<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
(Mark One) [X] ANNUAL REPORT UNDER SECTION 13 or 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ____________________ to ______________________
Commission File Number 000-24255
GLB BANCORP, INC.
(Exact Name of Registrant as Specified in its Charter)
Ohio 31-1529973
(State or Other Jurisdiction of (I.R.S. Employer Identification No,)
Incorporation of Organization)
7001 Center Street, Mentor, Ohio 44060
(Address of Principal Executive Offices) (Zip Code)
(440) 974-0000
(Registrant's Telephone Number, including Area Code)
Securities registered pursuant to Section 12 (b) of the Act: NONE
Securities registered pursuant to Section 12 (g) of the Act: Common Stock,
without par value
Indicate whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes X No
--- ---
Indicate if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained herein, will not be contained, to the
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ X ]
State issuer's revenues for the most recent fiscal year. $6,551,456.
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was sold, or the average bid and asked price of such common equity, as of a
specified date within the past 60 days. As of March 24, 1999, 2,133,906 shares
of Common Stock of the Registrant were outstanding. The aggregate market value
of the voting stock held by non-affiliates was $16,087,376 upon the trading
price of $10.50 per share.
Documents incorporated by References: Portions of the 1998 Annual
report-Part II Portions of the Proxy Statement for the 1998 Annual Meeting (to
be filed in April 1999)- Part III
Transitional Small Business Disclosure Format Yes No X
--- ---
<PAGE> 2
GLB BANCORP, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
<S> <C> <C>
Part I
Item 1. Description of Business 3-14
Item 2. Description of Property 14
Item 3. Legal Proceedings 14
Item 4. Submission of Matters to a Vote
of Security Holders 15
Part II
Item 5. Market for the Registrant's
Common Stock and Related
Stockholder Matters 15
Item 6. Management Discussion and
Analysis of Financial Condition
and Results of Operations 15
Item 7. Financial Statements 15
Item 8. Changes In and Disagreements
with Accountants on Accounting
and Financial Disclosures 15
Part III
Item 9. Directors, Executive Officers,
Promoters and Control Persons:
Compliance With Section 16 (a)
of the Exchange Act 16
Item 10 Executive Compensation 16
Item 11. Security Ownership of Certain
Beneficial Owners and Management 16
Item 12. Certain Relationships and
Related Party Transactions 16
Item 13. Exhibits and Reports on
Form 8-K 17-20
</TABLE>
2
<PAGE> 3
PART I
ITEM 1. DESCRIPTION OF BUSINESS
FORWARD-LOOKING STATEMENTS
- --------------------------
This report may contain certain "forward-looking statements". GLB Bancorp
desires to take advantage of the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995 with respect to all forward-looking
statements. The words "believe", "expect", "anticipate", "estimate", "project",
and similar expressions are intended to identify forward-looking statements. GLB
Bancorp's ability to predict the results or effect of future plans is inherently
uncertain. Factors which could affect actual results include interest rate
trends, the economic climate in GLB Bancorp's market area and the country, loan
delinquency rates, and changes in federal and state regulations. These factors
should be considered in evaluating forward-looking statements and undue reliance
should not be placed on such statements.
GENERAL
- -------
GLB Bancorp, Inc. (the Company) is a one-bank holding company that owns
all of the outstanding common stock of Great Lakes Bank (the Bank). The Company
was incorporated on March 5, 1997 for the purpose of becoming the holding
company for the Bank. The holding company reorganization of the Bank was
completed on September 12, 1997. With its main office located at 7001 Center
Street, Mentor, Ohio 44060, the Bank is the only commercial bank headquartered
in Lake County, Ohio. The Company provides a focused core of banking services,
primarily for individuals and small to medium-sized businesses.
The Company's lending activities focus primarily on secured lending for
residential and commercial real estate. Most of the Company's loans are secured
by first mortgages or junior mortgages on various types of real estate,
including single-family residential, multi-family residential, mixed use,
commercial, developed and undeveloped real estate. The Company generally does
not offer commercial loans secured exclusively by accounts receivable and
inventory.
The Company offers a broad array of deposit products, including
checking and savings accounts and certificates of deposit. Although the Company
attempts to be competitive with other financial institutions in its market area,
the Company generally sets its interest rates on deposits based on those offered
by the leading commercial banks in the area, rather than those offered by the
leading thrift institutions.
The Company also maintains relationships with correspondent banks and
other independent financial banking institutions to provide other services as
requested by customers, including loan participations in circumstances in which
the requested loan amount exceeds the Company's legal lending limit.
ACQUISITION
- -----------
On November 24, 1998, GLB Bancorp, Inc. and Maple Leaf Financial, Inc.
(Maple Leaf) signed an Agreement of Affiliation and Plan of Merger, which was
later amended December 29, 1998. The Agreement states that GLB Bancorp is to be
the acquirer with the anticipated effective date to be sometime in the second
quarter of 1999. As of December 31, 1998, Maple Leaf had total assets of
$115,145,964. The total consideration to be given for the acquisition is
$18,000,000 and 375,000 shares of GLB Bancorp, Inc. common stock. Upon
completion of the acquisition, GLB Bancorp, Inc. will account for the
transaction as a purchase, in accordance with generally accepted accounting
principles.
3
<PAGE> 4
COMPETITION
- -----------
There are many bank, savings bank, savings association, and credit
union offices located within Great Lakes Bank's primary market area. The Bank
faces strong competition both in originating loans and in attracting deposits.
Some of the competitors offer products and services that are not offered by the
Bank. Some of the competitors are not subject to the same kind and amount of
regulatory restrictions and supervision to which Great Lakes Bank is subject.
Because Great Lakes Bank is a community bank that is considerably smaller than
other commercial lenders in the area, the Bank's legal lending limit does not
allow it to make commercial loans in amounts many competitors can offer. Great
Lakes Bank may from time to time accommodate loan volumes in excess of its
lending limit through the sale of participations in loans to other banks.
Being the only commercial bank headquartered in Lake County, Great
Lakes Bank seeks to take competitive advantage of its local orientation. It
competes for loans principally through responsiveness to customers and its
ability to communicate effectively with them and understand and address their
needs. Great Lakes Bank competes for deposits principally by offering customers
personal attention, a variety of banking services, attractive rates, and
strategically located banking facilities. Great Lakes Bank seeks to provide high
quality banking service to professionals and small and mid-sized businesses, as
well as individuals, emphasizing quick and flexible responses to customer
demands.
LENDING ACTIVITIES
- ------------------
Great Lakes Bank is an active lender in Lake and Geauga Counties. The
Bank's overall investment philosophy is to lend as much money as possible in the
community within appropriate capital and risk limits. The Bank offers customers
a variety of loans. While providing residential, commercial, and consumer loans,
the Bank specializes in real estate lending with 86.9% of total loans being
secured by real estate.
LOAN PORTFOLIO COMPOSITION. The following table sets forth the composition of
the loan portfolio in dollar amounts and in percentages at December 31, 1998,
1997, and 1996.
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------------------------
1998 1997 1996
------------------------- ------------------------ -------------------------
Amount Percent Amount Percent Amount Percent
------------------------- ------------------------ -----------------------
<S> <C> <C> <C> <C> <C> <C>
Type of Loan:
1-4 family real estate ............... $ 28,059,900 46.5% $ 27,705,745 52.2% $ 20,260,138 52.4%
Commercial real estate and other ..... 23,083,967 38.3% 15,763,306 29.7% 11,563,397 29.9%
Construction ......................... 10,647,521 17.6% 9,837,670 18.5% 7,141,588 18.5%
Consumer ............................. 3,625,487 6.0% 3,995,899 7.5% 3,111,364 8.1%
----------------------- ---------------------- ----------------------
Total loans .............................. 65,416,875 108.4% 57,302,620 107.9% 42,076,487 108.9%
Less:
Undisbursed loans in process ......... (4,489,532) -7.4% (3,752,865) -7.1% (2,996,388) -7.8%
Unamortized loan origination fees, net (114,464) -0.2% (49,770) -0.0% (131,535) -0.3%
Allowance for loan losses ............ (482,418) -0.8% (402,534) -0.8% (314,893) -0.8%
----------------------- ----------------------- -----------------------
Net loans ................................ $ 60,330,461 100.0% $ 53,097,451 100.0% $ 38,633,671 100.0%
=================+===== ======================= =======================
</TABLE>
4
<PAGE> 5
The following table presents maturity information for the loan
portfolio at December 31, 1998. The table does not include prepayments or
scheduled principal repayments. Adjustable-rate mortgage loans are shown as
maturing based on contractual maturities.
<TABLE>
<CAPTION>
Year Ended December 31, 1998
-------------------------------------------------------------------------
Commercial
1-4 Family Real Estate
Real Estate And Other Construction Consumer Total
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Amount Due:
Due in one year or less .................. $0 $2,486,285 $2,718,400 $593,764 $5,798,449
Due after one year through five years .... 3,728,853 4,656,109 1,750,303 1,031,776 8,167,041
Due after five years ..................... 27,331,047 15,941,573 6,178,818 1,999,947 51,451,385
-------------------------------------------------------------------------
Total amount due ..................... $28,059,900 $23,083,967 $10,647,521 $3,625,487 $65,416,875
=========================================================----------------
Less:
Undisbursed loans in process......... (4,489,532)
Unamortized loan origination fees, net (114,464)
Allowance for loan losses............ (482,418)
Net loans................................. ($60,330,461)
===============
</TABLE>
The following table shows the dollar amount of all loans due after
December 31, 1998 that have predetermined interest rates and the dollar amount
of all loans due after December 31, 1998 that have floating or adjustable
interest rates.
<TABLE>
<CAPTION>
December 31, 1998
---------------------------------------------
Floating or
Fixed Rates Adjustable Rates Total
---------------------------------------------
<S> <C> <C> <C>
1-4 family real estate ..................... $20,046,171 $ 8,013,729 $28,059,900
Commercial real estate and other ........... 4,808,783 18,275,184 23,083,967
Construction ............................... 5,523,138 5,124,383 10,647,521
Consumer ................................... 2,148,225 1,477,262 3,625,487
---------------------------------------------
Total ...................................... $32,526,317 $32,890,558 $65,416,875
=============================================
</TABLE>
The Bank has been an aggressive residential mortgage lender and
continues to assist customers who wish to purchase, construct, or refinance a
home. A total of 46.5% of the Bank's loan portfolio is comprised of 1-4 family
mortgages. The past year represented the largest mortgage lending year ever for
Great Lakes Bank as customers took advantage of lower interest rates to build,
purchase and refinance homes. A total of $29,087,080 in mortgage loans were
originated during 1998.
In order to control interest rate risk the Bank is an active seller in
the secondary mortgage market. A total of $16,988,949 of mortgage loans were
sold during 1998. Although mortgage servicing is usually retained by the Bank to
insure better customer service, fixed rate mortgage loans are generally sold.
As a community bank, Great Lakes Bank also makes "non conforming"
mortgage loans that cannot be sold in the secondary market because the loan
amount is too large or it doesn't qualify for other reasons such as property
type, credit history or documentation requirements. The Bank, utilizing prudent
underwriting criteria will generally make these loans on an adjustable rate
basis and keep them in the Bank's portfolio. By following this strategy, the
Bank is able to control interest rate risk while still providing customers with
mortgage money that may not be available elsewhere.
Construction lending continues to make up a significant portion of the
Bank's lending efforts. Great
5
<PAGE> 6
Lakes Bank offers a variety of construction loan products including
"construction/permanent" loans to homeowners, residential construction loans to
builders, and commercial construction loans to contractors and business owners.
The Bank's commitment to construction lending means increased growth and
vitality in the communities the Bank serves as well as profitable, short-term
loans that can be converted to mortgages for sale in the secondary market or
kept in the Bank's portfolio. Construction loans represent a significant portion
of the Bank's overall business.
<TABLE>
<CAPTION>
December 31, 1998
-----------------------------
Total Dollar Percent
Type of Construction Loans Amount of total
-----------------------------
<S> <C> <C>
Residential Construction........................ $5,398,818 50.7%
Builder Loans................................... 2,960,883 27.8%
Commercial Construction......................... 1,515,000 14.2%
Acquisition and Development..................... 772,820 7.3%
------------------------------
Total Construction Loans................. $10,647,521 100.0%
==============================
</TABLE>
Great Lakes Bank is also active in commercial lending. In Lake County,
the primary service area, there are numerous small and medium-sized business
establishments, including light industrial, manufacturing, retail and service
businesses. The Bank makes commercial loans to these enterprises for general
business purposes, most of which loans are secured by real estate. Although
commercial loans generally bear somewhat more risk than single-family
residential mortgage loans, commercial loans tend to be higher yielding, tend to
have shorter terms and generally provide for interest-rate adjustments as
prevailing rates change. The Bank has been placing more emphasis on its
commercial loan products and expects to continue doing so in the future by
adding two "Business Bankers" who work specifically with existing and
prospective commercial customers.
Great Lakes Bank is also an active consumer lender offering a variety
of installment loan products including auto loans, boat financing, savings
secured loans, credit cards and second mortgages. In the area of consumer loans,
the Bank has been particularly successful with its "Great Line" product, a home
equity line of credit that gives the borrower flexibility and a lower interest
rate and provides the Bank with a secured loan that adjusts with market interest
rates. During 1998 the Bank began a "teaser rate" promotion for this product to
try and increase the use of the Great Line by customers.
Great Lakes Bank believes that there are significant market
opportunities for increased lending within its market area. The Bank will
continue to emphasize personal service and flexibility in lending while looking
for high quality loans that are properly priced and secured.
<TABLE>
<CAPTION>
December 31, 1998
------------------------------
Total Dollar Percent
Type of Consumer Loans Amount of total
------------------------------
<S> <C> <C>
Home Equity Loans............................... $555,147 15.3%
Home Equity Lines of Credit..................... 1,477,262 40.8%
Automobile Loans................................ 718,086 19.8%
Boat Loans...................................... 91,225 2.5%
Passbook Loans.................................. 120,790 3.3%
Other Secured Consumer Loans.................... 350,840 9.7%
Credit Cards and Other Unsecured Consumer Loans. 312,137 8.6%
------------------------------
Total Consumer Loans........................ $3,625,487 100.0%
==============================
</TABLE>
7
<PAGE> 7
\
NONPERFORMING LOANS
- -------------------
A loan is considered by Great Lakes Bank to be nonperforming when it is
90 days or more delinquent or, if sooner, when the Bank has determined that
repayment of the loan in full is unlikely. Late charges on residential mortgages
are assessed if a payment is not received by the 15th day after the due date,
and on installment loans, late charges are assessed if a payment is not received
by the 10th day following the due date. Immediately thereafter, any borrower
whose payment is not received by the proper time is mailed a past due notice.
The borrower will be contacted by telephone if the delinquency continues to the
30th day. Late charges generally do not apply to Great Lakes Bank's commercial
loans. With payments generally due on the first of each month, a commercial
borrower will be contacted if a loan payment has not been received by the tenth
day of the month. Credit card statement processing is undertaken by a third
party under contract with Great Lakes Bank. Past due notices are generated
automatically, depending on the stage of delinquency of the card holder, with
charge-offs occurring after 120 days.
It is the Bank's policy to cease accruing interest on any loans where
the principal and/or interest remains unpaid for 90 days or more, unless the
loan is for a one- to four-family residential dwelling or is well
collateralized. There were no loans on nonaccrual status at December 31, 1998
and two loans totaling $82,012 on nonaccrual status at December 31, 1997.
Impaired loans include all nonaccrual and restructured commercial real
estate and other commercial loans. Residential real estate and consumer loans
are excluded from the definition of an impaired loan. Loan impairment is
measured as the present value of expected future cash flows discounted at the
loan's initial interest rate, the fair value of the collateral of an impaired
collateral dependent loan or an observable market price. Interest income on
impaired loans is recognized on a cash-basis method. Impaired loans totaled
$43,881 at December 31, 1997. The total allowance for loan losses related to
these impaired loans was $6,582 as of December 31, 1997. There were no impaired
loans at December 31, 1998.
Not categorized as nonperforming loans are certain potential problem
loans that management believes are adequately secured and for which no material
loss is expected, but as to which certain circumstances could cause the
borrowers to be unable to comply with the existing loan repayment terms at some
future date. These potential problem loans totaled approximately $607,748 at
December 31, 1998.
The following table summarizes nonperforming assets by category.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1998 1997 1996
----------- ----------- ------------
<S> <C> <C> <C>
1-4 family real estate:
Nonaccrual ................................... $ 0 $70,047 $ 70,047
Past due 90 days or more ..................... 0 0 0
Commercial real estate and other:
Nonaccrual ................................... 0 11,965 0
Past due 90 days or more ..................... 46,486 31,916 0
Construction:
Nonaccrual ................................... 0 0 0
Past due 90 days or more ..................... 0 0 0
Consumer:
Nonaccrual ................................... 0 0 1,299
Past due 90 days or more ..................... 994 1,406 0
----------- ----------- ------------
</TABLE>
7
<PAGE> 8
<TABLE>
<S> <C> <C> <C>
Total nonperforming loans ................ 47,480 115,334 71,346
Other Real Estate owned ........................ 0 0 0
----------- ----------- -----------
Total nonperforming assets ............... $ 47,480 $ 115,334 $ 71,346
=========== =========== ===========
Loans outstanding, net ......................... $60,330,461 $53,097,451 $38,633,671
Allowance for loans losses ..................... $ 482,418 $ 402,534 $ 314,893
Allowance for loan losses to total loans, net .. 0.80% 0.75% 0.81%
Nonperforming loans to total loans, net ........ 0.08% 0.22% 0.18%
Nonperforming loans to total assets ............ 0.05% 0.17% 0.13%
Allowance for loan losses to nonperforming loans 1,016.0% 349.0% 441.4%
</TABLE>
ALLOWANCE FOR LOAN LOSSES
- -------------------------
The amount of the allowance for loan losses is based on management's
systematic detailed analysis of risks inherent in the various segments of the
loan portfolio, management's assessment of known or potential problem credits
that have come to management's attention during their ongoing analysis of credit
quality, historical loss experience, current and anticipated economic conditions
and other factors.
