<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the Fiscal Year Ended December 31, 1999
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from _________ to __________
Commission File Number: 0-25971
INDIAN VILLAGE BANCORP, INC.
(Name of small business issuer in its charter)
PENNSYLVANIA 34-1891199
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
100 South Walnut Street, Gnadenhutten, Ohio 44629
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (740) 254-4313
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No _____
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Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of the Form 10-KSB
or any amendment to this Form 10-KSB. ________
The issuer's gross revenues for the fiscal year ended December 31, 1999
were $3,654,000.
The aggregate market value of the voting and non-voting common equity held
by non-affiliates was $3,716,000, based upon the average of the bid and asked
price ($11.125 per share) as quoted on the OTC Bulletin Board for March 10,
2000. Solely for purposes of this calculation, the shares held by the directors
and officers of the registrant are deemed to be held by affiliates.
The number of shares outstanding of the registrant's Common Stock as of
March 15, 2000 was 445,583.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1999 Annual Report to Stockholders and of the Proxy Statement
for the 2000 Annual Meeting of Stockholders are incorporated by reference in
Parts II and III, respectively, of this Form 10-KSB
Transitional Small Business Disclosure Format (check one): Yes ____ No X
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INDEX
<TABLE>
<CAPTION>
Part I
Page
<S> <C>
Item 1. Description of Business........................................................................ 3
Item 2. Description of Property........................................................................ 28
Item 3. Legal Proceedings.............................................................................. 28
Item 4. Submission of Matters to a Vote of Securities Holders.......................................... 28
Part II
Item 5. Market for Common Equity and Related Stockholder Matters....................................... 29
Item 6. Management's Discussion and Analysis or Plan of Operation...................................... 29
Item 7. Financial Statements........................................................................... 29
Item 8. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure........... 29
Part III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a)
of the Exchange Act......................................................................... 29
Item 10. Executive Compensation......................................................................... 29
Item 11. Security Ownership of Certain Beneficial Owners and Management................................. 29
Item 12. Certain Relationships and Related Transactions................................................. 29
Item 13. Exhibits and Reports on Form 8-K............................................................... 30
</TABLE>
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This report contains certain "forward-looking statements" within the
meaning of the federal securities laws. These statements are not historical
facts, rather statements based on Indian Village Bancorp, Inc.'s current
expectations regarding its business strategies, intended results and future
performance. Forward-looking statements are preceded by terms such as
"expects," "believes," "anticipates," "intends" and similar expressions.
Management's ability to predict results or the effect of future plans or
strategies is inherently uncertain. Factors which could affect actual results
include interest rate trends, the general economic climate in the market area in
which Indian Village Bancorp, Inc. operates, as well as nationwide, Indian
Village Bancorp, Inc.'s ability to control costs and expenses, competitive
products and pricing, loan delinquency rates and changes in federal and state
legislation and regulation. These factors should be considered in evaluating
the forward-looking statements and undue reliance should not be placed on such
statements. Indian Village Bancorp, Inc. assumes no obligation to update any
forward-looking statements.
PART I
Item 1. DESCRIPTION OF BUSINESS
General
Indian Village Bancorp, Inc., headquartered in Gnadenhutten, Ohio, was
formed in March 1999 as the holding company for Indian Village Community Bank in
connection with the conversion of Indian Village from mutual to stock form of
ownership. The conversion was completed on July 1, 1999 through the sale of
445,583 shares of common stock by Indian Village Bancorp at a price of $10.00
per share. Indian Village Bancorp's sole business activity is the ownership of
all of Indian Village's capital stock. Indian Village Bancorp does not transact
any material business other than through its subsidiary, Indian Village. Indian
Village Bancorp is subject to the regulation of the Office of Thrift Supervision
and the Securities and Exchange Commission. Indian Village Bancorp is listed on
the OTC Bulletin Board under the symbol IDVB.
Indian Village's principal business is attracting deposits from the
general public and originating loans secured by one-to-four family residential
real estate properties located in its market area. Indian Village is regulated
by the Office of Thrift Supervision and the Federal Deposit Insurance
Corporation. Indian Village's deposits are federally insured by the Federal
Deposit Insurance Corporation. Indian Village is a member of the Federal Home
Loan Bank System.
Market Area
Tuscarawas County in east central Ohio is Indian Village's primary market
area, although it also originates loans to borrowers and accepts deposits from
individuals residing in contiguous counties. Much of Tuscarawas County is rural
with dairy and grain farming being the primary businesses. Light manufacturing
and services are located in and around the towns of Dover and New Philadelphia.
Major industries include steel, machine tooling, chemicals and heavy machinery.
Because Tuscarawas County is primarily rural and its economy is based
predominately in agriculture, its demographics are generally weaker, on average,
than Ohio and the U.S. as a whole.
Competition
Indian Village faces intense competition for the attraction of deposits
and origination of loans in its primary market area. Its most direct competition
for deposits has historically come from the several commercial banks operating
in Indian Village's primary market area and, to a lesser extent, from other
financial institutions, such as brokerage firms, credit unions and insurance
companies. Particularly in times of high interest rates, Indian Village has
faced additional significant competition for investors' funds from short-term
money market securities and other corporate and government securities. Indian
Village's competition for loans comes primarily from the commercial banks and
loan brokers operating in its primary market area. Competition for deposits and
the origination of loans may limit Indian Village's growth in the future.
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Lending Activities
General. At December 31, 1999, Indian Village's net loans totaled $37.3
million, or 62.8% of total assets. Indian Village has concentrated its lending
activities on fixed-rate one- to four-family mortgage loans. To a lesser
extent, Indian Village also originates multi-family, commercial real estate,
land, residential construction loans, and consumer loans. Indian Village
occasionally purchases participation interests in multi-family loans originated
by other lenders and secured by properties located in other areas of Ohio.
Loan Portfolio Analysis. The following table presents the composition of
Indian Village's loan portfolio at the dates indicated. Indian Village had no
concentration of loans exceeding 10% of total loans receivable other than as
disclosed below.
<TABLE>
<CAPTION>
At December 31,
---------------------------------------------------------
1999 1998
-------------------------- --------------------------
Percent Percent
Amount of Total Amount of Total
------------ ------------ ----------- ------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Real estate loans:
One- to four-family.......................................... $28,413 75.54% $26,080 82.57%
Multi-family................................................. 1,669 4.44 1,736 5.50
Commercial................................................... 2,172 5.77 647 2.05
Construction................................................. 1,251 3.33 677 2.14
Land......................................................... 437 1.16 135 0.43
------- ------ ------- ------
Total real estate loans................................... 33,942 90.24 29,275 92.69
Consumer loans:
Home equity loans and lines of credit........................ 1,185 3.15 887 2.81
Home improvement loans....................................... 420 1.12 301 0.95
Automobile................................................... 789 2.10 516 1.63
Loans on deposit accounts.................................... 231 0.61 294 0.93
Unsecured.................................................... 89 0.24 12 0.04
Other........................................................ 898 2.39 274 0.87
------- ------ ------- ------
Total consumer loans...................................... 3,612 9.61 2,284 7.23
Commercial business loans....................................... 60 0.15 27 0.08
------- ------ ------- ------
Total loans............................................... 37,614 100.00% 31,586 100.00%
------ ======
Less:
Net deferred loan fees and costs............................. (68) (54)
Loans in process............................................. (23) (40)
Allowance for loan losses.................................... (232) (218)
------- -------
Net loans................................................. $37,291 $31,274
======= =======
</TABLE>
One- to Four-Family Real Estate Loans. Indian Village's primary lending
activity is the origination of loans secured by one- to four-family residences
located in its primary market area. One- to four-family mortgage loans are
generally held in Indian Village's portfolio for long-term investment.
At December 31, 1999, Indian Village's residential mortgage loan portfolio
consisted primarily of fixed-rate fully amortizing loans with maturities ranging
between 15 and 25 years. Management establishes the loan interest rate based on
market conditions. Indian Village generally retains these loans in its
portfolio because they generally do not
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conform to guidelines for sale in the secondary market. These nonconforming
characteristics generally relate to the characteristics of the real property,
such as excess acreage or the lack of site surveys, rather than the credit
worthiness of the borrower. Indian Village generally underwrites and documents
its residential mortgage loans to secondary market standards.
Recently, in order to improve its interest rate risk exposure, Indian
Village began offering adjustable rate mortgage loans with an interest rate
based on the one year Constant Maturity Treasury Bill index that adjusts every
year and with terms up to 25 years. These loans have a minimum interest rate of
6% and a maximum interest rate of 16% over the life of the loan. Interest rate
adjustments are limited to no more than 2% during any adjustment period. At
December 31, 1999, adjustable rate mortgage loans secured by one- to four-family
residences amounted to $1.0 million.
Adjustable rate mortgage loans, which Indian Village intends to originate
and retain in its portfolio, will help reduce Indian Village's exposure to
changes in interest rates. There are, however, unquantifiable credit risks
resulting from the potential of increased costs due to changed rates to be paid
by the borrower. It is possible that during periods of rising interest rates the
risk of default on adjustable rate mortgage loans may increase as a result of
repricing and the increased payments required by the borrower. In addition,
although adjustable rate mortgage loans allow Indian Village to increase the
sensitivity of its asset base to changes in interest rates, the extent of this
interest sensitivity is limited by the annual and lifetime interest rate
adjustment limits. Because of these considerations Indian Village has no
assurance that yields on adjustable rate mortgage loans will be sufficient to
offset increases in Indian Village's cost of funds during periods of rising
interest rates. Indian Village believes these risks, which have not had a
material adverse effect on Indian Village to date, generally are less than the
risks associated with holding fixed-rate loans in its portfolio in a rising
interest rate environment.
Indian Village generally requires an acceptable attorney's opinion on the
status of its lien on all loans where real estate is the primary source of
security. Indian Village also requires that fire and casualty insurance and, if
appropriate, flood insurance be maintained in an amount at least equal to the
outstanding loan balance.
Indian Village's one- to four-family residential mortgage loans do not
exceed 80% of the appraised value of the security property. Indian Village does
not use private mortgage insurance which would permit it to make loans with
higher loan-to-value ratios. An independent certified appraiser generally
appraises all properties.
Multi-family and Commercial Real Estate Loans. Indian Village occasionally
originates and purchases mortgage loans for the acquisition and refinancing of
multi-family and commercial real estate properties. All purchased participation
interests are underwritten according to the same standards that Indian Village
would use if it were originating the underlying loans. Indian Village has no
written or oral commitments with any institution to purchase predetermined
numbers or types of participation interests. At December 31, 1999, purchased
participation interests amounted to $1.3 million. At December 31, 1999, Indian
Village's commercial real estate loans are secured by churches, storefronts, a
strip shopping center and a warehouse, all of which are located in Ohio.
Multi-family and commercial real estate loans are fully amortizing loans
that are generally originated with fixed interest rates, but are occasionally
originated with variable rates. Fixed rate loans are originated for terms up to
25 years. Variable rate loans are originated for terms up to 25 years. The
interest rate on variable rate loans adjusts at either one, three or five year
intervals.
Multi-family and commercial real estate lending affords Indian Village an
opportunity to receive interest at rates higher than those generally available
from one- to four-family residential lending. However, loans secured by these
properties usually are greater in amount and are more difficult to evaluate and
monitor and, therefore, involve a greater degree of risk than one- to four-
family residential mortgage loans. Because payments on loans secured by income
producing properties are often dependent on the successful operation and
management of the properties, repayment of these loans may be affected by
adverse conditions in the real estate market or the economy. Indian Village
seeks to minimize these risks by limiting the maximum loan-to-value ratio to up
to 80% for multi-family and commercial real estate loans and by strictly
scrutinizing the financial condition of the borrower, the cash flow of the
project, the quality of the collateral and the management of the property
securing the loan. Indian Village also generally obtains loan guarantees from
financially capable parties based on a review of personal financial statements.
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Residential Construction Loans. Indian Village originates residential
construction loans to local home builders and to individuals for the
construction and acquisition of personal residences. Indian Village's
construction loans to builders generally have fixed interest rates and are for a
term of six months. Loans to builders are typically made with a maximum loan to
value ratio of 80%. These loans are usually made to the builder before there is
an identified buyer for the completed home. Indian Village generally lends to
no more than three builders with whom it has long standing relationships and
limits each builder to no more than three homes under construction at a time. At
December 31, 1999, speculative construction loans to builders amounted to
$95,000. Construction loans to individuals are made on the same terms as Indian
Village's one- to four-family mortgage loans, but provide for the payment of
interest only during the construction phase, which is usually six months with a
contingency for an additional six months. At the end of the construction phase,
the loan converts to a permanent mortgage loan.
Before making a commitment to fund a construction loan, Indian Village
requires an appraisal of the property by an independent certified appraiser.
Indian Village also reviews and inspects each project before disbursement of
funds during the term of the construction loan. Loan proceeds are disbursed
after inspection based on the percentage of completion.
Construction lending affords Indian Village the opportunity to earn higher
interest rates with shorter terms to maturity relative to single-family
permanent mortgage lending. Construction lending, however, is generally
considered to involve a higher degree of risk than single-family permanent
mortgage lending because of the inherent difficulty in estimating both a
property's value at completion of the project and the estimated cost of the
project. These loans are generally more difficult to evaluate and monitor. If
the estimate of construction cost proves to be inaccurate, Indian Village may be
required to advance funds beyond the amount originally committed to protect the
value of the project. If the estimate of value upon completion proves to be
inaccurate, Indian Village may be confronted with a project whose value is
insufficient to assure full repayment. Projects may also be jeopardized by
disagreements between borrowers and builders and by the failure of builders to
pay subcontractors. Loans to builders to construct homes for which no purchaser
has been identified carry more risk because the payoff for the loan depends on
the builder's ability to sell the property before the construction loan is due.
Indian Village has attempted to minimize the foregoing risks by, among
other things, limiting its construction lending to residential properties. It is
also Indian Village's general policy to obtain regular financial statements from
builders so that it can monitor their financial strength and ability to repay.
Land Loans. Indian Village occasionally originates loans secured by
unimproved land. These loans have terms of up to 15 years and generally have
fixed interest rates and loan-to-value ratios of up to 65%.
Consumer Loans. Indian Village introduced home equity loans and lines of
credit in May 1996 and other consumer loans in April 1998. Indian Village
intends to increase its emphasis on consumer loans because they have shorter
maturities than real estate mortgage loans, which helps to reduce Indian
Village's interest rate risk exposure, and higher yields than real estate
mortgage loans.
Home equity loans are generally fixed rate loans that fully amortize over
terms up to 10 years. Home equity lines of credit are written with variable
interest rates. The loan-to-value ratios on both home equity loans and lines of
credit are generally limited to 80%, taking into account the outstanding balance
of the first mortgage loan.
Home improvement loans are generally fixed-rate loans that fully amortize
over terms up to 15 years. Home improvement loans are generally secured by a
second mortgage on the property being improved. The loan-to-value ratio
generally does not exceed 80%, taking into account the outstanding balance of
the first mortgage loan.
Automobile loans are generally fixed rate loans. Loans on new automobiles
are written with terms up to 66 months and with loan-to-value ratios not
exceeding 100% for new cars and 90% for used cars. Loans on used cars are
written for lesser terms depending on the age of the vehicle. Indian Village
does not engage in indirect consumer lending.
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Loans on deposit accounts generally carry interest rates up to 2% above the
rate paid on the deposit account securing the loan. The terms are generally
written for terms not exceeding five years, but may also be written as renewable
short term interest-only demand loans.
At December 31, 1999, Indian Village's other consumer loans generally
consisted of loans secured by various personal property other than real estate,
and secured lines of credit.
Consumer loans entail greater risk than do residential mortgage loans,
particularly in the case of loans that are unsecured or secured by rapidly
depreciating assets such as automobiles. In these cases, any repossessed
collateral for a defaulted consumer loan may not provide an adequate source of
repayment of the outstanding loan balance as a result of the greater likelihood
of damage, loss or depreciation. The remaining deficiency often does not warrant
further substantial collection efforts against the borrower beyond obtaining a
deficiency judgment. In addition, consumer loan collections are dependent on the
borrower's continuing financial stability, and thus are more likely to be
adversely affected by job loss, divorce, illness or personal bankruptcy.
Commercial Business Loans. Indian Village does not actively originate
commercial business loans. These loans are generally fixed-rate loans with
terms up to five years and secured by vehicle and business equipment.
Loans to One Borrower. The maximum amount that Indian Village may lend to
one borrower is limited by federal regulations. At December 31, 1999, Indian
Village's regulatory limit on loans to one borrower was $1.1 million. At that
date, Indian Village's largest amount of loans to one borrower, including the
borrower's related interests, was $770,000 and consisted of one multi-family
loan and five residential mortgage loans. These loans were performing according
to their original terms at December 31, 1999.
Maturity of Loan Portfolio. The following table presents certain
information at December 31, 1999 regarding the dollar amount of loans maturing
in Indian Village's portfolio based on their contractual terms to maturity, but
does not include potential prepayments. Demand loans, loans having no stated
schedule of repayments and no stated maturity, and overdrafts are reported as
becoming due within one year. Loan balances do not include undisbursed loan
proceeds, unearned discounts, unearned income and allowance for loan losses.
<TABLE>
<CAPTION>
At December 31, 1999
------------------------------------------------------------------------------------
Multi-
One- to Family and
Four- Commercial Commercial Total
Family (1) Real Estate Construction Consumer Business Loans
---------- ----------- ------------ -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Amounts due in:
One year or less........................... $ 93 $ 7 $ -- $ 899 $ -- $ 999
More than one year to three years.......... 289 -- -- 260 -- 549
More than three years to five years........ 390 155 -- 746 60 1,351
More than five years to 10 years........... 3,546 210 -- 226 -- 3,982
More than 10 years to 15 years............. 13,697 2,702 109 294 -- 16,802
More than 15 years......................... 10,835 767 1,142 1,187 -- 13,931
------- ------ ------ ------ ---- -------
Total amount due........................ $28,850 $3,841 $1,251 $3,612 $ 60 $37,614
======= ====== ====== ====== ==== =======
</TABLE>
_______________
(1) Includes land loans.
7
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The following table presents the dollar amount of all loans at December 31,
1999 that are due after December 31, 2000.
<TABLE>
<CAPTION>
Due After December 31, 2000
-------------------------------------------
Fixed- Adjustable-
Rate Rate Total
------- ----------- -------
(Dollars in Thousands)
<S> <C> <C> <C>
Amounts due in:
Real estate loans:
One- to four-family..................... $27,372 $ 948 $28,320
Multi-family............................ 205 1,465 1,670
Commercial.............................. 1,063 1,101 2,164
Construction............................ 1,179 72 1,251
Land.................................... 175 262 437
------- ------ -------
Total real estate loans................ 29,994 3,848 33,842
Consumer loans........................... 1,630 1,083 2,713
Commercial business loans................ 60 -- 60
------- ------ -------
Total loans............................ $31,684 $4,931 $36,615
======= ====== =======
</TABLE>
Scheduled contractual principal repayments of loans do not reflect the
actual life of the loans. The average life of a loan is substantially less than
its contractual term because of prepayments. In addition, due-on-sale clauses on
loans generally give Indian Village the right to declare loans immediately due
and payable if, among other things, the borrower sells the real property with
the mortgage and the loan is not repaid. The average life of a mortgage loan
tends to increase, however, when current mortgage loan market rates are
substantially higher than rates on existing mortgage loans and, conversely,
tends to decrease when rates on existing mortgage loans are substantially higher
than current mortgage loan market rates.
Loan Solicitation and Processing. Indian Village's lending activities
follow written, non-discriminatory, underwriting standards and loan origination
procedures established by Indian Village's Board of Directors and management.
Loan originations come from a number of sources. The customary sources of loan
originations are realtors, referrals and existing customers. Indian Village does
not utilize mortgage brokers or other third-party originators. Loans less than
or equal to $150,000 may be approved by Marty R. Lindon or Martin Merryman with
one other loan committee signature or Loan Committee member signature. Loans
above $150,000 but less than $300,000 are approved by the Loan Committee,
comprised of Mr. Lindon, John A. Beitzel and Mr. Merryman. Loans equal to or
greater than $300,000 are approved by the full Board of Directors.
Loan Originations, Purchases and Sales. Indian Village primarily originates
fixed-rate mortgage loans with amortization terms of up to 25 years.
