<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended MARCH 31, 1998
COMMISSION FILE NUMBER 000-24147
KILLBUCK BANCSHARES, INC.
(Exact name of registrant as specified in its Charter)
OHIO 34-1700284
---- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
165 N. MAIN STREET, KILLBUCK, OH 44637
--------------------------------------
(Address of principal executive offices and zip code)
(330) 276-2771
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
(1) YES (2) NO x
----- -----
As of March 31, 1998, there were 661,900 shares of common stock outstanding.
These shares are adjusted for the 5 for 1 stock split on May 1, 1998.
<PAGE> 2
KILLBUCK BANCSHARES, INC.
INDEX
Page Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
Consolidated balance sheet
March 31, 1998 and December 31, 1997 3
Consolidated statements of income
Three months ended March 31, 1998 and 1997 4
Consolidated statements of shareholders' equity
Three months ended March 31, 1998 and 1997 5
Consolidated statements of cash flows
Three months ended March 31, 1998 and 1997 6
Notes to unaudited consolidated financial statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
And Results of Operations 8-11
PART II. OTHER INFORMATION 12
SIGNATURES 13
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<PAGE> 3
KILLBUCK BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET (UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents:
Cash and amounts due from depository institutions $ 6,477,760 $ 6,300,777
Federal funds sold 12,500,000 8,300,000
------------ ------------
Total cash and cash equivalents 18,977,760 14,600,777
------------ ------------
Investment securities:
Securities available for sale 30,300,361 35,078,516
Securities held to maturity (market value of $24,643,000
and $23,966,533) 24,131,855 23,398,480
------------ ------------
Total investment securities 54,432,216 58,476,996
------------ ------------
Loans (net of unearned income of $351,462 and $363,186) 125,127,251 121,670,643
Less: allowance for loan losses 1,755,525 1,744,586
------------ ------------
Net loans 123,371,726 119,926,057
------------ ------------
Premises and equipment, net 2,810,134 2,808,078
Accrued interest 1,595,280 1,633,451
Other assets 668,638 463,271
------------ ------------
Total assets $201,855,754 $197,908,630
============ ============
LIABILITIES
Deposits:
Noninterest bearing demand $ 19,721,485 $ 21,592,573
Interest bearing demand 37,511,635 37,574,203
Savings 19,879,050 19,376,757
Time 90,314,588 85,265,101
------------ ------------
Total deposits 167,426,758 163,808,634
Securities sold under repurchase agreements 2,235,000 2,710,000
Federal Home Loan Bank advances 8,590,877 8,745,174
Accrued interest and other liabilities 692,058 487,213
------------ ------------
Total liabilities 178,944,693 175,751,021
------------ ------------
SHAREHOLDERS' EQUITY
Common stock -- 1,000,000 shares authorized, 675,000 issued
with no par value 2,700,000 2,700,000
Capital surplus 3,106,500 3,106,500
Retained earnings 17,734,711 17,018,414
Net unrealized gain (loss) on securities available for sale 3,338 (33,817)
Treasury stock, at cost (13,100 shares) (633,488) (633,488)
------------ ------------
Total shareholders' equity 22,911,061 22,157,609
------------ ------------
Total liabilities and shareholders' equity $201,855,754 $197,908,630
============ ============
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
-3-
<PAGE> 4
KILLBUCK BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
---------- ----------
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $2,972,226 $2,743,085
Federal funds sold 107,344 88,330
Investment securities:
Taxable 505,863 542,307
Tax exempt 287,235 229,378
---------- ----------
Total interest income 3,872,668 3,603,100
---------- ----------
INTEREST EXPENSE
Deposits 1,684,812 1,609,739
Federal Home Loan Bank advances 147,683 86,816
Securities sold under repurchase agreements 22,293 66
---------- ----------
Total interest expense 1,854,788 1,696,621
---------- ----------
NET INTEREST INCOME 2,017,880 1,906,479
Provision for loan losses 45,000 45,000
---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN
LOSSES 1,972,880 1,861,479
---------- ----------
OTHER INCOME
Service fees on deposit accounts 95,727 90,551
Other income 34,289 13,668
---------- ----------
Total other income 130,016 104,219
---------- ----------
OTHER EXPENSE
Salaries and employee benefits 617,685 546,383
