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Exhibit 13
KILLBUCK BANCSHARES, INC.
CORPORATE PROFILE
Killbuck Bancshares, Inc. (the "Company") was incorporated under the laws of the
State of Ohio on November 29, 1991 at the direction of management of the Bank,
for the purpose of becoming a bank holding company by acquiring all of the
outstanding shares of The Killbuck Savings Bank Company. In November 1992, the
Company became the sole shareholder of the Bank. The Bank carries on business
under the name "The Killbuck Savings Bank Company." The principal office of the
Company is located at 165 N. Main Street, Killbuck, Ohio.
The Killbuck Savings Bank Company was established under the banking laws of the
State of Ohio in November of 1900. The Bank is headquartered in Killbuck, Ohio,
which is located in the northeast portion of Ohio, in Holmes County. The Bank is
insured by the Federal Deposit Insurance Corporation, and is regulated by the
Ohio Division of Financial Institutions and the Board of Governors of the
Federal Reserve System.
The Bank provides customary retail and commercial banking services to its
customers, including checking and savings accounts, time deposits,
interest-bearing accounts, internet banking, bill payment, safe deposit
facilities, real estate mortgage loans and consumer loans. The Bank also makes
secured and unsecured commercial loans.
STOCK MARKET INFORMATION
There is no established public trading market for our common stock and our
shares are not listed on any exchange. Sale price information is based on
information reported to us by individual buyers and sellers of our stock. The
following table summarizes the high and low prices and dividend information for
2000 and 1999. Cash dividends are paid on a semi-annual basis.
Cash
Dividends
Quarter Ended High Low Paid
------------- ---- --- ----
2000 March 31 $96.77 $86.17 N/A
June 30 88.46 86.64 .70
September 30 92.13 89.54 N/A
December 31 94.56 92.64 .75
1999 March 31 $92.88 $92.03 N/A
June 30 94.47 93.48 .60
September 30 94.87 93.62 N/A
December 31 96.33 96.12 .65
At December 31, 2000 the Company had approximately 963 shareholders of record.
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SELECTED FINANCIAL DATA
The following table sets forth general information and ratios of the Company at
the dates indicated (in thousands except per share data and shares).
Year Ended December 31,
----------------------------------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
For The Year:
Total interest income $ 19,350 $ 17,069 $ 16,024 $ 15,224 $ 13,982
Total interest expense 9,366 8,201 7,892 7,344 6,626
-------- -------- -------- -------- --------
Net interest income 9,984 8,868 8,132 7,880 7,356
Provision for loan losses 540 240 183 180 180
-------- -------- -------- -------- --------
Net interest income after
provision for loan losses 9,444 8,628 7,949 7,700 7,176
Total other income 638 646 558 449 439
Total other expense 5,720 5,319 4,574 4,036 3,799
-------- -------- -------- -------- --------
Income before
income taxes 4,362 3,955 3,933 4,113 3,816
Income tax expense 1,079 937 1,017 1,108 1,069
-------- -------- -------- -------- --------
Net income $ 3,283 $ 3,018 $ 2,916 $ 3,005 $ 2,747
======== ======== ======== ======== ========
Per share data
Net earnings (1) $ 4.66 $ 4.28 $ 4.37 $ 4.52 $ 4.10
Dividends (1) $ 1.45 $ 1.25 $ 1.05 $ 0.92 $ 0.76
Book value (at period end)(1) $ 45.18 $ 41.00 $ 38.90 $ 33.48 $ 29.86
Average no. of shares outstanding (1) 703,784 705,331 684,650 664,578 668,147
Year-end balances:
Total loans $151,800 $143,777 $137,891 $122,034 $116,259
Securities 83,607 76,736 66,777 58,477 51,208
Total assets 262,000 243,150 231,994 197,909 182,692
Deposits 219,168 201,738 192,079 163,809 157,399
Borrowings 10,514 12,013 11,922 11,455 4,815
Shareholders' equity 31,741 28,917 27,437 22,158 19,934
Significant ratios:
Return on average assets 1.31% 1.29% 1.40% 1.55% 1.56%
Return on average equity 10.98 10.69 12.35 14.26 14.57
Dividends per share to net
income per share 31.12 29.21 24.03 20.35 18.54
Average equity to
average assets 11.93 12.05 11.32 10.86 10.73
Loans to deposits 69.26 71.27 71.79 74.50 73.86
Allowance for loan
loss to total loans 1.55 1.31 1.34 1.43 1.42
(1) Adjusted for 5 for 1 stock split in 1998.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Killbuck Bancshares, Inc. ("Killbuck" or the "Company") is the parent holding
company for the Killbuck Savings Bank Company (the "Bank"). The following
discussion and analysis is intended to provide information about the financial
condition and results of operation of the Company and should be read in
conjunction with the audited Consolidated Financial Statements, footnotes and
other discussions appearing elsewhere in this annual report and the Company's
Form 10-K.
Certain information presented in this discussion and analysis and other
statements concerning future performance, developments or events, and
expectations for growth and market forecasts constitute forward-looking
statements which are subject to a number of risks and uncertainties, including
interest rate fluctuations, changes in local or national economic conditions,
and government and regulatory actions which might cause actual results to differ
materially from stated expectations or estimates.
OVERVIEW
The reported results of the Company are dependent on a variety of factors,
including the general interest rate environment, competitive conditions in the
industry, governmental policies and regulations and conditions in the markets
for financial assets. We are not aware of any market or institutional trends,
events or uncertainties that are expected to have a material effect on
liquidity, capital resources or operations. Net interest income is the largest
component of net income, and consists of the difference between income generated
on interest-earning assets and interest expense incurred on interest-bearing
liabilities. Net interest income is primarily affected by the volume, interest
rates and composition of interest-earning assets and interest-bearing
liabilities.
During 1998, we completed the merger of Commercial and Savings Bank Company of
Danville, Ohio with, and into the Bank. This merger has allowed us to better
serve our existing clients in this area, while allowing us the opportunity to
attract new customers from the Danville area.
A new branch facility in Sugarcreek, Ohio opened for business in February, 2000.
Also in 2000, construction began on a new branch facility in Howard, Ohio (Apple
Valley Area). The branch in Howard is expected to open for business in June,
2001. These new locations will give us a presence in the Sugarcreek and Apple
Valley areas and allow us to develop new business and deposit relationships in
these areas.
RESULTS OF OPERATIONS
SUMMARY
For 2000, we recorded net income of $3.3 million compared to $3.0 million for
1999 and $2.9 million for 1998.
Other operating income was $638,000 for 2000 compared to $646,000 for 1999 and
$558,000 for 1998.
Total other operating expenses were $5.7 million in 2000 compared to $5.3
million in 1999 and $4.6 million in 1998.
Earnings per share for 2000 were $4.66 compared to $4.28 for 1999 and $4.37 for
1998. These earnings per share are adjusted for the 5 for 1 stock split in 1998.
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NET INTEREST INCOME
Our net interest income increased by $1,115,000 in 2000 from 1999 and $736,000
in 1999 from 1998.
Total interest income increased by $2,281,000 or 13.36% for 2000 from 1999. The
increase of $2,281,000 for 2000 resulted primarily from an increase of
$1,501,000 in interest income on loans and $711,000 in interest income on
investment securities. The increases in loan and investment security interest
income resulted both from increases in the current yield on the loan and
investment portfolios which increased .58 basis points to 9.64% and .29 basis
points to 5.70% respectively, and increases in the average outstanding balances
of the loan and investment portfolios, which increased $7.0 million and $9.0
million respectively.
Total interest income increased by $1,045,000 or 6.52% for 1999 from 1998 due
mainly to an increase in the average outstanding balances of the loan and
investment portfolios of $13.0 million and $10.5 million respectively.
The yield on earning assets was 8.18%, 7.70%, and 8.06% for 2000, 1999, and 1998
respectively. The increase in the yield on earning assets is attributable to the
general rise in interest rates.
Interest expense for 2000 increased by $1,166,000 or 14.22% from 1999 and by
$309,000 for 1999 from 1998. These increases were due to both increases in the
cost on interest bearing liabilities which rose .31 basis points from 4.55% in
1999 to 4.86% in 2000, and increases in the average volume of interest bearing
liabilities, which increased $12.8 million during 2000 and $17.3 million during
1999.
The average volume of time deposits and interest bearing demand deposits
increased $9.7 million and $1.6 million respectively in 2000 while time deposits
and interest bearing demand deposits increased $9.9 million, and $5.4 million
respectively for 1999.
The cost on interest bearing liabilities was 4.86% for 2000 and 4.55% for 1999,
and 4.85% for 1998. The increase for 2000 is due mainly to an increase in the
cost of time deposits of .47 basis points.
Due mainly to an increase in the yield on total earning assets, the net yield on
earning assets has increased this year reversing the trend of the prior two
years. The net yield on interest earning assets is 4.22%, 4.00% and 4.09% for
2000, 1999 and 1998 respectively.
