-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TmtMbfGxm7zBXcOuEkAHyngUPn3nkf6JAEFJ8JJL3l7DCi36b2HFJ0ZICNhSZnBl 4vHj3sIoDRRy4vRdo+d37g== 0000950132-98-000165.txt : 19980304 0000950132-98-000165.hdr.sgml : 19980304 ACCESSION NUMBER: 0000950132-98-000165 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980302 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CENTURY FINANCIAL CORP CENTRAL INDEX KEY: 0000820414 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 251553790 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-17416 FILM NUMBER: 98554585 BUSINESS ADDRESS: STREET 1: ONE CENTURY PL CITY: ROCHESTER STATE: PA ZIP: 15074 BUSINESS PHONE: 4127741872 MAIL ADDRESS: STREET 1: ONE CENTURY PLACE CITY: ROCHESTER STATE: PA ZIP: 15074 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to ___________ Commission File Number 0-17416 CENTURY FINANCIAL CORPORATION --------------------------------- (Exact name of registrant as specified in its charter) PENNSYLVANIA 25-1553790 ----------------- -------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) ONE CENTURY PLACE ROCHESTER, PENNSYLVANIA 15074 ---------------------------------- (Address of principal executive offices)(Zip code) (412) 774-1872 ------------------ (Registrant's telephone number, including area code) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Common Stock, par value $0.835 per share ---------------------------------------- (Title of each 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 is not contained herein, and will not be contained, to the best of the registrants 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 Common Stock held by nonaffiliates (based upon the closing sale price on the NASDAQ National Market System on February 20, 1998), was approximately $144,282,000. Number of shares of Registrant's common stock outstanding at February 20, 1998: 5,107,336. DOCUMENTS INCORPORATED BY REFERENCE None 1 CENTURY FINANCIAL CORPORATION FORM 10-K TABLE OF CONTENTS
PAGE NUMBER ------ PART I ITEM 1. Business 1-13 ITEM 2. 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 the Registrant's Common Stock and Related Stockholder Matters 14 ITEM 6. Selected Financial Data 15 ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 16-30 ITEM 7.A. Quantitative and Qualitative Disclosures About Market Risk 31 ITEM 8. Financial Statements and Supplementary Data 32-56 ITEM 9. Disagreements on Accounting and Financial Disclosure 57 PART III ITEM 10. Directors and Executive Officers of the Registrant 57-58 ITEM 11. Executive Compensation 59-62 ITEM 12. Security Ownership of Certain Beneficial Owners and 63 Management ITEM 13. Certain Relationships and Related Transactions 63 PART IV ITEM 14. Exhibits, Financial Statement Schedules and Reports on 65 Form 8-K Exhibit Index 65 Signatures 66-67
2 PART I ITEM 1. BUSINESS GENERAL ------- Century Financial Corporation (Corporation) is a Pennsylvania corporation and is registered under the Holding Company Act. The Corporation was organized in 1987 to be the holding company of Century National Bank and Trust Company (Century). The Corporation and its subsidiary derive substantially all their income from banking and bank - related services which includes interest earnings on commercial, commercial mortgage, residential real estate, and consumer loan financing as well as interest earnings on investment securities and deposit services to its customers. Century provides banking services to Southwestern Pennsylvania. In 1989, the Corporation acquired the Independent Bankers Computer Services (IBCS), a data processing center. Effective April 1, 1995, Independent Bankers Computer Services was dissolved and its operations integrated with Century National Bank and Trust Company. IBCS was not a significant segment of the Corporation's business. The Corporation is supervised by the Federal Reserve Board while Century is subject to regulation and supervision by the Office of the Comptroller of the Currency. Century National Bank and Trust Company was formed in 1973 as a result of the consolidation of the Union National Bank of New Brighton, New Brighton, Pennsylvania, and the Freedom National Bank, Freedom, Pennsylvania. In 1985, The National Bank of Beaver County, Monaca, Pennsylvania, and The First National Bank of Midland, Midland, Pennsylvania, were merged into Century. Each of these business combinations were accounted for as a pooling of interests. Century engages in full service commercial and consumer banking and trust services. Century provides services to its customers through its network of thirteen full service community branches which includes drive-in facilities. Century's services include accepting time, demand and savings deposits including NOW accounts, regular savings accounts, Money Market accounts, certificates of deposit, and club accounts. Its services also include commercial transactions either directly or through regional industrial development corporations, making construction and mortgage loans, and the renting of safe deposit facilities. Additional services include making residential mortgage loans, revolving credit loans with overdraft protection, small business loans, etc. Century's business loans include seasonal credit collateral loans, and term loans. During the five year period beginning in 1993 and ending in 1997, the Corporation's combined total assets have grown from approximately $318 million in 1993 to approximately $459 in 1997. Trust services provided by Century include services as executor and trustee under will and deeds, as guardian and custodian and as trustee and agent for pension, profit sharing and employee benefit trusts as well as various investment, pension and estate planning services. Trust services also include service as transfer agent and registrar of stock and bond issues and escrow agent. Century's primary business activities are heavily dependent upon the use of sophisticated computer systems. As the millennium ("year 2000" or "Y2K") approaches, many computer systems worldwide do not have the capability of recognizing the year 2000 or years thereafter. To date, Century has received confirmations from its primary vendors that plans have been developed by them to address and correct the issues associated with the year 2000 problem. Century has established a management committee to identify all of its functions potentially affected by the year 2000, and to ensure that re- programming of the affected systems will be completed by December 31, 1998, thus allowing adequate time for testing. Century does not anticipate that the year 2000 issue will pose any significant operational problems or will have any material impact on its results of operations. 3 GENERAL (CONTINUED) ------------------- As of December 31, 1997, Century had a total of 165 full-time employees and 46 who were part-time. SUPERVISION AND REGULATION -------------------------- The Corporation is subject to regulation under the Bank Holding Company Act of 1956, as amended (the Act), and the Securities and Exchange Commission. Century is subject to regulation and periodic examination by the Office of the Comptroller of the Currency. It is also subject to the rules and regulations of the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation. The Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA") was enacted on August 9, 1989. FIRREA has significantly affected the financial industry in several ways, including higher deposit insurance premiums, more stringent capital requirements and new investment limitations and restrictions. The Federal Deposit Insurance Corporation Act of 1991 ("The FDIC Improvement Act") covers a wide area of Banking regulatory issues. The FDIC Improvement Act deals with the capitalization of the Bank Insurance Fund (BIF), with deposit insurance reform, including requiring the FDIC to establish a risk-based premium assessment system, and with a number of other regulatory and supervisory matters. The FDIC refunded $193,000 to the Corporation in September, 1995 as a result of the FDIC lowering the insurance premium for bank institutions meeting certain capital requirements. In addition, the FDIC eliminated the premium for 1996, and for 1997, the Corporation's premium assessment was approximately 1.29 cents per $100 of insured deposits. The monetary policies of regulatory authorities, including the Federal Reserve Board, have a significant effect on the operating results of banks and bank holding companies. The nature of future monetary policies and the effect of such policies on the future business and earnings of the Corporation cannot be predicted. Management is not aware of any current recommendations by regulatory authorities which, if they were to be implemented, would have a material effect on the liquidity, capital resources or operations of the Corporation. COMPETITION ----------- All phases of Century's business are considered to be highly competitive. Century competes with other commercial banks and financial institutions, including savings and loan associations, savings banks, finance companies, credit unions and other providers of financial services, such as money market mutual funds, brokerage firms, credit companies and insurance companies. Century also competes with non-financial institutions such as retail stores that maintain their own credit programs and government agencies that make available low cost guaranteed loans to certain borrowers. Century competes in its market areas with a number of much larger financial institutions with greater resources and larger lending limits. Century's market area includes all of Beaver County, Pennsylvania, in addition to various communities in neighboring Butler County (Cranberry Township area). Century competes with local financial institutions with branches in the immediate area. Century considers its major competition to be Mellon Bank, N.A. and National City Bank of Pennsylvania, both headquartered in Pittsburgh, Pennsylvania along with First Western Bank, N.A., headquartered in New Castle, Pennsylvania. Century is generally competitive with all financial institutions in its service areas with respect to interest rates paid on time and savings deposits, service charges on deposit accounts and interest rates and fees charged on loans. 4 COMPETITION (CONTINUED) ----------------------- Century has a relatively stable deposit base and no material amount of deposits is obtained from a single depositor or group of depositors (including federal, state and local governments). Century has not experienced any significant seasonal fluctuations in the amount of its deposits. None of the Century's deposits are from outside of the United States. MARKET AREA ----------- Century has twelve community branches in Beaver County, Pennsylvania and one branch in Butler County, bordering Beaver County. The Corporation is headquartered in Rochester, Pennsylvania. Beaver County is approximately 25 miles northwest of Pittsburgh. The Beaver County area was once largely dependent on heavy industry manufacturing, primarily steel. Due to the nationwide recession in the early 1980's and competition from imported steel, the County experienced reduced employment which caused a severe recession. Beaver County has now moved to a more diversified economic base consisting of light industrial, high technology, educational and health related industries. Beaver County's largest employer is US Airways which operates its hub from the Pittsburgh International Airport. Other major employers include The Medical Center, Beaver County government, state government and Duquesne Light Company. STATISTICAL DISCLOSURES BY BANK HOLDING COMPANIES ------------------------------------------------- I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY; INTEREST RATES AND INTEREST DIFFERENTIAL Information required by this section is included under Part II, Item 7. - Management's Discussion and Analysis of Financial Condition and Results of Operations. II. INVESTMENT PORTFOLIO A. Book Value of Investment Portfolio The following table sets forth the carrying value of investments as of the dates indicated.
December 31, --------------------------------------------------- 1997 1996 1995 -------------- ------------- -------------- AVAILABLE FOR SALE U.S. Treasury securities $ 4,969 $ 7,231 $ 9,217 U.S. Government agency securities 23,941 18,224 25,271 Obligations of states and political subdivisions 14,178 14,829 20,847 Mortgage-backed securities and collateralized mortgage obligations 18,236 21,029 28,224 Other securities 3,988 8,540 12,925 Equity securities 1,407 1,299 1,207 -------------- ------------- -------------- Total $ 66,719 $ 71,152 $ 97,691 ============== ============= ==============
5 II. INVESTMENT PORTFOLIO (CONTINUED) B. Maturity and Yield Information The following table sets forth the maturity of investments at December 31, 1997, and the weighted average yields of such investments. The yields reflected are calculated on the basis of the cost and effective yields weighted for the scheduled maturity of each investment.
1 Year 5 Years Within 1 Through Through Over Amount Year 5 Years 10 Years 10 Years Total -------------- ---------- --------- ---------- ---------- ------- (Amounts in thousands) U.S. Treasury securities $ 2,002 $ 3,032 $ - $ - $ 5,034 U.S. Government agency securities 1,490 21,641 1,039 - 24,170 Obligations of states and political subdivisions 1,284 2,430 6,782 4,126 14,622 Mortgage-backed securities and collateralized mortgage obligations 1,533 4,328 4,552 7,977 18,390 Other securities 2,001 2,023 - - 4,024 Equity securities - - - 1,407 1,407 -------- -------- -------- -------- -------- Total $ 8,310 $ 33,454 $ 12,373 $ 13,510 $ 67,647 ======== ======== ======== ======== ======== Weighted Average Yield ----------------- U.S. Treasury securities 5.88% 6.09% - - U.S. Government agency securities 4.95% 6.86% 8.25% - Obligations of states and political subdivisions 7.48% 6.34% 5.98% 6.52% Mortgage-backed securities and collateralized mortgage obligations 6.35% 6.80% 6.20% 7.27% Other securities 7.85% 6.75% - - Equity securities - - - 6.33% -------- -------- -------- -------- Total 6.52% 6.74% 6.25% 6.94% ======== ======== ======== ========
Weighted average yields are computed on a tax equivalent basis using a federal tax rate of 34% based on cost, adjusted for amortization of premium or accretion discounted. C. Aggregate Book Value of Securities Exceeding 10% of Stockholders' Equity Excluding those holdings of the investment portfolio in U.S. Treasury securities and other agencies and corporations of the U.S. Government, there are no investments of any one issuer which exceeds 10% of the Corporation's shareholders' equity at December 31, 1997. 6 III. LOAN PORTFOLIO A. Types of Loans The following table presents the Corporation's loan classifications at the end of each of the last five years.
December 31, --------------------------------------------------------------------------------------------- 1997 1996 1995 1994 1993 -------------- ------------- ------------- -------------- ------------- (In thousands) Commercial, financial and agricultural $ 90,423 $ 78,666 $ 62,945 $ 44,514 $ 40,523 Real estate- construction 10,262 11,042 12,918 7,957 6,556 Real estate-mortgage 156,338 124,957 99,484 103,089 96,247 Installment loans to individuals 85,777 83,637 75,295 77,109 51,157 Tax exempt loans 23,838 20,385 15,509 10,456 13,963 ------------ ----------- ----------- ----------- ----------- 366,638 318,687 266,151 243,125 208,446 Less unearned income 12,717 10,677 8,539 7,859 5,389 ------------ ----------- ----------- ----------- ----------- Total $ 353,921 $ 308,010 $ 257,612 $ 235,266 $ 203,057 ============ =========== =========== =========== ===========
Century maintains a written lending policy requiring certain underwriting standards be met prior to funding any loan, including requirements for credit analysis, collateral value coverage, documentation and terms. The principal factor used to determine potential borrower's creditworthiness is business cash flows or consumer income available to service debt payments. Secondary sources of repayment, including collateral or guarantees, are frequently obtained. The Bank generally lends within the market areas served by the Bank's branches. Commercial loans are granted generally to small and middle market customers for operating, expansion or asset acquisition purposes. Operating cash flows of the business enterprise are identified as the principal source of repayment, with business assets held as collateral. Collateral margins and loan terms are based upon the purpose and structure of the transaction as set forth in the loan policy. Commercial real estate loans are granted for the acquisition or improvement of real property. Generally, commercial real estate loans do not exceed 80% of the appraised value of the property pledged to secure the transaction. Repayment of such loans are expected from the operations of the subject real estate and are carefully analyzed prior to approval. Real estate construction loans are granted for the purpose of construction improvements to real property, both commercial and residential. Real estate loans secured by 1-4 family residential housing properties are granted subject to statutory limits regarding the maximum percentage of appraised value of the mortgaged property. Residential loan terms are normally established in compliance with regulatory requirements. Residential mortgage portfolio interest rates are established based upon factors such as interest rates in general, the supply of money available to the bank and the demand for such loans. 7 III. LOAN PORTFOLIO (CONTINUED) A. Types of Loans (Continued) Loans to individuals represent financing extended to customers for personal or household purposes, including automobile financing, education, home improvement and personal expenditures. These loans are granted in the form of installment, indirect automobile loans, credit cards or revolving transactions. Consumer credit-worthiness is evaluated on the basis of ability to repay, stability of income sources and past credit history. B. Maturities and Sensitivities of Loans to Changes in Interest Rates The following table shows the maturity of commercial and real estate- construction loans outstanding as of December 31, 1997 and the amounts due after one year classified according to the sensitivity to changes in interest rates.
December 31, 1997 -------------------------------------------------------------- Maturing -------------------------------------------------------------- 1 Year Within Through After 1 Year 5 Years 5 Years Total ---------- --------- --------- --------- (In thousands) Commercial, financial and agricultural $ 20,095 $ 29,577 $ 40,751 $ 90,423 Real estate-construction 5,772 930 3,560 10,262 --------- --------- --------- --------- Total $ 25,867 $ 30,507 $ 44,311 $ 100,685 ========= ========= ========= ========= Sensitivity of loans to interest rates: Predetermined interest rates $ 23,690 $ 41,247 Floating interest rates 6,817 3,064 --------- --------- Total $ 30,507 $ 44,311 ========= =========
C. Risk Elements Non-performing assets include non-performing loans and other real estate owned. Non-performing loans consists of non-accrual loans, loans 90 days or more past due, and restructured loans. Non-accrual loans represent loans on which interest accruals have been discontinued and any previously accrued interest is reversed against current income. Restructured loans are loans with respect to which a borrower has been granted a concession on the interest rate or the original repayment terms because of financial difficulties. The Corporation's total non-performing assets, including any loans classified for regulatory purposes as loss, doubtful, substandard or special mention do not represent or result from trends or uncertainties which management reasonably expects will materially impact future operating results, liquidity or capital resources. Nor do they represent material credits about which management is aware of any information which causes management to have serious doubts as to the ability of borrowers to comply with loan repayment terms. 8 III. LOAN PORTFOLIO (CONTINUED) C. Risk Elements (Continued) The following table sets forth information regarding non-performing assets:
December 31, ------------------------------------------------------------------------------- 1997 1996 1995 1994 1993 ------------ ------------ ------------ ------------ ------------ (In thousands) Non-accrual loans $ 3,664 $ 872 $ 901 $ 1,317 $ 425 Loans past due 90 days or more 73 223 266 539 167 Restructured loans - - - - - ---------- ---------- --------- ----------- --------- Total non-performing loans 3,737 1,095 1,167 1,856 592 ---------- ---------- --------- ----------- --------- Other real estate owned - - - 18 402 ---------- ---------- --------- ----------- --------- Total non-performing assets $ 3,737 $ 1,095 $ 1,167 $ 1,874 $ 994 ========== ========== ========= =========== ========= Non-performing loans to total loans 1.06% 0.36% 0.45% 0.79% 0.29% Non-performing assets to total assets 0.82% 0.27% 0.31% 0.56% 0.31% Non-performing assets to allowance for loan loss 79.22% 33.86% 38.86% 58.45% 32.38%
While it is impossible to predict what 1998 loan losses will be, there are no potential problem loans outstanding at the end of any period presented for which there was serious doubt as to the ability of the borrower to comply with present loan repayment terms except as discussed above. 9 IV. SUMMARY OF LOAN LOSS EXPERIENCE A. Analysis of Loan Loss Experience The following table summarizes the Corporations loan loss experience for each of the five years presented.
December 31, ------------------------------------------------------------------------------- 1997 1996 1995 1994 1993 ------------ ------------ ------------ ------------ ------------ (Dollars In Thousands) Balance, at January 1, $ 3,234 $ 3,003 $ 3,206 $ 3,070 $ 2,472 Charge-offs: Commercial loans 72 68 - 1 26 Real estate mortgages - - 49 - 3 Installment loans 607 399 426 175 129 ----------- ---------- ----------- ---------- ---------- Total charge-offs 679 467 475 176 158 ----------- ---------- ----------- ---------- ---------- Recoveries: Commercial loans 29 20 4 10 98 Real estate mortgages 3 2 7 - - Installment loans 60 51 21 32 33 ----------- ---------- ----------- ---------- ---------- Total recoveries 92 73 32 42 131 ----------- ---------- ----------- ---------- ---------- Net charge-offs 587 394 443 134 27 ----------- ---------- ----------- ---------- ---------- Provision charged to operations 2,070 625 240 270 625 ----------- ---------- ----------- ---------- ---------- Balance, at December 31, $ 4,717 $ 3,234 $ 3,003 $ 3,206 $ 3,070 =========== =========== =========== ========== ========== Net charge-offs as a percent of average loans, net of unearned 0.17% 0.14% 0.18% 0.06% 0.01% =========== =========== =========== ========== ==========
The Corporation believes that the allowance for loan losses at December 31, 1997 is adequate to cover losses inherent in the portfolio as of such date. However, there can be no assurance that the Corporation will not sustain additional losses in future periods, which could be substantial in relation to the size of the allowance at December 31, 1997. B. Allocation of the Allowance for Loan Losses The allocation of the allowance for loan losses is based upon Management's periodic and systematic review and evaluation of individual loans, overall risk characteristics of potential credit concentrations, past experience with losses, the impact of economic conditions on borrowers, and risk elements associated with particular loan categories. The allowance for loan loss is available to absorb credit losses arising from individual or portfolio segments. When losses on specific loans are identified, Management charges off the portion deemed uncollectible. 10 IV. SUMMARY OF LOAN LOSS EXPERIENCE (CONTINUED) B. Allocation of the Allowance for Loan Losses (Continued) Century monitors its loan portfolio on a monthly basis and assesses a detailed analysis of delinquencies, non-performing assets and potential problem loans. The adequacy of the allowance for loan losses is determined by management considering such factors as the risk classification of loans, delinquency trends, charge-off experience, credit concentrations, economic conditions and other relevant factors. Specific reserves are established for each classified credit taking into consideration the credit's delinquency status, current operating status, pledged collateral and plan of action for resolving any deficiencies. All credit relationships in excess of $250,000 are reviewed by management and the executive committee of Century's Board of Directors on an annual basis. In addition, loan relationships in excess of $250,000, rated substandard or lower are reviewed on a quarterly basis and evaluated for the adequacy of payment histories, any changes in collateral and exposure, if any, is specifically reserved for. All special mention loans are pooled and a reserve is determined. All other homogeneous loan pools such as consumer installment loans, cash reserve, 1-4 family mortgage loans and unfunded commitments are pooled and the adequacy of the reserve is determined. The following table shows the allocation of the allowance for loan losses for each of the last five years:
December 31, ----------------------------------------------------------------------- 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- (In thousands) Commercial, financial and agricultural $ 2,025 $ 1,010 $ 720 $ 859 $ 813 Real estate- construction - - - - - Real estate-mortgage 851 641 521 582 507 Installment loans to individuals 955 815 733 751 502 Unallocated 886 768 1,029 1,014 1,248 ----------- ----------- ----------- ----------- ----------- Total $ 4,717 $ 3,234 $ 3,003 $ 3,206 $ 3,070 =========== =========== =========== =========== ===========
The following table shows the percentage of loans in each category to total loans for each of the last five years:
December 31, ----------------------------------------------------------------------- 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- Commercial, financial and agricultural 31.2% 31.1% 29.5% 22.6% 26.1% Real estate- construction 2.8% 3.5% 4.9% 3.3% 3.1% Real estate-mortgage 42.6% 39.2% 37.4% 42.4% 46.2% Installment loans to individuals 23.4% 26.2% 28.2% 31.7% 24.6% ----------- ----------- ----------- ----------- ----------- Total 100.0% 100.0% 100.0% 100.0% 100.0% =========== =========== =========== =========== ===========
11 V. DEPOSITS A. Average Deposits and Rates Paid by Type The following tables summarize the daily average amount of deposits and rates paid on such deposits for the periods indicated.