In late 1998, Indian Village began originating mortgage loans for
Countrywide Home Loans Inc., an unrelated party. Generally, these loans are 30-
year fixed rate mortgage loans that Indian Village chooses not to originate for
its portfolio, either for investment or for sale, because of interest rate risk
management, or loans that do not meet the credit standards for loans that Indian
Village retains in its portfolio. Indian Village's functions are limited to
accepting the application, obtaining credit reports and appraisals, verifying
employment history and other application processing functions. Indian Village
generally receives a processing fee equal to 1% of the loan balance as
compensation. Countrywide underwrites the loan, issues any interest rate
commitment to the borrower, writes the loan on its own loan documents and funds
the loan at closing. These loans never become an asset of Indian Village,
exposing it to credit risk or interest rate risk. Furthermore, Countrywide has
no right of recourse against Indian Village on any of these loans. During 1999,
Indian Village originated an immaterial dollar amount of loans under this
program and recorded an immaterial amount of income.
Occasionally, Indian Village purchases participation interests in multi-
family loans secured by properties located in Ohio but outside of its primary
market area. Indian Village generally limits its participation interest to
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between 5% and 25%. Indian Village has established a policy that limits the
maximum participation interest per loan to $500,000 or less. Generally, the lead
lender retains the servicing rights. Indian Village pays no fee on the loans it
purchases and has no agreements or understandings with any lender to purchase a
predetermined amount of participation interests. Indian Village underwrites all
purchased participation interests according to the underwriting standards it
uses for loans it originates.
Except as for residential mortgage loans originated on behalf of a third
party private lender, as discussed above, Indian Village generally holds all
loans for long-term investment.
The following table presents total loans originated, purchased, sold and
repaid during the periods indicated.
<TABLE>
<CAPTION>
For the Year Ended
December 31,
------------------------
1999 1998
------- -------
(In thousands)
<S> <C> <C>
Total loans at beginning of period.......................................................... $31,586 $27,518
Originations:
Real estate:
One- to four-family................................................................ 6,723 5,113
Multi-family....................................................................... 574 560
Commercial......................................................................... 879 205
Construction....................................................................... 1,962 1,178
Land............................................................................... 616 112
------- -------
Total real estate loans......................................................... 10,754 7,168
Consumer loans........................................................................ 2,534 1,596
Commercial business................................................................... 68 --
------- -------
Total loans originated.......................................................... 13,356 8,764
Purchases................................................................................ 800 --
Sales.................................................................................... -- --
Less:
Principal loan repayments and prepayments................................................ (8,128) (4,615)
Transfers to real estate owned........................................................... -- (81)
------- -------
(8,128) (4,696)
------- -------
Net loan activity........................................................................... 6,028 4,068
------- -------
Total loans at end of period................................................................ $37,614 $31,586
======= =======
</TABLE>
Loan Commitments. Indian Village issues commitments for mortgage loans
conditioned upon the occurrence of certain events. Commitments are made in
writing on specified terms and conditions and are honored for up to 30 days from
approval. At December 31, 1999, Indian Village had variable rate loan
commitments totaling $833,000, ranging in rates from 7.75% to 9.25%, and fixed-
rate loan commitments totaling $1.0 million, ranging in rates from 7.25% to
17.5%.
Loan Fees. In addition to interest earned on loans, Indian Village receives
income from fees in connection with loan originations, loan modifications, late
payments and for miscellaneous services related to its loans. Income from these
activities varies from period to period depending upon the volume and type of
loans made and competitive conditions.
Indian Village charges loan origination fees for fixed-rate loans which are
calculated as a percentage of the amount borrowed. As required by applicable
accounting procedures, loan origination fees and discount points in excess
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of loan origination costs are deferred and recognized over the contractual
remaining lives of the related loans on a level yield basis. Discounts and
premiums on loans purchased are accreted and amortized in the same manner. At
December 31, 1999, Indian Village had $68,000 of deferred loan fees. Indian
Village recognized $15,000 of deferred loan fees during the year ended December
31, 1999 in connection with loan refinancings, payoffs, sales and ongoing
amortization of outstanding loans.
Nonperforming Assets and Delinquencies. All loan payments are due on the
first day of each month. When a borrowers fails to make a required loan payment,
Indian Village attempts to cure the deficiency by contacting the borrower and
seeking the payment. A late notice is mailed on the 30/th/ day of the month. In
most cases, deficiencies are cured promptly. If a delinquency continues beyond
the 30/th/ day of the month, a phone call to the borrower is usually made on the
45/th/ day of delinquency. On or about the 60/th/ day of delinquency, Indian
Village sends a certified letter to the borrower giving the borrower 10 days in
which to work out a payment schedule. While Indian Village generally prefers to
work with borrowers to resolve problems, Indian Village will institute
foreclosure or other proceedings after the 90/th/ day of a delinquency, as
necessary, to minimize any potential loss.
Management informs the Board of Directors monthly of the amount of loans
delinquent more than 60 days, all loans in foreclosure, and all foreclosed and
repossessed property that Indian Village owns.
Indian Village ceases accruing interest on mortgage loans when, in the
judgment of management, the probability of collection of interest is deemed to
be insufficient to warrant further accrual. Indian Village does not accrue
interest on mortgage loans past due 90 days or more when the estimated value of
collateral and collection efforts are deemed insufficient to ensure full
recovery.
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The following table presents information with respect to Indian Village's
nonperforming assets at the dates indicated.
<TABLE>
<CAPTION>
At December 31,
---------------------------
1999 1998
----- -----
(Dollars in Thousands)
<S> <C> <C>
Nonaccruing loans:
One- to four-family.................................................................... $ 330 $ 241
Multi-family........................................................................... -- --
Commercial real estate................................................................. -- --
Construction........................................................................... -- --
Land................................................................................... -- --
Consumer............................................................................... 7 87
Commercial business.................................................................... -- --
----- -----
Total nonaccruing loans (1)......................................................... 337 328
Loans past due 90 days and accruing interest.............................................. -- --
Real estate owned (2)..................................................................... 118 122
Other repossessed assets.................................................................. 13 23
----- -----
Total nonperforming assets (3)...................................................... 468 473
Troubled debt restructurings.............................................................. -- --
----- -----
Troubled debt restructurings and total
nonperforming assets................................................................... $ 468 $ 473
===== =====
Total nonperforming loans and troubled debt restructurings
as a percentage of total loans......................................................... 0.90% 1.04%
Total nonperforming assets and troubled debt restructurings
as a percentage of total assets........................................................ 0.79% 1.18%
</TABLE>
_____________________________________
(1) Total nonaccruing loans equals total nonperforming loans.
(2) Real estate owned balances are shown net of related loss allowances.
(3) Nonperforming assets consist of nonperforming loans, impaired loans, real
estate owned and other repossessed assets.
Interest income that would have been recorded for 1999 had nonaccruing
loans been current according to their original terms amounted to approximately
$7,000. No interest was included in interest income in 1999 related to these
loans.
Real Estate Owned. Real estate acquired by Indian Village as a result of
foreclosure or by deed-in-lieu of foreclosure is classified as real estate owned
until sold. When property is acquired it is recorded at fair market value at the
date of foreclosure, establishing a new cost basis. If the fair value declines,
Indian Village records a valuation allowance through expense. Costs after
acquisition are expensed. At December 31, 1999, Indian Village had $118,000 of
real estate owned, consisting of one residential property and one commercial
property.
Asset Classification. The Office of Thrift Supervision has adopted various
regulations regarding problem assets of savings institutions. The regulations
require that each insured institution review and classify its assets on a
regular basis. In addition, Office of Thrift Supervision examiners have
authority to identify problem assets during examinations and, if appropriate,
require them to be classified.
There are three classifications for problem assets: substandard, doubtful
and loss. Substandard assets have one or more defined weaknesses and are
characterized by the distinct possibility that the insured institution will
sustain some loss if the deficiencies are not corrected. Doubtful assets have
the weaknesses of substandard assets with the additional characteristic that the
weaknesses make collection or liquidation in full on the basis of currently
existing facts, conditions and values questionable, and there is a high
possibility of loss. An asset classified as loss is considered uncollectible and
of such little value that continuance as an asset of the institution is not
warranted. If an asset or
11
<PAGE>
portion thereof is classified as loss, the insured institution establishes
specific allowances for loan losses for the full amount of the portion of the
asset classified as loss. All or a portion of general loan loss allowances
established to cover possible losses related to assets classified substandard or
doubtful can be included in determining an institution's regulatory capital,
while specific valuation allowances for loan losses generally do not qualify as
regulatory capital. Assets that do not currently expose the insured institution
to sufficient risk to warrant classification in one of the aforementioned
categories but possess weaknesses are designated "special mention." Indian
Village monitors "special mention" assets.
The aggregate amounts of Indian Village's classified and special mention
assets at the dates indicated were as follows:
<TABLE>
<CAPTION>
At December 31,
----------------------
1999 1998
---- ----
(In Thousands)
<S> <C> <C>
Classified assets:
Loss..................................................................................... $ -- $ --
Doubtful................................................................................. -- --
Substandard.............................................................................. 468 416
Special mention.......................................................................... 20 173
</TABLE>
At December 31, 1999, assets designated substandard consisted of real
estate owned of $131,000 and 11 residential mortgage loans and three consumer
loans totaling $337,000, and assets designated as special mention consisted of
one residential mortgage loan.
Allowance for Loan Losses. In originating loans, Indian Village recognizes
that losses will be experienced and that the risk of loss will vary with, among
other things, the type of loan being made, the creditworthiness of the borrower
over the term of the loan, general economic conditions and, in the case of a
secured loan, the quality of the security for the loan. 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 charged to operations.
The provision for loan losses is based on management's evaluation of the
collectibility of the loan portfolio, including past loan loss experience, known
and inherent risks in the nature and volume of the portfolio, information about
specific borrower situations and estimated collateral values, and economic
conditions.
At December 31, 1999, Indian Village had an allowance for loan losses of
$232,000. Although management believes that it uses the best information
available to establish the allowance for loan losses, future adjustments to the
allowance for loan losses may be necessary and results of operations could be
significantly and adversely affected if circumstances differ substantially from
the assumptions used in making the determinations. Furthermore, while Indian
Village believes it has established its existing allowance for loan losses as
required by generally accepted accounting principles, there can be no assurance
that regulators, in reviewing Indian Village's loan portfolio, will not request
Indian Village to increase significantly its allowance for loan losses. In
addition, because future events affecting borrowers and collateral cannot be
predicted with certainty, there can be no assurance that the existing allowance
for loan losses is adequate or that substantial increases will not be necessary
should the quality of any loans deteriorate as a result of the factors discussed
above. Any material increase in the allowance for loan losses may adversely
affect Indian Village's financial condition and results of operations.
12
<PAGE>
The following table presents an analysis of Indian Village's allowance for
loan losses.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1999 1998
------ -------
(Dollars in thousands)
<S> <C> <C>
Allowance for loan losses, beginning of period.......................................... $ 218 $ 176
Charge-offs:
One- to four-family.................................................................. -- --
Multi-family......................................................................... -- --
Commercial........................................................................... -- (18)
Construction......................................................................... -- --
Land................................................................................. -- --
Consumer............................................................................. -- --
Commercial business.................................................................. -- --
------ -------
Total charge-offs................................................................. -- (18)
Recoveries:
One- to four-family.................................................................. -- --
Multi-family......................................................................... -- --
Commercial........................................................................... -- --
Construction......................................................................... -- --
Land................................................................................. -- --
Consumer............................................................................. -- --
Commercial business.................................................................. -- --
------ -------
Total recoveries.................................................................. -- --
Net charge-offs......................................................................... -- (18)
Provision for loan losses............................................................... 14 60
------ -------
Allowance for loan losses, end of period................................................ $ 232 $ 218
====== =======
Net charge-offs to average interest-earning loans....................................... -- % 0.06%
Allowance for loan losses to total loans................................................ 0.62% 0.69%
Allowance for loan losses to nonperforming loans and
troubled debt restructurings......................................................... 68.84% 66.46%
Net charge-offs to allowance for loan losses............................................ 0.00% 8.26%
</TABLE>
13
<PAGE>
The following table presents the approximate allocation of the allowance
for loan losses by loan category at the dates indicated. Management believes
that the allowance can be allocated by category only on an approximate basis.
The allocation of the allowance to each category is not necessarily indicative
of future losses and does not restrict the use of the allowance to absorb losses
in any other category.
<TABLE>
<CAPTION>
At December 31,
--------------------------------------------------------------------------------
1999 1998
-------------------------------------- ------------------------------------
Percent of Percent of
Allowance Percent Allowance Percent
in Each of Loans in Each of Loans
Category in Each Category in Each
to Total Category to to Total Category to
Amount Allowance Total Loans Amount Allowance Total Loans
------ ---------- ----------- ------ ---------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Real estate loans:
One- to four-family......................... $ 103 44.40% 75.54% $ 121 55.50% 82.57%
Multi-family................................ 8 3.45 4.44 9 4.13 5.50
Commercial.................................. 8 3.45 5.77 5 2.29 2.05
Construction................................ 5 2.16 3.33 1 0.46 2.14
Land........................................ 4 1.72 1.16 1 0.46 0.43
Consumer loans................................. 17 7.33 9.61 10 4.59 7.23
Commercial business loans...................... 2 0.86 0.15 -- -- 0.08
Unallocated.................................... 85 36.36 -- 71 32.57 --
----- ------ ------ ----- ------ ------
Total allowance for loan losses.......... $ 232 100.00% 100.00% $ 218 100.00% 100.00%
===== ====== ====== ===== ====== ======
</TABLE>
Investment Activities
Indian Village is permitted under federal law to invest in various types of
liquid assets, including U.S. Government obligations, securities of various
federal agencies and of state and municipal governments, deposits at the Federal
Home Loan Bank of Cincinnati, certificates of deposit of federally insured
institutions, certain bankers' acceptances and federal funds. Within certain
regulatory limits, Indian Village may also invest a portion of its assets in
commercial paper and corporate debt securities. Savings institutions like Indian
Village are also required to maintain an investment in Federal Home Loan Bank of
Cincinnati stock. Indian Village is required under federal regulations to
maintain a minimum amount of liquid assets.
Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," requires that investments be
categorized as "held to maturity," "trading securities" or "available for sale,"
based on management's intent as to the ultimate disposition of each security.
Statement of Financial Accounting Standards No. 115 allows debt securities to be
classified as "held to maturity" and reported in financial statements at
amortized cost only if the reporting entity has the positive intent and ability
to hold those securities to maturity. Securities that might be sold in response
to changes in market interest rates, changes in the security's prepayment risk,
increases in loan demand, or other similar factors cannot be classified as "held
to maturity." Debt and equity securities held for current resale are classified
as "trading securities." These securities are reported at fair value, and
unrealized gains and losses on the securities would be included in earnings.
Indian Village does not currently use or maintain a trading account. Debt and
equity securities not classified as either "held to maturity" or "trading
securities" are classified as "available for sale." These securities are
reported at fair value, and unrealized gains and losses on the securities are
excluded from earnings and reported, net of deferred taxes, as a separate
component of equity. At December 31, 1999, all of Indian Village's mortgage-
backed securities and investment securities were classified as "available for
sale."
All of Indian Village's investment securities carry market risk insofar as
increases in market rates of interest may cause a decrease in their market
value. They also carry prepayment risk insofar as they may be called before
maturity in times of low market interest rates, so that Indian Village may have
to invest the funds at a lower interest rate. Indian Village's investment policy
does not permit engaging directly in hedging activities or purchasing high risk
14
<PAGE>
mortgage derivative products. Investments are made based on certain
considerations, which include the interest rate, yield, settlement date and
maturity of the investment, Indian Village's liquidity position, and anticipated
cash needs and sources. The effect that the proposed investment would have on
Indian Village's credit and interest rate risk and risk-based capital is also
considered. Indian Village purchases investment securities to provide necessary
liquidity for day-to-day operations. Indian Village also purchases investment
securities when investable funds exceed loan demand.
The following table presents the amortized cost and fair value of Indian
Village's securities, by accounting classification and by type of security, at
the dates indicated.
<TABLE>
<CAPTION>
At December 31,
-----------------------------------------------
1999 1998
-------------------- ---------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- ----- --------- -----
(In thousands)
<S> <C> <C> <C> <C>
Investment securities available for sale:
Municipal securities........................................ $ 1,470 $ 1,464 $ 147 $ 152
Obligations of U.S. Treasury and U.S. government agencies... 7,432 7,244 1,797 1,816
------- ------- ------ ------
Total................................................. 8,902 8,708 1,944 1,968
Mortgage-backed securities available for sale:
Private issues................................................. 1,521 1,435 -- --
Ginnie Mae..................................................... 4,257 4,228 2,022 2,063
Fannie Mae..................................................... 2,621 2,522 1,918 1,927
Freddie Mac.................................................... 187 181 235 237
------- ------- ------ ------
Total.................................................... 8,586 8,366 4,175 4,227
------- ------- ------ ------
Net unrealized gains (losses) on securities available for sale.... (414) N/A 76 N/A
------- ------- ------ ------
Total securities available for sale................... $17,074 $17,074 $6,195 $6,195
======= ======= ====== ======
</TABLE>
Substantially all of Indian Village's mortgage-backed securities are issued
or guaranteed by agencies of the U.S. Government. Accordingly, they carry lower
credit risk than mortgage-backed securities of a private issuer. Indian Village
also invests in private issue mortgage-backed securities and collateralized
mortgage obligations that carry investment grade ratings issued by nationally
recognized securities rating agencies. However, mortgage-backed securities still
carry market risk, the risk that increases in market interest rates may cause a
decrease in market value, and prepayment risk, the risk that the securities will
be repaid before maturity and that Indian Village will have to reinvest the
funds at a lower interest rate.
Occasionally, Indian Village invests in municipal obligations of local and
out-of-state entities, such as school districts. Out-of-state obligations are
generally rated by a nationally recognized credit rating service.
At December 31, 1999, Indian Village did not own any securities, other than
U.S. Government and agency securities, which had an aggregate book value in
excess of 10% of Indian Village's total equity at that date.
15
<PAGE>
The following presents the activity in the mortgage-backed securities and
investment securities portfolios for the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1999 1998
------- -------
(In thousands)
<S> <C> <C>
Mortgage-backed securities (1):
Mortgage-backed securities, beginning of period............................ $ 4,227 $ 3,783
Purchases.................................................................. 5,782 2,336
Sales...................................................................... (226) (844)
Repayments and prepayments................................................. (1,020) (1,022)
Increase (decrease) in net premium......................................... (124) (12)
Increase (decrease) in unrealized gain..................................... (273) (14)
------- -------
Net increase in mortgage-backed securities.............................. 4,139 444
------- -------
Mortgage-backed securities, end of period.................................. $ 8,366 $ 4,227
======= =======
Investment securities (2):
Investment securities, beginning of period................................. $ 1,968 $ 3,534
Purchases.................................................................. 9,505 2,125
Sales...................................................................... (1,250) (455)
Calls...................................................................... (1,200) (2,900)
Maturities................................................................. -- (335)
Increase (decrease) in net premium......................................... (98) 1
Increase (decrease) in unrealized gain..................................... (217) (2)
------- -------
Net increase (decrease) in investment securities........................ 6,740 (1,566)
------- -------
Investment securities, end of period....................................... $ 8,708 $ 1,968
======= =======
</TABLE>
______________________________________
(1) All mortgage-backed securities are classified as available for sale.
(2) All investment securities are classified as available for sale.
The following table presents certain information regarding the carrying
value, weighted average yields and maturities or periods to repricing of Indian
Village's debt securities at December 31, 1999, all of which are available for
sale.
<TABLE>
<CAPTION>
Less Than One to After Five to After
One Year Five Years Ten Years Ten Years Totals
------------------ ----------------- ------------------ ------------------ ------------------
Weighted Weighted Weighted Weighted Weighted
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield Value Yield Value Yield
-------- -------- ------ -------- -------- -------- -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Securities available for sale:
Investment securities:
Municipal securities (1)..... $ -- --% 1,464 8.23% $ -- --% $ -- --% $ 1,464 8.23%
Obligations of the U.S
Treasury and U.S. government
agencies................... 5,969 7.74 1,275 6.90 -- -- -- -- 7,244 7.59
Mortgage-backed securities..... 51 6.88 1,656 6.84 2,473 6.82 4,186 7.03 8,366 6.93
-------- ---- ------ ----- -------- ---- -------- ---- -------- ----
Total.................... $ 6,020 7.73% $4,395 7.32% $ 2,473 6.85% $ 4,186 7.03% $ 17,074 7.32%
======== ==== ====== ===== ======== ==== ======== ==== ======== ====
</TABLE>
______________________________________
(1) Weighted average yields for municipal securities are presented on a tax
equivalent basis based on an assumed rate of 34%.
16
<PAGE>
Deposit Activities and Other Sources of Funds
General. Deposits are the major external source of funds for Indian
Village's lending and other investment activities. In addition, Indian Village
also generates funds internally from loan principal repayments and prepayments
and maturing investment securities. Scheduled loan repayments are a relatively
stable source of funds, while deposit inflows and outflows and loan prepayments
are influenced significantly by general interest rates and money market
conditions. Indian Village may use borrowings from the Federal Home Loan Bank of
Cincinnati to compensate for reductions in the availability of funds from other
sources. At December 31, 1999, Indian Village had no other borrowing
arrangements aside from Federal Home Loan Bank of Cincinnati advances.
