UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
Commission File No. 1-14473
Sky Financial Group, Inc.
(Exact Name of Registrant as Specified in its Charter)
Ohio 34-1372535
(State of Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification Number)
221 South Church Street, Bowling Green, Ohio 43402
(Address of Principal Executive Office) (Zip Code)
(419) 327-6300
(Registrant's Telephone Number)
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, without par value
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of the Form 10-K. [ X ]
Based on the closing sales price of March 15, 2000 the aggregate market
value of the voting stock held by non-affiliates of the Registrant was
approximately $1,071,620,000.
The number of shares outstanding of the Registrant's common stock, without par
value was 77,493,888 at March 15, 2000.
Certain specifically designated portions of Sky Financial Group, Inc.'s
1999 Annual Report to Shareholders are incorporated by reference into Parts I,
II and IV of this Form 10-K. Certain specifically designated portions of Sky
Financial Group, Inc.'s definitive Proxy Statement for its 2000 Annual Meeting
of Shareholders are incorporated be reference into Part III of this Form 10-K.
<PAGE 2>
INDEX
10-K
Page
PART I
Item 1. Business ........................................... 3
Item 2. Properties ......................................... 8
Item 3. Legal Proceedings .................................. 9
Item 4. Submission of Matters to a Vote of Security Holders 9
PART II
Item 5. Market for Registrant's Common Stock and Related
Shareholder Matters ................................ 9
Item 6. Selected Financial Data ............................ 9
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations ................ 9
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk ........................................ 9
Item 8. Financial Statements and Supplementary Data ........ 10
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure ................ 10
PART III
Item 10. Directors and Executive Officers of Registrant ..... 10
Item 11. Executive Compensation ............................. 11
Item 12. Security Ownership of Certain Beneficial Owners
and Management ..................................... 12
Item 13. Certain Relationships and Related Transactions ..... 12
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K ............................... 12
Signatures .................................................. 15
Exhibit Index ............................................... 17
<PAGE 3>
PART I
Item 1. INFORMATION ABOUT SKY FINANCIAL GROUP, INC.
Sky Financial Group, Inc. (Sky Financial), a financial services holding
company, has four bank subsidiaries with a total of 205 banking centers and
149 ATMs located in Ohio, southern Michigan, western Pennsylvania and West
Virginia. Sky Financial also owns nine financial services subsidiaries which
engage in lines of business closely related to banking. Based on total assets
as of December 31, 1999, Sky Financial was the 7th largest bank holding company
based in Ohio. Through its banking subsidiaries, Sky Financial offers a wide
range of lending, depository, trust, and related financial services to
individual and business customers.
The Holding Company
Sky Financial Group, Inc., a registered bank holding company, is the
resulting company from the October 2, 1998 merger of equals between Citizens
Bancshares, Inc. (Bancshares) and Mid Am, Inc. (Mid Am). In conjunction with
the merger, Bancshares changed its name to Sky Financial Group, Inc. Sky
Financial's corporate philosophy is to encourage its subsidiaries to operate as
locally-oriented, community-based financial service affiliates, augmented by
experienced, centralized support from Sky Financial in selected critical areas.
This local market orientation is reflected in the bank subsidiaries' boards of
directors and branch banking centers, which generally have advisory boards
comprised of local business persons, professionals and other community
representatives, that assist the banking centers in responding to local
banking needs. The bank subsidiaries concentrate on customer service and
business development, while relying upon the support of Sky Financial in
identifying operational areas that can be effectively centralized without
sacrificing the benefits of a local orientation. Primary candidates for
centralization are those functions which are not readily visible to customers
and those which are critical to risk management. Asset quality review, data
processing, loan and deposit processing, certain mortgage banking activities,
financial reporting, investment activities, internal audit, compliance and
funds management are among the functions which are managed at the holding
company level.
Sky Financial's market area is economically diverse, with a base of
manufacturing, service industries, transportation and agriculture, and is not
dependent upon any single industry or employer. Similarly, Sky Financial's
customer base is diverse, and Sky Financial and its subsidiaries are not
dependent upon any single industry or upon any single customer.
Sky Financial's strategic plan includes expansion, market diversification and
growth of its fee-based income through internal business formations, internal
growth and through acquisitions of financial institutions, branches and
financial service businesses. Sky Financial seeks acquisition partners with
experienced management, which have significant market presence or have
potential for improved profitability through financial management, economies of
scale and expanded services.
<PAGE 4>
There is significant competition among commercial banks in Sky Financial's
market area. As a result of the deregulation of the financial services
industry, Sky Financial also competes with other providers of financial
services such as savings and loan associations, credit unions, consumer finance
companies, securities firms, insurance companies, commercial finance and
leasing companies, the mutual funds industry, full service brokerage firms and
discount brokerage firms. Some of Sky Financial's competitors, including
certain regional bank holding companies which have made acquisitions in Sky
Financial's market area, have substantially greater resources than those of Sky
Financial, and as such, may have higher lending limits and may offer other
services not available through the bank and non-bank subsidiaries. The bank
and non-bank subsidiaries compete on the basis of rates of interest charged on
loans, the rates of interest paid for funds, the availability of services and
the responsiveness to the needs of its customers.
The Company's executive offices are located at 221 South Church Street,
Bowling Green, Ohio, and its telephone number is (419)327-6300.
The Bank Subsidiaries
Sky Bank (formerly known as The Citizens Banking Company), headquartered in
Salineville, Ohio and owned by Sky Financial since the formation of Sky
Financial's predecessor in 1982, was organized and chartered in 1902. Sky Bank
had total assets of $3.79 billion at December 31, 1999, and operates 91 banking
centers in eastern Ohio, western Pennsylvania and West Virginia.
The Mahoning National Bank of Youngstown (Mahoning), headquartered in
Youngstown, Ohio was acquired by Sky Financial in 1999. Mahoning had total
assets of $832 million at December 31, 1999, and operates 21 banking centers in
eastern Ohio. Mahoning will be merged into Sky Bank during the second quarter
of 2000.
Mid Am Bank, headquartered in Toledo, Ohio, was formed in 1952. With total
assets of $1.96 billion at December 31, 1999, it operates 55 banking centers in
northwest Ohio and southern Michigan.
The Ohio Bank (Ohio Bank), headquartered in Findlay, Ohio, was organized in
1897. At December 31, 1999, Ohio Bank had total assets of $1.35 billion and
38 banking centers in central western Ohio.
For additional information on Sky Financial's bank subsidiaries, see Note 2,
"Mergers, Acquisitions, Business Formations and Divestitures" on pages 45
through 48 of Sky Financial's 1999 Annual Report to Shareholders.
The Financial Services Subsidiaries
Sky Asset Management Services, Inc. (SAMSI) is Sky Financial's Florida-based
professional recovery services firm, formed in 1996 as a result of the merger
of two of Sky Financial's collection affiliates. SAMSI serves various
governmental agencies, retail, insurance and commercial clients primarily in
the Southeastern United States.
<PAGE 5>
Sky Investments, Inc. (SII), Bryan, Ohio is Sky Financial's broker/dealer
affiliate, which provides its customers investment services throughout the
United States through its 175 registered representatives. SII also provides
non-depository investment products to the customers of the Bank Subsidiaries.
Sky Financial Solutions, Inc. (SFS) is Sky Financial's specialized medical
financing and leasing unit based in Columbus, Ohio. Beginning with its
formation in 1996, SFS has offered equipment and practice acquisition
financing to medical and dental professionals throughout the United States.
SFS sells substantially all of its financing originations to funding sources in
the secondary market.
Mid Am Financial Services, Inc. (MAFSI) is Sky Financial's consumer finance
company headquartered in Indianapolis, Indiana. MAFSI engages in
non-conforming residential mortgage lending for customers with difficult
financing needs, and sells substantially all of its originations in the
secondary market.
Effective January 1, 2000, Sky Financial centralized its entire trust business
into a newly-chartered trust company, Sky Trust, N.A. (Sky Trust). To
facilitate the formation, the trust business of each bank affiliate and Mid Am
Private Trust (MAPT) was transferred to Sky Trust and MAPT was merged into Sky
Trust. Sky Trust, a wholly-owned subsidiary of Sky Financial, is headquartered
in Pepper Pike, Ohio.
Sky Technology Resources, Inc. (Sky Tech) is Sky Financial's data processing
and operations affiliate which, through its facilities in Bowling Green, Ohio
and East Liverpool, Ohio, provide comprehensive back-room services and support
to Sky Financial's affiliates.
Freedom Financial Life Insurance Company (Freedom), owned by Sky Financial
since 1985, was organized and chartered under the laws of the State of Arizona.
Freedom is a reinsurance company providing credit life and accident and health
insurance coverage to loan customers of the Bank Subsidiaries.
Freedom Express, Inc. (Express), owned by Sky Financial since 1994, was
chartered in Ohio in 1984. Express is a courier company formed to transport
papers and documents between and among the states of Ohio, Pennsylvania and
West Virginia.
Supervision and Regulation
Sky Financial is subject to the provisions of the Bank Holding Company Act of
1956, as amended (the Act), which requires a bank holding company to register
under the Act and to be subject to the regulations of the Board of Governors
of the Federal Reserve System (FRB). Pursuant to Federal Reserve policy, Sky
Financial is expected to act as a source of financial strength to each
subsidiary bank and to commit resources to support such banks. As a bank
holding company, Sky Financial is required to file with the Board of Governors
an annual report and such additional information as the Board of Governors may
require pursuant to the Act. The Act requires prior approval by the Board of
Governors of the acquisition by a bank holding company, or any subsidiary
thereof, of more than five percent (5%) of the voting stock or substantially
all the assets of any bank within the United States.
<PAGE 6>
The Act also prohibits a bank holding company, with certain exceptions, from
acquiring more than five percent (5%) of the voting stock of any company that
is not a bank and from engaging in any business other than banking or managing
or controlling banks. The Board of Governors is also authorized to approve,
among other things, the ownership of shares by a bank holding company in any
company the activities of which the Board of Governors has determined to be so
closely related to banking or managing or controlling banks as to be a proper
incident thereto. The Board of Governors has, by regulation, determined that
certain activities, including mortgage banking, operating small loan
companies, factoring, furnishing certain data processing operations, holding
or operating properties used by banking subsidiaries or acquired for such
future use, providing certain investment and financial advice, leasing
(subject to certain conditions) real or personal property, providing
management consulting advice to certain depository institutions, providing
securities brokerage services, arranging commercial real estate equity
financing, underwriting and dealing in bank eligible securities, providing
consumer financial counseling, operating a collection agency, owning and
operating a savings association, operating a credit bureau and conducting
certain real estate investment activities and acting as insurance agent for
certain types of insurance, are closely related to banking within the
meaning of the Act. It also has determined that certain other activities,
including real estate brokerage and syndication, land development, and
property management, are not related to credit transactions and are not
permissible. Each of the non-banking activities conducted by Sky Financial
through its financial services affiliates are activities which have been
deemed by the Board of Governors to be closely related to banking within the
meaning of the Act.
The Act and the regulations of the Board of Governors prohibit banks from
engaging in certain tie-in arrangements in connection with any extension of
credit, lease or sale of property, or furnishing of services. The Act also
imposes certain restrictions upon dealing by affiliated banks with the holding
company and among themselves including restrictions on interbank borrowing and
upon dealings in respect to the securities or obligations of the holding
company or other affiliates.
Sky Financial is a legal entity separate and distinct from its banking and
other subsidiaries. Most of Sky Financial's revenues result from dividends
paid to it by its bank subsidiaries. There are statutory and regulatory
requirements applicable to the payment of dividends by subsidiary banks as well
as by Sky Financial to its shareholders.
Sky Financial's three bank subsidiaries, Sky Bank (Mahoning will be merged into
Sky Bank during the second quarter of 2000), Mid Am Bank and Ohio Bank are all
Ohio chartered banks and subject to supervision and regular examination by the
Ohio Divisions of Financial Institutions (DFI), and as members of the Federal
Reserve System, are subject to the applicable provisions of the Federal Reserve
Act. The Company's financial service subsidiaries are subject to various state
and federal regulatory bodies and licensing agencies. SII is subject to
regulations of the Federal Reserve Board, the Securities and Exchange
Commission and supervision by the National Association of Securities Dealers as
well as various state securities and insurance regulatory agencies. SAMSI,
MAFSI and SFS are subject to various state licensing requirements and are
subject to the regulations of the Federal Reserve Board. Sky Financial, as a
bank holding company, is subject to supervision and regular examination by the
Federal Reserve System. The deposits of all banking subsidiaries of Sky
Financial are insured by the Federal Deposit Insurance Corporation, to the
<PAGE 7>
extent provided by law, and as such are subject to the provisions of the
Federal Deposit Insurance Act.
Each Ohio chartered banking association is required by law to obtain the prior
approval of the DFI for the declaration and payment of dividends if the total
of all dividends declared by the board of directors of such bank in any year
will exceed the total of (i) such bank's net profits (as defined and
interpreted by regulation) for that year plus (ii) the retained net profits
(as defined and interpreted by regulation) for the preceding two years.
The payment of dividends by Sky Financial and Sky Financial's subsidiaries is
also affected by various regulatory requirements and policies, such as the
requirement to maintain capital at or above regulatory guidelines. In
addition, if, in the opinion of the applicable regulatory authority, a bank
under its jurisdiction is engaged in or is about to engage in an unsafe or
unsound practice (which, depending on the financial condition of the bank,
could include the payment of dividends), such authority may require, after
notice and hearing, that such bank cease and desist from such practice. The
FRB and the DFI have each indicated that paying dividends that deplete a
bank's capital base to an inadequate level should be an unsafe and unsound
banking practice. The FRB, the DFI and the FDIC have issued policy statements
which provide that bank holding companies and insured banks should generally
only pay dividends out of current operating earnings.
On November 12, 1999, President Clinton signed into law the Gramm-Leach-Bliley
Act which, effective March 11, 2000, permits bank holding companies to become
financial holding companies and thereby affiliate with securities firms and
insurance companies and engage in other activities that are financial in
nature. A bank holding company may become a financial holding company if each
of its subsidiary banks is well capitalized under the Federal Deposit Insurance
Corporation Improvement Act prompt corrective action provisions, is well
managed, and has at least a satisfactory rating under the Community
Reinvestment Act (CRA) by filing a declaration that the bank holding company
wishes to become a financial holding company. No regulatory approval will be
required for a financial holding company to acquire a company, other than a
bank or savings association, engaged in activities that are financial in nature
or incidental to activities that are financial in nature, as determined by the
Federal Reserve Board.
The Gramm-Leach-Bliley Act defines "financial in nature" to include securities
underwriting, dealing and market making; sponsoring mutual funds and investment
companies; insurance underwriting and agency; merchant banking activities; and
activities that the FRB has determined to be closely related to banking. A
national bank also may engage, subject to limitations on investment, in
activities that are financial in nature, other than insurance underwriting,
insurance company portfolio investment, real estate development and real estate
investment, through a financial subsidiary of the bank, if the bank is well
capitalized, well managed and has at least a satisfactory CRA rating.
Subsidiary banks of a financial holding company or national banks with
financial subsidiaries must continue to be well capitalized and well managed in
order to continue to engage in activities that are financial in nature without
regulatory actions or restrictions, which could include divestiture of the
financial in nature subsidiary or subsidiaries. In addition, a financial
holding company or a bank may not acquire a company that is engaged in
activities that are financial in nature unless each of the subsidiary banks of
the financial holding company or the bank has CRA rating of satisfactory or
better.
<PAGE 8>
In addition, the information contained in Note 20 "Regulatory Matters" on
pages 64 and 65 of the Company's 1999 Annual Report to Shareholders is
incorporated by reference in response to this item.
Employees
As of December 31, 1999, Sky Financial and its subsidiaries had approximately
2,951 full-time equivalent employees. Sky Financial and its subsidiaries
consider their employee relations to be good. None of the employees are
covered by a collective bargaining agreement.
Certain Statistical Information Regarding Sky Financial
Certain financial and statistical information relative to Sky Financial as
required under the Securities and Exchange Commission's Industry Guide 3,
"Statistical Disclosure By Bank Holding Companies," and related discussion is
incorporated by specific references from the indicated pages of Sky Financial's
1999 Annual Report to Shareholders as indicated below.
Page in 1999 Annual
Report to Shareholders
Financial Ratios ................................ 18
Business Line Results ........................... 20
Net Interest Income; Average Balance Sheets
and Related Yields and Rates; Volume and
Rate Variance Analysis ........................ 21-23
Loan Portfolio; Non-performing Assets;
Risk Elements ................................. 25-28
Provision and Allowance for Credit Losses ....... 28-30
Securities ...................................... 31-32
Deposits ........................................ 32-33
Short-term Borrowings ........................... 33
Item 2. PROPERTIES
Sky Financial's executive offices are located in Bowling Green, Ohio. The Bank
Subsidiaries operate 205 banking centers, the majority of which are owned,
with the remaining banking centers under lease agreements, including 13 leased
from Bancsites, Inc. (Bancsites) under long-term lease agreements. Bancsites
was a wholly-owned subsidiary of Mid Am Bank until 1977, when Mid Am Bank
distributed all shares of Bancsites to its shareholders. Also, the information
contained in Note 5 "Premises and Equipment" on page 51 of Sky Financial's 1999
Annual Report to Shareholders isincorporated herein by reference in response to
this item.
<PAGE 9>
Item 3. LEGAL PROCEEDINGS
The information contained in Note 17 "Contingencies" on page 62 of Sky
Financial's 1999 Annual Report to Shareholders is incorporated herein by
reference in response to this item.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
SHAREHOLDER MATTERS
The information contained under the caption "SHAREHOLDER INFORMATION" on page
74 and the information contained in Note 20 "Regulatory Matters" on pages
64 and 65 of Sky Financial's 1999 Annual Report to Shareholders is incorporated
herein by reference in response to this item. Sky Financial's common stock is
traded on the NASDAQ National Market System under the symbol "SKYF." At March
15, 2000, there were approximately 17,000 holders of record of Sky Financial's
common stock.
Item 6. SELECTED FINANCIAL DATA
The information contained under the caption "SUMMARY OF FINANCIAL DATA" on page
18 of Sky Financial's 1999 Annual Report to Shareholders is incorporated herein
by reference in response to this item.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The information contained under the caption "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" on pages 19 through
36 of Sky Financial's 1999 Annual Report to Shareholders is incorporated herein
by reference in response to this item.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information contained under the caption " MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" on pages 34 through
36 of Sky Financial's 1999 Annual Report to Shareholders is incorporated herein
by reference in response to this item.
<PAGE 10>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information contained under the caption "QUARTERLY FINANCIAL HIGHLIGHTS" on
the inside of the front cover and the audited financial statements contained on
pages 37 through 68 of Sky Financial's 1999 Annual Report to Shareholders is
incorporated herein by reference in response to this item.
With the exception of the aforementioned information and the information
incorporated in Items 5, 6, 7 and 14, Sky Financial's 1999 Annual Report to
Shareholders is not to be deemed filed as part of this report.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
The information contained under the captions "ELECTION OF DIRECTORS" on pages
1 through 4 and "BENEFICIAL OWNERSHIP OF THE COMPANY'S COMMON STOCK" on
pages 6 through 8 of Sky Financial's 2000 Proxy Statement filed with the
Securities and Exchange Commission on March 3, 2000, is incorporated herein by
reference in response to this item.
The following table sets forth the names and ages and business experience of
each of the executive officers of Sky Financial. Each executive officer of Sky
Financial is appointed by the Board of Directors on an annual basis, and serves
at the pleasure of the Board.
Position With Company or Officer
Executive Officer Age Subsidiary and Experience Since*
Marty E. Adams 47 President and Chief Executive 1977
Officer of Sky Financial; formerly
President and Chief Operating
Officer of Sky Financial; formerly
Vice Chairman of the Board,
President and Chief Executive
Officer of Citizens Bancshares, Inc.
and The Citizens Banking Company
Frank J. Koch 46 Executive Vice President and 1988
Senior Credit Officer of Sky
Financial; formerly Executive
Vice President of Citizens
Bancshares, Inc.
<PAGE 11>
Thomas J. O'Shane ** 52 Senior Executive Vice President; 1988
formerly Chairman of the Board and
President and Chief Executive Officer
of First Western Bancorp, Inc.
W. Granger Souder, Jr. 39 Executive Vice President, General 1989
Counsel and Secretary of the Company;
formerly Executive Vice President
and General Counsel of Mid Am, Inc.;
formerly employed as a securities
attorney in private practice
Kevin T. Thompson 46 Executive Vice President and 1998
Chief Financial Officer of the
Company; formerly Senior Vice
President/Controller of First
of America Bank Corporation
James F. Burwell 49 President and Chief Executive 1980
Officer of The Ohio Bank; formerly
Chief Operating Officer of The Ohio
Bank; formerly President and Chief
Executive Officer of First National
Bank Northwest Ohio
Richard L. Hardgrove 61 President and Chief Executive 1998
Officer of Sky Bank; formerly
Deputy Superintendent of the Ohio
Division of Financial Institutions;
formerly Chief Operating Officer
of First Bancorporation
Patrick A. Kennedy ** 53 President and Chief Executive 1981
Officer of Mid Am Bank; formerly
Executive Vice President/Lending of
Mid Am Bank; formerly Senior Vice
President/Lending of First National
Bank Northwest Ohio
* Includes period in which executive officer was an officer of a subsidiary
or acquired company.
** On March 13, 2000, Mid Am Bank announced the appointment of Thomas J.
O'Shane as Interim President and CEO and Edward J. Reiter as Chairman of the
Board of Directors of Mid Am Bank. The Board of Directors of Mid Am Bank
accepted the resignation of Patrick A. Kennedy on March 10, 2000.
Item 11. EXECUTIVE COMPENSATION
The information contained under the captions "EXECUTIVE COMPENSATION" on pages
9 through 11 and "COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION" on
pages 13 through 15 of Sky Financial's 2000 Proxy Statement filed with the
Securities and Exchange Commission on March 3, 2000, is incorporated herein by
reference in response to this item.
<PAGE 12>
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained under the captions "ELECTION OF DIRECTORS" on pages
1 through 4, "BENEFICIAL OWNERSHIP OF THE COMPANY'S COMMON STOCK" on pages 6
through 8 and "EXECUTIVE COMPENSATION" on pages 9 through 11 of Sky Financial's
2000 Proxy Statement filed with the Securities and Exchange Commission on
March 3, 2000, is incorporated herein by reference in response to this item.
Sky Financial has no knowledge of any person or any group (as defined in
Section 13.d.3 of the Securities Exchange Act of 1934) which owns in excess of
five percent of the outstanding common stock of Sky Financial.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained under the caption "CERTAIN TRANSACTIONS" on page
17 of Sky Financial's 2000 Proxy Statement filed with the Securities and
Exchange Commission on March 3, 2000, is incorporated herein by reference in
response to this item.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
Page in 1999 Annual
Report to Shareholders*
(1) Financial Statements:
Report of Independent Auditors .................. 37
Consolidated Balance Sheets at
December 31, 1999 and 1998 .................... 38
Consolidated Statements of Income for
the three years ended December 31, 1999 ....... 39
Consolidated Statements of Changes in
Shareholders' Equity for the three years
ended December 31, 1999 ....................... 40
Consolidated Statements of Cash Flows for
the three years ended December 31, 1999 ....... 41
Notes to Consolidated Financial Statements ...... 42-68
* Incorporated by reference from the indicated pages of the 1999 Annual Report
to Shareholders. All schedules are omitted because they are not applicable or
the required information is shown in the financial statements or notes thereto.
<PAGE 13>
The following Exhibits required by Item 601 of Regulation S-K are filed as
part of this report:
Exhibit
Number Exhibit
2.1 Agreement and Plan of Merger dated as of June 6, 1999, by and between
Sky Financial Group, Inc. and Mahoning National Bancorp, Inc.
2.2 Agreement and Plan of Merger dated as of December 14, 1998 and amended
and restated as of April 19, 1999, by and among Sky Financial Group,
Inc., First Western Bancorp, Inc. and First Western Acquisition Corp
2.3 Agreement and Plan of Merger dated as of December 16, 1998, by and
between Sky Financial Group, Inc. and Wood Bancorp, Inc.
3.1 Sky Financial's Sixth Amended and Restated Articles of Incorporation
3.2 Sky Financial's Code of Regulations, as amended
4.1 Shareholder Rights Agreement dated as of July 21, 1998, between Sky
Financial and The Citizens Banking Company, as Rights Agent
10.1 Sky Financial's Amended and Restated 1998 Stock Option Plan for
Nonemployee Directors
10.2 Sky Financial's 1998 Stock Option Plan for Employees
10.3 Sky Financial's Non-Qualified Retirement Plan
10.4 Sky Financial's Employee Stock Ownership Pension Plan
10.5 Sky Financial's Profit Sharing and 401(k) Plan
10.6 Stock Option Agreement dated as of June 7, 1999, by and between
Sky Financial Group, Inc. and Mahoning National Bancorp, Inc.
10.7 Stock Option Agreement effective as of December 15, 1998, by and
between Sky Financial Group, Inc. and First Western Bancorp, Inc.
10.8 Stock Option Agreement dated as of December 16, 1998, by and
between Sky Financial Group, Inc. and Wood Bancorp, Inc.
10.9 Form of Indemnification Agreement between Sky Financial and
individual directors, certain officers and representatives.
10.10 Employment Agreement between Sky Financial and David R. Francisco
10.11 Employment Agreement between Sky Financial and Marty E. Adams
10.12 Letter agreement between Sky Financial and Thomas J. O'Shane dated
August 6, 1999.
10.13 Employment Agreement by and among Sky Financial, The Citizens
Banking Company, Century National Bank and Trust Company and
Joseph N. Tosh, II
10.14 Agreement by and among Sky Financial, The Citizens Banking Company
and Frank J. Koch.
10.15 Form of Change in Control Agreement between Sky Financial and
certain officers of Sky Financial.
11.1 Statement Re: Computation of Per Share Earnings
13.1 Sky Financial's 1999 Annual Report to Shareholders
20.1 Sky Financial's Proxy Statement for its 2000 Annual Meeting
21.1 Subsidiaries of Sky Financial
23.1 Consent of Independent Auditors
24.1 Power of Attorney
27.1 Financial Data Schedules (1999)
27.2 Financial Data Schedules (1998)
27.3 Financial Data Schedules (1997)
<PAGE 14>
(b) Reports on Form 8-K
Sky Financial filed a report on Form 8-K with the Securities and Exchange
Commission as of October 1, 1999, describing the completion of Sky Financial's
acquisition of Mahoning National Bancorp, Inc., the change in executive
management of Sky Financial, the declaration of a 10% common stock dividend and
the reauthorization of Sky Financial's common stock repurchase plan.
<PAGE 15>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SKY FINANCIAL GROUP, INC.
BY: /s/ Kevin T. Thompson
Kevin T. Thompson
Executive Vice President and Chief Financial Officer
March 22, 2000
Pursuant to the requirement of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
Signatures
*
Marty E. Adams Director/President/CEO March 22, 2000
Kevin T. Thompson Executive Vice President/CFO
*
Gerald D. Aller Director March 22, 2000
*
David A. Bryan Director March 22, 2000
*
Keith D. Burgett Director March 22, 2000
*
George N. Chandler, II Director March 22, 2000
*
Robert C. Duvall Director March 22, 2000
*
Del E. Goedeker Director March 22, 2000
*
D. James Hilliker Director March 22, 2000
*
Richard R. Hollington, Jr. Director March 22, 2000
*
Charles I. Homan Director March 22, 2000
Fred H. Johnson, III Director
<PAGE 16>
*
H. Lee Kinney Director March 22, 2000
*
Jonathan A. Levy Director March 22, 2000
*
Gerard P. Mastroianni Director March 22, 2000
*
Marilyn O. McAlear Director March 22, 2000
*
James C. McBane Director March 22, 2000
*
Kenneth E. McConnell Director March 22, 2000
*
Thomas S. Noneman Director March 22, 2000
*
Thomas J. O'Shane Director March 22, 2000
*
Edward J. Reiter Director March 22, 2000
*
Gregory L. Ridler Director March 22, 2000
*
Patrick W. Rooney Director March 22, 2000
*
Emerson J. Ross, Jr. Director March 22, 2000
*
Douglas J. Shierson Director March 22, 2000
*
C. Gregory Spangler Director March 22, 2000
*
Robert E. Spitler Director March 22, 2000
*
Robert E. Stearns Director March 22, 2000
*
Joseph N. Tosh, II Director March 22, 2000
* The undersigned attorney-in-fact, by signing his name below, does hereby
sign this Report on Form 10-K on behalf of the above-named officers and
directors pursuant to a power of attorney executed by such persons and filed
with the Securities and Exchange Commission contemporaneously herewith.
BY: /s/ Kevin T. Thompson
Kevin T. Thompson
Attorney-In-Fact
<PAGE 17>
FORM 10-K
EXHIBIT INDEX
Exhibit
Number Exhibit
2.1 Agreement and Plan of Merger dated June 6, 1999, by and between
Sky Financial Group, Inc. and Mahoning National Bancorp, Inc.
(incorporated by reference to Exhibit 2 to the Form 8-K of
Sky Financial filed as of June 7, 1999).
2.2 Agreement and Plan of Merger dated as of December 14, 1998 and amended
and restated as of April 19, 1999, by and among Sky Financial Group
Inc., First Western Bancorp, Inc. and First Western Acquisition Corp
(incorporated by reference to Annex A to the Form S-4 of
Sky Financial filed as of May 21, 1999).
2.3 Agreement and Plan of Merger dated as of December 16, 1998, by and
between Sky Financial Group, Inc. and Wood Bancorp, Inc.
(incorporated by reference to Exhibit 2 to the Form 8-K of
Sky Financial filed as of December 28, 1998).
3.1 Sky Financial's Sixth Amended and Restated Articles of Incorporation
3.2 Sky Financial's Code of Regulations, as amended
4.1 Shareholder Rights Agreement dated as of July 21, 1998, between
Sky Financial and The Citizens Banking Company, as Rights Agent
(incorporated by reference to Exhibit 4 of Form S-4 Registration
Statement No. 333-60741 of Sky Financial).
10.1 Sky Financial's Amended and Restated 1998 Stock Option Plan for
Nonemployee Directors
(incorporated by reference to Appendix G of the Joint Proxy
Statement/Prospectus in Form S-4 Registration Statement
No. 333-60741 of Sky Financial).
10.2 Sky Financial's 1998 Stock Option Plan for Employees
(incorporated by reference to Appendix H of the Joint Proxy
Statement/Prospectus in Form S-4 Registration Statement
No. 333-60741 of Sky Financial).
10.3 Sky Financial's Non-Qualified Retirement Plan
(As Amended and Restated Effective January 1, 1999).
(incorporated by reference to Exhibit 10.3 to the Form 10-K of
Sky Financial filed as of March 16, 1999).
10.4 Sky Financial's Employee Stock Ownership Pension Plan
10.5 Sky Financial's Profit Sharing and 401(k) Plan
10.6 Stock Option Agreement dated as of June 7, 1999, by and between
Sky Financial Group, Inc. and Mahoning National Bancorp, Inc.
(incorporated by reference to Exhibit 99 of Schedule 13D filed
by Sky Financial as of July 30, 1999).
10.7 Stock Option Agreement effective as of December 15, 1998, by and
between Sky Financial Group, Inc. and First Western Bancorp, Inc.
(incorporated by reference to Exhibit 99 of Schedule 13D filed
by Sky Financial as of December 24, 1998).
10.8 Stock Option Agreement dated as of December 16, 1998, by and
between Sky Financial Group, Inc. and Wood Bancorp, Inc.
(incorporated by reference to Exhibit B of Schedule 13D filed
by Sky Financial as of December 28, 1998).
<PAGE 18>
Exhibit Index (continued)
10.9 Form of Indemnification Agreement between Sky Financial and
individual directors, certain officers and representatives.
(incorporated by reference to Exhibit 10.6 to the Form 10-K of
Sky Financial filed as of March 16, 1999).
10.10 Employment Agreement between Sky Financial and David R. Francisco
(incorporated by reference to Exhibit 10.2 of Form S-4
Registration Statement No. 333-60741 of Sky Financial).
10.11 Employment Agreement between Sky Financial and Marty E. Adams
(incorporated by reference to Exhibit 10.3 of Form S-4
Registration Statement No. 333-60741 of Sky Financial).
10.12 Letter agreement between Sky Financial and Thomas J. O'Shane dated
August 6, 1999.
10.13 Employment Agreement by and among Sky Financial, The Citizens
Banking Company, Century National Bank and Trust Company and
Joseph N. Tosh, II
(incorporated by reference to Exhibit 10(18) of the Form 10-Q
of Sky Financial for the quarter ended June 30, 1998).
10.14 Agreement by and among Sky Financial, The Citizens Banking Company
and Frank J. Koch.
(incorporated by reference to Exhibit 10.11 to the Form 10-K of
Sky Financial filed as of March 16, 1999).
10.15 Form of Change in Control Agreement between Sky Financial and
certain officers of Sky Financial.
(incorporated by reference to Exhibit 10.12 to the Form 10-K of
Sky Financial filed as of March 16, 1999).
11.1 Statement Re: Computation of Per Share Earnings
(incorporated by reference from the information contained in
Note 11 "Earnings Per Share" on page 56 of Sky Financial's
1999 Annual Report to Shareholders). See Exhibit 13.1
13.1 Sky Financial's 1999 Annual Report to Shareholders
(except for the portions of the report expressly incorporated
by reference, the report is furnished solely for the information
of the Commission and is not deemed "filed" as part hereof).
20.1 Sky Financial's Proxy Statement for its 2000 Annual Meeting
(incorporated by reference from the information contained in
Sky Financial's 2000 Proxy Statement filed as of March 3, 2000).
21.1 Subsidiaries of Sky Financial
23.1 Consent of Independent Auditors
24.1 Power of Attorney
27.1 Financial Data Schedule (1999)
27.2 Financial Data Schedule (1998)
27.3 Financial Data Schedule (1997)
EXHIBIT 3.1
SIXTH AMENDED AND RESTATED
ARTICLES OF INCORPORATION OF
SKY FINANCIAL GROUP, INC.
FIRST: The name of the Corporation is Sky Financial Group, Inc.
SECOND: The place in the State of Ohio where the principal office of the
Corporation will be located is in Bowling Green, Wood County, or such other
location as the Board of Directors may from time to time determine.
THIRD: The purpose for which the Corporation is formed is to engage in
any lawful act or activity for which corporations may be formed under Sections
1701.01 to 1701.98, inclusive, of the Revised Code of Ohio, as now in effect or
hereafter amended.
FOURTH: The total number of shares of all classes which the Corporation
shall have authority to issue is one hundred sixty million (160,000,000)
shares, divided into two classes as follows: 10,000,000 Serial Preferred
Shares, par value $10.00 (Ten Dollars) per share (hereinafter called the
"Serial Shares") and 150,000,000 Common Shares, without par value (hereinafter
called the "Common Shares").
No holder of any class of shares of the Corporation shall, as such
holder, have any preemptive or preferential right to purchase or subscribe to
any shares of any class of stock of the Corporation, whether now or hereafter
authorized, whether unissued or in the treasury, or to purchase any obligations
convertible into shares of any such class of stock of the Corporation, which at
any time may be proposed to be issued by the Corporation or subjected to the
rights or options to purchase granted by the Corporation.
No holder of any class of shares of the Corporation shall have the right
to cumulate his voting power in the election of the Board of Directors, and the
right to cumulate voting described in Ohio Revised Code Section 1701.55 is
hereby specifically denied to the holders of any class of stock of the
Corporation.
DIVISION A
EXPRESS TERMS OF THE SERIAL SHARES
Section 1. The Serial Shares may be issued from time to time in one or
more series. All shares of Serial Shares shall be of equal rank and shall be
identical, except in respect of the matters that may be fixed by the Board of
Directors as hereinafter provided, and each share of each series shall be
identical with all other shares of such series, except as to the date from
which dividends are cumulative. Subject to the provisions of Sections 2 to 7,
both inclusive, of this Division, which provisions shall apply to all Serial
Shares, the Board of Directors hereby is authorized to cause such shares to be
issued in one or more series and with respect to each such series prior to the
issuance thereof to fix:
(a) The designation of the series, which may be by distinguishing
number, letter or title.
(b) The number of shares of the series, which number the Board of
Directors may (except where otherwise provided in the creation of the series)
increase or decrease (but not below the number of shares thereof then
outstanding).
(c) The annual dividend rate of the series.
(d) The dates at which dividends, if declared, shall be payable, and the
dates from which dividends shall be cumulative.
(e) The redemption rights and price or prices, if any, for shares of the
series.
(f) The terms and amount of any sinking fund provided for the purchase
or redemption of shares of the series.
(g) The amounts payable on shares of the series in the event of any
voluntary liquidation, dissolution or winding up of the affairs of the
Corporation.
(h) Whether the shares of the series shall be convertible into Common
Shares and, if so, the conversion price or prices, any adjustments thereof, and
all other terms and conditions upon which conversion may be made.
(i) Restrictions (in addition to those set forth in Sections 5(b) and
5(c) of this Division) on the issuance of shares of the same series or of any
other class or series.
The Board of Directors is authorized to adopt from time to time
amendments to the Articles of Incorporation fixing, with respect to each such
series, the matters described in clauses (a) through (i), both inclusive, of
this Section 1.
Section 2. The holders of Serial Shares of each series, in preference to
the holders of Common Shares and of any other class of shares ranking junior to
the Serial Shares, shall be entitled to receive out of any funds legally
available and when and as declared by the Board of Directors dividends in cash
at the rate for such series fixed in accordance with the provisions of
Section 1 of this Division and no more, payable quarterly on the dates fixed
for such series. Such dividends shall be cumulative, in the case of shares of
each particular series, from and after the date or dates fixed with respect to
such series. No dividends may be paid upon or declared or set apart for any of
the Serial Shares for any quarterly dividend period unless at the same time a
like proportionate dividend for the same quarterly dividend period, ratably in
proportion to the respective annual dividend rates fixed therefor, shall be
paid upon or declared or set apart for all Serial Shares of all series then
issued and outstanding and entitled to receive such dividend.
Section 3. In no event so long as any Serial Shares shall be outstanding
shall any dividends, except a dividend payable in Common Shares or other shares
ranking junior to the Serial Shares, be paid or declared or any distribution be
made except as aforesaid on the Common Shares or any other shares ranking
junior to the Serial Shares, nor shall any Common Shares or any other shares
ranking junior to the Serial Shares be purchased, retired or otherwise
acquired by the Corporation (except out of the proceeds of the sale of Common
Shares or other shares ranking junior to the Serial Shares received by the
Corporation subsequent to March 11, 1985):
(a) Unless all accrued and unpaid dividends on Serial Shares,
including the full dividends for the current quarterly dividend period, shall
have been declared and paid or a sum sufficient for payment thereof set apart;
and
(b) Unless there shall be no arrearages with respect to the
redemption of Serial Shares of any series from any sinking fund provided for
shares of such series in accordance with Section 1 of this Division.
Section 4. (a) The holders of Serial Shares of any series shall, in
case of liquidation, dissolution or winding up of the affairs of the
Corporation, be entitled to receive in full out of the assets of the
Corporation, including its capital, before any amount shall be paid or
distributed among the holders of the Common Shares or any other shares ranking
junior to the Serial Shares, the amounts fixed with respect to shares of such
series in accordance with Section 1 of this Division, plus an amount equal to
all dividends accrued and unpaid thereon to the date of payment of the amount
due pursuant to such liquidation, dissolution or winding up of the affairs
of the Corporation. In case the net assets of the Corporation legally
available therefor are insufficient to permit the payment upon all outstanding
Serial Shares of the full preferential amount to which they are respectively
entitled, then such net assets shall be distributed ratably upon outstanding
Serial Shares in proportion to the full preferential amount to which each such
share is entitled.
After payment to holders of Serial Shares of the full preferential
amounts as aforesaid, holders of Serial Shares as such shall have no right or
claim to any of the remaining assets of the Corporation.
(b) The merger or consolidation of the Corporation into or with any
other corporation, or the merger of any other corporation into it, or the sale,
lease or conveyance of all or substantially all the property or business of the
Corporation, shall not be deemed to be a dissolution, liquidation or winding up
for purposes of this Section 4.
Section 5. (a) The holders of Serial Shares shall be entitled to one
vote for each share of such stock upon all matters presented to the
shareholders; and, except as otherwise provided herein or required by law, the
holders of Serial Shares and the holders of Common Shares shall vote together
as one class on all matters.
If, and so often as, the Corporation shall be in default in the payment
of six (6) full quarterly dividends (whether or not consecutive) on any series
of Serial Shares at the time outstanding, whether or not earned or declared,
the holders of Serial Shares of all series, voting separately as a class and in
addition to all other rights to vote for directors, shall be entitled to elect,
as herein provided, two (2) members of the Board of Directors of the
Corporation; provided, however, that the holders of Serial Shares shall not
have or exercise such special class voting rights except at meetings of the
shareholders for the election of directors at which the holders of not less
than one-third of the outstanding Serial Shares of all series then outstanding
are present in person or by proxy; and provided further that the special class
voting rights provided for herein when the same shall have become vested shall
remain so vested until all accrued and unpaid dividends on the Serial Shares of
all series then outstanding shall have been paid, whereupon the holders of
Serial Shares shall be divested of their special class voting rights in respect
of subsequent elections of directors, subject to the revesting of such special
class voting rights in the event hereinabove specified in this paragraph.
In the event of default entitling the holders of Serial Shares to elect
two (2) directors as above specified, a special meeting of the shareholders for
the purpose of electing such directors shall be called by the Secretary of the
Corporation upon written request of, or may be called by, the holders of record
of at least ten percent (10%) of the Serial Shares of all series at the time
outstanding and notice thereof shall be given in the same manner as that
required for the annual meeting of shareholders; provided, however, that the
Corporation shall not be required to call such special meeting if the annual
meeting of shareholders shall be held within one hundred twenty (120) days
after the date of receipt of the foregoing written request from the holders of
Serial Shares. At any meeting at which the holders of Serial Shares shall be
entitled to elect directors, the holders of one-third of the then outstanding
Serial Shares of all series, present in person or by proxy, shall be sufficient
to constitute a quorum, and the vote of the holders of a majority of such
shares so present at any such meeting at which there shall be a quorum shall be
sufficient to elect the members of the Board of Directors which the holders of
Serial Shares are entitled to elect as hereinabove provided. The two directors
who may be elected by the holders of Serial Shares pursuant to the foregoing
provisions shall be in addition to any other directors then in office or
proposed to be elected otherwise than pursuant to such provisions, and nothing
in such provisions shall prevent any change otherwise permitted in the total
number of directors of the Corporation or require the resignation of any
director elected otherwise than pursuant to such provisions. Notwithstanding
any classification of the other directors of the Corporation, the two directors
elected by the holders of Serial Shares shall be elected annually for terms
expiring at the next succeeding annual meeting of shareholders.
(b) The affirmative vote of the holders of at least two-thirds of the
Serial Shares at the time outstanding, given in person or by proxy at a meeting
called for the purpose at which the holders of Serial Shares shall vote
separately as a class, shall be necessary to effect any one or more or the
following (but so far as the holders of Serial Shares are concerned, such
action may be effected with such vote):
(i) Any amendment, alteration or repeal of any of the provisions
of the Articles of Incorporation or of the Regulations of the Corporation which
affects adversely the voting powers, rights or preferences of the holders of
Serial Shares; provided, however, that for the purpose of this clause (i) only,
neither the amendment of the Articles of Incorporation so as to authorize or
create, or to increase the authorized or outstanding amount of, Serial Shares
or of any shares of any class ranking on a parity with or junior to the Serial
Shares, nor the amendment of the provisions of the Regulations so as to
increase the number of directors of the corporation shall be deemed to affect
adversely the voting powers, rights or preferences of the holders of Serial
Shares; and provided further that if such amendment, alteration or repeal
affects adversely the rights or preferences of one or more but not all series
of Serial Shares at the time outstanding, only the affirmative vote of the
holders of at least two-thirds of the number of shares at the time outstanding
of the series so affected shall be required.
(ii) The authorization or creation of, or the increase in the
authorized amount of, any shares of any class, or any security convertible into
shares of any class, ranking prior to the Serial Shares; or
(iii) The purchase or redemption (for sinking fund purposes or
otherwise) of less than all of the Serial Shares then outstanding except in
accordance with a stock purchase offer made to all holders of record of Serial
Shares, unless all dividends upon all Serial Shares then outstanding for all
previous quarterly dividend periods shall have been declared and paid or funds
therefor set apart and all accrued sinking fund obligations applicable thereto
shall have been complied with.
(c) The affirmative vote of the holders of at least a majority of the
shares of Serial Shares at the time outstanding, given in person or by proxy at
a meeting called for the purpose at which the holders of Serial Shares shall
vote separately as a class, shall be necessary to effect any one or more of the
following (but so far as the holders of Serial Shares are concerned, such
action may be effected with such vote):
(i) The sale, lease or conveyance by the Corporation of all or
substantially all of its property or business, or its consolidation with or
merger into any other corporation unless the corporation resulting from such
consolidation or merger will have after such consolidation or merger no class
of shares either authorized or outstanding ranking prior to or on a parity with
the Serial Shares except the same number of shares ranking prior to or on a
parity with the Serial Shares and having the same rights and preferences as the
shares of the Corporation authorized and outstanding immediately preceding such
consolidation or merger, and each holder of Serial Shares immediately preceding
such consolidation or merger shall receive the same number of shares, with the
same rights and preferences, of the resulting corporation; or
(ii) The authorization of any shares ranking on a parity with the
Serial Shares or an increase in the authorized number of Serial Shares.
Section 6. For the purpose of this Division A, whenever reference is
made to shares "ranking prior to the Serial Shares" or "on a parity with the
Serial Shares", such reference shall mean and include all shares of the
Corporation in respect of which the rights of the holders thereof as to the
payment of dividends or as to distributions in the event of a voluntary or
involuntary liquidation, dissolution or winding up of the affairs of the
Corporation are given preference over, or rank on an equality with (as the case
maybe) the rights of holders of Serial Shares; and whenever reference is made
to shares "ranking junior to the Serial Shares", such reference shall mean and
include all shares of the Corporation in respect of which the rights of the
holders thereof as to the payment of dividends and as to distributions in the
event of a voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Corporation are junior and subordinate to the rights of the
holders of Serial Shares.
DIVISION B
EXPRESS TERMS OF THE COMMON SHARES
The Common Shares shall be subject to the express terms of the Serial
Shares and any series thereof. Each Common Share shall be equal to every other
share of Common Share. The holders of Common Shares shall be entitled to one
vote for each share of such stock upon all matters presented to the
Shareholders.
FIFTH: Without derogation from any other power to purchase shares of the
Corporation, the Corporation may, by action of its Board of Directors and to
the extent not prohibited by law, purchase outstanding shares of any class of
this Corporation's stock.
SIXTH: The provisions of Section 1701.831 of the Ohio Revised Code, as
amended from time to time, or any successor provision or provisions to said
section shall not apply to this Corporation.
SEVENTH: Except as otherwise required by these Articles of
Incorporation, but notwithstanding any provision of the Ohio Revised Code now
or hereafter in force requiring for any purpose the vote, consent, waiver or
release of the holders of shares entitling them to exercise two-thirds, or any
other proportion, of the voting power of the Corporation or of any class or
classes of shares thereof, any amendments to the Articles of Incorporation may
be made from time to time, and any proposal or proposition requiring the action
of shareholders may be authorized from time to time by the affirmative vote of
the holders of shares entitling them to exercise a majority of the voting power
of the Corporation.
EIGHTH: Except to the extent that Article FOURTH otherwise provides with
respect to certain matters therein set forth, the Corporation reserves the
right to amend, alter, change or repeal any provision contained in these
Amended and Restated Articles of Incorporation and to add new provisions, in
the manner now or hereafter prescribed by statute, upon the affirmative vote of
a majority of the outstanding shares of the Corporation, voting as a class; and
all rights, privileges and preferences of whatsoever nature conferred upon
shareholders, directors and officers pursuant to these Amended and Restated
Articles of Incorporation in their present form or as hereafter amended are
granted subject to this reservation. Notwithstanding the foregoing, the
adoption of any amendment, alteration, change or repeal to these Amended and
Restated Articles of Incorporation as the same may be in effect from time to
time which is inconsistent with or would have the effect of amending, altering,
changing or repealing the provisions of the Sections 7, 9 or 10 of the
Regulations of the Corporation as the same may be in effect from time to time
shall require the same affirmative vote of the shareholders as would be
required under such Regulations to adopt any amendment, alteration, change or
repeal said Sections 7, 9 or 10 or to adopt any provisions inconsistent
therewith.
IN WITNESS WHEREOF, Marty E. Adams, President of the Corporation, acting
for and on behalf of the Corporation has hereunto subscribed his name this 2nd
day of October, 1998.
SKY FINANCIAL GROUP, INC.
By: /s/ Marty E. Adams
Marty E. Adams
President
EXHIBIT 3.2
REGULATIONS
OF
SKY FINANCIAL GROUP, INC., AS AMENDED
MEETINGS OF SHAREHOLDERS
Section 1. Annual Meeting.
The annual meeting of shareholders of the Corporation shall be held on the
first Thursday in March or at such other time and on such business day as the
directors may determine each year. The annual meeting shall be held at the
principal office of the Corporation or at such other place within or without the
State of Ohio as the directors may determine. The directors shall be elected
thereat and such other business transacted as may properly be brought before the
meeting.
Section 2. Special Meetings.
Special meetings of the shareholders may be called at any time by the
Chairman of the Board, the Chief Executive Officer, the President, the Chief
Operating Officer or by the directors by action at a meeting or a majority of
the directors acting without a meeting or by shareholders holding 50% or more of
the outstanding shares entitled to vote thereat. Such meetings may be held
within or without the State of Ohio at such time and place as may be specified
in the notice thereof.
Section 3. Notice of Meetings.
Written notice of every annual or special meeting of the shareholders
stating the time, place and purposes thereof shall be given to each shareholder
entitled to notice as provided by law, not less than seven nor more than ninety
days before the date of the meeting. Such notice may be given by or at the
direction of the Chairman of the Board, the President, any Vice President or the
Secretary by personal delivery or by mail addressed to the shareholder at his
last address as it appears on the records of the Corporation. Any shareholder
may waive in writing notice of any meeting, either before or after the holding
of such meeting, and, by attending any meeting without protesting the lack of
proper notice, shall be deemed to have waived notice thereof.
Section 4. Persons Becoming Entitled by Operation of Law or Transfer.
Every person who, by operation of law, transfer or any other means
whatsoever, shall become entitled to any shares, shall be bound by every notice
in respect of such share or shares which previously to the entering of his name
and address on the records of the Corporation shall have been duly given to the
person from whom he derives his title to such shares.
Section 5. Quorum and Adjournments.
Except as may be otherwise required by law or by the Articles of
Incorporation or these Regulations, the holders of a majority of the then-
outstanding shares entitled to vote in an election of directors, taken together
as a single class ("Voting Shares"), present in person or by proxy, shall
constitute a quorum; provided that any meeting duly called, whether a quorum is
present or otherwise may, by vote of the holders of the majority of the Voting
Shares represented thereat, adjourn from time to time, in which case no further
notice of any such adjourned meeting need be given.
Section 6. Business to be Conducted at Meetings.
At any meeting of shareholders, only such business shall be conducted as
shall have been properly brought before the meeting. To be properly brought
before a meeting of shareholders, business must be specified in the notice of
meeting (or any supplement thereto) given by or at the direction of the
directors, otherwise properly brought before the meeting by or at the direction
of the directors or otherwise properly brought before the meeting by a
shareholder. For business to be properly brought before a meeting of
shareholders by a shareholder, the shareholder must have given timely notice
thereof in writing to the Secretary of the Corporation. To be timely, a
shareholder's notice must be delivered to or mailed and received at the
principal executive offices of the Corporation not less than sixty (60) days nor
more than ninety (90) days prior to the meeting; provided, however, that in the
event that less than seventy-five (75) days' notice or prior public disclosure
of the date of the meeting is given or made to the shareholders, notice by the
shareholder to be timely must be so received not later than the close of
business on the fifteenth (15th) day following the earlier of the day on which
such notice of the date of the meeting was mailed or such public disclosure was
made. A shareholder's notice to the Secretary shall set forth as to each matter
the shareholder proposes to bring before the meeting (i) a brief description of
the business desired to be brought before the meeting and the reasons for
conducting such business at the meeting, (ii) the name and record address of the
shareholder proposing such business, (iii) the class and number of shares of the
Corporation which are beneficially owned by such shareholder, and (iv) any
material interest of such shareholder in such business.
Notwithstanding anything in the Regulations of the Corporation to the
contrary, no business shall be conducted at a meeting of shareholders except in
accordance with the procedures set forth in this Section 6.
The Chairman of the meeting of shareholders shall, if the facts warrant,
determine and declare to the meeting that business was not properly brought
before the meeting in accordance with the provisions of this Section 6 in which
event any such business not properly brought before the meeting shall not be
transacted.
DIRECTORS
Section 7. Number.
(a) The number of directors shall not be less than five (5) nor more
than thirty-five (35), the exact number of directors to be determined from time
to time by an eighty (80) percent majority vote of the directors then in office,
and such exact number shall be twenty-two (22) until otherwise so determined.
(b) At the effective time (the "Effective Time") of the merger with Mid
Am, Inc. ("Mid Am"), the directors of the Corporation shall consist of twenty-
two (22) members, eleven (11) of whom shall be selected by the Chairman of the
Board and Chief Executive Officer of Mid Am ("Mid Am Directors") and eleven (11)
of whom shall be selected by the Board of Directors of the Corporation prior to
the Effective Time ("Bancshares Directors") and which shall be allocated among
the three classes of directors of the Corporation by the agreement of the
Chairman of the Board and Chief Executive Officer of Mid Am and the Board of
Directors of the Corporation so that each class shall have an equal number of
Mid Am Directors and Bancshares Directors.
Section 8. Nominations.
(a) Only persons who are nominated in accordance with the procedures set
forth in this Section 8 shall be eligible for election by shareholders as
directors. Nominations of persons for election as directors of the Corporation
may be made at a meeting of shareholders by or at the direction of the directors
by any nominating committee or person appointed by the directors, including (i)
pursuant to paragraph (b) of this Section 8 or (ii) by any shareholder of the
Corporation entitled to vote for the election of directors at the meeting who
complies with the notice procedures set forth in paragraph (c) of this Section
8. No person shall be eligible for election by shareholders as a director of
the Corporation unless nominated in accordance with the procedures set forth in
this Section 8.
(b) For a period of three years after the Effective Time, in the event
that a Mid Am Director or a Bancshares Director or a director otherwise
nominated as set forth herein by the Mid Am Directors or Bancshares Directors as
set forth herein shall resign, no longer be able to serve or not stand for
reelection, (i) if such director shall be a Mid Am Director or a nominee of
the Mid Am Directors, then the Mid Am Directors and nominees of the Mid Am
Directors serving as directors shall have the exclusive right to nominate an
individual to fill such vacancy and (ii) if such director shall be a Bancshares
Director or a nominee of the Bancshares Directors, then the Bancshares Directors
and nominees of the Bancshares Directors serving as directors shall have the
exclusive right to nominate an individual to fill such vacancy.
(c) Nominations other than those made by or at the direction of the
directors, shall be made only pursuant to timely notice in writing to the
Secretary of the Corporation. To be timely, a shareholder's notice shall be
delivered to or mailed and received at the principal executive offices of the
Corporation not less than sixty (60) days nor more than ninety (90) days prior
to the meeting; provided, however, that in the event that less than seventy-five
(75) days' notice or prior public disclosure of the date of the meeting is given
or made to shareholders, notice by the shareholder to be timely must be so
delivered or received not later than the close of business on the fifteenth
(15th) day following the earlier of the day on which such notice of the date of
the meeting was mailed or such public disclosure was made. Such shareholder's
notice shall set forth (a) as to each person who is not an incumbent director
whom the shareholder proposes to nominate for election as a director, (i) the
name, age, business address and residence address of such person; (ii) the
principal occupation or employment of such person; (iii) the class and number
of shares of the Corporation which are beneficially owned by such person; and
(iv) any other information relating to such person that is required to be
disclosed in solicitations for proxies for election of directors pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended; and (b) as
to the shareholder giving the notice, (i) the name and record address of such
shareholder and (ii) the class and number of shares of the Corporation which are
beneficially owned by such shareholder. Such notice shall be accompanied by the
written consent of each proposed nominee to serve as a director of the
Corporation, if elected. The Chairman of the meeting shall, if the facts
warrant, determine and declare to the meeting that a nomination was not made in
accordance with the provisions of this Section 8, and, if he should so
determine, the defective nomination shall be void and ineffective and the person
or persons so nominated shall not be eligible for election.
Section 9. Classification, Election and Term of Office of Directors.
The directors shall be divided into three classes, as nearly equal in
number as possible, and one of the classes shall be elected for a three-year
term of office at each annual shareholders meeting. At the annual meeting of
shareholders in 1985, one class of directors shall be elected for a one-year
term, one class shall be elected for a two-year term and one class shall be
elected for a three-year term. At each succeeding annual meeting of
shareholders, successors to the class of directors whose term expires in that
year will be elected to a three-year term. If the number of directors is
changed, any increase or decrease shall be apportioned among the classes so as
to maintain the number of directors in each class as nearly equal as possible,
and any additional director of any class elected to fill a vacancy resulting
from an increase in such class shall hold office for a term that shall coincide
with the remaining term of such class, but in no case will a decrease in the
number of directors shorten the term of any incumbent director. A director
shall hold office until the annual meeting for the year in which his term
expires and his successor shall be elected and shall qualify, subject, however,
to prior death, resignation, or removal from office. Election of directors
shall be by ballot whenever requested by any person entitled to vote at the
meeting; but unless so requested such election may be conducted in any way
approved at such meeting.
Section 10. Removal.
Directors may only be removed for cause and only by the affirmative vote
of not less than 80 percent of the whole Board of Directors of the Corporation.
Section 11. Vacancies.
Whenever any vacancy shall occur among the directors, the remaining
directors shall constitute the directors of the Corporation until such vacancy
is filled or until the number of directors is changed pursuant to Section 7
hereof. Subject to Section 8(b), except in cases where a director is removed as
provided by law and these Regulations and his successor is elected by the
shareholders, the remaining directors may, by a vote of a majority of their
number, fill any vacancy for the unexpired term. A majority of the directors
then in office may also fill any vacancy that results from an increase in the
number of directors.
Section 12. Quorum and Adjournments.
A majority of the directors in office at the time shall constitute a
quorum, provided that any meeting duly called, whether a quorum is present or
otherwise, may, by vote of a majority of the directors present, adjourn from
time to time and place to place within or without the State of Ohio, in which
case no further notice of the adjourned meeting need be given. At any meeting
at which a quorum is present, all questions and business shall be determined by
the affirmative vote of not less than a majority of the directors present,
except as is otherwise provided in the Articles of Incorporation or these
Regulations or is otherwise authorized by Section 1701.60(A)(1) of the Ohio
Revised Code.
Section 13. Organization Meeting.
Immediately after each annual meeting of the shareholders at which
directors are elected, or each special meeting held in lieu thereof, the
directors, including those newly elected, if a quorum of all such directors is
present, shall hold an organization meeting at the same place or at such other
time and place as may be fixed by the shareholders at such meeting, for the
purpose of electing officers and transacting any other business. Notice of such
meeting need not be given. If for any reason such organization meeting is not
held at such time, a special meeting for such purpose shall be held as soon
thereafter as practicable.
Section 14. Regular Meetings.
Regular meetings of the directors may be held at such times and places
within or without the State of Ohio as may be provided for in by-laws or
resolutions adopted by the directors and upon such notice, if any, as shall be
so provided for.
Section 15. Special Meetings.
Special meetings of the directors may be held at any time within or
without the State of Ohio upon call by the Chairman of the Board, the President,
any Vice President, or by any two directors. Notice of each such meeting shall
be given to each director by personal delivery, by mail, cablegram or telegram,
or by telephone not less than two days prior to such meeting or such shorter
notice as the directors shall deem necessary and warranted under the
circumstances. Any director may waive in writing notice of any meeting, and, by
attending any meeting without protesting the lack of proper notice, shall be
deemed to have waived notice thereof. Unless otherwise limited in the notice
thereof, any business may be transacted at any organization, regular or special
meeting.
Section 16. Compensation.
The directors are authorized to fix reasonable compensation, which may
include pension, disability, and death benefits, for services to the Corporation
by directors or a reasonable fee for attendance at any meeting of the directors,
the Executive Committee, or other committees elected under Section 20 hereof, or
any combination of salary and attendance fee. In addition to such compensation
provided for directors, they shall be reimbursed for any expenses incurred by
them in traveling to and from such meetings.
EXECUTIVE COMMITTEE AND OTHER COMMITTEES
Section 17. Membership and Organization.
(a) The directors, at any time, may elect from their number an Executive
Committee which shall consist of four or more directors of the Corporation, each
of whom shall hold office during the pleasure of the directors and may be
removed at any time, with or without cause, by vote thereof. In the event that
an Executive Committee is formed at any time during the three year period after
the Effective Time, the Executive Committee shall consist of an even number of
directors, one-half of whom (the "Mid Am Executive Committee Members") shall be
selected by the Mid Am Directors and nominees of Mid Am Directors serving as
directors and one-half of whom (the "Bancshares Executive Committee Members")
shall be selected by the Bancshares Directors and nominees of the Bancshares
Directors serving as directors plus such additional directors as a majority of
the directors who become directors as a result of or pursuant to Section 7(b) or
8(b) shall determine.
(b) Vacancies occurring in the Executive Committee may be filled by the
directors; provided however, that for a period of three years after the
Effective Time, in the event that a Mid Am Executive Committee Member or a
Bancshares Executive Committee Member or a member of the Executive Committee
otherwise selected as set forth herein by the Mid Am Directors or Bancshares
Directors shall resign or no longer serve, (i) if such member shall be a Mid Am
Executive Committee Member or shall have been selected by the Mid Am Directors
and nominees of the Mid Am Directors serving as directors, then the Mid Am
Directors and nominees of the Mid Am Directors serving as directors shall have
the exclusive right to select an individual to fill such vacancy and (ii) if
such member shall be a Bancshares Executive Committee Member or shall have been
selected by the Bancshares Directors and nominees of the Bancshares Directors
serving as directors, then the Bancshares Directors and nominees of the
Bancshares Directors serving as directors shall have the exclusive right to
select an individual to fill such vacancy.
(c) In the event the directors have not designated a Chairman, the
Executive Committee shall appoint one of its own number as Chairman who shall
preside at all meetings and may also appoint a Secretary (who need not be a
member of the Executive Committee) who shall keep its records and who shall hold
office at the pleasure of the Executive Committee.
Section 18. Meetings.
(a) Regular meetings of the Committee may be held without notice of the
time, place or purposes thereof and shall be held at such times and places
within or without the State of Ohio as the Committee may from time to time
determine.
(b) Special meetings may be held upon notice of the time, place and
purposes thereof at any place within or without the State of Ohio and until
otherwise ordered by the Committee shall be held at any time and place at the
call of the Chairman or any two members of the Committee.
(c) At any regular or special meeting the Committee may exercise any or
all of its powers, and any business which shall come before any regular or
special meeting may be transacted thereat, provided a majority of the Committee
is present, but in every case the affirmative vote of a majority of all of the
members of the Committee shall be necessary to take any action.
(d) Any authorized action by the Committee may be taken without a
meeting by a writing signed by all the members of the Committee.
Section 19. Powers.
Except as its powers, duties and functions may be limited or prescribed by
the directors, during the intervals between the meetings of the directors, the
Committee shall possess and may exercise all the powers of the directors
provided that the Committee shall not be empowered to declare dividends, elect
or remove officers, fill vacancies among the directors or Executive Committee,
adopt an agreement of merger or consolidation, recommend to the shareholders the
sale, lease or exchange of all or substantially all of the Corporation's
property and assets, nor recommend to the shareholders a dissolution of the
Corporation or revocation of a dissolution. All actions of the Committee shall
be reported to the directors at their meeting next succeeding such action and
shall be subject to revision or alteration by the directors, provided that no
rights of any third person shall be affected thereby.
Section 20. Other Committees.
(a) The directors may elect other committees from among the directors in
addition to or in lieu of the Executive Committee and give to them any of the
powers which under the foregoing provisions could be vested in the Executive
Committee, provided, that in the event that any such committee is formed at any
time during the three year period after the Effective Time, such committee shall
consist of an even number of directors, one-half of whom (the "Mid Am Committee
Members") shall be selected by the Mid Am Directors and nominees of the Mid Am
Directors serving as directors and one-half of whom (the "Bancshares Committee
Members") shall be selected by the Bancshares Directors and nominees of the
Bancshares Directors serving as directors plus such additional directors as a
majority of the directors who become directors as a result of or pursuant to
Section 7(b) or 8(b) shall determine.
(b) Vacancies occurring in any committee formed pursuant to Section
20(a) may be filled by the directors; provided that for a period of three years
after the Effective Time, in the event that a Mid Am Committee Member or a
Bancshares Committee Member or a member of such committee otherwise selected as
set forth herein by the Mid Am Directors or Bancshares Directors shall resign or
no longer serve, (i) if such member shall be a Mid Am Committee Member or shall
have been selected by the Mid Am Directors and nominees of the Mid Am
Directors serving as directors, then the Mid Am Directors and nominees of the
Mid Am Directors serving as directors shall have the exclusive right to select
an individual to fill such vacancy and (ii) if such member shall be a Bancshares
Committee Member or shall have been selected by the Bancshares Directors and
nominees of the Bancshares Directors serving as directors, then the Bancshares
Directors and nominees of the Bancshares Directors serving as directors shall
have the exclusive right to select an individual to fill such vacancy.
