------------------------------------------------------- NOTE 3 - LOANS (Continued) Certain directors and executive officers, including their immediate families and companies in which they are principal owners, are loan customers of the Bank. The following is a summary of activity during the year ended December 31, 1997 for such loans. Balance, January 1, 1997 $ 821,290 New loans and advances 264,100 Repayments (713,087) Other changes 135,894 -------------- Balance, December 31, 1997 $ 508,197 ============== Other changes represents loans guaranteed by an individual who became a Director in 1997. NOTE 4 - ALLOWANCE FOR LOAN LOSSES A summary of the activity in the allowance for loan losses is as follows: 1997 1996 ---- ---- Balance, beginning of period $ 1,293,038 $ 982,569 Provision for loan losses 694,805 365,000 Loans charged off (128,162) (75,125) Recoveries 48,370 20,594 -------------- -------------- Balance, end of period $ 1,908,051 $ 1,293,038 ============== ============== Information with respect to impaired loans is as follows: 1997 1996 ---- ---- Balance of impaired loans for which no allowance for loss has been allocated $ 36,000 Balance of impaired loans for which an allowance for loss has been allocated $ 2,618,000 1,197,000 Portion of allowance for loan loss allocated to impaired loans 787,000 525,000 Average balance of impaired loans during year 1,925,000 1,177,000 Interest income recognized during impairment 197,000 103,000 Interest income recognized on a cash basis 194,000 2,000 (Continued) 15 16 THE FARMERS STATE BANK NOTES TO FINANCIAL STATEMENTS December 31, 1997 and 1996 - -------------------------------------------------------------------------------- NOTE 5 - PREMISES AND EQUIPMENT Premises and equipment at December 31, 1997 and 1996 are as follows: 1997 1996 ---- ---- Land $ 13,938 $ 13,938 Buildings and improvements 696,225 696,225 Furniture and equipment 467,439 427,224 --------------- ---------------- Total 1,177,602 1,137,387 Accumulated depreciation 608,567 535,035 --------------- ---------------- Premises and equipment, net $ 569,035 $ 602,352 =============== ================ NOTE 6 - INTEREST-BEARING DEPOSITS Interest-bearing deposits as of December 31, 1997 and 1996 are summarized as follows: 1997 1996 ---- ---- Demand $ 11,290,067 $ 10,466,616 Statement and passbook savings 22,579,520 24,869,027 Certificates of deposit: $100,000 and greater 13,445,329 14,276,885 Other 84,503,499 80,740,660 ---------------- ----------------- Total $ 131,818,415 $ 130,353,188 ================ ================ At December 31, 1997, the scheduled maturities of certificates of deposit were as follows: 1998 $ 59,728,583 1999 24,124,583 2000 11,934,265 2001 2,161,397 --------------- Total $ 97,948,828 =============== (Continued) 16 17 THE FARMERS STATE BANK NOTES TO FINANCIAL STATEMENTS December 31, 1997 and 1996 - -------------------------------------------------------------------------------- NOTE 7 - OTHER BORROWINGS Securities sold under agreements to repurchase, treasury tax and loan deposits and federal funds purchased are financing arrangements used by the Bank. Physical control is maintained for all securities sold under repurchase agreements. Information concerning securities sold under agreements to repurchase for the years ended December 31, 1997 and 1996, is summarized as follows: 1997 1996 ---- ---- Average balance during the year $ 863,793 $ 905,737 Average interest rate during the year 5.45% 5.02% Maximum month-end balance during the year $ 1,050,000 $ 1,100,000 Securities underlying repurchase agreements at December 31, 1997 and 1996, were as follows: 1997 1996 ---- ---- Carrying value of securities $ 1,018,437 $ 999,778 Fair Value 1,018,437 1,036,045 NOTE 8 - INCOME TAXES Income tax expense for the years ended December 31, 1997 and 1996, consists of the following: 1997 1996 ---- ---- Current $ 416,929 $ 468,392 Deferred (150,342) (86,672) ------------ ------------ Total provision for income taxes $ 266,587 $ 381,720 ============ ============ (Continued) 17 18 THE FARMERS STATE BANK NOTES TO FINANCIAL STATEMENTS December 31, 1997 and 1996 - -------------------------------------------------------------------------------- NOTE 8 - INCOME TAXES (Continued) The differences between the financial statement income tax expense and amounts computed by applying the statutory federal income tax rate of 34% to income before income taxes are as follows: 1997 1996 ---- ---- Income taxes computed at the statutory federal tax rate $ 432,745 $ 674,924 Add (subtract) tax effect of Nontaxable interest income, less related nondeductible interest