<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
UNDER SECTION 12(B) OR (G) OF THE SECURITIES EXCHANGE ACT OF 1934
Security Financial Corp.
- --------------------------------------------------------------------------------
(Name of Small Business Issuer in its charter)
Delaware 34-1579662
- -------------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1 South Main St., Niles, OH 44446-0228
- ---------------------------------------- ------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, (330) 544-7400
--------------------------------------------
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
None None
- ---------------------------------------- ------------------------------------
- ---------------------------------------- ------------------------------------
Securities to be registered under Section 12(g) of the Act:
Common Stock
------------------------------------------------------
(Title of class)
Section 12(g)
------------------------------------------------------
(Title of class)
<PAGE> 2
INFORMATION REQUIRED IN REGISTRATION STATEMENT
PART I
ITEM 1. DESCRIPTION OF BUSINESS
The purpose of the Security Financial Corp. (the "Company") is to
engage in any lawful act or activity for which corporations may be
organized under the General Company Law of Delaware.
General
The Company was incorporated under the laws of the State of Delaware
on November 23, 1987, at the direction of management of the Bank, for the
purpose of becoming a bank holding company by acquiring all of the outstanding
shares of Security Dollar Bank (the "Bank"). In March, 1988, the Company
became the sole shareholder of the Bank. The Bank carries on business under the
name "Security Dollar Bank." The principal office of the Company is located at
1 South Main Street, Niles, Ohio 4446-0228.
Security Dollar Bank was established under the banking laws of the
State of Ohio in November in 1904.
The Bank is headquartered in Niles, Ohio, which is located in the
northeast portion of Ohio, in the County of Trumbull. Trumbull County has a
population of approximately 227,000.
The Bank provides customary retail and commercial banking services to
its customers, including checking and savings accounts, time deposits, NOW
accounts, safe deposit facilities, real estate mortgage loans and installment
loans. The Bank also makes secured and unsecured commercial loans.
The Bank is insured by the Federal Deposit Insurance Corporation, and
is regulated by the Ohio Division of Banks and the Board of Governors of the
Federal Reserve System.
Employees
As of March 31, 1998, the Bank had 77 full-time and 17 part-time
employees. The Bank provides a number of benefits for its full-time employees,
including health and life insurance, pension, workers' compensation, social
security, paid vacations, and numerous bank services.
The Company, through its affiliate, Security Dollar Bank, (the "Bank")
conducts the business of a commercial banking organization. At March 31, 1998,
the Company and its subsidiaries had consolidated total assets of approximately
$168 million, consolidated total deposits of approximately $145 million and
consolidated total equity of approximately $15 million.
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<PAGE> 3
The Company, through its banking affiliate, offers a broad range of
banking services to the commercial, industrial and consumer market segments
which it serves. Services include commercial, real estate and personal loans;
checking, savings and time deposits and other customer services such as safe
deposit facilities. the Company does not have any foreign operations, assets or
investments.
The Bank is a state banking corporation. The Bank is regulated by the
Ohio Division of Financial Institutions ("ODFI") and its deposits are insured by
the Federal Deposit Insurance Corporation to the extent permitted by law and,
as a subsidiary of the Company, is regulated by the Federal Reserve Board.
Competition
The commercial banking business in the market areas served by the Bank
is very competitive. the Company and the Bank are in competition with commercial
banks located in their own service areas. Some competitors of the Company and
the Bank are substantially larger than the Bank. In addition to local bank
competition, the Bank competes with larger commercial banks located in
metropolitan areas, savings banks, savings and loan associations, credit unions,
finance companies and other financial institutions for loans and deposits.
Certain Regulatory Considerations
The following is a summary of certain statutes and regulations
affecting the Company and its subsidiaries. This summary is qualified in its
entirety by such statutes and regulations.
The Company
The Company is a registered bank holding company under the Bank Holding
Company Act of 1956, as amended, ("BHC Act") and as such is subject to
regulation by the Federal Reserve Board. A bank holding company is required to
file with the Federal Reserve Board quarterly reports and other information
regarding its business operations and those of its subsidiaries. A bank holding
company and its subsidiary banks are also subject to examination by the Federal
Reserve Board.
The BHC Act requires every bank holding company to obtain the prior
approval of the Federal Reserve Board before acquiring substantially all the
assets of any bank or bank holding company or ownership or control of any voting
shares of any bank or bank holding company, if, after such acquisition, it would
own or control, directly or indirectly, more than five percent (5%) of the
voting shares of such bank or bank holding company.
In approving acquisitions by bank holding companies of companies
engaged in banking-related activities, the Federal Reserve Board considers
whether the performance of any such activity by a subsidiary of the holding
company reasonably can be expected to produce benefits to the public, such as
greater convenience, increased competition, or gains in efficiency, which
outweigh possible adverse effects, such as over concentration of resources,
decrease of competition, conflicts of interest, or unsound banking practices.
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<PAGE> 4
Bank holding companies are restricted in, and subject to, limitations
regarding transactions with subsidiaries and other affiliates.
In addition, bank holding companies and their subsidiaries are
prohibited from engaging in certain "tie in" arrangements in connection with any
extensions of credit, leases, sales of property, or furnishing of services.
The Company's Subsidiary
The Company operates a single bank, namely, Security Dollar Bank. As an
Ohio state chartered commercial bank the Bank is supervised and regulated by the
ODFI, and subject to laws and regulations applicable to Ohio banks.
Capital
The Federal Reserve Board, ODFI, and FDIC require banks and holding
companies to maintain minimum capital ratios.
The Federal Reserve Board adopted final "risk-adjusted" capital
guidelines for bank holding companies. The guidelines became fully implemented
as of December 31, 1992. The ODFI and FDIC have adopted substantially similar
risk-based capital guidelines. These ratios involve a mathematical process of
assigning various risk weights to different classes of assets, then evaluating
the sum of the risk-weighted balance sheet structure against the Company's
capital base. The rules set the minimum guidelines for the ratio of capital to
risk-weighted assets (including certain off-balance sheet activities, such as
standby letters of credit) at 8%. At least half of the total capital is to be
composed of common equity, retained earnings, and a limited amount of perpetual
preferred stock less certain goodwill items ("Tier 1 Capital"). The remainder
may consist of a limited amount of subordinated debt, other preferred stock, or
a limited amount of loan loss reserves.
In addition, the federal banking regulatory agencies have adopted
leverage capital guidelines for banks and bank holding companies. Under these
guidelines, banks and bank holding companies must maintain a minimum ratio of
three percent (3%) Tier 1 Capital (as defined for purposes of the year-end 1992
risk-based capital guidelines) to total assets. The Federal Reserve Board has
indicated, however, that banking organizations that are experiencing or
anticipating significant growth, are expected to maintain capital ratios well in
excess of the minimum levels.
Regulatory authorities may increase such minimum requirements for all
banks and bank holding companies or for specified banks or bank holding
companies. Increases in the minimum required ratios could adversely affect the
Company and the Banks, including their ability to pay dividends.
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<PAGE> 5
Additional Regulation
The Bank is also subject to federal regulation as to such matters as
required reserves, limitation as to the nature and amount of its loans and
investments, regulatory approval of any merger or consolidation, issuance or
retirement of their own securities, limitations upon the payment of dividends
and other aspects of banking operations. In addition, the activities and
operations of the Bank are subject to a number of additional detailed, complex
and sometimes overlapping laws and regulations. These include state usury and
consumer credit laws, state laws relating to fiduciaries, the Federal
Truth-in-Lending Act and Regulation Z, the Federal Equal Credit Opportunity Act
and Regulation B, the Fair Credit Reporting Act, the Truth in Savings Act, the
Community Reinvestment Act, anti-redlining legislation and antitrust laws.
Dividend Regulation
The ability of the Company to obtain funds for the payment of dividends
and for other cash requirements is largely dependent on the amount of dividends
which may be declared by the Bank. Generally, the Bank may not declare a
dividend, without the approval of the ODFI, if the total of dividends declared
in a calendar year exceeds the total of its net profits for that year combined
with its retained profits of the preceding two years.
Government Policies and Legislation
The policies of regulatory authorities, including the ODFI, Federal
Reserve Board, FDIC and the Depository Institutions Deregulation Committee, have
had a significant effect on the operating results of commercial banks in the
past and are expected to do so in the future. An important function of the
Federal Reserve System is to regulate aggregate national credit and money supply
through such means as open market dealings in securities, establishment of the
discount rate on member bank borrowings, and changes in reserve requirements
against member bank deposits. Policies of these agencies may be influenced by
many factors, including inflation, unemployment, short-term and long-term
changes in the international trade balance and fiscal policies of the United
States government.
The United States Congress has periodically considered and adopted
legislation which has resulted in further deregulation of both banks and other
financial institutions, including mutual funds, securities brokerage firms and
investment banking firms. No assurance can be given as to whether any additional
legislation will be adopted or as to the effect such legislation would have on
the business of the Company or the Bank.
In addition to the relaxation and elimination of certain geographic
restrictions on banks and bank holding companies, a number of regulatory and
legislative initiatives have the potential for eliminating many of the product
line barriers presently separating the services offered by commercial banks from
those offered by nonbanking institutions. For example, Congress recently has
considered legislation which would expand the scope of permissible business
activities for bank holding companies (and in some cases banks) to include
securities underwriting, insurance services and various real estate related
activities.
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<PAGE> 6
Deposit Insurance
The Federal Deposit Insurance Company Improvement Act of 1991
("FDICIA") was enacted in 1991. Among other things, FDICIA, requires federal
bank regulatory authorities to take "prompt corrective action" with respect to
banks that do not meet minimum capital requirements. For these purposes, FDICIA
establishes five capital tiers: well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized, and critically
undercapitalized.
As an FDIC-insured institution, the Bank is required to pay deposit
insurance premium assessments to the FDIC. The amount each institution pays for
FDIC deposit insurance coverage is determined in accordance with a risk-based
assessment system under which all insured depository institutions are placed
into one of nine categories and assessed insurance premiums based upon their
level of capital and supervisory evaluation. Institutions classified as
well-capitalized (as defined by the FDIC) and considered healthy pay the lowest
premium while institutions that are less than adequately capitalized (as defined
by the FDIC) and considered substantial supervisory concerns pay the highest
premium. Beginning in 1996, such deposit insurance runs from a cost of zero
percent to 0.27% of deposits. Because the Bank is "well-capitalized," it
currently pays the minimum deposit insurance premiums.
The FDIC may terminate the deposit insurance of any insured depository
institution if the FDIC determines, after a hearing, that the institution has
engaged or is engaging in unsafe or unsound practices, is in an unsafe or
unsound condition to continue operations or has violated any applicable law,
regulation, order, or any condition imposed in writing by, or written agreement
with, the FDIC. The FDIC may also suspend deposit insurance temporarily during
the hearing process for a permanent termination of insurance if the institution
has no tangible capital. Management of the Company is not aware of any activity
or condition that could result in termination of the deposit insurance of the
Bank.
Recent Legislation
On September 29, 1994, the Reigle/Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Interstate Act") was signed into law. The
Interstate Act effectively permits nationwide banking. The Interstate Act
provides that one year after enactment, adequately capitalized and adequately
managed bank holding companies may acquire banks in any state, even in those
jurisdictions that currently bar acquisitions by out-of-state institutions,
subject to deposit concentration limits. The deposit concentration limits
provide that regulatory approval by the Federal Reserve Board may not be granted
for a proposed interstate acquisition if after the acquisition, the acquirer on
a consolidated basis would control more than 10% of the total deposits
nationwide or would control more than 30% of deposits in the state where the
acquiring institution is located. The deposit concentration state limit does not
apply for initial acquisitions in a state and in every case, may be waived by
the state regulatory authority. Interstate acquisitions are subject to
compliance with the Community Reinvestment Act ("CRA"). States are permitted to
impose age requirements not to exceed five years on target banks for interstate
acquisitions. States are not allowed to opt-out of interstate banking.
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<PAGE> 7
Branching between states may be accomplished either by merging separate
banks located in different states into one legal entity, or by establishing de
novo branches in another state. Consolidation of banks was not permitted until
June 1, 1997, provided that the state had not passed legislation "opting-out" of
interstate branching. If a state opted-out prior to June 1, 1997, then banks
located in that state may not participate in interstate branching. A state could
have opted-in to interstate branching by bank consolidation or by de novo
branching by passing appropriate legislation earlier than June 1, 1997.
Interstate branching is also subject to a 30% statewide deposit concentration
limit on a consolidated basis, and a 10% nationwide deposit concentration limit.
The laws of the host state regarding community reinvestment, fair lending,
consumer protection (including usury limits) and establishment of branches shall
apply to the interstate branches. The State of Ohio opted-in to the legislation
in May of 1997.
De novo branching by an out-of-state bank is not permitted unless the
host state expressly permits de novo branching by banks from out-of-state. The
establishment of an initial de novo branch in a state is subject to the same
conditions as apply to initial acquisition of a bank in the host state other
than the deposit concentration limits.
The FDIC, together with the Federal Reserve, the ODFI and the Office of
Thrift Supervision (the "OTS"), have established rules implementing requirement
that the federal banking agencies establish operational and managerial standards
to promote the safety and soundness of federally insured depository
institutions. The guidelines establish standards for internal controls,
information systems, internal audit systems, loan documentation, credit
underwriting, interest rate exposure, asset growth, and compensation, fees and
benefits. In general, the guidelines prescribe the goals to be achieved in each
area, and each institution is responsible for establishing its own procedures to
achieve those goals. If an institution fails to comply with any of the standards
set forth in the guidelines, the institution's primary federal regulator may
require the institution to submit to a plan for achieving and maintaining
compliance. Failure to submit an acceptable plan, or failure to comply with a
plan that has been accepted by the appropriate regulator, would constitute
grounds for further enforcement action.
The Federal Reserve, the ODFI and the OTS have adopted new regulations
under the Community Reinvestment Act ("CRA"). Under the new regulations, an
institution's performance in meeting the credit needs of its entire community,
including low and moderate income areas, as required by the CRA, is generally
evaluated under three tests: the "lending test," which considers the extent to
which the institution makes loans in the low and moderate income areas of its
market; the "service test," which considers the extent to which the institution
makes branches accessible to low and moderate income areas of its market and
provides other services that promote credit availability; and the "investment
test," which considers the extent to which the institution invests in community
and economic development activities. The Bank had a satisfactory CRA rating as
of its latest examination.
Proposed Legislation
In addition to the above, there have been proposed a number of
legislative and regulatory proposals designed to strengthen the federal deposit
insurance system and to improve the overall financial stability of the U.S.
banking system. It is impossible to predict whether or in what form
7
<PAGE> 8
these proposals may be adopted in the future, and if adopted, what their effect
would be on the Company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
Selected Financial Information
The following table sets forth certain information concerning the consolidated
financial position of the Company at the dates indicated:
<TABLE>
<CAPTION>
At December 31,
--------------------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Dollars in thousands, except shares and per share data)
<S> <C> <C> <C> <C> <C>
Statement of Income:
Interest income $ 12,848 $ 11,269 $ 8,995 $ 7,380 $ 7,223
Interest expense 6,328 5,457 4,243 2,949 2,966
Net interest income 6,520 5,812 4,752 4,431 4,257
Provision for loan losses 1,250 668 198 290 612
Net interest income after provision
for loan losses 5,270 5,144 4,554 4,141 3,645
Investment securities gains, net 25 26 22 21 -
Other noninterest income 916 801 728 707 637
Other noninterest expense 4,284 4,186 3,832 3,421 3,098
Federal income tax expense 609 543 422 427 321
Cumulative effect of accounting - - - - 87
change (2)
--------------------------------------------------------------------------------
Net Income $ 1,318 $ 1,241 $ 1,049 $ 1,020 $ 951
================================================================================
Per share of common stock (1):
Net income $ 4.11 $ 4.48 $3.87 $3.93 $3.81
Dividends 1.15 1.00 0.90 0.68 0.55
Book value 43.92 38.58 35.45 31.52 29.16
Average common shares outstanding 320,732 277,408 271,219 259,597 249,692
Year-end balances:
Loans receivable, net $110,751 $113,310 $ 81,988 $ 66,370 $ 64,483
Investment securities available for 41,639 26,691 18,737 17,782 20,666
sale
Total assets 167,258 152,899 127,064 107,880 98,181
Cash and cash equivalents 8,906 6,868 6,189 7,298 10,056
Deposits 145,352 129,670 109,571 94,188 87,520
Borrowings 6,524 11,754 7,246 4,974 2,784
Stockholder's equity 14,633 10,779 9,789 8,388 7,425
</TABLE>
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<PAGE> 9
<TABLE>
<CAPTION>
KEY OPERATING RATIOS:
<S> <C> <C> <C> <C> <C>
Return on average assets (net income
divided by average total assets) 0.81 0.86 0.90 1.00 1.01
Return on average equity (net income
divided by average equity) 9.83 12.14 12.51 13.73 14.67
Dividend Payout Ratio (dividends
declared per
share divided by net income per share) 27.98 22.35 23.26 17.30 14.44
Equity to assets ratio (average equity
divided by average total assets) 8.26 7.12 7.19 7.28 6.88
</TABLE>
- -------------------------------------
(1) All share and per share data has been restated for the effect of common
stock dividends and splits.
(2) Cumulative effect adjustment is the result of adopting Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes."