OFFICERS
Section 21. Officers Designated.
The directors, at their organization meeting or at a special meeting held
in lieu thereof or to the extent otherwise necessary shall elect, and unless
otherwise determined by the directors there shall be, a Chairman of the Board, a
Senior Chairman of the Board, a Chief Executive Officer, a President, a Chief
Operating Officer, a Vice Chairman of the Board, a Secretary, a Treasurer and,
in their discretion, one or more Vice Presidents, an Assistant Secretary or
Secretaries, an Assistant Treasurer or Treasurers, and such other officers as
the directors may deem appropriate. From time to time, the directors may elect
one or more additional Vice Chairmen of the Board, in which case the Vice
Chairman who was initially elected as such will thereafter be designated by the
directors as the First Vice Chairman of the Board. Any two or more of such
offices other than that of President and Vice President, or Secretary and
Assistant Secretary, or Treasurer and Assistant Treasurer, may be held by the
same person, but no officer shall execute, acknowledge or verify any instrument
in more than one capacity if such instrument is required by law, the Articles of
Incorporation, these Regulations or any by-laws to be executed, acknowledged, or
verified by two or more officers.
Section 22. Tenure of Office.
The officers of the Corporation shall hold office for such terms as the
directors shall determine from time to time. The directors may remove any
officer at any time with or without cause by a majority vote of the directors in
office at the time. A vacancy, however created, in any office may be filled by
election by the directors.
Section 23. Chairman of the Board.
The Chairman of the Board shall preside at meetings of the shareholders
and directors, shall initiate and develop broad corporate policies and shall
have such other powers and duties as may be prescribed by the directors. Except
where the signature of the President is required by law, the Chairman of the
Board shall possess the same power as the President to execute all authorized
deeds, mortgages, bonds, contracts and other instruments and obligations in the
name of the Corporation.
Section 24. Senior Chairman of the Board; Chairman of the Board; Vice Chairman
of the Board.
Each of the Senior Chairman of the Board, the Chairman of the Board and
the Vice Chairman of the Board, shall render policy and other management
services to the Corporation of the type customarily performed by persons serving
in a similar capacity.
Section 25. Chief Executive Officer.
The Chief Executive Officer of the Corporation shall have general
supervision over its property, business and affairs, subject to the directions
of the Chairman of the Board and/or the directors. Unless otherwise determined
by the directors, he shall have authority to execute all authorized deeds,
mortgages, bonds, contracts and other instruments and obligations in the name
of the Corporation, and in the absence of the Chairman of the Board shall
preside at meetings of the shareholders and the directors. He shall have such
other powers and duties as may be prescribed by the directors.
Section 26. President and Chief Operating Officer.
The President and Chief Operating Officer of the Corporation shall be the
second highest ranking officer of the Corporation and shall render executive,
policy and other management services to the Corporation and have primary
responsibility for the commercial banking operations of the Corporation and
related acquisitions and, with respect to all other merger and acquisition
activity, shall have the right to participate fully in any such process,
including discussions and negotiations, and shall have such other duties as the
Board of Directors or the Chief Executive Officer of the Corporation may from
time to time reasonably direct or request.
Section 27. Vice Presidents.
The Vice Presidents shall have such powers and duties as may be prescribed
by the directors or as may be delegated by the Chairman of the Board or the
President.
Section 28. Secretary.
The Secretary shall attend and keep the minutes of all meetings of the
shareholders and of the directors. He shall keep such books as may be required
by the directors and shall give all notices of meetings of shareholders and
directors, provided, however, that any persons calling such meetings may, at
their option, themselves give such notice. He shall have such other powers
and duties as may be prescribed by the directors.
Section 29. Treasurer.
The Treasurer shall receive and have in charge all money, bills, notes,
bonds, stocks in other corporations and similar property belonging to the
Corporation and shall do with the same as shall be ordered by the directors. He
shall keep accurate financial accounts and hold the same open for inspection and
examination of the directors. On the expiration of his term of office, he
shall turn over to his successor, or the directors, all property, books, papers
and money of the Corporation in his hands. He shall have such other powers and
duties as may be prescribed by the directors.
Section 30. Other Officers.
The Assistant Secretaries, Assistant Treasurers, if any, and the other
officers, if any, shall have such powers and duties as the directors may
prescribe.
Section 31. Delegation of Duties.
The directors are authorized to delegate the duties of any officers to any
other officer and generally to control the action of the officers and to require
the performance of duties in addition to those mentioned herein.
Section 32. Compensation.
The directors are authorized to determine or to provide the method of
determining the compensation of all officers.
Section 33. Bond.
Any officer or employee, if required by the directors, shall give bond in
such sum and with such security as the directors may require for the faithful
performance of his duties.
Section 34. Signing Checks and Other Instruments.
The directors are authorized to determine or provide the method of
determining how checks, notes, bills of exchange and similar instruments shall
be signed, countersigned or endorsed.
Section 35. Management Executive Committee.
(a) At the Effective Time, a Management Executive Committee of the
Corporation shall be established and shall consist of at least eight members,
one-half of whom shall be selected by the Chairman of the Board and Chief
Executive Officer of Mid Am immediately prior to the Effective Time (the "Mid Am
Management Executive Committee Members") and one-half of whom shall be selected
by the President and Chief Executive Officer of the Corporation immediately
prior to the Effective Time (the "Bancshares Management Executive Committee
Members"). For a period of three years after the Effective Time, in the event
that a Mid Am Management Executive Committee Member or a Bancshares Management
Executive Committee Member or a member of the Management Executive Committee
otherwise selected as set forth herein shall resign or no longer serve, (i) if
such member shall be a Mid Am Management Executive Committee Member or shall
have been selected by the Mid Am Directors and nominees of the Mid Am Directors
serving as directors, then the Mid Am Directors and nominees of the Mid Am
Directors serving as directors shall have the exclusive right to select an
individual to fill such vacancy and (ii) if such member shall be a Bancshares
Management Executive Committee Member or shall have been selected by the
Bancshares Directors and nominees of the Bancshares Directors serving as
directors, then the Bancshares Directors and nominees of the Bancshares
Directors serving as directors shall have the exclusive right to select an
individual to fill such vacancy. Mid Am Directors and the nominees of Mid Am
Directors serving as directors shall have the exclusive right to remove any Mid
Am Management Executive Committee Member or any member of the Management
Executive Committee they have selected. Bancshares Directors and the nominees
of Bancshares Directors serving as directors shall have the exclusive right to
remove any Bancshares Management Executive Committee member or any member of the
Management Executive Committee they have selected. Members of the Management
Executive Committee shall either be members of the Board of Directors of the
Corporation or employees of the Corporation or its subsidiaries. After the
Effective Time, the Board of Directors may appoint additional members of the
Management Executive Committee other than as set forth in the preceding
sentences and the Board of Directors shall have the exclusive right to remove
any such member it has selected.
(b) Subject to the authority of the Board of Directors and the officers
of the Corporation, the activities of the Management Executive Committee will
include, but not be limited to, such matters as facilitating the integration of
the Corporation and Mid Am and their respective operating philosophies; making
recommendations, as appropriate, with respect to the Corporation's management
structure and operations; engaging in strategic planning activities; and
reviewing recommendations of employee committees regarding employee benefits,
shareholder services and data processing operations. The Management Executive
Committee may engage in such other activities as the Board of Directors may from
time to time prescribe.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 36. Indemnification.
The Corporation shall indemnify any director or officer and any former
director or officer of the Corporation and any such director or officer who is
or has served at the request of the Corporation as a director, officer or
trustee of another corporation, partnership, joint venture, trust or other
enterprise (and his heirs, executors and administrators) against expenses,
including attorney's fees, judgments, fines and amounts paid in settlement,
actually and reasonably incurred by him by reason of the fact that he is or was
such director, officer or trustee in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative to the full extent permitted by applicable law. The
indemnification provided for herein shall not be deemed to restrict the power of
the Corporation (i) to indemnify employees, agents and others to the extent not
prohibited by law, (ii) to purchase and maintain insurance or furnish similar
protection on behalf of or for any person who is or was a director, officer or
employee of the Corporation, or any person who is or was serving at the request
of the Corporation as a director, officer, trustee, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against any
liability asserted against him or incurred by him in any such capacity or
arising out of his status as such, and (iii) to enter into agreements with
persons of the class identified in clause (ii) above indemnifying them against
any and all liabilities (or such lesser indemnification as may be provided in
such agreements) asserted against or incurred by them in such capacities.
PROVISIONS IN ARTICLES OF INCORPORATION
Section 37. Provisions in Articles of Incorporation.
These Regulations are at all times subject to the provisions of the
Articles of Incorporation of the Corporation as the same may be in effect from
time to time, including without limitation the provisions of said Articles of
Incorporation granting the holders of "Serial Shares" the right to elect two
members of the Board of Directors during the pendency of any default in
dividends on the Serial Shares as said terms are defined in said Articles of
Incorporation.
LOST CERTIFICATES
Section 38. Lost Certificates.
The directors may direct a new certificate to be issued in place of any
certificate theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon such terms and conditions as they may deem advisable
upon satisfactory proof of loss or destruction thereof. When authorizing such
issue of a new certificate, the directors may, as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
certificate, or his legal representative, to advertise the same in such manner
as the directors shall require and/or to give the Corporation a suitable bond or
indemnity against loss by reason of the issuance of a new certificate.
RECORD DATES
Section 39. Record Dates.
For any lawful purpose, including, without limitation, the determination
of the shareholders who are entitled to: (i) receive notice of or to vote at a
meeting of shareholders; (ii) receive payment of any dividend or distribution;
(iii) receive or exercise rights of purchase of or subscription for, or exchange
or conversion of, shares or other securities, subject to contract rights with
respect thereto; or (iv) participate in the execution of written consents,
waivers, or releases, the directors may fix a record date which shall not be a
date earlier than the date on which the record date is fixed and, in the cases
provided for in clauses (i), (ii) and (iii) above, shall not be more than sixty
(60) nor fewer than ten (10) days, unless the Articles of Incorporation specify
a shorter or a longer period for such purpose, preceding the date of the meeting
of the shareholders, or the date fixed for the payment of any dividend or
distribution, or the date fixed for the receipt or the exercise of rights, as
the case may be.
AMENDMENTS
Section 40. Amendments.
(a) These Regulations may be altered, changed or amended in any respect
or superseded by new Regulations in whole or in part, by the affirmative vote of
the holders of a majority of the Voting Shares present in person or by proxy at
an annual or special meeting called for such purpose.
(b) Notwithstanding the provisions of Section 40(a) hereof and
notwithstanding the fact that a lesser percentage may be specified by law or in
any agreement with any national securities exchange or any other provision of
these Regulations, the amendment, alteration, change or repeal of, or adoption
of any provisions inconsistent with, Sections 7, 9 or 10 of these Regulations
shall require the affirmative vote of at least seventy-five (75) percent of the
Voting Shares, present in person or by proxy, at any annual meeting or special
meeting duly called for the purpose of acting on any such amendment, alteration,
change, repeal or adoption, unless such amendment, alteration, change, repeal or
adoption has been recommended by at least two-thirds of the Board of Directors
of the Corporation then in office, in which event the provisions of Section
40(a) hereof shall apply.
EXHIBIT 10.4
FIRST AMENDMENT
OF THE
SKY FINANCIAL GROUP, INC. EMPLOYEE STOCK OWNERSHIP PENSION PLAN
(As Amended and Restated Effective January 1, 1999)
WHEREAS, Sky Financial Group, Inc. (the "Company") maintains the Sky
Financial Group, Inc. Employee Stock Ownership Pension Plan (the "Plan"); and
WHEREAS, the Company previously amended the Plan and now considers it
desirable to further amend the Plan;
NOW, THEREFORE, pursuant to the power reserved to the Company by Section
9.01 of the Plan, and by virtue of the authority delegated to the undersigned
officer by resolution of the Company's Board of Directors, the Plan, as
previously amended, is hereby further amended, effective as of June 30, 1999,
in the following particulars:
1. By adding the following to the end of the second paragraph of the
Introduction of the Plan:
"Effective as of June 30, 1999, the portion of the Sky Financial Group, Inc.
Profit Sharing and 401(k) Plan (the 'Sky 401(k) Plan') that was invested in
Qualifying Employer Securities and designed to qualify as a stock bonus plan
and an employee stock ownership plan under Code Section 4975(e)(7) was spun-off
from the Sky 401(k) Plan and merged into this Plan. In addition, effective as
of September 30, 1999, the portion of the Sky 401(k) Plan that had been spun-
off from the frozen Mid Am, Inc. Profit Sharing Plan and merged into the Sky
401(k) Plan, and that was invested in Sky Financial Group, Inc. common stock,
was spun-off from the Sky 401(k) Plan and merged into this Plan."
2. By substituting the following for Section 1.30 of the Plan:
"1.30 Valuation Date. 'Valuation Date' shall mean each business day on
which the Nasdaq Stock Market is open."
3. By adding the following to the Plan as a new Section 3.03,
immediately following Section 3.02 thereof:
"3.03 Transfer of ESOP Accounts from Sky Financial Group, Inc. Profit Sharing
and 401(k) Plan Effective June 30, 1999. Effective as of June 30, 1999, the
portion of the Sky Financial Group, Inc. Profit Sharing and 401(k) Plan (the
'Sky 401(k) Plan') that was invested in Qualifying Employer Securities and
designed to qualify as a stock bonus plan and an employee stock ownership
plan under Code Section 4975(e)(7) was spun-off from the Sky 401(k) Plan and
merged into this Plan. With respect to those Participants for whom an amount
was transferred from the Sky 401(k) Plan pursuant to this Section, the amount
transferred was allocated to his or her Plan Account as of the day of the
transfer."
4. By adding the following to the Plan as a new Section 3.04,
immediately following Section 3.03 thereof:
"3.04 Transfer of Frozen Plan Accounts from Sky Financial Group, Inc. Profit
Sharing and 401(k) Plan Effective September 30, 1999. Prior to September 30,
1999, some participants in the Sky 401(k) Plan had special accounts under the
Sky 401(k) Plan containing assets that had been spun-off from the frozen Mid
Am, Inc. Profit Sharing Plan and merged into the Sky 401(k) Plan, and that were
invested in Sky Financial Group, Inc. common stock (the 'Frozen Plan
Accounts'). Effective as of September 30, 1999, the portion of the Sky 401(k)
Plan containing those Frozen Plan Accounts was spun-off from the Sky 401(k)
Plan and merged into this Plan. With respect to those Participants for whom an
amount was transferred from the Sky 401(k) Plan pursuant to this Section, the
amount transferred was allocated to the Participant's Plan Account as of the
day of the transfer."
5. By adding the following to the Plan as a new Section 6.09,
immediately following Section 6.08 thereof:
"6.09 In-Service Distributions for Certain Participants. Participants for
whom an amount was transferred pursuant to Section 3.03 (the 'Special
Participants') have the additional hardship distribution right described in
this Section 6.09 with regard to that amount transferred to their Account under
Section 3.03 (the 'Transferred Amount'). The Plan Administrator may direct the
Trustee to make an in-service distribution of the nonforfeitable portion of the
Transferred Amount in a Special Participant's Account to the Special
Participant on account of a financial need (excluding (i) amounts credited to
the Transferred Amount and transferred to such Account within the last two
years, if the Special Participant has participated in the Plan less than five
years and (ii) amounts credited to the Transferred Amount on or after January
1, 1999) in accordance with the following terms and conditions:
(a) The distribution must be on account of a financial need due
to the purchase (excluding mortgage payments) of a principal residence for the
Special Participant. Distributions pursuant to this section are subject to the
spousal consent requirements contained in Code Sections 401(a)(11) and 417.
(b) A distribution will be considered as necessary to satisfy a
financial need of the Participant only if:
(1) the Participant has obtained all available distributions,
other than hardship distributions, under this Plan and all other plans
maintained by the Employer;
(2) the Participant shall not be permitted to make compensation
deferral contributions under any plan of the Employer for a period of 12 months
after the receipt of the hardship distribution; and
(3) the distribution is not in excess of the amount of the
financial need."
6. By adding the following to the Plan as a new Section 6.10,
immediately following Section 6.09 thereof:
"6.10 Repayment of Loans for Certain Participants. Some Participants for whom
an amount was transferred pursuant to Section 3.03 or Section 3.04 (the
'Special Transfer Participants') had a plan loan outstanding against the amount
transferred at the time of the transfer. A Special Transfer Participant will
be permitted to repay his or her loan to this Plan according to the terms of
the promissory note he or she signed, and subject to the following provisions:
(a) The Plan Administrator or the Trustee shall be entitled to
exercise all legal and equitable rights available to it in order to enforce the
collection of any unpaid loan balance.
(b) If any loan to a Special Transfer Participant is unpaid on the
date that the Participant, or his beneficiary or estate, becomes entitled to
receive benefits from the Trust, such unpaid portion shall, as of that date,
become due and the amount thereof, together with any unpaid interest thereon,
shall be deducted from any benefits that the Participant, his beneficiary or
his estate otherwise would have been entitled to receive.
(c) All loans shall be subject to such administrative procedures
and other rules as the Plan Administrator deems necessary.
Except in the limited circumstances described in this Section 6.10 for
loan repayments, loans to Participants shall not be permitted under the Plan."
* * *
IN WITNESS WHEREOF, on behalf of the Company, the undersigned officer has
executed this amendment this 21st day of October, 1999.
SKY FINANCIAL GROUP, INC.
/s/ W. Granger Souder
By: W. Granger Souder
Its: Executive Vice President / General Counsel
SKY FINANCIAL GROUP, INC. EMPLOYEE STOCK OWNERSHIP PENSION PLAN
(As Amended and Restated Effective January 1, 1999)
EXECUTION PAGE
IN WITNESS WHEREOF, on behalf of Sky Financial Group, Inc., the
undersigned officer has executed this amendment and restatement of the Sky
Financial Group, Inc. Employee Stock Ownership Pension Plan, effective
January 1, 1999.
Dated this 30th day of December 1998.
SKY FINANCIAL GROUP, INC.
/s/ W. Granger Souder
By: W. Granger Souder
Its: Executive Vice President/
General Counsel
(Seal)
SKY FINANCIAL GROUP, INC. EMPLOYEE STOCK OWNERSHIP PENSION PLAN
(As Amended and Restated Effective January 1, 1999)
Table of Contents
ARTICLE I
DEFINITIONS ............................................ 1
1.01 Annual Compensation .............................. 1
1.02 Annuity Starting Date ............................ 2
1.03 Applicable Period ................................ 2
1.04 Break in Service ................................. 2
1.05 Code ............................................. 2
1.06 Company .......................................... 2
1.07 Company Stock .................................... 3
1.08 Disability ....................................... 3
1.09 Employee ......................................... 3
1.10 Employer ......................................... 3
1.11 Entry Date ....................................... 3
1.12 ERISA ............................................ 3
1.13 ESOP ............................................. 3
1.14 Hour of Service .................................. 4
1.15 Named Fiduciary .................................. 4
1.16 Normal Retirement Age ............................ 4
1.17 Normal Retirement Date ........................... 4
1.18 Participant ...................................... 4
1.19 Plan ............................................. 5
1.20 Plan Administrator ............................... 5
1.21 Plan Year ........................................ 5
1.22 Qualified Election ............................... 5
1.23 Qualified Joint and Survivor Annuity ............. 5
1.24 Qualified Pre-Retirement Survivor Annuity ........ 5
1.25 Qualifying Employer Securities ................... 5
1.26 Related Entity ................................... 5
1.27 Trust ............................................ 5
1.28 Trustee .......................................... 5
1.29 Trust Fund ....................................... 6
1.30 Valuation Date ................................... 6
1.31 Year of Service .................................. 6
ARTICLE II
ELIGIBILITY ............................................ 7
2.01 Eligibility ...................................... 7
2.02 Eligibility Upon Re-employment ................... 7
2.03 Participation Upon Change of Job Status .......... 7
ARTICLE III
CONTRIBUTIONS .......................................... 8
3.01 Employer Contributions ........................... 8
3.02 Special Rules Relating to Veterans
Re-employment Rights Under USERRA ............. 8
ARTICLE IV
ALLOCATIONS ............................................ 10
4.01 Participant Accounts ............................. 10
4.02 Allocation of Employer Contributions ............. 10
4.03 Allocation of Investment Gain or Loss ............ 10
4.04 Allocation of Cash Dividends ..................... 10
4.05 Annual Report to Participants .................... 10
ARTICLE V
BENEFITS TO PARTICIPANTS ............................... 11
5.01 Upon Retirement or Disability .................... 11
5.02 Upon Death ....................................... 11
5.03 Nonforfeitable Interest Upon Termination
of Employment ................................. 11
5.04 October 2, 1998 Change in Control ................ 12
5.05 Forfeiture Upon Termination of Employment ........ 12
ARTICLE VI
DISTRIBUTIONS .......................................... 14
6.01 Commencement of Benefits ......................... 14
6.02 Payment of Benefits .............................. 14
6.03 Optional Forms of Benefit ........................ 14
6.04 Definitions ...................................... 15
6.05 Mandatory Commencement of Benefits ............... 17
6.06 Distributions After Death of a Participant ....... 18
6.07 Special ESOP Distribution Requirements ........... 18
6.08 Right to Have Accounts Transferred ............... 19
ARTICLE VII
LIMITATION ON CONTRIBUTIONS AND BENEFITS ............... 21
7.01 Definitions ...................................... 21
7.02 Limitation on Annual Additions ................... 21
7.03 Limitation of Benefits Under All Plans ........... 22
ARTICLE VIII
TRUST FUND ............................................. 23
8.01 Cash Dividend Option ............................. 23
8.02 Participants' Right to Vote Company Stock ........ 23
8.03 Diversification of Employer Securities
Investments ................................... 23
ARTICLE IX
AMENDMENT OR TERMINATION ............................... 25
9.01 Amendment ........................................ 25
9.02 Plan Termination or Discontinuance of
Contributions ................................. 25
9.03 Merger, Consolidation or Transfer of Assets ...... 25
ARTICLE X
ADMINISTRATION ......................................... 26
10.01 Plan Administrator's Powers and Duties ........... 26
10.02 Records and Reports .............................. 26
10.03 Committee ........................................ 26
10.04 Payment of Expenses .............................. 27
10.05 Claims Procedure ................................. 27
ARTICLE XI
PARTICIPATING EMPLOYERS ................................ 28
11.01 Commencement ..................................... 28
11.02 Termination ...................................... 28
11.03 Single Plan ...................................... 28
11.04 Delegation of Authority .......................... 28
11.05 Disposition of Assets or Subsidiary .............. 28
ARTICLE XII
MISCELLANEOUS .......................................... 29
12.01 Participant's Rights ............................. 29
12.02 Assignment or Alienation of Benefits ............. 29
12.03 Reversion of Funds to Employer ................... 29
12.04 Action by Company ................................ 30
12.05 Allocation of Responsibilities ................... 30
12.06 Construction of Plan ............................. 30
12.07 Gender and Number ................................ 30
12.08 Headings ......................................... 30
12.09 Voting Company Stock ............................. 30
12.10 Payment of Expenses .............................. 31
12.11 Incapacity ....................................... 31
12.12 Employee Data .................................... 31
12.13 Reduction for Overpayment ........................ 31
12.14 Invalidity of Certain Provisions ................. 31
12.15 Plan Supplements ................................. 31
ARTICLE XIII
EXEMPT LOAN ............................................ 32
13.01 Definition of Exempt Loan ........................ 32
13.02 Requirements for an Exempt Loan .................. 32
13.03 Right of First Refusal ........................... 33
13.04 Annual Additions ................................. 33
ARTICLE XIV
TOP HEAVY PROVISIONS ................................... 34
14.01 Definitions ...................................... 34
14.02 Determination of Top Heavy Status ................ 35
14.03 Combination of Defined Benefit and
Defined Contribution Plan ..................... 35
14.04 Minimum Contribution ............................. 35
14.05 Minimum Vesting .................................. 36
SKY FINANCIAL GROUP, INC. EMPLOYEE STOCK OWNERSHIP PENSION PLAN
(As Amended and Restated Effective January 1, 1999)
INTRODUCTION
Prior to October 2, 1998, Mid Am, Inc. ("Mid Am") maintained the Mid Am
Inc. Employee Stock Ownership Pension Plan (the "Mid Am Plan"). Mid Am merged
into Citizens Bancshares, Inc. ("Citizens") effective October 2, 1998 (the
"Merger Date"), with the resulting corporation renamed Sky Financial Group,
Inc. (the "Company"). The Company became the sponsor of the Mid Am Plan on the
Merger Date, and hereby amends and restates the Mid Am Plan effective January
1, 1999 in the form of this Sky Financial Group, Inc. Employee Stock
Ownership Pension Plan (the "Plan"). Effective on the January 1, 1999
amendment and restatement date, the eligible employees of Citizens and The Ohio
Bank, and the eligible employees of their respective subsidiaries, become
eligible to participate in the Plan.
The Company intends this Plan to be a money purchase pension plan and an
employee stock ownership plan under Code Section 4975(e)(7). The Plan is
intended to be invested primarily in qualifying employer securities as defined
in ERISA Section 407(d)(5), including Qualifying Employer Securities. At any
time, up to 100% of the assets of the Plan may be invested in qualifying
employer securities as defined in ERISA Section 407(d)(5), including
Qualifying Employer Securities.
The Plan was originally established as the Mid Am, Inc. Employee Stock
Ownership Pension Plan and originally became effective on July 1, 1989. Mid Am
amended the Plan from time to time and last amended and restated the Plan
effective January 1, 1995.
The Company intends that the Plan, together with the Trust Agreement,
meet all the pertinent requirements of the Internal Revenue Code of 1986, as
amended, and the Employee Retirement Income Security Act of 1974, as amended,
and shall be interpreted, wherever possible, to comply with the terms of the
Code and ERISA.
ARTICLE I
DEFINITIONS
In addition to other terms defined elsewhere in this Plan document, the
following terms shall have the following meanings:
1.01 Annual Compensation. "Annual Compensation" means a Participant's
earned income, wages, salaries, fees for professional services, and other
amounts received for personal services actually rendered in the course of
employment with the Employers (including, but not limited to, commissions paid
to salesmen, compensation for services on the basis of a percentage of profits,
commissions on insurance premiums, tips and bonuses), but excluding the
following:
(1) Employer contributions to a plan of deferred compensation,
including this Plan, that are not included in the Employee's gross income for
the taxable year in which contributed, Employee contributions under a
simplified employee pension plan to the extent such contributions are
deductible by the Employee or any distributions from a plan of deferred
compensation.
(2) amounts realized from the exercise of a non-qualified stock
option, or when restricted stock (or property) held by the Employee either
becomes freely transferable or is no longer subject to a substantial risk of
forfeiture;
(3) amounts realized from the sale, exchange or other disposition
of stock acquired under a qualified stock option;
(4) reimbursements or other expense allowances, fringe benefits
(cash and noncash), moving expenses, deferred compensation and welfare benefits
(even if included in gross income); and
(5) other amounts that received special tax benefits or
contributions made by the Employer (whether or not under a salary reduction
agreement) towards the purchase of an annuity described in Code Section 403(b)
(whether or not the amounts are actually excludible from the gross income of
the Employee).
Annual Compensation includes a Participant's voluntary reductions in cash
consideration made in accordance with arrangements established by the Employer
under Code Section 125 and Code Section 401(k).
In addition to other applicable limitations set forth in the Plan, and
notwithstanding any other provision of the Plan to the contrary, the Annual
Compensation of each Employee taken into account under the Plan shall not
exceed the OBRA '93 annual compensation limit. The OBRA '93 annual
compensation limit is $150,000, as adjusted by the Commissioner of Internal
Revenue for the cost-of-living in accordance with Code Section 401(a)(17)(B).
The cost-of-living adjustment in effect for a calendar year applies to any
period, not exceeding twelve (12) months, over which Compensation is determined
(determination period) beginning in such calendar year. If a determination
period consists of fewer than twelve (12) months, the OBRA '93 annual
compensation limit will be multiplied by a fraction, the numerator of which is
the number of months in the determination period, and the denominator of which
is 12. Any reference in this Plan to the limitation under Code Section
401(a)(17) shall mean the OBRA '93 annual compensation limit set forth in this
provision.
1.02 Annuity Starting Date. "Annuity Starting Date" is defined in
Section 6.04.
1.03 Applicable Period. The "Applicable Period" is defined in Section
6.04.
1.04 Break in Service. "Break in Service" means a Plan Year in which
an Employee has not completed more than 500 Hours of Service.
1.05 Code. "Code" means the Internal Revenue Code of 1986, as amended.
1.06 Company. "Company" means Sky Financial Group, Inc.
1.07 Company Stock. "Company Stock" means the common stock of Sky
Financial Group, Inc.
1.08 Disability. "Disability" means a permanent physical or mental
condition of a Participant resulting from a bodily injury or disease or mental
disorder that renders the Participant eligible for a disability award under the
Social Security Act.
1.09 Employee. "Employee" means each and every person employed by an
Employer in a common law employer-employee relationship; provided that, only
individuals who are paid as common law employees from the payroll of an
Employer shall be deemed to be Employees for purposes of the Plan. No person
who is an independent contractor shall be eligible to participate in this Plan.
No person who is a "leased employee" shall be eligible to participate in this
Plan. "Leased employee" shall mean any person who is not an Employee but who
provides services to an Employer if:
(a) such services are provided pursuant to an agreement between
the Employer and any leasing organization;
(b) such person has performed services for the Employer (or for
the Employer and any related person within the meaning of Section 414(n)(6) of
the Code) on a substantially full-time basis for a period of at least one (1)
year; and
(c) such services are performed under the primary direction or
control of the Employer.
Except as provided below, a "leased employee" shall be treated as an
employee of an Employer for nondiscrimination testing and other purposes
specified in Code Section 414(n). However, contributions or benefits provided
by the leasing organization, which are attributable to services performed for
an Employer, shall be treated as provided by the Employer. A "leased
employee" shall not be treated as an employee if such "leased employee" is
covered by a money purchase pension plan of the leasing organization, and the
number of leased employees does not constitute more than twenty percent (20%)
of the Employers' "non-highly compensated work force" as defined by Code
Section 414(n)(5)(C). The money purchase pension plan of the leasing
organization must provide benefits equal to or greater than: (i) a non-
integrated employer contribution rate of at least ten percent (10%) of
compensation, (ii) immediate participation, and (iii) full and immediate
vesting.
1.10 Employer. "Employer" means any Related Entity with respect to the
Company that adopts this Plan pursuant to Article XI. The term also includes
the Company, unless the context otherwise requires.
1.11 Entry Date. "Entry Date" means the first day of each Plan Year.
1.12 ERISA. "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended.
1.13 ESOP. "ESOP" means an Employee Stock Ownership Plan as defined in
Code Section 4975(e)(7).
1.14 Hour of Service. "Hour of Service" means:
(a) Each hour for which an Employee is directly or indirectly paid or
entitled to payment by either the Company or the Employer for the performance
of duties;
(b) Each hour for which an Employee is directly or indirectly paid, or
entitled to payment, by either the Company or the Employer for reasons (such as
vacation, sickness, disability, or similar leave of absence) other than for the
performance of duties, and for military leaves, maternity/paternity leaves or
leaves for jury duty; and
(c) Each hour for which back pay, irrespective of mitigation of
damages, has been either awarded or agreed to by either the Company or the
Employer provided that the same Hours of Service shall not be credited under
this Section (c) and Sections (a) or (b) above, as the case may be.
(d) An Employee shall also be credited with one Hour of Service for
each hour that otherwise would normally have been credited to the Employee but
during which such Employee is absent from work for any period (i) by reason of
the Employee's pregnancy, (ii) by reason of the birth of the Employee's child,
(iii) by reason of the placement of a child with such Employee in connection
with an adoption of such child by the Employee or (iv) for purposes of caring
for a child for a period beginning immediately following birth or placement,
provided that an Employee shall be credited with no more than 501 Hours of
Service on account of any single continuous period of absence by reason of any
such pregnancy, birth or placement and provided further that Hours of Service
credited to an individual on account of such a period of absence shall be
credited only for the Break in Service computation period in which such absence
begins if an Employee would otherwise fail to be credited with 501 or more
Hours of Service in such period or, in any other case, in the immediately
following computation period.
Hours of Service computed hereunder shall be computed in accordance with
Section 2530.200b-2 (b) and (c) of the Department of Labor Regulations, which
is incorporated herein by reference. In no event shall more than 501 Hours of
Service be credited for any one continuous period of absence during or for
which the employee receives payment for nonperformance of duties whether or not
such period occurs in a single computation period.
1.15 Named Fiduciary. "Named Fiduciary" means a fiduciary named in
this document, or who, pursuant to a procedure specified in the Plan, is
identified as a Named Fiduciary.
1.16 Normal Retirement Age. "Normal Retirement Age" means age sixty-
five (65) years.
1.17 Normal Retirement Date. "Normal Retirement Date" means the first
day of the month coinciding with or next following the date on which a
Participant attains Normal Retirement Age.
1.18 Participant. "Participant" means an Employee who has satisfied
the eligibility requirements for the participation in the Plan.
1.19 Plan. "Plan" means the Sky Financial Group, Inc. Employee Stock
Ownership Pension Plan.
1.20 Plan Administrator. "Plan Administrator" means the Company,
unless the Company has appointed a Committee as the Plan Administrator pursuant
to Article XI hereof. The Plan Administrator shall be the Plan's Named
Fiduciary. The Plan Administrator shall have no responsibility for the custody
or management of the Trust Fund.
1.21 Plan Year. "Plan Year" means the 12-month period beginning on
January 1 and ending on the following December 31 of each year.
1.22 Qualified Election. "Qualified Election" is defined in Section
6.04.
1.23 Qualified Joint and Survivor Annuity. "Qualified Joint and
Survivor Annuity" is defined in Section 6.04.
1.24 Qualified Pre-Retirement Survivor Annuity. "Qualified Pre-
Retirement Survivor Annuity" is defined in Section 6.04.
1.25 Qualifying Employer Securities. "Qualifying Employer Securities"
means an Employer security that is common stock issued by the Company having a
combination of voting power and dividend rights equal to or in excess of the
class of Company common stock having the greatest voting power and the class of
Company common stock having the greatest dividend rights.
1.26 Related Entity. "Related Entity" means: (i) all corporations that
are members with the Company in a controlled group of corporations within the
meaning of Code Section 1563(a), determined without regard to Code Sections
1563(a)(4) and (e)(3)(c); (ii) all trades or businesses (whether or not
incorporated) that are under common control with the Company as determined by
regulations promulgated under Code Section 414(c); (iii) all trades or
businesses that are members of an affiliated service group with the Company
within the meaning of Code Section 414(m); and (iv) any other entity required
to be aggregated with the Company in accordance with regulations under Code
Section 414(o); provided, however, for purposes of Article VII, the definition
shall be modified to substitute the phrase "more than 50%" for the phrase "at
least 80%" each place it appears in Code Section 1563(a)(1). The term "Related
Entity" shall include the predecessor of the Company and any Related Entity.
1.27 Trust. "Trust" means one or more Trusts established to fund the
Plan. The Trustee shall receive any contributions paid to it. All
contributions so received together with the income therefrom shall be held,
managed and administered in the Trust pursuant to the terms of the Plan.
1.28 Trustee. "Trustee" means such individuals or entities, appointed
by the Company, which have authority and discretion to manage and control all
or a specified portion of the assets of the Plan. Any Trustee shall be a Named
Fiduciary.
1.29 Trust Fund. "Trust Fund" means all assets of whatever kind or
nature held by the Trustee pursuant to the terms of the Plan, unless indicated
otherwise. The Trust Fund may consist of more than one trust agreement with
more than one Trustee.
1.30 Valuation Date. "Valuation Date" shall the last business day on
which the Nasdaq Stock Market is open in each calendar quarter, or more
frequently, as the Plan Administrator designates.
1.31 Year of Service. For purposes of determining eligibility to
participate in the Plan in accordance with Section 2.01 hereof, "Year of
Service" a 12-consecutive month period, commencing on the date of an Employee's
first Hour of Service with an Employer, during which the Employee is
continuously employed by an Employer.
(a) For purposes of determining a Participant's nonforfeitable interest
pursuant to Section 5.03, "Year of Service" means a Plan Year during which such
participant is credited with at least 1,000 Hours of Service. For purposes of
Section 5.03, a Participant will be credited with a Year of Service if the
Participant completes 1,000 Hours of Service during said period, even though
the Participant is not employed for the full 12-month period.
(b) An Employee who does not initially meet the eligibility
requirements of Section 2.01 and later becomes a Participant, will have all
Years of Service counted for Plan purposes, both prior to and subsequent to
becoming a Participant.
(c) In the event a terminated Participant is re-hired, all Years of
Service with an Employer shall be counted for purposes of Sections 2.01 and
5.03 hereof.
(d) Solely for purposes of determining a Participant's nonforfeitable
interest pursuant to Section 5.03 hereof, "Year of Service" means any Plan Year
during which an individual was a leased employee (as defined in Code Section
414(n)) of the Company or any entity that must be aggregated with the Company
under Code Sections 414(b), (c) or (m) and during which the individual earned
at least 1,000 Hours of Service.
(e) If a Participant who has no nonforfeitable rights under Article V
has five consecutive Breaks in Service, then the Plan shall not take into
account Years of Service after such consecutive Breaks in Service for purposes
of determining the nonforfeitable percentage of the Participant's Account that
accrued before the Break in Service.
(f) If a Participant who has no nonforfeitable rights incurs a Break in
Service for the greater of (1) five or more consecutive Plan Years or (2) the
Participant's accumulated Years of Service prior to the Break in Service, then
the Plan shall not take into account Years of Service prior to such consecutive
Breaks in Service for the purpose of determining the nonforfeitable percentage
of the Participant's Accounts that accrues after the Break in Service.
ARTICLE II
ELIGIBILITY
2.01 Eligibility. Subject to the terms of the Plan, each Employee who
was a Participant in (1) the Mid Am, Inc. Employee Stock Ownership Pension
Plan, (2) the Citizens Bancshares, Inc. Amended and Restated Profit Sharing
Plan, (3) the Century National Bank and Trust Company Amended and Restated
Profit Sharing/401(k) Plan, or (4) The Ohio Bank Employees' Profit Sharing
Plan, as of December 31, 1998, shall participate in the Plan on and after
January 1, 1999. Each other Employee shall participate in the Plan on the
first Entry Date coinciding with or next preceding the date the Employee meets
all of the following requirements:
(a) the Employee is credited with one (1) Year of Service;
(b) the Employee has attained age eighteen (18) years;
(c) the Employee is not a member of a collective bargaining unit
unless the collective bargaining agreement between the Employer and the union
provides for participation in this Plan; and
(d) the Employee is not a 100 percent commissioned salesperson.
2.02 Eligibility Upon Re-employment. A former Participant, or former
Employee who met the eligibility requirements of Section 2.01 for participation
in the Plan at the time he or she terminated employment, and who is
subsequently rehired, shall participate in the Plan on the Entry Date
coinciding with or next following his or her re-employment by the Employer, if
the Employee then meets the requirements for participation described in Section
2.01.
2.03 Participation Upon Change of Job Status. An individual who has
satisfied the requirements of Section 2.01(a) or (b) but who is not a
Participant because he or she is not an Employee or because he or she does not
satisfy Section 2.01(c) or (d), shall become a Participant immediately (but not
sooner than the Entry Date on which the individual would have become a
Participant had he been an Employee and had satisfied Section 2.01(c) or (d) at
all times) upon becoming an Employee and upon satisfying Section 2.01(c) and
(d).
ARTICLE III
CONTRIBUTIONS
3.01 Employer Contributions. The Employer shall contribute to the
Trust Fund on behalf of each Participant, including a Participant who continues
in the employ of the Employer after his Normal Retirement Date, an amount equal
to three percent (3%) of his Annual Compensation. For this purpose, Annual
Compensation shall (i) only include compensation earned while the Participant
was an Employee of an Employer, and (ii) include compensation for the entire
Plan Year, even if the Participant first became a Participant during the Plan
Year. The Employer shall only make a contribution on behalf of a Participant
if the Participant was employed by the Employer on the last day of such Plan
Year and was credited with at least 1,000 Hours of Service during such Plan
Year, except that the Employer shall make a contribution on behalf of a
Participant who died, retired or incurred a Disability during such Plan Year.
Employer contributions will be paid in cash or shares of Company Stock.
Shares of Company Stock will be valued at their current fair market value. To
the extent that the Trust has obligations arising from an extension of credit
to the Trust which is payable in cash within one year of the date the
Employer's contribution is made, such contribution will be paid to the Trust in
cash.
The annual contribution of the Employer shall be made to the Trustee in
full within such time as may be permitted for Federal Income tax purposes to
obtain a deduction for the contribution by the Employer for such taxable year.
3.02 Special Rules Relating to Veterans Re-employment Rights Under
USERRA. The following special provisions shall apply to an Employee or
Participant who is re-employed in accordance with the re-employment provisions
of the Uniformed Services Employment and Re-employment Rights Act (USERRA)
following a period of qualifying military service (as determined under USERRA):
(a) Each period of qualifying military service served by an Employee or
Participant shall, upon such re-employment with an Employer, be deemed to
constitute service with the Employer for all purposes of the Plan.
(b) If the Employer made any Employer Contributions to the Plan during
the period of qualifying military service, the Employer shall make an Employer
Contribution on behalf of the Participant upon the Participant's re-employment
following his period of qualifying military service, in the amount that would
have been made on behalf of such Participant had the Participant been employed
during the period of qualifying military service.
(c) The Plan shall not (i) credit earnings to a Participant's Accounts
with respect to any Contribution before such contribution is actually made, or
(ii) make up any allocation of forfeitures, with respect to the period of
qualifying military service.
(d) For all purposes under the Plan, including an Employer's liability
for making contributions on behalf of a re-employed Participant as described
above, the Participant shall be treated as having received Annual Compensation
from the Employer based on the rate of Annual Compensation the Participant
would have received during the period of qualifying military service, or if
that rate is not reasonably certain, on the basis of the Participant's average
rate of Annual Compensation during the 12-month period immediately preceding
such period.
ARTICLE IV
ALLOCATIONS
4.01 Participant Accounts. The Plan Administrator shall direct the
Trustee to maintain such separate Accounts for each Participant as the Plan
Administrator shall from time to time determine. The amount of the Employer's
contribution to the Trust Fund pursuant to Section 3.01 hereof and allocated
pursuant to Section 4.02 hereof, together with such Participant's share of all
income, gains and accumulations therefrom, shall be credited and losses debited
to each Participant's Account.
4.02 Allocation of Employer Contributions. Effective as of the last
day of each Plan Year, any amount contributed by the Employer pursuant to
Section 3.01 hereof shall be allocated and credited to the Account of each
eligible Participant as provided in Section 3.01 hereof. An allocation will be
made only if the Participant was employed by the Employer on the last day of
such Plan Year and was credited with at least 1,000 Hours of Service during
such Plan Year, except that any Participant who became totally and permanently
disabled, died or retired during such Plan Year will receive an allocation.
4.03 Allocation of Investment Gain or Loss. Any net gain or net loss
resulting from the operation of the Trust for such year shall be allocated by
the Trustee to Participant Accounts in proportion to the value of the
respective interests in the Trust immediately preceding such revaluation.
4.04 Allocation of Cash Dividends. Cash dividends on Company Stock
allocated to a Participant's Account shall be credited to the Participant's
Account.
4.05 Annual Report to Participants. The Plan Administrator shall
notify each Participant in writing of the financial status of his or her
Account as of the last day of each Plan Year.
ARTICLE V
BENEFITS TO PARTICIPANTS
5.01 Upon Retirement or Disability. When a Participant retires on or
after the Participant's Normal Retirement Date, or becomes totally and
permanently disabled, the entire interest in the Participant's Account,
including the amount of any contributions for the Plan Year in which the
Participant's retirement or Disability occurs, shall become nonforfeitable.
The Plan Administrator, in accordance with the provisions of Section 6.01 of
the Plan, shall then direct the Trustee to distribute to such Participant the
entire interest in his or her Account. A Participant's Account shall be
nonforfeitable upon the attainment of Normal Retirement Age.
A Participant who remains in the employment of the Employer after the
Participant's Normal Retirement Date shall continue to participate in the Plan.
No distribution shall be made to the Participant until his or her actual
retirement, subject to the mandatory commencement of benefit provisions of
Section 6.05 hereof.
5.02 Upon Death. Upon the death of a Participant, the entire interest
in the Participant's Accounts, including the amount of any contributions for
the Plan Year in which the Participant's death occurs, shall become
nonforfeitable. The Plan Administrator, in accordance with the provisions of
Article VI of the Plan, shall then direct the Trustee to distribute the entire
interest in the Participant's Accounts to such Participant's designated
beneficiary or beneficiaries. The Plan Administrator may require proper proof
of death and evidence of the right of any person to receive payment of the
entire interest in the Accounts of the deceased Participant as the Plan
Administrator deems desirable and the Plan Administrator's determination shall
be conclusive. The Trustee shall make such distribution as soon as
administratively feasible following the Participant's death and in accordance
with the rules and procedures established by the Plan Administrator.
If the Participant was married at the time of his or her death, the
Trustee shall make all payments to the Participant's spouse in the form of a
Qualified Pre-Retirement Survivor Annuity pursuant to Section 6.02, unless the
Participant has made a Qualified Election. Each Participant, by written
instrument delivered to the Plan Administrator, shall have the unqualified
right to designate, and from time to time change, the beneficiary or
beneficiaries to receive the entire interest in his or her Account in the event
of death, subject to the Qualified Election requirements in Section 6.04(e).
In the event the Participant fails to designate a beneficiary or beneficiaries,
the entire interest in the Participant's Account shall be distributed first to
the Participant's spouse if then living, or second to the Participant's estate.
5.03 Nonforfeitable Interest Upon Termination of Employment. Upon
termination of a Participant's employment for any reason other than retirement,
Disability or death, the Trustee shall, in accordance with the provisions of
Section 6.01 of the Plan and at the instruction of the Plan Administrator,
distribute to the Participant the entire interest then constituting his or her
Account based on the Participant's Years of Service determined in accordance
with the applicable schedule below:
Years of Service Nonforfeitable Interest
Less than 2 0%
2 but less than 3 40%
3 but less than 4 60%
4 but less than 5 80%
5 or more 100%
(a) Any Participant who, prior to January 1, 1999, was a Participant in
the Mid Am Plan, and who has completed at least three Years of Service as of
January 1, 1999, may elect in writing to have his or her nonforfeitable
interest computed under the Plan's five year cliff vesting schedule in effect
prior to January 1, 1999, by the later of: (1) the Participant's termination of
employment, or (2) the date that is 60 days after the day the Plan
Administrator gives written notice of the Plan amendment to the Participant.
(b) In the event the nonforfeitable interest schedule is amended, or
the nonforfeitable interest schedule of an existing plan is amended by the
Plan, then any Participant who has completed at least three Years of Service on
the later of the date the amendment is adopted, or the date the amendment is
effective may elect in writing to have his or her nonforfeitable interest
computed under the prior applicable nonforfeitable interest schedule, beginning
on the date the Plan amendment is adopted and ending on the later of: (1) the
Participant's termination of employment, (2) the date that is 60 days after the
day the Plan amendment is adopted, (3) the date that is 60 days after the day
the Plan amendment becomes effective, or (4) the date that is 60 days after the
day the Plan Administrator gives written notice of the Plan amendment to the
Participant.
5.04 October 2, 1998 Change in Control. Each Participant in the Mid Am
Plan on October 2, 1998, the effective date of the merger of Mid Am into
Citizens, acquired a 100% nonforfeitable interest in his or her Account under
the Mid Am Plan as of that date. The Employer contributions made under the Mid
Am Plan, and under this Plan, on and after October 2, 1998, shall be subject to
the vesting schedule contained in this Article, based on all of the
Participant's Years of Service before and after that date.
5.05 Forfeiture Upon Termination of Employment. If a Participant
terminates employment, and the value of the Participant's vested Account is not
(or at the time of any prior, periodic distribution was not) greater than
$5,000, the Participant will receive a distribution of the value of the entire
vested portion of his or her Accounts and the unvested portion will be treated
as a forfeiture.
(a) If a Participant terminates service and elects to receive the
vested portion of his Accounts pursuant to Article VI of the Plan, the
non-vested portion will be treated as a forfeiture.
(b) If distribution is made to a Participant on account of termination
of employment, which is less than the value of the Participant's Account, prior
to the date on which the Participant has a Break in Service for five
consecutive Plan Years and the Participant returns to employment covered by the
Plan, the Participant's Account shall subsequently be determined without regard
to the portion thereof derived from predistribution employment, provided the
Participant (1) received distribution of the entire present value of the
nonforfeitable portion of his or her Account at the time of distribution, (2)
the amount of the distribution did not exceed the dollar limit under Code
Section 411(a)(11)(A), or the Participant (with spousal consent, if applicable)
voluntarily elected to receive the distribution, and (3) the Participant upon
return to employment covered by the Plan does not repay the full amount of the
distribution before the earlier of suffering five consecutive one year Breaks
in Service, or at the close of the first period of five consecutive one year
Breaks in Service commencing after the distribution. If the Participant makes
a timely repayment, the Participant's Account shall equal the sum of the
repayment and the forfeitable portion of the Participant's Account on the date
of distribution, unadjusted by gains or losses subsequent to the
distribution. Restoration of forfeitures under this paragraph shall be made,
to the extent necessary, first from forfeitures in the Plan Year of repayment
and second from Employer contributions.
(c) If a Participant does not receive a distribution pursuant to
Article VI, the non-vested portion of the Participant's Account will be treated
as a forfeiture on the last day of the Plan Year in which the Participant
terminated employment.
(d) Except as provided in paragraph (b) above, forfeitures will be used
to reduce the contribution due from the Employer for the Plan Year in which the
forfeiture occurs, or the immediately following the Plan Year.
(e) For purposes of this Section 5.05, if a Participant does not have
any nonforfeitable interest in his Accounts, he will be deemed to have received
a distribution of the entire vested portion of his Accounts in accordance with
the provisions of subparagraph (a) above without having submitted any
application for benefits to the Plan Administrator. If such Participant
returns to active service with an Employer prior to incurring five consecutive
Breaks in Service, the Participant will be deemed to have paid back the
distribution and his Accounts will be restored as provided in subparagraph (b)
above.
ARTICLE VI
DISTRIBUTIONS
6.01 Commencement of Benefits. The Plan shall distribute a
Participant's Account as soon as administratively feasible after the
Participant's termination of employment, except as provided below. If the
nonforfeitable portion of the Participant's Account exceeds (or at the time
of any prior, periodic distribution ever exceeded) $5,000, (i) the Plan shall
not distribute the Participant's Account before the Participant attains Normal
Retirement Date unless the Participant consents to such distribution in
writing, and (ii) if the Participant is married on the date the Plan is to
distribute his or her Account, the Plan will not distribute the Participant's
Account without the consent of the Participant and the Participant's spouse
pursuant to a Qualified Election under Section 6.04(e). The Plan Administrator
shall notify the Participant of the right to defer the distribution of his or
her Account, subject to the limitations of Section 6.05 below. The notice of
the right to defer distributions shall also give a general description of the
material features, and an explanation of the relative values, of the normal and
optional forms of benefit available under the Plan in a manner that would
satisfy the notice requirements of Code Section 417(a)(3). The Plan
Administrator must give such notice no less than 30 days and no more than 90
days prior to the Annuity Starting Date, unless the Participant waives the
notice requirement as provided in Code Section 417(a)(7)(B) or the requirements
of Code Section 417(a)(7)(A) are met.
If the Participant does not consent to distribution, the Participant's
Account shall be retained in the Trust Fund until such later date as the
Participant requests distribution. If the Participant does not request
distribution prior to the Participant's Normal Retirement Date or death, the
Plan shall distribute the Participant's Account as soon as administratively
feasible after the Valuation Date next following the first to occur of the
Participant's Normal Retirement Date or death (provided the Plan Administrator
receives notice of the Participant's death).
6.02 Payment of Benefits. The normal form of benefit under the Plan is
the "Qualified Joint and Survivor Annuity," unless the Participant and his or
her spouse execute a "Qualified Election" selecting an optional form of benefit
within the 90-day period ending on the date the Plan is to commence benefit
payments.
If the Participant is married and dies prior to the commencement of his
or her benefits, the Participant's Account shall be used to provide a
"Qualified Pre-Retirement Survivor Annuity" for the Participant's spouse unless
the Participant and his or her spouse execute a "Qualified Election"
selecting another form of distribution, within the "Election Period."
6.03 Optional Forms of Benefit. A Participant may elect to waive the
Qualified Joint and Survivor Annuity and have his or her Account distributed in
one of the following optional forms of distribution:
(a) a lump sum payment;
(b) a straight life annuity for the Participant's life; or
(c) substantially equal monthly, quarterly, semi-annual or annual
installments over any period of time not exceeding the Participant's then life
expectancy or the joint and last survivor expectancy of the Participant and a
designated beneficiary. If there is any remaining balance in the Participant's
Account upon his or her death, such balance shall be payable as a death benefit
in accordance with Section 6.06 below.
If the Participant's entire Account is to be distributed in other than a
lump sum, then the amount to be distributed each year must be at least an
amount equal to the quotient obtained by dividing the Participant's entire
interest by the life expectancy of the Participant or joint and last survivor
expectancy of the Participant and designated beneficiary. Life expectancy and
joint and last survivor life expectancy are computed by the use of the return
multiples contained in Section 1.72-9 of the Income Tax Regulations. For
purposes of this computation, a Participant's life expectancy may be
recalculated no more frequently than annually, however, the life expectancy of
a non-spouse beneficiary may not be recalculated. If the Participant's spouse
is not the designated beneficiary, the method of distribution selected must
assure that more than 50% of the present value of the amount available for
distribution is paid within the life expectancy of the Participant. All
distributions must be the minimum distribution incidental benefit requirements
in Section 1.401(a)(9)-2 of the proposed regulations.
6.04 Definitions. The following definitions shall apply to this
Article VI:
(a) Annuity Starting Date. "Annuity Starting Date" mean the first day
of the first period for which an amount is paid as an annuity, regardless of
when or whether payment is actually made. In the case of benefits not payable
as an annuity, the Annuity Starting Date is the date on which all events have
occurred that entitle the Participant to a benefit.
(b) Qualified Joint and Survivor Annuity. "Qualified Joint and
Survivor Annuity" means an annuity for the life of the Participant with a
survivor annuity for the life of the spouse that is not less than 50% and not
more than 100% of the amount of the annuity that is payable during the joint
lives of the Participant and the spouse, which is the actuarial equivalent of
the normal form of benefit, or if greater, any optional form of benefit. A
Qualified Joint and Survivor Annuity for a Participant who is not married shall
be an annuity for the life of such Participant.
(c) Qualified Pre-Retirement Survivor Annuity. "Qualified Pre-
Retirement Survivor Annuity" means an annuity for the life of the Participant's
surviving spouse, if any, applying the Participant's vested Account to purchase
such life annuity. The spouse of the deceased Participant may elect to receive
the full value of such Participant's Account in a lump sum in lieu of the
Qualified Pre-Retirement Survivor Annuity.
The surviving spouse shall begin to receive payments immediately, unless
such surviving spouse elects a later date, except that the surviving spouse
shall receive an immediate distribution if the value of the Participant's
vested Accounts is not (or at the time of any prior, periodic distribution was
not) greater than $5,000.
(d) Applicable Period. The "Applicable Period" for the explanation of
the Qualified Joint and Survivor Annuity shall be no less than 30 days (or no
less than 7 days if the Participant waives the 30-day period pursuant to Code
Section 417(a)(7)(B)) and no more than 90 days prior to the Participant's
Annuity Starting Date, or soon after the Participant's Annuity Starting Date if
the requirements of Code Section 417(a)(7)(A) are met. The "Applicable Period"
for the Qualified Pre-Retirement Survivor Annuity" means, with respect to a
particular Participant, the latest of the following:
(1) The period that begins with the first day of the Plan Year in
which the Participant attains age 32 and ending with the close of the Plan Year
preceding the Plan year in which the Plan Year in which the Participant attains
age 35;
(2) a reasonable period after the Employee becomes a Participant;
(3) a reasonable period after this Section no longer applies to
the Participant; or
(4) a reasonable period after the Participant's separation from
service in the case of a Participant who separates from service before
attaining age 35.
Within the Applicable Period, the Plan Administrator shall give the
Participant written notification of the availability of the Qualified Election
with respect to the Qualified Joint and Survivor Annuity. The notification
shall explain the terms and conditions of the Qualified Joint and Survivor
Annuity, the rights of the spouse, the effect of electing not to take such
annuity, and the right to revoke a previous election to waive such annuity.
The Participant (and the Participant's spouse) must complete the election on or
before the Annuity Starting Date, or after the Annuity Starting Date if the
requirements of Code Section 417(a)(7)(A) are met. The Participant may revoke
an election not to take the Joint and Survivor Annuity or choose again to take
such annuity at any time and any number of times within the applicable election
period. If a Participant requests additional information within 60 days after
receipt of the notification of election, the minimum election period shall be
extended an additional 60 days following the Participant's receipt of such
additional information.
Within the Applicable Period, the Plan Administrator shall give each
Participant a written explanation of the Qualified Pre-Retirement Survivor
Annuity which shall contain the following: (i) the terms and conditions of a
Qualified Pre-Retirement Survivor Annuity; (ii) the Participant's right to make
and the effect of an election to waive this form of benefit; (iii) the rights
of the Participant's spouse; and (iv) the right to make, and the effect of, a
revocation of a previous election to waive the Qualified Pre-Retirement
Survivor Annuity. In the case of a Participant who enters the Plan after the
first day of the Plan Year in which the Participant attained age 32, the Plan
Administrator shall provide the required notice no later than the close of the
second Plan Year succeeding the entry of the Participant in the Plan.
(e) Qualified Election. "Qualified Election" means an election by a
Participant to (i) waive the Qualified Joint and Survivor Annuity or Qualified
Pre-Retirement Survivor Annuity, pursuant to Section 6.02, with his or her
spouse' consent, and elect an optional form of distribution, or (ii) begin
distributions prior to the Participant's Normal Retirement Date, pursuant
to Section 6.01, which satisfies the following consent requirements:
(1) The spouse's consent shall be witnessed by a Plan
representative or notary public.
(2) The spouse's consent must acknowledge the effect of the
election, including that the spouse had the right to limit consent only to a
specific beneficiary or a specific form of benefit, if applicable, and that the
relinquishment of one or both such rights was voluntary. Unless the consent of
the spouse expressly permits designations by the Participant without a
requirement of further consent by the spouse, the spouse's consent must be
limited to the form of benefit, if applicable, and the beneficiary, class of
beneficiaries, or contingent beneficiary named in the election.
(3) Spousal consent is not required if the Participant
establishes to the satisfaction of the plan representative that the consent of
the spouse cannot be obtained because there is no spouse or the spouse cannot
be located.
(4) A spouse's consent under this Section shall not be valid with
respect to any other spouse.
(5) A Participant may revoke a prior election without the consent
of the spouse. Any new election will require a new spousal consent, unless the
consent of the spouse expressly permits such election by the Participant
without further consent by the spouse.
(6) A spouse's consent may be revoked at any time within the
Participant's election period.
6.05 Mandatory Commencement of Benefits. In no event other than the
written direction of the Participant will distributions under the Plan commence
later than the 60th day after the end of the Plan Year in which the later of
the following events occurs:
(a) The Participant attains Normal Retirement Age;
(b) The tenth anniversary of the year in which the Participant
commences participation in the Plan; or
(c) The Participant terminates his employment with the Employer.
A Participant may elect to defer the commencement of distributions under
the Plan to a date later than set forth above, provided, however, that the
Participant must make any such election by submitting to the Plan Administrator
a signed written statement describing the method and medium of distribution and
the date on which such distribution shall commence.
Anything above to the contrary notwithstanding, distributions of a
Participant's benefits must commence by April 1 of the calendar year following
the later of (i) the calendar year in which the Participant attains age 70 1/2
or (ii) the calendar year in which the Participant retires, in accordance with
the minimum distribution requirements of Code Section 401(a)(9). Notwith-
standing the foregoing sentence, for any Participant who is a 5-percent owner
of an Employer, the distributions of benefits must commence by April 1 of the
calendar year following the calendar year in which the Participant attains age
70 1/2. A Participant who attained age 70 1/2 during the 1998 calendar year and
who is not a 5-percent owner may elect to postpone receiving such distributions
until April 1 of the calendar year following the year in which the Participant
retires, as long as he or she so elects in the manner prescribed by the Plan
Administrator before April 1, 1999. For purposes of this minimum distribution,
the Participant may elect prior to the date of the first required distribution
to have his life expectancy and his spouse's life expectancy recalculated
annually. Such election shall be irrevocable once made, and shall apply for
all subsequent Plan Years. The Participant and his spouse shall have the right
to separately elect as to whether each wants his life expectancy recalculated,
and the election of one shall not affect the election of the other. In the
event that either the Participant or his spouse fails to make an election,
his life expectancy shall be recalculated annually.
6.06 Distributions After Death of a Participant. Subject to the
provisions of Section 6.02 above, if a Participant dies before the Plan has
distributed any portion of his or her Account, the Plan shall distribute the
Participant's Account in one of the following methods:
(a) The Plan shall distribute the Participant's Account no later than
December 31 of the calendar year that contains the fifth anniversary of the
date of the Participant's death, regardless of who is to receive the
distribution; or
(b) If the distribution is to be made to a designated beneficiary, the
distribution of a Participant's interest shall commence not later than December
31 of the calendar year immediately following the calendar year in which the
Participant died, and payments shall occur over a period not extending beyond
the life expectancy of such designated beneficiary. If distribution is to be
made to the Participant's surviving spouse, distribution must commence on or
before the later of: (1) December 31 of the calendar year immediately following
the calendar year in which the Participant died, or (2) December 31 of the
calendar year in which the Participant would have attained age 70 1/2. Such
distribution shall occur over a period not extending beyond the life
expectancy of such designated beneficiary.
A Participant or the Participant's spouse or designated beneficiary,
subject to a Qualified Election, may elect the method of distribution described
in subparagraph (b) above. Such election must be made no later than the
earlier of: (1) the date that distribution would have to occur according to
the provisions of subparagraph (a) above, or (2) the date that distribution
would have to occur according to the provisions of subparagraph (b) above. As
of such date, the election is irrevocable and shall apply for all subsequent
years and any subsequent beneficiaries. If no such election is made,
distribution shall be made in accordance with subparagraph (a) or (b) above.
If the Participant's surviving spouse dies before the Plan begins
distributions to such spouse, the payment of the Participant's interest shall
be made as if the surviving spouse were the Participant.
6.07 Special ESOP Distribution Requirements. This Section 6.07 shall
apply to distributions of a Participant's Account, and shall not act to
eliminate any form or time of distribution otherwise available under the Plan.
(a) Time of Distribution. Notwithstanding any other provision of this
Plan, other than such provisions as require the consent of the Participant and
the Participant's spouse to an immediate distribution of the Participant's
vested Account if the value of such Account at the time of the Participant's
termination of service (or at the time of any prior, periodic distribution)
exceeded $5,000, a Participant may elect to have the portion of his Account
attributable to Qualifying Employer Securities acquired by the Plan after
December 31, 1986 distributed as follows:
(1) If the Participant separates from service by reason of the
attainment of Normal Retirement Age, death or Disability, the distribution of
such portion of the Participant's Account will begin not later than one year
after the close of the Plan Year in which such event occurs unless the
Participant otherwise elects pursuant to Section 6.01 hereof.
(2) If the Participant separates from service for any reason
other than those enumerated in paragraph (1) above, and is not re-employed by
the Employer at the end of the fifth Plan Year following the Plan Year of such
separation from service, distribution of such portion of the Account will begin
not later than one year after the close of the fifth Plan Year following the
Plan year in which the Participant separated from service unless the
Participant otherwise elects pursuant to Section 6.01 hereof.
(3) If the Participant separates from service for a reason other
than those described in paragraph (1) above, and is employed by the Employer as
of the last day of the fifth Plan Year following the Plan year of such
separation from service, distribution to the Participant, prior to any
subsequent separation from service, shall be in accordance with Section 6.01
hereof.
For purposes of this Section 6.07, Qualifying Employer Securities shall
not include any Employer securities acquired with the proceeds of a loan
described in Article XIII hereof until the close of the Plan Year in which such
loan is repaid in full.
(b) Form of Distribution. Distribution may be made either in whole
shares of Company Stock or in cash as the Plan Administrator shall decide,
provided that any distribution in cash shall only be made after a Participant
has been offered the right to receive such distribution in shares of Company
Stock. In the event the distribution is to be made in Company Stock, any
balance in a Participant's Account will be applied to acquire for distribution
the maximum number of whole shares of Company Stock at the applicable value.
Any fractional share value unexpended balance will be distributed in cash. If
the Company Stock is not available for purchase by the Trustee, then the
Trustee shall hold such balance until Company Stock is acquired and then make
such distribution. The Trustee will make distribution from the Trust only on
instructions from the Plan Administrator.
