<PAGE> 1
FORM 8-A
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FOR REGISTRATION OF CERTAIN CLASSES OF SECURITIES
PURSUANT TO SECTION 12(b) OR (g) OF THE
SECURITIES EXCHANGE ACT OF 1934
Emerald Financial Corp.
----------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 34-1842953
----------------------------------- -----------------------------
(State of incorporation or organization) (IRS Employer Identification No.)
14092 Pearl Road, Strongsville, Ohio 44136
------------------------------------ -----------------------------
(Address of principal executive offices) (Zip Code)
Securities to be registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
TO BE SO REGISTERED EACH CLASS IS TO BE REGISTERED
N/A N/A
-------------------- --------------------
If this Form relates to the registration of a class of debt securities
and is effective upon filing pursuant to General Instruction A.(c)(1), please
check the following box. [ ] [Added in Release No. 34-34922 (Paragraph 85,450),
effective December 7, 1994, 59 F.R. 55342.]
If this Form relates to the registration of a class of debt securities and
is to become effective simultaneously with the effectiveness of a concurrent
registration statement under the Securities Act of 1933 pursuant to General
Instruction A.(c)(2), please check the following box. [ ] [Added in Release No.
34-34922 (Paragraph 85,450), effective December 7, 1994, 59 F.R. 55342.]
Securities to be registered pursuant to Section 12(g) of the Act:
Common Shares, without par value
--------------------------------
(Title of Class)
<PAGE> 2
ITEM 1. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED.
The authorized stock of the Emerald Financial Corp., an Ohio corporation
(the "Company"), consists of 10,000,000 shares of common stock, without par
value.
Holders of the common stock are entitled to one vote per share on all
matters to be voted upon by the shareholders. Holders of shares of common stock
will not be entitled to cumulate votes for the election or removal of directors.
Holders of shares of common stock are entitled to receive ratably such
dividends, if any, as may be declared from time to time by the Board of
Directors out of funds legally available therefor. In the event of liquidation,
dissolution or winding up of the Company, the holders of shares of common stock
are entitled to share ratably in all assets remaining after payment of all debts
and other liabilities of the Company. No shares of common stock have any
preemptive, conversion or other subscription rights, and there are no redemption
or sinking fund provisions applicable to the common stock.
ITEM 2. EXHIBITS.
The following exhibits are filed herewith:
3 (i) Articles of Incorporation of Emerald Financial Corp., as amended
(ii) Code of Regulations of Emerald Financial Corp.
99* (i) Form 10-K Annual Report of The Strongsville Savings Bank for the year
ended December 31, 1995, as filed with the Office of Thrift
Supervision
(ii) Form 10-Q Quarterly Report of The Strongsville Savings Bank for the
quarter ended March 31, 1996, as filed with the Office of Thrift
Supervision
(iii) Form 10-Q Quarterly Report of The Strongsville Savings Bank for the
quarter ended June 30, 1996, as filed with the Office of Thrift
Supervision
(iv) Form 10-Q Quarterly Report of The Strongsville Savings Bank for the
quarter ended September 30, 1996, as filed with the Office of Thrift
Supervision
- -------------
* Upon completion of the holding company reorganization of The Strongsville
Savings Bank, which was accomplished by means of the merger of Emerald Interim
Savings Bank, a wholly owned subsidiary of Emerald Financial Corp., with and
into The Strongsville Savings Bank, The Strongsville Savings Bank became a
wholly owned subsidiary of Emerald Financial Corp., the Registrant. At that
time, the Registrant succeeded to the registration and reporting obligations of
The Strongsville Savings Bank pursuant to Rule 12g-3(a) under the Securities
Exchange Act of 1934. The Form 10-K Annual Report of The Strongsville Savings
Bank for the year ended December 31, 1995 and the Form 10-Q Quarterly Reports of
The Strongsville Savings Bank for the quarters ended March 31, June 30 and
September 30, 1996 attached as exhibits to this Form 8-A Registration Statement
complied as to form and content with the disclosure obligations established by
the Securities and Exchange Commission under the Securities Exchange Act of
1934.
<PAGE> 3
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
EMERALD FINANCIAL CORP.
Date: March 06, 1997 By: /s/ Thomas P. Perciak
---------------------------
Thomas P. Perciak, President and
Chief Executive Officer
<PAGE> 1
EXHIBIT 3(i)
EMERALD FINANCIAL CORP.
ARTICLES OF INCORPORATION, AS AMENDED
<PAGE> 2
ARTICLES OF INCORPORATION
OF
EMERALD FINANCIAL CORP.
FIRST: The name of the Corporation shall be Emerald Financial Corp.
SECOND: The place in the State of Ohio where the principal office of
the Corporation is to be located is in the City of Strongsville, Cuyahoga
County.
THIRD: The purpose of the Corporation shall be to engage in any lawful
act or activity for which corporations may be formed under Sections 1701.01 to
1701.98, inclusive, of the Ohio Revised Code.
FOURTH: The number of shares that the Corporation is authorized to have
outstanding shall be ten million (10,000,000), which shall be shares of common
stock without par value (the "Common Stock"). Shares of Common Stock may be
issued in whole or fractional shares.
FIFTH: The preemptive right to purchase additional shares or any other
securities of the Corporation is expressly denied to all shareholders or
securities holders of all classes. No shareholder of the Corporation shall have,
as a matter of right, the preemptive right to subscribe for or purchase any
securities convertible into or exchangeable for shares of any class or to which
shall be attached or appertain any warrants or rights entitling the holder
thereof to subscribe for or purchase shares of any class.
In addition to any power the Corporation may have under applicable
law to purchase shares of Common Stock issued by it, the Corporation may
repurchase such shares from the estate of a deceased shareholder on such
reasonable terms and conditions as the Board of Directors may establish;
PROVIDED, that the Corporation thereafter offer such shares for resale within
two years.
SIXTH: No holder of shares of any class shall have the right to vote
cumulatively in the election of directors or otherwise.
<PAGE> 1
EXHIBIT 3(ii)
EMERALD FINANCIAL CORP.
CODE OF REGULATIONS
<PAGE> 2
CODE OF REGULATIONS
OF
EMERALD FINANCIAL CORP.
<PAGE> 3
CODE OF REGULATIONS
OF
EMERALD FINANCIAL CORP.
TABLE OF CONTENTS
ARTICLE I SHAREHOLDERS
Section A. Annual Meeting
B. Special Meetings
C. Notice of Meetings
D. Proxies
E. Quorum -- Adjournment
F. Financial Reports
G. Notice of Shareholder Nominees; New Business
H. Approval and Ratification of Acts of Board of Directors
and of Officers
I. Certificates for Shares of Stock
J. Action by Consent
K. Record Date
ARTICLE II BOARD OF DIRECTORS
Section A. Powers of the Board
B. Number of Directors
C. Classification, Term of Office and Vacancies
D. Meetings of the Board
E. Action by Consent; Telephonic Meetings Permitted
F. Committees
G. Compensation
H. Resignation and Removal
ARTICLE III OFFICERS
Section A. Designation, Election and Term of Office
B. Chairman of the Board
C. President
D. Vice Presidents
E. Secretary
F. Treasurer
G. Other Officers
H. Compensation -- Officers and Employees
ARTICLE IV MISCELLANEOUS
Section A. Indemnification of Directors and Officers
B. Interested Transactions
C. Fiscal Year
D. Share Transfers; Lost, Stolen or Destroyed Certificates;
Registered Owners
E. Articles to Govern
F. Corporate Records
G. Notices
H. Amendments
<PAGE> 4
CODE OF REGULATIONS
OF
EMERALD FINANCIAL CORP.
ARTICLE I -- SHAREHOLDERS
SECTION A. ANNUAL MEETING
1. The annual meeting of the shareholders of the Corporation for the election
of directors and the transaction of such other business as may be specified in
the notice shall be held within 120 days following the close of the
Corporation's Fiscal Year, or within such other number of days following the
close of the Corporation's Fiscal Year as may be determined by the Board of
Directors.
2. The date, hour, place and city, either within or without the State of Ohio,
shall be designated by the Board of Directors and shall be set forth in the
notice of the meeting.
SECTION B. SPECIAL MEETINGS
1. Special meetings of the shareholders may be called by:
a. the Chairman of the Board;
b. the President;
c. a Vice President authorized to exercise the authority of the
President, in case of the latter's absence, death, or disability;
d. the Board of Directors acting at a meeting;
e. not less than 50% of the Directors acting without a meeting; or
f. shareholders holding of record 25% or more of all the shares
outstanding and entitled to vote thereat.
2. Any such request for a special meeting of shareholders shall state the
purpose or purposes of the meeting.
3. Upon request in writing delivered either in person or by registered mail to
the President or the Secretary by any person or persons entitled to call a
meeting of shareholders, such officer shall forthwith cause to be given to the
shareholders entitled thereto notice of a meeting to be held on a date not more
than sixty (60) days nor fewer than ten (10) days after the receipt of such
request, as such officer may fix.
4. Special meetings of the shareholders may be held at such time and place,
either within or without the State of Ohio, as may be designated in the notice
thereof.
<PAGE> 5
SECTION C. NOTICE OF MEETINGS
1. Unless waived as provided by law, a written or printed notice of each
annual or special meeting stating the time and place and the purpose or purposes
thereof shall be directed to each shareholder of record entitled to vote
thereat.
2. Such notice shall be given by personal delivery or shall be mailed postage
prepaid not more than sixty (60) days nor fewer than ten (10) days before any
meeting. It shall be addressed to the shareholder at his or her address as it
appears upon the records of the Corporation. If mailed, such notice shall be
deemed to have been given when deposited in the United States mail, with
first-class postage thereon.
3. Notice of adjournment of a meeting need not be given if the time and place
to which it is adjourned are fixed and announced at such meeting.
4. If any shares are transferred after notice of a meeting has been given but
before the holding of any such meeting, it shall not be necessary to serve
notice upon the transferee of any such shares.
5. Notice of the date, time, place and purposes of any meeting of shareholders
may be waived either in writing before or after such meeting by any shareholder,
which waiver shall be filed with or entered upon the records of the meeting. By
attendance at any meeting, annual or special, either in person or by proxy, a
shareholder who (prior to or at commencement of the meeting) does not protest
the lack of proper notice shall be deemed to have waived notice thereof.
SECTION D. PROXIES
1. Persons entitled to vote, consent or act with respect to shares at a
meeting of shareholders may be represented and vote, give consent or act thereat
by proxy appointed through an instrument in writing and submitted to the
Secretary at or before any shareholders' meeting.
2. The person appointed as proxy need not be a shareholder.
3. Notice to the Corporation, in writing or in open meeting, by the person
having appointed a proxy, of the revocation of the appointment of a proxy shall
not affect any vote or act previously taken or authorized at a meeting. The
presence at a meeting of a person appointing a proxy shall not revoke the
appointment. A writing appointing a proxy shall not be revoked by death or
incompetency of the maker unless, before the vote is taken or the authority
granted is otherwise exercised, written notice of such death or incompetency is
given to the Corporation by the executor or administrator of the estate of such
maker or by the fiduciary having control of the shares in respect of which the
proxy was appointed.
-2-
<PAGE> 6
4. No appointment of a proxy shall be valid after the expiration of eleven
(11) months after it is made unless the writing specifies the date on which it
is to expire or the length of time it is to continue in force.
5. Unless the writing appointing a proxy otherwise provides:
a. each proxy shall have the power of substitution and, where three or
more proxies are appointed, a majority of them or of their substitutes may
appoint one or more substitutes to act for all; and
b. if more than one proxy is appointed, then (i) with respect to voting
or executing consents, waivers or releases, or objections to consents at a
shareholders' meeting, a majority of such proxies as attend the meeting, or if
only one attends then that one, may exercise all the voting and consenting
authority thereat; and if one or more attend and a majority do not agree on any
particular issue, each proxy so attending shall be entitled to exercise such
authority with respect to an equal number of shares; and (ii) with respect to
exercising any other authority, a majority may act for all.
SECTION E. QUORUM -- ADJOURNMENT
1. The shareholders present in person or by proxy at any meeting of
shareholders shall constitute a quorum for such meeting.
2. The holders of a majority of the voting shares present in person or by
proxy at any meeting of shareholders may adjourn such meeting from time to time.
At an adjourned meeting, the Corporation may transact any business that might
have been transacted at the original meeting.
3. Notice need not be given of any such adjourned meeting if the date, time
and place thereof are announced at the meeting at which the adjournment is
taken; provided, however, that notice of the adjourned meeting shall be given to
each shareholder of record entitled to vote at the meeting (i) if the
adjournment is for more than thirty (30) days or (ii) if a new record date is
fixed for the adjourned meeting.
4. The record date for the purpose of the determination of the shareholders
who are entitled to receive notice of or to vote at a meeting of shareholders
shall continue to be the record date for all adjournments of such meeting,
unless the Board or the person or persons who shall have fixed the original
record date shall, subject to the limitations set forth in this Section, fix
another date.
-3-
<PAGE> 7
SECTION F. FINANCIAL REPORTS
1. Financial statements shall be presented at annual shareholders' meetings
or to individual shareholders, as may be required by law.
2. The financial statements shall have appended thereto a certificate or
opinion, as may be required by law.
SECTION G. NOTICE OF SHAREHOLDER NOMINEES; NEW BUSINESS
Nominations of persons for election to the Board of Directors of the
Corporation may be made at a meeting of shareholders by or at the direction of
the Board of Directors or by any shareholder of the Corporation entitled to vote
for the election of Directors at the meeting who complies with the notice
procedures set forth in this Section. Such nominations, other than those made by
or at the direction of the Board of Directors, shall be made pursuant to timely
notice in writing to the Secretary of the Corporation. To be timely, a
shareholder's notice shall be delivered to or mailed and received at the
principal executive offices of the Corporation not less than sixty (60) days
prior to the meeting; provided, however, that in the event that less than sixty
(60) days' notice or prior public disclosure of the date of the meeting is given
or made to shareholders, notice by the shareholder to be timely must be so
received not later than the close of business on the tenth (10th) day following
the day on which such notice of the date of the meeting was mailed or such
public disclosure was made. Such shareholder's notice shall set forth (a) as to
each person whom the shareholder proposes to nominate for election or
re-election as a Director, (i) the name, age, business address and residence
address of such person, (ii) the principal occupation or employment of such
person, (iii) the class and number of shares of the Corporation that are
beneficially owned by such person and (iv) any other information relating to
such person (I) that is required to be disclosed in solicitations of proxies for
election of Directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934 (the "1934 Act")
(including without limitation such person's written consent to serving as a
Director if elected), or (II) that would be required if the Corporation's
securities were registered under the 1934 Act; and (b) as to the shareholder
giving notice (i) the name and address, as they appear on the Corporation's
books, of such shareholder and (ii) the class and number of shares of the
Corporation that are beneficially owned by such shareholder. At the request of
the Board of Directors, any person nominated by the Board of Directors for
election as a Director shall furnish to the Secretary of the Corporation that
information required to be set forth in a shareholder's notice of nomination
which pertains to the nominee. No person shall be eligible for election as a
Director of the Corporation unless nominated in accordance with the procedures
set forth in this Section. The Chairman of the meeting shall, if the facts
warrant, determine and declare to the meeting that a nomination was not made in
accordance with the procedures prescribed in this Section, and if he or she
should so determine, he or she shall so declare to the meeting and the defective
nomination shall be disregarded.
-4-
<PAGE> 8
Any new business to be taken up at the meetings of shareholders, whether
annual or special, shall be stated in writing and filed with the secretary of
the Corporation at least five days before the date of the meeting, and all
business so stated, proposed and filed shall be eligible for consideration at
the meeting; but no proposed item of business shall be acted upon at the meeting
unless the foregoing procedures are followed. Any shareholder may make any other
proposal at the meeting and the same may be discussed and considered, but unless
stated in writing and filed with the secretary at least five days before the
meeting, such proposal shall be laid over for action at an adjourned, special or
annual meeting of the shareholders taking place thirty days or more thereafter.
This provision shall not prevent the consideration and approval or disapproval
at the meetings of reports of officers, directors and committees; but in
connection with such reports, no new business shall be acted upon at such
meeting unless the foregoing procedures are followed.
SECTION H. APPROVAL AND RATIFICATION OF ACTS OF BOARD OF DIRECTORS AND OF
OFFICERS
Except as otherwise provided by law, any contract, act, or transaction,
prospective or past, of the Corporation, or of the Board of Directors, or of the
Officers may be approved or ratified by the affirmative vote at a meeting of the
shareholders, or by the written consent, with or without a meeting, of the
holders of record of shares entitling them to exercise a majority of the voting
power of the Corporation, and such approval or ratification shall be as valid
and binding as though affirmatively voted for or consented to by every
shareholder of the Corporation.
SECTION I. CERTIFICATES FOR SHARES OF STOCK
1. Except as otherwise provided herein, the interest of each shareholder of
the Corporation shall be evidenced by a certificate or certificates for shares
in such form as the Board of Directors may from time to time prescribe.
2. Each certificate shall bear:
a. a distinguishing number;
b. the signature of the President or a Vice President and the signature
of the Secretary or Treasurer;
c. the seal of the Corporation; and
d. such recitals as may be required by law.
3. The certificates shall be issued in numerical order and a record kept for
that purpose as required by law.
-5-
<PAGE> 9
4. Shares of the Corporation shall be transferable on the books of the
Corporation by the holder thereof in person or by his or her attorney, upon
surrender for cancellation of a certificate or certificates for the same number
of shares, with an assignment and power of transfer endorsed thereon or attached
thereto, duly executed, and with such proof of the authenticity of the signature
as the Corporation or its agent may reasonably require.
5. The Corporation may issue a new certificate for shares in place of any
certificate theretofore issued by it and alleged to have been lost, stolen, or
destroyed, and the Board of Directors may, in its discretion require the owner,
or his or her legal representatives, to give the Corporation a bond containing
such terms as the Board of Directors may require to protect the Corporation or
any person injured by the execution and delivery of a new certificate.
6. Upon the taking of a record date of shareholders for the purposes of
declaring dividends, for the purposes of determining those shareholders entitled
to vote at any meeting or for any other purposes, the stock transfer books of
the Corporation shall not be closed, but shall remain open for the purposes of
recording the issuing, transfer or other transactions in connection with the
stock of the Corporation.
7. Anything herein to the contrary notwithstanding, the Board of Directors may
provide by resolution that some or all of the shares of the Corporation shall be
uncertificated shares, provided that such resolution shall not apply to shares
represented by a certificate until such certificate is surrendered to the
Corporation as provided in Section 1308.43(B) of the Ohio Revised Code, and
provided further that such resolution shall not apply to a certificated security
issued in exchange for an uncertificated security as provided in Section
1308.43(C) of the Ohio Revised Code. Within a reasonable time after the issuance
or transfer of uncertificated shares, the Corporation shall send to the
registered owner thereof a written notice containing the information required to
be set forth or stated on certificates pursuant to Section 1701.25(A) of the
Ohio Revised Code. Such notice may be contained in any statement required by
Section 1308.44 of the Ohio Revised Code. Except as otherwise expressly provided
by law, the rights and obligations of the holders of uncertificated shares and
the rights and obligations of the holders of certificates representing shares of
the same class and series shall be identical.
SECTION J. ACTION BY CONSENT
Any action that may be authorized or taken at a meeting of shareholders
may be authorized or taken without a meeting with the affirmative vote or
approval of, and in a writing or writings signed by, all of the shareholders who
would be entitled to notice of a meeting of the shareholders held for such
purpose, which writing or writings shall be filed with or entered upon the
records of the Corporation.
-6-
<PAGE> 10
SECTION K. RECORD DATE
For any lawful purpose, including without limitation the determination of
the shareholders who are entitled to (a) receive notice of or to vote at a
meeting of shareholders, (b) receive payment of any dividend or distribution,
(c) receive or exercise rights of purchase of, or subscription for, or exchange
or conversion of, shares or other securities, subject to contract rights with
respect thereto, or (d) participate in the execution of written consents,
waivers or releases, the Board of Directors may fix a record date which shall
not be a date earlier than the date on which the record date is fixed and, in
the cases provided for in clauses (a), (b) and (c) above, shall not be more than
sixty (60) days preceding the date of the meeting of shareholders, the date
fixed for the payment of any dividend or distribution or the date fixed for the
receipt or the exercise of rights, as the case may be.
ARTICLE II -- BOARD OF DIRECTORS
SECTION A. POWERS OF THE BOARD
Except as otherwise provided by law, all the capacity of the Corporation
shall be vested in and all its authority shall be exercised by the Board of
Directors.
SECTION B. NUMBER OF DIRECTORS
The Corporation shall have a Board consisting of nine directors.
SECTION C. CLASSIFICATION, TERM OF OFFICE AND VACANCIES
1. The directors of the Corporation shall be divided into three classes
consisting of not less than three directors in each class. Each director shall
serve for a term ending on the third annual meeting following the annual meeting
at which such director was elected; provided, however, that the directors first
elected to the first class shall serve for a term ending upon the election of
directors at the first annual meeting next following the end of the fiscal year
1996, and the directors first elected to the second class shall serve for a term
ending upon the election of directors at the second annual meeting next
following the end of the fiscal year 1996 and the directors first elected to the
third class shall serve for a term ending upon the election of directors at the
third annual meeting next following the end of the fiscal year 1996. At each
annual meeting, commencing at the first annual meeting of shareholders, the
successors to the class of directors whose terms expire at that time shall be
elected by the shareholders to hold office for a term of three years to succeed
those directors whose term expires, so that the term of one class of directors
shall expire each year. In the event of any change in the authorized number of
directors, each director then continuing to serve as such shall nevertheless
continue as director of the class of which he or she is a member until the
expiration of his or her current term, or his or her prior resignation,
disqualification, disability or removal. Any increase or
-7-
<PAGE> 11
decrease in the number of authorized directors may be allocated to any such
class as the majority of the continuing directors selects in its discretion. No
decrease in the number of directors constituting the Board of Directors shall
shorten the term of any incumbent director.
2. A vacancy or vacancies may be filled by a majority vote of the remaining
directors for that period of time to the next shareholders' meeting at which
meeting the shareholders will elect a director to fill the unexpired term.
SECTION D. MEETINGS OF THE BOARD
1. The regular meetings of the Board of Directors shall be held immediately
after the annual meeting of the shareholders and at such other times as may be
fixed by the Board of Directors, and such meetings may be held without further
notice.
2. Special meetings of the Board of Directors may be held at any time upon
call of:
a. the Chairman of the Board;
b. the President or Secretary;
c. a Vice President authorized to exercise the authority of the President
in case of the absence, death or disability of the President and
Secretary; or
d. not less than fifty percent (50%) of the directors.
Notice of the time and place of special meetings shall be served upon or
telephoned to each director at least twenty-four hours, or mailed or sent by
facsimile to each director at his or her address as shown by the books of the
Corporation at least forty-eight hours, prior to the time of the meeting, which
notice need not specify the purposes of the meeting.
3. Meetings of the Board of Directors, whether regular or special, may be
held at any place either within or without the State of Ohio.
4. Not less than 50% of the duly elected or appointed and qualified
directors of the Corporation shall constitute a quorum for the transaction of
business. The act of a majority of directors present at a meeting at which a
quorum is present shall be the act of directors.
5. The majority of the directors present at any meeting, whether or not a
quorum is present, may adjourn the meeting from time to time without notice
other than announcement at the meeting, until a quorum shall attend.
6. Notice of the time, place and, where applicable, purposes of any meeting
of directors may be waived in writing, either before or after the holding of
such meeting, by any director, provided that such writing shall be filed with or
entered upon the records of the meeting. The attendance of any director at any
meeting without protesting, prior to or at the commencement of the meeting, the
lack of proper notice thereof shall be deemed to be a waiver by such director of
notice of such meeting.
-8-
<PAGE> 12
SECTION E. ACTION BY CONSENT; TELEPHONIC MEETINGS PERMITTED
1. Any action which may be authorized or taken at a meeting of the Board of
Directors may be authorized or taken without a meeting in a writing or writings
signed by all of the directors, which writing or writings shall be filed with or
entered upon the records of the Corporation.
2. Members of the Board of Directors, as well as members of any committee
thereof, may participate in meetings by means of conference telephone or similar
communications equipment if all members participating can hear each other.
Participation by telephone or other communications equipment pursuant to this
Section E.2 shall constitute presence at a meeting of the Board of Directors or
committee thereof, as the case may be.
SECTION F. COMMITTEES
1. The Board of Directors may, by resolution adopted by a majority of the
whole Board of Directors, designate one or more committees, which may include
any committee described hereinafter, each committee to serve at the pleasure and
subject to the control and direction of the Board of Directors and consisting of
no fewer than three (3) directors. The directors may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any committee meeting. The Board of Directors shall have
power to specify the number of members of any such other committee, to designate
the powers and duties of any such other committee, and to provide for the tenure
in office of its members, its method of organization and its procedure for the
transaction of business. To the extent permitted by law and the resolution(s)
establishing the committee, committees of the Board of Directors shall have and
may exercise all of the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation, and may authorize the
seal, if any, of the Corporation to be affixed to all papers which may require
it. Committees that may be established by the Board of Directors include, but
are not limited to, the following:
a. Executive Committee. The Executive Committee shall consist of not
less than three (3) directors.
AUTHORITY. During the intervals between the meetings of
the Board of Directors, the Executive Committee shall possess and may exercise
the power of the Board of Directors in the management and direction of the
affairs of the Corporation in all cases in which specific direction shall not
have been given by the Board of Directors, except that the Executive Committee
shall not have authority with reference to: declaration of dividends; amendment
of the Articles of Incorporation or this Code of Regulations; filling of
vacancies among the directors; recommending to the shareholders a plan of merger
or consolidation; sale, lease or other disposition of all or substantially all
of the property and assets of the Corporation otherwise than in the usual and
regular course of business; voluntary dissolution of the Corporation; revocation
-9-
<PAGE> 13
of any of the foregoing or the approval of a transaction in which any member of
the Executive Committee has any material beneficial interest, whether direct or
indirect.
TENURE, RESIGNATION AND REMOVAL. Each member of the
Executive Committee shall hold office until the next regular annual meeting of
the Board of Directors following his or her designation and until a successor is
designated as a member of the Executive Committee, provided, that any member of
the Executive Committee may be removed at any time with or without cause by
resolution of a majority of the full Board of Directors. Any member of the
Executive Committee may resign from the Executive Committee at any time by
giving written notice to the Chairman of the Board, the President or the
Secretary of the Corporation. Unless otherwise specified thereon, such
resignation shall take effect upon receipt. The acceptance of such resignation
shall not be necessary to make it effective.
MEETINGS. Regular meetings of the Executive Committee
may be held without notice at such times and places as the Executive Committee
may fix from time to time by resolution. Special meetings of the Executive
Committee may be called by any member thereof upon not less than one day's
notice stating the place, date and hour of the meeting, which notice may be
written or oral. Any member of the Executive Committee may waive notice of any
meeting and no notice of any meeting need be given to any member thereof who
attends in person. The notice of a meeting of the Executive Committee need not
state the business proposed to be transacted at the meeting.
QUORUM. A majority of the members of the Executive
Committee shall constitute a quorum for the transaction of business at any
meeting thereof, and action of the Executive Committee must be authorized by the
affirmative vote of a majority of the members present at a meeting at which a
quorum is present.
ACTION WITHOUT A MEETING. Any action required or
permitted to be taken by the Executive Committee at a meeting may be taken
without a meeting if a consent in writing, setting forth the action so taken,
shall be signed by all of the members of the Executive Committee.
VACANCIES. Any vacancy in the Executive Committee may
be filled by a resolution adopted by a majority of the full Board of Directors.
PROCEDURE. The Executive Committee shall elect a
presiding officer from among its members and may fix its own rules of procedure
which shall not be inconsistent with this Code of Regulations. It shall keep
regular minutes of its proceedings and report the same to the Board of Directors
for its information at the meeting thereof held next after the proceedings shall
have been taken.
-10-
<PAGE> 14
b. Audit Committee. An Audit Committee shall consist of at least three
(3) Directors who are not officers or employees of the Corporation. The Audit
Committee shall, at least once each calendar year, examine, or superintend the
examination or audit of the assets, liabilities and results of operations of the
Corporation and shall report to the Board of Directors the results of such
examination. The Audit Committee shall offer its recommendation to the Board of
Directors of the Corporation for the selection of independent certified public
accountants to conduct the annual financial examination or audit.
The Board of Directors may create and appoint such other committees
as it may, at any time or from time to time, find necessary or desirable to
facilitate and expedite the management and administration of the affairs of the
Corporation.
2. Unless the Board of Directors otherwise provides, each committee designated
by the Board of Directors may make, alter and repeal rules for the conduct of
its business. In the absence of such rules, and except as may be otherwise
indicated herein, each committee shall conduct its business in the same manner
as the Board of Directors conducts its business pursuant to Article II of these
Regulations.
SECTION G. COMPENSATION
The Board of Directors is empowered to fix the amount of and authorize the
payment of compensation to the Directors and other committees for services
rendered to the Corporation and of reimbursement for traveling expenses incurred
in attending meetings.
SECTION H. RESIGNATION AND REMOVAL
Any member of the Board of Directors may resign from the Board of Directors
at any time by giving written notice to the Chairman of the Board, the President
or the Secretary of the Corporation. Unless otherwise specified thereon, such
resignation shall take effect upon receipt. The acceptance of such resignation
shall not be necessary to make it effective. Notwithstanding any other provision
of this Code of Regulations, any director, all the directors of a particular
class or the entire Board of Directors of the Corporation may be removed at any
time:
(a) in the event of a removal for cause, by the affirmative vote of
holders of the majority, and
(b) in the event of a removal without cause, by the affirmative vote of at
least two-thirds,
of the outstanding shares of the Corporation entitled to vote generally in the
election of directors (considered for this purpose as one class) cast at a
meeting of shareholders called for such purpose. Upon the removal of any
director by the shareholders, a new director may be elected
-11-
<PAGE> 15
at the same meeting of shareholders to hold office for the remainder of the
term of the director so removed. Failure by the shareholders to fill the
unexpired term of a removed director at such meeting of shareholders shall be
deemed to create a vacancy on the Board of Directors, which shall be filled by
the Board of Directors as provided in Article II, Section C.2 of this Code of
Regulations. In the event that the holders of the shares of any class are
entitled to elect one or more directors by virtue of the Articles of
Incorporation of the Corporation or amendments thereto, the provisions of this
Article II, Section H shall apply in respect to the removal of a director or
directors so elected, to the vote of the holders of the outstanding shares of
that class and not to the vote of the outstanding shares of the Corporation as
a whole.
ARTICLE III -- OFFICERS
SECTION A. DESIGNATION, ELECTION AND TERM OF OFFICE
1. The Corporation shall have a President, one or more Vice Presidents, a
Secretary, a Treasurer, and such other officers as the Board of Directors may
from time to time determine. The Board of Directors may designate the Chairman
of the Board as an officer.
2. The President shall be a director, but no one of the other officers need
be a director.
3. Any two or more offices may be held by one person. However, no officer
shall execute, acknowledge, or verify any instrument in more than one capacity
if such instrument is required by law or by these regulations to be executed,
acknowledged, or verified by two or more officers.
4. If there be more than one Vice President, the Board of Directors may
designate their seniority through the method it selects and/or the particular
department or function of the Corporation over which they shall have charge.
5. All officers of the Corporation shall be elected annually by the Board
of Directors.
6. Each officer shall hold office until his or her successor is chosen and
qualified, unless otherwise specified by the Board of Directors.
7. The Board of Directors may fill any vacancy in any office occurring for
whatever reason.
SECTION B. CHAIRMAN OF THE BOARD
The Chairman of the Board shall preside at all meetings of the Board of
Directors and shall have such other authority and duties as may be delegated by
the Board of Directors. In the absence of the President, the Chairman of the
Board shall preside over all meetings of the shareholders.
-12-
<PAGE> 16
SECTION C. PRESIDENT
1. In the absence of the Chairman of the Board, the President shall preside
at all meetings of Board of Directors.
2. Subject to the direction of the Board of Directors, the President shall
have the general executive supervision over the property, business, and affairs
of the Corporation.
3. The President shall have such other duties and powers as may be assigned
to or invested in him or her by the Board of Directors.
SECTION D. VICE PRESIDENTS
The Vice Presidents, in the order of their seniority by designation, shall
perform the duties of the President in his or her absence or during his or her
disability. The Vice Presidents shall have such other duties and powers as may
be assigned to or invested in them by the Board of Directors or by the
President.
SECTION E. SECRETARY
The Secretary shall keep minutes of all the proceedings of the shareholders
and Board of Directors, and shall make proper record of the same, which shall be
attested by him or her. The Secretary may: (i) sign certificates for shares, and
all deeds, mortgages, bonds, contracts, notes and other instruments executed by
the Corporation requiring the Secretary's signature; (ii) record all transfers
of shares and cancel and preserve all certificates transferred; (iii) preserve
all proxies of the shareholders; (iv) have custody of the corporate seal, if
any, and when authorized by the Board of Directors, shall affix the seal to any
instrument requiring the same; and (iv) give notice of meetings of shareholders
and directors required to be given. The Secretary shall: (i) produce on request
at each meeting of shareholders for the election of directors a certified list
of shareholders arranged in alphabetical order; (ii) keep such books and records
as may be required by the Board of Directors and file or cause to be filed all
reports to governmental authorities as required; and (iii) perform such other
duties as may from time to time be assigned to him or to her by the Board of
Directors, the Chairman of the Board or by the President.
SECTION F. TREASURER
The Treasurer shall have general supervision of all finances. The Treasurer
shall keep adequate and correct accounts of the business transactions of the
Corporation, including accounts of its assets, liabilities, receipts,
disbursements, gains, losses, stated capital and shares, together with such
other accounts as may be required, and upon the expiration of his or her term of
office, shall turn over to his or her successor or to the Board of Directors all
property, books, papers and money of the Corporation in his or her hands. The
Treasurer shall perform such
-13-
<PAGE> 17
other duties as may from time to time be assigned by the Board of
Directors and as are customarily performed by a Treasurer.
SECTION G. OTHER OFFICERS
The Board of Directors may appoint such assistant and subordinate officers
as it may deem desirable. Each such officer shall hold office at the pleasure of
the Board of Directors, and perform such duties as the Board of Directors or the
President may prescribe. The Board of Directors may from time to time authorize
any officer to appoint and remove assistant and subordinate officers, to
prescribe their authority and duties and to fix their compensation.
SECTION H. COMPENSATION -- OFFICERS AND EMPLOYEES
1. The compensation of officers and employees of the Corporation, or the
method of fixing such compensation, shall be determined by or pursuant to
authority conferred by the Board of Directors or any committee of the Board of
Directors.
2. Such compensation may include retirement, disability, and death
benefits, and may be by way of fixed salary, or on the basis of earnings of the
Corporation, or any combination thereof, or otherwise, as may be determined or
authorized from time to time by the Board of Directors or any committee of the
Board of Directors.
ARTICLE IV -- MISCELLANEOUS
SECTION A. INDEMNIFICATION OF DIRECTORS AND OFFICERS
1. To the extent required by law to do so the Corporation shall, and to the
extent permitted by law to do so the Corporation may, indemnify any person who
served or serves as a director, officer, employee or agent of the Corporation,
or who served or serves at the request of the Corporation as a director,
trustee, officer, employee or agent of another Corporation, domestic or foreign,
non-profit or for profit, partnership, joint venture, trust, or other
enterprise, against any and all losses, liabilities, damages, and expenses,
including attorney's fees, judgments, fines, Employee Retirement Income Security
Act excise taxes or penalties and amounts paid in settlement, incurred by such
person, in connection with any claim, action, suit, or proceeding, including any
action or suit by or in the right of the Corporation (whether threatened,
pending or completed and whether civil, criminal, administrative, or
investigative, including appeals), by reason of any act or omission to act as
such director, trustee, officer, employee or agent, to the full extent permitted
by Ohio law including, without limitation, the provisions of Section 1701.13 of
the Ohio Revised Code, as the same exists or may hereafter be amended (but, in
the case of any such amendment, only to the extent that such amendment permits
the Corporation to provide broader indemnification rights than said law
permitted the Corporation to provide prior to such amendment).
-14-
<PAGE> 18
2. Further, unless the only liability asserted against a director in an
action, suit or proceeding referred to in this Section A of Article IV is
pursuant to Section 1701.95 of the Ohio Revised Code, all expenses, including
attorney's fees, incurred by a director in defending the action, suit or
proceeding shall be paid by the Corporation as they are incurred, in advance of
the final disposition of the action, suit, or proceeding upon receipt of an
undertaking by or on behalf of the director in which he or she agrees to do both
of the following:
a. repay such amount if it is proved by clear and convincing evidence in
a court of competent jurisdiction that his or her action or failure to act
involved an act or omission undertaken with deliberate intent to cause injury to
the Corporation or undertaken with reckless disregard for the best interests of
the Corporation; and
b. reasonably cooperate with the Corporation concerning the action, suit,
or proceeding.
3. The indemnification authorized by this Article IV shall not be exclusive
of, and shall be in addition to, any other rights granted to any person seeking
indemnification under law, the Articles of Incorporation or any agreement, vote
of shareholders or disinterested Directors or otherwise, both as to action in
such person's official capacity and as to action in another capacity while
holding such office, and shall continue as to a person who has ceased to be a
director, trustee, officer, employee or agent and shall inure to the benefit of
the heirs, executors, and administrators of such a person.
4. The Corporation's obligation, if any, to indemnify any person who was or
is serving at the Corporation's request as a director, officer, employee or
agent of another corporation, partnership, joint venture, limited liability
company, trust, enterprise or non-profit entity shall be reduced by any amount
such person may collect as indemnification from such other corporation,
partnership, joint venture, limited liability company, trust, enterprise or
non-profit enterprise.
5. The Corporation may purchase and maintain insurance, or furnish similar
protection, including but not limited to trust funds, letters of credit or self
insurance, on behalf of or for any person who is or was a director, officer,
employee, or agent of the Corporation, or is or was serving at the request of
the Corporation as a director, trustee, officer, employee, or agent of another
corporation, domestic or foreign, non-profit or for profit, partnership, joint
venture, trust, or other enterprise, against any liability asserted against him
or her and incurred by him or her in any such capacity, or arising out of his or
her status as such, whether or not the Corporation would have the power to
indemnify him or her against such liability under Ohio law. Insurance may be
purchased from or maintained with a person in which the Corporation has a
financial interest.
-15-
<PAGE> 19
SECTION B. INTERESTED TRANSACTIONS
No contract, action or transaction between the Corporation and one or more
of its directors or officers, or between the Corporation and any other
corporation, partnership, joint venture, limited liability company, trust,
enterprise or other organization in which one or more of its directors or
officers are directors or officers, or have a financial interest, shall be void
or voidable solely for this reason, or solely because the director or officer is
present or participates in the meeting of the Board of Directors or committee
thereof which authorizes the contract or transaction, or solely because his or
their votes are counted for such purposes if: (i) the material facts as to his
or their relationship or interest and as to the contract, action or transaction
are disclosed or are known to the Board of Directors or the committee, and the
Board of Directors or the committee in good faith reasonably justified by the
facts, authorizes the contract, action or transaction by the affirmative vote of
a majority of the disinterested directors, even though the disinterested
directors constitute less than a quorum of the directors or the committee; (ii)
the material facts as to his or their relationship or interest and as to the
contract, action or transaction are disclosed or are known to the shareholders
entitled to vote thereon and the contract, action or transaction is specifically
approved at a meeting of the shareholders held for such purpose by the
affirmative vote of the holders of shares entitling them to exercise a majority
of the voting power of the corporation held by persons not interested in the
contract, action or transaction; or (iii) the contract, action or transaction is
fair to the Corporation as of the time it is authorized or approved by the
directors, a committee of the directors or the shareholders. Common or
interested directors may be counted in determining the presence of a quorum at a
meeting of the directors, or of a committee of the directors that authorizes the
contract, action or transaction.
SECTION C. FISCAL YEAR
The fiscal year of the Corporation shall end on the last day of December in
each year, or on such other day as may be fixed from time to time by the Board
of Directors.
SECTION D. SHARE TRANSFERS; LOST, STOLEN OR DESTROYED CERTIFICATES;
REGISTERED OWNERS
1. The shares may be transferred on the proper books of the Corporation (by
the registered holders thereof or their legal representatives) by surrender of
the certificate for cancellation and a written assignment of the shares. The
Board of Directors may from time to time appoint such transfer agents or
registrars of shares as it may deem advisable, and may define their powers and
duties. All endorsements, assignments, transfers, share powers or other
instruments of transfer of securities standing in the name of the Corporation
shall be executed for and in the name of the Corporation by any two of the
following officers: the Chairman of the Board of Directors, the President or a
Vice President, and the Secretary or Treasurer or assistant secretary or
assistant treasurer; or by any person or persons thereunto authorized by the
Board of Directors.
-16-
<PAGE> 20
2. Any person claiming a certificate for shares to have been lost, stolen
or destroyed shall make an affidavit or affirmation of that fact, may be
required to give the Corporation and its registrar or registrars and its
transfer agent or agents a bond of indemnity satisfactory to the Board of
Directors or to the Chairman of the Board of Directors, the President or a Vice
President and the Secretary or Treasurer, or assistant secretary or assistant
treasurer, and, if required by the Board of Directors or such officers, shall
advertise the same in such manner as may be required, whereupon a new
certificate may be executed and delivered of the same tenor and for the same
number (subject to any subsequent stock splits, stock dividends and the like) of
shares as the one alleged to have been lost, stolen or destroyed.
3. The Corporation shall be entitled to recognize the exclusive right of a
person registered on its books as the owner of shares to receive dividends, and
to vote as such owner, and shall not be bound to recognize any equitable or
other claim to or interest in such share or shares on the part of any other
person, whether or not the Corporation shall have express or other notice
thereof, except as otherwise required by law.
SECTION E. ARTICLES TO GOVERN
In case any provision of these Regulations shall be inconsistent with the
applicable provisions of the Articles of Incorporation, the Articles of
Incorporation shall govern.
SECTION F. CORPORATE RECORDS
1. Form of Records. Any records maintained by the Corporation in the
regular course of business, including its stock ledger, books of account and
minute books, may be kept in any form, provided that the records so kept can be
converted into clearly legible form within a reasonable time. The Corporation
shall convert any records so kept upon the request of any person entitled to
inspect the same.
2. Minutes. The Corporation shall keep at its principal place of business a
book of minutes of all meetings of its Board of Directors and of its
shareholders, with the time and place of holding, whether regular or special,
and, if special, how authorized, the notice thereof given, the names of those
present at directors' meetings, the number of shares or members present or
represented at shareholders' meetings, and the proceedings thereof.
3. Books of Account. The Corporation shall keep and maintain at its
principal place of business adequate and correct accounts of its properties and
business transactions, including accounts of its assets, liabilities, receipts,
disbursements, gains, losses, capital, surplus and shares.
-17-
<PAGE> 21
4. Share Register. The Corporation shall keep at its principal place of
business or at the office of its transfer agent, if other than the Corporation,
a share register showing the names of the shareholders, their addresses, and the
number and classes of shares held by each.
5. Inspection. The minutes, books of account and share register of the
Corporation shall be open to inspection by any member of the Board of Directors
at all times during business hours and shall be open to inspection by
shareholders as and to the extent provided by the Ohio General Corporation Law.
6. Annual Financial Statements. The Board of Directors shall cause an
annual report, which shall include such financial statements as are specified by
the Ohio General Corporation Law, to be sent to the shareholders of the
Corporation not later than four months after the close of the Corporation's
fiscal year.
SECTION G. NOTICES
Whenever under the provisions of law, the Articles of Incorporation of the
Corporation or this Code of Regulations, notice is required to be given to any
director or shareholder, it shall not be construed to mean personal notice, but
such notice may be given in writing, by mail or by delivery to an overnight
express courier, addressed to such director or shareholder at such address as
appears on the records of the Corporation, and unless otherwise expressly
provided in this Code of Regulations such notice shall be deemed to be given at
the time when the same shall be thus mailed or delivered to an overnight express
courier.
SECTION H. AMENDMENTS
These Regulations may be altered, amended, repealed, replaced or
supplemented by a majority vote of shareholders at any meeting held for such
purpose, or by written consent without a meeting of the holders of shares
entitling them to exercise a majority of the voting power; provided, however,
that if the Regulations are to be altered, amended, repealed, replaced or
supplemented by action of the shareholders without a meeting, the Secretary
shall mail a copy of the regulations as proposed to be altered, amended,
repealed, replaced or supplemented to each shareholder who would be entitled to
vote at a meeting held to vote thereon on the date of mailing. The Secretary
shall mail the foregoing at least ten (10) days prior to the taking of such
action without a meeting.
-18-
<PAGE> 1
EXHIBIT 99(i)*
FORM 10-K ANNUAL REPORT OF THE STRONGSVILLE SAVINGS BANK FOR THE YEAR
ENDED DECEMBER 31, 1995, AS FILED WITH THE OFFICE OF THRIFT SUPERVISION
* Upon completion of the holding company reorganization of The Strongsville
Savings Bank, which was accomplished by means of the merger of Emerald Interim
Savings Bank, a wholly owned subsidiary of Emerald Financial Corp., with and
into The Strongsville Savings Bank, The Strongsville Savings Bank became a
wholly owned subsidiary of Emerald Financial Corp., the Registrant. At that
time, the Registrant succeeded to the registration and reporting obligations of
The Strongsville Savings Bank pursuant to Rule 12g-3(a) under the Securities
Exchange Act of 1934. The Form 10-K Annual Report of The Strongsville Savings
Bank for the year ended December 31, 1995 and the Form 10-Q Quarterly Reports of
The Strongsville Savings Bank for the quarters ended March 31, June 30 and
September 30, 1996 attached as exhibits to this Form 8-A Registration Statement
complied as to form and content with the disclosure obligations established by
the Securities and Exchange Commission under the Securities Exchange Act of
1934.
<PAGE> 2
OFFICE OF THRIFT SUPERVISION
UNITED STATES DEPARTMENT OF THE TREASURY
Washington, D.C. 20552
- --------------------------------------------------------------------------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
[ ] TRANSITIONAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
----------- -------------
OTS Docket Number: 6565
THE STRONGSVILLE SAVINGS BANK
-----------------------------
(Exact name of registrant as specified in its charter)
Ohio 34-0875093
----------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
14092 Pearl Road
Strongsville, Ohio 44136
------------------ -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (216) 238-7311
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Capital Stock, without par value
--------------------------------
Title of Class
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The registrant's voting stock is authorized for quotation on the National
Association of Securities Dealers Automated Quotation System Small-Cap Issues
under the symbol "SSBK." As of March 8, 1996, the registrant had 2,530,800
shares of capital stock, without par value, outstanding. The aggregate market
value of the voting stock held by nonaffiliates of the registrant, based on the
average of the bid and asked prices of such stock as of March 8, 1996, was
$36,617,639. For purposes of this calculation, it is assumed that directors,
officers and holders of fewer than 25% of the registrant's shares of voting
stock are not, as such, affiliates, although the exclusion of the market value
of shares owned by any person shall not be deemed an admission that such person
is an affiliate of the registrant.
DOCUMENTS INCORPORATED BY REFERENCE
PARTS II AND IV of Form 10-K - Portions of Annual Report to Shareholders for the
Fiscal Year Ended December 31, 1995
PART III of Form 10-K - Proxy Statement for the 1996 Annual Meeting of
Shareholders
EXHIBIT INDEX ON PAGE 40
PAGE 1 OF 242 PAGES
<PAGE> 3
PART I
Item 1. Business
- ----------------
BUSINESS
GENERAL
Founded in 1961, The Strongsville Savings Bank (the "Bank") is an
Ohio-chartered, federally insured savings association whose business activities
are concentrated in the greater Cleveland, Ohio area. The Bank offers a wide
range of consumer-oriented lending and deposit products and services and is
active in the origination of loans to developers and builders of residential
real estate within its market area. In conducting the Bank's lending operations,
management maintains strict underwriting criteria and closely monitors the
Bank's loan portfolio.
The Bank conducts its business through its home office in Strongsville and its
branch offices in Berea, Brecksville, Broadview Heights, North Royalton, Parma
Heights, and Westlake (Cuyahoga County); Hinckley and Medina Township (Medina
County); and Columbia Station, North Ridgeville, and Wellington (Lorain County).
The Bank plans to open offices in Avon (Lorain County) and Brunswick (Medina
County) on March 18, 1996 and May 23, 1996, respectively.
The Bank's headquarters office is located at 14092 Pearl Road, Strongsville,
Ohio 44136, and the Bank's telephone number at that address is (216) 238-7311.
The Bank began operations in 1961 as an Ohio-chartered stock savings and loan
association and changed its name from The Strongsville Savings and Loan
Association to The Strongsville Savings Bank in 1984. Substantially all of the
Bank's business activities are focused in Cuyahoga, Medina, Lorain, and Summit
Counties. The Bank conducts its lending and deposit-gathering activities through
its headquarters in Strongsville, Cuyahoga County, Ohio, and through its network
of area branch offices in the suburbs to the south and west of Cleveland, Ohio.
In the 1980's the Bank's strategy was concentrated on building a well-balanced
branch network in the suburbs to the south and west of Cleveland. In view of
these objectives, the Bank established or acquired branches in Berea, Hinckley,
North Ridgeville, North Royalton, Parma Heights, Wellington and Westlake. This
strategy provided the Bank with a stable, low-cost, consumer-oriented deposit
base in the many established communities of its market area. The Bank's research
and close relationships with area real estate professionals suggested that
several of these communities would become residential growth areas. During the
late 1980's and early 1990's, Strongsville, Westlake, Brecksville, Hinckley,
North Ridgeville and North Royalton emerged as growth areas. Management expects
these communities to be among the major growth areas in Cuyahoga and the
contiguous counties throughout the 1990's. According to data provided by the
Building Industry Association of Cleveland and Suburban Counties, the cities in
Cuyahoga County and Medina County with the greatest number of 1995 single family
dwelling starts include Strongsville, Brunswick, Medina and North Royalton. In
1994 and 1995, the Bank opened offices in Medina Township, Broadview Heights and
Columbia Station, all current or anticipated future expanding markets for
residential growth. The Bank also plans to open offices in Avon and Brunswick on
March 18, 1996 and May 23, 1996, respectively. According to data provided by the
Building Industry Association of Lorain County, the Lorain County city with the
greatest number of single family dwelling starts in 1994 and 1995 was Avon.
Management will prudently continue to consider opportunities for expansion of
its branch network in growing residential areas of greater Cleveland.
The Bank is very active in the origination of loans to developers and builders
of residential housing in its market area, including loans to (i) acquire lots
and land for residential subdivision, (ii) to develop raw land by financing the
cost of improvements such as streets, sewers and utilities, and (iii) to
construct houses on such improved property. In 1995 expansion of the Bank's
franchise with new branch offices in Broadview Heights, Medina Township and
Columbia Station, as well as the scheduled 1996 opening of new branches in
2
<PAGE> 4
Avon and Brunswick, are expected to provide the Bank with a stable source of
real estate construction and mortgage loan originations throughout the 1990's
and beyond.
The Bank offers a wide range of consumer-oriented lending and deposit products
and services to the residents in its market area. The Bank currently is a
leading residential real estate construction lender in Cuyahoga, Medina and
Lorain Counties. Central to the Bank's operating philosophy is the development
and maintenance of strong personal relationships with local realtors, builders,
developers, public officials and other real estate-related professionals.
The Bank is a community-oriented financial institution serving its market area
with a wide selection of residential loans and retail financial services,
emphasizing customer service. The Bank's services include consumer and
commercial checking accounts, rental of safe-deposit boxes and savings accounts
and savings certificates, residential and commercial real estate loans, and
secured and unsecured consumer loans. It provides these services through a
branch network comprised of full-service banking offices, nine proprietary ATMs,
access to a network of metropolitan, regional and national ATMs, and electronic
fund transfer services. The Bank has historically concentrated its business
activities in the Northeastern Ohio area, comprised of Cuyahoga, Lorain, Medina,
and Summit Counties.
The Bank's business consists primarily of attracting deposits from the general
public and originating and investing in loans secured by first mortgage liens on
residential and other real estate primarily in Northeastern Ohio. The Bank, as a
matter of policy, does not accept brokered funds. The Bank also invests in
certain government obligations and other investments permitted by federal law
and regulations. The principal source of funds for the Bank's lending activities
are increases in deposit accounts, principal and interest payments of loans and
proceeds from the sale of loans. The Bank's principal source of earnings is
interest income from loans and other interest-earning assets. Its principal
expenses are interest paid on deposit accounts and operating expenses.
Management recognizes that the thrift industry is changing rapidly.
Consumer-oriented services historically provided by banks are now being offered
by thrifts. To compete effectively in this environment, the Bank's goal is to
provide its customers with a consumer-oriented institution where a wide range of
financial needs can be met, including a full range of deposit services such as
ATM services, NOW checking accounts, IRA and Keogh investment accounts and
certificates of deposit with terms ranging from seven days to ten years. The
Bank's consumer-oriented products also include mortgage loans, construction
loans, various consumer loan products to finance automobiles, home improvements,
education and VISA(R) and MasterCard(R) credit cards.
LENDING ACTIVITIES
GENERAL. The Bank's primary lending activity is originating conventional first
mortgage loans for the purchase of residential real property. Conventional loans
are loans which are not insured by the Federal Housing Administration or
partially guaranteed by the Veterans Administration. Within this category, the
largest portion of the Bank's loans are made to home buyers on the security of
single-family dwellings. At December 31, 1995, the Bank's net loans receivable
totaled $336.4 million, representing approximately 68.4% of its total assets. At
that date, 71.9% of total loans consisted of loans secured by first mortgage
liens on residential properties.
In order to manage interest rate risk in the loan portfolio, the Bank has
implemented a number of measures designed to provide more frequent interest rate
adjustments on interest-earning assets so more interest-earning assets would
respond to increases in interest rates on basis similar to that of
interest-bearing liabilities. These measures were designed to increase interest
income during periods of rising interest rates. These measures include: (i)
origination of permanent mortgage loans with adjustable interest rates on
residential properties and other real estate, (ii) origination of residential
construction and development loans with adjustable interest rates, (iii)
origination of nonresidential construction loans with adjustable interest rates
3
<PAGE> 5
and (iv) purchases of loans with adjustable interest rates which meet the Bank's
underwriting standards. At December 31, 1995, approximately $171.3 million
(47.0% of total mortgage loans) were comprised of loans described above.
1-TO-4 FAMILY RESIDENTIAL REAL ESTATE LENDING. The cornerstone of the Bank's
lending program has been the origination of permanent loans, secured by
mortgages on owner-occupied, 1-to-4 family residences. At December 31, 1995,
$225.9 million, or 64.2%, of the Bank's mortgage loans consisted of permanent
loans on 1-to-4 family residences. Substantially all of these loans were secured
by properties located in the Bank's primary market area.
The Bank originates a variety of different types of residential loans including
conventional 15- and 30- year fixed-rate loans, one- and three-year ARMs and, to
a lesser extent, 10- and 20-year fixed rate loans. During recent years, in order
to meet consumer demand and maximize the yield on its residential loan
portfolio, the Bank has originated primarily 15- and 30-year fixed rate loans,
which qualify for sale to the Federal Home Loan Mortgage Corporation ("Freddie
Mac"). The Bank's fixed-rate residential loans are underwritten and documented
to permit their sale to Freddie Mac and the Bank sells certain qualifying
residential loans to Freddie Mac. Loans sold to Freddie Mac are on a nonrecourse
basis. The Bank also originates ARMs, although, in order to maintain its
interest rate spread, the Bank generally does not offer initial interest rates
on ARMs as low as those available from some of its competitors.
The Bank's current 1-to-4 family residential ARMs are fully amortizing loans
with contractual maturities of up to 30 years. The interest rates on the
majority of ARMs originated by the Bank are subject to adjustment at one- or
three-year intervals. The Bank's ARM products carry interest rates which are
reset to a stated margin over an index based on the related U.S. Treasury
Constant Maturities Index for securities with terms to maturity of the same
length as the applicable adjusted period. Decreases or increases in the interest
rate of the Bank's ARMs are generally limited to 2% at any adjustment period and
a maximum of 5% or 6% over the life of the loan, depending on whether the loan
resets at one- or three-year intervals, respectively. The Bank's ARMs are not
convertible into fixed-rate loans, do not contain prepayment penalties and do
not produce negative amortization. The Bank's ARMs are assumable, providing the
assuming borrower meets the same underwriting criteria as a borrower on a newly
originated loan. At December 31, 1995 the total balance of 1-to-4 family ARMs
was $54.0 million, or 23.9% of the Bank's 1-to-4 family permanent mortgage loan
portfolio.
The Bank evaluates both the borrower's ability to make principal and interest
payments and the value of the property that will secure the loan. The Bank
originates residential mortgage loans with loan-to-value ratios of up to 95%. On
any mortgage loan exceeding an 80% loan-to-value ratio at the time of
origination, however, the Bank requires private mortgage insurance in an amount
intended to reduce the Bank's exposure to 80% of the appraised value of the
underlying collateral. Property securing real estate loans made by the Bank is
generally appraised by independent fee appraiser selected by the Bank and
subject to review by the management and Board of Directors of the Bank. The Bank
requires evidence of marketable title and lien position on all loans secured by
real property and requires fire and extended coverage casualty insurance in
amounts at least equal to the principal amount of the loan or the value of
improvements on the property, depending on the type of loan. The Bank may also
require flood insurance to protect the property securing its interest.
The Bank's fixed-rate residential mortgage loans customarily include
"due-on-sale" clauses, which are provisions giving the Bank the right to declare
a loan immediately due and payable in the event the borrower sells or otherwise
disposes of the real property subject to the mortgage and the loan is not
repaid. The Bank enforces due-on-sale clauses in fixed-rate mortgage loans to
the extent permitted under applicable laws.
Residential mortgage loan originations come from a number of sources, including
solicitations by the Bank, referrals by builders and real estate brokers,
existing borrowers and depositors and walk-in customers. Loan applications are
accepted at all of the Bank's offices.
4
<PAGE> 6
MULTI-FAMILY AND COMMERCIAL REAL ESTATE LENDING. In order to enhance the yield
on and decrease the average term to maturity of its assets, the Bank originates
permanent loans secured by multi-family and commercial real estate. At December
31, 1995, $43.3 million, or 12.3% of the Bank's mortgage loan portfolio
consisted of permanent loans on multi-family and commercial real estate. The
Bank's management generally engages in the origination of commercial real estate
loans as an accommodation to long-time customers. None of the Bank's
multi-family and commercial real estate loans were designated as nonperforming
assets at December 31, 1995.
The Bank's permanent multi-family and commercial real estate loan portfolio
includes loans secured by small apartment buildings, strip shopping centers,
small office buildings, churches and other business properties, generally
located within the Bank's primary market area.
Permanent multi-family and commercial real estate loans generally have terms of
15 years or less; the maximum term available is 25 years. These loans typically
do not have balloon features. Interest rates on permanent loans generally adjust
(subject, in some cases, to specified interest rate caps) at one-year or
three-year intervals to specified spreads over the related U.S. Treasury
Constant Maturities Index. Multi-family loans and commercial real estate loans
are generally written in amounts up to 80% and 75%, respectively, of the
appraised value of the property or sale price, whichever is less.
Appraisals on properties securing multi-family and commercial real estate
property loans originated by the Bank are performed by an independent fee
appraiser designated by the Bank at the time the loan application is made. All
appraisals on multi-family and commercial real estate loans are reviewed by the
Bank's management. The Bank's underwriting procedures generally require
verification of the borrower's credit history, income, financial statements,
banking relationships, references and income projections of the property. In
addition, since March of 1993, the Bank requires the submission of annual
financial statements to the Bank for the life of the loan. Generally, the Bank
requires the owners, principal shareholders or general partners of business,
corporate or partnership borrowers to be personally liable for multi-family and
commercial real estate loans.
Multi-family and commercial real estate loans generally present a higher level
of risk than loans secured by 1-to-4 family residences. This greater risk is due
to several factors, including the concentration of principal in a limited number
of loans and borrowers, the effects of general economic conditions on
income-producing properties and the increased difficulty of evaluating and
monitoring these type loans. Furthermore, the repayment of loans secured by
multi-family and commercial real estate is typically dependent upon the
successful operation of the related real estate project. If the cash flow from
the project is reduced (for example, if leases are not obtained or renewed), the
borrower's ability to repay the loan may be impaired.
CONSTRUCTION AND DEVELOPMENT LENDING. The Bank makes construction loans to
individuals for the construction of their residences as well as to the builders
and developers for the construction of 1-to-4 family residences and the
acquisition and development of 1-to-4 family lots in the Bank's primary market
area. The Bank was singled out in December 1992 by the National Association of
Home Builders ("NAHB") as one of eleven lenders nationwide to receive the NAHB's
"Housing America Award for Excellence in Community-Based Lending." NAHB's
Housing America Award honors commercial banks and savings institutions that have
been a positive force in funding the production of housing. The Housing America
Award recipients are selected on a regional basis. The Bank was the only
institution so identified in its district of Ohio, Michigan and West Virginia.
This award is a prominent reflection of the Bank's record in community-based
residential construction lending.
Construction loans to individuals for their residences are structured to be
converted to permanent loans at the end of the construction phase, which
typically lasts six months. These construction loans have rates and terms
similar to any 1-to-4 family loan then offered by the Bank, except that during
the construction phase, the borrower pays interest only. Residential
construction loans are generally underwritten pursuant to the
5
<PAGE> 7
same guidelines used for originating permanent residential loans. At December
31, 1995, the Bank had $9.7 million in construction loans to individuals for
construction of their personal residences.
Construction loans to builders of 1-to-4 family residences require the monthly
payment of interest and typically have terms of up to 12 months, with the
maximum possible term being 24 months. These loans may provide for the payment
of interest and loan fees from loan proceeds and carry interest rates which
adjust primarily with changes in the specified prime rate. Loan commitment and
origination fees are usually charged. At December 31, 1995, the Bank had $17.2
million of construction loans to builders of 1-to-4 family residences.
The Bank also makes loans to developers for the purpose of acquiring unimproved
land and developing such land into improved sublots for residential development.
The Bank only makes such residential land acquisition and development loans if
the Bank has received assurances from local planning commissions that the land
will be considered developable and zoned residential. These loans typically have
maturity terms from one to three years (with the maximum term being five years)
and primarily carry interest rates which adjust to maintain a specified spread
over the prime rate and, to a lesser extent, adjust (subject, in some cases, to
interest rate caps) at one, two or three-year intervals to specified spreads
over the related U.S. Treasury Constant Maturities Index. Loan commitment and
origination fees are usually charged. These loans generally provide for the
payment of loan fees from loan proceeds. The principal is typically paid down as
improved lots are sold. At December 31, 1995, The Bank had $48.5 million of
residential development loans.
Construction and development loans are obtained principally through
solicitations by the Bank and through continued business from builders and
developers who have previously borrowed from the Bank as well as referrals of
builders and developers. The application process includes a submission to the
Bank of accurate plans, specifications, and costs of the project to be
constructed or developed, as well as both personal and corporate tax returns,
both personal and corporate financial statements and environmental underwriting
analysis. These items are used as the basis to determine the appraised value of
the subject property and the debt-servicing ability of the borrower. Loans are
based on the lesser of current appraised value or the cost of construction (land
plus building).
Acquisition and development loans to finance the cost of acquiring unimproved
property for future residential subdivisions and improving such property are
generally made up to a maximum loan-to-value ratio of 75% based upon an
independent appraisal. Construction loans to finance the costs of building
residential houses are generally made up to a maximum loan-to-value ratio of 80%
based upon an independent appraisal. Construction and development loans to
borrowers other than owner occupants also involve many of the same risks
discussed above regarding multi-family and commercial real estate loans and tend
to be more sensitive to general economic conditions than many other types of
loans.
At December 31, 1995, the Bank had four construction and development loan
borrowers having aggregate loans in an amount greater than $6.0 million (15% of
then tangible capital) which totaled $30.4 million. All construction and
development loans were in compliance with applicable lending limits. The OTS
made special loans-to-one-borrower lending authorities available to the Bank on
January 2, 1990 which permit the Bank to lend up to 30% of tangible capital to
one borrower for the development of residential housing. For a discussion of the
regulatory requirements incident to the Bank's usage of the special lending
authorities, see "REGULATION - Federal Regulation - Loans to One Borrower and
Aggregate Loan Limits". The special lending authority is required to be renewed
annually and was most recently renewed in November, 1995. The Bank expects the
15% limit on loans to one borrower to represent no significant impediment to its
lending function as its tangible capital continues to grow.
As of December 31, 1995, the Bank had nine borrowers having aggregate loans for
residential acquisition, development and construction purposes exceeding $1
million. No such loans were nonperforming as of that date.
6
<PAGE> 8
Construction loans involve greater underwriting and default risks than loans
secured by mortgages on existing properties. These loans can involve large loan
balances concentrated in single borrowers or a group of borrowers in the same
industry. Loan funds are advanced upon the security of the project under
construction, which is more difficult to value prior to the completion of
construction. Should a default occur which results in foreclosure, the Bank
could be adversely affected in that it would have to take control of the project
and attempt either to arrange for completion of construction or to dispose of
the unfinished project.
The Bank's underwriting criteria are designed to evaluate and minimize the risk
of each construction loan. A wide variety of factors are carefully considered
before originating a construction loan, including the availability of permanent
financing or a takeout commitment to the borrower (which may be provided by the
Bank at market rates); the reputation of the borrower and the contractor;
independent valuations and reviews of cost estimates; preconstruction sale
information and cash flow projections of the borrower. At the time of the Bank's
origination of a construction loan to a builder, the builder often has a signed
contract with a purchaser for the sale of the to-be-constructed house, which, by
assuring the builder of a repayment source, reduces the Bank's underwriting
risks on the construction loan. To reduce the risks inherent in construction
lending, the Bank limits the number of properties which can be constructed on a
"speculative" or unsold basis by a builder at any one time to two houses and
requires the borrower or its principals personally to guarantee repayment of the
loan. Moreover, the Bank controls certain of the risks associated with
construction lending by requiring builders to submit itemized bills to the Bank,
whereupon the Bank disburses the builder's loan funds directly to the contractor
and subcontractors, rather than to the builder.