Investments Securities
The investment portfolio, increased by $14.9 million or 56.0% in 1997. Most of
the increase occurred in mortgage-backed securities, which grew by $11.4 million
in 1997. The increase is primarily attributable to excess funds resulting from
deposit growth outpacing the current year loan demand. The deposits and other
liabilities that are not used to fund loans are placed in investments which
possess less risk and, therefore, lower yield. The impact on net interest income
is discussed later in the Net Interest Income section.
In general investment in securities is limited to those funds the bank feels it
has in excess of funds used to satisfy loan demand and operating considerations.
The following table shows the amortized cost and estimated market value of
investment securities by type of obligation at the dates indicated.
The amortized cost, unrealized gains and losses and estimated fair values are as
follows at December 31:
<TABLE>
<CAPTION>
December 31, 1997
-------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury and Government
agency securities $13,456,631 $30,215 ($16,167) $13,470,679
Obligations of states and political
subdivisions 6,087,660 91,342 (12,734) 6,166,268
Mortgage-backed securities 20,770,857 132,780 (147,395) 20,756,242
Corporate securities - - - -
-------------------------------------------------------------------------
Total debt securities 40,315,148 254,337 (176,296) 40,393,189
</TABLE>
9
<PAGE> 10
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Equity securities 1,130,882 114,431 - 1,245,313
-------------------------------------------------------------------------
Total investment securities $41,446,030 $368,768 ($176,296) $41,638,502
=========================================================================
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996
-------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury and Government
agency securities $13,823,796 $36,492 ($117,466) $13,742,822
Obligations of states and political
subdivisions 2,509,420 35,601 (23,019) 2,522,002
Mortgage-backed securities 9,325,478 100,572 (49,519) 9,376,531
Corporate securities - - - -
-------------------------------------------------------------------------
Total debt securities 25,658,694 172,665 (190,004) 25,641,355
Equity securities 1,002,182 47,736 - 1,049,918
-------------------------------------------------------------------------
Total investment securities $26,660,876 $220,401 ($190,004) $26,691,273
=========================================================================
</TABLE>
Loans
Historically, loans have been originated by the Company to customers in East
Central Ohio. Loans have been originated primarily through direct loans to our
existing customer base, with new customers generated by referrals from real
estate brokers, building contractors, attorneys, accountants and existing
customers. The Company also generates indirect loans through new and used car
dealers in the primary lending area.
All lending is governed by a lending policy which is developed and maintained by
management and approved by the Board of Directors. The Company's lending policy
regarding real estate loans is that generally the maximum mortgage granted on
owner-occupied residential property is 80% of the appraised value or purchase
price (whichever is lower) when secured by the first mortgage on the property.
Home equity lines of credit or second mortgage loans are generally originated
subject to maximum mortgage liens against the property of 80% of the current
appraised value. The maximum term for mortgage loans is 30 years for one- to
four-family residential property and 15 years for commercial and vacation
property.
As shown in the following table, total loans declined by $2.5 million in 1997,
or 1.76%, a decrease from the strong 38% increase during 1996. The product mix
in the Loan Portfolio shows Commercial Loans comprising 11.92%, Real Estate
Mortgage Loans (Residential and Commercial)56.26% and Installment Loans to
Individuals 31.82% at December 31, 1997 compared with 11.04%,57.43% and 31.53%,
respectively December 31, 1996.
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<PAGE> 11
Real estate mortgage loans decreased to $63.3 million at December 31, 1997 a
decrease of 4.23% under 1996. This portfolio consists of $46.1 million 0f 1-4
family residential properties and $17.2 million in construction and commercial
real estate properties, all made within the Bank's primary market area. The
Company originated both fixed rate and adjustable rate mortgages during 1997.
Fixed rate loans that are maintained in the portfolio are limited to
fifteen-year terms while adjustable rate products are offered with maturities up
to thirty years.
Commercial Loans at December 31, 1997 increased from year-end 1996 with
outstanding balances of $13.4 million. This portfolio is comprised of primarily
Variable rate loans. The Bank's commercial loans are granted to customers within
the immediate trade area of the Bank. The mix is diverse, covering a wide range
of borrowers and business types. The Bank monitors and controls concentrations
within a particular industry or segment of the economy. These loans are made for
purposes such as equipment purchases, capital and leasehold improvements, the
purchase of inventory, general working capital purposes and small business lines
of credit.
Installment Loans to Individuals decreased from $36.3 million on December 31,
1996 to $35.8 million on December 31, 1997 which represents a 1.33% decrease.
Management continues to target the automobile dealer network to originate
indirect Installment Loans. Dealer paper was originated using strict
underwriting guidelines with an emphasis on quality.
<TABLE>
<CAPTION>
At December 31,
---------------------------------------------------------------------------------
1997 1996
------------------------------------ -------------------------------------
Amount Percent Amount Percent
---------------- ---------------- ---------------- ----------------
Type of Loan (Dollars in Thousands)
- ------------
<S> <C> <C> <C> <C>
Real Estate Loans:
Construction $ 623 0.55% $ 1,188 1.03%
One to four family 46,064 40.97 47,476 41.29
Commercial 16,565 14.74 17,384 15.11
Commercial 13,398 11.92 12,689 11.04
Consumer loans 35,779 31.82 36,251 31.53
---------------- ---------------- ---------------- ----------------
Total loans 112,429 100.00% 114,988 100.00%
================ ================
Less:
Allowance for possible loan (1,678) (1,679)
losses
---------------- ----------------
Total loans, net $ 110,751 $ 113,309
================ ================
</TABLE>
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<PAGE> 12
Allowance for Loan Losses
The provisions for possible loan losses charged to operating expense is based on
management's judgment after taking into consideration all factors connected with
the collectability of the existing loan portfolio. Management evaluates the loan
portfolio in light of economic conditions, changes in the nature and volume of
the loan portfolio, industry standards and other relevant factors. Specific
factors are considered by management in determining the amounts charged to
operating expenses include previous credit loss experience, the status of past
due interest and principal payments, the quality of financial information
supplied by loan customers and the general condition of the industries in the
community to which loans have been made.
Provisions charged to operations increased from $668 thousand in 1996 to $1.25
million in 1997. The provision charged to operations was increased to offset an
increase in net loan losses in 1997. The balance in the allowance for loan
losses has remained the same since December 1996 while the total loan balance
has declined.
The increase in loans in 1996 put pressure on the loan loss reserve expense in
1997. The majority of the loan growth in 1996 came from dealer indirect loans.
The volume of these loans grew buy $20.1 million to a balance of $24.0 million
in 1996 up from a $3.9 million balance at the end of 1995. Due to the large
volume in dealer loans in 1996 management decided to limit further growth in
this area by enforcing stricter underwriting guidelines in January of 1997.
The allowance for possible loan losses has been allocated according to the
amount deemed to be reasonably necessary to provide for the possibility of
losses being incurred within the following categories of loans as of the dates
indicated:
The distribution of the Bank's allowance for loan losses at the dates indicated
are summarized as follows:
<TABLE>
<CAPTION>
At December 31,
--------------------------------------------------------------------------------------
1997 1996
------------------------------------- ------------------------------------
Percent of Percent of
Loans in Each Loans in Each
Category to Category to
Amount Total Loans Amount Total Loans
---------------- ---------------- ---------------- ---------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Commercial $ 312 11.92% $ 287 11.04%
Mortgage:
Commercial 555 14.74 587 15.11
One to Four Family 75 40.97 100 41.29
Construction - 0.55 - 1.03
Consumer 736 31.82 706 31.53
Unallocated - - - -
---------------- --------------- ---------------- ---------------
Total $ 1,678 100.00% $ 1,679 100.00%
================ =============== ================ ===============
</TABLE>
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<PAGE> 13
The following table sets forth the amounts and categories of the Bank's non -
performing assets at the dates indicated.
<TABLE>
<CAPTION>
At December 31,
-------------------------------------------
1997 1996
----------------- ----------------
(Dollars in Thousands)
<S> <C> <C>
Loans accounted for on a non - accrual basis:
Mortgage loans:
One to four family $ 163 $ 119
Commercial 619 627
Consumer 890 431
Commercial 619 465
----------------- ----------------
Total non-accrual loans 2,290 1,642
----------------- ----------------
Accruing loans greater than 90 day past due:
Mortgage loans:
One to four family - -
Commercial - -
Consumer 311 233
Commercial - 83
----------------- ----------------
Total accruing loans greater than 90 day past due 311 317
----------------- ----------------
Total non - performing loans 2,601 1,958
Real estate acquired in settlement of loans 39 39
Other non-performing assets - -
----------------- ----------------
Total non-performing assets $ 2,640 $ 1,997
================= ================
Total non-performing loans to total loans 2.31% 1.70%
================= ================
Total non-performing loans to total assets 1.56% 1.28%
================= ================
Total non-performing assets to total assets 1.58% 1.31%
================= ================
</TABLE>
Interest income that would have been recorded on loans accounted for on a
non-accrual basis under the original terms of such loans was $247,124 for the
year ended December 31, 1997 and $168,489 was collected and included in the
Bank's interest income from non-accrual loans for the year ended December 31,
1997.
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<PAGE> 14
The following table sets forth information with respect to the Bank's allowance
for loan losses at the dates indicated:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------
1997 1996
---------------- ----------------
(Dollars in Thousands)
<S> <C> <C>
Total loans outstanding $ 112,429 $ 114,988
================ ================
Average loans outstanding $ 116,122 $ 100,487
================ ================
Allowance balance (at beginning of period) $ 1,679 $ 1,239
Provision: 1,250 668
Charge-offs:
Residential (12) (35)
Consumer (1,257) (364)
Commercial (70) (47)
Recoveries:
Residential - 42
Consumer 84 51
Commercial 4 125
---------------- ----------------
Allowance balance (at end of period) $ 1,678 $ 1,679
================ ================
Allowance for loan losses as a percent
of total loans outstanding 1.49% 1.46%
Net loans charged off as a percent
of average loans outstanding (1.33)% (0.44)%
</TABLE>
Deposits
Deposits represent the Company's principal source of funds. The deposit base
consists of demand deposits, savings and money market accounts and other time
deposits. During the year, the Company's total deposits grew from $124.7 million
in 1996 to $140.5 million in 1997, which equates to an increase of 12.68%. Most
of this growth occurred in time deposits, which increased from $67.8 million in
1996 to $83.0 million in 1997. Part of this increase was due to a program of
attracting certificates of deposit from outside of our market area, occurring in
the first
14
<PAGE> 15
quarter of the year which generated approximately $8 million in new time deposit
money to the Company.
The following table represents the average deposits and average rate paid for
the years ended:
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------------------
1997 1996
----------------------------------- -----------------------------------
Average Rate Average Rate
Category Amount Paid Amount Paid
---------------------------------------------------------------------------
(Dollars in Thousands)
Deposits:
<S> <C> <C> <C> <C>
Noninterest-bearing demand $ 18,132 N/A $ 17,155 N/A
Interest-bearing demand 7,938 2.42% 7,736 2.39%
Money market 3,749 2.83% 4,137 2.80%
Savings 27,912 2.95% 26,512 2.93%
Time 83,017 5.87% 67,784 5.81%
---------------- ----------------
Total deposits $ 140,748 $ 123,324
================ ================
</TABLE>
The following table indicates the amount of the Bank's time deposits of $100,000
or more by time remaining until maturity as of December 31, 1997.
<TABLE>
<CAPTION>
Maturity Period Time Deposits
--------------- -------------
(In thousands)
<S> <C>
Within three months $ 5,311
More than three through six months 3,178
More than six through nine months 3,223
Over nine months 4,012
===================
Total $ 15,724
===================
</TABLE>
Net Interest Income
The most significant source of revenue is net interest income, the amount by
which interest earned on interest-bearing assets exceeds interest expense on
interest-bearing liabilities. Factors which influence net interest income are
changes in volume of interest-bearing assets and liabilities as well as changes
in the associated interest rates.
The Company finances its earning assets with a combination of interest-bearing
and interest-free funds. The interest-bearing funds are composed of deposits,
short-term borrowings and long-term debt. Interest paid for the use of these
funds is the second factor in the net interest income equation. Interest-free
funds, such as demand deposits and stockholders equity, require no interest
expense and, therefore, contribute significantly to net interest income.
15
<PAGE> 16
Total interest income was $12.8 million for 1997 as compared to $11.3 million
and $8.9 million for 1996 and 1995, respectively. The 14.01% increase in
interest income is attributed to a 16.70% increase in interest and fees on loans
while interest on investment securities declined by 4.9%. The increase in
interest and fees on loans was primarily the result of the $15.6 million
increased in average in loans during the year. The decline in interest on
investment securities is the combined result of declines in volume of $905,000
and a 17 basis point decline in yield (100 basis points equal 1.0%).
Total interest expense amounted to $6.3 million for 1997, representing a 15.96%
increase from 1996 while interest expense of $5.5 million for 1996 represents a
28.61% increase from 1995. The increase in interest expense is primarily due to
an increase of $15.2 million in the average balance outstanding of certificates
of deposit and an overall 14 basis point increase in the average rate paid on
interest-bearing liabilities.
The table below sets forth information regarding changes in our interest income
and interest expense for the periods indicated. For each category of our
interest - earning assets and interest - bearing liabilities, information is
provided on changes attributable to (i) changes in volume (changes in volume
multiplied by old rate), (ii) changes in rate (changes in rate multiplied by old
volume), and (iii) the change in interest due to both volume and rate, which has
been allocated to volume and rate changes in proportion to the relationship of
the absolute dollar amounts of the change in each.
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------------------------------------
1997 vs 1996
Increase (Decrease) Due to (1)
---------------------------------------------------------
Volume Rate Net
---------------------------------------------------------
<S> <C> <C> <C>
Interest earned on:
Loans 1,600 (78) 1,522
Taxable investment securities 158 (25) (99)
Tax-exempt investment securities 35 (40) (5)
Federal funds sold 188 (27) 161
---------------------------------------------------------
Total 1,981 (402) 1,579
=================================================
Interest paid on:
Demand deposits 5 2 7
Money market accounts (12) 2 (10)
Savings deposits 36 10 46
Time deposits 652 277 929
Short - term borrowings 0 1 1
Long - term borrowings 0 (102) (102)
---------------------------------------------------------
Total 681 190 871
=================================================
Grand Total 708
===
</TABLE>
(1) The change in interest due to both volume and rate has been allocated to
volume and rate changes in proportion to the relationship of the absolute dollar
amounts of the change in each.
16
<PAGE> 17
Other Income
Other income is primarily made up of service charges on deposit accounts,
investment securities gains and gains on the sale of mortgage loans. Other
income increased $115 thousand or 13.86% from 1996 which increased $73 thousand
or 10.03% from 1995. The primary contributing factor to this increase was an
increase in service charges and fees related to deposit accounts. Management
believes its fees on deposit accounts are comparative to those fees charged by
the Company's competition. Management continues to explore new products and
services that could increase other income in future years.
Other Expenses
Total other expenses are primarily made up of compensation and employee
benefits, occupancy expenses, professional fees, data processing costs and other
expenses. Total other expenses for 1997 increased 2.34% over 1996 as compared to
an increase of 9.24% from 1996 over 1995. There was no one category of other
expenses which experienced a significant increase during 1997. These expenses
are subject to increases each year due primarily to asset growth, increased
volume of the operations of the bank and inflation. Management has adopted a
strategy to operate efficiently while maintaining the highest level of customer
service possible. Management will continue to closely monitor and keep the
increases in other expenses to a minimum in the future.
Liquidity
Liquidity is a measure of the Company's ability to efficiently meet normal cash
flow requirements of both borrowers and depositors. To maintain proper
liquidity, the Company uses asset liability management policies along with its
investment policies to assure it can meet its financial obligations to
depositors, credit customers and shareholders. Liquidity is needed to meet
depositors' withdrawal demands, extend credit to meet borrowers' needs, provide
funds for normal operating expenses and cash dividends, and fund other capital
expenditures.
Liquidity management is influenced by cash generated by operating activities,
investing activities and financing activities. The most important source of
funds is the deposits which are primarily core deposits (deposits from customers
with other relationships). Short-term debt from the Federal Home Loan Bank
supplements the Company's availability of funds.
Provision for Income Taxes
The provision for income taxes for 1997 increased by $65,685 to $609,119,
compared to the $121,000 increase in 1996, due to increased taxable earnings.
Stockholders' Equity
Stockholders' equity is evaluated in relation to total assets and the risk
associated with those assets. The greater the capital resources, he more likely
a Company is to meet its cash
17
<PAGE> 18
obligations and absorb unforeseen losses. For these reasons capital adequacy has
been, and will continue to be, of paramount importance.
Stockholders' equity has grown by 35.76% in 1997, 10.11% in 1996, and 16.69% in
1995 to the current level of $14.632 million. Adjustments made to equity for
unrealized holding gains and losses on available-for-sale securities resulted in
an increase of $106,969 in 1997 compared to a decrease of $119,209 in 1996.
Total equity was approximately 8.75% of total assets at December 31, 1997, as
compared to 7.05% at December 31, 1996.
The dividend rate is determined by the Board of Directors after considering the
Company's capital requirements, current and projected net income, and other
factors. In 1997 and 1996, 28.54% and 22.35% of net income was paid out in
dividends, respectively.
