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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10/A
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES
EXCHANGE ACT OF 1934
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) (Zip Code)
Registrant's telephone number, including area code, (330) 276-4881
----------------------------
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
None None
- ---------------------------------------- ------------------------------------
- ---------------------------------------- ------------------------------------
Securities to be registered under Section 12(g) of the Act:
Common
--------------------------------------------------
(Title of class)
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(Title of class)
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INFORMATION REQUIRED IN REGISTRATION STATEMENT
PART I
ITEM 1. DESCRIPTION OF BUSINESS
General
Killbuck Bancshares, Inc. (the "Company") was incorporated under the
laws of the State of Ohio on November 29, 1991 at the direction of management of
the Bank, for the purpose of becoming a bank holding company by acquiring all of
the outstanding shares of The Killbuck Savings Bank Company. In November, 1992,
the Company became the sole shareholder of the Bank. The Bank carries on
business under the name "The Killbuck Savings Bank Company." The principal
office of the Company is located at 165 N. Main Street, Killbuck, Ohio. The
Killbuck Savings Bank Company was established under the banking laws of the
State of Ohio in November in 1900.
The Bank is headquartered in Killbuck, Ohio, which is located in the
northeast portion of Ohio, in the County of Holmes. Holmes County has a
population of approximately 34,000.
The Bank provides customary retail and commercial banking services to
its customers, including checking and savings accounts, time deposits, NOW
accounts, safe deposit facilities, real estate mortgage loans and installment
loans. The Bank also makes secured and unsecured commercial loans.
The Bank is insured by the Federal Deposit Insurance Company, and is
regulated by the Ohio Division of Banks and the Board of Governors of the
Federal Reserve System.
Employees
As of March 31, 1998, the Bank had 65 full-time and 15 part-time
employees. The Bank provides a number of benefits for its full-time employees,
including health and life insurance, pension, workers' compensation, social
security, paid vacations, and numerous bank services.
The Company, through its affiliate, The Killbuck Savings Bank Company,
(the "Bank") conducts the business of a commercial banking organization. At
March 31, 1998, the Company and its subsidiaries had consolidated total assets
of approximately $202 million, consolidated total deposits of approximately $167
million and consolidated total equity of approximately $23 million.
The Company, through its banking affiliate, offers a broad range of
banking services to the commercial, industrial and consumer market segments
which it serves. Services include
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commercial, real estate and personal loans, checking, savings and time
deposits and other customer services such as safe deposit facilities. The
Company does not have any foreign operations, assets or investments.
The Bank is a state banking Company. The Bank is regulated by the Ohio
Division of Financial Institutions ("ODFI") and its deposits are insured by the
Federal Deposit Insurance Company to the extent permitted by law and, as a
subsidiary of the Company, is regulated by the Federal Reserve Board.
Competition
The commercial banking business in the market areas served by the Bank
is very competitive. The Company and the Bank are in competition with commercial
banks located in their own service areas. Some competitors of the Company and
the Bank are substantially larger than the Bank. In addition to local bank
competition, the Bank competes with larger commercial banks located in
metropolitan areas, savings banks, savings and loan associations, credit unions,
finance companies and other financial institutions for loans and deposits.
There are six financial institutions operating in Holmes County. As of
June 30, 1997 (the most recent date for which information is available) there
Commercial and Savings Bank, Millersburg had the largest market share with
$189 million in total deposits as of such date, representing a market share of
45.18%. The Bank had the second largest market share with deposits of $164
million as of such date, representing a market share of 39.30%. Commercial and
Savings Bank had total assets as of December 31, 1997, of $288 million compared
to the Bank's total assets of $198 million as of such date.
Certain Regulatory Considerations
The following is a summary of certain statutes and regulations
affecting the Company and its subsidiaries. This summary is qualified in its
entirety by such statutes and regulations.
The Company
The Company is a registered bank holding company under the Bank Holding
Company Act of 1956, as amended, ("BHC Act") and as such is subject to
regulation by the Federal Reserve Board. A bank holding company is required to
file with the Federal Reserve Board quarterly reports and other information
regarding its business operations and those of its subsidiaries. A bank holding
company and its subsidiary banks are also subject to examination by the Federal
Reserve Board.
The BHC Act requires every bank holding company to obtain the prior
approval of the Federal Reserve Board before acquiring substantially all the
assets of any bank or bank holding company or ownership or control of any voting
shares of any bank or bank holding company, if, after such acquisition, it would
own or control, directly or indirectly, more than five percent (5%) of the
voting shares of such bank or bank holding company.
In approving acquisitions by bank holding companies of companies
engaged in banking-related activities, the Federal Reserve Board considers
whether the performance of any such activity by a subsidiary of the holding
company reasonably can be expected to produce benefits to the public, such as
greater convenience, increased competition, or gains in efficiency, which
outweigh possible adverse effects, such as over concentration of resources,
decrease of competition, conflicts of interest, or unsound banking practices.
Bank holding companies are restricted in, and subject to, limitations
regarding transactions with subsidiaries and other affiliates.
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In addition, bank holding companies and their subsidiaries are
prohibited from engaging in certain "tie in" arrangements in connection with any
extensions of credit, leases, sales of property, or furnishing of services.
The Company Subsidiaries
The Company operates a single bank, namely, The Killbuck Savings Bank
Company. As an Ohio state chartered commercial bank the Bank is supervised and
regulated by the ODFI, and subject to laws and regulations applicable to Ohio
banks.
Capital
The Federal Reserve Board, ODFI, and FDIC require banks and holding
companies to maintain minimum capital ratios.
The Federal Reserve Board adopted final "risk-adjusted" capital
guidelines for bank holding companies. The guidelines became fully implemented
as of December 31, 1992. The ODFI and FDIC have adopted substantially similar
risk-based capital guidelines. These ratios involve a mathematical process of
assigning various risk weights to different classes of assets, then evaluating
the sum of the risk-weighted balance sheet structure against the Company's
capital base. The rules set the minimum guidelines for the ratio of capital to
risk-weighted assets (including certain off-balance sheet activities, such as
standby letters of credit) at 8%. At least half of the total capital is to be
composed of common equity, retained earnings, and a limited amount of perpetual
preferred stock less certain goodwill items ("Tier 1 Capital"). The remainder
may consist of a limited amount of subordinated debt, other preferred stock, or
a limited amount of loan loss reserves.
In addition, the federal banking regulatory agencies have adopted
leverage capital guidelines for banks and bank holding companies. Under these
guidelines, banks and bank holding companies must maintain a minimum ratio of
three percent (3%) Tier 1 Capital (as defined for purposes of the year-end 1992
risk-based capital guidelines) to total assets. The Federal Reserve Board has
indicated, however, that banking organizations that are experiencing or
anticipating significant growth, are expected to maintain capital ratios well in
excess of the minimum levels. As of March 31, 1998, the Company's ratio of
capital to risk-weighted assets was 19.51% and the ratio of Tier 1 Capital to
total assets was 11.35%.
Regulatory authorities may increase such minimum requirements for all
banks and bank holding companies or for specified banks or bank holding
companies. Increases in the minimum required ratios could adversely affect the
Company and the Banks, including their ability to pay dividends.
Additional Regulation
The Bank is also subject to federal regulation as to such matters as
required reserves, limitation as to the nature and amount of its loans and
investments, regulatory approval of any merger or consolidation, issuance or
retirement of their own securities, limitations upon the
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payment of dividends and other aspects of banking operations. In
addition, the activities and operations of the Bank are subject to a number of
additional detailed, complex and sometimes overlapping laws and regulations.
These include state usury and consumer credit laws, state laws relating to
fiduciaries, the Federal Truth-in-Lending Act and Regulation Z, the Federal
Equal Credit Opportunity Act and Regulation B, the Fair Credit Reporting Act,
the Truth in Savings Act, the Community Reinvestment Act, anti-redlining
legislation and antitrust laws.
Dividend Regulation
The ability of the Company to obtain funds for the payment of dividends
and for other cash requirements is largely dependent on the amount of dividends
which may be declared by the Bank. Generally, the Bank may not declare a
dividend, without the approval of the ODFI, if the total of dividends declared
in a calendar year exceeds the total of its net profits for that year combined
with its retained profits of the preceding two years. Other than accounts
payable incurred in the ordinary course of business the Company has no debt or
other liabilities.
Government Policies and Legislation
The policies of regulatory authorities, including the ODFI, Federal
Reserve Board, FDIC and the Depository Institutions Deregulation Committee, have
had a significant effect on the operating results of commercial banks in the
past and are expected to do so in the future. An important function of the
Federal Reserve System is to regulate aggregate national credit and money supply
through such means as open market dealings in securities, establishment of the
discount rate on member bank borrowings, and changes in reserve requirements
against member bank deposits. Policies of these agencies may be influenced by
many factors, including inflation, unemployment, short-term and long-term
changes in the international trade balance and fiscal policies of the United
States government.
The United States Congress has periodically considered and adopted
legislation which has resulted in further deregulation of both banks and other
financial institutions, including mutual funds, securities brokerage firms and
investment banking firms. No assurance can be given as to whether any additional
legislation will be adopted or as to the effect such legislation would have on
the business of the Company or the Bank.
In addition to the relaxation and elimination of certain geographic
restrictions on banks and bank holding companies, a number of regulatory and
legislative initiatives have the potential for eliminating many of the product
line barriers presently separating the services offered by commercial banks from
those offered by nonbanking institutions. For example, Congress recently has
considered legislation which would expand the scope of permissible business
activities for bank holding companies (and in some cases banks) to include
securities underwriting, insurance services and various real estate related
activities.
Deposit Insurance
The Federal Deposit Insurance Company Improvement Act of 1991
("FDICIA") was enacted in 1991. Among other things, FDICIA, requires federal
bank regulatory authorities to take "prompt corrective action" with respect to
banks that do not meet minimum capital
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requirements. For these purposes, FDICIA establishes five capital tiers: well
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized.
As an FDIC-insured institution, the Bank is required to pay deposit
insurance premium assessments to the FDIC. The amount each institution pays for
FDIC deposit insurance coverage is determined in accordance with a risk-based
assessment system under which all insured depository institutions are placed
into one of nine categories and assessed insurance premiums based upon their
level of capital and supervisory evaluation. Institutions classified as
well-capitalized (as defined by the FDIC) and considered healthy pay the lowest
premium while institutions that are less than adequately capitalized (as defined
by the FDIC) and considered substantial supervisory concerns pay the highest
premium. Beginning in 1996, such deposit insurance runs from a cost of zero
percent to 0.27% of deposits. Because the Bank is "well-capitalized," it
currently pays the minimum deposit insurance premiums.
The FDIC may terminate the deposit insurance of any insured depository
institution if the FDIC determines, after a hearing, that the institution has
engaged or is engaging in unsafe or unsound practices, is in an unsafe or
unsound condition to continue operations or has violated any applicable law,
regulation, order, or any condition imposed in writing by, or written agreement
with, the FDIC. The FDIC may also suspend deposit insurance temporarily during
the hearing process for a permanent termination of insurance if the institution
has no tangible capital. Management of the Company is not aware of any activity
or condition that could result in termination of the deposit insurance of the
Bank.
Recent Legislation
On September 29, 1994, the Reigle/Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Interstate Act") was signed into law. The
Interstate Act effectively permits nationwide banking. The Interstate Act
provides that one year after enactment, adequately capitalized and adequately
managed bank holding companies may acquire banks in any state, even in those
jurisdictions that currently bar acquisitions by out-of-state institutions,
subject to deposit concentration limits. The deposit concentration limits
provide that regulatory approval by the Federal Reserve Board may not be granted
for a proposed interstate acquisition if after the acquisition, the acquirer on
a consolidated basis would control more than 10% of the total deposits
nationwide or would control more than 30% of deposits in the state where the
acquiring institution is located. The deposit concentration state limit does not
apply for initial acquisitions in a state and in every case, may be waived by
the state regulatory authority. Interstate acquisitions are subject to
compliance with the Community Reinvestment Act ("CRA"). States are permitted to
impose age requirements not to exceed five years on target banks for interstate
acquisitions. States are not allowed to opt-out of interstate banking.
Branching between states may be accomplished either by merging separate
banks located in different states into one legal entity, or by establishing de
novo branches in another state. Consolidation of banks was not permitted until
June 1, 1997, provided that the state had not passed legislation "opting-out" of
interstate branching. If a state opted-out prior to June 1, 1997, then banks
located in that state may not participate in interstate branching. A state could
have
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opted-in to interstate branching by bank consolidation or by de novo
branching by passing appropriate legislation earlier than June 1, 1997.
Interstate branching is also subject to a 30% statewide deposit concentration
limit on a consolidated basis, and a 10% nationwide deposit concentration limit.
The laws of the host state regarding community reinvestment, fair lending,
consumer protection (including usury limits) and establishment of branches shall
apply to the interstate branches. The State of Ohio opted-in to the legislation
in May of 1997.
De novo branching by an out-of-state bank is not permitted unless the
host state expressly permits de novo branching by banks from out-of-state. The
establishment of an initial de novo branch in a state is subject to the same
conditions as apply to initial acquisition of a bank in the host state other
than the deposit concentration limits.
The FDIC, together with the Federal Reserve, the ODFI and the Office of
Thrift Supervision (the "OTS"), have established rules implementing requirement
that the federal banking agencies establish operational and managerial standards
to promote the safety and soundness of federally insured depository
institutions. The guidelines establish standards for internal controls,
information systems, internal audit systems, loan documentation, credit
underwriting, interest rate exposure, asset growth, and compensation, fees and
benefits. In general, the guidelines prescribe the goals to be achieved in each
area, and each institution is responsible for establishing its own procedures to
achieve those goals. If an institution fails to comply with any of the standards
set forth in the guidelines, the institution's primary federal regulator may
require the institution to submit to a plan for achieving and maintaining
compliance. Failure to submit an acceptable plan, or failure to comply with a
plan that has been accepted by the appropriate regulator, would constitute
grounds for further enforcement action.
The Federal Reserve, the ODFI and the OTS have adopted new regulations
under the Community Reinvestment Act ("CRA"). Under the new regulations, an
institution's performance in meeting the credit needs of its entire community,
including low and moderate income areas, as required by the CRA, is generally
evaluated under three tests: the "lending test," which considers the extent to
which the institution makes loans in the low and moderate income areas of its
market; the "service test," which considers the extent to which the institution
makes branches accessible to low and moderate income areas of its market and
provides other services that promote credit availability; and the "investment
test," which considers the extent to which the institution invests in community
and economic development activities. The Bank had a satisfactory CRA rating as
of its latest examination.
Proposed Legislation
In addition to the above, there have been proposed a number of
legislative and regulatory proposals designed to strengthen the federal deposit
insurance system and to improve the overall financial stability of the U.S.
banking system. It is impossible to predict whether or in what form these
proposals may be adopted in the future, and if adopted, what their effect would
be on the Company.
Year 2000
As a financial institution the Company is subject to the potential
risks to the financial services industry and the Company's business
specifically, of the "Y2K" issue. The Y2K issue is the acronym and terminology
currently utilized to describe a wide variety of application specific potential
technological problems inherent in computer software which is designed to read
only a 2 digit annual date position. Many software packages currently employed
by the financial services industry as well as by industries which provide
products and services which may effect the financial services industry, either
directly or indirectly through suppliers, customers, and other persons, are not
able to identify the advent of the year 2000 as "00." Therefore, there is wide
spread concern over the risks posed to the financial services industry which is
both highly automated and dependent upon information processing technology.
Concerns include but are not limited to possible erroneous checking account
transactions, interest calculations or payment schedules. Similarly Y2K issues
extend to possible problems with ATM systems or credit and debit cards. The
potential problems do not end at financial systems. Any machine or device
controlled by a computer is susceptible to the Y2K problem. The financial impact
to the industry as a whole to address Y2K could be substantial. The Securities
and Exchange Commission as well as all banking regulatory agencies have alerted
companys under their respective jurisdictions to consider and address the risks
posited by Y2K and to disclose where appropriate the specific impact of Y2K on
the Company.
The Company has developed a written Y2K Compliance Program which has
been adopted by the Company's Board of Directors. The Company and its subsidiary
bank have been subject to examination by the Federal Reserve Bank of Cleveland
regarding Y2K and has not been made aware of any material deficiency as a result
of such examination. The Company continues to monitor its relationships with
suppliers of computer hardware and software for verification of compliance with
Y2K. In addition the Company has undertaken a review of all major customer
relationships to determine that such customers own Y2K computer issues are being
addressed. There can be no assurance that the Company will not experience
adverse financial consequences as a result of Y2K, however management, under the
direction of the Board of Directors will continue to monitor Y2K to minimize the
risks associated with it wherever identified.
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ITEM 2. FINANCIAL INFORMATION.
Selected Financial Information
The following table sets forth certain selected financial information of the
Company and is qualified in its entirety by reference to the detailed
information and financial statements of the Company included elsewhere herein.
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(in thousands of dollars, except shares and per share data)
<S> <C> <C> <C> <C> <C>
Statements of earnings:
Total interest income $15,226 $13,982 $12,811 $10,512 $9,847
Total interest expense 7,344 6,626 5,816 4,232 4,185
----- ----- ----- ----- -----
Net interest income 7,882 7,356 6,995 6,280 5,662
Provision for loan losses 180 180 180 180 180
--- --- --- --- ---
Net interest income after provision
for loan losses 7,702 7,176 6,815 6,100 5,482
Security gains (losses) 0 0 0 1 49
Other 447 439 411 432 422
--- --- --- --- ---
Total noninterest income 447 439 411 433 471
Total noninterest expenses 4,036 3,799 3,610 3,532 3,379
----- ----- ----- ----- -----
Earnings before federal income taxes 4,113 3,816 3,616 3,001 2,574
Federal income tax expense 1,108 1,069 989 785 573
----- ----- --- --- ---
Net earnings $3,005 $2,747 $2,627 $2,216 $2,001
====== ====== ====== ====== ======
Per share of common stock
Net earnings $22.59 $20.52 $19.46 $16.42 $14.82
Dividends $4.60 $3.80 $3.25 $2.95 $2.75
Book value $166.54 $148.88 $135.30 $118.55 $105.08
Average common shares outstanding 133,043 133,893 135,000 135,000 135,000
Year-end balances:
Loans, net 119,926 114,206 105,258 101,401 93,450
Securities 58,477 51,208 42,171 35,320 32,674
Total assets 197,909 182,692 172,522 149,493 140,985
Deposits 163,809 157,399 150,413 132,112 126,422
Borrowings 11,455 4,815 3,329 994 0
Shareholders' equity 22,158 19,934 18,266 16,004 14,186
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
INTRODUCTION
This discussion is intended to focus on certain financial information regarding
the Company and Bank. The purpose of this discussion is to provide the reader
with a more thorough
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understanding of the financial statements. This discussion should be
read in conjunction with the financial statements and accompanying notes
contained elsewhere herein.
Management is not aware of any market or institutional trends, events or
uncertainties that are expected to have a material effect on liquidity, capital
resources or operations. Also, management is not aware of any current
recommendations by its regulatory authorities that would have a material effect
on liquidity, capital resources or operations.
OVERVIEW
The reported results of the Bank are dependent on a variety of factors,
including the general interest rate environment, competitive conditions in the
industry, governmental policies and regulations and conditions in the markets
for financial assets. Net interest income is the largest component of net
income, and consists of the difference between income generated on
interest-earning assets and interest expense incurred on interest-bearing
liabilities. Net interest income is primarily affected by the volume, interest
rates and composition of interest-earning assets and interest-bearing
liabilities.
AVERAGE BALANCES AND YIELDS. The following tables present for the periods
indicated, the total amount of interest income from average interest-earning
assets and the resultant yields, as well as the interest expense on average
interest-bearing liabilities, expressed both in dollars and rates, and the net
interest margin. Net interest margin refers to the net interest income divided
by total interest-earning assets and is influenced by the level and relative mix
of interest-earning assets and interest-bearing liabilities.
<TABLE>
<CAPTION>
For the Year Ended December 31
1997 1996
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Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
-------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest earning assets:
Loans (1)(2)(3) $119,552 $11,492 9.61% $112,005 $10,820 9.66%
Securities - taxable (4) 36,389 2,285 6.28% 29,940 1,898 6.34%
Securities - nontaxable 20,641 1,012 4.90% 18,268 891 4.88%
Securities - equity (4)(5) 1,008 65 6.45% 805 49 6.09%
Federal funds sold 6,749 372 5.51% 5,902 324 5.49%
------------------------- --------------------------
Total interest - earning assets 184,339 15,226 8.26% 166,920 13,982 8.38%
------------------------- --------------------------
Noninterest - earning assets
Cash and due from other institutions 6,144 5,635
Premises and equipment, net 2,888 2,914
Accrued interest 1,549 1,386
Other assets 697 571
Less allowance for loan losses (1,694) (1,619)
------------ -------------
Total $193,923 $175,807
============ =============
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Liabilities and Shareholders Equity
Interest bearing liabilities:
Interest bearing demand deposits $37,358 $1,207 3.23% $32,253 $928 2.88%
Savings deposits 19,421 552 2.84% 19,035 547 2.87%
Time deposits 87,375 5,091 5.83% 81,725 4,858 5.94%
Securities sold under repurchase agreements 1,147 39 3.40% 0 0 0.00%
Federal Home Loan Bank advances 6,789 455 6.70% 4,176 293 7.02%
------------------------- --------------------------
Total interest bearing liabilities 152,090 7,344 4.83% 137,189 6,626 4.83%
------------------------- --------------------------
Noninterest bearing liabilities:
Demand deposits 20,174 19,228
Accrued expenses and other liabilities 592 532
------------ -------------
20,766 19,760
Shareholder's equity 21,067 18,858
------------ -------------
Total $193,923 $175,807
============ =============
Net interest income $7,882 $7,356
=========== ===========
Interest rate spread (6) 3.43% 3.55%
========== ==========
Net yield on interest earning assets (7) 4.28% 4.41%
========== ==========
</TABLE>
(1) For purposes of these computations, the daily average loan amounts
outstanding are net of deferred loan fees.
(2) Included in loan interest income are loan fees of $210,030 in 1997 and
$190,723 in 1996.
(3) Nonaccrual loans are included in loan totals and do not have a material
impact on the information presented.
(4) Average balance is computed using the carrying value of securities. The
average yield has been computed using the historical amortized
cost average balance for available for sale securities.
(5) Equity securities is comprised of common stock of the Federal Home Loan
Bank, Federal Reserve Bank and Independent State Bank of Ohio.
(6) Interest rate spread represents the difference between the average yield
on interest earning assets and the average cost of interest bearing
liabilities.
(7) Net yield on interest earning assets represents net interest income as a
percentage of average interest earning assets.
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RATE AND VOLUME VARIANCES
Net interest income is affected by changes in the level of interest-earning
assets and interest-bearing liabilities and changes in yields earned on assets
and rates paid on liabilities. The following table sets forth, for the periods
indicated, a summary of the impact on interest income and interest expense of
changes in average assets and liability balances and changes in average rates.
For each category of interest-earning assets and interest-bearing liabilities
information is provided on changes attributable to (i) changes in volume
(changes in average volume multiplied by old rate); (ii) changes in rates
(changes in rate multiplied by old average volume); (iii) changes in rate-volume
(changes in rate multiplied by the change in average volume).
<TABLE>
<CAPTION>
1997 Compared to 1996
Increase (Decrease) Due to
Volume Rate Net
---------------- ----------------- ----------------
(Dollars in thousands)
<S> <C> <C> <C>
Interest income
Loans $729 ($57) $672
Securities - taxable 409 (22) 387
Securities - nontaxable 116 5 121
Securities - equities 12 4 16
Federal funds sold 47 1 48
---------------- ----------------- ----------------
Total interest earning assets $1,313 ($69) $1,244
---------------- ----------------- ----------------
Interest expense
Interest bearing demand deposits $147 $132 $279
Savings deposits 11 (6) 5
Time deposits 336 (103) 233
Securities sold under
repurchase agreements 39 0 39
Federal Home Loan Bank advances 183 (21) 162
---------------- ----------------- ----------------
Total interest bearing liabilities $716 $2 $718
---------------- ----------------- ----------------
Net change in interest income $597 ($71) $526
================ ================= ================
</TABLE>
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
NET INCOME Net income for 1997 increased 9.4% to $3,005,000 from $2,747,000 for
1996.
NET INTEREST INCOME Net interest income increased $526,000 or 7.2% to $7,882,000
for 1997, due to an increase of $1,244,000 or 8.9% in interest income, which
totaled $15,226,000 for 1997 as compared to $13,982,000 for 1996. The increase
in interest income more than offset the $719,000 or 10.9% increase in interest
expense.
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INTEREST INCOME The increase in interest income resulted primarily from an
increase in earnings on loans of $673,000 or 6.2% and investment securities of
$524,000 or 18.4%. These increases, which were due primarily to an increase in
the average principal balances on loans and investments of $7,500,000 and
$9,000,000, respectively, were funded by increases in deposits, repurchase
agreements and Federal Home Loan Bank advances.
INTEREST EXPENSE Total interest expense increased $719,000 or 10.9% from
$6,625,000 for 1996 to $7,344,000 for 1997. The increase for 1997 was primarily
due to an increase in the average volume of interest bearing liabilities of
$14,901,000 from $137,189,000 for 1996 to $152,090,000 for 1997. Of this amount,
average FHLB advances increased from $4,176,000 for 1996 to $6,789,000 for 1997
to help fund an increasing loan environment.
PROVISION FOR LOAN LOSSES The provision for loan losses was $180,000 for both
1997 and 1996. It was determined that the provision for loan loss for 1997 was
adequate due to management's continual evaluation of the adequacy of the
allowance for loan losses which encompasses the overall risk characteristics of
the loan portfolio, trends in the Bank's delinquent and nonperforming loans, and
the impact of economic conditions on borrowers. There can be no assurances,
however, that future losses will not exceed estimated amounts or that additional
provisions for loan losses will not be required in future periods.
OTHER INCOME Other income increased by $8,000 or 1.8% from $439,000 for 1996 to
$447,000 for 1997. In addition, in 1997, the Bank introduced an alternative
investment service to provide non-insured investment products which resulted in
gross income of $11,000.
OTHER EXPENSE Other expense increased by $236,000 or 6.2% from $3,800,000 for
1996 to $4,036,000 for 1997. Compensation and benefits increased $80,000 or 4.1%
due to normal salary adjustments. Occupancy and equipment expense increased
$68,000 or 12.4% primarily due to increases in depreciation and maintenance on
additional furniture and equipment. Other expenses increased by $88,000 or 6.8%
due to general overall inflation adjustments.
YEAR 2000 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.. During
1997, the Company expended $4,000 in connection with its Y2K compliance program
and has budgeted $60,000 for 1998. The Company has not engaged the consulting
firm to assist it in addressing the issues surrounding the Y2K issue.
The Company has developed a written Y2K Compliance Program which has
been adopted by the Company's Board of Directors. The Company [and or its
subsidiary bank] has been subject to examination by the Federal Reserve Bank of
Cleveland regarding Y2K and was not made aware of any material deficiency as a
result of such examination. The Company continues to monitor its relationships
with suppliers of computer hardware and software for verification of compliance
with Y2K. In addition the Company has undertaken a review of all major customer
relationships to determine that such customers own Y2K computer issues are being
addressed. 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
Y2K, however, management, under the direction of the Board of Directors,
continues to monitor Y2K to minimize the risks associated with it wherever
identified.
INCOME TAXES Income tax expense increased by $39,000 or 3.6% from $1,069,000 for
1996 to $1,108,000 for 1997. The effective tax rates were 26.9% for 1997 and
28.0% for 1996. The effective tax rate is less than the statutory federal income
tax rate of 34% due mainly to the Bank's investment in nontaxable municipal
investments.
12
<PAGE> 13
ASSET QUALITY
Nonperforming loans consist of loans past due 90 days or more and loans for
which the accrual of interest has been discontinued. Nonperforming loans totaled
approximately $196,000 or 0.16% of total loans at December 31, 1997, as compared
to $153,000 or 0.13% of total loans at December 31, 1996. The nonperforming
loans as a percentage of the allowance for loan losses was 11.2% and 9.3% at
December 31, 1997 and 1996 respectively.
The following table sets forth nonaccrual and past due loans at December 31:
<TABLE>
<CAPTION>
1997 1996
---------------- ----------------
(Dollars in thousands)
<S> <C> <C>
Loans accounted for on a nonaccrual basis $121 $31
Accruing loans which are 90 days or more past due as to
interest or principal payments 75 122
---------------- ----------------
Total nonperforming loans $196 $153
================ ================
</TABLE>
Gross interest income that would have been recorded on nonaccrual loans for the
year ending December 31, 1997 if the loans had been current in accordance with
their original terms totaled approximately $6,000. The interest income actually
reflected in earnings for 1997, on nonaccrual loans was approximately $7,000.
Management evaluates loans that are 90 days or more past due to determine if
they should be placed on nonaccrual status. Factors considered by management
include the estimated value of collateral, if any, and other resources of the
borrower that may be available to satisfy the delinquency.
There are no impaired loans at December 31, 1997 and 1996.
There are no loans as of December 31, 1997 or 1996 other than those disclosed
above as either nonperforming or impaired where known information about the
borrower caused management to have serious doubts about the borrower's ability
to comply with their contractual repayment obligations. There are also no other
interest bearing assets that would be subject to disclosure as either
nonperforming or impaired if such interest bearing assets were loans. There are
no concentration of loans to borrowers engaged in similar activities which
exceed 10% of total loans that management is aware of.
