<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
[Fee Required]
For the fiscal year ended June 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from______________to___________________
Commission File Number: 0-18664
GLENWAY FINANCIAL CORPORATION
(Name of small business issuer in its charter)
Delaware 31-1297820
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
5535 Glenway Avenue, Cincinnati, Ohio 45238
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (513) 922-5959
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
None Common Stock, par value $.01 per share
(Name of each exchange on which registered) (Title of Class)
Check whether the issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the issuer was required to file such reports), and (2)
has been subject to such requirements for the past 90 days. Yes X No
Check if there is no disclosure of delinquent filers pursuant to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of issuer's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ X ]
State the issuer's revenues for its most recent fiscal year: $20.7
million.
The aggregate market value of the voting stock held by
non-affiliates of the registrant, computed by reference to the average of the
bid and asked prices of such stock on the Nasdaq National Market as of August
29, 1996, was $18.7 million. (The exclusion from such amount of the market value
of the shares owned by any person shall not be deemed an admission by the
registrant that such person is an affiliate of the registrant.)
As of September 13, 1996, there were 1,150,107 shares of the
Registrant's Common Stock issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part II of Form 10-KSB - Portions of Annual Report to Stockholders
for the fiscal year ended June 30, 1996. Part III of Form 10-KSB -
Proxy Statement for 1996 Annual Meeting of Stockholders.
Transitional Small Business Disclosure Format: Yes __ No X
<PAGE> 2
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Glenway Financial Corporation (the "Holding Company" or the
"Corporation") was incorporated under the name Centennial Financial Corp. in the
State of Delaware in March 1990, for the purpose of owning all of the
outstanding stock of Centennial Savings Bank, ("Centennial" or the "Savings
Bank"), issued upon the conversion of the Savings Bank from the mutual to stock
form (the "Conversion"). The Corporation is subject to regulation by the Office
of Thrift Supervision (the "OTS").
On August 24, 1993, the Holding Company, consummated a
conversion-merger transaction with The Glenway Loan and Deposit Company
("Glenway" or the "Company") in which the Corporation issued 700,000 shares of
newly issued shares of Holding Company stock at a price of $14.00 per share. In
connection with this conversion-merger transaction, the Holding Company's
stockholders approved a charter amendment changing its name from Centennial
Financial Corp. to Glenway Financial Corporation.
The Savings Bank was organized in 1876 as an Ohio mutual savings and
loan company and converted to a federally chartered stock savings bank in 1990.
In January 1994, Centennial converted from a federal thrift to an Ohio savings
bank.
Centennial considers its principal market area to be the west side
of Cincinnati, Ohio. In addition to its new main office at Glenway Crossing in
the Western Hills area of Cincinnati, Centennial has five branch offices on the
west side of Cincinnati. Its deposits are insured up to applicable limits by the
Federal Deposit Insurance Corporation (the "FDIC") in the Savings Association
Insurance Fund (the "SAIF"). The Savings Bank is subject to regulation by the
FDIC and the Ohio Division of Financial Institutions (the "Division").
Centennial is a community-oriented institution dedicated to
continuing its long standing commitment to providing affordable home ownership
for the community and a competitive return for its depositors by offering a
range of retail financial services. In furtherance of this commitment,
Centennial originates adjustable-rate, one-to-four family residential loans for
its portfolio and fixed-rate, one-to-four family real estate loans for its
portfolio or for sale, and it purchases mortgage-backed securities. It also
makes multifamily and nonresidential real estate loans and consumer loans, and,
from time to time, it purchases loans from other lenders. Centennial intends to
expand its lending activities into commercial lending subject to applicable
limits in Ohio law. Because Centennial is a community-oriented association, the
Savings Bank's Board of Directors has long recognized that improving the quality
of life in Centennial's primary market area is a prerequisite to continued
success in the competitive financial services arena. As a result, Centennial's
management and employees have taken a prominent position in civic promotion and
development, thereby reciprocating the 120 years of support that the Savings
Bank has received from its community.
During the year ended June 30, 1996, the Corporation also owned and
operated a strip shopping center in which one of the Savings Bank's branches is
located. The impact of this activity on the Corporation was not material.
Accordingly, the remainder of this description of the Corporation's business
will focus on Centennial's operations. The executive offices of the Holding
Company and the Savings Bank are located at 5535 Glenway Avenue, Cincinnati,
Ohio 45238 and the telephone number at that address is (513) 922-5959.
ASSET/LIABILITY MANAGEMENT
Centennial's earnings depend primarily upon its net interest income,
which is the difference between its interest income on its interest-earning
assets, such as mortgage loans, investment securities and mortgage-backed
securities, and its interest expense paid on its interest-bearing liabilities,
consisting of deposits and borrowings. As market interest rates change, asset
yields and liability costs do not change simultaneously. Due to maturity,
repricing and timing differences of interest-earning assets and interest-bearing
liabilities, earnings will be affected differently under various interest rate
scenarios. Centennial has sought to limit these earnings fluctuations and manage
interest rate risk by originating adjustable-rate loans and purchasing
relatively short-term and variable-rate investments and securities. Unlike many
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<PAGE> 3
savings institutions, Centennial has a high percentage of adjustable-rate,
interest-earning assets, most of which can respond in a period of one year or
less to market interest rate movements. At June 30, 1996, approximately $181.0
million, or 68.4%, of Centennial's portfolio of interest-earning assets had
adjustable rates.
The following table presents Centennial's interest-rate sensitivity
gap, or the difference between the repricing periods of interest-earning assets
and interest-bearing liabilities, at June 30, 1996:
<TABLE>
<CAPTION>
Over one Over three Over ten
through through Over five through Over
One year three five through twenty twenty
or less years years ten years years years Total
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Fixed-rate mortgage loans(1)(2) $ 10,818 $ 15,913 $ 12,444 $ 20,439 $ 15,759 $ 2,776 $ 78,149
Balloon and adjustable-rate 157,901 8,833 6,850 -- -- -- 173,584
loans(1)(3)
Consumer and other loans(1) 513 307 60 4 -- -- 884
Investment securities(4) 7,297 2,500 1,000 550 525 -- 11,872
-------- -------- -------- -------- -------- -------- --------
Total $176,529 $ 27,553 $ 20,354 $ 20,993 $ 16,284 $ 2,776 $264,489
======== ======== ======== ======== ======== ======== ========
INTEREST-BEARING LIABILITIES:
Passbook savings(5) $ 13,358 $ 14,946 $ 6,709 $ 4,727 $ 724 $ 13 $ 40,477
NOW accounts(5)(6) 5,040 6,615 3,721 3,649 1,071 64 20,160
Money market accounts(5) 3,817 2,863 716 231 7 -- 7,634
Certificates of deposit 117,699 29,964 6,589 -- -- -- 154,252
Advances and other borrowings 11,600 2,000 -- 6,767 5,267 -- 25,634
-------- -------- -------- -------- -------- -------- --------
Total $151,514 $ 56,388 $ 17,735 $ 15,374 $ 7,069 $ 77 $248,157
======== ======== ======== ======== ======== ======== ========
Interest rate sensitivity gap $ 25,015 $(28,835) $ 2,619 $ 5,619 $ 9,215 $ 2,699 $ 16,332
======== ======== ======== ======== ======== ======== ========
Cumulative interest rate sensitivity $ 25,015 $ (3,820) $ (1,201) $ 4,418 $ 13,633 $ 16,332 $ 16,332
gap ======== ======== ======== ======== ======== ======== ========
Cumulative interest rate sensitivity
gap as a percent of rate sensitive 9.46% (1.44)% (0.45)% 1.67% 5.15% 6.17% 6.17%
assets ======== ======== ======== ======== ======== ======== ========
</TABLE>
------------------------------------
(1) The dollar amount of loans in any repricing period includes funds
from the amortization and prepayment of loans estimated to occur in
that period in accordance with the prepayment assumptions utilized
by Sendero as of June 30, 1996. Sendero is a consulting firm which
assists thrift institutions in monitoring and managing their
interest-rate risk.
(2) Includes all fixed-rate, single-family, multifamily and
nonresidential real estate loans, construction loans and
mortgage-backed securities, net of the undisbursed portion of loans
in process, unearned discounts and deferred loan origination fees.
(3) Includes all adjustable-rate, single family, multifamily and
nonresidential real estate loans, construction loans and
mortgage-backed securities, net of the undisbursed portion of
loans-in-process.
(4) Includes interest-bearing deposits and all other investment
securities, including those available for sale.
(5) Based on an approximation of assumptions utilized by Sendero in
assessing the interest-rate sensitivity of thrift institutions,
passbook savings, money market demand and NOW accounts are shown as
decaying at annual rates of 33%, 50% and 25%, respectively. It has
been Centennial's experience that the actual decay rates are at
least as favorable as the assumptions.
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<PAGE> 4
(6) Excludes non-interest bearing NOW accounts.
Certain shortcomings are inherent in the method of analysis
presented in the foregoing table. For example, although certain assets and
liabilities may have similar maturities or periods to repricing, they may react
in different degrees to changes in market interest rates. Also, the interest
rates on certain types of assets and liabilities may fluctuate in advance of
changes in market interest rates, while interest rates on other types may lag
behind changes in market rates. Additionally, certain assets, such as
adjustable-rate mortgage loans, have features which restrict changes in interest
rates on a short-term basis and over the life of the asset. Further, in the
event of a change in interest rates, prepayment and early withdrawal levels
could deviate significantly from those assumed in calculating the table.
Finally, the ability of some borrowers to service their adjustable-rate debt may
become impaired in the event of an increase in interest rates.
AVERAGE BALANCES, INTEREST RATES AND YIELDS
The following table sets forth the average yields on Centennial's
interest-earning assets, the average interest rates paid on interest-bearing
liabilities and the interest rate spread between the weighted average yields
earned and rates paid by Centennial at the dates indicated:
<TABLE>
<CAPTION>
At June 30,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Yield on assets:
Weighted average yield on loan portfolio(1) 7.69% 7.61% 6.74%
Weighted average yield on investment portfolio (2) 6.31 6.03 5.46
Weighted average yield on other interest-earning assets 5.25 5.65 4.89
Weighted average yield on all interest-earning assets 7.66 7.53 6.64
Cost of liabilities:
Weighted average rate paid on deposits 4.79 4.84 3.89
Weighted average rate paid on borrowings(3) 5.78 6.11 5.62
Weighted average rate paid on all interest-bearing liabilities 4.89 4.99 4.04
Interest rate spread (spread between weighted average rate on
all interest-earning assets and all interest-bearing
liabilities) 2.77 2.54 2.60
</TABLE>
- -----------------------------
(1) Includes loans held for sale and mortgage-backed securities
designated as available for sale.
(2) Includes investments designated as available for sale or held for
sale.
(3) Consists of a loan to the Corporation's employee stock ownership
plan (the "ESOP"), a short-term note and advances from the Federal
Home Loan Bank of Cincinnati ("FHLB").
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<PAGE> 5
The following table presents for the periods indicated the total
dollar amount of interest income from average interest-earning assets and the
resultant yields, as well as the interest expense on average interest-bearing
liabilities, expressed both in dollars and rates, and the net interest margin.
The table does not reflect any effect of income taxes. All average balances are
based on month-end balances.
<TABLE>
<CAPTION>
Year ended June 30,
1996 1995
---- ----
Average Average
balance Interest Yield/Rate balance Interest Yield/Rate
-------- -------- ---------- ------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable and mortgage-
backed securities(1) $244,558 $19,150 7.83% $229,965 $16,961 7.38%
Investment securities(2) 11,886 646 5.43 12,778 752 5.89
Other interest-earning assets 2,897 188 6.49 2,554 149 5.83
---------- --------- ---- --------- -------- ----
Total interest-earning assets 259,341 19,984 7.71 245,297 17,862 7.28
Non-interest earning assets 13,104 11,578
--------- ---------
Total assets $272,445 $256,875
========- ========
Interest-bearing liabilities:
Passbook savings $ 41,479 1,162 2.80 $46,455 1,302 2.80
NOW accounts 17,090 333 1.95 15,029 311 2.07
Money Market Accounts 8,814 283 3.21 11,277 356 3.16
Certificate of deposit 150,997 8,815 5.84 129,752 6,815 5.25
------- ------- ---- -------- -------- ----
Total Deposits 218,380 10,593 4.85 202,513 8,784 4.34
Borrowings(3) 23,375 1,340 5.73 25,743 1,516 5.89
--------- ------- ----- -------- -------- ----
Total interest-bearing liabilities 241,755 11,933 4.94 228,256 10,300 4.51
------ ---- -------- ----
Non-interest bearing liabilities 4,585 3,653
---------- ---------
Total liabilities 246,340 231,909
Stockholders' equity 26,105 24,966
--------- ---------
Total liabilities and stockholders'
equity $272,445 $256,875
======== ========
Net interest income; interest
rate spread $ 8,051 2.77% $ 7,562 2.77%
======= ==== ======== ====
Net interest margin(4) 3.10% 3.08%
==== ====
Average interest-earning assets to
interest-bearing liabilities 107.27% 107.47%
====== ======
</TABLE>
<TABLE>
<CAPTION>
Year ended June 30,
1994
----
Average
balance Interest Yield/Rate
------- -------- ----------
<S> <C> <C> <C>
Interest-earning assets:
Loans receivable and mortgage-
backed securities(1) $198,462 $14,128 7.12%
Investment securities(2) 13,936 738 5.30
Other interest-earning assets 6,883 266 3.86
---------- --------- -----
Total interest-earning assets 219,281 15,132 6.90
Non-interest earning assets 13,286
---------
Total assets $232,567
========
Interest-bearing liabilities:
Passbook savings $ 50,104 1,470 2.93
NOW accounts 16,709 339 2.03
Money Market Accounts 16,470 479 2.91
Certificate of deposit 118,306 5,590 4.73
-------- -------- -----
Total Deposits 201,589 7,878 3.91
Borrowings(3) 5,594 282 5.04
--------- -------- ----
Total interest-bearing liabilities 207,183 8,160 3.94
-------- ----
Non-interest bearing liabilities 1,584
---------
Total liabilities 208,767
Stockholders' equity 23,800
---------
Total liabilities and stockholders'
equity $232,567
========
Net interest income; interest
rate spread $ 6,972 2.96%
======= ====
Net interest margin(4) 3.18%
====
Average interest-earning assets to
interest-bearing liabilities 105.84%
======
</TABLE>
- -----------------------------
(1) Includes loans held for sale, non-accrual loans and mortgage-backed
securities designated as available for sale.
(2) Includes investment securities designated as available for sale or held for
sale.
(3) Borrowings consist of the ESOP loan, a short-term note and FHLB advances.
(4) Net interest margin is net interest income divided by average
interest-earning assets.
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<PAGE> 6
RATE/VOLUME ANALYSIS
The following table describes the extent to which changes in
interest rates and changes in volume of interest-related assets and liabilities
have affected Centennial's interest income and expense during the periods
indicated. For each category of interest-earning assets and interest-bearing
liabilities, information is provided on changes attributable to (i) changes in
volume (change in volume multiplied by prior year rate), (ii) changes in rate
(change in rate multiplied by prior year volume), and (iii) total changes in
rate and volume. The combined effects of changes in both rate and volume, which
cannot be separately identified, have been allocated proportionately to the
change due to rate and the change due to volume.
<TABLE>
<CAPTION>
Year ended June 30,
------------------------------------------------------------------------------------------------
1996 vs. 1995 1995 vs. 1994 1994 vs. 1993
------------------------------- ---------------------------- ------------------------------
Increase Increase Increase
(Decrease) Total (Decrease) Total (Decrease) Total
Due to Increase Due to Increase Due to Increase
Rate Volume (Decrease) Rate Volume (Decrease) Rate Volume (Decrease)
------ ------ ---------- ------ ------ ---------- ------ ------ ----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans(1) $ 1,079 $ 1,110 $ 2,189 $ 530 $ 2,303 $ 2,833 $(1,730) $ 42 $(1,688)
Investment securities(2) (56) (50) (106) 78 (64) 14 72 (65) 7
Other interest-earning assets 18 21 39 98 (215) (117) (30) (6) (36)
------- ------- ------- ------- ------- ------- ------- ------- -------
Total interest-earning
assets 1,041 1,081 2,122 706 2,024 2,730 (1,688) (29) (1,717)
------- ------- ------- ------- ------- ------- ------- ------- -------
Interest-bearing liabilities
Deposits 1,088 720 1,808 870 36 906 (1,387) (315) (1,702)
Borrowings(3) (39) (136) (175) 56 1,178 1,234 29 20 49
------- ------- ------- ------- ------- ------- ------- ------- -------
Total interest-bearing
liabilities 1,049 584 1,633 926 1,214 2,140 (1,358) (295) (1,653)
------- ------- ------- ------- ------- ------- ------- ------- -------
Increase (decrease) in net
interest income $ (8) $ 497 $ 489 $ (220) $ 810 $ 590 $ (330) $ 266 $ (64)
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
- ------------------------------
(1) Includes mortgage-backed securities, mortgage-backed securities designated
as available for sale and loans held for sale.
(2) Includes investments designated as available for sale and held for sale.
(3) Borrowings consist of the ESOP loan, a short-term note and FHLB advances.
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<PAGE> 7
LENDING ACTIVITIES
GENERAL. The principal lending activity of Centennial is originating
conventional, first mortgage real estate loans secured by owner-occupied,
one-to-four family residential properties located in Hamilton County, Ohio.
Depending on the level of interest rates, in general, and whether the rates on
these loans are fixed-rate, Centennial may sell such loans in the secondary
market, rather than hold them in its portfolio. Centennial originates and
processes loans insured by the Federal Housing Authority and loans guaranteed by
the Veterans Administration for a local mortgage company, which, in turn, closes
and services the loans. To a lesser extent, Centennial also originates
multifamily and construction loans secured by properties located in its primary
market area and has originated nonresidential real estate loans. In addition,
Centennial makes home equity and other consumer loans, including loans secured
by deposit accounts, automobile loans and unsecured loans. Centennial's loan
portfolio also includes mortgage-backed securities. Finally, to diversify its
portfolio, Centennial, from time to time, purchases residential and other real
estate loans from other lending institutions. Centennial has plans to expand its
lending activities into commercial lending.
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<PAGE> 8
LOAN AND MORTGAGE-BACKED SECURITIES PORTFOLIO COMPOSITION. The
following table sets forth information concerning the composition of
Centennial's loan portfolio, including loans held for sale and mortgage-backed
securities, in dollar amounts and in percentages as of the dates indicated:
<TABLE>
<CAPTION>
At June 30,
1996 1995 1994
------ ------ ------
Amount % Amount % Amount %
------ --- ------ --- ------ ---
<S> <C> <C> <C> <C> <C> <C>
Real estate loans and mortgage-backed securities:
One-to-four family(1) $162,855 62.2% $158,573 64.5% $132,189 59.8%
Home equity 20,051 7.7 14,823 6.0 10,188 4.6
Multifamily residential 16,368 6.3 14,945 6.1 14,279 6.5
Nonresidential 12,337 4.7 11,207 4.6 13,177 6.0
Construction 18,969 7.2 12,693 5.2 12,932 5.8
Mortgage-backed securities(2) 30,471 11.6 32,780 13.3 37,578 17.0
-------- ---- -------- ---- -------- ----
Total real estate loans and
mortgage-backed securities 261,051 99.7 245,021 99.7 220,343 99.7
-------- ---- -------- ---- -------- ----
Other loans:
Consumer loans:
Deposits 507 .2 450 .2 495 .2
Automobile 347 .1 223 .1 126 .1
Home improvement 14 -- 22 -- 35 --
Other 16 -- 15 -- 12 --
-------- ---- -------- ---- -------- ----
Total other loans 884 .3 710 .3 668 .3
-------- ---- -------- ---- -------- ----
Total loans and mortgage-backed
securities 261,935 100.0% 245,731 100.0% 221,011 100.0%
-------- ---- -------- ---- -------- ----
Less:
Loans-in-process 9,318 6,393 6,963
Deferred loan origination fees and
discounts 427 529 636
Allowance for loan losses 618 616 724
-------- -------- --------
Total loans and mortgage-backed
securities - net $251,572 $238,193 $212,688
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
At June 30,
1993 1992
------ -----
Amount % Amount %
------ --- ------ --
<S> <C> <C> <C> <C>
Real estate loans and mortgage-backed securities:
One-to-four family(1) $120,655 61.8% $ 134,35 66.2%
Home equity 9,852 5.0 9,306 4.6
Multifamily residential 10,465 5.4 9,751 4.8
Nonresidential 12,581 6.4 12,470 6.1
Construction 9,420 4.8 11,174 5.5
Mortgage-backed securities(2) 31,625 16.2 24,544 12.1
-------- ---- -------- ----
Total real estate loans and
mortgage-backed securities 194,598 99.6 201,603 99.3
-------- ---- -------- ----
Other loans:
Consumer loans:
Deposits 517 .3 629 .3
Automobile 133 .1 228 .1
Home improvement 53 -- 83 .1
Other 18 -- 359 .2
-------- ---- -------- ----
Total other loans 721 .4 1,299 .7
-------- ---- -------- ----
Total loans and mortgage-backed
securities 195,319 100.0% 202,902 100.0%
-------- ---- -------- ----
Less:
Loans-in-process 5,654 5,540
Deferred loan origination fees and
discounts 865 956
Allowance for loan losses 648 476
-------- --------
Total loans and mortgage-backed
securities - net $188,152 $195,930
======== ========
</TABLE>
- ------------------------------------
(1) Includes $97.8 million of adjustable-rate mortgage loans and loans held for
sale totaling $1.1 million at June 30, 1996.
(2) Includes $21.8 million of adjustable-rate mortgage-backed securities at
June 30, 1996.
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<PAGE> 9
The following schedule sets forth the contractual maturities of or
repricing periods for the instruments in Centennial's loan portfolio, net of
loans in process, including loans held for sale and mortgage-backed securities,
at June 30, 1996. This schedule indicates the timing and ability of the Savings
Bank to reprice its assets and does not reflect the effects of possible
prepayments, amortizations or enforcement of due-on-sale clauses. Demand loans,
loans having no stated schedule of repayments or no stated maturity, and
overdrafts are reported as due in one year or less.
<TABLE>
<CAPTION>
Amounts Amounts Amounts Amounts
Amounts due due in due in due in due in Amounts due
within 1 year 1 to 3 years 3 to 5 years 5 to 10 years 10 to 20 after 20 Total
years years
------------- ------------ ------------ ------------- -------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Real estate mortgage
instruments
Adjustable-rate $152,820 $ 9,479 $ 4,591 $ 6,694 $ -- $ -- $173,584
Fixed-rate 5,056 7,471 7,325 17,496 27,768 13,033 78,149
Consumer and other 485 319 73 7 -- -- 884
-------- -------- -------- -------- -------- -------- --------
Total loans and
mortgage-backed
securities $158,361 $ 17,269 $ 11,989 $ 24,197 $ 27,768 $ 13,033 $252,617
======== ======== ======== ======== ======== ======== ========
</TABLE>
The following table sets forth the dollar amount of all loans and
mortgage-backed securities, before net items, due after one year from June 30,
1996, which have predetermined interest rates and have floating or adjustable
interest rates.
<TABLE>
<CAPTION>
Predetermined rates Floating or adjustable rates
------------------- ----------------------------
(In thousands)
<S> <C> <C>
Real estate mortgage instruments $69,753 $149,590
Real estate construction 3,340 3,773
Consumer and other 399 -
------- --------
Total $73,492 $153,363
======= ========
</TABLE>
The aggregate amount of loans that Centennial is permitted by
regulation to have outstanding to any one borrower (which, pursuant to that
regulation, may include an aggregation of more than one borrower) is generally
limited to 15% of total risk-based capital. This limit increases to 25% of total
risk-based capital if the security has a "readily ascertainable" value. At June
30, 1996, Centennial's lending limit was $3.4 million. See "REGULATION."
Centennial's largest loan outstanding (or total loans outstanding) to any one
borrower at June 30, 1996, totaled approximately $2.6 million.
ONE-TO-FOUR FAMILY RESIDENTIAL REAL ESTATE LENDING. The cornerstone
of Centennial's lending program has been the origination of permanent loans, to
be held in its portfolio, secured by mortgages on owner-occupied, one-to-four
family residences. At June 30, 1996, $162.9 million, or 62.2% of Centennial's
loan and mortgage-backed securities portfolio consisted of permanent loans on
one-to-four family residences. Substantially all of the residential loans
originated by Centennial are secured by properties located in Greater
Cincinnati. Also included in Centennial's residential loans at June 30, 1996,
were $3.7 million of purchased one-to-four family loans which were located on
properties outside of the Centennial's principal market area. See "Originations,
Purchases, Sales and Servicing of Real Estate Loans."
Centennial originates a variety of different types of residential
loans including conventional 15, 20 and 30 year fixed-rate loans and one-,
three- and five-year adjustable-rate mortgages ("ARMs"). In order to reduce its
exposure to changes in interest rates, Centennial emphasizes the origination of
ARMs. In order to meet consumer demand, however, Centennial has continued to
originate, either for sale or for retention in its portfolio, fixed-rate
residential loans in amounts which are carefully monitored to ensure compliance
with Centennial's asset/liability management goals.
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<PAGE> 10
Centennial's current one-to-four family residential ARMs are fully
amortizing loans with contractual maturities of up to 30 years. The interest
rates on the majority of ARMs originated by Centennial are subject to adjustment
at one- or three-year intervals. Centennial's ARMs products carry interest rates
which are reset to a stated margin over an index based on the yields for U.S.
Treasury securities with terms to maturities of the same length as the
applicable adjustment period. Decreases or increases in the interest rate of
Centennial's ARMs are generally limited to 1 to 2% at any adjustment date and 5
to 6% over the life of the loan. From time to time, Centennial has offered
initial interest rates on the ARMs it originates that are below the rate that
would be indicated by reference to the repricing formula. Centennial's ARMs are
not assumable, do not contain prepayment penalties and do not produce negative
amortization. At June 30, 1996, the total balance of one-to-four family
residential ARMs was $105.2 million.
Although Centennial maintains a portfolio of loans held for sale,
substantially all of Centennial's residential loans are underwritten and
documented to permit sale in the secondary market. During fiscal 1996,
Centennial sold $2.9 million of real estate loans in the secondary market, and
$1.1 million were held for sale at June 30, 1996. Management chose to sell fewer
loans during the years ended June 30, 1996 and 1995, because the interest rate
environment favored holding loans in the Savings Bank's portfolio and funding
new lending activities through net deposit inflows, FHLB advances and selling
investments. Absent a further reduction in interest rates, secondary market
activities will continue to be limited.
Centennial evaluates both the borrower's ability to make principal
and interest payments and the value of the property that will secure the loan.
Centennial originates residential mortgage loans with loan-to-value ratios up to
95%. On any mortgage loan exceeding an 80% loan-to-value ratio at the time of
origination, however, Centennial requires private mortgage insurance or other
credit enhancements in an amount intended to reduce Centennial's exposure to 80%
of the appraised value of the underlying collateral. All property securing real
estate loans made by Centennial is appraised by independent appraisers selected
by Centennial and subject to review by the management of Centennial. Centennial
requires evidence of marketable title and lien position, as well as title
insurance, on all loans secured by real property and requires fire and extended
coverage casualty insurance in amounts at least equal to the principal amount of
the loan or the replacement value of the property, depending on the type of
loan. Centennial may also require flood insurance to protect the property
securing its interest.
Centennial has focused a portion of its lending efforts on home
equity lending. Centennial's home equity lines of credit are written so that the
total commitment amount, when combined with the balance of the first mortgage
lien, may not exceed 90% of the appraised value of the property. Interest is
accrued at a floating rate based on a specified prime rate plus a margin, and
monthly payments of at least the monthly interest charge are required. At June
30, 1996, Centennial had $20.1 million of home equity loans and an additional
$24.7 million of unfunded commitments outstanding under home equity lines of
credit. Of such commitments, approximately $1.2 million may be cancelled at any
time by Centennial.
Centennial's fixed-rate residential mortgage loans customarily
include "due-on-sale" clauses, which are provisions giving Centennial the right
to declare a loan immediately due and payable in the event the borrower sells or
otherwise disposes of the real property subject to the mortgage and the loan is
not repaid. Centennial may enforce due-on-sale clauses to the extent permitted
under applicable laws.
MORTGAGE-BACKED SECURITIES. Centennial has historically purchased
mortgage-backed securities as portfolio investments to supplement loan
production. Centennial's mortgage-backed securities are either held in portfolio
at cost or carried as available for sale at fair, or market, value. See Notes
A-2 and B of the Notes to the Consolidated Financial Statements.
Historically, most of Centennial's mortgage-backed securities were
long-term, fixed-rate federal agency securities. In recent years, however,
Centennial has purchased other types of mortgage-backed securities, consistent
with its asset/liability management and balance sheet objectives. During the
past four fiscal years, most of the mortgage-backed securities purchased by
Centennial had adjustable interest rates. In addition, Centennial has purchased
short and intermediate tranche collateralized mortgage obligations ("CMOs").
CMOs are securities derived by reallocating cash flows from mortgage pass-
through securities or from pools of mortgage loans. Centennial does not
purchase CMOs that are interest only (IOs) or principal only (POs) or residual
interests. At June 30, 1996, the carrying value of Centennial's mortgage-backed
securities, including those designated as available for sale, was $30.5 million.
-10-
<PAGE> 11
Substantially all of Centennial's mortgage-backed securities are
issued or backed by federal government agencies or sponsored organizations.
Accordingly, management believes that Centennial's mortgage-backed securities
are generally resistant to credit problems.
Centennial's holdings of mortgage-backed securities have increased
in recent years as a result of loan competition. Federal agency mortgage-backed
securities generally carry a yield approximately 50 to 100 basis points below
that of the corresponding type of residential loan (due to the implied federal
agency guarantee fee and the retention of a servicing spread by the loan
servicer). Centennial's CMOs also carry lower yields (due to the implied federal
agency guarantee and because such securities tend to have shorter actual
durations than 30 year loans). In the event that the proportion of assets
consisting of mortgage-backed securities and CMOs increases, the Savings Bank's
asset yields could be somewhat adversely affected. Centennial will evaluate
mortgage-backed securities purchases in the future based on its asset/liability
objectives, market conditions and alternative investment opportunities.
MULTIFAMILY AND NONRESIDENTIAL REAL ESTATE LENDING. In order to
enhance portfolio yield and decrease the average term to repricing of its
assets, Centennial originates and purchases permanent loans secured by
multifamily and nonresidential real estate. See "Asset/Liability Management."
Centennial's permanent multifamily and nonresidential real estate loan portfolio
includes, for the most part, loans originated by Centennial with balances of
under $300,000 secured by apartments, small office buildings, retail
establishments and other business properties located on the west side of
Cincinnati. At June 30, 1996, $28.7 million, or 11.0%, of Centennial's loan and
mortgage-backed securities portfolio consisted of permanent loans on multifamily
and nonresidential real estate.
Permanent multifamily and nonresidential real estate loans have
maximum terms of 25 years, with most having terms ranging from 5 to 25 years and
15 to 25 year amortization schedules. Although some of Centennial's multifamily
or nonresidential real estate loans have fixed interest rates, interest rates on
most originations generally either adjust (subject, in some cases, to specified
interest rate caps) at one-year or three-year intervals to specified spreads
over the related rate on U.S. Treasury securities, adjusted to a constant
maturity, or float (subject, in some cases, to specified interest rate caps)
with changes in a specified prime rate. Multifamily loans and nonresidential
real estate loans are written in amounts of up to 80% of the appraised value or
80% of the purchase price of the property, whichever is lower.
Appraisals on properties securing multifamily and nonresidential
real estate property loans originated by Centennial are performed by an
independent appraiser designated by Centennial at the time the application is
processed. All appraisals on multifamily and nonresidential real estate loans
are reviewed by Centennial's management. In addition, Centennial's underwriting
procedures require verification of the borrower's credit history, income and
financial statements, banking relationships, references and income projections
for the property.
A management committee periodically reviews all multifamily and
nonresidential mortgage loans in excess of $300,000. Such review includes an
analysis of the continuing ability of the borrower to make loan payments and of
the condition of the underlying collateral property.
-11-
<PAGE> 12
The table below sets forth by type of security property certain
information regarding Centennial's multifamily and nonresidential real estate
loans at June 30, 1996:
<TABLE>
<CAPTION>
Outstanding Amount non-
Number Loan principal performing or
of loans commitments balance of concern
-------- ----------- ----------- -------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Multifamily 53 $ -- $16,368 $ --
======= ===== ======= =====
Nonresidential:
Office buildings 27 $ $ 3,949 $
Industrial real estate 1 -- 33 --
Retail facility 32 -- 2,925 --
Other 34 -- 5,430 --
------- ----- ------- -----
Total nonresidential
real estate loans 94 $ -- $12,337 $ --
======= ===== ======= =====
</TABLE>
Multifamily and nonresidential real estate loans generally present a
higher level of risk than loans secured by one-to-four family residences. This
greater risk is due to several factors, including the concentration of principal
in a limited number of loans and borrowers, the effects of general economic
conditions on income-producing properties and the increased difficulty of
evaluating and monitoring these types of loans. Furthermore, the repayment of
loans secured by multifamily and commercial real estate is typically dependent
upon the successful operation of the related real estate project. If the cash
flow from the project is reduced (for example, if leases are not obtained or
renewed), the borrower's ability to repay the loan may be impaired.
CONSTRUCTION LENDING. Centennial makes construction loans to
individuals for the construction of their residences as well as to builders and,
to a lesser extent, developers for the construction of one-to-four family
residences and condominiums, the development of one-to-four family lots and the
development of commercial property in Centennial's primary market area.
Construction loans to individuals for their residences are
structured to be converted to permanent loans at the end of the construction
phase, which typically runs six months. These construction loans have rates and
terms which match rates on one-to-four family loans then offered by Centennial,
except that during the construction phase the borrower pays interest only.
Residential construction loans are generally underwritten pursuant to the same
guidelines used for originating permanent residential loans. At June 30, 1996,
Centennial had $7.1 million of construction loans to borrowers intending to live
in the properties upon completion of construction.
Construction loans to builders of one-to-four family residences
require the payment of interest only and typically have terms of up to 24
months. These loans may provide for the payment of interest and loan fees from
loan proceeds and carry interest rates which float (subject, in some cases, to
interest rate caps) with changes in the specified prime rate. Loan commitment
and origination fees of from 1/4% to 1% are charged. At June 30, 1996,
Centennial had $19.0 million of construction loans to builders of one-to-four
family residences with no loans over $1.2 million.
Centennial also makes loans to builders for the purpose of
developing one-to-four family lots. These loans typically have terms of from one
to five years and carry interest rates which float (subject, in some cases, to
interest rate caps) with changes in the specified prime rate. Loan commitment
and origination fees of 1/2% to 1% are charged. The principal on these loans is
typically paid down as lots are sold. At June 30, 1996, Centennial had four
development loans totaling $861,000. Finally, Centennial, from time to time,
makes loans to builders for nonresidential construction. At June 30, 1996,
Centennial had one nonresidential construction loan with a balance of $404,106.
Construction and development loans are obtained principally through
continued business from developers and builders who have previously borrowed
from Centennial, as well as from broker referrals and direct solicitations by
developers and builders. The application process includes a submission to
Centennial of accurate plans, specifications, and
-12-
<PAGE> 13
costs of the project to be constructed/developed. These items are used as the
basis to determine the appraised value of the subject property. Loans are based
on the lesser of current appraised value and/or the cost of construction (land
plus building).
Construction and development loans are made up to a maximum
loan-to-value ratio of 80% (75% in the case of land loans), based upon an
independent appraisal. Because of the uncertainties inherent in estimating
development and construction costs and the market for the project upon
completion, it is relatively difficult to evaluate accurately the total loan
funds required to complete a project, the related loan-to-value ratios and the
likelihood of ultimate success of the project. Construction and development
loans to borrowers other than owner-occupants also involve many of the same
risks discussed above regarding multifamily and nonresidential real estate loans
and tend to be more sensitive to general economic conditions than many other
types of loans.
CONSUMER LENDING. Centennial originates a variety of different types
of consumer loans, including overdraft protection lines of credit, direct
automobile loans, deposit account loans and other loans for household purposes.
