1
EXHIBIT 99(ii)*
Form 10-Q Quarterly Report of The Strongsville Savings Bank for the quarter
ended March 31, 1996, as filed with the Office of Thrift Supervision
* Upon completion of the holding company reorganization of The
Strongsville Savings Bank, which was accomplished by means of the merger of
Emerald Interim Savings Bank, a wholly owned subsidiary of Emerald Financial
Corp., with and into The Strongsville Savings Bank, The Strongsville Savings
Bank became a wholly owned subsidiary of Emerald Financial Corp., the
Registrant. At that time, the Registrant succeeded to the registration and
reporting obligations of The Strongsville Savings Bank pursuant to Rule 12g-3(a)
under the Securities Exchange Act of 1934. The Form 10-K Annual Report of The
Strongsville Savings Bank for the year ended December 31, 1995 and the Form 10-Q
Quarterly Reports of The Strongsville Savings Bank for the quarters ended March
31, June 30 and September 30, 1996 attached as exhibits to this Form 8-A
Registration Statement complied as to form and content with the disclosure
obligations established by the Securities and Exchange Commission under the
Securities Exchange Act of 1934.
2
OFFICE OF THRIFT SUPERVISION
UNITED STATES DEPARTMENT OF THE TREASURY
Washington, DC 20552
- --------------------------------------------------------------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1996
[ ] TRANSITIONAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------- -------
OTS Docket Number: 6565
THE STRONGSVILLE SAVINGS BANK
-----------------------------
(Exact name of registrant as specified in its charter)
OHIO 34-0875093
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
14092 PEARL ROAD
STRONGSVILLE, OHIO 44136
------------------ -----
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (216) 238-7311
CAPITAL STOCK, WITHOUT PAR VALUE
--------------------------------
Title of Class
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Capital Stock, No Par Value 2,530,800
- --------------------------------------------------------------------------------
(Class) (Outstanding at April 30, 1996)
3
THE STRONGSVILLE SAVINGS BANK
TABLE OF CONTENTS
-----------------
PART I. FINANCIAL INFORMATION PAGE
Item I. Financial Statements:
Consolidated Statements of Financial
Condition as of March 31, 1996, and
December 31, 1995.............................................................. 2
Consolidated Statements of Income for
the Three Month Periods Ended March
31, 1995 and 1996.............................................................. 3
Consolidated Statements of Cash Flows
for the Three Month Periods Ended March
31, 1996 and 1995.............................................................. 4
Notes to Consolidated Financial Statements..................................... 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................................. 7
Tables......................................................................... 17
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................................... 20
SIGNATURES ...................................................................................... 21
1
4
THE STRONGSVILLE SAVINGS BANK AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
MARCH 31, 1996 DECEMBER 31,1995
- ---------------------------------------------------------------------------------------------------
ASSETS: (In thousands, except per share data)
CASH AND CASH EQUIVALENTS
Cash and deposits with banks $ 2,485 $ 3,574
Interest bearing deposits with banks 10,422 11,935
INVESTMENT SECURITIES
Held-to-maturity (fair values of $44,152 and $49,640 at 44,158 49,354
March 31, 1996 and December 31, 1995, respectively)
Available for sale (at fair value) 22,756 26,595
MORTGAGE-BACKED SECURITIES
Held-to-maturity (fair values of $38,811 and $37,819 at 38,415 37,256
March 31, 1996 and December 31, 1995, respectively)
Available for sale (at fair value) 10,026 14,749
LOANS-NET
(Including allowance for loan losses of $1,146 and $1,168
at March 31, 1996 and December 31, 1995, respectively) 363,674 331,017
Loans held for sale -- 5,334
Accrued interest receivable 3,226 3,299
Federal Home Loan Bank stock-at cost 2,449 2,407
Premises and equipment-net 4,512 4,334
Prepaid expenses and other assets 2,508 2,243
- ---------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 504,631 $492,097
====================================================================================================
LIABILITIES:
Deposits $ 443,725 $432,563
Federal Home Loan Bank Advances 12,863 13,333
Deferred federal income tax 1,484 1,583
Advance payments by borrowers 566 1,222
Accrued interest payable 489 425
Accounts payable and other 3,744 1,880
- ---------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 462,871 451,006
SHAREHOLDERS' EQUITY
Common stock, no par value, 10,000,000 shares
authorized, 2,530,800 shares issued and outstanding 9,831 9,831
Fair value adjustment, net of tax effect (44) 196
Retained earnings 31,973 31,064
- ---------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 41,760 41,091
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 504,631 $492,097
====================================================================================================
Shareholders' Equity per share $ 16.50 $ 16.24
Tangible Equity per share $ 16.15 $ 15.87
<FN>
See notes to consolidated financial statements