Although management believes that it uses the best information
available to make such determinations and that the allowance for loan losses is
adequate at December 31, 1998, future adjustments to the allowance may be
necessary, and net earnings could be affected, if circumstances or economic
conditions differ substantially from the assumptions used in making the initial
determinations. Additionally, as an integral part of the examination process
bank regulatory agencies periodically review Great Lakes Bank's allowance for
loan losses.
8
<PAGE> 9
The following is a summary of Great Lakes Bank's loan loss experience
and selected ratios for the periods presented.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1998 1997 1996
----------- ----------- ------------
<S> <C> <C> <C>
Allowance for loan losses (beginning of period) $ 402,534 $ 314,893 $ 238,853
Loans charged off:
1-4 family real estate .................... 0 1,636 0
Commercial real estate and other .......... 14,406 4,339 0
Construction .............................. 0 0 0
Consumer .................................. 28,478 6,023 12,318
----------- ----------- -----------
Total loans charged off ................... 42,884 11,998 12,318
Recoveries of loans previously charged off:
1-4 family real estate .................... 0 197 0
Commercial real estate and other .......... 0 0 0
Construction .............................. 0 0 0
Consumer .................................. 2,768 2,442 11,358
----------- ----------- -----------
Total recoveries ........................... 2,768 2,639 11,358
----------- ----------- -----------
Net loans charged off ......................... 40,116 9,359 960
Provision for loan losses ..................... 120,000 97,000 77,000
----------- ----------- -----------
Allowance for loan losses (end of period) ..... $ 482,418 $ 402,534 $ 314,893
=========== =========== ===========
Loans outstanding:
Average, net .................................. $55,649,657 $46,751,096 $32,740,809
End of period, net ............................ $60,330,461 $53,097,451 $38,633,671
Net charge offs to average loans .............. 0.07% 0.02% 0.00%
</TABLE>
With Great Lakes Bank's emphasis on real estate secured lending,
delinquencies and chargeoffs are below industry norms. At December 31, 1998, the
Bank had 0.1% loans delinquent 90 days or more and during 1998 the total amount
of net charge offs represented 0.07% of the Bank's average total loan portfolio.
Great Lakes Bank is committed to a conservative, secured approach to lending
that will result in continued low charge off rates.
The following table sets forth the allocation of Great Lakes Bank's
allowance for loan losses by category and the percent of loans in each category
to total loans at the dates indicated. The portion of the allowance for loan
losses allocated to each category does not represent the total available for
future losses that may occur within the loan category because the total loan
loss allowance is a valuation reserve applicable to the entire loan portfolio.
9
<PAGE> 10
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------------
1998 1997 1996
-------------------------- -------------------------- -------------------------
Percent of Percent of Percent of
Loans to Loans to Loans to
Amount Total Loans Amount Total Loans Amount Total Loans
-------------------------- -------------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
Type of loan
1-4 family real estate ... $111,052 42.89% $107,617 48.35% $79,421 48.16%
Commercial real estate and 285,094 35.29% 204,827 27.51% 154,261 27.48%
Construction ............. 21,949 16.28% 20,877 17.17% 17,733 16.97%
Consumer ................. 64,323 5.54% 69,236 6.97% 63,478 7.39%
----------------------------------------------------------------------------
Total ................ $482,418 100.00% $402,534 100.00% $314,893 100.00%
============================================================================
</TABLE>
SECURITIES
- ----------
The Company classifies its securities as either held to maturity or
available-for-sale. Securities may be in interest-bearing deposits, U. S.
Government and agency obligations, state and local government obligations and
government-guaranteed, mortgage-backed securities. Great Lakes Bank generally
does not invest in securities that are rated less than investment grade by a
nationally recognized statistical rating organization. A goal of the Company's
investment policy is to limit interest-rate risk. GLB Bancorp's operations
independent of Great Lakes Bank consist principally of investments in a small
number of financial institutions or holding companies, which investments are
treated as available-for-sale and represent less than 5% of the outstanding
shares of those institutions or holding companies.
The following table sets forth the carrying value of the Company's
investment portfolio at the dates indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Available-for-Sale:
Equity Securities ................ $2,791,814 $ 0 $ 0
Held to Maturity:
U.S. Treasury and other U.S.
Government agency obligations .... $2,007,742 $1,614,300 $1,137,485
Equity Securities ................ 0 5,000 5,000
---------- ---------- ----------
Total ................................ $2,007,742 $1,619,300 $1,142,485
========== ========== ==========
</TABLE>
The following table sets forth the scheduled maturities of held to
maturity securities at December 31, 1998.
<TABLE>
<CAPTION>
Weighted average
Amount Yield
------------ -------------
<S> <C> <C>
Due in one year or less................ $500,000 5.62%
Due from one year to five years........ 1,507,742 5.31%
------------
Total.............................. $2,007,742
=============
</TABLE>
10
<PAGE> 11
SOURCES OF FUNDS
- ----------------
DEPOSITS
- --------
Savings deposits are a major source of funds. Great Lakes Bank offers a
number of alternatives for depositors designed to attract both commercial and
regular consumer checking and savings customers, including regular and money
market savings accounts, NOW accounts, and a variety of fixed-maturity,
fixed-rate certificates with maturities ranging from seven days to 60 months.
The Bank also provides travelers' checks, official checks, money orders, ATM
services, and IRA accounts. Great Lakes Bank also offers a large-balance deposit
account product known as the "Golden Passbook Account" at an attractive rate of
interest for a relatively low minimum balance of $2,500.
The Bank has also had great success in developing a commercial checking
account business. Great Lakes Bank's commercial checking account offers a
simple, inexpensive flat rate service fee for most small businesses instead of
the complicated "per transaction" method used by many financial institutions.
The Bank's most substantial deposits were investors Messrs. Jerome T.
and Richard M. Osborne, individually and with affiliated companies and immediate
family members. Their combined total deposits were approximately $6.7 million as
of December 31, 1998, $5.1 million as of December 31, 1997, and $4.4 million as
of December 31, 1996.
The distribution of deposit accounts by type and rate is set forth in
the following tables as of the indicated dates.
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------------------------------------------------
1998 1997 1996
-------------------------------- ------------------------------- -------------------------------
Average Average Average
Amount Yield Percent Amount Yield Percent Amount Yield Percent
-------------------------------- ------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Noninterest bearing demand
Deposit................. $12,886,078 0.00% 18.8% $ 8,288,832 0.00% 16.0% $ 6,396,864 0.00% 15.1%
Interest bearing demand
Deposit ............... 7,154,389 2.23% 10.4% 4,800,162 2.07% 9.2% 4,582,722 2.20% 10.9%
Savings ................... 35,144,171 3.76% 51.2% 27,926,967 3.67% 53.7% 23,371,968 3.58% 55.3%
-------------------------------- ------------------------------- -------------------------------
Total Transaction accounts. 55,184,638 80.4% 41,015,961 78.9% 34,351,554 81.3%
Certificates:
4.00% and less ........... 74,665 0.1% 93,493 0.2% 238,341 0.6%
4.01% -- 5.00% ........... 3,556,146 5.2% 2,222,724 4.3% 3,192,395 7.5%
5.01% -- 6.00% ........... 6,652,027 9.7% 5,403,988 10.3% 2,956,980 7.0%
6.01% -- 7.00% ........... 2,170,829 3.1% 2,304,459 4.4% 515,360 1.2%
7.01% -- 8.00% ........... 1,016,821 1.5% 971,291 1.9% 997,899 2.4%
-------------------------------- ------------------------------- -------------------------------
Total Certificate accounts 13,470,488 5.62% 19.6% 10,995,955 5.56% 21.1% 7,900,975 5.47% 18.7%
-------------------------------- ------------------------------- -------------------------------
Total Deposits ........... $68,655,126 4.06% 100.0% $52,011,916 3.95% 100.0% $42,252,529 3.84% 100.0%
================================ =============================== ===============================
</TABLE>
The following table sets forth the amount of time deposits that are
$100,000 or more, including certificates of deposit, by time remaining until
maturity.
11
<PAGE> 12
<TABLE>
<CAPTION>
December 31, 1998
-----------------
<S> <C>
Three months or less................... $327,902
Four months through 6 months........... 458,991
Seven months through 12 months......... 1,803,248
Over twelve months..................... 1,738,985
----------
Total................................ $4,329,126
==========
</TABLE>
BORROWINGS
- ----------
Deposits and repayment of loan principal are the primary source of
funds for the Company's lending activities and other general business purposes.
However, during periods when the supply of lendable funds or funds available for
general business purposes cannot meet the demand for loans or such general
business purposes, the Bank can obtain funds through loans (advances) from the
FHLB. The FHLB generally limits advances to 25% of assets with a total borrowing
limit of 40% of assets from all borrowing sources. Advances are collateralized
by any combination of the following assets and collateralization rates: one- to
four-family first mortgage loans, not past due greater than 90 days, pledged on
a blanket basis at 150% of the advance amount, specifically identified mortgage
loans at 125% of the advance amount and various types of investment and
mortgage-backed securities at rates ranging from 101-110% of the advance amount.
FHLB stock owned by the Bank is pledged as additional collateral but is not
available as primary collateral.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1998 1997 1996
---------- --------- ----------
<S> <C> <C> <C>
Maximum amount outstanding:
FHLB ................................... $9,000,000 $7,500,000 $5,000,000
advances
Average amount of FHLB advances and
other borrowings outstanding ........... 7,512,097 6,410,417 1,363,636
Weighted average interest rate of total
Borrowings based on quarter-end balances 6.76% 6.78% 6.80%
</TABLE>
The following table sets forth certain information as to FHLB advances
and other borrowings at the dates indicated.
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------------------------------
1998 1997 1996
--------------------------- ------------------------- ---------------------------
Weighted Weighted Weighted
Average Average Average
Amount Interest Rate Amount Interest Rate Amount Interest Rate
--------------------------- ------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
FHLB advances .. $9,000,000 6.76% $7,500,000 6.78% $5,000,000 6.80%
---------- ----------
Total borrowings $9,000,000 $7,500,000 $5,000,000
========== ========== ==========
</TABLE>
12
<PAGE> 13
EMPLOYEES
- ---------
As of December 31, 1998, the Bank had 47 full-time and 20 part-time employees.
None of the Bank's employees are represented by any collective bargaining group.
Management considers its employee relations to be good. The Holding Company
currently has no paid employees.
REGULATION AND SUPERVISION
- --------------------------
The Company is a bank holding company within the meaning of the Bank
Holding Company ("BHC") Act. As such, the Company is subject to regulation,
supervision and examination by the Board of Governors of the Federal Reserve
Bank of Cleveland. The Company is required to file annual reports with the FRB
and to provide the FRB such additional information as the FRB may require. The
Act requires the prior approval of the Federal Reserve Board for a bank holding
company to acquire or hold more than a 5% voting interest in any bank and
restricts interstate banking activities.
The Bank is an Ohio-chartered commercial bank. The deposits of the Bank
are insured to a maximum of $100,000 per depositor through the Bank Insurance
Fund ("BIF") administered by the FDIC. As a state-chartered, non-member bank,
the Bank is primarily regulated by the FDIC and the Division.
The Company and the Bank are extensively regulated under federal and
state law. These federal and state laws are intended to protect depositors, not
shareholders. Federal and state laws applicable to bank holding companies and
banks regulate, among other things, the range of permissible business
activities, investments, reserves against deposits, capital levels, lending
activities and practices, the nature and amount of collateral for loans,
establishment of branches, mergers, dividends, and a variety of other important
matters.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") expanded significantly the authority of federal agencies to regulate
the activities of federal and state banks and their holding companies. The FRB
and the FDIC have extensive authority to prevent and to remedy unsafe and
unsound practices and violations of applicable laws by depository institutions
and their holding companies. The agencies may assess civil money penalties,
issue cease-and-desist or removal orders, seek injunctions, and publicly
disclose such actions.
Bank Holding Company Regulation
The BHC Act also prohibits a bank holding company, with certain
exceptions, from acquiring more than five percent of the voting shares of any
company that is not a bank and from engaging in any business other than banking
or managing or controlling banks. Under the BHC Act, the Federal Reserve is
authorized to approve the ownership of shares by a bank holding company in any
company, the activities of which the Federal Reserve has determined to be so
closely related to banking or to managing or controlling banks as to be a proper
incident thereto. The Federal Reserve has by regulation determined that certain
activities are closely related to banking within the meaning of the BHC Act.
These activities include: operating a savings association, mortgage company,
finance company, or credit card company; performing certain data processing
operations; providing investment and financial advice; and acting as an
insurance agent for certain types of credit-related insurance.
It is the FRB's policy that bank holding companies serve as a source of
strength for their subsidiary
13
<PAGE> 14
banking institutions. The FRB considers the adequacy of a bank holding
company's capital on essentially the same risk-adjusted basis as capital
adequacy is determined by the FDIC at the bank subsidiary level. In the case of
a bank holding company with less than $150 million in total consolidated assets,
the FRB's regulations provide that the capital adequacy requirements will
generally be applied on a bank-only (rather than consolidated) basis. In
general, bank holding companies are required to maintain a minimum ratio of
total capital to risk-weighted assets of 8% and Tier 1 capital (consisting
principally of shareholders' equity) of at least 4%. Bank holding companies are
also subject to a leverage ratio requirement. The minimum required leverage
ratio for the highest rated companies is 3%. The minimum required leverage ratio
for all other bank holding companies is 4% or higher.
As a bank holding company subject to regulation by the FRB, the Company
must comply with policy statements issued by the FRB. The FRB's policy statement
governing payment of cash dividends provides that a bank holding company should
not pay cash dividends on common stock unless (i) the organization's net income
for the past year is sufficient to fully fund the dividends and (ii) the
prospective rate of earnings retention appears consistent with the
organization's capital needs, asset quality and overall financial condition. For
small bank holding companies (those with less than $150 million in assets), the
FRB's position is that such companies should not pay dividends so long as they
have a debt-to-equity ratio of 1:1 or greater.
ITEM 2. DESCRIPTION OF PROPERTIES
The Company conducts its business at its main office headquartered in Mentor,
Ohio and its eight branches located in Lake County (two of which were opened in
February 1999). The Company owns four of its offices and leases five offices,
including the two newly opened offices. The total net book value of the
Company's premises and equipment was $2,704,255 at December 31, 1998. See Note 5
of Notes to Consolidated Financial Statements Exhibit 13.
Listed below are the branches of the Bank and their locations:
<TABLE>
<CAPTION>
Branch Location Owned/Leased
<S> <C> <C>
Main Office 7001 Center Street, Mentor Owned
Heisley 9365 Mentor Avenue, Mentor Owned
Painesville Township 1522 Mentor Avenue, Mentor Leased
Wickliffe 29933 Euclid Avenue, Wickliffe Leased
Willoughby 38600 Lakeshore Boulevard, Willoughby Owned
Willoughby Hills 28500 Chardon Road, Willoughby Hills Leased
Mentor Lakeshore 7742 Lakeshore Boulevard, Mentor Owned
Eastlake 34580 Lakeshore Boulevard, Eastlake Leased
Painesville 58 South Park Place, Painesville Leased
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
The nature of the Bank's business generates a certain amount of litigation
involving matters arising in the ordinary course of business. However, in the
opinion of management, any liabilities that may result would not be expected to
have a material adverse effect on the consolidated financial statements of the
Company. In addition, no proceedings are pending nor are any known to be
threatened or contemplated by anyone against the Bank by government authorities
or others.
14
<PAGE> 15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The Company's common stock is currently traded on the Nasdaq Small Cap
Market. The approximate number of shareholders at December 31, 1998 was 197
which does not include the number of persons whose stock is held in nominee or
"street name" accounts through brokers.
The Company and the Bank have paid no dividends to shareholders in the
past nor does the Company anticipate paying any dividends in the near future.
The Company's current philosophy to grow through branch expansion and
acquisitions has made a limited amount of capital available, particularly with
the guidelines established by federal bank regulatory authorities requiring
capital levels to be above certain levels and regulatory guidelines which could
limit the amounts subsidiaries can pay as dividends and the amount of dividends
which holding companies and their subsidiaries may pay.
The following table shows the high and low sales prices of GLB common
stock since public trading of GLB common stock began.
<TABLE>
<CAPTION>
GLB Common Stock Price
High Low
---- ---
<S> <C> <C>
1998:
Second Quarter (from May 19, 1998)......... $17.50 $13.25
Third Quarter.............................. $14.06 $11.00
Fourth Quarter............................. $14.75 $10.25
</TABLE>
ITEM 6. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Management's Discussion and Analysis is incorporated by reference to the
Annual Report to Shareholders for the year ended December 31, 1998, included
here with as Exhibit 13.
ITEM 7. FINANCIAL STATEMENTS
The Financial Statements are incorporated by reference to the Annual Report to
Shareholders for the year ended December 31, 1998 as Exhibit 13.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None
15
<PAGE> 16
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS:
COMPLIANCE WITH SECTION 16 (a) OF THE EXCHANGE ACT
The information concerning Directors and Executive officers of the Registrant is
incorporated by reference from the Company's Definitive Proxy Statement to be
filed with the Securities and Exchange Commission in April 1999.
ITEM 10. EXECUTIVE COMPENSATION
The information concerning Executive Compensation of the Registrant is
incorporated by reference from the Company's Definitive Proxy Statement to be
filed with the Securities and Exchange Commission in April 1999.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information concerning Security Ownership of Certain Beneficial Owners and
Management of the Registrant is incorporated by reference from the Company's
Definitive Proxy Statement to be filed with the Securities and Exchange
Commission in April 1999.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
The information concerning Certain Relationships and Related Party Transactions
of the Registrant is incorporated by reference from the Company's Definitive
Proxy Statement to be filed with the Securities and Exchange Commission in April
1999.
16
<PAGE> 17
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<S> <C>
* 2 Agreement of Affiliation and Plan of Merger by and between
GLB Bancorp, Inc. and Maple Leaf Financial, Inc. dated as of
November 24, 1998, as amended by Amendment to Agreement of
Affiliation and Plan of Merger dated as of December 29, 1998
(incorporated herein by reference to Appendix A of the
Prospectus/Proxy Statement included in part I of GLB Bancorp,
Inc's Form S-4 Registration Statement filed on February 4,
1999, Commission File No. 333-71771
* 3.a Amended and Restated Articles of Incorporation of GLB Bancorp,
Inc. (incorporated by reference to Exhibit 3.a to the
Registration Statement on Form SB-2 filed by GLB Bancorp, Inc.
on March 20, 1998, Commission File No. 333-48387)
* 3.b Code of Regulations, as amended, of GLB Bancorp, Inc.