The underwriting standards employed by Centennial for consumer loans
include a determination of the applicant's payment history on other debts and
ability to meet existing obligations and payments on the proposed loan. Although
credit-worthiness of the applicant is of primary consideration, the underwriting
process also includes a comparison of the value of the security, if any, in
relation to the proposed loan amount. While consumer loans generally involve a
higher level of credit risk than one-to-four family residential loans, consumer
loans are typically made at higher interest rates and for shorter terms or at
adjustable rates, thus increasing the interest rate sensitivity of the lending
institution's portfolio.
Centennial also offers Visa and Master Card credit cards to its
customers as agent for a Delaware-based commercial bank. Centennial does not own
the credit card receivables, and therefore such activity poses no risk to
Centennial.
COMMERCIAL LENDING. Centennial is planning to expand its lending
activities into commercial lending. Currently, Ohio savings banks are authorized
to invest up to 10% of their assets in commercial, agricultural or business
loans and, pursuant to a general investment authority, up to an additional 15%
of assets in such loans, assuming such general investment authority has not
already been utilized.
Commercial lending entails significant risks. Such loans are subject
to greater risk of default during periods of adverse economic conditions.
Because such loans are secured by equipment, inventory, accounts receivable and
other non-real estate assets, the collateral may not be sufficient to ensure
full payment of the loan in the event of a default.
ORIGINATIONS, PURCHASES, SALES AND SERVICING OF REAL ESTATE LOANS
Centennial originates real estate loans through its internal loan
production personnel. Walk-in customers and referrals from real estate brokers
and builders are also important sources of loan originations.
All mortgage loans must be approved by a loan officer and a lending
assistant vice president. Loans to be held in the Savings Bank's portfolio also
must be approved by the senior vice president of lending. All loans in excess of
$300,000 must be approved by the Loan Committee of the Board.
Centennial has, from time to time, purchased loans to supplement
loan originations. At June 30, 1996, approximately $4.8 million (including $3.8
million on properties located outside of Ohio) of Centennial's one-to-four
family residential loan portfolio was serviced by others. In addition, on the
same date, $92,000 of Centennial's multifamily real estate loan portfolio was
serviced by an institution located outside of Ohio.
The table below sets forth information related to Centennial's
purchased loans secured by real estate located in areas which are outside the
Cincinnati, Ohio area and the surrounding areas in Ohio, Kentucky and Indiana
and in which there were over $300,000 in loans at June 30, 1996.
-13-
<PAGE> 14
<TABLE>
<CAPTION>
Loan balance
Date of purchase Location of collateral Type of property at June 30, 1996
- ---------------- ---------------------- ---------------- ----------------
(In thousands)
<C> <C> <C> <C>
1984 and 1985 Los Angeles, CA One-to-four family $ 776
1983 and 1984 Houston, TX One-to-four family 1,477
-------
Total $ 2,253
=======
</TABLE>
During the years ended June 30, 1996 and 1995, Centennial has held
loans originated in its portfolio, because such practice was deemed more
advantageous in the current interest rate environment. Funds from other
activities were deployed to fund loan originations. During prior years,
Centennial had sold the majority of the fixed-rate loans it originated in the
secondary market. During the year ended June 30, 1996, Centennial sold only $2.9
million of residential loans in the secondary market.
When loans are sold, Centennial retains the responsibility for
servicing the loans and receives a servicing fee for performing these services.
Centennial serviced a portfolio of loans for others totaling approximately $68.8
million at June 30, 1996.
Centennial has a portfolio of fixed- and adjustable-rate
mortgage-backed securities, which it purchased to hold to maturity or as
available for sale. During the year ended June 30, 1996, Centennial purchased
mortgage-backed securities totaling $4.3 million. Centennial had mortgage-backed
securities totaling $30.5 million, or 11.6% of its total loan and
mortgage-backed securities portfolio, at June 30, 1996.
-14-
<PAGE> 15
The following table presents Centennial's loan origination and loan
and mortgage-backed securities purchase and sale activities for the years
indicated:
<TABLE>
<CAPTION>
Year ended June 30,
---------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
------ ------ ------ ------ ------
Amount % Amount % Amount % Amount % Amount %
------ - ------ - ------ - ------ - ------ -
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Originations
- ------------
Conventional real
estate loans:
Construction loans $17,237 22.8% $19,587 30.4% $ 9,921 11.5% $13,862 14.9% $12,547 13.7%
Fixed-rate loans on
existing property 20,949 27.6 13,207 20.5 50,335 58.4 45,539 49.0 40,936 44.6
Adjustable-rate loans on
existing property 26,034 34.3 25,620 39.8 19,559 22.7 25,461 27.4 28,334 30.9
Consumer and other loans 11,756 15.3 5,943 9.3 6,354 7.4 8,050 8.7 9,918 10.8
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Total loans originated(1) $75,796 100.0% $64,357 100.0% $86,163 100.0% $92,912 100.0% $91,735 100.0%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
Purchases
- ---------
Conventional real estate loans $ -- --% $ 74 100.0% $ 234 1.2% $ -- --% $ -- --%
Mortgage-backed securities 4,267 100.0 -- -- 19,725 98.8 12,509 100.0 16,042 100.0
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Total loans and mortgage-
backed securities
purchased $ 4,267 100.0% $ 74 100.0% $19,959 100.0% $12,509 100.0% $16,042 100.0%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
Sales
- -----
Real estate loans $ 2,887 73.0% $ 1,963 56.7% $30,258 100.0% $52,114 100.0% $36,755 82.0%
Mortgage-backed securities 1,060 27.0 1,500 43.3 -- -- -- -- 8,047 18.0
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Total loans and mortgage-
backed securities sold $ 3,947 100.0% $ 3,463 100.0% $30,258 100.0% $52,114 100.0% $44,802 100.0%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
- ------------------------------------
(1) Includes loans originated for sale in the secondary market.
-15-
<PAGE> 16
DELINQUENCIES AND NONPERFORMING ASSETS
When a borrower fails to make a required payment on a loan,
Centennial attempts to cause the deficiency to be cured by contacting the
borrower. In most cases, deficiencies are cured promptly. A notice is mailed to
the borrower after a payment is 15 days past due, at which time Centennial
assesses a penalty against the borrower. After a payment is 30 days past due,
Centennial's collections department will contact the borrower by telephone and
letter. After a payment is 90 days past due, Centennial sends the borrower a
demand letter. When deemed appropriate by management, Centennial institutes
action to foreclose on the property or to acquire it by deed in lieu of
foreclosure. If foreclosed on, real property is sold at a public sale and may be
purchased by Centennial. A decision as to whether and when to initiate
foreclosure proceedings is based on such factors as the amount of the
outstanding loan in relation to the original indebtedness, the extent of
delinquency and the borrower's ability and willingness to cooperate in curing
the delinquency.
Real estate acquired by Centennial as a result of foreclosure or by
deed in lieu of foreclosure is classified as other real estate owned ("OREO"),
until it is sold. When OREO is acquired, it is recorded at the lower of the
loan's unpaid principal balance or estimated fair value less selling expenses at
the date of acquisition, and any write-down resulting therefrom is charged to
the allowance for losses. Interest accrual, if any, ceases no later than the
date of acquisition and all costs incurred from that date in maintaining the
OREO are expensed. However, costs relating to the development and improvement of
OREO are capitalized to the extent of fair value.
FDIC-regulated institutions are required to classify their own
assets on a regular basis. There are three classifications for problem assets:
Substandard, Doubtful and Loss. Substandard assets have one or more defined
weaknesses and are characterized by the distinct possibility that the insured
institution will sustain some loss if the deficiencies are not corrected.
Doubtful assets have the weaknesses of Substandard assets, with the additional
characteristics that the weaknesses make collection or liquidation in full on
the basis of currently existing facts, conditions and values questionable, and
there is a high possibility of loss. An asset classified Loss is considered
uncollectible and of such little value that continuance as an asset of the
institution is not warranted. There is also a Special Mention category which
consists of assets that do not currently expose an institution to a sufficient
degree of risk to warrant classification, but which do possess credit
deficiencies or potential weaknesses deserving management's close attention.
Institutions must establish prudent general allowances for loan losses for
assets classified as Substandard or Doubtful. If an asset or portion thereof is
classified as Loss, the institution must either establish specific allowances
for loan losses in the amount of 100% of the portion of the asset classified
Loss, or charge off such amount. In connection with examinations of such
institutions, examiners have authority to identify problem assets and, if
appropriate, classify them. If an institution does not agree with an examiner's
classification of an asset, it may appeal this determination to the FDIC.
On the basis of management's quarterly review of its assets, at June
30, 1996, Centennial had classified assets of $1.5 million as Special Mention
(including certain loans discussed herein), $1.3 million as Substandard
(including certain loans discussed herein), $7,000 classified as Doubtful and no
assets classified as Loss. Also included in Substandard assets at June 30, 1996,
are $121,000 in single-family and condominium loans located in Texas, discussed
herein, as to which no loss is anticipated. Included in the Substandard category
of classified assets is $242,000 in OREO. The remainder of Centennial's
classified assets is comprised primarily of one-to-four family residential
loans.
-16-
<PAGE> 17
The following table sets forth information concerning delinquent
mortgage and other loans at June 30, 1996, in dollar amounts and as a percentage
of Centennial's total loan and mortgage-backed securities portfolio (including
loans held for sale). The amounts presented represent the total outstanding
principal balances of the related loans, net of allowances, rather than the
actual payment amounts which are past due.
<TABLE>
<CAPTION>
At June 30, 1996
-----------------------------------------------------------------------------
Residential
real estate loans Consumer loans Total
---------------------- ---------------------- ----------------------
Number Amount %(1) Number Amount %(1) Number Amount %(1)
------ ------ ---- ------ ------ ---- ------ ------ ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans delinquent for:
30-59 days 56 $2,037 .8% -- -- -- 56 $2,037 .8%
60-89 days 16 576 .2 -- -- -- 16 576 .2
90 days and over 15 653 .3 1 2 --(2) 16 655 .3
-- ------ --- -- -- -- -- ------ ---
Total delinquent
loans 87 $3,266 1.3% 1 2 -- 88 $3,268 1.3%
== ====== ==== == == == == ====== ===
</TABLE>
- -----------------------------------
(1) Total percentages have been correlated to total loan and mortgage-backed
securities before net items.
(2) Less than one-tenth of one percent.
The table below sets forth the amounts and categories of
Centennial's nonperforming assets. Loans are placed on nonaccrual status when
the collection of principal and/or interest becomes doubtful and the loan is 90
days or more delinquent. For all the periods presented, Centennial did not have
any loans accounted for as troubled debt restructurings.
Foreclosed assets include assets acquired in settlement of loans.
<TABLE>
<CAPTION>
At June 30,
----------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Nonperforming assets (net of
allowances):
Nonperforming loans:
Residential $ 705 $ 772 $1,719 $1,939 $1,326
Construction 178 155 168 -- 284
Consumer -- -- -- 5 9
Nonresidential -- -- -- 41 20
------ ------ ------ ------ ------
Total 883 927 1,887 1,985 1,639
Foreclosed assets:
Residential 242 715 408 667 866
Nonresidential -- -- -- -- 48
------ ------ ------ ------ ------
Total 242 715 408 667 914
------ ------ ------ ------ ------
Total nonperforming assets $1,125 $1,642 $2,295 $2,652 $2,553
====== ====== ====== ====== ======
Total nonperforming assets as a
percentage of total assets .40% .62% .94% 1.18% 1.11%
====== ====== ====== ====== ======
</TABLE>
During the fourth quarter of the year ended June 30, 1995,
Centennial acquired through foreclosure ten condominium units with a carrying
value of $517,000. These properties are located in Reston, Virginia, and had
previously been carried as nonaccrual loans. As of September 15, 1996, only one
of the units remain unsold and Centennial's carrying value has been reduced to
$90,000. It is anticipated the loss on the remaining unit will be minimal.
-17-
<PAGE> 18
During the 1993 fiscal year, Centennial acquired a parcel of ten
developed building lots located in Cincinnati under a deed in lieu of
foreclosure arrangement. Only one lot remains with value of $44,000. It is
management's belief that no loss will result from the ultimate disposition of
this property.
As of June 30, 1996, five single-family residential and condominium
loans in Houston, Texas, which Centennial purchased in 1983 and 1984 and which
currently carry a loan-to-value ratio of at or near 100% before consideration of
private mortgage insurance, were classified as substandard at $124,000, which is
the amount by which the loans exceed the 100% loan-to-value ratio. Such loans
were underwritten at those dates with 80% loan-to-value ratios. Centennial
experienced losses on some of its Texas loans as a result of the instability of
real estate prices in the Houston area and the collapse of a private mortgage
insurance company which had issued insurance on the loans. At June 30, 1996,
Centennial's investment in the Houston area consisted of 23 loans with unpaid
principal balances of approximately $1.5 million. Management is of the belief
that the Houston real estate market has stabilized. Based upon inspections of
the collateral properties and adjoining market areas as well as consultation
with industry sources in Houston, management is of the opinion that the
remaining loans carry an aggregate 90% loan-to-value ratio in the present
environment and that future unforeseen losses, if any, on this portfolio will be
adequately covered by existing loan loss allowances.
As of June 30, 1996, there were no other loans with respect to which
known information about the possible credit problems of the borrowers caused
management to have doubts as to the ability of the borrowers to comply with
present loan repayment terms and which may result in the future inclusion of
such items in the nonperforming asset categories.
For the year ended June 30, 1996, interest income which would have
been recorded with respect to nonaccruing loans, had such loans been current in
accordance with their original terms, totaled approximately $35,000. There was
no interest included in interest income on such loans for the year ended June
30, 1996.
The responsibility for maintaining an adequate allowance for loan
losses rests with Centennial's Asset Classification Committee, which is
comprised of Centennial's senior management, with oversight provided by the
Board of Directors. The Committee meets on a quarterly basis to determine the
propriety of the allowance for loan losses as it relates to a number of relevant
factors including but not limited to trends in the level of nonperforming assets
and classified loans, current and anticipated economic conditions in the primary
lending area, past loss experience, and possible losses arising from specific
problem assets. To a lesser extent, the Committee considers loan concentrations
to single borrowers and changes in the composition of its loan portfolio.
At June 30, 1996, Centennial's allowance for loan losses totaled
$618,000 and was primarily allocated to potential problem assets in the
residential loan portfolio. A similar method of allocation existed as of the end
of the prior four fiscal years. Centennial's prior loan loss experience has been
heavily influenced by the purchased loans in Houston, Texas, however, management
is unaware of any current or future trend in any of the other major lending
areas which could result in significant uncertainties due to the diminishing
value of Centennial's collateral. Centennial has traditionally invested in
one-to-four family residential loans and multifamily residential loans and has
avoided extensive concentrations of loans to one borrower (with its largest loan
to an individual totaling approximately $2.6 million at June 30, 1996).
While management believes that it uses the best information
available to determine the allowance for loan losses, unforeseen market
conditions could result in adjustments and net earnings could be significantly
affected if circumstances differ substantially from the assumptions used in
making the final determination.
-18-
<PAGE> 19
The following table sets forth an analysis of Centennial's allowance
for losses on loans.
<TABLE>
<CAPTION>
Year Ended June 30,
----------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $ 616 $ 724 $ 648 $ 457 $ 358
Charge-offs:
Residential (58) (192) (23) (39) (113)
Consumer -- -- (5) (7) --
Commercial -- -- -- (5) --
----- ----- ----- ----- -----
Total charge-offs (58) (192) (28) (51) (113)
----- ----- ----- ----- -----
Recoveries:
Residential -- -- 8 -- --
Consumer -- -- -- 2 --
----- ----- ----- ----- -----
Total recoveries -- -- 8 2 --
----- ----- ----- ----- -----
Net-charge offs (58) (192) (20) (49) (113)
----- ----- ----- ----- -----
Provision for losses on loans
(charged to operations) 60 84 96 240 212
----- ----- ----- ----- -----
Balance at end of period $ 618 $ 616 $ 724 $ 648 $ 457
===== ===== ===== ===== =====
Ratio of net charge-offs to
average loans outstanding .03% .10% .10% .03% .07%
Ratio of allowance for losses on
loans to nonperforming loans 70.0% 66.5% 38.4% 32.6% 27.9%
Ratio of allowance for losses on
loans to total loans .27% .29% .41% .40% .25%
</TABLE>
INVESTMENT ACTIVITIES
Centennial's assets, other than loans receivable and mortgage-backed
securities, are invested primarily in short-term investments, including
interest-bearing deposits, U.S. Government and agency securities and mutual fund
holdings.
The book value and market values of investment securities at the
dates indicated are summarized as follows:
<TABLE>
<CAPTION>
At June 30,
---------------------------------------------------------------------------------
1996 1995 1994
---- ---- ----
Carrying Market Carrying Market Carrying Market
Value Value Value Value Value Value
-------- ------ -------- ------ -------- ------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
U.S. Government
agency obligations $ 5,474 $ 5,426 $ 7,463 $ 7,273 $10,462 $10,358
Municipal
obligations 75 73 26 26 37 37
------- ------- ------- ------- ------- -------
Total investment
securities 5,549 5,499 7,489 7,299 10,499 10,395
Asset management funds
available for sale(1) 4,084 4,084 4,092 4,092 4,047 4,047
------- ------- ------- ------- ------- -------
Total $ 9,633 $ 9,583 $11,581 $11,391 $14,546 $14,442
======= ======= ======= ======= ======= =======
</TABLE>
- ------------------------------
(1) Pursuant to SFAS No. 115, such securities have been designated as available
for sale at June 30, 1995.
-19-
<PAGE> 20
The following table presents the contractual maturities or terms to
repricing of investment securities along with the weighted average yields at
June 30, 1996:
<TABLE>
<CAPTION>
Within one Over one to Over five to Over ten
year five years ten years years Total
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government
agency obligations $ -- --% $4,974 6.20% $-- --% $500 7.87% $5,474 6.37%
Municipal
obligations -- -- -- -- 50 4.50 25 4.70 75 4.57
------ ------ ---- --- ------
Total investment
securities -- -- 4,974 6.20 50 4.50 525 7.72 5,549 6.33
Asset management
funds available for
sale 4,084 5.93 -- -- -- -- -- -- 4,084 5.93
------ ------ ---- --- ------
Total $4,084 5.93% $4,974 6.20% $50 4.50% $525 7.72% $9,633 6.16%
====== ====== ==== ==== ======
</TABLE>
The FDIC has a policy which requires that institutions maintain an
average balance of liquid assets (e.g. cash, time deposits and U.S. Government
and agency obligations) in an amount which it deems adequate to protect safety
and soundness, but it does not require a specific level of liquid assets. In the
opinion of management, Centennial's liquidity position was adequate to maintain
safe and sound operations at June 30, 1996. Cash flow projections are regularly
reviewed and updated to assure that adequate liquidity is provided.
SOURCES OF FUNDS
GENERAL. Deposit accounts have traditionally been the principal
source of Centennial's funds for use in lending and for other general business
purposes. In addition to deposits, Centennial derives funds from loan repayments
and cash flows generated from operations. Scheduled loan payments are a
relatively stable source of funds, while deposit inflows and outflows and the
related cost of such funds have varied. Centennial also utilizes borrowings as a
mechanism to raise additional funds without altering Centennial's deposit
pricing structure.
DEPOSITS. Centennial attracts both short-term and long-term deposits
from Centennial's primary market area by offering a wide assortment of accounts
and rates. Centennial offers regular passbook savings accounts, NOW accounts,
money market accounts, fixed interest rate certificates of deposits with varying
maturities and individual retirement accounts.
Deposit account terms vary, according to the minimum balance
required, the time period the funds must remain on deposit and the interest
rate, among other factors. Centennial generally has not actively sought deposits
outside of its primary market area.
Centennial regularly evaluates the internal cost of funds, surveys
rates offered by competing institutions, reviews its cash flow requirements for
lending and liquidity and executes rate changes when deemed appropriate. In
order to decrease the volatility of its deposits, Centennial imposes stringent
penalties on early withdrawal on its certificates of deposit. Centennial does
not have any brokered deposits and has no present intention to accept or solicit
such deposits. Centennial historically has not been a market leader in pricing
deposits.
-20-
<PAGE> 21
The following table sets forth the savings flows at Centennial
during the periods indicated:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Opening balance $208,377 $196,499 $202,713
Deposits 310,192 299,274 326,058
Withdrawals (295,801) (287,396) (332,272)
-------- -------- ---------
Ending balance $222,768 $208,377 $196,499
======== ======== ========
Net increase (decrease) $ 14,391 $ 11,878 $ (6,214)
======== ========= =========
Percentage increase(decrease) 6.91% 6.04% (3.07)%
======== ========= =========
</TABLE>
The following table sets forth the dollar amount of savings deposits
in the various types of deposit programs offered by Centennial at the dates
indicated:
<TABLE>
<CAPTION>
At June 30,
---------------------------------------------------
1996 1995 1994
----- ----- ----
Amount % of total Amount % of total Amount % of total
------ ---------- ------ ---------- ------ ----------
(Dollars in thousands)
<C> <C> <C> <C> <C> <C> <C>
Certificate accounts
3.00 - 5.99% $109,194 49.0% $ 78,115 37.5% $110,173 56.1%
6.00 - 7.99% 43,827 19.7 63,440 30.5 5,109 2.6
8.00 - 9.99% 1,120 .5 1,534 .7 3,019 1.5
------- ----- -------- ----- -------- -----
Total certificate accounts 154,141 69.2% 143,089 68.7 118,301 60.2
------- ----- -------- ----- -------- -----
Transaction accounts
Passbook savings 40,482 18.2 42,013 20.2 51,041 26.0
Money market accounts 7,634 3.4 9,226 4.4 13,238 6.7
NOW accounts 20,511 9.2 14,049 6.7 13,919 7.1
-------- ----- -------- ----- -------- -----
Total transaction accounts 68,627 30.8 65,288 31.3 78,198 39.8
-------- ----- -------- ----- -------- -----
Total deposits $222,768 100.0% $208,377 100.0% $196,499 100.0%
======== ===== ======== ===== ======== =====
</TABLE>
The following table shows the interest rate and remaining maturity
information for Centennial's certificates of deposit as of June 30, 1996:
<TABLE>
<CAPTION>
Interest rate Less than 1 year One to 3 years Over 3 years Total
- ------------- ---------------- -------------- ------------ -----
<C> <C> <C> <C> <C>
3.00 - 5.99% $ 79,327 $25,084 $4,783 $109,194
6.00 - 7.99% 26,727 12,522 4,578 43,827
8.00 - 9.99% 884 221 15 1,120
-------- ------- ------ --------
Total certificates of deposit $106,938 $37,827 $9,376 $154,141
======== ======= ====== ========
</TABLE>
-21-
<PAGE> 22
The following table sets forth the maturities of Centennial's
certificates of deposit having principal amounts greater than $100,000 at June
30, 1996.
Maturing in quarter ending :
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
September 30, 1996 $ 1,725
December 31, 1996 3,484
March 31, 1997 2,562
June 30, 1997 1,105
After June 30, 1997 4,311
--------
Total certificates of deposit with balances over $100,000 $13,187
=======
</TABLE>
BORROWINGS. Centennial's other sources of funds include advances
from the FHLB. As a member of the FHLB, Centennial is required to own capital
stock in the FHLB and is authorized to apply for advances from the FHLB. Each
FHLB credit program has its own interest rate, which may be fixed or variable,
and range of maturity. The FHLB may prescribe the acceptable uses for these
advances, as well as limitations on the size of the advances and repayment
provisions.
The following table sets forth certain information as to
Centennial's FHLB advances and other borrowings at the dates indicated:
<TABLE>
<CAPTION>
At June 30,
----------------------------------
1996 1995 1994
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
FHLB advances $25,634 $27,158 $17,731
Other borrowings(1) 213 362 600
-------- ------- -------
Total borrowings $ 25,847 $27,520 $18,331
======== ======= =======
Weighted average interest rate of FHLB
advances 5.78% 5.64% 5.59%
==== ==== ====
Weighted average rate of other borrowings 8.25% 8.75% 7.25%
==== ==== ====
</TABLE>
(1) Consists of a loan to the ESOP and a short-term note.
The following table sets forth the maximum balance and average
balance of FHLB advances and other borrowings during the periods indicated:
<TABLE>
<CAPTION>
Year ended June 30,
-----------------------------
1996 1995 1994
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Maximum balance:
FHLB advances $27,308 $31,598 $17,731
Other(1) $ 362 $ 1,600 $ 770
Average balance:
FHLB advances $23,051 $25,083 $ 5,092
Other borrowings $ 324 $ 660 $ 502
Weighted average interest
rate of FHLB advances 5.69% 5.83% 4.91%
Weighted average interest
rate of other borrowings 8.70% 8.26% 6.38%
</TABLE>
- ----------------------------
-22-
<PAGE> 23
(1) Consists of a loan to the ESOP and a short-term note.
SUBSIDIARY ACTIVITIES
Centennial currently owns a service corporation, Centennial Savings
and Loan Service Corporation. This subsidiary offers mutual funds, self-directed
IRA's and other securities and insurance products to Centennial customers
through a third party marketing arrangement with Money Concepts, Inc.
COMPETITION
Centennial faces strong competition both in originating real estate
loans and in attracting deposits. Competition in originating real estate loans
comes primarily from other savings institutions, commercial banks and mortgage
bankers who also make loans secured by real estate located in Centennial's
primary market area. Centennial competes for real estate loans principally on
the basis of the interest rates and loan fees it charges, the types of loans it
originates and the quality of services it provides to borrowers.
Centennial faces substantial competition in attracting deposits from
other savings institutions, commercial banks, money market and mutual funds,
credit unions and other investment vehicles. The ability of Centennial to
attract and retain deposits depends on its ability to provide an investment
opportunity that satisfies the requirements of investors as to rate of return,
liquidity, risk and other factors. Centennial competes for these deposits by
offering a variety of deposit accounts at competitive rates, convenient business
hours, and convenient branch locations with inter-branch deposit and withdrawal
privileges at each.
The authority to offer money market deposits and expanded lending
and other powers authorized for savings institutions by federal legislation has
resulted in increased competition for both deposits and loans between savings
institutions and other financial institutions such as commercial banks. The
higher deposit insurance assessments for SAIF insured institutions over those
paid by members of the Bank Insurance Fund ("BIF") may increase that competition
for Centennial, which is a member of the SAIF. See "REGULATION - Deposit
Insurance."
EMPLOYEES
At June 30, 1996, the Savings Bank had a total of 55 full-time
employees and 25 part-time employees. None of the Savings Bank's employees are
represented by any collective bargaining group. Management considers its
employee relations to be excellent. All employees of the Holding Company are
also employees of the Savings Bank.
Centennial currently maintains a comprehensive employee benefit
program providing, among other benefits, a qualified pension plan,
hospitalization and major medical insurance, paid sick leave, long term
disability insurance, educational programs and life insurance.
REGULATION
GENERAL
As a savings and loan holding company within the meaning of the Home
Owners' Loan Act, as amended, the Corporation is subject to regulation,
examination and supervision by the OTS. As a state chartered savings bank which
is not a member of the Federal Reserve System, Centennial is subject to
regulation by the Division and the FDIC. The Corporation and Centennial must
file periodic reports with these governmental agencies, as applicable,
concerning their activities and financial condition. Examinations are conducted
periodically by the applicable regulators to determine whether the Corporation
and Centennial are in compliance with various regulatory requirements and are
operating in a safe and sound manner. Centennial is a member of the FHLB and is
also subject to certain regulations of the Board of Governors of the Federal
Reserve (the "FRB").
-23-
<PAGE> 24
OHIO REGULATION OF THE SAVINGS BANK
As a savings bank incorporated under Ohio law, Centennial is subject
to regulation by the Division. Such regulation affects Centennial's savings,
lending and investment activities. Ohio law requires that Centennial maintain at
least 60% of its assets in housing-related and other specified investments. At
June 30, 1996, Centennial had more than 60% of its assets in such investments.
The ability of Ohio savings banks to engage in certain state-authorized
investments is subject to oversight and approval by the FDIC. See "Federal
Regulation of the Savings Bank -- State-Chartered Bank Activities."
Ohio law generally limits the aggregate amount that a savings bank
can lend to one borrower to an amount equal to 15% of the institution's
unimpaired capital and surplus. Based on such limit, Centennial was able to lend
approximately $3.4 million to one borrower at June 30, 1996. A savings bank may
lend to one borrower an additional amount not to exceed 10% of the institution's
unimpaired capital and surplus, if the additional amount is fully secured by
certain forms of "readily marketable collateral." Real estate is not considered
"readily marketable collateral."
The Division is responsible for the regulation and supervision of
Ohio savings banks in accordance with the laws of the State of Ohio. Periodic
examinations by the Division are usually conducted on a joint basis with the
FDIC. Ohio law requires that Centennial maintain federal deposit insurance as a
condition of doing business. The Division may initiate certain supervisory
measures or formal enforcement actions against Ohio savings banks. Ultimately,
if the grounds provided by law exist, the Division may place an Ohio savings
banks in conservatorship or receivership. Any mergers involving or acquisitions
of control of Ohio savings banks must be approved by the Division.
In addition to being governed by the laws of Ohio specifically
governing savings banks, Centennial is also governed by Ohio corporate law, to
the extent such law does not conflict with the laws specifically governing
savings banks.
FEDERAL REGULATION OF THE SAVINGS BANK
SUPERVISION AND EXAMINATION. The FDIC is responsible for the
regulation and supervision of all commercial banks and state savings banks that
are not members of the Federal Reserve System ("Non-member Banks"), including
Centennial. The FDIC issues regulations governing the operations of Non-member
Banks, examines such institutions and may also initiate enforcement actions
against such institutions, and certain persons affiliated with them, for
violations of laws and regulations or for engaging in unsafe or unsound
practices. If the grounds provided by law exist, the FDIC may appoint a
conservator or a receiver for a Non-member Bank.
Non-member Banks are subject to regulatory oversight under various
consumer protection and fair lending laws. These laws govern, among other
things, truth-in-lending disclosure, equal credit opportunity, fair credit
reporting and community reinvestment. Failure to abide by federal laws and
regulations governing community reinvestment could limit the ability of an
institution to open a new branch or engage in a merger transaction. The federal
financial institution regulatory agencies recently issued revised regulations
governing community reinvestment that evaluate actual lending and investment
within an institution's designated service area, with particular emphasis on
low-to-moderate income areas and borrowers. These regulations also evaluate an
institution's service to low and moderate-income areas in terms of branch
locations.
STANDARDS FOR SAFETY AND SOUNDNESS. The FDIC has issued regulations
and adopted guidelines for Non-member Banks establishing standards for (a)
internal controls, information systems and internal audit systems; (b) loan
documentation; (c) credit underwriting; (d) interest rate exposure; (e) asset
growth; and (f) compensation, fees and benefits. These standards provide general
guidance on what operational systems and procedures the FDIC believes Non-member
Banks should have in place in each of these areas. A Non-member Bank which fails
to meet these standards may be required by the FDIC to submit an acceptable plan
to achieve compliance.
STATE-CHARTERED BANK ACTIVITIES. The ability of state-chartered
banks, including Centennial, to engage in any state-authorized activities or
make any state-authorized investments, as principal, is limited to the extent
that such activity is done or investment is made in a manner different than that
permitted for, or subject to different terms and conditions than those imposed
on, national banks. Any such activity or investment, as principal, not
permissible for a national bank is subject to approval by the FDIC. Such
approval will not be granted unless certain capital requirements are met and
there is
-24-
<PAGE> 25
not a significant risk to the FDIC insurance fund. Most equity and real estate
investments (excluding office space and OREO) are prohibited. Certain exceptions
are granted, including one for any activity deemed to be closely related to
banking by the FRB and, therefore, permissible for bank holding companies and
another for FDIC-approved subsidiary activities.
REGULATORY CAPITAL REQUIREMENTS. Centennial is required by
applicable law and regulations to meet certain minimum capital requirements,
which include a leverage, or core, capital requirement and a risk-based capital
requirement.
The leverage capital requirement is a minimum level of Tier 1
capital to average total consolidated assets of 3%, if Centennial has the
highest regulatory examination rating, well diversified risk and minimal
anticipated growth or expansion, and between 4% and 5% of average total
consolidated assets if it does not meet those criteria. "Tier 1" capital
includes common stockholders' equity, noncumulative perpetual preferred stock
and minority interest in the equity accounts of consolidated subsidiaries, less
all intangibles, other than includable purchased mortgage servicing rights and
credit card relationships.
Pursuant to the risk-based capital requirement, Centennial must
maintain total capital, which consists of Tier 1 capital and certain general
valuation reserves, of 8% of risk-weighted assets. The FDIC may, however, set
higher capital requirements when particular circumstances warrant higher capital
levels, including the presence of excessive interest rate risk. For purposes of
computing risk-based capital, assets and certain off-balance sheet items are
weighted at percentage levels ranging from 0% to 100%, depending on the relative
risk.
The following table presents certain information regarding
compliance by Centennial with applicable capital requirements at June 30, 1996:
<TABLE>
<CAPTION>
Amount %
------ ----
<S> <C> <C>
Tier 1 capital(1) $23,310 8.4%
Maximum leverage capital 10,720 5.0%
requirement
Excess $12,590 3.4%
======= =====
Total capital(1) $23,928 13.8%
Risk-based capital requirement 13,910 8.0%
------- =====
Excess $10,018 5.8%
======= =====
</TABLE>
- -----------------------------
(1) Tier 1 capital and risk-based capital reflect capital
computed in accordance with generally accepted
accounting principles, net of $576,000 of goodwill.
Risk-based capital includes a $618,000 general loan loss
allowance.
The FDIC has added a market risk component to the capital
requirements of Non-member Banks. Such component would require additional
capital for general or specific market risk or trading portfolios of debt and
equity securities and other investments or assets. The policy will apply to an
institution with less than $5 billion in assets only if its trading portfolio
constitutes at least 10% of the institution's assets. The Corporation has no
trading portfolio and, therefore, does not expect to have to meet this new
requirement. The FDIC may also require additional capital to address
interest-rate risk, concentrations of credit and non-traditional activities on a
case-by-case basis.
The FDIC has adopted regulations governing prompt corrective action
to resolve the problems of capital deficient and otherwise troubled Non-member
Banks. At each successively lower defined capital category, an institution is
subject to more restrictive and numerous mandatory or discretionary regulatory
actions or limits, and the applicable agency has less flexibility in determining
how to resolve the problems of the institution. The FDIC has defined these
capital levels as follows: (1) well-capitalized institutions must have total
risk-based capital of at least 10%, Tier 1 risk-based capital (consisting only
of items that qualify for inclusion in Tier 1 capital) of at least 6% and Tier 1
capital of at least 5%; (2) adequately capitalized institutions are those that
meet the regulatory minimum of total risk-based capital of at least 8%, Tier 1
risk-based capital (consisting only of items that qualify for inclusion in Tier
1 capital) of at least 4% and Tier 1 capital of
-25-
<PAGE> 26
at least 4% (except for institutions receiving the highest examination rating
and with an acceptable level of risk, in which case the Tier 1 capital level is
at least 3%); (3) undercapitalized institutions are those that do not meet
regulatory limits, but that are not significantly undercapitalized; (4)
significantly undercapitalized institutions have total risk-based capital of
less than 6%, Tier 1 risk-based capital (consisting only of items that qualify
for inclusion in Tier 1 capital) of less than 3% and Tier 1 capital of less than
3%; and (5) critically undercapitalized institutions are those with Tier 1
capital of less than 2% of total assets. In addition, the FDIC generally can
downgrade an institution's capital category, notwithstanding its capital level,
if, after notice and opportunity for hearing, the institution is deemed to be
engaging in an unsafe or unsound practice, because it has not corrected
deficiencies that resulted in it receiving a less than satisfactory examination
rating on matters other than capital or it is deemed to be in an unsafe or
unsound condition. An undercapitalized institution must submit a capital
restoration plan to the FDIC within 45 days after it becomes undercapitalized.
Such institution will be subject to increased monitoring and asset growth
restrictions and will be required to obtain prior approval for acquisitions,
branching and engaging in new lines of business. A critically undercapitalized
institutions must be placed in conservatorship or receivership within 90 days of
reaching that capitalization level, except under limited circumstances.
Centennial's capital levels at June 30, 1996, meet the standards for a
well-capitalized institution.