Year Ended December 31, -------------------------------------------------- 1997 1996 1995 -------------- ------------- ------------- (Amounts in thousands) Amount --------------------------------------- Noninterest-bearing demand deposits $ 44,059 $ 41,157 $ 40,079 Interest-bearing demand deposits 35,792 34,567 31,518 Savings deposits 33,180 34,972 37,483 Money market 57,877 49,304 49,178 Time deposits 210,947 178,167 165,474 -------------- ------------- ------------- Total $ 381,855 $ 338,167 $ 323,732 ============== ============= ============= Rate --------------------------------------- Noninterest-bearing demand deposits - - - Interest-bearing demand deposits 0.96% 0.97% 0.96% Savings deposits 1.99% 2.02% 2.05% Money market 3.22% 2.28% 2.29% Time deposits 6.36% 6.11% 6.06%
B. Maturities of Time Deposits of $100,000 or More The following table sets forth the remaining maturity of time certificates of deposits of $100,000 or more at December 31, 1997.
December 31, 1997 -------------- (In thousands) 3 months or less $ 2,687 Over 3 through 6 months 21,161 Over 6 through 12 months 3,387 Over 12 months 11,074 -------------- Total $ 38,309 ==============
12 VI. RETURN ON EQUITY AND ASSETS The following table sets forth the operating and capital ratios for the periods indicated:
1997 1996 1995 -------------- ------------- ----------- Return on average assets 0.96% 1.26% 1.18% Return on average equity 11.85% 15.00% 14.48% Dividend payout ratio 50.40% 38.47% 41.94% Equity to assets ratio 8.10% 8.41% 8.13%
VII. SHORT-TERM BORROWINGS The required information is presented under Part II, Item 8. - Financial Statements and Supplementary Data. ITEM 2. PROPERTIES The Corporation's executive offices are located at One Century Place, Rochester, Pennsylvania, in a building owned by Century and which also contains Century's main office. In addition, Century owns eight other properties in Beaver County, Pennsylvania, and one property in Butler County, Pennsylvania all of which are used as a branch facility, at the following locations: 2522 Darlington Road, Beaver Falls; Third Avenue Freedom; Seventh Street and Midland Avenue, Midland; 1001 Pennsylvania Avenue, Monaca; Third Avenue, New Brighton; 800 Brodhead Road, Aliquippa; 700 Merchant Street, Ambridge; 716 Fourteenth Street, Beaver Falls; and Rt 19 and Cranberry Square, Mars. Century leases three additional properties located at: 613 Beaver Valley Mall, Monaca; Northern Lights Shoppers City, Baden; and Third Avenue and Buffalo Street, Beaver. All facilities and equipment are periodically appraised for insurance purposes and Management asserts that all properties are adequately insured. ITEM 3. LEGAL PROCEEDINGS The required information is presented under Part II, Item 8. - Financial Statements and Supplementary Data. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of 1997. 13 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED MATTERS Century Financial Corporation's common stock is traded on the Nasdaq National Market tier of The Nasdaq Stock Market under the Symbol: "CYFN." Prior to June 3, 1996, the Corporation's stock was not listed on an organized exchange. At December 31, 1997, the Corporation had approximately 1,100 shareholders of record. The following tables set forth the high and low market prices for the periods indicated: Stock Prices:
1997 High Low ------------------ -------------- ------------- First quarter $ 12.17 $ 10.58 Second Quarter 17.00 14.25 Third Quarter 18.00 15.38 Fourth Quarter 30.88 16.25 1996 High Low ------------------ -------------- ------------- First quarter $ 9.59 $ 9.00 Second Quarter 12.00 10.50 Third Quarter 11.67 10.67 Fourth Quarter 11.33 10.25 Dividends Declared: 1997 ------------------ First quarter $ 0.10 Second Quarter 0.11 Third Quarter 0.11 Fourth Quarter 0.11 -------------- Total $ 0.43 ============== 1996 ------------------ First quarter $ 0.09 Second Quarter 0.10 Third Quarter 0.10 Fourth Quarter 0.10 -------------- Total $ 0.39 ==============
All stock prices and dividends have been restated to reflect a three-for- two stock split paid in May 1997. 14 ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected financial data for the periods indicated.
Year Ended December 31, ----------------------------------------------------------------------------------------- 1997 1996 1995 1994 1993 ------------------ --------------- -------------- ------------- ------------- Summary of Earnings -------------------------- Interest income $ 34,642 $ 30,564 $ 27,685 $ 23,302 $ 22,368 Interest expense 17,246 13,866 12,625 9,454 9,331 ------------------ --------------- -------------- ------------- ------------- Net interest income 17,396 16,698 15,060 13,848 13,037 Provision for loan losses 2,070 625 240 270 625 ------------------ --------------- -------------- ------------- ------------- Net interest income after provision for loan losses 15,326 16,073 14,820 13,578 12,412 Other income 3,158 2,716 2,574 2,739 2,293 Other expenses 13,394 12,613 11,740 11,516 10,819 ------------------ --------------- -------------- ------------- ------------- Income before income taxes 5,090 6,176 5,654 4,801 3,886 Income taxes 868 1,270 1,386 1,120 539 ------------------ --------------- -------------- ------------- ------------- Net income $ 4,222 $ 4,906 $ 4,268 $ 3,681 $ 3,347 ================== =============== ============== ============= ============= Per Share Data (1) -------------------------- Basic earnings per share $ 0.83 $ 0.97 $ 0.84 $ 0.73 $ 0.66 Diluted earnings per share 0.82 0.96 0.84 0.73 0.66 Dividends declared 0.43 0.39 0.37 0.27 0.25 Book value per share at period end 7.21 6.75 6.27 5.48 5.15 Average shares outstanding: Basic 5,065,901 5,054,070 5,059,983 5,046,659 5,043,425 Diluted 5,139,955 5,090,899 5,070,242 5,056,096 5,047,889 Balance Sheet Data -------------------------- (at end of period) Assets $ 458,532 $ 412,858 $ 376,989 $ 331,780 $ 317,936 Deposits 392,926 363,394 328,325 298,039 285,395 Loans, net of unearned income 353,921 308,010 257,612 235,266 203,057 Allowance for loan losses 4,717 3,234 3,003 3,206 3,070 Investment securities - - - 38,213 80,989 Investment securities available for sale 67,647 71,873 99,052 38,672 - Stockholders' equity 36,708 34,036 31,742 27,656 25,962
(1) Per share amounts have been restated, giving effect for a six-for-five stock split declared April 21, 1993, a six-for-five stock split declared December 15, 1994 and a three-for-two split declared April 28, 1997. 15 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (In thousands, except shares and per share data) Summary of Financial Condition - ------------------------------ The consolidated assets of Century Financial Corporation were $458,532 at December 31, 1997, an increase of $45,674 or 11.1% over assets at December 31, 1996. Contributing to 1997's asset growth was an increase in net loans receivable offset by a reduction in investment securities available for sale. The increase in net loans receivable was a result of a strong increase in loan demand during 1997, with much of the growth being funded by a combination of assets and liability sources consisting of maturing investment securities, deposits and Federal Home Loan Bank borrowings. Total earning assets which principally include loans, investment securities and federal funds sold equaled $434,448 at December 31, 1997 and represented an increase of $45,432 or 11.7% over total earning assets at December 31, 1996. Average earning assets equaled 95.0% of total average assets at year-end for 1997 compared to 95.1% at year-end 1996. The composition of average earning assets changed moderately from 1996 to 1997, with loans and securities comprising 81.0% and 16.7% of average earning assets, respectively, in 1997 compared to 76.0% and 23.2%, respectively, at year-end 1996. Total consolidated liabilities increased by $43,002 or 11.4% when compared to total consolidated liabilities as of December 31, 1996. The increase in total liabilities is attributable to an increase in total deposits and total borrowings. Investment Securities Available for Sale - ---------------------------------------- The investment securities available for sale portfolio serves a primary role in the overall context of balance sheet management by the Corporation. The decision to purchase or sell securities is based upon the current assessment of economic and financial conditions, including the interest rate environment and other on and off-balance sheet positions. The portfolio's scheduled maturities and the expected cash flows from the mortgage-backed securities represent an additional source of liquidity for the Corporation. The investment portfolio consists primarily of U.S. Treasury and Agency securities, various types of mortgage-backed securities and collaterilized mortgage obligations. At December 31, 1997 the Corporation's investment portfolio was $67,647 versus $71,873 at December 31, 1996, a $4,226 or 5.9% decrease. During 1997, scheduled maturities and principal repayments totaled $23,358 and were used primarily to fund higher earning loan growth occurring during the same period, offset by purchases of $18,936. 16 Loans - ----- Loans, net of unearned income, grew considerably in 1997, increasing by $45,911 or 14.9%. At December 31, 1997, loans represented 81.5% of total earning assets compared to 79.3% at December 31, 1996. The increase in the loan portfolio occurred mostly in commercial and real estate mortgage loans which increased $11,757 or 15.0% and $31,381 or 25.1%, respectively. The result of this growth was due to an overall increase in loan demand, which relates in part to an improving local economy and greater consumer confidence, and to a greater extent, a result of Management's on-going emphasis to manage the net interest margin by generating higher yielding assets, particularly high-quality commercial loans. To support this effort, Century hired additional Business Development Officers whose primary role is to focus on generating lending activity in conjunction with developing other new business in southwestern Pennsylvania. Deposits - -------- Deposits continue to be Century's primary source for funding its earning assets. Century offers a wide variety of products designed to attract and retain its customers, with a primary focus on core deposits. Total deposits increased $29,532 or 8.1% when compared to total deposits at December 31, 1996. Noninterest and interest-bearing demand deposits increased $6,035 or 14.4% and $2,511 or 7.4%, respectively. Savings remained relatively unchanged while money market accounts decreased $7,934 or 13.1%. The Corporation's growth occurred mostly in time deposits which increased $29,267 or 15.1%. The growth in time deposits is a result of Century conducting several deposit promotions during 1997 of specific terms to support its asset-liability and growth goals. Additionally, this was indicative of trends throughout the industry, which has seen over the past several years, consumers becoming more and more yield conscious. Borrowings - ---------- Century from time to time uses various funding sources other than deposits to provide the funds necessary for the loan and investment securities portfolios. Total borrowings at December 31, 1997 increased $13,000 or 118.2% when compared to December 31, 1996. Short term and other borrowings at December 31, 1997 and 1996 consisted solely of borrowings from the Federal Home Loan Bank of Pittsburgh which were used primarily as sources of funds for 1997 and 1996 loan growth. Summary of Earnings - ------------------- The Corporation's 1997 net income was $4,222, a decrease of $684, or 13.9%, from 1996's net income of $4,906. Basic earnings per share for 1997 were $0.83, compared to $0.97 in 1996 (after being adjusted for the three-for-two stock split paid in May of 1997 and the implementation of Financial Accounting Standards Statement No. 128, Earnings Per Share). Diluted earnings per share were $0.82 in 1997, compared to $0.96 in 1996. The decrease in net income for 1997 was mostly attributable to an increase in the provision for loan losses charged to operations in 1997, which exceeded 1996's total loan loss provision by $1,445. Net income for 1996 when compared to 1995's net income of $4,268 increased by $638 or 15.0%. Basic and diluted earnings per share for 1995, also restated for the 1997 stock split and the implementation of FASB 128, was $0.84. The increase in net income and earnings per share for the 1996 period was a result of a strong increase in net interest income, offset by a lessor increase in noninterest expenses. 17 Summary of Earnings (Continued) - ------------------------------- Key industry performance ratios, return on average equity and return on average assets were, 11.85% and .96% in 1997, 15.0% and 1.26% in 1996, and 14.48% and 1.18% in 1995, respectively. Interest Income - --------------- Total interest income for 1997 increased $4,078 or 13.3% when compared to fiscal 1996. This increase was due to average earning assets increasing $47,429 or 12.8% over 1996's balance, as well as a slight increase in the yield earned on these assets. Total interest income for 1996 increased $2,879 or 10.4% over 1995 as a result of an increase in both the total balance of outstanding earning assets and the yield earned on these assets. Interest income on loans increased $4,684 or 18.8% during 1997 when compared to 1996. This increase was a result of a $56,747 or 20.2% increase in the average loan balance outstanding during the 1997 period, offset by a slight decrease in the yield earned. Interest income on loans for 1996 increased $3,127 or 14.3% which was a result of increases in the average balance outstanding and the yield earned. Interest income earned on investment securities decreased in 1997 by $969 or 17.7% and $179 or 3.2% in 1996, when compared to the prior year periods. These decreases were mostly a result of a decrease in the average balances outstanding for 1996 and 1997. The decrease in these portfolio balances for the periods indicated are a result of Century concentrating on it's net interest margin by funding higher earning loan growth with lower earning maturing investment securities. Interest Expense - ---------------- Total interest expense increased $3,380 or 24.4% in 1997 compared to 1996. This increase was due to a $44,464 or 14.3% increase in the average balance of total interest-bearing liabilities outstanding during 1997 as well as an increase of 40 basis points on the average rate paid on these funds. Total interest expense for 1996 increased $1,241 or 9.8% as a result of an increase of $21,408 or 7.4% in the average balance outstanding in 1996 over 1995 as well as an increase in the rate paid during the same period. Interest expense on deposits for 1997 increased $3,232 or 24.8% over 1996's interest expense due to a $40,786 or 13.7% increase in total average interest- bearing deposits outstanding in 1997 as well as an increase on the rate paid on these deposits during the same period. The increase in the balances and rates paid on deposits in 1997 was due, in part, from Century conducting several successfully aggressive deposit promotions throughout 1997. The bank continues to see greater competition and demand for local deposits, which is consequently resulting in paying higher rates for deposits. Interest expense on deposits for 1996 increased $820 or 6.7% when compared to fiscal 1996 and was due to increases in both the average balance of deposits outstanding and the rate paid. 18 Interest Expense (Continued) - --------------------------- Interest expense on total borrowings increased $148 or 18.2% in 1997 when compared to 1996. This increase was due to an increase of $3,678 or 26.7% in the average balance of borrowed funds outstanding, as well as an increase of 39 basis points in the rate paid on these funds. Interest expense on total borrowings for 1996 increased $421 or 107.7% over 1995 and was also due to an increase in the average balance of borrowed funds outstanding during the period, offset by a decrease in the rate paid. Proceeds from these increases were used to partially help fund the strong loan growth occurring during the same periods. The increase in the 1996 average balance outstanding was offset by a decrease of $1,500 in matured subordinated notes previously issued by the bank. Net Interest Income - ------------------- Net interest income is the amount that interest income generated by earning assets, including securities and loans, exceeds interest expense associated with interest-bearing liabilities, including deposits and other borrowed funds. Net interest income is the principal source of the Corporations' earnings. Interest rate fluctuations, as well as changes in the amounts and type of earning assets and interest-bearing liabilities combine to effect net interest income. Net interest income for 1997 totaled $17,396, an increase of $698, or 4.2%, over 1996. Net interest income for 1996 was $16,698, representing a $1,638 or 10.9% increase over 1995's level. The increase in net interest income for both 1997 and 1996 was the result of an increase in both Century's average earnings assets and the yield earned on these assets, offset by lessor increases in the average balance and rates paid on interest bearing-liabilities. Interest on loans to and investments in securities of states and political subdivisions are not fully subject to federal income tax. As such, the pretax yields stated on these assets are lower than taxable assets of similar risk and maturity. Therefore, it is also meaningful to analyze net interest income on a tax equivalent basis. The tax equivalent adjustment is based on the federal corporate income tax rate of 34%. Net interest income on a tax equivalent basis increased $918, or 5.1%, in 1997 and $1,954, or 12.2%, in 1996. The following table illustrates the increases over the last three years in actual and tax equivalent net interest income:
Year Ended December 31, 1997 1996 1995 ---- ---- ---- Net interest income, actual $17,396 $16,698 $15,060 Tax equivalent adjustment 1,554 1,334 1,018 ------- ------- ------- Tax equivalent net interest income $18,950 $18,032 $16,078 ======= ======= ======= Increase in actual net interest income $ 698 $ 1,638 $ 1,212 Percentage increase 4.2% 10.9% 8.8% Increase in tax equivalent net interest income $ 918 $ 1,954 $ 1,351 Percentage increase 5.1% 12.2% 9.2%
19 Net Interest Income (Continued) - ------------------------------ Net interest margin is equal to net interest income on a tax equivalent basis divided by average earning assets. It is affected by changes in the level of earning assets, the proportion of earning assets funded by noninterest-bearing liabilities and interest rate spread. The table that follows illustrates that the net interest margin was 4.54% in 1997 compared to 4.87% in 1996 and 4.68% in 1995. The decrease in the margin in 1997 was due mostly to an increase of 40 basis points on the rate paid on interest-bearing liabilities, offset by a slight increase in the yield earned on earning assets. The increase in the rate paid on interest-bearing liabilities for 1997 is mostly due from the increase paid on deposits rates. Deposit rates increased as a result of increased competition and the Corporation's need to generate additional deposit growth. The increase in the net interest margin for 1996 was due to an increase of 27 basis points on the yield earned on earning assets offset by an increase of 10 basis points on the rate paid on interest-bearing liabilities. The mix of earning assets continued to change in 1997 as higher yielding average loans outstanding increased and investment securities decreased. 20 Average Balances and Average Yields - ----------------------------------- The following table sets forth certain information relating to the Corporation's average balance sheets and statements of income for the years ended December 31, 1997, 1996 and 1995, and reflects the average yield on assets and average cost of liabilities for the periods indicated. Such yields and costs are derived by dividing income or expense by the average daily balance of assets or liabilities, respectively, for the periods shown.
For the year ended ---------------------------------------------------------------------------------------------- 1997 1996 1995 ---------------------------- --------------------------- --------------------------- Average Average Average Average Yield/ Average Yield/ Average Yield/ Balance Interest Rate Balance Interest Rate Balance Interest Rate ------- -------- ------- ------- -------- ------- ------- -------- ------- Interest -earning assets: Federal funds sold $ 9,602 $ 528 5.50% $ 3,115 $ 165 5.30% $ 3,923 $ 234 5.96% Taxable investment securities 58,085 3,848 6.63% 73,215 4,785 6.54% 81,445 5,012 6.15% Non taxable investment securities (2) 11,835 983 8.31% 12,510 1,032 8.25% 11,985 959 8.00% Loans (1)(2) 338,145 30,837 9.12% 281,398 25,916 9.21% 246,379 22,498 9.13% ------- -------- ------- ------- -------- ------- ------- -------- ------- Total interest-earning assets 417,667 36,196 8.67% 370,238 31,898 8.62% 343,732 28,703 8.35% Non interest-earning assets 22,123 -------- 18,921 -------- 18,979 -------- ------- ------- ------- Total assets $ 439,790 $ 389,159 $ 362,711 ======= ======= ======= Interest-bearing liabilities: Now accounts $ 35,792 343 0.96% $ 34,567 334 0.97% $ 31,518 303 0.96% Money Market accounts 57,877 1,862 3.22% 49,304 1,122 2.28% 49,178 1,127 2.29% Savings deposits 33,180 661 1.99% 34,972 708 2.02% 37,483 770 2.05% Time deposits 210,947 13,420 6.36% 178,167 10,890 6.11% 165,474 10,034 6.06% Short term borrowings 7,099 399 5.62% 9,388 494 5.26% 2,491 148 5.94% Other borrowings 10,321 561 5.44% 4,354 318 7.30% 3,200 243 7.59% ------- -------- ------- ------- -------- ------- ------- -------- ------- Total interest-bearing liabilities 355,216 17,246 4.86 310,752 13,866 4.46% 289,344 12,625 4.36% -------- -------- -------- Non interest-bearing liabilities 49,114 45,698 43,889 Stockholders' equity 35,460 32,709 29,478 ------- ------- ------- Total liabilities and stockholders' equity $ 439,790 $ 389,159 $ 362,711 ======= ======= ======= Net earning assets $ 62,451 $ 59,486 $ 54,388 ======= ======= ======= Net interest income $ 18,950 $ 18,032 $ 16,078 ====== ====== ====== Net interest spread (3) 3.81% 4.16% 3.99% ===== ===== ===== Net interest margin (4) 4.54% 4.87% 4.68% ===== ===== =====
(1) For the purpose of these computations, non-accrual loans are included in the daily average loan amounts outstanding and interest on loans includes fee income. (2) Yields are computed on a tax equivalent basis using a 34% federal income tax rate. (3) Net interest rate spread represents the difference between the average yield on interest-earning yield assets, and the average cost of interest-bearing liabilities. (4) Net interest margin is calculated by dividing the difference between total interest earned and total paid by total interest earning assets. 21 Rate/Volume Analysis - -------------------- The following table presents the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities have affected the Corporation's interest income and interest expense during the periods indicated. Information is provided in each category with respect to (i) changes attributable to changes in volume (changes in volume multiplied by prior rate), (ii) changes attributable to changes in rate (changes in rate multiplied by prior volume) and (iii) the changes attributable to the combined impact of volume and rate. The change in interest rate due to both rate and volume in the rate/volume analysis table have been allocated to changes due to rate and volume in proportion to the absolute amounts of the changes in each.