expenses (245,866) (251,579) Dividends received deduction (47,588) (41,625) Nondeductible reorganization costs 105,992 Other 21,304 ------------ ------------ Total income tax provision $ 266,587 $ 381,720 ============ ============ The tax effects of principal temporary differences and the resulting deferred tax assets and liabilities at December 31, 1997 and 1996, are as follows: 1997 1996 ---- ---- Allowance for loan losses $ 593,631 $ 384,527 Deferred loan fees 10,470 15,705 Nonaccrual loan interest 7,713 Other 20,661 -------------- -------------- Deferred tax asset 604,101 428,606 -------------- -------------- Leases (44,320) (24,705) Federal Home Loan Bank stock dividends (12,954) (2,448) Tax depreciation in excess of book (40,930) (45,898) Unrealized gain on securities available for sale (1,035,915) (333,111) -------------- -------------- Deferred tax liability (1,134,119) (406,162) -------------- -------------- Net deferred tax $ (530,018) $ 22,444 ============== ============== (Continued) 18 19 THE FARMERS STATE BANK NOTES TO FINANCIAL STATEMENTS December 31, 1997 and 1996 - -------------------------------------------------------------------------------- NOTE 9 - PENSION PLANS The Bank maintains a fully insured defined benefit pension plan covering substantially all employees. Participants are fully vested after 7 years of participation. The normal retirement benefit is equal to 20% of the average monthly compensation. Monthly benefits are reduced proportionately for each month of service less than 300 at the normal retirement date. The Bank funds all pension costs through the annual purchase of retirement income insurance and retirement annuity policies. NOTE 10 - COMMITMENTS, CONTINGENCIES AND OFF-BALANCE SHEET RISK The Bank is party to financial instruments with off-balance-sheet risk in the normal course of business to meet financing needs of their customers. These include commitments to make or purchase loans, undisbursed lines of credit and letters of credit. The Bank's exposure to credit loss in case of nonperformance by the other party to the financial instrument is represented by the contractual amount of those instruments. The Bank follows the same credit policy to make such commitments as is used for loans recorded on the balance sheet. Since many commitments to make loans expire without being used, the amount does not necessarily represent future cash commitments. Collateral obtained relating to the commitments is determined using management's credit evaluation of the borrower and may include real estate, vehicles, business assets, deposits and other items. The Bank does make fixed rate loan commitments for short periods of time. However, such commitments were immaterial as of and for the years ending December 31, 1997 and 1996. Commitments to extend credit and letters of credit approximated the following amounts at December 31, 1997 and 1996: Contract Amount --------------- 1997 1996 ---- ---- Commitments to extend credit: Lines of credit and construction loans $ 3,363,000 $ 3,153,000 Letters of credit 230,000 331,000 -------------- -------------- $ 3,593,000 $ 3,484,000 ============== ============== The Bank was required to maintain a $375,000 clearing balance with the Federal Reserve Bank at December 31, 1997 and 1996. (Continued) 19 20 THE FARMERS STATE BANK NOTES TO FINANCIAL STATEMENTS December 31, 1997 and 1996 - -------------------------------------------------------------------------------- NOTE 10 - COMMITMENTS, CONTINGENCIES AND OFF-BALANCE SHEET RISK (Continued) In the normal course of business, the Bank is involved in various legal actions but, in the opinion of management and its legal counsel, ultimate disposition of such matters is not expected to have a material adverse effect on the financial statements. NOTE 11 - RESTRICTIONS ON RETAINED EARNINGS Payment of dividends by the Bank is subject to restrictions by its regulatory agencies. These restrictions generally limit dividends to the current and prior two years net income as defined by the regulations, and dividends may not reduce capital levels below minimum regulatory requirements. In addition, as more fully discussed below, the Bank must obtain prior approval of its regulators before declaring any dividend that would reduce the Tier 1 leverage ratio (as defined) below 7.5%. Under the most restrictive of these requirements, the Bank estimates that retained earnings available for payment of dividends approximates $2,388,000 at December 31, 1997. NOTE 12 - REGULATORY CAPITAL REQUIREMENTS The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier I capital (as