As filed with the Securities and Exchange Commission on March 18, 1998
Registration No. 333-__________
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
INDIAN VILLAGE BANCORP, INC.
(Name of Small Business Issuer in its Certificate of Incorporation)
PENNSYLVANIA 6035 Being applied for
(State or Other Jurisdiction of (Primary Standard Industrial (IRS Employer Identification No.)
Incorporation or Organization) Classification Code Number)
100 South Walnut Street 100 South Walnut Street
Gnadenhutten, Ohio Gnadenhutten, Ohio
(740) 254-4313 (740) 254-4313
(Address and Telephone Number of (Address of Principal Place of Business
Principal Executive Offices) or Intended Principal Place of Business)
Marty R. Lindon
President, Chief Executive Officer and Director
Indian Village Bancorp, Inc.
100 South Walnut Street
Gnadenhutten, Ohio
(740) 254-4313
(Name, Address and Telephone Number of Agent for Service)
Copies to:
Paul M. Aguggia, Esquire
Victor L. Cangelosi, Esquire
Muldoon, Murphy & Faucette LLP
5101 Wisconsin Avenue, N.W.
Washington, D.C. 20016
(202) 362-0840
Approximate date of proposed sale to public: As soon as practicable after
this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act Registration Statement number of the earlier
effective Registration Statement for the same offering. /______/
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
Registration Statement number of the earlier effective Registration Statement
for the same offering. /___/
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
Registration Statement number of the earlier effective Registration Statement
for the same offering. /___/
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. /___/
CALCULATION OF REGISTRATION FEE
========================================================================================================
Title of each Class of Amount to Proposed Proposed Maximum Amount of
Securities to be Registered be Registered Maximum Aggregate Offering Registration Fee
Offering Price Price (1)
Per Unit
- --------------------------------------------------------------------------------------------------------
Common Stock
$.01 par Value 793,500 Shares $10.00 $7,935,000 $2,206
========================================================================================================
(1) Estimated solely for the purpose of calculating the registration fee.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
PROSPECTUS [LOGO]
INDIAN VILLAGE BANCORP, INC.
(Proposed Holding Company for Indian Village Community Bank)
690,000 Shares of Common Stock
Indian Village Community Bank is converting from the mutual form to the stock
form of organization and will become a wholly owned subsidiary of Indian Village
Bancorp, Inc.
WHO IS ELIGIBLE TO PURCHASE STOCK?
. First priority: Depositors of Indian Village with at least $50 on
deposit at the close of business on December 31, 1997, provided that
Indian Village Bancorp has registered the shares for sale under the
securities laws of their state of residence.
. Second priority: Indian Village's employee stock ownership plan.
. Third priority: Depositors of Indian Village with at least $50 on
deposit at the close of business on March 31, 1999, provided that
Indian Village Bancorp has registered the shares for sale under the
securities laws of their state of residence.
. Fourth priority: Depositors of Indian Village at the close of
business on _______, 1999 and borrowers of Indian Village at the
close of business on January 20, 1999 whose loans were still
outstanding at the close of business on ____, 1999, provided that
Indian Village Bancorp has registered the shares for sale under the
securities laws of their state of residence.
. Fifth priority: Residents of Tuscarawas County, Ohio, or trusts of
those residents, provided that Indian Village Bancorp decides to
extend the offering to them.
. Sixth priority: All other people, provided that Indian Village
Bancorp has registered the shares for sale under the securities laws
of their state of residence and that Indian Village Bancorp decides
to extend the offering to them.
OFFERING SUMMARY
Price Per Share: $10.00
Expected Trading Market: OTC Bulletin Board
Minimum Midpoint Maximum
---------- ---------- ----------
Number of shares: 510,000 600,000 690,000
Gross offering proceeds: $5,100,000 $6,000,000 $6,900,000
Estimated underwriting commissions
and other offering expenses: $ 380,000 $ 380,000 $ 380,000
Estimated net proceeds: $4,720,000 $5,620,000 $6,520,000
Estimated net proceeds per share: $ 9.25 $ 9.37 $ 9.45
With the approval of the Office of Thrift Supervision, Indian Village Bancorp
may increase the maximum number of shares by up to 15%, to 793,500 shares.
Trident Securities will use its best efforts to assist Indian Village Bancorp in
selling at least the minimum number of shares but does not guarantee that this
number will be sold. Trident Securities is not obligated to purchase any shares
of common stock in the offering. Trident Securities intends to make a market in
the common stock.
The subscription offering will end at 12:00 Noon, Eastern Time, on June ___,
1999. If the conversion is not completed by _______, 1999, and the Office of
Thrift Supervision gives Indian Village more time to complete the conversion,
Indian Village Bancorp will allow all subscribers to increase, decrease or
cancel their orders. All extensions may not go beyond ___________, 2001.
Indian Village Bancorp will hold all funds of subscribers in an interest-bearing
savings account at Indian Village until the conversion is completed or
terminated. Indian Village Bancorp will return all funds promptly with interest
if the conversion is terminated.
- --------------------------------------------------------------------------------
These securities are not deposits or accounts and are not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other government agency.
For a discussion of certain risks that you should consider, see "Risk Factors"
beginning on page ___.
Neither the Securities and Exchange Commission, the Office of Thrift
Supervision, nor any state securities commission has approved or disapproved of
these securities or determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
- -------------------------------------------------------------------------------
For assistance, please contact the stock information center at (740) 254-9164.
TRIDENT SECURITIES
The date of this prospectus is May ___, 1999
2
TABLE OF CONTENTS
Page
----
Summary..................................................................
Risk Factors.............................................................
Selected Financial Information...........................................
Use of Proceeds..........................................................
Dividend Policy..........................................................
Market for Common Stock..................................................
Capitalization...........................................................
Historical and Pro Forma Regulatory Capital Compliance...................
Pro Forma Data...........................................................
Shares to be Purchased by Management with Subscription Rights............
Management's Discussion and Analysis of Financial Condition
and Results of Operations..............................................
Business of Indian Village Bancorp.......................................
Business of Indian Village...............................................
Management of Indian Village Bancorp.....................................
Management of Indian Village.............................................
Regulation and Supervision...............................................
Federal and State Taxation...............................................
The Conversion...........................................................
Restrictions on Acquisition of Indian Village Bancorp....................
Description of Capital Stock of Indian Village Bancorp...................
Registration Requirements................................................
Legal and Tax Opinions...................................................
Experts..................................................................
Change in Accountants....................................................
Where You Can Find More Information......................................
Index to Financial Statements............................................
1
SUMMARY
Because this is a summary, it does not contain all the information that may
be important to you. You should read the entire prospectus carefully before you
decide to invest. For assistance, please contact the stock information center
at (740) ___-____.
The Companies
Indian Village Bancorp, Inc. (page __) Indian Village formed Indian Village Bancorp to be its
100 South Walnut Street holding company. To date, Indian Village Bancorp has only
Gnadenhutten, Ohio 44629 conducted organizational activities. After the conversion, it
(740) 254-4313 will own all of Indian Village's capital stock and will direct,
plan and coordinate Indian Village's business activities. After
the conversion, Indian Village Bancorp might become an
operating company or acquire or organize other operating
subsidiaries, including other financial institutions, although it
currently has no specific plans or agreements to do so.
Indian Village Community Bank (page __) Indian Village's business strategy is to operate as a traditional,
100 South Walnut Street community-oriented savings association dedicated to
Gnadenhutten, Ohio 44629 financing home ownership and providing quality customer
(740) 254-4313 service. Currently, Indian Village operates out of its main
office in Gnadenhutten, Ohio. In February 1999 Indian
Village received regulatory approval to open its first branch
office, which will be located in New Philadelphia, Ohio.
Gnadenhutten and New Philadelphia are both located in
Tuscarawas County, which Indian Village considers as its
primary market area for making loans and attracting deposits.
Indian Village's principal business is attracting deposits from
the general public and using those funds to originate fixed-rate
residential mortgage loans, which accounted for 82.1% of
Indian Village's total loan portfolio at December 31, 1998.
Indian Village also makes multi-family and commercial real
estate loans. Indian Village introduced home equity loans and
lines of credit in May 1996 and other consumer loans in April
1998. Indian Village also invests in U.S. government and
agency securities and U.S. government insured or guaranteed
mortgage-backed securities. At December 31, 1998, Indian
Village had total assets of $40.0 million, deposits of $30.9
million and total equity of $5.1 million.
For a discussion of Indian Village's business strategy and
recent results of operations, see "Management's Discussion
and Analysis of Financial Condition and Results of
Operations." For a discussion of Indian Village's business
activities, see "Business of Indian Village."
1
The Conversion
What is the Conversion (page ___) The conversion is a change in Indian
Village's legal form of organization.
As a mutual savings association,
Indian Village currently has no stock
or stockholders. Instead, Indian
Village operates for the mutual
benefit of its depositors who elect
its directors and vote on other
important matters. Through the
conversion Indian Village will become
a stock savings association and will
be owned and controlled by the holder
of all its stock, Indian Village
Bancorp. Voting rights in Indian
Village Bancorp will belong to its
stockholders.
Indian Village is conducting the
conversion under the terms of its
plan of conversion. The Office of
Thrift Supervision has approved the
conversion with the condition that
Indian Village's members approve the
plan of conversion. Indian Village
has called a special meeting for June
___, 1999 to vote on the plan of
conversion.
Reasons for the Conversion (page ___) By converting to the stock form of
organization, Indian Village will be
structured in the form used by
commercial banks, most business
entities and a large number of
savings institutions. The conversion
will be important to Indian Village's
future growth and performance by:
. providing a larger capital base
from which to operate;
. enhancing its ability to attract
and retain qualified management
through stock-based compensation
plans;
. expanding its ability to serve
the public;
. affording its depositors and
borrowers and local community
residents the opportunity to
participate as owners in the
local financial institution with
which they do business; and
. enhancing its ability to
diversify into other financial
services related activities.
Presently, Indian Village does not
have any specific plans or
arrangements for diversification or
expansion into other financial
services related activities.
Benefits of the Conversion to Indian Village Bancorp and Indian
Management (page __) Village intend to adopt the following
benefit plans and employment
agreements:
. Employee Stock Ownership Plan.
This plan intends to purchase 8%
of the shares issued in the
conversion. This would range from
40,800 shares,
2
assuming 510,000 shares are issued
in the conversion, to 55,200
shares, assuming 690,000 shares
are issued in the conversion.
Indian Village will allocate these
shares to employees over a period
of years in proportion to their
compensation.
. Stock Option Plan. Under this
plan, Indian Village Bancorp may
award stock options to key
employees and directors. The
number of options available under
this plan will be equal to 10% of
the number shares sold in the
conversion. This would range from
51,000 shares, assuming 510,000
shares are issued in the
conversion, to 69,000 shares,
assuming 690,000 shares are issued
in the conversion. This plan will
require shareholder approval.
. Management Development and
Recognition Plan. Under this plan,
Indian Village Bancorp may award
shares of restricted stock to key
employees and directors at no cost
to the recipient. The number of
shares available under this plan
will equal 4% of the number of
shares sold in the conversion.
This would range from 20,400
shares, assuming 510,000 shares
are issued in the conversion, to
27,600 shares, assuming 690,000
shares are issued in the
conversion. This plan will require
shareholder approval.
. Employment Agreement. Indian
Village Bancorp and Indian Village
intend to enter into employment
agreements with Indian Village's
President and Chief Executive
Officer, and Vice President,
Treasurer and Chief Financial
Officer. These agreements will
provide for severance benefits if
the executive is terminated
following a change in control of
Indian Village Bancorp or Indian
Village.
. Employee Severance Compensation
Plan. This plan will provide
severance benefits to eligible
employees if there is a change in
control of Indian Village Bancorp
or Indian Village.
The following table summarizes the
total number and dollar value of the
shares of common stock, assuming
690,000 shares are issued in the
conversion, which the employee stock
ownership plan expects to acquire and
the total value of all shares that are
expected to be available for award
under the stock option plan and the
management development and recognition
plan. The table assumes the value of
the shares is
3
$10.00 per share. The table does not
include a value for the options because
their value would be equal to the fair
market value of the common stock on the
day that the options are granted. As a
result, financial gains can be realized
on an option only if the market price
of common stock increases above the
price at which the options are granted.
Percentage
of Shares
Number Estimated Issued
of Value in the
Shares of Shares Conversion
------ --------- ----------
Employee stock ownership
plan....................... 55,200 $552,500 8.0%
Management development
and recognition plan awards 27,600 276,000 4.0
Stock options.............. 69,000 -- 10.0
------- -------- ----
Total................ 151,800 $828,500 22.0%
======= ======== ====
For a discussion of certain risks
associated with these plans and
agreements, see "Risk Factors--The
Implementation of Benefit Plans Will
Increase Future Compensation Expense
and May Lower Indian Village's Net
Income," and "Risk Factors--Employment
Agreements and Severance Plan Could
Make Takeover Attempts More Difficult
to Achieve," and "Risk Factors--
Issuance of Shares for Benefit Programs
May Lower Your Ownership Interest."
The Offering
Subscription Offering (page ___) Indian Village has granted
subscription rights in the following
order of priority to:
Note: Subscription rights are not
transferable, and persons with 1. Persons with $50 or more on
subscription rights may not deposit at Indian Village as of
subscribe for shares for the benefit December 31, 1997.
of any other person. If you violate
this prohibition, you may lose your 2. The Indian Village employee
rights to purchase shares and may stock ownership plan.
face criminal prosecution and/or
other sanctions. 3. Persons with $50 or more on
deposit at Indian Village as of
March 31, 1999.
4. Indian Village's depositors as of
______, 1999 and borrowers of Indian
Village as of January 20, 1999 whose
loans continue to be outstanding as
of _______, 1999.
To ensure that Indian Village
properly identifies your subscription
rights, you must list all of your
savings accounts and loans as of the
eligibility dates on the stock order
form. If
4
you fail to do so, your subscription
may be reduced or rejected if the
offering is oversubscribed.
The subscription offering will end at
12:00 Noon, Eastern time, on June
___, 1999. If the offering is
oversubscribed, Indian Village
Bancorp will allocate the shares in
order of the priorities described
above under a formula outlined in
the plan of conversion.
Community Offering (page __) Indian Village Bancorp may offer
shares not sold in the subscription
offering to the general public in a
community offering. People and
trusts of people who are residents
of Tuscarawas County, Ohio will have
first preference to purchase shares
in a community offering. If shares
are available, Indian Village
Bancorp expects to offer them to the
general public immediately after the
end of the subscription offering,
but may begin a community offering
at any time during the subscription
offering.
Indian Village Bancorp and Indian
Village may reject orders received
in the community offering either in
whole or in part. If your order is
rejected in part, you cannot cancel
the remainder of your order.
Purchase Price The purchase price is $10.00 per
share. The Boards of Directors of
Indian Village Bancorp and Indian
Village consulted with Trident
Securities in determining it. You
will not pay a commission to buy any
shares in the conversion.
Number of Shares to be Issued (page__) Indian Village Bancorp will sell
between 510,000 and 690,000 shares
of its common stock in this
offering. With regulatory approval,
Indian Village Bancorp may increase
the number of shares to 793,500
without giving you further notice.
The amount of common stock that
Indian Village Bancorp will offer in
the conversion is based on an
independent appraisal of the
estimated market value of Indian
Village Bancorp and Indian Village
as if the conversion had occurred as
of the date of the appraisal.
Keller & Company, Inc.,an
independent appraiser, has estimated
that, in its opinion, as of March 1,
1999, the estimated market value
ranged between $5,100,000 and
$6,900,000, with a midpoint of
$6,000,000. The appraisal was based
in part on Indian Village's
financial condition and operations
and the effect on Indian Village of
the additional capital raised by the
sale of common stock in this
offering. The independent appraisal
will be updated before the
conversion is completed.
Purchasd Limitations (page__) The minimum purchase is 25 shares.
The maximum purchase in the
subscription offering by any person
or group of persons through a single
deposit account is $100,000 of
common stock, which equals 10,000
shares.
5
The maximum purchase by any person in
the community offering is $100,000
of common stock, which equals 10,000
shares.
The maximum purchase in the
subscription offering and community
offering combined by any person,
related persons or persons acting
together is $150,000 of common
stock, which equals 15,000 shares.
How to Purchase Common Stock If you want to subscribe for shares,
(page__) you must complete an original stock
order form and send it together with
Note: Once Indian Village receives full payment to Indian Village in
your order, you cannot cancel or the postage-paid envelope provided.
change it without Indian Village's You must sign the certification that
consent. If Indian Village is part of the stock order form.
Bancorp intends to sell fewer Indian Village must receive your
than 510,000 shares or more than stock order form before the end of
793,500 shares, all subscribers the subscription offering.
will be notified and given the
opportunity to change or cancel You may pay for shares in any of the
their orders. If you do not following ways:
respond to this notice, Indian
Village Bancorp will return . In cash if delivered in person.
your funds promptly with interest.
. By check or money order made
. By withdrawal from an account at
Indian Village. To use funds in
an Individual Retirement Account
at Indian Village, you must
transfer your account to an
unaffiliated institution or
broker. Please contact the stock
information center at least one
week before the end of the
subscription offering for
assistance.
Indian Village will pay interest on
your subscription funds at the rate
it pays on passbook accounts from
the date it receives your funds
until the conversion is completed or
terminated. All funds authorized for
withdrawal from deposit accounts
with Indian Village will earn
interest at the applicable account
rate until the conversion is
completed. There will be no early
withdrawal penalty for withdrawals
from certificates of deposit used to
pay for subscriptions.
Use of Proceeds (page___) Indian Village Bancorp will pay 50%
of the net offering proceeds to
Indian Village to buy all of the
common stock of Indian Village.
Indian Village will use these funds
to originate loans and purchase
investments similar to the kinds it
currently holds.
Indian Village Bancorp will also loan
an amount equal to 8% of the gross
proceeds of the offering to the
employee stock ownership plan to
fund its purchase of common stock
and will keep the remainder of the
net proceeds for general corporate
purposes. These purposes may
include, for example, paying cash
dividends or buying back shares of
common stock.
6
Indian Village Bancorp and Indian
Village may also use the proceeds of
the offering to expand and diversify
their businesses, although they have
no specific plans to do so at this
time.
Purchases by Directiors and Indian Village's directors and
Executive Officers (page___) executive officers intend to
subscribe for 79,000 shares,
regardless of the number of shares
issued in the conversion, which
equals 11.45% of the 690,000 shares
that would be issued at the maximum
of the offering range. If fewer
shares are issued in the conversion,
then directors and executive
officers may own a greater
percentage of Indian Village
Bancorp. Directors and executive
officers will pay the $10.00 per
share price as will everyone else
who purchases shares in the
conversion.
Market for Common Stock (page___) Indian Village Bancorp intends to
list the common stock
over-the-counter through the OTC
Bulletin Board or the National Daily
Quotation System "Pink Sheets"
published by the National Quotation
Bureau, Inc. Trident Securities
intends to be a market maker in the
common stock. After shares of the
common stock begin trading, you may
contact a stock broker to buy or
sell shares. Indian Village Bancorp
cannot assure you that there will be
an active trading market for the
common stock. See "Risk
Factors--Possible Limited Market for
Indian Village Bancorp's Common
Stock May Lower Market Price."
Dividend Policy (page___) Indian Village Bancorp intends to
adopt a policy of paying regular
cash dividends, but has not yet
decided on the amount or frequency
of payments.
7
RISK FACTORS
Before investing in Indian Village Bancorp's common stock please carefully
consider the matters discussed below.
Indian Village's business depends heavily on economic conditions within its
primary market area and the rural nature of the area limits growth prospects
Indian Village's primary market area for lending and deposit gathering
activities is Tuscarawas County, a predominantly rural county with a small
population that is not growing rapidly. These characteristics limit Indian
Village's ability to increase its loan portfolio and deposit base. Furthermore,
because a substantial portion of Indian Village's borrowers and depositors and
substantially all of its real estate collateral is located in this market area,
a downturn in the economy of the primary market area could increase the risk of
loan losses. See "Business of Indian Village--Market Area."
Indian Village's goal to increase consumer lending may hurt both asset quality
and net income
Indian Village has limited experience with consumer lending, which offers a
higher rate of return but also possesses a greater risk of loss than mortgage
lending. Indian Village did not offer consumer loans before May 1996, other
than loans secured by deposit accounts at the institution, and intends to
emphasize consumer lending in future periods. Indian Village's consumer loan
portfolio has increased from $1.1 million, or 4.0% of total loans, at December
31, 1997 to $2.3 million, or 7.2% of total loans, at December 31, 1998.
Although Indian Village did not charge-off any consumer loans in either 1997 or
1998, nonaccruing consumer loans increased from $59,000 at December 31, 1997 to
$87,000 at December 31, 1998. Indian Village cannot assure you that the level
of nonaccruing consumer loans will not be higher in future periods which would
reduce net interest income, or that it will not have to charge-off material
amounts of consumer loans in future periods, which could lead to a material
increase in the provision for loan losses in future periods which would also
reduce net income. See "Business of Indian Village -- Lending Activities --
Nonperforming Assets and Delinquencies" and "Business of Indian Village --
Lending Activities -- Consumer Loans" for additional information on Indian
Village's consumer lending activities.
Rising interest rates could hurt Indian Village's profits
Like most financial institutions, Indian Village's ability to make a profit
depends largely on its net interest income, which is the difference between
interest income it receives from its loans and investment securities and
interest it pays on deposits and borrowings. A large percentage of Indian
Village's assets are fixed-rate mortgage loans and fixed-rate investment
securities. Therefore, if interest rates rise, Indian Village anticipates that
its net interest income would decline as interest paid on deposits would
increase more quickly than the interest earned on loans and investment
securities. In addition, rising interest rates may adversely affect Indian
Village's earnings because rising rates may cause a decrease in customer demand
for loans and reduce the value of Indian Village's securities available for
sale. For further discussion of how changes in interest rates could impact
Indian Village, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Market Risk Analysis."
Investment of offering proceeds in debt securities could produce low earnings
Indian Village Bancorp expects to retain 42% of the net offering proceeds
for its own use. Indian Village Bancorp intends to invest these funds in short-
term U.S. Government and agency obligations until they may be used for other
purposes such as paying dividends or repurchasing stock. Furthermore, Indian
Village also intends to invest the portion of the net offering proceeds that
Indian Village Bancorp will contribute to it in short-term U.S. government and
agency obligations until they may be used to make loans. Interest income earned
on short-term investment securities is generally lower than interest income
earned on loans. Consequently, as long as Indian Village Bancorp and Indian
Village primarily invest the net offering proceeds in short term investment
securities, particularly during times like now of low market interest rates, you
should expect their earnings to be less than what they generally could be if the
net offering proceeds were invested primarily in loans. See "Use of Proceeds"
for
8
further information regarding Indian Village Bancorp's and Indian Village's
intended uses of the net proceeds of this offering.
Indian Village's return on equity will be below average after conversion because
of high capital levels
Return on equity, which equals net income divided by average equity, is a
ratio used by many investors to compare the performance of a particular company
with other companies. In recent years, Indian Village's return on average
equity has been below the average return on equity for publicly held savings
associations and banks of comparable size. As a result of the additional
capital that will be raised in this offering, Indian Village Bancorp expects
that its return on average equity will continue to be below average after the
offering. In addition, compensation expense will increase as a result of the
new benefit plans. Over time, Indian Village Bancorp intends to use the net
proceeds from this offering to increase earnings per share and book value per
share, without assuming undue risk, with the goal of achieving a return on
equity competitive with other publicly traded financial institutions. This goal
could take a number of years to achieve, and Indian Village Bancorp cannot
assure you that this goal can be attained. Consequently, you should not expect
a competitive return on equity in the near future. See "Pro Forma Data" for an
illustration of the financial effects of this stock offering.
Implementation of benefit plans will increase future compensation expense and
may lower Indian Village's net income
Indian Village will recognize additional material employee compensation and
benefit expenses stemming from the shares purchased or granted to employees and
executives under new benefit plans. Indian Village cannot predict the actual
amount of these new expenses because applicable accounting practices require
that they be based on the fair market value of the shares of common stock at
specific points in the future. Indian Village would recognize expenses for its
employee stock ownership plan when shares are committed to be released to
participants' accounts and would recognize expenses for the management
development and recognition plan over the vesting period of awards made to
recipients. These expenses have been reflected in the pro forma financial
information under "Pro Forma Data" assuming the $10.00 per share purchase price
as fair market value. Actual expenses, however, may be higher or lower.
Recently proposed accounting rules could also require Indian Village Bancorp to
recognize compensation expense for stock options awarded to nonemployee
directors. For further discussion of these plans, see "Management of Indian
Village--Benefits."
Year 2000 data processing problems could interrupt and hurt Indian Village's
operations
Computer programs that use only two digits to identify a year could fail or
create erroneous results by or at the year 2000. All of the material data
processing for Indian Village is performed by a third-party service bureau. If
the service bureau is unable to complete its year 2000 adjustments in a timely
fashion, or if it does not successfully make all the necessary year 2000
adjustments, resulting computer malfunctions could interrupt the operations of
Indian Village and have a significant adverse impact on Indian Village's
financial condition and results of operations. For further discussion of Indian
Village's year 2000 compliance program, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Year 2000 Issues."
Issuance of shares for benefit programs may lower your ownership interest
If stockholders approve the new stock-based benefit programs, Indian
Village Bancorp intends to issue shares to its officers and directors through
these plans. If the shares for the management development and recognition plan
are issued from authorized but unissued stock, your ownership interest could be
reduced by up to approximately 3.85%. If the shares for the stock option plan
are issued from authorized but unissued stock, your ownership interest could be
reduced by up to approximately 9.09%. See "Pro Forma Data."
9
Possible voting control by management and employees may make takeover attempts
more difficult to achieve
The shares of common stock that Indian Village's directors and executive
officers intend to purchase in the conversion, when combined with the shares
that may be awarded or sold to participants under Indian Village's employee
stock ownership plan and Indian Village Bancorp's stock-based benefit plans,
could result in management and employees controlling a significant percentage of
Indian Village Bancorp's common stock. If these individuals were to act
together, they could have significant influence over the outcome of any
stockholder vote. This voting power may discourage takeover attempts you would
like to see happen. In addition, the total voting power of management and
employees could reach in excess of 25% of Indian Village Bancorp's outstanding
stock. That level would enable management and employees as a group to defeat
any stockholder matter that requires an 75% vote. For information about
management's intended stock purchases and the number of shares that may be
awarded under new benefit plans, see "Shares to Be Purchased by Management with
Subscription Rights," "Management of Indian Village--Executive Compensation" and
"Restrictions on Acquisition of Indian Village Bancorp."
Anti-takeover provisions and statutory provisions could make takeover attempts
more difficult to achieve
Provisions in Indian Village Bancorp's Articles of Incorporation and
Bylaws, the corporation law of the Commonwealth of Pennsylvania, and federal
regulations may make it difficult and expensive to pursue a takeover attempt
that management opposes. These provisions may discourage or prevent takeover
attempts you would like to see happen. These provisions will also make the
removal of the current board of directors or management of Indian Village
Bancorp, or the appointment of new directors, more difficult. These provisions
include: limitations on voting rights of beneficial owners of more than 10% of
Indian Village Bancorp's common stock; supermajority voting requirements for
certain business combinations; the election of directors to staggered terms of
three years; the elimination of cumulative voting for directors; and the removal
of directors without cause only upon the vote of holders of 75% of the
outstanding voting shares. The Articles of Incorporation of Indian Village
Bancorp also contain provisions regarding the timing and content of stockholder
proposals and nominations and limiting the calling of special meetings. For
further information about these provisions, see "Restrictions on Acquisition of
Indian Village Bancorp."
Employment agreements and severance plan could make takeover attempts more
difficult to achieve
The employment agreements of senior officers of Indian Village Bancorp and
Indian Village provide for cash severance payments and/or the continuation of
health, life and disability benefits if the executive is terminated following a
change in control of Indian Village Bancorp or Indian Village. If a change in
control had occurred at December 31, 1998, the aggregate value of the severance
benefits available to these executive officers under the agreements would have
been approximately $_______. In addition, if a change in control had occurred
at December 31, 1998 and all eligible employees had been terminated, the
aggregate payment due under the severance plan would have been approximately
$_______. These arrangements may have the effect of increasing the costs of
acquiring Indian Village Bancorp, thereby discouraging future attempts to take
over Indian Village Bancorp or Indian Village. For information about the
proposed employment and severance agreements and severance plan, see "Management
of Indian Village--Executive Compensation."
Competition has hurt Indian Village's net interest income
Indian Village faces intense competition both in making loans and
attracting deposits. This competition has made it more difficult for Indian
Village to make new loans and has forced it to offer higher deposit rates in its
market area. This competition for loans and deposits has contributed to a
narrow interest rate spread, which has hurt net interest income. Indian Village
expects that the competition for loans and deposits will continue to be intense.
For more information about Indian Village's market area and the competition it
faces, see "Business of Indian Village--Market Area" and "Business of Indian
Village--Competition."
10
Possible limited market for Indian Village Bancorp's common stock may lower
market price
Because Indian Village Bancorp has never issued capital stock, Indian
Village Bancorp does not know whether an active trading market will develop.
Because of the relatively small size of the offering, it is highly unlikely that
an active and liquid market for the common stock will develop. As a result, you
may not be able to sell all of your shares on short notice and the sale of a
large number of shares all at once could lower the market price. Therefore, you
should consider the potentially illiquid and long-term nature of an investment
in the common stock. Furthermore, Indian Village Bancorp cannot guarantee
anyone who purchases shares in the conversion will be able to sell their shares
at or above the $10.00 purchase price. For further information on the expected
trading market for Indian Village Bancorp's common stock, see "Market For Common
Stock."
Indian Village could hold your subscription funds for an extended time period if
the conversion is delayed
If the conversion is not completed by ______, 1999 and the Office of Thrift
Supervision gives Indian Village more time to complete the conversion, Indian
Village Bancorp will contact everyone who subscribed for shares to see if they
still want to purchase stock. This is known as a "resolicitation offering." A
material change in the independent appraisal of Indian Village Bancorp and
Indian Village would be the most likely, but not necessarily the only, reason
for a delay in completing the conversion. Federal regulations permit the Office
of Thrift Supervision to grant one or more time extensions, none of which may
exceed 90 days. Extensions may not go beyond ________, 2001. In the
resolicitation offering, Indian Village Bancorp would mail a supplement to this
prospectus to you if you subscribed for stock to let you confirm, modify or
cancel your subscription. If you fail to respond to the resolicitation
offering, it would be as if you had canceled your order and all of your
subscription funds, together with accrued interest, would be returned to you.
If you authorized payment by withdrawal of funds on deposit at Indian Village,
that authorization would terminate. If you affirmatively confirm your
subscription order during the resolicitation offering, Indian Village Bancorp
and Indian Village would continue to hold your subscription funds until the end
of the resolicitation offering. Your resolicitation order would be irrevocable
without the consent of Indian Village Bancorp and Indian Village until the
conversion is completed or terminated.
Banking reform legislation may reduce Indian Village Bancorp's and Indian
Village's powers
In 1998 the U.S. Congress considered legislation intended to modernize the
financial services industry. Under the proposed legislation, newly formed
unitary savings and loan holding companies would not have the broad powers
currently available to them. Previous proposals would have eliminated the
federal savings association charter by requiring all federal savings
associations convert to national banks or other banking charters, but these
provisions were not included in the final legislation that was considered.
Indian Village is a federal savings association and, after the conversion,
Indian Village Bancorp will be a unitary savings and loan holding company.
Indian Village Bancorp does not know whether federal legislation will be enacted
that affects the federal savings association charter or unitary savings and loan
holding companies or, if the legislation is enacted, what form it might take.
Accordingly, management of Indian Village and Indian Village Bancorp cannot
predict what effect, if any, banking reform legislation would have on the
activities and operations of Indian Village and Indian Village Bancorp.
11
SELECTED FINANCIAL INFORMATION
The following tables contain certain information concerning the financial
position and results of operations of Indian Village at the dates and for the
periods indicated. This information should be read in conjunction with the
Financial Statements and related Notes at the back of this prospectus.
At December 31,
-------------------------------------------
1998 1997 1996
-------------- ------------ -------------
(In thousands)
SELECTED FINANCIAL DATA:
Total assets.................................................. $40,024 $36,353 $36,065
Cash and cash equivalents..................................... 797 923 3,869
Loans, net.................................................... 31,274 27,241 25,499
Investment securities available for sale:
Mortgage-backed securities, net............................ 4,227 3,783 2,306
Investment securities, net................................. 1,968 3,534 3,487
Deposits...................................................... 30,866 30,277 31,439
Federal Home Loan Bank advances............................... 4,000 1,000 --
Total equity, substantially restricted........................ 5,102 4,852 4,472
Real estate owned, net........................................ 122 41 111
Nonperforming assets and troubled debt restructurings......... 473 512 633
Year Ended December 31,
-------------------------------------------
1998 1997 1996
------------ ------------ ------------
(In thousands)
SELECTED OPERATING DATA:
Interest income................................................. $3,020 $2,891 $2,842
Interest expense................................................ 1,666 1,577 1,597
------ ------ -------
Net interest income............................................. 1,354 1,314 1,245
Provision for loan losses....................................... 60 -- 106
------ ------ -------
Net interest income after provision for loan losses............. 1,294 1,314 1,139
Noninterest income.............................................. 29 21 55
Noninterest expense (1)......................................... (950) (805) (1,080)
------ ------ -------
Income before income taxes...................................... 373 530 114
Income taxes.................................................... 127 180 41
------ ------ -------
Net income.................................................... $ 246 $ 350 $ 73
====== ====== =======
- --------------------------------------
(1) Includes in 1996 a one-time, industry-wide, assessment to recapitalize the
Savings Association Insurance Fund, which for Indian Village totaled
$206,000.
12
At December 31,
-----------------------------------------
1998 1997 1996
------------ ------------ --------
SELECTED OTHER DATA:
Number of:
Mortgage loans outstanding.................................................... 877 848 798
Deposit accounts.............................................................. 3,520 3,446 3,523
Full-service offices.......................................................... 1 1 1
At or For
the Year Ended December 31,
-----------------------------------------
1998 1997 1996
------------ ------------ -----------
SELECTED OPERATING RATIOS AND OTHER DATA:
Performance Ratios:
Average yield on interest-earning assets...................................... 8.17% 8.30% 8.05%
Average rate paid on interest-bearing liabilities............................. 5.08 5.10 5.15
Average interest rate spread(1)............................................... 3.09 3.20 2.91
Net interest margin(2)........................................................ 3.68 3.78 3.38
Ratio of interest-earning assets to interest-bearing liabilities.............. 113.04 112.61 110.05
Net interest income after provision for loan losses to noninterest expense.... 136.21 163.23 105.46
Noninterest expense as a percent of average assets............................ 2.39 2.17 2.86
Return on average assets(3)................................................... 0.62 0.94 0.19
Return on average equity(4)................................................... 4.87 7.52 1.66
Efficiency ratio(5)........................................................... 68.69 60.30 83.08
Capital Ratios:
Tangible capital ratio........................................................ 12.5 13.1 12.2
Core capital ratio............................................................ 12.5 13.1 12.2
Risk-based capital ratio...................................................... 25.8 28.8 30.2
Ratio of average equity to average assets..................................... 12.71 12.55 11.64
Asset Quality Ratios:
Nonperforming loans and troubled debt restructurings
as a percent of total loans(6).............................................. 1.04 1.71 2.15
Nonperforming loans and troubled debt restructurings
as a percent of total assets(6)............................................ 0.82 1.30 1.45
Allowance for loan losses as a percent of total loans......................... 0.69 0.64 0.69
Allowance for loan losses as a percent of nonperforming loans
and troubled debt restructurings(6)........................................ 66.46 37.37 33.72
Net loans charged-off to average interest-earning loans....................... 0.06 -- --
- ---------------------------------
(1) Difference between weighted average yield on interest-earning assets and
weighted average cost of interest-bearing liabilities.
(2) Net interest income as a percentage of average interest-earning assets.
(3) Net income divided by average total assets.
(4) Net income divided by average total equity.
(5) Noninterest expense divided by the sum of net interest income and
noninterest income. Efficiency ratio was 67.23% in 1996 without the one-
time assessment to recapitalize the Savings Association Insurance Fund.
(6) Nonperforming loans consist of nonaccrual loans. "Business of Indian
Village--Lending Activities--Nonperforming Assets and Delinquencies."
13
USE OF PROCEEDS
The following table presents the estimated net proceeds of the offering,
the amount to be retained by Indian Village Bancorp, the amount to be
contributed to Indian Village, and the amount of Indian Village Bancorp's loan
to the employee stock ownership plan. See "Pro Forma Data" for the assumptions
used to arrive at these amounts. The Office of Thrift Supervision must approve
the issuance of up to 793,500 shares in the conversion.
510,000 600,000 690,000 793,500
Shares at Shares at Shares at Shares at
$10.00 $10.00 $10.00 $10.00
Per Share Per Share Per Share Per Share
--------- --------- --------- ---------
(In thousands)
Gross proceeds................................................ $ 5,100 $ 6,000 $ 6,900 $ 7,935
Less: estimated underwriting commissions and
other offering expenses................................ 380 380 380 380
-------- -------- -------- --------
Net proceeds.................................................. $ 4,720 $ 5,620 $ 6,520 $ 7,555
======== ======== ======== ========
Net proceeds to be retained by Indian Village Bancorp......... $ 2,360 $ 2,810 $ 3,260 $ 3,777
Net proceeds to be contributed to Indian Village.............. $ 2,360 $ 2,810 $ 3,260 $ 3,778
Amount of loan by Indian Village Bancorp to employee
stock ownership plan.......................................... $ 408 $ 480 $ 552 $ 635
Indian Village Bancorp has received conditional Office of Thrift
Supervision approval to purchase all of the capital stock of Indian Village to
be issued in the conversion in exchange for 50% of the net proceeds of the stock
offering. Receipt of 50% of the net proceeds of the sale of the common stock
will increase Indian Village's capital and will support the expansion of Indian
Village's existing business activities. Indian Village will use the funds
contributed to it for general corporate purposes, including, initially, lending
and investment in short-term U.S. Government and agency obligations and U.S.
government agency issued mortgage-backed securities.
Indian Village Bancorp intends to loan the employee stock ownership plan
the amount necessary to purchase 8% of the shares sold in the conversion.
Accordingly, the employee stock ownership plan purchases would range between
40,800 shares at the minimum of the offering range and 55,200 shares at the
maximum of the offering range. At the midpoint of the offering range, the
employee stock ownership plan would purchase 48,000 shares. If 793,500 shares
are issued in the conversion, the employee stock ownership plan would purchase
63,480 shares. It is anticipated that the employee stock ownership plan loan
will have a 15-year term with interest payable at the prime rate as published in
The Wall Street Journal on the closing date of the conversion. The loan will be
repaid principally from Indian Village's contributions to the employee stock
ownership plan and from any dividends paid on shares of common stock held by the
employee stock ownership plan.
The remaining net proceeds retained by Indian Village Bancorp initially
will be invested primarily in short-term U.S. Government and agency obligations.
These proceeds will be available for additional contributions to Indian Village
in the form of debt or equity, to support future diversification or acquisition
activities, as a source of dividends to the stockholders of Indian Village
Bancorp and for future repurchases of common stock as permitted under
Pennsylvania law and federal regulations. Indian Village Bancorp will consider
exploring opportunities to use these funds to expand operations through
acquiring or establishing additional branch offices or acquiring other financial
institutions. Currently, there are no specific plans, arrangements, agreements
or understandings, written or oral, regarding any expansion activities.
14
Except as described above, neither Indian Village Bancorp nor Indian
Village has specific plans for the investment of the proceeds of this offering.
Although Indian Village's capital currently exceeds regulatory requirements, it
is converting to stock form primarily to structure itself in the form of
organization used by commercial banks and most other financial services
companies. For a discussion of management's business reasons for undertaking
the conversion, see "The Conversion--Reasons for the Conversion."