The following table sets forth, for the periods indicated, information regarding
the total dollar amounts of interest income from average interest-earning assets
and the resulting yields, the total dollar amount of interest expense on average
interest-bearing liabilities and the resulting rate paid, net interest income,
interest rate spread and the net yield on interest-earning assets (dollars in
thousands):
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AVERAGE BALANCE SHEET AND NET INTEREST ANALYSIS
For the Year Ended December 31,
------------------------------------------------------------------------------------------
2000 1999 1998
---------------------------- --------------------------- ----------------------------
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
Assets
Interest earning assets:
Loans (1)(2)(3) $147,224 $14,199 9.64% $140,202 $12,698 9.06% $127,214 $12,043 9.47%
Securities-taxable (4) 44,311 2,854 6.44% 38,778 2,309 5.95% 33,800 2,070 6.12%
Securities-nontaxable 33,601 1,572 4.68% 30,345 1,420 4.68% 24,857 1,201 4.83%
Securities-equity (4)(5) 1,274 86 6.75% 1,137 72 6.33% 1,078 70 6.49%
Federal funds sold 10,194 639 6.27% 11,115 570 5.13% 11,904 640 5.38%
-------- ------- -------- ------- -------- -------
Total interest earnings assets 236,604 19,350 8.18% 221,577 17,069 7.70% 198,853 16,024 8.06%
------- ------- -------
Noninterest-earning assets
Cash and due from other Institutions 7,666 7,292 6,625
Premises and equipment, net 4,079 3,533 2,891
Accrued interest 1,900 1,301 1,164
Other assets 2,332 2,515 842
Less allowance for loan losses (2,004) (1,939) (1,810)
-------- -------- --------
Total $250,577 $234,279 $208,565
======== ======== ========
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AVERAGE BALANCE SHEET AND NET INTEREST ANALYSIS (CONTINUED)
For the Year Ended December 31,
---------------------------------------------------------------------------------------
2000 1999 1998
--------------------------- -------------------------- ---------------------------
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ---- ------- -------- ----
Liabilities and Shareholders
Equity
Interest bearing liabilities:
Interest bearing demand $ 28,674 $ 736 2.57% $ 27,102 $ 691 2.55% $ 21,655 $ 549 2.54%
Money market accounts 11,249 412 3.66% 11,364 401 3.53% 15,364 620 4.04%
Savings deposits 27,980 873 3.12% 26,583 829 3.12% 19,745 589 2.98%
Time deposits 113,868 6,717 5.90% 104,202 5,660 5.43% 94,289 5,437 5.77%
Short term borrowings 4,523 181 4.00% 3,090 86 2.78% 2,637 79 3.00%
Federal Home Loan Bank Advances 6,610 447 6.76% 7,805 534 6.84% 9,132 618 6.77%
------- ------ -------- ------ -------- ----
Total interest bearing liabilities 192,904 9,366 4.86% 180,146 8,201 4.55% 162,822 7,892 4.85%
------ ------ ------
Noninterest bearing liabilities:
Demand deposits 27,117 25,144 21,290
Accrued expenses and other liabilities 663 751 838
Shareholder's equity 29,893 28,238 23,615
-------- -------- --------
Total $250,577 $234,279 $208,565
======== ======== ========
Net interest income $9,984 $8,868 $8,132
====== ====== ======
Interest rate spread (6) 3.32% 3.15% 3.21%
==== ==== ====
Net yield on interest earning assets (7) 4.22% 4.00% 4.09%
==== ==== ====
(1) For purposes of these computations, the daily average loan amounts
outstanding are net of deferred loan fees.
(2) Included in loan interest income are loan related fees of $300,335,
$252,742, and $217,604 in 2000, 1999, and 1998, respectively.
(3) Nonaccrual loans are included in loan totals and do not have a material
impact on the information presented.
(4) Average balance is computed using the carrying value of securities. The
average yield has been computed using the historical amortized cost
average balance for available for sale securities.
(5) Equity securities are comprised of common stock of the Federal Home
Loan Bank, Federal Reserve Bank and Great Lakes Bankers Bank.
(6) Interest rate spread represents the difference between the average
yield on interest earning assets and the average cost of interest
bearing liabilities.
(7) Net yield on interest earning assets represents net interest income as
a percentage of average interest earning assets.
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RATE/VOLUME ANALYSIS
The table below sets forth certain information regarding changes in interest
income and interest expense of the Company for the periods indicated. For each
category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in volume
(changes in average volume multiplied by old rate) and (ii) changes in rates
(changes in rate multiplied by old average volume). Changes which are not solely
attributable to rate or volume are allocated to changes in rate due to rate
sensitivity of interest-earning assets and interest-bearing liabilities (dollars
in thousands).
2000 Compared to 1999 1999 Compared to 1998
Increase (Decrease) Due To Increase (Decrease) Due To
Volume Rate Net Volume Rate Net
------ ---- --- ------ ---- ---
Interest income
Loans $ 636 $ 865 $1,501 $1,230 $(575) $ 655
Securities-taxable 329 216 545 305 (66) 239
Securities-nontaxable 152 -- 152 265 (46) 219
Securities-equities 9 5 14 4 (2) 2
Federal funds sold (47) 116 69 (42) (28) (70)
------ ------ ------ ------ ----- ------
Total interest earning
Assets 1,079 1,202 2,281 1,762 (717) 1,045
------ ------ ------ ------ ----- ------
Interest expense
Interest bearing demand 40 5 45 138 4 142
Money market accounts (4) 15 11 (162) (57) (219)
Savings deposits 44 -- 44 204 36 240
Time deposits 525 533 1,058 572 (349) 223
Short-term borrowing 40 55 95 14 (7) 7
Federal Home Loan Bank
Advances (82) (5) (87) (90) 6 (84)
------ ------ ------ ------ ----- ------
Total interest bearing
Liabilities 563 603 1,166 676 (367) 309
------ ------ ------ ------ ----- ------
Net change in interest income $ 516 $ 599 $1,115 $1,086 $(350) $ 736
====== ====== ====== ====== ===== ======
PROVISION FOR LOAN LOSSES
The provision for loan losses was $540,000 for 2000, $240,000 for 1999, and
$183,000 for 1998 . We make periodic provisions to the allowance for loan losses
to maintain the allowance at an acceptable level commensurate with the credit
risks inherent in the loan portfolio. There can be no assurances, however, that
additional provisions will not be required in future periods. The allowance for
loan losses as a percent of total loans was 1.55%, 1.31% and 1.34% for 2000,
1999 and 1998 respectively.
Due to recent regulatory policies on consumer lending, the Bank's classification
of substandard loans increased to $2,556,541 at December 31, 2000 compared to
$987,288 at December 31, 1999. Also, loans within our consumer loan portfolio at
December 31, 2000 were recently identified as exhibiting characteristics of a
subprime loan, as defined in a recent regulatory joint policy statement. The
Bank is currently implementing policies and procedures to identify and monitor
this type of loan, within our consumer loan portfolio, which may have a higher
level of credit risk than our other consumer loans that do not have subprime
loan characteristics.
While 2000 was a year of strong loan performance, management recognizes that the
general economic environment continues to change. As we are all aware, overall
economic growth in the United States has slowed and utility prices have risen
dramatically. These changes also affect our local communities. The added burden
of higher utility prices and the possibility of slower employment growth,
workweek shortages or layoffs, make meeting monthly consumer debt obligations
more difficult. Management will be closely monitoring the performance of our
consumer loan portfolio in the coming months. For the reasons mentioned above,
the provision for loan losses was increased substantially during the fourth
quarter of 2000.
OTHER INCOME
Other income, which is comprised principally of fees and charges on customers'
deposit accounts, decreased $8,000 or 1.2% to $638,000 in 2000 from $646,000 in
1999, and increased $88,000 or 15.9% in 1999 from 1998. Service charges on
customer accounts increased $17,000 or 3.5% in 2000 due to increased deposit
activity caused by the opening of the Sugarcreek Office in February 2000 and
increases in new deposit accounts. Service charges on customer accounts
increased $75,000 or 18.31 % in 1999 due to increased deposit activity caused by
the merger of Commercial and Savings Bank Company in late 1998 and increases in
new deposit accounts. The Bank started to sell fixed rate loans in the secondary
market in late 1997. Due to market conditions, the Bank originated and sold $1.4
million less of these loans in 2000 compared to 1999. Gains for these sales were
$10,000 in 2000, $42,000 in 1999 and $42,000 in 1998. Income from the
alternative investment service the Bank introduced in 1997 was $41,000 for 2000
and $32,000 for 1999 and $31,000 for 1998.
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OTHER EXPENSE
Other expense increased $401,000 or 7.5% to $5.7 million in 2000 as compared to
$5.3 million in 1999 and increased $745,000 or 16.28% for 1999 from $4.6 million
in 1998.
Salary and employee benefits for 2000 totaled $2.8 million, an increase of
$212,000 or 8.1% from $2.6 million in 1999 and increased $313,000 for 1999 or
13.61% from $2.3 million in 1998. This increase is due to the addition of the
new branch office in Sugarcreek, Ohio and normal recurring employee cost
increases for annual salary raises, staff additions and employee benefits for
2000. The increase for 1999 represents the effect of a full year's expense
associated with new employees due to the merger with Commercial and Savings Bank
Company in November, 1998 and normal recurring employee cost increases for
annual salary increases, staff additions and employee benefits. For 2001, in
addition to normal recurring salary, benefit adjustments and staff additions, it
is expected salary and benefit costs will increase due to additional employees
for the new branch office in Howard, Ohio.
Occupancy and equipment expense increased $69,000 in 2000 and $97,000 in 1999.
The increase in expense during 2000 was attributable to the addition of the new
branch office in Sugarcreek, Ohio and additional improvements and equipment
purchases for operations. For 1999, the increases were attributable to normal
and recurring items and a full year of occupancy and equipment expense on the
Danville branch. For 2001, it is expected occupancy and equipment expense will
increase due to the installation of a computer wide area network (WAN) for the
entire bank and the addition of the new branch office in Howard, Ohio.