2
5
THE STRONGSVILLE SAVINGS BANK AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
THREE MONTHS ENDED
MARCH 31, 1996 MARCH 31, 1995
====================================================================================
(In thousands, except per share data)
INTEREST INCOME
Loans $ 7,297 $ 6,228
Investment securities 1,097 1,129
Mortgage-backed securities 893 651
Other 160 138
- ------------------------------------------------------------------------------------
9,447 8,146
INTEREST EXPENSE
Deposits 5,567 4,357
Advances from the Federal Home Loan Bank 195 244
- ------------------------------------------------------------------------------------
5,762 4,601
- ------------------------------------------------------------------------------------
NET INTEREST INCOME 3,685 3,545
Provision for loan losses 5 18
- ------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 3,680 3,527
NON-INTEREST INCOME
Gain on sale of assets 235 112
Loan service fees 124 131
Other 158 112
- ------------------------------------------------------------------------------------
517 355
NON-INTEREST EXPENSE
Salaries and employee benefits 943 910
Net occupancy and equipment 362 311
Federal deposit insurance 242 201
Amortization of goodwill 33 36
Other 789 679
- ------------------------------------------------------------------------------------
2,369 2,137
- ------------------------------------------------------------------------------------
INCOME BEFORE FEDERAL INCOME TAXES 1,828 1,745
Provision for federal income taxes 640 601
- ------------------------------------------------------------------------------------
NET INCOME $ 1,188 $ 1,144
====================================================================================
Earnings per common share $ 0.47 $ 0.45
Weighted average number of common
shares outstanding 2,530,800 2,530,800
Dividends per share $ 0.11 $ 0.09
Return on average assets 0.96% 1.08%
Return on average equity 11.41% 12.15%
<FN>
See notes to consolidated financial statements
3
6
THE STRONGSVILLE SAVINGS BANK AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
THREE MONTHS ENDED
MARCH 31, 1996 MARCH 31, 1995
- ------------------------------------------------------------------------------------------------------
(In thousands, except per share data)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,188 $ 1,144
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Provision for loan losses 5 18
Gain from sale of assets (235) (112)
Accretion of discounts and other deferred yield items (596) (556)
Depreciation and amortization 198 205
Effect of change in accrued interest
receivable and payable 137 (286)
Federal Home Loan Bank stock dividends (42) (30)
Deferred federal income taxes (99) 153
Net decrease (increase) in other assets and liabilities 1,689 (219)
Net decrease (increase) in loans held for sale 5,477 (980)
- ------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 7,722 (663)
CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) in loans (32,038) (4,798)
Net decrease (increase) in investment securities 8,892 (1,356)
Net decrease (increase) in mortgage-backed securities 3,407 (1,183)
Purchases of:
Premises and equipment (343) (388)
Federal Home Loan Bank Stock -- (437)
- ------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (20,082) (8,162)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 11,162 17,975
Repayment of advances from the Federal Home Loan Bank (470) (720)
Net increase (decrease) in escrows (656) (542)
Payment of dividends on common stock (278) (228)
- ------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 9,758 16,485
- ------------------------------------------------------------------------------------------------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (2,602) 7,660
CASH AND CASH EQUIVALENTS, AT BEGINNING OF THE PERIOD 15,509 10,649
- ------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, AT END OF THE PERIOD $ 12,907 $ 18,309
======================================================================================================
<FN>
See notes to consolidated financial statements
4
7
THE STRONGSVILLE SAVINGS BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
--------------------
The Strongsville Savings Bank (Bank) conducts its principal activities
from its Community Financial Centers located in southwestern Cuyahoga, Lorain
and Medina counties. The Bank's principal activities include residential lending
and retail banking.
2. BASIS OF PRESENTATION
---------------------
The consolidated financial statements of the Bank include the accounts
of the Bank and the accounts of its wholly owned subsidiary, Dennis Financial
Corporation. All significant inter-company transactions have been eliminated. In
the opinion of management, the accompanying unaudited financial statements
include all adjustments (consisting only of normal recurring accruals) which the
Bank considers necessary for a fair presentation of (a) the results of
operations for the three month periods ended March 31, 1996 and 1995; (b) the
financial condition at March 31, 1996 and December 31, 1995; and (c) the
statements of cash flows for the three month periods ended March 31, 1996 and
1995. The results of operations for the three month period ended March 31, 1996
are not necessarily indicative of the results that may be expected for a full
year.