13
<PAGE> 14
SUMMARY OF LOAN LOSS EXPERIENCE
The following schedule presents an analysis of the allowance for loan loss,
average loan data and related ratio for the years ended December 31:
<TABLE>
<CAPTION>
1997 1996
---------------- ----------------
(Dollars in thousands)
<S> <C> <C>
Balance at beginning of period $1,653 $1,545
Loan charge-offs:
Real estate - residential 0 0
Real estate - farm 0 0
Real estate - commercial 0 0
Real estate - construction 0 0
Commercial and other 20 12
Consumer and credit card 170 99
---------------- ----------------
190 111
---------------- ----------------
Recoveries:
Real estate - residential 0 0
Real estate - farm 0 0
Real estate - commercial 0 0
Real estate - construction 0 0
Commercial and other 7 17
Consumer and credit card 95 22
---------------- ----------------
102 39
---------------- ----------------
Net (charge-offs)/recoveries -88 -72
Additions charged to operations 180 180
---------------- ----------------
Balance at end of period $1,745 $1,653
================ ================
Ratio of net (charge-offs)/recoveries during period to
average loans outstanding -0.07% -0.06%
</TABLE>
COMPARISON OF DECEMBER 31, 1997 AND 1996 FINANCIAL CONDITION
Total assets were $197,909,000 at December 31, 1997, an increase of $15,217,000
or 8.3% from $182,692,000 at December 31, 1996. Those balance sheet categories
reflecting significant changes included securities held to maturity, total
loans, interest bearing deposits, repurchase agreements and Federal Home Loan
Bank advances, and are discussed below.
14
<PAGE> 15
Securities held to maturity were $23,398,000 at December 31, 1997, an increase
of $5,033,000 or 27.4% from $18,365,000 at December 31, 1996. Nontaxable
obligations of states and political subdivisions comprised 99.6% and 99.5% of
the total of securities held to maturity at December 31, 1997 and 1996,
respectively.
Total loans were $122,034,000 at December 31, 1997 an increase of $5,775,000 or
5.0% from $116,259,000 at December 31, 1996. The majority of the increase
occurred in the real estate -commercial ($3,117,000) and consumer and credit
($3,202,000) loan categories. The various types of loans secured by real estate
represents 55.2% of total loans at December 31, 1997, compared to 55.4% of total
loans at December 31, 1996. The remainder of the portfolio consists of
commercial, consumer and credit card loans. Late in 1997, the Bank began to
offer residential mortgage loan customers a new fixed rate product. This program
enabled the Bank to offer competitive long term fixed rates. These loans are
made with the intent to sell in the secondary loan market. The Bank generally
does not purchase or sell significant participations in loans. The Bank's loans
are primarily to customers located within its local trade area.
Interest bearing demand deposits were $37,574,000 at December 31, 1997, an
increase of $5,525,000 or 17.2% from $32,049,000 at December 31, 1996. A
decrease among various demand deposit accounts was offset by an influx of
$8,000,000 in public funds in March 1997 from a local school district for the
construction of a new facility. These funds are expected to be withdrawn over a
period of twenty-four months and have been invested in securities with similar
maturities.
Securities sold under agreements to repurchase totaling $2,710,000 at December
31, 1997. There were no securities sold under agreements to repurchase at
December 31, 1996.
Federal Home Loan Bank advances were $8,745,000 at December 31, 1997, an
increase of $3,930,000 or 81.6% from $4,815,000 at December 31, 1996. These
borrowings are used to fund fixed rate residential real estate loans with
similar maturities.
CAPITAL RESOURCES AND LIQUIDITY
Shareholders' equity totaled $22,158,000 at December 31, 1997, an increase of
$2,224,000 or 11.2% from $19,934,000 at December 31, 1996. This increase
reflects earnings of $3,005,000, purchases of treasury shares of $312,000,
dividends paid of $611,000 and an increase in the net unrealized gain on
securities of $142,000. Total shareholders equity was 11.2% of total assets at
December 31, 1997, compared to 10.9% at December 31,1996.
Banking regulations have established minimum capital requirements for financial
institutions including risk-based capital ratios and leveraged ratios. As of
December 31, 1997 the appropriate regulatory authorities have categorized the
Company and Bank as well capitalized under the regulatory framework for prompt
corrective action.
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,
15
<PAGE> 16
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
certificates of deposit and demand deposit withdrawals, to invest in other
interest-earning assets, to maintain liquidity, and to meet operating expenses.
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.
Cash and amounts due from depository institutions and federal funds sold totaled
$14,601,000 at December 31, 1997. These assets provide the primary source of
liquidity for the Bank. In addition, management has designated a substantial
portion of the investment portfolio, ($35,079,000) as available for sale and has
an available line of credit with the Federal Home Loan Bank of Cincinnati with a
borrowing limit of approximately $15,900,000 at December 31, 1997 to provide
additional sources of liquidity.
The Bank's net interest income is sensitive to changes in interest rates. To
mitigate the impact of changing interest rates on net interest income, the Bank
manages interest rate sensitivity and assets/liability products through an
assets/liability management committee. The asset/liability management committee
meets as necessary to determine the rates of interest for loans and deposits.
Rates on deposits are primarily based on the Bank's need for funds and on a
review of rates offered by other financial institutions in the Bank's market
areas. Interest rates on loans are primarily based on the interest rates offered
by other financial institutions in the Bank's primary market area, as well, as
the Bank's cost of funds.
In an effort to reduce interest rate risk and protect itself from the negative
effects of rapid or prolonged changes in interest rates, the Bank has instituted
certain asset and liability management measures, including underwriting
long-term fixed rate loans that are saleable in the secondary market, offering
longer term deposit products and diversifying the loan portfolio into shorter
term consumer and commercial business loans. In addition, since the mid-1980's,
the Bank has originated adjustable-rate loans and as of December 31, 1997, they
comprised approximately 68% of the total loan portfolio.
The Committee manages the interest rate sensitivity of the Bank through the
determination and adjustment of asset/liability composition and pricing
strategies. The Committee then monitors the impact of the interest rate risk and
earnings consequences of such strategies for consistency with the Bank's
liquidity needs, growth, and capital adequacy. The Bank's principal strategy is
to reduce the interest rate sensitivity of interest earning assets and attempt
to match the maturities of interest earning assets with interest bearing
liabilities, while allowing for a mismatch in an attempt to increase net
interest income.
The table below provides a measure of the Bank's interest rate sensitivity at
December 31, 1997. The amount of assets or liabilities which reprice or mature
within a period were determined based on the contractual terms of the assets or
liability. Savings, NOW and money market demand deposit accounts reprice at
management's discretion and therefore are included in the
16
<PAGE> 17
amount repricing within three months. This table may not reflect the
actual impact on the Bank's changes in interest rates because the repricing of
various categories of rate sensitive assets and liabilities are subject to other
factors such as competition, customer preference, and management influence.
PERIOD TO MATURITY OR REPRICING
<TABLE>
<CAPTION>
Within Three to After
Three Twelve One to Five Five
Months Months Years Years Total
-------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Loans, before allowance (1) $55,731 $34,619 $18,451 $12,870 $121,671
Securities (2) 3,273 6,224 25,654 22,283 57,434
Federal Funds Sold 8,300 0 0 0 8,300
-------------------------------------------------------------------------------
Total 67,304 40,843 44,105 35,153 187,405
-------------------------------------------------------------------------------
SAV., NOW, MMDA 56,951 0 0 0 56,951
Time Deposits 19,223 50,856 12,467 2,719 85,265
Other Borrowings 2,710 500 0 8,245 11,455
-------------------------------------------------------------------------------
Total 78,884 51,356 12,467 10,964 153,671
-------------------------------------------------------------------------------
Interest earning assets less interest bearing
liabilities (maturity gap) ($11,580) ($10,513) $31,638 $24,189 $33,734
===============================================================================
Cumulative Interest Rate Sensitivity Gap ($11,580) ($22,093) $9,545 $33,734
===============================================================================
Cumulative Interest Rate Sensitivity Gap
as a percent of total interest earning assets -6.18% -11.79% 5.09% 18.00%
Cumulative Interest Rate Sensitivity Gap
as a percent of total assets -5.85% -11.16% 4.82% 17.05%
===============================================================================
</TABLE>
(1) Loans exclude non-accrual loans and is net of deferred loan fees
(2) Securities exclude $1,043,000 in equity securities
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements and the accompanying notes presented
elsewhere in this document, have been prepared in accordance with generally
accepted accounting principles, which require the measurement of financial
position and operating results in terms of historical dollars without
considering the change in the relative purchasing power of money over time and
17
<PAGE> 18
due to inflation. Unlike most industrial companies, virtually all the assets and
liabilities are monetary in nature. The impact of inflation is reflected in the
increased cost of operations. As a result, interest rates have a greater impact
on performance than do the effects of general levels of inflation. Interest
rates do not necessarily move in the same direction or to the same extent as the
prices of goods and services.
PENDING ACCOUNTING PRONOUNCEMENTS
In June 1996, the FASB issued Statement No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." The Statement
provides consistent standards for distinguishing transfers of financial assets
that are sales from transfers that are secured borrowings based on a
control-oriented "financial-components" approach. Under this approach, after a
transfer of financial assets, an entity recognizes the financial and servicing
assets it controls and liabilities it has incurred, derecognizes financial
assets when control has been surrendered and derecognizes liabilities when
extinguished. The provisions of Statement No. 125 are effective for transactions
occurring after December 31, 1996, except those provisions relating to
repurchase agreements, securities lending, and other similar transactions and
pledged collateral, which have been delayed until after December 31, 1997 by
Statement No. 127, "Deferral of the Effective Date of Certain Provision of
Statement No. 125, an amendment of Statement No. 125." The adoption of the
provision of Statement No. 127 is not expected to have a material impact on
financial position or results of operations.
In July 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income." The Statement establishes standards for reporting and presentation of
comprehensive income and its components (revenue, expenses, gains and losses) in
a full set of general purpose financial statements. It requires that all items
that are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is presented with
the same prominence as other financial statements. The provisions of the
statement are effective for all fiscal years beginning after December 15, 1997.
The adoption of this statement is not expected to have a material impact on
financial position or results of operations.
CERTAIN STATISTICAL INFORMATION
The following schedules present, for the period indicated, certain financial and
statistical information, or a specific reference as to the location of the
required disclosures elsewhere herein.
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY, INTEREST RATES
AND INTEREST DIFFERENTIAL
The information required under this section is set forth in Management's
Discussion and Analysis of Financial Condition and Results of Operations.
18
<PAGE> 19
INVESTMENT PORTFOLIO
The amortized cost, unrealized gains and losses, and estimated market values are
as follows at December 31:
<TABLE>
<CAPTION>
1997
----------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Available for Sale
U.S. Treasury securities $ 9,781,819 $ 20,337 $ - $ 9,802,156
Obligations of U.S. Government
Agencies and Corporations 24,304,525 27,237 98,812 24,232,950
----------- -------- ------- -----------
Total debt securities 34,086,344 47,574 98,812 34,035,106
Equity securities 1,043,410 - - 1,043,410
----------- -------- ------- -----------
Total $35,129,754 $ 47,574 $98,812 $35,078,516
=========== ======== ======= ===========
Held to Maturity
Obligations of States and Political
Subdivisions $23,298,480 $575,642 $ 7,214 $23,866,908
Corporate Securities 100,000 - 375 99,625
----------- -------- ------- -----------
Total $23,398,480 $575,642 $ 7,589 $23,966,533
=========== ======== ======= ===========
</TABLE>
<TABLE>
<CAPTION>
1996
--------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Available for Sale
U.S. Treasury securities $ 994,508 $ 2,992 $ - $ 997,500
Obligations of U.S. Government
Agencies and Corporations 31,225,987 18,595 288,354 30,956,228
----------- -------- -------- -----------
Total debt securities 32,220,495 21,587 288,354 31,953,728
Equity securities 889,210 - - 889,210
----------- -------- -------- -----------
Total $33,109,705 $ 21,587 $288,354 $32,842,938
=========== ======== ======== ===========
Held to Maturity
Obligations of States and Political
Subdivisions $18,264,587 $257,491 $114,124 $18,407,954
Corporate Securities 100,000 - 1,920 98,080
----------- -------- -------- -----------
Total $18,364,587 $257,491 $116,044 $18,506,034
=========== ======== ======== ===========
</TABLE>
19
<PAGE> 20
MATURITY OR NEXT RATE ADJUSTMENT DATE
The following is a schedule of maturities or next rate adjustment date and
related weighted average yields of securities at December 31, 1997
<TABLE>
<CAPTION>
After three months but After one year but
Within three months Within one year Within five years
------------------------- -------------------------- ---------------------------
Amount Yield Amount Yield Amount Yield
-------------- ---------- -------------- ---------- ---------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Available for Sale (1)
U.S. Treasury securities $2,496,875 5.89% $2,005,000 5.99% $5,300,281 5.91%
Obligations of U.S. Government
agencies and corporations 500,000 6.06% 1,791,562 5.23% 18,188,076 6.22%
Equity securities (2) 0 0.00% 0 0.00% 0 0.00%
-------------- ---------- -------------- ---------- ---------------- ---------
Total $2,996,875 5.92% $3,796,562 5.63% $23,488,357 6.15%
============== ========== ============== ========== ================ =========
Held to Maturity
Obligations of states and
political
subdivisions (3) $275,519 4.14% $1,927,213 4.50% $9,663,493 4.96%
Corporate bonds 0 0.00% 0 0.00% 100,000 6.00%
-------------- ---------- -------------- ---------- ---------------- ---------
Total $275,519 4.14% $1,927,213 4.50% $9,763,493 4.97%
============== ========== ============== ========== ================ =========
</TABLE>
<TABLE>
<CAPTION>
After five but
Within ten years After 10 Years
------------------------- -----------------------
Amount Yield Amount Yield Total
-------------- ---------- ------------ --------- ----------------
<S> <C> <C> <C> <C> <C>
Available for Sale (1)
U.S. Treasury securities $0 0.00% $0 0.00% $9,802,156
Obligations of U.S. Government
agencies and corporations 3,753,312 6.68% 0 0.00% 24,232,950
Equity securities (2) 0 0.00% 0 0.00% 0
-------------- ---------- ------------ --------- ----------------
Total $3,753,312 6.68% $0 0.00% $34,035,106
============== ========== ============ ========= ================
Held to Maturity
Obligations of states and
political
subdivisions (3) $11,140,535 4.82% $291,720 4.62% $23,298,480
Corporate bonds 0 0.00% 0 0.00% 100,000
-------------- ---------- ------------ --------- ----------------
Total $11,140,535 4.82% $291,720 4.62% $23,398,480
============== ========== ============ ========= ================
</TABLE>
(1) The weighted average yield has been computed using the historical amortized
cost for available for sale securities.
(2) Excludes $1,043,410 of equity securities which have no stated maturity.
(3) Weighted average yields on nontaxable obligations have been computed based
on actual yield stated on the security.
Excluding holdings of U.S. Treasury and other agencies and corporations of the
U.S. Government, there were no investments in securities of any one issuer that
exceeded 10% of the bank's shareholder equity at December 31, 1997.
20
<PAGE> 21
LOAN PORTFOLIO
Types of loans. Total loans on the balance sheet are comprised of the following
classifications as December 31:
<TABLE>
<CAPTION>
1997 % 1996 %
--------------------- ---------------------
<S> <C> <C>
Real estate - residential $41,473,027 34.09 $39,820,133 34.37
Real estate - farm 3,846,541 3.16 4,589,030 3.96
Real estate - commercial 21,204,753 17.43 18,087,851 15.61
Real estate - construction 782,569 .64 1,947,042 1.68
Commercial and other 33,745,364 27.74 34,035,720 29.38
Consumer and credit card 20,981,516 17.24 17,779,182 15.35
Deferred loan fees (363,127) (399,181)
--------------------- ---------------------
$121,670,643 $115,859,777
===================== =====================
</TABLE>
The largest category of loans comprising the Bank's Loan Portfolio is
Residential Real Estate Loans. These loans are primarily single family
residential real estate loans secured by a first mortgage on the dwelling. The
risks associated with these loans are primarily the risk of default in repayment
and inadequate collateral. The second largest loan segment of the Bank's Loan
Portfolio is the Commercial and Other category. The loans comprising this
category represent loans to business interests, located primarily within the
Bank's defined market areas, with no significant industry concentration.
Commercial Loans include both secured and unsecured loans. The risks associated
with these loans are principally the risk in default of the payment of principal
resulting from economic problems of the commercial customer, economic downturn
effecting the market in general and in the case of secured loans inadequate
collateral. Consumer and credit card loans comprise the next largest area of the
Bank's loan portfolio. These loans include consumer installment including
automobile loans as well as personal loans and credit card loans. The risks
inherent in these loans include the risk of default in principal, repayment and
in the case of secured loans the risk of inadequate collateral. Real Estate
Commercial Loans represent the next largest category and include development
loans as well as investment commercial real estate such as land loans. These
loans have risks which include the risk of default in the repayment of principal
and inadequate collateral as well as the risk of cash flow interruption due to,
in the case of rental real estate, the inability to obtain or collect adequate
rental rates.
The Bank's loan policy establishes guidelines to manage credit risk and asset
quality. These guidelines include loan review and early identification of
problem loans to ensure sound credit decisions. The Bank's credit policies and
procedures are meant to minimize the risk and uncertainties inherent in lending.
In following these policies and procedures management must rely on estimates,
appraisals and evaluations of loans and the possibility that changes in these
could occur partly because of changing economic conditions. The amount and type
of collateral which the Bank requires in connection with its lending activities
is dependant upon the specific facts and circumstances of each credit facility.
The Bank's loan policy for real estate loans does set forth internal maximum
loan to value ratios for various types of real estate loans. In the case of
owner-occupied 1-4 family residential the maximum loan to value ratio is
generally 80%. Home equity loans are 75%. Improved business and industrial
property loans, improved agricultural loan involving land and construction loans
are 80%. Land development loans are 75% and raw land loans are 65%. In the case
of other types of loans the loan to value ratio is not fixed by the Loan Policy
but is dependent upon a number of other factors. The Bank does not make
uninsured conventional mortgage loans with loan to value ratios above 80%. All
loans of the Bank are monitored by a loan officer and where appropriate requests
are made to update appraisals, provide third party guarantees or take other
actions to assure the Bank of the creditworthiness of the borrow.
The Bank's loan policy contains a number of quantitative and qualitative
requirements in connection with granting loan approvals. Depending upon the type
and nature of the loan requested the Bank makes both secured and unsecured
loans. In the case of secured loans the Bank's loan policy requires that such
loans be adequately collaterized and in the case of loans secured by real
estate, accompanied by an appropriate appraisal.
Pursuant the Bank's Loan Policy, the quality and liquidity of collateral is of
paramount importance and must be confirmed before the loan is made. The Bank's
Loan Policy requires that secured loans be margined so that money received from
the collateral, under foreclosure conditions, will repay the loan. Loan officers
are responsible for obtaining an objective appraisal of the collateral prior to
funding a loan . In the event the loan is renewed or extended, the loan officer
must consider the need for a new appraisal before granting the renewal or
extension.
MATURITIES & SENSITIVITIES OF LOANS TO CHANGES IN INTEREST RATES
The following is a schedule of maturities and sensitivities of loans subject to
changes in interest rates as of December 31, 1997:
<TABLE>
<CAPTION>
One Over
One Year Through Five
or Less Five Years Years
--------------------- ------------------- ---------------------
<S> <C> <C> <C>
Real estate - residential $2,294,391 $864,179 $29,939,728
Real estate - farm 0 122,541 3,476,019
Real estate - commercial 10,950 1,024,824 17,880,817
Real estate - construction 440,029 0 0
Commercial and others 14,707,077 6,393,392 5,165,706
Consumer and credit card 0 94,726 659,107
</TABLE>
Balance sheet structure and interest rate changes play important role in the
growth of net interest income. The Bank's Asset/Liability Committee (ALCO)
manages the overall rate sensitivity and mix of the balance sheet to anticipate
and minimize the effects of interest rate fluctuation and maintain a consent net
interest margin. The relative measure of assets and liabilities that will mature
or are scheduled to reprice within various time categories is known as "GAP."
Because the Company has more liabilities than assets repricing within one year
at December 31, 1997, it has a negative GAP and is considered liability
sensitive. In a rising rate environments, this liability surplus would most
likely detract from net interest income. In a declining rate environment the
effect would most likely be favorable. Experience has shown that his
generalization does not fully capture the true dynamics of interest rate changes
since asset and liability rate do not adjust equally.
RISK ELEMENTS
The information required under this section is set forth under the heading0
"Asset Quality" in Management's Discussion and Analysis of Financial Condition
and Results of Operations.
21
<PAGE> 22
SUMMARY OF LOAN LOSS EXPERIENCE
Analysis of Loan Loss Experience. The information required under this section is
set forth under the heading "Summary of Loan Loss Experience" in Management's
Discussion and Analysis of Financial Condition and Results of Operations.
Allocation of the Allowance for Loan Losses. The following table allocates the
allowance for loan losses at December 31, 1997 and 1996 to each loan category.
The allowance has been allocated according to the amount deemed to be reasonably
necessary to provide for the possibility of losses being incurred within the
following categories of loans at the dates indicated, although the entire
allowance balance is available to absorb any actual charge-offs that may occur.
<TABLE>
<CAPTION>
1997 1996
----------------------------------- -----------------------------------
Percentage Percentage
of Loans to of Loans to
Allowance Total Loans Allowance Total Loans
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Real estate - residential $402 34.00% $360 34.20%
Real estate - farm 35 3.20% 38 3.90%
Real estate - commercial 273 17.40% 229 15.60%
Real estate - construction 6 0.60% 15 1.70%
Commercial and other loans 568 27.70% 574 29.30%
Consumer and credit loans 342 17.10% 341 15.30%
Unallocated 119 0.00% 96 0.00%
---------------- ---------------- ---------------- ----------------
$1,745 100.00% $1,653 100.00%
================ ================ ================ ================
</TABLE>
The Bank reviews the adequacy of its allowance for loan losses on a quarterly
basis. In determining the adequacy of its allowance account the Bank makes
general allocations based upon loan categories such as nonaccrual and past due
loans as well as type of loans such as residential real estate, commercial,
consumer and credit card. After general allocations, the Bank makes specific
allocations for individual credits. Any remaining balance is determined to be
"unallocated." The Bank has determined that the reserve is adequate as of
December 31, 1997, based upon its analysis and experience.
DEPOSITS
Average Amounts and Rates. The information required under this section is set
forth under the heading "Overview - Average Balances and Yields" in Management's
Discussion and Analysis of Financial Condition and Results of Operations.
Foreign Deposits. There are no foreign deposits at December 31, 1997.
Maturity of Time Deposits of $100,000 or More. The following is a schedule of
maturities of time deposits in amounts of $100,000 or more as of December 31,
1997 (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Three months or less $6,013
Three through six months 7,928
Six through twelve months 6,997
Over twelve months 837
----------------
Total $21,775
================
</TABLE>
22
<PAGE> 23
RETURN ON EQUITY AND ASSETS
The ratio of net income to daily average total assets and average shareholders'
equity, and certain other ratios, are as follows:
<TABLE>
<CAPTION>
December 31,
1997 1996
---------------- ----------------
<S> <C> <C>
Percentage of net income to:
Average total assets 1.55% 1.56%
Average shareholders' equity 14.26% 14.57%
Percentage of dividends declared per common share to net
income per common share 20.36% 18.52%
Percentage of average shareholders' equity to average
total assets 10.86% 10.73%
</TABLE>
SHORT-TERM BORROWINGS
This information is not required as the average amount of borrowings during the
period did not exceed 30% of shareholders' equity.
ITEM 3. PROPERTIES.
The Bank owns or leases the real property used in its business as
follows:
Main Office: Berlin, Branch
165 N. Main Street 4843 East Main St.
Killbuck, Ohio 44637 Berlin, Ohio 44610
Mt. Hope Branch Millersburg North Office
8115 State Rt. 241 181 N. Washington St.
Mt. Hope, Ohio 44660 Millersburg, Ohio 44654
Millersburg South Office
1642 S. Washington St.
Millersburg, Ohio 44654
23
<PAGE> 24
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
PRINCIPAL SHAREHOLDERS:
To the Company's knowledge, except as noted below, no person or entity owns
beneficially, directly or indirectly, 5 percent or more of the Company's common
stock as of March 31, 1998.
<TABLE>
<CAPTION>
Amount and Nature of % of
Name and Address of Beneficial Owner Beneficial Ownership Class
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
The Holmes Limestone Co. 9024 Shares 6.85%
P.O. Box 295
Berlin, Ohio 44610
Thomas D. Gindlesberger 7000 Shares 5.29%
P.O. Box 129
Millersburg, Ohio 44654
</TABLE>
MANAGEMENT:
The following table sets forth, as of March 31, 1998, information as to the
beneficial ownership of the Company's Common Stock by each Directors and
Executive Officer and All Directors and Executive Officers as a group.
<TABLE>
<CAPTION>
Shares of Company Common
Stock Owned Beneficially as Percentage of Beneficial
Name & Age of 3/31/98 Ownership as of 3/31/98
---------- ---------- -------------------------
<S> <C> <C>
John W. Baker 106 .08%
Robert D. Bell (1) 573 .43%
Richard L. Fowler (2) 1224 .92%
Thomas D. Gindlesberger 7000 5.29%
Craig A. Lawhead (3) 260 .20%
Allan R. Mast (4) 394 .30%
Dean J. Mullet 26 .02%
Luther E. Proper 1209 .91%
Kenneth E. Taylor 50 .04%
Michael S. Yoder 50 .04%
All directors and executive 10892 8.23%
officers as a group
---------------------------------
</TABLE>
- -------------
(1) 500 shares owned individually, 73 shares in spouse's name.
(2) 495 shares owned individually, 729 shares owned jointly with spouse.
(3) 125 shares owned individually, 135 shares owned jointly with spouse.
(4) 75 shares owned individually, 179 shares owned jointly with spouse, 140
shares owned in name of Holmes M & M Construction.
24
<PAGE> 25
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS.
DIRECTORS:
<TABLE>
<CAPTION>
PRINCIPAL
NAME & AGE OCCUPATION DIRECTOR SINCE
---------- ----------- --------------
<S> <C> <C>
Richard L. Fowler President, Mobile Homes of 1992
(Age 68) Ohio
Robert D. Bell Chairman of the Board, 1992
(Age 71) Killbuck Bancshares, Inc.
and The Killbuck Savings
Bank Co.
Luther E. Proper President and CEO, Killbuck 1992
(Age 49) Bancshares and The Killbuck
Savings Bank Co.
Thomas D. Gindlesberger Attorney-at-Law 1992
(Age 72)
Dean J. Mullet President, Mullet Cabinet 1992
(Age 46)
Kenneth E. Taylor Farmer 1992
(Age 45)
John W. Baker President, Burgett Insurance 1992
(Age 53)
Michael S. Yoder Owens-Brockway 1992
(Age 56)
Allan R. Mast Co-Owner Holmes M&M 1992
(Age 48) Construction
</TABLE>
25
<PAGE> 26
Executive Officer:
<TABLE>
<CAPTION>
PRINCIPAL
NAME & AGE OCCUPATION
---------- -----------
<S> <C>
Luther E. Proper President and CEO, Killbuck
(Age 49) Bancshares and The Killbuck
Savings Bank Co
Craig A. Lawhead Executive Vice President,
(Age 40) Killbuck Bancshares, and
The Killbuck Savings Bank
Co.
</TABLE>
Each individual has held the position noted during the past five years.
ITEM 6. EXECUTIVE COMPENSATION.
The following remuneration table sets forth all direct remuneration
paid by the Bank in 1997 to the Company's President and Chief Executive
Officer. No other Officers' total compensation exceeded $100,000 for the year
ended 1997.
SUMMARY COMPENSATION TABLE
Annual Compensation
------------------------
<TABLE>
<CAPTION>
Name and All Other
Principal Position Year Salary Bonus Compensation
- ------------------ ---- ------ ----- -----------
<S> <C> <C> <C> <C>
Mr. Luther E. Proper 1997 $102,500 $22,597 $7,990.95
President and Chief 1996 $95,000 $21,743 $8,161.11
Executive Officer 1995 $85,250 $20,279 $7,907.76
</TABLE>
REPORT OF THE COMPENSATION COMMITTEE OF KILLBUCK BANCSHARES, INC. ON
COMPENSATION
Under rules established by the Securities and Exchange Commission (the
"SEC"), the Company is required to provide certain data and information in
regard to the compensation and benefits provided to the Company's President and
Chief Executive Officer and, if applicable, the four other most highly
compensated Executive Officers, whose compensation exceeded $100,000 during the
Company's fiscal year. The disclosure requirements, as applied to the Company,
include only the Company's President and Chief Executive Officer Mr. Luther E.