defined) to average assets (as defined). As of December 31, 1997, the most recent notification from its primary regulator categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized the Bank must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the table. (Continued) 20 21 THE FARMERS STATE BANK NOTES TO FINANCIAL STATEMENTS December 31, 1997 and 1996 - -------------------------------------------------------------------------------- NOTE 12 - REGULATORY CAPITAL REQUIREMENTS (Continued) At December 31, 1997 and 1996, the Bank's actual capital levels and minimum required levels were (dollar amounts in thousands): To Be Well Capitalized Under For Capital Prompt Corrective Actual Adequacy Purposes Action Provisions ------ ----------------- ----------------- Amount Ratio Amount Ratio Amount Ratio ------ ----- ------ ----- ------ ----- December 31, 1997 ----------------- Total capital (to risk weighted assets) $ 15,238 20.99% $ 5,808 8.00% $ 7,260 10.00% Tier I capital (to risk weighted assets) 14,318 19.72 2,904 4.00 4,356 6.00 Tier I capital (to average assets) 14,318 9.00 6,363 4.00 7,954 5.00 To Be Well Capitalized Under For Capital Prompt Corrective Actual Adequacy Purposes Action Provisions ------ ----------------- ----------------- Amount Ratio Amount Ratio Amount Ratio ------ ----- ------ ----- ------ ----- December 31, 1996 ----------------- Total capital (to risk weighted assets) $ 14,530 19.08% $ 6,090 8.00% $ 7,620 10.00% Tier I capital (to risk weighted assets) 13,580 17.83 3,050 4.00 4,570 6.00 Tier I capital (to average assets) 13,580 9.10 5,970 4.00 7,460 5.00 At December 31, 1997 and 1996, the Bank was categorized as well capitalized. Management is not aware of any events or circumstances that have occurred that would change the Bank's capital category. Pursuant to a Memorandum of Understanding dated October 31, 1997, by and among the Bank, the Ohio Division of Financial Institutions and the Federal Deposit Insurance Corporation, which is more fully discussed in Note 14, the Bank must refrain from paying dividends without prior approval if the Bank's Tier I capital to average assets is below 7.50%. (Continued) 21 22 THE FARMERS STATE BANK NOTES TO FINANCIAL STATEMENTS December 31, 1997 and 1996 - -------------------------------------------------------------------------------- NOTE 13 - FAIR VALUES OF FINANCIAL INSTRUMENTS The carrying amount and estimated fair values of financial instruments are as follows as of December 31, 1997 and 1996: 1997 1996 ---- ---- Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value ------ ---------- ------ ---------- Financial assets: Cash and due from banks $ 3,367,509 $ 3,368,000 $ 2,531,372 $ 2,531,000 Federal funds sold 7,200,000 7,200,000 900,000 900,000 Interest-bearing deposits 347,282 347,000 1,033,282 1,033,000 Securities available for sale 78,748,373 78,748,000 54,850,367 54,850,000 Securities held to maturity 33,831,385 34,779,000 Net loans 65,980,029 66,395,000 57,537,294 58,626,000 Accrued interest receivable 1,324,204 1,324,000 1,420,902 1,421,000 Financial liabilities: Deposits (137,180,064) (137,428,000) (135,311,924) (135,811,000) Securities sold under repurchase agreements and other borrowings (1,361,817) (1,362,000) (1,187,522) (1,188,000) Accrued interest payable (1,693,749) (1,694,000) (1,667,315) (1,667,000) The estimated fair value approximates carrying amount for all items except those described below. Estimated fair value for securities is based on quoted market values for the individual securities or for equivalent securities. Estimated fair value for loans is based on the rates charged at year end for new loans with similar maturities, applied until the loan is assumed to reprice or be paid. Estimated fair value for IRAs and certificates of deposit is based on the rates paid at year end for new deposits, applied until maturity. Estimated fair value for other financial instruments and off-balance-sheet loan commitments are considered nominal. NOTE 14 -OTHER REGULATORY MATTERS The Bank is subject to regulation by the Ohio Division of Financial Institutions (ODFI) and the Federal Deposit Insurance Corporation (FDIC). Pursuant to a Memorandum of Understanding (the "MOU") dated October 31, 1997 by and among the Bank, the ODFI and the FDIC, the Bank has agreed to comply with certain directives which are intended to correct operational deficiencies identified in the ODFI's March 14, 1997 Examination Report (the "Examination Report") and improve the Bank's overall financial condition. The MOU specifies various deadlines (generally ranging from 10 to 90 days from the date of the