Other operating expenses for 2000 totaled $2.1 million, a $100,000 or 5%
increase from the $2.0 million reported in 1999 and a $334,000 or 20.51%
increase for 1999 from the 1998 total of $1.6 million. The increase in other
expense is due to several factors including a $24,000 increase in telephone
expenses, a $30,000 increase in advertising, $20,000 increase in insurance and
bond expense, and increases in normal and recurring expenses. The telephone
expense is attributable to the new branch, the circuits for the WAN, and
increases in normal recurring expenses; the increases in advertising expenses is
associated with the new branch, the launch of the web site, and increase in
normal recurring advertisements. The insurance expense increase is due mainly to
the $17.1 million increase in deposits and the relating Federal Deposit
Insurance Corporation premiums. The increase of $334,000 in 1999 from 1998 in
other expenses is attributable to costs associated with the completion of the
merger and costs of becoming a securities and exchange registrant and
recognition of a full year of goodwill amortization associated with the merger
and increases in normal and recurring expenses associated with a new branch and
existing branches. For 2001, in addition to normal recurring increases, other
expense is expected to increase due to the addition of the new branch in Howard,
Ohio.
INCOME TAX EXPENSE
Income tax expense increased by $142,000 for 2000 to $1,079,000 from $937,000 in
1999 and decreased $79,000 in 1999 from $1.0 million in 1998. The effective rate
on taxes for 2000, 1999 and 1998 was 24.7%, 23.7% and 25.9% respectively. The
effective tax rate is affected by the amount of tax exempt income earned by the
Company each year.
COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 2000 AND 1999
Total assets at December 31, 2000 amounted to $262 million, an increase of $18.8
million compared to $243.2 million at December 31,1999.
Cash and cash equivalents increased $3.7 million or 21.92% from December 31,
1999 to December 31, 2000, with liquid funds held in the form of federal funds
sold increasing $2.3 million. The increase in federal funds sold at December 31,
2000 is the excess of funds from the net increase in deposits that was not used
in investing activities, financing activities, or operating activities.
Total investment securities increased $6.9 million or 8.95% from December 31,
1999 to December 31, 2000. The increase in investments was funded by the
increase in deposits. Information detailing the book value of the investment
portfolio by security type and classification is present in Note 4 to the
consolidated financial statements.
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Total loans were $151.8 million at December 31, 2000 an increase of $8.0 million
or 5.56% from $143.8 million at December 31, 1999. Of this $8.0 million increase
approximately $4.6 million was in the real estate residential loan portfolio,
and approximately $3.3 million was in the consumer and credit loan portfolio.
Approximately $3.3 million of the $4.6 million increase in real estate loans was
in residential 1 to 4 family adjustable rate mortgages and approximately $.9
million was in residential 1 to 4 family fixed rate mortgages. Of the $3.3
million increase in consumer and credit loans, approximately $2.2 million was in
loans secured by Bank deposit accounts and approximately $1.1 million was in
general consumer products including vehicle loans of approximately $.3 million,
$.7 million in real estate, and $.1 million in credit card products. Late in
1997 we began to offer residential mortgage customers a new fixed rate product.
This program enables us to offer competitive long-term fixed rates. These loans
are made with the intent to sell in the secondary loan market. We originated and
sold $3.2 million and $4.6 million of loans in 2000 and 1999. Profit on the sale
of these loans was $10,000 and$42,000 for 2000 and 1999. Information detailing
the composition of the loan portfolio is presented in Note 5 to the consolidated
financial statements.
Total deposits increased $17.4 million or 8.64% from December 31, 1999 to
December 31, 2000. All deposit accounts increased with the exception of interest
bearing demand accounts. The increases are attributable to new deposit account
growth and internal growth for existing accounts. The decrease in interest
bearing demand accounts of $1.7 million in 2000 is due to a movement of funds
into higher yielding accounts. See also, Average Balance Sheet and Net Interest
Analysis for information related to the average amount and average interest paid
on deposit accounts during 2000 and 1999. Information related to the maturity of
time deposits of $100,000 and over at December 31, 2000 is presented in Note 8
of the accompanying consolidated financial statements.
Advances were $6.2 million and $7.1 million at December 31, 2000 and 1999
respectively. These advances were used to fund fixed rate residential real
estate loans with similar maturities in prior years. There were no new advances
in 2000 or 1999.
Shareholders' equity increased $2.8 million during 2000 to $31.7 million at
December 31, 2000 from $28.9 million at December 31, 1999. This increase was the
result of an increase of $2.3 million in net retained earnings during the year
and a net unrealized gain on securities available for sale of $.8 million. The
Company also purchased treasury stock for $.3 million.
MARKET RISK AND ASSET/LIABILITY MANAGEMENT
Our primary market risk exposure is interest rate risk and, to a lesser extent,
liquidity risk. Because of the nature of our operations, we are not subject to
currency exchange or commodity price risk and, since we have no trading
portfolio, it is not subject to trading risk. Currently, we have equity
securities that represent only 1.58% of its investment portfolio and, therefore,
equity price risk is not significant.
We actively manage interest rate sensitivity and asset/liability products
through an asset/liability management committee. The principle objectives of
asset-liability management are to maximize current net interest income while
minimizing the risk to future earnings of negative fluctuations in net interest
margin and to insure adequate liquidity exists to meet operational needs.
In an effort to reduce interest rate risk and protect itself from the negative
effects or rapid or prolonged changes in interest rates, we have instituted
certain asset and liability management measures, including underwriting
long-term fixed rate loans that are saleable in the secondary market, offering
longer term deposit products and diversifying the loan portfolio into shorter
term consumer and commercial business loans. In addition, since the mid-1980's,
we have originated adjustable-rate loans and as of December 31, 2000, they
comprised approximately 57% of the total loan portfolio.
LIQUIDITY
Liquidity represents our ability to meet normal cash flow requirements of our
customers for the funding of loans and repayment of deposits. Liquidity is
generally derived from the repayments and maturities of loans and investment
securities, and the receipt of deposits. Management monitors liquidity daily,
and on a monthly basis incorporates liquidity management into its
asset/liability program.
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Operating activities, as presented in the statement of cash flows in the
accompanying consolidated financial statements, provided $3.8 and $3.4 million
in cash during 2000 and 1999 respectively, generated principally from net
income.
Investing activities consist primarily of loan originations and repayments,
investment purchases and maturities, and investment in technology. These
activities used $14.7 million in funds during 2000, principally for the net
funding of loans, the net purchase of investments, and the net purchase of
technology and fixed assets totaling $8.1 million, $5.6 million, and $1.0
million respectively. For 1999, investing activities used $17.6 million,
principally for the net funding of loans and the net purchase of investments
totaling $6.1 million and $11.0 million respectively.
Financing activities consisted of the solicitation and repayment of customer
deposits, borrowings and repayments, and the payment of dividends. For 2000,
financing activities provided $14.7 million, comprised mainly of net deposit
increases of $17.4 million, repayment of Federal Home Loan Bank advances of $.9
million, net short-term borrowings decreases of $.6 million and payment of
dividends of $1 million. For 1999 financing activities provided $8.9 million,
comprised mainly of net deposit increases of $9.7 million, Federal Home Loan
Bank advance repayments of $1.5 million, net short-term borrowing increases of
$1.6 million and payment of dividends of $.9 million.
In addition to using the loan, investment and deposit portfolios as sources of
liquidity, we have access to funds from the Federal Home Loan Bank of
Cincinnati. We also have a ready source of funds through the available-for-sale
component of the investment securities portfolio.
CAPITAL RESOURCES
Capital adequacy is our ability to support growth while protecting the interests
of shareholders and depositors. Bank regulatory agencies have developed certain
capital ratio requirements, which are used to assist them in monitoring the
safety and soundness of financial institutions. We continually monitor these
capital requirements and believe the Company to be in compliance with these
regulations at December 31, 2000.
Our regulatory capital position at December 31, 2000, as compared to the minimum
regulatory capital requirements imposed on us by banking regulators at that date
is presented in Note 16 of the accompanying consolidated financial statements.
We are not aware of any actions contemplated by banking regulators which would
result in us being in non-compliance with capital requirements.
IMPACT OF INFLATION CHANGING PRICES
The consolidated financial statements and the accompanying notes presented
elsewhere in this document, have been prepared in accordance with 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 and
due to inflation. Unlike most industrial companies, virtually all of the assets
and liabilities are monetary in nature. The impact of inflation is reflected in
the increased cost of operations. As a result, interest rates have a greater
impact on performance than do the effects of 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.
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YEAR 2000
The Company relies on computers to conduct its business and information systems
processing. Industry experts were concerned that on January 1, 2000, some
computers might not be able to interpret the new year properly, causing computer
malfunctions. Some banking experts were concerned that some computers may not be
able to interpret additional dates in the year 2000 properly. The Company has
operated and evaluated its computer operating systems following January 1, 2000
and has not identified any errors or experienced any computer system
malfunctions. Nevertheless, the Company continues to monitor its computer
operating systems to assess whether its systems are at risk of misinterpreting
any future dates and will develop, if needed, appropriate contingency plans to
prevent any potential system malfunction or correct any system failures. The
Company has not been informed of any such problem experienced by its vendors or
its customers.
At this time, the Company does not believe that these potential problems will
materially impact the ability to continue operations. However, no assurance can
be given that this will be the case.
16
12
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Killbuck Bancshares, Inc.