CONSUMER LOANS. Ohio and federal laws and regulations permit an Ohio-chartered,
federally insured savings association such as the Bank to make secured and
unsecured consumer loans, and home improvement loans.
The Bank offers automobile loans, home improvement, and other secured and
unsecured personal loans. These loans generally have fixed interest rates and
terms of five years or less, with the exception of home improvement loans, which
may have terms up to fifteen years. These rates are generally higher than the
rates offered on mortgage loans. The Bank also offers VISA(R) and MasterCard(R)
credit cards to its customers as an agent for an Ohio-based commercial bank.
During 1995, the Bank originated approximately $4.5 million of consumer loans
and approximately $5.0 million in 1994. The Bank's consumer loan portfolio
totaled $8.9 million at December 31, 1995.
The underwriting standards employed by the Bank for consumer loans include a
determination of the applicant's payment history on other debts and ability to
meet existing obligations and payments on the proposed loan. Although credit
worthiness of the applicant is of primary consideration, the underwriting
process also includes a comparison of the value of the security, if any, in
relation to the proposed loan amount. While consumer loans generally involve a
higher level of credit risk than 1-to-4 family residential loans, consumer loans
are typically made at higher interest rates and for shorter terms or at
adjustable rates, thus increasing the interest rate sensitivity of the Bank's
loan portfolio.
7
<PAGE> 9
LOAN PORTFOLIO COMPOSITION. Table I sets forth the composition of the Bank's
loan portfolio, in dollar amounts and in percentages for the last five fiscal
years, along with a reconciliation to loans receivable, net.
<TABLE>
<CAPTION>
Table I December 31,
(Dollars In Thousands)
1995 1994 1993 1992 1991
----------------- ------------------ ------------------ ---------------- -------------------
Amount % Amount % Amount % Amount % Amount %
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate mortgage loans:
Permanent first mortgage:
One to four family
Investment $ 220,490 65.54 $194,629 69.06 $114,848 47.38 $134,586 62.05 $108,283 60.65
Sale 5,396 1.60 0 0.00 49,957 20.61 4,389 2.02 0 0.00
Multi-family 1,183 0.35 1,294 0.46 1,101 0.45 1,481 0.68 1,627 0.91
Commercial real estate 42,098 12.51 38,109 13.52 39,856 16.44 37,261 17.18 33,505 18.77
Land 358 0.11 427 0.15 638 0.26 837 0.39 850 0.47
Construction first mortgage:
Aquisition & 48,538 14.43 29,107 10.33 23,984 9.90 23,822 10.98 18,990 10.64
Development
One-to-four family 26,960 8.01 29,818 10.58 21,032 8.68 19,929 9.19 15,636 8.76
Multi-family 2,660 0.79 1,400 0.50 3,041 1.25 2,590 1.19 4,208 2.36
Commercial real estate 4,233 1.26 3,163 1.12 2,442 1.01 2,573 1.19 4,298 2.41
----------------- -------------------- -------------------- ------------------ -------------------
Total mortgage loans 351,916 104.60 297,947 105.72 256,899 105.98 227,468 104.87 187,397 104.97
Other loans:
Commercial 3,955 1.18 1,584 0.56 1,938 0.80 1,517 0.70 1,508 0.84
Consumer 8,895 2.64 7,390 2.62 4,527 1.87 4,703 2.17 4,331 2.43
----------------- -------------------- -------------------- ------------------ -------------------
Total loans 364,766 108.42 306,921 108.90 263,364 108.65 233,688 107.74 193,236 108.24
Less:
Undisbursed loans in
process 23,639 7.03 20,134 7.14 16,333 6.74 12,393 5.71 11,744 6.58
Allowance for loan losses 1,168 0.35 948 0.34 840 0.35 717 0.33 570 0.32
Deferred yield
adjustments 3,608 1.04 3,996 1.42 3,796 1.56 3,688 1.70 2,393 1.34
----------------- -------------------- -------------------- ------------------ -------------------
Total loans
receivable, net $336,351 100.00 $281,843 100.00 $242,395 100.00 $216,890 100.00 $178,529 100.00
==================================================================================================
</TABLE>
8
<PAGE> 10
Table II sets forth the amount of the Bank's real estate loan portfolio
having fixed rates and the amount having adjustable rates. These loans are
presented before any deductions for loans-in-process, allowance for loan
losses and deferred yield items.
<TABLE>
<CAPTION>
Table II December 31,
(Dollars In Thousands)
1995 1994 1993 1992 1991
-------------- -------------- -------------- -------------- --------------
Amount % Amount % Amount % Amount % Amount %
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Adjustable rate loans:
One to four family $ 72,644 20.65 $60,754 20.39 $ 52,699 20.52 $ 58,152 25.57 $ 59,060 31.52
Multi-family 3,843 1.09 2,694 0.91 4,142 1.61 3,944 1.73 5,813 3.10
Commercial 41,123 11.69 37,482 12.58 39,106 15.22 36,023 15.84 33,530 17.89
Land & development 48,896 13.89 29,534 9.91 23,382 9.10 24,659 10.84 19,840 10.59
----------------- ------------------- ------------------- ------------------- -------------------
Total adjustable rate loans 166,506 47.32 130,464 43.79 119,329 46.45 122,778 53.98 118,243 63.10
Fixed rate loans:
One to four family:
Held for investment 174,806 49.67 163,693 54.94 83,181 32.38 96,363 42.36 64,858 34.61
Held for sale 5,396 1.53 0 0.00 49,957 19.45 4,389 1.93 0 0.00
Multi-family units 0 0.00 0 0.00 0 0.00 126 0.05 23 0.01
Commercial 5,208 1.48 3,790 1.27 3,192 1.24 3,812 1.68 4,273 2.28
Land 0 0.00 0 0.00 1,240 0.48 0 0.00 0 0.00
----------------- ------------------- ------------------- ------------------- -------------------
Total fixed rate 185,410 52.68 167,483 56.21 137,570 53.55 104,690 46.02 69,154 36.90
----------------- ------------------- ------------------- ------------------- -------------------
Total mortgage loans $351,916 100.00 $297,947 100.00 $256,899 100.00 $227,468 100.00 $187,397 100.00
==================================================================================================
</TABLE>
9
<PAGE> 11
Table III shows the contractual maturities of the Bank's loan portfolio at
December 31, 1995. The table does not include prepayments and scheduled
principal repayments.
<TABLE>
<CAPTION>
Table III Maturing in:
------------------------------------------------------------------------
Outstanding 1 Year or 1 to 3 3 to 5 5 to 10 10 to 15 After 15
12/31/91 Less Years Years Years Years Years
-------- ------- ------- ------- ------- -------- --------
- ---------------------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Permanent Loans:
- ----------------
Residential $225,886 $ 26 $ 307 $ 897 $28,081 $ 82,786 $113,789
Commercial 43,281 199 2,424 867 9,552 21,937 8,302
Construction 33,853 11,759 8,901 -- 239 5,573 7,381
Land & Development 48,896 6,999 40,156 1,642 99 -- --
Other 12,850 2,640 938 5,758 2,771 743 --
----------------------------------------------------------------------------------
TOTAL $364,766 $21,623 $52,726 $ 9,164 $40,742 $111,039 $129,472
==================================================================================
</TABLE>
Table IV shows the contractual maturities of the Bank's loan portfolio by fixed-
and adjustable-rate loans. It does not reflect actual repayments because of loan
refinancings, principal payments and enforcement of due-on-sale clauses, which
give the Bank the right to declare a conventional loan immediately due and
payable in the event, among other things, that the borrower sells the real
estate subject to the mortgage.
<TABLE>
<CAPTION>
Table IV Maturing in:
------------------------------------------------------------------------------
Outstanding 1 Year or 1 to 3 3 to 5 5 to 10 10 to 15 After 15
12/31/91 Less Years Years Years Years Years
-------- ------- ------- ------- ------- -------- -------
- ---------------------------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed interest rates $193,444 $ 274 $ 826 $6,087 $29,444 $ 80,007 $ 76,806
Adjustable interest rates 171,322 21,349 51,900 3,077 11,298 31,032 52,666
---------------------------------------------------------------------------------
TOTAL $364,766 $21,623 $52,726 $9,164 $40,742 $111,039 $129,472
=================================================================================
</TABLE>
PURCHASE AND SALE OF LOANS. Management believes that purchases of loans and loan
participations can be desirable and evaluates potential purchases as
opportunities arise and the Bank's needs dictate. Such purchases can enable the
Bank to take advantage of favorable lending opportunities, diversify its
portfolio and limit origination expenses. For loan purchases, the Bank uses the
same criteria for investment as if it had originated the loans using its own
underwriting standards. At December 31, 1995 approximately $1.9 million of the
Bank's residential loan portfolio and $2.1 million of the Bank's multi-family
and non-residential real estate loan portfolios were serviced by other
institutions.
When loans or loan participations are sold by the Bank, The Bank retains the
responsibility for servicing the loans. The Bank receives a fee for servicing
these loans. The amount of mortgage loans the Bank serviced for others amounted
to approximately $159.5 million at December 31, 1995. The contractual right to
service mortgage loans has an economic value that, in accordance with generally
accepted accounting principles, was not fully recognized in the Bank's financial
statements prior to 1995. The Bank adopted Statement of Financial Accounting
Standards (SFAS) No. 122, effective January 1, 1995, which requires an entity
that sells or securitizes loans with servicing rights retained to allocate the
total cost of the mortgage loans to the mortgage servicing rights and the loans
based on their relative fair values. The value reflects the future income stream
of the servicing fees, the availability of the cash balances associated with
escrow funds collected monthly for real estate taxes and insurance, and the
ability of the servicer to cross-sell other products and services. The actual
value of a servicing portfolio is dependent upon such factors as the age and
maturity of the loans in the portfolio, the average dollar balance of the loans,
the location of the collateral property, the average amount of escrow funds
held, the interest rates and delinquency experience on the loans, the types of
loans and other factors.
10
<PAGE> 12
Table V shows total loan origination, purchase, sale and repayment for the
periods indicated:
<TABLE>
<CAPTION>
Table V Year Ended December 31,
- ------- -----------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- ---------
- -----------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Conventional mortgage loans:
Loan originations (1):
One to four family $ 85,954 $ 63,085 $123,132 $114,611 $ 46,807
Construction 43,661 50,151 40,554 34,179 37,254
Commercial and multi-family 5,182 2,519 7,439 6,788 5,973
Land and development 43,250 30,693 16,429 19,627 9,824
----------------------------------------------------
Total mortgage loan
originations 178,047 146,448 187,554 175,205 99,858
Consumer loans 4,528 4,970 2,790 3,451 3,252
Commercial loans 4,348 770 1,324 1,369 740
----------------------------------------------------
Total loan originations 186,923 152,188 191,668 180,025 103,850
Loans and participations
Purchased 700 -- -- 1,047 1,826
Sold 43,374 21,677 59,321 64,942 55,668
Loan repayments & refinances 86,404 86,954 102,671 75,678 63,114
----------------------------------------------------
NET LOAN ACTIVITY $ 57,845 $ 43,557 $ 29,676 $ 40,452 $ (13,106)
=====================================================
<FN>
(1) Loans originated include undisbursed portions of loans-in-process and
unearned discounts.
</TABLE>
CHANGES IN LENDING ACTIVITIES. Loan originations in 1995 were impressive at
$186.9 million, an increase of $34.0 million over 1994 originations. Mortgage
refinances were $28.5 million in 1995, $27.5 million in 1994 and $88.4 million
in 1993. Loan originations (excluding mortgage refinancing) increased to $158.4
million in 1995 from $124.7 million in 1994 and from $103.3 million in 1993.
INCOME FROM LENDING ACTIVITIES. The Bank earns interest and fee income from its
lending activities. The Bank earns income from fees for originating loans and
for making commitments to originate loans and purchase loans and loan
participations. Certain of these fees net of origination costs are amortized
over the life of the respective loan. The Bank also receives loan fees related
to existing loans, which include prepayment charges, late charges, assumption
fees and servicing fees. Income from loan origination and commitment fees and
discounts varies with the volume and type of loans and commitments made and
purchased and with competitive and economic conditions.
NONPERFORMING LOANS
GENERAL. Late payment fees are assessed by the Bank if a payment is not received
by the 15th day following its due date. Any borrower whose payment was not
received by this time is mailed a past due notice. If the loan is still
delinquent after a second past due notice is mailed, a loan department employee
will attempt to contact the customer to resolve any problem that might exist.
When an advanced stage of delinquency approaches (generally 90 days past due)
and if repayment cannot be expected within a reasonable amount of time or a
repayment agreement has not been entered into, the Bank will contact an attorney
and request that the required 30-day prior notice of foreclosure proceedings be
11
<PAGE> 13
prepared and delivered to the borrower so that, if necessary, foreclosure
proceedings may be initiated shortly after the loan is 90 days delinquent. This
procedure has historically aided in achieving a low level of nonperforming loans
and, as of December 31, 1995 only $2,052,000 or 0.61% of the Bank's total loan
portfolio was nonperforming. As of December 31, 1995 the Bank's level of
nonperforming assets to total assets was 0.42%.
On December 31, 1995 the Bank held no real estate and other repossessed
collateral acquired as a result of foreclosure, voluntary deed, or other means.
When the Bank has such real estate, it is classified as "real estate owned"
(REO) until it is sold. When property is so acquired, it is recorded at the
lower of cost (the unpaid principal balance at the date of acquisition plus
foreclosure and other related costs) or fair value. For collateral-dependent
loans, the fair value is determined by obtaining an appraisal from an
independent fee appraiser. For loans which are not collateral dependent, the
fair value is determined based on the present value of expected cash flows. Any
reduction to record the property at its fair value is charged to expense.
Generally, unless the property is 1-to-4 family and well collateralized,
interest accrual ceases after 90 days of delinquency, but not later than the
date of acquisition. Costs incurred to maintain REO property are charged to
expense. The Bank has not had to foreclose on an acquisition and development
loan in the last 5 years.
If a credit card account becomes 10 days delinquent, a notice is sent to the
account holder demanding that the payment be made so that the card is current.
Another notice is sent to the cardholder if the account becomes 20 days
delinquent. If payment is not received within 30 days, authorization requests
are denied, a message appears on the cardholder's account statement and a
follow-up telephone call is made. These telephone collection efforts and
statement messages continue until the account is deemed uncollectible, usually
between 120 to 150 days delinquent at which time it is turned over to a
collection agency for intensive collection efforts and legal action if
appropriate.
Not categorized as nonperforming loans are certain potential problem loans that
management believes are adequately secured and for which no material loss is
expected, but as to which certain circumstances may cause the borrowers to be
unable to comply with the present loan repayment terms at some future date. At
December 31, 1995 there were approximately $1.1 million of such potential
problem loans.
12
<PAGE> 14
Table VI below sets forth information regarding delinquent loans. It is the
Bank's policy that past-due conventional loans be reviewed monthly to determine
whether any due but uncollected portion thereof should be classified as
uncollectible.
<TABLE>
<CAPTION>
Table VI Year Ended December 31,
----------------------------------------
1995 1994 1993 1992 1991
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
NON-ACCRUING LOANS
1 to 4 family-permanent $ 52 $ 53 $113 $ 27 $ 292
1 to 4 family-construction -- -- -- -- --
Multi-family & Commercial
real estate -- -- -- -- --
Development and Land -- -- -- -- --
Commercial non-real estate 70 -- -- -- 141
Consumer and other 24 40 3 2 27
----------------------------------------
Total 146 93 116 29 460
ACCRUING LOANS DELINQUENT 90
DAYS OR MORE:
1 to 4 family-permanent 1,906 684 149 255 671
1 to 4 family-construction -- -- -- -- --
Multi-family & Commercial
real estate -- -- -- -- --
Development and Land -- -- -- -- --
Commercial non-real estate -- 12 -- -- --
Consumer and other -- -- 1 -- 5
----------------------------------------
Total 1,906 696 150 255 676
RESTRUCTURED LOANS -- -- -- -- --
----------------------------------------
Total nonperforming loans 2,052 789 266 284 1,136
In substance foreclosure -- -- -- 149 --
----------------------------------------
Total nonperforming assets $2,052 $789 $266 $433 $1,136
========================================
Allowance for loan losses $1,168 $948 $840 $717 $ 570
========================================
Nonperforming loans to
total loans-net 0.61% 0.28% 0.11% 0.13% 0.64%
Nonperforming assets to
total assets 0.42% 0.19% 0.08% 0.15% 0.43%
Allowance for loan losses to
ending loan balances 0.35% 0.34% 0.35% 0.33% 0.29%
Allowance for loan losses to
nonperforming loans 56.91% 120.11% 315.80% 252.06% 50.19%
</TABLE>
13
<PAGE> 15
Interest income that would have been recorded under the original terms of
all nonaccrual loans during each period and the interest income actually
recognized for each period are summarized below:
<TABLE>
<CAPTION>
Years Ended
December 31,
----------------
1995 1994 1993
(In Thousands)
<S> <C> <C> <C>
Interest income that would have been recorded $49 $25 $29
Interest income recognized .................. 37 12 10
--- --- ---
Interest income foregone .................... $12 $13 $19
=== === ===
</TABLE>
ALLOWANCE FOR LOAN LOSSES. The amount of the allowance for loan losses is based
on management's analysis of risks inherent in the various segments of the loan
portfolio, management's assessment of known or potential problem credits which
have come to management's attention during the ongoing analysis of credit
quality, historical loss experience, current economic conditions and other
factors. If actual circumstances and losses differ substantially from
management's assumptions and estimates, such allowance for loan losses may not
be sufficient to absorb all future losses, and net earnings could be adversely
affected. Loan loss estimates are reviewed periodically, and adjustments, if
any, are reported in earnings in the period in which they become known. In
addition, the Bank maintains a portion of the allowance to cover potential
losses inherent in the portfolio which have not been specifically identified.
Although management believes that it uses the best information available to make
such determinations and that the allowance for loan losses was adequate at
December 31, 1995, future adjustments to reserves may be necessary, and net
income could be affected, if circumstances and/or economic conditions differ
substantially from the assumptions used in making the initial determinations. A
downturn in the Northeastern Ohio real estate market could result in the Bank
experiencing increased levels of nonperforming assets and charge-offs, increased
provisions for loan losses and reductions in income. Additionally, various
regulatory agencies, as an integral part of their examination process,
periodically review the Bank's allowance for loan losses. Such agencies may
require the recognition of additions to the allowance based on their judgment of
information available to them at the time of their examination.
Substantially all the delinquent loans are well collateralized residential real
estate loans. Accruing loans delinquent 90 days or more included nineteen
residential mortgage loans totaling $1,906,000 at December 31, 1995. The
appraised values of the residences securing these loans was deemed sufficient to
cover the outstanding debt. The Bank's collections procedures generally begin
within 30 days of delinquency and, combined with the Bank's underwriting
standards, have minimized delinquencies in the loan portfolio.
14
<PAGE> 16
Table VII presents the allocation of the allowances for loan losses by the Bank
to the related outstanding loan balances at each of the dates indicated.
<TABLE>
<CAPTION>
Table VII December 31,
------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Amount % Amount % Amount % Amount % Amount %
(Dollars in Thousands)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate loans $1,000 85.62 $818 86.29 $744 88.57 $656 91.49 $524 91.93
Consumer and commercial
loans (non-mortgage) 168 14.38 130 13.71 96 11.43% 53 7.39 30 5.26
Non-allocated -- -- -- -- -- -- 8 1.12 16 2.81
----------------- ----------------- ------------------------------------ -----------------
Total $1,168 100.00 $948 100.00 $840 100.00% $717 100.00 $570 100.00
==========================================================================================
</TABLE>
15
<PAGE> 17
Table VIII presents information concerning activity in the Bank's allowance for
loan losses during the periods indicated.
<TABLE>
<CAPTION>
Table VIII Year Ended December 31,
- ---------- -----------------------
1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Allowance at beginning of period $ 948 $840 $717 $ 570 $ 215
Provision charged to expense 238 92 77 296 413
ChargeOffs:
1-4 family - permanent -- -- -- 56 58
1-4 family - construction -- -- -- -- --
Multi-family & commercial
real estate -- -- -- -- --
Development & land -- -- -- 20 --
Commercial non-real estate -- -- -- 61 --
Consumer 21 13 6 31 11
------------------------------------------------
Total charge-offs 21 13 6 168 69
Recoveries:
1-4 family - permanent -- -- 28 17 1
1-4 family - construction -- -- -- -- --
Multi-family & commercial
real estate -- -- -- -- --
Development & land -- -- 20 -- 6
Commercial non-real estate -- 25 -- -- --
Consumer 3 4 4 2 4
------------------------------------------------
Total recoveries 3 29 52 19 11
------------------------------------------------
Net recoveries (charge-offs) (18) 16 46 (149) (58)
------------------------------------------------
Allowance at end of period $ 1,168 $948 $840 $ 717 $ 570
================================================
Net charge-offs (recoveries)
during period to average loans
outstanding during the period 0.01% -0.01% -0.02% 0.07% 0.03%
================================================
</TABLE>
CLASSIFIED ASSETS. The OTS regulations on classification of assets require
savings associations to classify their own assets and to establish appropriate
general and specific allowances for losses, subject to OTS review. These
regulations are designed to encourage management to evaluate assets on a
case-by-case basis and to discourage automatic classifications. Assets
classified as substandard or doubtful must be evaluated by management to
determine a reasonable general loss reserve which is included in total capital
for purposes of the association's risk-based capital requirement, but which is
not included in core capital or tangible capital or in capital under generally
accepted accounting principles. Assets classified as loss must either be written
off or reserved for by a specific allowance which is not included in capital for
purposes of any of the regulatory capital requirements.
16
<PAGE> 18
INVESTMENTS
Investment securities primarily satisfy the Bank's liquidity needs and provide a
return on residual funds after lending activities. Investments may be in bonds
and mortgage-backed securities, provided that they are all of qualified bank
investment grade pursuant to the Bank's written investment policy. The Bank does
not make any investments in securities which are rated less than investment
grade by a nationally recognized statistical rating organization. A goal of the
Bank's investment policy is to contain interest rate risk wherever possible.
All securities-related activity is reported to the Executive Committee of the
Board. General changes in investment strategy are required to be reviewed and
approved by the Board. The Bank's Chief Executive Officer and Chief Financial
Officer are authorized to purchase and sell securities on behalf of the Bank in
accordance with the Bank's stated investment policy.
Table IX sets forth the carrying value of the Bank's investment portfolio at the
dates indicated and includes investments available for sale.
<TABLE>
<CAPTION>
Table IX Year Ended December 31,
-----------------------
1995 1994 1993
- -------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
Interest-earning deposits $11,935 $ 8,295 $ 5,175
-------------------------------
INVESTMENT SECURITIES
Held-to-maturity
----------------
Corporate bonds 44,233 59,103 49,151
U.S. government and
agency obligations 1,200 14,723 500
State and local government
obligations -- -- 1,830
Other 3,921 1,889 3,942
-------------------------------
Total 49,354 75,715 55,423
Available for sale
------------------
Corporate bonds 999 3,985 6,486
U.S. government and
agency obligations 25,596 -- --
-------------------------------
Total 26,595 3,985 6,486
-------------------------------
Total $87,884 $87,995 $67,084
===============================
</TABLE>
There were no investment securities in the Bank's portfolio which had an
aggregate carrying value in excess of ten percent of the Bank's shareholders'
equity as of December 31, 1995.
17
<PAGE> 19
Table X sets forth the carrying value of the Bank's mortgage-backed securities
portfolio at the dates indicated:
<TABLE>
<CAPTION>
Table X Year Ended December 31,
-----------------------
1995 1994 1993
- ------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C>
MORTGAGE-BACKED SECURITIES
Held to maturity
----------------
Federal National Mortgage
Corporation $ 6,652 $12,227 $ 1,814
Federal Home Loan
Mortgage Corporation 7,913 9,817 5,781
Government National
Mortgage Corporation 7,194 3,271 --
Other 15,497 11,959 4,831
-------------------------------
Total 37,256 37,274 12,426
Available for sale
------------------
Federal National Mortgage
Corporation 7,136 -- --
Federal Home Loan
Mortgage Corporation 7,613 -- --
-------------------------------
Total 14,749 -- --
-------------------------------
TOTAL $52,005 $37,274 $12,426
===============================
</TABLE>
18
<PAGE> 20
Table XI sets forth the amount of the Bank's mortgage-backed securities
portfolio having fixed rates and the amount having adjustable rates at the dates
indicated:
<TABLE>
<CAPTION>
Table XI December 31,
------------
1995 1994 1993
---- ---- ----
Amount % Amount % Amount %
- ----------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Fixed interest rates $24,027 46 $12,957 35 $ 4,103 33
Adjustable rates 27,978 54 24,317 65 8,323 67
------------------------------------ --------------------
Total $52,005 100 $37,274 100 $12,426 100
=========================================================
</TABLE>
The following table reflects the estimated principal repayments or repricing of
the Bank's mortgage-backed securities and investment portfolios at the dates
indicated.
<TABLE>
<CAPTION>
Weighted Average
Remaining Term in
Table XII Principal reapyment or repricing in: months:
------------------------------------------------------------------
Outstanding 1996 1997-98 1999-2000 2001-2005 2006 and To To
12/31/95 Thereafter Repricing Maturity
- ---------------------------------------------------------------------------------------------------------------------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage-backed securities $ 52,005 $28,810 $ 3,292 $ 825 $889 $18,189 60 231
Interest earning deposits 11,935 11,935 -- -- -- -- 1 1
Corporate bonds 45,232 21,388 23,844 -- -- -- 13 13
U.S. Government and agency
obligations 26,796 3,039 21,771 1,986 -- -- 21 21
Other 3,921 23 3,049 849 -- -- 32 32
-------------------------------------------------------------------------------------
Total $139,889 $65,195 $51,956 $3,660 $889 $18,189 32 95
=====================================================================================
</TABLE>
19
<PAGE> 21
SOURCES OF FUNDS
DEPOSIT ACCOUNTS. Savings deposits are a major source of the Bank's funds. The
Bank offers a number of alternatives for depositors designed to attract both
short-term and long-term savings, including regular and money market savings
accounts, NOW accounts, and a variety of fixed-maturity, fixed-rate certificates
with maturities ranging from seven days to 120 months. The Bank also provides
travelers checks, cashier's checks, money orders, U.S. Savings Bonds, ATM
services and IRA and Keogh accounts.
Table XIII shows the distribution of the Bank's deposits by type at the dates
indicated, along with the amount of time deposits by interest rate category.
<TABLE>
<CAPTION>
TABLE XIII
DECEMBER 31,
WEIGHTED ---------------------------------------------------------------
TYPE OF ACCOUNT AND AVERAGE 1995 1994 1993
COST ---- ---- ----
INTEREST RATE 12/31/95 AMOUNT % AMOUNT % AMOUNT %
- -----------------------------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Passbook accounts 2.88% $ 47,423 10.96% $ 30,347 8.36% $ 29,260 9.93%
NOW acounts 2.02 26,025 6.02 23,196 6.39 19,576 6.64
Commercial accounts 0.00 11,728 2.71 10,159 2.80 6,755 2.29
Money market accounts 2.53 23,014 5.32 37,134 10.23 40,667 13.80
---------------------------------------------------------------------
Subtotal 2.29 108,190 25.01 100,836 27.78 96,258 32.66
CERTIFICATES OF DEPOSIT
4.00% and less 2.53 3,225 0.75 26,168 7.21 86,192 29.24
4.01% to 5.00% 4.84 13,744 3.18 70,058 19.30 46,323 15.72
5.01% to 6.00% 5.62 144,972 33.51 87,398 24.07 32,356 10.98
6.01% to 8.00% 7.01 150,369 34.76 62,133 17.11 14,816 5.02
8.01% to 10.00% 9.15 12,063 2.79 15,516 4.27 17,855 6.06
10.01% and greater 0.00 -- 0.00 941 0.26 950 0.32
---------------------------------------------------------------------
Subtotal 6.33 324,373 74.99 262,214 72.22 198,492 67.34
---------------------------------------------------------------------
TOTAL 5.32% $432,563 100.00% $363,050 100.00% $294,750 100.00%
=====================================================================
</TABLE>
20
<PAGE> 22
The following table presents, by various interest rate categories, certain
information concerning maturities of the Bank's certificates of deposit as of
December 31, 1995.
<TABLE>
<CAPTION>
TABLE XIV MATURING IN:
---------------------------------------------------
BALANCES AT ONE YEAR ONE TO TWO TWO TO THREE AFTER THREE
12/31/95 YEARS YEARS YEARS
- --------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
CERTIFICATES OF DEPOSIT
4.00% and less $ 3,225 $ 3,225 $ - $ - $ -
4.01% to 5.00% 13,744 13,202 389 64 89
5.01% to 6.00% 144,972 109,881 21,275 8,425 5,391
6.01% to 8.00% 150,369 60,235 27,214 8,499 54,421
8.01% to 10.00% 12,063 4,704 1,239 574 5,546
----------------------------------------------------------------
TOTAL $324,373 $191,247 $50,117 $17,562 $65,447
================================================================
</TABLE>
The following table sets forth the amount of the Bank's certificates of deposit
that are $100,000 or greater by time remaining until maturity as of December 31,
1995.
<TABLE>
<CAPTION>
Maturity Period
- ---------------
(In Thousands)
<S> <C>
Three months or less $ 14,455
Over three through six months 14,091
Over six through twelve months 17,913
Over twelve months 21,072
-------------
Total $ 67,531
=============
</TABLE>
CHECKING ACCOUNT SERVICES. The Bank offers commercial and NOW accounts and
interest-bearing money market accounts in order to attract funds. At December
31, 1995, the Bank's commercial checking accounts totaled $11.7 million; NOW
accounts totaled $26.0 million and money market accounts totaled $23.0 million.
BORROWINGS. Deposits, payments of loan principal and interest, and proceeds from
the sale of loans are the primary source of funds for a thrift's lending
activities and other general business purposes. The Bank can also obtain funds
through loans (advances) from the FHLB of Cincinnati. Advances from the FHLB may
be on a secured or unsecured basis depending upon a number of factors, including
the purpose for which the funds are being borrowed and existing advances
outstanding. See "REGULATION - Federal Regulation - Federal Home Loan Banks." At
December 31, 1995, the Bank had $13.3 million in advances outstanding from FHLB
of Cincinnati. The Bank has no arrangements to borrow funds from commercial
banks nor does the Bank solicit brokered deposits.
COMPETITION
The principal competitors of the Bank within its market area are other thrifts
and commercial banks. In recent years, however, competition has also come from
mortgage banking companies, insurance companies, securities firms and other
non-FDIC-insured financial institutions. The Bank faces competition from the
significant market influence of one large local thrift that offers long-term,
fixed-rate residential mortgage loans. Additionally, consolidation of the
financial institutions industry in the Midwest in recent years has increased the
level of competition. In addition, disparities with respect to the deposit
assessments for banks and savings associations may have an adverse effect upon
the Bank. See "Federal Regulation-Deposit Insurance Assessments."
21
<PAGE> 23
The Bank competes against larger institutions for deposits principally by
offering a variety of banking services, attractive rates and strategically
located banking facilities. The Bank has strong ties with the local community,
particularly with residential builders and developers, and seeks to provide high
quality personal banking services to professionals, small businesses, and
individuals, emphasizing quick and flexible responses to consumer preferences
and market demands.
According to the Mortgage Statistics Lenders Report compiled by Chicago Title
Insurance Company for the eleven months ended November 30, 1995, the Bank
ranked 8th out of 47 among all lenders in Cuyahoga County in dollar amount of
loans for real estate mortgages, representing a 2.11% share of the market.
According to SNL Branch Migration Data Source, as of June 30, 1995 (the most
recent date for which data is available), the Bank's market share of deposits
(including commercial banks, thrifts and credit unions) in the various cities
where the Bank maintains offices was as follows:
<TABLE>
<CAPTION>
CITY MARKET SHARE MARKET POSITION
- ---- ------------ ---------------
<S> <C> <C>
Strongsville 25.06% 1 out of 13
Hinckley 45.45 1 out of 3
Berea 8.99 6 out of 7
North Royalton 13.94 4 out of 7
Medina Township (opened 11/94) 3.21 8 out of 8
Wellington 48.56 1 out of 3
Parma Heights 30.44 2 out of 3
Westlake 8.52 4 out of 13
North Ridgeville 11.59 5 out of 7
Brecksville 10.47 4 out of 7
Broadview Heights (opened 3/95) 11.80 3 out of 3
Columbia Station (purchased 8/95) 23.00 2 out of 2
</TABLE>
PERSONNEL
As of December 31, 1995 the Bank employed 125 full time-equivalent employees.
None of the Bank's employees are represented by any collective bargaining group,
and management considers its relations with employees to be satisfactory.
INCENTIVE COMPENSATION
For each of the 1995 and 1994 fiscal years, the Board established incentive
arrangements for mortgage loan officers. The incentive lending arrangements
provide financial remuneration to loan officers who process and underwrite
residential mortgage loans in excess of eighteen loans, commercial loans in
excess of fifteen loans, consumer loans (subject to no minimum requirement) and
residential construction loans provided to certain builders in excess of
eighteen loans. Mr. Perciak does not participate in this incentive lending
arrangement.
With respect to residential mortgage lending, beginning with the 19th loan
originated by the individual loan officer, the Bank pays incentive compensation
of $100 on each approved and closed fixed-rate mortgage loan and qualifying for
sale in the secondary market. A refinance of an existing Bank mortgage loan
entitles the loan officer to incentive compensation of $50. Because interest
rate risk continues to be a major concern to the Board, a $125 incentive is paid
on each one-year ARM loan funded and a $75 incentive is paid on each three-year
ARM loan funded, with the exception of residential construction loans provided
to builders. The minimum requirement of eighteen approved and funded loans is
waived on originations of all one-year ARM loans. With respect to residential
construction loans to builders, loan officers receive a $50 incentive fee for
each such closed loan in excess of eighteen loans originated to specified
builders.
22
<PAGE> 24
With respect to commercial business loans, for all such loans originated in
excess of fifteen by a particular officer, the Bank pays an incentive of $50.00
on each closed loan. Commercial loan renewals are not eligible for the incentive
program. Consumer lending also entitles a loan officer to a $20.00 incentive fee
per consumer loan closed, including second mortgages. Incentive compensation for
consumer loans is not subject to any minimum requirement.
COMPENSATION PURSUANT TO PLAN
INSURANCE PLANS. The Bank's full-time officers and employees are provided with
hospitalization, major medical, medical, prescription, long-term disability, and
term life insurance under group plans which are available generally and on the
same basis to all full-time employees with the majority of the contribution paid
by the Bank. Additionally, full-time officers and employees are provided with
major dental benefits through a group plan sponsored by the Bank, with officers
and employees paying for most of the cost of such coverage.
PROFIT-SHARING PLAN. The Bank has a trusteed profit-sharing retirement plan (the
"Profit-Sharing Plan") covering substantially all salaried employees. Under the
terms of the Profit-Sharing Plan, the Bank's annual contribution is
discretionary and the Bank may terminate the Profit-Sharing Plan at any time.
The Profit-Sharing Plan is a tax-qualified employee benefit plan under Section
401(a) of the Internal Revenue Code of 1986, as amended (the "Code"). The
purpose of the Profit-Sharing Plan is to provide a qualified retirement program
for eligible employees of the Bank. A fund has been created as part of the
Profit-Sharing Plan to receive contributions made to the Profit-Sharing plan by
the Bank and the plan's participants, and to invest and disburse the fund's
assets for the benefit of the plan's participants and beneficiaries.
Employees of the Bank are eligible to participate in the Profit Sharing Plan on
the first day of January following the employees completion of one year of
service for the Bank. Bank contributions are allocated to each participant in
accordance to his or her compensation as a percentage of the compensation of all
participants. Employees are vested over a six-year period with respect to
employer contributions, with 20% of the account balance becoming vested each
year after two years. Employees are always 100% vested in their own
contributions made to the Profit-Sharing Plan. Other than rollover from other
qualified plans, ordinarily there are no employee contributions to the
Profit-Sharing plan. Participants or their beneficiaries receive a distribution
of benefits from their Profit-Sharing Plan accounts upon reaching early or
normal retirement age, death or disability.
The administrators of the Profit-Sharing Plan are Messrs. Perciak and Ziegler.
They direct the investment objectives of the Profit-Sharing Plan. A
Cleveland-based commercial bank, the Custodian of the Profit-Sharing Plan, is
responsible for holding the assets comprising the fund. Participants accrue
benefits only to the extent of the fund's assets.
401(k) PLAN. In January 1990, the Bank adopted a qualified, tax-exempt
profit-sharing plan with a cash or deferred feature qualifying under Section
401(k) of the Code (the "401(k) Plan"). All employees age 20 1/2 or older are
eligible to participate at the next plan entrance date provided they have
completed six months of service. Participants are permitted to make salary
reduction contributions to the 401(k) Plan in amounts equal to up to 10% of
their salary. The participant's salary reduction contribution is matched by Bank
contributions in an amount equal to 60% of the participant's contributions up to
specified limits. If the employee contributes more than 5 % of his salary, the
Bank will make no matching contributions on the amount over 5%.
Employees direct the investment options of their salary reduction contributions
to their accounts. Prior to January 1, 1995, employees also directed the
investment options of the Bank's matching contributions to their accounts. After
December 31, 1994 the Bank's matching contribution is invested in the common
stock of the Bank. Salary reduction contribution by employees and the earnings
thereon are fully vested immediately. Contributions by the Bank and earnings
under the 401(k) Plan are vested over a six-year period with respect
23
<PAGE> 25
to employer contributions, with 20% of the account balance becoming vested each
year after two years of service.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN. Effective January 1, 1995, the Bank
adopted a nonqualified, unfunded Supplemental Executive Retirement Plan (SERP)
that provides certain officers, classified as Vice President or above,
retirement benefits. The SERP provides for payments in the event of retirement,
disability, death or a change in control of the Bank. The plan was designed to
build and retain a competent management team. Under the plan, each executive has
been given retirement benefits intended to provide reasonable assurance that
such executive will remain with the Bank. If the executive's employment is
terminated for cause or the executive voluntarily resigns other than as a
constructive termination (other than for "good reason") following a change in
control, the Bank is released from all payment obligations to such executive.
SUBSIDIARY
The bank has one subsidiary, Dennis Financial Corporation, formed in 1970 as a
wholly owned subsidiary of the Bank. The subsidiary is inactive. At December 31,
1995 the Bank has a book investment in the subsidiary of $6,000 (comprised of
its equity investment in stock and retained earnings of the subsidiary). The
Bank does not anticipate continuing the subsidiary's activities in the future.
REGULATION
GENERAL
The operations of thrift institutions, including the Bank, are significantly
affected by general economic conditions, the monetary and fiscal policies of the
federal government and the policies of federal and state regulatory authorities.
As a savings association organized under the laws of the State of Ohio, the
deposits of which are insured up to applicable limits by the FDIC, the Bank must
file periodic reports with these governmental agencies concerning its activities
and financial condition. Joint examinations are conducted periodically by the
Ohio Division, the OTS and the FDIC to determine whether the Bank is in
compliance with various regulatory requirements. The Bank is also subject to
certain reserve requirements under regulations of the Federal Reserve Board (the
"FRB").
The periodic examinations by the OTS and the Ohio Division are intended to test
the Bank's compliance with various regulatory requirements. 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 nonperforming
and other assets and the establishment of adequate loan loss reserves for
regulatory purposes. That supervision and regulation is intended primarily for
the protection of depositors. Any change in such regulation, whether by the OTS,
the FDIC, the Ohio Division or the Congress, could have a material adverse
impact on the Bank's operations. Certain of the regulatory requirements
applicable to the Bank are referred to below or elsewhere herein.
OHIO SAVINGS AND LOAN REGULATION
Regulation by the Ohio Division affects the Bank's internal organization as well
as its savings, mortgage lending and other investment activities. Ohio law
requires that the Bank maintain federal deposit insurance as a condition of
doing business. Ohio law prescribes the permissible investments and activities
of Ohio savings associations, including the types of lending that such
associations may engage in and the investments in real estate, subsidiaries and
corporate or government securities that such associations may make. The ability
of Ohio-chartered associations to engage in these state-authorized investments
is subject to oversight and approval by the FDIC, if such investments or
activities are not permissible for a federally chartered savings association.
Since the enactment of FIRREA, the Bank has no investments which are affected by
this prohibition.
24
<PAGE> 26
The Ohio Division must approve any mergers involving or acquisitions of control
of Ohio-chartered savings associations, as well as establishment of branches or
exercise of trust powers. Apart from provisions of Ohio law and regulation
having to do with the conduct of the day-to-day affairs of Ohio-chartered
savings associations, Ohio savings and loan law and regulation is generally
complementary of, or less stringent than, and not in addition to federal law and
regulations governing state-chartered, SAIF-insured savings associations. Under
regulations of the Ohio Division, for example, an Ohio-charted savings
association is required to maintain a ratio of net worth to total assets of not
less that four percent, or three percent for the highest rated institutions. The
Ohio Division may initiate certain supervisory measures or formal enforcement
actions against Ohio-chartered associations. Ultimately, if the grounds provided
by law exist, the Ohio division may place an Ohio-chartered association in
conservatorship or receivership.
In addition to being governed by the laws of Ohio specifically governing savings
associations, the Bank is also governed by Ohio corporate law, to the extent
such law does not conflict with the laws specifically governing savings
associations.
FEDERAL REGULATION
The Bank is regulated by the OTS at the federal level and its eligible deposit
accounts are insured up to applicable limits through the Savings Association
Insurance Fund(the "SAIF") administered by the FDIC. The Bank is also subject to
regulation by the FDIC with regard to matters that may affect the safety and
soundness of the Bank. The description of statutory provisions and regulations
applicable to savings associations set forth herein does not purport to be a
complete description of such statutes and regulations and their effects on the
Bank.
OFFICE OF THRIFT SUPERVISION. The OTS is an office of the Department of Treasury
and is subject to the general oversight of the Secretary of the Treasury. The
Director of the OTS is responsible for the regulation and supervision of all
savings associations, the deposits of which are insured by the FDIC. Among other
functions, the OTS issues and enforces regulations affecting federally insured
savings associations and regularly examines such institutions.
FEDERAL DEPOSIT INSURANCE CORPORATION. The FDIC is an independent federal
agency originally established to insure the deposits, up to prescribed
statutory limits, of federally insured banks and to safeguard the safety
and soundness of the banking industry.
DEPOSIT INSURANCE ASSESSMENTS. The Bank's deposit accounts are insured by the
SAIF to a maximum of $100,000 for each insured depositor. Prior to 1993,
deposit insurance premiums were assessed at the rate of 0.23% of deposits for
all SAIF-insured institutions. The Bank had an expense of $562,449 for federal
deposit insurance premiums to the SAIF for the year ended December 31, 1992. For
the semi-annual assessment period beginning January 1, 1993, a risk-based
insurance system was implemented by regulation by the FDIC pursuant to FDICIA
and the average assessment rate paid by SAIF and BIF-insured institutions was
increased. Under the regulation, the FDIC assigns an institution to one of three
capital categories, based on the institution's financial information, consisting
of (1) well capitalized, (2) adequately capitalized or (3) undercapitalized. An
institution is also assigned by the FDIC to one of three supervisory subgroups
within each capital group. The supervisory subgroup to which an institution is
assigned is based on a supervisory evaluation provided to the FDIC by the
institution's primary federal regulator and information which the FDIC
determines to be relevant to the institution's financial condition and the risk
posed to the deposit insurance funds (which may include, if applicable,
information provided by the institution's state supervisor). An institution's
assessment rate depends on the capital category and supervisory category to
which it is assigned. Under the system, there are nine assessment risk
classifications (i.e., combinations of capital groups and supervisory subgroups)
to which differing assessment rates are applied. Assessment rates range from
0.23% of deposits for an institution in the highest category (i.e., well
capitalized and "healthy") to 0.31% of deposits for an institution in the lowest
category (i.e., undercapitalized and "substantial supervisory concern"). The
Bank's assessment rate has generally remained the same as a result of the
risk-based rule, with assessment expense of $850,000, $703,000 and $623,000 for
1995, 1994 and 1993, respectively.
25
<PAGE> 27
Insurance of deposits may be terminated by the FDIC 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 FDIC or the OTS.
As is the case with the SAIF, the FDIC is authorized to adjust the insurance
premium rates for banks that are insured by the Bank insurance Fund ("BIF") of
the FDIC in order to maintain the reserve ratio of the BIF at 1.25% of
BIF-insured deposits. On August, 8, 1995, the FDIC reduced the deposit insurance
premiums paid by BIF-insured institutions, but elected to keep existing
assessments rates intact for members of the SAIF. BIF-insured banks received
refunds in amounts equal to insurance overpayments for the months June through
September, and, as a result, BIF-insured institutions on average paid
approximately 4.4 cents per $100,000 of domestic deposits.
On November 14, 1995, the FDIC again reduced the insurance premiums paid on
BIF-insured deposits and maintained existing assessments rates for SAIF-insured
deposits. Under the new rate structure for the BIF, assessment rates have been
lowered by four cents per $100.00 of assessable deposits for all risk categories
subject to the statutory requirement that all institutions pay at least
$2,000.00 annually for FDIC insurance. The new BIF rate structure retains the
current rate spread of twenty-seven cents per $100.00 of assessable deposits
between the highest and lowest-rated institutions as well as the rate spreads
among the other "cells" in the assessment rate matrix.
The FDIC's November 14, 1995 decision means that the then 9,723 well-managed
BIF-insured banks (92% of the BIF-insured banks) only have to pay the legal
minimum $2,000.00 per year for deposit insurance. The rest of the industry (845
banks or approximately 8%) will be charged risk-based premiums of up to
twenty-seven cents per $100.00 of deposits.
The effect of the disparity on the Bank and other SAIF members is uncertain at
this time. It may have the effect of permitting BIF-insured institutions to
offer loan and deposit products on more attractive terms than SAIF members due
to the cost savings achieved through lower deposit premiums, thereby placing
SAIF members at a competitive disadvantage. Alternatively, the premium disparity
might be taken by BIF-insured institutions as a reduction in expense that yields
an otherwise higher net income to such institutions. All other things being
equal, the higher net income reported by the BIF-insured institutions should
translate into a higher earnings per share figure, thus possibly permitting
BIF-insured banks to trade at higher stock price valuations and making thrift
(SAIF-insured) stock less attractive. A number of proposals are being considered
to recapitalize the SAIF in order to eliminate this disparity.
Congress currently is working on legislation that would address the problems of
the SAIF and remove the current twenty-three cent disparity between BIF and SAIF
deposit insurance premiums. One plan currently being considered by the congress
provides for a one-time assessment of 85 to 90 basis points to be imposed on all
deposits assessed at the SAIF rates, including those held by commercial banks.
Another aspect of this proposal is that BIF deposit insurance premiums would be
used to make the interest payments on bonds issued by the Financing Corporation
("FICO") in order to finance the costs of resolving thrift failures in the
1980s. The BIF deposit insurance premiums would be used to pay the FICO bond
interest on a pro rata basis together with SAIF premiums. Legislation to
recapitalize the SAIF is part of the budget balancing legislation presently in
dispute between the Executive Office and Congress. There can be no assurance
that any particular proposal will be implemented or that premiums for either BIF
of SAIF members will not be adjusted by the FDIC or by legislative action.
If the one-time special assessment in the proposal is enacted into law, the Bank
would pay an additional assessment which would reduce equity and earnings. The
Bank's SAIF assessment level would, however, decrease, possibly as much as $0.19
per $100.00 in deposits. Thereafter, this reduction in expense would favorably
affect the bank's future net income.
26
<PAGE> 28
REGULATORY CAPITAL REQUIREMENTS. OTS regulations establish the capital standards
to be applied to savings associations. The capital standards include a leverage
limit, a tangible capital requirement and a risk-based capital requirement.
The leverage limit requires savings associations to maintain a "core capital" of
at least 3% of an association's total assets. "Core capital" is comprised of
common shareholders' equity (including retained earnings), noncumulative
perpetual preferred stock and related surplus, minority interests in
consolidated subsidiaries, certain purchased mortgage servicing rights and
supervisory goodwill ( the latter may be included until January 1, 1995, in
accordance with a phase-out schedule). The leverage limit must be met beginning
December 7, 1989. At December 31, 1995 the Bank had core capital equal to
approximately $40.0 million, or 8.14% of its total adjusted assets, $0.9 million
of which was supervisory goodwill.
In April 1991, the OTS issued a proposal to amend the regulatory capital
regulations to establish a 3% leverage ratio (defined as the core capital to
adjusted total assets) for institutions in the strongest financial and
managerial condition, with a 1 CAMEL rating (the highest examination rating of
the OTS for savings institutions). For all other institutions, the minimum core
capital leverage ration would be 3% plus at least an additional 100 to 200 basis
points. In determining the amount of additional capital under the proposal, the
OTS would assess both the quality of risk management systems and the level of
overall capital each individual institution through the supervisory process on a
case-by-case basis. If the leverage capital rule is enacted in final form as
proposed, it is likely that the Bank's minimum core capital would be increased
to between 4% and 5%. Although the OTS has not adopted this regulation in final
form, generally a savings institution that has a leverage capital ratio of less
than 4% will be deemed to be "undercapitalized" and thus may be subject to
certain restrictions under the OTS prompt corrective action rule. See
"REGULATION - Federal Regulation - Prompt Corrective Regulatory Action."
The tangible capital requirement, which was required to be met beginning
December 7, 1989, requires savings associations to maintain "tangible capital"
of not less than 1.5% of the association's adjusted total assets. "Tangible
capital" is defined in FIRREA as core capital minus any "intangible assets,"
such as goodwill. At December 31, 1995 the Bank's tangible capital was $40.0
million, or 8.14% of adjusted total assets.
The risk-based capital requirement was phased in over a period of several years.
The regulations generally require savings associations to maintain total capital
of at least 8% of risk-weighted assets by January 1, 1993. The Bank's risk-based
capital, calculated at December 31, 1995, was approximately $41.1 million, or
13.51% of its risk-weighted assets.
FDICIA required the OTS and the other federal banking regulatory agencies to
revise their risk-based capital standards by no later than June 19, 1993 to
ensure that these standards take adequate account of interest-rate risk,
concentration of credit risk and risks of nontraditional activities. On August
31, 1993, the OTS issued a final rule which sets forth the methodology for
calculating an interest rate risk component for inclusion in the OTS regulatory
capital rule. Under the rule, only savings associations with "above normal"
interest rate risk exposure (I.E., where the net portfolio value of an
institution would decline by more than 2% of assets in the event of a
hypothetical 200-basis -point move in interest rates) would be required to
maintain additional capital. In the event the 3-month Treasury bill rate is less
than 4% at quarter end, the downward rate shock will be equal to one-half the
value of the 3-month Treasury bill rate (E.G., 150 basis points if the 3-month
bill rate is 3%). The net portfolio value is defined as the net present value of
expected cash inflows and outflows from an institution's assets, liabilities,
and off-balance sheet items. The additional capital that such an institution
would be required to maintain would be equal to one half the difference between
its measured interest rate risk and 2%, multiplied by the estimated economic
value of its total assets. The regulation has not had a material impact on the
Bank's risk-based capital ratio.
If the Bank fails to comply in the future with applicable capital standards, it
may be subject to sanctions and have limitations imposed upon its operations.
27
<PAGE> 29
QUALIFIED THRIFT LENDER TEST. Savings associations are required to maintain a
specified level of investments in assets that are designated as qualifying
thrift investments ("QTL Test"). Such investments are generally related to
residential real estate and manufactured housing. To meet the QTL Test, the
qualified thrift investments of an association must equal or exceed 65% of the
association's portfolio assets.
If a savings association fails to meet the QTL Test, the association may be
subject to certain regulatory restrictions. A savings association which fails to
meet the QTL Test will not be eligible for FHLB advances to the fullest possible
extent. At December 31, 1995, the Bank had qualified thrift investments equal to
approximately 85.48% of its portfolio assets.
ASSESSMENTS. Savings institutions are required by OTS regulation to pay
assessments to the OTS to fund the operations of the OTS. The general
assessment, paid on a semi-annual basis, is computed upon the savings
institution's total assets, including consolidated subsidiaries, as reported in
the institution's latest quarterly thrift financial report. The assessments paid
by the Bank in fiscal 1995 totaled $99,000.
COMMUNITY REINVESTMENT. Under the Community Reinvestment Act ("CRA"), as
implemented by OTS regulations, a savings institution has a continuing and
affirmative obligation consistent with its safe and sound operation to help meet
the credit needs of its entire community, including low- and moderate-income
neighborhoods. The CRA does not establish specific lending requirements or
programs for financial institutions nor does it limit an institution's
discretion to develop the types of products and services that is believes are
best suited to its particular community, consistent with the CRA. The CRA
requires the OTS, in connection with its examination of a savings institution,
to assess the institution's record of meeting the credit needs of its community
and the take such record into account in its evaluation of certain applications
by such institution. Effective July 1, 1990, the CRA requires public disclosure
of an institution's CRA rating and requires that the OTS provide a written
evaluation of an institution's CRA performance utilizing a four-tiered
descriptive rating system. A CRA Performance Evaluation under the new system, as
of April 4, 1994, assigned the Bank a rating of "Outstanding".
The federal banking agencies including the OTS have recently revised the CRA
regulations and the methodology for determining an institution's compliance with
the CRA. Due to the heightened attention being given the CRA in the past few
years, the Bank may be required to devote additional funds for investment and
lending in its local community.
LOANS TO ONE BORROWER AND AGGREGATE LOAN LIMITS. The aggregate amount of loans
which a savings association can make to one borrower is limited to an amount
equal to 15% of the thrift's unimpaired capital and unimpaired surplus. Because
unimpaired capital and surplus is generally synonymous with tangible capital,
loan limits are hereafter referred to in terms of tangible capital. A savings
association may loan to one borrower an additional amount not to exceed 10% of
the association's tangible capital if the additional amount is fully secured by
certain forms of "readily marketable collateral." Real estate-secured loans are
not considered "readily marketable collateral."
Savings associations are also authorized to make loans to one borrower, by order
of the Director of the OTS, in an amount not to exceed the lesser of $30 million
or 30% of tangible capital to develop residential housing, provided (i) the
purchase price of each single-family dwelling in the development does not exceed
$500,000, (ii) the savings association is in compliance with the fully phased-in
capital standards of FIRREA, (iii) the loans comply with applicable
loan-to-value requirements and (iv) the aggregate amount of loans made under
this authority does not exceed 150% of tangible capital. The Bank applied for
permission to use the lending authority described above to service the loan
demands of its largest residential builders and on January 2, 1990, became the
first thrift in the nation to receive the approval of the Director of the OTS.
Pursuant to subsequent applications, the Bank has since annually received
permission from the OTS to use the aforementioned lending authority. For a
discussion of the Bank's usage of this special lending authority and the revised
loans-to-one-borrower regulations of the OTS described below, see " - Lending
Activities - Construction and Development Lending."
28
<PAGE> 30
INVESTMENT LIMITATIONS. In December 1991, the Federal Financial Institutions
Examination Council (the "FFIEC") adopted a Supervisory Policy Statement
relating generally to securities portfolio policies and unsuitable investment
practices, and the OTS adopted this Policy Statement as Thrift Bulletin 52
("TB-52"), effective February 10, 1992. Among other things, TB-52 addresses the
selection of securities dealers, defines securities trading or sales practices
that are viewed by the banking agencies as unsuitable when conducted in an
institution's investment portfolio, indicates characteristics of loans held for
sale or trading and addresses investment practices and the acquisition by
depository institutions of certain "high-risk" mortgage securities. The Bank's
current investment policy prohibits any investment in high-risk mortgage
derivative securities or below investment grade corporate debt securities. The
FFIEC revised this supervisory Policy Statement to address changes in the
accounting for investment securities required under GAAP as a result of the
adoption of FASB 115. While financial statements must be presented in conformity
with GAAP, the unrealized appreciation and depreciation in investments available
for sale as determined under FASB 115 is not recognized when calculating
regulatory capital.
TRANSACTIONS WITH AFFILIATES. Savings associations must comply with Sections 23A
and 23B of the Federal Reserve Act (the "FRA") pertaining to transactions with
affiliates in the same manner and to the same extent as Federal Reserve member
banks. An affiliate of a savings association is any company or entity which
controls, is controlled by or is under common control with the savings
association. Generally, Sections 23A and 23B of the FRA (i) limit the extent to
which the savings institution or its subsidiaries may engage in "covered
transactions" with any one affiliate to an amount equal to 10% of such
institution's capital stock and surplus (i.e., tangible capital) and (ii)
require that all such transactions be on terms substantially the same, or at
least as favorable to the institution or subsidiary, as those provided to a
non-affiliate. The term "covered transaction" includes the making of loans,
purchase of assets, issuance of a guarantee and other similar types of
transactions.
Three additional rules apply to savings associations: first, a savings
association may not make any loan or other extension of credit to an affiliate
unless the affiliate is engaged only in activities permissible for bank holding
companies; second, a savings association may not purchase or invest in
securities other than of a subsidiary; third, the Director of the OTS may, for
reasons of safety and soundness, impose more stringent restrictions on savings
associations, but may not exempt transactions from or otherwise abridge Sections
23A or 23B of the FRA. Exemptions from Sections 23A or 23B of the FRA may be
granted only by the FRB, as is currently the case with respect to all BIF member
banks.
The Bank's authority to extend credit to executive officers, directors and
greater than 10% shareholders, as well as entities such persons control, is
subject to Sections 22(g) and 22(h) of the FRA and Regulation O promulgated
thereunder by the FRB. Among other things, these regulations require such loans
to be made on terms substantially similar to those offered to unaffiliated
individuals, place limits on the amount of loans the Bank may make to such
persons based, in part, on the Bank's capital position, and require certain
approval procedures to be followed. OTS regulations, with the exception of minor
variations, apply Regulation O to savings institutions. Under Section 22(h),
loans to an executive officer, director, or greater than 10% shareholder (a
"principal shareholder") of a savings association, and certain affiliated
entities of either, may not exceed, together with all other outstanding loans to
such persons and affiliated entities, the association's loans-to-one-borrower
limit as established by FIRREA, i.e., 15% of tangible capital. Section 22(h)
also prohibits loans in excess of the lesser of 5% of the Bank's tangible
capital or $500,000 to directors, executive officers and principal shareholders
of a savings association, and their respective affiliates, unless such loan is
approved in advance by a majority of the board of directors of the association
with any "interested" director not participating in the voting. Further, the FRB
pursuant to Section 22(h) requires that loans to directors, executive officers
and principal shareholders be made on terms substantially the same as offered in
comparable transactions to other persons.
OTS regulations on affiliate transactions require, among other things, that
savings institutions retain records of their affiliate transactions that reflect
such transactions in reasonable detail. In addition, if a savings institution
has been the subject of a change-in-control application or notice within the
preceding two-year period, does not meet its minimum capital requirements, has
entered into a supervisory agreement, is subject
29
<PAGE> 31
to a formal enforcement proceeding, or is determined by the OTS to be the
subject of supervisory concern, the institution may be required to provide the
OTS with 30 days' prior notice of any affiliate transaction.
CAPITAL DISTRIBUTION REGULATION. Under a regulation adopted in June 1990,
limitations are imposed upon all "capital distributions" by savings
associations, including cash dividends, payments to repurchase or otherwise
acquire its shares, payments to shareholders of another association in a
cash-out merger and other distributions charged against capital. The regulation
establishes a three-tier system of regulation, with the greatest flexibility
being afforded to associations in the highest category such as the Bank. The
regulation also provides the OTS with authority to prohibit capital
distributions otherwise permitted by this rule if such distribution would
constitute an unsafe or unsound practice.
An association that has capital that is at least equal to its fully phased-in
capital requirement and that has not been advised by the OTS that it is in need
of more than normal supervision is a Tier 1 association ("Tier 1 Association").
The Bank is a Tier 1 Association. An association that has capital at least equal
to its minimum regulatory capital requirement, but less than its fully phased-in
capital requirement, is a Tier 2 association ("Tier 2 Association"). An
association having capital that is less than its minimum regulatory capital
requirement is a Tier 3 association ("Tier 3 Association").
A Tier 1 Association such as the Bank can, upon 30 days' notice to the OTS, make
capital distributions during a calendar year in an amount up to 100% of its net
income to date during the calendar year plus the amount that would reduce its
"surplus capital ratio" (the percentage by which the ratio of its capital to
assets exceeds the ratio of its fully phased-in capital requirement to assets)
by one-half of its surplus capital ratio at the beginning of the calendar year,
as adjusted to reflect its net income to date during the year. Any additional
amount of capital distributions will require prior regulatory approval.
A Tier 2 Association can make a capital distribution, upon 30 days' notice to
the OTS, only in accordance with the following schedule: (i) if the
association's current capital satisfies the 8% risk-based capital standard, it
may make distributions up to 75% of net income over the most recent four
quarters; (ii) if the association's current capital meets the 7.2% risk-based
capital standard, it may make distributions up to 50% of net income over the
four most recent quarters: and (iii) if the association's current capital
satisfies the 6.4% risk-based capital standard, it may make capital
distributions up to 25% of net income over the most recent four-quarter period.
A Tier 3 Association is not authorized under the regulation to make any capital
distributions unless it receives prior regulatory approval; or in the case of an
association operating in compliance with an approved capital plan, the
distribution is consistent with such approved capital plan.
In addition, the OTS may prohibit a proposed capital distribution by any
institution, which would otherwise be permitted by the regulation, if the OTS
determines that such distribution would constitute an unsafe or unsound
practice. Also, an institution meeting the Tier 1 capital criteria which has
been notified that it needs more than normal supervision will be treated as a
Tier 2 or Tier 3 institution unless the OTS deems otherwise. Furthermore, under
the OTS prompt corrective action regulations, which took effect on December 19,
1992, the Bank would be prohibited from making any capital distribution if,
after the distribution, the Bank would have (i) a total risk-based capital ratio
of less than 8%; (ii) a Tier 1 risk-based capital ratio of less than 4% or (iii)
a leverage ratio of less than 4%.
PROMPT CORRECTIVE REGULATORY ACTION. The prompt corrective action provisions set
forth in Section 38 of the Federal Deposit Insurance Act (the "FDIA") became
effective. Section 38 require the federal banking agencies to establish five
capital levels for insured depository institutions -- "well capitalized,"
"adequately capitalized," "undercapitalized," "significantly undercapitalized,"
and "critically undercapitalized" and requires or permits such agencies to take
certain supervisory actions depending upon an insured institution's capital
level. The banking agencies are required to appoint a receiver or conservator
for an institution within 90 days after it becomes "critically undercapitalized"
unless the institution's primary federal banking regulator determines, with the
concurrence of the FDIC, that other action would better achieve FDICIA's
purposes.
30
<PAGE> 32
FDICIA authorized the banking regulators to specify the ratio of tangible equity
to assets at which an institution becomes critically undercapitalized and
requires that ratio to be no less than 2% of assets.
Under the OTS final rule implementing the prompt corrective action provisions, a
savings institution that has a total risk-based capital ratio of 10% or greater,
a Tier 1 risk-based capital ratio of 6% or greater and a leverage ratio of 5% or
greater is deemed to be "well capitalized." An institution with a total
risk-based capital ratio of 8% or greater, a Tier 1 risk-based capital ratio of
4% or greater and a leverage ratio of 4% or greater is considered to be
"adequately capitalized." A savings institution that has a total risk-based
capital ratio of less than 8%, a Tier 1 risk-based capital ratio of less than
4%, or a leverage ratio that is less than 4% is considered "undercapitalized." A
savings institution that has a total risk-based capital ratio of less than 6%, a
Tier 1 risk-based 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 equity (core capital minus intangible assets
other than supervisory goodwill and purchased mortgage servicing rights) to
assets ratio equal to or less than 2% is deemed to be "critically
undercapitalized." At December 31, 1995 the Bank's capital ratios as calculated
under the prompt corrective action rule make the Bank eligible for consideration
as a "well-capitalized" institution.
The appropriate federal banking agency, after notice and an opportunity for a
hearing, is authorized to treat a well-capitalized, adequately capitalized or
undercapitalized insured depository institution as if it has a lower
capital-based classification if it is in unsafe or unsound condition or engaging
in an unsafe or unsound practice. Thus, an adequately capitalized institution
can be subjected to the restrictions of undercapitalized institutions (provided
that a capital restoration plan cannot be required of the institution) described
below and an undercapitalized institution can be subjected to the restrictions
applicable to significantly undercapitalized institutions described below.
An undercapitalized institution is required to submit an acceptable capital
restoration plan to its appropriate federal banking agency. The plan must
specify (i) the steps the institution will take to become adequately
capitalized, (ii) the capital levels to be attained each year, (iii) how the
institution will comply with any regulatory sanctions then in effect against the
institution and (iv) the types and levels of activities in which the institution
will engage. The banking agency may not accept a capital restoration plan unless
the agency determines, among other things, that the plan "is based on realistic
assumptions, and is likely to succeed in restoring the institution's capital"
and "would not appreciably increase the risk ... to which the institution is
exposed."
An insured depository institution cannot make a capital distribution (as broadly
defined to include, among other things, dividends, redemptions and other
repurchases of stock), or pay management fees to any person that controls the
institution, if thereafter it would be undercapitalized. The appropriate federal
banking agency, however, may (after consultation with the FDIC) permit an
insured depository institution to repurchase, redeem, retire or otherwise
acquire its shares if such action (i) is taken in connection with the issuance
of additional shares or obligations in at least an equivalent amount and (ii)
will reduce the institution's financial obligations or otherwise improve its
financial condition. An undercapitalized institution is generally prohibited
from increasing its average total assets. An undercapitalized institution is
prohibited from making any acquisitions, establishing any branches or engaging
in any new line of business except in accordance with an accepted capital
restoration plan or with the approval of the FDIC. In addition, the appropriate
federal banking agency is given authority with respect to any undercapitalized
depository institution to take any of the actions it is required to or may take
with respect to a significantly undercapitalized institution as described below
if it determines "that those actions are necessary to carry out the purpose" of
the FDIA's prompt corrective action provisions.