Proper. The disclosure includes the use of tables and a report explaining the
rationale and considerations that led to fundamental executive compensation
decisions affecting such officers. Killbuck Bancshares, Inc. is a holding
company and owns a single operating subsidiary, The Killbuck Savings Bank
Company. Killbuck Bancshares, Inc. has no direct employees. All disclosures
contained in this Proxy Statement regarding executive compensation reflect
26
<PAGE> 27
compensation paid by The Killbuck Savings Bank Company. The Compensation
Committee of the Company has the responsibility of determining the compensation
policy and practices with respect to all Executive Officers. At the direction of
the Board of Directors, the Compensation Committee has prepared the following
report for inclusion in this Proxy Statement.
Compensation Philosophy. This report reflects the Company's
compensation philosophy as endorsed by the Compensation Committee. The
Compensation Committee makes a recommendation regarding the level of
compensation for Mr. Proper. The Compensation Committee determines the level of
compensation for all other Executive Officers within the constraints of the
amounts approved by the Board.
Essentially, the executive compensation program of the Company has been
designed to:
- - Support a pay-for-performance policy that awards Executive Officers for
corporate performance.
- - Motivate key Executive Officers to achieve strategic business goals.
- - Provide compensation opportunities which are comparable to those offered by
other peer group companies; thus allowing the Company to compete for and
retain talented executives who are critical to the Company's long-term
success.
Salaries. Effective January 1, 1997, the Compensation Committee
recommended and the Board increased the salary paid to Mr. Proper. The increase
reflected consideration of competitive data reported in compensation surveys and
the Compensation Committee's assessment of the performance of such executives
over the intervening year and recognition of the Company's performance during
1996. In addition, the Compensation Committee approved compensation increases
for all other Executive Officers of the Company. Executive Officer salary
increase determinations are based upon an evaluation of such executives'
performance against goals set in the prior year.
Cash Bonus Plan. The Company maintains a cash bonus plan (the "Bonus
Plan") which allocates a portion of the Company's net income for the purpose of
employee cash bonuses on an annual basis. The award of a bonus to any employee
under the terms of the Bonus Plan is discretionary and in the case of Mr. Proper
is determined by the Board of Directors upon the recommendation of the
Compensation Committee, and in all other cases is determined by the Compensation
Committee upon recommendation of management.
The Compensation Committee has determined that a significant portion of
executive compensation should be payable in an annual bonus which shall be based
principally upon the financial performance of the Company. The Compensation
Committee believes that it is important to reward executive management based
upon the success of the Company.
27
<PAGE> 28
THIS REPORT ON COMPENSATION IS SUBMITTED BY THE COMPENSATION COMMITTEE MEMBERS:
John Baker, Robert Bell, Thomas Gindlesberger, Allan Mast, Luther
Proper
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Luther E. Proper, the Company's President and Chief Executive
Officer served on the Compensation Committee of the Company, which is
responsible for compensation matters (see "Report of the Compensation Committee
of Killbuck Bancshares, Inc. on Compensation" in this Proxy Statement).
Although Mr. Proper served on the Compensation Committee, he did not
participate in any decisions regarding his own compensation as an Executive
Officer.
Director Compensation
Directors of the Company, other than those persons who serve as
officers of the Company and its subsidiary, The Killbuck Savings Bank Company,
received an annual retainer of $6,000 during 1997. The Chairman of the Board
received an annual retainer of $7,200. Effective January 1, 1998, the fee
stayed the same.
PERFORMANCE GRAPH - FIVE-YEAR SHAREHOLDER RETURN COMPARISON
The SEC requires that the Company include in this Proxy Statement a
line-graph presentation comparing cumulative five-year shareholder returns on an
indexed basis with a broad equity market index and either a nationally
recognized industry standard or an index of peer companies selected by the
Company. The Company has selected the Dow Jones Equity Market Index and the Dow
Jones Regional Bank Index for purposes of this performance comparison. The chart
below compares the value of $100 invested on December 31, 1990, in the Company's
stock, the Dow Jones Equity Market Index and the Dow Jones Regional Bank Index.
28
<PAGE> 29
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN* AMONG KILLBUCK
BANCSHARES, INC., DOW JONES EQUITY MARKET INDEX & DOW JONES MAJOR
REGIONAL BANK INDEX FOR FISCAL YEAR ENDING DECEMBER 31
[LINE GRAPH]
<TABLE>
<CAPTION>
ASSUMES $100 INVESTED ON JANUARY 1, 1992 *TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS
IN KILLBUCK BANCSHARES, INC. COMMON STOCK,
DOW JONES EQUITY MARKET INDEX & DOW JONES MAJOR
REGIONAL BANK INDEX
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
KILLBUCK BANCSHARES, INC. $100.00 $116.40 $134.60 $188.53 $272.48 $404.92
DOW JONES EQUITY MARKET INDEX $100.00 $109.95 $110.76 $152.49 $187.63 $251.34
DOW JONES REGIONAL BANK INDEX $100.00 $105.27 $101.31 $162.02 $222.62 $347.78
</TABLE>
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Some of the directors, officers and principal shareholders of the
Company and/or the Bank and the companies with which they are associated were
customers of and have had banking transactions with the Bank in the ordinary
course of the Bank's business in the past and up to the present time. All loans
and commitments for loans included in such transactions were made on
substantially the same terms including interest rates and collateral as were
prevailing at the time for comparable transactions with other persons. In the
opinion of the Board of Directors of the Bank, these loans and commitments for
loans do not involve more than a normal risk of collectability or present other
unfavorable features.
29
<PAGE> 30
The Company and/or the Bank have had, and expect to have in the future,
banking transactions in the ordinary course of its business with directors,
officers, principal shareholders and their associates, on substantially the same
terms, including interest rates and collateral on loans, as those prevailing at
the same time for comparable transactions with others. Such transactions will
not involve more than the normal risk of collectability or present other
unfavorable features.
ITEM 8. LEGAL PROCEEDINGS.
There is no pending litigation which, in the opinion of management,
will adversely impact the financial condition of the Company or the Bank. There
is litigation threatened by a bank customer which has not been initiated as of
the preparation of this offering circular. In the event that the threatened
litigation is initiated, management and its counsel do not believe that any loss
other than those associated with the collection process shall be incurred.
Consequently, it is the opinion of management that the threatened litigation
shall not have a material adverse impact upon the financial condition of the
Company and the Bank.
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.
a. Market Information
There is no established public trading market for the Company's common
stock and the shares of the Company are not listed on any exchange. Sale price
information prior to March 31, 1998 is based on information reported to the
Company by individual buyers and sellers of the Company's stock.
1998
<TABLE>
<S><C>
First Quarter Second Quarter
------------- -------------
High Low High Low
347.51 Unknown
1997
First Quarter Second Quarter Third Quarter Fourth Quarter
------------- -------------- ------------- --------------
High Low High Low High Low High Low
Unknown 271.50 279.93 277.54 Unknown
1996
First Quarter Second Quarter Third Quarter Fourth Quarter
------------- -------------- ------------- --------------
High Low High Low High Low High Low
214.23 215.25 217.33 213.27 Unknown
</TABLE>
The Company currently has 132,380 shares of common stock outstanding.
All of such shares are and, upon effectiveness of this Registration Statement,
will be eligible for sale in the open market without restriction or registration
under the Securities Act of 1933, as amended (the "Securities Act"), except for
shares held by affiliates of the Company, which shares are and will be subject
to resale
30
<PAGE> 31
limitations under Rule 144 promulgated under the Securities Act. As of
April 30, 1998, directors and executive officers of the Company had beneficial
ownership of an aggregate of 10,892 shares of the Company's common stock, none
of which is restricted stock. The Company has two shareholders (Holmes Limestone
and Thomas Gindlesberger) with beneficial ownership of more than five percent of
its outstanding shares and no shareholders holding restricted shares other than
directors and executive officers.
In general, under Rule 144, commencing ninety days after the effective
date of this Registration Statement, affiliates of the Company may sell within
any three-month period a number of shares that does not exceed the greater of
one percent of the number of then outstanding shares of common stock or the
average weekly trading volume of the common stock in the over-the-counter market
during the four calendar weeks preceding commencement of the sales in question.
Sales under Rule 144 are also subject to certain requirements as to the manner
of sale, notice to the Securities and Exchange Commission, and the availability
of current public information about the Company.
The Company has no outstanding options or warrants to purchase shares
of its common stock or securities convertible into shares of common stock.
b. Holders
The number of holders of record of the Company's common stock at April
30, 1998 was 533.
c. Dividends
Dividends per share declared by the Company on the common stock during
the first four months of 1998 and the years of 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
Month
<S> <C> <C> <C>
June $0.00 $2.20 $1.80
December $0.00 $2.40 $2.00
TOTALS $0.00 $4.60 $3.80
===== ===== =====
</TABLE>
The Company currently expects that comparable annual cash dividends
will continue to be paid in the future. However, see Management's Discussion and
Analysis of Financial Condition and Results of Operations - Capital Resources
and Liquidity and Notes to Consolidated Financial Statements - Dividend
Restrictions (Footnote No. 15) for additional information on dividend
restrictions.
31
<PAGE> 32
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.
During 1995, 1996 and 1997 the Company sold 26 of its common shares in
one transaction which was sold in reliance upon an exemption from registration
under 3(a)(11) of the Securities Act of 1933,
<TABLE>
<CAPTION>
Date Number of Shares Price
- ---- ---------------- -----
<S> <C> <C>
8/23/96 26 $214.23 to Dean Mullett,
Director
</TABLE>
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED.
The Company has 200,000 of shares authorized and 132,380 shares outstanding as
of April 30, 1998. Effective May 1, 1998, the Company will have a 5 for 1 stock
split.
The holders of the Shares have no preemptive right to acquire other or
additional Shares which may, from time to time, be authorized and issued by the
Company.
Each Share of Common Stock of the Company entitles the holder thereof
to (1) vote on all matters. Shareholders of the Company do not have cumulative
voting rights in the election of directors.
The Articles of Incorporation of the Company contains provisions
providing for indemnification of the Company's Directors and Officers and the
purchase of insurance in connection with such indemnification.
The Articles of Incorporation also contain certain provisions to
protect the interest of the Company and its shareholders from any hostile
takeover attempts. A vote of at least a majority of the "disinterested shares"
of capital stock of the Company is required to approve certain mergers,
consolidations, sale of substantially all of the assets and similar transactions
involving control of the Company. In addition the Articles of Incorporation
contain a provision which "classifies" the board into three classes and provides
for the election of directors to three-year terms. The removal of a director
requires the affirmative vote of three-fourths of the outstanding shares of the
Company. These provisions and limitations will make it more difficult for
companies or persons to acquire control of the Company without the support of
the Board of Directors of the Company. However, these provisions also could
deter offers for Shares in the Company which might be viewed by certain
Investors not to be in their best interest.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article VII of the Company's Code of Regulations.
The Code of Regulations of the Company provide for mandatory indemnification of
any person who was or is a party or is threatened to made a party to any
threatened, pending, or completed action, suit or proceeding, whether civil,
criminal, administrative, or investigative (other than an action by or in the
32
<PAGE> 33
right of the Company) by reason of the fact that such person is or was a
director of the company. The Code of Regulations provides for permissive
indemnification in the case of actions by or in the right of the Company.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Registrant's Financial Statements are attached hereto as an exhibit.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There have been no disagreements with the independent accountants on matters of
accounting principles or financial statement disclosure required to be reported
under this item. There has been no change in accountants.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.
A. Annual Financial Statements
Independent Auditors' Report
Consolidated Balance Sheets,
December 31, 1997 and 1996
Consolidated Statements of Earnings,
Years ended December 31, 1997, 1996 and 1995
Consolidated Statements of Shareholders' Equity
Years ended December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows,
Years ended December 31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements,
December 31, 1997, 1996 and 1995
B. Exhibits
2. Plan of acquisition, reorganization, arrangement, liquidation,
or succession
3. Articles of incorporation and by-laws
4. Instruments defining the rights of security holders, including
indentures
9. Voting trust agreement
10. Material contracts
11. Statement re computation of per share earnings
12. Statements re computation of ratios
16. Letter re change in certifying accountant
21. Subsidiaries of the registrant
24. Power of attorney
27. Financial data schedule
99. Additional exhibits
33
<PAGE> 34
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized.
Killbuck Bancshares, Inc.
Date: July 7, 1998
By: /s/ Luther E. Proper
------------------------------------
Luther E. Proper, President
34
<PAGE> 35
EXHIBIT INDEX
Exhibit Number Description
- -------------- -----------
(a) Financial Statements:
Report of Independent Auditors
Consolidated Balance Sheet
Consolidated Statement of Income
Consolidated Statement of Changes in Shareholders' Equity
Consolidated Statement of Cash Flows
Notes to Consolidated Financial Statements
(b) Exhibits
(2) Not Applicable
(3), (i) Articles of Incorporation and Code of Regulations
(4) None
(9) None
(10) Agreement and Plan of Reorganization with Commercial and
Savings Bank Co.,
(11) Not Applicable - Registrant has a simple capital structure
comprised of solely common stock and no debt securities
outstanding.
(12) Not Applicable - Registrant has a simple capital structure
comprised of solely common stock.
(16) None
(21) Subsidiaries of the Registrant
(24) Not Applicable
(27) Financial Data Schedule
(99) None
35
<PAGE> 36
KILLBUCK BANCSHARES, INC.
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
Page
Number
Report of Independent Auditors 37
Financial Statements: 38
Consolidated Balance Sheet 39
Consolidated Statement of Income 40
Consolidated Statement of Changes in Shareholders' Equity 41
Consolidated Statement of Cash Flows 42
Notes to Consolidated Financial Statements
36
<PAGE> 37
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Killbuck Bancshares, Inc.
We have audited the accompanying consolidated balance sheet of Killbuck
Bancshares, Inc. and subsidiary as of December 31, 1997 and 1996, and the
related consolidated statements of income, changes in shareholders' equity, and
cash flows for each of the three years in the period ended December 31, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with 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 Killbuck Bancshares,
Inc. and subsidiary as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
As explained in the notes to the consolidated financial statements, effective
January 1, 1995, the Company adopted a new method of accounting for impairment
of loans and related allowance for loan losses.
S. R. Snodgrass, A. C.
Steubenville, Ohio
January 23, 1998
37
<PAGE> 38
KILLBUCK BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
1997 1996
---- ----
ASSETS
<S> <C> <C>
Cash and cash equivalents:
Cash and amounts due from depository institutions $ 6,300,777 $ 6,140,758
Federal funds sold 8,300,000 6,100,000
------------ ------------
Total cash and cash equivalents 14,600,777 12,240,758
Investment securities:
Securities available for sale 35,078,516 32,842,938
Securities held to maturity (market value of $23,966,533
and $18,506,034) 23,398,480 18,364,587
------------ ------------
Total investment securities 58,476,996 51,207,525
Loans, net 119,926,057 114,206,455
Premises and equipment, net 2,808,078 2,973,786
Accrued interest 1,633,451 1,506,926
Other assets 463,271 556,708
------------ ------------
Total assets $197,908,630 $182,692,158
============ ============
LIABILITIES
Deposits:
Noninterest bearing demand $ 21,592,573 $ 20,904,824
Interest bearing demand 37,574,203 32,048,553
Savings 19,376,757 19,848,413
Time 85,265,101 84,597,359
------------ ------------
Total deposits 163,808,634 157,399,149
Securities sold under repurchase agreements 2,710,000 -
Federal Home Loan Bank advances 8,745,174 4,814,648
Accrued expenses and other liabilities 487,213 544,621
------------ ------------
Total liabilities 175,751,021 162,758,418
------------ ------------
SHAREHOLDERS' EQUITY
Common stock - 200,000 shares authorized, 135,000
issued with no par value 2,700,000 2,700,000
Capital surplus 3,106,500 3,106,500
Retained earnings 17,018,414 14,624,364
Net unrealized loss on securities available for sale (33,817) (176,066)
Treasury stock, at cost (2,620 and 1,500 shares) (633,488) (321,058)
------------ ------------
Total shareholders' equity 22,157,609 19,933,740
------------ ------------
Total liabilities and shareholders' equity $197,908,630 $182,692,158
============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
38
<PAGE> 39
KILLBUCK BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $11,491,831 $10,819,285 $10,282,897
Federal funds sold 372,153 324,411 430,348
Investment securities:
Taxable 2,349,656 1,947,044 1,265,371
Tax exempt 1,012,341 890,981 832,428
----------- ----------- -----------
Total interest income 15,225,981 13,981,721 12,811,044
----------- ----------- -----------
INTEREST EXPENSE
Deposits 6,850,752 6,331,213 5,690,017
Federal Home Loan Bank advances 454,791 292,726 125,588
Other 38,637 1,521 332
----------- ----------- -----------
Total interest expense 7,344,180 6,625,460 5,815,937
----------- ----------- -----------
NET INTEREST INCOME 7,881,801 7,356,261 6,995,107
Provision for loan losses 180,000 180,000 180,000
----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 7,701,801 7,176,261 6,815,107
----------- ----------- -----------
OTHER INCOME
Service fees on deposit accounts 375,676 383,377 348,715
Other 71,849 55,946 62,066
----------- ----------- -----------
Total other income 447,525 439,323 410,781
----------- ----------- -----------
OTHER EXPENSE
Salaries and employee benefits 2,028,629 1,948,362 1,812,393
Occupancy expense 164,505 157,771 151,336
Equipment expense 451,940 390,502 319,269
Other 1,390,581 1,302,928 1,327,144
----------- ----------- -----------
Total other expense 4,035,655 3,799,563 3,610,142
----------- ----------- -----------
INCOME BEFORE INCOME TAXES 4,113,671 3,816,021 3,615,746
Income taxes 1,108,209 1,069,040 989,018
----------- ----------- -----------
NET INCOME $ 3,005,462 $ 2,746,981 $ 2,626,728
=========== =========== ===========
PER SHARE DATA
Earnings per common share $ 22.59 $ 20.52 $ 19.46
=========== =========== ===========
Average shares outstanding 133,043 133,893 135,000
=========== =========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
39
<PAGE> 40
KILLBUCK BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Capital Retained
Stock Surplus Earnings
----- ------- --------
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1994 $2,700,000 $3,106,500 $10,197,197
Net income 2,626,728
Dividends paid (3.25 per share) (438,750)
Net unrealized gain on securities
---------- ---------- -----------
BALANCE, DECEMBER 31, 1995 2,700,000 3,106,500 12,385,175
Net income 2,746,981
Dividends paid ($3.80 per share) (507,792)
Purchase of treasury shares
Sale of treasury shares
Net unrealized loss on securities
---------- ---------- -----------
BALANCE, DECEMBER 31, 1996 2,700,000 3,106,500 14,624,364
Net income 3,005,462
Dividends paid ($4.60 per share) (611,412)
Purchase of treasury shares
Net unrealized gain on securities
---------- ---------- -----------
BALANCE, DECEMBER 31, 1997 $2,700,000 $3,106,500 $17,018,414
========== ========== ===========
<CAPTION>
Net
Unrealized
Gain (Loss) on
Securities Total
Available Treasury Shareholders'
For Sale Stock Equity
-------- ----- ------
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1994 $ - $ - $16,003,697
Net income 2,626,728
Dividends paid (3.25 per share) (438,750)
Net unrealized gain on securities 73,894 73,894
--------- ---------- -----------
BALANCE, DECEMBER 31, 1995 73,894 - 18,265,569
Net income 2,746,981
Dividends paid ($3.80 per share) (507,792)
Purchase of treasury shares (326,628) (326,628)
Sale of treasury shares 5,570 5,570
Net unrealized loss on securities (249,960) (249,960)
--------- ---------- -----------
BALANCE, DECEMBER 31, 1996 (176,066) (321,058) 19,933,740
Net income 3,005,462
Dividends paid ($4.60 per share) (611,412)
Purchase of treasury shares (312,430) (312,430)
Net unrealized gain on securities 142,249 142,249
--------- -------- -----------
BALANCE, DECEMBER 31, 1997 $ (33,817) $(633,488) $22,157,609
========= ========= ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
40
<PAGE> 41
KILLBUCK BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
---- ---- ----
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income $ 3,005,462 $ 2,746,981 $ 2,626,728
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 180,000 180,000 180,000
Provision for depreciation and amortization 245,393 303,523 222,740
Gain on sale of loans (2,033) - -
Loss on sale of equipment - - 35,443
Origination of loans held for sale (282,300) - -
Proceeds from the sale of loans 284,333 - -
Increase in accrued interest and other assets (130,414) (454,936) (420,738)
(Increase) decrease in accrued expenses and other liabilities (57,407) 45,592 108,717
Increase (decrease) in federal income tax payable 6,466 (49,501) 21,331
Increase in deferred federal income tax 17,580 7,212 17,312
----------- ----------- -----------
Net cash provided by operating activities 3,267,080 2,778,871 2,791,533
----------- ----------- -----------
INVESTING ACTIVITIES
Investment securities available for sale:
Proceeds from maturities and repayments 14,051,028 7,766,611 -
Purchases (16,051,726) (17,237,326) -
Investment securities held to maturity:
Proceeds from maturities and repayments 2,249,094 4,054,565 10,400,500
Purchases (7,262,638) (3,869,746) (16,973,156)
Net increase in loans (5,899,602) (9,128,417) (4,036,936)
Proceeds from sale of equipment - - 6,164
Purchase of premises and equipment (119,386) (582,894) (760,665)
----------- ----------- -----------
Net cash used in investing activities (13,033,230) (18,997,207) (11,364,093)
----------- ----------- -----------
FINANCING ACTIVITIES
Net increase (decrease) in demand and savings
deposit accounts 5,741,743 2,191,323 (3,028,785)
Net increase in time deposits 667,742 4,794,740 21,329,795
Net increase in Federal Home Loan Bank advances 3,930,526 1,485,170 2,335,523
Net increase in repurchase agreements 2,710,000 - -
Purchase of treasury shares (312,430) (326,628) -
Proceeds from sale of treasury shares - 5,570 -
Dividends paid (611,412) (507,792) (438,750)
----------- ----------- -----------
Net cash provided by financing activities 12,126,169 7,642,383 20,197,783
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents 2,360,019 (8,575,953) 11,625,223
Cash and cash equivalents at beginning of year 12,240,758 20,816,711 9,191,488
----------- ----------- -----------
Cash and cash equivalents at end of year $14,600,777 $12,240,758 $20,816,711
=========== =========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
41
<PAGE> 42
KILLBUCK BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Killbuck Bancshares, Inc., a bank
holding Company, and its subsidiary, Killbuck Saving Bank Company, conform with
generally accepted accounting principles and with general practice within the
banking industry.
A summary of the significant accounting and reporting policies applied in the
presentation of the consolidated financial statements follows:
Nature of Operations
Killbuck Bancshares, Inc. is an Ohio corporation organized as the holding
company of The Killbuck Savings Bank Company. The Bank is a state-chartered bank
located in Ohio. The Company and its subsidiary derive substantially all their
income from banking and bank-related services which include interest earnings on
residential real estate, commercial mortgage, commercial and consumer loan
financing as well as interest earnings on investment securities and charges for
deposit services to its customers. The Board of Governors of the Federal Reserve
System supervises the holding company and bank, while the Bank is also subject
to regulation and supervision by the Ohio Division of Banks.
Basis of Consolidation
The consolidated financial statements include the accounts of Killbuck
Bancshares, Inc. and its wholly owned subsidiary, The Killbuck Savings Bank
Company, after elimination of all material intercompany transactions and
balances.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
The determination of the adequacy of the allowance for loan losses is based on
estimates that are particularly susceptible to significant changes in the
economic environment and market conditions. In connection with the determination
of the estimated losses on loans, management obtains independent appraisals for
significant collateral.
The Bank's loans are generally secured by specific items of collateral including
real property, consumer assets, and business assets. Although the Bank has a
diversified loan portfolio, a substantial portion of its debtors' ability to
honor their contracts is dependent on local economic conditions in the
agricultural and tourism industry.
42
<PAGE> 43
While management uses available information to recognize losses on loans,
further reductions in the carrying amounts of loans may be necessary based on
changes in local economic conditions. In addition, regulatory agencies, as an
integral part of their examination process, periodically review the estimated
losses on loans. Such agencies may require the Bank to recognize additional
losses based on their judgments about information available to them at the time
of their examination. Because of these factors, it is reasonably possible that
the estimated losses on loans may change materially in the near term. However,
the amount of the change that is reasonably possible cannot be estimated.
Investments Securities
Investment securities are classified, at the time of purchase, based upon
managements' intention and ability, as securities held to maturity or securities
available for sale. Debt securities acquired with the intent to hold to maturity
are stated at cost adjusted for amortization of premium and accretion of
discount which are computed using a method which approximates the effective
interest method. Certain other debt and equity securities have been classified
as available for sale to serve principally as a source of liquidity. Unrealized
holding gains and losses for available for sale securities are reported as a
separate component of stockholders' equity, net of tax, until realized. Realized
securities gains and losses are computed using the specific identification
method. Interest and dividends on investment securities are recognized as income
when earned.
Common stock of the Federal Home Loan Bank, Federal Reserve Bank and Independent
State Bank of Ohio represent ownership in institutions which are wholly-owned by
other financial institutions. These securities are accounted for at cost and are
classified with equity securities available for sale.
Loans Held for Sale
Mortgage loans originated and held for sale in the secondary market are carried
at the lower of cost or market value determined on an aggregate basis. Net
unrealized losses are recognized in a valuation allowance through charges to
income. Gains and losses on the sale of loans held for sale are determined using
the specific identification method. At December 31, 1997 and 1996, there were no
loans held for sale.
Loans
Loans are stated at their outstanding principal, less the allowance for loan
losses and any net deferred loan fees. Interest income on loans is recognized on
the accrual method when a loan is placed on nonaccrual, any previously accrued
interest is reversed against current income.
Loan origination and commitment fees, as well as certain direct origination
costs, are deferred and amortized as a yield adjustment over the lives of the
related loans using the interest method. Amortization of deferred loan fees is
discontinued when a loan is placed on nonaccrual status.
43
<PAGE> 44
Allowance for Loan Losses
Effective January 1, 1995, the Company adopted Statement of Financial Accounting
Standards Statement No. 114, "Accounting by Creditors for Impairment of a Loan,"
as amended by Statement No. 118. Under this Standard, the Company estimates
credit losses on impaired loans based on the present value of expected cash
flows or fair value of the underlying collateral if the loan repayment is
expected to come from the sale or operation of such collateral. Statement 118
amends Statement 114 to permit a creditor to use existing methods for
recognizing interest income on impaired loans eliminating the income recognition
provisions of Statement 114. The adoption of these statements did not have a
material effect on the Company's financial position or results of operations.
Impaired loans are commercial and commercial real estate loans for which it is
probable that the Company will not be able to collect all amounts due according
to the contractual terms of the loan agreement. The Company individually
evaluates such loans for impairment and does not aggregate loans by major risk
classifications. The definition of "impaired loans" is not the same as the
definition of "nonaccrual loans," although the two categories overlap. The
Company may choose to place a loan on nonaccrual status due to payment
delinquency or uncertain collectibility, while not classifying the loan as
impaired, provided the loan is not a commercial or commercial real estate
classification. Factors considered by management in determining impairment
include payment status and collateral value. The amount of impairment for these
types of loans is determined by the difference between the present value of the
expected cash flows related to the loan, using the original interest rate, and
its recorded value, or as a practical expedient in the case of collateralized
loans, the difference between the fair value of the collateral and the recorded
amount of the loans. When foreclosure is probable, impairment is measured based
on the fair value of the collateral.
Mortgage loans secured by one-to-four family properties and all consumer loans
are generally of smaller balances, and a homogeneous nature, thus are measured
for impairment collectively. Loans that experience insignificant payment delays,
which are defined as 90 days or less, generally are not classified as impaired.
Management determines the significance of payment delays on a case-by-case
basis, taking into consideration all of the circumstances concerning the loan,
the credit worthiness and payment history of the borrower, the length of the
payment delay, and the amount of shortfall in relation to the principal and
interest owed.
The allowance for loan losses represents the amount which management estimates
is adequate to provide for potential losses in its loan portfolio. The allowance
method is used in providing for loan losses. Accordingly, all loan losses are
charged to the allowance, and all recoveries are credited to it. The allowance
for loan losses is established through a provision for loan losses which is
charged to operations. The provision is based upon management's periodic
evaluation of individual loans, the overall risk characteristics of the various
portfolio segments, past experience with losses, the impact of economic
conditions on borrowers, and other relevant factors. The estimates used in
determining the adequacy of the allowance for loan losses including the amounts
and timing of future cash flows expected on impaired loans, are particularly
susceptible to significant change in the near term.
44
<PAGE> 45
Premises and Equipment
Land is carried at cost. Other premises and equipment are carried at cost net of
accumulated depreciation. Depreciation is computed using the straight-line
method based principally on the estimated useful lives of the assets.
Maintenance and repairs are expensed as incurred while major additions and
improvements are capitalized. Gains and losses on dispositions are included in
current operations.
Income Taxes
The Company and its subsidiary file a consolidated federal income tax return.
Deferred tax assets and liabilities are reflected at currently enacted income
tax rates applicable to the period in which the deferred tax assets or
liabilities are expected to be realized or settled. As changes in tax laws or
rates are enacted, deferred tax assets and liabilities are adjusted through the
provision for income taxes. Deferred income tax expenses or benefits are based
on the changes in the deferred tax asset or liability from period to period.
Earnings Per Share
Earnings per share are calculated based upon the weighted number of shares of
stock outstanding during the year.