We have audited the accompanying consolidated balance sheet of Killbuck
Bancshares, Inc. and subsidiary as of December 31, 2000 and 1999, and the
related consolidated statements of income, changes in shareholders' equity, and
cash flows for each of the three years in the period ended December 31, 2000.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United State of America. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Killbuck Bancshares,
Inc. and subsidiary as of December 31, 2000 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2000 in conformity with accounting principles generally accepted in
the United States of America.
/s/ S.R. SNODGRASS, A.C.
Steubenville, Ohio
February 27, 2001
17
13
KILLBUCK BANCSHARES, INC.
CONSOLIDATED BALANCE SHEET
December 31,
2000 1999
------------- -------------
ASSETS
Cash and cash equivalents:
Cash and amounts due from depository institutions $ 9,512,736 $ 8,123,806
Federal funds sold 11,000,000 8,700,000
------------- -------------
Total cash and cash equivalents 20,512,736 16,823,806
------------- -------------
Investment securities:
Securities available for sale 47,477,388 42,311,490
Securities held to maturity (market value of $ 36,601,277
and $33,578,899) 36,129,625 34,424,679
------------- -------------
Total investment securities 83,607,013 76,736,169
------------- -------------
Loans (net of allowance for loan losses of $ 2,358,759 and
$1,887,773) 149,061,901 141,521,075
Loans held for sale 520,000 356,000
Premises and equipment, net 4,528,169 3,851,975
Accrued interest receivable 1,885,665 1,622,480
Other assets 1,884,545 2,238,375
------------- -------------
Total assets $ 262,000,029 $ 243,149,880
============= =============
LIABILITIES
Deposits:
Noninterest bearing demand $ 31,815,997 $ 28,935,106
Interest bearing demand 27,833,483 29,579,519
Money market 10,249,064 8,746,151
Savings 28,493,290 28,173,933
Time 120,776,058 106,303,749
------------- -------------
Total deposits 219,167,892 201,738,458
Federal Home Loan Bank advances 6,197,930 7,112,753
Short-term borrowings 4,315,768 4,900,000
Accrued interest and other liabilities 577,274 481,951
------------- -------------
Total liabilities 230,258,864 214,233,162
------------- -------------
SHAREHOLDERS' EQUITY
Common stock - No par value: 1,000,000 shares authorized,
718,431 issued 8,846,670 8,846,670
Retained earnings 23,614,590 21,352,156
Accumulated other comprehensive income (loss) 168,141 (648,620)
Treasury stock, at cost (15,883 and 13,100 shares) (888,236) (633,488)
------------- -------------
Total shareholders' equity 31,741,165 28,916,718
------------- -------------
Total liabilities and shareholders' equity $ 262,000,029 $ 243,149,880
============= =============
See accompanying notes to the consolidated financial statements.
18
14
KILLBUCK BANCSHARES, INC.
CONSOLIDATED STATEMENT OF INCOME
Year Ended December 31,
2000 1999 1998
----------- ----------- -----------
INTEREST INCOME
Interest and fees on loans $14,199,350 $12,698,236 $12,043,400
Federal funds sold 639,622 568,636 639,968
Investment securities:
Taxable 2,936,565 2,381,982 2,129,061
Exempt from federal income tax 1,574,855 1,419,777 1,211,898
----------- ----------- -----------
Total interest income 19,350,392 17,068,631 16,024,327
----------- ----------- -----------
INTEREST EXPENSE
Deposits 8,738,303 7,580,106 7,194,761
Federal Home Loan Bank advances 447,023 534,468 618,347
Short term borrowings 181,234 85,826 79,351
----------- ----------- -----------
Total interest expense 9,366,560 8,200,400 7,892,459
----------- ----------- -----------
NET INTEREST INCOME 9,983,832 8,868,231 8,131,868
Provision for loan losses 540,000 240,000 183,000
----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 9,443,832 8,628,231 7,948,868
----------- ----------- -----------
OTHER INCOME
Service charges on deposit accounts 499,858 483,071 408,321
Gain on sale of loans, net 9,786 41,581 41,712
Other income 128,635 121,232 107,491
----------- ----------- -----------
Total other income 638,279 645,884 557,524
----------- ----------- -----------
OTHER EXPENSE
Salaries and employee benefits 2,827,003 2,615,225 2,301,849
Occupancy and equipment 810,111 741,289 643,854
Other expense 2,083,192 1,962,189 1,628,186
----------- ----------- -----------
Total other expense 5,720,306 5,318,703 4,573,889
----------- ----------- -----------
INCOME BEFORE INCOME TAXES 4,361,805 3,955,412 3,932,503
Income taxes 1,078,884 937,085 1,016,542
----------- ----------- -----------
NET INCOME $ 3,282,921 $ 3,018,327 $ 2,915,961
=========== =========== ===========
EARNINGS PER SHARE $ 4.66 $ 4.28 $ 4.37
=========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 704,498 705,331 666,779
=========== =========== ===========
See accompanying notes to the consolidated financial statements.
19
15
KILLBUCK BANCSHARES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Accumulated
Other
Common Retained Comprehensive
Stock Earnings Income (Loss)
----- -------- -------------
BALANCE, DECEMBER 31, 1997 $5,806,500 $17,018,414 $ (33,817)
Net income 2,915,961
Other comprehensive income:
Unrealized gain on available for sale
securities, net of tax of $21,818 42,353
Comprehensive income
Cash dividends paid ($1.05 per share) (718,882)
Business acquisition 3,040,170
---------- ----------- ---------
BALANCE, DECEMBER 31, 1998 8,846,670 19,215,493 8,536
Net income 3,018,327
Other comprehensive income:
Unrealized loss on available for sale
securities, net of tax benefit of $338,535 (657,156)
Comprehensive income
Cash dividends paid ($1.25 per share) (881,664)
---------- ----------- ---------
BALANCE, DECEMBER 31, 1999 8,846,670 21,352,156 (648,620)
Net income 3,282,921
Other comprehensive income:
Unrealized gain on available for sale
securities, net of tax of $420,756 816,761
Comprehensive income
Cash dividends paid ($1.45 per share) (1,020,487)
Purchase of Treasury Stock, at cost
---------- ----------- ---------
BALANCE, DECEMBER 31, 2000 $8,846,670 $23,614,590 $ 168,141
========== =========== =========
Treasury Shareholders' Comprehensive
Stock Equity Income
----- ------ ------
BALANCE, DECEMBER 31, 1997 $(633,488) $22,157,609
Net income 2,915,961 $2,915,961
Other comprehensive income:
Unrealized gain on available for sale
securities, net of tax of $21,818 42,353 42,353
----------
Comprehensive income $2,958,314
==========
Cash dividends paid ($1.05 per share) (718,882)
Business acquisition 3,040,170
--------- -----------
BALANCE, DECEMBER 31, 1998 (633,488) 27,437,211
Net income 3,018,327 $3,018,327
Other comprehensive income:
Unrealized loss on available for sale
securities, net of tax benefit of $338,535 (657,156) (657,156)
----------
Comprehensive income $2,361,171
==========
Cash dividends paid ($1.25 per share) (881,664)
--------- -----------
BALANCE, DECEMBER 31, 1999 (633,488) 28,916,718
Net income 3,282,921 $3,282,921
Other comprehensive income:
Unrealized gain on available for sale
securities, net of tax of $420,756 816,761 816,761
----------
Comprehensive income $4,099,682
==========
Cash dividends paid ($1.45 per share) (1,020,487)
Purchase of Treasury Stock, at cost (254,748) (254,748)
--------- -----------
BALANCE, DECEMBER 31, 2000 $(888,236) $31,741,165
========= ===========
See accompanying notes to the consolidated financial statements.
20
16
KILLBUCK BANCSHARES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended December 31,
2000 1999 1998
---- ---- ----
OPERATING ACTIVITIES
Net income $ 3,282,921 $ 3,018,327 $ 2,915,961
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 540,000 240,000 183,000
Depreciation, amortization and accretion, net 420,419 414,035 307,868
Gain on sale of loans, net (9,786) (41,581) (41,712)
Origination of loans held for sale (3,303,720) (4,674,850) (4,924,449)
Proceeds from the sale of loans 3,149,506 4,594,181 4,732,411
Federal Home Loan Bank stock dividend (66,400) (60,500) (57,800)
(Increase) decrease in accrued interest and other assets (187,606) (31,268) 80,983
Increase (decrease) in accrued interest and other
liabilities 83,153 (75,547) (5,076)
Increase (decrease) in federal income tax payable 12,170 (1,799) (86,032)
Deferred federal income tax (142,505) (22,661) 69,582
------------ ------------ ------------
Net cash provided by operating activities 3,778,152 3,358,337 3,174,736
------------ ------------ ------------
INVESTING ACTIVITIES
Investment securities available for sale:
Proceeds from maturities and repayments 4,490,576 15,067,374 25,874,036
Purchases (8,352,183) (19,131,130) (27,154,089)
Investment securities held to maturity:
Proceeds from maturities and repayments 1,707,128 1,967,986 2,786,713
Purchases (3,465,473) (8,885,152) (6,856,609)
Net increase in loans (8,080,826) (6,116,761) (5,195,049)
Purchase of premises and equipment (1,043,588) (550,970) (395,902)
Proceeds from sale of other real estate owned -- 73,334 --
Cash funds acquired in business acquisition -- -- 1,296,338
------------ ------------
Net cash used in investing activities (14,744,366) (17,575,319) (9,644,562)
------------ ------------ ------------
FINANCING ACTIVITIES
Net increase in deposits 17,429,434 9,659,777 14,304,976
Proceeds from Federal Home Loan Bank advances -- -- 1,500,000
Repayment of Federal Home Loan Bank advances (914,823) (1,474,549) (1,657,872)
Net (decrease) increase in short-term borrowings (584,232) 1,565,000 625,000
Purchase of treasury shares (254,748) -- --
Cash dividends paid including fractions shares (1,020,487) (881,664) (730,831)
------------ ------------ ------------
Net cash provided by financing activities 14,655,144 8,868,564 14,041,273
------------ ------------ ------------
Increase (decrease) in cash and cash equivalents 3,688,930 (5,348,418) 7,571,447
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 16,823,806 22,172,224 14,600,777
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 20,512,736 $ 16,823,806 $ 22,172,224
============ ============ ============
See accompanying notes to the consolidated financial statements.