Following the conversion, the Board of Directors will have the authority to
adopt plans that meet statutory and regulatory requirements for repurchases of
common stock. Since Indian Village Bancorp has not yet issued stock, there
currently is insufficient information upon which an intention to repurchase
stock could be based. The Board of Directors will consider many facts and
circumstances in determining whether to repurchase stock in the future. These
factors include market and economic factors such as the price at which the stock
is trading in the market, the volume of trading, the attractiveness of other
investment alternatives in terms of the rate of return and risk involved in the
investment, the ability to increase the book value and/or earnings per share of
the remaining outstanding shares, and the ability to improve Indian Village
Bancorp's return on equity. The avoidance of dilution to stockholders by not
having to issue additional shares to cover the exercise of stock options or to
fund employee stock benefit plans is another factor that will be considered.
The Board of Directors will also consider any other circumstances in which
repurchases would be in the best interests of Indian Village Bancorp and its
stockholders.
Before any stock repurchases, the Board of Directors must determine that
both Indian Village Bancorp and Indian Village will be capitalized in excess of
all applicable regulatory requirements after any repurchases and that capital
will be adequate, taking into account, among other things, Indian Village's
level of nonperforming and classified assets, Indian Village Bancorp's and
Indian Village's current and projected results of operations and asset/liability
structure, the economic environment and tax and other regulatory considerations.
For a discussion of the regulatory limitations applicable to stock repurchases,
see "The Conversion--Restrictions on Repurchase of Stock."
DIVIDEND POLICY
General
Indian Village Bancorp's Board of Directors intends to adopt a policy of
paying regular cash dividends after the conversion, but has not decided the
amount that may be paid or when the payments may begin. In addition, the Board
of Directors may declare and pay periodic special cash dividends in addition to,
or in lieu of, regular cash dividends. In determining whether to declare or pay
any dividends, whether regular or special, the Board of Directors will take into
account the amount of the net proceeds retained by Indian Village Bancorp,
Indian Village Bancorp's financial condition, results of operations, tax
considerations, capital requirements, industry standards, and economic
conditions. The regulatory restrictions that affect the payment of dividends by
Indian Village to Indian Village Bancorp discussed below will also be
considered. Under Pennsylvania law, Indian Village Bancorp is prohibited from
paying a cash dividend if, after the payment of the dividend, it would be unable
to pay its debts as they become due in the usual course of business, or if its
total assets would be less than its total liabilities plus the amount that would
be needed under certain circumstances to satisfy any preferential rights of
shareholders. In order to pay cash dividends, however, Indian Village Bancorp
must have available cash either from the net proceeds raised in the conversion
and retained by Indian Village Bancorp, borrowings by Indian Village Bancorp,
dividends received from Indian Village or earnings on Indian Village Bancorp's
assets. No assurances can be given that any dividends, either regular or
special, will be declared or paid, if declared and paid, what the amount of
dividends will be or whether they will continue uninterrupted.
Regulatory Restrictions
Dividends from Indian Village Bancorp may depend, in part, upon receipt of
dividends from Indian Village because Indian Village Bancorp initially will have
no source of income other than dividends from Indian Village
15
and earnings from the investment of the net proceeds from the offering retained
by Indian Village Bancorp. Office of Thrift Supervision regulations require
Indian Village to give the Office of Thrift Supervision 30 days' advance notice
of any proposed declaration of dividends to Indian Village Bancorp, and the
Office of Thrift Supervision has the authority under its supervisory powers to
prohibit the payment of dividends to Indian Village Bancorp. The Office of
Thrift Supervision imposes certain limitations on the payment of dividends from
Indian Village to Indian Village Bancorp. These limitations utilize a three-
tiered approach that permits various levels of distributions based primarily
upon a savings association's capital level. Indian Village currently meets the
criteria to be designated a Tier 1 association. Consequently, after prior notice
to and no objection made by the Office of Thrift Supervision, Indian Village
could distribute up to 100% of its net income during the calendar year, plus 50%
of its capital in excess of the amount of capital necessary to maintain its Tier
1 designation at the beginning of the calendar year less any distributions
previously paid during the year. In addition, Indian Village may not declare or
pay a cash dividend on its capital stock if its effect would be to reduce the
regulatory capital of Indian Village below the amount required for the
liquidation account to be established as required by Indian Village's plan of
conversion. See "Regulation--Federal Regulation of Savings Associations--
Limitations on Capital Distributions," "The Conversion--Effects of Conversion to
Stock Form on Depositors and Borrowers of Indian Village--Liquidation Account"
and Note 12 of the Notes to Financial Statements included in the back of this
prospectus.
Additionally, Indian Village Bancorp and Indian Village have committed to
the Office of Thrift Supervision that during the one-year period following the
conversion, Indian Village Bancorp will not take any action to declare an
extraordinary dividend to stockholders that would be treated by recipients as a
tax-free return of capital for federal income tax purposes.
Tax Considerations
In addition to the foregoing, retained earnings of Indian Village
appropriated to bad debt reserves and deducted for federal income tax purposes
cannot be used by Indian Village to pay cash dividends to Indian Village Bancorp
without the payment of federal income taxes by Indian Village at the then
current income tax rate on the amount deemed distributed, which would include
the amounts of any federal income taxes paid by Indian Village relating to the
distribution. See "Taxation--Federal Taxation" and Note 7 of the Notes to
Financial Statements included in the back of this prospectus. Indian Village
Bancorp does not contemplate any distribution by Indian Village that would
result in a recapture of Indian Village's bad debt reserve or create the above-
mentioned federal tax liabilities.
MARKET FOR COMMON STOCK
Because Indian Village Bancorp has never issued capital stock, there
is no existing market for its common stock. Indian Village Bancorp intends to
list the common stock over-the-counter through either the National Daily
Quotation System "Pink Sheets" published by the National Quotation Bureau, Inc.
or the OTC Bulletin Board. Trident Securities has agreed to make a market in the
common stock following the conversion, although it has no obligation to do so.
However, there can be no assurance that timely and accurate quotations will be
regularly available. The development of a liquid public market depends on the
existence of willing buyers and sellers and their existence is not within the
control of Indian Village Bancorp, Indian Village or any market maker. Because
of the small size of the offering, it is highly unlikely that an active and
liquid market for the common stock will develop and the number of active buyers
and sellers at any particular time is expected to be limited. Under these
circumstances, investors in the common stock could have difficulty disposing of
their shares on short notice and should not view the common stock as a short-
term investment. Furthermore, there can be no assurance that purchasers will be
able to sell their shares at or above the $10.00 per share purchase price or
that published quotations will be regularly available.
16
CAPITALIZATION
The following table presents the historical capitalization of Indian
Village at December 31, 1998, and the pro forma capitalization of Indian
Village Bancorp after giving effect to the assumptions listed under "Pro Forma
Data," based on the sale of the number of shares of common stock indicated in
the table. The issuance of 793,500 shares would require Office of Thrift
Supervision approval of an updated appraisal confirming that valuation. This
table does not reflect the issuance of additional shares under the proposed
stock option plan. A change in the number of shares to be issued in the
conversion may materially affect pro forma capitalization.
Indian Village Bancorp
Pro Forma Capitalization
Based Upon the Sale of
--------------------------------------------------
Indian Village 510,000 600,000 690,000 793,500
Capitalization Shares at Shares at Shares at Shares at
as of $10.00 $10.00 $10.00 $10.00
December 31, Per Share Per Share Per Share Per Share
1998
-------------- ----------- ----------- ----------- -----------
(In thousands)
Deposits (1)....................................... $30,866 $ 30,866 $ 30,866 $ 30,866 $ 30,866
Federal Home Loan Bank advances.................... 4,000 4,000 4,000 4,000 4,000
------- -------- -------- -------- --------
Total deposits and borrowed funds.................. $34,866 $ 34,866 $ 34,866 $ 34,866 $ 34,866
======= ======== ======== ======== ========
Stockholders' equity:
Preferred stock:
1,000,000 shares, $.01 par value per
share, authorized; none issued or
outstanding............................... $ -- $ -- $ -- $ -- $ --
Common stock:
5,000,000, $.01 par value per
share, authorized; specified number
of shares assumed to be issued and
outstanding (2)........................... -- 5 6 7 8
Additional paid-in capital...................... -- 4,715 5,614 6,513 7,547
Retained earnings (3)........................... 5,105 5,105 5,105 5,105 5,105
Accumulated other comprehensive
income......................................... (3) (3) (3) (3) (3)
Less:
Common stock acquired by employee
stock ownership plan (4)..................... -- (408) (480) (552) (635)
Common stock to be acquired by
management development and
recognition plan (5)......................... -- (204) (240) (276) (317)
------- -------- -------- -------- --------
Total stockholders' equity......................... $ 5,102 $ 9,210 $ 10,002 $ 10,794 $ 11,705
======= ======== ======== ======== ========
- -------------------------
(1) Withdrawals from deposit accounts for the purchase of common stock are not
reflected. Withdrawals to purchase common stock will reduce pro forma
deposits by the amounts of the withdrawals.
(2) Indian Village's authorized capital consists solely of 1,000 shares of
common stock, par value $1.00 per share, 1,000 shares of which will be
issued to Indian Village Bancorp, and 9,000 shares of preferred stock, no
par value per share, none of which will be issued in connection with the
conversion.
17
(3) Retained earnings are substantially restricted by applicable regulatory
capital requirements. Additionally, Indian Village will be prohibited from
paying any dividend that would reduce its regulatory capital below the
amount in the liquidation account, which will be established for the benefit
of Indian Village's eligible depositors as of December 31, 1997 and March
31, 1999 at the time of the conversion and decreased subsequently as these
account holders reduce their balances or cease to be depositors. See "The
Conversion--Effects of Conversion on Depositors and Borrowers of Indian
Village--Liquidation Account."
(4) Assumes that 8% of the common stock sold in the conversion will be acquired
by the ESOP in the conversion with funds borrowed from Indian Village
Bancorp. Under generally accepted accounting principles, the amount of
common stock to be purchased by the ESOP represents unearned compensation
and is, accordingly, reflected as a reduction of capital. As shares are
released to ESOP participants' accounts, a corresponding reduction in the
charge against capital will occur. Since the funds are borrowed from Indian
Village Bancorp, the borrowing will be eliminated in consolidation and no
liability or interest expense will be reflected in the consolidated
financial statements of Indian Village Bancorp. See "Management of Indian
Village--Benefits--Employee Stock Ownership Plan."
(5) Assumes the purchase in the open market at $10.00 per share, under the
proposed management development and recognition plan, of a number of shares
equal to 4% of the shares of common stock issued in the conversion at the
minimum, midpoint, maximum and 15% above the maximum of the estimated
valuation range. The shares are reflected as a reduction of stockholders'
equity. See "Risk Factors--Issuance of Shares for Benefit Programs May
Reduce Your Ownership Interest," "Pro Forma Data" and "Management of Indian
Village--Benefits--Management Development and Recognition Plan." The
management development and recognition plan will require stockholder
approval at a meeting following the conversion.
18
HISTORICAL AND PRO FORMA REGULATORY CAPITAL COMPLIANCE
The following table presents Indian Village's historical and pro forma
capital position relative to its capital requirements at December 31, 1998. The
amount of capital infused into Indian Village for purposes of the following
table is 50% of the net proceeds of the offering. For purposes of the table, the
amount expected to be borrowed by the employee stock ownership plan and the cost
of the shares expected to be acquired by the management development and
recognition plan are deducted from pro forma regulatory capital. For a
discussion of the assumptions underlying the pro forma capital calculations
presented below, see "Use of Proceeds," "Capitalization" and "Pro Forma Data."
The definitions of the terms used in the table are those provided in the capital
regulations issued by the Office of Thrift Supervision. For a discussion of the
capital standards applicable to Indian Village, see "Regulation and
Supervision--Federal Savings Institution Regulation--Capital Requirements."
Pro Forma at December 31, 1998
---------------------------------------------------------------------------------
15% Above
Minimum of Midpoint of Maximum of Maximum of
Estimated Estimated Estimated Estimated
Valuation Range Valuation Range Valuation Range Valuation Range
------------------- ------------------- ------------------- -------------------
Historical at 510,000 Shares 600,000 Shares 690,000 Shares 793,500 Shares
December 31, 1998, at $10.00 Per Share at $10.00 Per Share at $10.00 Per Share at $10.00 Per Share
------------------ ------------------- ------------------- ------------------- -------------------
Percent of Percent of Percent of Percent of Percent of
Adjusted Adjusted Adjusted Adjusted Adjusted
Total Total Total Total Total
Amount Assets(1) Amount Assets(1) Amount Assets(1) Amount Assets(1) Amount Assets(1)
------ --------- ------ ---------- ------ --------- ------ --------- ------ ---------
(Dollars in thousands)
Generally accepted accounting
principles equity(2)....... $5,102 12.7% $6,850 16.4% $7,192 17.1% $7,534 17.7% $7,927 18.5%
====== ==== ====== ==== ====== ==== ====== ==== ====== ====
Tangible capital (2).......... $5,008 12.5% $6,756 16.2% $7,098 16.9% $7,440 17.6% $7,833 18.3%
Tangible capital
requirement................ 599 1.5 625 1.5 630 1.5 635 1.5 641 1.5
Excess........................ ------ ---- ------ ---- ------ ---- ------ ---- ------ ----
$4,409 11.0% $6,131 14.7% $6,468 15.4% $6,805 16.1% $7,192 16.8%
====== ==== ====== ==== ====== ==== ====== ==== ====== ====
Core capital (2).............. $5,008 12.5% $6,756 16.2% $7,098 16.9% $7,440 17.6% $7,833 18.3%
Core capital requirement...... 1,198 3.0 1,250 3.0 1,261 3.0 1,271 3.0 1,283 3.0
------ ---- ------ ---- ------ ---- ------ ---- ------ ----
Excess........................ $3,810 9.5% $5,506 13.2% $5,837 13.9% $6,169 14.6% $6,550 15.3%
====== ==== ====== ==== ====== ==== ====== ==== ====== ====
Total risk-based capital (3).. $5,226 25.8% $6,974 33.8% $7,316 35.4% $7,658 36.9% $8,051 38.7%
Total risk-based capital
requirement................ 1,621 8.0 1,649 8.0 1,654 8.0 1,659 8.0 1,666 8.0
------ ---- ------ ---- ------ ---- ------ ---- ------ ----
Excess........................ $3,605 17.8% $5,325 25.8% $5,662 27.4% $5,999 28.9% $6,385 30.7%
====== ==== ====== ==== ====== ==== ====== ==== ====== ====
- -------------------------------
(1) Tangible capital levels and core capital levels are shown as a percentage of
adjusted total assets of $39.9 million. Risk-based capital levels are shown
as a percentage of risk-weighted assets of $20.3 million.
(2) Unrealized gains on investment securities and an unrecognized net asset
adjustment relating to Indian Villages's pension plan account for the
difference between generally accepted accounting principles capital and each
of tangible capital and core capital. See Notes 8 and 10 to Notes to
Financial Statements for additional information.
(3) Percentage represents total core and supplementary capital divided by total
risk-weighted assets. Assumes net proceeds are invested in assets that
carry a 20% risk-weighting.
19
PRO FORMA DATA
The plan of conversion requires that the common stock must be sold at a
price equal to the estimated market value of Indian Village Bancorp and Indian
Village, as converted, based upon an independent appraisal. The estimated
valuation range as of March 1, 1999, is from a minimum of $5,100,000 to a
maximum of $6,900,000 with a midpoint of $6,000,000. At a price per share of
$10.00, this results in a minimum number of shares of 510,000, a maximum number
of shares of 690,000 and a midpoint number of shares of 600,000.
The actual net proceeds from the sale of the common stock cannot be
determined until the conversion is completed. However, net proceeds indicated in
the following table are based upon the following assumptions:
(1) Trident Securities will receive a fixed payment of $100,000 to cover
all of its fees and expenses as discussed under "The Conversion--Plan
of Distribution for the Subscription, Direct Community and Syndicated
Community Offerings"; and
(2) conversion expenses, excluding the fees and expenses paid to Trident
Securities, will total approximately $280,000 regardless of the number
of shares sold in the conversion.
Actual expenses may vary from this estimate, and the fees paid will depend
upon whether a syndicate of broker-dealers or other means is necessary to sell
the shares, and other factors.
Indian Village Bancorp and Indian Village prepared the following pro forma
data with the assistance of Keller & Company. The following table summarizes
the historical net income and retained earnings of Indian Village and the pro
forma net income and stockholders' equity of Indian Village Bancorp at and for
the year ended December 31, 1998. Pro forma net income has been calculated as
if the conversion were completed on January 1, 1998 and the estimated net
proceeds had been invested at 4.62% beginning on that date, which represents the
one-year U.S. Treasury Bill yield as of December 31, 1998. While Office of
Thrift Supervision regulations call for the use of a yield equal to the
arithmetic average of the weighted average yield earned by Indian Village on its
interest-earning assets and the rates paid on its deposits, Indian Village
Bancorp believes that the one-year U.S. Treasury Bill yield is a more realistic
yield on the investment of the conversion proceeds.
A pro forma after-tax return of 3.05% is used for both Indian Village
Bancorp and Indian Village after giving effect to a combined federal and state
income tax rate of 34%. Historical and pro forma per share amounts have been
calculated by dividing historical and pro forma amounts by the number of shares
of common stock indicated in the table.
When reviewing the following table you should consider the following:
. The final column gives effect to the sale of an additional 103,500
shares in the conversion, which may be issued without any further
notice if Keller & Company increases its appraisal to reflect the
results of this offering or changes in the financial condition or
results of operations of Indian Village or changes in market
conditions after the offering begins. See "The Conversion--Stock
Pricing and Number of Shares to be Issued."
. Since funds on deposit at Indian Village may be withdrawn to purchase
shares of common stock, the amount of funds available for investment
will be reduced by the amount of withdrawals for stock purchases. The
pro forma table does not reflect withdrawals from deposit accounts.
. Historical per share amounts have been computed as if the shares of
common stock expected to be issued in the conversion had been
outstanding at January 1, 1998. However, neither historical nor pro
forma stockholders' equity has been adjusted to reflect the investment
of the estimated net
20
proceeds of the sale of the shares in the conversion, the additional
employee stock ownership plan expense or the proposed management
development and recognition plan expense.
. "Book value" represents the difference between the stated amounts of
Indian Village's assets and liabilities. The amounts shown do not
reflect the liquidation account, which will be established for the
benefit of eligible depositors as of December 31, 1997 and March 31,
1999, or the federal income tax consequences of the restoration to
income of Indian Village's special bad debt reserves for income tax
purposes, which would be required in the unlikely event of
liquidation. See "The Conversion--Effects of Conversion to Stock Form
on Depositors and Borrowers of Indian Village" and "Taxation." The
amounts shown for book value do not represent fair market values or
amounts available for distribution to stockholders in the unlikely
event of liquidation.
. The amounts shown as pro forma stockholders' equity per share do not
represent possible future price appreciation or depreciation of Indian
Village Bancorp's common stock.
. The amounts shown do not account for the shares to be reserved for
issuance under the stock option plan, which requires stockholder
approval at a meeting following the conversion. Recently proposed
accounting rules would require Indian Village Bancorp to recognize
compensation expense for stock options awarded to nonemployee
directors.
The following pro forma data, which are based on Indian Village's retained
earnings at December 31, 1998 and net income for the year ended December 31,
1998, may not represent the actual financial effects of the conversion or the
operating results of Indian Village Bancorp after the conversion. The pro forma
data rely exclusively on the assumptions outlined above. The pro forma data do
not represent the fair market value of Indian Village Bancorp's common stock,
the current fair market value of Indian Village's or Indian Village Bancorp's
assets or liabilities, or the amount of money that would be available for
distribution to shareholders if Indian Village Bancorp is liquidated after the
conversion.
21
At or For the Year Ended December 31, 1998
-------------------------------------------------------------------
15% Above
Minimum of Midpoint of Maximum of Maximum of
Estimated Estimated Estimated Estimated
Valuation Valuation Valuation Valuation
Range Range Range Range
----------- ------------ ----------- ----------
510,000 600,000 690,000 793,500
Shares Shares Shares Shares
at $10.00 at $10.00 at $10.00 at $10.00
Per Share Per Share Per Share Per Share
----------- ------------- ------------ -----------
(Dollars in thousands, except per share amounts)
Gross proceeds..................................................... $ 5,100 $ 6,000 $ 6,900 $ 7,935
Less: estimated expenses.......................................... (380) (380) (380) (380)
------- ------- ------- -------
Estimated net proceeds............................................. 4,720 5,620 6,520 7,555
Less: common stock acquired by employee stock ownership plan...... (408) (480) (552) (635)
Less: common stock to be acquired by management development
and recognition plan........................................ (204) (240) (276) (317)
------- ------- ------- -------
Net investable proceeds.......................................... $ 4,108 $ 4,900 $ 5,692 $ 6,603
======== ======== ======== ========
Net income:
Historical...................................................... $ 246 $ 246 $ 246 $ 246
Pro forma income on net proceeds................................ 125 149 173 200
Pro forma employee stock ownership plan adjustments (1)......... (42) (49) (56) (65)
Pro forma management development and recognition
plan adjustments (2)......................................... (27) (32) (36) (42)
-------- -------- -------- --------
Pro forma net income......................................... $ 302 $ 314 $ 327 $ 339
======== ======== ======== ========
Net income per share:
Historical...................................................... $ 0.52 $ 0.44 $ 0.39 $ 0.34
Pro forma income on net proceeds................................ 0.26 0.27 0.27 0.27
Pro forma employee stock ownership plan adjustments (1)......... (0.04) (0.04) (0.04) (0.04)
Pro forma management development and recognition
plan adjustments (2)......................................... (0.06) (0.06) (0.06) (0.06)
------- -------- -------- --------
Pro forma net income per share............................... $ 0.68 $ 0.61 $ 0.56 $ 0.51
======== ======== ======== ========
Number of shares used to calculate pro forma net income per share.. 471,920 555,200 638,480 734,252
Stockholders' equity (book value):
Historical...................................................... $ 5,102 $ 5,102 $ 5,102 $ 5,102
Estimated net proceeds.......................................... 4,720 5,620 6,520 7,555
Less: common stock acquired by employee stock ownership plan... (408) (480) (552) (635)
Less: common stock to be acquired by management
development and recognition plan (2).......................... (204) (240) (276) (317)
------- -------- -------- --------
Pro forma stockholders' equity............................... $ 9,210 $ 10,002 $ 10,794 $ 11,705
======== ======== ======== ========
Stockholders' equity per share:
Historical...................................................... $ 10.00 $ 8.50 $ 7.39 $ 6.43
Estimated net proceeds.......................................... 9.25 9.37 9.45 9.52
Less: common stock acquired by employee stock ownership plan... (0.80) (0.80) (0.80) (0.80)
Less: common stock to be acquired by management development
and recognition plan (2)................................. (0.40) (0.40) (0.40) (0.40)
-------- -------- -------- --------
Pro forma stockholders' equity per share..................... $ 18.05 $ 16.67 $ 15.64 $ 14.75
======== ======== ======== ========
Number of shares used to calculate pro forma stockholders' equity
per share....................................................... 510,000 600,000 690,000 793,500
Purchase price as a percentage of pro forma stockholders' equity
per share....................................................... 55.40% 59.99% 63.94% 67.80%
Purchase price as a multiple of pro forma net income per share..... 15.87x 17.86x 19.61x 21.74x
22
- ------------------------------
(1) Assumes that the employee stock ownership plan will purchase 8% of the
shares of common stock offered in the conversion. The employee stock
ownership plan will borrow the funds used to acquire these shares from the
net proceeds from the conversion retained by Indian Village Bancorp. The
amount of this borrowing, which will have an interest rate equal to the
prime rate as published in The Wall Street Journal, which is currently
7.75%, has been reflected as a reduction from gross proceeds to determine
estimated net investable proceeds. Indian Village intends to make
contributions to the employee stock ownership plan in amounts at least equal
to the principal and interest requirement of the debt. As the debt is paid
down, stockholders' equity will be increased. Indian Village's payment of
the employee stock ownership plan debt is based upon equal installments of
principal over a 15-year period, assuming a combined federal and state
income tax rate of 34%. Interest income earned by Indian Village Bancorp on
the employee stock ownership plan debt offsets the interest paid by Indian
Village on the employee stock ownership plan loan. No reinvestment is
assumed on proceeds contributed to fund the employee stock ownership plan.
Applicable accounting practices require that compensation expense for the
employee stock ownership plan be based upon shares committed to be released
and that unallocated shares be excluded from earnings per share
computations. The valuation of shares committed to be released would be
based upon the average market value of the shares during the year, which,
for purposes of this calculation, was assumed to be equal to the $10.00 per
share purchase price. See "Management of Indian Village--Benefits--Employee
Stock Ownership Plan."
(2) In calculating the pro forma effect of the management development and
recognition plan, it is assumed that the required stockholder approval has
been received, that the shares were acquired by the management development
and recognition plan on January 1, 1998 in open market purchases at the
$10.00 per share purchase price, that 20% of the amount contributed was an
amortized expense during the period, and that the combined federal and state
income tax rate is 34%. The issuance of authorized but unissued shares of
the common stock instead of open market purchases would dilute the voting
interests of existing stockholders by approximately 3.85%.
For purposes of this table, shares issued under the management development
and recognition plan vest 20% per year and compensation expense is
recognized on a straight-line basis over each vesting period. If the fair
market value per share is greater than $10.00 per share on the date shares
are awarded under the management development and recognition plan, total
management development and recognition plan expense would be greater. The
total estimated management development and recognition plan expense was
multiplied by 20%, which is the total percent of shares for which expense is
recognized in the first year.
The following table shows what pro forma net income and stockholders' equity
per share would be if shares for the management development and recognition
plan were authorized but unissued shares instead of repurchased shares. The
table also shows pre-tax management development and recognition plan
expense.
15% Above
Minimum Midpoint Maximum Maximum
of of of of
Estimated Estimated Estimated Estimated
Valuation Valuation Valuation Valuation
Range Range Range Range
---------- ----------- ----------- -----------
Pro forma net income per share:
Year ended December 31, 1998................. $ 0.67 $ 0.60 $ 0.55 $ 0.50
Pro forma stockholders' equity per share:
At December 31, 1998......................... 17.75 16.41 15.43 14.57
Pre-tax management development and recognition
plan expense:
Year ended December 31, 1998................. 40,800 48,000 55,200 63,480
23
SHARES TO BE PURCHASED BY MANAGEMENT WITH SUBSCRIPTION RIGHTS
The following table presents certain information as to the approximate
purchases of common stock by each director and executive officer of Indian
Village, including their associates, as defined by applicable regulations. No
individual has entered into a binding agreement to purchase these shares and,
therefore, actual purchases could be more or less than indicated. Directors and
executive officers and their associates may not purchase more than 35% of the
shares sold in the conversion. For purposes of the following table, sufficient
shares are assumed to be available to satisfy subscriptions in all categories.
Directors, executive officers, their associates, and employees of Indian Village
Bancorp and Indian Village will pay the same price as all other subscribers for
the shares for which they subscribe.
Percent of Percent of
Anticipated Anticipated Shares at Shares at
Number of Shares Dollar Amount Minimum Maximum
Name and to be to be of Estimated of Estimated
Position Purchased(1) Purchased(1) Valuation Range Valuation Range
- ---------------- ---------------- -------------- --------------- ---------------
Rebecca S. Mastin 15,000 $150,000 2.94% 2.17%
Chairperson of the Board
John A. Beitzel 10,000 100,000 1.96 1.45
Vice Chairman of the Board
Marty R. Lindon 10,000 100,000 1.96 1.45
President, Chief Executive Officer
and Director
Michael A. Cochran 15,000 150,000 2.94 2.17
Corporate Secretary and Director
Cindy S. Knisely 7,500 75,000 1.47 1.09
Director
Joanne Limbach 7,500 75,000 1.47 1.09
Director
Vernon E. Mishler 10,000 100,000 1.96 1.45
Director
Lori S. Frantz 4,000 40,000 0.78 0.58
Vice President, Treasurer and Chief
Financial Officer ------ -------- ----- -----
79,000 $790,000 15.49% 11.45%
====== ======== ===== =====
- ------------------------------------
(1) Does not include any shares to be awarded under the employee stock ownership
plan and management development and recognition plan or options to acquire
shares under the stock option plan.
24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
Management's discussion and analysis of financial condition and results of
operations is intended to assist in understanding the financial condition and
results of operations of Indian Village. The information contained in this
section should be read in conjunction with the Financial Statements and
accompanying Notes in the back of this prospectus, and with the other sections
of this prospectus.
Operating Strategy
Indian Village's business strategy is to operate as a traditional,
community-oriented savings association dedicated to financing home ownership and
providing quality customer service. Its business consists principally of
attracting retail deposits from the general public and using these funds to
originate mortgage loans secured by one-to four-family residences located
primarily in Tuscarawas County, Ohio. To a lesser extent, Indian Village also
originates multi-family loans, commercial real estate loans and residential
construction loans. Indian Village introduced home equity loans and lines of
credit in May 1996 and began offering other consumer loans in April 1998. Indian
Village intends to attempt to grow its consumer loan portfolio because the
shorter maturities of consumer loans help to manage interest rate risk and
because consumer loans generally earn higher levels of interest income than
mortgage loans. Indian Village is planning to establish a new office in New
Philadelphia. Indian Village believes the new office will help to increase the
overall size of its loan portfolio because New Philadelphia is more populated
and more commercial than Gnadenhutten and because there is no locally owned
financial institution currently headquartered in New Philadelphia.
Indian Village generally retains the loans it originates for long-term
investment. In an effort to meet the varying credit needs of the residents of
its primary market area, Indian Village established a relationship with a
private lender in 1998. Under this relationship, Indian Village processes loans
which the private lender funds at closing. Generally, these loans are 30-year
fixed rate mortgage loans that Indian Village does not want to hold in its own
portfolio because of interest rate risk management considerations or mortgage
loans of lesser credit quality than the loans Indian Village normally originates
for its own portfolio. The private lender funds these loans at closing so Indian
Village is not exposed to any credit risk. Indian Village generally receives a
processing fee of 1% of the loan principal amount.
Indian Village funds its assets primarily with retail certificates of
deposit. Transaction accounts are a relatively small portion of Indian
Village's deposit base, but it expects to increase their amount with the opening
of the New Philadelphia office. Indian Village also uses advances from the
Federal Home Loan Bank of Cincinnati as a supplemental source of funds.
The conversion will increase the consolidated capital of Indian Village
Bancorp by the amount of the net proceeds. Funds withdrawn from deposit
accounts will decrease interest-bearing liabilities, and new funds used to
purchase shares will increase interest-earning assets. While Indian Village
Bancorp expects these changes to increase its net interest income, Indian
Village Bancorp also expects that the adoption of the management development and
recognition plan and the additional costs of operating as a public company will
increase its noninterest expenses. For additional information regarding the
effects of this offering, see "Risk Factors--Implementation of Benefit Plan Will
Increase Future Compensation Expense and May Lower Indian Village's Net Income"
and "Pro Forma Data." Hiring new employees for the New Philadelphia office and
the other expenses of equipping and operating the office will also increase
noninterest expenses in future periods.
25
Comparison of Financial Condition at December 31, 1998 and 1997
Total assets increased 10.1% from $36.4 million to $40.0 million. Cash and
cash equivalents decreased from $923,000 to $797,000 at December 31, 1998 to
fund the purchase of land for the new branch office. At December 31, 1998,
Indian Village had time deposits totaling $499,000, which are interest-bearing
deposits with other financial institutions, each with a balance of $100,000 or
less. There were no similar time deposits a year earlier. Securities available
for sale decreased from $7.3 million to $6.2 million at December 31, 1998 as a
result of prepayments, sales and maturities. Loans increased 14.8% from $27.2
million to $31.3 million, primarily as a result of growth in the residential
mortgage loan and consumer loan portfolios. The residential mortgage loan
portfolio increased from $23.0 million to $26.1 million. The consumer loan
portfolio increased from $1.1 million to $2.3 million. Management attributes
this growth to more aggressive promotion of consumer loans and the introduction
of an automobile loan program. Premises and equipment increased from $239,000
to $447,000 primarily due to the purchase of the land for the New Philadelphia
office at a price of $213,000. Real estate owned increased from $41,000 to
$122,000 because of the foreclosure of a commercial real estate loan secured by
a commercial property located in Gnadenhutten.
Deposits increased only $589,000 from $30.3 million to $30.9 million.
Management attributes this flat deposit growth to increased competition and the
overall lack of growth in the Gnadenhutten market. To offset the lack of
deposit growth, Indian Village increased its Federal Home Loan Bank advances
from $1.0 million to $4.0 million in order to fund loans. Total equity
increased from $4.9 million to $5.1 million as a result of retained net income.
Comparison of Operating Results for the Years Ended December 31, 1998 and 1997
Net Income. Net income was $246,000 in 1998 compared to $350,000 in 1997.
A higher provision for loan losses and increased noninterest expense were the
primary reasons for the decline in net income.
Net Interest Income. Net interest income increased from $1.3 million to
$1.4 million. Total interest income increased from $2.9 million to $3.0 million
primarily as a result of higher average loan balances. Interest on interest-
bearing deposits and federal funds sold decreased from $70,000 to $46,000 as a
result of lower average balances as funds were invested in loans. Total
interest expense increased from $1.6 million to $1.7 million primarily because
of increased interest expense on Federal Home Loan Bank advances due to higher
average outstanding balances. Interest expense on deposits decreased by
$23,000 due to a decrease in the average rate paid.
Provision for Loan Losses. Provisions for loan losses are charged to
operations to bring the total allowance for loan losses to a level considered by
management to be adequate to provide for probable losses based on management's
evaluation of the collectibility of the loan portfolio, including past loan loss
experience, known and inherent risks in the nature and volume of the portfolio,
information about specific borrower situations and estimated collateral values,
economic conditions, and other factors. The provision for loan losses was
$60,000 in 1998 compared to no provision in 1997. The provision was increased
primarily because of the increased risk of loss associated with the overall
growth and changes in composition of the loan portfolio, including the consumer
loan portfolio which carries a higher inherent risk of loss than the residential
mortgage loan portfolio. In 1998, charge-offs were $18,000 compared to none in
1997. The allowance for loan losses was $218,000 at December 31, 1998 and
$176,000 at December 31, 1997. Management deemed the allowance adequate at both
dates. Although management uses the best information available, future
adjustments to the allowance may be necessary due to changes in economic,
operating, regulatory and other conditions that may be beyond Indian Village's
control. While Indian Village maintains its allowance for loan losses at a
level which it considers to be adequate to provide for probable losses, there
can be no assurance that further additions will not be made to the allowance for
loan losses and that actual losses will not exceed the estimated amounts. See
"Business of Indian Village--Lending Activities--Allowance for Loan Losses" for
further information.
26
Noninterest Income. Noninterest income increased from $21,000 to $29,000
primarily as a result of a $5,000 increase in miscellaneous service fees and
safe deposit box rental income.
Noninterest Expense. Noninterest expense increased from $805,000 to
$950,000 primarily as a result of an increase in salaries and employee benefits
and an increase in other expense. Salaries and employee benefits increased from
$336,000 to $440,000 primarily due to the severance payment to Indian Village's
immediate past President, who was employed from September 1997 to August 1998,
and normal salary increases. The one-time severance payment amounted to
$33,000. Other expense, which primarily includes advertising, regulatory
assessments, postage and supplies as well as other miscellaneous expenses,
increased from $114,000 to $160,000 primarily as a result of increased
advertising and promotion expense associated with the consumer loan program.
These increases were partially offset by a decrease in professional and
consulting fees. Professional and consulting fees decreased from $68,000 to
$56,000 primarily as a result of personnel search fees and a consulting
agreement with the past President of Indian Village in 1997 that were not
repeated in 1998. Noninterest expense is expected to increase in future periods
because of the expenses associated with the proposed stock benefit plans, the
costs associated with operating as a public company, and the costs of staffing
and equipping the proposed new branch office in New Philadelphia, Ohio.
Income Tax Expense. Income tax expense decreased from $180,000 to $127,000
as a result of lower income before taxes.
27
Average Balances, Interest and Average Yields/Cost
The following table presents certain information for the periods indicated
regarding average balances of assets and liabilities as well as the total dollar
amounts of interest income from average interest-earning assets and interest
expense on average interest-bearing liabilities and average yields and costs.
The yields and costs for the periods indicated are derived by dividing income or
expense by the average balances of assets or liabilities, respectively, for the
periods presented. Average balances were derived from month-end balances.
Management does not believe that the use of month-end balances instead of daily
balances causes any material differences in the information presented.
At Year Ended December 31,
December 31, -----------------------------------------------------------------
1998 1998 1997
----------- -----------------------------------------------------------------
Average Average
Yield/ Average Yield/ Average Yield/
Rate Balance Interest Rate Balance Interest Rate
----------- ---------- ---------- -------- ---------- ----------- ----------
(Dollars in thousands)
Interest-earning assets:
Loans(1)........................... 8.03% $28,449 $2,450 8.61% $25,998 $2,285 8.79%
Mortgage-backed securities......... 6.82 3,874 280 7.23 2,964 218 7.35
Investment securities:
Taxable........................ 6.68 3,265 224 6.86 4,499 313 6.96
Non-taxable(2)................. 6.82 502 30 5.98 98 8 8.16
Interest-bearing deposits......... 5.24 976 46 4.71 1,288 70 5.43
---- ------- ------ ----- ------- ------ ------
Total interest-earning assets.. 7.77 37,066 3,030 8.17 34,847 2,894 8.30
Noninterest-earning assets........ 2,705 2,237
------- -------
Total assets................... $39,771 $37,084
======= =======
Interest-bearing liabilities:
Deposits:
Demand accounts............... 2.00 $ 815 16 1.96 $ 643 16 2.49
Savings accounts.............. 3.25 5,263 172 3.27 4,977 162 3.25
Money market accounts......... 3.30 1,777 59 3.32 1,775 59 3.32
Certificates of deposit....... 5.55 22,585 1,283 5.68 23,079 1,316 5.70
---- ------- ------ ---- ------- ------ ----
Total deposits............ 4.92 30,440 1,530 5.03 30,474 1,553 5.10
Federal Home Loan Bank advances. 5.14 2,351 136 5.78 471 24 5.10
---- ------- ------ ---- ------- ------ ----
Total interest-bearing
liabilities............... 4.95 32,791 1,666 5.08 30,945 1,577 5.10
---- ------- ------ ---- ------- ------ ----
Noninterest-bearing liabilities. 1,925 1,485
------- -------
Total liabilities............ 34,716 32,430
Equity.......................... 5,055 4,654
------- -------
Total liabilities and equity. $39,771 $37,084
======= =======
Net interest-earning assets..... $ 4,275 $ 3,902
======= =======
Net interest income/interest
rate spread.................... 2.82 $1,364 3.09% $1,317 3.20%
==== ====== ===== ====== =====
Net interest margin as a
percentage of interest-
earning-assets.............. 3.68% 3.78%
===== =====
Ratio of interest-earning assets
to interest-bearing
liabilities.................. 113.04% 112.61%
======= ========
- -------------------------------------
(1) Average balances include nonaccrual loans.
(2) Average yield for municipal securities are presented on a tax equivalent
basis based on an assumed tax rate of 34%.
28
Rate/Volume Analysis
The following table presents the effects of changing rates and volumes on
the interest income and interest expense of Indian Village. The rate column
shows the effects attributable to changes in rate (changes in rate multiplied by
prior volume). The volume column shows the effects attributable to changes in
volume (changes in volume multiplied by prior rate). For purposes of this table,
changes attributable to changes in both rate and volume, which cannot be
segregated, have been allocated proportionately based on the absolute value of
the change due to rate and the change due to volume.
Year Ended
December 31, 1998
Compared to
Year Ended
December 31, 1997
------------------------------
Increase (Decrease)
Due to
--------------------- -------
Rate Volume Total
--------- ---------- -------
(Dollars in thousands)
Interest-earning assets:
Loans..................................... $(47) $212 $165
Mortgage-backed securities.............. (4) 66 62
Investment securities:..................