In February, 1997 the Financial Accounting Standard Board issued Statement No.
128 "Earnings Per Share" ("EPS"). The statement established new standards for
computing and presenting earnings per share and requires dual presentation of
"basic" and "diluted" earnings per share on the face of the income statement.
The provision of the statement are effective for the period ending December 31,
1997. The Company maintains a simple capital structure, therefore there are no
dilutive effects on earnings per share.
Cash Flow Information
For purposes of reporting cash flows, cash and cash equivalents include cash and
non-interest bearing deposits with financial institutions and federal funds
sold. Generally, federal funds are sold for one-day periods. The Company reports
net cash flows for customer loan transactions, deposit transactions, and
interest-bearing deposits with other financial institutions. Cash payments for
interest in 1997, 1996 and 1995 were $7,359,808, $6,633,764, and $5,708,289,
respectively. Cash payments for income taxes for 1997, 1996, and 1995 were
$1,081,332, $1,111,330, and $943,892 respectively.
45
<PAGE> 46
Pending Accounting Pronouncements
In June 1996, the FASB issued Statement No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." The Statement
provides consistent standards for distinguishing transfers of financial assets
that are sales from transfers that are secured borrowings based on a
control-oriented "financial-components" approach. Under this approach, after a
transfer of financial assets, an entity recognizes the financial and servicing
assets it controls and liabilities it has incurred, derecognizes financial
assets when control has been surrendered and derecognizes liabilities when
extinguished. The provisions of Statement No. 125 are effective for transactions
occurring after December 31, 1996, except those provisions relating to
repurchase agreements, securities lending, and other similar transactions and
pledged collateral, which have been delayed until after December 31, 1997 by
Statement No. 127, "Deferral of the Effective Date of Certain Provisions of
Statement No. 125, an amendment of Statement No. 125." The adoption of the
provisions of Statement No. 127 is not expected to have a material impact on
financial position or results of operations.
In July 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income." The Statement establishes standards for reporting and presentation of
comprehensive income and its components (revenue, expenses, gains and losses) in
a full set of general purpose financial statements. It requires that all items
that are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is presented with
the same prominence as other financial statements. The provisions of the
statement are effective for all fiscal years beginning after December 15, 1997.
The adoption of this statement is not expected to have a material impact on
financial position or results of operations.
Reclassification of Comparative Amounts
Certain amounts in prior years' consolidated financial statements have been
reclassified to conform to the current year presentation. These
reclassifications had no effect on net income.
2. FEDERAL FUNDS SOLD
Federal funds sold at December 31 consists of the following:
<TABLE>
<CAPTION>
1997 1996
----------------------------- ------------------------------
Institution Maturity Balance Maturity Balance
----------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C>
National Bank of Detroit 1-02-98 $7,000,000 1-02-97 $5,000,000
National City Bank 1-02-98 1,300,000 1-02-97 1,100,000
---------- ----------
$8,300,000 $6,100,000
========== ==========
</TABLE>
46
<PAGE> 47
3. INVESTMENT SECURITIES
The amortized cost of securities and their estimated market values are as
follows:
SECURITIES AVAILABLE FOR SALE
<TABLE>
<CAPTION>
1997
-----------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------ ---------- ---------- ------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 9,781,819 $20,337 $ - $ 9,802,156
Obligations of U.S. Government
Agencies and Corporations 24,304,525 27,237 98,812 24,232,950
----------- ------- ------- -----------
Total debt securities 34,086,344 47,574 98,812 34,035,106
Equity securities 1,043,410 - - 1,043,410
----------- ------- ------- -----------
Total $35,129,754 $47,574 $98,812 $35,078,516
=========== ======= ======= ===========
<CAPTION>
1996
----------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 994,508 $ 2,992 $ - $ 997,500
Obligations of U.S. Government
Agencies and Corporations 31,225,987 18,595 288,354 30,956,228
----------- ------- -------- -----------
Total debt securities 32,220,495 21,587 288,354 31,953,728
Equity securities 889,210 - - 889,210
----------- ------- -------- -----------
Total $33,109,705 $21,587 $288,354 $32,842,938
=========== ======= ======== ===========
SECURITIES HELD TO MATURITY
<CAPTION>
1997
----------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Obligations of States and Political
Subdivisions $23,298,480 $575,642 $7,214 $23,866,908
Corporate Securities 100,000 - 375 99,625
----------- -------- ------ -----------
Total $23,398,480 $575,642 $7,589 $23,966,533
=========== ======== ====== ===========
</TABLE>
47
<PAGE> 48
<TABLE>
<CAPTION>
1996
----------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------- ------------- ------------ -----------
<S> <C> <C> <C> <C>
Obligations of States and Political
Subdivisions $18,264,587 $257,491 $114,124 $18,407,954
Corporate Securities 100,000 - 1,920 98,080
----------- -------- -------- -----------
Total $18,364,587 $257,491 $116,044 $18,506,034
=========== ======== ======== ===========
</TABLE>
The contractual maturities of securities available for sale and securities to be
held to maturity at December 31, 1997 are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to call
or repay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Securities Available Securities to be
For Sale Held to Maturity
-------------------------- ----------------------------
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
--------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Due in one year or less $ 6,795,581 $ 6,793,437 $ 2,202,732 $ 2,222,549
Due after one year through five years 23,542,827 23,488,357 9,763,493 10,024,020
Due after five through ten years 3,747,936 3,753,312 11,140,535 11,426,701
Due after ten years - - 291,720 293,263
----------- ----------- ----------- -----------
$34,086,344 $34,035,106 $23,398,480 $23,966,533
=========== =========== =========== ===========
</TABLE>
Proceeds of securities as a result of calls prior to maturity during 1997, 1996
and 1995 were $8,322,527, $4,574,442 and $4,400,000, respectively, resulting in
gross gains of $-0- in 1997, $-0- in 1996 and $-0- in 1995.
Investment securities with an approximate carrying value of $30,960,000 and
$19,435,000 at December 31, 1997 and 1996, respectively were pledged to secure
public deposits and for other purposes as required or permitted by law. During
1997, 1996 and 1995, the Company did not sell any securities.
48
<PAGE> 49
4. LOANS
Major classification of loans are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
Real estate - residential $ 41,473,027 $ 39,820,133
Real estate - farm 3,846,541 4,589,030
Real estate - commercial 21,204,753 18,087,851
Real estate - construction 782,569 1,947,042
Commercial and other loans 33,745,364 34,035,720
Consumer and credit loans 20,981,516 17,779,182
------------ ------------
122,033,770 116,258,958
Allowance for loan losses (1,744,586) (1,653,322)
Net deferred loan fees (363,127) (399,181)
------------ ------------
Loans, net $119,926,057 $114,206,455
============ ============
</TABLE>
The Company's primary business activity is with customers located within its
local trade area. Residential, commercial, personal, and agricultural loans are
granted. The Company also selectively funds loans originated outside of its
trade area provided such loans meet its credit policy guidelines. Although the
Company has a diversified loan portfolio, at December 31, 1997 and 1996, loans
outstanding to individuals and businesses are dependent upon the local economic
conditions in its immediate trade area.
At December 31, 1997, the Company had loans totaling $75,411 which were past due
90 days or more and still accruing interest. Presented below are total
nonaccuring loans at December 31, 1997, 1996 and 1995. Also shown is the
additional income that would have been earned if those loans had been current
throughout the years ended.
1997 1996 1995
---------- --------- --------
Nonaccrual loans $120,805 $30,510 $62,315
Interest earned (if current) $ 6,120 $ 924 $ 2,186
5. ALLOWANCE FOR LOAN LOSSES
An analysis of the change in the allowance for loan losses follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Balance, January 1 $1,653,322 $1,545,682 $1,378,387
Provision for loan losses 180,000 180,000 180,000
Recoveries 101,397 38,858 106,500
Credits charged off (190,133) (111,218) (119,205)
---------- ---------- ----------
Balance, December 31 $1,744,586 $1,653,322 $1,545,682
========== ========== ==========
</TABLE>
49
<PAGE> 50
6. PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Land $ 588,526 $ 575,779
Building and improvements 2,089,582 2,059,197
Furniture, fixtures and equipment 1,905,762 1,829,508
---------- ----------
4,583,870 4,464,484
Less accumulated depreciation 1,775,792 1,490,698
---------- ----------
Total $2,808,078 $2,973,786
========== ==========
</TABLE>
Depreciation expense charged to operations was $285,094 for 1997, $271,259 for
1996, and $192,621 for 1995.
7. DEPOSITS
Time deposits include certificates of deposit in denominations of $100,000 or
more. Such deposits aggregated $21,775,164 and $22,430,895 at December 31, 1997
and 1996, respectively.
Interest expense on certificates of deposit $100,000 and over amounted to
$1,306,783 in 1997, $1,258,753 in 1996, and $1,099,591 in 1995.
The following table sets forth the remaining maturity of time certificates of
deposits of $100,000 or more at December 31, 1997.
December 31,
1997
------------
3 months or less $6,012,514
Over 3 through 6 months 7,928,423
Over 6 through 12 months 6,996,967
Over 12 months 837,260
------------
Total $21,775,164
============
50
<PAGE> 51
8. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
The Company has retail repurchase agreements with customers in their respective
local market areas. These borrowings are collateralized with securities owned by
the bank and held in their safekeeping account at an independent correspondent
bank. The following table summarizes certain information relative to these
borrowings at December 31:
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
Outstanding at period end $2,710,000 $ -
Weighted average interest rate at period end 3.27% -
Maximum amount outstanding as of any month-end $2,710,000 -
Average amount outstanding $1,494,000 -
Approximate weighted average interest rate during the year 3.10% -
</TABLE>
9. FEDERAL HOME LOAN BANK ADVANCES
The Company's advances consist of the following:
<TABLE>
<CAPTION>
Balance
Interest -------
Rate 1997 1996
--------- ------------- -----------
<S> <C> <C> <C>
Fixed Rate Federal Home Loan Bank Advances with
Monthly principal and interest payments:
Advance due August 1, 2009 7.60% $ 361,179 $ 422,596
Advance due January 1, 2010 8.15% 298,147 355,817
Advance due June 1, 2010 8.90% 305,874 363,295
Advance due April 1, 2012 7.05% 488,810 -
Advance due May 1, 2012 6.90% 686,440 -
Advance due July 1, 2012 6.50% 690,700 -
Advance due October 1, 2012 6.40% 697,674 -
Advance due December 1, 2012 6.35% 1,000,000 -
Advance due October 1, 2015 8.20% 348,340 442,344
Advance due November 1, 2015 7.75% 397,777 488,166
Advance due November 1, 2015 6.55% 426,823 462,066
Advance due February 1, 2016 6.00% 721,848 782,291
Advance due October 1, 2016 7.20% 444,608 499,063
Advance due October 1, 2016 6.75% 438,026 499,010
Advance due February 1, 2017 6.55% 490,677 -
Advance due February 1, 2017 7.20% 448,251 -
Fixed Rate Federal Home Loan Bank Advances with
Monthly interest payments:
Advance due December 1, 1998 5.67% 500,000 500,000
---------- ----------
Total Federal Home Loan Bank Advances $8,745,174 $4,814,648
========== ==========
</TABLE>
The Bank has pledged, as collateral for advances from the FHLB of Cincinnati all
stock in the Federal Home Loan Bank and certain other qualifying collateral.
51
<PAGE> 52
The aggregate minimum future annual principal payments on the advances are
$801,503 in 1998, $323,104 in 1999, $346,273 in 2000, $371,120 in 2001, $397,775
in 2002 and $6,505,399 after 2002.
The Company has an available line of credit with the Federal Home Loan Bank of
Cincinnati (FHLB) with a borrowing limit of approximately $15,900,000. This
credit line is subject to annual renewal, incurs no service charges, and is
secured by a blanket security agreement on the Company's outstanding residential
mortgage loans and FHLB stock.
10. EMPLOYEE BENEFIT PLANS
In 1997 the Bank adopted an integrated money purchase pension plan and a
401(k) plan.
Under the integrated money purchase pension plan contribution formula, the Bank,
for each plan year, will contribute an amount equal to 8% of an employee's
compensation for the plan year and 5.7% of the amount of an employee's excess
compensation for the plan year. Excess compensation is a participant's
compensation in excess of the designated integration level. This designated
integration level is 100% of the taxable wage base in effect at the beginning of
the plan year. The federal government annually adjusts the taxable wage base.
This plan does not permit nor require employees to make contributions to the
plan.
The 401(k) plan allows employees to make salary reduction contributions to the
plan up to 10% of their compensation for the plan year. For each plan year, the
Bank may contribute to the plan an amount of matching contributions for a
particular plan year. The Bank may choose not to make matching contributions for
a particular plan year. For 1997 the Bank matched 25% of the employees voluntary
contributions up to 1% of the employee's compensation.
Both plans cover substantially all employees with one year of service and
attained age 21.
The Bank terminated its defined benefit pension plan in 1997. This plan was
funded by individually allocated retirement income and retirement annuity
contracts. Assets of the plan equal cash values of the contracts. The allocated
insurance contracts cash values fully guarantee the amount of benefit payments.
This plan's assets were transferred to the respective individual's account in
the integrated money purchase pension plan.
The pension costs charged to operating expense for the years 1997, 1996 and 1995
amounted to $136,666, $133,074 and $128,105, respectively.
11. OTHER OPERATING EXPENSE
Other operating expense included the following:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Stationery, supplies and printing $ 137,760 $ 158,071 $ 119,582
Insurance and bonding 55,236 39,675 193,702
Franchise tax 298,457 273,464 239,445
Other 899,128 831,718 774,415
---------- ---------- ----------
Total $1,390,581 $1,302,928 $1,327,144
========== ========== ==========
</TABLE>
52
<PAGE> 53
12. INCOME TAXES
Federal income taxes applicable to income were comprised as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ----------- --------
<S> <C> <C> <C>
Current payable $1,090,629 $1,061,828 $971,706
Deferred 17,580 7,212 17,312
---------- ---------- --------
Total $1,108,209 $1,069,040 $989,018
========== ========== ========
</TABLE>
The following is a reconcilement of federal income tax expense to the amount
computed at the expected statutory rate.
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Computed tax at expected statutory rate $1,398,648 $1,297,447 $1,229,354
Tax-exempt income (340,323) (303,943) (277,599)
Non-deductible interest expense 53,716 48,960 41,584
Other (3,832) 26,576 (4,321)
---------- ---------- ----------
$1,108,209 $1,069,040 $ 989,018
========== ========== ==========
</TABLE>
Deferred tax assets and liabilities included in other assets at December 31
consist of the following:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Deferred Tax Assets:
Allowance for loan losses $456,499 $425,469
Deferred loan fees 36,297 64,448
Net unrealized loss on securities 17,421 90,701
-------- --------
Deferred tax asset 510,217 580,618
-------- --------
Deferred Tax Liabilities:
Premise and equipment depreciation 243,173 223,996
Other, net 6,969 5,687
-------- --------
Deferred tax liabilities 250,142 229,683
-------- --------
Net deferred tax assets $260,075 $350,935
======== ========
</TABLE>
53
<PAGE> 54
13. FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS
The carrying amounts and estimated fair values at December 31 are as
follows:
<TABLE>
<CAPTION>
1997 1996
------------------------------ ---------------------------------
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
--------- ------------ ------------ -----------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks $ 6,300,777 $ 6,300,777 $ 6,140,758 $ 6,140,758
Federal funds sold 8,300,000 8,300,000 6,100,000 6,100,000
Securities available for sale 35,078,516 35,078,516 32,842,938 32,842,938
Securities held to maturity 23,398,480 23,966,533 18,364,587 18,506,034
Net loans 119,926,057 123,285,000 114,206,455 116,710,000
Accrued interest receivable 1,633,451 1,633,451 1,506,926 1,506,926
------------ ------------ ------------ ------------
Total $194,637,281 $198,564,277 $179,161,664 $181,806,656
============ ============ ============ ============
Financial liabilities:
Deposits $163,808,634 $164,205,000 $157,399,149 $157,717,000
Federal Home Loan Bank advances 8,745,174 9,007,000 4,814,648 4,892,000
Repurchase agreements 2,710,000 2,710,000 - -
Accrued interest payable 283,995 283,995 299,723 299,723
------------ ------------ ------------ ------------
Total $175,547,803 $176,205,995 $162,513,520 $162,908,723
============ ============ ============ ============
</TABLE>
54
<PAGE> 55
Financial instruments are defined as cash, evidence of ownership interest in an
entity, or a contract which creates an obligation or right to receive or deliver
cash or another financial instrument from/to a second entity on potentially
favorable or unfavorable terms.
Fair value is defined as the amount at which a financial instrument could be
exchanged in a current transaction between willing parties other than in a
forced or liquidation sale. If a quoted market price is available for a
financial instrument, the estimated fair value would be calculated based upon
the market price per trading unit of the instrument.
If no readily available market exists, the fair value estimates for financial
instruments should be based upon management's judgment regarding current
economic conditions, interest rate risk, expected cash flows, future estimated
losses, and other factors as determined through various option pricing formulas
or simulation modeling. As many of these assumptions result from judgments made
by management based upon estimates which are inherently uncertain, the resulting
estimated fair values may not be indicative of the amount realizable in the sale
of a particular financial instrument. In addition, changes in assumptions on
which the estimated fair values are based may have a significant impact on the
resulting estimated fair values.
As certain assets such as deferred tax assets and premises and equipment are not
considered financial instruments, the estimated fair value of financial
instruments would not represent the full value of the Company.
The Company employed simulation modeling in determining the estimated fair value
of financial instruments for which quoted market prices were not available based
upon the following assumptions:
Cash and Due from Banks, Federal Funds Sold, Accrued Interest Receivable,
Repurchase Agreements, and Accrued Interest Payable
The fair value is equal to the current carrying value.
Investment Securities
The fair value of securities held to maturity and available for sale is equal to
the available quoted market price. If no quoted market price is available, fair
value is estimated using the quoted market price for similar securities.
Loans, Deposits, and Advances from Federal Home Loan Bank
The fair value of loans is estimated by discounting the future cash flows using
a simulation model which estimates future cash flows and constructs discount
rates that consider reinvestment opportunities, operating expenses, non-interest
income, credit quality, and prepayment risk. Demand, savings, and money market
deposit accounts are valued at the amount payable on
55
<PAGE> 56
demand as of year end. Fair values for time deposits and Federal Home Loan Bank
borrowings are estimated using a discounted cash flow calculation that applies
contractual costs currently being offered in the existing portfolio to current
market rates being offered for deposits and borrowings of similar remaining
maturities.
Commitments to Extend Credit
The financial instruments are generally not subject to sale and estimated fair
values are not readily available. The contractual amounts of unfunded
commitments and letters of credit are presented subsequently in this report.
14. COMMITMENTS AND CONTINGENT LIABILITIES
Commitments
In the normal course of business, the Company has outstanding commitments and
contingent liabilities, such as commitments to extend credit and standby letters
of credit, which are not included in the accompanying consolidated financial
statements. The Company's exposure to credit loss in the event of nonperformance
by the other party to the financial instruments for commitments to extend credit
and standby letters of credit is represented by the contractual or notional
amount of those instruments. The Company uses the same credit policies in making
such commitments as it does for instruments that are included in the
consolidated balance sheet.
56
<PAGE> 57
Financial instruments whose contract amount represents credit risk were as
follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Commitments for real estate construction $ 1,091,831 $ 553,958
Home equity lines of credit $ 2,966,769 $ 2,998,676
Credit card arrangements $ 1,248,306 $ 1,238,346
Commercial letters of credit $ 9,447,565 $ 8,461,789
Standby letters of credit $ 647,731 $ 821,847
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Company evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Company upon extension of credit, is based on
management's credit evaluation. Collateral held varies but may include accounts
receivable, inventory, property and equipment, and income-producing commercial
properties.
Standby letters of credit are conditional commitments issued by the Company to
guarantee the performance of a customer to a third party. Standby letters of
credit generaly have fixed expiration dates or other termination clauses and may
require payment of a fee. The credit risk involved in issuing letters of credit
is essentially the same as that involved in extending loan facilities to
customers. The Company's policy for obtaining collateral, and the nature of such
collateral, is essentially the same as that involved in making commitments to
extend credit.
The Company has not been required to perform any financial guarantees during the
past two years. The Company has not incurred any losses on its commitments in
either 1997 and 1996.
Contingent Liabilities
The Company and its subsidiary are subject to claims and lawsuits which arise
primarily in the ordinary course of business. It is the opinion of management
that the disposition or ultimate resolution of such claims and lawsuits will not
have a material adverse effect on the consolidated financial position of the
Bancorp.
57
<PAGE> 58
15. REGULATORY MATTERS
The approval of regulatory authorities is required if the total of all dividends
declared by the Bank in any calendar year exceeds net profits as defined for
that year combined with its retained net profits for the two preceding calendar
years less any required transfers to surplus. Under this formula, the amount
available for payment of dividends by the Bank to the Company in 1998, without
the approval of the regulatory authorities, is $4,005,709 plus 1998 profits
retained up to the date of the dividend declaration.
Included in cash and due from banks are required federal reserves of $1,081,000
and $1,045,000 at December 31, 1997 and 1996, respectively, for facilitating the
implementation of monetary policy by the Federal Reserve System. The required
reserves are computed by applying prescribed ratios to the classes of average
deposit balances. These are held in the form of cash on hand and/or balances
maintained directly with the Federal Reserve Bank.
16. REGULATORY CAPITAL REQUIREMENTS
The Company (on a consolidated basis) and the Bank are subject to various
regulatory capital requirements administered by the federal banking agencies.
Failure to meet minimum capital requirements can initiate certain mandatory and
possibly additional discretionary actions by the regulators that, if undertaken,
could have a direct material effect on the Company's and Bank's financial
statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, both entities must meet specific capital guidelines
that involve quantitative measures of their assets, liabilities, and certain
off-balance sheet items as calculated under regulatory accounting practices. The
capital amounts and classification are also subject to qualitative judgments by
the regulators about components, risk weightings, and other factors.
Quantitative measures established by the regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios of total and Tier 1
capital (as defined in the regulations) to risk-weighted assets (as defined),
and of Tier 1 capital to average assets (as defined). Management believes, as of
December 31, 1997 and 1996, that the Company and Bank meets all capital adequacy
requirements to which they are subject.
58
<PAGE> 59
As of December 31, 1997, the most recent notification from the appropriate
regulatory authority has categorized the Company and Bank as well capitalized
under the regulatory framework for prompt corrective action. To be categorized
as well capitalized, an entity must maintain minimum Total Risk-Based, Tier 1
Risk-Based and Tier 1 Leverage ratios at least 100 to 200 basis points above
those ratios set forth in the table below. There have been no conditions or
events since that notification that management believes have changed this
category. The capital position of the Company does not materially differ from
the Banks, therefore, the following table sets forth the Bank's capital position
and minimum requirements as of December 31:
<TABLE>
<CAPTION>
1997 1996
------------------ ------------------
Amount Ratio Amount Ratio
------ ----- ------ -----
<S> <C> <C> <C> <C>
Total Capital (to Risk Weighted Assets)
Actual $22,129 18.08% $19,897 17.03%
For Capital Adequacy Purposes 9,792 8.00% 9,345 8.00%
To be well capitalized 12,240 10.00% 11,681 10.00%
Tier 1 Capital (to Risk Weighted Assets)
Actual $22,163 18.11% $20,073 17.18%
For Capital Adequacy Purposes 4,896 4.00% 4,673 4.00%
To be well capitalized 7,344 6.00% 7,009 6.00%
Tier 1 Capital (to Average Assets)
Actual $22,163 11.11% $20,073 11.11%
For Capital Adequacy Purposes 7,977 4.00% 7,229 4.00%
To be well capitalized 9,971 5.00% 9,036 5.00%
</TABLE>
17. PLAN OF MERGER
On December 22, 1997 Killbuck Bancshares, Inc. ("Killbuck") and Commercial and
Savings Bank Co. of Danville, Ohio ("Commercial") executed a letter of intent
which provides for Killbuck to acquire Commercial subject to the negotiation of
a definitive agreement comprising the specific terms and conditions for the
transaction. A definitive agreement has not been executed as of the date of this
report.
59
<PAGE> 60
18. PARENT COMPANY
The following are parent only condensed financial statements:
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1997 1996
----------- ------------
<S> <C> <C>
ASSETS
Cash $ 28,704 $ 28,518
Investment in bank subsidiary 22,128,904 19,897,112
Other assets - 8,109
----------- -----------
Total assets $22,157,608 $19,933,739
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Shareholders' equity $22,157,608 $19,933,739
----------- -----------
Total liabilities and shareholders' equity $22,157,608 $19,933,739
=========== ===========
</TABLE>
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
------ ----- -----
<S> <C> <C> <C>
INCOME
Dividends from bank subsidiary $ 921,412 $ 836,791 $ 438,750
Operating expenses 8,323 9,054 9,050
---------- ---------- ----------
Income before income taxes 913,089 827,737 429,700
Income tax benefit (2,830) (3,078) (3,077)
---------- ---------- ----------
Income before equity in undistributed net income
of subsidiary 915,919 830,815 432,777
Equity in undistributed net income of subsidiary 2,089,543 1,916,166 2,193,951
---------- ---------- ----------
NET INCOME $3,005,462 $2,746,981 $2,626,728
========== ========== ==========
</TABLE>
60
<PAGE> 61
18. PARENT COMPANY (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 3,005,462 $ 2,746,981 $ 2,626,728
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed net income of subsidiary (2,089,543) (1,916,166) (2,193,951)
Amortization 8,109 8,848 8,846
Other - - 6,483
----------- ----------- -----------
Net cash provided by operating activities 924,028 839,663 448,106
----------- ----------- -----------
FINANCING ACTIVITIES
Purchase of treasury shares (312,430) (326,628) -
Proceeds from sale of treasury shares - 5,570 -
Dividends paid (611,412) (507,792) (438,750)
----------- ----------- -----------
Net cash used in financing activities (923,842) (828,850) (438,750)
----------- ----------- -----------
NET INCREASE IN CASH 186 10,813 9,356
CASH AT BEGINNING OF YEAR 28,518 17,705 8,349
----------- ----------- -----------
CASH AT END OF YEAR $ 28,704 $ 28,518 $ 17,705
=========== =========== ===========
</TABLE>
61
<PAGE> 1
EXHIBIT 3.(i)
EXHIBIT 3.(i) - AMENDED ARTICLES OF INCORPORATION AND CODE OF REGULATIONS
AMENDED ARTICLES OF INCORPORATION
FIRST: The name of this corporation shall be Killbuck Bancshares, Inc.
SECOND: The place in the State of Ohio where its principal office is to be
located is 165 North Main Street, Killbuck, Holmes County.
THIRD: The purpose for which the Corporation is formed is to engage in any
lawful act or activity for which corporations may be formed under Chapter 1701
of the Revised Code of Ohio.
FOURTH: The maximum number of shares which the Corporation is authorized to
have outstanding is Two Hundred Thousand (200,000), all of which shall be
designated as Common Stock, without par value.
FIFTH: No holders of shares of the corporation shall have any pre-emptive
right to subscribe for or to purchase any shares of the corporation of any
class, whether now or hereafter authorized. Cumulative voting of shares is not
permitted.
SIXTH: The number of Directors of the Corporation shall be fixed from time
to time by its Code of Regulations and may be increased or decreased as therein
provided, but the number thereof shall in no event be less than five. The Board
of Directors shall be divided into three classes, as nearly equal in number as
the then total number of Directors constituting the whole Board permits, it not
being required that each class have the same number of members if such is
mathematically impossible, with the term of office of one class expiring each
year. At the organizational meeting of shareholders, Directors of the first
class shall be elected to hold office for a term expiring at the next succeeding
Annual Meeting; Directors of the second class shall be elected to hold office
for a term expiring at the second succeeding Annual Meeting, and Directors of
the third class shall be elected to hold office for a term expiring at the third
succeeding Annual Meeting. Thereafter, at each Annual Meeting of shareholders,
the successors to the class of Directors whose term shall then expire shall be
elected to hold office for a term expiring at the third succeeding Annual
Meeting after such election. In the event of any increase in the number of
Directors of the Corporation, the additional Directors shall be so classified
that all classes of Directors shall be increased equally as nearly as may be
possible. In the event of any decrease in the number of Directors of the
Corporation, all classes of Directors shall be decreased equally as nearly as
possible.
62
<PAGE> 2
SEVENTH: (A) Except as otherwise provided in Clause (B) of this article
SEVENTH:
(i) any merger or consolidation of the Corporation with or into any other
corporation;
(ii) any sale, lease, exchange, or other disposition of all or any substantial
part of the assets of the Corporation to or with any other corporation, person,
or other entity;
(iii) the issuance or transfer of any securities of the Corporation to any other
corporation, person, or other entity in exchange for assets or securities or a
combination thereof (except assets or securities or a combination thereof so
acquired in a single transaction or a series of related transactions having an
aggregate fair market value of less than $250,000); or
(iv) the issuance or transfer of any securities of the Corporation to any other
corporation, person, or other entity for cash;
shall require the affirmative vote of the holders of at least a majority of the
outstanding shares of capital stock of the Corporation which are not
beneficially owned by such other corporation, person, or other entity if, as of
the record date for the determination of shareholders entitled to notice thereof
and to vote thereon, such other corporation, person, or entity is the beneficial
owner, directly or indirectly, of 10% or more of the outstanding shares of
capital stock of the Corporation entitled to vote generally in the election of
Directors, considered for the purposes of this article SEVENTH as one class.