Occupancy expense 50,501 48,480
Equipment expense 111,296 111,119
Professional fees 68,410 64,036
Franchise tax 82,984 74,614
Other expenses 218,319 195,225
---------- ----------
Total other expense 1,149,195 1,039,857
---------- ----------
INCOME BEFORE INCOME TAXES 953,701 925,841
Income taxes 237,404 248,883
---------- ----------
NET INCOME $ 716,297 $ 676,958
========== ==========
PER SHARE DATA
Earning per common share $ 1.08 $ 1.01
========== ==========
Average shares outstanding 661,900 667,500
========== ==========
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
-4-
<PAGE> 5
KILLBUCK BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
Net
Unrealized
Gain (Loss) on
Securities Total Other
Common Capital Retained Available for Treasury Shareholders' Comprehensive
Stock Surplus Earnings Sale Stock Equity Income
---------- ---------- ----------- ------------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1997 $2,700,000 $3,106,500 $17,018,414 $(33,817) $(633,488) $22,157,609 $ -
Net income 716,297 716,297 716,297
Net unrealized gain on
securities 37,155 37,155 37,155
---------- ---------- ----------- --------- ---------- ----------- --------
BALANCE, MARCH 31, 1998 $2,700,000 $3,106,500 $17,734,711 $3,338 $(633,488) $22,911,061 $753,452
========== ========== =========== ========= ========== =========== ========
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
-5-
<PAGE> 6
KILLBUCK BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
----------- ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 716,297 $ 676,958
Adjustments to reconcile net income to net cash provided by
Operating activities:
Provision for loan losses 45,000 45,000
Provision for depreciation and amortization 74,789 75,774
Origination of loans held for sale (651,000) -
Proceeds from the sale of loans 651,000 -
Increase in accrued interest and other assets (186,337) (300,893)
Increase in accrued expenses and other liabilities 204,845 44,661
----------- ------------
Net cash provided by operating activities 854,594 541,500
----------- ------------
INVESTING ACTIVITIES
Investment securities available for sale:
Proceeds from maturities and repayments 9,325,657 4,484,683
Purchases (4,496,833) (11,516,372)
Investment securities held to maturity:
Proceeds from maturities and repayments 388,675 133,070
Purchases (1,120,777) (1,434,460)
Net increase in loans (3,490,669) (1,731,731)
Purchase of premises and equipment (72,491) (13,470)
----------- ------------
Net cash provided by (used in) investing activities 533,562 (10,078,280)
----------- ------------
FINANCING ACTIVITIES
Net (decrease) increase in demand and savings deposits (1,431,363) 2,866,664
Net increase in time deposits 5,049,487 3,424,938
Net (decrease) increase in Federal Home Loan Bank advances (154,297) 928,947
Net (decrease) increase in repurchase agreements (475,000) 95,000
----------- ------------
Net cash provided by financing activities 2,988,827 7,315,549
----------- ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,376,983 (2,221,231)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 14,600,777 12,240,758
----------- ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $18,977,760 $ 10,019,527
=========== ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION
Interest paid $ 1,857,218 $ 1,723,595
=========== ============
Income taxes paid $ - $ -
=========== ============
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
-6-
<PAGE> 7
KILLBUCK BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Killbuck
Bancshares, Inc. (the "Company") and its wholly-owned subsidiary Killbuck
Savings Bank Company (the "Bank"). All significant intercompany balances and
transactions have been eliminated in the consolidation.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions to Form 10-Q and, therefore, do not
necessarily include all information that would be included in audited financial
statements. The information furnished reflects all adjustments which are, in
the opinion of management, necessary for a fair statement of the results of
operations. All such adjustments are of a normal recurring nature. The
results of operations for the interim periods are not necessarily indicative of
the results to be expected for the full year.
NOTE 2 -- COMPREHENSIVE INCOME
On January 1, 1998, the Company adopted the Statement of Financial Accounting
Standard No. 130, "Reporting Comprehensive Income." In adopting Statement No.