Federal law prohibits a financial institution from making a capital
distribution to anyone or paying management fees to any person having control of
the institution if, after such distribution or payment, the institution would be
undercapitalized. In addition, each company controlling an undercapitalized
institution must guarantee that the institution will comply with its capital
restoration plan until the institution has been adequately capitalized on an
average during each of the four preceding calendar quarters and must provide
adequate assurances of performance. The aggregate liability pursuant to such
guarantee is limited to the lesser of (a) an amount equal to 5% of the
institution's total assets at the time it became undercapitalized or (b) the
amount necessary to bring the institution into compliance with all capital
standards applicable to such institution at the time the institution fails to
comply with its capital restoration plan.
TRANSACTIONS WITH AFFILIATES AND INSIDERS. All transactions between
Centennial and the Corporation or any other affiliate must comply with Sections
23A and 23B of the Federal Reserve Act (the "FRA"). An affiliate is any company
or entity which controls, is controlled by or is under common control with the
financial institution. In a holding company context, the parent holding company
of an insured institution and any companies that are controlled by such parent
holding company are affiliates of the institution. Generally, Sections 23A and
23B of the FRA (i) limit the extent to which a financial institution or its
subsidiaries may engage in "covered transactions" with any one affiliate to an
amount equal to 10% of such institution's capital stock and surplus for any one
affiliate and 20% of such capital stock and surplus for the aggregate of such
transactions with all affiliates, and (ii) require that all such transactions be
on terms substantially the same, or at least as favorable to the institution or
the subsidiary, as those provided to a non-affiliate. The term "covered
transaction" includes the making of loans, purchase of assets, issuance of a
guarantee and similar types of transactions. In addition because it is a
subsidiary of a savings and loan holding company, Centennial may not make any
loan or other extension of credit to an affiliate unless the affiliate is
engaged only in activities permissible for a bank holding company and may not
purchase or invest in securities of any affiliate, except shares of a
subsidiary. Exemptions from Sections 23A or 23B of the FRA may be granted only
by the FRB. Centennial was in compliance with these requirements at June 30,
1996.
Loans to insiders of Centennial and the Corporation are subject to
the restrictions contained in Section 22(g) and (h) of the FRA, which restrict
loans to executive officers, directors and principal shareholders. Loans to an
executive officer and to a greater than 10% shareholder of a financial
institution (18% in the case of institutions located in an area with less than
30,000 in population), and certain affiliated entities of either, may not
exceed, together with all other outstanding loans to such person and affiliated
entities, the institution's lending limit. The total of all loans to such
persons may not exceed the institution's unimpaired capital and surplus. Most
loans to directors, executive officers and greater than 10% shareholders of an
institution, and their respective affiliates, must be approved in advance by a
majority of the board of directors of the institution with any "interested"
director not participating in the voting. All loans to directors, executive
officers and principal shareholders must be made on terms substantially the same
as offered in comparable transactions to other persons. In addition, loans
generally may not be made to an executive officer, except loans for specific
authorized purposes, such as financing the education of the officer's children
or the purchase of the officer's primary residence.
-26-
<PAGE> 27
DEPOSIT INSURANCE
The FDIC insures the deposits of federally insured banks and
thrifts, up to prescribed statutory limits, and safeguards the safety and
soundness of the banking and thrift industries. The FDIC administers two
separate insurance funds, the BIF for banks and the SAIF for thrifts. There is a
moratorium on converting from one insurance fund to the other, until the SAIF is
funded at the minimum level required by law. When Centennial converted to state
savings banks, it remained a member of the SAIF.
The FDIC is authorized to establish separate annual assessment rates
for deposit insurance for members of the BIF and the SAIF. The FDIC may increase
assessment rates for either fund if necessary to restore the fund's ratio of
reserves to insured deposits to its target level within a reasonable time and
may decrease such assessment rates if such target level has been met. The FDIC
has established a risk-based assessment system for both SAIF and BIF members.
Under this system, assessments vary depending on the risk the institution poses
to its deposit insurance fund. Such risk is determined based on the
institution's capital and the FDIC's level of supervisory concern about the
institution.
Because of the differing reserve levels of the funds, deposit
insurance assessments paid by healthy savings associations were reduced
significantly below the level paid by healthy savings associations effective in
mid-1995. Assessments paid by healthy savings associations exceeded those paid
by healthy commercial banks by approximately $.23 per $100 in deposits in 1996.
This premium disparity has a negative competitive and earnings impact on
Centennial and other institutions in the SAIF.
Congress is considering legislation to recapitalize the SAIF and to
eliminate this significant premium disparity, by imposing a special assessment
on SAIF members to increase SAIF reserves to the level required by law.
Currently, the special assessment is estimated to be approximately $.71 per $100
of SAIF deposits held at March 31, 1995. In addition, the proposed legislation
provides that the cost of prior thrift failures currently assessed against the
SAIF would be shared by the BIF or certain government sponsored entities. The
recapitalization plan also provides for the merger of the SAIF and BIF. As
currently proposed, the SAIF recapitalization legislation provides for the
separate federal regulation of thrifts prior to the merger of the deposit
insurance funds. If such proposal is adopted, the Holding Company would be
required to become a bank holding company and would be subject to more
restrictive activity limits and to capital requirements similar to those imposed
on Centennial.
Centennial had $206.0 million in deposits at March 31, 1995. If the
special assessment is $.71 per $100 in deposits, Centennial will pay an
additional assessment of $1.5 million within 60 days of the enactment of the
recapitalization plan. This assessment should be tax-deductible, but it will
reduce earnings and capital for the quarter in which it is recorded. It is
expected that quarterly SAIF assessments would then be reduced thereafter, but
could never be reduced below the level set for healthy BIF institutions.
No assurance can be given that the SAIF recapitalization plan will be
enacted into law or in what form it may be enacted. In addition, the Corporation
can give no assurance that the disparity between BIF and SAIF assessments will
be eliminated and that the impact of the Corporation being regulated as a bank
holding company will not be material until the legislation requiring such
changes is enacted.
CHANGES IN CONTROL
FEDERAL LAW. The Federal Deposit Insurance Act (the "FDIA") provides
that no person, acting directly or indirectly or in concert with one or more
persons, shall acquire control of any insured depository institution or holding
company unless 60 days prior written notice has been given to the primary
federal regulator for that institution and such regulator has not issued a
notice disapproving the proposed acquisition. Control, for purposes of the FDIA,
means the power, directly or indirectly, alone or acting in concert, to direct
the management or policies of an insured institution or to vote 25% or more of
any class of securities of such institution. Control exists in situations in
which the acquiring party has direct or indirect voting control of at least 25%
of the institution's voting shares, controls in any manner the election of a
majority of the directors of such institution or is determined to exercise a
controlling influence over the management or policies of such institution. In
addition, control is presumed to exist, under certain circumstances where the
acquiring party (which includes a group "acting in concert") has voting control
of at least 10% of the institution's voting stock. These restrictions do not
apply to holding company acquisitions. See "Holding Company Regulation."
-27-
<PAGE> 28
OHIO LAW. A statutory limitation on the acquisition of control of an
Ohio savings bank requires the written approval of the Division prior to the
acquisition by any person or entity of a controlling interest in an Ohio
association. Control exists, for purposes of Ohio law, when any person or entity
which, either directly or indirectly, or acting in concert with one or more
other persons or entities, owns, controls, holds with power to vote, or holds
proxies representing, 15% or more of the voting shares or rights of an
association, or controls in any manner the election or appointment of a majority
of the directors. A director will not be deemed to be in control by virtue of an
annual solicitation of proxies voted as directed by a majority of the board of
directors. Ohio law also requires that certain acquisitions of voting securities
that would result in the acquiring shareholder owning 20%, 33-1/3% or 50% of the
outstanding voting securities of the Corporation must be approved in advance by
the holders of at least a majority of the outstanding voting shares represented
at a meeting at which a quorum is present and a majority of the portion of the
outstanding voting shares represented at such a meeting, excluding the voting
shares by the acquiring shareholder. This statute was intended, in part, to
protect shareholders of Ohio corporations from coercive tender offers.
Interstate mergers and acquisitions involving savings banks
incorporated under Ohio law are permitted by Ohio law ,under certain
circumstances. A financial institution or financial institution holding company
with its principal place of business in another state may acquire a savings
institution loan association or savings and loan holding company incorporated
under Ohio law if, in the discretion of the Division, the laws of such other
state give an Ohio institution or an Ohio holding company reciprocal rights.
HOLDING COMPANY REGULATION
The Corporation is a unitary savings and loan holding company
subject to the regulatory oversight, examination and enforcement authority of
the OTS. Though Centennial is not a savings association, it has elected to be
treated as such for holding company purposes, so that the Corporation does not
become a bank holding company. As a savings and loan holding company, the
Corporation is required to register and file periodic reports with the OTS. If
the OTS determines that the continuation of a particular activity by a savings
and loan holding company constitutes a serious threat to the financial condition
of its subsidiary institutions, the OTS may impose restrictions on the holding
company. Such restrictions may include limiting the payment of dividends,
transactions with affiliates or any other activities deemed to pose a serious
threat to the savings associations.
In order for the Corporation to retain its status as a savings and
loan holding company, Centennial must meet the qualified thrift lender ("QTL")
test. The QTL test requires that 65% of the association's portfolio assets
consist of qualified thrift investments on a monthly average basis in 9 out of
every 12 months. If Centennial fails to meet the QTL test, the Corporation may
be subject to certain regulatory restrictions and will not be eligible for FHLB
advances to the fullest possible extent. At June 30, 1996, Centennial had
qualified thrift investments in excess of 90% of its portfolio assets.
Generally, no savings and loan holding company may (i) acquire or
retain control of a savings association or another savings and loan holding
company or control the assets thereof or (ii) acquire or retain more than 5% of
the voting shares of a savings association or holding company thereof which is
not a subsidiary without the prior written approval of the Director of the OTS.
Additionally, under certain circumstances a savings and loan holding company is
permitted to acquire, with the approval of the Director of the OTS, up to 15% of
the previously unissued voting shares of an undercapitalized savings association
for cash without such savings association being deemed to be controlled by the
holding company. Except with the prior approval of the Director of the OTS, no
director or officer of a savings and loan holding company or person owning or
controlling by proxy, or otherwise, more than 25% of such company's stock may
also acquire control of any savings institution, other than a subsidiary
institution, or any other savings and loan holding company.
The Director of the OTS may approve acquisitions resulting in the
formation of a multiple savings and loan holding company which controls savings
associations in more than one state, if the multiple savings and loan holding
company involved controls a savings association which operated a home or branch
office in the state of the association to be acquired as of March 5, 1987, or if
the laws of the state in which the institution to be acquired is located
specifically permit institutions to be acquired by state-chartered institutions
or savings and loan holding companies located in the state where the acquiring
entity is located (or by a holding company that controls such state-chartered
savings institutions). As under prior law, the Director of the OTS may approve
an acquisition resulting in a multiple savings and loan holding company
controlling savings associations in more than one state in the case of certain
emergency thrift acquisitions.
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<PAGE> 29
If it became as a multiple savings and loan holding company, the
activities of the Corporation and those of any of its subsidiaries (other than
Centennial) would be subject to certain restrictions. Generally, no multiple
savings and loan holding company or subsidiary thereof that is not a savings
association may engage in any business activity other than (i) furnishing or
performing management services for a subsidiary savings association, (ii)
conducting an insurance agency or an escrow business, (iii) holding, managing or
liquidating assets owned by or acquired from a subsidiary savings association,
(iv) holding or managing properties used or occupied by a subsidiary savings
association, (v) acting as trustee under deeds of trust, (vi) those activities
previously directly authorized by federal regulation as of March 5, 1987, to be
engaged in by multiple holding companies, or (vii) furnishing or performing such
other services or engaging in those activities authorized by the FRB as
permissible for bank holding companies, unless the director of the OTS by
regulation prohibits or limits such activities for savings and loan holding
companies. Those activities described in (vii) above must also be approved by
the Director of the OTS prior to being engaged in by a multiple holding company.
Federal law provides that an insured institution shall be liable for
any loss incurred by the FDIC in connection with the default or potential
default of, or federal assistance provided to, an insured institution which is
controlled by the same holding company. Such loss would be apportioned among all
of the insured institutions controlled by the holding company.
FRB RESERVE REQUIREMENTS
FRB regulations require depository institutions to maintain reserves
against their transaction accounts (primarily NOW accounts) and non-personal
time deposits. Such regulations generally require that reserves of 3% be
maintained against deposits in transaction accounts up to a specified amount,
presently $52.0 million (subject to an exemption of up to $4.3 million) and a
10% reserve against that portion of total transaction accounts in excess of
$52.0 million. These percentages are subject to adjustment by the FRB. At June
30, 1996, Centennial was in compliance with its reserve requirements.
FEDERAL HOME LOAN BANK SYSTEM
As a member of the FHLB, Centennial is required to maintain an
investment in the capital stock of the FHLB in an amount equal to the greater of
1.0% of the aggregate outstanding principal amount of its residential mortgage
loans, home purchase contracts and similar obligations at the beginning of each
year, or 5% of its advances from the FHLB. Centennial is in compliance with this
requirement with an investment in FHLB stock of $2.2 million at June 30, 1996.
Upon the origination or renewal of an advance, the FHLB must obtain
and thereafter maintain a security interest in collateral in one or more of the
following categories: fully disbursed, whole first mortgage loans on improved
residential property or securities representing a whole interest in such loans;
securities issued, insured or guaranteed by the United States Government or an
agency thereof; deposits in any FHLB; or other real estate related collateral
(up to 30% of the member's capital) acceptable to the applicable FHLB if such
collateral has a readily ascertainable value and the FHLB can perfect its
security interest in the collateral.
The FHLB is required to establish standards of community investment
or service which members of the FHLB must maintain for continued access to
long-term advances from the FHLB. Such standards must take into account a
member's performance under the Community Reinvestment Act and its record of
lending to first-time home buyers. All long-term advances by the FHLB must be
made only to provide funds for residential housing finance. The FHLB operates an
"Affordable Housing Program" to subsidize the interest rate of advances to
member associations engaged in lending for an long-term, low- and
moderate-income, owner-occupied and affordable rental housing at subsidized
rates. The FHLB reviews and accepts proposals for subsidies under that program
twice a year. Centennial has participated in this program.
FEDERAL TAXATION
The Holding Company and the Savings Bank are both subject to the
federal tax laws and regulations which apply to corporations generally. Prior to
the enactment of the Small Business Jobs Protection Act (the "Act"), which was
signed into law on August 21, 1996, certain thrift institutions, such as the
Savings Bank, were allowed deductions for bad debts under methods more favorable
than those granted to other taxpayers. Qualified thrift institutions could
compute deductions
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<PAGE> 30
for bad debts using either the specific charge off method of Section 166 of the
Internal Revenue Code of 1986, as amended (the "Code"), or the reserve method of
Section 593 of the Code.
Under Section 593, a thrift institution annually could elect to
deduct bad debts under either (i) the "percentage of taxable income" method
applicable only to thrift institutions, or (ii) the "experience" method that
also was available to small banks. Under the "percentage of taxable income"
method, a thrift institution generally was allowed a deduction for an addition
to its bad debt reserve equal to 8% of its taxable income (determined without
regard to this deduction and with additional adjustments). Under the experience
method, a thrift institution was generally allowed a deduction for an addition
to its bad debt reserve equal to the greater of (i) an amount based on its
actual average experience for losses in the current and five preceding taxable
years, or (ii) an amount necessary to restore the reserve to its balance as of
the close of the base year. A thrift institution could elect annually to compute
its allowable addition to bad debt reserves for qualifying loans either under
the experience method or the percentage of taxable income method. For tax years
1995 and 1994, the Savings Bank used the percentage of taxable income method
because such method provided a higher bad debt deduction than the experience
method.
Section 1616(a) of the Act repealed the Section 593 reserve method
of accounting for bad debts by thrift institutions, effective for taxable years
beginning after 1995. Thrift institutions that are treated as small banks are
allowed to utilize the experience method applicable to such institutions, while
thrift institutions that are treated as large banks are required to use only the
specific charge off method. The percentage of taxable income method of
accounting for bad debts is no longer available for any financial institution.
A thrift institution required to change its method of computing
reserves for bad debt will treat such change as a change in the method of
accounting, initiated by the taxpayer and having been made with the consent of
the Secretary of the Treasury. Section 481(a) of the Code requires certain
amounts to be recaptured with respect to such change. Generally, the amounts to
be recaptured will be determined solely with respect to the "applicable excess
reserves" of the taxpayer. The amount of the applicable excess reserves will be
taken into account ratably over a six-taxable year period, beginning with the
first taxable year beginning after 1995, subject to the residential loan
requirement described below. In the case of a thrift institution that is treated
as a large bank, the amount of the institution's applicable excess reserves
generally is the excess of (i) the balances of its reserve for losses on
qualifying real property loans (generally loans secured by improved real estate)
and its reserve for losses on nonqualifying loans (all other types of loans) as
of the close of its last taxable year beginning before January 1, 1996, over
(ii) the balances of such reserves as of the close of its last taxable year
beginning before January 1, 1988 (i.e., the "pre-1988 reserves"). In the case of
a thrift institution that is treated as a small bank, like the Savings Bank, the
amount of the institution's applicable excess reserves generally is the excess
of (i) the balances of its reserve for losses on qualifying real property loans
and its reserve for losses on nonqualifying loans as of the close of its last
taxable year beginning before January 1, 1996, over (ii) the greater of the
balance of (a) its pre-1988 reserves or (b) what the thrift's reserves would
have been at the close of its last year beginning before January 1, 1996, had
the thrift always used the experience method.
For taxable years that begin after December 31, 1995, and before
January 1, 1998, if a thrift meets the residential loan requirement for a tax
year, the recapture of the applicable excess reserves otherwise required to be
taken into account as a Code Section 481(a) adjustment for the year will be
suspended. A thrift meets the residential loan requirement if, for the tax year,
the principal amount of residential loans made by the thrift during the year is
not less than its base amount. The "base amount" generally is the average of the
principal amounts of the residential loans made by the thrift during the six
most recent tax years beginning before January 1, 1996.
A residential loan is a loan as described in Section
7701(a)(19)(C)(v) (generally a loan secured by residential or church property
and certain mobile homes), but only to the extent that the loan is made to the
owner of the property.
The balance of the pre-1988 reserves is subject to the provisions of
Section 593(e), as modified by the Act, which requires recapture in the case of
certain excessive distributions to shareholders. The pre-1988 reserves may not
be utilized for payment of cash dividends or other distributions to a
shareholder (including distributions in dissolution or liquidation) or for any
other purpose (except to absorb bad debt losses). Distribution of a cash
dividend by a thrift institution to a shareholder is treated as made: first, out
of the institution's post-1951 accumulated earnings and profits; second, out of
the pre-1988 reserves; and third, out of such other accounts as may be proper.
To the extent a distribution by the Savings Bank to the Holding Company is
deemed paid out of its pre-1988 reserves under these rules, the pre-1988
reserves would be
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<PAGE> 31
reduced and the Savings Bank's gross income for tax purposes would be increased
by the amount which, when reduced by the income tax, if any, attributable to the
inclusion of such amount in its gross income, equals the amount deemed paid out
of the pre-1988 reserves. As of June 30, 1996, the Savings Bank's pre-1988
reserves for tax purposes totaled approximately $2.3 million. The Savings Bank
believes it had approximately $10.6 million of accumulated earnings and profits
for tax purposes as of June 30, 1996, which would be available for dividend
distributions, provided regulatory restrictions applicable to the payment of
dividends are met. No representation can be made as to whether the Savings Bank
will have current or accumulated earnings and profits in subsequent years.
In addition to the regular income tax, the Holding Company and the
Savings Bank are subject to a minimum tax. An alternative minimum tax is imposed
at a minimum tax rate of 20% on "alternative minimum taxable income" (which is
the sum of a corporation's regular taxable income, with certain adjustments, and
tax preference items), less any available exemption. Such tax preference items
include interest on certain tax-exempt bonds issued after August 7, 1986. In
addition, 75% of the amount by which a corporation's "adjusted current earnings"
exceeds its alternative minimum taxable income computed without regard to this
preference item and prior to reduction by net operating losses, is included in
alternative minimum taxable income. Net operating losses can offset no more than
90% of alternative minimum taxable income. The alternative minimum tax is
imposed to the extent it exceeds the corporation's regular income tax. Payments
of alternative minimum tax may be used as credits against regular tax
liabilities in future years. In addition, for taxable years after 1986 and
before 1996, the Holding Company and the Savings Bank are also subject to an
environmental tax equal to 0.12% of the excess of alternative minimum taxable
income for the taxable year (determined without regard to net operating losses
and the deduction for the environmental tax) over $2.0 million.
The tax returns of the Savings Bank have been audited or closed
without audit through fiscal year 1992. In the opinion of management, any
examination of open returns would not result in a deficiency which could have a
material adverse effect on the financial condition of the Savings Bank.
OHIO TAXATION
The State of Ohio imposes a franchise tax of 1.5% of an
institution's capital determined under generally accepted accounting principles,
as adjusted for goodwill and with allocations pursuant to prescribed formulas
for property held outside the State of Ohio.
DELAWARE TAXATION
As a Delaware holding company, Centennial is exempted from Delaware
corporate income tax but is required to file an annual report with and pay an
annual fee to the State of Delaware. Centennial is also subject to an annual
franchise tax imposed by the State of Delaware.
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<PAGE> 32
ITEM 2. DESCRIPTION OF PROPERTY
The following table sets forth certain information concerning the
main office and each branch office of the Savings Bank at June 30, 1996. The
aggregate net book value of Centennial's office premises and equipment was
approximately $5.9 million at June 30, 1996.
<TABLE>
<CAPTION>
Location Year opened Owned or leased Book value
-------- ----------- --------------- ----------
<C> <C> <C> <C>
New main office
5535 Glenway Avenue 1996 Owned $2,100,000(1)
Cincinnati, Ohio 45238
Former main office
(Now a branch office)
4221 Glenway Avenue 1915 Owned $ 287,000
Cincinnati, Ohio 45205
Branch offices
5681 Rapid Run 1982 Owned $1,172,000
Cincinnati, Ohio 45238
4857 Glenway Avenue 1984 Owned $ 112,000
Cincinnati, Ohio 45205
3916 Harrison Avenue 1958 Owned $ 262,000
Cincinnati, Ohio 45211
9090 Colerain Avenue 1975 Owned $ 211,000
Cincinnati, Ohio 45251
2010 Ferguson Road 1983 Leased N/A
Cincinnati, Ohio 45238
(Closed August 10, 1996)
Additional office space
3820 Washington Avenue 1987 Owned $ 28,000
Cheviot, Ohio 45211
</TABLE>
(1) The building was placed in service on August 12, 1996. Book value shown is
an estimate of final construction costs.
ITEM 3. LEGAL PROCEEDINGS
Centennial and its subsidiaries are involved as plaintiff or
defendant in various legal actions arising in the normal course of their
businesses. While the ultimate outcome of the various legal proceedings
involving Centennial and its subsidiary cannot be predicted with certainty, it
is the opinion of management, after consultation with counsel, that the
resolution of these legal actions should not have a material effect on
Centennial's consolidated financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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<PAGE> 33
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information contained in those portions of the 1996 Annual
Report to Stockholders that are included in Exhibit 13 under the caption "COMMON
STOCK AND RELATED INFORMATION" is incorporated herein by reference.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The information contained in those portions of the 1996 Annual
Report to Stockholders that are included in Exhibit 13 under the caption
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" is incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS
The Report of Independent Certified Public Accountants, Consolidated
Financial Statements and Notes to Consolidated Financial Statements contained in
the portions of the 1996 Annual Report to Stockholders that are included in
Exhibit 13 are incorporated herein by reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There has been no Current Report on Form 8-K filed within 24 months
prior to the date of the most recent financial statements reporting a change of
accountants and/or reporting disagreements on any matter of accounting principle
or financial statement disclosure.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT; COMPLIANCE WITH
SECTION 16(a) OF THE EXCHANGE ACT
The information regarding the directors and executive officers of
the Holding Company contained in the definitive Proxy Statement for the 1996
Annual Meeting of Stockholders (the "Proxy Statement"), a copy of which is filed
as Exhibit 20 hereto, under the caption "BOARD OF DIRECTORS" and "EXECUTIVE
OFFICERS' is incorporated herein by reference.
The following information regarding the past five years business
experience of executive officers of the Savings Bank who do not serve as
officials of the Holding Company is provided below:
LINDA M. CLARK, age 51, is Vice President/Branch Operations of the
Savings Bank, a position she has held since 1990. Ms. Clark is responsible for
conducting and supervising a broad array of activities involving the promotion
of savings and funds acquisition. In addition, she supervises the work of
savings officers and coordinates branch savings operations. Ms. Clark has 18
years of thrift industry experience.
MICHAEL DOHERTY, age 56. Mr. Doherty is Senior Vice
President/Lending of the Savings Bank. He is responsible for all phases of
lending, including the supervision of mortgage and consumer loan officers,
personnel, appraisers and attorneys. Mr. Doherty has been employed by Centennial
since 1983 and has held his present position since 1989. Mr. Doherty has over 21
years experience in the savings and loan industry.
RANDOLPH J. KRAMER, age 42, is Senior Vice President/Customer
Operations of the Savings Bank. He is responsible for all phases of customer
operations and information services. In addition, Mr. Kramer is responsible for
planning, developing and directing data processing systems and coordinating
activities between the Savings Bank and its service bureau. Mr. Kramer has nine
years of experience in the thrift industry.
Each of the above-named executive officers is elected annually to
serve until his or her successor shall have been elected or qualified or until
he or she resigns or is removed by the Board of Directors. There are no
arrangements or understandings between the persons named and any other person
pursuant to which such officers were selected.
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<PAGE> 34
Section 16(a) of the Exchange Act requires the Holding Company's
directors and executive officers, and persons who own more than 10% of a
registered class of the Holding Company's equity securities, to file with the
SEC reports of ownership and reports of changes in ownership of common stock and
other equity securities of the Holding Company. Officers, directors and greater
than 10% stockholders are required by SEC regulation to furnish the Holding
Company with copies of all Section 16(a) forms they file. To the Holding
Company's knowledge, based solely on a review of the copies of such reports
furnished to the Holding Company and written representations that no other
reports were required, during the fiscal year ended June 30, 1996, the
Registrant's directors and executive officers complied with all Section 16(a)
filing requirements applicable to its officers, directors and greater than 10
percent beneficial owners.
ITEM 10. EXECUTIVE COMPENSATION
The information contained in the Proxy Statement, a copy of which is
included in Exhibit 20, under the caption "COMPENSATION OF EXECUTIVE OFFICERS
AND DIRECTORS" is incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained in the Proxy Statement, a copy of which is
included in Exhibit 20, under the caption "VOTING SECURITIES AND OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT" is incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There are no relationships or related transactions to report.
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
(a) EXHIBITS
<S> <C> <C>
3(a) Certificate of Incorporation
3(b) By-Laws
10(a) Employment Contract for Robert R. Sudbrook
10(b) Stock Option Plan
13 Portions of the Annual Report to Stockholders
20 Proxy Statement for 1996 Annual Meeting of Stockholders
21 Subsidiaries of Registrant
27 Financial Data Schedule
</TABLE>
(b) REPORTS ON FORM 8-K
A report on Form 8-K dated June 25, 1996, was filed by the Holding
Company regarding the appointment of a new chief executive officer.
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<PAGE> 35
SIGNATURES
Pursuant to the requirements of Section 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.
GLENWAY FINANCIAL CORPORATION
By: Robert R. Sudbrook
-------------------------------------
Robert R. Sudbrook, President and
Chief Executive Office (Duly
Authorized Representative)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
<S> <C>
Robert R. Sudbrook Edgar A. Rust
- ---------------------------------- -------------------------------------
Robert R. Sudbrook, President Edgar A. Rust, Chairman
and Chief Executive Officer
Date: September 25, 1996 Date: September 25, 1996
Daniel W. Geeding
- ---------------------------------- -------------------------------------
Milton L. Van Schoik, Vice Daniel W. Geeding, Secretary and
Chairman Director
Date: September 25, 1996 Date: September 25, 1996
Ronald L. Goodfellow Albert W. Moeller
- ---------------------------------- -------------------------------------
Ronald L. Goodfellow, Director Albert W. Moeller, Director
Date: September 25, 1996 Date: September 25, 1996
Robert E. Holden John P. Torbeck
- ---------------------------------- -------------------------------------
Robert E. Holden, Director John P. Torbeck, Director
Date: September 25, 1996 Date: September 25, 1996
David R. Kent
- ----------------------------------
Vice President
(Principal Accounting and
Financial Officer)
Date: September 25, 1996
</TABLE>
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<PAGE> 36
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description Incorporation by Reference
<S> <C> <C>
3(a) Certificate of Incorporation Incorporated by reference to Registration
Statements on Form S-1 (File No. 33-61156 and
File No. 33-33987) filed by the Issuer pursuant to
Section 5 of the Securities Act of 1933 (the
"Registration Statements").
3(b) Bylaws Incorporated by reference to Registration
Statements on Form S-1 (File No. 33-61156 and
File No. 33-33987) filed by the Issuer pursuant to
Section 5 of the Securities Act of 1933 (the
"Registration Statements").
10(a) Employment Contract dated July 22, 1996
between Robert R. Sudbrook and the Savings
Bank
10(b) 1990 Stock Option and Incentive Plan, as
amended
13 Portions of 1996 Annual Report to Stockholders
20 Proxy Statement for 1996 Annual Meeting of
Stockholders
21 Subsidiaries of the Registrant
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10(a)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (hereinafter referred to as this
"AGREEMENT") effective the 22nd day of July, 1996, by and between Centennial
Savings Bank, a savings bank incorporated under the laws of the State of Ohio
(hereinafter referred to as the "EMPLOYER"), the principal office of which is
located at 5535 Glenway Avenue, Cincinnati, Ohio 45238 and Robert R. Sudbrook
(hereinafter referred to as the "EMPLOYEE"), an individual whose residence
address is _______________, Cincinnati, Ohio _____;
WITNESSETH:
WHEREAS, as a result of the skill, knowledge and experience of the
EMPLOYEE, the Board of Directors of the EMPLOYER (the "BOARD") believes it is in
the best interests of the EMPLOYER to retain the services of the EMPLOYEE as
President and Chief Executive Officer, in accordance with the terms and
conditions of this AGREEMENT;
WHEREAS, the parties desire to enter into this AGREEMENT to set
forth the terms and conditions of the employment relationship between the
EMPLOYER and the EMPLOYEE; and
WHEREAS, the BOARD has specifically approved and authorized the
execution of this AGREEMENT to take effect as provided for herein;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable considerations, the receipt of and
sufficiency of which are hereby acknowledged, the EMPLOYER and the EMPLOYEE
agree as follows:
Employment and Term. The EMPLOYEE is employed as the President and
Chief Executive Officer of the EMPLOYER, and the EMPLOYEE hereby accepts
employment as the President and Chief Executive Officer of the EMPLOYER, upon
the terms and conditions of this AGREEMENT. The initial term of employment shall
be for the period commencing on the date hereof (the "EFFECTIVE DATE") and
ending 36 months thereafter, subject to extension as provided below (the
"TERM"). Effective as of each anniversary of the EFFECTIVE DATE, the EMPLOYEE's
term of employment shall be extended for a one-year period beyond the then
effective expiration date of the TERM by the BOARD in its sole and exclusive
discretion in a duly adopted resolution, subject to acceptance by the EMPLOYEE
within thirty days of receipt of notice by the EMPLOYEE of the decision of the
BOARD to extend the TERM. Prior to approving any such extension, the BOARD will
conduct a performance evaluation of the EMPLOYEE, and the results of such review
shall be noted in the minutes of the meeting of the BOARD.
<PAGE> 2
Duties of EMPLOYEE.
General Duties and Responsibilities. The EMPLOYEE shall serve as the
President and Chief Executive Officer of the EMPLOYER and shall perform the
duties and responsibilities customary for such office to the best of his ability
and in accordance with (i) the policies established by the BOARD and (ii) all
applicable laws and regulations. The EMPLOYEE shall perform such other duties
not inconsistent with his position as may be assigned to him from time to time
by the BOARD; provided, however, that during the EMPLOYMENT TERM, the EMPLOYER
shall employ the EMPLOYEE in a senior executive capacity without diminishment of
the importance or prestige of his position.
Devotion of Entire Time to the EMPLOYER's Business. The EMPLOYEE
shall devote his entire productive time, ability and attention during normal
business hours throughout the EMPLOYMENT TERM to the faithful performance of his
duties under this AGREEMENT. The EMPLOYEE shall not directly or indirectly
render any services of a business, commercial or professional nature to any
person or organization without the prior written consent of the BOARD; provided,
however, that the EMPLOYEE shall not be precluded from: (i) vacations and other
leave time in accordance with Section 3(d) hereof; (ii) reasonable participation
in community, civic, charitable or similar organizations; or (iii) the pursuit
of personal investments that do not interfere or conflict with the performance
of the EMPLOYEE's duties for the EMPLOYER.
Compensation, Benefits and Reimbursements.
Salary. The EMPLOYEE shall receive an annual salary payable in equal
installments not less often than monthly. The amount of the annual salary shall
be $160,000 until changed by the BOARD. On the anniversary of the EFFECTIVE DATE
each year throughout the EMPLOYMENT TERM, the amount of the EMPLOYEE's annual
salary shall be reviewed by the BOARD, and shall be set at an amount not less
than $160,000, based upon the EMPLOYEE's individual performance and the overall
profitability and financial condition of the EMPLOYER (the "ANNUAL REVIEW"). The
results of this ANNUAL REVIEW shall be reflected in the minutes of the BOARD.
Expenses. In addition to any compensation received under Section
3(a), the EMPLOYER shall pay or reimburse the EMPLOYEE for all reasonable
travel, entertainment and miscellaneous expenses incurred in connection with the
performance of his duties under this AGREEMENT. Such reimbursement shall be made
in accordance with the existing policies and procedures of the EMPLOYER
pertaining to reimbursement of expenses to senior management officials.
Employee Benefit Program. During the EMPLOYMENT TERM, the EMPLOYEE
shall be entitled to participate in all formally established employee benefit,
bonus, pension and profit-sharing plans and similar programs that are maintained
by the EMPLOYER from time to time, including programs in respect of group
health, disability or life insurance, reimbursement of membership fees in civic,
social and professional organizations and all employee benefit plans or programs
hereafter adopted in writing by the BOARD, for which senior management personnel
are eligible, including any employee stock ownership plan or stock option plan
(hereinafter collectively referred to as the "BENEFIT PLANS"). Notwithstanding
the
<PAGE> 3
foregoing sentence, the EMPLOYER may discontinue at any time any such BENEFITS
PLANS now existing or hereafter adopted, to the extent permitted by the terms of
such plans, and shall not be required to compensate the EMPLOYEE for the
elimination of any such BENEFIT PLANS.
Vacation and Sick Leave. The EMPLOYEE shall be entitled, without
loss of pay, to be absent voluntarily from the performance of his duties under
this AGREEMENT, subject to the following conditions:
The EMPLOYEE shall be entitled to an annual vacation in
accordance with the policies periodically established by the BOARD
for senior management officials of the EMPLOYER, the duration of
which shall not be less than two weeks each year of the EMPLOYMENT
TERM;
Vacation time shall be scheduled by the EMPLOYEE in a
reasonable manner and shall be subject to approval by the BOARD. The
EMPLOYEE shall not be entitled to receive any additional
compensation from the EMPLOYER in the event of his failure to take
the full allotment of vacation time in any year of the EMPLOYMENT
TERM nor shall unused vacation time be carried over into any
succeeding year of the EMPLOYMENT TERM; and
The EMPLOYEE shall be entitled to annual sick leave as
established by the BOARD for senior management officials of the
EMPLOYER. In the event that any sick leave time shall not have been
used during any year of the EMPLOYMENT TERM, such leave shall accrue
to subsequent years of the EMPLOYMENT TERM, only to the extent
authorized by the BOARD. Upon termination of his employment, the
EMPLOYEE shall not be entitled to receive any additional
compensation from the EMPLOYER for unused sick leave.