The FDIA's prompt corrective action provisions provide that the appropriate
federal agency must require an insured depository institution that (i) is
significantly undercapitalized or (ii) is undercapitalized and either fails to
submit an acceptable capital restoration plan within the time period allowed by
regulation or fails in any material respect to implement a capital restoration
plan accepted by the appropriate federal banking agency to take one or more of
the following actions: (i) sell enough shares, including voting shares, to
31
<PAGE> 33
become adequately capitalized: (ii) merge with (or be sold to) another
institution (or holding company), but only if grounds exist for appointing a
conservator or receiver; (iii) restrict certain transactions with banking
affiliates as if the "sister bank" exception to the requirements of Section 23A
of the FRA did not exist; (iv) otherwise restrict transactions with bank or
nonbank affiliates; (v) restrict interest rates that the institution pays on
deposits to "prevailing rates" in the institution's "region"; (vi) restrict
asset growth or reduce total assets; (vii) alter, reduce or terminate
activities; (viii) hold a new election of directors; (ix) dismiss any director
or senior executive officer who held office for more than 180 days immediately
before the institution became undercapitalized; provided that in requiring
dismissal of a director or senior officer, the agency must comply with certain
procedural requirements, including the opportunity for an appeal in which the
director or officer will have the burden of proving his or her value to the
institution; (x) employ "qualified" senior executive officers; (xi) cease
accepting deposits from correspondent depository institutions; (xii) divest
certain non-depository affiliates which pose a danger to the institution; (xiii)
be divested by a parent holding company; and (xiv) take any other action which
the agency determines would better carry out the purposes of the prompt
corrective action provisions.
In addition to the foregoing sanctions without the prior approval of the
appropriate federal banking agency, a significantly undercapitalized institution
may not pay any bonus to any senior executive officer or increase the rate of
compensation for such an officer without regulatory approval. Furthermore, in
the case of an undercapitalized institution that has failed to submit or
implement an acceptable capital restoration plan, the appropriate federal
banking agency cannot approve any such bonus.
Not later than 90 days after an institution becomes critically undercapitalized,
the appropriate federal banking agency for the institution must appoint a
receiver or, with the concurrence of the FDIC, a conservator, unless the agency,
with the concurrence of the FDIC, determines that the purposes of the prompt
corrective action provisions would be better served by another course of action.
FDICIA requires that any alternative determination be "documented" and
reassessed on a periodic basis. Notwithstanding the foregoing, a receiver must
be appointed after 270 days unless the FDIC determines that the institution has
positive net worth, is in compliance with a capital plan, is profitable or has a
sustainable upward trend in earnings and is reducing its ratio of nonperforming
loans to total loans and the head of the appropriate federal banking agency and
the chairperson of the FDIC certify that the institution is viable and not
expected to fail.
The FDIC is required, by regulation or order, to "restrict the activities" of
such critically undercapitalized institutions. The restrictions must include
prohibitions on the institution's doing any of the following without prior FDIC
approval: entering into any material transactions not in the usual course of
business, extending credit for any highly leveraged transaction, engaging in any
"covered transaction" (as defined in Section 23A of the FRA) with an affiliate,
paying "excessive compensation or bonuses", and paying interest on "new or
renewed liabilities" that would increase the institution's average cost of funds
to a level significantly exceeding prevailing rates in the market.
ENFORCEMENT. Under the FDIA the OTS has primary enforcement responsibility over
savings institutions and has the authority to bring enforcement action against
all "institution-related 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. Civil
penalties cover a wide range of violations and actions and range up to $25,000
per day unless a finding of reckless disregard is made, in which case penalties
may be has high as $1 million per day. Criminal penalties for most financial
institution crimes include fines up to $1 million and imprisonment for up to 30
years. In addition to the prompt corrective action system, any savings
institution that fails to satisfy any of its capital requirements is subject to
possible enforcement actions by the OTS or the FDIC. Such actions could include
a capital directive, a cease-and-desist order, civil money penalties and the
establishment of restrictions on the institution's operations. In this regard,
the OTS could require one or more of the following corrective actions: (i)
increasing the amount of the institution's regulatory capital to a specified
level or levels; (ii) convening a meeting or meetings with the OTS' supervision
staff; (iii) reducing the rate of earnings that may be paid on savings accounts;
(iv) limiting the receipt of deposits to those made to existing accounts; (v)
ceasing or limiting the issuance of new accounts of any or all classes or
categories; except in exchange for existing accounts; (vi) ceasing or limiting
lending or
32
<PAGE> 34
the making of a particular type or category of loan; (vii) ceasing or limiting
the purchase of loans or the making of specified other investments; (viii)
limiting operational expenditures to specified levels; (ix) increasing liquid
assets and maintaining such increased liquidity at specified levels; or (x)
taking such other action or actions as the Director of the OTS may deem
necessary or appropriate for the safety and soundness of the savings
institution, or depositors or investors in the savings association. The OTS also
could impose harsher measures such as the appointment of a receiver or
conservator or a forced merger into another institution. The imposition by the
OTS of any of these measures on the Bank could have a substantial adverse effect
on the Bank's operations and profitability. The OTS and FDIC may also require
the institution to raise additional capital through the issuance of stock or
other capital instruments. Under the FDIA, the FDIC has the authority to
recommend to the Director that OTS enforcement action be taken with respect to a
particular savings institution. If action is not taken by the Director, the FDIC
has authority to take such action under certain circumstances.
FEDERAL HOME LOAN BANKS. The FHLBs, now under the jurisdiction of the FHLB, an
independent federal agency created by FIRREA, will continue to serve as credit
sources for their members. As a member of the FHLB of Cincinnati, the Bank is
required to maintain an investment in the capital stock of the FHLB of
Cincinnati in an amount equal to the greater of 1.0% of the aggregate
outstanding principal amount of the Bank's residential mortgage loans, home
purchase contracts and similar obligations at the beginning of each year, or
5.0% of its advances from the FHLB of Cincinnati. The Bank is in compliance with
this requirement with an investment in FHLB of Cincinnati stock of $2.4 million
at December 31, 1995. As an Ohio-chartered (as opposed to federally chartered)
savings association, the Bank could, if management so chose, withdraw from
membership in the FHLB of Cincinnati after April 19, 1995.
The Bank is a party to a credit agreement with the FHLB of Cincinnati whereby
the Bank can obtain advances. As of December 31, 1995, the Bank had advances
outstanding from the FHLB of Cincinnati totaling $13.3 million.
FEDERAL RESERVE SYSTEM. FRB regulations require savings and loan associations to
maintain reserves against their transaction accounts (primarily NOW accounts)
and non-personal time deposits. At December 31, 1995, the Bank was in compliance
with its reserve requirements. The balances maintained to meet the reserve
requirements imposed by the FRB may be used to satisfy liquidity requirements
imposed by the OTS. Because required reserves must be maintained in the form of
either vault cash, a noninterest-bearing account at a Federal Reserve Bank or a
pass-through account as defined by the FRB, the effect of this reserve
requirement is to reduce the Bank's interest-earning assets. FHLB system members
are also authorized to borrow from the Federal Reserve "discount window," but
FRB regulations require institutions to exhaust all FHLB sources before
borrowing from a Federal Reserve Bank.
TAXATION
The Bank and its subsidiary file consolidated federal income tax returns on a
calendar year basis using the accrual method of accounting.
Thrift institutions such as the Bank that meet certain definitional tests
relating to the composition of assets and other conditions prescribed by the
Code are permitted to establish reserves for bad debts and to make annual
additions thereto which may, within specified formula limits, be taken as a
deduction in computing taxable income for federal income tax purposes. The
amount of the bad debt reserve deduction for "non-qualifying loans" is computed
under the experience method. Such a thrift institution may elect annually to
compute its allowable addition to its bad debt reserves for "qualifying real
property loans" (generally loans secured by improved real estate: under either
the experience method or the percentage of taxable income method.
33
<PAGE> 35
Under the experience method, the bad debt deduction for an addition to the
reserve for "qualifying real property loans" or "non-qualifying loans" is an
amount determined under a formula based generally upon the bad debts actually
sustained by a thrift institution over a period of years.
The percentage of specially computed taxable income that is used to compute a
thrift institution's bad debt reserve deduction under the percentage of taxable
income method (the "percentage bad debt deduction") is 8%. The percentage bad
debt deduction thus computed is reduced by the amount permitted as a deduction
for non-qualifying loans under the experience method. The availability of the
percentage of taxable income method permits qualifying thrift institutions to be
taxed at a lower effective federal income tax rate than that applicable to
corporations generally. For additional information regarding the Bank's
effective tax rate and other deferred federal income tax items see Note 8 to the
Consolidated Financial Statements.
If an institution's specified assets (generally, loans secured by residential
real estate or deposits, educational loans, cash and certain government
obligations) constitute less than 60% of its total assets, the institution may
not deduct any addition to a bad debt reserve and generally must include
existing reserves in income over a four-year period. At December 31, 1995, at
least 60% of the Bank's total assets were specified assets.
Under the percentage of taxable income method, the percentage bad debt deduction
cannot exceed the amount necessary to increase the balance in the reserve for
"qualifying real property loans" to an amount equal to 6% of such loans
outstanding at the end of the taxable year. Additionally, the total bad debt
reserve deduction attributable to "qualifying real property loans" cannot exceed
the greater of (i) the amount deductible under the experience method or (ii) the
amount which when added to the bad debt reserve deduction for "non-qualifying
loans" equals the amount by which 12% of the amount comprising savings accounts
at year end exceeds the sum of surplus, undivided profits and reserves at the
beginning of the year. At December 31, 1995, the 6% and 12% limitations would
not have restricted the percentage bad debt deduction available to the Bank.
In addition to the regular income tax, corporations, including thrift
institutions such as the Bank, generally are subject to minimum tax. An
alternative minimum tax is imposed at a minimum tax rate of 20% on alternative
minimum taxable income, which is the sum of a corporation's regular taxable
income (with certain adjustments) and tax preference items, less any available
exemption. Such tax preference items include (i) 100% of the excess of an
institution's percentage bad debt deduction over the amount that would have been
allowable based on actual experience and (ii) interest on certain tax-exempt
bonds issued after August 7, 1986. In addition, for taxable years beginning
after 1989, three-fourths of the amount by which a corporation's pre-tax book
income exceeds its alternative minimum taxable income computed without regard to
this preference and prior to reduction by net operating losses is included in
alternative minimum taxable income. Net operating losses can offset no more than
90% of alternative minimum taxable income. The alternative minimum tax is
imposed to the extent it exceeds the corporation's regular income tax. Payments
of alternative minimum tax may be used as credits against regular tax
liabilities in future years.
To the extent earnings appropriated to a thrift institution's bad debt reserves
for "qualifying real property loans" and deducted for federal income tax
purposes exceed the allowable amount of such reserves computed under the
experience method and to the extent of the institution's supplemental reserves
for losses on loans ("Excess"), such Excess may not, without adverse tax
consequences, be utilized for payment of cash dividends or other distributions
to a shareholder (including distributions on redemption, dissolution or
liquidation) or for any other purpose (except to absorb bad debt losses).
Distribution of a cash dividend by an institution to a shareholder is treated as
made: first, out of the institution's current accumulated earnings and profits;
second, out of Excess; and third, out of such other accounts as may be proper.
To the extent a distribution by the Bank to its shareholders is deemed paid out
of its Excess under these rules, the Excess would be reduced and the Bank's
gross income for tax purposes would be increased by the amount which, when
reduced by the income tax, if any, attributable to the inclusion of such amount
in its gross income,
34
<PAGE> 36
equals the amount deemed paid out of the Excess. As of December 31, 1995, the
Bank's Excess for tax purposes totaled approximately $2.4 million.
The Bank's federal income tax returns open under the statute of limitations are
subject to review by the Internal Revenue Service. The Bank's federal income tax
returns have been audited through 1989.
The Bank is subject to an Ohio franchise tax based on its equity capital plus
certain reserve amounts. Total capital for this purpose is reduced by certain
exempted assets. The resultant net taxable value of capital is taxed at a rate
of 1.5%.
In August 1993, the Congress passed the Omnibus Budget Reconciliation Act of
1993 which made certain corporate income tax changes. These changes to the
corporate income tax laws and regulations have not had a material effect on the
financial statements.
35
<PAGE> 37
ITEM 2. PROPERTIES
- ------- ----------
The Bank owns its headquarters building in Strongsville, Ohio. The following
table indicates the location of each branch office, whether the same is owned or
leased and, if leased, the expiration date of the lease.
<TABLE>
<CAPTION>
Lease
Location Owned/Leased Expiration Date
-------- ------------ ---------------
<S> <C> <C>
Strongsville Main Office Owned
14092 Pearl Road
Strongsville, Ohio 44136
Branches
Hinckley Office Owned
1585 Center Road
Hinckley, Ohio 44233
Berea Plaza Office Leased 1995
404 West Bagley Road
Berea, Ohio 44017
Avon Office Leased 2005
36839 Detroit Road
Avon, Ohio 44011
Medina Township Office Leased 2004
3455 Medina Road
Medina Township, Ohio 44256
North Royalton Office Owned
13901 Ridge Road
North Royalton, Ohio 44133
Wellington Office Owned
161 East Herrick Avenue
Wellington, Ohio 44090
Southland Office Owned
6809 West 130th Street
Parma Heights, Ohio 44130
Westlake Office Owned
25151 Detroit Avenue
Westlake, Ohio 44145
North Ridgeville Office Leased 2004
32800 Center Ridge Road
North Ridgeville, Ohio 44039
Brecksville Office Leased 2010
8801 Brecksville Road
Brecksville, Ohio 44141
</TABLE>
36
<PAGE> 38
<TABLE>
<CAPTION>
<S> <C> <C>
Broadview Heights Office Leased 2005
7976 Broadview Road
Broadview Heights, Ohio 44147
Brunswick Office Leased 2006
1136 Pearl Road
Brunswick, Ohio 44212
Columbia Station Owned
26700 Royalton Road
Columbia Station, Ohio 44020
</TABLE>
The Bank owns and operates nine ATMs at various branch offices and is a member
of the following ATM networks: MAC (formerly Green Machine in Ohio), Money
Station and Plus System, all of which are ATM networks with members nationwide.
At December 31, 1995, the net book value of the Bank's investment in premises
and equipment totaled $4.3 million.
ITEM 3. LEGAL PROCEEDINGS
- --------------------------
The Bank and its subsidiary are involved as plaintiff or defendant in various
legal proceedings incident to their business. In the opinion of management,
these proceedings are not, either individually or in the aggregate, material to
the Bank and its subsidiary.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
No matters were submitted to a vote of shareholders during the fourth quarter of
the fiscal year ended December 31, 1995.
37
<PAGE> 39
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- ------------------------------------------------------------------------------
The information contained under the caption "Market Information" in the Bank's
Annual Report to Shareholders for the Fiscal Year Ended December 31, 1995 (the
"Annual Report") is incorporated herein by reference, together with Note 1 of
the Notes to Consolidated Financial Statements in the Annual Report. For
additional information concerning restrictions on the payment of dividends see
"Item 1. Business Regulation - Capital Distribution Regulation."
ITEM 6. SELECTED FINANCIAL DATA
- --------------------------------
The information under the caption "Selected Financial Information" in the Annual
Report is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- -------------------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
The information under the caption "Management's Discussion and Analysis" in the
Annual Report is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------
The consolidated financial statements of the Bank that are contained in the
Annual Report, which statements are listed under Item 14 hereof, are
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- -------------------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
Not Applicable
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -----------------------------------------------------------
Information concerning executive officers of the Bank who are not also directors
is contained in "Item 1. Business - Other - Executive Officers of the Bank Who
Are Not Directors." The information concerning directors of the Bank, including
certain executive officers, contained under the caption "Proposal I Election of
Directors" in the Bank's definitive proxy statement for the Bank's 1996 Annual
Meeting of Shareholders, which will be filed not later than 120 days after the
close of the Bank's 1995 fiscal year (the "Proxy Statement"), is incorporated
herein by reference.
Presented below is certain information regarding the executive officers of the
Bank who are not directors.
Dean R. Anaya (age 46), Vice President - Mr. Anaya has been employed by
the Bank since November 1981 and is responsible for mortgage lending and
secondary market operations. He has acted in that capacity since 1987.
Cynthia W. Gannon (age 38), Vice President and Treasurer - Ms. Gannon
was elected Vice President in April 1994 and has served as the Bank's Treasurer
since January 30, 1992. She served as the Bank's Controller from 1988 through
January 1992 and is a certified public accountant.
Paula M. Dewey (age 51), Vice President - Ms. Dewey has been employed
by the Bank since 1978 and has been Secretary for the Bank since January 1991.
She was elected Vice President responsible for construction lending in January
1992; she has been in charge of construction lending since 1987 and served
38
<PAGE> 40
as Assistant Vice President from 1987 until January 1992. Since January 1992.
Mrs. Dewey has also served as Secretary of Dennis Financial Corporation.
William J. Harr, Jr. (age 33), Vice President - Mr. Harr was elected
Vice President responsible for branch operations in January 1992. From January
1990 through January 1992, he served as branch manager of the Bank's main office
in Strongsville. From July 1986 through January 1990, he served as a loan
officer.
Deborah A. Perciak (age 44), Vice President - Ms. Perciak was elected
Vice President in April 1994. She has been responsible for the Bank's
information technology and communications systems since 1981. She has been
employed by the Bank since 1979.
ITEM 11. EXECUTIVE COMPENSATION
- -------------------------------
The information contained under the caption "Proposal I - Election of Directors
- - Executive Compensation" in the Proxy Statement is incorporated herein by
reference. Under no circumstance shall any item of this Part III of the Bank's
Annual Report on Form 10-K for the Fiscal Year Ended December 31, 1995 be deemed
to incorporate by reference the information in the Proxy Statement under the
caption "Proposal I - Election of Directors - Compensation Committee Report" or
"Proposal I - Election of Directors - Performance Graph," anything to the
contrary herein notwithstanding.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -----------------------------------------------------------------------
Information required by this item is incorporated herein by reference to the
caption "Proposal I Election of Directors" and "Voting Securities and Principal
Holders Thereof" in the Proxy Statement. Management knows of no arrangement
which may at a subsequent date result in a change in control of the Bank.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------------------------------------------------------
The information required by this item is incorporated herein by reference to the
caption "Transactions with Certain Related Persons" in the Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
- -------------------------------------------------------------------------
(a) 1. Independent Auditors' Report (incorporated by reference to the Annual
Report)
Consolidated Financial Statements (incorporated by reference to the
Annual Report)
(a) Consolidated Statements of Financial Condition as of December 31,
1995 and 1994
(b) Consolidated Statements of Income for Each of the Three Years in
the Period Ended December 31, 1995
(c) Consolidated Statements of Cash Flows for Each of the Three Years
in the Period Ended December 31, 1995
(d) Consolidated Statements of Shareholders' Equity for Each of the
Three Years in the Period Ended December 31, 1995
(e) Notes to Consolidated Financial Statements
39
<PAGE> 41
2. All schedules have been omitted as the required information is
either inapplicable or included in the Notes to the Consolidated
Financial Statements.
3. Exhibits and Index to Exhibits
The following exhibits are either attached to or incorporated by reference in
this Annual Report on Form 10-K:
<TABLE>
<CAPTION>
Page No.
Exhibit in Sequentially
Number Description Numbered Copy
------ ----------- -------------
<S> <C> <C>
(3a) Articles of Incorporation *
(3b) Constitution *
(3c) By-laws *
(4) Specimen Stock Certificate **
(10a) Letter Amendment to Employment Agreement
(Thomas P. Perciak) 44
(10b) Letter Amendment to Employment Agreement
(John F. Ziegler) 47
(10c) The Strongsville Savings Bank 1994 Long-Term ***
Incentive Plan
(10d) Severance Agreement (Dean R. Anaya) 50
(10e) Severance Agreement (Paula M. Dewey) 60
(10f) Severance Agreement (Cynthia W. Gannon) 70
(10g) Severance Agreement (William J. Harr, Jr.) 80
(10h) Executive Supplemental Benefit Agreement
(Thomas P. Perciak) 90
(10i) Executive Supplemental Benefit Agreement
(John F. Ziegler) 101
(10j) Executive Supplemental Benefit Agreement
(Dean R. Anaya) 112
(10k) Executive Supplemental Benefit Agreement
(Paula M. Dewey) 123
(10l) Executive Supplemental Benefit Agreement
(Cynthia W. Gannon) 134
</TABLE>
40
<PAGE> 42
<TABLE>
<CAPTION>
<S> <C> <C>
(10m) Executive Supplemental Benefit Agreement
(William J. Harr, Jr.) 145
(10n) Executive Supplemental Benefit Agreement
(Deborah A. Perciak) 156
(13) Annual Report 166
(22) Subsidiary 213
(28) Proxy Statement 215
-------------
</TABLE>
* Incorporated by reference to Exhibits 3a, 3b and 3c of the Bank's
1994 Form 10K
** Incorporated by reference to Part II of the Bank's Form OC
Offering Circular and Form 10 Registration Statement, each filed
with the Office of Thrift Supervision on October 5, 1993.
*** Incorporated by reference to Exhibit A. to the Proxy Statement
for the 1994 Annual Meeting of Shareholders'.
(b) During the last quarter of the fiscal year ended December 31, 1995, the
Bank did not file any Current Reports on Form 8-K.
(c) All required exhibits are filed as attached or incorporated by reference.
(d) No financial statement schedules are required to be filed.
41
<PAGE> 43
SIGNATURES
Pursuant to the requirements of Section 13 or Section 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
THE STRONGSVILLE SAVINGS BANK
By: /s/ Thomas P. Perciak
----------------------------
Thomas P. Perciak
President and Chief Executive Officer
Date: March 20, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Thomas P. Perciak March 20, 1996
- --------------------------------
Thomas P. Perciak
Director, President and Chief Executive Officer
(principal executive officer)
/s/ John F. Ziegler March 20, 1996
- --------------------------------
John F. Ziegler
Director, Vice President and Chief
Financial Officer
(principal accounting and financial officer)
/s/ Mike Kalinich March 20, 1996
- --------------------------------
Mike Kalinich
Director, Chairman of the Board
March 20, 1996
- --------------------------------
Elton L. Bedford
Director
/s/ Joan M. Dzurilla March 20, 1996
- --------------------------------
Joan M. Dzurilla
Director
/s/ William A. Fraunfelder, Jr. March 20, 1996
- --------------------------------
William A. Fraunfelder, Jr.
Director
42
<PAGE> 44
/s/ Glenn W. Goist March 20, 1996
- --------------------------------
Glenn W. Goist
Director
/s/ John J. Plucinsky March 20, 1996
- --------------------------------
John J. Plucinsky
Director
/s/ George Bohnert March 20, 1996
- --------------------------------
George Bohnert
Director
43
<PAGE> 45
EXHIBIT NO. 10a
<PAGE> 46
[STRONGSVILLE SAVINGS BANK LOGO]
December 20, l995
Mr. Thomas P. Perciak
President and Chief Executive Officer
The Strongsville Savings Bank
l4092 Pearl Road
Strongsville, Ohio 44136
Dear Tom:
The purpose of this letter is to memorialize in writing certain changes
to your Amended and Restated Employment Agreement dated as of August l8, l988
(the "Agreement"), which changes we, the Board of Directors of The Strongsville
Savings Bank (the "Bank"), have agreed to. In accordance with the terms of the
Agreement, particularly Section 21 ("Amendments") thereof, please signify your
consent to these changes by executing this letter and returning it to the Bank.
The changes we have agreed to are as follows:
l. Section 5 ("Incentive Bonus to Executive") of the Agreement shall be
revised by deleting the first clause of the first sentence ("Inasmuch
as the Executive has no incentive stock options and until such
incentive stock options are made available to the Executive"), so that
Section 5 begins "The Bank will pay the Executive an incentive
bonus..."
2. The address of the Executive,as that term is defined in the Agreement,
which address appears in Section 19.B of the Agreement, shall be
replaced by the following:
Thomas P. Perciak
17429 Falmouth Drive
Strongsville, Ohio 44136
3. The following changes intended to give effect to and clarify financial
institution regulatory authority under Ohio law:
a. Section 9(g) shall be replaced in its entirety by the
following:
If the Executive is removed from office and/or
permanently prohibited from participating in the conduct of
the Bank's affairs by an order issued under Section 8(e)(4) of
(g)(1) of the Federal Deposit Insurance Act, l2 U.S.C.
ss.1818(e)(4) or (g)(1), or an order issued under Section
1151.18 of the Ohio Revised Code, all
<PAGE> 47
obligations of the Bank under this Agreement shall terminate,
as of the effective date of the order, but vested rights of
the parties shall not be effected.
b. Section 9(h) shall be replaced in its entirety by the
following:
If the Bank is in default (as defined in Section
3(x)(1) of the Federal Deposit Insurance Act) or if
liquidation proceedings pursuant to Chapter 1157 of the Ohio
Revised Code are initiated, all obligations under this
Agreement shall terminate as of the date of default or the
date of initiation of proceedings, as the case may be, but
vested rights of the contracting parties shall not be
affected.
c. Section 10(a) shall be replaced in its entirety by the
following:
If the Executive is suspended or temporarily
prohibited from participating in the conduct of the Bank's
affairs by a notice served under Section 8(e)(3) or (g)(1) of
the Federal Deposit Insurance Act, l2 U.S.C. ss.1818(e)(3) or
(g)(1), or pursuant to the authority of the Superintendent
under Chapters 1151 or 1155 of the Ohio Revised Code, the
Bank's obligations under this Agreement shall be suspended as
of the date of service, unless stayed by appropriate
proceedings.
Please signify your acceptance of and agreement to the foregoing
changes by executing this letter in the space provided and returning it to the
Bank. The changes will become effective upon receipt by the Bank of this letter
executed by you.
THE STRONGSVILLE SAVINGS BANK
-----------------------------
/s/ Mike Kalinich
-----------------------------
Mike Kalinich
Chairman of the Board of Directors
/s/ Joan M. Dzurilla
-----------------------------
Joan M. Dzurilla
Director
Accepted and agreed to this 20th day of December, l995, by the
undersigned Executive.
/s/ Thomas P. Perciak
-----------------------------
Thomas P. Perciak (the "Executive")
<PAGE> 48
EXHIBIT NO. 10b
<PAGE> 49
[STONGSVILLE SAVINGS BANK LOGO]
December 20, l995
Mr. John F. Ziegler
Vice President and Chief Financial Officer
The Strongsville Savings Bank
l4092 Pearl Road
Strongsville, Ohio 44136
Dear John:
The purpose of this letter is to memorialize in writing certain changes
to your Amended and Restated Employment Agreement dated as of August l8, l988
(the "Agreement"), which changes we, the Board of Directors of The Strongsville
Savings Bank (the "Bank"), have agreed to. In accordance with the terms of the
Agreement, particularly Section 21 ("Amendments") thereof, please signify your
consent to these changes by executing this letter and returning it to the Bank.
The changes we have agreed to are as follows:
l. Section 5 ("Incentive Bonus to Executive") of the Agreement shall be
revised by deleting the first clause of the first sentence ("Inasmuch
as the Executive has no incentive stock options and until such
incentive stock options are made available to the Executive"), so that
Section 5 begins "The Bank will pay the Executive an incentive
bonus..."
2. The following changes intended to give effect to and clarify financial
institution regulatory authority under Ohio law:
a. Section 9(g) shall be replaced in its entirety by the
following:
If the Executive is removed from office and/or
permanently prohibited from participating in the conduct of
the Bank's affairs by an order issued under Section 8(e)(4) of
(g)(1) of the Federal Deposit Insurance Act, l2 U.S.C.
ss.1818(e)(4) or (g)(1), or an order issued under Section
1151.18 of the Ohio Revised Code, all obligations of the Bank
under this Agreement shall terminate, as of the effective date
of the order, but vested rights of the parties shall not be
effected.
<PAGE> 50
b. Section 9(h) shall be replaced in its entirety by the
following:
If the Bank is in default (as defined in Section
3(x)(1) of the Federal Deposit Insurance Act) or if
liquidation proceedings pursuant to Chapter 1157 of the Ohio
Revised Code are initiated, all obligations under this
Agreement shall terminate as of the date of default or the
date of initiation of proceedings, as the case may be, but
vested rights of the contracting parties shall not be
affected.
c. Section 10(a) shall be replaced in its entirety by the
following:
If the Executive is suspended or temporarily
prohibited from participating in the conduct of the Bank's
affairs by a notice served under Section 8(e)(3) or (g)(1) of
the Federal Deposit Insurance Act, l2 U.S.C. ss.1818(e)(3) or
(g)(1), or pursuant to the authority of the Superintendent
under Chapters 1151 or 1155 of the Ohio Revised Code, the
Bank's obligations under this Agreement shall be suspended as
of the date of service, unless stayed by appropriate
proceedings.
Please signify your acceptance of and agreement to the foregoing
changes by executing this letter in the space provided and returning it to the
Bank. The changes will become effective upon receipt by the Bank of this letter
executed by you.
THE STRONGSVILLE SAVINGS BANK
/s/ Mike Kalinich
----------------------------------
Mike Kalinich
Chairman of the Board of Directors
/s/ Joan M. Dzurilla
----------------------------------
Joan M. Dzurilla
Director
Accepted and agreed to this 20th day of December, l995, by the
undersigned Executive.
/s/ John F Ziegler
----------------------------------
John F Ziegler (the "Executive")
<PAGE> 51
EXHIBIT NO. 10d
<PAGE> 52
AMENDED AND RESTATED
SEVERANCE AGREEMENT DUE TO CHANGE IN CONTROL
OF THE STRONGSVILLE SAVINGS BANK
This AGREEMENT is made and entered into this 19th day of April, 1995,
by and between The Strongsville Savings Bank (the "Bank"), an Ohio-chartered,
FDIC-insured, OTS-regulated savings association with its main office at
Strongsville, Ohio, and Dean R. Anaya (the "Executive"). Any reference to "FDIC"
herein shall mean the Federal Deposit Insurance Corporation. Any reference to
"Superintendent" herein shall mean the Superintendent of the Ohio Division of
Savings and Loan Associations. Any reference to "OTS" or "Director" herein shall
mean the Office of Thrift Supervision.
WHEREAS, the Executive has heretofore served and continues to serve in
the position of Vice President of the Bank:
NOW THEREFORE, in consideration of the performance of the
responsibilities of the Executive and upon the other terms and conditions
hereinafter provided, the parties hereto agree as follows:
1. No Employment Contract
----------------------
The parties hereto acknowledge and agree that this Agreement
is not a management or employment agreement and that none of the terms and
conditions contained herein shall be effective until such time as there is a
Change in Control as hereinafter defined in this Agreement. Prior to a Change in
Control, the Executive agrees and acknowledges that he/she is an
employee-at-will of the Bank.
2. Term of Agreement
-----------------
The initial term of this Agreement shall be for a period of
one (1) year commencing October 1, 1994 (hereafter referred to as the
"Anniversary Date"). Commencing on the first Anniversary Date of this Agreement,
and continuing at each Anniversary Date thereafter, the Agreement shall
automatically renew for one (1) additional year beyond the then
<PAGE> 53
effective expiration date only upon a determination and resolution of the Bank's
Board of Directors that the performance of the Executive has met the
requirements and standards of the Board and that such term shall be extended (if
the Board of Directors determines not to extend the term, it shall promptly so
notify the Executive, with such election by the Board not to extend the term not
to otherwise affect the then term of this Agreement). Reference herein to the
term of this Agreement shall refer both to such initial term and such extended
terms. Unless sooner terminated as set forth herein, this contract shall
terminate when the Executive reaches age sixty-five (65).
3. Termination for Cause
---------------------
(a) The Executive shall have no right to receive severance or
other benefits under this Agreement for any period after the date of termination
for Cause. For purposes of this Agreement, termination for "Cause" shall mean
termination of the Executive by the Bank for any of the following reasons:
(i) personal dishonesty;
(ii) incompetence;
(iii) material breach of any provision of this
Agreement;
(iv) breach of a fiduciary duty involving
personal gain or profit;
(v) intentional failure to perform stated
duties;
(vi) a willful and material breach of the
policies and procedures for the operation of
the Bank provided to the Executive by formal
action of the Bank's Board of Directors;
(vii) willful violation of any law, rule,
regulation (other than a law, rule or
regulation relating to a traffic violation
or similar offense) or final cease-and-
desist order; or
(viii) willful misconduct.
2
<PAGE> 54
(b) (i) For purposes of Paragraph 3(a)(ii),
"incompetence" shall mean the Executive's
performance of his duties as measured
against the then prevailing standards in the
savings and loan industry.
(ii) For purposes of Paragraph 3(a)(vii) and
3(a)(viii), no act, or failure to act, on
the Executive's part shall be considered
"willful" unless he has acted, or failed to
act, with an absence of good faith and
without a reasonable belief that his action
or failure to act was in the best interest
of the Bank.
(iii) For purposes of Paragraph 3(a)(vii), a
cease-and-desist order shall not become
final until exhaustion or lapse of all
(administrative and judicial) appeal rights
in relation thereto.
4. Voluntary Termination of Agreement
----------------------------------
This Agreement may be terminated by the Executive at any time
upon ninety (90) days' written notice to the Bank or upon such shorter period as
may be agreed upon between the Executive and the Board of Directors of the Bank.
5. Governmental Termination of Agreement
-------------------------------------
(a) If the Executive is removed from office and/or permanently
prohibited from participating in the conduct of the Bank's affairs by an order
issued under Section 8(e)(4) or (g)(1) of the Federal Deposit Insurance Act, 12
U.S.C. ss.1818(e)(4) or (g)(1), or an order issued under Section 1151.18 of the
Ohio Revised Code, all obligations of the Bank under this Agreement shall
terminate, as of the effective date of the order.
(b) If the Bank is in default (as defined in Section 3(x)(1)
of the Federal Deposit Insurance Act), or if liquidation proceedings pursuant to
Chapter 1157 of the Ohio Revised Code are initiated, all obligations under this
Agreement shall terminate.
3
<PAGE> 55
(c) All obligations under this Agreement shall be terminated,
except to the extent determined that continuation of the contract is necessary
for the continued operation of the Bank, by the Director or his or her designee
at the time the FDIC or the Resolution Trust Corporation enters into an
agreement to provide assistance to or on behalf of the Bank under the authority
contained in Section 13(c) of the Federal Deposit Insurance Act, or by the
Director or his or her designee at the time the Director or his or her designee
approves a supervisory merger to resolve problems related to the operation of
the Bank or when the Bank is determined by the Director to be in an unsafe or
unsound condition. Any rights of the parties that have already vested, however,
shall not be affected by such action.
(d) If the Executive is suspended and/or temporarily
prohibited from participating in the conduct of the Bank's affairs by a notice
served under Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act, 12
U.S.C. ss.1818(e)(3) or (g)(1), or pursuant to the authority of the
Superintendent under Chapters 1151 or 1155 of the Ohio Revised Code, the Bank's
obligations under subparagraphs 6(a), (b) and (c) this Agreement shall be
suspended as the date of service, unless stayed by appropriate proceedings.
(e) If the charges in the notice referenced in
subparagraph 5(d) are dismissed, the Bank's Board of Directors may in its
discretion:
(i) pay the Executive all or part of the
severance benefits withheld while its
contract obligations were suspended, and
(ii) reinstate (in whole or in part) any of its
obligations which were suspended as required
in subparagraph (d) above.
6. Change in Control
-----------------
(a) If, during the term of this Agreement, there is a Change
in Control of the Bank, the Executive shall be entitled to the severance payment
in the event the Executive's employment is involuntarily terminated by the Bank
or any successor or assign within six months after the Change in Control, other
than for Cause or pursuant to Paragraphs 4 or 5. This
4
<PAGE> 56
payment shall also be made in the case of the Executive's voluntary termination
of employment for Good Reason (as defined in Paragraph 7) within six months
after a Change in Control of the Bank. Such voluntary termination of employment
for Good Reason in connection with, or within six months after, a Change in
Control of the Bank shall not constitute a termination for Cause. The amount of
this severance payment shall be the benefits specified in Paragraph 8 of this
Agreement.
(b) For purposes of this Agreement, a "Change in Control of
the Bank" shall be deemed to have occurred, if at any time during the term of
this Agreement, conclusive control determinations as set forth in 12 C.F.R.
Section 574.4(a) occur or rebuttable control determinations as set forth in 12
C.F.R. Section 574.4(b) occur without legally sufficient rebuttal by the
acquirer, pursuant to 12 C.F.R. Section 574.4(c); provided, however, that an
acquisition of all of the Bank's voting securities incident to a reorganization
involving a thrift holding company formation initiated and approved by the
Bank's Board of Directors will not be considered a "Change in Control of the
Bank."
(c) Upon the Executive's termination of employment arising
under this Paragraph 6 within six months after the occurrence of a Change in
Control of the Bank, the Bank will cause to be continued life, health and
disability insurance coverage substantially identical to the coverage maintained
by the Bank for the Executive prior to his severance. Such coverage shall cease
upon the earlier of the Executive's employment by another employer or twelve
(12) months from such termination.
7. Good Reason
-----------
For purposes of this Agreement, "Good Reason" shall mean the
occurrence after a Change in Control of any of the events or conditions
described in subparagraphs (a) through (e) hereof without the Executive's
express written consent; provided the Executive's right to terminate his
employment pursuant to this Paragraph 7 shall not be affected by his incapacity
due to physical or mental illness:
5
<PAGE> 57
(a) A change in the Executive's status, title, position or
responsibilities (including reporting responsibilities) which, in the
Executive's reasonable judgment, does not represent a promotion from his status,
title, position or responsibilities as in effect immediately prior thereto; the
assignment to the Executive of any duties or responsibilities which, in the
Executive's reasonable judgment, are inconsistent with such status, title,
position or responsibilities; or any removal of the Executive from or failure to
reappoint him to any of such positions, except in connection with the
termination of his employment for (i) disability, (ii) Cause, (iii) pursuant to
Paragraphs 4 or 5, (iv) as a result of his death or (v) by the Executive other
than for Good Reason;
(b) A reduction by the Bank in the Executive's base salary as
in effect on the date of a Change in Control of the Bank;
(c) The relocation of the Bank's principal executive offices
to a location outside a fifteen (15)-mile radius of Strongsville, Ohio, or the
Bank's requiring the Executive to be based at any place other than Strongsville,
Ohio, except for reasonably required travel on the Bank's business which is not
materially greater than such travel requirements prior to the Change in Control;
(d) The failure by the Bank to continue to provide the
Executive with benefits substantially similar to those provided to him under any
of the employee benefit plans in which the Executive becomes a participant, or
the taking of any action by the Bank which would directly or indirectly
materially reduce any of such benefits or deprive the Executive of any material
fringe benefit enjoyed by him at the time of the Change in Control.
8. Termination Benefits
--------------------
(a) Upon the occurrence of a Change in Control, followed by
the voluntary or involuntary termination of the Executive's employment with the
Bank other than for Cause or pursuant to Paragraphs 4 or 5, the Bank shall pay
the Executive, or in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be, as severance
6
<PAGE> 58
pay or liquidated damages, or both, a sum equal to the then annual base salary
paid to the Executive by the Bank during the year in which the Executive's
termination occurs.
(b) The Executive shall not be required to mitigate the amount
of any payment required hereunder by seeking other employment or otherwise nor
shall the amount paid hereunder be reduced or offset by any compensation earned
or received by the Executive as result of employment with another employer,
self-employment, or any amount received from any other plan, program, policy or
arrangement of the Bank. Benefits provided under Paragraph 6(c) shall be reduced
to the extent comparable benefits are actually received by the Executive from or
through another employer.
9. Payment of Legal Fees
---------------------
Reasonable legal fees and expenses paid or incurred by the
Executive pursuant to any dispute or question of interpretation relating to the
Agreement shall be paid or reimbursed by the Bank in accordance with the
following. If the Executive or the Bank initiates a proceeding and the Executive
prevails, all reasonable legal fees and expenses shall be paid by the Bank. If
the Executive initiates a proceeding and does not prevail on his/her claim, then
the Bank shall reimburse the Executive for all legal fees and expenses but not
to exceed the sum of $25,000.
10. Successor Organization
----------------------
The obligations of the Bank as set forth herein shall continue
to be the obligation of any successor organization, any organization which
purchases substantially all of the assets of the Bank, as well as any
organization which assumes substantially all of the liabilities of the Bank
whether by merger, consolidation, or other form of business combination. This
Agreement is personal to the Executive and the Executive may not delegate his
duties hereunder.
11. Notices
-------
All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered by hand or mailed, certified
7
<PAGE> 59
or registered mail, return receipt requested, with postage prepaid, to the
following addresses or to such other address as either party may designate by
like notice.
A. If to the Bank, to:
Board of Directors
The Strongsville Savings Bank
14092 Pearl Road
Strongsville, Ohio 44136
B. If to the Executive, to:
Dean R. Anaya
204 Best Drive
Berea, Ohio 44017
and to such other or additional person or persons as either party shall have
designated to the other party in writing by like notice.
12. Amendments
----------
No amendments or additions to this Agreement shall be binding
unless in writing and signed by both parties, except as herein otherwise
provided.
13. Paragraph Headings
------------------
The paragraph headings used in this Agreement are included
solely for convenience and shall not affect, or be used in connection with, the
interpretation of this Agreement.
14. Severability
------------
The provisions of this Agreement shall be deemed severable and
the invalidity or unenforceability of any provision shall not affect the
validity or enforceability of the other provisions hereof.
15. Governing Law
-------------
This Agreement shall, except to the extent that federal law
(including any law, rule, or regulations of the OTS or the FDIC) shall be deemed
to apply, be governed by and construed and enforced in accordance with the laws
of Ohio.
8
<PAGE> 60
16. Arbitration
-----------
Any dispute or controversy arising under or in connection with
this Agreement shall be settled exclusively by arbitration in accordance with
the rules of the American Arbitration Association then in effect. Judgment may
be entered on the arbitrator's award in any court having jurisdiction.
17. Safety and Soundness Limitations
--------------------------------
Notwithstanding any other provision of this Agreement, no
severance benefits under Paragraph 8 shall be paid or payable in respect of any
calendar year in which the Bank (i) fails to meet any applicable capital
requirements imposed by 12 C.F.R. Part 567 (or successor regulations) after
giving effect to the payment of severance benefits hereunder, (ii) receives or
maintains a safety and soundness CAMEL rating of 4 or 5 from the OTS or the
Superintendent, or (iii) is subject to a proceeding to terminate deposit
insurance. In addition, no severance benefits under Paragraph 8 shall be paid or
payable if the Executive has committed any fraudulent act or omission or other
fiduciary breach that had or is likely to have a material adverse affect on the
Bank.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first hereinabove written.
THE STRONGSVILLE SAVINGS BANK
By: /s/ Thomas P. Perciak
----------------------------
Thomas P. Perciak
Its: President
/s/ Dean R. Anaya
----------------------------
Dean R. Anaya ("Executive")
9
<PAGE> 61
EXHIBIT NO. 10e
<PAGE> 62
AMENDED AND RESTATED
SEVERANCE AGREEMENT DUE TO CHANGE IN CONTROL
OF THE STRONGSVILLE SAVINGS BANK
This AGREEMENT is made and entered into this 19th day of April, 1995,
by and between The Strongsville Savings Bank (the "Bank"), an Ohio-chartered,
FDIC-insured, OTS-regulated savings association with its main office at
Strongsville, Ohio, and Paula M. Dewey (the "Executive"). Any reference to
"FDIC" herein shall mean the Federal Deposit Insurance Corporation. Any
reference to "Superintendent" herein shall mean the Superintendent of the Ohio
Division of Savings and Loan Associations. Any reference to "OTS" or "Director"
herein shall mean the Office of Thrift Supervision.
WHEREAS, the Executive has heretofore served and continues to serve in
the position of Vice President and Secretary of the Bank:
NOW THEREFORE, in consideration of the performance of the
responsibilities of the Executive and upon the other terms and conditions
hereinafter provided, the parties hereto agree as follows:
1. No Employment Contract
----------------------
The parties hereto acknowledge and agree that this Agreement
is not a management or employment agreement and that none of the terms and
conditions contained herein shall be effective until such time as there is a
Change in Control as hereinafter defined in this Agreement. Prior to a Change in
Control, the Executive agrees and acknowledges that he/she is an
employee-at-will of the Bank.
2. Term of Agreement
-----------------
The initial term of this Agreement shall be for a period of
one (1) year commencing October 1, 1994 (hereafter referred to as the
"Anniversary Date"). Commencing on the first Anniversary Date of this Agreement,
and continuing at each Anniversary Date thereafter, the Agreement shall
automatically renew for one (1) additional year beyond the then
<PAGE> 63
effective expiration date only upon a determination and resolution of the Bank's
Board of Directors that the performance of the Executive has met the
requirements and standards of the Board and that such term shall be extended (if
the Board of Directors determines not to extend the term, it shall promptly so
notify the Executive, with such election by the Board not to extend the term not
to otherwise affect the then term of this Agreement). Reference herein to the
term of this Agreement shall refer both to such initial term and such extended
terms. Unless sooner terminated as set forth herein, this contract shall
terminate when the Executive reaches age sixty-five (65).
3. Termination for Cause
---------------------
(a) The Executive shall have no right to receive severance or
other benefits under this Agreement for any period after the date of termination
for Cause. For purposes of this Agreement, termination for "Cause" shall mean
termination of the Executive by the Bank for any of the following reasons:
(i) personal dishonesty;
(ii) incompetence;
(iii) material breach of any provision of this
Agreement;
(iv) breach of a fiduciary duty involving
personal gain or profit;
(v) intentional failure to perform stated
duties;
(vi) a willful and material breach of the
policies and procedures for the operation of
the Bank provided to the Executive by formal
action of the Bank's Board of Directors;
(vii) willful violation of any law, rule,
regulation (other than a law, rule or
regulation relating to a traffic violation
or similar offense) or final cease-
and-desist order; or
(viii) willful misconduct.
2
<PAGE> 64
(b) (i) For purposes of Paragraph 3(a)(ii),
"incompetence" shall mean the Executive's
performance of his duties as measured
against the then prevailing standards in
the savings and loan industry.
(ii) For purposes of Paragraph 3(a)(vii) and 3(a)(viii),
no act, or failure to act, on the Executive's part
shall be considered "willful" unless he has acted, or
failed to act, with an absence of good faith and
without a reasonable belief that his action or
failure to act was in the best interest of the Bank.
(iii) For purposes of Paragraph 3(a)(vii), a
cease-and-desist order shall not become final until
exhaustion or lapse of all (administrative and
judicial) appeal rights in relation thereto.
4. Voluntary Termination of Agreement
----------------------------------
This Agreement may be terminated by the Executive at any time
upon ninety (90) days' written notice to the Bank or upon such shorter period as
may be agreed upon between the Executive and the Board of Directors of the Bank.
5. Governmental Termination of Agreement
-------------------------------------
(a) If the Executive is removed from office and/or permanently
prohibited from participating in the conduct of the Bank's affairs by an order
issued under Section 8(e)(4) or (g)(1) of the Federal Deposit Insurance Act, 12
U.S.C. ss.1818(e)(4) or (g)(1), or an order issued under Section 1151.18 of the
Ohio Revised Code, all obligations of the Bank under this Agreement shall
terminate, as of the effective date of the order.
(b) If the Bank is in default (as defined in Section 3(x)(1)
of the Federal Deposit Insurance Act), or if liquidation proceedings pursuant to
Chapter 1157 of the Ohio Revised Code are initiated, all obligations under this
Agreement shall terminate.
3
<PAGE> 65
(c) All obligations under this Agreement shall be terminated,
except to the extent determined that continuation of the contract is necessary
for the continued operation of the Bank, by the Director or his or her designee
at the time the FDIC or the Resolution Trust Corporation enters into an
agreement to provide assistance to or on behalf of the Bank under the authority
contained in Section 13(c) of the Federal Deposit Insurance Act, or by the
Director or his or her designee at the time the Director or his or her designee
approves a supervisory merger to resolve problems related to the operation of
the Bank or when the Bank is determined by the Director to be in an unsafe or
unsound condition. Any rights of the parties that have already vested, however,
shall not be affected by such action.
(d) If the Executive is suspended and/or temporarily
prohibited from participating in the conduct of the Bank's affairs by a notice
served under Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act, 12
U.S.C. ss.1818(e)(3) or (g)(1), or pursuant to the authority of the
Superintendent under Chapters 1151 or 1155 of the Ohio Revised Code, the Bank's
obligations under subparagraphs 6(a), (b) and (c) this Agreement shall be
suspended as the date of service, unless stayed by appropriate proceedings.
(e) If the charges in the notice referenced in subparagraph
5(d) are dismissed, the Bank's Board of Directors may in its discretion:
(i) pay the Executive all or part of the severance
benefits withheld while its contract obligations were
suspended, and
(ii) reinstate (in whole or in part) any of its
obligations which were suspended as required in
subparagraph (d) above.
6. Change in Control
-----------------
(a) If, during the term of this Agreement, there is a Change
in Control of the Bank, the Executive shall be entitled to the severance payment
in the event the Executive's employment is involuntarily terminated by the Bank
or any successor or assign within six months after the Change in Control, other
than for Cause or pursuant to Paragraphs 4 or 5. This
4
<PAGE> 66
payment shall also be made in the case of the Executive's voluntary termination
of employment for Good Reason (as defined in Paragraph 7) within six months
after a Change in Control of the Bank. Such voluntary termination of employment
for Good Reason in connection with, or within six months after, a Change in
Control of the Bank shall not constitute a termination for Cause. The amount of
this severance payment shall be the benefits specified in Paragraph 8 of this
Agreement.
(b) For purposes of this Agreement, a "Change in Control of
the Bank" shall be deemed to have occurred, if at any time during the term of
this Agreement, conclusive control determinations as set forth in 12 C.F.R.
Section 574.4(a) occur or rebuttable control determinations as set forth in 12
C.F.R. Section 574.4(b) occur without legally sufficient rebuttal by the
acquirer, pursuant to 12 C.F.R. Section 574.4(c); provided, however, that an
acquisition of all of the Bank's voting securities incident to a reorganization
involving a thrift holding company formation initiated and approved by the
Bank's Board of Directors will not be considered a "Change in Control of the
Bank."
(c) Upon the Executive's termination of employment arising
under this Paragraph 6 within six months after the occurrence of a Change in
Control of the Bank, the Bank will cause to be continued life, health and
disability insurance coverage substantially identical to the coverage maintained
by the Bank for the Executive prior to his severance. Such coverage shall cease
upon the earlier of the Executive's employment by another employer or twelve
(12) months from such termination.
7. Good Reason
-----------
For purposes of this Agreement, "Good Reason" shall mean the
occurrence after a Change in Control of any of the events or conditions
described in subparagraphs (a) through (e) hereof without the Executive's
express written consent; provided the Executive's right to terminate his
employment pursuant to this Paragraph 7 shall not be affected by his incapacity
due to physical or mental illness:
5
<PAGE> 67
(a) A change in the Executive's status, title, position or
responsibilities (including reporting responsibilities) which, in the
Executive's reasonable judgment, does not represent a promotion from his status,
title, position or responsibilities as in effect immediately prior thereto; the
assignment to the Executive of any duties or responsibilities which, in the
Executive's reasonable judgment, are inconsistent with such status, title,
position or responsibilities; or any removal of the Executive from or failure to
reappoint him to any of such positions, except in connection with the
termination of his employment for (i) disability, (ii) Cause, (iii) pursuant to
Paragraphs 4 or 5, (iv) as a result of his death or (v) by the Executive other
than for Good Reason;
(b) A reduction by the Bank in the Executive's base salary as
in effect on the date of a Change in Control of the Bank;
(c) The relocation of the Bank's principal executive offices
to a location outside a fifteen (15)-mile radius of Strongsville, Ohio, or the
Bank's requiring the Executive to be based at any place other than Strongsville,
Ohio, except for reasonably required travel on the Bank's business which is not
materially greater than such travel requirements prior to the Change in Control;
(d) The failure by the Bank to continue to provide the
Executive with benefits substantially similar to those provided to him under any
of the employee benefit plans in which the Executive becomes a participant, or
the taking of any action by the Bank which would directly or indirectly
materially reduce any of such benefits or deprive the Executive of any material
fringe benefit enjoyed by him at the time of the Change in Control.
8. Termination Benefits
--------------------
(a) Upon the occurrence of a Change in Control, followed by
the voluntary or involuntary termination of the Executive's employment with the
Bank other than for Cause or pursuant to Paragraphs 4 or 5, the Bank shall pay
the Executive, or in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be, as severance
6
<PAGE> 68
pay or liquidated damages, or both, a sum equal to the then annual base salary
paid to the Executive by the Bank during the year in which the Executive's
termination occurs.
(b) The Executive shall not be required to mitigate the amount
of any payment required hereunder by seeking other employment or otherwise nor
shall the amount paid hereunder be reduced or offset by any compensation earned
or received by the Executive as result of employment with another employer,
self-employment, or any amount received from any other plan, program, policy or
arrangement of the Bank. Benefits provided under Paragraph 6(c) shall be reduced
to the extent comparable benefits are actually received by the Executive from or
through another employer.
9. Payment of Legal Fees
---------------------
Reasonable legal fees and expenses paid or incurred by the
Executive pursuant to any dispute or question of interpretation relating to the
Agreement shall be paid or reimbursed by the Bank in accordance with the
following. If the Executive or the Bank initiates a proceeding and the Executive
prevails, all reasonable legal fees and expenses shall be paid by the Bank. If
the Executive initiates a proceeding and does not prevail on his/her claim, then
the Bank shall reimburse the Executive for all legal fees and expenses but not
to exceed the sum of $25,000.
10. Successor Organization
----------------------
The obligations of the Bank as set forth herein shall continue
to be the obligation of any successor organization, any organization which
purchases substantially all of the assets of the Bank, as well as any
organization which assumes substantially all of the liabilities of the Bank
whether by merger, consolidation, or other form of business combination. This
Agreement is personal to the Executive and the Executive may not delegate his
duties hereunder.
11. Notices
-------
All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered by hand or mailed, certified
7
<PAGE> 69
or registered mail, return receipt requested, with postage prepaid, to the
following addresses or to such other address as either party may designate by
like notice.
A. If to the Bank, to:
Board of Directors
The Strongsville Savings Bank
14092 Pearl Road
Strongsville, Ohio 44136
B. If to the Executive, to:
Paula M. Dewey
3892 Skyview Drive
Brunswick, Ohio 44212
and to such other or additional person or persons as either party shall have
designated to the other party in writing by like notice.
12. Amendments
----------
No amendments or additions to this Agreement shall be binding
unless in writing and signed by both parties, except as herein otherwise
provided.
13. Paragraph Headings
------------------
The paragraph headings used in this Agreement are included
solely for convenience and shall not affect, or be used in connection with, the
interpretation of this Agreement.
14. Severability
------------
The provisions of this Agreement shall be deemed severable and
the invalidity or unenforceability of any provision shall not affect the
validity or enforceability of the other provisions hereof.
15. Governing Law
-------------
This Agreement shall, except to the extent that federal law
(including any law, rule, or regulations of the OTS or the FDIC) shall be deemed
to apply, be governed by and construed and enforced in accordance with the laws
of Ohio.
8
<PAGE> 70
16. Arbitration
-----------
Any dispute or controversy arising under or in connection with
this Agreement shall be settled exclusively by arbitration in accordance with
the rules of the American Arbitration Association then in effect. Judgment may
be entered on the arbitrator's award in any court having jurisdiction.
17. Safety and Soundness Limitations
--------------------------------
Notwithstanding any other provision of this Agreement, no
severance benefits under Paragraph 8 shall be paid or payable in respect of any
calendar year in which the Bank (i) fails to meet any applicable capital
requirements imposed by 12 C.F.R. Part 567 (or successor regulations) after
giving effect to the payment of severance benefits hereunder, (ii) receives or
maintains a safety and soundness CAMEL rating of 4 or 5 from the OTS or the
Superintendent, or (iii) is subject to a proceeding to terminate deposit
insurance. In addition, no severance benefits under Paragraph 8 shall be paid or
payable if the Executive has committed any fraudulent act or omission or other
fiduciary breach that had or is likely to have a material adverse affect on the
Bank.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first hereinabove written.
THE STRONGSVILLE SAVINGS BANK
By: /s/ Thomas P. Perciak
-----------------------
Thomas P. Perciak
Its: President
/s/ Paula M. Dewey
-----------------------
Paula M. Dewey ("Executive")
9
<PAGE> 71
EXHIBIT NO. 10f
<PAGE> 72
AMENDED AND RESTATED
SEVERANCE AGREEMENT DUE TO CHANGE IN CONTROL
OF THE STRONGSVILLE SAVINGS BANK
This AGREEMENT is made and entered into this 19th day of April, 1995,
by and between The Strongsville Savings Bank (the "Bank"), an Ohio-chartered,
FDIC-insured, OTS-regulated savings association with its main office at
Strongsville, Ohio, and Cynthia W. Gannon (the "Executive"). Any reference to
"FDIC" herein shall mean the Federal Deposit Insurance Corporation. Any
reference to "Superintendent" herein shall mean the Superintendent of the Ohio
Division of Savings and Loan Associations. Any reference to "OTS" or "Director"
herein shall mean the Office of Thrift Supervision.
WHEREAS, the Executive has heretofore served and continues to serve in
the position of Vice President and Treasurer of the Bank:
NOW THEREFORE, in consideration of the performance of the
responsibilities of the Executive and upon the other terms and conditions
hereinafter provided, the parties hereto agree as follows:
1. No Employment Contract
----------------------
The parties hereto acknowledge and agree that this Agreement
is not a management or employment agreement and that none of the terms and
conditions contained herein shall be effective until such time as there is a
Change in Control as hereinafter defined in this Agreement. Prior to a Change in
Control, the Executive agrees and acknowledges that he/she is an
employee-at-will of the Bank.
2. Term of Agreement
-----------------
The initial term of this Agreement shall be for a period of
one (1) year commencing October 1, 1994 (hereafter referred to as the
"Anniversary Date"). Commencing on the first Anniversary Date of this Agreement,
and continuing at each Anniversary Date thereafter, the Agreement shall
automatically renew for one (1) additional year beyond the then
<PAGE> 73
effective expiration date only upon a determination and resolution of the Bank's
Board of Directors that the performance of the Executive has met the
requirements and standards of the Board and that such term shall be extended (if
the Board of Directors determines not to extend the term, it shall promptly so
notify the Executive, with such election by the Board not to extend the term not
to otherwise affect the then term of this Agreement). Reference herein to the
term of this Agreement shall refer both to such initial term and such extended
terms. Unless sooner terminated as set forth herein, this contract shall
terminate when the Executive reaches age sixty-five (65).
3. Termination for Cause
---------------------
(a) The Executive shall have no right to receive severance or
other benefits under this Agreement for any period after the date of termination
for Cause. For purposes of this Agreement, termination for "Cause" shall mean
termination of the Executive by the Bank for any of the following reasons:
(i) personal dishonesty;
(ii) incompetence;
(iii) material breach of any provision of this
Agreement;
(iv) breach of a fiduciary duty involving
personal gain or profit;
(v) intentional failure to perform stated
duties;
(vi) a willful and material breach of the
policies and procedures for the operation of
the Bank provided to the Executive by formal
action of the Bank's Board of Directors;
(vii) willful violation of any law, rule,
regulation (other than a law, rule or
regulation relating to a traffic violation
or similar offense) or final cease-
and-desist order; or
(viii) willful misconduct.
2
<PAGE> 74
(b) (i) For purposes of Paragraph 3(a)(ii),
"incompetence" shall mean the Executive's
performance of his duties as measured
against the then prevailing standards in
the savings and loan industry.
(ii) For purposes of Paragraph 3(a)(vii) and
3(a)(viii), no act, or failure to act, on
the Executive's part shall be considered
"willful" unless he has acted, or failed to
act, with an absence of good faith and
without a reasonable belief that his action
or failure to act was in the best interest
of the Bank.
(iii) For purposes of Paragraph 3(a)(vii), a
cease-and-desist order shall not become
final until exhaustion or lapse of all
(administrative and judicial) appeal rights
in relation thereto.
4. Voluntary Termination of Agreement
----------------------------------
This Agreement may be terminated by the Executive at any time
upon ninety (90) days' written notice to the Bank or upon such shorter period as
may be agreed upon between the Executive and the Board of Directors of the Bank.
5. Governmental Termination of Agreement
-------------------------------------
(a) If the Executive is removed from office and/or permanently
prohibited from participating in the conduct of the Bank's affairs by an order
issued under Section 8(e)(4) or (g)(1) of the Federal Deposit Insurance Act, 12
U.S.C. ss.1818(e)(4) or (g)(1), or an order issued under Section 1151.18 of the
Ohio Revised Code, all obligations of the Bank under this Agreement shall
terminate, as of the effective date of the order.
(b) If the Bank is in default (as defined in Section 3(x)(1)
of the Federal Deposit Insurance Act), or if liquidation proceedings pursuant to
Chapter 1157 of the Ohio Revised Code are initiated, all obligations under this
Agreement shall terminate.
(c) All obligations under this Agreement shall be terminated,
except to the extent determined that continuation of the contract is necessary
for the continued operation of
3
<PAGE> 75
the Bank, by the Director or his or her designee at the time the FDIC or the
Resolution Trust Corporation enters into an agreement to provide assistance to
or on behalf of the Bank under the authority contained in Section 13(c) of the
Federal Deposit Insurance Act, or by the Director or his or her designee at the
time the Director or his or her designee approves a supervisory merger to
resolve problems related to the operation of the Bank or when the Bank is
determined by the Director to be in an unsafe or unsound condition. Any rights
of the parties that have already vested, however, shall not be affected by such
action.
(d) If the Executive is suspended and/or temporarily
prohibited from participating in the conduct of the Bank's affairs by a notice
served under Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act, 12
U.S.C. ss.1818(e)(3) or (g)(1), or pursuant to the authority of the
Superintendent under Chapters 1151 or 1155 of the Ohio Revised Code, the Bank's
obligations under subparagraphs 6(a), (b) and (c) this Agreement shall be
suspended as the date of service, unless stayed by appropriate proceedings.
(e) If the charges in the notice referenced in subparagraph
5(d) are dismissed, the Bank's Board of Directors may in its discretion:
(i) pay the Executive all or part of the
severance benefits withheld while its
contract obligations were suspended, and
(ii) reinstate (in whole or in part) any of its
obligations which were suspended as required
in subparagraph (d) above.
6. Change in Control
-----------------
(a) If, during the term of this Agreement, there is a Change
in Control of the Bank, the Executive shall be entitled to the severance payment
in the event the Executive's employment is involuntarily terminated by the Bank
or any successor or assign within six months after the Change in Control, other
than for Cause or pursuant to Paragraphs 4 or 5. This payment shall also be made
in the case of the Executive's voluntary termination of employment for Good
Reason (as defined in Paragraph 7) within six months after a Change in Control
of the
4
<PAGE> 76
Bank. Such voluntary termination of employment for Good Reason in connection
with, or within six months after, a Change in Control of the Bank shall not
constitute a termination for Cause. The amount of this severance payment shall
be the benefits specified in Paragraph 8 of this Agreement.
(b) For purposes of this Agreement, a "Change in Control of
the Bank" shall be deemed to have occurred, if at any time during the term of
this Agreement, conclusive control determinations as set forth in 12 C.F.R.
Section 574.4(a) occur or rebuttable control determinations as set forth in 12
C.F.R. Section 574.4(b) occur without legally sufficient rebuttal by the
acquirer, pursuant to 12 C.F.R. Section 574.4(c); provided, however, that an
acquisition of all of the Bank's voting securities incident to a reorganization
involving a thrift holding company formation initiated and approved by the
Bank's Board of Directors will not be considered a "Change in Control of the
Bank."
(c) Upon the Executive's termination of employment arising
under this Paragraph 6 within six months after the occurrence of a Change in
Control of the Bank, the Bank will cause to be continued life, health and
disability insurance coverage substantially identical to the coverage maintained
by the Bank for the Executive prior to his severance. Such coverage shall cease
upon the earlier of the Executive's employment by another employer or twelve
(12) months from such termination.
7. Good Reason
-----------
For purposes of this Agreement, "Good Reason" shall mean the
occurrence after a Change in Control of any of the events or conditions
described in subparagraphs (a) through (e) hereof without the Executive's
express written consent; provided the Executive's right to terminate his
employment pursuant to this Paragraph 7 shall not be affected by his incapacity
due to physical or mental illness:
(a) A change in the Executive's status, title, position or
responsibilities (including reporting responsibilities) which, in the
Executive's reasonable judgment, does not
5
<PAGE> 77
represent a promotion from his status, title, position or responsibilities as in
effect immediately prior thereto; the assignment to the Executive of any duties
or responsibilities which, in the Executive's reasonable judgment, are
inconsistent with such status, title, position or responsibilities; or any
removal of the Executive from or failure to reappoint him to any of such
positions, except in connection with the termination of his employment for (i)
disability, (ii) Cause, (iii) pursuant to Paragraphs 4 or 5, (iv) as a result of
his death or (v) by the Executive other than for Good Reason;
(b) A reduction by the Bank in the Executive's base salary as
in effect on the date of a Change in Control of the Bank;
(c) The relocation of the Bank's principal executive offices
to a location outside a fifteen (15)-mile radius of Strongsville, Ohio, or the
Bank's requiring the Executive to be based at any place other than Strongsville,
Ohio, except for reasonably required travel on the Bank's business which is not
materially greater than such travel requirements prior to the Change in Control;
(d) The failure by the Bank to continue to provide the
Executive with benefits substantially similar to those provided to him under any
of the employee benefit plans in which the Executive becomes a participant, or
the taking of any action by the Bank which would directly or indirectly
materially reduce any of such benefits or deprive the Executive of any material
fringe benefit enjoyed by him at the time of the Change in Control.
8. Termination Benefits
--------------------
(a) Upon the occurrence of a Change in Control, followed by
the voluntary or involuntary termination of the Executive's employment with the
Bank other than for Cause or pursuant to Paragraphs 4 or 5, the Bank shall pay
the Executive, or in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be, as severance pay or liquidated
damages, or both, a sum equal to the then annual base salary paid to the
Executive by the Bank during the year in which the Executive's termination
occurs.