130, the company is required to present comprehensive income and its components
in a full set of general purpose financial statements. The Company has elected
to report the effects of Statement No. 130 as part of the Statement of Changes
in Shareholders' Equity.
NOTE 3 -- STOCK SPLIT
On April 13, 1998 the board of directors authorized an increase in the
authorized common shares from 200,000 to 1,000,000 shares and also authorized a
5 for 1 stock split of common stock to shareholders of record on May 1,1998.
Per share amounts in the accompanying financial statements have been adjusted
for the split.
NOTE 4 -- EARNINGS PER SHARE
Earnings per share are calculated based upon the weighted number of shares of
stock outstanding during the year. The company maintains a simple capital
structure, therefore, there is no dilutive effect on earnings per share.
NOTE 5 -- PLAN OF MERGER
On April 13, 1998, Killbuck Bancshares, Inc. (Killbuck) and Commercial and
Savings Bank Co. (Commercial) of Danville, Ohio, executed an agreement and plan
of reorganization to merge subject to shareholder and regulatory approval.
Under the terms of the agreement, all outstanding shares of Commercial will be
exchanged for 2.1585 shares of Killbuck. This exchange ratio of 2.1585 is
adjusted for Killbuck's five for one stock split on May 1, 1998.
-7-
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
Total assets at March 31, 1998, increased by approximately $3,947,000 or 2.0%
for the first quarter of 1998.
Cash and cash equivalents increased by approximately $4,377,000 or 30.0% from
December 31, 1997, to March 31, 1998, with liquid funds held in the form of
federal funds sold increasing $4,200,000. Management increased liquid funds
due to expected loan growth.
Investment securities available for sale decreased by approximately $4,778,000
or 13.6% from December 31, 1997, as a result of maturities of available for
sale securities. These funds were used to help fund loan growth and increase
cash and cash equivalents for the first quarter of 1998.
The loan portfolio increased by approximately $3,457,000 or 2.8% from December
31, 1997, to March 31, 1998. The majority ($2,883,000 or 83.4%) of that
increase occurred in the commercial loan category.
Total deposits increased by approximately $3,618,000 or 2.2% for the first
quarter of 1998. Noninterest-bearing demand deposits decreased by
approximately $1,871,000 or 8.7%, while time deposits increased by
approximately $5,049,000 or 5.9%. The majority ($3,669,000 or 72.7%) of the
increase in time deposits occurred in the $100,000 and over time deposit
accounts. Management believes this increase is attributable to the current
competitive deposit rates being offered by the Bank.
Shareholders' Equity increased by approximately by $753,000 or 3.4%, which was
mainly due to earnings of $716,000 for the first three months of 1998.
Management monitors risk-based capital and leveraged capital ratios in order to
assess compliance of the regulatory guidelines. At March 31, 1998, the total
capital ratio was 19.51%; the Tier I capital ratio was 18.13%, and the leverage
ratio was 11.59%, compared to regulatory capital requirements of 8%, 4% and 4%
respectively. These ratios are well in excess of regulatory capital
requirements.
A great deal of information has been disseminated about the global computer
crash that may occur in the year 2000. Many computer programs that can only
distinguish the final two digits of the year entered (a common programming
practice in earlier years) are expected to read entries for the year 2000 as
the year 1900 and compute payment, interest or delinquency based on the wrong
date or are expected to be unable to compute payment, interest or delinquency.
Rapid and accurate data processing is essential to the operation of the Bank.
The Company has initiated a year 2000 plan and has closely monitored its
situation by thoroughly assessing systems and programs which may be date
sensitive. The systems which are not currently year 2000 compatible are
scheduled for renovation before December 1998. There can be no assurance that
the Company will not experience adverse financial consequences as a
result of the Y2K, however, management, under the direction of the Board of
Directors, continues to monitor Y2K to minimize the risks associated with it
wherever identified.