Termination of Employment. In addition to the EMPLOYER's right to
terminate the employment of the EMPLOYEE at the end of the EMPLOYMENT TERM, the
EMPLOYER may terminate the employment of the EMPLOYEE at any other time during
the EMPLOYMENT TERM. In the event that the EMPLOYER terminates the employment of
the EMPLOYEE during the EMPLOYMENT TERM because of the EMPLOYEE's personal
dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving
personal profit, intentional failure or refusal to perform the duties and
responsibilities assigned in this AGREEMENT, willful violation of any law, rule,
regulation or final cease-and-desist order (other than traffic violations or
similar offenses), conviction of a felony or for fraud or embezzlement, or
material breach of any provision of this AGREEMENT (hereinafter collectively
referred to as "JUST CAUSE"), the EMPLOYEE shall have no right to receive any
compensation or other benefits for any period after such termination. In the
event that the EMPLOYER terminates the employment of the EMPLOYEE during the
EMPLOYMENT TERM for any reason other than (i) JUST CAUSE, (ii) the EMPLOYEE's
retirement at or after the normal retirement age under a qualified pension plan
maintained by the EMPLOYER (hereinafter referred to as "RETIREMENT") or, (iii)
pursuant to Section 1 of this AGREEMENT at the end of the EMPLOYMENT TERM, the
EMPLOYEE, depending on the circumstances, shall be entitled to the following:
<PAGE> 4
Termination After CHANGE OF CONTROL. In the event that, in
connection with or within one year of a "Change of Control" (hereinafter
defined) of the EMPLOYER, the EMPLOYER (i) terminates the employment of the
EMPLOYEE for any reason other than (A) JUST CAUSE, (B) the EMPLOYEE's RETIREMENT
or (C) pursuant to Section 1 of this AGREEMENT, (ii) otherwise changes the
present capacity or circumstances in which the EMPLOYEE is employed as set forth
in Section 2 of this AGREEMENT, or (iii) causes a material reduction in the
EMPLOYEE's responsibilities, authority, compensation or other benefits provided
under this AGREEMENT without the EMPLOYEE's written consent, then the following
shall occur:
(I) The EMPLOYER shall promptly pay to the EMPLOYEE or to his
beneficiaries, dependents or estate, an amount equal to three times the
EMPLOYEE's average annual compensation. For purposes of this AGREEMENT,
average annual compensation shall be based on the EMPLOYEE's total cash
compensation including but not limited to salary and bonus payments,
for the five taxable years immediately preceding the termination of
employment.
(II) The EMPLOYEE, his dependents, beneficiaries and estate
shall continue to be covered under all BENEFIT PLANS of the EMPLOYER at
the EMPLOYER's expense as if the EMPLOYEE were still employed under
this AGREEMENT, until the earliest of (i) the end of the EMPLOYMENT
TERM under this AGREEMENT pursuant to Section 1 of this AGREEMENT; (ii)
the date the EMPLOYEE becomes 65 years of age or (iii) the date on
which the EMPLOYEE is included in another employer's benefit plans as a
full-time employee.
(III) The EMPLOYEE shall not be required to mitigate the
amount of any payment provided for in this AGREEMENT by seeking other
employment or otherwise, nor shall any amounts received from other
employment or otherwise by the EMPLOYEE offset in any manner the
obligations of the EMPLOYER hereunder, except as specifically stated in
subsection (II) of this subsection (a).
In the event that payments pursuant to this subsection (a) would exceed three
times the EMPLOYEE's annual salary at termination or would result in the
imposition of a penalty tax pursuant to Section 280G(b)(3) of the Internal
Revenue Code of 1986, as amended, and the regulations promulgated thereunder
(collectively, "SECTION 280G"), such payments shall be reduced to the maximum
amount that may be paid without exceeding such limits.
A "CHANGE OF CONTROL" shall be deemed to have occurred in the
event that, at any time during the EMPLOYMENT TERM, any person or entity is
deemed to have acquired "control" of the EMPLOYER within the meaning of 12
C.F.R. Section303.4 of the Regulations of the Board of Governors of the Federal
ResErve System.
Termination Without CHANGE OF CONTROL. In the event the
EMPLOYER terminates the employment of the EMPLOYEE for any reason other than (i)
JUST CAUSE, (ii) in connection with a CHANGE OF CONTROL under subsection (a),
(iii) the EMPLOYEE's RETIREMENT, or (iv) pursuant to Section 1 of this
AGREEMENT, the EMPLOYER shall be obligated to continue to (x) pay on a monthly
basis to the EMPLOYEE, his designated beneficiaries or his estate, his annual
salary provided pursuant to Section 2 of this AGREEMENT
<PAGE> 5
for a period of 36 months; provided, however, that the aggregate amount of such
payments shall not exceed three times the EMPLOYEE's average annual compensation
as of the date of termination, and (y) provide to the EMPLOYEE at the EMPLOYER's
expense, health, life, disability, and other benefits substantially equal to
those being provided to the EMPLOYEE at the date of termination of his
employment until the earliest to occur of (A) the end of the EMPLOYMENT TERM
under this AGREEMENT, (B) the date the EMPLOYEE becomes 65 years of age, or (C)
the date the EMPLOYEE becomes employed full-time by another employer. In the
event that payments pursuant to this subsection (b) would exceed three times the
EMPLOYEE's annual salary at termination or would result in the imposition of a
penalty tax pursuant to SECTION 280G, such payments shall be reduced to the
maximum amount that may be paid without exceeding those limits.
Death of the EMPLOYEE. The EMPLOYMENT TERM automatically
terminates upon the death of the EMPLOYEE. In the event of such death, the
EMPLOYEE's estate shall be entitled to receive the compensation due the EMPLOYEE
through the last day of the calendar month in which the death occurred, except
as otherwise specified herein.
"Golden Parachute" Provision. Any payments made to the
EMPLOYEE pursuant to Section 4 of this AGREEMENT, or otherwise, are subject to
and conditioned upon their compliance with 12 U.S.C. Section1828(k) and any
regulations promulgated thereunder. No such payments shall be made (i) at a time
when the EMPLOYER is not in compliance with its regulatory capital requirements
or (ii) to the extent that such payments would cause the EMPLOYER to fail to
meet its regulatory capital requirements.
Special Regulatory Events. Notwithstanding Section 4(a) and
(b) of this AGREEMENT, the obligations of the EMPLOYER to the EMPLOYEE shall be
as follows in the event of the following circumstances:
If the EMPLOYEE is suspended and/or temporarily prohibited
from participating in the conduct of the EMPLOYER's affairs by a notice served
under section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act ("FDIA")
(12 U.S.C. Section 1818(e)(3), (g)(1)), the EMPLOYER's obligations under this
AGREEMENT shall be suspended as of the date of service of such notice, unless
stayed by appropriate proceedings. If the charges in the notice are dismissed,
the EMPLOYER may, in its discretion, (A) pay the EMPLOYEE all or part of the
compensation withheld while the obligations in this AGREEMENT were suspended and
(B) reinstate, in whole or in part, any of the obligations that were suspended.
If the EMPLOYEE is removed and/or permanently prohibited from
participating in the conduct of the EMPLOYER's affairs by an order issued under
Section 8(e)(4) or (g)(1) of the FDIA (12 U.S.C. Section 1818(e)(4), (g)(1)),
all obligations of the EMPLOYER under this AGREEMENT shall terminatE as of the
effective date of such order, but vested rights of the EMPLOYEE shall not be
affected.
If the EMPLOYER is in default, as defined in section 3(x)(1)
of the FDIA (12 U.S.C. Section 1813(x)(1)), all obligations under thiS AGREEMENT
shall terminate as of the date of default, but vested rights of the EMPLOYEE
shall not be affected.
<PAGE> 6
Consolidation, Merger or Sale of Assets. Nothing in this
AGREEMENT shall preclude the EMPLOYER from consolidating with, merging into, or
transferring all, or substantially all, of its assets to another corporation
that assumes all of the EMPLOYER's obligations and undertakings hereunder. Upon
such a consolidation, merger or transfer of assets, the term "EMPLOYER" as used
herein, shall mean such other corporation or entity, and this AGREEMENT shall
continue in full force and effect.
Competition of EMPLOYEE with EMPLOYER. If the EMPLOYEE
terminates his employment during the EMPLOYMENT TERM, for two years after such
termination, the EMPLOYEE shall not accept employment from or become associated
with or engaged by, in any manner, any commercial bank, savings and loan
association, savings bank or other financial institution in the Hamilton County,
Ohio market, without the prior written consent of the EMPLOYER. The terms
"become associated with" or "engaged by" means rendering any service, whether as
an employee, director, consultant, independent contractor, partner, co-venturer
or investor (excluding any interest of the EMPLOYEE through investment of up to
an aggregate of 10% in the equity or debt securities or equivalent partnership
interest of any person required to register under Section 12(g) of the
Securities and Exchange Act of 1934), to or on behalf of any organization
conducting any business then competitive to that of the EMPLOYER.
Confidential Information. The EMPLOYEE acknowledges that
during his employment he will learn and have access to confidential information
regarding the EMPLOYER and its customers and business. The EMPLOYEE agrees and
covenants not to disclose or use for his own benefit, or the benefit of any
other person or entity, any confidential information, unless or until the
EMPLOYER consents to such disclosure or use or such information becomes common
knowledge in the industry or is otherwise legally in the public domain. The
EMPLOYEE shall not knowingly disclose or reveal to any unauthorized person any
confidential information relating to the EMPLOYER, its subsidiaries or
affiliates, or to any of the businesses operated by them, and the EMPLOYEE
confirms that such information constitutes the exclusive property of the
EMPLOYER. The EMPLOYEE shall not otherwise knowingly act or conduct himself (i)
to the material detriment of the EMPLOYER, its subsidiaries, or affiliates, or
(ii) in a manner which is inimical or contrary to the interests of the EMPLOYER.
Nonassignability. Neither this AGREEMENT nor any right or
interest hereunder shall be assignable by the EMPLOYEE, his beneficiaries, or
legal representatives without the EMPLOYER's prior written consent; provided,
however, that nothing in this Section 9 shall preclude (i) the EMPLOYEE from
designating a beneficiary to receive any benefits payable hereunder upon his
death, or (ii) the executors, administrators, or other legal representatives of
the EMPLOYEE or his estate from assigning any rights hereunder to the person or
persons entitled thereto.
No Attachment. Except as required by law, no right to receive
payment under this AGREEMENT shall be subject to anticipation, commutation,
alienation, sale, assignment, encumbrance, charge, pledge or hypothecation or to
execution, attachment, levy, or similar process of assignment by operation of
law, and any attempt, voluntary or involuntary, to effect any such action shall
be null, void and of no effect.
<PAGE> 7
Binding Agreement. This AGREEMENT shall be binding upon, and
inure to the benefit of, the EMPLOYEE and the EMPLOYER and their respective
permitted successors and assigns.
Amendment of AGREEMENT. This AGREEMENT may not be modified or
amended, except by an instrument in writing signed by the parties hereto.
Waiver. No term or condition of this AGREEMENT shall be deemed
to have been waived, nor shall there be an estoppel against the enforcement of
any provision of this AGREEMENT, except by written instrument of the party
charged with such waiver or estoppel. No such written waiver shall be deemed a
continuing waiver, unless specifically stated therein, and each waiver shall
operate only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future or as to any act
other than the act specifically waived.
Severability. If, for any reason, any provision of this
AGREEMENT is held invalid, such invalidity shall not affect the other provisions
of this AGREEMENT not held so invalid, and each such other provision shall, to
the full extent consistent with applicable law, continue in full force and
effect. If this AGREEMENT is held invalid or cannot be enforced, then any prior
AGREEMENT between the EMPLOYER (or any predecessor thereof) and the EMPLOYEE
shall be deemed reinstated to the full extent permitted by law, as if this
AGREEMENT had not been executed.
Headings. The headings of the paragraphs herein are included
solely for convenience of reference and shall not control the meaning or
interpretation of any of the provisions of this AGREEMENT.
Governing Law. This AGREEMENT has been executed and delivered
in the State of Ohio and its validity, interpretation, performance, and
enforcement shall be governed by the laws of this State of Ohio, except to the
extent that federal law is governing.
IN WITNESS WHEREOF, the EMPLOYER has caused this AGREEMENT to be
executed and its seal to be affixed hereunto by its duly authorized officers,
and the EMPLOYEE has signed this AGREEMENT, all as of the day and year first
above written.
Attest: CENTENNIAL SAVINGS BANK
______________________________ By:__/s/_______________________________
its Chairman
_______/s/__________________________
Robert R. Sudbrook
<PAGE> 1
EXHIBIT 10(B)
CENTENNIAL FINANCIAL CORP.
[Now Glenway Financial Corporation]
1990 Stock Option and Incentive Plan
A. Plan Purpose. The purpose of the Plan is to promote the
long-term interests of the Corporation and its stockholders by providing a means
for attracting and retaining directors, officers and employees of the
Corporation and its Affiliates. It is intended that designated Options granted
pursuant to the provisions of this Plan to persons employed on a full-time basis
will qualify as Incentive Stock Options. Options granted to persons who are not
full-time employees will be Non-Qualified Stock Options.
B. Definitions. The following definitions are applicable to
the Plan:
"Affiliate" - means any "parent corporation" or "subsidiary
corporation" of the Corporation, as such terms are defined in Section 425(e) and
(f), respectively, of the Code.
"Association" - means Centennial Savings Bank, fsb [now
Centennial Savings Bank].
"Award" - means the grant of an Incentive Stock Option, a
Non-Qualified Stock Option, a Stock Appreciation Right, a Limited Stock
Appreciation Right, or of Restricted Stock, or any combination thereof, as
provided in the Plan.
"Code" - means the Internal Revenue Code of 1986, as amended.
"Committee" - means the Committee referred to in Section 3
hereof.
"Continuous Service" - means the absence of any interruption
or termination of service as a director, officer or employee of the Corporation
or an Affiliate, except that when used with respect to persons granted an
Incentive Option means the absence of any interruption or termination of service
as a full-time employee of the Corporation or an Affiliate. Service shall not be
considered interrupted in the case of sick leave, military leave or any other
leave of absence approved by the Corporation or in the case of transfers between
payroll locations of the Corporation or between the Corporation, its parent, its
subsidiaries or its successor.
"Corporation" - means Centennial Financial Corp. [now Glenway
Financial Corporation], a Delaware corporation.
"Disinterested Person" - means any member of the Board of
Directors of the Corporation who, at the time discretion under the Plan is
exercised has not at any time within one year prior thereto received grants or
awards under the Plan or any other plan of the Corporation or any of its
affiliates (as the term is used in the Exchange Act) except as provided in Rule
16b-3(c)(2)(i) under the Exchange Act and is not selected as a Participant in
the Plan; provided, however, that no recipient of a stock award granted pursuant
to Section 21 hereof shall be deemed not to be a disinterested Person solely by
reason of such grant.
<PAGE> 2
"Employee" - means any person, including an officer or
director, who is employed by the Corporation or any Affiliate.
"ERISA" - means the Employee Retirement Income Security Act
of 1974, as amended.
"Exchange Act" - means the Securities Exchange Act of 1934,
as amended.
"Exercise Price" - means (i) in the case of an Option, the
price per Share at which the Shares subject to such Option may be purchased upon
exercise of such Option and (ii) in the case of a Right, the price per Share
(other than the Market Value per Share on the date of exercise and the Offer
Price per Share as defined in Section 10 hereof) which, upon grant, the
Committee determines shall be utilized in calculating the aggregate value which
a Participant shall be entitled to receive pursuant to Sections 9, 10 or 13
hereof upon exercise of such Right.
"Incentive Stock Option" - means an option to purchase Shares
granted by the Committee pursuant to Section 6 hereof which is subject to the
limitations and restrictions of Section 8 hereof and is intended to qualify
under Section 422A of the Code.
"Limited Stock Appreciation Right" - means a stock
appreciation right with respect to Shares granted by the Committee pursuant to
Sections 6 and 10 hereof.
"Market Value" means the average of the high and low quoted
sales price on the date in question (or, if there is no reported sale on such
date, on the last preceding date on which any reported sale occurred) of a Share
on the Composite Tape for the New York Stock Exchange-Listed Stocks, or, if on
such date the Shares are not quoted on the Composite Tape, on the New York Stock
Exchange, or, if the Shares are not listed or admitted to trading on such
Exchange, on the principal United States securities exchange registered under
the Securities Exchange Act of 1934 on which the Shares are listed or admitted
to trading, or, if the Shares are not listed or admitted to trading on any such
exchange, the mean between the closing high bid and low asked quotations with
respect to a Share on such date on the National Association of Securities
Dealers, Inc., Automated Quotations System, or any similar system then in use,
or, if no such quotations are available, the fair market value on such date of a
Share as the Committee shall determine.
"Non-Qualified Stock Option" - means an option to purchase
Shares granted by the Committee pursuant to Section 6 hereof, which option is
not intended to qualify under Section 422A of the Code.
"Option" - means an Incentive Stock Option or a Non-Qualified
Stock Option.
"Participant" - means any officer or employee of the
Corporation or any Affiliate who is selected by the Committee to receive an
Award and any director of the Corporation who is granted an Award pursuant to
Section 21 hereof.
"Plan" - means the 1990 Stock Option and Incentive Plan of
the Corporation.
<PAGE> 3
"Related" - means (i) in the case of a Right, a Right which
is granted in connection with, and to the extent exercisable, in whole or in
part, in lieu of, an Option or another Right and (ii) in the case of an Option,
an Option with respect to which and to the extent a Right is exercisable, in
whole or in part, in lieu thereof has been granted.
"Restricted Period" - means the period of time selected by
the Committee for the purpose of determining when restrictions are in effect
under Section 11 hereof with respect to Restricted Stock awarded under the Plan.
"Restricted Stock" - means Shares which have been
contingently awarded to a Participant by the Committee subject to the
restrictions referred to in Section 11 hereof, so long as such restrictions are
in effect.
"Right" - means a Limited Stock Appreciation Right or a Stock
Appreciation Right.
"Shares" - means the shares of common stock of the
Corporation.
"Senior Officer" - means the Corporation's president,
principal financial officer, or principal accounting officer, any vice president
of the Corporation in charge of a principal business unit, division or function
(such as sales, administration or finance), any other officer who performs a
policy-making function, or any other person who performs similar policy-making
functions for the Corporation. Officers of the Corporation's Affiliates shall be
deemed senior officers of the Corporation if they perform such policy-making
functions for the Corporation.
"Stock Appreciation Right" - means a stock appreciation right
with respect to Shares granted by the Committee pursuant to Sections 6 and 9
hereof.
"Ten Percent Beneficial Owner" - means the beneficial owner
of more than ten percent of any class of the Corporation's equity securities
registered pursuant to Section 12 of the Exchange Act.
C. Administration. The Plan shall be administered by a
Committee consisting of two or more members, each of whom shall be a
Disinterested Person. The members of the Committee shall be appointed by the
Board of Directors of the Corporation. Except as United by the express
provisions of the Plan, the Committee shall have sole and complete authority and
discretion to (i) select Participants and grant Awards; (ii) determine the
number of Shares to be subject to types of Awards generally, as well as to
individual Awards granted under the Plan; (iii) determine the terms and
conditions upon which Awards shall be granted under the Plan; (iv) prescribe the
form and terms of instruments evidencing such grants; and (v) establish from
time to time regulations for the administration of the Plan, interpret the Plan,
and make all determinations deemed necessary or advisable for the administration
of the Plan. The Committee may maintain, and update from time to time as
appropriate, a list designating selected directors, as Disinterested Persons.
The purpose of such list shall be to evidence the status of such individuals as
Disinterested Persons, and the Board of Directors may appoint to the Committee
any individual actually qualifying as a Disinterested Person, regardless of
whether identified as such on said list.
<PAGE> 4
A majority of the Committee shall constitute a quorum, and the acts of
a majority of the members present at any meeting at which a quorum is present,
or acts approved in writing by a majority of the Committee without a meeting,
shall be acts of the Committee.
D. Participation in Committee Awards. The Committee may
select from time to time Participants in the Plan from those officers and
employees (other than Disinterested Persons), of the Corporation or its
Affiliates who, in the opinion of the Committee, have the capacity for
contributing to the successful performance of the Corporation or its Affiliates.
E. Shares Subject to Plan. Subject to adjustment by the
operation of Section 12 hereof, the maximum number of Shares with respect to
which Awards may be made under the Plan is 10% of the total Shares issued in the
Association's conversion to the capital stock form. The Shares with respect to
which Awards may he made under the Plan may be either authorized and unissued
shares or issued shares heretofore or hereafter required and held as treasury
shares. Shares which are subject to Related Rights and Related Options shall be
counted only once in determining whether the maximum number of Shares with
respect to which Awards may be granted under the Plan has been exceeded. An
Award shall not be considered to have been made under the Plan with respect to
any Option or Right which terminates or with respect to Restricted Stock which
is forfeited, and new Awards may be granted under the Plan with respect to the
number of Shares as to which such termination or forfeiture has occurred.
[Amended July 26, 1993.]
F. General Terms and Conditions of Options and Rights. The
Committee shall have full and complete authority and discretion, except as
expressly limited by the Plan, to grant Options and/or Rights and to provide the
terms and conditions (which need not be identical among Participants) thereof.
In particular, the Committee shall prescribe the following terms and conditions:
(i) the Exercise Price of any Option or Right, which shall not be less than the
Market Value per Share at the date of grant of such Option or Right, (ii) the
number of Shares subject to, and the expiration date of, any Option or Right,
which expiration date shall not exceed ten years from the date of grant, (iii)
the manner, time and rate (cumulative or otherwise) of exercise of such Option
or Right, and (iv) the restrictions, if any, to be placed upon such Option or
Right or upon Shares which may be issued upon exercise of such Option or Right.
The Committee may, as a condition of granting any Option or Right, require that
a Participant agree not to thereafter exercise one or more Options or Rights
previously granted to such Participant.
G. Exercise of Options or Rights.
(a) An Option or Right granted under the Plan shall be
exercisable during the lifetime of the Participant to whom such Option or Right
was granted only by such Participant and, except as provided in paragraphs (c)
and (d) of this Section 7, no such Option or Right may be exercised unless at
the time such Participant exercises such Option or Right, such Participant has
maintained Continuous Service since the date of grant of such Option or Right.
Cash settlements of Rights may be made only in accordance with any applicable
restrictions pursuant to Rule 16b-3(e) under the Securities Exchange Act of 1934
or any similar or successor provision.
(b) To exercise an Option or Right under the Plan, the
Participant to whom such Option or Right was granted shall give written notice
to the Corporation in form satisfactory to the Committee (and, if partial
exercises have been permitted by the Committee, by specifying
<PAGE> 5
the number of Shares with respect to which such Participant elects to exercise
such Option or Right) together with full payment of the Exercise Price, if any
and to the extent required. The date of exercise shall be the date on which such
notice is received by the Corporation. Payment, if any is required, shall be
made either (i) in cash (including check, bank draft or money order) or (ii) if
permitted by the Committee, by delivering (A) Shares already owned by the
Participant and having a fair market value equal to the applicable exercise
price, such fair market value to be determined in such appropriate manner as may
be provided by the Committee or as may be required in order to comply with or to
conform to requirements of any applicable laws or regulations, or (B) a
combination of cash and such Shares.
(c) Participant to whom an Option or Right was granted shall
cease to maintain Continuous Service for any reason (including total or partial
disability and normal or early retirement, but excluding death and termination
of employment by the Corporation or any Affiliate for cause), such Participant
may, but only within the period of three months immediately succeeding such
cessation of Continuous Service and in no event after the expiration date of
such Option or Right, exercise such Option or Right to the extent that such
Participant was entitled to exercise such Option or Right at the date of such
cessation, provided, however, that such right of exercise after cessation of
Continuous Service shall not be available to a Participant if the Committee
otherwise determines and so provides in the applicable instrument or instruments
evidencing the grant of such Option or Right. If the Continuous Service of a
Participant to whom an Option or Right was granted by the Corporation is
terminated for cause, all rights under any Option or Right of such Participant
shall expire immediately upon the giving to the Participant of notice of such
termination.
(d) In the event of the death of a Participant while in the
Continuous Service of the Corporation or an Affiliate or within the three month
period referred to in paragraph (c) of this Section 7, the person to whom any
Option or Right held by the Participant at the time of his death is transferred
by will or the laws of descent and distribution or pursuant to a qualified
domestic relations order as defined in the Code or Title I of ERISA or the rules
thereunder may, but only to the extent such Participant was entitled to exercise
such Option or Right immediately prior to his death, exercise such Option or
Right at any time within a period of one year succeeding the date of death of
such Participant, but in no event later than ten years from the date of grant of
such Option or Right. Following the death of any Participant to whom an Option
was granted under the Plan, irrespective of whether any Related Right shall have
theretofore been granted to the Participant or whether the person entitled to
exercise such Related Right desires to do so, the Committee may, as an
alternative means of settlement of such Option, elect to pay to the person to
whom such Option is transferred by will or by the laws of descent and
distribution the amount by which the Market Value per Share on the date of
exercise of such Option shall exceed the Exercise Price of such Option,
multiplied by the number of Shares with respect to which such Option is properly
exercised. Any such settlement of an Option shall be considered an exercise of
such Option for all purposes of the Plan.
H. Incentive Stock Options. Incentive Stock Options may be granted only
to Participants who are Employees. Any provision of the Plan to the contrary
notwithstanding, (i) no Incentive Stock Option shall be granted more than ten
years from the date the Plan is adopted by the Board of Directors of the
Corporation and no Incentive Stock Option shall be exercisable more than ten
years from the date such Incentive Stock Option is granted, (ii) the Exercise
Price of any Incentive Stock Option shall not be less than the Market Value per
Share on the date such
<PAGE> 6
Incentive Stock Option is granted, (iii) any Incentive Stock Option shall not be
transferable by the Participant to whom such Incentive Stock Option is granted
other than by will or the laws of descent and distribution or pursuant to a
qualified domestic relations order as defined in the Code or Title I of ERISA or
the rules thereunder and shall be exercisable during such Participant's lifetime
only by such Participant, (iv) no Incentive Stock Option shall be granted to any
individual who, at the time such Incentive Stock Option is granted, owns stock
possessing more than ten percent of the total combined voting power of all
classes of stock of the Corporation or any Affiliate unless the Exercise Price
of such Incentive Stock Option is at least 110 percent of the Market Value per
Share at the date of grant and such Incentive Stock Option is not exercisable
after the expiration of five years from the date such Incentive Stock Option is
granted, and (v) the aggregate Market Value (determined as of the time any
Incentive Stock Option is granted) of the Shares with respect to which Incentive
Stock Options are exercisable for the first time by a Participant in any
calendar year shall not exceed $100,000.
I. Stock Appreciation Rights. A Stock Appreciation Right shall, upon
its exercise, entitle the Participant to whom such Stock Appreciation Right was
granted to receive a number of Shares or cash or combination thereof, as the
Committee in its discretion shall determine, the aggregate value of which (i.e.,
the sum of the amount of cash and/or Market Value of such Shares on date of
exercise) shall equal (as nearly as possible, it being understood that the
Corporation shall not issue any fractional shares) the amount by which the
Market Value per Share on the date of such exercise shall exceed the Exercise
Price of such Stock Appreciation Right, multiplied by the number of Shares with
respect of which such Stock Appreciation Right shall have been exercised. A
Stock Appreciation Right may be Related to an Option or may be granted
independently of any Option as the Committee shall from time to time in each
case determine. At the time of grant of an Option the Committee shall determine
whether and to what extent a Related Stock Appreciation Right shall be granted
with respect thereto; provided, however, and notwithstanding any other provision
of the Plan, that if the Related Option is an Incentive Stock Option, the
Related Stock Appreciation Right shall satisfy all the restrictions and
limitations of Section 8 hereof as if such Related Stock Appreciation Right were
an Incentive Stock Option and as if other rights which are Related to Incentive
Stock Options were Incentive Stock Options. In the case of a Related Option,
such Related Option shall cease to be exercisable to the extent of the Shares
with respect to which the Related Stock Appreciation Right was exercised. Upon
the exercise or termination of a Related Option, any Related Stock Appreciation
Right shall terminate to the extent of the Shares with respect to which the
Related Option was exercised or terminated. Notwithstanding the foregoing, no
Stock Appreciation Right shall be exercisable by a Ten Percent Beneficial Owner,
director or Senior Officer of the Corporation within six months of the date of
its grant.
J. Limited Stock Appreciation Rights. At the time of grant of an Option
or Stock Appreciation Right to any Participant, the Committee shall have full
and complete authority and discretion to also grant to such Participant a
Limited Stock Appreciation Right which is Related to such Option or Stock
Appreciation Right; provided, however and notwithstanding any other provision of
the Plan, that if the Related Option is an Incentive Stock Option, the Related
Limited Stock Appreciation Right shall satisfy all the restrictions and
limitations of Section 8 hereof as if such Related Limited Stock Appreciation
Right were an Incentive Stock Option and as if all other Rights which are
Related to Incentive Stock Options were Incentive Stock Options. Notwithstanding
any other provision of the Plan, a Limited Stock Appreciation Right shall be
exercisable only during the period beginning on the first day following the date
of expiration of
<PAGE> 7
any "offer" (as such term is hereinafter defined) and ending on the forty-fifth
day following such date, provided, however, that no Limited Stock Appreciation
Right shall be exercisable by a Ten Percent Beneficial Owner, director or Senior
Officer of the Corporation within six months of the date of its grant.
A Limited Stock Appreciation Right shall, upon its exercise, entitle
the Participant to whom such Limited Stock Appreciation Right was granted to
receive an amount of cash equal to the amount by which the "Offer Price per
Share" (as such term is herein after defined) or the Market Value on the date of
such exercise, as shall have been provided by the Committee in its discretion at
the time of grant, shall exceed the Exercise Price of such Limited Stock
Appreciation Right, multiplied by the number of Shares with respect to which
such Limited Stock Appreciation Right shall have been exercised. Upon the
exercise of a Limited Stock Appreciation Right, any Related Option and/or
Related Stock Appreciation Right shall cease to be exercisable to the extent of
the Shares with respect to which such Limited Stock Appreciation Right was
exercised. Upon the exercise or termination of a Related Option or Related Stock
Appreciation Right, any Related Limited Stock Appreciation Right shall terminate
to the extent of the Shares with respect to which such Related Option or Related
Stock Appreciation Right was exercised or terminated.
For the purposes of this Section 10, the term "Offer" shall mean any
tender offer or exchange offer for Shares other than one made by the
Corporation, provided that the corporation, person or other entity making the
offer acquires pursuant to such offer either (i) 25% of the Shares outstanding
immediately prior to the commencement of such offer or (ii) a number of Shares
which, together with all other Shares acquired in any tender offer or exchange
offer (other than one made by the Corporation) which expired within sixty days
of the expiration date of the offer in question, equals 25% of the Shares
outstanding immediately prior to the commencement of the offer in question. The
term "Offer Price per Share" as used in this Section 10 shall mean the highest
price per Share paid in any Offer which Offer is in effect any time during the
period beginning on the sixtieth day prior to the date on which a Limited Stock
Appreciation Right is exercised and ending on the date on which such Limited
Stock Appreciation Right is exercised. Any securities or property which are part
or all of the consideration paid for Shares in the Offer shall be valued in
determining the Offer Price per Share at the higher of (A) the valuation placed
on such securities or property by the corporation, person or other entity making
such Offer or (B) the valuation placed on such securities or property by the
Committee.
K. Terms and Conditions of Restricted Stock. The Committee shall have
full and complete authority, subject to the limitations of the Plan, to grant
awards of Restricted Stock and, in addition to the terms and conditions
contained in paragraphs (a) through (f) of this Section 11, to provide such
other terms and conditions (which need not be identical among Participants) in
respect of such Awards, and the vesting thereof, as the Committee shall
determine and provide in the agreement referred to in paragraph (d) of this
Section 11.
(a) At the time of an Award of Restricted Stock, the
Committee shall establish for each Participant a Restricted Period of not less
than six months during which or at the expiration of which, as the Committee
shall determine and provide in the agreement referred to in paragraph (d) of
this Section 11, the Shares awarded as Restricted Stock shall vest, and subject
to any such other terms and conditions as the Committee shall provide, shares of
Restricted Stock may not be sold, assigned, transferred, pledged or otherwise
encumbered by the Participant, except as hereinafter provided, during the
Restricted Period. Except for such restrictions, and
<PAGE> 8
subject to paragraphs (c), (d) and (e) of this Section 11 and Section 12 hereof,
the Participant as owner of such shares shall have all the rights of a
stockholder, including but not limited to the right to receive all dividends
paid on such shares and the right to vote such shares. The Committee shall have
the authority, in its discretion, to accelerate the time at which any or all of
the restrictions shall lapse with respect to any shares of Restricted Stock
prior to the expiration of the Restricted Period with respect thereto, or to
remove any or all of such restrictions, whenever it may determine that such
action is appropriate by reason of changes in applicable tax or other laws or
other changes in circumstances occurring after the commencement of such
Restricted Period.
(b) Except as provided in Section 14 hereof, if a Participant
ceases to maintain Continuous Service for any reason (other than death, total or
partial disability or normal or early retirement) unless the Committee shall
otherwise determine and provide in the agreement referred to in paragraph (d) of
this Section 11, all shares of Restricted Stock theretofore awarded to such
Participant and which at the time of such termination of Continuous Service are
subject to the restrictions imposed by paragraph (a) of this Section 11 shall
upon such termination of Continuous Service be forfeited and returned to the
Corporation. Unless the Committee shall have provided in the agreement referred
to in paragraph (d) of this Section 11 for a ratable lapse of restrictions with
respect to an award of shares of Restricted Stock during the Restricted Period,
if a Participant ceases to maintain Continuous Service by reason of death, total
or partial disability or normal or early retirement, such portion of such shares
of Restricted Stock awarded to such Participant which at the time of such
termination of Continuous Service are subject to the restrictions imposed by
paragraph (a) of this Section 11 as shall be equal to the portion of the
Restricted Period with respect to such shares which shall have elapsed at the
time of such termination of Continuous Service shall be free of restrictions and
shall not be forfeited.
(c) Each certificate in respect of shares of Restricted Stock
awarded under the Plan shall be registered in the name of the Participant and
deposited by the Participant, together with a stock power endorsed in blank,
with the Corporation and shall bear the following (or a similar) legend:
"The transferability of this certificate and the shares of
stock represented hereby are subject to the terms and
conditions (including forfeiture) contained in the 1990 Stock
Option and Incentive Plan of Centennial Financial Corp. and an
Agreement entered into between the registered owner and
Centennial Financial Corp. Copies of such Plan and Agreement
are on file in the offices of the Secretary of Centennial
Financial Corp., 3916 Harrison Avenue, Cheviot, Ohio 45211."
(d) At the time of an award of shares of Restricted Stock,
the Participant shall enter into an Agreement with the Corporation in a form
specified by the Committee, agreeing to the terms and conditions of the award
and such other matters as the Committee shall in its sole discretion determine.
(e) At the time of an award of shares of Restricted Stock,
the Committee may, in its discretion, determine that the payment to the
Participant of dividends declared or paid on such shares, or specified portion
thereof, by the Corporation shall be deferred until the earlier to occur of (i)
the lapsing of the restrictions imposed under paragraph (a) of this Section 11
or (ii)
<PAGE> 9
the forfeiture of such shares under paragraph (b) of this Section 11, and shall
be held by the Corporation for the account of the Participant until such time.
In the event of such deferral, there shall be credited at the end of each year
(or portion thereof) interest on the amount of the account at the beginning of
the year at a rate per annum as the Committee, in its discretion, may determine.
Payment of deferred dividends, together with interest accrued thereon as
aforesaid, shall be made upon the earlier to occur of the events specified in
(i) and (ii) of the immediately preceding sentence.
(f) At the expiration of the restrictions imposed by
paragraph (a) of this Section 11, the Corporation shall redeliver to the
Participant (or where the relevant provision of paragraph (b) of this Section 11
applies in the case of a deceased Participant, to his legal representative,
beneficiary or heir) the certificate(s) and stock power deposited with it
pursuant to paragraph (c) of this Section 11 and the Shares represented by such
certificate(s) shall be free of the restrictions referred to in paragraph (a) of
this Section 11.