(c) Period for Payment. Distributions required under this Section 6.07
shall be made in substantially equal annual payments over a period of five
years unless the Participant otherwise elects under the provisions of Section
6.01 hereof. In no event shall such distribution period exceed the period
permitted in Code Section 401(a)(9).
6.08 Right to Have Accounts Transferred. Notwithstanding any provision
of the Plan to the contrary that would otherwise limit an "eligible
distributee" election under this Article VI, an eligible distributee may elect,
at the time and in the manner prescribed by the Plan Administrator, to have any
portion of an "eligible rollover distribution" paid directly to an "eligible
retirement plan" specified by the eligible distributee in a "direct rollover."
(a) "Eligible rollover distribution" means any distribution of $200 or
more of all or any portion of the balance to the credit of the eligible
distributee, except that an eligible rollover distribution shall not include:
any distribution that is one of a series of substantially equal periodic
payments (not less frequently than annually) made for the life (or life
expectancy) of the distributee or the joint lives (or joint life expectancies)
of the eligible distributee and the eligible distributee's designated
beneficiary, or for a specified period of ten years or more; any distribution
to the extent such distribution is required under Code Section 401(a)(9); and
the portion of any distribution that is not includible in gross income
(determined without regard to the exclusion for net unrealized appreciation
with respect to employer securities).
(b) "Eligible retirement plan" means an individual retirement account
described in Code Section 408(a), an individual retirement annuity described in
Code Section 408(b), an annuity plan described in Code Section 403(a), or a
qualified trust described in Code Section 401 (a), that accepts the eligible
distributee's rollover distribution. However, in the case of an eligible
rollover distribution to the surviving spouse, an eligible retirement plan
shall only be an individual retirement account or individual retirement
annuity.
(c) An "eligible distributee" means Employee or former Employee. In
addition, the Employee's or former Employee's surviving spouse and the
Employee's or former Employee's spouse who is the alternate payee under a
qualified domestic relations order, as defined in Section 414(p), are eligible
distributees with regard to the interest of the spouse or former spouse.
(d) A "direct rollover" means a payment by the plan to the eligible
retirement plan specified by the eligible distributee.
If a distribution is one to which Code Sections 401(a)(11) and 417 do not
apply, such distribution may commence less than 30 days after the notice
required under Section 1.411(a)-11(c) of the Income Tax Regulations is given,
provided that: (i) the Plan Administrator clearly informs the Participant that
the Participant has a right to a period of at least 30 days after receiving
the notice to consider the decision of whether or not to elect a distribution
(and, if applicable, a particular distribution option); and (ii) the
Participant, after receiving the notice, affirmatively elects a distribution.
ARTICLE VII
LIMITATION ON CONTRIBUTIONS AND BENEFITS
7.01 Definitions. The following definitions shall apply for purposes
of this Section 7.01:
(a) Annual Addition. "Annual Addition" means for each Plan Year the
sum of the following amounts credited to a Participant's Account for the
Limitation Year under all Defined Contribution Plans maintained by the
Employer:
(1) Employer contributions,
(2) Forfeitures, and
(3) Any amounts allocated to an individual medical account (as
defined in Code Section 415(l)(2) that is part of any pension or annuity plan
maintained by the Employer are treated as Annual Additions to a Defined
Contribution Plan. Amounts derived from contributions paid or accrued after
December 31, 1985 in taxable years ending after such date that are attributable
to post retirement medical benefits allocated to the separate account of a key
employee under a welfare benefit fund (as defined in Code Section 419(e))
maintained by the Employer are treated as Annual Additions to a Defined
Contribution Plan. These amounts are treated as Annual Additions but are not
subject to the 25% of Annual Compensation limit.
(b) Defined Contribution Plan. "Defined Contribution Plan" means a
pension plan or profit sharing plan that provides for an individual account for
each Participant and for benefits based solely upon the amount contributed to
the Participant's Account and any income, expenses, gains, losses and any
forfeitures of Accounts of other Participants that may be allocated to such
Participant's Account.
(c) Limitation Year. "Limitation Year" means the Plan Year.
7.02 Limitation on Annual Additions. Any other provision of this Plan
to the contrary notwithstanding, the maximum Annual Addition to the Accounts of
any Participant under the Plan and any other Defined Contribution Plan
maintained by an Employer may not exceed the lesser of:
(a) Thirty Thousand Dollars ($30,000) or, if greater, twenty-five
percent (25%) of the defined benefit dollar limitation set forth in Code
Section 415(b)(1) in effect for the Limitation Year, or
(b) Twenty-five percent (25%) of the Participant's Annual Compensation
for the Limitation Year.
If, as the result of a reasonable error in estimating a Participant's
Annual Compensation, the allocation of forfeitures, or under other limited
facts and circumstances as may be provided under the Regulations to Code
Section 415, the Annual Addition exceeds the maximum under this and any other
Defined Contribution Plan maintained by the Employer, the Sky Financial Group,
Inc. Profit Sharing and 401(k) Plan shall distribute an amount necessary to
eliminate the excess Annual Addition, or as much of the excess as possible, as
permitted by Code Section 415 or the regulations thereunder.
7.03 Limitation of Benefits Under All Plans. Where an Employee is a
Participant under the Plan and a defined benefit plan maintained by the
Employer, the sum of the defined contribution fraction and the defined benefit
fraction for any Limitation Year may not exceed 1.0 as computed under the terms
and conditions as set forth under Code Section 415(e). For purposes of
computing the defined contribution fraction for any Limitation Year, the
numerator shall be the sum of the Annual Addition to the Participant's Account
during such Limitation Year and for all prior Limitation years, and the
denominator shall be the lesser of:
(a) the product of 1.25 multiplied by the maximum permissible dollar
amount under Code Section 415(c)(1)(A) for such year and for all prior years
or,
(b) the product of 1.4 multiplied by the maximum permissible percentage
of Annual Compensation contributed under Code Section 415(c)(1)(B) for such
year and for all prior years.
For purposes of computing the defined benefit plan fraction for any
Limitation year, the numerator shall be the Participant's projected annual
benefit under the defined benefit plan as of the end of the Limitation year and
the denominator shall be the lesser of:
(c) the product of 1.25 multiplied by the maximum permissible dollar
amount of benefit in effect under Code Section 415(b)(1)(A) for such year; or
(d) the product of 1.4 multiplied by the maximum permissible percentage
of Annual Compensation limitation of the amount of benefit in effect under Code
Section 415(b)(1)(B) for such year.
If the Defined Contribution Plans and the defined benefit plans in which
an Employee is a Participant satisfy the requirements of Code Section 415 in
effect for all Limitation Years beginning prior to January 1, 1987, where
necessary, an amount shall be subtracted from the numerator of the defined
contribution fraction (not to exceed such numerator) as prescribed by the
Secretary of the Treasury so that the sum of the defined benefit plan fraction
and the defined contribution fraction computed under Code Section 415(e)(1)
does not exceed 1.0 for such Limitation Year.
ARTICLE VIII
TRUST FUND
8.01 Cash Dividend Option. A Participant shall have the option to
elect to receive dividends on Company Stock in cash or in Company Stock. This
election shall apply to all Participants who have a 100% nonforfeitable
interest in their Account pursuant to Section 5.03.
Participants may elect to receive quarterly dividends in cash as of the
end of June and the end of December. Each June election shall apply to the
next following September 30 and December 31 quarterly dividends. Each December
election shall apply to the next following March 31 and June 30 quarterly
dividends. Participant elections shall be made in writing in accordance with
procedures and forms provided by the Plan Administrator. Employer dividends
not elected in cash shall be reinvested in additional shares of Company Stock.
8.02 Participants' Right to Vote Company Stock. Each Participant shall
be entitled to direct the exercise of voting rights with respect to the whole
shares of Company Stock allocated to said Participant's Account. The Company
shall provide to each Participant materials pertaining to the exercise of such
rights containing all the information distributed to shareholders as part of
its distribution of such information to shareholders. A Participant shall have
the opportunity to exercise any such rights within the same time period as
shareholders of the Company. In the exercise of voting rights, votes
representing fractional shares of Company Stock and shares of Company Stock
held in unallocated inventory shall be voted in the same ratio for the election
of directors and for and against each issue as the applicable vote directed by
Participants with respect to whole shares of Company Stock.
8.03 Diversification of Employer Securities Investments. This Section
applies only to the Qualified Employer Securities portion of a Participant's
Account.
(a) Definitions.
(1) "Qualified Participant" means a Participant who has attained
age 55 and who has completed at least ten years of participation in this Plan
(or any prior plan of the Employer that was merged into or amended and restated
in the form of this Plan).
(2) "Qualified Election Period" means the Plan Year in which a
Participant becomes a Qualified Participant and the five succeeding Plan Years
thereafter.
(b) Election by Qualified Participants. Each Qualified Participant
shall be permitted to direct the Plan, within 90 days following the end of a
Plan Year in the Qualified Election Period, as to the investment of 25% of the
value of that portion of the Participant's Account invested in Qualifying
Employer Securities. A Qualified Participant in the final year of his or her
Qualified Election Period may direct the Plan as to the investment of 50% of
the value of that portion of his Account. Amounts for which diversification
elections pursuant to this Section 8.03 are made will reduce the amount to
which any future election under this Section in a later Plan Year may be
applied.
(c) Method of Directing Investment. The Participant's direction shall
be provided to the Plan Administrator in writing; shall be effective no later
than 180 days after the close of the Plan Year to which the direction applies;
and shall specify which, if any, of the options set forth in Section (d) below
the Participant selects.
(d) Investment Options. The Plan shall give each Qualified Participant
an opportunity to elect between the following:
(1) To have the Plan distribute (notwithstanding Code Section
409(d)) the portion of the Participant's Account that is covered by the
election within 90 days after the last day of the period during which the
election can be made. This paragraph (d)(1) shall apply notwithstanding any
other provision of the Plan other than such provision as require the consent of
the Participant to a distribution with a present value in excess of $5,000. If
the Participant does not consent, such amount shall be retained in this Plan.
(2) In lieu of distribution under Section 8.03(d)(1) hereof, the
Qualified Participant who has the right to receive a cash distribution under
Section 8.03(d)(1) hereof may direct the Plan to transfer the portion of the
Participant's Account that is covered by the election to another qualified plan
of the Employer which accepts such transfers, provided that such Plan permits
Employee-directed investment and does not invest in Qualifying Employer
Securities to a substantial degree. Such transfer shall be made no later than
90 days after the 1st day of the period during which the election can be made.
(3) In lieu of alternatives (1) and (2) of this Section 8.03(d),
the Participant shall be provided an opportunity to select among at least three
investment options to include, but not limited to, a stock fund, a bond fund
and a money market or cash equivalent fund. The Participant's election shall
be made in accordance with rules and procedures established by the Committee
with amounts invested in one or more funds in increments of at least 10%.
ARTICLE IX
AMENDMENT OR TERMINATION
9.01 Amendment. The Company reserves the right, at any time and from
time to time, to amend in whole or in part either retroactively or
prospectively any or all of the provisions of the Plan without the consent of
any Employer or Participant. Such amendment shall be stated in a written
instrument adopted or executed by the Company. Upon the Company's adoption or
execution of any amendment, the Plan shall be deemed to have been amended and
the Company, the Employers and all Plan Participants and their beneficiaries
shall be bound thereby; provided, however, that no amendment shall:
(a) authorize, cause or permit any part of the Trust Fund (other than
such part as is required to pay taxes and administrative expenses) to be used
or diverted to purposes other than the benefit of the Participants, former
Participants or their beneficiaries or estates (except as described in Section
12.03);
(b) affect the rights, duties or responsibilities of the Trustee
without its consent; or
(c) have any retroactive effect so as to deprive any Participant of his
or her nonforfeitable interest already accrued, or eliminate an optional form
of benefit, except only that any amendment may be made retroactive which is
necessary to conform the Plan to mandatory provisions of Federal or State law,
regulations or rulings.
9.02 Plan Termination or Discontinuance of Contributions. The Company
shall have the right, at any time, to terminate the Plan. Upon such
termination, or any partial termination, the entire interest of each affected
Participant's Account shall become nonforfeitable. Upon the discontinuance of
Employer contributions or suspension thereof on other than a temporary basis,
the entire interest of each affected Participant's Account shall become
nonforfeitable. Any unallocated funds existing at the time of such termination
or discontinuance shall be allocated to the then affected Participants in the
same manner as Employer contributions under Section 4.02.
9.03 Merger, Consolidation or Transfer of Assets. The Company may
merge or consolidate the Plan with, or transfer the Plan's assets or
liabilities to, any other plan, provided each Participant would receive a
benefit immediately after such merger, consolidation or transfer, if the
successor plan then terminated, that is equal to or greater than the benefit
the Participant would have received immediately prior to such merger,
consolidation or transfer if the Plan were to have terminated on such date.
ARTICLE X
ADMINISTRATION
10.01 Plan Administrator's Powers and Duties. The Plan Administrator
shall administer the Plan in accordance with its terms, and shall have all
powers necessary to administer the Plan in accordance with the provisions set
forth in the Plan. The Plan Administrator shall interpret the Plan and shall
determine all questions arising in the administration, interpretation and
application of the Plan. Any such determination by the Plan Administrator
shall be conclusive and binding on all persons, subject to the claims procedure
as set forth in Section 10.05 of the Plan.
The Plan Administrator may adopt such by-laws and regulations as it deems
desirable for the conduct of its affairs, and may appoint such accountant,
counsel, specialists, and other persons as it deems necessary or desirable in
connection with the administration of the Plan. The Plan Administrator shall
be entitled to rely conclusively upon, and shall be fully protected in any
action taken by it in good faith in relying upon, any opinions or reports that
shall be furnished to it by any such accountant, counsel or other specialists.
10.02 Records and Reports. The Plan Administrator shall keep a record
of all its proceedings and acts, and shall keep all such books of accounts,
records and other data as may be necessary for the proper administration of the
Plan. The Plan Administrator shall notify the Company and the Trustee of any
action taken by it and, when required, shall notify any other interested person
or persons.
10.03 Committee. The Company may appoint a Committee as the Plan
Administrator under the Plan. The Committee members may be officers, board
members or employees of the Employers. No member shall be disqualified from
exercising the powers and discretion herein conferred by reason of the fact
that such member is or may thereafter be a Participant or entitled to
benefits hereunder. The Company may add or remove members of the Committee at
any time, in its sole discretion, by written notice to the Committee and any
affected member. Any Committee member may resign by delivering his or her
written resignation to the Company and the Committee.
(a) Organization and Operation of Committee. If the Company has
appointed a Committee as the Plan Administrator, the Committee shall act by a
majority of its members at that time in office and such action may be taken
either by a vote at a meeting or taken in writing by unanimous consent without
a meeting.
The Committee may authorize any one or more of its members to execute any
document or documents on behalf of the Committee, in which event the Committee
shall notify the Trustee in writing of such action and the name or names of its
member or members so designated. The Trustee thereafter may accept and rely
upon any document executed by such member or members as representing action by
the Committee until the Committee shall file with the Trustee a written
revocation of such designation.
The Committee may appoint a subcommittee to approve distributions from
the Plan. Such subcommittee will consist of not less than two members of the
Committee, and will have authority to approve distributions on behalf of the
Committee.
(b) Limitation on Liability. The Company intends to allocate to the
Committee only those responsibilities included in this Section. The Employers
shall indemnify each Committee member against personal loss by reason of
service as a Committee member.
10.04 Payment of Expenses. Reasonable and necessary expenses of
administering the Plan may include expenses incurred to properly communicate
the Plan to Employees, and may be paid from the Trust Fund. The members of the
Committee shall serve without compensation for services as such, but the
Employers shall pay all expenses of the Committee. Such expenses shall
include any expenses incident to the functioning of the Committee, including
but not limited to, fees of accountants, legal counsel, investment counsel and
other specialists, and other costs of administering the Plan.
10.05 Claims Procedure. A claim for a Plan benefit shall be deemed
filed when the Plan Administrator receives a written communication made by a
Participant or beneficiary, or the authorized representative of either.
If the Plan Administrator wholly or partially denies a claim, the Plan
Administrator shall give written notice of such denial to the claimant within
90 days after the Plan Administrator receives the claim. Such notice shall set
forth, in a manner calculated to be understood by the claimant: (1) the
specific reason or reasons for the denial; (2) specific reference to pertinent
Plan provisions on which the denial is based; (3) a description of any
additional material or information necessary to perfect the claim and an
explanation of why such material or information is necessary; and (4) an
explanation of the Plan's claim review procedure.
Within 90 days from the receipt of the notice of denial, a claimant may
appeal such denial to the Plan Administrator for a full and fair review. The
review shall be instituted by the filing of a written request for review by the
claimant or his or her authorized representative within the 90 day period
stated above. A request for review shall be deemed filed as of the date the
Plan Administrator receives such written request. The claimant or his or her
authorized representative shall have the right to review all pertinent
documents, may submit issues and comments in writing and may do such other
appropriate things as the Plan Administrator may allow. The Plan Administrator
shall make its decision not later than 60 days after it receives the request
for review; unless special circumstances, such as the need to hold a hearing,
require an extension of time, in which case, the Plan Administrator shall
render a decision not later than 120 days after it receives a request for
review, which decision shall be final and binding on such claimant.
ARTICLE XI
PARTICIPATING EMPLOYERS
11.01 Commencement. Subject to the terms of the Plan, each Employer
that was an Employer under the Mid Am Plan, the Citizens Bancshares, Inc.
Amended and Restated Profit Sharing Plan, the Century National Bank and Trust
Company Amended and Restated Profit Sharing/401(k) Plan, or The Ohio Bank
Employees' Profit Sharing Plan as of December 31, 1998, shall be an Employer
under the Plan on January 1, 1999. On and after that date, any entity that is
a Related Entity with respect to the Company may, with the Company's
permission, elect to adopt this Plan and the accompanying Trust Agreement.
11.02 Termination. The Company may determine at any time that any
Employer shall withdraw and establish a separate plan and fund. The Company
shall effect the withdrawal by delivering a duly executed instrument to the
Trustee instructing it to segregate the assets of the Trust Fund allocable to
the Employees of such Employer and pay them over to the separate fund.
Any Employer under the Plan that ceases to be a Related Entity, shall
automatically be withdrawn from the Plan, effective on the date the Employer
ceases to be a Related Entity.
11.03 Single Plan. The Plan shall at all times be administered and
interpreted as a single plan for the benefit of the Employees of the Company
and all Employers.
11.04 Delegation of Authority. Each Employer, by adopting the Plan,
acknowledges that the Company has all the rights and duties thereof under the
Plan and the Trust Agreement, including the right to amend the same.
11.05 Disposition of Assets or Subsidiary. Distributions may be made in
connection with the Company's disposition of assets or a subsidiary to those
Employees who continue in employment with the purchaser of the assets or with
the subsidiary, provided that the purchaser or the subsidiary does not maintain
the Plan after the disposition.
ARTICLE XII
MISCELLANEOUS
12.01 Participant's Rights. Neither the establishment of the Plan, nor
any modification thereof, nor the creation of any fund or account, nor any
distributions hereunder, shall be construed as giving to any Participant or
other person any legal or equitable right against the Employer, or any officer
or Employee thereof, or the Trustee, or the Plan Administrator except as
herein provided. Under no circumstances shall the terms of employment of any
Participant be modified or in any way affected thereby.
12.02 Assignment or Alienation of Benefits. No benefit or interest
available hereunder will be subject to assignment or alienation, either
voluntarily or involuntarily. The preceding sentence shall also apply to the
creation, assignment, or recognition of a right to any benefit with respect to
a participant pursuant to a domestic relations order entered before January 1,
1985, or a domestic relations order that is not a Qualified Domestic Relations
Order. For purposes of this Section 12.02, "Qualified Domestic Relations
Order" means any domestic relations order that creates or recognizes the
existence of an alternate payee's right to, or assigns to an alternate payee
the right to, receive all or a portion of the benefits payable with respect to
a Participant, and that otherwise meets the requirements of Code Section
414(p).
As soon as practical after receipt of a domestic relations order, the
Plan Administrator shall determine whether it is a Qualified Domestic Relations
Order. If the domestic relations order is determined to be a Qualified
Domestic Relations Order, the Plan Administrator shall be permitted, in
accordance with rules and regulations promulgated by the Internal Revenue
Service and the rules and regulations established by the Plan Administrator, to
direct the Trustee to make an immediate distribution to the alternate payee (i)
if the amount is less than $5,000, (ii) as provided in any such Order, or (iii)
as elected by the alternate payee. Such distribution shall be permitted
regardless of the age or employment of the Participant and regardless of
whether not the Participant is otherwise entitled to a distribution, but only
from the Participant's vested Accounts.
12.03 Reversion of Funds to Employer. All Employer contributions are
conditioned upon their deductibility pursuant to Code Section 404. An Employer
shall not directly or indirectly receive any refund on contributions made to
the Trust Fund except in the following circumstances:
(a) Mistake of Fact. In the case of a contribution made by a good
faith mistake of fact, the Trustee shall return the erroneous portion of the
contribution, without increase for investment earnings, but with decrease for
investment losses, if any, within one year after payment of the contribution to
the Trust Fund.
(b) Deductibility. To the extent deduction of any contribution
determined by an Employer in good faith to be deductible is disallowed, the
Trustee, at the option of the Employer, shall return that portion of the
contribution, without increase for investment earnings but with decrease for
investment losses, if any, for which deduction has been disallowed within one
year after the disallowance of the deduction.
(c) Initial Qualification. In the event there is a determination that
the Plan does not initially satisfy all applicable requirements of Code Section
401, all contributions made by an Employer incident to that initial
qualification shall be returned to the Employer by the Trustee within one year
after the date on which the initial qualification is denied, but only if the
Company submitted an application for such initial determination by the due date
of the Company's income tax return for the taxable year in which the Plan was
adopted, or such later date as the Treasury Secretary may prescribe.
(d) Limitation. No return of contribution shall be made under this
Section which adversely affects the Plan's qualified status under regulations,
rulings or other published positions of the Internal Revenue Service or reduces
a Participant's Account below the amount it would have been had such
contribution not been made.
Earnings attributable to any contribution subject to refund shall not be
refunded. The amount subject to refund shall be reduced by any loss
attributable thereto, and by any amount that would cause the individual account
of any Participant to be reduced to less than the balance which would have been
in the account had the contribution subject to refund not been made. The
return of the contribution shall be made within one (1) year of the mistaken
payment, the disallowance of deduction (to the extent disallowed) or the denial
of qualification, as the case may be. This Section shall not preclude refunds
made in accordance with Article XIV.
12.04 Action by Company. Any action by the Company or an Employer under
this Plan may be by resolution of the Board of Directors, or by any person or
persons duly authorized by resolution of the Board of Directors or by the By-
Laws of the Company (or Employer) to take such action. Whenever the Company or
an Employer, under the terms of the Plan, is permitted or required to do or
perform any act or matter or thing, it shall be done and performed by any
officer thereunto duly authorized.
12.05 Allocation of Responsibilities. None of the allocated
responsibilities or any other responsibilities shall be shared by any two or
more Named Fiduciaries unless such sharing is provided by a specific provision
of the Plan. Whenever one Named Fiduciary is required to follow the directions
of another Named Fiduciary, the responsibility shall be that of the Named
Fiduciary giving the directions.
12.06 Construction of Plan. To the extent not in conflict with the
provisions of ERISA, all questions of interpretation of the Plan shall be
governed by the laws of the State of Ohio.
12.07 Gender and Number. Wherever any words are used herein in the
masculine gender, they shall be construed as though they were also used in the
feminine gender in all cases where they would so apply, and wherever any words
are used herein in the singular form, they shall be construed as though they
were also used in the plural form in all cases where they would so apply.
12.08 Headings. Headings of sections are for general information only,
and the Plan is not to be construed by reference thereto.
12.09 Voting Company Stock. The Trustee shall vote all allocated shares
of Company Stock in accordance with Participants' directions. The Trustee
shall vote shares of Company Stock for which no voting instructions are
received and shares of Company Stock that are not allocated to any
Participant's Account or held in a suspense account pursuant to Section 13.02
in the same ratio as it votes the Company Stock for which voting instructions
from Participants are received.
12.10 Payment of Expenses. Pursuant to instructions of the Company, the
Trustee shall pay from the Trust Fund all reasonable and necessary expenses,
taxes and charges incurred on behalf of the Fund or the income thereof in
connection with the administration or operation of the Trust Fund to the extent
that such items are not otherwise paid. No provision of this Plan shall be
construed to provide for payment to or the reimbursement of the Trustee (or any
employee or agent of the Trustee) with respect to any liability or expense
(including counsel fees) that may be incurred by the Trustee (or any employee
or agent) having been found to have breached any responsibility it may have
under the other provisions of this Plan or any responsibility or prohibition
imposed upon it by ERISA.
12.11 Incapacity. If the Plan Administrator determines that a person
entitled to receive any benefit payment is under a legal disability or is
incapacitated in any way so as to be unable to manage his financial affairs,
the Plan Administrator may make payments to such person for his benefit, or
apply the payments for the benefit of such person in such manner as the Plan
Administrator considers advisable. Any payment of a benefit in accordance with
the provisions of this Section shall be a complete discharge of any liability
to make such payment.
12.12 Employee Data. The Plan Administrator or the Trustee may require
that each Employee provide such data as it deems necessary upon becoming a
Participant in the Plan. Each Employee, upon becoming a Participant, shall be
deemed to have approved of and to have acquiesced in each and every provision
of the Plan for himself, his personal representatives, distributees, legatees,
assigns, and beneficiaries.
12.13 Reduction for Overpayment. The Plan Administrator shall, whenever
it determines that a person has received benefit payments under this Plan in
excess of the amount to which the person is entitled under the terms of the
Plan, make reasonable attempts to collect such overpayment from the person.
12.14 Invalidity of Certain Provisions. If any provision of this Plan
shall be held invalid or unenforceable, such invalidity or unenforceability
shall not affect any other provisions hereof and the Plan shall be construed
and enforced as if such provisions, to the extent invalid or unenforceable, had
not been included.
12.15 Plan Supplements. The provisions of this Plan may be modified by
Supplements or Appendices to the Plan. The terms and provisions of each
Supplement or Appendix are part of the Plan and supersede the provisions of the
Plan to the extent necessary to eliminate any inconsistencies between the Plan
and the Supplements or Appendices.
ARTICLE XIII
EXEMPT LOAN
13.01 Definition of Exempt Loan. An Exempt Loan is a direct loan of
such, a purchase money transaction, an assumption of the obligation of the
Plan, or a guarantee of the obligation of the Plan assumed in conjunction with
one of the above between the Plan and a party-in-interest as defined in
Section 3(14) of ERISA.
13.02 Requirements for an Exempt Loan. Any Exempt Loan entered into by
the Plan shall meet the following requirements:
(a) The loan shall primarily be for the benefit of Participants. The
rate of interest shall be reasonable and the net effect of the rate of interest
and the price of the securities to be acquired with the loan shall be such that
Plan assets would not be depleted. The loan shall be made only upon such terms
as would result from arm's length negotiations between the Plan and independent
third parties. The loan shall be made for a definite period of time.
(b) The proceeds received shall be used only to acquire Employer
securities, to repay the loan or to repay a prior Exempt Loan.
(c) The loan shall be made without recourse against the general assets
of the Plan. The collateral shall consist only of securities acquired with the
proceeds of the loan, or securities acquired with proceeds of a prior Exempt
Loan if the prior Exempt Loan is being paid with proceeds of the current Exempt
Loan. There shall be no right of any lender to the Plan against assets of the
Plan other than collateral given for the loan, contributions made to the Plan
to meet the obligations of the loan, and earnings attributable to collateral
and investment of the contributions made to meet the obligations of the loan.
In the event of default the amount of Company Stock transferred to the lender
in satisfaction of a default cannot exceed the amount of such default. In the
case of a default in favor of a party-in-interest, the default shall only be to
the extent of current payments due.
(d) Payments made by the Plan to repay an Exempt Loan shall not exceed
an amount equal to contributions and earnings received during or prior to the
year minus such payments in prior years. The Company Stock purchased with the
proceeds of the loan shall be held in a suspense account until the Company
Stock is released from the suspense account and allocated to the Participants'
Accounts. Company Stock released from the suspense account must be equal to
an amount calculated by multiplying the amount encumbered Company Stock by the
fraction of the principal and interest paid for the Plan Year divided by the
sum of the principal and interest paid from the Plan year plus principal and
interest for all future years.
(e) The Company Stock acquired with the proceeds of an Exempt Loan
shall not be subject to any option other than the option provided for in
Section 13.03 or a buy-sell or similar arrangement when the Company Stock is
held by or distributed from the Plan whether or not the Plan ceases to be an
ESOP or the Exempt Loan is fully repaid.
13.03 Right of First Refusal. Company Stock acquired with the assets of
an Exempt Loan may be subject to a right of First refusal in the Employer, or
in the Plan. The right of first refusal shall comply with the following
requirements:
(a) The selling price and other terms under the right of first refusal
must be not less favorable to the security holder than the greater of the fair
market value of the security, or the purchase price or other terms offered by a
third person pursuant to a good faith offer to purchase.
(b) The right of first refusal must lapse no later than 14 days after
the security holder gives written notice to the Employer that an offer by a
third party to purchase the Company Stock has been received.
13.04 Annual Additions. If the Trust has obtained an Exempt Loan, the
Annual Addition limitations of Article VII shall be determined with regard to
the contributions used by the Trust to pay the loan and not the allocation to
the Account of each Participant based upon assets withdrawn from the suspense
account established in accordance with the requirements for such Exempt Loan.
ARTICLE XIV
TOP HEAVY PROVISIONS
14.01 Definitions. The following definitions shall apply for purposes
of this Article XIV:
(a) Aggregation Group. "Aggregation Group" shall mean the following:
(1) Each plan of the Employer in which a Key Employee is a
Participant;
(2) Each other plan of the Employer (including a terminated plan
of the Employer if it was maintained within the last five (5) years ending on
the Determination Date for the Plan Year being tested for Top Heavy status)
that allows a plan covering a Key Employee to meet qualification requirements
under the coverage rules of Section 410 or the anti-discrimination rules of
Code Section 401(a)(4);
(3) At the option of the Employer, any other Plan maintained by
the Employer as long as the expanded Aggregation Group including such plan or
plans continues to satisfy the coverage rules of Section 410 and the anti-
discrimination rules of Code Section 401(a)(4).
(b) Determination Date. "Determination Date" shall mean the last day
of the Plan Year preceding the Plan year that is being tested for Top Heavy
status. In the first Plan year, the Determination Date shall mean the last day
of the Plan Year that is being tested for Top Heavy status.
(c) Key Employee. "Key Employee" means any Employee, former Employee,
or beneficiary of such Employees, who at any time during the Plan Year or the
four preceding Plan Years is:
(1) an officer having Annual Compensation from the Employer
greater than 50% of the Section 415(b)(1)(A) dollar limit (as adjusted and in
effect for that Plan Year);
(2) one of ten employees having Annual Compensation from the
Employer of more than the limitation in effect under Code Section 415(c)(1)(A),
and owning (or considered as owning within the meaning of Code Section 318)
both more than an .5% interest as well as one of the ten largest interests in
the Employer. However, if two employees have the same ownership interest in
the Employer, the Employee having the greater Annual Compensation shall be
treated as having the larger interest.
(3) a 5% owner of the Employer, or
(4) a 1% owner of the Employer having an Annual Compensation from
the Employer of more than $150,000.
For purposes of determining the top ten owners, 5% owners, or 1% owners,
ownership is determined without regard to the aggregation rules of Sections
414(b), (c) and (m) of the Code.
(d) Non-Key Employee. "Non-Key Employee" means any Employee who is not
a Key employee. Non-Key employees include Employees who are former key
Employees.
14.02 Determination of Top Heavy Status. The Plan will be considered
Top Heavy if, as of the Determination Date, the present value of cumulative
accrued benefits under the Plan for Key Employees exceeds 60% of the present
value of the cumulative accrued benefits under the Plan for all Employees. In
determining the ratio of accrued benefits for Key Employees to all other
Employees, the Plan Administrator shall use the procedure as outlined in Code
Section 416(g) which is incorporated herein by reference. In determining
whether the Plan is considered Top Heavy, all plans within the Aggregation
Group will be utilized for the calculation.
Solely for the purpose of determining if the Plan, or any other plan
included in the Aggregation Group is Top Heavy, the accrued benefit of an
Employee other than a Key Employee shall be determined under.
(a) the method; if any, that uniformly applies for accrual purposes
under all plans maintained by the Employer or the Company, or
(b) if there is no such method, as if such benefit accrued not more
rapidly than the slowest accrual rate permitted under the fractional accrual
rate of Code Section 411(b)(1)(C).
The present value of cumulative accrued benefits of a Participant who has
not been credited with an Hour of Service for the Employer maintaining the Plan
during the five year period ending on the Determination Date will be
disregarded for purposes of this Article XIV.
14.03 Combination of Defined Benefit and Defined Contribution Plan. In
the event the Plan is deemed to be Top Heavy, the defined benefit and defined
contribution fraction set forth in Section 7.03 will be calculated by
substituting 1.0 for 1.25. If a Non-Key Employee participates in this Plan and
a defined benefit plan that are both Top Heavy, the minimum contribution
requirement for this Plan and the minimum benefit requirement for the defined
benefit plan, pursuant to Code Section 416, will be satisfied if such
Participant is provided with a contribution to the Plan equal to 5% of Annual
Compensation.
14.04 Minimum Contribution. In the event that the Plan in aggregation
with any other Defined Contribution Plans of the Employer is determined to be
Top Heavy, the Participants who are Non-Key Employees will be eligible for a
minimum contribution for such Plan Year. This minimum contribution that shall
be allocated to the Accounts of Participants who are Non-Key Employees, will be
contributed to this Plan in an amount equal to 3% of Annual Compensation or if
less, the largest contribution percentage of Annual Compensation provided on
behalf of any Key Employee. The minimum contribution required by this Section
shall be made on behalf of such Participants who are employed as of the last
day of the Plan year regardless of the numbers of Hours of Service credited to
each Participant for such Plan Year, regardless of such Participant's level of
Annual Compensation. If this minimum contribution is provided by another
Defined Contribution Plan of the Employer, then this Section will not apply to
this Plan. If part of this minimum contribution is provided by another Defined
Contribution Plan of the Employer, then the balance of the minimum contribution
shall be provided by this Plan.
14.05 Minimum Vesting. In the event the Plan is determined to be Top
Heavy, each Participant shall have a nonforfeitable interest in his Accounts at
least equal to the following schedule:
Years of Service Nonforfeitable Percentage
Less than 3 0%
3 or More 100%
The above schedule shall not apply where the nonforfeitable interest in
the Participant's Account would be greater under Article V of the Plan.
EXHIBIT 10.5
FIRST AMENDMENT
OF THE
SKY FINANCIAL GROUP, INC. PROFIT SHARING AND 401(K) PLAN
(As Amended and Restated Effective January 1, 1999)
WHEREAS, Sky Financial Group, Inc. (the "Company") maintains the Sky
Financial Group, Inc. Profit Sharing and 401(k) Plan (the "Plan"); and
WHEREAS, the Company previously amended the Plan and now considers it
desirable to further amend the Plan;
NOW, THEREFORE, pursuant to the power reserved to the Company by Section
10.01 of the Plan, and by virtue of the authority delegated to the undersigned
officer by resolution of the Company's Board of Directors, the Plan, as
previously amended, is hereby further amended, effective as of June 30, 1999,
in the following particulars:
1. By substituting the following for the second paragraph of the
Introduction section the Plan:
"Under the January 1, 1999, amendment and restatement of the Plan, a
portion of the Plan (the 'ESOP Portion') was invested in Qualifying Employer
Securities (as defined in Code Section 4975(e)(8)), and designed to qualify as
a stock bonus plan and an employee stock ownership plan under Code Section
4975(e)(7) and the regulations thereunder. Effective June 30, 1999, the ESOP
Portion of the Plan was spun-off and merged into the Sky Financial Group, Inc.
Employee Stock Ownership Pension Plan (the 'Sky ESOP Pension Plan').
The frozen Mid Am, Inc. Profit Sharing Plan (the 'Frozen Plan') was
merged into this Plan. Participants with Frozen Plan accounts were allowed to
direct the investment of their Frozen Plan account balances between Sky
Financial Group, Inc. common stock and a special investment portfolio
maintained by a trustee. Effective September 30, 1999, the portion of the Plan
containing Participant Frozen Plan accounts invested in Sky Financial Group,
Inc. common stock was spun-off and merged into the Sky ESOP Pension Plan. In
addition, effective September 30, 1999, each Participant with a Frozen Plan
account invested in the special investment portfolio is allowed to direct the
investment of that account into the Investment Funds offered in accordance with
Article IX of the Plan."
2. By deleting Section 1.13 of the Plan in its entirety, and
renumbering the remaining Sections in Article I accordingly.
3. By deleting Section 1.25 in its entirety, and renumbering the
remaining Sections in Article I accordingly.
4. By substituting the following for the second paragraph of Section
3.01 of the Plan:
"Prior to January 1, 1999, Employers' Profit Sharing Contributions were
made and invested solely in Qualifying Employer Securities. On and after
January 1, 1999, Employers' Profit Sharing Contributions may be made in cash.
Each Participant's Profit Sharing Contributions Account as of December 31, 1998
(including any Profit Sharing Contribution for the 1998 Plan Year), was renamed
the Participant's 'ESOP Account' effective January 1, 1999, and a new Profit
Sharing Contributions Account was established for each Participant on January
1, 1999, pursuant to Section 4.01. Effective June 30, 1999, the portion of the
Plan consisting of all ESOP Accounts was spun off from this Plan and merged
into the Sky Financial Group, Inc. Employee Stock Ownership Pension Plan."
5. By adding the following paragraph to Section 3.03 of the Plan,
immediately preceding Section 3.03(a) thereof:
"Notwithstanding the foregoing, any eligible Participant who does not
make Compensation Deferral Contributions of at least three percent (3%) during
a pay period because such Participant has already made Compensation Deferral
Contributions for the Plan Year up to the limit prescribed under Code Section
402(g) shall receive a Matching Contribution for that pay period as if such
Participant had made the Compensation Deferral Contributions already
contributed to the Plan for that Plan Year ratably over the pay periods
occurring during the Plan Year."
6. By adding the following to the Plan as a new Section 3.08,
immediately following Section 3.07 thereof:
"3.08 Spin-off of ESOP Portion Effective June 30, 1999. Prior to June
30, 1999, a portion of the Plan (the 'ESOP Portion' was invested in Qualifying
Employer Securities (as defined in Code Section 4975(e)(8), and designed to
qualify as a stock bonus plan and an employee stock ownership plan under Code
Section 4975(e)(7) and the regulations thereunder. Effective June 30, 1999,
the ESOP Portion was spun-off from this Plan and merged into the Sky Financial
Group, Inc. Employee Stock Ownership Pension Plan."
7. By adding the following to the Plan as a new Section 3.09,
immediately following Section 3.08 thereof:
"3.09 Spin-off of Certain Frozen Plan Accounts Effective September 30,
1999. The frozen Mid Am, Inc. Profit Sharing Plan (the 'Frozen Plan') was
merged into the Plan. Participants with Frozen Plan accounts were allowed to
direct the investment of their Frozen Plan account balances between Sky
Financial Group, Inc. common stock and a special investment portfolio
maintained by a trustee. Effective September 30, 1999, the portion of the Plan
containing Frozen Plan accounts invested in Sky Financial Group, Inc. common
stock was spun-off and merged into the Sky Financial Group, Inc. Employee
Stock Ownership Pension Plan. In addition, effective September 30, 1999,
Participants with Frozen Plan accounts invested in the special investment
portfolio are allowed to direct the investment of those accounts into the
Investment Funds offered in accordance with Article IX."
8. By substituting the following for Section 4.01 of the Plan:
"4.01 Participant Accounts. The Plan Administrator shall direct the
Trustee to maintain such separate Accounts for each Participant as the Plan
Administrator shall from time to time determine, including the following:
(a) Profit Sharing Contributions Account. The amount of
the Employer's contribution to the Trust Fund pursuant to Section 3.04
hereof and allocated pursuant to Section 4.02(a) hereof, together with such
Participant's share of all income, gains and accumulations therefrom, shall be
credited and losses debited to each Participant's Profit Sharing Contributions
Account.
(b) Compensation Deferral Contributions Account. Compensation
Deferral Contributions authorized by each Participant and contributed by the
Employer pursuant to Section 3.02 hereof, together with such Participant's
share of all income, gains and accumulations therefrom, shall be credited and
losses debited to each Participant's Compensation Deferral Contributions
Account.
(c) Matching Contributions Account. Matching Contributions made
by the Employer pursuant to Section 3.03 hereof, together with such
Participant's share of all income, gains and accumulations therefrom, shall be
credited and losses debited to such Participant's Matching Contributions
Account.
(d) Prior Plan Account. Amounts transferred from a previous
qualified plan of an Employer, together with such Participant's share of
income, gains and accumulations therefrom, shall be credited and losses debited
to each Participant's Prior Plan Account.
(e) Rollover Contributions Account. Rollover Contributions made
by a Participant pursuant to Section 3.05 hereof, together with such
Participant's shares of all income, gains and accumulations therefrom, shall be
credited and losses debited to such Participant's Rollover Contributions
Account.
(f) Frozen Plan Account. Amounts transferred to this Plan as
a result of the merger of the [frozen Mid Am, Inc. Profit Sharing Plan] into
this Plan, and remaining in this Plan under the terms of Section 3.09,
together with such Participant's share of income, gains and accumulations
therefrom, shall be credited and losses debited to each Participant's Frozen
Plan Account.
Said Profit Sharing Contributions Account, Compensation Deferral
Contributions Account, Matching Contributions Account, Prior Plan Account,
Rollover Contributions Account and Frozen Plan Account will sometimes
hereinafter be collectively referred to as 'Accounts.'"
9. By deleting Section 6.08 of the Plan in its entirety, and by
renumbering the remaining Sections of Article VI accordingly.
10. By deleting Section 9.03 of the Plan in its entirety, and by
renumbering the remaining Sections of Article IX accordingly.
11. By substituting the following for Section 9.04 of the Plan:
"9.04 Participants' Right to Vote Company Stock. Each Participant
shall be entitled to direct the exercise of voting rights with respect to the
Company Stock deemed owned by the Participant's Accounts pursuant to the
Participant's investments in the Company Stock Fund. The Company shall
provide to each Participant materials pertaining to the exercise of such rights
containing all the information distributed to shareholders as part of its
distribution of such information to shareholders. A Participant shall have the
opportunity to exercise any such rights within the same time period as
shareholders of the Company. In the exercise of voting rights, shares of
Company Stock for which no voting instructions are received and shares of
Company Stock that are not allocated to any Participant's Account shall be
voted in the same ratio for the election of directors and for and against each
other issue as the applicable vote directed by Participants with respect to
shares of Company Stock."
12. By deleting Section 9.05 of the Plan in its entirety.
13. By substituting "6.09" for "6.10" where the latter reference appears
in Section 12.05 of the Plan.
14. By substituting the following for Section 13.01(j) of the Plan:
"(j) Loans may be made either from a Participant's (i) Compensation
Deferral Contributions Account or (ii) Profit Sharing Account, Matching
Contributions Account, Prior Plan Account, Rollover Contributions Account and
Frozen Plan Account. A loan shall be repaid into the Account from which it was
made. A Participant may have only one loan outstanding at a time from either
set of Accounts, subject to the overall limits of Section 13.01(a). [A
Participant can receive only one loan from the Plan in any 12 consecutive month
period.]"
15. By deleting Section 13.03 of the Plan in its entirety, and
renumbering the remaining Sections in Article XIII accordingly.
16. By deleting Article XV of the Plan in its entirety.
* * *
IN WITNESS WHEREOF, on behalf of the Company, the undersigned officer has
executed this amendment this 21st day of October 1999.
SKY FINANCIAL GROUP, INC.
/s/ W. Granger Souder
By: W. Granger Souder
Its: Executive Vice President / General Counsel
SKY FINANCIAL GROUP, INC. PROFIT SHARING AND 401(K) PLAN
(As Amended and Restated Effective January 1, 1999)
EXECUTION PAGE
IN WITNESS WHEREOF, on behalf of Sky Financial Group, Inc., the
undersigned officer has executed this amendment and restatement of the Sky
Financial Group, Inc. Profit Sharing and 401(k) Plan, effective January 1,
1999.
Dated this 30th day of December 1998.
SKY FINANCIAL GROUP, INC.
/s/ W. Granger Souder
By: W. Granger Souder
Its: Executive Vice President / General Counsel
(Seal)
Sky Financial Group, Inc. Profit Sharing and 401(k) Plan
(As Amended and Restated Effective January 1, 1999)
Table of Contents
INTRODUCTION ........................................... 1
ARTICLE I.
DEFINITIONS ............................................ 1
1.01 Annual Compensation .............................. 1
1.02 Annuity Starting Date ............................ 2
1.03 Applicable Period ................................ 2
1.04 Break in Service ................................. 2
1.05 Code ............................................. 2
1.06 Company .......................................... 2
1.07 Company Stock .................................... 2
1.08 Disability ....................................... 3
1.09 Employee ......................................... 3
1.10 Employer ......................................... 3
1.11 Entry Date ....................................... 3
1.12 ERISA ............................................ 3
1.13 ESOP ............................................. 3
1.14 Hour of Service .................................. 4
1.15 Named Fiduciary .................................. 4
1.16 Normal Retirement Age ............................ 4
1.17 Normal Retirement Date ........................... 4
1.18 Participant ...................................... 4
1.19 Plan ............................................. 4
1.20 Plan Administrator ............................... 5
1.21 Plan Year ........................................ 5
1.22 Qualified Election ............................... 5
1.23 Qualified Joint and Survivor Annuity ............. 5
1.24 Qualified Pre-Retirement Survivor Annuity ........ 5
1.25 Qualifying Employer Securities ................... 5
1.26 Related Entity ................................... 5
1.27 Trust ............................................ 5
1.28 Trustee .......................................... 5
1.29 Trust Fund ....................................... 5
1.30 Valuation Date ................................... 5
1.31 Year of Service .................................. 6
ARTICLE II.
ELIGIBILITY ............................................ 7
2.01 Eligibility ...................................... 7
2.02 Eligibility Upon Re-Employment ................... 7
2.03 Participation Upon Change of Job Status .......... 7
ARTICLE III.
CONTRIBUTIONS .......................................... 8
3.01 Employer Contributions ........................... 8
3.02 Compensation Deferral Contributions .............. 8
3.03 Matching Contributions ........................... 9
3.04 Profit Sharing Contributions ..................... 10
3.05 Rollover Contributions ........................... 10
3.06 Special Rules Relating to Veterans Re-Employment
Rights Under USERRA ........................... 10
3.07 Automatic Compensation Deferral Contributions .... 11
ARTICLE IV.
ALLOCATIONS ............................................ 13
4.01 Participant Accounts ............................. 13
4.02 Allocation of Profit Sharing Contributions ....... 13
4.03 Allocation of Compensation Deferral
Contributions ................................. 14
4.04 Allocation of Matching Contributions ............. 14
4.05 Allocation of Investment Gain or Loss ............ 14
4.06 Allocation of Cash Dividends ..................... 14
4.07 Valuations ....................................... 14
4.08 Allocation of Gain or Loss ....................... 14
4.09 Annual Report to Participants .................... 15
ARTICLE V.
BENEFITS TO PARTICIPANTS ............................... 16
5.01 Upon Retirement or Disability .................... 16
5.02 Upon Death ....................................... 16
5.03 Nonforfeitable Interest Upon Termination
of Employment ................................. 16
5.04 October 2, 1998 Change In Control ................ 17
5.05 Forfeiture Upon Termination of Employment ........ 17
ARTICLE VI.
DISTRIBUTIONS .......................................... 19
6.01 Commencement of Benefits ......................... 19
6.02 Payment of Benefits: Pre-1999 Participants ....... 19
6.03 Payment of Benefits: Post-1998 Participants ...... 19
6.04 Optional Forms of Benefit ........................ 20
6.05 Definitions ...................................... 20
6.06 Mandatory Commencement of Benefits ............... 22
6.07 Distributions After Death of a Participant ....... 23
6.08 Special ESOP Distribution Requirements ........... 24
6.09 Right to Have Accounts Transferred ............... 25
6.10 Restrictions on Distributions of Compensation
Deferral Contributions ........................ 26
ARTICLE VII.
LIMITATION ON CONTRIBUTIONS AND BENEFITS ............... 27
7.01 Definitions ...................................... 27
7.02 Limitation on Annual Additions ................... 27
7.03 Limitation of Benefits Under All Plans ........... 28
ARTICLE VIII.
NONDISCRIMINATION REQUIREMENTS ......................... 28
8.01 Definitions ...................................... 28
8.02 Nondiscrimination Requirements for Compensation
Deferral Contributions ........................ 31
8.03 Nondiscrimination Requirements for Matching
Contributions and Employee Contributions ...... 32
8.04 Multiple Use Limitation .......................... 33
8.05 Distribution Rules for Excess Contributions
and Excess Aggregate Contributions ............ 33
ARTICLE IX.
TRUST FUND AND INVESTMENT FUNDS ........................ 35
9.01 Individual Investment Funds ...................... 35
9.02 Individual Investment Funds ...................... 35
9.03 Cash Dividend Option ............................. 35
9.04 Participants' Right to Vote Company Stock ........ 36
9.05 Diversification of Employer Securities
Investments ................................... 36
ARTICLE X.
AMENDMENT OR TERMINATION ............................... 38
10.01 Amendment ....................................... 38
10.02 Plan Termination or Discontinuance
of Contributions ............................. 38
10.03 Merger, Consolidation or Transfer of Assets ..... 38
ARTICLE XI.
ADMINISTRATION ......................................... 39
11.01 Plan Administrator's Powers and Duties .......... 39
11.02 Records and Reports ............................. 39
11.03 Committee ....................................... 39
11.04 Payment of Expenses ............................. 40
11.05 Claims Procedure ................................ 40
ARTICLE XII.
PARTICIPATING EMPLOYERS ................................ 41
12.01 Commencement .................................... 41
12.02 Termination ..................................... 41
12.03 Single Plan ..................................... 41
12.04 Delegation of Authority ......................... 41
12.05 Disposition of Assets or Subsidiary ............. 41
ARTICLE XIII.
LOANS AND IN-SERVICE WITHDRAWALS ....................... 42
13.01 Loans To Participants ........................... 42
13.02 Hardship Distributions .......................... 43
13.03 In-Service Distributions for Certain
Participants ................................. 43
13.04 In-Service Withdrawals Relating to
The Adrian State Bank Plan ................... 44
ARTICLE XIV.
MISCELLANEOUS .......................................... 45
14.01 Participant's Rights ............................ 45
14.02 Assignment or Alienation of Benefits ............ 45
14.03 Reversion of Funds to Employer .................. 45
14.04 Action By Company ............................... 46
14.05 Allocation of Responsibilities .................. 46
14.06 Construction of Plan ............................ 46
14.07 Gender and Number ............................... 46
14.08 Headings ........................................ 46
14.09 Voting Company Stock ............................ 46
14.10 Payment of Expenses ............................. 47
14.11 Incapacity ...................................... 47
14.12 Employee Data ................................... 47
14.13 Reduction for Overpayment ....................... 47
14.14 Invalidity of Certain Provisions ................ 47
14.15 Plan Supplements ................................ 47
ARTICLE XV.
EXEMPT LOAN ............................................ 48
15.01 Definition of Exempt Loan ....................... 48
15.02 Requirements for an Exempt Loan ................. 48
15.03 Right of First Refusal .......................... 48
15.04 Annual Additions ................................ 49
ARTICLE XVI.
TOP HEAVY PROVISIONS ................................... 50
16.01 Definitions ..................................... 50
16.02 Determination of Top Heavy Status ............... 50
16.03 Combination of Defined Benefit and Defined
Contribution Plan ............................ 51
16.04 Minimum Contribution ............................ 51
16.05 Minimum Vesting ................................. 52
Sky Financial Group, Inc. Profit Sharing and 401(k) Plan
(As Amended and Restated Effective January 1, 1999)
INTRODUCTION
Prior to October 2, 1998, Mid Am, Inc. ("Mid Am") maintained the Mid Am,
Inc. Profit Sharing and 401(k) Plan. Mid Am merged into Citizens Bancshares,
Inc. ("Citizens") effective October 2, 1998 (the "Merger Date"), with the
resulting corporation renamed Sky Financial Group, Inc. (the "Company"). The
Company became the sponsor of the Plan on the Merger Date, and hereby amends
and restates the Plan effective January 1, 1999. Effective on the January 1,
1999 amendment and restatement date, the eligible employees of Citizens and The
Ohio Bank, and the eligible employees of their respective subsidiaries, become
eligible to participate in the Plan.
The Company intends a portion of this Plan (the "ESOP Portion") that
contains the ESOP Accounts to be an employee stock ownership plan under Code
Section 4975(e)(7) and the regulations thereunder. The ESOP Portion is
intended to be invested primarily in qualifying employer securities as defined
in ERISA Section 407(d)(5), including Qualifying Employer Securities. At any
time, up to 100% of the assets of the ESOP Portion may be invested in
qualifying employer securities as defined in ERISA Section 407(d)(5), including
Qualifying Employer Securities.
The Plan was originally established as the Mid American National Bank &
Trust Company Profit Sharing Retirement Plan, effective January 1, 1966.
Effective July 1, 1989, Mid Am assumed sponsorship of the Plan and changed the
name of the Plan to the Mid Am, Inc. Employee Stock Ownership and Savings
Plan. Mid Am last amended and restated the Plan effective January 1, 1995.
The Company intends that the Plan, together with the Trust Agreement,
meet all the pertinent requirements of the Internal Revenue Code of 1986, as
amended, and the Employee Retirement Income Security Act of 1974, as amended,
and shall be interpreted, wherever possible, to comply with the terms of the
Code and ERISA.
ARTICLE I
DEFINITIONS
In addition to other terms defined elsewhere in this Plan document, the
following terms shall have the following meanings:
1.01 Annual Compensation. "Annual Compensation" means a Participant's
earned income, wages, salaries, fees for professional services, and other
amounts received for personal services actually rendered in the course of
employment with the Employers (including, but not limited to, commissions paid
to salesmen, compensation for services on the basis of a percentage of profits,
commissions on insurance premiums, tips and bonuses), but excluding the
following:
(1) Employer contributions to a plan of deferred compensation,
including this Plan, that are not included in the Employee's gross income for
the taxable year in which contributed, Employee contributions under a
simplified employee pension plan to the extent such contributions are
deductible by the Employee or any distributions from a plan of deferred
compensation.
(2) amounts realized from the exercise of a non-qualified stock
option, or when restricted stock (or property) held by the Employee either
becomes freely transferable or is no longer subject to a substantial risk of
forfeiture;
(3) amounts realized from the sale, exchange or other disposition
of stock acquired under a qualified stock option;
(4) reimbursements or other expense allowances, fringe benefits
(cash and noncash), moving expenses, deferred compensation and welfare benefits
(even if included in gross income); and
(5) other amounts that received special tax benefits or
contributions made by the Employer (whether or not under a salary reduction
agreement) towards the purchase of an annuity described in Code Section 403(b)
(whether or not the amounts are actually excludible from the gross income of
the Employee).
Annual Compensation includes a Participant's voluntary reductions in cash
consideration made in accordance with arrangements established by the Employer
under Code Section 125 and Code Section 401(k).
In addition to other applicable limitations set forth in the Plan, and
notwithstanding any other provision of the Plan to the contrary, the Annual
Compensation of each Employee taken into account under the Plan shall not
exceed the OBRA '93 annual compensation limit. The OBRA '93 annual
compensation limit is $150,000, as adjusted by the Commissioner of Internal
Revenue for the cost-of-living in accordance with Code Section 401(a)(17)(B).
The cost-of-living adjustment in effect for a calendar year applies to any
period, not exceeding twelve (12) months, over which Compensation is determined
(determination period) beginning in such calendar year. If a determination
period consists of fewer than twelve (12) months, the OBRA '93 annual
compensation limit will be multiplied by a fraction, the numerator of which is
the number of months in the determination period, and the denominator of which
is 12. Any reference in this Plan to the limitation under Code Section
401(a)(17) shall mean the OBRA '93 annual compensation limit set forth in this
provision.
1.02 Annuity Starting Date. "Annuity Starting Date" is defined in
Section 6.05.
1.03 Applicable Period. The "Applicable Period" is defined in Section
6.05.
1.04 Break in Service. "Break in Service" means a Plan Year in which
an Employee has not completed more than 500 Hours of Service.
1.05 Code. "Code" means the Internal Revenue Code of 1986, as amended.
1.06 Company. "Company" means Sky Financial Group, Inc.
1.07 Company Stock. "Company Stock" means the common stock of Sky
Financial Group, Inc.
1.08 Disability. "Disability" means a permanent physical or mental
condition of a Participant resulting from a bodily injury or disease or mental
disorder that renders the Participant eligible for a disability award under the
Social Security Act.
1.09 Employee. "Employee" means each and every person employed by an
Employer in a common law employer-employee relationship; provided that, only
individuals who are paid as common law employees from the payroll of an
Employer shall be deemed to be Employees for purposes of the Plan. No person
who is an independent contractor shall be eligible to participate in this Plan.
No person who is a "leased employee" shall be eligible to participate in this
Plan. "Leased employee" shall mean any person who is not an Employee but who
provides services to an Employer if:
(a) such services are provided pursuant to an agreement between
the Employer and any leasing organization;
(b) such person has performed services for the Employer (or for
the Employer and any related person within the meaning of Section 414(n)(6) of
the Code) on a substantially full-time basis for a period of at least one (1)
year; and
(c) such services are performed under the primary direction or
control of the Employer.
Except as provided below, a "leased employee" shall be treated as an
employee of an Employer for nondiscrimination testing and other purposes
specified in Code Section 414(n). However, contributions or benefits provided
by the leasing organization, which are attributable to services performed for
an Employer, shall be treated as provided by the Employer. A "leased employee"
shall not be treated as an employee if such "leased employee" is covered by a
money purchase pension plan of the leasing organization, and the number of
leased employees does not constitute more than twenty percent (20%) of the
Employers' "non-highly compensated work force" as defined by Code Section
14(n)(5)(C). The money purchase pension plan of the leasing organization must
provide benefits equal to or greater than: (i) a non-integrated employer
contribution rate of at least ten percent (10%) of compensation, (ii) immediate
participation, and (iii) full and immediate vesting.
1.10 Employer. "Employer" means any Related Entity with respect to the
Company that adopts this Plan pursuant to Article XII. The term also includes
the Company, unless the context otherwise requires.
1.11 Entry Date. "Entry Date" means the first day of each calendar
month in the Plan Year.
1.12 ERISA. "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended.
1.13 ESOP. "ESOP" means an Employee Stock Ownership Plan as defined in
Code Section 4975(e)(7).
1.14 Hour of Service. "Hour of Service" means:
(a) Each hour for which an Employee is directly or indirectly paid or
entitled to payment by either the Company or the Employer for the performance
of duties;
(b) Each hour for which an Employee is directly or indirectly paid, or
entitled to payment, by either the Company or the Employer for reasons (such as
vacation, sickness, disability, or similar leave of absence) other than for the
performance of duties, and for military leaves, maternity/paternity leaves or
leaves for jury duty; and
(c) Each hour for which back pay, irrespective of mitigation of
damages, has been either awarded or agreed to by either the Company or the
Employer provided that the same Hours of Service shall not be credited under
this Section (c) and Sections (a) or (b) above, as the case may be.
(d) An Employee shall also be credited with one Hour of Service for
each hour that otherwise would normally have been credited to the Employee but
during which such Employee is absent from work for any period (i) by reason of
the Employee's pregnancy, (ii) by reason of the birth of the Employee's child,
(iii) by reason of the placement of a child with such Employee in connection
with an adoption of such child by the Employee or (iv) for purposes of caring
for a child for a period beginning immediately following birth or placement,
provided that an Employee shall be credited with no more than 501 Hours of
Service on account of any single continuous period of absence by reason of any
such pregnancy, birth or placement and provided further that Hours of Service
credited to an individual on account of such a period of absence shall be
credited only for the Break in Service computation period in which such absence
begins if an Employee would otherwise fail to be credited with 501 or more
Hours of Service in such period or, in any other case, in the immediately
following computation period.
Hours of Service computed hereunder shall be computed in accordance with
Section 2530.200 b-2 (b) and (c) of the Department of Labor Regulations, which
is incorporated herein by reference. In no event shall more than 501 Hours of
Service be credited for any one continuous period of absence during or for
which the employee receives payment for nonperformance of duties whether or not
such period occurs in a single computation period.
1.15 Named Fiduciary. "Named Fiduciary" means a fiduciary named in
this document, or who, pursuant to a procedure specified in the Plan, is
identified as a Named Fiduciary.
1.16 Normal Retirement Age. "Normal Retirement Age" means age sixty-
five (65) years.
1.17 Normal Retirement Date. "Normal Retirement Date" means the first
day of the month coinciding with or next following the date on which a
Participant attains Normal Retirement Age.
1.18 Participant. "Participant" means an Employee who has satisfied
the eligibility requirements for the participation in the Plan.
1.19 Plan. "Plan" means the Sky Financial Group, Inc. Profit Sharing
and 401(k) Plan.
1.20 Plan Administrator. "Plan Administrator" means the Company,
unless the Company has appointed a Committee as the Plan Administrator pursuant
to Article XI hereof. The Plan Administrator shall be the Plan's Named
Fiduciary. The Plan Administrator shall have no responsibility for the custody
or management of the Trust Fund.
1.21 Plan Year. "Plan Year" means the 12-month period beginning on
January 1 and ending on the following December 31 of each year.
1.22 Qualified Election. "Qualified Election" is defined in Section
6.05.
1.23 Qualified Joint and Survivor Annuity. "Qualified Joint and
Survivor Annuity" is defined in Section 6.05.
1.24 Qualified Pre-Retirement Survivor Annuity. "Qualified Pre-
Retirement Survivor Annuity" is defined in Section 6.05.
1.25 Qualifying Employer Securities. "Qualifying Employer Securities"
means an Employer security that is common stock issued by the Company having a
combination of voting power and dividend rights equal to or in excess of the
class of Company common stock having the greatest voting power and the class of
Company common stock having the greatest dividend rights.
1.26 Related Entity. "Related Entity" means: (i) all corporations that
are members with the Company in a controlled group of corporations within the
meaning of Code Section 1563(a), determined without regard to Code Sections
1563(a)(4) and (e)(3)(c); (ii) all trades or businesses (whether or not
incorporated) that are under common control with the Company as determined by
regulations promulgated under Code Section 414(c); (iii) all trades or
businesses that are members of an affiliated service group with the Company
within the meaning of Code Section 414(m); and (iv) any other entity required
to be aggregated with the Company in accordance with regulations under Code
Section 414(o); provided, however, for purposes of Article VII, the definition
shall be modified to substitute the phrase "more than 50%" for the phrase "at
least 80%" each place it appears in Code Section 1563(a)(1). The term "Related
Entity" shall include the predecessor of the Company and any Related Entity.
1.27 Trust. "Trust" means one or more Trusts established to fund the
Plan. The Trustee shall receive any contributions paid to it. All
contributions so received together with the income therefrom shall be held,
managed and administered in the Trust pursuant to the terms of the Plan.
1.28 Trustee. "Trustee" means such individuals or entities, appointed
by the Company, which have authority and discretion to manage and control all
or a specified portion of the assets of the Plan. Any Trustee shall be a Named
Fiduciary.
1.29 Trust Fund. "Trust Fund" means all assets of whatever kind or
nature held by the Trustee pursuant to the terms of the Plan, unless indicated
otherwise. The Trust Fund may consist of more than one trust agreement with
more than one Trustee."
1.30 Valuation Date. "Valuation Date" shall mean each business day on
which the Nasdaq Stock Market is open.
1.31 Year of Service. For purposes of determining eligibility to
participate in the Plan in accordance with Section 2.01(b) hereof, "Year of
Service" means a 12-consecutive month period, commencing on the date of an
Employee's first Hour of Service with an Employer, during which the Employee is
continuously employed by an Employer.
(a) For purposes of determining a Participant's nonforfeitable interest
pursuant to Section 5.03, "Year of Service" means a Plan Year during which such
participant is credited with at least 1,000 Hours of Service. For purposes of
Section 5.03, a Participant will be credited with a Year of Service if the
Participant completes 1,000 Hours of Service during said period, even though
the Participant is not employed for the full 12-month period.
(b) An Employee who does not initially meet the eligibility
requirements of Section 2.01 and later becomes a Participant, will have all
Years of Service counted for Plan purposes, both prior to and subsequent to
becoming a Participant.
(c) In the event a terminated Participant is re-hired, all Years of
Service with an Employer shall be counted for purposes of Sections 2.01 and
5.03 hereof.
(d) Solely for purposes of determining a Participant's nonforfeitable
interest pursuant to Section 5.03 hereof, "Year of Service" means any Plan Year
during which an individual was a leased employee (as defined in Code Section
414(n)) of the Company or any entity that must be aggregated with the Company
under Code Sections 414(b), (c) or (m) and during which the individual earned
at least 1,000 Hours of Service.