(incorporated by reference to Exhibit 3.b to the Registration
Statement on Form SB-2 filed by GLB Bancorp, Inc. on March 20,
1998, Commission File No. 333-48387)
** 4 Instruments defining the rights of holders
** 9 Voting trust agreement
* 10.a 1998 Stock Option and Incentive Plan of GLB Bancorp, Inc.
(incorporated by reference to Exhibit 10.a to the Registration
Statement on Form SB-2 filed by GLB Bancorp, Inc. on March 20,
1998, Commission File No. 333-48387)
* 10.b Indenture of Lease dated March 1, 1998 between Richard M.
Osborned, Trustee, and Great Lakes Bank, for the 58 South Park
Place branch (Painesville, Ohio) (incorporated by reference to
Exhibit 10.b to the Registration Statement on Form SB-2 filed
by GLB Bancorp, Inc. on March 20, 1998, Commission File No.
333-48387)
* 10.c Indenture of Lease dated May 1, 1997 between Richard M.
Osborne, Trustee, and Great Lakes Bank, for the 29933 Euclid
Avenue branch (Wickliffe, Ohio) (incorporated by reference to
Exhibit 10.c to the Registration Statement on Form SB-2 filed
by GLB Bancorp, Inc. on March 20, 1998, Commission File No.
333-48387)
* 10.d Indenture of Lease dated March 1, 1998 between Great Lakes
Bank and OsAir, Inc. for the lease of certain space in Great
Lakes Bank's main office facility at 7001 Center Street
(Mentor, Ohio) (incorporated by reference to Exhibit 10.d to
the Registration Statement on Form SB-2, Amendment No. 1,
filed by GLB Bancorp, Inc. on May 1, 1998, Commission File No.
333-48387)
* 10.e Federal Home Loan Bank of Cincinnati Blanket Agreement for
Advances and Security Agreement, dated July 22, 1996
(incorporated by reference to Exhibit 10.e to the Registration
Statement on form SB-2 filed by GLB Bancorp, Inc. on March 20,
1998,Commission File No. 333-48387)
* 10.f Lease Agreement by and between Great Lakes Bank and Collinwood
Properties Co., LLC dated September 16, 1998, for the 28500
Chardon Road branch (Willoughby Hills, Ohio) (incorporated
herein by reference to Exhibit 10.f included in Part II of GLB
Bancorp, Inc.'s Form S-4 Registration Statement (Commission
File No. 333-71771) filed on February 4, 1999)
* 10.G Employment Agreement of Betty L. Kimbrew (incorporated herein
by reference to Exhibit 10.g included in Part II of GLB
Bancorp, Inc.'s Form s-4 Registration Statement (Commission
File No. 333-71771) filed on February 4, 1999)
</TABLE>
17
<PAGE> 18
<TABLE>
<S> <C>
*** 11 Statement re: computation of per share earnings
*** 13 GLB Bancorp, Inc.'s Annual Report to Shareholders for the year
ended December 31, 1998
** 16 Letter on change in certifying accountant
** 18 Letter on change in accounting principles
* 21 Subsidiaries of GLB Bancorp, Inc. (incorporated herein by
reference to Exhibit 21 included in Part II of GLB Bancorp,
Inc.'s Form S-4 Registration Statement (commission File No.
333-71771) filed on February 4, 1999)
** 22 Published report regarding matters submitted to vote
** 23 Consent of experts and counsel
** 24 Power of Attorney
*** 27 Financial Data Schedule
* 99 Shareholder Voting Agreement dated as of November 24, 1998
(incorporated herein by reference to Exhibit 99.2 included in
Part II of GLb Bancorp, Inc.'s Form S-4 Registration Statement
(Commission File No. 333-71771) filed on February 4, 1999)
* Incorporated by reference
** Not applicable
*** Filed herewith
(b) Reports on Form 8-K
On December 2, 1998, GLB Bancorp, Inc. filed a Form 8-K to
report under Item 5 of Form 8-K ("Other Events") the execution
of an Agreement of Affiliation and Plan of Merger with Maple
Leaf Financial, Inc. dated as of November 24, 1998. A copy of
the November 24, 1998 Agreement of Affiliation and Plan of
Merger is included as Exhibit 99.2 to the Form 8-K filed on
December 2, 1998. The November 24, 1998 Agreement of
Affiliation and Plan of Merger was amended as of December 29,
1998. A copy of the Agreement and Plan of Affiliation, as
amended, is included as Appendix A of the Prospectus/Proxy
Statement included in Part I of GLB Bancorp, Inc.'s Form S-4
Registration Statement filed on February 4, 1999,Commission
File No. 333-71771.
</TABLE>
18
<PAGE> 19
SIGNATURES
Pursuant to the requirements of Sections 13 and 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
GLB BANCORP, INC.
By: /s/ Richard T. Flenner, Jr. Date: March 16, 1999
----------------------- --------------
Richard T. Flenner, Jr., President
(Duly Authorized Representative)
By: /s/ Cheryl J. Mihitsch Date: March 16, 1999
------------------ --------------
Cheryl J. Mihitsch, Treasurer
(Duly Authorized Representative)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
By: /s/ Jerome T. Osborne Date: March 16, 1999
----------------- --------------
Jerome T. Osborne,
Chairman of the Board
By: /s/ Richard M. Osborne Date: March 16, 1999
------------------ --------------
Richard M. Osborne,
Vice Chairman of the Board
By: /s/ Richard T. Flenner, Jr. Date: March 16, 1999
----------------------- --------------
Richard T. Flenner, Jr., Director
President
By: /s/ George X. Mechir Date: March 16, 1999
----------------- --------------
George X. Mechir, Director
By: /s/ George C. Lott Date: March 16, 1999
-------------- --------------
George C. Lott, Director
By: /s/ Thomas J. Smith Date: March 16, 1999
--------------- --------------
Thomas J. Smith, Director
By: /s/ Edward R. Pike Date: March 16, 1999
-------------- --------------
Edward R. Pike, Director
By: /s/ Joseph T. Svete Date: March 16, 1999
--------------- --------------
Joseph T. Svete, Director
By: /s/ Marian Nathan Date: March 16, 1999
------------- --------------
Marian Nathan, Director
By: /s/ Thomas Wheeler Date: March 16, 1999
-------------- --------------
Thomas Wheeler, Director
By: /s/ James V. Fryan Date: March 16, 1999
-------------- --------------
James V. Fryan, Director
19
<PAGE> 1
Exhibit 11
Statement re: computation of per share earnings
The following table reconciles the weighted average shares
outstanding and the income available to common shareholders used for basic and
diluted earnings per share:
<TABLE>
<CAPTION>
Year ended December 31,
1998 1997 1996
<S> <C> <C> <C>
Weighted average number of common shares
Outstanding used in basic earnings per
Common Share calculation 1,536,821 595,942 548,089
Dilutive effect of stock options 14 0 0
Weighted average number of shares outstanding
adjusted for effect of dilutive securties
used in diluted EPS calculation 1,536,835 595,942 548,089
Net income $ 672,264 $343,957 $ 211,943
Basic earnings per common share $ .44 $ .58 $ .39
Diluted earnings per common share $ .44 $ .58 $ .39
</TABLE>
<PAGE> 1
Exhibit 13
1998
Annual Report
[GLB BANCORP, INC. LOGO]
<PAGE> 2
Contents
We Believe | 2
|
Who We Are | 3
|
Message to Shareholders | 4
|
Lending | 5
|
Deposits | 7
|
Selected Consolidated |
Financial & Other Data | 9
|
Management Discussion |
& Analysis | 10
|
Financials | 20
|
Independent Auditors Report | 46
|
Shareholder Information | 47
|
Board of Directors and Officers | 26
<PAGE> 3
[PHOTO]
WE BELIEVE IN
SATISFIED CUSTOMERS, LOCAL DECISION MAKING,
QUALITY SERVICE, VALUE-ORIENTED PRODUCTS & TRUST
From $19 Million dollars in assets and 22 employees as Great Lakes Commerce
Bank, to over $100 million in assets and nine branches with 56 employees, Great
Lakes Bank conducts business with our founding philosophy and principles as our
guide. Hometown banking, convenient hours and personal service is what keeps our
customers coming back.
Part of what makes Great Lakes Bank so appealing to so many is our local ties.
We are one of the few institutions left that are still locally-headquartered.
What does this mean to our customers? Quick decision making on loans. This
advantage also benefits our small business customers. We are committed to
helping the communities we serve.
Trust is one of the most important aspects in choosing a bank. Great Lakes Bank
always puts the customer first. Each and every customer is treated like our best
customer. Our expert staff takes the time to help them make wise financial
choices. They rely on Great Lakes Bank to offer financial services and products
they can really use.
2
<PAGE> 4
WHO WE ARE
GLB Bancorp, Inc. is a bank holding company organized in 1997 with its sole
subsidiary being Great Lakes Bank. Through Great Lakes Bank, GLB Bancorp, Inc.
provides a focused core of banking services. Great Lakes Bank's lending services
focus primarily on secured lending for residential and commercial real estate.
With its nine offices in Lake County and one additional branch planned in the
fourth quarter of 1999, Great Lakes Bank offers a broad array of deposit
products, including checking and savings accounts and certificates of deposits.
On July 18, 1994, Great Lakes Bank became the successor to Great Lakes Commerce
Bank, which was chartered as an Ohio banking corporation in April 1957. In July
1994, Great Lakes Commerce Bank had total assets of approximately $19 million
and four offices.
By December 1998, Great Lakes Bank had grown to approximately $104 million.
Great Lakes Bank is the only commercial bank headquartered in Lake County, Ohio.
GLB Bancorp, Inc. has emphasized growth as can be seen from the above. Future
plans call for the acquisition of Geauga Savings Bank which is to be completed
by the end of the second quarter of 1999 as well as branch growth in both Lake
and Geauga Counties. In addition, greater emphasis will be placed on commercial
as well as consumer lending.
With the increase in branches, as well as increased lending, we feel that the
communities where our branches are located will be better served. Each branch
has or will have its own ATM as well as a drive up facility which adds to
customer convenience.
It is the goal of the Bank to have branches across Lake County as well as Geauga
County. With this network in place the Bank will have a strong foundation in
place to grow, provide profit to its shareholders, and serve the local
communities in both counties.
3
<PAGE> 5
DEAR SHAREHOLDER
[PHOTO]
[GRAPH 1]
[GRAPH 2]
[GRAPH 3]
Fiscal 1998 turned out to be the most gratifying year we have had since Great
Lakes Bank was formed in 1994. The Bank became a public company in May of 1998
and raised approximately $17.9 million in additional capital. A new branch
office was opened in Mentor on Lakeshore Boulevard by Mentor on the Lake. In
addition, we signed a definitive agreement to purchase Geauga Savings Bank which
will give us approximately $200 million in total assets and a presence in Geauga
County. The merger's regulatory approval is anticipated by midsummer.
Geauga Savings has assets of approximately $115 million and two branch offices,
one located in Newbury and the other located in Middlefield. Both will
complement our present branch system and we welcome them to our team.
Net income for the year was $672,264 which exceeded last year's net income by
approximately 95%. The $17.9 million net of expenses from the public offering
helped in obtaining this significant increase in profit. Assets for the year
ended at $104 million, up from $67 million at the end of 1997.
It is planned that 1999 will be a continuation of 1998. Our goal is to complete
the merger transaction of Geauga Savings Bank by the end of June,1999. Our Main
Office, which is located on Center Street in Mentor, will be expanded to
accommodate the increased staff required to operate a $200 million Bank. Nine
offices, including two which were recently opened, comprise our present bank
system. In addition, we are planning a new office in downtown Willoughby by
November 1999. By the end of the year, the Bank will have approximately I 00
employees and a total of twelve branch offices.
Most importantly, I attribute the Bank's success to the dedication and
accomplishments of our staff and Board of Directors. None of the above would
have happened without their help, input and hard work. We have a Great Team.
4
<PAGE> 6
LENDING
As a community bank, Great Lakes Bank is an active lender in Lake and Geauga
Counties. The Bank's overall investment philosophy is to lend as much money as
possible in the community within appropriate capital and risk limits.
Great Lakes Bank offers customers a variety of loans. While providing
residential, commercial and consumer loans the Bank specializes in real estate
lending with a total of 86.9% of total loans being secured by real estate.
The Bank has been an aggressive residential mortgage lender and continues to
assist customers who wish to purchase, construct or refinance a home. A total of
46.5% of the Bank's loan portfolio is comprised of 1-4 family mortgages. The
past year represented the largest mortgage lending year ever for Great Lakes
Bank as customers took advantage of lower interest rates to build, purchase and
refinance homes. A total of $29,087,080 in mortgage loans were originated during
1998.
In order to control interest rate risk the Bank is an active seller in the
secondary mortgage market. A total of $16,988,949 of mortgage loans were sold
during 1998. Although mortgage servicing is usually retained by the Bank to
ensure better customer service, fixed rate mortgage loans are generally sold.
As a community bank, Great Lakes Bank also makes "non conforming" mortgage loans
that cannot be sold in the secondary market because the loan amount is too large
or it doesn't qualify for other reasons such as property type, credit history or
documentation requirements.
5
<PAGE> 7
The Bank, utilizing prudent underwriting criteria will generally make these
loans on an adjustable rate basis and keep them in the Bank's portfolio. By
following this strategy, the Bank is able to control interest rate risk while
still providing customers with mortgage money that may not be available
elsewhere.
Construction lending continues to make up a significant portion of the Bank's
lending efforts. Great Lakes Bank offers a variety of construction loan products
including "construction/permanent" loans to homeowners, residential construction
loans to builders, and commercial construction loans to contractors and business
owners. The Bank's commitment to construction lending means increased, growth
and vitality in the communities the Bank serves as well as profitable,
short-term loans that can be converted to mortgages available-for-sale in the
secondary market or kept in the Bank's portfolio.
Commercial loans make up 38.3% of the Bank's loan portfolio. The Bank makes
loans for the purchase, construction, and refinance of commercial and industrial
properties in Lake and Geauga Counties. As noted above, construction loans
represent a significant portion of the Bank's overall business. Loans to
builders for residential properties and commercial construction loans are both
included in the commercial loan category.
During 1998 the Bank's commercial loan portfolio increased by $7,320,661 or
46.4%. In 1998 the Bank made an increased commitment to providing commercial
loans by adding two "Business Bankers" who work specifically with existing and
prospective commercial customers. The increased emphasis on commercial lending
as well as the favorable interest rate environment led to the positive growth in
this segment of the loan portfolio.
Great Lakes Bank is also an active consumer lender offering a variety of
installment loan products including auto loans, boat financing, savings secured
loans, credit cards and second mortgages.
In the area of consumer loans, the Bank has been particularly successful with
its "Great Line" product, a home equity line of credit that gives the borrower
flexibility and a lower interest rate and provides the Bank with a secure loan
that adjusts with market interest rates. During 1998 the Bank began a "teaser
rate" promotion for this product to try and increase the use of the Great Line
by customers.
With Great Lakes Bank's emphasis on real estate secured lending, delinquencies
and charge offs are below industry norms. At December 31, 1998 the Bank had .1%
loans delinquent 90 days or more and during 1998 the total amount of net charge
offs represented .07% of the Bank's average total loan portfolio. Great Lakes
Bank is committed to a conservative, secured approach to lending that will
result in continued low charge off rates.
Great Lakes Bank believes that there are significant market opportunities for
increased lending within its market area. The Bank will continue to emphasize
personal service and flexibility in lending while looking for high quality loans
that are properly priced and secured.
[LENDING GRAPH]
6
<PAGE> 8
DEPOSITS
7
<PAGE> 9
[DEPOSITS GRAPH]
Great Lakes Bank continued to see significant increases in all deposit
categories during 1998. Total deposits increased from $52,011,916 to
$68,655,126, an increase of 32%.
The "Golden Passbook" account represents the Bank's largest deposit account
category comprising 42.8% of total deposits. The "Golden Passbook" offers
depositors an attractive rate of interest for a relatively low required minimum
balance. The account was immediately successful when it was introduced in 1994
and it remains popular with a wide variety of customers who are looking for a
higher rate of interest combined with easy accessibility and liquidity.
The Bank has also had great success in developing commercial checking account
business. Great Lakes Bank's commercial checking account offers a simple,
inexpensive flat rate service fee for most small businesses instead of the
complicated "per transaction" methods used by many financial institutions.
Businesses find the account pricing attractive and the flat fee simple to
understand and account for. Most importantly, small business customers
appreciate the personal service that Great Lakes Bank provides them. During 1998
commercial checking account deposits grew by 42.4%. The Bank sees this account
as a source of continuing deposit growth in the future as it continues to build
full service relationships with its business customers.
Certificates of deposit also increased during the year, growing by 22.5% in
1998. The Bank offered competitive rates to customers while attempting to ensure
that interest rate margins remained in line. Customers responded to the
competitive rates and personalized service while the Bank successfully offered
additional products such as certificates of deposit to new and existing
customers.
Deposit growth at Great Lakes Bank was also generated by the Bank's increased
branch network. Newer branches such as Willoughby Hills and Mentor Lakeshore
continued to grow while relocated or remodeled offices saw increased deposit
activity as customers responded to better locations and more inviting
surroundings. The Bank's strategy of a larger branch network also paid off as
customers took advantage of the convenience of additional business locations.
The provision of drive through lanes and ATMs at all Great Lakes Bank branches
added to customer convenience and helped to draw additional deposits as
customers sought ways of banking that are no longer available at many other
financial institutions.
Despite increased competition for deposit dollars, Great Lakes Bank believes
deposits will continue to see growth as customers become more aware of the
Bank's commitment to personalized customer service and convenience.