Certain prior period data has been reclassified to conform to current
year presentation.
3. STATEMENTS OF CASH FLOWS
------------------------
For purposes of the Statements of Cash Flows, the Bank considers all
cash and deposits with banks with maturities of less than three months to be
cash equivalents.
No income tax payments were made during the three month periods ended
March 31, 1996 or 1995. Interest paid totaled $5,697,000 and $4,500,000 for the
three month periods ended March 31, 1996 and 1995, respectively. There were no
transfers from loans to real estate owned during the three month periods ended
March 31, 1996 or 1995, nor were any loans made to finance the sale of real
estate owned during those periods.
4. EARNINGS PER SHARE
------------------
Earnings per share are calculated using the weighted average number of
shares of capital stock outstanding for the period.
5
8
5. NEW ACCOUNTING STANDARDS
------------------------
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
requires that long-lived assets and certain identifiable intangibles be reviewed
for impairment whenever events or changes in circumstances indicate the carrying
value of these assets may not be recoverable.
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 121, Accounting for
Stock-Based Compensation, encourages, but does not require, adoption of a
fair-value based accounting method for employee stock-based compensation
arrangements. Management has elected to continue to use the Accounting
Principles Board Opinion 25, Accounting for Stock Issued to Employees, intrinsic
value method for measurement and recognition of stock-based compensation.
These statements were adopted January 1, 1996, and did not have a
material effect on the Bank's consolidated financial statements.
6
9
Part I, Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
- -------
The Strongsville Savings Bank (Bank) was founded in 1961 as an
Ohio-chartered, federally insured savings association whose business activities
are concentrated in the greater Cleveland, Ohio area. The Bank conducts its
business through its home office in Strongsville and its thirteen full-service
Community Financial Centers located in Cuyahoga, Lorain and Medina counties. The
Bank recently opened a new full-service Community Financial Center in Avon,
Ohio. The Bank is completing preparations to open its fourteenth full-service
Community Financial Center in Brunswick. The Brunswick facility will open in May
1996.
The principal business of the Bank has historically been attracting
deposits from the general public and making loans secured by first mortgage
liens on residential and other real estate. The Bank and the banking industry in
general are significantly affected by prevailing economic conditions, the
general level and trend of interest rates as well as by government policies and
regulations concerning, among other things, fiscal affairs, housing and
financial institutions.
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- ---------------------------------------------
The Bank's total assets at March 31, 1996, were $504.6 million,
representing an increase of $12.5 million, or 2.5% for the three month period
and of $67.3 million, or 15.4% for the twelve month period ended March 31, 1996.
The increase in assets was primarily due to increases in mortgage loans. The
Bank's loan portfolio increased $27.3 million during the quarter and $75.4
million during the twelve months ended March 31, 1996. The increases in loans
were funded by increases in deposits and decreases in investment securities and
other liquid assets.
The Bank's deposits were $443.7 million at March 31, 1996, representing
an increase of $11.2 million, or 2.6% during the three month period and of $62.7
million, or 16.5% during the twelve month period ended March 31, 1996.
Net interest income was $3.7 million for the quarter ended March 31,
1996, an increase of $0.2 million over the first quarter of 1995. The increase
in net interest-earning assets, offset by a reduction in interest rate spread,
caused the improvement. Average net interest-earning assets increased $ 66.6
million from $413.8 million for the first quarter of 1995 to $480.4 million for
the first
7
10
quarter of 1996. The Bank's interest rate spread decreased 38 basis points from
3.06% during the first quarter of 1995 to 2.68% during the first quarter of
1996.
Net income for the first quarter of 1996, at $1.2 million, was $0.1
million more than the $1.1 million for the same period in 1995. The increase was
primarily due to the increase in net interest income.
Table 1 presents information regarding the average balances of
interest-earning assets and interest-bearing liabilities, the total dollar
amount of interest income from interest-earning assets and their average yields
and the total dollar amount of interest expense on interest-bearing liabilities
and their average rates. Table 1 also presents net interest income,
interest-rate spread, net interest margin and the ratio of average
interest-earning assets to average interest-bearing liabilities. Interest-rate
spread represents the difference between the weighted average yield on
interest-earning assets and the weighted average cost of interest-bearing
liabilities. Net interest margin represents net interest income as a percent of
average interest-earning assets. Average balance calculations were based on
daily and monthly balances. Assets available for sale are included in the major
asset category as if they were held-to-maturity.