Deposit Accounts. Nearly all of Indian Village's depositors reside in Ohio.
Indian Village's deposit products include money market accounts, passbook
accounts, and term certificate accounts ranging from six to sixty months.
Deposit account terms vary with the principal differences being the minimum
balance deposit, early withdrawal penalties and the interest rate. Indian
Village reviews its deposit mix and pricing weekly. Indian Village does not
utilize brokered deposits, nor has it aggressively sought jumbo certificates of
deposit.
Indian Village believes it is competitive in the interest rates it offers
on its deposit products. Indian Village determines the rates paid based on a
number of factors, including rates paid by competitors, Indian Village's need
for funds and cost of funds, borrowing costs and movements of market interest
rates. Historically, Indian Village has relied predominately on certificates of
deposit with terms of more than one year. In November, 1999, Indian Village
opened a new branch office in New Philadelphia, a more commercial area than
Gnadenhutten, which has attracted more transaction accounts to Indian Village.
In the unlikely event Indian Village is liquidated, depositors will be
entitled to full payment of their deposit accounts before any payment is made to
Indian Village Bancorp as the sole stockholder of Indian Village.
The following table indicates the amount of Indian Village's jumbo
certificate accounts by time remaining until maturity as of December 31, 1999.
Jumbo certificate accounts have principal balances of $100,000 or more.
<TABLE>
<CAPTION>
Maturity
Period Amount
------------- -------------
(In thousands)
<S> <C>
Three months or less...................... $321
Over three through six months............. 182
Over six through twelve months............ --
Over twelve months........................ 210
----
Total............................. $713
====
</TABLE>
17
<PAGE>
The following table presents information concerning average balances and
rates paid on Indian Village's deposit accounts at the dates indicated.
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------------------------------------------------
1999 1998
---------------------------------- ---------------------------------
Percent Percent
of Total of Total
Average Average Average Average Average Average
Balance Deposits Rate Paid Balance Deposits Rate Paid
------- -------- --------- ------- -------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Passbook accounts................. $ 5,676 18.34% 2.84% $ 5,263 17.23% 3.27%
Money market accounts............. 1,589 5.13 3.27 1,777 5.82 3.32
NOW accounts...................... 1,028 3.32 1.85 815 2.67 1.96
Certificates of deposit (1)....... 22,585 72.95 5.39 22,585 73.95 5.68
Noninterest-bearing deposits:
Demand deposits................ 79 0.26 -- 101 0.33 --
------- ------ ------- ------
Total average deposits...... $30,957 100.00% $30,541 100.00%
======= ====== ======= ======
</TABLE>
__________________
(1) Based on remaining maturity of certificates of deposit.
Deposit Flow. The following table presents the balances, with interest
credited, and changes in dollar amounts of deposits in the various types of
accounts offered by Indian Village between the dates indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------
1999 1998
------------------------------------ ----------------------
Percent Increase Percent
Amount of Total (Decrease) Amount of Total
------ -------- ---------- ------ --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Passbook accounts...................... $ 5,206 15.70% $ (258) $ 5,464 17.70%
NOW accounts........................... 1,246 3.76 409 837 2.71
Money market deposits.................. 1,576 4.75 (119) 1,695 5.49
Fixed-rate certificates maturing:
Within 1 year....................... 13,574 40.94 (774) 14,348 46.48
After 1 year, but within 2 years.... 6,385 19.26 2,191 4,194 13.59
After 2 years, but within 5 years... 4,925 14.86 678 4,247 13.76
After 5 years....................... -- -- -- -- --
------- ------ ------ ------- ------
Total certificates.................. 24,884 75.06 2,095 22,789 73.83
------- ------ ------ ------- ------
Noninterest-bearing deposits:
Demand deposits..................... 241 0.73 160 81 0.27
------- ------ ------ ------- ------
Total............................ $33,153 100.00% $2,287 $30,866 100.00%
======= ====== ====== ======= ======
</TABLE>
18
<PAGE>
Time Deposits by Rates and Maturities. The following table presents the
amount of time deposits in Indian Village categorized by rates and maturities at
the dates indicated.
<TABLE>
<CAPTION>
Period to Maturity from December 31, 1999 At December 31,
------------------------------------------------------------------ ----------------------
Less than 1 - 2 2 - 3 3 - 4 After
One Year Years Years Years 4 Years Total 1999 1998
--------- ------- ------- ------- --------- ------- --------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
0.00 - 4.00%............. $ -- $ 5 $ -- $ -- $ -- $ 5 $ 5 $ 39
4.01 - 5.00%............. 6,225 2,101 116 -- -- 8,442 8,442 3,142
5.01 - 6.00%............. 6,429 3,046 1,366 1,125 779 12,745 12,745 15,548
6.01 - 7.00%............. 665 1,233 1,269 5 265 3,437 3,437 3,726
Over 7.00%............... 225 -- -- -- -- 255 255 334
--------- ------- ------- ------- --------- -------- -------- ---------
Total................. $ 13,574 $ 6,385 $ 2,751 $ 1,130 $ 1,044 $ 24,884 $ 24,884 $ 22,789
========= ======= ======= ======= ========= ======== ======== =========
</TABLE>
Deposit Activity. The following table presents the deposit activity of
Indian Village for the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
1999 1998
----------- -----------
(In thousands)
<S> <C> <C>
Beginning balance................................... $ 30,866 $ 30,277
Net deposits (withdrawals) before interest
credited........................................... 1,179 (629)
Interest credited................................... 1,108 1,218
-------- --------
Net increase (decrease) in deposits................. 2,287 589
-------- --------
Ending balance................................... $ 33,153 $ 30,866
======== ========
</TABLE>
Borrowings. Indian Village has the ability to use advances from the Federal
Home Loan Bank of Cincinnati to supplement its supply of lendable funds and to
meet deposit withdrawal requirements. The Federal Home Loan Bank of Cincinnati
functions as a central reserve bank providing credit for savings associations
and certain other member financial institutions. As a member of the Federal Home
Loan Bank of Cincinnati, Indian Village is required to own capital stock in the
Federal Home Loan Bank of Cincinnati and is authorized to apply for advances on
the security of the capital stock and certain of its mortgage loans and other
assets, principally securities that are obligations of, or guaranteed by, the
U.S. Government or its agencies, provided certain creditworthiness standards
have been met. Advances are made under several different credit programs. Each
credit program has its own interest rate and range of maturities. Depending on
the program, limitations on the amount of advances are based on the financial
condition of the member institution and the adequacy of collateral pledged to
secure the credit. At December 31, 1999, Indian Village had the ability to
borrow a total of approximately $29.7 million from the Federal Home Loan Bank of
Cincinnati. At that date, Indian Village had outstanding advances of $17.2
million.
19
<PAGE>
The following tables presents certain information regarding Indian Village's
use of Federal Home Loan Bank of Cincinnati advances during the periods and at
the dates indicated.
<TABLE>
<CAPTION>
Year Ended
December 31,
--------------------------------
1999 1998
------------- -------------
(Dollars in thousands)
<S> <C> <C>
Maximum amount of advances outstanding at any month end............................ $ 18,200 $ 4,000
Approximate average short-term advances outstanding................................ 9,678 2,351
Approximate weighted average rate paid on advances................................. 5.42% 5.78%
</TABLE>
<TABLE>
<CAPTION>
At December 31,
--------------------------------
1999 1998
------------- -------------
(Dollars in thousands)
<S> <C> <C>
Balance outstanding at end of period............................................... $ 17,200 $ $4,000
Weighted average rate paid on advances............................................. 5.49% 5.14%
</TABLE>
REGULATION AND SUPERVISION
General
As a savings and loan holding company, Indian Village Bancorp is required
by federal law to file reports with, and otherwise comply with, the rules and
regulations of the Office of Thrift Supervision. Indian Village is subject to
extensive regulation, examination and supervision by the Office of Thrift
Supervision, as its primary federal regulator, and the Federal Deposit Insurance
Corporation, as the deposit insurer. Indian Village is a member of the Federal
Home Loan Bank System and, with respect to deposit insurance, of the Savings
Association Insurance Fund managed by the Federal Deposit Insurance Corporation.
Indian Village must file reports with the Office of Thrift Supervision and the
Federal Deposit Insurance Corporation concerning its activities and financial
condition in addition to obtaining regulatory approvals prior to entering into
certain transactions such as mergers with, or acquisitions of, other savings
institutions. The Office of Thrift Supervision and/or the Federal Deposit
Insurance Corporation conduct periodic examinations to test Indian Village's
safety and soundness and compliance with various regulatory requirements. This
regulation and supervision establishes a comprehensive framework of activities
in which an institution can engage and is intended primarily for the protection
of the insurance fund and depositors. The regulatory structure also gives the
regulatory authorities extensive discretion in connection with their supervisory
and enforcement activities and examination policies, including policies with
respect to the classification of assets and the establishment of adequate loan
loss reserves for regulatory purposes. Any change in such regulatory
requirements and policies, whether by the Office of Thrift Supervision, the
Federal Deposit Insurance Corporation or the Congress, could have a material
adverse impact on Indian Village Bancorp, Indian Village and their operations.
Certain of the regulatory requirements applicable to Indian Village and to
Indian Village Bancorp are referred to below or elsewhere in this report. The
description of statutory provisions and regulations applicable to savings
institutions and their holding companies set forth in this report does not
purport to be a complete description of such statutes and regulations and their
effects on Indian Village and Indian Village Bancorp.
Holding Company Regulation
Indian Village Bancorp is a nondiversified unitary savings and loan holding
company within the meaning of federal law. Under prior law, a unitary savings
and loan holding company, such as Indian Village Bancorp was not generally
restricted as to the types of business activities in which it may engage,
provided that Indian Village continued to be a qualified thrift lender. See
"Federal Savings Institution Regulation - QTL Test." The Gramm-Leach-Bliley Act
of 1999 provides that no company may acquire control of a savings association
after May 4, 1999 unless it engages
20
<PAGE>
only in the financial activities permitted for financial holding companies under
the law or for multiple savings and loan holding companies as described below.
Further, the Gramm-Leach-Bliley Act specifies that savings and loan holding
companies may only engage in such activities. The Gramm-Leach-Bliley Act,
however, grandfathered the unrestricted authority for activities with respect to
unitary savings and loan holding companies existing, or subject to an
application filed, prior to May 4, 1999, such as Indian Village Bancorp, so long
as Indian Village continues to comply with the QTL Test. Upon any non-
supervisory acquisition by Indian Village Bancorp of another savings institution
or savings bank that meets the qualified thrift lender test and is deemed to be
a savings institution by the Office of Thrift Supervision, Indian Village
Bancorp would become a multiple savings and loan holding company (if the
acquired institution is held as a separate subsidiary) and would generally be
limited to activities permissible for bank holding companies under Section
4(c)(8) of the Bank Holding Company Act, subject to the prior approval of the
Office of Thrift Supervision, and certain activities authorized by Office of
Thrift Supervision regulation.
A savings and loan holding company is prohibited from, directly or
indirectly, acquiring more than 5% of the voting stock of another savings
institution or savings and loan holding company, without prior written approval
of the Office of Thrift Supervision and from acquiring or retaining control of a
depository institution that is not insured by the Federal Deposit Insurance
Corporation. In evaluating applications by holding companies to acquire savings
institutions, the Office of Thrift Supervision considers the financial and
managerial resources and future prospects of Indian Village Bancorp and
institution involved, the effect of the acquisition on the risk to the deposit
insurance funds, the convenience and needs of the community and competitive
factors.
The Office of Thrift Supervision may not approve any acquisition that would
result in a multiple savings and loan holding company controlling savings
institutions in more than one state, subject to two exceptions: (i) the approval
of interstate supervisory acquisitions by savings and loan holding companies and
(ii) the acquisition of a savings institution in another state if the laws of
the state of the target savings institution specifically permit such
acquisitions. The states vary in the extent to which they permit interstate
savings and loan holding company acquisitions.
Although savings and loan holding companies are not subject to specific
capital requirements or specific restrictions on the payment of dividends or
other capital distributions, federal regulations do prescribe such restrictions
on subsidiary savings institutions as described below. Indian Village must
notify the Office of Thrift Supervision 30 days before declaring any dividend to
Indian Village Bancorp. In addition, the financial impact of a holding company
on its subsidiary institution is a matter that is evaluated by the Office of
Thrift Supervision and the agency has authority to order cessation of activities
or divestiture of subsidiaries deemed to pose a threat to the safety and
soundness of the institution.
Federal Savings Institution Regulation
Business Activities. The activities of federal savings institutions are
governed by federal law and regulations. These laws and regulations delineate
the nature and extent of the activities in which federal associations may
engage. In particular, many types of lending authority for federal association,
e.g., commercial, non-residential real property loans and consumer loans, are
limited to a specified percentage of the institution's capital or assets.
Capital Requirements. The Office of Thrift Supervision capital regulations
require savings institutions to meet three minimum capital standards: a 1.5%
tangible capital ratio, a 4% leverage ratio (3% for institutions receiving the
highest rating on the CAMELS rating system) and an 8% risk-based capital ratio.
In addition, the prompt corrective action standards discussed below also
establish, in effect, a minimum 2% tangible capital standard, a 4% leverage
ratio (3% for institutions receiving the highest rating on the CAMEL financial
institution rating system), and, together with the risk-based capital standard
itself, a 4% Tier 1 risk-based capital standard. The Office of Thrift
Supervision regulations also require that, in meeting the tangible, leverage and
risk-based capital standards, institutions must generally deduct investments in
and loans to subsidiaries engaged in activities as principal that are not
permissible for a national bank.
The risk-based capital standard for savings institutions requires the
maintenance of Tier 1 (core) and total capital (which is defined as core capital
and supplementary capital) to risk-weighted assets of at least 4% and 8%,
respectively. In determining the amount of risk-weighted assets, all assets,
including certain off-balance sheet assets,
21
<PAGE>
are multiplied by a risk-weight factor of 0% to 100%, assigned by the Office of
Thrift Supervision capital regulation based on the risks believed inherent in
the type of asset. Core (Tier 1) capital is defined as common stockholders'
equity (including retained earnings), certain noncumulative perpetual preferred
stock and related surplus, and minority interests in equity accounts of
consolidated subsidiaries less intangibles other than certain mortgage servicing
rights and credit card relationships. The components of supplementary capital
currently include cumulative preferred stock, long-term perpetual preferred
stock, mandatory convertible securities, subordinated debt and intermediate
preferred stock, the allowance for loan and lease losses limited to a maximum of
1.25% of risk-weighted assets and up to 45% of unrealized gains on
available-for-sale equity securities with readily determinable fair market
values. Overall, the amount of supplementary capital included as part of total
capital cannot exceed 100% of core capital.
The capital regulations also incorporate an interest rate risk component.
Savings institutions with "above normal" interest rate risk exposure are subject
to a deduction from total capital for purposes of calculating their risk-based
capital requirements. For the present time, the Office of Thrift Supervision has
deferred implementation of the interest rate risk capital charge. At December
31, 1999, Indian Village met each of its capital requirements.
The following table presents Indian Village's capital position at December
31, 1999.
<TABLE>
<CAPTION>
Capital
Excess ---------------------------------------
Actual Required (Deficiency) Actual Required
Capital Capital Amount Percent Percent
------------------ -------------- ------------------ ---------------- -----------------
<S> <C> <C> <C> <C> <C>
(Dollars in Thousands)
Tangible.......... $7,005 $ 898 $6,107 11.70% 1.50%
Core (Leverage)... 7,005 1,795 5,210 11.70% 3.00%
Risk-based........ 7,237 2,287 4,950 25.30% 8.00%
</TABLE>
Prompt Corrective Regulatory Action. The Office of Thrift Supervision is
required to take certain supervisory actions against undercapitalized
institutions, the severity of which depends upon the institution's degree of
undercapitalization. Generally, a savings institution that has a ratio of total
capital to risk weighted assets of less than 8%, a ratio of Tier 1 (core)
capital to risk-weighted assets of less than 4% or a ratio of core capital to
total assets of less than 4% (3% or less for institutions with the highest
examination rating) is considered to be "undercapitalized." A savings
institution that has a total risk-based capital ratio less than 6%, a Tier 1
capital ratio of less than 3% or a leverage ratio that is less than 3% is
considered to be "significantly undercapitalized" and a savings institution that
has a tangible capital to assets ratio equal to or less than 2% is deemed to be
"critically undercapitalized." Subject to a narrow exception, the Office of
Thrift Supervision is required to appoint a receiver or conservator for an
institution that is "critically undercapitalized." The regulation also provides
that a capital restoration plan must be filed with the Office of Thrift
Supervision within 45 days of the date a savings institution receives notice
that it is "undercapitalized," "significantly undercapitalized" or "critically
undercapitalized." Compliance with the plan must be guaranteed by any parent
holding company. In addition, numerous mandatory supervisory actions become
immediately applicable to an undercapitalized institution, including, but not
limited to, increased monitoring by regulators and restrictions on growth,
capital distributions and expansion. The Office of Thrift Supervision could also
take any one of a number of discretionary supervisory actions, including the
issuance of a capital directive and the replacement of senior executive officers
and directors.
Insurance of Deposit Accounts. Indian Village is a member of the Savings
Association Insurance Fund. The Federal Deposit Insurance Corporation maintains
a risk-based assessment system by which institutions are assigned to one of
three categories based on their capitalization and one of three subcategories
based on examination ratings and other supervisory information. An
institution's assessment rate depends upon the categories to which it is
assigned. Assessment rates for Savings Association Insurance Fund member
institutions are determined
22
<PAGE>
semiannually by the Federal Deposit Insurance Corporation and currently range
from zero basis points for the healthiest institutions to 27 basis points for
the riskiest.
In addition to the assessment for deposit insurance, institutions are
required to make payments on bonds issued in the late 1980s by the Financing
Corporation ("FICO") to recapitalize the predecessor to the Savings Association
Insurance Fund. During 1999, FICO payments for Savings Association Insurance
Fund members approximated 6.1 basis points, while Bank Insurance Fund members
paid 1.2 basis points. By law, there is equal sharing of FICO payments between
Savings Association Insurance Fund and Bank Insurance Fund members beginning on
January 1, 2000.
Indian Village was not required to pay any premiums for fiscal 1999.
Payments toward the FICO bonds amounted to $18,000. The Federal Deposit
Insurance Corporation has authority to increase insurance assessments. A
significant increase in Savings Association Insurance Fund insurance premiums
would likely have an adverse effect on the operating expenses and results of
operations of Indian Village. Management cannot predict what insurance
assessment rates will be in the future.
Insurance of deposits may be terminated by the Federal Deposit Insurance
Corporation upon a finding that the institution has engaged in unsafe or unsound
practices, is in an unsafe or unsound condition to continue operations or has
violated any applicable law, regulation, rule, order or condition imposed by the
Federal Deposit Insurance Corporation or the Office of Thrift Supervision. The
management of Indian Village does not know of any practice, condition or
violation that might lead to termination of deposit insurance.
Loans to One Borrower. Federal law provides that savings institutions are
generally subject to the limits on loans to one borrower applicable to national
banks. A savings institution may not make a loan or extend credit to a single or
related group of borrowers in excess of 15% of its unimpaired capital and
surplus. An additional amount may be lent, equal to 10% of unimpaired capital
and surplus, if secured by specified readily-marketable collateral. At December
31, 1999, Indian Village's limit on loans to one borrower was $1.1 million, and
Indian Village's largest aggregate outstanding balance of loans to one borrower
was $770,000.
QTL Test. Federal law requires savings institutions to meet a qualified
thrift lender test. Under the test, a savings association is required to either
qualify as a "domestic building and loan association" under the Internal Revenue
Code or maintain at least 65% of its "portfolio assets" (total assets less: (i)
specified liquid assets up to 20% of total assets; (ii) intangibles, including
goodwill; and (iii) the value of property used to conduct business) in certain
"qualified thrift investments" (primarily residential mortgages and related
investments, including certain mortgage-backed securities) in at least 9 months
out of each 12 month period.
A savings institution that fails the qualified thrift lender test is
subject to certain operating restrictions and may be required to convert to a
bank charter. As of December 31, 1999, Indian Village maintained 92.1% of its
portfolio assets in qualified thrift investments and, therefore, met the
qualified thrift lender test. Recent legislation has expanded the extent to
which education loans, credit card loans and small business loans may be
considered "qualified thrift investments."