Taxable.............................. (4) (85) (89)
Non-taxable(1)....................... (3) 25 22
Interest-bearing deposits............... (8) (16) (24)
---- ---- ----
Total interest-earning assets........ (66) 202 136
Interest-bearing liabilities:
Deposits:
Demand accounts....................... (4) 4 --
Savings accounts...................... 1 9 10
Money market accounts................. -- -- --
Certificates of deposit............... (5) (28) (33)
Federal Home Loan Bank advances.......... 4 108 112
---- ---- ----
Total interest-bearing liabilities.... (4) 93 89
---- ---- ----
Increase (decrease) in net interest income.. $(62) $109 $ 47
==== ==== ====
_____________________________
(1) Municipal securities are presented on a tax equivalent basis based on an
assumed tax rate of 34%.
Market Risk Analysis
General. Indian Village's profitability depends primarily on its net
interest income, which is the difference between the income it receives on its
loan and investment portfolio and its cost of funds, which consists of interest
paid on deposits and borrowings. Net interest income is also affected by the
relative amounts of interest-earning assets and interest-bearing liabilities.
When interest-earning assets equal or exceed interest-bearing liabilities, any
positive interest rate spread will generate net interest income. Indian
Village's profitability is also affected by the level of income and expenses.
Noninterest income includes service charges and fees and gain on sale of
investments. Noninterest expenses primarily include compensation and benefits,
occupancy and equipment expenses, deposit insurance premiums and data processing
expenses. Indian Village's results of operations are also significantly affected
by general economic and competitive conditions, particularly changes in market
interest rates, government legislation and regulation and monetary and fiscal
policies.
29
Quantitative Aspects of Market Risk. Indian Village does not maintain a
trading account for any class of financial instrument nor does it engage in
hedging activities or purchase high-risk derivative instruments. Furthermore,
Indian Village has no foreign currency exchange rate risk or commodity price
risk. For information regarding the sensitivity to interest rate risk of Indian
Village's interest-earning assets and interest-bearing liabilities, see the
tables under "Business of Indian Village--Lending Activities--Maturity of Loan
Portfolio," "--Investment Activities" and "--Deposit Activities and Other
Sources of Funds--Deposit Accounts--Time Deposits by Maturities."
Qualitative Aspects of Market Risk. Indian Village has sought to reduce
the exposure of its earnings to changes in market interest rates by attempting
to manage the mismatch between asset and liability maturities and interest
rates. The principal element in achieving this objective is to increase the
interest rate sensitivity of Indian Village's interest-earning assets by
originating loans with interest rates that periodically adjust to market
conditions for its portfolio and by attempting to originate shorter-term
consumer loans. Indian Village relies on retail deposits as its primary source
of funds. Management believes retail deposits, compared to brokered deposits,
reduce the effects of interest rate fluctuations because they generally
represent a more stable source of funds.
In order to encourage institutions to reduce their interest rate risk, the
Office of Thrift Supervision adopted a rule incorporating an interest rate risk
component into the risk-based capital rules. Using data compiled by the Office
of Thrift Supervision, Indian Village receives a report which measures interest
rate risk by modeling the change in net portfolio value over a variety of
interest rate scenarios. This procedure for measuring interest rate risk was
developed by the Office of Thrift Supervision to replace the "gap" analysis,
which is the difference between interest-earning assets and interest-bearing
liabilities that mature or reprice within a specific time period. Net portfolio
value is the present value of expected cash flows from assets, liabilities and
off-balance sheet contracts. The calculation is intended to illustrate the
change in net portfolio value that will occur upon an immediate change in
interest rates of at least 200 basis points with no effect given to any steps
that management might take to counter the effect of that interest rate movement.
Under Office of Thrift Supervision regulations, an institution with a greater
than "normal" level of interest rate risk must take a deduction from total
capital for purposes of calculating its risk-based capital. The Office of Thrift
Supervision, however, has delayed the implementation of this regulation. An
institution with a "normal" level of interest rate risk is defined as one whose
"measured interest rate risk" is less than 2.0%. Institutions with assets of
less than $300 million and a risk-based capital ratio of more than 12.0% are
exempt. Indian Village is exempt because of its asset size. If the proposed
regulation was implemented and applied at December 31, 1998, Indian Village
believes that its level of interest rate risk would have caused it to be treated
as an institution with greater than "normal" interest rate risk.
30
The Office of Thrift Supervision provides Indian Village with the
information presented in the following table. It presents the change in Indian
Village's net portfolio value at December 31, 1998, the most recent data
available, that would occur upon an immediate change in interest rates based on
Office of Thrift Supervision assumptions, but without effect to any steps that
management might take to counteract that change.
Net Portfolio as % of
Net Portfolio Value Portfolio Value of Assets
----------------------------------- -----------------------------
Change in
Interest Rates in
Basis Points ("bp") Amount $ Change % Change Net Portfolio Change
(Rate Shock) Value Ratio (bp)
- ------------------- ------------------------------------ -----------------------------
(Dollars in thousands)
400 $2,256 $(3,319) (60)% 6.19% (748)
300 3,181 (2,394) (43) 8.46 (521)
200 4,109 (1,467) (26) 10.59 (308)
100 4,952 (623) (11) 12.41 (126)
Static 5,576 -- -- 13.67 --
(100) 5,992 417 7 14.44 77
(200) 6,336 760 14 15.03 136
(300) 6,758 1,183 21 15.75 209
(400) 7,043 1,467 26 16.19 252
The Office of Thrift Supervision uses certain assumptions in assessing the
interest rate risk of savings associations. These assumptions relate to interest
rates, loan prepayment rates, deposit decay rates, and the market values of
certain assets under differing interest rate scenarios, among others.
As with any method of measuring interest rate risk, 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, if interest rates change, expected rates of
prepayments on loans and early withdrawals from certificates could deviate
significantly from those assumed in calculating the table.
Liquidity and Capital Resources
Indian Village's primary sources of funds are maturities and prepayments of
investment securities, customer deposits, proceeds from principal and interest
payments on loans and Federal Home Loan Bank of Cincinnati advances. While
investment securities maturities and scheduled amortization of loans are a
predictable source of funds, deposit flows, investment securities prepayments
and mortgage prepayments are greatly influenced by general interest rates,
economic conditions and competition.
Indian Village must maintain an adequate level of liquidity to ensure the
availability of sufficient funds to fund loan originations and deposit
withdrawals, to satisfy other financial commitments and to take advantage of
investment opportunities. Indian Village generally maintains sufficient cash and
short-term investments to meet short-term liquidity needs. At December 31, 1998,
cash and interest-bearing deposits and time deposits totaled $1.3 million, and
investment securities classified as available-for-sale totaled $6.2 million,
which together totaled 18.7% of total assets. At December 31, 1998, Indian
Village had outstanding advances of $4.0 million. At December 31, 1998, Indian
Village was eligible to borrow up to $20.0 million with the Federal Home Loan
Bank of Cincinnati.
31
Office of Thrift Supervision regulations require savings institutions to
maintain an average daily balance of liquid assets, consisting of cash and
eligible investments, equal to at least 4.0% of the average daily balance of its
net withdrawals, deposits and short-term borrowings. Indian Village's actual
liquidity ratio at December 31, 1998 was 13.4%. See "--Comparison of Financial
Condition at December 31, 1998 and 1997" and "Business of Indian Village--
Investment Activities."
Indian Village's primary investing activity is the origination of one- to
four-family mortgage loans. During the years ended December 31, 1998 and 1997,
Indian Village originated $5.1 million and $4.8 million of these loans,
respectively. At December 31, 1998, Indian Village had loan commitments totaling
$2.4 million. Indian Village anticipates that it will have sufficient funds
available to meet current loan commitments. Certificates of deposit that are
scheduled to mature in less than one year from December 31, 1998 totaled $14.3
million. Historically, Indian Village has been able to retain a significant
amount of its deposits as they mature. In addition, management of Indian Village
believes that it can adjust the offering rates of certificates of deposit to
retain deposits in changing interest rate environments. If Indian Village does
not retain a significant portion of these deposits, Indian Village could use
Federal Home Loan Bank of Cincinnati advances to fund deposit withdrawals, which
would increase interest expense if the average rate paid on advances exceeds the
average rate paid on deposits of similar duration.
Office of Thrift Supervision regulations require Indian Village to maintain
specific amounts of regulatory capital. As of December 31, 1998, Indian Village
complied with all regulatory capital requirements as of that date with tangible,
core and risk-based capital ratios of 12.5%, 12.5% and 25.8%, respectively. For
a detailed discussion of regulatory capital requirements, see "Regulation--
Federal Regulation of Savings Associations--Capital Requirements." See also
"Historical And Pro Forma Regulatory Capital Compliance."
Year 2000 Issues
Indian Village uses computers, computer software and equipment utilizing
embedded microprocessors that will be effected by the year 2000 issue. The year
2000 issue exists because many computer systems and applications use two-digit
date fields to designate a year. As the century date change occurs, date-
sensitive systems may recognize the year 2000 as 1900, or not at all. This
inability to recognize or properly treat the year 2000 may cause erroneous
results, ranging from system malfunctions to incorrect or incomplete processing.
Indian Village's year 2000 committee consists of Cindy S. Knisely, Michael
A. Cochran, Marty R. Lindon and Lori S. Frantz. The committee reports monthly
to the Board of Directors. The committee has developed and is implementing a
comprehensive plan to make all information and non-information technology assets
year 2000 compliant. The plan is comprised of the following phases:
1. Awareness - Educational initiatives on year 2000 issues and concerns.
This phase is ongoing, especially as it relates to informing customers
of Indian Village's year 2000 preparedness.
2. Assessment - Inventory of all technology assets and identification of
third-party vendors and service providers. Indian Village has analyzed
the operation of all date-sensitive computer systems and identified in
writing all third-party vendors and service providers associated with
these systems. This phase was completed as of June 30, 1998.
3. Renovation - Review of vendor and service providers responses to Indian
Village's year 2000 inquiries and development of a follow-up plan and
timeline. This phase was completed as of December 31, 1998.
4. Validation - Testing all systems and third-party vendors for year 2000
compliance. Indian Village is currently in this phase of its plan.
Indian Village has replaced all in-house equipment, such as teller
station equipment, with year 2000 compliant equipment. A third-party
service bureau processes all customer transactions and has completed
upgrades to its systems to be year 2000
32
compliant. Indian Village conducted in-house proxy testing in August
1998 and on-line testing in February 1999. If on-line testing reveals
that the third-party systems are not year 2000 compliant, Indian
Village's service bureau intends to either transfer Indian Village to
other systems that are year 2000 compliant or provide additional
remedial resources. Other parties whose year 2000 compliance may effect
Indian Village include the Federal Home Loan Bank of Cincinnati,
brokerage firms, the operator of Indian Village's automated teller
machines network and Indian Village's pension plan administrator. These
third parties have indicated their compliance or intended compliance.
Where it is possible to do so, Indian Village has scheduled testing with
these third parties. Where testing is not possible, Indian Village will
rely on certifications from vendors and service providers.
5. Implementation - Replacement or repair of non-compliant technology. As
Indian Village progresses through the validation phase, Indian Village
expects to determine necessary remedial actions and provide for their
implementation. Indian Village has already implemented a new year 2000
compliant computerized teller system and has verified the year 2000
compliance of its computer hardware and other equipment containing
embedded microprocessors. Indian Village's plan provides for year 2000
readiness to be completed by June 30, 1999.
Management of Indian Village has had discussions with a majority of its
commercial borrowers, including all of its large borrowers, regarding their year
2000 readiness. These discussions have revealed that these borrowers are not
heavily dependent on computers. Accordingly, Indian Village does not believe
that its commercial borrowers will be adversely affected by the year 2000.
Indian Village estimates its total cost to replace computer equipment,
software programs or other equipment containing embedded microprocessors that
were not year 2000 compliant to be approximately $35,000, none of which had been
incurred as of December 31, 1998. System maintenance or modification costs are
charged to expense as incurred, while the cost of new hardware, software or
other equipment is capitalized and amortized over their estimated useful lives.
Indian Village does not separately track the internal costs and time that its
own employees spend on year 2000 issues, which are principally payroll costs.
Because Indian Village depends substantially on its computer systems and
those of third parties, the failure of these systems to be year 2000 compliant
could cause substantial disruption of Indian Village's business and could have a
material adverse financial impact on Indian Village. Failure to resolve year
2000 issues presents the following risks to Indian Village, which it believes
reflects its most reasonably likely worst-case scenario:
1. Indian Village could lose customers to other financial institutions,
resulting in a loss of revenue, if Indian Village's third-party service bureau
is unable to properly process customer transactions;
2. Governmental agencies, such as the Federal Home Loan Bank of
Cincinnati, and correspondent institutions could fail to provide funds to Indian
Village, which could materially impair Indian Village's liquidity and affect
Indian Village's ability to fund loans and deposit withdrawals;
3. Concern on the part of depositors that year 2000 issues could impair
access to their deposit account balances could result in Indian Village
experiencing deposit outflows before December 31, 1999; and
4. Indian Village could incur increased personnel costs if additional
staff is required to perform functions that inoperative systems would have
otherwise performed.
Management believes that it is impossible to estimate the potential lost
revenue due to the year 2000 issue, as the extent and longevity of any potential
problem cannot be predicted. Because substantially all of Indian Village's loan
portfolio consists of loans to individuals rather than commercial enterprises,
management believes that year 2000 issues will not impair the ability of Indian
Village's borrowers to repay their debt.
33
There can be no assurances that Indian Village's year 2000 plan will
effectively address the year 2000 issue, that Indian Village's estimates of the
timing and costs of completing the plan will ultimately be accurate or that the
impact of any failure of Indian Village or its third-party vendors and service
providers to be year 2000 compliant will not have a material adverse effect on
Indian Village's business, financial condition or results of operations.
Indian Village has a business resumption contingency plan for year 2000
compliance that calls for Indian Village to resort to manual processing of
transactions until the computer systems resume operation.
Impact of Accounting Pronouncements and Regulatory Policies
Accounting for Stock-Based Compensation. Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation," establishes
financial accounting and reporting standards for stock-based employee
compensation plans. This statement 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 method are required
to disclose in a footnote to the financial statements pro forma net income and,
if presented, earnings per share, as if this statement had been adopted. The
accounting requirements of this statement are effective for transactions entered
into in 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 expects to use the financial
statement footnote disclosure option after the conversion and the adoption of
stock based benefit plans.
Earnings Per Share. Statement of Financial Accounting Standards No. 128,
"Earnings Per Share," issued in February 1997, establishes standards for
computing and presenting earnings per share and applies to entities with
publicly held common stock or potential common stock. It replaces the
presentation of primary earnings per share with a presentation of basic earnings
per share and requires the dual presentation of basic and diluted earnings per
share on the face of the income statement. This statement is effective for
financial statements issued for periods after December 15, 1997 including
interim periods; earlier applications are not permitted. This statement requires
restatement of all prior period earnings per share data presented.
Disclosure About Segments. Statement of Financial Accounting Standards No.
131, "Disclosure About Segments of an Enterprise and Related Information,"
issued in June 1997, establishes standards for disclosure about operating
segments in annual financial statements and selected information in interim
financial reports. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. The statement
supersedes Statement of Financial Accounting Standards No. 14, "Financial
Reporting for Segments of a Business Enterprise." The statement becomes
effective for Indian Village's fiscal year ending December 31, 1998, and
requires that comparative information from earlier years be restated to conform
to its requirements. Management of Indian Village has determined that Indian
Village operates in only one segment, banking, and therefore additional
disclosures are not required.
Accounting for Derivative Instruments and Hedging Activities. Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," issued in June 1998, standardizes the accounting for
derivative instruments, including certain derivative instruments embedded in
other contracts. The Statement requires entities to carry all derivative
instruments in the statement of financial position at fair value. The accounting
for changes in the fair value, gains and losses, of a derivative instrument
depends on whether it has been designated and qualifies as part of a hedging
relationship and, if so, on the reasons for holding it. If certain conditions
are met, entities may elect to designate a derivative instrument as a hedge of
exposures to changes in fair value, cash flows or foreign currencies. The
statement is effective for financial statements issued for periods beginning
after June 15, 1999. Currently, Indian Village is evaluating the effects of the
statement.
34
Accounting for Mortgage-Backed Securities Retained After the Securitization
of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise. Statement of
Financial Accounting Standards No. 134, "Accounting for Mortgage-Backed
Securities Retained After the Securitization of Mortgage Loans Held for Sale by
a Mortgage Banking Enterprise," issued in October 1998, amends Statement of
Financial Accounting Standards No. 65, "Accounting for Certain Mortgage Banking
Activities," and Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," for years
beginning after December 15, 1998. Currently, neither Indian Village Bancorp nor
Indian Village conduct any mortgage banking activities.
Effect of Inflation and Changing Prices
The financial statements and related financial data presented herein have
been prepared following generally accepted accounting principles, which require
the measurement of financial position and operating results in terms of
historical dollars without considering the change in the relative purchasing
power of money over time due to inflation. The primary impact of inflation is
reflected in the increased cost of Indian Village's operations. Unlike most
industrial companies, virtually all the assets and liabilities of a financial
institution are monetary in nature. As a result, interest rates generally have a
more significant impact on a financial institution's performance than do general
levels of inflation. Interest rates do not necessarily move in the same
direction or to the same extent as the prices of goods and services.
BUSINESS OF INDIAN VILLAGE BANCORP
General
Indian Village Bancorp was organized as a Pennsylvania business corporation
at the direction of Indian Village in March 1999 to become the Holding Company
for Indian Village upon completion of the conversion. As a result of the
conversion, Indian Village will be a wholly owned subsidiary of Indian Village
Bancorp and all of the issued and outstanding capital stock of Indian Village
will be owned by Indian Village Bancorp.
Business
Before the completion of the conversion, Indian Village Bancorp will not
engage in any significant activities other than of an organizational nature.
Upon completion of the conversion, Indian Village Bancorp's sole business
activity will be the ownership of the outstanding capital stock of Indian
Village. In the future, Indian Village Bancorp may acquire or organize other
operating subsidiaries, although there are no current plans, arrangements,
agreements or understandings, written or oral, to do so.
Initially, Indian Village Bancorp will neither own nor lease any property
but will instead use the premises, equipment and furniture of Indian Village
with the payment of appropriate rental fees, as required by applicable law and
regulations.
Since Indian Village Bancorp will only hold the outstanding capital stock
of Indian Village after the conversion, the competitive conditions applicable to
Indian Village Bancorp will be the same as those confronting Indian Village. See
"Business of Indian Village--Competition."
BUSINESS OF INDIAN VILLAGE
General
Indian Village was founded in 1923 as an Ohio-chartered mutual savings
association. In 1938 Indian Village adopted a federal mutual charter under the
name "Indian Village Federal Savings and Loan Association." Indian Village
changed its name to "Indian Village Community Bank" on January 20, 1999. Indian
Village is
35
regulated by the Office of Thrift Supervision and the Federal Deposit Insurance
Corporation. Indian Village's deposits have been federally insured since 1938
and are currently insured by the Federal Deposit Insurance Corporation under the
Savings Association Insurance Fund. Indian Village has been a member of the
Federal Home Loan Bank System since 1934.
Indian Village operates as a traditional savings association, specializing
in single-family residential mortgage lending and savings deposits. Indian
Village's business consists primarily of attracting retail deposits from the
general public and using those funds to originate fixed-rate residential
mortgage loans. Indian Village generally holds its loans for long-term
investment purposes. See "--Lending Activities."
Market Area
Tuscarawas County in east central Ohio is Indian Village's primary market
area, although it also originates loans to borrowers and accepts deposits from
individuals residing in contiguous counties. Much of Tuscarawas County is rural
with dairy and grain farming being the primary businesses. Light manufacturing
and services are located in and around the towns of Dover and New Philadelphia.
Major industries include steel, machine tooling, chemicals and heavy machinery.
According to published statistics, Tuscarawas County's 1998 population was
slightly less than 90,000 and consisted of approximately 34,000 households. The
population increased approximately 5.6% from 1990. Per capita income in 1998 for
Tuscarawas County was approximately $14,000, which was less than both the Ohio
average of approximately $17,000 and the U.S. average of approximately 18,000.
Likewise, 1998 median household income for Tuscarawas County was approximately
$31,600 compared to approximately $35,400 and $38,100 for Ohio and the U.S.,
respectively.
Competition
Indian Village faces intense competition for the attraction of deposits and
origination of loans in its primary market area. Its most direct competition for
deposits has historically come from the several commercial banks operating in
Indian Village's primary market area and, to a lesser extent, from other
financial institutions, such as brokerage firms, credit unions and insurance
companies. Particularly in times of high interest rates, Indian Village has
faced additional significant competition for investors' funds from short-term
money market securities and other corporate and government securities. Indian
Village's competition for loans comes primarily from the commercial banks and
loan brokers operating in its primary market area. Competition for deposits and
the origination of loans may limit Indian Village's growth in the future. See
"Risk Factors--Competition Has Hurt Indian Village's Net Interest Income."
Lending Activities
General. At December 31, 1998, Indian Village's net loans totaled $31.3
million, or 78.1% of total assets. Indian Village has concentrated its lending
activities on fixed-rate one- to four-family mortgage loans, with these loans
amounting to 82.1% of loans at December 31, 1998. To a lesser extent, Indian
Village also originates multi-family, commercial real estate, land, residential
construction loans, and consumer loans. Indian Village occasionally purchases
participation interests in multi-family loans originated by other lenders and
secured by properties located in other areas of Ohio.
Loan Portfolio Analysis. The following table presents the composition of
Indian Village's loan portfolio at the dates indicated. Indian Village had no
concentration of loans exceeding 10% of total loans receivable other than as
disclosed below.
36
At December 31,
1998 1997
---------------------- -------------------
Percent Percent
Amount of Total Amount of Total
----------- --------- -------- ---------
(Dollars in thousands)
Real estate loans:
One- to four-family...................... $26,080 82.57% $23,002 83.59%
Multi-family............................. 1,736 5.50 1,447 5.26
Commercial............................... 647 2.05 763 2.77
Construction............................. 677 2.14 1,107 4.02
Land..................................... 135 0.43 45 0.16
------- ------ ------- ------
Total real estate loans............... 29,275 92.69 26,364 95.80
Consumer loans:
Home equity loans and lines of credit.... 887 2.81 842 3.06
Home improvement loans................... 301 0.95 43 0.16
Automobile............................... 516 1.63 -- --
Loans on deposit accounts................ 294 0.93 207 0.75
Unsecured................................ 12 0.04 -- --
Other.................................... 274 0.87 -- --
------- ------ ------- ------
Total consumer loans.................. 2,284 7.23 1,092 3.97
Commercial business loans................... 27 0.08 62 0.23
------- ------ ------- ------
Total loans........................... 31,586 100.00% 27,518 100.00%
====== ======
Less:
Net deferred loan fees and costs......... (54) (49)
Loans in process......................... (40) (52)
Allowance for loan losses................ (218) (176)
------- -------
Net loans............................. $31,274 $27,241
======= =======
One- to Four-Family Real Estate Loans. Indian Village's primary lending
activity is the origination of loans secured by one- to four-family residences
located in its primary market area. At December 31, 1998, $26.1 million, or
82.6%, of Indian Village's total loans consisted of one- to four-family loans.
One- to four-family mortgage loans are generally held in Indian Village's
portfolio for long-term investment.
At December 31, 1998, Indian Village's residential mortgage loan portfolio
consisted primarily of fixed-rate fully amortizing loans with maturities ranging
between 15 and 25 years. Management establishes the loan interest rate based on
market conditions. Indian Village generally retains these loans in its
portfolio because they generally do not conform to guidelines for sale in the
secondary market. These nonconforming characteristics generally relate to the
characteristics of the real property, such as excess acreage or the lack of site
surveys, rather than the credit worthiness of the borrower. Indian Village
generally underwrites and documents its residential mortgage loans to secondary
market standards.
37
Recently, in order to improve its interest rate risk exposure, Indian
Village began offering adjustable rate mortgage loans with an interest rate
based on the one year Constant Maturity Treasury Bill index that adjusts every
year and with terms up to 25 years. These loans have a minimum interest rate of
6% and a maximum interest rate of 16% over the life of the loan. Interest rate
adjustments are limited to no more than 2% during any adjustment period. At
December 31, 1998, adjustable rate mortgage loans secured by one- to four-family
residences amounted to $138,000.
Adjustable rate mortgage loans, which Indian Village intends to originate
and retain in its portfolio, will help reduce Indian Village's exposure to
changes in interest rates. There are, however, unquantifiable credit risks
resulting from the potential of increased costs due to changed rates to be paid
by the borrower. It is possible that during periods of rising interest rates the
risk of default on adjustable rate mortgage loans may increase as a result of
repricing and the increased payments required by the borrower. In addition,
although adjustable rate mortgage loans allow Indian Village to increase the
sensitivity of its asset base to changes in interest rates, the extent of this
interest sensitivity is limited by the annual and lifetime interest rate
adjustment limits. Because of these considerations Indian Village has no
assurance that yields on adjustable rate mortgage loans will be sufficient to
offset increases in Indian Village's cost of funds during periods of rising
interest rates. Indian Village believes these risks, which have not had a
material adverse effect on Indian Village to date, generally are less than the
risks associated with holding fixed-rate loans in its portfolio in a rising
interest rate environment.
Indian Village generally requires an acceptable attorney's opinion on the
status of its lien on all loans where real estate is the primary source of
security. Indian Village also requires that fire and casualty insurance and, if
appropriate, flood insurance be maintained in an amount at least equal to the
outstanding loan balance.
Indian Village's one- to four-family residential mortgage loans do not
exceed 80% of the appraised value of the security property. Indian Village does
not use private mortgage insurance which would permit it to make loans with
higher loan-to-value ratios. An independent certified appraiser generally
appraises all properties.
Multi-family and Commercial Real Estate Loans. Indian Village occasionally
originates and purchases mortgage loans for the acquisition and refinancing of
multi-family and commercial real estate properties. At December 31, 1998, $1.7
million, or 5.5%, of Indian Village's total loans, consisted of loans secured by
multi-family residential property, and $647,000, or 2.1%, of Indian Village's
total loans, consisted of loans secured by commercial real estate. All purchased
participation interests are underwritten according to the same standards that
Indian Village would use if it were originating the underlying loans. Indian
Village has no written or oral commitments with any institution to purchase
predetermined numbers or types of participation interests. At December 31,
1998, purchased participation interests amounted to $62,000.
At December 31, 1998, the largest multi-family loan had an outstanding
balance of $450,000, was secured by seven duplex properties located in New
Philadelphia, Ohio, and was performing according to its original terms.
At December 31, 1998, Indian Village's commercial real estate loans are
secured by churches, storefronts, a strip shopping center and a warehouse, all
of which are located in Ohio. At December 31, 1998, Indian Village's largest
commercial real estate loan had an outstanding balance of $226,000. The loan is
secured by a strip shopping center located in Rittman, Ohio. At December 31,
1998, this loan was performing according to its original terms.
Multi-family and commercial real estate loans are fully amortizing loans
that are generally originated with fixed interest rates, but are occasionally
originated with variable rates. Fixed rate loans are originated for terms up to
25 years. Variable rate loans are originated for terms up to 25 years. The
interest rate on variable rate loans adjusts at either one, three or five year
intervals.
Multi-family and commercial real estate lending affords Indian Village an
opportunity to receive interest at rates higher than those generally available
from one- to four-family residential lending. However, loans secured by these
properties usually are greater in amount and are more difficult to evaluate and
monitor and, therefore, involve
38
a greater degree of risk than one- to four-family residential mortgage
loans. Because payments on loans secured by income producing properties are
often dependent on the successful operation and management of the properties,
repayment of these loans may be affected by adverse conditions in the real
estate market or the economy. Indian Village seeks to minimize these risks by
limiting the maximum loan-to-value ratio to up to 80% for multi-family and
commercial real estate loans and by strictly scrutinizing the financial
condition of the borrower, the cash flow of the project, the quality of the
collateral and the management of the property securing the loan. Indian Village
also generally obtains loan guarantees from financially capable parties based on
a review of personal financial statements.
Residential Construction Loans. Indian Village originates residential
construction loans to local home builders and to individuals for the
construction and acquisition of personal residences. At December 31, 1998,
residential construction loans amounted to $677,000, or 2.1% of Indian Village's
total loans.
Indian Village's construction loans to builders generally have fixed
interest rates and are for a term of six months. Loans to builders are typically
made with a maximum loan to value ratio of 80%. These loans are usually made to
the builder before there is an identified buyer for the completed home. Indian
Village generally lends to no more than three builders with whom it has long
standing relationships and limits each builder to no more than three homes under
construction at a time. At December 31, 1998, the largest amount of construction
loans outstanding to one builder was $220,000, $65,000 of which was for
speculative construction. Construction loans to individuals are made on the same
terms as Indian Village's one- to four-family mortgage loans, but provide for
the payment of interest only during the construction phase, which is usually six
months with a contingency for an additional six months. At the end of the
construction phase, the loan converts to a permanent mortgage loan.
Before making a commitment to fund a construction loan, Indian Village
requires an appraisal of the property by an independent certified appraiser.
Indian Village also reviews and inspects each project before disbursement of
funds during the term of the construction loan. Loan proceeds are disbursed
after inspection based on the percentage of completion.
Construction lending affords Indian Village the opportunity to earn higher
interest rates with shorter terms to maturity relative to single-family
permanent mortgage lending. Construction lending, however, is generally
considered to involve a higher degree of risk than single-family permanent
mortgage lending because of the inherent difficulty in estimating both a
property's value at completion of the project and the estimated cost of the
project. These loans are generally more difficult to evaluate and monitor. If
the estimate of construction cost proves to be inaccurate, Indian Village may be
required to advance funds beyond the amount originally committed to protect the
value of the project. If the estimate of value upon completion proves to be
inaccurate, Indian Village may be confronted with a project whose value is
insufficient to assure full repayment. Projects may also be jeopardized by
disagreements between borrowers and builders and by the failure of builders to
pay subcontractors. Loans to builders to construct homes for which no purchaser
has been identified carry more risk because the payoff for the loan depends on
the builder's ability to sell the property before the construction loan is due.
Indian Village has attempted to minimize the foregoing risks by, among
other things, limiting its construction lending to residential properties. It is
also Indian Village's general policy to obtain regular financial statements from
builders so that it can monitor their financial strength and ability to repay.
Land Loans. Indian Village occasionally originates loans secured by
unimproved land. These loans have terms of up to 15 years and generally have
fixed interest rates and loan-to-value ratios of up to 65%. At December 31,
1998, land loans totaled $135,000, or 0.4% of total loans.
39
Consumer Loans. Indian Village introduced home equity loans and lines of
credit in May 1996 and other consumer loans in April 1998. At December 31, 1998,
consumer loans amounted to $2.3 million, or 7.2% of total loans. Indian Village
intends to increase its emphasis on consumer loans because they have shorter
maturities than real estate mortgage loans, which helps to reduce Indian
Village's interest rate risk exposure, and higher yields than real estate
mortgage loans.
Home equity loans are generally fixed rate loans that fully amortize over
terms up to 10 years. Home equity lines of credit are written with variable
interest rates. The loan-to-value ratios on both home equity loans and lines of
credit are generally limited to 80%, taking into account the outstanding balance
of the first mortgage loan.
Home improvement loans are generally fixed-rate loans that fully amortize
over terms up to 15 years. Home improvement loans are generally secured by a
second mortgage on the property being improved. The loan-to-value ratio
generally does not exceed 80%, taking into account the outstanding balance of
the first mortgage loan.
Automobile loans are generally fixed rate loans. Loans on new automobiles
are written with terms up to 66 months and with loan-to-value ratios not
exceeding 100% for new cars and 90% for used cars. Loans on used cars are
written for lesser terms depending on the age of the vehicle. Indian Village
does not engage in indirect consumer lending.
Loans on deposit accounts generally carry interest rates up to 2% above the
rate paid on the deposit account securing the loan. The terms are generally
written for terms not exceeding five years, but may also be written as renewable
short term interest-only demand loans.
At December 31, 1998, Indian Village had other consumer loans totaling
$274,000. These loans generally consist of loans secured by various personal
property other than real estate and secured lines of credit.
Consumer loans entail greater risk than do residential mortgage loans,
particularly in the case of loans that are unsecured or secured by rapidly
depreciating assets such as automobiles. In these cases, any repossessed
collateral for a defaulted consumer loan may not provide an adequate source of
repayment of the outstanding loan balance as a result of the greater likelihood
of damage, loss or depreciation. The remaining deficiency often does not warrant
further substantial collection efforts against the borrower beyond obtaining a
deficiency judgment. In addition, consumer loan collections are dependent on the
borrower's continuing financial stability, and thus are more likely to be
adversely affected by job loss, divorce, illness or personal bankruptcy.
Commercial Business Loans. Indian Village does not actively originate
commercial business loans. These loan are generally fixed-rate loans with terms
up to five years and secured by vehicle and business equipment. At December 31,
1998, commercial business loans amounted to $27,000 or 0.1% of total loans.
Loans to One Borrower. The maximum amount that Indian Village may lend to
one borrower is limited by federal regulations. At December 31, 1998, Indian
Village's regulatory limit on loans to one borrower was $771,000. At that date,
Indian Village's largest amount of loans to one borrower, including the
borrower's related interests, was $552,000 and consisted of one multi-family
loan and three residential mortgage loans. These loans were performing according
to their original terms at December 31, 1998.
40
Maturity of Loan Portfolio. The following table presents certain
information at December 31, 1998 regarding the dollar amount of loans maturing
in Indian Village's portfolio based on their contractual terms to maturity, but
does not include potential prepayments. Demand loans, loans having no stated
schedule of repayments and no stated maturity, and overdrafts are reported as
becoming due within one year. Loan balances do not include undisbursed loan
proceeds, unearned discounts, unearned income and allowance for loan losses.
At December 31, 1998
-------------------------------------------------------------------------
Multi-
One- to Family and
Four- Commercial Commercial Total
Family(1) Real Estate Construction Consumer Business Loans
--------- ----------- ------------ -------- ---------- -------
(Dollars in Thousands)
Amounts due in:
One year or less........................ $ 95 $ -- $ -- $ 112 $-- $ 207
More than one year to three years....... 201 13 -- 589 -- 803
More than three years to five years..... 744 181 -- 370 27 1,322
More than five years to 10 years........ 3,396 594 -- 106 -- 4,096
More than 10 years to 15 years.......... 14,084 562 214 119 -- 14,979
More than 15 years...................... 7,695 1,033 463 988 -- 10,179
------- ------ ---- ------ --- -------
Total amount due..................... $26,215 $2,383 $677 $2,284 $27 $31,586
======= ====== ==== ====== === =======
- ---------------------------------------
(1) Includes land loans.
The following table presents the dollar amount of all loans due after
December 31, 1999, which have fixed interest rates and have floating or
adjustable interest rates.
Due After December 31, 1999
-------------------------------
Fixed- Adjustable-
Rate Rate Total
------ ----------- -------
(Dollars in Thousands)
Real estate loans:
One- to four-family.............. $25,851 $ 138 $25,989
Multi-family..................... 1,174 562 1,736
Commercial....................... 647 -- 647
Construction..................... 463 214 677
Land............................. 131 -- 131
------- ------ -------
Total real estate loans....... 28,266 914 29,180
Consumer loans................... 1,547 625 2,172
Commercial business loans........ 27 -- 27
------- ------ -------
Total loans................... $29,840 $1,539 $31,379
======= ====== =======
Scheduled contractual principal repayments of loans do not reflect the
actual life of the loans. The average life of a loan is substantially less than
its contractual term because of prepayments. In addition, due-on-sale clauses on
loans generally give Indian Village the right to declare loans immediately due
and payable if, among other things, the borrower sells the real property with
the mortgage and the loan is not repaid. The average life of a mortgage loan
tends to increase, however, when current mortgage loan market rates are
substantially higher than rates on existing mortgage loans and, conversely,
tends to decrease when rates on existing mortgage loans are substantially higher
than current mortgage loan market rates.
41
Loan Solicitation and Processing. Indian Village's lending activities
follow written, non-discriminatory, underwriting standards and loan origination
procedures established by Indian Village's Board of Directors and management.
Loan originations come from a number of sources. The customary sources of loan
originations are realtors, referrals and existing customers. Indian Village does
not utilize mortgage brokers or other third-party originators. Loans less than
or equal to $100,000 may be approved by Marty R. Lindon and John A. Beitzel,
jointly. Loans above $100,000 but less than $200,000 are approved by the Loan
Committee. Loans equal to or greater than $200,000 are approved by the full
Board of Directors.
Loan Originations, Purchases and Sales. Indian Village primarily
originates fixed-rate mortgage loans with amortization terms of up to 25 years.
Indian Village also has a relationship with a third party private lender to
process loans for it. Generally, these are 30 -year fixed rate mortgage loans
that Indian Village chooses not to retain in its portfolio because of interest
rate risk management or loans that do not meet the credit standards of loans
that Indian Village retains in its portfolio. These loans are funded by the
third party lender at closing and Indian Village generally receives a processing
fee equal to 1% of the loan balance. Since the private lender funds these loans
at closing, Indian Village is not exposed to any credit risk.
Occasionally, Indian Village purchases participation interests in multi-
family loans secured by properties located in Ohio but outside of its primary
market area. Indian Village generally limits its participation interest to
between 5% and 25%. Indian Village has established a policy that limits the
maximum participation interest per loan to $500,000 or less. Generally, the
lead lender retains the servicing rights. Indian Village pays no fee on the
loans it purchases and has no agreements or understandings with any lender to
purchase a predetermined amount of participation interests. Indian Village
underwrites all purchased participation interests according to the underwriting
standards it uses for loans it originates.
Except as for residential mortgage loans originated on behalf of a third
party private lender, as discussed above, Indian Village holds all loans for
long-term investment.
42
The following table presents total loans originated, purchased, sold and
repaid during the periods indicated.
For the Year Ended
December 31,
------------------
1998 1997
------- -------
(In thousands)
Total loans at beginning of period............... $27,518 $26,207
Originations:
Real estate:
One- to four-family....................... 5,113 4,807
Multi-family.............................. 560 --
Commercial................................ 205 190
Construction.............................. 1,178 897
Land...................................... 112 --
------- -------
Total real estate loans................ 7,168 5,894
Consumer loans.............................. 1,596 611
Commercial business......................... -- 23
------- -------
Total loans originated................. 8,764 6,528
Purchases...................................... -- --
Sales.......................................... -- --
Less:
Principal loan repayments and prepayments...... (4,615) (5,173)
Transfers to real estate owned................. (81) (44)
------- -------
(4,696) (5,217)
------- -------
Net loan activity................................ 4,068 1,311
------- -------
Total loans at end of period..................... $31,586 $27,518
======= =======
Loan Commitments. Indian Village issues commitments for mortgage loans
conditioned upon the occurrence of certain events. Commitments are made in
writing on specified terms and conditions and are honored for up to 30 days from
approval. At December 31, 1998, Indian Village had variable rate loan
commitments totaling $494,000, ranging in rates from 6.25% to 7.75%, and fixed-
rate loan commitments totaling $1.9 million, ranging in rates from 7.00% to
8.75%. See Note 9 of the Notes to Financial Statements included in the back of
this prospectus.
Loan Fees. In addition to interest earned on loans, Indian Village
receives income from fees in connection with loan originations, loan
modifications, late payments and for miscellaneous services related to its
loans. Income from these activities varies from period to period depending upon
the volume and type of loans made and competitive conditions.
Indian Village charges loan origination fees for fixed-rate loans which are
calculated as a percentage of the amount borrowed. As required by applicable
accounting procedures, loan origination fees and discount points in excess of
loan origination costs are deferred and recognized over the contractual
remaining lives of the related loans on a level yield basis. Discounts and
premiums on loans purchased are accreted and amortized in the same manner. At
December 31, 1998, Indian Village had $54,000 of deferred loan fees. Indian
Village recognized $70,000 and $14,000 of deferred loan fees during the years
ended December 31, 1998 and 1997, respectively, in connection with loan
refinancings, payoffs, sales and ongoing amortization of outstanding loans.