8
11
TABLE 1
AVERAGE BALANCE TABLE
FOR THE THREE MONTHS ENDED MARCH 31,
1996 | 1995
AVERAGE YIELD/ | AVERAGE YIELD/
BALANCE INTEREST RATE | BALANCE INTEREST RATE
--------- -------- ---- | -------- -------- ------
- ----------------------------------------------------------------------------|--------------------------------------
(Dollars in thousands)
INTEREST EARNING ASSETS |
Loans receivable, net (1) $ 343,739 $ 7,297 8.49% | $286,454 $ 6,228 8.70%
Investment securities 73,865 1,097 5.94% | 78,526 1,129 5.75%
Mortgage backed securities 50,836 893 7.03% | 37,219 651 7.00%
Other interest-earning assets 11,971 160 5.35% | 11,614 138 4.75%
- ----------------------------------------------------------------------------|--------------------------------------
Total interest-earning assets 480,411 9,447 7.86% | 413,813 8,146 7.87%
- ----------------------------------------------------------------------------|--------------------------------------
Noninterest-earning assets 13,192 | 11,171
- ----------------------------------------------------------------------------|--------------------------------------
TOTAL ASSETS $ 493,603 $ 9,447 | $424,984 $ 8,146
============================================================================|======================================
INTEREST-BEARING LIABILITIES |
|
Deposits (2) $ 431,488 $ 5,567 5.16% | $367,197 $ 4,357 4.75%
Advances from FHLB 13,114 195 5.95% | 15,544 244 6.28%
- ----------------------------------------------------------------------------|--------------------------------------
Total interest-bearing liabilities 444,602 5,762 5.18% | 382,741 4,601 4.81%
- ----------------------------------------------------------------------------|--------------------------------------
Noninterest-bearing liabilities 7,344 | 4,581
- ----------------------------------------------------------------------------|--------------------------------------
Shareholders' equity 41,657 | 37,662
- ----------------------------------------------------------------------------|--------------------------------------
TOTAL LIABILITIES AND |
SHAREHOLDERS' EQUITY $ 493,603 | $424,984
============================================================================|======================================
Net interest income $ 3,685 | $ 3,545
Interest-rate spread 2.68% | 3.06%
Net interest margin 3.07% | 3.43%
Ratio of average |
interest-earning assets to |
average interest-bearing |
liabilities 108.05% | 108.12%
- ----------------------------------------------------------------------------|--------------------------------------
<FN>
(1) Average balances include non-accrual loans. Interest income includes
deferred loan fee amortization of $418,000 and $458,000 for the three
months ended March 31, 1996 and 1995, respectively.
(2) Deposits include noninterest-bearing demand accounts which were $10,013,000
and $8,504,000 at March 31, 1996 and 1995, respectively.
9
12
Table 2 presents certain information regarding changes in interest income and
interest expense of the Bank for the three month periods ended March 31, 1996
and 1995. The table shows the changes in interest income and interest expense by
major category attributable to changes in the average balance (volume) and the
changes in interest rates. The net change not attributable to either rate or
volume is allocated on a prorata basis to the change in rate or volume. Assets
available for sale are included in the major asset category as if they were
held-to-maturity.
TABLE 2
RATE & VOLUME TABLE
THREE MONTHS ENDED MARCH 31, 1996 | THREE MONTHS ENDED MARCH 31,
1996 COMPARED TO 1995 | 1995 COMPARED TO 1994
INCREASE (DECREASE) | INCREASE (DECREASE)
DUE TO CHANGES IN: | DUE TO CHANGES IN:
VOLUME RATE TOTAL | VOLUME RATE TOTAL
- --------------------------------------------------------------------------------|-----------------------------------
(In thousands)
INTEREST INCOME ON INTEREST- |
EARNING ASSETS |
Loans, net $ 1,215 $ (146) $ 1,069 | $1,073 $ 177 $1,250
Investment securities (72) 40 (32) | 121 237 358
Mortgage-backed securities 239 3 242 | 410 57 467
Other 4 18 22 | 9 27 36
- --------------------------------------------------------------------------------|-----------------------------------
Total 1,386 (85) 1,301 | 1,613 498 2,111
- --------------------------------------------------------------------------------|-----------------------------------
|
INTEREST EXPENSE ON INTEREST-BEARING |
LIABILITIES |
Deposits 811 399 1,210 | 635 682 1,317
Advances from FHLB (24) (25) (49) | 244 -- 244
- --------------------------------------------------------------------------------|-----------------------------------
Total 787 374 1,161 | 879 682 1,561
- --------------------------------------------------------------------------------|-----------------------------------
|
CHANGE IN NET INTEREST INCOME $ 599 $ (459) $ 140 | $ 734 $ (184) $ 550
================================================================================|===================================
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NET INTEREST INCOME
- --------------------------------------------------------------------------------
Net interest income is the primary component of net income and is
determined by characteristics of the Bank's interest-earning assets and
interest-bearing liabilities, including the spread, or the difference between
the yields earned and the rates paid on those assets and liabilities. Net
interest income is the difference between interest income and interest expense.