6
<PAGE> 78
(b) The Executive shall not be required to mitigate the amount
of any payment required hereunder by seeking other employment or otherwise nor
shall the amount paid hereunder be reduced or offset by any compensation earned
or received by the Executive as result of employment with another employer,
self-employment, or any amount received from any other plan, program, policy or
arrangement of the Bank. Benefits provided under Paragraph 6(c) shall be reduced
to the extent comparable benefits are actually received by the Executive from or
through another employer.
9. Payment of Legal Fees
---------------------
Reasonable legal fees and expenses paid or incurred by the
Executive pursuant to any dispute or question of interpretation relating to the
Agreement shall be paid or reimbursed by the Bank in accordance with the
following. If the Executive or the Bank initiates a proceeding and the Executive
prevails, all reasonable legal fees and expenses shall be paid by the Bank. If
the Executive initiates a proceeding and does not prevail on his/her claim, then
the Bank shall reimburse the Executive for all legal fees and expenses but not
to exceed the sum of $25,000.
10. Successor Organization
----------------------
The obligations of the Bank as set forth herein shall continue
to be the obligation of any successor organization, any organization which
purchases substantially all of the assets of the Bank, as well as any
organization which assumes substantially all of the liabilities of the Bank
whether by merger, consolidation, or other form of business combination. This
Agreement is personal to the Executive and the Executive may not delegate his
duties hereunder.
11. Notices
-------
All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered by hand or mailed, certified or registered mail, return receipt
requested, with postage prepaid, to the following addresses or to such other
address as either party may designate by like notice.
7
<PAGE> 79
A. If to the Bank, to:
Board of Directors
The Strongsville Savings Bank
14092 Pearl Road
Strongsville, Ohio 44136
B. If to the Executive, to:
Cynthia W. Gannon
409 Nantucket Drive
Avon Lake, Ohio 44012
and to such other or additional person or persons as either party shall have
designated to the other party in writing by like notice.
12. Amendments
----------
No amendments or additions to this Agreement shall be binding
unless in writing and signed by both parties, except as herein otherwise
provided.
13. Paragraph Headings
------------------
The paragraph headings used in this Agreement are included
solely for convenience and shall not affect, or be used in connection with, the
interpretation of this Agreement.
14. Severability
------------
The provisions of this Agreement shall be deemed severable and
the invalidity or unenforceability of any provision shall not affect the
validity or enforceability of the other provisions hereof.
15. Governing Law
-------------
This Agreement shall, except to the extent that federal law
(including any law, rule, or regulations of the OTS or the FDIC) shall be deemed
to apply, be governed by and construed and enforced in accordance with the laws
of Ohio.
16. Arbitration
-----------
Any dispute or controversy arising under or in connection with
this Agreement
8
<PAGE> 80
shall be settled exclusively by arbitration in accordance with the rules of the
American Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction.
17. Safety and Soundness Limitations
--------------------------------
Notwithstanding any other provision of this Agreement, no
severance benefits under Paragraph 8 shall be paid or payable in respect of any
calendar year in which the Bank (i) fails to meet any applicable capital
requirements imposed by 12 C.F.R. Part 567 (or successor regulations) after
giving effect to the payment of severance benefits hereunder, (ii) receives or
maintains a safety and soundness CAMEL rating of 4 or 5 from the OTS or the
Superintendent, or (iii) is subject to a proceeding to terminate deposit
insurance. In addition, no severance benefits under Paragraph 8 shall be paid or
payable if the Executive has committed any fraudulent act or omission or other
fiduciary breach that had or is likely to have a material adverse affect on the
Bank.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first hereinabove written.
THE STRONGSVILLE SAVINGS BANK
By: /s/ Thomas P. Perciak
--------------------------
Thomas P. Perciak
Its: President
--------------------------
/s/ Cynthia W. Gannon
--------------------------
Cynthia W. Gannon ("Executive")
9
<PAGE> 81
EXHIBIT NO. 10g
<PAGE> 82
AMENDED AND RESTATED
SEVERANCE AGREEMENT DUE TO CHANGE IN CONTROL
OF THE STRONGSVILLE SAVINGS BANK
This AGREEMENT is made and entered into this 19th day of April, 1995,
by and between The Strongsville Savings Bank (the "Bank"), an Ohio-chartered,
FDIC-insured, OTS-regulated savings association with its main office at
Strongsville, Ohio, and William J. Harr, Jr. (the "Executive"). Any reference to
"FDIC" herein shall mean the Federal Deposit Insurance Corporation. Any
reference to "Superintendent" herein shall mean the Superintendent of the Ohio
Division of Savings and Loan Associations. Any reference to "OTS" or "Director"
herein shall mean the Office of Thrift Supervision.
WHEREAS, the Executive has heretofore served and continues to serve in
the position of Vice President of the Bank:
NOW THEREFORE, in consideration of the performance of the
responsibilities of the Executive and upon the other terms and conditions
hereinafter provided, the parties hereto agree as follows:
1. No Employment Contract
----------------------
The parties hereto acknowledge and agree that this Agreement
is not a management or employment agreement and that none of the terms and
conditions contained herein shall be effective until such time as there is a
Change in Control as hereinafter defined in this Agreement. Prior to a Change in
Control, the Executive agrees and acknowledges that he/she is an
employee-at-will of the Bank.
2. Term of Agreement
-----------------
The initial term of this Agreement shall be for a period of
one (1) year commencing October 1, 1994 (hereafter referred to as the
"Anniversary Date"). Commencing on the first Anniversary Date of this Agreement,
and continuing at each Anniversary Date thereafter, the Agreement shall
automatically renew for one (1) additional year beyond the then
<PAGE> 83
effective expiration date only upon a determination and resolution of the Bank's
Board of Directors that the performance of the Executive has met the
requirements and standards of the Board and that such term shall be extended (if
the Board of Directors determines not to extend the term, it shall promptly so
notify the Executive, with such election by the Board not to extend the term not
to otherwise affect the then term of this Agreement). Reference herein to the
term of this Agreement shall refer both to such initial term and such extended
terms. Unless sooner terminated as set forth herein, this contract shall
terminate when the Executive reaches age sixty-five (65).
3. Termination for Cause
---------------------
(a) The Executive shall have no right to receive severance or
other benefits under this Agreement for any period after the date of termination
for Cause. For purposes of this Agreement, termination for "Cause" shall mean
termination of the Executive by the Bank for any of the following reasons:
(i) personal dishonesty;
(ii) incompetence;
(iii) material breach of any provision of this
Agreement;
(iv) breach of a fiduciary duty involving
personal gain or profit;
(v) intentional failure to perform stated
duties;
(vi) a willful and material breach of the
policies and procedures for the operation of
the Bank provided to the Executive by formal
action of the Bank's Board of Directors;
(vii) willful violation of any law, rule,
regulation (other than a law, rule or
regulation relating to a traffic violation
or similar offense) or final cease-
and-desist order; or
(viii) willful misconduct.
2
<PAGE> 84
(b) (i) For purposes of Paragraph 3(a)(ii),
"incompetence" shall mean the Executive's
performance of his duties as measured
against the then prevailing standards in
the savings and loan industry.
(ii) For purposes of Paragraph 3(a)(vii) and
3(a)(viii), no act, or failure to act, on
the Executive's part shall be considered
"willful" unless he has acted, or failed to
act, with an absence of good faith and
without a reasonable belief that his action
or failure to act was in the best interest
of the Bank.
(iii) For purposes of Paragraph 3(a)(vii), a
cease-and-desist order shall not become
final until exhaustion or lapse of all
(administrative and judicial) appeal rights
in relation thereto.
4. Voluntary Termination of Agreement
----------------------------------
This Agreement may be terminated by the Executive at any time
upon ninety (90) days' written notice to the Bank or upon such shorter period as
may be agreed upon between the Executive and the Board of Directors of the Bank.
5. Governmental Termination of Agreement
-------------------------------------
(a) If the Executive is removed from office and/or permanently
prohibited from participating in the conduct of the Bank's affairs by an order
issued under Section 8(e)(4) or (g)(1) of the Federal Deposit Insurance Act, 12
U.S.C. ss.1818(e)(4) or (g)(1), or an order issued under Section 1151.18 of the
Ohio Revised Code, all obligations of the Bank under this Agreement shall
terminate, as of the effective date of the order.
(b) If the Bank is in default (as defined in Section 3(x)(1)
of the Federal Deposit Insurance Act), or if liquidation proceedings pursuant to
Chapter 1157 of the Ohio Revised Code are initiated, all obligations under this
Agreement shall terminate.
3
<PAGE> 85
(c) All obligations under this Agreement shall be terminated,
except to the extent determined that continuation of the contract is necessary
for the continued operation of the Bank, by the Director or his or her designee
at the time the FDIC or the Resolution Trust Corporation enters into an
agreement to provide assistance to or on behalf of the Bank under the authority
contained in Section 13(c) of the Federal Deposit Insurance Act, or by the
Director or his or her designee at the time the Director or his or her designee
approves a supervisory merger to resolve problems related to the operation of
the Bank or when the Bank is determined by the Director to be in an unsafe or
unsound condition. Any rights of the parties that have already vested, however,
shall not be affected by such action.
(d) If the Executive is suspended and/or temporarily
prohibited from participating in the conduct of the Bank's affairs by a notice
served under Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act, 12
U.S.C. ss.1818(e)(3) or (g)(1), or pursuant to the authority of the
Superintendent under Chapters 1151 or 1155 of the Ohio Revised Code, the Bank's
obligations under subparagraphs 6(a), (b) and (c) this Agreement shall be
suspended as the date of service, unless stayed by appropriate proceedings.
9 (e) If the charges in the notice referenced in subparagraph
5(d) are dismissed, the Bank's Board of Directors may in its discretion:
(i) pay the Executive all or part of the
severance benefits withheld while its
contract obligations were suspended, and
(ii) reinstate (in whole or in part) any of its
obligations which were suspended as required
in subparagraph (d) above.
6. Change in Control
-----------------
(a) If, during the term of this Agreement, there is a Change
in Control of the Bank, the Executive shall be entitled to the severance payment
in the event the Executive's employment is involuntarily terminated by the Bank
or any successor or assign within six months after the Change in Control, other
than for Cause or pursuant to Paragraphs 4 or 5. This
4
<PAGE> 86
payment shall also be made in the case of the Executive's voluntary termination
of employment for Good Reason (as defined in Paragraph 7) within six months
after a Change in Control of the Bank. Such voluntary termination of employment
for Good Reason in connection with, or within six months after, a Change in
Control of the Bank shall not constitute a termination for Cause. The amount of
this severance payment shall be the benefits specified in Paragraph 8 of this
Agreement.
(b) For purposes of this Agreement, a "Change in Control of
the Bank" shall be deemed to have occurred, if at any time during the term of
this Agreement, conclusive control determinations as set forth in 12 C.F.R.
Section 574.4(a) occur or rebuttable control determinations as set forth in 12
C.F.R. Section 574.4(b) occur without legally sufficient rebuttal by the
acquirer, pursuant to 12 C.F.R. Section 574.4(c); provided, however, that an
acquisition of all of the Bank's voting securities incident to a reorganization
involving a thrift holding company formation initiated and approved by the
Bank's Board of Directors will not be considered a "Change in Control of the
Bank."
(c) Upon the Executive's termination of employment arising
under this Paragraph 6 within six months after the occurrence of a Change in
Control of the Bank, the Bank will cause to be continued life, health and
disability insurance coverage substantially identical to the coverage maintained
by the Bank for the Executive prior to his severance. Such coverage shall cease
upon the earlier of the Executive's employment by another employer or twelve
(12) months from such termination.
7. Good Reason
-----------
For purposes of this Agreement, "Good Reason" shall mean the
occurrence after a Change in Control of any of the events or conditions
described in subparagraphs (a) through (e) hereof without the Executive's
express written consent; provided the Executive's right to terminate his
employment pursuant to this Paragraph 7 shall not be affected by his incapacity
due to physical or mental illness:
5
<PAGE> 87
(a) A change in the Executive's status, title, position or
responsibilities (including reporting responsibilities) which, in the
Executive's reasonable judgment, does not represent a promotion from his status,
title, position or responsibilities as in effect immediately prior thereto; the
assignment to the Executive of any duties or responsibilities which, in the
Executive's reasonable judgment, are inconsistent with such status, title,
position or responsibilities; or any removal of the Executive from or failure to
reappoint him to any of such positions, except in connection with the
termination of his employment for (i) disability, (ii) Cause, (iii) pursuant to
Paragraphs 4 or 5, (iv) as a result of his death or (v) by the Executive other
than for Good Reason;
(b) A reduction by the Bank in the Executive's base salary as
in effect on the date of a Change in Control of the Bank;
(c) The relocation of the Bank's principal executive offices
to a location outside a fifteen (15)-mile radius of Strongsville, Ohio, or the
Bank's requiring the Executive to be based at any place other than Strongsville,
Ohio, except for reasonably required travel on the Bank's business which is not
materially greater than such travel requirements prior to the Change in Control;
(d) The failure by the Bank to continue to provide the
Executive with benefits substantially similar to those provided to him under any
of the employee benefit plans in which the Executive becomes a participant, or
the taking of any action by the Bank which would directly or indirectly
materially reduce any of such benefits or deprive the Executive of any material
fringe benefit enjoyed by him at the time of the Change in Control.
8. Termination Benefits
--------------------
(a) Upon the occurrence of a Change in Control, followed by
the voluntary or involuntary termination of the Executive's employment with the
Bank other than for Cause or pursuant to Paragraphs 4 or 5, the Bank shall pay
the Executive, or in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be, as severance
6
<PAGE> 88
pay or liquidated damages, or both, a sum equal to the then annual base salary
paid to the Executive by the Bank during the year in which the Executive's
termination occurs.
(b) The Executive shall not be required to mitigate the amount
of any payment required hereunder by seeking other employment or otherwise nor
shall the amount paid hereunder be reduced or offset by any compensation earned
or received by the Executive as result of employment with another employer,
self-employment, or any amount received from any other plan, program, policy or
arrangement of the Bank. Benefits provided under Paragraph 6(c) shall be reduced
to the extent comparable benefits are actually received by the Executive from or
through another employer.
9. Payment of Legal Fees
---------------------
Reasonable legal fees and expenses paid or incurred by the
Executive pursuant to any dispute or question of interpretation relating to the
Agreement shall be paid or reimbursed by the Bank in accordance with the
following. If the Executive or the Bank initiates a proceeding and the Executive
prevails, all reasonable legal fees and expenses shall be paid by the Bank. If
the Executive initiates a proceeding and does not prevail on his/her claim, then
the Bank shall reimburse the Executive for all legal fees and expenses but not
to exceed the sum of $25,000.
10. Successor Organization
----------------------
The obligations of the Bank as set forth herein shall continue
to be the obligation of any successor organization, any organization which
purchases substantially all of the assets of the Bank, as well as any
organization which assumes substantially all of the liabilities of the Bank
whether by merger, consolidation, or other form of business combination. This
Agreement is personal to the Executive and the Executive may not delegate his
duties hereunder.
11. Notices
-------
All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered by hand or mailed, certified
7
<PAGE> 89
or registered mail, return receipt requested, with postage prepaid, to the
following addresses or to such other address as either party may designate by
like notice.
A. If to the Bank, to:
Board of Directors
The Strongsville Savings Bank
14092 Pearl Road
Strongsville, Ohio 44136
B. If to the Executive, to:
William J. Harr, Jr.
10619 Lake Meadow Drive
Strongsville, Ohio 44136
and to such other or additional person or persons as either party shall have
designated to the other party in writing by like notice.
12. Amendments
----------
No amendments or additions to this Agreement shall be binding
unless in writing and signed by both parties, except as herein otherwise
provided.
13. Paragraph Headings
------------------
The paragraph headings used in this Agreement are included
solely for convenience and shall not affect, or be used in connection with, the
interpretation of this Agreement.
14. Severability
------------
The provisions of this Agreement shall be deemed severable and
the invalidity or unenforceability of any provision shall not affect the
validity or enforceability of the other provisions hereof.
15. Governing Law
-------------
This Agreement shall, except to the extent that federal law
(including any law, rule, or regulations of the OTS or the FDIC) shall be deemed
to apply, be governed by and construed and enforced in accordance with the laws
of Ohio.
8
<PAGE> 90
16. Arbitration
-----------
Any dispute or controversy arising under or in connection with
this Agreement shall be settled exclusively by arbitration in accordance with
the rules of the American Arbitration Association then in effect. Judgment may
be entered on the arbitrator's award in any court having jurisdiction.
17. Safety and Soundness Limitations
--------------------------------
Notwithstanding any other provision of this Agreement, no
severance benefits under Paragraph 8 shall be paid or payable in respect of any
calendar year in which the Bank (i) fails to meet any applicable capital
requirements imposed by 12 C.F.R. Part 567 (or successor regulations) after
giving effect to the payment of severance benefits hereunder, (ii) receives or
maintains a safety and soundness CAMEL rating of 4 or 5 from the OTS or the
Superintendent, or (iii) is subject to a proceeding to terminate deposit
insurance. In addition, no severance benefits under Paragraph 8 shall be paid or
payable if the Executive has committed any fraudulent act or omission or other
fiduciary breach that had or is likely to have a material adverse affect on the
Bank.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first hereinabove written.
THE STRONGSVILLE SAVINGS BANK
By: /s/ Thomas P. Perciak
---------------------------
Thomas P. Perciak
Its: President
-------------------------
/s/ William J. Harr, Jr
---------------------------
William J. Harr, Jr. ("Executive")
9
<PAGE> 91
EXHIBIT NO. 10h
<PAGE> 92
EXECUTIVE SUPPLEMENTAL BENEFIT AGREEMENT
This AGREEMENT made and entered into effective January l, l995 by and
between The Strongsville Savings Bank (the "Bank"), a corporation organized and
existing under the laws of the State of Ohio, with its principal office at l4092
Pearl Road, Strongsville, Ohio, and Thomas P. Perciak (the "Executive").
WHEREAS, the Executive is and has been an employee of the Bank for
many years and currently is serving as the Bank's President;
WHEREAS, the Bank wishes to recognize that Executive has rendered
valuable services to the Bank and has made substantial contributions to the
success and growth of the Bank;
WHEREAS, the Bank wishes to have the benefit of Executive's continued
services and to provide an incentive to Executive to continue to provide such
services and contribute to the Bank's future success and growth;
WHEREAS, the Executive is willing to continue in the employ of the Bank
and to continue to perform such duties as assigned by the Board of Directors of
the Bank, if the Bank provides the benefits specified in this Agreement;
NOW, THEREFORE, in consideration of the mutual promises of the parties
and the mutual benefits to be gained by the performance thereof, the parties
hereto, intending to be legally bound hereby, agree as follows:
Section l. Definitions.
- ---------- ------------
As used in this Agreement, the following terms shall have the meanings
indicated:
(A) "Bank" shall mean, in addition to The Strongsville Savings Bank,
any parent or subsidiary of The Strongsville Savings Bank.
(B) "Retirement Date" shall mean the first day of any calendar month
following the Executive's 65th birthday on which the Executive elects to retire,
or such earlier date as the Board of Directors of the Bank, by resolution, may
agree to grant Executive early retirement.
<PAGE> 93
Section 2. Supplemental Retirement Benefits.
- ---------- ---------------------------------
Provided that Executive has remained continuously in the employ of the
Bank (except for normal vacation time and such other leaves of absence as may be
approved by the Board of Directors of the Bank), as of the first day of the
calendar month following Executive's Retirement Date and on each annual
anniversary date thereafter for a period of twenty (20) years, Executive shall
be entitled to an annual Supplemental Retirement Benefit under this Agreement.
The annual Supplemental Retirement Benefit shall be the amount payable in
accordance with SCHEDULE 1 to this Agreement. At the option of Executive, the
annual Supplemental Retirement Benefits provided by Section 2 may be paid by the
Bank in a single lump sum, discounted at an annual rate of six percent (6%) per
annum applied to each future payment from the time it would have become payable
to the date the lump sum is paid.
Section 3. Disability Benefit.
- ---------- -------------------
(a) In the event of the total and permanent disability of Executive
while in the employ of the Bank and prior to the Retirement Date, Executive
shall receive an annual disability payment in accordance with SCHEDULE 2 to this
Agreement, payable in equal monthly installments, commencing on the first day of
the month following the final determination of disability. The annual disability
payments shall continue until the first day of the calendar month following
Executive's Retirement Date, at which time the commencement of Supplemental
Retirement Benefits shall occur pursuant to Section 2 hereof.
(b) For purposes of this Agreement, total disability means your
inability to engage in your occupation as a result of a bodily injury or
sickness. If this disability lasts for 24 consecutive months, then for the rest
of the period of such disability, total disability means your inability to
engage in any gainful occupation for which you are fitted due to your education,
training and experience. Any one of the following events also constitutes total
disability: the total and irrecoverable loss of speech or hearing; the loss of
sight of both eyes; the severance of both hands at or above the wrist; the
severance of both feet at or above the ankles; or the severance of one entire
hand and one entire foot.
(c) If any dispute arises as to whether the Executive is or was
physically or mentally unable to perform his duties pursuant to this Agreement,
or whether his disability has ceased and he is able to resume his duties, the
parties shall submit such questions to a licensed physician agreed upon by the
parties, or, if the parties are unable to agree, to a licensed physician
appointed by the President of the Academy of Medicine of Cleveland, Cleveland,
Ohio, at the request of either party. The Executive shall submit to such
examinations and provide information as such physician may request and the
determination of such physical as to Executive's physical or mental condition
shall be binding and conclusive on the parties. The Bank agrees to pay the cost
of any such physician and examinations.
<PAGE> 94
Section 4. Death Benefits.
- ---------- ---------------
(a) In the event that Executive dies while in the employ of the Bank
and prior to the Retirement Date, Executive's designated beneficiary shall
succeed to the rights of Executive to receive the Supplemental Retirement
Benefit under Section 2 hereof, and the date of Executive's death shall be
deemed to be the Retirement Date hereunder. If no beneficiary has been
designated by Executive, such amounts shall be paid to Executive's estate in
annual installments, it being expressly acknowledged that Executive's estate has
the right to demand the lump sum payment of the Supplemental Retirement Benefit.
(b) Notwithstanding Section 4(a) above, if an Executive commits suicide
(while sane or insane) defrauds or makes deceptive statements regarding health
or medical history within two years of the effective date of this Agreement, no
benefits shall be payable hereunder or under any other provision of this
Agreement.
Section 5. Change in Control of the Bank.
- ---------- ------------------------------
(a) This Agreement shall be binding upon and inure to the benefit of
all successors and assigns of the Bank and Executive. In the event of a change
in control of the Bank and the involuntary termination of Executive other than
for Cause (as defined in Section 6(b) hereof) or the voluntary termination of
Executive for good Reason (as defined in Section 5(c) hereof) within six (6)
months of such change in control, the Bank shall pay to Executive a lump sum
payment in accordance with SCHEDULE 3 hereto.
(b) For purposes of this Agreement, a change in control shall be
defined by reference of Part 574 of the regulations of the Office of Thrift
Supervision, or any successor provision thereto.
(c) For purposes of this Agreement, Good Reason shall be defined as:
(i) a change in Executive's status, title, position or responsibilities, which,
in Executive's reasonable judgment, does not represent a promotion from or is
inconsistent from his or her position immediately prior thereto; (ii) a
reduction in base salary; (iii) the relocation of the Bank's principal executive
offices or the location at which Executive is required to perform his or her
services to a location outside of a l5-mile radius of Strongsville, Ohio; or
(iv) a material reduction in benefits.
Section 6. Termination for Cause or as a Result of Certain
- ---------- -----------------------------------------------
Regulatory Actions.
-------------------
(a) In the event of the termination of Executive for Cause, the Bank
shall have no further obligations under this Agreement.
<PAGE> 95
(b) For purposes of the Agreement, Cause shall be defined as
termination as a result of Executive's personal dishonesty, incompetence,
willful misconduct, breach of fiduciary duty involving personal profit,
intentional failure to perform stated duties, willful violation of any law, rule
or regulation (other than traffic violations or similar offenses) or final
cease-and-desist order, or material breach of any provision of this Agreement.
(c) If any of the events specified in Section 563.39(b)(2) through (5)
of the OTS regulations (or any successor provision thereto) shall occur,
Executive's rights under this Agreement shall be determined in accordance with
the provisions of such Sections.
Section 7. Funding of Benefits.
- ---------- --------------------
The benefits provided under this Agreement shall be unfunded and shall
be made by the Bank from its general assets. The Bank will not establish any
special or separate fund or make any other segregation of assets to assure the
payment of benefits hereunder. The right of Executive or any successor or assign
of Executive to receive payments under this Agreement shall be no greater than
the rights of an unsecured creditor of the Bank.
Section 8. Notices.
- ---------- --------
All notices or other communications under this Agreement shall be made
in writing as follows:
(a) If to the Bank:
Corporate Secretary
The Strongsville Savings Bank
l4092 Pearl Road
Strongsville, Ohio 44l36
<PAGE> 96
(b) If to the Executive:
Mr. Thomas P. Perciak
17429 Falmouth Drive
Strongsville, Ohio 44136
Section 9. Claims Procedures.
- ---------- ------------------
Claims under this Agreement shall be made in writing by Executive or
his duly authorized representative pursuant to Section 8 hereof. All claims
shall be processed within l5 days of receipt by the Bank. If a claim under this
Agreement is wholly or partially denied, the Bank shall provide a written notice
to the Executive within five (5) business days of such denial, setting forth:
(a) The specific reason or reasons for the denial;
(b) Specific reference to the pertinent provisions of this Agreement
upon which the denial is based; and
(c) A description of any additional material or information necessary
for Executive to perfect the claim and an explanation of why such material or
information is necessary.
Within 15 days of receipt of such additional material or information or
receipt of Executive's request for a review of the denial of his claim, the Bank
shall provide Executive with its final determination of his claim.
In the event that Executive disputes the Bank's final determination of
his claim, such dispute shall be subject to final and binding arbitration in the
City of Cleveland, County of Cuyahoga, Ohio, pursuant to the rules and
procedures of the American Arbitration Association.
Section 10. Payment of Taxes.
- ----------- -----------------
The Bank shall have the right to deduct from all benefits paid
hereunder any Federal, state or local taxes required by law to be withheld with
respect to such benefit payments.
Section 11. No Attachment.
- ----------- --------------
Neither this Agreement nor any benefit payable under this Agreement
shall be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance or charge or to execution, attachment, levy or
similar process or assignment by operation of law, and any attempt, voluntary or
<PAGE> 97
involuntary, to effect any such action shall be void and of no effect.
Section 12. Entire Agreement: No Employment Agreement.
- ----------- -------------------------------------------
This Agreement contains the entire understanding between the parties
hereto with respect to the matters covered herein, except that this Agreement
shall not affect or operate to reduce any benefit or compensation inuring to
Executive of a kind elsewhere provided and not expressly provided in this
Agreement. This Agreement shall not be construed as an employment contract, nor
shall it be construed in any manner so as to restrict the Bank's or the
Executive's ability to terminate his/her employment with the Bank.
Section 13. Amendment.
- ----------- ----------
This Agreement may not be modified or amended by the parties hereto
except by an instrument in writing signed by all of the parties.
Section 14. Severability.
- ----------- -------------
If, for any reason, any provision of this Agreement is held invalid,
such invalidity shall not affect any other provision of this Agreement not held
so invalid, and each such other provision shall, to the full extent consistent
with the law, continue in full force and effect. If any provision of this
Agreement shall be held invalid in part, such invalidity shall in no way affect
the rest of such provision not held so invalid, and the rest of such provision,
together with all other provisions of this Agreement shall, to the full extent
consistent with the law, continue in full force and effect.
Section 15. Headings.
- ----------- ---------
The headings of Sections herein are included solely for convenience of
reference and shall not affect the meaning or interpretation of any provision of
this Agreement.
Section 16. Governing Law.
- ----------- --------------
This Agreement was made and entered into in the State of Ohio and the
laws of said State shall govern the interpretation, construction and legal
effect of this Agreement and the rights and liabilities of the parties hereto.
<PAGE> 98
IN WITNESS WHEREOF, the Bank has caused this Agreement to be executed, sealed
and attested on its behalf by its duly authorized officers and the Executive has
hereunto set his/her hand as of the day and year first above written.
ATTEST: THE STRONGSVILLE SAVINGS BANK
/s/ Paula M. Dewey /s/ John F. Ziegler
- -------------------------- ---------------------------------
BY:[name] John F. Ziegler
[title] Vice President
[Corporate Seal]
WITNESS:
/s/ Cynthia Gannon /s/ Thomas P. Perciak
- -------------------------- ---------------------------------
[name] Thomas P. Perciak
[title] President , Chief Executive Officer
Executive
<PAGE> 99
SCHEDULE 1
----------
POST-RETIREMENT BENEFIT FOR: THOMAS P. PERCIAK
The benefit payable to Thomas P.Perciak at retirement (age 65) is $134,693
annually for a period of twenty (20) years.
<PAGE> 100
SCHEDULE 2
----------
DISABILITY BENEFITS FOR: THOMAS P. PERCIAK
In the case of your total disability prior to retirement, you will receive an
annual benefit of $65,635. Benefits will continue as long as you are totally
disabled, but no longer than age 65, at which time the Supplemental Retirement
Benefits shall be paid under the provisions of Section 2.
<PAGE> 101
SCHEDULE 3
----------
SUMMARY OF BENEFITS FOR: THOMAS P. PERCIAK
<TABLE>
<CAPTION>
Year of Change Lump Sum Payment
-------------- ----------------
<S> <C>
1995 $ 25,954
1996 67,684
1997 120,345
1998 176,909
1999 237,871
2000 303,765
2001 375,246
2002 453,091
2003 539,426
2004 635,287
2005 739,474
2006 853,931
2007 978,777
2008 1,117,124
2009 1,266,305
2010 1,426,537
2011 1,598,441
2012 1,782,670
</TABLE>
<PAGE> 102
EXHIBIT NO. 10i
<PAGE> 103
EXECUTIVE SUPPLEMENTAL BENEFIT AGREEMENT
This AGREEMENT made and entered into effective January l, l995 by and
between The Strongsville Savings Bank (the "Bank"), a corporation organized and
existing under the laws of the State of Ohio, with its principal office at l4092
Pearl Road, Strongsville, Ohio, and John F. Ziegler (the "Executive").
WHEREAS, the Executive is and has been an employee of the Bank for many
years and currently is serving as the Bank's Vice President;
WHEREAS, the Bank wishes to recognize that Executive has rendered
valuable services to the Bank and has made substantial contributions to the
success and growth of the Bank;
WHEREAS, the Bank wishes to have the benefit of Executive's continued
services and to provide an incentive to Executive to continue to provide such
services and contribute to the Bank's future success and growth;
WHEREAS, the Executive is willing to continue in the employ of the Bank
and to continue to perform such duties as assigned by the Board of Directors of
the Bank, if the Bank provides the benefits specified in this Agreement;
NOW, THEREFORE, in consideration of the mutual promises of the parties
and the mutual benefits to be gained by the performance thereof, the parties
hereto, intending to be legally bound hereby, agree as follows:
Section l. Definitions.
- ---------- ------------
As used in this Agreement, the following terms shall have the meanings
indicated:
(A) "Bank" shall mean, in addition to The Strongsville Savings Bank,
any parent or subsidiary of The Strongsville Savings Bank.
(B) "Retirement Date" shall mean the first day of any calendar month
following the Executive's 65th birthday on which the Executive elects to retire,
or such earlier date as the Board of Directors of the Bank, by resolution, may
agree to grant Executive early retirement.
<PAGE> 104
Section 2. Supplemental Retirement Benefits.
- ---------- ---------------------------------
Provided that Executive has remained continuously in the employ of the
Bank (except for normal vacation time and such other leaves of absence as may be
approved by the Board of Directors of the Bank), as of the first day of the
calendar month following Executive's Retirement Date and on each annual
anniversary date thereafter for a period of twenty (20) years, Executive shall
be entitled to an annual Supplemental Retirement Benefit under this Agreement.
The annual Supplemental Retirement Benefit shall be the amount payable in
accordance with SCHEDULE 1 to this Agreement. At the option of Executive, the
annual Supplemental Retirement Benefits provided by Section 2 may be paid by the
Bank in a single lump sum, discounted at an annual rate of six percent (6%) per
annum applied to each future payment from the time it would have become payable
to the date the lump sum is paid.
Section 3. Disability Benefit.
- ---------- -------------------
(a) In the event of the total and permanent disability of Executive
while in the employ of the Bank and prior to the Retirement Date, Executive
shall receive an annual disability payment in accordance with SCHEDULE 2 to this
Agreement, payable in equal monthly installments, commencing on the first day of
the month following the final determination of disability. The annual disability
payments shall continue until the first day of the calendar month following
Executive's Retirement Date, at which time the commencement of Supplemental
Retirement Benefits shall occur pursuant to Section 2 hereof.
(b) For purposes of this Agreement, total disability means your
inability to engage in your occupation as a result of a bodily injury or
sickness. If this disability lasts for 24 consecutive months, then for the rest
of the period of such disability, total disability means your inability to
engage in any gainful occupation for which you are fitted due to your education,
training and experience. Any one of the following events also constitutes total
disability: the total and irrecoverable loss of speech or hearing; the loss of
sight of both eyes; the severance of both hands at or above the wrist; the
severance of both feet at or above the ankles; or the severance of one entire
hand and one entire foot.
(c) If any dispute arises as to whether the Executive is or was
physically or mentally unable to perform his duties pursuant to this Agreement,
or whether his disability has ceased and he is able to resume his duties, the
parties shall submit such questions to a licensed physician agreed upon by the
parties, or, if the parties are unable to agree, to a licensed physician
appointed by the President of the Academy of Medicine of Cleveland, Cleveland,
Ohio, at the request of either party. The Executive shall submit to such
examinations and provide information as such physician may request and the
determination of such physical as to Executive's physical or mental condition
shall be binding and conclusive on the parties. The Bank agrees to pay the cost
of any such physician and examinations.
<PAGE> 105
Section 4. Death Benefits.
- ---------- ---------------
(a) In the event that Executive dies while in the employ of the Bank
and prior to the Retirement Date, Executive's designated beneficiary shall
succeed to the rights of Executive to receive the Supplemental Retirement
Benefit under Section 2 hereof, and the date of Executive's death shall be
deemed to be the Retirement Date hereunder. If no beneficiary has been
designated by Executive, such amounts shall be paid to Executive's estate in
annual installments, it being expressly acknowledged that Executive's estate has
the right to demand the lump sum payment of the Supplemental Retirement Benefit.
(b) Notwithstanding Section 4(a) above, if an Executive commits suicide
(while sane or insane) defrauds or makes deceptive statements regarding health
or medical history within two years of the effective date of this Agreement, no
benefits shall be payable hereunder or under any other provision of this
Agreement.
Section 5. Change in Control of the Bank.
- ---------- ------------------------------
(a) This Agreement shall be binding upon and inure to the benefit of
all successors and assigns of the Bank and Executive. In the event of a change
in control of the Bank and the involuntary termination of Executive other than
for Cause (as defined in Section 6(b) hereof) or the voluntary termination of
Executive for good Reason (as defined in Section 5(c) hereof) within six (6)
months of such change in control, the Bank shall pay to Executive a lump sum
payment in accordance with SCHEDULE 3 hereto.
(b) For purposes of this Agreement, a change in control shall be
defined by reference of Part 574 of the regulations of the Office of Thrift
Supervision, or any successor provision thereto.
(c) For purposes of this Agreement, Good Reason shall be defined as:
(i) a change in Executive's status, title, position or responsibilities, which,
in Executive's reasonable judgment, does not represent a promotion from or is
inconsistent from his or her position immediately prior thereto; (ii) a
reduction in base salary; (iii) the relocation of the Bank's principal executive
offices or the location at which Executive is required to perform his or her
services to a location outside of a l5-mile radius of Strongsville, Ohio; or
(iv) a material reduction in benefits.
Section 6. Termination for Cause or as a Result of Certain
- ---------- -----------------------------------------------
Regulatory Actions.
-------------------
(a) In the event of the termination of Executive for Cause, the Bank
shall have no further obligations under this Agreement.
<PAGE> 106
(b) For purposes of the Agreement, Cause shall be defined as
termination as a result of Executive's personal dishonesty, incompetence,
willful misconduct, breach of fiduciary duty involving personal profit,
intentional failure to perform stated duties, willful violation of any law, rule
or regulation (other than traffic violations or similar offenses) or final
cease-and-desist order, or material breach of any provision of this Agreement.
(c) If any of the events specified in Section 563.39(b)(2) through (5)
of the OTS regulations (or any successor provision thereto) shall occur,
Executive's rights under this Agreement shall be determined in accordance with
the provisions of such Sections.
Section 7. Funding of Benefits.
- ---------- --------------------
The benefits provided under this Agreement shall be unfunded and shall
be made by the Bank from its general assets. The Bank will not establish any
special or separate fund or make any other segregation of assets to assure the
payment of benefits hereunder. The right of Executive or any successor or assign
of Executive to receive payments under this Agreement shall be no greater than
the rights of an unsecured creditor of the Bank.
Section 8. Notices.
- ---------- --------
All notices or other communications under this Agreement shall be made
in writing as follows:
(a) If to the Bank:
Corporate Secretary
The Strongsville Savings Bank
l4092 Pearl Road
Strongsville, Ohio 44l36
<PAGE> 107
(b) If to the Executive:
Mr. John F. Ziegler
17889 Monterey Pine Dr.
Strongsville, Ohio 44136
Section 9. Claims Procedures.
- ---------- ------------------
Claims under this Agreement shall be made in writing by Executive or
his duly authorized representative pursuant to Section 8 hereof. All claims
shall be processed within l5 days of receipt by the Bank. If a claim under this
Agreement is wholly or partially denied, the Bank shall provide a written notice
to the Executive within five (5) business days of such denial, setting forth:
(a) The specific reason or reasons for the denial;
(b) Specific reference to the pertinent provisions of this
Agreement upon which the denial is based; and
(c) A description of any additional material or information necessary
for Executive to perfect the claim and an explanation of why such material or
information is necessary.
Within 15 days of receipt of such additional material or information or
receipt of Executive's request for a review of the denial of his claim, the Bank
shall provide Executive with its final determination of his claim.
In the event that Executive disputes the Bank's final determination of
his claim, such dispute shall be subject to final and binding arbitration in the
City of Cleveland, County of Cuyahoga, Ohio, pursuant to the rules and
procedures of the American Arbitration Association.
Section 10. Payment of Taxes.
- ----------- -----------------
The Bank shall have the right to deduct from all benefits paid
hereunder any Federal, state or local taxes required by law to be withheld with
respect to such benefit payments.
Section 11. No Attachment.
- ----------- --------------
Neither this Agreement nor any benefit payable under this Agreement
shall be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance or charge or to execution, attachment, levy or
similar process or assignment by operation of law, and any attempt, voluntary or
<PAGE> 108
involuntary, to effect any such action shall be void and of no effect.
Section 12. Entire Agreement: No Employment Agreement.
- ----------- -------------------------------------------
This Agreement contains the entire understanding between the parties
hereto with respect to the matters covered herein, except that this Agreement
shall not affect or operate to reduce any benefit or compensation inuring to
Executive of a kind elsewhere provided and not expressly provided in this
Agreement. This Agreement shall not be construed as an employment contract, nor
shall it be construed in any manner so as to restrict the Bank's or the
Executive's ability to terminate his/her employment with the Bank.
Section 13. Amendment.
- ----------- ----------
This Agreement may not be modified or amended by the parties hereto
except by an instrument in writing signed by all of the parties.
Section 14. Severability.
- ----------- -------------
If, for any reason, any provision of this Agreement is held invalid,
such invalidity shall not affect any other provision of this Agreement not held
so invalid, and each such other provision shall, to the full extent consistent
with the law, continue in full force and effect. If any provision of this
Agreement shall be held invalid in part, such invalidity shall in no way affect
the rest of such provision not held so invalid, and the rest of such provision,
together with all other provisions of this Agreement shall, to the full extent
consistent with the law, continue in full force and effect.
Section 15. Headings.
- ----------- ---------
The headings of Sections herein are included solely for convenience of
reference and shall not affect the meaning or interpretation of any provision of
this Agreement.
Section 16. Governing Law.
- ----------- --------------
This Agreement was made and entered into in the State of Ohio and the
laws of said State shall govern the interpretation, construction and legal
effect of this Agreement and the rights and liabilities of the parties hereto.
<PAGE> 109
IN WITNESS WHEREOF, the Bank has caused this Agreement to be executed, sealed
and attested on its behalf by its duly authorized officers and the Executive has
hereunto set his/her hand as of the day and year first above written.
ATTEST: THE STRONGSVILLE SAVINGS BANK
/s/ Paula M. Dewey /s/ Thomas P. Perciak
- --------------------------------- ---------------------------------------
BY: [name] Thomas P. Perciak
[title] President
[Corporate Seal]
WITNESS:
/s/ Cynthia Gannon /s/ John F. Ziegler
- --------------------------------- ---------------------------------------
[name] John F. Ziegler
[title] Vice President - Chief Financial
Executive Officer
<PAGE> 110
SCHEDULE 1
----------
POST-RETIREMENT BENEFIT FOR: JOHN F. ZIEGLER
The benefit payable to John F. Ziegler at retirement (age 65) is $25,647
annually for a period of twenty (20) years.
<PAGE> 111
SCHEDULE 2
----------
DISABILITY BENEFITS FOR: JOHN F. ZIEGLER
In the case of your total disability prior to retirement, you will receive an
annual benefit of $10,239. Benefits will continue as long as you are totally
disabled, but no longer than age 65, at which time the Supplemental Retirement
Benefits shall be paid under the provisions of Section 2.
<PAGE> 112
SCHEDULE 3
----------
SUMMARY OF BENEFITS FOR: JOHN F. ZIEGLER
<TABLE>
<CAPTION>
Year of Change Lump Sum Payment
-------------- ----------------
<S> <C>
1995 $ 3,660
1996 8,936
1997 16,948
1998 25,589
1999 34,939
2000 45,073
2001 56,093
2002 68,114
2003 81,448
2004 96,302
2005 112,423
2006 130,212
2007 149,722
2008 171,012
2009 194,138
2010 219,134
2011 246,138
2012 275,236
2013 306,639
2014 340,063
2015 375,637
2016 413,496
2017 453,788
</TABLE>
<PAGE> 113
EXHIBIT NO. 10j
<PAGE> 114
EXECUTIVE SUPPLEMENTAL BENEFIT AGREEMENT
This AGREEMENT made and entered into effective January l, l995 by and
between The Strongsville Savings Bank (the "Bank"), a corporation organized and
existing under the laws of the State of Ohio, with its principal office at l4092
Pearl Road, Strongsville, Ohio, and Dean R. Anaya (the "Executive").
WHEREAS, the Executive is and has been an employee of the Bank for many
years and currently is serving as the Bank's Vice President of Mortgage
Lending;;
WHEREAS, the Bank wishes to recognize that Executive has rendered
valuable services to the Bank and has made substantial contributions to the
success and growth of the Bank;
WHEREAS, the Bank wishes to have the benefit of Executive's continued
services and to provide an incentive to Executive to continue to provide such
services and contribute to the Bank's future success and growth;
WHEREAS, the Executive is willing to continue in the employ of the Bank
and to continue to perform such duties as assigned by the Board of Directors of
the Bank, if the Bank provides the benefits specified in this Agreement;
NOW, THEREFORE, in consideration of the mutual promises of the parties
and the mutual benefits to be gained by the performance thereof, the parties
hereto, intending to be legally bound hereby, agree as follows:
Section l. Definitions.
- ---------- ------------
As used in this Agreement, the following terms shall have the meanings
indicated:
(A) "Bank" shall mean, in addition to The Strongsville Savings Bank,
any parent or subsidiary of The Strongsville Savings Bank.
(B) "Retirement Date" shall mean the first day of any calendar month
following the Executive's 65th birthday on which the Executive elects to retire,
or such earlier date as the Board of Directors of the Bank, by resolution, may
agree to grant Executive early retirement.
<PAGE> 115
Section 2. Supplemental Retirement Benefits.
- ---------- ---------------------------------
Provided that Executive has remained continuously in the employ of the
Bank (except for normal vacation time and such other leaves of absence as may be
approved by the Board of Directors of the Bank), as of the first day of the
calendar month following Executive's Retirement Date and on each annual
anniversary date thereafter for a period of twenty (20) years, Executive shall
be entitled to an annual Supplemental Retirement Benefit under this Agreement.
The annual Supplemental Retirement Benefit shall be the amount payable in
accordance with SCHEDULE 1 to this Agreement. At the option of Executive, the
annual Supplemental Retirement Benefits provided by Section 2 may be paid by the
Bank in a single lump sum, discounted at an annual rate of six percent (6%) per
annum applied to each future payment from the time it would have become payable
to the date the lump sum is paid.
Section 3. Disability Benefit.
- ---------- -------------------
(a) In the event of the total and permanent disability of Executive
while in the employ of the Bank and prior to the Retirement Date, Executive
shall receive an annual disability payment in accordance with SCHEDULE 2 to this
Agreement, payable in equal monthly installments, commencing on the first day of
the month following the final determination of disability. The annual disability
payments shall continue until the first day of the calendar month following
Executive's Retirement Date, at which time the commencement of Supplemental
Retirement Benefits shall occur pursuant to Section 2 hereof.
(b) For purposes of this Agreement, total disability means your
inability to engage in your occupation as a result of a bodily injury or
sickness. If this disability lasts for 24 consecutive months, then for the rest
of the period of such disability, total disability means your inability to
engage in any gainful occupation for which you are fitted due to your education,
training and experience. Any one of the following events also constitutes total
disability: the total and irrecoverable loss of speech or hearing; the loss of
sight of both eyes; the severance of both hands at or above the wrist; the
severance of both feet at or above the ankles; or the severance of one entire
hand and one entire foot.
(c) If any dispute arises as to whether the Executive is or was
physically or mentally unable to perform his duties pursuant to this Agreement,
or whether his disability has ceased and he is able to resume his duties, the
parties shall submit such questions to a licensed physician agreed upon by the
parties, or, if the parties are unable to agree, to a licensed physician
appointed by the President of the Academy of Medicine of Cleveland, Cleveland,
Ohio, at the request of either party. The Executive shall submit to such
examinations and provide information as such physician may request and the
determination of such physical as to Executive's physical or mental condition
shall be binding and conclusive on the parties. The Bank agrees to pay the cost
of any such physician and examinations.
<PAGE> 116
Section 4. Death Benefits.
- ---------- ---------------
(a) In the event that Executive dies while in the employ of the Bank
and prior to the Retirement Date, Executive's designated beneficiary shall
succeed to the rights of Executive to receive the Supplemental Retirement
Benefit under Section 2 hereof, and the date of Executive's death shall be
deemed to be the Retirement Date hereunder. If no beneficiary has been
designated by Executive, such amounts shall be paid to Executive's estate in
annual installments, it being expressly acknowledged that Executive's estate has
the right to demand the lump sum payment of the Supplemental Retirement Benefit.
(b) Notwithstanding Section 4(a) above, if an Executive commits suicide
(while sane or insane) defrauds or makes deceptive statements regarding health
or medical history within two years of the effective date of this Agreement, no
benefits shall be payable hereunder or under any other provision of this
Agreement.
Section 5. Change in Control of the Bank.
- ---------- ------------------------------
(a) This Agreement shall be binding upon and inure to the benefit of
all successors and assigns of the Bank and Executive. In the event of a change
in control of the Bank and the involuntary termination of Executive other than
for Cause (as defined in Section 6(b) hereof) or the voluntary termination of
Executive for good Reason (as defined in Section 5(c) hereof) within six (6)
months of such change in control, the Bank shall pay to Executive a lump sum
payment in accordance with SCHEDULE 3 hereto.
(b) For purposes of this Agreement, a change in control shall be
defined by reference of Part 574 of the regulations of the Office of Thrift
Supervision, or any successor provision thereto.
(c) For purposes of this Agreement, Good Reason shall be defined as:
(i) a change in Executive's status, title, position or responsibilities, which,
in Executive's reasonable judgment, does not represent a promotion from or is
inconsistent from his or her position immediately prior thereto; (ii) a
reduction in base salary; (iii) the relocation of the Bank's principal executive
offices or the location at which Executive is required to perform his or her
services to a location outside of a l5-mile radius of Strongsville, Ohio; or
(iv) a material reduction in benefits.
Section 6. Termination for Cause or as a Result of Certain
- ---------- -----------------------------------------------
Regulatory Actions.
-------------------
(a) In the event of the termination of Executive for Cause, the Bank
shall have no further obligations under this Agreement.
<PAGE> 117
(b) For purposes of the Agreement, Cause shall be defined as
termination as a result of Executive's personal dishonesty, incompetence,
willful misconduct, breach of fiduciary duty involving personal profit,
intentional failure to perform stated duties, willful violation of any law, rule
or regulation (other than traffic violations or similar offenses) or final
cease-and-desist order, or material breach of any provision of this Agreement.
(c) If any of the events specified in Section 563.39(b)(2) through (5)
of the OTS regulations (or any successor provision thereto) shall occur,
Executive's rights under this Agreement shall be determined in accordance with
the provisions of such Sections.
Section 7. Funding of Benefits.
- ---------- --------------------
The benefits provided under this Agreement shall be unfunded and shall
be made by the Bank from its general assets. The Bank will not establish any
special or separate fund or make any other segregation of assets to assure the
payment of benefits hereunder. The right of Executive or any successor or assign
of Executive to receive payments under this Agreement shall be no greater than
the rights of an unsecured creditor of the Bank.
Section 8. Notices.
- ---------- --------
All notices or other communications under this Agreement shall be made
in writing as follows:
(a) If to the Bank:
Corporate Secretary
The Strongsville Savings Bank
l4092 Pearl Road
Strongsville, Ohio 44l36
<PAGE> 118
(b) If to the Executive:
Mr. Dean R. Anaya
204 Best Drive
Berea, Ohio 44017
Section 9. Claims Procedures.
- ---------- ------------------
Claims under this Agreement shall be made in writing by Executive or
his duly authorized representative pursuant to Section 8 hereof. All claims
shall be processed within l5 days of receipt by the Bank. If a claim under this
Agreement is wholly or partially denied, the Bank shall provide a written notice
to the Executive within five (5) business days of such denial, setting forth:
(a) The specific reason or reasons for the denial;
(b) Specific reference to the pertinent provisions of this
Agreement upon which the denial is based; and
(c) A description of any additional material or information necessary
for Executive to perfect the claim and an explanation of why such material or
information is necessary.
Within 15 days of receipt of such additional material or information or
receipt of Executive's request for a review of the denial of his claim, the Bank
shall provide Executive with its final determination of his claim.
In the event that Executive disputes the Bank's final determination of
his claim, such dispute shall be subject to final and binding arbitration in the
City of Cleveland, County of Cuyahoga, Ohio, pursuant to the rules and
procedures of the American Arbitration Association.
Section 10. Payment of Taxes.
- ----------- -----------------
The Bank shall have the right to deduct from all benefits paid
hereunder any Federal, state or local taxes required by law to be withheld with
respect to such benefit payments.
Section 11. No Attachment.
- ----------- --------------
Neither this Agreement nor any benefit payable under this Agreement
shall be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance or charge or to execution, attachment, levy or
similar process or assignment by operation of law, and any attempt, voluntary or
<PAGE> 119
involuntary, to effect any such action shall be void and of no effect.
Section 12. Entire Agreement: No Employment Agreement.
- ----------- -------------------------------------------
This Agreement contains the entire understanding between the parties
hereto with respect to the matters covered herein, except that this Agreement
shall not affect or operate to reduce any benefit or compensation inuring to
Executive of a kind elsewhere provided and not expressly provided in this
Agreement. This Agreement shall not be construed as an employment contract, nor
shall it be construed in any manner so as to restrict the Bank's or the
Executive's ability to terminate his/her employment with the Bank.
Section 13. Amendment.
- ----------- ----------
This Agreement may not be modified or amended by the parties hereto
except by an instrument in writing signed by all of the parties.
Section 14. Severability.
- ----------- -------------
If, for any reason, any provision of this Agreement is held invalid,
such invalidity shall not affect any other provision of this Agreement not held
so invalid, and each such other provision shall, to the full extent consistent
with the law, continue in full force and effect. If any provision of this
Agreement shall be held invalid in part, such invalidity shall in no way affect
the rest of such provision not held so invalid, and the rest of such provision,
together with all other provisions of this Agreement shall, to the full extent
consistent with the law, continue in full force and effect.
Section 15. Headings.
- ----------- ---------
The headings of Sections herein are included solely for convenience of
reference and shall not affect the meaning or interpretation of any provision of
this Agreement.
Section 16. Governing Law.
- ----------- --------------
This Agreement was made and entered into in the State of Ohio and the
laws of said State shall govern the interpretation, construction and legal
effect of this Agreement and the rights and liabilities of the parties hereto.
<PAGE> 120
IN WITNESS WHEREOF, the Bank has caused this Agreement to be executed, sealed
and attested on its behalf by its duly authorized officers and the Executive has
hereunto set his/her hand as of the day and year first above written.
ATTEST: THE STRONGSVILLE SAVINGS BANK
/s/ Paula M. Dewey /s/ John F. Ziegler
- --------------------------------- ---------------------------------------
BY: [name] John F. Ziegler
[title] Vice President
[Corporate Seal]
WITNESS:
/s/ Cynthia Gannon /s/ Dean R. Anaya
- --------------------------------- ---------------------------------------
[name] Dean R. Anaya
[title] Vice President
Executive
<PAGE> 121
SCHEDULE 1
----------
POST-RETIREMENT BENEFIT FOR: DEAN R. ANAYA
The benefit payable to Dean R. Anaya at retirement (age 65) is $10,943 annually
for a period of twenty (20) years.
<PAGE> 122
SCHEDULE 2
----------
DISABILITY BENEFITS FOR: DEAN R. ANAYA
In the case of your total disability prior to retirement, you will receive an
annual benefit of $5,642. Benefits will continue as long as you are totally
disabled, but no longer than age 65, at which time the Supplemental Retirement
Benefits shall be paid under the provisions of Article 2.
<PAGE> 123
SCHEDULE 3
----------
SUMMARY OF BENEFITS FOR: DEAN R. ANAYA
Under Section 5. Change in Control of the Bank
<TABLE>
<CAPTION>
Year of Change Lump Sum Payment
------------ ----------------
<S> <C>
1995 $ 2,030
1996 5,089
1997 9,141
1998 13,496
1999 18,191
2000 23,277
2001 28,798
2002 34,814
2003 41,488
2004 48,907
2005 56,970
2006 65,837
2007 75,525
2008 86,044
2009 97,407
2010 109,836
2011 123,174
2012 137,475
2013 152,680
2014 168,777
</TABLE>
<PAGE> 124
EXHIBIT NO. 10k
<PAGE> 125
EXECUTIVE SUPPLEMENTAL BENEFIT AGREEMENT
This AGREEMENT made and entered into effective January l, l995 by and
between The Strongsville Savings Bank (the "Bank"), a corporation organized and
existing under the laws of the State of Ohio, with its principal office at l4092
Pearl Road, Strongsville, Ohio, and Paula M. Dewey (the "Executive").
WHEREAS, the Executive is and has been an employee of the Bank for many
years and currently is serving as the Bank's Vice President-Corporate
Secretary;
WHEREAS, the Bank wishes to recognize that Executive has rendered
valuable services to the Bank and has made substantial contributions to the
success and growth of the Bank;
WHEREAS, the Bank wishes to have the benefit of Executive's continued
services and to provide an incentive to Executive to continue to provide such
services and contribute to the Bank's future success and growth;
WHEREAS, the Executive is willing to continue in the employ of the Bank
and to continue to perform such duties as assigned by the Board of Directors of
the Bank, if the Bank provides the benefits specified in this Agreement;
NOW, THEREFORE, in consideration of the mutual promises of the parties
and the mutual benefits to be gained by the performance thereof, the parties
hereto, intending to be legally bound hereby, agree as follows:
Section l. Definitions.
- ---------- ------------
As used in this Agreement, the following terms shall have the meanings
indicated:
(A) "Bank" shall mean, in addition to The Strongsville Savings Bank,
any parent or subsidiary of The Strongsville Savings Bank.
(B) "Retirement Date" shall mean the first day of any calendar month
following the Executive's 65th birthday on which the Executive elects to retire,
or such earlier date as the Board of Directors of the Bank, by resolution, may
agree to grant Executive early retirement.
<PAGE> 126
Section 2. Supplemental Retirement Benefits.
- ---------- ---------------------------------
Provided that Executive has remained continuously in the employ of the
Bank (except for normal vacation time and such other leaves of absence as may be
approved by the Board of Directors of the Bank), as of the first day of the
calendar month following Executive's Retirement Date and on each annual
anniversary date thereafter for a period of twenty (20) years, Executive shall
be entitled to an annual Supplemental Retirement Benefit under this Agreement.
The annual Supplemental Retirement Benefit shall be the amount payable in
accordance with SCHEDULE 1 to this Agreement. At the option of Executive, the
annual Supplemental Retirement Benefits provided by Section 2 may be paid by the
Bank in a single lump sum, discounted at an annual rate of six percent (6%) per
annum applied to each future payment from the time it would have become payable
to the date the lump sum is paid.
Section 3. Disability Benefit.
- ---------- -------------------
(a) In the event of the total and permanent disability of Executive
while in the employ of the Bank and prior to the Retirement Date, Executive
shall receive an annual disability payment in accordance with SCHEDULE 2 to this
Agreement, payable in equal monthly installments, commencing on the first day of
the month following the final determination of disability. The annual disability
payments shall continue until the first day of the calendar month following
Executive's Retirement Date, at which time the commencement of Supplemental
Retirement Benefits shall occur pursuant to Section 2 hereof.
(b) For purposes of this Agreement, total disability means your
inability to engage in your occupation as a result of a bodily injury or
sickness. If this disability lasts for 24 consecutive months, then for the rest
of the period of such disability, total disability means your inability to
engage in any gainful occupation for which you are fitted due to your education,
training and experience. Any one of the following events also constitutes total
disability: the total and irrecoverable loss of speech or hearing; the loss of
sight of both eyes; the severance of both hands at or above the wrist; the
severance of both feet at or above the ankles; or the severance of one entire
hand and one entire foot.
(c) If any dispute arises as to whether the Executive is or was
physically or mentally unable to perform his duties pursuant to this Agreement,
or whether his disability has ceased and he is able to resume his duties, the
parties shall submit such questions to a licensed physician agreed upon by the
parties, or, if the parties are unable to agree, to a licensed physician
appointed by the President of the Academy of Medicine of Cleveland, Cleveland,
Ohio, at the request of either party. The Executive shall submit to such
examinations and provide information as such physician may request and the
determination of such physical as to Executive's physical or mental condition
shall be binding and conclusive on the parties. The Bank agrees to pay the cost
of any such physician and examinations.
<PAGE> 127
Section 4. Death Benefits.
- ---------- ---------------
(a) In the event that Executive dies while in the employ of the Bank
and prior to the Retirement Date, Executive's designated beneficiary shall
succeed to the rights of Executive to receive the Supplemental Retirement
Benefit under Section 2 hereof, and the date of Executive's death shall be
deemed to be the Retirement Date hereunder. If no beneficiary has been
designated by Executive, such amounts shall be paid to Executive's estate in
annual installments, it being expressly acknowledged that Executive's estate has
the right to demand the lump sum payment of the Supplemental Retirement Benefit.
(b) Notwithstanding Section 4(a) above, if an Executive commits suicide
(while sane or insane) defrauds or makes deceptive statements regarding health
or medical history within two years of the effective date of this Agreement, no
benefits shall be payable hereunder or under any other provision of this
Agreement.
Section 5. Change in Control of the Bank.
- ---------- ------------------------------
(a) This Agreement shall be binding upon and inure to the benefit of
all successors and assigns of the Bank and Executive. In the event of a change
in control of the Bank and the involuntary termination of Executive other than
for Cause (as defined in Section 6(b) hereof) or the voluntary termination of
Executive for good Reason (as defined in Section 5(c) hereof) within six (6)
months of such change in control, the Bank shall pay to Executive a lump sum
payment in accordance with SCHEDULE 3 hereto.
(b) For purposes of this Agreement, a change in control shall be
defined by reference of Part 574 of the regulations of the Office of Thrift
Supervision, or any successor provision thereto.
(c) For purposes of this Agreement, Good Reason shall be defined as:
(i) a change in Executive's status, title, position or responsibilities, which,
in Executive's reasonable judgment, does not represent a promotion from or is
inconsistent from his or her position immediately prior thereto; (ii) a
reduction in base salary; (iii) the relocation of the Bank's principal executive
offices or the location at which Executive is required to perform his or her
services to a location outside of a l5-mile radius of Strongsville, Ohio; or
(iv) a material reduction in benefits.
Section 6. Termination for Cause or as a Result of Certain
- ---------- -----------------------------------------------
Regulatory Actions.
-------------------
(a) In the event of the termination of Executive for Cause, the Bank
shall have no further obligations under this Agreement.
<PAGE> 128
(b) For purposes of the Agreement, Cause shall be defined as
termination as a result of Executive's personal dishonesty, incompetence,
willful misconduct, breach of fiduciary duty involving personal profit,
intentional failure to perform stated duties, willful violation of any law, rule
or regulation (other than traffic violations or similar offenses) or final
cease-and-desist order, or material breach of any provision of this Agreement.
(c) If any of the events specified in Section 563.39(b)(2) through (5)
of the OTS regulations (or any successor provision thereto) shall occur,
Executive's rights under this Agreement shall be determined in accordance with
the provisions of such Sections.
Section 7. Funding of Benefits.
- ---------- --------------------
The benefits provided under this Agreement shall be unfunded and shall
be made by the Bank from its general assets. The Bank will not establish any
special or separate fund or make any other segregation of assets to assure the
payment of benefits hereunder. The right of Executive or any successor or assign
of Executive to receive payments under this Agreement shall be no greater than
the rights of an unsecured creditor of the Bank.
Section 8. Notices.
- ---------- --------
All notices or other communications under this Agreement shall be made
in writing as follows:
(a) If to the Bank:
Corporate Secretary
The Strongsville Savings Bank
l4092 Pearl Road
Strongsville, Ohio 44l36
<PAGE> 129
(b) If to the Executive:
Ms. Paula M. Dewey
3892 Skyview Drive
Brunswick, Ohio 44212
Section 9. Claims Procedures.
- ---------- ------------------
Claims under this Agreement shall be made in writing by Executive or
his duly authorized representative pursuant to Section 8 hereof. All claims
shall be processed within l5 days of receipt by the Bank. If a claim under this
Agreement is wholly or partially denied, the Bank shall provide a written notice
to the Executive within five (5) business days of such denial, setting forth:
(a) The specific reason or reasons for the denial;
(b) Specific reference to the pertinent provisions of this Agreement
upon which the denial is based; and
(c) A description of any additional material or information necessary
for Executive to perfect the claim and an explanation of why such material or
information is necessary.
Within 15 days of receipt of such additional material or information or
receipt of Executive's request for a review of the denial of his claim, the Bank
shall provide Executive with its final determination of his claim.
In the event that Executive disputes the Bank's final determination of
his claim, such dispute shall be subject to final and binding arbitration in the
City of Cleveland, County of Cuyahoga, Ohio, pursuant to the rules and
procedures of the American Arbitration Association.
Section 10. Payment of Taxes.
- ----------- -----------------
The Bank shall have the right to deduct from all benefits paid
hereunder any Federal, state or local taxes required by law to be withheld with
respect to such benefit payments.
Section 11. No Attachment.
- ----------- --------------
Neither this Agreement nor any benefit payable under this Agreement
shall be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance or charge or to execution, attachment, levy or
similar process or assignment by operation of law, and any attempt, voluntary or
<PAGE> 130
involuntary, to effect any such action shall be void and of no effect.
Section 12. Entire Agreement: No Employment Agreement.
- ----------- -------------------------------------------
This Agreement contains the entire understanding between the parties
hereto with respect to the matters covered herein, except that this Agreement
shall not affect or operate to reduce any benefit or compensation inuring to
Executive of a kind elsewhere provided and not expressly provided in this
Agreement. This Agreement shall not be construed as an employment contract, nor
shall it be construed in any manner so as to restrict the Bank's or the
Executive's ability to terminate his/her employment with the Bank.
Section 13. Amendment.
- ----------- ----------
This Agreement may not be modified or amended by the parties hereto
except by an instrument in writing signed by all of the parties.
Section 14. Severability.
- ----------- -------------
If, for any reason, any provision of this Agreement is held invalid,
such invalidity shall not affect any other provision of this Agreement not held
so invalid, and each such other provision shall, to the full extent consistent
with the law, continue in full force and effect. If any provision of this
Agreement shall be held invalid in part, such invalidity shall in no way affect
the rest of such provision not held so invalid, and the rest of such provision,
together with all other provisions of this Agreement shall, to the full extent
consistent with the law, continue in full force and effect.
Section 15. Headings.
- ----------- ---------
The headings of Sections herein are included solely for convenience of
reference and shall not affect the meaning or interpretation of any provision of
this Agreement.
Section 16. Governing Law.
- ----------- --------------
This Agreement was made and entered into in the State of Ohio and the
laws of said State shall govern the interpretation, construction and legal
effect of this Agreement and the rights and liabilities of the parties hereto.
<PAGE> 131
IN WITNESS WHEREOF, the Bank has caused this Agreement to be executed, sealed
and attested on its behalf by its duly authorized officers and the Executive has
hereunto set his/her hand as of the day and year first above written.
ATTEST: THE STRONGSVILLE SAVINGS BANK
/s/ Thomas P. Perciak /s/ John F. Ziegler
- ---------------------------- -----------------------------
BY: [name] John F. Ziegler
[title] Vice President
[Corporate Seal]
WITNESS:
/s/ Cynthia W. Gannon /s/ Paula M. Dewey
- ---------------------------- -----------------------------
[name] Paula M. Dewey
[title] Vice President
Executive Corporate Secretary
<PAGE> 132
SCHEDULE 1
----------
POST-RETIREMENT BENEFITS FOR: PAULA M. DEWEY
The benefit payable to Paula M. Dewey at retirement (age 65) is $26,148 annually
for a period of twenty (20) years.