Such affirmative vote shall be required notwithstanding the fact that no vote
may be required, or that some lesser percentage may be specified, by law or in
any agreement with any national securities exchange.
(B) The provisions of this Article SEVENTH shall not apply to any
transaction described in clauses (i), (ii), (iii), or (iv) of Clause (A) of this
Article SEVENTH, (i) with any corporation if a majority, by vote, of the
outstanding shares of all classes of capital stock of such other corporation
entitled to vote generally in the election of Directors, considered for this
purpose as one class, is owned of record or beneficially by the Corporation
and/or its subsidiaries; (ii) with another corporation, person, or other entity
if the Board of Directors of the Corporation shall by resolution have approved a
memorandum of understanding with such other corporation, person, or other entity
with respect to and substantially consistent with such transaction prior to the
time such other corporation, person, or other entity became the beneficial
owner, directly or indirectly, of 10% or more of the outstanding shares of
capital stock of the Corporation entitled to vote generally in the election of
Directors; or (iii) approved by resolution adopted by the affirmative vote of a
least three-fourths of the members of the whole Board of Directors of the
Corporation at any time prior to the consummation thereof.
(C) For the purpose of this Article SEVENTH, a corporation, person, or
other entity shall be deemed to be the beneficial owner of any shares of capital
stock of the Corporation (i) which it has the right to acquire pursuant to any
agreement, or upon exercise of conversion rights, warrants, or options, or
otherwise; or (ii) which are beneficially owned, directly or indirectly
(including shares deemed owned through application of clause (i) above), by any
other corporation, person, or other entity with which it or its "affiliate" or
"associate" (as defined below) has any agreement, arrangement, or understanding
for the purpose of acquiring, holding,
63
<PAGE> 3
voting, or disposing of capital stock of the Corporation, or which is its
"affiliate" or "associate" as those terms were defined in Rule 12B-2 of the
general rules and regulations under the Securities Exchange Act of 1934 as in
effect on September 30, 1991. For the purpose of this Article SEVENTH, the
outstanding shares of any class of capital stock of the Corporation shall
include shares deemed owned through the application of clauses (i) and (ii) of
this Clause (C) but shall not include any other shares which may be issuable
pursuant to any agreement, or upon exercise of conversion rights, warrants, or
options, or otherwise.
(D) The Board of Directors of the Corporation shall have the power and
duty to determine for the purposes of this Article SEVENTH, on the basis of
information then known to it, whether (i) any other corporation, person, or
other entity beneficially owns, directly or indirectly, 10% or more of the
outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of Directors, or is an "affiliate" or an "associate"
(as defined above) of another, (ii) any proposed sale, lease, exchange, or other
disposition of part of the assets of the Corporation involves a substantial part
of the assets of the Corporation, (iii) assets or securities, or a combination
thereof, to be acquired in exchange for securities of the Corporation, have an
aggregate fair market value of less than $250,000 and whether the same are
proposed to be acquired in a single transaction or a series of related
transactions, and (iv) the memorandum of understanding referred to above is
substantially consistent with the transaction to which it relates. Any such
determination by the Board shall be conclusive and binding for all purposes of
this Article SEVENTH.
EIGHTH: The Board of Directors of the Corporation, when evaluating any
offer of another party to (i) purchase or exchange any securities or property
for any outstanding equity securities of the Corporation, (ii) merge or
consolidate the Corporation with another corporation, or (iii) purchase or
otherwise acquire all or substantially all of the properties and assets of the
Corporation, shall, in connection with the exercise of its judgment in
determining what is in the best interests of the Corporation and its
shareholders, give due consideration not only to the price or other
consideration being offered, but also to all other relevant factors, including
without limitation the financial and managerial resources and future prospects
of the other party; the possible effects on the business of the Corporation and
its subsidiaries and on the depositors, employees, and other constituents of the
Corporation and its subsidiaries; and the possible effects on the communities
and the public interest which the Corporation and its subsidiaries serve. In
evaluating any such offer, the Board of Directors shall be deemed to be
performing their duly authorized duties and acting in good faith and in the best
interests of the Corporation within the meaning of Section 1701.13 of the Ohio
Revised Code, as it may be amended from time to time, and the Corporation's Code
of Regulations.
NINTH: When authorized by the affirmative vote of a majority of the
Board of Directors, without the action or approval of the shareholders of this
Corporation, this Corporation may redeem, purchase, or contract to purchase, at
any time and from time to time, shares of any class issued by this Corporation
for such prices and upon and subject to such terms and conditions as the Board
of Directors may determine.
TENTH: These Amended Articles of Incorporation take the place
of and supersede the existing Articles of Incorporation as heretofore
amended.
64
<PAGE> 4
IN WITNESS WHEREOF, the above named officers, acting for and on behalf
of the corporation, have hereunto subscribed their names this 31st day of July,
1992.
By: /s/ Luther E. Proper
-----------------------------
Luther E. Proper, President
By: /s/ Jon D. Boley
-----------------------------
Jon D. Boley, Secretary
NOTE: Ohio law does not permit one officer to sign in two capacities. Two
separate signatures are required, even if this necessitates the election of a
second officer before the filing can be made.
65
<PAGE> 5
CODE OF REGULATIONS
OF
KILLBUCK BANCSHARES, INC.
ARTICLE I
SEAL
The Board of Directors may from time to time adopt such seal or seals, if any,
as they deem appropriate for the use of the Corporation in transacting its
business.
ARTICLE II
SHAREHOLDERS
(a) ANNUAL MEETING. The annual meeting of the shareholders shall be held on such
day, at such hour, and in such place as may be fixed from time to time by the
Directors. At such meeting there shall be elected a Board of Directors to serve
until the end of the term to which they are elected and until their successors
are elected and qualified. Any other business may be transacted at the annual
meeting without specific notice of such business being given, except such
business as may require specific notice by law.
(b) SPECIAL MEETINGS. Special meetings of the shareholders may be held on any
date. Calls for special meetings shall specify the time, place, and object or
objects thereof, and no business other than that specified in the call therefor
shall be considered at any such meetings.
(c) CALLING OF MEETINGS. Meetings of the shareholders may be called only by the
Chairman of the Board, the President or, in the case of the President's absence,
death or disability, the Vice President authorized to exercise the authority of
the President, the Secretary, the Directors by action at a meeting, or a
majority of the Directors acting without a meeting, or the holders of fifty
percent (50%) of all shares outstanding and entitled to vote thereat.
(d) NOTICE OF MEETINGS. Notice of each annual or special meeting of the
shareholders shall be given in writing either by the President, any Vice
President, the secretary, or any Assistant Secretary, not less than ten (10)
days before the meeting. Such notice may be given by personal delivery or by
mail. If mailed, such notice shall be addressed to the shareholder at his
address as it appears on the records of the Corporation. Any shareholder may, at
any time, waive any notice required to be given under these Regulations. The
attendance of any shareholder, in person or by proxy, at any such meeting
without protesting the lack of proper notice prior to or at the commencement of
the meeting shall be deemed to be a waiver by such shareholder of notice of such
meeting.
(e) PLACE OF MEETINGS. All meetings of shareholders shall be held at the
principal office of the Corporation, unless otherwise provided by action of the
Directors. Meetings of shareholders may be held at any place within or without
the State of Ohio.
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<PAGE> 6
(f) QUORUM. The shareholders present in person or by proxy at any meeting shall
constitute a quorum unless a larger proportion is required to take the action
stated in the notice of the meeting, in which case, to constitute a quorum,
there shall be present in person or by proxy the holders of record of shares
entitling them to exercise the voting power required by the Articles of
Incorporation of the Corporation, or applicable law to take the action stated.
The holders of a majority of the voting shares represented at a meeting, whether
or not a quorum is present, or the Chairman of the Board, the President, or the
officer of the Corporation acting as Chairman of the meeting, may adjourn such
meeting from time to time and, if a quorum is present at such adjourned meeting,
any business may be transacted as if the meeting had been held as originally
called.
(g) VOTES REQUIRED. At all elections of Directors, the candidates receiving the
greatest number of votes shall be elected. Any other matter submitted to the
shareholders for their vote shall be decided by the vote of a majority in voting
power of the shares present in person or by proxy entitled to vote upon such
matter or such other proportion of the shares as is required by law, the
Articles of Incorporation, or these Regulations.
(h) ORDER OF BUSINESS. The order of business at any meeting of shareholders
shall be determined by the officer of the Corporation acting as Chairman of such
meeting unless otherwise determined by a vote of the holders of a majority of
the voting shares of the Corporation present in person or by proxy and entitled
to vote at such meeting.
(i) ORGANIZATION. The President of the Corporation shall preside at all meetings
of the shareholders, but in his absence the Board of Directors of the
Corporation shall select another officer to so preside. The Secretary of the
Corporation shall act as Secretary of all meetings of the shareholders, but in
the absence of the Secretary at any meeting of the shareholders, the presiding
officer may appoint any person to act as Secretary of the meeting.
(j) VOTING BY SHAREHOLDERS. At any meeting of the Shareholders, each Shareholder
of the Corporation shall, except as otherwise provided by law or by the express
terms of such shares, be entitled to one vote either in person or by proxy, for
each share of the Corporation registered in his name on the books of the
Corporation (1) on the date fixed by the Board of Directors as the record date
for the determination of Shareholders entitled to vote at such meeting,
notwithstanding the prior or subsequent sale or other disposition of such share
or shares or transfer of the same on the books of the corporation after the date
so fixed, or (2) if no such record date shall have been fixed, then as of the
day next preceding the date of the meeting.
(k) RECORD DATE. The Directors may fix a record date for any lawful purpose,
including without limitation, the determination of Shareholders entitled to (1)
receive notice of or to vote at any meeting, (2) receive payment of any dividend
or distribution, (3) receive or exercise rights of purchase of or subscription
for, or exchange or conversion of, shares or other securities, subject to any
contract right with respect thereto, or (4) participate in the execution of
written consents, waivers, or releases. Said record date shall not be a date
earlier than the date on which it is fixed, and shall not be more than sixty
days preceding the date of such meeting, the date fixed for payment of any
dividend or distribution, or the date fixed for the receipt or exercise of
rights, as the case may be.
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(l) PROXIES. At meetings of the Shareholders, any Shareholder of record entitled
to vote thereat or to execute consents, waivers, and releases may be represented
at such meeting or vote thereat, and may execute consents, waivers, and releases
and exercise any of his other rights by proxy or proxies appointed by an
instrument in writing signed by such Shareholder, but such instrument shall be
filed with the Secretary of the meeting before the person holding such proxy
shall be allowed to vote thereunder.
(m) INSPECTORS OF ELECTION. In advance of any meeting of Shareholders, the
Directors may appoint inspectors of election to act at such meeting or any
adjournment thereof; if inspectors are not so appointed, the Officer of the
Corporation acting as Chairman of any such meeting may make such appointment. In
case any person appointed as inspector fails to appear or act, the vacancy may
be filled only by appointment made by the Directors in advance of such meeting
or, if not so filled, at the meeting by the Officer of the Corporation acting as
Chairman of such meeting. No other person or persons may appoint or require the
appointment of inspectors of election.
ARTICLE III
DIRECTORS
(a) AUTHORITY AND QUALIFICATIONS. Except where the law, the Articles of
Incorporation, or the Code of Regulations otherwise provide, all authority of
the Corporation shall be exercised by or under the direction of a Board of
Directors. Each Director must be the owner and holder of not less than
twenty-five (25) shares of stock in the Corporation and must hold the shares in
his own name and unencumbered.
(b) NUMBER. The Board of Directors shall be composed of not less than five (5)
nor more than fifteen (15) persons, as shall be fixed by the Shareholders in
accordance with applicable law, who shall be elected in accordance with the
provisions of the Articles of Incorporation by action of the Shareholders. Any
Director's office created by the Directors by reason of an increase in their
number may be filled by action of a majority of the Directors then in Office.
(c) CHANGES. The number of Directors fixed in accordance with the immediately
preceding paragraph may also be increased or decreased by the Directors at a
meeting or by action in writing without a meeting, and the number of Directors
as so changed shall be the number of Directors until further changed in
accordance with this Section; provided, that no such decrease in the number of
Directors shall have the effect of shortening the term of any incumbent
Director; and provide, further, that the number of Directors shall not be
increased by the Directors to more than three Directors beyond the number of
Directors as fixed at the most recently held meeting of the Shareholders called
for the purpose of electing Directors.
(d) TERM OF OFFICE. Directors shall be elected to hold office in accordance with
the provisions of the Articles of Incorporation until the next annual meeting of
Shareholders and until their successors are elected and qualified.
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(e) NOMINATIONS. Nominations for the election of Directors may be made by the
Board of Directors or a committee appointed by the Board of Directors or by any
Shareholder entitled to vote in the election of Directors generally. However,
any Shareholder entitled to vote in the election of Directors generally may
nominate one or more persons for election as Directors at a meeting only if
written notice of such Shareholder's intent to make such nomination or
nominations has been given, either by personal delivery or by United States mail
to the Secretary of the Corporation not later than (1) with respect to an
election to be held at an annual meeting of Shareholders, 45 days in advance of
the corresponding date for the date of the preceding year's annual meeting of
Shareholders, and (2) with respect to an election to be held at a special
meeting of Shareholders for the election of Directors, the close of business on
the seventh day following the date on which notice of such meeting is first
given to Shareholders. Each such notice shall set forth: (1) the name and
address of the Shareholder who intends to make the nomination and of the person
or persons to be nominated; (2) a representation that the Shareholder is a
holder of record of stock of the Corporation entitled to vote at such meeting
and intends to appear in person or by proxy at the meeting to nominate the
person or persons specified in the notice; (3) a description of all arrangements
or understandings between the Shareholder and each nominee and any other person
or persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by the Shareholder; and (4) the consent of each
nominee to serve as a Director of the Corporation if so elected. The Chairman of
the meeting may refuse to acknowledge the nomination of any person not made in
compliance with the foregoing procedure.
(f) REMOVAL. (A) The Directors may remove any Director if, by order of court, he
has been found to be of unsound mind or if he is adjudicated a bankrupt.
(B) All the Directors or any individual Director may be removed from
office, without assigning any cause, by the vote of the holders of three-fourths
(3/4) of the voting rights entitling them to elect Directors in place of those
to be removed, provided that unless all the Directors are removed, no individual
Director shall be removed if the votes of a sufficient number of shares are cast
against his removal which, if cumulatively voted at an election of all the
Directors, would be sufficient to elect at least one Director. In case of any
such removal, a new Director may be elected at the same meeting for the
unexpired term of each Director removed.
(g) VACANCIES. A vacancy shall exist in the Board of Directors in the event (1)
A Director dies or resigns, (2) a Director is removed by the Board of Directors,
(3) a Director is removed by the Shareholders and the Shareholders fail to elect
a new Director to fill the unexpired term, or (4) the Shareholders fail at any
time to elect the whole authorized number of Directors. The remaining Directors,
though less than a majority of the whole authorized number of Directors, may, by
a vote of the majority of their number, fill any vacancy in the Board for the
unexpired term.
(h) TIME OF MEETING. The Board of Directors shall meet at least annually,
immediately following the annual meeting of the Shareholders, at the principle
office of the Corporation or such other place as the annual Shareholders'
meeting is held, but the Directors shall have the authority to change the time
and place of such meeting by the adoption of By-Laws or by resolution.
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(i) MEETINGS. Meetings of the Board of Directors other than the annual meeting
may be called at any time by the President and shall be called by the President
upon the request of any two Directors. Such meetings of the Directors shall be
held at the principal office of the Corporation or at such other place within or
without the State of Ohio as the Directors may from time to time determine.
Notice of the annual meeting need not be given and each Director shall take
notice thereof, but this provision shall not be held to prevent the giving of
notice in such manner as the Board may determine. The Board shall decide what
notice shall be given and the length of time prior to the meetings that such
notice shall be given of all other meetings. Any meeting at which all of the
Directors are present shall be a valid meeting whether notice thereof was given
or not, and any business may be transacted at such a meeting. Meetings of the
Directors may be held through any communications equipment if all persons
participating can hear each other and participation in a meeting pursuant to
this provision shall constitute presence at such meeting.
(j) QUORUM. A majority of the whole authorized number of Directors shall be
necessary to constitute a quorum for a meeting of Directors, except that a
majority of the Directors in office shall constitute a quorum for filling a
vacancy in the Board. The act of a majority of the Directors present at a
meeting at which a quorum is present is the act of the Board, except as
otherwise provided by law, the Articles of Incorporation, or these Regulations.
(k) COMPENSATION. The Directors, by the affirmative vote of a majority in office
and irrespective of any personal interest of any of them, shall have authority
to establish reasonable compensation for any Director or Officer, for services
rendered or to be rendered to the Corporation, including but not limited to the
following types of programs: short-term incentives, stock-related long-term
incentives, performance-related long-term incentives, deferred compensation
plans, disability benefits, death benefits, insurance, and other fringe
benefits.
(I) BY-LAWS. The Board of Directors may adopt By-Laws for their own government
and that of the Corporation provided such By-Laws are not inconsistent with the
Articles of Incorporation or these Regulations.
ARTICLE IV
COMMITTEES
The Board of Directors may, by resolution, designate not less than three (3) of
its number to serve on an Executive Committee or such other committee or
committees as the Board may from time to time constitute. The Board may delegate
to any such Executive Committee or other committee any of the authority of the
Directors, however conferred, other than that of filling vacancies among the
Directors or in any committee of the Directors. The specific duties and
authority of any such committee or committees shall be stated in the resolution
constituting the same. An Executive Committee or other committee, once created
and appointed, shall continue in office until expressly dissolved, terminated,
reorganized, or replaced.
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ARTICLE V
OFFICERS
(a) OFFICERS. The Officers of the Corporation to be elected by the Board of
Directors shall be a President, one or more Vice Presidents, a Secretary, a
Treasurer, and such other Officers and assistant Officers as the Directors may
from time to time elect. A Chairman of the Board, if elected, must be a
Director. Officers may be paid such compensation as the Board may determine. Any
two or more offices may be held by the same person, but no Officer shall
execute, acknowledge, or verify any instrument in more than one capacity if such
instrument is required by law, the Articles, these Regulations, or the By-Laws
to be executed, acknowledged, or verified by two or more Officers.
(b) ELECTION, TERM, AND REMOVAL. At the first meeting of the Board of Directors
after the annual meeting of shareholders, the Board shall elect Officers as
described in the preceding paragraph. All Officers of the Corporation shall hold
office for one year and until their successors are elected and qualified.
Notwithstanding that, however, the Officers shall hold office at the pleasure of
the Directors. Any Officer may be removed, either with or without cause, at any
time, by the affirmative vote of a majority of all of the Directors then in
office; such removal, however, shall be without prejudice to the contract
rights, if any, of the person so removed.
(c) VACANCIES AND ABSENCE. If any office shall become vacant by reason of the
death, resignation, disqualification, or removal of the incumbent thereof, or
other cause, the Board of Directors may elect a successor to hold office for the
unexpired term in respect to which such vacancy occurred or was created. In the
case of the absence of any Officer of the corporation or for any reason that the
Board may determine as sufficient, the Board may delegate the powers and duties
of such Officer to any other Officer or to any Director, except where otherwise
provided by these Regulations or by statute, for the time being.
ARTICLE VI
DUTIES OF OFFICERS
(a) CHAIRMAN OF THE BOARD. The Chairman of the Board of Directors, if the Board
establishes such office, shall preside at all meetings of the Board, confer with
and advise all other Officers of the Corporation, and perform such other duties
as may be delegated from time to time by the Board.
(b) PRESIDENT. The President shall be the Chief Executive Officer and active
head of the Corporation, and in the recesses of the Board of Directors and the
Executive Committee, if the Board establishes such a committee, shall have
general control and management of all its business and affairs. He shall make
such recommendations to the Board, or any committees thereof, as he thinks
proper, and he shall bring before said Board such information as may be required
touching the business and property of the Corporation. He shall perform
generally all the duties incident to the office of President as required or
authorized by law and such as are usually vested in the President of a similar
corporation.
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(c) VICE PRESIDENTS. The Vice Presidents, including the Executive Vice
President, if the Board establishes such office, shall perform such duties as
may be delegated to them by the Board of Directors, or assigned to them from
time to time by the Board or the President. The Executive Vice President, if the
Board establishes such office, or the Vice President, or in the event there
shall be more than one Vice President, such Vice President as may be designated
by the Board, shall perform the duties and have the powers of the President in
case of the absence of the latter from his office, and during such absence such
Vice President shall be authorized to exercise all the functions of the
President and shall sign all papers and perform all duties as acting President.
(d) SECRETARY. The Secretary shall keep a record of all proceedings of the Board
of Directors, and of all meetings of shareholders, and shall perform such other
duties as may be assigned by the Board or the President.
(e) TREASURER. The Treasurer shall have charge of the funds and accounts of the
Corporation. He shall keep proper books of account showing all receipts,
expenditures, and disbursements of the Corporation, with vouchers in support
thereof. He shall also from time to time, as required, make reports and
statements to the Directors as to the financial condition of the Corporation,
and submit detailed statements of receipts and disbursements; he shall perform
such other duties as shall be assigned from time to time by the Board or the
President.
(f) BONDS OF OFFICERS. The Board of Directors shall determine which officers, if
any, of the Corporation shall give bond, and the terms and amount thereof, the
expense to be paid by the Corporation.
ARTICLE VII
INDEMNIFICATION AND INSURANCE
(a) GENERAL INDEMNIFICATION. The Corporation (1) shall indemnify any person who
was or is a party or is threatened to be made a party to any threatened,
pending, or completed action, suit, or proceeding, whether civil, criminal,
administrative, or investigative (other than an action by or in the right of the
Corporation) by reason of the fact that he is or was a Director of the
Corporation, or while a Director of the Corporation is or was serving at the
request of the Corporation as a director, trustee, fiduciary, officer, employee,
partner, joint venturer or agent of another corporation, domestic or foreign,
nonprofit or for profit, partnership, joint venture, trust, employee benefit
plan or other enterprise, and (2) may indemnify or agree to indemnify any person
who is or was a party or is threatened to be made a party to any threatened,
pending, or completed action, suit, or proceeding, whether civil, criminal,
administrative, or investigative (other than an action by or in the right of the
Corporation) by reason of the fact that he is or was an Officer, employee, or
agent of the Corporation, or while an Officer, employee, or agent of the
Corporation is or was serving at the request of the Corporation as a director,
trustee, fiduciary, officer, employee, partner, joint venturer or agent of
another corporation, domestic or foreign, nonprofit or for profit, partnership,
joint venture, trust, employee benefit plan or other enterprise, against
expenses (including attorney's fees), judgments, fines, and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he
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acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Corporation, and with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. The termination of any action, suit, or proceeding by judgment,
order, settlement, or conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner he reasonably believed to be in or not opposed
to the best interests of the Corporation, and with respect to any criminal
action or proceeding, he had reasonable cause to believe that his conduct was
unlawful.
(b) SUITS BY THE CORPORATION. The Corporation may indemnify or agree to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending, or completed action or suit by or in the right of
the Corporation to procure a judgment in its favor by reason of the fact that he
is or was a Director, Officer, employee, or agent of the Corporation, or is or
was serving at the request of the Corporation as a director, trustee, fiduciary,
officer, employee, partner, joint venturer, or agent of another corporation,
domestic or foreign, nonprofit or for profit, partnership, joint venture, trust,
employee benefit plan or other enterprise, against expenses (including
attorney's fees) actually and reasonably incurred by him in connection with the
defense or settlement of such action or suit if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the Corporation. No such indemnification shall be made in respect of (1) any
claim, issue, or matter as to which such person is adjudged to be liable for
negligence or misconduct in the performance of his duty to the Corporation
unless and only to the extent that the court of common pleas or the court in
which such action or suit was brought determines upon application that, despite
the adjudication of liability, but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses as
the court of common pleas or such other court shall deem proper; or (2) any
action or suit in which the only liability asserted against a director is
pursuant to Section 1701.95 of the Ohio Revised Code.
(c) INDEMNIFICATION FOR EXPENSES. To the extent that a director, trustee,
fiduciary, officer, employee, partner, joint venturer, or agent has been
successful on the merits or otherwise in defense of any action, suit, or
proceeding referred to in paragraphs (a) and (b), of this Article, including any
action or suit brought against a Director pursuant to Section 1701.95 of the
Ohio Revised Code, or in defense of any claim, issue, or matter therein, he
shall be indemnified against expenses (including attorney's fees) actually and
reasonably incurred by him in connection with the action, suit, or proceeding.
(d) DETERMINATION REQUIRED. Any indemnification under paragraphs (a) and (b) of
this Article (unless ordered by a court) shall be made by the Corporation only
as authorized in the specific case upon a determination that the indemnification
of the director, trustee, fiduciary, office, employee, partner, joint venturer,
or agent is proper in the circumstances because he has met the applicable
standard of conduct set forth in paragraphs (a) and (b). Such determination
shall be made (1) by the Board of Directors by a majority vote of a quorum
consisting of Directors who were not and are not parties to, or threatened with,
such action, suit, or proceeding; (2) if such a quorum is not obtainable or if a
majority of a quorum of disinterested Directors so directs, in a written opinion
by independent legal counsel other than an attorney, or a firm having associated
with it an attorney, who has been retained by or has performed services
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for the Corporation or any person to be indemnified within the past five years;
(3) by the Shareholders; or (4) by the court of common pleas or the court in
which the action, suit or proceeding was brought. Any determination made by the
disinterested Directors or by independent legal counsel under this paragraph (d)
shall be promptly communicated to the person who threatened or brought the
action or suit by or in the right of the Corporation under paragraph (b) of this
Article, and such person shall have the right, within ten days after receipt of
such notification, to petition the court of common pleas or other court in which
action or suit was brought to review the reasonableness of such determination.
(e) ADVANCES FOR EXPENSES. (A) Expenses (including attorney's fees) incurred by
a Director in defending any civil or criminal action, suit, or proceeding
referred to in paragraphs (a) and (b) of this Article, except where the only
liability asserted against a Director is pursuant to Section 1701.95 of the Ohio
Revised Code, shall be paid by the Corporation as they are incurred, in advance
of the final disposition of such action, suit, or proceeding upon receipt of an
undertaking by or on behalf of the Director in which he agrees to (1) repay such
amount if it is proved by clear and convincing evidence in a court of competent
jurisdiction that his action or failure to act involved an act or omission
undertaken with deliberate intent to cause injury to the Corporation or
undertaken with reckless disregard for the best interests of the Corporation;
and (2) reasonably cooperate with the Corporation concerning the action, suit,
or proceeding. (B) Expenses (including attorney's fees) incurred by a director,
trustee, fiduciary, officer, employee, partner, joint venturer, or agent in
defending any action, suit, or proceeding referred to in paragraphs (a) and (b)
of this Article, including any action or suit brought against a Director
pursuant to Section 1701.95 of the Revised Code, may be paid by the Corporation
as they are incurred in advance of the final disposition of the action, suit, or
proceeding as authorized by the Directors in the specific case upon receipt of
an undertaking by or on behalf of the director, trustee, fiduciary, officer,
employee, partner, joint venturer, or agent to repay such amount, if it is
ultimately determined that he is not entitled to be indemnified by the
Corporation.
(f) ARTICLE VII NOT EXCLUSIVE. The indemnification authorized by this Article
VII shall not be deemed exclusive of, and shall be in addition to, any other
rights granted to those seeking indemnification under the Articles, common law,
the General Corporation Law of the State of Ohio, the Regulations, or any
agreement, vote of Shareholders or disinterested Directors, or otherwise, both
as to action in his official capacity and as to action in another capacity while
holding such office, and shall continue as to a person who has ceased to be a
director, trustee, fiduciary, officer, employee, partner, joint venturer, or
agent and shall inure to the benefit of the heirs, executors, and administrators
of such a person.
(g) INSURANCE. The Corporation may purchase and maintain insurance or furnish
similar protection, including but not limited to trust funds, letters of credit,
or self-insurance on behalf of or for any person who is or was a Director,
Officer, employee, or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, trustee, fiduciary, officer, employee,
partner, joint venturer, or agent of another corporation, domestic or foreign,
nonprofit or for profit, partnership, joint venture, trust, employee benefit
plan, or other enterprise, against any liability asserted against him and
incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
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such liability under the provisions of this Article VII. Insurance may be
purchased from or maintained with a person in which the Corporation has a
financial interest.
(h) PARAGRAPHS (A) AND (B) NOT EXCLUSIVE. The authority of the Corporation to
indemnify persons pursuant to paragraphs (a) and (b) of this Article VII does
not limit the payment of expenses as they are incurred, indemnification,
insurance, or other protection that may be provided pursuant to any other
section of this Article VII. Paragraphs (a) and (b) of this Article VII do not
create any obligation to repay or return payments made by the Corporation under
any other section of this Article VII.
(i) DEFINITION OF "THE CORPORATION." As used in this Article VII, references to
"the Corporation" include all constituent corporations in a consolidation or
merger and the new or surviving corporation, so that any person who is or was a
director, officer, employee, or agent of such a constituent corporation, or is
or was serving at the request of such constituent corporation as a director,
trustee, fiduciary, officer, employee, partner, joint venturer, or agent of
another corporation, domestic or foreign, nonprofit or for profit, partnership,
joint venture, trust, employee benefit plan, or other enterprise, shall stand in
the same position under the provisions of this Article VII with respect to the
new or surviving corporation as he would if he had served the new or surviving
corporation in the same capacity.