MOU) for the implementation of certain corrective measures and requires that such measures be maintained until such time as the MOU is stayed, modified, terminated or suspended by the ODFI and the FDIC. (Continued) 22 23 THE FARMERS STATE BANK NOTES TO FINANCIAL STATEMENTS December 31, 1997 and 1996 - -------------------------------------------------------------------------------- NOTE 14 -OTHER REGULATORY MATTERS (Continued) The MOU requires the Bank to, among other things: i. Achieve and maintain an adequate valuation reserve for loan losses; conduct a quarterly assessment of the loan loss reserve and nonperforming loans; refile Reports of Condition and Income for December 31, 1996 and the first three quarters of 1997 to reflect an appropriate level of Allowance for Loan and Lease Losses; maintain documentation in support of the foregoing; and, submit to the ODFI and the FDIC a record of the methodology used for determining loan loss reserves. ii. Develop a written plan designed to improve the Bank's position on certain loans more than $100,000 that are past due on principal or interest by 90 days or more. iii.Prepare and submit to the ODFI and the FDIC for review and approval (a) a management plan describing actions to be taken by the Bank's Board of Directors to strengthen management and improve the Board's supervision of the Bank's affairs, (b) an amended written loan policy including the recommendations detailed in the Examination Report, (c) written loan review procedures designed to identify and categorize problem credit and assess the overall quality of the loan portfolio, (d) an amended approval policy and procedures consistent with the Examination Report and regulatory guidelines (e) an amended written investment policy consistent with regulatory guidelines (f) an amended interest risk policy and procedures consistent with the Examination Report and regulatory guidelines and (g) quarterly progress reports detailing the actions taken to secure compliance with the MOU and the results thereof. iv. Establish procedures to ensure that (a) the Bank's officers and employees are aware of, have access to, and adhere to the Bank's loan policy, (b) exceptions to the Bank's loan policy are approved in advanced by the Board of Directors, and (c) the reasons for any such exceptions are noted in the Board minutes and maintained in the obligor's file. v. Refrain from (a) declaring or paying dividends without the prior written approval of the ODFI and the FDIC when the Bank's tier one leverage ratio is below 7.5% or (b) extending any additional credit to any borrower who is an obligor to the Bank on any extension of credit or portion thereof that has been charged-off or classified "substandard," "doubtful" or "loss" in the Examination Report or in any subsequent examination report so long as such credit remains uncollected, unless the addition extension of credit has been authorized in advanced by the Bank's Board of Directors in accordance with certain standards and supported by certain documentation. (Continued) 23 24 THE FARMERS STATE BANK NOTES TO FINANCIAL STATEMENTS December 31, 1997 and 1996 - -------------------------------------------------------------------------------- NOTE 14 -OTHER REGULATORY MATTERS (Continued) vi. Take all necessary steps consistent with sound banking practices to (a) address all violations described in the Examination Report and refrain from engaging in such violations in the future, (b) eliminate and/or correct problems relating to credit information and collateral documentation and ensure proper collection and maintenance of such information and documentation in the future, and (c) ensure all deficiencies in internal routine and controls, as identified in the Examination Report, are eliminated and/or corrected and procedures are implemented to maintain a sound system of internal controls. vii. Establish a Compliance Committee comprised of outside directors to monitor compliance with the MOU and written policies and procedures. viii. Adopt all plans, policies and procedures required by the MOU and fully comply with all of the terms thereof. Management and the Board of Directors have implemented corrective actions to comply with provisions of the MOU. NOTE 15 - MERGER On July 3, 1997, the Bank entered a definitive agreement to merge with First Citizens Banc Corp (First Citizens) of Sandusky, Ohio. This agreement, as amended, specified that the Bank would receive 6.06 shares of First Citizens' common stock for each of the 200,000 shares of Bank stock outstanding. The merger, which was consummated on April 28, 1998, has been approved by both companies' regulatory agencies and shareholders. The transaction was accounted for using the pooling-of-interest method of accounting. 