There are currently three federal regulatory measures of capital adequacy. The
Company's ratios substantially exceed all federal regulatory standards.
Interest Rate and Market Risk Management
The objective of interest rate sensitivity management is to maintain an
appropriate balance between the stable growth of income and the risks associated
with maximizing income through interest sensitivity imbalances and the market
value risk of assets and liabilities.
Because of the nature of it's operations, the Company is not subject to foreign
currency exchange or commodity price risk and, since the Company has no trading
portfolio, it is not subject to trading risk. Currently the Company has equity
securities that represent only 2.73% of its investment portfolio and, therefore,
equity risk is not significant.
The primary components of interest-sensitive assets include adjustable-rate
loans and investments, loan repayments, investment maturities and money market
investments. The primary components of interest-sensitive liabilities include
maturing certificates of deposit, IRA certificates of deposit (individuals over
59 1/2 have the option of changing their interest rate annually) and short-term
borrowings. Savings deposits, NOW accounts and money market investor accounts
are considered core deposits and are not short-term interest sensitive.
Loan maturities and rate sensitivity of the loan portfolio, exclusive of real
estate mortgage loans, and consumer installment loans, at December 31, 1997, are
as follows (dollars in thousands):
<TABLE>
<CAPTION>
Within One One to After Five
Year Five Years Years Total
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Construction $ 623 $ - $ - $ 623
Commercial, financial, and agricultural 8,147 5,159 92 13,398
---------------- ---------------- ---------------- ----------------
Total $ 8,770 $ 5,159 $ 92 $ 14,021
================ ================ ================ ================
Loans at fixed interest rates $ 2,262 $ 1,743 $ 92 $ 4,097
Loans at variable interest rates 6,508 3,416 - 9,924
---------------- ---------------- ---------------- ----------------
Total $ 8,770 $ 5,159 $ 92 $ 14,021
================ ================ ================ ================
</TABLE>
18
<PAGE> 19
The following tables set forth a summary of average balances of assets and
liabilities as well as average yield and cost information. Average balances are
derived from daily balances.
<TABLE>
<CAPTION>
December 31
-----------------------------------------------------------------------------------------
1997 (2) 1996 (2)
-------------------------------------------- --------------------------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
-----------------------------------------------------------------------------------------
(In thousands)
ASSETS
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans(1) $ 116,122 $ 10,636 9.17% $ 100,487 $ 9,114 9.25%
Taxable investment securities 26,917 1,823 6.77% 28,002 1,922 6.86%
Tax-exempt investment securities 3,679 194 7.99% 3,499 199 8.62%
Federal funds sold 3,493 195 5.58% 503 34 6.76%
----------------------------- -----------------------------
Total interest-earning assets 150,211 12,848 8.62% 132,491 11,269 8.58%
Noninterest-earning assets
Cash and due from banks 7,628 6,223
Premises and equipment 3,746 3,623
Other assets 2,415 2,519
Less allowance for loan losses 1,688 1,339
--------------- ---------------
$ 162,312 $ 143,517
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Demand deposits $ 7,938 $ 192 2.42% $ 7,736 $ 185 2.39%
Money market accounts 3,749 106 2.83% 4,137 116 2.80%
Savings deposits 27,912 824 2.95% 26,512 778 2.93%
Time deposits 83,017 4,871 5.87% 67,784 3,942 5.82%
Short - term borrowings 5,231 228 4.36% 5,151 227 4.41%
Long - term borrowings 1,813 107 5.90% 3,830 209 5.46%
------------------------------ -----------------------------
Total interest-bearing liabilities 129,660 6,328 4.88% 115,150 5,457 4.74%
Noninterest-bearing liabilities:
Demand deposits 18,132 17,155
Other 1,115 987
</TABLE>
19
<PAGE> 20
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Shareholders' equity 13,405 10,225
---------------- ---------------
$ 162,312 $ 143,517
================ ===============
------------- -------------
Net interest income $ 6,520 $ 5,812
============= =============
Net yield on interest-earning 4.41% 4.46%
assets (3)
Interest rate spread(4) 3.74% 3.84%
Ratio of average interest-earning
assets to average interest-
bearing liabilities 115.85% 115.06%
</TABLE>
- -----------------
(1) Average balances include non-accrual loans.
(2) Tax equivalent adjustments have been made to yields on loans and securities
that are exempt from federal income tax.
(3) Net yield on interest - earning assets represents net interest income as a
percentage of average interest-earning assets.
(4) Interest rate spread represents the difference between the average yield on
interest - earning assets and the cost of interest - bearing liabilities.
<TABLE>
<CAPTION>
1997 1996
-------------------------------------
FEDERAL FUNDS PURCHASED
<S> <C> <C>
Ending Balance $ -- $ 3,075,000
Maximum month end balance 84,000 3,075,000
Average balance 162,943 733,333
Ave year end rate N/A 7.23%
Ave int rate during year 5.86% 5.61%
REPURCHASE AGREEMENTS
Ending Balance $ 6,523,560 $ 3,279,431
Maximum month end balance 7,158,445 5,918,346
Average balance 5,068,331 4,416,735
Ave year end rate 4.29% 5.89%
Ave int rate during year 4.24% 4.21%
</TABLE>
20
<PAGE> 21
The following table sets forth certain information regarding the carrying
values, weighted average yields and maturities of the Savings Bank's investment
securities portfolio at June 30, 1997.
<TABLE>
<CAPTION>
December 31, 1997
--------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
One year or less One to Five Years Five to Ten Years More than Ten Years
------------------- ------------------ ----------------- -------------------
------------------- ------------------ ----------------- -------------------
Carrying Average Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield Value Yield
----- ----- ----- ----- ----- ----- ----- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment securities:
Obligations of state and $ 100 4.29% $ 324 5.49% $ 847 5.35% $ 4,817 5.36%
political subdivisions
U. S. government and agency 2,450 5.96 7,607 6.18 1,750 8.74 1,650 6.57
securities
Securities available for sale 312 4.95 -- -- -- -- -- --
Mortgage-backed securities - - 1,164 9.68 1,433 9.45 18,174 7.92
Interest - bearing deposits in
other
financial institutions 13 6.40 6 5.60 -- -- -- --
FHLB Stock (1) 820 6.86 -- -- -- -- -- --
-------------------- -------------------- ------------------- --------------------
Total $ 3,695 6.03%% $ 9,101 6.61%% $ 4,030 8.28%% $ 24,641 7.33%%
==================== ==================== =================== ====================
</TABLE>
- ----------------------------------
(1) Recorded at cost.
<TABLE>
<CAPTION>
Total Investment Securities
---------------------------
Carrying Market
Value Yield Value
----- ----- --------
Investment securities:
<S> <C> <C> <C>
Obligations of state and $ 6,088 5.35% $ 6,166
political subdivisions
U. S. government and agency 13,457 6.52 13,471
securities
Securities available for sale 312 4.95 425
Mortgage-backed securities 20,771 8.13 20,756
Interest - bearing deposits in
other
financial institutions 18 6.13 300
FHLB Stock (1) 820 6.86 820
---------------------- --------
Total $ 41,466 7.15%% $ 41,938
====================== ========
</TABLE>
21
<PAGE> 22
ITEM 3. DESCRIPTION OF PROPERTY.
Property
The Bank owns and operates its main office at 1 South Main Street in
Niles, Ohio. The Bank also operates six branches. The following is a breakdown
of the branch offices owned:
Branches Owned:
Downtown Niles Drive-In Girard Office
Corner of Church & State Sts. 121 North State St.
Niles, OH 44446 Girard, OH 44420
422 Office
5845 Youngstown-Warren Rd.
Niles, OH 44446
Youngstown Road Office Mineral Ridge Office
2910 Youngstown Road 3826 Main Street
Warren, OH 44484 Mineral Ridge, OH 44440
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
<TABLE>
<CAPTION>
Shares of Company Common
Stock Owned Beneficially as Percentage of Beneficial
of Feb. 28, 1998 Ownership as of Feb. 28,
Name & Age --------------------------- 1998
---------- ------------------------
<S> <C> <C>
Gary A. Clayman* 5,560.83(1) 1.67%
(age 43)
Robert I. Griffith, Jr. 1,082.99(2) .33%
(age 48)
Glenn E. Griffiths* 988.09 .30%
(age 58)
Robert J. McClurkin* 2,093.12(3) .63%
(age 33)
Douglas J. Neuman 833.76 .25%
(age 45)
</TABLE>
22
<PAGE> 23
<TABLE>
<CAPTION>
Shares of Company
Common Stock Percentage of
Owned Beneficially as Beneficial Ownership
Name & Age of Feb. 28, 1998 as of Feb. 28, 1998
---------- --------------------- --------------------
<S> <C> <C>
Peter P. Rossi, Jr. 8,431.35(4) 2.53%
(age 57)
Christopher J. Shaker 6,083.55 1.83%
(age 39)
</TABLE>
* Indicates a nominee to Class I of the Company's Board standing
for election at the Annual Meeting in 1998.
(1) 893.67 shares owned directly; 3,262.96 shares held jointly
with Sherri Clayman, 1441 shares are held as custodian for the
benefit of children, and 400 shares are held in an IRA account.
(2) 981.57 shares owned directly, 101.42 in the name of The Griffith
Agency.
(3) 214.86 shares owned directly; 1,099.99 shares held jointly
with Karen McClurkin; 239.74 jointly with Kathryn McClurkin;
349.93 jointly with Grace McClurkin, 188.60 jointly with Thomas
McClurkin.
(4) 1,909.18 shares owned directly; 4,573.23 shares
held jointly with Mary Rossi; 1,948.94 shares held in name of
Peter Rossi & Son Memorial Chapel Co.
All officers and directors as a group owned 29,322.51 shares,
representing 8.80% of the outstanding common shares as of February 28,
1998.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
<TABLE>
<CAPTION>
PRINCIPAL
NAME & AGE OCCUPATION DIRECTOR SINCE
---------- ---------- --------------
<S> <C> <C>
Gary A. Clayman* Niles Iron & Metal Co. 1995
(age 43)
Robert I. Griffith, Jr. President, Griffith 1992
(age 48) Insurance Agency
Glenn E. Griffiths* President Security 1988
(age 58) Financial Corp. &
Security Dollar Bank
Robert J. McClurkin* McClurkin Funeral 1995
(age 33) Home
Douglas J. Neuman Attorney 1980
(age 45)
</TABLE>
23
<PAGE> 24
<TABLE>
<CAPTION>
PRINCIPAL
NAME & AGE OCCUPATION DIRECTOR SINCE
---------- ---------- --------------
<S> <C> <C>
Peter P. Rossi, Jr. President, Rossi & Son 1990
(age 57) Memorial Chapel
Christopher J. Shaker Attorney 1987
(age 39)
</TABLE>
ITEM 6. EXECUTIVE COMPENSATION.
The following remuneration table sets forth all direct remuneration
paid by the Bank in 1997 to the Company's President and Chief Executive Officer.
No other Officers' total compensation exceeded $100,000 for the year ended 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
Name and ------------------- Option # All Other
Principal Position Year Salary(1) Bonus(2) Awards(shares) Compensation(3)
- ------------------ ---- --------- -------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Mr. Glenn E. Griffiths 1997 96,572 11,475 0 0
President and Chief 1996 93,395 9,933 0 0
Executive Officer 1995 84,960 11,784 0 0
</TABLE>
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Some of the directors, officers and principal shareholders of the
Company and/or the Bank and the companies with which they are associated were
customers of and have had banking transactions with the Bank in the ordinary
course of the Bank's business in the past and up to the present time. All loans
and commitments for loans included in such transactions were made on
substantially the same terms including interest rates and collateral as were
prevailing at the time for comparable transactions with other persons. In the
opinion of the Board of Directors of the Bank, these loans and commitments for
loans do not involve more than a normal risk of collectability or present other
unfavorable features.
The Company and/or the Bank have had, and expect to have in the future,
banking transactions in the ordinary course of its business with directors,
officers, principal shareholders and their associates, on substantially the same
terms, including interest rates and collateral on loans, as those prevailing at
the same time for comparable transactions with others. Such transactions will
not involve more than the normal risk of collectability or present other
unfavorable features.
24
<PAGE> 25
ITEM 8. DESCRIPTION OF SECURITIES.
The Company has 1,500,000 of shares authorized no par value common
stock of which 333,164 shares were issued and outstanding as of April 30, 1998.
The holders of the Shares have no preemptive right to acquire other or
additional Shares which may, from time to time, be authorized and issued by the
Company.
Each Share of Common Stock of the Company entitles the holder thereof
to (1) vote on all matters. Shareholders of the Company do not have cumulative
voting rights in the election of directors.
The Certificate of Incorporation of the Company contains provisions
providing for indemnification of the Company's Directors and Officers and the
purchase of insurance in connection with such indemnification.
The Certificate of Incorporation also contain certain provisions to
protect the interest of the Company and its shareholders from any hostile
takeover attempts. A vote of 75 percent of the outstanding Shares, in the
aggregate, are required to authorize the merger, consolidation or other business
combination with another entity or the disposition of all or substantially all
of the assets of the Company or the Bank to a person who owns five percent or
more of the shares of the Company unless in each such case the matter has been
approved and recommended by vote of the directors. These provisions and
limitations will make it more difficult for companies or persons to acquire
control of the Company without the support of the Board of Directors of the
Company. However, these provisions also could deter offers for Shares in the
Company which might be viewed by certain Investors not to be in their best
interest.
25
<PAGE> 26
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS.
The Company was incorporated on November 23, 1987. Currently, the
Company's shares are not listed on any exchange. The only trades of which the
Company has knowledge are presented in the table below. All per share figures
are adjusted for stock splits and stock dividends. (Average trading price per
Share is based upon information provided to the Company's Management from
individuals involved in their personal stock transactions.)
<TABLE>
<CAPTION>
($)
Dates Number of Shares Average Price Per Share
----- ---------------- -----------------------
<S> <C> <C>
First Quarter - 1997 47,848 54
Second Quarter - 1997 35,903 59
Third Quarter - 1997 13,633 60
Fourth Quarter - 1997 9,370 62
First Quarter-1996 11,002 36
Second Quarter-1996 3,956 40
Third Quarter-1996 7,912 41
Fourth Quarter - 1996 5,336 54
First Quarter-1995 9981 30
Second Quarter-1995 18,438 32
Third Quarter-1995 9,884 30
Fourth Quarter-1995 19,797 30
First Quarter-1994 3,588 24
Second Quarter-1994 484 24
Third Quarter-1994 7,321 24
Fourth Quarter-1994 4,802 24
First Quarter-1993 10,274 21
Second Quarter-1993 1,936 21
Third Quarter-1993 24,220 21
Fourth Quarter-1993 3,514 21
</TABLE>
The above-stated trading prices may not be indicative of the true value
of the Company's stock.
Since the date of its incorporation, the Company has paid dividends as
presented below. The amount and timing of future dividends will be determined by
the Company's Board of Directors, and will depend substantially upon the
earnings and financial condition of its subsidiary, the Bank.
26
<PAGE> 27
<TABLE>
<CAPTION>
($) ($)
Year Per Share(1) Total Annual Dividend
---- ------------ ---------------------
<S> <C> <C> <C>
1991 0.50 121,402
1992 0.53 128,750
1993 0.55 137,495
1994 0.68 175,792
1995 0.90 244,575
1996 1.00 277,447
1997 1.15 376,307
</TABLE>
(1) The above figures are adjusted to reflect all stock splits and
dividends.
ITEM 2. LEGAL PROCEEDINGS.
There is no pending litigation which, in the opinion of management,
will adversely impact the financial condition of the Company or the Bank. There
is litigation threatened by a bank customer which has not been initiated as of
the preparation of this offering circular. In the event that the threatened
litigation is initiated, management and its counsel do not believe that any loss
other than those associated with the collection process shall be incurred.
Consequently, it is the opinion of management that the threatened litigation
shall not have a material adverse impact upon the financial condition of the
Company and the Bank.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
There have been no disagreements with the independent accountants on
matters of accounting principles or financial statement disclosure required to
be reported under this item. There has been no change in accountants.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
Sale of 50,000 shares pursuant to an intrastate offering exemption
under Rule 147. The offering commenced on January 2, 1997 and was completed on
April 30, 1997. The shares were registered under applicable Ohio securities laws
pursuant to ORC 1707.09. Community Banc Investments, Inc., an Ohio broker/dealer
assisted in the sale of such shares on a "best efforts" basis.
Sale of 17,002 shares pursuant to the Company's Dividend Reinvestment
Plan and pursuant to the limited offering exemption of Rule 504 of Regulation D.
The Company registered the shares under applicable Ohio securities laws pursuant
to ORC 1707.06(A)(1). The offering commenced June 20, 1996 and the offering
expires June 20, 1998 pursuant to the
27
<PAGE> 28
Registration under Ohio Securities laws and the Ohio Division of Securities
Certificate of Acknowledgement issued June 20, 1996.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article V, Section 5.1 of the Bylaws of the Company provides for the
authority of the Company to indemnify any director, officer, employee or agent
who was or is a party or is threatened to be made a party to any civil,
criminal, administrative or investigative action, suit or proceeding by reason
of the fact that the person was a director, officer, employee or agent of the
Company or any of its subsidiaries. The Company may indemnify any such director,
officer, employee or agent for any expense incurred by that person only if such
person acted in good faith and in a manner reasonably believed to be in or not
opposed to the best interest of the Company or had no reasonable cause to
believe his conduct was unlawful in a criminal action.