Three months ended March 31, 1996
---------------------------------
(Dollars in thousands)
Net interest income:
Current period $3,685
Prior period 3,545
------
Dollar increase from prior period $ 140
------
Percent increase from prior period 3.98%
======
Interest income
- ---------------
Interest income for the three months ended March 31, 1996 was $9.4
million, compared to $8.1 million for the first quarter of 1995, an increase of
$1.3 million or 15.98%. This increase was primarily due to the increase in
average interest-earning assets as demonstrated on Table 2. Average
interest-earning assets increased to $480.4 million for the first quarter of
1996 from $413.8 million for the first quarter of 1995. The effect of the
increase in interest-earning assets was offset somewhat by the 1 basis point
decline in the average yield on interest-earning assets to 7.86% for the first
quarter of 1996 from 7.87% for the like period in 1995.
Interest expense
- ----------------
Interest expense increased during the quarter ended March 31, 1996
compared to the same period in 1995 primarily due to an increase in
interest-bearing liabilities of $61.9 million, or 16.16%, and to an increase in
the average cost of interest-bearing liabilities. Average interest-bearing
liabilities were $444.6 million and $382.7 million for the first quarter of 1996
and 1995, respectively. The average cost of interest-bearing liabilities
increased 37 basis points to 5.18% for the first quarter of 1996 from 4.81% for
the same period in 1995.
Provision for loan losses
- -------------------------
The provision for loan losses for the three months ended March 31, 1996
was $5,000 compared to $18,000 for the same period in 1995. The provision for
both periods were commensurate with management's estimate of the credit risk in
the loan portfolio. Economic conditions in the Bank's market area were stable.
11
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Further discussion and other information relating to loan losses and
nonperforming assets are included in the section titled "Asset Quality."
NONINTEREST INCOME
- --------------------------------------------------------------------------------
Three months ended March 31, 1996
---------------------------------
(Dollars in thousands)
Noninterest income:
Current period $ 517
Prior period 355
-----
Dollar increase from prior period $ 162
-----
Percent increase from prior period 45.41%
=====
Noninterest income consists primarily of fees earned for servicing
loans and providing services for customers and gains on loan sales.
NONINTEREST EXPENSE
- --------------------------------------------------------------------------------
Three months ended March 31, 1996
---------------------------------
(Dollars in thousands)
Noninterest expense:
Current period $2,369
Prior period 2,137
------
Dollar increase from prior period $ 232
------
Percent increase from prior period 10.87%
======
The increase in noninterest expense is primarily due to the Bank's
growth and the resulting increase in the number of employees. Net occupancy,
deposit insurance and franchise tax expense also increased as a result of the
Bank's growth.
FEDERAL INCOME TAXES
- --------------------------------------------------------------------------------
The Bank provided $640,000 for federal income tax during the first
quarter of 1996 and $601,000 during the like period in 1995. Net income before
the provision for federal income taxes increased for the compared periods
resulting in a corresponding increase in the provision for federal income taxes.
12
15
FINANCIAL RESOURCES AND LIQUIDITY
- --------------------------------------------------------------------------------
The Bank's primary sources of funds are deposits, principal and
interest payments on loans, maturities of investment securities, proceeds from
the sale of loans and funds generated through earnings. The primary uses for
such funds are to originate loans, maintain liquidity requirements and manage
interest rate risk.
For an analysis of the cash flows of the Bank, refer to the
Consolidated Statements of Cash Flows on page 3. Management believes the Bank
has adequate resources to meet its normal funding requirements.
The Bank is required to maintain an average daily balance of liquid
assets equal to 5% of the sum of its average daily balance of net withdrawable
accounts and borrowed funds due in one year or less. The Bank's March 1996
monthly average of eligible liquid assets was 29.84%.
SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------
Shareholders' equity was $41.8 million at March 31, 1996, an increase
of $669,000, or 1.63%, during the first quarter of 1996. This increase was
primarily the result of net income offset by dividends paid. The Bank paid
dividends in the first quarter of 1996 of $0.11 per share, an increase of 22.22%
over the $0.09 per share dividend paid in the first quarter of 1995.
The Bank's return on average assets was 0.96% and return on average
equity was 11.41% for the first quarter of 1996.
At March 31, 1996, the Bank was in excess of all capital requirements
specified by federal regulations as shown by the following table.
TANGIBLE CORE RISK-BASED
CAPITAL CAPITAL CAPITAL
--------------------------------------------
(Dollars in thousands)
Capital amount -- Actual $ 40,205 $ 40,205 $ 42,065
Capital amount -- Required 7,427 14,854 24,980
--------------------------------------------
Amount in excess of requirement $ 32,778 $ 25,351 $ 17,085
============================================
Capital ratio -- Actual 8.12% 8.12% 13.47%
Capital ratio -- Required 1.50% 3.00% 8.00%
--------------------------------------------
Amount in excess of requirement 6.62% 5.12% 5.47%
============================================
13
16
The Bank's capital levels at March 31, 1996, qualify it as a
"well-capitalized" institution, the highest of five tiers under applicable
federal definitions.
REGULATORY ISSUES
- --------------------------------------------------------------------------------
The Bank's deposits are insured by the Savings Association Insurance
Fund (SAIF) of the Federal Deposit Insurance Corporation (FDIC). Deposit
insurance premiums to both the SAIF and the Bank Insurance Fund (BIF) of the
FDIC were identical when both funds were created in 1989. In August 1995, the
FDIC determined that the BIF had achieved its designated reserve ratio and
lowered BIF deposit insurance premium rates for all but the riskiest
institutions. Effective January 1, 1996, BIF deposit insurance premiums for
well-capitalized banks were further reduced to the statutory minimum of $2,000
per institution per year. Because the SAIF remains significantly below its
designated reserve ratio, SAIF deposit insurance premiums were not reduced and
remain at 0.23% to 0.31% of deposits, based on an institution's supervisory
evaluations and capital levels. The current discrepancy in deposit insurance
premiums between the BIF and the SAIF could place the Bank at a competitive
disadvantage to BIF insured institutions.
The current financial condition of the SAIF has resulted in proposed
legislation to recapitalize the SAIF through a one-time special assessment.
After the special assessment, it is expected that the SAIF would achieve its
designated reserve ratio and that SAIF premium rates would then become
comparable to BIF rates. The proposed legislation also contemplates a merger of
the SAIF and the BIF, which would require separate legislation. The Bank is
unable to predict whether this legislation will be enacted or the amount or
applicable retroactive date of any one-time assessment or the rates that would
then apply to assessable SAIF deposits.
QUALIFIED THRIFT LENDER TEST
- --------------------------------------------------------------------------------
Savings associations insured by the Savings Association Insurance Fund
are required to maintain 65% of total portfolio assets in Qualified Thrift
Investments. As of March 31, 1996, the Bank had 88.42% of total assets invested
in Qualified Thrift Investments.
14
17
ASSET QUALITY
- --------------------------------------------------------------------------------
Table 3 sets forth information regarding non-performing assets at March
31, 1996, December 31, 1995 and March 31, 1995.
TABLE 3
NON-PERFORMING ASSETS ANALYSIS
MARCH 31, 1996 DECEMBER 31, 1995 MARCH 31, 1995
- ------------------------------------------------------------------------------------------------
NON-ACCRUING LOANS: (Dollars in thousands)
One to four family -- permanent $ 52 $ 52 $ 53
One to four family -- construction -- -- --
Multi-family & Commercial real estate -- -- 520
Land and development -- -- --
Commercial non-real estate 70 70 --
Consumer and other 13 24 28
- ------------------------------------------------------------------------------------------------
Total 135 146 601
LOANS DELINQUENT 90 DAYS OR MORE
AND STILL ACCRUING:
One to four family -- permanent 1,436 1,906 1,239
One to four family -- construction 493 -- --
Multi-family & Commercial real estate 375 -- --
Land and development 11 -- --
Commercial non-real estate -- -- 13
Consumer and other -- -- --
- ------------------------------------------------------------------------------------------------
Total 2,315 1,906 1,252
Restructured loans nd
in-substance foreclosures -- -- --
- ------------------------------------------------------------------------------------------------
Total non-performing loans 2,450 2,052 1,853
Other non-performing assets -- -- --
- ------------------------------------------------------------------------------------------------
Total non-performing assets $2,450 $2,052 $1,853
================================================================================================
Allowances for loan losses $1,146 $1,168 $ 966
================================================================================================
Non-performing loans to total loans-net 0.67% 0.61% 0.64%
Non-performing assets to total assets 0.49% 0.42% 0.42%
Allowance for loan losses to ending
loan balance (before allowance) 0.32% 0.35% 0.33%
Allowance for loan losses to
non-performing loans 46.78% 56.91% 52.14%
At March 31, 1996, there were two loans secured by funeral homes to a
single borrower totaling $1.1 million which are not included in Table 3.