43
Nonperforming Assets and Delinquencies. All loan payments are due on the
first day of each month. When a borrowers fails to make a required loan payment,
Indian Village attempts to cure the deficiency by contacting the borrower and
seeking the payment. A late notice is mailed on the 30th day of the month. In
most cases, deficiencies are cured promptly. If a delinquency continues beyond
the 30th day of the month, a phone call to the borrower is usually made on the
45th day of delinquency. On or about the 60th day of delinquency, Indian Village
sends a certified letter to the borrower giving the borrower 10 days in which to
work out a payment schedule. While Indian Village generally prefers to work with
borrowers to resolve problems, Indian Village will institute foreclosure or
other proceedings after the 90th day of a delinquency, as necessary, to minimize
any potential loss.
Management informs the Board of Directors monthly of the amount of loans
delinquent more than 60 days, all loans in foreclosure, and all foreclosed and
repossessed property that Indian Village owns.
Indian Village ceases accruing interest on mortgage loans when, in the
judgment of management, the probability of collection of interest is deemed to
be insufficient to warrant further accrual. Indian Village does not accrue
interest on mortgage loans past due 90 days or more when the estimated value of
collateral and collection efforts are deemed insufficient to ensure full
recovery.
The following table presents information with respect to Indian Village's
nonperforming assets at the dates indicated.
At December 31,
---------------------
1998 1997
------ ------
(Dollars in thousands)
Nonaccruing loans:
One- to four-family........................................................................ $ 241 $ 412
Multi-family............................................................................... -- --
Commercial................................................................................. -- --
Construction............................................................................... -- --
Land....................................................................................... -- --
Consumer................................................................................... 87 59
Commercial business........................................................................ -- --
Total nonaccruing loans(1).............................................................. 328 471
Loans past due 90 days and accruing interest.................................................. -- --
Real estate owned(2).......................................................................... 122 41
Other repossessed assets...................................................................... 23 --
------ ------
Total nonperforming assets(3)........................................................... 473 512
Troubled debt restructurings.................................................................. -- --
------ ------
Troubled debt restructurings and total nonperforming assets................................... $ 473 $ 512
====== ======
Total nonperforming loans and troubled debt restructurings as a percentage of total loans..... 1.04% 1.71%
Total nonperforming assets and troubled debt restructurings as a percentage of total assets... 1.18% 1.41%
- ------------------------
(1) Total nonaccruing loans equals total nonperforming loans.
(2) Real estate owned balances are shown net of related loss allowances.
(3) Nonperforming assets consist of nonperforming loans, impaired loans, real
estate owned and other repossessed assets.
44
Interest income that would have been recorded for 1998 had nonaccruing
loans been current according to their original terms amounted to approximately
$16,000. No interest was included in interest income in 1998 related to these
loans.
Real Estate Owned. Real estate acquired by Indian Village as a result of
foreclosure or by deed-in-lieu of foreclosure is classified as real estate owned
until sold. When property is acquired it is recorded at fair market value at the
date of foreclosure, establishing a new cost basis. If the fair value declines,
Indian Village records a valuation allowance through expense. Costs after
acquisition are expensed. At December 31, 1998, Indian Village had $122,000 of
real estate owned, consisting of one residential property and one commercial
property.
Asset Classification. The Office of Thrift Supervision has adopted various
regulations regarding problem assets of savings institutions. The regulations
require that each insured institution review and classify its assets on a
regular basis. In addition, Office of Thrift Supervision examiners have
authority to identify problem assets during examinations and, if appropriate,
require them to be classified.
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 characteristic 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 as loss is considered uncollectible and
of such little value that continuance as an asset of the institution is not
warranted. If an asset or portion thereof is classified as loss, the insured
institution establishes specific allowances for loan losses for the full amount
of the portion of the asset classified as loss. All or a portion of general loan
loss allowances established to cover possible losses related to assets
classified substandard or doubtful can be included in determining an
institution's regulatory capital, while specific valuation allowances for loan
losses generally do not qualify as regulatory capital. Assets that do not
currently expose the insured institution to sufficient risk to warrant
classification in one of the aforementioned categories but possess weaknesses
are designated "special mention." Indian Village monitors "special mention"
assets.
The aggregate amounts of Indian Village's classified and special mention
assets at the dates indicated were as follows:
At December 31,
---------------
1998 1997
------ ------
(In thousands)
Classified assets:
Loss................. $ -- $ --
Doubtful............. -- --
Substandard.......... 416 419
Special mention...... 173 314
At December 31, 1998, assets designated substandard consisted of real
estate owned of $122,000 and ten residential mortgage loans totaling $294,000,
and assets designated as special mention consisted of seven residential mortgage
loans.
Allowance for Loan Losses. In originating loans, Indian Village recognizes
that losses will be experienced and that the risk of loss will vary with, among
other things, the type of loan being made, the creditworthiness of the borrower
over the term of the loan, general economic conditions and, in the case of a
secured loan, the quality of the security for the loan. The allowance method is
used in providing for loan losses. Accordingly, all loan losses are charged to
the allowance and all recoveries are credited to it. The allowance for loan
losses is established through a provision for loan losses charged to operations.
The provision for loan losses is based on management's evaluation of the
collectibility of the loan portfolio, including past loan loss experience, known
and inherent risks in the nature
45
and volume of the portfolio, information about specific borrower situations and
estimated collateral values, and economic conditions.
At December 31, 1998, Indian Village had an allowance for loan losses of
$218,000. Although management believes that it uses the best information
available to establish the allowance for loan losses, future adjustments to the
allowance for loan losses may be necessary and results of operations could be
significantly and adversely affected if circumstances differ substantially from
the assumptions used in making the determinations. Furthermore, while Indian
Village believes it has established its existing allowance for loan losses as
required by generally accepted accounting principles, there can be no assurance
that regulators, in reviewing Indian Village's loan portfolio, will not request
Indian Village to increase significantly its allowance for loan losses. In
addition, because future events affecting borrowers and collateral cannot be
predicted with certainty, there can be no assurance that the existing allowance
for loan losses is adequate or that substantial increases will not be necessary
should the quality of any loans deteriorate as a result of the factors discussed
above. Any material increase in the allowance for loan losses may adversely
affect Indian Village's financial condition and results of operations.
46
The following table presents an analysis of Indian Village's allowance for
loan losses.
Year Ended December 31,
-----------------------
1998 1997
------ ------
(Dollars in thousands)
Allowance for loan losses, beginning of period.......... $ 176 $ 176
Charge-offs:
One- to four-family.................................. -- --
Multi-family......................................... -- --
Commercial........................................... (18) --
Construction......................................... -- --
Land................................................. -- --
Consumer............................................. -- --
Commercial business.................................. -- --
Total charge-offs................................. (18) --
Recoveries:
One- to four-family.................................. -- --
Multi-family......................................... -- --
Commercial........................................... -- --
Construction......................................... -- --
Land................................................. -- --
Consumer............................................. -- --
Commercial business.................................. -- --
------ -----
Total recoveries.................................. -- --
Net charge-offs......................................... (18) --
Provision for loan losses............................... 60 --
------ -----
Allowance for loan losses, end of period................ $ 218 $ 176
====== =====
Net charge-offs to average interest-earning loans....... 0.06% 0.00%
Allowance for loan losses to total loans................ 0.69% 0.64%
Allowance for loan losses to nonperforming loans and
troubled debt restructurings......................... 66.46% 37.37%
Net charge-offs to allowance for loan losses............ 8.26% 0.00%
For additional discussion regarding the provisions for loan losses in
recent periods, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Comparison of Operating Results for the Years Ended
December 31, 1998 and 1997--Provision for Loan Losses."
The following table presents the approximate allocation of the allowance for
loan losses by loan category at the dates indicated. Management believes that
the allowance can be allocated by category only on an approximate basis. The
allocation of the allowance to each category is not necessarily indicative of
future losses and does not restrict the use of the allowance to absorb losses in
any other category.
47
At December 31,
------------------------------------------------------------------------
1998 1997
---------------------------------- ----------------------------------
Percent of Percent of
Allowance Percent Allowance Percent
in Each of Loans in Each of Loans
Category in Each Category in Each
to Total Category to to Total Category to
Amount Allowance Total Loans Amount Allowance Total Loans
------ --------- ----------- ------ --------- -----------
(Dollars in thousands)
Real estate loans:
One- to four-family..................... $121 55.50% 82.57% $104 59.09% 83.59%
Multi-family............................ 9 4.13 5.50 7 3.98 5.26
Commercial.............................. 5 2.29 2.05 4 2.27 2.77
Construction............................ 1 0.46 2.14 1 0.57 4.02
Land.................................... 1 0.46 0.43 -- -- 0.16
Consumer loans............................ 10 4.59 7.23 2 1.14 3.97
Commercial loans.......................... -- -- 0.08 -- -- 0.23
Unallocated............................... 71 32.57 -- 58 32.95 --
---- ------ ------ ---- ------ ------
Total allowance for loan losses...... $218 100.00% 100.00% $176 100.00% 100.00%
==== ====== ====== ==== ====== ======
Investment Activities
Indian Village is permitted under federal law to invest in various types of
liquid assets, including U.S. Government obligations, securities of various
federal agencies and of state and municipal governments, deposits at the Federal
Home Loan Bank of Cincinnati, certificates of deposit of federally insured
institutions, certain bankers' acceptances and federal funds. Within certain
regulatory limits, Indian Village may also invest a portion of its assets in
commercial paper and corporate debt securities. Savings institutions like Indian
Village are also required to maintain an investment in Federal Home Loan Bank of
Cincinnati stock. Indian Village is required under federal regulations to
maintain a minimum amount of liquid assets. See "Regulation" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."
Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," requires that investments be
categorized as "held to maturity," "trading securities" or "available for sale,"
based on management's intent as to the ultimate disposition of each security.
Statement of Financial Accounting Standards No. 115 allows debt securities to be
classified as "held to maturity" and reported in financial statements at
amortized cost only if the reporting entity has the positive intent and ability
to hold those securities to maturity. Securities that might be sold in response
to changes in market interest rates, changes in the security's prepayment risk,
increases in loan demand, or other similar factors cannot be classified as "held
to maturity." Debt and equity securities held for current resale are classified
as "trading securities." These securities are reported at fair value, and
unrealized gains and losses on the securities would be included in earnings.
Indian Village does not currently use or maintain a trading account. Debt and
equity securities not classified as either "held to maturity" or "trading
securities" are classified as "available for sale." These securities are
reported at fair value, and unrealized gains and losses on the securities are
excluded from earnings and reported, net of deferred taxes, as a separate
component of equity. At December 31, 1998, all of Indian Village's mortgage-
backed securities and investment securities were classified as "available for
sale."
All of Indian Village's investment securities carry market risk insofar as
increases in market rates of interest may cause a decrease in their market
value. They also carry prepayment risk insofar as they may be called before
maturity in times of low market interest rates, so that Indian Village may have
to invest the funds at a lower
48
interest rate. Indian Village's investment policy does not permit engaging
directly in hedging activities or purchasing high risk mortgage derivative
products. Investments are made based on certain considerations, which include
the interest rate, yield, settlement date and maturity of the investment, Indian
Village's liquidity position, and anticipated cash needs and sources. The effect
that the proposed investment would have on Indian Village's credit and interest
rate risk and risk-based capital is also considered. Indian Village purchases
investment securities to provide necessary liquidity for day-to-day operations.
Indian Village also purchases investment securities when investable funds exceed
loan demand.
The following table presents the amortized cost and fair value of Indian
Village's securities, by accounting classification and by type of security, at
the dates indicated.
At December 31,
---------------------------------------
1998 1997
------------------ ------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- ----- --------- -----
(In thousands)
Investment securities available for sale:
Municipal securities.......................................... $ 147 $ 152 $ 75 $ 75
Obligations of U.S. Treasury and U.S. government
agencies................................................... 1,797 1,816 3,433 3,459
------ ------ ------ ------
Total................................................... 1,944 1,968 3,508 3,534
Mortgage-backed securities available for sale:
Ginnie Mae....................................................... 2,022 2,063 1,735 1,782
Fannie Mae....................................................... 1,918 1,927 1,500 1,523
Freddie Mac...................................................... 235 237 482 478
------ ------ ------ ------
Total...................................................... 4,175 4,227 3,717 3,783
------ ------ ------ ------
Net unrealized gains (losses) on securities available for sale...... 76 N/A 92 N/A
------ ------ ------ ------
Total securities available for sale..................... $6,195 $6,195 $7,317 $7,317
====== ====== ====== ======
All of Indian Village's mortgage-backed securities are issued or guaranteed
by agencies of the U.S. Government. Accordingly, they carry lower credit risk
than mortgage-backed securities of a private issuer. However, mortgage-backed
securities still carry market risk, the risk that increases in market interest
rates may cause a decrease in market value, and prepayment risk, the risk that
the securities will be repaid before maturity and that Indian Village will have
to reinvest the funds at a lower interest rate.
Occasionally, Indian Village invests in municipal obligations of local and
out-of-state entities, such as school districts. Out-of-state obligations are
generally rated by a nationally recognized credit rating service.
At December 31, 1998, Indian Village did not own any securities, other than
U.S. Government and agency securities, which had an aggregate book value in
excess of 10% of Indian Village's retained earnings at that date.
The following presents the activity in the mortgage-backed securities and
investment securities portfolios for the periods indicated.
49
Year Ended December 31,
----------------------------
1998 1997
----------------------------
(In thousands)
Mortgage-backed securities(1):
Mortgage-backed securities, beginning of period.......... $ 3,783 $ 2,306
Purchases................................................ 2,336 1,980
Sales.................................................... (844) --
Repayments and prepayments............................... (1,022) (553)
Increase (decrease) in net premium....................... (12) 27
Increase (decrease) in unrealized gain................... (14) 23
------- -------
Net increase in mortgage-backed securities............ 444 1,477
------- -------
Mortgage-backed securities, end of period................ $ 4,227 $ 3,783
======= =======
Investment securities(2):
Investment securities, beginning of period............... $ 3,534 $ 3,487
Purchases................................................ 2,125 2,800
Sales.................................................... (455) (1,600)
Calls.................................................... (2,900) (650)
Maturities............................................... (335) (525)
Increase (decrease) in net premium....................... 1 (5)
Increase (decrease) in unrealized gain................... (2) 27
------- -------
Net increase (decrease) in investment securities...... (1,566) 47
------- -------
Investment securities, end of period..................... $ 1,968 $ 3,534
======= =======
_____________________________
(1) All mortgage-backed securities are classified as available for sale.
(2) All investment securities are classified as available for sale.
50
The following table presents certain information regarding the carrying
value, weighted average yields and maturities or periods to repricing of Indian
Village's debt securities at December 31, 1998, all of which are available for
sale.
Less Than One to After Five to After
One Year Five Years Ten Years Ten Years Totals
------------------ ---------------- ------------------ ------------------ ------------------
Weighted Weighted Weighted Weighted
Carrying Average Carrying Carrying Average Carrying Average Carrying Average
Value Yield Amount Value Value Yield Value Yield Value Yield
------------------ ---------------- ------------------ ------------------ ------------------
(Dollars in thousands)
Securities available for
sale:
Investment securities:
Municipal securities(1)... $ -- --% $ -- --% $ -- --% $ 152 6.82% $ 152 6.82%
Obligations of the U.S.
Treasury and U.S.
government agencies...... 505 6.31 809 6.55 502 7.25 -- -- 1,816 6.68
Mortgage-backed
securities............... -- -- 9 7.20 701 6.92 3,517 6.80 4,227 6.82
---- ---- ------ ------ ------
Total.............. $505 6.31 $818 6.56 $1,203 7.06 $3,669 6.80 $6,195 6.78
==== ==== ====== ====== ======
______________________________
(1) Weighted average yields for municipal securities are presented on a tax
equivalent basis based on an assumed rate of 34%.
Deposit Activities and Other Sources of Funds
General. Deposits are the major external source of funds for Indian
Village's lending and other investment activities. In addition, Indian Village
also generates funds internally from loan principal repayments and prepayments
and maturing investment securities. Scheduled loan repayments are a relatively
stable source of funds, while deposit inflows and outflows and loan prepayments
are influenced significantly by general interest rates and money market
conditions. Indian Village may use borrowings from the Federal Home Loan Bank of
Cincinnati to compensate for reductions in the availability of funds from other
sources. Presently, Indian Village has no other borrowing arrangements aside
from Federal Home Loan Bank of Cincinnati advances.
Deposit Accounts. Nearly all of Indian Village's depositors reside in
Ohio. Indian Village's deposit products include money market accounts, passbook
accounts, and term certificate accounts. Deposit account terms vary with the
principal differences being the minimum balance deposit, early withdrawal
penalties and the interest rate. Indian Village reviews its deposit mix and
pricing weekly. Indian Village does not utilize brokered deposits, nor has it
aggressively sought jumbo certificates of deposit.
Indian Village believes it is competitive in the interest rates it offers
on its deposit products. Indian Village determines the rates paid based on a
number of factors, including rates paid by competitors, Indian Village's need
for funds and cost of funds, borrowing costs and movements of market interest
rates. Historically, Indian Village has relied predominately on certificates of
deposit with terms of more than one year. Indian Village believes that the
opening of the new branch office in New Philadelphia, a more commercial area
than Gnadenhutten, will offer an opportunity to attract more transaction
accounts.
In the unlikely event Indian Village is liquidated after the conversion,
depositors will be entitled to full payment of their deposit accounts before any
payment is made to Indian Village Bancorp as the sole stockholder of Indian
Village.
51
The following table presents information concerning Indian Village's
deposit accounts at December 31, 1998.
Weighted
Average Percentage
Interest Minimum of Total
Rate Category Amount Balance Deposits
- -------------- ------------------------------------- ---------- ------------- -----------
(In thousands)
3.25% Passbook accounts $ 10 $ 5,464 17.70%
-- Noninterest-bearing demand accounts 100 81 0.27
2.00 NOW accounts 100 837 2.71
3.30 Money market accounts 2,500 1,695 5.49
Certificates of Deposit
-----------------------
4.89 6 Month money market certificate 500 2,424 7.85
4.93 9 Month certificate 500 763 2.47
5.10 12 Month certificate 500 3,463 11.22
5.38 18 Month certificate 500 2,559 8.29
5.46 18 Month individual retirement account 500 1,308 4.24
5.82 22 Month certificate 500 1,734 5.62
5.69 24 Month certificate 500 397 1.29
5.70 30 Month certificate 500 2,892 9.37
5.84 36 Month certificate 500 1,805 5.85
6.00 48 Month certificate 500 82 0.27
6.13 60 Month certificate 500 3,701 11.98
5.91 60 Month individual retirement account 500 1,661 5.38
------- ------
$30,866 100.00%
======= ======
The following table indicates the amount of Indian Village's jumbo
certificate accounts by time remaining until maturity as of December 31, 1998.
Jumbo certificate accounts have principal balances of $100,000 or more.
Maturity Period Amount
--------------- -------------
(In thousands)
Three months or less............................. $ 103
Over three through six months.................... 100
Over six through twelve months................... 393
Over twelve months............................... 761
------
Total........................................ $1,357
======
52
The following table presents information concerning average balances and
rates paid on Indian Village's deposit accounts at the dates indicated.
For the Year Ended December 31,
--------------------------------------------------------------------
1998 1997
--------------------------------- ---------------------------------
Percent Percent
of Total of Total
Average Average Average Average Average Average
Balance Deposits Rate Paid Balance Deposits Rate Paid
-------- --------- ------------ -------- ---------- -----------
(Dollars in thousands)
Passbook accounts................ $ 5,263 17.23% 3.27% $ 4,977 16.28% 3.25%
Money market accounts............ 1,777 5.82 3.32 1,775 5.81 3.32
NOW accounts..................... 815 2.67 1.96 643 2.10 2.49
Certificates of deposit(1)....... 22,585 73.95 5.68 23,079 75.51 5.70
Noninterest-bearing deposits:
Demand deposits............... 101 0.33 -- 89 0.30 --
------- ----- ------- ------
Total average deposits.... $30,541 100.00% $30,563 100.00%
======= ====== ======= ======
_______________________________
(1) Based on remaining maturity of certificates of deposit.
Deposit Flow. The following table presents the balances, with interest
credited, and changes in dollar amounts of deposits in the various types of
accounts offered by Indian Village between the dates indicated.
Year Ended December 31,
---------------------------------------------------
1998 1997
------------------------------- -----------------
Percent Percent
of Increase of
Amount Total (Decrease) Amount Total
------------------------------- -----------------
(Dollars in thousands)
Passbook accounts....................... $ 5,464 17.70% $ 371 $ 5,093 16.82%
NOW accounts............................ 837 2.71 220 617 2.04
Money market deposits................... 1,695 5.49 (29) 1,724 5.69
Fixed-rate certificates maturing:
Within 1 year........................ 14,348 46.48 1,566 12,782 42.22
After 1 year, but within 2 years..... 4,194 13.59 (1,854) 6,048 19.98
After 2 years, but within 5 years.... 4,247 13.76 328 3,919 12.94
After 5 years........................ -- -- (32) 32 0.11
------- ------ ------- ------- ------
Total certificates................... 22,789 73.83 8 22,781 75.25
------- ------ ------- ------- ------
Noninterest-bearing deposits:
Demand deposits...................... 81 0.27 19 62 0.20
------- ------ ------- ------- ------
Total............................. $30,866 100.00% $ 589 $30,277 100.00%
======= ====== ======= ======= ======
53
Time Deposits by Rates and Maturities. The following table presents the
amount of time deposits in Indian Village categorized by rates and maturities at
the dates indicated.
Period to Maturity from December 31, 1998 At December 31,
--------------------------------------------------------- ---------------------
Less than 1 - 2 2 - 3 3 - 4 After
One Year Years Years Years 4 Years Total 1998 1997
----------- ------- ------- ------- --------- ------- -------- ----------
(Dollars in thousands)
0.00 - 4.00%...... $ 39 $ -- $ -- $ -- $ -- $ 39 $ 39 $ 81
4.01 - 5.00%...... 2,738 304 100 -- -- 3,142 3,142 812
5.01 - 6.00%...... 9,598 2,910 1,578 243 1,219 15,548 15,548 17,397
6.01 - 7.00%...... 1,973 646 71 1,031 5 3,726 3,726 4,179
Over 7.00%........ -- 334 -- -- -- 334 334 312
------- ------ ------ ------ ------ ------- ------- -------
Total........ $14,348 $4,194 $1,749 $1,274 $1,224 $22,789 $22,789 $22,781
======= ====== ====== ====== ====== ======= ======= =======
Deposit Activity. The following table presents the deposit activity of
Indian Village for the periods indicated.
Year Ended
December 31,
---------------------
1998 1997
---------- ---------
(In thousands)
Beginning balance....................... $30,277 $31,439
Net deposits (withdrawals) before
interest credited...................... (629) (2,355)
Interest credited....................... 1,218 1,193
------- -------
Net increase (decrease) in deposits..... 589 (1,162)
------- -------
Ending balance.......................... $30,866 $30,277
======= =======
The settlement of estate accounts totaling $641.5 contributed to part of
the net decrease in deposits in 1997. Management attributes the remainder of
the decrease to the withdrawal of funds for investment in the stock market and
other non-deposit investments.
Borrowings. Indian Village has the ability to use advances from the
Federal Home Loan Bank of Cincinnati to supplement its supply of lendable funds
and to meet deposit withdrawal requirements. The Federal Home Loan Bank of
Cincinnati functions as a central reserve bank providing credit for savings
associations and certain other member financial institutions. As a member of the
Federal Home Loan Bank of Cincinnati, Indian Village is required to own capital
stock in the Federal Home Loan Bank of Cincinnati and is authorized to apply for
advances on the security of the capital stock and certain of its mortgage loans
and other assets, principally securities that are obligations of, or guaranteed
by, the U.S. Government or its agencies, provided certain creditworthiness
standards have been met. Advances are made under several different credit
programs. Each credit program has its own interest rate and range of maturities.
Depending on the program, limitations on the amount of advances are based on the
financial condition of the member institution and the adequacy of collateral
pledged to secure the credit. At December 31, 1998, Indian Village had the
ability to borrow a total of approximately $20.0 million from the Federal Home
Loan Bank of Cincinnati. At that date, Indian Village had outstanding advances
of $4.0 million.
54
The following tables presents certain information regarding Indian
Village's use of Federal Home Loan Bank of Cincinnati advances during the
periods and at the dates indicated.
Year Ended December 31,
-------------------------
1998 1997
---------- ---------
(Dollars in thousands)
Maximum amount of advances outstanding at any month end..... $4,000 $1,000
Approximate average short-term advances outstanding......... 2,351 471
Approximate weighted average rate paid on advances.......... 5.78% 5.10%
At December 31,
------------------------
1998 1997
----------- -----------
(Dollars in thousands)
Balance outstanding at end of period........................ $4,000 $1,000
Weighted average rate paid on advances...................... 5.14% 6.10%
Subsidiary Activities
Under Office of Thrift Supervision regulations, Indian Village generally
may invest up to 3% of its assets in service corporations, provided that at
least one-half of investment in excess of 1% is used primarily for community,
inner-city and community development projects. On December 1, 1998, Indian
Village dissolved its only wholly owned subsidiary, Gnadenhutten Development
Corporation, because it was inactive.
Properties
Currently, Indian Village operates only from its main office located at 100
South Walnut Street, Gnadenhutten, Ohio. Indian Village owns this office, which
opened in 1968. The office consists of approximately 7,600 square feet. At
December 31, 1998, the net book value of land, building, furniture and equipment
of the main office was approximately $233,000.
In February 1999, Indian Village received Office of Thrift Supervision
approval to establish a branch office in the vicinity of 635 West High Avenue,
New Philadelphia, Ohio. Indian Village purchased the land in December 1998 for
$213,000. Based on preliminary architectural estimates, Indian Village expects
the total cost of construction and furniture, fixtures and equipment to be
approximately $1.0 million. Indian Village currently expects to open the office
in the fourth quarter of 1999.
Personnel
As of December 31, 1998, Indian Village had nine full-time employees and
three part-time employees, none of whom is represented by a collective
bargaining unit. Indian Village believes its relationship with its employees is
good.
Legal Proceedings
Periodically, there have been various claims and lawsuits involving Indian
Village, such as claims to enforce liens, condemnation proceedings on properties
in which Indian Village holds security interests, claims involving the making
and servicing of real property loans and other issues incident to Indian
Village's business. Indian Village is not a party to any pending legal
proceedings that it believes would have a material adverse effect on the
financial condition or operations of Indian Village.
55
MANAGEMENT OF INDIAN VILLAGE BANCORP
Directors shall be elected by the stockholders of Indian Village Bancorp
for staggered three-year terms, or until their successors are elected and
qualified. Indian Village Bancorp's Board of Directors consists of seven persons
divided into three classes, each of which contains approximately one third of
the Board. One class, consisting of John A. Beitzel and Cindy S. Knisely, has a
term of office expiring at the first annual meeting of stockholders after their
initial election by stockholders; a second class, consisting of Vernon E.
Mishler, Joanne Limbach, and Marty R. Lindon, has a term of office expiring at
the second annual meeting of stockholders after their initial election by
stockholders; and a third class, consisting of Rebecca S. Mastin and Michael A.
Cochran, has a term of office expiring at the third annual meeting of
stockholders after their initial election by stockholders. Indian Village
Bancorp anticipates that its first annual meeting of stockholders will be held
in April 2000.
The executive officers of Indian Village Bancorp are elected annually and
serve at the Board's discretion. The executive officers of Indian Village
Bancorp are:
Name Position
- ---- --------
Rebecca S. Mastin.............. Chairperson of the Board
Marty R. Lindon................ President and Chief Executive Officer
Michael A. Cochran............. Corporate Secretary
Lori S. Frantz................. Vice President, Treasurer and Chief Financial
Officer
MANAGEMENT OF INDIAN VILLAGE
Directors and Executive Officers
The Board of Directors of Indian Village is presently composed of seven
members who are elected for terms of three years, approximately one third of
whom are elected annually as required by the Bylaws of Indian Village. The
executive officers of Indian Village are elected annually by the Board of
Directors and serve at the Board's discretion. The following table presents
information with respect to the directors and executive officers of Indian
Village.
Directors
Director Term
Name Age(1) Position Held With Indian Village Since Expires
- ---- ------ ---------------------------------- -------- -------
Rebecca S. Mastin...... 45 Chairperson of the Board 1996 2002
John A. Beitzel........ 50 Vice Chairman of the Board 1997 2000
Marty R. Lindon........ 41 President and 1998 2001
Chief Executive Officer
Michael A. Cochran..... 48 Corporate Secretary 1995 2002
Vernon E. Mishler...... 70 Director 1989 2001
Joanne Limbach......... 58 Director 1997 2001
Cindy S. Knisely....... 41 Director 1997 2000
Executive Officers Who Are Not Directors
Name Age(1) Position Held With Indian Village
- ---- ------ ----------------------------------
Lori S. Frantz......... 39 Vice President, Treasurer and -- --
Chief Financial Officer
- --------------------
(1) As of December 31, 1998.
56
Biographical Information
Below is certain information regarding the directors and executive officers
of Indian Village. Unless otherwise stated, each director and executive officer
has held his or her current occupation for the last five years. There are no
family relationships among or between the directors or executive officers.
Rebecca S. Mastin owns Wendy's restaurant franchises.
John A. Beitzel retired as the elected Tuscarawas County auditor.
Marty R. Lindon joined Indian Village in September 1991 as a credit
manager. In December 1993 he was appointed Vice President of Lending. He was
appointed President and Chief Executive Officer in December 1998.
Michael A. Cochran is an attorney in private practice. He is also
Assistant Prosecuting Attorney for Tuscarawas County.
Vernon E. Mishler is a retired Ohio State Auditor and public accountant.
Joanne Limbach is the President of Limbach, Nolan and Dantonio, Inc. D/B/A/
Limbach and Associates, Columbus, Ohio, a state and local tax consulting firm.
Ms. Limbach served as Tax Commissioner for the State of Ohio from 1983 to 1991.
Cindy S. Knisely, a certified public accountant, is the President of
Kinsely & Associates Accounting and Financial Services, Inc., a certified public
accounting firm.
Lori S. Frantz joined Indian Village in 1977 as a teller and loan
processor. She was appointed Assistant Secretary in 1985, Vice President in
1993 and Treasurer in 1996.
Meetings and Committees of the Board of Directors
The business of Indian Village is conducted through meetings and activities
of the Board of Directors and its committees. During the fiscal year ended
December 31, 1998, the Board of Directors held 12 regular meetings and 19
special meetings. No director attended fewer than 75% of the total meetings of
the Board of Directors and committees on which the director served.
The Loan Committee consists of Marty R. Lindon, John A. Beitzel and Cindy
S. Knisely. This committee reviews and approves loan applications that do not
require the approval of the full Board of Directors. The committee met 41 times
in 1998.
The Audit Committee consists of Rebecca S. Mastin and Vernon E. Mishler.
The committee receives and reviews all reports prepared by Indian Village's
external auditor. The committee met 12 times in 1998.
The Asset Classification Committee consists of Michael A. Cochran and
Joanne Limbach. The committee reviews and classifies Indian Village's loans and
other assets according to established policies of the Board of Directors. The
committee met four times in 1998.
Directors' Compensation
Fees. Directors who are not salaried employees of Indian Village each
receive $1,000 per month. Two excused absences from meetings are permitted.
After the conversion, Indian Village will continue to pay directors' fees, but,
initially, Indian Village Bancorp does not expect to pay separate fees for
service on its Board of Directors.
57
Executive Compensation
Summary Compensation Table. The following information is furnished for
Marty R. Lindon and Paul M. Soupart, Jr. for the year ended December 31, 1998.
Mr. Soupart resigned as President and Managing Officer of Indian Village in
August 1998 for personal reasons. No executive officer of Indian Village
received salary and bonus of $100,000 or more during the year ended December 31,
1998.
Annual Compensation (1)
-----------------------
Other Annual All Other
Name and Position Year Salary Bonus Compensation(2) Compensation
- --------------------------------- ------ ------- ------- ---------------- -------------
Marty R. Lindon.......................... 1998 $41,000 $7,000 -- $ 4,686(3)
President, Chief Executive Officer
and Director
Paul M. Soupart, Jr...................... 1998 $42,000 2,000 -- $34,776(4)
Former President and Managing Officer
- -------------------
(1) Compensation information for the years ended December 31, 1997 and 1996
has been omitted as Indian Village was neither a public company nor a
subsidiary of a public company at that time.
(2) Does not include the aggregate amount of perquisites and other personal
benefits, which was less than 10% of the total annual salary and bonus
reported.
(3) Consists of employer pension plan contribution.
(4) Consists of severance payment of $33,000 and medical insurance
continuation coverage expenses of $1,776.
Consulting Contract. Indian Village and John A. Beitzel are parties to a
consulting contract calling for him to consult with the Board of Directors on
general matters relating to the operations of the institution between January 1,
1999 and June 30, 1999. Mr. Beitzel will receive $13,010 as compensation for
his services over the term of the agreement. Either party may terminate the
agreement with 30 days notice to the other party. Mr. Beitzel would not be paid
after the date of termination.
Employment Agreements. Indian Village Bancorp and Indian Village plan to
enter into three-year employment agreements with Marty R. Lindon and Lori S.
Frantz. Under the employment agreements, the initial salary levels for Mr.
Lindon and Ms. Frantz will be $60,000 and $48,000, respectively, which amounts
will be paid by Indian Village and may be increased at the discretion of the
Board of Directors or an authorized committee of the Board. On each anniversary
after the starting date of the employment agreements, the term of the agreements
may be extended for an additional year at the discretion of the Board. The
agreements may be terminated by the Employers at any time, by the executive if
he or she is assigned duties inconsistent with his initial position, duties,
responsibilities and status, or upon the occurrence of certain events specified
by federal regulations. If the executive's employment is terminated without
cause or upon the executive's voluntary termination following the occurrence of
an event described in the preceding sentence, Indian Village would be required
to honor the terms of the agreement through the expiration of the current term,
including payment of current cash compensation and continuation of employee
benefits.
The employment agreements also provide for a severance payment and other
benefits upon involuntary termination of employment in connection with any
change in control of Indian Village Bancorp and Indian Village. A severance
payment also will be paid on a similar basis in connection with a voluntary
termination of employment where, after a change in control, the executive is
assigned duties inconsistent with his or her position, duties, responsibilities
and status immediately before a change in control. The term "change in control"
is defined in the agreement as having occurred when, among other things, a
person other than Indian Village Bancorp purchases shares of Indian Village
Bancorp's common stock under a tender or exchange offer for the shares; any
person (as that term is used in Sections 13(d) and 14(d)(2) of the Securities
Exchange Act of 1934) is or becomes the beneficial owner, directly or
indirectly, of securities of Indian Village Bancorp representing 25% or more of
the combined
58
voting power of Indian Village Bancorp's then outstanding securities; the
membership of the Board of Directors changes as the result of a contested
election; or shareholders of Indian Village Bancorp approve a merger,
consolidation, sale or disposition of all or substantially all of Indian Village
Bancorp's assets, or a plan of partial or complete liquidation.
The maximum value of the severance benefits under the employment agreement
is 2.99 times the executive's average annual compensation during the five-year
period preceding the effective date of the change in control. The employment
agreements provide that the value of the maximum benefit may be distributed, at
the executive's election, in the form of a lump sum cash payment equal to 2.99
times the executive's average annual compensation for the five years preceding
the effective date of the change in control, or a combination of a cash payment
and continued coverage under the Indian Village Bancorp's and Indian Village's
health, life and disability programs for a 36-month period following the change
in control, the total value of which does not exceed 2.99 times the executive's
average annual compensation for the five years preceding the effective date of
the change in control. Assuming that a change in control had occurred at
December 31, 1998 and that Mr. Lindon and Ms. Frantz each elected to receive a
lump sum cash payment, Mr. Lindon would have been entitled to a payment of
approximately $122,000 and Ms. Frantz would have been entitled to approximately
$116,000. The Internal Revenue Code provides that severance payments that equal
or exceed three times the individual's base amount are deemed to be "excess
parachute payments" if they are contingent upon a change in control. Individuals
receiving excess parachute payments must pay a 20% excise tax on the amount of
excess payments, and their employers would not be entitled to deduct the amount
of the excess payments.
The employment agreements restrict the executive's right to compete against
Indian Village Bancorp and Indian Village for a period of one year from the date
of termination of the agreement if he or she voluntarily terminates employment,
except upon a change in control.
Employee Severance Compensation Plan. Indian Village's Board of Directors
intends to adopt the Indian Village Community Bank Employee Severance
Compensation Plan to provide benefits to eligible employees upon a change in
control of Indian Village Bancorp or Indian Village. Eligible employees are
those with a minimum of two years of service with Indian Village. Generally, all
eligible employees, other than officers who will enter into separate employment
agreements with Indian Village Bancorp and Indian Village, will be eligible to
participate in the severance plan. Under the severance plan, if a change in
control of Indian Village Bancorp or Indian Village occurs, eligible employees
who are terminated or who terminate employment, but only upon the occurrence of
events specified in the severance plan, within 12 months of the effective date
of a change in control will be entitled to a payment based on years of service
with Indian Village with a maximum payment equal to 26 weeks of compensation,
which would be earned after 13 years of service. Assuming that a change in
control had occurred at December 31, 1998, and resulted in the termination of
all eligible employees, the maximum aggregate payment due under the severance
plan would be approximately $31,000.
Benefits
General. Indian Village currently pays 95% of the premiums for medical
insurance benefits and 100% of premiums for life and disability insurance
benefits for full-time employees.
Retirement Plan. Indian Village maintains a non-contributory defined
benefit retirement plan. The following table indicates the annual retirement
benefits that would be payable under the retirement plan upon retirement at age
65 to a participant electing to receive his retirement benefit in the standard
form of benefit, assuming various specified levels of plan compensation and
various specified years of credited service. Under the Internal Revenue Code,
maximum annual benefits under the retirement plan are limited to $130,000 per
year for the 1999 calendar year.
59
Highest Five-Year Years of Service
Average Annual ---------------------------------------
Compensation 5 10 15 25+
- ----------------- ----------------------------------------
$ 10,000 $ 815 $ 1,630 $ 2,445 $ 4,075
20,000 1,774 3,548 5,323 8,871
30,000 2,914 5,828 8,742 14,571
40,000 4,054 8,108 12,163 20,271
60,000 6,334 12,668 19,003 31,671
80,000 8,614 17,228 25,843 43,071
100,000 10,894 21,788 32,683 54,471
120,000 13,174 26,348 39,523 65,871
130,000 14,314 28,628 42,943 71,571
The retirement plan is a non-contributory, defined benefit plan which
provides for monthly payments to, or on behalf of, each covered employee. All
full-time employees are eligible to participate in the retirement plan after
completion of one year of service with Indian Village and attainment of age 21.
To obtain one year of service, an employee must complete at least 1,000 hours of
service in 12 consecutive months. Benefits are based upon years of service and
salary excluding bonuses, fees, overtime, etc. Employees become 20% vested
following three years of service increasing 20% annually to 100% after seven
years of service. As of December 31, 1998, Mr. Lindon had eight years of
credited service under the retirement plan.
The normal retirement age is 65 and the early retirement age is before age
65, but after age 55 with the completion of ten years of service. Normal
retirement benefits are equal to 40.75% of the highest five year average
compensation up to the integration level plus 57% of average compensation in
excess of the integration level reduced for less than 25 years of service. If
an employee elects early retirement, but defers the receipt of benefits until
age 65, the formula for computation of early retirement benefits is the same as
if the employee had retired at the normal retirement age but based on service
and average compensation at early retirement. If the employee elects early
retirement benefits before normal retirement, the benefits are equal to the
accrued benefits payable at age 65 reduced by applying an early retirement
factor. Payment may also be deferred beyond normal retirement in which case the
retirement allowance will be the actuarial equivalent of the normal retirement
benefit. Under the retirement plan, Indian Village makes annual contributions,
computed on an actuarial basis, to fund the benefits.
Upon retirement, the regular form of benefit under the retirement plan is
an annuity payable in equal monthly installments for the life of the employee
and guaranteed for ten years. Optional annuity or lump sum benefit forms may
also be elected by the employee. Benefits under the retirement plan are not
integrated with social security.
At December 31, 1998, which is the date of the most recent retirement plan
statement, the retirement plan's benefit obligation exceeded assets by
approximately $134,000.