For the year ended December 31, For the year ended December 31, 1997 vs 1996 1996 vs 1995 ------------------------------------------ ----------------------------------------- Increase (Decrease) due to: Increase (Decrease) due to: ------------------------------------------ ----------------------------------------- Total Total Increase Increase Volume Rate (Decrease) Volume Rate (Decrease) ---------- ---------- ---------- ---------- ---------- ---------- Interest-earning assets: Federal funds sold $ 356 $ 7 $ 363 $ (44) $ (25) $ (69) Taxable investment securities (1,004) 67 (937) (580) 353 (227) Non taxable investment securities (1) (56) 8 (48) 43 30 73 Loans (1) 5,172 (250) 4,922 3,223 195 3,418 ---------- ---------- ---------- ---------- ---------- ---------- Total interest-earning assets 4,468 (168) 4,300 2,642 553 3,195 ---------- ---------- ---------- ---------- ---------- ---------- Interest-bearing liabilities: NOW accounts 12 (3) 9 30 3 33 Money Market accounts 217 523 740 3 (5) (2) Savings deposits (36) (10) (46) (51) (11) (62) Time deposits 2,068 463 2,531 775 76 851 Short term borrowings (131) 36 (95) 354 (8) 346 Other Borrowings 237 6 243 84 (9) 75 ---------- ---------- ---------- ---------- ---------- ---------- Total interest-bearing liabilities 2,367 1,015 3,382 1,195 46 1,241 ---------- ---------- ---------- ---------- ---------- ---------- Net change in net interest income $ 2,101 $ (1,183) $ 918 $ 1,447 $ 507 $ 1,954 ========== ========== ========== ========== ========== ==========
(1) Computed on a tax equivalent basis using a 34% federal income tax rate. 22 Provision and Allowance for Loan Losses - --------------------------------------- The current expense reflecting expected credit losses is called the provision for loan losses on the Consolidated Statements of Income. Actual losses on loans are charged against the allowance for loan losses, which is a reserve built up on the Consolidated Balance Sheets. These losses are referred to as charge-offs and, after netting out recoveries on previously charged-off assets, become net charge-offs. The Corporation's policy is to charge off loans when, in Management's opinion, the collection of loan principal is in doubt. All loans charged off are subject to continuous review and concerted efforts are made to maximize the recovery of charged-off loans. In order to determine the adequacy of the allowance for loan losses, Management considers the risk classification of loans, delinquency trends, charge-off experience, credit concentrations, economic conditions and other relevant factors. Specific reserves are established for each classified credit taking into consideration the credit's delinquency status, current operating status, pledged collateral and plan of action for resolving any deficiencies. All credit relationships in excess of $250,000 are reviewed by management and the executive committee of Century's Board of Directors on an annual basis. In addition, loan relationships in excess of $250,000, and any loans rated substandard or lower are reviewed on a quarterly basis and evaluated for the adequacy of payment histories, any changes in collateral and loss exposure, if any, is specifically reserved for. All special mention loans are pooled and a reserve is determined. All homogeneous loans such as consumer installment loans, cash reserve, 1-4 family mortgage loans and unfunded commitments are pooled and the adequacy of the reserve is determined. The allowance is maintained at a level determined according to this methodology by charging the provision to operations. The provision for loan losses charged to operations in 1997 was $2,070 compared to $625 and $240 charged in the 1996 and 1995 periods, respectively. Actual losses, net of recoveries, were $587 in 1997, $394 in 1996 and $443 in 1995. Net charge-offs as a percentage of the balance of the allowance for loan losses at the beginning of the year was 18.2% in 1997, 13.1% in 1996 and 13.8% in 1995. Total non-performing loans totaled $3,737 at December 31, 1997 compared to $1,095 and $1,167 at the end of the 1996 and 1995 periods, respectively. Total non-performing loans measured as a percentage of the allowance for loan losses at the beginning of the year was 115.5% in 1997, 36.5% in 1996 and 36.4% in 1995. As a result of the increase in 1997's net charge-offs and total non- performing loans, and other principal factors such as the significant loan growth occurring in the 1997 and 1996 periods and Management's continual analysis of the adequacy of the allowance for loan losses, the provision for loan losses charged to operations in 1997 increased by $1,445 or 231.2% to $2,070 from $625 in 1996. As a result of the increase in the provision, actual net charge-offs, when measured as a percentage of the allowance for loan losses at the end of the year was 12.4% in 1997, compared to 12.2% and 14.8% for 1996 and 1995, respectively. The increase in the provision for loan loss charged to operations in 1996 when compared to 1995 was attributable to the increase in actual charge-offs and the increase in the loan portfolio balance during the same period. Century's allowance for loan losses increased at year-end 1997 to $4,717 from $3,234 at December 31,1996, representing an increase of $1,483 or 45.9%. At December 31, 1997, the allowance represented 1.33% of loans, net of unearned income and 126% of total non-performing assets. This compares to 1.05% of loans, net of unearned income, and 295% of total non-performing assets at the end of 1996. 23 Provision for Loan Losses (Continued) - ------------------------------------ The Corporation believes that the allowance for loan losses at December 31, 1997 of $4,717 is adequate to cover losses inherent in the portfolio as of such date. However, there can be no assurance that the Corporation will not sustain losses in future periods, which could be substantial in relation to the size of the allowance at December 31,1997. Noninterest Income - ------------------ Total noninterest income increased $443 or 16.3% in 1997 compared to 1996. It increased $142, or 5.5%, in 1996 compared to 1995. The increase in 1997 was mainly due to increases in income from Trust Department operations, other income and service fees on deposit accounts. 1996's increase was also a result of increased fees from Trust Department operations and other income, but was offset by a decrease in service charges on deposit accounts. Service charges on deposit accounts increased $24 or 1.7% in 1997 and decreased $48 or 3.2% in 1996. The increase in 1997 was mainly due to moderate increases on service fees charged to customers in 1997 as well as an increase in the number of deposit accounts outstanding. The decrease in service charges on deposits in 1996 was mostly attributable to depositors taking advantage of the opportunity to avoid service charges on their accounts by switching between deposit products or increasing their minimum balances. Trust income increased $179, or 22.4%, in 1997, after increasing $128, or 19.0%, in 1996. This increased income was attributable to both new accounts and increased values in existing accounts during 1997, 1996 and 1995. Other noninterest income increased $241 or 51.7%, in 1997, compared to a $47 or 11.2% increase in 1996. The increase in 1997 was mostly due to an increase in ATM related fees, particularly interchange fees from Century's MasterMoney debit cards and ATM transactions for non-customers, which increased $167. Also contributing to the 1997 increase was a $36 gain from the sale of a former branch building which was sold in the fourth quarter of 1997, and to a lessor extent, a one-time recovery of $15 received in early 1997 relating to physical damages occurring at a branch facility. The increase for 1996 was mostly related to increases in debit card and ATM related transactions. These increases were offset by a gain recognized in 1995 from the sale of other real estate owned. Noninterest Expense - ------------------- Total noninterest expense increased $782, or 6.2%, in 1997 and $873, or 7.4%, in 1996. The major components of these increase were in salaries and employee benefits, other noninterest expenses and net occupancy and equipment expenses. While total noninterest expense for 1997 and 1996 increased 6.2% and 7.4%, respectively, Century's efficiency ratio, which measures the portion of tax equivalent net interest income plus noninterest revenue consumed by noninterest expense, remained relatively unchanged from 60.8% in 1995 to 60.5% in 1997. 24 Noninterest Expense (Continued) - ------------------------------ Total employee compensation, including salaries, wages and benefits increased $117 or 1.7% in 1997. Salaries and wages increased $338 or 7.1% when compared to 1996. On a per employee basis, salaries and wages increased 4.3% due to merit increases, with the remaining portion of the increase attributable to increases in staffing levels. These increases were offset by an overall decrease in employee benefits expense, particularly the pension and profit sharing plans. The pension plan expense is based on factors such as the actual return generated within the plan, service costs and projected benefit obligations. The profit sharing plan consists of contributions made to the plan based on the profitability of the company, but under certain circumstances, is limited by IRS regulations. Salaries and employee benefits for 1996 increased as a result of increases in compensation expense relating to merit increases and increases in staffing levels. Net occupancy expense in 1997 increased $47 or 4.4% compared to an increase of $38, or 3.7%, in 1996. The increase in net occupancy expense during 1997 was mostly due to increases in building taxes and an overall general increase in building related expenses. Also contributing to the 1997 increase, was the additional cost associated with the opening of a new branch facility in late 1997. The increase in 1996 was due to increases in building maintenance agreements and overall building related expenses. Equipment expense increased $24 or 2.3%, and $105 or 11.4%, for both 1997 and 1996, respectively. Equipment expense for 1997 remained relatively stable while the increase in 1996 was attributable to the upgrading of computer related equipment, including the implementation of a new wide area PC network, the addition of new personal computers, and the purchase of a new mainframe computer system. The FDIC deposit insurance premium expense for 1997 increased $43 in 1997 and decreased by $345 in 1996. The decrease for 1996 was a result of the elimination of the premium rate paid on funds that are insured by the Bank Insurance Fund (BIF) for institutions with strong capital levels and supervisory ratings and the overcapitalization of the BIF fund. For 1997, the FDIC deposit insurance premium rate was increased, resulting in an increase in the Corporation's deposit premium insurance expense. Other expenses increased $551, or 14.5%, in 1997 and $317 or 9.1% in 1996. The increase in 1997 was due to: (1) expenses relating to the pending merger that was announced in late 1997. Costs associated with the merger for 1997 include professional and advisory fees, accounting fees and employee related meetings. The professional, accounting and advisory expenses are a result of fees paid to financial advisors and consultants relating to the merger negotiations and the subsequent completion of a due-diligence study, which were all performed within the fourth quarter of 1997. (2) Also contributing to the increase in 1997's noninterest expense was an increase in PA shares tax expense; (3) an increase in ATM related expenses; and (4) an increase in cost associated with loan repossessions. The increase in noninterest income for 1996 was a result of: (1) costs relating to the initial setup fee and annual service fees thereafter, associated with the Corporation becoming a member of the NASDAQ stock market exchange; (2) an increase in advertising costs relating to deposit and loan promotions; (3) a general increase in stationary, supplies and telephone expenses; and (4) an increase in employee tuition reimbursement expense. 25 Income Taxes - ------------ The provision for income tax was $868 in 1997 compared to $1,270 in 1996. This represents a decrease of $402 in 1997, and $116 in 1996. The decrease in 1997 is due to a decrease of $1,086 in taxable income and an increase in tax exempt interest. The decrease in 1996 was a result of an increase in tax exempt interest earned, offset by an overall increase in taxable income. Risk Management - --------------- The Corporation's ordinary course of business involves varying degrees of risk taking, the most significant of which are credit, liquidity and interest rate risk. To manage these risks, Century maintains a risk management process that identifies, measures and controls it's business risks. Credit Risk - ----------- Credit risk represents the possibility a customer or counterparty may not perform in accordance with contractual terms. Credit risk is inherent in the banking services industry and results from extending credit to customers, purchasing securities and entering into off-balance-sheet financial derivative transactions, of which, the Corporation has no off-balance-sheet financial deravitive transactions. The Corporation seeks to manage credit risk through diversification, limiting exposure to any single industry or customer, and requiring collateral. Liquidity - --------- The liquidity of a banking institution reflects its ability to provide funds to meet loan requests, to accommodate possible outflows in deposits, and to take advantage of interest rate market opportunities. Funding of loan requests, providing for liability outflows and management of interest rate fluctuations require continuous analysis in order to match the maturities of specific categories of short-term loans and investments with specific types of deposits and borrowings. Bank liquidity is thus normally considered in terms of the nature and mix of the banking institution's sources and uses of funds. Asset liquidity is provided through loan repayments and the management of maturity distributions for loans and securities. In addition, the classification of all investments as available for sale also greatly enhances liquidity. An important aspect of liquidity lies in maintaining adequate levels of interest- earning assets that mature within one year. Interest-bearing deposits in banks, federal funds sold and short-term investment securities are used for this purpose and totaled $22,532 at December 31, 1997. Interest Rate Sensitivity Risk - ------------------------------ Closely related to the concept of liquidity is the management of interest- earning assets and interest-bearing liabilities. The Corporation manages its rate sensitivity position to minimize fluctuation in the net interest margin and to minimize the risk due to changes in interest rates, thereby attempting to achieve consistent growth of net interest income. 26 Interest Rate Sensitivity Risk (Continued) - ------------------------------------------ The difference between a financial institution's interest rate sensitive assets, i.e. assets which will mature or reprice within the same time period, and interest rate liabilities, i.e. liabilities which will mature or reprice within the same time period, is commonly referred to as its "gap." An institution having more interest rate sensitive assets than interest rate sensitive liabilities within a given time period is said to have a "positive gap"; an institution having more interest rate sensitive liabilities than interest rate sensitive assets within a given time period is said to have a "negative gap." The table below is presented in conformity with industry practice and reflects the effective maturity of various liability products with an indeterminate maturity as of December 31, 1997:
Within 3 3-12 1-5 Over Months Months Years 5 Years Total ---------- ----------- ---------- ------------ ----------- Interest bearing deposits in other banks $ 1,645 $ - $ - $ - $ 1,645 Federal funds sold 11,235 - - - 11,235 Investment securities: Taxable 2,221 6,651 39,780 6,173 54,825 Non-taxable - 780 2,755 9,287 12,822 Loans 71,343 50,455 148,062 84,061 353,921 ---------- ----------- ---------- ------------ ----------- Total earning assets 86,444 57,886 190,597 99,521 434,448 ---------- ----------- ---------- ------------ ----------- Interest-bearing demand deposits 7,253 - 21,880 7,132 36,265 Savings deposits 6,656 6,656 13,422 6,544 33,278 Money Market deposits 15,757 26,261 10,505 - 52,523 Time deposits 13,929 90,036 96,561 22,340 222,866 Short term borrowings 4,000 - - - 4,000 Other borrowings - - 20,000 - 20,000 ---------- ----------- ---------- ------------ ----------- Total interest-bearing liabilities 47,595 122,953 162,368 36,016 368,932 ---------- ----------- ---------- ------------ ----------- Interest rate sensitivity gap $ 38,849 $ (65,067) $ 28,229 $ 63,505 $ 65,516 ========== =========== ========== ============ =========== Cumulative interest rate sensitivity gap $ 38,849 $ (26,218) $ 2,011 $ 65,516 ========== =========== ========== ============ Cumulative interest rate sensitivity gap as a percentage of total earning assets 8.94% -6.03% 0.46% 15.08% =========== ============= =========== ============
27 Interest Rate Sensitivity Risk (Continued) - ------------------------------------------ The preceded table is a static view of the balance sheet with assets and liabilities grouped into certain time periods. Being measured at a specific point in time, this analysis may not fully describe the complexity of relationships between product features and pricing, market rates and future management of the balance sheet mix. The primary method of measuring the sensitivity of earnings to changing market interest rates is to simulate expected earnings streams under various rate scenarios while at the same time adjusting for the anticipated behavior of contractual deposit accounts. Subject to these qualifications, the table reflects a cumulative negative gap for assets and liabilities maturing or repricing in 1998. This cumulative negative gap of $26,218, represents 6.03% of earning assets at December 31, 1997. Management's Asset/Liability Management Committee monitors the Corporation's interest rate sensitivity position to ultimately achieve consistent growth of net interest income. At this time, Management is not aware of any known trends, events or uncertainties that would have a material effect on either the liquidity, capital resources or operations of the Corporation. Nor is management aware of any current recommendations by the regulatory authorities, which if implemented, would have a material effect on the liquidity, capital resources or operations of the Corporation. Capital Resources - ----------------- The Corporation's total consolidated stockholders' equity increased $2,672 or 7.9% when compared to total stockholders' equity at December 31, 1996. This increase is primarily a result of $4,222 in net income earned, less cash dividends declared to shareholders of $2,182 and an increase of $137 in the net unrealized gain on investment securities available for sale. Also contributing to the 1997 increase was a net decrease in the balance of treasury shares outstanding. Total cash dividends of $.43 per share were declared to stockholders in 1997 compared to $.39 per share in 1996. The resulting dividend payout ratio was 50.4% in 1997 and 38.5% in 1996. 28 Capital Resources (Continued) - ----------------------------- Century Financial Corporation, as a bank holding company, is required to meet certain risk based capital and leverage requirements. The risk-based capital requirements redefine the components of capital, categorize assets into different risk classes and include certain off-balance sheet items in the calculation of the adequacy of capital. A financial institution's capital is divided into two classes, Tier I and Tier II. The Corporation's Tier I and Tier II capital consisted of the following at December 31, 1997, and 1996:
1997 1996 --------- --------- Tier I: Common shareholders' equity $ 36,708 $ 34,036 Less: Non-exempt intangible assets (125) (151) Unrealized (appreciation) in securities available-for-sale (613) (476) -------- -------- Total Tier I 35,970 33,409 -------- -------- Tier II: Qualifying allowance for loan losses 4,326 3,234 -------- -------- Total Tier II 4,326 3,234 -------- -------- Total Capital $ 40,296 $ 36,643 ======== ======== Risk weighted assets $345,701 $306,528 Tier I capital ratio 10.40% 10.90% Required Tier I capital ratio 4.00% 4.00% Total capital ratio 11.66% 11.95% Required total capital ratio 8.00% 8.00%
In addition to risk-based requirements, a leverage ratio test must also be met. The leverage ratio is defined as the ratio of Tier I capital to assets (not risk adjusted). The required ratio for each financial institution will be determined based on the financial institution's relative soundness. A minimum ratio of Tier I capital to total assets of three percent has been established for top rated financial institutions, with less highly rated or those with higher levels of risk required to maintain ratios of 100 to 200 basis points above the minimum level. The Corporation's leverage ratio was 7.80% at December 31, 1997. Inflation and Changing Prices - ----------------------------- Management is aware of the impact inflation has on interest rates and, therefore, the impact it can have on the Corporation's performance. The ability of a financial institution to cope with inflation can be determined by analysis and monitoring of its asset and liability structure. The Corporation monitors its asset and liability position with particular emphasis on the mix of interest rate sensitive assets and liabilities in order to reduce the effect of inflation upon its performance. However, it must be remembered that the asset and liability structure of a financial institution is substantially difference from that of industrial corporations in that virtually all assets and liabilities are monetary in nature, meaning that they have been or will be converted into a fixed number of dollars regardless of changes in prices. Examples of monetary items include cash, loans and deposits. Nonmonetary items are those assets and liabilities which do not gain or lose purchasing power solely as a result of general price level changes. Examples of nonmonetary items are premises 29 and equipment. Inflation can have a more direct impact on categories of noninterest expenses such as salaries and wages, supplies and employee benefit costs. These expenses normally fluctuate more in line with changes in the general price level and are very closely monitored by Management for both the effects of inflation and increases related to such items as staffing levels, usage of supplies and occupancy cost. 30 ITEM 7.A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Information required by this section is included under Part II, Item 7. - Management's Discussion and Analysis of Financial Conditions and Results. 31 Item 8. Financial Statements and Supplementary Data CENTURY FINANCIAL CORPORATION CONSOLIDATED BALANCE SHEET