Indications of possible cash flow problems have caused management concern
regarding the borrower's ability to comply with present loan repayment terms and
may result in the classification of these loans as non-performing in the future.
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Based on written opinions from an independent fee appraiser, the collateral
values of the properties are sufficient to cover the total outstanding debt.
Table 4 presents information concerning activity in the Bank's
allowance for loan losses during the quarters ended March 31, 1996 and 1995.
TABLE 4
ACTIVITY IN THE ALLOWANCE FOR LOAN LOSSES
FOR THE QUARTER ENDED MARCH 31,
1996 1995
- ------------------------------------------------------------------------------
(Dollars in thousands)
Allowance at the Beginning of the period $ 1,168 $948
Provision charged to expense 5 18
Charge-offs:
- ------------
One to four family -- permanent -- --
One to four family -- construction -- --
Multi-family and Commercial
real estate -- --
Land and development -- --
Commercial non-real estate -- --
Consumer and other 27 --
- -----------------------------------------------------------------------------
27 --
Recoveries
- ----------
One to four family -- permanent -- --
One to four family -- construction -- --
Multi-family and Commercial
real estate -- --
Land and development -- --
Commercial non-real estate -- --
Consumer and other -- --
- -----------------------------------------------------------------------------
Net recoveries (charge-offs) (27) --
- -----------------------------------------------------------------------------
Allowance at the end of the period $ 1,146 $966
=============================================================================
Net charge-offs during the period to
average loans outstanding during the
period (Annualized) 0.03% 0.00%
The amount of the allowance for loan losses is based on management's
analysis of risks inherent in the various segments of the loan portfolio,
management's assessment of known or potential problem credits which have come to
management's attention during the ongoing analysis of credit quality, historical
loss experience, current economic conditions, and other factors. Loan loss
estimates are reviewed periodically, and adjustments, if any, are reported in
earnings in the period in which they become known.
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19
TABLE A
Table A sets forth the composition of the Bank's loan portfolio at
March 31, 1996, December 31, 1995, and March 31, 1995.
LOAN PORTFOLIO COMPOSITION
MARCH 31, 1996 DECEMBER 31, 1995 MARCH 31, 1995
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
- ------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
REAL ESTATE MORTGAGE LOANS:
Permanent first mortgage loans:
One to four family $251,519 69.16% $220,490 66.61% 197,818 68.86%
Multifamily 1,135 0.31% 1,183 0.36% 1,265 0.44%
Commercial 43,683 12.01% 42,098 12.72% 37,603 13.09%
Land 307 0.08% 358 0.11% 429 0.15%
Construction first mortgage loans:
Residential development 48,899 13.45% 48,538 14.66% 29,604 10.30%
One to four family 29,228 8.04% 26,960 8.14% 27,600 9.61%
Multifamily 2,660 0.73% 2,660 0.80% 1,400 0.49%
Commercial 4,133 1.14% 4,233 1.28% 2,354 0.82%
- ------------------------------------------------------------------------------------------------------------------------------
Total mortgage loans 381,564 104.92% 346,520 104.68% 298,073 103.76%
OTHER LOANS
Commercial 3,827 1.05% 3,955 1.19% 2,041 0.71%
Consumer 8,199 2.26% 8,895 2.69% 7,863 2.74%
- ------------------------------------------------------------------------------------------------------------------------------
Total other loans 12,026 3.31% 12,850 3.88% 9,904 3.45%
- ------------------------------------------------------------------------------------------------------------------------------
Total loans 393,590 108.23% 359,370 108.56% 307,977 107.21%
Less:
Loans in process 24,958 6.86% 23,639 7.14% 16,083 5.60%
Allowance for loan losses 1,146 0.32% 1,168 0.35% 966 0.33%
Deferred yield items 3,812 1.05% 3,546 1.07% 3,669 1.28%
- ------------------------------------------------------------------------------------------------------------------------------
29,916 8.23% 28,353 8.56% 20,718 7.21%
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL LOANS HELD FOR INVESTMENT-NET $363,674 100.00% $331,017 100.00% $287,259 100.00%
==============================================================================================================================
REAL ESTATE LOANS HELD FOR SALE $ -- $ 5,334 $ 1,011
==============================================================================================================================
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TABLE B
Table B sets forth the activities in the Bank's loan portfolio for the
three month periods ended March 31, 1996, and 1995.