Additionally, the Company may purchase insurance at its expense for the
purpose of protecting itself and its directors, officers, employees and agents
against any expense, liabilities or loss, whether or not the Company would have
the power to indemnify such person against such expense, liability or loss under
the Delaware General Company Laws.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling the
registrant pursuant to the foregoing provisions, the registrant has been
informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable.
28
<PAGE> 29
PART F/S - FINANCIAL STATEMENTS
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Security Financial Corp.
We have audited the accompanying consolidated balance sheet of Security
Financial Corp. and subsidiary as of December 31, 1997 and 1996, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Security Financial Corp. and subsidiary as of December 31, 1997 and 1996, and
the results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
/S/ S. R. SNODGRASS, A.C.
Wexford, PA
February 6, 1998
29
<PAGE> 30
SECURITY FINANCIAL CORP.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
1997 1996
------------ ------------
ASSETS
<S> <C> <C>
Cash and due from banks $ 7,416,457 $ 6,568,483
Federal funds sold 1,090,000 -
Interest-bearing deposits in other banks 400,000 505,000
Investment securities available for sale 41,638,502 26,691,273
Loans 112,428,694 114,988,281
Less allowance for loan losses 1,677,651 1,678,528
------------ ------------
Net loans 110,751,043 113,309,753
Premises and equipment 3,833,325 3,787,930
Accrued interest and other assets 2,128,857 2,036,805
------------ ------------
TOTAL ASSETS $167,258,184 $152,899,244
============ ============
LIABILITIES
Deposits:
Noninterest-bearing demand $ 18,047,213 $ 19,048,452
Interest-bearing demand 7,873,059 6,829,893
Money market 4,017,442 4,190,028
Savings 27,119,276 28,210,321
Time 88,295,471 71,391,004
------------ ------------
Total deposits 145,352,461 129,669,698
Short-term borrowings 6,523,560 6,354,431
Other borrowings - 5,400,000
Accrued interest and other liabilities 749,280 696,292
------------ ------------
TOTAL LIABILITIES 152,625,301 142,120,421
------------ ------------
STOCKHOLDERS' EQUITY
Common stock, $2.50 stated value; 750,000 shares authorized;
333,164 and 279,422 shares issued 832,910 698,556
Capital surplus 4,977,246 2,306,650
Retained earnings 8,695,696 7,753,555
Net unrealized gain on securities 127,031 20,062
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 14,632,883 10,778,823
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $167,258,184 $152,899,244
============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
30
<PAGE> 31
SECURITY FINANCIAL CORP.
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996
----------- -----------
INTEREST INCOME
<S> <C> <C>
Interest and fees on loans $10,636,250 $ 9,114,086
Interest bearing deposits in other banks 19,924 45,992
Federal funds sold 195,028 34,011
Investment securities:
Taxable 1,802,521 1,876,236
Exempt from federal income tax 194,081 198,852
----------- -----------
Total interest income 12,847,804 11,269,177
----------- -----------
INTEREST EXPENSE
Deposits 5,991,240 5,020,522
Short-term borrowings 230,862 227,046
Other borrowings 106,253 209,285
----------- -----------
Total interest expense 6,328,355 5,456,853
----------- -----------
NET INTEREST INCOME 6,519,449 5,812,324
PROVISION FOR LOAN LOSSES 1,250,000 668,000
----------- -----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 5,269,449 5,144,324
----------- -----------
OTHER INCOME
Service charges and fees 846,634 650,463
Investment securities gains, net 25,250 25,602
Gain on sales of mortgage loans, net 62,356 30,149
Other income 7,481 120,843
----------- -----------
Total other income 941,721 827,057
----------- -----------
OTHER EXPENSE
Salaries and employee benefits 2,286,155 2,218,165
Occupancy expense 426,434 283,068
Other expense 1,571,014 1,685,260
----------- -----------
Total other expense 4,283,603 4,186,493
----------- -----------
Income before income taxes 1,927,567 1,784,888
Applicable income taxes 609,119 543,434
----------- -----------
NET INCOME $ 1,318,448 $ 1,241,454
=========== ===========
EARNINGS PER SHARE $ 4.11 $ 4.48
AVERAGE SHARES OUTSTANDING 320,732 277,408
</TABLE>
See accompanying notes to the consolidated financial statements.
31
<PAGE> 32
SECURITY FINANCIAL CORP.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Net
Unrealized
Common Capital Retained Gain (Loss)
Stock Surplus Earnings on Securities Total
------------ --------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995 $ 690,359 $ 2,169,561 $ 6,789,548 $ 139,271 $ 9,788,739
Net income 1,241,454 1,241,454
Cash dividends ($ 1.00 per share) (277,447) (277,447)
Dividend reinvestment and stock
purchase plan 8,197 137,089 145,286
Net unrealized loss on securities (119,209) (119,209)
------------ --------------- --------------- --------------- ---------------
Balance, December 31, 1996 698,556 2,306,650 7,753,555 20,062 10,778,823
Net income 1,318,448 1,318,448
Cash dividends ($ 1.15 per share) (376,307) (376,307)
Proceeds from the sale of stock 125,000 2,456,682 2,581,682
Dividend reinvestment and stock
purchase plan 9,354 213,914 223,268
Net unrealized gain on securities 106,969 106,969
------------ --------------- --------------- --------------- ---------------
Balance, December 31, 1997 $ 832,910 $ 4,977,246 $ 8,695,696 $ 127,031 $ 14,632,883
============ =============== =============== =============== ===============
</TABLE>
See accompanying notes to the consolidated financial statements.
32
<PAGE> 33
SECURITY FINANCIAL CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996
------------ ------------
OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 1,318,448 $ 1,241,454
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 831,903 704,409
Investment securities gains, net (25,250) (25,602)
Provision for loan losses 1,250,000 668,000
Deferred federal income taxes 38,367 202,569
Mortgage loans originated for sale (3,299,045) (1,239,194)
Proceeds from sales of mortgage loans 3,361,401 2,245,384
Gain on sales of mortgage loans, net (62,356) (30,149)
Increase in accrued interest receivable (117,057) (87,001)
Increase in accrued interest payable 74,518 28,350
Other, net (91,180) 402,718
------------ ------------
Net cash provided by operating activities 3,279,749 4,110,938
------------ ------------
INVESTING ACTIVITIES
Decrease in interest-bearing time deposits in other banks 205,000 95,000
Investment securities available for sale:
Proceeds from sales 6,724,900 7,202,992
Proceeds from maturities and principal repayments 3,053,702 8,243,792
Purchases (24,750,170) (8,687,203)
Net decrease (increase) in loans 1,009,384 (33,195,566)
Purchase of premises and equipment (366,309) (695,454)
Proceeds received from branch acquisition - 8,571,843
Proceeds from sale of other real estate owned - 447,637
------------ ------------
Net cash used for investing activities (14,123,493) (18,016,959)
------------ ------------
FINANCING ACTIVITIES
Net increase in deposits 15,682,763 10,508,392
Increase in short-term borrowings 170,255 2,008,915
Proceeds from other borrowings - 5,400,000
Repayment of other borrowings (5,400,000) (2,900,000)
Dividends paid on common stock (376,307) (277,447)
Proceeds from sale of common stock 2,581,682 -
Proceeds from dividend reinvestment and stock purchase plan 223,268 145,286
------------ ------------
Net cash provided by financing activities 12,881,661 14,885,146
------------ ------------
Increase in cash and cash equivalents 2,037,917 979,125
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 6,868,483 5,889,358
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 8,906,400 $ 6,868,483
============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
33
<PAGE> 34
SECURITY FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Security Financial Corp. (the
"Company") and its wholly-owned subsidiary, Security Dollar Bank (the "Bank")
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
The Company is a Delaware corporation organized to become the holding company of
the Bank. The Bank is a state-chartered commercial bank located in Ohio. The
Company 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 a variety of deposit services to its customers through six locations.
The Company is supervised by the Board of Governors of the Federal Reserve
System, while the Bank is subject to regulation and supervision by the Board of
Governors of the Federal Reserve System and the Ohio Division of Banks.
The consolidated financial statements of the Company include its wholly-owned
subsidiary, the Bank. Significant inter-company items have been eliminated in
consolidation.
The financial statements have been prepared in conformity with generally
accepted accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the date of the balance sheet
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
management's intention and ability, as securities held to maturity or securities
available for sale. Debt securities acquired with the intent and ability to hold
to maturity are stated at cost adjusted for amortization of premium and
accretion of discount which are computed using the interest method and
recognized as adjustments of interest income. Certain other debt and equity
securities have been classified 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, Federal Reserve Bank, and
Independent State Bank of Ohio 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.
34
<PAGE> 35
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LOANS
Loans are reported at their principal amount net of unearned income. Interest
from installment loans is recognized in income by both the sum-of-the-digits
method which results in approximate level rates of return over the terms of the
loans and, on the accrual method, which is calculated based on the current
outstanding loan balances, depending on the date of organization. Interest on
real estate mortgages and commercial loans is recognized as income when earned
on the accrual method. The Company's general policy has been to stop accruing
interest on loans when it is determined that reasonable doubt exists as to the
collectibility of additional interest. Interest payments received on nonaccrual
loans is recorded as income or applied against principal according to
management's judgment as to the collectibility of the related loans.
Loan origination fees and certain direct loan origination costs are being
deferred and the net amount amortized as an adjustment of the related loan
yield. The Company is amortizing these amounts over the contractual lives of the
related loans.
ALLOWANCE FOR LOAN LOSSES
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 on management's evaluation of the
adequacy of the allowance for loan losses which encompasses 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
including the amounts and timing of future cash flows expected on impaired
loans, are particularly susceptible to significant changes in the near term.
A loan is considered impaired when it is probable that the borrower will not
repay the loan according to the original contractual terms of the loan
agreement. Management has determined that first mortgage loans on on-to-four
family properties and all consumer loans represent large groups of
smaller-balance homogeneous loans that are to be collectively evaluated.
Management considers an insignificant delay, which is defined as less than 90
days by the Company, will not cause a loan to be classified as impaired. A loan
is not impaired during a period of delay in payment if the Company expects to
collect all amounts due including interest accrued at the contractual interest
rate for the period of delay. All loans identified as impaired are evaluated
independently by management. The Company estimates credit losses on impaired
loans based on the present value of expected cash flows or the fair value of the
underlying collateral if the loan repayment is expected to come from the sale or
operation of such collateral. Impaired loans, or portions thereof, are
charged-off when it is determined that a realized loss has occurred. Until such
time, an allowance for loan losses is maintained for estimated losses. Cash
receipts on impaired loans are applied first to accrued interest receivable,
unless otherwise required by the loan terms, except when an impaired loan is
also a nonaccrual loan, in which case the portion of the receipts related to
interest is recognized as income.
35
<PAGE> 36
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation.
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 ASSET
The intangible asset is comprised solely of a core deposit acquisition premium.
This core deposit acquisition premium, which was developed by a specific core
deposit life study, is amortized using the straight-line method over the period
to be benefited. Annual assessments of the carrying values and remaining
amortization periods of intangible assets are made to determine possible
carrying value impairment, and appropriate adjustments, as deemed necessary.
This asset is a component of other assets on the balance sheet.
PENSION AND PROFIT SHARING PLANS
Pension and employee benefits include contributions, determined actuarially, to
a retirement plan covering eligible employees of the Bank. Contributions to the
profit sharing plan are made based on the achievement of certain operating
levels and performance ratios.
INCOME TAXES
The Company 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 and
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.
EARNINGS PER SHARE
Earnings per share computations are based upon the weighted number of shares
outstanding for each of the reported periods.
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards Statement No. 128, "Earnings Per
Share" ("EPS"). The Statement establishes new standards for computing and
presenting EPS and requires dual presentation of "basic" and "diluted" EPS on
the face of the income statement. The Company currently maintains a simple
capital structure, therefore there are no dilutive effects on earnings per
share.
CASH FLOW INFORMATION
For purposes of reporting cash flows, cash, and cash equivalents include cash
and due from banks, interest-bearing deposits, and federal funds sold in other
banks with a maturity less than ninety days.
Cash payments for interest in 1997 and 1996 were $6,253,837 and $5,428,503,
respectively. Cash payments for income taxes for 1997 and 1996 were $482,000 and
$115,000, respectively.
36
<PAGE> 37
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
During 1996, management made the determination that it no longer had the
positive intent to hold certain debt securities to maturity. As a result, the
Company transferred the remaining held to maturity portfolio with an amortized
cost of $16,874,000 and estimated market value of $16,945,000 to the available
for sale classification.
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 provision 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.
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 and Government
agency securities $ 13,456,631 $ 30,215 $ (16,167) $ 13,470,679
Obligations of states and political
subdivisions 6,087,660 91,342 (12,734) 6,166,268
Mortgage-backed securities 20,770,857 132,780 (147,395) 20,756,242
----------------- ---------------- ----------------- -------------------
Total debt securities 40,315,148 254,337 (176,296) 40,393,189
Equity securities 1,130,882 114,431 - 1,245,313
----------------- ---------------- ----------------- -------------------
Total $ 41,446,030 $ 368,768 $ (176,296) $ 41,638,502
================= ================ ================= ===================
</TABLE>
37
<PAGE> 38
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 and Government
agency securities $ 13,823,796 $ 36,492 $ (117,466) $ 13,742,822
Obligations of states and political
subdivisions 2,509,420 35,601 (23,019) 2,522,002
Mortgage-backed securities 9,325,478 100,572 (49,519) 9,376,531
------------------ ----------------- ---------------- ------------------
Total debt securities 25,658,694 172,665 (190,004) 25,641,355
Equity securities 1,002,182 47,736 - 1,049,918
------------------ ----------------- ----------------- ------------------
Total $ 26,660,876 $ 220,401 $ (190,004) $ 26,691,273
================== ================= ================= ==================
</TABLE>
Investment securities with carrying values of $20,532,070 and $18,721,853 at
December 31, 1997 and 1996, respectively, were pledged to secure public
deposits, repurchase agreements and other purposes as required by law.
The amortized cost and estimated market values of debt securities at December
31, 1997, by contractual maturity, are shown below. The Company's
mortgage-backed securities have contractual maturities ranging from one to
twenty-eight years. Expected maturities 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 $ 2,250,090 $ 2,248,359
Due after one year through five years 8,167,155 8,172,274
Due after five years through ten years 4,898,710 4,897,714
Due after ten years 24,999,193 25,074,842
----------- -----------
Total $40,315,148 $40,393,189
=========== ===========
</TABLE>
Proceeds from the sales of investment securities available for sale during 1997
and 1996 were $6,724,900 and $7,202,992. Gross gains and gross losses were
realized on those sales as follows:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Gross gains $30,754 $88,276
Gross losses 5,504 62,674
</TABLE>
38
<PAGE> 39
LOANS
Major classifications of loans are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Real estate mortgages:
Residential $ 46,686,796 $ 48,664,249
Commercial 16,564,644 17,383,815
Commercial, financial, and 13,398,099 12,689,109
agricultural
Consumer loans 32,810,884 33,149,199
Other 2,968,271 3,101,909
------------ ------------
112,428,694 114,988,281
Less allowance for loan losses 1,677,651 1,678,528
------------ ------------
Net loans $110,751,043 $113,309,753
============ ============
</TABLE>
At December 31, 1997 and 1996 the recorded investment in loans considered to be
impaired was $1,452,316 and $781,042 respectively, all of which were on
non-accrual status at year end. The related allowance for loan losses allocated
to impaired loans was $514,142 and $382,687 at December 31, 1997 and 1996. The
average recorded investment in impaired loans during the year was approximately
$995,189 in 1997 and $783,502 in 1996. The Company recognized interest income on
impaired loans of $1,612 and $24,079 for the year ended December 31, 1997 and
1996.
The Company's primary business activity is with customers located within its
local trade area. Commercial, residential, and consumer loans are granted.
Although the Company 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.
ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses are as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Balance, January 1 $1,678,528 $1,239,188
Add:
Provisions charged to operations 1,250,000 668,000
Recoveries 85,744 218,018
Less loans charged off 1,336,621 446,678
---------- ----------
Balance, December 31 $1,677,651 $1,678,528
========== ==========
</TABLE>
39
<PAGE> 40
PREMISES AND EQUIPMENT
Major classifications of premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Land $ 246,173 $ 246,173
Buildings 4,006,187 3,798,735
Furniture, fixtures, and equipment 3,119,571 2,960,714
---------- ----------
7,371,931 7,005,622
Less accumulated depreciation 3,538,606 3,217,692
---------- ----------
Total $3,833,325 $3,787,930
========== ==========
</TABLE>
Depreciation charged to operations was $320,914 in 1997 and $292,532 in 1996.
DEPOSITS
Time deposits include certificates of deposit in denominations of $100,000 or
more. Such deposits aggregated $15,723,898 and $19,809,918 at December 31, 1997
and 1996, respectively.