8
<PAGE> 10
SELECTED CONSOLIDATED FINANCIAL & OTHER DATA
The following table summarizes selected consolidated financial information
concerning GLB Bancorp at the dates and for the periods indicated. Incorporated
in 1997, the GLB Bancorp became the holding company for the Bank in September
1997. The selected financial information for each of the years ended December
31, is derived from audited consolidated financial statements or the accounting
records of GLB Bancorp. The information should be read in conjunction with the
consolidated financial statements and "Management's Discussion and Analysis of
Financial Condition and Results of Operations".
<TABLE>
<CAPTION>
AT OR FOR THE YEARS ENDED DECEMBER 31, 1998 1997 1996 1995 1994(1)
(Dollars in thousands, except share and per share data)
<S> <C> <C> <C> <C> <C>
OPERATING DATA
Interest income $5,844 $4,382 $3,234 $2,498 $757
Interest expense 2,439 1,938 1,325 1,014 276
-------- ------- ------- ------- -------
Net interest income 3,405 2,444 1,909 1,484 481
Provision for loan losses 120 97 77 51 0
-------- ------- ------- ------- -------
Net interest income after provision for loan losses 3,285 2,347 1,832 1,433 481
Non-interest income 707 552 294 250 86
Non-interest expense 2,947 2,345 1,904 1,642 896
-------- ------- ------- ------- -------
Income (loss) before Income taxes 1,045 554 222 41 (329)
Income tax expense (benefit)
Federal current 233 214 16 4 (20)
Federal deferred 110 (4) (6) 0 19
State tax 30 0 0 0 0
-------- ------- ------- ------- -------
Net income (loss) $672 $344 $212 $37 $ (328)
======== ======= ======= ======= =======
FINANCIAL CONDITION
Total assets $103,868 $66,631 $54,037 $40,915 $32,550
Cash and cash equivalents 34,142 7,827 10,329 7,190 9,498
Securities 4,810 1,619 1,142 4,305 4,670
Loans receivable - net 60,330 53,097 38,634 26,045 14,818
Deposits 68,655 52,012 42,253 35,678 27,840
Federal Home Loan Bank advances 9,000 7,500 5,000 - -
Shareholders' equity 25,432 6,428 6,039 4,809 4,222
SHARE INFORMATION (2)
Earnings (loss) per share - basic and diluted $.44 $.58 $.39 $.07 $(.72)
Book value per share 11.92 $ 10.77 $10.18 $ 9.43 $9.28
Weighted average shares outstanding
Basic 1,536,821 595,942 548,089 496,250 455,000
Diluted 1,536,835 595,942 548,089 496,250 455,000
OTHER DATA (3)
Return on average assets 0.79% 0.58% 0.46% 0.10% -
Return on average equity 3.76% 5.52% 3.88% 0.79% -
Net interest margin 4.37% 4.62% 4.72% 4.68% -
Net interest spread 3.06% 3.92% 4.07% 4.02% -
Allowance for loan losses to total loans 0.80% 0.75% 0.81% 0.91% -
Nonperforming assets to total assets 0.05% 0.17% 0.13% 0.00% -
Shareholders' equity to total average assets 29.95% 10.87% 13.12% 13.13% -
</TABLE>
(1) From July 15, 1994 (inception) to December 31, 1994.
(2) Per share information gives effect for each period to the 2-for-I stock
split that occurred on March 17, 1998.
(3) Other Data for the partial year ended December 31, 1994 are not meaningful.
9
<PAGE> 11
MANAGEMENT DISCUSSION
& ANALYSIS
10
<PAGE> 12
GLB BANCORP, INC.'S MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GLB Bancorp's principal asset is Great Lakes Bank common stock. Accordingly, GLB
Bancorp's results of operations are primarily dependent upon the results of
operations of Great Lakes Bank. Great Lakes Bank conducts a general commercial
banking business, gathering deposits from the general public and applying those
funds to the origination of loans for commercial, consumer, and residential
purposes.
GLB Bancorp's profitability depends primarily on net interest income, which is
the difference between (a) interest income generated by interest-earning assets
(i.e., loans and investments) and (b) interest expense incurred on
interest-bearing liabilities (i.e., customer deposits and borrowed funds). Net
interest income is affected by the difference ("interest rate spread") between
rates of interest earned on interest-earning assets and rates of interest paid
on interest-bearing liabilities, as well as the relative amounts of
interest-earning assets and interest-bearing liabilities. If the total of
interest-earning assets approximates or exceeds the total of interest-bearing
liabilities, any positive interest rate spread will generate net interest
income. Financial institutions have traditionally used interest rate spreads as
a measure of net interest income. Another indication of an institution's net
interest income is its' "net yield on interest-earning assets" or "net interest
margin," which is net interest income divided by average interest-earning
assets.
To a lesser extent, GLB Bancorp's profitability is also affected by such factors
as the level of non-interest income and expense, the provision for loan losses,
and the effective tax rate. Non-interest income consists primarily of service
charges, other fees, loan fees, and income from the sale of loans. Non-interest
expenses consist of compensation and benefits, occupancy related expenses,
deposit insurance premiums paid to the FDIC and other operating expenses.
GLB Bancorp's management's discussion and analysis of earnings and related
financial data are presented herein to assist investors in understanding the
consolidated financial condition and results of operations of GLB Bancorp for
the fiscal years ended December 31, 1998, 1997, and 1996. This discussion should
be read in conjunction with the consolidated financial statements and related
footnotes presented in this annual report.
FORWARD-LOOKING STATEMENTS
This report may contain certain "forward-looking statements". GLB Bancorp
desires to take advantage of the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995 with respect to all forward-looking
statements. The words "believe", "expect", "anticipate", "estimate", "project",
and similar expressions are intended to identify forward-looking statements. GLB
Bancorp's ability to predict the results or effect of future plans is inherently
uncertain. Factors which could affect actual results include interest rate
trends, the economic climate in GLB Bancorp's market area and the country, loan
delinquency rates, and changes in federal and state regulations. These factors
should be considered in evaluating forward-looking statements and undue reliance
should not be placed on such statements.
ACQUISITION
On November 24, 1998, GLB Bancorp, Inc. and Maple Leaf Financial, Inc. (Maple
Leaf) signed an Agreement of Affiliation and Plan of Merger, which was later
amended on December 29, 1998. The Agreement states that GLB Bancorp is to be the
acquirer with the anticipated effective date to be sometime in the second
quarter of 1999. As of December 31, 1998, Maple Leaf had total assets of
$115,145,964. The total consideration to be given for the acquisition is
$18,000,000 and 375,000 shares of GLB Bancorp, Inc. common stock. Upon
completion of the acquisition, GLB Bancorp, Inc. will account for the
transaction as a purchase, in accordance with generally accepted accounting
principles.
RESULTS OF OPERATIONS
From the time of Great Lakes Bank's succession to the business of Great Lakes
Commerce Bank in July 1994, management has laid the foundation for continued
growth in earnings and assets, doing so on a conservative basis intended to
improve financial performance over time. During the process of building Great
Lakes Bank into a profitable institution, Great Lakes Bank has incurred
considerable short-term expense. All but one of Great Lakes Bank's original four
offices have been relocated since July 1994, and Great Lakes Bank expects to
have nine banking offices in Lake County by the end of the first quarter of
1999, with one
11
<PAGE> 13
additional branch planned in the fourth quarter of 1999. Although branch
relocation and expansion has promoted asset and earnings growth, it has also
represented substantial near-term costs, most notably facilities and equipment
expense and compensation expense. These near-term costs will, in management's
opinion, have a long-term benefit for GLB Bancorp and Great Lakes Bank. Branch
reconfiguration and de novo branch expansion have been and will be part of Great
Lakes Bank's strategy to solidify its position as a leading community bank,
capitalizing upon Great Lakes Bank's status as the only commercial bank
headquartered in Lake County.
Management's efforts have produced a positive earnings trend with $211,943 for
1996 ($.39 per share, basic and diluted), $343,957 for 1997 ($.58 per share,
basic and diluted), and $672,264 for 1998 ($.44 per share, basic and diluted).
The improvement each year was primarily the result of growth in the volume of
loans, and the corresponding net interest income associated with increased
volumes.Also affecting net income was an effective tax rate of 35.7% in 1998,
37.9% in 1997, and 4.51% in 1996.
Basic earnings per share was computed in accordance with Statements of Financial
Accounting Standards SFAS No. 128. This calculation was based on 1,536,821,
595,942, and 548,089 weighted average shares outstanding for the periods ended
December 31, 1998, 1997, and 1996, respectively. Diluted earnings per share was
based on 1,536,835, 595,942, and 548,089 weighted average shares outstanding for
the periods ended December 31, 1998, 1997, and 1996, respectively.
[PHOTO]
NET INTEREST INCOME
1998 COMPARED TO 1997. Net interest income was $3,405,182 in 1998, compared to
$2,443,766 in 1997, an increase of $961,416, or 39.3%. This increase was caused
primarily by an increase in average earning assets of $25.0 million between the
years while average interest-bearing liabilities grew by $10.6 million. A
significant factor in the increase in net income through the average earning
assets in- crease was the investment of the public offering funds in federal
funds. These in- vested funds yielded approximately $519,000 in additional
interest income for the year. At the same time, Great Lakes Bank's interest rate
spread decreased to 3.06% in 1998 from 3.92% in 1997. Great Lakes Bank's net
interest margin also decreased in 1998 to 4.37% from 4.62% in 1997.
During the last half of 1998, the Federal Reserve Bank Board reduced the prime
lending rate. This reduction caused the banking industry to reduce new loan
rates being offered to prospective customers and produced a flurry of refinance
activity as the customer saw an opportunity to reduce their monthly mortgage
expense. This in turn, caused all interest sensitive monetary instruments to
carry lower interest rates. The lowering of rates narrowed the net interest rate
spread, since during this rate change, interest-bearing liabilities (savings
instruments) naturally moved at a slower pace than interest-earning assets (
loans, federal funds, and securities). Great Lakes Bank was no different than
any other bank and saw a decrease in their spread and margin.
1997 COMPARED TO 1996. Net interest income was $2,443,766 in 1997, compared to
$1,909,305 in 1996, an increase of $534,461, or 28.0%. This increase was caused
primarily by an increase in average earning assets of $12.4 million between the
years while average interest-bearing liabilities grew by $10.8 million. At the
same time, Great Lakes Bank's interest rate spread decreased to 3.92% in 1997
from 4.07% in 1996. Great Lakes Bank's net interest margin also decreased in
1997 to 4.62% from 4.72% in 1996. However, the decrease in net interest spread
and net interest margin was offset by an increase in the volume of net earning
assets. Great Lakes Bank's decrease in interest rate spread and net interest
margin was primarily a result of an increase in long-term borrowings needed to
support increased loan volumes, which borrowings carry a higher interest cost
than deposits.
12
<PAGE> 14
The following table sets forth certain information relating to GLB Bancorp's
consolidated average interest-earning assets and interest-bearing liabilities
and reflects the average yield on assets and average cost of liabilities for the
years indicated. Such yields and costs are derived by dividing income or expense
by the average daily balance of assets or liabilities, respectively, for the
periods presented. During the periods indicated, non-accruing loans, if any, are
included in the net loan category. The yields and costs include fees, premiums,
and discounts which are considered adjustments to yields.
<TABLE>
<CAPTION>
AVERAGE BALANCES AND 1998 1997 1996
INTEREST RATES FOR THE
YEARS ENDED DECEMBER 31 INTEREST INTEREST INTEREST
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE COST BALANCE EXPENSE COST BALANCE EXPENSE COST
INTEREST-EARNING ASSETS:
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage-backed Securities $0 $0 0.00% $24,339 ($619) -2.54% $41,225 $2,954 7.16%
Loans Receivable:
Real Estate Mortgage 31,091,390 2,358,880 7.59% 27,004,160 2,087,781 7.73% 18,588,442 1,420,956 7.64%
Commercial and other 20,830,653 2,015,503 9.68% 16,212,406 1,631,713 10.06% 11,169,811 1,069,009 9.57%
Consumer 3,727,614 329,488 8.83% 3,534,530 316,106 8.94% 2,982,556 266,723 8.94%
------------ ---------- ----- ------------ ---------- ----- ------------ ---------- ----
Total Loans Receivable 55,649,657 4,703,871 8.45% 46,751,096 4,035,600 8.63% 32,740,809 2,756,688 8.42%
Cash Interest-earning 23,089 1,302 5.64% 18,294 1,473 8.05% 9,778 512 5.23%
Securities:
FHLB Stock 439,386 31,570 7.19% 409,205 29,421 7.19% 106,701 8,738 8.19%
Securities Held to maturity 1,319,574 74,085 5.61% 1,112,064 69,087 6.21% 2,373,653 185,174 7.80%
Securities Available-for-sale 817,873 26,625 3.26% 0 0 0.00% 0 0 0.00%
------------ ---------- ----- ------------ ---------- ----- ------------ ---------- ----
Total Securities 2,576,833 132,280 5.13% 1,521,269 98,508 6.48% 2,480,354 193,912 7.82%
Federal Funds 19,728,901 1,006,676 5.10% 4,576,840 247,079 5.40% 5,170,828 279,733 5.41%
------------ ---------- ----- ------------ ---------- ----- ------------ ---------- ----
Total Interest-Earning Assets: 77,978,480 5,844,129 7.49% 52,891,838 4,382,041 8.28% 40,442,994 3,233,799 8.00%
------------ ---------- ----- ---------- ----- ---------- ----
Non-Interest Earning Assets 6,946,846 6,248,155 5,595,085
------------ ------------ ------------
Total Assets: $84,925,326 $59,139,993 $46,038,079
============ ============ ============
INTEREST-BEARING LIABILITIES:
- -----------------------------------------------------------------------------------------------------------------------------------
Deposits:
DDA Interest-Bearing $5,246,101 $117,190 2.23% $4,372,338 $90,704 2.07% $3,648,864 $80,312 2.20%
Savings Accounts 30,261,219 1,137,749 3.76% 24,447,474 898,299 3.67% 21,587,952 771,858 3.58%
Certificates of Deposit 12,011,136 674,832 5.62% 9,229,811 512,833 5.56% 7,085,051 387,788 5.47%
------------ ---------- ----- ------------ ---------- ----- ------------ ---------- ----
Total Deposits 47,518,456 1,929,771 4.06% 38,049,623 1,501,836 3.95% 32,321,867 1,239,958 3.84%
Borrowings 7,512,097 509,176 6.78% 6,410,417 436,439 6.81% 1,363,636 84,536 6.20%
------------ ---------- ----- ------------ ---------- ----- ------------ ---------- ----
Total Interest-Bearing Liabilities 55,030,553 2,438,947 4.43% 44,460,040 1,938,275 4.36% 33,685,503 1,324,494 3.93%
------------ ---------- ----- ------------ ---------- ----- ------------ ---------- ----
Non-Interest Bearing Liabilities 12,001,073 8,444,677 6,886,879
Shareholders' Equity 17,893,700 6,235,276 5,465,697
------------ ------------ ------------
Total Liabilities and
Shareholders' Equity $84,925,326 $59,139,993 $46,038,079
============ ============ ============
Net Interest Income and
Net Interest Rate Spread (1) $3,405,182 3.06% $2,443,766 3.92% $1,909,305 4.07%
========== ===== ========== ===== ========== ====
Net Interest Margin (2) 4.37% 4.62% 4.72%
===== ===== ====
Ratio of Average Interest-Earning Assets
to Interest-Bearing Liabilities 91.82% 118.96% 120.06%
===== ====== ======
</TABLE>
(1) Net interest rate spread represents the difference between the average yield
on average interest-earning assets and the average cost of average
interest-bearing liabilities.
(2) Net interest margin represents net interest income divided by average
interest-earning assets.
13
<PAGE> 15
The following table analyzes net interest income in terms of changes in volume
and interest rates of interest-earning assets and interest-bearing liabilities
during the periods indicated. The table reflects the extent to which changes in
interest income and changes in interest expense are attributable to changes in
volume (changes in volume multiplied by the prior year rate) and changes in rate
(changes in rate multiplied by the prior year volume). Changes attributable to
the combined impact of volume and rate have been allocated proportionately to
changes due to volume and changes due to rate.
<TABLE>
<CAPTION>
RATE/VOLUME ANALYSIS FOR THE YEARS
ENDED DECEMBER 31, 1998 VS. 1997 1997 VS. 1996
INCREASE (DECREASE) DUE TO INCREASE (DECREASE) DUE TO
VOLUME RATE TOTAL VOLUME RATE TOTAL
<S> <C> <C> <C> <C> <C> <C>
Interest Income attributable to:
Loans Receivable $ 750,206 ($81,935) $ 668,271 $1,208,477 $70,435 $1,278,912
Securities 48,154 (14,382) 33,772 (66,108) (29,296) (95,404)
Mortgage-Backed Securities 619 0 619 (829) (2,744) (3,573)
Federal Funds 772,386 (12,789) 759,597 (32,137) (517) (32,654)
Cash Interest-earning 1,194 (1,365) (171) 594 367 961
---------- --------- -------- -------- ------ --------
Total Interest Income 1,572,559 (110,471) 1,462,088 1,109,997 38,245 1,148,242
Interest Expense attributable to:
Deposits 383,415 44,520 427,935 225,436 36,442 261,878
Borrowings 74,664 (1,927) 72,737 342,790 9,113 351,903
---------- --------- -------- -------- ------ --------
Total Interest Expense 458,079 42,593 500,672 568,226 45,555 613,781
Increase (decrease) in Net Interest Income $1,114,480 ($153,064) $ 961,416 $ 541,771 ($7,310) $ 534,461
========== ========= ========== ========== ======= ==========
</TABLE>
PROVISION FOR LOAN LOSSES
1998 COMPARED TO 1997. The provision for loan losses was $120,000 in 1998,
compared to $97,000 in 1997, an increase of $23,000, or 23.7%. The increase in
the provision for loan losses was principally a result of increased loan volume.
Refer to Note 4 of Notes to Consolidated Financial Statements for additional
information.
1997 COMPARED TO 1996. The provision for loan losses was $97,000 in 1997,
compared to $77,000 in 1996, an increase of $20,000, or 26.0%. The increase in
the provision for loan losses was principally a result of increased loan volume.