21
17
KILLBUCK BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting and reporting policies applied in the
presentation of the consolidated financial statements follows:
NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Killbuck Bancshares, Inc. (the "Company") is an Ohio corporation organized as
the holding company of The Killbuck Savings Bank Company (the "Bank"). The Bank
is a state-chartered bank located in Ohio. The Company and its subsidiary
operate in the single industry of commercial banking and derive substantially
all their income from banking and bank-related services which include interest
earnings on residential real estate, commercial mortgage, commercial and
consumer loan financing as well as interest earnings on investment securities
and charges for deposit services to its customers through seven locations. The
Board of Governors of the Federal Reserve System supervises the Company and
Bank, while the Bank is also subject to regulation and supervision by the Ohio
Division of Financial Institutions.
The consolidated financial statements of the Company include its wholly owned
subsidiary, the Bank. All intercompany transactions have been eliminated in
consolidation. The investment in subsidiary on the parent company financial
statements is carried at the parent company's equity in the underlying net
assets.
The accounting principles followed by the Company and the methods of applying
these principles conform with generally accepted accounting principles and with
general practice within the banking industry. In preparing the financial
statements, management is required to make estimates and assumptions that affect
the reported amounts of assets and liabilities as of the balance sheet date and
related revenues and expenses for the period. Actual results may differ
significantly from those estimates.
INVESTMENT SECURITIES
Investment securities are classified, at the time of purchase, based upon
management's intention and ability, as securities held to maturity or securities
available for sale. Debt securities acquired with the intent and ability to hold
to maturity are stated at cost adjusted for amortization of premium and
accretion of discount which are computed using the level yield method. Certain
other debt and equity securities have been classified as available for sale to
serve principally as a source of liquidity. Unrealized holding gains and losses
on available for sale securities are reported as a separate component of
shareholders' equity, net of tax, until realized. Realized securities gains and
losses are computed using the specific identification method. Interest and
dividends on investment securities are recognized as income when earned.
Common stock of the Federal Home Loan Bank, Federal Reserve Bank and Great Lakes
Bankers Bank represent ownership in institutions which are wholly-owned by other
financial institutions. These securities are accounted for at cost and are
classified with equity securities available for sale.
LOANS
Loans are stated at their outstanding principal, less the allowance for loan
losses and any net deferred loan fees. Interest income on loans is recognized on
the accrual method. Accrual of interest on loans is generally discontinued when
it is determined that a reasonable doubt exists as to the collectibility of
principal, interest, or both. Loans are returned to accrual status when past due
interest is collected, and the collection of principal is probable.
Loan origination and commitment fees, as well as certain direct origination
costs, are deferred and amortized as a yield adjustment over the lives of the
related loans using the interest method. Amortization of deferred loan fees is
discontinued when a loan is placed on nonaccrual status.
Mortgage loans originated and held for sale in the secondary market are carried
at the lower of cost or market value determined on an aggregate basis. Net
unrealized losses are recognized in a valuation allowance through charges to
income. Gains and losses on the sale of loans held for sale are determined using
the specific identification method. All loans are sold to Federal Home Loan
Mortgage Corporation ("Freddie Mac") and serviced by the Bank.
22
18
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses represents the amount which management estimates
is adequate to provide for potential losses in its loan portfolio. The allowance
method is used in providing for loan losses. Accordingly, all loan losses are
charged to the allowance, and all recoveries are credited to it. The allowance
for loan losses is established through a provision for loan losses which is
charged to operations. The provision is based upon management's periodic
evaluation of individual loans, the overall risk characteristics of the various
portfolio segments, past experience with losses, the impact of economic
conditions on borrowers, and other relevant factors. The estimates used in
determining the adequacy of the allowance for loan losses including the amounts
and timing of future cash flows expected on impaired loans, are particularly
susceptible to significant change in the near term.
Impaired loans are commercial and commercial real estate loans for which it is
probable that the Company will not be able to collect all amounts due according
to the contractual terms of the loan agreement. The Company individually
evaluates such loans for impairment and does not aggregate loans by major risk
classifications. The definition of "impaired loans" is not the same as the
definition of "nonaccrual loans," although the two categories overlap. The
Company may choose to place a loan on nonaccrual status due to payment
delinquency or uncertain collectibility, while not classifying the loan as
impaired, provided the loan is not a commercial or commercial real estate
classification. Factors considered by management in determining impairment
include payment status and collateral value. The amount of impairment for these
types of loans is determined by the difference between the present value of the
expected cash flows related to the loan, using the original interest rate, and
its recorded value, or as a practical expedient in the case of collateralized
loans, the difference between the fair value of the collateral and the recorded
amount of the loans. When foreclosure is probable, impairment is measured based
on the fair value of the collateral.
Mortgage loans secured by one-to-four family properties and all consumer loans
are large groups of smaller balance homogeneous loans and are measured for
impairment collectively. Loans that experience insignificant payment delays,
which are defined as 90 days or less, generally are not classified as impaired.
Management determines the significance of payment delays on a case-by-case
basis, taking into consideration all of the circumstances concerning the loan,
the credit worthiness and payment history of the borrower, the length of the
payment delay, and the amount of shortfall in relation to the principal and
interest owed.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets. Maintenance and repairs are expensed as incurred
while major additions and improvements are capitalized.
REAL ESTATE OWNED
Real estate acquired in settlement of loans is stated at the lower of the
recorded investment in the property or its fair value minus estimated costs of
sale. Prior to foreclosure the value of the underlying collateral is written
down by a charge to the allowance for loan losses if necessary. Any subsequent
write-downs are charged against operating expenses. Operating expenses of such
properties, net of related income and losses on their disposition, are included
in other expenses.
INTANGIBLE ASSETS AND LIABILITIES
Goodwill represents the amount by which the market value of the stock issued in
the merger of Commercial Saving Bank Co. (Commercial) of Danville, Ohio with and
into The Killbuck Savings Bank Company exceeded the market value of the assets,
liabilities and capital of Commercial on the date of the merger. As of December
31, 2000 and 1999 respectively, net goodwill of $1,440,020 and $1,550,790 is
included in other assets on the balance sheet and is being amortized using the
straight-line method over fifteen years.
Market value adjustments to various asset and liabilities accounts are being
amortized using the straight-line method over the period to be benefited. The
market value adjustments are components of their respective account balances on
the balance sheet.
EMPLOYEE BENEFITS PLANS
The Bank maintains an integrated money purchase pension plan and a 401(K) plan
covering eligible employees. The Bank's contributions are based upon the plan's
contribution formula.
23
19
INCOME TAXES
The Company and its subsidiary file a consolidated federal income tax return.
Income tax expense is allocated among the parent company and the subsidiary as
if each had filed a separate return. Deferred tax assets and liabilities are
reflected at currently enacted income tax rates applicable to the period in
which the deferred tax assets or liabilities are expected to be realized or
settled. As changes in tax laws or rates are enacted, deferred tax assets and
liabilities are adjusted through the provision for income taxes. Deferred income
tax expenses or benefits are based on the changes in the deferred tax asset or
liability from period to period.
EARNINGS PER SHARE
The Company currently maintains a simple capital structure; therefore, there are
no dilutive effects on earnings per share. As such, earnings per share are
calculated using the weighted average number of shares outstanding for the
period.
COMPREHENSIVE INCOME
The Company is required to present comprehensive income in a full set of general
purpose financial statements for all periods presented. Other comprehensive
income is comprised exclusively of unrealized holding gains (losses) on the
available for sale securities portfolio. The Company has elected to report the
effects of other comprehensive income as part of the Statement of Changes in
Shareholders' Equity.
CASH FLOW INFORMATION
For purposes of reporting cash flows, cash and cash equivalents include cash and
amounts due from financial institutions and federal funds sold. Cash payments
for interest in 2000, 1999 and 1998 were $9,291,388, $8,229,575, and $7,809,677,
respectively. Cash payments for income taxes for 2000, 1999, and 1998 were
$1,209,236, $960,417, and $1,055,913 respectively.
PENDING ACCOUNTING PRONOUNCEMENTS
Financial Accounting Standards Board ("FASB") Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (Statement No. 133), as amended
by Financial Accounting Standards Board Statement No. 138, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of Statement No. 133" (Statement No. 138), is effective in 2001, and requires
measuring and recording the change in fair values of derivative instruments.
Statement No. 133 is not expected to materially affect the Company's financial
position or results of operation.
In September 2000, the FASB issued Statement No. 140, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities." The
Statement replaces FASB Statement No. 125 and provides consistent standards for
distinguishing transfers of financial assets that are sales from transfers that
are secured borrowings based on a control-oriented "financial-components"
approach. Under this approach, after a transfer of financial assets, an entity
recognizes the financial and servicing assets it controls and liabilities it has
incurred, derecognizes financial assets when control has been surrendered and
derecognizes liabilities when extinguished. The provisions of Statement No. 140
are effective for transactions occurring after March 31, 2001. This Statement is
effective for recognition and reclassification of collateral and for disclosures
relating to securitization transactions and collateral for fiscal years ending
after December 15, 2000. The adoption of the provisions of Statement No. 140 is
not expected to have a material impact on financial position or results of
operations.