Limitation on Capital Distributions. Office of Thrift Supervision
regulations impose limitations upon all capital distributions by a savings
institution, including cash dividends, payments to repurchase its shares and
payments to shareholders of another institution in a cash-out merger. The rule
effective in the first quarter of 1999 established three tiers of institutions
based primarily on an institution's capital level. An institution that exceeded
all capital requirements before and after a proposed capital distribution ("Tier
1 Bank") and had not been advised by the Office of Thrift Supervision that it
was in need of more than normal supervision, could, after prior notice but
without obtaining approval of the Office of Thrift Supervision, make capital
distributions during the calendar year equal to the greater of (i) 100% of its
net earnings to date during the calendar year plus the amount that would reduce
by one-half the excess capital over its capital requirements at the beginning of
the calendar year or (ii) 75% of its net income for the previous four quarters.
Any additional capital distributions required prior regulatory approval.
Effective April 1, 1999, the Office of Thrift Supervision's capital distribution
regulation changed. Under the new regulation, an
23
<PAGE>
application to and the prior approval of the Office of Thrift Supervision is
required prior to any capital distribution if the institution does not meet the
criteria for "expedited treatment" of applications under Office of Thrift
Supervision regulations (i.e., generally, examination ratings in the two top
categories), the total capital distributions for the calendar year exceed net
income for that year plus the amount of retained net income for the preceding
two years, the institution would be undercapitalized following the distribution
or the distribution would otherwise be contrary to a statute, regulation or
agreement with Office of Thrift Supervision. If an application is not required,
the institution must still provide prior notice to Office of Thrift Supervision
of the capital distribution if, like Indian Village, it is a subsidiary of a
holding company. In the event Indian Village's capital fell below its regulatory
requirements or the Office of Thrift Supervision notified it that it was in need
of more than normal supervision, Indian Village's ability to make capital
distributions could be restricted. In addition, the Office of Thrift Supervision
could prohibit a proposed capital distribution by any institution, which would
otherwise be permitted by the regulation, if the Office of Thrift Supervision
determines that such distribution would constitute an unsafe or unsound
practice.
Liquidity. Indian Village is required to maintain an average daily balance
of specified liquid assets equal to a monthly average of not less than a
specified percentage of its net withdrawable deposit accounts plus short-term
borrowings. This liquidity requirement is currently 4%, but may be changed from
time to time by the Office of Thrift Supervision to any amount within the range
of 4% to 10%. Monetary penalties may be imposed for failure to meet these
liquidity requirements. Indian Village's liquidity ratio for December 31, 1999
was 56.8%, which exceeded the applicable requirements. Indian Village has never
been subject to monetary penalties for failure to meet its liquidity
requirements.
Assessments. Savings institutions are required to pay assessments to the
Office of Thrift Supervision to fund the agency's operations. The general
assessments, paid on a semi-annual basis, are computed upon the savings
institution's total assets, including consolidated subsidiaries, as reported in
Indian Village's latest quarterly thrift financial report. The assessments paid
by Indian Village for the fiscal year ended December 31, 1999 totaled $14,000.
Transactions with Related Parties. Indian Village's authority to engage in
transactions with "affiliates" (e.g., any company that controls or is under
common control with an institution, including Indian Village Bancorp and its
non-savings institution subsidiaries) is limited by federal law. The aggregate
amount of covered transactions with any individual affiliate is limited to 10%
of the capital and surplus of the savings institution. The aggregate amount of
covered transactions with all affiliates is limited to 20% of the savings
institution's capital and surplus. Certain transactions with affiliates are
required to be secured by collateral in an amount and of a type described in
federal law. The purchase of low quality assets from affiliates is generally
prohibited. The transactions with affiliates must be on terms and under
circumstances, that are at least as favorable to the institution as those
prevailing at the time for comparable transactions with non-affiliated
companies. In addition, savings institutions are prohibited from lending to any
affiliate that is engaged in activities that are not permissible for bank
holding companies and no savings institution may purchase the securities of any
affiliate other than a subsidiary.
Indian Village's authority to extend credit to executive officers,
directors and 10% shareholders ("insiders"), as well as entities such persons
control, is also governed by federal law. Such loans are required to be made on
terms substantially the same as those offered to unaffiliated individuals and
not involve more than the normal risk of repayment. Recent legislation created
an exception for loans made pursuant to a benefit or compensation program that
is widely available to all employees of the institution and does not give
preference to insiders over other employees. The law limits both the individual
and aggregate amount of loans Indian Village may make to insiders based, in
part, on Indian Village's capital position and requires certain board approval
procedures to be followed.
Enforcement. The Office of Thrift Supervision has primary enforcement
responsibility over savings institutions and has the authority to bring actions
against the institution and all institution-affiliated parties, including
stockholders, and any attorneys, appraisers and accountants who knowingly or
recklessly participate in wrongful action likely to have an adverse effect on an
insured institution. Formal enforcement action may range from the issuance of a
capital directive or cease and desist order to removal of officers and/or
directors to institution of receivership, conservatorship or termination of
deposit insurance. Civil penalties cover a wide range of violations and can
amount to $25,000 per day, or even $1 million per day in especially egregious
cases. The Federal Deposit Insurance
24
<PAGE>
Corporation has the authority to recommend to the Director of the Office of
Thrift Supervision that enforcement action to be taken with respect to a
particular savings institution. If action is not taken by the Director, the
Federal Deposit Insurance Corporation has authority to take such action under
certain circumstances. Federal law also establishes criminal penalties for
certain violations.
Standards for Safety and Soundness. The federal banking agencies have
adopted Interagency Guidelines prescribing Standards for Safety and Soundness.
The guidelines set forth the safety and soundness standards that the federal
banking agencies use to identify and address problems at insured depository
institutions before capital becomes impaired. If the Office of Thrift
Supervision determines that a savings institution fails to meet any standard
prescribed by the guidelines, the Office of Thrift Supervision may require the
institution to submit an acceptable plan to achieve compliance with the
standard.
Federal Home Loan Bank System
Indian Village is a member of the Federal Home Loan Bank System, which
consists of 12 regional Federal Home Loan Banks. The Federal Home Loan Bank
provides a central credit facility primarily for member institutions. Indian
Village, as a member of the Federal Home Loan Bank, is required to acquire and
hold shares of capital stock in that Federal Home Loan Bank in an amount at
least equal to 1.0% of the aggregate principal amount of its unpaid residential
mortgage loans and similar obligations at the beginning of each year, or 1/20 of
its advances (borrowings) from the Federal Home Loan Bank, whichever is greater.
Indian Village was in compliance with this requirement with an investment in
Federal Home Loan Bank stock at December 31, 1999 of $925,000.
The Federal Home Loan Banks are required to provide funds for the
resolution of insolvent thrifts in the late 1980s and to contribute funds for
affordable housing programs. These requirements could reduce the amount of
dividends that the Federal Home Loan Banks pay to their members and could also
result in the Federal Home Loan Banks imposing a higher rate of interest on
advances to their members. If dividends were reduced, or interest on future
Federal Home Loan Bank advances increased, Indian Village's net interest income
would likely also be reduced. Recent legislation has changed the structure of
the Federal Home Loan Banks funding obligations for insolvent thrifts, revised
the capital structure of the Federal Home Loan Banks and implemented entirely
voluntary membership for Federal Home Loan Banks. Management cannot predict the
effect that these changes may have with respect to its Federal Home Loan Bank
membership.
Federal Reserve System
The Federal Reserve Board regulations require savings institutions to
maintain non-interest earning reserves against their transaction accounts
(primarily NOW and regular checking accounts). The regulations generally provide
that reserves be maintained against aggregate transaction accounts as follows:
for accounts aggregating $44.3 million or less (subject to adjustment by the
Federal Reserve Board) the reserve requirement is 3%; and for accounts
aggregating greater than $44.3 million, the reserve requirement is $1.329
million plus 10% (subject to adjustment by the Federal Reserve Board between 8%
and 14%) against that portion of total transaction accounts in excess of $44.3
million. The first $5.0 million of otherwise reservable balances (subject to
adjustments by the Federal Reserve Board) are exempted from the reserve
requirements. At December 31, 1999, Indian Village complied with the foregoing
requirements.
25
<PAGE>
FEDERAL AND STATE TAXATION
Federal Taxation
General. Indian Village Bancorp reports its income on a calendar year,
unconsolidated basis using the accrual method of accounting. Indian Village
reports its income on a fiscal year, unconsolidated basis using the accrual
method of accounting. The federal income tax laws apply to Indian Village
Bancorp and Indian Village in the same manner as to other corporations with some
exceptions, including particularly Indian Village's reserve for bad debts
discussed below. The following discussion of tax matters is intended only as a
summary and does not purport to be a comprehensive description of the tax rules
applicable to Indian Village or Indian Village Bancorp. Indian Village's federal
tax returns have been either audited or closed under the statute of limitations
through tax year 1995. For its 1999 tax year, Indian Village's maximum federal
income tax rate was 34%.
Bad Debt Reserves. For fiscal years beginning before December 31, 1995,
thrift institutions which qualified under certain definitional tests and other
conditions of the Internal Revenue Code of 1986, as amended, were permitted to
use certain favorable provisions to calculate their deductions from taxable
income for annual additions to their bad debt reserve. A reserve could be
established for bad debts on qualifying real property loans, generally secured
by interests in real property improved or to be improved, under the percentage
of taxable income method or the experience method. The reserve for nonqualifying
loans was computed using the experience method.
Federal legislation enacted in 1996 repealed the reserve method of
accounting for bad debts for tax years beginning after 1995 and required savings
institutions to recapture or take into income certain portions of their
accumulated bad debt reserves. Thrift institutions eligible to be treated as
"small banks," those with assets of $500 million or less, are allowed to use the
experience method that applies to "small banks," while thrift institutions that
are treated as large banks, those with assets exceeding $500 million, are
required to use only the specific charge-off method. As a result,, the
percentage of taxable income method of accounting for bad debts is no longer
available for any financial institution.
A thrift institution required to change its method of computing reserves
for bad debts will treat the change as a change in method of accounting,
initiated by the taxpayer, and having been made with the consent of the Internal
Revenue Service. Any adjustment required to be taken into income with respect to
a change in accounting method generally will be taken into income ratably over a
six-taxable year period, beginning with the first taxable year beginning after
1995, subject to a 2-year suspension if the "residential loan requirement" is
satisfied. Under the residential loan requirement provision, the recapture
required by the new legislation will be suspended for each of two successive
taxable years, beginning with Indian Village's 1996 taxable year, in which
Indian Village originates a minimum of certain residential loans based upon the
average of the principal amounts of these loans that Indian Village makes during
its six taxable years preceding its current taxable year.
Indian Village is required to recapture or take into income over a six year
period the excess of the balance of its tax bad debt reserves as of December 31,
1995 over the balance of the reserves as of December 31, 1987. As a result,
Indian Village will incur an additional tax liability of approximately $35,000,
which is generally expected to be taken into income beginning in 1996 over a six
year period.
Distributions. If Indian Village makes "non-dividend distributions" to
Indian Village Bancorp, they will be considered to have been made from Indian
Village's unrecaptured tax bad debt reserves, including the balance of its
reserves as of December 31, 1987, to the extent of the "nondividend
distributions," and then from Indian Village's supplemental reserve for losses
on loans, to the extent of those reserves, and an amount based on the amount
distributed, but not more than the amount of those reserves, will be included in
Indian Village's taxable income. Non-dividend distributions include
distributions in excess of Indian Village's current and accumulated earnings and
profits, as calculated for federal income tax purposes, distributions in
redemption of stock, and distributions in partial or complete liquidation.
Dividends paid out of Indian Village's current or accumulated earnings and
profits will not be so included in Indian Village's taxable income.
26
<PAGE>
The amount of additional taxable income triggered by a non-dividend is an
amount that, when reduced by the tax attributable to the income, is equal to the
amount of the distribution. Therefore, if Indian Village makes a non-dividend
distribution to Indian Village Bancorp, approximately one and one-half times the
amount of the distribution not in excess of the amount of the reserves would be
includable in income for federal income tax purposes, assuming a 34% federal
corporate income tax rate. Indian Village does not intend to pay dividends that
would result in a recapture of any portion of its bad debt reserves.
Ohio Taxation
Indian Village Bancorp is subject to the Ohio corporation franchise tax,
which, as applied to it, is a tax measured by both net income and net worth. In
general, the tax liability is the greater of 5.1% on the first $50,000 of
computed Ohio taxable income and 8.5% of computed Ohio taxable income in excess
of $50,000, or 0.40% of taxable net worth. Under these alternative measures of
computing the tax liability, complex formulas determine the jurisdictions to
which total net income and total net worth are apportioned or allocated. The
minimum tax is $50 per year and maximum tax liability as measured by net worth
is limited to $150,000 per year.
A special litter tax also applies to all corporations, including Indian
Village Bancorp, subject to the Ohio corporation franchise tax. This litter tax
does not apply to "financial institutions." If a corporation pays franchise tax
on the basis of net income, the litter tax is equal to 0.11% of the first
$50,000 of computed Ohio taxable income and 0.22% of computed Ohio taxable
income in excess of $50,000. If a corporation pays franchise tax on the basis of
net worth, the litter tax is equal to 0.014% times taxable net worth.
A statutory exemption from the net worth tax is available to Indian Village
Bancorp if certain conditions are satisfied. Indian Village Bancorp expects to
qualify for this exemption, which would restrict its tax liability to the tax
measured by net income.
Indian Village is a "financial institution" for State of Ohio tax purposes.
Accordingly, it must pay the Ohio corporate franchise tax on "financial
institutions," which is imposed annually at a rate of 1.4% of the Indian
Village's apportioned book net worth, determined under generally accepted
accounting principles, less any statutory deduction. This tax rate is scheduled
to decrease to 1.3% in the year 2000. As a "financial institution," Indian
Village does not pay any Ohio tax based upon net income or net profits.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information regarding the executive
officers of Indian Village Bancorp and Indian Village.
Name Age (1) Position
- ------ ----------- -------------------
Marty R. Lindon................ 42 President and Chief Executive
Officer of Indian Village
Bancorp and Indian Village
Lori S. Frantz................. 40 Vice President, Treasurer and
Secretary of Indian Village
Bancorp and Indian Village
Martin L. Merryman............. 40 Vice President of Lending and
Branch Manager of Indian
Village
____________________________
(1) As of December 31, 1999
The executive officers of Indian Village Bancorp and Indian Village are
elected annually and hold office until their successors have been elected and
qualified or until they are removed or replaced.
27
<PAGE>
Marty R. Lindon has served as President and Chief Executive Officer of
Indian Village Bancorp and Indian Village since March 1999 and December 1998,
respectively. Prior to being appointed President and Chief Executive Officer,
Mr. Lindon served as Vice President of Lending since 1993.
Lori S. Frantz was appointed Vice President, Treasurer and Chief Financial
Officer of Indian Village Bancorp in March 1999. Ms. Frantz has served as Vice
President of Indian Village since 1993 and Treasurer and Chief Financial Officer
since 1996.
Martin L. Merryman joined Indian Village on July 1, 1999 and became Vice
President of Lending in September 1999. Before joining Indian Village he was a
Vice President of Lending at another local financial institution.
ITEM 2. DESCRIPTION OF PROPERTIES
The following table sets forth information relating to Indian Village's
offices as of December 31, 1999.
<TABLE>
<CAPTION>
Year Net Book Owned/ Approximate
Location Opened Value(1) Leased Square Footage
- --------- ---------- ------------------ ---------- -----------------
<S> <C> <C> <C> <C>
Main Office
- ---------
100 South Walnut Street
Gnadenhutten, Ohio 1968 $ 268,000 Owned 7,600
Branch Office
- ---------
635 West High Avenue(2)
New Philadelphia, Ohio 1999 $1,323,000 Owned 4,200
</TABLE>
- ---------------------------
(1) Represents the net book value of land, buildings, furniture, fixtures and
equipment owned by Indian Village.
(2) Location of an automated teller machine.
ITEM 3. LEGAL PROCEEDINGS
Indian Village Bancorp is not a party to any pending legal proceedings.
Periodically, there have been various claims and lawsuits involving Indian
Village, such as claims to enforce liens, condemnation proceedings on properties
in which Indian Village holds security interests, claims involving the making
and servicing of real property loans and other issues incident to Indian
Village's business. Indian Village is not a party to any pending legal
proceedings that it believes would have a material adverse effect on the
financial condition or operations of Indian Village.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information under the sections entitled "Stock Listing" and "Price
Range of Common Stock and Dividends" in Indian Village Bancorp's 1999 Annual
Report to Stockholders is incorporated herein by reference.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The information under the section entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in Indian Village
Bancorp's 1999 Annual Report to Stockholders is incorporated herein by
reference.
ITEM 7 FINANCIAL STATEMENTS
The information under the section entitled "Consolidated Financial
Statements" in Indian Village Bancorp's 1999 Annual Report to Stockholders is
incorporated herein by reference.
ITEM 8. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The information under the section entitled "Ratification of Independent
Auditors" in Indian Village Bancorp's Proxy Statement for the 2000 Annual
Meeting of Stockholders is incorporated herein by reference.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The information under the section entitled "Section 16(a) Beneficial
Ownership Reporting Compliance" in Indian Village Bancorp's Proxy Statement for
the 2000 Annual Meeting of Stockholders is incorporated herein by reference.
ITEM 10. EXECUTIVE COMPENSATION
The information under the section entitled "Executive Compensation" in
Indian Village Bancorp's Proxy Statement for the 2000 Annual Meeting of
Stockholders is incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information under the section entitled "Stock Ownership" in Indian
Village Bancorp's Proxy Statement for the 2000 Annual Meeting of Stockholders is
incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information under the section entitled "Transactions with Management"
in Indian Village Bancorp's Proxy Statement for the 2000 Annual Meeting of
Stockholders is incorporated herein by reference.
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<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) (1) The following are filed as a part of this report by means of
incorporation by reference to Indian Village Bancorp's 1999
Annual Report to Stockholders:
. Independent Auditors' Report
. Consolidated Statements of Financial Condition as of
December 31, 1999 and 1998
. Consolidated Statements of Income for the Years Ended
December 31, 1999 and 1998
. Consolidated Statements of Equity for the Years Ended
December 31, 1999 and 1998
. Consolidated Statements of Cash Flows for the Years
Ended December 31, 1999 and 1998
. Notes to Consolidated Financial Statements
(2) All financial statement schedules are omitted because they
are not required or applicable, or the required information
is shown in the consolidated financial statements or the
notes thereto.
(3) Exhibits
3.1 Articles of Incorporation of Indian Village Bancorp,
Inc.(1)
3.2 Bylaws of Indian Village Bancorp, Inc. (1)
4.0 Form of Stock Certificate of Indian Village Bancorp,
Inc. (1)
10.1 Indian Village Community Bank Employee Stock Ownership
Plan Trust Agreement (2)
10.2 ESOP Loan Commitment Letter and ESOP Loan Documents
(2)
10.3 Employment Agreement between Indian Village Community
Bank, Indian Village Bancorp, Inc. and Marty R. Lindon
(2)
10.4 Employment Agreement between Indian Village Community
Bank, Indian Village Bancorp, Inc. and Lori S. Frantz
(2)
10.5 Indian Village Community Bank Employee Severance
Compensation Plan (2)
13.0 Indian Village Bancorp, Inc. 1999 Annual Report to
Stockholders
21.0 Subsidiary information is incorporated herein by
reference to Part I, Item 1, "Business--Subsidiary
Activities"
27.0 Financial Data Schedule
____________________
(1) Incorporated herein by reference from the Exhibits to
Form SB-2, Registration Statement and amendments
thereto, initially filed on March 18, 1998,
Registration No. 333-74621.
(2) Incorporated herein by reference from the exhibits to
the Form 10-QSB for the quarter ended September 30,
1999, filed November 15, 2000.
(b) Reports on Form 8-K
None.
30
<PAGE>
CONFORMED
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
INDIAN VILLAGE BANCORP, INC.
Date: March 29, 2000 By: /s/ Marty R. Lindon
--------------------------
Marty R. Lindon
President and Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on
the dates indicated.
Name Title Date
---- ----- ----
/s/ Marty R. Lindon President, Chief Executive March 29, 2000
- ------------------------ Officer and Director
Marty R. Lindon (principal executive officer)
/s/ Lori S. Frantz Vice President, Chief Financial March 29, 2000
- ------------------------ Officer and Treasurer (principal
Lori S. Frantz financial and accounting officer)
/s/ Rebecca S. Mastin Chairperson of the Board March 29, 2000
- -------------------------
Rebecca S. Mastin
/s/ John A. Beitzel Vice Chairman of the Board March 29, 2000
- -------------------------
John A. Beitzel
/s/ Michael A. Cochran Corporate Secretary and March 29, 2000
- ------------------------- Director
Michael A. Cochran
/s/ Vernon E. Mishler Director March 29, 2000
- -------------------------
Vernon E. Mishler
/s/ Joanne Limbach Director March 29, 2000
- -------------------------
Joanne Limbach
/s/ Cindy S. Knisely Director March 29, 2000
- -------------------------
Cindy S. Knisely
31
<PAGE>
INDIAN VILLAGE BANCORP, INC.