ACTIVITY IN THE LOAN PORTFOLIO
FOR THE QUARTER ENDED MARCH 31,
1996 1995
- ------------------------------------------------------------------
(In thousands)
PERMANENT MORTGAGE LOAN ORIGINATIONS
One to four family $40,168 $ 8,805
Multifamily -- --
Commercial 2,300 56
Land -- 75
- ------------------------------------------------------------------
42,468 8,936
CONSTRUCTION LOAN ORIGINATIONS
Residential development 10,081 6,307
One to four family 8,974 7,325
Multifamily -- --
Commercial -- 375
- ------------------------------------------------------------------
19,055 14,007
NONMORTGAGE LOANS
Commercial 595 711
Consumer 386 1,126
- ------------------------------------------------------------------
981 1,837
- ------------------------------------------------------------------
TOTAL LOAN ORIGINATIONS 62,504 24,780
LESS
Principal repayments 25,490 17,297
Loan sales 8,066 5,416
- ------------------------------------------------------------------
33,556 22,713
- ------------------------------------------------------------------
NET INCREASE IN LOAN PORTFOLIO $28,948 $ 2,067
==================================================================
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TABLE C
Table C sets forth the composition of the Bank's deposits by interest
rate category at March 31, 1996, December 31, 1995, and March 31, 1995.
DEPOSIT COMPOSITION
MARCH 31, 1996 DECEMBER 31, 1995 MARCH 31, 1995
WTD. WTD. WTD.
AVG. AVG. AVG.
COST AMOUNT PERCENT COST AMOUNT PERCENT COST AMOUNT PERCENT
---- -------- ----- ---- -------- ----- ---- -------- ----
- ----------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
PASSBOOK ACCOUNTS 2.86 $ 46,851 10.56 2.88 $ 47,423 10.96 2.84 $ 36,539 9.59
MONEY MARKET
DEPOSIT ACCOUNTS 2.53 21,437 4.83 2.53 23,014 5.32 2.53 29,912 7.85
NOW ACCOUNTS 2.02 27,069 6.10 2.02 26,025 6.02 2.27 22,016 5.78
COMMERCIAL ACCOUNTS 0.00 10,013 2.26 0.00 11,728 2.71 0.00 8,505 2.23
- ----------------------------------------------------------------------------------------------------------------------------
2.30 105,370 23.75 2.29 108,190 25.01 2.37 96,972 25.45
CERTIFICATES OF
DEPOSIT:
4.50% and less 3.01 3,515 0.79 3.03 4,454 1.03 3.72 19,070 5.00
4.51% to 5.50% 5.29 110,472 24.90 5.27 77,802 17.99 5.28 107,138 28.12
5.51% to 6.50% 6.01 122,210 27.54 6.03 120,175 27.78 6.20 59,855 15.71
6.51% to 7.50% 7.26 91,451 20.61 7.22 108,282 25.03 7.26 80,011 21.00
7.51% and greater 8.90 10,707 2.41 9.01 13,660 3.16 9.00 17,979 4.72
- ----------------------------------------------------------------------------------------------------------------------------
6.17 338,355 76.25 6.33 324,373 74.99 6.16 284,053 74.55
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL DEPOSITS 5.25 $443,725 100.00 5.32 $432,563 100.00 5.20 $381,025 100.00
============================================================================================================================
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PART II
ITEM 4 Submission of Matters to a Vote of Security Holders
----------------------------------------------------
There were no items submitted to a vote by security holders during the
quarter.
ITEM 5 Exhibits and Reports on Form 8-K
--------------------------------
(a) Not applicable
(b) No reports on Form 8-K were filed during the quarter.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
The Strongsville Savings Bank
------------------------------
(Registrant)
Date May 6, 1996 /s/ THOMAS P. PERCIAK
------------- ------------------------------
Thomas P. Perciak,
President & Chief Executive Officer
Date May 6, 1996 /s/ JOHN F. ZIEGLER
------------- ----------------------------
John F. Ziegler,
Executive Vice President &
Chief Financial Officer
21