Refer to Note 4 of Notes to Consolidated Financial Statements for additional
information.
14
<PAGE> 16
NON-INTEREST INCOME
1998 COMPARED TO 1997. Total non-interest income was $707,327 in 1998, compared
to $551,852 in 1997, an increase of $155,475, or 28.2%. The largest increases
were in service charges on demand deposits increasing $25,349, or 17.5% from
1997 to 1998 and increases in gains on sale of loans of $145,817, or 190.4% from
1997 to 1998.
Great Lakes Bank generally does not impose service charges and fees to the
same extent as other local institutions. Although a wider range of service
charges and fees and higher service charges and fees would yield more income for
each dollar of deposits, imposing service charges and fees on a basis equivalent
to those imposed by many other area commercial banks which might adversely
affect deposit growth. To promote deposit growth and provide cross-selling
opportunities to customers, Great Lakes Bank has not adopted an aggressive fee
structure. Deposit growth was generated by developing strong customer
relationships, cross-selling relationships to loan customers and obtaining
increased growth from branch offices in recent years. The increase in service
charges on demand deposits was primarily due to demand deposit growth.
Management intends to continue promoting Great Lakes Bank's demand deposit
products, particularly non-interest bearing deposit products in order to obtain
additional interest-free, lendable funds.
Great Lakes Bank realized a total gain on sale of loans during 1998 of
$222,417 and in 1997 of $76,600, representing sale of loans to the Federal Home
Loan Mortgage Corporation (FHLMC). In the past, the Bank selectively retained
fixed-rate loans in order to increase its loan-to-deposit ratio. Although Great
Lakes Bank has retained fixed-rate mortgage loans in its portfolio, fixed-rate
loans may be sold in the secondary market to the FHLMC, with 0.25% servicing
retained, or on a servicing-released basis to other financial institutions. The
proceeds of such sales can be reinvested in additional lending. Management
believes that the sale of fixed-rate loans enhance asset/liability management.
That is, retention of long-term, fixed-rate mortgage loans in Great Lakes Bank's
portfolio during periods of rising interest rates would adversely affect net
interest margins, because the cost of liabilities would increase while earnings
on assets remained stable.
1997 COMPARED TO 1996. Total non-interest income was $551,852 in 1997,
compared to $293,879 in 1996, an increase of $257,973, or 87.8%. The $80,889
increase in loan fee income, an increase of 78.0% for the year, accounted for
the largest portion of the increase in other income. The increase in loan fee
income was largely attributable to interest points charged by Great Lakes Bank
on an increased volume of construction lending during 1997, which amortizes
typically within a six- to nine- month period. Other service charges and fees
increased $68,156 in the year ended December 31, 1997, an 87.6% increase,
principally as a result of new transaction fees imposed by Great Lakes Bank for
use of bank ATMs by customers of other financial institutions. Service charges
on demand accounts increased $33,959, or 30.7%, due to the growth in Great Lakes
Bank's demand deposit accounts ("DDA," or checking) during 1997 and the
accompanying growth in account-related fees, such as returned item fees.
NON-INTEREST EXPENSE
1998 COMPARED TO 1997. Total non-interest expense was $2,947,045 in 1998,
compared to $2,344,744 in 1997, an increase of $602,301, or 25.7%. The largest
component of non-interest expense was professional fees, which increased
$156,783, or 216.2%. One of the largest items of professional fees was the
auditing and accounting fees incurred in changing from a private to a public
company. Amortization of intangibles increased $17,926, or 20.6% as the mortgage
servicing rights intangible asset was amortized, largely for the first time this
year, as the bank sold numerous fixed rate loans to the Federal Home Loan
Mortgage Corporation. Almost all other categories increased from 15% to 39% as a
normal progression during a period of continued growth.
1997 COMPARED TO 1996. Total non-interest expense was $2,344,744 in 1997,
compared to $1,904,241, an increase of $440,503, or 23.1%. The larger components
of non-interest expenses included compensation and related benefits, which
increased $219,749, or 23.1%. The increase in compensation and related benefits
expense was due principally to increases in staff, higher pension and insurance
benefit costs and normal merit raises. The $69,743 increase during 1997 in
office occupancy and equipment expense, an 18.7% increase, was attributable in
significant part to the remodeling of the Willoughby branch office and the
relocation of the Wickliffe branch office in 1997 with office occupancy and
equipment expense being shown as net of rental income.
15
<PAGE> 17
The $56,046, or 93.5%, increase in data processing expense during 1997
reflects normal costs under the agreement entered into in 1995 with Great Lakes
Bank's new electronic data processing provider. Great Lakes Bank benefited in
1996 from a one-time, new-customer credit from the current electronic data
processing provider.
Franchise taxes payable to the State of Ohio are calculated to the amount
of shareholders' equity, and accordingly have increased each year as
shareholders' equity has grown. Professional fees increased with additional
legal expense incurred in connection with establishment of GLB as the holding
company for Great Lakes Bank in 1997. Other operating expenses increased due
primarily to asset growth year-to-year. The " deposit base intangible" and
goodwill assets that arose out of the July 1994 succession of Great Lakes Bank
to the business of Great Lakes Commerce Bank are being amortized over a period
of ten years. Refer to Note 6 of Notes to Consolidated Financial Statements for
additional information.
FEDERAL INCOME TAXES
1998 COMPARED TO 1997. Federal income tax expense was $373,200 in 1998,
compared to $209,917 in 1997. This change was due to the increase in net income
as the bank continues to grow. Refer to Note 13 of Notes to Consolidated
Financial Statements for additional information.
1997 COMPARED TO 1996. Federal income tax expense was $209,917 in 1997,
compared to $10,000 in 1996. During 1996 the Bank recognizing a $76,418 tax
benefit from the elimination of a valuation allowance against a deferred tax
asset related to net operating loss carry forwards that were used in the 1996
tax return. Refer to Note 13 of Notes to Consolidated Financial Statements for
additional information.
FINANCIAL CONDITION
GLB Bancorp's total assets were $103,868,013 at December 31, 1998, compared
to $66,631,007 at December 31, 1997, an increase of $37,237,006, or 55.9%. This
increase was primarily the result of an infusion of capital of $17.9 million due
to the public offering completed in May 1998. In addition, Great Lakes Bank
experienced a $16,643,210, or 32.0% increase in deposits with continuing
customer interest in the passbook savings and business checking products. These
new deposits funds were used to fund a net increase of $7,233,010, or 13.6% in
loan growth. The majority of the public funds were invested in federal funds
sold and available-for-sale securities. Great Lakes Bank also sold it's
Willoughby Hills branch building in 1998 at a gain of $118,804 in a
sale/leaseback option transaction with the gain recognized ratably over the life
of the lease increasing other liabilities with this deferred gain recognition.
CAPITAL
Shareholders' equity was $25,431,652 at December 31, 1998 and $6,428,213 at
December 31, 1997, an increase of $19,003,439, or 295.6%. This increase is due
primarily to GLB Bancorp's initial public offering completed in May 1998. This
capital raised increased common stock and paid-in capital, as well as increasing
net income with the earnings generated from the investment of those funds in
federal funds and available-for-sale securities.
As of December 31, 1998, Great Lakes Bank was in compliance with applicable
regulatory capital requirements, as shown in the following table:
<TABLE>
<CAPTION>
MINIMUM
(DOLLARS IN THOUSANDS AT YEAR-END) REQUIRED 1998 1997
<S> <C> <C> <C>
Tier 1 capital (1) $8,097 $5,937
Total capital (2) 8,580 6,340
Tier 1 capital ratio 4.00% 14.70% 12.96%
Total capital ratio (2) 8.00% 15.58% 13.84%
Leverage ratio (3) 3.00+ 11.10% 10.12%
</TABLE>
(1) As set forth in guidelines issued by the U.S. federal bank regulators.
(2) Total capital includes Tier 1 and Tier 2.
(3) Tier capital divided by adjusted average assets.
16
<PAGE> 18
Based on capital levels at December 31, 1998, Great Lakes Bank qualifies as a
"well-capitalized" institution, the highest of five tiers under applicable
regulatory definitions. It is GLB's intention to operate Great Lakes Bank as a
well-capitalized institution within the meaning of applicable regulatory
definitions. However, Great Lakes Bank could from time to time fall below the
highest level.
LIQUIDITY
Like other financial institutions, Great Lakes Bank must ensure that
sufficient funds are available to meet deposit withdrawals, loan commitments and
expenses. Control of cash flow requires that Great Lakes Bank anticipate deposit
flows and loan payments. The primary source of funds are deposits, principal and
interest payments on loans, proceeds of loan sales, federal funds and FHLB
borrowings. These funds are used principally to originate loans.
At December 31, 1998, certificates of deposit represented 19.6% of total
deposits, while DDA (checking accounts) represented 29.2% and savings accounts
51.2%. Of the total $13.5 million certificates of deposits at December 31, 1998,
certificates totaling $8.2 million will mature in 1999, and certificates
totaling $4.5 million will mature in 2000. Together, these figures represent
93.9% of the total certificates of deposit at December 31, 1998. Management
believes that, consistent with experience, the majority of maturing certificates
of deposits will be renewed at market rates of interest. Golden Passbook
accounts, which provide for a higher return than a regular passbook account,
accounted for $29.4 million, or approximately 42.8%, of deposits at December 31,
1998.
Great Lakes Bank has used advances from the FHLB of Cincinnati as a source
of funds for its lending activity. The amount that may be obtained in the form
of advances from the FHLB is determined by a formula on a quarterly basis. The
formula is based upon the total amount of single-family mortgages in Great Lakes
Bank's portfolio, as reported in Great Lakes Bank's quarterly call report, the
percentage of Great Lakes Bank's total loan portfolio represented by
single-family mortgages and the amount of FHLB stock held by Great Lakes Bank.
At December 31, 1998, Great Lakes Bank had $9.0 million of outstanding FHLB
advances.
FHLB advances are secured by a portion of the mortgage portfolio and
certain other assets. Likewise, most of Great Lakes Bank's short-term
investments are subject to pledge and therefore provide limited liquidity. In
addition to advances, Great Lakes Bank may obtain funds from the FHLB of
Cincinnati through a $1.5 million overnight line of credit. Great Lakes Bank
also has an agreement with a major regional bank for $400,000 of short-term
borrowings and relationships with other institutions for the purpose of
obtaining funds, or federal funds.
Great Lakes Bank had fixed and variable rate commitments of $4,385,130 and
$8,650,984, respectively, at December 31, 1998 and $1,786,352 and $6,917,693,
respectively, at December 31, 1997. Included within these commitments are
standby letters of credit of $300,000 and $621,124 for the periods ended
December 31, 1998 and 1997, respectively. Management believes Great Lakes Bank
has adequate resources to meet its normal funding requirements.
ASSET/LIABILITY MANAGEMENT
Like other financial institutions, Great Lakes Bank is subject to interest
rate risk. Great Lakes Bank's interest-earning assets could mature or reprice
more rapidly than, or on a different basis from, it's interest-bearing
liabilities (primarily borrowings and deposits with short- and medium-term
maturities) in a period of declining rates. Although having assets that mature
or reprice more frequently on average than liabilities will be beneficial in
times of rising interest rates, such an asset/liability structure will result in
lower net interest income during periods of declining interest rates.
Great Lakes Bank monitors its interest rate sensitivity position and
attempts to limit exposure to interest rate risk. The Bank's policy is that the
one-year cumulative interest rate sensitivity gap should generally be within a
range of negative 13% to positive 8%. As the following table illustrates, the
one-year gap was outside of this range as of December 31, 1998, with a positive
one-year gap of 45.07%. This is due largely to higher than normal amounts of fed
funds (short-term loans by Great Lakes Bank to other financial institutions) as
of December 31, 1998, which is in turn a result of sales of loans into the
secondary market and the investment of net proceeds raised in GLB Bancorp's
initial public offering into fed funds and available-for-sale securities. Great
Lakes Bank is in the process of reducing its one-year gap to a figure within the
range set forth in the funds management policy.
The following table illustrates the maturities or repricing of GLB
Bancorp's consolidated assets and liabilities at
17
<PAGE> 19
<TABLE>
<CAPTION>
MATURITY OR REPRICING PERIODS AT WITHIN 4-12 1-5 OVER 5
DECEMBER 31, 1998 3 MONTHS MONTHS YEARS YEARS TOTAL
<S> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Real Estate Mortgage loans (1)(2) $ 1,321,254 $ 4,330,374 $ 16,125,431 $ 8,861,942 $ 30,639,001
Commercial loans (1)(2) 9,181,389 5,528,795 10,877,724 1,074,947 26,662,855
Consumer loans (1)(2) 1,846,149 481,997 1,003,423 293,918 3,625,487
Securities available for sale 2,797,711 0 0 5,000 2,802,711
Securities held to maturity, at par (2) 0 500,000 1,507,742 459,000 2,466,742
Cash Interest-earning 53,757 0 0 0 53,757
Federal Funds 30,534,573 0 0 0 30,534,573
------------ ------------ ------------ ------------ ------------
Total Interest-Earning Assets $ 45,734,833 $ 10,841,166 $ 29,514,320 $ 10,694,807 $ 96,785,126
============ ============ ============ ============ ============
INTEREST-BEARING LIABILITIES:
Certificates of deposit $ 2,161,456 $ 6,021,505 $ 5,287,527 $ 0 $ 13,470,488
Money market 7,725 69,526 77,252 0 154,503
DDA Interest-bearing 0 0 5,599,909 1,399,977 6,999,886
Savings accounts 0 0 28,115,337 7,028,834 35,144,171
Borrowings 1,500,000 0 7,500,000 0 9,000,000
------------ ------------ ------------ ------------ ------------
Total Interest-Bearing Liabilities $ 3,669,181 $ 6,091,031 $ 46,580,024 $ 8,428,811 $ 64,769,048
============ ============ ============ ============ ============
Interest Rate Sensitivity Gap $ 42,065,652 $ 4,750,135 ($17,065,704) $ 2,265,996 $ 32,016,078
Cumulative Interest Rate Sensitivity Gap $ 42,065,652 $ 46,815,787 $ 29,750,082 $ 32,016,078
Cumulative Interest Rate Sensitivity
Gap as a Percent of Total Assets 40.50% 45.07% 28.64% 30.82%
</TABLE>
(1) For purposes of the GAP analysis, mortgage and other loans are not reduced
by the allowance for loan losses and non-performing loans.
(2) For purposes of the GAP analysis, premiunm, unearned discounts, and deferred
loan fees are excluded.
December 31, 1998, based upon the contractual maturity or contractual repricing
dates of loans and the contractual maturities of time deposits. Prepayment
assumptions have not been applied to fixed-rate mortgage loans. Demand loans,
loans having no stated schedule of repayments and no stated maturity, and
overdrafts are reported as due in one year or less. Allocation of deposits other
than time deposits to the various maturity and repricing periods is based upon
management's best estimate, taking into account, among other things, a proposed
policy statement issued previously by the FFIEC in a joint regulatory release.
This analysis of interest-rate sensitivity has a number of limitations. The
"gap" analysis above is based on assumptions concerning such matters as when
assets and liabilities will reprice in a changing interest rate envi-ronment.
Because these assumptions are no more than estimates, certain assets and
liabilities indicated as maturing or repricing within a stated period might
actually mature or reprice at different times and at different volumes from
those estimated. The actual prepayments and withdrawals experienced by Great
Lakes Bank in the event of a change in interest rates could deviate
significantly from those assumed in calculating the data shown in the table.
Certain assets, adjustable-rate loans for example, commonly have provisions
that limit changes in interest rates each time the inter-est rate changes and on
a cumulative basis over the life of the loan. Also, the renewal or repricing of
certain assets and liabilities can be discretionary and subject to competitive
and other pressures. The ability of many borrowers to service their debt could
diminish in the event of an interest rate increase. Therefore, the "gap" table
above does not and can not necessarily indicate the actual future impact of
general interest movements on net interest income.
18
<PAGE> 20
YEAR 2000
The Corporation is aware of the current concerns throughout the business
community of reliance upon computer software programs that do not properly
recognize the year 2000 in date formats, commonly referred to as the "Year 2000
Problem". The Corporation utilizes and is dependent upon data processing systems
and software to conduct its business. As with any business, the Corporation also
depends upon other businesses to provide products and services, both in the area
of information technology and other areas such as security, environmental
systems, power and communications. Any failure to properly prepare for the Year
2000 could create service disruptions to customers with resulting adverse
impacts to the Corporation's financial condition or results of operations.
STATE OF READINESS: The Corporation has established a Year 2000 planning
and implementation process. This process is overseen by a Year 2000 Committee
which includes senior management representation and reports monthly to the Board
of Directors.
An assessment of the Corporation's software, hardware, environmental and
other computer controlled systems has been completed. Mission critical systems,
both information and non information technology related, have been identified
and prioritized and a written testing plan has been completed providing for the
testing of all mission critical systems.
The Corporation initiated the testing of internal mission critical systems and
this testing was substantially completed by December 31, 1998.
The Corporation has contacted all of its third party vendors and software
providers and is requiring them to demonstrate and represent that the products
provided are or will be Year 2000 compliant. Testing of external mission
critical systems provided by third parties has also commenced and it is
anticipated that this testing will be substantially completed by June 30, 1999.
The Corporation's primary data processing function is undertaken pursuant to a
contract with an electronic data processing firm that services banking
institutions nationwide. The electronic data processing firm has substantially
completed Year 2000 testing and based upon the results of the testing and
ongoing discussions, the Corporation currently expects that Year 2000 computer
compliance will be achieved principally pursuant to that contract.
The Federal Reserve Bank provides certain services for the Corporation
including electronic funds transfers and check processing. The Corporation
understands that the Federal Reserve expects its systems to be Year 2000
compliant by the end of 1998 and testing of various services provided by the
Federal Reserve is underway.
The Corporation has also surveyed its largest dollar deposit and loan customers
to assess the risk posed by these parties and to determine their readiness for
Year 2000.
Costs: The Corporation does not expect costs associated with prevention or
remediation of the Year 2000 Problem to be material. The Corporation's current
estimate of cost related to this issue is $37,000. This figure is subject to
change as we continue the Year 2000 process. In general, the Corporation does
not expect the Year 2000 Problem to materially affect the Corporation's
financial condition or results of operation.