1999 ANNUAL REPORT TO SHAREHOLDERS
<PAGE>
CONTENTS
<TABLE>
<S> <C>
LETTER TO SHAREHOLDERS........................................... 2
BUSINESS OF INDIAN VILLAGE BANCORP, INC.......................... 3
SELECTED CONSOLIDATED FINANCIAL INFORMATION AND
OTHER DATA...................................................... 4
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS............................. 6
REPORT OF INDEPENDENT AUDITORS................................... 16
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS................................... 17
CONSOLIDATED STATEMENTS OF INCOME............................. 18
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)........ 19
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY............... 20
CONSOLIDATED STATEMENTS OF CASH FLOWS......................... 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.................... 22
ANNUAL MEETING................................................... 39
STOCK LISTING.................................................... 39
PRICE RANGE OF COMMON STOCK AND DIVIDENDS........................ 39
SHAREHOLDER AND GENERAL INQUIRES................................. 39
TRANSFER AGENT................................................... 39
ANNUAL REPORT ON FORM 10-KSB..................................... 39
CORPORATE INFORMATION............................................ 40
</TABLE>
________________________________________________________________________________
1.
<PAGE>
Dear Shareholders:
On behalf of the Directors, Officers and employees, it is my pleasure to present
to you the first annual report of Indian Village Bancorp, Inc. As you are more
than likely already aware, 1999 was a year of growth and change for our
Corporation.
. In January, after several years of planning, we decided to convert to a
stock institution. The conversion was completed on July 1, 1999, with
445,583 shares of stock being sold to depositors of Indian Village
Community Bank.
. To better define our customer relationships and our services in the local
market, your Board of Directors decided to change the Bank's name to Indian
Village Community Bank.
. To better deliver our services throughout Tuscarawas County, the decision
was finalized to construct a new full service branch in New Philadelphia,
Ohio.
. We also deployed one full service ATM at our New Philadelphia Branch and
two remote cash dispensers, as well as implemented a Master Money Debit
Card program which have together enhanced our demand deposit growth.
. We also implemented with very favorable response a municipality checking
program that is being marketed to local villages, cities and townships.
These new products, the New Philadelphia branch and employees dedicated to
providing outstanding customer service are strategic building blocks to enhance
shareholder value by giving us a solid foundation to increase our asset base and
build on for the future growth of Indian Village.
Our management and Board of Directors are dedicated to enhancing shareholder
value, meeting the needs of our customers and providing a challenging and
rewarding work environment for our employees.
A primary goal of management is to expand our market share. To accomplish this,
we are exploring new products, including insurance, annuities, stocks, internet
banking and check imaging, as well as expanding our current line of products.
Indian Village will strive to capitalize on customer service opportunities and
provide quality services to attract and retain new customers.
As proud as we are of our 76-year history, the prospects for the new millennium
are very bright and exciting. The opportunity and challenge exist to expand our
customer base, enhance shareholder value and stay competitive with the latest
technology.
Thank you for your support and investment in Indian Village.
Sincerely,
/s/ Marty R. Lindon
- -----------------------------
Marty R. Lindon
President and CEO
________________________________________________________________________________
2.
<PAGE>
BUSINESS OF INDIAN VILLAGE BANCORP, INC.
Indian Village Bancorp, Inc. ("IVB"), a unitary thrift holding company
incorporated under the laws of the Commonwealth of Pennsylvania, owns all of the
issued and outstanding common shares of Indian Village Community Bank ("Bank"),
a federally chartered stock savings bank, together referred to as the
Corporation. On July 1, 1999, IVB acquired all of the common shares issued by
the Bank upon its conversion from a federally chartered mutual savings bank to a
federally chartered stock savings bank ("Conversion"). IVB's activities have
been limited primarily to holding the common shares of the Bank.
Serving the Tuscarawas County, Ohio area, the Bank conducts business from its
main office at 100 South Walnut Street, Gnadenhutten, Ohio and a full-service
branch office at 635 West High Street, New Philadelphia, Ohio. The Bank's
principal business is attracting deposits from the general public and
originating loans secured by first mortgages on one- to four-family residential
real estate properties located in its primary market area. The Bank also
originates a limited number of loans for the construction of one- to four-family
residences and permanent mortgage loans secured by multi-family and
nonresidential real estate in its primary market area. In addition to real
estate lending, the Bank originates commercial loans and various types of
consumer credits, including home equity loans and lines of credit, home
improvement loans, motor vehicle loans, loans secured by savings accounts,
unsecured loans and other loans. For liquidity and interest rate risk management
purposes, the Bank invests in interest-bearing deposits in other financial
institutions, U.S. Treasury securities, mortgage-backed securities and other
investments permitted by applicable law. Funds for lending and other investment
activities are obtained primarily from savings deposits, which are insured up to
applicable limits by the Federal Deposit Insurance Corporation ("FDIC") through
the Savings Association Insurance Fund ("SAIF"), principal repayments on loans,
maturities of securities and borrowings from the Federal Home Loan Bank
("FHLB").
As a savings and loan holding company, IVB is subject to regulation, examination
and oversight by the Office of Thrift Supervision of the United States
Department of the Treasury ("OTS"). As a federally chartered stock savings bank,
the Bank is subject to regulation, examination and oversight by the OTS. The
Bank is also subject to general oversight by the FDIC. The Bank is also a member
of the FHLB of Cincinnati.
________________________________________________________________________________
3.
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION AND OTHER DATA
The following tables set forth certain information concerning the consolidated
financial condition, earnings and other data regarding the Corporation at the
dates and for the periods indicated. Because the conversion was completed on
July 1, 1999, information for the years prior to the 1999 fiscal year end is for
the Bank.
<TABLE>
<CAPTION>
Selected Financial Condition At December 31,
- ---------------------------- ---------------------------------
and Other Data: 1999 1998 1997
- --------------- ---------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C>
Total amount of:
Assets $ 59,362 $ 40,024 $ 36,353
Cash and cash equivalents 1,340 797 923
Loans, net (1) 37,291 31,274 27,241
Mortgage-backed securities available for sale 8,366 4,227 3,783
Securities available for sale 8,708 1,968 3,534
Deposits 33,153 30,866 30,277
Federal Home Loan Bank advances 17,200 4,000 1,000
Shareholders' equity (2) 8,749 5,102 4,852
Real estate owned, net 118 122 41
Nonperforming assets and troubled debt restructurings 468 473 512
Number of full-service offices 2 1 1
</TABLE>
<TABLE>
<CAPTION>
Selected Operations Data: Year ended December 31,
- ------------------------- ---------------------------------
1999 1998 1997
---------- --------- ---------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C>
Interest income $ 3,612 $ 3,020 $ 2,891
Interest expense 1,974 1,666 1,577
---------- --------- ---------
Net interest income 1,638 1,354 1,314
Provision for loan losses 14 60 --
---------- --------- ---------
Net interest income after provision for loan losses 1,624 1,294 1,314
Noninterest income 42 29 21
Noninterest expense 1,197 950 805
---------- --------- ---------
Income before income taxes 469 373 530
Income tax expense 181 127 180
---------- --------- ---------
Net income $ 288 $ 246 $ 350
========== ========= =========
Basic earnings per share (3) $ .31
==========
Diluted earnings per share (3) $ .31
==========
Dividends per share (3) $ --
==========
</TABLE>
________________________________________________________________________________
4.
<PAGE>
<TABLE>
<CAPTION>
Selected Financial Ratios and At or for the year ended December 31,
- ----------------------------- ---------------------------------------
Other Data: 1999 1998 1997
- ---------- ----------- ----------- -----------
(Dollars in thousands)
<S> <C> <C> <C>
Performance Ratios:
Return on assets (ratio of net
income to average total assets) 0.60% 0.64% 0.97%
Return on equity (ratio of net
income to average equity) (2) 4.18 4.87 7.52
Interest rate spread (4) 2.96 3.09 3.20
Net interest margin (5) 3.56 3.68 3.78
Noninterest expense to average assets 2.50 2.48 2.24
Efficiency ratio (6) 71.25 68.69 60.30
Net interest income after provision for loan losses
to noninterest expense 135.67 136.21 163.23
Ratio of average interest-earning assets to
average interest-bearing liabilities 113.85 113.04 112.61
Capital Ratios:
Average equity to average
assets (2) 14.41% 13.20% 12.95%
Shareholders' equity to total
assets at end of period (2) 14.74 12.75 13.35
Asset Quality Ratios and Other Data:
Nonperforming assets to average assets (7) 0.98% 1.24% 1.42%
Nonperforming assets to total assets at end of period (7) 0.79 1.18 1.41
Nonperforming loans to gross loans (8) 0.90 1.04 1.71
Allowance for loan losses to gross loans (8) 0.62 0.69 0.64
Allowance for loan losses to nonperforming loans 68.84 66.46 37.37
Net charge-offs to average loans -- 0.06 --
Nonperforming loans $ 337 $ 328 $ 471
Nonperforming assets 468 473 512
</TABLE>
_______________________________
(1) Loans are shown net of net deferred loan fees and costs, loans in process
and the allowance for loan losses.
(2) Consists solely of retained earnings and accumulated other comprehensive
income before December 31, 1999.
(3) Earnings and dividends per share are not applicable for any of the periods
presented before December 31, 1999. Earnings per share for 1999 was computed
based on net income of the Corporation since its stock issuance on July 1,
1999.
(4) The interest rate spread represents the difference between the weighted
average yield on interest-earning assets and the weighted average cost of
interest-bearing liabilities.
(5) The net interest margin represents net interest income as a percent of
average interest-earning assets.
(6) The efficiency ratio represents noninterest expense divided by the sum of
net interest income and noninterest income.
(7) Nonperforming assets consist of nonperforming loans and foreclosed assets.
Nonperforming loans consist of all accruing loans 90 days or more past due
and all nonaccrual loans.
(8) Gross loans are stated at the unpaid principal balances.
________________________________________________________________________________
5.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
The following is management's analysis of the Corporation's consolidated
financial condition and consolidated results of operations as of and for the
year ended December 31, 1999, compared to the year ended December 31, 1998. This
discussion is designed to provide a more comprehensive review of the operating
results and financial position than could be obtained from an examination of the
consolidated financial statements alone. This analysis should be read in
conjunction with the consolidated financial statements and related footnotes and
the selected financial data included elsewhere in this report.
The Conversion was consummated on July 1, 1999. A total of 445,583 common shares
of IVB were sold at $10.00 per share and net proceeds from the sale were
$4,024,000 after deducting the costs of the Conversion. IVB retained 50% of the
net proceeds from the sale of common shares. The remainder of the net proceeds
was invested in the capital stock issued by the Bank to IVB in connection with
the Conversion.
The Bank provides financial services through its main office in Gnadenhutten,
Ohio and branch office in New Philadelphia, Ohio. Its primary deposit products
are checking, savings and term certificate accounts, and its primary lending
products are residential mortgage, commercial and installment loans.
Substantially all loans are secured by specific items of collateral including
business assets, consumer assets and real estate. Commercial loans are expected
to be repaid from cash flow from operations of businesses. Real estate loans are
secured by both residential and commercial real estate.
Forward Looking Statements
When used in this discussion or future filings by the Corporation with the
Securities and Exchange Commission, or other public or shareholder
communications, or in oral statements made with the approval of an authorized
executive officer, the words or phrases "will likely result," "are expected to,"
"will continue," "is anticipated," "estimate," "project," "believe" or similar
expressions are intended to identify "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. The Corporation
cautions readers not to place undue reliance on any such forward-looking
statements, which speak only as of the date made, and to advise readers that
various factors, including but not limited to regional and national economic
conditions, changes in levels of market interest rates, credit risks of lending
activities and competitive and regulatory factors, could affect the
Corporation's financial performance and could cause the Corporation's actual
results for future periods to differ materially from those anticipated or
projected.
The Corporation is not aware of any trends, events or uncertainties that will
have or are reasonably likely to have a material effect on its liquidity,
capital resources or operations except as discussed in this report. The
Corporation is not aware of any current recommendations by regulatory
authorities that would have such effect if implemented.
The Corporation does not undertake, and specifically disclaims, any obligation
to publicly release the result of any revisions which may be made to any
forward-looking statements to reflect occurrence of anticipated or unanticipated
events or circumstances after the date of such statements.
________________________________________________________________________________
6.
<PAGE>
Financial Condition
Total assets at December 31, 1999 were $59.4 million compared to $40.0 million
at December 31, 1998, an increase of $19.3 million, or 48.3%. The increase in
total assets was primarily due to an increase in securities available for sale
of $10.9 million, an increase in loans of $6.0 million and an increase in
premises and equipment of $1.1 million. The increase in loans consisted
primarily of an increase in one- to four-family residential real estate loans of
$2.3 million, as well as increases in nonresidential real estate loans, consumer
loans and construction loans of $1.5 million, $1.3 million and $574,000,
respectively. These increases are reflective of a stable local economy and the
Bank's more aggressive promotion of consumer loans. The increase in premises and
equipment was primarily due to the opening of a new branch office in November
1999. The increase in assets was funded primarily by the net proceeds of the
Conversion, FHLB advances and an increase in deposits.
The $1.3 million, or 58.1%, increase in the consumer loan portfolio between
December 31, 1998 and December 31, 1999 consisted primarily of increases in
other consumer loans of $624,000, home equity loans and lines of credit of
$298,000 and automobile loans of $273,000. Consumer loans represented 9.6% and
7.2% of gross loans at December 31, 1999 and December 31, 1998, respectively.
Total deposits were $33.2 million on December 31, 1999 compared to $30.9 million
at December 31, 1998, an increase of $2.3 million, or 7.4%. Increases in non-
interest bearing demand deposit accounts and negotiable order of withdrawal
("NOW") accounts aggregating $918,000 were partially offset by decreases in
money market accounts and savings accounts aggregating $377,000. Increases in
certificates of deposit totaled $2.1 million. Management attributes the increase
in overall deposits to the opening of a new branch office in New Philadelphia,
Ohio in the fourth quarter of 1999. The certificate of deposit portfolio as a
percent of total deposits increased slightly from 73.8% at December 31, 1998 to
75.1% at December 31, 1999. Almost all certificates of deposit issued by the
Corporation mature in less than three years with the majority maturing in the
next year.
As a secondary source of liquidity, the Corporation obtains borrowings from the
FHLB of Cincinnati, from which it held advances totaling $17.2 million at
December 31, 1999 and $4.0 million at December 31, 1998. Due to continued loan
demand and in order to better leverage the Corporation's capital, the
Corporation used these funds to originate mortgage loans and purchase securities
available for sale as well as provide for short-term liquidity needs. FHLB
advances at December 31, 1999 consisted of $2.7 million in short-term advances
and $14.5 million in long-term callable fixed-rate advances. The long-term
callable advances have specified call dates ranging from one to five years at
which the advances may be called at the option of the FHLB. Additional advances
may be obtained from the FHLB to fund future loan growth and liquidity as
needed.
Results of Operations
The general economic conditions, the monetary and fiscal policies of federal
agencies and the regulatory policies of agencies that regulate financial
institutions affect the operating results of the Corporation. Interest rates on
competing investments and general market rates of interest influence the
Corporation's cost of funds. Lending activities are influenced by the demand for
real estate loans and other types of loans, which in turn is affected by the
interest rates at which such loans are made, general economic conditions and the
availability of funds for lending activities.
________________________________________________________________________________
7.
<PAGE>
The Corporation's net income primarily depends on its net interest income, which
is the difference between the interest income earned on interest-earning assets,
such as loans and securities, and interest expense incurred on interest-bearing
liabilities, such as deposits and borrowings. The level of net interest income
is dependent on the interest rate environment and the volume and composition of
interest-earning assets and interest-bearing liabilities. Provisions for loan
losses, service charges, gains on the sale of assets, other income, noninterest
expense and income taxes also affect net income.
Comparison of Results of Operations for the Year Ended December 31, 1999 and
December 31, 1998
Net Income. Net income was $288,000 for the year ended December 31, 1999,
compared to $246,000 for the year ended December 31, 1998. The increase in net
income for the year ended December 31, 1999 was primarily the result of an
increase in net interest income after provision for loan losses, partially
offset by an increase in noninterest expense.
Net Interest Income. Net interest income totaled $1.6 million for the year ended
December 31, 1999, as compared to $1.4 million for the year ended December 31,
1998, representing an increase of $284,000, or 21.0%. The change in net interest
income is attributable to an increase in the ratio of average interest-earning
assets to average interest-bearing liabilities offset by a decrease in the
interest rate spread. The increase in the ratio of average interest-bearing
assets to average interest bearing liabilities is primarily due to the net
proceeds received from the Conversion of $4.0 million.
Interest and fees on loans increased approximately $403,000, or 16.4%, from $2.5
million for the year ended December 31, 1998 to $2.9 million for the year ended
December 31, 1999. The increase in interest income was due to higher average
loans partially offset by a decrease in the yield earned as a result of
increased competition.
Interest earned on securities totaled $697,000 for the year ended December 31,
1999, as compared to $524,000 for the year ended December 31, 1998. The increase
was a result of higher average balances of securities combined with an increased
yield earned due to an increasing interest rate environment.
Interest on interest-bearing deposits and overnight deposits increased to
$62,000 for the year ended December 31, 1999, as compared to $46,000 for the
same period in 1998.
Interest paid on deposits decreased $81,000 for the year ended December 31,
1999, compared to the year ended December 31, 1998. The decrease in interest
expense was due to a decrease in the cost of funds which was driven by the
Corporation's local market area while the average balances of deposits remained
relatively unchanged.
Interest on FHLB advances totaled $525,000 for the year ended December 31, 1999,
compared to $136,000 for the year ended December 31, 1998. The increase was the
result of a higher average balances partially offset by a lower cost of funds.
The additional borrowings were used to provide funding for loan demand and to
better leverage the Corporation's capital.
Provision for Loan Losses. The Corporation maintains an allowance for loan
losses in an amount that, in management's judgment, is adequate to absorb
probable losses inherent in the loan portfolio. While management utilizes its
best judgment and information available, the ultimate adequacy of the allowance
depends on a variety of factors, including past loan loss experience, known and
inherent risks in the nature and volume of the portfolio, information about
specific borrower situations and estimated collateral values, economic
conditions, and other factors. The provision for loan losses is determined by
management as the amount to be added to the allowance for loan losses after net
charge-offs have been deducted to bring the allowance to a level which is
considered adequate to absorb probable losses inherent in the loan portfolio.
________________________________________________________________________________
8.
<PAGE>
The provision for loan losses for the year ended December 31, 1999 totaled
$14,000 compared to $60,000 for the year ended December 31, 1998. The
Corporation did not experience any net charge-offs during the year ended
December 31, 1999 compared to net charge-offs of $18,000 for the year ended
December 31, 1998. The Corporation's low charge-off history is the product of a
variety of factors, including the Corporation's underwriting guidelines, which
generally require a loan-to-value or projected completed value ratio of 80% for
the purchase or construction of one- to four-family residential properties and
75% for commercial real estate and land loans, established income information
and defined ratios of debt to income. Despite this history, the Corporation
cannot give any assurances as to the level of future charge-offs. The allowance
for loan losses totaled $232,000 or .62% of gross loans at December 31, 1999,
compared with $218,000, or .69% of gross loans at December 31, 1998.
Noninterest income. Noninterest income includes service charges and other fees,
net gains on sales of securities available for sale and other income. For the
year ended December 31, 1999, noninterest income totaled $42,000 compared to
$29,000 for the year ended December 31, 1998. During the 1999 period, the
Corporation experienced an increase of $27,000 in service charges and other fees
and net gains on sales of securities available for sale that was partially
offset by a decrease of $14,000 in other miscellaneous income.
Noninterest expense. Noninterest expense totaled $1.2 million for the year ended
December 31, 1999 compared to $950,000 for same period in 1998. The increase in
noninterest expense was primarily the result of a $74,000 increase in salaries
and employee benefits expense, a $71,000 increase in pension expense and a
$35,000 increase in stationary and supplies expense. The increase in salaries
and employee benefits expense was due primarily to increased staffing as a
result of the opening of the new branch office, normal annual merit increases
and the establishment of the Bank's employee stock option plan ("ESOP") in
connection with the Conversion. The increase in pension expense resulted from
the Corporation's decision to terminate its defined benefit pension plan in
1999. The Corporation will recognize an additional expense in 2000 related to
its pension plan at the time of settlement equal to the unrecognized net
actuarial loss at that date. The increase in stationary and supplies expense was
due to the Bank's name change in January 1999. Additional increases in
occupancy, furniture and fixtures expense, data processing expense and other
expense also resulted from the opening of the new branch office in November
1999. Operating expenses are expected to increase in 2000 as a result of a full
year impact of the new branch office.
