<PAGE>
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
<PAGE>
CENTURY FINANCIAL CORPORATION
FORM 10-K
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
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
</TABLE>
2
<PAGE>
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
<PAGE>
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
<PAGE>
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.
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------
1997 1996 1995
-------------- ------------- --------------
<S> <C> <C> <C>
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
============== ============= ==============
</TABLE>
5
<PAGE>
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.
<TABLE>
<CAPTION>
1 Year 5 Years
Within 1 Through Through Over
Amount Year 5 Years 10 Years 10 Years Total
-------------- ---------- --------- ---------- ---------- -------
(Amounts in thousands)
<S> <C> <C> <C> <C> <C>
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%
======== ======== ======== ========
</TABLE>
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
<PAGE>
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.
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
-------------- ------------- ------------- -------------- -------------
(In thousands)
<S> <C> <C> <C> <C> <C>
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
============ =========== =========== =========== ===========
</TABLE>
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
<PAGE>
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.
<TABLE>
<CAPTION>
December 31, 1997
--------------------------------------------------------------
Maturing
--------------------------------------------------------------
1 Year
Within Through After
1 Year 5 Years 5 Years Total
---------- --------- --------- ---------
(In thousands)
<S> <C> <C> <C> <C>
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
========= =========
</TABLE>
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
<PAGE>
III. LOAN PORTFOLIO (CONTINUED)
C. Risk Elements (Continued)
The following table sets forth information regarding non-performing
assets:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
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%
</TABLE>
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
<PAGE>
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.
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ ------------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C>
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%
=========== =========== =========== ========== ==========
</TABLE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
(In thousands)
<S> <C> <C> <C> <C> <C>
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
=========== =========== =========== =========== ===========
</TABLE>
The following table shows the percentage of loans in each category to total
loans for each of the last five years:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
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%
=========== =========== =========== =========== ===========
</TABLE>
11
<PAGE>
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.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1997 1996 1995
-------------- ------------- -------------
(Amounts in thousands)
Amount
---------------------------------------
<S> <C> <C> <C>
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%
</TABLE>
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.
<TABLE>
<CAPTION>
December 31,
1997
--------------
(In thousands)
<S> <C>
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
==============
</TABLE>
12
<PAGE>
VI. RETURN ON EQUITY AND ASSETS
The following table sets forth the operating and capital ratios for the
periods indicated:
<TABLE>
<CAPTION>
1997 1996 1995
-------------- ------------- -----------
<S> <C> <C> <C>
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%
</TABLE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
1997 High Low
------------------ -------------- -------------
<S> <C> <C>
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
==============
</TABLE>
All stock prices and dividends have been restated to reflect a three-for-
two stock split paid in May 1997.
14
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the periods
indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------------ --------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
(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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
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%
</TABLE>
19
<PAGE>
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
<PAGE>
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.
<TABLE>
<CAPTION>
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
------- -------- ------- ------- -------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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%
===== ===== =====
</TABLE>
(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
<PAGE>
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.
<TABLE>
<CAPTION>
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)
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
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
========== ========== ========== ========== ========== ==========
</TABLE>
(1) Computed on a tax equivalent basis using a 34% federal income tax rate.
22
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
Within 3 3-12 1-5 Over
Months Months Years 5 Years Total
---------- ----------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
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%
=========== ============= =========== ============
</TABLE>
27
<PAGE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
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%
</TABLE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
Item 8. Financial Statements and Supplementary Data
CENTURY FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
1997 1996
---------- ----------
(In thousands)
<S> <C> <C>
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
========== ==========
</TABLE>
See accompanying notes to the consolidated financial statements.
32
<PAGE>
CENTURY FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
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
</TABLE>
See accompanying notes to the consolidated financial statements.
33
<PAGE>
CENTURY FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Net
Additional Unrealized Total
Common Paid in Retained Treasury Gain (Loss) Stockholders'
Stock Capital Earnings Stock on Securities Equity
------------ ------------ ------------ ------------ --------------- --------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
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
======== ======== ========= =========== ======== =========
</TABLE>
See accompanying notes to the consolidated financial statements.
34
<PAGE>
CENTURY FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1997 1996 1995
---------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
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
</TABLE>
See accompanying notes to the consolidated financial statements.
35
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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.
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
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
============= ============= =============
</TABLE>
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:
<TABLE>
<CAPTION>
1997
---------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
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
========= ============= ============= =============
</TABLE>
40
<PAGE>
4. INVESTMENT SECURITIES AVAILABLE FOR SALE (CONTINUED)
<TABLE>
<CAPTION>
1996
------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
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
=========== =========== ============ ===========
</TABLE>
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.