YEAR 2000 RISKS: The largest general risk to the Corporation concerning
Year 2000 is the malfunction of its data processing system. In the event the
data processing system does not function properly, the Corporation is prepared
to perform functions manually. The Corporation expects that there may be
additional risks in the form of temporary and periodic failures in utilities and
communications and liquidity problems caused by large cash withdrawals or by
reductions in balances on deposit. The Corporation is developing contingency
plans to address each of these risks.
CONTINGENCY PLANS: The Corporation has identified critical business
processes that may be affected by the Year 2000 problem and is in the process of
developing contingency plans for each identified critical business process.
Contingency plans for all critical business processes are scheduled to be
completed by March 31, 1999.
The Corporation is prepared to perform functions manually in the event of
temporary or short term failures in the primary data processing system,
utilities or communications. The Corporation is actively seeking alternative
sources of cash and funds to replace possible withdrawals as well as taking
steps to insure customer confidence in the Corporation's ability to meet the
Year 2000 challenge.
ACCOUNTING AND REPORTING DEVELOPMENTS
See caption "New Accounting Pronouncements" in Note 1 of the Notes to
Consolidated Financial Statements for a discussion of accounting and reporting
developments which may affect GLB Bancorp.
19
<PAGE> 21
FINANCIALS
20
<PAGE> 22
GLB BANCORP, INC. AND SUBSIDIARY
Financial Statements
December 31, 1998 and 1997
(With Independent Auditors' Report Thereon)
<PAGE> 23
GLB BANCORP, INC. AND SUBSIDIARY
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Independent Auditors' Report 1
Consolidated Statements of Financial Condition 2
Consolidated Statements of Income 3
Consolidated Statements of Changes in Shareholders' Equity 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
</TABLE>
<PAGE> 24
INDEPENDENT AUDITORS' REPORT
The Board of Directors
GLB Bancorp Inc.:
We have audited the accompanying consolidated statements of financial condition
of GLB Bancorp, Inc. and Subsidiary as of December 31, 1998 and 1997, and the
related consolidated statements of income, shareholders' equity, and cash flows
for each of the years in the three-year period ended December 31, 1998. These
financial statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of GLB Bancorp, Inc.
and Subsidiary as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
February 5, 1999
<PAGE> 25
GLB BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Financial Condition
December 31, 1998 and 1997
<TABLE>
<CAPTION>
ASSETS 1998 1997
------------ ------------
<S> <C> <C>
Cash and due from banks $ 3,606,939 2,562,597
Federal funds sold 30,534,573 5,264,000
------------ ------------
Total cash and cash equivalents 34,141,512 7,826,597
Securities available for sale, at fair value (note 3) 2,802,711 --
Securities held to maturity (fair value of
$2,015,313 and $1,619,438) (note 3) 2,007,742 1,619,300
Loans, net (note 4) 60,330,461 53,097,451
Stock in Federal Home Loan Bank of Cincinnati, at cost 459,000 427,700
Premises and equipment, net (note 5) 2,704,255 2,645,930
Intangibles, net (note 6) 692,024 531,923
Other assets 730,308 482,106
------------ ------------
Total assets $103,868,013 66,631,007
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits (note 7):
Noninterest bearing demand deposits $ 12,886,078 8,288,832
Interest bearing demand deposits 7,154,389 4,800,162
Savings accounts 35,144,171 27,926,967
Certificate accounts 13,470,488 10,995,955
------------ ------------
Total deposits 68,655,126 52,011,916
Advances from the Federal Home Loan Bank (note 8) 9,000,000 7,500,000
Accrued expenses and other liabilities 781,235 690,878
------------ ------------
Total liabilities 78,436,361 60,202,794
------------ ------------
Commitments and contingencies (note 11)
Shareholders' equity (notes 10 and 16):
Common stock, no par value; 10,000,000 shares authorized;
2,133,906 and 596,742 shares issued and outstanding,
at stated value of $2.50 5,334,765 1,491,855
Additional paid-in capital 19,152,715 4,671,642
Accumulated other comprehensive income 7,192 --
Accumulated earnings 936,980 264,716
------------ ------------
Total shareholders' equity 25,431,652 6,428,213
------------ ------------
Total liabilities and shareholders' equity $103,868,013 66,631,007
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 26
GLB BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Income
Years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Interest income:
Loans $4,703,869 4,035,600 2,756,688
Federal funds sold 1,006,677 247,079 279,733
Securities 133,583 99,362 197,378
---------- ---------- ----------
Total interest income 5,844,129 4,382,041 3,233,799
---------- ---------- ----------
Interest expense:
Deposits 1,929,771 1,501,836 1,239,958
FHLB advances 509,176 436,439 84,536
---------- ---------- ----------
Total interest expense 2,438,947 1,938,275 1,324,494
---------- ---------- ----------
Net interest income 3,405,182 2,443,766 1,909,305
Provision for loan losses (note 4) 120,000 97,000 77,000
---------- ---------- ----------
Net interest income after provision for loan losses 3,285,182 2,346,766 1,832,305
---------- ---------- ----------
Other income:
Service charges on demand deposits 170,040 144,691 110,732
Loan fees 161,934 184,605 103,716
Other service charges and fees 152,936 145,956 77,800
Gain on sale of loans held for sale 222,417 76,600 1,631
---------- ---------- ----------
Total other income 707,327 551,852 293,879
---------- ---------- ----------
Other expenses:
Compensation and related benefits (note 9) 1,406,672 1,171,529 951,780
Office occupancy and equipment, net 517,090 442,478 372,735
Professional fees 229,299 72,516 53,540
Advertising 75,368 65,438 49,833
Amortization of intangibles 105,023 87,097 96,074
Ohio franchise tax 93,070 85,630 66,512
Data processing 142,902 116,003 59,957
Office supplies and printing 98,145 71,036 70,907
FDIC deposit insurance 6,349 4,597 2,000
Credit card processing 48,892 55,311 30,267
Other operating expense 224,235 173,109 150,636
---------- ---------- ----------
Total other expenses 2,947,045 2,344,744 1,904,241
---------- ---------- ----------
Income before income taxes 1,045,464 553,874 221,943
Income tax expense (benefit) (note 13):
Federal - Current 232,974 214,305 15,619
Federal - Deferred 110,226 (4,388) (5,619)
State 30,000 -- --
---------- ---------- ----------
Total income tax expense 373,200 209,917 10,000
---------- ---------- ----------
Net income $ 672,264 343,957 211,943
========== ========== ==========
Earnings per share basic and diluted $ 0.44 0.58 0.39
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 27
GLB BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Changes in Shareholders' Equity
Years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL ACCUMULATED OTHER
COMMON PAID-IN EARNINGS COMPREHENSIVE
STOCK CAPITAL (DEFICIT) INCOME TOTAL
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $1,275,000 3,825,000 (291,184) -- 4,808,816
Issuance of 83,142 shares of common stock 207,855 810,642 -- -- 1,018,497
Net income -- -- 211,943 -- 211,943
---------- ---------- ---------- ---------- ----------
Balance at December 31, 1996 1,482,855 4,635,642 (79,241) -- 6,039,256
Issuance of 3,600 shares of common stock 9,000 36,000 -- -- 45,000
Net income -- -- 343,957 -- 343,957
---------- ---------- ---------- ---------- ----------
Balance at December 31, 1997 1,491,855 4,671,642 264,716 -- 6,428,213
Comprehensive income:
Change in unrealized gain on securities available -- -- -- 7,192 7,192
for sale, net of tax
Net income -- -- 672,264 -- 672,264
----------
Total comprehensive income 679,456
----------
Proceeds from issuance of 1,495,000 shares
of common stock in connection with the
initial public offering, net of issuance costs of
$1,591,017 (note 2) 3,737,500 14,106,483 -- -- 17,843,983
Issuance of 42,164 shares of common stock 105,410 374,590 -- -- 480,000
---------- ---------- ---------- ---------- ----------
Balance at December 31, 1998 $5,334,765 19,152,715 936,980 7,192 25,431,652
========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
DISCLOSURE OF RECLASSIFICATION AMOUNT: 1998
- -------------------------------------- ------------------
<S> <C>
Unrealized holding gains arising during the
period, net of tax effect of $3,705 for the
year ended December 31, 1998 $ 7,192
Less reclassification adjustment for gains and
losses included in net income --
------------------
$ 7,192
==================
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 28
GLB BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 672,264 343,957 211,943
Adjustments required to reconcile net income to net cash
provided by operating activities:
Amortization of intangibles 105,023 87,097 96,074
Depreciation 198,747 170,350 139,010
Premium amortization and discount accretion, net 5,665 986 (42,166)
Net deferred loan origination fees 64,694 (81,765) (19,678)
Origination of loans held for sale (16,988,949) -- --
Proceeds from sale of loans held for sale 16,956,314 2,388,347 --
Gain on sale of loans held for sale (222,417) (76,600) --
Provision for loans losses 120,000 97,000 77,000
Origination of mortgage servicing rights (265,124) (40,046) --
Increase in other assets (248,202) (109,373) (36,460)
Increase (decrease) in accrued expenses
and other liabilities (23,574) (50,289) 323,600
Deferred federal income taxes 110,226 (4,388) (5,619)
------------ ------------ ------------
Net cash provided by operating activities 484,667 2,725,276 743,704
------------ ------------ ------------
Cash flows from investing activities:
Purchases of securities held to maturity (2,999,107) (1,515,234) (102,235)
Purchases of securities available for sale (2,786,814) -- --
Maturities and payments of securities held to maturity 2,600,000 1,037,433 3,307,158
Purchase of FHLB stock (31,300) (29,200) (398,500)
Origination of loans, net of principal collected (7,281,456) (16,790,762) (12,645,598)
Purchases of premises and equipment (380,810) (241,255) (815,771)
Disposals of premises and equipment 492,542 6,670 457,957
------------ ------------ ------------
Net cash used in investing activities (10,386,945) (17,532,348) (10,196,989)
------------ ------------ ------------
Cash flows from financing activities:
Net proceeds from issuance of common stock 18,073,983 45,000 1,018,497
Net increase in deposits 16,643,210 9,759,387 6,574,181
Cash proceeds from FHLB advances 1,500,000 2,500,000 5,000,000
------------ ------------ ------------
Net cash provided by financing activities 36,217,193 12,304,387 12,592,678
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 26,314,915 (2,502,685) 3,139,393
Cash and cash equivalents at beginning of year 7,826,597 10,329,282 7,189,889
------------ ------------ ------------
Cash and cash equivalents at end of year $ 34,141,512 7,826,597 10,329,282
============ ============ ============
Supplemental disclosure of cash flow information -
Interest paid $ 2,428,220 1,913,732 1,310,396
Income taxes paid 380,604 25,000 --
============ ============ ============
Supplemental disclosure of non-cash financing activities:
Issuance of common stock in exchange for property 250,000 -- --
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 29
GLB BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(1) NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of GLB
Bancorp, Inc. (the "Corporation") and its wholly-owned subsidiary, Great
Lakes Bank, an Ohio-chartered bank (the "Bank"). All significant
intercompany transactions and balances have been eliminated in
consolidation.
On September 12, 1997, the Bank consummated its reorganization into the
holding company form of organization and thereby became a wholly-owned
subsidiary of the Corporation, which had previously been formed as a
wholly-owned subsidiary of the Bank. The reorganization was effected by
means of a merger of GLB Interim Bank ("Interim"), formerly an
Ohio-chartered bank which was wholly-owned by the Corporation, with and
into the Bank pursuant to an Agreement and Plan of Reorganization and
Merger, dated March 18, 1997. The accompanying consolidated financial
statements present the financial position and results of operations of
the Corporation as if this transaction had occurred at the beginning of
the earliest period presented.
As a result of the merger, all of the previously issued and outstanding
shares of the Bank's common stock were automatically converted on a
one-for-one basis, into an equal number of issued and outstanding shares
of Corporation common stock. As a result of the foregoing, the
stockholders of the Bank became stockholders of the Corporation and the
Bank became a wholly-owned subsidiary of the Corporation.
The Bank is the successor by merger to Great Lakes Commerce Bank, which
was chartered as an Ohio banking corporation on April 27, 1957. Great
Lakes Bank was formed pursuant to an amended Agreement and Plan of
Merger agreement executed on January 11, 1994. Regulatory approval was
obtained on July 15, 1994, and at such time, the Bank commenced
operations under new ownership. The acquisition was accounted for by the
purchase method. Accordingly, the cost of acquisition was allocated to
the assets acquired and liabilities assumed based upon their respective
fair values.
The Bank is engaged primarily in providing deposit and lending services
to individuals and small to medium-sized businesses within Lake County,
Ohio. The Bank offers its banking services through its main office and
branches located in Mentor, Painesville, Wickliffe, Willoughby and
Willoughby Hills, Ohio. The deposit products offered by the Bank include
checking and savings accounts and certificates of deposit. The Bank's
lending services focus primarily on secured lending both for commercial
real estate and single-family lending. The Bank is subject to
competition from other financial institutions and is regulated by
certain federal agencies and undergoes periodic examinations by those
regulatory authorities.
(a) BASIS OF PRESENTATION
The financial statements have been prepared in conformity with
generally accepted accounting principles. 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 date of the balance sheet and the reported
amounts of revenues and expenses for the reporting period. Actual
results could differ from those estimates.
6 (Continued)
<PAGE> 30
GLB BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(b) SECURITIES
The Corporation classifies its securities as either held to
maturity or available for sale as the Corporation does not hold
any securities considered to be trading. Securities which are
classified as being held to maturity are carried at amortized
cost, as adjusted for the amortization of premiums and accretion
of discounts using a level yield method. The Corporation has the
ability and positive intent to hold these securities to maturity.
Securities available for sale are carried at fair value with
unrealized gains and losses included as a component of accumulated
other comprehensive income.
(c) LOANS
Loans receivable are carried at unpaid principal balances, less
the allowance for loan losses and net deferred loan origination
fees. Interest on loans is credited to income as earned. The
accrual of interest on loans is discontinued when, in the opinion
of management, there is an indication that the borrower may be
unable to meet payments as they become due. Upon such
discontinuance, all unpaid accrued interest is reversed. Loans are
returned to an accrual status when both principal and interest are
current and the loan is determined to be performing in accordance
with the applicable loan terms.
Impaired loans include all nonaccrual and restructured commercial
real estate and other commercial loans. Residential real estate
and consumer loans are excluded from the definition of an impaired
loan. Loan impairment is measured as the present value of expected
future cash flows discounted at the loan's initial interest rate,
the fair value of the collateral of an impaired collateral
dependent loan or an observable market price. Interest income on
impaired loans is recognized on a cash-basis method.
Loan origination fees and certain direct loan origination costs
are deferred, and the net amounts are amortized as an adjustment
of the related loan's yield using the effective yield method over
the contractual life of the related loans.
The Corporation originates some mortgage loans with the intent to
sell. These loans are carried at the lower of aggregate cost or
fair value. Mortgage servicing rights associated with loans
originated and sold, where servicing is retained, are capitalized
and included in intangibles assets in the statement of financial
condition. The servicing rights capitalized are amortized over the
life of the individual loan. Management measures impairment of
servicing rights based on prepayment trends and external market
factors. Any impairment is recorded as a valuation allowance. The
Corporation accounts for mortgage servicing rights under Statement
of Financial Accounting Standards (SFAS) No. 125, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities.
(d) ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is maintained at a level adequate to
absorb probable losses. Management determines the adequacy of the
allowance based upon the review of individual credits, recent loss
experience, current economic conditions, the risk characteristics
of the various categories of loans, and other pertinent factors.
Loans deemed uncollectible are charged to the allowance.
Provisions for loan losses and recoveries on loans previously
charged off are added to the allowance.
7 (Continued)
<PAGE> 31
GLB BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(e) FHLB STOCK
Federal law requires a member institution of the Federal Home Loan
Bank system to hold common stock of its district FHLB according to
a predetermined formula. This investment is stated at cost, which
represents redemption value, and may be pledged to secure FHLB
advances.
(f) PREMISES AND EQUIPMENT
Premises and equipment are stated at cost, less accumulated
depreciation and amortization. Depreciation and amortization are
computed principally on the straight-line method over the
estimated useful lives of the assets.
(g) INTANGIBLE ASSETS
Intangible assets arose from the business combination discussed in
note 1 and includes goodwill and deposit based intangibles.
Goodwill is the excess of the purchase price over the fair value
of net assets. Goodwill is amortized using the straight-line
method over ten years, the estimated period to be benefited. The
deposit base intangible is being amortized over 10 years, the
estimated period to be benefited, based on the present value of
cash flows. On a periodic basis, the Corporation reviews its
intangible assets and estimated useful lifes for events or changes
in circumstances that may indicate that the carrying amount of the
assets may not be recoverable.
(h) FEDERAL INCOME TAXES
The Corporation and the Bank file consolidated tax returns.
The Corporation accounts for income taxes under the asset and
liability method. Under the asset and liability method, deferred
tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable
income in the year in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
the period that includes the enactment date.
(i) CASH AND CASH EQUIVALENTS
The Corporation considers all highly liquid debt instruments with
purchased maturities of three months or less to be cash
equivalents. For the purpose of presentation in the statements of
cash flows, cash and cash equivalents are defined as those amounts
included in the statements of financial condition captions "Cash
and due from banks" and "Federal funds sold."
<PAGE> 32
GLB BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(j) EARNINGS PER SHARE
The following table reconciles the weighted average shares
outstanding and the income available to common shareholders used
for basic and diluted earnings per share:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1998 1997 1996
------------- --------------- --------------
<S> <C> <C> <C>
Weighted average number of common shares
outstanding used in basic earnings per common
share calculation $ 1,536,821 595,942 548,089
Dilutive effect of stock options 14 -- --
------------- --------------- --------------
Weighted average number of shares outstanding
adjusted for effect of dilutive securities used in
diluted EPS calculation $ 1,536,835 595,942 548,089
============= =============== ==============
Net income $ 672,264 343,957 211,943
============= =============== ==============
Basic earnings per common share $ .44 .58 .39
============= =============== ==============
Diluted earnings per common share $ .44 .58 .39
============= =============== ==============
</TABLE>
(k) COMPREHENSIVE INCOME
Effective January 1, 1998, the Corporation adopted the provisions
of SFAS No. 130, "Reporting Comprehensive Income". This statement
establishes standards for reporting and display of comprehensive
income and its components. Accumulated other comprehensive income
consists of net income and the change in the net unrealized
holding gain on securities available for sale, net of the related
tax effect. The adoption of SFAS No. 130 required the
reclassification of prior years financial statements.