24 25 THE FARMERS STATE BANK CONDENSED BALANCE SHEET (Unaudited) - -------------------------------------------------------------------------------- March 31, 1998 ---- ASSETS Cash and due from banks $ 2,878,136 Federal funds sold 6,600,000 Interest-bearing deposits 248,282 Securities available for sale 77,897,747 Loans Total loans 65,252,890 Allowance for loan losses (1,883,087) ------------- Net loans 63,369,803 Office premises and equipment, net 589,064 Accrued interest and other assets 2,189,284 ------------- Total assets $ 153,772,316 ============= LIABILITIES Deposits Noninterest-bearing $ 4,475,113 Interest-bearing 129,042,082 Total deposits 133,517,195 Securities sold under repurchase agreements 950,000 U.S. Treasury interest-bearing demand note payable 788 Accrued interest, taxes and other liabilities 2,231,131 ------------- Total liabilities 136,699,114 SHAREHOLDERS' EQUITY Common stock, $20.00 par value: 200,000 shares authorized, issued and outstanding at March 31, 1998 4,000,000 Additional paid-in capital 4,000,000 Retained earnings 6,701,783 Unrealized gain on securities available for sale, net of tax 2,371,419 ------------- Total shareholders' equity 17,073,202 ------------- Total liabilities and shareholders' equity $ 153,772,316 ============= See accompanying notes to financial statements. 25 26 THE FARMERS STATE BANK CONDENSED STATEMENTS OF INCOME (Unaudited) - -------------------------------------------------------------------------------- Three Months Ended March 31, --------- 1998 1997 ---- ---- INTEREST INCOME Loans, including fees $ 1,511,067 $ 1,330,633 Taxable securities 873,966 1,076,634 Nontaxable securities 198,683 218,653 Federal funds sold 71,193 8,958 Interest bearing deposits 5,949 12,295 Other, including dividends 48,254 49,244 ----------- ----------- Total interest income 2,709,112 2,696,417 INTEREST EXPENSE Deposits 1,665,786 1,635,849 Other borrowings 12,890 16,172 ----------- ----------- Total interest expense 1,678,676 1,652,021 ----------- ----------- NET INTEREST INCOME 1,030,436 1,044,396 Provision for loan losses 15,000 ----------- ----------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 1,030,436 1,029,396 NONINTEREST INCOME Service charges on deposit accounts 33,147 34,729 Security losses, net (35,000) Other 5,741 16,322 ----------- ----------- Total noninterest income 38,888 16,051 NONINTEREST EXPENSE Salaries, wages and benefits 310,532 264,552 Occupancy expense 26,101 20,891 Equipment expense 7,149 12,471 Federal deposit insurance premiums 4,251 3,875 State franchise tax 56,250 45,012 Professional fees 14,899 31,350 Other operating expenses 155,955 101,106 ----------- ----------- Total noninterest expense 575,137 479,257 ----------- ----------- Income before taxes 494,187 566,190 Income tax expense 133,000 127,000 ----------- ----------- NET INCOME $ 361,187 $ 439,190 =========== =========== EARNINGS PER COMMON SHARE $ 1.81 $ 2.20 =========== =========== See accompanying notes to financial statements. 26 27 THE FARMERS STATE BANK STATEMENTS OF CASH FLOWS (Unaudited) - -------------------------------------------------------------------------------- Three Months Ended March 31, --------- 1998 1997 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 361,187 $ 439,190 Adjustments to reconcile net income to net cash from operating activities Security amortization, net 19,962 9,524 Depreciation 12,730 18,097 Security losses, net - 35,000 Provision for loan losses - 15,000 Change in Net deferred loan fees (14,702) 8,961 Accrued interest receivable (132,117) (114,810) Other assets (74,121) (72,852) Accrued interest, taxes and other liabilities (976,498) (798,026) ----------- ----------- Net cash from operating activities (803,559) (459,916) CASH FLOWS FROM INVESTING ACTIVITIES Securities held to maturity Proceeds from maturities and repayments - 348,013 Purchases - (202,784) Securities available for sale Proceeds from maturities and repayments 5,591,524 134,350 Purchases (4,214,609) (500,000) Sales 1,965,000 Maturities of interest-bearing deposit 99,000 194,000 Loan originations, net of loan payments 2,624,928 (2,370,225) Property and equipment expenditures (32,759) (18,485) Change in federal funds sold 600,000 500,000 ----------- ----------- Net cash from investing activities 4,668,084 49,869 CASH FLOWS FROM FINANCING ACTIVITIES Net change in deposits (3,662,869) 1,261,641 Net change in securities sold under repurchase agreements 50,000 250,000 Change in U.S. Treasury interest-bearing notes payable (461,029) (134,847) Cash dividends paid (280,000) (280,000) ----------- ----------- Net cash from financing activities (4,353,898) 1,096,794 ----------- ----------- Net change in cash and cash equivalents (489,373) 686,747 Cash and cash equivalents at beginning of period 3,367,509 2,531,372 ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,878,136 $ 3,218,119 =========== =========== See accompany notes to financial statements. 