(j) EXCLUSION. Anything else contained in this Article VII to the contrary
notwithstanding, (1) no indemnification may be paid and no expenses may be
reimbursed to any person under this Article VII who is found to have violated
any Federal or State banking laws for the acts or omissions which gave rise to
such violation or violations, and any expenses reimbursed to such person for the
defense of the actions or omissions which are found to have violated such laws
shall promptly be reimbursed to the Corporation following such finding, or
arrangements satisfactory to the Corporation made for such reimbursement, and
(2) no insurance or similar protection may be purchased, maintained, or
furnished by the Corporation to or for any person under this Article VII against
violations of Federal or State banking laws.
ARTICLE VIII
SHARES OF STOCK
(a) CERTIFICATES OF STOCK. Certificates evidencing ownership of shares of the
Corporation, showing the number of shares registered in his name on the books of
the Corporation, shall be issued to those entitled to them. Each certificate
evidencing shares of the Corporation shall bear a distinguishing number, the
signatures of the Chairman of the Board, the President, or a Vice President, and
of the Secretary or an Assistant Secretary (except that when any such
certificate is countersigned by an incorporated transfer agent or registrar,
such signatures may be facsimile, engraved, stamped, or printed), and such
recitals as may be required by law.
(b) TRANSFERS OF STOCK. Shares shall be transferable on the books of the
Corporation by the holders thereof in person or by a duly authorized attorney
upon surrender of the Certificates therefor with duly executed assignment
endorsed thereon or attached thereto. Evidence of authority to endorse any
certificate and to request its transfer shall be produced to the
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Corporation. In case of transfer by executors, administrators, guardians, or
other legal representatives or fiduciaries, appropriate legal evidence of their
authority to act shall be produced and may be required to be filed the
Corporation. No transfer shall be made until the stock certificate in question
and such evidence of authority are delivered to the Corporation.
(c) TRANSFER AGENTS AND REGISTRARS. The Directors may appoint one or more agents
to transfer or to register shares of the Corporation, or both.
(d) LOST, DESTROYED, OR MUTILATED CERTIFICATES. If any certificate of stock in
this Corporation becomes worn, defaced, or mutilated, the Officers, upon
production and surrender thereof, may order the same cancelled, and may issue a
new certificate in lieu of the same. Except as otherwise provided by law, where
the owner of a certificate evidencing shares of the Corporation claims that such
certificate has been lost, destroyed, or wrongfully taken, the Officers must
cause the Corporation to issue a new certificate in place of the original
certificate if the owner: (1) so requests before the Corporation has notice that
such original certificate has been acquired by a bona fide purchaser; and (2)
files with the Corporation or its agents any indemnity bond requested by the
Corporation, with surety or sureties satisfactory to the Corporation, in such
sum as the Officers may, in their discretion, deem reasonably sufficient as
indemnity against any loss or liability that the Corporation may incur by reason
of the issuance of each such new certificate; and (3) satisfies any other
reasonable requirements which may be imposed by the Officers or Directors, their
discretion.
ARTICLE IX
ACTION WITHOUT A MEETING
Anything contained in the Regulations to the contrary notwithstanding, any
action which may be authorized or taken at a meeting of the Shareholders or of
the Directors or of a committee of the Directors, as the case may be, may be
authorized or taken without a meeting with the affirmative vote or approval of,
and in a writing or writings signed by, all the Shareholders who would be
entitled to notice of a meeting of the Shareholders held for such purpose, or
all the Directors, or all the members of such committee of the Directors,
respectively, which writings shall be filed with or entered upon the records of
the Corporation.
ARTICLE X
AMENDMENTS TO REGULATIONS
(a) AMENDMENTS AT A MEETING. The Regulations may be amended, or new Regulations
may be adopted, at a meeting of Shareholders held for such purpose, by the
affirmative vote of holders of shares entitling them to exercise a majority of
the voting power of the Corporation on such proposal, provided that such
amendment or adoption is recommended for approval by at least three-fourths
(3/4) of the Directors of the Corporation. Unless at least three-fourths (3/4)
of the Directors recommend the approval of such amendment or adoption, the
affirmative vote of holders of shares entitling them to exercise at least
three-fourths (3/4) of the voting power of the Corporation on such proposal
shall be required.
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(b) AMENDMENTS WITHOUT A MEETING. The Regulations may be amended or new
Regulations may be adopted without a meeting by the written consent of holders
of shares entitling them to exercise three-fourths (3/4) of the voting power of
the Corporation on such proposal.
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Exhibit 10
Material Contracts
Agreement and Plan of Reorganization with Commercial and Savings Bank Co.,
Danville, Ohio
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AGREEMENT AND PLAN OF REORGANIZATION
This is an AGREEMENT dated April 13, 1998, between Killbuck Bancshares,
Inc. (hereinafter called "Killbuck") and Commercial and Savings Bank Co.
(hereinafter called "Commercial").
WITNESSETH:
Killbuck is a corporation duly organized under the laws of the State of
Ohio. Its principal office is located at 165 N. Main St., Killbuck, Ohio. As of
the date hereof, Killbuck had authorized capital stock consisting of 200,000
shares of common stock, without par value ("Killbuck Common Shares") of which a
total of 132,380 shares are issued and outstanding and 2,620 shares of treasury
stock. Killbuck owns all of the outstanding capital stock of The Killbuck
Savings Bank Company. (hereinafter referred to as the "Subsidiary").
Commercial is an Ohio state banking corporation duly organized under
the laws of the State of Ohio. Its principal office is located at 701 S. Market
St., Danville, Knox County, Ohio. As of the date hereof, Commercial has
authorized capital stock consisting of 20,200 authorized shares of common stock,
$10.00 par value per share ("Commercial Common Stock"), all of which shares are
issued and outstanding and none were shares of treasury stock owned by
Commercial.
At least a majority of the entire Board of Directors of Killbuck and at
least a majority of the entire Board of Directors of Commercial, respectively,
have approved the entering into of this Agreement and have authorized the
execution and delivery of this Agreement. The Boards of Directors of Killbuck
and Commercial have determined that it is in the best interests of their
respective corporations and Shareholders that Commercial become a wholly owned
subsidiary corporation of Killbuck. After the execution of this Agreement,
Killbuck and Commercial will cause, subject to the terms and conditions set
forth in this Agreement, the merger of Commercial with and into Killbuck Bank,
in accordance with the terms set forth in the Merger Agreement attached hereto
and designated Appendix A (the "Merger Agreement"). From and after the time the
merger of Commercial and Killbuck Bank shall become effective, (the "Merger")
and as and
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when required by this Agreement and the Merger Agreement, Killbuck will issue
its Common Shares in exchange for all of the issued and outstanding shares of
Commercial Common Stock.
In consideration of mutual covenants and agreements herein contained,
Killbuck and Commercial hereby make this Agreement and prescribe the terms and
conditions of the Merger and the mode of carrying the Merger into effect as
follows:
1. Execution of Merger Agreement. As soon as practicable after the date
hereof, Killbuck Bank and Commercial will enter into the Merger
Agreement. Upon consummation of the Merger, each share of Commercial
Common Stock, (other than Dissenter Shares, as defined in Section 5)
shall be converted into the right to receive .4317 duly authorized,
validly issued, fully paid and non-assessable Killbuck Common Shares,
in accordance with the provisions regarding the exchange of shares set
forth in the Merger Agreement, subject to adjustment in the event of
any stock dividend, stock split or other general distribution of
Killbuck Common Stock prior to the Merger.
2. Articles of Incorporation and Code of Regulations. The Articles of
Incorporation and Code of Regulations of Killbuck Bank shall be the
Articles of Incorporation and Code of Regulations of the surviving
banking corporation upon the consummation of the Merger of Commercial
with and into Killbuck Bank.
3. Discussions with Others; Other Offers. On and after the date hereof,
except with the written consent of Killbuck, Commercial shall not
directly or indirectly solicit or encourage (nor shall Commercial
permit any of its officers, directors, employees or agents directly or
indirectly to solicit or encourage), including by way of furnishing
information, any inquiries or proposals for a merger, consolidation,
share exchange or similar transaction involving Commercial or for the
acquisition of the stock or all or substantially all of the assets or
business of Commercial, or discuss with or enter into conversations
with any person, other than Commercial shareholders or employees,
concerning any such merger, consolidation, share exchange, acquisition
or other transaction, other than the share exchange with Killbuck;
provided, however, that
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Commercial may communicate information about any such proposals or
inquiries to its shareholders if and to the extent that it is required
to do so in order to reasonably comply with its legal obligations.
Commercial will promptly notify Killbuck orally (to be confirmed in
writing as soon as practicable thereafter) of all of the relevant
details relating to any inquiries or proposals that it may receive
relating to any such matters, including actions it intends to take with
respect to such matters.
In order to induce Killbuck to enter into this Agreement and
incur the substantial expenses involved in effectuating the
transactions contemplated herein, Commercial agrees and does hereby
promise to pay to Killbuck the sum of $100,000, upon Killbuck's demand
therefor, in the event that the Commercial shareholders fail to approve
this Agreement or the Merger Agreement as a result of Commercial's
decision to entertain offers from and negotiate with a bona fide
offeree other than Killbuck.
4. Undertakings of the Parties. Killbuck and Commercial further covenant
and agree as follows:
(a) As soon as the Registration Statement referenced in (c) below
shall become effective or an exemption to registration relied
upon, this Agreement and the Merger Agreement shall be
submitted to the Shareholders of Commercial for approval and
adoption at a special meeting of Shareholders to be called and
held in accordance with law and the Articles of Incorporation
and Code of Regulations of Commercial.
(b) As promptly as possible after the date hereof, each of
Killbuck and Commercial shall use its best efforts, separately
and jointly with the other party, in good faith to take or
cause to be taken all such steps as shall be necessary or
advisable to obtain all consents and approvals of governmental
authorities as are required by law or otherwise to effect the
share exchange, including without limitation the approval of
the Federal Reserve Board (the "Board"), the approval of the
Ohio Department of Commerce (Division of Financial
Institutions Office of Banks and
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Savings & Loans) and the approval of the Federal Deposit
Insurance Corporation, and shall do any and all acts and
things reasonably necessary or advisable in order to cause the
share exchange to be consummated on the terms provided in this
Agreement and to complete the Merger as promptly as
practicable. Killbuck and Commercial will cooperate in
complying with and in the preparation of proxy and
registration statements under federal and state securities
laws so as to facilitate the exchange of shares as
contemplated by this Agreement and the Merger Agreement.
(c) Each party will assume and pay all of its fees and expenses
incurred by it incident to the negotiation, preparation and
execution of this Agreement, obtain the requisite regulatory
and shareholder consents and approvals and take all other acts
incidental to, contemplated by or in pursuance of this
Agreement. Killbuck shall be responsible for preparing and
filing at no expense to Commercial: (i) any and all required
regulatory applications necessary in connection with the
transactions contemplated by this Agreement; and (ii) an S-4
Registration Statement to be filed with the Securities and
Exchange Commission to register the Killbuck Common Shares to
be issued in connection with the transactions contemplated by
this Agreement or shall secure a suitable exemption from
registration; provided, however, that such registration
statement will not cover resales by any persons who may be
considered "underwriters" under Rule 145(c) of the Securities
Act of 1933, as amended (the "1933 Act") and (iii) any
documents to be filed or action required to be taken under any
applicable state securities or "Blue Sky" laws in connection
with the Merger.
(d) Between the date of this Agreement and the effective time of
the Merger, each party (reviewee) will afford to the
representatives of the other party (reviewer), including its
counsel and auditors, during normal business hours, full
access to any and all assets of, or information with respect
to, reviewee to the end that
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reviewer may have full opportunity to make an investigation,
in advance of the effective time as it shall reasonably desire
in order to effectuate the purposes of this Agreement. To the
extent reasonable under the circumstances, the officers of
reciewee will confer with the representatives of reviewer and
will furnish to reviewer either orally or by means of such
records, documents, and memoranda as are reasonably available
or capable of preparation (all of which reviewer will be
permitted to make copies of) and such other information as
reviewer may reasonably request. All information furnished by
one party to another party in connection with this Agreement
and the transactions contemplated hereby will be kept
confidential by such other party and will be used only in
connection with this Agreement and the transactions
contemplated hereby, except to the extent that such
information: (i) is already known to such other party when
received; (ii) thereafter becomes lawfully obtainable from
other sources; or (iii) is required to be disclosed in any
document filed with the Securities and Exchange Commission,
the Board, or any other governmental agency or authority. In
the event that this Agreement is terminated, each party will
return to the other party or destroy any documents received by
it from the other party that contain any such confidential
information.
(e) After (i) receipt of the Board's prior approval of Killbuck's
acquisition of Commercial; (ii) the approval of the
Shareholders of Commercial; and (iii) the regulatory waiting
period(s) have expired, Killbuck shall designate the date as
of which Killbuck desires the Merger to become effective and
the time the Merger shall become effective shall occur at the
time and on the date so designated, provided, that the date so
designated shall not be later than 30 days following the last
of the events described above (i-iii) shall occur.
(f) Subject to the terms and conditions of this Agreement,
Killbuck and Commercial each agree that, subject to applicable
laws and to the fiduciary duties of its
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respective directors, each will promptly take or cause to be
taken all action, and promptly do or cause to be done all
things necessary, proper or advisable under applicable laws
and regulations to consummate and make effective the Merger
and other transactions contemplated by this Agreement.
(g) Killbuck shall offer the existing employees of Commercial the
opportunity to become employees of Killbuck Bank (i.e. the
surviving banking corporation under the Merger Agreement)
following consummation of the Merger; provided, however, that
nothing in this section or elsewhere in this Agreement shall
be deemed to be a contract of employment or be construed to
give said employees any rights other than as employees at will
under Ohio law and said employees shall not be deemed to be
third-party beneficiaries of this provision. Commercial's
employees who become employees of Killbuck Bank after the
Merger will have their years of service credited toward
eligibility and vesting in Killbuck's qualified retirement
plans, but shall be treated as new employees for purposes of
accrual of benefits under any such qualified plans. With
respect to all non-qualified benefits plans (such as vacation,
sick days, and policies of like import) Commercial's employees
who become employees of Killbuck after the Merger will have
their years of service credited toward the determination of
whether and to the extent that they participate in such
non-qualified plans, but shall be treated as new employees for
purposes of the determination of the accrual of any benefit
based on past service.
(h) Commercial shall, prior to the time the Merger shall become
effective, take such actions, in consultation with Killbuck,
as shall be necessary or desirable to cause termination of any
qualified retirement plans of Commercial at or after the
effective date of Merger.
(i) Killbuck and Commercial acknowledge that the transactions
contemplated hereby are subject to the provisions of the
Securities Act of 1933, as amended (the "Act")
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and Rule 145 thereunder. Killbuck agrees to prepare and file,
as soon as practicable after the execution of this Agreement,
the Registration Statement under and pursuant to the
provisions of the Act for the purposes of registering the
Killbuck Common Shares to be issued in connection with the
transactions contemplated hereby or in lieu thereof to secure
a suitable exemption therefrom. Commercial agrees to provide
promptly to Killbuck information concerning the business and
financial condition and affairs of Commercial as may be
required or appropriate for inclusion in any such Registration
Statement and to cause its counsel and auditors to cooperate
with Killbuck counsel and auditors in the preparation of any
such Registration Statement. Killbuck agrees to use its best
efforts to have such Registration Statement declared effective
under the Act as soon as may be practicable, and Commercial
agrees to distribute the prospectus/proxy statement (to be
prepared by and furnished at Killbuck's expense) contained in
such Registration Statement (the Commercial "Prospectus/Proxy
Statement") to Commercial shareholders prior to the scheduled
meeting of Commercial shareholders that will be held to
consider approval of this Agreement and the Merger Agreement.
Except to the extent permitted by Rule 145(b), Killbuck and
Commercial agree not to publish any communication other than
the Prospectus/Proxy Statement, in respect of this Agreement,
the Merger Agreement, or the transactions contemplated
therein. Any communication by either party under Rule 145(b)
will be made only upon the written approval of the other.
Killbuck and Commercial agree that, between the date the
Registration Statement becomes effective and the effective
time of the Merger, they will keep each other advised on a
current basis of material developments concerning their
respective businesses, including any event which would cause
the Prospectus/proxy Statement to contain an untrue statement
of a material fact or omit to state any material fact
necessary to make the statements therein not
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misleading. Killbuck shall not be required to maintain the
effectiveness of the Registration Statement for the purpose of
resale of Killbuck Common Shares by Commercial shareholders
who may be deemed to be affiliates of Commercial, as such term
is defined in Rule 144 promulgated under the Act (the
"Affiliates").
(j) Each Affiliate of Commercial shall furnish to Killbuck a
certificate representing that such Affiliate will not sell,
assign, or transfer any of the Killbuck Common Shares received
by such Affiliate as a result of the transactions contemplated
by this Agreement, except pursuant to (a) registration under
the act or (b) a transaction permitted by Rule 145 under the
Act, or (c) a transaction in which, in the opinion of counsel
satisfactory to Killbuck, or in accordance with a "no action"
letter from the staff of the Securities and Exchange
Commission, the Killbuck Common Shares are not required to be
registered under the Act; and in the event of sale or other
disposition pursuant to Rule 145 such Affiliate will supply
satisfactory evidence of compliance with such Rule to
Killbuck. With respect to such representations, each Affiliate
shall agree to hold harmless and indemnify Killbuck and
Killbuck's officers and directors from and against any losses,
claims, damages, expenses (including reasonable attorneys'
fees), or liabilities to which Killbuck or any officer or
director of Killbuck may become subject under the Act or
otherwise as a result of the untruth, breach, or failure of
such representations. Each Affiliate shall further agree that
the certificate or certificates representing the Killbuck
Common Shares issued to such Affiliate upon the consummation
of the Share Exchange may bear the following restrictive
legend:
"The shares represented by this certificate have been
issued or transferred to the registered holder as a
result of a transaction to which Rule 145 under the
Securities Act of 1933, as amended (the "Act"),
applies. The shares represented by this certificate
may not
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be sold, transferred or assigned, and the
issuer shall not be required to give effect to any
attempted sale, transfer or assignment, except
pursuant to (i) current registration under the Act,
(ii) a transaction permitted by Rule 145 and as to
which the issuer has received reasonable and
satisfactory evidence of compliance with the
provisions of Rule 145, or (iii) a transaction in
which, in the opinion of counsel satisfactory to the
issuer or in accordance with a "no action" letter
from the staff of the Securities and Exchange
Commission, such shares are not required to be
registered under the Act."
Killbuck covenants and agrees to remove the foregoing restrictive
legend from the certificate or certificates representing the
Killbuck Common Shares issued to an Affiliate and to cancel
any stop order instructions with respect thereto upon (i)
receipt of advice from its counsel that such actions are
appropriate under the then existing circumstances, or (ii)
upon request of the holder thereof at anytime after that
period ending one year following the Merger, provided that the
holder thereof is not, and has not for at least the thirty day
period ending prior to the request been an affiliate of
Killbuck.
(k) Killbuck shall, to the extent required by applicable state
securities or "blue sky" laws, as promptly as practicable
after the furnishing by Commercial of all information
regarding Commercial required or desirable to be reflected
therein file with applicable state securities or blue sky
administrators, use its best efforts to cause to become
effective or be approved, all registration statements or
applications required to be so filed with respect to the
issuance of the Killbuck Common Shares in connection with the
Agreement of Merger.
(l) On the date the Registration Statement becomes effective and
at the effective time of the Merger, Commercial shall deliver
to Killbuck a certificate signed by the
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principal executive officer and by the principal financial
officer of Commercial to the effect that the information
contained in the Registration Statement relating to the
business and financial condition and affairs of Commercial
does not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading. On
the date the Registration Statement becomes effective and at
the effective time of the Merger, Killbuck shall deliver to
Commercial a certificate signed by the chief executive officer
and by the chief financial officer of Killbuck to the effect
that the Registration Statement (other than the information
contained therein relating to the business and financial
condition and affairs of Commercial) does not contain any
untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to
make the statements therein not misleading.
(m) Killbuck undertakes to consider and interview, after the
effective time of the Merger, such directors of Commercial as
shall desire to be considered for a position as a director of
the resulting banking corporation after the merger of
Commercial with and into Subsidiary, and Killbuck may in its
sole discretion add one or two such persons to the Board of
Directors of the Subsidiary.
5. Dissenting Shareholders. Holders of Commercial Common Stock, who do not
vote their shares in favor of the Merger and otherwise comply in all
respects to perfect dissenters' rights, will be entitled to dissenters'
or appraisal rights, if any, pursuant to and solely upon strict
compliance with, the applicable provisions of Ohio law (collectively,
the "Dissenting Shares").
6. Tax Opinion. Killbuck, for the benefit of Killbuck, Commercial and
Commercial's Shareholders, shall obtain a written opinion of it's
counsel, to the effect that:
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(a) The statutory merger of Killbuck Bank with and into Commercial
will constitute a reorganization within the meaning of Section
368(a)(1)(A) and (a)(2)(E) of the Internal Revenue Code;
(b) No gain or loss will be recognized by Commercial as a
consequence of the transactions herein contemplated;
(c) No gain or loss will be recognized by the Shareholders of
Commercial on the exchange of their shares of Commercial
Common Stock for Killbuck Common Shares (disregarding for this
purpose any cash received for fractional share interests to
which they may be entitled);
(d) The federal income tax basis of the Killbuck Common Shares
received by the Shareholders of Commercial for their shares of
Commercial Common Stock will be the same as the federal income
tax basis of the Commercial Common Stock surrendered in
exchange therefor; and
(e) The holding period of the Killbuck Common Shares received by a
shareholder of Commercial in exchange for shares of Commercial
Common Stock will include the period for which the Commercial
Common Stock exchanged therefor was held, provided the
exchanged Commercial Common Stock was held as a capital asset
by such shareholder on the date of the exchange.
7. Representations and Warranties of Killbuck. Killbuck represents and
warrants to Commercial as follows:
(a) Killbuck is a corporation duly organized and validly existing
under the laws of the State of Ohio, is a registered bank
holding company under the Bank Holding Company Act of 1956, as
amended, and is qualified to do business in the State of Ohio,
together with all other jurisdictions where it is both
required to so qualify and the failure to so qualify would
have material and adverse consequences to Killbuck. Killbuck
has full power and authority (including all licenses,
franchises, permits and other governmental authorizations
which are legally
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required) to engage in the businesses and activities now
conducted by it, including the businesses of Subsidiary. As of
December 31, 1997, the authorized capital stock of Killbuck
consisted of 200,000 shares of common stock, without par
value, of which a total of 132,380 shares were issued and
outstanding and 2,620 shares were held by Killbuck as treasury
stock. All of said shares of capital stock are fully paid and
nonassessable and are not issued in violation of the
preemptive rights of any shareholder.
(b) Killbuck has furnished to Commercial copies of its audited
Consolidated Balance Sheets as of December 31, 1997, and 1996,
and the Consolidated Statements of Income, Shareholders'
Equity and Statements of Cash Flows for the three years ended
December 31, 1997, 1996 and 1995, together with the notes
thereto. Each of the aforementioned financial statements was
prepared in accordance with Generally Accepted Accounting
Principles, consistently applied and is true and correct in
all material respects and together present fairly the
consolidated financial position and results of operations of
Killbuck as of the dates and for the periods therein set
forth. Such financial statements do not, as of the dates
thereof, include any material asset or omit any material
liability, absolute or contingent, or other fact, the
inclusion or omission of which renders such financial
statements, in light of the circumstances under which they
were made, misleading in any material respect. Since December
31, 1997, there has not been any material adverse change in
the financial condition, results of operations, business or
prospects of Killbuck and the Subsidiary on a consolidated
basis.
(c) The Board of Directors of Killbuck has authorized execution of
this Agreement and the Merger Agreement and approved the
merger of Subsidiary and Commercial as contemplated herein and
therein. Killbuck and Subsidiary have all requisite power and
authority to enter into this Agreement and the Merger
Agreement and Killbuck and Subsidiary have the authority to
consummate the
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transactions contemplated hereby. This Agreement constitutes
the valid and legally binding obligation of Killbuck and this
Agreement and the consummation of the transactions
contemplated herein have been duly authorized and approved on
behalf of Killbuck by all requisite corporate action. Provided
the required approvals are obtained from the Board, neither
the execution and delivery of this Agreement or the Merger
Agreement nor the consummation of the Merger will conflict
with, result in the breach of, constitute a default under or
accelerate the performance provided by the terms of any law,
or any rule or regulation of any governmental agency or
authority or any judgment, order or decree of any court or
other governmental agency to which Killbuck or Subsidiary may
be subject, any contract, agreement or instrument to which
Killbuck or Subsidiary is a party or by which Killbuck or
Subsidiary is bound or committed, or the Articles of
Incorporation or Code of Regulations of Killbuck or
Subsidiary, or constitute an event which with the lapse of
time or action by a third party, could, to the best of
Killbuck's knowledge, result in the default under any of the
foregoing or result in the creation of any lien, charge or
encumbrance upon any of the assets or properties of Killbuck
or Subsidiary or upon any of the stock of Killbuck or
Subsidiary; except, however, in the case of contracts,
agreements or instruments, such defaults, conflicts or
breaches which either (i) will be cured or waived prior to the
time the Merger becomes effective, or (ii) if not so cured or
waived would not, in the aggregate, have any material adverse
effect on the financial condition, results of operations or
business of Killbuck on a consolidated basis.
(d) There is no litigation, action, suit, investigation or
proceeding pending or, to the best of the knowledge after due
inquiry of Killbuck and its executive officers, threatened,
against or affecting Killbuck and/or the Subsidiary or
involving any of their respective properties or assets, at law
or in equity, before any federal, state, municipal, local or
other governmental authority, involving a material amount
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which, if resolved adversely to the interest of Killbuck and
the Subsidiary, would materially affect the financial
conditions or operations of Killbuck and the Subsidiary and/or
its ability to perform under this Merger Agreement, and to the
best of the knowledge and belief after due inquiry of Killbuck
and its executive officers, no one has asserted and no one has
reasonable or valid grounds on which it reasonably can be
expected that anyone will assert any such claims against
Killbuck and the Subsidiary based upon the wrongful action or
inaction of Killbuck and the Subsidiary or any of their
respective officers, directors or employees.
(e) At the time the Merger shall become effective and on such
subsequent date when the former Shareholders of Commercial
surrender their Commercial share certificates for
cancellation, the Killbuck Common Shares to be received by
Shareholders of Commercial will have been duly authorized and
validly issued by Killbuck and will be fully paid and
nonassessable.
(f) Killbuck has not incurred and will not incur directly or
indirectly any liability for brokerage, finders', agents' or
investment bankers' fees or commissions in connection with
this Agreement or the transactions contemplated thereby.
(g) The Pension Plan for the Employees of Killbuck Bancshares,
Inc. and its affiliates and any other plan which purport to be
qualified plans under Section 401(a) of the Internal Revenue
Code is so qualified and is in compliance in all material
respects with the applicable requirements of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA").
All material notices, reports and other filings required under
applicable law to be given or made to or with any governmental
agency with respect to the plans have been timely filed or
delivered where failure to file will result in a penalty or
result in disqualification of the plan. Killbuck has no
knowledge either of any circumstances which would adversely
affect the qualifications of the plans or their compliance
with the applicable
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requirements of ERISA, or of any "reportable event" (as such
term is defined in Section 4043(b) of ERISA) or any
"prohibited transaction" (as such term is defined in Section
406 of ERISA and Section 4975(c) of the Internal Revenue Code)
which has occurred since the date on which said section became
applicable to the plans. With respect to those plans which are
defined benefit plans within the meaning of ERISA, such plans
meet the minimum funding standards set forth in the Internal
Revenue Code and ERISA.
(h) Since December 31, 1997, each of Killbuck and the Subsidiary
has conducted business only in the ordinary course, and has
preserved its corporate existence, business and goodwill
intact.
(i) Killbuck and the Subsidiary each have good and marketable
title to all assets and properties, whether real or personal,
tangible or intangible, including without limitation the
capital stock of the Subsidiary and all other assets and
properties reflected in Killbuck's Balance Sheet of December
31, 1997 or acquired subsequent thereto (except to the extent
that such assets and properties have been disposed of for fair
value in the ordinary course of business since December 31,
1997) subject to no liens, mortgages, security interests,
encumbrances, pledges or charges of any kind, except: (i)
those items that secure liabilities that are reflected in said
Balance Sheet; (ii) statutory liens for taxes not yet
delinquent; and (iii) minor defects and irregularities in
title and encumbrances which do not materially impair the use
thereof for the purposes for which they are held; and such
liens, mortgages, security interests, encumbrances and charges
are not in the aggregate, material to the assets and
properties of Killbuck. Killbuck or its Subsidiary as lessee
has the contractual right under valid leases to occupy, use,
possess and control all material property leased by Killbuck
or its Subsidiary.