(e) If a Participant who has no nonforfeitable rights under Article V
has five consecutive Breaks in Service, then the Plan shall not take into
account Years of Service after such consecutive Breaks in Service for purposes
of determining the nonforfeitable percentage of the Participant's Account that
accrued before the Break in Service.
(f) If a Participant who has no nonforfeitable rights incurs a Break in
Service for the greater of (1) five or more consecutive Plan Years or (2) the
Participant's accumulated Years of Service prior to the Break in Service, then
the Plan shall not take into account Years of Service prior to such consecutive
Breaks in Service for the purpose of determining the nonforfeitable percentage
of the Participant's Accounts that accrues after the Break in Service.
ARTICLE II
ELIGIBILITY
2.01 Eligibility. Subject to the terms of the Plan, each Employee who
was a Participant in (1) the Mid Am, Inc. Profit Sharing and 401(k) Plan, (2)
the Citizens Bancshares, Inc. Amended and Restated Profit Sharing Plan, (3) the
Century National Bank and Trust Company Amended and Restated Profit
Sharing/401(k) Plan, or (4) The Ohio Bank Employees' Profit Sharing Plan, as
of December 31, 1998, shall participate in the Plan on and after January 1,
1999. Each other Employee will become a Participant according to the
following:
(a) Solely with respect to Compensation Deferral Contributions provided
for under Section 3.02 hereof, each Employee shall be eligible to make
Compensation Deferral Contributions beginning with the first day the Employee
completes an Hour of Service, or on the first Entry Date thereafter, if the
Employee meets both of the following requirements:
(1) the Employee has attained age eighteen (18) years; and
(2) the Employee is not a member of a collective bargaining unit
unless the collective bargaining agreement between the Employer and the union
provides for participation in this Plan.
(b) With respect to Employer Matching and Profit Sharing Contributions
provided for under Sections 3.03 and 3.04 of the Plan, each Employee shall
participate in the Plan on the first Entry Date coincident with or next
following the date the Employee meets all of the following requirements:
(1) the Employee is credited with one (1) Year of Service;
(2) the Employee has attained age eighteen (18) years; and
(3) the Employee is not a member of a collective bargaining unit
unless the collective bargaining agreement between the Employer and the union
provides for participation in this Plan.
2.02 Eligibility Upon Re-employment. A former Participant, or former
Employee who met the eligibility requirements of Section 2.01(b) for
participation in the Plan at the time he or she terminated employment, and who
is subsequently rehired, shall participate in the Plan on the Entry Date
coinciding with or next following his or her re-employment by the Employer, if
the Employee then meets the requirements for participation described in Section
2.01.
2.03 Participation Upon Change of Job Status. An individual who has
satisfied the requirements of Section 2.01(a) or (b) but who is not a
Participant because he or she is not an Employee or because he or she does not
satisfy Sections 2.01(a)(2) or (b)(3), shall become a Participant immediately
(but not sooner than the Entry Date on which the individual would have become a
Participant had he been an Employee and had satisfied Section 2.01(a)(2) or
(b)(3) at all times) upon becoming an Employee and upon satisfying Section
2.01(a)(2) and (b)(3).
ARTICLE III
CONTRIBUTIONS
3.01 Employer Contributions. The Plan is designed to qualify as a
profit sharing plan for purposes of Code Sections 401(a), 402, 412 and 417.
The Employer may make contributions to the Plan without regard to current or
accumulated earnings and profits for any taxable year or years ending with or
within such Plan Year.
Prior to January 1, 1999, Employers' Profit Sharing Contributions were
made and invested solely in Qualifying Employer Securities. On and after
January 1, 1999, Employers' Profit Sharing Contributions may be made in cash.
Each Participant's Profit Sharing Contributions Account as of December 31, 1998
(including any Profit Sharing Contribution for the 1998 Plan Year), shall be
renamed the Participant's "ESOP Account" effective January 1, 1999, and a new
Profit Sharing Contributions Account shall be established for the Participant
on January 1, 1999, pursuant to Section 4.01.
3.02 Compensation Deferral Contributions. Each Employee who becomes
eligible to participate may elect to defer a percentage of his or her Annual
Compensation for each pay period that he or she remains a Participant in
accordance with procedures established by the Plan Administrator. The
Participant's election shall be made at such time and in such manner as the
Plan Administrator shall determine. The Participant's election shall remain in
effect until revoked or superseded by a subsequent election pursuant to
procedures established by the Plan Administrator.
(a) Amount. A Participant may specify a Compensation Deferral
Contribution amount equal to any whole percentage of his or her Annual
Compensation, not to exceed 15% thereof and not less than 1% thereof; except
that the Plan Administrator may specify a lower percentage amount of
contribution from time to time in order to prevent excess contributions.
(b) Change. A Participant may change the specified percentage of
Compensation Deferral Contributions at any time, but not retroactively, by
making a revised election, unless the Plan Administrator shall specify that
changes are permitted less frequently.
(c) Suspension. A Participant may suspend his or her election to make
Compensation Deferral Contributions at any time, but not retroactively.
(d) Compensation Reduction. A Participant's Annual Compensation for a
Plan Year shall be reduced by the amount of the Compensation Deferral
Contribution that the Participant elects for such Plan Year.
(e) Election. All elections shall be made at the time, in the manner,
and subject to the conditions specified by the Plan Administrator, who shall
prescribe uniform and nondiscriminatory rules for such elections.
(f) Timing of Contributions. The Employers shall pay over to the Trust
Fund all Participants' Compensation Deferral Contributions made under this
Section with respect to a Plan Year as soon as practicable following the month
in which the Employer withholds such Contributions from Participants' Annual
Compensation. Contributions made by Employers under this Section shall be
allocated to the Compensation Deferral Accounts of the Participants from whose
Annual Compensation the contributions were withheld in an amount equal to the
amount withheld. Such contributions shall be deemed to be employer
contributions made on behalf of Participants to a qualified cash or deferred
arrangement (within the meaning of Code Section 401(k)(2)).
(g) Nondiscrimination Limitations. Contributions to a Participant's
Compensation Deferral Contributions Account must meet the nondiscrimination
requirements of Code Section 401(k) pursuant to Section 8.02 hereof.
(h) Exclusion Limitations. Except as provided herein, the Employer
shall contribute to the Plan on behalf of the Participant the full amount of
the Compensation Deferral Contribution authorized by each Participant. In no
event, however, shall a Participant's Compensation Deferral Contributions to
the Plan for any calendar year exceed ten thousand dollars ($10,000). The
Employer shall automatically discontinue Compensation Deferral Contributions
for the remainder of the year on behalf of a Participant who reaches this
limitation. If due to a mistake in fact, a Compensation Deferral Contribution
in excess of $10,000 is allocated in a calendar year to the Compensation
Deferral Contribution Account of any Participant, the Trustee shall return to
such Participant the portion of his Compensation Deferral Contribution in
excess of $10,000 plus any earnings and less any losses attributable to such
excess not later than the April 15 immediately following the calendar year
during which such excess contribution was made. If in a calendar year
a Participant's Compensation Deferral Contributions under the Plan, when
aggregated with any other elective deferrals made by such Participant in such
calendar year to any other qualified retirement plan under Code Sections
401(k), 403(b) and 408(k), whether or not maintained by an Employer, would
otherwise exceed $10,000, such Participant may before the March 1 immediately
following such calendar year notify the Plan Administrator in writing as to the
portion of the amount in excess of $10,000 to be allocated to the Plan, and the
Plan Administrator may, but is not required to, direct the Trustee to pay to
such Participant the amount of the excess that was allocated to the Plan by
such Participant plus any earnings allocated to such excess amount before the
April 15 immediately following the calendar year during which the excess
contribution was made. The $10,000 limitation contained in this Section shall
be automatically adjusted in accordance with Code Sections 402(g)(5) and
415(d).
3.03 Matching Contributions. For each pay period beginning on or after
the first Entry Date on which the Participant has satisfied the eligibility
requirements of Section 2.01(b), the Employer shall contribute to the Trust
Fund on behalf of each Participant an amount equal to 100% of the first 3% of
the Participant's Compensation Deferral Contributions for the pay period, to a
maximum of 3% of such Participant's Annual Compensation for such pay period.
The Matching Contribution shall be contributed to the Trust Fund on behalf of
each Participant who is eligible to receive such Contribution in accordance
with Section 2.01(b), and allocated among the Investment Funds according to the
Participant's election.
(a) Nondiscrimination Limitations. Contributions to a Participant's
Matching Contributions Account must meet the nondiscrimination requirements of
Code Section 401(m) pursuant to Section 8.03 hereof.
(b) Timing of Contributions. Matching Contributions shall be
periodically contributed by the Employer to the Trust Fund in accordance with
the Employer's established payroll procedures in a manner uniformly applied to
all Participants similarly situated.
3.04 Profit Sharing Contributions. Each year the Employers may make a
Profit Sharing Contribution to the Trust Fund in such amounts as the Company,
in its sole discretion, shall determine. Employer Profit Sharing Contributions
shall be held and administered in trust by the Trustee according to the terms
and conditions of the Plan and Trust. Employer contributions may be paid in
cash. To the extent that the Trust has obligations arising from an extension
of credit of the Trust that is payable in cash within one year of the date of
the Employer's contribution is made, such contribution will be paid to the
Trust in cash. Any such contribution shall be allocated in accordance with
Section 4.02 hereof, to those Participants eligible to receive such
contribution in accordance with Section 2.01(b).
The Employer's Profit Sharing Contribution, if any, shall be made to the
Trustee in full within such time as may be permitted for Federal Income Tax
purposes to obtain a deduction for the contribution by the Employer for such
taxable year.
3.05 Rollover Contributions. The Trustee may accept transfers on
behalf of a Participant from:
(a) a qualified pension or profit sharing plan maintained by a former
employer of the Participant;
(b) a previously qualified pension or profit sharing maintained by the
Employer;
(c) a "rollover" Individual Retirement Account as that term is defined
in Code Section 408(d)(3)(A)(ii);
(d) a plan in which assets are held on behalf of an Owner-Employee as
defined in Code Section 401(c)(3), which satisfies the applicable requirements
of Code Sections 401(a) and 401(d) and with respect thereto: (1) the
transferred funds shall be maintained in separate accounts in the name of the
respective Participants; and (2) a Participant's interest in the separate
account shall be nonforfeitable.
Notwithstanding the above, no direct transfer may be made from a plan
maintained by the Company that is subject to the requirements of Code Section
401(a)(11)(A).
3.06 Special Rules Relating to Veterans Re-employment Rights Under
USERRA. The following special provisions shall apply to an Employee or
Participant who is re-employed in accordance with the re-employment provisions
of the Uniformed Services Employment and Re-employment Rights Act (USERRA)
following a period of qualifying military service (as determined under USERRA):
(a) Each period of qualifying military service served by an Employee or
Participant shall, upon such re-employment with an Employer, be deemed to
constitute service with the Employer for all purposes of the Plan.
(b) The Participant shall be permitted to make up Compensation Deferral
Contributions missed during the period of qualifying military service. The
Participant shall have a period of time beginning on the date of the
Participant's re-employment with an Employer following his period of qualifying
military service and extending over the lesser of (i) the Participant's period
of qualifying military service multiplied by three, and (ii) five years, to
make up such missed Compensation Deferral Contributions.
(c) If the re-employed Participant elects to make up Compensation
Deferral Contributions in accordance with paragraph (b) above, the Employer
shall make any Matching Contributions that would have been made on behalf of
such Participant had the Participant made such Compensation Deferral
Contributions during the period of qualifying military service.
(d) If the Employer made any Profit Sharing Contributions to the Plan
during the period of qualifying military service, the Employer shall make a
Profit Sharing Discretionary Contribution on behalf of the Participant upon the
Participant's re-employment following his period of qualifying military
service, in the amount that would have been made on behalf of such Participant
had the Participant been employed during the period of qualifying military
service.
(e) The Plan shall not (i) credit earnings to a Participant's Accounts
with respect to any Compensation Deferral or Matching Contribution before such
contribution is actually made, or (ii) make up any allocation of forfeitures,
with respect to the period of qualifying military service. A re-employed
Participant shall be entitled to accrued benefits attributable to Compensation
Deferral Contributions only if such contributions are actually made.
(f) For all purposes under the Plan, including an Employer's liability
for making contributions on behalf of a re-employed Participant as described
above, the Participant shall be treated as having received Annual Compensation
from the Employer based on the rate of Annual Compensation the Participant
would have received during the period of qualifying military service, or if
that rate is not reasonably certain, on the basis of the Participant's average
rate of Annual Compensation during the 12-month period immediately preceding
such period.
(g) If a Participant makes a Compensation Deferral Contribution or the
Employer makes a Matching Contribution in accordance with the foregoing
provisions of this Section 3.06:
(i) such contributions shall not be subject to any otherwise
applicable limitation under Code Section 402(g), 404(a) or 415, and shall not
be taken into account in applying such limitations to other Participant or
Employer contributions under the Plan or any other plan with respect to the
year in which such contributions are made, and such contributions shall be
subject to these limitations only with respect to the year to which such
contributions relate and only in accordance with regulations prescribed by the
Internal Revenue Service; and
(ii) the Plan shall not be treated as failing to meet the
requirements of Code Section 401(a)(4), 401(a)(26), 401(k)(3), 401(k)(11),
401(k)(12), 401(m), 410(b) or 416 by reason of such contributions.
3.07 Automatic Compensation Deferral Contributions. The Company may,
in its sole discretion, implement an automatic Compensation Deferral
Contribution feature as to all Employees who first become eligible under
Section 2.01(a) of the Plan, effective as of any date the Company specifies in
the future. Pursuant to this automatic Compensation Deferral Contribution
feature, the Plan Administrator will withhold a Compensation Deferral
Contribution amount equal to three percent (3%) of the Annual Compensation of
each Employee who first becomes eligible under Section 2.01(a) of the Plan
after the effective date the Company specifies for the automatic Compensation
Deferral Contribution feature, as if the Participant had elected to defer that
percentage of his or her Annual Compensation for each pay period. The
Participant's deemed election shall remain in effect until the Participant
files a subsequent election revoking or superseding the deemed election,
pursuant to procedures established by the Plan Administrator.
(a) A Participant may suspend his or her deemed election to make
Compensation Deferral Contributions at any time, but not retroactively. A
Participant may change the deemed election percentage at any time, but not
retroactively, by making a revised election, unless the Plan Administrator
specifies that changes are permitted less frequently.
(b) Compensation Deferral Contributions deemed authorized by each
Participant and contributed by the Employer pursuant to Section 3.02 hereof,
shall be credited to the Participant's Compensation Deferral Contributions
Account. If the Participant does not direct the manner in which such
Contributions are to be invested among the Investment Funds, the Plan
Administrator shall specify an Investment Fund or Funds into which such
Contributions will be invested.
(c) The Company intends that this Section 3.07 comply, and be
administered in accordance with, the provisions of Revenue Ruling 98-30.
ARTICLE IV
ALLOCATIONS
4.01 Participant Accounts. The Plan Administrator shall direct the
Trustee to maintain such separate Accounts for each Participant as the Plan
Administrator shall from time to time determine, including the following:
(a) Profit Sharing Contributions Account. The amount of the
Employer's contribution to the Trust Fund pursuant to Section 3.04 hereof and
allocated pursuant to Section 4.02(a) hereof, together with such Participant's
share of all income, gains and accumulations therefrom, shall be credited and
losses debited to each Participant's Profit Sharing Contributions Account.
(b) Compensation Deferral Contributions Account. Compensation Deferral
Contributions authorized by each Participant and contributed by the Employer
pursuant to Section 3.02 hereof, together with such Participant's share of all
income, gains and accumulations therefrom, shall be credited and losses debited
to each Participant's Compensation Deferral Contributions Account.
(c) Matching Contributions Account. Matching Contributions made by the
Employer pursuant to Section 3.03 hereof, together with such Participant's
share of all income, gains and accumulations therefrom, shall be credited and
losses debited to such Participant's Matching Contributions Account.
(d) ESOP Account. Amounts in the Participant's Profit Sharing Accounts
as of December 31, 1998, together with such Participant's share of all
forfeitures, income, gains and accumulations therefrom, shall be credited and
losses debited to each Participant's ESOP Account.
(e) Prior Plan Account. Amounts transferred from a previous qualified
plan of an Employer, together with such Participant's share of income, gains
and accumulations therefrom, shall be credited and losses debited to each
Participant's Prior Plan Account.
(f) Rollover Contributions Account. Rollover Contributions made by a
Participant pursuant to Section 3.05 hereof, together with such Participant's
shares of all income, gains and accumulations therefrom, shall be credited and
losses debited to such Participant's Rollover Contributions Account.
Said Profit Sharing Contributions Account, Compensation Deferral
Contributions Account, Matching Contributions Account, ESOP Account, Prior Plan
Account and Rollover Contributions Account will sometimes hereinafter be
collectively referred to as "Accounts."
4.02 Allocation of Profit Sharing Contributions. Effective as of the
last day of each Plan Year, any amount contributed by the Employers pursuant to
Section 3.04 hereof shall be allocated and credited to the Profit Sharing
Contributions Account of each eligible Participant. An allocation will be made
only if the Participant was employed by the Employer on the last day of such
Plan Year and was credited with at least 1,000 Hours of Service during such
Plan Year, except that any Participant who became totally and permanently
disabled, died or retired during such Plan Year shall receive an allocation.
Such allocations shall be determined in the same proportion that such
Participant's Annual Compensation bears to the total Annual Compensation of all
Participants eligible to share in the Employers' Profit Sharing Contribution
for such Plan Year. For this purpose, Annual Compensation shall (i) only
include compensation earned while the Participant was an Employee of an
Employer, and (ii) include compensation for the entire Plan Year, even if the
Participant first became a Participant during the Plan Year.
4.03 Allocation of Compensation Deferral Contributions. All
Compensation Deferral Contributions made by the Employers pursuant to Section
3.02 for any pay period shall be allocated and credited to the Compensation
Deferral Contributions Account of each eligible Participant who made
Compensation Deferral Contributions for that pay period, according to such
Participant's Compensation Deferral Contributions for the pay period.
4.04 Allocation of Matching Contributions. Any Matching Contributions
made by the Employers pursuant to Section 3.03 for any pay period shall be
allocated and credited to the Matching Contributions Account of each eligible
Participant who made Compensation Deferral Contributions for that pay period,
according to such Participant's Compensation Deferral Contributions for the pay
period. The allocable share of each Participant shall be 100% of the first
3% of the Participant's Compensation Deferral Contributions for the pay period,
up to a maximum of 3% of the Participant's Annual Compensation, subject to the
terms of the Plan.
4.05 Allocation of Investment Gain or Loss. Any net gain or net loss
resulting from the operation of the Investment Funds of the Trust for such
year, determined in accordance with Article IX hereof, shall be allocated by
the Trustee to the respective Participant's Accounts in proportion to the value
of the respective interests in the Investment Fund immediately preceding such
revaluation.
4.06 Allocation of Cash Dividends. Cash dividends on Company Stock
allocated to a Participant's Account shall be credited to the Participant's
Account.
4.07 Valuations. The Trust Fund and each Investment Fund shall be
valued by the Trustee at fair market value as of each Valuation Date. The
"adjusted net worth" of an Investment Fund as of any Valuation Date means the
net worth of that Investment Fund as determined by the Trustee in accordance
with the provisions of the Trust Agreement.
4.08 Allocation of Gain or Loss. Any increase or decrease in the
market value of each Investment Fund of the Trust Fund since the preceding
Valuation Date and all income earned, expenses incurred and realized profits
and losses, shall be determined in accordance with accounting methods uniformly
and consistently applied and shall be added to or deducted from the Account of
each Participant based on the amount of a Participant's Account in such
Investment Fund at the prior Valuation Date in accordance with
non-discriminatory procedures and rules adopted by the Plan Administrator.
Before reallocation, the Accounts of the Participants shall be reduced by any
payments made therefrom in the period. At the Plan Administrator's discretion
uniformly applied, administrative expenses directly connected or associated
with a particular Participant's Account may be charged to the Account.
Notwithstanding the foregoing, allocation shall not be required to the extent
the Trust Fund, or any Investment Fund thereof, is administered in a manner
that permits separate valuation of each Participant's interest therein without
separate incremental cost to the Plan or the Plan Administrator otherwise
provides for separate valuation.
4.09 Annual Report to Participants. The Plan Administrator shall
notify each Participant in writing of the financial status of his or her
Accounts as of the last day of each Plan Year.
ARTICLE V
BENEFITS TO PARTICIPANTS
5.01 Upon Retirement or Disability. When a Participant retires on or
after the Participant's Normal Retirement Date, or becomes totally and
permanently disabled, the entire interest in the Participant's Accounts,
including the amount of any contributions for the Plan Year in which the
Participant's retirement or Disability occurs, shall become nonforfeitable.
The Plan Administrator, in accordance with the provisions of Section 6.01 of
the Plan, shall then direct the Trustee to distribute to such Participant the
entire interest in his or her Accounts. A Participant's Accounts shall be
nonforfeitable upon the attainment of Normal Retirement Age.
A Participant who remains in the employment of the Employer after the
Participant's Normal Retirement Date shall continue to participate in the Plan.
No distribution shall be made to the Participant until his or her actual
retirement, subject to the mandatory commencement of benefit provisions of
Section 6.06 hereof.
5.02 Upon Death. Upon the death of a Participant, the entire interest
in the Participant's Accounts, including the amount of any contributions for
the Plan Year in which the Participant's death occurs, shall become
nonforfeitable. The Plan Administrator, in accordance with the provisions of
Article VI of the Plan, shall then direct the Trustee to distribute the entire
interest in the Participant's Accounts to such Participant's designated
beneficiary or beneficiaries. The Plan Administrator may require proper proof
of death and evidence of the right of any person to receive payment of the
entire interest in the Accounts of the deceased Participant as the Plan
Administrator deems desirable and the Plan Administrator's determination shall
be conclusive. The Trustee shall make such distribution as soon as
administratively feasible following the Participant's death and in accordance
with the rules and procedures established by the Plan Administrator.
Unless the Participant has made a Qualified Election, the Trustee shall
make all payments to the Participant's spouse in a lump sum, or, if applicable,
in a Qualified Pre-Retirement Survivor Annuity pursuant to Section 6.02. Each
Participant, by written instrument delivered to the Plan Administrator, shall
have the unqualified right to designate, and from time to time change, the
beneficiary or beneficiaries to receive the entire interest in his Accounts in
the event of his death, subject to the Qualified Election requirements in
Section 6.05(e).
In the event the Participant fails to designate a beneficiary or
beneficiaries, the entire interest in the Participant's Accounts shall be
distributed first to the Participant's spouse if then living, or second to the
Participant's estate.
5.03 Nonforfeitable Interest Upon Termination of Employment. Upon
termination of a Participant's employment for any reason other than retirement,
Disability or death, the Trustee shall, in accordance with the provisions of
Section 6.01 of the Plan and at the instruction of the Plan Administrator,
distribute to the Participant the entire interest then constituting his
Compensation Deferral Contributions Account and Rollover Contributions Account,
which are always nonforfeitable, and the nonforfeitable interest in the
Participant's Matching Contributions Account, Profit Sharing Contributions
Account, ESOP Account and Prior Plan Account based on the Participant's Years
of Service determined in accordance with the applicable schedule below:
Years of Service Nonforfeitable Interest
Less than 2 0%
2 but less than 3 40%
3 but less than 4 60%
4 but less than 5 80%
5 or more 100%
(a) Any Participant who, prior to January 1, 1999, was a Participant in
the Mid Am, Inc. Profit Sharing and 401(k) Plan, and who has completed at least
three Years of Service as of January 1, 1999, may elect in writing to have his
or her nonforfeitable interest computed under the Plan's five year cliff
vesting schedule in effect prior to January 1, 1999, by the later of: (1) the
Participant's termination of employment, or (2) the date that is 60 days after
the day the Plan Administrator gives written notice of the Plan amendment to
the Participant.
(b) In the event the nonforfeitable interest schedule is amended, or
the nonforfeitable interest schedule of an existing plan is amended by the
Plan, then any Participant who has completed at least three Years of Service on
the later of the date the amendment is adopted, or the date the amendment is
effective may elect in writing to have his or her nonforfeitable interest
computed under the prior applicable nonforfeitable interest schedule, beginning
on the date the Plan amendment is adopted and ending on the later of: (1) the
Participant's termination of employment, (2) the date that is 60 days after the
day the Plan amendment is adopted, (3) the date that is 60 days after the day
the Plan amendment becomes effective, or (4) the date that is 60 days after the
day the Plan Administrator gives written notice of the Plan amendment to the
Participant.
5.04 October 2, 1998 Change in Control. Each Participant in the Mid
Am, Inc. Profit Sharing and 401(k) Plan on October 2, 1998, the effective date
of the merger of Mid Am into Citizens, acquired a 100% nonforfeitable interest
in his or her Accounts under the Mid Am, Inc. Profit Sharing and 401(k) Plan as
of that date. The Employer Profit Sharing and Matching Contributions made
under the Mid Am, Inc. Profit Sharing and 401(k) Plan, and under this Plan, on
and after October 2, 1998, shall be subject to the vesting schedule contained
in this Article, based on all of the Participant's Years of Service before and
after that date.
5.05 Forfeiture Upon Termination of Employment. If a Participant
terminates employment, and the value of the Participant's vested Accounts is
not (or at the time of any prior, periodic distribution was not) greater than
$5,000, the Participant will receive a distribution of the value of the entire
vested portion of his or her Accounts and the nonvested portion will be treated
as a forfeiture.
(a) If a Participant terminates service and elects to receive a
distribution of the vested portion of his or her Accounts pursuant to Article
VI of the Plan, the nonvested portion will be treated as a forfeiture.
(b) If distribution is made to a Participant on account of termination
of employment, which is less than the value of the Participant's Account, prior
to the date on which the Participant has a Break in Service for five
consecutive Plan Years, and the Participant returns to employment covered by
the Plan, the Participant's Account shall subsequently be determined without
regard to the portion thereof derived from predistribution employment, provided
the Participant (1) received distribution of the entire present value of the
nonforfeitable portion of his or her Account at the time of distribution, (2)
the amount of the distribution did not exceed the dollar limit under Code
Section 411(a)(11)(A) or the Participant (with spousal consent, if applicable)
voluntarily elected to receive the distribution, and (3) the Participant upon
return to employment covered by the Plan does not repay the full amount of the
distribution before the earlier of suffering five consecutive one year Breaks
in Service, or at the close of the first period of five consecutive one year
Breaks in Service commencing after the distribution. If the Participant makes
a timely repayment, the Participant's Account shall equal the sum of the
repayment and the forfeitable portion of the Participant's Account on the date
of distribution, unadjusted by gains or losses subsequent to the distribution.
Restoration of forfeitures under this paragraph shall be made, to the extent
necessary, first from forfeitures in the Plan Year of repayment and second from
Employer contributions.
(c) If a Participant does not receive a distribution pursuant to
Article VI, the nonvested portion of the Participant's Accounts will be treated
as a forfeiture on the last day of the Plan Year in which the Participant
terminated employment.
(d) Except as provided in paragraph (b) above, forfeitures will be used
to reduce the contribution due from the Employer for the Plan Year in which the
forfeiture occurs, or for the immediately following Plan Year.
(e) For purposes of this Section 5.05, if a Participant does not have
any nonforfeitable interest in his Accounts, he will be deemed to have received
a distribution of the entire vested portion of his Accounts in accordance with
the provisions of subparagraph (a) above without having submitted any
application for benefits to the Plan Administrator. If such Participant
returns to active service with an Employer prior to incurring five consecutive
Breaks in Service, the Participant will be deemed to have paid back the
distribution and his Accounts will be restored as provided in subparagraph (b)
above.
ARTICLE VI
DISTRIBUTIONS
6.01 Commencement of Benefits. The Plan shall distribute a
Participant's Account as soon as administratively feasible after the
Participant's termination of employment, except as provided below. If the
nonforfeitable portion of the Participant's Account exceeds (or at the time
of any prior, periodic distribution ever exceeded) $5,000, (i) the Plan shall
not distribute the Participant's Account before the Participant attains Normal
Retirement Date unless the Participant consents to such distribution in
writing, and (ii) if the Participant is married on the date the Plan is
to distribute his or her Account, the Plan will not distribute the
Participant's Account without the Participant's Qualified Election, pursuant to
Section 6.05(e). The Plan Administrator shall notify the Participant of the
right to defer the distribution of his or her Account, subject to the
limitations of Section 6.06 below. The notice of the right to defer
distributions shall also give a general description of the material features,
and an explanation of the relative values, of the normal and optional forms of
benefit available under the Plan in a manner that would satisfy the notice
requirements of Code Section 417(a)(3). The Plan Administrator must give such
notice no less than 30 days and no more than 90 days prior to the Annuity
Starting Date, unless the Participant waives the notice requirement as provided
in Code Section 417(a)(7)(B) or the requirements of Code Section 417(a)(7)(A)
are met.
If the Participant does not consent to distribution, the Participant's
Account shall be retained in the Trust Fund until such later date as the
Participant requests distribution. If the Participant does not request
distribution prior to the Participant's Normal Retirement Date or death, the
Plan shall distribute the Participant's Account as soon as administratively
feasible after the Valuation Date next following the first to occur of the
Participant's Normal Retirement Date or death (provided the Plan Administrator
receives notice of the Participant's death).
6.02 Payment of Benefits: Pre-1999 Participants. For each Participant
who was a Participant in the Mid Am, Inc. Profit Sharing and 401(k) Plan prior
to January 1, 1999:
(a) the normal form of benefit under the Plan is the "Qualified Joint
and Survivor Annuity," unless the Participant and his or her spouse execute a
Qualified Election, pursuant to Section 6.05(e), selecting an optional form of
benefit within the 90-day period ending on the date the Plan is to commence
benefit payments; and
(b) if the Participant is married and dies prior to the commencement of
his or her benefits, the Participant's Account shall be used to provide a
"Qualified Pre-Retirement Survivor Annuity" for the Participant's spouse unless
the Participant and his or her spouse execute a Qualified Election, pursuant to
Section 6.05(e), selecting another form of distribution, within the "Election
Period."
6.03 Payment of Benefits: Post-1998 Participants. For each Participant
who was not a Participant in the Mid Am, Inc. Profit Sharing and 401(k) Plan
prior to January 1, 1999, the Plan will distribute the Participant's Account in
one of the optional forms of benefit specified in Section 6.04, as the
Participant elects. If a Participant who was not a Participant in the Mid Am,
Inc. Profit Sharing and 401(k) Plan prior to January 1, 1999, dies before the
complete distribution of his or her Account, leaving a surviving spouse, the
surviving spouse will automatically be the Participant's sole, primary
beneficiary, unless the Participant has designated someone other than his
surviving spouse as beneficiary, by a Qualified Election, pursuant to Section
6.05(e).
6.04 Optional Forms of Benefit. A Participant may elect to waive the
Qualified Joint and Survivor Annuity and have his or her Accounts distributed
in one of the following optional forms of distribution:
(a) a lump sum payment;
(b) a straight life annuity for the Participant's life; or
(c) substantially equal monthly, quarterly, semi-annual or annual
installments over any period of time not exceeding the Participant's then life
expectancy or the joint and last survivor expectancy of the Participant and a
designated beneficiary. If there is any remaining balance in the Participant's
Account upon his or her death, such balance shall be payable as a death benefit
in accordance with Section 6.07 below.
If the Participant's entire Account is to be distributed in other than a
lump sum, then the amount to be distributed each year must be at least an
amount equal to the quotient obtained by dividing the Participant's entire
interest by the life expectancy of the Participant or joint and last survivor
expectancy of the Participant and designated beneficiary. Life expectancy and
joint and last survivor life expectancy are computed by the use of the return
multiples contained in Section 1.72-9 of the Income Tax Regulations. For
purposes of this computation, a Participant's life expectancy may be
recalculated no more frequently than annually, however, the life expectancy of
a non-spouse beneficiary may not be recalculated. If the Participant's spouse
is not the designated beneficiary, the method of distribution selected must
assure that more than 50% of the present value of the amount available for
distribution is paid within the life expectancy of the Participant. All
distributions must be the minimum distribution incidental benefit requirements
in Section 1.401(a)(9)-2 of the proposed regulations.
6.05 Definitions. The following definitions shall apply to this
Article VI:
(a) Annuity Starting Date. "Annuity Starting Date" mean the first day
of the first period for which an amount is paid as an annuity, regardless of
when or whether payment is actually made. In the case of benefits not payable
as an annuity, the Annuity Starting Date is the date on which all events have
occurred that entitle the Participant to a benefit.
(b) Qualified Joint and Survivor Annuity. "Qualified Joint and
Survivor Annuity" means an annuity for the life of the Participant with a
survivor annuity for the life of the spouse that is not less than 50% and not
more than 100% of the amount of the annuity that is payable during the joint
lives of the Participant and the spouse, which is the actuarial equivalent of
the normal form of benefit, or if greater, any optional form of benefit. A
Qualified Joint and Survivor Annuity for a Participant who is not married shall
be an annuity for the life of such Participant.
(c) Qualified Pre-Retirement Survivor Annuity. "Qualified Pre-
Retirement Survivor Annuity" means an annuity for the life of the Participant's
surviving spouse, if any, applying the Participant's vested Account to purchase
such life annuity. The spouse of the deceased Participant may elect to receive
the full value of such Participant's Account in a lump sum in lieu of the
Qualified Pre-Retirement Survivor Annuity.
Subject to the rules in Section 6.03, the surviving spouse shall begin to
receive payments immediately, unless such surviving spouse elects a later date,
except that the surviving spouse shall receive an immediate distribution if the
value of the Participant's vested Accounts is not (or at the time of any prior,
periodic distribution was not) greater than $5,000.
(d) Applicable Period. The "Applicable Period" for the explanation of
the Qualified Joint and Survivor Annuity shall be no less than 30 days (or no
less than 7 days if the Participant waives the 30-day period pursuant to Code
Section 417(a)(7)(B)) and no more than 90 days prior to the Participant's
Annuity Starting Date, or soon after the Participant's Annuity Starting Date if
the requirements of Code Section 417(a)(7)(A) are met. The "Applicable Period"
for the Qualified Pre-Retirement Survivor Annuity" means, with respect to a
particular Participant, the latest of the following:
(1) The period that begins with the first day of the Plan Year in
which the Participant attains age 32 and ending with the close of the Plan Year
preceding the Plan year in which the Plan Year in which the Participant attains
age 35;
(2) a reasonable period after the Employee becomes a Participant;
(3) a reasonable period after this Section no longer applies to
the Participant; or
(4) a reasonable period after the Participant's separation from
service in the case of a Participant who separates from service before
attaining age 35.
Within the Applicable Period, the Plan Administrator shall give the
Participant written notification of the availability of the Qualified Election
with respect to the Qualified Joint and Survivor Annuity. The notification
shall explain the terms and conditions of the Qualified Joint and Survivor
Annuity, the rights of the spouse, the effect of electing not to take such
annuity, and the right to revoke a previous election to waive such annuity.
The Participant (and the Participant's spouse) must complete the election on or
before the Annuity Starting Date, or after the Annuity Starting Date if the
requirements of Code Section 417(a)(7)(A) are met. The Participant may revoke
an election not to take the Joint and Survivor Annuity or choose again to
take such annuity at any time and any number of times within the applicable
election period. If a Participant requests additional information within 60
days after receipt of the notification of election, the minimum election period
shall be extended an additional 60 days following the Participant's receipt of
such additional information.
Within the Applicable Period, the Plan Administrator shall give each
Participant a written explanation of the Qualified Pre-Retirement Survivor
Annuity which shall contain the following: (i) the terms and conditions of a
Qualified Pre-Retirement Survivor Annuity; (ii) the Participant's right to make
and the effect of an election to waive this form of benefit; (iii) the rights
of the Participant's spouse; and (iv) the right to make, and the effect of, a
revocation of a previous election to waive the Qualified Pre-Retirement
Survivor Annuity. In the case of a Participant who enters the Plan after the
first day of the Plan Year in which the Participant attained age 32, the Plan
Administrator shall provide the required notice no later than the close of the
second Plan Year succeeding the entry of the Participant in the Plan.
(e) Qualified Election. "Qualified Election" means an election by a
Participant to (i) waive the Qualified Joint and Survivor Annuity or Qualified
Pre-Retirement Survivor Annuity, pursuant to Section 6.02, and elect an
optional form of distribution, (ii) designate a beneficiary other than the
Participant's spouse, pursuant to Section 6.03, or (iii) begin distributions
prior to the Participant's Normal Retirement Date, pursuant to Section 6.01,
which satisfies the following consent requirements:
(1) The spouse's consent shall be witnessed by a Plan
representative or notary public.
(2) The spouse's consent must acknowledge the effect of the
election, including that the spouse had the right to limit consent only to a
specific beneficiary or a specific form of benefit, if applicable, and that the
relinquishment of one or both such rights was voluntary. Unless the consent of
the spouse expressly permits designations by the Participant without a
requirement of further consent by the spouse, the spouse's consent must be
limited to the form of benefit, if applicable, and the beneficiary, class of
beneficiaries, or contingent beneficiary named in the election.
(3) Spousal consent is not required if the Participant
establishes to the satisfaction of the plan representative that the consent of
the spouse cannot be obtained because there is no spouse or the spouse cannot
be located.
(4) A spouse's consent under this Section shall not be valid with
respect to any other spouse.
(5) A Participant may revoke a prior election without the consent
of the spouse. Any new election will require a new spousal consent, unless the
consent of the spouse expressly permits such election by the Participant
without further consent by the spouse.
(6) A spouse's consent may be revoked at any time within the
Participant's election period.
6.06 Mandatory Commencement of Benefits. In no event other than the
written direction of the Participant will distributions under the Plan commence
later than the 60th day after the end of the Plan Year in which the later of
the following events occurs:
(a) The Participant attains Normal Retirement Age;
(b) The tenth anniversary of the year in which the Participant
commences participation in the Plan; or
(c) The Participant terminates his employment with the Employer.
A Participant may elect to defer the commencement of distributions under
the Plan to a date later than set forth above, provided, however, that the
Participant must make any such election by submitting to the Plan Administrator
a signed written statement describing the method and medium of distribution and
the date on which such distribution shall commence.
Anything above to the contrary notwithstanding, distributions of a
Participant's benefits must commence by April 1 of the calendar year following
the later of (i) the calendar year in which the Participant attains age 70 1/2,
or (ii) the calendar year in which the Participant retires, in accordance with
the minimum distribution requirements of Code Section 401(a)(9). Notwithstanding
the foregoing sentence, for any Participant who is a 5-percent owner of an
Employer, the distributions of benefits must commence by April 1 of the
calendar year following the calendar year in which the Participant attains age
70 1/2. A Participant who attained age 70 1/2 during the 1998 calendar year
and who is not a 5-percent owner may elect to postpone receiving such
distributions until April 1 of the calendar year following the year in which the
Participant retires, as long as he or she so elects in the manner prescribed by
the Plan Administrator before April 1, 1999. For purposes of this minimum
distribution, the Participant may elect prior to the date of the first required
distribution to have his life expectancy and his spouse's life expectancy
recalculated annually. Such election shall be irrevocable once made, and shall
apply for all subsequent Plan Years. The Participant and his spouse shall have
the right to separately elect as to whether each wants his life expectancy
recalculated, and the election of one shall not affect the election of the
other. In the event that either the Participant or his spouse fails to make an
election, his life expectancy shall be recalculated annually.
The mandatory commencement of distribution to a Participant or
beneficiary pursuant to this Section shall not apply provided (i) that prior to
January 1, 1984, or such other date permitted by law, a Participant (including
Key Employees) who had an Account balance under this Plan as of December 31,
1983, made a written designation for a method of distribution of the benefit
that satisfy the provisions of Code Section 401(a)(9) as in effect prior to the
enactment of the Tax Equity and Fiscal Responsibility Act of 1982 (including
rules relating to incidental death benefits). Any written designation, if
made, shall be binding upon the Plan Administrator. In addition, the
mandatory commencement of distribution shall not apply to any Participant who
attained age 70 1/2 prior to January 1, 1988 and who was not a five percent
owner at any time after he or she attained age 66 1/2.
6.07 Distributions After Death of a Participant. Subject to the
provisions of Section 6.02 above, if a Participant dies before the Plan has
distributed any portion of his or her Account, the Plan shall distribute the
Participant's Account in one of the following methods:
(a) The Plan shall distribute the Participant's Account no later than
December 31 of the calendar year that contains the fifth anniversary of the
date of the Participant's death, regardless of who is to receive the
distribution.
(b) If the distribution is to be made to a designated beneficiary, the
distribution of a Participant's interest shall commence not later than December
31 of the calendar year immediately following the calendar year in which the
Participant died, and payments shall occur over a period not extending beyond
the life expectancy of such designated beneficiary. If distribution is to be
made to the Participant's surviving spouse, distribution must commence on or
before the later of: (1) December 31 of the calendar year immediately following
the calendar year in which the Participant died, or (2) December 31 of the
calendar year in which the Participant would have attained age 70 1/2. Such
distribution shall occur over a period not extending beyond the life expectancy
of such designated beneficiary.
A Participant or the Participant's spouse or designated beneficiary,
subject to a Qualified Election, may elect the method of distribution described
in subparagraph (b) above. Such election must be made no later than the
earlier of: (1) the date that distribution would have to occur according to
the provisions of subparagraph (a) above, or (2) the date that distribution
would have to occur according to the provisions of subparagraph (b) above. As
of such date, the election is irrevocable and shall apply for all subsequent
years and any subsequent beneficiaries. If no such election is made,
distribution shall be made in accordance with subparagraph (a) above.
If the Participant's surviving spouse dies before the Plan begins
distributions to such spouse, the payment of the Participant's interest shall
be made as if the surviving spouse were the Participant. If the Plan has begun
distribution of the Participant's interest at the time of such Participant's
death, distribution may be made for a term certain at least as rapidly as under
the method of distribution used prior to the death of the Participant.
6.08 Special ESOP Distribution Requirements. This Section 6.08 shall
apply to distributions of a Participant's ESOP Account, and shall not act to
eliminate any form or time of distribution otherwise available under the Plan.
(a) Time of Distribution. Notwithstanding any other provision of this
Plan, other than such provisions as require the consent of the Participant and
the Participant's spouse to an immediate distribution of the Participant's
vested Accounts if the value of such Accounts at the time of the Participant's
termination of service (or at the time of any prior, periodic distribution)
exceeded $5,000, a Participant may elect to have the portion of his ESOP
Account attributable to Qualifying Employer Securities acquired by the Plan
after December 31, 1986 distributed as follows:
(1) If the Participant separates from service by reason of the
attainment of Normal Retirement Age, death or Disability, the distribution of
such portion of the Participant's ESOP Account will begin not later than one
year after the close of the Plan Year in which such event occurs unless the
Participant otherwise elects pursuant to Section 6.01 hereof.
(2) If the Participant separates from service for any reason
other than those enumerated in paragraph (1) above, and is not re-employed by
the Employer at the end of the fifth Plan Year following the Plan Year of such
separation from service, distribution of such portion of the ESOP Account will
begin not later than one year after the close of the fifth Plan Year following
the Plan year in which the Participant separated from service unless the
Participant otherwise elects pursuant to Section 6.01 hereof
(3) If the Participant separates from service for a reason other
than those described in paragraph (1) above, and is employed by the Employer as
of the last day of the fifth Plan Year following the Plan year of such
separation from service, distribution to the Participant, prior to any
subsequent separation from service, shall be in accordance with Section 6.01
hereof.
For purposes of this Section 6.08, Qualifying Employer Securities shall
not include any Employer securities acquired with the proceeds of a loan
described in Article XV hereof until the close of the Plan Year in which such
loan is repaid in full.
(b) Form of Distribution. Distribution may be made either in whole
shares of Company Stock or in cash as the Plan Administrator shall decide,
provided that any distribution in cash shall only be made after a Participant
has been offered the right to receive such distribution in shares of Company
Stock. In the event the distribution is to be made in Company Stock, any
balance in a Participant's Account will be applied to acquire for distribution
the maximum number of whole shares of Company Stock at the applicable value.
Any fractional share value unexpended balance will be distributed in cash. If
the Company Stock is not available for purchase by the Trustee, then the
Trustee shall hold such balance until Company Stock is acquired and then make
such distribution. The Trustee will make distribution from the Trust only on
instructions from the Plan Administrator.
(c) Period for Payment. Distributions required under this Section
6.08 shall be made in substantially equal annual payments over a period of five
years unless the Participant otherwise elects under the provisions of Section
6.01 hereof. In no event shall such distribution period exceed the period
permitted in Code Section 401(a)(9).
(d) Determination of Amount Subject to Special Distribution and Payment
Requirements. The portion of a Participant's ESOP Account attributable to
Qualifying Employer Securities that were acquired by the Plan after December
31, 1986, shall be determined by multiplying the number of shares of such
securities held in the Account by a fraction, the numerator of which is the
number of shares acquired by the Plan after December 31, 1986 and allocated to
Participant's ESOP Account (not to exceed the number of shares held by the Plan
on the date of distribution) and the denominator of which is the total number
of shares held by the Plan at the date of the distribution.
6.09 Right to Have Accounts Transferred. Notwithstanding any provision
of the Plan to the contrary that would otherwise limit an "eligible
distributee" election under this Article VI, an eligible distributee may elect,
at the time and in the manner prescribed by the Plan Administrator, to have any
portion of an "eligible rollover distribution" paid directly to an
"eligible retirement plan" specified by the eligible distributee in a "direct
rollover."
(a) "Eligible rollover distribution" means any distribution of $200 or
more of all or any portion of the balance to the credit of the eligible
distributee, except that an eligible rollover distribution shall not include:
any distribution that is one of a series of substantially equal periodic
payments (not less frequently than annually) made for the life (or life
expectancy) of the distributee or the joint lives (or joint life expectancies)
of the eligible distributee and the eligible distributee's designated
beneficiary, or for a specified period of ten years or more; any distribution
to the extent such distribution is required under Code Section 401(a)(9); and
the portion of any distribution that is not includible in gross income
(determined without regard to the exclusion for net unrealized appreciation
with respect to employer securities).
(b) "Eligible retirement plan" means an individual retirement account
described in Code Section 408(a), an individual retirement annuity described in
Code Section 408(b), an annuity plan described in Code Section 403(a), or a
qualified trust described in Code Section 401 (a), that accepts the eligible
distributee's rollover distribution. However, in the case of an eligible
rollover distribution to the surviving spouse, an eligible retirement plan
shall only be an individual retirement account or individual retirement
annuity.
(c) An "eligible distributee" means Employee or former Employee. In
addition, the Employee's or former Employee's surviving spouse and the
Employee's or former Employee's spouse who is the alternate payee under a
qualified domestic relations order, as defined in Section 414(p), are eligible
distributees with regard to the interest of the spouse or former spouse.
(d) A "direct rollover" means a payment by the plan to the eligible
retirement plan specified by the eligible distributee.
If a distribution is one to which Code Sections 401(a)(11) and 417 do not
apply, such distribution may commence less than 30 days after the notice
required under Section 1.411(a)-11(c) of the Income Tax Regulations is given,
provided that: (i) the Plan Administrator clearly informs the Participant that
the Participant has a right to a period of at least 30 days after receiving
the notice to consider the decision of whether or not to elect a distribution
(and, if applicable, a particular distribution option); and (ii) the
Participant, after receiving the notice, affirmatively elects a distribution.
6.10 Restrictions on Distributions of Compensation Deferral
Contributions. Compensation Deferral Contributions may not be distributed from
this Plan prior to the earlier of:
(a) retirement, separation from service, death or Disability of the
Participant;
(b) attainment of age 59 1/2 by the Participant, if procedures have been
established by the Plan Administrator;
(c) termination of the Plan without establishment of a successor plan;
(d) sale of substantially all of the assets of the Employer to an
entity that is not an affiliated employer; or
(e) upon the sale of a subsidiary of the Employer to an entity that is
not an affiliated employer, only Participants who are employed by such
subsidiary may receive a distribution of their Compensation Deferral
Contributions Account.
ARTICLE VII
LIMITATION ON CONTRIBUTIONS AND BENEFITS
7.01 Definitions. The following definitions shall apply for purposes
of this Section 7.01:
(a) Annual Addition. "Annual Addition" means for each Plan Year the
sum of the following amounts credited to a Participant's Accounts for the
Limitation Year under all Defined Contribution Plans maintained by the
Employer:
(1) Employer contributions,
(2) Employee contributions,
(3) Forfeitures, and
(4) Any amounts allocated to an individual medical account (as
defined in Code Section 415(1)(2)) that is part of any pension or annuity plan
maintained by the Employer are treated as Annual Additions to a Defined
Contribution Plan. Amounts derived from contributions paid or accrued after
December 31, 1985 in taxable years ending after such date that are attributable
to post retirement medical benefits allocated to the separate account of a key
employee (as defined in Code Section 419(d)(3)) under a welfare benefit fund
(as defined in Code Section 419(e)) maintained by the Employer are treated as
Annual Additions to a Defined Contribution Plan. These amounts are treated as
Annual Additions but are not subject to the 25% of Annual Compensation limit.
Rollover Contributions made by a Participant pursuant to Section 3.05
hereof, shall not be taken into account in computing Annual Additions.
(b) Defined Contribution Plan. "Defined Contribution Plan" means a
pension plan or profit sharing plan that provides for an individual account for
each Participant and for benefits based solely upon the amount contributed to
the Participant's account and any income, expenses, gains, losses and any
forfeitures of accounts of other Participants that may be allocated to such
Participant's account.
(c) Limitation Year. "Limitation Year" means the Plan Year.
7.02 Limitation on Annual Additions. Any other provision of this Plan
to the contrary notwithstanding, the maximum Annual Addition to the Accounts of
any Participant under the Plan and any other Defined Contribution Plan
maintained by an Employer may not exceed the lesser of:
(a) $30,000 or, if greater, 1/4 of the defined benefit dollar
limitation set forth in Code Section 415(b)(1)(A) as adjusted for the cost of
living increases pursuant to Code Section 415(d) and in effect for the
Limitation Year, or
(b) 25% of the Participant's Annual Compensation for the Limitation
Year.
If, as the result of a reasonable error in estimating a Participant's
Annual Compensation, the allocation of forfeitures, or under other limited
facts and circumstances as may be provided under the Regulations to Code
Section 415, the Annual Addition exceeds the maximum under this and any other
Defined Contribution Plan maintained by the Employer, the Plan Administrator
shall distribute an amount of the Participant's Compensation Deferral
Contributions necessary to eliminate the excess Annual Addition, or as much of
the excess as possible, as permitted by Code Section 415 or the regulations
thereunder. If the Plan Administrator distributes an amount of a
Participant's Compensation Deferral Contributions pursuant to the preceding
sentence, the Plan Administrator shall reduce from the Participant's Account
any Matching Contributions attributable to such returned Compensation Deferral
Contributions, and utilize the reduced Matching Contributions to reduce the
Employer contribution required for the next succeeding Plan Year. Any such
sums shall not share in the gains or losses of the Trust Fund.
7.03 Limitation of Benefits Under All Plans. Where an Employee is a
Participant under the Plan and a defined benefit plan maintained by the
Employer, the sum of the defined contribution fraction and the defined benefit
fraction for any Limitation Year may not exceed 1.0 as computed under the terms
and conditions as set forth under Code Section 415(e). For purposes of
computing the defined contribution fraction for any Limitation Year, the
numerator shall be the sum of the Annual Addition to the Participant's Accounts
during such Limitation Year and for all prior Limitation years, and the
denominator shall be the lesser of:
(a) the product of 1.25 multiplied by the maximum permissible dollar
amount under Code Section 415(c)(1)(A) for such year and for all prior years
or,
(b) the product of 1.4 multiplied by the maximum permissible percentage
of Annual Compensation contributed under Code Section 415(c)(1)(B) for such
year and for all prior years.
For purposes of computing the defined benefit plan fraction for any
Limitation year, the numerator shall be the Participant's projected annual
benefit under the defined benefit plan as of the end of the Limitation year and
the denominator shall be the lesser of:
(c) the product of 1.25 multiplied by the maximum permissible dollar
amount of benefit in effect under Code Section 415(b)(1)(A) for such year; or
(d) the product of 1.4 multiplied by the maximum permissible percentage
of Annual Compensation limitation of the amount of benefit in effect under Code
Section 415(b)(1)(B) for such year.
If the Defined Contribution Plans and the defined benefit plans in which
an Employee is a Participant satisfy the requirements of Code Section 415 in
effect for all Limitation Years beginning prior to January 1, 1987, where
necessary, an amount shall be subtracted from the numerator of the defined
contribution fraction (not to exceed such numerator) as prescribed by the
Secretary of the Treasury so that the sum of the defined benefit plan fraction
and the defined contribution fraction computed under Code Section 415(e)(1)
does not exceed 1.0 for such Limitation Year.
ARTICLE VIII
NONDISCRIMINATION REQUIREMENTS
8.01 Definitions. The following definitions shall apply for purposes
of this Article VIII:
(a) Actual Contribution Percentage. "Actual Contribution Percentage"
means the average (expressed as a percentage) of the Actual Contribution Ratios
of the Participants in a group.
(b) Actual Contribution Ratio. "Actual Contribution Ratio" means the
ratio (expressed as a percentage) of the Participant's Employee Contributions
and Matching Contributions to the Plan for the Plan Year (and any other plan
that is aggregated with the Plan for purposes of meeting the nondiscrimination
requirements of Code Section 401(m)) to the Participant's Compensation for the
Plan Year. The Actual Contribution Ratio of a Participant who is eligible, but
neither makes Employee Contributions nor receives Matching Contributions is
zero. An Actual Contribution Ratio for a Participant who has met the
requirements of Section 2.01(a), but not the requirements of 2.01(b), is not
calculated or included in the calculation of the Actual Contribution
Percentage.
(c) Actual Deferral Percentage. "Actual Deferral Percentage" means the
average (expressed as a percentage) of the Actual Deferral Ratios of the
Participants in a group.
(d) Actual Deferral Ratio. "Actual Deferral Ratio" means the ratio
(expressed as a percentage) of the Participant's Elective Contributions for the
Plan Year (under the Plan and any other plan that is aggregated with the Plan
for purposes of meeting the nondiscrimination requirements of Code Section
401(k)) to the Participant's Compensation for the Plan Year. At the option of
the Plan Administrator, Qualified Matching Contributions and/or Qualified
Nonelective Contributions may be included for purposes of determining each
Participant's Actual Deferral Ratio. The Actual Deferral Ratio of a
Participant who is eligible but has no Elective Contributions, Qualified
Matching Contributions or Qualified Nonelective Contributions is zero. The
Actual Deferral Ratio for a Participant who has met the requirements of Section
2.01(a) but has no Elective Contributions is zero.
(e) Compensation. "Compensation" means compensation received from the
Employer during the Plan Year that is includible in gross income for income tax
purposes, including any elective contributions made by such Participant that
are not includible in gross income under Code Section 125, 402(a)(8), 402(h),
or 403(b).
(f) Elective Contributions. "Elective Contributions" means
Compensation Deferral Contributions and any other Employer contributions made
to the Plan, and any other plan that is aggregated with the Plan for purposes
of meeting the nondiscrimination requirements of Code Section 401(k), that were
subject to a cash or deferred arrangement.
(g) Employee Contributions. "Employee Contributions" means any
contributions to the Plan (and any other plan that is aggregated with the Plan
for purposes of meeting the nondiscrimination requirements of Code Section
401(m)) that are designed or treated as after-tax Employee contributions and
are allocated to a separate account to which attributable earnings and
losses are allocated.
(h) Excess Contributions. 'Excess Contributions" means the excess of:
(1) the Elective Contributions, Qualified Matching Contributions and/or
Qualified Nonelective Contributions of a Highly Compensated Employee for such
Plan Year, over (2) the maximum amount of such contributions permitted under
the limits determined in accordance with Section 8.03 hereof.
(i) Excess Aggregate Contributions. "Excess Aggregate Contributions"
means the excess of: (1) the Employee Contributions and Matching Contributions
actually made by or on behalf of a Highly Compensated Employee for such Plan
Year, over (2) the maximum amount of such contributions permitted under the
limits determined in accordance with Section 8.03 hereof.
(j) Highly Compensated Employee. The term "Highly Compensated
Employee" or "HCE" means any Employee who performs service for an Employer
during the Plan Year and who: (1) was a 5-percent owner during the year or the
preceding year; or (2) for the preceding year received Compensation from the
Employers in excess of $80,000 (as adjusted pursuant to Code Section 415(d))
and was in the top-paid group of employees for such preceding year.
An Employee is in the top-paid group of Employees for any year if such
Employee is in the group consisting of the top 20% of the Employees when ranked
on the basis of Compensation paid during such year. For purposes of
determining the number of Employees in the top-paid group (but not for
identifying the particular Employees in the top-paid group), certain Employees
may be excluded in accordance with Code Section 414(q)(5).
A former employee will be treated as an HCE if he or she was an HCE for
(i) the separation year, or (ii) any Plan Year ending on or after the
Employee's 55th birthday.
Before determining who are Highly Compensated Employees, Code Sections
414(b), (c), (m), (n) and (o) shall first be applied.
(k) Matching Contributions. "Matching Contributions" means:
(1) an Employer contribution made to the Plan (or any plan
required to be aggregated with the Plan for purposes of the nondiscrimination
requirements of Code Section 401(m)) on account of Employee Contributions to
the Plan;
(2) an Employer contribution made to the Plan (or any plan
required to be aggregated with the Plan for purposes of the nondiscrimination
requirements of Section 401(m)) on account of an Elective Contribution to the
Plan; or
(3) a forfeiture allocable on the basis of Excess Aggregate
Contributions.
A contribution made by the Employer in order to meet the Top Heavy
minimum contribution requirements of Article XVI may not be treated as a
Matching Contribution.
(l) Non-Highly Compensated Employee. 'Non-Highly Compensated Employee"
or "Non-HCE" means any Employee who is not a Highly Compensated Employee.
(m) Qualified Matching Contributions. "Qualified Matching
Contributions" means Matching Contributions that are fully vested at the time
of contribution and are subject to the withdrawal restrictions of Section
13.02.
(n) Qualified Nonelective Contributions. "Qualified Nonelective
Contributions" means Employer contributions, other than Elective Contributions
and Matching Contributions, that are fully vested at the time of contribution
and are not subject to the withdrawal restrictions of Section 13.02.
8.02 Nondiscrimination Requirements for Compensation Deferral
Contributions.
(a) Actual Deferral Percentage Test. In no event shall the Actual
Deferral Percentage of Participants who are HCEs exceed the Actual Deferral
Percentage of the Participants who are Non-HCEs by more than the greater of:
(1) 125% of the Actual Deferral Percentage for Participants who
are Non-HCEs, or
(2) The lesser of 200% of the Actual Deferral Percentage for
Participants who are Non-HCEs or two percentage points higher than the Actual
Deferral Percentage for Participants who are Non-HCEs.
(b) Excess Contributions. If the Plan does not satisfy the Actual
Deferral Percentage Test for nondiscrimination in Code Section 401(k) for any
Plan Year, then the Excess Contributions for such Plan Year (plus any income
and minus any loss allocable thereto as calculated in accordance with Section
8.02(c)) shall be distributed to the HCEs by the last day of the following Plan
Year, as determined under this Section. If such Excess Contributions are
distributed more than 2 1/2 months after the last day of the Plan Year in which
such Excess Contributions arose, a ten percent (10%) excise tax will be imposed
on the Company or Employer maintaining the Plan with respect to such amounts.
The portion of the Excess Contributions attributable to an HCE is determined as
follows:
First, the Plan Administrator shall determine the dollar amount of Excess
Contributions for each affected HCE, by reducing the Actual Deferral Ratio for
each HCE whose Actual Deferral Ratio(s) is the highest at any one time in the
following manner until the ADP Test is satisfied:
(i) The Actual Deferral Ratio of each HCE whose Actual Deferral
Ratio is the greatest shall be reduced by one-hundredth (1/100) of one
percentage point.
(ii) If more reduction is needed, the Actual Deferral Ratio of
each HCE whose Actual Deferral Ratio is the greatest (including the Actual
Deferral Ratio of any HCE whose Actual Deferral Ratio was adjusted under step
(i)) shall be reduced by one-hundredth (1/100) of one percentage point.
(iii) If more reduction is needed, the procedures in step (ii)
shall be repeated.
However, in applying steps (i) through (iii) above, rather than actually
distributing the amount of Compensation Deferral Contributions necessary to
reduce the Actual Deferral Ratio of each affected HCE to an amount sufficient
to satisfy the ADP Test in order of such HCE's Actual Deferral Ratios, the
total of the dollar amounts calculated in steps (i) through (iii) above (the
"Excess Contributions") will be determined and distributed as follows:
(iv) The Compensation Deferral Contributions of the HCE with the
highest dollar amount of Compensation Deferral Contributions will be reduced by
the amount required to cause that HCE's Compensation Deferral Contributions to
equal the dollar amount of the Compensation Deferral Contributions of the HCE
with the next highest dollar amount of Compensation Deferral Contributions.
Then this amount would be distributed to the HCE with the highest dollar amount
of Compensation Deferral Contributions. However, if a lesser reduction, when
added to the total dollar amount already distributed under this step, would
equal the total Excess Contributions, then the lesser dollar amount will be
distributed.
(v) If the total amount distributed under step (iv) is less than
the total Excess Contributions, then the step (iv) will be repeated.
Any refund made in accordance with this Section to a Participant shall be
drawn from the Participant's Compensation Deferral Contributions Account.
Matching Contributions with respect to such distributed Compensation
Deferral Contributions shall be forfeited (unless paid to the Participant due
to a correction under the Actual Contribution Percentage correction).
The amount of Excess Contributions to be distributed shall be reduced by
excess Compensation Deferral Contributions previously distributed pursuant to
Section 3.02(h) for the taxable year ending in the same Plan Year.
Furthermore, excess Compensation Deferral Contributions to be distributed for a
taxable year pursuant to Section 3.02(h) will be reduced by Excess
Contributions previously distributed pursuant to this Section 8.02(b) hereof
for the Plan Year beginning in such taxable year.
(c) Allocation of Income. Excess Compensation Deferral Contributions
under Section 3.02(h) and Excess Contributions under this Section will be
adjusted for any income or loss up to the date of distribution. Such income or
loss will be computed according to a reasonable method permitted under Treas.
Reg. 1.401(k)-1(f)(4).
8.03 Nondiscrimination Requirements for Matching Contributions and
Employee Contributions.
(a) Actual Contribution Percentage Test. In no event shall the Actual
Contribution Percentage of Participants who are HCEs exceed the Actual
Contribution Percentage of the Participants who are Non-HCEs by more than the
greater of:
(1) 125% of the Actual Contribution Percentage for Participants
who are Non-HCEs, or
(2) The lesser of 200% of the Actual Contribution Percentage for
Participants who Non-HCEs or two percentage points higher than the Actual
Contribution Percentage for Participants who are Non-HCEs.
(b) Excess Aggregate Contributions. If the plan fails the Actual
Contribution Percentage Test for nondiscrimination under Code Section 401(m),
the Excess Aggregate Contributions for such Plan Year (plus any income and
minus any loss allocable thereto including the period between the end of the
Plan Year and the date of distribution or forfeiture) shall be distributed to
the HCEs by the last day of the following Plan Year, as determined under this
Section. If such Excess Aggregate Contributions are distributed more than
2 1/2 months after the last day of the Plan Year in which such excess amounts
arose, a ten percent (10%) excise tax will be imposed on the Employer
maintaining the Plan with respect to those amounts.
The portion of the Excess Aggregate Contributions attributable to an HCE
is determined under the procedures specified in Section 8.02(b). Any refund
made to a Participant in accordance with this Section shall be drawn from his
or her Matching Contributions Account. Notwithstanding the foregoing, if a
Participant does not have a 100% nonforfeitable right to his or her Matching
Contributions Account under Section 5.03, the forfeitable portion of any amount
withdrawn from the Participant's Contributions Account shall be forfeited and
the vested portion shall be distributed to the Participant.
(c) Allocation of Income. Excess Aggregate Contributions will be
adjusted for any income or loss up to the date of distribution. Such income or
loss will be computed according to a reasonable method permitted under Treas.
Reg. 1.401(k)-1(f)(4).
8.04 Multiple Use Limitation. In the event that an HCE participates in
a plan (or a group of plans maintained by the Company) that is subject to both
the nondiscrimination requirements of Code Section 401(k) (as described in
Section 8.02) and the nondiscrimination requirements of Code Section 401(m) (as
described in Section 8.03), the sum of the Actual Deferral Percentage and the
Actual Contribution Percentage for the group of HCEs may not exceed the sum of:
(a) 125% of:
(1) the Actual Deferral Percentage of the Group of Non-HCEs; or
(2) the Actual Contribution Percentage of Non-HCEs; plus
(3) the lesser of: (i) 2% plus the lesser of (a)(1) or (a)(2)
above; or (ii) 200% of the lesser of (a)(1) or (a)(2) above.
(b) Alternatively, the sum of the Actual Deferral Percentage and the
Actual Contribution Percentage for the group of the HCEs may not exceed the sum
of 125% of the lesser of:
(1) the Actual Deferral Percentage of the group of Non-HCEs; or
(2) 200% of the greater of (a)(1) or (a)(2) above.
To the extent that it is necessary, the Actual Deferral Percentage or the
Actual Contribution Percentage of the HCE group shall be reduced to comply with
this limitation. (Any alternative calculation provided by regulations shall be
incorporated in this Plan by reference and shall apply when and as provided in
those regulations.)