Employee Stock Ownership Plan. Indian Village's Board of Directors has
authorized the adoption of an employee stock ownership plan for employees of
Indian Village to be effective upon the completion of the conversion. Full-time
employees of Indian Village Bancorp and Indian Village who have been credited
with at least 1,000 hours of service during a 12-month period and who have
attained age 21 will be eligible to participate in the employee stock ownership
plan.
The employee stock ownership plan intends to purchase 8% of the shares
issued in the conversion. This would range between 40,800 shares, assuming
510,000 shares are issued in the conversion, and 55,200 shares assuming 690,000
shares are issued in the conversion. It is anticipated that the employee stock
ownership plan will borrow funds from Indian Village Bancorp to purchase stock
in the conversion. The loan will equal 100% of the aggregate purchase price of
the common stock. The loan to the employee stock ownership plan will be repaid
60
principally from Indian Village's contributions to the employee stock ownership
plan and dividends payable on common stock held by the employee stock ownership
plan over the anticipated 15-year term of the loan. The interest rate for the
employee stock ownership plan loan is expected to be the prime rate as published
in The Wall Street Journal on the closing date of the conversion. See "Pro Forma
Data." If the employee stock ownership plan is unable to acquire 8% of the
common stock sold in the offering, it is anticipated that these additional
shares may be acquired following the conversion through open market purchases.
In any plan year, Indian Village may make additional discretionary
contributions to the employee stock ownership plan for the benefit of plan
participants in either cash or shares of common stock, which may be acquired
through the purchase of outstanding shares in the market or from individual
stockholders or which constitute authorized but unissued shares or shares held
in treasury by Indian Village Bancorp. The timing, amount, and manner of
discretionary contributions will be affected by several factors, including
applicable regulatory policies, the requirements of applicable laws and
regulations, and market conditions.
Shares purchased by the employee stock ownership plan with the proceeds of
the loan will be held in a suspense account and released on a pro rata basis as
the loan is repaid. Discretionary contributions to the employee stock ownership
plan and shares released from the suspense account will be allocated among
participants on the basis of each participant's proportional share of total
compensation. Any forfeitures will be reallocated among the remaining plan
participants.
Participants will vest in their accrued benefits under the employee stock
ownership plan at the rate of 20% per year, beginning upon the completion of two
years of service. A participant is fully vested at retirement, upon death or
disability or upon termination of the employee stock ownership plan. Benefits
are distributable upon a participant's retirement, early retirement, death,
disability, or termination of employment. Indian Village's contributions to the
employee stock ownership plan are not fixed, so benefits payable under the
employee stock ownership plan cannot be estimated.
It is anticipated that members of Indian Village's Board of Directors will
serve as trustees of the employee stock ownership plan. The trustees must vote
all allocated shares held in the employee stock ownership plan as instructed by
the plan participants and unallocated shares and allocated shares for which no
instructions are received must be voted in the same ratio on any matter as those
shares for which instructions are given.
Under applicable accounting requirements, compensation expense for a
leveraged employee stock ownership plan is recorded at the fair market value of
the employee stock ownership plan shares when committed to be released to
participants' accounts. See "Pro Forma Data."
The employee stock ownership plan must meet the requirements of the
Employee Retirement Income Security Act of 1974, as amended, and the regulations
of the Internal Revenue Service and the Department of Labor. Indian Village
intends to request a determination letter from the Internal Revenue Service
regarding the tax-qualified status of the employee stock ownership plan. Indian
Village expects to receive a favorable determination letter, but cannot
guarantee it.
Stock Option Plan. The Board of Directors of Indian Village Bancorp intends
to adopt a stock option plan and to submit the it to the stockholders for
approval at a meeting held no earlier than six months following the conversion.
Under current Office of Thrift Supervision regulations, the approval of a
majority vote of Indian Village Bancorp's outstanding shares is required for
implementation of the stock option plan within one year after the conversion.
The stock option plan will comply with all applicable regulatory requirements.
However, the stock option plan will not be approved or endorsed by the Office of
Thrift Supervision.
61
The stock option plan will be designed to attract and retain qualified
management personnel and nonemployee directors; to provide officers, key
employees and nonemployee directors with a proprietary interest in Indian
Village Bancorp as an incentive to contribute to the success of Indian Village
Bancorp and Indian Village; and to reward officers and key employees for
outstanding performance. The stock option plan will provide for the grant of
incentive stock options intended to comply with the requirements of the Internal
Revenue Code and for nonqualified stock options. Upon receipt of stockholder
approval of the stock option plan, stock options may be granted to officers, key
employees and nonemployee directors of Indian Village Bancorp and its
subsidiaries, including Indian Village. The stock option plan will continue in
effect for a period of ten years from the date the stock option plan is approved
by stockholders, unless terminated earlier.
A number of authorized shares of common stock equal to 10% of the number of
shares of common stock issued with the conversion will be reserved for future
issuance under the stock option plan. This would range from 51,000 shares,
assuming 510,000 shares are issued in the conversion, to 69,000 shares, assuming
690,000 shares are issued in the conversion. Shares acquired upon exercise of
options will be authorized but unissued shares or treasury shares. If a stock
split, reverse stock split, stock dividend, or similar event occurs, the number
of shares of common stock under the stock option plan, the number of shares to
which any award relates and the exercise price per share under any option may be
adjusted by the stock option plan committee to reflect the increase or decrease
in the total number of shares of common stock outstanding.
The stock option plan will be administered and interpreted by a committee
of the Board of Directors of Indian Village Bancorp. According to applicable
Office of Thrift Supervision regulations, the committee will determine which
nonemployee directors, officers and key employees will be granted options, the
number of shares represented by each option, and the exercisability of options.
All options granted to nonemployee directors will be nonqualified stock options.
The per share exercise price of all options will equal at least 100% of the fair
market value of a share of common stock on the date the option is granted.
It is anticipated that all options will be granted according to a vesting
schedule so that the options become exercisable over a specified period
following the date of grant. Under Office of Thrift Supervision regulations, if
the stock option plan is implemented within the first year following the
conversion the minimum vesting period will be five years. All unvested options
will be immediately exercisable upon the recipient's death or disability.
Unvested options also will be exercisable following a change in control, as
defined in the stock option plan, of Indian Village Bancorp or Indian Village so
long as it is authorized or not prohibited by applicable law or regulations.
Under current Office of Thrift Supervision regulations, if the stock option plan
is implemented before the first anniversary of the conversion, vesting may not
be accelerated upon a change in control of Indian Village Bancorp or Indian
Village.
Each stock option that is awarded to an officer or key employee will remain
exercisable at any time on or after the date it vests through the earlier to
occur of the tenth anniversary of the date of grant or three months after the
date on which the optionee terminates employment, or one year if the optionee's
termination results from death or disability, unless the stock option committee
extends the time period. Each stock option that is awarded to a nonemployee
director will remain exercisable through the earlier to occur of the tenth
anniversary of the date of grant, or one year or two years upon a nonemployee
director's death or disability, following the termination of a nonemployee
director's service on the Board. All stock options are nontransferable except by
will or the laws of descent or distribution.
Under current provisions of the Internal Revenue Code, the federal tax
treatment of incentive stock options and nonqualified stock options is
different. For incentive stock options, an optionee who satisfies certain
holding period requirements will not recognize income at the time the option is
granted or at the time the option is exercised. If the holding period
requirements are satisfied, the optionee will generally recognize capital gain
or loss upon a subsequent disposition of the shares of common stock received
upon the exercise of a stock option. If the holding period requirements are not
satisfied, the difference between the fair market value of the common stock on
the date of grant and the option exercise price, if any, will be taxable to the
optionee at ordinary income tax rates. A federal
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income tax deduction generally will not be available to Indian Village Bancorp
as a result of the grant or exercise of an incentive stock option, unless the
optionee fails to satisfy the holding period requirements. For nonqualified
stock options, the grant generally is not a taxable event for the optionee and
no tax deduction will be available to Indian Village Bancorp. However, upon
exercise, the difference between the fair market value of the common stock on
the date of exercise and the option exercise price generally will be treated as
compensation to the optionee upon exercise, and Indian Village Bancorp will be
entitled to a compensation expense deduction in the amount of income realized by
the optionee.
Under generally accepted accounting principles, compensation expense is
generally not recognized upon the award of options to officers and employees of
Indian Village Bancorp and its subsidiaries. However, the Financial Accounting
Standards Board recently indicated that it would propose rules during 1999 that
would generally require recognition of compensation expense with respect to
awards made to nonemployees, including nonemployee directors of Indian Village
Bancorp. The proposed changes would apply to awards made after December 15,
1998.
Under current Office of Thrift Supervision regulations, if the stock option
plan is implemented within one year of the conversion, no officer or employee
could receive an award of options covering more than 25%, no nonemployee
director could receive more than 5%, and nonemployee directors, as a group,
could not receive more than 30% of the number of shares reserved for issuance
under the stock option plan.
Although no specific award determinations have been made at this time,
Indian Village Bancorp and Indian Village anticipate that if stockholder
approval is obtained it would grant awards to its directors, officers and
employees up to amounts and under terms and conditions permitted by Office of
Thrift Supervision regulations. The size of individual awards will be determined
before submitting the stock option plan for stockholder approval, and disclosure
of anticipated awards will be included in the proxy materials for the meeting.
The material provisions of the stock option plan may be combined with the
material provisions of the management development and recognition plan to create
a single, unified stock-based benefit plan.
Management Recognition and Development Plan. The Board of Directors of
Indian Village Bancorp intends to adopt the Indian Village Bancorp, Inc.
Management Recognition and Development Plan, a restricted stock plan, for
officers, employees, and nonemployee directors of Indian Village Bancorp and
Indian Village, and to submit it to the stockholders for approval at a meeting
held no earlier than six months following the conversion. The plan will enable
Indian Village Bancorp and Indian Village to provide participants with a
proprietary interest in Indian Village Bancorp as an incentive to contribute to
the success of Indian Village Bancorp and Indian Village. Persons who are
awarded stock under the plan will not have to pay for the stock. Furthermore,
some or all of the persons who receive awards under the management development
and recognition plan will also be granted options under the stock option plan.
The plan will comply with all applicable regulatory requirements. However,
the plan will not be approved or endorsed by the Office of Thrift Supervision.
Under current Office of Thrift Supervision regulations, the approval of a
majority vote of Indian Village Bancorp's outstanding shares is required for
implementation of the plan within one year after the conversion.
The plan intends to acquire a number of shares of Indian Village Bancorp's
common stock equal to 4% of the common stock issued in the conversion. This
would range from 20,400 shares, assuming 510,000 shares are issued in the
conversion, to 27,600 shares, assuming 690,000 shares are issued in the
conversion. The shares will be acquired on the open market, if available, with
funds contributed by Indian Village Bancorp or Indian Village to a trust which
Indian Village Bancorp may establish in conjunction with the plan or from
authorized but unissued shares or treasury shares of Indian Village Bancorp.
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A committee of the Board of Directors of Indian Village Bancorp will
administer the management development and recognition plan, the members of which
will also serve as trustees for the plan, if a trust is formed. The trustees
will be responsible for the investment of all funds contributed by Indian
Village Bancorp or Indian Village to the trust. The Board of Directors of Indian
Village Bancorp may terminate the plan at any time and, upon termination, all
unallocated shares of common stock will revert to Indian Village Bancorp.
Shares of common stock granted under the plan will be in the form of
restricted stock payable ratably over a specified vesting period following the
date of grant. During the period of restriction, all shares will be held in
escrow by Indian Village Bancorp or by the plan. Under Office of Thrift
Supervision regulations, if the management development and recognition plan is
implemented within the first year following the conversion, the minimum vesting
period will be five years. All unvested awards will vest upon the recipient's
death or disability. Unvested management development and recognition plan awards
will also vest following a change in control, as defined in the plan, of Indian
Village Bancorp or Indian Village so long as it is authorized or not prohibited
by applicable law or regulations. Office of Thrift Supervision regulations
currently provide that, if the management development and recognition plan is
implemented before the first anniversary of the conversion, vesting may not be
accelerated upon a change in control of Indian Village Bancorp or Indian
Village.
A recipient of a plan award in the form of restricted stock generally will
not recognize income upon an award of shares of common stock, and Indian Village
Bancorp will not be entitled to a federal income tax deduction, until the
termination of the restrictions. Upon termination, the recipient will recognize
ordinary income in an amount equal to the fair market value of the common stock
at the time and Indian Village Bancorp will be entitled to a deduction in the
same amount after satisfying federal income tax withholding requirements.
However, the recipient may elect to recognize ordinary income in the year the
restricted stock is granted in an amount equal to the fair market value of the
shares at that time, determined without regard to the restrictions. In that
event, Indian Village Bancorp will be entitled to a deduction in that year and
in the same amount. Any gain or loss recognized by the recipient upon subsequent
disposition of the stock will be either a capital gain or capital loss.
Under current Office of Thrift Supervision regulations, if the plan is
implemented within one year after the conversion, no officer or employee could
receive an award covering more than 25%, no nonemployee director could receive
more than 5% and nonemployee directors, as a group, could not receive more than
30% of the number of shares reserved for issuance under the plan.
Although no specific award determinations have been made at this time,
Indian Village Bancorp and Indian Village anticipate that if stockholder
approval is obtained it would grant awards to its directors, officers and
employees up to amounts and under terms and conditions permitted by Office of
Thrift Supervision regulations. The size of individual awards will be determined
before submitting the plan for stockholder approval, and disclosure of
anticipated awards will be included in the proxy materials for the meeting.
The material provisions of the management development and recognition plan
may be combined with the material provisions of the stock option plan to create
a single, unified stock-based benefit plan.
Transactions with Indian Village
Federal regulations require that all loans or extensions of credit to
executive officers and directors must generally be made on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with other persons, unless the loan or
extension of credit is made under a benefit program generally available to all
other employees and does not give preference to any insider over any other
employee, and must not involve more than the normal risk of repayment or present
other unfavorable features. Indian Village's policy is not to make any new loans
or extensions of credit to Indian Village's executive officers and directors at
different rates or terms than those offered to the general public. In addition,
loans made to a director or executive officer in an amount that, when aggregated
with the amount of all other loans to the person and his or her related
interests, are in excess of the greater of $25,000 or 5% of Indian Village's
capital and surplus, up to a
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maximum of $500,000, must be approved in advance by a majority of the
disinterested members of the Board of Directors. See "Regulation--Federal
Regulation of Savings Associations--Transactions with Affiliates." The aggregate
amount of loans by Indian Village to its executive officers and directors was
$479,000 at December 31, 1998, or approximately 4.4% of pro forma stockholders'
equity assuming that 690,000 shares are issued in the conversion. These loans
were performing according to their original terms at December 31, 1998.
Michael A. Cochran performs legal services for Indian Village Bancorp and
Indian Village. In 1998, Indian Village paid $3,200 in legal fees to Mr.
Cochran for legal services rendered to the institution, which includes a
retainer fee of $2,400. These amounts in total did not represent more than 5%
of total legal fees that Mr. Cochran earned in 1998.
John A. Beitzel and Indian Village are parties to a consulting contract.
See "-- Executive Compensation--Consulting Contract" for further information.
REGULATION AND SUPERVISION
General
As a savings and loan holding company, Indian Village Bancorp will be
required by federal law to file reports with, and otherwise comply with, the
rules and regulations of the Office of Thrift Supervision. Indian Village is
regulated, examined and supervised extensively by the Office of Thrift
Supervision, as its primary federal regulator, and the Federal Deposit Insurance
Corporation, as the deposit insurer. Indian Village is a member of the Federal
Home Loan Bank System and its deposit accounts are insured up to applicable
limits by the Savings Association Insurance Fund managed by the Federal Deposit
Insurance Corporation. Indian Village must file reports with the Office of
Thrift Supervision and the Federal Deposit Insurance Corporation concerning its
activities and financial condition in addition to obtaining their approval
before entering into certain transactions such as mergers with, or acquisitions
of, other savings institutions. The Office of Thrift Supervision and the
Federal Deposit Insurance Corporation examine Indian Village periodically to
test Indian Village's safety and soundness and compliance with various
regulatory requirements. This regulation and supervision establishes a
comprehensive framework for Indian Village's activities and is intended
primarily to protect the insurance fund and Indian Village's depositors.
The regulatory structure also gives regulatory authorities extensive
discretion in their supervisory and enforcement activities and examination
policies, including policies regarding asset classification and the
establishment of adequate loan loss reserves for regulatory purposes. Any
change in regulatory requirements and policies, whether by the Office of Thrift
Supervision, the Federal Deposit Insurance Corporation or the Congress, could
have a material adverse impact on Indian Village Bancorp, Indian Village and
their operations. The description of statutory provisions and regulations that
apply to Indian Village Bancorp and Indian Village discussed below and elsewhere
in this prospectus is not a complete description of them and their effects on
Indian Village and Indian Village Bancorp.
Holding Company Regulation
Indian Village Bancorp will be a non-diversified unitary savings and loan
holding company under federal law because Indian Village will be its only
insured subsidiary immediately after the conversion. As a unitary savings and
loan holding company, Indian Village Bancorp generally will not be restricted
under existing laws as to the types of business activities in which it may
engage, provided that Indian Village continues to be a qualified thrift lender.
See "Federal Savings Institution Regulation - Qualified Thrift Lender Test." If
Indian Village Bancorp acquires another savings institution or savings bank that
is not a problem institution, that meets the qualified thrift lender test and
that the Office of Thrift Supervision considers to be a savings institution,
Indian Village Bancorp would become a multiple savings and loan holding company
if the acquired institution is held as a separate
65
subsidiary and not merged into Indian Village. As a multiple savings and loan
holding company, Indian Village Bancorp would generally be limited to activities
permissible for bank holding companies under federal law so long as the Office
of Thrift Supervision first approves of these activities, and to certain other
activities authorized by Office of Thrift Supervision regulation.
A savings and loan holding company is prohibited from, directly or
indirectly, acquiring more than 5% of the voting stock of another savings
institution or savings and loan holding company and from acquiring or retaining
control of a depository institution that is not insured by the Federal Deposit
Insurance Corporation, unless it first receives the approval of the Office of
Thrift Supervision. In evaluating applications by holding companies to acquire
savings institutions, the Office of Thrift Supervision considers the financial
and managerial resources and future prospects of the holding company and the
institution involved, the effect of the acquisition on the risk to the deposit
insurance funds, the convenience and needs of the community and competitive
factors.
The Office of Thrift Supervision may not approve any acquisition that
results in a multiple savings and loan holding company controlling savings
institutions in more than one state. However, there are two exceptions to this
general rule. First, the approval of interstate supervisory acquisitions by
savings and loan holding companies. Second, the acquisition of a savings
institution in another state if the laws of the state of the target savings
institution specifically permit the acquisition. The states vary in the extent
to which they permit interstate savings and loan holding company acquisitions.
Although savings and loan holding companies do not face specific capital
requirements or specific restrictions on the payment of dividends or other
capital distributions, federal regulations place these restrictions on
subsidiary savings institutions as described below. Indian Village must notify
the Office of Thrift Supervision 30 days before declaring any dividend to Indian
Village Bancorp. In addition, the financial impact of a holding company on its
subsidiary institution is a matter that is evaluated by the Office of Thrift
Supervision, which has authority to order the stoppage of activities or
divestiture of subsidiaries deemed to pose a threat to the safety and soundness
of the institution.
Federal Savings Institution Regulation
Business Activities. The activities of federal savings institutions are
governed by federal law and regulations. These laws and regulations delineate
the nature and extent of the activities in which federal associations may
engage. In particular, many types of lending authority for federal association
are limited to a specified percentage of the institution's capital or assets.
Capital Requirements. The Office of Thrift Supervision capital regulations
require savings institutions to meet three minimum capital standards: a 1.5%
tangible capital ratio, a 3% leverage ratio and an 8% risk-based capital ratio.
In addition, the prompt corrective action standards discussed below also
establish, in effect, a minimum 2% tangible capital standard, a 4% leverage
ratio (3% for institutions receiving the highest rating on the CAMELS financial
institution rating system) and, together with the risk-based capital standard
itself, a 4% Tier 1 risk-based capital standard. The Office of Thrift
Supervision regulations also require that, in meeting the tangible, leverage and
risk-based capital standards, institutions must generally deduct investments in
and loans to subsidiaries engaged in activities as principal that are not
permissible for a national bank.
The risk-based capital standard requires an institution to maintain Tier 1
or core capital to risk-weighted assets of at least 4% and total capital to
risk-weighted assets of at least 8%. Total capital is defined as core capital
and supplementary capital. In determining the amount of risk-weighted assets,
all assets, including certain off-balance sheet assets, are multiplied by a
risk-weight factor of 0% to 100%, assigned by the Office of Thrift Supervision
capital regulation based on the risks believed inherent in the type of asset.
Core or Tier 1 capital is defined as common stockholders' equity and retained
earnings, certain noncumulative perpetual preferred stock and related surplus,
and minority interests in equity accounts of consolidated subsidiaries, less
intangibles other than certain mortgage servicing rights and credit card
relationships. The components of supplementary capital include
66
cumulative preferred stock, long-term perpetual preferred stock, mandatory
convertible securities, subordinated debt and intermediate preferred stock, and
the allowance for loan and lease losses limited to a maximum of 1.25% of risk-
weighted assets. Overall, the amount of supplementary capital included as part
of total capital cannot exceed 100% of core capital.
The capital regulations also incorporate an interest rate risk component.
Savings institutions with "above normal" interest rate risk exposure are subject
to a deduction from total capital for purposes of calculating their risk-based
capital requirements. Presently, the Office of Thrift Supervision has deferred
implementation of the interest rate risk component. At December 31, 1998,
Indian Village met each of its capital requirements. See "Historical and Pro
Forma Regulatory Capital Compliance" for information regarding Indian Village's
compliance with the Office of Thrift Supervision's regulatory capital
requirements.
Prompt Corrective Regulatory Action. The Office of Thrift Supervision is
required to take certain supervisory actions against undercapitalized
institutions, the severity of which depends upon the institution's degree of
undercapitalization. Generally, a savings institution that has a ratio of total
capital to risk weighted assets of less than 8%, a ratio of Tier 1 or core
capital to risk-weighted assets of less than 4%, or a ratio of core capital to
total assets of less than 4%, or 3% or less for institutions with the highest
examination rating, is considered to be "undercapitalized." A savings
institution that has a total risk-based capital ratio less than 6%, a Tier 1
capital ratio of less than 3% or a leverage ratio that is less than 3% is
considered to be "significantly undercapitalized" and a savings institution that
has a tangible capital to assets ratio equal to or less than 2% is deemed to be
"critically undercapitalized." Although there is a narrow exception, the Office
of Thrift Supervision is required to appoint a receiver or conservator for an
institution that is "critically undercapitalized." The regulation also provides
that an institution must file a capital restoration plan with the Office of
Thrift Supervision within 45 days of the date that the Office of Thrift
Supervision notifies it that it is "undercapitalized," "significantly
undercapitalized" or "critically undercapitalized." Compliance with the plan
must be guaranteed by any parent holding company. In addition, numerous
mandatory supervisory actions immediately apply to an undercapitalized
institution, including, but not limited to, increased monitoring by regulators
and restrictions on growth, capital distributions and expansion. The Office of
Thrift Supervision could also take any one of a number of discretionary
supervisory actions, including issuing a capital directive and replacing senior
executive officers and directors.
Insurance of Deposit Accounts. Deposits of Indian Village are presently
insured by the Savings Association Insurance Fund. The Federal Deposit
Insurance Corporation maintains a risk-based assessment system by which
institutions are assigned to one of three categories based on their
capitalization and one of three subcategories based on examination ratings and
other supervisory information. An institution's assessment rate depends upon
the categories to which it is assigned. Assessment rates for Savings
Association Insurance Fund member institutions are determined semiannually by
the Federal Deposit Insurance Corporation and currently range from zero basis
points for the healthiest institutions to 27 basis points for the riskiest.
In addition to the assessment for deposit insurance, institutions are
required to pay on bonds issued in the late 1980s by the Financing Corporation
to recapitalize the predecessor to the Savings Association Insurance Fund.
During 1998, Financing Corporation payments for Savings Association Insurance
Fund members approximated 6.10 basis points, while Bank Insurance Fund members
paid 1.22 basis points. By law, there will be equal sharing of Financing
Corporation payments between the members of both insurance funds on the earlier
of January 1, 2000 or the date the two insurance funds are merged.
Indian Village's assessment rate for fiscal 1998 ranged from 0 to 3 basis
points and the premium paid for this period was $4,500. Payments toward the
Financing Corporation bonds amounted to $18,000. The Federal Deposit Insurance
Corporation has authority to increase insurance assessments. A significant
increase in Savings Association Insurance Fund insurance premiums would likely
have an adverse effect on the operating expenses and results of operations of
Indian Village. Management cannot predict what insurance assessment rates will
be in the future.
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The Federal Deposit Insurance Corporation may terminate an institution's
deposit insurance if it finds that the institution has engaged in unsafe or
unsound practices, is in an unsafe or unsound condition to continue operations
or has violated any applicable law, regulation, rule, order or condition imposed
by the Federal Deposit Insurance Corporation or the Office of Thrift
Supervision. The management of Indian Village does not know of any practice,
condition or violation that might lead to termination of its deposit insurance.
Thrift Rechartering Legislation. Legislation enacted in 1996 provided that
the Bank Insurance Fund and the Savings Association Insurance Fund were to have
merged on January 1, 1999 if there were no more savings associations as of that
date. Various proposals to eliminate the federal savings association charter,
create a uniform financial institutions charter, abolish the Office of Thrift
Supervision and restrict savings and loan holding company activities have been
introduced in Congress. Indian Village is unable to predict whether any of this
legislation will be enacted or the extent to which legislation might restrict or
disrupt its operations. See "Risk Factors -- Banking Reform Legislation May
Reduce Indian Village Bancorp's and Indian Village's Powers."
Loans to One Borrower. Federal law provides that savings institutions must
generally follow the limits on loans to one borrower applicable to national
banks. A savings institution may not make a loan or extend credit to a single
or related group of borrowers in excess of 15% of its unimpaired capital and
surplus. An additional amount may be lent, equal to 10% of unimpaired capital
and surplus, if secured by specified readily-marketable collateral. See
"Business of Indian Village -- Lending Activities -- Loans to One Borrower" for
further information.
Qualified Thrift Lender Test. Federal law requires savings institutions to
meet a qualified thrift lender test. Under the test, a savings association is
required to either qualify as a "domestic building and loan association" under
the Internal Revenue Code or maintain at least 65% of its "portfolio assets" in
certain "qualified thrift investments" in at least 9 months out of each 12 month
period. "Portfolio assets" equals total assets less specified liquid assets up
to 20% of total assets, intangibles, including goodwill, and the value of
property used to conduct business. "Qualified thrift investments" are primarily
residential mortgages and related investments, including certain mortgage-backed
securities.
A savings institution that fails the qualified thrift lender test faces
certain operating restrictions and may be required to convert to a bank charter.
As of December 31, 1998, Indian Village complied with the qualified thrift
lender test. Recent legislation has expanded the extent to which education
loans, credit card loans and small business loans may be considered "qualified
thrift investments."
Limitation on Capital Distributions. Office of Thrift Supervision
regulations impose limitations upon all capital distributions by a savings
institution, including cash dividends, payments to repurchase its shares and
payments to shareholders of another institution in a cash-out merger. The rule
effective in 1998 established three tiers of institutions based primarily on an
institution's capital level.
A Tier I institution exceeds all capital requirements before and after a
proposed capital distribution and has not been advised by the Office of Thrift
Supervision that it needs more than normal supervision. A Tier I institution
could, after first giving notice to but without obtaining approval of the Office
of Thrift Supervision, make capital distributions during the calendar year equal
to the greater of 100% of its net earnings to date during the calendar year plus
the amount that would reduce by one-half the excess capital over its capital
requirements at the beginning of the calendar year, or 75% of its net income for
the previous four quarters. Any additional capital distributions would first
require regulatory approval. At December 31, 1998, Indian Village was a Tier 1
institution.
Effective April 1, 1999, the Office of Thrift Supervision's capital
distribution regulation changed. Under the new regulation, an application to
and the prior approval of the Office of Thrift Supervision is required before
any capital distribution if the institution does not meet the criteria for
"expedited treatment" of applications under Office of Thrift Supervision
regulations, the total capital distributions for the calendar year exceed net
income for that year plus the amount of retained net income for the preceding
two years, the institution would be undercapitalized following the distribution
or the distribution would otherwise be contrary to a statute, regulation or
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agreement with Office of Thrift Supervision. If an application is not required,
the institution must still give advance notice to Office of Thrift Supervision
of the capital distribution. If Indian Village's capital fell below its
regulatory requirements or if the Office of Thrift Supervision notified it that
it was in need of more than normal supervision, Indian Village's ability to make
capital distributions could be restricted. In addition, the Office of Thrift
Supervision could prohibit a proposed capital distribution, which would
otherwise be permitted by the regulation if the Office of Thrift Supervision
determines that the distribution would be an unsafe or unsound practice.
Liquidity. Indian Village is required to maintain an average daily balance
of specified liquid assets equal to a monthly average of not less than a
specified percentage of its net withdrawable deposit accounts plus short-term
borrowings. This liquidity requirement is currently 4%, but may be changed from
time to time by the Office of Thrift Supervision to any amount within the range
of 4% to 10%. Monetary penalties may be imposed for failure to meet these
liquidity requirements. The Bank met these requirements at December 31, 1998.
See "Business of Indian Village -- Liquidity and Capital Resources" for further
information.
Assessments. Savings institutions are required to pay assessments to the
Office of Thrift Supervision to fund the agency's operations. The general
assessments, paid on a semi-annual basis, are computed upon the savings
institution's total assets, including consolidated subsidiaries, as reported in
Indian Village's latest quarterly thrift financial report. Indian Village's
assessments for the fiscal year ended December 31, 1998 totaled $13,000.
Transactions with Related Parties. Indian Village's authority to engage in
transactions with "affiliates" is limited by federal law. Generally, an
affiliate is any company that controls or is under common control with an
institution, including Indian Village Bancorp. The aggregate amount of covered
transactions with any individual affiliate is limited to 10% of the capital and
surplus of the savings institution. The aggregate amount of covered
transactions with all affiliates is limited to 20% of the savings institution's
capital and surplus. Certain transactions with affiliates are required to be
secured by collateral in an amount and of a type described in federal law. The
purchase of low quality assets from affiliates is generally prohibited. The
transactions with affiliates must be on terms and under circumstances, that are
at least as favorable to the institution as those prevailing at the time for
comparable transactions with non-affiliated companies. In addition, savings
institutions are prohibited from lending to any affiliate that is engaged in
activities that are not permissible for bank holding companies and no savings
institution may purchase the securities of any affiliate other than a
subsidiary.
Indian Village's authority to extend credit to executive officers,
directors and 10% shareholders, as well as entities within the control of these
persons, is also governed by federal law. These persons are often referred to
as "insiders" of a company. Loans to insiders are required to be made on terms
substantially the same as those offered to unaffiliated individuals and may not
involve more than the normal risk of repayment. Recent legislation created an
exception for loans made pursuant to a benefit or compensation program that is
widely available to all employees of the institution and does not give
preference to insiders over other employees. The law limits both the individual
and aggregate amount of loans Indian Village may make to insiders based, in
part, on Indian Village's capital position and requires certain board approval
procedures to be followed.
Enforcement. The Office of Thrift Supervision has primary enforcement
responsibility over savings institutions and has the authority to bring actions
against the institution and all institution-affiliated parties, including
stockholders, and any attorneys, appraisers and accountants who knowingly or
recklessly participate in wrongful action likely to have an adverse effect on an
insured institution. Formal enforcement action may range from the issuance of a
capital directive or cease and desist order, to removal of officers and/or
directors, to institution of a receivership or conservatorship, or to
termination of deposit insurance. Civil penalties cover a wide range of
violations and can amount to $25,000 per day, or even $1 million per day in
especially serious cases. The Federal Deposit Insurance Corporation has the
authority to recommend to the Director of the Office of Thrift Supervision that
enforcement action to be taken with respect to a particular savings institution.
If action is not taken by the Director, the Federal Deposit Insurance
Corporation has authority to take action under certain circumstances. Federal
law also establishes criminal penalties for certain violations.
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Standards for Safety and Soundness. The federal banking agencies have
adopted Interagency Guidelines prescribing Standards for Safety and Soundness.
The guidelines set forth the safety and soundness standards that the federal
banking agencies use to identify and address problems at insured depository
institutions before capital becomes impaired. If the Office of Thrift
Supervision determines that a savings institution fails to meet any standard
prescribed by the guidelines, the Office of Thrift Supervision may require the
institution to submit an acceptable plan to achieve compliance with the
standard.
Federal Reserve System
The Federal Reserve Board regulations require savings institutions to
maintain non-interest earning reserves against their transaction accounts,
primarily NOW and regular checking accounts. The regulations generally require
that reserves be maintained against aggregate transaction accounts as follows:
for accounts aggregating $46.5 million or less, subject to adjustment by the
Federal Reserve Board the reserve requirement is 3%; and for accounts
aggregating greater than $46.5 million, the reserve requirement is $1.395
million plus 10%, subject to adjustment by the Federal Reserve Board between 8%
and 14%, against that portion of total transaction accounts in excess of $46.5
million. The first $4.9 million of otherwise reservable balances, as adjusted
by the Federal Reserve Board, are exempted from the reserve requirements.
Indian Village complies with the foregoing requirements.
FEDERAL AND STATE TAXATION
Federal Taxation
General. Indian Village Bancorp and Indian Village intend to report their
income on a calendar year, unconsolidated basis using the accrual method of
accounting. The federal income tax laws apply to Indian Village Bancorp and
Indian Village in the same manner as to other corporations with some exceptions,
including particularly Indian Village's reserve for bad debts discussed below.
The following discussion of tax matters is intended only as a summary and does
not purport to be a comprehensive description of the tax rules applicable to
Indian Village or Indian Village Bancorp. Indian Village's federal tax returns
have been either audited or closed under the statute of limitations through tax
year 1994. For its 1998 tax year, Indian Village's maximum federal income tax
rate was 34%.
Bad Debt Reserves. For fiscal years beginning before December 31, 1995,
thrift institutions which qualified under certain definitional tests and other
conditions of the Internal Revenue Code of 1986, as amended, were permitted to
use certain favorable provisions to calculate their deductions from taxable
income for annual additions to their bad debt reserve. A reserve could be
established for bad debts on qualifying real property loans, generally secured
by interests in real property improved or to be improved, under the percentage
of taxable income method or the experience method. The reserve for
nonqualifying loans was computed using the experience method.
Federal legislation enacted in 1996 repeal the reserve method of accounting
for bad debts for tax years beginning after 1995 and require savings
institutions to recapture or take into income certain portions of their
accumulated bad debt reserves. Thrift institutions eligible to be treated as
"small banks," those with assets of $500 million or less, are allowed to use the
experience method that applies to "small banks," while thrift institutions that
are treated as large banks, those with assets exceeding $500 million, are
required to use only the specific charge-off method. As a result,, 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 debts will treat the change as a change in method of accounting,
initiated by the taxpayer, and having been made with the consent of the Internal
Revenue Service. Any adjustment required to be taken into income with respect
to a change in accounting method generally will be taken into income ratably
over a six-taxable year period, beginning with the first taxable
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year beginning after 1995, subject to a 2-year suspension if the "residential
loan requirement" is satisfied. Under the residential loan requirement
provision, the recapture required by the new legislation will be suspended for
each of two successive taxable years, beginning with Indian Village's 1996
taxable year, in which Indian Village originates a minimum of certain
residential loans based upon the average of the principal amounts of these loans
that Indian Village makes during its six taxable years preceding its current
taxable year.
Indian Village is required to recapture or take into income over a six
year period the excess of the balance of its tax bad debt reserves as of
December 31, 1995 over the balance of the reserves as of December 31, 1987. As
a result, Indian Village will incur an additional tax liability of approximately
$35,000, which is generally expected to be taken into income beginning in 1996
over a six year period.
Distributions. If Indian Village makes "non-dividend distributions" to
Indian Village Bancorp, they will be considered to have been made from Indian
Village's unrecaptured tax bad debt reserves, including the balance of its
reserves as of December 31, 1987, to the extent of the "nondividend
distributions," and then from Indian Village's supplemental reserve for losses
on loans, to the extent of those reserves, and an amount based on the amount
distributed, but not more than the amount of those reserves, will be included in
Indian Village's income. Non-dividend distributions include distributions in
excess of Indian Village's current and accumulated earnings and profits, as
calculated for federal income tax purposes, distributions in redemption of
stock, and distributions in partial or complete liquidation. Dividends paid out
of Indian Village's current or accumulated earnings and profits will not be so
included in Indian Village's income.
The amount of additional taxable income triggered by a non-dividend is an
amount that, when reduced by the tax attributable to the income, is equal to the
amount of the distribution. Therefore, if Indian Village makes a non-dividend
distribution to Indian Village Bancorp, approximately one and one-half times the
amount of the distribution not in excess of the amount of the reserves would be
includable in income for federal income tax purposes, assuming a 34% federal
corporate income tax rate. Indian Village does not intend to pay dividends that
would result in a recapture of any portion of its bad debt reserves.
Savings Association Insurance Fund Recapitalization Assessment. Federal
legislation enacted in 1996 levied a 65.7-cent fee on every $100 of thrift
deposits held on March 31, 1995. For financial statement purposes, this
assessment was reported as an expense for the quarter ended September 30, 1996.
The law includes a provision which states that the amount of any special
assessment paid to capitalize Savings Association Insurance Fund under this
legislation is deductible in the year of payment.
Ohio Taxation
Indian Village Bancorp is subject to the Ohio corporation franchise tax,
which, as applied to it, is a tax measured by both net income and net worth. In
general, the tax liability is the greater of 5.1% on the first $50,000 of
computed Ohio taxable income and 8.5% of computed Ohio taxable income in excess
of $50,000, or 0.40% of taxable net worth. Under these alternative measures of
computing the tax liability, complex formulas determine the jurisdictions to
which total net income and total net worth are apportioned or allocated. The
minimum tax is $50 per year and maximum tax liability as measured by net worth
is limited to $150,000 per year.
A special litter tax also applies to all corporations, including Indian
Village Bancorp, subject to the Ohio corporation franchise tax. This litter tax
does not apply to "financial institutions." If a corporation pays franchise tax
on the basis of net income, the litter tax is equal to .11% of the first $50,000
of computed Ohio taxable income and .22% of computed Ohio taxable income in
excess of $50,000. If a corporation pays franchise tax on the basis of net
worth, the litter tax is equal to .014% times taxable net worth.
A statutory exemption from the net worth tax is available to Indian Village
Bancorp if certain conditions are satisfied. Indian Village Bancorp expects to
qualify for this exemption, which would restrict its tax liability to the tax
measured by net income.
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Indian Village is a "financial institution" for State of Ohio tax purposes.
Accordingly, it must pay the Ohio corporate franchise tax on "financial
institutions," which is imposed annually at a rate of 1.4% of the Indian
Village's apportioned book net worth, determined under generally accepted
accounting principles, less any statutory deduction. This tax rate is scheduled
to decrease to 1.3% in the year 2000. As a "financial institution," Indian
Village does not pay any Ohio tax based upon net income or net profits.
THE CONVERSION
The Office of Thrift Supervision has approved the plan of conversion,
provided that it is approved by the members of Indian Village and that Indian
Village Bancorp and Indian Village satisfy certain other conditions imposed by
the Office of Thrift Supervision in its approval. Office of Thrift Supervision
approval is not a recommendation or endorsement of the plan of conversion.
General
On January 20, 1999, the Board of Directors of Indian Village unanimously
adopted the plan of conversion, under which Indian Village will be converted
from a federally chartered mutual savings and loan association to a federally
chartered stock savings bank to be held as a wholly owned subsidiary of Indian
Village Bancorp, a newly formed Pennsylvania corporation. The following
discussion of the plan of conversion contains all material terms about the
conversion. Nevertheless, readers are urged to read carefully the plan of
conversion, which accompanies Indian Village's proxy statement and is available
to members of Indian Village upon request. The plan of conversion is also filed
as an exhibit to the registration statement that Indian Village Bancorp has
filed with the Securities and Exchange Commission. See "Where You Can Find More
Information." The Office of Thrift Supervision has approved the plan of
conversion with the condition that it is approved by the members of Indian
Village entitled to vote on the matter at a special meeting on ________, 1999
and conditioned on the satisfaction of certain other conditions imposed by the
Office of Thrift Supervision in its approval.