RECLASSIFICATION OF COMPARATIVE AMOUNTS
Certain amounts in the prior year consolidated financial statements have been
reclassified to conform to the current year presentation. These
reclassifications had no effect on shareholders' equity or net income.
During 1998, retroactive recognition was given for the elimination of the stated
value of the Company's Common Stock. This caused the capital surplus to be
reduced to zero, with the balance of $3,106,500 being reclassified to Common
Stock. Such action had no effect on Total Shareholders' Equity disclosed
previously.
2. STOCK SPLIT
On April 13, 1998 the Board of Directors authorized an increase in the
authorized common shares from 200,000 to 1,000,000 shares and also authorized a
5 for 1 stock split of common stock to shareholders of record on May 1, 1998.
Per share amounts in the accompanying consolidated financial statements have
been restated to reflect the stock split.
24
20
3. FEDERAL FUNDS SOLD
Federal funds sold at December 31 consists of the following:
2000 1999
----------------------------- ---------------------------
Institution Maturity Balance Maturity Balance
----------- -------- ------- -------- -------
National City Bank 1-02-01 $ 9,700,000 1-3-00 $3,700,000
Great Lakes Bankers Bank 1-02-01 1,300,000 1-3-00 5,000,000
------------ ----------
$11,000,000 $8,700,000
=========== ==========
4. INVESTMENT SECURITIES
The amortized cost of securities and their estimated market values are as
follows:
SECURITIES AVAILABLE FOR SALE
2000
---------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---- ----- ------ -----
U.S. Treasury securities $ -- $ -- $-- $ --
Obligations of U.S. Government
Agencies and Corporations 45,902,919 254,759 -- 46,157,678
----------- ----------- --- -----------
Total debt securities 45,902,919 254,759 -- 46,157,678
Equity securities 1,319,710 -- -- 1,319,710
----------- ----------- --- -----------
Total $47,222,629 $ 254,759 $-- $47,477,388
=========== =========== === ===========
1999
---------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---- ----- ------ -----
U.S. Treasury securities $ 2,998,811 $1,455 $ 610 $ 2,999,656
Obligations of U.S. Government
Agencies and Corporations 39,133,728 -- 983,604 38,150,124
----------- ------ -------- -----------
Total debt securities 42,132,539 1,455 984,214 41,149,780
Equity securities 1,161,710 -- -- 1,161,710
----------- ------ -------- -----------
Total $43,294,249 $1,455 $984,214 $42,311,490
=========== ====== ======== ===========
25
21
SECURITIES HELD TO MATURITY
2000
---------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---- ----- ------ -----
Obligations of States and Political
Subdivisions $34,514,191 $608,803 $ 94,665 $35,028,329
Corporate Securities 1,615,434 3,492 45,978 1,572,948
----------- -------- -------- -----------
Total $36,129,625 $612,295 $140,643 $36,601,277
=========== ======== ======== ===========
1999
---------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---- ----- ------ -----
Obligations of States and Political
Subdivisions $32,797,040 $106,508 $843,411 $32,060,137
Corporate Securities 1,627,639 -- 108,877 1,518,762
----------- -------- -------- -----------
Total $34,424,679 $106,508 $952,288 $33,578,899
=========== ======== ======== ===========
The amortized cost and estimated market values of debt securities at December
31, 2000, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to call
or repay obligations with or without call or prepayment penalties.
Available For Sale Held to Maturity
-----------------------------------------------------------------------
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
---- ----- ---- -----
Due in one year or less $ 5,499,670 $ 5,485,000 $ 2,088,066 $ 2,102,459
Due after one year through five years 32,113,432 32,168,343 12,735,927 12,857,266
Due after five through ten years 8,289,817 8,504,335 17,959,649 18,222,550
Due after ten years -- -- 3,345,983 3,419,002
----------- ----------- ----------- -----------
$45,902,919 $46,157,678 $36,129,625 $36,601,277
=========== =========== =========== ===========
Investment securities with an approximate carrying value of $37,010,000 and
$31,225,000 at December 31, 2000 and 1999, respectively were pledged to secure
public deposits, securities sold under agreement to repurchase and for other
purposes as required or permitted by law. There were no security sales in 2000,
1999 and 1998.
26
22
5. LOANS
Major classification of loans are summarized as follows:
2000 1999
---- ----
Real estate - residential $ 53,528,900 $ 48,959,970
Real estate - farm 3,945,484 4,380,211
Real estate - commercial 23,062,836 23,717,573
Real estate - construction 2,043,971 1,396,523
Commercial and other loans 38,355,007 37,767,378
Consumer and credit loans 30,863,939 27,555,540
------------- -------------
151,800,137 143,777,195
Less allowance for loan losses (2,358,759) (1,887,773)
Less net deferred loan fees (379,477) (368,347)
------------- -------------
Loans, net $ 149,061,901 $ 141,521,075
============= =============
Loans held for sale at December 31, 2000 and 1999 were $520,000 and $356,000
respectively. In 1999 the Bank started servicing loans originated and sold in
the secondary market. The Bank is currently collecting a fee of .25% for
servicing these loans. Real estate loans serviced for Freddie Mac, which are not
included in the consolidated balance sheet, totaled $4,053,953 and $900,691 at
December 31, 2000 and 1999, respectively.
Total nonaccrual loans and the related interest for the years ended December 31
are as follows. In management's opinion, these loans did not meet the definition
of impaired loans.
2000 1999 1998
---- ---- ----
Principal outstanding $298,286 $287,017 $ 21,323
Contractual interest due $ 10,013 $ 19,969 $ 923
Interest income recognized $ 0 $ 0 $ 0
The Company's primary business activity is with customers located within its
local trade area. Residential, commercial, personal, and agricultural loans are
granted. The Company also selectively funds loans originated outside of its
trade area provided such loans meet its credit policy guidelines. Although the
Company has a diversified loan portfolio at December 31, 2000 and 1999, loans
outstanding to individuals and businesses are dependent upon the local economic
conditions in its immediate trade area.
The Bank entered into transactions with certain directors, executive officers,
significant stockholders, and their affiliates. A summary of loan activity for
those directors, executive officers, and their associates with loan balances in
excess of $60,000 for the year ended December 31, 2000 is as follows:
Balance Amounts Balance
12-31-1999 Additions Collected 12-31-2000
---------- --------- --------- ----------
$858,339 $14,011 $805,049 $67,301
6. ALLOWANCE FOR LOAN LOSSES
An analysis of the change in the allowance for loan losses follows:
2000 1999 1998
---- ---- ----
Balance, January 1 $ 1,887,773 $ 1,851,175 $ 1,744,586
Add:
Provision charged to operations 540,000 240,000 183,000
Loan recoveries 180,850 80,135 47,657
Acquired in business acquisition -- -- 93,001
Less: Loans charged off (249,864) (283,537) (217,069)
----------- ----------- -----------
Balance, December 31 $ 2,358,759 $ 1,887,773 $ 1,851,175
=========== =========== ===========
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7. PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
2000 1999
---- ----
Land $1,053,945 $ 909,930
Building and improvements 3,485,328 3,265,750
Furniture, fixtures and equipment 3,290,894 2,616,955
---------- ----------
7,830,167 6,792,635
Less accumulated depreciation 3,301,998 2,940,660
---------- ----------
Total $4,528,169 $3,851,975
========== ==========
Depreciation expense charged to operations was $361,338 for 2000, $321,492 for
1999, and $283,300 for 1998.
8. DEPOSITS
Time deposits include certificates of deposit in denominations of $100,000 or
more. Such deposits aggregated $41,743,149 and $27,186,935 at December 31, 2000
and 1999, respectively.
Interest expense on certificates of deposit $100,000 and over amounted to
$1,874,053 in 2000, $1,487,708 in 1999, and $1,496,632 in 1998.
The following table sets forth the remaining maturity of time certificates of
deposits of $100,000 or more at December 31, 2000.
3 months or less $ 9,147,253
Over 3 through 6 months 8,941,862
Over 6 through 12 months 15,668,145
Over 12 months 7,985,889
-----------
Total $41,743,149
===========
9. SHORT-TERM BORROWINGS
Short-term borrowings consist of securities sold under agreements to repurchase.
These retail repurchase agreements are with customers in their respective loan
market areas. These borrowings are collateralized with securities owned by the
Bank and held in their safekeeping account at an independent correspondent bank.
The outstanding balances and related information for short-term borrowings are
summarized as follows:
2000 1999
---- ----
Short-term borrowings:
Ending balance $4,315,768 $4,900,000
Maximum month-end balance during the year 5,195,001 4,900,000
Average month-end balance during the year 4,557,783 3,275,567
Weighted average at year end 4.36% 3.28%
Weighted average rate during the year 3.99% 2.62%
The Company has pledged investment securities with carrying values of $5,968,280
and $5,803,550 as of December 31, 2000 and 1999, respectively, as collateral for
the repurchase agreements.