8.05 Distribution Rules for Excess Contributions and Excess Aggregate
Contributions.
(a) Income or loss attributable to Excess Contributions and/or Excess
Aggregate Contributions shall be determined in the same proportion that the
amount of the Participant's Employee Contributions or Matching Contributions
distributed bears to the balance of his appropriate Account.
(b) The distribution of Excess Contributions, Excess Aggregate
Contributions, and any income thereon may be made without the consent of the
Participant or his spouse, and shall be considered as income to the
Participant, except to the extent of Employee Contributions distributed, for
purposes of Code Section 61.
(c) The Plan Administrator may re-characterize Elective Deferrals as
Employee Contributions as an alternative to distributing Excess Contributions,
provided the following requirements are met:
(1) The amount of recharacterized Elective Contributions, when
combined with the HCE's other Employee Contributions, does not exceed any limit
on Employee Contributions to the Plan, including the nondiscrimination
restrictions provided in Section 8.03.
(2) The recharacterized Elective Contributions must be considered
as Employee Contributions for the Plan year in which the Elective Contributions
were made.
ARTICLE IX
TRUST FUND AND INVESTMENT FUNDS
9.01 Individual Investment Funds. The Company shall direct the Trustee
to establish certain Investment Funds within the Trust Fund, including a
Company Stock Fund. A Participant may direct the investment of his or her
Accounts, subject to the terms of Section 9.02 below. The Company may
establish additional Investment Funds or remove an Investment Fund from the
Plan from time to time in its sole discretion.
9.02 Individual Investment Funds. A Participant may, in any manner
made available by the Plan Administrator, direct the manner in which all
contributions and allocations to the Participant's Compensation Deferral
Contributions Account, Profit Sharing Contributions Account, Matching
Contributions Account, Rollover Contributions Account and Prior Plan
Account shall be invested (an "Investment Election"). The Participant may
direct the investment of such Accounts in one or more of the Investment Funds,
in increments of at least 1%.
(a) A Participant may change the investments of his Compensation
Deferral Contributions Account, Profit Sharing Contributions Account, Matching
Contributions Account, Rollover Contributions Account, and Prior Plan Accounts
daily. A Participant may make changes in the Investment Election at any time
by written election filed with the Plan Administrator, or by such other method,
such as a voice response system, that the Plan Administrator makes available.
Each change shall be effective as soon as practicable following receipt, but in
no event later than five (5) business days following the receipt of the
election. The Participant may elect to invest future contributions differently
than present Account balances.
(b) The Trustee shall revalue the assets of each Investment Fund at
their fair market value as of each Valuation Date. The Accounts of each
Participant shall then be adjusted by apportioning the Investment Fund,
including income, as thus revalue, among Participants' Accounts in proportion
to the value of their respective interests in the Investment Fund immediately
preceding such revaluation.
(c) The Plan is intended to constitute a plan described in Section
404(c) of ERISA and Title 29 of the Code of Federal Regulations Section
2550.404(c)-1. The Trustee, Plan Administrator and any other fiduciary of the
Plan are relieved of liability for losses which are the direct and necessary
result of investment instructions given by a Participant or beneficiary.
(d) If the Participant fails to direct one hundred percent (100%) of
his Compensation Deferral Contributions Account, Profit Sharing Contributions
Account, Matching Contributions Account, Rollover Contributions Account, and
Prior Plan Account to an Investment Fund, the balance not directed shall be
invested in such Investment Fund as the Plan Administrator deems to be the most
conservative.
9.03 Cash Dividend Option. A Participant shall have the option to
elect to receive dividends on Company Stock held in the Participant's ESOP
Account in cash or Company Stock. This election shall apply to all
Participants who have a 100% nonforfeitable interest in each of their Accounts
pursuant to Section 5.03.
Participants may elect to receive quarterly dividends in cash as of the
end of June and the end of December. Each June election shall apply to the
next following September 30 and December 31 quarterly dividends. Each December
election shall apply to the next following March 31 and June 30 quarterly
dividends. Participant elections shall be made in writing in accordance with
procedures and forms provided by the Plan Administrator. Employer dividends
not elected in cash shall be reinvested in additional shares of Company Stock.
9.04 Participants' Right to Vote Company Stock. Each Participant shall
be entitled to direct the exercise of voting rights with respect to (1) the
whole and fractional shares of stock allocated to that Participant's ESOP
Account, and (2) the Company Stock deemed owned by the Participant's Accounts
pursuant to the Participant's investments in the Company Stock Fund. The
Company shall provide to each Participant materials pertaining to the exercise
of such rights containing all the information distributed to shareholders as
part of its distribution of such information to shareholders. A Participant
shall have the opportunity to exercise any such rights within the same time
period as shareholders of the Company. In the exercise of voting rights,
shares of Company Stock for which no voting instructions are received and
shares of Company Stock that are not allocated to any Participant's Account
shall be voted in the same ratio for the election of directors and for and
against each other issue as the applicable vote directed by Participants with
respect to shares of Company Stock.
9.05 Diversification of Employer Securities Investments. This Section
applies only to a Participant's ESOP Accounts.
(a) Definitions.
(1) "Qualified Participant" means a Participant who has attained
age 55 and who has completed at least ten years of participation in the Plan or
any prior plans of the Employer.
(2) "Qualified Election Period" means the Plan Year in which a
Participant becomes a Qualified Participant and the five succeeding Plan Years
thereafter.
(b) Election by Qualified Participants. Each Qualified Participant
shall be permitted to direct the Plan, within 90 days following the end of a
Plan Year in the Qualified Election Period, as to the investment of 25% of the
value of the Participant's ESOP Account. A Qualified Participant in the final
year of his or her Qualified Election Period may direct the Plan as to the
investment of 50% of the value of his ESOP Account. Amounts for which
diversification elections pursuant to this Section 9.05 are made will reduce
the amount to which any future election under this Section in a later Plan Year
may be applied.
(c) Method of Directing Investment. The Participant's direction shall
be provided to the Plan Administrator in writing; shall be effective no later
than 180 days after the close of the Plan Year to which the direction applies;
and shall specify which, if any, of the options set forth in Section (d) below
the Participant selects.
(d) Investment Options. The Plan shall give each Qualified Participant
an opportunity to elect between the following:
(1) To have the Plan distribute (notwithstanding Code Section
409(d)) the portion of the Participant's ESOP Account that is covered by the
election within 90 days after the last day of the period during which the
election can be made. Such distribution shall be subject to such requirements
of the Plan concerning put options as would otherwise apply to a distribution
of Qualifying Employer Securities of the Plan. This paragraph (d)(1) shall
apply notwithstanding any other provision of the Plan other than such provision
as require the consent of the Participant to a distribution with a present
value in excess of $5,000. If the Participant does not consent, such amount
shall be retained in this Plan.
(2) To invest the portion of the Participant's ESOP Account that
is covered by the election among all the Investment Funds available under this
Article for other Participant Accounts. The Participant's election shall be
made in accordance with rules and procedures established by the Plan
Administrator with amounts invested in one or more funds in increments of at
least 1%.
ARTICLE X
AMENDMENT OR TERMINATION
10.01 Amendment. The Company reserves the right, at any time and from
time to time, to amend in whole or in part either retroactively or
prospectively any or all of the provisions of the Plan without the consent of
any Employer or Participant. Such amendment shall be stated in a written
instrument adopted or executed by the Company. Upon the Company's adoption or
execution of any amendment, the Plan shall be deemed to have been amended and
the Company, the Employers and all Plan Participants and their beneficiaries
shall be bound thereby; provided, however, that no amendment shall:
(a) authorize, cause or permit any part of the Trust Fund (other than
such part as is required to pay taxes and administrative expenses) to be used
or diverted to purposes other than the benefit of the Participants, former
Participants or their beneficiaries or estates (except as described in Section
14.03);
(b) affect the rights, duties or responsibilities of the Trustee
without its consent; or
(c) have any retroactive effect so as to deprive any Participant of his
or her nonforfeitable interest already accrued, or eliminate an optional form
of benefit, except only that any amendment may be made retroactive which is
necessary to conform the Plan to mandatory provisions of Federal or State law,
regulations or rulings.
10.02 Plan Termination or Discontinuance of Contributions. The Company
shall have the right, at any time, to terminate the Plan. Upon such
termination, or any partial termination, the entire interest of each affected
Participant's Accounts shall become nonforfeitable. Upon the discontinuance of
Employer contributions or suspension thereof on other than a temporary basis,
the entire interest of each affected Participant's Accounts shall become
nonforfeitable. Any unallocated funds existing at the time of such termination
or discontinuance shall be allocated to the then affected Participants in the
same manner as Employer contributions under Section 4.02(a). Distribution upon
Plan termination shall be made in accordance with the provisions of Article VI
of the Plan.
10.03 Merger, Consolidation or Transfer of Assets. The Company may
merge or consolidate the Plan with, or transfer the Plan's assets or
liabilities to, any other plan, provided each Participant would receive a
benefit immediately after such merger, consolidation or transfer, if the
successor plan then terminated, that is equal to or greater than the benefit
the Participant would have received immediately prior to such merger,
consolidation or transfer if the Plan were to have terminated on such date.
ARTICLE XI
ADMINISTRATION
11.01 Plan Administrator's Powers and Duties. The Plan Administrator
shall administer the Plan in accordance with its terms, and shall have all
powers necessary to administer the Plan in accordance with the provisions set
forth in the Plan. The Plan Administrator shall interpret the Plan and shall
determine all questions arising in the administration, interpretation and
application of the Plan. Any such determination by the Plan Administrator
shall be conclusive and binding on all persons, subject to the claims procedure
as set forth in Section 11.05 of the Plan.
The Plan Administrator may adopt such by-laws and regulations as it deems
desirable for the conduct of its affairs, and may appoint such accountant,
counsel, specialists, and other persons as it deems necessary or desirable in
connection with the administration of the Plan. The Plan Administrator shall
be entitled to rely conclusively upon, and shall be fully protected in any
action taken by it in good faith in relying upon, any opinions or reports that
shall be furnished to it by any such accountant, counsel or other specialists.
11.02 Records and Reports. The Plan Administrator shall keep a record
of all its proceedings and acts, and shall keep all such books of accounts,
records and other data as may be necessary for the proper administration of the
Plan. The Plan Administrator shall notify the Company and the Trustee of any
action taken by it and, when required, shall notify any other interested person
or persons.
11.03 Committee. The Company may appoint a Committee as the Plan
Administrator under the Plan. The Committee members may be officers, board
members or employees of the Employers. No member shall be disqualified from
exercising the powers and discretion herein conferred by reason of the fact
that such member is or may thereafter be a Participant or entitled to benefits
hereunder. The Company may add or remove members of the Committee at any time,
in its sole discretion, by written notice to the Committee and any affected
member. Any Committee member may resign by delivering his or her written
resignation to the Company and the Committee.
(a) Organization and Operation of Committee. If the Company has
appointed a Committee as the Plan Administrator, the Committee shall act by a
majority of its members at that time in office and such action may be taken
either by a vote at a meeting or taken in writing by unanimous consent without
a meeting.
The Committee may authorize any one or more of its members to execute any
document or documents on behalf of the Committee, in which event the Committee
shall notify the Trustee in writing of such action and the name or names of its
member or members so designated. The Trustee thereafter may accept and rely
upon any document executed by such member or members as representing action by
the Committee until the Committee shall file with the Trustee a written
revocation of such designation.
The Committee may appoint a subcommittee to approve distributions from
the Plan. Such subcommittee will consist of not less than two members of the
Committee, and will have authority to approve distributions on behalf of the
Committee.
(b) Limitation on Liability. The Company intends to allocate to the
Committee only those responsibilities included in this Section. The Employers
shall indemnify each Committee member against personal loss by reason of
service as a Committee member.
11.04 Payment of Expenses. Reasonable and necessary expenses of
administering the Plan may include expenses incurred to properly communicate
the Plan to Employees, and may be paid from the Trust Fund. The members of the
Committee shall serve without compensation for services as such, but the
Employers shall pay all expenses of the Committee. Such expenses shall include
any expenses incident to the functioning of the Committee, including but not
limited to, fees of accountants, legal counsel, investment counsel and other
specialists, and other costs of administering the Plan.
11.05 Claims Procedure. A claim for a Plan benefit shall be deemed
filed when the Plan Administrator receives a written communication made by a
Participant or beneficiary, or the authorized representative of either.
If the Plan Administrator wholly or partially denies a claim, the Plan
Administrator shall give written notice of such denial to the claimant within
90 days after the Plan Administrator receives the claim. Such notice shall set
forth, in a manner calculated to be understood by the claimant: (1) the
specific reason or reasons for the denial; (2) specific reference to pertinent
Plan provisions on which the denial is based; (3) a description of any
additional material or information necessary to perfect the claim and an
explanation of why such material or information is necessary; and (4) an
explanation of the Plan's claim review procedure.
Within 90 days from the receipt of the notice of denial, a claimant may
appeal such denial to the Plan Administrator for a full and fair review. The
review shall be instituted by the filing of a written request for review by the
claimant or his or her authorized representative within the 90 day period
stated above. A request for review shall be deemed filed as of the date the
Plan Administrator receives such written request. The claimant or his or her
authorized representative shall have the right to review all pertinent
documents, may submit issues and comments in writing and may do such other
appropriate things as the Plan Administrator may allow. The Plan Administrator
shall make its decision not later than 60 days after it receives the request
for review; unless special circumstances, such as the need to hold a hearing,
require an extension of time, in which case, the Plan Administrator shall
render a decision not later than 120 days after it receives a request for
review, which decision shall be final and binding on such claimant.
ARTICLE XII
PARTICIPATING EMPLOYERS
12.01 Commencement. Subject to the terms of the Plan, each Employer
that was an Employer under the Mid Am, Inc. Profit Sharing and 401(k) Plan, the
Citizens Bancshares, Inc. Amended and Restated Profit Sharing Plan, the Century
National Bank and Trust Company Amended and Restated Profit Sharing/401(k)
Plan, or The Ohio Bank Employees' Profit Sharing Plan as of December 31, 1998,
shall be an Employer under the Plan on January 1, 1999. On and after that
date, any entity that is a Related Entity with respect to the Company may, with
the Company's permission, elect to adopt this Plan and the accompanying Trust
Agreement.
12.02 Termination. The Company may determine at any time that any
Employer shall withdraw and establish a separate plan and fund. The Company
shall effect the withdrawal by delivering a duly executed instrument to the
Trustee instructing it to segregate the assets of the Trust Fund allocable to
the Employees of such Employer and pay them over to the separate fund.
Any Employer under the Plan that ceases to be a Related Entity, shall
automatically be withdrawn from the Plan, effective on the date the Employer
ceases to be a Related Entity.
12.03 Single Plan. The Plan shall at all times be administered and
interpreted as a single plan for the benefit of the Employees of the Company
and all Employers.
12.04 Delegation of Authority. Each Employer, by adopting the Plan,
acknowledges that the Company has all the rights and duties thereof under the
Plan and the Trust Agreement, including the right to amend the same.
12.05 Disposition of Assets or Subsidiary. Distributions may be made in
connection with the Company's disposition of assets or a subsidiary to those
Employees who continue in employment with the purchaser of the assets or with
the subsidiary, provided that the purchaser or the subsidiary does not maintain
the Plan after the disposition, subject to Section 6.10.
ARTICLE XIII
LOANS AND IN-SERVICE WITHDRAWALS
13.01 Loans to Participants. The Plan Administrator may direct the
Trustee to make a loan to a Participant, from the Participant's Account, upon
the Participant's request. The Plan Administrator will direct the Trustee to
make loans from Participants' Accounts on a uniform, non-discriminatory basis,
in accordance with procedures the Plan Administrator establishes, and upon the
terms and conditions set forth below.
(a) The total amount that any Participant can borrow under this
provision cannot exceed the lesser of: (1) 50% of the Participant's vested
Accounts; or (2) $50,000, reduced by the highest outstanding balance of loans
from the Plan to the Participant during the one year period ending on the day
before which such loan is to be made.
(b) Each loan shall bear interest at an annual rate that the Plan
Administrator shall determine in accordance with regulations it has
established.
(c) Each Participant who receives a loan hereunder shall also receive a
clear statement of the charges involved in each loan transaction. The
statement shall include the dollar amount and the annual interest rate of the
finance charge.
(d) The Participant must repay a loan in such manner as the Plan
Administrator specifies, provided that any loan must be repaid in full within
the earlier of five years or the date of the Participant's retirement.
Notwithstanding the foregoing, if the loan is to be used to acquire a dwelling
that is to be used within a reasonable time as the principal residence of the
Participant, the maximum length of the loan shall be fifteen years. The loan
shall be amortized in level payments over the term of the loan, with payments
occurring not less frequently than quarterly.
(e) All loans shall be evidenced by Promissory Notes and such other
documents that the Plan Administrator or the Trustee may reasonably require
under the circumstances.
(f) The Plan Administrator or the Trustee shall be entitled to exercise
all legal and equitable rights available to it in order to enforce the
collection of any unpaid loan balance.
(g) If any loan to a Participant is unpaid on the date that the
Participant, or his beneficiary or estate, becomes entitled to receive benefits
from the Trust, such unpaid portion shall, as of that date, become due and the
amount thereof, together with any unpaid interest thereon, shall be deducted
from any benefits that the Participant, his beneficiary or his estate
otherwise would have been entitled to receive. The provisions of this Section
shall apply the same for loans renewed, renegotiated, modified or extended as
for new loans.
(h) For each Participant who was a Participant in the Mid Am, Inc.
Profit Sharing and 401(k) Plan prior to January 1, 1999, if the value of the
Participant's vested Accounts subject to security for a loan is in excess of
$5,000, then in the 90-day period ending on the date on which the loan is
secured, the Participant's spouse, if any, must consent to the loan. If the
spouse does not give consent, then such Participant shall not be eligible for a
loan.
(i) All loans shall be subject to such administrative procedures as the
Plan Administrator deems necessary.
(j) Loans may be made either from a Participant's (i) Compensation
Deferral Contributions Account or (ii) Profit Sharing Account, Matching
Contributions Account, ESOP Account, Prior Plan Account and Rollover
Contributions Account. A Participant may have only one loan outstanding at a
time from either set of Accounts, subject to the limits described in
Section 13.01(a). A loan shall be repaid into the Account from which it was
made.
13.02 Hardship Distributions. Distribution of Compensation Deferral
Contributions (exclusive of earnings, gains and other accretions attributable
to Plan Years commencing after December 31, 1988) may be made to a Participant
in the event of hardship. For purposes of this Section, hardship is defined as
an immediate and heavy financial need of the employee where such employee lacks
other available resources. For each Participant who was a Participant in the
Mid Am, Inc. Profit Sharing and 401(k) Plan prior to January 1, 1999, hardship
distributions are subject to the spousal consent requirements contained in Code
Sections 401(a)(11) and 417.
(a) The following are the only financial needs considered immediate and
heavy: (1) Expenses incurred or necessary for medical care, described in Code
Section 213(d), of the Participant, the Participant's spouse or dependents; (2)
the purchase (excluding mortgage payments) of a principal residence for the
Participant; (3) payment of tuition and related educational fees for the next
twelve (12) months of post-secondary education for the Participant, the
Participant's spouse, children or dependents; or (4) the need to prevent
eviction of the Participant from, or a foreclosure on, the mortgage of, the
Participant's principal residence.
(b) A distribution will be considered as necessary to satisfy an
immediate and heavy financial need of the Participant only if:
(1) Compensation Deferral Contributions for the Participant's
taxable year immediately following the taxable year of the hardship
distribution shall be limited to the applicable limit under Code Section 402(g)
for such taxable year less the amount of Compensation Deferral Contributions
for the taxable year of the hardship distribution;
(2) the Participant has obtained all available distributions,
other than hardship distributions, and all non-taxable loans under this Plan
and all other plans maintained by the Employer;
(3) the Participant shall not be permitted to make Compensation
Deferral Contributions under this Plan or compensation deferral contributions
under any other plan of the Employer for a period of 12 months after the
receipt of the hardship distribution; and
(4) the distribution is not in excess of the amount of an
immediate and heavy financial need.
13.03 In-Service Distributions for Certain Participants. Participants
who were participating in the Mid Am, Inc. Profit Sharing and 401(k) Plan on
December 31, 1998 (the "Special Participants") have the additional
distribution right described in this Section 13.03 with regard to the amounts
in their ESOP Accounts on December 31, 1998. The Plan Administrator may direct
the Trustee to make an in-service distribution of the nonforfeitable portion of
a Special Participant's ESOP Account to the Special Participant (excluding (i)
amounts credited to such account within the last two years if the Special
Participant has participated in the Plan less than five years and (ii) amounts
credited to such account on or after January 1, 1999) in accordance with the
terms and conditions of Section 13.02 of the Plan, except as follows:
(a) a Special Participant requesting a distribution under this Section
is not subject to the requirement in Section 13.02(b)(2) that the Special
Participant obtain all non-taxable loans under the Plan and all other plans
maintained by the Employer; and
(b) the only financial need for which a distribution under this Section
is available is for the purchase (excluding mortgage payments) of a principal
residence for the Special Participant.
13.04 In-Service Withdrawals Relating to the Adrian State Bank Plan.
(a) Compensation Deferral Contributions. Any active Participant who
has attained age 59 1/2 may make written application to the Plan Administrator
(on a form and in a manner to be prescribed by the Plan Administrator) to
withdraw from the Trust Fund an amount not in excess of the value of his or her
Prior Plan Account attributable to compensation deferral contributions made to
the Adrian State Bank Profit Sharing and Savings Plan (exclusive of any earnings
thereon) determined as of the valuation date following the date of the request.
An active Participant who has attained age 59 1/2 may make such a request
without terminating employment. Only one such withdrawal by an active
Participant may be made in any one Plan Year.
(b) Voluntary After-Tax Contributions. Prior to termination of
employment, a Participant may elect to make a withdrawal from that portion of
his Prior Plan Account attributable to his voluntary after-tax contributions
made to the Adrian State Bank Profit Sharing and Savings Plan. The following
rules shall apply respecting such withdrawal:
(1) Withdrawals shall be permitted upon application acceptable to
the Plan Administrator and thirty (30) days' notice if so requested by the
Trustee.
(2) Any withdrawal shall be limited to an amount not in excess of
the lesser of the Participant's total voluntary after-tax contributions, or the
value of that portion of his Prior Plan Account attributable to voluntary
after-tax contributions, provided that such withdrawals shall not be permitted
more than one in each calendar year quarter.
ARTICLE XIV
MISCELLANEOUS
14.01 Participant's Rights. Neither the establishment of the Plan, nor
any modification thereof, nor the creation of any fund or account, nor any
distributions hereunder, shall be construed as giving to any Participant or
other person any legal or equitable right against the Employer, or any officer
or Employee thereof, or the Trustee, or the Plan Administrator except as
herein provided. Under no circumstances shall the terms of employment of any
Participant be modified or in any way affected thereby.
14.02 Assignment or Alienation of Benefits. No benefit or interest
available hereunder will be subject to assignment or alienation, either
voluntarily or involuntarily. The preceding sentence shall also apply to the
creation, assignment, or recognition of a right to any benefit with respect to
a participant pursuant to a domestic relations order entered before January 1,
1985, or a domestic relations order that is not a Qualified Domestic Relations
Order. For purposes of this Section 14.02, "Qualified Domestic Relations
Order" means any domestic relations order that creates or recognizes the
existence of an alternate payee's right to, or assigns to an alternate payee
the right to, receive all or a portion of the benefits payable with respect to
a Participant, and that otherwise meets the requirements of Code Section
414(p).
As soon as practical after receipt of a domestic relations order, the
Plan Administrator shall determine whether it is a Qualified Domestic Relations
Order. If the domestic relations order is determined to be a Qualified
Domestic Relations Order, the Plan Administrator shall be permitted, in
accordance with rules and regulations promulgated by the Internal Revenue
Service and the rules and regulations established by the Plan Administrator, to
direct the Trustee to make an immediate distribution to the alternate payee (i)
if the amount is less than $5,000, (ii) as provided in any such Order, or (iii)
as elected by the alternate payee. Such distribution shall be permitted
regardless of the age or employment of the Participant and regardless of
whether not the Participant is otherwise entitled to a distribution, but only
from the Participant's vested Accounts.
14.03 Reversion of Funds to Employer. All Employer contributions are
conditioned upon their deductibility pursuant to Code Section 404. An Employer
shall not directly or indirectly receive any refund on contributions made to
the Trust Fund except in the following circumstances:
(a) Mistake of Fact. In the case of a contribution made by a good
faith mistake of fact, the Trustee shall return the erroneous portion of the
contribution, without increase for investment earnings, but with decrease for
investment losses, if any, within one year after payment of the contribution to
the Trust Fund.
(b) Deductibility. To the extent deduction of any contribution
determined by an Employer in good faith to be deductible is disallowed, the
Trustee, at the option of the Employer, shall return that portion of the
contribution, without increase for investment earnings but with decrease for
investment losses, if any, for which deduction has been disallowed within one
year after the disallowance of the deduction.
(c) Initial Qualification. In the event there is a determination that
the Plan does not initially satisfy all applicable requirements of Code Section
401, all contributions made by an Employer incident to that initial
qualification shall be returned to the Employer by the Trustee within one year
after the date on which the initial qualification is denied, but only if the
Company submitted an application for such initial determination by the due date
of the Company's income tax return for the taxable year in which the Plan was
adopted, or such later date as the Treasury Secretary may prescribe.
(d) Limitation. No return of contribution shall be made under this
Section which adversely affects the Plan's qualified status under regulations,
rulings or other published positions of the Internal Revenue Service or reduces
a Participant's Account below the amount it would have been had such
contribution not been made.
Earnings attributable to any contribution subject to refund shall not be
refunded. The amount subject to refund shall be reduced by any loss
attributable thereto, and by any amount that would cause the individual account
of any Participant to be reduced to less than the balance which would have been
in the account had the contribution subject to refund not been made. The
return of the contribution shall be made within one (1) year of the mistaken
payment, the disallowance of deduction (to the extent disallowed) or the denial
of qualification, as the case may be. This Section shall not preclude refunds
made in accordance with Article VIII.
14.04 Action by Company. Any action by the Company or an Employer
under this Plan may be by resolution of the Board of Directors, or by any
person or persons duly authorized by resolution of the Board of Directors or by
the By-Laws of the Company (or Employer) to take such action. Whenever the
Company or an Employer, under the terms of the Plan, is permitted or required
to do or perform any act or matter or thing, it shall be done and performed by
any officer thereunto duly authorized.
14.05 Allocation of Responsibilities. None of the allocated
responsibilities or any other responsibilities shall be shared by any two or
more Named Fiduciaries unless such sharing is provided by a specific provision
of the Plan. Whenever one Named Fiduciary is required to follow the directions
of another Named Fiduciary, the responsibility shall be that of the Named
Fiduciary giving the directions.
14.06 Construction of Plan. To the extent not in conflict with the
provisions of ERISA, all questions of interpretation of the Plan shall be
governed by the laws of the State of Ohio.
14.07 Gender and Number. Wherever any words are used herein in the
masculine gender, they shall be construed as though they were also used in the
feminine gender in all cases where they would so apply, and wherever any words
are used herein in the singular form, they shall be construed as though they
were also used in the plural form in all cases where they would so apply.
14.08 Headings. Headings of sections are for general information only,
and the Plan is not to be construed by reference thereto.
14.09 Voting Company Stock. The Trustee shall vote all allocated shares
of Company Stock in accordance with Participants' directions. The Trustee
shall vote shares of Company Stock for which no voting instructions are
received and shares of Company Stock that are not allocated to any
Participant's Account in the same ratio as it votes the Company Stock for which
voting instructions from Participants are received.
14.10 Payment of Expenses. Pursuant to instructions of the Company, the
Trustee shall pay from the Trust Fund all reasonable and necessary expenses,
taxes and charges incurred on behalf of the Fund or the income thereof in
connection with the administration or operation of the Trust Fund to the extent
that such items are not otherwise paid. No provision of this Plan shall be
construed to provide for payment to or the reimbursement of the Trustee (or any
employee or agent of the Trustee) with respect to any liability or expense
(including counsel fees) that may be incurred by the Trustee (or any employee
or agent) having been found to have breached any responsibility it may have
under the other provisions of this Plan or any responsibility or prohibition
imposed upon it by ERISA.
14.11 Incapacity. If the Plan Administrator determines that a person
entitled to receive any benefit payment is under a legal disability or is
incapacitated in any way so as to be unable to manage his financial affairs,
the Plan Administrator may make payments to such person for his benefit, or
apply the payments for the benefit of such person in such manner as the Plan
Administrator considers advisable. Any payment of a benefit in accordance with
the provisions of this Section shall be a complete discharge of any liability
to make such payment.
14.12 Employee Data. The Plan Administrator or the Trustee may require
that each Employee provide such data as it deems necessary upon becoming a
Participant in the Plan. Each Employee, upon becoming a Participant, shall be
deemed to have approved of and to have acquiesced in each and every provision
of the Plan for himself, his personal representatives, distributees, legatees,
assigns, and beneficiaries.
14.13 Reduction for Overpayment. The Plan Administrator shall, whenever
it determines that a person has received benefit payments under this Plan in
excess of the amount to which the person is entitled under the terms of the
Plan, make reasonable attempts to collect such overpayment from the person.
14.14 Invalidity of Certain Provisions. If any provision of this Plan
shall be held invalid or unenforceable, such invalidity or unenforceability
shall not affect any other provisions hereof and the Plan shall be construed
and enforced as if such provisions, to the extent invalid or unenforceable, had
not been included.
14.15 Plan Supplements. The provisions of this Plan may be modified by
Supplements or Appendices to the Plan. The terms and provisions of each
Supplement or Appendix are part of the Plan and supersede the provisions of the
Plan to the extent necessary to eliminate any inconsistencies between the Plan
and the Supplements or Appendices.
ARTICLE XV
EXEMPT LOAN
15.01 Definition of Exempt Loan. An Exempt Loan is a direct loan of
such, a purchase money transaction, an assumption of the obligation of the
Plan, or a guarantee of the obligation of the Plan assumed in conjunction with
one of the above between the Plan and a party-in-interest as defined in Section
3(14) of ERISA.
15.02 Requirements for an Exempt Loan. Any Exempt Loan entered into by
the Plan shall meet the following requirements:
(a) The loan shall primarily be for the benefit of Participants. The
rate of interest shall be reasonable and the net effect of the rate of interest
and the price of the securities to be acquired with the loan shall be such that
Plan assets would not be depleted. The loan shall be made only upon such terms
as would result from arm's length negotiations between the Plan and independent
third parties. The loan shall be made for a definite period of time.
(b) The proceeds received shall be used only to acquire Employer
securities, to repay the loan or to repay a prior Exempt Loan.
(c) The loan shall be made without recourse against the general assets
of the Plan. The collateral shall consist only of securities acquired with the
proceeds of the loan, or securities acquired with proceeds of a prior Exempt
Loan if the prior Exempt Loan is being paid with proceeds of the current Exempt
Loan. There shall be no right of any lender to the Plan against assets of the
Plan other than collateral given for the loan, contributions made to the Plan
to meet the obligations of the loan, and earnings attributable to collateral
and investment of the contributions made to meet the obligations of the loan.
In the event of default the amount of Company Stock transferred to the lender
in satisfaction of a default cannot exceed the amount of such default. In the
case of a default in favor of a party-in-interest, the default shall only be to
the extent of current payments due.
(d) Payments made by the Plan to repay an Exempt Loan shall not exceed
an amount equal to contributions and earnings received during or prior to the
year minus such payments in prior years. The Company Stock purchased with the
proceeds of the loan shall be held in a suspense account until the stock is
released from the suspense account and allocated to the Participants' Profit
Sharing Contributions Accounts or ESOP Accounts. Stock released from the
suspense account must be equal to an amount calculated by multiplying the
amount encumbered stock by the fraction of the principal and interest paid for
the Plan Year divided by the sum of the principal and interest paid from the
Plan year plus principal and interest for all future years.
(e) The Company Stock acquired with the proceeds of an Exempt Loan
shall not be subject to any option other than the option provided for in
Section 15.03 or a buy-sell or similar arrangement when the stock is held by or
distributed from the Plan whether or not the Plan ceases to be an ESOP or the
Exempt Loan is fully repaid.
15.03 Right of First Refusal. Company Stock acquired with the assets of
an Exempt Loan may be subject to a right of First refusal in the Employer, or
in the Plan. The right of first refusal shall comply with the following
requirements:
(a) The selling price and other terms under the right of first refusal
must be not less favorable to the security holder than the greater of the fair
market value of the security, or the purchase price or other terms offered by a
third person pursuant to a good faith offer to purchase.
(b) The right of first refusal must lapse no later than 14 days after
the security holder gives written notice to the Employer that an offer by a
third party to purchase the stock has been received.
15.04 Annual Additions. If the Trust has obtained an Exempt Loan, the
Annual Addition limitations of Article VII shall be determined with regard to
the contributions used by the Trust to pay the loan and not the allocation to
the Profit Sharing Contributions Account of each Participant based upon assets
withdrawn from the suspense account established in accordance with the
requirements for such Exempt Loan.
ARTICLE XVI
TOP HEAVY PROVISIONS
16.01 Definitions. The following definitions shall apply for purposes
of this Article XVI:
(a) Aggregation Group. "Aggregation Group" shall mean the following:
(1) Each plan of the Employer in which a Key Employee is a
Participant;
(2) Each other plan of the Employer (including a terminated plan
of the Employer if it was maintained within the last five (5) years ending on
the Determination Date for the Plan Year being tested for Top Heavy status)
that allows a plan covering a Key Employee to meet qualification requirements
under the coverage rules of Section 410 or the anti-discrimination rules of
Code Section 401(a)(4);
(3) At the option of the Employer, any other Plan maintained by
the Employer as long as the expanded Aggregation Group including such plan or
plans continues to satisfy the coverage rules of Section 410 and the anti-
discrimination rules of Code Section 401(a)(4).
(b) Determination Date. "Determination Date" shall mean the last day
of the Plan Year preceding the Plan year that is being tested for Top Heavy
status. In the first Plan year, the Determination Date shall mean the last day
of the Plan Year that is being tested for Top Heavy status.
(c) Key Employee. "Key Employee" means any Employee, former Employee,
or beneficiary of such Employees, who at any time during the Plan Year or the
four preceding Plan Years is:
(1) an officer having Annual Compensation from the Employer
greater than 50% of the Section 415(b)(1)(A) dollar limit (as adjusted and in
effect for that Plan Year);
(2) one of ten employees having Annual Compensation from the
Employer of more than the limitation in effect under Code Section 415(c)(1)(A),
and owning (or considered as owning within the meaning of Code Section 318)
both more than an .5% interest as well as one of the ten largest interests in
the Employer. However, if two employees have the same ownership interest in
the Employer, the Employee having the greater Annual Compensation shall be
treated as having the larger interest.
(3) a 5% owner of the Employer, or
(4) a 1% owner of the Employer having an Annual Compensation from
the Employer of more than $150,000.
(d) Non-Key Employee. "Non-Key Employee" means any Employee who is not
a Key employee. Non-Key employees include Employees who are former key
Employees.
16.02 Determination of Top Heavy Status. The Plan will be considered
Top Heavy if, as of the Determination Date, the present value of cumulative
accrued benefits under the Plan for Key Employees exceeds 60% of the present
value of the cumulative accrued benefits under the Plan for all Employees. In
determining the ratio of accrued benefits for Key Employees to all other
Employees, the Plan Administrator shall use the procedure as outlined in Code
Section 416(g) which is incorporated herein by reference. In determining
whether the Plan is considered Top Heavy, all plans within the Aggregation
Group will be utilized for the calculation. For this purpose, all Employer
Contributions, including Compensation Deferral Contributions, and forfeitures
shall be taken into account in determining the contribution percentage made on
behalf of any Key Employee.
Solely for the purpose of determining if the Plan, or any other plan
included in the Aggregation Group is Top Heavy, the accrued benefit of an
Employee other than a Key Employee shall be determined under.
(a) the method; if any, that uniformly applies for accrual purposes
under all plans maintained by the Employer or the Company, or
(b) if there is no such method, as if such benefit accrued not more
rapidly than the slowest accrual rate permitted under the fractional accrual
rate of Code Section 411(b)(1)(C).
The present value of cumulative accrued benefits of a Participant who has
not been credited with an Hour of Service for the Employer maintaining the Plan
during the five year period ending on the Determination Date will be
disregarded for purposes of this Article XVI.
16.03 Combination of Defined Benefit and Defined Contribution Plan. In
the event the Plan is deemed to be Top Heavy, the defined benefit and defined
contribution fraction set forth in Section 7.01 will be calculated by
substituting 1.0 for 1.25. If a Non-Key Employee participates in this Plan and
a defined benefit plan that are both Top Heavy, the minimum contribution
requirement for this Plan and the minimum benefit requirement for the defined
benefit plan, pursuant to Code Section 416, will be satisfied if such
Participant is provided with a contribution to the Plan equal to 5% of Annual
Compensation.
16.04 Minimum Contribution. In the event that the Plan in aggregation
with any other Defined Contribution Plans of the Employer is determined to be
Top Heavy, the Participants who are Non-Key Employees will be eligible for a
minimum contribution for such Plan Year. This minimum contribution that shall
be allocated to the Profit Sharing Contributions Account of each Participant
who is a Non-Key Employee, will be contributed to this Plan in an amount equal
to 3% of Annual Compensation or if less, the largest contribution percentage of
Annual Compensation (taking into account all Employer Contributions, including
Compensation Deferral Contributions, and forfeitures) provided on behalf of any
Key Employee. The minimum contribution required by this Section shall be made
on behalf of such Participants who are employed as of the last day of the Plan
year regardless of the numbers of Hours of Service credited to each Participant
for such Plan Year, regardless of such Participant's level of Annual
Compensation and regardless of whether such Participant is authorizing
Compensation Deferral Contributions to the Plan. If this minimum contribution
is provided by another Defined Contribution Plan of the Employer, then this
Section will not apply to this Plan. If part of this minimum contribution is
provided by another Defined Contribution Plan of the Employer, then the balance
of the minimum contribution shall be provided by this Plan. Compensation
Deferral Contributions of Non-Key Employees shall not be considered as part of
the minimum contribution required by this Section.
16.05 Minimum Vesting. In the event the Plan is determined to be Top
Heavy, each Participant shall have a nonforfeitable interest in his Accounts at
least equal to the following schedule:
Years of Service Nonforfeitable Percentage
Less than 3 0%
3 or More 100%
The above schedule shall not apply where the nonforfeitable interest in
the Participant's Accounts would be greater under Article V of the Plan.
EXHIBIT 10.12
EXECUTIVE EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made and entered into this 6th
day of August, 1999 by and among Sky Financial Group, Inc., an Ohio corporation
("Sky") and Thomas J. O'Shane (the "Executive").
1. Recitals
(a) On July 18, 1995 the Executive entered into an Agreement ("Change
in Control Agreement") with First Western Bancorp, Inc. ("First Western").
(b) On December 14, 1998 Sky and First Western entered into an
Agreement and Plan of Merger ("Merger Agreement").
(c) Pursuant to Section 6.26 of the Merger Agreement, the Executive has
received or will receive all amounts due to him under the Change in Control
Agreement and wishes to enter into this Agreement with Sky.
(d) In consideration of the mutual promises contained herein and other
good and valuable consideration, receipt of which is hereby acknowledged, the
Executive and Sky have entered into this Agreement.
2. Term of Employment
Except as otherwise provided in this Agreement, Sky agrees to employ
Executive and Executive agrees to be employed by Sky for a period of ten (10)
years commencing on the closing date of the Merger Agreement ("Term of
Employment").
3. Nature of Duties
(a) The Executive agrees to serve Sky during the Term of Employment.
The Executive agrees (i) to devote his full business time during normal
business hours to the business and affairs of Sky (except as otherwise provided
herein) (ii) to use his best efforts to promote the interests of Sky and (iii)
to perform faithfully and efficiently the responsibilities assigned to him in
accordance with the terms of this Agreement. The Executive shall report
directly to the Chief Executive Officer or Chief Operating Officer of Sky (as
designated by Sky from time to time), and shall have such responsibilities,
consistent with his office, as may from time be prescribed by such officer.
(b) Sky agrees that it will not (i) assign to the Executive duties
inconsistent with the duties attendant with his position, or (ii) change his
reporting responsibilities, titles or offices as currently in effect, or (iii)
remove him from, or fail to include his name on the management-endorsed slate
of directors for, any of such positions, except in connection with the
termination of his employment for Cause, Disability or Retirement or as a
result of his death or voluntary termination.
(c) Sky shall cause its Executive Committee to nominate the Executive
for election to the Sky Board of Directors ("Sky Board") and the Sky Executive
Committee.
4. Place of Employment
Unless otherwise specified by Sky from time to time, the Executive's
place of employment shall be at First Western's former Executive Offices
located in New Castle, Pennsylvania ("New Castle"). If Sky wishes to relocate
the Executive to an area at least thirty-five (35) miles outside of New Castle,
Sky will pay (or reimburse) all reasonable moving expenses incurred by the
Executive relating to a change of principal residence in connection with such
relocation. Upon such relocation, Sky will purchase the Executive's current
residence at a price equal to its fair market value if the Executive fails to
sell such residence within 90 days of relocation. Notwithstanding the
foregoing, Sky's moving expense and residence purchase obligations under this
Section 4 shall terminate three (3) years after the date of this Agreement, and
thereafter, Executive shall be entitled to the benefits contained in Sky's
Executive Relocation Benefit Plan.
5. Compensation
(a) Base Salary. During the Term of Employment, the Executive shall
receive an annual base salary (the "Base Salary"), payable in accordance with
Sky's normal payroll practices, at an annual rate of Two Hundred Seventy-Five
Thousand Dollars ($275,000.00). The Base Salary may be increased or decreased
at any time and from time to time by action of the Sky Board; provided, that
the Base Salary shall never be decreased below an annual rate equal to Two
Hundred Seventy-Five Thousand Dollars ($275,000.00).
(b) Bonuses. During the Term of Employment, the Executive shall have
an opportunity to receive an annual bonus ("Bonus") of at least 50% of Base
Salary within 60 calendar days following the end of each fiscal year based upon
performance in accordance with either the Sky incentive compensation plan or as
the Sky Board determines for Executive from time to time.
(c) Annual Salary. Collectively, the Base Salary and Bonus shall be
referred to as "Annual Salary".
(d) Stock Options. Upon the closing of the Merger Agreement, Sky shall
use its best efforts to cause the Executive to be awarded stock options for
25,000 shares of Sky common stock pursuant and subject to Sky's 1998 Stock
Option Plan for Employees.
6. Benefit Plans. Sky shall provide the Executive the following benefits as
provided herein.
(a) During the term of this Agreement, the Executive shall be entitled
to participate, if eligible, in all employee benefit plans which are generally
afforded by Sky to its executive employees from time to time ("Benefit Plans").
As provided in the Merger Agreement for the benefit of all employees, the
Executive shall be credited with years of First Western (or predecessor)
service for purposes of eligibility and vesting in the Benefit Plans.
(b) Notwithstanding paragraph (a) above, the Executive shall be
entitled to the following perquisites during the term of this Agreement:
(i) Sky shall cause the car previously owned by First Western and
used by the Executive, to be transferred to the Executive.
(ii) Sky shall pay the following club dues and assessments on
behalf of the Executive: Oakmont Country Club, Laurel Valley Country Club.
7. Noncompetition, Nonsolicitation and Nondisclosure
(a) The Executive agrees that during the period in which the Executive
is employed by Sky and for two years thereafter the Executive shall not,
without the prior written consent of Sky either directly or indirectly,
solicit, attempt to solicit, take away, attempt to take away, or otherwise
interfere with Sky's relationship with any customer (including any customer in
Sky's data base), or Qualified Prospective Customer or otherwise compete with
Sky with respect to any customer or Qualified Prospective Customer. For
purposes of this Agreement, the term "Qualified Prospective Customer" shall
mean any person, organization or other entity that (i) is reflected on Sky's
prospective customer mailing list or (ii) has been contacted by Sky as part of
its marketing or sales efforts at any time during the five year period prior to
the termination of Executive's employment with Sky. For purposes of this
Section 7, the term "Sky" shall mean Sky Financial Group, Inc. and all of its
subsidiaries and affiliates.
During the period in which the Executive is employed by Sky, and for a
period of two years thereafter the Executive will not in the Geographical Area
(as hereafter defined), without Sky's prior written consent, directly or
indirectly engage in, make any investment in or have any interest in any
business in competition with the business of Sky; and the Executive will not
advise, assist or render services, or refer customers, either directly or
indirectly, to any person, firm, company, corporation or business (other than
Sky) with reference to any business in competition with the business engaged in
by Sky during the Executive's employment by Sky. Notwithstanding the
foregoing, the Executive may own less than five percent (5%) of the combined
voting power of all issued and outstanding voting securities of any publicly-
held corporation whose stock is traded on a major stock exchange or quoted on
NASDAQ.
Notwithstanding the foregoing, if the Executive voluntarily terminates
his employment with Sky after the third year of the Term of Employment, other
than for Good Reason, Retirement or Disability, then the restrictions contained
in this Section 7(a) shall apply for the original Term of Employment unless the
Executive voluntarily waives his rights to all continued Base Salary payments
under Section 12A(iii) hereof, but in no event shall the restrictions in
Section 7(a) apply for less than two years after the date of the Executive's
voluntary termination of employment.
As used herein, the term "Geographical Area" means the geographical areas
consisting of a fifty (50) mile radius of each of Sky's customer service
facilities in operation during the period in which the Executive is employed by
Sky and, upon the Executive's termination of employment such customer service
facilities in operation at the time of such employment termination.
(b) The Executive agrees that he shall not at any time (whether during
or after the Executive's termination of employment with Sky), without the prior
written consent of Sky, either directly or indirectly (i) solicit (or attempt
to solicit) induce, (or attempt to induce), cause or facilitate any employee,
director, agent, consultant, independent contractor, representative or
associate of Sky to terminate his, her or its relationship with Sky, or (ii)
solicit (or attempt to solicit) induce (or attempt to induce), cause or
facilitate any supplier of services or products to Sky to terminate or change
his, her or its relationship with Sky, or otherwise interfere with any
relationship between Sky's suppliers of products or services.
(c) The Executive agrees that he shall not at any time (whether during
or after the period of his employment with Sky) directly or indirectly copy,
disseminate or use, for the Executive's personal benefit or the benefit of any
third party, any Confidential Information, regardless of how such Confidential
Information may have been acquired, except for the disclosure of such
Confidential Information as may be (i) in keeping with the performance of the
Executive's employment duties with Sky, (ii) as required by law, or (iii) as
authorized in writing by either the Chief Executive Officer or Chief Operating
Officer of Sky. For purposes of this Agreement, the term "Confidential
Information" shall mean all information or knowledge belonging to, used by, or
which is in the possession of Sky relating to the Sky's business, business
plans, strategies, pricing, sales methods, customers or Qualified Prospective
Customers (including, without limitation, the names, addresses or telephone
numbers of such customers or Qualified Prospective Customers), technology,
programs, finances, costs, employees (including, without limitation, the names,
addresses or telephone numbers of any employees), employee compensation rates
or policies, marketing plans, development plans, computer programs, computer
systems, inventions, developments, trade secrets, know how or confidences of
the Sky or Sky's business, without regard to whether any of such Confidential
Information may be deemed confidential or material to any third party, and Sky
and the Executive hereby stipulate to the confidentiality and materiality of
all such Confidential Information. The Executive acknowledges that all of the
Confidential Information is and shall continue to be the exclusive proprietary
property of Sky, whether or not prepared in whole or in part by the Executive
and whether or not disclosed to or entrusted to the custody of the Executive.
The Executive agrees that upon the termination of the Executive's employment
with Sky for any reason, the Executive will return promptly to Sky all
memoranda, notes, records, reports, manuals, pricing lists, prints and other
documents (and all copies thereof) relating to Sky's business which he may then
possess or have with the Executive's control, regardless of whether any such
documents constitute Confidential Information. The Executive further agrees
that he shall forward to Sky all Confidential Information which at any time
(including after the period of his employment with Sky) should come into the
Executive's possession or the possession of any other person, firm or entity
with which the Executive is affiliated in any capacity.
8. Termination for Cause
Sky may terminate Executive's employment for Cause. For purposes of this
Agreement, Sky shall have "Cause" to terminate Executive's employment hereunder
upon (A) the willful and continued failure by Executive to substantially
perform his duties to the detriment of Sky (other than any such failure
resulting from his incapacity due to physical or mental illness), after a
written demand for substantial performance is delivered to Executive by the Sky
Board which specifically identifies the manner in which the Sky Board believes
that Executive has not substantially performed his duties to Sky's detriment,
or (B) the willful engaging by Executive in gross misconduct materially and
demonstrably injurious to Sky. For purposes of this Section 8, no act, or
failure to act, on Executive's part shall be considered "willful" unless done,
or omitted to be done, by Executive not in good faith and without reasonable
belief that Executive's action or omission was in the best interest of Sky.
Notwithstanding the foregoing, Executive shall not be deemed to have been
terminated for Cause unless and until there shall have been delivered to
Executive a copy of a resolution duly adopted by the affirmative vote of not
less than two-thirds of the entire membership of the Sky Board at a meeting of
the Sky Board called and held for the purpose (after reasonable notice to
Executive and an opportunity for Executive together with his counsel, to be
heard before the Sky Board), of finding that in the good faith opinion of the
Sky Board, Executive was guilty of conduct set forth above in Clauses (A) or
(B) of the first sentence of this Section 8 and specifying the particulars
thereof in detail.
9. Termination for Death or Disability
(a) Sky may terminate this Agreement on account of the Executive's
death, or for "Disability" if the Executive is "Disabled". For purposes of
this Agreement, the Executive shall be considered Disabled only if, as a result
of his incapacity due to physical or mental illness, he shall have been absent
from his duties with Sky on a full-time basis for 180 consecutive days and a
physician selected by him and approved by the Board is of the opinion that (i)
he is suffering from "Total Disability" as defined in Sky's pension plan and
(ii) within thirty (30) days after written Notice of Termination is given, he
shall not have returned to the full-time performance of his duties.
(b) If this Agreement terminates on account of the Executive's death,
Sky shall pay to the Executive's designated beneficiary or otherwise to his
estate, a monthly salary for a period of two years equal to the Executive's
monthly portion of the Annual Salary then in effect. In addition, subject to
the terms of the Benefit Plans, until the date the Executive would have
attained normal retirement age of 65, insurance and health care benefits shall
be provided to Executive's spouse equivalent to the benefits to which the
Executive was entitled immediately preceding his death.
(c) If Sky terminates this Agreement because the Executive is Disabled
the payment of the Executive's Annual Salary shall cease, and the Executive's
benefits shall be determined in accordance with Sky's Long-Term Disability
Insurance Plan, or substitute plan then in effect.
(d) During any period that the Executive fails to perform his duties
hereunder as a result of incapacity due to physical or mental illness, he shall
continue to receive his Annual Salary then in effect until this Agreement is
terminated pursuant to Section 9(a) hereof.
10. Termination Upon Retirement
This Agreement will terminate upon the Executive's Retirement. For
purposes of this Agreement, "Retirement" shall mean termination of the
Executive's employment with his consent in accordance with Sky's retirement
policy (including early retirement) generally applicable to its salaried
employees or in accordance with any retirement arrangement established with the
Executive's consent with respect to him.
11. Termination of Employment by the Executive for Good Reason
The Executive may terminate his employment for "Good Reason." For
purposes of this Agreement, Good Reason will exist if any one or both of the
following occur:
(a) Sky's failure to honor any of its obligations under Sections 3, 4,
5, 6, or 16, but only if Sky is first given written notice specifying the
nature of the breach and Sky failed or refused to remedy such breach within a
period of thirty (30) days after the receipt of such notice; or
(b) Any purported termination of the Executive's employment (other than
termination by death or Retirement) that is not effected pursuant to a Notice
of Termination satisfying the requirements of Section 17 below and, for
purposes of this Agreement, no such purported termination shall be effective.
12. Compensation Upon Termination Without Cause or for Good Reason
(a) If Sky shall terminate the Executive's employment without Cause
(that is, terminated for other than for Retirement, death, Disability or Cause)
or if the Executive shall terminate his employment for Good Reason pursuant to
Section 11 hereof, then Sky shall pay to the Executive in a lump sum (except as
provided in Section 12(a)(iii) below) on the thirtieth (30th) day following the
Date of Termination (as hereafter defined), the following amounts:
(i) The Executive's Base Salary through the Date of Termination
at the rate in effect at the time Notice of Termination (as hereafter defined)
is given and the Executive's Bonus accrued through the Date of Termination as
determined by the Sky Board;
(ii) The amount, if any, of the deferred portion of any awards
which pursuant to the Benefit Plans, have accrued to Executive whether vested
or unvested, but which have not yet been paid to Executive;
(iii) The amount equal to the sum of (A) the Executive's Base
Salary and (B) the average of the prior two (2) Bonuses, payable at the times
specified in Sections 5(a) and 5(b) hereof, for the remainder of the original
Term of Employment (with such Base Salary and Bonus prorated for any partial
year) (collectively, the "Remainder"). Sky shall have the option to pay the
Remainder in a present value lump sum using a discount rate of 8% per annum;
and
(iv) Sky shall also pay all reasonable legal fees and expenses
incurred by the Executive as a result of such termination (including all such
fees and expenses, if any, incurred in contesting or disputing any such
termination, in seeking to obtain or enforce any right or benefit provided by
this Agreement, or in interpreting this Agreement).
12A.
Compensation Upon Termination By Executive Without Good Reason After Year 3
If the Executive shall voluntarily terminate his employment with Sky
after the third (3rd) year of the Term of Employment without Good Reason, then
Sky shall pay to the Executive in a lump sum (except as provided in Section
12A(iii) below) on the thirtieth (30th) day following the date of termination
(as hereafter defined), the following amounts:
(i) The Executive's Base Salary through the Date of Termination
at the rate in effect at the time Notice of Termination (as hereafter defined)
is given and the Executive's Bonus accrued through the Date of Termination as
determined by the Sky Board;
(ii) The amount, if any, of the deferred portion of any awards
which pursuant to the Benefit Plans, have accrued to Executive whether vested
or unvested, but which have not yet been paid to Executive; and
(iii) Unless the Executive has waived his rights thereto pursuant
to Section 7(a) hereof, the amount equal to Executive's Base Salary payable at
the times specified in Section 5(a) for the remainder of the original Term of
Employment. Sky shall have the option to pay such amount in a present
value lump sum using a discount rate of 8% per annum.
13. Benefit Plans After Termination
(a) Unless the Executive is terminated for Cause, Sky shall, to the
extent permitted by applicable law, permit the Executive to continue to
participate in Sky's group health plan until the earlier of (i) the expiration
of the original Term of Employment; or (ii) such time as Executive secures new
full time employment and group health plan benefits pursuant to that employment
have commenced, provided that continued participation is possible under the
general terms and provisions of Sky's group health plan.
(b) If the Executive is terminated for Cause, Sky shall, to the extent
permitted by applicable law, permit the Executive to continue to participate in
Sky's group health plan for one (1) year after the Date of Termination.
(c) In the event that participation in Sky's group health plan is
barred or prohibited, Sky shall arrange to provide the Executive with benefits
substantially similar to those which he is entitled to receive under such plan.
(d) At the end of the period of coverage, Executive shall have the
option to have assigned to him at no cost with no apportionment of prepaid
premiums, any assignable insurance policy owned by Sky and relating
specifically to him.
(e) Upon termination of the Executive's employment with Sky for any
reason, Sky shall, at the Executive's request, provide the Executive financing
for outstanding stock options on mutually agreeable terms and in compliance
with Federal Reserve Regulation O, as amended (12 C.F.R. Part 215).
14. Optional Right of Disclaimer
It is recognized that under certain circumstances:
(a) Payments or benefits provided to the Executive under this Agreement
and/or under the Benefit Plans might give rise to an "excess parachute payment"
within the meaning of Section 280G of the Internal Revenue Code of 1986, as
amended, or any successor provision thereof (the "Code");
(b) It might be beneficial to the Executive to disclaim some portion of
the payment or benefit in order to avoid such "excess parachute payment" and
thus avoid the imposition of an excise tax resulting therefrom;
(c) Under such circumstances it would not be to the disadvantage of Sky
to permit the Executive to disclaim any such payment or benefit in order to
avoid the "excess parachute payment" and the excise tax resulting therefrom.
Accordingly it is agreed that the Executive may at the Executive's
option, exercisable at any time or from time to time, disclaim his entitlement
to any portion of the payments or benefits arising under this Agreement and/or
under any Benefit Plans, which would constitute "excess parachute payments,"
and it shall be the Executive's choice as to which payment or benefits shall be
so surrendered, if and to the extent that the Executive exercises such option,
so as to avoid "excess parachute payments."
15. Mitigation
In the event Sky terminates the Executive's employment before the
expiration of the Term of Employment (other than for Cause, death, Disability
or Retirement), the Executive shall not be required to mitigate any damages by
seeking other employment nor shall any payment provided for in this Agreement
be reduced by any compensation earned by the Executive.
16. Successors; Binding Agreement
Sky will require any successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of the business
and/or assets of Sky, by agreement in form and substance satisfactory to the
Executive, to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that Sky would be required to perform it if no
such succession had taken place. Failure of Sky to obtain such agreement prior
to the effectiveness of any such succession shall be a breach of this Agreement
and shall entitle the Executive to compensation from Sky in the same amount and
on the same terms as would apply if the Executive terminated his employment for
Good Reason, except that for purposes of implementing the foregoing, the date
on which any such succession becomes effective shall be deemed the Date of
Termination. As used in this Agreement, "Sky" shall mean Sky as hereinbefore
defined and any successors to the business and/or assets as aforesaid that
executes and delivers the agreement provided for in this section or which
otherwise becomes bound by all the terms and provisions of this Agreement by
operation of law. This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If the
Executive should die while any amount would still be payable hereunder had the
Executive continued to live, all such amounts, unless otherwise provided
herein, shall be paid in accordance with the terms of this Agreement to his
devisee, legatee, or other designee or, if there be no such designee, to his
estate, subject to the provisions under Section 9(b) of this Agreement with
respect to termination of employment on account of the Executive's death.
17. Notice of Termination; Date of Termination
(a) Any termination of the Executive's employment (other than
termination by death or Retirement) by Sky or the Executive shall be
communicated by written notice of termination to the other party thereto. For
purposes of this Agreement, a "Notice of Termination" shall mean a notice
which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of employment under
the provision so indicate.
(b) "Date of Termination" shall mean:
(i) If the Agreement is terminated for Disability, thirty (30)
days after Notice of Termination is given (provided that the Executive shall
not have returned to the performance of his duties on a full-time basis during
such thirty (30) day period),
(ii) If the Executive's employment is terminated for Good Reason,
the date specified in the Notice of Termination, and
(iii) If the Executive's employment is terminated for any other
reason, the date on which a Notice of Termination is given; provided that if
within thirty (30) days after any Notice of Termination is given, the party
receiving such Notice of Termination notifies the other party that a dispute
exists concerning the termination, the Date of Termination shall be the date on
which the dispute is finally determined, either by mutual written agreement
of the parties, by a binding and final arbitration award or by a final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been perfected).
18. Notices
Notices and all other communications provided for in this Agreement shall
be in writing and shall be deemed to have been duly given when received, after
being mailed by United States registered mail, return receipt requested,
postage prepaid, provided that all notices to Sky shall be directed to the
attention of the Secretary of Sky, or to such other address as either party may
have furnished to the other in writing in accordance herewith, except that
notices of change of address shall be effective only upon receipt.
19. Miscellaneous
No provisions of this Agreement may be modified, waived or discharged
unless such modification, waiver or discharge is agreed to in writing signed by
the Executive and on behalf of Sky, such officer as may be specifically
designated by the Sky Board. No waiver by either party hereto at any time of
any breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at
any prior or subsequent time. No agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter hereof have
been made by any party which are not set forth expressly in this Agreement.
The validity, interpretation, construction and performance of this Agreement
shall be governed by the laws of the State of Ohio.
20. Entire Agreement
This Agreement constitutes the entire agreement of the parties hereto
relating to the subject matter hereof, and there are no written or oral terms
or representations made by either party other than those contained herein.
This Agreement supersedes and replaces any and all employment agreement and
agreements providing for payments for services between the Executive and First
Western, including but not limited to the Change in Control Agreement (it being
understood that Executive shall be paid under the Change in Control Agreement
on the closing date of the Merger), all of which are terminated upon the
Executive's execution of this Agreement.
21. Validity
The invalidity or unenforceability of any one or more provisions of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
22. Counterparts
This Agreement may be executed in one or more counterparts, each of which
shall be deemed to be an original but all of which together will constitute one
and the same instrument.
23. Arbitration
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration in Cleveland, Ohio in
accordance with the rules of the American Arbitration Association then in
effect; provided that all arbitration expenses shall be borne by Sky.
Notwithstanding the pendency of any dispute or controversy concerning
termination or the effects thereof, Sky will continue to pay the Executive his
full compensation in effect immediately before any Notice of Termination giving
rise to the dispute was given (including, but not limited to, base salary and
incentive pay) and continue him as a participant in all Benefit Plans in which
he was then participating, until the dispute is finally resolved. Judgment may
be entered on the arbitrators' award in any court having jurisdiction;
provided, however, that the Executive shall be entitled to seek specific
performance of his right to be paid until the Date of Termination during the
pendency of any dispute or controversy arising under or in connection with this
Agreement.
The parties have executed this Agreement or caused it to be executed by
their duly authorized officers on and as of the date first above written.
SKY FINANCIAL GROUP, INC.
By: /s/ Sky Financial Group, Inc.
Its:
/s/ Thomas J. O'Shane
THOMAS J. O'SHANE
Dated: August 6, 1999
EXHIBIT 13
1999 ANNUAL REPORT
SKY FINANCIAL GROUP, INC.
[SKY LOGO]
Growing
with the
communities
we serve.
CONTENTS
LETTER TO SHAREHOLDERS 1
SENIOR CHAIRMAN'S MESSAGE 5
COMMUNITY BANKING
Instant access.
Always available. 6
Building on a solid
foundation. 8
Fueling business growth. 10
Close to a million. 12
Return on community
involvement. 14
BOARD OF DIRECTORS 16
SUMMARY OF FINANCIAL DATA 18
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 19
REPORT OF INDEPENDENT AUDITORS 37
CONSOLIDATED BALANCE SHEETS 38
CONSOLIDATED STATEMENTS
OF INCOME 39
CONSOLIDATED STATEMENTS
OF CHANGES IN
SHAREHOLDERS' EQUITY 40
CONSOLIDATED STATEMENTS
OF CASH FLOWS 41
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS 42
SENIOR OFFICERS 69
AFFILIATE BOARDS OF DIRECTORS 71
AFFILIATE ADVISORY
BOARD MEMBERS 72
SHAREHOLDER INFORMATION
AND ACKNOWLEDGEMENTS 74
FINANCIAL HIGHLIGHTS
(Dollars in thousands, except per share and ratio data)
<TABLE>
<CAPTION>
PERCENTAGE
1999 1998 CHANGE
---- ---- ----------
<S> <C> <C> <C>
FOR THE YEAR
Operating earnings (1) $ 123,793 $ 99,145 24.9%
Net income 71,182 51,963 37.0
Return on average assets (1) 1.58% 1.29%
Return on average common equity (1) 20.18 15.54
PER COMMON SHARE DATA
Diluted operating earnings (1) $1.57 $1.26 24.6%
Basic net income 0.91 0.67 35.8
Diluted net income 0.90 0.66 36.4
Dividends 0.77 0.59 30.5
Book value at year end 7.27 7.85 (7.4)
AT YEAR END
Assets $8,063,756 $8,033,266 0.4%
Loans 5,477,494 5,110,827 7.2
Deposits 5,758,691 6,006,912 (4.1)
Shareholders' equity 566,331 611,713 (7.4)
AVERAGE FOR THE YEAR
Assets $7,832,705 $7,656,965 2.3%
Loans 5,230,048 4,920,747 6.3
Deposits 5,774,041 5,762,314 0.2
Shareholders' equity 613,528 638,052 (3.8)
<CAPTION>
QUARTERLY FINANCIAL HIGHLIGHTS
First Second Third Fourth
----- ------ ----- ------
<S> <C> <C> <C> <C>
1999
Net interest income $73,545 $75,286 $77,280 $ 77,534
Provision for credit losses 4,190 4,552 7,355 4,615
Net income (loss) 29,881 30,638 (11,497) 22,160
Operating earnings (1) 29,881 30,638 31,753 31,521
Basic net income (loss) per share $0.38 $0.39 $(0.15) $ 0.28
Diluted net income (loss) per share 0.38 0.39 (0.15) 0.28
Diluted operating earnings
per share (1) 0.38 0.39 0.40 0.40
1998
Net interest income $70,108 $71,759 $73,146 $ 74,770
Provision for credit losses 3,732 6,167 4,028 18,065
Net income (loss) 22,699 23,517 25,800 (20,053)
Operating earnings (1) 24,080 24,108 25,800 25,157
Basic net income (loss) per share $0.29 $0.30 $0.33 $ (0.26)
Diluted net income (loss) per share 0.29 0.30 0.33 (0.25)
Diluted operating earnings
per share (1) 0.30 0.31 0.33 0.32
</TABLE>
(1)For comparability purposes, certain ratios and financial data exclude
non-recurring gains, merger and restructuring expenses and non-recurring
provisions for credit losses. After-tax non-recurring items reduced net
income $52.6 million and $47.2 million in 1999 and 1998, respectively.