(l) NEW ACCOUNTING PRONOUNCEMENTS
The FASB issued SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information with an effective date for
years beginning after December 15, 1997. It redefines how
operating segments are determined and requires disclosure of
certain financial and descriptive information about a
corporation's operating segments. It also requires that
comparative information from earlier periods be restated to
conform to the requirements of this standard. The Corporation has
determined that the adoption of SFAS No. 131 has no effect on its
consolidated financial statements as the Corporation's activities
are considered to be a single operating segment.
The FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities with an effective date for all
fiscal quarters of fiscal years beginning after June 15, 1999.
SFAS No. 133 establishes accounting and reporting standards for
derivative instruments and for hedging activities. It requires
that an entity recognize derivatives as either assets or
liabilities at
9 (Continued)
<PAGE> 33
GLB BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
fair value, with gains or losses determined depending on the
intended use of the derivative and its resulting designation. SFAS
No. 133 will not be applied retroactively to prior period
financial statements. At the present time, the Corporation has not
fully analyzed the effect or timing of the adoption of this
statement on the Corporation's consolidated statements.
In October 1998 the FASB issued SFAS No. 134, Accounting for
Mortgage-Backed Securities Retained after Securitization of
Mortgage Loans Held for Sale by a Mortgage Banking Enterprise.
SFAS No. 134 is effective for the first fiscal quarter beginning
after December 15, 1998. This statement amends SFAS No. 65 to
require that after the securitization of mortgage loans held for
sale, an entity engaged in mortgage banking activities must
classify the resulting mortgage-backed securities or other
retained interests based on its ability and intent to sell or hold
those investments. After the securitization of a mortgage loan
held for sale, any retained mortgage-backed securities must be
classified in accordance with the provisions of SFAS No. 115.
However, a mortgage banking enterprise must classify as trading
any retained mortgage-backed securities that it commits to sell
before or after the securitization process. The Corporation does
not currently securitize mortgage loans and retain any
mortgage-backed securities, therefore management does not believe
that the adoption of SFAS No. 134 will have an impact on the
Corporation's consolidated financial statements.
(m) RECLASSIFICATIONS
Certain amounts in the 1997 and 1996 financial statements have
been reclassified to conform with the 1998 presentation.
(2) INITIAL PUBLIC OFFERING
On May 18, 1998, GLB Bancorp, Inc. completed its initial public offering
of 1,300,000 shares of common stock with an over-allotment option of an
additional 195,000 shares, no par value, at $13 per share generating net
proceeds of approximately $17.9 million net of expenses.
10 (Continued)
<PAGE> 34
GLB BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(3) SECURITIES
A summary of securities at December 31, 1998 and 1997, follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
1998:
Securities held to maturity:
United States government
and agency obligations $2,007,742 7,571 -- 2,015,313
========== ========== ========== ==========
Securities available for sale:
Equity securities $2,791,814 10,897 -- 2,802,711
========== ========== ========== ==========
1997:
Securities held to maturity:
United States government
and agency obligations $1,614,300 138 -- 1,614,438
Equity securities 5,000 -- -- 5,000
---------- ---------- ---------- ----------
$1,619,300 138 -- 1,619,438
========== ========== ========== ==========
</TABLE>
There were no sales of securities for the years ended December 31, 1998,
1997 and 1996. Also, there were no securities available for sale at
December 31, 1997.
The scheduled maturities of debt securities at December 31, 1998 are as
follows:
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
---------- ----------
<S> <C> <C>
Due in one year or less $ 500,000 500,625
Due from one year to five years 1,507,742 1,514,688
---------- ----------
$2,007,742 2,015,313
========== ==========
</TABLE>
The carrying value of securities pledged to secure public deposits and
for other purposes required by law amounted to approximately $850,000
and $700,000 at December 31, 1998 and 1997, respectively.
11 (Continued)
<PAGE> 35
GLB BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(4) LOANS AND ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Residential real estate $ 28,059,900 27,705,745
Commercial real estate and other 23,083,967 15,763,306
Consumer 3,625,487 3,995,899
Construction, primarily residential 10,647,521 9,837,670
------------ ------------
65,416,875 57,302,620
Undisbursed loans in progress (4,489,532) (3,752,865)
Unamortized loan origination fees, net (114,464) (49,770)
Allowance for loan losses (482,418) (402,534)
------------ ------------
Loans, net $ 60,330,461 53,097,451
============ ============
</TABLE>
An analysis of the change in the allowance for loan losses for the years
ended December 31, 1998, 1997 and 1996, follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Balance at beginning of year $ 402,534 314,893 238,853
Provision for loan losses 120,000 97,000 77,000
Charge-offs (42,884) (11,998) (12,318)
Recoveries 2,768 2,639 11,358
--------- --------- ---------
Balance at end of year $ 482,418 402,534 314,893
========= ========= =========
</TABLE>
There were no loans on nonaccrual status at December 31, 1998 and two
loans totaling $82,012 on nonaccrual status at December 31, 1997.
Impaired loans totaled $43,881 at December 31, 1997. The total allowance
for credit losses related to these impaired loans was $6,582 as of
December 31, 1997. There were no impaired loans at December 31, 1998.
No loans were held for sale at December 31, 1998 or 1997.
12 (Continued)
<PAGE> 36
GLB BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(5) PREMISES AND EQUIPMENT
A summary of premises and equipment, less accumulated depreciation and
amortization, at December 31, 1998 and 1997, follows:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Land $ 824,000 780,900
Buildings 1,232,875 1,344,391
Leasehold improvements 24,831 19,403
Furniture, fixtures, and equipment 1,179,660 878,771
----------- -----------
3,261,366 3,023,465
Less accumulated depreciation and amortization (557,111) (377,535)
----------- -----------
$ 2,704,255 2,645,930
=========== ===========
</TABLE>
(6) INTANGIBLES
Intangible assets at December 31, 1998 and 1997, consist of the
following:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Goodwill $ 440,801 440,801
Deposit base intangible 395,416 395,416
Mortgage servicing rights 305,170 40,046
Less accumulated amortization (449,363) (344,340)
--------- ---------
$ 692,024 531,923
========= =========
</TABLE>
Amortization expense for goodwill amounted to $44,080 for each of the
years ended December 31, 1998, 1997 and 1996. Amortization expense for
deposit base intangibles amounted to $35,394, $42,888 and $51,994 for
the years ended December 31, 1998, 1997 and 1996, respectively.
Amortization for mortgage servicing rights amounted to $25,549 and $129
for the years ended December 31, 1998 and 1997, respectively. Mortgage
servicing rights for loans sold during the year amounted to $265,124 and
$40,046 for the years ended December 31, 1998 and 1997, respectively.
13 (Continued)
<PAGE> 37
GLB BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(7) DEPOSITS
The following table summarizes types of deposit accounts by interest
rate.
<TABLE>
<CAPTION>
1998 1997
------------------------------------- --------------------------------------
TYPE OF ACCOUNT AVERAGE AVERAGE
AND STATED DEPOSIT RATES AMOUNT YIELD % AMOUNT YIELD %
- -------------------------------- -------------- ----------- --------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Noninterest bearing
Demand deposit $12,886,078 0.00% 18.8% $ 8,288,832 0.00% 16.0%
Interest bearing demand
Deposit 7,154,389 2.23% 10.4% 4,800,162 2.07% 9.2%
Savings 35,144,171 3.76% 51.2% 27,926,967 3.67% 53.7%
----------- ------ ----------- ------
Total transaction
accounts 55,184,638 80.4% 41,015,961 78.9%
Certificates of deposit:
4.00% and less 74,665 0.1% 93,493 0.2%
4.01% to 5.00% 3,556,146 5.2% 2,222,724 4.3%
5.01% to 6.00% 6,652,027 9.7% 5,403,988 10.3%
6.01% to 7.00% 2,170,829 3.1% 2,304,459 4.4%
7.01% to 8.00% 1,016,821 1.5% 971,291 1.9%
----------- ------ ----------- ------
Total certificates of
deposit 13,470,488 5.62% 19.6% 10,995,955 5.56% 21.1%
----------- ------ ----------- ------
Total deposits $68,655,126 4.06% 100.0% $52,011,916 3.95% 100.0%
=========== ====== =========== ======
</TABLE>
The remaining term to maturity of certificates of deposits are as
follows:
<TABLE>
<CAPTION>
1998 1997
--------------------- ---------------------
AMOUNT % AMOUNT %
----------- ------ ----------- ------
<S> <C> <C> <C> <C>
12 months or less $ 8,182,964 60.7% $ 6,544,896 59.5%
13 to 24 months 4,469,503 33.2% 591,343 5.4%
25 to 36 months 779,588 5.8% 3,426,860 31.2%
over 36 months 38,433 0.3% 432,856 3.9%
----------- ------ ----------- ------
$13,470,488 100.0% $10,995,955 100.0%
=========== ====== =========== ======
</TABLE>
14 (Continued)
<PAGE> 38
GLB BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
The following table discloses the time deposits that are $100,000 or
more, by time remaining until maturity at December 31, 1998:
<TABLE>
<S> <C>
3 months or less $ 327,902
4 through 6 months 458,991
7 through 12 months 1,803,248
over 12 months 1,738,985
----------
Total $4,329,126
==========
</TABLE>
(8) ADVANCES FROM THE FEDERAL HOME LOAN BANK (FHLB)
A summary of FHLB advances at December 31, 1998 and 1997, follows:
<TABLE>
<CAPTION>
AMOUNT
--------------------------------
MATURITY INTEREST RATE 1998 1997
------------------------ --------------------------------- --------------- ---------------
<S> <C> <C> <C>
2001 6.8% $ 5,000,000 5,000,000
2002 6.75% 2,500,000 2,500,000
Variable Variable (5.77% at
December 31, 1998) 1,500,000 --
--------------- ---------------
$ 9,000,000 7,500,000
=============== ===============
</TABLE>
FHLB advances are secured by a blanket lien on first mortgage loans with
balances totaling 150 percent of such advances. The FHLB stock also
serves as collateral for the advances.
(9) EMPLOYEE BENEFIT PLANS
The Corporation sponsors a 401(k) defined contribution plan covering
substantially all of its employees. Employees can contribute up to 15 %
of their annual salaries. The Bank has the option of making matching
contributions of up to 6 % of the participants' total annual
compensation, but has not yet elected to do this.
The Corporation has a noncontributory defined benefit pension plan that
covers all employees who have reached age 21 and completed 1,000 hours
of service during their anniversary year. The Corporation's funding
policy is to make contributions to the plan equal to the minimum
contribution required by the Employee Retirement Income Security Act of
1974. The Corporation adopted SFAS No. 132 Employers' Disclosures about
Pensions and Other Postretirement Benefits on January 1, 1998.
15 (Continued)
<PAGE> 39
GLB BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
The actuarially determined net periodic pension cost for the years ended
December 31, 1998, 1997 and 1996, includes the following components:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Service cost - benefit earned during the period $ 85,760 53,990 25,135
Interest cost on projected benefit obligation 31,715 22,444 15,175
Actual return on plan assets (11,173) 13,908 (15,595)
Amortization of unrecognized (gain) loss 5,762 (24,442) 6,445
Recognized deferred gain (4,572) -- --
--------- --------- ---------
Net periodic pension cost $ 107,492 65,900 31,160
========= ========= =========
</TABLE>
Assumptions used in determining the net periodic pension cost for 1998,
1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Discount rate 5.50% 6.75% 7.25%
Weighted average rate of compensation increase 4.00% 4.00% 5.16%
Long-term rate of return 7.75% 7.75% 7.75%
======= ======= =======
</TABLE>
The following table sets forth the plan's change in projected benefit
obligations and change in plan assets and funded status including
accrued liability for the years ended December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Change in projected benefit obligations:
Projected benefit obligation at beginning of year $(469,851) (309,579) (243,558)
Service cost (85,760) (53,990) (25,135)
Interest cost (31,715) (22,444) (15,175)
Actuarial gain (116,901) (84,022) (31,389)
Benefits paid -- 184 5,678
--------- --------- ---------
Projected benefit obligation at end of year (704,227) (469,851) (309,579)
--------- --------- ---------
Change in plan assets:
Fair value of plan assets at beginning of year 184,414 145,729 110,138
Actual return on plan assets 11,173 (13,908) 15,595
Employer contributions 193,537 52,777 25,674
Benefits paid -- (184) (5,678)
--------- --------- ---------
Fair value of plan assets at end of year 389,124 184,414 145,729
--------- --------- ---------
Funded status 315,103 285,437 163,850
Unrecognized net gain (276,374) (160,663) (47,049)
--------- --------- ---------
Accrued pension liability $ 38,729 124,774 116,801
========= ========= =========
</TABLE>
16 (Continued)
<PAGE> 40
GLB BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(10) STOCK OPTION AND INCENTIVE PLAN
On February 17, 1998, the shareholders adopted a Stock Option and
Incentive Plan (the "Plan") for officers, employees and non-employee
directors. Twenty-eight thousand shares of common stock have been
reserved for issuance under the Plan. The options vest and become
exercisable in five equal annual installments from date of grant.
<TABLE>
<CAPTION>
1998
---------------
<S> <C>
Options outstanding, beginning of year --
Exercised --
Forfeited --
Granted 12,300
---------------
Options outstanding, end of year 12,300
===============
Exercisable at 13.00 per share 2,000
Exercisable at 13.50 per share 10,300
Options available for grant, end of
year 15,700
</TABLE>
The expiration dates of the stock options outstanding at December 31,
1998 are February 17, 2008 for the 2,000 options and November 17, 2008
for 10,300 options.
SFAS No. 123, 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. Accordingly, no
compensation cost has been recognized. Had compensation cost for the
Corporation's plan been determined consistent with SFAS 123, the
Corporation's net income and earnings per share would have been reduced
to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1998
---------------
<S> <C>
Net income
As reported $ 672,264
Pro forma 662,465
Earnings per common share
Basic
As reported .44
Pro forma .43
Diluted
As reported .44
Pro forma .43
</TABLE>
17 (Continued)
<PAGE> 41
GLB BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
The fair value for each option grant used in the foregoing pro forma
amounts is estimated on the date of grant using an option pricing model.
The model incorporates the following weighted-average assumptions used
for grants in 1998, 0% dividend growth; 52% expected volatility;
risk-free interest rates of 4.57% and 5.41%; and expected lives ranging
from five to ten years.
(11) COMMITMENTS AND CONTINGENCIES
The Corporation has entered into five lease agreements which expire
between 2003 and 2009, covering the rental of buildings and equipment.
For four of the leases, the lessors are directors or significant
shareholders of the Corporation. The following is a schedule by years of
approximate future minimum rental payments, exclusive of any
maintenance, utilities, or real estate taxes, required under operating
leases that have initial or remaining noncancelable lease terms in
excess of one year.
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31:
------------------------
<S> <C>
1999 $ 155,844
2000 158,544
2001 158,544
2002 158,544
2003 158,544
Thereafter 649,210
---------------
Total minimum lease payments $ 1,439,230
===============
</TABLE>
Rental expense for all operating leases was approximately $76,300,
$76,500 and $76,300 for the years ended December 31, 1998, 1997 and
1996, respectively.
The Corporation may become a defendant in certain claims and legal
actions arising in the ordinary course of business. In the opinion of
management, any liabilities that may result would not be expected to
have a material adverse effect on the consolidated financial statements
of the Corporation.
18 (Continued)
<PAGE> 42
GLB BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(12) RELATED PARTIES
The Bank has entered into transactions with its directors, significant
shareholders, and executive officers of the Corporation and their
affiliates (related parties). Such transactions were made in the
ordinary course of business on substantially the same terms and
conditions, including interest rates and collateral, as those which have
been made or would be made for comparable transactions with other
customers and did not, in the opinion of management, involve more than
normal credit risk or present other unfavorable features. The following
is a schedule of the aggregate amount of loans to such related parties
at December 31, 1998:
<TABLE>
<S> <C>
Aggregate amount of loans at beginning of year $ 1,417,395
Loans originated during the year 1,155,248
Repayments made during the year (1,131,814)
------------------
Aggregate amount of loans at end of year $ 1,440,829
==================
</TABLE>
The Bank had $6,740,809 and $6,217,020 in deposits of such related
parties at December 31, 1998 and 1997, respectively.
(13) INCOME TAXES
The accompanying financial statements reflect income taxes at amounts
different from those computed by applying the U.S. federal income tax
statutory rates to income before income taxes. The reasons for these
differences are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------------------- ---------------------------- --------------------------
PERCENT PERCENT PERCENT
OF PRETAX OF PRETAX OF PRETAX
AMOUNT INCOME AMOUNT INCOME AMOUNT INCOME
------------ ------------ ------------- -------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Computed expected tax
expense $ 365,912 35.00% $ 193,856 35.00% $ 77,680 35.00%
Increase (decrease) in
taxes resulting from:
Benefit of lower tax
bracket rate (10,455) (1.00) (5,538) (1.00) (8,402) (3.78)
State income tax, net
of federal benefit 19,800 1.89 -- -- -- --
Goodwill amortization 14,987 1.43 14,987 2.71 14,987 6.75
Change in valuation
allowance -- -- -- -- (76,418) (34.43)
Other (17,044) (1.62) 6,612 1.19 2,153 .97
------------ ------------ ------------- -------------- ------------- ------------
Actual tax expense $ 373,200 35.70% $ 209,917 37.90% $ 10,000 4.51%
============ ============ ============= ============== ============= ============
</TABLE>
19 (Continued)
<PAGE> 43
GLB BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
The net tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities at December 31, 1998 and 1997, are:
<TABLE>
<CAPTION>
1998 1997
--------------- ---------------
<S> <C> <C>
Deferred tax assets
Deferred loan fees $ 28,659 17,444
Pension expense -- 46,337
Noncompete agreement 23,800 26,067
Excess book over tax bad debt reserve 146,317 117,925
Other 51,765 2,237
--------------- ---------------
Total gross deferred tax assets 250,541 210,010
Deferred tax liabilities
Deposit base intangible 57,831 69,865
Depreciation 100,732 80,923
Unrealized gains on securities 3,705 --
Deferred loan costs 67,521 22,792
FHLB stock dividend 23,494 12,852
Mortgage servicing rights 95,027 13,571
Other 6,155 --
--------------- ---------------
Total gross deferred tax liabilities 354,465 200,003
--------------- ---------------
Net deferred tax asset (liability) $ (103,924) 10,007
=============== ===============
</TABLE>
A valuation allowance is established to reduce the deferred tax asset if
it is more likely than not that the related tax benefit will not be
realized. In management's opinion, it is more likely than not that the
tax benefits will be realized; consequently, no valuation allowance has
been established as of December 31, 1998 or 1997.