December 31, 1997 1996 ---------- ---------- (In thousands) ASSETS Cash and due from banks $ 12,439 $ 12,661 Interest-bearing deposits in other banks 1,645 343 Federal funds sold 11,235 8,790 Investment securities available for sale 67,647 71,873 Loans (net of unearned income of $12,717 and $10,677) 353,921 308,010 Less allowance for loan losses 4,717 3,234 ---------- ---------- Net loans 349,204 304,776 Premises and equipment 11,562 10,020 Accrued interest and other assets 4,800 4,395 ---------- ---------- TOTAL ASSETS $ 458,532 $ 412,858 ========= ========= LIABILITIES Deposits: Noninterest-bearing demand $ 47,994 $ 41,959 Interest-bearing demand 36,265 33,754 Savings 33,278 33,625 Money market 52,523 60,457 Time 222,866 193,599 ---------- ---------- Total deposits 392,926 363,394 Short term borrowings 4,000 7,000 Other borrowings 20,000 4,000 Accrued interest and other liabilities 4,898 4,428 ---------- ---------- TOTAL LIABILITIES 421,824 378,822 ---------- ---------- STOCKHOLDERS' EQUITY Common stock, par value $.835; authorized 8,000,000 shares; issued 5,108,809 and 3,383,943 shares 4,266 2,826 Additional paid in capital 3,223 2,834 Retained earnings 28,823 28,239 Net unrealized gain on securities 613 476 Treasury stock, at cost (16,561 and 20,490 shares) (217) (339) ---------- ---------- TOTAL STOCKHOLDERS' EQUITY 36,708 34,036 ---------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 458,532 $ 412,858 ========== ==========
See accompanying notes to the consolidated financial statements. 32 CENTURY FINANCIAL CORPORATION CONSOLIDATED STATEMENT OF INCOME
Year Ended December 31, 1997 1996 1995 -------- -------- -------- (In thousands) INTEREST INCOME Interest and fees on loans: Taxable $ 27,249 $ 23,025 $ 20,462 Tax exempt 2,368 1,908 1,344 Interest-bearing deposits in other banks 30 4 1 Federal funds sold 498 161 233 Investment securities: Taxable 3,848 4,785 5,012 Tax exempt 649 681 633 -------- -------- -------- Total interest income 34,642 30,564 27,685 -------- -------- -------- INTEREST EXPENSE Deposits 16,286 13,054 12,234 Short term borrowings 399 494 148 Other borrowings 561 318 243 -------- -------- -------- Total interest expense 17,246 13,866 12,625 -------- -------- -------- NET INTEREST INCOME 17,396 16,698 15,060 Provision for loan losses 2,070 625 240 -------- -------- -------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 15,326 16,073 14,820 -------- -------- -------- OTHER INCOME Service fees on deposit accounts 1,472 1,448 1,496 Trust Department income 980 801 673 Investment securities gains (losses), net - 1 (14) Other 706 466 419 -------- -------- -------- Total other income 3,158 2,716 2,574 -------- -------- -------- OTHER EXPENSE Salaries and employee benefits 6,825 6,708 5,950 Net occupancy expense 1,112 1,065 1,027 Equipment expense 1,049 1,025 920 Deposit insurance premium 44 2 347 Other 4,364 3,813 3,496 -------- -------- -------- Total other expense 13,394 12,613 11,740 -------- -------- -------- INCOME BEFORE INCOME TAXES 5,090 6,176 5,654 Income taxes 868 1,270 1,386 -------- -------- -------- NET INCOME $ 4,222 $ 4,906 $ 4,268 ======== ======== ======== EARNINGS PER SHARE: Basic $ 0.83 $ 0.97 $ 0.84 Diluted $ 0.82 $ 0.96 $ 0.84
See accompanying notes to the consolidated financial statements. 33 CENTURY FINANCIAL CORPORATION CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Net Additional Unrealized Total Common Paid in Retained Treasury Gain (Loss) Stockholders' Stock Capital Earnings Stock on Securities Equity ------------ ------------ ------------ ------------ --------------- -------------- (In thousands) Balance, December 31, 1994 $ 2,810 $ 2,638 $ 22,911 $ - $ (703) $ 27,656 Net income 4,268 4,268 Dividends ($.37 per share) (1,892) (1,892) Stock options exercised 10 117 127 Purchase of Treasury stock (125) (125) Dividend reinvestment plan (2) 109 107 Net unrealized gain on securities 1,601 1,601 -------- -------- -------- -------- -------- -------- Balance, December 31, 1995 2,820 2,755 25,285 (16) 898 31,742 Net income 4,906 4,906 Dividends ($.39 per share) (1,952) (1,952) Stock options exercised 6 73 79 Purchase of Treasury stock (522) (522) Dividend reinvestment plan 6 199 205 Net unrealized loss on securities (422) (422) -------- -------- -------- -------- -------- -------- Balance, December 31, 1996 2,826 2,834 28,239 (339) 476 34,036 Net income 4,222 4,222 Dividends ($.43 per share) (2,182) (2,182) Fifty percent stock dividend 1,416 (1,416) - Stock options exercised 24 193 (40) 270 447 Purchase of Treasury stock (351) (351) Dividend reinvestment plan 34 183 217 Employee stock purchase plan 2 20 22 Tax benefit from stock options exercised 160 160 Net unrealized gain on securities 137 137 -------- -------- --------- ----------- -------- --------- Balance, December 31, 1997 $ 4,266 $ 3,223 $ 28,823 $ (217) $ 613 $ 36,708 ======== ======== ========= =========== ======== =========
See accompanying notes to the consolidated financial statements. 34 CENTURY FINANCIAL CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended December 31, ---------------------------------------------- 1997 1996 1995 ---------- ---------- ---------- (In thousands) OPERATING ACTIVITIES Net income $ 4,222 $ 4,906 $ 4,268 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 2,070 625 240 Depreciation, amortization, and accretion, net 842 271 1,403 Deferred income taxes (512) 60 209 Investment securities (gains) losses, net - (1) 14 Decrease (increase) in accrued interest receivable (287) 330 (382) Increase in accrued interest payable 615 216 747 Other, net 284 138 138 --------- --------- --------- Net cash provided by operating activities 7,234 6,545 6,637 --------- --------- --------- INVESTING ACTIVITIES Investment securities available for sale: Proceeds from sales - 2,781 4,984 Proceeds from maturities and repayments 23,358 29,952 14,502 Purchases (18,936) (5,696) (39,222) Investment securities held to maturity: Proceeds from sales - - 775 Proceeds from maturities and repayments - - 12,951 Purchases - - (14,273) Purchase of loans receivable (3,250) (3,604) - Net increase in loans (43,159) (47,135) (22,638) Purchases of premises and equipment (2,461) (2,246) (843) Other, net - 27 - --------- --------- --------- Net cash used for investing activities (44,448) (25,921) (43,764) --------- --------- --------- FINANCING ACTIVITIES Net increase in deposits 29,532 35,069 30,286 Net increase (decrease) in short term borrowings (7,000) (3,000) 9,530 Proceeds from other borrowings 20,000 800 - Cash dividends (2,128) (1,887) (1,790) Proceeds from stock options exercised 447 79 127 Treasury stock purchase (351) (522) (125) Proceeds from employee stock option plan 22 - - Proceeds from dividend reinvestment plan 217 205 107 --------- --------- --------- Net cash provided by financing activities 40,739 30,744 38,135 --------- --------- --------- Increase in cash and cash equivalents 3,525 11,368 1,008 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 21,794 10,426 9,418 --------- --------- --------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 25,319 $ 21,794 $ 10,426 ========= ========= ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the year for: Interest $ 16,631 $ 13,650 $ 11,878 Income taxes 1,035 1,140 945
See accompanying notes to the consolidated financial statements. 35 CENTURY FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except shares and per share data) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting and reporting policies of Century Financial Corporation (Corporation), a bank holding Company, and its subsidiaries, the Century National Bank and Trust Company (Century), and the Independent Bankers' Computer Services, Inc. (IBCS), conform with generally accepted accounting principles and with general practice within the banking industry. A summary of the significant accounting and reporting policies applied in the presentation of the accompanying financial statements follows: NATURE OF OPERATIONS AND BASIS OF PRESENTATION ---------------------------------------------- Century Financial Corporation is a Pennsylvania corporation and is registered under the Bank Holding Company Act. The Corporation was organized to be the holding company of Century National Bank. The Corporation and its subsidiary derive substantially all their income from banking and bank-related services which include interest earnings on commercial, commercial mortgage, residential real estate, and consumer loan financing as well as interest earnings on investment securities and charges for deposit services to its customers. Century provides banking services to southwestern Pennsylvania. The Corporation is supervised by the Federal Reserve Board while Century is subject to regulation and supervision by the Office of the Comptroller of the Currency. The consolidated financial statements of the Corporation include its wholly-owned subsidiary, Century. Significant intercompany items have been eliminated in consolidation. Independent Bankers' Computer Services, previously a wholly-owned subsidiary of the Corporation, was dissolved on March 31, 1995. The consolidated financial statements have been prepared in conformity with generally accepted accounting principles. In preparing the financial statements, management is required to make certain estimates and assumptions that affect the reported amounts of assets and liabilities as of the balance sheet date and revenues and expenses for the period. Actual results could differ significantly from those estimates. INVESTMENT SECURITIES --------------------- Investment securities are classified, at the time of purchase, based on managements' intention and ability, as securities held to maturity or securities available for sale. The Corporation has classified investment securities as available for sale to serve principally as a source of liquidity. Unrealized holding gains and losses for available for sale securities are reported as a separate component of stockholders ' equity, net of tax, until realized. Realized securities gains and losses are computed using the specific identification method. Interest and dividends on investment securities are recognized as income when earned. Common stock of the Federal Home Loan Bank and Federal Reserve Bank represent ownership in institutions which are wholly-owned by other financial institutions. These securities are accounted for at cost and are classified with equity securities available for sale. 36 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) LOANS Interest from installment loans is recognized in income over the life of the loans using a method which approximates a level yield. Interest on all other loans is recognized as interest income on the accrual method. For commercial and real estate mortgage loans on which interest is 90 days past due, accrual of income is discontinued, and any previously accrued interest is reversed against current income. Installment and credit card loans are generally charged off between 90 and 180 days past due or when deemed uncollectible in the opinion of management. Loan origination and commitment fees and certain direct loan origination costs are being deferred and the net amount amortized as an adjustment to the related loan's yield. These amounts are being amortized over the contractual life of the related loans. ALLOWANCE FOR LOAN LOSSES Effective January 1, 1995, the Corporation adopted Statement of Financial Accounting Standards Statement No. 114, "Accounting by Creditors for Impairment of a Loan," as amended by Statement No. 118. Under this Standard, the Corporation estimates credit losses on impaired loans based on the present value of expected cash flows or fair value of the underlying collateral if the loan repayment is expected to come from the sale or operation of such collateral. Statement 118 amends Statement 114 to permit a creditor to use existing methods for recognizing interest income on impaired loans eliminating the income recognition provisions of Statement 114. The adoption of these statements did not have a material effect on the Corporation's financial position or results of operations. Impaired loans are commercial and commercial real estate loans for which it is probable that the Corporation will not be able to collect all amounts due according to the contractual terms of the loan agreement. The Corporation individually evaluates such loans for impairment and does not aggregate loans by major risk classifications. The definition of "impaired loans" is not the same as the definition of "nonaccrual loans," although the two categories overlap. The Corporation may choose to place a loan on nonaccrual status due to payment delinquency or uncertain collectibility, while not classifying the loan as impaired, provided the loan is not a commercial or commercial real estate classification. Factors considered by management in determining impairment include payment status and collateral value. The amount of impairment for these types of loans is determined by the difference between the present value of the expected cash flows related to the loan, using the original interest rate, and its recorded value, or as a practical expedient in the case of collateralized loans, the difference between the fair value of the collateral and the recorded amount of the loans. When foreclosure is probable, impairment is measured based on the fair value of the collateral. Mortgage loans secured by one-to-four family properties and all consumer loans are generally of smaller balances, and a homogeneous nature, thus are measured for impairment collectively. Loans that experience insignificant payment delays, which are defined as 90 days or less, generally are not classified as impaired. Management determines the significance of payment delays on a case-by-case basis, taking into consideration all of the circumstances concerning the loan, the credit worthiness and payment history of the borrower, the length of the payment delay, and the amount of shortfall in relation to the principal and interest owed. 37 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The allowance for loan losses represents the amount which management estimates is adequate to provide for potential losses in its loan portfolio. The allowance method is used in providing for loan losses. Accordingly, all loan losses are charged to the allowance, and all recoveries are credited to it. The allowance for loan losses is established through a provision for loan losses which is charged to operations. The provision is based upon management's periodic evaluation of individual loans, the overall risk characteristics of the various portfolio segments, past experience with losses, the impact of economic conditions on borrowers, and other relevant factors. The estimates used in determining the adequacy of the allowance for loan losses are particularly susceptible to significant change in the near term. PREMISES AND EQUIPMENT Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is computed on the straight-line method over the estimated useful lives of the assets. Expenditures for maintenance and repairs are charged against income as incurred. Costs of major additions and improvements are capitalized. INTANGIBLE ASSETS Core deposit intangibles are amortized using the straight-line method over a ten year period. TRUST DEPARTMENT Trust Department assets (other than cash deposits) held by Century in fiduciary or agency capacities for its customers are not included in the accompanying balance sheet since such items are not assets of Century. Commissions and fees for services performed by Century in a fiduciary capacity are reported on a cash basis. The annual results would not be materially different if such income was accrued. PENSION AND PROFIT SHARING PLANS Pension and employee benefits include contributions, determined actuarially, to a retirement plan covering the eligible employees of the subsidiaries. Contributions to the profit sharing plan are made based on the achievement of certain operating levels and performance ratios. INCOME TAXES The Corporation and its subsidiary file a consolidated federal income tax return. Deferred tax assets and liabilities are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. Deferred income tax expenses or benefits are based on the changes in the deferred tax asset or liability from period to period. 38 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) EARNINGS PER SHARE In February 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share." Statement No. 128 replaced the previously reported primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options, warrants, and convertible securities. Diluted earnings per share is very similar to the previously reported fully diluted earnings per share. All earnings per share amounts for all periods have been presented, and where necessary, restated to conform to the Statement No. 128 requirements. CASH FLOW INFORMATION The Corporation has defined cash and cash equivalents as those amounts included in the balance sheet caption Cash and due from banks, interest- bearing deposits in other banks, and Federal funds sold. PENDING ACCOUNTING PRONOUNCEMENTS In June 1996, the FASB issued Statement No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." The Statement provides consistent standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings based on a control-oriented "financial-components" approach. Under this approach, after a transfer of financial assets, an entity recognizes the financial and servicing assets it controls and liabilities it has incurred, derecognizes financial assets when control has been surrendered and derecognizes liabilities when extinguished. The provisions of Statement No. 125 are effective for transactions occurring after December 31, 1996, except those provisions relating to repurchase agreements, securities lending, and other similar transactions and pledged collateral, which have been delayed until after December 31, 1997 by Statement No. 127, "Deferral of the Effective Date of Certain Provisions of Statement No. 125, an amendment of Statement No. 125." The adoption of the provisions of Statement No. 127 is not expected to have a material impact on financial position or results of operations. In July 1997, the FASB issued Statement No. 130, "Reporting Comprehensive Income." The Statement establishes standards for reporting and presentation of comprehensive income and its components (revenue, expenses, gains and losses) in a full set of general purpose financial statements. It requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is presented with the same prominence as other financial statements. The provisions of the statement are effective for all fiscal years beginning after December 15, 1997. The adoption of this statement is not expected to have a material impact on financial position or results of operations. RECLASSIFICATION OF COMPARATIVE AMOUNTS Certain comparative amounts for prior years have been reclassified to conform with current year presentations. 39 2. EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share. There are no convertible securities which would effect the numerator in calculating basic and diluted earnings per share; therefore, net income as presented on the Consolidated Statement of Income will be used as the numerator. The following table sets forth a reconciliation of the denominator of the basic and diluted earnings per share computation.
1997 1996 1995 ------------- ------------- ------------- Denominator: Denominator for basic earnings per share - weighted-average shares 5,065,901 5,054,070 5,059,983 Employee stock options 74,054 36,829 10,259 ------------- ------------- ------------- Denominator for diluted earnings per share - adjusted weighted-average average assumed conversions 5,139,955 5,090,899 5,070,242 ============= ============= =============
3. COMMON STOCK SPLIT On April 28, 1997, the Board of Directors approved a three for two stock split. The additional shares resulting from the split was effected in the form of a 50% stock dividend. All references to the number of common shares and per share amounts for 1996 and 1995 have been restated to reflect the stock split. 4. INVESTMENT SECURITIES AVAILABLE FOR SALE The amortized cost and estimated market values of investment securities available for sale are as follows:
1997 --------------------------------------------------- Gross Gross Estimated Amortized Unrealized Unrealized Market Cost Gains Losses Value --------- ------------- ------------- ------------- U. S. Treasury securities $ 4,969 $ 65 $ - $ 5,034 U. S. Government agency securities 23,941 229 - 24,170 Obligations of states and political subdivisions 14,178 480 (36) 14,622 Mortgage-backed securities and collateralized mortgage obligations 18,236 179 (26) 18,389 Other securities 3,988 37 - 4,025 --------- ------------- ------------- ------------- Total debt securities 65,312 990 (62) 66,240 Equity securities 1,407 - - 1,407 --------- ------------- ------------- ------------- Total $ 66,719 $ 990 $ (62) $ 67,647 ========= ============= ============= =============
40 4. INVESTMENT SECURITIES AVAILABLE FOR SALE (CONTINUED)
1996 ------------------------------------------------------------ Gross Gross Estimated Amortized Unrealized Unrealized Market Cost Gains Losses Value ------------- ------------- ------------- ------------ U. S. Treasury securities $ 7,231 $ 46 $ - $ 7,277 U. S. Government agency securities 18,224 100 (6) 18,318 Obligations of states and political subdivisions 14,829 483 (13) 15,299 Mortgage-backed securities and collateralized mortgage obligations 21,029 129 (91) 21,067 Other securities 8,540 84 (11) 8,613 ----------- ----------- ------------ ----------- Total debt securities 69,853 842 (121) 70,574 Equity securities 1,299 - - 1,299 ----------- ----------- ------------ ----------- Total $ 71,152 $ 842 $ (121) $ 71,873 =========== =========== ============ ===========
The amortized cost and estimated market value of debt securities at December 31, 1997, by contractual maturity, are shown below. Expected maturities of mortgage-backed securities and collateralized mortgage obligations will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Estimated Amortized Market Cost Value -------------- ------------- Due in one year or less $ 8,277 $ 8,310 Due after one year through five years 33,064 33,454 Due after five years through ten years 12,109 12,373 Due after ten years 11,862 12,103 -------------- ------------- Total $ 65,312 $ 66,240 ============== =============
The following is a summary of proceeds received, gross gains, and gross losses realized on the sale of investment securities:
1997 1996 1995 ------------ ----------- ----------- Proceeds from sales $ - $ 2,781 $ 5,759 Gross gains - 3 17 Gross losses - 2 31
Investment securities with a carrying value of $38,724 and $38,719 at December 31, 1997 and 1996, respectively, were pledged to secure deposits and other purposes as required by law. 41 5 LOANS Major classifications of loans are summarized as follows:
1997 1996 ---------- ---------- Commercial, financial, and agricultural $ 90,423 $ 78,666 Real estate - construction 10,262 11,042 Real estate - mortgage: Residential 123,978 106,081 Commercial 32,360 18,876 Installment loans to individuals 85,777 83,637 Tax exempt loans 23,838 20,385 ---------- ---------- 366,638 318,687 Less unearned income 12,717 10,677 ---------- ---------- 353,921 308,010 Less allowance for loan losses 4,717 3,234 ---------- ---------- Net loans $ 349,204 $ 304,776 ========= =========
Century's primary business activity is with customers located within its local trade area. Commercial, residential, personal, and agricultural loans are granted. Century also selectively funds residential loans originated outside of its trade area provided such loans meet Century's credit policy guidelines. Although Century has a diversified loan portfolio, at December 31, 1997 and 1996, loans outstanding to individuals and businesses are dependent upon the local economic conditions in its immediate trade area. At December 31, 1997, Century had loans totaling $72 which were past due 90 days or more and still accruing interest. Presented below are total nonaccruing loans of Century at December 31, 1997, 1996 and 1995. Also shown is the additional income that would have been earned if those loans had been current throughout the years ended.