27 28 THE FARMERS STATE BANK NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited) - -------------------------------------------------------------------------------- NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES These interim financial statements are prepared without audit and reflect all adjustments which, in the opinion of management, are necessary to present fairly the financial position of The Farmers State Bank ("Bank") at March 31, 1998, and its results of operations and cash flows for the three months ended March 31, 1998 and 1997. All such adjustments are normal and recurring in nature. The accompanying condensed financial statements have been prepared in accordance with Regulation S-X and, therefore, do not purport to contain all the necessary financial disclosures required by generally accepted accounting principles that might otherwise be necessary in the circumstances, and should be read in conjunction with the financial statements and notes thereto of the Bank for the year ended December 31, 1997. The accounting policies of the Bank described in the notes to financial statements contained in the Bank's December 31, 1997, financial statements, have been consistently followed in preparing these interim condensed financial statements. 28 29 PRO FORMA CONSOLIDATED BALANCE SHEET MARCH 31, 1998 (UNAUDITED) FIRST PRO FORMA PRO FORMA CITIZENS FARMERS ADJUSTMENTS COMBINED ------------- ------------- ------------- ------------- ASSETS Cash and due from banks $ 11,935,231 $ 2,878,136 $ -- $ 14,813,367 Federal funds sold 12,540,000 6,600,000 -- 19,140,000 Interest-bearing deposits 248,282 -- 248,282 Securities Available for sale 62,726,700 77,897,747 -- 140,624,447 Held to maturity 4,601,684 -- -- 4,601,684 Loans held for sale 1,202,580 -- -- 1,202,580 Loans Total loans 224,122,815 65,252,890 -- 289,375,705 Allowance for loan losses (2,821,613) (1,883,087) -- (4,704,700) ------------- ------------- ------------- ------------- Net loans 221,301,202 63,369,803 -- 284,671,005 Office premises and equipment, net 6,887,238 589,064 -- 7,476,302 Intangible assets 2,765,999 22,500 -- 2,788,499 Accrued interest and other assets 3,996,500 2,166,784 -- 6,163,284 ------------- ------------- ------------- ------------- Total assets $ 327,957,134 $ 153,772,316 $ -- $ 481,729,450 ============= ============= ============= ============= LIABILITIES Deposits $ 267,320,405 $ 133,517,195 $ -- $ 400,837,600 FHLB borrowings 14,182,740 -- -- 14,182,740 Securities sold under repurchase agreements 8,331,809 950,000 -- 9,281,809 U.S. Treasury interest- bearing demand note 1,212,262 788 -- 1,213,050 Accrued interest, taxes and other liabilities 1,604,260 2,231,131 -- 3,835,391 ------------- ------------- ------------- ------------- Total liabilities 292,651,476 136,699,114 -- 429,340,590 SHAREHOLDERS' EQUITY Common stock 15,257,520 4,000,000 4,000,000 (A) 23,257,520 Additional paid-in capital -- 4,000,000 (4,000,000)(A) Retained earnings 19,615,763 6,701,783 -- 26,317,546 Unrealized gain on securities available for sale 432,375 2,371,419 -- 2,803,794 ------------- ------------- ------------- ------------- Total shareholders' equity 35,305,658 17,073,202 -- 52,378,860 ------------- ------------- ------------- ------------- Total liabilities and shareholders' equity $ 327,957,134 $ 153,772,316 $ -- $ 481,729,450 ============= ============= ============= ============= <FN> - ---------- (A) Issuance of 1,212,000 First Citizens common shares in exchange for 200,000 Farmers common shares 29 30 PRO FORMA CONSOLIDATED BALANCE SHEET DECEMBER 31, 1997 (UNAUDITED) - -------------------------------------------------------------------------------- FIRST PRO FORMA PRO FORMA CITIZENS FARMERS ADJUSTMENTS COMBINED ------------- ------------- ------------ ------------- ASSETS Cash and due from banks $ 14,328,125 $ 3,367,509 $ -- $ 17,695,634 Federal funds sold 10,400,000 7,200,000 -- 17,600,000 Interest-bearing deposits -- 347,282 -- 347,282 Securities Available for sale 58,468,703 78,748,373 -- 137,217,076 Held to maturity 6,737,206 -- -- 6,737,206 Loans held for sale 690,998 -- -- 690,998 Loans Total loans 