Income Tax Expense. The volatility of income tax expense is primarily
attributable to the change in net income before income taxes. The provision for
income taxes totaled $181,000 for the year ended December 31, 1999 compared to
$127,000 for the year ended December 31, 1998.
________________________________________________________________________________
9.
<PAGE>
Yields Earned and Rates Paid
The following table sets forth certain information relating to the Corporation's
average balance sheet information and reflects the average yield on interest-
earning assets and the average cost of interest-bearing liabilities for the
periods indicated. Such yields and costs are derived by dividing income or
expense by the average balances of interest-earning assets or interest-bearing
liabilities for the periods presented. Average balances were derived from daily
balances.
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------------------------------
1999 1998
-----------------------------------------------------------------
Average Interest Average Average Interest Average
outstanding earned/ yield/ outstanding earned/ yield/
balance paid rate balance paid rate
------- ---- ---- ------- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans/(1)/ $ 34,895 $ 2,853 8.18% $ 28,449 $ 2,450 8.61%
Mortgage-backed securities/(2)/ 5,219 354 6.78 3,874 280 7.23
Investment securities/(2)/:
Taxable 4,482 334 7.45 3,265 224 6.86
Non-taxable/(3)/ 141 14 9.93 502 30 5.98
Interest-bearing deposits and federal funds sold 1,437 62 4.31 976 46 4.71
----------- -------- --------- --------
Total interest-earning assets 46,174 3,617 7.83 37,066 3,030 8.17
-------- --------
Noninterest-earning assets 1,615 1,219
----------- ---------
Total assets $ $47,789 $ 38,285
=========== =========
Interest-bearing liabilities:
Demand deposits $ 1,028 19 1.85 $ 815 16 1.96
Savings accounts 5,676 161 2.84 5,263 172 3.27
Money market accounts 1,589 52 3.27 1,777 59 3.32
Certificates of deposit 22,585 1,217 5.39 22,585 1,283 5.68
----------- -------- --------- --------
Total deposits 30,878 1,449 4.69 30,440 1,530 5.03
FHLB advances 9,678 525 5.42 2,351 136 5.78
----------- -------- --------- --------
Total interest-bearing liabilities 40,556 1,974 4.87 32,791 1,666 5.08
-------- --------
Noninterest-bearing liabilities 348 439
----------- ---------
Total liabilities 40,903 33,230
Equity 6,885 5,055
----------- ---------
Total liabilities and equity $ 47,789 $ 38,285
=========== =========
Net interest income; interest-rate spread/(4)/ $ 1,643 2.96% $ 1,364 3.09%
======== ==== ======== ====
Net earning assets $ 5,618 $ 4,275
=========== =========
Net interest margin/(5)/ 3.56% 3.68%
==== ====
Average interest-earning assets to interest-bearing liabilities 113.85% 113.04%
=========== =========
</TABLE>
__________________________________
(1) Net of deferred loan fees and costs and loans in process and includes
nonperforming loans.
(2) Average balance includes unrealized gains and losses. Yield is based on
amortized cost.
(3) Average yield for municipal securities are presented on a tax equivalent
basis based on an assumed tax rate of 34%.
(4) Interest rate spread represents the difference between the yield on
interest-earning assets and the cost of interest-bearing liabilities.
(5) Net interest margin represents net interest income divided by average
interest-earning assets.
________________________________________________________________________________
10.
<PAGE>
Rate/Volume Analysis
The table below describes the extent to which changes in interest rates and
changes in volume of interest-earning assets and interest-bearing liabilities
have affected the Corporation's interest income and expense during 1999. For
each category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (1) changes in volume
(multiplied by prior year rate), (2) changes in rate (multiplied by prior year
volume) and (3) total changes in rate and volume (the sum of the prior columns).
The combined effects of changes in both volume and rate, that are not separately
identified, have been allocated proportionately to the change due to volume and
the change due to rate:
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------
1999 vs. 1998
-------------------------------
Increase
(decrease)
due to
---------------------
Volume Rate Total
------ ---- -----
(In thousands)
<S> <C> <C> <C>
Interest income attributable to:
Loans $ 532 $ (129) $ 403
Mortgage-backed securities 92 (18) 74
Investment securities:
Taxable 89 21 110
Non-taxable (1) (29) 13 (16)
Interest-bearing deposits and federal funds sold 20 (4) 16
------ ------ ------
Total interest-earning assets $ 704 $ (117) 587
====== ====== ======
Interest expense attributable to:
Demand deposits $ 4 $ (1) $ 3
Savings accounts 13 (24) (11)
Money market accounts (6) (1) (7)
Certificates of deposit -- (66) (66)
FHLB advances 398 (9) 389
------ ------ ------
Total interest-bearing liabilities $ 409 $ (101) 308
====== ====== ------
Net interest income $ 279
======
</TABLE>
_________________________
(1) Municipal securities are presented on a tax equivalent basis based on an
assumed tax rate of 34%.
Asset and Liability Management
The Bank, like other financial institutions, is subject to interest rate risk to
the extent that its interest-earning assets reprice differently than its
interest-bearing liabilities. One of the Bank's principal financial objectives
is to achieve long-term profitability while reducing its exposure to
fluctuations in interest rates. The Bank has sought to reduce exposure of its
earnings to changes in market interest rates by managing asset and liability
maturities and interest rates primarily through the maintenance of a high level
of investments in short-term assets in the portfolio, including one- and three-
year adjustable-rate mortgage loans ("ARMs").
________________________________________________________________________________
11.
<PAGE>
As part of its effort to monitor and manage interest rate risk, the Bank uses
the "net portfolio value" ("NPV") methodology adopted by the OTS as part of its
capital regulations. Although the Bank is not currently subject to NPV
regulation because such regulation does not apply to institutions with less than
$300 million in assets and risk-based capital in excess of 12%, application of
NPV methodology may illustrate the Bank's interest rate risk.
Generally, NPV is the discounted present value of the difference between
incoming cash flows on interest-earning and other assets and outgoing cash flows
on interest-bearing and other liabilities. The application of the methodology
attempts to quantify interest rate risk as the change in the NPV that would
result from a theoretical basis point (1 basis point equals 0.01%) change in
market interest rates. The OTS considers an institution to be subject to
interest-rate risk if the NPV would decrease by more than 2% of the present
value of the institution's assets with either a 200 basis point increase or
decrease in market rates. If the NPV would decrease by more than 2% of the
present value of the institution's assets with either an increase or a decrease
in market rates, the institution must deduct 50% of the amount of decrease in
excess of such 2% in the calculation of the institution's risk-based capital.
At December 31, 1999, 2% of the present value of the Bank's assets was $1.2
million. Because the interest rate risk of a 200 basis point increase in market
interest rates (which was greater than the interest rate risk of a 200 basis
point decrease) was $2.6 million at December 31, 1999, the Bank would have been
required to deduct approximately $679,000 (50% of the approximate $1.4 million
difference) from its capital in determining whether the Bank met its risk-based
capital requirement. Regardless of such reduction, however, the Bank's risk-
based capital at December 31, 1999, would still have exceeded the regulatory
requirement by approximately $4.3 million.
Presented below, as of December 31, 1999, is an analysis of the Bank's interest
rate risk as measured by changes in NPV for instantaneous and sustained parallel
shifts of 100 basis points in market interest rates. As illustrated in the
table, the Bank's NPV is more sensitive to an increasing interest rate
environment. The result principally occurs because, as rates rise, borrowers do
not prepay adjustable-rate loans which reprice less frequently than on an annual
basis, adjustable-rate loans with interest rate adjustment caps and fixed-rate
loans as quickly as they do when interest rates are declining. Thus, in a rising
interest-rate environment, the amount of interest the Bank would receive on its
loans would increase relatively slowly as loans are repaid and new loans are
made at higher rates. However, the interest the Bank would pay on its deposit
products would increase more rapidly because the deposit portfolio generally has
shorter periods to repricing.
<TABLE>
<CAPTION>
NPV as % of
Portfolio Value
Net Portfolio Value Of Assets
------------------------------------------------- -----------------------------
Change Basis Point
in Rates $ Amount $ Change % Change NPV Ratio Change
-------- -------- -------- -------- --------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
300 $ 3,179 $ (3,951) (55)% 5.88% (612)bp
200 4,585 (2,545) (36) 8.20 (380)
100 6,098 (1,032) (14) 10.54 (147)
Static 7,130 -- -- 12.01 --
(100) 8,162 1,032 14 13.40 140
(200) 8,673 1,543 22 14.01 200
(300) 9,049 1,919 27 14.41 240
</TABLE>
________________________________________________________________________________
12.
<PAGE>
As with any method of measuring interest rate risk, certain shortcomings are
inherent in the NPV approach. For example, although certain assets and
liabilities may have similar maturities or periods of repricing, they may react
in different degrees to changes in market interest rates. Also, the interest
rates on certain types of assets and liabilities may fluctuate in advance of
changes in market interest rates, while interest rates on other types may lag
behind changes in market rates. Further, in the event of a change in interest
rates, expected rates of prepayment on loans and mortgage-back securities and
early withdrawal levels from certificates of deposit would likely deviate
significantly from those assumed in making risk calculations.
Liquidity and Capital Resources
The Corporation's liquidity, primarily represented by cash and cash equivalents,
is a result of its operating, investing and financing activities. These
activities are summarized below for the years ended December 31, 1999 and 1998.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1999 1998
---------- ----------
(In thousands)
<S> <C> <C>
Net income $ 288 $ 246
Adjustments to reconcile net income to net cash from operating activities (83) (155)
----------- ----------
Net cash from operating activities 205 91
Net cash from investing activities (18,817) (3,806)
Net cash from financing activities 19,155 3,589
----------- ----------
Net change in cash and cash equivalents 543 (126)
Cash and cash equivalents at beginning of period 797 923
----------- ----------
Cash and cash equivalents at end of period $ 1,340 $ 797
=========== ==========
</TABLE>
The Corporation's principal sources of funds are deposits, loan repayments,
maturities of securities and other funds provided by operations. The Corporation
also has the ability to borrow from the FHLB. While scheduled loan repayments
and maturing securities are relatively predictable, deposit flows and early loan
and mortgage-backed securities prepayments are more influenced by interest
rates, general economic conditions and competition. The Corporation maintains
investments in liquid assets based upon management's assessment of (1) need for
funds, (2) expected deposit flows, (3) yields available on short-term liquid
assets and (4) objectives of the asset/liability management program.
OTS regulations presently require the Bank to maintain an average daily balance
of investments in U.S. Treasury, federal agency obligations and other
investments in an amount equal to 4% of the sum of the Bank's average daily
balance of net withdrawable deposit accounts and borrowings payable in one year
or less. The liquidity requirement, which may be changed from time to time by
the OTS to reflect changing economic conditions, is intended to provide a source
of relatively liquid funds on which the Bank may rely, if necessary, to fund
deposit withdrawals or other short-term funding needs. At December 31, 1999, the
Bank's regulatory liquidity was 56.78%. At such date, the Corporation had
commitments to originate fixed-rate loans totaling $1.0 million, and variable-
rate loans totaling $833,000. Loan commitments are generally for 30 days. The
Corporation considers its liquidity and capital reserves sufficient to meet its
outstanding short- and long-term needs. See Note 12 of the Notes to Consolidated
Financial Statements.
________________________________________________________________________________
13.
<PAGE>
The Bank is required by OTS regulations to meet certain minimum capital
requirements, which must be generally as stringent as the requirements
established for commercial banks. Current capital requirements call for tangible
capital of 1.5% of adjusted total assets, core capital (which, for the Bank,
consists solely of tangible capital) of 3.0% to 4.0% of adjusted total assets
(depending on the Bank's examination rating) and risk-based capital (which, for
the Bank, consists of core capital and general valuation allowances) of 8.0% of
risk-weighted assets (assets are weighted at percentage levels ranging from 0%
to 100% depending on their relative risk).
The following table summarizes regulatory capital requirements and the Bank's
actual capital at December 31, 1999.
<TABLE>
<CAPTION>
Excess of Actual
Capital Over Current
Actual Capital Current Requirement Requirement Applicable
-------------------- ------------------- --------------------
Amount Percent Amount Percent Amount Percent Asset Total
------ ------- ------ ------- ------ ------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Tangible Capital $7,005 11.7% $ 898 1.5% $6,107 10.2% $59,845
Core Capital 7,005 11.7 2,394 4.0 4,611 7.7 59,845
Total Risk-based
Capital 7,237 25.3 2,287 8.0 4,950 17.3 28,585
</TABLE>
In addition to certain federal income tax considerations, OTS regulations impose
limitations on the payment of dividends and other capital distributions by
federally chartered savings banks. Under OTS regulations, the Bank is not
permitted to pay a cash dividend on its common shares if its regulatory capital
would, as a result of payment of such dividend, be reduced below the amount
required for the liquidation account (the account established for the purpose of
granting a limited priority claim on the assets of the Bank in the event of
complete liquidation to those members of the Bank before the Conversion who
maintain a savings account at the Bank after the Conversion), or applicable
regulatory capital requirements prescribed by the OTS.
An application must be submitted and approval from the OTS must be obtained by a
subsidiary of a savings and loan holding company (1) if the proposed
distribution would cause total distributions for that calendar year to exceed
net income for that year to date plus the bank's retained net income for the
preceding two years; (2) if the bank will not be at least adequately capitalized
following the capital distribution; (3) if the proposed distribution would
violate a prohibition contained in any applicable statute, regulation or
agreement between the bank and the OTS (or the FDIC), or a condition imposed on
the bank in an OTS-approved application or notice; or, (4) if the bank has not
received certain favorable examination ratings from the OTS. If a bank
subsidiary of a holding company is not required to file an application, it must
file a notice with the OTS.
Impact of New Accounting Standards
Beginning January 1, 2001 a new accounting standard will require all derivatives
to be recorded at fair value. Unless designated as hedges, changes in these fair
values will be recorded in the income statement. Fair value changes involving
hedges will generally be recorded by offsetting gains and losses on the hedge
and on the hedged item, even if the fair value of the hedged item is not
otherwise recorded. This is not expected to have a material effect but the
effect will depend on derivative holdings when this standard applies.
- -------------------------------------------------------------------------------
14.
<PAGE>
Impact of Inflation and Changing Prices
The consolidated financial statements and notes included herein have been
prepared in accordance with generally accepted accounting principles ("GAAP").
GAAP requires the Corporation to measure financial position and operating
results primarily in terms of historic dollars. Changes in the relative value of
money due to inflation or recession are generally not considered.
In management's opinion, changes in interest rates affect the financial
condition of a financial institution to a far greater degree than changes in the
inflation rate. While interest rates are greatly influenced by changes in the
inflation rate, they do not change at the same rate or in the same magnitude as
the inflation rate. Rather, interest rate volatility is based on changes in the
expected rate of inflation, as well as on changes in monetary and fiscal
policies.
Year 2000 Issue
The Corporation did not experience any Year 2000-related computer system
problems, nor was the Corporation aware of any Year 2000-related problems with
any of its loan customers which would impact their ability to meet their debt
service requirements. The Corporation did not experience any significant unusual
deposit activity from its customers.
Change in Independent Auditors
Before the year ended December 31, 1998, the Bank's financial statements were
audited by Robb, Dixon, Francis, Davis, Oneson & Company. At the recommendation
of the Corporation's Audit Committee, the Corporation dismissed Robb, Dixon,
Francis, Davis, Oneson & Company and replaced it with Crowe, Chizek and Company
LLP, which was engaged on October 15, 1998. The Corporation's Board of Directors
approved the decision to change independent auditors on October 15, 1998.
For the year ended December 31, 1997 and up to the date of the replacement of
the former accountant, there were no disagreements with the former accountant on
any matter of accounting principles or practices, financial statement disclosure
or auditing scope or procedure which, if not resolved to the satisfaction of the
former accountant, would have caused it to make a reference to the subject
matter of the disagreement in connection with its reports. The independent
auditors' report on the financial statements for the fiscal year ended December
31, 1997 did not contain an adverse opinion or a disclaimer of opinion, and was
not qualified or modified as to uncertainty, audit scope, or accounting
principles.
- -------------------------------------------------------------------------------
15.
<PAGE>
[LOGO OF CROWE CHIZEK]
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Indian Village Bancorp, Inc.
Gnadenhutten, Ohio
We have audited the accompanying consolidated balance sheets of Indian Village
Bancorp, Inc. as of December 31, 1999 and 1998, and the related consolidated
statements of income, comprehensive income, shareholders' equity and cash flows
for the years then ended. These financial statements are the responsibility of
the Corporation's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Indian Village
Bancorp, Inc. as of December 31, 1999 and 1998, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ Crowe, Chizek and Company LLP
Crowe, Chizek and Company LLP
Columbus, Ohio
February 18, 2000
- -------------------------------------------------------------------------------
16.
<PAGE>
INDIAN VILLAGE BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
(Dollars in thousands, except per share amounts)
- ---------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
ASSETS
Cash and due from banks $ 824 $ 409
Interest-bearing deposits in other banks 516 388
------- -------
Total cash and cash equivalents 1,340 797
Time deposits 299 499
Securities available for sale at fair value 17,074 6,195
Loans, net of allowance for loan losses 37,291 31,274
Premises and equipment, net 1,591 447
Real estate owned 118 122
Federal Home Loan Bank stock 925 407
Accrued interest receivable 466 183
Other assets 258 100
------- -------
Total assets $59,362 $40,024
======= =======
LIABILITIES
Deposits $33,153 $30,866
Federal Home Loan Bank advances 17,200 4,000
Accrued interest payable 107 37
Other liabilities 153 19
------- -------
Total liabilities 50,613 34,922
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value, 1,000,000 shares authorized,
none outstanding -- --
Common stock, $.01 par value, 5,000,000 shares authorized,
445,583 shares issued and outstanding 4 --
Additional paid-in capital 4,021 --
Retained earnings - substantially restricted 5,393 5,105
Unearned employee stock ownership plan shares (344) --
Accumulated other comprehensive income
Unrealized gains (losses) on securities available for sale (273) 50
Additional minimum pension liability (52) (53)
------- -------
Total accumulated other comprehensive income (loss) (325) (3)
------- -------
Total shareholders' equity 8,749 5,102
------- -------
Total liabilities and shareholders' equity $59,362 $40,024
======= =======
</TABLE>
- ---------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
17.
<PAGE>
<TABLE>
<CAPTION>
INDIAN VILLAGE BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 1999 and 1998
(Dollars in thousands, except per share amounts)
- --------------------------------------------------------------------------------
1999 1998
------ ------
<S> <C> <C>
Interest and dividend income
Loans $2,853 $2,450
Securities 697 524
Interest-bearing deposits and Federal funds sold 62 46
------ ------
Total interest income 3,612 3,020
Interest expense
Deposits 1,449 1,530
Federal Home Loan Bank advances 525 136
------ ------
Total interest expense 1,974 1,666
------ ------
Net interest income 1,638 1,354
Provision for loan losses 14 60
------ ------
Net interest income after provision for loan losses 1,624 1,294
Noninterest income
Service charges and other fees 22 11
Gain (loss) on sale of securities available for sale, net 14 (2)
Other income 6 20
------ ------
Total noninterest income 42 29
Noninterest expense
Salaries and employee benefits 480 406
Pension expense 105 34
Occupancy, furniture and fixtures 85 69
Professional and consulting fees 46 56
Franchise taxes 70 73
Data processing 77 57
Director and committee fees 76 72
Advertising 54 44
Stationary and supplies 55 20
Other expense 149 119
------ ------
Total noninterest expense 1,197 950
------ ------
Income before federal income tax expense 469 373
Federal income tax expense 181 127
------ ------
Net income $ 288 $ 246
====== ======
Basic and diluted earnings per common share $ .31
======
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
18.
<PAGE>
<TABLE>
<CAPTION>
INDIAN VILLAGE BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Years ended December 31, 1999 and 1998
(Dollars in thousands)
-------------------------------------------------------------------------------
1999 1998
------ ------
<S> <C> <C>
Net income $ 288 $ 246
Other comprehensive income (loss), net of tax:
Unrealized losses on securities available for sale
arising during year (314) (12)
Reclassification adjustment for accumulated (gains) losses
included in net income (9) 1
----- -----
Net unrealized losses on securities (323) (11)
Additional minimum pension liability adjustment 1 15
----- -----
Other comprehensive income (loss) (322) 4
----- -----
Comprehensive income (loss) $ (34) $ 250
===== =====
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
19.