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24
10. FEDERAL HOME LOAN BANK ADVANCES
The Federal Home Loan Bank advances have monthly principal and interest payments
due with maturity dates from 2009 through 2017. Interest rates range from 6.00%
to 8.90% on the advances. The scheduled aggregate minimum future principal
payments on the advances outstanding as of December 31, 2000 are as follows:
Year Ending
December 31, Amount
------------ ------
2001 $ 738,116
2002 671,889
2003 613,311
2004 561,697
2005 516,424
2006 and thereafter 3,096,493
----------
Total $6,197,930
==========
The Bank maintains a credit arrangement with Federal Home Loan Bank of
Cincinnati, Ohio ("FHLB"). The FHLB borrowings, when used, are collateralized by
the Bank's investment in Federal Home Loan Bank stock and a blanket collateral
pledge agreement with FHLB under which the Bank has pledged certain qualifying
assets equal to 150 percent of the unpaid amount of the outstanding balances. At
December 31, 2000 the Bank had a borrowing capacity of approximately $38.1
million with the FHLB. At December 31, 2000 and 1999 there was $6,197,930 and
$7,112,753, respectively borrowed against this credit arrangement.
11. EMPLOYEE BENEFIT PLANS
The Bank maintains an integrated money purchase pension plan and a 401(k) plan.
Under the integrated money purchase pension plan contribution formula, the Bank,
for each plan year, will contribute an amount equal to 8% of an employee's
compensation for the plan year and 5.7% of the amount of an employee's excess
compensation for the plan year. Excess compensation is a participant's
compensation in excess of the designated integration level. This designated
integration level is 100% of the taxable wage base in effect at the beginning of
the plan year. The federal government annually adjusts the taxable wage base.
This plan does not permit nor require employees to make contributions to the
plan.
The 401(k) plan allows employees to make salary reduction contributions to the
plan up to 10% of their compensation for the plan year. For each plan year, the
Bank may contribute to the plan an amount of matching contributions for a
particular plan year. The Bank may choose not to make matching contributions for
a particular plan year. For 2000 and 1999 the Bank matched 25% of the employees
voluntary contributions up to 1% of the employee's compensation.
Both plans cover substantially all employees with one year of service and
attained age 21.
The pension costs charged to operating expense for the years 2000, 1999 and 1998
amounted to $178,801, $180,369 and $153,374, respectively.
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12. OTHER OPERATING EXPENSE
Other operating expense included the following:
2000 1999 1998
---- ---- ----
Professional fees $ 255,325 $ 257,986 $ 187,813
Franchise tax 343,662 361,089 333,689
Other 1,484,205 1,343,114 1,106,684
---------- ---------- ----------
Total $2,083,192 $1,962,189 $1,628,186
========== ========== ==========
13. INCOME TAXES
The provision for federal income taxes for the years ended December 31 consist
of:
2000 1999 1998
---- ---- ----
Current payable $ 1,221,389 $ 959,746 $ 946,960
Deferred (142,505) (22,661) 69,582
----------- ----------- -----------
Total provision $ 1,078,884 $ 937,085 $ 1,016,542
=========== =========== ===========
The following is a reconcilement between the actual provision for federal income
taxes and the amount of income taxes, which would have been provided at
statutory rates for the year ended December 31:
2000 1999 1998
-------------------------- -------------------------- --------------------------
% of % of % of
Pre-Tax Pre-Tax Pre-Tax
Amount Income Amount Income Amount Income
------ ------ ------ ------ ------ ------
Provision at statutory rate $ 1,483,013 34.0% $ 1,344,840 34.0% $ 1,337,051 34.0%
Tax exempt income (535,451) (12.3) (482,724) (12.2) (408,414) (10.4)
Non-deductible interest
Expense 83,133 1.9 81,600 2.16 4,937 1.7
Other, net 48,189 1.1 (6,631) (.2) 22,968 .6
----------- ----- ----------- ----- ----------- -----
Tax expense
and effective rate $ 1,078,884 24.7% $ 937,085 23.7% $ 1,016,542 25.9%
=========== ===== =========== ===== =========== =====
The tax effects of deductible and taxable temporary differences that gave rise
to significant portions of the net deferred tax assets and liabilities at
December 31 are as follows:
2000 1999
---- ----
Deferred Tax Assets:
Allowance for loan losses $608,339 $448,255
Deferred loan fees 19,942 25,817
Net unrealized loss on securities -- 334,138
-------- --------
Deferred tax asset 628,281 808,210
-------- --------
Deferred Tax Liabilities:
Premise and equipment 239,168 256,213
Stock dividends 102,540 79,900
Net unrealized gain on securities 86,618 --
Other, net 13,294 7,185
-------- --------
Deferred tax liabilities 441,620 343,298
-------- --------
Net deferred tax assets $186,661 $464,912
======== ========
No valuation allowance was established at December 31, 2000 and 1999 in view of
certain tax strategies coupled with the anticipated future taxable income as
evidenced by the Company's earnings potential.
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26
14. COMMITMENTS AND CONTINGENT LIABILITIES
COMMITMENTS
In the normal course of business, the Company has outstanding commitments and
contingent liabilities, such as commitments to extend credit and standby letters
of credit, which are not included in the accompanying consolidated financial
statements. The Company's exposure to credit loss in the event of nonperformance
by the other party to the financial instruments for commitments to extend credit
and standby letters of credit is represented by the contractual or notional
amount of those instruments. The Company uses the same credit policies in making
such commitments as it does for instruments that are included in the
consolidated balance sheet.
These commitments were comprised of the following at December 31:
2000 1999
---- ----
Commitments to extend credit $20,350,000 $13,014,017
Standby letters of credit 703,529 964,224
----------- -----------
Total $21,053,529 $13,978,241
=========== ===========
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Company evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Company upon extension of credit, is based on
management's credit evaluation. Collateral held varies but may include accounts
receivable, inventory, property and equipment, and income-producing commercial
properties.
Standby letters of credit are conditional commitments issued by the Company to
guarantee the performance of a customer to a third party. Standby letters of
credit generally have fixed expiration dates or other termination clauses and
may require payment of a fee. The credit risk involved in issuing letters of
credit is essentially the same as that involved in extending loan facilities to
customers. The Company's policy for obtaining collateral, and the nature of such
collateral, is essentially the same as that involved in making commitments to
extend credit.
The Company has not been required to perform any financial guarantees during the
past two years. The Company has not incurred any losses on its commitments in
either 2000 or 1999.
CONTINGENT LIABILITIES
The Company and its subsidiary are subject to claims and lawsuits which arise
primarily in the ordinary course of business. It is the opinion of management
that the disposition or ultimate resolution of such claims and lawsuits will not
have a material adverse effect on the consolidated financial position of the
Company.
15. REGULATORY MATTERS
The approval of regulatory authorities is required if the total of all dividends
declared by the Bank in any calendar year exceeds net profits as defined for
that year combined with its retained net profits for the two preceding calendar
years less any required transfers to surplus. Under this formula, the amount
available for payment of dividends by the Bank to the Company in 2001, without
the approval of the regulatory authorities, is approximately $3,926,000 plus
2001 profits retained up to the date of the dividend declaration.
Included in cash and due from banks are required federal reserves of $2,185,000
and $2,225,000 at December 31, 2000 and 1999, respectively, for facilitating the
implementation of monetary policy by the Federal Reserve System. The required
reserves are computed by applying prescribed ratios to the classes of average
deposit balances. These are held in the form of cash on hand and/or balances
maintained directly with the Federal Reserve Bank.
Federal law prevents the Company from borrowing from the Bank unless the loans
are secured by specific obligations. Further, such secured loans are limited in
amount to ten percent of the Bank's capital. The Company had no such borrowings
at December 31, 2000 and 1999.
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27
16. REGULATORY CAPITAL REQUIREMENTS
Federal regulations require the Company and the Bank to maintain minimum amounts
of capital. Specifically, each is required to maintain certain minimum dollar
amounts and ratios of Total and Tier I capital to risk-weighted assets and of
Tier I capital to average total assets.
In addition to the capital requirements, the Federal Deposit Insurance
Corporation Improvement Act ("FDICIA") established five capital categories
ranging from "well capitalized" to "critically undercapitalized." Should any
institution fail to meet the requirements to be considered "adequately
capitalized," it would become subject to a series of increasingly restrictive
regulatory actions.
As of December 31, 2000 and 1999, the FDIC categorized the Bank as well
capitalized under the regulatory framework for prompt corrective action. To be
classified as a well capitalized financial institution, Total risk-based, Tier I
risk-based, and Tier I Leverage capital ratios must be at least ten percent, six
percent, and five percent, respectively. There have been no conditions or events
since notification that management believes have changed this category.
The Company's actual capital ratios are presented in the following table, which
shows the Company met all regulatory capital requirements. The capital position
of the Bank does not differ significantly from the Company's.
2000 1999
------------------------- -------------------------
Amount Ratio Amount Ratio
------ ----- ------ -----
Total Risk Based Capital (to Risk Weighted Assets)
Actual $32,421 20.39% $29,700 19.85%
For Capital Adequacy Purposes 12,720 8.00 11,970 8.00
To be well capitalized 15,900 10.00 14,962 10.00
Tier 1 Capital (to Risk Weighted Assets)
Actual $30,133 18.95% $27,829 18.60%
For Capital Adequacy Purposes 6,360 4.00 5,985 4.00
To be well capitalized 9,540 6.00 8,977 6.00
Tier 1 Capital (to Average Assets)
Actual $30,133 11.68% $27,829 11.55%
For Capital Adequacy Purposes 10,322 4.00 9,641 4.00
To be well capitalized 12,903 5.00 12,052 5.00
17. OTHER COMPREHENSIVE INCOME
Other comprehensive income included in the Consolidated Statement of
Shareholders' Equity consists solely of net unrealized gains and losses on
available for sales securities. The Company incurred an unrealized net loss for
the period ended December 31, 1999 of $657,156. For the periods ended December
31, 2000 and 1998, the Company incurred unrealized net gains of $816,761 and
$42,353, respectively.