Maturities of time deposits of $100,000 or more are as follows:
<TABLE>
<CAPTION>
1997
-----------
<S> <C>
Three months or less $ 5,311,165
Three to twelve months 6,400,411
Over one year 4,012,322
-----------
$15,723,898
===========
</TABLE>
SHORT-TERM BORROWINGS
The outstanding balances and related information for short-term borrowings is
summarized as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
Federal Funds Purchased:
<S> <C> <C>
Ending Balance $ - $3,075,000
Maximum month-end balance during the year 84,000 3,075,000
Average balance during the year 162,943 733,333
Average year-end interest rate - 7.23%
Average interest rate during the year 5.86% 5.61%
Securities Sold Under Agreements to Repurchase:
Ending Balance $6,523,560 $3,279,431
Maximum month-end balance during the year 7,158,445 5,918,346
Average balance during the year 5,068,331 4,416,735
Average year-end interest rate 4.29% 5.89%
Average interest rate during the year 4.24% 4.21%
</TABLE>
40
<PAGE> 41
Average amounts outstanding during the year represent daily averages. Average
interest rates represent interest expense divided by the related average
balances. The Company has pledged investment securities with carrying values of
$11,574,348 and $6,247,357 as of December 31, 1997 and 1996, as collateral for
the repurchase agreements.
OTHER BORROWINGS
Other borrowings consist of separate loans from the Federal Home Loan Bank of
Cincinnati. As of December 31, 1996, FHLB advances totaled $5,400,000 with
original maturities ranging from 45 to 325 days at an average rate of 5.46%. All
of these advances were repaid during 1997.
All advances were collateralized by the Bank's investment in Federal Home Loan
Bank stock and a blanket collateral pledge agreement with the Federal Home Loan
Bank under which the Bank has pledged certain qualifying assets equal to 150% of
the unpaid amount of the outstanding balances. Based upon the Bank's investment
in Federal Home Loan Bank stock, the Bank has $16,396,000 available to borrow
from the FHLB.
OTHER EXPENSE
The following is an analysis of other expense:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Stationery, printing, and supplies $ 151,082 $ 149,824
Professional fees 150,027 104,013
Data processing 117,933 149,284
Other 1,151,972 965,018
---------- ----------
Total $1,571,014 $1,368,139
========== ==========
</TABLE>
INCOME TAXES
The provision for federal income taxes consist of:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Currently payable $570,752 $340,865
Deferred tax 38,367 202,569
-------- --------
Total provision $609,119 $543,434
======== ========
</TABLE>
The components of the net deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
1997 1996
-----------------------------------------
Deferred tax assets:
<S> <C> <C>
Allowance for loan losses $ 396,753 $ 370,847
Deferred compensation 15,373 18,851
Other 14,960 8,354
---------------- ----------------
Total 427,086 398,052
---------------- ----------------
</TABLE>
41
<PAGE> 42
INCOME TAXES (CONTINUED)
<TABLE>
<CAPTION>
Deferred tax liabilities:
<S> <C> <C>
Premises and equipment 44,625 39,644
Investment securities discount accretion 51,179 20,629
Loan origination fees, net 384,179 371,417
Net unrealized gain on securities 65,441 10,335
Other 44,645 25,537
--------- ---------
Total 590,069 467,562
--------- ---------
Net deferred tax liability $(162,983) $ (69,510)
========= =========
</TABLE>
The following is a reconciliation between the income tax expense and the amounts
of income taxes which would have been provided at statutory rates:
<TABLE>
<CAPTION>
1997 1996
----------------------------------- ---------------------------------
% of % of
Pre-tax Pre-tax
Amount Income Amount Income
----------------- --------------- ---------------- --------------
<S> <C> <C> <C> <C>
Provision at statutory rate $ 655,373 34.0% $ 606,862 34.0
Effect of tax exempt income (73,463) (3.8) (76,777) (4.3)
Non-deductible interest expense 9,482 0.5 9,091 0.5
Other, net 17,727 0.9 4,258 0.2
----------------- --------------- ---------------- --------------
Tax expense and effective rates $ 609,119 31.6% $ 543,434 30.4
================= =============== ================ ==============
</TABLE>
EMPLOYEE BENEFITS
The Company maintains a trusteed Section 401(k) plan with contributions matching
those by eligible employees to a maximum of 140% of employee contributions
annually, to a maximum of 5% of annual salary. The Company may also provide for
a discretionary profit sharing contribution. All employees at least 20 1/2 years
of age who have completed one year of service are eligible to participate in the
plan. The Company's contribution to this plan was $85,566 in 1997 and $76,243 in
1996.
DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
The Company maintains a dividend reinvestment plan. Participation is available
to all common stockholders who are residents of the state of Ohio. The Plan
provides each participant with a simple and convenient method of purchasing
additional common shares without payment of any brokerage commission or other
service fees.
A participant in the Plan may elect to reinvest dividends on all or part of
their shares to acquire additional common stock. In addition, the Plan provides
for the optional purchase of shares of the Company's common stock up to a
maximum of $4,000 per year. A participant may
42
<PAGE> 43
withdraw from the Plan at any time. Stockholders purchased 3,742 shares in 1997
and 3,279 shares in 1996 through the Plan.
COMMITMENTS AND CONTINGENT LIABILITIES
Commitments
In the normal course of business, there are various outstanding commitments and
contingent liabilities which are not reflected in the accompanying consolidated
financial statements. Commitments to extend credit are agreements to lend to a
customer as long as there is no violation of any condition established in the
contract. Standby letters of credit are conditional commitments issued by the
Company to guarantee the performance of a customer to a third party. These
commitments were comprised of the following:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Commitments to extend credit $11,792,000 $11,500,000
Standby letters of credit and financial guarantees 830,000 810,000
----------- -----------
Total $12,622,000 $12,310,000
=========== ===========
</TABLE>
The instruments involve, to varying degrees, elements of credit and interest
rate risk in excess of the amount recognized in the consolidated balance sheet.
The Company uses the same credit policies in making commitments and conditional
obligations as it does for on-balance sheet instruments. Generally, collateral
is not 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.
Unused Lines of Credit
At December 31, 1997 and 1996, the Company maintained unsecured lines of credit
with various financial institutions which totaled $3,125,000 and $3,075,000,
respectively. All lines were unused at December 31, 1997 and 1996 and are
available to support general corporate purposes. There are no fees to maintain
these lines, and no interest was paid.
Contingent Liabilities
The Company is involved in various legal actions from normal business
activities. Management believes that the liability, if any, arising from such
litigation will not have a material adverse effect on the Company's financial
position.
REGULATORY MATTERS
Federal law prevents Security Financial Corp. from borrowing from the Bank
unless the loans are secured by specific collateral. Further, such secured loans
are limited in amount to 10% of the Bank's common stock and capital surplus.
43
<PAGE> 44
The Bank is subject to legal limitations on the amount of dividends that it can
pay as a state chartered member of the Federal Reserve Bank System. Prior
approval of the Federal Reserve Board is required if the total of all dividends
declared by the Bank in any calendar year exceeds net profits, as defined for
the year, combined with its retained net profits for the two preceding calendar
years less any required transfers to surplus. Using this formula, the amount
available for payment of dividends by the Bank to the Company in 1998, without
approval of the Federal Reserve Board, will be limited to $2,478,729 plus 1998
net profits retained up to the date of the dividend declaration.
The district Federal Reserve Bank requires the Bank to maintain certain average
reserve balances. As of December 31, 1997 and 1996, the Bank had required
reserves of $715,000 and $651,000, respectively, comprised of vault cash and a
depository amount held with the Federal Reserve Bank.
REGULATORY CAPITAL REQUIREMENTS
The Company and the Bank are subject to various regulatory capital requirements
administered by the federal regulatory 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 an entity's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Company and the Bank must meet specific capital guidelines that involve
quantitative measures of the entities' assets, liabilities, and certain
off-balance sheet items as calculated under regulatory accounting practices. The
Company's and the Bank's capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weighting, and
other factors.
Quantitative measures established by the regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios of Total
and 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 Company and the Bank meet
all capital adequacy requirements to which they are subject.
As of December 31, 1997, the most recent notification from the appropriate
primary regulator has categorized the Company and Bank 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 Company's or
the Bank's category. The capital position of the Company does not materially
differ from the Bank's, therefore, the following table sets forth the Company's
capital position and minimum requirements as of December 31:
44
<PAGE> 45
<TABLE>
<CAPTION>
1997 1996
------------------------------- --------------------------------
Amount Ratio Amount Ratio
---------------- ------------- ---------------- --------------
<S> <C> <C> <C> <C>
Total Capital
(to Risk-Weighted Assets)
Actual $ 15,245,699 13.72% $ 11,398,514 10.47%
For Capital Adequacy 8,888,669 8.00% 8,706,553 8.00%
To Be Well Capitalized 11,110,837 10.00% 10,883,191 10.00%
Tier 1 Capital
(to Risk-Weighted Assets)
Actual $ 13,853,279 12.47% $ 10,034,188 9.22%
For Capital Adequacy 4,444,335 4.00% 4,353,276 4.00%
To Be Well Capitalized 6,666,502 6.00% 6,529,915 6.00%
Tier 1 Capital
(to Average Assets)
Actual $ 13,853,279 8.52% $ 10,034,188 6.18%
For Capital Adequacy 6,500,588 4.00% 6,497,708 4.00%
To Be Well Capitalized 8,125,735 5.00% 8,122,135 5.00%
</TABLE>
FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company'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 banks, interest-
bearing deposits with other banks,
and federal funds sold $ 8,906,457 $ 8,906,457 $ 7,073,483 $ 7,073,483
Investment securities 41,638,502 41,638,502 26,691,273 26,691,273
Net loans 110,751,043 115,808,789 113,309,753 110,959,771
Accrued interest receivable 1,041,992 1,041,992 924,935 924,935
----------------- ------------------ ----------------- ------------------
Total $ 162,337,994 $ 167,395,740 $ 147,999,444 $ 145,649,462
================= ================== ================= ==================
Financial liabilities:
Deposits $ 145,352,461 $ 146,340,299 $ 129,669,698 $ 129,887,589
Short-term borrowings 6,523,560 6,523,560 6,354,431 6,354,431
Other borrowings - - 5,400,000 5,400,000
Accrued interest payable 338,699 338,699 264,181 264,181
----------------- ------------------ ----------------- ------------------
Total $ 152,214,720 $ 153,202,558 $ 141,688,310 $ 141,906,201
================= ================== ================= ==================
</TABLE>
45
<PAGE> 46
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 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 exists, 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 and liabilities such as lease receivables, 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 Company.
The Company 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, FEDERAL
FUNDS SOLD, ACCRUED INTEREST RECEIVABLE, SHORT-TERM BORROWINGS, OTHER
BORROWINGS, AND ACCRUED INTEREST PAYABLE
The fair value is equal to the current carrying value.
INVESTMENT SECURITIES
The fair value of investment 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 AND DEPOSITS
The fair value is estimated by discounting the future cash flows using a
simulation model which estimates future cash flows and employs 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
value for time deposits are estimated using a discounted cash flow calculation
that applies
46
<PAGE> 47
contractual cost currently being offered in the existing portfolio to current
market rates being offered for deposits and notes 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 the Commitments and Contingent Liabilities note.
PARENT COMPANY
Following are condensed parent only financial statements for Security Financial
Corp.
CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Cash on deposit in subsidiary bank $ 617,087 $ 173,725
Interest-bearing deposit in other banks 100,000 -
Investment in subsidiary bank 13,695,496 10,428,816
Investment securities available for sale 248,462 181,768
Other assets 10,744 10,744
----------- -----------
TOTAL ASSETS $14,671,789 $10,795,053
=========== ===========
LIABILITIES $ 38,906 $ 16,230
STOCKHOLDERS' EQUITY 14,632,883 10,778,823
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $14,671,789 $10,795,053
=========== ===========
</TABLE>
47
<PAGE> 48
PARENT COMPANY (CONTINUED)
CONDENSED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996
---------- ----------
INCOME
<S> <C> <C>
Dividends from subsidiary bank $ 125,000 $ 100,000
Dividend income 7,481 4,973
---------- ----------
Total income 132,481 104,973
EXPENSES
Operating expense 17,762 19,716
---------- ----------
Income before income tax benefits 114,719 85,257
Income taxes - 6,197
---------- ----------
Income (loss) before equity in undistributed
earnings of subsidiary 114,719 91,454
Equity in undistributed earnings of subsidiary 1,203,729 1,150,000
---------- ----------
NET INCOME $1,318,448 $1,241,454
========== ==========
</TABLE>
CONDENSED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996
----------- -----------
OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 1,318,448 $ 1,241,454
Adjustments to reconcile net income to
net cash provided by operating activities:
Undistributed income of subsidiary (1,203,729) (1,150,000)
- 68,803
Other
----------- -----------
Net cash provided by operating activities 114,719 160,257
----------- -----------
INVESTING ACTIVITY
Increase in interest-bearing deposits in other banks (100,000) (10,284)
Investment in subsidiary (2,000,000) -
----------- -----------
Net cash used for investing activities (2,100,000) (10,284)
----------- -----------
FINANCING ACTIVITIES
Proceeds from sale of common stock 2,581,682 -
Proceeds from dividend reinvestment and stock purchase plan 223,268 145,286
Dividends paid on common stock (376,307) (277,447)
----------- -----------
Net cash provided by (used for) financing activities 2,428,643 (132,161)
----------- -----------
Increase in cash 443,362 17,812
CASH AT BEGINNING OF YEAR 173,725 155,913
----------- -----------
CASH AT END OF YEAR $ 617,087 $ 173,725
=========== ===========
</TABLE>
48
<PAGE> 49
PART III
ITEM 1. INDEX TO EXHIBITS.
2. Plan of acquisition, reorganization, arrangement, liquidation,
or succession
3. Charter and by-laws.
4. Instruments defining the rights of security holders.
9. Voting trust agreement
10. Material contracts
11. Statement re computation of per share earnings
16. Letter re change in certifying accountant
21. Subsidiaries of the registrant
24. Power of Attorney
27. Financial Data Schedule
99. Additional Exhibits
ITEM 2. DESCRIPTION OF EXHIBITS.
Exhibit Number Description
(2) Not Applicable
(3).(i) Certificate of Incorporation
(3).(ii) Bylaws
(4) None
(9) None
(10) Security Financial Corp. 1997 Stock Option Plan
(11) Not Applicable
(16) None
(21) Subsidiaries of the Registrant
(24) Not Applicable
(27) Financial Data Schedule
(99) Not Applicable
49
<PAGE> 50
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
SECURITY FINANCIAL CORP.
Date: April 30, 1998
By: /s/ Donald L. Stacy
---------------------------------------
Donald L. Stacy, Vice President
50
<PAGE> 51
INDEX TO EXHIBITS
Exhibit Number Description
(2) Not Applicable
(3).(i) Certificate of Incorporation
(3).(ii) Bylaws
(4) None
(9) None
(10) Securitiy Financial Corp. 1997 Stock Option Plan
(11) Not Applicable
(16) None
(21) Subsidiaries of the Registrant
(24) Not Applicable
(27) Financial Data Schedule
(99) Not Applicable
<PAGE> 1
EXHIBIT 3.(i)
CERTIFICATE OF INCORPORATION
OF A STOCK CORPORATION
FIRST: The name of this corporation is: SECURITY FINANCIAL CORP.
SECOND: Its registered office in the State of Delaware is to be located
at 212 BANK OF DELAWARE BUILDING, in the city of DOVER, County of KENT,
19903-0841. The registered agent in charge thereof is AGENTS FOR DELAWARE
CORPORATIONS, INC.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
FOURTH: Total number of shares which the Corporation is authorized to
have shall be one million five-hundred thousand (1,500,000) shares of common
stock, no par value.
FIFTH: The name and mailing address of the incorporator is as follows:
Richard L. Boyce, 3178 Republic Blvd. N., Suite 2, Toledo, Ohio, 43615.
SIXTH: In connection with the exercise of its judgment in determining
what is in the best interest of the Corporation and its stockholders when
evaluating a Business Combination Transaction or a proposal by another Person or
Persons to make a tender or exchange offer, the Board of Directors of the
Corporation shall, in addition to considering the adequacy of the amount to be
paid in connection with any such transaction, consider all the following factors
and any other factors which it deems relevant: (i) the social and economic
effects of the transaction on the Corporation and its subsidiaries, employees,
depositors, loan and other customers, creditors and other elements of the
communities in which the Corporation and its subsidiaries operate or are
located; (ii) the business and financial conditions and earnings prospects of
the acquiring Person or Persons, including, but not limited to, debt service and
other existing or likely financial obligations of the acquiring Person or
Persons, and the possible effect of such conditions upon the Corporation and its
subsidiaries and the other elements of the communities in which the Corporation
and its subsidiaries operate or are located, and (iii) the competence,
experience, and integrity of the acquiring Person or Persons and its or their
management.