(j) To the best of the knowledge after due inquiry of Killbuck and
its executive officers, Killbuck and the Subsidiary have
complied with all laws, regulations and
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orders applicable to them and to the conduct of their
respective businesses, including without limitation, all
statutes, rules and regulations pertaining to the conduct of
banking activities except for possible technical violations
which together with any penalty which results therefrom are or
will be of no material consequence to either Killbuck or the
Subsidiary. Neither Killbuck nor the Subsidiary is the subject
of, nor a party to, any regulatory action or agreement such as
letter agreements, memorandum of understanding, cease and
desist orders or like agreements. Neither Killbuck nor the
Subsidiary are in default under, and no event has occurred
which, with the lapse of time or action by a third party,
could, to the best of Killbuck's knowledge after due inquiry,
result in the default under the terms of any judgment, decree,
order, writ, rule or regulation of any governmental authority
or court, whether federal, state or local and whether at law
or in equity, where the default(s) could reasonably be
expected to have a material adverse effect on the financial
conditions, results of operations or business of Killbuck and
the Subsidiary on a consolidated basis.
(k) Killbuck and Subsidiary have duly filed all federal, state,
county and local income, excise, real and personal property
and other tax returns and reports (including, but not limited
to, social security, withholding, unemployment insurance, and
sales and use taxes) required to have been filed by Killbuck
up to the date hereof. To the best of the knowledge and belief
of Killbuck all such returns are true and correct in all
material respects, and Killbuck has paid or, prior to the time
the Merger shall become effective, will pay all taxes,
interest and penalties shown on such return or reports or
claimed (other than those claims being contested in good faith
and which have been disclosed to Commercial) to be due to any
federal, state, county, local or other taxing authority, and
there is, and at the time the Merger shall become effective
will be, no basis for any additional claim or assessment which
might materially and adversely affect
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Killbuck or the Subsidiary, and for which an adequate reserve
has not been established. To the best of its knowledge and
belief, Killbuck has paid or made adequate provision in its
financial statements or its books and records for all taxes
payable in respect of all periods ending as of the date
thereof. To the best of its knowledge and belief Killbuck has,
or at the time the Merger shall become effective will have, no
material liability for any taxes, interest or penalties of any
nature whatsoever, except for those taxes which may have
arisen up to the time the Merger shall become effective in the
ordinary course of business and are properly accrued on the
books of Killbuck as of the time the Merger shall become
effective.
(l) To the best of its knowledge and belief, but without having
undertaken an environmental audit, Killbuck has no knowledge
of any underground storage tanks, any hazardous substances,
hazardous waste, pollutant or contaminant, including, but not
limited to, asbestos (except as previously disclosed to
Commercial in a letter of even date herewith), PCB's or urea
formaldehyde, having been generated, released into, stored or
deposited over, upon or below (in storage tanks or otherwise)
Killbuck's or Subsidiary's premises or any other real property
owned or leased by Killbuck or Subsidiary other than other
real estate owned, for which no investigation was conducted by
Killbuck, but for which Killbuck has no knowledge of such, or
into any water systems on or below the surface of the Killbuck
or Subsidiary premises or any other real property owned or
leased by Killbuck or Subsidiary other than other real estate
owned, for which no investigation was conducted by Killbuck,
but for which Killbuck has no knowledge of such from any
source whatsoever. As used in this Agreement, the terms
"hazardous substance," "hazardous waste," "pollutant" and
"contaminant" mean any substance, waste, pollutant or
contaminant included within such terms under any applicable
Federal, state or local statute or regulation.
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8. Representations and Warranties of Commercial. Commercial represents and
warrants to Killbuck that, except as set forth in the disclosure letter
dated of even date herewith (the "Disclosure Letter") and attached
hereto and made a part hereof, as follows:
(a) Commercial is a banking corporation duly organized and validly
existing in good standing under the laws of the State of Ohio.
Commercial has full power and authority (including all
licenses, franchises, permits and other governmental
authorizations which are legally required) to engage in the
businesses and activities now conducted by it. As of the date
of this Agreement, the authorized capital stock of Commercial
consists of 20,200 shares of common stock with $10 par value,
all of which shares are issued and outstanding and none are
shares of treasury stock owned by Commercial. All of said
shares of capital stock are fully paid and nonassessable and
are not issued in violation of the preemptive rights of any
shareholder. There are no outstanding options, warrants or
commitments of any kind relating to Commercial's capital
stock.
(b) Commercial has furnished to Killbuck copies of all financial
statements relating to Commercial, as filed with the
appropriate regulatory agencies, as of and for the years ended
December 31, 1997 and 1996. Each of the aforementioned
financial statements is and shall be prepared in accordance
with Generally Accepted Accounting Principles or applicable
regulatory accounting principles applicable to Commercial
consistently applied and is and shall be true and correct in
all material respects and together present fairly the
consolidated financial position and results of operations of
Commercial as of the dates and for the periods therein set
forth. Commercial financial statements do not and will not, as
of the dates thereof, include any asset in excess of $5,000 or
omit any liability in excess of $5,000, absolute or
contingent, or other fact, the inclusion or omission of which
renders such financial statements, in light of the
circumstances under which they were made, misleading in any
material respect. Since December 31, 1997, there
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has not been any change in the financial condition, results of
operations, business or prospects of Commercial (including,
without limitation, any adverse trend in the loan loss
experience of Commercial) which in the aggregate, has had a
material adverse effect on Commercial's condition.
(c) The Board of Directors of Commercial has authorized execution
of this Agreement. Subject to the approval by the Shareholders
of Commercial, Commercial has all requisite power and
authority to enter in this Agreement and the Merger Agreement.
Commercial has the authority to consummate the transactions
contemplated hereby so that, provided all required corporate
and regulatory approvals are obtained, neither the execution
and delivery of this Agreement, the Merger Agreement nor the
consummation of the Merger will conflict with, result in the
breach of, constitute a default under or accelerate the
performance provided by the terms of any law, or any rule or
regulation of any governmental agency or authority or any
judgment, order or decree of any court or other governmental
agency to which Commercial may be subject, any contract,
agreement or instrument to which Commercial is a party or by
which Commercial is bound or committed, or the Articles of
Incorporation or Code of Regulations of Commercial, or
constitute an event which with the lapse of time or action by
a third party, could, to the best of Commercial's knowledge,
result in the default under any of the foregoing or result in
the creation of any lien, charge, encumbrance upon any of the
assets, property or capital stock of Commercial, except,
however, in the case of contracts, agreements or instruments,
such defaults, conflicts or breaches which either (i) will be
cured or waived prior to the time the Merger becomes
effective, or (ii) if not so cured or waived would not, in the
aggregate, have any material adverse effect on the financial
condition, results of operations or business of Commercial.
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(d) Except as disclosed in Subsection (d) of the Disclosure
Letter, there is no litigation, action, suit, investigation or
proceeding pending or, to the best of their knowledge after
due inquiry of Commercial and its executive officers, overtly
threatened, against or affecting Commercial or involving any
of their respective properties or assets, at law or in equity,
before any federal, state, municipal, local or other
governmental authority, involving in excess of $5,000, and to
the best of the knowledge and belief after due inquiry of
Commercial and its executive officers, no one has asserted and
no one has reasonable or valid ground on which it reasonably
can be expected that anyone will assert any such claims
against Commercial based upon the wrongful action or inaction
of Commercial or its respective officers, directors or
employees.
(e) Commercial has good and marketable title to all assets and
properties, whether real or personal, tangible or intangible
reflected in Commercial's Balance Sheet of December 31, 1997
or acquired subsequent thereto (except to the extent that such
assets and properties have been disposed of for fair value in
the ordinary course of business since December 31, 1997)
subject to no liens, mortgages, security interests,
encumbrances, pledges or charges of any kind, except: (i)
those items that secure liabilities that are reflected in said
Balance Sheet; (ii) statutory liens for taxes not yet
delinquent; and (iii) minor defects and irregularities in
title and encumbrances which do not impair the use thereof for
the purposes for which they are held; and such liens,
mortgages, security interests, encumbrances and charges are
not in the aggregate, material to the assets and properties of
Commercial. Commercial as lessee has the contractual right
under valid leases to occupy, use, possess and control all
material property leased by Commercial.
(f) To the best of the knowledge after due inquiry of Commercial
and its executive officers, Commercial has complied with all
laws, regulations and orders applicable to it and to the
conduct of its business, including without limitation, all
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statutes, rules and regulations pertaining to the conduct of
its banking activities except for possible technical
violations which together with any penalty which results
therefrom are or will be of no material consequence to
Commercial. Except as disclosed in Subsection (f) of the
Disclosure Letter, Commercial is not the subject of, nor is a
party to, any regulatory actions or agreement such as letter
agreements, memorandum of understanding, cease and desist
order or like agreements. Commercial is not in default under,
and no event has occurred which, with the lapse of time or
action by a third party, could, to the best of Commercial's
knowledge after due inquiry, result in the default under the
terms of any judgment, decree, order, writ, rule or regulation
of any governmental authority or court, whether federal, state
or local and whether at law or in equity.
(g) Except as disclosed in Subsection (g) of the Disclosure
Letter, Commercial has not, since December 31, 1997 to the
date hereof: (i) issued or sold any of its capital stock or
any corporate debt securities; (ii) granted any option for the
purchase of capital stock; (iii) declared or set aside or paid
any dividend or other distribution in respect of its capital
stock except as permitted pursuant to Section 9(a) hereof or,
directly or indirectly, purchased, redeemed or otherwise
acquired any shares of such stock; (iv) incurred any
obligation or liability (absolute or contingent), except for
obligations reflected in this Agreement or the Merger
Agreement, and except for obligations or liabilities incurred
in the ordinary course of business, or mortgaged, pledged or
subjected to lien or encumbrance (other than statutory liens
for taxes not yet delinquent) any of its assets or properties;
(v) discharged or satisfied any lien or encumbrance or paid
any obligation or liability (absolute or contingent), other
than the current portion of any long term liabilities which
become due after December 31, 1997, current liabilities
included in its financial statements as of December 31, 1997,
current liabilities incurred since the date thereof in the
ordinary course of business and liabilities incurred in
carrying
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out the transactions contemplated by this Agreement
or the Merger Agreement; (vi) sold, exchanged or otherwise
disposed of any of its capital assets worth in excess of
$5,000 outside the ordinary course of business; (vii) made any
officers' salary increase or wage increase other than in the
ordinary course of business, entered into any employment
contract with any officer or salaried employee or, instituted
any employee welfare, bonus, stock option, profit-sharing,
retirement or similar plan or arrangement; (viii) suffered any
damage, destruction or loss, whether or not covered by
insurance, involving in excess of $5,000, affecting its
business, property or assets or waived (except for fair
consideration) any rights of value which are material in the
aggregate, considering its business taken as a whole; or (ix)
entered or agreed to enter into any agreement or arrangement
granting any preferential right to purchase any of its assets,
properties or rights or requiring the consent of any party to
the transfer and assignment of any such assets, properties or
rights.
(h) Except as disclosed in Subsection (h) of the Disclosure
Letter, Commercial is not a party to or bound by any written
or oral: (i) employment or consulting contract which is not
terminable by it on 60 days or less notice, (ii) employee
bonus, deferred compensation, pension, stock bonus or
purchase, profit-sharing, retirement or stock option plan,
(iii) other employee benefit or welfare plan, or (iv) other
executory material agreements which in any case obligate
Commercial to make any payment(s) which in the aggregate
exceed $5,000 per year except for contracts terminable on 60
days notice. All such pension, stock bonus or purchase,
profit-sharing, defined benefit and retirement plans set forth
under the caption "Qualified Plans" in the Commercial Document
List (hereinafter referred to collectively as the "plans") are
qualified plans under Section 401(a) of the Internal Revenue
Code and in compliance in all material respects with ERISA.
All material notices, reports and other filings required under
applicable law to be
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given or made to or with any governmental agency with respect
to the plans have been timely filed or delivered where failure
to file would result in a penalty and/or result in
disqualification of the plan. Commercial has no knowledge
either of any circumstances which would adversely affect the
qualification of the plans or their compliance with ERISA, or
of any unreported "reportable event" (as such term is defined
in ERISA) or, any "prohibited transaction" (as such term is
defined in Section 406 of ERISA and Section 4975(c) of the
Internal Revenue Code) which has occurred since the date on
which said sections became applicable to the plans. The plans
meet the minimum funding standards set forth in the Internal
Revenue Code and ERISA.
(i) Commercial has duly filed all federal, state, county and local
income, excise, real and personal property and other tax
returns and reports (including, but not limited to, social
security, withholding, unemployment insurance, and sales and
use taxes) required to have been filed by Commercial up to the
date hereof. Except as set forth in Subsection (i) of the
Disclosure Letter, to the best of the knowledge and belief of
Commercial all such returns are true, are correct in all
material respects, and Commercial has paid or, prior to the
time the Merger shall become effective, will pay all taxes,
interest and penalties shown on such return or reports or
claimed together than those claims being contested in good
faith and which have been disclosed to Killbuck to be due to
any federal, state, county, local or other taxing authority,
and there is, and at the time the Merger shall become
effective will be, no basis for any additional claim or
assessment in excess of $5,000 and for which an adequate
reserve has not been established. To the best of its knowledge
and belief, Commercial has paid, made or will make adequate
provision in its financial statements or its books and records
for all taxes payable in respect of all periods ending as of
the date thereof. To the best of its knowledge and belief,
Commercial has, or at the time the Merger shall become
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effective will have, no liability for any taxes, interest or
penalties of any nature whatsoever, in excess of $5,000 except
for those taxes which may have arisen up to the time the
Merger shall become effective in the ordinary course of
business and are properly accrued on the books of Commercial
as of the time the Merger shall become effective.
(j) To the best of its knowledge and belief, but without having
undertaken an environmental audit, Commercial has no knowledge
of any underground storage tanks, any hazardous substances,
hazardous waste, pollutant or contaminant, including, but not
limited to, asbestos (except as disclosed in Subsection (j) of
the Disclosure Letter), PCB's or urea formaldehyde, having
been generated, released into, stored or deposited over, upon
or below (in storage tanks or otherwise) Commercial's premises
or any other real property owned or leased by Commercial other
than other real estate owned, for which no investigation was
conducted by Commercial, but for which Commercial has no
knowledge of such, or into any water systems on or below the
surface of the Commercial premises or any other real property
owned or leased by Commercial other than other real estate
owned, for which no investigation was conducted by Commercial,
but for which Commercial has no knowledge of such from any
source whatsoever. As used in this Agreement, the terms
"hazardous substance," "hazardous waste," "pollutant" and
"contaminant" mean any substance, waste, pollutant or
contaminant included within such terms under any applicable
Federal, state or local statute or regulation.
(k) Commercial has not incurred and will not incur any liability
for brokerage, finders', agents', or investment bankers' fees
or commissions in connection with this Agreement or the Merger
Agreement or the transactions contemplated hereby and thereby.
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(l) Subject to their fiduciary duties, the directors of Commercial
executing this Agreement shall vote the shares of Commercial
held directly by them in favor of adoption of the Agreement.
(m) All contracts and commitments (whether written or oral) that
may have a material effect on the business of Commercial are
disclosed in subsection (m) of the Disclosure Letter and
copies of any such written contracts or commitments have been
provided to Killbuck. All contracts and commitments for the
lease or purchase of equipment or services have been entered
into on an arm's length basis.
(n) The deposits of Commercial are insured by the Federal Deposit
Insurance Corporation in accordance with the Federal Deposit
Insurance Act ("FDIA"). Commercial has paid all assessments
and filed all reports required under the FDIA and is in
compliance, in all material respects, with all regulatory
requirements imposed in connection with the insurance of its
deposits.
(o) To the best of Commercial's knowledge and belief, the reserves
for possible loan losses on the outstanding loans of
Commercial (if any, as reflected in the balance sheet of
Commercial as of December 31, 1997 (the "1997 Balance Sheet")
are adequate to absorb all known and anticipated loan losses
in the loan portfolio of Commercial, net of recoveries
relating to loans previously charged off. Except as set forth
in subsection (o) of the Disclosure Letter, there are no loans
of Commercial the present principal balance of which is in
excess of $5,000 that have been classified orally or in
writing by bank examiners (regulatory or internal) as "Other
Loans Specifically Mentioned," "Substandard," "Doubtful," or
"Loss," as of the last examination date (which shall include
the date on which any examination prior to the effective time
is concluded). To the best of Commercial's knowledge and
belief, each loan in the principal amount of $5,000 or greater
reflected as an asset of Commercial in the 1997 Balance Sheet
or acquired by
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Commercial since December 31, 1997, is the legal, valid and
binding obligation of the obligor and any guarantor named
therein, and no such loan is subject to any defense, offset or
counterclaim. Except for pledges to secure public and trust
deposits, to the best of Commercial's knowledge and belief,
none of the investments reflected in the 1997 Balance Sheet
under the heading "Investment Securities," and none of the
investments made by Commercial since December 31, 1997, is
subject to any restriction, whether contractual or statutory,
which impairs the ability of Commercial freely to dispose of
such investment at any time. Commercial is not a party to any
repurchase agreements. Except as set forth in subsection (o)
of the Disclosure Letter, and except for transactions
aggregating less than $ 5,000, Commercial has not sold or
otherwise disposed of any assets in a transaction in which the
acquirer of such assets or any other person has the right,
either conditionally or absolutely, to require Commercial to
repurchase or otherwise re acquire any such assets.
(p) Subsection (q) of the Disclosure Letter contains a list and a
brief description of all insurance policies currently in force
with respect to Commercial. All premiums due on such policies
have been paid, and such policies will continue to remain in
force through the Effective Time. Subsection (q) of the
disclosure letter also contains a description of all claims in
excess of $1,000 currently pending under such insurance
policies, together with a list of all other claims in excess
of $1,000 which have been filed during the last three (3)
years and a description of the disposition thereof.
(q) Except to the extent reflected or reserved against in the 1997
Balance Sheet or in the notes thereto, as of the date of such
Balance Sheet, Commercial has no liabilities or obligations,
secured or unsecured, whether accrued, absolute, contingent or
otherwise, which would materially and adversely affect the
financial condition, results of operations, assets, or
business of Commercial.
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(r) Except for loans made in the ordinary course of business,
Commercial has no business relationships, business
transactions or indebtedness with or to any of its officers
and directors.
9. Action by Commercial Pending Effective Time. Commercial agrees that
from the date of this Agreement until the time the Merger shall become
effective, except with prior written permission of Killbuck:
(a) Beginning with the date hereof and until such time as the
Merger shall become effective, Commercial will not declare or
pay any dividends or make any distributions other than regular
cash dividends, payable at such times and in amounts
consistent with past practice and not to exceed the per share
rate paid in the prior calendar year. If, prior to the
consummation of the Merger, Commercial shall declare a stock
dividend or make distributions upon or subdivide, split up,
reclassify or combine its shares of common stock in any
security convertible into its common stock, appropriate
adjustment or adjustments will be made in the foregoing per
share dividend rate.
(b) Commercial will not issue, sell, grant any option for, or
acquire for value any shares of its capital stock or otherwise
effect any change in connection with its capitalization.
(c) Except as otherwise set forth in or contemplated by this
Agreement or the Merger Agreement, Commercial will carry on
its businesses in substantially the same manner as heretofore,
keep in full force and effect insurance comparable in amount
and scope of coverage to that now maintained by it and use its
best efforts to maintain and preserve its business
organization intact.
(d) Commercial will not: (i) enter into any transaction other than
in the ordinary course of business or incur or agree to incur
any obligation or liability except liabilities incurred and
obligations entered into in the ordinary course of business;
(ii) change its lending, investment, liability management and
other policies in any
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respect; (iii) except as committed for adjustment as of the
date hereof and consistent with prior practice, grant any
general or uniform increase in the rates of pay of employees;
(iv) incur or commit to any capital expenditures other than in
the ordinary course of business, or (v) merge into,
consolidate with or sell its assets to any other corporation
or person, or permit any other corporation to be merged or
consolidated with it or acquire all of the assets of any other
corporation or person.
(e) Commercial will not change its method of accounting in effect
at December 31, 1997 except as required by changes in
generally accepted accounting principles and concurred in by
Commercial's independent auditors, or change any of its
methods of reporting income and deductions for Federal income
tax purposes from those employed in the preparation of
Commercial's Federal income tax returns for the taxable year
ending December 31, 1997, except for changes required by law.
(f) Commercial will promptly advise Killbuck in writing of all
material actions taken by the directors and Shareholders of
Commercial, furnish Killbuck with copies of all minutes of
such action and monthly interim financial statements of
Commercial as they become available, and keep Killbuck fully
informed concerning all developments which in the opinion of
Commercial may have a material effect upon the business,
properties or condition (either financial or otherwise) of
Commercial.
10. Action by Killbuck Pending Effective Time. Killbuck agrees that from
the date of this Agreement until the time the Merger shall become
effective:
(a) Killbuck will carry on its business in substantially the same
manner as heretofore except as otherwise set forth in or
contemplated by this Agreement, and Killbuck will keep in full
force and effect insurance comparable in amount and scope of
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coverage to that now maintained by it and use its best efforts
to maintain and preserve its business organization intact.
(b) Killbuck will not change its methods of accounting in effect
at December 31, 1997, except as required by changes in
generally accepted accounting principles as concurred in by
Killbuck's independent auditors, or change any of its methods
of reporting income and deductions for Federal income tax
purposes from those employed in the preparation of the Federal
income tax returns of Killbuck's Subsidiary for the taxable
year ended December 31, 1997, except for changes required by
law or take any action which could jeopardize the tax free
nature of the Merger.(c) Killbuck will furnish Commercial with
copies of monthly interim financial statements of Killbuck and
keep Commercial fully informed concerning all developments
which in the opinion of Killbuck may have a material effect
upon the business, properties or condition (either financial
or otherwise) of Killbuck.
11. Conditions to Obligations of Killbuck. The obligations of Killbuck
under this Agreement and the Merger Agreement are subject, unless
waived by Killbuck, to the satisfaction of the following conditions on
or prior to the time the Merger shall become effective:
(a) There shall not have been any material adverse change or
discovery of a condition or the occurrence of an event which
has or is likely to result in such a change, in the financial
condition, aggregate net assets, Shareholders' equity,
business or operating results of Commercial from December 31,
1997 to the time the Merger shall become effective.
(b) Commercial shall not have paid cash dividends from the date
hereof to the time the Merger shall become effective except as
permitted under this Agreement.
(c) All representations by Commercial contained in this Agreement
and the Merger Agreement shall be true in all material
respects at, or as of, the time the Merger shall become
effective as though such representations were made at and as
of said
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date, except for changes contemplated by this Agreement or the
Merger Agreement and except also for representations as of a
specified time other than the time the Merger shall become
effective, which shall be true in all material respects at
such specified time. In addition, all amendments to the
Disclosure Letter shall have been approved by Killbuck in
accordance with Section 19.
(d) Killbuck shall have received the opinion of legal counsel for
Commercial, dated the time the Merger shall become effective,
substantially to the effect set forth in Exhibit A hereto.
(e) Commercial shall have performed or satisfied in all material
respects all undertakings, agreements and conditions required
by this Agreement or the Merger Agreement to be performed or
satisfied by it at or prior to the time the Merger shall
become effective.
(f) At the time the Merger shall become effective, no suit, action
or proceeding shall be pending or overtly threatened before
any court or other governmental agency by the federal or state
government in which it is sought to restrain or prohibit the
consummation of the Merger, and no other suit, action or
proceeding shall be pending or overtly threatened and no
liability or claim shall have been asserted against Commercial
which Killbuck shall in good faith determine, with advice of
counsel: (i) has a reasonable likelihood of being successfully
prosecuted and (ii) if successfully prosecuted, would
materially and adversely affect the benefits hereunder
intended for Killbuck.
(g) Prior to the time the Merger shall become effective, Killbuck
shall not have been deprived of adequate opportunity to
conduct such review and examination of the business,
properties, and condition (financial or otherwise) of
Commercial as Killbuck shall have deemed prudent. In the event
Commercial receives a written examination report or written
agreement with a state or federal banking regulatory agency,
Killbuck shall have an opportunity to review such examination
report or
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written agreement for a period of thirty days and may, at its
option, elect to terminate its obligations under this
Agreement during such review period.
(h) Holders of Commercial Common Stock who are entitled to
exercise in the aggregate not more than 10% of the voting
power of the issued and outstanding Commercial Common Stock as
of the time the Merger shall become effective shall have taken
steps to perfect their rights as dissenting Shareholders
pursuant to the provisions the Sections 1115.19 and 1701.85 of
the Ohio Revised Code so that if, at the time the Merger shall
become effective, holders of more than 10% of such shares
shall have taken such steps, Killbuck may, at its option,
refuse to consummate the Merger.
(i) Commercial shall have furnished Killbuck certificates, signed
on its behalf by the Chairman or President and the Secretary
or an Assistant Secretary of Commercial and dated the time the
Merger shall become effective, to the effect that to the best
of their knowledge, after due inquiry, the conditions
described in Paragraphs (a), (b), (c), and (f) of this Section
11 have been fully satisfied.
(j) Killbuck shall have received from each Affiliate a certificate
in the form specified by Killbuck.
(k) Killbuck shall have received from Commercial the officers'
certificates required pursuant to Section 4 (m) hereof.
(l) Each of (i) the Board of Directors of Commercial, (ii)
Commercial' shareholders and (iii) Killbuck's shareholders
shall have approved this Agreement and the Agreement of
Merger.
(m) Prior to the Closing, Commercial will have provided Killbuck
with a list of all certificates of deposit or checking,
savings or other deposits and a list of all certificates of
deposit or checking, savings or other deposits owned by
directors and officers of Commercial and their affiliates as
of the last day of the calendar month immediately prior to the
Closing. In addition, Commercial shall provide
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Killbuck with a list of (i) all certificates of deposit,
checking, savings or other deposits in excess of $100,000 and
(ii) all customers with aggregate deposits in excess of
$100,000.
(n) Killbuck shall have received evidence, satisfactory to it,
that Commercial shall have taken such actions as are necessary
to secure supplemental Medicare medical insurance (to be
implemented at or prior to the effective time of the Merger)
for any former director of Commercial presently insured on
Commercial's group medical insurance policy, and caused the
corresponding removal from the group term medical insurance
policy of Commercial such director and such director's family.
12. Conditions to Obligations of Commercial. The obligations of Commercial
under this Agreement or the Merger Agreement are subject, unless waived
by Commercial, to the satisfaction on or prior to the time the Merger
shall become effective of the following conditions:
(a) There shall not have been any material adverse change or
discovery of a condition or the occurrence of an
event which has or is likely to result in such a change, in
the financial condition, aggregate net assets, Shareholders'
equity, business, or operating results of Killbuck from
December 31, 1997, to the time the Merger shall become
effective.
(b) All representations by Killbuck contained in this Agreement
and the Merger Agreement shall be true in all material
respects at, or as of, the time the Merger shall become
effective as though such representations were made at and as
of said date, except for changes contemplated by this
Agreement and the Merger Agreement, and except also for
representations as of a specified time other than the time the
Merger shall become effective, which shall be true in all
material respects at such specified time.
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(c) Commercial shall have received the opinion of counsel for
Killbuck dated the time the Merger shall become effective
substantially to the effect set forth in Exhibit B hereto.
(d) Killbuck shall have performed or satisfied in all material
respects all undertakings, agreements and conditions required
by this Agreement and the Merger Agreement to be performed or
satisfied by it at or prior to the time the Merger shall
become effective.
(e) At the time the Merger shall become effective, no suit, action
or proceeding shall be pending or overtly threatened before
any court or other governmental agency of the federal or state
government in which it is sought to restrain, prohibit or set
aside consummation of the Merger and no other suit, action or
proceeding shall be pending or overtly threatened and no
liability or claim shall have been asserted against Killbuck
which Commercial shall in good faith determine, with advice of
counsel: (i) has a reasonable likelihood of being successfully
prosecuted and (ii) if successfully prosecuted, would
materially and adversely affect the benefits hereunder
intended for Commercial and its Shareholders.
(f) Killbuck shall have furnished Commercial a certificate, signed
by the Chairman or President and by the Secretary or Assistant
Secretary of Killbuck and dated the time the Merger shall
become effective to the effect that to the best of their
knowledge after due inquiry the conditions described in
Paragraphs (a), (b), and (e) of this Section 12 have been
fully satisfied.
(g) Killbuck and Commercial shall have received the tax opinion
called for pursuant to Section 6 of this Agreement and there
shall exist as of, at or immediately prior to the time the
Merger shall become effective no facts or circumstances which
would render such opinion inapplicable in any respect to the
transactions to be consummated hereunder.
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(h) Prior to the time the Merger shall become effective,
Commercial shall not have been deprived of adequate
opportunity to conduct such review and examination of the
business, properties, and condition (financial or otherwise)
of Killbuck as Commercial shall have deemed prudent. In the
event Killbuck receives a written examination report or
written agreement with a state or federal banking regulatory
agency, Commercial shall have an opportunity to review such
examination report or written agreement for a period of thirty
days and may, at its option, elect to terminate its
obligations under this Agreement during such review period.