L. Adjustments Upon Changes in Capitalization. In the event of any
change in the outstanding Shares subsequent to the effective date of the Plan by
reason of any reorganization, recapitalization, stock split, stock dividend,
combination or exchange of shares, merger, consolidation or any change in the
corporate structure or Shares of the Corporation, the maximum aggregate number
and class of shares as to which Awards may be granted under the Plan and the
number and class of shares with respect to which Awards theretofore have been
granted under the Plan shall be appropriately adjusted by the Committee, whose
determination shall be conclusive. Any shares of stock or other securities
received, as a result of any of the foregoing, by a Participant with respect to
Restricted Stock shall be subject to the same restrictions and the
certificate(s) or other instruments representing or evidencing such shares or
securities shall be legended and deposited with the Corporation in the manner
provided in Section 11 hereof.
M. Effect of Merger on Options or Rights. In the event of any merger or
consolidation of the Corporation (other than a merger or consolidation in which
the Corporation is the continuing entity and which does not result in the
outstanding Shares being converted into or exchanged for different securities,
cash or other property, or any combination thereof) pursuant to a plan or
agreement the terms of which are binding upon all stockholders of the
Corporation (except to the extent that dissenting stockholders may be entitled,
under statutory provisions or provisions contained in the certificate of
incorporation, to receive the appraised or fair value of their holdings), any
Participant to whom an Option or Right has been granted at least 6 months prior
to such event shall have the right (subject to the provisions of the Plan and
any limitation applicable to such Option or Right), thereafter and during the
term of each such Option or Right, to receive upon exercise of any such Option
or Right an amount equal to the excess of the fair market value on the date of
such exercise of the securities, cash or other property, or combination thereof,
receivable upon such merger, consolidation or combination in respect of a Share
over the Exercise Price of such Right or Option, multiplied by the number of
Shares with respect to which such Option or Right shall have been exercised.
Such amount may be payable fully in cash, fully in one or more of the kind or
kinds of property payable in such merger, consolidation or combination, or
partly in cash and partly in one or more of such kind or kinds of property, all
in the discretion of the Committee.
<PAGE> 10
N. Effect of Chance in Control. Each of the events specified in the
following clauses (i) through (iii) of this Section 14 shall be deemed a "change
of control": (i) any third person, including a "group" as defined in Section
13(d) (3) of the Securities Exchange Act of 1934, shall become the beneficial
owner of shares of the Corporation with respect to which 25% or more of the
total number of votes for the election of the Board of Directors of the
Corporation may be cast, (ii) as a result of, or in connection with, any cash
tender offer, merger or other business combination, sale of assets or contested
election, or combination of the foregoing, the persons who were directors of the
Corporation shall cease to constitute a majority of the Board of Directors of
the Corporation or (iii) the shareholders of the Corporation shall approve an
agreement providing either for a transaction in which the Corporation will cease
to be an independent publicly owned entity or for a sale or other disposition of
all or substantially all the assets of the Corporation; provided, however, that
the occurrence of any such events shall not be deemed a "change in control" if,
prior to such occurrence, a resolution specifically approving such occurrence
shall have been adopted by at least a majority of the Board of Directors of the
Corporation. If the Continuous Service of any Participant of the Corporation or
any Affiliate is involuntarily terminated for whatever reason, at any time
within eighteen months after a change in control, unless the Committee shall
have otherwise provided in the agreement referred to in paragraph (d) of Section
11 hereof, any Restricted Period with respect to Restricted Stock theretofore
awarded to such Participant shall lapse upon such termination and all Shares
awarded as Restricted Stock shall become fully vested in the Participant to whom
such Shares were awarded. If a tender offer or exchange offer for Shares (other
than such an offer by the Corporation) is commenced, or if the event specified
in clause (iii) above shall occur, unless the Committee shall have otherwise
provided in the instrument evidencing the grant of an Option or Stock
Appreciation Right, all Options and Stock Appreciation Rights theretofore
granted and not fully exercisable shall become exercisable in full upon the
happening of such event and shall remain so exercisable for a period of sixty
days following such date, after which they shall revert to being exercisable in
accordance with their terms; provided, however, that no Option or Stock
Appreciation Right shall be exercisable by a Ten Percent Beneficial Owner, a
director or Senior Officer of the Corporation within six months of the date of
grant of such Option or Stock Appreciation Right and no Option or Stock
Appreciation Right which has previously been exercised or otherwise terminated
shall become exercisable.
O. Assignments and Transfers. No Award nor any right or interest of a
Participant under the Plan in any instrument evidencing any Award under the Plan
may be assigned, encumbered or transferred except, in the event of the death of
a Participant, by will or the laws of descent and distribution or pursuant to a
qualified domestic relations order as defined in the Code or Title I of ERISA or
the rules thereunder.
P. Employee Rights Under the Plan. No director, officer or employee
shall have a right to be selected as a Participant nor, having been so selected,
to be selected again as a Participant and no director, officer, employee or
other person shall have any claim or right to be granted an Award under the Plan
or under any other incentive or similar plan of the Corporation or any
Affiliate. Neither the Plan nor any action taken thereunder shall be construed
as giving any employee any right to be retained in the employ of the Corporation
or any Affiliate.
Q. Delivery and Registration of Stock. The Corporation's obligation to
deliver Shares with respect to an Award shall, if the Committee so requests, be
conditioned upon the receipt of a representation as to the investment intention
of the Participant to whom such Shares are to be
<PAGE> 11
delivered, in such form as the Committee shall determine to be necessary or
advisable to comply with the provisions of the Securities Act of 1933 or any
other Federal, state or local securities legislation or regulation. It may be
provided that any representation requirement shall become inoperative upon a
registration of the Shares or other action eliminating the necessity of such
representation under such Securities Act or other securities legislation. The
Corporation shall not be required to deliver any Shares under the Plan prior to
(i) the admission of such shares to listing on any stock exchange on which
Shares may then be listed, and (ii) the completion of such registration or other
qualification of such Shares under any state or Federal law, rule or regulation,
as the Committee shall determine to be necessary or advisable.
This Plan is intended to comply with Rule 16b-3 under the Securities
Exchange Act of 1934. Any provision of the Plan which is inconsistent with said
Rule shall, to the extent of such inconsistency, be inoperative and shall not
affect the validity of the remaining provisions of the Plan.
R. Withholding Tax. Upon the termination of the Restricted Period with
respect to any shares of Restricted Stock (or at any such earlier time, if any,
that an election is made by the Participant under Section 83(b) of the Code, or
any successor provision there to, to include the value of such shares in taxable
income), the Corporation shall, have the right to require the Participant or
other person receiving such shares to pay the Corporation the amount of any
taxes which the Corporation is required to withhold with respect to such shares,
or, in lieu thereof, to retain or sell without notice, a sufficient number of
shares held by it to cover the amount required to be withheld. The Corporation
shall have the right to deduct from all dividends paid with respect to shares of
Restricted Stock the amount of any taxes which the Corporation is required to
withhold with respect to such dividend payments.
The Corporation shall have the right to deduct from all amounts paid
in cash with respect to the exercise of a Right under the Plan any taxes
required by law to be withheld with respect to such cash payments. Where a
Participant or other person is entitled to receive Shares pursuant to the
exercise of an Option or Right pursuant to the Plan, the Corporation shall have
the right to require the Participant or such other person to pay the Corporation
the amount of any taxes which the Corporation is required to withhold with
respect to such Shares.
S. Amendment or Termination. The Board of Directors of the Corporation
may amend, suspend or terminate the Plan or any portion thereof at any time, but
(except as provided in Section 12 hereof) no amendment shall be made without
approval of the stockholders of the Corporation which shall (i) materially
increase the aggregate number of Shares with respect to which Awards may be made
under the Plan, (ii) materially increase the aggregate number of Shares which
may be subject to Awards to Participants who are not Employees or (iii) change
the class of persons eligible to participate in the Plan; provided, however,
that no such amendment, suspension or termination shall impair the rights of any
Participant, without his consent, in any Award theretofore made pursuant to the
Plan.
T. Effective Date and Term of Plan. The Plan shall become effective
upon its adoption by the Board of Directors of the Corporation, subject to the
Association converting to a stock institution and, if required In order to
qualify the Plan for an exemption from Section 16 of the Securities Exchange Act
of 1934, approval of the Plan by vote of the holders of a majority of
<PAGE> 12
the outstanding shares of the Corporation entitled to vote on the adoption of
the Plan. It shall continue in effect for a term of ten years unless sooner
terminated under Section 19 hereof.
U. Initial Grant. By, and simultaneously with, the adoption of this
Plan, each member of the Board of Directors of the Corporation at the time of
the Association's conversion to stock form who is not a full-time Employee is
hereby granted Restricted Stock, effective as of the date of the Association's
conversion to stock form, equal to 6.0% of the total number of Shares reserved
for issuance under the Plan. Each Share of Restricted Stock shall be evidenced
by a Restricted Stock Agreement in a form approved by the Board of Directors and
shall be subject in all respects to the terms and conditions of this Plan, which
are controlling. All Shares of Restricted Stock granted pursuant to this Section
21 shall be rounded down to the nearest whole share to the extent necessary to
ensure that no options to purchase or restricted stock representing fractional
shares are issued. The Restricted Stock granted hereby shall be restricted for a
period of 4 years and the restrictions on such shares of Restricted Stock shall
lapse at a rate of 25% per year of Continuous Service completed following the
date of issue, provided however, that in the event of a "change in control", as
defined in Section 14 hereof, all shares of Restricted Stock awarded pursuant to
this Section 21 shall become fully vested in the Participant. Dividends paid, if
any, with respect to Restricted Stock granted pursuant to Section 21 shall be
distributed to the Participants immediately following the payment date.
V. Formula Awards. Notwithstanding anything else in this Plan to the
contrary, to the extent that the Plan provides for formula awards, as defined in
Rule 16b-3(c) (2) (ii) under the Exchange Act, such provisions may not be
amended more than once every six months, other than to comport with changes in
the Code, ERISA or the rules thereunder.
AMENDMENTS
July 26, 1993:
Section 5 of the Plan is amended in its entirety to read as follows:
5. Shares Subject to Plan. Subject to adjustment by the operation of
Section 12 hereof, the maximum number of Shares with respect to which Awards may
be made under the Plan is 10% of the total Shares issued in the Association's
conversion to the capital stock and 10% of the total shares, if any, issued in
connection with the merger conversion of The Glenway Loan and Deposit Company.
The Shares with respect to which Awards may be made under the Plan may be either
authorized and unissued shares or issued shares heretofore or hereafter
reacquired and held as treasury shares. Shares which are subject to Related
Rights and Related Options shall be counted only once in determining whether the
maximum number of Shares with respect to which Awards may be granted under the
Plan has been exceeded. An Award shall not be considered to have been made under
the Plan with respect to any Option or Right which terminates or with respect to
Restricted Stock which is forfeited, and new Awards may be granted under the
Plan with respect to the number of Shares as to which such termination or
forfeiture has occurred.
<PAGE> 1
EXHIBIT 13
COMMON STOCK AND RELATED INFORMATION
The Corporation's common stock has been listed on the Nasdaq System
since August 24, 1993 when it was approved for listing on the Small Cap Market.
In June 1995, the Corporation received approval for listing on the Nasdaq
National Market. The Corporation's common stock was designated a marginable
security by the Federal Reserve Board in August 1995.
Presented below, as adjusted for a 5% stock dividend effected in fiscal
1996, are (1) the high and low sales prices for the Corporation's common stock
for each quarter of fiscal 1996; (2) the high and low bids for the Corporation's
common stock for each quarter of fiscal 1995 and 1994; and (3) the amount of
cash dividends paid on the common stock, for each quarter of the last three
fiscal years. The bids for fiscal 1995 and 1994 do not represent actual
transactions, and none of these prices include retail markups, markdowns or
commissions. Information relating to sales and bid prices has been obtained by
the Corporation from Nasdaq.
<TABLE>
<CAPTION>
CASH
FISCAL YEAR ENDING JUNE 30 HIGH LOW DIVIDENDS
- -------------------------- ---- --- ---------
1996 SALES PRICES
<S> <C> <C> <C>
Quarter ending September 30, 1995 $21.50 $16.75 $ .17
Quarter ending December 31, 1995 24.50 18.75 .17
Quarter ending March 31, 1996 24.50 21.00 .17
Quarter ending June 30, 1996 23.25 20.25 .17
1995 BID PRICES
Quarter ending September 30, 1994 $18.76 $17.10 $ .14
Quarter ending December 31, 1994 18.76 15.91 .16
Quarter ending March 31, 1995 18.53 16.15 .16
Quarter ending June 30, 1995 18.05 15.20 .16
1994 BID PRICES
Quarter ending September 30, 1993 $18.05 $16.15 $ .14
Quarter ending December 31, 1993 20.90 19.00 .14
Quarter ending March 31, 1994 19.95 17.41 .14
Quarter ending June 30, 1994 18.05 17.10 .14
</TABLE>
As of September 13, 1996, the Corporation had outstanding 1,150,107
shares of common stock, held by approximately 545 stockholders of record. This
number of stockholders does not reflect the number of persons or entities who
may hold stock in nominee or "street" name through brokerage firms or others. In
1996, the Corporation announced the implementation of a dividend reinvestment
program (the "DRIP") pursuant to which stockholders may choose to reinvest
automatically all or a portion of the cash dividends received on shares of the
Corporation's common stock. Stockholders also may make quarterly cash
contributions to the DRIP for the purchase of additional shares of common stock
of the Corporation. The Corporation's transfer agent administers the DRIP.
<PAGE> 2
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The following tables set forth certain information concerning
the Corporation's consolidated financial position and results of operations at
the dates and for the periods indicated.
<TABLE>
<CAPTION>
At June 30,
-------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(In thousands)
STATEMENT OF FINANCIAL CONDITION
DATA:(1)
Total amount of:
<S> <C> <C> <C> <C> <C>
Assets $278,809 $265,740 $243,914 $225,540 $229,447
Interest-bearing deposits in other
financial institutions 340 426 1,821 3,970 4,595
Investment securities held for sale - - - 6,702 -
Investment securities, at cost 5,549 7,489 10,499 8,549 11,289
Investment securities available for
sale, at market(2) 4,084 4,092 4,047 - -
Mortgage-backed securities available
for sale(2) 14,761 4,769 6,824 - -
Mortgage-backed securities, at cost 15,710 28,011 30,754 31,625 24,543
Loans receivable, net(3) 221,101 205,413 175,110 160,906 168,836
Goodwill and other intangible assets 576 796 1,037 1,357 1,713
Deposit accounts 222,768 208,377 196,499 202,713 210,171
FHLB advances 25,634 27,158 17,731 4,066 2,633
Stockholders' equity - restricted(4) 26,781 25,387 25,045 15,986 14,322
</TABLE>
<TABLE>
<CAPTION>
Year ended June 30,
---------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(Dollars in thousands, except per share data)
STATEMENT OF EARNINGS: (1)
<S> <C> <C> <C> <C> <C>
Total interest income $19,984 $17,862 $15,132 $16,849 $18,842
Total interest expense 11,933 10,300 8,160 9,813 13,307
------- ------- ------- ------- -------
Net interest income 8,051 7,562 6,972 7,036 5,535
Provision for loan losses 60 84 96 240 212
------- ------- ------- ------- -------
Net interest income after provision
for loan losses 7,991 7,478 6,876 6,796 5,323
Other income 734 913 809 1,526 1,934
General, administrative and other
expense 6,274 6,001 5,664 5,462 5,039
------- ------- ------- ------- -------
Earnings before income taxes 2,451 2,390 2,021 2,860 2,218
Federal income taxes 906 915 761 1,104 831
------- ------- ------- ------- -------
Net earnings $ 1,545 $ 1,475 $ 1,260 $ 1,756 $ 1,387
======= ======= ======= ======= =======
Earnings per share(5) $ 1.44 $ 1.36 $ 1.15 $ 1.61 $ 1.28
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
At or for the year ended June 30,
----------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
OTHER DATA
Interest rate spread 2.77% 2.77% 2.96% 3.05% 2.46%
Return on average assets .57 .57 .54 .77 .61
Average equity-to-assets ratio 9.58 9.72 10.23 6.62 6.10
Return on average equity 5.92 5.91 5.29 11.48 9.92
Number of:
Real estate loans outstanding 4,092 4,163 3,556 3,383 3,740
Deposit accounts 31,221 30,429 28,372 28,248 28,818
Branch offices open 5 6 6 6 6
</TABLE>
- ---------------------------------
(1) The consolidated financial statements as of and for each of the years
ended June 30, 1992 and 1993, have been restated to give effect to the
conversion-merger transaction by and between Centennial and Glenway
Financial. This business combination was accounted as a
pooling-of-interests.
(2) The Corporation adopted Statement of Financial Accounting Standards
("SFAS") No. 115 as of June 30, 1994. See "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Effects of
Recent Accounting Pronouncements."
(3) Includes loans held for sale.
(4) See Notes I and K of the Notes to Consolidated Financial Statements
regarding restrictions on equity.
(5) Earnings per share for 1992 through 1995 has been adjusted to give
effect to a 5% stock dividend paid in fiscal 1993 and 1996 and a
3-for-2 stock split in fiscal 1993. Earnings per share is a pro forma
presentation based on the following numbers of weighted average shares
outstanding for the years indicated: 1,085,274 for fiscal 1992;
1,088,121 for fiscal 1993; 1,094,062 for fiscal 1994; 1,083,692 for
fiscal 1995; and 1,075,301 for fiscal 1996.
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
GENERAL
The Corporation was incorporated under Delaware law in November 1990,
under the name Centennial Financial Corp., for the sole purpose of owning all of
the outstanding stock of the Savings Bank upon conversion to stock form. In
August 1993, the Corporation consummated a conversion-merger transaction with
Glenway Financial, a state-chartered savings and loan. In connection with the
transaction, the Corporation changed its name to Glenway Financial Corporation.
The business combination was accounted for as a pooling-of-interests, and,
accordingly, the consolidated financial statements of the Corporation and
Glenway Financial were retroactively combined as if the transaction had been in
effect for each of the periods presented herein.
Since the date of incorporation, Glenway Financial's activities have
been limited primarily to holding the Savings Bank subsidiary's stock. In
addition, the Corporation owns and operates a strip shopping center in which one
of the Savings Bank's branches is located; however, the impact of this activity
on the Corporation has not been material. Therefore, the discussion that follows
focuses on the comparison of Centennial's operations in the fiscal years ended
June 30, 1996 ("Fiscal 1996"), June 30, 1995 ("Fiscal 1995"), and June 30, 1994
("Fiscal 1994").
ASSET/LIABILITY MANAGEMENT
Centennial's earnings depend primarily upon its net interest income,
which is the difference between its interest income on interest-earning assets,
such as mortgage loans, investment securities and mortgage-backed securities,
and its interest expense paid on interest-bearing liabilities, consisting of
deposits and borrowings. As market interest rates change, asset yields and
liability costs do not change simultaneously. Due to maturity, repricing and
timing differences of its interest-earning assets and its interest-bearing
liabilities, Centennial's earnings will be affected differently under various
interest rate scenarios. Centennial has sought to limit these net income
fluctuations and manage interest rate risk by originating adjustable-rate loans
and purchasing relatively short-term and variable-rate investments and
securities. Centennial has a high percentage of adjustable-rate,
interest-earning assets, which reprice quickly with market interest rate
movements. At June 30, 1996, approximately $181.0 million, or 68.4%, of
Centennial's interest-earning assets had adjustable rates.
LIQUIDITY AND CAPITAL RESOURCES
Centennial's primary sources of funds are deposits, loan repayments and
other funds provided by operations. As an alternative source of funds,
Centennial may borrow funds from the Federal Home Loan Bank of Cincinnati
("FHLB") or from commercial banks. At June 30, 1996, Centennial had $25.6
million in outstanding FHLB advances. Of such amount, $12.0 million were
long-term borrowings (eight years or more to maturity) which had been matched to
fixed-rate loans made by Centennial during Fiscal 1994. The other $13.6 million
in outstanding FHLB advances at June 30, 1996 were short-term borrowings.
The primary investment activities of Centennial include originating
loans and purchasing mortgage-backed securities. The investments in such assets
have been funded primarily from deposits, loan repayments, loan sales, sales or
maturities of investment securities and FHLB advances. During Fiscal 1996, loans
receivable and loans held for sale increased by $15.7 million. This increase was
primarily funded by an increase in deposits of $14.4 million.
The FDIC has a policy which requires institutions to maintain an
average balance of liquid assets (e.g. cash, time deposits, U.S. Government and
agency obligations) in an amount which it deems adequate to protect safety and
soundness. The FDIC does not set a specific required level. In the opinion of
management, Centennial's liquidity position was adequate to maintain safe and
sound operations at June 30, 1996.
<PAGE> 4
Centennial's liquidity, represented by cash and cash-equivalents, is a
function of its operating, investing and financing activities. These activities
are summarized below for the periods indicated.
<TABLE>
<CAPTION>
For the year ended June 30,
---------------------------------------------------------------
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Net earnings $ 1,545 $ 1,475 $ 1,260
Adjustments to reconcile net earnings to net
cash provided by (used in) operating activities (616) (120) 6,735
------- ------- --------
Net cash provided by operating activities 929 1,355 7,995
Net cash used in investing activities (11,995) (22,714) (23,548)
Net cash provided by financing activities 12,136 19,424 15,780
------- ------- --------
Net increase (decrease) in cash and
cash equivalents 1,070 (1,935) 227
Cash and cash equivalents at beginning of year 4,072 6,007 5,780
------- ------- --------
Cash and cash equivalents at end of year $ 5,142 $ 4,072 $ 6,007
======= ======= ========
</TABLE>
The FDIC has adopted risk-based capital ratio guidelines to which
Centennial is subject. The guidelines establish a systematic analytical
framework that makes regulatory capital requirements more sensitive to
differences in risk profiles among financial institutions. Risk-based capital
ratios are determined by allocating assets and specified off-balance sheet
commitments to four risk-weighting categories, with higher levels of capital
being required for the categories perceived as representing greater risk. Such
guidelines also take into account other risks on an individualized basis,
including interest rate risk.
The FDIC capital guidelines divide an institution's capital into two
tiers. The first tier ("Tier 1") capital includes common equity, unrealized
losses on certain securities excluded from equity pursuant to SFAS No. 115,
certain non-cumulative perpetual preferred stock (excluding auction rate issues)
and minority interests in equity accounts of consolidated subsidiaries, less
goodwill and certain other intangible assets (except mortgage servicing rights
and purchased credit card relationships, subject to certain limitations).
Supplementary ("Tier 2") capital includes, among other items, cumulative
perpetual and long-term limited-life preferred stock, mandatory convertible
securities, certain hybrid capital instruments, long-term subordinated debt and
the allowance for loan and lease losses, subject to certain limitations, less
required deductions.
In addition, FDIC guidelines prescribe a minimum Tier I leverage ratio
(Tier I capital to adjusted total assets as specified in the guidelines). These
guidelines provide for a minimum Tier I leverage ratio of 3% for financial
institutions that meet certain specified criteria, including that they have the
highest regulatory rating and are not experiencing or anticipating significant
growth. All other institutions are required to maintain a Tier I leverage ratio
of 3% plus an additional cushion of at least 100 to 200 basis points. Financial
institutions are required to maintain a total risk-based capital ratio of 8%, of
which 4% must be met with Tier I capital. The FDIC may, however, set higher
capital requirements when particular circumstances warrant, including the
presence of excessive interest rate risk. Financial institutions experiencing or
anticipating significant growth are expected to maintain capital ratios well
above the minimum levels.
The following is a summary of Centennial's regulatory capital at June
30, 1996:
Percent
-------
Tier 1 Leverage Ratio 8.4%
Tier 1 Capital to Risk-Weighted Assets 13.4%
Total Capital to Risk-Weighted Assets 13.8%
<PAGE> 5
CHANGES IN FINANCIAL CONDITION
Glenway Financial's consolidated assets totaled $278.8 million at June
30, 1996, an increase of $13.1 million, or 4.9%, over June 30, 1995 levels. The
current year's growth was primarily attributable to a $14.4 million, or 6.9%,
increase in savings deposits, which was primarily utilized to fund an increase
in loans receivable of $15.7 million, or 7.6%. Loans receivable totaled $221.1
million at June 30, 1996. For the two-year period ended June 30, 1996, the
Corporation's loans receivable increased by $46.0 million, or 26.3%. During
Fiscal 1996, loan disbursements totaled $76.1 million, which were partially
offset by loan sales of $2.9 million and principal repayments of $57.3 million.
Centennial's growth in the loan portfolio is the result of management's strategy
to primarily hold loans in the current interest rate environment and to redeploy
funds from other asset categories into lending activities.
Cash and cash-equivalents, certificates of deposit in other financial
institutions and investment securities (including those designated as available
for sale) declined during Fiscal 1996 by $878,000, or 5.6%, generally reflecting
management's desire to obtain the higher yields available from investments in
loans. Similarly, mortgage-backed securities (including those designated as
available for sale) decreased during Fiscal 1996 by $2.3 million, or 7.0%, as
management decided to utilize repayment cash flows to originate new loans.
Asset quality, as measured by the ratio of nonperforming loans (loans
delinquent more than 90 days and nonaccrual loans) to the total portfolio
improved to $883,000, or .38% of loans receivable, at June 30, 1996, from
$927,000, or .44% of loans receivable, at June 30, 1995. The allowance for loan
losses of $618,000 and $616,000 at June 30, 1996 and 1995, respectively,
represented 70.0% and 66.5% of nonperforming loans at such dates. At June 30,
1996, the Corporation had an additional $242,000 in nonperforming assets which
were carried as real estate acquired through foreclosure, down from the $715,000
reported at the end of Fiscal 1995. Although, management believes that its
allowance for loan losses at June 30, 1996, was adequate based on facts and
circumstances available at the time, there can be no assurance that additions to
such allowance will not be necessary in future periods, which could adversely
effect the Corporation's results of operations.
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE YEARS ENDED JUNE 30, 1996 AND
1995
GENERAL. Net earnings for Fiscal 1996 totaled $1.5 million representing
an increase of $70,000, or 4.7%, over net earnings reported for Fiscal 1995. The
increase in earnings during Fiscal 1996 is primarily attributable to a $513,000,
or 6.9%, increase in net interest income after provision for losses on loans,
which was partially offset by a $179,000, or 19.6%, decline in other income and
an increase of $273,000 in general, administrative and other expense.
NET INTEREST INCOME. Interest income on loans and mortgage-backed
securities totaled $19.2 million in Fiscal 1996, an increase of $2.2 million, or
12.9%, over the $17.0 million recorded in Fiscal 1995. The increase resulted
primarily from an increase in the weighted average balance outstanding of $14.6
million, or 6.3%, coupled with an increase in the weighted average yield of 45
basis points, to 7.83% in Fiscal 1996. Interest on investments and
interest-bearing deposits declined during Fiscal 1996 by $67,000, or 7.4%, due
to a 24 basis point decline in weighted average yield and a $549,000 decline in
the weighted average balance outstanding.
Interest expense on deposits totaled $10.6 million during Fiscal 1996,
reflecting an increase of $1.8 million, or 20.6%, over Fiscal 1995 levels. The
increase was due primarily to the increase in the weighted average balance
outstanding of $15.9 million, or 7.8%, and, to a lesser extent, an increase in
the weighted average rate from 4.34% in Fiscal 1995 to 4.85% in Fiscal 1996.
Interest on FHLB advances declined during Fiscal 1996 by $176,000, or 11.6%, due
primarily to the decrease in outstanding advances year to year.
As a result of the foregoing changes in interest income and interest
expense, net interest income increased by $489,000, or 6.5%, during Fiscal 1996.
Centennial's interest rate spread remained consistent at 2.77% for Fiscal 1995
and Fiscal 1996, while the net interest margin increased by two basis points,
from 3.08% in Fiscal 1995 to 3.10% in Fiscal 1996.
<PAGE> 6
PROVISION FOR LOSSES ON LOANS. Centennial's provision for losses on
loans totaled $60,000 in Fiscal 1996, compared to $84,000 in Fiscal 1995.
Centennial's provision during Fiscal 1996 was based on management's overall
assessment of current and anticipated economic conditions, the level of asset
quality, delinquency totals, and portfolio growth from year to year. There can
be no assurance that the loan loss allowance will be adequate to absorb losses
on known nonperforming assets or that the allowance will be adequate to cover
losses on nonperforming assets in the future.
OTHER INCOME. Other income declined during Fiscal 1996 by $179,000, or
19.6%. The decrease was primarily attributable to a $273,000 gain on sale of
real estate held for sale recorded in Fiscal 1995, compared to a $144,000 gain
on sale of office premises realized in Fiscal 1996. Additionally, gains on sale
of mortgage loans declined by $28,000 and gains on sale of real estate acquired
through foreclosure declined by $31,000.
GENERAL, ADMINISTRATIVE AND OTHER EXPENSE. General, administrative and
other expense increased during Fiscal 1996 by $273,000, or 4.5%, due primarily
to a $111,000, or 3.5%, increase in employee compensation and benefits, an
increase in franchise taxes of $120,000, or 46.7%, and increases in occupancy
and equipment and federal deposit insurance premiums of $35,000 and $27,000,
respectively. A $21,000 decline in amortization of goodwill and a $34,000
decrease in other operating expenses partially offset the overall increase in
general and administrative expenses.
Congress is considering legislation to recapitalize the SAIF and to
eliminate the significant premium disparity between the SAIF and the Bank
Insurance Fund ("BIF"), by imposing a special assessment on SAIF members to
increase SAIF reserves to the level required by law. Currently, the special
assessment is estimated to be approximately $.71 per $100 of SAIF deposits held
at March 31, 1995. In addition, the legislation provides that the cost of prior
thrift failures currently assessed against the SAIF would be shared by the BIF
or certain government sponsored entities. SAIF assessments for healthy
institutions would be set at a significantly lower level, but could never be
reduced below the level set for healthy BIF institutions. This recapitalization
plan also provides for the merger of the SAIF and BIF on January 1, 1998. As
currently proposed, the SAIF recapitalization legislation provides for an
elimination of the thrift charter or of the separate federal regulation of
thrifts prior to the merger of the deposit insurance funds. If such proposal is
adopted, Glenway Financial would be required to become a bank holding company
and would be subject to more restrictive activity limits and to capital
requirements similar to those imposed on Centennial.
Centennial had $206.0 million in deposits at March 31, 1995. If the
special assessment is $.71 per $100 in deposits, Centennial will pay an
additional assessment of $1.5 million within 60 days of the enactment of the
recapitalization plan. This assessment should be tax-deductible, but it will
reduce earnings and capital for the quarter in which it is recorded. It is
expected that quarterly SAIF assessments would then be reduced thereafter.
No assurance can be given that the SAIF recapitalization plan will be
enacted into law or in what form it may be enacted. In addition, Glenway
Financial can give no assurance that the disparity between BIF and SAIF
assessments will be eliminated and that the impact of Glenway Financial being
regulated as a bank holding company will not be material until the legislation
requiring such changes is enacted.
FEDERAL INCOME TAXES. The provision for federal income taxes totaled
$906,000 in Fiscal 1996, a reduction of $9,000, or 1.0%, from the $915,000
recorded in Fiscal 1995. The decline is partially attributable to a decline in
the amortization of certain non-deductible intangible expense items. The
Corporation's effective tax rate was 37.0% in Fiscal 1996, as compared to 38.3%
in Fiscal 1995. For additional information regarding the Corporation's federal
income taxes, see Notes A-9 and I of Notes to Consolidated Financial Statements.
Under the law in effect prior to the enactment of the Small Business
Jobs Protection Act (the "Act"), which was signed into law on August 21, 1996, a
thrift institution annually could elect to deduct bad debts under either (i) the
"percentage of taxable income" method ("the Percentage Method") applicable only
to thrift institutions, or (ii) the "experience" method (the "Experience
Method") that was also available to small banks. For tax years 1995, 1994 and
1993, Centennial used the Percentage Method because that method provided a
higher bad debt deduction than the Experience Method. The Act repealed the
Percentage Method of accounting for bad debts by thrift institutions, effective
for taxable years beginning after 1995. Thrift institutions that would be
treated as small banks are allowed to utilize the Experience Method applicable
to such institutions. In addition, all thrift institutions must include in
taxable income over a six year period all bad debt reserves taken after 1987
(with all
<PAGE> 7
earlier reserves not being subject to recapture), although a two-year delay in
such recapture requirement may be permitted for institutions meeting a
residential mortgage loan origination test. However, the pre-1988 reserves which
are not required to be recaptured may not be utilized for a payment of cash
dividends or other distributions to a shareholder without recapture. Centennial
has provided deferred taxes on its post-1987 additions to its bad debt reserves.
Therefore, Centennial does not anticipate that the increase in taxable income
and taxes paid as a result of this recapture will have a material adverse effect
on its consolidated financial condition or results of operations.
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE YEARS ENDED JUNE 30, 1995 AND
1994
GENERAL. Net earnings for Fiscal 1995 totaled $1.5 million,
representing an increase of $215,000, or 17.1%, over the $1.3 million in net
earnings recorded for the Fiscal 1994. The increase in earnings during Fiscal
1995 is primarily attributable to a $602,000, or 8.8%, increase in net interest
income after provision for losses on loans and a $104,000, or 12.9%, increase in
other income, which were partially offset by a $337,000, or 5.9%, increase in
general, administrative and other expense and a $154,000 increase in the
provision for federal income taxes.
NET INTEREST INCOME. Interest income on loans and mortgage-backed
securities totaled $16.9 million in Fiscal 1995, an increase of $2.8 million, or
20.1%, over the $14.1 million recorded in Fiscal 1994. The increase in interest
income on loans and mortgage-backed securities reflects the upward movement of
interest rates during Fiscal 1995, as well as the beneficial effects of loan
growth throughout the fiscal year. Interest on investments and interest-bearing
deposits declined during Fiscal 1995 by $103,000, or 10.3%, due to a $5.5
million reduction in weighted average balances outstanding, which was partially
offset by an increase in weighted-average yield.
Interest expense on deposits totaled $8.8 million during Fiscal 1995,
reflecting an increase of $906,000, or 11.5%, from Fiscal 1994, due primarily to
an increase in weighted average rate from 3.91% in Fiscal 1994 to 4.34% in
Fiscal 1995 and, to a lesser extent, due to an increase in weighted average
deposits outstanding. Interest on FHLB advances increased during Fiscal 1995 by
$1.2 million, or 437.6%, due primarily to a $9.4 million increase in outstanding
advances year to year.
As a result of the foregoing, Centennial's interest rate spread
declined from 2.96% in Fiscal 1994 to 2.77% in Fiscal 1995, while net interest
income increased during Fiscal 1995 by $590,000 or 8.5%.
PROVISION FOR LOSSES ON LOANS. Centennial's provision for losses on
loans totaled $84,000 in Fiscal 1995, compared to $96,000 in Fiscal 1994.
Centennial's provision for losses on loans during Fiscal 1995 was attributable
to portfolio growth during the year, taking into consideration the decrease in
nonperforming loans.
OTHER INCOME. Other income increased during Fiscal 1995 by $104,000 or
12.9%. The Fiscal 1995 performance was attributable to a $273,000 increase in
gain on sale of real estate held for sale, coupled with a $60,000 increase in
gain on investments and mortgage-backed securities transactions and a $25,000
increase in other income. These increases were partially offset by a $259,000
reduction in gain on sale of loans.
GENERAL, ADMINISTRATIVE AND OTHER EXPENSE. General, administrative and
other expense increased during Fiscal 1995 by $337,000, or 5.9%, due primarily
to a $437,000, or 15.8%, increase in employee compensation and benefits and a
$90,000 increase in franchise taxes. These increases were partially offset by a
reduction of $190,000, or 6.9%, in other general and administrative expense
categories. The increase in employee compensation and benefits was comprised of
(i) a $301,000 increase due to employee benefit plans adopted in connection with
the conversion-merger, $233,000 of which is comprised of market value increases
as required by Statement of Position ("SOP") 93-6 and other relevant accounting
pronouncements; (ii) a reduction of $36,000 in deferred loan origination costs
in accordance with SFAS No. 91; and (iii) a $100,000, or 4.5%, increase due to
normal merit raises.