<TABLE>
<CAPTION>
Estimated
Amortized Market
Cost Value
-------------- -------------
<S> <C> <C>
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
============== =============
</TABLE>
The following is a summary of proceeds received, gross gains, and gross
losses realized on the sale of investment securities:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ----------- -----------
<S> <C> <C> <C>
Proceeds from sales $ - $ 2,781 $ 5,759
Gross gains - 3 17
Gross losses - 2 31
</TABLE>
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
<PAGE>
5 LOANS
Major classifications of loans are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
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
========= =========
</TABLE>
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.
<TABLE>
<CAPTION>
1997 1996 1995
-------- ---------- ----------
<S> <C> <C> <C>
Nonaccrual loans $ 3,664 $ 872 $ 901
Interest earned (if current) 346 58 51
</TABLE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
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
======== ======== ========
</TABLE>
7. PREMISES AND EQUIPMENT
Major classifications of premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
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
======== ========
</TABLE>
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.
<TABLE>
<CAPTION>
December 31,
1997
------------
<S> <C>
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
========
</TABLE>
43
<PAGE>
9. SHORT-TERM BORROWINGS
The outstanding balances and related information for short-term borrowings
are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------ ------------------------
Amount Rate Amount Rate
-------- -------- -------- --------
<S> <C> <C> <C> <C>
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 -
</TABLE>
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:
<TABLE>
<CAPTION>
Description Maturity Date Interest Rate 1997 1996
----------- ------------- ------------- -------- --------
<S> <C> <C> <C> <C>
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
======== ========
</TABLE>
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:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
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
======== ======== ========
</TABLE>
44
<PAGE>
12. INCOME TAXES
The provision for income taxes consists of:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Currently payable $ 1,380 $ 1,210 $ 1,177
Deferred (512) 60 209
------- ------- -------
Total $ 868 $ 1,270 $ 1,386
======= ======= =======
</TABLE>
The components of the net deferred tax assets are as follows:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
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
======= =======
</TABLE>
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
<PAGE>
<TABLE>
<CAPTION>
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
--------- --------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
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 %
======== ======== ======= ======== ======== ========
</TABLE>
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:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
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
========= ========= =========
</TABLE>
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:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
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
======== =========
</TABLE>
46
<PAGE>
13. PENSION AND PROFIT SHARING PLANS (Continued)
Assumptions used in determining net periodic pension cost are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C>
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
</TABLE>
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:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Commitments to extend credit $35,799 $32,115
Standby letters of credit 3,194 341
-------- --------
Total $38,993 $32,456
======== ========
</TABLE>
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
<PAGE>
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):
<TABLE>
<S> <C>
1998 $ 172
1999 169
2000 167
2001 152
2002 76
2003 and thereafter 545
--------
Total $ 1,281
========
</TABLE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
1997 1996 1995
------- -------- --------
<S> <C> <C> <C>
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
======= ======= =======
</TABLE>
The following table presents share data related to the stock option plan:
<TABLE>
<CAPTION>
Shares Under Option
1997 1996
--------- ---------
<S> <C> <C>
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
========= =========
</TABLE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
1997 1996
---------------- ------------------
Amount Ratio Amount Ratio
-------- ------- -------- -------
<S> <C> <C> <C> <C>
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%
</TABLE>
50
<PAGE>
19. FAIR VALUE DISCLOSURE
The estimated fair values at December 31, 1997 and 1996, of the
Corporation's financial instruments are as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------ ----------------------
Carrying Fair Carrying Fair
Value Value Value Value
------------ ----------- ----------- ----------
<S> <C> <C> <C> <C>
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
============ =========== =========== ==========
</TABLE>
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
<PAGE>
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
<PAGE>
21. SELECTED QUARTERLY FINANCIAL DATA
The unaudited quarterly results for 1997 and 1996 are summarized as follows:
<TABLE>
<CAPTION>
1997
----------------------------------------------------------
Three Months Ended
----------------------------------------------------------
March 31, June 30, September 30, December 31,
------------ ----------- --------------- --------------
<S> <C> <C> <C> <C>
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
<CAPTION>
1996
----------------------------------------------------------
Three Months Ended
----------------------------------------------------------
March 31, June 30, September 30, December 31,
------------ ----------- --------------- --------------
<S> <C> <C> <C> <C>
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
</TABLE>
53
<PAGE>
22. PARENT COMPANY
Following are condensed financial statements for the Corporation.
CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
1997 1996
--------- -----------
(In thousands)
<S> <C> <C>
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
========== ==========
<CAPTION>
CONDENSED STATEMENT OF INCOME
Year Ended December 31,
1997 1996 1995
--------- ---------- ---------
(In thousands)
<S> <C> <C> <C>
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
========== ========== ==========
</TABLE>
54
<PAGE>
22 PARENT COMPANY (Continued)
CONDENSED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
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
======== ======== ========
</TABLE>
55
<PAGE>
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
<PAGE>
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
<TABLE>
<CAPTION>
Directorship
Name, Age Principal Occupation Director in other Reporting
Director For Past Five Years(4) Since (5) Companies
- --------- ---------------------- --------- ------------------
<S> <C> <C> <C>
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)
</TABLE>
57
<PAGE>
<TABLE>
<CAPTION>
Directorship
Name, Age Principal Occupation Director in other Reporting
Director For Past Five Years (4) Since (5) Companies
- --------- ---------------------- ---------- ------------------
<S> <C> <C> <C>
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
</TABLE>
(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
- ------------------
<TABLE>
<CAPTION>
Name and Business
Position Age Experience(1)
- -------- --- ------------
<S> <C> <C>
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
</TABLE>
(1) Each of the above persons has held the indicated position with the
Corporation or Century for the past five years.
58
<PAGE>
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
<TABLE>
<CAPTION>
=================================================================================================================================
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)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
=================================================================================================================================
</TABLE>
(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
<PAGE>
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
<TABLE>
<CAPTION>
=================================================================================================================================
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
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
=================================================================================================================================
</TABLE>
AGGREGATED OPTION EXERCISES BY EXECUTIVE OFFICER IN 1997
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
====================================================================================================================================
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
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
====================================================================================================================================
</TABLE>
- ----------------------------
/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
<PAGE>
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
<PAGE>
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.
<TABLE>
<CAPTION>
AVERAGE ANNUAL ANNUAL BENEFITS UPON RETIREMENT
EARNINGS WITH YEARS OF SERVICE INDICATED
5 10 15 20 25 30 35
- -- -- -- -- -- --
<S> <C> <C> <C> <C> <C> <C> <C>
$ 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
----------------------------------------------------------------------------------
</TABLE>
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
<PAGE>
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.
<TABLE>
<CAPTION>
Shares of
Name of Individual Corporation Common Percent
or Identity of Group Stock Owned Of Class
- -------------------- ------------------ ---------
<S> <C> <C>
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%
</TABLE>
(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
<PAGE>
(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
<PAGE>
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.
<TABLE>
<CAPTION>
Page Reference
--------------
<S> <C>
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
</TABLE>
(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
<PAGE>
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.
<TABLE>
(CAPTION>
Name Title Date
- --------------------------- ---------------------- ----------------
<S> <C> <C>
/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
</TABLE>
66
<PAGE>
SIGNATURES
(Continued)
<TABLE>
(CAPTION>
Name Title Date
- ---------------------------------- -------------- -----------------
<S> <C> <C>
/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.
</TABLE>
67
<PAGE>
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.
<PAGE>
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-
<PAGE>
(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-
<PAGE>
(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-
<PAGE>
(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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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
<PAGE>
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.
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 12,439
<INT-BEARING-DEPOSITS> 1,645
<FED-FUNDS-SOLD> 11,235
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 67,647
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 353,921
<ALLOWANCE> 4,717
<TOTAL-ASSETS> 458,532
<DEPOSITS> 392,926
<SHORT-TERM> 4,000
<LIABILITIES-OTHER> 4,898
<LONG-TERM> 20,000
0
0
<COMMON> 4,266
<OTHER-SE> 32,442
<TOTAL-LIABILITIES-AND-EQUITY> 458,532
<INTEREST-LOAN> 29,617
<INTEREST-INVEST> 4,497
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<INTEREST-TOTAL> 34,642
<INTEREST-DEPOSIT> 16,286
<INTEREST-EXPENSE> 17,246
<INTEREST-INCOME-NET> 17,396
<LOAN-LOSSES> 2,070
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 13,394
<INCOME-PRETAX> 5,090
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,222
<EPS-PRIMARY> 0.83
<EPS-DILUTED> 0.82
<YIELD-ACTUAL> 4.54
<LOANS-NON> 3,664
<LOANS-PAST> 73
<LOANS-TROUBLED> 0
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<ALLOWANCE-OPEN> 3,234
<CHARGE-OFFS> 679
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<ALLOWANCE-CLOSE> 4,717
<ALLOWANCE-DOMESTIC> 3,831
<ALLOWANCE-FOREIGN> 0
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</TABLE>