<PAGE>
INDIAN VILLAGE BANCORP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years Ended December 31, 1999 and 1998
(Dollars in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Unrealized
Additional Gain (Loss)
Additional Unearned Minimum on Securities
Common Paid-In Retained ESOP Pension Available
Stock Capital Earnings Shares Liability for Sale Total
------ ---------- -------- --------- ----------- -------------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1998 $ -- $ -- $4,859 $ -- $(68) $ 61 $4,852
Net income for the period -- -- 246 -- -- -- 246
Other comprehensive
income (loss) -- -- -- -- 15 (11) 4
------ ---------- -------- -------- ---------- ------------- ------
Balance at December 31, 1998 -- -- 5,105 -- (53) 50 5,102
Net income for the period -- -- 288 -- -- -- 288
Other comprehensive
income (loss) -- -- -- -- 1 (323) (322)
Sale of 445,583 shares of $.01
par common stock, net of
conversion costs 4 4,020 -- -- -- -- 4,024
Purchase of 35,637 shares
under ESOP plan -- -- -- (356) -- -- (356)
Release of 1,188 ESOP shares -- 1 -- 12 -- -- 13
------ ---------- -------- -------- ---------- ------------- ------
Balance at December 31, 1999 $4 $4,021 $5,393 $(344) $(52) $(273) $8,749
====== ========== ======== ======== ========== ============= ======
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE>
INDIAN VILLAGE BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1999 and 1998
(In thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
--------- --------
<S> <C> <C>
Cash flows from operating activities
Net income $ 288 $ 246
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation 37 35
Premium amortization, net of accretion (28) (7)
Provision for loan losses 14 60
Federal Home Loan Bank stock dividends (40) (28)
(Gain) loss on sale of securities available for sale (14) 2
Compensation expense on ESOP shares 13 --
Net change in:
Accrued interest receivable and other assets (382) (74)
Accrued expenses and other liabilities 298 (149)
Deferred income taxes 19 6
-------- -------
Net cash from operating activities 205 91
Cash flows from investing activities
Net change in time deposits 200 (499)
Purchases of securities available for sale (15,037) (4,133)
Proceeds from sales of securities available for sale 1,489 1,456
Proceeds from maturities of securities available for sale 2,221 3,787
Net change in loans (6,031) (4,174)
Premises and equipment expenditures, net (1,181) (243)
Purchases of Federal Home Loan Bank stock (478) --
-------- -------
Net cash from investing activities (18,817) (3,806)
Cash flows from financing activities
Net change in deposits 2,287 589
Net change in short-term FHLB advances 2,700 --
Repayment of long-term FHLB advances (2,000) (1,000)
Proceeds from long-term FHLB advances 12,500 4,000
Proceeds from issuance of common stock, net of conversion costs 4,024 --
Cash provided to ESOP (356) --
-------- -------
Net cash from financing activities 19,155 3,589
-------- -------
Net change in cash and cash equivalents 543 (126)
Cash and cash equivalents at beginning of year 797 923
-------- -------
Cash and cash equivalents at end of year $ 1,340 $ 797
======== =======
Supplemental disclosures of cash flow information
Cash paid during the year for
Interest $ 1,904 $ 1,656
Income taxes 149 241
Noncash transactions
Transfers from loans to real estate owned $ -- $ 81
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE>
INDIAN VILLAGE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
(Table dollar amounts in thousands, except per share amounts)
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations and Principals of Consolidation: The consolidated
- ----------------------------------------------------
financial statements include the accounts of Indian Village Bancorp, Inc.
("IVB") and its wholly-owned subsidiary, Indian Village Community Bank ("Bank"),
a federally chartered stock savings bank, together referred to as the
Corporation. Intercompany accounts and transactions have been eliminated in
consolidation.
The Corporation's and Bank's revenues, operating income and assets are primarily
from the financial institution industry. The Bank is engaged in the business of
residential mortgage, commercial and consumer lending and consumer banking with
operations conducted through its main office located in Gnadenhutten, Ohio and a
branch office located in New Philadelphia, Ohio. These communities and the
contiguous areas are the source of substantially all the Bank's loan and deposit
activities. The majority of the Bank's income is derived from residential,
commercial and consumer lending activities and investments.
Business Segments: While the Corporation's chief decision-makers monitor the
- -----------------
revenue streams of the various Corporation products and services, operations are
managed and financial performance is evaluated on a company-wide basis.
Accordingly, all of the Corporation's banking operations are considered by
management to be aggregated in one reportable operating segment.
Use of Estimates: To prepare financial statements in conformity with generally
- ----------------
accepted accounting principles, management makes estimates and assumptions based
on available information. These estimates and assumptions affect amounts
reported in the financial statements and disclosures provided, and future
results could differ. The allowance for loan losses, fair values of financial
instruments and pension obligations are particularly subject to change.
Cash Flows: Cash and cash equivalents includes cash, deposits with other
- ----------
financial institutions with original maturities less than 90 days and Federal
funds sold. Net cash flows are reported for loan and deposit transactions.
Securities: Securities are classified as held to maturity and carried at
- ----------
amortized cost when management has the positive intent and ability to hold them
to maturity. Securities are classified as available for sale when they might be
sold before maturity. Securities available for sale are carried at fair value,
with unrealized holding gains and losses reported in accumulated other
comprehensive income. Other securities such as Federal Home Loan Bank stock are
carried at cost.
Interest income includes amortization of purchased premium or discount. Gains
and losses on sales are based on the amortized cost of the security sold.
Securities are written down to fair value when a decline in fair value is not
temporary.
Loans: Loans are reported at the principal balance outstanding, net of unearned
- -----
interest, deferred fees and costs, and the allowance for loan losses.
Interest income is reported on the interest method and includes amortization of
net deferred loan fees and costs over the contractual life of the loan. Interest
income is not reported when full loan repayment is in doubt, typically when the
loan is impaired or payments are past due over 90 days. Payments received on
such loans are reported as principal reductions.
- --------------------------------------------------------------------------------
(Continued)
22.
<PAGE>
INDIAN VILLAGE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
(Table dollar amounts in thousands, except per share amounts)
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Allowance for Loan Losses: The allowance for loan losses is a valuation
- -------------------------
allowance for probable credit losses, increased by the provision for loan losses
and decreased by charge-offs less recoveries. Management estimates the allowance
balance required based on past loan loss experience, known and inherent risks in
the nature and volume of the portfolio, information about specific borrower
situations and estimated collateral values, economic conditions, and other
factors. Allocations of the allowance may be made for specific loans, but the
entire allowance is available for any loan that, in management's judgment,
should be charged-off.
A loan is impaired when full payment under the loan terms is not expected.
Impairment is evaluated in total for smaller-balance loans of similar nature
such as residential mortgage and consumer loans, and on an individual basis for
other loans. If a loan is impaired, a portion of the allowance is allocated so
the loan is reported, net, at the present value of estimated future cash flows
using the loan's existing rate or at the fair value of collateral if repayment
is expected solely from the collateral.
Premises and Equipment: Premises and equipment are stated at cost less
- ----------------------
accumulated depreciation. Depreciation expense is calculated using primarily the
straight-line method over the estimated useful lives of the assets. These assets
are reviewed for impairment when events indicate the carrying amount may not be
recoverable.
Real Estate Owned: Real estate acquired through or instead of loan foreclosure
- -----------------
is initially recorded at the lower of cost or fair value less estimated costs to
sell when acquired, establishing a new cost basis. If the fair value declines, a
valuation allowance is recorded through expense. Costs after acquisition are
expensed.
Pension Plan: Pension expense is the net of service and interest cost, return
- ------------
on plan assets, and amortization of gains and losses not immediately recognized.
Employee Stock Ownership Plan: The cost of shares issued to the ESOP, but not
- -----------------------------
yet allocated to participants, is shown as a reduction of shareholders' equity.
Compensation expense is based on the market price of shares as they are released
to participant accounts. Dividends on allocated ESOP shares reduce retained
earnings; dividends on unearned ESOP shares reduce debt and accrued interest.
Income Taxes: Income tax expense is the total of the current year income tax
- ------------
due or refundable and the change in deferred tax assets and liabilities.
Deferred tax assets and liabilities are the expected future tax amounts for the
temporary differences between carrying amounts and tax bases of assets and
liabilities, computed using enacted tax rates. A valuation allowance, if needed,
reduces deferred tax assets to the amount expected to be realized.
Concentration of Credit Risk: The Bank grants primarily one- to four-family
- ----------------------------
residential mortgage loans to customers in Tuscarawas County, Ohio. These
customers' ability to honor their contracts depends, to a certain extent, on the
economic conditions of Tuscarawas County. The Bank evaluates each customer's
creditworthiness on a case-by-case basis at the time of application. One- to
four-family residential mortgage loans comprise approximately 76% and 83% of the
Bank's loan portfolio as of December 31, 1999 and 1998.
- --------------------------------------------------------------------------------
(Continued)
23.
<PAGE>
INDIAN VILLAGE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
(Table dollar amounts in thousands, except per share amounts)
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Financial Instruments: Financial instruments include credit instruments, such
- ---------------------
as commitments to make loans and standby letters of credit, issued to meet
customer-financing needs. The face amount for these items represents the
exposure to loss, before considering customer collateral or ability to repay.
Comprehensive Income: Comprehensive income consists of net income and other
- --------------------
comprehensive income. Other comprehensive income includes unrealized gains and
losses on securities available for sale and changes in minimum pension liability
which are also recognized as separate components of equity.
Loss Contingencies: Loss contingencies, including claims and legal actions
- ------------------
arising in the ordinary course of business, are recorded as liabilities when the
likelihood of loss is probable and an amount or range of loss can be reasonably
estimated. Management does not believe there now are such matters that will
have a material effect on the financial statements.
Dividend Restriction: Banking regulations require maintaining certain capital
- --------------------
levels and may limit the dividends paid by the Bank to IVB or by IVB to
shareholders.
Earnings per Common Share: Basic earnings per common share ("EPS") is net
- -------------------------
income divided by the weighted-average number of common shares outstanding
during the period. ESOP shares are considered outstanding for this calculation
unless unearned. Diluted EPS reflects the potential dilution of securities that
could share in earnings such as stock options, warrants or other common stock
equivalents. The Corporation currently has no common stock equivalents. As more
fully discussed in Note 2, the Bank converted from the mutual to stock form of
ownership with the concurrent formation of a holding company effective July 1,
1999. Accordingly, earnings per share for 1999 was computed based on net income
of the Corporation from July 1, 1999 through December 31, 1999, which totaled
$127,000. No earnings per common share are shown for the year ended December 31,
1998, as prior to July 1, 1999, the Bank was a mutual company. The financial
information for the year ended December 31, 1998 reflects the Bank before the
conversion.
Fair Value of Financial Instruments: Fair values of financial instruments are
- -----------------------------------
estimated using relevant market information and other assumptions, as more fully
disclosed in a separate note. Fair value estimates involve uncertainties and
matters of significant judgment regarding interest rates, credit risk,
prepayments, and other factors, especially in the absence of broad markets for
particular items. Changes in assumptions or in market conditions could
significantly affect the estimates.
Reclassifications: Reclassifications of certain amounts in the 1998 financial
- -----------------
statements have been made to conform to the 1999 presentation.
- --------------------------------------------------------------------------------
(Continued)
24.
<PAGE>
INDIAN VILLAGE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
(Table dollar amounts in thousands, except per share amounts)
- --------------------------------------------------------------------------------
NOTE 2 -CONSUMMATION OF THE CONVERSION TO A STOCK SAVINGS BANK WITH THE
CONCURRENT FORMATION OF A HOLDING COMPANY
On January 20, 1999, the Board of Directors of the Bank, subject to regulatory
approval and approval by the members of the Bank, unanimously adopted a Plan of
Conversion under which the Bank would convert from a federally chartered mutual
savings bank to a federally chartered stock savings bank and concurrently form a
holding company to own 100% of the Bank's stock. The conversion was consummated
on July 1, 1999, and the Corporation sold its common stock in an amount equal to
the pro forma market value of the Bank after giving effect to the conversion. A
total of 445,583 common shares of the Corporation were sold at $10.00 per share.
The Corporation received net proceeds of $4,024,000, after deducting conversion
costs of $432,000.
The Corporation retained 50% of the net proceeds from the sale of common shares.
The remainder of the net proceeds was invested in the capital stock issued by
the Bank to the Corporation.
As part of the conversion, the Bank established a liquidation account in an
amount equal to its regulatory capital as of December 31, 1998. The liquidation
account will be maintained for the benefit of eligible depositors who continue
to maintain their accounts at the Bank after the conversion. The liquidation
account will be reduced annually to the extent that eligible depositors have
reduced their qualifying deposits. Subsequent increases will not restore an
eligible account holder's interest in the liquidation account. In the event of a
complete liquidation, each eligible depositor will be entitled to receive a
distribution from the liquidation account in an amount proportionate to the
current adjusted qualifying balances for accounts then held. The Bank may not
pay dividends that would reduce shareholders' equity below the required
liquidation account balance.
Under Office of Thrift Supervision ("OTS") regulations, limitations have been
imposed on all "capital distributions" by savings institutions, including cash
dividends. The regulation establishes a three-tiered system of restrictions,
with the greatest flexibility afforded to thrifts, like the Bank, that are both
well capitalized and given favorable qualitative examination ratings by the OTS.
NOTE 3 - SECURITIES AVAILABLE FOR SALE
The amortized cost and estimated fair values of securities available for sale
are summarized as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
December 31, 1999
-----------------
U.S. Government agencies $ 7,432 $ -- $ (188) $ 7,244
Obligations of states and
political subdivisions 1,470 1 (7) 1,464
Mortgage-backed securities 8,586 16 (236) 8,366
--------- ------- -------- ---------
$ 17,488 $ 17 $ (431) $ 17,074
========= ======= ======== =========
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
25.
<PAGE>
INDIAN VILLAGE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
(Table dollar amounts in thousands, except per share amounts)
- --------------------------------------------------------------------------------
NOTE 3 - SECURITIES AVAILABLE FOR SALE (Continued)
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
December 31, 1998
-----------------
U.S. Treasury securities $ 747 $ 13 $ -- $ 760
U.S. Government agencies 1,050 6 -- 1,056
Obligations of states and
political subdivisions 147 5 -- 152
Mortgage-backed securities 4,175 70 (18) 4,227
--------- ---------- ---------- --------
$ 6,119 $ 94 $ (18) $ 6,195
========= ========== ========== ========
</TABLE>
During 1999 and 1998, the Corporation sold securities available for sale for
total proceeds of $1,489,000 and $1,456,000, resulting in gross realized gains
of approximately $15,000 and $11,000 and gross realized losses of approximately
$1,000 and $13,000. No other securities were sold during 1999 or 1998.
The amortized cost and estimated fair values of debt securities available for
sale at December 31, 1999, by contractual maturity, are shown below. Actual
maturities may differ from contractual maturities because borrowers may have the
right to call or prepay obligations with or without call or prepayment
penalties. Securities not due at a single maturity date, primarily mortgage-
backed securities, are shown separately.
Amortized Fair
Cost Value
--------- -------
Due in one year or less $ 6,101 $ 5,969
Due after one year through five years 2,801 2,739
Mortgage-backed securities 8,586 8,366
------- -------
$17,488 $17,074
======= =======
No securities were pledged to secure public deposits at December 31, 1999 or
1998.
- -----------------------------------------------------------------------------
(Continued)
26.
<PAGE>
<TABLE>
<CAPTION>
INDIAN VILLAGE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
(Table dollar amounts in thousands, except per share amounts)
- --------------------------------------------------------------------------------
NOTE 4 - LOANS
Year-end loans were as follows:
1999 1998
-------- --------
<S> <C> <C>
Real estate loans:
One- to four-family residential $28,413 $26,080
Multi-family residential 1,669 1,736
Nonresidential 2,172 647
Construction 1,251 677
Land 437 135
------- -------
33,942 29,275
Consumer loans:
Home equity loans and lines of credit 1,185 887
Home improvement 420 301
Automobile 789 516
Loans on deposit accounts 231 294
Unsecured 89 12
Other 898 274
------- -------
3,612 2,284
Commercial business loans 60 27
------- -------
37,614 31,586
Less:
Net deferred loan fees and costs (68) (54)
Loans in process (23) (40)
Allowance for loan losses (232) (218)
------- -------
$37,291 $31,274
======= =======
Activity in the allowance for loan losses was as follows:
1999 1998
------- -------
Beginning balance $ 218 $ 176
Charge-offs -- (18)
Recoveries -- --
Provision for losses 14 60
------- -------
Ending balance $ 232 $ 218
======= =======
</TABLE>
Nonaccrual loans totaled approximately $337,000 and $328,000 at December 31,
1999 and 1998. Interest not recognized on nonaccrual loans totaled approximately
$7,000 and $16,000 for the years then ended December 31, 1999 and 1998. The Bank
had no individual loans which were identified by management as impaired or loans
past due more than 90 days still accruing interest at December 31, 1999 or 1998
or during the years then ended.
- ------------------------------------------------------------------------------
(Continued)
27.
<PAGE>
INDIAN VILLAGE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
(Table dollar amounts in thousands, except per share amounts)
- --------------------------------------------------------------------------------
NOTE 4 - LOANS (Continued)
A summary of activity on related party loans is as follows:
1999
------
Beginning balance $ 479
New loans 67
Principal repayments (94)
--------
Ending balance $ 452
========
NOTE 5 - ACCRUED INTEREST RECEIVABLE
Year-end accrued interest receivable was as follows:
1999 1998
----- -----
Loans $ 208 $ 125
Securities 258 57
Time deposits -- 1
------- -------
$ 466 $ 183
======= =======
NOTE 6 - PREMISES AND EQUIPMENT
Year-end premises and equipment were as follows:
1999 1998
------- ------
Land $ 260 $ 244
Buildings and improvements 1,176 287
Furniture, fixtures, and equipment 472 198
Automobiles 17 17
------ -------
Total cost 1,925 746
Accumulated depreciation (334) (299)
------ -------
$1,591 $ 447
====== =======
- --------------------------------------------------------------------------------
(Continued)
28.
<PAGE>
INDIAN VILLAGE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
(Table dollar amounts in thousands, except per share amounts)
- --------------------------------------------------------------------------------
NOTE 7 - DEPOSITS
Year-end deposits consisted of the following:
1999 1998
------- -------
Non-interest bearing demand deposit accounts $ 241 $ 81
NOW accounts 1,246 837
Money market accounts 1,576 1,695
Savings accounts 5,206 5,464
Certificates of deposit 24,884 22,789
------- -------
$33,153 $30,866
======= =======
The aggregate amount of certificates of deposit accounts with balances of
$100,000 or more at December 31, 1999 and 1998 was $713,000 and $1,357,000.
Deposits greater than $100,000 are not federally insured.
At December 31, 1999, the scheduled maturities of time deposits were as follows:
2000 $13,574
2001 6,385
2002 2,751
2003 1,130
2004 1,044
-------
$24,884
=======
Directors and officers of the Corporation are customers of the Bank in the
ordinary course of business. At December 31, 1999 and 1998, deposits from
officers and directors of the Corporation totaled approximately $195,000 and
$198,000.
- --------------------------------------------------------------------------------
(Continued)
29.
<PAGE>
INDIAN VILLAGE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
(Table dollar amounts in thousands, except per share amounts)
- --------------------------------------------------------------------------------
NOTE 8 - FEDERAL HOME LOAN BANK ADVANCES
Year-end outstanding Federal Home Loan Bank advances are summarized as follows:
<TABLE>
<CAPTION>
1999 1998
------- ------
<S> <C> <C>
Short-term FHLB advances $ 2,700 $ --
4.20% FHLB advance, due December 2003, callable December 1999 -- 1,000
5.60% FHLB advance, due April 2008, callable April 2001 2,000 2,000
5.15% FHLB advance, due July 2008, callable July 1999 -- 1,000
5.93% FHLB advance, due August 2008, callable August 2002 2,000 --
4.67% FHLB advance, due April 2009, callable April 2000 1,000 --
5.44% FHLB advance, due April 2009, callable April 2004 1,000 --
5.56% FHLB advance, due August 2009, callable August 2000 5,000 --
5.64% FHLB advance, due October 2009, callable October 2000 2,500 --
5.48% FHLB advance, due November 2009, callable May 2000 1,000 --
------- ------
$17,200 $4,000
======= ======
</TABLE>
As a member of the Federal Home Loan Bank system, the Bank has the ability to
obtain borrowings up to a maximum total of 50% of Bank assets subject to the
level of qualified, pledgable one- to four-family residential real estate loans
and Federal Home Loan Bank stock.
The advances were collateralized by the Bank's Federal Home Loan Bank stock and
$25,800,000 and $6,000,000 of first mortgage loans under a blanket lien
arrangement at year-end 1999 and 1998.