The conversion will be accomplished through adoption of a Federal Stock
Charter and Bylaws to authorize the issuance of capital stock by Indian Village.
As part of the conversion, Indian Village will issue all of its newly issued
capital stock, or 1,000 shares of common stock, to Indian Village Bancorp in
exchange for 50% of the net proceeds from the sale of common stock by Indian
Village Bancorp.
The plan of conversion provides generally that: Indian Village will convert
from a federally chartered mutual savings and loan association to a federally
chartered stock savings bank; the common stock will be offered by Indian Village
Bancorp in the subscription offering to persons having subscription rights; if
necessary, shares of common stock not subscribed for in the subscription
offering will be offered in a direct community offering to certain members of
the general public, with preference given to natural persons and their trusts
residing in Tuscarawas County, Ohio, and then to certain members of the general
public in a syndicated community offering through a syndicate of registered
broker-dealers under selected dealers agreements; and Indian Village Bancorp
will purchase all of the capital stock of Indian Village to be issued in the
conversion. The conversion will be completed only upon the sale of at least
$5,100,000 of common stock to be issued under the plan of conversion.
As part of the conversion, Indian Village Bancorp is making a subscription
offering of its common stock to holders of subscription rights in the following
order of priority. First, depositors of Indian Village with $50.00 or more on
deposit as of December 31, 1997. Second, Indian Village's employee stock
ownership plan. Third, depositors of Indian Village with $50.00 or more on
deposit as of March 31, 1999. Finally, depositors of Indian Village as of
_________________ and borrowers of Indian Village with loans outstanding as of
January 20, 1999 which continue to be outstanding as of ________________.
Shares of common stock not subscribed for in the subscription offering may
be offered for sale in the direct community offering. The direct community
offering, if one is held, is expected to begin immediately after the
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expiration of the subscription offering, but may begin at any time during the
subscription offering. Shares of common stock not sold in the subscription and
direct community offerings may be offered in the syndicated community offering.
Regulations require that the direct community and syndicated community offerings
be completed within 45 days after completion of the fully extended subscription
offering unless extended by Indian Village or Indian Village Bancorp with the
approval of the regulatory authorities. If the syndicated community offering is
not feasible, the Board of Directors of Indian Village will consult with the
regulatory authorities to determine an appropriate alternative method for
selling the unsubscribed shares of common stock. The plan of conversion provides
that the conversion must be completed within 24 months after the date of the
approval of the plan of conversion by the members of Indian Village.
No sales of common stock may be completed, either in the subscription
offering, direct community offering or syndicated community offering unless the
plan of conversion is approved by the members of Indian Village.
The completion of the offering, however, depends on market conditions and
other factors beyond Indian Village's control. No assurance can be given as to
the length of time after approval of the plan of conversion at the special
meeting that will be required to complete the Direct Community or syndicated
community offerings or other sale of the common stock. If delays are
experienced, significant changes may occur in the estimated pro forma market
value of Indian Village Bancorp and Indian Village as converted, together with
corresponding changes in the net proceeds realized by Indian Village Bancorp
from the sale of the common stock. If the conversion is terminated, Indian
Village would be required to charge all conversion expenses against current
income.
Orders for shares of common stock will not be filled until at least 510,000
shares of common stock have been subscribed for or sold and the Office of Thrift
Supervision approves the final valuation and the conversion closes. If the
conversion is not completed within 45 days after the last day of the fully
extended subscription offering and the Office of Thrift Supervision consents to
an extension of time to complete the conversion, subscribers will be given the
right to increase, decrease or rescind their subscriptions. Unless an
affirmative indication is received from subscribers that they wish to continue
to subscribe for shares, the funds will be returned promptly, together with
accrued interest at Indian Village's passbook rate from the date payment is
received until the funds are returned to the subscriber. If the period is not
extended, or, in any event, if the conversion is not completed, all withdrawal
authorizations will be terminated and all funds held will be promptly returned
together with accrued interest at Indian Village's passbook rate from the date
payment is received until the conversion is terminated.
Reasons for the Conversion
The Board of Directors and management believe that the conversion is in the
best interests of Indian Village, its members and the communities it serves.
Indian Village's Board of Directors has formed Indian Village Bancorp to serve
as a holding company, with Indian Village as its subsidiary, after the
conversion. By converting to the stock form of organization, Indian Village
Bancorp and Indian Village will be structured in the form used by holding
companies of commercial banks, most business entities and by a growing number of
savings institutions. Management of Indian Village believes that the conversion
offers a number of advantages which will be important to the future growth and
performance of Indian Village. The capital raised in the conversion is intended
to support Indian Village's current lending and investment activities and may
also support possible future expansion and diversification of operations,
although there are no current specific plans, arrangements or understandings,
written or oral, regarding any expansion or diversification other than the
proposed New Philadelphia branch. The conversion is also expected to afford
Indian Village's management, members and others the opportunity to become
stockholders of Indian Village Bancorp and participate more directly in, and
contribute to, any future growth of Indian Village Bancorp and Indian Village.
The conversion will also enable Indian Village Bancorp and Indian Village to
raise additional capital in the public equity or debt markets should the need
arise, although there are no current specific plans, arrangements or
understandings, written or oral, regarding any financing activities. Indian
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Village, as a mutual savings and loan association, does not have the authority
to issue capital stock or debt instruments, other than by accepting deposits.
Effects of Conversion to Stock Form on Depositors and Borrowers of Indian
Village
Voting Rights. Savings members and borrowers will have no voting rights in
the converted association or Indian Village Bancorp and therefore will not be
able to elect directors of Indian Village or Indian Village Bancorp or to
control their affairs. Currently, these rights are accorded to savings members
of Indian Village. After the conversion, voting rights will be vested
exclusively in Indian Village Bancorp with respect to Indian Village and the
holders of the common stock as to matters pertaining to Indian Village Bancorp.
Each holder of common stock shall be entitled to vote on any matter to be
considered by the stockholders of Indian Village Bancorp. A stockholder will be
entitled to one vote for each share of common stock owned.
Savings Accounts and Loans. Indian Village's savings accounts, account
balances and existing Federal Deposit Insurance Corporation insurance coverage
of savings accounts will not be affected by the conversion. Furthermore, the
conversion will not affect the loan accounts, loan balances or obligations of
borrowers under their individual contractual arrangements with Indian Village.
Tax Effects. Indian Village has received an opinion from Muldoon, Murphy &
Faucette LLP, Washington, D.C., that the conversion will constitute a nontaxable
reorganization under Section 368(a)(1)(F) of the Internal Revenue Code of 1986,
as amended. Among other things, the opinion states that:
1. no gain or loss will be recognized to Indian Village in its mutual or
stock form by reason of the conversion;
2. no gain or loss will be recognized to its account holders upon the
issuance to them of accounts in Indian Village immediately after the
conversion, in the same dollar amounts and on the same terms and
conditions as their accounts at Indian Village in its mutual form plus
interest in the liquidation account;
3. the tax basis of account holders' accounts in Indian Village
immediately after the conversion will be the same as the tax basis of
their accounts immediately before conversion;
4. the tax basis of each account holder's interest in the liquidation
account will be equal to the value, if any, of that interest;
5. the tax basis of the common stock purchased in the conversion will be
the amount paid and the holding period for the stock will begin on the
date of purchase; and
6. no gain or loss will be recognized to account holders upon the receipt
or exercise of subscription rights in the conversion, except if
subscription rights are deemed to have value as discussed below.
Unlike a private letter ruling issued by the Internal Revenue Service, an
opinion of counsel is not binding on the Internal Revenue Service and the
Internal Revenue Service could disagree with the conclusions reached in the
opinion. If there is a disagreement, no assurance can be given that the
conclusions reached in an opinion of counsel would be sustained by a court if
contested by the Internal Revenue Service.
Based upon past rulings issued by the Internal Revenue Service, the opinion
provides that the receipt of subscription rights by eligible account holders,
supplemental eligible account holders and other members under the plan of
conversion will be taxable if the subscription rights are deemed to have a fair
market value. Keller & Company, whose findings are not binding on the Internal
Revenue Service, has issued a letter indicating that the
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subscription rights do not have any value, based on the fact that the rights are
acquired by the recipients without cost, are nontransferable and of short
duration and afford the recipients the right only to purchase shares of the
common stock at a price equal to its estimated fair market value, which will be
the same price paid by purchasers in the direct community offering for
unsubscribed shares of common stock. If the subscription rights are deemed to
have a fair market value, the receipt of the rights may only be taxable to those
persons who exercise their subscription rights. Indian Village could also
recognize a gain on the distribution of subscription rights. Holders of
subscription rights are encouraged to consult with their own tax advisors as to
the tax consequences if the subscription rights are deemed to have a fair market
value.
Indian Village has also received an opinion from Crowe, Chizek and Company
LLP, Columbus, Ohio, that, assuming the conversion does not result in any
federal income tax liability to Indian Village, its account holders, or Indian
Village Bancorp, implementation of the plan of conversion will not result in any
Ohio income tax liability to those entities or persons.
The opinions of Muldoon, Murphy & Faucette LLP and Crowe, Chizek and
Company LLP, and the letter from Keller & Company are filed as exhibits to the
registration statement that Indian Village Bancorp has filed with the Securities
and Exchange Commission. See "Where You Can Find More Information."
Prospective investors are urged to consult with their own tax advisors
regarding the tax consequences of the conversion particular to them.
Liquidation Account. In the unlikely event of a complete liquidation of
Indian Village, before the conversion, each depositor in Indian Village would
receive a pro rata share of any assets of Indian Village remaining after payment
of claims of all creditors, including the claims of all depositors up to the
withdrawal value of their accounts. Each depositor's pro rata share of the
remaining assets would be in the same proportion as the value of his or her
deposit account to the total value of all deposit accounts in Indian Village at
the time of liquidation.
After the conversion, holders of withdrawals deposit(s) in Indian Village,
including certificates of deposit, shall not be entitled to share in any
residual assets upon liquidation of Indian Village. However, under Office of
Thrift Supervision regulations, Indian Village shall, at the time of the
conversion, establish a liquidation account in an amount equal to its total
equity as of the date of the latest statement of financial condition contained
in the final prospectus relating to the conversion.
The liquidation account shall be maintained by Indian Village after the
conversion for the benefit of eligible account holders and supplemental eligible
account holders who retain their savings accounts in Indian Village. Each
eligible account holder and supplemental eligible account holder shall, with
respect to each savings account held, have a related inchoate interest in a sub-
account portion of the liquidation account balance.
The initial subaccount balance for a savings account held by an eligible
account holder or a supplemental eligible account holder shall be determined by
multiplying the opening balance in the liquidation account by a fraction of
which the numerator is the amount of the holder's "qualifying deposit" in the
savings account and the denominator is the total amount of the "qualifying
deposits" of all eligible account holders. The initial subaccount balance shall
not be increased, and it shall be decreased as provided below.
If the deposit balance in any savings account of an eligible account holder
or supplemental eligible account holder at the close of business on any annual
closing day of Indian Village after December 31, 1997, or March 31, 1999 is less
than the lesser of the deposit balance in a savings account at the close of
business on any other annual closing date after December 31, 1997 or March 31,
1999, or the amount of the "qualifying deposit" in a savings account on December
31, 1997 or March 31, 1999, then the subaccount balance for a savings account
shall be adjusted by reducing the subaccount balance in an amount proportionate
to the reduction in the deposit balance. Once reduced, the subaccount balance
shall not be subsequently increased, notwithstanding any increase in the
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deposit balance of the related savings account. If any savings account is
closed, the related subaccount balance shall be reduced to zero.
Only upon a complete liquidation of Indian Village, each eligible account
holder and supplemental eligible account holder shall be entitled to receive a
liquidation distribution from the liquidation account in the amount of the then
current adjusted subaccount balance(s) for savings account(s) held by the holder
before any liquidation distribution may be made to stockholders. No merger,
consolidation, bulk purchase of assets with assumptions of savings account and
other liabilities or similar transactions with another federally insured
institution in which Indian Village is not the surviving institution shall be
considered to be a complete liquidation. In any of these transaction the
liquidation account shall be assumed by the surviving institution.
In the unlikely event Indian Village is liquidated after the conversion,
depositors will be entitled to full payment of their deposit accounts before any
payment is made to Indian Village Bancorp as the sole stockholder of Indian
Village.
The Subscription, Direct Community and Syndicated Community Offerings
Subscription Offering. Under the plan of conversion, nontransferable
subscription rights to purchase the common stock have been issued to persons and
entities entitled to purchase the common stock in the subscription offering. The
amount of the common stock which these parties may purchase will depend on the
availability of the common stock for purchase under the categories described in
the plan of conversion. Subscription priorities have been established for the
allocation of stock that may be available. These priorities are as follows:
Category 1: Eligible Account Holders. Each depositor with $50.00 or more on
deposit at Indian Village as of December 31, 1997 will receive nontransferable
subscription rights to subscribe for up to the greater of $100,000 of common
stock, which equals 10,000 shares, one-tenth of one percent of the total
offering of common stock or 15 times the product, rounded down to the next whole
number, obtained by multiplying the total number of shares of common stock to be
issued by a fraction of which the numerator is the amount of qualifying deposit
of the eligible account holder and the denominator is the total amount of
qualifying deposits of all eligible account holders. If the exercise of
subscription rights in this category results in an oversubscription, shares of
common stock will be allocated among subscribing eligible account holders so as
to permit each one, if possible, to purchase a number of shares sufficient to
make the person's total allocation equal 100 shares or the number of shares
actually subscribed for, whichever is less. After that, unallocated shares will
be allocated proportionately, based on the amount of the eligible
accountholder's qualifying deposits as compared to total qualifying deposits of
all subscribing eligible account holders. Subscription rights received by
officers and directors in this category based on any increased deposits in
Indian Village in the one year period preceding December 31, 1997 are
subordinated to the subscription rights of other eligible account holders.
Category 2: Employee Stock Ownership Plan. The plan of conversion provides
that the employee stock ownership plan shall receive nontransferable
subscription rights to purchase up to 8% of the shares of common stock issued in
the conversion. The plan intends to purchase 8% of the shares of common stock
issued in the conversion. If the number of shares offered in the conversion is
increased, the plan shall have a priority right to purchase any shares exceeding
that amount up to 8% of the common stock. If the plan's subscription is not
filled in its entirety, the employee stock ownership plan may purchase shares in
the open market or may purchase shares directly from Indian Village Bancorp.
Category 3: Supplemental Eligible Account Holders. Each depositor with
$50.00 or more on deposit as of March 31, 1999 will receive nontransferable
subscription rights to subscribe for up to the greater of $100,000 of common
stock, which equals 10,000 shares, one-tenth of one percent of the total
offering of common stock or 15 times the product, rounded down to the next whole
number, obtained by multiplying the total number of shares of common stock to be
issued by a fraction of which the numerator is the amount of qualifying deposits
of the supplemental eligible account holder and the denominator is the total
amount of qualifying deposits of all
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supplemental eligible account holders. If the exercise of subscription rights in
this category results in an oversubscription, shares of common stock will be
allocated among subscribing supplemental eligible account holders so as to
permit each supplemental eligible account holder, if possible, to purchase a
number of shares sufficient to make his or her total allocation equal 100 shares
or the number of shares actually subscribed for, whichever is less. After that,
unallocated shares will be allocated among subscribing supplemental eligible
account holders proportionately, based on the amount of their respective
qualifying deposits as compared to total qualifying deposits of all subscribing
supplemental eligible account holders.
Category 4: Other Members. Each depositor of Indian Village as of
__________________, 1999 and each borrower with a loan outstanding on January
20, 1999 which continues to be outstanding as of __________, 1999 will receive
nontransferable subscription rights to purchase up to $100,000 of common stock,
which equals 10,000 shares, in the conversion if shares are available following
subscriptions by eligible account holders, Indian Village's employee stock
ownership plan and supplemental eligible account holders. If there is an
oversubscription in this category, the available shares will be allocated
proportionately based on the amount of the respective subscriptions.
Subscription rights are nontransferable. Persons selling or otherwise
transferring their rights to subscribe for common stock in the subscription
offering or subscribing for common stock on behalf of another person may forfeit
those rights and may face possible further sanctions and penalties imposed by
the Office of Thrift Supervision or another agency of the U.S. Government. Each
person exercising subscription rights will be required to certify that he or she
is purchasing shares solely for his or her own account and that he or she has no
agreement or understanding with any other person for the sale or transfer of the
shares. Once tendered, subscription orders cannot be revoked without the consent
of Indian Village and Indian Village Bancorp.
Indian Village Bancorp and Indian Village will make reasonable attempts to
provide a prospectus and related offering materials to holders of subscription
rights. However, the subscription offering and all subscription rights under the
plan of conversion will expire at 12:00 Noon, Eastern time, on the ___________,
1999, whether or not Indian Village has been able to locate each person entitled
to subscription rights. Orders for common stock in the subscription offering
received in hand by Indian Village after that time will not be accepted. The
subscription offering may be extended by Indian Village Bancorp and Indian
Village up to _______, 1999 without regulatory approval. Office of Thrift
Supervision regulations require that Indian Village Bancorp complete the sale of
common stock within 45 days after the close of the subscription offering. If the
direct community offering and the syndicated community offerings are not
completed within that period all funds received will be promptly returned with
interest at Indian Village's passbook rate and all withdrawal authorizations
will be canceled. If regulatory approval of an extension of the time period has
been granted, all subscribers will be notified of the extension and of the
duration of any extension that has been granted, and will be given the right to
increase, decrease or rescind their orders. If an affirmative response to any
resolicitation is not received by Indian Village Bancorp from a subscriber, the
subscriber's order will be rescinded and all funds received will be promptly
returned with interest, or withdrawal authorizations will be canceled. No single
extension can exceed 90 days.
Direct Community Offering. Any shares of common stock which remain
unsubscribed for in the subscription offering will be offered by Indian Village
Bancorp to certain members of the general public in a direct community offering,
with preference given to natural persons and trusts of natural persons residing
in Tuscarawas County, Ohio. Purchasers in the direct community offering are
eligible to purchase up to $100,000 of common stock, which equals 10,000 shares.
If not enough shares are available to fill orders in the direct community
offering, the available shares will be allocated on a pro rata basis determined
by the amount of the respective orders. The direct community offering, if held,
may be concurrent with, during or promptly after the subscription offering. The
direct community offering may terminate on or at any time after 12 Noon, Eastern
time, on _________, 1999, but no later than 45 days after the close of the
subscription offering, unless extended by Indian Village Bancorp and Indian
Village, with approval of the Office of Thrift Supervision. If regulatory
approval of an extension of the time period has been granted, all subscribers
will be notified of the extension and of the duration of any extension that has
been granted, and will be given the right to increase, decrease or rescind their
orders. If an affirmative response
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to any resolicitation is not received by Indian Village Bancorp from a
subscriber, the subscriber's order will be rescinded and all funds received will
be promptly returned with interest. Indian Village Bancorp and Indian Village
have the absolute right to accept or reject in whole or in part any orders to
purchase shares in the direct community offering. If an order is rejected in
part, the purchaser does not have the right to cancel the remainder of the
order. Indian Village Bancorp presently intends to terminate the direct
community offering as soon as it has received orders for all shares available
for purchase in the conversion.
If all of the common stock offered in the subscription offering is
subscribed for, no common stock will be available for purchase in the direct
community offering.
Syndicated Community Offering. The plan of conversion provides that, if
necessary, all shares of common stock not purchased in the subscription offering
and direct community offering, if any, may be offered for sale to certain
members of the general public in a syndicated community offering through a
syndicate of registered broker-dealers to be formed and managed by Trident
Securities acting as agent of Indian Village Bancorp. Indian Village Bancorp and
Indian Village have the right to reject orders, in whole or part, in their sole
discretion in the syndicated community offering. Neither Trident Securities nor
any registered broker-dealer shall have any obligation to take or purchase any
shares of the common stock in the syndicated community offering; however,
Trident Securities has agreed to use its best efforts in the sale of shares in
the syndicated community offering.
Stock sold in the syndicated community offering also will be sold at the
$10.00 purchase price. See "--Stock Pricing and Number of Shares to Be Issued."
No person will be permitted to subscribe in the syndicated community offering
for shares of common stock with an aggregate purchase price of more than
$100,000 of common stock, which equals 10,000 shares. See "--Plan of
Distribution for the Subscription, Direct Community and Syndicated Community
Offerings" for a description of the commission to be paid to the selected
dealers and to Trident Securities.
Trident Securities may enter into agreements with selected dealers to
assist in the sale of shares in the syndicated community offering. During the
syndicated community offering, selected dealers may only solicit indications of
interest from their customers to place orders with Indian Village Bancorp as of
a certain date for the purchase of shares. When and if Trident Securities and
Indian Village Bancorp believe that enough indications of interest and orders
have been received in the subscription offering, the direct community offering
and the syndicated community offering to consummate the conversion, Trident
Securities will request, as of that certain date, selected dealers to submit
orders to purchase shares for which they have received indications of interest
from their customers. Selected dealers will send confirmations to customers on
the next business day after that certain date. Selected dealers may settle the
trade by debiting the accounts of their customers on a date which will be three
business days from that certain date. Customers who authorize selected dealers
to debit their brokerage accounts are required to have the funds for payment in
their account on but not before the settlement date. On the settlement date,
selected dealers will remit funds to the account that Indian Village Bancorp
established for each selected dealer. Each customer's funds so forwarded to
Indian Village Bancorp, along with all other accounts held in the same title,
will be insured by the Federal Deposit Insurance Corporation up to the
applicable $100,000 legal limit. After payment has been received by Indian
Village Bancorp from selected dealers, funds will earn interest at Indian
Village's passbook rate until the completion of the offering. At the completion
of the conversion, the funds received will be used to purchase the shares of
common stock ordered. The shares issued in the conversion cannot and will not be
insured by the Federal Deposit Insurance Corporation or any other government
agency. If the conversion is not completed, funds with interest will be returned
promptly to the selected dealers, who, in turn, will promptly credit their
customers' brokerage accounts.
The syndicated community offering may terminate no more than 45 days after
the expiration of the subscription offering, unless extended by Indian Village
Bancorp and Indian Village, with approval of the Office of Thrift Supervision.
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If Indian Village is unable to find purchasers from the general public for
all unsubscribed shares, other purchase arrangements will be made by the Board
of Directors of Indian Village, if feasible. Any other arrangements must be
approved by the Office of Thrift Supervision. The Office of Thrift Supervision
may grant one or more extensions of the offering period, provided that no single
extension exceeds 90 days, subscribers are given the right to increase, decrease
or rescind their subscriptions during the extension period, and the extensions
do not go more than two years beyond the date on which the members approved the
plan of conversion. If the conversion is not completed within 45 days after the
close of the subscription offering, either all funds received will be returned
with interest, and withdrawal authorizations canceled, or, if the Office of
Thrift Supervision has granted an extension of time, all subscribers will be
given the right to increase, decrease or rescind their subscriptions at any time
before 20 days before the end of the extension period. If an extension of time
is obtained, all subscribers will be notified of the extension and of their
rights to modify their orders. If an affirmative response to any resolicitation
is not received by Indian Village Bancorp from a subscriber, the subscriber's
order will be rescinded and all funds received will be promptly returned with
interest or withdrawal authorizations will be canceled.
Persons in Non-Qualified States. Indian Village Bancorp and Indian Village
will make reasonable efforts to comply with the securities laws of all states in
the United States in which persons entitled to subscribe for stock under the
plan of conversion reside. However, Indian Village Bancorp and Indian Village
are not required to offer stock in the subscription offering to any person who
resides in a foreign country, who resides in a state of the United States in
which only a small number of persons otherwise eligible to subscribe for shares
of common stock reside, or in a state where Indian Village Bancorp or Indian
Village determines that compliance with that state's securities laws would be
impracticable for reasons of cost or otherwise, including but not limited to a
request or requirement that Indian Village Bancorp and Indian Village or their
officers, directors or trustees register as a broker, dealer, salesman or
selling agent, under the securities laws of the state, or a request or
requirement to register or otherwise qualify the subscription rights or common
stock for sale or submit any filing in the state. Where the number of persons
eligible to subscribe for shares in one state is small, Indian Village Bancorp
and Indian Village will base their decision as to whether or not to offer the
common stock in the state on a number of factors, including the size of accounts
held by account holders in the state, the cost of reviewing the registration and
qualification requirements of the state, and of actually registering or
qualifying the shares, or the need to register Indian Village Bancorp, its
officers, directors or employees as brokers, dealers or salesmen.
Plan of Distribution for the Subscription, Direct Community and Syndicated
Community Offerings
Indian Village and Indian Village Bancorp have retained Trident Securities
to consult with and advise Indian Village and to assist Indian Village and
Indian Village Bancorp, on a best efforts basis, in the distribution of shares
in the offering. Trident Securities is a broker-dealer registered with the
Securities and Exchange Commission and a member of the National Association of
Securities Dealers, Inc. Trident Securities will assist Indian Village in the
conversion by acting as marketing advisor with respect to the subscription
offering and will represent Indian Village as placement agent on a best efforts
basis in the sale of the common stock in the direct community offering if one is
held; conducting training sessions with directors, officers and employees of
Indian Village regarding the conversion process; and assisting in the
establishment and supervision of Indian Village's stock information center and,
with management's input, will train Indian Village's staff to record properly
and tabulate orders for the purchase of common stock and to respond
appropriately to customer inquiries.
Based upon negotiations between Trident Securities and Indian Village
Bancorp and Indian Village concerning fee structure, Trident Securities will
receive a payment of $100,000 that will cover all of its fees and reimbursable
expenses. Trident Securities and selected dealers participating in the
syndicated community offering may receive a commission in the syndicated
community offering in a maximum amount to be agreed upon by Indian Village
Bancorp and Indian Village to reflect market requirements at the time of the
allocation of shares in the syndicated community offering. Fees and commissions
paid to Trident Securities and to any selected dealers may be deemed to be
underwriting fees, and Trident Securities and the selected dealers may be deemed
to be underwriters. Trident Securities has received an advance of $10,000
towards its reimbursable expenses. For additional information, see "--Stock
Pricing and Number of Shares to Be Issued" and "Use of Proceeds."
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With certain limitations, Indian Village Bancorp and Indian Village have
also agreed to indemnify Trident Securities against liabilities and expenses,
including legal fees, incurred in connection with certain claims or litigation
arising out of or based upon untrue statements or omissions contained in the
offering material for the common stock or with regard to allocations of shares
if there is an oversubscription, or determinations of eligibility to purchase
shares.
Description of Sales Activities
The common stock will be offered in the subscription offering and direct
community offering principally by the distribution of this prospectus and
through activities conducted at Indian Village's stock information center at its
main office. The stock information center is expected to operate during normal
business hours throughout the subscription offering and direct community
offering. It is expected that at any particular time one or more Trident
Securities employees will be working at the stock information center. Employees
of Trident Securities will be responsible for mailing materials relating to the
offering, responding to questions regarding the conversion and the offering and
processing stock orders.
Sales of common stock will be made by registered representatives affiliated
with Trident Securities or by the selected dealers managed by Trident
Securities. The management and employees of Indian Village may participate in
the offering in clerical capacities, providing administrative support in
effecting sales transactions or, when permitted by state securities laws,
answering questions of a mechanical nature relating to the proper execution of
the order form. Management of Indian Village may answer questions regarding the
business of Indian Village when permitted by state securities laws. Other
questions of prospective purchasers, including questions as to the advisability
or nature of the investment, will be directed to registered representatives. The
management and employees of Indian Village Bancorp and Indian Village have been
instructed not to solicit offers to purchase common stock or provide advice
regarding the purchase of common stock.
No officer, director or employee of Indian Village or Indian Village
Bancorp will be compensated, directly or indirectly, for any activities in
connection with the offer or sale of securities issued in the conversion.
None of Indian Village's personnel participating in the offering is
registered or licensed as a broker or dealer or an agent of a broker or dealer.
Indian Village's personnel will assist in the above-described sales activities
under an exemption from registration as a broker or dealer provided by Rule 3a4-
1 promulgated under the Securities Exchange Act of 1934, as amended. Rule 3a4-1
generally provides that an "associated person of an issuer" of securities shall
not be deemed a broker solely by reason of participation in the sale of
securities of the issuer if the associated person meets certain conditions.
These conditions include, but are not limited to, that the associated person
participating in the sale of an issuer's securities not be compensated in
connection therewith at the time of participation, that the person not be
associated with a broker or dealer and that the person observe certain
limitations on his or her participation in the sale of securities. For purposes
of this exemption, "associated person of an issuer" is defined to include any
person who is a director, officer or employee of the issuer or a company that
controls, is controlled by or is under common control with the issuer.
Procedure for Purchasing Shares in the Subscription and Direct Community
Offerings
To purchase shares in the subscription offering, an executed order form
with the required full payment for each share subscribed for, or with
appropriate authorization indicated on the stock order form for withdrawal of
full payment from the subscriber's deposit account with Indian Village, must be
received by Indian Village by 12:00 Noon, Eastern time, on __________, 1999.
Order forms that are not received by that time or are executed defectively or
are received without full payment or without appropriate withdrawal instructions
are not required to be accepted. Indian Village Bancorp and Indian Village have
the right to waive or permit the correction of incomplete or improperly executed
order forms, but do not represent that they will do so. Under the plan of
conversion, the interpretation by Indian Village Bancorp and Indian Village of
the terms and conditions of the plan of conversion and of the order form will be
final. In order to purchase shares in the direct community offering, the
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order form, accompanied by the required payment for each share subscribed for,
must be received by Indian Village before the direct community offering
terminates, which may be on or at any time after the end of the offering. Once
received, an executed order form may not be modified, amended or rescinded
without the consent of Indian Village unless the conversion has not been
completed within 45 days after the end of the subscription offering, unless
extended.
In order to ensure that persons with subscription rights are properly
identified as to their stock purchase priorities, they must list all accounts on
the order form giving all names in each account, the account number and the
approximate account balance as of the appropriate eligibility date. Failure to
list an account could result in fewer shares allocated if there is an
oversubscription than if all accounts had been disclosed.
Full payment for subscriptions may be made in cash if delivered in person
at Indian Village's stock information center; by check, bank draft, or money
order; or by authorization of withdrawal from deposit accounts maintained with
Indian Village. Appropriate means by which withdrawals may be authorized are
provided on the order form. No wire transfers will be accepted. Interest will be
paid on payments made by cash, check, bank draft or money order at Indian
Village's passbook rate from the date payment is received at the stock
information center until the completion or termination of the conversion. If
payment is made by authorization of withdrawal from deposit accounts, the funds
authorized to be withdrawn from a deposit account will continue to accrue
interest at the contractual rates until completion or termination of the
conversion, unless the certificate matures after the date of receipt of the
order form but before closing, in which case funds will earn interest at the
passbook rate from the date of maturity until the conversion is completed or
terminated, but a hold will be placed on the funds, making them unavailable to
the depositor until completion or termination of the conversion. When the
conversion is completed, the funds received in the offering will be used to
purchase the shares of common stock ordered. The shares of common stock issued
in the conversion cannot and will not be insured by the Federal Deposit
Insurance Corporation or any other government agency. If the conversion is not
consummated for any reason, all funds submitted will be promptly refunded with
interest as described above.
If a subscriber authorizes Indian Village to withdraw the amount of the
aggregate purchase price from his or her deposit account, Indian Village will do
so as of the effective date of conversion, though the account must contain the
full amount necessary for payment at the time the subscription order is
received. Indian Village will waive any applicable penalties for early
withdrawal from certificate accounts. If the remaining balance in a certificate
account is reduced below the applicable minimum balance requirement at the time
funds are actually transferred under the authorization the certificate will be
canceled at the time of the withdrawal, without penalty, and the remaining
balance will earn interest at Indian Village's passbook rate.
The employee stock ownership plan will not be required to pay for the
shares subscribed for at the time it subscribes, but rather may pay for shares
of common stock subscribed for at the $10.00 purchase price after the
conversion, provided that there is in force from the time of its subscription
until that time, a loan commitment from an unrelated financial institution or
Indian Village Bancorp to lend to the employee stock ownership plan, at that
time, the aggregate purchase price of the shares for which it subscribed.
Individual retirement accounts maintained in Indian Village do not permit
investment in the common stock. A depositor interested in using his or her
Individual Retirement Account funds to purchase common stock must do so through
a self-directed individual retirement account. Since Indian Village does not
offer those accounts, it will allow a depositor to make a trustee-to-trustee
transfer of the individual retirement account funds to a trustee offering a
self-directed individual retirement account program with the agreement that the
funds will be used to purchase Indian Village Bancorp's common stock in the
offering. There will be no early withdrawal or Internal Revenue Service interest
penalties for transfers. The new trustee would hold the common stock in a self-
directed account in the same manner as Indian Village now holds the depositor's
Individual Retirement Account funds. An annual administrative fee may be payable
to the new trustee. Depositors interested in using funds in an individual
retirement account at Indian Village to purchase common stock should contact the
stock information center as soon as possible so that the necessary forms may be
forwarded for execution and returned before the subscription
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offering ends. In addition, federal laws and regulations require that officers,
directors and 10% shareholders who use self-directed individual retirement
account funds to purchase shares of common stock in the subscription offering,
make purchases for the exclusive benefit of individual retirement accounts.
Certificates representing shares of common stock purchased, and any refund
due, will be mailed to purchasers at the address specified in properly completed
order forms or to the last address of the persons appearing on the records of
Indian Village as soon as practicable following the sale of all shares of common
stock. Any certificates returned as undeliverable will be disposed of as
required by applicable law. Purchasers may not be able to sell the shares of
common stock which they purchased until certificates for the common stock are
available and delivered to them, even though trading of the common stock may
have begun.
To ensure that each purchaser receives a prospectus at least 48 hours
before the end of the offering as required by Rule 15c2-8 under the Securities
Exchange Act of 1934, as amended, no prospectus will be mailed any later than
five days before that date or hand delivered any later than two days before that
date. Execution of the order form will confirm receipt or delivery under Rule
15c2-8. Order forms will only be distributed with a prospectus. Indian Village
will accept for processing only orders submitted on original order forms. Indian
Village is not obligated to accept orders submitted on photocopied or telecopied
order forms. Orders cannot and will not be accepted without the execution of the
certification appearing on the reverse side of the order form.
Stock Pricing and Number of Shares to be Issued
Federal regulations require that the aggregate purchase price of the
securities sold in connection with the conversion be based upon an estimated pro
forma value of Indian Village Bancorp and Indian Village as converted, as
determined by an independent appraisal. Indian Village and Indian Village
Bancorp have retained Keller & Company to prepare an appraisal of the pro forma
market value of Indian Village Bancorp and Indian Village as converted, as well
as a business plan. Keller & Company will receive a fee expected to total
approximately $23,000 for its appraisal services and assistance in the
preparation of a business plan, plus reasonable out-of-pocket expenses incurred
in connection with the appraisal. Indian Village has agreed to indemnify Keller
& Company under certain circumstances against liabilities and expenses,
including legal fees, arising out of, related to, or based upon the conversion.
Keller & Company has prepared an appraisal of the estimated pro forma
market value of Indian Village Bancorp and Indian Village as converted taking
into account the formation of Indian Village Bancorp as Indian Village Bancorp
for Indian Village. For its analysis, Keller & Company undertook substantial
investigations to learn about Indian Village's business and operations.
Management supplied financial information, including annual financial
statements, information on the composition of assets and liabilities, and other
financial schedules. In addition to this information, Keller & Company reviewed
Indian Village's conversion application as filed with the Office of Thrift
Supervision and Indian Village Bancorp's registration statement as filed with
the Securities and Exchange Commission. Furthermore, Keller & Company visited
Indian Village's facilities and had discussions with Indian Village's management
and its special conversion legal counsel, Muldoon, Murphy & Faucette LLP.
Keller & Company did not perform a detailed individual analysis of the separate
components of Indian Village Bancorp's or Indian Village's assets and
liabilities.
Keller & Company's analysis utilized three selected valuation procedures,
the Price/Book method, the Price/Earnings method, and Price/Assets method, all
of which are described in its report. Keller & Company placed the greatest
emphasis on the Price/Earnings and Price/Book methods in estimating pro forma
market value. In applying these procedures, Keller & Company reviewed, among
other factors, the economic make-up of Indian Village's primary market area,
Indian Village's financial performance and condition in relation to publicly
traded institutions that Keller & Company deemed comparable to Indian Village,
the specific terms of the offering of Indian Village Bancorp's common stock, the
pro forma impact of the additional capital raised in the conversion, conditions
of securities markets in general, and the market for thrift institution common
stock in particular. Keller & Company's analysis provides an approximation of
the pro forma market value of Indian Village Bancorp and
82
Indian Village as converted based on the valuation methods applied and the
assumptions outlined in its report. Included in its report were certain
assumptions as to the pro forma earnings of Indian Village Bancorp after the
conversion that were utilized in determining the appraised value. These
assumptions included estimated expenses and an assumed after-tax rate of return
on the net conversion proceeds as described under "Pro Forma Data," purchases by
the employee stock ownership plan of 8% of the common stock sold in the
conversion and purchases in the open market by the management development and
recognition plan of a number of shares equal to 4% of the common stock sold in
the conversion at the $10.00 purchase price. See "Pro Forma Data" for additional
information concerning these assumptions. The use of different assumptions may
yield different results.
On the basis of the foregoing, Keller & Company has advised Indian Village
Bancorp and Indian Village that, in its opinion, as of March 1, 1999, the
aggregate estimated pro forma market value of Indian Village Bancorp and Indian
Village, as converted and, therefore, the common stock was within the valuation
range of $5,100,000 to $6,900,000 with a midpoint of $6,000,000. After reviewing
the methodology and the assumptions used by Keller & Company in the preparation
of the appraisal, the Board of Directors established the estimated valuation
range which is equal to the valuation range of $5,100,000 to $6,900,000 with a
midpoint of $6,000,000. Assuming that the shares are sold at $10.00 per share in
the conversion, the estimated number of shares would be between 510,000 and
690,000 with a midpoint of 600,000. The purchase price of $10.00 was determined
by discussion among the Boards of Directors of Indian Village and Indian Village
Bancorp and Trident Securities, taking into account, among other factors, the
requirement under Office of Thrift Supervision regulations that the common stock
be offered in a manner that will achieve the widest distribution of the stock,
and desired liquidity in the common stock after the conversion. Since the
outcome of the offering relates in large measure to market conditions at the
time of sale, it is not possible to determine the exact number of shares that
will be issued by Indian Village Bancorp at this time. The estimated valuation
range may be amended, with the approval of the Office of Thrift Supervision, if
necessitated by developments following the date of the appraisal in, among other
things, market conditions, the financial condition or operating results of
Indian Village, regulatory guidelines or national or local economic conditions.
Keller & Company's appraisal report is filed as an exhibit to the registration
statement that Indian Village Bancorp has filed with the Securities and Exchange
Commission. See "Where You Can Find More Information."
If, upon completion of the subscription offering, at least the minimum
number of shares are subscribed for, Keller & Company, after taking into account
factors similar to those involved in its prior appraisal, will determine its
estimate of the pro forma market value of Indian Village Bancorp and Indian
Village as converted, as of the close of the subscription offering.
No shares will be sold unless Keller & Company confirms to the Office of
Thrift Supervision that, to the best of its knowledge and judgment, nothing of a
material nature has occurred that would cause it to conclude that the actual
total purchase price on an aggregate basis was incompatible with its estimate of
the total pro forma market value of Indian Village Bancorp and Indian Village as
converted at the time of the sale. If, however, the facts do not justify that
statement, the offering may be canceled, a new estimated valuation range and
price per share set and new subscription, direct community and syndicated
community offerings held. Under circumstances, subscribers would have the right
to modify or rescind their subscriptions and to have their subscription funds
returned promptly with interest and holds on funds authorized for withdrawal
from deposit accounts would be released or reduced.