FEDERAL INCOME TAXES. The provision for federal income taxes totaled
$915,000 in Fiscal 1995, an increase of $154,000, or 20.2%, from the $761,000
recorded in Fiscal 1994. The increase is primarily attributable to a $369,000,
or 18.3%, increase in earnings before taxes. The Corporation's effective tax
rate was 38.3% in
<PAGE> 8
Fiscal 1995, as compared to 37.6% in Fiscal 1994. For additional information
regarding the Corporation's federal income taxes, see Notes A-9 and I of the
Notes to Consolidated Financial Statements.
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements and related financial data
presented herein have been prepared in accordance with generally accepted
accounting principles, which require the measurement of financial position and
results of operations in terms of historical dollars, without considering
changes in relative purchasing power of money over time due to inflation. Unlike
most industrial companies, virtually all of the assets and liabilities of a
financial institution are monetary in nature. As a result, interest rates have a
more significant impact on a financial institution's performance than does the
effect of general levels of inflation. In the current interest rate environment,
the liquidity, the maturity structure and the quality of the Corporation's
assets and liabilities are critical to the maintenance of acceptable performance
levels.
EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 121, "Accounting For the Impairment of Long-Lived Assets and Long-Lived
Assets to be Disposed of." SFAS No. 121 requires that long-lived assets and
certain identifiable intangibles to be held and used by an entity be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. In performing the review for
recoverability, the entity should estimate the future cash flows expected to
result from the use of the asset and its eventual disposition. If the sum of the
expected future cash flows (undiscounted and without interest charges) is less
than the carrying amount of the asset, an impairment loss is recognized.
Measurement of an impairment for long-lived assets and identifiable intangibles
that an entity expects to hold and use should be based on the fair value of the
asset. SFAS No. 121 is effective for financial statements for fiscal years
beginning after December 15, 1995. Earlier application is encouraged. Glenway
Financial adopted SFAS No. 121 on July 1, 1995, without material effect on
consolidated financial position or results of operations.
In June 1994, the FASB issued SFAS No. 122 "Accounting for Mortgage
Servicing Rights," which requires that Glenway Financial recognize, as separate
assets, rights to service mortgage loans for others, regardless of how those
servicing rights are acquired. An institution that acquires mortgage servicing
rights through either the purchase or origination of mortgage loans and sells
those loans with servicing rights retained would allocate some of the cost of
the loans to the mortgage servicing rights. SFAS No. 122 requires that
securitizations of mortgage loans be accounted for as sales of mortgage loans
and acquisitions of mortgage-backed securities. Additionally, SFAS No. 122
requires that capitalized mortgage servicing rights and capitalized excess
servicing receivables be assessed for impairment. Impairment is measured based
on fair value. SFAS No. 122 will apply prospectively to fiscal years beginning
after December 15, 1995, (July 1, 1996, as to Glenway Financial) to transactions
in which an entity acquires mortgage servicing rights and to impairment
evaluations of all capitalized mortgage servicing rights and capitalized excess
servicing receivables whenever acquired. Retroactive application is prohibited.
Management adopted SFAS No. 122 on July 1, 1996, without material effect on
Glenway Financial's consolidated financial position or results of operations.
In October 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation," establishing financial accounting and reporting
standards for stock-based employee compensation plans. SFAS No. 123 encourages
all entities to adopt a new method of accounting to measure compensation cost of
all employee stock compensation plans based on the estimated fair value of the
award at the date it is granted. Companies are, however, allowed to continue to
measure compensation cost for those plans using the intrinsic value based method
of accounting, which generally does not result in compensation expense
recognition for most plans. Companies that elect to remain with the existing
accounting are required to disclose in a footnote to the financial statements
pro forma net earnings and, if presented, earnings per share, as if SFAS No. 123
had been adopted. The accounting requirements of SFAS No. 123 are effective for
transactions entered into during fiscal years that begin after December 15,
1995; however, companies are required to disclose information for awards granted
in their first fiscal year beginning after December 15, 1994. Management has
determined that the Corporation will continue to account for stock-based
compensation pursuant to Accounting Principles Board Opinion No. 25, and,
therefore,
<PAGE> 9
adoption of SFAS 123 will not have a material effect on Glenway Financial's
financial condition or results of operations.
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers
of Financial Assets, Servicing Rights, and Extinguishment of Liabilities," that
provides accounting guidance on transfers of financial assets, servicing of
financial assets, and extinguishment of liabilities. SFAS No. 125 introduces an
approach to accounting for transfers of financial assets that provides a means
of dealing with more complex transactions in which the seller disposes of only a
partial interest in the assets, retains rights or obligations, makes use of
special purpose entities in the transaction, or otherwise has continuing
involvement with the transferred assets. The new accounting method, the
financial components approach, provides that the carrying amount of the
financial assets transferred be allocated to components of the transaction based
on their relative fair values. SFAS No. 125 provides criteria for determining
whether control of assets has been relinquished and whether a sale has occurred.
If the transfer does not qualify as a sale, it is accounted for as a secured
borrowing. Transactions subject to the provisions of SFAS No. 125 include, among
others, transfers involving repurchase agreements, securitizations of financial
assets, loan participations, factoring arrangements, and transfers of
receivables with recourse. An entity that undertakes an obligation to service
financial assets recognizes either a servicing asset or liability for the
servicing contract (unless related to a securitizations of assets, and all the
securitized assets are retained and classified as held-to-maturity). A servicing
asset or liability that is purchased or assumed is initially recognized at its
fair value. Servicing assets and liabilities are amortized in proportion to and
over the period of estimated net servicing income or net servicing loss and are
subject to subsequent assessments for impairment based on fair value. SFAS No.
125 provides that a liability is removed from the balance sheet only if the
debtor either pays the creditor and is relieved of its obligation for the
liability or is legally released from being the primary obligor. SFAS No. 125 is
effective for transfers and servicing of financial assets and extinguishment of
liabilities occurring after December 31, 1996, and is to be applied
prospectively. Earlier or retroactive application is not permitted. Management
does not believe that adoption of SFAS No. 125 will have a material adverse
effect on Glenway Financial's consolidated financial position or results of
operations.
<PAGE> 10
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Glenway Financial Corporation and Subsidiary
We have audited the accompanying consolidated statements of financial condition
of Glenway Financial Corporation and Subsidiary as of June 30, 1996 and 1995,
and the related consolidated statements of earnings, stockholders' equity and
cash flows for each of the three years ended June 30, 1996, 1995 and 1994. These
consolidated financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Glenway Financial
Corporation and Subsidiary as of June 30, 1996 and 1995, and the consolidated
results of their operations and their cash flows for each of the three years
ended June 30, 1996, 1995 and 1994, in conformity with generally accepted
accounting principles.
Grant Thornton LLP
Cincinnati, Ohio
August 23, 1996
F-1
<PAGE> 11
GLENWAY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
June 30,
(In thousands, except share data)
<TABLE>
<CAPTION>
ASSETS 1996 1995
<S> <C> <C>
Cash and due from banks $ 4,802 $ 3,646
Federal funds sold 204 173
Interest-bearing deposits in other financial institutions 136 253
-------- --------
Cash and cash equivalents 5,142 4,072
Investment securities - at amortized cost, approximate market
value of $5,499 and $7,299 at June 30, 1996 and 1995 5,549 7,489
Investment securities available for sale - at market 4,084 4,092
Mortgage-backed securities - at amortized cost, approximate market
value of $15,354 and $27,531 at June 30, 1996 and 1995 15,710 28,011
Mortgage-backed securities available for sale - at market 14,761 4,769
Loans receivable - net 220,007 204,874
Loans held for sale - at lower of cost or market 1,094 539
Office premises and equipment - at depreciated cost 5,929 4,454
Real estate acquired through foreclosure 242 715
Federal Home Loan Bank stock - at cost 2,222 2,058
Accrued interest receivable on loans 1,103 990
Accrued interest receivable on mortgage-backed securities 181 216
Accrued interest receivable on investments and interest-
bearing deposits 177 147
Cash surrender value of life insurance 1,457 1,426
Prepaid expenses and other assets 545 882
Prepaid federal income taxes 30 210
Goodwill and other intangible assets - net of amortization 576 796
-------- --------
Total assets $278,809 $265,740
======== ========
</TABLE>
F-2
<PAGE> 12
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
<S> <C> <C>
Deposits $ 222,768 $ 208,377
Advances from Federal Home Loan Bank 25,634 27,158
Loan to Employee Stock Ownership Plan 213 362
Checks issued in excess of bank balance 1,034 1,866
Advances by borrowers for taxes and insurance 242 473
Accounts payable on mortgage loans serviced for others 599 681
Accrued interest payable 56 44
Other liabilities 999 1,051
Deferred federal income taxes 483 341
--------- ---------
Total liabilities 252,028 240,353
Commitments -- --
Stockholders' equity
Serial preferred stock - authorized 500,000 shares of $.01 par value;
no shares issued -- --
Common stock - authorized 3,000,000 shares of $.01 par value;
1,130,854 and 1,114,008 shares issued at June 30, 1996 and 1995 11 10
Additional paid-in capital 12,102 11,026
Retained earnings - substantially restricted 15,749 15,906
Less required contributions for shares acquired by
employee benefit plans (316) (618)
Less 39,157 and 47,312 shares of treasury stock - at cost at June 30, 1996 and 1995 (756) (908)
Unrealized losses on securities designated as available for sale,
net of related tax effects (9) (29)
--------- ---------
Total stockholders' equity 26,781 25,387
--------- ---------
Total liabilities and stockholders' equity $ 278,809 $ 265,740
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 13
GLENWAY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
Year ended June 30,
(In thousands, except share data)
<TABLE>
<CAPTION>
1996 1995 1994
Interest income
<S> <C> <C> <C>
Loans $ 17,121 $14,911 $ 12,483
Mortgage-backed securities 2,029 2,050 1,645
Investment securities 646 752 738
Interest-bearing deposits and other 188 149 266
-------- ------- --------
Total interest income 19,984 17,862 15,132
Interest expense
Deposits 10,593 8,784 7,878
Borrowings 1,340 1,516 282
-------- ------- --------
Total interest expense 11,933 10,300 8,160
-------- ------- --------
Net interest income 8,051 7,562 6,972
Provision for losses on loans 60 84 96
-------- ------- --------
Net interest income after provision for losses on loans 7,991 7,478 6,876
Other income
Gain (loss) on sale of loans (14) 14 273
Gain (loss) on investment and mortgage-backed securities transactions (9) 1 (59)
Gain on sale of real estate held for sale -- 273 --
Gain on sale of office premises 144 -- --
Gain (loss) on sale of real estate acquired through foreclosure (13) 18 13
Other operating 626 607 582
-------- ------- --------
Total other income 734 913 809
General, administrative and other expense
Employee compensation and benefits 3,308 3,197 2,760
Occupancy and equipment 475 440 527
Federal deposit insurance premiums 484 457 495
Franchise taxes 377 257 167
Data processing 245 210 274
Amortization of goodwill and other
intangible assets 220 241 320
Other operating 1,165 1,199 1,121
-------- ------- --------
Total general, administrative and other expense 6,274 6,001 5,664
-------- ------- --------
Earnings before income taxes 2,451 2,390 2,021
Federal income taxes
Current 774 708 688
Deferred 132 207 73
-------- ------- --------
Total federal income taxes 906 915 761
-------- ------- --------
NET EARNINGS $ 1,545 $ 1,475 $ 1,260
======== ======= ========
EARNINGS PER SHARE $ 1.44 $ 1.36 $ 1.15
======== ======= ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 14
Glenway FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the years ended June 30, 1996, 1995 and 1994
(In thousands, except share data)
<TABLE>
<CAPTION>
SHARES
ACQUIRED BY
ADDITIONAL EMPLOYEE
COMMON PAID-IN RETAINED BENEFIT
STOCK CAPITAL EARNINGS PLANS
<S> <C> <C> <C> <C>
Balance at July 1, 1993 $ 3 $1,667 $14,400 $ (84)
Net proceeds from issuance of common stock 7 9,144 - (1,022)
Principal repayments on loan to ESOP/amortization of expense
related to employee benefit plans - - - 192
Net earnings for the year ended June 30, 1994 - - 1,260 -
Cash dividends of $.60 per share - - (524) -
Issuance of shares under stock option plan - 104 - -
Unrealized losses on securities designated as available
for sale, net of related tax effects - - - -
----- ------- ------- -------
Balance at June 30, 1994 10 10,915 15,136 (914)
Principal repayments on loan to ESOP/amortization of
expense related to employee benefit plans - - - 296
Net earnings for the year ended June 30, 1995 - - 1,475 -
Cash dividends of $.66 per share - - (705) -
Purchase of treasury shares - - - -
Issuance of shares under employee benefit and
stock option plans - 111 - -
Unrealized gain on securities designated as available for sale,
net of related tax effects - - - -
----- ------- ------- -------
Balance at June 30, 1995 10 11,026 15,906 (618)
Principal repayments on loan to ESOP/amortization of
expense related to employee benefit plans - 31 - 149
Net earnings for the year ended June 30, 1996 - - 1,545 -
Cash dividends of $.68 per share - - (732) -
Stock dividend (5%), including cash in lieu of fractional shares 1 965 (970) -
Issuance of shares under employee benefit and stock option plans - 80 - 153
Unrealized gain on securities designated as available for sale,
net of related tax effects - - - -
----- ------- ------- -------
Balance at June 30, 1996 $ 11 $12,102 $15,749 $ (316)
===== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
UNREALIZED
GAINS (LOSSES)
ON SECURITIES
TREASURY DESIGNATED AS
STOCK AVAILABLE FOR SALE TOTAL
<S> <C> <C> <C>
Balance at July 1, 1993 $- $- $15,986
Net proceeds from issuance of common stock - - 8,129
Principal repayments on loan to ESOP/amortization of expense
related to employee benefit plans - - 192
Net earnings for the year ended June 30, 1994 - - 1,260
Cash dividends of $.60 per share - - (524)
Issuance of shares under stock option plan - - 104
Unrealized losses on securities designated as available
for sale, net of related tax effects - (102) (102)
------- ------ -------
Balance at June 30, 1994 - (102) 25,045
Principal repayments on loan to ESOP/amortization of
expense related to employee benefit plans - - 296
Net earnings for the year ended June 30, 1995 - - 1,475
Cash dividends of $.66 per share - - (705)
Purchase of treasury shares (1,048) - (1,048)
Issuance of shares under employee benefit and
stock option plans 140 - 251
Unrealized gain on securities designated as available for sale,
net of related tax effects - 73 73
------- ------ -------
Balance at June 30, 1995 (908) (29) 25,387
Principal repayments on loan to ESOP/amortization of
expense related to employee benefit plans - - 180
Net earnings for the year ended June 30, 1996 - - 1,545
Cash dividends of $.68 per share - - (732)
Stock dividend (5%), including cash in lieu of fractional shares - - (4)
Issuance of shares under employee benefit and stock option plans 152 - 385
Unrealized gain on securities designated as available for sale,
net of related tax effects - 20 20
------- ------ -------
Balance at June 30, 1996 $ (756) $ (9) $26,781
======= ====== =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 15
GLENWAY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended June 30,
(In thousands)
<TABLE>
<CAPTION>
Cash flows provided by (used in) operating activities: 1996 1995 1994
<S> <C> <C> <C>
Net earnings for the year $ 1,545 $ 1,475 $ 1,260
Adjustments to reconcile net earnings to net
cash provided by (used in) operating activities:
Depreciation and amortization 197 198 233
Provision for losses on loans 60 84 96
(Gain) loss on sale of loans 14 (14) (273)
(Gain) loss on investments and mortgage-backed
securities transactions 9 (1) 59
(Gain) loss on sale of real estate acquired through foreclosure 13 (18) (13)
Gain on sale of real estate held for sale -- (273) --
Gain on sale of office premises (144) -- --
Amortization of deferred loan origination fees (102) (100) (232)
Amortization of goodwill and other intangible assets 220 241 320
Amortization of premiums and discounts on loans,
investments and mortgage-backed securities - net 67 51 250
Amortization of expense related to employee benefit plans 180 296 192
Loans disbursed for sale in the secondary market (3,442) (2,300) (26,081)
Proceeds from loans sold in the secondary market 2,873 1,977 30,531
Federal Home Loan Bank stock dividends (148) (113) (90)
Increases (decreases) in cash due to changes in:
Accrued interest receivable on loans (113) (183) (36)
Accrued interest receivable on mortgage-backed securities 35 (4) (3)
Accrued interest receivable on investments and
interest-bearing deposits (30) 37 (11)
Prepaid expenses and other assets 337 (331) 327
Accounts payable on mortgage loans serviced for others (82) (240) (682)
Accrued interest payable and other liabilities (40) 406 157
Checks issued in excess of bank balance (832) 361 1,505
Federal income taxes
Current 180 (401) 413
Deferred 132 207 73
------- ------- -------
Net cash provided by operating activities 929 1,355 7,995
Cash flows provided by (used in) investing activities:
Principal repayments on mortgage-backed securities 5,474 3,290 13,585
Purchase of mortgage-backed securities designated as held-to-maturity (4,267) -- (19,725)
Proceeds from mortgage-backed securities designated
as available for sale 1,060 1,500 --
Proceeds from maturities of investment securities 3,026 2,010 4,000
Proceeds from sale of investment securities 993 1,001 2,559
Purchase of investment securities designated as held-to-maturity (2,075) -- (5,995)
Loan principal repayments 56,987 26,248 41,988
Loan disbursements (72,354) (56,730) (60,082)
Certificates of deposit in other financial institutions -- 100 496
Purchase of loans -- -- (234)
Purchase and construction of office premises and equipment (1,898) (297) (412)
Proceeds from sale of office premises and equipment 370 -- --
Proceeds from sale of real estate acquired via foreclosure 736 243 272
Proceeds on sale of real estate held for sale -- 1,387 --
Purchase of Federal Home Loan Bank stock (16) (320) --
Redemption of Federal Home Loan Bank stock -- 280 --
Purchase of single premium life insurance policy -- (1,370) --
Increase in cash surrender value of life insurance policy (31) (56) --
------- ------- -------
Net cash used in investing activities (11,995) (22,714) (23,548)
Net cash used in operating and investing
activities (subtotal carried forward) (11,066) (21,359) (15,553)
-------- -------- --------
</TABLE>
F-6
<PAGE> 16
GLENWAY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Year ended June 30,
(In thousands)
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Net cash used in operating and investing
activities (subtotal brought forward) $(11,066) $(21,359) $(15,553)
Cash flows provided by (used in) financing activities:
Net increase (decrease) in deposit accounts 14,391 11,878 (6,214)
Advances from Federal Home Loan Bank 50,200 54,150 18,178
Repayment of Federal Home Loan Bank advances (51,724) (44,723) (4,513)
Repayment of loan to employee stock ownership plan (149) (238) --
Advances by borrowers for taxes and insurance (231) (141) 104
Proceeds from issuance of common stock - net -- -- 8,645
Issuance of shares under stock option and benefit plans 385 251 104
Dividends paid on common stock (736) (705) (524)
Purchase of treasury stock -- (1,048) --
-------- -------- --------
Net cash provided by financing activities 12,136 19,424 15,780
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 1,070 (1,935) 227
Cash and cash equivalents at beginning of year 4,072 6,007 5,780
-------- -------- --------
Cash and cash equivalents at end of year $ 5,142 $ 4,072 $ 6,007
======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Federal income taxes $ 583 $ 797 $ 275
======== ======== ========
Interest on deposits and borrowings $ 11,921 $ 10,276 $ 8,149
======== ======== ========
Supplemental disclosure of noncash investing activities:
Transfer from loans to real estate acquired
through foreclosure $ 276 $ 575 $ --
======== ======== ========
Transfer of investment securities to a held for sale or
available for sale classification $ 1,000 $ -- $ 4,047
======== ======== ========
Transfer of mortgage-backed securities to an available
for sale classification $ 12,100 $ -- $ 6,824
======== ======== ========
Unrealized gain (loss) on securities designated as available
for sale, net of related tax effects $ 20 $ 73 $ (102)
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-7
<PAGE> 17
GLENWAY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996, 1995 and 1994
NOTE A - SUMMARY OF ACCOUNTING POLICIES
Glenway Financial Corporation (the "Corporation") is a savings and loan
holding company whose activities are primarily limited to holding the stock
of Centennial Savings Bank (the "Savings Bank"). Future references to the
Corporation or the Savings Bank are utilized herein as the context requires.
The Savings Bank conducts a general banking business in southwestern Ohio
which consists of attracting deposits from the general public and applying
those funds to the origination of loans for residential, consumer and
nonresidential purposes. The Savings Bank's profitability is significantly
dependent on net interest income, which is the difference between interest
income generated from interest-earning assets (i.e. loans and investments)
and the interest expense paid on interest-bearing liabilities (i.e. customer
deposits and borrowed funds). Net interest income is affected by the
relative amount of interest-earning assets and interest-bearing liabilities
and the interest received or paid on these balances. The level of interest
rates paid or received by the Savings Bank can be significantly influenced
by a number of environmental factors, such as governmental monetary policy,
that are outside of management's control.
The consolidated financial information presented herein has been prepared in
accordance with generally accepted accounting principles (GAAP) and general
accounting practices within the financial services industry. In preparing
consolidated financial statements in accordance with GAAP, management is
required to make estimates and assumptions that affect the reported amounts
of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and revenues and
expenses during the reporting period. Actual results could differ from such
estimates.
The following is a summary of the Corporation's significant accounting
policies which have been consistently applied in the preparation of the
accompanying consolidated financial statements.
1. Principles of Consolidation
The consolidated financial statements include the accounts of the
Corporation and its subsidiary, the Savings Bank, and its wholly-owned
subsidiary Centennial Savings and Loan Service Corporation. Centennial
Savings and Loan Service Corporation currently oversees a third-party agency
arrangement that offers alternative investment products to Centennial
depositors. All significant intercompany balances and transactions have been
eliminated.
2. Investment Securities and Mortgage-Backed Securities
Prior to fiscal 1994, portfolio investment securities and mortgage-backed
securities were carried at cost, adjusted for amortization of premiums and
accretion of discounts. The investments and mortgage-backed securities were
carried at cost, as it was management's intent, and the Corporation had the
ability to hold the securities until maturity. Investment securities and
mortgage-backed securities held for indefinite periods of time, or which
management utilized as part of its asset/liability management strategy, or
that would be sold in response to changes in interest rates, prepayment
risk, or the perceived need to increase regulatory capital were classified
as held for sale at the point of purchase and carried at the lower of cost
or market, with any resulting decline in market value below cost charged to
operations.
F-8
<PAGE> 18
GLENWAY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996, 1995 and 1994
NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued)
2. Investment Securities and Mortgage-Backed Securities (continued)
In May 1993, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 115 "Accounting for
Certain Investments in Debt and Equity Securities." SFAS No. 115 requires
that investments be categorized as held-to-maturity, trading, or available
for sale. Securities classified as held-to-maturity are carried at cost only
if the Corporation has the positive intent and ability to hold these
securities to maturity. Trading securities and securities available for sale
are carried at fair value with resulting unrealized gains or losses charged
to operations or stockholders' equity, respectively. The Corporation elected
early adoption of SFAS No. 115 as of June 30, 1994. The initial effect of
adoption was to reduce stockholders' equity by $102,000, representing the
unrealized market value depreciation on investment and mortgage-backed
securities designated as available for sale, net of applicable deferred
federal income tax benefits.
During September 1995, the FASB granted financial institutions the
opportunity to reclassify investment portfolios without calling into
question the Corporation's prior intent under SFAS No. 115. The Corporation
took advantage of this opportunity by reclassifying approximately $1.0
million of investment securities and $12.1 million of mortgage-backed
securities from held-to-maturity to the available for sale classification.
All reclassifications were made on a single day in conformity with the
requirement. Management believes that such changes will allow more
flexibility in managing interest rate risk within the investment and
mortgage-backed securities portfolios. At June 30, 1996, the Corporation's
stockholders' equity reflected an unrealized loss, net of applicable tax
effects totaling $9,000.
Realized gains or losses on sales of securities are recognized using the
specific identification method.
3. Loans Receivable
Loans held in portfolio are stated at the principal amount outstanding,
adjusted for premiums and discounts on loans purchased and sold. Premiums
and discounts on loans purchased and sold are amortized and accreted to
operations using the interest method over the average life of the underlying
loans.
Interest is accrued as earned unless the collectibility of the loan is in
doubt. Uncollectible interest on loans that are contractually past due is
charged off, or an allowance is established based on management's periodic
evaluation. The allowance is established by a charge to interest income
equal to all interest previously accrued, and income is subsequently
recognized only to the extent that cash payments are received until, in
management's judgment, the borrower's ability to make periodic interest and
principal payments has returned to normal, in which case the loan is
returned to accrual status. If the ultimate collectibility of the loan is in
doubt, in whole or in part, all payments received on nonaccrual loans are
applied to reduce principal until such doubt is eliminated.
F-9
<PAGE> 19
GLENWAY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996, 1995 and 1994
NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued)
3. Loans Receivable (continued)
The Savings Bank retains the servicing on loans sold and agrees to remit to
the investor loan principal and interest at agreed-upon rates. These rates
can differ from the loan's contractual interest rate resulting in a "yield
differential." In addition to previously deferred loan origination fees and
cash gains, gains on sale of loans can represent the present value of the
future yield differential less a normal servicing fee, capitalized over the
estimated life of the loans sold. Normal servicing fees are determined by
reference to the stipulated servicing fee set forth by the government agency
loan sale agreement. Such fees approximate the Savings Bank's normal
servicing costs. The resulting capitalized excess servicing fee is amortized
to operations over the estimated life of the loans using the interest
method. If prepayments are higher than expected, an immediate charge to
operations is made. If prepayments are lower, then adjustments are made
prospectively. At June 30, 1996 and 1995, unamortized deferred excess
servicing fees totaled approximately $31,000 and $48,000, respectively.
Amortization of the deferred excess servicing fee asset totaled
approximately $17,000, $13,000 and $67,000 for the years ended June 30,
1996, 1995 and 1994, respectively.
Loans held for sale are carried at the lower of cost or market, determined
in the aggregate. In computing cost, deferred loan origination fees are
deducted from the principal balances of the related loans. At June 30, 1996
and 1995, loans held for sale were carried at market and cost, respectively.
A marketing loss on loans held for sale totaling $50,000 was charged to
operations in fiscal 1996.
4. Loan Origination Fees
The Savings Bank accounts for loan origination fees in accordance with SFAS
No. 91, "Accounting for Nonrefundable Fees and Costs Associated with
Originating or Acquiring Loans and Initial Direct Costs of Leases." Pursuant
to the provisions of SFAS No. 91, origination fees received from loans, net
of direct origination costs, are deferred and amortized to interest income
using the level-yield method, giving effect to actual loan prepayments.
Additionally, SFAS No. 91 generally limits the definition of loan
origination costs to the direct costs attributable to originating a loan,
i.e., principally actual personnel costs. Fees received for loan commitments
that are expected to be drawn upon, based on the Savings Bank's experience
with similar commitments, are deferred and amortized over the life of the
loan using the level-yield method. Fees for other loan commitments are
deferred and amortized over the loan commitment period on a straight-line
basis.
5. Allowance for Losses on Loans
It is the Savings Bank's policy to provide valuation allowances for
estimated losses on loans based on past loss experience, current trends in
the level of delinquent and specific problem loans, adverse situations that
may affect the borrower's ability to repay, the estimated value of any
underlying collateral and current and anticipated economic conditions in its
primary lending areas. When the collection of a loan becomes doubtful, or
otherwise troubled, the Savings Bank records a charge-off equal to the
difference between the fair value of the property securing the loan and the
loan's carrying value. Major loans and major lending areas are reviewed
periodically to determine potential problems at an early date. The allowance
for loan losses is increased by charges to earnings and decreased by
charge-offs (net of recoveries).
F-10
<PAGE> 20
GLENWAY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996, 1995 and 1994
NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued)
5. Allowance for Losses on Loans (continued)
In June 1993, the FASB adopted SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan." This promulgation, which became effective for the
Corporation's fiscal year beginning July 1, 1995, requires that impaired
loans be measured based upon the present value of expected future cash flows
discounted at the loan's effective interest rate or, as an alternative, at
the loan's observable market price or fair value of the collateral. The
Corporation's current procedures for evaluating impaired loans result in
carrying such loans at the lower of cost or fair value. As a result, the
Corporation adopted SFAS No. 114 as of July 1, 1995 without material
financial statement effect.
A loan is defined under SFAS No. 114 as impaired when, based on current
information and events, it is probable that a creditor will be unable to
collect all amounts due according to the contractual terms of the loan
agreement. In applying the provisions of SFAS No. 114, the Savings Bank
considers its investment in one-to-four family residential loans and
consumer installment loans to be homogeneous and therefore excluded from
separate identification for evaluation of impairment. With respect to the
Savings Bank's investment in impaired multi-family and nonresidential loans,
such loans are collateral dependent and as a result are carried as a
practical expedient at the lower of cost or fair value.
It is the Savings Bank's policy to charge off unsecured credits that are
more than ninety days delinquent. Similarly, collateral dependent loans
which are more than ninety days delinquent are considered to constitute more
than a minimum delay in repayment and are evaluated for impairment under
SFAS No. 114 at that time.
At June 30, 1996, the Savings Bank had no loans that would be defined as
impaired under SFAS No. 114.
6. Depreciation and Amortization
Depreciation and amortization are provided for in amounts sufficient to
relate the cost of depreciable assets to operations over the estimated
service lives, principally on the straight-line method. An accelerated
method is used for tax reporting purposes.
7. Real Estate Acquired through Foreclosure
Real estate acquired through foreclosure is carried at the lower of the
loan's unpaid principal balance (cost), or fair value less estimated selling
expenses at the date of acquisition. A loan loss provision is recorded for
any writedown in the loan's carrying value to fair value at the date of
acquisition. Real estate loss provisions are recorded if the properties'
fair value subsequently declines below the value determined at the recording
date. In determining the lower of cost or fair value at acquisition, costs
relating to development and improvement of property are capitalized. Costs
relating to holding real estate acquired through foreclosure, net of rental
income, are charged against earnings as incurred.
F-11
<PAGE> 21
GLENWAY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996, 1995 and 1994
NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued)
8. Real Estate Held for Sale
Real estate held for sale was carried at the lower of cost or fair value.
The investment in real estate held for sale at June 30, 1994, was comprised
of a developed tract of land contiguous to the Corporation's new main office
site. The parcel of land was sold during fiscal 1995 resulting in a realized
gain of $273,000 on such sale.
9. Federal Income Taxes
The Corporation accounts for federal income taxes in accordance with the
provisions of SFAS No. 109, "Accounting for Income Taxes." SFAS No. 109
established financial accounting and reporting standards for the effects of
income taxes that result from the Corporation's activities within the
current and previous years. Pursuant to the provisions of SFAS No. 109, a
deferred tax liability or deferred tax asset is computed by applying the
current statutory tax rates to net taxable or deductible differences between
the tax basis of an asset or liability and its reported amount in the
consolidated financial statements that will result in taxable or deductible
amounts in future periods. Deferred tax assets are recorded only to the
extent that the amount of net deductible temporary differences or
carryforward attributes may be utilized against current period earnings,
carried back against prior years' earnings, offset against taxable temporary
differences reversing in future periods, or utilized to the extent of
management's estimate of future taxable income. A valuation allowance is
provided for deferred tax assets to the extent that the value of net
deductible temporary differences and carryforward attributes exceeds
management's estimates of taxes payable on future taxable income. Deferred
tax liabilities are provided on the total amount of net temporary
differences taxable in the future.
The Corporation's principal temporary differences between pretax financial
income and taxable income result primarily from the different methods of
accounting for deferred loan origination fees, Federal Home Loan Bank stock
dividends, certain components of retirement expense, gains on sale of loans
utilizing the net yield method, book and tax bad debt deductions and the
loss on mortgage loans sold in a reciprocal sale transaction. Additional
temporary differences result from depreciation expense computed utilizing
accelerated methods for federal income tax purposes.
10. Amortization of Goodwill and Other Intangible Assets
Goodwill arising from acquisitions is being amortized to expense in the same
manner and over the same time period as the related original discount on
long-term interest-bearing assets acquired, to the extent the value was
attributable to that discount. The amount of goodwill in excess of the
original unearned discount is being amortized to operations using the
straight-line method over a twenty-year period.
Specifically identifiable intangible assets arising from branch acquisitions
were amortized over the ten year estimated useful life of the deposits
acquired.
F-12
<PAGE> 22
GLENWAY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996, 1995 and 1994
NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued)
10. Amortization of Goodwill and Other Intangible Assets (continued)
At June 30, 1996, intangible assets consisted of the following:
<TABLE>
<CAPTION>
ORIGINAL UNAMORTIZED
BALANCE BALANCE
(In thousands)
<S> <C> <C>
Goodwill $3,850 $576
====== ====
</TABLE>
The approximate scheduled amortization with respect to intangible assets is
as follows:
<TABLE>
<CAPTION>
FUTURE
FISCAL YEAR ENDING JUNE 30, AMORTIZATION
(In thousands)
<S> <C> <C>
1997 $208
1998 142
1999 103
2000 and years thereafter 123
---
$576
====
</TABLE>
11. Benefit Plans
The Corporation has an Employee Stock Ownership Plan (ESOP) which provides
retirement benefits for substantially all employees who have completed one
year of service. Contributions of approximately $270,000, $238,000 and
$96,000 were made to the plan for the years ended June 30, 1996, 1995 and
1994, respectively.
The Savings Bank also sponsors a 401(k) profit sharing plan. Employer
contributions are made solely at the discretion of the Board of Directors,
not to exceed amounts allowable under Internal Revenue Service Regulations.
Profit-sharing plan contributions for the years ended June 30, 1996, 1995
and 1994 totaled approximately $99,000, $92,000 and $80,000.
12. Stock Option and Incentive Plan
The Corporation adopted a Stock Option and Incentive Plan that initially
provided for the issuance of 34,905 shares to directors, officers, and
employees. Based on the terms of such Plan, shares of restricted stock and
options to purchase 24,438 shares were initially granted at exercise prices
ranging from $4.70 to $6.06 per share. Compensation expense for restricted
shares is measured by the fair value at the date of grant. In connection
with the conversion-merger transaction, the Corporation granted an
additional 29,400 shares of restricted stock, and 44,027 shares under option
at the $13.33 initial offering price of such shares. The Corporation issued
10,969 and
F-13
<PAGE> 23
GLENWAY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996, 1995 and 1994
NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued)
12. Stock Option and Incentive Plan (continued)
12,419 shares of restricted stock during fiscal 1996 and 1995, respectively,
leaving 8,636 in total remaining shares subject to future issuance at June
30, 1996. The Corporation recognized expense totaling $178,000, $221,000 and
$194,000 for the years ended June 30, 1996, 1995 and 1994, respectively,
under the incentive plan. Shares exercised under option during fiscal 1996
and 1995 totaled 10,755 and 7,761, respectively, leaving 40,126 unexercised
shares under option at June 30, 1996, at exercise prices ranging from $4.70
- $13.33. The number of shares subject to the Option and Incentive Plan, as
well as future references to share totals, have been adjusted for a 5% stock
dividend paid during fiscal 1996.
13. Management Recognition and Retention Plan and Trust
The Corporation has established a Management Recognition and Retention Plan
and Trust (MRP) for which Centennial initially funded the purchase of 10,467
authorized and issued shares of common stock. In conjunction with the
conversion-merger transaction, the Corporation funded the purchase of an
additional 18,375 shares by the MRP. Shares issued by the MRP are generally
deemed earned and allocated to employees over a five year period. Expense
under the MRP plan totaled approximately $141,000, $88,000 and $37,000 for
the years ended June 30, 1996, 1995 and 1994, respectively.
14. Earnings Per Share
Earnings per share for the years ended June 30, 1996, 1995 and 1994, is
based upon the weighted-average shares outstanding during the year plus
those stock options that are dilutive, less shares in the ESOP that are
unallocated and not committed to be released. Weighted-average shares deemed
outstanding totaled 1,075,301, 1,083,692 and 1,094,062 during the respective
years. Weighted-average shares outstanding have been adjusted for the 5%
stock dividend paid in August 1995. Fully-diluted earnings per share is not
presented, as there is no material dilutive effect associated with the
Corporation's stock option plan.