<PAGE> 133
SCHEDULE 2
----------
DISABILITY BENEFITS FOR: PAULA M. DEWEY
In case of your total disability prior to retirement, you will receive an annual
benefit of $17,124. Benefits will continue as long as you are totally disabled,
but no longer than age 65, at which time the Supplemental Retirement Benefits
shall be paid under the provisions of Section 2.
<PAGE> 134
SCHEDULE 3
SUMMARY OF BENEFITS FOR: PAULA M. DEWEY
UNDER SECTION 5. CHANGE IN CONTROL OF THE BANK
<TABLE>
<CAPTION>
Year of Change Lump Sum Payment
-------------- ----------------
<S> <C>
1995 6,094
1996 15,900
1997 29,291
1998 43,864
1999 59,729
2000 76,943
2001 95,582
2002 115,741
2003 137,961
2004 162,435
2005 189,610
2006 219,346
2007 251,751
2008 286,956
2009 325,113
</TABLE>
<PAGE> 135
EXHIBIT NO. 10L
<PAGE> 136
EXECUTIVE SUPPLEMENTAL BENEFIT AGREEMENT
This AGREEMENT made and entered into effective January l, l995 by and
between The Strongsville Savings Bank (the "Bank"), a corporation organized and
existing under the laws of the State of Ohio, with its principal office at l4092
Pearl Road, Strongsville, Ohio, and Cynthia W. Gannon (the "Executive").
WHEREAS, the Executive is and has been an employee of the Bank for many
years and currently is serving as the Bank's Treasurer;
WHEREAS, the Bank wishes to recognize that Executive has rendered
valuable services to the Bank and has made substantial contributions to the
success and growth of the Bank;
WHEREAS, the Bank wishes to have the benefit of Executive's continued
services and to provide an incentive to Executive to continue to provide such
services and contribute to the Bank's future success and growth;
WHEREAS, the Executive is willing to continue in the employ of the Bank
and to continue to perform such duties as assigned by the Board of Directors of
the Bank, if the Bank provides the benefits specified in this Agreement;
NOW, THEREFORE, in consideration of the mutual promises of the parties
and the mutual benefits to be gained by the performance thereof, the parties
hereto, intending to be legally bound hereby, agree as follows:
Section l. Definitions.
- ---------- ------------
As used in this Agreement, the following terms shall have the meanings
indicated:
(A) "Bank" shall mean, in addition to The Strongsville Savings Bank,
any parent or subsidiary of The Strongsville Savings Bank.
(B) "Retirement Date" shall mean the first day of any calendar month
following the Executive's 65th birthday on which the Executive elects to retire,
or such earlier date as the Board of Directors of the Bank, by resolution, may
agree to grant Executive early retirement.
<PAGE> 137
Section 2. Supplemental Retirement Benefits.
- ---------- ---------------------------------
Provided that Executive has remained continuously in the employ of the
Bank (except for normal vacation time and such other leaves of absence as may be
approved by the Board of Directors of the Bank), as of the first day of the
calendar month following Executive's Retirement Date and on each annual
anniversary date thereafter for a period of twenty (20) years, Executive shall
be entitled to an annual Supplemental Retirement Benefit under this Agreement.
The annual Supplemental Retirement Benefit shall be the amount payable in
accordance with SCHEDULE 1 to this Agreement. At the option of Executive, the
annual Supplemental Retirement Benefits provided by Section 2 may be paid by the
Bank in a single lump sum, discounted at an annual rate of six percent (6%) per
annum applied to each future payment from the time it would have become payable
to the date the lump sum is paid.
Section 3. Disability Benefit.
- ---------- -------------------
(a) In the event of the total and permanent disability of Executive
while in the employ of the Bank and prior to the Retirement Date, Executive
shall receive an annual disability payment in accordance with SCHEDULE 2 to this
Agreement, payable in equal monthly installments, commencing on the first day of
the month following the final determination of disability. The annual disability
payments shall continue until the first day of the calendar month following
Executive's Retirement Date, at which time the commencement of Supplemental
Retirement Benefits shall occur pursuant to Section 2 hereof.
(b) For purposes of this Agreement, total disability means your
inability to engage in your occupation as a result of a bodily injury or
sickness. If this disability lasts for 24 consecutive months, then for the rest
of the period of such disability, total disability means your inability to
engage in any gainful occupation for which you are fitted due to your education,
training and experience. Any one of the following events also constitutes total
disability: the total and irrecoverable loss of speech or hearing; the loss of
sight of both eyes; the severance of both hands at or above the wrist; the
severance of both feet at or above the ankles; or the severance of one entire
hand and one entire foot.
(c) If any dispute arises as to whether the Executive is or was
physically or mentally unable to perform his duties pursuant to this Agreement,
or whether his disability has ceased and he is able to resume his duties, the
parties shall submit such questions to a licensed physician agreed upon by the
parties, or, if the parties are unable to agree, to a licensed physician
appointed by the President of the Academy of Medicine of Cleveland, Cleveland,
Ohio, at the request of either party. The Executive shall submit to such
examinations and provide information as such physician may request and the
determination of such physical as to Executive's physical or mental condition
shall be binding and conclusive on the parties. The Bank agrees to pay the cost
of any such physician and examinations.
<PAGE> 138
Section 4. Death Benefits.
- ---------- ---------------
(a) In the event that Executive dies while in the employ of the Bank
and prior to the Retirement Date, Executive's designated beneficiary shall
succeed to the rights of Executive to receive the Supplemental Retirement
Benefit under Section 2 hereof, and the date of Executive's death shall be
deemed to be the Retirement Date hereunder. If no beneficiary has been
designated by Executive, such amounts shall be paid to Executive's estate in
annual installments, it being expressly acknowledged that Executive's estate has
the right to demand the lump sum payment of the Supplemental Retirement Benefit.
(b) Notwithstanding Section 4(a) above, if an Executive commits suicide
(while sane or insane) defrauds or makes deceptive statements regarding health
or medical history within two years of the effective date of this Agreement, no
benefits shall be payable hereunder or under any other provision of this
Agreement.
Section 5. Change in Control of the Bank.
- ---------- ------------------------------
(a) This Agreement shall be binding upon and inure to the benefit of
all successors and assigns of the Bank and Executive. In the event of a change
in control of the Bank and the involuntary termination of Executive other than
for Cause (as defined in Section 6(b) hereof) or the voluntary termination of
Executive for good Reason (as defined in Section 5(c) hereof) within six (6)
months of such change in control, the Bank shall pay to Executive a lump sum
payment in accordance with SCHEDULE 3 hereto.
(b) For purposes of this Agreement, a change in control shall be
defined by reference of Part 574 of the regulations of the Office of Thrift
Supervision, or any successor provision thereto.
(c) For purposes of this Agreement, Good Reason shall be defined as:
(i) a change in Executive's status, title, position or responsibilities, which,
in Executive's reasonable judgment, does not represent a promotion from or is
inconsistent from his or her position immediately prior thereto; (ii) a
reduction in base salary; (iii) the relocation of the Bank's principal executive
offices or the location at which Executive is required to perform his or her
services to a location outside of a l5-mile radius of Strongsville, Ohio; or
(iv) a material reduction in benefits.
Section 6. Termination for Cause or as a Result of Certain
- ---------- -----------------------------------------------
Regulatory Actions.
-------------------
(a) In the event of the termination of Executive for Cause, the Bank
shall have no further obligations under this Agreement.
<PAGE> 139
(b) For purposes of the Agreement, Cause shall be defined as
termination as a result of Executive's personal dishonesty, incompetence,
willful misconduct, breach of fiduciary duty involving personal profit,
intentional failure to perform stated duties, willful violation of any law, rule
or regulation (other than traffic violations or similar offenses) or final
cease-and-desist order, or material breach of any provision of this Agreement.
(c) If any of the events specified in Section 563.39(b)(2) through (5)
of the OTS regulations (or any successor provision thereto) shall occur,
Executive's rights under this Agreement shall be determined in accordance with
the provisions of such Sections.
Section 7. Funding of Benefits.
- ---------- --------------------
The benefits provided under this Agreement shall be unfunded and shall
be made by the Bank from its general assets. The Bank will not establish any
special or separate fund or make any other segregation of assets to assure the
payment of benefits hereunder. The right of Executive or any successor or assign
of Executive to receive payments under this Agreement shall be no greater than
the rights of an unsecured creditor of the Bank.
Section 8. Notices.
- ---------- --------
All notices or other communications under this Agreement shall be made
in writing as follows:
(a) If to the Bank:
Corporate Secretary
The Strongsville Savings Bank
l4092 Pearl Road
Strongsville, Ohio 44l36
<PAGE> 140
(b) If to the Executive:
Ms. Cynthia W. Gannon
409 Nantucket Drive
Avon Lake, Ohio 44012
Section 9. Claims Procedures.
- ---------- ------------------
Claims under this Agreement shall be made in writing by Executive or
his duly authorized representative pursuant to Section 8 hereof. All claims
shall be processed within l5 days of receipt by the Bank. If a claim under this
Agreement is wholly or partially denied, the Bank shall provide a written notice
to the Executive within five (5) business days of such denial, setting forth:
(a) The specific reason or reasons for the denial;
(b) Specific reference to the pertinent provisions of this Agreement
upon which the denial is based; and
(c) A description of any additional material or information necessary
for Executive to perfect the claim and an explanation of why such material or
information is necessary.
Within 15 days of receipt of such additional material or information or
receipt of Executive's request for a review of the denial of his claim, the Bank
shall provide Executive with its final determination of his claim.
In the event that Executive disputes the Bank's final determination of
his claim, such dispute shall be subject to final and binding arbitration in the
City of Cleveland, County of Cuyahoga, Ohio, pursuant to the rules and
procedures of the American Arbitration Association.
Section 10. Payment of Taxes.
- ----------- -----------------
The Bank shall have the right to deduct from all benefits paid
hereunder any Federal, state or local taxes required by law to be withheld with
respect to such benefit payments.
Section 11. No Attachment.
- ----------- --------------
Neither this Agreement nor any benefit payable under this Agreement
shall be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance or charge or to execution, attachment, levy or
similar process or assignment by operation of law, and any attempt, voluntary or
<PAGE> 141
involuntary, to effect any such action shall be void and of no effect.
Section 12. Entire Agreement: No Employment Agreement.
- ----------- -------------------------------------------
This Agreement contains the entire understanding between the parties
hereto with respect to the matters covered herein, except that this Agreement
shall not affect or operate to reduce any benefit or compensation inuring to
Executive of a kind elsewhere provided and not expressly provided in this
Agreement. This Agreement shall not be construed as an employment contract, nor
shall it be construed in any manner so as to restrict the Bank's or the
Executive's ability to terminate his/her employment with the Bank.
Section 13. Amendment.
- ----------- ----------
This Agreement may not be modified or amended by the parties hereto
except by an instrument in writing signed by all of the parties.
Section 14. Severability.
- ----------- -------------
If, for any reason, any provision of this Agreement is held invalid,
such invalidity shall not affect any other provision of this Agreement not held
so invalid, and each such other provision shall, to the full extent consistent
with the law, continue in full force and effect. If any provision of this
Agreement shall be held invalid in part, such invalidity shall in no way affect
the rest of such provision not held so invalid, and the rest of such provision,
together with all other provisions of this Agreement shall, to the full extent
consistent with the law, continue in full force and effect.
Section 15. Headings.
- ----------- ---------
The headings of Sections herein are included solely for convenience of
reference and shall not affect the meaning or interpretation of any provision of
this Agreement.
Section 16. Governing Law.
- ----------- --------------
This Agreement was made and entered into in the State of Ohio and the
laws of said State shall govern the interpretation, construction and legal
effect of this Agreement and the rights and liabilities of the parties hereto.
<PAGE> 142
IN WITNESS WHEREOF, the Bank has caused this Agreement to be executed, sealed
and attested on its behalf by its duly authorized officers and the Executive has
hereunto set his/her hand as of the day and year first above written.
ATTEST: THE STRONGSVILLE SAVINGS BANK
/s/ Paula M. Dewey /s/ John F. Ziegler
- ----------------------- ---------------------------------------
BY: [name] John F. Ziegler
[title] Vice President
[Corporate Seal]
WITNESS:
/s/ Thomas P. Perciak /s/ Cynthia W. Gannon
- ----------------------- ---------------------------------------
[name] Cynthia W. Gannon
[title] Vice President - Treasurer
Executive
<PAGE> 143
SCHEDULE 1
----------
POST-RETIREMENT BENEFITS FOR: CYNTHIA W. GANNON
The benefit payable to Cynthia W. Gannon at retirement (age 65) is $6,668
annually for a period of twenty (20) years.
<PAGE> 144
SCHEDULE 2
----------
DISABILITY BENEFITS FOR: CYNTHIA W. GANNON
In the case of your total disability prior to retirement, you will receive an
annual benefit of $1,872. Benefits will continue as long as you are totally
disabled, but no longer than age 65, at which time the Supplemental Retirement
Benefits shall be paid under the provisions of Section 2.
<PAGE> 145
SCHEDULE 3
----------
SUMMARY OF BENEFITS FOR: CYNTHIA W. GANNON
UNDER SECTION 5. CHANGE IN CONTROL OF THE BANK
<TABLE>
<CAPTION>
Year of Change Lump Sum Payment
-------------- ----------------
<S> <C>
1995 $ 813
1996 1,525
1997 3,079
1998 4,782
1999 6,637
2000 8,656
2001 10,857
2002 13,255
2003 15,908
2004 18,858
2005 22,020
2006 25,504
2007 29,330
2008 33,499
2009 38,040
2010 42,974
2011 48,326
2012 54,129
2013 60,347
2014 67,007
2015 74,149
2016 81,795
2017 89,984
2018 98,805
2019 108,252
2020 118,370
2021 129,207
2022 140,811
</TABLE>
<PAGE> 146
EXHIBIT NO. 10m
<PAGE> 147
EXECUTIVE SUPPLEMENTAL BENEFIT AGREEMENT
This AGREEMENT made and entered into effective January l, l995 by and
between The Strongsville Savings Bank (the "Bank"), a corporation organized and
existing under the laws of the State of Ohio, with its principal office at l4092
Pearl Road, Strongsville, Ohio, and William J. Harr, Jr. (the "Executive").
WHEREAS, the Executive is and has been an employee of the Bank for many
years and currently is serving as the Bank's Vice President of Branch
Operations;
WHEREAS, the Bank wishes to recognize that Executive has rendered
valuable services to the Bank and has made substantial contributions to the
success and growth of the Bank;
WHEREAS, the Bank wishes to have the benefit of Executive's continued
services and to provide an incentive to Executive to continue to provide such
services and contribute to the Bank's future success and growth;
WHEREAS, the Executive is willing to continue in the employ of the Bank
and to continue to perform such duties as assigned by the Board of Directors of
the Bank, if the Bank provides the benefits specified in this Agreement;
NOW, THEREFORE, in consideration of the mutual promises of the parties
and the mutual benefits to be gained by the performance thereof, the parties
hereto, intending to be legally bound hereby, agree as follows:
Section l. Definitions.
- ---------- ------------
As used in this Agreement, the following terms shall have the meanings
indicated:
(A) "Bank" shall mean, in addition to The Strongsville Savings Bank,
any parent or subsidiary of The Strongsville Savings Bank.
(B) "Retirement Date" shall mean the first day of any calendar month
following the Executive's 65th birthday on which the Executive elects to retire,
or such earlier date as the Board of Directors of the Bank, by resolution, may
agree to grant Executive early retirement.
<PAGE> 148
Section 2. Supplemental Retirement Benefits.
- ---------- ---------------------------------
Provided that Executive has remained continuously in the employ of the
Bank (except for normal vacation time and such other leaves of absence as may be
approved by the Board of Directors of the Bank), as of the first day of the
calendar month following Executive's Retirement Date and on each annual
anniversary date thereafter for a period of twenty (20) years, Executive shall
be entitled to an annual Supplemental Retirement Benefit under this Agreement.
The annual Supplemental Retirement Benefit shall be the amount payable in
accordance with SCHEDULE 1 to this Agreement. At the option of Executive, the
annual Supplemental Retirement Benefits provided by Section 2 may be paid by the
Bank in a single lump sum, discounted at an annual rate of six percent (6%) per
annum applied to each future payment from the time it would have become payable
to the date the lump sum is paid.
Section 3. Disability Benefit.
- ---------- -------------------
(a) In the event of the total and permanent disability of Executive
while in the employ of the Bank and prior to the Retirement Date, Executive
shall receive an annual disability payment in accordance with SCHEDULE 2 to this
Agreement, payable in equal monthly installments, commencing on the first day of
the month following the final determination of disability. The annual disability
payments shall continue until the first day of the calendar month following
Executive's Retirement Date, at which time the commencement of Supplemental
Retirement Benefits shall occur pursuant to Section 2 hereof.
(b) For purposes of this Agreement, total disability means your
inability to engage in your occupation as a result of a bodily injury or
sickness. If this disability lasts for 24 consecutive months, then for the rest
of the period of such disability, total disability means your inability to
engage in any gainful occupation for which you are fitted due to your education,
training and experience. Any one of the following events also constitutes total
disability: the total and irrecoverable loss of speech or hearing; the loss of
sight of both eyes; the severance of both hands at or above the wrist; the
severance of both feet at or above the ankles; or the severance of one entire
hand and one entire foot.
(c) If any dispute arises as to whether the Executive is or was
physically or mentally unable to perform his duties pursuant to this Agreement,
or whether his disability has ceased and he is able to resume his duties, the
parties shall submit such questions to a licensed physician agreed upon by the
parties, or, if the parties are unable to agree, to a licensed physician
appointed by the President of the Academy of Medicine of Cleveland, Cleveland,
Ohio, at the request of either party. The Executive shall submit to such
examinations and provide information as such physician may request and the
determination of such physical as to Executive's physical or mental condition
shall be binding and conclusive on the parties. The Bank agrees to pay the cost
of any such physician and examinations.
<PAGE> 149
Section 4. Death Benefits.
- ---------- ---------------
(a) In the event that Executive dies while in the employ of the Bank
and prior to the Retirement Date, Executive's designated beneficiary shall
succeed to the rights of Executive to receive the Supplemental Retirement
Benefit under Section 2 hereof, and the date of Executive's death shall be
deemed to be the Retirement Date hereunder. If no beneficiary has been
designated by Executive, such amounts shall be paid to Executive's estate in
annual installments, it being expressly acknowledged that Executive's estate has
the right to demand the lump sum payment of the Supplemental Retirement Benefit.
(b) Notwithstanding Section 4(a) above, if an Executive commits suicide
(while sane or insane) defrauds or makes deceptive statements regarding health
or medical history within two years of the effective date of this Agreement, no
benefits shall be payable hereunder or under any other provision of this
Agreement.
Section 5. Change in Control of the Bank.
- ---------- ------------------------------
(a) This Agreement shall be binding upon and inure to the benefit of
all successors and assigns of the Bank and Executive. In the event of a change
in control of the Bank and the involuntary termination of Executive other than
for Cause (as defined in Section 6(b) hereof) or the voluntary termination of
Executive for good Reason (as defined in Section 5(c) hereof) within six (6)
months of such change in control, the Bank shall pay to Executive a lump sum
payment in accordance with SCHEDULE 3 hereto.
(b) For purposes of this Agreement, a change in control shall be
defined by reference of Part 574 of the regulations of the Office of Thrift
Supervision, or any successor provision thereto.
(c) For purposes of this Agreement, Good Reason shall be defined as:
(i) a change in Executive's status, title, position or responsibilities, which,
in Executive's reasonable judgment, does not represent a promotion from or is
inconsistent from his or her position immediately prior thereto; (ii) a
reduction in base salary; (iii) the relocation of the Bank's principal executive
offices or the location at which Executive is required to perform his or her
services to a location outside of a l5-mile radius of Strongsville, Ohio; or
(iv) a material reduction in benefits.
Section 6. Termination for Cause or as a Result of Certain
- ---------- -----------------------------------------------
Regulatory Actions.
-------------------
(a) In the event of the termination of Executive for Cause, the Bank
shall have no further obligations under this Agreement.
<PAGE> 150
(b) For purposes of the Agreement, Cause shall be defined as
termination as a result of Executive's personal dishonesty, incompetence,
willful misconduct, breach of fiduciary duty involving personal profit,
intentional failure to perform stated duties, willful violation of any law, rule
or regulation (other than traffic violations or similar offenses) or final
cease-and-desist order, or material breach of any provision of this Agreement.
(c) If any of the events specified in Section 563.39(b)(2) through (5)
of the OTS regulations (or any successor provision thereto) shall occur,
Executive's rights under this Agreement shall be determined in accordance with
the provisions of such Sections.
Section 7. Funding of Benefits.
- ---------- --------------------
The benefits provided under this Agreement shall be unfunded and shall
be made by the Bank from its general assets. The Bank will not establish any
special or separate fund or make any other segregation of assets to assure the
payment of benefits hereunder. The right of Executive or any successor or assign
of Executive to receive payments under this Agreement shall be no greater than
the rights of an unsecured creditor of the Bank.
Section 8. Notices.
- ---------- --------
All notices or other communications under this Agreement shall be made
in writing as follows:
(a) If to the Bank:
Corporate Secretary
The Strongsville Savings Bank
l4092 Pearl Road
Strongsville, Ohio 44l36
<PAGE> 151
(b) If to the Executive:
Mr. William J. Harr, Jr.
10619 Lake Meadows Drive
Strongsville, Ohio 44136
Section 9. Claims Procedures.
- ---------- ------------------
Claims under this Agreement shall be made in writing by Executive or
his duly authorized representative pursuant to Section 8 hereof. All claims
shall be processed within l5 days of receipt by the Bank. If a claim under this
Agreement is wholly or partially denied, the Bank shall provide a written notice
to the Executive within five (5) business days of such denial, setting forth:
(a) The specific reason or reasons for the denial;
(b) Specific reference to the pertinent provisions of this Agreement
upon which the denial is based; and
(c) A description of any additional material or information necessary
for Executive to perfect the claim and an explanation of why such material or
information is necessary.
Within 15 days of receipt of such additional material or information or
receipt of Executive's request for a review of the denial of his claim, the Bank
shall provide Executive with its final determination of his claim.
In the event that Executive disputes the Bank's final determination of
his claim, such dispute shall be subject to final and binding arbitration in the
City of Cleveland, County of Cuyahoga, Ohio, pursuant to the rules and
procedures of the American Arbitration Association.
Section 10. Payment of Taxes.
- ----------- -----------------
The Bank shall have the right to deduct from all benefits paid
hereunder any Federal, state or local taxes required by law to be withheld with
respect to such benefit payments.
Section 11. No Attachment.
- ----------- --------------
Neither this Agreement nor any benefit payable under this Agreement
shall be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance or charge or to execution, attachment, levy or
similar process or assignment by operation of law, and any attempt, voluntary or
<PAGE> 152
involuntary, to effect any such action shall be void and of no effect.
Section 12. Entire Agreement: No Employment Agreement.
- ----------- -------------------------------------------
This Agreement contains the entire understanding between the parties
hereto with respect to the matters covered herein, except that this Agreement
shall not affect or operate to reduce any benefit or compensation inuring to
Executive of a kind elsewhere provided and not expressly provided in this
Agreement. This Agreement shall not be construed as an employment contract, nor
shall it be construed in any manner so as to restrict the Bank's or the
Executive's ability to terminate his/her employment with the Bank.
Section 13. Amendment.
- ----------- ----------
This Agreement may not be modified or amended by the parties hereto
except by an instrument in writing signed by all of the parties.
Section 14. Severability.
- ----------- -------------
If, for any reason, any provision of this Agreement is held invalid,
such invalidity shall not affect any other provision of this Agreement not held
so invalid, and each such other provision shall, to the full extent consistent
with the law, continue in full force and effect. If any provision of this
Agreement shall be held invalid in part, such invalidity shall in no way affect
the rest of such provision not held so invalid, and the rest of such provision,
together with all other provisions of this Agreement shall, to the full extent
consistent with the law, continue in full force and effect.
Section 15. Headings.
- ----------- ---------
The headings of Sections herein are included solely for convenience of
reference and shall not affect the meaning or interpretation of any provision of
this Agreement.
Section 16. Governing Law.
- ----------- --------------
This Agreement was made and entered into in the State of Ohio and the
laws of said State shall govern the interpretation, construction and legal
effect of this Agreement and the rights and liabilities of the parties hereto.
<PAGE> 153
IN WITNESS WHEREOF, the Bank has caused this Agreement to be executed, sealed
and attested on its behalf by its duly authorized officers and the Executive has
hereunto set his/her hand as of the day and year first above written.
ATTEST: THE STRONGSVILLE SAVINGS BANK
/s/ Paula M. Dewey /s/ John F. Ziegler
- -------------------------- -----------------------------
BY: [name] John F. Ziegler
[title] Vice President
[Corporate Seal]
WITNESS:
/s/ Cynthia W. Gannon /s/ William J. Harr, Jr.
- -------------------------- -----------------------------
[name] William J. Harr, Jr.
[title] Vice President
Executive
<PAGE> 154
SCHEDULE 1
----------
POST-RETIREMENTS BENEFIT FOR: WILLIAM J. HARR, JR.
The benefit payable to William J. Harr, Jr. at retirement (age 65) is $23,585
annually for a period of twenty (20) years.
<PAGE> 155
SCHEDULE 2
----------
DISABILITY BENEFITS FOR: WILLIAM J. HARR, JR.
In the case of your total disability prior to retirement, you will receive an
annual benefit of $5,717. Benefits will continue as long as you are totally
disabled, but no longer than age 65, at which time the Supplemental Retirement
Benefits shall be paid under the provisions of Section 2.
<PAGE> 156
SCHEDULE 3
SUMMARY OF BENEFITS FOR: WILLIAM J. HARR, JR.
<TABLE>
<CAPTION>
Year of Change Lump Sum Payment
-------------- ----------------
<S> <C>
1995 $ 2,031
1996 3,603
1997 8,182
1998 13,211
1999 18,701
2000 24,728
2001 31,317
2002 38,522
2003 46,502
2004 55,422
2005 64,990
2006 75,591
2007 87,269
2008 100,060
2009 114,038
2010 129,223
2011 145,706
2012 163,523
2013 182,567
2014 202,904
2015 224,607
2016 247,765
2017 272,451
2018 298,777
2019 326,821
2020 356,689
2021 388,471
2022 422,261
2023 458,292
2024 496,536
2025 537,099
2026 580,125
2027 625,710
</TABLE>
<PAGE> 157
EXHIBIT NO. 10n
<PAGE> 158
EXECUTIVE SUPPLEMENTAL BENEFIT AGREEMENT
This AGREEMENT made and entered into effective January l, l996 by and
between The Strongsville Savings Bank (the "Bank"), a corporation organized and
existing under the laws of the State of Ohio, with its principal office at l4092
Pearl Road, Strongsville, Ohio, and Deborah A. Perciak (the "Executive").
WHEREAS, the Executive is and has been an employee of the Bank for many
years and currently is serving as the Bank's Vice President of Data Operations;
WHEREAS, the Bank wishes to recognize that Executive has rendered
valuable services to the Bank and has made substantial contributions to the
success and growth of the Bank;
WHEREAS, the Bank wishes to have the benefit of Executive's continued
services and to provide an incentive to Executive to continue to provide such
services and contribute to the Bank's future success and growth;
WHEREAS, the Executive is willing to continue in the employ of the Bank
and to continue to perform such duties as assigned by the Board of Directors of
the Bank, if the Bank provides the benefits specified in this Agreement;
NOW, THEREFORE, in consideration of the mutual promises of the parties
and the mutual benefits to be gained by the performance thereof, the parties
hereto, intending to be legally bound hereby, agree as follows:
Section l. Definitions.
- ---------- ------------
As used in this Agreement, the following terms shall have the meanings
indicated:
(A) "Bank" shall mean, in addition to The Strongsville Savings Bank,
any parent or subsidiary of The Strongsville Savings Bank.
(B) "Retirement Date" shall mean the first day of any calendar month
following the Executive's 65th birthday on which the Executive elects to retire,
or such earlier date as the Board of Directors of the Bank, by resolution, may
agree to grant Executive early retirement.
<PAGE> 159
Section 2. Supplemental Retirement Benefits.
- ---------- ---------------------------------
Provided that Executive has remained continuously in the employ of the
Bank (except for normal vacation time and such other leaves of absence as may be
approved by the Board of Directors of the Bank), as of the first day of the
calendar month following Executive's Retirement Date and on each annual
anniversary date thereafter for a period of twenty (20) years, Executive shall
be entitled to an annual Supplemental Retirement Benefit under this Agreement.
The annual Supplemental Retirement Benefit shall be the amount payable in
accordance with SCHEDULE 1 to this Agreement. At the option of Executive, the
annual Supplemental Retirement Benefits provided by Section 2 may be paid by the
Bank in a single lump sum, discounted at an annual rate of six percent (6%) per
annum applied to each future payment from the time it would have become payable
to the date the lump sum is paid.
Section 3. Disability Benefit.
- ---------- -------------------
(a) In the event of the total and permanent disability of Executive
while in the employ of the Bank and prior to the Retirement Date, Executive
shall receive an annual disability payment in accordance with SCHEDULE 2 to this
Agreement, payable in equal monthly installments, commencing on the first day of
the month following the final determination of disability. The annual disability
payments shall continue until the first day of the calendar month following
Executive's Retirement Date, at which time the commencement of Supplemental
Retirement Benefits shall occur pursuant to Section 2 hereof.
(b) For purposes of this Agreement, total disability means your
inability to engage in your occupation as a result of a bodily injury or
sickness. If this disability lasts for 24 consecutive months, then for the rest
of the period of such disability, total disability means your inability to
engage in any gainful occupation for which you are fitted due to your education,
training and experience. Any one of the following events also constitutes total
disability: the total and irrecoverable loss of speech or hearing; the loss of
sight of both eyes; the severance of both hands at or above the wrist; the
severance of both feet at or above the ankles; or the severance of one entire
hand and one entire foot.
(c) If any dispute arises as to whether the Executive is or was
physically or mentally unable to perform his duties pursuant to this Agreement,
or whether his disability has ceased and he is able to resume his duties, the
parties shall submit such questions to a licensed physician agreed upon by the
parties, or, if the parties are unable to agree, to a licensed physician
appointed by the
<PAGE> 160
President of the Academy of Medicine of Cleveland, Cleveland, Ohio, at the
request of either party. The Executive shall submit to such examinations and
provide information as such physician may request and the determination of such
physical as to Executive's physical or mental condition shall be binding and
conclusive on the parties. The Bank agrees to pay the cost of any such physician
and examinations.
Section 4. Death Benefits.
- ---------- ---------------
(a) In the event that Executive dies while in the employ of the Bank
and prior to the Retirement Date, Executive's designated beneficiary shall
succeed to the rights of Executive to receive the Supplemental Retirement
Benefit under Section 2 hereof, and the date of Executive's death shall be
deemed to be the Retirement Date hereunder. If no beneficiary has been
designated by Executive, such amounts shall be paid to Executive's estate in
annual installments, it being expressly acknowledged that Executive's estate has
the right to demand the lump sum payment of the Supplemental Retirement Benefit.
(b) Notwithstanding Section 4(a) above, if an Executive commits suicide
(while sane or insane) defrauds or makes deceptive statements regarding health
or medical history within two years of the effective date of this Agreement, no
benefits shall be payable hereunder or under any other provision of this
Agreement.
Section 5. Change in Control of the Bank.
- ---------- ------------------------------
(a) For purposes of this Agreement, a change in control shall be
defined by reference of Part 574 of the regulations of the Office of Thrift
Supervision, or any successor provision thereto.
(c) For purposes of this Agreement, Good Reason shall be defined as:
(i) a change in Executive's status, title, position or responsibilities, which,
in Executive's reasonable judgment, does not represent a promotion from or is
inconsistent from his or her position immediately prior thereto; (ii) a
reduction in base salary; (iii) the relocation of the Bank's principal executive
offices or the location at which Executive is required to perform his or her
services to a location outside of a l5-mile radius of Strongsville, Ohio; or
(iv) a material reduction in benefits.
Section 6. Termination for Cause or as a Result of Certain
- ---------- -----------------------------------------------
Regulatory Actions.
-------------------
(a) In the event of the termination of Executive for Cause, the Bank
shall have no further obligations under this Agreement.
(b) For purposes of the Agreement, Cause shall be defined as
termination as a result of Executive's personal dishonesty, incompetence,
willful misconduct, breach of fiduciary duty involving personal profit,
intentional failure to perform stated duties, willful violation of any law, rule
or regulation (other
<PAGE> 161
than traffic violations or similar offenses) or final cease-and-desist order, or
material breach of any provision of this Agreement.
(c) If any of the events specified in Section 563.39(b)(2) through (5)
of the OTS regulations (or any successor provision thereto) shall occur,
Executive's rights under this Agreement shall be determined in accordance with
the provisions of such Sections.
Section 7. Funding of Benefits.
- ---------- --------------------
The benefits provided under this Agreement shall be unfunded and shall
be made by the Bank from its general assets. The Bank will not establish any
special or separate fund or make any other segregation of assets to assure the
payment of benefits hereunder. The right of Executive or any successor or assign
of Executive to receive payments under this Agreement shall be no greater than
the rights of an unsecured creditor of the Bank.
Section 8. Notices.
- ---------- --------
All notices or other communications under this Agreement shall be made
in writing as follows:
(a) If to the Bank:
Corporate Secretary
The Strongsville Savings Bank
l4092 Pearl Road
Strongsville, Ohio 44l36
(b) If to the Executive:
Ms. Deborah A. Perciak
17429 Falmouth Drive
Strongsville, Ohio 44136
Section 9. Claims Procedures.
- ---------- ------------------
Claims under this Agreement shall be made in writing by Executive or
his duly authorized representative pursuant to Section 8 hereof. All claims
shall be processed within l5 days of receipt by the Bank. If a claim under this
Agreement is wholly or partially denied, the Bank shall provide a written notice
to the Executive within five (5) business days of such denial, setting forth:
(a) The specific reason or reasons for the denial;
(b) Specific reference to the pertinent provisions of this
Agreement upon which the denial is based; and
(c) A description of any additional material or information necessary
for Executive to perfect the claim and an explanation of
<PAGE> 162
why such material or information is necessary.
Within 15 days of receipt of such additional material or information or
receipt of Executive's request for a review of the denial of his claim, the Bank
shall provide Executive with its final determination of his claim.
In the event that Executive disputes the Bank's final determination of
his claim, such dispute shall be subject to final and binding arbitration in the
City of Cleveland, County of Cuyahoga, Ohio, pursuant to the rules and
procedures of the American Arbitration Association.
Section 10. Payment of Taxes.
- ----------- -----------------
The Bank shall have the right to deduct from all benefits paid
hereunder any Federal, state or local taxes required by law to be withheld with
respect to such benefit payments.
Section 11. No Attachment.
- ----------- --------------
Neither this Agreement nor any benefit payable under this Agreement
shall be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance or charge or to execution, attachment, levy or
similar process or assignment by operation of law, and any attempt, voluntary or
involuntary, to effect any such action shall be void and of no effect.
Section 12. Entire Agreement: No Employment Agreement.
- ----------- -------------------------------------------
This Agreement contains the entire understanding between the parties
hereto with respect to the matters covered herein, except that this Agreement
shall not affect or operate to reduce any benefit or compensation inuring to
Executive of a kind elsewhere provided and not expressly provided in this
Agreement. This Agreement shall not be construed as an employment contract, nor
shall it be construed in any manner so as to restrict the Bank's or the
Executive's ability to terminate his/her employment with the Bank.
Section 13. Amendment.
- ----------- ----------
This Agreement may not be modified or amended by the parties hereto
except by an instrument in writing signed by all of the parties.
Section 14. Severability.
- ----------- -------------
If, for any reason, any provision of this Agreement is held invalid,
such invalidity shall not affect any other provision of this Agreement not held
so invalid, and each such other provision shall, to the full extent consistent
with the law, continue in full force and effect. If any provision of this
Agreement shall be held
<PAGE> 163
invalid in part, such invalidity shall in no way affect the rest of such
provision not held so invalid, and the rest of such provision, together with all
other provisions of this Agreement shall, to the full extent consistent with the
law, continue in full force and effect.
Section 15. Headings.
- ----------- ---------
The headings of Sections herein are included solely for convenience of
reference and shall not affect the meaning or interpretation of any provision of
this Agreement.
Section 16. Governing Law.
- ----------- --------------
This Agreement was made and entered into in the State of Ohio and the
laws of said State shall govern the interpretation, construction and legal
effect of this Agreement and the rights and liabilities of the parties hereto.
IN WITNESS WHEREOF, the Bank has caused this Agreement to be executed, sealed
and attested on its behalf by its duly authorized officers and the Executive has
hereunto set his/her hand as of the day and year first above written.
ATTEST: THE STRONGSVILLE SAVINGS BANK
/s/ Paula M. Dewey /s/ John F. Ziegler
- --------------------------------- ---------------------------------------
BY: [name] John F. Ziegler
[title] Vice President
[Corporate Seal]
Executive
WITNESS:
/s/ Cynthia W. Gannon /s/ Deborah A. Perciak
- --------------------------------- ---------------------------------------
[name] Deborah A. Perciak
[title] Vice President
<PAGE> 164
SCHEDULE 1
----------
POST-RETIREMENT BENEFITS FOR: DEBORAH A. PERCIAK
The benefit payable to Deborah A. Perciak at retirement (age 65) is $19,850
annually for a period of twenty (20) years.
<PAGE> 165
SCHEDULE 2
----------
DISABILITY BENEFITS FOR: DEBORAH A. PERCIAK
In the case of your total disability prior to retirement, you will receive an
annual benefit of $5,683. Benefits will continue as long as you are totally
disabled, but no longer than age 65, at which time the Supplemental Retirement
Benefits shall be paid under the provisions of Section 2.
<PAGE> 166
SCHEDULE 3
----------
SUMMARY OF BENEFITS FOR: DEBORAH A. PERCIAK UNDER SECTION 5.
CHANGE IN CONTROL OF THE BANK
<TABLE>
<CAPTION>
Year of Change Lump Sum Payment
-------------- ----------------
<S> <C>
1996 5,121
1997 8,567
1998 14,770
1999 21,497
2000 28,789
2001 36,682
2002 45,219
2003 54,456
2004 64,571
2005 75,645
2006 87,555
2007 100,534
2008 114,623
2009 129,874
2010 146,346
2011 164,107
2012 183,245
2013 203,876
2014 225,958
2015 249,570
</TABLE>
<PAGE> 167
EXHIBIT NO. 13
<PAGE> 168
1995
ANNUAL
REPORT
[PHOTO]
[PHOTO]
[PHOTO]
[GRAPHIC]
[The Strongsville Savings Bank Logo]
<PAGE> 169
1995 saw the continuation of our francise expansion that began in 1994.
COLUMBIA STATION OFFICE [PHOTO]
26700 Royalton Road
Columbia Station, OH 44028
236-3400
Manager;
Madeline Nosal
AVON OFFICE [PHOTO]
36839 Detroit Rd.
Avon, OH 44011
934-2565
1-800-724-7887
Manager;
Timothy Gossman
BRUNSWICK OFFICE [PHOTO]
1136 Pearl Rd.
Brunswick, OH 44212
225-9966
Manager;
W. Thomas Dewey
1995 - A YEAR OF EXPANSION
City officials and the business community warmly welcomed the opening
of our new Broadview Heights office.
Our August purchase of the Columbia Station office enabled us to expand
the areas serviced in Lorain County.
We are happy to report that at the end of 1995 over 38% of eligible
shareholders were participating in the dividend reinvestment program. We are
equally pleased with our December 15th dividend - our twenty-eighth consecutive
quarterly dividend.
Along with the celebration of Strongsville Savings' 35 years of
continuous community service, 1996 will bring some new additions to our
financial network.
The Avon office opens in March with the arrival of spring. This will
be the fourth Community Financial Center, of office, in Lorain County.
Strong growth in Medina County led to our expansion there. The opening
of the Brunswick facility during the beautiful month of May will strengthen our
service to the Medina County area.
The success of Strongsville Savings' franchise comes down to an
attitude, customer service. All of our customers are encouraged to come in and
be greeted by a friendly smile. The availability of Automated Teller Machines,
with twenty-four hour access, is an added optional service. One-on-one contact
with experienced personnel is our proven method in meeting customers' financial
needs.
Customer Service
The Strongsville Savings
Tradition.
Strongsville Savings Bank provides financing for residential construction, such
as the new 565 acre Fox Meadow Golf & Lake Community located in Medina, Ohio,
which is represented on the cover.
<PAGE> 170
[GRAPHIC]
Table of Contents
Market Information 2
Letter to Shareholders 3-5
Selected Financial Information 6
Management's Discussion and Analysis 7-18
Consolidated Financial Statements 21-38
Independent Auditors' Report 39
General Information 40
<PAGE> 171
Strongsville Savings Bank
Market Information
The Bank's capital stock began trading under the symbol "SSBK" on the National
Association of Securities Dealers Automated Quotation System (NASDAQ) Small-Cap
Issues on October 5, 1993. As of January 31, 1996, there were approximately 407
holders of record of the Bank's capital stock. The Bank offers a Dividend
Reinvestment Plan (DRIP) to shareholders of record. For additional information
regarding the Bank's DRIP, contact Society National Bank at (216) 689-5372.
The following table sets forth certain information regarding the range of sales
prices for the Bank's capital stock and information on dividends paid.
Information concerning stock prices reflects inter-dealer prices, without retail
mark-up, mark-down or commission, and may not necessarily reflect actual
transactions.
<TABLE>
<CAPTION>
High Low Period End
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1993
FOURTH QUARTER $ 18.00 $ 13.00 $ 17.38
1994
FIRST QUARTER 20.50 16.50 18.00
SECOND QUARTER 19.25 16.50 19.25
THIRD QUARTER 20.00 18.00 20.00
FOURTH QUARTER 20.00 16.50 18.00
1995
FIRST QUARTER 18.00 17.00 17.00
SECOND QUARTER 19.00 17.00 17.94
THIRD QUARTER 19.50 18.00 19.50
FOURTH QUARTER 19.50 18.00 19.50
- --------------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------
DIVIDENDS PER SHARE (1)
First Quarter $ 0.09 $ 0.075 $ 0.06
Second Quarter 0.09 0.075 0.07
Third Quarter 0.11 0.075 0.07
Fourth Quarter(2) 0.11 0.090 0.08
TOTAL FOR THE YEAR $ 0.40 $ 0.315 $ 0.28
- --------------------------------------------------------------------------------
<FN>
(1) Payment of dividends by savings associations are subject to substantial
restrictions. See Note 1 to the Consolidated Financial Statements for a
discussion of regulatory restrictions on the payment of dividends.
(2) Includes a special cash dividend of $0.01 per share in the fourth quarter of
1993.
</TABLE>
2
<PAGE> 172
To Our Shareholders
Strongsville Savings is a locally owned financial institution celebrating 35
years of service to its communities and customers. Announcements of
consolidation in the banking and thrift environment, including ongoing
acquisition activity in our industry, have become commonplace in today's news
media. For 35 years, Strongsville Savings Bank has been a familiar face in the
southwestern suburbs of Cuyahoga County, as well as in Lorain and Medina
Counties. As a result of the consolidations around us, the residents of our
communities have fled to the familiar confines of a hometown community
bank--namely Strongsville Savings. Our community involvement, our commitment to
financing the American dream of home ownership, and just old fashioned hands-on
service have contributed to our steady growth over the past 35 years, and will
continue to fuel our growth into the twenty-first century.
GROWTH
Strongsville Savings Bank has positioned itself in probably the most rapidly
growing communities in Northeast Ohio. As a result of this positioning, the Bank
has enjoyed unprecedented growth as these communities develop and build. As most
of you are aware, Strongsville Savings helps build communities by investing our
depositors' dollars in the development of raw land (underground sewers,
utilities and streets) upon which our builders are then able to construct homes
for families in our towns and communities.
According to data provided by the Building Industry Association of Cleveland and
Suburban Counties, the cities in Cuyahoga County and Medina County with the
greatest number of 1995 single family dwelling starts include Strongsville,
Brunswick, Medina and North Royalton. Likewise, data provided by the Lorain
County BIA indicates Avon was the Lorain County area with the greatest number of
single family dwelling starts in 1994 and 1995.
Over the past 35 years, the Bank has expanded from its origin in Strongsville to
encompass these growth areas. We now have branches located in Berea, Hinckley,
North Royalton, Wellington, Parma Heights, Westlake, North Ridgeville,
Brecksville, Medina, and in 1995 opened offices in Broadview Heights and
Columbia Station. Our Avon office opened in early March, 1996, and will give us
another location in the fastest growing area of Lorain County. The opening of
our Brunswick office in May will coincide with the celebration of the
Strongsville Savings Bank's 35th Anniversary. "Familiarity" has been a key
ingredient in our growth...we establish ourselves through our lending and our
community involvement before establishing an office with bricks and mortar.
Strongsville Savings Bank encourages its staff members to become involved in
community events and service organizations, and to provide hands-on service to
our customers. This is what sets us apart and makes us a good neighbor in the
community.
Looking ahead, management will prudently continue to consider opportunities for
expansion of its branch network in growing residential areas of Northeast Ohio.
<TABLE>
<CAPTION>
Total Assets
(in Millions)
<S> <C>
1990 234
1991 261
1992 294
1993 333
1994 419
1995 492
</TABLE>
<TABLE>
<CAPTION>
Total Loan Originations
(in Millions)
<S> <C>
1990 81
1991 104
1992 180
1993 192
1994 152
1995 187
</TABLE>
3
<PAGE> 173
OPERATING RESULTS
In calendar year 1995, the Bank again posted excellent operating results and
sizeable increases in assets, savings, and loans, the total effect of which was
a 1.03% annualized return on assets and a 12.07% annualized return on equity.
Total assets at year-end 1995 reached $492,097,000, which represents a 17.37%
increase over the $419,258,000 in assets posted at the close of 1994.
Net income in 1995 was $4,717,000, and dividends paid to our shareholders
reached an all-time high of $1,013,000. Net gain to the Bank's capital position
was $3,938,000. Also noteworthy, is the savings growth of $69,513,000 in 1995,
an increase of 19.15% over figures of a year ago.
By office, the percentages of deposit growth increase for our established
offices were:
<TABLE>
<CAPTION>
<S> <C>
Berea 12.54%
Brecksville 17.46%
Hinckley 11.66%
North Ridgeville 27.85%
North Royalton 10.13%
Parma Heights 15.94%
Strongsville 5.99%
Wellington 5.25%
Westlake 16.81%
-----------------------------------
Overall increase 19.15%
</TABLE>
Our Medina Township Office, which opened for business in November, 1994,
experienced a growth of 256.68% over year end-1994 figures, posting total
deposits of $15,760,000 as of December 31, 1995. At year end 1995, our Broadview
Heights Office, opened in March, 1995, had deposits totaling $10,513,000 and our
Columbia Station Office, acquired August 29, 1995 from a local bank, had total
deposits of $5,954,000.
Mortgage loan activity remained high throughout the year. Strongsville Savings'
loan officers accepted 1,308 mortgage loan applications for $189,858,506.
Applications for consumer and commercial loans numbered 388 for $8,329,386.
Applying the disciplined underwriting standards established by the Board of
Directors, we closed $178,047,000 in mortgage loans, $4,528,000 in consumer
loans, and $4,348,000 in other loans during 1995.
Of on-going concern to the Bank, is pending legislation which would impose a
one-time charge of approximately 80 basis points per $100 of deposits on thrifts
insured by the Savings Association Insurance Fund (S.A.I.F) This pending
legislation would significantly impact Strongsville Savings' 1996 reported
earnings.
<TABLE>
<CAPTION>
Total Deposits
(In millions)
<S> <C>
1990 217
1991 242
1992 270
1993 295
1994 363
1995 432
</TABLE>
<TABLE>
<CAPTION>
Shareholders'Equity
(In millions)
<S> <C>
1990 14
1991 17
1992 21
1993 34
1994 37
1995 41
</TABLE>
4
<PAGE> 174
Strongsville Savings Bank
ACHIEVEMENTS
According to statistical data provided by Chicago Title, Strongsville Savings
Bank in 1995 ranked fourth among savings and loan associations in Cuyahoga
County in mortgage lending dollars. Because of our commitment to new housing,
Strongsville Savings Bank has been repeatedly recognized by the Building
Industry Association of Cleveland and Suburban Counties through presentation in
1990, 1991, 1993, and 1994 of its Leo Goldberg Award, given to the financial
institution which best provides service to the builders of our community. In
1992, the Bank was presented the Housing America Award by the National
Association of Home Builders, in recognition of its excellence in
community-based lending.
With rightful pride in our record of helping to build communities, Strongsville
Savings will continue to emphasize service to our customers; development and
maintenance of strong personal relationships with local realtors, builders,
developers, public officials and other real estate-related professionals; and
familiarity with our customers, their families, and their everyday financial
needs. We ask our customers what they want to see in their financial
institution, and as a truly customer-responsive community bank, Strongsville
Savings has established six-day banking at all branch locations; held seminars
to educate the residents of our communities on such topics as planning for
financial security, retirement accounts, living trusts, and home buying; and
originated first time home buyer programs and T.E.A.M. loans for low-to-moderate
income areas of our community.
Our 35th Anniversary is a milestone, a time to look back on what we have
accomplished and also a time to look ahead to our future. We pledge to continue
our tradition of SERVING THE COMMUNITY with locally based decision making; of
providing hands-on service; of committing our resources, both human and
financial, to the betterment of the communities which support us; to maintaining
a measured growth for the maximum enhancement of our shareholders' investment;
to taking advantage of our demonstrated market niche in building communities;
and to remaining a familiar face in a changing landscape.
/s/ Thomas P. Perciak
Thomas P. Perciak,
President and Chief Executive Officer
5
<PAGE> 175
SELECTED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31
1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands, Except Per Share Data)
Summary of Operations
<S> <C> <C> <C> <C> <C>
Interest income $ 35,410 $ 27,122 $ 23,646 $ 23,806 $ 23,414
Interest expense 21,342 14,113 11,818 13,577 15,916
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income 14,068 13,009 11,828 10,229 7,498
Provision for loan losses 238 92 77 296 413
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses 13,830 12,917 11,751 9,933 7,085
Net gain on sale of loans 964 228 1,799 1,735 1,387
Other noninterest income 1,088 966 1,063 1,069 812
Amortization of goodwill 143 151 158 165 170
Other noninterest expense 8,483 7,219 5,971 5,565 4,793
- ------------------------------------------------------------------------------------------------------------------------------------
Income before federal
income taxes 7,256 6,741 8,484 7,007 4,321
Federal income taxes 2,539 2,331 2,915 2,430 1,433
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 4,717 $ 4,410 $ 5,569 $ 4,577 $ 2,888
- ------------------------------------------------------------------------------------------------------------------------------------
SUMMARY OF FINANCIAL CONDITION
Total assets $ 492,097 $ 419,258 $ 332,729 $ 294,091 $ 261,453
Investment securities 75,949 79,700 61,909 34,509 46,380
Total gross loans 364,766 306,921 263,364 233,688 193,236
Loans--net 336,351 281,843 242,395 216,890 178,529
Mortgage-backed securities 52,005 37,274 12,426 17,071 11,480
Goodwill 920 1,062 1,213 1,371 1,536
Deposits 432,563 363,050 294,750 269,733 241,855
Advances from Federal Home Loan Bank 13,333 15,583 -0- -0- -0-
Shareholders' equity 41,091 37,153 33,578 20,980 16,893
- ------------------------------------------------------------------------------------------------------------------------------------
PER SHARE INFORMATION
Net income $ 1.86 $ 1.74 $ 2.73 $ 2.43 $ 1.53
Dividends paid 0.40 0.315 0.28 0.26 0.20
Book value 16.24 14.68 13.27 11.12 8.96
Tangible book value (1) 15.87 14.26 12.79 10.40 7.83
OTHER STATISTICAL AND
OPERATING DATA
Return on average assets 1.03% 1.18% 1.79% 1.64% 1.16%
Return on average equity 12.07 12.47 22.15 24.09 19.32
Net yield on average
interest-earning assets (2) 3.15 3.58 3.91 3.80 3.12
Interest rate spread during period (3) 2.76 3.24 3.64 3.55 2.85
Other noninterest expense
to average assets (4) 1.85 1.93 1.92 2.00 1.92
Dividend payout ratio 21.46 18.08 10.41 10.72 12.74
Total allowance for loan losses to
nonperforming loans 56.91 120.11 315.80 252.06 50.19
Total allowance for loan
losses to total loans 0.35 0.34 0.35 0.33 0.29
Nonperforming loans to total loans 0.61 0.28 0.11 0.13 0.64
Nonperforming assets to total assets 0.42 0.19 0.08 0.15 0.43
Net charge-offs (recoveries) to average loans(5) 0.01 (0.01) (0.02) 0.07 0.03
Number of full-service offices 12 10 9 9 9
Weighted average common
shares outstanding 2,530,800 2,530,800 2,042,066 1,886,800 1,886,800
CAPITAL RATIOS
Equity to assets:
Average for the period 8.52% 9.46% 8.08% 6.82% 5.99%
At period end 8.35 8.86 10.09 7.13 6.47
Tangible capital (1) 8.14 8.64 9.76 6.70 5.70
Core capital 8.14 8.87 10.10 7.12 6.23
Risk-based capital 13.51 14.22 14.99 11.77 9.90
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Tangible book value and tangible capital each represent shareholders' equity
less goodwill.
(2) Net interest income divided by average interest-earning assets.
(3) The difference between the weighted average yield on interest-earning assets
and the weighted average rate paid on interest-bearing liabilities.
(4) Goodwill amortization is excluded from the numerator of this ratio.
(5) Net charge-offs during the period to average loans outstanding during the
period.
</TABLE>
6
<PAGE> 176
Strongsville Savings Bank
MANAGEMENT DISCUSSION AND ANALYSIS
The Strongsville Savings Bank is proud of its history of providing friendly and
professional service to its customers. This commitment to providing customers
with the financial products and services they need and want has brought success,
not only to the Bank, but to its customers as well. The Bank helps its customers
meet their financial goals by providing a variety of deposit products including
NOW accounts, IRA accounts and a variety of term deposit and other savings
vehicles. Many customers have achieved the American dream of home-ownership with
mortgage loan financing from the Bank.
The Bank opened new Community Financial Centers in Broadview Heights and
Columbia Station during 1995. The Broadview Heights Financial Center was opened
de-novo in March 1995, and has grown to $10.5 million in deposits at December
31, 1995. The Columbia Station Financial Center was purchased from a local bank
in August 1995. Strongsville Savings Bank acquired $5.0 million in deposits and
expanded that to $6.0 million by the close of 1995, an annualized growth rate of
57.7%
The Bank is completing preparations to open two additional de-novo Community
Financial Centers in 1996. The Avon location opened March 18, 1996, and the
Brunswick location will open in early May 1996. Strongsville Savings'
celebration of 35 years of successful operations and superior customer service
will coincide with the openings in Avon and Brunswick.
The success of the Bank's franchise and customer service approach is evident by
its strong growth at each Community Financial Center. The Bank expects the
tradition to continue with its close attention to the marketplace and to our
customers and their financial needs.
FINANCIAL CONDITION AND CAPITAL
The Strongsville Savings Bank's total assets were $492.1 million at December 31,
1995, an increase of $72.8 million, or 17.4% over December 31, 1994. Deposit
growth was the vehicle that provided the funding for the increase in assets. The
funds provided were invested in interest-earning assets. During 1995 deposits
increased $69.6 million, or 19.2%, while interest-earning assets increased $69.7
million, or 17.0% Deposits were $432.6 million at December 31, 1995, and $363.0
million at December 31, 1994. Loans and other interest-earning assets were
$478.6 million at December 31, 1995, and $408.9 million at December 31, 1994.
The Bank's total assets showed strong growth in 1994 also. Total assets were
$419.3 million at December 31, 1994, an increase of $86.6 million, or 26.0% over
December 31, 1993. Deposit growth was again the vehicle that provided the
funding for the increase in assets in 1994. The funds provided were invested in
interest-earning assets. During 1994 deposits increased $68.3 million, or 23.2%,
while interest-earning assets increased $85.3 million, or 26.4%. During 1994 the
Bank utilized Federal Home Loan Bank (FHLB) Advances to fund certain loans and
investments. FHLB Advances increased to $15.6 million during 1994. There were no
such advances at December 31, 1993.
7
<PAGE> 177
The composition of the Bank's assets and liabilities is illustrated below.
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
TOTAL ASSETS TOTAL ASSETS
<S> <C> <C> <C>
Total Loans-Net 68.4% Total Loans-Net 67.2%
Cash & Investments 29.6% Cash & Investments 30.4%
Other 2.0% Other 2.4%
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY TOTAL LIABILITIES & SHAREHOLDERS'
EQUITY
<S> <C> <C> <C>
Total Deposits 87.9% Total Deposits 86.6%
Shareholders' Equity 8.4% Shareholders' Equity 8.9%
Other 3.7% Other 4.5%
</TABLE>
Shareholders' equity increased $3.9 million, or 10.6% to $41.1 million during
1995. The Bank's net income of $4.7 million, offset by dividends of $1.0
million, accounted for most of the increase. Shareholders' equity increased $0.2
million during 1995 due to unrealized gains on the fair value of securities
available for sale.
8
<PAGE> 178
Strongsville Savings Bank
The Bank's regulatory capital exceeded all capital requirements at December 31,
1995. The graph below illustrates the capital required by federal regulations
and the Bank's ability to meet and exceed those requirements at December 31,
1995, 1994 and 1993.
[GRAPHIC]
Required
<TABLE>
<CAPTION>
1993 1994 1995
<S> <C> <C> <C>
Tangible Capital to Adjusted Total Assets 1.5% 1.5% 1.5%
Core Capital to Adjusted Total Assets 3.0% 3.0% 3.0%
Risk-Based Capital to Adjusted Total Assets 8.0% 8.0% 8.0%
</TABLE>
Actual
<TABLE>
<CAPTION>
1993 1994 1995
<S> <C> <C> <C>
Tangible Capital to Adjusted Total Assets 9.76% 8.64% 8.14%
Core Capital to Adjusted Total Assets 10.10% 8.87% 8.14%
Risk-Based Capital to Adjusted Total Assets 14.99% 14.22% 13.51%
</TABLE>
The Bank's capital levels at December 31, 1995, qualify it as a
"well-capitalized" institution. The Federal Deposit Insurance Corporation
Improvements Act of 1992 established five levels of capital compliance in
conjunction with its prompt corrective action provisions; "well capitalized" is
the highest of these five levels. One of the Bank's priorities is to continue to
operate as a "well-capitalized" institution.
RESULTS OF OPERATIONS
The Bank strives to produce strong, stable core earnings from operations. Core
earnings consist of net interest income and recurring non-interest income,
reduced by recurring non-interest expenses. Core earnings before federal income
tax for the three years ended December 31, 1995 are noted below.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
DECEMBER 31
1995 1994 1993
- --------------------------------------------------------------------------------
(In Millions)
<S> <C> <C> <C>
Net interest income $14.1 $13.0 $11.8
Less provision for loan losses 0.2 0.1 0.1
- --------------------------------------------------------------------------------
13.9 12.9 11.7
Noninterest income (recurring) 1.1 1.0 1.1
Noninterest expense (recurring) 8.6 7.4 6.1
- --------------------------------------------------------------------------------
Core earnings $ 6.4 $ 6.5 $ 6.7
================================================================================
</TABLE>
The Bank's net interest income has advanced steadily over the past three years,
primarily as a result of growth in the portfolio of interest-earning assets. The
Bank's growth, however, resulted in an increase in noninterest expenses, as new
Community Financial Centers added occupancy, human resources and other expenses.
The Bank anticipated these increases and determined that the benefits of market
penetration and future earnings growth potential exceeded the rise in operating
expenses.
9
<PAGE> 179
NET INTEREST INCOME
Net interest income is the chief component of net income. Net interest income is
the difference between interest income on interest-earning assets and interest
expense on interest-bearing liabilities. Interest-bearing liabilities include
deposit accounts and FHLB advances that provide funds to invest in interest
earning assets. Net interest income is determined by changes in the composition
of interest-earning assets and interest-bearing liabilities and fluctuations in
the level of interest rates. Throughout much of 1995 and 1994, interest rates
were increasing, resulting in increases in yields on interest-earning assets and
costs on interest-bearing liabilities, as seen in Table I. As 1995 drew to a
close, long-term interest rates, such as those earned on mortgage loans,
declined in general, while short-term interest rates, such as those paid on
deposits, remained stable. This "flat" yield curve may result in yields on long
term mortgage loans repricing downward, through refinances and interest rate
adjustments, while costs on deposits may not decline at a similar pace.
INTEREST INCOME
The Bank's primary source of income is interest income from its loan portfolio
and other interest-earning assets. The Bank's commitment to providing
residential home loans is evident by its $247.5 million portfolio of permanent
and construction single-family residential mortgage loans. In addition to the
Bank's single-family residential mortgage loan portfolio and other loan
portfolios, interest earning-assets include investment securities and
mortgage-backed securities. Interest income was $35.4 million in 1995, $27.1
million in 1994 and $23.6 million in 1993, representing annual increases of
30.6% and 14.7% for the years ended December 31, 1995 and 1994, respectively.
The increases are attributable to a combination of the effects of increases in
volume and changes in rate that are set forth in Table II. Average interest
earning assets were $447.2 million with an average yield of 7.9% in 1995, $363.6
million with an average yield of 7.5% in 1994 and $302.3 million with an average
yield of 7.8% in 1993. See Table I for more details regarding average
interest-earning assets and their yields.
INTEREST EXPENSE
The Bank's primary source of funding for interest-earning assets is retail
deposits. The Bank believes that by providing friendly and professional service,
it has achieved deposit growth during a period characterized by
disintermediation. The Bank has dedicated resources to train employees in
customer service and in the products and services offered by the Bank. Savings
counselors, tellers and other employees are encouraged to cross sell the Bank's
products and services to current and future customers. The Bank believes it has
a stable deposit base because the base consists of retail deposits in
communities the Bank has made a commitment to serve. Interest expense was $21.3
million in 1995, $14.1 million in 1994 and $11.8 million in 1993. The change in
interest expense was primarily a result of the growth in deposits. Interest rate
increases also contributed to the increase in interest expense as illustrated in
Table II. Average interest-bearing liabilities increased $79.5 million, or
23.8%, during 1995 to $413.9 million. Average interest-bearing liabilities
showed similar growth in 1994, increasing $51.9 million, or 18.4%, to $334.4
million. The average cost of interest-bearing liabilities increased 94 basis
points to 5.16% during 1995 and 4 basis points to 4.22% during 1994. See Table 1
for more details regarding average interest-bearing liabilities and their costs.
10
<PAGE> 180
Strongsville Savings Bank
Table I presents information regarding the average balances of interest-earning
assets and interest-bearing liabilities, the total dollar amount of interest
income from interest-earning assets and their average yields and the total
dollar amount of interest expense on interest-bearing liabilities and their
average rates. The table also presents net interest income, interest-rate
spread, net interest margin and the ratio of average interest-earning assets to
average interest-bearing liabilities. Interest rate spread represents the
difference between the weighted average yield on interest-earning assets and the
weighted average cost of interest-bearing liabilities, and net interest margin
represents net interest income as a percent of average interest-earning assets.
Average balance calculations were based on daily and monthly balances. Assets
held for sale are included in the major asset category as if they were held for
investment.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
TABLE I YEAR ENDED DECEMBER 31
1995 1994 1993
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
- ------------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS
Loans receivable, net (1) $305,605 $ 26,424 8.65% $256,529 $ 22,040 8.59% $216,635 $ 19,735 9.11%
Investment securities 80,822 4,982 6.16 72,550 3,391 4.67 55,251 2,697 4.88
Mortgage-backed securities 45,399 3,192 7.03 21,126 1,230 5.82 15,708 804 5.12
Other interest-earning assets 15,364 812 5.29 13,371 461 3.45 14,700 410 2.79
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 447,190 35,410 7.92 363,576 27,122 7.46 302,294 23,646 7.82
- ------------------------------------------------------------------------------------------------------------------------------------
Noninterest-earning assets 11,787 10,166 8,910
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $458,977 $373,742 $311,204
- ------------------------------------------------------------------------------------------------------------------------------------
INTEREST-BEARING LIABILITIES
Deposits (2) $399,460 20,428 5.11 $328,326 13,762 4.19 $282,492 11,818 4.18
Advances from FHLB 14,420 914 6.34 6,035 351 5.82 -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 413,880 21,342 5.16 334,361 14,113 4.22 282,492 11,818 4.18
- ------------------------------------------------------------------------------------------------------------------------------------
Noninterest-bearing liabilities 6,013 4,013 3,574
- ------------------------------------------------------------------------------------------------------------------------------------
Shareholders' equity 39,084 35,368 25,138
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $458,977 $373,742 $311,204
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income $ 14,068 $ 13,009 $ 11,828
Interest rate spread 2.76% 3.24% 3.64%
Net interest margin 3.15% 3.58% 3.91%
Ratio of average
interest-earning
assets to average
interest-bearing
liabilities 108.05% 108.74% 107.01%
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Average balances include non-accrual loans. Interest income includes
deferred loan fee amortization of $1,676,000, $1,911,000 and $1,560,000 for
the years ended December 31, 1995, 1994 and 1993, respectively.
(2) Deposits include noninterest-bearing demand accounts which were $11,728,000,
$10,159,000 and $6,755,000 at December 31, 1995, 1994, and 1993,
respectively.