Depending upon market and financial conditions, the number of shares issued
may be more than 793,500 shares or less than 510,000 shares. If the total amount
of shares issued is less than 510,000 or more than 793,500, for aggregate gross
proceeds of less than $5,100,000 or more than $7,935,000, subscription funds
will be returned promptly with interest to each subscriber unless he indicates
otherwise. If Keller & Company establishes a new valuation range, it must be
approved by the Office of Thrift Supervision.
If purchasers cannot be found for an insignificant residue of unsubscribed
shares from the general public, other purchase arrangements will be made by the
Boards of Directors of Indian Village and Indian Village Bancorp, if possible.
Other purchase arrangements must be approved by the Office of Thrift Supervision
and may provide for purchases for investment purposes by directors, officers,
their associates and other persons in excess of the
83
limitations provided in the plan of conversion and in excess of the proposed
director purchases discussed earlier, although no purchases are currently
intended. If other purchase arrangements cannot be made, the plan of conversion
will terminate.
In formulating its appraisal, Keller & Company relied upon the
truthfulness, accuracy and completeness of all documents Indian Village
furnished to it. Keller & Company also considered financial and other
information from regulatory agencies, other financial institutions, and other
public sources, as appropriate. While Keller & Company believes this information
to be reliable, Keller & Company does not guarantee the accuracy or completeness
of the information and did not independently verify the financial statements and
other data provided by Indian Village and Indian Village Bancorp or
independently value the assets or liabilities of Indian Village Bancorp and
Indian Village. The appraisal is not intended to be, and must not be interpreted
as, a recommendation of any kind as to the advisability of voting to approve the
plan of conversion or of purchasing shares of common stock. Moreover, because
the appraisal must be based on many factors which change periodically, there is
no assurance that purchasers of shares in the conversion will be able to sell
shares after the conversion at prices at or above the purchase price.
Limitations on Purchases of Shares
The plan of conversion provides for certain limitations to be placed upon
the purchase of common stock by eligible subscribers and others in the
conversion. Each subscriber must subscribe for a minimum of 25 shares. The plan
of conversion provides for the following purchase limitations:
1. The maximum purchase in the subscription offering by any person or group
of persons through a single account is $100,000, which equals 10,000
shares;
2. No person may purchase more than $100,000, which equals 10,000 shares,
in the direct community offering; and
3. The maximum purchase in the conversion by any person, related persons or
persons acting in concert is $150,000, which equals 15,000 shares.
For purposes of the plan of conversion, the directors are not deemed to be
acting in concert solely by reason of their Board membership. Pro rata
reductions within each subscription rights category will be made in allocating
shares if the maximum purchase limitations are exceeded.
Indian Village's and Indian Village Bancorp's Boards of Directors may, in
their sole discretion, increase the maximum purchase limitation up to 9.99% of
the shares of common stock sold in the conversion, provided that orders for
shares which exceed 5% of the shares of common stock sold in the conversion may
not exceed, in the aggregate, 10% of the shares sold in the conversion. Indian
Village and Indian Village Bancorp do not intend to increase the maximum
purchase limitation unless market conditions warrant an increase in the maximum
purchase limitation and the sale of a number of shares in excess of the minimum
of the estimated valuation range. If the Boards of Directors decide to increase
the purchase limitation above, persons who subscribed for the maximum number of
shares of common stock will be, and other large subscribers in the discretion of
Indian Village Bancorp and Indian Village may be, given the opportunity to
increase their subscriptions accordingly, based on the rights and preferences of
any person who has priority subscription rights.
The plan of conversion defines "acting in concert" to mean knowing
participation in a joint activity or interdependent conscious parallel action
towards a common goal whether or not by an express agreement; or a combination
or pooling of voting or other interests in the securities of an issuer for a
common purpose under any contract, understanding, relationship, agreement or
other arrangement, whether written or otherwise. In general, a person who acts
in concert with another party shall also be deemed to be acting in concert with
any person who is also acting in concert with that other party. Indian Village
Bancorp and Indian Village may presume that
84
certain persons are acting in concert based upon, among other things, joint
account relationships and the fact that persons may have filed joint Schedules
13D with the Securities and Exchange Commission with respect to other companies.
The plan of conversion defines "associate," with respect to a particular
person, to mean any corporation or organization other than Indian Village or a
majority-owned subsidiary of Indian Village of which a person is an officer or
partner or is, directly or indirectly, the beneficial owner of 10% or more of
any class of equity securities; any trust or other estate in which a person has
a substantial beneficial interest or as to which a person serves as trustee or
in a similar fiduciary capacity; and any relative or spouse of a person, or any
relative of a spouse, who either has the same home as a person or who is a
director or officer of Indian Village or any of its parents or subsidiaries. For
example, a corporation of which a person serves as an officer would be an
associate of a person and, therefore, all shares purchased by a corporation
would be included with the number of shares which a person could purchase
individually under the above limitations.
The plan of conversion defines "officer" to mean an executive officer of
Indian Village, including its Chairman of the Board, President, Executive Vice
Presidents, Senior Vice Presidents, Vice Presidents in charge of principal
business functions, Secretary and Treasurer.
Common stock purchased in the conversion will be freely transferable,
except for shares purchased by directors and officers of Indian Village and
Indian Village Bancorp and by NASD members. See "--Restrictions on
Transferability by Directors and Officers and NASD Members."
Restrictions on Repurchase of Stock
Under Office of Thrift Supervision regulations, savings associations and
their holding companies may not for a period of three years from the date of an
institution's mutual-to-stock conversion repurchase any of its common stock from
any person, except in an offer made to all of its stockholders to repurchase the
common stock on a pro rata basis, approved by the Office of Thrift Supervision
or the repurchase of qualifying shares of a director. Furthermore, repurchases
of any common stock are prohibited if they would cause the association's
regulatory capital to be reduced below the amount required for the liquidation
account or the regulatory capital requirements imposed by the Office of Thrift
Supervision. Repurchases are generally prohibited during the first year
following conversion. Upon ten days' written notice to the Office of Thrift
Supervision, and if the Office of Thrift Supervision does not object, an
institution may make open market repurchases of its outstanding common stock
during years two and three following the conversion, provided that certain
regulatory conditions are met and that the repurchase would not adversely affect
the financial condition of the institution. Any repurchases of common stock by
Indian Village Bancorp must meet these regulatory restrictions unless the Office
of Thrift Supervision would provide otherwise.
Restrictions on Transferability by Directors and Officers and NASD Members
Shares of common stock purchased by directors and officers of Indian
Village Bancorp may not be sold for a period of one year following the
conversion, except upon the death of the stockholder or in any exchange of the
common stock in connection with a merger or acquisition of Indian Village
Bancorp. Shares of common stock received by directors or officers through the
employee stock ownership plan or the management development and recognition plan
or upon exercise of options issued under the stock option plan or purchased
after the conversion are free of this restriction. Accordingly, shares of common
stock issued by Indian Village Bancorp to directors and officers shall bear a
legend giving appropriate notice of the restriction and, in addition, Indian
Village Bancorp will give appropriate instructions to the transfer agent for
Indian Village Bancorp's common stock with respect to the restriction on
transfers. Any shares issued to directors and officers as a stock dividend,
stock split or otherwise with respect to restricted common stock shall also be
restricted.
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Purchases of outstanding shares of common stock of Indian Village Bancorp
by directors, executive officers, or any person who was an executive officer or
director of Indian Village after adoption of the plan of conversion, and their
associates during the three-year period following the conversion may be made
only through a broker or dealer registered with the SEC, except with the prior
written approval of the Office of Thrift Supervision. This restriction does not
apply, however, to negotiated transactions involving more than 1% of Indian
Village Bancorp's outstanding common stock or to the purchase of stock under the
stock option plan.
Indian Village Bancorp has filed with the Securities and Exchange
Commission a registration statement under the Securities Act of 1933, as
amended, for the registration of the common stock to be issued in the
conversion. This registration does not cover the resale of the shares. Shares of
common stock purchased by persons who are not affiliates of Indian Village
Bancorp may be resold without registration. Shares purchased by an affiliate of
Indian Village Bancorp will have resale restrictions under Rule 144 of the
Securities Act, as amended. If Indian Village Bancorp meets the current public
information requirements of Rule 144, each affiliate of Indian Village Bancorp
who complies with the other conditions of Rule 144, including those that require
the affiliate's sale to be aggregated with those of certain other persons, would
be able to sell in the public market, without registration, a number of shares
not to exceed, in any three-month period, the greater of 1% of the outstanding
shares of Indian Village Bancorp or the average weekly volume of trading in the
shares during the preceding four calendar weeks. Provision may be made in the
future by Indian Village Bancorp to permit affiliates to have their shares
registered for sale under the Securities Act of 1933, as amended, under certain
circumstances.
Under guidelines of the National Association of Securities Dealers, Inc.,
members of that organization and their associates face certain restrictions on
the transfer of securities purchased with subscription rights and to certain
reporting requirements upon purchase of the securities.
RESTRICTIONS ON ACQUISITION OF INDIAN VILLAGE BANCORP
The following discussion is a summary of the material provisions of federal
law and regulations and Pennsylvania corporate law, as well as the Articles of
Incorporation and Bylaws of Indian Village Bancorp, relating to stock ownership
and transfers, the Board of Directors and business combinations, all of which
may be deemed to have "anti-takeover" effects. The description of these
provisions is necessarily general and reference should be made to the actual law
and regulations and to the Articles of Incorporation and Bylaws of Indian
Village Bancorp contained in the registration statement that Indian Village
Bancorp has filed with the Securities and Exchange Commission. See "Where You
Can Find More Information" as to how to obtain a copy of these documents.
Conversion Regulations
Office of Thrift Supervision regulations prohibit any person from making an
offer, announcing an intent to make an offer or participating in any other
arrangement to purchase stock or acquire stock or subscription rights in a
converting institution or its holding company from another person before
completion of its conversion. Further, without the prior written approval of the
Office of Thrift Supervision, no person may make an offer or announcement of an
offer to purchase shares or actually acquire shares in the converting
institution or its holding company for a period of three years from the date of
the completion of the conversion if, upon the completion of an offer,
announcement or acquisition, that person would become the beneficial owner of
more than 10% of the outstanding stock of the institution or its holding
company. The Office of Thrift Supervision has defined "person" to include any
individual, group acting in concert, corporation, partnership, association,
joint stock company, trust, unincorporated organization or similar company, a
syndicate or any other group formed to acquire, hold or dispose of securities of
an insured institution. However, offers made exclusively to an association or
its holding company or an underwriter or member of a selling group acting on the
converting institution's or its holding company behalf for resale to the general
public are excepted. The regulation also provides civil penalties for willful
violation or assistance in any violation of the regulation by any person
connected with the management of the converting
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institution or its holding company or who controls more than 10% of the
outstanding shares or voting rights of a converting or converted institution or
its holding company.
Change in Control Regulations
Under the Change in Bank Control Act, no person may acquire control of an
insured federal savings and loan association or its parent holding company
unless the Office of Thrift Supervision has been given 60 days' prior written
notice and has not issued a notice disapproving the proposed acquisition. In
addition, Office of Thrift Supervision regulations provide that no company may
acquire control of a savings association without the prior approval of the
Office of Thrift Supervision. Any company that acquires control becomes a
savings and loan holding company under registration, examination and regulation
by the Office of Thrift Supervision.
Control, as defined under federal law, means ownership, control of or
holding irrevocable proxies representing more than 25% of any class of voting
stock, control in any manner of the election of a majority of the savings
association's directors, or a determination by the Office of Thrift Supervision
that the acquirer has the power to direct, or directly or indirectly to exercise
a controlling influence over, the management or policies of the institution.
Acquisition of more than 10% of any class of a savings association's voting
stock, if the acquirer also meets any one of eight "control factors,"
constitutes a rebuttable determination of control under the regulations. Control
factors include the acquirer being one of the two largest stockholders. The
determination of control may be rebutted by submission to the Office of Thrift
Supervision, before the acquisition of stock or the occurrence of any other
circumstances giving rise to a control determination, of a statement setting
forth facts and circumstances which would support a finding that no control
relationship will exist and containing certain undertakings. The regulations
provide that persons or companies which acquire beneficial ownership exceeding
10% or more of any class of a savings association's stock must file with the
Office of Thrift Supervision a certification form that the holder is not in
control of the institution, is not under a rebuttable determination of control
and will take no action which would result in a determination or rebuttable
determination of control without prior notice to or approval of the Office of
Thrift Supervision, as applicable. There are also rebuttable presumptions in the
regulations concerning whether a group "acting in concert" exists, including
presumed action in concert among members of an "immediate family."
The Office of Thrift Supervision may prohibit an acquisition of control if
it finds, among other things, that the acquisition would result in a monopoly or
substantially lessen competition, the financial condition of the acquiring
person might jeopardize the financial stability of the institution, or the
competence, experience or integrity of the acquiring person indicates that it
would not be in the interest of the depositors or the public to permit the
acquisition of control by the person.
Pennsylvania Corporate Law
In addition to provisions which may be contained in Indian Village
Bancorp's Articles of Incorporation, Pennsylvania law includes certain
provisions applicable to Pennsylvania corporations, like Indian Village Bancorp,
which may be deemed to have an anti-takeover effect. These provisions include
rights of stockholders to receive the fair value of their shares of stock
following a control transaction with a controlling person or group, and
requirements relating to certain business combinations.
Control Transactions. Pennsylvania law allows holders of voting shares of
a business corporation involved in a control transaction to object to any
control transaction and demand payment of the fair value of their shares unless
the corporation's articles of incorporation or bylaws explicitly provide
otherwise or the articles of the corporation are amended before the control
transaction to provide that the anti-takeover provisions are inapplicable. Any
amendment rendering the anti-takeover provisions inapplicable would require the
affirmative vote of the holders of at least 80% of the outstanding stock, or, if
the board of directors has approved the amendment, by the holders of at least
50% of the outstanding stock. Fair value for purposes of these provisions means
an amount not less than the highest price per share paid by the controlling
person or group at anytime during the 90-day period
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ending on and including the date of the control transaction plus any incremental
value that may not be reflected in the price. A control transaction for purposes
of these provisions means the acquisition by a person or group of persons acting
in concert of at least 20% of the outstanding voting stock of the corporation.
Business Combinations. Under Pennsylvania law, a Pennsylvania corporation
may not engage in a business combination with an interested shareholder, which
is generally defined as the holder of 20% of the outstanding voting stock,
except for:
1. a business combination approved by the corporation's board of directors
before the date on which the interested shareholder became a 20% holder;
2. a business combination approved by a majority of the non-interested
shares of voting stock, at a meeting held no earlier than three months
after the interested shareholder became the beneficial owner of at least
80% of the outstanding voting stock, and if the business combination
satisfies certain Pennsylvania minimum price requirements which are
based on the price paid by the interested shareholder for its shares and
market prices;
3. a business combination approved by all of the holders of all of the
outstanding shares of company common stock;
4. a business combination approved by a majority of the non-interested
outstanding shares of voting stock, at a meeting held no earlier than
five years after the interested shareholder became a 20% holder; or
5. a business combination approved at a stockholders meeting held no
earlier than five years after the interested shareholder became a 20%
holder that meets certain Pennsylvania minimum price requirements which
are based on the price paid by the interested shareholder for its shares
and market prices.
Pennsylvania law defines a business combination generally to include
certain sales, purchases, exchanges, leases, mortgages, pledges, transfers or
dispositions of assets, mergers or consolidations, certain issuances or
reclassification of securities, liquidations or dissolutions or certain loans,
guarantees or financial assistance, under an agreement or understanding between
the corporation or any subsidiaries, on the one hand, and an interested
shareholder or an affiliate or associate thereof, on the other hand.
Furthermore, under Pennsylvania law, unless explicitly provided for
otherwise in a corporation's bylaws or articles of incorporation, shares
acquired by a person in excess of 20% of a class of securities of a qualified
Pennsylvania corporation are deemed control shares and cannot be voted until a
majority of the disinterested stockholders give their approval. In addition,
Pennsylvania law provides that the voting rights may lapse in certain instances,
and the corporation is also given the option to redeem the control shares in
certain instances.
Pennsylvania law also provides certain protection to qualified Pennsylvania
corporations from being exposed to and paying greenmail, which is generally
defined as offering to purchase at least 20% of the voting shares of a
corporation or threatening to wage or waging a proxy contest and thereafter
disposing of the securities at a profit before consummating the proposed
transactions. Generally, Pennsylvania law provides that a qualified corporation
can recover any profit realized by the controlling person or group due to the
disposition of the securities of the corporation within a certain time after
obtaining the control shares.
Furthermore, Pennsylvania law requires acquiring persons to pay a minimum
severance salary to any eligible employee, as defined, whose employment is
terminated, other than for willful misconduct, due to a business combination or
control share acquisition.
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Anti-takeover Provisions in Indian Village Bancorp's Articles of Incorporation
and Bylaws
Several provisions of Indian Village Bancorp's Articles of Incorporation
and Bylaws deal with matters of corporate governance and certain rights of
stockholders. The following discussion is a general summary of the material
provisions of Indian Village Bancorp's Articles of Incorporation and Bylaws and
regulatory provisions relating to stock ownership and transfers, the Board of
Directors and business combinations, which might be deemed to have a potential
"anti-takeover" effect. These provisions may have the effect of discouraging a
future takeover attempt which is not approved by the Board of Directors but
which individual stockholders may deem to be in their best interests or in which
stockholders may receive a substantial premium for their shares over then
current market prices. As a result, stockholders who might desire to participate
in a transaction may not have an opportunity to do so. These provisions will
also render the removal of the incumbent Board of Directors or management of
Indian Village Bancorp more difficult. The following description of certain of
the provisions of the Articles of Incorporation and Bylaws of Indian Village
Bancorp is necessarily general and reference should be made in each case to the
Articles of Incorporation and Bylaws, which are incorporated herein by
reference. See "Where You Can Find More Information" as to where to obtain a
copy of these documents.
Limitation on Voting Rights. The Articles of Incorporation of Indian
Village Bancorp provides that in no event shall any record owner of any
outstanding common stock which is beneficially owned, directly or indirectly, by
a person who beneficially owns more than 10% of the then outstanding shares of
common stock be entitled or permitted to any vote in respect of the shares held
in excess of that percentage limit, unless permitted by a resolution adopted by
a majority of the board of directors. Beneficial ownership is determined under
Rule 13d-3 of the General Rules and Regulations of the Securities Exchange Act
of 1934, as amended, and includes shares beneficially owned by that person or
any of his or her affiliates, shares which that person or his or her affiliates
have the right to acquire upon the exercise of conversion rights or options and
shares as to which the person and his or her affiliates have or share investment
or voting power, but shall not include shares beneficially owned by the employee
stock ownership plan or directors, officers and employees of Indian Village or
Holding Company or shares that are associated with a revocable proxy and that
are not otherwise beneficially, or deemed by Indian Village Bancorp to be
beneficially, owned by the person and his or her affiliates.
Board of Directors. The Board of Directors of Indian Village Bancorp is
divided into three classes, each of which shall contain approximately one-third
of the whole number of the members of the Board. The members of each class shall
be elected for a term of three years, with the terms of office of all members of
one class expiring each year so that approximately one-third of the total number
of directors are elected each year. Indian Village Bancorp's Articles of
Incorporation provides that the size of the Board shall be established in the
Bylaws. The Bylaws currently set the number of directors at seven. The Articles
of Incorporation provides that any vacancy occurring in the Board, including a
vacancy created by an increase in the number of directors, shall be filled by a
vote of a majority of the directors then in office and any director so chosen
shall hold office for a term expiring at the next annual meeting of
stockholders. The classified Board is intended to provide for continuity of the
Board of Directors and to make it more difficult and time consuming for a
stockholder group to fully use its voting power to gain control of the Board of
Directors without the consent of the incumbent Board of Directors of Indian
Village Bancorp. The Articles of Incorporation of Indian Village Bancorp
provides that a director may be removed from the Board of Directors before the
expiration of his or her term only for cause and upon the vote of 75% of the
outstanding shares of voting stock. In the absence of this provision, the vote
of the holders of a majority of the shares could remove the entire Board, but
only with cause, and replace it with persons of the holders' choice.
Cumulative Voting; Special Meetings. The Articles of Incorporation do not
provide for cumulative voting for any purpose. The Articles of Incorporation
also provide that special meetings of stockholders of Indian Village Bancorp may
be called only by the Chairperson of the Board, the President or by the Board of
Directors of Indian Village Bancorp.
Authorized Shares. The Articles of Incorporation authorizes the issuance
of 5,000,000 shares of common stock and 1,000,000 shares of preferred stock. The
shares of common stock and preferred stock were authorized in
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an amount greater than that to be issued in the conversion to provide Indian
Village Bancorp's Board of Directors with as much flexibility as possible to
effect, among other transactions, financings, acquisitions, stock dividends,
stock splits, restricted stock grants and the exercise of stock options.
However, these additional authorized shares may also be used by the Board of
Directors, consistent with fiduciary duties, to deter future attempts to gain
control of Indian Village Bancorp. The Board of Directors also has sole
authority to determine the terms of any one or more series of preferred stock,
including voting rights, conversion rates, and liquidation preferences. As a
result of the ability to fix voting rights for a series of preferred stock, the
Board has the power, consistent with its fiduciary duty, to issue a series of
preferred stock to persons friendly to management in order to attempt to block a
tender offer, merger or other transaction by which a third party seeks control
of Indian Village Bancorp, and thereby assist members of management to retain
their positions. Indian Village Bancorp's Board currently has no plans for the
issuance of additional shares, other than the issuance of shares of common stock
upon exercise of stock options and in connection with the management development
and recognition plan.
Stockholder Vote Required to Approve Business Combinations with Principal
Stockholders. The Articles of Incorporation requires the approval of the
holders of at least 80% of Indian Village Bancorp's outstanding shares of voting
stock to approve certain "Business Combinations" involving a "Related Person"
except in cases where the proposed transaction has been approved in advance by a
majority of those members of Indian Village Bancorp's Board of Directors who are
unaffiliated with the Related Person and were directors before the time when the
Related Person became a Related Person. The term "Related Person" is defined to
include any individual, corporation, partnership or other entity which owns
beneficially or controls, directly or indirectly, 10% or more of the outstanding
shares of voting stock of Indian Village Bancorp or an affiliate of that person
or entity. This provision of the Articles of Incorporation applies to any
"Business Combination," which is defined to include:
1. any merger or consolidation of Indian Village Bancorp with or into any
Related Person;
2. any sale, lease, exchange, mortgage, transfer, or other disposition of
25% or more of the assets of Indian Village Bancorp or combined assets
of Indian Village Bancorp and its subsidiaries to a Related Person;
3. any merger or consolidation of a Related Person with or into Indian
Village Bancorp or a subsidiary of Indian Village Bancorp; any sale,
lease, exchange, transfer, or other disposition of 25% or more of the
assets of a Related Person to Indian Village Bancorp or a subsidiary
of Indian Village Bancorp;
4. the issuance of any securities of Indian Village Bancorp or a
subsidiary of Indian Village Bancorp to a Related Person;
5. the acquisition by Indian Village Bancorp or a subsidiary of Indian
Village Bancorp of any securities of a Related Person;
6. any reclassification of common stock of Indian Village Bancorp or any
recapitalization involving the common stock of Indian Village Bancorp;
or
7. any agreement or other arrangement providing for any of the foregoing
transactions.
Amendment of Articles of Incorporation and Bylaws. Amendments to Indian
Village Bancorp's Articles of Incorporation must be approved by a majority vote
of its Board of Directors and also by a majority of the outstanding shares of
its voting stock, provided, however, that an affirmative vote of at least 75% of
the outstanding voting stock entitled to vote after giving effect to the
provision limiting voting rights is required to amend or repeal certain
provisions of the Articles of Incorporation, including the provision limiting
voting rights, the provisions relating to approval of certain business
combinations, calling special meetings, the number and classification of
directors, director and officer indemnification by Indian Village Bancorp and
amendment of Indian Village Bancorp's Bylaws and Articles of Incorporation.
Indian Village Bancorp's Bylaws may be amended by its Board of
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Directors, or by the stockholders; provided, however, that an affirmative vote
of at least 75% of the total votes eligible to be voted at a duly constituted
meeting of stockholders is necessary to amend certain provisions relating to the
conduct of stockholders meetings, directors and amendment of the Bylaws.
Stockholder Nominations and Proposals. The Bylaws of Indian Village
Bancorp require a stockholder who intends to nominate a candidate for election
to the Board of Directors, or to raise new business at a stockholder meeting to
give not less than 60 nor more than 90 days' advance notice to the Secretary of
Indian Village Bancorp; provided, however, that if less than 71 days' notice or
prior public disclosure of the date of the meeting is given or made to
shareholders, notice, to be timely, must be received no later than the close of
business on the 10/th/ day following the date on which notice was mailed to
shareholders or other public disclosure was made. The notice provision requires
a stockholder who desires to raise new business to provide certain information
to Indian Village Bancorp concerning the nature of the new business, the
stockholder and the stockholder's interest in the business matter. Similarly, a
stockholder wishing to nominate any person for election as a director must
provide Indian Village Bancorp with certain information concerning the nominee
and the proposing stockholder.
Purpose and Takeover Defensive Effects of Indian Village Bancorp's Articles
of Incorporation and Bylaws. The Board of Directors of Indian Village Bancorp
believes that the provisions described above are prudent and will reduce Indian
Village Bancorp's vulnerability to takeover attempts and certain other
transactions that have not been negotiated with and approved by its Board of
Directors. These provisions will also assist Indian Village Bancorp and Indian
Village in the orderly deployment of the conversion proceeds into productive
assets during the initial period after the conversion. The Board of Directors
believes these provisions are in the best interest of Indian Village and Indian
Village Bancorp and its stockholders. In the judgment of the Board of Directors,
Indian Village Bancorp's Board will be in the best position to determine the
true value of Indian Village Bancorp and to negotiate more effectively for what
may be in the best interests of its stockholders. Accordingly, the Board of
Directors believes that it is in the best interest of Indian Village Bancorp and
its stockholders to encourage potential acquirors to negotiate directly with the
Board of Directors of Indian Village Bancorp and that these provisions will
encourage negotiations and discourage hostile takeover attempts. It is also the
view of the Board of Directors that these provisions should not discourage
persons from proposing a merger or other transaction at a price reflective of
the true value of Indian Village Bancorp and that is in the best interest of all
stockholders.
Attempts to acquire control of financial institutions and their holding
companies have recently become increasingly common. Takeover attempts that have
not been negotiated with and approved by the Board of Directors present to
stockholders the risk of a takeover on terms that may be less favorable than
might otherwise be available. A transaction that is first negotiated and
approved by the Board of Directors, on the other hand, can be carefully planned
and undertaken at an opportune time in order to obtain maximum value of Indian
Village Bancorp for its stockholders, with due consideration given to matters
such as the management and business of the acquiring corporation and maximum
strategic development of Indian Village Bancorp's assets.
An unsolicited takeover proposal can seriously disrupt the business and
management of a corporation and cause it great expense. Although a tender offer
or other takeover attempt may be made at a price substantially above the current
market prices, these offers are sometimes made for less than all of the
outstanding shares of a target company. As a result, stockholders may be
presented with the alternative of partially liquidating their investment when it
may be disadvantageous, or retaining their investment in an enterprise that is
under different management and whose objectives may not be similar to those of
the remaining stockholders. The concentration of control, which could result
from a tender offer or other takeover attempt, could also deprive Indian Village
Bancorp's remaining stockholders of benefits of certain protective provisions of
the Securities Exchange Act of 1934, as amended, if the number of beneficial
owners became less than 300, thereby allowing for deregistration under that
statute.
Despite the belief of Indian Village and Indian Village Bancorp as to the
benefits to stockholders of these provisions of Indian Village Bancorp's
Articles of Incorporation and Bylaws, these provisions may also have the effect
of discouraging a future takeover attempt that would not be approved by Indian
Village Bancorp's Board, but
91
where stockholders may receive a substantial premium for their shares over then
current market prices. As a result, stockholders who might want to participate
in a transaction may not have any opportunity to do so. These provisions will
also make the removal of Indian Village Bancorp's Board of Directors and
management more difficult. The Board of Directors of Indian Village and Indian
Village Bancorp, however, have concluded that the potential benefits outweigh
the possible disadvantages.
Following the conversion, if required by law, following the approval by
stockholders, Indian Village Bancorp may adopt additional anti-takeover charter
provisions or other devices regarding the acquisition of its equity securities
that would be permitted for a Pennsylvania business corporation.
The cumulative effect of the restriction on acquisition of Indian Village
Bancorp contained in the Articles of Incorporation and Bylaws of Indian Village
Bancorp and in Federal and Pennsylvania law may be to discourage potential
takeover attempts and perpetuate incumbent management, even though certain
stockholders of Indian Village Bancorp may deem a potential acquisition to be in
their best interests, or deem existing management not to be acting in their best
interests.
DESCRIPTION OF CAPITAL STOCK OF INDIAN VILLAGE BANCORP
General
Indian Village Bancorp is authorized to issue 5,000,000 shares of common
stock having a par value of $.01 per share and 1,000,000 shares of preferred
stock having a par value of $.01 per share. Indian Village Bancorp currently
expects to issue up to 690,000 shares of common stock, unless increased to
793,500 shares of common stock sold. Indian Village Bancorp will not issue any
shares of preferred stock in the conversion. Each share of Indian Village
Bancorp's common stock will have the same relative rights as, and will be
identical in all respects with, each other share of common stock. Upon payment
of the purchase price for the common stock, as required by the plan of
conversion, all stock will be duly authorized, fully paid and nonassessable.
The common stock of Indian Village Bancorp will represent nonwithdrawable
capital, will not be an account of any type, and will not be insured by the
Federal Deposit Insurance Corporation or any other government agency.
Common Stock
Dividends. Indian Village Bancorp can pay dividends out of statutory
surplus or from certain net profits if, as and when declared by its Board of
Directors. The payment of dividends by Indian Village Bancorp is limited by law
and applicable regulation. See "Dividend Policy" and "Regulation." The holders
of common stock of Indian Village Bancorp will be entitled to receive and share
equally in dividends as may be declared by the Board of Directors of Indian
Village Bancorp out of funds legally available therefor. If Indian Village
Bancorp issues preferred stock, the holders thereof may have a priority over the
holders of the common stock with respect to dividends.
Voting Rights. After the conversion, the holders of common stock of Indian
Village Bancorp will possess exclusive voting rights in Indian Village Bancorp.
They will elect Indian Village Bancorp's Board of Directors and act on other
matters as are required to be presented to them under Pennsylvania law or as are
otherwise presented to them by the Board of Directors. Except as discussed in
"Restrictions on Acquisition of Indian Village Bancorp," each holder of common
stock will be entitled to one vote per share and will not have any right to
cumulate votes in the election of directors. If Indian Village Bancorp issues
preferred stock, holders of Indian Village Bancorp preferred stock may also
possess voting rights. Certain matters require a vote of 80% of the outstanding
shares entitled to vote. See "Restrictions on Acquisition of Indian Village
Bancorp."
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As a federal mutual savings association, corporate powers and control of
Indian Village are currently vested in its Board of Directors, who elect the
officers of Indian Village and who fill any vacancies on the Board of Directors.
After the conversion, voting rights will be vested exclusively in Indian Village
Bancorp, which will own all of the outstanding capital stock of Indian Village,
and will be voted at the direction of Indian Village Bancorp's Board of
Directors. Consequently, the holders of the common stock of Indian Village
Bancorp will not have direct control of Indian Village.
Liquidation. If there is any liquidation, dissolution or winding up of
Indian Village, Indian Village Bancorp, as the holder of Indian Village's
capital stock, would be entitled to receive all of Indian Village's assets
available for distribution after payment or provision for payment of all debts
and liabilities of Indian Village, including all deposit accounts and accrued
interest, and after distribution of the balance in the special liquidation
account to eligible account holders and supplemental eligible account holders.
Upon liquidation, dissolution or winding up of Indian Village Bancorp, the
holders of its common stock would be entitled to receive all of the assets of
Indian Village Bancorp available for distribution after payment or provision for
payment of all its debts and liabilities. If Indian Village Bancorp issues
preferred stock, the preferred stock holders may have a priority over the
holders of the common stock upon liquidation or dissolution.
Preemptive Rights; Redemption. Holders of the common stock of Indian
Village Bancorp will not be entitled to preemptive rights with respect to any
shares that may be issued. The common stock cannot be redeemed.
Preferred Stock
Indian Village Bancorp will not issue any preferred stock in the conversion
and it has no current plans to issue any preferred stock after the conversion.
Preferred stock may be issued with designations, powers, preferences and rights
as the Board of Directors may from time to time determine. The Board of
Directors can, without stockholder approval, issue preferred stock with voting,
dividend, liquidation and conversion rights that could dilute the voting
strength of the holders of the common stock and may assist management in
impeding an unfriendly takeover or attempted change in control.
Restrictions on Acquisition
Acquisitions of Indian Village Bancorp are restricted by provisions in its
Articles of Incorporation and Bylaws and by the rules and regulations of various
regulatory agencies. See "Regulation" and "Restrictions on Acquisition of Indian
Village Bancorp."
REGISTRATION REQUIREMENTS
Indian Village Bancorp has registered the common stock with the Securities
and Exchange Commission under Section 12(g) of the Securities Exchange Act of
1934, as amended, and will not deregister its common stock for a period of at
least three years following the conversion. As a result of registration, the
proxy and tender offer rules, insider trading reporting and restrictions, annual
and periodic reporting and other requirements of that statute will apply.
LEGAL AND TAX OPINIONS
The legality of the common stock has been passed upon for Indian Village
Bancorp by Muldoon, Murphy & Faucette LLP, Washington, D.C. The federal tax
consequences of the conversion have been opined upon by Muldoon, Murphy &
Faucette LLP and the Ohio tax consequences of the conversion have been opined
upon by Crowe, Chizek and
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Company LLP, Columbus, Ohio. Muldoon, Murphy & Faucette LLP and Crowe, Chizek
and Company LLP have consented to the references to their opinions in this
prospectus. Certain legal matters will be passed upon for Trident Securities by
Michael Best & Friedrich, L.L.P., Milwaukee, Wisconsin.
EXPERTS
The financial statements of Indian Village at December 31, 1998 and 1997
and for each of the years ended December 31, 1998 and 1997 included in this
prospectus have been audited by Crowe, Chizek and Company LLP, Columbus, Ohio,
independent auditors, as stated in its report in the back of this prospectus.
These financial statements have been included in this prospectus in reliance
upon the report of Crowe, Chizek and Company LLP given upon its authority as
experts in accounting and auditing.
Keller & Company has consented to the summary in this prospectus of its
report to Indian Village setting forth its opinion as to the estimated pro forma
market value of Indian Village Bancorp and Indian Village, as converted, and its
letter with respect to subscription rights, and to the use of its name and
statements with respect to it appearing in this prospectus.
CHANGE IN ACCOUNTANTS
Before the fiscal year ended December 31, 1998, Indian Village's financial
statements were audited by Robb, Dixon, Francis, Davis, Oneson & Company,
Granville, Ohio. The former accountant was dismissed and replaced by Crowe,
Chizek and Company LLP, which was engaged on October 15, 1998 and continues as
the independent auditors of Indian Village.
For the fiscal years ended December 31, 1997 and 1996 and up to the date of
the replacement of Indian Village's former accountant, there were no
disagreements with the former accountant on any matter of accounting principles
or practices, financial statement disclosure or auditing scope or procedure
which, if not resolved to the satisfaction of the former accountant, would have
caused it to refer to the subject matter of the disagreement in connection with
its reports. The independent auditors' report on the financial statements for
the fiscal years ended December 31, 1997 and 1996 did not contain an adverse
opinion or a disclaimer of opinion, and was not qualified or modified as to
uncertainty, audit scope, or accounting principles.
WHERE YOU CAN FIND MORE INFORMATION
Indian Village Bancorp has filed with the Securities and Exchange
Commission a Registration Statement on Form SB-2 (File No. 333-________) under
the Securities Act of 1933, as amended, with respect to the common stock offered
in the conversion. This prospectus does not contain all the information
contained in the registration statement, certain parts of which are omitted as
permitted by the rules and regulations of the Securities and Exchange
Commission. This information may be inspected at the public reference facilities
maintained by the Securities and Exchange Commission at 450 Fifth Street, NW,
Room 1024, Washington, D.C. 20549 and at its regional offices at 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661; and 7 World Trade Center,
Suite 1300, New York, New York 10048. Copies may be obtained at prescribed rates
from the Public Reference Room of the Securities and Exchange Commission at 450
Fifth Street, NW, Washington, D.C. 20549. The public may obtain information on
the operation of the Public Reference Room by calling the Securities and
Exchange Commission at 1-800-SEC-0330. The registration statement also is
available through the Securities and Exchange Commission's World Wide Web site
on the Internet at http://www.sec.gov.
94
Indian Village has filed with the Office of Thrift Supervision an
Application for Approval of Conversion, which includes proxy materials for
Indian Village's special meeting of members and certain other information. This
prospectus omits certain information contained in that application. The
application, including the proxy materials, exhibits and certain other
information included in the Application, may be inspected, without charge, at
the offices of the Office of Thrift Supervision, 1700 G Street, NW, Washington,
D.C. 20552 and at the offices of the Regional Director of the Office of Thrift
Supervision at the Central Regional Office of the Office of Thrift Supervision,
200 West Madison Street, Suite 1300, Chicago, Illinois 60606.
95
Index To Financial Statements
Indian Village Community Bank
Page
----
Report of Independent Auditors...................................................... F-1
Balance Sheets as of December 31, 1998 and 1997..................................... F-2
Statements of Income for the Years Ended December 31, 1998 and 1997................. F-3
Statements of Comprehensive Income for the Years Ended December 31, 1998 and 1997... F-4
Statements of Member's Equity for the Years Ended December 31, 1998 and 1997........ F-5
Statements of Cash Flows for the Years Ended December 31, 1998 and 1997............. F-6
Notes to Financial Statements....................................................... F-7
* * *
All schedules are omitted as the required information either is not
applicable or is included in the Financial Statements or related Notes.
Separate financial statements for Indian Village Bancorp have not been
included in this prospectus because Indian Village Bancorp, which has engaged in
only organizational activities to date, has no significant assets, contingent or
other liabilities, revenues or expenses.
96
[CROWE CHIZEK LOGO APPEARS HERE]
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Indian Village Community Bank
Gnadenhutten, Ohio
We have audited the accompanying balance sheets of Indian Village Community Bank
as of December 31, 1998 and 1997, and the related statements of income,
comprehensive income, members' equity and cash flows for each of the years then
ended. These financial statements are the responsibility of the Bank's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Indian Village Community Bank
as of December 31, 1998 and 1997, and the results of its operations and its cash
flows for each of the years then ended in conformity with generally accepted
accounting principles.