DEAR SHAREHOLDERS,
I am pleased to report that 1999 was a year of significant achievement for Sky
Financial Group, Inc. ("Sky"). As stated in last year's annual report, our main
objective was to perform in the top quartile of the 100 largest bank holding
companies in the United States, as measured by such key financial ratios as
return on shareholders' equity, operating efficiency and asset quality, as well
as improvement in franchise value with strategic acquisitions. The table below
and the next few pages of this report will compare Sky's operating performance
to the nation's best bank holding companies.
For the year 1999, Sky's diluted operating earnings per share rose 25% to $1.57.
Return on average shareholders' equity and return on average assets increased to
20.18% and 1.58%, respectively, versus 15.54% and 1.29% for the prior year. Our
efficiency ratio, which measures how much it costs Sky to produce $1 in revenue,
improved to 52.69% in 1999 compared to 59.84% in 1998. Asset quality remained
strong, with year-end non-performing loans amounting to only .36% of total
loans, and an allowance for credit losses equaling 445% of non-performing loans.
These performance achievements place Sky in the top quartile of the 100 largest
bank holding companies in all but the efficiency ratio, which, as you can see by
this table, was significantly improved in 1999 and very close to the top
quartile. We expect our efficiency ratio to continue to improve as we realize
increased productivity and expense savings from our mergers.
TOP 25 PERFORMANCE ACHIEVEMENTS SKY 1999 TOP 25
- ------------------------------- -------- ------
Return on Equity 20.18% 19.84%
Return on Assets 1.58% 1.57%
Efficiency Ratio 52.69% 52.44%
Non-performing Loans/Total Loans .36% .36%
Allowance for Credit Losses/Non-performing Loans 445% 415%
(Based on internally-compiled operating results, excluding non-recurring items.)
1
Mission Statement
Sky Financial Group will consistently generate superior performance which will
create exceptional shareholder returns.
Performance excellence will ensure the longevity of the company and the
preservation of Sky Financial's fundamental beliefs and values.
Vision Statement
Sky Financial Group will become one of America's finest companies and will be
nationally recognized as the standard by which:
SHAREHOLDERS
measure consistently exceptional investment returns.
EMPLOYEES
measure job satisfaction, personal fulfillment, empowerment and fun.
CUSTOMERS
measure service and product satisfaction, convenience and reliability.
COMMUNITIES
measure corporate responsibility, ethics and integrity.
In past years, such exceptional performance would have most likely increased our
stock price. However, despite our record operating results, our stock
performance in 1999 was extremely disappointing. Bank stock performance declined
as a sector in 1999 due to rising interest rate concerns. Acquisitive companies
like Sky were hit especially hard because several other large banks failed to
deliver on promised benefits from mergers. We believe that our commitment to
Sky's mission, vision and goals, as stated in this report, will generate
long-term shareholder value that will outpace our peers. Many of your directors,
officers and employees have large personal investments in Sky, directly aligning
our interests with your interests as shareholders.
Sky's acquisition growth as a percent of beginning assets also ranked among the
best in the nation. In 1999, we seized the opportunity to acquire four
top-quality companies that added approximately $4 billion in assets to Sky: Wood
Bancorp, Inc., Bowling Green, Ohio; Picton Cavanaugh, Inc., Toledo, Ohio; First
Western Bancorp, Inc., New Castle, Pennsylvania; and Mahoning National Bancorp,
Inc., Youngstown, Ohio. Wood Bancorp's subsidiary, First Federal Bank, was
combined with Mid Am Bank in July; First Western Bank was combined with Sky Bank
in August; Mahoning National Bank will be combined with Sky Bank in April 2000;
and Picton Cavanaugh will remain an independent, full-service insurance agency.
These institutions added market share, management talent and earnings per share
opportunities to Sky. We knew that four significant acquisitions in one year,
following the closing of two large transactions during the prior year, would
create many challenges during 1999. However, Sky's culture dictates that we
remain a flexible and opportunistic company without taking inappropriate risks.
2
"Our company structure will enable our banking operations and financial services
companies to offer customers the products and services they need in the
communities in which they, and we, live."
Value Statement
The values of Sky Financial Group are both strategic and fundamental. These
values create both the tools and limitations by which we will accomplish our
Mission and realize our Vision.
We Must:
EXHIBIT unquestionable and unwavering ethics, honesty and integrity.
RECRUIT AND MAINTAIN a diverse, creative and talented team that thrives in an
environment of mutual loyalty, respect, caring and trust.
EMPOWER employees and affiliates to participate as entrepreneurs in the
direction of the company and to share in its success.
ENCOURAGE responsible and accountable decision-making by those closest to the
customer.
FOCUS on the customer. The winning combination of creative and diverse
products paired with an exceptional sales and service culture will maximize
customer satisfaction.
SHARE REWARDS with employees who become owners and communities that are our
long-term partners.
I am convinced that the acquisition of these four outstanding companies will add
long-term value to our franchise. I am also confident that management has the
discipline to deliver on the benefits promised from these acquisitions.
We are committed to the continued development of our fee-based businesses. This
strategy, implemented over five years ago, has increased Sky's fee-based revenue
from 22% of total revenue to 28%. We have restructured some of our financial
services operations to focus them inward on our one million existing banking
clients. Marketing quality products, such as investment and non-standard loan
offerings to customers with whom we already have solid relationships, should
make us more efficient and profitable. Recent changes in federal law,
specifically the Gramm-Leach-Bliley Act, will also give us the flexibility to
explore additional products and services to offer our customers in a seamless
financial services environment.
Our banking strategy will continue to leverage our foundation of bankers
developing strong relationships in the communities we serve. Our three banks,
Sky Bank, Mid Am Bank and The Ohio Bank, have been organized similarly, using
regional structures. We have appointed regional and area Presidents for each of
our natural geographic areas in order to more immediately address the needs of
our customers. This decentralized decision-making structure gives us the ability
to make fast decisions and be more productively responsive to customer needs.
Putting our customers first is the very essence of our banking strategy. We also
know that making decisions locally helps us to better develop long-term customer
3
1999: An Eventful Year
Acquisition of
Picton Cavanaugh, Inc.
June
Y2K Ready
July
Acquisition of
Wood Bancorp, Inc.
August
Acquisition of
First Western Bancorp, Inc.
September
Marty Adams
Named President & CEO
September
Acquisition of
Mahoning National Bancorp, Inc.
January 2000
Y2K Project
Complete
relationships that can be utilized to improve our product and
service ratio per customer. Our presidents have been delegated tremendous
authority so that they can operate most effectively in their communities,
keeping the decision-making power next to our clients. The presidents are also
accountable for exercising their authority with disciplined, sound judgment.
We believe our prospects for the future are limitless. We are committed to the
following key priorities to help secure a highly profitable future:
needs.
- - Develop and implement our community banking sales and service strategy based
upon client needs.
- - Grow our fee-based businesses in order to diversify our revenue.
- - Selectively pursue the acquisition of companies with sound
fundamentals, which will enhance long-term shareholder value.
- - Maintain a superior cost structure as compared to our peers by minimizing
layers of management, which are expensive and burdensome to the communication
process.
- - Expand and improve our distribution channels with an added focus on a
corporate-wide, internet-based sales outlet.
We are convinced that our sound strategies, coupled with financial performance
in the top quartile of our peers, will translate into exceptional rewards for
Sky's shareholders over time.
Thank you for your continued support.
/s/Marty E. Adams
- -------------------------------------
MARTY E. ADAMS
President and Chief Executive Officer
4
As a community-based financial services company, we are located where our
customers need us to be -- in the cities, towns and neighborhoods where they
work and live. By combining this convenience and accessibility with a full line
of products and services, we are able to more effectively meet or exceed their
financial needs. And because we make decisions at the local level, we can make
them faster and in the best interest of our customers. In addition, Sky
Financial Group believes in the importance of giving back: through charitable
contributions and by encouraging employee volunteerism. We also recognize the
value of our employees and are committed to the fullest development of their
potential. Your Board of Directors wholly endorses this management philosophy
and has total confidence that following its principles will result in increased
profitability and shareholder value.
[PHOTO]
[PHOTO]
[PHOTO]
[PHOTO]
[PHOTO]
EDWARD J. REITER
Senior Chairman
[PHOTO]
INSTANT ACCESS. ALWAYS AVAILABLE.
On the way to the store, on the way home from work, while on vacation, or before
the morning alarm sounds. Any time, day or night, our customers can access their
accounts to see which checks have cleared, verify account activity, transfer
funds, pay bills or make deposits. Our banking center managers and loan officers
are accessible, whether it's meeting with customers at a banking center after
hours, at a customer's office or even in their home. From the around-the-corner
convenience of our banking centers to the latest e-commerce solution, we're
striving to be sure our customers have anytime access to information and
financial options that fit their needs and lifestyle.
[PHOTO]
[PHOTO]
TODAY AND TOMORROW.
As the future becomes today, we will continue to refine our distribution
channels and aggressively seek complementary business acquisitions to benefit
our customers, employees and shareholders. During 1999, we added three
additional banks with a total of 74 locations, an insurance agency and created
Sky Trust by consolidating our trust businesses. These developments have
broadened our product offerings, provided new avenues for sales and increased
cross-sell opportunities. They also provide us access to new clients and
employees to enhance our franchise. Our continued growth enables us to gain
greater efficiencies while expanding our reach into our existing and new markets
and communities.
[PHOTO]
ANYTIME, ANYPLACE.
Our banking operations currently have over 200 banking centers and 150 ATM
locations throughout 37 counties in Ohio, Pennsylvania, Michigan, Indiana and
West Virginia. And 24-hour, seven-day-a-week remote banking services connect our
customers to their accounts using the telephone, personal computer and the
internet.
OUR GROWTH AND SUCCESS.
It all comes down to options: those we exercise to expand our opportunities and
those we provide for our customers to increase convenience, service and
financial security.
[PHOTO]
[PHOTO]
[PHOTO]
>
The Mahoning Struthers-Poland office, Sky's newest banking center, opened on
October 25, 1999. Branch Manager Dave Bompage and Retail Banking Specialist
Marie Wess discuss the features of a unique customer service center designed to
handle non-cash transactions, provide information to customers and facilitate
opening an account. All part of Sky's instant access, always available banking
philosophy.
6
Location. Location. Location. One of the crucial components of our success has
been and will continue to be the number and location of our distribution
channels. In other words, we're right where our customers need us to be. We're
in the cities, towns and neighborhoods where they work and live, anticipating
and meeting their needs, while actively participating in the life of the
community, both as a financial entity and on an individual basis.
[PHOTO]
BUILDING ON A SOLID FOUNDATION.
Through normal growth and acquisitions, our customer base expanded over 50% in
1999. Keeping pace with this growth, we have broadened our range of consumer
products and services, both traditional and non-traditional, to more effectively
meet customer needs.
BUILDING ON SUCCESS.
We've helped thousands of homeowners purchase or build their homes through a
variety of financing alternatives like conventional mortgages, community lending
programs and FHA/VA and RHCDS government loans. Our consumer financing
affiliate, Mid Am Financial Services (MAFSI), also provides home financing for
customers who may not otherwise qualify for a traditional mortgage. In 1999, our
banks and MAFSI loaned over $647 million for home purchases, refinances and
construction. The success of mortgage financing, one of our core products,
provides a catalyst for expanded customer relationships, while increasing the
depth of our revenue stream.
[PHOTO]
[PHOTO]
FROM WALL STREET TO MAIN STREET.
Sky companies offer a valuable and diversified portfolio of products and
services to our customers, from stock market investments to debit cards for
supermarket purchases. Our traditional banking products and services cover a
broad range of options, from checking and savings accounts to home mortgages and
auto loans. Through Sky Investments, our broker/dealer affiliate, banking
customers have access to over 8,000 mutual funds. With the establishment of
regional trust departments through Sky Trust, we can better serve our customers'
estate planning and investment management needs. And, with our recent
acquisition of Picton Cavanaugh, employees and customers now have personal
insurance options such as auto, homeowners, life and disability.
[PHOTO]
THE RIGHT TOOLS. THE RIGHT PEOPLE.
We bring the right group of products, services and people to the communities we
serve and provide our customers with the expertise and tools necessary to build
a lasting and sturdy financial foundation.
>
When they were buying a new home, James and Harriet Shannon worked with Marcus
Newbern, a mortgage originator at Mid Am Bank. Demonstrating the flexibility
that is a hallmark of Sky's commitment to personal service, Marcus met with the
Shannons at their home to take their application and managed their loan process
until their purchase became final on October 20, 1999.
8
[PHOTO]
Our goal is to help families realize their dreams of home ownership. Whatever
the dream: first home, "finally made it" home, or vacation home, we can help
make it happen. Providing both traditional and non-traditional banking products
and services, Sky is perfectly positioned to meet the individual need of every
customer in every community we serve.
FUELING BUSINESS GROWTH.
As Small Business Administration (SBA) Preferred Lenders, our banks have
financed over $14 million for expansion and new business development over the
past year. This preferred lending status allows us to approve SBA loans at the
local level, which is consistent with our community banking philosophy and
enables us to respond quickly to the needs of our business customers.
[PHOTO]
EXPANDING WITH OUR CUSTOMERS.
In addition to business loans, we have a comprehensive portfolio of business
products and services that gives our customers the flexibility and convenience
to focus on their business, not on their finances. Traditional banking services
cover everything from standard business checking accounts to integrated cash
management products, while our wide array of non-traditional products provide
workable solutions on a one-to-one basis. And commercial clients are assisted by
our highly experienced trust professionals in the development and implementation
of customized employee benefit plans such as pension, profit sharing and 401(k).
[PHOTO]
[PHOTO]
Dentists and other healthcare professionals benefit from the expertise of our
specialized healthcare financing unit, Sky Financial Solutions. From equipment
financing to practice acquisition to new office start-ups, they provide
customized, individual support to each practice. Additionally, our full-service
insurance agency Picton Cavanaugh, allows us to offer property and casualty,
healthcare and life insurance to our business customers.
THE BENEFITS OF KNOWLEDGE.
Knowledge is the determining factor in our ability to provide commercial
customers with products and services to meet their particular financial needs.
To that end, we'll pursue a comprehensive understanding and practical
application of those principles and practices which promise the greatest benefit
to our customers, while expanding our business opportunities.
[PHOTO]
>
New Castle, Pennsylvania-based Kasgro Rail Corp. manufactures custom-built rail
cars for the steel, chemical, coal and commodities industries. Director-Car
Parts Anthony Cialella, President & CEO Gabe Kassab, and Vice
President-Manufacturing Phil Zorn appreciate the work of Sky Bank's Commercial
Lender John Kline. His personal service and Sky's commercial loan products have
contributed to the growth and success of their company.
10
[PHOTO]
When our customers choose to do business with us, we take it personally and
professionally. We get involved, listen closely to their short- and long-term
needs and goals, then customize a collection of products and services to meet
the unique needs of their business, industry and situation. The time, energy and
expertise we devote to meeting and exceeding each customer's needs is a
competitive advantage we strive to develop to the fullest extent.
CLOSE TO A MILLION.
Developing and maintaining a close relationship with over one million customers
and giving each one the same personal, professional attention is our highest
priority. This relationship is achieved through a reorganized company structure
designed to accommodate a diverse and expanding group of services and products.
While newly appointed regional presidents in each bank help drive and maintain
this all-important structure, we also rely on 435 affiliate directors and
banking center advisory board members to provide us with feedback from the
community. This firsthand communication enables us to respond quickly with
programs best suited to the needs of our communities.
[PHOTO]
RIGHT HERE, RIGHT NOW.
Local decision-making has long been a vital component of our success and will
continue to be so in the foreseeable future. Unlike the centralized management
hierarchy and rigid decision-making of larger regional banks, our banks are
decentralized, with local bankers empowered to make fast decisions and be more
immediately responsive to customer needs. We also know that making decisions
locally helps us to better develop long-term customer relationships. During the
year 2000, with the assistance of Cohen Brown Management Group, we will
implement an integrated sales and service process specifically targeted at
productively meeting our customers' current and future needs and helping them
get the most from their banking relationships with Sky.
[PHOTO]
FAMILIARITY BREEDS CONTENT.
Our decision-makers live in the same communities as our customers and make
themselves available, whether it's simply to answer a question or approve a
loan. The more familiar our customers become with who we are and how we work,
the more likely they are to expand their use of our products and services.
>
Denise Halliday, Vice President, Private Banking, provides the kind of
professional banking service that Steve and Carol Loach appreciate. As a Real
Estate Broker, Steve also relies on the service The Ohio Bank provides to his
customers, especially fast, local decision making that helps him sell more
homes.
12
[PHOTO]
We put decision-making authority in its proper place - the place where our
customers live, work and play -- the towns and cities they call home.
Locally-based professional bankers making decisions from their banking centers
means quicker response to customer needs and allows us to develop long-term
relationships. Down-to-earth, real-world decision-making is an integral part of
what makes a community bank a successful community partner.
RETURN ON COMMUNITY INVOLVEMENT.
The place we call home is more than the house we live in. It's more than just
streets, buildings and businesses. It's friends and neighbors, private citizens
and publicly-held corporations linked in a common effort to improve the quality
of life for every member of the community. Sky gladly shares in that
responsibility. This active involvement on the part of the company and its
employees can't be measured in bottom-line value and profit, but in terms of its
contribution to the vitality, growth and well-being of the community at large,
which is an invaluable return on investment.
[PHOTO]
MORE VALUABLE THAN MONEY.
Those who invest in their community are rewarded by knowing they are responsible
for making it a better place to live. While this is not a singular
responsibility, any one person's dedication can influence the action of others.
In that regard, we continuously encourage our employees to be active, and we
recognize those who are willing to be that one person.
[PHOTO]
In 1999, Sky Financial employees participated in non-profit and community- based
programs and organizations in every one of the communities we serve. In addition
to the many donations from our banks, the Sky Foundation contributed over
$375,000 in 1999 to human services programs, the arts and education. Being a
true community partner means sharing the benefits of success with those who need
it most.
BELIEVING AND ACHIEVING.
Sky is aware of the increased visibility and new business opportunities which
result from our employees' participation in the life of the community, but these
are secondary to the personal satisfaction felt as an active participant in a
worthy cause. In the end, by believing in the communities we serve, we achieve
lasting rewards for all - customers, employees, the company and our
shareholders.
>
The "I'd Rather Be A Bull Than A Bear" program, created by Bowling Green teacher
Jane Clinard and funded by Sky Financial, teaches kids about investing and the
stock market. Each class researches company stock and actually makes purchases
using "real money" provided by Sky Financial. Dan Konold, one of three Sky
Investment Specialists working with this program, takes the kids from teacher
Kathy Duck's Anthony Wayne Junior High School class on an educational trip down
Wall Street.
14
[PHOTO]
It's better to give than to receive. And when it comes to personal involvement,
our employees are a prime example of what it means to give back for the benefit
of the community as a whole. We actively encourage involvement and assist
employees by giving them the time to participate. It allows them the opportunity
to build lasting relationships, while contributing to the community they call
home.
SKY FINANCIAL GROUP BOARD OF DIRECTORS
[PHOTO]
EXECUTIVE COMMITTEE
JOSEPH N. TOSH, II
Executive Vice President
Sky Bank
EDWARD J. REITER
Senior Chairman
Sky Financial Group, Inc.
MARTY E. ADAMS
President & CEO
Sky Financial Group, Inc.
THOMAS S. NONEMAN
President & CEO
Tomco Plastic, Inc.
C. GREGORY SPANGLER
Chairman & CEO
Spangler Candy Company
KEITH D. BURGETT
Veterinarian
Carrollton Animal Hospital Assn., Inc.
Owner - Burgett Angus Farm
RICHARD R. HOLLINGTON, JR.
Senior Partner
Baker & Hostetler, LLP
THOMAS J. O'SHANE
Senior Executive Vice President
Sky Financial Group, Inc.
JAMES C. MCBANE
President
McBane Insurance Agency, Inc.
[PHOTO]
COMPENSATION COMMITTEE
DEL E. GOEDEKER
Formerly CFO - The Americas
Vesuvius Corporation
ROBERT C. DUVALL
Retired
PATRICK W. ROONEY
Chairman & CEO
Cooper Tire & Rubber Company
MARILYN O. MCALEAR
CFO
Service Spring Corp.
D. JAMES HILLIKER
Vice President/Owner,
Better Food Systems, Inc.
GERARD P. MASTROIANNI
President, Buckeye Village Market, Inc.
President, Alliance Ventures
16
[PHOTO]
RISK MANAGEMENT COMMITTEE
H. LEE KINNEY
Senior Vice President
Sky Bank
GERALD D. ALLER
President
Aller's Pharmacy, Inc.
CHARLES I. HOMAN
Executive Vice President/Regional Director
PBS & J, Consulting Engineers
DOUGLAS J. SHIERSON
Retired; Private Investor
DR. ROBERT E. STEARNS
Doctor/Dentistry
Drs. Stearns-Zouhary-Fisher, DDS, Inc.
JONATHAN A. LEVY
Partner
Redstone Investments
GREGORY L. RIDLER
President & CEO
Mahoning National Bank
[PHOTO]
AUDIT COMMITTEE
ROBERT E. SPITLER
Partner
Spitler, Vogtsberger & Huffman, LLP
FRED H. "Sam" Johnson, III
President & CEO
Summitcrest, Inc., M2 Genetic Systems LLC
EMERSON J. ROSS, JR.
Manager, Corporate Community Relations
Owens Corning
GEORGE N. CHANDLER, II
Vice President, Reduced Iron
Cleveland-Cliffs, Inc.
KENNETH E. MCCONNELL
Owner/Operator
McConnell's Farm Market
DAVID A. BRYAN
Partner
Wasserman, Bryan, Landry & Honold
17
SUMMARY OF FINANCIAL DATA
(Dollars in thousands, except shares, per share and ratio data)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF INCOME:
Interest income $ 573,595 $ 575,695 $ 545,619 $ 515,699 $ 490,472
Interest expense 269,950 285,912 266,656 246,421 235,980
- ---------------------------------------------------------------------------------------------------------------------------
Net interest income 303,645 289,783 278,963 269,278 254,492
Provision for credit losses 20,712 31,992 18,859 18,746 12,414
- ---------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for
credit losses 282,933 257,791 260,104 250,532 242,078
Other income 124,342 124,550 108,316 85,591 63,993
Other expenses 302,497 306,567 230,523 215,365 193,736
- ---------------------------------------------------------------------------------------------------------------------------
Income before income taxes 104,778 75,774 137,897 120,758 112,335
Income taxes 33,596 23,811 43,679 37,202 34,951
- ---------------------------------------------------------------------------------------------------------------------------
Net income (2) $ 71,182 $ 51,963 $ 94,218 $ 83,556 $ 77,384
===========================================================================================================================
Net income available to common
Shareholders (2) $ 71,182 $ 51,963 $ 93,613 $ 81,149 $ 74,633
===========================================================================================================================
PER COMMON SHARE: (1)
Basic net income (2) $ 0.91 $ 0.67 $ 1.19 $ 1.04 $ 0.95
Diluted net income (2) 0.90 0.66 1.17 1.02 0.93
Cash dividends declared 0.77 0.59 0.46 0.35 0.21
Book value at year end 7.27 7.85 8.02 7.32 7.01
Weighted average shares
outstanding basic 78,125,000 77,963,000 78,455,000 77,950,000 78,686,000
Weighted average shares
outstanding diluted 78,885,000 78,997,000 80,263,000 81,885,000 82,849,000
===========================================================================================================================
CONSOLIDATED STATEMENT OF CONDITION (YEAR END):
Total assets $ 8,063,756 $ 8,033,266 $ 7,267,164 $ 6,874,621 $ 6,547,273
Securities available for sale 1,868,839 2,126,833 1,499,694 1,396,604 1,291,558
Securities held to maturity - 23,910 381,209 450,662 424,811
Loans held for sale 9,006 96,221 59,453 148,510 23,828
Loans, net of unearned income 5,477,494 5,110,827 4,814,884 4,512,070 4,292,657
Allowance for credit losses 86,750 80,748 66,553 60,080 55,029
Deposits 5,758,691 6,006,912 5,520,937 5,367,457 5,408,702
Debt and FHLB advances 964,557 665,906 556,826 280,989 290,021
Total shareholders' equity 566,331 611,713 632,865 602,133 588,138
===========================================================================================================================
SELECTED FINANCIAL RATIOS:
Return on average assets (2) 0.91% 0.68% 1.34% 1.25% 1.21%
Return on average shareholders' equity (2) 11.60 8.14 15.70 15.30 15.29
Dividend pay-out ratio 78.98 86.95 38.76 37.69 36.25
Net interest margin, fully taxable equivalent 4.28 4.16 4.30 4.38 4.34
Average loans to average deposits 91.01 86.29 88.13 84.49 82.56
Average shareholders' equity to average assets 7.83 8.33 8.67 8.15 7.92
Allowance for credit losses to period end loans 1.58 1.58 1.38 1.33 1.28
Allowance for loan losses to total
non-performing loans 445.10 517.75 404.45 309.10 252.69
Non-performing loans to period end loans 0.36 0.31 0.34 0.43 0.51
Net charge-offs to average loans 0.28 0.36 0.26 0.31 0.26
===========================================================================================================================
</TABLE>
(1) Per share data has been restated to reflect the ten percent stock dividend
declared and paid in 1999 and 1998, the two-for-one stock split declared on May
12, 1998 and the three-for-two stock split declared in 1995 and all acquisitions
accounted for as poolings of interests (see Note 2 of the financial statements.)
(2) The net income presented above includes non-recurring items of income and
expense. Further discussion of the non-recurring items and restated results for
1997, 1998 and 1999 to exclude non-recurring items can be found in the "Results
of Operations" section of Management's Discussion and Analysis of Financial
Condition and Results of Operations.
18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(Dollars in thousands, except per share data)
The following discussion and analysis represents a review of Sky Financial's
consolidated financial condition and results of operations. This review should
be read in conjunction with the consolidated financial statements presented
elsewhere in this report.
Financial data for all periods have been restated to reflect mergers
accounted for as pooling-of-interests and stock dividends in prior periods. For
further discussion of mergers and acquisitions, see Note 2 of the consolidated
financial statements.
[GRAPH]
RESULTS OF OPERATIONS
Reported net income in 1999 was $71,182, as compared to $51,963 in 1998 and
$94,218 in 1997. Diluted earnings per common share were $0.90 in 1999, $0.66 in
1998 and $1.17 in 1997. Reported net income includes after-tax non-recurring
items which reduced net income $52,611, or $0.67 per diluted share, in 1999 and
$47,182, or $0.60 per diluted share, in 1998. After-tax non-recurring items
increased net income $4,901, or $0.06 per diluted share, in 1997.
[GRAPH]
Operating earnings, which exclude the after-tax non-recurring items,
increased 24.9% to $123,793 in 1999, versus $99,145 in 1998, which increased 11%
from $89,317 in 1997. Operating earnings per diluted share for 1999 increased
24.6% to $1.57 from $1.26 in 1998, which increased 13.5% from $1.11 in 1997. On
this same basis, return on average equity was 20.18% and return on average
assets was 1.58% in 1999 compared to 15.54% and 1.29%, respectively, in 1998,
and 14.88% and 1.27%, respectively, in 1997.
The 1999 and 1998 operating earnings improvements reflect continued
growth in total revenues, stable high asset quality and strong expense control.
In 1999, Sky Financial achieved significant expense reductions resulting from
its mergers and acquisitions completed in 1998 and 1999. In 2000, Sky Financial
expects further expense reductions upon the completion of the Mahoning National
Bancorp, Inc. integration, currently planned for the second quarter of 2000. The
earnings improvements in 1999 and 1998 were primarily achieved in the community
banks of Sky Financial Group. The contribution to earnings from the fee-based
financial service affiliates was again modest in 1999, as Sky Financial
continued to invest in developing and redesigning these businesses to add to
future profitability.
For 1999, after-tax non-recurring items included $51,051 merger and
restructuring expenses and a $1,560 provision for credit losses mainly in merged
banks. In 1998, after-tax non-recurring items included $39,966 merger and
restructuring expenses, a $10,400 provision for credit losses, mainly in merged
banks, and $3,184 gains related to a bulk sale of mortgage portfolio loans,
branch sales and a favorable legal settlement. In 1997, after-tax non-recurring
items included $5,399 gains from the sale of branches, a $3,120 gain from the
sale of credit card loans, $1,928 merger and restructuring and other
non-recurring expenses and a $1,690 provision for credit losses.
19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Dollars in thousands, except per share data)
BUSINESS LINE RESULTS
Sky Financial Group, Inc. is managed along two major lines of business: the
community banking group and the financial service affiliates. The community
banking group is comprised of Sky Financial Group, Inc.'s four commercial banks:
Sky Bank, Mid Am Bank, The Ohio Bank and Mahoning National Bank. The Mahoning
National Bank is scheduled to merge into Sky Bank in the second quarter of 2000.
The financial service affiliates include Sky Financial's non-banking
subsidiaries, which operate businesses relating to commercial finance lending
and leasing, broker/dealer operations, insurance, non-conforming mortgage
lending, collection activities, wealth management and other financial related
services.
[GRAPH]
Additional information regarding Sky Financial's business lines and
the financial measurement methodologies is provided in Note 21 of the
consolidated financial statements.
Sky Financial's business line results for each of the three years ended
December 31, 1999 are summarized in the table below.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Net Income (Loss)
---------------------------------------------------------------
Year ended December 31, 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Community Banking $ 126,139 $ 101,195 $91,591
Financial Service Affiliates 550 977 409
Parent and Other (55,507) (50,209) 2,218
- ------------------------------------------------------------------------------------------------------------------------------------
Consolidated $ 71,182 $ 51,963 $94,218
====================================================================================================================================
</TABLE>
The increase in community banking net income in 1999 was primarily due to
growth in net interest income and significant reductions in non-interest
expenses realized from the mergers and acquisitions completed in 1999 and 1998.
In 1998, the community banks' earnings benefited from strong revenue growth,
with significant improvement from mortgage banking activities.
The 1999 community banking results reflect a return on equity of 21.13%,
a return on assets of 1.64% and an efficiency ratio of 46.87%.
[GRAPH]
The financial service affiliates' earnings reflect Sky Financial's
continued investment in the development, redesign and growth of these
businesses. While earnings contribution from the financial service affiliates
remained modest, revenues grew 14% in 1999, after increasing 45% in 1998.
Parent and other includes the net funding costs of the parent company and
all significant non-recurring items of income and expense. The 1999 and 1998
results reflect primarily the merger and restructuring costs incurred for the
mergers completed during each year. The 1997 results include gains from the
sales of branches and credit card loans, partially offset by merger related
expenses.
20
NET INTEREST INCOME
Net interest income, the difference between interest income earned on
interest-earning assets and interest expense incurred on interest-bearing
liabilities, is the most significant component of Sky Financial's earnings. Net
interest income is affected by changes in the volumes, rates and composition of
interest-earning assets and interest-bearing liabilities.
The following table, presented on a tax- equivalent basis, summarizes net
interest income and net interest margin for each of the three years ended
December 31, 1999.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net interest income $ 303,645 $289,783 $278,963
Taxable equivalent adjustments
to net interest income 8,451 8,627 8,193
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income,
fully taxable equivalent $ 312,096 $298,410 $287,156
====================================================================================================================================
Net interest margin 4.16% 4.04% 4.18%
Taxable equivalent adjustment .12 .12 .12
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest margin, fully
taxable equivalent 4.28% 4.16% 4.30%
====================================================================================================================================
</TABLE>
The increase in net interest income in 1999 was due both to growth in
average earning assets, primarily loans, and improvement in the net interest
margin. In 1999, the net interest margin increased 12 basis points due to asset
yields declining less than funding costs. The increase in net interest income in
1998 was due to growth in average earning assets more than offsetting declines
in the net interest margin. In 1998, the net interest margin decreased 14 basis
points due to lower yields on earning assets, while funding costs were basically
flat, as increased reliance on higher cost borrowings offset the benefit of
lower deposits costs.
The following table reflects the components of Sky Financial's net
interest income for each of the three years ended December 31, 1999, setting
forth: (i) average assets, liabilities, and shareholders' equity, (ii) interest
income earned on interest-earning assets and interest expense incurred on
interest-bearing liabilities, (iii) average yields earned on interest-earning
assets and average rates incurred on interest-bearing liabilities, (iv) the net
interest rate spread (i.e., the average yield earned on interest-earning assets
less the average rate incurred on interest-bearing liabilities), and (v) the net
interest margin (i.e., net interest income divided by average interest-earning
assets). Rates are computed on a tax equivalent basis. Non-accrual loans have
been included in the average balances.
21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets
Interest-earning
deposits $ 16,994 $ 929 5.47% $ 17,672 $ 970 5.49% $ 13,634 $ 703 5.16%
Federal funds
sold and other 22,305 1,102 4.94 64,881 3,517 5.42 67,238 3,693 5.49
Securities 1,999,719 128,113 6.41 2,118,626 134,474 6.35 1,837,848 120,910 6.58
Loan and loans
held for sale 5,254,937 451,902 8.60 4,972,537 445,361 8.96 4,751,659 428,506 9.02
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-
earning assets 7,293,955 582,046 7.98 7,173,716 584,322 8.15 6,670,379 553,812 8.30
- ------------------------------------------------------------------------------------------------------------------------------------
Nonearning assets 538,750 483,249 374,274
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $7,832,705 $7,656,965 $7,044,653
====================================================================================================================================
Interest-bearing liabilities
Demand deposits $ 231,858 3,627 1.56% $ 764,843 15,326 2.00% $ 799,719 18,918 2.37%
Savings deposits 1,915,916 38,407 2.00 1,333,332 36,722 2.75 1,177,044 32,342 2.75
Time deposits 2,952,016 155,829 5.28 3,028,688 168,277 5.56 2,855,456 160,265 5.61
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-
bearing
deposits 5,099,790 197,863 3.88 5,126,863 220,325 4.30 4,832,219 211,525 4.38
Short-term
borrowings 612,584 29,230 4.77 541,802 27,017 4.99 498,545 25,606 5.14
Debt and FHLB
advances 747,407 42,857 5.73 624,474 38,570 6.18 475,771 29,525 6.21
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-
bearing
liabilities 6,459,781 269,950 4.18 6,293,139 285,912 4.54 5,806,535 266,656 4.59
- ------------------------------------------------------------------------------------------------------------------------------------
Non-interest-bearing
liabilities 759,396 725,774 627,514
Shareholders'
equity 613,528 638,052 610,604
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities
and equity $7,832,705 $7,656,965 $7,044,653
====================================================================================================================================
NET INTEREST INCOME,
FULLY TAXABLE
EQUIVALENT; NET
INTEREST SPREAD $312,096 3.80% $298,410 3.61% $287,156 3.71%
====================================================================================================================================
NET INTEREST INCOME,
FULLY TAXABLE
EQUIVALENT TO
EARNING ASSETS 4.28% 4.16% 4.30%
====================================================================================================================================
</TABLE>
- - For purposes of this schedule, nonaccrual loans are included in loans.
- - Fees collected on loans are included in interest on loans.
22
Net interest income may also be analyzed by segregating the volume and
rate components of interest income and interest expense. The following table
presents an analysis of increases and decreases in interest income and expense
in terms of changes in volume and interest rates during the three years ended
December 31, 1999. Changes not due solely to either a change in volume or a
change in rate have been allocated based on the respective percentage changes in
average balances and average rates. The table is presented on a tax-equivalent
basis.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
CHANGE FROM 1998 IN INTEREST CHANGE FROM 1997 IN INTEREST
INCOME OR EXPENSE DUE TO INCOME OR EXPENSE DUE TO
- ------------------------------------------------------------------------------------------------------------------------------------
VOLUME RATE TOTAL VOLUME RATE TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest income attributable to:
Interest-bearing deposits $ (37) $ (4) $ (41) $ 208 $ 59 $ 267
Federal funds sold (2,308) (107) (2,415) (129) (47) (176)
Securities (7,547) 1,186 (6,361) 18,472 (4,908) 13,564
Loans, net 25,293 (18,752) 6,541 19,919 (3,064) 16,855
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest income 15,401 (17,677) (2,276) 38,470 (7,960) 30,510
- ------------------------------------------------------------------------------------------------------------------------------------
Interest expense attributable to:
Deposits:
Interest-bearing demand (10,680) (1,019) (11,699) (825) (2,767) (3,592)
Savings 16,045 (14,360) 1,685 4,294 86 4,380
Time (4,260) (8,188) (12,448) 9,723 (1,711) 8,012
- ------------------------------------------------------------------------------------------------------------------------------------
Total deposits 1,105 (23,567) (22,462) 13,192 (4,392) 8,800
Short-term borrowings 3,530 (1,317) 2,213 2,222 (811) 1,411
Debt and FHLB advances 7,593 (3,306) 4,287 9,228 (183) 9,045
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest expense 12,228 (28,190) (15,962) 24,642 (5,386) 19,256
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income $ 3,173 $ 10,513 $ 13,686 $13,828 $(2,574) $11,254
====================================================================================================================================
</TABLE>
NON-INTEREST INCOME
The table below summarizes the sources of Sky Financial's non-interest income.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998
Vs. Vs.
YEAR ENDED DECEMBER 31, 1999 1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Trust services income $ 12,581 $ 11,268 $ 9,434 12% 19%
Service charges and fees on deposit accounts 27,480 25,142 23,318 9 8
Mortgage banking income 18,953 26,687 16,976 (29) 57
Brokerage and insurance commissions 15,960 9,430 6,083 69 55
Collection agency fees 2,465 4,115 5,053 (40) (19)
Net gains on sales of securities 1,325 1,409 340 (6) 314
Net gains on sales of commercial financing loans 17,305 19,378 13,027 (11) 49
International department fees 1,006 965 978 4 (1)
Gain on sale of deposits and branch offices - 1,071 9,311 - (89)
Gains on sales of credit card accounts
and other loans 3,203 1,927 5,602 66 (66)
Income from bank-owned life insurance 4,709 3,178 801 48 297
Other 19,355 19,980 17,393 (3) 15
- ------------------------------------------------------------------------------------------------------------------------------------
Total non-interest income $124,342 $124,550 $108,316 -% 15%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(Dollars in thousands, except per share data)
Non-interest revenue in 1999 was basically unchanged compared with
1998, which increased $16,234, or 15%, from 1997. Excluding non-recurring gains
in 1998 of $1,071 from the sale of branches, $1,656 from a bulk sale of mortgage
portfolio loans and $1,475 for a favorable legal settlement and net gains of
$9,311 in 1997 related to the sale of branches and $4,800 from the sale of
credit card accounts, non-interest revenues rose 3% in 1999 after increasing 28%
in 1998. Sky Financial continues to emphasize expanding its fee-based
businesses, diversifying its revenue sources and adding to profitability beyond
traditional banking products and services, however, in 1999 growth was slowed
due to declines in mortgage banking income.
Mortgage banking, which includes both conventional and non-conforming
loan products, consists of net gains on the sales of mortgage loans and mortgage
loan servicing fees. Mortgage banking revenues decreased $7,734, or 29% in 1999
after increasing $9,711, or 57% in 1998. The decrease in 1999 was mainly due to
an unfavorable interest rate environment which lowered volumes of mortgage loans
originated and sold, and the downsizing of the non-conforming loan business. In
1998, a more favorable interest rate environment increased mortgage volumes.
Service charges and fees on deposit accounts increased $2,338, or 9%,
in 1999 and $1,824, or 8%, in 1998. The increases were mainly due to branch
acquisitions in June of 1998 and the implementation of new fee structures in
certain markets.
Gains on the sale of commercial financing loans, for medical and dental
businesses, decreased $2,073, or 11%, in 1999 after increasing $6,351, or 49% in
1998. While the volumes of loans sold in this business rose in both 1999 and
1998, profit margins lowered in 1999 due to the rise in interest rates during
the year.
Brokerage commissions on investment and insurance products increased
$6,530, or 69%, in 1999 and $3,347, or 55% in 1998. The revenue increase in 1999
was from increased sales volumes and the acquisition of Picton Cavanaugh, Inc.,
in May of 1999. The revenue increase in 1998 was the result of increased volumes
created by adding new independent registered representatives (brokers).
Trust fees on traditional services and new wealth management products
grew $1,313, or 12% in 1999, and $1,834, or 19% in 1998. The increases were
primarily due to revenues generated through new business volumes. In January,
2000, Sky Trust, with $2.8 billion in assets under administration, was formed
through the combination of all trust activities in Sky Financial.
NON-INTEREST EXPENSE
Non-interest expense includes costs, other than interest, that are incurred in
the operations of Sky Financial. The table below summarizes the components of
Sky Financial's non-interest expense.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
1999 1998
VS. VS.
YEAR ENDED DECEMBER 31, 1999 1998 1997 1998 1997
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Salaries and employee benefits $120,546 $128,960 $119,258 (7)% 8%
Occupancy and equipment expense 38,985 38,665 35,419 1 9
Merger, integration and
restructuring expense 72,545 55,987 1,603 30 NM
Brokerage commissions 7,925 6,209 3,597 28 73
State franchise taxes 4,442 5,903 5,703 (25) 4
Printing and supplies 5,741 6,523 5,894 (12) 11
Legal and other professional fees 6,179 9,365 8,031 (34) 17
Telephone 6,421 5,301 4,752 21 12
Marketing 6,598 7,554 7,028 (13) 7
Amortization of intangible assets 5,243 6,104 4,070 (14) 50
Other 27,872 35,996 35,168 (23) 2
- --------------------------------------------------------------------------------------------------------------
Total non-interest expense $302,497 $306,567 $230,523 (1)% 33%
==============================================================================================================
</TABLE>
24
In 1999, merger and restructuring expenses included $46,197 related to
the First Western, Wood Bancorp and Mahoning Bancorp transactions, a $21,787
impairment loss related to prior branch acquisitions, $4,323 for contractual
payments related to changes in executive management and $2,434 in connection
with the redesign of MAFSI and the formation of Sky Trust and $204 in other
expenses. In 1998, the merger and restructuring charges included $45,602 related
to the merger of Mid Am and Citizens to form Sky Financial Group, $8,885 in
connection with the Century and UniBank transactions and $1,500 in severance
costs at First Western. In 1997, merger and restructuring charges were $1,603 in
addition to non-recurring expenses of $1,415, mainly employee related expenses
resulting from the sale of branches. Further discussion of the mergers and the
related restructuring expenses is included in Notes 2 and 14 of the consolidated
financial statements.
Excluding the merger and restructuring charges, and other non-recurring
expenses, non-interest expense was $229,952 in 1999, a decrease of $20,628, or
8%, from 1998, which increased $23,075, or 10%, from 1997. On this same basis,
the efficiency ratio, which measures operating expenses as a percent of total
operating revenues, was 52.69% in 1999, improving from 59.84% in 1998 and 60.03%
in 1997.
Salaries and employee benefits, the largest component of non-interest
expense, decreased $8,414, or 7%, in 1999 and increased $9,702, or 8%, in 1998.
The decrease in 1999 was mainly due to the reduction in staff resulting from the
redesign and reorganization of Sky Financial in the fourth quarter of 1998 and
reductions in staff resulting from the mergers completed during 1999. The
increase in 1998 was attributable to increases in salary rates, increases in
staffing in the financial service affiliates and acquired branches, commissions
based on mortgage loan originations and fee-based products, and incentives and
benefits based on the operating performance of Sky Financial.
LOAN PORTFOLIO
The amount of loans outstanding and the percent of the total represented by each
type on the dates indicated were as follows.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Real estate loans:
Construction $ 176,940 $ 175,706 $ 170,767 $ 150,211 $ 141,321
Residential mortgage 1,744,162 1,739,132 1,712,385 1,643,101 1,691,938
Non-residential mortgage 1,296,019 1,251,977 1,085,582 928,061 753,143
Commercial, financial and
agricultural loans 1,411,902 1,087,511 988,690 981,262 891,861
Installment and credit card loans 834,106 848,648 848,281 801,733 806,088
Other loans 14,365 7,853 9,179 7,702 8,306
- ------------------------------------------------------------------------------------------------------------------------
Total loans $5,477,494 $5,110,827 $4,814,884 $4,512,070 $4,292,657
========================================================================================================================
Real estate loans:
Construction 3.2% 3.4% 3.6% 3.3% 3.3%
Residential mortgage 31.8 34.0 35.6 36.4 39.4
Non-residential mortgage 23.7 24.5 22.5 20.6 17.5
Commercial, financial and
agricultural loans 25.8 21.3 20.5 21.7 20.8
Installment and credit card loans 15.2 16.6 17.6 17.8 18.8
Other loans 0.3 0.2 0.2 0.2 0.2
- ------------------------------------------------------------------------------------------------------------------------
Total loans 100.0% 100.0% 100.0% 100.0% 100.0%
========================================================================================================================
</TABLE>
25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(Dollars in thousands, except per share data)
Real estate loans, including construction and mortgage loans,
approximated 59% of total loans at December 31, 1999, decreasing from 62% at
year-end 1998. Sky Financial's general collateral policy for residential real
estate mortgages is to follow FNMA and FHLMC guidelines, which generally require
a loan-to-value ratio of 80% or private mortgage insurance for loan-to-value
ratios in excess of 80%.
Commercial loans comprise 26% of the total loan portfolio, increasing
from 21% in 1998. Growth in this portfolio reflects new business development
largely targeted in new markets entered through branch acquisitions in 1998. The
amount of collateral required on commercial loans is generally determined based
on a loan-by-loan assessment. Average loan-to-value ratios for commercial loans
typically range from 50% to 80%. Factors which are considered include, among
other things, the purpose of the loan, the current financial status of the
borrower and the borrower's prior credit history.
The remaining portion of Sky Financial's loan portfolio are installment
loans, credit card loans and other loans and leases, which decreased to 15% of
the loan portfolio from 17% in the prior year. A thorough credit examination is
done at the time of the extension of credit. Sky Financial makes consumer loans
on both a secured and unsecured basis depending, in part, on the nature, purpose
and term of the loan. Loan-to-value ratios for secured consumer loans range from
70% to 90% as a general rule.
As of December 31, 1999, Sky Financial did not have any loan
concentrations which exceeded 10% of total loans.
The following table shows the amount of commercial, financial and
agricultural loans and real estate construction loans outstanding as of
December 31, 1999 which, based on remaining scheduled repayments of principal,
are due in the periods indicated. Also, the amounts due after one year are
classified according to their sensitivity to changes in interest rates.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
DUE IN DUE IN DUE AFTER
DECEMBER 31, 1 YEAR 1 YR - 5 YRS 5 YEARS TOTAL
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial, financial and
agricultural $837,430 $430,079 $144,393 $1,411,902
Construction 109,160 36,737 31,043 176,940
- -----------------------------------------------------------------------------------------------------------------------
Total $946,590 $466,816 $175,436 $1,588,842
=======================================================================================================================
Total due after one year:
Fixed rate commercial, financial,
agricultural and construction $172,028 $ 77,008 $ 249,036
Variable rate commercial, financial,
agricultural and construction 294,788 98,428 393,216
- -----------------------------------------------------------------------------------------------------------------------
Total $466,816 $175,436 $ 642,252
=======================================================================================================================
</TABLE>
Actual maturities of loans will differ from the contractual maturities
presented in the table above because of prepayments, rollovers and renegotiation
of payment terms, among other factors.
26
NON-PERFORMING ASSETS
The following table presents the aggregate amounts of non-performing assets and
respective ratios on the dates indicated.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Non-accrual loans $17,423 $13,570 $15,980 $18,535 $20,183
Restructured loans 2,067 2,026 475 902 1,594
- ------------------------------------------------------------------------------------------------------------------
Total non-performing loans 19,490 15,596 16,455 19,437 21,777
Other real estate owned 3,293 1,977 2,291 3,823 3,081
- ------------------------------------------------------------------------------------------------------------------
Total non-performing assets $22,783 $17,573 $18,746 $23,260 $24,858
==================================================================================================================
Loans 90 days or more past due
and not on non-accrual $ 9,538 $ 7,797 $ 8,313 $ 9,968 $ 6,220
==================================================================================================================
Non-performing loans to total loans 0.36% 0.31% 0.34% 0.43% 0.51%
Non-performing assets to total loans
plus other real estate owned 0.42 0.34 0.39 0.52 0.58
Allowance for credit losses to total
non-performing loans 445.10 517.75 404.45 309.10 252.69
Loans 90 days or more past due and
not on non-accrual to total loans 0.17 0.15 0.17 0.22 0.14
==================================================================================================================
</TABLE>
Residential mortgage, installment and other consumer loans are
collectively evaluated for impairment. Individual commercial loans exceeding
size thresholds established by management are evaluated for impairment. Impaired
loans are recorded at the loan's fair value by the establishment of a specific
allowance where necessary. The fair value of the underlying collateral-dependent
loans is determined by the fair value of the underlying collateral. The fair
value of noncollateral-dependent loans is determined by discounting expected
future interest and principal payments at the loan's effective interest rate.
All impaired loans, are included in the non-performing loans.
Non-accrual loans are comprised principally of loans 90 days past due,
as well as certain loans which are current but where serious doubts exist as to
the ability of the borrower to comply with the repayment terms. Interest
previously accrued and not yet paid on non-accrual loans is reversed or charged
against the allowance for credit losses during the period in which the loan is
placed in a non-accrual status, except where Sky Financial has determined that
such loans are adequately secured as to principal and interest. Interest earned
thereafter is included in income only to the extent that it is received in cash.
In certain cases, interest received may be credited against principal
outstanding under the cost recovery method.
27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(Dollars in thousands, except per share data)
The Ohio Bank has outstanding lease receivables and loans with an
aggregate outstanding balance at December 31, 1999 of $442 to The Bennett
Funding Group, Inc. and related entities (Bennett), which remain subject to
bankruptcy proceedings. While the bankruptcy judge has ruled that The Ohio Bank
was a secured creditor with respect to certain of its outstanding Bennett
portfolios, these decisions have been appealed by the bankruptcy trustee and the
appeals are pending.
Loans now current but where some concerns exist as to the ability of
the borrower to comply with present loan repayment terms, excluding
non-performing loans, approximated $40,825 and $28,023 at December 31, 1999 and
1998, respectively, and are being closely monitored by management and the Boards
of Directors of the subsidiaries. The classification of these loans, however,
does not imply that management expects losses on each of these loans, but
believes that a higher level of scrutiny is prudent under the circumstances. The
increase in loans where some concern exists reflects Sky Financial's continuous
process of loan review and is primarily attributable to recently acquired banks.
In the opinion of management, these loans require close monitoring despite the
fact that they are performing according to their terms. Such classifications
relate to specific concerns relating to each individual borrower and do not
relate to any concentrated risk elements common to all loans in this group.
PROVISION AND ALLOWANCE FOR CREDIT LOSSES
The provision for credit losses represents the charge to income necessary to
adjust the allowance for credit losses to an amount that represents management's
assessment of the estimated probable credit losses inherent in Sky Financial's
loan portfolio which have been incurred at each balance sheet date. All lending
activity contains associated risks of loan losses. Sky Financial recognizes
these credit risks as a necessary element of its business activity. To assist in
identifying and managing potential loan losses, Sky Financial maintains a loan
review function that continuously evaluates individual credit relationships as
well as overall loan portfolio conditions. One of the primary objectives of this
loan review function is to make recommendations to management as to both
specific loss reserves and overall portfolio loss reserves.
The provision for credit losses expense for 1999 was $20,712 compared
with $31,992 for 1998 and $18,859 in 1997. The changes in the provision for
credit losses were attributable to the changes in net loan charge-offs, the
recognition of changes in current risk factors and Sky Financial's application
of its allowance for credit losses methodology.
28
The following table presents a summary of credit loss experience for the periods
indicated.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at beginning of the period $ 80,748 $ 66,553 $ 60,080 $ 55,029 $ 53,679
Loans charged-off:
Real estate (2,803) (3,861) (1,343) (1,507) (860)
Commercial and
agricultural loans (3,366) (7,719) (5,360) (3,016) (6,242)
Installment and credit card (14,233) (11,757) (10,145) (14,019) (8,032)
Other loans (68) (5) (68) (14) -
- ----------------------------------------------------------------------------------------------------------------------
Total charge-offs (20,470) (23,342) (16,916) (18,556) (15,134)
- ----------------------------------------------------------------------------------------------------------------------
Recoveries:
Real estate 938 551 476 476 692
Commercial and
agricultural loans 1,711 2,334 1,368 2,034 1,719
Installment and credit card 3,052 2,627 2,640 2,294 1,623
Other loans 25 33 46 57 36
- ----------------------------------------------------------------------------------------------------------------------
Total recoveries 5,726 5,545 4,530 4,861 4,070
- ----------------------------------------------------------------------------------------------------------------------
Net loans charged-off (14,744) (17,797) (12,386) (13,695) (11,064)
Provision charged to
operating expense 20,712 31,992 18,859 18,746 12,414
Effect of conforming year end
of pooled entity 34 - - - -
- ----------------------------------------------------------------------------------------------------------------------
Balance at the end of the period $ 86,750 $ 80,748 $ 66,553 $ 60,080 $ 55,029
======================================================================================================================
Net charge-offs to
average loans outstanding 0.28% 0.36% 0.26% 0.31% 0.26%
Allowance for credit losses to
total loans 1.58 1.58 1.38 1.33 1.28
Allowance for credit losses to
total nonperforming loans 445.10 517.75 404.45 309.10 252.69
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
Sky Financial maintains an allowance for credit losses at a level adequate to
absorb management's estimate of probable losses inherent in the loan portfolio.
The allowance is comprised of a general allowance, a specific allowance for
identified problem loans and an unallocated allowance.
The general allowance is determined by applying estimated loss factors
to the credit exposures from outstanding loans. For construction, commercial and
commercial real estate loans, loss factors are applied based on internal risk
grades of these loans. For residential real estate, installment, credit card and
other loans, loss factors are applied on a portfolio basis. Loss factors are
based on peer and industry loss data compared to Sky Financial's historical loss
experience, and are reviewed for correction on a quarterly basis, along with
other factors affecting the collectibility of the loan portfolio.
Specific allowances are established for all criticized and classified
loans, where management has determined that, due to identified significant
conditions, the probability that a loss has been incurred exceeds the general
allowance loss factor determination for those loans.
29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(Dollars in thousands, except per share data)
The unallocated allowance recognizes the estimation risk associated with the
allocated general and specific allowances and incorporates management's
evaluation of existing conditions that are not included in the allocated
allowance determinations. These conditions are reviewed quarterly by management
and include general economic conditions, credit quality trends, and internal
loan review examination findings.
At December 31, 1999, the allowance for credit losses was $86,750, or
1.58% of total loans outstanding, and 445% of total non-performing loans,
compared to an allowance at December 31, 1998 of $80,748, or 1.58% of total
loans outstanding and 518% of total non-performing loans. At year-end 1999, the
allocated portion of the allowance for credit losses was $61,492 compared with
$55,008 at year-end 1998. The increase of $6,484 resulted primarily from the
overall growth in total loans of 7.2% and the adjustment and extension of loss
factors for components of each segment within the loan portfolio, mainly as they
applied to banks merged in 1999. At year-end 1999, the unallocated portion of
the allowance for credit losses was $25,258 compared with $25,740 at year-end
1998. The decrease was primarily attributable to reduced estimation risk related
to the adjustment of loss factors which increased the allocated portion of the
allowance.
Non-performing loans, at year-end 1999, totaled $19,490, or .36% of
total loans outstanding compared with $15,596, or .31% of total loans
outstanding at year-end 1998. While non-performing loans rose slightly during
1999, net charge-offs decreased in 1999 to $14,744, or .28% of average total
loans, compared with $17,797, or .36% of average total loans in 1998. The
decrease in loan charge-offs was primarily in the commercial real estate and
commercial, financial and agricultural loan portfolios.
At December 31, 1999, average annual net charge-offs for the past three
years were .30% of average loans compared with .31% at December 31, 1998. Based
on these averages for net charge-offs, the allowance for credit losses
represented 5.3 years of net credit losses at December 31, 1999 and 5.1 years of
net credit losses at December 31, 1998. Historical net charge-offs may not be
indicative of losses realized in the future.
The following table sets forth the allocation of the allowance for credit losses
for the periods indicated.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Construction $ 707 $ 693 $ 93 $ 77 $ 53
Real estate 22,186 21,771 9,120 7,707 7,717
Commercial, financial and
agricultural 15,365 12,748 14,381 13,682 13,966
Installment and credit card 22,434 17,976 11,963 13,298 10,232
Other loans 800 1,820 355 1,341 656
Unallocated 25,258 25,740 30,641 23,975 22,405
- -------------------------------------------------------------------------------------------------------------------
Total $86,750 $80,748 $66,553 $60,080 $55,029
===================================================================================================================
</TABLE>
The overall increase in the allowance for credit losses in 1999 was
mainly due to the 7% growth in total loans from 1998. This was particularly
reflected in the increased allowance for commercial, financial and agricultural
loans, as that portion of the loan portfolio grew 30% in 1999. The increased
allowance allocation for installment and credit card loans primarily reflects
the increasing level of indirect installment loans, with higher net charge-offs,
within this segment of the loan portfolio.
30
SECURITIES
The following tables set forth the fair value of securities available for sale
at the respective year end for each of the last three years and the aggregate
amortized cost of Sky Financial's securities held to maturity at December 31,
1998 and 1997.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
ESTIMATED FAIR VALUE
- -----------------------------------------------------------------------------------------------------
DECEMBER 31, 1999 1998 1997
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Securities Available for Sale:
U.S. Treasury securities and
obligations of U.S. Government
agencies and corporations $ 674,440 $ 679,531 $ 582,671
Obligations of states and political subdivisions 190,840 214,965 95,905
Corporate and other securities 20,803 17,179 33,204
Mortgage-backed securities 841,607 1,072,000 685,877
- -----------------------------------------------------------------------------------------------------
Total debt securities available for sale 1,727,690 1,983,675 1,397,657
Marketable equity securities 141,149 143,158 102,037
- -----------------------------------------------------------------------------------------------------
Total securities available for sale $1,868,839 $2,126,833 $1,499,694
=====================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
AMORTIZED COST
- ----------------------------------------------------------------------------------------------------
DECEMBER 31, 1999 1998 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Securities Held to Maturity:
U.S. Treasury securities and
obligations of U.S. Government
agencies and corporations $ - $14,998 $126,677
Obligations of states and political subdivisions 8,852 117,454
Corporate and other securities 60 2,306
Mortgage-backed securities - 134,772
- ----------------------------------------------------------------------------------------------------
Total securities held to maturity $ - $23,910 $381,209
====================================================================================================
</TABLE>
The portfolio contains mortgage-backed securities, and to a limited
extent, other securities which have unknown cash flow characteristics. The
variable cash flows present additional risk to the bondholders in the form of
prepayment or extension risk primarily caused by market interest rate changes.
This additional risk is generally rewarded in the form of higher yields to the
investor.
Sky Financial utilizes tools to minimize and monitor this risk,
requiring the security to pass a stress test at the time of purchase. This
testing measures prepayment and extension risk under severe changes in interest
rates. Additionally, the corporate investment policy defines certain types of
high risk securities as ineligible for purchase, including securities which may
not return full principal to Sky Financial. It is also the practice of Sky
Financial to minimize premiums paid on mortgage securities to avoid yield
reduction if prepayments increase. These policies help insure that there will be
no material impact from these investments to the financial statements due to
changing interest rates.
31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands, except per share data)
The internal accounting systems and controls are in place to account for
amortization and accretion of premiums and discounts. As prepayments of
principal are received, the system automatically adjusts premiums and discounts
to reflect the proper book values.
There are no securities of any single issuer where the aggregate carrying
value of such securities exceeded 10% of shareholders' equity, except those of
the U.S. Treasury, U.S. Government agencies and substantially all
mortgage-backed securities issued by Federal Home Loan Mortgage Corporation,
Federal National Mortgage Association and Government National Mortgage
Association.
The following tables show the contractual maturities and weighted average
yields of Sky Financial's securities as of December 31, 1999. Expected
maturities will differ from contractual maturities because issuers may have the
right to call or prepay obligations with or without call or prepayment
penalties. Mortgage-backed securities are presented in the table based on
current assumptions as to prepayments. The weighted average yields on income
from tax exempt obligations of state and political subdivisions have been
adjusted to a tax equivalent basis.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
WITHIN 1 YR 1-5 YRS 5-10 YRS Over 10 YRS
-------------------------------------------------------------------------
DECEMBER 31, AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and
U.S. Government
agencies and
corporations $ 125,855 5.79% $ 359,033 5.81% $ 165,622 6.69% $ 23,930 6.80%
Obligations of
states and
political
subdivisions 26,569 6.62 82,877 6.73 55,917 7.64 25,477 7.45
Corporate and
other securities 4,220 6.35 13,211 5.99 1,272 5.29 2,100 6.35
Mortgage-backed
securities 12,598 6.67 305,371 7.07 485,425 7.60 38,213 7.39
- ------------------------------------------------------------------------------------------------------
Total debt securities
available for sale $ 169,242 6.00% $ 760,492 6.42% $ 708,236 7.39% $ 89,720 7.23%
======================================================================================================
</TABLE>
DEPOSITS
The following is a schedule of average deposit amounts and average rates paid on
each category for the period indicated.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
AVERAGE AMOUNTS OUTSTANDING AVERAGE RATE PAID
--------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1999 1998 1997 1999 1998 1997
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Non-interest-bearing
demand deposits $ 674,251 $ 635,451 $ 559,701
Interest-bearing
demand deposits 231,858 764,843 799,719 1.56% 2.00% 2.37%
Savings deposits 1,915,916 1,333,332 1,177,044 2.00 2.75 2.75
Time deposits 2,952,016 3,028,688 2,855,456 5.28 5.56 5.61
- ------------------------------------------------------------------------------------------------------
Total $ 5,774,041 $ 5,762,314 $ 5,391,920
======================================================================================================
</TABLE>
32
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
The following is a schedule of maturities of time deposits in denominations of
$100,000 or more as of December 31, 1999:
- -----------------------------------------------------------------------------------------------------
<S> <C>
Three months or less $220,859
Three through six months 104,298
Six through twelve months 179,053
Over twelve months 173,268
- -----------------------------------------------------------------------------------------------------
Total $677,478
=====================================================================================================
</TABLE>
SHORT-TERM BORROWINGS
The following table sets forth certain
information relative to the securities sold under agreements to repurchase and
Federal funds purchased. Generally, repurchase agreements are sold to local
government entities and businesses and have maturity terms of overnight to 30
days. Federal funds purchased generally have overnight terms.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
DECEMBER 31, 1999 1998 1997
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Securities sold under agreements to repurchase and
federal funds purchased at period-end $ 657,913 $ 589,722 $ 482,688
Weighted average interest rate at period-end 4.67% 4.83% 5.16%
Maximum outstanding at any month-end during the year $ 657,913 $ 621,672 $ 564,600
Average amount outstanding 612,584 541,802 498,545
Weighted average rates during the year 4.77% 4.99% 5.14%
- -----------------------------------------------------------------------------------------------------
For further information on the securities sold under agreements to repurchase,
see Note 7.
- -----------------------------------------------------------------------------------------------------
</TABLE>
CAPITAL RESOURCES
The Federal Reserve Board has established
risk-based capital guidelines that must be observed by bank holding companies
and banks. Sky Financial has consistently maintained the regulatory capital
ratios of the corporation and each of its banks above the "well capitalized"
requirements. For further information on capital ratios, see Note 20 of the
consolidated financial statements.
On September 24, 1999, Sky Financial's Board of Directors authorized the
repurchase of up to 3,850,000 shares of Sky Financial Group common stock over a
twelve month period in the open market or in privately negotiated trans-
actions. This action represents a continuation of Sky Financial's program in
which shares are repurchased for use in future stock dividends and for use in
its stock option plans. Sky Financial or its predecessors have declared a 10%
stock dividend in each of the last five years.
Through December 31, 1999, 490,000 shares had been repurchased under this
authorization.
LIQUIDITY MANAGEMENT
The liquidity of a financial institution reflects its ability to provide funds
to meet loan requests, to accommodate possible outflows in deposits and to take
advantage of interest rate market opportunities. Funding of loan requests,
providing for liability outflows, and management of interest rate fluctuations
require continuous analysis in order to match the maturities of specific
categories of short-term loans and investments with specific types of deposits
and borrowings. Financial institution liquidity is thus normally considered in
terms of the nature and mix of the institution's sources and uses of funds.
Sky Financial's banking subsidiaries maintain adequate liquidity
primarily through the use of investment securities and unused borrowing
capacity, in addition to maintaining a stable core deposit base. At December 31,
1999, securities and other short-term investments with maturities of one year or
less totaled $172,342, with additional liquidity provided by the remainder of
the investment portfolio. The banks utilize several short-term and long-term
borrowing sources. Each of the banking subsidiaries is a member of the Federal
Home Loan
33
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands, except per share data)
Bank (FHLB) and have lines of credit with the FHLB. At December 31, 1999, these
lines of credit enable the banks to borrow up to $897,197, of which $763,170 is
currently outstanding.