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18. FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS
The carrying amounts and estimated fair values at December 31 are as follows:
2000 1999
--------------------------------- ---------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
Financial assets:
Cash and due from banks $ 9,512,736 $ 9,512,736 $ 8,123,806 $ 8,123,806
Federal funds sold 11,000,000 11,000,000 8,700,000 8,700,000
Securities available for sale 47,477,388 47,477,388 42,311,490 42,311,490
Securities held to maturity 36,129,625 36,601,277 34,424,679 33,578,899
Net loans 149,061,901 154,063,883 141,521,075 144,230,000
Loans held for sale 520,000 541,118 356,000 357,285
Accrued interest receivable 1,885,665 1,885,665 1,622,480 1,622,480
------------ ------------ ------------ ------------
Total $255,587,315 $261,082,067 $237,059,530 $238,923,960
============ ============ ============ ============
Financial liabilities:
Deposits $219,167,892 $220,333,000 $201,738,458 $202,004,000
Federal Home Loan Bank advances 6,197,930 6,649,000 7,112,753 7,200,000
Short term borrowings 4,315,768 4,315,768 4,900,000 4,900,000
Accrued interest payable 415,171 415,171 339,999 339,999
------------ ------------ ------------ ------------
Total $230,096,761 $231,712,939 $214,091,210 $214,443,999
============ ============ ============ ============
Financial instruments are defined as cash, evidence of ownership interest in an
entity, or a contract which creates an obligation or right to receive or deliver
cash or another financial instrument from/to a second entity on potentially
favorable or unfavorable terms.
Fair value is defined as the amount at which a financial instrument could be
exchanged in a current transaction between willing parties other than in a
forced or liquidation sale. If a quoted market price is available for a
financial instrument, the estimated fair value would be calculated based upon
the market price per trading unit of the instrument.
If no readily available market exists, the fair value estimates for financial
instruments should be based upon management's judgment regarding current
economic conditions, interest rate risk, expected cash flows, future estimated
losses, and other factors as determined through various option pricing formulas
or simulation modeling. As many of these assumptions result from judgments made
by management based upon estimates which are inherently uncertain, the resulting
estimated fair values may not be indicative of the amount realizable in the sale
of a particular financial instrument. In addition, changes in assumptions on
which the estimated fair values are based may have a significant impact on the
resulting estimated fair values.
As certain assets and liabilities such as deferred tax assets and liabilities,
premises and equipment and many other operational elements of the Company, are
not considered financial instruments, but have value, this estimated fair value
of financial instruments would not represent the full market value of the
Company.
The Company employed simulation modeling in determining the estimated fair value
of financial instruments for which quoted market prices were not available based
upon the following assumptions:
CASH AND DUE FROM BANKS, FEDERAL FUNDS SOLD, ACCRUED INTEREST RECEIVABLE,
SHORT-TERM BORROWINGS, AND ACCRUED INTEREST PAYABLE
The fair value approximates the current carrying value.
INVESTMENT SECURITIES AND LOANS HELD FOR SALE
The fair value of investment securities and loans held for sale are equal to the
available quoted market price. If no quoted market price is available, fair
value is estimated using the quoted market price for similar securities.
33
29
18. FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS (CONTINUED)
LOANS, DEPOSITS, AND FEDERAL HOME LOAN BANK ADVANCES
The fair value of loans is estimated by discounting the future cash flows using
a simulation model which estimates future cash flows and constructs discount
rates that consider reinvestment opportunities, operating expenses, non-interest
income, credit quality, and prepayment risk. Demand, savings, and money market
deposit accounts are valued at the amount payable on demand as of year end. Fair
values for time deposits and Federal Home Loan Bank advances are estimated using
a discounted cash flow calculation that applies contractual costs currently
being offered in the existing portfolio to current market rates being offered
for deposits and borrowings of similar remaining maturities.
COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT
These financial instruments are generally not subject to sale, and estimated
fair values are not readily available. The carrying value, represented by the
net deferred fee arising from the unrecognized commitment or letter of credit,
and the fair value, determined by discounting the remaining contractual fee over
the term of the commitment using fees currently charged to enter into similar
agreements with similar credit risk, are not considered material for disclosure.
The contractual amounts of unfunded commitments and letters of credit are
presented previously in the commitments and contingent liabilities note.
19. MERGER
The merger of Commercial and Savings Bank Company of Danville, Ohio, with and
into The Killbuck Savings Bank Company, with Killbuck Savings Bank being the
surviving bank was completed on November 21, 1998 using the purchase method of
accounting.
Each outstanding share of Commercial and Savings Bank Company was exchanged for
2.1585 shares of Killbuck Bancshares, Inc. stock in a tax free exchange. A total
of 43,471 shares of Killbuck Bancshares, Inc. stock were issued to shareholders
of Commercial and Savings Bank Company, with cash being paid for any fractional
shares. Commercial and Savings Bank Company had total assets of $15.6 million on
the date of the merger and operated out of one location in Danville, Ohio.
34
30
20. PARENT COMPANY
The following are parent only condensed financial statements:
CONDENSED BALANCE SHEET
December 31,
2000 1999
---- ----
ASSETS
Cash $ 234,578 $ 309,847
Investment in bank subsidiary 31,506,587 28,606,871
----------- -----------
Total assets $31,741,165 $28,916,718
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Shareholders' equity $31,741,165 $28,916,718
----------- -----------
Total liabilities and shareholders' equity $31,741,165 $28,916,718
=========== ===========
CONDENSED STATEMENT OF INCOME
Year Ended December 31,
2000 1999 1998
---- ---- ----
INCOME
Dividends from bank subsidiary $ 1,200,000 $ 1,175,000 $ 718,950
Operating expenses 50 300 172
----------- ----------- -----------
Income before income taxes 1,199,950 1,174,700 718,778
Income tax benefit (17) (102) (58)
----------- ----------- -----------
Income before equity in undistributed net income
of subsidiary 1,199,967 1,174,802 718,836
Equity in undistributed net income of subsidiary 2,082,954 1,843,525 2,197,125
----------- ----------- -----------
NET INCOME $ 3,282,921 $ 3,018,327 $ 2,915,961
=========== =========== ===========
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31
20. PARENT COMPANY (CONTINUED)
CONDENSED STATEMENT OF CASH FLOWS
Year Ended December 31,
2000 1999 1998
---- ---- ----
OPERATING ACTIVITIES
Net income $ 3,282,921 $ 3,018,327 $ 2,915,961
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed net income of subsidiary (2,082,954) (1,843,525) (2,197,125)
----------- ----------- -----------
Net cash provided by operating activities 1,199,967 1,174,802 718,836
----------- ----------- -----------
FINANCING ACTIVITIES
Purchase of treasury shares (254,749) -- --
Dividends paid including fractional shares (1,020,487) (881,664) (730,831)
----------- ----------- -----------
Net cash used in financing activities (1,275,236) (881,664) (730,831)
----------- ----------- -----------
(DECREASE) INCREASE IN CASH (75,269) 293,138 (11,995)
CASH AT BEGINNING OF YEAR 309,847 16,709 28,704
----------- ----------- -----------
CASH AT END OF YEAR $ 234,578 $ 309,847 $ 16,709
=========== =========== ===========
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32
21. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
Three Months Ended
-----------------------------------------------------------
March June September December
2000 2000 2000 2000
---- ---- ---- ----
Total interest income $ 4,512 $ 4,750 $ 5,007 $ 5,081
Total interest expense 2,111 2,253 2,480 2,522
-------- -------- -------- --------
Net interest income 2,401 2,497 2,527 2,559
Provision for loan losses 60 60 60 360
-------- -------- -------- --------
Net interest income after
provision for loans losses 2,341 2,437 2,467 2,199
Total other income 157 158 163 160
Total other expense 1,394 1,464 1,342 1,520
-------- -------- -------- --------
Income before income taxes 1,104 1,131 1,288 839
Income taxes 270 288 329 192
-------- -------- -------- --------
Net income $ 834 $ 843 $ 959 $ 647
======== ======== ======== ========
Per share data:
Net earnings $ 1.18 $ 1.19 $ 1.36 $ .92
======== ======== ======== ========
Weighted average shares outstanding 705,295 705,037 704,715 702,961
======== ======== ======== ========
21. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
Three Months Ended
-----------------------------------------------------------
March June September December
1999 1999 1999 1999
---- ---- ---- ----
Total interest income $ 4,155 $ 4,215 $ 4,257 $ 4,442
Total interest expense 2,036 2,055 2,020 2,090
-------- -------- -------- --------
Net interest income 2,119 2,160 2,237 2,352
Provision for loan losses 60 60 60 60
-------- -------- -------- --------
Net interest income after
provision for loans losses 2,059 2,100 2,177 2,292
Total other income 154 169 156 167
Total other expense 1,254 1,275 1,373 1,417
-------- -------- -------- --------
Income before income taxes 959 994 960 1,042
Income taxes 229 243 221 244
-------- -------- -------- --------
Net income $ 730 $ 751 $ 739 $ 798
======== ======== ======== ========
Per share data:
Net earnings $ 1.03 $ 1.06 $ 1.05 $ 1.13
======== ======== ======== ========
Weighted average shares outstanding 705,331 705,331 705,331 705,331
======== ======== ======== ========
37