Therefore, the affirmative vote of the holders of not less than
seventy-five percent (75%) of the Voting Stock shall be required for the
approval or authorization of any Business Combination Transactions with a
Related Person, or any Business Combination Transaction in which a Related
Person has an interest (except proportionately as a stockholder); provided,
however, that the seventy-five percent (75%) voting requirement shall not be
applicable if (i) the Continuing Directors, who at the time constitute at least
a majority of the entire Board of Directors of the Corporation, have expressly
approved the Business Combination Transaction by at least a two-thirds (2/3)
vote of such Continuing Directors, or (ii) all of the following conditions are
satisfied:
51
<PAGE> 2
(A) The Business Combination Transaction is a merger or
consolidation and cash or fair market value of property, securities or
other consideration to be received per share by holders of Common Stock
of the Corporation (other than such Related Person) in the Business
Combination Transaction is at least equal in value to such Related
Person's Highest Purchase Price;
(B) After such Related Person has become the Beneficial Owner
of not less than ten percent (10%) of the Voting Stock of the
Corporation and prior to the consummation of such Business Transaction,
such Related Person shall not have become the Beneficial Owner of any
additional shares of Voting Stock or securities convertible into Voting
Stock, except (i) as a part of the transaction which resulted in such
Related Person becoming the Beneficial Owner of not less than ten
percent (10%) of the Voting Stock or (ii) as a result of a pro rata
stock dividend or stock split; and
(C) Prior to the consummation of such Business Combination
Transaction, such Related Person shall not have, directly or
indirectly, (i) received the benefit (except proportionately as a
shareholder) of any loan, advances, guarantees, pledges, or other
financial assistance or tax credits provided by the Corporation or any
of its subsidiaries, or (ii) caused any material change in the
Corporation's business or equity capital structure, including the
issuance of shares of capital stock of the Corporation to any third
party.
For The Purposes of This Article
(i) The term "Business Combination Transaction" shall mean (a) any
merger or consolidation involving the Corporation or a subsidiary of the
Corporation, (b) any sale, lease, exchange, transfer or other disposition (in
one transaction or a series of transactions), including without limitation a
mortgage or any other security device, of all or any Substantial Part of the
assets either of the Corporation or of a subsidiary of a Corporation, (c) any
sale, lease, exchange, transfer or other disposition of all or any Substantial
Part of the assets of an entity to the Corporation or a subsidiary of the
Corporation, (d) the issuance, sale, exchange, transfer or other disposition by
the Corporation or a subsidiary of the Corporation of any Corporation, (e) any
recapitalization or reclassification of the Corporation's securities (including,
without limitation, any reverse stock split) or other transaction that would
have the effect of increasing the voting power of a Related Person, (f) any
liquidation, spin-off, split-up, or dissolution of the Corporation, and (g) any
agreement, contract or other arrangement providing for any of the transactions
described in this definition of Business Combination Transaction.
(ii) The term "Related Person" shall (a) mean and include any
individual, corporation, Partnership, group, association or other person or
entity which, together with its Affiliates and the Associates, is the Beneficial
Owner of not less than ten percent (10%) of the voting stock of the Corporation,
(x) at the time the definitive agreement providing for the Business Combination
Transaction (including any amendment thereof) was entered into, (y) at the time
a resolution approving the Business Combination Transaction was adopted by the
Board of Directors of the Corporation, or (z) as of the record date for the
determination of Stockholders entitled to notice of and to vote on, or consent
to, the Business Combination Transaction, and (b) shall mean and
52
<PAGE> 3
include any Affiliate or Associate of any such individual, corporation,
partnership, group, association or other person or entity; provided, however,
and notwithstanding anything in the foregoing to the contrary, the term "Related
Person" shall not include the Corporation, a wholly owned subsidiary of the
Corporation, or any trustee of, or fiduciary with respect to, any such plan when
acting in such capacity.
(iii) The term "Beneficial Owner" shall be defined by reference to Rule
13d-3 under the Securities Exchange Act of 1934, as in effect on March 1, 1984;
provided, however, and without limitation, any individual, corporation,
partnership, group, association or other person or entity which has the right to
acquire any Voting Stock at any time in the future, whether such right is
contingent or absolute, pursuant to any agreement, arrangement or understanding
upon exercise of the rights, warrants or options, or otherwise, shall be
beneficial owner of such Voting Stock.
(iv) The term "Highest Purchase Price" shall mean the highest amount of
consideration paid by such Related Person for a share of Common Stock of the
Corporation within two years prior to the date such Related Person became the
Beneficial Owner of not less than ten percent (10%) of the Voting Stock; and if
such stock is not listed on any principal exchange, the highest closing bid
quotation with respect to a share of stock during the thirty (30) day period
preceding the date in question -- or if no quotations are available, the fair
market value on the date in question of a share of such stock as determined by
the Board in good faith.
(v) The term "Voting Stock" shall mean all outstanding shares of
capital stock of the Corporation entitled to vote generally in the election of
directors, considered for the purpose of this Article as one class; provided,
however, that if the Corporation has shares of Voting Stock entitled to more or
less than one (1) vote for any such share, each reference to a proportion of
shares of Voting Stock shall be deemed to refer to such proportion of the votes
entitled to be cast by such shares.
(vi) The term "Continuing Director" shall mean a director who either
was a member of the Board of Directors of the Corporation prior to the time such
Related Person became a Related Person or who subsequently became a director of
the Corporation and whose election, or nomination for election by the
Corporation's stockholder, was approved by a vote of at least three-quarters
(3/4) of the Continuing Directors then of the Board.
SEVENTH: The Corporation shall eliminate the personal liability of a
director to the Corporation or its Stockholders for monetary damages for breach
of his fiduciary duty as a director. This Article Seventh shall not apply and
shall not eliminate personal liability of a director: (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders; (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) for illegal distribution of dividends; (iv) for
any transaction from which the director derived an improper personal benefit.
EIGHTH: The business and affairs of the Corporation shall be managed by
the Board of Directors, the directors being elected and appointed as required by
the Bylaws of the Corporation.
53
<PAGE> 4
NINTH: The Corporation reserves the right to amend and repeal all
provisions contained in this Certificate of Incorporation by a vote of
stockholders; the amendment or repeal of all articles except Article Sixth
requiring the affirmative vote of the holders of not less than sixty-six and
two-thirds percent (66 2/3%) of the voting stock of the Corporation, Article
Sixth requiring the affirmative vote of the holders of not less than
seventy-five percent (75%) of the voting stock of the Corporation.
I, the undersigned, for the purpose of forming a corporation under the
laws of the State of Delaware, do make, file and record this certificate, and do
certify that the facts herein stated are true, and I have accordingly hereunto
set my hand this 17th day of November, 1987.
/s/ Richard L. Boyce
-------------------------------
Richard L. Boyce, Incorporator
54
<PAGE> 1
EXHIBIT 3.(ii)
SECURITY FINANCIAL CORP.
BYLAWS
ARTICLE I
MEETING OF SHAREHOLDERS
SECTION 1.1. ANNUAL MEETING. An annual meeting of the stockholders, for
the election of Directors to succeed those whose terms expire and for the
transaction of such other business as may properly come before the meeting,
shall be held at the main office of this Corporation, 1 S. Main Street, Niles,
Ohio, at 12:00 noon, on the third Friday of March of each year, or held at such
place on such date and at such time as the Board of Directors shall fix each
year.
SECTION 1.2. SPECIAL MEETING. Special meetings of the stockholders, for
any purpose or purposes prescribed in the notice of the meeting, may be called
by the Board of Directors or by any three (3) or more stockholders owning, in
the aggregate, not less than fifteen percent (15%) of the stock of the
Corporation, and shall be held at such place, on such date, and at such time as
the Board of Directors or other individual(s) shall fix.
SECTION 1.3. NOTICE OF MEETINGS. Written notice of the place, date, and
time of all meetings of the stockholders shall be given, not less than ten (10)
nor more than sixty (60) days before the date on which the meeting is to be
held, to each stockholder entitled to vote at such meeting, and shall be mailed,
postage prepaid, to the address of the stockholder appearing on the books of the
Corporation. Written waiver of such notice by stockholders is not permitted
except through resolution by the Board.
When a meeting is adjourned to another place, date or time, notice need
not be given of the adjourned meeting if the place, date, and time thereof are
announced at the meeting at which the adjournment is taken; provided, however,
that if the date of any adjourned meeting is more than thirty (30) days after
the date for which the meeting was originally called and notice given; or if a
new record date is fixed for the adjourned meeting, written notice of the place,
date, and time of the adjourned meeting shall be given in conformity herewith.
At any adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
SECTION 1.4. QUORUM. At any meeting of the stockholders, the holders of
a majority of all the shares of stock entitled to vote at the meeting, present
in person or by proxy, shall constitute a quorum for all purposes, unless or
except to the extent that the presence of a larger number may be required by
law.
If a quorum shall fail to attend any meeting, the Chairman of the
meeting or the holders of a majority of the shares of stock entitled to vote who
are present, in person or by proxy, may adjourn the meeting to another place,
date or time. A majority of the votes cast at a stockholders' meeting shall
decide every question or matter submitted to the stockholder at any meeting
unless otherwise provided by law, by the Certificate of Incorporation, or by
these Bylaws.
55
<PAGE> 2
SECTION 1.5. ORGANIZATION. Such person as the Board of Directors may
have designated or in absence of such person, the highest ranking officer of the
Corporation who is present shall call to order any meeting of the stockholders
and act as Chairman of the meeting. In the absence of the Secretary of the
Corporation, the Secretary of the meeting shall be such person as the Chairman
appoints.
SECTION 1.6. CONDUCT OF BUSINESS. The Chairman of any meeting of
stockholders shall determine the order of business and the procedure at the
meeting, including such regulation of the manner of voting and the conduct of
discussion.
SECTION 1.7. PROXIES AND VOTING. At any meeting of the stockholders,
every stockholder entitled to vote may vote in person or by proxy authorized by
an instrument in writing, filed in accordance with the procedure established for
the meeting.
Each stockholder shall have one vote for every share of stock entitled
to vote which is registered in his/her name on the record date for the meeting,
except as otherwise provided herein or required by law. No officer or employee
of this Corporation shall act as proxy. Proxy shall be valid for only one (1)
meeting, to be specified therein, and any adjournments of such meeting. Proxy
shall be dated and filed with the records of the meeting.
SECTION 1.8. STOCK LIST. A complete list of stockholders entitled to
vote at any meeting of stockholders for each class of stock and showing the
address of each such stockholder and the number of shares registered in his/her
name, shall be open to the examination of any such stockholder, for any purpose
germane to the meeting, during ordinary business hours for a period of at least
ten (10) days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or if not so specified, the place where the meeting is to be held.
The stock list shall also be kept at the place of the meeting during
the whole time thereof and shall be open to the examination of any such
stockholder who is present. This list shall presumptively determine the identity
of the stockholders entitled to vote at the meeting and the number of shares
held by each of them.
ARTICLE II
BOARD OF DIRECTORS
SECTION 2.1. The Board of Directors (hereinafter referred to as the
"Board"), shall have power to manage and administer the business and affairs of
the Corporation. Except as expressly limited by law, all corporate powers of the
Corporation shall be vested in, and may be exercised by said Board.
SECTION 2.2. NOMINATIONS FOR AND QUALIFICATIONS OF DIRECTORS.
Nominations for election to the Board of Directors may be made by the Board of
Directors, or by any stockholder of any outstanding class of capital stock of
the Corporation entitled to vote for the election of Directors. Nominations,
other than those made by or on behalf of the existing management of the
Corporation, shall be made in writing and shall be delivered or mailed to the
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President of the Corporation not less than fourteen (14) days nor more than
fifty (50) days prior to any meeting of the stockholders called for the election
of Directors; provided, however, that if less than twenty-one (21) days notice
of the meeting is given to stockholders, such notification must be mailed or
delivered to the President of the Corporation not later than the close of
business on the seventh (7) day following the day on which the notice of meeting
was mailed. Such notification shall contain the following information to the
extent known to the notifying stockholder: (a) the name and address of each
proposed nominee; (b) the principal occupation of each proposed nominee; (c) the
name and residence address of the notifying stockholder; and (e) the number of
shares of capital stock of the Corporation owned by the notifying stockholder.
Notifications not made in accordance herewith may, in his/her discretion, be
disregarded by the Chairman of the meeting, and upon his/her instructions, the
vote tellers may disregard all votes cast for each such nominee.
SECTION 2.3. NUMBER AND TERMS OF DIRECTORS. The number of Directors
which shall constitute the whole board shall be not less than one (1) nor more
than twenty-five (25). The number of Directors which shall constitute the Board
of Directors for each year shall be determined at the annual meeting by vote of
the stockholders prior to such election; provided, however, that if a motion is
not made and carried to increase or decrease the number of Directors, the Board
shall consist of the same number of Directors as were elected for the preceding
year. The first Board of Directors shall hold office until the first annual
meeting of stockholders. At the first annual meeting of stockholders and at each
annual meeting thereafter the stockholders shall elect Directors to hold office
until the succeeding annual meeting. A Director shall hold office for the term
for which he is elected and until his successor is elected and qualified, or
until his resignation or removal. Directors must be stockholders.
SECTION 2.4. REMOVAL OF DIRECTORS. Any or all of the Directors shall
only be removed with cause and only by the affirmative vote of the holders of
not less than 66 2/3 percent of the voting power of stockholders qualified to
vote at a meeting for the election of Directors.
SECTION 2.5. ORGANIZATION MEETING. The Secretary of the Corporation,
upon receiving the certificate of the judges of the result of any election,
shall notify the "Directors elect" of their election and of the time at which
they are required to meet for the purpose of organizing the new Board and
electing and appointing officers of the Corporation for the succeeding year.
Such meeting shall be appointed to be held on the day of the election, or as
soon thereafter as practicable, and, in any event, within thirty (30) days
thereof. If, at the time fixed for such meeting, there shall not be a quorum
present, the Directors present may adjourn the meeting, from time to time, until
a quorum is obtained.
SECTION 2.6. REGULAR MEETING. The regular meetings of the Board of
Directors shall be held, without notice, on the third Friday of each quarter of
the fiscal year, at the main office, or such other time or place as may be
determined from time to time by the Board. When any regular meeting of the Board
falls upon a holiday, the meeting shall be held on the next business day, unless
the Board shall designate some other day.
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SECTION 2.7. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the Chairman, Vice Chairman, and/or President of the
Corporation, or at the request of three (3) or more Directors. Each member of
the Board of Directors shall be given notice, stating the time and place, by
letter, telegram or in person of each said special meeting. Such notice of the
special meeting can be waived by a Director at the special meeting, but if a
Director does not waive such a notice, said notice shall be received by each
Director who has not waived notice not less than three (3) days prior to the
special meeting.
SECTION 2.8. VACANCIES. If the office of any Director becomes vacant by
reason of death, resignation, disqualification, removal or other cause, the
majority of the Directors remaining in office, although less than a quorum, may
elect a successor for the unexpired term and until his/her successor is elected
and qualified.
SECTION 2.9. QUORUM. A majority of the Directors shall constitute a
quorum at any meeting, except when otherwise provided by law; but a lesser
number may adjourn any meeting, from time to time and the meeting may be held,
as adjourned, without further notice.
SECTION 2.10. PARTICIPATION IN MEETINGS BY CONFERENCE TELEPHONE.
Members of the Board of Directors, or of any committee thereof, may participate
in a meeting of such Board or committee by means of conference telephone or
similar communications equipment that enables all persons participating in the
meeting to hear each other. Such participation shall constitute presence in
person at such meeting.
ARTICLE III
COMMITTEES
SECTION 3.1. COMMITTEES OF THE BOARD OF DIRECTORS. The Board of
Directors, by vote of a majority of the whole Board, may from time to time
designate committees of the Board, with such lawfully delegatable powers and
duties as it thereby confers, to serve at the pleasure of the Board and shall,
for those committees and any others provided for herein, elect a Director or
Directors to serve as the member or members, designating, if it desires, other
Directors as alternative members who may replace any absent or disqualified
member at any meeting of the committee.
ARTICLE IV
OFFICERS AND EMPLOYEES
SECTION 4.1. CHAIRMAN OF THE BOARD. The Board of Directors shall
appoint one of its members to be Chairman of the Board to serve at the pleasure
of the Board. He/She shall preside at all meetings of the Board of Directors.
He/She shall have general executive powers, as well as the specific powers
conferred by these Bylaws. He/She shall also have and may exercise such further
powers and duties as, from time to time, may be conferred upon or assigned to
him/her by the Board of Directors.
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SECTION 4.2. VICE CHAIRMAN OF THE BOARD. The Board of Directors shall
appoint one of its members to be Vice Chairman of the Board to serve at the
pleasure of the Board. He/She shall preside at all meetings of the Board of
Directors in the absence of the Chairman. He/She shall have general executive
powers, as well as the specific powers conferred by these Bylaws. He/She shall
also have and may exercise such further powers and duties as, from time to time,
may be conferred upon or assigned to him/her by the Board of Directors.
SECTION 4.3. PRESIDENT. The Board of Directors shall appoint a
President of the Corporation. In the absence of the Chairman or Vice Chairman,
he/she shall preside at any meeting of the Board. The President shall have
general executive powers, and shall have and may exercise any and all other
powers and duties pertaining by law, regulation or practice, to the office of
President, or imposed by these Bylaws. He/She shall also have and may exercise
such further powers and duties as, from time to time, may be conferred upon or
assigned to him/her by the Board of Directors.
SECTION 4.4. VICE PRESIDENT. The Board of Directors may appoint an
Executive Vice President and one or more Vice Presidents. Each Vice President
shall have such powers and duties as may be assigned to him/her by the Board of
Directors. The Executive Vice President shall, in the absence of the President,
perform all duties of the President.