13. Conditions to Obligations of All Parties. In addition to the provisions
of Sections 11 and 12 hereof, the obligations of Killbuck and
Commercial to cause the transactions contemplated herein to be
consummated shall be subject to the satisfaction of the following
conditions on or prior to the time the Merger shall become effective:
(a) The parties hereto shall have received all necessary approvals
of governmental agencies and authorities of the transactions
contemplated by this Agreement and each of such approvals
shall remain in full force and effect at the time the Merger
shall become effective and such approvals and the transactions
contemplated thereby shall not have been contested by any
federal or state governmental authority by formal proceeding,
or contested by any other third party by formal proceeding
which the Board of Directors or the party asserting a failure
of a condition under this Section 13(a) shall in good faith
determine, with the advice of counsel: (i) has a reasonable
likelihood of being successfully prosecuted and (ii) if
successfully prosecuted, would materially and adversely affect
the benefits hereunder intended for such party. It is
understood that, if any contest as aforesaid is brought by
formal proceedings, Killbuck may, but shall not be obligated
to, answer and defend such contest. Killbuck shall notify
Commercial promptly upon receipt of all necessary governmental
approvals.
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(b) The registration statement required to be filed by Killbuck
pursuant to Section 4(c) of this Agreement shall have become
effective by an order of the Securities and Exchange
Commission or a suitable exemption shall be available
therefrom, the shares of Killbuck Common Shares to be
exchanged in the Merger shall have been qualified or exempted
under all applicable state securities laws, and if filed there
shall have been no stop order issued or threatened by the
Securities and Exchange Commission that suspends or would
suspend the effectiveness of the registration statement, and
no proceeding shall have been commenced, pending or overtly
threatened for such purpose.
(c) This Agreement and the Merger Agreement shall have been duly
adopted, ratified and confirmed by the requisite affirmative
votes of the Shareholders of Commercial.
14. Non-survival of Representations and Warranties. The respective
representations and warranties of Killbuck and Commercial set forth
shall expire at the effective time of the Merger.
15. Governing Law. This Agreement shall be construed and interpreted
according to the applicable laws of the State of Ohio.
16. Assignment. This Agreement and the Merger Agreement and all of the
provisions hereof and thereof shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and
permitted assigns, but neither this Agreement nor the Merger Agreement
nor any of the rights, interest, or obligations hereunder or thereunder
shall be assigned by either of the parties hereto without the prior
written consent of the other party.
17. Satisfaction of Conditions; Termination.
(a) Killbuck agrees to use its best effort to obtain satisfaction
of the conditions insofar as they relate to Killbuck, and
Commercial agrees to use its best efforts to obtain the
satisfaction of the conditions insofar as they relate to
Commercial. If
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any material condition to the obligations of Killbuck set
forth in Section 11 or 13 is not substantially satisfied at
the time or times contemplated thereby and such condition is
not waived by Killbuck, or if any material condition to the
obligations of Commercial set forth in Section 12 or 13 is not
substantially satisfied at the time or times contemplated
thereby and such condition is not waived by Commercial, or if
at any time prior to the time the Merger shall become
effective, it shall become reasonably certain that such
condition will not be substantially satisfied and such
condition is not waived by Killbuck or Commercial, as the case
may be, either Killbuck or Commercial may terminate this
Agreement by written notice to the other party after the
expiration of fifteen (15) days written notice to the other
party during which time such other party shall have an
opportunity to cure such defect in said condition. This
Agreement may be terminated and abandoned (either before or
after the meetings of Shareholders contemplated hereby) by
mutual written consent of Killbuck and Commercial authorized
by their respective Boards of Directors. In the event of such
termination caused otherwise than by breach of this Agreement
by any of the parties hereto, this Agreement shall cease and
terminate, the acquisition of Commercial as provided herein
shall not be consummated, and neither Killbuck nor Commercial
shall have any further liability under this Agreement of any
nature whatever, including any liability for damages. In the
event this Agreement is terminated, the duties of both parties
with respect to confidential information set forth in Sections
4(d) shall survive any such termination. In addition to the
other grounds for termination of this Agreement set forth
herein, this Agreement can be terminated by written notice by
either party to the other, in each case authorized by its
Board of Directors, if the Merger shall not have been
consummated by February 1, 1999, or the date of such notice,
whichever is later.
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(b) If termination of this Agreement shall be judicially
determined to have been caused by breach of this Agreement,
then, in addition to other remedies at law or equity for
breach of this Agreement, the party so found to have breached
this Agreement shall indemnify the other parties for their
respective costs, fees and expenses of its counsel,
accountants and other experts and advisors as well as fees and
expenses incident to negotiation, preparation and execution of
this Agreement and related actions and its Shareholders'
meetings and actions.
18. Waivers, Amendments. Any of the provisions of this Agreement may be
waived at any time by the party which is, or the Shareholders of which
are, entitled to the benefit thereof, by resolution of the Board of
Directors of such party. This Agreement may be amended or modified in
whole or in part by an agreement in writing executed in the same manner
(but not necessarily by the same person) as this Agreement and which
makes reference to this Agreement, pursuant to a resolution, adopted by
the Boards of Directors of the respective parties, provided, however,
such amendment or modification may be made in this manner by the
respective Boards of Directors of Killbuck and Commercial at anytime
prior to a favorable vote of such party's Shareholders, (if such
shareholder approval is otherwise required) but may be made after a
favorable vote by the Shareholders (if such shareholders approval is
otherwise required) of such party, only if, in the opinion of its Board
of Directors, such amendment or modification will not have any material
adverse effect on the benefits intended under this Agreement for the
Shareholders of such party and will not require resolicitation of any
proxies from such Shareholders.
19. Entire Agreement. This Agreement supersedes any other agreement,
whether written or oral, that may have been made or entered into by
Killbuck and Commercial or by any officer or officers of such parties
relating to the acquisition of the business or the capital stock of
Commercial by Killbuck. This Agreement, including the exhibits and
schedules hereto (which shall include the Disclosure Letter and the
Merger Agreement) together
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<PAGE> 55
constitute the entire agreement of the parties, and there are no
agreements or commitments except as set forth herein and therein. This
Agreement and the Merger Agreement may only be amended in a writing
signed by the parties hereto and thereto. The Disclosure Letter may be
amended by Commercial from time to time after the date hereof upon the
prior written consent of Killbuck.
20. Captions; Counterparts. The captions in this Agreement are for
convenience only and shall not be considered a part of or affect the
construction or interpretation of any provision of this Agreement. This
Agreement may be executed in several counterparts, each of which shall
constitute one and the same instrument.
21. Notices. All notices and other communications hereunder shall be deemed
to have been duly given if forwarded by regular First Class United
States Mail, postage prepaid, or a nationally recognized overnight
courier service. All notices and other communications hereunder given
to any party shall be communicated to the remaining party to this
Agreement by mail in the same manner as herein provided.
a) If to Killbuck, to:
Luther E. Proper
President
Killbuck Bancshares, Inc.
165 N. Main
Killbuck, OH 44637
With copies to:
Martin D. Werner, Esq.
Werner & Blank Co., LPA
7205 W. Central Ave.
Toledo, OH 43617
(419) 841-8051/PH
(419) 841-8380/FX
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<PAGE> 56
(b) If to Commercial, to:
Mr. Robert K. Wagner
President
Commercial and Savings Bank Co.
701 South Market Street
Danville, OH 43014
With copies to:
Clifford A. Roe, Jr., Esq.
Dinsmore & Shohl, P.L.L.
1900 Chemed Center
255 East Fifth Street
Cincinnati, Ohio 45202-3172
(513) 977-8200/PH
(513) 977-8141/FX
22. Publicity. Killbuck and Commercial agree to consult with and obtain the
consent of the other, prior to any media release or other public
disclosures as to the matters covered by this Agreement, except as may
be required by law.
24. Knowledge. Whenever a representation or warranty is made herein as
being "to the knowledge of" a party hereto or the officers or directors
thereof, it is understood that an officer has made or caused to be made
by personnel or representatives competent to determine the accuracy
thereof (and the results thereof reported to him) an investigation
which is appropriate to determine the accuracy of such representation
or warranty.
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<PAGE> 57
IN WITNESS WHEREOF, this Agreement has been executed the day and year
first above written.
ATTEST: Killbuck Bancshares, Inc.
____________________
By:___________________________
By:_________________ Luther E. Proper, President
Its:________________
ATTEST: Commercial and Savings Bank Co.
____________________
By:___________________________
By:_________________ Robert K. Wagner, President
Its:________________
As individuals and with respect solely to the understanding made in Section 8(l)
of this Agreement.
_____________________ ____________________________
_____________________ ____________________________
_____________________ ____________________________
_____________________ ____________________________
_____________________ ____________________________
_____________________ ____________________________
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<PAGE> 58
APPENDIX A
MERGER AGREEMENT
THIS MERGER AGREEMENT (this "Agreement") dated as of __________, 1998,
is by and between The Killbuck Savings Bank Company, Ohio ("Killbuck Bank"), an
Ohio state banking corporation and wholly owned subsidiary of Killbuck
Bancshares, Inc., ("Killbuck") and Commercial and Savings Bank Co., Danville,
Ohio ("Commercial"), an Ohio state banking corporation and is joined in by
Killbuck, the sole shareholder of Killbuck Bank.
WITNESSETH:
WHEREAS, the Board of Directors of the Killbuck Bank and the Board of
Directors of Commercial have determined that it is in the best interests of the
Killbuck Bank and Commercial to merge Commercial with and into Killbuck Bank in
accordance with the provisions of the laws of the State of Ohio (the "Merger");
and
WHEREAS, the Board of Directors of Commercial and the Board of
Directors of Killbuck Bank have each adopted a resolution approving this
Agreement and have directed that the Merger Agreement be submitted to the
shareholders of Commercial and Killbuck Bank entitled to vote in respect thereof
for adoption and approval;
NOW, THEREFORE, the parties hereto, subject to the terms and conditions
contained herein, agrees as follows:
ARTICLE I
Constituent Corporations
Commercial and Killbuck Bank shall be the constituent banking
corporations with respect to the Merger.
ARTICLE II
Merger
Effective as of the date set forth in the Certificate of Merger filed
in accordance with Section 1115.11 (F) of the Ohio Revised Code with the
Superintendent of Banks for the State of Ohio (the "Effective Time"), Commercial
shall be merged into Killbuck Bank and Killbuck Bank shall be the surviving
banking corporation (the "Surviving Corporation"), which after the effective
time of the Merger shall be known as "The Killbuck Savings Bank Company."
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<PAGE> 59
ARTICLE III
Articles of Incorporation, Etc.
1. At the Effective Time, the Articles of Incorporation and Code of
Regulations of Killbuck shall constitute the Articles of Incorporation
Code of Regulations of the Surviving Corporation.
2. The Surviving Corporation's main office shall be located 165 N. Main
St., Killbuck, Ohio, until otherwise changed in accordance with law.
3. The officers of Killbuck Bank immediately prior to the Effective Time
shall be the officers of the Surviving Corporation, each to hold office
until his respective successor is duly elected or appointed and
qualified in accordance with the provisions of the Articles of
Incorporation and Code of Regulations of the Surviving Corporation and
of applicable law, or until his earlier death, resignation or removal.
The officers of Commercial immediately prior to the Effective Time
shall be appointed as officers of the Surviving Corporation by the
Board of Directors immediately after the Effective Time, to hold such
officer and titles as shall be determined by the Board of Directors of
the Surviving Corporation.
4. The directors of the Surviving Corporation shall be all of the
directors of Killbuck immediately prior to the Effective Time.
ARTICLE IV
Manner of Converting and Exchanging Stock and Capital Structure
1. Subject to the provisions of this Article IV, the manner of
converting and exchanging the shares of the constituent corporation's stock at
the Effective Time shall be as follows.
Conversion and Exchange of Shares.
(a) At the time the Merger shall become effective;
(i) All of the outstanding certificates for shares of
Commercial Common Stock shall, subject to statutory
dissenters rights as provided Ohio Revised Code
Section 1115.19 and 1701.85, be converted into the
right to receive .4317 duly authorized, validly
issued, fully paid and non-assessable Killbuck Common
Shares, subject to pro rata adjustment in the event
of any stock dividend, stock split or other general
distribution of Killbuck Common Stock prior to the
Merger.
(ii) The shares of Killbuck Common Stock issued and
outstanding immediately prior to the time the Merger
shall become effective shall
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<PAGE> 60
continue to be issued and outstanding shares of
the Surviving Corporation and shall be held by
Killbuck.
(b) No fractional shares or scrip representing fractional Killbuck
Common Shares will be issued by Killbuck in connection with
the Merger, but in lieu thereof, any holder of Commercial
Common Stock entitled to such a fractional share shall, upon
surrender of the certificate or certificates formerly
representing such Commercial Common Stock, be paid cash,
without interest, by Killbuck for such fractional share(s).
The cash paid for fractional shares shall be based upon $350
per share of Killbuck Common Shares.
(c) As soon as practicable after the time the Merger shall become
effective, and subject to the provisions set forth above
relating to the fractional shares, Killbuck will distribute to
the former holders of Commercial Common Stock in exchange for
and upon surrender for cancellation by such holders of a
certificate or certificates formerly representing shares of
Commercial Common Stock the certificate(s) for Killbuck Common
Shares in accordance with the provisions regarding the
exchange of shares of Commercial Common Stock set forth in
paragraph 1(a)(i) of this Merger Agreement. Each certificate
formerly representing Commercial Common Stock (other than
certificates representing shares of Commercial Common Stock
subject to the rights of dissenting shareholders) shall be
deemed for all purposes to evidence the ownership of the
number of whole Killbuck Common Shares and cash for fractional
share interests in Killbuck Common Shares into which such
shares have been converted. Certificates representing shares
of Commercial Common Stock held by a stockholder of
Commercial, shall be aggregated together in determining the
number of fractional shares for which such shareholder shall
receive cash as provided for herein. Until surrender of the
certificate or certificates formerly representing shares of
Commercial Common Stock, the holder thereof shall not be
entitled to receive any dividend or other payment or
distribution payable to holders of Killbuck Common Shares.
Upon such surrender (or in lieu of surrender other provisions
reasonably satisfactory to Killbuck as are made as set forth
in the next following paragraph), there shall be paid to the
person entitled thereto the aggregate amount of dividends or
other payments or distributions (in each case without
interest) which became payable after the time the Merger shall
become effective on the whole Killbuck Common Shares
represented by the certificates issued upon such surrender and
exchange or in accordance with such other provisions, as the
case may be. After the time the Merger shall become effective,
the holders of certificates formerly representing shares of
Commercial Common Stock shall cease to have rights with
respect to such shares except such rights, if any, as a holder
of certificates formerly representing shares of Commercial
Common Stock may have as dissenting shareholders pursuant to
Ohio law and except as aforesaid, their sole rights shall be
to exchange said certificates for certificates for Killbuck
Common Shares in accordance with this Merger Agreement.
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<PAGE> 61
Certificates formerly representing shares of Commercial Common
Stock surrendered for cancellation by each shareholder
entitled to exchange shares of Commercial Common Stock for
Killbuck Common Shares by reason of the Merger shall be
accompanied by such appropriate instruments of transfer as
Killbuck may reasonably require, provided, however, that if
there be delivered to Killbuck by any person who is unable to
produce any such certificate formerly representing shares of
Commercial Common Stock for transfer (i) evidence to the
reasonable satisfaction of Killbuck that any such certificate
has been lost, wrongfully taken or destroyed, and (ii) such
indemnity agreement as reasonably may be requested by Killbuck
to save it harmless, and (iii) evidence to the reasonable
satisfaction of Killbuck that such person is the owner of the
shares theretofore represented by each certificate claimed by
him to be lost, wrongfully taken or destroyed and that he is
the person who would be entitled to present each such
certificate and to receive Killbuck Common Shares pursuant to
this Merger Agreement, then Killbuck (or an Exchange Agent, as
the case may be), in the absence of actual notice to it that
any shares theretofore represented by any such certificate
have been acquired by a bona fide purchaser, shall deliver to
such person the certificate(s) representing Killbuck Common
Shares which such person would have been entitled to receive
upon surrender of each such lost, wrongfully taken or
destroyed certificate representing shares of Commercial Common
Stock.
2. After the Effective Time, there shall be no transfers of the stock
transfer books of Killbuck Bank of any certificates representing shares
of Killbuck Bank Common Stock. After the Effective Time, upon
presentation to the Surviving Corporation of certificates formerly
representing capital stock of Killbuck Bank, such certificates shall be
canceled.
3. The Resulting Corporation shall have a capital structure equal to the
following:
(a) Common stock of $__________, consisting of _________shares of
$____ par value all of which will be issued and outstanding
immediately following the Effective Time of the Merger; and
(b) Surplus of $_______________; and
(c) Undivided profits, including capital reserves, of
$____________, adjusted for all earnings and losses between
January 1, 1998, and the Effective Time of the Merger.
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<PAGE> 62
ARTICLE V
Effect of Merger
From and after the Effective Time, the Surviving Corporation shall have
all of the rights, interests, privileges, powers, immunities and franchises
(public and private) of each of the constituent corporations, and all property
(real, personal and mixed), all debts due on whatever account, and all other
chooses in action, of each of the constituent corporations. All interests of or
belonging to or due to either of the constituent corporations shall thereupon be
deemed to be transferred to and vested in the Surviving Corporation without act
or deed and no title to any real estate or any interest therein vested in either
of the constituent corporations shall revert or be in any way impaired because
of the Merger.
ARTICLE VI
Surviving Corporation
From and after the Effective Time, the Surviving Corporation shall be
responsible for all obligations of each of the constituent corporations and each
claim existing and each action or proceeding pending by or against either of the
constituent corporations may be prosecuted as if the Merger had not taken place,
and the Surviving Corporation may be substituted in the place of such
constituent corporation. No right of any creditor of either constituent
corporation and no lien upon the property of either constituent corporation
shall be impaired by the Merger.
ARTICLE VII
Further Documents
If at any time the Surviving Corporation shall consider or be advised
that any further assignments, conveyances or assurances in law are necessary or
desirable to vest, perfect or confirm of record in the Surviving Corporation the
title to any property or rights of the constituent corporations, or otherwise to
carry out the provisions hereof, the persons who were the proper officers and
directors of the constituent corporations immediately prior to the Effective
Time (or their successors in office) shall execute and deliver any and all
proper deeds, assignments and assurances in law, and do all things necessary or
proper, to vest, perfect or confirm title to such property or rights in the
Surviving Corporation, including, but not limited to, filing with each court or
other public tribunal, agency or officer by which Commercial or Killbuck Bank
have been appointed in the capacity of fiduciary or agent, and in the court file
of each estate, suit or proceeding in which any of them has been acting, a
statement setting forth the information required by law or otherwise to carry
out the provisions hereof.
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<PAGE> 63
ARTICLE VIII
Termination
Notwithstanding the adoption and approval of this Agreement and the
Merger by the shareholders of Commercial and Killbuck Bank, this Agreement and
the Merger may be terminated:
(a) At any time prior to the Effective Time, by the mutual
consent of the Boards of Directors of Commercial and
Killbuck Bank; or
(b) This Merger Agreement shall automatically terminate in the
event of the termination of the Agreement and Plan of
Reorganization dated __________, 1998 by and between
Commercial and Killbuck to which it relates.
(c) At any time prior to the Effective Time, by Commercial or
Killbuck Bank if there shall have been a final judicial
determination (as to which all periods for appeal shall have
expired and no appeal shall be pending) that any material
provision of this Agreement or of the Merger is illegal,
invalid or unenforceable;
In the event that this Agreement is terminated pursuant to this Article
VIII, the Merger provided for herein shall be abandoned automatically and
without any further act or deed by the parties hereto.
ARTICLE IX
Conditions to Consummation of the Merger
The consummation of the Merger pursuant to this Merger Agreement and
the obligations of the parties hereto is subject to the satisfaction of the
provisions and conditions of the Agreement and Plan of Reorganization by and
between Commercial and Killbuck dated ________, 1998.
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<PAGE> 64
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and attested to on their behalf by the following directors and officers
thereunto duly authorized as of the day and year first written above.
Commercial and Savings Bank Co.: The Killbuck Savings Bank Company
By:_____________________________ By:_____________________________
Robert K. Wagner, President Luther E. Proper, President
Attest: Attest:
________________________________ ________________________________
by: ____________________________ by: Jon D. Boley
its:____________________________ its: Cashier
Killbuck Bancshares, Inc.:
By:_____________________________
Luther E. Proper, President
Attest:
________________________________
by: Jon D. Boley
its: Secretary
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<PAGE> 65
EXHIBIT A
____________________, 1998
Board of Directors
Killbuck Bancshares, Inc.
165 N. Main
Killbuck, OH 44637
Re: Commercial and Savings Bank Co.
Members of the Board:
We have acted as special counsel to Commercial and Savings Bank Co., an Ohio
banking corporation ("Commercial"), in connection with the contemplated
Agreement and Plan of Reorganization dated_______, 1998, and related Merger
Agreement (the "Agreement") between Commercial and Killbuck Bancshares, Inc.
("Killbuck"). This Opinion Letter is rendered to you pursuant to Section -_(_)
of the Agreement. Capitalized terms not otherwise defined herein shall have the
meanings ascribed to them in the Agreement.
We have examined such documents and matters and conducted such research as we
have deemed necessary or appropriate for the purpose of rendering this opinion.
As to questions of fact, we have relied upon statements and certificates from
certain officers of Commercial as well as certificates of certain public
officials.
This Opinion Letter is governed by, and shall be interpreted in accordance with,
the Legal Opinion Accord (the "Accord") of the ABA Section of Business Law
(1991). As a consequence, it is subject to a number of qualifications,
exceptions, definitions, limitations on coverage and other limitations, all as
more particularly described in the Accord, and this Opinion Letter should be
read in conjunction therewith. The law addressed by this opinion is limited to
the law of the State of Ohio and the federal law of the United States.
Based upon the foregoing, and subject to the qualifications more particularly
herein set forth, we are of the opinion that:
1. Commercial is an banking corporation validly existing under the laws of the
State of Ohio and has the requisite corporate power and authority to own
its properties and to carry on the business in which it is now engaged.
2. All necessary corporate proceedings of Commercial have been duly taken to
authorize the execution, delivery and performance of the Agreement by
Commercial and the consummation of the transactions contemplated by the
Agreement. The Agreement constitutes the legal, valid and binding
obligation of Commercial, enforceable in accordance with its terms, except:
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<PAGE> 66
a. as such enforceability may be limited by bankruptcy, insolvency,
reorganization, fraudulent conveyance or similar laws affecting
creditors' rights; and
b. that the remedy of specific performance and injunctive and other forms
of equitable relief are subject to certain equitable defenses and to
the discretion of the court before which any proceedings may be
brought.
3. The execution, delivery and performance of the Agreement by Commercial will
not violate or result in a breach of any term of Commercial's Articles of
Incorporation or Code of Regulations, or violate, result in a breach of, or
constitute a default under any term of any material agreement known to us
to which Commercial is a party.
4. The authorized capital stock of Commercial consists of 20,200 shares of
common stock, $_____ par value per share, all of which are issued and
outstanding as of _________, 1998. To our knowledge, there are no
outstanding options, warrants or other rights to acquire, or securities
convertible into any capital stock of Commercial.
5. All consents or approvals of any regulatory authority having jurisdiction
over Commercial or its subsidiary that are required to be obtained in
connection with the Merger and the transactions contemplated by the
Agreement have been obtained.
6. There is no suit, action, investigation or other proceeding pending or, to
our knowledge, threatened against Commercial or any of its subsidiaries
which would adversely affect the ability of Commercial to consummate the
Merger or perform its obligations under the Agreement.
This opinion is solely for the benefit of the addressee hereof and may not be
relied upon by any other person or party or in any other context without our
prior written consent. This opinion is delivered as of the date hereof, and we
expressly disclaim any undertaking to update it.
Very truly yours,
Dinsmore & Shohl, L.L.P.
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<PAGE> 67
EXHIBIT B
____________________, 1998
Board of Directors
Commercial and Savings Bank Co.
701 S. Market Street
Danville, OH 44854
Re: Killbuck Bancshares, Inc.
Members of the Board:
We have acted as special counsel to Killbuck Bancshares, Inc., an Ohio
corporation ("Killbuck"), in connection with the contemplated Agreement and Plan
of Reorganization dated _______, 1998 and related Merger Agreement (the
"Agreement") between Killbuck and Commercial and Savings Bank Co..
("Commercial"). This Opinion Letter is rendered to you pursuant to Section -_(_)
of the Agreement. Capitalized terms not otherwise defined herein shall have the
meanings ascribed to them in the Agreement.
We have examined such documents and matters and conducted such research as we
have deemed necessary or appropriate for the purpose of rendering this opinion.
As to questions of fact, we have relied upon statements and certificates from
certain officers of Killbuck as well as certificates of certain public
officials.
This Opinion Letter is governed by, and shall be interpreted in accordance with,
the Legal Opinion Accord (the "Accord") of the ABA Section of Business Law
(1991). As a consequence, it is subject to a number of qualifications,
exceptions, definitions, limitations on coverage and other limitations, all as
more particularly described in the Accord, and this Opinion Letter should be
read in conjunction therewith. The law addressed by this opinion is limited to
the law of the State of Ohio and the federal law of the United States.
Based upon the foregoing, and subject to the qualifications more particularly
herein set forth, we are of the opinion that:
1. Killbuck is a corporation validly existing under the laws of the State of
Ohio and has the requisite corporate power and authority to own its
properties and to carry on the business in which it is now engaged.
2. All necessary corporate proceedings of Killbuck have been duly taken to
authorize the execution, delivery and performance of the Agreement by
Killbuck and the consummation of the transactions contemplated by the
Agreement. The Agreement constitutes the legal, valid and binding
obligation of Killbuck, enforceable in accordance with its terms, except:
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<PAGE> 68
a. as such enforceability may be limited by bankruptcy, insolvency,
reorganization, fraudulent conveyance or similar laws affecting
creditors' rights; and
b. that the remedy of specific performance and injunctive and other forms
of equitable relief are subject to certain equitable defenses and to
the discretion of the court before which any proceedings may be
brought.
3. The execution, delivery and performance of the Agreement by Killbuck will
not violate or result in a breach of any term of Killbuck's Articles of
Incorporation or Code of Regulations, or violate, result in a breach of, or
constitute a default under any term of any material agreement known to us
to which Killbuck is a party.
4. Killbuck is registered as a bank holding company under the Bank Holding
Company Act of 1956, as amended.
5. The authorized capital stock of Killbuck consists of 200,000 shares of
common stock, no par value per share, of which a total of 132,380 shares
are issued and outstanding as of _________, 1998. To our knowledge, there
are no outstanding options, warrants or other rights to acquire, or
securities convertible into any capital stock of Killbuck.
6. The shares of Killbuck Common Stock to be issued to the shareholders of
Commercial under the Agreement will be, at the effective time of the
Merger, duly and validly authorized and issued and fully paid and
nonassessable.
7. All consents or approvals of any regulatory authority having jurisdiction
over Killbuck or its subsidiary that are required to be obtained in
connection with the Merger and the transactions contemplated by the
Agreement have been obtained.
8. The Registration Statement on Form S-4 filed by Killbuck pursuant to the
Agreement has become effective and no stop order revoking such
effectiveness has been issued or has been threatened. [If an exemption
available - delete.]
9. There is no suit, action, investigation or other proceeding pending or, to
our knowledge, threatened against Killbuck or any of its subsidiary which
would adversely affect the ability of Killbuck to consummate the Merger or
perform its obligations under the Agreement.
This opinion is solely for the benefit of the addressee hereof and may not be
relied upon by any other person or party or in any other context without our
prior written consent. This opinion is delivered as of the date hereof, and we
expressly disclaim any undertaking to update it.
Very truly yours,
Werner & Blank Co., L.P.A.
129
<PAGE> 1
Exhibit 21
Subsidiaries of the Registrant
The registrant has only a single subsidiary which is an operating Ohio
commercial banking corporation.
Subsidiary Percentage Owned
--------------------------------------------------------------------------
The Killbank Savings Bank Company 100%
165 N. Main Street
Killbuck, OH 44637
130
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF INCOME FILED AS
PART OF THE ANNUAL REPORT ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 6,301
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 8,300
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 35,079
<INVESTMENTS-CARRYING> 23,398
<INVESTMENTS-MARKET> 23,967
<LOANS> 121,671
<ALLOWANCE> 1,745
<TOTAL-ASSETS> 197,909
<DEPOSITS> 163,809
<SHORT-TERM> 3,210
<LIABILITIES-OTHER> 487
<LONG-TERM> 8,245
0
0
<COMMON> 2,700
<OTHER-SE> 19,458
<TOTAL-LIABILITIES-AND-EQUITY> 197,909
<INTEREST-LOAN> 11,492
<INTEREST-INVEST> 3,362
<INTEREST-OTHER> 372
<INTEREST-TOTAL> 15,226
<INTEREST-DEPOSIT> 6,851
<INTEREST-EXPENSE> 7,344
<INTEREST-INCOME-NET> 7,882
<LOAN-LOSSES> 180
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 4,036
<INCOME-PRETAX> 4,114
<INCOME-PRE-EXTRAORDINARY> 4,114
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,005
<EPS-PRIMARY> 22.59
<EPS-DILUTED> 22.59
<YIELD-ACTUAL> 4.28
<LOANS-NON> 121
<LOANS-PAST> 75
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,653
<CHARGE-OFFS> 190
<RECOVERIES> 102
<ALLOWANCE-CLOSE> 1,745
<ALLOWANCE-DOMESTIC> 898
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 847
</TABLE>