Since Sky Financial is a holding company and does not conduct operations,
its primary sources of liquidity are borrowings from outside sources and
dividends paid to it by its subsidiaries. For the banking subsidiaries,
regulatory approval is required in order to pay dividends in excess of the
subsidiaries' earnings retained for the current year plus retained net profits
for the prior two years. As a result of these restrictions, dividends which
could be paid to Sky Financial by its bank subsidiaries, without prior
regulatory approval, were limited to $40,641 at December 31, 1999. In addition,
Sky Financial has a $100 million revolving line of credit with a group of
unaffiliated banks which expires March 31, 2000. At December 31, 1999, Sky
Financial had borrowed $84 million under the agreement and is currently in the
process of renegotiating the agreement to increase the line of credit to $120
million.
MARKET RISK MANAGEMENT
The primary market risk to which Sky Financial is exposed is interest rate risk.
The primary business of Sky Financial and the composition of its balance sheet
consists of investments in interest-earning assets, which are funded by
interest-bearing liabilities. These financial instruments have varying levels of
sensitivity to changes in the market rates of interest, resulting in market
risk. None of Sky Financial's financial instruments are held for trading
purposes.
Sky Financial monitors and manages its rate sensitivity position to
maximize net interest income, while minimizing the risk due to changes in
interest rates. One method Sky Financial uses to manage its interest rate risk
is a rate sensitivity gap analysis.
The difference between a financial institution's interest rate sensitive
assets (i.e., assets which will mature or reprice within a specific time period)
and interest rate sensitive liabilities (i.e., liabilities which will mature or
reprice within the same time period) is commonly referred to as its "interest
rate sensitivity gap" or "gap." An institution having more interest rate
sensitive assets than interest rate sensitive liabilities within a given time
period is said to have a "positive gap," which generally means that if interest
rates increase, a company's net interest income will increase and if interest
rates decrease, its net interest income will decrease. An institution having
more interest rate sensitive liabilities than interest rate sensitive assets
within a given time period is said to have a "negative gap," which generally
means that if interest rates increase, a company's net interest income will
decrease and if interest rates decrease, its net interest income will increase.
The following table sets forth the cumulative repricing distributions as
of December 31, 1999 of Sky Financial's interest-earning assets and
interest-bearing liabilities, its interest rate sensitivity gap, cumulative
interest rate sensitivity gap for such assets and liabilities, and cumulative
interest rate sensitivity gap as a percentage of total interest-earning assets.
This table indicates the time periods in which certain interest-earning assets
and certain interest-bearing liabilities will mature or may reprice in
accordance with their contractual terms. Core deposits and loans with
non-contractual maturities are included in the gap repricing distributions based
upon historical patterns of balance attrition and pricing behavior. The gap
repricing distributions also include principal cash flows from loans and
mortgage-backed securities in the time frames in which they are expected to be
received. Mortgage prepayments are estimated by applying industry median
projections of prepayment speeds to portfolio segments based on coupon range.
34
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
MATURITY OR NEXT RATE ADJUSTMENT DATE
-----------------------------------------------------------------
0-3 3-12 1-5 OVER 5
DECEMBER 31, 1999 MONTHS MONTHS YEARS YEARS TOTAL
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Rate Sensitive Assets (RSA):
Loans and loans held
for sale $1,545,548 $1,150,606 $2,506,659 $ 283,687 $5,486,500
Securities 76,221 245,084 935,046 612,488 1,868,839
Federal funds sold 3,100 3,100
Interest-bearing deposits 17,086 17,086
- ------------------------------------------------------------------------------------------------------
Rate sensitive assets $1,641,955 $1,395,690 $3,441,705 $ 896,175 $7,375,525
======================================================================================================
Rate Sensitive Liabilities (RSL):
Interest-bearing deposits $ 912,160 $1,514,357 $2,595,462 $ 20,800 $5,042,779
Short-term borrowings,
debt and FHLB advances 780,383 143,420 439,561 259,106 1,622,470
- ------------------------------------------------------------------------------------------------------
Rate sensitive liabilities $1,692,543 $1,657,777 $3,035,023 $ 279,906 $6,665,249
======================================================================================================
Gap (a) $ (50,588) $ (262,087) $ 406,682 $ 616,269 $ 710,276
Cumulative gap (50,588) (312,675) 94,007 710,276
Cumulative gap/ Total RSA (0.69)% (4.24)% 1.27% 9.63%
- ------------------------------------------------------------------------------------------------------
</TABLE>
(a) Gap is defined as rate sensitive assets less rate sensitive liabilities and
may be expressed in dollars or as a percentage.
Total interest-earning assets exceeded interest-bearing liabilities by
$710,276 at December 31, 1999. This difference was funded through
non-interest-bearing liabilities and shareholders' equity and is based on
contractual maturities and repricing, as well as assumptions regarding early
loan and security repayments. The table above shows that the total liabilities
maturing or repricing within one year exceed assets maturing or repricing within
one year by $312,675. However, repricing of certain categories of assets and
liabilities is subject to competitive and other influences that are beyond Sky
Financial's control. Therefore, certain assets and liabilities indicated as
maturing or repricing within a stated period may, in fact, mature or reprice in
other periods or at different volumes.
Sky Financial also monitors its interest rate risk through a sensitivity
analysis, whereby it measures potential changes in its future earnings and the
fair values of its financial instruments that may result from one or more
hypothetical changes in interest rates. This analysis is performed by estimating
the expected cash flows of Sky Financial's financial instruments using interest
rates in effect at year end 1999. For the fair value estimates, the cash flows
are then discounted to year end to arrive at an estimated present value of Sky
Financial's financial instruments. Hypothetical changes in interest rates are
then applied to the financial instruments, and the cash flows and fair values
are again estimated using these hypothetical rates. For the net interest income
estimates, the hypothetical rates are applied to the financial instruments based
on the assumed cash flows. Sky Financial applies these interest rate shocks to
its financial instruments up and down 200 basis points. The following table
presents an analysis of the potential sensitivity of Sky Financial's annual net
interest income and present value of Sky Financial's financial instruments to
sudden and sustained 200 basis-point changes in market interest rates:
<TABLE>
<CAPTION>
- ----------------------------------------------------
YEAR END ALCO
1999 GUIDELINES
- ----------------------------------------------------
<S> <C> <C>
One Year Net Interest
Income Change
+200 Basis points (3.7)% (10.0)%
- -200 Basis points 1.7 (10.0)
Net Present Value of
Equity Change
+200 Basis points (22.4)% (30.0)%
- -200 Basis points 15.3 (30.0)
- ---------------------------------------------------
</TABLE>
35
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands, except per share data)
The projected volatility of net interest income and the net present value of
equity rates to a +/- 200 basis points change at December 31, 1999 fall well
within the Board of Directors guidelines.
The preceeding analysis is based on numerous assumptions, including
relative levels of market interest rates, loan prepayments and reactions of
depositors to changes in interest rates, and should not be relied upon as being
indicative of actual results. Further, the analysis does not necessarily
contemplate all actions Sky Financial may undertake in response to changes in
interest rates. Information for certain affiliates was not available for
year-end 1998.
EFFECTS OF INFLATION
The assets and liabilities of Sky Financial are primarily monetary in nature and
are more directly affected by the fluctuation in interest rates than inflation.
Movement in interest rates is a result of the perceived changes in inflation as
well as monetary and fiscal policies. Interest rates and inflation do not
necessarily move with the same velocity or within the same period; therefore, a
direct relationship to the inflation rate cannot be shown. The financial
information presented in this report has been prepared in accordance with
generally accepted accounting principles, which require that Sky Financial
measure financial position and operating results primarily in terms of
historical dollars.
YEAR 2000 PREPAREDNESS
Sky Financial successfully completed its Year 2000 changeover without any
problems in its core business processes. Sky Financial has confirmed normal
operations across all products and markets on a sustained basis.
While management believes it is unlikely, problems associated with
non-compliant third parties could still occur. Management will continue to
monitor all business processes and relationships with third parties during 2000
to ensure that all processes continue to function properly.
Actual internal costs of Sky Financial's Year 2000 project were
approximately $1,059 of which $529 was expended in 1999. Actual external costs
were approximately $870, of which $407 was expended in 1999, which includes
equipment replacement or upgrade, seminar sponsorship, vendor payments, customer
communications and education.
FORWARD LOOKING STATEMENTS
This report includes forward-looking statements by Sky Financial relating to
such matters as anticipated operating results, prospects for new lines of
business, technological developments, economic trends (including interest
rates), reorganization transactions and similar matters. The Private Securities
Litigation Reform Act of 1995 provides a safe harbor for forward-looking
statements, and the purpose of this paragraph is to secure the use of the safe
harbor provisions. While Sky Financial believes that the assumptions underlying
the forward-looking statements contained herein and in other public documents
are reasonable, any of the assumptions could prove to be inaccurate, and
accordingly, actual results and experience could differ materially from the
anticipated results or other expectations expressed by Sky Financial in its
forward-looking statements. Factors that could cause actual results or
experience to differ from results discussed in the forward-looking statements
include, but are not limited to: economic conditions; volatility and direction
of market interest rates; capital investment in and operating results of
non-banking business ventures of Sky Financial; governmental legislation and
regulation; material unforeseen changes in the financial condition or results of
operations of Sky Financial's customers; customer reaction to and unforeseen
complications with respect to Sky Financial's restructuring or integration of
acquisitions; difficulties in realizing expected cost savings from acquisitions;
difficulties associated with data conversions in acquisitions or migrations to a
single platform system; and other risks identified, from time-to-time in Sky
Financial's other public documents on file with the Securities and Exchange
Commission.
36
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Sky Financial Group, Inc.
Bowling Green, Ohio
We have audited the accompanying consolidated balance sheets of Sky Financial
Group, Inc. as of December 31, 1999 and 1998 and the related consolidated
statements of income, changes in shareholders' equity and cash flows for each of
the three years in the period ended December 31, 1999. 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 Sky
Financial Group, Inc. as of December 31, 1999 and 1998 and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1999 in conformity with generally accepted accounting
principles.
CROWE, CHIZEK AND COMPANY LLP
Crowe, Chizek and Company LLP
Columbus, Ohio
February 3, 2000
37
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
DECEMBER 31, 1999 1998
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 380,980 $ 247,284
Interest-earning deposits with financial institutions 17,086 13,544
Federal funds sold 3,100 50,124
Loans held for sale 9,006 96,221
Securities available for sale 1,868,839 2,126,833
Securities held to maturity
(Estimated fair value $24,036) - 23,910
Total loans 5,477,494 5,110,827
Less allowance for credit losses (86,750) (80,748)
- -----------------------------------------------------------------------------------------------------
Net loans 5,390,744 5,030,079
Premises and equipment 115,675 120,407
Accrued interest receivable and other assets 278,326 324,864
- -----------------------------------------------------------------------------------------------------
Total assets $ 8,063,756 $8,033,266
=====================================================================================================
LIABILITIES
Deposits
Non-interest-bearing deposits $ 715,912 $ 711,277
Interest-bearing deposits 5,042,779 5,295,635
- -----------------------------------------------------------------------------------------------------
Total deposits 5,758,691 6,006,912
Securities sold under repurchase agreements and
federal funds purchased 657,913 589,722
Debt and Federal Home Loan Bank advances 964,557 665,906
Accrued interest payable and other liabilities 116,264 159,013
- -----------------------------------------------------------------------------------------------------
Total liabilities 7,497,425 7,421,553
- -----------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Serial preferred stock, $10.00 par value;
10,000,000 shares authorized; none issued - -
Common stock, no par value; 150,000,000
shares authorized; 78,163,065 and 79,277,612
shares issued in 1999 and 1998 571,543 436,772
Retained earnings 34,381 180,355
Treasury stock; 274,250 and 1,328,311
shares in 1999 and 1998 (6,215) (18,684)
Unearned ESOP shares (717) (814)
Accumulated other comprehensive income (32,661) 14,084
- -----------------------------------------------------------------------------------------------------
Total shareholders' equity 566,331 611,713
- -----------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 8,063,756 $8,033,266
=====================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
38
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1999 1998 1997
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Loans, including fees $ 449,653 $ 442,725 $426,360
Securities
Taxable 112,298 118,749 104,520
Nontaxable 9,613 9,734 10,343
Federal funds sold and other 2,031 4,487 4,396
- -----------------------------------------------------------------------------------------------------
Total interest income 573,595 575,695 545,619
- -----------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Deposits 197,863 220,325 211,525
Borrowed funds 72,087 65,587 55,131
- -----------------------------------------------------------------------------------------------------
Total interest expense 269,950 285,912 266,656
- -----------------------------------------------------------------------------------------------------
Net Interest Income 303,645 289,783 278,963
Provision for Credit Losses 20,712 31,992 18,859
- -----------------------------------------------------------------------------------------------------
Net Interest Income After Provision for Credit Losses 282,933 257,791 260,104
- -----------------------------------------------------------------------------------------------------
OTHER INCOME
Trust services income 12,581 11,268 9,434
Service charges and fees on deposit accounts 27,480 25,142 23,318
Mortgage banking income 18,953 26,687 16,976
Brokerage and insurance commissions 15,960 9,430 6,083
Collection agency fees 2,465 4,115 5,053
Net securities gains 1,325 1,409 340
Net gains on sales of commercial financing loans 17,305 19,378 13,027
Other income 28,273 27,121 34,085
- -----------------------------------------------------------------------------------------------------
Total other income 124,342 124,550 108,316
- -----------------------------------------------------------------------------------------------------
OTHER EXPENSES
Salaries and employee benefits 120,546 128,960 119,258
Occupancy and equipment expense 38,985 38,665 35,419
Merger, integration, and restructuring expense 72,545 55,987 1,603
Other operating expense 70,421 82,955 74,243
- -----------------------------------------------------------------------------------------------------
Total other expenses 302,497 306,567 230,523
- -----------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 104,778 75,774 137,897
INCOME TAXES 33,596 23,811 43,679
- -----------------------------------------------------------------------------------------------------
NET INCOME $ 71,182 $ 51,963 $ 94,218
=====================================================================================================
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 71,182 $ 51,963 $ 93,613
=====================================================================================================
BASIC EARNINGS PER COMMON SHARE $ 0.91 $ 0.67 $ 1.19
=====================================================================================================
DILUTED EARNINGS PER COMMON SHARE $ 0.90 $ 0.66 $ 1.17
=====================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
39
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
ACCUMULATED
UNEARNED OTHER
PREFERRED COMMON RETAINED TREASURY ESOP COMPREHENSIVE
STOCK STOCK EARNINGS STOCK SHARES INCOME TOTAL
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996 $ 30,093 $321,378 $258,195 $(7,091) $(1,765) $ 1,323 $602,133
- ------------------------------------------------------------------------------------------------------------------------------
Comprehensive income
Net income 94,218 94,218
Other comprehensive income 12,076 12,076
- ------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income 106,294
- ------------------------------------------------------------------------------------------------------------------------------
Preferred cash dividends (605) (605)
Common cash dividends
($.46 per share) (36,280) (36,280)
Common stock dividend 10,614 (17,026) 6,412
Treasury shares acquired (19,509) (19,509)
Treasury shares issued 654 (6) 919 1,567
Preferred stock conversions (17,213) 17,213
Preferred stock retired (12,880) (8,921) (21,801)
Fractional shares and
other items 789 (80) 357 1,066
- ------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 - 341,727 298,416 (19,269) (1,408) 13,399 632,865
Comprehensive income
Net income 51,963 51,963
Other comprehensive income 685 685
- ------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income 52,648
- ------------------------------------------------------------------------------------------------------------------------------
Common cash dividends
($.59 per share) (45,184) (45,184)
Common stock dividend 124,793 (124,793)
Treasury shares acquired (34,202) (34,202)
Treasury shares issued (3,325) (13) 5,904 2,566
Canceled treasury shares (28,883) 28,883
Fractional shares and
other items 2,460 (34) 594 3,020
- ------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 - 436,772 180,355 (18,684) (814) 14,084 611,713
COMPREHENSIVE INCOME
NET INCOME 71,182 71,182
OTHER COMPREHENSIVE INCOME (47,110) (47,110)
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL COMPREHENSIVE INCOME 24,072
- ------------------------------------------------------------------------------------------------------------------------------
COMMON CASH DIVIDENDS
($.77 PER SHARE) (56,218) (56,218)
COMMON STOCK DIVIDEND 152,688 (161,967) 9,279
TREASURY SHARES ACQUIRED (21,344) (21,344)
TREASURY SHARES ISSUED (2,843) 7,350 4,507
CANCELED TREASURY SHARES (17,184) 17,184
SHARES ISSUED TO ACQUIRE
PICTON CAVANAUGH, INC. 313 481 380 1,174
EFFECT OF CONFORMING THE
YEAR END OF POOLED AFFILIATE 1,000 596 3 (15) 1,584
PRE-MERGER ACQUISITION OF
POOLED AFFILIATE
COMMON SHARES (897) (897)
FRACTIONAL SHARES AND
OTHER ITEMS 1,694 (48) 94 1,740
- ------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999 $ - $571,543 $ 34,381 $(6,215) $ (717) $(32,661) $566,331
==============================================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
40
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1999 1998 1997
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 71,182 $ 51,963 $ 94,218
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, amortization and
valuation adjustments 47,622 40,922 23,435
Net gains on sales of assets (37,298) (49,150) (42,714)
Provision for credit losses 20,712 31,992 18,859
Net decrease in loans held for sale 111,421 11,362 114,115
Net change in other assets and liabilities (10,862) (18,854) (2,907)
- ------------------------------------------------------------------------------------------------------
Net cash from operating activities 202,777 68,235 205,006
- ------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Net (increase) decrease in interest-earning deposits
with financial institutions (1,840) 2,574 (9,822)
Net decrease (increase) in federal funds sold 48,636 (1,528) 46,085
Securities available for sale:
Proceeds from maturities and payments 650,186 690,714 355,155
Proceeds from sales 166,479 61,569 132,863
Purchases (607,043) (1,119,535) (687,479)
Securities held to maturity:
Proceeds from maturities and payments 2,210 124,037 141,486
Purchases - (26,506) (72,392)
Proceeds from sales of loans 21,830 35,240 55,471
Net increase in loans (421,994) (279,246) (333,691)
Purchases of premises and equipment (18,959) (21,084) (25,289)
Purchases of life insurance contracts (4,340) (30,350) (45,000)
Purchases of loans - (187) (14,858)
Proceeds from sales of premises and equipment 7,651 2,560 2,779
Proceeds from sales of other real estate 2,314 3,740 5,012
Cash acquired through acquisitions 1,675 - -
- ------------------------------------------------------------------------------------------------------
Net cash from investing activities (153,195) (558,002) (449,680)
- ------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Cash transferred in connection with sale of
branch deposits (95,917) (40,884) (99,619)
Purchases of branch deposits, net 47,214 251,221 98,365
Net (decrease) increase in deposit accounts (171,072) 148,846 127,034
Net increase (decrease) in federal funds and
repurchase agreements 68,191 (1,277) 23,396
Net increase (decrease) in short-term FHLB advances 203,258 (78,148) 129,158
Proceeds from issuance of debt and long-term
FHLB advances 247,765 498,514 252,125
Repayment of debt and long-term FHLB advances (153,575) (202,431) (202,110)
Cash dividends and fractional shares paid (49,984) (35,734) (36,512)
Preferred stock retired - - (21,801)
Proceeds from issuance of common stock 4,507 4,220 1,547
Treasury stock purchases (21,344) (34,160) (19,509)
Other items 1,740 587 (817)
- ------------------------------------------------------------------------------------------------------
Net cash from financing activities 80,783 510,754 251,257
- ------------------------------------------------------------------------------------------------------
Net increase in cash and due from banks 130,365 20,987 6,583
Effect on cash of conforming the year
end of pooled entity 3,331 - -
Cash and due from banks at beginning of year 247,284 226,297 219,714
- ------------------------------------------------------------------------------------------------------
Cash and due from banks at end of year $380,980 $247,284 $226,297
======================================================================================================
NONCASH TRANSACTIONS
Securitization of loans held for sale $ 3,915 $ 241 $ 6,344
======================================================================================================
The accompanying notes are an integral part of the financial statements.
</TABLE>
41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
NOTE 1 -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Sky Financial Group, Inc. (Sky Financial) is a bank holding company
headquartered in Bowling Green, Ohio, which owns and operates four banks
primarily engaged in the commercial banking business. Sky Financial also
operates businesses relating to collection activities, broker-dealer operations,
commercial finance lending, insurance, trust and other financial related
services.
BASIS OF PRESENTATION
The accounting and reporting policies followed by Sky Financial conform to
generally accepted accounting principles and to general practices within the
financial services industry. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements. Actual results could differ from those estimates. The
allowance for loan losses and fair values of financial instruments are
particularly subject to change.
These consolidated financial statements give retroactive effect to the
merger transactions accounted for by the pooling of interests method as
discussed in Note 2. Certain amounts in the prior consolidated financial
statements and pooled affiliates financial statements have been reclassified to
conform to the current presentation.
CONSOLIDATION
The consolidated financial statements of Sky Financial include the accounts of
Sky Bank (Sky Bank), Mid Am Bank (Mid Am), The Ohio Bank (Ohio Bank), The
Mahoning National Bank of Youngstown (Mahoning), Sky Asset Management Services,
Inc. (SAMSI), Sky Investments, Inc. (SII), Sky Financial Solutions, Inc. (SFS),
Mid Am Financial Services, Inc. (MASFI), Sky Trust, N.A. (Sky Trust), Mid Am
Private Trust, N.A. (MAPT), Sky Technology Resources, Inc. (Sky Tech), Mid Am
Capital Trust I (MACT), First Western Capital Trust I (FWCT), First Western
Investment Services, Inc. (FWIS), First Western Bancorp, Inc. (First Western),
Picton Cavanuagh, Inc. (Picton), Freedom Financial Life Insurance Company,
Freedom Express, Inc. and various other insignificant subsidiaries. All
significant intercompany transactions and accounts have been eliminated in
consolidation.
During 1999 and 1998, Sky Financial consolidated several of its
previously separate bank subsidiaries. In January 1999, First National Bank
Northwest Ohio and Adrian State Bank were merged into Mid Am Bank. In December
1998, American Community Bank, N.A. and AmeriFirst Bank, N.A. were merged into
The Ohio Bank and Century National Bank (Century) was merged into The Citizens
Banking Company (Citizens). In July 1998, First National Bank of Chester
(Chester) was merged into The Citizens Banking Company. All of these
transactions were accounted for as internal reorganizations, similar to a
pooling of interests. In 1999, Citizens was renamed Sky Bank.
BUSINESS SEGMENTS
An accounting standard adopted in 1998 changes the way public companies report
information about their operating segments in annual and interim financial
statements. The standard requires a management approach to determine operating
segments and then imposes quantitative criteria to determine which operating
segments, if any, must be reported. See Note 21 for disclosure of Sky
Financial's business segments.
CASH AND DUE FROM BANKS
Sky Financial's subsidiary banks are required to have cash on hand or on deposit
with the Federal Reserve Bank to meet regulatory reserve requirements. The
reserve requirements at December 31, 1999 and 1998 approximated $68,358 and
$64,881, respectively. These balances do not earn interest.
SECURITIES
Sky Financial classifies its securities as held to maturity, trading or
available for sale. Securities classified as available for sale are carried at
estimated fair value. Securities classified as available for sale are those that
management intends to sell or that could be sold for liquidity, investment
management or similar reasons, even if there is not a present intention to make
42
NOTE 1 -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
such a sale. Equity securities that have a readily determinable fair value are
also classified as available for sale. The unrealized appreciation or
depreciation from these securities' acquisition costs is recorded in a valuation
account, net of the applicable income tax effect, in the shareholders' equity
section of the balance sheet. Securities classified as held to maturity are
stated at cost, adjusted for amortization of premiums and accretion of discounts
using the interest method. Securities classified as held to maturity are those
that management has the positive intent and ability to hold to maturity. Trading
securities are acquired for sale in the near term and are carried at fair value,
with unrealized holding gains and losses reflected in earnings. Sky Financial
held no trading securities during any period presented. Amortization of premiums
and accretion of discounts are recorded in interest income using the interest
method over the period to maturity, which is sometimes estimated. Gains and
losses on security sales are calculated using the specific identification method
to determine the security's cost.
DERIVATIVE FINANCIAL INSTRUMENTS
Sky Financial's hedging policies permit the use of interest rate swaps, caps and
floors to manage interest rate risk or to hedge specified assets and
liabilities. Derivative financial instruments are not used for trading purposes.
Through December 31, 1999, Sky Financial has not used any derivative financial
instruments for hedging purposes, but may do so in the future.
PLEDGED SECURITIES
The carrying value of securities pledged to secure public and trust deposits,
securities sold under agreements to repurchase and for other purposes as
required by law amounted to $1,457,442 and $1,252,162 at December 31, 1999 and
1998, respectively.
LOANS HELD FOR SALE
Certain residential mortgage loans are originated for sale in the secondary
mortgage loan market. Additionally, certain other loans and leases are
periodically identified to be sold. These loans and leases are classified as
loans held for sale and carried at the lower of cost or estimated fair value
taken together. Fair value is determined on the basis of rates quoted in the
respective secondary market for the type of loan or lease held for sale. Loans
and leases are generally sold at a premium or discount from the carrying amount
of the loans. Such premium or discount is recognized at the date of sale. Fixed
commitments may be used at the time loans are originated or identified for sale
to mitigate interest rate risk.
MORTGAGE SERVICING RIGHTS
The cost of mortgage loans, which Sky Financial originates or purchases under a
definitive plan to sell or securitize, is allocated between the mortgage
servicing rights and the cost of the mortgage based on the relative fair values
at date of origination or purchase. The fair value of the mortgage servicing
rights is determined by discounting expected servicing income cash flows, net of
certain servicing costs. The cost of those mortgage loans which are originated
or purchased without a definitive plan to sell or securitize is not allocated
between mortgage servicing rights and the cost of the mortgage until the date of
sale or securitization.
Mortgage servicing rights assets are amortized in proportion to, and
over, the period of estimated net servicing income. Management periodically
evaluates mortgage servicing assets for impairment by discounting the expected
future cash flows, taking into consideration the estimated level of prepayments
based upon current industry expectations.
INTEREST AND FEES ON LOANS
Interest income on loans is accrued over the term of the loans using the
simple-interest method based on the amount of principal outstanding. The accrual
of interest is discontinued on a loan when management believes that the
collection of interest is doubtful. Payments on these loans are recorded as
principal reductions. Restructured loans are those loans on which concessions in
terms have been granted because of a borrower's financial difficulty. Interest
is generally accrued on such loans in accordance with their original contractual
rates. Loan origination and commitment fees and certain direct loan origination
costs are deferred and amortized as an adjustment to the related loan's yield.
Sky Financial is amortizing these amounts over the contractual life of the
related loans.
43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
NOTE 1 -
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
ALLOWANCE FOR CREDIT LOSSES
The allowance for credit losses is an amount that management believes will be
adequate to absorb losses inherent in existing loans and leases and is
established through a provision for credit losses charged to expense. Loans and
leases are charged against the allowance for credit losses when management
believes the full collectibility of the loan is unlikely. The allowance and
provision take into consideration such factors as changes in the nature and
volume of the portfolio, overall portfolio quality, loan concentrations,
specific problem loans, leases and commitments, and current and anticipated
economic conditions that may affect the borrower's ability to pay. Allowances
established to provide for losses under commitments to extend credit, or
recourse provisions under loan and lease sales agreements or servicing
agreements are classified with other liabilities.
A loan is considered impaired when it is probable that not all principal
and interest amounts will be collected according to the loan contract.
Residential mortgage, installment and other consumer loans are collectively
evaluated for impairment. Individual commercial loans exceeding size thresholds
established by management are evaluated for impairment. Impaired loans are
recorded at the loan's fair value by the establishment of a specific allowance
where necessary. The fair value of collateral-dependent loans is determined by
the fair value of the underlying collateral. The fair value of
noncollateral-dependent loans is determined by discounting expected future
interest and principal payments at the loan's effective interest rate.
OTHER REAL ESTATE OWNED
Real estate acquired in settlement of a loan
is carried in other assets at the lower of the recorded investment in the
property or its fair value. Prior to foreclosure, the value of the underlying
loan is written down to the fair value of the real estate to be acquired by a
charge to the allowance for credit losses, if necessary. At the time of
foreclosure, an allowance is established for estimated selling costs. Any
subsequent write-downs required by changes in estimated fair value or disposal
expenses are provided through this allowance and the provision is charged to
operating expense. Carrying costs of such properties, net of related income, and
gains and losses on their disposition are charged or credited to operating
expense as incurred. At December 31, 1999 and 1998, other real estate owned
totaled $3,293 and $1,977.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost, less accumulated depreciation which
is computed primarily using the straight-line method. The adjusted cost of the
specific assets sold or disposed of is used to compute gains or losses on
disposal. These assets are reviewed for impairment when events indicate their
carrying value may not be recoverable.
INTANGIBLE ASSETS
Goodwill is amortized using the straight-line method over periods ranging from
15 to 25 years. Core deposit intangible assets acquired before 1992 are
amortized using the straight-line method over periods ranging from 10 to 15
years. Core deposit intangible assets acquired on or after January 1, 1992 are
amortized using an accelerated method over periods ranging from 10 to 15 years.
Net intangible assets at December 31, 1999 and 1998 aggregated $35,414 and
$74,454, respectively. In 1999 and 1998, impairment of certain intangible assets
was recognized. (See Note 14)
MERGER, INTEGRATION AND RESTRUCTURING EXPENSE
Included in other operating expense is a charge for merger, integration and
restructuring expenses, which primarily represents professional fees, other
personnel related costs, valuation adjustments for certain premises, equipment
and other assets, and integration costs related to mergers and acquisitions.
(See Note 14)
INCOME TAXES
Sky Financial utilizes an asset and liability approach for financial accounting
and reporting of income taxes. The provision for income taxes is the sum of
taxes currently payable and the change in deferred tax assets and liabilities.
Deferred income taxes are provided using the current tax rate for differences
between the tax basis of assets and liabilities and their carrying amounts for
financial reporting purposes.
44
NOTE 1 -
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
TRUST ACTIVITIES
Income from trust fiduciary activities has been recognized on the accrual basis.
Assets held by Sky Financial in fiduciary or agency capacities (other than cash
on deposit at Sky Financial's bank subsidiaries) for its customers are not
included in the consolidated statement of condition as such items are not assets
of Sky Financial.
TRANSFERS OF FINANCIAL ASSETS
Sky Financial transfers certain residential mortgage loans originated by its
bank subsidiaries and MAFSI, and loans and leases originated by SFS. Sky
Financial accounts for these transfers as sales under the provisions of SFAS
125; accordingly, the loans and leases transferred have been derecognized, as
control of these assets has been surrendered.
STOCK DIVIDENDS AND TREASURY STOCK
Shares of Sky Financial stock are acquired for reissuance in connection with
stock option plans and for future stock dividend declarations. The treasury
shares acquired are recorded at cost.
STOCK-BASED COMPENSATION
Pro forma disclosures of compensation cost of stock-based awards have been
determined using the fair value method which considers the time value of the
option considering the volatility of Sky Financial's stock and the risk-free
interest rate over the expected life of the option using a Black-Scholes
valuation model.
STATEMENT OF CASH FLOWS
Sky Financial considers cash on hand, deposits maintained with the Federal
Reserve Bank and cash due from other banks, all of which are included in the
caption cash and due from banks, as cash for purposes of the Statement of Cash
Flows. Sky Financial reports net cash flows for federal funds sold,
interest-bearing deposits with other financial institutions, customer loan
transactions, deposit transactions, repurchase agreements, and short-term
borrowings. For the years ended December 31, 1999, 1998 and 1997, Sky Financial
paid interest of $272,417, $283,636 and $261,067, and income taxes of $46,732,
$43,442 and $49,630.
COMPREHENSIVE INCOME
Comprehensive income consists of net income and other comprehensive income.
Other comprehensive income includes unrealized gains and losses on securities
available for sale which are also recognized as separate components of equity.
The accounting standard that requires reporting comprehensive income first
applies for 1998, with prior information restated to be comparable.
NEW ACCOUNTING PRONOUNCEMENTS
Beginning January 1, 2001, a new accounting standard will require all
derivatives to be recorded at fair value. Unless designated as hedges, changes
in these fair values will be recorded in the income statement. Fair value
changes involving hedges will generally be recorded by offsetting gains and
losses on the hedge and on the hedged item, even if the fair value of the hedged
item is not otherwise recorded. This is not expected to have a material effect,
but the effect will depend on derivative holdings when this standard applies.
Mortgage loans originated in mortgage banking are converted into
securities on occasion. A new accounting standard for 1999 allows classifying
these securities as available for sale, trading, or held to maturity, instead of
the previous requirement to classify as trading. Adoption of this standard did
not have a material effect on Sky Financial's financial statements.
NOTE 2 -
MERGERS, ACQUISITIONS, BUSINESS FORMATIONS AND DIVESTITURES
MERGERS
On September 30, 1999, Mahoning National Bancorp, Inc. (Mahoning Bancorp)
affiliated with Sky Financial in a tax-free exchange with a total of 11.4
million Sky Financial common shares issued in the merger. Mahoning Bancorp was
an $847 million bank holding company with offices in northeastern Ohio. Its
subsidiary, Mahoning National Bank of Youngstown, is operated as a wholly-owned
subsidiary of Sky Financial. Sky Financial expects to merge Mahoning National
Bank into Sky Bank in the second quarter of 2000, when it will complete its data
conversion.
On August 6, 1999, First Western affiliated with Sky Financial in a
tax-free exchange with a total of 15.0 million Sky Financial common shares
issued in the merger. First Western was a $2.2
45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
NOTE 2 -
MERGERS, ACQUISITIONS, BUSINESS FORMATIONS AND DIVESTITURES
(CONTINUED)
billion bank holding company with offices in northwestern Pennsylvania and
eastern Ohio. First Western's bank affiliate, First Western Bank, N.A., was
merged into Sky Bank.
Effective July 16, 1999, Wood Bancorp, Inc., Bowling Green, Ohio (Wood
Bancorp), affiliated with Sky Financial in a tax-free exchange with a total of
2.3 million Sky Financial common shares issued in the merger. Wood Bancorp was a
$167 million bank holding company with offices located in northwestern Ohio.
Wood Bancorp's subsidiary, First Federal Bank, was merged into Mid Am Bank.
Since Wood Bancorp used a June 30 fiscal year-end, its financial
statements for the years ended June 30, 1998 and 1997 were combined with Sky
Financial's 1998 and 1997 financial statements, and the 1999 consolidated
financial statements reflect each company's results for the year ended December
31, 1999. Wood Bancorp's results for the six months ended December 31, 1998 are
reflected as an adjustment in the consolidated statement of changes in
shareholders' equity.
Each of these mergers was accounted for as a pooling of interests.
Accordingly, all financial information has been restated to include the
historical information of the merged entities.
The following is a summary of the separate results of operations of Sky
Financial, Mahoning Bancorp, First Western and Wood Bancorp for the six months
ended June 30, 1999 and the years ended December 31, 1998 and 1997:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED DECEMBER 31
JUNE 30, 1999 1998 1997
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
NET INTEREST INCOME
Sky Financial $ 93,944 $ 187,124 $180,614
Mahoning Bancorp 18,745 35,990 34,369
First Western 32,503 59,627 57,452
Wood Bancorp 3,639 7,042 6,528
- ---------------------------------------------------------------------------------------------------------
Combined $ 148,831 $ 289,783 $278,963
=========================================================================================================
Net income
Sky Financial $ 40,509 $ 17,808 $ 59,320
Mahoning Bancorp 7,787 13,863 12,941
First Western 10,922 17,923 20,282
Wood Bancorp 1,301 2,369 1,675
- ---------------------------------------------------------------------------------------------------------
Combined $ 60,519 $ 51,963 $ 94,218
=========================================================================================================
</TABLE>
On May 1, 1999, Sky Financial completed its acquisition of Picton
Cavanaugh, Inc., a full-service insurance agency based in Toledo, Ohio. Picton
Cavanaugh shareholders received 318,000 Sky Financial common shares in a
tax-free exchange accounted for as a pooling of interests. Picton Cavanaugh had
total assets of $4.4 million and shareholders' equity of $0.9 million. Since
Picton Cavanaugh's financial statements were not material compared to Sky
Financial's, prior financial statements were not restated.
In 1998, Sky Financial was involved
in four mergers accounted for as pooling-of-interests, including the merger of
equals with Mid Am, Inc.
46
NOTE 2 -
MERGERS, ACQUISITIONS, BUSINESS FORMATIONS AND DIVESTITURES
(CONTINUED)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
The following summarizes these mergers:
- -------------------------------------------------------------------------------------------------------
MERGED ENTITY MERGER DATE TOTAL ASSETS SHARES ISSUED
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
The Ohio Bank December 4, 1998 $ 600 million 6.4 million
Mid Am, Inc. October 2, 1998 $ 2,309 million 21.8 million
Century Financial Corporation May 12, 1998 $ 453 million 4.9 million
UniBank March 6, 1998 $ 216 million 2.3 million
=======================================================================================================
</TABLE>
BRANCH ACQUISITIONS AND DIVESTITURES
In October 1999, Sky Financial purchased the Kenton, Ohio and Wellsville, Ohio
banking offices of National City Bank, Ohio. In the acquisitions, Sky Financial
assumed $46 million of deposits, acquired certain other assets and received $43
million in cash. The premium of $2.7 million is reflected, net of amortization,
in other assets in the consolidated balance sheet and is being amortized over 15
years.
Prior to its merger with Sky Financial, First Western's branch
acquisition and divestiture activity included the June 19, 1998 purchase from
PNC Bank of 16 branches in western Pennsylvania. First Western acquired
approximately $384 million in deposits, $74 million in consumer and small
business loans, and $11 million in brokerage assets, along with related fixed
assets, leases, safe deposit business and other agreements. First Western paid
consideration of approximately $59 million, which is reflected, net of
amortization and impairment write-downs, in other assets in the consolidated
balance sheet and is being amortized over 12 years. In February 1999, First
Western sold four of these branches. As part of this transaction, First Western
acquired from one of the purchasing banks the deposits and consumer loans of a
branch in Moon Township, Pennsylvania. The branches sold included $135 million
of deposits and $23 million of consumer loans. The Moon Township branch acquired
had approximately $8 million of deposits and $2 million of consumer loans. The
$15.8 million premium received from the sale of the four branches was used to
offset the intangible assets created when these branches were purchased and no
gain or loss was recorded. In January 1998, First Western sold three Lake
County, Ohio branches. These branches had approximately $47 million in deposits.
First Western realized a net gain of $1.1 million on this transaction.
In November 1997, Sky Financial's
predecessor, Citizens Bancshares, Inc., acquired three eastern Ohio branches of
Metropolitan Savings Bank of Ohio, an affiliate of FNB Corporation, Hermitage,
Pennsylvania. In the transaction, Sky Financial acquired $25.2 million of loans
and approximately $1 million of other assets, assumed $64.2 million of deposit
liabilities and received approximately $32.9 million of funds. Sky Financial
paid a premium of $5.8 million, which is reflected, net of amortization, in
other assets in the consolidated balance sheet and is being amortized on an
accelerated basis over 15 years.
In May 1997, prior to its affiliation with Sky Financial, UniBank assumed
$34.1 million of deposit liabilities and purchased certain assets from National
City Bank, Northeast. In the transaction, UniBank received $31.2 million of
funds and approximately $1 million of other assets. UniBank paid a premium of
$1.9 million, which is reflected, net of amortization, in other assets in the
consolidated balance sheet and is being amortized on an accelerated basis over
10 years.
In February 1997, Mid Am, Inc., prior to its affiliation with Sky
Financial, sold seven of its branches in the metropolitan Cincinnati area to
Star Banc Corporation. The branch sale included the transfer of $95 million of
deposits and resulted in a pre-tax gain of $8.7 million.
In 1997, prior to its affiliation with Sky Financial, First Western
Bancorp, Inc. sold two of its branches. The Slippery Rock office in Butler
County, Pennsylvania was sold to the First National Bank of Slippery Rock and
the Oil City office in Venago County, Pennsylvania was sold to Northwest Savings
of Warren, Pennsylvania. The branch sales included the transfer of $15.4 million
of deposits and resulted in a pre-tax gain of $608.
47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
NOTE 2 -
MERGERS, ACQUISITIONS, BUSINESS FORMATIONS AND DIVESTITURES (CONTINUED)
BUSINESS FORMATIONS
Effective January 1, 2000, Sky Financial centralized its entire trust business
into a newly-chartered trust company, Sky Trust, N.A. (Sky Trust). To facilitate
the formation, the trust business of each bank affiliate and MAPT is being
transferred to Sky Trust and MAPT is being merged into Sky Trust. Sky Trust, a
wholly-owned subsidiary of Sky Financial, is headquartered in Pepper Pike, Ohio.
In January, 1997, MAFSI and MAPT commenced operations. MAFSI, headquartered in
Indianapolis, Indiana, is a consumer finance company that specializes in
non-conforming residential mortgage and consumer loans. MAPT, headquartered in
Pepper Pike, Ohio, was formed to provide trust and investment management
services to families and individuals with substantial assets and to corporate
trustees.
Note 3 -
Securities
The amortized costs, unrealized gains and losses and estimated fair values at
year-end are as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999
SECURITIES AVAILABLE FOR SALE
U.S. Treasury and U.S. Government
agencies and corporations $ 691,045 $ 331 $(16,936) $ 674,440
Obligations of states and political
subdivisions 192,111 1,335 (2,606) 190,840
Corporate and other securities 21,170 - (367) 20,803
Mortgage-backed securities 865,857 379 (24,629) 841,607
- -----------------------------------------------------------------------------------------------------------------------------------
Total debt securities available for sale 1,770,183 2,045 (44,538) 1,727,690
Marketable equity securities 148,904 3,534 (11,289) 141,149
- ------------------------------------------------------------------------------------------------------------------------------------
Total securities available for sale $1,919,087 $ 5,579 $(55,827) $1,868,839
====================================================================================================================================
1998
SECURITIES AVAILABLE FOR SALE
U.S. Treasury and U.S. Government
agencies and corporations $ 672,895 $ 7,225 $ (589) $ 679,531
Obligations of states and political
subdivisions 211,148 4,174 (357) 214,965
Corporate and other securities 17,185 125 (131) 17,179
Mortgage-backed securities 1,067,081 7,294 (2,375) 1,072,000
- ------------------------------------------------------------------------------------------------------------------------------------
Total debt securities available for sale 1,968,309 18,818 (3,452) 1,983,675
Marketable equity securities 136,867 9,118 (2,827) 143,158
- ------------------------------------------------------------------------------------------------------------------------------------
Total securities available for sale $2,105,176 $27,936 $(6,279) $2,126,833
====================================================================================================================================
SECURITIES HELD TO MATURITY
U.S. Treasury and U.S. Government
agencies and corporations $ 14,998 $ 2 $ (2) $ 14,998
Obligations of states and political
subdivisions 8,852 126 - 8,978
Corporate and other securities 60 - - 60
- ------------------------------------------------------------------------------------------------------------------------------------
Total securities held to maturity $ 23,910 $ 128 $ (2) $ 24,036
====================================================================================================================================
</TABLE>
Securities held to maturity of approximately $21,700 were transferred
from held to maturity to available for sale upon completion of the merger of
Mahoning in 1999 and approximately $60,500 were transferred from held to
maturity to available for sale upon completion of the mergers of UniBank and
Century Financial Corporation in 1998.
48
NOTE 3 -
SECURITIES (CONTINUED)
The amortized cost and estimated fair value of debt securities at December 31,
1999, by contractual maturity, are shown below. Expected maturities will likely
differ from contractual maturities because some issuers have the right to call
or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Amortized Estimated
Cost Fair Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 156,615 $ 156,644
Due after one year through five years 463,593 455,121
Due after five years through ten years 229,222 222,811
Due after ten years 54,896 51,507
Mortgage-backed securities 865,857 841,607
- ------------------------------------------------------------------------------------------------------------------------------------
Total debt securities available for sale $1,770,183 $1,727,690
====================================================================================================================================
</TABLE>
The gross realized gains and losses from the sales of securities are as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross realized gains on sales $1,558 $2,509 $1,358
Gross realized losses on sales 233 1,100 1,018
====================================================================================================================================
</TABLE>
NOTE 4 -
LOANS AND ALLOWANCE FOR CREDIT LOSSES
The loan portfolio at year-end was as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Real estate loans:
Construction $ 176,940 $ 175,706
Residential mortgage 1,744,162 1,739,132
Non-residential mortgage 1,296,019 1,251,977
Commercial, financial and agricultural 1,411,902 1,087,511
Installment and credit card loans 834,106 848,648
Other loans 14,365 7,853
- ------------------------------------------------------------------------------------------------------------------------------------
Total Loans $5,477,494 $5,110,827
====================================================================================================================================
</TABLE>
Most of Sky Financial's business activity is with customers located
within the respective local business areas of its subsidiary banks which
encompasses parts of eastern Ohio, western Ohio, eastern Indiana, southeastern
Michigan, western Pennsylvania and northern West Virginia. Sky Financial's loan
portfolio is diversified, consisting of commercial, residential, agribusiness,
consumer and small business loans. No significant industry concentrations exist,
and amounts related to highly leveraged transactions are not significant. Sky
Financial evaluates each customer's creditworthiness on a case-by-case basis.
The amount of collateral obtained is based on management's evaluation of the
customer. Collateral held relating to commercial, financial, agricultural and
commercial mortgages varies, but may include accounts receivable, inventory,
property, plant and equipment and income-producing commercial properties.
49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
NOTE 4 -
LOANS AND ALLOWANCE FOR CREDIT LOSSES
(CONTINUED)
In the normal course of business, Sky Financial has made loans to certain
directors, executive officers and their associates under terms consistent with
Sky Financial's general lending policies. Loan activity relating to these
individuals for 1999 is as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Aggregate balance - December 31, 1998 $ 62,473
New loans 61,129
Repayments (63,146)
Other changes (9,248)
- ------------------------------------------------------------------------------------------------------------------------------------
Aggregate balance - December 31, 1999 $ 51,208
====================================================================================================================================
</TABLE>
Other changes represent loans applicable to one reporting period that are
excludable from the other reporting period.
Activity in the allowance for credit losses was as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $ 80,748 $ 66,553 $ 60,080
Provision for credit losses 20,712 31,992 18,859
Recoveries 5,726 5,545 4,530
Loans charged-off (20,470) (23,342) (16,916)
Effect of conforming year end of pooled entity 34 - -
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at end of year $ 86,750 $ 80,748 $ 66,553
====================================================================================================================================
</TABLE>
Information regarding impaired loans is as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Year-end impaired loans with no allowance for credit losses allocated $3,547 $ 1,331
Year-end impaired loans with allowance for credit losses allocated 5,676 9,844
Year-end allowance for credit losses allocated to impaired loans 1,112 3,824
Average investment in impaired loans during the year 9,589 14,080
Cash-basis interest income recognized during the year 500 868
====================================================================================================================================
</TABLE>
50
NOTE 5 -
PREMISES AND EQUIPMENT
Premises and equipment as of year end are summarized as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Land, buildings and improvements $ 119,044 $ 129,480
Equipment, furniture and fixtures 106,298 102,873
Construction in process 10,002 4,083
- ------------------------------------------------------------------------------------------------------------------------------------
Total premises and equipment 235,344 236,436
Less accumulated depreciation and amortization (119,669) (116,029)
- ------------------------------------------------------------------------------------------------------------------------------------
Premises and equipment, net $ 115,675 $ 120,407
====================================================================================================================================
</TABLE>
Included in the above are buildings, land and land improvements which
secure a capitalized lease with a cost of $5,386, less accumulated amortization
and depreciation of $3,999 and $3,810 at December 31, 1999 and 1998.
Substantially all of the property recorded under capital leases relates to
transactions with Bancsites, Inc., a former subsidiary of Sky Financial. The
capital lease premises represent thirteen branch bank facilities owned by
Bancsites and leased to Sky Financial under long-term lease agreements entered
into in the normal course of business and under terms no more favorable than
those prevailing in the marketplace. Lease payments to Bancsites, Inc. under
capital leases amounted to $337 in 1999, $444 in 1998, and $496 in 1997. Rental
payments for land are treated as operating lease expense. Rent expense amounted
to $3,412 in 1999, $3,181 in 1998 and $2,536 in 1997.
NOTE 6 -
INTEREST-BEARING DEPOSITS
Total interest-bearing deposits as presented on the balance sheet are comprised
of the following classifications at year-end:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest-bearing demand $ 161,492 $ 447,411
Savings 1,912,765 1,768,039
Time
In denominations under $100,000 2,291,044 2,471,819
In denominations of $100,000 or more 677,478 608,366
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits $5,042,779 $5,295,635
====================================================================================================================================
</TABLE>
At December 31, 1999, the scheduled maturities of
certificates of deposit are as follows:
- ---------------------------------------------------
2000 $ 1,994,295
2001 778,224
2002 98,586
2003 51,004
2004 and thereafter 46,413
- --------------------------------------------------
$ 2,968,522
==================================================
51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
NOTE 7 -
SECURITIES SOLD UNDER REPURCHASE AGREEMENTS AND FEDERAL FUNDS PURCHASED
Sky Financial has retail repurchase agreements with customers within its local
market areas, as well as federal funds purchased from other banks. These
borrowings are collateralized with securities owned by the banks and held in
their safekeeping accounts at independent correspondent banks.
Sky Financial also has repurchase agreements with brokerage firms which
are in possession of the underlying securities. The exact same securities are
returned to Sky Financial at the maturity of the agreements. The following table
summarizes certain information relative to these borrowings.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at year end $657,913 $589,722
Weighted average interest rate at year-end 4.67% 4.83%
Maximum amount outstanding as of any month-end $657,913 $621,672
Average amount outstanding 612,584 541,802
Approximate weighted average interest rate during the year 4.77% 4.99%
====================================================================================================================================
</TABLE>
Included in the above are repurchase agreements with a remaining maturity
in excess of one year of $172,500 at December 31, 1999 and 1998. At December 31,
1999, the weighted average life of repurchase agreements with a remaining
maturity in excess of one year is 7.9 years based on the stated maturity of the
repurchase agreements, however, many of these repurchase agreements have call
provisions. The weighted average life of Sky Financial's repurchase agreements
with a remaining maturity in excess of one year based on call dates is 1.3 years
at December 31, 1999.
NOTE 8 -
DEBT AND FEDERAL HOME LOAN BANK ADVANCES
Sky Financial's debt and Federal Home Loan Bank ("FHLB") advances are comprised
of the following at year end:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Borrowings under bank line of credit $ 84,000 $ 53,000
Borrowings under FHLB lines of credit at weighted interest
rate of 5.65% and 5.18% in 1999 and 1998 763,170 496,811
Capital lease obligations 1,903 2,184
Subordinated note at 7.08%, due January 2008 50,000 50,000
Obligated mandatorily redeemable capital securities
of subsidiary trust, interest at 9.875%, due February 2027 25,000 25,000
Obligated mandatorily redeemable capital securities
of subsidiary trust, interest at 10.20%, due June 2027 23,600 23,600
Other items 16,884 15,311
- ------------------------------------------------------------------------------------------------------------------------------------
Total $964,557 $665,906
====================================================================================================================================
</TABLE>
52
NOTE 8 -
DEBT AND FEDERAL HOME LOAN BANK ADVANCES
(CONTINUED)
FHLB advances are collateralized by all shares of FHLB stock owned by subsidiary
banks and by 100% of subsidiary banks' qualified mortgage loans. Based on the
carrying amount of FHLB stock owned by subsidiary banks, total FHLB advances are
limited to approximately $897,197, subject to the availability to pledge
qualified residential mortgage loans.
At December 31, 1999, required annual principal payments on debt and
FHLB advances were as follows:
- --------------------------------------------------------------------------------
2000 $ 443,792
2001 58,851
2002 86,834
2003 52,014
2004 62,653
2005 and thereafter 260,413
- --------------------------------------------------------------------------------
$ 964,557
================================================================================
Prior to its affiliation with Sky Financial, First Western Bancorp, Inc. had a
revolving credit note with a bank, due in 2003, bearing a variable interest rate
and a maximum credit amount of $25,000. During October 1999, the outstanding
balance was paid in full and the revolving credit note terminated.
On December 31, 1998, Sky Financial had a short-term line of credit with
a financial institution allowing Sky Financial to borrow up to $30,000 through
November 30, 1999. During September 1999, Sky Financial renegotiated the
agreement with the financial institution that currently maintains the line of
credit to increase the commitment to $100,000. Interest on advances taken on the
facility is accrued at either the financial institution's prime rate, a formula
based on the London Interbank Offering Rate, or a formula based on the Federal
Funds rate. Sky Financial may elect the interest rate method to be applied to
amounts outstanding in $100 increments. The agreement provides for a quarterly
fee of .125% on the commitment amount of the credit facility. The agreement also
contains covenants which require Sky Financial, among other things, to maintain
a minimum tangible net worth, as defined, of $380,000, maintain specified
minimum capital ratios, and not permit non-performing assets to total loans and
non-performing assets to total capital ratios to exceed specified maximums. The
average amount outstanding under the agreement was $49,605 in 1999, with an
average interest rate of 5.93%.
During 1997, MACT, in a private placement, issued $27,500 of 10.20%
capital securities through a wholly-owned special purpose subsidiary. Sky
Financial's obligated mandatorily redeemable capital securities may be redeemed
by Sky Financial prior to their mandatory June 1, 2027 redemption date
commencing June 1, 2007 at a redemption price of 105.10% of the face value of
the capital securities and thereafter at a premium which declines annually. On
or after June 1, 2017, the capital securities may be redeemed at face value. In
1998, Sky Financial retired securities with a face value of $2,900 at a premium
of 15.9%, or $460. Sky Financial's mandatorily redeemable capital securities are
considered to be Tier I capital.
On February 11, 1997, First Western Capital Trust I, in a private
placement, issued $25,000 of 9.875% capital securities due February 1, 2027. Sky
Financial's obligated mandatorily redeemable capital securities may be redeemed
by Sky Financial prior to their mandatory February 1, 2027 redemption date
commencing February 1, 2007 at a redemption price of 104.94% of the face value
of the capital securities and thereafter at a premium which declines annually.
On or after February 1, 2017, the capital securities may be redeemed at face
value.
On January 16, 1998, Mid Am, Inc. issued $50,000 of 7.08% subordinated
debt in a private placement transaction. The subordinated debt matures in 2008.
For regulatory capital purposes, the subordinated debt is considered Tier II
capital.
Sky Financial has obtained letters of credit totaling $20 million from
two third-party financial institutions supporting a credit enhancement for loans
sold by SFS.
53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
NOTE 9 -
INCOME TAXES
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
The provision for income taxes consists of the following:
- -----------------------------------------------------------------------------------------------------
1999 1998 1997
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current
Federal $ 54,298 $ 35,862 $45,403
State and local 112 267 220
- -----------------------------------------------------------------------------------------------------
54,410 36,129 45,623
Deferred
Federal (20,888) (12,214) (1,871)
State and local 74 (104) (73)
- -----------------------------------------------------------------------------------------------------
(20,814) (12,318) (1,944)
- -----------------------------------------------------------------------------------------------------
Total provision for income taxes $ 33,596 $ 23,811 $43,679
=====================================================================================================
</TABLE>
The sources of gross deferred tax assets and liabilities were as follows at year
end:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
1999 1998 1997
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Items giving rise to deferred tax assets:
Allowance for loan losses in excess of tax reserve $ 27,348 $ 23,963 $18,369
Merger, integration and restructuring expense 4,564 6,854 176
Tax basis of intangible assets in excess of book basis 9,613 3,381 2,196
Deferred compensation 8,428 2,994 2,246
Unrealized loss on securities available for sale 17,587 - -
Other 9,639 2,241 2,715
- -----------------------------------------------------------------------------------------------------
77,179 39,433 25,702
- -----------------------------------------------------------------------------------------------------
Items giving rise to deferred tax liabilities:
Depreciation (653) (3,301) (3,473)
FHLB stock dividends (4,458) (3,550) (2,751)
Mortgage servicing rights (4,668) (3,596) (2,335)
Unrealized gain on securities available for sale - (7,573) (7,180)
Other (3,286) (3,347) (3,718)
- -----------------------------------------------------------------------------------------------------
(13,065) (21,367) (19,457)
- -----------------------------------------------------------------------------------------------------
Net deferred tax asset $ 64,114 $ 18,066 $ 6,245
=====================================================================================================
</TABLE>
Sky Financial has sufficient taxes paid in current and prior years to warrant
recording the full deferred tax asset without a valuation allowance.
54
NOTE 9 -
INCOME TAXES
(CONTINUED)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Total federal income tax expense differs from the expected amounts computed by applying the statutory
federal tax rate of 35% to income before taxes. The reasons for this difference are as follows:
- -------------------------------------------------------------------------------------------------------
1999 1998 1997
---- ---- ----
TAX TAX TAX
AMOUNT RATE AMOUNT RATE AMOUNT RATE
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income tax expense based
upon the federal statutory
rate on income before
income taxes $36,672 35.0% $ 26,521 35.0% $ 48,264 35.0%
Tax exempt income (4,507) (4.3) (4,929) (6.5) (5,016) (3.6)
Non-deductible merger and
restructuring costs 4,109 3.9 2,966 3.9 - -
Other (2,678) (2.6) (747) (1.0) 431 0.3
- -------------------------------------------------------------------------------------------------------
$33,596 32.0% $ 23,811 31.4% $ 43,679 31.7%
=======================================================================================================
</TABLE>
Tax expense attributable to securities gains totaled $464,$493 and $119 in
1999, 1998 and 1997.
NOTE 10 -
OTHER COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Other comprehensive income consisted of the following:
- -------------------------------------------------------------------------------------------------------
1999 1998 1997
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Other comprehensive income
Unrealized gains (losses) arising during period $ (70,580) $ 2,483 $18,903
Reclassification adjustment
for gains included in income (1,325) (1,409) (340)
- -------------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on securities
available for sale (71,905) 1,074 18,563
Tax effect 24,795 389 6,487
- -------------------------------------------------------------------------------------------------------
Total other comprehensive income (loss) $ (47,110) $ 685 $12,076
=======================================================================================================
</TABLE>
55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
NOTE 11 -
EARNINGS PER SHARE
Earnings per share amounts reflect the implementation of SFAS No. 128, "Earnings
per Share." SFAS 128 established new standards for computing and presenting
earnings per share and requires all prior period earnings per share data be
restated to conform with the provisions of the statement. Basic earnings per
share is computed by dividing net income available to common shareholders by the
weighted average number of shares outstanding during the period, as restated for
shares issued in business combinations accounted for as poolings-of-interests
(see Note 2), stock splits and stock dividends. Diluted earnings per share is
computed using the weighted average number of shares determined for the basic
computation plus the number of shares of common stock that would be issued
assuming all contingently issuable shares having a dilutive effect on earnings
per share were outstanding for the period.
The weighted average number of common shares outstanding for basic and
diluted earnings per share computations were as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
1999 1998 1997
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NUMERATOR
Net income $ 71,182 $ 51,963 $94,218
Less: Preferred stock dividends - - (605)
- ------------------------------------------------------------------------------------------------------
Net income available to common shareholders (basic) 71,182 51,963 93,613
Effect of dilutive securities:
Convertible preferred stock - - 605
- ------------------------------------------------------------------------------------------------------
Net income (diluted) $ 71,182 $ 51,963 $94,218
======================================================================================================
DENOMINATOR
Weighted-average common shares outstanding (basic) 78,125,000 77,963,000 78,455,000
Exercise of options 760,000 1,034,000 772,000
Convertible preferred stock - - 1,036,000
- ------------------------------------------------------------------------------------------------------
Weighted-average common shares outstanding (diluted) 78,885,000 78,997,000 80,263,000
======================================================================================================
EARNINGS PER SHARE
Basic $ 0.91 $ 0.67 $ 1.19
======================================================================================================
Diluted $ 0.90 $ 0.66 $ 1.17
======================================================================================================
</TABLE>
In 1999, 1,692,000 weighted shares under option were excluded from the
diluted earnings per share calculation as they were anti-dilutive.
The Board of Directors declared a two-for-one stock split payable June 1,
1998 to shareholders of record May 12, 1998. In addition, a 10% stock dividend
is reflected in each year presented. All share and per share data have been
retroactively adjusted to reflect the mergers discussed in Note 2, stock
dividends and splits.
56
NOTE 12 -
FAIR VALUES OF FINANCIAL INSTRUMENTS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
The following table shows carrying values and the related estimated fair values of financial instruments
at year end. Items that are not financial instruments are not included.
- ---------------------------------------------------------------------------------------------------------
1999 1998
---- ----
Carrying Estimated Carrying Estimated
Amounts Fair Value Amounts Fair Value
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and due from banks $ 380,980 $ 380,980 $ 247,284 $ 247,284
Interest-bearing deposits with other
financial institutions 17,086 17,086 13,544 13,544
Federal funds sold 3,100 3,100 50,124 50,124
Securities available for sale 1,868,839 1,868,839 2,126,833 2,126,833
Securities held to maturity - - 23,910 24,036
Loans held for sale and loans, net of the
allowance for credit losses 5,399,750 5,451,122 5,126,300 5,179,359
Bank owned life insurance 90,408 90,408 84,774 84,774
Accrued interest receivable 54,240 54,240 48,170 48,170
Deposits (5,758,691) (5,751,309) (6,006,912) (6,031,315)
Securities sold under repurchase
agreements and federal funds
purchased (657,913) (660,474) (589,722) (585,447)
Debt and FHLB advances (962,654) (966,826) (663,722) (674,258)
Accrued interest payable (26,643) (26,643) (29,110) (29,110)
=========================================================================================================
</TABLE>
For purposes of the above disclosures of estimated fair value, the following
assumptions were used: the carrying values for cash and due from banks, federal
funds sold, interest-bearing deposits in other financial institutions and
accrued interest were considered to approximate fair value; the estimated fair
value for securities was based on quoted market values for the individual
securities or for equivalent securities; carrying value is considered to
approximate fair value for loans that contractually reprice at intervals of less
than six months; the estimated fair value for other loans was based on estimates
of the rate Sky Financial would charge for similar loans at December 31, 1999
and 1998, applied over estimated payment periods; the estimated fair value for
demand and savings deposits was based on their carrying value; the estimated
fair value for certificates of deposit and borrowings was based on estimates of
the rate Sky Financial would pay on such obligations at December 31, 1999 and
1998, applied for the time period until maturity. The capital lease obligations
of $1,903 and $2,184 at December 31, 1999 and 1998 are not included in the fair
value disclosures. The estimated fair value of commitments was not material.
While these estimates of fair values are based on management's judgment
of appropriate factors, there is no assurance that, if Sky Financial had
disposed of such items at December 31, 1999 or 1998, the estimated fair values
would necessarily have been achieved at that date, since market values may
differ depending on various circumstances. The estimated fair values at December
31, 1999 and 1998 should not necessarily be considered to apply at subsequent
dates.
In addition, other assets and liabilities of Sky Financial that are not
defined as financial instruments were not included in the above disclosures,
such as property and equipment. In addition, non-financial instruments typically
not recognized in financial statements (but which may have value) were not
included in the above disclosures. These include, among other items, the
estimated earning power of core deposit accounts, the value of a trained work
force, customer goodwill, and similar items.
57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
NOTE 13 -
OTHER INCOME AND OTHER EXPENSE
The following is a summary of other income and other expense:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OTHER INCOME
International department fees $ 1,006 $ 965 $ 978
Gain on sale of deposits and branch offices - 1,071 9,311
Gains on sales of credit card accounts and other loans 3,203 1,927 5,602
Income from bank owned life insurance 4,709 3,178 801
Other 19,355 19,980 17,393
- ------------------------------------------------------------------------------------------------------------------------------------
Total other income $ 28,273 $ 27,121 $34,085
====================================================================================================================================
OTHER OPERATING EXPENSE
Brokerage commissions $ 7,925 $ 6,209 $ 3,597
State franchise taxes 4,442 5,903 5,703
Printing and supplies 5,741 6,523 5,894
Legal and other professional fees 6,179 9,365 8,031
Telephone 6,421 5,301 4,752
Marketing 6,598 7,554 7,028
Amortization of intangible assets 5,243 6,104 4,070
Other 27,872 35,996 35,168
- ------------------------------------------------------------------------------------------------------------------------------------
Total other operating expense $ 70,421 $ 82,955 $74,243
====================================================================================================================================
</TABLE>
Note 14 -
Merger, Integration And Restructuring Expenses
In 1999, Sky Financial recorded merger, integration and restructuring charges
totaling $72,545 ($51,051 after tax, or $.65 per diluted share). The majority of
the expenses are associated with the merger and integration of the combined
operations of Sky Financial with First Western, Mahoning Bancorp, and Wood
Bancorp. Included in the total are severance and other employee related costs of
$23,566, valuation adjustments of property, equipment and other assets of
$29,104, transaction costs of $7,813 and other merger and integration-related
costs of $12,062.
Severance and other employee related charges were incurred primarily as
part of the consolidation of First Western Bank, N.A. with Sky Bank and the
consolidation of First Federal Bank, a Wood Bancorp subsidiary, with Mid Am
Bank. In addition, severance and other employee-related charges have been
accrued for the consolidation of the Mahoning National Bank with Sky Bank, which
is planned for the second quarter of 2000. A review was conducted of individual
positions to determine those to be eliminated. Positions eliminated affected all
job classifications.