224,557,029 67,888,080 -- 292,445,109 Allowance for loan losses (2,799,000) (1,908,051) -- (4,707,051) ------------- ------------- ------------ ------------- Net loans 221,758,029 65,980,029 -- 287,738,058 Office premises and equipment, net 6,993,953 569,035 -- 7,562,988 Intangible assets 2,847,511 22,500 -- 2,870,011 Accrued interest and other assets 3,698,573 1,960,546 -- 5,659,119 ------------- ------------- ------------ ------------- Total assets $ 325,923,098 $ 158,195,274 $ -- $ 484,118,372 ============= ============= ============ ============= LIABILITIES Deposits $ 265,003,177 $ 137,180,064 $ -- $ 402,183,241 FHLB borrowings 14,488,034 -- -- 14,488,034 Securities sold under repurchase agreements 6,879,346 900,000 -- 7,779,346 U.S. Treasury interest- bearing demand note 2,913,641 461,817 -- 3,375,458 Accrued interest, taxes and other liabilities 1,790,955 3,301,903 -- 5,092,858 ------------- ------------- ------------ ------------- Total liabilities 291,075,153 141,843,784 -- 432,918,937 SHAREHOLDERS' EQUITY Common stock 15,257,520 4,000,000 4,000,000 (A) 23,257,520 Additional paid-in capital -- 4,000,000 (4,000,000)(A) -- Retained earnings 19,174,257 6,340,596 -- 25,514,853 Unrealized gain on securities available for sale 416,168 2,010,894 -- 2,427,062 ------------- ------------- ------------ ------------- Total shareholders' equity 34,847,945 16,351,490 -- 51,199,435 ------------- ------------- ------------ ------------- Total liabilities and shareholders' equity $ 325,923,098 $ 158,195,274 $ -- $ 484,118,372 ============= ============= ============ ============= <FN> - ---------- (A) Issuance of 1,212,000 First Citizens common shares in exchange for 200,000 Farmers common shares. 30 31 PRO FORMA CONSOLIDATED STATEMENT OF INCOME THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED) FIRST PRO FORMA PRO FORMA CITIZENS FARMERS ADJUSTMENTS COMBINED ---------- ---------- ----------- ---------- INTEREST INCOME Loans, including fees $4,773,417 $1,511,067 $ -- $6,284,484 Taxable securities 613,052 873,966 -- 1,487,018 Nontaxable securities 303,404 198,683 -- 502,087 Federal funds sold 131,252 71,193 -- 202,445 Interest-bearing deposits -- 5,949 -- 5,949 Other, including dividends 9,693 48,254 -- 57,947 ---------- ---------- ----------- ---------- Total interest income 5,830,818 2,709,112 -- 8,539,930 INTEREST EXPENSE Deposits 2,286,183 1,665,786 -- 3,951,969 FHLB borrowings 207,241 -- -- 207,241 Other borrowings 107,974 12,890 -- 120,864 ---------- ---------- ----------- ---------- Total interest expense 2,601,398 1,678,676 -- 4,280,074 ---------- ---------- ----------- ---------- Net interest income 3,229,420 1,030,436 -- 4,259,856 Provision for loan losses 108,000 -- -- 108,000 ---------- ---------- ----------- ---------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 3,121,420 1,030,436 -- 4,151,856 NONINTEREST INCOME Computer center data processing fees 462,092 -- -- 462,092 Service charges on deposit accounts 138,956 33,147 -- 172,103 Security gains, net 19,580 -- -- 19,580 Loan sale gains 33,965 -- -- 33,965 Other operating income 237,684 5,741 -- 243,425 ---------- ---------- ----------- ---------- Total noninterest income 892,277 38,888 -- 931,165 NONINTEREST EXPENSE Salaries, wages and benefits 1,393,138 310,532 -- 1,703,670 Net occupancy expense 141,643 26,101 -- 167,744 Equipment expense 164,604 7,149 -- 171,753 Federal deposit insurance premiums 14,720 4,251 -- 18,971 State franchise tax 117,732 56,250 -- 173,982 Professional fees 151,623 14,899 -- 166,522 Other operating expenses 760,847 155,955 -- 916,802 ---------- ---------- ----------- ---------- Total noninterest expense 2,744,307 575,137 -- 3,319,444 ---------- ---------- ----------- ---------- Income before taxes 1,269,390 494,187 -- 1,763,577 Income tax expense 370,158 133,000 -- 503,158 NET INCOME $ 899,232 $ 361,187 $ -- $1,260,419 ========== ========== =========== ========== Earnings per common share $ 0.29 $ 1.81 $ 0.30 ========== ========== ========== Weighted average shares outstanding 3,051,504 200,000 4,263,504 ========= ======= ========= 31 32 32 PRO FORMA CONSOLIDATED STATEMENT OF INCOME YEAR ENDED DECEMBER 31, 1997 (UNAUDITED) FIRST PRO FORMA PRO FORMA CITIZENS FARMERS ADJUSTMENTS COMBINED ------------ ------------ ----------- ------------ INTEREST INCOME Loans, including fees $ 18,461,451 $ 5,812,836 $ -- $ 24,274,287 Taxable securities 2,512,639 4,024,769 -- 6,537,408 Nontaxable securities 1,307,425 858,718 -- 2,166,143 Federal funds sold 483,085 99,760 -- 582,845 Interest-bearing deposits -- 31,069 -- 31,069 Other, including dividends 33,292 283,194 -- 