/s/ Crowe, Chizek and Company LLP
Crowe, Chizek and Company LLP
Columbus, Ohio
February 18, 1999
- --------------------------------------------------------------------------------
F-1
INDIAN VILLAGE COMMUNITY BANK
BALANCE SHEETS
December 31, 1998 and 1997
(In thousands)
- --------------------------------------------------------------------------------
1998 1997
-------- --------
ASSETS
Cash and due from banks $ 409 $ 387
Interest-bearing deposits in other banks 388 536
------- -------
Total cash and cash equivalents 797 923
Time deposits 499 --
Securities available for sale at fair value 6,195 7,317
Loans, net of allowance for loan losses 31,274 27,241
Premises and equipment, net 447 239
Real estate owned 122 41
Federal Home Loan Bank stock 407 379
Accrued interest receivable 183 153
Other assets 100 60
------- -------
Total assets $40,024 $36,353
======= =======
LIABILITIES
Deposits $30,866 $30,277
Federal Home Loan Bank advances 4,000 1,000
Accrued interest payable 37 27
Other liabilities 19 197
------- -------
Total liabilities 34,922 31,501
MEMBERS' EQUITY
Retained earnings - substantially restricted 5,105 4,859
Accumulated other comprehensive income
Unrealized gains on securities available for sale 50 61
Additional minimum pension liability (53) (68)
------- -------
Total accumulated other comprehensive income (3) (7)
------- -------
Total members' equity 5,102 4,852
------- -------
Total liabilities and members' equity $40,024 $36,353
======= =======
- --------------------------------------------------------------------------------
See accompanying notes to financial statements
F-2
INDIAN VILLAGE COMMUNITY BANK
STATEMENTS OF INCOME
Years ended December 31, 1998 and 1997
(In thousands)
- --------------------------------------------------------------------------------
1998 1997
------- -------
Interest and dividend income
Loans $2,450 $2,285
Securities 524 536
Interest-bearing deposits and Federal funds sold 46 70
------ ------
Total interest income 3,020 2,891
Interest expense
Deposits 1,530 1,553
Federal Home Loan Bank advances 136 24
------ ------
Total interest expense 1,666 1,577
------ ------
Net interest income 1,354 1,314
Provision for loan losses 60 --
------ ------
Net interest income after provision for loan losses 1,294 1,314
Noninterest income
Service charges and other fees 11 9
Loss on sale of securities available for sale, net (2) (3)
Other income 20 15
------ ------
Total noninterest income 29 21
Noninterest expense
Salaries and employee benefits 440 336
Occupancy, furniture and fixtures 69 69
Professional and consulting fees 56 68
FDIC deposit insurance 23 20
Franchise taxes 73 68
Data processing 57 57
Director and committee fees 72 73
Other expense 160 114
------ ------
Total noninterest expense 950 805
------ ------
Income before federal income tax expense 373 530
Federal income tax expense 127 180
------ ------
Net income $ 246 $ 350
====== ======
- --------------------------------------------------------------------------------
See accompanying notes to financial statements
F-3
INDIAN VILLAGE COMMUNITY BANK
STATEMENTS OF COMPREHENSIVE INCOME
Years ended December 31, 1998 and 1997
(In thousands)
- --------------------------------------------------------------------------------
1988 1997
------ ------
Net Income $ 246 $ 350
Other comprehensive income, net of tax:
Unrealized gains (losses) on securities available for sale arising
during year (12) 31
Reclassification adjustment for accumulated losses included in
net income 1 2
----- -----
Net unrealized gains (losses) on securities before tax (11) 33
Additional minimum pension liability adjustment 15 (3)
----- -----
Other comprehensive income 4 30
----- -----
Comprehensive income $ 250 $ 380
===== =====
- --------------------------------------------------------------------------------
See accompanying notes to financial statements
F-4
INDIAN VILLAGE COMMUNITY BANK
STATEMENTS OF MEMBERS' EQUITY
Years ended December 31, 1998 and 1997
(In thousands)
- --------------------------------------------------------------------------------
Accumulated
Other Total
Retained Comprehensive Members'
Earnings Income Equity
--------- -------------- --------
Balance at January 1, 1997 $4,509 $(37) $4,472
Net income 350 350
Change in additional minimum pension liability,
net of tax (3) (3)
Change in unrealized gain (loss) on securities available
for sale, net of reclassification and tax items 33 33
--------- -------------- --------
Balance at December 31, 1997 4,859 (7) 4,852
Net income 246 246
Change in additional minimum pension liability,
net of tax 15 15
Change in unrealized gain (loss) on securities available
for sale, net of reclassification and tax items (11) (11)
--------- -------------- --------
Balance at December 31, 1998 $5,105 $ (3) $5,102
========= ============== ========
- --------------------------------------------------------------------------------
See accompanying notes to financial statements
F-5
INDIAN VILLAGE COMMUNITY BANK
STATEMENTS OF CASH FLOWS
Years ended December 31, 1998 and 1997
(In thousands)
- -------------------------------------------------------------------------------
1998 1997
-------- --------
Cash flows from operating activities
Net income $ 246 $ 350
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation 35 31
Premium amortization, net of accretion (7) (3)
Provision for loan losses 60 --
Federal Home Loan Bank stock dividends (28) (26)
Loss on sale of real estate owned -- 14
Loss on sale of securities available for sale 2 3
Net change in:
Accrued interest receivable and other assets (74) (29)
Accrued expenses and other liabilities (149) 64
Deferred income taxes 6 5
------- -------
Net cash from operating activities 91 409
Cash flows from investing activities
Net change in time deposits (499) --
Purchases of securities available for sale (4,133) (4,791)
Proceeds from sales of securities available for sale 1,456 1,292
Proceeds from maturities of securities available for sale 3,787 2,035
Net change in loans (4,174) (1,786)
Premises and equipment expenditures, net (243) (43)
Proceeds from sale of real estate owned -- 100
------- -------
Net cash from investing activities (3,806) (3,193)
Cash flows from financing activities
Net change in deposits 589 (1,162)
Repayment of long-term FHLB advances (1,000) --
Proceeds from long-term FHLB advances 4,000 1,000
------- -------
Net cash from financing activities 3,589 (162)
------- -------
Net change in cash and cash equivalents (126) (2,946)
Cash and cash equivalents at beginning of year 923 3,869
------- -------
Cash and cash equivalents at end of year $ 797 $ 923
======= =======
Supplemental disclosures of cash flow information
Cash paid during the year for
Interest $ 1,656 $ 1,571
Income taxes 241 70
Noncash transactions
Transfers from loans to real estate loans $ 81 $ 44
- -------------------------------------------------------------------------------
See accompanying notes to financial statements
F-6
INDIAN VILLAGE COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1997
(Table amounts in thousands)
- -------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations: Indian Village Community Bank's (the "Bank") revenues,
- --------------------
operating income and assets are primarily from the financial institution
industry. The Bank is engaged in the business of residential mortgage lending
and consumer banking with operations conducted through its main office located
in Gnadenhutten, Ohio. This community and the contiguous areas are the source
of substantially all the Bank's loan and deposit activities. The majority of
the Bank's income is derived from residential and consumer lending activities
and investments.
Use of Estimates: To prepare financial statements in conformity with generally
- ----------------
accepted accounting principles, management makes estimates and assumptions based
on available information. These estimates and assumptions affect amounts
reported in the financial statements and disclosures provided, and future
results could differ. The allowance for loan losses, fair values of financial
instruments and pension obligations are particularly subject to change.
Cash Flows: Cash and cash equivalents includes cash, deposits with other
- ----------
financial institutions with original maturities less than 90 days and Federal
funds sold. Net cash flows are reported for loan and deposit transactions.
Securities: Securities are classified as held to maturity and carried at
- ----------
amortized cost when management has the positive intent and ability to hold them
to maturity. Securities are classified as available for sale when they might be
sold before maturity. Securities available for sale are carried at fair value,
with unrealized holding gains and losses reported in accumulated other
comprehensive income. Other securities such as Federal Home Loan Bank stock are
carried at cost.
Interest income includes amortization of purchased premium or discount. Gains
and losses on sales are based on the amortized cost of the security sold.
Securities are written down to fair value when a decline in fair value is not
temporary.
Loans: Loans are reported at the principal balance outstanding, net of unearned
- -----
interest, deferred fees and costs, and the allowance for loan losses.
Interest income is reported on the interest method and includes amortization of
net deferred loan fees and costs over the loan term. Interest income is not
reported when full loan repayment is in doubt, typically when the loan is
impaired or payments are past due over 90 days. Payments received on such loans
are reported as principal reductions.
- -------------------------------------------------------------------------------
(Continued)
F-7
INDIAN VILLAGE COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1997
(Table amounts in thousands)
- -------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Allowance for Loan Losses: The allowance for loan losses is a valuation
- -------------------------
allowance for probable credit losses, increased by the provision for loan losses
and decreased by charge-offs less recoveries. Management estimates the
allowance balance required based on past loan loss experience, known and
inherent risks in the nature and volume of the portfolio, information about
specific borrower situations and estimated collateral values, economic
conditions, and other factors. Allocations of the allowance may be made for
specific loans, but the entire allowance is available for any loan that, in
management's judgment, should be charged-off.
A loan is impaired when full payment under the loan terms is not expected.
Impairment is evaluated in total for smaller-balance loans of similar nature
such as residential mortgage and consumer loans, and on an individual basis for
other loans. If a loan is impaired, a portion of the allowance is allocated so
the loan is reported, net, at the present value of estimated future cash flows
using the loan's existing rate or at the fair value of collateral if repayment
is expected solely from the collateral.
Premises and Equipment: Premises and equipment are stated at cost less
- ----------------------
accumulated depreciation. Depreciation expense is calculated using primarily
the straight-line method over the estimated useful lives of the assets.
Real Estate Owned: Real estate acquired through or instead of loan foreclosure
- -----------------
is initially recorded at fair value when acquired, establishing a new cost
basis. If the fair value declines, a valuation allowance is recorded through
expense. Costs after acquisition are expensed.
Benefit Plans: Pension expense is the net of service and interest cost, return
- -------------
on plan assets, and amortization of gains and losses not immediately recognized.
Income Taxes: Income tax expense is the total of the current year income tax
- ------------
due or refundable and the change in deferred tax assets and liabilities.
Deferred tax assets and liabilities are the expected future tax amounts for the
temporary differences between carrying amounts and tax bases of assets and
liabilities, computed using enacted tax rates. A valuation allowance, if
needed, reduces deferred tax assets to the amount expected to be realized.
Concentration of Credit Risk: The Bank grants primarily one- to four-family
- ----------------------------
residential mortgage loans to customers in Tuscarawas County, Ohio. These
customers' ability to honor their contracts is dependent, to a certain extent,
on the economic conditions of Tuscarawas County. The Bank evaluates each
customer's creditworthiness on a case-by-case basis at the time of application.
One- to four-family residential mortgage loans comprise approximately 83% and
84% of the Bank's loan portfolio as of December 31, 1998 and 1997.
- -------------------------------------------------------------------------------
(Continued)
F-8
INDIAN VILLAGE COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1997
(Table amounts in thousands)
- -------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Financial Instruments: Financial instruments include credit instruments, such
- ---------------------
as commitments to make loans and standby letters of credit, issued to meet
customer-financing needs. The face amount for these items represents the
exposure to loss, before considering customer collateral or ability to repay.
Comprehensive Income: Comprehensive income consists of net income and other
- --------------------
comprehensive income. Other comprehensive income includes unrealized gains and
losses on securities available for sale and changes in minimum pension liability
which are also recognized as separate components of equity. The accounting
standard that requires reporting comprehensive income first applies for 1998,
with prior information restated to be comparable.
Loss Contingencies: Loss contingencies, including claims and legal actions
- ------------------
arising in the ordinary course of business, are recorded as liabilities when the
likelihood of loss is probable and an amount or range of loss can be reasonably
estimated. Management does not believe there now are such matters that will
have a material effect on the financial statements.
Reclassifications: Reclassifications of certain amounts in the 1997 financial
- -----------------
statements have been made to conform to the 1998 presentation.
NOTE 2 - SECURITIES AVAILABLE FOR SALE
The amortized cost and estimated fair values of securities available for sale at
December 31, 1998 are summarized as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ----------- ------
U.S. Treasury securities $ 747 $13 $ -- $ 760
U.S. Government agencies 1,050 6 -- 1,056
Obligations of states and
political subdivisions 147 5 -- 152
Mortgage-backed securities 4,175 70 (18) 4,227
--------- ---------- ----------- ------
$6,119 $94 $(18) $6,195
========= ========== =========== ======
- -------------------------------------------------------------------------------
(Continued)
F-9
INDIAN VILLAGE COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1997
(Table amounts in thousands)
- -------------------------------------------------------------------------------
NOTE 2 - SECURITIES AVAILABLE FOR SALE (Continued)
The amortized cost and estimated fair values of securities available for sale at
December 31, 1997 are summarized as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ----------- ------
U.S. Treasury securities $ 786 $11 $-- $ 797
U.S. Government agencies 2,647 15 -- 2,662
Obligations of states and
political subdivisions 75 -- -- 75
Mortgage-backed securities 3,717 71 (5) 3,783
--------- ---------- ----------- ------
$7,225 $97 $(5) $7,317
========= ========== =========== ======
The amortized cost and estimated fair values of debt securities available for
sale at December 31, 1998, by contractual maturity, are shown below. Actual
maturities may differ from contractual maturities because borrowers may have the
right to call or prepay obligations with or without call or prepayment
penalties. Securities not due at a single maturity date, primarily mortgage-
backed securities, are shown separately.
Amortized Fair
Cost Value
--------- ------
Due in one year or less $ 499 $ 505
Due after one year through five years 798 809
Due after five years through ten years 500 502
Due after ten years 147 152
Mortgage-backed securities 4,175 4,227
--------- ------
$6,119 $6,195
========= ======
During 1998 and 1997, the Bank sold securities available for sale for total
proceeds of $1,456,000 and $1,292,000, resulting in gross realized gains of
approximately $11,000 and $4,000 and gross realized losses of approximately
$13,000 and $7,000. No other securities were sold during 1998 or 1997.
No securities were pledged to secure public deposits at December 31, 1998 or
1997.
- -------------------------------------------------------------------------------
(Continued)
F-10
INDIAN VILLAGE COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1997
(Table amounts in thousands)
- -------------------------------------------------------------------------------
NOTE 3 - LOANS
Year-end loans were as follows:
1998 1997
-------- --------
Real estate loans:
One- to four-family residential $26,080 $23,002
Multi-family residential 1,736 1,447
Nonresidential 647 763
Construction 677 1,107
Land 135 45
------- -------
29,275 26,364
Consumer loans:
Home equity loans and lines of credit 887 842
Home improvement 301 43
Automobile 516 --
Loans on deposit accounts 294 207
Unsecured 12 --
Other 274 --
------- -------
2,284 1,092
Commercial business loans 27 62
------- -------
31,586 27,518
Less:
Net deferred loan fees and costs (54) (49)
Loans in process (40) (52)
Allowance for loan losses (218) (176)
------- -------
$31,274 $27,241
======= =======
Activity in the allowance for loan losses was as follows:
1998 1997
------- -------
Beginning balance $ 176 $ 176
Charge-offs (18) --
Recoveries -- --
Provision for losses 60 --
------- -------
Ending balance $ 218 $ 176
======= =======
- -------------------------------------------------------------------------------
(Continued)
F-11
INDIAN VILLAGE COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1997
(Table amounts in thousands)
- -------------------------------------------------------------------------------
NOTE 3 - LOANS (Continued)
Nonaccrual loans totaled approximately $328,000 and $471,000 at December 31,
1998 and 1997. Interest not recognized on nonaccrual loans totaled approximately
$16,000 and $9,000 for the years then ended December 31, 1998 and 1997. The
Bank had no impaired loans at December 31, 1998 or 1997 or during the years then
ended.
Loans to directors and officers totaled approximately $479,000 and $474,000 at
December 31, 1998 and 1997. A summary of activity on related party loans is as
follows:
1998 1997
------ ------
Beginning balance $ 474 $ 272
New loans 225 354
Principal repayments (220) (152)
----- -----
Ending balance $ 479 $ 474
===== =====
NOTE 4 - PREMISES AND EQUIPMENT
Year-end premises and equipment were as follows:
1998 1997
-------- --------
Land $ 244 $ 31
Buildings and improvements 287 286
Furniture, fixtures, and equipment 198 185
Automobiles 17 17
------- -------
Total cost 746 519
Accumulated depreciation (299) (280)
------- -------
$ 447 $ 239
======= =======
NOTE 5 - DEPOSITS
Year-end deposits consisted of the following:
1998 1997
------- -------
Non-interest bearing demand deposit accounts $ 81 $ 62
NOW accounts 837 617
Money market accounts 1,695 1,724
Savings accounts 5,464 5,093
Certificates of deposit 22,789 22,781
------- -------
$30,866 $30,277
======= =======
- --------------------------------------------------------------------------------
(Continued)
F-12
INDIAN VILLAGE COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1997
(Table amounts in thousands)
- --------------------------------------------------------------------------------
NOTE 5 - DEPOSITS (Continued)
The aggregate amount of certificates of deposit accounts with balances of
$100,000 or more at December 31, 1998 and 1997 was $1,357,000 and $831,000.
Deposits greater than $100,000 are not federally insured.
At December 31, 1998, the scheduled maturities of time deposits were as follows:
1999 $14,348
2000 4,194
2001 1,749
2002 1,274
2003 1,224
-------
$22,789
=======
Interest expense on deposits is summarized as follows:
1998 1997
------- ------
NOW accounts $ 16 $ 16
Money market accounts 59 59
Savings accounts 172 162
Certificates of deposit 1,283 1,316
------- ------
$ 1,530 $1,553
======= ======
Directors and officers of the Bank are customers of the institution in the
ordinary course of business. At December 31, 1998 and 1997, deposits from
officers and directors of the Bank totaled approximately $198,000 and $275,000.
NOTE 6 - FEDERAL HOME LOAN BANK ADVANCES
Year-end outstanding Federal Home Loan Bank advances are summarized as follows:
1998 1997
------- ------
4.20% FHLB advance, due December 2003 $1,000,000
5.60% FHLB advance, due April 2008 2,000,000
5.15% FHLB advance, due July 2008 1,000,000
6.10% FHLB advance, due August 1998 $1,000,000
---------- ----------
$4,000,000 $1,000,000
========== ==========
- --------------------------------------------------------------------------------
(Continued)
F-13
INDIAN VILLAGE COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1997
(Table amounts in thousands)
- --------------------------------------------------------------------------------
NOTE 6 - FEDERAL HOME LOAN BANK ADVANCES (Continued)
As a member of the Federal Home Loan Bank system, the Bank has the ability to
obtain borrowings up to a maximum total of 50% of Bank assets subject to the
level of qualified, pledgable one- to four-family residential real estate loans
and Federal Home Loan Bank stock.
The advances were collateralized by $6,000,000 and $1,500,000 of first mortgage
loans under a blanket lien arrangement at year-end 1998 and 1997.
NOTE 7 - INCOME TAXES
The provision for federal income tax consisted of the following components:
1998 1997
------ ------
Current tax expense $ 121 $ 175
Deferred tax expense 6 5
----- -----
$ 127 $ 180
===== =====
The sources of gross deferred tax assets and gross deferred tax liabilities are
as follows:
1998 1997
----- -----
Deferred tax assets:
Allowance for loan losses $ 57 $ 37
Nonaccrual loan interest 6 3
Accrued pension 8 25
Additional minimum pension liability 42 51
Other -- 3
----- -----
Total deferred tax assets 113 119
----- -----
Deferred tax liabilities:
Depreciation (19) (19)
FHLB stock dividends (9) --
Unrealized gain on securities available for sale (26) (31)
----- -----
Total deferred tax liabilities (54) (50)
----- -----
Net deferred tax asset (liability) $ 59 $ 69
===== =====
- --------------------------------------------------------------------------------
(Continued)
F-14
INDIAN VILLAGE COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1997
(Table amounts in thousands)
- --------------------------------------------------------------------------------
NOTE 7 - INCOME TAXES (Continued)
The difference between the financial statement income tax expense and amounts
computed by applying the statutory federal income tax rate to income before
income taxes is as follows:
1998 1997
------ ------
Income taxes computed at the statutory
tax rate on pretax income $ 127 $ 180
Tax effect of:
Tax-exempt income (6) (11)
Nondeductible expenses and other 6 11
----- -----
$ 127 $ 180
===== =====
Statutory tax rate 34.0% 34.0%
===== =====
Effective tax rate 34.0% 34.0%
===== =====
Federal income tax laws provided additional bad debt deductions through 1987,
totaling $584,000. Accounting standards do not require a deferred tax liability
to be recorded on this amount, which liability otherwise would total $199,000 at
December 31, 1998. If the Bank was liquidated, or would otherwise cease to be
in the business of banking, or if tax laws were to change, this amount would be
expensed. Under 1996 tax law changes, bad debts are based on actual loss
experience and tax bad debt reserves accumulated since 1987 are to be reduced.
This requires payment of approximately $35,000 over six years beginning in 1996.
- --------------------------------------------------------------------------------
(Continued)
F-15
INDIAN VILLAGE COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1997
(Table amounts in thousands)
- --------------------------------------------------------------------------------
NOTE 8 - PENSION PLAN
Information about the pension plan was as follows:
1998 1997
------ ------
Change in benefit obligation:
Beginning benefit obligation $ 168 $ 120
Service cost 13 6
Interest cost 12 9
Actuarial gain 22 33
Benefits paid (1) --
----- -----
Ending benefit obligation 214 168
----- -----
Change in plan assets, at fair value:
Beginning plan assets 48 28
Actual return 22 4
Employer contribution 11 16
Benefits paid (1) --
----- -----
Ending plan assets 80 48
----- -----
Funded status (134) (120)
Unrecognized net actuarial loss 150 156
Unrecognized net asset at date of adoption of SFAS No. 87 44 48
Minimum additional pension liability (124) (150)
----- -----
Accrued benefit cost $ (64) $ (66)
===== =====
The components of pension expense and related actuarial assumptions were as
follows:
1998 1997
----- -----
Service cost $ 13 $ 6
Interest cost 12 9
Expected return on plan assets 1 1
Net amortization and deferral 1 2
Recognized net actuarial (gain) loss 7 6
----- -----
Net $ 34 $ 24
===== =====
Discount rate on benefit obligation 7.27% 7.27%
Long-term expected rate of return on plan assets 3.00 3.00
Rate of compensation increase 4.00 4.00
- --------------------------------------------------------------------------------
(Continued)
F-16
INDIAN VILLAGE COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1997
(Table amounts in thousands)
- --------------------------------------------------------------------------------
NOTE 9 - COMMITMENTS AND FINANCIAL INSTRUMENTS WITH
OFF-BALANCE-SHEET RISK
The Bank is a party to financial instruments with off-balance sheet risk in the
normal course of business to meet the financing needs of customers. These
financial instruments include commitments to make loans. The Bank's exposure to
credit loss in case of nonperformance by the other party to the financial
instrument for commitments to make loans is represented by the contractual
amount of those instruments. The Bank follows the same credit policy to make
such commitments as is followed for those loans recorded in the financial
statements.
As of December 31, 1998, variable rate and fixed rate commitments to make loans
or fund outstanding lines of credit amounted to approximately $494,000 and
$1,891,000. The interest rates on variable rate commitments ranged from 6.25%
to 7.75% and the interest rates on fixed rate commitments ranged from 7.00% to
8.75% at December 31, 1998. As of December 31, 1997, variable rate and fixed
rate commitments to make loans or fund outstanding lines of credit amounted to
approximately $282,000 and $292,000. Since loan commitments may expire without
being used, the amounts do not necessarily represent future cash commitments.
NOTE 10 - REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered by
the federal regulatory agencies. Failure to meet minimum capital requirements
can initiate certain mandatory actions that, if undertaken, could have a direct
material affect on the Bank's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the Bank
must meet specific capital guidelines that involve quantitative measures of the
Bank's assets, liabilities and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Bank's capital amounts and
classifications are also subject to qualitative judgments by the regulators
about the Bank's components, risk weightings and other factors. At December 31,
1998 and 1997, management believes the Bank complies with all regulatory capital
requirements. Based on the computed regulatory capital ratios, the Bank is
considered well capitalized under the Federal Deposit Insurance Act at December
31, 1998 and 1997. No conditions or events have occurred after December 31,
1998 that management believes have changed the Bank's category.
- --------------------------------------------------------------------------------
(Continued)
F-17
INDIAN VILLAGE COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1997
(Table amounts in thousands)
- --------------------------------------------------------------------------------
NOTE 10 - REGULATORY MATTERS (Continued)
Year-end actual capital levels and minimum required levels were as follows:
Minimum
Required To Be
Minimum Required Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Regulations
-------------- ------------------ ------------------------
Amount Ratio Amount Ratio Amount Ratio
------ ------ --------- ------- ------------ ----------
December 31, 1998
Total capital (to risk-weighted assets) $5,226 25.8% $1,621 8.0% $2,026 10.0%
Tier 1 (core) capital (to
risk-weighted assets) 5,008 24.7 810 4.0 1,215 6.0
Tier 1 (core) capital (to adjusted
total assets) 5,008 12.5 1,597 4.0 1,997 5.0
Tangible capital (to adjusted
total assets) 5,008 12.5 599 1.5 N/A
December 31, 1997
Total capital (to risk-weighted assets) $4,919 28.8% $1,367 8.0% $1,708 10.0%
Tier 1 (core) capital (to
risk-weighted assets) 4,743 27.8 683 4.0 1,025 6.0
Tier 1 (core) capital (to adjusted
total assets) 4,743 13.1 1,451 4.0 1,814 5.0
Tangible capital (to adjusted
total assets) 4,743 13.1 544 1.5 N/A
The following is a reconciliation of the Bank's equity reported in the financial
statements under generally accepted accounting principles to the Office of
Thrift Supervision regulatory capital requirements:
Tier 1 Total
Tangible (Core) Risk-Based
Capital Capital Capital
----------- --------- -----------
December 31, 1998
Total equity as reported in the financial statements $ 5,102 $ 5,102 $ 5,102
Net unrealized (gain) loss on securities available for sale (50) (50) (50)
Goodwill and other intangible assets (44) (44) (44)
General allowance for loan losses -- -- 218
-------- -------- --------
Regulatory capital $ 5,008 $ 5,008 $ 5,226
======== ======== ========
December 31, 1997
Total equity as reported in the financial statements $ 4,852 $ 4,852 $ 4,852
Net unrealized (gain) loss on securities available for sale (61) (61) (61)
Goodwill and other intangible assets (48) (48) (48)
General allowance for loan losses -- -- 176
-------- -------- --------
Regulatory capital $ 4,743 $ 4,743 $ 4,919
======== ======== ========
- --------------------------------------------------------------------------------
(Continued)
F-18
INDIAN VILLAGE COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1997
(Table amounts in thousands)
- --------------------------------------------------------------------------------
NOTE 11 - FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amount and estimated fair values of financial instruments at
year-end were as follows:
1998 1997
--------------------- ---------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
-------- ---------- -------- ----------
Financial assets:
Cash and cash equivalents $ 797 $ 797 $ 923 $ 923
Time deposits 499 499 -- --
Securities available for sale 6,195 6,195 7,317 7,317
Loans, net 31,274 31,531 27,241 26,599
Federal Home Loan Bank stock 407 407 379 379
Accrued interest receivable 183 183 153 153
Financial liabilities:
Demand and savings deposits (8,077) (8,077) (7,496) (7,496)
Certificates of deposit (22,789) (22,663) (22,781) (25,011)
Federal Home Loan Bank advances (4,000) (4,000) (1,000) (1,000)
Accrued interest payable (37) (37) (27) (27)
Carrying amount is the estimated fair value for cash and cash equivalents, time
deposits, Federal Home Loan Bank stock, accrued interest receivable and payable,
demand and savings deposits, and variable rate loans and Federal Home Loan Bank
advances that reprice frequently and fully. Security fair values are based on
market prices or dealer quotes, and if no such information is available, on the
rate and term of the security and information about the issuer. For fixed rate
loans and certificates of deposit and for variable rate loans with infrequent
repricing or repricing limits, fair value is based on discounted cash flows
using current market rates applied to the estimated life and credit risk. Fair
value of fixed rate Federal Home Loan Bank advances and for variable rate
advances with infrequent repricing or repricing limits, fair value is based on
current rates for similar financing. The estimated fair value for other
financial instruments and off-balance-sheet loan commitments approximate cost at
December 31, 1998 and is not considered significant to this presentation.
NOTE 12 - OTHER COMPREHENSIVE INCOME
The tax effects on the components of other comprehensive income were as follows:
1998 1997
------ ------
Unrealized gains (losses) on securities available for sale:
Unrealized gains (losses) arising during year $ (6) $ 16
Reclassification adjustment for gains (losses) 1 1
----- -----
Net unrealized gain (losses) (5) 17
Additional minimum pension liability 9 (2)
----- -----
Other comprehensive income $ 4 $ 15
===== =====
- --------------------------------------------------------------------------------
(Continued)
F-19
INDIAN VILLAGE COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1997
(Table amounts in thousands)
- --------------------------------------------------------------------------------
NOTE 13 - ADOPTION OF PLAN OF CONVERSION
On January 20, 1999, the Board of Directors of the Bank, subject to regulatory
approval and approval by the members of the Bank, unanimously adopted a Plan of
Conversion from a federally chartered mutual bank to a federally chartered stock
bank with the concurrent formation of a holding company. The Holding Company
will acquire 100 percent of the Bank's common stock. The conversion is expected
to be accomplished through amendment of the Bank's charter and the sale of the
Holding Company's common stock in an amount equal to the pro forma market value
of the Bank after giving effect to the conversion. A subscription offering of
the shares of the Holding Company's common stock will be offered to the Bank's
depositors, then to an employee stock benefit plan and then to other members.
Any shares of the Holding Company's common stock not sold in the subscription
offering may be offered for sale to the general public.
At the time of the conversion, the Bank will establish a liquidation account in
an amount equal to its regulatory capital as of the latest practicable date
before the conversion at which such regulatory capital can be determined. The
liquidation account will be maintained for the benefit of eligible depositors
who continue to maintain their accounts at the Bank after the conversion. The
liquidation account will be reduced annually to the extent that eligible
depositors have reduced their qualifying deposits. Subsequent increases will
not restore an eligible account holder's interest in the liquidation account.
In the event of a complete liquidation, each eligible depositor will be entitled
to receive a distribution from the liquidation account in an amount
proportionate to the current adjusted qualifying balances for accounts then
held. The Bank may not pay dividends that would reduce shareholders' equity
below the required liquidation account balance.
Under Office of Thrift Supervision ("OTS") regulations, limitations have been
imposed on all "capital distributions" by savings institutions, including cash
dividends. The regulation establishes a three-tiered system of restrictions,
with the greatest flexibility afforded to thrifts that are both well capitalized
and given favorable qualitative examination ratings by the OTS.
Conversion costs will be deferred and deducted from the proceeds of the shares
sold in the conversion. If the conversion is not completed, all costs will be
charged to expense. At December 31, 1998, $16,513 of costs have been deferred.
- --------------------------------------------------------------------------------
F-20
You should rely only on the information contained in this prospectus. Neither
Indian Village Bancorp, Inc. nor Indian Village Community Bank has authorized
anyone to provide you with different information. This prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any of the
securities offered by this prospectus to any person or in any jurisdiction in
which an offer or solicitation is not authorized or in which the person making
an offer or solicitation is not qualified to do so, or to any person to whom it
is unlawful to make an offer or solicitation in those jurisdictions. Neither the
delivery of this prospectus nor any sale hereunder shall under any circumstances
imply that there has been no change in the affairs of Indian Village Bancorp,
Inc. or Indian Village Community Bank since any of the dates as of which
information is furnished in this prospectus or since the date printed below.
[Logo for Indian Village Bancorp, Inc.]
(Proposed Holding Company for Indian Village Community Bank)
690,000 Shares of Common Stock
--------
Prospectus
--------
TRIDENT SECURITIES
May ___, 1999
Until the later of August __, 1999, all dealers that buy, sell or trade these
securities, whether or not participating in this offering, may be required to
deliver a prospectus. This is in addition to the dealers' obligation to deliver
a prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
CONFORMED
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, in the City of
Gnadenhutten, State of Ohio, on March 18, 1999.
Indian Village Bancorp, Inc.
By: /s/ Marty R. Lindon
-------------------------------------
Marty R. Lindon
President, Chief Executive Officer
and Director
(duly authorized representative)
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities and
on the dates stated.
Name Title Date
---- ----- ----
/s/ Marty R. Lindon President, Chief Executive March 18, 1999
- --------------------- Officer and Director
Marty R. Lindon (principal executive
officer)
/s/ Lori S. Frantz Vice President, Treasurer March 18, 1999
- --------------------- and Chief Financial Officer
Lori S. Frantz (principal accounting and
financial officer)
/s/ Rebecca S. Mastin Chairperson of the Board March 18, 1999
- -----------------------
Rebecca S. Mastin
/s/ John A. Beitzel Vice Chairman of the Board March 18, 1999
- -----------------------
John A. Beitzel
/s/ Michael A. Cochran Corporate Secretary and Director March 18, 1999
- -----------------------
Michael A. Cochran
/s/ Vernon E. Mishler Director March 18, 1999
- -----------------------
Vernon E. Mishler
/s/ Joanne Limbach Director March 18, 1999
- -----------------------
Joanne Limbach
/s/ Cindy S. Knisely Director March 18, 1999
- -----------------------
Cindy S. Knisely
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
In accordance with the General and Business Corporations Law of the Commonwealth
of Pennsylvania (being Title 15 of the Pennsylvania Statutes), Article 9 of the
Registrant's Articles of Incorporation provide as follows:
ARTICLE 9. INDEMNIFICATION, ETC. OF OFFICERS, DIRECTORS,
EMPLOYEES AND AGENTS
A. Personal Liability of Directors. A director of the Corporation shall not
-------------------------------
be personally liable for monetary damages for any action taken, or any failure
to take any action, as a director except to the extent that by law a director's
liability for monetary damages may not be limited.
B. Indemnification. The Corporation shall indemnify any person who was or is
---------------
a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, including actions by or in the right of
the Corporation, whether civil, criminal, administrative or investigative, by
reason of the fact that such person is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding to
the full extent permissible under Pennsylvania law.
C. Advancement of Expenses. Reasonable expenses incurred by an officer,
-----------------------
director, employee or agent of the Corporation in defending a civil or criminal
action, suit or proceeding described in Section B of this Article 9 may be paid
by the Corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such person to
repay such amount if it shall ultimately be determined that the person is not
entitled to be indemnified by the Corporation.
D. Other Rights. The indemnification and advancement of expenses provided by
------------
or pursuant to this Article 9 shall not be deemed exclusive of any other rights
to which those seeking indemnification or advancement of expenses may be
entitled under any insurance or other agreement, vote of stockholders or
directors or otherwise, both as to actions in their official capacity and as to
actions in another capacity while holding an office, and shall continue as to a
person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of such person.
E. Insurance. The Corporation shall have the power to purchase and maintain
---------
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against any liability asserted against
him and incurred by him in any such capacity, or arising out of his status as
such, whether or not the Corporation would have the power to indemnify him
against such liability under the provisions of this Article 9.
F. Security Fund; Indemnity Agreements. By action of the Board of Directors
-----------------------------------
(notwithstanding their interest in the transaction), the Corporation may create
and fund a trust fund or fund of any nature, and may enter into agreements with
its officers, directors, employees and agents for the purpose of securing or
insuring in any manner its obligation to indemnify or advance expenses provided
for in this Article 9.
G. Modification. The duties of the Corporation to indemnify and to advance
------------
expenses to any person as provided in this Article 9 shall be in the nature of a
contract between the Corporation and each such person, and no amendment or
repeal of any provision of this Article 9, and no amendment or termination of
any trust or other fund created pursuant to Section F of this Article 9, shall
alter to the detriment of such person the right of such person to
1
the advance of expenses or indemnification related to a claim based on an act or
failure to act which took place prior to such amendment, repeal or termination.
H. Proceedings Initiated by Indemnified Persons. Notwithstanding any other
--------------------------------------------
provision of this Article 9, the Corporation shall not indemnify a director,
officer, employee or agent for any liability incurred in an action, suit or
proceeding initiated (which shall not be deemed to include counter-claims or
affirmative defenses) or participated in as an intervener or amicus curiae by
the person seeking indemnification unless such initiation of or participation in
the action, suit or proceeding is authorized, either before or after its
commencement, by the affirmative vote of a majority of the directors in office.
2
Item 25. Other Expenses of Issuance and Distribution.
SEC filing............................................................................... $ 2,206
OTS filing fee........................................................................... 8,400
NASD filing fee.......................................................................... 1,294
Printing, postage and mailing............................................................ 70,000
Legal fees and expenses.................................................................. 95,000
Accounting fees and expenses............................................................. 65,000
Appraisers' fees and expenses (including business plan).................................. 23,000
Marketing fees, selling commissions and expenses (including underwriter's counsel fees).. 100,000
Conversion agent fees.................................................................... 5,000
Certificate printing..................................................................... 1,500
Miscellaneous............................................................................ 8,600
--------
TOTAL.................................................................................... $380,000
========
Item 26. Recent Sales of Unregistered Securities.
None.
3
Item 27. Exhibits.
The exhibits filed as a part of this Registration Statement are as follows:
(a) List of Exhibits (filed herewith unless otherwise noted)
1.1 Engagement Letter between Indian Village Community Bank and Trident
Securities, Inc.
1.2 Draft Form of Agency Agreement*
2.0 Plan of Conversion (including the Federal Stock Charter and Bylaws of
Indian Village Community Bank)
3.1 Articles of Incorporation of Indian Village Bancorp, Inc.
3.2 Bylaws of Indian Village Bancorp, Inc.
4.0 Specimen Stock Certificate of Indian Village Bancorp, Inc.
5.0 Draft Opinion of Muldoon, Murphy & Faucette LLP re: legality
8.1 Draft Opinion of Muldoon, Murphy & Faucette LLP re: Federal Tax Matters
8.2 Draft Opinion of Crowe, Chizek and Company LLP re: State Tax Matters
10.1 Form of Indian Village Community Bank Employee Stock Ownership Plan and
Trust Agreement
10.2 Draft ESOP Loan Commitment Letter and ESOP Loan Documents
10.3 Form of Indian Village Community Bank and Indian Village Bancorp, Inc.
Employment Agreement
10.4 Form of Indian Village Community Bank Employee Severance Compensation Plan
16.0 Letter regarding change in certifying accountant
23.1 Consent of Muldoon, Murphy & Faucette LLP
23.2 Consent of Crowe, Chizek and Company LLP
23.4 Consent and Subscription Rights Opinion of Keller & Company, Inc.
24.1 Powers of Attorney
27.0 Financial Data Schedule
99.1 Appraisal Report of Keller & Company, Inc. (P)
- ---------------------
*To be filed by amendment
(P) Filed pursuant to Rule 202 of Regulation S-T.
4
Item 28. Undertakings.
The small business issuer will:
(1) File, during any period in which it offers or sells securities, a post-
effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in
the registration statement; and
(iii) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act, treat each post-
effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the
initial bona fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
The small business issuer will provide to the underwriter at the closing
specified in the underwriting agreement certificates in such denominations and
registered in such names as required by the underwriter to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the small business issuer of expenses incurred or paid by a director, officer or
controlling person of the small business issuer in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the small business
issuer will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
5
As filed with the Securities and Exchange Commission on March 18, 1999
Registration No. 333-_______________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
EXHIBITS
TO THE
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------
INDIAN VILLAGE BANCORP, INC.
(Exact name of registrant as specified in its certificate of incorporation)
================================================================================
TABLE OF CONTENTS
List of Exhibits (filed herewith unless otherwise noted)
The exhibits filed as a part of this Registration Statement are as follows:
(a) List of Exhibits (filed herewith unless otherwise noted)
1.1 Engagement Letter between Indian Village Community Bank and Trident
Securities, Inc.
1.2 Draft Form of Agency Agreement*
2.0 Plan of Conversion (including the Federal Stock Charter and Bylaws of
Indian Village Community Bank)
3.1 Articles of Incorporation of Indian Village Bancorp, Inc.
3.2 Bylaws of Indian Village Bancorp, Inc.
4.0 Specimen Stock Certificate of Indian Village Bancorp, Inc.
5.0 Draft Opinion of Muldoon, Murphy & Faucette LLP re: legality
8.1 Draft Opinion of Muldoon, Murphy & Faucette LLP re: Federal Tax Matters
8.2 Draft Opinion of Crowe, Chizek and Company LLP re: State Tax Matters
10.1 Form of Indian Village Community Bank Employee Stock Ownership Plan and
Trust Agreement
10.2 Draft ESOP Loan Commitment Letter and ESOP Loan Documents
10.3 Form of Indian Village Community Bank and Indian Village Bancorp, Inc.
Employment Agreement
10.4 Form of Indian Village Community Bank Employee Severance Compensation Plan
16.0 Letter regarding change in certifying accountant
23.1 Consent of Muldoon, Murphy & Faucette LLP
23.2 Consent of Crowe, Chizek and Company LLP
23.4 Consent and Subscription Rights Opinion of Keller & Company, Inc.
24.1 Powers of Attorney
27.0 Financial Data Schedule
99.1 Appraisal Report of Keller & Company, Inc. (P)
- --------------------------------------
*To be filed by amendment
(P) Filed pursuant to Rule 202 of Regulation S-T.