</TABLE>
11
<PAGE> 181
Table II presents certain information regarding changes in interest income and
interest expense of the Bank for the years ended December 31, 1995, 1994 and
1993. The table shows the changes in interest income and expense by major
category attributable to changes in the average balance (volume) and changes in
interest rates. The net change not attributable to either rate or volume is
allocated on a pro-rata basis to the change in rate or volume. Assets held for
sale are included in the major asset category as if they were held-to-maturity.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
TABLE II 1995 COMPARED TO 1994 1994 COMPARED TO 1993
INCREASE (DECREASE) INCREASE (DECREASE)
DUE TO CHANGES IN: DUE TO CHANGES IN:
VOLUME RATE TOTAL VOLUME RATE TOTAL
- ----------------------------------------------------------------------------------------------
(In Thousands)
INTEREST INCOME ON
INTEREST-EARNING ASSETS
<S> <C> <C> <C> <C> <C> <C>
Loans, net $ 4,230 $ 154 $ 4,384 $ 3,480 $ (1,175) $ 2,305
Investment securities 419 1,172 1,591 814 (120) 694
Mortgage-backed
securities 1,661 301 1,962 305 121 426
Other 77 274 351 (35) 86 51
- ----------------------------------------------------------------------------------------------
Total 6,387 1,901 8,288 4,564 (1,088) 3,476
- ----------------------------------------------------------------------------------------------
INTEREST EXPENSE ON
INTEREST-BEARING LIABILITIES
Deposits 3,311 3,355 6,666 1,916 28 1,944
Borrowings 533 30 563 351 0 351
- ----------------------------------------------------------------------------------------------
Total 3,844 3,385 7,229 2,267 28 2,295
- ----------------------------------------------------------------------------------------------
CHANGE IN NET INTEREST INCOME $ 2,543 ($1,484) $ 1,059 $ 2,297 ($1,116) $ 1,181
- ----------------------------------------------------------------------------------------------
</TABLE>
PROVISIONS FOR LOAN LOSSES
The provision for loan losses represents a charge to income for possible credit
losses. The Bank maintains the level of the allowance for loan losses at an
amount adequate to absorb potential losses inherent in the loan portfolio. A
quarterly review of the adequacy of the allowance for loan losses considers
growth in the loan portfolio, potential losses identified by the portfolio
review process, and the Bank's historical loan loss experience. In addition, the
Bank considers economic conditions, including the overall level of interest
rates and the general trend of the national economy, local economy and housing
markets. The allowance is determined in accordance with generally accepted
accounting principles.
The provision for loan losses was $238,000 in 1995, $92,000 in 1994 and $77,000
in 1993. The provision for 1995 was increased primarily as a result of growth in
the overall loan portfolio. The provisions for the three years ended December
31, 1995, reflect generally stable economic conditions in the Bank's market
area, as well as the high credit quality of the Bank's loan portfolio. The
allowance for loan losses throughout 1995, 1994 and 1993 was commensurate with
management's estimate of the credit risk in the loan portfolio.
12
<PAGE> 182
Strongsville Savings Bank
NONINTEREST INCOME
Noninterest income is comprised mainly of fees the Bank earns from services
performed for customers and for servicing loans sold to the secondary market.
Loan servicing and other loan related fees were $464,000 in 1995, $545,000 in
1994 and $601,000 in 1993. These fees have declined during 1995 and 1994 as loan
prepayment penalties and servicing fees on sold loans have declined.
Gains on the sale of loans to the secondary market are also included in
noninterest income. This is the component of noninterest income with the
greatest amount of variation. Gain on sales of loans experiences variations due
to the level of loans the Bank sells to the secondary market and to the price
offered by the secondary market for such loans. The Bank sells loans to the
secondary market in conjunction with certain fixed-rate loan programs, to
provide funding and as an interest rate risk management tool. The Bank recorded
gains on loan sales of $964,000 in 1995, $228,000 in 1994 and $1,799,000 in
1993.
In 1995 the Bank adopted Statement of Financial Accounting Standards (SFAS)
No. 122, Accounting for Mortgage Servicing Rights which enabled the Bank to
capitalize the fair value of originated mortgage servicing rights for loans
sold. The Bank realized gains on loan sales of $281,000 (pre-tax) as a result
of adopting SFAS No. 122 in 1995.
NONINTEREST EXPENSES
The Bank has made a commitment to expand its franchise value by blanketing its
market area with easy access Community Financial Centers. It believes the
expansion of its financial network will benefit current and future customers by
being close to home. There are operating costs involved in franchise expansion;
however, the Bank believes that the benefits of expanding to provide full
coverage to the Bank's targeted market are worth the investment.
As the Bank grows and expands its franchise and services into more communities,
it has worked hard to contain costs. The Bank's ratio of noninterest expense to
average assets was 1.85% in 1995, 1.93% in 1994 and 1.92% in 1993. The common
benchmark for this ratio is 2.00% or less. According to the SNL Securities
Thrift Performance as of September 30, 1995, industry averages were 2.25% for
the twelve months ended September 30, 1995, and 2.27% and 2.28% for the years
ended December 31, 1994 and 1993, respectively.
Noninterest expense was $8,626,000 in 1995, $7,370,000 in 1994 and $6,129,000
in 1993. The increases were primarily due to the Bank's franchise expansion
program which added three Community Financial Centers in the past two years.
The Bank is also preparing to add two more locations in the first half of 1996.
Human resources, deposit insurance premiums and occupancy expenses increased as
a result of the franchise expansion. Other increases were related to investment
in technology, higher franchise taxes and general price increases.
FEDERAL INCOME TAXES
The Bank provided for federal income taxes as follows: $2,539,000 in 1995,
$2,331,000 in 1994 and $2,915,000 in 1993. The changes in the level of the
Bank's provision for federal income taxes were primarily due to changes in the
level of pre-tax income. The effective tax rates for the periods were 35.0% in
1995, 34.5% in 1994 and 34.4% in 1993.
LENDING ACTIVITIES
Providing mortgage loans to homeowners is the cornerstone of the Bank's lending
activities. The Bank principally originates conventional first mortgage loans
secured by residential real estate. Loans made to homeowners on owner-occupied
one-to-four family residences typically have low credit risk because the
borrower occupies the home. In addition, credit risk management is enhanced
because real estate values in Northeastern Ohio have historically been stable.
13
<PAGE> 183
Loans secured by multi-family and commercial property generally present a higher
degree of credit risk than residential loans. This greater risk is due to
several factors, including the concentration of principal in a limited number of
loans and borrowers, the effects of general economic conditions on
income-producing properties and the increased difficulty of evaluating and
monitoring these types of loans. Furthermore, the repayment of loans secured by
multi-family and commercial real estate is typically dependent upon the
successful operation of the related real estate project. If the cash flow from
the project is reduced (for example, if leases are not obtained or renewed), the
borrower's ability to repay the loan may be impaired.
The Bank has developed a niche in the residential construction loan market. The
Bank makes residential land development loans to local builders and developers
with whom strong business relationships have been developed. These loans are
made on land zoned for residential use which will be developed into residential
building lots. In addition, the Bank provides construction loans to builders for
the construction of homes, most of which are pre-sold, and to individuals for
the construction of their homes.
These development and construction loans are generally perceived as being
riskier than other conventional residential loans because there is uncertainty
related to the completion of a project within the time and cost budgets. The
Bank's management constantly monitors these loans and reviews the progress of
each with the borrowers and contractors to manage and mitigate the risk
involved.
The following table illustrates the composition of the Bank's loan portfolio:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
DECEMBER 31
LOAN COMPOSITION 1995 1994 1993
- -----------------------------------------------------------------------------------
(In Millions)
<S> <C> <C> <C>
Real estate loans
One-to-four-family $ 225.9 $ 194.6 $ 164.8
Multi-family & commercial 43.6 39.8 41.6
Construction 33.9 34.4 26.5
Residential acquisition
& development 48.5 29.1 24.0
Other loans 12.9 9.0 6.5
- -----------------------------------------------------------------------------------
Total loans $ 364.8 $ 306.9 $ 263.4
- -----------------------------------------------------------------------------------
</TABLE>
Loan originations by type were as follows for the years ended:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31
LOAN ORIGINATIONS 1995 1994 1993
- -----------------------------------------------------------------------------------
(In Millions)
<S> <C> <C> <C>
Real estate loans
One-to-four-family $ 86.0 $ 63.1 $ 123.1
Multi-family & commercial 5.2 2.7 7.5
Construction 43.6 50.2 40.6
Residential acquisition
& development 43.2 30.5 16.4
Other loans 8.9 5.7 4.1
- -----------------------------------------------------------------------------------
Total loan originations $ 186.9 $ 152.2 $ 191.7
- -----------------------------------------------------------------------------------
</TABLE>
14
<PAGE> 184
Strongsville Savings Bank
ASSET QUALITY
Management has designed stringent underwriting standards to minimize credit risk
in the Bank's loan portfolio. All loans are subject to these standards, which
include evaluating each applicant's ability to make periodic payments, his or
her equity in the property, and the value of the underlying collateral.
Management monitors the loan portfolio to determine that the level of credit
risk remains stable and acceptable.
The Bank defines non-performing loans as those loans where there is an
indication that the borrower no longer has the ability to repay. Generally,
these loans are more than 90 days delinquent. Non-performing assets include
non-performing loans and in-substance foreclosed loans. The Bank's
non-performing assets have consistently been below peer group averages. The
Bank's ratio of non-performing assets to total assets was 0.42%, 0.19%, and
0.08% at December 31, 1995, 1994 and 1993, respectively. According to the SNL
Securities Thrift Performance Report as of September 30, 1995, the industry
average ratio of non-performing assets to total assets was 0.65% for the twelve
months ended September 30, 1995 and 0.82% and 1.50% for the years ended December
31, 1994 and 1993, respectively.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
DECEMBER 31
NON-PERFORMING ASSETS 1995 1994 1993
- -----------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C>
Total non-performing loans $ 2,052 $ 789 $ 266
In-substance foreclosed loans 0 0 0
- -----------------------------------------------------------------------------------
Total non-performing assets $ 2,052 $ 789 $ 266
- -----------------------------------------------------------------------------------
Non-performing assets to
total assets 0.42% 0.19% 0.08%
Allowance for loan losses to
non-performing loans 56.91% 120.11% 315.80%
Net charge-offs (recoveries) to average
loans outstanding for the year 0.01% (0.01%) (0.02%)
- -----------------------------------------------------------------------------------
</TABLE>
At December 31, 1995, non-performing loans included nineteen residential loans
totaling $1,958,000, three commercial loans totaling $70,000, and fifteen
consumer loans totaling $24,000. The ratio of net charge-offs to average loans
outstanding illustrates the Bank's commitment to minimizing credit risk through
its strict underwriting standards and collection procedures.
At December 31, 1995, there were two loans secured by funeral homes to a single
borrower totaling $1.1 million which are not included in the table above.
Indications of possible cash flow problems have caused management concern
regarding the borrower's ability to comply with present loan repayment terms and
may result in the classification of these loans as non-performing in the future.
Based on written opinions from an independent fee appraiser, the collateral
value of the properties are sufficient to cover the total outstanding debt.
15
<PAGE> 185
ASSET/LIABILITY MANAGEMENT
Interest rate risk is the risk that the Bank's net interest income or net
portfolio value will decline significantly during periods of changing interest
rates. The Bank is subject to interest rate risk to the degree that its
interest-bearing liabilities, primarily deposits with short and medium term
maturities, mature or reprice more rapidly, or on a different basis, than its
interest-earning assets. While having liabilities that mature or reprice more
frequently than assets will be beneficial in times of declining interest rates,
such an asset/liability structure will result in lower net interest income
during periods of rising interest rates, unless offset by other factors such as
noninterest income. The Bank believes that its interest rate gap has been
maintained within a tolerable range. The Bank's interest rate gap is illustrated
in Table III.
A key element of the Bank's strategy is to buffer net income from changes in
interest rates by reducing the maturity or repricing mismatch between its
interest-earning assets and interest rate sensitive liabilities.
The Bank has endeavored to shorten the terms to maturity or repricing on
interest-earning assets by originating adjustable rate mortgage (ARM) loans,
selling certain fixed-rate residential loans to the Federal Home Loan Mortgage
Corporation (Freddie Mac) and investing in securities with short to medium
terms. This strategy has resulted in an investment of $171.3 million, or 47.0%
of the Bank's total mortgage loan portfolio in ARM loans at December 31, 1995.
The Bank originated $95.7 million in ARM loans in 1995 which was 53.8% of total
mortgage loans originated in 1995. The Bank originated $66.4 million and $55.4
million in ARM loans in 1994 and 1993, respectively. Although the Bank is
committed to originating ARM loans, it believes that discounted "teaser" rates
mitigate the effectiveness of ARM loans for managing interest rate risk and does
not offer such loans.
The Bank sold $42.6 million in long-term fixed rate loans to Freddie Mac during
1995. The Bank only sells loans to the secondary market on a non-recourse basis
with servicing retained.
The Bank has also attracted long-term fixed-rate deposits in an effort to
lengthen the terms of its interest-bearing liabilities. At December 31, 1995,
the Bank's long-term fixed-rate deposits with remaining terms exceeding three
years were $65.4 million.
The Bank's investment portfolio consists primarily of investment grade corporate
debt, government agency debt and mortgage-backed securities issued by government
agencies. Substantially all of the corporate debt and government agency debt
mature in three years or less. The Bank took advantage of the one-time
opportunity granted by the Financial Accounting Standards Board to re-assess and
reclassify certain securities under SFAS No. 115. The Bank transferred $40.0
million in securities from held-to-maturity to available for sale on December
30, 1995.
16
<PAGE> 186
Strongsville Savings Bank
Table III illustrates the maturities or repricing of the Bank's assets and
liabilities at December 31, 1995 based on information from the financial model
used by the Bank concerning prepayments and decay rates of major asset and
liability categories.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
TABLE III DECEMBER 31, 1995
MATURING OR WITHIN 6-12 1-3 3-5 5-10 10 OR TOTAL
REPRICING PERIODS 6 MONTHS MONTHS YEARS YEARS YEARS MORE
- -----------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
INTEREST-EARNING
ASSETS
<S> <C> <C> <C> <C> <C> <C> <C>
Adjustable-rate mortgage loans $ 24,347 $ 16,837 $ 13,332 $ -- $ -- $ -- $ 54,516
Fixed-rate mortgage loans 12,105 11,416 39,520 31,207 51,868 29,232 175,348
Other loans 63,788 27,209 13,045 3,939 3,282 -- 111,263
Investments 57,413 12,982 50,846 4,311 5,096 11,714 142,362
- -----------------------------------------------------------------------------------------------------------------------------------
Total 157,653 68,444 116,743 39,457 60,246 40,946 483,489
- -----------------------------------------------------------------------------------------------------------------------------------
INTEREST-BEARING
LIABILITIES
Certificate of deposit accounts 107,629 83,620 67,680 65,444 -- -- 324,373
Money market deposit accounts 4,177 3,418 8,500 3,815 2,688 420 23,014
NOW and passbook accounts 9,841 8,522 24,100 13,556 13,293 4,136 73,448
Advances from FHLB 10,250 500 2,000 583 -- -- 13,333
- -----------------------------------------------------------------------------------------------------------------------------------
Total 131,897 96,060 102,280 83,398 15,981 4,556 434,172
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
INTEREST RATE SENSITIVITY GAP 25,756 (27,616) 14,463 (43,941) 44,265 36,390 $ 49,317
- -------------------------------------------------------------------------------------------------------------------- -----------
CUMULATIVE GAP $ 25,756 ($ 1,860) $ 12,603 ($ 31,338) $ 12,927 $ 49,317
- -------------------------------------------------------------------------------------------------------------------
CUMULATIVE INTEREST RATE
SENSITIVITY GAP AS A PERCENT
OF TOTAL ASSETS AT
DECEMBER 31, 1995 5.23% (0.38%) 2.56% (6.37%) 2.63% 10.02%
- -----------------------------------------------------------------------------------------------------------------------------------
CUMULATIVE INTEREST RATE
SENSITIVITY GAP AS A PERCENT
OF TOTAL ASSETS AT
DECEMBER 31, 1994 (0.51%) (6.80%) (5.49%) (6.38%) 1.51% 10.80%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The table presents the repricing dates of the Bank's interest-earning assets and
interest-bearing liabilities at December 31, 1995. The annual prepayment and
decay rates used in this table are obtained from an independent analysis
service. Annual prepayment assumptions for 1995 range from 8% to 21% on
fixed-rate mortgage loans, 18% to 28% on ARM loans, 9% to 22% on non-residential
real estate mortgage loans, and 5% to 7% on other loans. Annual prepayment
assumptions for 1994 range from 6% to 12% on fixed-rate mortgage loans, 19% on
ARM loans and 7% on other loans. The NOW, money market deposit and passbook
accounts' decay rates for 1995 were assumed to vary across time horizons from 0%
to 33%. In 1994, such decay rates were assumed to be 40%.
The method used to analyze interest-rate sensitivity in Table III has a number
of limitations. Certain assets and liabilities may react differently to changes
in interest rates even though they reprice or mature in the same or similar time
periods. The interest rates on certain assets and liabilities may change at
different times from changes in market interest rates, with some changing in
advance of changes in market rates and some lagging behind changes in market
rates. Also, certain assets, e.g. ARM loans, often have provisions that may
limit changes in interest rates each time the interest rate changes and on a
cumulative basis over the life of the loan. Additionally, the actual prepayments
and withdrawals experienced in the event of a change in interest rates could
deviate significantly from those assumed in calculating the data shown in the
table. Finally, the ability of some borrowers to service their debt may decrease
in the event of an interest rate increase.
17
<PAGE> 187
LIQUIDITY
The Bank is required to maintain an average daily balance of liquid assets
(cash, certain time deposits, bankers' acceptances, specified United States
Government, state or federal agency obligations, shares of certain mutual funds
and certain corporate debt securities and commercial paper) equal to a monthly
average of not less than specified percentages of its net withdrawable deposit
accounts plus short-term borrowings. The average eligible liquidity at December
31, 1995 was 22.02%, which exceeded the 5.0% requirement. The Bank's short-term
liquidity at December 31, 1995 was 9.95%, which exceeded the 1.0% requirement.
Like other financial institutions, the Bank must ensure that sufficient funds
are available to meet deposit withdrawals, loan commitments, and expenses.
Management of the Bank's cash flows requires the anticipation of deposit flows
and loan payments. The Bank's primary sources of funds are deposits and
principal and interest payments on loans. The Bank uses funds from deposit
inflows and principal and interest payments on loans primarily to originate
loans, and to purchase short-term investment securities and interest-earning
deposits.
At December 31, 1995, loans-in-process to be funded over a future period of time
totaled $23.6 million, and loan commitments or loans committed but not closed
totaled $26.4 million. There were no commitments to purchase or sell loans at
December 31, 1995. Funding for these amounts is expected to be provided by the
sources described above. Management believes the Bank has adequate resources to
meet its normal funding requirements.
The Bank is a party to a credit agreement with the Federal Home Loan Bank (FHLB)
of Cincinnati where by the Bank can obtain advances. The Bank had $13.3 million
in advances outstanding from the FHLB of Cincinnati at December 31, 1995.
DIVIDENDS
The Bank paid quarterly dividends totaling $0.40 per share for 1995. On December
20, 1995, the Board of Directors approved a first quarter 1996 dividend of $0.11
per share, or $0.44 annualized, an increase of 10.00% over 1995 dividends.
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements and related data herein have been prepared in
accordance with generally accepted accounting principles, which require
measurement of financial condition and results of operations in terms of
historical dollars, without considering changes in the relative purchasing power
of money over time due to inflation.
Since the primary assets and liabilities of the Bank are monetary in nature,
changes in the general level of prices for goods and services have a relatively
minor impact on the Bank's total expenses. Increases in operating expenses such
as salaries and maintenance are in part attributable to inflation. However,
interest rates have a far more significant effect than inflation on the
performance of financial institutions, including the Bank.
NEW ACCOUNTING PRONOUNCEMENTS
See the Notes to the Consolidated Financial Statements, Note 1, caption New
Accounting Standards for a discussion of accounting and reporting developments
affecting the Bank.
18
<PAGE> 188
[GRAPHIC]
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of
Financial Condition 21
Consolidated Statements of Income 22
Consolidated Statements of Cash Flows 23
Consolidated Statements of
Shareholders' Equity 24
Notes to Consolidated Financial Statements 25-38
Independent Auditors' Report 39
<PAGE> 189
[GRAPHIC]
[THE STRONGSVILLE SAVINGS BANK LOGO]
WE OFFER A FULL RANGE OF SERVICES TO HELP YOU WITH YOUR...
SAVINGS
Individual Retirement Accounts (IRA's)
Certificates of Deposit (CD's) (7 days to 10 years)
Jumbo CD's
Savings Accounts
- Passbook
- Money Market Deposit Accounts
- Statement Savings
CHECKING & CREDIT
NOW Checking Accounts for individuals
ATM Machines and Cards
Mortgage Loans
Home Equity Loans
Mastercard(R) & VISA(R) Credit Cards
Mortgage Refinance Loans
Real Estate Loans
Personal Loans
Auto Loans
BUSINESS
Commercial / Corporate Accounts
Construction Loans to Builders
Merchant Mastercard(R) and VISA(R) Program
Small Business Administration (SBA) Loans
Commercial Loans
Commercial Real Estate Loans
OTHER SERVICES
Safe Deposit Boxes
Official Bank Checks
Travelers Cheques
Wire Transfers
U.S. Savings Bonds
For information, contact any
[THE STRONGSVILLE SAVINGS BANK LOGO]
NOW OPEN SIX DAYS TO SERVE YOU BETTER
[GRAPHIC]
EQUAL HOUSING
LENDER
<PAGE> 190
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars In Thousands)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
December 31
1995 1994
- -------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CASH AND CASH EQUIVALENTS
Cash and deposits with banks $ 3,574 $ 2,354
Interest-bearing deposits with banks 11,935 8,295
INVESTMENT SECURITIES
Held-to-maturity (fair values of $49,640
and $74,217 at December 31,1995 and
1994, respectively) 49,354 75,715
Available for sale (at fair value) 26,595 3,985
MORTGAGE-BACKED SECURITIES
Held-to-maturity (fair values of $37,819
and $36,736 at December 31, 1995 and
1994, respectively) 37,256 37,274
Available for sale (at fair value) 14,749 --
LOANS -- NET
(including allowance for loan losses of $1,168
and $948 at December 31, 1995 and
1994, respectively) 331,017 281,843
LOANS HELD FOR SALE 5,334 --
ACCRUED INTEREST RECEIVABLE 3,299 2,579
FEDERAL HOME LOAN BANK STOCK-- AT COST 2,407 1,820
PREMISES AND EQUIPMENT-- NET 4,334 3,527
PREPAID EXPENSES AND OTHER ASSETS 2,243 1,866
- -------------------------------------------------------------------------------------------
TOTAL ASSETS $ 492,097 $ 419,258
- -------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits $ 432,563 $ 363,050
Advances from Federal Home Loan Bank 13,333 15,583
Advance payments by borrowers for
taxes and insurance (escrow) 1,222 1,001
Deferred federal income tax 1,583 905
Accrued interest payable 425 300
Accounts payable and other accrued expenses 1,880 1,266
- -------------------------------------------------------------------------------------------
TOTAL LIABILITIES 451,006 382,105
- -------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Common stock, no par value; 10,000,000
shares authorized, 2,530,800 shares
issued and outstanding 9,831 9,831
Retained earnings (substantially restricted) 31,064 27,360
Net unrealized gains (losses) in the fair
value of securities 196 (38)
- -------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 41,091 37,153
- -------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 492,097 $ 419,258
- -------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
21
<PAGE> 191
Consolidated Statements of Income
(Dollars in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31
1995 1994 1993
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Loans $ 26,424 $ 22,040 $ 19,735
Investment securities 4,982 3,391 2,697
Mortgage-backed securities 3,192 1,230 804
Other investments 812 461 410
- ------------------------------------------------------------------------------------------------
35,410 27,122 23,646
- ------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Deposits 20,428 13,762 11,818
Advances from Federal Home Loan Bank 914 351 --
- ------------------------------------------------------------------------------------------------
21,342 14,113 11,818
- ------------------------------------------------------------------------------------------------
Net interest income 14,068 13,009 11,828
- ------------------------------------------------------------------------------------------------
PROVISION FOR LOAN LOSSES 238 92 77
- ------------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses 13,830 12,917 11,751
NONINTEREST INCOME
Gain on sale of loans 964 228 1,799
Loan servicing fees 464 545 601
Service fees and other charges 537 388 349
Other 87 33 113
- ------------------------------------------------------------------------------------------------
2,052 1,194 2,862
- ------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE
Salaries and employee benefits 3,487 2,935 2,382
Net occupancy and equipment 1,392 1,112 971
Federal deposit insurance premium 850 703 623
Franchise tax 491 443 258
Other 2,406 2,177 1,895
- ------------------------------------------------------------------------------------------------
8,626 7,370 6,129
- ------------------------------------------------------------------------------------------------
Income before federal income taxes 7,256 6,741 8,484
FEDERAL INCOME TAXES 2,539 2,331 2,915
- ------------------------------------------------------------------------------------------------
NET INCOME $ 4,717 $ 4,410 $ 5,569
- ------------------------------------------------------------------------------------------------
EARNINGS PER COMMON SHARE $ 1.86 $ 1.74 $ 2.73
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 2,530,800 2,530,800 2,042,066
- ------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
22
<PAGE> 192
Consolidated Statements of Cash Flows
(In Thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31
1995 1994 1993
- ------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income $ 4,717 $ 4,410 $ 5,569
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Provision for loan losses 238 92 77
Gain from sale of loans (964) (228) (1,799)
Amortization of deferred yield items (2,484) (2,103) (1,645)
Proceeds from sale of loans originated for sale 38,351 21,551 46,530
Disbursements on loans originated for sale (43,258) (7,795) (91,351)
Depreciation and amortization 821 741 619
Effect of change in accrued
interest receivable and payable (595) (583) (740)
Deferred federal income taxes 597 1,192 360
Other (117) (2,057) 506
- ------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (2,694) 15,220 (41,874)
- ------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) decrease in loans (50,416) (50,965) 9,847
Purchases of:
Mortgage-backed securities and loans (22,284) (29,383) (5,073)
Investment securities (59,176) (58,689) (60,688)
Federal Home Loan Bank Stock (437) -- --
Premises and equipment (1,489) (746) (889)
Proceeds from:
Loan sales 4,725 -- 12,791
Mortgage-backed security principal
repayments and maturities 7,103 4,534 9,719
Sales of available for sale securities 2,518 3,995 --
Investment security maturities 60,528 36,833 33,288
Other 11 27 (31)
- ------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (58,917) (94,394) (1,036)
- ------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 69,513 68,300 25,017
Proceeds from advances from
Federal Home Loan Bank (FHLB) 2,000 16,000 --
Payments on advances from FHLB (4,250) (417) --
Net proceeds from sale of common stock -- -- 7,609
Payment of dividends on common stock (1,013) (797) (580)
Increase (decrease) in escrow 221 (147) 414
- ------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 66,471 82,939 32,460
- ------------------------------------------------------------------------------------------------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 4,860 3,765 (10,450)
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR 10,649 6,884 17,334
- ------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF THE YEAR $ 15,509 $ 10,649 $ 6,884
- ------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
23
<PAGE> 193
Consolidated Statements of Shareholders' Equity
(Dollars in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
NET UNREALIZED
GAIN (LOSS) TOTAL
COMMON IN THE FAIR VALUE RETAINED SHAREHOLDERS'
STOCK OF SECURITIES EARNINGS EQUITY
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, January 1, 1993 $ 2,222 $ -- $ 18,758 $ 20,980
Dividends-- $0.28 per share -- (580) (580)
Issuance of 644,000
shares of common stock 7,609 -- 7,609
Net income -- 5,569 5,569
- -------------------------------------------------------------------------------------------------------------
Balance, December 31, 1993 9,831 -- 23,747 33,578
Dividends-- $0.315 per share -- (797) (797)
Net unrealized gain (loss) in the
fair value of securities -- (38) -- (38)
Net income -- 4,410 4,410
- -------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 9,831 (38) 27,360 37,153
Dividends-- $0.40 per share -- (1,013) (1,013)
Net unrealized gain (loss) in the
fair value of securities -- 234 -- 234
Net income -- 4,717 4,717
- -------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 $ 9,831 $ 196 $ 31,064 $ 41,091
- -------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
24
<PAGE> 194
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
The Strongsville Savings Bank (Bank) conducts its principal activities from its
Community Financial Centers located in southwestern Cuyahoga, Lorain and Medina
counties. The Bank's principal activities include residential lending and retail
banking.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of The Strongsville
Savings Bank and its subsidiary. All material intercompany transactions and
balances have been eliminated. Certain prior period data has been reclassified
to conform to current year presentation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make assumptions and estimates that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
INVESTMENT AND MORTGAGE-BACKED SECURITIES
Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for
Certain Investments in Debt and Equity Securities, requires securities to be
classified as held-to-maturity, available for sale or trading. Only those
securities classified as held-to-maturity are reported at amortized cost.
Management has the intent and ability to hold securities classified as
held-to-maturity, to maturity. Securities classified as available for sale and
trading are reported at their fair values. Unrealized gains and losses, net of
deferred income taxes, on available for sale securities are included in
shareholders' equity. Unrealized gains and losses, net of deferred income taxes,
on trading securities are included in income. The Bank adopted SFAS No. 115
effective January 1, 1994. Prior to adoption of SFAS No. 115, securities
classified as held for sale were carried at the lower of cost or fair value.
Realized securities gains or losses are reported in the Consolidated Statements
of Income. The cost of securities sold is based on the specific identification
method.
On December 30, 1995, management took a permitted one-time opportunity to
re-evaluate securities classification under SFAS No. 115 and reclassified
securities with an amortized cost of $40,047,000 from held-to-maturity to
available for sale. The unrealized gain at the time of the transfer was
$297,000.
LOANS
Interest income on loans is based on the principal balance outstanding. Interest
is accrued as earned unless there is a distinct indication that the borrower's
cash flow or collateral may not be sufficient to meet his/her contractual
obligations. Loans are also placed on nonaccrual status when principal or
interest is past due more than ninety days, unless the loan is well secured by
real estate. When a loan is placed on nonaccrual status, all previously accrued
and unpaid interest is charged against income. Interest is subsequently
recognized only to the extent that cash payments are received. When the borrower
has demonstrated that he/she has the intent and ability to make scheduled
principal and interest payments the loan may be returned to accrual status.
Loan origination fees, net of certain direct loan origination costs, are
deferred and amortized over the life of the related loans as a yield adjustment
for loans originated for investment. Loan origination fees, net of certain
direct loan origination costs, are deferred and recognized as a basis adjustment
for loans originated for sale. Loan commitment fees are deferred and recognized
as yield adjustments over the estimated life of the related loans.
Residential mortgage loans held for sale are valued at the lower of aggregate
cost or market value and were $5,334,000 at December 31, 1995. Gains or losses
on sales are recognized in Noninterest Income or Noninterest Expense,
respectively, upon delivery.
25
<PAGE> 195
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Bank adopted SFAS No. 122, Accounting for Mortgage Servicing Rights,
effective January 1, 1995, which requires an entity that sells or securitizes
loans with servicing rights retained to allocate the total cost of the mortgage
loans to the mortgage servicing rights and the loans based on their relative
fair values. The resulting capitalized mortgage servicing rights must be
assessed for impairment periodically based on fair value, with any impairment
recognized through a valuation allowance. The effect of adopting SFAS No. 122 in
1995 was to increase the gain on sales of loans by $281,000 (pre-tax).
The Bank adopted SFAS No. 114, Accounting by Creditors for Impairment of a Loan,
as amended by SFAS No. 118, Accounting by Creditors for Impairment of a
Loan-Income Recognition and Disclosure, effective January 1, 1995. This
statement requires that impaired loans be measured based on the present value of
expected future cash flows discounted at the loan's effective interest rates or
the fair value of the underlying collateral. The statement also specifies
alternative methods for recognizing interest income on loans that are impaired
or for which there are credit concerns. A loan is considered impaired when,
based on current information and events, it is probable that a creditor will be
unable to collect all amounts due in accordance with contractual terms of the
loan agreement. The Bank performs a review of all loans greater than $500,000 to
determine if the impairment criteria have been met. The Bank's policy for income
recognition was not affected by the adoption of SFAS Nos. 114 and 118. The
adoption of SFAS Nos. 114 and 118 has not affected the Bank's allowance for loan
losses or the related provision for loan losses.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is maintained at a level management considers
adequate to absorb potential loan losses. Loans charged-off are charged to and
recoveries are credited to the allowance. Provisions for loan losses are based
on management's review of the historical loan loss experience, known and
inherent risks in the portfolio, current economic conditions and such other
factors that, in management's judgment, are relevant.
PREMISES AND EQUIPMENT
Bank premises and equipment, including leasehold improvements, are stated at
cost less accumulated depreciation and amortization. Depreciation is computed on
the straight-line method over the estimated useful lives of the related assets.
Amortization of leasehold improvements is computed on the straight-line method
over the lives of the related leases or the useful lives of the related assets,
whichever is shorter. Maintenance, repairs and minor improvements are charged to
operating expenses as incurred.
INTANGIBLE ASSETS
Cost in excess of the fair value of net assets acquired (goodwill) is stated net
of accumulated amortization and is included in prepaid expenses and other assets
in the Consolidated Statements of Financial Condition. Goodwill for acquisitions
after September 30, 1982 is being charged to operations over the estimated
remaining life of the long-term interest-bearing assets acquired using the
level-yield method. Goodwill for acquisitions before October 1, 1982 is being
charged to operations over twenty-five years using the straight-line method.
EARNINGS PER SHARE
Net income per share is calculated by dividing net income for the period by the
weighted average number of shares of common stock outstanding during the period.
The assumed exercise of stock options does not have a materially dilutive
effect.
26
<PAGE> 196
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SHAREHOLDERS' EQUITY
The Bank paid dividends of $1,013,000 in 1995 and $797,000 in 1994. The Bank's
ability to make capital distributions is restricted by OTS regulations. As a
Tier 1 Association under OTS regulations, the Bank is granted the greatest
flexibility in capital distributions. The Bank is authorized to distribute the
greater of: (1) 100% of year-to-date net income plus 50% of excess capital at
the beginning of the year or (2) 75% of net income over the most recent
four-quarter period. Dividend payments were limited to $13,034,000 at December
31, 1995.
The Bank sold 644,000 shares of common stock in its initial public offering on
October 5, 1993. The net proceeds of this offering totaled $7,609,000.
STATEMENT OF CASH FLOWS
The Bank considers all cash and deposits with banks maturing in three months or
less to be cash equivalents for the Statement of Cash Flows.
Income tax payments of $1,718,000, $1,989,000 and $2,853,000 were made for the
years ended December 31, 1995, 1994 and 1993, respectively. Interest paid
totaled $21,218,000, $13,925,000 and $12,061,000 for the years ended December
31, 1995, 1994 and 1993, respectively. There were no transfers from loans to
real estate owned during the years ended December 31, 1995 and 1993, nor any
loans made to finance the sale of real estate owned. During the year ended
December 31, 1994, transfers from loans to real estate owned were $113,000 and
loans made to finance the sale of real estate owned were $100,000.
NEW ACCOUNTING STANDARDS
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of, requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate the carrying amount of these assets may not be
recoverable. This statement is effective January 1, 1996 and is not expected to
have a material effect on the Bank's Consolidated Financial Statements.
SFAS No. 123, Accounting for Stock-Based Compensation, encourages, but does not
require, adoption of a fair-value-based accounting method for employee
stock-based compensation arrangements and is effective January 1, 1996.
Management intends to continue to use the Accounting Principles Board Opinion
25, Accounting for Stock Issued to Employees, intrinsic value method for
measurement and recognition of stock-based compensation.
27
<PAGE> 197
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENT SECURITIES
Amortized cost, fair values, maturities and yields for
held-to-maturity securities are summarized as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1995
WEIGHTED
AMORTIZED GROSS GROSS FAIR AVERAGE
COST UNREALIZED GAIN UNREALIZED LOSS VALUE YIELD
- ------------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS
Due in one year or less $ 1,200 $ -- $ -- $ 1,200 5.95%
- ------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS
Due in one year or less 20,388 56 31 20,413 5.95
Due after one year through five years 23,845 277 36 24,086 6.36
- ------------------------------------------------------------------------------------------------------------------------
44,233 333 67 44,499 6.17
- ------------------------------------------------------------------------------------------------------------------------
OTHER
Due in one year or less 23 -- -- 23 6.12
Due after one year through five years 3,898 21 1 3,918 7.55
- ------------------------------------------------------------------------------------------------------------------------
3,921 21 1 3,941 7.55
- ------------------------------------------------------------------------------------------------------------------------
TOTAL $49,354 $ 354 $ 68 $49,640 6.27%
- ------------------------------------------------------------------------------------------------------------------------
December 31, 1994
- ------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS
Due in one year or less $ 8,696 $ -- $ 22 $ 8,674 5.35%
Due after one year through five years 6,027 -- 103 5,924 6.89
- ------------------------------------------------------------------------------------------------------------------------
14,723 -- 125 14,598 5.98
- ------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS
Due in one year or less 29,408 1 404 29,005 4.56
Due after one year through five years 29,695 1 935 28,761 5.32
- ------------------------------------------------------------------------------------------------------------------------
59,103 2 1,339 57,766 4.94
- ------------------------------------------------------------------------------------------------------------------------
OTHER
Due in one year or less 96 -- -- 96 7.75
Due after one year through five years 1,793 -- 36 1,757 7.13
- ------------------------------------------------------------------------------------------------------------------------
1,889 -- 36 1,853 7.17
- ------------------------------------------------------------------------------------------------------------------------
TOTAL $75,715 $ 2 $ 1,500 $74,217 5.20%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1995 and 1994, securities with a book value of $ 1,200,000 and $
700,000, respectively, were pledged as collateral for public funds and treasury,
tax and loan deposits.
28
<PAGE> 198
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amortized cost, fair values, maturities and yields for available for
sale securities are summarized as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1995
WEIGHTED
AMORTIZED GROSS GROSS FAIR AVERAGE
COST UNREALIZED GAIN UNREALIZED LOSS VALUE YIELD
- -------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (in thousands)
<S> <C> <C> <C> <C> <C>
Due in one year or less $ 3,039 $ 5 $ -- $ 3,044 5.67%
Due after one year through five years 22,509 49 6 22,552 6.45
- -------------------------------------------------------------------------------------------------------------------
25,548 54 6 25,596 6.36
- -------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS
Due in one year or less 1,000 -- 1 999 5.50
- -------------------------------------------------------------------------------------------------------------------
TOTAL $26,548 $ 54 $ 7 $26,595 6.32%
- -------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1994
- -------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS
Due in one year or less $ 3,030 $ -- $ 19 $ 3,011 4.24%
Due after one year through five years 1,000 -- 26 974 5.50
- -------------------------------------------------------------------------------------------------------------------
$ 4,030 $ -- $ 45 $ 3,985 4.55%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
3. MORTGAGE-BACKED SECURITIES
Amortized cost and fair values of mortgage-backed securities
held-to-maturity are summarized below:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
December 31, 1995
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gain Loss Value
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MORTGAGE POOL SECURITIES
Federal Home Loan Mortgage
Corporation participation certificates $ 4,026 $ 12 $ 11 $ 4,027
Government National Mortgage
Association 7,194 234 -- 7,428
Other 6,619 -- 15 6,604
- ---------------------------------------------------------------------------------------------------------
17,839 246 26 18,059
- ---------------------------------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE
OBLIGATIONS
Federal Home Loan Mortgage
Corporation participation certificates 1,924 30 -- 1,954
Federal National Mortgage
Association 5,926 177 -- 6,103
Other 8,791 107 -- 8,898
- ---------------------------------------------------------------------------------------------------------
16,641 314 -- 16,955
- ---------------------------------------------------------------------------------------------------------
REAL ESTATE MORTGAGE
INVESTMENT TRUSTS
Federal Home Loan Mortgage
Corporation participation certificates 1,963 24 -- 1,987
Federal National Mortgage
Association 726 2 -- 728
Other 87 3 -- 90
- ---------------------------------------------------------------------------------------------------------
2,776 29 -- 2,805
- ---------------------------------------------------------------------------------------------------------
TOTAL $37,256 $ 589 $ 26 $37,819
- ---------------------------------------------------------------------------------------------------------
</TABLE>
29
<PAGE> 199
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1994
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE
- -------------------------------------------------------------------------------------------------------------
(in Thousands)
<S> <C> <C> <C> <C>
MORTGAGE POOL SECURITIES
Federal Home Loan Mortgage
Corporation participation certificates $ 4,977 $ 8 $ 67 $ 4,918
Federal National Mortgage Association 3,880 -- 148 3,732
Government National Mortgage
Association 3,271 22 11 3,282
Other 8,115 -- 35 8,080
- -------------------------------------------------------------------------------------------------------------
20,243 30 261 20,012
- -------------------------------------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS
Federal Home Loan Mortgage
Corporation participation certificates 1,540 3 17 1,526
Federal National Mortgage Association 6,466 11 2 6,475
Other 3,688 1 98 3,591
- -------------------------------------------------------------------------------------------------------------
11,694 15 117 11,592
- -------------------------------------------------------------------------------------------------------------
REAL ESTATE MORTGAGE INVESTMENT TRUSTS
Federal Home Loan Mortgage
Corporation participation certificates 3,300 9 48 3,261
Federal National Mortgage Association 1,881 -- 165 1,716
Other 156 -- 1 155
- -------------------------------------------------------------------------------------------------------------
5,337 9 214 5,132
- -------------------------------------------------------------------------------------------------------------
TOTAL $37,274 $ 54 $ 592 $36,736
- -------------------------------------------------------------------------------------------------------------
</TABLE>
Amortized cost and fair values of mortgage-backed securities available
for sale are summarized below:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1995
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE
- -------------------------------------------------------------------------------------------------------------
(in Thousands)
<S> <C> <C> <C> <C>
MORTGAGE POOL SECURITIES
Federal Home Loan Mortgage
Corporation participation certificates $ 3,292 $ 35 $ 10 $ 3,317
Government National Mortgage
Association 3,723 144 -- 3,867
- -------------------------------------------------------------------------------------------------------------
7,015 179 10 7,184
- -------------------------------------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS
Federal Home Loan Mortgage
Corporation participation certificates 1,452 27 9 1,470
Federal National Mortgage Association 678 -- 16 662
- -------------------------------------------------------------------------------------------------------------
2,130 27 25 2,132
- -------------------------------------------------------------------------------------------------------------
REAL ESTATE MORTGAGE INVESTMENT TRUSTS
Federal Home Loan Mortgage
Corporation participation certificates 2,784 46 4 2,826
Federal National Mortgage Association 2,570 37 -- 2,607
- -------------------------------------------------------------------------------------------------------------
5,354 83 4 5,433
- -------------------------------------------------------------------------------------------------------------
TOTAL $14,499 $ 289 $ 39 $14,749
- -------------------------------------------------------------------------------------------------------------
</TABLE>
Actual maturities may differ from contractual maturities when a right to call or
prepay obligations, with or without prepayment penalties, exists.
The Bank's portfolio of privately issued mortgage-backed securities are backed
by mortgages on residential and multi-family properties. These securities are of
investment grade.
30
<PAGE> 200
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. LOANS
The primary goal of the Bank's lending activities is to provide residential
real estate mortgage loans to homeowners in its lending area. The Bank's
twelve Community Financial Centers are located in Strongsville, Hinckley,
Berea, North Royalton, Medina Township, Wellington, Parma Heights, Westlake,
North Ridgeville, Brecksville, Broadview Heights and Columbia Station. In
1996 two additional Community Financial Centers will open in Avon and
Brunswick.
The composition of the overall loan portfolio is as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
DECEMBER 31
1995 1994
- --------------------------------------------------------------------------------
(in Thousands)
<S> <C> <C>
REAL ESTATE MORTGAGE LOANS
PERMANENT FIRST MORTGAGE LOANS
One-to-four family $220,490 $194,629
Multi-family 1,183 1,294
Commercial 42,098 38,109
Land 358 427
CONSTRUCTION FIRST MORTGAGE LOANS
Acquisition and development (residential) 48,538 29,107
One-to-four family 26,960 29,818
Multi-family 2,660 1,400
Commercial 4,233 3,163
- --------------------------------------------------------------------------------
Total mortgage loans 346,520 297,947
OTHER LOANS
Commercial 3,955 1,584
Consumer installment 8,895 7,390
- --------------------------------------------------------------------------------
Total loans 359,370 306,921
LESS
Undisbursed portion of
loans in process 23,639 20,134
Deferred loan fees and discounts 3,546 3,996
Allowance for loan losses 1,168 948
- --------------------------------------------------------------------------------
TOTAL LOANS HELD FOR INVESTMENT-- NET $331,017 $281,843
REAL ESTATE MORTGAGE LOANS
HELD FOR SALE $ 5,396 --
Less deferred loan fees 62 --
- --------------------------------------------------------------------------------
TOTAL LOANS HELD FOR SALE-- NET $ 5,334 --
- --------------------------------------------------------------------------------
</TABLE>
Adjustable-rate mortgage and other loans represent $171,322,000 and $132,971,000
of the loans included in the table above at December 31, 1995 and 1994,
respectively. The Bank had commitments to lend $26,353,000 at December 31, 1995;
$7,279,000 of these commitments were for adjustable-rate loans. The Bank had
commitments to lend $20,645,000 at December 31, 1994; $13,300,000 of these
commitments were for adjustable-rate loans. Adjustable-rate loans generally
reprice with the prime rate or the one or three year constant maturity treasury
rate.
The Bank sells loans to the secondary market in conjunction with certain loan
programs, to provide funding and as a tool for managing interest rate risk.
Loans are sold to the secondary market without recourse and with servicing
retained. The Bank was servicing loans for investors totaling $159,482,000 and
$131,911,000 at December 31, 1995 and 1994, respectively. During 1994, the Bank
transferred $35,379,000 from the loans held-for-sale classification to the held
for investment classification at their carrying value which was less than their
then-current market value. Custodial escrow balances maintained in connection
with loans serviced for investors were $1,866,000 and $1,519,000 at December 31,
1995 and 1994, respectively.
Residential acquisition and development loans are extended to local builders and
developers with whom the Bank has generally had long-standing business
relationships. These loans are secured by land zoned for residential development
located in the Bank's market area.
Under federal regulations, real estate loans to one borrower cannot exceed 15%
of unimpaired capital and surplus without a waiver of this requirement from the
Office of Thrift Supervision. The Bank obtained such a waiver which increases
the limit on loans to one borrower for residential real estate to 30% of
unimpaired capital and surplus.
31
<PAGE> 201
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Bank's commercial real estate loan portfolio includes permanent and
construction loans. Because commercial real estate loans are dependent on income
production or future development for repayment, management believes these loans
present somewhat greater risk of default than conventional mortgage loans. The
Bank's commercial real estate loan portfolio consists of loans collateralized by
property located in the Bank's primary lending area. The Bank's aggregate
commercial real estate loans may not exceed 400% of its core capital. The Bank
could lend an additional $113,569,000 before reaching the $159,900,000 limit.
The following table summarizes the Bank's commercial real estate and commercial
construction loan portfolios by type of collateral.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
DECEMBER 31
1995 1994
AMOUNT % AMOUNT %
- ------------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
PERMANENT
Industrial/warehouses $ 8,055 17.39% $ 7,759 18.80%
Retail 11,811 25.49 10,827 26.23
Office buildings 7,144 15.42 6,615 16.03
Churches 1,320 2.85 2,042 4.95
Other 13,768 29.72 10,866 26.33
- ------------------------------------------------------------------------------------
42,098 90.87 38,109 92.34
- ------------------------------------------------------------------------------------
CONSTRUCTION
Industrial/warehouses -- -- 907 2.20
Retail -- -- 825 2.00
Office buildings 915 1.97 1,181 2.86
Churches 1,500 3.24 -- --
Other 1,818 3.92 250 .60
- ------------------------------------------------------------------------------------
4,233 9.13 3,163 7.66
- ------------------------------------------------------------------------------------
TOTAL $46,331 100.00% $41,272 100.00%
- ------------------------------------------------------------------------------------
</TABLE>
Activity in the allowance for loan losses is as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31
1995 1994 1993
- --------------------------------------------------------------------------------
(in Thousands)
<S> <C> <C> <C>
Balance, beginning of year $ 948 $ 840 $ 717
Provision charged to expense 238 92 77
Loans charged off (21) (13) (6)
Recoveries 3 29 52
- --------------------------------------------------------------------------------
BALANCE, END OF YEAR $ 1,168 $ 948 $ 840
- --------------------------------------------------------------------------------
</TABLE>
Nonaccrual loans totaled $146,000 and $93,000 at December 31, 1995 and 1994,
respectively. Interest income that would have been recorded under the original
terms of all nonaccrual loans during each period and the interest income
actually recognized for each period are summarized below:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31
1995 1994 1993
- --------------------------------------------------------------------------------
(in Thousands)
<S> <C> <C> <C>
Interest income that would have
been recorded $49 $25 $29
Interest income recognized 37 12 10
- --------------------------------------------------------------------------------
INTEREST INCOME FOREGONE $12 $13 $19
- --------------------------------------------------------------------------------
</TABLE>
The Bank is not committed to lend additional funds to debtors whose loans have
been placed on nonaccrual. There were no loans considered impaired at December
31, 1995 or 1994, or during the years then ended.
32
<PAGE> 202
Notes to Consolidated Financial Statements
5. BANK PREMISES AND EQUIPMENT
Premises and equipment consist of the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
DECEMBER 31
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Land $ 672 $ 567
Buildings and improvements 3,355 2,828
Furniture, fixtures and equipment 3,117 2,558
- --------------------------------------------------------------------------------
7,144 5,953
- --------------------------------------------------------------------------------
Less accumulated depreciation
and amortization 2,810 2,426
- --------------------------------------------------------------------------------
TOTAL $4,334 $3,527
- --------------------------------------------------------------------------------
</TABLE>
Depreciation and amortization expense related to Bank premises and equipment was
$678,000 in 1995, $591,000 in 1994 and $461,000 in 1993.
The Bank has entered into a number of noncancelable operating leases with
respect to office space. Rental expense for all leases was $178,000 in 1995,
$110,000 in 1994 and $102,000 in 1993. Occupancy expense has been reduced by
rental income from office space leased to others by $14,000 in 1995 and 1994 and
by $25,000 in 1993.
<TABLE>
<CAPTION>
The following is a schedule of future minimal annual lease commitments as of
December 31, 1995
- --------------------------------------------------------------------------------
(in thousands)
<S> <C>
1996 $ 240
1997 233
1998 252
1999 252
2000 239
Thereafter 1,287
- --------------------------------------------------------------------------------
TOTAL PAYMENTS $ 2,503
- --------------------------------------------------------------------------------
</TABLE>
6. DEPOSITS
Deposits by interest rate are summarized as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
DECEMBER 31
1995 1994
- --------------------------------------------------------------------------------------------------------------
WEIGHTED
AVERAGE
TYPE OF ACCOUNT COST AMOUNT % AMOUNT %
- --------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Passbook accounts 2.88% $ 47,423 10.96% $ 30,347 8.36%
NOW accounts 2.02 26,025 6.02 23,196 6.39
Commercial accounts
(non-interest bearing) -- 11,728 2.71 10,159 2.80
Money Market deposit accounts 2.53 23,014 5.32 37,134 10.23
Certificate of Deposit accounts:
4.50% and less 3.03 4,454 1.03 42,796 11.79
4.51% to 5.50% 5.27 77,802 17.99 114,659 31.58
5.51% to 6.50% 6.03 120,175 27.78 48,555 13.37
6.51% to 7.50% 7.22 108,282 25.03 36,259 9.99
7.51% and greater 9.01 13,660 3.16 19,945 5.49
- --------------------------------------------------------------------------------------------------------------
Subtotal 6.33 324,373 74.99 262,214 72.22
- --------------------------------------------------------------------------------------------------------------
TOTAL 5.32% $432,563 100.00% $363,050 100.00%
- --------------------------------------------------------------------------------------------------------------
</TABLE>
33
<PAGE> 203
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Included in the preceding table, at December 31, 1995, the Bank had $67,531,000
in certificates of deposit with balances of $100,000 or more. The Bank does
not enter into brokered deposit arrangements and had no brokered deposits at
December 31, 1995 or 1994.
The summary of certificates of deposit by maturity follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
(in Thousands)
<S> <C>
Within 6 months $ 107,628
6 months to 12 months 83,619
12 months to 24 months 50,117
Over 24 months 83,009
- --------------------------------------------------------------------------------
Total $324,373
- --------------------------------------------------------------------------------
</TABLE>
The following is a summary of interest expense on deposits:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31
1995 1994 1993
- --------------------------------------------------------------------------------
(in Thousands)
<S> <C> <C> <C>
Passbook accounts $ 1,132 $ 768 $ 774
NOW accounts 442 412 374
Money market deposit accounts 673 991 1,153
Certificate of deposit accounts 18,181 11,591 9,517
- --------------------------------------------------------------------------------
TOTAL $20,428 $ 13,762 $ 11,818
- --------------------------------------------------------------------------------
</TABLE>
7. ADVANCES FROM FEDERAL HOME LOAN BANK
Advances from the Federal Home Loan Bank (FHLB) consist of $9.7 million with a
variable rate of 5.89% and $3.6 million with a fixed rate of 6.90% at December
31, 1995.
Although individual loans are not specifically pledged, the FHLB requires that
the Bank have mortgage loans which are, among other things, clear of pledges,
liens and encumbrances and equal to at least 150% of the advances from the FHLB.
The stock of the FHLB owned by the Bank is also pledged as collateral for these
borrowings.
Scheduled payments on FHLB advances at December 31, 1995 are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(in thousands)
<S> <C>
1996 $ 1,000
1997 1,000
1998 1,000
1999 4,333
2000 --
Thereafter 6,000
- --------------------------------------------------------------------------------
TOTAL PAYMENTS $ 13,333
- --------------------------------------------------------------------------------
</TABLE>
34
<PAGE> 204
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. FEDERAL INCOME TAXES
The Bank and its wholly owned subsidiary file a consolidated federal income tax
return.
A summary of the provision for federal income taxes:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31
1995 1994 1993
- --------------------------------------------------------------------------------
(in Thousands)
<S> <C> <C> <C>
Current $1,942 $1,139 $2,555
Deferred 597 1,192 360
- --------------------------------------------------------------------------------
TOTAL $2,539 $2,331 $2,915
- --------------------------------------------------------------------------------
</TABLE>
A reconciliation between the statutory income tax rate and the effective
consolidated income tax rate is as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
DECEMBER 31
1995 1994 1993
AMOUNT % AMOUNT % AMOUNT %
- --------------------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Tax at statutory rate $ 2,467 34.0% $ 2,292 34.0% $ 2,885 34.0%
Other 72 1.0 39 0.5 30 0.4
- --------------------------------------------------------------------------------------------
EFFECTIVE INCOME TAX
PROVISION $ 2,539 35.0% $ 2,331 34.5% $ 2,915 34.4%
- --------------------------------------------------------------------------------------------
</TABLE>
The tax effects of significant items comprising the Bank's net deferred tax
liability are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
DECEMBER 31
1995 1994
- --------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C>
Loan loss allowances $ 732 $ 646
FHLB stock dividends 344 293
Deferred loan origination fees 213 (139)
Depreciation and amortization 141 165
Mortgage servicing rights 85 (60)
Mark-to-market accounting 83 4
Other (15) (4)
- --------------------------------------------------------------------------------
Total $ 1,583 $ 905
- --------------------------------------------------------------------------------
</TABLE>
Retained earnings at December 31, 1995 includes approximately $2.4 million in
allocations of earnings for bad debt deductions for which no income tax has been
provided. Under current tax law, federal income tax may be imposed on such
amounts if used for any purpose other than to absorb loan losses.
9. LONG TERM INCENTIVE PLAN
Options have been granted under The Strongsville Savings Bank 1994 Long-Term
Incentive Plan (The Plan) to key employees and directors of the Bank. Options
awarded under the plan are vested one year after the date granted.
At December 31, 1995, there were 209,000 options outstanding with an average
option price of $18.44. The expiration dates of the stock options outstanding at
December 31, 1995 are January 11, 1999 for 4,000 options granted at $18.25,
January 11, 2004 for 166,000 options granted at $18.25 and October 18, 2004 for
39,000 options granted at $19.25. At December 31, 1995, 209,000 options were
exercisable and 41,000 shares were available for granting additional options.
35
<PAGE> 205
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. EMPLOYEE BENEFIT PLANS
The Bank has a profit sharing retirement plan covering substantially all
employees. The Bank's contribution to the plan is discretionary and is
determined annually by the Board of Directors. Contributions were $173,000
in 1995, $148,000 in 1994 and $187,000 in 1993.
The Bank also has a qualified, tax-exempt profit-sharing plan with a cash or
deferred feature qualifying under Section 401(k) of the Internal Revenue
Code. The Bank provides matching contributions of up to 3% of qualifying
employee's annual eligible compensation. Contributions were $68,000 in 1995,
$59,000 in 1994 and $58,000 in 1993.
The Bank also has a nonqualified unfunded Supplemental Executive Retirement
Plan (SERP) that provides certain officers with retirement benefits. Pension
cost of $116,000 was charged to noninterest expense in 1995.
11. LOANS TO DIRECTORS AND EXECUTIVE OFFICERS
In the ordinary course of business, the Bank has granted loans to directors
and executive officers. These loans are made on substantially the same terms
as those prevailing at the time for comparable transactions with unrelated
persons. The aggregate loans and activity for the year ended December 31,
1995 is summarized below:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
<S> <C>
Aggregate balance of loans to directors and
executive officers at beginning of period $721
Additions --
Repayments 52
- --------------------------------------------------------------------------------
AGGREGATE BALANCE OF LOANS TO DIRECTORS AND
EXECUTIVE OFFICERS AT END OF PERIOD $669
- --------------------------------------------------------------------------------
</TABLE>
12.REGULATORY CAPITAL
Federal regulations set forth capital standards which are applicable to all
thrifts. These standards include a core capital ratio equal to 3.0% of
adjusted total assets, a tangible capital ratio equal to 1.5% of adjusted
total assets and a risk-based capital ratio equal to 8.0% of risk weighted
assets. Risk weighted assets are comprised of both on-and-off balance sheet
items which are assigned risk weights from 0% to 100% based on their
relative risk according to OTS guidelines.
The Bank exceeds all three regulatory capital requirements at December 31,
1995, as shown by the following table:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
CORE CAPITAL TANGIBLE CAPITAL RISK-BASED CAPITAL
- --------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C>
Actual $39,975 $39,975 $41,126
Required 14,729 7,365 24,355
- --------------------------------------------------------------------------------
EXCESS $25,246 $32,610 $16,771
- --------------------------------------------------------------------------------
</TABLE>
Management believes that, under the current regulations, the Bank will
continue to meet its minimum capital requirements in the foreseeable future.
However, events beyond the control of the Bank, such as increased interest
rates or a downturn in the economy in the area in which the Bank has most of
its loans, could adversely affect future earnings and, consequently, the
ability of the Bank to meet its future minimum capital requirements.
The OTS introduced an interest rate risk (IRR) component of capital for
thrift institutions. This regulation is expected to require an addition to
the risk-based capital requirement only for savings institutions with "above
normal" IRR. The Bank does not expect the IRR component of capital to have a
significant impact on its capital position.
36
<PAGE> 206
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table provides a reconciliation between the Bank's
capital under generally accepted accounting principles (GAAP) and
regulatory capital (core, tangible, and risk-based) at December 31,
1995.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
CORE CAPITAL TANGIBLE CAPITAL RISK-BASED CAPITAL
AS % OF AS % OF AS % OF
REGULATORY REGULATORY REGULATORY
AMOUNT ASSETS AMOUNT ASSETS AMOUNT ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Total GAAP Capital
as reported
to OTS $ 41,091 8.37 $ 41,091 8.37% $ 41,091 13.50%
Adjustments to arrive at regulatory capital:
Qualifying goodwill (920) (0.19) (920) (0.19) (920) (0.30)
Net unrealized gain in
the fair value of securities (196) (196) (0.04) (196) (0.04) (196) (0.06)
General loan loss allowance -- -- -- -- 1,151 0.37
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL REGULATORY CAPITAL $ 39,975 8.14% $ 39,975 8.14% $ 41,126 13.51%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values of financial instruments were based on various assumptions and
estimates as of a point in time. They represent liquidation values and could
differ significantly from amounts that may be realized in a current market
exchange. The fair values indicated below should not be construed as the
underlying value of the Bank.
The following table presents the estimates of fair value of financial
instruments, except for investment and mortgage-backed securities which
are disclosed in Notes 2 and 3:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
DECEMBER 31, 1995 DECEMBER 31, 1994
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
- ----------------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 15,509 $ 15,509 $ 10,649 $ 10,649
Loans held for sale 5,334 5,397 -- --
Loans 331,017 334,889 281,843 268,522
Accrued interest receivable 3,299 3,299 2,579 2,579
Federal Home Loan
Bank stock 2,407 2,407 1,820 1,820
LIABILITIES
Deposits 432,563 435,711 363,050 360,675
Advances from Federal Home
Loan Bank 13,333 13,232 15,583 15,454
Advance payments by borrowers for
taxes and insurance 1,222 1,222 1,001 1,001
Accrued interest payable 425 425 300 300
- ----------------------------------------------------------------------------------------------------
</TABLE>
37
<PAGE> 207
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument:
CASH AND CASH EQUIVALENTS. ACCRUED INTEREST RECEIVABLE, ADVANCE PAYMENTS BY
BORROWERS FOR TAXES AND INSURANCE AND ACCRUED INTEREST PAYABLE.
The carrying amount is a reasonable estimate of fair value.
INVESTMENT AND MORTGAGE-BACKED SECURITIES
Fair values are based on quoted market prices, dealer quotes and prices obtained
from independent pricing services.
LOANS HELD FOR INVESTMENT
Fair values are estimated by discounting the future cash flows using the current
rates for loans of similar credit risk and maturities.
LOANS HELD FOR SALE
Fair values are based on actual sales prices for loans subject to sales
commitments. Fair values of loans not subject to sales commitments are based on
the market price of loans with similar characteristics.
FEDERAL HOME LOAN BANK STOCK
Fair value is estimated to be the carrying value which is par. All transactions
in the capital stock of the Federal Home Loan Bank of Cincinnati are executed at
par.
DEPOSITS
Fair value of demand deposit accounts is the amount payable on demand at the
reporting date. The fair value of fixed-maturity certificates of deposit is
estimated using rates currently offered for deposits of similar remaining
maturities.
ADVANCES FROM THE FEDERAL HOME LOAN BANK
Fair value is estimated by discounting the future cash flows at the rate
currently available on borrowings with similar characteristics.
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
The fair value of off-balance sheet financial instruments, including commitments
to originate loans, is considered to be equivalent to the value of the current
fees charged to enter into such commitments. At December 31, 1995 and 1994 those
fees were approximately $476,000 and $362,000 respectively.
38
<PAGE> 208
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of The Strongsville Savings
Bank and Subsidiary
We have audited the accompanying consolidated statements of financial condition
of The Strongsville Savings Bank and Subsidiary as of December 31, 1995 and
1994, and the related consolidated statements of income, shareholders' equity,
and cash flows for each of the three years in the period ended December 31,
1995. These financial statements are the responsibility of the Bank'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, such financial statements present fairly, in all material
respects, the financial position of The Strongsville Savings Bank and Subsidiary
as of December 31, 1995 and 1994, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1995 in
conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, in 1995 the
Bank changed its method of accounting for mortgage servicing rights to adopt
Statement of Financial Accounting Standards No. 122, Accounting for Mortgage
Servicing Rights.
/s/ Deloitte & Touche LLP
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Cleveland, Ohio
January 27, 1996
39
<PAGE> 209
GENERAL INFORMATION
BOARD OF DIRECTORS
<TABLE>
<CAPTION>
<S> <C> <C>
THOMAS P. PERCIAK JOHN F. ZIEGLER MIKE KALINICH
President & Chief Executive Officer Vice President & Chief Financial Officer Chairman of the Board
The Strongsville Savings Bank The Strongsville Savings Bank President, Kalinich Fence Company
ELTON L. BEDFORD GEORGE P. BOHNERT, JR., CPA JOAN M. DZURILLA
Retired Partner Retired
George P. Bohnert & Associates
WILLIAM A. FRAUNFELDER, JR. JOHN J. PLUCINSKY
Juvenile Division Referee GLENN W. GOIST Medical Doctor
Cuyahoga County Court Doctor of Dental Science John J. Plucinsky, MD, Inc.
of Common Pleas Glenn W. Goist, DDS, Inc.
</TABLE>
[PHOTO]
The Executive Committee, at their weekly meetings, review all loan
packages prior to approval.The picture shows executive officers
presenting loan packages to three members of the executive committee.
LEFT TO RIGHT: Dean Anaya, Glenn Goist, Mike Kalinich, Joan Dzurilla,
William Harr, Jr.
EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
<S> <C> <C>
THOMAS P. PERCIAK JOHN F. ZIEGLER WILLIAM J. HARR, JR.
President & Chief Executive Officer Vice President & Vice President
Chief Financial Officer
CYNTHIA W. GANNON, CPA
DEAN R. ANAYA DEBORAH A. PERCIAK Vice President & Treasurer
Vice President Vice President
PAULA M. DEWEY
Vice President & Secretary
</TABLE>
ANNUAL MEETING
The 1996 Annual Meeting of Shareholders will be held on April 19, 1996 at 3:00
p.m. at Quality Catering Party Center, 9200 Pearl Rd., Strongsville, Ohio.
ANNUAL REPORT ON FORM 10-K
A copy of the Bank's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995 as filed with the Office of Thrift Supervision will be
furnished without charge to shareholders upon written request to John F.
Ziegler, Vice President & Chief Financial Officer, The Strongsville Savings
Bank, 14092 Pearl Road, Strongsville, Ohio 44136.