-8-
<PAGE> 9
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
Total interest income of approximately $3,873,000 for the three month period
ended March 31, 1998, compares to approximately $3,603,000 for the same period
in 1997, an increase of $270,000 or 7.5%. The majority of the overall increase
in total interest income is attributed to an increase in interest and fees on
loans of approximately $229,000 or 84.8% of the overall increase. The increase
in interest and fees on loans is due primarily to increased volume in the loan
portfolio. Total net loans at March 31, 1998, were approximately $125,127,000,
an increase of 7.6 million or 6.5% from approximately $117,520,000 at March 31,
1997.
Total interest expense of approximately $1,855,000 for the three month period
ending March 31, 1998, represents an increase of $158,000 from the
approximately $1,697,000 reported for the same three month period in 1997. The
increase in interest expense on deposits of approximately $75,000 is due mainly
to increases in volume. Overall, total deposits increased $3.7 million or 2.3%
from a level of approximately $163,691,000 at March 31, 1997, to approximately
$167,427,000 at March 31, 1998. Time deposits had the largest increase with
growth of $2.3 million or 2.6%, with noninterest-bearing demand showing growth
of $1.7 million or 9.1%. The interest expense on Federal Home Loan Bank
advances increased by approximately $61,000 due to an increase in Federal Home
Loan Bank advances of $2.8 million or 49.6% from a level of approximately
$5,744,000 at March 31, 1997, to approximately $8,591,000 at March 31, 1998.
Net interest income of approximately $2,018,000 for the three months ended
March 31, 1998, compares to approximately $1,906,000 for the same three month
period in 1997, an increase of $112,000 or 5.9%.
Total other income for the three month period ended March 31, 1998, of
approximately $130,000 compares to approximately $104,000 for the same three
month period in 1997, an increase of $26,000 or 25.0%. The majority of the
increase ($18,000 or 69.2%) is attributable to income from the alternative
investment service the Bank introduced in 1997.
Total other expense of approximately $1,149,000 for the three months ended
March 31, 1998, compares to approximately $1,040,000 for the same three month
period in 1997. This represents an increase of $109,000 or 10.5%. Net
increases in salaries and employee benefits expense of approximately $71,000
and other expenses of approximately $23,000 were the major contributors to the
overall net increase. The increase in salary and employee benefits is
attributed to normal annual salary increases, staff additions and increased
hospitalization premiums and pension costs. The increase in other expenses
were brought about by those items that are generally thought to be normal and
recurring in nature. Net income for the three month period ended March 31,
1998, was approximately $716,000, an increase of $39,000 or 5.8% from the
approximately $677,000 reported at March 31, 1997.
-9-
<PAGE> 10
LIQUIDITY
Management monitors projected liquidity needs and determines the level
desirable based in part on the Bank's commitments to make loans and
management's assessment of the Bank's ability to generate funds.
The primary sources of funds are deposits, repayment of loans, maturities of
investments, funds provided from operations and advances from the FHLB of
Cincinnati. While scheduled repayments of loans and maturities of investment
securities are predictable sources of funds, deposit flows and loan repayments
are greatly influenced by the general level of interest rates, economic
conditions and competition. The Bank uses its sources of funds to fund
existing and future loan commitments, to fund maturing time deposits and demand
deposit withdrawals, to invest in other interest-earning assets, to maintain
liquidity, and to meet operating expenses.
Cash and amounts due from depository institutions and federal funds sold
totaled approximately $18,978,000 at March 31, 1998. These assets provide the
primary source of liquidity for the Bank. In addition, management has
designated a substantial portion of the investment portfolio, approximately
$30,300,000 as available for sale and has an available line of credit with the
Federal Home Loan Bank of Cincinnati with a borrowing limit of $8,000,000 at
March 31, 1998, to provide additional sources of liquidity.
Cash was provided during the three month period ended March 31, 1998, mainly
from a net increase in deposits of $3.6 million, and the repayment of
investment securities of $9.7 million. Cash was used during the three month
period ended March 31, 1998, mainly to fund a net increase in loans of $3.5
million, and for the purchase of investment securities of $5.6 million. In
addition $629,000 was also used to reduce Federal Home Loan Bank advances and
repurchase agreements during the first three months of 1998. Cash and cash
equivalents totaled $18.9 million at March 31, 1998, an increase of $4.3
million from $14.6 million at December 31,1997.