The employee-related costs resulted in the elimination of approximately
250 positions during 1999. It is anticipated that another 50 positions will be
eliminated in 2000. The employee related expenses for the First Western and Wood
Bancorp mergers are substantially complete. The employee-related expenses for
the Mahoning National Bancorp, Inc. merger are approximately 70% paid with the
balance to be paid in the first and second quarters of 2000.
Asset valuation adjustments were comprised of charges to reflect, at fair
market value, redundant premises and equipment planned for disposal and the
current valuation of intangible assets related to the mergers. The impairment of
these assets results from the significant change in the extent or manner of
their use and their relative value to the merged corporation. Fair values for
significant fixed assets were determined by professional appraisal. The value of
intangible assets was determined using the discounted cash flow method.
58
NOTE 14 -
MERGER, INTEGRATION AND RESTRUCTURING EXPENSES
(CONTINUED)
Premises and equipment planned for disposal had a carrying value of
$6,040 at year end 1999 after valuation adjustments of $6,894. These
dispositions relate primarily to the community banking segment of Sky
Financial's operations. They are expected to be completed during 2000. The
impairment of intangible assets resulted in a charge of $21,787 during 1999,
representing a reduction in the value of intangible assets acquired in the
merger with First Western. The remaining value of these assets at year end 1999
was $20,777. The charges for these valuation allowances are aggregated with
other merger, integration and other restructuring expenses and are reflected in
the parent and other segment for line of business reporting purposes. No
material adjustments were made to the recorded liabilities.
In 1998, Sky Financial recorded charges totaling $55,987 ($39,357 after
tax, or $.50 per diluted share.) The majority of the charges are associated with
the merger and integration of the combined operations of Citizens Bancshares,
Inc., Mid Am, Inc. and The Ohio Bank. Included in the total are severance and
other employee-related costs of $19,750, valuation adjustments of property,
equipment and other assets of $15,933, transaction costs of $8,311 and other
merger and integration- related costs of $11,993.
Severance and other employee-related charges were incurred as part of the
consolidation of ten separate banking organizations into three
geographically-based banking entities and the resultant reduction of duplicate
positions and as part of a process redesign applied to all business segments
throughout the organization. The employee related costs resulted from the
elimination of approximately 260 positions, including 26 senior management and
officer positions. Prior to December 31, 1998, approximately 40% of
employee-related expenses were paid. The remaining expenses were paid and the
remaining position reductions were completed during the first and second
quarters of 1999. Also in 1998, First Western eliminated approximately 70
positions, including 49 full-time positions and five executive positions.
Asset valuation adjustments were comprised of charges to reflect at fair
value redundant premises and equipment to be disposed of and related intangible
assets; to reflect the impairment of premises for which there has been a
significant change in the extent or manner of use; and to reflect the impairment
of intangible assets. Fair values for significant assets were determined by
professional appraisal. Premises and equipment to be disposed of had a carrying
value of $1,902 at year-end 1998, after valuation adjustments of $1,980. These
dispositions, substantially all of which are in the community banking segment,
were substantially accomplished during 1999. The assets associated with the
remaining valuation adjustments were primarily in the community banking
subsidiaries. The charges for these valuation allowances are aggregated with
other merger, integration and restructuring expenses and are reflected in the
parent and other segment for line of business reporting purposes.
Charges of $1,603 in 1997 related to branch and other acquisitions.
59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
NOTE 15 -
EMPLOYEE BENEFITS
Sky Financial maintains two plans which management intends to be Sky Financial's
primary ongoing retirement plans, as well as a supplemental retirement plan for
certain individuals. Beginning in 2000, all employees of Sky Financial will be
eligible to participate.
EMPLOYEE STOCK OWNERSHIP AND SAVINGS PLAN
The plan provides for annual contributions by Sky Financial as determined
annually by the Board of Directors. Under the 401(k) portion of the Plan,
employees may contribute a percentage of their eligible compensation with a
company match of such contributions up to a maximum match of three percent.
Employees may contribute to this plan upon employment. Employer matching
contributions commence after the employees have completed twelve months of
service.
EMPLOYEE STOCK OWNERSHIP PENSION PLAN
Sky Financial also sponsors an Employee Stock Ownership Pension Plan which
provides for an annual employer contribution equal to 3% of eligible employees'
annual compensation.
SUPPLEMENTAL RETIREMENT PLAN
This plan replaces retirement benefits eliminated under Sky Financial's
qualified retirement plans because of eligible compensation limitations under
current tax law. Sky Financial's contribution under the plan is determined by
multiplying the excess of employees' compensation over the established
limitation by the contribution level established by the Board of Directors for
Sky Financial's qualified plans (12% in each year presented).
A summary of the other retirement plans of merged affiliates follows.
Management intends to either terminate or merge these plans into an ongoing
plan.
PENSION PLANS
First Western, Mahoning, Citizens and Century maintained defined benefit pension
plans covering certain employees. Retirement benefits are based primarily on
years of service and compensation rates near retirement. Employees became
eligible to participate in the plans after meeting certain service requirements
and became fully vested in the benefits after five years of service. First
Western's board of directors froze all future benefits as of December 31, 1999.
Citizens' board of directors froze all future benefits under the Citizens and
Century plans effective December 31, 1998. Mahoning National Bank maintained a
plan that was frozen effective October 1, 1999. It is anticipated that final
settlement for all plans will occur during 2000. Sky Financial expects a
reversion of excess funding of which a portion will be used to make
contributions to existing plans. The benefit obligation, pension expenses and
accrued pension liability are not material in any period presented.
PROFIT SHARING AND 401(K) PLANS
First Western Bank, Wood Bancorp, Citizens, The Ohio Bank, Picton and Century
maintained defined contribution profit sharing plans in which substantially all
employees participated.
POSTRETIREMENT HEALTH INSURANCE BENEFITS
First Western Bank, Mahoning and Citizens continue to pay health insurance
premiums for certain employees after retirement. First Western, Mahoning and Sky
Bank accrued the cost of retirees' health and other post-retirement benefits
during the working career of active employees. The expense and liability under
this plan are not material in any period presented.
EMPLOYEE STOCK OWNERSHIP PLAN
First Western Bank, Wood Bancorp and Citizens maintained an Employee Stock
Ownership Plan (ESOP) for substantially all employees. Corporate contributions
to the plan were discretionary and determined annually by the Board of
Directors. Acquisitions of common shares by the ESOP were funded through
borrowings with unrelated financial institutions with the common shares
purchased serving as collateral for the related loans. First Western and Wood
Bancorp had loans outstanding of $600 and $117, respectively, as of December 31,
1999. The First Western plan held a total of 79,926 shares at year end December
31, 1999 and 1998. The Wood Bancorp plan held a total of 168,870 shares at year
end December 31, 1999 and 1998. Citizens had loans outstanding, totaling $325,
which were repaid in 1998 in conjunction with the merger to form Sky. The plan
held a total of 235,924 shares at year end 1998 and 1997, all of which were
allocated or committed to be released at year end 1998. At year end 1997,
164,754 shares were allocated or committed to be released and 72,271 shares were
unallocated. Expenses associated with the ESOP were not material.
Expenses relating to Sky Financial's plans as well as those of merged
affiliates totaled $9,042, $7,772 and $7,304 in 1999, 1998 and 1997.
60
NOTE 16 -
STOCK OPTIONS
Options to purchase Sky Financial's stock have been granted to directors,
officers and employees under various stock option plans. The Sky Financial
Group, Inc. 1998 Stock Option Plan for Employees and the Sky Financial Group,
Inc. Amended and Restated Stock Option Plan for Non-Employee Directors were
approved by Sky Financial's shareholders in 1998. Under these plans, options may
be granted to buy a maximum of 5.9 million common shares, or 7.5% of the number
of issued and outstanding common shares at the time of the adoption of the
plans, adjusted for all subsequent stock-for-stock acquisitions. Options expire
10 years after the date of grant and are issued at an option price no less than
the market price of Sky Financial's stock on the date of grant. Certain
individuals, including directors, may also elect to receive options, determined
under a formula, in lieu of a portion of their salary or director fees, as
applicable. Options granted to directors are fully vested and immediately
exercisable at the time of grant. Options granted to officers and other key
employees are generally exercisable at 40% after two years and in annual 20%
increments thereafter, except for options received in lieu of salary, which are
immediately exercisable.
A summary of the activity in the plans is as follows.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
---------------------------------------------------------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year 4,045,653 $ 17.21 2,773,552 $ 12.14 2,438,713 $ 10.27
Granted 605,024 20.52 1,559,661 25.23 595,221 18.54
Exercised (505,405) 9.03 (238,593) 10.26 (236,047) 8.81
Forfeited (155,595) 23.89 (48,967) 19.41 (24,335) 12.89
- ------------------------------------------------------------------------------------------------------------------------------------
Outstanding at end of year 3,989,677 $ 18.48 4,045,653 $ 17.21 2,773,552 $ 12.14
====================================================================================================================================
Options exercisable at
year-end 3,043,849 $ 16.52 2,630,579 $ 13.98 1,900,954 $ 10.64
Weighted average fair
value of options granted
during year $ 4.21 $ 5.42 $ 2.96
</TABLE>
Options outstanding at year end 1999 were as follows.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
OUTSTANDING EXERCISABLE
---------------------------------------------------------------
WEIGHTED
AVERAGE WEIGHTED
RANGE OF REMAINING AVERAGE
EXERCISE CONTRACTUAL EXERCISE
PRICES NUMBER LIFE (YEARS) NUMBER PRICE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$3 to $10 338,747 3.31 338,731 $ 7.01
$10 to $15 1,111,201 5.22 1,083,178 11.90
$15 to $20 325,652 7.19 265,676 16.92
$20 to $25 1,275,019 9.17 1,183,512 21.83
$25 to $30 939,058 8.86 172,752 27.03
- ------------------------------------------------------------------------------------------------------------------------------------
Outstanding at year-end 3,989,677 7.34 3,043,849 $16.52
====================================================================================================================================
</TABLE>
61
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
NOTE 16 -
STOCK OPTIONS (CONTINUED)
Had compensation cost for stock options been measured using FASB Statement No.
123, net income and earnings per share would have been the pro forma amounts
indicated below. The pro forma effect may increase in the future if more options
are granted.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income as reported $ 71,182 $ 51,963 $94,218
Pro forma net income 67,462 48,362 92,076
Basic earnings per share as reported 0.91 0.67 1.19
Pro forma basic earnings per share 0.86 0.62 1.17
Diluted earnings per share as reported 0.90 0.66 1.17
Pro forma diluted earnings per share 0.86 0.61 1.15
====================================================================================================================================
</TABLE>
The pro forma effects are computed using option-pricing models, using the
following weighted average assumptions as of the grant date:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Risk-free interest rate 5.95% 5.00% 6.24%
Expected option life (years) 5.26 7.29 6.75
Expected stock price volatility 0.20 0.20 0.18
Dividend yield 4.00% 3.01% 2.91%
====================================================================================================================================
</TABLE>
Sky Financial maintains a stock appreciation rights (SAR) plan under which SARs
were granted in tandem with stock options until 1998. Expense related to the
SARs was ($100) in 1999, $213 in 1998, and $1,793 in 1997. A summary of the
activity in this plan follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
--------------------------------------------------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SARS PRICE SARS PRICE SARS PRICE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year 25,765 $ 15.65 48,535 $10.65 130,194 $ 9.65
Granted - 20.52 5,251 29.75 10,089 13.43
Exercised (1,578) 11.92 (27,539) 9.54 (90,750) 9.50
Forfeited (1,419) 19.10 (482) 16.44 (998) 12.15
- ------------------------------------------------------------------------------------------------------------------------------------
Outstanding at end of year 22,768 $ 15.68 25,765 $15.65 48,535 $ 10.65
====================================================================================================================================
</TABLE>
NOTE 17 -
CONTINGENCIES
Sky Financial is, from time-to-time, involved in various lawsuits and claims,
which arise in the normal course of business. In the opinion of management, any
liabilities that may result from these lawsuits and claims will not materially
affect the financial position or results of operations of Sky Financial.
62
NOTE 18 -
FINANCIAL INSTRUMENTS WITH
OFF-BALANCE-SHEET RISK
Sky Financial is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers
located primarily within the local business area. These instruments include
commitments to extend credit, standby letters of credit and international
commercial letters of credit. In addition, SFS retains a portion of the credit
risk on loans and leases it sells in the secondary market.
Sky Financial's exposure to credit loss in the event of non-performance
by the other party to the financial instrument for commitments to extend credit,
standby letters of credit and letters of credit is represented by the
contractual amount of those instruments. Sky Financial uses the same credit
policies in making commitments and conditional obligations as it does for
on-balance-sheet instruments.
Financial instruments whose contract amounts represent credit risk at
December 31 are presented below:
<TABLE>
<CAPTION>
- ----------------------------------------------------------
1999 1998
- ----------------------------------------------------------
<S> <C> <C>
Commitments to
extend credit $1,192,727 $1,076,414
Standby letters
of credit 120,177 84,809
Letters of credit 755 692
==========================================================
</TABLE>
The majority of the unfunded commitments at December 31, 1999 are variable rate
commitments, with approximately 20% or $230 million having fixed rates.
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.
Commitments generally have fixed expiration dates ranging from one to five
years, variable interest rates tied to the prime rate and Treasury bill rates
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements.
Standby letters of credit are conditional commitments issued by Sky
Financial to guarantee the performance of a customer to a third party. Those
guarantees are primarily issued to support public and private borrowing
arrangements, including bond financing and similar transactions. The expiration
date of substantially all standby letters of credit extend for a period ranging
from thirty days to seven years. The credit risk involved in issuing letters of
credit is essentially the same as that involved in extending loan facilities to
customers. Sky Financial holds marketable securities, certificates of deposits,
real estate, inventory and equipment as collateral supporting those commitments
for which collateral is deemed necessary.
Letters of credit are instruments used to facilitate trade, most commonly
international trade, by substituting Sky Financial's credit for that of a
commercial importing company. The terms are generally one to three months. The
letters of credit are primarily unsecured.
Most of Sky Financial's business activity is with customers located
within the respective local business areas of its bank subsidiaries. However,
SFS's loan and lease activities are with customers in medical and dental-related
fields located throughout the continental United States. Substantially all loans
and leases originated by SFS are sold in the secondary market. In connection
with sales of the loans and leases, SFS retains limited servicing and limited
recourse liability. The servicing is limited to responsibility to collect
delinquent accounts based on information provided by the purchaser of the loans
and leases. A liability is established at the time each loan or lease is sold
based on the fair value of the servicing liability. In addition, SFS records a
liability for the estimated recourse for credit losses which is limited to an
aggregate of 10% of the purchase price of the loans and leases sold. The fair
value of the servicing liability and the estimated recourse liability reduce the
amount of gain or increase the loss of the loans and leases sold. At December
31, 1999 the outstanding balance of loans and leases sold was $430,220. A
portion of the purchase price is deferred and paid to SFS on a delayed basis. At
December 31, 1999 and 1998, SFS recorded receivables of $13,081 and $9,191,
respectively, for deferred sales proceeds. Changes in the liability for recourse
provisions relating to sold loans and leases is as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------
1999 1998
- -------------------------------------------------------
<S> <C> <C>
Balance at beginning
of year $ 6,233 $ 3,050
Provision for recourse
liability 7,260 5,592
Recourse claims paid (3,444) (2,578)
Recoveries of claims paid 712 169
- -------------------------------------------------------
Balance at end of year $10,761 $ 6,233
=======================================================
</TABLE>
63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
NOTE 19 -
MORTGAGE BANKING ACTIVITIES
Sky Financial conducts mortgage banking operations through its banking
subsidiaries. The primary activity relates to the origination and sale of fixed-
and variable-rate residential mortgages in the secondary market. Sky Financial
usually retains the servicing of the loans it sells. Loans are primarily
originated in the western Ohio, eastern Ohio, western Pennsylvania and
southeastern Michigan market areas; however, Sky Financial also has employees
and agents in Indiana who also originate loans for sale in the secondary market.
The following table summarizes information relating to Sky Financial's
mortgage banking activity as of December 31:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
1999 1998
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Amounts held in agency accounts $ 6,198 $ 13,530
Amounts held in escrow accounts 10,158 9,444
Mortgage banking receivables for advanced funds 734 3,767
Unpaid mortgage loan principal for loans serviced for investors 2,202,034 1,966,671
Mortgage servicing rights, net of accumulated amortization 13,068 10,972
Allowance for impairment of capitalized mortgage servicing rights 2 904
======================================================================================================
</TABLE>
In 1999, 1998 and 1997, Sky Financial sold certain servicing rights on mortgages
which had an outstanding principal balance of $59,575, $282,837 and $96,691,
respectively, and realized no gain or loss in 1999, a loss of $53 in 1998 and a
gain of $446 in 1997. At December 31, 1999, Sky Financial had firm commitments
for the sale of approximately $8,492 of loans held for sale. No provision for
loss on the carrying amount on loans held for sale is considered necessary at
December 31, 1999.
NOTE 20 -
REGULATORY MATTERS
CAPITAL MAINTENANCE REQUIREMENTS
Sky Financial and its bank subsidiaries must observe capital guidelines
established by federal and state regulatory authorities. Failure to meet
specified minimum capital requirements can result in certain mandatory actions
by primary regulators of Sky Financial and its bank subsidiaries that could have
a material effect on Sky Financial's financial condition or results of
operations. Under capital adequacy guidelines, Sky Financial and its bank
subsidiaries must meet specific quantitative measures of their assets,
liabilities and certain off balance sheet items as determined under regulatory
accounting practices. Sky Financial's and its banks' capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings and other factors. Management believes, as of
December 31, 1999, that Sky Financial and its banks meet all capital adequacy
requirements to which they are subject.
Sky Financial and its banks have been notified by their respective
regulators that, as of the most recent regulatory examinations, each is regarded
as well capitalized under the regulatory framework for prompt corrective action.
Such determinations have been made evaluating Sky Financial and its banks under
Tier 1, total capital, and leverage ratios. There are no conditions or events
since these notifications that management believes have changed any of the well
capitalized categorizations of Sky Financial and its bank subsidiaries.
64
NOTE 20 -
REGULATORY MATTERS
(CONTINUED)
Sky Financial and its significant banks' capital ratios are presented in the
following table:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
REQUIRED TO BE
MINIMUM REQUIRED WELL CAPITALIZED
FOR CAPITAL UNDER PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION REGULATIONS
- ----------------------------------------------------------------------------------------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
- ----------------------------------------------------------------------------------------------------------
DECEMBER 31, 1999
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
TOTAL CAPITAL TO
RISK-WEIGHTED ASSETS
Sky Financial $751,976 12.1% $496,493 8.0% $620,616 10.0%
Sky Bank 305,739 12.2 200,407 8.0 250,509 10.0
Mid Am Bank 181,111 11.4 126,986 8.0 158,732 10.0
Ohio Bank 102,649 10.8 76,038 8.0 95,048 10.0
Mahoning 85,263 16.1 42,456 8.0 53,070 10.0
TIER 1 CAPITAL TO
RISK-WEIGHTED ASSETS
Sky Financial $612,257 9.9% $248,246 4.0% $372,370 6.0%
Sky Bank 244,332 9.8 100,204 4.0 150,306 6.0
Mid Am Bank 145,217 9.1 63,493 4.0 95,239 6.0
Ohio Bank 80,721 8.5 38,019 4.0 57,029 6.0
Mahoning 78,614 14.8 21,228 4.0 31,842 6.0
TIER 1 CAPITAL TO
AVERAGE ASSETS
Sky Financial $612,257 7.7% $316,379 4.0% $474,569 5.0%
Sky Bank 244,332 6.6 148,557 4.0 185,697 5.0
Mid Am Bank 145,217 7.5 77,184 4.0 96,480 5.0
Ohio Bank 80,721 6.3 51,301 4.0 64,126 5.0
Mahoning 78,614 9.6 32,914 4.0 41,142 5.0
==========================================================================================================
DECEMBER 31, 1998
- ----------------------------------------------------------------------------------------------------------
TOTAL CAPITAL TO
RISK-WEIGHTED ASSETS
Sky Financial $697,641 12.1% $461,953 8.0% $577,441 10.0%
Sky Bank 258,879 10.6 194,951 8.0 243,689 10.0
Mid Am Bank 149,327 10.4 114,478 8.0 143,098 10.0
Ohio Bank 94,917 10.5 72,161 8.0 90,201 10.0
Mahoning 76,355 15.4 39,701 8.0 49,626 10.0
TIER 1 CAPITAL TO
RISK-WEIGHTED ASSETS
Sky Financial $568,543 9.9% $230,977 4.0% $346,465 6.0%
Sky Bank 218,386 9.0 97,476 4.0 146,213 6.0
Mid Am Bank 116,165 8.1 57,239 4.0 85,859 6.0
Ohio Bank 73,642 8.2 36,081 4.0 54,121 6.0
Mahoning 70,133 14.1 19,851 4.0 29,776 6.0
TIER 1 CAPITAL TO
AVERAGE ASSETS
Sky Financial $568,543 7.2% $316,145 4.0% $395,181 5.0%
Sky Bank 218,386 5.6 156,590 4.0 195,737 5.0
Mid Am Bank 116,165 6.8 68,648 4.0 85,810 5.0
Ohio Bank 73,642 6.0 49,234 4.0 61,543 5.0
Mahoning 70,133 8.8 31,868 4.0 39,835 5.0
==========================================================================================================
</TABLE>
RESTRICTIONS ON SUBSIDIARY DIVIDENDS
Dividends paid by Sky Financial are mainly provided by dividends from its
subsidiaries. However, certain restrictions exist regarding the ability of its
banking subsidiaries to transfer funds to Sky Financial in the form of cash
dividends, loans or advances. Regulatory approval is required in order to pay
dividends in excess of the bank subsidiaries' earnings retained for the current
year plus retained net profits since January 1, 1997. As of December 31, 1999,
$40,641 was available for distribution to Sky Financial as dividends without
prior regulatory approval.
65
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
NOTE 21 -
LINE OF BUSINESS REPORTING
Sky Financial manages and operates two major lines of business: community
banking and financial service affiliates. Community banking includes lending and
related services to businesses and consumers, mortgage banking,
deposit-gathering and institutional trust services. financial service affiliates
consist of non-banking companies engaged in commercial finance lending and
leasing, broker/dealer operations, non-conforming mortgage lending, collection
activities, wealth management, insurance and other financial-related services.
The reported line of business results reflect the underlying core
operating performance within the business units. Parent and Other is comprised
of the parent company and several smaller business units. It includes the net
funding cost of the parent company and intercompany eliminations. Expenses for
centrally provided services and support are fully allocated based principally
upon estimated usage of services. All significant non-recurring items of income
and expense company-wide are included in Parent and Other. Prior periods have
been presented to conform with current reporting methodologies. Substantially
all of Sky Financial's assets are part of the community banking line of
business. Selected segment information is included in the following table:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
FINANCIAL
COMMUNITY SERVICE PARENT CONSOLIDATED
BANKING AFFILIATES AND OTHER TOTAL
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999
NET INTEREST INCOME $308,713 $ 2,487 $ (7,555) $303,645
PROVISION FOR LOAN LOSSES 17,997 315 2,400 20,712
- ------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION 290,716 2,172 (9,955) 282,933
NON-INTEREST INCOME 80,016 44,678 (352) 124,342
NON-INTEREST EXPENSE 185,868 45,780 70,849 302,497
- ------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES 184,864 1,070 (81,156) 104,778
INCOME TAX EXPENSE (BENEFIT) 58,725 520 (25,649) 33,596
- ------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $126,139 $ 550 $(55,507) $ 71,182
======================================================================================================
1998
Net interest income $294,877 $ 1,271 $ (6,365) $289,783
Provision for loan losses 15,840 153 15,999 31,992
- ------------------------------------------------------------------------------------------------------
Net interest income after provision 279,037 1,118 (22,364) 257,791
Non-interest income 79,998 40,276 4,276 124,550
Non-interest expense 212,334 39,718 54,515 306,567
- ------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 146,701 1,676 (72,603) 75,774
Income tax expense (benefit) 45,506 699 (22,394) 23,811
- ------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $101,195 $ 977 $(50,209) $ 51,963
======================================================================================================
1997
Net interest income $279,479 $ 812 $ (1,328) $278,963
Provision for loan losses 16,221 38 2,600 18,859
- ------------------------------------------------------------------------------------------------------
Net interest income after provision 263,258 774 (3,928) 260,104
Non-interest income 67,640 27,887 12,789 108,316
Non-interest expense 197,261 27,718 5,544 230,523
- ------------------------------------------------------------------------------------------------------
Income before income taxes 133,637 943 3,317 137,897
Income tax expense 42,046 534 1,099 43,679
- ------------------------------------------------------------------------------------------------------
NET INCOME $ 91,591 $ 409 $ 2,218 $ 94,218
======================================================================================================
</TABLE>
66
NOTE 22 -
CONDENSED PARENT COMPANY FINANCIAL INFORMATION
CONDENSED PARENT COMPANY BALANCE SHEETS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
1999 1998
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 15,973 $ 22,480
Securities available for sale 31,039 31,681
Investment in bank subsidiaries 518,134 543,222
Investment in nonbank subsidiaries 27,083 29,522
Receivable from subsidiaries 105,631 82,547
Bank premises and equipment 8,241 8,442
Other assets 65,917 28,088
- ------------------------------------------------------------------------------------------------------
Total assets $772,018 $745,982
======================================================================================================
LIABILITIES
Debt $158,451 $111,851
Other liabilities 47,236 22,418
- ------------------------------------------------------------------------------------------------------
Total liabilities 205,687 134,269
Shareholders' Equity 566,331 611,713
- ------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $772,018 $745,982
======================================================================================================
</TABLE>
CONDENSED PARENT COMPANY STATEMENTS OF INCOME
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
1999 1998 1997
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCOME
Dividends from bank subsidiaries $81,408 $105,309 $72,122
Dividends from nonbank subsidiaries 1,060 3,150 2,685
Management fees 11,749 9,392 8,782
Other income 5,653 2,483 1,793
- ------------------------------------------------------------------------------------------------------
Total income 99,870 120,334 85,382
- ------------------------------------------------------------------------------------------------------
EXPENSES
Interest expense 9,043 6,979 2,419
Salaries and employee benefits 7,822 8,773 9,190
Occupancy and equipment expense 1,285 1,260 1,009
Merger, integration and restructuring expense 21,112 20,063 -
Other operating expense 3,045 4,689 4,236
- ------------------------------------------------------------------------------------------------------
Total expenses 42,307 41,764 16,854
- ------------------------------------------------------------------------------------------------------
Income before income taxes and equity in
undistributed net income of subsidiaries 57,563 78,570 68,528
Income tax benefit 7,526 8,539 2,234
- ------------------------------------------------------------------------------------------------------
Income before equity in undistributed net
income of subsidiaries 65,089 87,109 70,762
Equity in undistributed net income
of bank subsidiaries 7,072 (32,857) 24,532
Equity in undistributed net income
of nonbank subsidiaries (979) (2,289) (1,076)
- ------------------------------------------------------------------------------------------------------
Net income $71,182 $ 51,963 $94,218
======================================================================================================
Net income available to common shareholders $71,182 $ 51,963 $93,613
======================================================================================================
</TABLE>
67
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
NOTE 22 -
CONDENSED PARENT COMPANY FINANCIAL INFORMATION
(CONTINUED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
CONDENSED PARENT COMPANY STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 71,182 $51,963 $94,218
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed net income
of bank subsidiaries (7,072) 32,857 (24,532)
Equity in undistributed net income
of nonbank subsidiaries 979 2,289 1,076
Depreciation and amortization 591 845 486
Gain on sale of assets (9) (99) -
Net change in other assets and liabilities (15,036) (51,640) 4,576
- --------------------------------------------------------------------------------------------------------
Net cash from operating activities 50,635 36,215 75,824
- --------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Capital contributions to bank subsidiaries (4,300) (800) (2,100)
Capital contributions to nonbank subsidiaries (3,850) (4,300) (9,503)
Return of capital from nonbank subsidiary 4,000 - -
Loan to subsidiary (63,836) (11,700) (27,800)
Net loan payments 40,752 24,406 15,007
Securities available for sale:
Proceeds from maturities and payments 5,463 - -
Proceeds from sales 2,016 7,585 31
Purchases (14,167) (26,471) (6,576)
Securities held to maturity:
Proceeds from maturities and payments - 1,190 1,531
Purchases - (1,210) (1,541)
Purchases of life insurance contracts (4,340) (18,350) -
Proceeds from sales of bank premises and equipment 10 4 39
Purchases of bank premises and equipment (409) (516) (5,851)
- --------------------------------------------------------------------------------------------------------
Net cash from investing activities (38,661) (30,162) (36,763)
- --------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from issuance of debt 62,000 90,000 62,851
Repayment of debt (15,400) (21,500) (19,500)
Preferred stock retired - - (21,801)
Proceeds from issuance of common stock 4,507 4,220 1,547
Cash dividends and fractional shares paid (49,984) (35,734) (36,512)
Treasury stock purchases (21,344) (34,160) (19,509)
Other items 1,740 587 (817)
- --------------------------------------------------------------------------------------------------------
Net cash from financing activities (18,481) 3,413 (33,741)
- --------------------------------------------------------------------------------------------------------
Net change in cash and due from banks (6,507) 9,466 5,320
Cash and due from banks at beginning of year 22,480 13,014 7,694
========================================================================================================
Cash and due from banks at end of year $ 15,973 $22,480 $13,014
========================================================================================================
</TABLE>
68
SENIOR OFFICERS
SKY FINANCIAL GROUP, INC.
Edward J. Reiter
Senior Chairman
Marty E. Adams
President & CEO
Thomas J. O'Shane
Senior Executive Vice President
Frank J. Koch
EVP/Senior Credit Officer
W. Granger Souder, Jr.
EVP/General Counsel
Kevin T. Thompson
EVP/Chief Financial Officer
Jerry R. Biederman
SVP/Director of Audit
Beth A. Haas
SVP/Asset Quality
Donald P. Hileman
SVP/Finance
Judith A. Leck
SVP/Human Resources
Michael R. Moore
SVP/Funds Management
John R. Reisner
SVP/Compliance
Bernard A. Sikorski
Director of Sales
Diane K. Critchet
VP/Secondary Market
Timothy S. Dirrim
VP/Marketing
Tracey L. Reeder
VP/Shareholder Relations
MID AM BANK
Patrick A. Kennedy
President & CEO
Richard L. Gordley
Area President
Marvin D. Miller
Area President
Kenneth R. Nagel
Area President/Senior Credit Officer
Charles A. Parcher
Area President
Michael R. Klein
EVP/Retail Sales
Michael J. Rose
EVP/Mortgage Lending
Joseph R. Williams
EVP/Sales
Michael L. Williams
EVP/Operations
Philip C. Clinard
SVP/Chief Financial Officer
Sharon S. Speyer
SVP/Legal Counsel
Amy L. Gonyer
VP/Human Resources
SKY BANK
Richard L. Hardgrove
President & CEO
Jayson M. Zatta
EVP/Corporate Banking
Frank A. Hierro
Regional President
Rick L. Hull
Regional President
Stephen R. Sant
Regional President
Dewey VanHoose, III
Regional President
Debra A. Bish
SVP/Marketing
Lawrence P. Crow
SVP/Retail Branch Operations
Mark G. Hirst
SVP/Mortgage Lending
Kenneth J. Romig
SVP/Finance
Nancy J. Trombetta
SVP/Human Resources
Lewis N. Voisey
SVP/Retail Sales
Donald D. Wehn
SVP/Direct/Indirect Lending
Thomas M. Gacse
Legal Counsel
THE OHIO BANK
James F. Burwell
President & CEO
Mark A. Maiberger
SVP/Credit
Curtis E. Shepherd
SVP/Retail
Frank L. Goebel
Area President/Columbus
Mark B. Malone
Area President/Lima
Kathleen C. Radebaugh
Area President/Chagrin Falls
Harold A. Schierloh
Area President/Putnam
Michael C. Spragg
Area President/Hancock
Deb A. Keller
VP/Area Executive/Xenia
Roy J. Messing
VP/Area Executive/Xenia
Kim S. Sease
VP/Area Executive/Xenia
Ronald J. Phillips
VP/Finance
Francine F. Wahrman
VP/Human Resources
69
SENIOR OFFICERS (CONTINUED)
MID AM FINANCIAL
SERVICES, INC.
Rosella J. Baker
President & CEO
Mark L. Budreau
VP/Finance
Scott E. Lynch
VP/Sales
Douglas C. Sharkey
VP/Risk Management
PICTON CAVANAUGH, INC.
Ronald L. Murray
President
Robert C. Hawker
EVP/Secretary
Pamela M. Alspach
Treasurer and Controller
William N. Fether
SVP
Mario N. Procaccini
SVP
SKY ASSET MANAGEMENT SERVICES, INC.
Lee J. Cieslak
President & CEO
Larry C. Colton
Vice President
E. Michael Latessa
Director of Billing Services
A. Paul Molle
House Counsel
SKY FINANCIAL SOLUTIONS, INC.
Robert E. Dorr
President & CEO
Paul T. Appel
EVP & COO
John P. Fiore
SVP
Joseph A. DiNicola
SVP
SKY INVESTMENTS, INC.
Robert M. Gioia
President & CEO
Thomas D. Losby
EVP & COO
John W. Cameron
SVP
SKY TECHNOLOGY
RESOURCES, INC.
Thomas G. Leek
Chairman & CEO
James C. Burkhart
President & COO
John A. Zercher
EVP/Eastern Data Center Operations
Barbara J. Austin
SVP/Item Processing
and Electronic Services
Jerry A. Buckley
SVP/Operations
Caren L. Cantrell
SVP/Customer Services Group
Ronald R. Earl
SVP/Corporate Network Services
C. Robert Taillard
SVP/Information Technology
SKY TRUST, N.A.
Richard R. Hollington, III
President & CEO
Donald P. Southwick
EVP/Chief Investment Officer
Richard J. Auth
SVP/Personal Trust
Norman E. Benden, Jr.
SVP/Finance
Alexander Hays, IV
SVP/Personal Trust
Chall A. Jenkins
SVP/Trust Operations
Fred J. Liskowski
SVP/Employee Benefits
J. David Sabine
SVP/Personal Trust
Edward J. Tognetti
SVP/Chief Fiduciary Officer,
Secretary, Cashier, Security Officer
Thomas J. Weissling
SVP/Personal Trust
John M. Zador
SVP/Personal Trust
70
AFFILIATE BOARDS OF DIRECTORS
MID AM BANK
Marty E. Adams
Joel S. Beren
Paul C. Betz
James F. Bostdorff
Wayne E. Carlin
Floyd D. Craft
Ralph Gallagher
Richard L. Gordley
Candy Graham
Kathleen S. Hanley
Stephen L. Hickman
Patrick J. Johnson
Patrick A. Kennedy
G. Ray Medlin, Jr.
James A. Meier
Gene K. Metz
Dane C. Nelson
William G. Rupp
Sheila Dwyer Schwartz
Thomas J. Short
D. Jane Zeller
SKY BANK
Marty E. Adams
Keith D. Burgett
Willard L. Davis
Del E. Goedeker
Richard L. Hardgrove
Fred H. Johnson, Jr.
Fred H. "Sam" Johnson, III
H. Lee Kinney
Thomas S. Mansell
Gerard P. Mastroianni
James C. McBane
Kenneth E. McConnell
Floyd H. McElwain
Barbara Bateman McNees
Harold F. Reed, Jr.
Thomas K. Reed
Lee A. Smith
Elden L. Surbey
Glenn F. Thorne
Joseph N. Tosh, II
Steven C. Warner
THE OHIO BANK
Marty E. Adams
P. Richard Axline
Paul V. Ballinger
C. Richard Beckett
James F. Burwell
Jack W. Donaldson
John C. Fergus, II
Frank L. Goebel
Beth B. Heck
Thomas A. Heydinger
Richard R. Hollington, Jr.
Kevin R. Sonnycalb
Jerry L. Staley
Anita Y. Williamson
MID AM FINANCIAL
Services, Inc.
Rosella J. Baker
Fred H. "Sam" Johnson, III
Marilyn O. McAlear
Thomas J. O'Shane
Edward J. Reiter
Emerson J. Ross, Jr.
PICTON CAVANAUGH, INC.
George N. Chandler, II
Robert C. Hawker
Jonathan A. Levy
Ronald L. Murray
Thomas J. O'Shane
Mario N. Procaccini
SKY ASSET MANAGEMENT SERVICES, INC.
Lee J. Cieslak
James E. Laughlin
Edward J. Reiter
W. Granger Souder, Jr.
Donald D. Thomas
Joseph N. Tosh, II
SKY FINANCIAL SOLUTIONS, INC.
Marty E. Adams
Gerald D. Aller
Paul T. Appel
David A. Bryan
Keith D. Burgett
Robert E. Dorr
Del E. Goedeker
D. James Hilliker
Robert E. Spitler
Robert E. Stearns, D.D.S.
SKY INVESTMENTS, INC.
Robert M. Gioia
Richard R. Hollington, Jr.
Charles I. Homan
James C. McBane
Gerard P. Mastroianni
Thomas S. Noneman
Thomas J. O'Shane
Douglas J. Shierson
Jerry L. Staley
SKY TECHNOLOGY
RESOURCES, INC.
Marty E. Adams
James C. Burkhart
James F. Burwell
Richard L. Hardgrove
Patrick A. Kennedy
Thomas G. Leek
Thomas J. O'Shane
Kevin T. Thompson
SKY TRUST, N.A.
Marty E. Adams
C. Richard Beckett
Robert C. Duvall
Frank I. Harding, III
Richard R. Hollington, III
Randall C. Hunt
Patrick J. Johnson
Dennis L. Nemec
Harold F. Reed, Jr.
John W. Sant
Patrick Sebastiano
Donald P. Southwick
C. Gregory Spangler
71
AFFILIATE ADVISORY BOARD MEMBERS
John B. Adkins
Gary Akenberger
John S. Albanese
Norris Allan
Sandy L. Alsop
Tom Amos
Charles B. Anderson
Ellwood A. Anderson
Michael Arend
Linda Armstrong
Harold F. Axe
Brian D. Bailys
Jeffrey J. Baldassari
Donald S. Baldwin
Jon C. Ballinger
Thomas Balyeat
Karen S. Bame
Marvin L. Bates
Thomas E. Bauer, O.D.
Gene Beaverson
Daniel H. Becker
Janice Bench
Steve Benz
R. M. Biggar
Richard L. Birman
Robert Black
Dean Blaser
John Bock
Dr. Bruce A. Bouts
Willard Brinker
Ray Brown
Sandra Brown
David Browning
Randy Buchman
Gilbert Bucholz
Thomas H. Buckleitner
Terry Buehler
Richard W. Campbell
E. Bruce Card
Phillip D. Caris
Gene Carlin
Shirley J. Carozza
Sharon Carter
Gary Cashin
Arthur W. Chandler
Joseph Christen
Dwayne Clark
Curtis Cooley
Frank Cortez
Gary E. Cotner
Ernest Cottrell
Williams Credicott
F. Wayne Cunliffe
Martin Davis
Norma J. Delabar
Steven Delventhal
Robert Michael Dennis
Andrew Joe Devany
Tim Dew
Marvin Dietsch
Dennis Dolph
Robert Doyle
Janis Dukes
Clifford Dussel
Elaine Eagle
Dennis Ebel
Dennis Ehlers
Richard Ellis
Charlotte C. Eufinger
Henry Falk
Robert Falk
Michael Fatzinger
Thomas Fenstemacher
L. Dolores Ferguson
John L. Feucht
Mary Finch
Donald Finnegan, Jr.
George V. Fisher
John D. Fitzjohn
Robert Floyd
Russell Foster
Marjorie Frankart
James Fruchey
Carol Fueling
Dennis Galayda
Mary Galvin
Robert F. Garvin, Jr.
Konnie Gerber
Richard Germond
Joseph Giovanucci
Darrell Goebel
Richard Goeke
William Goller
Robert Good
Jack Gooding
Joan Gordon
Gloria Granata
Roger Grandley
Donald Granger
Alix Greenblatt
Barb J. Greetham
Richard Grieser
Donald J. Guernsey
Jerald Haar
Maxine Haas
Wilbur D. Haas
Dan Hacker
Timothy Hallett
Douglas Hanna
Drew Hanna
Harold Hanna
David Hanson
John Harding
Everett Harris
Lowell Hartman
Matthew R. Hartman
John Hatfield
Erwin Heer
Daniel Hefflinger
Richard Heidebrink
James Heider
Judy Heilman
Jeanette Heinze
Daniel Heitzman
Phyllis R. Henderson
Jodi Herman
Thomas Herman
Kathleen Heyman
Mary Ann Hillier
Robert Holley
James Holzemer
Aurice J. Hoover
Michael L. Horsley
William Horst
Jay Hovis
Paul Hubbard
Randal Huber
William Hughes
Patricia L. Igoe
Charles A. Inkrott
Truman Irving
Beverly Jacobs
David A. James
Dana Johnson
Harry J. Johnston
Jack Jones
Minnie Mae Kemper
David M. Key
Thomas Kime
Robert P. King
H. Lee Kinney
Terry J. Klass
Stanley Korducki
Ruth Ann Kramer
Michael R. Kraus
Richard Krieger
John Krill
John Krueger
Z. John Kruzic
Helyn Kurfess
Eric S. Kurjan
Thomas Lahey
Donald Lahote
Luan F. Lamb
James E. Lang
Sharon Lange
David LaRoe
Kenneth Lay
Paul E. Lazenby
Betty Lazzaro
James Leatherman
Mark W. Leibold
Larry E. Leopold
Lou Ann Limbird
72
Thomas Lindsley
William J. Lomax, Jr.
James Loss
Richard Loss
John E. Love
Arlen L. Lowery
Sally Lutz
Thomas Manders
Mark Marenberg
Michael Marsh
Oscar R. Marshall
Michael McAlear
Allen McConnell
Sandra McCrate
Daryl McDonald
Robert McDonald
William W. McElwain
Don Meinert
Herman N. Menapace
Daniel E. Meyer
Ronald Mickel
Michael Miesle
James Miles
Alan Miller
David Miller
Donald Miller
Norma Miller
Terry Miller
Linda Millhime
Boyd Montgomery
Thomas Moore
Edwin S. Morse
Jack A. Murray
Dr. Ramana M. Murty
Kenneth Myer
Dale Myers
Harry E. Myers, Jr.
Douglas F. Naylor
Glen Newcomer
Kathleen L. Nichols
Robert Nicholson
Reginald Noble
Kenneth L. Okeson
Blaine Okuley
George Oravecz
James Ostrowski
Albert Pavlik, Jr.
Garry L. Peiffer
Ted Penner
Judy Peper
Donna Perlaky
Elvio Pescara
Rochelle Pfaff
Robert Pfefferle
Susan L. Phillips
Michael Podracky
Ted Pohlmann
Michael Powder
Charles M. Pugliese
Thomas Ramsdell
Ted Reiter
Jeffrey Reitzel
John Ressler
Bert Richard
Marilyn Richard
Paul Richard
Robert Richard
John Ridel
Dr. Christopher A. Roberts
Danny Roe
Virginia Rosen
James Rossler
Gene Roth
Sarah Rowland
Dennis V. Ruhe
Lowell Rupp
Kathleen Ryan
Joseph Rychener
Roger Saneholtz
Gregory Schafer
Mimi Schaffner
James Scheib
Michael P. Schiappa
Rosemary Schlievert
Sue M. Schroeder
Robert H. Schroeter
James Schwerkoske
Ken H. Scott
Barbara Sears
Ronald Seckinger
Cathy Segrist
Laurie Seibold
John Sepanski
Deborah W. Shade
Dr. Bahu Shaikh
Clyde Sharlow
Douglas Shaw
Robert J. Shedlarz
Keith Sheridan
Daryl Sherman
Jackson Short
Robert Sibbersen
William Smith
Jeffrey Snook
Joel J. Snyder
Ned Snyder
Philip W. Sparks
Lynn St. Clair
Harold Steinberg
Kathleen Steingraber
Peter A. Stock
Greg Stoller
Winifred Stone
Roger Strup
Candyce Sturtz
John L. Tabacchi
Jane Taft
Roslyn L. Talerico
Rosemary Talmadge
Garth Tebay
Ardenia Terry
Charles Thayer
Charles Thomas
James Thompson
Jerry Throne
John Thurman
Timothy A. Tipton
James Toncre
Julie Hayes Troug
Douglas Troutner
Dottie L. Tuttle
Kenneth J. Unverferth
Jeffrey T. Urbanski
Susan Utterback
Leonard Verhoff
Thomas VonDeylen
Ronald VonKaler
Ronald Wachsman
Robert Waidmann
Robert Walden, Jr.
F. Carl Walter
Thomas Warns
Mark Wasylyshyn
James Weber
Thomas Weidner
Don Weiher
Kenton Weis
Lois Weller
James Wenberg
Richard Westmeyer
John White, Jr.
Virginia Whiteman
Russell D. Williams
Wayne Wilson
Jim E. Wimmers
James Wing
Mona Wittlinger
Paul H. Woehlke
Betty Woods
Raymond Wright
Tom O. Yazel
Marylin Yoder
Shirley Young
Thomas J. Zajbel
Philip Zell
Charlotte Zgela
Joseph Zigray
Connie Zimmerman
Doug E. Zimmerman
73
ACKNOWLEDGEMENTS
WE WOULD LIKE TO THANK THE CUSTOMERS, BOARD MEMBERS AND EMPLOYEES FEATURED IN
THIS YEAR'S REPORT. WITHOUT THEIR TIME AND SUPPORT THIS REPORT WOULD NOT HAVE
BEEN POSSIBLE.
[PHOTO]
PAGE 12 - Dr. Bahu Shaikh is a specialist in Hematology/Oncology, The Toledo
Clinic; Chairman of the Department of Oncology, Flower Hospital; and Clinical
Professor of Medicine, Medical College of Ohio. Dr. Shaikh has been a Mid Am
Advisory Board member since 1991. As a prominent community leader, he provides
ongoing feedback to Mid Am's Sylvania Banking Center.
[PHOTO]
PAGE 14 - Ohio Bank Assistant Vice President Joe Laudick is a busy man. Busy
coaching little league baseball, junior girls softball and refereeing co-ed
soccer. Joe is also a member of the Village of Ottawa Park Board, Chamber of
Commerce and Ottawa Community Center and an Executive Member of the Putnam
County YMCA. Joe, like many other Sky employees, is never too busy to get
involved and give something back to his community.
[PHOTO]
PAGE 14 - Mike Spragg, Hancock Area President of The Ohio Bank, and Tom
Weissling, Senior Vice President of Sky Trust, recently presented a check for
$20,000 to Russ Gartner, Executive Director of the Findlay Family YMCA. The
donation from the Sky Foundation represents the first of five installments
totaling $100,000. The funding will help renovate the existing YMCA facility in
downtown Findlay.
THE FOLLOWING CUSTOMERS AND SHAREHOLDERS ASSISTED IN THE COMPLETION OF THIS
YEAR'S ANNUAL REPORT:
Lesniewicz Associates - Design and Copywriting
Paramount Printing - Printing
Jim Rohman - Photography
Corey Gray - Photography
M. D. Oothoudt - Copywriting/Editing
A SPECIAL THANKS TO THE FOLLOWING EMPLOYEES WHO ASSISTED IN PRODUCING THIS
REPORT:
Debbie Bish
David Burns
Diane Critchet
Vicky Dielman
Tim Dirrim
Miguel Every
Jill Fast
Tom Funk
Denise Halliday
Don Hileman
Jennifer Iliff
John Kline
Darlene Minnick
Linda Rathge
Tracey Reeder
John Reisner
Kelly Semer
W. Granger Souder
Kevin Thompson
Miriam Weintraub
Melissa Zatko
SHAREHOLDER INFORMATION
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
QUARTERLY COMMON STOCK PRICES, DIVIDENDS AND YIELDS
- --------------------------------------------------------------------------------------
BOOK DIVIDEND
VALUE PER PER DIVIDEND
HIGH LOW SHARE SHARE YIELD
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999
Fourth Quarter $25.13 $19.63 $7.27 $0.20 3.57%
Third Quarter 25.51 18.41 7.51 0.19 3.46
Second Quarter 27.50 23.18 7.91 0.19 3.00
First Quarter 27.39 22.95 7.96 0.19 3.02
- --------------------------------------------------------------------------------------
1998
Fourth Quarter $29.09 $22.94 $7.85 $0.19 2.94%
Third Quarter 30.17 21.08 8.38 0.14 2.06
Second Quarter 31.19 25.41 8.13 0.13 1.86
First Quarter 31.51 28.41 8.03 0.13 1.76
======================================================================================
<CAPTION>
- --------------------------------------------------------------------------------------
STOCK INFORMATION AT DECEMBER 31, 1999
- --------------------------------------------------------------------------------------
COMMON STOCK
<S> <C>
Shares authorized 150,000,000
Shares issued 78,163,065
Treasury shares 274,250
Number of shareholders of record 17,924
Closing market price per share $20.125
Book value per share $7.27
Stock exchange NASDAQ
Stock symbol SKYF
======================================================================================
</TABLE>
- --------------------------------------------------------------------------------
DIVIDEND REINVESTMENT PLAN
- --------------------------------------------------------------------------------
Sky Financial offers a Dividend Reinvestment Plan which allows shareholders to
reinvest their Sky Financial Group, Inc. dividends in additional Company common
stock at the prevailing market price. The plan has 8,109 participants, or 45.2
percent of our common shareholders of record. Plan information may be obtained
by calling the Shareholder Relations Department at (800) 576-5007, or by
writing: Sky Financial Group, Inc. Dividend Reinvestment Plan, 10 East Main
Street, Salineville, Ohio 43945.
- -------------------------------------------------------------------------------
CORPORATE INFORMATION
- -------------------------------------------------------------------------------
ANNUAL MEETING
Place: The Forum
Conference Center
Cleveland, Ohio
Date: April 19, 2000
Time: 9:00 a.m.
HEADQUARTERS
Write:
Sky Financial Group, Inc.
221 South Church Street
P. O. Box 428
Bowling Green, Ohio 43402
Telephone: (419) 327-6300
SHAREHOLDER RELATIONS
AND FORM 10-K
Write:
Sky Financial Group, Inc.
Shareholder Relations Department
10 East Main Street
Salineville, Ohio 43945
Telephone: (800) 576-5007
INVESTOR RELATIONS
Write:
Kelly Semer
Sky Financial Group, Inc.
221 South Church Street
P. O. Box 428
Bowling Green, Ohio 43402
Telephone: (419) 327-6305
TRANSFER AGENT
Write:
The Bank of New York
Receive and Deliver
Dept.-11W
P. O. Box 11002
Church Street Station
New York, New York, 10286
Telephone: (888) 683-4901
ONLINE INFORMATION
Internet:
Information concerning
Sky Financial and its
affiliates can also be found
on our website at WWW.SKYFI.COM
74
SKY FINANCIAL GROUP, INC.
221 South Church St.
Bowling Green, OH 43402
(419) 327-6300
MID AM BANK
519 Madison Ave.
Toledo, OH 43604
(419) 249-3300
Counties:
Allen (IN)
Defiance
Fulton
Henry
Lenawee (MI)
Lucas
Ottawa
Paulding
Putnam
Sandusky
Williams
Wood
THE OHIO BANK
236 South Main St.
Findlay, OH 45840
(419) 424-4000
Counties:
Allen
Cuyahoga
Franklin
Greene
Hancock
Hardin
Logan
Marion
Putnam
Seneca
Union
Warren
Wyandot
SKY BANK*
10 East Main St.
Salineville, OH 43945
(330) 679-2328
Counties:
Allegheny (PA)
Ashtabula
Beaver (PA)
Belmont
Butler (PA)
Carroll
Columbiana
Erie (PA)
Hancock (WV)
Jefferson
Lawrence (PA)
Mahoning
Mercer (PA)
Stark
Washington (PA)
FINANCIAL SERVICES COMPANIES:
FREEDOM EXPRESS, INC.
10 East Main St.
Salineville, OH 43945
(330) 679-2328
FREEDOM FINANCIAL LIFE INSURANCE COMPANY
2929 North 44th St.
Suite 120
Phoenix, AZ 85018
MID AM FINANCIAL SERVICES, INC.
11595 North Meridian St. Suite 750
Carmel, IN 46032
(317) 815-2000
MID AM TITLE INSURANCE AGENCY, INC.
202 West Maumee St.
3rd Floor
Adrian, MI 49221
(517) 265-4872
PICTON CAVANAUGH, INC.
Fort Industry Square
136 North Summit St. Suite 311
Toledo, OH 43604
(419) 241-8211
SKY ASSET MANAGEMENT SERVICES, INC.
18167 U.S. Highway 19
North, Suite 200
Clearwater, FL 33764
(800) 222-5254
SKY FINANCIAL
SOLUTIONS, INC.
2740 Airport Dr.
Suite 300
Columbus, OH 43219
(800) 360-0667
SKY INVESTMENTS, INC.
102 North Main St.
Bryan, OH 43506
(419) 636-1141
SKY TECHNOLOGY RESOURCES, INC.
1851 North Research Dr.
Bowling Green, OH 43402
(419) 354-6655
SKY TRUST, N.A.
30050 Chagrin Blvd.
Suite 150
Pepper Pike, OH 44124
(216) 378-2810
VALUENET, INC.
24 North Park Ave.
2nd Floor
Lisbon, OH 44432
(330) 424-6683
* Mahoning National Bank counties included in Sky Bank region.
[SKY FINANCIAL GROUP LOGO]
www.skyfi.com
EXHIBIT 21.1
SUBSIDIARIES OF SKY FINANCIAL
Sky Financial Group, Inc.
Bowling Green, Ohio
A. Bank Holding Company Subsidiary
1. First Western Bancorp, Inc.
New Castle, Pennsylvania
Sky Financial Group, Inc. owns 100 percent
a. Sky Bank
Salineville, Ohio
First Western Bancorp, Inc. owns 100 percent
1. ValueNet, Inc.
Salineville, Ohio
Sky Bank owns 100 percent
2. First Western Insurance Services, Inc.
New Wilmington, Pennsylvania
Sky Bank owns 100 percent
2. First Western Investment Services, Inc.
Wilmington, Delaware
First Western Bancorp, Inc. owns 100 percent
3. First Western Capital Trust I
Wilmington, Delaware
First Western Bancorp, Inc. owns 100 percent
B. Bank Subsidiaries
1. The Mahoning National Bank of Youngstown
Youngstown, Ohio
Sky Financial Group, Inc. owns 100 percent
2. Mid Am Bank
Toledo, Ohio
Sky Financial Group, Inc. owns 100 percent
a. Mid Am NB5, Inc.
Bowling Green, Ohio
Mid Am Bank owns 100 percent
1. NB5 Financial Services
Dublin, Ohio
Mid Am NB5, Inc. owns 20 percent
Bank Subsidiaries (continued)
b. Defiance Financial Corp.
Defiance, Ohio
Mid Am Bank owns 100 percent
1. HS and L Financial Agency, Inc.
Defiance, Ohio
Defiance Financial Corp. owns 100 percent
c. MFI Holding Company
Bryan, Ohio
Mid Am Bank owns 100 percent
1. MFI Insurance Agency, Inc.
Archbold, Ohio
MFI Holding Company owns 100 percent
2. Picton Cavanaugh, Inc.
Toledo, Ohio
MFI Holding Company owns 100 percent
d. Mid Am Title Insurance Agency, Inc.
Adrian, Michigan
Mid Am Bank owns 100 percent
3. The Ohio Bank
Findlay, Ohio
Sky Financial Group, Inc. owns 100 percent
C. Financial Services Subsidiaries
1. Mid Am of Michigan
Grand Rapids, Michigan
Sky Financial Group, Inc. owns 100 percent
2. Sky Investments, Inc.
Bryan, Ohio
Sky Financial Group, Inc. owns 100 percent
3. Sky Technology Resources, Inc.
Bowling Green, Ohio
Sky Financial Group, Inc. owns 100 percent
4. Sky Asset Management Services, Inc.
Clearwater, Florida
Sky Financial Group, Inc. owns 100 percent
5. Sky Financial Solutions, Inc.
Columbus, Ohio
Sky Financial Group, Inc. owns 100 percent
6. Sky Trust, National Association
Pepper Pike, Ohio
Sky Financial Group, Inc. owns 100 percent
Financial Services Subsidiaries (continued)
7. Mid Am Capital Trust I
Wilmington, Delaware
Sky Financial Group, Inc. owns 100 percent
8. Mid Am Financial Services, Inc.
Carmel, Indiana
Sky Financial Group, Inc. owns 100 percent
a. Simplicity Mortgage Consultants, Inc.
Marion, Indiana
Mid Am Financial Services, Inc. owns 100 percent
9. Freedom Financial Life Insurance Company
Phoenix, Arizona
Sky Financial Group, Inc. owns 100 percent
10. Freedom Express, Inc.
Salineville, Ohio
Sky Financial Group, Inc. owns 100 percent
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation by reference in the following
Registration Statements and in the related prospectuses of our report dated
February 3, 2000 on the consolidated balance sheets of Sky Financial Group,
Inc. as of December 31, 1999 and 1998, and the related consolidated statements
of income, changes in shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1999; which report is included in this
Annual Report on Form 10-K.
Form S-8 No. 333-67233
Form S-8 No. 333-47315 (Post-Effective Amendment No.1 on Form S-8 to Form S-4)
Form S-8 No. 333-60741 (Post Effective Amendment No.1 on Form S-8 to Form S-4)
Form S-3 No. 333-64127 (Filed as Citizens Bancshares, Inc.)
Form S-8 No. 333-18867 (Filed as Citizens Bancshares, Inc.)
/s/ Crowe, Chizek and Company LLP
Crowe, Chizek and Company LLP
Columbus, Ohio
March 21, 2000
EXHIBIT 24.1
POWER OF ATTORNEY
The undersigned directors of Sky Financial Group, Inc. hereby authorize and
appoint Marty E. Adams, President and C.E.O., and/or Kevin T. Thompson,
Executive Vice President and C.F.O., as our agents, as attorneys-in-fact, with
full power to act for us and all of us, for the purpose of subscribing our
names to the Form 10-K thereof to be filed with the Securities and Exchange
Commission, and for the purpose of making any changes or amendments necessary
or desirable to such documents and to any documents ancillary thereto, with
the same powers and to the same effect as we may do if personally present:
Signed in counterpart and dated this 22nd day of March, 2000.
/s/ Marty E. Adams /s/ Gerald D. Aller
Marty E. Adams Gerald D. Aller
/s/ David A. Bryan /s/ Keith D. Burgett
David A. Bryan Keith D. Burgett
/s/ George N. Chandler II /s/ Robert C. Duvall
George N. Chandler II Robert C. Duvall
/s/ Del. E. Goedeker /s/ D. James Hilliker
Del E. Goedeker D. James Hilliker
/s/ Richard R. Hollington, Jr. /s/ Charles I. Homan
Richard R. Hollington, Jr. Charles I. Homan
/s/ H. Lee Kinney
Fred H. Johnson, III H. Lee Kinney
/s/ Jonathan A. Levy /s/ Gerard P. Mastroianni
Jonathan A. Levy Gerard P. Mastroianni
/s/ Marilyn O. McAlear /s/ James C. McBane
Marilyn O. McAlear James C. McBane
/s/ Kenneth E. McConnell /s/ Thomas S. Noneman
Kenneth E. McConnell Thomas S. Noneman
/s/ Thomas J. O'Shane /s/ Edward J. Reiter
Thomas J. O'Shane Edward J. Reiter
/s/ Gregory L. Ridler /s/ Patrick W. Rooney
Gregory L. Ridler Patrick W. Rooney
/s/ Emerson J. Ross, Jr. /s/ Douglas J. Shierson
Emerson J. Ross, Jr. Douglas J. Shierson
/s/ C. Gregory Spangler /s/ Robert E. Spitler
C. Gregory Spangler Robert E. Spitler
/s/ Robert E. Stearns /s/ Joseph N. Tosh, II
Robert E. Stearns Joseph N. Tosh, II
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheets, the Consolidated Statements of Income and
Management's Discussion and Analysis of Financial Condition and Results of
Operations and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 380,980
<INT-BEARING-DEPOSITS> 17,086
<FED-FUNDS-SOLD> 3,100
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,868,839
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 5,477,494
<ALLOWANCE> 86,750
<TOTAL-ASSETS> 8,063,756
<DEPOSITS> 5,758,691
<SHORT-TERM> 657,913
<LIABILITIES-OTHER> 116,264
<LONG-TERM> 964,557
0
0
<COMMON> 571,543
<OTHER-SE> (5,212)
<TOTAL-LIABILITIES-AND-EQUITY> 8,063,756
<INTEREST-LOAN> 449,653
<INTEREST-INVEST> 121,911
<INTEREST-OTHER> 2,031
<INTEREST-TOTAL> 573,595
<INTEREST-DEPOSIT> 197,863
<INTEREST-EXPENSE> 269,950
<INTEREST-INCOME-NET> 303,645
<LOAN-LOSSES> 20,712
<SECURITIES-GAINS> 1,325
<EXPENSE-OTHER> 302,497
<INCOME-PRETAX> 104,778
<INCOME-PRE-EXTRAORDINARY> 104,778
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 71,182
<EPS-BASIC> 0.91
<EPS-DILUTED> 0.90
<YIELD-ACTUAL> 4.28
<LOANS-NON> 17,423
<LOANS-PAST> 9,538
<LOANS-TROUBLED> 2,067
<LOANS-PROBLEM> 40,825
<ALLOWANCE-OPEN> 80,748
<CHARGE-OFFS> 20,470
<RECOVERIES> 5,726
<ALLOWANCE-CLOSE> 86,750
<ALLOWANCE-DOMESTIC> 61,492
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 25,258
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheets, the Consolidated Statements of Income and
Management's Discussion and Analysis of Financial Condition and Results of
Operations and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 247,284
<INT-BEARING-DEPOSITS> 13,544
<FED-FUNDS-SOLD> 50,124
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 2,126,833
<INVESTMENTS-CARRYING> 23,910
<INVESTMENTS-MARKET> 24,036
<LOANS> 5,110,827
<ALLOWANCE> 80,748
<TOTAL-ASSETS> 8,033,266
<DEPOSITS> 6,006,912
<SHORT-TERM> 589,722
<LIABILITIES-OTHER> 159,013
<LONG-TERM> 665,906
0
0
<COMMON> 436,772
<OTHER-SE> 174,941
<TOTAL-LIABILITIES-AND-EQUITY> 8,033,266
<INTEREST-LOAN> 442,725
<INTEREST-INVEST> 128,483
<INTEREST-OTHER> 4,487
<INTEREST-TOTAL> 575,695
<INTEREST-DEPOSIT> 220,325
<INTEREST-EXPENSE> 285,912
<INTEREST-INCOME-NET> 289,783
<LOAN-LOSSES> 31,992
<SECURITIES-GAINS> 1,409
<EXPENSE-OTHER> 306,567
<INCOME-PRETAX> 75,774
<INCOME-PRE-EXTRAORDINARY> 75,774
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 51,963
<EPS-BASIC> 0.67
<EPS-DILUTED> 0.66
<YIELD-ACTUAL> 4.16
<LOANS-NON> 13,570
<LOANS-PAST> 7,797
<LOANS-TROUBLED> 2,026
<LOANS-PROBLEM> 28,023
<ALLOWANCE-OPEN> 66,553
<CHARGE-OFFS> 23,342
<RECOVERIES> 5,545
<ALLOWANCE-CLOSE> 80,748
<ALLOWANCE-DOMESTIC> 55,008
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 25,740
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheets, the Consolidated Statements of Income and
Management's Discussion and Analysis of Financial Condition and Results of
Operations and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 226,297
<INT-BEARING-DEPOSITS> 16,116
<FED-FUNDS-SOLD> 48,596
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,499,694
<INVESTMENTS-CARRYING> 381,209
<INVESTMENTS-MARKET> 382,497
<LOANS> 4,814,884
<ALLOWANCE> 66,553
<TOTAL-ASSETS> 7,267,164
<DEPOSITS> 5,520,937
<SHORT-TERM> 482,688
<LIABILITIES-OTHER> 73,848
<LONG-TERM> 556,826
0
0
<COMMON> 341,727
<OTHER-SE> 291,138
<TOTAL-LIABILITIES-AND-EQUITY> 7,267,164
<INTEREST-LOAN> 426,360
<INTEREST-INVEST> 114,863
<INTEREST-OTHER> 4,396
<INTEREST-TOTAL> 545,619
<INTEREST-DEPOSIT> 211,525
<INTEREST-EXPENSE> 266,656
<INTEREST-INCOME-NET> 278,963
<LOAN-LOSSES> 18,859
<SECURITIES-GAINS> 340
<EXPENSE-OTHER> 230,523
<INCOME-PRETAX> 137,897
<INCOME-PRE-EXTRAORDINARY> 137,897
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 94,218
<EPS-BASIC> 1.19
<EPS-DILUTED> 1.17
<YIELD-ACTUAL> 4.30
<LOANS-NON> 15,980
<LOANS-PAST> 8,313
<LOANS-TROUBLED> 475
<LOANS-PROBLEM> 42,138
<ALLOWANCE-OPEN> 60,080
<CHARGE-OFFS> 16,916
<RECOVERIES> 4,530
<ALLOWANCE-CLOSE> 66,553
<ALLOWANCE-DOMESTIC> 35,912
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 30,641
</TABLE>