15. Fair Value of Financial Instruments
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," (SFAS
No. 107) requires disclosure of the fair value of financial instruments,
both assets and liabilities whether or not recognized in the consolidated
statement of financial condition, for which it is practicable to estimate
that value. For financial instruments where quoted market prices are not
available, fair values are based on estimates using present value and other
valuation methods.
The methods used are greatly affected by the assumptions applied, including
the discount rate and estimates of future cash flows. Therefore, the fair
values presented may not represent amounts that could be realized in an
exchange for certain financial instruments.
F-14
<PAGE> 24
GLENWAY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996, 1995 and 1994
NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued)
15. Fair Value of Financial Instruments (continued)
The following methods and assumptions were used by the Corporation in
estimating its fair value disclosures for financial instruments at June 30,
1996:
Cash and cash equivalents: The carrying amounts presented in
the consolidated statement of financial condition for cash and
cash equivalents are deemed to approximate fair value.
Investment and mortgage-backed securities: For investment and
mortgage-backed securities, fair value is deemed to equal the
quoted market price.
Loans receivable: The loan portfolio has been segregated into
categories with similar characteristics, such as one-to-four
family residential, multi-family residential and
nonresidential real estate. These loan categories were further
delineated into fixed-rate and adjustable-rate loans. The fair
values for the resultant loan categories were computed via
discounted cash flow analysis, using current interest rates
offered for loans with similar terms to borrowers of similar
credit quality. For loans on deposit accounts and consumer and
other loans, fair values were deemed to equal the historic
carrying values. The historical carrying amount of accrued
interest on loans is deemed to approximate fair value.
Federal Home Loan Bank stock: The carrying amount presented in
the consolidated statement of financial condition is deemed to
approximate fair value.
Deposits: The fair value of NOW accounts, passbook and club
accounts, and money market deposits is deemed to approximate
the amount payable on demand. Fair values for fixed-rate
certificates of deposit have been estimated using a discounted
cash flow calculation using the interest rates currently
offered for deposits of similar remaining maturities.
Advances from Federal Home Loan Bank: The fair value of these
advances is estimated using the rates currently offered for
similar advances of similar remaining maturities or, when
available, quoted market prices.
Commitments to extend credit: For fixed-rate and
adjustable-rate loan commitments, the fair value estimate
considers the difference between current levels of interest
rates and committed rates. The difference between the fair
value and notional amount of outstanding loan commitments at
June 30, 1996 was not material.
F-15
<PAGE> 25
GLENWAY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996, 1995 and 1994
NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued)
15. Fair Value of Financial Instruments (continued)
Based on the foregoing methods and assumptions, the carrying value and fair
value of the Corporation's financial instruments at June 30 1996, are as
follows:
<TABLE>
<CAPTION>
CARRYING FAIR
VALUE VALUE
(In thousands)
<S> <C> <C>
Financial assets
Cash and short-term investments $ 5,142 $ 5,142
Investment securities 9,633 9,583
Mortgage-backed securities 30,471 30,115
Loans receivable 221,101 219,910
Stock in Federal Home Loan Bank 2,222 2,222
--------- ---------
$268,569 $266,980
======== ========
Financial liabilities
Deposits $222,768 $224,585
Advances from the Federal Home Loan Bank 25,634 25,511
Advances by borrowers for taxes and insurance 242 242
---------- ----------
$248,644 $250,338
======== ========
</TABLE>
16. Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents includes
cash and due from banks and interest-bearing deposits in other financial
institutions with original terms to maturity of less than ninety days.
17. Reclassifications
Certain prior year amounts have been reclassified to conform to the 1996
consolidated financial statement presentation.
F-16
<PAGE> 26
GLENWAY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996, 1995 and 1994
NOTE B - INVESTMENTS, SECURITIES AVAILABLE FOR SALE AND MORTGAGE-BACKED
SECURITIES
Carrying values and approximate market values of investment securities
classified as held to maturity at June 30 are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
CARRYING MARKET CARRYING MARKET
VALUE VALUE VALUE VALUE
(In thousands)
<S> <C> <C> <C> <C>
U. S. Government agency obligations $5,474 $5,426 $7,463 $7,273
Municipal obligations 75 73 26 26
------- ------- ------- -------
$5,549 $5,499 $7,489 $7,299
===== ===== ===== =====
</TABLE>
At June 30, 1996, the excess of the Savings Bank's cost carrying value over
the market value of investment securities, totaling $50,000, was comprised
of gross unrealized losses totaling $55,000 and gross unrealized gains of
$5,000. At June 30, 1995, the excess of the Savings Bank's cost carrying
value over the market value of investment securities was comprised solely of
gross unrealized losses totaling $190,000.
The amortized cost and market value of U.S. Government agency obligations at
June 30, 1996, by term to maturity, are shown below.
<TABLE>
<CAPTION>
AMORTIZED MARKET
COST VALUE
(In thousands)
<S> <C> <C>
Due within two years $ 500 $ 494
Due in two to five years 5,049 5,005
----- -----
$5,549 $5,499
===== =====
</TABLE>
During fiscal 1996, the Corporation sold $1.0 million of investment
securities designated as available for sale, realizing a loss of $7,000 as a
result of such sale.
F-17
<PAGE> 27
GLENWAY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996, 1995 and 1994
NOTE B - INVESTMENTS, SECURITIES AVAILABLE FOR SALE AND MORTGAGE-BACKED
SECURITIES (continued)
Investment securities designated as available for sale at June 30 consist of
the following:
<TABLE>
<CAPTION>
1996 1995
(In thousands)
<S> <C> <C>
Asset management funds (cost of $4,118 at each
of the respective dates) $4,084 $4,092
===== =====
</TABLE>
The Corporation has historically utilized its investment in asset management
funds for short-term liquidity management purposes, increasing or decreasing
such investments based on projected liquidity requirements. Sale redemptions
of $2.6 million in fiscal 1994 resulted in losses totaling $59,000. There
were no sale redemptions during fiscal 1996 and 1995.
The amortized cost, gross unrealized gains, gross unrealized losses and
market values of mortgage-backed securities at June 30, 1996 and 1995
(including those designated as available for sale) are shown below.
<TABLE>
<CAPTION>
1996
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
(In thousands)
<S> <C> <C> <C> <C>
Federal Home Loan
Mortgage Corporation
participation certificates $ 4,687 $- $ 70 $ 4,617
Government National
Mortgage Association
participation certificates 93 - 3 90
Federal National
Mortgage Association
participation certificates 8,930 - 225 8,705
Collateralized mortgage obligations 2,000 - 58 1,942
------- ----- ---- -------
Total mortgage-backed securities
held to maturity 15,710 - 356 15,354
Mortgage-backed securities designated
as available for sale 14,740 69 48 14,761
------ ---- ---- ------
Total mortgage-backed securities $30,450 $ 69 $404 $30,115
====== ==== === ======
</TABLE>
F-18
<PAGE> 28
GLENWAY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996, 1995 and 1994
NOTE B - INVESTMENTS, SECURITIES AVAILABLE FOR SALE AND MORTGAGE-BACKED
SECURITIES (continued)
<TABLE>
<CAPTION>
1995
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
(In thousands)
<S> <C> <C> <C> <C>
Federal Home Loan
Mortgage Corporation
participation certificates $11,310 $135 $ 24 $11,421
Government National
Mortgage Association
participation certificates 7,209 1 146 7,064
Federal National
Mortgage Association
participation certificates 7,263 - 353 6,910
Collateralized mortgage obligations 2,229 - 93 2,136
------- ----- ---- -------
Total mortgage-backed securities
held to maturity 28,011 136 616 27,531
Mortgage-backed securities designated
as available for sale 4,786 7 24 4,769
------- ----- ---- -------
Total mortgage-backed securities $32,797 $143 $640 $32,300
====== === === ======
</TABLE>
The amortized cost of mortgage-backed securities at June 30, 1996, including
those designated as available for sale, are shown below by contractual terms
to maturity. Expected maturities will differ from contractual maturities
because borrowers may generally prepay obligations without prepayment
penalties.
<TABLE>
<CAPTION>
AMORTIZED
COST
<S> <C>
Due within one year $ 1,090
Due after one to five years 93
Due after five years to ten years 2,240
Due after ten years to twenty years 900
Due after twenty years 26,127
------
Total mortgage-backed securities $30,450
=======
</TABLE>
During fiscal 1996, the Corporation sold $1.0 million of mortgage-backed
securities designated as available for sale, realizing a loss of $2,000 as a
result of such sale.
During fiscal 1995, the Corporation sold $1.5 million of mortgage-backed
securities designated as available for sale, realizing no gain or loss as a
result of such sale. There were no sales of mortgage-backed securities
during the year ended June 30, 1994.
F-19
<PAGE> 29
GLENWAY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996, 1995 and 1994
NOTE C - LOANS RECEIVABLE
The composition of the loan portfolio at June 30 is summarized as follows:
<TABLE>
<CAPTION>
1996 1995
(In thousands)
<S> <C> <C>
Residential real estate
One-to-four family residential $161,761 $158,034
Home equity lines of credit 20,051 14,823
Multi-family residential 16,368 14,945
Construction 18,969 12,693
Nonresidential real estate and land 12,337 11,207
Consumer and other 377 260
Deposit account 507 450
---------- ----------
230,370 212,412
Less:
Undisbursed portion of loans in
process 9,318 6,393
Deferred loan origination fees 427 529
Allowance for loan losses 618 616
---------- ----------
$220,007 $204,874
======= =======
</TABLE>
As depicted above, the Savings Bank's lending efforts have historically
focused on one-to-four family residential and multi-family residential real
estate loans, which comprise approximately $206.8 million, or 94%, of the
total loan portfolio at June 30, 1996, and $193.0 million, or 94%, of the
total loan portfolio at June 30, 1995. Generally, such loans have been
underwritten on the basis of no more than an 80% loan-to-value ratio, which
has historically provided the Savings Bank with adequate collateral coverage
in the event of default. Nevertheless, the Savings Bank, as with any lending
institution, is subject to the risk that residential real estate values
could deteriorate in its primary lending area of southwestern Ohio, thereby
impairing collateral values. However, management is of the belief that
residential real estate values in the Savings Bank's primary lending area
are presently stable.
As discussed previously, the Savings Bank has sold whole loans and
participating interests in loans in the secondary market, retaining
servicing on the loans sold. Loans sold and serviced for others totaled
approximately $68.8 million, $74.9 million and $80.5 million at June 30,
1996, 1995 and 1994, respectively.
Prior to fiscal 1994, the Corporation made loans to its directors, officers
and their related business interests in the normal course of business.
During fiscal 1994, the Corporation discontinued making loans to officers
and directors. Loans to officers and directors totaled approximately $1.1
million and $1.2 million at June 30, 1996 and 1995, respectively. During the
year ended June 30, 1996, there were no loans disbursed to officers and
directors, while principal repayments of $107,000 were received from
officers and directors.
The Savings Bank retains a Director's spouse to perform title and other
legal services principally related to the loan origination function.
Management believes that the fees paid for such services (totaling
approximately $137,000, $126,000 and $61,000 for the years ended June 30,
1996, 1995 and 1994, respectively) are at, or below, the comparable cost of
such services from unrelated parties.
F-20
<PAGE> 30
GLENWAY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996, 1995 and 1994
NOTE D - ALLOWANCE FOR LOAN LOSSES
The activity in the allowance for loan losses is summarized as follows for
the years ended June 30:
<TABLE>
<CAPTION>
1996 1995 1994
(In thousands)
<S> <C> <C> <C>
Beginning balance $616 $724 $648
Provision charged to operations 60 84 96
Charge-off of loans (58) (192) (28)
Recoveries of loan losses - - 8
----- ----- -----
Ending balance $618 $616 $724
=== === ===
</TABLE>
At June 30, 1996, the Savings Bank's allowance for loan losses was solely
comprised of a general loan loss allowance, which is includible as a
component of regulatory risk-based capital.
At June 30, 1996, 1995 and 1994, the Savings Bank's nonaccrual and
nonperforming loans totaled $883,000, $927,000 and $1.9 million,
respectively. Interest income which would have been recognized if such loans
had performed pursuant to contractual terms totaled approximately $35,000,
$34,000 and $90,000 for the years ended June 30, 1996, 1995 and 1994.
NOTE E - OFFICE PREMISES AND EQUIPMENT
Office premises and equipment at June 30 are comprised of the following:
<TABLE>
<CAPTION>
1996 1995
(In thousands)
<S> <C> <C>
Land $1,559 $1,659
Office buildings and improvements 4,528 3,037
Furniture, fixtures and equipment 1,701 1,740
----- -----
7,788 6,436
Less accumulated depreciation
and amortization 1,859 1,982
----- -----
$5,929 $4,454
====== ======
</TABLE>
During fiscal 1991, the Corporation purchased a developed tract of land as a
future office site for $2.1 million. After evaluating various alternatives,
the Corporation entered into an option during fiscal 1993 to sell a parcel
of land adjacent to the office site at a sales price of $1.5 million, less
selling costs of approximately $80,000. Accordingly, the land was
transferred to real estate held for sale at the lower of cost or fair value.
The land was sold in July, 1994, resulting in a $273,000 pre-tax gain.
Management anticipates that final costs of the branch facility will
approximate $2.8 million. The construction of the new branch facility and
corporate headquarters was completed in August 1996. Additionally, during
fiscal 1996, two of the Savings Bank's branch locations were sold resulting
in gains totaling $144,000.
F-21
<PAGE> 31
GLENWAY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996, 1995 and 1994
NOTE F - DEPOSITS
Deposits consist of the following major classifications at June 30:
<TABLE>
<CAPTION>
Deposit type and weighted-
average interest rate 1996 1995
(In thousands)
<S> <C> <C>
NOW accounts
1996 - 2.47% $ 20,511
1995 - 1.91% $ 14,049
Passbook and club accounts
1996 - 2.79% 40,482
1995 - 2.78% 42,013
Money market deposit accounts
1996 - 3.17% 7,634
1995 - 3.17% 9,226
---------- ---------
Total demand, transaction and passbook
deposits 68,627 65,288
Certificates of deposit
Original maturities of
Less than 12 months
1996 - 5.28% 46,861
1995 - 5.51% 27,122
12 months to 30 months
1996 - 5.87% 83,752
1995 - 5.87% 85,273
36 months or greater
1996 - 6.03% 23,528
1995 - 6.45% 30,694
---------- --------
Total certificates of deposit 154,141 143,089
------- -------
$222,768 $208,377
======= =======
</TABLE>
F-22
<PAGE> 32
GLENWAY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996, 1995 and 1994
NOTE F - DEPOSITS (continued)
Interest expense on deposit accounts for the years ended June 30 is
summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
(In thousands)
<S> <C> <C> <C>
Passbook $ 1,162 $1,311 $1,470
NOW accounts 333 303 339
Certificates of deposit 8,815 6,814 5,590
Money market deposit accounts 283 356 479
-------- ------ ------
$10,593 $8,784 $7,878
====== ===== =====
</TABLE>
Maturities of outstanding certificates of deposit are summarized as follows
at June 30:
<TABLE>
<CAPTION>
1996 1995
(In thousands)
<S> <C> <C>
Less than one year $106,938 $ 92,011
One year to three years 37,827 44,403
More than three years 9,376 6,675
--------- ---------
$154,141 $143,089
======== ========
</TABLE>
NOTE G - ADVANCES FROM THE FEDERAL HOME LOAN BANK
Advances from the Federal Home Loan Bank, collateralized at June 30, 1996
and 1995 by pledges of certain residential mortgage loans totaling $38.5
million and $40.7 million, and the Savings Bank's investment in Federal Home
Loan Bank stock are summarized as follows:
<TABLE>
<CAPTION>
INTEREST MATURING IN FISCAL JUNE 30,
RATE YEAR ENDING 1996 1995
<S> <C> <C> <C>
4.43 - 5.93% 1996 $ - $ 1,000
6.70% 1996 - 13,250
5.40 - 5.80% 1997 11,600 -
5.52% 1998 2,000 -
5.50% 2004 6,309 6,921
8.20% 2004 457 514
5.95% 2009 2,270 2,383
5.99% 2014 152 161
6.25% 2015 2,846 2,929
------- -------
$25,634 $27,158
======= =======
Weighted-average interest rate 5.78% 5.64%
==== ====
</TABLE>
F-23
<PAGE> 33
GLENWAY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996, 1995 and 1994
NOTE H - LOAN TO EMPLOYEE STOCK OWNERSHIP PLAN
As discussed previously in Note A-11, the Corporation established an
Employee Stock Ownership Plan, which initially acquired 24,310 shares of
common stock in the conversion offering. In order to fund the acquisition of
stock, the ESOP borrowed $147,000 from an independent third-party lender,
payable over a six year term. In connection with the conversion-merger, the
Corporation's ESOP purchased an additional 51,450 shares of common stock by
borrowing an additional $686,000, payable over a six year term. The sole
security for the loans is the acquired stock and, while neither Centennial
nor the Corporation has guaranteed the loans, future contributions to retire
the loans will be paid out of current or retained earnings. Accordingly, the
remaining unpaid amount of the loans to the ESOP has been deducted from
stockholders' equity with the corresponding future payments reflected as a
liability. At June 30, 1996, the ESOP held 82,010 shares of common stock, of
which approximately 65,957 shares had been allocated to participants.
NOTE I - FEDERAL INCOME TAXES
The provision for federal income taxes on earnings differs from that
computed at the statutory corporate tax rate for the years ended June 30 as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
(In thousands)
<S> <C> <C> <C>
Federal income taxes computed at the statutory rate $833 $813 $687
Increase (decrease) in taxes resulting from:
Purchase method accounting adjustments
(comprised solely of goodwill) 75 76 78
Tax-exempt interest (1) (1) (1)
Other (1) 27 (3)
----- ---- -----
Federal income tax provision per consolidated
financial statements $906 $915 $761
=== === ===
</TABLE>
F-24
<PAGE> 34
GLENWAY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996, 1995 and 1994
NOTE I - FEDERAL INCOME TAXES (continued)
The composition of the Corporation's net deferred tax liability at June 30
is as follows:
<TABLE>
<CAPTION>
1996 1995
(In thousands)
<S> <C> <C>
Taxes (payable) refundable on temporary
differences at estimated corporate
tax rate:
Deferred tax assets:
General loan loss allowance $ 210 $ 209
Retirement expense 118 129
Purchase accounting adjustments other than goodwill 52 73
----- -----
Total deferred tax assets 380 411
Deferred tax liabilities:
Percentage of earnings bad debt deduction (338) (289)
Book/tax depreciation (171) (164)
Federal Home Loan Bank stock dividends (313) (262)
Deferred loan origination costs (25) (18)
Other (16) (19)
----- -----
Total deferred tax liabilities (863) (752)
---- ----
Net deferred tax liability $(483) $(341)
==== ====
</TABLE>
The Savings Bank is allowed a special bad debt deduction, generally limited
to 8% of otherwise taxable income, subject to certain limitations based on
aggregate loans and savings account balances at the end of the year. If the
amounts that qualify as deductions for federal income taxes are later used
for purposes other than bad debt losses, including distributions in
liquidation, such distributions will be subject to federal income taxes at
the then current corporate income tax rate. Retained earnings at June 30,
1996, includes approximately $3.8 million for which federal income taxes
have not been provided. The amount of unrecognized deferred tax liability
relating to the cumulative bad debt deduction at June 30, 1996 is
approximately $1.0 million. See Note K for additional information regarding
the Savings Bank's future percentage of earnings bad debt deductions.
NOTE J - LOAN COMMITMENTS
The Savings Bank 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 including commitments to extend credit. Such commitments involve,
to varying degrees, elements of credit and interest-rate risk in excess of
the amount recognized in the statement of financial condition. The contract
or notional amounts of the commitments reflect the extent of the Savings
Bank's involvement in such financial instruments.
The Savings Bank's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend credit
is represented by the contractual notional amount of those instruments. The
Savings Bank uses the same credit policies in making commitments and
conditional obligations as it does for on-balance-sheet instruments.
F-25
<PAGE> 35
GLENWAY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996, 1995 and 1994
NOTE J - LOAN COMMITMENTS (continued)
At June 30, 1996, the Savings Bank had total outstanding commitments of
approximately $3.2 million to originate one-to-four family residential real
estate loans.
Additionally, the Savings Bank had $24.7 million of outstanding loan
commitments under home equity lines, of which $1.2 million are cancelable at
management's discretion. In the opinion of management, all loan commitments
equaled or exceeded prevalent market interest rates as of June 30, 1996, and
such commitments have been underwritten on the same basis as that of the
existing loan portfolio. Management believes that all loan commitments are
able to be funded through cash flow from operations and existing excess
liquidity. Fees received in connection with these commitments have not been
recognized in earnings.
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 or other termination
clauses and may require payment of a fee. Since many of the commitments may
expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Savings Bank evaluates
each customer's creditworthiness on a case-by-case basis. The amount of
collateral obtained, if it is deemed necessary by the Savings Bank upon
extension of credit, is based on management's credit evaluation of the
counterparty. Collateral on loans may vary but the preponderance of loans
granted generally include a mortgage interest in real estate as security.
NOTE K - STOCKHOLDERS' EQUITY AND REGULATORY CAPITAL
The Federal Deposit Insurance Corporation (FDIC) has adopted risk-based
capital ratio guidelines to which the Savings Bank is subject. The
guidelines establish a systematic analytical framework that makes regulatory
capital requirements more sensitive to differences in risk profiles among
banking organizations. Risk-based capital ratios are determined by
allocating assets and specified off-balance sheet commitments to four
risk-weighted categories, with higher levels of capital being required for
the categories perceived as representing greater risk.
These guidelines divide the Savings Bank's capital into two tiers. The first
tier ("Tier 1") includes common equity, certain non-cumulative perpetual
preferred stock (excluding auction rate issues) and minority interests in
equity accounts of consolidated subsidiaries, less goodwill and certain
other intangible assets (except mortgage servicing rights and purchased
credit card relationships, subject to certain limitations). Supplementary
("Tier II") capital includes, among other items, cumulative perpetual and
long-term limited-life preferred stock, mandatory convertible securities,
certain hybrid capital instruments, term subordinated debt and the allowance
for loan losses, subject to certain limitations, less required deductions.
Savings banks are required to maintain a total risk-based capital ratio of
8%, of which 4% must be Tier 1 capital. The FDIC may, however, set higher
capital requirements when particular circumstances warrant. Savings banks
experiencing or anticipating significant growth are expected to maintain
capital ratios, including tangible capital positions, well above the minimum
levels.
F-26
<PAGE> 36
GLENWAY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996, 1995 and 1994
NOTE K - STOCKHOLDERS' EQUITY AND REGULATORY CAPITAL (continued)
In addition, the FDIC established guidelines prescribing a minimum Tier 1
leverage ratio (Tier 1 capital to adjusted total assets as specified in the
guidelines). These guidelines provide for a minimum Tier 1 leverage ratio of
3% for savings banks that meet certain specified criteria, including that
they have the highest regulatory rating and are not experiencing or
anticipating significant growth. All other banks are required to maintain a
Tier 1 leverage ratio of 3% plus an additional cushion of at least 100 to
200 basis points.
As of June 30, 1996, the Savings Bank's regulatory capital exceeded the
maximum range of the FDIC's regulatory capital requirements with Tier 1
capital of 8.4% and risk-based capital of 13.8%.
The deposit accounts of the Savings Bank and of other savings associations
are insured by the FDIC in the Savings Association Insurance Fund ("SAIF").
The reserves of the SAIF are below the level required by law, because a
significant portion of the assessments paid into the fund are used to pay
the cost of prior thrift failures. The deposit accounts of commercial banks
are insured by the FDIC in the Bank Insurance Fund ("BIF"), except to the
extent such banks have acquired SAIF deposits. The reserves of the BIF met
the level required by law in May 1995. As a result of the respective reserve
levels of the funds, deposit insurance assessments paid by healthy savings
associations exceeded those paid by healthy commercial banks by
approximately $.19 per $100 in deposits in 1995. In 1996, no BIF assessments
are required for healthy commercial banks except for a $2,000 minimum fee. A
continuation of this premium disparity could have a negative competitive
impact on the Savings Bank and other institutions with SAIF deposits.
Congress is considering legislation to recapitalize the SAIF and eliminate
the significant premium disparity. Currently, that recapitalization plan
provides for a special assessment ranging from approximately $.69 to $.71
per $100 of SAIF deposits held at March 31, 1995, in order to increase SAIF
reserves to the level required by law. In addition, the cost of prior thrift
failures would be shared by both the SAIF and the BIF. This would likely
increase BIF assessments by $.02 to $.025 per $100 in deposits. SAIF
assessments would initially be set at the same level as BIF assessments and
could never be reduced below the level for BIF assessments. These projected
assessment levels may change if commercial banks holding SAIF deposits are
provided some relief from the special assessment or are allowed to transfer
SAIF deposits to the BIF.
A component of the recapitalization plan provides for the merger of the SAIF
and BIF on January 1, 1998. However, the SAIF recapitalization legislation
currently provides for an elimination of the thrift charter or of the
separate federal regulation of thrifts prior to the merger of the deposit
insurance funds. As a result, the Savings Bank would be regulated as a bank
under Federal laws which would subject it to the more restrictive activity
limits imposed on national banks. Under separate legislation recently
enacted, the Savings Bank is required to recapture, as taxable income,
approximately $1.0 million of its bad debt reserve, which represents the
post-1987 additions to the reserve, and will be unable to utilize the
percentage of earnings method to compute its tax bad debt deduction in the
future. The Savings Bank has provided deferred taxes for this amount and is
permitted to amortize the recapture of its post-1987 percentage of earnings
bad debt deductions over six years.
F-27
<PAGE> 37
GLENWAY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996, 1995 and 1994
NOTE K - STOCKHOLDERS' EQUITY AND REGULATORY CAPITAL (continued)
The Savings Bank had $206.0 million in deposits at March 31, 1995. If the
special assessment level is finalized at $.71 per $100 in deposits, the
Savings Bank will pay an assessment of $1.5 million. This assessment will be
tax deductible, but it will reduce earnings and capital for the quarter in
which it is recorded.
No assurances can be given that the SAIF recapitalization plan will be
enacted into law or in what form it may be enacted. In addition, the Savings
Bank can give no assurances that the disparity between BIF and SAIF
assessments will be eliminated.
NOTE L - CONDENSED FINANCIAL STATEMENTS OF GLENWAY FINANCIAL CORPORATION
The following condensed financial statements summarize the financial
position of Glenway Financial Corporation as of June 30, 1996 and 1995, and
the results of its operations and its cash flows for each of the years ended
June 30, 1996, 1995 and 1994.
Glenway Financial Corporation
STATEMENTS OF FINANCIAL CONDITION
June 30,
(In thousands)
<TABLE>
<CAPTION>
ASSETS 1996 1995
<S> <C> <C>
Cash $ 204 $ 188
Investment in Centennial Savings Bank 23,707 22,767
Real estate held for investment 1,689 1,720
Cash surrender value - life insurance 1,457 1,426
Prepaid expenses and other assets 338 147
-------- --------
$27,395 $26,248
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 401 $ 499
Loan to Employee Stock Ownership Plan 213 362
-------- --------
614 861
Stockholders' equity
Common stock 11 10
Additional paid-in capital 12,102 11,026
Retained earnings 15,749 15,906
Shares acquired by employee benefit plans (316) (618)
Treasury stock - at cost (756) (908)
Unrealized losses on securities designated as
available for sale (9) (29)
--------- ---------
Total stockholders' equity 26,781 25,387
------ ------
Total liabilities and stockholders' equity $27,395 $26,248
====== ======
</TABLE>
F-28
<PAGE> 38
GLENWAY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996, 1995 and 1994
NOTE L - CONDENSED FINANCIAL STATEMENTS OF GLENWAY FINANCIAL
CORPORATION (continued)
Glenway Financial Corporation
STATEMENTS OF EARNINGS
Year ended June 30,
(In thousands)
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Revenue
Interest income $ 6 $ 19 $ 21
Dividends received from subsidiary 1,160 4,353 207
Equity in undistributed earnings of (excess
distributions from) subsidiary 735 (2,222) 1,053
Other income 88 74 -
------- ------- -------
Total revenue 1,989 2,224 1,281
Expenses
Administrative and other 624 972 88
------ ------ -------
Net earnings before tax credits 1,365 1,252 1,193
Federal income tax credits (180) (223) (67)
------ ------ -------
Net earnings $1,545 $1,475 $1,260
===== ===== =====
</TABLE>
Glenway Financial Corporation
STATEMENTS OF CASH FLOWS
Year ended June 30,
(In thousands)
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Cash flows provided by (used in) operating activities:
Net earnings for the year $1,545 $1,475 $1,260
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
(Undistributed earnings of) excess of distributions
from consolidated subsidiary (735) 462 (1,053)
Amortization of expense related to employee
benefit plans 333 296 192
Depreciation 36 8 -
Increases (decreases) in cash due to
changes in:
Accounts payable (98) 424 68
Other (179) (107) (28)
------ ------ -------
Cash provided by operating activities
(balance carried forward) 902 2,558 439
------ ----- ------
</TABLE>
F-29
<PAGE> 39
GLENWAY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996, 1995 and 1994
NOTE L - CONDENSED FINANCIAL STATEMENTS OF GLENWAY FINANCIAL
CORPORATION (continued)
Glenway Financial Corporation
STATEMENTS OF CASH FLOWS (CONTINUED)
Year ended June 30,
(In thousands)
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Cash provided by operating activities
(balance brought forward) $902 $2,558 $ 439
Cash flows used in investing activities:
Purchase of office premises and equipment (5) (25) -
Purchase of single premium life insurance policy - (1,370) -
Increase in cash surrender value of life insurance
policy (31) (56) -
---- ------- -------
Net cash used in investing activities (36) (1,451) -
Cash flows provided by (used in) financing activities:
Net proceeds retained from conversion-merger - - 1,073
Repayment of loan to ESOP (149) (238) (170)
Payment of dividends on common stock (736) (705) (524)
Issuance of shares under stock option plan 35 251 -
Purchase of treasury stock - (1,048) -
----- ----- -------
Net cash provided by (used in) financing
activities (850) (1,740) 379
--- ----- ------
Net increase (decrease) in cash and
cash equivalents 16 (633) 818
Cash and cash equivalents at beginning of year 188 821 3
--- ------ --------
Cash and cash equivalents at end of year $204 $ 188 $ 821
=== ====== ======
</TABLE>
Under Federal Reserve Board supervisory policy, a bank holding company
generally should not maintain its existing rate of cash dividends on common
shares unless (i) the Corporation's net earnings available to common
stockholders over the past year has been sufficient to fully fund the
dividends, and (ii) the prospective rate of earnings retention appears
consistent with the company's capital needs, asset quality, and overall
financial condition. The FDIC has authority under the Financial Institutions
Supervisory Act to prohibit a company from paying dividends if, in its
opinion, the payment of dividends would constitute an unsafe or unsound
practice in light of the financial condition of the company. Under Ohio law,
Glenway Financial and Centennial are prohibited from paying a dividend which
would result in insolvency. Ohio law requires Glenway Financial and
Centennial to obtain Division approval before payment of dividends in excess
of net earnings for the current and two prior fiscal years, with certain
adjustments.
F-30
<PAGE> 40
GLENWAY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996, 1995 and 1994
NOTE M - BUSINESS COMBINATION
During fiscal 1993, the Corporation's Board of Directors adopted an
Agreement of Merger, which provided that the Corporation's subsidiary,
Centennial Savings Bank, would merge with a mutual savings association, The
Glenway Loan and Deposit Company (the Company), in a conversion-merger
transaction. The business combination was consummated in fiscal 1994.
Pursuant to the conversion-merger transaction, the Corporation issued
700,000 new common shares with a fair value equal to the Company's appraised
value of $9.8 million.
On the effective date of the merger-conversion, the Corporation established
a liquidation account equal to the amount of retained earnings contained in
the offering circular. The liquidation account will be maintained for the
benefit of the Corporation's eligible savings account holders who maintained
deposit accounts in Centennial Savings Bank after conversion.
In the event of a complete liquidation (and only in such event), each
eligible savings account holder will be entitled to receive a pro rata
liquidation distribution from the liquidation account in the amount of the
then current adjusted balance of deposit accounts held, before any
liquidation distribution may be made with respect to common stock. Except
for the repurchase of stock and payment of dividends, the existence of the
liquidation account will not restrict the use or application of such
retained earnings by the Corporation.
The Corporation may not declare or pay a cash dividend on, or repurchase any
of its common stock, if the effect thereof would cause stockholders' equity
to be reduced below either the amount required for the liquidation account
or the regulatory capital requirements for insured institutions.
F-31
<PAGE> 1
EXHIBIT 20
GLENWAY FINANCIAL CORPORATION
5535 GLENWAY AVENUE
CINCINNATI, OHIO 45238
(513) 922-5959
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Notice is hereby given that the Annual Meeting of Stockholders of
Glenway Financial Corporation (the "Corporation") will be held at the
Corporation's headquarters at 5535 Glenway Avenue, Cincinnati, Ohio, on October
23, 1996, at 2:00 p.m., Eastern Daylight Time (the "Annual Meeting"), for the
following purposes, which are more completely set forth in the accompanying
Proxy Statement:
To elect two directors of the Corporation for terms expiring
in 1999;
To approve an amendment to the Corporation's 1990 Stock Option
and Incentive Plan (the "Plan") to increase the number of
shares available for issuance under the Plan by 50,000;
To ratify the selection of Grant Thornton LLP as the auditors
of the Corporation for the current fiscal year; and
To transact such other business as may properly come before
the Annual Meeting and any adjournments thereof. The Board
of Directors is not aware of any other business to come
before the Annual Meeting.
Any action may be taken on the foregoing proposals at the Annual
Meeting on the date specified above or any date or dates to which the Annual
Meeting may be adjourned. Only stockholders of the Corporation of record at the
close of business on September 13, 1996, will be entitled to receive notice of
and to vote at the Annual Meeting and any adjournments thereof.
A complete list of stockholders entitled to vote at the meeting is
available for examination by any stockholder, for any purpose germane to the
Annual Meeting, between 9:00 a.m. and 4:00 p.m. at the main office of the
Corporation, 5535 Glenway Avenue, Cincinnati, Ohio, for a period of ten days
prior to the Annual Meeting.
Whether or not you expect to attend the Annual Meeting, we urge you to
consider the accompanying Proxy Statement carefully and to SIGN, DATE AND
PROMPTLY RETURN THE ENCLOSED PROXY SO THAT YOUR SHARES MAY BE VOTED IN
ACCORDANCE WITH YOUR WISHES AND THE PRESENCE OF A QUORUM MAY BE ASSURED. The
giving of a Proxy does not affect your right to vote in person in the event you
attend the Annual Meeting.
Cincinnati, Ohio By Order of the Board of Directors
September 24, 1996
Daniel W. Geeding
Secretary
<PAGE> 2
GLENWAY FINANCIAL CORPORATION
5535 GLENWAY AVENUE
CINCINNATI, OHIO 45238
(513) 922-5959
PROXY STATEMENT
PROXIES
The enclosed Proxy is being solicited by the Board of Directors of
Glenway Financial Corporation (the "Corporation") for use at the 1996 Annual
Meeting of Stockholders of the Corporation to be held at the Corporation's
headquarters at 5535 Glenway Avenue, Cincinnati, Ohio, on October 23, 1996, at
2:00 p.m., Eastern Daylight Time, and at any adjournments thereof (the "Annual
Meeting"). Stockholders who execute Proxies retain the right to revoke them at
any time before they are voted at the Annual Meeting. Proxies may be revoked by
written notice to the Secretary of the Corporation at the above address, by the
filing of a later-dated Proxy prior to a vote being taken on a particular
proposal at the Annual Meeting or by attending the Annual Meeting and voting in
person. Unless a stockholder revokes the Proxy, the shares represented by such
Proxies will be voted at the Annual Meeting and all adjournments thereof.
Each properly executed Proxy solicited by the Board of Directors, which
is received prior to the Annual Meeting and not revoked, will be voted as
specified thereon or, in the absence of specific instructions to the contrary,
will be voted:
FOR the election of Albert W. Moeller and Robert R. Sudbrook
as directors of the Corporation for terms expiring in 1999;
FOR the approval of an amendment to the Corporation's 1990
Stock Option and Incentive Plan (the "Plan") to increase the
number of shares for issuance under the Plan by 50,000; and
FOR the ratification of the selection of Grant Thornton LLP as
the auditors of the Corporation for the current fiscal year.