Management is not aware of any conditions, including any regulatory
recommendations or requirements, which would adversely affect its liquidity or
ability to meet its funding needs in the normal course of business.
-10-
<PAGE> 11
RISK ELEMENTS
The table below presents information concerning nonperforming assets including
nonaccrual loans, renegotiated loans, loans 90 days or more past due, other
real estate loans and repossessed assets at March 31, 1998, and December 31,
1997. A loan is classified as nonaccrual when, in the opinion of management,
there are doubts about collectability of interest and principal. At the time
the accrual of interest is discontinued, future income is recognized only when
cash is received. Renegotiated loans are those loans which terms have been
renegotiated to provide a reduction or deferral of principal or interest as of
result of the deterioration of the borrower. The Bank had no renegotiated
loans, other real estate or repossessed assets of March 31, 1998, and December
31, 1997.
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
----------- ------------
(dollars in thousands)
<S> <C> <C>
Loans on nonaccrual basis $129 $121
Loans past due 90 days or more 148 75
---- ----
Total nonperforming loans $277 $196
==== ====
Nonperforming loans as a percent of total loans .22% .16%
=== ===
Nonperforming assets as a percent of total assets .14% .10%
=== ===
</TABLE>
The allowance for loan losses at March 31, 1998, totaled $1,756,000 or 1.4% of
total loans as compared to $1,745,000 or 1.4% at December 31, 1997. Provisions
for loan losses were $45,000 for the three months ended March 31, 1998, and
March 31, 1997. At March 31, 1998, and December 31, 1997 the bank had no
impaired loans.
Management performs a quarterly evaluation of the allowance for loan losses.
The evaluation incorporates internal loan review, actual historical losses, as
well as any negative economic trends in the local market. The evaluation is
presented to and approved by the Board of Directors of the Bank. Management,
through the use of the quarterly evaluation, believes that the allowance is
maintained at an adequate level.
-11-
<PAGE> 12
PART II -- OTHER INFORMATION
Item 1 - Legal Proceedings
None
Item 2 - Changes in the rights of the Company's security holders
None
Item 3 - Defaults by the Company on its senior securities
None
Item 4 - Results of votes of security holders
None
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
a) 27 Financial data schedule (electronic filing only)
b) No reports
-12-
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused the report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Killbuck Bancshares, Inc.
Date: 7-2-98 By:/s/Luther E. Proper
-------------------
/s/Luther E. Proper
----------------------------------
Luther E. Proper
President and
Chief Executive Officer
-13-
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 6,478
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 12,500
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 30,300
<INVESTMENTS-CARRYING> 24,132
<INVESTMENTS-MARKET> 24,643
<LOANS> 125,127
<ALLOWANCE> 1,756
<TOTAL-ASSETS> 201,856
<DEPOSITS> 167,427
<SHORT-TERM> 2,735
<LIABILITIES-OTHER> 692
<LONG-TERM> 8,091
0
0
<COMMON> 2,700
<OTHER-SE> 20,211
<TOTAL-LIABILITIES-AND-EQUITY> 201,856
<INTEREST-LOAN> 2,972
<INTEREST-INVEST> 793
<INTEREST-OTHER> 108
<INTEREST-TOTAL> 3,873
<INTEREST-DEPOSIT> 1,685
<INTEREST-EXPENSE> 1,855
<INTEREST-INCOME-NET> 2,018
<LOAN-LOSSES> 45
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,149
<INCOME-PRETAX> 954
<INCOME-PRE-EXTRAORDINARY> 954
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 716
<EPS-PRIMARY> 5.41
<EPS-DILUTED> 5.41
<YIELD-ACTUAL> 4.28
<LOANS-NON> 129
<LOANS-PAST> 148
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,745
<CHARGE-OFFS> 51
<RECOVERIES> 17
<ALLOWANCE-CLOSE> 1,756
<ALLOWANCE-DOMESTIC> 1,064
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 692
</TABLE>