REGULATORY COUNSEL INDEPENDENT CERTIFIED TRANSFER AGENT AND REGISTRAR
Francis X. Grady, Esq. Accountants Society National Bank
1468 West 9th Street Deloitte & Touche LLP 127 Public Square
Suite 620 127 Public Square Cleveland, Ohio 44114
Cleveland, Ohio 44113 Cleveland, Ohio 44114 Attn: Debra Kindred
(216) 689-5372
40
<PAGE> 210
THE STRONGSVILLE SAVINGS BANK
Cuyahoga County
[GRAPHIC]
Serving Northeast Ohio with 14 full service
community financial centers in a 3-country
area
STRONGSVILLE
(MAIN OFFICE)
14092 Pearl Road
Strongsville, OH 44136
238-7311
BEREA
404 West Bagley Road
Berea, OH 44017
826-1516
BRECKSVILLE
8801 Brecksville Road
Brecksville, OH 44141 Lorain County Medina County
838-1206
AVON BRUNSWICK
BROADVIEW HTS. 36839 Detroit Rd. 1136 Pearl Rd.
7976 Broadview Road Avon, OH 44011 Brunswick, OH 44212
Broadview Hts., OH 44147 934-2565 225-9966
526-1744 1-800-724-7887 Opening April 1996
NORTH ROYALTON COLUMBIA STATION HINCKLEY
13901 Ridge Road 26700 Royalton Road 1585 Center Road
North Royalton, OH 44133 Columbia Station, OH 44028 Hinckley, OH 44233
237-7030 236-3400 278-2202
PARMA HTS. (SOUTHLAND) NORTH RIDGEVILLE MEDINA
6809 West 130th Street 32800 Center Ridge Road 3455 Medina Road (Rt. 18)
Parma Hts., OH 44130 North Ridgeville, OH 44039 Medina, OH 44256
888-0001 327-4000 725-1714
1-800-315-9887
WESTLAKE WELLINGTON
25151 Detroit Rd. 161 East Herrick Avenue
Westlake, OH 44145 Wellington, OH 44090
835-4400 647-3073
[GRAPHIC]
EQUAL HOUSING
LENDER
<PAGE> 211
[GRAPHIC]
<PAGE> 212
EXHIBIT NO. 22
<PAGE> 213
SUBSIDIARY OF THE STRONGSVILLE SAVINGS BANK
NAME STATE OF INCORPORATION % OWNERSHIP
- ---- ---------------------- -----------
Dennis Financial Corporation Ohio 100%
<PAGE> 214
EXHIBIT NO. 28
<PAGE> 215
[LOGO]
March 21, 1996
Dear Shareholder:
You are cordially invited to attend the 1996 Annual Meeting of Shareholders
(the "Meeting") of The Strongsville Savings Bank (the "Bank" or "Strongsville
Savings") to be held at 3:00 p.m. on Friday, April 19, 1996 at Quality Catering
Party Center located at 9200 Pearl Road, Strongsville, Ohio. The attached Notice
of Annual Meeting of Shareholders and Proxy Statement discuss the business to be
conducted at the Meeting. In addition to the specific matters to be acted upon,
the Meeting will include management's report to you on Strongsville Savings'
financial and operating performance for 1995.
Your vote is very important, regardless of the number of shares you own.
PLEASE READ THE ENCLOSED PROXY STATEMENT AND THEN COMPLETE, SIGN AND DATE THE
ENCLOSED PROXY AND RETURN IT IN THE ACCOMPANYING POSTAGE-PAID RETURN ENVELOPE AS
PROMPTLY AS POSSIBLE so that your shares can be voted at the Meeting in
accordance with your instructions. This will not prevent you from voting in
person, but will assure that your vote is counted if you are unable to attend
the Meeting. Thank you for your consideration of this matter and please vote
today.
A copy of our Annual Report for the year ended December 31, 1995 is
enclosed.
Very truly yours,
THE STRONGSVILLE SAVINGS BANK
/s/ Thomas P. Perciak
Thomas P. Perciak
President and Chief Executive Officer
<PAGE> 216
THE STRONGSVILLE SAVINGS BANK
14092 Pearl Road
Strongsville, Ohio 44136
(216) 238-7311
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be Held on April 19, 1996
Notice is hereby given that the Annual Meeting of Shareholders (the
"Meeting") of The Strongsville Savings Bank (the "Bank") will be held at 3:00
p.m. on April 19, 1996 at Quality Catering Party Center, 9200 Pearl Road,
Strongsville, Ohio.
A proxy card and a Proxy Statement for the Meeting are enclosed. The
purpose of the Meeting is to consider and act upon:
1. election of three directors for three-year terms expiring in 1999
(Proposal 1);
2. establishment of directors' fees for the period beginning May 1, 1996
and ending at the time of the 1997 annual meeting of shareholders
(Proposal 2);
3. amendment of the Articles of Incorporation to delete current Article
FIFTH, having to do with authorized capital, in its entirety (Proposal
3);
4. amendment of the Articles of Incorporation and the Constitution,
Article VI, Section 1, to clarify that the Board of Directors may be
divided into no more than three (3) classes (Proposal 4);
5. ratification of the appointment of Deloitte & Touche LLP as the Bank's
independent auditors for the fiscal year ending December 31, 1995
(Proposal 5); and
6. any other business which may properly come before the Meeting or any
adjournments or postponements thereof.
The Board of Directors is not aware of any other business to come before
the Meeting. Any action may be taken on the foregoing proposals at the Meeting
on the date specified above, or on any date or dates to which the Meeting may be
adjourned or postponed. As used herein, references to the Meeting shall be
deemed to include the Meeting and any adjournments or postponements thereof.
Shareholders of record at the close of business on March 8, 1996 are the
shareholders entitled to receive notice of and to vote at the Meeting.
You are requested to complete and sign the enclosed proxy, which is
solicited on behalf of the Board of Directors, and to return it promptly in the
postage-paid return envelope provided. Please sign your name on the proxy
exactly as indicated thereon.
By Order of the Board of Directors
/s/ Paula M. Dewey
Paula M. Dewey
Secretary
Strongsville, Ohio
March 21, 1996
IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE THE BANK THE EXPENSE OF
FURTHER REQUESTS FOR PROXIES. A SELF-ADDRESSED ENVELOPE IS ENCLOSED FOR YOUR
CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED WITHIN THE UNITED STATES.
<PAGE> 217
PROXY STATEMENT
THE STRONGSVILLE SAVINGS BANK
14092 Pearl Road
Strongsville, Ohio 44136
ANNUAL MEETING OF SHAREHOLDERS
April 19, 1996
INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation of
proxies on behalf of the Board of Directors of The Strongsville Savings Bank
(the "Bank") to be used at the Annual Meeting of Shareholders of the Bank to be
held at 3:00 p.m. on Friday, April 19, 1996, and at any adjournments or
postponements thereof (the "Meeting"). The Meeting will be held at Quality
Catering Party Center, 9200 Pearl Road, Strongsville, Ohio. The accompanying
Notice of Meeting and this Proxy Statement are first being mailed to
shareholders on or about March 21, 1996.
At the Meeting, shareholders of the Bank will be asked to consider and vote
upon proposals (1) to elect three directors each for a three-year term; (2) to
establish directors' fees for the period beginning May 1, 1996 and ending at the
time of the 1997 annual meeting of shareholders; (3) to adopt an amendment to
the Articles of Incorporation to delete an obsolete provision; (4) to adopt an
amendment to the Articles of Incorporation and Constitution of the Bank to
clarify the Bank's authority to have a Board of Directors consisting of three
classes of directors serving staggered terms of three years each; (5) to ratify
the appointment by the Board of Directors of the firm of Deloitte & Touche LLP
as independent auditors of the Bank for the fiscal year ending December 31,
1996; and (6) to transact such other business as may properly come before the
Meeting or any adjournments thereof. The Bank is not aware of any other business
to come before the Meeting.
VOTING RIGHTS AND PROXY INFORMATION
All shares of the Bank's capital stock, no par value (the "Stock"),
represented at the Meeting by properly executed proxies received prior to or at
the Meeting, and not revoked, will be voted at the Meeting in accordance with
the instructions thereon. If no instructions are indicated, properly executed
proxies will, unless revoked, be voted for election of the nominees for
directors named herein and for each of the other matters presented herein.
Proxies solicited hereby may be used at the Meeting only and will not be
used for any other meeting. A proxy given pursuant to this solicitation may be
revoked at any time before it is voted. Proxies may be revoked by (i) attending
the Meeting and voting in person (although attendance at the Meeting will not
constitute revocation of a proxy), (ii) duly executing a subsequent proxy
relating to the same shares and delivering it to the Secretary of the Bank at or
before the Meeting, (iii) filing with the Secretary at or before the Meeting a
written notice of revocation bearing a later date than the proxy. Any written
notice revoking a proxy should
<PAGE> 218
be delivered to Paula M. Dewey, Secretary, The Strongsville Savings Bank, 14092
Pearl Road, Strongsville, Ohio 44136.
A copy of the Annual Report to Shareholders for the fiscal year ended
December 31, 1995 accompanies this Proxy Statement. Such Annual Report to
Shareholders is not to be treated as part of the proxy solicitation material or
as having been incorporated herein by reference.
VOTE REQUIRED FOR APPROVAL OF THE PROPOSALS
Except for the election of directors, for which a plurality of the votes
cast shall be sufficient to elect directors, the affirmative vote of a majority
of the shares represented and voting at the Meeting is required for approval of
the matters described in this Proxy Statement. Broker non-votes have no effect
on the vote for election of directors.
For all proposals other than the election of directors, proxies marked as
abstaining will be treated as present at the Meeting, but will not be counted as
voting in favor of such proposals. Accordingly, abstentions as to these
proposals will have the same effect as votes against adoption of these
proposals. Proxies returned by brokers as "non-votes" on behalf of shares held
in street name will also have the same effect as votes against the proposals
other than the election of directors. Broker non-votes will have no effect on
whether a quorum is present at the Meeting, because the Bank's Constitution
provides that shareholders present at a meeting shall constitute a quorum.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
Shareholders of record as of the close of business on March 8, 1996 are
entitled to notice of and to vote at the Meeting. Shareholders are entitled to
one vote for each share held. As of January 31, 1996, there were 2,530,800
shares of Stock issued and outstanding, which were held of record by
approximately 407 holders.
As disclosed in the table on page 3 hereof, Director Joan M. Dzurilla is,
to the best knowledge of management, the only beneficial owner of more than five
percent (5%) of the Bank's outstanding Stock, as of January 31, 1996.
ELECTION OF DIRECTORS
(PROPOSAL 1)
The Board of Directors presently consists of nine members. The Board of
Directors is divided into three classes, each of which contains three members.
The directors are elected by the shareholders for three-year terms, or until
their successors are elected and qualified.
The following table sets forth certain information, as of December 31,
1995, regarding the composition of the Board of Directors of the Bank, including
term of office and the security
2
<PAGE> 219
ownership of the directors of the Bank and the name and address as to those
persons known by management to be beneficial owners of more than five percent
(5%) of the Bank's Stock. It is intended that the proxies solicited on behalf of
the Board of Directors (other than proxies in which the vote is withheld as to
the nominees) will be voted at the Meeting FOR the election of the following
nominees. If any nominee is unable to serve, the shares represented by all valid
proxies will be voted for the election of such substitute as the Board of
Directors may recommend. At this time, the Board of Directors knows of no reason
any nominee might be unable to serve if elected. Except as disclosed herein,
there are no arrangements or understandings between any nominee and any other
person pursuant to which such nominee was selected.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE ELECTION OF EACH OF THE NOMINEES LISTED
BELOW.
<TABLE>
<CAPTION>
AMOUNT &
NATURE OF % OF
DIRECTOR'S NAME AND DIRECTOR EXPIRATION BENEFICIAL SHARE
BANK POSITION SINCE OF TERM OWNERSHIP(1) OWNERSHIP(2)
- --------------- ------- ---------- ------------ -----------
NOMINEES
<S> <C> <C> <C> <C>
Kenneth J. Piechowski N/A 1999 200 (3)
George P. Bohnert, Jr. 1993 1999 4,300 (3)
John J. Plucinsky, M.D. 1978 1999 54,376 2.15%
</TABLE>
3
<PAGE> 220
<TABLE>
<CAPTION>
DIRECTORS REMAINING IN OFFICE
<S> <C> <C> <C> <C>
Joan M. Dzurilla(4) 1985 1997 632,585 24.96%
The Strongsville Savings Bank
14092 Pearl Road
Strongsville, Ohio 44136
Mike Kalinich, Sr. 1967 1997 28,400 1.12%
Chairman of the Board
Thomas P. Perciak(5) 1982 1997 107,160 4.15%
President
Chief Executive Officer
William A. Fraunfelder, Jr.(6) 1989 1998 10,284 (3)
Glenn W. Goist, D.D.S. 1990 1998 10,777 (3)
John F. Ziegler (7) 1987 1998 59,739 2.33%
Vice President and Chief
Financial Officer
All directors, nominees and ___ ___ 1,008,631 37.35%
executive officers of the Bank
as a group (15 persons) (8)
<PN>
(1) All shares, except as may be set forth in notes (5), (6) and (7) below,
are owned directly or indirectly by the named individuals or by their
spouses and minor children, over which shares the named individuals
effectively exercise voting and investment power. The shares reported
include shares exercisable under stock option grants pursuant to The
Strongsville Savings Bank 1994 Long-Term Incentive Plan.
(2) The percentage ownership figures are inclusive of shares underlying
unexercised stock options. Each non-executive officer director holds a
stock option to acquire 4,000 shares. Messrs. Perciak and Ziegler hold
stock options to acquire 50,000 and 36,000 shares, respectively, while
four other executive officers hold stock options that in the aggregate
permit them to acquire 56,000 shares.
(3) The shares owned by each of Messrs. George P. Bohnert, William A.
Fraunfelder, Glenn W. Goist and Kenneth J. Piechowski constitute less than
one percent (1%) of the outstanding Stock.
(4) Mrs. Dzurilla holds 48,285 shares through the Joan M. Dzurilla Charitable
Remainder Trust of which she is the settlor and sole trustee. A charitable
organization is the sole beneficiary of this trust.
(5) Mr. Perciak holds 56,700 shares through a trust of which he and his wife,
Deborah A. Perciak, a Vice President of the Bank, are co-trustees with
shared voting and investment power. Not shown are 9,200 shares held
jointly by Mrs. Perciak and her parents, as to which shares Mr. and Mrs.
Perciak disclaim beneficial ownership. Mr. Perciak also disclaims
beneficial ownership of 4,800 shares not shown herein that are held
jointly with his father, Walter J. Perciak, Sr. The shares reported do not
include 500 shares owned by Mr. Perciak's adult children, as to which
shares Mr. Perciak disclaims beneficial ownership, and 138 shares held by
Mr. Perciak's spouse, as to which shares Mr. Perciak disclaims beneficial
ownership.
(6) Not shown are 950 shares owned by William A. Fraunfelder's wife, Barbara
Fraunfelder, as to which shares Mr. Fraunfelder disclaims beneficial
ownership.
(7) Of these shares, 4,250 represent shares Mr. Ziegler holds as custodian for
his minor children. Not shown are 6,800 shares Mr. Ziegler owns jointly
with his parents, as to which shares he disclaims beneficial ownership.
(8) Includes shares owned by all executive officers of the Bank, including
those executive officers identified in the summary compensation table. See
"Executive Compensation." Mr. William A. Harr, Jr., who is identified in
that table, beneficially owns directly or indirectly 20,418 shares,
including 20,000 shares that may be acquired upon exercise of options.
Does not include shares as to which
</TABLE>
4
<PAGE> 221
directors and officers have disclaimed beneficial ownership. The figures also
include shares owned by director Elton L. Bedford, who is retiring. Mr. Bedford
owns 35,400 shares directly and 4,000 shares that he has the right to acquire
by exercise of options.
Presented below is certain information concerning the directors of the
Bank.
Thomas P. Perciak (age 48) has been President and Chief Executive Officer
of the Bank since January 1985. He has been Managing Officer of the Bank since
April 1979. Mr. Perciak is also active in community organizations and serves on
the Board of Trustees of the following organizations: The Strongsville Chamber
of Commerce, Advisory Board of St. Andrew's Abbey and Southwest Community Health
Center Foundation Board.
John F. Ziegler (age 43) was first employed by the Bank in 1975, became
the Treasurer in 1983 and has served as the Bank's Vice President for the last
nine(9) years. Since January, 1992, Mr. Ziegler has also served as the Bank's
Chief Financial Officer.
George P. Bohnert, Jr. (age 54) is a certified public accountant
practicing with his own firm from 1992 until present. From 1978 until 1992, Mr.
Bohnert was a partner with a regional accounting firm, Hausser + Taylor, where
his practice concentrated on savings and loan association audits.
Joan M. Dzurilla (age 69) served as Vice President of the Bank from 1989
through February 9, 1994. Prior to that, Mrs. Dzurilla, who is a registered
nurse, was a housewife for over 30 years and raised a family.
William A. Fraunfelder, Jr. (age 52), a lawyer and graduate of
Northwestern University School of Law, has served as a Referee in the Juvenile
Division of the Cuyahoga Court of Common Pleas for 26 years.
Glenn W. Goist, D.D.S. (age 55) has been a practicing dentist for over 25
years. Dr. Goist maintains a private dental practice in Berea.
Mike Kalinich, Sr. (age 65) has been President of the Kalinich Fence
Company, Inc. for over 30 years and is active in numerous community
organizations. Mr. Kalinich has been Chairman of the Board from 1991 through the
present. He serves as a Director of Southwest Community Health Center,
Middleburg Heights, Ohio, and serves as a Trustee Emeritus of the Strongsville
Chamber of Commerce.
Kenneth J. Piechowski (age 47) has been nominated by the Board to serve as
a director in the class whose term will expire at the 1999 annual meeting. Mr.
Piechowski is the director nominee proposed to replace Mr. Elton L. Bedford, who
is retiring from board service by virtue of the Bank's established policy that a
director cannot stand for election to the Board of Directors after reaching his
or her 75th birthday. Director of the Diaconate of the Diocese of Cleveland, Mr.
Piechowski has been employed full time by the Diocese since 1988. In his
capacity as Director of the Diaconate, Mr. Piechowski serves as the Bishop's
representative with responsibility for the selection, training, direction and
supervision of ordained deacons and
5
<PAGE> 222
deacons in training. Prior to joining the Diocese full time, Mr. Piechowski
worked for approximately eighteen years with nationally recognized insurance
agencies. Mr. Piechowski's education and training include a Chartered Life
Underwriter designation, a Bachelor of Arts degree from John Carroll University
and Masters degree in Theology from St. Mary's Seminary in Cleveland.
John J. Plucinsky, M.D. (age 68) has been a doctor of internal medicine
with a specialty in hematology and oncology for over 30 years.
COMMITTEES OF THE BOARD OF DIRECTORS AND BOARD ATTENDANCE
The Board of Directors, which is responsible for the overall affairs of
the Bank, conducts its business through regular and special meetings and through
meetings and activities of its committees. All committees report their
activities to the Board monthly. The Board of Directors met 14 times during the
fiscal year ended December 31, 1995. Except for retiring director Elton L.
Bedford, who missed 21 of 50 Executive Committee meetings due to illness, no
director attended fewer than 75% of the aggregate number of meetings of the
Board of Directors held during the last fiscal year and the total number of
meetings held by all committees of the Board of Directors on which he served
during such year.
The Board of Directors of the Bank acts as a nominating committee for
selecting nominees for election as directors. Pursuant to the Bank's
Constitution, nominations may also be made by shareholders. Shareholder
nominations for directors must be made in writing and delivered to the Secretary
of the Bank at least sixty (60) days prior to the Bank's annual meeting, and
such written nominations of shareholders must contain certain information as
provided in the Bank's Constitution. Any shareholder recommendation for
director-nominee must contain background information concerning the recommended
nominee, including name, age, business and home address, relationships with
person making the recommendation, educational background, description of
nominee's principal occupation and business experience for the last five years,
directorships or trusteeships in public companies, the reasons the person is
being recommended, and a statement that such person would consent to serve as
director. The shareholder's notice of nomination must indicate the name and
address of the shareholder and the number of shares of Stock beneficially owned
by such shareholder on the date of such notice. While the Board of Directors
will consider nominees recommended by shareholders, the Bank has not actively
solicited nominations.
The Audit Committee, which is comprised of Messrs. Bohnert, Goist and
Fraunfelder, with Mr. Bohnert serving as Chairman, recommends the appointment of
the Bank's independent public accountants, reviews and approves the audit plan
and fee estimate of the independent public accountants, appraises the
effectiveness of the internal and external audit efforts, evaluates the adequacy
and effectiveness of the Bank's accounting policies and financial and accounting
management, supervises the Bank's Internal Auditor, and reviews and approves the
annual financial statements. The Audit Committee met four times during 1995.
6
<PAGE> 223
The Community Reinvestment Act ("CRA") Committee is comprised of Mrs.
Dzurilla and Messrs. Kalinich, Perciak and Goist. Mr. Perciak serves as the
Chairman. The CRA Committee considers the Bank's CRA efforts, performance and
areas for improvement. The CRA Committee of the Board receives reports from the
Bank's CRA Officer about the Bank's CRA efforts and the Bank's opportunities to
offer products and services that are responsive to the needs of the Bank's
community.
The Investment Committee, which is comprised of Messrs. Bohnert, Ziegler
and Perciak, with Mr. Ziegler serving as Chairman, ratifies the purchase of
investment products made by the Bank's designated officers. The Investment
Committee makes recommendations for revisions to the Bank's investment policy
and reviews the investment portfolio for compliance with this policy.
The Wage and Salary Committee, which is comprised of Mr. Kalinich as
Chairman and Mr. Perciak and Mrs. Dzurilla, reviews the performance of managers,
employees and officers and recommends appropriate salaries, incentives and
benefits. The Wage and Salary Committee does not determine the compensation and
benefits paid to the two most senior executive officers. The Wage and Salary
Committee met three times during 1995.
The Classification of Assets Committee, which is comprised of Messrs.
Ziegler, Goist, Fraunfelder and Bohnert, with Messrs. Ziegler and Bohnert
serving as Co-Chairmen, reviews the adequacy of the Bank's specific and general
loan loss reserves and administers the Bank's policy concerning the
classification of assets.
The Executive Committee, which is comprised of Messrs. Kalinich, Perciak
and Goist and Mrs. Dzurilla, with Mr. Bedford serving as Chairman and Mr.
Ziegler serving as an alternate member, is authorized to exercise all the
authority of the Board unless otherwise provided in the Bank's By-Laws. The
Executive Committee does not have the power to fill any vacancies in the Board
of Directors or in any committee of the Board. The Executive Committee generally
meets on a weekly basis, meeting 50 times during 1995. The Executive Committee
acts as a general standing committee on loans.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1995, the Wage and Salary Committee of the Bank's Board of
Directors consisted of Messrs. Kalinich and Perciak and Mrs. Dzurilla. Mr.
Kalinich served as Vice President from 1980 through 1991. Mr. Kalinich's
position of Vice President reflected a title only, with an absence of
operational authority. It was a tradition of the savings and loan industry of
that era to title senior board members as officers. Mrs. Dzurilla served as Vice
President from 1989 until her resignation on February 9, 1994.
7
<PAGE> 224
DIRECTORS' COMPENSATION
As compensation for services rendered as a director, each director other
than Messrs. Perciak and Ziegler received $550 for attendance at Board of
Directors' meetings during the first four months of the fiscal year ended
December 31, 1995, and $600 thereafter. Mr. Kalinich received additional
compensation as Chairman of the Board totaling $15,000 during the period.
Directors who serve on committees, including the Executive Committee, the Wage
and Salary Committee and the Audit Committee, received fees of $275 for
attendance at each committee meeting during the fiscal year ended December 31,
1995.
EXECUTIVE COMPENSATION
The following table sets forth the cash compensation paid by the Bank for
services rendered in all capacities for the fiscal years ended December 31,
1995, 1994 and 1993 to its three most highly compensated executive officers,
including its chief executive officer, with total cash compensation in excess of
$100,000.
8
<PAGE> 225
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION(1) AWARDS
--------------------------- -------------
SECURITIES
NAME AND PRINCIPAL UNDERLYING ALL OTHER
POSITION YEAR SALARY ($) BONUS ($) OPTIONS/SARS (#) COMPENSATION($)(2)
- ----------------- ---- ---------- --------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Thomas P. Perciak 1995 $183,200 $100,055(3) - $15,710
President & Chief
Executive Officer 1994 $174,400 $ 95,249 50,000 $16,309
1993 $165,462 $ 89,231 - $21,845
John F. Ziegler 1995 $120,300 $ 65,702(3) - $19,397
Vice President & Chief
Financial Officer 1994 $114,500 $ 62,535 36,000 $19,114
1993 $109,038 $ 58,558 - $18,436
William J. Harr, Jr. 1995 $ 72,060 $ 29,308(3) - $11,413
Vice President, Branch
Administration 1994 $ 65,049 $ 12,111 20,000 $ 7,888
1993 $ 58,076 $ 26,173 - $ 7,879
<FN>
(1) Perquisites and other personal benefits would be included herein only to
the extent that the aggregate perquisites and personal benefits for each
named executive officer exceed the lesser of $50,000 or ten percent (10%)
of a named executive officer's salary and bonus. None of the items that
comprise perquisites and personal benefits represents 25% or more of the
total for any named executive officer.
(2) Represents the amounts paid, payable or accrued to the named executive
officers under the Bank's trusteed profit-sharing retirement plan and
401(k) plan. For Mr. Perciak, $10,209 and $5,501 represent amounts
contributed by the Bank during 1995 on his behalf under the Bank's
profit-sharing and 401(k) plans, respectively. The "All Other
Compensation" column does not include amounts that would be payable under
the Executive Supplemental Benefit Agreements (collectively the
"Agreements" and individually as to each covered executive the
"Agreement"), discussed hereinafter. See "Executive Compensation - Pension
and Retirement Plan Information." Under the Agreement, Mr. Perciak would
be entitled to a payment of $67,684 in the event of a change in control in
fiscal year 1996, increasing in amount should a change in control occur in
subsequent years. For Mr. Ziegler, $14,062 and $5,335 represent amounts
contributed by the Bank during 1995 on his behalf under the Bank's
profit-sharing and 401(k) plans, respectively. Under the Agreement, Mr.
Ziegler would be entitled to a payment of $8,936 in the event of a change
in control in fiscal year 1996, increasing in amount should a change in
control occur in subsequent years. For Mr. Harr, $8,372 and $3,041
represent amounts contributed by the Bank during 1995 on his behalf under
the Bank's profit-sharing and 401(k) plans, respectively. Under the
Agreement, Mr. Harr would be entitled to a payment of $3,603 in the event
of a change in control in fiscal year 1996, increasing in amount should a
change in control occur in subsequent years.
(3) The Bank gave a 1995 Christmas bonus to each employee, including the three
officers named in the Summary Compensation Table. The Christmas bonus of
each of Messrs. Perciak, Ziegler and Harr was $8,455, $5,552 and $3,263,
respectively. These amounts are included in the bonus figures in the
table. In addition, Mr. Harr earned a bonus of $9,645 in 1995 under the
Bank's incentive compensation plan for loan officers, which bonus is also
included in his total bonus amount shown in the table. Mr. Harr was also
awarded a year-end merit bonus of $16,400. The bonus amounts reported are
earned in the fiscal year noted even though such amounts may be payable in
subsequent years.
</TABLE>
The following table sets forth information concerning the number and value
of unexercised stock options held by the named executive officers at December
31, 1995. These options expire ten years from the date of grant and have
exercise prices per share equal to the average of the closing bid and asked
prices of the Stock on the date of grant.
9
<PAGE> 226
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FY-END OPTION/SAR VALUES
NUMBER OF VALUE OF
SECURITIES UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS AT
SHARES AT FY-END (#) FY-END ($)
ACQUIRED VALUE
ON EXERCISE REALIZED EXERCISABLE (E)/ EXERCISABLE (E)/
NAME (#) ($) UNEXERCISABLE (U) UNEXERCISABLE (U)(1)
- -------------------- ----- ----- ----------------- --------------------
<S> <C> <C> <C> <C>
Thomas P. Perciak 0 0 50,000 (E) 12,500(E)
John F. Ziegler 0 0 36,000 (E) 9,000(E)
William J. Harr, Jr. 0 0 20,000 (E) 5,000(E)
<FN>
(1) Represents the aggregate market value of incentive stock options to
purchase shares of stock (market price less the exercise price of $18.25
per share), awarded the named executive officers, based upon the closing
bid price of $18.50 per share of the stock on December 31, 1995. On
January 12, 1995, all of the shares subject to the options became
exercisable.
</TABLE>
PENSION AND RETIREMENT PLAN INFORMATION
The Bank does not have a retirement plan for officers or employees that
would provide defined benefits based upon salary, years of service or other
measures. Instead, the Bank has implemented a profit-sharing plan under which
the Bank may make entirely discretionary cash contributions. The Bank also has
implemented a 401(k) Plan whereby the Bank will make matching contributions in
employer stock for each participating officer or employee who elects to defer a
portion of his or her salary pursuant to the 401(k) Plan. The amount of salary
that may be deferred by any individual and the amount (and vesting) of the
Bank's matching contributions are subject to certain limitations (Bank matching
contributions of up to 60% of the deferral, subject to maximum matching
contribution amount; no matching contributions for deferral in excess of 5% of
salary; incremental vesting of the Bank's contribution over a period of six
years).
Recognizing the importance of building and retaining a competent
management team, effective January 1, 1995 the Bank entered into Executive
Supplemental Benefit Agreements ("Agreements") with six of its executive
officers, including the three named executive officers identified in the Summary
Compensation Table. The Agreements provide for payments in the event of
retirement, disability, death or a change in control of the Bank. In order to
define the specific death, disability and post-employment/retirement benefits to
be provided, the Bank's Board of Directors adopted an integrated non-qualified
supplemental compensation plan based on a comprehensive compensation study
presented to the Bank by KPMG Peat Marwick LLP as compensation consultants.
Under the terms of each Agreement, different death, disability and post-
employment/retirement benefits are provided to each covered employee. By
defining the amounts each executive will receive upon formal retirement, each
executive has been given what the Board believes to be a reasonable incentive to
remain with the Bank until retirement. If, however, the executive's employment
is terminated for cause or the executive voluntarily resigns other than as a
constructive termination (other than for "good reason," that is, as defined
below) following a change in control, the Bank is released from all payment
obligations to the executive.
10
<PAGE> 227
Upon retirement, the Agreements provide for an annual benefit payable to
each of Messrs. Perciak, Ziegler and Harr in the following amounts: $134,693
annually for 20 years for Mr. Perciak; $25,647 annually for 20 years for Mr.
Ziegler; and $23,585 annually for 20 years for Mr. Harr. In the event of death,
the foregoing amounts would be paid to these individuals' beneficiaries.
"Retirement Date" is defined in the Agreements to mean the first day of the
month following the executive officer's 65th birthday on which he or she elects
to retire (or an early retirement date that may be agreed to by the Board of
Directors). Retirement benefits under the Agreements are payable in one
installment annually, on the anniversary of the retirement date.
The disability payments provided under the Agreements are as follows for
each of the named executive officers: $65,635 annually in the event of total
disability prior to retirement, until age 65, for Mr. Perciak; $10,239 annually
in the event of total disability prior to retirement, until age 65, for Mr.
Ziegler; and $5,717 annually in the event of total disability prior to
retirement, until age 65, for Mr. Harr. Annual disability benefits payable under
the Agreements would be payable in equal monthly installments.
Under the Agreements, a payment in respect of a change in control would be
made if the executive officer is involuntarily terminated (except for cause) or
voluntarily terminates his or her employment for good reason (in general terms,
"good reason" is defined under the Agreements to include a change in the
executive officer's status, title or responsibilities that does not represent a
promotion, a reduction in base salary, certain relocations or a material
reduction in benefits). A change in control is defined for purposes of the
Agreements by reference to Part 574 of the regulations (the "Control
Regulations") of the Office of Thrift Supervision (the "OTS"). According to the
Control Regulations, control generally exists in situations in which a person:
(i) has direct or indirect voting control of at least 25% of an institution's
voting shares (or subject to rebuttal, more than 10% of the shares and is
subject to a control factor under the Control Regulations); (ii) controls in any
manner the election of a majority of the directors of the institution, or (iii)
the Director of the OTS determines that such person exercises a controlling
influence over the management or policies of the institution.
In the event of a change in control in 1996 and involuntary termination
(except for cause) or voluntary termination for good reason within six months
thereafter, the benefit payable to Mr. Perciak would be $67,684, increasing in
amount for a change in control occurring in a subsequent year (from $120,345 in
1997 to $1,782,670 in 2012). For Mr. Ziegler, the benefit payable under similar
circumstances would be $8,936 in the event of a change in control in 1996 and
involuntary termination (except for cause) or voluntary termination for good
reason within six months thereafter, increasing in amount for a change in
control occurring in a subsequent year (from $16,948 in 1997 to $453,788 in
2017). Lastly, for Mr. Harr the benefit under similar circumstances would be
$3,603 in the event of a change in control in 1996 and involuntary termination
(except for cause) or voluntary termination for good reason within six months
thereafter, increasing in amount for a change in control occurring in a
subsequent year (from $8,182 in 1997 to $625,710 in 2027). Under the Agreements,
the change-in-control benefit payment would be made in one lump sum for each
affected officer.
The difference in benefits payable under the Agreements for Messrs.
Perciak, Ziegler and Harr arises out of the compensation consultant's
projections of the financial circumstances of each executive upon retirement
compared to industry averages. That is, projecting final compensation figures
for each executive at the time of his or her retirement at age 65, the
compensation consultant estimated total retirement benefits (consisting of
benefits under Bank retirement plans (i.e., the 401(k) and profit-sharing plans)
and social security benefits) that would be payable to each executive under Bank
retirement plans, as retirement benefits are generally a product of final
compensation (or average final compensation or a comparable formula). The
compensation consultant compared these estimated retirement benefits to the
retirement benefits that would be payable according to industry averages,
concluding that retirement benefits under Bank retirement plans would
11
<PAGE> 228
be considerably less than those that would be payable if industry averages were
applied to the executives' projected final compensation figures. The shortfall
in retirement benefits was particularly acute for Mr. Perciak, whereas he is the
executive closest to retirement age. Accordingly, benefits under the Agreements
were structured in a manner that attempts to address this shortfall, as it is
the Bank's goal that executives' annual retirement benefits shall be 65% of
final compensation.
The Bank has obtained life insurance policies whose benefits, payable to
the Bank as beneficiary, would be sufficient for the Bank to satisfy its
obligations under the Agreements. The Bank is the sole owner of and beneficiary
under the life insurance policies. Notwithstanding the future benefits payable
under the Agreements, the estimated present value of future benefits to be paid
is being accrued over the period from the effective date of the Agreements until
the expected retirement dates of the participants. The insurance premium expense
under the life insurance policies purchased to fund the Bank's contractual
obligations with respect to Messrs. Perciak, Ziegler and Harr in 1995, and their
approximate cash surrender value to the Bank, are an aggregate of $82,216 and
$84,124, respectively.
BOARD REPORT ON EXECUTIVE COMPENSATION
The full Board determines the executive compensation to be paid to the
Bank's two senior executive officers, Messrs. Perciak and Ziegler. Mr. Perciak
or Mr. Ziegler are excluded from discussion and board deliberation regarding
compensation paid to them as officers.
For other than the two most senior executive officers, the function of
administering the executive compensation policies of the Bank is currently
performed by the Wage and Salary Committee of the Board. In this process, the
officers are evaluated as to their performance during the year and compared to
the Bank's performance, thrift industry compensation surveys and comparable
positions at other thrift institutions.
Because the Board views Messrs. Perciak and Ziegler as having the greater
impact on corporate performance, the Board members have established a
compensation philosophy of providing base pay and incentive compensation for the
Bank's top two executive officers reflective of the Bank's superior financial
performance relative to comparably situated thrifts. For individuals other than
Messrs. Perciak and Ziegler, the Board's Wage and Salary Committee seeks to
establish executive officer base salaries at a level commensurate with the
Bank's corporate performance, peer group competitors, and the individual
officers' performance. The Board, as to Messrs. Perciak and Ziegler, and the
Wage and Salary Committee, as to officers other than these two, continue to
review all elements of executive compensation to ensure that the total
compensation program, and each element therein, meets the Bank's business
objectives and philosophy.
Because of the projected earnings environment in 1996, the Board of
Directors increased the 1996 base compensation of Messrs. Perciak and Ziegler by
4.5%, the same percentage amount corresponding to the 1996 average payroll
increase for all Bank employees.
As a general rule, it will be the Board of Directors' and the Committee's
policy to take into account tax and financial accounting considerations in
connection with the granting of options or other forms of grants and awards
under The Strongsville Savings Bank 1994 Long-Term Incentive Plan (the "Plan").
Accordingly, the Board of Directors through its Option Committee (in the case of
stock option grants and other awards to the Bank's executive officers) does not
expect that grants or awards will be made which would exceed the limit on
deductibility established by the Omnibus Budget Reconciliation Act of 1993
("OBRA"). In 1993, OBRA added Section 162(m) to the Internal Revenue Code, the
effect of which is to eliminate the deductibility of compensation over $1
million, with certain exclusions, paid to certain highly compensated executive
officers
12
<PAGE> 229
of publicly held corporations, such as, in the Bank's case, those executive
officers identified in the "Summary Compensation Table." Section 162(m) applies
to all remuneration (both cash and non-cash) that would otherwise be deductible
for tax years beginning on or after January 1, 1994, unless expressly excluded.
Although the Board and Committee reserve the right to make grants and awards
under the Plan under circumstances in which the compensation component thereof
would not be fully deductible for federal income tax purposes, it is not
currently expected that they would do so.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
Because the Bank's profitability was superior to local, Ohio and national
thrift industry averages, Mr. Perciak received an increase in base salary for
1995 of $8,700, or approximately 5%. While the Board generally takes into
consideration the overall performance of the Bank, the Board does not use any
specific measures or weighting of that performance in establishing Mr. Perciak's
base salary. Mr. Perciak's compensation package is formalized in an employment
agreement. See "Employment Agreements." Mr. Perciak and Vice President Ziegler
are eligible to receive 50% of base salary in annual bonus under the terms of
their employment contracts. Mr. Perciak earned incentive compensation in fiscal
year 1995 for the maximum amount possible under his employment contract.
In reviewing Mr. Perciak's performance as President and Chief Executive
Officer and the justification for the Bank to renew his employment contract for
an additional year, the directors favorably considered Mr. Perciak's performance
relative to the following factors: the Bank's corporate performance (return on
assets and return on equity), the volume of residential acquisition and
development lending attributable to Mr. Perciak, the market share performance of
the Bank and the Bank's compliance posture relative to safety and soundness and
CRA/consumer compliance. At its December 20, 1995 Board meeting, the Board
determined that each of Messrs. Perciak and Ziegler had met the requirements and
standards of the Board relative to executive officer performance and as such the
employment contract of each was renewed for one additional year.
The report of the Board shall not be deemed incorporated by reference by
any general statement incorporating by reference this Proxy Statement into any
filing under the Securities Exchange Act of 1934, except to the extent that the
Bank specifically incorporates this information by reference, and shall not
otherwise be deemed filed under such act.
Submitted by the Bank's Board of Directors:
Thomas P. Perciak, John F. Ziegler, Elton L. Bedford, George P. Bohnert, Jr.,
Joan M. Dzurilla, William A. Fraunfelder, Jr., Glenn W. Goist, Mike Kalinich,
Sr. and John J. Plucinsky.
PERFORMANCE GRAPH
The following graph compares the cumulative total shareholder return on
the Bank's Stock to the cumulative total return of a broad index of the National
Association of Securities Dealers, Inc. Automated Quotations (the "NASDAQ")
System and the MG Savings and Loan Index comprised of 297 publicly traded
savings associations and thrift holding companies for the period commencing
October 5, 1993 (the day the Bank's Stock first became available for public
trading) and ending December 31, 1995. The graph assumes that $100 was invested
on October 5, 1993 and that all dividends were reinvested. On a split-adjusted
basis, the Bank's Stock sold in the initial public offering at a price of $13.00
per share.
13
<PAGE> 230
COMPARISON OF THE CUMULATIVE TOTAL RETURN
AMONG THE STRONGSVILLE SAVINGS BANK,
MG S&L INDEX, AND NASDAQ MARKET INDEX
[GRAPH INSERTED HERE]
<TABLE>
<CAPTION>
(In Dollars) 10/5/93 12/31/93 12/31/94 12/31/95
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Strongsville Savings $100.00 $134.34 $141.60 $156.87
NASDAQ $100.00 $100.23 $105.23 $136.50
MG S&L Peer Group $100.00 $ 97.09 $ 93.00 $147.31
</TABLE>
This stock performance graph shall not be deemed incorporated by reference
by any general statement incorporating by reference this Proxy Statement into
any filing under the Securities Exchange Act of 1934, except to the extent the
Bank specifically incorporates this information by reference, and shall not
otherwise be deemed filed under such act.
EMPLOYMENT AGREEMENTS
On August 18, 1988, the Bank entered into employment agreements with Mr.
Perciak and Mr. Ziegler retroactive to January 1, 1988. As amended effective
November 2, 1992, each employment agreement provides for a term of three years.
Each contract contains an evergreen feature such that the contract is extended
at each anniversary date for an additional year upon a determination and
resolution of the Bank's Board that the performance of the executive has met the
requirements and standards of the Board. The effect of this provision is that
each contract will then have a new three-year term. Each contract was renewed
for an additional year by virtue of Board action on December 20, 1995.
14
<PAGE> 231
Under the terms of his employment agreement, Mr. Perciak currently
receives a base salary of $191,500 per year, subject to annual adjustment by the
Board of Directors of the Bank and annual incentive compensation of 2.5% of the
Bank's pre-tax profits. As amended effective January 1, 1992, Mr. Perciak's
incentive bonus can not exceed 50% of his base salary. Additionally, in the
event that (i) Mr. Perciak is involuntarily terminated within six months
following a change in control of the Bank or (ii) Mr. Perciak voluntarily
terminates his employment for good reason within six months after a change in
control of the Bank, Mr. Perciak will receive his base salary for the remaining
term of the agreement and a fixed equity appreciation bonus of ten percent of
the increase in the Bank's value between December 31, 1987 and the lesser of the
acquisition price or the Bank's tangible book value as of December 31, 1992
(exclusive of capital raised from the Fall 1990 stock offering). Ten percent of
the increase in the Bank's value between December 31, 1987 and the Bank's
tangible book value as of December 31, 1992 is approximately $1,187,512. The
equity appreciation bonus has been voluntarily capped such that further equity
appreciation occurring after December 31, 1992 will not entitle Mr. Perciak to
any share of the increase in the Bank's tangible net worth. In the event there
is a change in control of the Bank and Mr. Perciak retains his position, Mr.
Perciak is also entitled to the aforementioned equity appreciation bonus.
Payments under Mr. Perciak's employment agreement, in the event of a change in
control of the Bank, may constitute an excess parachute payment under the
Internal Revenue Code, resulting in the imposition of an excise tax on the
recipient and denial of the deduction for such excess amounts to the Bank. In
the event that Mr. Perciak is terminated for any reason other than cause, Mr.
Perciak will receive his base salary for the remaining term of this agreement.
For purposes of the change-in-control features of Mr. Perciak's employment
agreement, change in control is defined by reference to Part 574 of the OTS
regulations (the "Control Regulations"). According to the Control Regulations,
control generally exists in situations in which a person: (i) has direct or
indirect voting control of at least 25% of an institution's voting shares (or
subject to rebuttal, more than 10% of the shares and is subject to a control
factor under the Control Regulations); (ii) controls in any manner the election
of a majority of the directors of the institution, or (iii) the Director of the
OTS determines that such person exercises a controlling influence over the
management or policies of the institution.
Under the terms of his employment agreement, Mr. Ziegler currently
receives a base salary of $125,800 per year, subject to annual adjustment by the
Board of Directors of the Bank and annual incentive compensation of 1% of the
Bank's pre-tax profits. As amended effective January 1, 1992, Mr. Ziegler's
incentive bonus can not exceed 50% of his base salary. Additionally, in the
event Mr. Ziegler (i) is terminated at any time other than for cause, (ii)
voluntarily terminates his employment for good reason within six months after a
change in control (defined in the same manner as in Mr. Perciak's agreement) of
the Bank or (iii) is involuntarily terminated within six months following a
change in control of the Bank, Mr. Ziegler will receive his base salary for the
remaining term of the agreement.
Under both agreements, in the event that the Bank is not in compliance
with its applicable regulatory capital requirements, prior to or as a result of
any incentive bonus payment or severance or termination payment required under
the agreement, the payment must be deferred until the Bank is in such capital
compliance and will be paid within ten business days after the close of the
month in which capital compliance is achieved, so long as such payment does not
result in the Bank failing its regulatory capital requirements.
15
<PAGE> 232
CHANGE-IN-CONTROL ARRANGEMENTS
Severance Agreements
On October 19, 1994, the Bank entered into severance agreements with
four of its executive officers (the "Executives," or individually an
"Executive," including Mr. William J. Harr, Jr., a named executive officer
identified in the Summary Compensation Table) other than Messrs. Perciak and
Ziegler. Each severance agreement provides for a term of one year, renewable
each year for an additional year upon a determination by the Board of Directors
of the Bank that the Executive has met the performance standards and
requirements of the Board. Each severance agreement terminates by its terms once
the Executive reaches the retirement age of 65. The obligations of the Bank
under the severance agreements would become the obligations of any successor
organization to the Bank.
Each severance agreement provides that in the event of the involuntary
termination of the Executive, or the Executive's voluntary termination for good
reason, within six months after a change in control of the Bank, the Executive
would receive a lump sum payment equal to the Executive's then annual base
salary, plus the continuation of benefits until the earlier of the Executive's
employment by another employer or the expiration of twelve months from the
Executive's date of termination. No payments or benefits would be paid to any
Executive terminated for cause. In the event that the Executive incurs legal
fees or expenses in enforcing the severance agreement, the Bank would pay all
such fees and expenses if the Executive prevails, and an amount up to $25,000 if
the Executive does not prevail.
Like the employment agreements of Messrs. Perciak and Ziegler, the
severance agreements define a change in control of the Bank by reference to Part
574 of the Control Regulations of the OTS. A reorganization initiated and
approved by the Board, involving the formation of a thrift holding company of
the Bank, would not be considered a change in control of the Bank.
"Good reason" for which an Executive may voluntarily terminate his or
her employment within six months after a change in control and receive payments
and benefits under his or her severance agreement includes: (i) a change in the
Executive's status, title, position or responsibilities which, in the
Executive's reasonable judgment, does not represent a promotion from or is
inconsistent with his or her position immediately prior thereto; (ii) a
reduction in salary; (iii) the relocation of the Bank's principal executive
offices or the location at which the Executive is required to perform his or her
duties to a location outside a 15-mile radius of Strongsville, Ohio; or (iv) a
material reduction in benefits.
Payments to the Executives under the severance agreements would not
constitute excess parachute payments under the Internal Revenue Code.
Executive Supplemental Benefit Agreements
The Bank has also entered into Executive Supplemental Benefit
Agreements with all of its executive officers, as discussed in "Pension and
Retirement Plan Information." The Executive Supplemental Benefit Agreements
provide for payments to the executive officers in certain events, including
involuntary termination (except for cause) or voluntary termination for good
reason (defined in the same fashion as under the severance agreements) within
six months after a change in control (also defined in the same fashion as under
the severance agreements).
16
<PAGE> 233
ANNUAL ESTABLISHMENT OF DIRECTOR FEES
(PROPOSAL 2)
Pursuant to Ohio law and the Constitution of the Bank, the shareholders
must set the fees to be paid to the Bank's Directors. The Board of Directors
proposes that the fees paid its members (other than Messrs. Perciak and Ziegler)
for the period beginning May 1, 1996 and ending at the time of the 1997 Annual
Meeting of Shareholders be as follows: $20,000 annually for the Chairman of the
Board, $600 per board meeting and $300 per committee meeting. As to committee
fees, this represents an increase of nine percent (9%) over the fees presently
paid to directors. Board fees will remain at the same level in 1996 as they were
in 1995. The recommended increase in committee fees for Board service is
intended to keep director compensation at a level commensurate with the director
compensation practices of comparable financial institutions. If the recommended
increase is not approved by shareholders, board compensation will remain at
current levels.
These fees are in addition to each non-executive officer director's
participation in The Strongsville Savings Bank 1994 Long-Term Incentive Plan.
Pursuant to shareholder ratification of the Plan at the 1994 annual meeting of
shareholders, each such director holds a stock option to acquire 4,000 shares at
a price of $18.25 per share.
The Board of Directors recommends that the fees paid the Directors of the
Bank for Board service be as described above. This Proposal 2 must be approved
by a majority of the votes represented in person or by proxy at the Meeting.
THE BOARD OF DIRECTORS RECOMMEND A VOTE "FOR" PROPOSAL 2.
ADOPTION OF AMENDMENT TO THE ARTICLES OF INCORPORATION
(PROPOSAL 3)
The Board has proposed that shareholders be asked to consider and vote upon
an amendment of the Articles of Incorporation of the Bank, as amended to date
(the "Articles"), which would eliminate in its entirety current Article FIFTH
(the proposed amendment to the Articles being hereinafter referred to as the
"Articles Amendment"). Article FIFTH provides that "[t]he amount of authorized
capital of the corporation is One Million Dollars ($1,000,000.00)." If the
Articles Amendment is adopted by shareholders at the Meeting, Article FIFTH will
be deleted in its entirety. The Board concluded that the Articles Amendment to
delete Article FIFTH is advisable in order to avoid confusion between current
Article FIFTH and Article FOURTH.
Article FOURTH provides that "[t]he authorized number of shares of the
Corporation shall be 10,000,000, all of which shall be shares of capital stock
without par value." Article FOURTH will not be affected by the Articles
Amendment. If the Articles Amendment is not adopted by shareholders at the
Meeting, Articles FOURTH and FIFTH will continue to be a source of potential
confusion, because they both purport to deal with authorized capital. In fact
Article FOURTH governs the Bank's authorized capital exclusively, and Article
FIFTH no longer has any practical application. The Board believes that the
original purpose of Article FIFTH was to represent assurance at the time of the
Bank's formation that the Bank would have sufficient authorized capital to
sustain itself during its early years. That purpose has fully been served, and
Article FIFTH no longer has any impact on the authorized capital of the Bank or
serves any useful purpose. The Bank's authorized capital consists solely of its
shares of capital stock, without par value. The Bank's authorized capital is
therefore governed solely by Article FOURTH, which will not be affected by the
Articles Amendment.
17
<PAGE> 234
THE BOARD OF DIRECTORS RECOMMEND A VOTE "FOR" PROPOSAL 3.
ADOPTION OF AMENDMENT TO THE ARTICLES OF INCORPORATION
AND CONSTITUTION
(PROPOSAL 4)
The Board has proposed that shareholders be asked to consider and vote
upon an amendment of the Articles and Constitution of the Bank which would
clarify that the Board may be divided into no more than three classes (the
"Amendment"). If the Amendment is adopted by shareholders at the Meeting, the
first paragraph of Article VI, Section 1 of the Constitution will be revised to
read as follows:
This institution shall have a Board of nine Directors, elected by the
shareholders at the annual meeting. The Directors shall be divided into
three classes. Each class shall consist, as nearly as may be possible, of
one-third of the total number of Directors constituting the entire Board.
The term of each class shall be a period of three years, and the classes'
terms shall be staggered so that at the annual meeting only one class
shall stand for election.
Similarly, a new Article FIFTH would be added to the Articles as follows:
The directors of the Corporation shall be divided into three classes. Each
class shall consist, as nearly as may be possible, of one-third of the
total number of directors constituting the entire Board of Directors. The
term of each class shall be a period of three years, and the classes'
terms shall be staggered so that at the annual meeting only one class
shall stand for election.
The Amendment is a clarifying amendment only, as the Board is in fact and
has for many years been divided into three classes of three directors each, with
each class serving staggered terms of three years each. The first paragraph of
Article VI, Section 1 of the Constitution currently reads "[t]his institution
shall have a Board of nine Directors, elected by the shareholders at the annual
meeting, in such numbers to serve for such times that the terms of an equal
number of Directors, as nearly as possible, will expire each year." The
Amendment affects that paragraph of the Constitution only. The Amendment adds a
provision (new Article FIFTH assuming shareholder approval of Proposal 3 to
delete current Article FIFTH) to the Articles concerning Board classification as
well, whereas the Articles currently contain no provisions having to do with the
Bank's Board except for Article SEVENTH's prohibition on cumulative voting. The
Board concluded that the Amendment is appropriate in order that the Articles and
Constitution more explicitly and clearly provide authority for the Directors to
serve staggered terms of three years for each class.
The Board believes ample authority exists under the Constitution and Ohio
law for the Bank's historical practice of electing three directors each year at
the annual meeting, with the directors so elected serving for three year terms.
Nevertheless, the Board recognizes that Article VI, Section 1 of the
Constitution and the Articles could be more explicit and clear in this regard,
and it has decided therefore to take the occasion of the 1996 annual meeting to
seek shareholder approval for adoption of this clarifying amendment to the
Articles and Constitution.
THE BOARD OF DIRECTORS RECOMMEND A VOTE "FOR" PROPOSAL 4.
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
(PROPOSAL 5)
The Board of Directors has appointed the firm of Deloitte & Touche LLP to
continue as independent auditors for the Bank for the fiscal year ending
December 31, 1996, subject to ratification of such appointment
18
<PAGE> 235
by the shareholders. Deloitte & Touche LLP has acted as the independent auditors
of the Bank since November 13, 1991. Unless otherwise indicated, properly
executed proxies will be voted in favor of ratifying the appointment of Deloitte
& Touche LLP, independent certified public accountants, to audit the financial
records and accounts of the Bank for the fiscal year ending December 31, 1996.
No determination has been made as to what action the Board of Directors would
take if the shareholders do not ratify the appointment.
Representatives of Deloitte & Touche LLP will be present at the Meeting.
They will be given an opportunity to make a statement if they desire to do so
and will be available to respond to appropriate questions. Ratification of the
appointment of auditors requires the affirmative vote of a majority of the votes
actually cast at the Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE
RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS THE BANK'S AUDITORS
FOR THE FISCAL YEAR ENDING DECEMBER 31, 1996.
TRANSACTIONS WITH CERTAIN RELATED PERSONS
The Bank has followed the policy of offering to its directors, officers
and employees real estate mortgage loans secured by their principal residence,
and construction loans for their principal residence. As an Ohio-chartered
savings association, the Bank is subject to the Ohio Revised Code, which
requires, for any loan other than a consumer loan extended to an officer,
director, employee, controlling person or their spouses, the prior written
approval of the Superintendent of the Ohio Division of Financial Institutions.
Prior to the enactment of the Financial Institutions Reform, Recovery, and
Enforcement Act of 1989 ("FIRREA"), these loans were made in the ordinary course
of business at discounted interest rates. Moreover, no points, loan processing
fees, or attorney's fees were charged on any such loan.
FIRREA requires that all loans or extensions of credit to officers and
directors must be made on substantially the same terms, including interest rates
and collateral, as those prevailing at the time for comparable transactions with
the general public and must not involve more than the normal risk of repayment
or present other unfavorable features. The Bank has revised its policy regarding
loans to directors and all employees in accordance with the requirements of
FIRREA. Since August 9, 1989, all loans to directors and executive officers of
the Bank were made in the ordinary course of business, were made on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other persons, and did
not involve more than the normal risk of collectability or present other
unfavorable features. At December 31, 1995, all such loans were current.
Set forth below is certain information relating to executive officers and
directors who had loans outstanding at December 31, 1995 which had balances in
excess of $60,000 at any time within the preceding year and which were made on
preferential terms:
19
<PAGE> 236
<TABLE>
<CAPTION>
HIGHEST
AMOUNT
OUTSTANDING
DURING YEAR PRINCIPAL
ENDED BALANCE AS OF
DATE OF NOTE DECEMBER 31, FEBRUARY 1,
NAME LOAN TYPE OF LOAN RATE 1995 1996
- --------------- ------ ---------------- ---- ---------- ----------
<S> <C> <C> <C> <C> <C>
Dean R. Anaya 4/86 1st Residential 9.75% $47,242.52 $46,301.52
Vice President Mortgage
1/92(1) 2nd Residential 11% $20,422.61 $19,402.63
Mortgage
<FN>
(1) This loan was originated after FIRREA and as such was made on
substantially the same terms as those prevailing at the time for
comparable transactions with other persons.
</TABLE>
The Bank refers certain title insurance business to National Land Title
Insurance Company ("National Land") and City Title Company Agency, Inc. ("City
Title"). Through a trust of which they are the beneficiaries, Joseph and Michael
Dzurilla, the adult sons of Director Joan M. Dzurilla, own the majority of the
stock of National Land. City Title is a real estate title insurance agency
wholly owned by National Land. City Title performs title searches, title
examinations and insurability determinations related to title insurance
commitments for mortgage loan transactions insured by National Land. City Title
and National Land are each charging for title business work at a rate consistent
with the standards for that industry.
During 1995, City Title performed services for the Bank related to loan
transactions such as title insurance and commitments, title examinations, and
post-closing services. Borrowers of the Bank paid City Title $189,411.45 during
1995 for services related to the loan transactions, which amount also includes
transfer tax fees paid to the appropriate county recorder's office.
SHAREHOLDER PROPOSALS
In order to be eligible for inclusion in the Bank's proxy materials for
the 1997 Annual Meeting of Shareholders, any shareholder proposal to take action
at such meeting must be received at the Bank's executive offices, 14092 Pearl
Road, Strongsville, Ohio 44136, no later than November 17, 1996. Any such
proposal shall be subject to the requirements of the proxy rules adopted under
the Securities Exchange Act of 1934.
OTHER MATTERS
The Board of Directors is not aware of any business to come before the
Meeting other than the matters discussed in this Proxy Statement. However, if
any other matters should properly come before the Meeting, it is intended that
holders of the proxies will act in accordance with their best judgment.
The cost of solicitation of proxies will be borne by the Bank. The Bank
will reimburse brokerage firms and other custodians, nominees and fiduciaries
for reasonable expenses incurred by them in sending proxy
20
<PAGE> 237
materials to the beneficial owners of Bank Stock. In addition to solicitation by
mail, directors and officers of the Bank and regular employees of the Bank may
solicit proxies personally or by telephone, without additional compensation.
Strongsville, Ohio
March 21, 1996
21
<PAGE> 1
EXHIBIT 99(ii)*
Form 10-Q Quarterly Report of The Strongsville Savings Bank for the quarter
ended March 31, 1996, as filed with the Office of Thrift Supervision
* Upon completion of the holding company reorganization of The
Strongsville Savings Bank, which was accomplished by means of the merger of
Emerald Interim Savings Bank, a wholly owned subsidiary of Emerald Financial
Corp., with and into The Strongsville Savings Bank, The Strongsville Savings
Bank became a wholly owned subsidiary of Emerald Financial Corp., the
Registrant. At that time, the Registrant succeeded to the registration and
reporting obligations of The Strongsville Savings Bank pursuant to Rule 12g-3(a)
under the Securities Exchange Act of 1934. The Form 10-K Annual Report of The
Strongsville Savings Bank for the year ended December 31, 1995 and the Form 10-Q
Quarterly Reports of The Strongsville Savings Bank for the quarters ended March
31, June 30 and September 30, 1996 attached as exhibits to this Form 8-A
Registration Statement complied as to form and content with the disclosure
obligations established by the Securities and Exchange Commission under the
Securities Exchange Act of 1934.
<PAGE> 2
OFFICE OF THRIFT SUPERVISION
UNITED STATES DEPARTMENT OF THE TREASURY
Washington, DC 20552
- --------------------------------------------------------------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1996
[ ] TRANSITIONAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------- -------
OTS Docket Number: 6565
THE STRONGSVILLE SAVINGS BANK
-----------------------------
(Exact name of registrant as specified in its charter)
OHIO 34-0875093
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
14092 PEARL ROAD
STRONGSVILLE, OHIO 44136
------------------ -----
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (216) 238-7311
CAPITAL STOCK, WITHOUT PAR VALUE
--------------------------------
Title of Class
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Capital Stock, No Par Value 2,530,800
- --------------------------------------------------------------------------------
(Class) (Outstanding at April 30, 1996)
<PAGE> 3
THE STRONGSVILLE SAVINGS BANK
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
PART I. FINANCIAL INFORMATION PAGE
<S> <C> <C>
Item I. Financial Statements:
Consolidated Statements of Financial
Condition as of March 31, 1996, and
December 31, 1995.............................................................. 2
Consolidated Statements of Income for
the Three Month Periods Ended March
31, 1995 and 1996.............................................................. 3
Consolidated Statements of Cash Flows
for the Three Month Periods Ended March
31, 1996 and 1995.............................................................. 4
Notes to Consolidated Financial Statements..................................... 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................................. 7
Tables......................................................................... 17
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................................... 20
SIGNATURES ...................................................................................... 21
</TABLE>
1
<PAGE> 4
THE STRONGSVILLE SAVINGS BANK AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
<TABLE>
<CAPTION>
MARCH 31, 1996 DECEMBER 31,1995
- ---------------------------------------------------------------------------------------------------
ASSETS: (In thousands, except per share data)
<S> <C> <C>
CASH AND CASH EQUIVALENTS
Cash and deposits with banks $ 2,485 $ 3,574
Interest bearing deposits with banks 10,422 11,935
INVESTMENT SECURITIES
Held-to-maturity (fair values of $44,152 and $49,640 at 44,158 49,354
March 31, 1996 and December 31, 1995, respectively)
Available for sale (at fair value) 22,756 26,595
MORTGAGE-BACKED SECURITIES
Held-to-maturity (fair values of $38,811 and $37,819 at 38,415 37,256
March 31, 1996 and December 31, 1995, respectively)
Available for sale (at fair value) 10,026 14,749
LOANS-NET
(Including allowance for loan losses of $1,146 and $1,168
at March 31, 1996 and December 31, 1995, respectively) 363,674 331,017
Loans held for sale -- 5,334
Accrued interest receivable 3,226 3,299
Federal Home Loan Bank stock-at cost 2,449 2,407
Premises and equipment-net 4,512 4,334
Prepaid expenses and other assets 2,508 2,243
- ---------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 504,631 $492,097
====================================================================================================
LIABILITIES:
Deposits $ 443,725 $432,563
Federal Home Loan Bank Advances 12,863 13,333
Deferred federal income tax 1,484 1,583
Advance payments by borrowers 566 1,222
Accrued interest payable 489 425
Accounts payable and other 3,744 1,880
- ---------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 462,871 451,006
SHAREHOLDERS' EQUITY
Common stock, no par value, 10,000,000 shares
authorized, 2,530,800 shares issued and outstanding 9,831 9,831
Fair value adjustment, net of tax effect (44) 196
Retained earnings 31,973 31,064
- ---------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 41,760 41,091
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 504,631 $492,097
====================================================================================================
Shareholders' Equity per share $ 16.50 $ 16.24
Tangible Equity per share $ 16.15 $ 15.87
<FN>
See notes to consolidated financial statements
</TABLE>
2
<PAGE> 5
THE STRONGSVILLE SAVINGS BANK AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1996 MARCH 31, 1995
====================================================================================
(In thousands, except per share data)
<S> <C> <C>
INTEREST INCOME
Loans $ 7,297 $ 6,228
Investment securities 1,097 1,129
Mortgage-backed securities 893 651
Other 160 138
- ------------------------------------------------------------------------------------
9,447 8,146
INTEREST EXPENSE
Deposits 5,567 4,357
Advances from the Federal Home Loan Bank 195 244
- ------------------------------------------------------------------------------------
5,762 4,601
- ------------------------------------------------------------------------------------
NET INTEREST INCOME 3,685 3,545
Provision for loan losses 5 18
- ------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 3,680 3,527
NON-INTEREST INCOME
Gain on sale of assets 235 112
Loan service fees 124 131
Other 158 112
- ------------------------------------------------------------------------------------
517 355
NON-INTEREST EXPENSE
Salaries and employee benefits 943 910
Net occupancy and equipment 362 311
Federal deposit insurance 242 201
Amortization of goodwill 33 36
Other 789 679
- ------------------------------------------------------------------------------------
2,369 2,137
- ------------------------------------------------------------------------------------
INCOME BEFORE FEDERAL INCOME TAXES 1,828 1,745
Provision for federal income taxes 640 601
- ------------------------------------------------------------------------------------
NET INCOME $ 1,188 $ 1,144
====================================================================================
Earnings per common share $ 0.47 $ 0.45
Weighted average number of common
shares outstanding 2,530,800 2,530,800
Dividends per share $ 0.11 $ 0.09
Return on average assets 0.96% 1.08%
Return on average equity 11.41% 12.15%
<FN>
See notes to consolidated financial statements
</TABLE>
3
<PAGE> 6
THE STRONGSVILLE SAVINGS BANK AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1996 MARCH 31, 1995
- ------------------------------------------------------------------------------------------------------
(In thousands, except per share data)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,188 $ 1,144
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Provision for loan losses 5 18
Gain from sale of assets (235) (112)
Accretion of discounts and other deferred yield items (596) (556)
Depreciation and amortization 198 205
Effect of change in accrued interest
receivable and payable 137 (286)
Federal Home Loan Bank stock dividends (42) (30)
Deferred federal income taxes (99) 153
Net decrease (increase) in other assets and liabilities 1,689 (219)
Net decrease (increase) in loans held for sale 5,477 (980)
- ------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 7,722 (663)
CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) in loans (32,038) (4,798)
Net decrease (increase) in investment securities 8,892 (1,356)
Net decrease (increase) in mortgage-backed securities 3,407 (1,183)
Purchases of:
Premises and equipment (343) (388)
Federal Home Loan Bank Stock -- (437)
- ------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (20,082) (8,162)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 11,162 17,975
Repayment of advances from the Federal Home Loan Bank (470) (720)
Net increase (decrease) in escrows (656) (542)
Payment of dividends on common stock (278) (228)
- ------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 9,758 16,485
- ------------------------------------------------------------------------------------------------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (2,602) 7,660
CASH AND CASH EQUIVALENTS, AT BEGINNING OF THE PERIOD 15,509 10,649
- ------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, AT END OF THE PERIOD $ 12,907 $ 18,309
======================================================================================================
<FN>
See notes to consolidated financial statements
</TABLE>
4
<PAGE> 7
THE STRONGSVILLE SAVINGS BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
--------------------
The Strongsville Savings Bank (Bank) conducts its principal activities
from its Community Financial Centers located in southwestern Cuyahoga, Lorain
and Medina counties. The Bank's principal activities include residential lending
and retail banking.