NOTE 9 - INCOME TAXES
The provision for federal income tax consisted of the following components:
1999 1998
----- -----
Current tax expense $ 162 $ 121
Deferred tax expense 19 6
----- -----
$ 181 $ 127
===== =====
The difference between the financial statement income tax expense and amounts
computed by applying the statutory federal income tax rate of 34.0% to income
before income taxes was as follows:
1999 1998
------ ------
Income taxes computed at the statutory
tax rate on pretax income $ 159 $ 127
Tax effect of:
Tax-exempt income (4) (6)
Nondeductible expenses and other 26 6
----- -----
$ 181 $ 127
===== =====
- --------------------------------------------------------------------------------
(Continued)
30.
<PAGE>
INDIAN VILLAGE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
(Table dollar amounts in thousands, except per share amounts)
- --------------------------------------------------------------------------------
NOTE 9 - INCOME TAXES (Continued)
The sources of gross deferred tax assets and gross deferred tax liabilities were
as follows:
1999 1998
----- -----
Deferred tax assets:
Allowance for loan losses $ 67 $ 57
Nonaccrual loan interest 3 6
Accrued pension 25 8
Additional minimum pension liability 27 42
Unrealized loss on securities available for sale 141 --
----- -----
Total deferred tax assets 263 113
----- -----
Deferred tax liabilities:
Depreciation (26) (19)
FHLB stock dividends (23) (9)
Unrealized gain on securities available for sale -- (26)
Other (7) --
----- -----
Total deferred tax liabilities (56) (54)
----- -----
Net deferred tax asset (liability) $ 207 $ 59
===== =====
The Corporation, in accordance with SFAS No. 109, has not recorded a deferred
tax liability of approximately $199,000 related to approximately $584,000 of
cumulative special bad debt deductions, included in retained earnings, arising
through 1987. If the Bank was liquidated, or would otherwise cease to be in the
business of banking, or if tax laws were to change, this amount would be
expensed. Under 1996 tax law changes, bad debts are based on actual loss
experience and tax bad debt reserves accumulated since 1987 are to be reduced.
This requires payment of approximately $35,000 over six years beginning in 1996.
- -------------------------------------------------------------------------------
(Continued)
31.
<PAGE>
<TABLE>
<CAPTION>
INDIAN VILLAGE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
(Table dollar amounts in thousands, except per share amounts)
- --------------------------------------------------------------------------------
NOTE 10 - PENSION PLAN
Information about the pension plan was as follows:
1999 1998
------ ------
<S> <C> <C>
Change in benefit obligation:
Beginning benefit obligation $ 214 $ 168
Service cost 15 13
Interest cost 14 12
Actuarial gain 9 22
Benefits paid -- (1)
Effect of curtailment (70) --
----- -----
Ending benefit obligation 182 214
----- -----
Change in plan assets, at fair value:
Beginning plan assets 80 48
Actual return 7 22
Employer contribution 23 11
Benefits paid -- (1)
----- -----
Ending plan assets 110 80
----- -----
Funded status (72) (134)
Unrecognized net actuarial loss 79 150
Unrecognized net asset at date of adoption of
SFAS No. 87 -- 44
Minimum additional pension liability (79) (124)
----- -----
Accrued benefit cost $ (72) $ (64)
===== =====
The components of pension expense and related actuarial
assumptions were as follows:
1999 1998
----- -----
Service cost $ 15 $ 13
Interest cost 14 12
Expected return on plan assets 1 1
Net amortization and deferral 1 1
Recognized net actuarial (gain) loss 6 7
----- -----
Net $ 37 $ 34
===== =====
Discount rate on benefit obligation 6.52% 7.27%
Long-term expected rate of return on plan assets 3.00 3.00
Rate of compensation increase 4.00 4.00
</TABLE>
- -------------------------------------------------------------------------------
(Continued)
32.
<PAGE>
INDIAN VILLAGE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
(Table dollar amounts in thousands, except per share amounts)
- --------------------------------------------------------------------------------
NOTE 10 - PENSION PLAN (Continued)
During 1999, the Corporation amended its defined benefit pension plan. The
amendment specifically froze plan participation. At December 31, 1999, the
Corporation was awaiting the receipt of a favorable Internal Revenue Service
determination letter stating that termination of the plan would not adversely
affect its qualification for Federal tax purposes in order to terminate the plan
and settle its obligations by making lump-sum distributions to plan
participants. As a result of freezing plan participation, the Corporation
accrued $24,000 in pension expense in addition to the $37,000 periodic pension
expense. Also, the Corporation recognized a loss of $44,000 in 1999 related to
the amendment of the plan consisting of the write-off of the unrecognized net
transition obligation.
NOTE 11 - EMPLOYEE STOCK OWNERSHIP PLAN
The Bank has established an employee stock ownership plan ("ESOP") for the
benefit of substantially all employees of the Corporation and the Bank. The
Corporation intends to request a determination letter from the Internal Revenue
Service regarding the qualified status of the ESOP under applicable provisions
of the Internal Revenue Code. Although no assurances can be given, the
Corporation expects that the ESOP will receive a favorable determination letter.
The ESOP borrowed funds from the Corporation with which to acquire common shares
of the Corporation. The loan is secured by the shares purchased with the loan
proceeds and will be repaid by the ESOP with funds from the Bank's discretionary
contributions to the ESOP and earnings on ESOP assets. All dividends on
unallocated shares received by the ESOP are used to pay debt service. The shares
purchased with the loan proceeds are held in a suspense account for allocation
among participants as the loan is repaid. As payments are made and the shares
are released from the suspense account, such shares will be validly issued,
fully paid and nonassessable.
ESOP compensation expense was $13,000 for the year ended December 31, 1999. The
ESOP shares as of December 31, 1999 were as follows:
Shares released for allocation 1,188
Unreleased shares 34,449
-------
Total ESOP shares 35,637
=======
Fair value of unreleased shares at December 31, 1999 $ 402
=======
The ESOP provides for the repurchase of any stock distributed to a participant
at its fair market value. The fair market value of the allocated shares subject
to repurchase was approximately $14,000 at December 31, 1999.
- ------------------------------------------------------------------------------
(Continued)
33.
<PAGE>
INDIAN VILLAGE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
(Table dollar amounts in thousands, except per share amounts)
- --------------------------------------------------------------------------------
NOTE 12 - COMMITMENTS, OFF-BALANCE SHEET RISK AND CONTINGENCIES (Continued)
The Corporation is a party to financial instruments with off-balance sheet risk
in the normal course of business to meet the financing needs of customers. These
financial instruments include commitments to make loans. The Corporation's
exposure to credit loss in case of nonperformance by the other party to the
financial instrument for commitments to make loans is represented by the
contractual amount of those instruments. The Corporation follows the same credit
policy to make such commitments as is followed for those loans recorded in the
financial statements.
As of December 31, 1999, variable rate and fixed rate commitments to make loans
or fund outstanding lines of credit amounted to approximately $833,000 and
$1,037,000. The interest rates on variable rate commitments ranged from 7.75% to
9.25% and the interest rates on fixed rate commitments ranged from 7.25% to
17.50% at December 31, 1999. As of December 31, 1998, variable rate and fixed
rate commitments to make loans or fund outstanding lines of credit amounted to
approximately $494,000 and $1,891,000. Since loan commitments may expire without
being used, the amounts do not necessarily represent future cash commitments.
The Corporation has entered into employment agreements with two officers of IVB
and the Bank. The agreements provide for a term of three years and for
extensions for a period of one year on each anniversary date, subject to review
and approval of the extensions by disinterested members of the Board of
Directors. The employment agreements also provide for a severance payment and
other benefits upon involuntary termination of employment in connection with any
change in control of IVB and the Bank. A severance package will also be paid on
a similar basis in connection with a voluntary termination of employment where,
after the change in control, the officer is assigned duties inconsistent with
his or her position, duties, responsibilities and status immediately before a
change in control. The employment agreements restrict the officers' right to
compete against IVB and the Bank for a period of one year from the date of
termination of the agreement if the officer voluntarily terminated employment,
except upon a change in control.
NOTE 13 - REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered by
the federal regulatory agencies. Failure to meet minimum capital requirements
can initiate certain mandatory actions that, if undertaken, could have a direct
material affect on the Bank's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the Bank
must meet specific capital guidelines that involve quantitative measures of the
Bank's assets, liabilities and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Bank's capital amounts and
classifications are also subject to qualitative judgments by the regulators
about the Bank's components, risk weightings and other factors. At December 31,
1999 and 1998, management believes the Bank complied with all regulatory capital
requirements. Based on the computed regulatory capital ratios, the Bank was
considered well capitalized under the Federal Deposit Insurance Act at December
31, 1999 and 1998. Management believes no conditions or events have occurred
subsequent to last notification that would cause the Bank's capital category to
change.
- --------------------------------------------------------------------------------
(Continued)
34.
<PAGE>
INDIAN VILLAGE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
(Table dollar amounts in thousands, except per share amounts)
- --------------------------------------------------------------------------------
NOTE 13 - REGULATORY MATTERS (Continued)
Year-end actual capital levels and minimum required levels of the Bank were as
follows:
<TABLE>
<CAPTION>
Minimum
Required To Be
Minimum Required Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Regulations
----------------- ------------------- -----------------------
Amount Ratio Amount Ratio Amount Ratio
------- ------ -------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1999
Total capital (to risk-weighted assets) $7,237 25.3% $2,287 8.0% $2,859 10.0%
Tier 1 (core) capital (to
risk-weighted assets) 7,005 24.5 1,143 4.0 1,715 6.0
Tier 1 (core) capital (to adjusted
total assets) 7,005 11.7 2,394 4.0 2,992 5.0
Tangible capital (to adjusted
total assets) 7,005 11.7 898 1.5 N/A
December 31, 1998
Total capital (to risk-weighted assets) $5,226 25.8% $1,621 8.0% $2,026 10.0%
Tier 1 (core) capital (to
risk-weighted assets) 5,008 24.7 810 4.0 1,215 6.0
Tier 1 (core) capital (to adjusted
total assets) 5,008 12.5 1,597 4.0 1,997 5.0
Tangible capital (to adjusted
total assets) 5,008 12.5 599 1.5 N/A
</TABLE>
NOTE 14 - FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amount and estimated fair values of financial instruments at
year-end were as follows:
<TABLE>
<CAPTION>
1999 1998
----- -----
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 1,340 $ 1,340 $ 797 $ 797
Time deposits 299 299 499 499
Securities available for sale 17,074 17,074 6,195 6,195
Loans, net 37,291 36,912 31,274 31,531
Federal Home Loan Bank stock 925 925 407 407
Accrued interest receivable 466 466 183 183
Financial liabilities:
Demand and savings deposits (8,269) (8,269) (8,077) (8,077)
Certificates of deposit (24,884) (24,862) (22,789) (22,663)
Federal Home Loan Bank advances (17,200) (15,409) (4,000) (4,000)
Accrued interest payable (107) (107) (37) (37)
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
35.
<PAGE>
INDIAN VILLAGE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
(Table dollar amounts in thousands, except per share amounts)
- --------------------------------------------------------------------------------
NOTE 16-FAIR VALUES OF FINANCIAL INSTRUCTIONS (Continued)
Carrying amount is the estimated fair value for cash and cash equivalents, time
deposits, Federal Home Loan Bank stock, accrued interest receivable and payable,
demand and savings deposits, and variable rate loans and Federal Home Loan Bank
advances that reprice frequently and fully. Security fair values are based on
market prices or dealer quotes, and if no such information is available, on the
rate and term of the security and information about the issuer. For fixed rate
loans and certificates of deposit and for variable rate loans with infrequent
repricing or repricing limits, fair value is based on discounted cash flows
using current market rates applied to the estimated life and credit risk. For
fixed rate Federal Home Loan Bank advances and for variable rate advances with
infrequent repricing or repricing limits, fair value is based on current rates
for similar financing. Callable advances whose interest rate is below current
market rates are assumed to be called. The estimated fair value for other
financial instruments and off-balance-sheet loan commitments approximate cost at
December 31, 1999 and 1998 and is not considered significant to this
presentation.
NOTE 15 - OTHER COMPREHENSIVE INCOME (LOSS)
The tax effects on the components of other comprehensive income were as follows:
1999 1998
------ ------
Unrealized gains (losses) on securities available for sale:
Unrealized gains (losses) arising during year $(162) $ (6)
Reclassification adjustment for gains (losses) (5) 1
----- -----
Net unrealized gain (losses) (167) (5)
Additional minimum pension liability -- 9
----- -----
Other comprehensive income (loss) $(167) $ 4
===== =====
NOTE 16 - EARNINGS PER SHARE
The factors used in the earnings per share computation are as follows:
1999
-----
Basic earnings per common share
Net income for the period beginning July 1, 1999,
the effective date of the conversion, through December 31, 1999 $ 127
========
Weighted average common shares issued 445,583
Less: Average unallocated ESOP shares (35,340)
--------
Weighted average shares outstanding 410,243
========
Basic earnings per common share $ 0.31
========
- --------------------------------------------------------------------------------
(Continued)
36.
<PAGE>
INDIAN VILLAGE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
(Table dollar amounts in thousands, except per share amounts)
- --------------------------------------------------------------------------------
NOTE 17 - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION
Condensed financial information of Indian Village Bancorp, Inc. as of December
31, 1999, and for the period beginning July 1, 1999, the effective date of the
conversion, through December 31, 1999 is as follows:
CONDENSED BALANCE SHEET
December 31, 1999
1999
----
Assets
Cash and cash equivalents $1,702
Investment in subsidiary 6,732
Loans receivable 350
------
Total assets $8,784
======
Liabilities
Other liabilities $ 35
Shareholders' equity 8,749
------
Total liabilities and shareholders' equity $8,784
======
CONDENSED STATEMENT OF INCOME
July 1, 1999 - December 31, 1999
1999
-----
Interest on loans $ 14
Operating expenses 9
-----
Income before income taxes and equity in
undistributed earnings of subsidiary 5
Income tax expense --
-----
Income before equity in undistributed
earnings of subsidiary 5
Equity in undistributed earnings of subsidiary 122
-----
Net income $ 127
=====
- -------------------------------------------------------------------------------
(Continued)
37.
<PAGE>
INDIAN VILLAGE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
December 31, 1999 and 1998
(Table dollar amounts in thousands, except per share amounts)
- --------------------------------------------------------------------------------
NOTE 17 - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION (Continued)
CONDENSED STATEMENT OF CASH FLOWS
July 1, 1999 - December 31, 1999
1999
----
Cash flows from operating activities
Net income $ 127
Adjustments to reconcile net income to cash provided by operations:
Equity in undistributed income of subsidiary (122)
Net change in other liabilities 35
------
Net cash from operating activities 40
Cash flows from investing activities
Purchase of stock in Indian Village Community Bank (2,012)
Loan to ESOP (356)
Proceeds from loan principal repayments 6
-------
Net cash from investing activities (2,362)
Cash flows from financing activities
Proceeds from issuance of common shares, net of conversion costs 4,024
-------
Net change in cash and cash equivalents 1,702
Cash and cash equivalents at beginning of period --
-------
Cash and cash equivalents at end of year $ 1,702
=======
- --------------------------------------------------------------------------------
38.
<PAGE>
INDIAN VILLAGE BANCORP, INC.
SHAREHOLDER INFORMATION
ANNUAL MEETING
The Annual Meeting of Stockholders will be held at 1:00 p.m., Eastern Time on
May 3, 2000 at the branch office of the Bank at 635 West High Avenue, New
Philadelphia, Ohio.
STOCK LISTING
Indian Village Bancorp, Inc. common stock trades infrequently and is not traded
on any established securities market, although the stock is listed on the Over-
The-Counter Bulletin Board under the symbol "IDVB". In the past, parties
interested in buying and selling the Corporation's stock have generally been
referred to Sweney Cartwright & Co.
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The high and low daily closing prices of the common shares of the Corporation
for each quarter since the common shares began trading on July 1, 1999, as
reported by Sweney Cartwright & Co., and cash dividends paid by quarter were as
follows:
CASH
1999 HIGH LOW DIVIDENDS
- ----
Quarter ended September 30, 1999 $11.750 $10.375 $ --
Quarter ended December 31, 1999 12.250 11.000 $ --
Management does not have knowledge of the prices paid in all transactions and
has not verified the accuracy of those prices which have been reported. Because
of the lack of an established market for the Corporation's stock, these prices
reflect inter-dealer prices with retail mark-up, mark-down or commission and may
not reflect the prices at which the stock would trade in an active market or
actual transactions.
At February 29, 2000, there were 445,583 common shares of Indian Village
Bancorp, Inc. issued and outstanding (including unallocated ESOP shares) and
there were 324 holders of record.
The Corporation's ability to pay dividends depends primarily on the ability of
Indian Village Community Bank to pay dividends to Indian Village Bancorp, Inc.
See Note 2 to Notes to Consolidated Financial Statements for a discussion of the
restrictions on the ability of Indian Village Community Bank to pay dividends.
SHAREHOLDER AND GENERAL INQUIRIES TRANSFER AGENT
Marty R. Lindon, President and
Chief Executive Officer Fifth Third Bank
Indian Village Bancorp, Inc. 38 Fountain Square Plaza
100 South Walnut Street Mail Drop 1090D2
Gnadenhutten, Ohio 44629 Cincinnati, Ohio 45263
(740) 254-4313 (800) 837-2755
ANNUAL REPORT ON FORM 10-KSB
A copy of Indian Village Bancorp, Inc.'s Annual Report on Form 10-KSB for the
year ended December 31, 1999, as filed with the Securities and Exchange
Commission, may be obtained without charge by submitting a written request to
Lori S. Frantz, Chief Financial Officer, Indian Village Bancorp, Inc., 100 South
Walnut Street, Gnadenhutten, Ohio 44629.
- -------------------------------------------------------------------------------
39.
<PAGE>
INDIAN VILLAGE BANCORP, INC.
CORPORATE INFORMATION
CORPORATION AND BANK LOCATIONS
Corporate and Main Office
- -------------------------
100 South Walnut Street Telephone: (740) 254-4313
Gnadenhutten, Ohio 44629 Fax: (740) 254-9555
Branch Office
- -------------
635 West High Avenue Telephone: (330) 308-4867
New Philadelphia, Ohio Fax: (330) 308-9242
DIRECTORS OF THE CORPORATION AND THE BANK
<TABLE>
<S> <C>
Rebecca S. Mastin (Chairperson of the Board) Vernon E. Mishler
Owner of Wendy's restaurant franchises Retired Ohio State Auditor and public accountant
John A. Beitzel Joanne Limbach
Retired as the elected Tuscarawas County Auditor President of Limbach, Nolan and Dantonio, Inc., a state
and local tax consulting firm
Marty R. Lindon Cindy S. Knisely
President and Chief Executive Officer of Indian President of Kinsely & Associates Accounting and
Village Community Bank Financial Services, Inc., a certified public accounting
firm
Michael A. Cochran
Attorney in private practice and Assistant
Prosecuting Attorney for Tuscarawas County
</TABLE>
OFFICERS OF THE CORPORATION AND THE BANK
Rebecca S. Mastin, Chairperson of the Board
Marty R. Lindon, President and Chief Executive Officer
Michael A. Cochran, Corporate Secretary
Lori S. Frantz, Vice President, Treasurer and
Chief Financial Officer
Martin L. Merryman, Vice President
SPECIAL CORPORATE COUNSEL INDEPENDENT AUDITORS
Muldoon, Murphy & Faucette LLP Crowe, Chizek and Company LLP
5101 Wisconsin Avenue, N.W. One Columbus
Washington, D.C. 20016 10 West Broad Street
Columbus, OH 43215
- -------------------------------------------------------------------------------
40.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM THE UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS FOR INDIAN VILLAGE BANCORP, INC. FOR THE YEAR
ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
UNAUDITED FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 824
<INT-BEARING-DEPOSITS> 516
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 17,999
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 37,291
<ALLOWANCE> 232
<TOTAL-ASSETS> 59,362
<DEPOSITS> 33,153
<SHORT-TERM> 2,700
<LIABILITIES-OTHER> 260
<LONG-TERM> 14,500
0
0
<COMMON> 4
<OTHER-SE> 8,745
<TOTAL-LIABILITIES-AND-EQUITY> 59,362
<INTEREST-LOAN> 2,853
<INTEREST-INVEST> 697
<INTEREST-OTHER> 62
<INTEREST-TOTAL> 3,612
<INTEREST-DEPOSIT> 1,449
<INTEREST-EXPENSE> 1,974
<INTEREST-INCOME-NET> 1,638
<LOAN-LOSSES> 14
<SECURITIES-GAINS> 14
<EXPENSE-OTHER> 1,197
<INCOME-PRETAX> 469
<INCOME-PRE-EXTRAORDINARY> 288
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 288
<EPS-BASIC> 0.31
<EPS-DILUTED> 0.31
<YIELD-ACTUAL> 3.56
<LOANS-NON> 337
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 218
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 232
<ALLOWANCE-DOMESTIC> 147
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 85
</TABLE>