316,486 ------------ ------------ ----------- ------------ Total interest income 22,797,892 11,110,346 -- 33,908,238 INTEREST EXPENSE Deposits 8,450,754 6,796,697 -- 15,247,451 FHLB borrowings 866,482 -- -- 866,482 Other borrowings 492,478 68,589 -- 561,067 ------------ ------------ ----------- ------------ Total interest expense 9,809,714 6,865,286 -- 16,675,000 ------------ ------------ ----------- ------------ NET INTEREST INCOME 12,988,178 4,245,060 -- 17,233,238 Provision for loan losses 434,663 694,805 -- 1,129,468 ------------ ------------ ----------- ------------ NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 12,553,515 3,550,255 -- 16,103,770 NONINTEREST INCOME Computer center data processing fees 2,191,004 -- -- 2,191,004 Service charges on deposit accounts 530,525 134,206 -- 664,731 Security gains (losses), net 213,686 (106,629) -- 107,057 Loan sale gains 61,317 -- -- 61,317 Other operating income 1,015,627 46,388 -- 1,062,015 ------------ ------------ ----------- ------------ Total noninterest income 4,012,159 73,965 -- 4,086,124 NONINTEREST EXPENSE Salaries, wages and benefits 5,917,264 1,156,761 -- 7,074,025 Net occupancy expense 563,504 97,653 -- 661,157 Equipment expense 812,538 48,445 -- 860,983 Federal deposit insurance premiums 31,145 16,805 -- 47,950 State franchise tax 435,788 195,273 -- 631,061 Professional fees 640,585 469,223 -- 1,109,808 Other operating expenses 3,438,145 367,282 -- 3,805,427 ------------ ------------ ----------- ------------ Total noninterest expense 11,838,969 2,351,442 -- 14,190,411 ------------ ------------ ----------- ------------ Income before taxes 4,726,705 1,272,778 -- 5,999,483 Income tax expense 1,292,352 266,587 -- 1,558,939 ------------ ------------ ----------- ------------ NET INCOME $ 3,434,353 $ 1,006,191 $ -- $ 4,440,544 ============ ============ =========== ============ Earnings per common share $ 1.13 $ 5.03 $ 1.04 ============ ============ ============ Weighted average shares outstanding 3,051,504 200,000 4,263,504 ========= ======= ========= 32 33 PRO FORMA CONSOLIDATED STATEMENT OF INCOME THREE MONTHS ENDED MARCH 31, 1997 (UNAUDITED) FIRST PRO FORMA PRO FORMA CITIZENS FARMERS ADJUSTMENTS COMBINED ----------- ----------- ----------- ----------- INTEREST INCOME Loans, including fees $ 4,381,966 $ 1,330,633 $ -- $ 5,712,599 Taxable securities 648,566 1,076,634 -- 1,725,200 Nontaxable securities 341,412 218,653 -- 560,065 Federal funds sold 122,087 8,958 -- 131,045 Interest-bearing deposits -- 12,295 -- 12,295 Other, including dividends 1,024 49,244 -- 50,268 ----------- ----------- ----------- ----------- Total interest income 5,495,055 2,696,417 -- 8,191,472 INTEREST EXPENSE Deposits 2,003,429 1,635,849 -- 3,639,278 FHLB borrowings 222,949 -- -- 222,949 Other borrowings 73,788 16,172 -- 89,960 ----------- ----------- ----------- ----------- Total interest expense 2,300,166 1,652,021 -- 3,952,187 ----------- ----------- ----------- ----------- NET INTEREST INCOME 3,194,889 1,044,396 -- 4,239,285 Provision for loan losses 98,500 15,000 -- 113,500 ----------- ----------- ----------- ----------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 3,096,389 1,029,396 -- 4,125,785 NONINTEREST INCOME Computer center data processing fees 576,742 -- -- 576,742 Service charges on deposit accounts 129,409 34,729 -- 164,138 Security gains (losses), net 6,250 (35,000) -- (28,750) Other operating income 213,324 16,322 -- 229,646 ----------- ----------- ----------- ----------- Total noninterest income 925,725 16,051 -- 941,776 NONINTEREST EXPENSE Salaries, wages and benefits 1,419,562 264,552 -- 1,684,114 Net occupancy expense 142,763 20,891 -- 163,654 Equipment expense 178,624 12,471 -- 191,095 Federal deposit insurance premiums 7,705 3,875 -- 11,580 State franchise tax 109,058 45,012 -- 154,070 Professional fees 131,920 31,350 -- 163,270 Other operating expenses 772,565 101,106 -- 873,671 ----------- ----------- ----------- ----------- Total noninterest expense 2,762,197 479,257 -- 3,241,454 ----------- ----------- ----------- ----------- Income before taxes 1,259,917 566,190 -- 1,826,107 Income tax expense 348,302 127,000 -- 475,302 NET INCOME $ 911,615 $ 439,190 $ -- $ 1,350,805 =========== =========== =========== =========== Earnings per common share $ 0.30 $ 2.20 $ 0.32 =========== =========== =========== Weighted average shares outstanding 3,051,504 200,000 4,263,504 =========== =========== =========== 33 34 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 July 10, 1998 - ----------------------------------- --------------------- David A. Voight Date President & Chief Executive Officer 34