1997 1996 1995 -------- ---------- ---------- Nonaccrual loans $ 3,664 $ 872 $ 901 Interest earned (if current) 346 58 51
At December 31, 1997, Century had impaired loans of $2,738 for which $356 of the allowance for loan losses had been allocated. There were no impaired loans without allowance for loan loss allocation as of December 31, 1997. During the year, Century had an average balance of $2,353 and recognized $7 in interest income on these loans. Century had no impaired loans as of December 31, 1996. 42 6. ALLOWANCE FOR LOAN LOSSES Changes in the allowance for loan losses for the years ended December 31, 1997, 1996, and 1995, are as follows:
1997 1996 1995 -------- -------- -------- Balance, January 1 $ 3,234 $ 3,003 $ 3,206 Add: Provisions charged to operations 2,070 625 240 Recoveries 92 68 32 Less loans charged off 679 462 475 -------- -------- -------- Balance, December 31 $ 4,717 $ 3,234 $ 3,003 ======== ======== ========
7. PREMISES AND EQUIPMENT Major classifications of premises and equipment are summarized as follows:
1997 1996 -------- -------- Land and land improvements $ 2,365 $ 2,526 Buildings 9,039 7,389 Furniture and equipment 5,401 4,869 Leasehold improvements 562 523 -------- -------- 17,367 15,307 Less accumulated depreciation 5,805 5,287 -------- -------- Total $ 11,562 $ 10,020 ======== ========
Depreciation expense amounted to $919 in 1997, $852 in 1996, and $767 in 1995. 8. DEPOSITS Time deposits include certificates of deposit in denominations of $100 or more. Such deposits aggregated $38,309 and $29,492 at December 31, 1997 and 1996, respectively. Interest expense on certificates of deposit over $100 amounted to $3,241 in 1997, $2,495 in 1996, and $1,863 in 1995. The following table sets forth the remaining maturity of time certificates of deposits of $100,000 or more at December 31, 1997.
December 31, 1997 ------------ 3 months or less $ 2,687 Over 3 through 6 months 21,161 Over 6 through 12 months 3,387 Over 12 months 11,074 -------- Total $ 38,309 ========
43 9. SHORT-TERM BORROWINGS The outstanding balances and related information for short-term borrowings are summarized as follows:
1997 1996 ------------------------ ------------------------ Amount Rate Amount Rate -------- -------- -------- -------- Balance at year end $ 4,000 5.07% $ 7,000 5.71% Average balance outstanding during the year 7,100 5.62% 8,965 5.51% Maximum amount outstanding at any month end 19,160 - 16,175 -
Short-term borrowings consist of advances from the Federal Home Loan Bank of Pittsburgh (FHLB) under a RepoPlus borrowing arrangement. Average amounts outstanding during the year represent daily average balances and average interest rates represent interest expense divided by the related average balance. Century maintains a revolving line of credit (flexline advance) with the FHLB. The amount available on this line of credit as of December 31, 1997, is approximately $8.4 million. Century has pledged, as collateral for advances from the FHLB of Pittsburgh, all stock in the Federal Home Loan Bank and certain other qualifying collateral. There were no outstanding balances on this credit line at December 31, 1997 and 1996. 10. OTHER BORROWINGS Other borrowings as of December 31, 1997 and 1996, are summarized as follows:
Description Maturity Date Interest Rate 1997 1996 ----------- ------------- ------------- -------- -------- Federal Home Loan Bank advance July 11, 2002 5.60% $ 20,000 $ - Federal Home Loan Bank advance February 18, 1998 5.07% - 4,000 -------- -------- Total $ 20,000 $ 4,000 ======== ========
Century has pledged, as collateral for borrowings from the FHLB, all stock in the FHLB and certain other qualifying collateral. During 1997, a $4,000 advance maturing February 18, 1998 was reclassified as short-term borrowings. 11. OTHER EXPENSES The following is an analysis of other expenses:
1997 1996 1995 -------- -------- -------- Advertising $ 355 $ 455 $ 362 Stationery, printing, and supplies 365 346 307 State shares tax 309 273 262 Professional fees 604 249 306 Other 2,731 2,490 2,259 -------- -------- -------- Total $ 4,364 $ 3,813 $ 3,496 ======== ======== ========
44 12. INCOME TAXES The provision for income taxes consists of:
1997 1996 1995 ------- ------- ------- Currently payable $ 1,380 $ 1,210 $ 1,177 Deferred (512) 60 209 ------- ------- ------- Total $ 868 $ 1,270 $ 1,386 ======= ======= =======
The components of the net deferred tax assets are as follows:
1997 1996 ------- ------- Deferred Tax Assets Allowance for loan losses $ 1,342 $ 838 Other 209 104 ------- ------- Total deferred tax assets 1,551 942 ------- ------- Deferred Tax Liabilities Premises and equipment 184 153 Net unrealized gain on securities 315 245 Pension asset 144 173 Deferred loan origination fees, net 99 20 Other 73 57 ------- ------- Total deferred tax liabilities 815 648 ------- ------- Net deferred tax assets $ 736 $ 294 ======= =======
No valuation allowance was established at December 31, 1997, in view of the Corporation's ability to carry back taxes paid in previous years and certain tax strategies and anticipated future taxable income as evidenced by the Corporation's earnings potential. 45
12. INCOME TAXES (Continued) The reconciliation of the federal statutory rate and the Corporation's effective income tax rate is as follows: 1997 1996 1995 --------------------- ------------------ ------------------- % of % of % of Pre-tax Pre-tax Pre-tax Amount Income Amount Income Amount Income --------- --------- -------- --------- --------- --------- Provision at statutory rate $ 1,731 34.0 % $ 2,100 34.0 % $ 1,922 34.0 % Effect of tax free income (1,024) (20.1) (880) (14.3) (672) (11.9) Non-deductible interest expense 95 1.9 74 1.2 61 1.1 Other, net 66 1.3 (24) (0.3) 75 1.3 --------- --------- -------- --------- --------- --------- Actual provision and effective rate $ 868 17.1 % $ 1,270 20.6 % $ 1,386 24.5 % ======== ======== ======= ======== ======== ========
13. PENSION AND PROFIT SHARING PLANS Century sponsors a trusteed, non-contributory defined benefit pension plan covering substantially all employees and officers of Century. The plan calls for benefits to be paid to eligible employees at retirement based primarily on years of service and compensation rates near retirement. Contributions are intended to provide not only benefits for attributed to service to date but also for those expected to be earned in the future. The following presents the components of the net periodic pension cost:
1997 1996 1995 --------- --------- --------- Service costs of the current period $ 270 $ 247 $ 264 Interest cost on projected benefit obligations 375 341 298 Actual return on plan assets (1,219) (677) 78 Net amortization and deferral 708 228 (424) --------- --------- --------- Total $ 134 $ 139 $ 216 ========= ========= =========
The actuarial present value of the accumulated benefit obligation at December 31, 1997 and 1996, was $4,224 and $3,327 including vested benefit obligations of $4,177 and $3,287. The following sets forth the funded status of the plan and the amounts recognized in the accompanying consolidated balance sheet:
1997 1996 --------- --------- Plan assets at fair value $ 7,221 $ 6,111 Actuarial present value of projected benefit obligation (6,020) (5,071) --------- --------- Funded status 1,201 1,040 Unrecognized transition amount (233) (291) Unrecognized net gain from past experience different from that assumed and effects of changes in assumptions (569) (266) --------- --------- Pension asset $ 399 $ 483 ======== =========
46 13. PENSION AND PROFIT SHARING PLANS (Continued) Assumptions used in determining net periodic pension cost are as follows:
1997 1996 1995 -------- -------- -------- Discount rate 7.50% 7.50% 7.50% Expected long-term rate of return on assets 7.50 7.50 7.50 Rate of increase in compensation levels 4.50 4.00 5.00
Century makes payments to a qualified profit sharing plan covering substantially all employees and officers of Century. Contributions to the plan are made at the discretion of the Board of Directors and are determined annually based on the achievement of pre-determined performance goals. The plan contributions for the years 1997, 1996, and 1995 amounted to $476, $482, and $386, respectively. 14. DIVIDEND REINVESTMENT PLAN The Corporation maintains a Dividend Reinvestment Plan (the "Plan") whereby up to 300,000 authorized but unissued shares were allocated for dividend reinvestment. Participation in the Plan is available to all common stockholders who may elect to reinvest dividends on all or part of their shares to acquire additional common stock of the Corporation. Plan participants are able to withdraw from the Plan at any time. At December 31, 1997 and 1996, there were 16,561 and 20,490 shares being held in treasury which will be used in conjunction with the Plan. During 1997 and 1996, there were 13,864 and 13,028 shares issued under the Plan. 15. COMMITMENTS AND CONTINGENT LIABILITIES Commitments ----------- In the normal course of business, there are various outstanding commitments and certain contingent liabilities which are not reflected in the accompanying consolidated financial statements. These commitments and contingent liabilities represent financial instruments with off-balance sheet risk. The contract or notional amounts of those instruments reflect the extent of involvement in particular types of financial instruments which were comprised of the following:
1997 1996 -------- -------- Commitments to extend credit $35,799 $32,115 Standby letters of credit 3,194 341 -------- -------- Total $38,993 $32,456 ======== ========
The instruments involve, to varying degrees, elements of credit and interest rate in excess of the amount recognized in the balance sheet. The same credit policies are used in making commitments and conditional obligations as for on-balance sheet instruments. Generally, collateral is required to support financial instruments with credit risk. The terms are typically for a one-year period with an annual renewal option subject to prior approval by management. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the loan agreement. These commitments are comprised primarily of available commercial and personal lines of credit. Standby letters of credit written are conditional commitments issued to guarantee the performance of a customer to a third party. 47 15 COMMITMENTS AND CONTINGENT LIABILITIES (Continued) The exposure to loss under these commitments are limited by subjecting them to credit approval and monitoring procedures. Substantially all of the commitments to extend credit are contingent upon customers maintaining specific credit standards at the time of the loan funding. Management assesses the credit risk associated with certain commitments to extend credit in determining the level of the allowance for loan losses. Since many of the commitments are expected to expire without being drawn upon, the contractual amounts do not necessarily represent future funding requirements. At December 31, 1997, the minimum rental commitments for all non-cancelable leases are as follows (in thousands): 1998 $ 172 1999 169 2000 167 2001 152 2002 76 2003 and thereafter 545 -------- Total $ 1,281 ========
Occupancy and equipment expenses include rental expenditures of $188 for 1997, $133 for 1996, and $134 for 1995. Contingent Liabilities ---------------------- The Corporation and its subsidiary are involved in legal actions from normal business activities which includes a lawsuit initiated by a former employee alleging wrongful discharge. Management believes that the liability, if any, arising from such actions will not have a material adverse effect on the Corporation's financial position. 16 STOCK OPTION PLAN The Corporation maintains an incentive stock option plan under which 336,204 shares of common stock can be issued after adjusting for the stock splits in May, 1997, December, 1994, and April, 1993. The plan provides for the grant of incentive stock options to certain executive officers, senior management personnel, and directors of the Corporation. Under the plan, a holder may elect to exercise options to purchase common stock at fixed prices equal to the fair value at the date of grant. The period for exercising options is fixed at the date of the grant and will not exceed ten years from such date. Effective January 1, 1996, the Corporation adopted Statement of Financial Accounting Standards Statement No. 123, "Accounting for Stock-Based Compensation." This statement encourages, but does not require the Corporation to recognize compensation expense for all awards of equity instruments issued after December 31, 1994. The statement establishes a fair value based method of accounting for stock-based compensation plans. The standard applies to all transactions in which an entity acquires goods or services by issuing equity instruments or by incurring liabilities in amounts based on the price of the entity's common stock or other equity instruments. Statement No. 123 permits companies to continue to account for such transactions under Accounting Principles Board No. 25, "Accounting for Stock Issued to Employees," but requires disclosure in a note to the financial statements pro forma net income and earnings per share as if the Corporation had applied the new method of accounting. 48 16 STOCK OPTION PLAN (Continued) Under APB Opinion 25, no compensation expense has been recognized with respect to the options granted under the stock option plan. Had compensation expense been determined on the basis of fair value pursuant to Statement No. 123, net income and earnings per share would have been reduced as follows:
1997 1996 1995 ------- -------- -------- Net Income: As reported $ 4,222 $ 4,906 $ 4,268 ======= ======= ======= Pro forma $ 2,723 $ 4,749 $ 4,162 ======= ======= ======= Basic Earnings Per Share: As reported $ 0.83 $ 0.97 $ 0.84 ======= ======= ======= Pro forma $ 0.54 $ 0.94 $ 0.82 ======= ======= ======= Diluted Earnings Per Share: As reported $ 0.82 $ 0.96 $ 0.84 ======= ======= ======= Pro forma $ 0.53 $ 0.93 $ 0.82 ======= ======= =======
The following table presents share data related to the stock option plan:
Shares Under Option 1997 1996 --------- --------- Outstanding, January 1 246,327 194,459 Granted 55,059 63,852 Exercised (53,666) (10,433) Forfeited (579) (1,551) --------- --------- Outstanding, December 31 (at prices ranging from $7.06 - $11.33) 247,141 246,327 ========= =========
17 REGULATORY MATTERS The approval of the Comptroller of the Currency is required if the total of all dividends declared by a national bank in any calendar year exceeds net profits as defined for that year combined with its retained net profits for the two preceding calendar years less any required transfers to surplus. Under this formula, the amount available for payment of dividends by Century to the Corporation in 1998, without the approval of the Comptroller, is $5,118 plus 1998 profits retained up to the date of the dividend declaration. Included in cash and due from banks are required federal reserves of $4,073 and $3,159 at December 31, 1997 and 1996, respectively, for facilitating the implementation of monetary policy by the Federal Reserve System. The required reserves are computed by applying prescribed ratios to the classes of average deposit balances. These are held in the form of cash on hand and/or balances maintained directly with the Federal Reserve Bank. 49 18. REGULATORY CAPITAL REQUIREMENTS The Corporation (on a consolidated basis) and Century are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary actions by the regulators that, if undertaken, could have a direct material effect on the Corporation's and Century's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, both entities must meet specific capital guidelines that involve quantitative measures of the their assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by the regulation to ensure capital adequacy require Century to maintain minimum amounts and ratios of total Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital to average assets (as defined). Management believes, as of December 31, 1997 and 1996, that the Corporation and Century meet all capital adequacy requirements to which they are subject. As of December 31, 1997, the most recent notification from the appropriate regulatory authorities, has categorized the Corporation and Century as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, an entity must maintain minimum Total Risk-Based, Tier I Risk-Based and Tier I Leverage ratios at least 100 to 200 basis points above those ratios set forth in the table. There have been no conditions or events since that notification that management believes have changed the this category. The capital position of the Corporation does not materially differ from Century's, therefore, the following table sets forth the Corporation's capital position and minimum requirements as of December 31:
1997 1996 ---------------- ------------------ Amount Ratio Amount Ratio -------- ------- -------- ------- Total Capital (to Risk-Weighted Assets) Actual $40,296 11.66% $36,643 11.95% For Capital Adequacy 27,656 8.00% 24,522 8.00% To Be Well Capitalized 34,570 10.00% 30,653 10.00% Tier I Capital (to Risk-Weighted Assets) Actual $35,970 10.40% $33,409 10.90% For Capital Adequacy 13,828 4.00% 12,261 4.00% To Be Well Capitalized 20,742 6.00% 18,391 6.00% Tier I Capital (to Average Assets) Actual $35,970 7.80% $33,409 8.25% For Capital Adequacy 18,449 4.00% 16,208 4.00% To Be Well Capitalized 23,062 5.00% 20,248 5.00%
50 19. FAIR VALUE DISCLOSURE The estimated fair values at December 31, 1997 and 1996, of the Corporation's financial instruments are as follows:
1997 1996 ------------------------ ---------------------- Carrying Fair Carrying Fair Value Value Value Value ------------ ----------- ----------- ---------- Financial assets: Cash and due from bank $ 12,439 $ 12,439 $ 12,661 $ 12,661 Interest-bearing deposits in other bank 1,645 1,645 343 343 Federal funds sold 11,235 11,235 8,790 8,790 Investment securities available for sale 67,647 67,647 71,873 71,873 Net loans 349,204 344,142 304,776 298,264 Accrued interest receivable 2,563 2,563 2,276 2,276 ------------ ----------- ----------- ---------- Total $ 444,733 $ 439,671 $ 400,719 $ 394,207 ============ =========== =========== ========== Financial liabilities: Deposits $ 392,926 $ 396,186 $ 363,394 $ 364,615 Short term borrowings 4,000 4,000 7,000 7,000 Other borrowings 20,000 20,132 4,000 3,957 Accrued interest payable 2,586 2,586 1,971 1,971 ------------ ----------- ----------- ---------- Total $ 419,512 $ 422,904 $ 376,365 $ 377,543 ============ =========== =========== ==========
Financial instruments are defined as cash, evidence of an ownership interest in an entity, or a contract which creates an obligation or right to receive or deliver cash or another financial instrument from/to a second entity on potentially favorable or unfavorable terms. Fair value is defined as the amount at which a financial instrument could be exchanged in a current transaction between willing parties other than in a forced or liquidation sale. If a quoted market price is available for a financial instrument, the estimated fair value would be calculated based upon the market price per trading unit of the instrument. If no readily available market exits, the fair value estimates for financial instruments should be based upon management's judgment regarding current economic conditions, interest rate risk, expected cash flows, future estimated losses and other factors as determined through various option pricing formulas or simulation modeling. As many of these assumptions result from judgments made by management based upon estimates which are inherently uncertain, the resulting estimated fair values may not be indicative of the amount realizable in the sale of a particular financial instrument. In addition, changes in the assumptions on which the estimated fair values are based may have a significant impact on the resulting estimated fair values. As certain assets such as deferred tax assets and premises and equipment are not considered financial instruments, the estimated fair value of financial instruments would not represent the full value of the Corporation. 51 19. FAIR VALUE DISCLOSURE (CONTINUED) The Corporation employed simulation modeling in determining the estimated fair value of financial instruments for which quoted market prices were not available based upon the following assumptions: CASH AND DUE FROM BANKS, INTEREST-BEARING DEPOSIT WITH OTHER BANKS, ACCRUED INTEREST RECEIVABLE, SHORT TERM BORROWINGS, AND ACCRUED INTEREST PAYABLE The fair value is equal to the current carrying value. INVESTMENT SECURITIES AVAILABLE FOR SALE The fair value of securities available for sale is equal to the available quoted market price. If no quoted market price is available, fair value is estimated using the quoted market price for similar securities. LOANS, DEPOSITS, AND OTHER BORROWINGS The fair value of loans is estimated by discounting the future cash flows using a simulation model which estimates future cash flows and constructs discount rates that consider reinvestment opportunities, operating expenses, non-interest income, credit quality, and prepayment risk. Demand, savings, and money market deposit accounts are valued at the amount payable on demand as of year end. Fair values for time deposits and other borrowings are estimated using a discounted cash flow calculation that applies contractual costs currently being offered in the existing portfolio to current market rates being offered for deposits and borrowings of similar remaining maturities. COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT These financial instruments are generally not subject to sale, and estimated fair values are not readily available. The carrying value, represented by the net deferred fee arising from the unrecognized commitment or letter of credit, and the fair value, determined by discounting the remaining contractual fee over the term of the commitment using fees currently charged to enter into similar agreements with similar credit risk, are not considered material for disclosure. The contractual amounts of unfunded commitments and letters of credit are presented in Note 14. 20. AGREEMENT AND PLAN OF MERGER On December 3, 1997, the Board of Directors executed a definitive Agreement and Plan of Merger (the Agreement), which provides for the affiliation of the Corporation with Citizens Bancshares, Inc. (Citizens) headquartered in Salineville, Ohio. The Agreement provides that the affiliation will be effected by means of a merger of the Corporation and Citizens. In the merger, each stockholder of the Corporation will receive 0.425 shares of Citizens common stock in exchange for each share of the Corporation's stock, subject to certain terms, conditions, and limitations set forth in the Agreement. Completion of the merger is subject to approval by various regulatory agencies and the stockholders of the Corporation and Citizens. 52 21. SELECTED QUARTERLY FINANCIAL DATA The unaudited quarterly results for 1997 and 1996 are summarized as follows:
1997 ---------------------------------------------------------- Three Months Ended ---------------------------------------------------------- March 31, June 30, September 30, December 31, ------------ ----------- --------------- -------------- Total interest income $ 8,101 $ 8,415 $ 9,018 $ 9,108 Total Interest expense 3,873 4,031 4,647 4,695 ------------ ----------- --------------- -------------- Net interest income 4,228 4,384 4,371 4,413 Provision for loan losses 195 195 240 1,440 ------------ ----------- --------------- -------------- Net interest income after provision for loan losses 4,033 4,189 4,131 2,973 ------------ ----------- --------------- -------------- Other income 752 773 781 853 Other expense 3,113 3,375 3,070 3,837 ------------ ----------- --------------- -------------- Income before income taxes 1,672 1,587 1,842 (11) Income taxes (benefit) 370 334 336 (172) ------------ ----------- --------------- -------------- Net income $ 1,302 $ 1,253 $ 1,506 $ 161 ============ =========== =============== ============== Earnings per share: Basic $ 0.26 $ 0.25 $ 0.30 $ 0.03 Dilutive $ 0.25 $ 0.24 $ 0.29 $ 0.03 1996 ---------------------------------------------------------- Three Months Ended ---------------------------------------------------------- March 31, June 30, September 30, December 31, ------------ ----------- --------------- -------------- Total interest income $ 7,397 $ 7,441 $ 7,762 $ 7,964 Total Interest expense 3,383 3,240 3,486 3,757 ------------ ----------- --------------- -------------- Net interest income 4,014 4,201 4,276 4,207 Provision for loan losses 105 130 180 210 ------------ ----------- --------------- -------------- Net interest income after provision for loan losses 3,909 4,071 4,096 3,997 ------------ ----------- --------------- -------------- Other income 647 667 663 739 Other expense 3,020 3,221 3,205 3,167 ------------ ----------- --------------- -------------- Income before income taxes 1,536 1,517 1,554 1,569 Income taxes 358 389 257 266 ------------ ----------- --------------- -------------- Net income $ 1,178 $ 1,128 $ 1,297 $ 1,303 ============ =========== =============== ============== Earnings per share: Basic $ 0.23 $ 0.22 $ 0.26 $ 0.26 Dilutive $ 0.23 $ 0.22 $ 0.25 $ 0.26
53 22. PARENT COMPANY Following are condensed financial statements for the Corporation. CONDENSED BALANCE SHEET
December 31, 1997 1996 --------- ----------- (In thousands) ASSETS Cash $ 365 $ 159 Investment in bank subsidiary 36,420 33,831 Other 484 568 ---------- ---------- TOTAL ASSETS $ 37,269 $ 34,558 ========== ========== LIABILITIES Dividends payable $ 561 $ 504 Other - 18 STOCKHOLDERS' EQUITY 36,708 34,036 ---------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 37,269 $ 34,558 ========== ========== CONDENSED STATEMENT OF INCOME Year Ended December 31, 1997 1996 1995 --------- ---------- --------- (In thousands) INCOME Dividends from bank subsidiary $ 1,800 $ 2,290 $ 1,905 Other 1 6 205 EXPENSES Other 44 80 219 ---------- ---------- ---------- Income before income taxes 1,757 2,216 1,891 Income tax benefit (12) (25) (5) ---------- ---------- ---------- Income before equity in undistributed net income of subsidiaries 1,769 2,241 1,896 Equity in undistributed net income of subsidiaries 2,453 2,665 2,372 ---------- ---------- ---------- NET INCOME $ 4,222 $ 4,906 $ 4,268 ========== ========== ==========
54 22 PARENT COMPANY (Continued) CONDENSED STATEMENT OF CASH FLOWS
Year Ended December 31, 1997 1996 1995 -------- -------- -------- (In thousands) OPERATING ACTIVITIES Net income $ 4,222 $ 4,906 $ 4,268 Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed net income of subsidiaries (2,453) (2,665) (2,372) Other, net 230 (101) (126) -------- -------- -------- Net cash provided by operating activities 1,999 2,140 1,770 -------- -------- -------- FINANCING ACTIVITIES Cash dividends (2,128) (1,887) (1,790) Proceeds from stock options exercised 447 79 127 Treasury stock purchase (351) (522) (125) Proceeds from employee stock purchase plan 22 - - Proceeds from dividend reinvestment plan 217 205 107 -------- -------- -------- Net cash used for financing activities (1,793) (2,125) (1,681) -------- -------- -------- Increase in cash 206 15 89 CASH AT BEGINNING OF YEAR 159 144 55 -------- -------- -------- CASH AT END OF YEAR $ 365 $ 159 $ 144 ======== ======== ========
55 Snodgrass Certified Public Accountants REPORT OF INDEPENDENT AUDITORS ------------------------------ Board of Directors and Stockholders Century Financial Corporation We have audited the accompanying consolidated balance sheet of Century Financial Corporation and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of income, changes in stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these consolidated 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 Century Financial Corporation and subsidiaries as of December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. As explained in the notes to the consolidated financial statements, effective January 1, 1995, the Corporation adopted a new method of accounting for impairment of loans and related allowance for loan losses. /s/ S. R. Snodgrass, A.C. Wexford, PA January 16, 1998 S.R. Snodgrass, A.C. 101 Bradford Road Wexford, PA 15090-6909 Phone: (412) 934-0344 Facsimile: (412) 934-0345 56 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directorship Name, Age Principal Occupation Director in other Reporting Director For Past Five Years(4) Since (5) Companies - --------- ---------------------- --------- ------------------ Elvin W. Batchelor, 89 (1) President of Batchelor 1966 None Brothers, Inc. (funeral home) Robert F. Garvin, Jr., 58 (3) President, Bob Garvin 1995 None Agency; Regional Manager Prudential Preferred Realty (Real Estate Broker) Del E. Goedeker, 57 (2) Vice President - Corporate 1982 None (Chairman) Development, Tuscarora, Inc. (Plastic Packaging Manufacturer) A. Dean Heasley, 77 (1) Retired since 1987; 1958 None formerly President & CEO of Century National Bank & Trust Company Charles I. Homan, 54 (3) President & CEO 1994 Michael Baker Michael Baker Corp. Corp. (Engineering Firm) Harry J. Johnston, 65 (2) Retired since 1985; formerly 1966 None President of National Bank of Beaver County Z. John Kruzic, 69 (1) Retired since 1987; 1982 None formerly General Manager of Distribution & Control, Components Division, Westinghouse Electric Corp. (Industrial Manufacturer) Wayne S. Luce, 84 (3) Retired President of Reed, 1952 None Luce, Tosh, Wolford & Douglas, Inc. (law firm) Sister Mary Thaddeus Executive Director, 1995 None Markelewicz, 52 (3) McGuire Memorial (Non-Profit Organization)
57
Directorship Name, Age Principal Occupation Director in other Reporting Director For Past Five Years (4) Since (5) Companies - --------- ---------------------- ---------- ------------------ Thomas K. Reed, 60 (2) Broker, Baumgard & Reed, Inc. 1970 None (Vice-Chairman) (Insurance Firm) Harold V. Shank, Jr., 70 (1) President of Shank Bus Company, Inc. 1977 None (Bus Company) Joseph N. Tosh II, 56 (2) President & Chief Executive 1986 None Officer of the Corporation and Century
(1) Term expires in 1998. (2) Term expires in 1999. (3) Term expires in 2000. (4) All of the Directors have held the positions indicated or another senior executive position with the same entity or one of its affiliates or predecessors for the past five years with the exception of Del E. Goedeker who retired in 1996 from the position of President & Treasurer, Vesuvius/McDanel and CFO/VP - The Americas Vesuvius Companies Group (Manufacturing Company). (5) Reflects the earlier of the first year as a Director of the Corporation or of Century National Bank & Trust Company, a subsidiary of the Corporation, or one of its affiliates or predecessors. Executive Officers - ------------------
Name and Business Position Age Experience(1) - -------- --- ------------ Joseph N. Tosh II 56 President and Chief Executive Officer of the Corporation and Century Donald A. Benziger 44 Sr. Vice President, Chief Financial Officer and Corporate Secretary of the Corporation and Century
(1) Each of the above persons has held the indicated position with the Corporation or Century for the past five years. 58 ITEM 11. EXECUTIVE COMPENSATION The following table sets forth the cash compensation paid or to be paid for services rendered to the Executive Officers of the Corporation whose total salary and bonus for the year ended December 31, 1997 exceeded $100,000.00. SUMMARY COMPENSATION TABLE
================================================================================================================================= Long Term Compensation Awards Other Annual ------------------- All Other Number of Securities Salary Bonus Compensation Underlying Options Compensation Name & Principal Position Fiscal Year $ $ $(4) Granted $(9) - --------------------------------------------------------------------------------------------------------------------------------- Joseph N. Tosh II 1997 $140,843 $48,500(1) -- 11,808(6) $16,223 President & CEO 1996 $135,426 $47,000(2) -- 8,976(7) $15,696 1995 $130,217 $43,000(3) -- 9,147(8) $13,359 - --------------------------------------------------------------------------------------------------------------------------------- Donald A. Benziger 1997 $ 94,086 $30,600(1) -- 7,595(6) $10,804 SVP, Chief Financial Officer & 1996 $ 88,760 $30,000(2) -- 5,842(7) $10,287 Corporate Secretary 1995 $ 85,346 $26,000(3) -- 5,685(8) $ 8,756 =================================================================================================================================
(1) 1997 bonus accrued in 1997, but paid in 1998 (2) 1996 bonus accrued in 1996, but paid in 1997 (3) 1995 bonus accrue in 1995, but paid in 1996 (4) The dollar value of perquisites and other personal benefits is required to be disclosed under this column if the amount for any executive officer equals or exceeds the lesser of $50,000 or 10% of the compensation reported for the executive officer in the Cash Compensation Table. (5) Represents the number of shares of the Corporation's Common Stock for which stock options were granted under the Corporation's Stock Option Plan. (6) Stock options granted 1/1/97 with 33% exercisable effective 1/1/97, 33% effective 1/1/98 and 33% effective 1/1/99. (7) Stock options granted 1/1/96 with 33% exercisable effective 1/1/96, 33% effective 1/1/97 and 33% effective 1/1/98. (8) Stock options granted 1/1/95 with 33% exercisable effective 1/1/95, 33% effective 1/1/96 and 33% effective 1/1/97. (9) This column represents employer contributions for the accounts of the Named Officers under the Corporation's Profit Sharing Plan. 59 Stock Options. The present Stock Option Plan was ratified by the Shareholders in - ------------- April, 1993 and permits the grant of Options of 403,446 shares of Common Stock to officers and 100,862 shares of Common Stock to directors, adjusted for 20% Stock Dividends paid January 31, 1995 and May 30, 1997. For any fiscal year in which the Corporation achieves its goal of budgeted earnings (in dollars), the number of shares of Stock to which each option pertains is as follows: (a) for each executive officer and each director, the number of shares will equal 5% to 75% of total cash compensation for the given fiscal year divided by the purchase price of the shares; (b) for each officer, the number of shares will equal 5% to 50% of total cash compensation for the given fiscal year divided by the purchase price of the shares. If the number of shares determined under this formula is not a whole number, the number of shares will be rounded up to the next whole number. The purchase price for shares underlying each option shall be the closing price on the NASDAQ market on the December 31st preceding the date that an Option is granted. Options have been awarded each year since 1993, exercisable at 33% during the grant year, and 33% over each of the following two years. Unexercised Options have an expiration date ten years from the date the options were awarded. The following tables sets forth information with respect to options granted to and exercised by the Chief Executive Officer of the Company and the Chief Financial Officer. OPTION GRANTS TO EXECUTIVE OFFICERS IN 1997 FISCAL YEAR
================================================================================================================================= Potential Realizable Potential Realizable Value at Assumed 5% Value at Assumed 10% Number of Securities % Total Options Exercise Annual Rate of Stock Annual Rate of Stock Underlying Options Granted to Price Per Expiration Price Appreciation for Price Appreciation for Name Granted Employees in 1997 Share Date Option Term Option Term - --------------------------------------------------------------------------------------------------------------------------------- Joseph N. Tosh II 11,808 26.94% $11.33 12/31/06 $73,758 $181,672 - --------------------------------------------------------------------------------------------------------------------------------- Donald A. Benziger 7,595 17.33% $11.33 12/31/06 $47,442 $116,853 =================================================================================================================================
AGGREGATED OPTION EXERCISES BY EXECUTIVE OFFICER IN 1997 AND FISCAL YEAR-END OPTION VALUES
==================================================================================================================================== Number of Securities Value of Unexercised Shares Underlying Unexercised Options In-the-Money Options at Year-End Acquired Value at Fiscal Year-End Exercisable/Unexercisable/1/ Name On Exercise Realized Exercisable/Unexercisable at Fiscal Year-End - ------------------------------------------------------------------------------------------------------------------------------------ Joseph N. Tosh II -0- -0- 55,786/12,360 $1,130,992/$222,678 - ------------------------------------------------------------------------------------------------------------------------------------ Donald A. Benziger 18,187 $176,930 14,402/7,984 $285,881/$143,891 ====================================================================================================================================
- ---------------------------- /1/The value of unexercised in-the-money options is calculated by determining the difference between the fair market value of the securities underlying the options at year-end and the exercise price of the options. 60 COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Century National Bank and Trust Company does not have a Compensation Committee as such. During 1997 the Executive Committee, comprised of Del E. Goedeker, Charles I. Homan, Wayne S. Luce, Z. John Kruzic, Thomas K. Reed, and Joseph N. Tosh II, acting in the capacity of a Compensation Committee, approved raises and officer bonuses for recommendation to the full Board of Directors. Mr. Tosh is the President and Chief Executive Officer of the Corporation. Wayne S. Luce retired 12/31/97 as President of Reed, Luce, Tosh, Wolford & Douglas, P.C. which performed legal services for Century during 1997 and will provide such services during 1998. RETIREMENT PLAN - --------------- The Corporation maintains a noncontributory retirement plan covering all eligible employees of its subsidiary, Century National Bank & Trust Company. An employee becomes fully vested in the plan after five years of service. Normal retirement is at sixty-five (65) years of age. The plan is a defined benefit plan whereby, upon retirement, an employee receives one percent of the first $500 of average monthly compensation plus 1.5 percent of average monthly compensation in excess of $500 for each year of service up to a maximum ------- compensation of $150.000. Distributions from the plan are not subject to - ------------------------- deductions for social security benefits and other such amounts. 61 The following table sets forth the estimated annual benefits payable on retirement at age 65 by a participating employee, assuming final average earnings as shown.
AVERAGE ANNUAL ANNUAL BENEFITS UPON RETIREMENT EARNINGS WITH YEARS OF SERVICE INDICATED 5 10 15 20 25 30 35 - -- -- -- -- -- -- $ 10,000 $ 600 $ 1,200 $ 1,800 $ 2,400 $ 3,000 $ 3,600 $ 4,200 ---------------------------------------------------------------------------------- 20,000 1,350 2,700 4,050 5,400 6,750 8,100 9,450 ---------------------------------------------------------------------------------- 30,000 2,100 4,200 6,300 8,400 10,500 12,600 14,700 ---------------------------------------------------------------------------------- 40,000 2,850 5,700 8,550 11,400 14,250 17,100 19,950 ---------------------------------------------------------------------------------- 50,000 3,600 7,200 10,800 14,400 18,000 21,600 25,200 ---------------------------------------------------------------------------------- 60,000 4,350 8,700 13,050 17,400 21,750 26,100 30,450 ---------------------------------------------------------------------------------- 70,000 5,100 10,200 15,300 20,400 25,500 30,600 35,700 ---------------------------------------------------------------------------------- 80,000 5,850 11,700 17,550 23,400 29,250 35,100 40,950 ---------------------------------------------------------------------------------- 90,000 6,600 13,200 19,800 26,400 33,000 39,600 46,200 ---------------------------------------------------------------------------------- 100,000 7,350 14,700 22,050 29,400 36,750 44,100 51,450 ---------------------------------------------------------------------------------- 110,000 8,100 16,200 24,300 32,400 40,500 48,600 56,700 ---------------------------------------------------------------------------------- 120,000 8,850 17,700 26,550 35,400 44,250 53,100 61,950 ---------------------------------------------------------------------------------- 130,000 9,600 19,200 28,800 38,400 48,000 57,600 67,000 ---------------------------------------------------------------------------------- 140,000 10,350 20,700 31,050 41,400 51,750 62,100 72,450 ---------------------------------------------------------------------------------- 150,000 11,100 22,200 33,300 44,400 55,500 66,600 77,700 ----------------------------------------------------------------------------------
Current remuneration covered by the Plan for 1997 contributions for the Named Officers was: Joseph N. Tosh II, $150,000, and Donald A. Benziger, $123,793. As of December 31, 1997 Mr. Tosh II was credited with 31 years of service and Mr. Benziger, 7 years. Compensation covered under the Plan includes salary and bonus as reported on the "Summary Compensation Table" in this item and salary and bonus for all other employees. Director Compensation - --------------------- There was no compensation paid by the Corporation to any Director or Executive Officer during 1997; remuneration was paid to Directors by the Corporation's subsidiary, Century National Bank and Trust Company. During the year 1997, members of the Board of Directors of Century National Bank & Trust Company, excluding Joseph N. Tosh II as an officer of the Bank, were compensated at the rate of $645 per month with the Chairman receiving $967.50 per month. Members of the Executive Committee and Problem Loan Committee, excluding Joseph N. Tosh II as an officer of the Bank, received $155 per meeting attended, with the Chairman receiving $232.50 per meeting attended; members of the Audit & Compliance Committee, Trust Investment Committee, Strategic Planning Committee and Building Committee, excluding Joseph N. Tosh II, C. David Becker, Donald A. Benziger, Kenneth L. Raybuck, E.C. Schaffnit, Allen R. Spring and Mary E. Welch as officers of the Bank, received $100 per meeting attended, with the Chairman receiving $150 per meeting attended. Total directors' fees during 1996 amounted to $139,065. Employment Agreements Century entered into a three-year employment agreement commencing on January 1, 1998 with Donald A. Benziger and a three-year employment agreement commencing on June 1, 1998 with Joseph N. Tosh, II. Pursuant to these agreements, Mr. Tosh will serve as President and Chief Executive Officer of the Corporation and Mr. Benziger will serve as Senior Vice President and Chief Financial Officer of the Corporation, at an annual base salary of $148,000 and $97,849.11, respectively. Each agreement contemplates that, upon the consummation of the merger of the Corporation with and into Citizens Bancshares, Inc., an Ohio corporation, ("Bancshares") pursuant to the Agreement and Plan of merger, dated December 3, 1997, between the Corporation and Bancshares, Bancshares or one of its subsidiaries will assume the duties of Century under these agreements. The agreement with Mr. Tosh provides that he will continue to serve as a director of Century without compensation until the consummation of the Merger, at which time he will serve as a director of both Bancshares and The Citizens Banking Company, an Ohio bank and wholly owned subsidiary of Bancshares ("Citizens"). In consideration for his service as a director of Bancshares and Citizens, mr. Tosh will be paid a fee equivalent to that received by nonemployee members of the board. Each agreement provides for bonus compensation. The amount of Mr. Tosh's bonus is based on the achievement of certain performance goals and in no case shall be greater than $55,000 per year. Mr. Benziger's bonus compensation is based upon individual and corporate performance as determined by the Board of Directors and in no event shall in any year be greater than 25% of his base salary. Each of the agreements provides that if the employee is terminated other than for "cause," the employee shall be entitled to receive the unpaid portion of his base salary, bonus and benefits earned up to the date of such termination. If the employee is terminated for "cause," the employee shall only be entitled to the unpaid portion of his base salary earned up to the date of such termination. 62 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. As of February 3, 1998, there were no shareholders of the Corporation of record or known by the Board of Directors to be the beneficial owner of more than 5% of the Corporation's Common Stock. As of February 3, 1998, the Trust Department of Century held, in various fiduciary capacities, 77,080 shares of the Corporation's Common Stock. Management does not exercise voting power over these shares. Under the proxy rules of the Securities and Exchange Commission ("SEC"), a person who directly or indirectly has or shares voting power and/or investment power with respect to a security is considered as a beneficial owner of the security. Investment power includes the power to dispose of or to direct the disposition of shares. Shares as to which voting power and/or investment power may be acquired within 60 days are also considered as beneficially owned under these proxy rules. The following table sets forth information with respect to the beneficial ownership of shares of the Corporation's Common Stock as of the close of business on February 15, 1998 by (i) the directors of the Corporation, (ii) the Chief Executive Officer and Chief Financial Officer, the "Named Officers," and (iii) all directors and principal officers of the Corporation as a group. Unless otherwise indicated in the footnotes to the table, each person named and all directors and principal officers as a group have sole voting power and sole investment power with respect to the shares. All persons named in the table are directors of the Company except for Donald A. Benziger who is Senior Vice President, Chief Financial Officer and Corporate Secretary.