SECTION 4.5. SECRETARY. The Board of Directors shall appoint a
Secretary, or other designated officer who shall be Secretary of the Board and
of the Corporation, and shall keep accurate minutes of all meetings. He/She
shall attend to the giving of all notices required by these Bylaws to be given.
He/She shall be custodian of the corporate seal, records, documents and papers
of the Corporation. He/She shall provide for the keeping of proper records of
all transactions of the Corporation. He/She shall have and may exercise any and
all other powers and duties pertaining by law, regulation or practice, to the
office of Secretary, or imposed by these Bylaws. He/She shall also perform such
other duties as may be assigned to him/her from time to time by the Board of
Directors.
SECTION 4.6. OTHER OFFICERS. The Board of Directors may appoint one or
more Assistant Vice Presidents, one or more Assistant Secretaries, and one or
more Managers and Assistant Managers and such other officers and attorneys in
fact as from time to time may appear to the Board to be required or desirable to
transact the business of the Corporation. Such officers shall respectively
exercise such powers and perform all such duties as pertain to their several
offices, or as may be conferred upon, or assigned to by the Board of Directors,
Chairman of the Board, Vice Chairman of the Board, or the President.
SECTION 4.7. TENURE OF OFFICE. The President and all other officers
shall hold office for the current year for which the Board was elected, unless
they shall resign, become disqualified, or be removed; any vacancy occurring in
the office of the President shall be filled promptly by the Board of Directors.
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ARTICLE V
RIGHT OF INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHERS
SECTION 5.1. RIGHT TO INDEMNIFICATION. Each person who was or is made a
party or is threatened to be made a party to or is involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative
("proceeding"), by reason of the fact that he or she or a person for whom he or
she is the legal representative is or was a Director or officer, employee or
agent of the Corporation or is or was serving at the request of the Corporation
as a Director or officer, employee or agent of another corporation, or of a
partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans, whether the basis of such proceeding is
alleged action in an official capacity as a Director, officer, employee or agent
or in any other capacity while serving as a Director, officer, employee or
agent, shall be indemnified and held harmless by the Corporation to the fullest
extent authorized by the Delaware General Corporation Law, as the same exists or
may hereafter be amended (but, in the case of any such amendment, only to the
extent such amendment permits the Corporation to provide broader indemnification
rights than said law permitted the Corporation to provide prior to such
amendment) against all expenses, liability and loss (including attorney's fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid
in settlement) reasonably incurred or suffered by such person in connection
therewith. Such right shall be a contract right and shall include the right to
be paid by the Corporation expenses incurred in defending any such proceeding in
advance of its final disposition; provided, however, that the payment of such
expenses incurred by a Director or officer of the Corporation in his or her
capacity while a Director or officer (and not in any other capacity in which
service was or is rendered by such person while a Director or officer,
including, without limitation, service to an employee benefit plan) in advance
of the final disposition of such proceeding, shall be made only upon delivery to
the Corporation of an undertaking, by or on behalf of such Director or officer,
to repay all amounts so advanced if it should be determined ultimately that such
Director or officer is not entitled to be indemnified under this section or
otherwise.
SECTION 5.2. INSURANCE. The Corporation may maintain insurance, at its
expense, to protect itself and any such Director, officer, employee or agent of
the Corporation or another corporation, partnership, joint venture, trust or
other enterprise against any such expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law.
ARTICLE VI
STOCK
SECTION 6.1. CERTIFICATES OF STOCK. Each stockholder shall be entitled
to a certificate signed by, or in the name of the Corporation by, the President
or Vice President and by the Secretary or an Assistant Secretary, certifying the
number of shares owned by him/her. Any of or all the signatures on the
certificate may be facsimile.
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SECTION 6.2. TRANSFERS OF STOCK. Transfers of the stock shall be made
only upon the transfer of the books of the Corporation kept at an office of the
Corporation or by transfer agents designated to transfer shares of the stock of
the Corporation. Except where a certificate is issued in accordance with Section
6.4 of Article VI of these Bylaws, an outstanding certificate for the number of
shares involved shall be surrendered for cancellation before a new certificate
is issued therefor.
SECTION 6.3. RECORD DATE. The Board of Directors may fix a record date,
which shall not be more than sixty (60) nor less than ten (10) days before the
date of any meeting of stockholders, nor more than sixty (60) days prior to the
time for the other action hereinafter described, at which time there shall be
determined the stockholders who are entitled: to notice of or to vote at any
meeting of stockholders or any adjournment thereof; to express consent to
corporate action in writing without a meeting; to receive payment of any
dividend or other distribution or allotment of any rights; or to exercise any
rights with respect to any change, conversion or exchange of stock or with
respect to any other lawful action.
SECTION 6.4. LOST, STOLEN OR DESTROYED CERTIFICATE. In the event of the
loss, theft or destruction of any certificate of stock, another may be issued in
its place pursuant to such regulations as the Board of Directors may establish
concerning proof of such loss, theft or destruction and concerning the giving of
a satisfactory bond or bonds or indemnity.
SECTION 6.5. REGULATION. The issue, transfer, conversion and
registration of certificates of stock shall be governed by such other
regulations as the Board of Directors may establish.
ARTICLE VII
NOTICES
SECTION 7.1. NOTICES. Whichever notice is required to be given to any
stockholder, Director, officer, or agent, such requirement shall not be
construed to mean personal notice. Such notice may in every instance be
effectively given by depositing a writing in a post office or letter box in a
postpaid, sealed wrapper, or by dispatching a prepaid telegram, addressed to
such stockholder, Director, officer or agent at his or her address as the same
appears on the books of the Corporation. The time when such notice is dispatched
shall be the time of the giving of the notice.
SECTION 7.2. WAIVERS. A written waiver of any notice, signed by a
stockholder, Director, officer or agent whether before or after the time of the
event for which notice is to be given, shall be deemed equivalent to the notice
required to be given to such stockholder, Director, officer or agent.
Neither the business nor the purpose of any meeting need be specified in such a
waiver.
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ARTICLE VIII
MISCELLANEOUS
SECTION 8.1. CONVEYANCE OF REAL ESTATE. All transfers and conveyances
of real estate, title to which is vested in the Corporation, shall be by written
instrument, under the seal of this Corporation, made pursuant to the order of
the Board of Directors, and signed by either the Chairman, Vice Chairman,
President, Executive Vice President, Vice President, or Secretary.
SECTION 8.2. CONTRACTS. All contracts, checks, drafts, and other
instruments shall be signed by the Chairman, Vice Chairman, President, Executive
Vice President, or a Vice President or Secretary or such other officers as may
be designated by the Board of Directors by resolution.
SECTION 8.3. CORPORATE SEAL. The Board of Directors may provide a
suitable seal, containing the name of the Corporation, which seal shall be in
the charge of the Secretary. If and when so directed by the Board of Directors
or a committee thereof, duplicates of the seal may be kept and used by the
Secretary or Assistant Secretary.
SECTION 8.4. RELIANCE UPON BOOKS, REPORTS, AND RECORDS. Each Director,
each member of any committee designated by the Board of Directors, and each
officer of the Corporation shall, in the performance of his/her duties, be fully
protected in relying on good faith upon the books of account or other records of
the Corporation, including reports made to the Corporation by any of its
officers, by an independent certified public accountant, or by an appraiser with
reasonable care.
SECTION 8.5. FISCAL YEAR. The fiscal year of this Corporation shall be
the calendar year.
ARTICLE IX
AMENDMENTS
SECTION 9.1. AMENDMENTS. These Bylaws may be amended or repealed in
whole or in part by an eighty percent (80%) vote of the whole Board of Directors
at any meeting of the Board.
Stockholders may amend or repeal these Bylaws in whole or in part by
approving such amendment or repeal thereof at a meeting of stockholders called
for such purpose with a simple majority of the stockholders entitled to vote on
such an issue UNLESS, the specific Bylaw proposed for amendment or repeal has
previously been amended or repealed by the Board of Directors, then such
amendment or repeal thereof must be approved by a sixty-six and two-thirds
percent (66 2/3%) majority of the stockholders entitled to vote on such
amendment or repeal.
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EXHIBIT 10
SECURITY FINANCIAL CORP
STOCK OPTION PLAN AND GRANT FORM
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SECURITY FINANCIAL CORP.
1997 STOCK OPTION PLAN
ARTICLE I
DEFINITIONS
Section 1.1 Definitions: As used herein, the following terms shall have the
meaning set forth below, unless the context clearly requires otherwise:
(a) "Applicable Event" shall mean (i) the expiration of a tender offer or
exchange offer (other than an offer by the Company) pursuant to which more
than 30% of the Company's issued and outstanding stock has been purchased,
or (ii) the approval by the shareholders of the Company of an agreement to
merge or consolidate the Company with or into another entity where the
Company is not the surviving entity, an agreement to sell or otherwise
dispose of all or substantially all of the Company's assets (including a
plan of liquidation), or the approval by the shareholders of the Company
of an agreement to merge or consolidate the Company with or into another
entity where the Company is the surviving entity, pursuant to which more
than 25% of the Company's issued and outstanding stock has been
transferred.
(b) "Bank" shall mean the Security Dollar Bank, and any subsidiary of Security
Dollar Bank or Security Financial Corp.
(c) "Committee" shall mean a Committee consisting of the members of the Board
of Directors of the Company or Bank, who are not employees of the Bank or
the Company.
(d) "Company" shall mean Security Financial Corp.
(e) "Director" shall mean a member of the Board of Directors of the Company
and, or the Bank.
(f) "Effective Date" with respect to the Plan shall mean the date specified in
Section 2.3 as the Effective Date.
(g) "Fair Market Value" with respect to a share of Stock shall mean the fair
market value of the Stock, as determined by application of such reasonable
valuation methods as the Committee shall adopt or apply. The Committee's
determination of Fair Market Value shall be conclusive and binding on the
Company and the Optionee. The Committee shall take into account the
valuation performed for the 401(k) plan maintained for the benefit of the
employees of the Bank.
(h) "Option" shall mean an option to purchase Stock granted pursuant to the
provisions of the Plan. Options granted under the Plan shall be either
Non-qualified Stock Options or Incentive Stock Options. An Incentive Stock
Option shall mean an Option to purchase shares of Stock which is
designated as an Incentive Stock Option by the Committee and is intended
to meet the requirements of Section 422 of the Internal Revenue Code of
1986,
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as amended. Non-qualified Stock Options shall mean an Option to purchase
shares of Stock which is not an Incentive Stock Option.
(i) "Optionee" shall mean a Director, officer or employee of the Bank or the
Company to whom an Option has been granted.
(j) "Plan" shall mean the Security Financial Corp. 1997 Stock Option Plan, the
terms of which are set forth herein.
(k) "Plan Year" shall mean the twelve-month period beginning on the Effective
Date, and each twelve-month period thereafter beginning on the anniversary
date of the Effective Date.
(l) "Stock" shall mean the Common Stock of the Company or, in the event that
the outstanding shares of Stock are changed into or exchanged for shares
of a different stock or securities of the Company or some other entity,
such other stock or securities.
(m) "SAR" or "Stock Appreciation Right" shall mean a right to receive cash in
an amount equal to the excess of the fair market value of a share of Stock
on the exercise date over the fair market value of a share of Stock on the
date the Stock Appreciation right is granted pursuant to the provisions of
the Plan.
(n) "Stock Option Agreement" shall mean the agreement between the Company and
the Optionee under which the Optionee may purchase Stock pursuant to the
terms of the Plan.
ARTICLE II
THE PLAN
Section 2.1 Name. This plan shall be known as the "Security Financial Corp. 1997
Stock Option Plan."
Section 2.2 Purpose. The purpose of the Plan is to advance the interests of the
Company and its shareholders by affording to Directors and officers of the
Company and the Bank an opportunity to acquire or increase their proprietary
interest in the Company by the grant to such persons of Options under the terms
set forth herein. By encouraging such persons to become owners of the Company,
the Company seeks to attract, motivate, reward and retain those highly competent
individuals upon whose judgment, initiative, leadership and efforts the success
of the Company depends.
Section 2.3 Effective Date and Term. The Plan was approved by the Board of
Directors of the Company on December 30, 1997, and shall be effective January 1,
1998, subject to approval and ratification by a majority of the shareholders of
the Company, present in person or by proxy, at the annual meeting of
shareholders of the Company to be held in 1998. The Plan shall terminate upon
the tenth anniversary of the Effective Date.
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ARTICLE III
ADMINISTRATION
Section 3.1 Administration.
(a) The Plan shall be administered by the Committee. Subject to the express
provisions of the Plan, the Committee shall have sole discretion and
authority to determine from time to time the individuals to whom Options
may be granted, the number of shares of Stock to be subject to each
Option, the period during which such Option may be exercised and the price
at which such Option may be exercised.
(b) Meetings of the Committee shall be held at such times and places as shall
be determined from time to time by the Committee. A majority of the
members of the Committee shall constitute a quorum for the transaction of
business and the vote of a majority of those members present at any
meeting shall decide any question brought before the meeting. In addition,
the Committee may take any action otherwise proper under the Plan by the
affirmative vote, taken without a meeting, of a majority of the members.
(c) No member of the Committee shall be liable for any act or omission of any
other member of the Committee or for any act of omission on his own part,
including, but not limited to, the exercise of any power or discretion
given to him under the Plan, except those resulting from his own gross
negligence or willful misconduct. All questions of interpretations and
application with respect to the Plan or Options granted thereunder shall
be subject to the determination, which shall be final and binding, of a
majority of the whole Committee.
(d) In addition, the Committee shall have the sole discretion and authority to
determine whether an Option shall be an Incentive Stock Option or a
Non-qualified Stock Option, or both types of options, provided that
Incentive Stock Options may be granted only to persons who are employees
of the Company or the Bank.
Section 3.2 Company Assistance. The Company and the Bank shall supply full and
timely information to the Committee on all matters relating to eligible
employees, their employment, death, retirement, disability or other termination
of employment and such other pertinent facts as the Committee may require. The
Company and the Bank shall furnish the Committee with such clerical and other
assistance as is necessary in the performance of its duties.
ARTICLE IV
OPTIONEES
Section 4.1 Eligibility. Directors and officers of the Company and the Bank and
such other employees as the Board of Directors may from time to time designate
shall be eligible to participate in the Plan. The Committee may grant Options to
any eligible individual subject to the provisions of Section 5.1.
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ARTICLE V
SHARES OF STOCK SUBJECT TO PLAN
Section 5.1 Grant of Options and Limitations.
(a) Initial Plan Year. For the initial Plan Year, the Committee, subject to
and conditioned upon receipt of ratification by the Board of Directors,
shall grant Options according to the following schedule:
1. Each person who is a Director of the Company (including the
Chairman of the Board of Directors and the General Counsel of the
Bank) and not actively employed by the Company or the Bank as of
the Effective Date shall receive Options for 1,000 shares of Stock;
2. Such other individuals, excluding individuals identified in Section
5.1(a)(1) or (2), as are designated by the Committee shall be
eligible to receive Options for the number of shares of Stock
determined by the Committee.
(b) Subsequent years. As of the first day of each subsequent Plan Year, the
Committee shall grant Options , subject to and conditioned upon receipt of
ratification by the Board of Directors, according to the following
schedule:
1. Each person who is a Director of the Company and not actively
employed by the Company or Bank, who has never received Options on
account of being a Director, shall receive Options for 1,000 shares
of Stock.
2. Such other individuals, whether employees or directors, as are
designated by the Committee shall be eligible to receive Options
for the number of shares of Stock determined by the Committee.
(c) Stock Available for Options. Subject to adjustment pursuant to the
provisions of Section 9.4 hereof, the aggregate number of shares with
respect to which Options may be granted during the term of the Plan shall
not exceed 10% of the outstanding shares of Company Stock determined as of
the Effective Date, and thereafter for the purpose of authorizing an
increase (but not a decrease), annually on December 31 of each year
provided, however, that the number of shares which may be designated as
Incentive Stock Options shall be limited to 33,000, subject to adjustment
in accordance with paragraph 9.4 hereof. Shares with respect to which
Options may be granted may be either authorized and unissued shares or
shares issued and thereafter acquired by the Company.
Section 5.2 Options Under the Plan. Shares of Stock with respect to which an
Option granted hereunder shall have been exercised shall not again be available
for grant hereunder. If Options granted hereunder shall expire, terminate or be
canceled for any reason without being wholly exercised, new Options may be
granted hereunder covering the number of shares to which such Option expiration,
termination or cancellation relates.
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ARTICLE VI
OPTIONS
Section 6.1 Option Grant and Agreement. Each Option granted hereunder shall be
evidenced by minutes of a meeting or the written consent of at least a majority
of the members of the Committee and by a written Stock Option Agreement dated as
of the date of grant and executed by the company and the Optionee. The Stock
Option Agreement shall set forth such terms and conditions as may be determined
by the Committee consistent with the Plan.
Section 6.2 Option Price. The exercise price of the Stock subject to each Option
shall not be less than the Fair Market Value of the Stock on the date the Option
is granted.
Section 6.3 Option Grant and Exercise Periods. No Option may be granted after
the tenth anniversary of the Effective Date. The period for exercise of each
Option shall be determined by the Committee, but in no instance shall such
period extend beyond the tenth anniversary of the date of grant of the Option.