The cost of solicitation of Proxies will be borne by the Corporation.
The Corporation will reimburse brokerage firms and other custodians, nominees
and fiduciaries for reasonable expenses incurred by them in sending proxy
materials to the beneficial owners. In addition to solicitation by mail,
directors, officers and regular employees of the Corporation may solicit Proxies
personally or by telegraph or telephone without additional compensation.
Only stockholders of record as of the close of business on September
13, 1996 (the "Voting Record Date"), are eligible to vote at the Annual Meeting
and will be entitled to cast one vote for each share of common stock of the
Corporation (the "Common Stock") owned. The Corporation's records disclose that,
as of the Voting Record Date, there were 1,150,107 shares of the Common Stock
outstanding and entitled to be cast at the Annual Meeting. The Corporation's
Certificate of Incorporation does not allow cumulative voting in the election of
directors.
This Proxy Statement is first being mailed to stockholders of the
Corporation on or about September 24, 1996.
-2-
<PAGE> 3
VOTE REQUIRED
ELECTION OF DIRECTORS
Under Delaware law and Glenway's By-laws, the two nominees receiving
the greatest number of votes will be elected as directors. Shares as to which
the authority to vote is withheld and shares held by a nominee for a beneficial
owner which are represented in person or by proxy but are not voted with respect
to the election of directors ("non-votes") are counted for purposes of a quorum
but are not counted toward the election of directors.
APPROVAL OF THE AMENDMENT TO THE PLAN
The affirmative vote of the holders of a majority of the shares
represented in person or by proxy at the Annual Meeting is necessary to approve
the amendment to the Plan to increase the number of shares available for
issuance under the Plan by 50,000. Non-votes are counted as present for purposes
of a quorum. The effect of an abstention or a non-vote with respect to the
amendment to the Plan is the same as a "no" vote. If the accompanying Proxy is
signed and dated by the stockholder, but no vote is specified thereon, the
shares held by such stockholder will be voted FOR the adoption of the amendment
to the Plan and will not be considered "non-votes."
RATIFICATION OF SELECTION OF AUDITORS
The affirmative vote of the holders of a majority of the shares
represented in person or by proxy at the Annual Meeting is necessary to ratify
the selection of Grant Thornton LLP as the auditors of Glenway for the current
fiscal year. Non-votes are counted for purposes of a quorum. The effect of an
abstention or a non-vote with respect to the ratification of the selection of
auditors is the same as a "no" vote. If the accompanying Proxy is signed and
dated by the stockholder, but no vote is specified thereon, the shares held by
such stockholder will be voted FOR the ratification of the selection of Grant
Thornton LLP as auditors and will not be considered "non-votes."
VOTING SECURITIES AND OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
only person known to the Corporation to own beneficially more than five percent
of the outstanding Common Stock as of September 13, 1996:
Amount and Nature of Percentage of
Name and Address Beneficial Ownership Shares Outstanding
PNC Bank, Ohio, N.A. 82,010(1) 7.13%
201 E. Fifth Street
Cincinnati, Ohio 45202
- -----------------------------
(1) PNC Bank, Ohio, N.A. ("PNC"), beneficially owns such shares as the
trustee for the Glenway Financial Corporation Employee Stock Ownership
Plan (the "ESOP"). Includes 69,254 shares allocated to ESOP
participants as to which such participants have sole voting power.
-3-
<PAGE> 4
The following table sets forth certain information with respect to the
Common Stock beneficially owned by each director of the Corporation and by all
directors and executive officers of the Corporation as a group as of September
13, 1996:
<TABLE>
<CAPTION>
Percent of
Amount and Nature of Shares
Name and Address(1) Beneficial Ownership(2) Outstanding(3)
- ------------------- ----------------------- --------------
<S> <C> <C>
Daniel W. Geeding 16,078 1.39%
Ronald L. Goodfellow 13,620(4)(5) 1.18
Robert E. Holden 21,937(6) 1.90
Albert W. Moeller 12,675(7) 1.10
Edgar A. Rust 53,978(8) 4.69
Robert R. Sudbrook 1,050 .09
John P. Torbeck 17,656(4)(9) 1.53
Milton L. Van Schoik 12,453(4)(10) 1.07
All directors and executive officers 177,842 15.27
as a group (10 people)
</TABLE>
- -----------------------------
(1) Each of the persons listed in this table may be contacted at the
address of the Corporation, 5535 Glenway Avenue, Cincinnati, Ohio
45238.
(2) A person is the beneficial owner of shares of Common Stock, if such
person, directly or indirectly, has sole or shared voting or investment
power over such shares or has the right to acquire such voting or
investment power within 60 days. All shares are owned directly with
sole voting or investment power, unless otherwise indicated by
footnote. All stock options granted under the Plan are exercisable upon
the date of grant and expire if not exercised within ten years of
grant.
(3) For each individual, assumes a total of 1,150,107 shares of Common
Stock outstanding, plus the number of shares such person may acquire,
pursuant to the Plan, within 60 days, if any. For all directors and
executive officers as a group, assumes a total of 1,164,227 outstanding
shares of Common Stock, which includes an aggregate of 14,120 shares
which may be acquired by directors and executive officers, under the
Plan, within 60 days.
(4) Includes 3,858 shares that may be acquired upon the exercise of
options.
(5) Includes 1,967 shares as to which Mr. Goodfellow has shared voting and
investment power.
(6) Includes 3,155 shares as to which Mr. Holden has shared voting and
investment power.
(7) Includes 551 shares as to which Mr. Moeller has shared voting and
investment power.
(8) Includes 18,896 shares as to which Mr. Rust has shared voting and
investment power and 5,058 shares allocated to Mr. Rust under the ESOP.
(9) Includes 576 shares as to which Mr. Torbeck has shared voting and
investment power and 786 shares held by Mr. Torbeck as custodian for
others.
(10) Includes 4,138 shares as to which Mr. Van Schoik has shared voting and
investment power.
-4-
<PAGE> 5
BOARD OF DIRECTORS
ELECTION OF DIRECTORS
In accordance with the Corporation's Certificate of Incorporation and
By-laws, the number of directors of the Corporation is currently fixed at eight,
divided into three classes as nearly equal in number as possible. One class is
elected annually, and each class serves a term of three years.
Since the 1995 annual meeting of stockholders, there have been three
changes in the membership of the Board of Directors. Dennis E. Betz, the former
President and Chief Executive Officer of the Corporation, was killed in a plane
crash in December 1995. Immediately thereafter, Edgar A. Rust was appointed to
serve as President and Chief Executive Officer of the Corporation and Albert W.
Moeller, who had been serving as Vice Chairman of the Board, was named to
replace Mr. Rust as Chairman. Fred E. Betz resigned from the Board in March
1996. In July 1996, Robert R. Sudbrook was appointed to serve as President and
Chief Executive Officer of the Corporation and was appointed as a director to
fill the vacancy created by the resignation of Mr. Fred Betz. Mr. Rust was
reappointed to serve as Chairman of the Corporation, Mr. Moeller remained as a
director of the Corporation and Milton L. Van Schoik was appointed to serve as
Vice Chairman of the Corporation.
The Board of Directors has established a Nominating Committee for
selecting nominees for election as directors. Mr. Moeller is the Chairman of the
Nominating Committee. Mr. Rust and Ronald L. Goodfellow also serve on the
Committee. The Nominating Committee considers stockholder recommendations in
selecting nominees. Any stockholder entitled to vote for the election of
directors may nominate persons for election as directors by following the
procedure set out in the Corporation's By-laws. Such procedure provides, in
general, that a stockholder wishing to make a nomination must deliver to the
Secretary of the Corporation, not less than 30 days prior to the Annual Meeting,
a written notice setting forth certain information regarding both the nominee
and the stockholder making such nomination.
Directors shall be elected by a plurality of the votes present in
person or by Proxy at the Annual Meeting, and the nominees receiving the
greatest number of votes shall be elected. Shares of Common Stock as to which
the authority to vote is withheld and shares of Common Stock represented in
person or by Proxy at the Annual Meeting, which are not voted with respect to
the election of directors, are not counted toward the election of directors or
toward the election of the individual nominees specified on the form of Proxy.
The Board of Directors proposes the election of the following directors
to terms that will expire in 1999:
<TABLE>
<CAPTION>
Director
Name Age(1) Position(s) Held Since(2)
---- ------ ---------------- --------
<S> <C> <C> <C>
Albert W. Moeller 73 Director 1972
Robert R. Sudbrook 54 Director and President 1996
</TABLE>
- -----------------------------
(1) As of September 13, 1996.
(2) Indicates the year that the individual became a director of the
Corporation's subsidiary, Centennial Savings Bank ("Centennial") or The
Glenway Loan and Deposit Company ("Glenway Loan and Deposit"), which
converted to stock form and merged into Centennial on August 24, 1993
(the "Merger-Conversion"). Mr. Moeller became a director of the
Corporation when it was formed in 1990. Mr. Sudbrook was appointed to
the Board in July 1996.
-5-
<PAGE> 6
If any nominee is unable to serve, the shares represented by all valid
Proxies will be voted for the election of such substitute as the Board of
Directors may recommend. At this time, the Board of Directors knows of no reason
why any nominee would be unable to serve if elected. Unless otherwise directed,
Proxies received pursuant to this solicitation will be voted for the foregoing
nominees.
Robert E. Holden has informed the Board that he intends to retire from
the Board after the Annual Meeting, prior to the expiration of his term in 1997.
Upon his retirement, the Board intends to reduce the number of directors of the
Corporation to seven. The following directors will continue to serve after the
Annual Meeting for the terms indicated:
<TABLE>
<CAPTION>
Director Term
Name Age(1) Position(s) Held Since(2) Expires
- ---- ------ ---------------- -------- -------
<S> <C> <C> <C> <C>
Daniel W. Geeding 53 Director 1988 1997
Ronald L. Goodfellow 64 Director 1970 1997
Edgar A. Rust 53 Chairman of the Board 1975 1998
and Director
John P. Torbeck 67 Director 1984 1998
Milton L. Van Schoik 67 Director 1971 1998
</TABLE>
- ---------------------------
(1) As of September 13, 1996.
(2) Indicates the year that the individual became a director of Centennial
or Glenway Loan and Deposit. Messrs. Geeding and Rust became directors
of the Corporation when the Corporation was formed in 1990. John P.
Torbeck and Messrs. Goodfellow and Van Schoik became directors of the
Corporation on the effective date of the Merger-Conversion.
DANIEL W. GEEDING is the Dean of the College of Business Administration
at Xavier University, a position he has held since 1988, and he has been
employed by Xavier University since 1969. Mr. Geeding also serves as a director
of Choice Care, Frisch's Restaurants, Inc. and Zaring Homes, Inc.
RONALD L. GOODFELLOW became Chairman of the Board of Directors of
Centennial in September 1995. Prior to that, he served as Vice-Chairman of the
Board of Centennial. In 1988, Mr. Goodfellow retired from Cincinnati Milacron,
Inc., as the Manager of Marketing Administration and Distributor Sales, where he
had been employed for 32 years.
ROBERT E. HOLDEN is currently retired. Prior to his retirement, he was
the owner and President of E.C. Decker Co., a specialty contracting firm located
in Cincinnati, for 28 years.
ALBERT W. MOELLER served as either Chairman or Vice Chairman of the
Board of the Corporation from its formation in 1990 until July 1996. Mr. Moeller
retired from Procter & Gamble as Assistant Treasurer in 1983, where he had been
employed for 42 years.
EDGAR A. RUST is Chairman of the Board of the Corporation and a
director of Centennial. He served as President and Chief Executive Officer of
the Corporation and Centennial from December 1995 through July 1996. Prior to
that appointment, he served as Chairman of the Board of the Corporation from
September 1995 and as the Executive Vice President of Centennial since the
Merger-Conversion. Prior to September 1995, Mr. Rust had served as Vice Chairman
of the Board of the Corporation, and prior to the Merger-Conversion, he had
served as President and Chief Executive Officer of Centennial since 1975.
-6-
<PAGE> 7
Since January 1995, Mr. Rust has served as Housing Director of Bethany House
Services. He also serves as Chairman of the Board of the Cincinnati Development
Fund.
ROBERT R. SUDBROOK has served as the President and Chief Executive
Officer of the Corporation and Centennial since July 1996. Prior to that, he
served as the President and Chief Executive Officer of The North Side Bank &
Trust Company, a $215 million asset bank in Cincinnati, for six years. Prior to
that, Mr. Sudbrook had over 20 years of experience in the banking industry.
JOHN P. TORBECK is the Vice President and Secretary of Torbeck Homes,
Inc., a residential construction company located in Cincinnati, a position he
has held since the establishment of that company in 1984.
MILTON L. VAN SCHOIK became Vice Chairman of the Corporation in 1996.
Mr. Van Schoik is currently retired and at the time of his retirement, he held
the position of Senior Vice President - Information and General Services at the
Cincinnati Gas and Electric Company, where he had been employed since 1957.
MEETINGS AND COMMITTEES OF DIRECTORS
The Board of Directors of the Corporation met 13 times for regularly
scheduled and special meetings during the fiscal year ended June 30, 1996. Each
director, except Mr. Geeding, attended at least 75% of the aggregate of (1) the
total meetings of such Board held during such fiscal year and (2) the total
number of meetings held by all committees of that Board of Directors on which he
served. Mr. Geeding attended 69% of the aggregate of such meetings.
The Board of Directors of the Corporation has established two
committees in addition to the Nominating Committee, consisting of the Executive
Committee and the Audit Committee.
The Executive Committee is chaired by Mr. Van Schoik and also consists
of Messrs. Moeller and Rust. The Executive Committee meets as needed to consider
matters of general concern to the Corporation. All decisions of the Executive
Committee are ratified by the Board of Directors. The Executive Committee met
four times during the fiscal year ended June 30, 1996.
The Audit Committee is composed of Messrs. Geeding, Moeller, Torbeck
and Van Schoik. Mr. Geeding is the Chairman of the Audit Committee, which
reviews audit reports and related matters to ensure effective compliance with
regulatory and internal policies and procedures. James M. Hater and James W.
Schackmann, directors of Centennial, attend meetings of the Corporation's Audit
Committee. The Audit Committee met five times during the fiscal year ended June
30, 1996.
-7-
<PAGE> 8
EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
current executive officers of the Corporation, as of September 13, 1996:
Name Age Position(s) Held
- ---- --- ----------------
Edgar A. Rust 53 Chairman of the Board
Milton L. Van Schoik 67 Vice Chairman of the Board
Robert R. Sudbrook 54 President and Chief Executive Officer
Daniel W. Geeding 53 Secretary
Joseph V. Bunke 43 Vice President/Internal Control
David R. Kent 45 Vice President and Chief Financial Officer
JOSEPH V. BUNKE is the Vice President/Internal Control of the
Corporation, a position he has held since October 1993. Prior to the
Merger-Conversion, Mr. Bunke was the Treasurer of Glenway Loan and Deposit, a
position he had held since 1986.
DAVID R. KENT is the Vice President and Chief Financial Officer of the
Corporation. Prior to the Merger-Conversion, Mr. Kent had served as the Vice
President and Controller of Centennial since 1983.
For biographical information regarding the other executive officers of
the Corporation, see "BOARD OF DIRECTORS - Election of Directors."
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth certain information
with respect to the compensation paid by the Bank to certain executive officers
of the Corporation:
-8-
<PAGE> 9
Summary Compensation Table
<TABLE>
<CAPTION>
-------------------------------
Long Term Compensation
- ----------------------------------------------------------------------------------------------------------------------------
Annual Compensation Awards
--------------------------------------------------------
Fiscal Restricted Options/ All other
Name and Principal Position Year Salary($) Bonus($) Stock Awards($) SARs(#) compensation
(1) ($)(2)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Dennis E. Betz, 1996 123,000 9,000 -
former President (3) 1995 150,000 35,750 - - -
1994 143,000 17,500 - 7,000
Edgar A. Rust, 1996 90,200 - - - 7,700
former President (4) 1995 20,000 14,062 - - 15,000
1994 97,880 40,900 - - 8,000
</TABLE>
- -----------------------------
(1) As a result of 5% stock dividends in August 1995 and 1996, outstanding
options increased by 5%, but such increase is not considered a grant of
options by the Corporation. "SARs" stands for "stock appreciation
rights." The Corporation does not have a plan that provides for the
grant of SARs.
(2) Reflects directors fees paid to Mr. Rust during the seven months he did
not serve as President of the Corporation.
(3) Mr. Betz was killed in a plane crash in December 1995.
(4) Mr. Rust served as President of the Corporation and Centennial from
December 1995 to July 1996. Prior to that he served as Executive Vice
President of Centennial.
STOCK OPTION PLAN
No options were granted under the Plan to the persons listed in the
foregoing Summary Compensation Table during the fiscal year ended June 30, 1996.
-9-
<PAGE> 10
The following table sets forth information regarding the number and
value of unexercised options held by the person listed in the Summary
Compensation Table:
Aggregated Option/SAR Exercises In Last Fiscal Year And
6/30/96 Option/SAR Values
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised In-the-Money
Options/SARs at Options/SARs at
6/30/96 (#) 6/30/96 ($)(1)
Shares Acquired Exercisable/ Exercisable/
Name on Exercise (#) Value Realized ($) Unexercisable Unexercisable
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dennis E. Betz - N/A (2) (2)
Edgar A. Rust - N/A 1,031/0 16,042/0
</TABLE>
- ---------------------------
(1) An option is "in-the-money" if the fair market value of the underlying
stock exceeds the exercise price of the option. The figure represents
the value of such unexercised options, determined by multiplying the
number of unexercised options by the difference between the exercise
prices of such options and the closing bid price for the Common Stock
reported by The Nasdaq National Market on June 30, 1996.
(2) Mr. Betz's estate has until December 1996 to exercise the 7,350
unexercised options held by him at his death.
DIRECTOR COMPENSATION
Each director of the Corporation, except Mr. Sudbrook, receives a
monthly fee of $1,050 and $200 per each Board or committee meeting of the
Corporation attended. In addition, Messrs. Goodfellow, Rust (except for the time
he served as President) and Van Schoik received $200 per each meeting of the
Board or a committee of Centennial attended in their capacity as directors of
Centennial.
EMPLOYMENT AGREEMENT
The Bank entered into an employment agreement with Mr. Robert R.
Sudbrook, retaining him as President and Chief Executive Officer of the
Corporation effective in July 1996. The employment agreement has a term of three
years and provides for an annual salary of not less than $160,000. If Mr.
Sudbrook is terminated at any time during such three-year term for any reason
other than "just cause," as defined in the employment agreement, he will be
entitled to receive an amount equal to his annual compensation for 36 months,
subject to reduction to the extent necessary to comply with certain provisions
of the Internal Revenue Code of 1986, as amended (the "IRC"). Assuming a
termination of the employment contract, based on an annual salary of $160,000,
the payment to Mr. Sudbrook would be $480,000.
In connection with the Merger-Conversion, the Bank had entered into an
employment agreement with Mr. Dennis Betz, retaining him as President. The
employment agreement had a term of three years
-10-
<PAGE> 11
and provided for an annual salary of not less than $143,000. Under that
agreement, if Mr. Betz had been terminated at any time during such three-year
term for any reason other than "just cause," as defined in the employment
agreement, he would have been entitled to receive an amount equal to his annual
compensation for 36 months, subject to reduction to the extent necessary to
comply with certain provisions of the IRC. Assuming a termination of the
employment contract, based on an annual salary of $150,000, the payment to Mr.
Betz would have been $450,000. At Mr. Betz's death, the agreement terminated and
all amounts owed to date under the agreement were paid.
APPROVAL OF AMENDMENT TO THE
STOCK OPTION AND INCENTIVE PLAN
GENERAL
The Plan, as adopted by the Board of Directors of the Corporation, was
ratified by stockholders at a meeting held October 23, 1991. Subsequently, in
July 1993, additional shares were reserved under the Plan for awards in
connection with the Merger-Conversion. The Plan permits the granting of a
variety of long-term incentive awards to those directors, officers and key
employees as a means of enhancing and encouraging the recruitment and retention
of those individuals on whom the continued success of the Corporation most
depends.
THE AMENDMENT
There are currently awards of exercisable options for 41,043 shares
outstanding under the Plan. As a result of prior awards under the Plan, no
shares remain available under the Plan for future awards. The Board proposes to
reserve additional shares available for issuance of options and other awards
under the Plan to its officers, employees and directors. The Corporation is
seeking stockholder approval to amend the Plan to reserve an additional 50,000
shares thereunder. Awards under the Plan are made based on an individual's
position, duties and responsibilities, the value of the individual's service to
the Corporation and its subsidiaries and any other factors deemed relevant.
On August 29, 1996, Mr. Sudbrook was granted incentive stock options to
purchase 10,500 shares of the Corporation, subject to stockholder approval of
the proposed amendment to the Plan. See "-Awards Under the Plan." After the
issuance of these options to Mr. Sudbrook and the approval of the proposed
amendment to increase the number of shares reserved for awards under the Plan by
50,000, there will be outstanding awards of exercisable options for 51,543
shares outstanding under the Plan and 39,500 shares available for future awards
under the Plan. There are no current plans to make any additional awards under
the Plan.
The principal features of the Plan are summarized below. The complete
text of the proposed amendment to the Plan is as follows:
Section 5 of the Plan is amended in its entirety to read as follows:
5. Shares Subject to Plan. As of October 23, 1996 and subject to
adjustment by the operation of Section 12 hereof, the maximum number of
Shares with respect to which Awards may be made under the Plan is
91,043. The Shares with respect to which Awards may be made under the
Plan may be either authorized and unissued shares or issued shares
heretofore or hereafter reacquired and held as treasury shares. Shares
which are subject to
-11-
<PAGE> 12
Related Rights and Related Options shall be counted only once in
determining whether the maximum number of Shares with respect to which
Awards may be granted under the Plan has been exceeded. An Award shall
not be considered to have been made under the Plan with respect to any
Option or Right which terminates or with respect to Restricted Stock
which is forfeited, and new Awards may be granted under the Plan with
respect to the number of Shares as to which such termination or
forfeiture has occurred.
PRINCIPAL FEATURES OF THE PLAN
The Plan provides for awards in the form of stock options, stock
appreciation rights ("SARs"), limited stock appreciation rights ("Limited SARs")
and restricted stock. Each award shall be on such terms and conditions,
consistent with the Plan, as the committee administering the Plan may determine.
Shares subject to an award may be authorized but unissued shares or reacquired
shares held by the Corporation in its treasury. Any shares subject to an award
which expires or is terminated unexercised will again be available for issuance
under the Plan. No award or any right or interest therein is assignable or
transferable except by will or the laws of descent and distribution or except
for awards, other than incentive stock options, pursuant to a qualified domestic
relations order as defined in the Code or Title I of the Employee Retirement
Income Security Act of 1974, as amended, or the rules thereunder.
The Plan is administered by a Stock Option Committee consisting of two
or more members of the Board of Directors of the Corporation (the "Committee"),
none of whom shall be eligible to receive discretionary awards under the Plan.
Messrs. Rust and Geeding are the present members of the Committee.
The term of a stock option will not exceed ten years from the date of
grant. The Committee may grant either "Incentive Stock Options" as defined under
Section 422 of the Code ("ISOs") or stock options not intended to qualify as
such. In general, stock options will not be exercisable after the expiration of
their terms. In the event that a participant ceases to serve as a director,
senior officer, ten percent beneficial owner of the Corporation's common stock
(as defined in the Plan) or employee of the Corporation, or one of its
subsidiaries, for any reason other than death or termination for cause, an
exercisable stock option will continue to be exercisable for three months but in
no event after the expiration date of the option. In the event of the death of a
participant during such service or within three months following termination
other than for cause, an exercisable option will continue to be exercisable for
one year, to the extent exercisable by the participant immediately prior to his
death, but in no event later than ten years after grant. Following the death of
any participant, the Committee may, as an alternative means of settlement of an
option, elect to pay to the holder an amount of cash equal to the amount by
which the market value of the shares covered by the option on the date of
exercise exceeds the exercise price. A stock option will automatically terminate
and will no longer be exercisable as of the date a participant ceases to serve
as a director, officer or employee and was terminated for cause.
Subject to certain limited exceptions, the exercise price for the
purchase of shares subject to a stock option at the date of grant may not be
less than 100 percent of the market value of the shares covered by the option on
that date. The exercise price must be paid in full in cash or shares of common
stock, or a combination of both, as determined by the Committee.
The Committee may grant SARs at any time, whether or not the
participant then holds stock options, granting the right to receive the excess
of the market value of the shares represented by the SARs on the date exercised
over the exercise price. SARs generally will be subject to the same terms and
conditions and exercisable to the same extent as stock options, as described
above. Upon the exercise of a SAR, the participant will receive the amount due
in cash or shares, or a combination of both, as determined
-12-
<PAGE> 13
by the Committee. SARs may be related to stock options ("Tandem SARs"), in which
case the exercise of one will reduce to that extent the number of shares
represented by the other. Limited SARs may be granted at the time of, and must
be related to, the grant of a stock option or SAR. The exercise of one will
reduce to that extent the number of shares represented by the other. Limited
SARs will be exercisable only for a limited period in the event of a tender or
exchange offer. Limited SARs will be exercisable only for the 45 days following
the expiration of the tender or exchange offer, during which period the related
stock option or SAR will be exercisable. Notwithstanding the foregoing, no SAR
or Limited SAR may be exercisable by a director, senior officer or ten percent
beneficial owner (as defined in the Plan) of the Corporation within six months
of the date of its grant.
The Committee may grant restricted stock, subject to forfeiture if the
participant fails to remain in the continuous service of the Corporation or one
of its subsidiaries, as a director, officer or employee for a stipulated period
which may not be less than six months from the date of grant. The holder of
restricted stock shall have all of the rights of a stockholder, including the
right to receive dividends (with payment deferred if the Committee so decides)
and the right to vote the shares. The participant may not, however, sell,
assign, transfer, pledge or otherwise encumber any of the restricted stock
during the restricted period.
The Committee may, in its discretion, accelerate the time at which any
or all restrictions will lapse, or may remove any or all of the restrictions. In
the event of termination for any other reason, all shares will be forfeited and
returned to the Corporation, unless the Committee provides otherwise. Shares as
to which awards may be granted under the Stock Option Plan, and shares then
subject to awards, will be adjusted by the Committee in the event of any merger,
consolidation, reorganization, recapitalization, stock dividend, stock split or
other change in the corporate structure of the Corporation.
In the case of any merger, consolidation or combination of the
Corporation with or into another thrift holding company or other entity, whereby
either the Corporation is not the continuing thrift holding company or its
outstanding shares are converted into or exchanged for securities, cash or
property, or any combination thereof, any participant to whom a stock option has
been granted will have the right upon exercise of the option to an amount equal
to the excess of fair market value on the date of exercise of the consideration
receivable in the merger, consolidation or combination with respect to the
shares covered or represented by the stock option over the exercise price of the
option multiplied by the number of shares with respect to which the options have
been exercised. The restricted period with respect to an award of restricted
stock will lapse, and the stock will become fully vested, if the service of a
participant is involuntarily terminated for any reason within 18 months after a
change in control (as defined in the Plan) of the Corporation.
In addition, in the event of a tender or exchange offer or approval by
the stockholders of the Corporation or the acquisition of the Corporation or
substantially all of its assets, all outstanding stock options and SARs not
fully exercisable will become exercisable in full and remain so for a period of
60 days, after which they will revert to being exercisable in accordance with
their terms. However, no stock option or SAR will be exercisable by any
director, senior officer or ten percent beneficial owner of the Corporation, or
one of its subsidiaries, within six months of the date of the grant of such
stock option or SAR.
The Board of Directors of the Corporation may at any time amend,
suspend or terminate the Plan or any portion thereof but may not, without the
prior approval of the stockholders, make any amendment which (i) materially
increases the total number of shares which may be subject to awards, (ii)
materially increases the benefits accruing to participants under the Stock
Option Plan, or (iii) change the class of
-13-
<PAGE> 14
persons eligible to participate in the Plan. Unless previously terminated, the
Plan shall continue in effect for a term of ten years, after which no further
awards may be granted under the Plan.
AWARDS UNDER THE PLAN
No awards were made under the Plan from September 1993 until August
1996. There are currently 14,120 shares subject to immediately exercisable
options held by directors and executive officers of the Corporation, and 26,923
shares subject to immediately exercisable options held by other employees of the
Corporation and its subsidiaries or by Dennis Betz's estate. These options
expire in 2003 and have an average exercise price of $12.38. Effective August
29, 1996, there were 10,500 shares subject to options, not exercisable until
stockholder approval of the amendment of the Plan, held by Mr. Sudbrook. All the
options issued to Mr. Sudbrook are ISOs, expire in 2006 and have an exercise
price of $19.25.
TAX TREATMENT OF AWARDS
Under present federal income tax laws, awards under the Plan will have
the following consequences:
(1) The grant of an award will neither, by itself, result in the
recognition of taxable income to the participant nor entitle the Corporation to
a deduction at the time of such grant.
(2) The exercise of a stock option which is an ISO will generally not,
by itself, result in the recognition of taxable income to the participant nor
entitle the Corporation to a deduction at the time of such exercise. However,
the difference between the exercise price and the fair market value of the
option shares on the date of exercise is an item of tax preference which may, in
certain situations, trigger the alternative minimum tax. The alternative minimum
tax is incurred only when it exceeds the regular income tax. The alternative
minimum tax will be payable at the rate of 24% on "minimum taxable income" in
excess of $30,000 (single person) or $40,000 (married filing jointly), but the
$30,000 and $40,000 exemptions are reduced by an amount equal to 25% of the
alternative minimum taxable income over $112,500 for single persons and $150,000
for married persons filing jointly. The gain recognized upon sale of a share
through the exercise of an ISO will generally be taxed at the ordinary income
tax rates then in effect.
(3) The exercise of a stock option which is not an ISO will result in
the recognition of ordinary income by the participant on the date of exercise in
an amount equal to the difference between the exercise price and the fair market
value on the date of exercise of the shares acquired pursuant to the stock
option.
(4) The exercise of a SAR will result in the recognition of ordinary
income by the participant on the date of exercise in an amount of cash, and/or
the fair market value on that date of the shares, acquired pursuant to the
exercise.
(5) Holders of restricted stock will recognize ordinary income on the
date that the shares of restricted stock are no longer subject to a substantial
risk of forfeiture, in an amount equal to the fair market value of the shares on
that date. In certain circumstances, a holder may elect to recognize ordinary
income and determine such fair market value on the date of the grant of the
restricted stock. Holders of restricted stock will also recognize ordinary
income equal to their dividend or dividend equivalent payments when such
payments are received.
-14-
<PAGE> 15
(6) The Corporation will be allowed a deduction at the time, and in the
amount of, any ordinary income recognized by the participant under the various
circumstances described above, provided that the Corporation meets its federal
withholding tax obligations.
SELECTION OF AUDITOR
The Board of Directors has selected Grant Thornton LLP as the auditor
of the Corporation for the current fiscal year and recommends that the
stockholders ratify the selection. Such ratification must be by the affirmative
vote of the holders of a majority of the shares actually voted on such proposal.
Abstentions and non-votes mathematically will have the effect of a "no" vote.
Management expects that a representative of Grant Thornton LLP will be present
at the Annual Meeting, will have the opportunity to make a statement, if he or
she so desires, and will be available to respond to appropriate questions from
stockholders.
PROPOSALS OF SECURITY HOLDERS AND OTHER MATTERS
Any proposals of security holders intended to be included in the
Corporation's Proxy Statement for the 1997 Annual Meeting of Stockholders should
be sent to the Corporation by certified mail and must be received by the
Corporation not later than June 6, 1997.
Management knows of no other business which will be brought before the
Annual Meeting, including matters incident to the conduct of the Annual Meeting.
It is the intention of the persons named in the enclosed Proxy to vote such
Proxy in accordance with their best judgment on any other matters which may be
brought before the Annual Meeting.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. WHETHER OR NOT YOU
EXPECT TO ATTEND THE MEETING IN PERSON, YOU ARE URGED TO FILL IN, SIGN AND
RETURN THE PROXY IN THE ENCLOSED SELF-ADDRESSED ENVELOPE.
Cincinnati, Ohio
September 24, 1996
-15-
<PAGE> 1
SIGNATURE INNS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) PROPERTY AND EQUIPMENT
Property and equipment representing hotels, corporate office equipment and
land held for sale or development are summarized as follows:
<TABLE>
<CAPTION>
1995 1994
----------- ----------
<S> <C> <C>
Land....................................................... $ 1,210,500 $ 710,500
Leasehold and land improvements............................ 759,890 451,559
Buildings.................................................. 7,394,047 5,200,170
Furniture and equipment.................................... 3,518,317 2,459,770
Land held for sale or development.......................... 913,739 913,739
----------- -----------
13,796,493 9,735,738
Accumulated depreciation................................... 5,032,706 3,192,533
----------- -----------
$ 8,763,787 $6,543,205
=========== ===========
</TABLE>
During 1995, the Company sold its easement rights of a billboard for net
proceeds of $163,032.
During 1994, the Company sold a hotel to an affiliated limited partnership
for $4.3 million, resulting in a $13,000 gain. Additionally, in 1994, the
Company sold a tract of land adjacent to a Signature Inn hotel to a restaurant
operator; net proceeds of $333,000 were received, resulting in a gain of
$132,000.
During 1993, the Company transferred ownership of three hotels to lenders
and sold two additional hotels to an affiliated limited partnership. The
combined net carrying value of the five hotels was $17.0 million at the time of
disposition, resulting in a gain of $273,000.
A valuation allowance of $85,000 was provided in 1993 to reduce the
carrying value of land held for sale to estimated net realizable value.
(4) LONG-TERM DEBT
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Corporate:
Line of credit.......................................... $ 1,100,000 $ 1,500,000
Term note............................................... 1,600,000 --
Variable rate note...................................... -- 1,800,000
Capital appreciation fee................................ -- 289,010
----------- -----------
2,700,000 3,589,010
Consolidated hotels....................................... 9,660,110 6,725,366
----------- -----------
Total................................................... 12,360,110 10,314,376
Less current portion:
Corporate............................................... 533,340 --
Consolidated hotels..................................... 3,188,376 3,128,478
----------- -----------
Long-term portion....................................... $ 8,638,394 $ 7,185,898
=========== ===========
</TABLE>
At December 31, 1995 and 1994, respectively, the revolving line of credit
bears interest at prime plus .75% and 1.25% (9.25% and 9.75% at December 31,
1995 and 1994), matures on May 31, 1997, and is secured by substantially all
assets of the Company. The original $2.5 million available line of credit was
reduced to $1.6 million effective September 1, 1995.
F-13
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF GLENWAY FINANCIAL CORPORATION AT AND FOR
THE YEAR ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 4,802
<INT-BEARING-DEPOSITS> 136
<FED-FUNDS-SOLD> 204
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 18,845
<INVESTMENTS-CARRYING> 21,259
<INVESTMENTS-MARKET> 20,853
<LOANS> 221,101
<ALLOWANCE> 618
<TOTAL-ASSETS> 278,809
<DEPOSITS> 222,768
<SHORT-TERM> 0
<LIABILITIES-OTHER> 3,413
<LONG-TERM> 25,847
0
0
<COMMON> 11
<OTHER-SE> 26,770
<TOTAL-LIABILITIES-AND-EQUITY> 278,809
<INTEREST-LOAN> 17,121
<INTEREST-INVEST> 2,675
<INTEREST-OTHER> 188
<INTEREST-TOTAL> 19,984
<INTEREST-DEPOSIT> 10,593
<INTEREST-EXPENSE> 11,933
<INTEREST-INCOME-NET> 8,051
<LOAN-LOSSES> 60
<SECURITIES-GAINS> (9)
<EXPENSE-OTHER> 6,274
<INCOME-PRETAX> 2,451
<INCOME-PRE-EXTRAORDINARY> 1,545
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,545
<EPS-PRIMARY> 1.44
<EPS-DILUTED> 1.44
<YIELD-ACTUAL> 7.71
<LOANS-NON> 471
<LOANS-PAST> 412
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 616
<CHARGE-OFFS> 58
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 618
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 618
</TABLE>