Shares of Name of Individual Corporation Common Percent or Identity of Group Stock Owned Of Class - -------------------- ------------------ --------- Elvin W. Batchelor (9) 58,354 1.11% Robert F. Garvin, Jr. (2)(9) 16,436 .31% Del E. Goedeker (8)(9) 61,771 1.18% A. Dean Heasley(1)(2)(9) 66,766 1.28% Charles I. Homan (9) 5,478.8 .01% Harry J. Johnston (1)(2)(3)(9) 216,757 4.15% Z. John Kruzic (9) 37,698 .72% Wayne S. Luce (2)(9) 111,619 2.13% Sister Mary Thaddeus Markelewicz(5)(9) 3,316 .06% Thomas K. Reed(2)(3)(4)(9) 53,590.4 1.02% Harold V. Shank, Jr.(1)(9) 18,908.9 .36% Joseph N. Tosh II (1)(3)(8)(9) 231,850 4.43% Donald A. Benziger (2)(6)(9) 23,396.2 .45% All directors and executive officers of the Corporation and Century as a Group (13 persons) 905,941.3 17.78%
(1) In the case of A. Dean Heasley, Harry J. Johnston, Harold V. Shank, Jr., Joseph N. Tosh II, includes 49,594; 160,601; 7,444.9; 915; shares, respectively, held jointly with their wives, as to which voting power and investment power are shared. (2) Includes shares held of record in the names of their spouse: Robert F. Garvin, Jr., 150 shares; A. Dean Heasley, 6,483 shares; Harry J. Johnston, 7,257 shares; Wayne S. Luce, 43,200 shares; Thomas K. Reed, 864 shares; Donald A. Benziger, 1,731.4 shares. (3) Includes 37 shares held by Harry Johnston as Trustee for his nephew; 20,500 shares held by Thomas K. Reed as Trustee for his mother; 51,067 shares held by Joseph Tosh II as Trustee of his sister's trust. 63 (4) In the case of Thomas K. Reed, includes 1,152 and 1,182.8 shares held respectively by his son and daughter who continue to reside with Mr. Reed. (5) In the case of Sister Mary Thaddeus Markelewicz, includes 1,500 shares held in the name of The Felician Sisters of Pennsylvania. (6) In the case of Donald A. Benziger, includes 480.5 shares held by his spouse as custodian of their two children. (7) In the case of Del E. Goedeker, includes 13,080 shares held in the Goedeker Foundation for which he has voting power. (8) In the case of Joseph N. Tosh II, includes 110,000 shares held in JBT Investments, Limited Partnership for which he has voting power. (9) In the case of Elvin Batchelor, Robert F. Garvin, Jr., Del Geodeker, A. Dean Heasley, Charles I. Homan, Harry Johnston, John Kruzic Wayne Luce, Sister Mary Thaddeus Markelewicz, Thomas Reed, Harold Shank, Joseph Tosh II, Donald A. Benziger, includes 1,984;94; 2,229; 1,968; 2,521; 3,076; 4,155; 5,485; 1,066; 4,226; 1,418; 65,868; and 20,944 shares, respectively, covered by stock options granted and exercisable under the Corporation's stock option plan. In computing the percentage of ownership for each nominee, director and principal officer and the group, the shares covered by the exercisable stock options held by such nominee, director, principal officer and the group, are deemed outstanding. In calculating the percentage of class owned, the total number of shares issued and outstanding have been increased to reflect the number of shares that would be outstanding if these options were exercised. ITEM 13. CERTAIN RELATIONSHIP AND RELATED TRANSACTIONS Century National Bank and Trust Company, a subsidiary of the Corporation, has had transactions in the ordinary course of business, including borrowings, with certain directors and executive officers of the Corporation and the Bank during 1997. All loans, collateral and interest requirements included, were made on the same terms as those prevailing at the time for comparable transactions with other persons and did not involve more than normal risk of collectibility or present other unfavorable features. Wayne S. Luce retired 12/31/97 as President of Reed, Luce, Tosh, Wolford & Douglas, P.C. which performed legal services for the Bank during 1997 and will provide such services during 1998. Total payments for the legal services rendered in 1997 were $97,000. Thomas K. Reed is a Broker with Baumgard & Reed, which has written fidelity bonds and property, casualty, and workman's compensation insurance coverage for Century National Bank & Trust Company as well as the Holding Company during 1997 and will provide such services during 1998. Total payments for insurance services rendered in 1997 were $257,000. Subsidiary Listing - ------------------ Century National Bank & Trust Company 64 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this report, except as may be indicated: (1) Financial Statements: The following Consolidated Financial Statements of Century Financial Corporation together with the Independent Auditor's Report dated January 16, 1998 are included in Part II, Item 8 - Financial Statements and Supplementary Data.
Page Reference -------------- Report of Independent Certified Public Accountants. 56 Consolidated Balance Sheets, December 31, 1997 and 1996. 32 Consolidated Statements of Income for the years ended December 31, 1997, 1996 and 1995. 33 Consolidated Statement of Changes in Stockholders' Equity for the years ended December 31, 1997, 1996 and 1995. 34 Consolidated Statement of Cash Flows for the years ended December 31, 1997, 1996 and 1995. 35 Notes to Consolidated Financial Statements 36-55
(2) Financial Statement Schedules: Not applicable. (3) Exhibits: (a) Exhibits filed herewith or incorporated by reference are set forth in the following table prepared in accordance with Item 601 of Regulation S-K. EXHIBIT TABLE - -------------------------------------------------------------------------------- (3.1) Articles of Incorporation of the registrant are incorporated herein by reference to the registrant's Form S-4 Registration Statement, File No 0-17413. (3.2) By-Laws of the registrant are incorporated herein by reference to the registrants Form 8-4 Registration Statement, File No. 0-17413. (10.1) Employment Agreement with Joseph N. Tosh, II filed herewith as exhibit 10.1 (10.2) Employment Agreement with Donald A. Benziger filed herewith as exhibit 10.2. (10.3) Agreement of plan of merger dated December 3, 1997 between the registrant and Citizens Bancshares, Inc., is incorporated herein by reference to the Citizen's Bancshares, Inc. (Ohio) Form 8-K filed January 2, 1998, File No. 33-21296. (10.4) The 1993 Century Financial Corporation Stock Option Plan, is incorporated herein by reference to the registrant's 1993 proxy statement. (21) List of subsidiaries of the registrant, filed herewith. (27) Financial Data Schedule for the year ended December 31, 1997, filed herewith as exhibit 27. (99.1) Press Release of November 17, 1997 announcing a plan of merger between the registrant and Citizens Bancshares, Inc., incorporated herein by reference to the registrant's Form 8-K filed December 1, 1997. (99.2) Letter of Intent dated November 17, 1997 between the registrant and Citizens Bancshares, Inc., incorporated herein by reference to the registrant's Form 8-K filed December 1, 1997. (99.3) Stock Option Agreement dated November 17, 1997 between the registrant and Citizens Bancshares, Inc., incorporated herein by reference to the registrant's Form 8-K filed December 1, 1997. (b) Reports on Form 8-K On December 1, 1997, the Corporation filed a Form 8-K announcing the signing of a letter of intent that calls for the Corporation to merge with Citizens Bancshares, Inc. 65 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. Century Financial Corporation Date: February 20, 1998 By: /s/ Joseph N. Tosh, II ----------------------------------- Joseph N. Tosh, II President and Chief Executive Officer (Principal Executive Officer) Date: February 20, 1998 By: /s/ Donald A. Benziger ----------------------------------- Donald A. Benziger Senior Vice President, Chief Financial Officer and Corporate Secretary (Principal Financial Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the persons on behalf of the registrant and in the capacities and on the dates indicated. (CAPTION> Name Title Date - --------------------------- ---------------------- ---------------- /s/ Joseph N. Tosh, II President February 20, 1998 - --------------------------- Joseph N. Tosh, II /s/ Del E. Goedeker Chairman February 20, 1998 - --------------------------- Del E. Goedeker /s/ Elvin W. Batchelor Director February 20, 1998 - --------------------------- Elvin W. Batchelor /s/ A. Dean Heasley Director February 20, 1998 - --------------------------- A Dean Heasley
66 SIGNATURES (Continued) (CAPTION> Name Title Date - ---------------------------------- -------------- ----------------- /s/ Harry J. Johnston Director February 20, 1998 - ---------------------------------- Harry J. Johnston /s/ Z. John Kruzic Director February 20, 1998 - ---------------------------------- Z. John Kruzic /s/ Wayne S. Luce Director February 20, 1998 - ---------------------------------- Wayne S. Luce /s/ Thomas K. Reed Vice-Chairman February 20, 1998 - ---------------------------------- Thomas K. Reed /s/ Harold V. Shank, Jr. Director February 20, 1998 - ---------------------------------- Harold V. Shank, Jr. /s/ Charles I. Homan Director February 20, 1998 - ---------------------------------- Charles I. Homan /s/ Sister M. T. Markelewicz Director February 20, 1998 - ---------------------------------- Sister M. T. Markelewicz /s/ Robert F. Garvin, Jr. Director February 20, 1998 - ---------------------------------- Robert F. Garvin, Jr.
67 EX-10.1 2 EMPLOYMENT AGREEMENT (TOSH) EXHIBIT 10.1 EMPLOYMENT AGREEMENT -------------------- THIS EMPLOYMENT AGREEMENT (this "Agreement") is made as of June 1, 1998, by and between CENTURY NATIONAL BANK AND TRUST, a national banking association ("Century"), THE CITIZENS BANKING COMPANY, an Ohio bank ("Citizens"), and CITIZENS BANCSHARES, INC., an Ohio corporation ("Bancshares") (collectively referred to as the "Company"), and JOSEPH N. TOSH (the "Employee"). WHEREAS, the Company desires to procure the services of Employee, and Employee is willing to be employed by the Company, upon the terms and subject to the conditions contained herein. NOW, THEREFORE, intending to be legally bound, the Company agrees to employ Employee, and Employee hereby agrees to be employed by the Company, upon the following terms and conditions: 1. Employment and Duties. ---------------------- (a) Century agrees to employ and Employee agrees to be employed by Century as Century's President and Chief Executive Officer. Upon such time when Century becomes a division of Citizens, Citizens agrees to employ and Employee agrees to be employed by Citizens as Citizens' Executive Vice President/Century Division. Employee shall report directly to the Chief Executive Officer of Citizens, or his designee ("Citizens Representative") and shall have such responsibilities, consistent with his office, as may from time to time be prescribed by the Citizens Representative. Employee agrees to perform such duties as may be assigned, to devote all of his working time to the business of the Company, and to use his best efforts to advance the interests of the Company and its shareholders. (b) Employee represents and warrants to the Company that he is free to be employed by the Company, and that he has no prior or other obligations or commitments of any kind to anyone that would in any way hinder or interfere with Employee's full and faithful performance of his duties under this Agreement. (c) Notwithstanding anything to the contrary contained herein or otherwise, nothing in this Agreement shall prohibit Employee from serving as a director or officer of any trade association, civic, educational or charitable or governmental entity so long as it does not substantially interfere with the performance of his duties as provided in paragraph (a) hereof. 2. Term. The Company hereby employs Employee for a period of three (3) ---- years beginning on the date of this Agreement and expiring on June 1, 2001, unless terminated earlier in accordance with the provisions of Section 7 of this Agreement. Notwithstanding the foregoing, Employee's obligations and the Company's rights under Section 8 hereof and under the Confidentiality, Noncompetition and Nonsolicitation Covenants (as hereinafter defined) shall survive the termination of this Agreement. 3. Compensation. ------------- (a) The Employee's annual base salary ("Base Salary") during the term of this Agreement shall be One Hundred and Forty-Eight Thousand Dollars ($148,000). The Base Salary shall be payable in accordance with the Company's normal payroll practices for employees (but no less frequently than monthly), and the Company shall deduct or cause to be deducted from the Base Salary all taxes and amounts required by law to be withheld. (b) Nothing herein shall be deemed to preclude the Company from paying Employee, in addition to his Base Salary, any bonuses as may be awarded from time to time as provided in Section 5 herein. (c) The Company will reimburse Employee for all reasonable business expenses incurred by Employee in the course of performing Employee's duties under this Agreement that are consistent with the Company's policies in effect from time to time with respect to travel, entertainment and other business expenses. 4. Directorships. The Employee shall serve as a director as provided -------------- herein: (a) As of the date of this Agreement, the Employee shall serve as a member of Century's Board of Directors without any additional compensation. (b) Upon the consummation of the Citizens and Century merger, the Employee shall serve as a member of Citizens' Board of Directors. Citizens shall pay Employee for such services a fee equivalent to that paid to the nonemployee members of said board. Citizens shall not be obligated to pay such fee if the Employee ceases to serve on such board subject, however, to the provisions of paragraph (d) herein. (c) Upon the consummation of the Bancshares and Citizens Financial Corporation merger, the Employee shall serve as a member of Bancshares' Board of Directors. Bancshares shall pay Employee for such services a fee equivalent to that paid to the nonemployee members of said board. Bancshares shall not be obligated to pay such fee if the Employee ceases to serve on such board subject, however, to the provisions of paragraph (d) herein. (d) If the Employee fails to win re-election to either Citizens or Bancshares Board of Directors, or if the Employee is terminated without cause pursuant to Section 7(e) of this Agreement and thereafter resigns as a director of either Citizens or Bancshares, or if there occurs a "change in control" (as hereinafter defined) of either Citizens or Bancshares and Employee does not continue thereafter to serve on such board for any reason whatsoever, including his voluntary resignation, then Citizens or Bancshares, as the case may be, shall pay Employee an amount equal to the sum of director's fees that Employee would have received had he served on such board until he reached the age of sixty-five (65) based on the preceding year's nonemployee director's fee (the "Sum"). The Sum shall be payable within thirty days after Employee ceases to serve on such board. The Term "change in control" shall mean the following events: -2- (1) When any "person" as defined in Section 3(a)(9) of the Exchange Act and as used in Sections 13(d) and 14(d) thereof, including a "group" as defined in Section 13(d) of the Exchange Act, but excluding Citizens or Bancshares and any employee benefit plan sponsored or maintained by Citizens or Bancshares (including any trustee of such plan acting as trustee), directly or indirectly, becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act, as amended from time to time), of securities of Citizens or Bancshares representing more than fifty percent (50%) of the combined voting power of Citizens' or Bancshares' then outstanding securities; or (2) The completion of a transaction requiring shareholder approval for the acquisition of substantially all of the stock or assets of Citizens or Bancshares' by an entity other than Citizens or Bancshares or any merger of Citizens or Bancshares into another company and Citizens or Bancshares is not the surviving entity. (5) Bonus. During the term of this Agreement the Company shall pay to ------ the Employee an annual bonus (the "Bonus") according to the terms herein, but in no case shall the Bonus exceed $55,000 per annum except as provided in Section 9 hereof. During the 1998 calendar year of this Agreement the Bonus shall be equal to one-quarter (1/4) of the Employee's Base Salary for the attainment of each and any of the goals in specified paragraphs (a) through (d). During the 1999 calendar year of this Agreement the Bonus shall be equal to one-third(1/3) of the Employee's Base Salary for the attainment of each and any of the goals specified in paragraphs (a) through (d) below. During the 2000 calendar year of this Agreement the Bonus shall be equal to one-third (1/3) of the Employee's Base Salary for the attainment of each and any of the goals specified in paragraphs (a) through (c) below. During the 2001 calendar year of this Agreement the Bonus shall be equal to one-third (1/3) of the Employee's Base Salary for the attainment of each and any of the goals specified in paragraphs (a) through (c) below. Notwithstanding the foregoing, for calendar year 2001, and for calendar years in which the Employee is employed for less than twelve (12) months, the Bonus shall be calculated by the Company and paid on a pro rata basis (for complete months employed) by no later than the following February 1st. (a) Citizens' return on equity equals or exceeds 16%; (b) Citizens obtains the highest or second highest deposit market share in Beaver County, Pennsylvania; (c) Citizens' net loan charge offs are under 25 basis points of gross loans in the Century Division; (d) Century Financial Corporation becomes a division of Citizens Banking Company by January 31, 1999. 6. Benefits. The Company shall afford the Employee the following benefits --------- as provided herein: -3- (a) Health, Vision and Dental Plans. During the term of this Agreement ------------------------------- and until Employee reaches the age of sixty-five (65), Employee and Employee's eligible dependents shall be entitled to participate in health, vision and dental plans generally afforded (ie. the same terms and co-payments) by the Company to its executive employees from time to time. (b) Employee Benefit Plans. During the term of this Agreement, Employee ----------------------- shall be entitled to participate, if eligible, in all employee benefit plans which are generally afforded (ie. the same terms and co-payments) by the Company to its executive employees from time to time including the Citizens Stock Option Plan so long as such participation complies with applicable federal and state law. (c) Perquisites. Notwithstanding paragraph (b) above, Employee shall be ------------ entitled to the following benefits during the term of this Agreement: (1) Thirty (30) days of paid vacation during the first year of this Agreement and forty-five (45) days of paid vacation during the second and third years of this Agreement: (2) The Company shall pay the lease, insurance, gas and maintenance expenses for one car of the Employee, provided however that such payments shall not substantially exceed those currently incurred by Employee; (3) The Company shall pay the Employee's Beaver Valley Country Club dues and assessments. 7. Disability or Death; Resignation; Termination for Cause; Other -------------------------------------------------------------- Terminations. ------------- (a) Death. In the event of Employee's death, this Agreement and ------ Employee's employment shall terminate upon such date of death, except that Employee's designated beneficiary (or, in the absence of a designated beneficiary, Employee's estate) shall be entitled to receive the unpaid portion of Employee's Base Salary and Bonus earned up to the date of his death; and Employee's designated beneficiary (or, in the absence of a designated beneficiary, Employee's estate) shall be entitled to receive all benefits payable as a result of Employee's death under the terms of the Company's employee benefit plans. (b) Disability. If Employee is incapacitated for a period of one hundred ----------- eighty (180) consecutive days so that Employee cannot substantially perform his duties hereunder on a full-time basis (a "Disability"), Employee's employment will terminate upon the expiration of such 180 day period. Notwithstanding the foregoing, Employee's obligations and the Company's rights under Section 8 hereof and under the Confidentiality, Noncompetition and Nonsolicitation Covenants (as hereafter defined) shall survive the termination of this Agreement, and Employee shall be entitled to receive (i) the unpaid portion of Employee's Base Salary and Bonus earned up to the date of such termination reduced by the amount of any payments received by Employee pursuant to any short-term disability plan or other plan providing disability payments to the Employee, and (ii) all benefits payable to Employee as a result of such termination under the Company's employee benefit plans. -4- (c) Termination for Cause. The Company may terminate Employee's employment ---------------------- at any time for cause (as defined below.) If the Company terminates Employee's employment for cause (as defined below), all of the Company's obligations hereunder shall immediately terminate. As used in this section, "for cause" shall mean (i) gross misconduct by Employee, or (ii) Employee's commission of a felony or an act of moral turpitude, or (iii) Employee's material breach or failure to perform any provision of this Agreement, but only if Employee is first given written notice from the Citizens Representative specifying the nature of such breach or failure and Employee refused to remedy such breach or failure within a period of thirty (30) days after receipt of such notice. Notwithstanding the termination of this Agreement pursuant to this Section 7(c), Employee's obligations and the Company's rights under Section 8 hereof and under the Confidentiality, Noncompetition and Nonsolicitation Covenants (as hereafter defined) shall survive this termination of this Agreement. Employee shall be entitled to receive the unpaid portion of Employee's Base Salary earned up to the date of such termination. (d) Termination Without Cause by Employee. -------------------------------------- (1) Employee may terminate his employment at any time without cause pursuant to written notice at least thirty (30) days in advance of the termination of employment date specified by him (the "Termination Notice"). (2) If Employee's employment terminates pursuant to this Section 7(d), both the Company's and Employee's obligations hereunder shall terminate as of the termination date specified in the Termination Notice. Employee shall be entitled to receive the unpaid portion of Employee's Base Salary, Bonus and benefits payable to Employee as a result of such termination under the Company's employee benefit plans earned up to the date of such termination. Notwithstanding the foregoing, Employee's obligations and the Company's rights under Section 8 hereof and under the Confidentiality, Noncompetition and Nonsolicitation Covenants (as hereafter defined) shall survive the termination of this Agreement. (e) Termination Without Cause by the Company. ----------------------------------------- (1) The Company may terminate Employee's employment at any time without cause pursuant to written notice at least thirty (30) days in advance of the termination of employment date specified by the Company (the "Termination Notice"). (2) If Employee's employment terminates pursuant to this Section 7(e), both the Company's and Employee's obligations hereunder shall terminate as of the termination date specified in the Termination Notice. Employee shall be entitled to receive the unpaid portion of Employee's Base Salary, Bonus and benefits payable to Employee as a result of such termination under the Company's employee benefit plans earned up to the date of such termination. Notwithstanding the foregoing (i) Employee's obligations and the Company's rights under Section 8 hereof and under the Confidentiality, Noncompetition and Nonsolicitation Covenants (as hereafter defined) shall survive the termination of this Agreement and (ii) Company's obligations under Sections 3, 4, 5 and 6 hereof shall survive the termination of this Agreement. -5- 8. Confidentiality, Noncompetition and Nonsolicitation. The -------------------------------------------------- confidentiality, noncompetition and nonsolicitation covenants attached hereto as Exhibit A (the "Confidentiality, Noncompetition and Nonsolicitation Covenants") are hereby incorporated by reference and made a part of this Agreement. 9. Option In lieu of Section 3 hereof, the Employee shall have the option, ------ subject to the condition of Section 9(a) hereof to work 1000 hours for the Company and receive a Base Salary of Ninety Thousand Dollars $90,000 and a Bonus not to exceed $27,500 during the third year of this Agreement (The "Option") Employee shall work at such times as Employee and the Citizens Representative mutually agree but in increments of not less than 40 hours per week. (a) Employee shall notify the Company at least thirty (30) days but no earlier than 120 days before the commencement of the third year of this Agreement of Employee's intent to exercise the Option. 10. Enforceability. The unenforceability or invalidity of any provision of --------------- this Agreement shall not affect the enforceability or validity of the balance of the Agreement. In the event that any such provision should be or becomes invalid for any reason, such provision shall remain effective to the maximum extent permissible, and the parties shall consult and agree on a legally acceptable modification giving effect to the commercial objectives of the unenforceable or invalid provision, and every other provision of this Agreement shall remain in full force and effect. 11. Assignment; Binding Effect. This Agreement, being for the personal --------------------------- services of Employee, shall not be assignable by Employee. Subject to the foregoing, this Agreement shall inure to the benefit of, and be enforceable by, the parties' successors, representatives, executors, administrators or assignees. 