The period of exercise for each Incentive Stock Option granted to an Optionee,
who owns stock possessing more than 10% of the total combined voting power of
all classes of stock of the Company, may not be more than 5 years from the date
of grant of the Option.
Section 6.4 Option Exercise.
(a) The Company shall not be required to sell or issue shares under any Option
if the issuance of such shares shall constitute or result in a violation
by the Optionee or the Company of any provisions of any law, statute or
regulation of any governmental authority. Specifically, in connection with
the Securities Act of 1933, (the "Act"), upon exercise of any Option, the
Company shall not be required to issued such shares unless the Committee
has received evidence satisfactory to it to the effect that registration
under the Act and applicable state securities laws is not required, unless
the offer and sale of securities under the Plan is registered or qualified
under the Act and applicable state laws. Any determination in this
connection by the Committee shall be final, binding and conclusive. If
shares are issued under any Option without registrations under the Act of
applicable state securities laws, the Optionee may be required to accept
the shares subject to such restrictions on transferability as may in the
reasonable judgment of the Committee be required to comply with exemptions
from registrations under such laws. The Company may, but shall in no event
be obligated to, register any securities covered hereby pursuant to the
Act of applicable state securities laws. The Company shall not be
obligated to take any other affirmative action in order to cause the
exercise of an Option or the issuance of shares pursuant thereto to comply
with any law or regulation of any governmental authority.
(b) Subject to Section 6.4(c) and such terms and conditions as may be
determined by the Committee in its sole discretion upon the grant of an
Option, an Option may be exercised in whole or in part and from time to
time by delivering to the Company at its principal office written notice
of intent to exercise the Option with respect to a specified number of
shares. In the case of an Incentive Stock Option, the aggregate fair
market value of the
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shares (under all plans of the Company), with respect to which such
options are exercisable for the first time by an Optionee during any
calendar year may not exceed $100,000. The aggregate fair market value of
the shares is determined at the date of grant
(c) Options shall be exercisable according to the following vesting schedule.
Options granted to employees:
20% after one year from the date of grant
40% after two years from the date of grant
60% after three years from the date of grant
80% after four years from the date of grant
100% after five years from the date of grant
Options granted to non-employee directors:
20% after one year from the date of grant
60% after two years from the date of grant
100% after three years from the date of grant.
Provided, however, that upon the earlier of (i) the Optionee's 65th birth
date, (ii) the occurrence of an Applicable Event, (iii) the death of
Optionee (iv) or total disability, all Options granted to the Optionee
shall be fully exercisable in accordance with terms of the Plan. For
purposes of this Plan, an Optionee is totally disabled if he is receiving
disability benefits under the Social Security Act as the result of a total
and permanent disability, or is determined to be totally disabled under
any long-term disability plan sponsored by the Bank or Company.
(d) Subject to such terms and conditions as may be determined by the Committee
in its sold discretion upon grant of any Option, payment for the shares to
be acquired pursuant to exercise of the Option shall be made as follows:
1. by delivering to the Company at its principal office a check
payable to the order of the Company, in the amount of the Option
price for the number of shares of Stock with respect to which the
Option is then being exercised; or
2. by delivering to the Company at its principal office certificates
representing Stock, duly endorsed for transfer to the Company,
having an aggregate Fair Market Value as of the date of exercise
equal to the amount of the Option price, for the number of shares
of Stock with respect to which the Option is then being exercised;
or
3. by any combination of payments delivered pursuant to paragraphs
(d)(1) and (d)(2) above.
Section 6.5 Rights as Shareholder. An Optionee shall have no rights as a
Shareholder with respect to any share subject to such Option prior to the
exercise of the Option and the purchase of such shares.
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<PAGE> 8
Section 6.6 Limited Rights. Within the earlier of (i) the occurrence of an
Applicable Event, or (ii) 30 days following the date on which the Company
obtains knowledge of and notifies an Optionee of an Applicable Event, an
Optionee shall have the right (without regard to the limitation on the exercise
of Options set forth in Section 6.4(c) of the Plan and similar limitations
in the Stock Option Agreement) to exercise Options and Stock Appreciation Rights
then held, or to surrender unexercised Options in exchange for a cash amount.
Such cash amount shall be equal to the total appreciation from any exercise of
Stock Appreciation Rights, plus the product of (1) the number of shares of Stock
subject to the Option, or portion thereof which is surrendered, multiplied by
(2) the amount by which the highest price paid or to be paid per share pursuant
to an Applicable Event exceeds the exercise price.
ARTICLE VII
STOCK APPRECIATION RIGHTS
Section 7.1 Stock Appreciation Rights. The Board of Directors may, upon
recommendation of the Committee, grant Stock Appreciation Rights to Participants
at the same time as such Participants are awarded Options under the Plan. Such
Stock Appreciation Rights shall be evidenced by agreements in such form as the
Board shall from time to time approve. Such agreements shall comply with, and be
subject to, the following terms and conditions:
(a) Grant. Each Stock Appreciation Right shall relate to a specific Option
under the Plan, and shall be awarded to a Participant concurrently with
the grant of such Option. The number of Stock Appreciation Rights granted
to a Participant shall be equal to a proportion of the number of shares
that the Participant is entitled to receive pursuant to the Plan.
(b) Grant of Parallel Award. In that each Stock Appreciation Right is parallel
to an Option, the exercise of all or a portion of the Options shall cause
an equal exercise of the same proportion of Stock Appreciation Rights
granted under the Plan. A Stock Appreciation Right can only be exercised
in conjunction with the exercise of the parallel Option.
(c) Calculation of Appreciation. Each Stock Appreciation Right shall entitle a
Participant to the excess of the fair market value of a share of Stock on
the exercise date over the fair market value of a share of Stock on the
date the Stock Appreciation Right was granted. The total appreciation
available to a Participant from any exercise of Stock Appreciation Rights
shall be equal to the number of Stock Appreciation Rights being exercised
times the amount of appreciation per Stock Appreciation Right.
(d) Payment of Appreciation. The total appreciation available to a Participant
from an exercise of Stock Appreciation Rights will be paid in cash.
(e) Exercise Limitations. A participant may exercise a Stock Appreciation
Right only in conjunction with the exercise of the Option to which the
Stock Appreciation Right is attached. Stock Appreciation Rights may be
exercised only at such times and by such persons as may exercise Options
under the Plan.
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<PAGE> 9
ARTICLE VIII
TERMINATION, AMENDMENT AND MODIFICATION OF PLAN
Section 8.1 Termination. The Plan shall expire with respect to the granting of
Stock Options or Stock Appreciation Rights ten years following the effective
date. The Board of Directors of the Company may at any time and from time to
time and in any respect amend, modify or terminate the Plan; provided, however,
that absent the approval of holders representing a majority of the voting shares
of stock of the Company, no such action may:
(a) increase the total number shares of Stock or Stock Appreciation Rights
subject to the Plan, except as contemplated in Section 9.3 hereof; or
(b) withdraw the administration of the Plan from the Committee; or
(c) change the terms by which an Option or Stock Appreciation Right may be
exercised, in whole or in part, as described in Section 6.4 of this Plan;
or
(d) change the limitation on the price at which Options or Stock Appreciation
Rights may be granted hereunder as provided by Section 6.2 or;
(e) affect any Stock Option Agreement or Stock Appreciation Right Agreement
previously executed pursuant to the Plan without the consent of the
Optionee.
ARTICLE IX
MISCELLANEOUS
Section 9.1 Transferability During the Grantee's Lifetime, any Option or Stock
Appreciation Right may be exercised only by the Grantee or any guardian or legal
representative of the Grantee, and the Option shall not be transferable except,
with respect to both Non-qualified Stock Options and Incentive Stock Options, in
case of the death of the Grantee, by will or the laws of descent and
distribution, and with respect to Non-qualified Stock Options; (i) as
specifically permitted by and solely to the extent permitted in the Stock Option
Agreement, or (ii) to an immediate family member, a partnership consisting
solely of immediate family members or trusts for the benefit of immediate family
members.
Section 9.2 Designation of Beneficiary A participant may file a written
designation of a beneficiary who is to receive any stock and/or cash. Such
designation of beneficiary may be changed by the participant at any time by
written notice to the Treasurer of the Company. Upon the death of a participant
and upon receipt by the Company of proof of identity and existence at the
participant's death of a beneficiary validly designated by him under the Plan,
the Company shall deliver such stock and/or cash to such beneficiary. In the
event of the death of a participant and in the absence of a beneficiary validly
designated under the Plan who is living at the time of such participant's death,
the company shall deliver such stock and/or cash to the executor or
administrator of the estate of the participant, or if no such executor or
administrator has been appointed (to the knowledge of the Company), the Company,
in its discretion, may deliver such stock and/or cash to the spouse or to any
one or more dependents of the participant as the
71
<PAGE> 10
Company may designate. No beneficiary shall, prior to the death of the
participant by whom he has been designated, acquire any interest in the stock or
cash credited to the participant under the Plan.
Section 9.3 Effect of Termination of Employment or Death.
(a) If an Optionee's status as a Director or as an employee of the Company or
the Bank terminates for any reason, other than the death, disability or
termination of service after attainment of age 65, before the date of
expiration of Nonqualified Stock Options and Stock Appreciation Rights
held by such Optionee, such Nonqualified Stock Options and Stock
Appreciation Rights shall become null and void on the 90th day following
the date of such termination. An Optionee who terminates employment with
the Company or the Bank, but retains his status as a Director is not
considered terminated for purposes of this Section 9.2. The date of such
termination shall be the date the Optionee ceases to be a Director or an
employee of the Company or the Bank.
(b) If an Optionee dies before the expiration of Nonqualified Stock Options
and Stock Appreciation Rights held by the Optionee, such Nonqualified
Stock Options and Stock Appreciation Rights shall terminate on the earlier
of (i) the date of expiration of the Nonqualified Stock Options and
Stock Appreciation Rights. or (ii) one year following the date of the
Optionee's death. The executor or administrator or personal representative
of the estate of a deceased Optionee, or the person or persons to whom a
Nonqualified Stock Option and Stock Appreciation Right granted hereunder
shall have been validly transferred by the executor or the administrator
or the personal representative of the Optionee's estate, shall have the
right to exercise the Optionee's Nonqualified Stock Option and Stock
Appreciation Rights. To the extent that such Nonqualified Stock Options
and Stock Appreciation Rights would otherwise by exercisable under the
terms of the Plan and the Optionee's Stock Option Agreement and Stock
Appreciation Agreement, such exercise may occur at any time prior to the
termination date specified in this paragraph.
(c) If an Optionee separates from service after attainment of age 65 before
the expiration of Nonqualified Stock Options and Stock Appreciation Rights
held by the Optionee, such Nonqualified Stock Options and Stock
Appreciation Rights shall terminate on the earlier of (i) the date of
expiration of the Nonqualified Stock Options and Stock Appreciation
Rights. or (ii) three years following the date of the Optionee's
termination of service
(d) If an Optionee becomes totally disabled before the expiration of
Nonqualified Stock Options and Stock Appreciation Rights held by the
Optionee, such Nonqualified Stock Options and Stock Appreciation Rights
shall terminate on the earlier of (i) the date of expiration of the
Nonqualified Stock Options and Stock Appreciation Rights. or (ii) one year
following the date of the Optionee's termination of service due to
disability.
(e) In the case of Incentive Stock Options, if an Optionee's status as an
employee of the Company or the Bank terminates for any reason, other than
disability, before the date of expiration of Incentive Stock Options held
by such Optionee, such Incentive Stock Options shall become null and void
on the day three months following the date of such termination.
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<PAGE> 11
For an Optionee who terminates employment with the Company due to
disability, as defined in Internal Code Section 22(c)(3), the three month
period specified in the prior sentence shall become one year.
(f) With respect to any option granted pursuant to this Plan to an employee of
the Company or the Bank, in the event that such employee shall be
terminated for cause, then all Options and Stock Appreciation Rights
granted to such employee shall be null an void as of 12:01 a.m. of the
date of termination of employment.
For purposes of this Plan, termination "for cause" shall be defined to
include, but shall not be limited to, termination resulting from acts of
the employee which constitute embezzlement, theft or similar defalcation
of the Company and/or Bank or for a violation of FIRREA, FIDICIA, the Bank
Secrecy Act, the Money Laundering Control Act or Rule 10B-5 under the
Securities and Exchange Act of 1934 and any amendments thereof promulgated
hereafter.
Section 9.4 Antidilution. The provisions of subsections (a) and (b) shall apply
in the event that the outstanding shares of Stock are changed into or exchanged
for a different number or kind of shares or other securities of the Company or
another entity by reason or any merger, consolidation, reorganization,
recapitalization, reclassification, combination, stock split or stock dividend.
(a) The aggregate number and kind of shares subject to Options and Stock
Appreciation Rights which may be granted hereunder shall be adjusted
appropriately.
(b) Where dissolution or liquidation of the Company or any merger or
combination in which the Company is not a surviving company is involved,
each outstanding Option and Stock Appreciation Right granted hereunder
shall, subject to Section 6.6, terminate.
The Foregoing adjustments and the manner of application of the foregoing
provisions shall be determined solely by the Committee and any such adjustment
may provide for the elimination of fractional share interests.
Section 9.5 Application of Funds. The proceeds received by the Company from the
sale of Stock pursuant to Options shall be used for general corporate purposes.
Section 9.6 Tenure. Nothing in the Plan or in any Option or Stock Appreciation
Right granted hereunder or in any Stock Option Agreement or Stock Appreciation
Right Agreement relating thereto shall confer upon any Director, or upon any
officer or employee, the right to continue in such position with the Company or
the Bank.
Section 9.7 Other Compensation Plans. The adoption of the Plan shall not affect
any other stock option or incentive or other compensation plans in effect for
the Company or the Bank, nor shall the Plan preclude the Company or the Bank
from establishing any other forms of incentive or other compensation for
Directors, officers or employees of the Company or the Bank.
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<PAGE> 12
Section 9.8 No Obligation to Exercise Options. The granting of an Option or
Stock Appreciation Right shall impose no obligation upon the Optionee to
exercise such Option or Stock Appreciation Right.
Section 9.9 Plan Binding on Successors. The Plan shall be binding upon the
successors and assigns of the Company.
Section 9.10 Singular, Plural Gender. Whenever used herein, nouns in the
singular shall include the plural, and the masculine pronoun shall include
feminine.
Section 9.11 Headings, Etc., No Part of Plan. Headings of Articles and Sections
hereof are inserted for convenience of reference; they constitute no part of the
plan.
Section 9.12 Governing Law. Except as otherwise required by law, the validity,
construction and administration of this Plan shall be determined under the Laws
of the State of Delaware.
Signed this 30th day of December 1997.
SECURITY FINANCIAL CORP.
By:
----------------------------------
Chairman of the Board of Directors
74
<PAGE> 13
OPTION AGREEMENT
This OPTION AGREEMENT is entered into this ____ day of _________199__,
by and between Security Financial Corp., a Delaware corporation (the "Company")
and _______________________________________________ ("Optionee").
RECITALS
A. Optionee is serving in the position of a director or officer of the
Company, a position which the Company deems to be a key position with the
Company.
B. The Company's Board of Directors has properly adopted the Security
Financial Corp. 1997 STOCK OPTION PLAN ("Plan") with an effective date as of
January 1, 1998.
C. The Company desires to grant to Optionee options for _____________
(______) common shares of the Company pursuant to such Plan at a fair market
grant price of ______________________________________________________ Dollars
($_____) per share.
AGREEMENT
Now, Therefore, intending to be legally bound and in consideration of
the mutual covenant set forth herein, the parties hereto agree as follows:
1. Grant of Option. The Company hereby grants to Optionee the option to
_______________(_____) of the Company's common shares (the "Option(s)")
pursuant to the terms and conditions of the Plan. Optionee has reviewed
such Plan and agrees to be bound by the terms, conditions and
restrictions set forth therein as to the exercise of such option. Such
option shall be exercisable by Optionee under the terms and conditions
of the Plan at a price of _______________ Dollars ($______) per share,
the agreed upon fair market value of such shares.
2. Non Qualified Stock Option Character. The Company and the Optionee
agree that the Options granted hereunder are designated as
non-qualified stock options.
3. Miscellaneous. This Agreement constitutes the entire Agreement among
the parties with respect to the subject matter hereof and supersedes
all prior agreements and understandings, whether written or oral. This
Agreement may only be amended in writing signed by the parties hereto.
This Agreement shall be enforced and construed in accordance with the
laws of the State of Ohio. The captions herein are for convenience of
reference only and shall not be deemed in any manner to modify,
explain, enlarge or restrict any of the provisions of this Agreement.
This Agreement shall be binding upon and inure to the benefit of the
Company, Optionee and their respective heirs, personal representatives,
successors and assigns.
75
<PAGE> 14
4. Option Term. The term of the Option granted hereby shall be 10 years
from the date first written above.
5. Stockholder Approval of Plan. The grant of options herein is
conditional upon receipt of the approval of the Plan by the Company's
stockholders within one (1) year of the date hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first set forth above.
Security Financial Corp. (the "Company")
By:_______________________
its:______________________
By:_______________________
("Optionee")
76
<PAGE> 1
Exhibit 21
Subsidiaries of the Registrant
The registrant has only a single subsidiary which is an operating Ohio
commercial banking corporation.
Security Dollar Bank
1 South Main Street
Niles, OH 44446-0228
78
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