As of December 31, 1995, the Corporation had net operating loss
carryforwards of approximately $408,000 for income tax purposes, all of
which were utilized in the 1996 tax year. For financial reporting
purposes, the Corporation had a valuation allowance of $76,418 as of
December 31, 1995 which was eliminated during 1996.
(14) FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
In the normal course of business, the Bank enters into commitments with
off-balance sheet risk to meet the financing needs of its customers.
Commitments to extend credit involve elements of credit risk and
interest rate risk in excess of the amount recognized in the
consolidated statements of financial condition. The Bank's exposure to
credit loss in the event of nonperformance by the other party to the
commitment is represented by the contractual amount of the commitment.
The Bank uses the same credit policies in making commitments as it does
for on-balance sheet instruments. Interest rate risk on commitments to
extend credit results from the possibility that interest rates may have
moved unfavorably from the position of the Bank since the time the
commitment was made.
20 (Continued)
<PAGE> 44
GLB BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
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 of 60 to 120
days or other termination clauses and may require payment of a fee.
Since some of the commitments may expire without being drawn upon, the
total commitment amounts do not necessarily represent future cash
requirements.
The Bank evaluates each customer's creditworthiness on a case-by-case
basis. The amount of collateral obtained by the Bank upon extension of
credit is based on management's credit evaluation of the applicant.
Collateral held is generally residential and commercial real estate.
The Bank's lending is concentrated in Northeastern Ohio, and as a
result, the economic conditions and market for real estate in
Northeastern Ohio could have a significant impact on the Bank.
The Bank's maximum potential obligation to extend credit at December 31,
1998 and 1997, was:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Commitments to extend credit $12,736,114 8,082,921
Standby letters of credit 300,000 621,124
----------- -----------
$13,036,114 8,704,045
=========== ===========
</TABLE>
The above commitments are at fixed and variable rates totaling
$4,385,130 and $8,650,984, respectively, at December 31, 1998 and
$1,786,352 and $6,917,693, respectively, at December 31, 1997. In
management's opinion these commitments will be funded through normal
operations.
(15) CONCENTRATIONS OF CREDIT
Most of the Bank's business activity is with customers located within
the Northeast Ohio market area and, as such, is impacted by economic
conditions in the region. As a result of its loan underwriting and
collateral requirements, the Bank believes it has no significant
concentrations of credit risk in its loan portfolio as of December 31,
1998 and 1997. The Bank also has no exposure to highly leveraged
transactions and no foreign credits in its loan portfolio.
(16) REGULATORY CAPITAL
The Bank, as a state chartered bank, is subject to the dividend
restrictions set forth by the State Division of Banks. Under such
restrictions, the Bank may not, without the prior approval of the State
Division of Banks, declare dividends in excess of the sum of the current
year's earnings (as defined) plus the retained earnings (as defined)
from the prior two years.
The Bank is subject to risk-based capital and leverage guidelines issued
by the Federal Deposit Insurance Corporation (FDIC). These guidelines
are used to evaluate capital adequacy and include the required minimums
shown below. Insured institutions are categorized as (in declining
order) well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, or critically
21 (Continued)
<PAGE> 45
GLB BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
undercapitalized. To be "well capitalized" under federal bank regulatory
agency definitions, a depository institution must have a Tier 1 ratio of
at least 6%, a combined Tier 1 and Tier 2 ratio of at least 10%, and a
leverage ratio of at least 5% and not be subject to a directive, order,
or written agreement to meet and maintain specific capital levels.
The Bank is subject to various regulatory capital requirements
administered by the banking agencies. Failure to meet minimum capital
requirements could cause regulators to initiate certain mandatory and
possibly additional discretionary actions by regulators that, if
undertaken, could have a direct material effect on the Bank's financial
statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's
assets, liabilities, and certain off-balance sheet items as calculated
under regulatory accounting practices. The Bank's capital amounts and
classification are also subject to qualitative judgments by the
regulators about components, risk weighting, and other factors.
As of December 31, 1998, the most recent notification from the FDIC
categorized the Bank as well capitalized under the regulatory framework
for prompt corrective action. There are no conditions or events since
that notification that management believes have changed the Bank's
category.
<TABLE>
<CAPTION>
MINIMUM
(DOLLARS IN THOUSANDS AT YEAR-END) REQUIRED 1998 1997
---------------------------------- -------------- ------------- --------------
<S> <C> <C> <C>
Tier I capital (1) $ 8,097 5,937
Total capital (2) 8,580 6,340
Tier 1 capital ratio 4.00% 14.70% 12.96%
Total capital ratio (2) 8.00 15.58 13.84
Leverage ratio (3) 3.00+ 11.10 10.12
============== ============= ==============
</TABLE>
(1) As set forth in guidelines issued by the U.S. federal bank
regulators.
(2) Total capital includes Tier 1 and Tier 2.
(3) Tier 1 capital divided by adjusted average assets.
(17) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following estimated fair value amounts have been determined by the
Corporation using available market information and appropriate valuation
methodologies; however, considerable judgment is necessarily required to
interpret market data to develop the estimates of fair value.
Accordingly, the estimates presented herein are not necessarily
indicative of the amounts the Corporation could realize in a current
market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated
fair value amounts.
Certain financial instruments and all nonfinancial instruments are
excluded from the fair value disclosure requirements. Therefore, the
fair values presented below should not be construed as the underlying
value of the Corporation.
22 (Continued)
<PAGE> 46
GLB BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
As of December 31, 1998 and 1997, the carrying amount and estimated fair
values of the Corporation's financial instruments were as follows:
<TABLE>
<CAPTION>
1998 1997
-------------------------- --------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------------ ------------- -------------- -----------
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks $ 3,606,939 3,606,939 2,562,597 2,562,597
Federal funds sold 30,534,573 30,534,573 5,264,000 5,264,000
Securities 4,810,453 4,818,024 1,619,300 1,619,438
Loans 60,330,461 60,234,425 53,097,451 53,183,294
Accrued interest receivable 362,487 362,487 363,499 363,499
Financial liabilities:
Demand deposits and savings accounts 55,184,638 55,184,638 41,015,961 41,015,961
Certificates of deposit 13,470,488 13,620,181 10,995,955 11,081,988
Advances from the Federal
Home Loan Bank 9,000,000 9,000,000 7,500,000 7,500,000
Accrued interest payable 90,383 90,383 79,663 79,663
</TABLE>
Cash and due from banks; Federal funds sold. The carrying amount is a
reasonable approximation of fair value because of the short maturity of
these instruments.
Securities. Estimated fair value for securities is based on quoted
market prices.
Loans. For variable rate loans that reprice frequently and have no
significant change in credit risk, fair values are based on carrying
values. The fair value of fixed rate loans is estimated by discounting
the future cash flows using the current rates at which similar loans
would be made to borrowers with similar credit ratings and for the same
remaining maturities.
Demand deposits, savings accounts, and certificates of deposit. The fair
values disclosed for demand deposits and savings accounts is the amount
payable on demand at the reporting date (i.e., their carrying amounts).
The fair values for fixed-maturity certificates of deposit is estimated
using a discounted cash flow calculation that applies interest rates
currently offered on certificates of similar remaining maturities.
Advances from the Federal Home Loan Bank. The carrying amount is a
reasonable approximation of fair value.
Accrued interest receivable and payable. The carrying amount of accrued
interest receivable and payable approximates its fair value.
Off-balance sheet instruments. The fair value of commitments to extend
credit approximates the fees charged to make these commitments since
rates and fees of the contracts approximates those currently charged to
originate similar commitments. The carrying amount and fair value of
off-balance sheet instruments is not significant as of December 31, 1998
and 1997.
23 (Continued)
<PAGE> 47
GLB BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(18) PARENT COMPANY FINANCIAL INFORMATION
Following is condensed parent company financial information of the
Corporation as of December 31, 1998 and 1997, and for the year and four
months ended December 31, 1998 and 1997, respectively:
<TABLE>
<CAPTION>
CONDENSED STATEMENT OF FINANCIAL CONDITION 1998 1997
------------------------------------------ ------------------ -----------------
<S> <C> <C>
Assets:
Cash $ 14,207,177 20,401
Investment in bank 8,537,220 6,403,971
Securities available for sale 2,797,711 --
Other assets 33,899 3,841
------------------ -----------------
Total assets $ 25,576,007 6,428,213
================== =================
Liabilities:
Accrued expenses and other liabilities 144,355 --
Shareholders' equity:
Common stock 5,334,765 1,491,855
Additional paid-in capital 19,152,715 4,671,642
Accumulated other comprehensive income 7,192 --
Accumulated earnings 936,980 264,716
------------------ -----------------
Total shareholders' equity 25,431,652 6,428,213
------------------ -----------------
Total liabilities and shareholders' equity $ 25,576,007 6,428,213
================== =================
CONDENSED STATEMENT OF EARNINGS
-------------------------------
Dividend from bank $ -- 50,000
Investment income 27,072 --
Interest income 518,752 --
Interest expense -- (2,124)
Operating expenses (107,922) (32,475)
------------------ -----------------
437,902 15,401
Income tax (expense) benefit (148,887) 3,841
------------------ -----------------
Income before equity in undistributed
earnings of bank 289,015 19,242
Equity in undistributed earnings of bank 383,249 324,715
------------------ -----------------
Net income $ 672,264 343,957
================== =================
</TABLE>
24 (Continued)
<PAGE> 48
GLB BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
CONDENSED STATEMENT OF CASH FLOWS 1998 1997
--------------------------------- ------------------ -----------------
<S> <C> <C>
Net cash flows from operating activities:
Net earnings $ 672,264 343,957
Adjustments to reconcile net cash provided
by operating activities:
Equity in undistributed earnings of Bank (383,249) (324,715)
Increase in other assets (30,058) (3,841)
Increase in accrued expenses
and other liabilities 140,650 --
------------------ -----------------
Net cash provided by operating activities 399,607 15,401
------------------ -----------------
Cash flows from investing activities:
Purchases of securities available for sale (2,786,814) --
Cash transferred to bank (1,500,000) --
------------------ -----------------
Net cash used in operating activities (4,286,814) --
------------------ -----------------
Cash flows from financing activities:
Net proceeds from issuance of common stock 18,073,983 5,000
------------------ -----------------
Net increase in cash 14,186,776 20,401
Cash and cash equivalents at beginning of period 20,401 --
------------------ -----------------
Cash and cash equivalents at end of period $ 14,207,177 20,401
================== =================
</TABLE>
(19) ACQUISITION
On November 24, 1998, GLB Bancorp, Inc. and Maple Leaf Financial, Inc.
(Maple Leaf) signed an Agreement of Affiliation and Plan of Merger,
which was later amended December 29, 1998. The Agreement states that GLB
Bancorp is to be the acquirer with the anticipated effective date to be
sometime in the second quarter of 1999. As of December 31, 1998, Maple
Leaf had total assets of $115,145,964. The total consideration to be
given for the acquisition is $18,000,000 and 375,000 shares of GLB
Bancorp, Inc. common stock. Upon completion of the acquisition, the
Corporation will account for the transaction as a purchase, in
accordance with generally accepted accounting principles.
25 (Continued)
<PAGE> 49
GLB BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(20) SUBSEQUENT EVENT
On January 1, 1999, the Bank froze the noncontributory defined benefit
pension plan. The termination date is set for March 31, 1999. As of
December 31, 1998, Management has not fully determined how they will
settle their obligation under the Plan, and therefore has not assessed
the impact of the termination on their consolidated financial
statements, however, Management does not expect the impact to have a
material effect.
26
<PAGE> 50
COMPANY HEADQUARTERS
GLB Bancorp, Inc.
7001 Center Street, Mentor, Ohio 44060
Telephone (440) 974-0000
Facsimile (440) 974-3012
Web Site www.GREAT-LAKES-BANK.com
ANNUAL MEETING
The Annual Meeting of GLB Bancorp, Inc's shareholders is scheduled for May 1999.
STOCK LISTING
The common shares of GLB Bancorp trade on the Nasdaq Small Cap Market under the
symbol "GLBK".
At December 31, 1998, there were 2,133,906 shares of common stock issued and
outstanding which were held of record by approximately 197 shareholders. This
does not include the number of persons whose stock is in nominee or "street
name" accounts through brokers. Additionally, cash dividends have not been paid
in the past nor is it anticipated that cash dividends will be paid to the
shareholders in the near future.
INVESTOR RELATIONS AND FORM 10KSB
GLB Bancorp, Inc.'s form 10KSB (to be filed with the Securities and Exchange
Commission before March 31, 1999) will be provided without charge to
shareholders upon request. Shareholders , analysts or potential investors
desiring additional information may make their requests in writing to Christine
Hartog, Assistant Secretary, 7001 Center St., Mentor, OH 44060.
TRANSFER AGENT AND REGISTRAR
National City Bank
Dept. 5352 Corp Trust Operations
PO Box 92301, Cleveland, Ohio 44193-0900
1-800-622-6757
KPMG
1500 National City Center
1900 East Ninth Street
Cleveland, Ohio 44114-3495
MARKET MAKERS
Everen Securities
Knight Securities
Roney & Company
Stifel Nicolaus
COMMON STOCK PRICE
<TABLE>
<CAPTION>
HIGH LOW
<S> <C> <C>
Second Quarter from 1998 $17.50 $13.25
3rd Quarter $14.06 $11.00
4th Quarter $14.75 $10.25
</TABLE>
48
<PAGE> 51
[PHOTO]
GREAT LAKES BANK BOARD OF DIRECTORS & EXECUTIVE OFFICERS
Back row, from left:Edward R. Pike, Jr.
(elected 1994) - President of Ed Pike Lincoln-Mercury
Richard T. Flenner, Jr.
(elected 1994) -
President and Chief Executive
Officer of Great Lakes Bank.
Jerome T. Osborne
(elected 1994) -
Chairman of the Board of
Great Lakes Bank.President of Osborne, Inc.
Richard M. Osborne
(elected 1994) -
Vice Chairman of the Board of Directors
of Great Lakes Bank. President of OsAir, Inc.
Thomas E. Wheeler
(elected 1994) - President of Component
Repair Technologies, Inc.
Andrew L. Meinhold
(Officer) - Executive Vice President and
Secretary of Great Lakes Bank.
George C. Lott
(elected 1994) - Retired former Executive
Vice President of Great Lakes Commerce Bank.
Joseph T. Svete
(elected 1994) - Attorney in private practice and
principal of the law firm Svete, McGee
and Carrabine Co., LPA
Front row, from left:
Thomas J. Smith
(elected 1994) - Chief Operations Manager
of Liberty Self-Stor, Ltd.
Cheryl J. Mihitsch
(Officer) - Treasurer of Great Lakes Bank.
James V. Fryan (elected 1995) - Owner and operator of the "Goodtime III" dinner
and special occasion cruise ship.
Marian Rose Nathan (elected 1994) - Attorney since 1970 and is in private
practice.
George X. Mechir (elected 1994) - Attorney and retired President and Chief
Executive Officer of Great Lakes Commerce Bank.
OFFICERS
Jerome T. Osborne - Chairman of the Board
Richard M. Osborne - Vice Chairman of the Board
Richard T. Flenner, Jr. - President and Chief Executive Officer
Andrew L. Meinhold - Executive Vice President and Secretary
Cheryl J. Mihitsch - Treasurer
Donna Lexa -Vice President
Barbara Bennett - Assistant Vice President
Patricia DeLaney - Assistant Secretary
Cora Fatica - Assistant Vice President
Christine Hartog - Assistant Secretary
John Katronick - Assistant Vice President
Charles D. Seymour - Commercial Loan Officer
Randy Shandle - Assistant Vice President
49
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 3,553,182
<INT-BEARING-DEPOSITS> 53,757
<FED-FUNDS-SOLD> 30,534,573
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 2,802,711
<INVESTMENTS-CARRYING> 2,007,742
<INVESTMENTS-MARKET> 2,015,313
<LOANS> 60,330,461
<ALLOWANCE> 482,418
<TOTAL-ASSETS> 103,868,013
<DEPOSITS> 68,655,126
<SHORT-TERM> 9,000,000
<LIABILITIES-OTHER> 781,235
<LONG-TERM> 0
0
0
<COMMON> 5,334,765
<OTHER-SE> 20,096,887
<TOTAL-LIABILITIES-AND-EQUITY> 103,868,013
<INTEREST-LOAN> 4,703,869
<INTEREST-INVEST> 133,583
<INTEREST-OTHER> 1,006,677
<INTEREST-TOTAL> 5,844,129
<INTEREST-DEPOSIT> 1,929,771
<INTEREST-EXPENSE> 2,438,947
<INTEREST-INCOME-NET> 3,405,182
<LOAN-LOSSES> 120,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,947,045
<INCOME-PRETAX> 1,045,464
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 672,264
<EPS-PRIMARY> .44
<EPS-DILUTED> .44
<YIELD-ACTUAL> 7.49
<LOANS-NON> 0
<LOANS-PAST> 47,480
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 402,534
<CHARGE-OFFS> 42,884
<RECOVERIES> 2,768
<ALLOWANCE-CLOSE> 482,418
<ALLOWANCE-DOMESTIC> 482,418
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