12. Notices. All notices, requests, demands and other communications made -------- or given in connection with this Agreement shall be in writing and shall be deemed to have been duly given (a) if delivered, at the time delivered against receipt or (b) if mailed three (3) days after mailing at any general or branch Untied States Post Office enclosed in a registered of certified postage paid envelope, or (c) if couriered, one day after deposit with a national overnight courier, addressed to the address of the respective parties as follows: To the Company: ------------------------------------------ ------------------------------------------ ------------------------------------------ ------------------------------------------ To the Employee: ------------------------------------------ ------------------------------------------ ------------------------------------------ ------------------------------------------ or to such other addresses as the party to whom notice is to be given may have previously furnished to the other party in writing in the manner set forth above, provided that notices of changes of address shall only be effective upon receipt. 13. Entire Agreement. This Agreement constitutes the entire agreement of ----------------- the paries hereto relating to the subject matter hereof and there are no written or oral terms or representations made by either party other than those contained herein. -6- 14. Governing Law. This Agreement shall be governed by and construed in -------------- accordance with laws of the State of Ohio, without regard to principles of conflicts of laws. The Company and Employee hereby irrevocably submit to the jurisdiction of the courts of the state of Ohio, with venue in Columbiana County, over any dispute arising out of this Agreement and agree that all claims in respect of such dispute or proceeding shall be heard and determined in such court. The Company and Employee hereby irrevocably waive, to the fullest extent permitted by applicable law, any objection which they may have to the venue of any such dispute brought in such court or any defense of inconvenient forum for the maintenance if such dispute. The Company and Employee hereby consent to process being served by them in any suit, action or proceeding by delivering it in the manner specified by the provisions of Section 12 of this Agreement. 15. Set-Off. Any and all payment obligations of the Company to Employee -------- under this Agreement shall be subject to the Company's right to set off amounts owed to it by Employee whether under this Agreement or otherwise. 16. Counterparts. This Agreement may be executed in any number of ------------ counterparts, each of which so executed and delivered shall constitute an original hereof, and it shall not be necessary in making proof of this Agreement to produce or account for more than one original counterpart hereof. -7- IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written but on the dates indicated below. EMPLOYEE CENTURY NATIONAL BANK AND TRUST By: - ---------------------------- ---------------------------- Joseph N. Tosh Its: ---------------------------- CITIZENS BANKING COMPANY By: ----------------------------- Its: ---------------------------- CITIZENS BANCSHARES, INC. By: ----------------------------- Its: ---------------------------- -8- EXHIBIT A TO EMPLOYMENT AGREEMENT Confidentiality, Noncompetition and Nonsolicitation Covenants --------------------------------- 1. Noncompetition. Employee agrees that for a period of three -------------- years commencing on the date of this Agreement that Employee shall not, without the prior written consent of the Company, either directly or indirectly, engage in, make any investment in or have any interest in any business in competition with the business of the Company located within twenty (20) miles of Bancshares' or its subsidiaries' places of business; and the Employee shall not advise, assist or render services either directly or indirectly to any person, firm, company, corporation or business other than the Company with reference to any business in competition with the business engaged in by the Company during the Employee's employment with the Company. Notwithstanding the foregoing, the ownership of securities of any business competing with the Company, if such securities are publicly traded on a national securities market and constitute less than five percent (5%) of the outstanding stock thereof shall not constitute a violation of this provision. 2. Nonsolicitation. Employee agrees that Employee shall not at --------------- any time (whether during or after Employee's termination of employment with the Company), without the prior written consent of the Company, either directly or indirectly (i) solicit (or attempt to solicit) induce, (or attempt to induce), cause or facilitate any employee, director, agent, consultant, independent contractor, representative or associate of the Company to terminate his, her or its relationship with the Company, or (ii) solicit (or attempt to solicit) induce (or attempt to induce), cause or facilitate any supplier of services or products to the Company to terminate or change his, her or its relationship with the Company, or otherwise interfere with any relationship between the Company and any of the Company's suppliers of products or services. 3. Nondisclosure. Employee agrees that Employee shall not at any ------------- time (whether during or after the period of Employee's employment with the Company) directly or indirectly divulge, disclose or communicate to any person, firm, company, corporation or business in any manner whatsoever any confidential information relating to the business of the Company, including without limitation, the Company's business plans, strategies, pricing, sales methods, trade secrets, know-how and similar types of information. 4. Inventions and Patents. Employee agrees that all inventions, ---------------------- innovations, improvements, developments, methods, designs, analyses, drawings, reports, and all similar or related information which relates to the Company's actual or anticipated business, research and development or existing or future products or services and which are conceived, developed or made by Employee while employed by the Company or its predecessor (all of the foregoing being referred to herein as "Work Product") belong to the Company. Employee shall perform all actions reasonably requested by the Company (whether during or after the employment Term) to establish and confirm such ownership of Work Product (including, without limitation, assignments, consents, powers of attorney and other instruments). A-1 EX-10.2 3 EMPLOYEMENT AGREEMENT (BENZIGER) EXHIBIT 10.2 EMPLOYMENT AGREEMENT -------------------- THIS EMPLOYMENT AGREEMENT (this "Agreement") is made as of January 1, 1998, by and between CENTURY NATIONAL BANK AND TRUST, a national banking association ("Century"), CITIZENS BANKING COMPANY, an Ohio corporation ("Citizens") (collectively referred to as the "Company"), and DONALD A. BENZIGER (the "Employee"). WHEREAS, the Company desires to procure the services of Employee, and Employee is willing to be employed by the Company, upon the terms and subject to the conditions herein. NOW, THEREFORE, intending to be legally bound, the Company agrees to employ Employee, and Employee hereby agrees to be employed by the Company, upon the following terms and conditions: 1. Employment and Duties. ---------------------- (a) Century agrees to employ and Employee agrees to be employed by Century as Century's Senior Vice President and Chief Financial Officer. Upon such time when Century becomes a division of Citizens, Citizens agrees to employ and Employee agrees to be employed by Citizens as an officer. Employee shall report directly to the Chief Executive Officer of Citizens, or his designee ("Citizens Representative") and shall have such responsibilities as may from time to time be prescribed by the Citizens Representative. Employee agrees to perform such duties as may be assigned, to devote all of his working time to the business of the Company, and to use his best efforts to advance the interests of the Company and its shareholders. If the Employee is elected a director of the Company during the Term of this Agreement, Employee shall serve in that capacity without any additional compensation from the Company. (b) Employee represents and warrants to the Company that he is free to be employed by the Company, and that he has no prior or other obligations or commitments of any kind to anyone that would in any way hinder or interfere with Employee's full and faithful performance of his duties under this Agreement. (c) Nothwithstanding anything to the contrary herein or otherwise, nothing in this Agreement shall prohibit Employee from serving as a director or officer of any trade association, civic, educational or charitable or governmental entity so long as it does not substantially interfere with the performance of his duties as provided in paragraph (a) hereof. 2. Term. The Company hereby employs Employee for a period of ---- three (3) years beginning on the date of this Agreement and expiring on January 1, 2001 unless terminated earlier in accordance with the provisions of Section 6 of this Agreement. Notwithstanding the foregoing, Employee's obligations and the Company's rights under Section 7 hereof and under the Confidentiality, Noncompetition and Nonsolicitation Covenants (as hereinafter defined) shall survive the termination of this Agreement. 3. Compensation. ------------ (a) During the term of this Agreement the Company shall pay to Employee an annual salary of Ninety-Seven Thousand Eight Hundred Forty-Nine Dollars and Eleven Cents ($97849.11). The annual salary of Employee in effect from time to time is hereafter referred to as the "Base Salary." The Base Salary shall be payable in accordance with the Company's normal payroll practices for employees (but no less frequently than monthly), and the Company shall deduct of cause to be deducted from the base salary all taxes and amounts required by law to be withheld. The Base Salary may be increased (but not decreased) at any time and from time to time by action of the Company's Board of Directors. (b) Nothing herein shall be deemed to preclude the Company from paying Employee, in addition to his Base Salary, any bonuses as may be awarded from time to time as provided in Section 4 herein. (c) The Company will reimburse Employee for all reasonable business expenses incurred by Employee in the course of performing Employee's duties under this Agreement that are consistent with the Company's policies in effect from time to time with respect to travel, entertainment and other business expenses. 4. Bonus. During the term of this Agreement the Company shall pay ----- to the Employee a bonus of up to 25% of Base Salary based upon reasonable individual and corporate performance as determined by the Company's Board of Directors (the "Bonus"). 5. Benefits. During the term of this agreement, Employee and -------- Employee's eligible dependents shall be entitled to participate in employee benefit plans generally afforded by the Company to its employees from time to time provided that such participation complies with applicable federal and state law. Notwithstanding the foregoing, the Company shall pay the lease, insurance, gas and maintenance expenses for the Employee's current car until the earlier of the date that said lease expires or December 31, 1998 (the "Lease Period"). At the end of the Lease Period, the Company shall pay the Employee a monthly car allowance to cover the Employee's lease, insurance, gas and maintenance expenses provided that such allowance is substantially similar to the monthly payments made during the Lease Period. 6. Disability or Death; Resignation; Termination for Cause; Other -------------------------------------------------------------- Terminations. - ------------ (a) Death. In the event of Employee's death, this Agreement ----- and Employee's employment shall terminate upon such date of death, except that Employee's designated beneficiary (or, in the absence of a designated beneficiary, Employee's estate) shall be entitled to receive the unpaid portion of Employee's Base Salary and Bonus earned up to the date of his death; and Employee's designated beneficiary (or, in the absence of a designated beneficiary, Employee's estate) shall be entitled to receive all benefits payable as a result of Employee's death under the terms of the Company's employee benefit plans. (b) Disability. If Employee is incapacitated for a period ---------- of one hundred eighty (180) consecutive days so that Employee cannot substantially perform his duties hereunder -2- on a full-time basis (a "Disability"), Employee's employment will terminate upon the expiration of such 180 day period. Notwithstanding the foregoing, Employee's obligations and the Company's rights under Section 7 hereof and under the Confidentiality, Noncompetition and Nonsolicitation Covenants (as hereafter defined) shall survive the termination of this Agreement, and Employee shall be entitled to receive (i) the unpaid portion of Employee's Base Salary and Bonus earned up to the date of such termination reduced by the amount of any payments received by Employee pursuant to any short-term disability plan or other plan providing disability payments to the Employee, and (ii) all benefits payable to Employee as a result of such termination under the Company's employee benefit plans. (c) Termination for Cause. The Company may terminate --------------------- Employee's employment at any time for cause (as defined below). If the Company terminates Employee's employment for cause (as defined below), all of the Company's obligations hereunder shall immediately terminate. As used in this section, "for cause" shall mean (i) gross misconduct by Employee, or (ii) Employee's commission of a felony or an act of moral turpitude, or (iii) Employee's material breach or failure to perform any provision of this Agreement, but only if Employee is first given written notice from the Citizens Representative specifying the nature of such breach or failure and Employee refused to remedy such breach or failure within a period of thirty (30) days after receipt of such notice. Employee shall be entitled to receive the unpaid portion of Employee's Base Salary earned up to the date of such termination. (d) Termination Without Cause by the Employee. ----------------------------------------- (1) Employee may terminate his employment at any time without cause pursuant to written notice at least thirty (30) days in advance of the termination of employment date specified by him (the "Termination Notice"). (2) If Employee's employment terminates pursuant to this Section 6(d), both the Company's and Employee's obligations hereunder shall terminate as of the termination date specified in the Termination Notice. Employee shall be entitled to receive the unpaid portion of Employee's Base Salary, Bonus and benefits payable to Employee as a result of such termination under the Company's employee benefit plans earned up to the date of such termination. (e) Termination Without Cause by the Company. ---------------------------------------- (1) The Company may terminate Employee's employment at any time without cause pursuant to written notice at least thirty (30) days in advance of the termination of employment date specified by the Company (the "Termination Notice"). (2) If Employee's employment terminates pursuant to this Section 6(e), both the Company's and Employee's obligations hereunder shall terminate as of the termination date specified by the Termination Notice. Employee shall be entitled to receive the unpaid portion of Employee's Base Salary, Bonus and benefits payable to Employee as a result of such termination under the Company's employee benefit plans earned up to the date of such termination. Notwithstanding the foregoing (i) Company's obligations under Sections 3, 4 and -3- 5 hereof shall survive the termination of this Agreement and (ii) Employee's obligations and the Company's rights under Section 7 hereof and under the Confidentiality, Noncompetition and Nonsolicitation Covenants (as hereafter defined) shall survive the termination of this Agreement unless Employee waives his rights in writing to receive payments under Sections 3, 4 and 5 hereof. (f) Change in Control. If there occurs a "change in control" ----------------- (as hereinafter defined) of Citizens or Citizens Bancshares, Inc. ("Bancshares"), then in any such event the Employee shall have the right to terminate this Agreement and such termination shall be considered a termination without cause by the Company under Section 6(e) herein. The Term "change in control" shall mean the following events: (1) When any "person" as defined in Section 3(a)(9) of the Exchange Act and as used in Sections 13(d) and 14(d) thereof, including a "group" as defined in Section 13(d) of the Exchange Act, but excluding Citizens or Bancshares and any employee benefit plan sponsored or maintained by Citizens or Bancshares (including any trustee of such plan acting as trustee), directly or indirectly, becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act, as amended from time to time), of securities of Citizens or Bancshares representing more than fifty percent (50%) of the combined voting power of Citizens' or Bancshares' then outstanding securities; or (2) The completion of a transaction requiring shareholder approval for the acquisition of substantially all of the stock or assets of Citizens or Bancshares by an entity other than Citizens or Bancshares or any merger of Citizens or Bancshares into another company and Citizens or Bancshares is not the surviving entity. 7. Confidentiality, Noncompetition and Nonsolicitation. The --------------------------------------------------- confidentiality, noncompetition and nonsolicitation covenants attached hereto as Exhibit A (the "Confidentiality, Noncompetition and Nonsolicitation Covenants") are hereby incorporated by reference and made a part of this Agreement. 8. Change in Control. Upon the expiration of the term of this ----------------- Agreement, provided that Employee is still employed by Citizens, Citizens agrees to enter a change in control agreement substantially in the Form of Section 6(f) herein for a period of one year, renewable on an annual basis at the election of Citizens. 9. Enforceability. The unenforceability or invalidity of any -------------- provision of this Agreement shall not affect the enforceability or validity of the balance of this Agreement. In the event that any such provision should be or becomes invalid for any reason, such provision shall remain effective to the maximum extent permissible, and the parties shall consult and agree on a legally acceptable modification giving effect to the commercial objectives of the unenforceable or invalid provision, and every other provision of this agreement shall remain in full force and effect. 10. Assignment; Binding Effect. This Agreement, being for the -------------------------- personal services of Employee, shall not be assignable by Employee. Subject to the foregoing, this Agreement shall inure to the benefit of, and be enforceable by, the parties' successors, representatives, executors, administrators or assignees. -4- 11. Notices. All notices, requests, demands and other ------- communications made or given in connection with this Agreement shall be in writing and shall be deemed to have been duly given (a) if delivered, at the time delivered against receipt or (b) if mailed three (3) days after mailing at any general or branch United States Post Office enclosed in a registered or certified postage paid envelope, or (c) if couriered, one day after deposit with a national overnight courier, addressed to the address of the respective parties as follows: To the Company: Century National Bank and Trust Citizens Banking Company 10 East Main St. P.O. Box 247 Salineville, OH 43945 To Employee: ---------------------------------------------- ---------------------------------------------- ---------------------------------------------- ---------------------------------------------- or to such other addresses as the party to whom notice is to be given may have previously furnished to the other party in writing in the manner set forth above, provided that notices of changes of address shall only be effective upon receipt. 12. Entire Agreement. This Agreement constitutes the entire ---------------- agreement of the parties hereto relating to the subject matter hereof, and there are no written or oral terms or representations made by either party other than those contained herein. 13. Governing Law. This Agreement shall be governed by and ------------- construed in accordance with the laws of the State of Ohio, without regard to principles of conflicts of laws. The Company and the Employee hereby irrevocably submit to the jurisdiction of the courts of the state of Ohio, with venue in Columbiana County, over any dispute arising out of this Agreement and agree that all claims in respect of such dispute or proceeding shall be heard and determined in such court. The Company and Employee hereby irrevocably waive, to the fullest extent permitted by law, any objection which they may have to the venue of any such dispute brought in such court or any defense of inconvenient forum for the maintenance of such dispute. The Company and Employee hereby consent to the process of being served by them in any suit, action or proceeding by delivering it in the manner specified by the provisions of Section 11 of this Agreement. 14. Set-Off. Any and all payment obligations of the Company to ------- Employee under this Agreement shall be subject to the Company's right to set off amounts owed to it by Employee, whether under this Agreement or otherwise. 15. Counterparts. This Agreement may be executed in any number of ------------ counterparts, each of which so executed and delivered shall constitute an original hereof, and it shall not be necessary in making proof of this Agreement to produce or account for more than one original counterpart hereof. -5- IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written but on the dates indicated below. EMPLOYEE CENTURY NATIONAL BANK AND TRUST - ------------------------------------ By: ---------------------------- Donald A. Benziger Its: ---------------------------- CITIZENS BANKING COMPANY By: ---------------------------- Its: ---------------------------- -6- EXHIBIT A TO EMPLOYMENT AGREEMENT Confidentiality, Noncompetition and Nonsolicitation Covenants ---------------------------------- 1. Noncompetition. Employee agrees that during the term of -------------- Employee's employment by the Company and for so long as Employee is either receiving payments pursuant to Section 6(b) or 6(e) hereof or is incapacitated as a result of a Disability, Employee shall not, without the prior written consent of the Company, either directly of indirectly, engage in, make any investment in or have any interest in any business in competition with the business of the Company located within twenty (20) miles of Bancshares' or its subsidiaries' places of business; and the Employee shall not advise, assist or render services either directly or indirectly to any person, firm, company, corporation or business other than the Company with reference to any business in competition with the business engaged in by the Company during the Employee's employment with the Company. Notwithstanding the foregoing, the ownership of securities of any business competing with the Company, is such securities are publicly traded on a national securities market and constitute less than five percent (5%) of the outstanding stock thereof shall not constitute a violation of this provision. 2. Nonsolicitation. Employee agrees that Employee shall not at any --------------- time (whether during or after Employee's termination of employment with the Company), without the prior written consent of the Company, either directly or indirectly (i) solicit (or attempt to solicit) induce, (or attempt to induce), cause or facilitate any employee, director, agent, consultant, independent contractor, representative or associate of the Company to terminate his, her or its relationship with the Company, or (ii) solicit (or attempt to solicit) induce (or attempt to induce), cause or facilitate any supplier of services or products to the Company to terminate or change his, her or its relationship with the Company, or otherwise interfere with any relationship between the Company and any of the Company's suppliers of products or services. 3. Nondisclosure. Employee agrees that Employee shall not at any ------------- time (whether during or after the period of Employee's employment with the Company) directly or indirectly divulge, disclose or communicate to any person, firm, company, corporation or business in any manner whatsoever any confidential information relating to the business of the Company, including without limitation, the Company's business plans, strategies, pricing, sales methods, trade secrets, know-how and similar types of information. 4. Inventions and Patents. Employee agrees that all inventions, ---------------------- innovations, improvements, developments, methods, designs, analyses, drawings, reports, and all similar or related information which relates to the Company's actual or anticipated business, research and development or existing or future products or services and which are conceived, developed or made by Employee while employed by the Company or its predecessor (all of the foregoing being referred to herein as "Work Product") belong to the Company. Employee shall perform all actions reasonably requested by the Company (whether during or after the Employment Term) A-1 EX-27 4 FINANCIAL DATA SCHEDULE
9 1,000 12-MOS DEC-31-1996 JAN-01-1997 DEC-31-1997 12,439 1,645 11,235 0 67,647 0 0 353,921 4,717 458,532 392,926 4,000 4,898 20,000 0 0 4,266 32,442 458,532 29,617 4,497 528 34,642 16,286 17,246 17,396 2,070 0 13,394 5,090 0 0 0 4,222 0.83 0.82 4.54 3,664 73 0 0 3,234 679 92 4,717 3,831 0 886
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