2. BASIS OF PRESENTATION
---------------------
The consolidated financial statements of the Bank include the accounts
of the Bank and the accounts of its wholly owned subsidiary, Dennis Financial
Corporation. All significant inter-company transactions have been eliminated. In
the opinion of management, the accompanying unaudited financial statements
include all adjustments (consisting only of normal recurring accruals) which the
Bank considers necessary for a fair presentation of (a) the results of
operations for the three month periods ended March 31, 1996 and 1995; (b) the
financial condition at March 31, 1996 and December 31, 1995; and (c) the
statements of cash flows for the three month periods ended March 31, 1996 and
1995. The results of operations for the three month period ended March 31, 1996
are not necessarily indicative of the results that may be expected for a full
year.
Certain prior period data has been reclassified to conform to current
year presentation.
3. STATEMENTS OF CASH FLOWS
------------------------
For purposes of the Statements of Cash Flows, the Bank considers all
cash and deposits with banks with maturities of less than three months to be
cash equivalents.
No income tax payments were made during the three month periods ended
March 31, 1996 or 1995. Interest paid totaled $5,697,000 and $4,500,000 for the
three month periods ended March 31, 1996 and 1995, respectively. There were no
transfers from loans to real estate owned during the three month periods ended
March 31, 1996 or 1995, nor were any loans made to finance the sale of real
estate owned during those periods.
4. EARNINGS PER SHARE
------------------
Earnings per share are calculated using the weighted average number of
shares of capital stock outstanding for the period.
5
<PAGE> 8
5. NEW ACCOUNTING STANDARDS
------------------------
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
requires that long-lived assets and certain identifiable intangibles be reviewed
for impairment whenever events or changes in circumstances indicate the carrying
value of these assets may not be recoverable.
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 121, Accounting for
Stock-Based Compensation, encourages, but does not require, adoption of a
fair-value based accounting method for employee stock-based compensation
arrangements. Management has elected to continue to use the Accounting
Principles Board Opinion 25, Accounting for Stock Issued to Employees, intrinsic
value method for measurement and recognition of stock-based compensation.
These statements were adopted January 1, 1996, and did not have a
material effect on the Bank's consolidated financial statements.
6
<PAGE> 9
Part I, Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
- -------
The Strongsville Savings Bank (Bank) was founded in 1961 as an
Ohio-chartered, federally insured savings association whose business activities
are concentrated in the greater Cleveland, Ohio area. The Bank conducts its
business through its home office in Strongsville and its thirteen full-service
Community Financial Centers located in Cuyahoga, Lorain and Medina counties. The
Bank recently opened a new full-service Community Financial Center in Avon,
Ohio. The Bank is completing preparations to open its fourteenth full-service
Community Financial Center in Brunswick. The Brunswick facility will open in May
1996.
The principal business of the Bank has historically been attracting
deposits from the general public and making loans secured by first mortgage
liens on residential and other real estate. The Bank and the banking industry in
general are significantly affected by prevailing economic conditions, the
general level and trend of interest rates as well as by government policies and
regulations concerning, among other things, fiscal affairs, housing and
financial institutions.
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- ---------------------------------------------
The Bank's total assets at March 31, 1996, were $504.6 million,
representing an increase of $12.5 million, or 2.5% for the three month period
and of $67.3 million, or 15.4% for the twelve month period ended March 31, 1996.
The increase in assets was primarily due to increases in mortgage loans. The
Bank's loan portfolio increased $27.3 million during the quarter and $75.4
million during the twelve months ended March 31, 1996. The increases in loans
were funded by increases in deposits and decreases in investment securities and
other liquid assets.
The Bank's deposits were $443.7 million at March 31, 1996, representing
an increase of $11.2 million, or 2.6% during the three month period and of $62.7
million, or 16.5% during the twelve month period ended March 31, 1996.
Net interest income was $3.7 million for the quarter ended March 31,
1996, an increase of $0.2 million over the first quarter of 1995. The increase
in net interest-earning assets, offset by a reduction in interest rate spread,
caused the improvement. Average net interest-earning assets increased $ 66.6
million from $413.8 million for the first quarter of 1995 to $480.4 million for
the first
7
<PAGE> 10
quarter of 1996. The Bank's interest rate spread decreased 38 basis points from
3.06% during the first quarter of 1995 to 2.68% during the first quarter of
1996.
Net income for the first quarter of 1996, at $1.2 million, was $0.1
million more than the $1.1 million for the same period in 1995. The increase was
primarily due to the increase in net interest income.
Table 1 presents information regarding the average balances of
interest-earning assets and interest-bearing liabilities, the total dollar
amount of interest income from interest-earning assets and their average yields
and the total dollar amount of interest expense on interest-bearing liabilities
and their average rates. Table 1 also presents net interest income,
interest-rate spread, net interest margin and the ratio of average
interest-earning assets to average interest-bearing liabilities. Interest-rate
spread represents the difference between the weighted average yield on
interest-earning assets and the weighted average cost of interest-bearing
liabilities. Net interest margin represents net interest income as a percent of
average interest-earning assets. Average balance calculations were based on
daily and monthly balances. Assets available for sale are included in the major
asset category as if they were held-to-maturity.
8
<PAGE> 11
TABLE 1
AVERAGE BALANCE TABLE
FOR THE THREE MONTHS ENDED MARCH 31,
<TABLE>
<CAPTION>
1996 | 1995
AVERAGE YIELD/ | AVERAGE YIELD/
BALANCE INTEREST RATE | BALANCE INTEREST RATE
--------- -------- ---- | -------- -------- ------
- ----------------------------------------------------------------------------|--------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS |
Loans receivable, net (1) $ 343,739 $ 7,297 8.49% | $286,454 $ 6,228 8.70%
Investment securities 73,865 1,097 5.94% | 78,526 1,129 5.75%
Mortgage backed securities 50,836 893 7.03% | 37,219 651 7.00%
Other interest-earning assets 11,971 160 5.35% | 11,614 138 4.75%
- ----------------------------------------------------------------------------|--------------------------------------
Total interest-earning assets 480,411 9,447 7.86% | 413,813 8,146 7.87%
- ----------------------------------------------------------------------------|--------------------------------------
Noninterest-earning assets 13,192 | 11,171
- ----------------------------------------------------------------------------|--------------------------------------
TOTAL ASSETS $ 493,603 $ 9,447 | $424,984 $ 8,146
============================================================================|======================================
INTEREST-BEARING LIABILITIES |
|
Deposits (2) $ 431,488 $ 5,567 5.16% | $367,197 $ 4,357 4.75%
Advances from FHLB 13,114 195 5.95% | 15,544 244 6.28%
- ----------------------------------------------------------------------------|--------------------------------------
Total interest-bearing liabilities 444,602 5,762 5.18% | 382,741 4,601 4.81%
- ----------------------------------------------------------------------------|--------------------------------------
Noninterest-bearing liabilities 7,344 | 4,581
- ----------------------------------------------------------------------------|--------------------------------------
Shareholders' equity 41,657 | 37,662
- ----------------------------------------------------------------------------|--------------------------------------
TOTAL LIABILITIES AND |
SHAREHOLDERS' EQUITY $ 493,603 | $424,984
============================================================================|======================================
Net interest income $ 3,685 | $ 3,545
Interest-rate spread 2.68% | 3.06%
Net interest margin 3.07% | 3.43%
Ratio of average |
interest-earning assets to |
average interest-bearing |
liabilities 108.05% | 108.12%
- ----------------------------------------------------------------------------|--------------------------------------
<FN>
(1) Average balances include non-accrual loans. Interest income includes
deferred loan fee amortization of $418,000 and $458,000 for the three
months ended March 31, 1996 and 1995, respectively.
(2) Deposits include noninterest-bearing demand accounts which were $10,013,000
and $8,504,000 at March 31, 1996 and 1995, respectively.
</TABLE>
9
<PAGE> 12
Table 2 presents certain information regarding changes in interest income and
interest expense of the Bank for the three month periods ended March 31, 1996
and 1995. The table shows the changes in interest income and interest expense by
major category attributable to changes in the average balance (volume) and the
changes in interest rates. The net change not attributable to either rate or
volume is allocated on a prorata basis to the change in rate or volume. Assets
available for sale are included in the major asset category as if they were
held-to-maturity.
<TABLE>
<CAPTION>
TABLE 2
RATE & VOLUME TABLE
THREE MONTHS ENDED MARCH 31, 1996 | THREE MONTHS ENDED MARCH 31,
1996 COMPARED TO 1995 | 1995 COMPARED TO 1994
INCREASE (DECREASE) | INCREASE (DECREASE)
DUE TO CHANGES IN: | DUE TO CHANGES IN:
VOLUME RATE TOTAL | VOLUME RATE TOTAL
- --------------------------------------------------------------------------------|-----------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME ON INTEREST- |
EARNING ASSETS |
Loans, net $ 1,215 $ (146) $ 1,069 | $1,073 $ 177 $1,250
Investment securities (72) 40 (32) | 121 237 358
Mortgage-backed securities 239 3 242 | 410 57 467
Other 4 18 22 | 9 27 36
- --------------------------------------------------------------------------------|-----------------------------------
Total 1,386 (85) 1,301 | 1,613 498 2,111
- --------------------------------------------------------------------------------|-----------------------------------
|
INTEREST EXPENSE ON INTEREST-BEARING |
LIABILITIES |
Deposits 811 399 1,210 | 635 682 1,317
Advances from FHLB (24) (25) (49) | 244 -- 244
- --------------------------------------------------------------------------------|-----------------------------------
Total 787 374 1,161 | 879 682 1,561
- --------------------------------------------------------------------------------|-----------------------------------
|
CHANGE IN NET INTEREST INCOME $ 599 $ (459) $ 140 | $ 734 $ (184) $ 550
================================================================================|===================================
</TABLE>
10
<PAGE> 13
NET INTEREST INCOME
- --------------------------------------------------------------------------------
Net interest income is the primary component of net income and is
determined by characteristics of the Bank's interest-earning assets and
interest-bearing liabilities, including the spread, or the difference between
the yields earned and the rates paid on those assets and liabilities. Net
interest income is the difference between interest income and interest expense.
<TABLE>
<CAPTION>
Three months ended March 31, 1996
---------------------------------
(Dollars in thousands)
<S> <C>
Net interest income:
Current period $3,685
Prior period 3,545
------
Dollar increase from prior period $ 140
------
Percent increase from prior period 3.98%
======
</TABLE>
Interest income
- ---------------
Interest income for the three months ended March 31, 1996 was $9.4
million, compared to $8.1 million for the first quarter of 1995, an increase of
$1.3 million or 15.98%. This increase was primarily due to the increase in
average interest-earning assets as demonstrated on Table 2. Average
interest-earning assets increased to $480.4 million for the first quarter of
1996 from $413.8 million for the first quarter of 1995. The effect of the
increase in interest-earning assets was offset somewhat by the 1 basis point
decline in the average yield on interest-earning assets to 7.86% for the first
quarter of 1996 from 7.87% for the like period in 1995.
Interest expense
- ----------------
Interest expense increased during the quarter ended March 31, 1996
compared to the same period in 1995 primarily due to an increase in
interest-bearing liabilities of $61.9 million, or 16.16%, and to an increase in
the average cost of interest-bearing liabilities. Average interest-bearing
liabilities were $444.6 million and $382.7 million for the first quarter of 1996
and 1995, respectively. The average cost of interest-bearing liabilities
increased 37 basis points to 5.18% for the first quarter of 1996 from 4.81% for
the same period in 1995.
Provision for loan losses
- -------------------------
The provision for loan losses for the three months ended March 31, 1996
was $5,000 compared to $18,000 for the same period in 1995. The provision for
both periods were commensurate with management's estimate of the credit risk in
the loan portfolio. Economic conditions in the Bank's market area were stable.
11
<PAGE> 14
Further discussion and other information relating to loan losses and
nonperforming assets are included in the section titled "Asset Quality."
NONINTEREST INCOME
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three months ended March 31, 1996
---------------------------------
(Dollars in thousands)
<S> <C>
Noninterest income:
Current period $ 517
Prior period 355
-----
Dollar increase from prior period $ 162
-----
Percent increase from prior period 45.41%
=====
</TABLE>
Noninterest income consists primarily of fees earned for servicing
loans and providing services for customers and gains on loan sales.
NONINTEREST EXPENSE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three months ended March 31, 1996
---------------------------------
(Dollars in thousands)
<S> <C>
Noninterest expense:
Current period $2,369
Prior period 2,137
------
Dollar increase from prior period $ 232
------
Percent increase from prior period 10.87%
======
</TABLE>
The increase in noninterest expense is primarily due to the Bank's
growth and the resulting increase in the number of employees. Net occupancy,
deposit insurance and franchise tax expense also increased as a result of the
Bank's growth.
FEDERAL INCOME TAXES
- --------------------------------------------------------------------------------
The Bank provided $640,000 for federal income tax during the first
quarter of 1996 and $601,000 during the like period in 1995. Net income before
the provision for federal income taxes increased for the compared periods
resulting in a corresponding increase in the provision for federal income taxes.
12
<PAGE> 15
FINANCIAL RESOURCES AND LIQUIDITY
- --------------------------------------------------------------------------------
The Bank's primary sources of funds are deposits, principal and
interest payments on loans, maturities of investment securities, proceeds from
the sale of loans and funds generated through earnings. The primary uses for
such funds are to originate loans, maintain liquidity requirements and manage
interest rate risk.
For an analysis of the cash flows of the Bank, refer to the
Consolidated Statements of Cash Flows on page 3. Management believes the Bank
has adequate resources to meet its normal funding requirements.
The Bank is required to maintain an average daily balance of liquid
assets equal to 5% of the sum of its average daily balance of net withdrawable
accounts and borrowed funds due in one year or less. The Bank's March 1996
monthly average of eligible liquid assets was 29.84%.
SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------
Shareholders' equity was $41.8 million at March 31, 1996, an increase
of $669,000, or 1.63%, during the first quarter of 1996. This increase was
primarily the result of net income offset by dividends paid. The Bank paid
dividends in the first quarter of 1996 of $0.11 per share, an increase of 22.22%
over the $0.09 per share dividend paid in the first quarter of 1995.
The Bank's return on average assets was 0.96% and return on average
equity was 11.41% for the first quarter of 1996.
At March 31, 1996, the Bank was in excess of all capital requirements
specified by federal regulations as shown by the following table.
<TABLE>
<CAPTION>
TANGIBLE CORE RISK-BASED
CAPITAL CAPITAL CAPITAL
--------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Capital amount -- Actual $ 40,205 $ 40,205 $ 42,065
Capital amount -- Required 7,427 14,854 24,980
--------------------------------------------
Amount in excess of requirement $ 32,778 $ 25,351 $ 17,085
============================================
Capital ratio -- Actual 8.12% 8.12% 13.47%
Capital ratio -- Required 1.50% 3.00% 8.00%
--------------------------------------------
Amount in excess of requirement 6.62% 5.12% 5.47%
============================================
</TABLE>
13
<PAGE> 16
The Bank's capital levels at March 31, 1996, qualify it as a
"well-capitalized" institution, the highest of five tiers under applicable
federal definitions.
REGULATORY ISSUES
- --------------------------------------------------------------------------------
The Bank's deposits are insured by the Savings Association Insurance
Fund (SAIF) of the Federal Deposit Insurance Corporation (FDIC). Deposit
insurance premiums to both the SAIF and the Bank Insurance Fund (BIF) of the
FDIC were identical when both funds were created in 1989. In August 1995, the
FDIC determined that the BIF had achieved its designated reserve ratio and
lowered BIF deposit insurance premium rates for all but the riskiest
institutions. Effective January 1, 1996, BIF deposit insurance premiums for
well-capitalized banks were further reduced to the statutory minimum of $2,000
per institution per year. Because the SAIF remains significantly below its
designated reserve ratio, SAIF deposit insurance premiums were not reduced and
remain at 0.23% to 0.31% of deposits, based on an institution's supervisory
evaluations and capital levels. The current discrepancy in deposit insurance
premiums between the BIF and the SAIF could place the Bank at a competitive
disadvantage to BIF insured institutions.
The current financial condition of the SAIF has resulted in proposed
legislation to recapitalize the SAIF through a one-time special assessment.
After the special assessment, it is expected that the SAIF would achieve its
designated reserve ratio and that SAIF premium rates would then become
comparable to BIF rates. The proposed legislation also contemplates a merger of
the SAIF and the BIF, which would require separate legislation. The Bank is
unable to predict whether this legislation will be enacted or the amount or
applicable retroactive date of any one-time assessment or the rates that would
then apply to assessable SAIF deposits.
QUALIFIED THRIFT LENDER TEST
- --------------------------------------------------------------------------------
Savings associations insured by the Savings Association Insurance Fund
are required to maintain 65% of total portfolio assets in Qualified Thrift
Investments. As of March 31, 1996, the Bank had 88.42% of total assets invested
in Qualified Thrift Investments.
14
<PAGE> 17
ASSET QUALITY
- --------------------------------------------------------------------------------
Table 3 sets forth information regarding non-performing assets at March
31, 1996, December 31, 1995 and March 31, 1995.
<TABLE>
<CAPTION>
TABLE 3
NON-PERFORMING ASSETS ANALYSIS
MARCH 31, 1996 DECEMBER 31, 1995 MARCH 31, 1995
- ------------------------------------------------------------------------------------------------
NON-ACCRUING LOANS: (Dollars in thousands)
<S> <C> <C> <C>
One to four family -- permanent $ 52 $ 52 $ 53
One to four family -- construction -- -- --
Multi-family & Commercial real estate -- -- 520
Land and development -- -- --
Commercial non-real estate 70 70 --
Consumer and other 13 24 28
- ------------------------------------------------------------------------------------------------
Total 135 146 601
LOANS DELINQUENT 90 DAYS OR MORE
AND STILL ACCRUING:
One to four family -- permanent 1,436 1,906 1,239
One to four family -- construction 493 -- --
Multi-family & Commercial real estate 375 -- --
Land and development 11 -- --
Commercial non-real estate -- -- 13
Consumer and other -- -- --
- ------------------------------------------------------------------------------------------------
Total 2,315 1,906 1,252
Restructured loans nd
in-substance foreclosures -- -- --
- ------------------------------------------------------------------------------------------------
Total non-performing loans 2,450 2,052 1,853
Other non-performing assets -- -- --
- ------------------------------------------------------------------------------------------------
Total non-performing assets $2,450 $2,052 $1,853
================================================================================================
Allowances for loan losses $1,146 $1,168 $ 966
================================================================================================
Non-performing loans to total loans-net 0.67% 0.61% 0.64%
Non-performing assets to total assets 0.49% 0.42% 0.42%
Allowance for loan losses to ending
loan balance (before allowance) 0.32% 0.35% 0.33%
Allowance for loan losses to
non-performing loans 46.78% 56.91% 52.14%
</TABLE>
At March 31, 1996, there were two loans secured by funeral homes to a
single borrower totaling $1.1 million which are not included in Table 3.
Indications of possible cash flow problems have caused management concern
regarding the borrower's ability to comply with present loan repayment terms and
may result in the classification of these loans as non-performing in the future.
15
<PAGE> 18
Based on written opinions from an independent fee appraiser, the collateral
values of the properties are sufficient to cover the total outstanding debt.
Table 4 presents information concerning activity in the Bank's
allowance for loan losses during the quarters ended March 31, 1996 and 1995.
<TABLE>
<CAPTION>
TABLE 4
ACTIVITY IN THE ALLOWANCE FOR LOAN LOSSES
FOR THE QUARTER ENDED MARCH 31,
1996 1995
- ------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C>
Allowance at the Beginning of the period $ 1,168 $948
Provision charged to expense 5 18
Charge-offs:
- ------------
One to four family -- permanent -- --
One to four family -- construction -- --
Multi-family and Commercial
real estate -- --
Land and development -- --
Commercial non-real estate -- --
Consumer and other 27 --
- -----------------------------------------------------------------------------
27 --
Recoveries
- ----------
One to four family -- permanent -- --
One to four family -- construction -- --
Multi-family and Commercial
real estate -- --
Land and development -- --
Commercial non-real estate -- --
Consumer and other -- --
- -----------------------------------------------------------------------------
Net recoveries (charge-offs) (27) --
- -----------------------------------------------------------------------------
Allowance at the end of the period $ 1,146 $966
=============================================================================
Net charge-offs during the period to
average loans outstanding during the
period (Annualized) 0.03% 0.00%
</TABLE>
The amount of the allowance for loan losses is based on management's
analysis of risks inherent in the various segments of the loan portfolio,
management's assessment of known or potential problem credits which have come to
management's attention during the ongoing analysis of credit quality, historical
loss experience, current economic conditions, and other factors. Loan loss
estimates are reviewed periodically, and adjustments, if any, are reported in
earnings in the period in which they become known.
16
<PAGE> 19
TABLE A
Table A sets forth the composition of the Bank's loan portfolio at
March 31, 1996, December 31, 1995, and March 31, 1995.
<TABLE>
<CAPTION>
LOAN PORTFOLIO COMPOSITION
MARCH 31, 1996 DECEMBER 31, 1995 MARCH 31, 1995
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
- ------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
REAL ESTATE MORTGAGE LOANS:
Permanent first mortgage loans:
One to four family $251,519 69.16% $220,490 66.61% 197,818 68.86%
Multifamily 1,135 0.31% 1,183 0.36% 1,265 0.44%
Commercial 43,683 12.01% 42,098 12.72% 37,603 13.09%
Land 307 0.08% 358 0.11% 429 0.15%
Construction first mortgage loans:
Residential development 48,899 13.45% 48,538 14.66% 29,604 10.30%
One to four family 29,228 8.04% 26,960 8.14% 27,600 9.61%
Multifamily 2,660 0.73% 2,660 0.80% 1,400 0.49%
Commercial 4,133 1.14% 4,233 1.28% 2,354 0.82%
- ------------------------------------------------------------------------------------------------------------------------------
Total mortgage loans 381,564 104.92% 346,520 104.68% 298,073 103.76%
OTHER LOANS
Commercial 3,827 1.05% 3,955 1.19% 2,041 0.71%
Consumer 8,199 2.26% 8,895 2.69% 7,863 2.74%
- ------------------------------------------------------------------------------------------------------------------------------
Total other loans 12,026 3.31% 12,850 3.88% 9,904 3.45%
- ------------------------------------------------------------------------------------------------------------------------------
Total loans 393,590 108.23% 359,370 108.56% 307,977 107.21%
Less:
Loans in process 24,958 6.86% 23,639 7.14% 16,083 5.60%
Allowance for loan losses 1,146 0.32% 1,168 0.35% 966 0.33%
Deferred yield items 3,812 1.05% 3,546 1.07% 3,669 1.28%
- ------------------------------------------------------------------------------------------------------------------------------
29,916 8.23% 28,353 8.56% 20,718 7.21%
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL LOANS HELD FOR INVESTMENT-NET $363,674 100.00% $331,017 100.00% $287,259 100.00%
==============================================================================================================================
REAL ESTATE LOANS HELD FOR SALE $ -- $ 5,334 $ 1,011
==============================================================================================================================
</TABLE>
17
<PAGE> 20
TABLE B
Table B sets forth the activities in the Bank's loan portfolio for the
three month periods ended March 31, 1996, and 1995.
<TABLE>
<CAPTION>
ACTIVITY IN THE LOAN PORTFOLIO
FOR THE QUARTER ENDED MARCH 31,
1996 1995
- ------------------------------------------------------------------
(In thousands)
<S> <C> <C>
PERMANENT MORTGAGE LOAN ORIGINATIONS
One to four family $40,168 $ 8,805
Multifamily -- --
Commercial 2,300 56
Land -- 75
- ------------------------------------------------------------------
42,468 8,936
CONSTRUCTION LOAN ORIGINATIONS
Residential development 10,081 6,307
One to four family 8,974 7,325
Multifamily -- --
Commercial -- 375
- ------------------------------------------------------------------
19,055 14,007
NONMORTGAGE LOANS
Commercial 595 711
Consumer 386 1,126
- ------------------------------------------------------------------
981 1,837
- ------------------------------------------------------------------
TOTAL LOAN ORIGINATIONS 62,504 24,780
LESS
Principal repayments 25,490 17,297
Loan sales 8,066 5,416
- ------------------------------------------------------------------
33,556 22,713
- ------------------------------------------------------------------
NET INCREASE IN LOAN PORTFOLIO $28,948 $ 2,067
==================================================================
</TABLE>
18
<PAGE> 21
TABLE C
Table C sets forth the composition of the Bank's deposits by interest
rate category at March 31, 1996, December 31, 1995, and March 31, 1995.
<TABLE>
<CAPTION>
DEPOSIT COMPOSITION
MARCH 31, 1996 DECEMBER 31, 1995 MARCH 31, 1995
WTD. WTD. WTD.
AVG. AVG. AVG.
COST AMOUNT PERCENT COST AMOUNT PERCENT COST AMOUNT PERCENT
---- -------- ----- ---- -------- ----- ---- -------- ----
- ----------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PASSBOOK ACCOUNTS 2.86 $ 46,851 10.56 2.88 $ 47,423 10.96 2.84 $ 36,539 9.59
MONEY MARKET
DEPOSIT ACCOUNTS 2.53 21,437 4.83 2.53 23,014 5.32 2.53 29,912 7.85
NOW ACCOUNTS 2.02 27,069 6.10 2.02 26,025 6.02 2.27 22,016 5.78
COMMERCIAL ACCOUNTS 0.00 10,013 2.26 0.00 11,728 2.71 0.00 8,505 2.23
- ----------------------------------------------------------------------------------------------------------------------------
2.30 105,370 23.75 2.29 108,190 25.01 2.37 96,972 25.45
CERTIFICATES OF
DEPOSIT:
4.50% and less 3.01 3,515 0.79 3.03 4,454 1.03 3.72 19,070 5.00
4.51% to 5.50% 5.29 110,472 24.90 5.27 77,802 17.99 5.28 107,138 28.12
5.51% to 6.50% 6.01 122,210 27.54 6.03 120,175 27.78 6.20 59,855 15.71
6.51% to 7.50% 7.26 91,451 20.61 7.22 108,282 25.03 7.26 80,011 21.00
7.51% and greater 8.90 10,707 2.41 9.01 13,660 3.16 9.00 17,979 4.72
- ----------------------------------------------------------------------------------------------------------------------------
6.17 338,355 76.25 6.33 324,373 74.99 6.16 284,053 74.55
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL DEPOSITS 5.25 $443,725 100.00 5.32 $432,563 100.00 5.20 $381,025 100.00
============================================================================================================================
</TABLE>
19
<PAGE> 22
PART II
ITEM 4 Submission of Matters to a Vote of Security Holders
----------------------------------------------------
There were no items submitted to a vote by security holders during the
quarter.
ITEM 5 Exhibits and Reports on Form 8-K
--------------------------------
(a) Not applicable
(b) No reports on Form 8-K were filed during the quarter.
20
<PAGE> 23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
The Strongsville Savings Bank
------------------------------
(Registrant)
Date May 6, 1996 /s/ THOMAS P. PERCIAK
------------- ------------------------------
Thomas P. Perciak,
President & Chief Executive Officer
Date May 6, 1996 /s/ JOHN F. ZIEGLER
------------- ----------------------------
John F. Ziegler,
Executive Vice President &
Chief Financial Officer
21
<PAGE> 1
EXHIBIT 99(III)*
FORM 10-Q QUARTERLY REPORT OF THE STRONGSVILLE SAVINGS BANK FOR THE
QUARTER ENDED JUNE 30, 1996, AS FILED WITH THE OFFICE OF THRIFT SUPERVISION
* Upon completion of the holding company reorganization of The Strongsville
Savings Bank, which was accomplished by means of the merger of Emerald Interim
Savings Bank, a wholly owned subsidiary of Emerald Financial Corp., with and
into The Strongsville Savings Bank, The Strongsville Savings Bank became a
wholly owned subsidiary of Emerald Financial Corp., the Registrant. At that
time, the Registrant succeeded to the registration and reporting obligations of
The Strongsville Savings Bank pursuant to Rule 12g-3(a) under the Securities
Exchange Act of 1934. The Form 10-K Annual Report of The Strongsville Savings
Bank for the year ended December 31, 1995 and the Form 10-Q Quarterly Reports of
The Strongsville Savings Bank for the quarters ended March 31, June 30 and
September 30, 1996 attached as exhibits to this Form 8-A Registration Statement
complied as to form and content with the disclosure obligations established by
the Securities and Exchange Commission under the Securities Exchange Act of
1934.
<PAGE> 2
OFFICE OF THRIFT SUPERVISION
UNITED STATES DEPARTMENT OF THE TREASURY
Washington, DC 20552
- --------------------------------------------------------------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1996
[ ] TRANSITIONAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------------ -----------
OTS Docket Number: 6565
THE STRONGSVILLE SAVINGS BANK
-----------------------------
(Exact name of registrant as specified in its charter)
Ohio 34-0875093
- ------------------------------- ------------------
(State or other jurisdiction of (IRS Employer
Incorporation or organization) Identification No.)
14092 Pearl Road
Strongsville, Ohio 44136
------------------ -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (216) 238-7311
Capital Stock, without par value
--------------------------------
Title of Class
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Capital Stock, No Par Value 2,530,800
- --------------------------------------------------------------------------------
(Class) (Outstanding at July 31, 1996)
<PAGE> 3
THE STRONGSVILLE SAVINGS BANK
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Part I. FINANCIAL INFORMATION PAGE
<S> <C> <C>
Item I. Financial Statements:
Consolidated Statements of Financial
Condition as of June 30, 1996, and
December 31, 1995.............................................................. 2
Consolidated Statements of Income for
the Three and Six Month Periods Ended
June 30, 1996 and 1995......................................................... 3
Consolidated Statements of Cash Flows
for the Six Month Periods Ended
June 30, 1996 and 1995......................................................... 4
Notes to Consolidated Financial Statements..................................... 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................................. 7
Tables......................................................................... 19
Part II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of
Security Holders............................................................... 22
Item 6. Exhibits and Reports on Form 8-K............................................... 25
SIGNATURES ...................................................................................... 26
</TABLE>
1
<PAGE> 4
THE STRONGSVILLE SAVINGS BANK
Consolidated Statements of Financial Condition
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
- -----------------------------------------------------------------------------------------------
(In thousands, except per share data)
<S> <C> <C>
ASSETS:
Cash and cash equivalents
Cash and deposits with banks $ 3,945 $ 3,574
Interest bearing deposits with banks 4,563 11,935
Investment securities
Held-to-maturity (fair values of $37,008 and $49,640 at 37,168 49,354
June 30, 1996 and December 31, 1995, respectively)
Available for sale (at fair value) 20,667 26,595
Mortgage-backed securities
Held-to-maturity (fair values of $35,925 and $37,819 at 35,672 37,256
June 30, 1996 and December 31, 1995, respectively)
Available for sale (at fair value) 5,892 14,749
Loans-net
(Including allowance for loan losses of $1,170 and $1,168
at June 30, 1996 and December 31, 1995, respectively) 407,250 331,017
Loans held for sale 1,022 5,334
Accrued interest receivable 3,315 3,299
Federal Home Loan Bank stock-at cost 2,734 2,407
Premises and equipment-net 4,517 4,334
Other Real Estate Owned 0 0
Prepaid expenses and other assets 2,442 2,243
- -----------------------------------------------------------------------------------------------
TOTAL ASSETS $ 529,187 $492,097
===============================================================================================
LIABILITIES:
Deposits $ 458,658 $432,563
Federal Home Loan Bank Advances 23,758 13,333
Deferred federal income tax 1,401 1,583
Advance payments by borrowers 105 1,222
Accrued interest payable 476 425
Accounts payable and other 2,235 1,880
- -----------------------------------------------------------------------------------------------
Total liabilities 486,633 451,006
SHAREHOLDERS' EQUITY
Common stock, no par value, 10,000,000 shares authorized,
2,530,800 shares issued and outstanding 9,831 9,831
Fair value adjustment, net of tax effect (191) 196
Retained earnings 32,914 31,064
- -----------------------------------------------------------------------------------------------
Total shareholders' equity 42,554 41,091
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 529,187 $492,097
===============================================================================================
Shareholders' Equity per share $ 16.81 $ 16.24
Tangible Equity per share $ 16.48 $ 15.87
<FN>
See notes to consolidated financial statements.
</TABLE>
2
<PAGE> 5
THE STRONGSVILLE SAVINGS BANK
Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 1996 June 30, 1995 June 30, 1996 June 30, 1995
- ----------------------------------------------------------------------------------------------------------------------
(Dollars In thousands, except per share data)
<S> <C> <C> <C> <C>
Interest income
Loans $ 8,029 $ 6,331 $ 15,326 $ 12,560
Investment securities 956 1,368 2,053 2,497
Mortgage-backed securities 758 728 1,651 1,379
Other 96 284 256 421
- ----------------------------------------------------------------------------------------------------------------------
9,839 8,711 19,286 16,857
Interest expense
Deposits 5,664 5,091 11,231 9,448
Advances from the Federal Home Loan Bank 284 232 479 476
- ----------------------------------------------------------------------------------------------------------------------
5,948 5,323 11,710 9,924
- ----------------------------------------------------------------------------------------------------------------------
Net interest income 3,891 3,388 7,576 6,933
Provision for loan losses 23 26 28 44
- ----------------------------------------------------------------------------------------------------------------------
Net interest income after provision
for loan losses 3,868 3,362 7,548 6,889
Non-interest income
Gain on sale of assets 25 321 260 433
Loan service fees 199 106 323 237
Other 169 158 327 270
- ----------------------------------------------------------------------------------------------------------------------
393 585 910 940
Non-interest expense
Salaries and employee benefits 867 870 1,810 1,780
Net occupancy and equipment 383 356 745 667
Federal deposit insurance 241 201 483 402
Amortization of goodwill 34 36 67 71
Other 821 707 1,610 1,387
- ----------------------------------------------------------------------------------------------------------------------
2,346 2,170 4,715 4,307
- ----------------------------------------------------------------------------------------------------------------------
Income before federal income taxes 1,915 1,777 3,743 3,522
Provision for federal income taxes 671 623 1,311 1,224
- ----------------------------------------------------------------------------------------------------------------------
Net income $ 1,244 $ 1,154 $ 2,432 $ 2,298
======================================================================================================================
Earnings per common share $ 0.49 $ 0.46 $ 0.96 $ 0.91
Dividends per share $ 0.12 $ 0.09 $ 0.23 $ 0.18
Weighted average number of common
shares outstanding 2,530,800 2,530,800 2,530,800 2,530,800
Return on average assets 0.96% 1.02% 0.96% 1.05%
Return on average equity 11.77% 11.97% 11.59% 12.06%
<FN>
See notes to consolidated financial statements
</TABLE>
3
<PAGE> 6
THE STRONGSVILLE SAVINGS BANK
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1996 June 30, 1995
- ------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Cash flows from operating activities
Net income $ 2,432 $ 2,298
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Provision for loan losses 28 44
Gain from sale of assets (260) (433)
Accretion of discounts and other deferred yield items (1,047) (874)
Depreciation and amortization 400 405
Effect of change in accrued interest
receivable and payable 35 (405)
Federal Home Loan Bank stock dividends (88) (67)
Deferred federal income taxes 17 314
Net decrease in other assets and liabilities 92 614
Net decrease (increase) in loans held for sale 4,461 (3,508)
- ------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 6,070 (1,612)
Cash flows from investing activities
Net (increase) in loans (75,242) (17,047)
Net decrease (increase) in investment securities 19,345 (3,818)
Net decrease (increase) in mortgage-backed securities 8,761 (12,832)
Purchases of:
Premises and equipment (516) (646)
Federal Home Loan Bank Stock (239) (437)
- ------------------------------------------------------------------------------------------------
Net cash (used in) investing activities (47,891) (34,780)
Cash flows from financing activities
Net increase in deposits 26,094 41,571
Payments on advances from the Federal Home Loan Bank (12,075) (1,280)
Proceeds from advances from the Federal Home Loan Bank 22,500 0
Net (decrease) in escrows (1,117) (955)
Payment of dividends on common stock (582) (457)
- ------------------------------------------------------------------------------------------------
Net cash provided by financing activities 34,820 38,879
- ------------------------------------------------------------------------------------------------
Net change in cash and cash equivalents (7,001) 2,487
Cash and cash equivalents, at beginning of the period 15,509 10,649
Cash and cash equivalents, at end of the period $ 8,508 $ 13,136
================================================================================================
<FN>
See notes to consolidated financial statements
</TABLE>
4
<PAGE> 7
1. NATURE OF OPERATIONS
--------------------
The Strongsville Savings Bank (Bank) conducts its principal activities
from its Community Financial Centers located in southwestern Cuyahoga, Lorain
and Medina counties. The Bank's principal activities include residential lending
and retail banking.
2. BASIS OF PRESENTATION
---------------------
The consolidated financial statements of the Bank include the accounts
of the Bank and the accounts of its wholly owned subsidiary, Dennis Financial
Corporation. All significant inter-company transactions have been eliminated. In
the opinion of management, the accompanying unaudited financial statements
include all adjustments (consisting only of normal recurring accruals) which the
Bank considers necessary for a fair presentation of (a) the results of
operations for the three and six month periods ended June 30, 1996 and 1995; (b)
the financial condition at June 30, 1996, and December 31, 1995; and (c) the
statements of cash flows for the six month periods ended June 30, 1996 and 1995.
The results of operations for the three and six month periods ended June 30,
1996, are not necessarily indicative of the results that may be expected for a
full year.
Certain prior period data has been reclassified to conform to current
year presentation.
3. STATEMENTS OF CASH FLOWS
------------------------
For purposes of the Statements of Cash Flows, the Bank considers all
cash and deposits with banks with maturities of less than three months to be
cash equivalents.
Income tax payments of $1,299,000 and $588,000 were made during the six
month periods ended June 30, 1996 and 1995, respectively. Interest paid totaled
$11,659,000 and $9,841,000 for the six month periods ended June 30, 1996 and
1995, respectively. There were no transfers from loans to real estate owned
during the six month periods ended June 30, 1996 or 1995, nor were any loans
made to finance the sale of real estate owned during those periods.
4. EARNINGS PER SHARE
------------------
Earnings per share are calculated using the weighted average number of
shares of capital stock outstanding for the period.
5
<PAGE> 8
5. NEW ACCOUNTING STANDARDS
------------------------
On January 1, 1996, the Bank adopted STATEMENT OF FINANCIAL ACCOUNTING
STANDARDS NO. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of. This statement requires that long-lived
assets and certain identifiable intangibles be reviewed for impairment whenever
events or changes in circumstances indicate the carrying value of these assets
may not be recoverable.
Effective January 1, 1996, the Bank also adopted STATEMENT OF FINANCIAL
ACCOUNTING STANDARDS NO. 123, Accounting for Stock-Based Compensation, which
encourages, but does not require, adoption of a fair-value based accounting
method for employee stock-based compensation arrangements. Management has
elected to continue to use the Accounting Principles Board Opinion 25,
Accounting for Stock Issued to Employees, intrinsic value method for measurement
and recognition of stock-based compensation.
These statements did not have a material effect on the Bank's financial
condition or results of operations.
6
<PAGE> 9
Part I, Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
- -------
The Strongsville Savings Bank (Bank) was founded in 1961 as an
Ohio-chartered, federally insured savings association whose business activities
are concentrated in the greater Cleveland, Ohio area. The Bank conducts its
business through its home office in Strongsville and its fourteen full-service
Community Financial Centers located in Cuyahoga, Lorain and Medina counties. The
Bank recently opened a new full-service Community Financial Center in Brunswick,
Ohio.
The principal business of the Bank has historically been attracting
deposits from the general public and making loans secured by first mortgage
liens on residential and other real estate. The Bank and the banking industry in
general are significantly affected by prevailing economic conditions, the
general level and trend of interest rates as well as by government policies and
regulations concerning, among other things, fiscal affairs, housing and
financial institutions.
Financial Condition and Results of Operations
- ---------------------------------------------
The Bank's total assets at June 30, 1996, were $529.2 million,
representing an increase of $37.1 million, or 15.07%, annualized, for the six
month period and of $67.3 million, or 14.6% for the twelve month period ended
June 30, 1996. The increase in assets was primarily due to increases in mortgage
loans. The Bank's loan portfolio increased $71.9 million during the six month
period and $104.6 million during the twelve months ended June 30, 1996. The
increases in loans were funded by increases in deposits, increases in Advances
from the FHLB and decreases in investment securities and other liquid assets.
The Bank's deposits were $458.7 million at June 30, 1996, representing
an increase of $26.1 million, or 12.1% during the six month period and of $54.0
million, or 13.4% during the twelve month period ended June 30, 1996.
Net interest income was $3.9 million for the quarter ended June 30,
1996, an increase of $0.5 million over the second quarter of 1995. The increase
in net interest-earning assets, along with a slight increase in interest rate
spread, caused the improvement. Average net interest-earning assets increased
$62.0 million from $442.0 million for the second quarter of 1995 to $504.0
million for the second quarter of 1996. The Bank's interest rate spread
increased 3 basis
7
<PAGE> 10
points from 2.69% during the second quarter of 1995 to 2.72% during the second
quarter of 1996.
Net income for the second quarter of 1996, at $1,244,000, was $90,000
more than the $1,154,000 for the same period in 1995. The increase was primarily
due to the increase in net interest income.
Net interest income was $7.6 million for the six months ended June 30,
1996, an increase of $0.7 million over the first half of 1995. The increase in
net interest-earning assets, offset by a decrease in interest rate spread,
caused the improvement. Average net interest-earning assets increased $64.3
million from $428.0 million for the first half of 1995 to $492.3 million for the
first half of 1996. The Bank's interest rate spread decreased 16 basis points
from 2.87% during the first half of 1995 to 2.71% during the first half of 1996.
Net income for the first half of 1996, at $2,432,000, was $134,000 more
than the $2,298,000 for the same period in 1995. The increase was primarily due
to the increase in net interest income.
Table 1 presents information regarding the average balances of
interest-earning assets and interest-bearing liabilities, the total dollar
amount of interest income from interest-earning assets and their average yields
and the total dollar amount of interest expense on interest-bearing liabilities
and their average rates. Table 1 also presents net interest income,
interest-rate spread, net interest margin and the ratio of average
interest-earning assets to average interest-bearing liabilities. Interest-rate
spread represents the difference between the weighted average yield on
interest-earning assets and the weighted average cost of interest-bearing
liabilities. Net interest margin represents net interest income as a percent of
average interest-earning assets. Average balance calculations were based on
daily and monthly balances. Assets available for sale are included in the major
asset category as if they were held-to-maturity.
8
<PAGE> 11
AVERAGE BALANCE TABLE
<TABLE>
<CAPTION>
For the Three Months Ended June 30,
1996 1995
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
- -------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS
Loans, net (1) $389,829 $8,029 8.24% $293,652 $6,331 8.62%
Investment securities 62,652 956 6.10% 85,676 1,368 6.39%
Mortgage-backed securities 44,234 758 6.85% 41,842 728 6.96%
Other interest-earning assets 7,307 96 5.25% 20,861 284 5.44%
- -------------------------------------------------------------------------------------------------------------
Total interest-earning assets 504,022 9,839 7.81% 442,031 8,711 7.88%
Noninterest-earning assets 13,620 11,262
- -------------------------------------------------------------------------------------------------------------
Total assets $517,642 $453,293
=============================================================================================================
Interest-Bearing Liabilities
Deposits (2) $448,042 $5,664 5.06% $395,534 $5,091 5.15%
Advances from FHLB 19,773 284 5.75% 14,473 232 6.41%
- -------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 467,815 5,948 5.09% 410,007 5,323 5.19%
Noninterest-bearing liabilities 7,538 4,733
Shareholders' equity 42,289 38,553
- -------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equtiy $517,642 $453,293
=============================================================================================================
Net interest income $3,891 $3,388
Interest-rate spread 2.72% 2.69%
Net interest margin 3.09% 3.07%
Ratio of average interest-
earning assets to average
interest-bearing liabilities 107.74% 107.81%
=============================================================================================================
<FN>
(1) Average balances include non-accrual loans. Interest income includes
deferred loan fee amortization of $494,000 and $583,000 for the three
months ended June 30, 1996 and 1995, respectively.
(2) Deposits include noninterest-bearing demand accounts which were $9,264,000
and $9,144,000 at June 30, 1996 and 1995, respectively.
</TABLE>
9
<PAGE> 12
AVERAGE BALANCE TABLE
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
1996 1995
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
- --------------------------------------------------------------------------------------------------------------------------------
(Dollars In thousands)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS
Loans, net (1) $366,911 $15,326 8.35% | $290,073 $12,560 8.66%
Investment securities 68,228 2,053 6.02% | 82,121 2,497 6.08%
Mortgage-backed securities 47,517 1,651 6.95% | 39,543 1,379 6.98%
Other interest-earning assets 9,626 256 5.32% | 16,263 421 5.18%
- ---------------------------------------------------------------------------------------|----------------------------------------
Total interest-earning assets 492,282 19,286 7.84% | 428,000 16,857 7.88%
Noninterest-earning assets 13,407 | 11,216
- ---------------------------------------------------------------------------------------|----------------------------------------
Total assets $505,689 | $439,216
=======================================================================================|========================================
|
INTEREST-BEARING LIABILITIES |
Deposits (2) $439,811 11,231 5.11% | $381,443 9,448 4.95%
Advances from FHLB 16,462 479 5.82% | 15,006 476 6.34%
- ---------------------------------------------------------------------------------------|----------------------------------------
Total interest-bearing liabilities 456,273 11,710 5.13% | 396,449 9,924 5.01%
Noninterest-bearing liabilities 7,441 | 4,657
Shareholders' equity 41,975 | 38,110
- ---------------------------------------------------------------------------------------|----------------------------------------
Total liabilities and |
shareholders' equity $505,689 | $439,216
=======================================================================================|========================================
|
Net interest income $7,576 | $6,933
Interest-rate spread 2.71% | 2.87%
Net interest margin 3.08% | 3.24%
Ratio of average interest- |
earning assets to average |
interest-bearing liabilities 107.89% | 107.96%
- ---------------------------------------------------------------------------------------|----------------------------------------
<FN>
(1) Average balances include non-accrual loans. Interest income includes
deferred loan fee amortization of $992,000 and $1,146,000 for the six
months ended June 30, 1996 and 1995, respectively.
(2) Deposits include noninterest-bearing demand accounts which were $9,264,000
and $9,144,000 at June 30, 1996 and 1995, respectively.
</TABLE>
10
<PAGE> 13
Table 2 presents certain information regarding changes in interest income and
interest expense of the Bank for the three and six month periods ended June 30,
1996 and 1995. The table shows the changes in interest income and interest
expense by major category attributable to changes in the average balance
(volume) and the changes in interest rates. The net change not attributable to
either rate or volume is allocated on a prorata basis to the change in rate or
volume. Assets available for sale are included in the major asset category as if
they were held-to-maturity.
<TABLE>
<CAPTION>
TABLE 2
RATE/VOLUME TABLE
Quarter Ended June 30, Six Months Ended June 30,
1996 Compared to 1995 1996 compared to 1995
Increase (Decrease) Due to Changes Increase (Decrease) Due to Changes in:
Volume Rate Total Volume Rate Total
- ---------------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME ON INTEREST-EARNING ASSETS
Loans, net $1,962 ($264) $1,698 $3,198 ($432) $2,766
Investment securities (352) (60) (412) (419) (25) (444)
Mortgage-backed securities 41 (11) 30 278 (6) 272
Other (178) (10) (188) (177) 12 (165)
- ---------------------------------------------------------------------------------------------------------------------------------
Total 1,473 (345) 1,128 2,880 (451) 2,429
- ---------------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE ON INTEREST-BEARING LIABILITIES
Deposits 659 (86) 573 1,472 311 1,783
Advances from FHLB 73 (21) 52 20 (17) 3
- ---------------------------------------------------------------------------------------------------------------------------------
Total 732 (107) 625 1,492 294 1,786
- ---------------------------------------------------------------------------------------------------------------------------------
Change in net interest income $ 741 ($238) $ 503 $1,388 ($745) $ 643
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 14
Net interest income
- --------------------------------------------------------------------------------
Net interest income is the primary component of net income and is
determined by characteristics of the Bank's interest-earning assets and
interest-bearing liabilities, including the spread, or the difference between
the yields earned and the rates paid on those assets and liabilities. Net
interest income is the difference between interest income and interest expense.
<TABLE>
<CAPTION>
Three months ended Six months ended June 30,
June 30, 1996 June 30, 1996
---------------------------------------------
(Dollars in thousands)
<S> <C> <C>
Net interest income:
Current period $3,891 $7,576
Prior period 3,388 6,933
------ ------
Dollar increase from prior period $ 503 $ 643
------ ------
Percent increase from prior period 14.85% 9.29%
====== ======
</TABLE>
Interest income
- ---------------
Interest income for the three months ended June 30, 1996 was $9.8
million, compared to $8.7 million for the second quarter of 1995, an increase of
$1.1 million or 12.95%. This increase was primarily due to the increase in
average interest-earning assets as demonstrated on Table 2. Average
interest-earning assets increased to $504.0 million for the second quarter of
1996 from $442.0 million for the first quarter of 1995. The effect of the
increase in interest-earning assets was offset somewhat by the 7 basis point
decline in the average yield on interest-earning assets to 7.81% for the second
quarter of 1996 from 7.88% for the like period in 1995.
Interest income for the six months ended June 30, 1996 was $19.3
million, compared to $16.9 million for the first half of 1995, an increase of
$2.4 million or 14.41%. This increase was primarily due to the increase in
average interest-earning assets as demonstrated on Table 2. Average
interest-earning assets increased to $492.3 million for the first half of 1996
from $428.0 million for the first half of 1995. The effect of the increase in
interest-earning assets was offset somewhat by the 4 basis point decline in the
average yield on interest-earning assets to 7.84% for the first half of 1996
from 7.88% for the like period in 1995.
Interest expense
- ----------------
Interest expense increased during the quarter ended June 30, 1996
compared to the same period in 1995 primarily due to an increase in average
interest-bearing liabilities of $57.8 million, or 14.10%, offset by a decrease
in the
12
<PAGE> 15
average cost of interest-bearing liabilities. Average interest-bearing
liabilities were $467.8 million and $410.0 million for the second quarter of
1996 and 1995, respectively. The average cost of interest-bearing liabilities
decreased 10 basis points to 5.09% for the second quarter of 1996 from 5.19% for
the same period in 1995.
Interest expense increased during the six months ended June 30, 1996
compared to the same period in 1995 primarily due to an increase in average
interest-bearing liabilities of $57.8 million, or 14.10%, and by an increase in
the average cost of interest-bearing liabilities. Average interest-bearing
liabilities were $456.3 million and $396.4 million for the first half of 1996
and 1995, respectively. The average cost of interest-bearing liabilities
increased 12 basis points to 5.13% for the first half of 1996 from 5.01% for the
same period in 1995.
Provision for loan losses
- -------------------------
The provision for loan losses for the three months ended June 30, 1996
was $23,000 compared to $26,000 for the same period in 1995. The provision for
both periods were commensurate with management's estimate of the credit risk in
the loan portfolio. Economic conditions in the Bank's market area were stable.
Further discussion and other information relating to loan losses and
nonperforming assets are included in the section titled "Asset Quality."
Noninterest income
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three months ended Six months ended June 30,
June 30, 1996 June 30, 1996
---------------------------------------------
(Dollars in thousands)
<S> <C> <C>
Noninterest income:
Current period $ 393 $ 910
Prior period 585 940
----- -----
Dollar increase from prior period $(192) $ (30)
----- -----
Percent increase from prior period (32.77)% (3.21)%
====== =====
</TABLE>
Noninterest income consists primarily of fees earned for servicing
loans and providing services for customers and the gain on the sale of loans.
The declines in noninterest income are primarily due to a reduction in the
number of loans sold.
13
<PAGE> 16
Noninterest expense
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three months ended Six months ended June 30,
June 30, 1996 June 30, 1996
---------------------------------------------
(Dollars in thousands)
<S> <C> <C>
Noninterest expense:
Current period $2,346 $4,715
Prior period 2,170 4,307
------ ------
Dollar increase from prior period $ 176 $ 408
------ ------
Percent increase from prior period 8.09% 9.47%
====== ======
</TABLE>
The increase in noninterest expense is primarily due to the Bank's
growth and the resulting increase in the number of employees. Net occupancy,
deposit insurance and franchise tax expense also increased as a result of the
Bank's growth. Despite the dollar increase in noninterest expense, the Bank's
efficiency ratio for the quarter ended June 30, 1996 improved to 55.4% from
59.8% for the second quarter of 1995.
Federal income taxes
- --------------------------------------------------------------------------------
The Bank provided $671,000 and $1,311,000 for federal income tax for
the three and six month periods ended June 30, 1996, respectively. Similarly,
the Bank provided $623,000 and $1,224,000 for federal income tax for the three
and six month periods ended June 30, 1995, respectively. Net income before the
provision for federal income taxes increased for the compared periods resulting
in a corresponding increase in the provision for federal income taxes.
Financial resources and liquidity
- --------------------------------------------------------------------------------
The Bank's primary sources of funds are deposits, principal and
interest payments on loans, maturities of investment securities, proceeds from
the sale of loans and funds generated through earnings. The primary uses for
such funds are to originate loans, maintain liquidity requirements and manage
interest rate risk.
For an analysis of the cash flows of the Bank, refer to the
Consolidated Statements of Cash Flows on page 3. Management believes the Bank
has adequate resources to meet its normal funding requirements.
The Bank is required to maintain an average daily balance of liquid
assets equal to 5% of the sum of its average daily balance of net withdrawable
accounts
14
<PAGE> 17
and borrowed funds due in one year or less. The Bank's June 1996 monthly average
of eligible liquid assets was 15.62%.
Shareholders' equity
- --------------------------------------------------------------------------------
Shareholders' equity was $42.6 million at June 30, 1996, an increase of
$1.5 million, or 7.12%, annualized, during the first half of 1996. This increase
was primarily the result of net income offset by dividends paid. The Bank paid
dividends in the first half of 1996 of 23(cents) per share, an increase of
27.78% cents over the 18(cents) per share dividends paid in the first half of
1995.
The Bank's return on average assets was 0.96% for the three and six
month periods ended June 30, 1996. Return on average equity was 11.77% for the
three month period and 11.59% for the six month period ended June 30, 1996.
At June 30, 1996, the Bank was in excess of all capital requirements
specified by federal regulations as shown by the following table.
<TABLE>
<CAPTION>
Tangible Core Risk-based
Capital Capital Capital
----------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Capital amount -- Actual $ 41,892 $ 41,892 $ 43,057
Capital amount -- Required 7,930 15,859 26,249
--------------------------------------------------------
Amount in excess of requirement $ 33,962 $ 26,033 $ 16,808
========================================================
Capital ratio -- Actual 7.92% 7.92% 13.12%
Capital ratio -- Required 1.50% 3.00% 8.00%
--------------------------------------------------------
Amount in excess of requirement 6.42% 4.92% 5.12%
========================================================
</TABLE>
The Bank's capital levels at June 30, 1996, qualify it as a
"well-capitalized" institution, the highest of five tiers under applicable
federal definitions.
Regulatory issues
- --------------------------------------------------------------------------------
The Bank's deposits are insured by the Savings Association Insurance
Fund (SAIF) of the Federal Deposit Insurance Corporation (FDIC). Deposit
insurance premiums to both the SAIF and the Bank Insurance Fund (BIF) of the
FDIC were identical when both funds were created in 1989. In August 1995, the
FDIC determined that the BIF had achieved its designated reserve ratio and
lowered BIF deposit insurance premium rates for all but the riskiest
institutions. Effective January 1, 1996, BIF deposit insurance premiums for
well-capitalized banks were further reduced to the statutory minimum of $2,000
per institution per year. Because the SAIF remains significantly below its
designated reserve ratio,
15
<PAGE> 18
SAIF deposit insurance premiums were not reduced and remain at 0.23% to 0.31% of
deposits, based on an institution's supervisory evaluations and capital levels.
The current discrepancy in deposit insurance premiums between the BIF and the
SAIF could place the Bank at a competitive disadvantage to BIF insured
institutions.
Various segments of the United States Government have attempted to
address the insurance premium disparity through proposed legislation that has
ranged from recapitalizing the SAIF through a special assessment to merging the
SAIF and the BIF and eliminating the thrift charter. Although a special
assessment would reduce the Bank's regulatory capital, it would not be likely to
jeapordize its well-capitalized status. Additionally, the reduced premium rate
that is expected to result would reduce non-interest expenses going forward.
Finally, management does not believe a SAIF/BIFcombination or the elimination of
the thrift charter (as currently proposed) would have a significant impact on
the future operations of the Bank. No assurances can be given as to the
likelihood that any proposed legislation will become law.
Qualified thrift lender test
- --------------------------------------------------------------------------------
Savings associations insured by the Savings Association Insurance Fund
are required to maintain 65% of total portfolio assets in Qualified Thrift
Investments. As of June 30, 1996, the Bank had 90.43% of total assets invested
in Qualified Thrift Investments.
Asset quality
- --------------------------------------------------------------------------------
Table 3 sets forth information regarding non-performing assets at June
30, 1996, December 31, 1995 and June 30, 1995.
16
<PAGE> 19
Table 3
NON-PERFORMING ASSETS ANALYSIS
<TABLE>
<CAPTION>
December 31,
June 30, 1996 1995 June 30, 1995
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Non-accruing loans: (Dollars In thousands)
1-4 family - permanent $ 247 $ 52 $ 52
1-4 family - construction -- -- --
Multi-family and Commercial
real estate -- -- 517
Land and development -- -- --
Commercial non-real estate 70 70 --
Consumer and other 20 24 19
- ------------------------------------------------------------------------------------------------------------
Total 337 146 588
Loans delinquent 90 days or more and still accruing:
1-4 family - permanent 1,158 1,906 1,386
1-4 family - construction 625 -- --
Multi-family and Commercial
real estate -- -- --
Land and development 9 -- --
Commercial non-real estate -- -- 13
Consumer and other 8 -- 4
- ------------------------------------------------------------------------------------------------------------
Total 1,800 1,906 1,403
Restructured loans and
in-substance foreclosures -- -- --
- ------------------------------------------------------------------------------------------------------------
Total non-performing loans 2,137 2,052 1,991
Other non-performing assets -- -- --
- ------------------------------------------------------------------------------------------------------------
Total non-performing assets $2,137 $2,052 $1,991
============================================================================================================
Allowances for loan losses $1,170 $1,168 $ 988
============================================================================================================
Non-performing loans to total loans-net 0.52% 0.61% 0.66%
Non-performing assets to total assets 0.40% 0.42% 0.43%
Allowance for loan losses to ending
loan balance (before allowance) 0.29% 0.35% 0.33%
Allowance for loan losses to
non-performing loans 54.74% 56.91% 49.61%
</TABLE>
At June 30, 1996, there were two loans secured by funeral homes to a single
borrower totaling $1.1 million which are not included in Table 3. Indications of
possible cash flow problems have caused management concern regarding the
borrower's ability to comply with present loan repayment terms and may result in
the classification of these loans as non-performing in the future. Based on
17
<PAGE> 20
written opinions from an independent fee appraiser, the collateral values of the
properties are sufficient to cover the total outstanding debt.
Table 4 presents information concerning activity in the Bank's
allowance for loan losses during the three and six month periods ended June 30,
1996 and 1995.
Table 4
ACTIVITY IN THE ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
1996 1995 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Allowance at the beginning of the period $1,146 $ 966 $ 1,168 $ 948
Provision charged to expense 23 26 28 44
Charge-offs:
- ------------
1-4 family - permanent -- -- -- --
1-4 family - construction -- -- -- --
Multi-family and Commercial
real estate -- -- -- --
Land and development -- -- -- --
Commercial non-real estate -- -- -- --
Consumer and other -- 5 27 5
- --------------------------------------------------------------------------------------------------------------------
-- 5 27 5
Recoveries
- ----------
1-4 family - permanent -- -- -- --
1-4 family - construction -- -- -- --
Multi-family and Commercial
real estate -- -- -- --
Land and development -- -- -- --
Commercial non-real estate -- -- -- --
Consumer and other 1 1 1 1
- --------------------------------------------------------------------------------------------------------------------
1 1 1 1
- --------------------------------------------------------------------------------------------------------------------
Net recoveries (charge-offs) 1 (4) (26) (4)
- --------------------------------------------------------------------------------------------------------------------
Allowance at the end of the period $1,170 $ 988 $ 1,170 $ 988
====================================================================================================================
Net charge-offs during the period to
average loans outstanding during the
period (Annualized) 0.00% 0.00% 0.01% 0.00%
</TABLE>
The amount of the allowance for loan losses is based on management's
analysis of risks inherent in the various segments of the loan portfolio,
management's assessment of known or potential problem credits which have come to
management's attention during the ongoing analysis of credit quality, historical
loss experience, current economic conditions, and other factors. Loan loss
estimates are reviewed periodically, and adjustments, if any, are reported in
earnings in the period in which they become known.
18
<PAGE> 21
TABLE A
Table A sets forth the composition of the Bank's loan portfolio at June
30, 1996, December 31, 1995, and June 30, 1995.
<TABLE>
<CAPTION>
LOAN PORTFOLIO COMPOSITION
June 30, 1996 December 31, 1995 June 30, 1995
Amount Percent Amount Percent Amount Percent
- --------------------------------------------------------------------------------------------------------------------------------
Real estate mortgage loans: (Dollars In thousands)
<S> <C> <C> <C> <C> <C> <C>
Permanaent first mortgage
loans:
1-4 family $289,030 70.97% $220,490 66.61% $197,451 65.82%
Multi-family 1,107 0.27% 1,183 0.36% 1,237 0.41%
Commercial real estate 42,445 10.42% 42,098 12.72% 39,745 13.25%
Land 332 0.08% 358 0.11% 1,749 0.58%
Construction first mortgage loans:
Residential development 57,489 14.12% 48,538 14.66% 39,811 13.27%
1-4 family 39,189 9.62% 26,960 8.14% 30,151 10.05%
Multi-family 1,439 0.35% 2,660 0.80% 1,336 0.45%
Commercial real estate 4,943 1.22% 4,233 1.28% 3,230 1.08%
- --------------------------------------------------------------------------------------------------------------------------------
Total mortgage loans 435,974 107.05% 346,520 104.68% 314,710 104.91%
Other loans
Commercial 3,541 0.87% 3,955 1.19% 2,555 0.85%
Consumer 8,417 2.07% 8,895 2.69% 8,709 2.90%
- --------------------------------------------------------------------------------------------------------------------------------
Total other loans 11,958 2.94% 12,850 3.88% 11,264 3.75%
- --------------------------------------------------------------------------------------------------------------------------------
Total loans 447,932 109.99% 359,370 108.56% 325,974 108.66%
Less:
Loans in process 35,208 8.64% 23,639 7.14% 21,492 7.16%
Allowance for loan losses 1,170 0.29% 1,168 0.35% 988 0.33%
Deferred yield items 4,304 1.06% 3,546 1.07% 3,498 1.17%
- --------------------------------------------------------------------------------------------------------------------------------
40,682 9.99% 28,353 8.56% 25,978 8.66%
- --------------------------------------------------------------------------------------------------------------------------------
Total loans held for investment-Net $407,250 100.00% $331,017 100.00% $299,996 100.00%
================================================================================================================================
Real estate loans held for sale $ 1,022 $ 5,334 $ 3,664
================================================================================================================================
</TABLE>
19
<PAGE> 22
TABLE B
Table B sets forth the activities in the Bank's loan portfolio for the
three and six month periods ended June 30, 1996, and 1995.
<TABLE>
<CAPTION>
ACTIVITY IN THE LOAN PORTFOLIO
For the Quarter Ended For the Six Months Ended
June 30, June 30,
1996 1995 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Permanent mortgage loan originations
1-4 family $49,262 $14,444 $89,430 $23,249
Multi-family 0 0 0 0
Commercial real estate 465 1,287 2,765 1,343
Land 0 33 0 108
- ----------------------------------------------------------------------------------------------------------------------------------
49,727 15,764 92,195 24,700
- ----------------------------------------------------------------------------------------------------------------------------------
Construction first mortgage loan originations
Residential development 16,399 17,418 26,480 23,725
1-4 family 16,954 11,792 25,928 19,117
Multi-family 0 0 0 0
Commercial real estate 1,425 1,360 1,425 1,735
- ----------------------------------------------------------------------------------------------------------------------------------
34,778 30,570 53,833 44,577
Nonmortgage loans
Commercial 579 867 1,174 1,578
Consumer 1,084 1,461 1,470 2,587
- ----------------------------------------------------------------------------------------------------------------------------------
1,663 2,328 2,644 4,165
- ----------------------------------------------------------------------------------------------------------------------------------
Total loan originations 86,168 48,662 148,672 73,442
Purchased loans
Commercial real estate 0 700 0 700
- ----------------------------------------------------------------------------------------------------------------------------------
Total new loans 86,168 49,362 148,672 74,142
Less
Principal repayments 30,586 22,927 56,076 40,224
Loan sales 280 5,785 8,346 11,201
- ----------------------------------------------------------------------------------------------------------------------------------
30,866 28,712 64,422 51,425
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase in loans $55,302 $20,650 $84,250 $22,717
==================================================================================================================================
</TABLE>
20
<PAGE> 23
TABLE C
Table C set forth the composition of the Bank's deposits by interest
rate category at June 30, 1996, December 31, 1995, and June 30, 1995.
<TABLE>
<CAPTION>
DEPOSIT COMPOSITION
June 30, 1996 December 31, 1996 June 30, 1995
Wtd Avg Wtd Avg Wtd Avg
Cost Amount Percent Cost Amount Percent Cost Amount Percent
---- ------- ----- ---- ------- ----- ---- ------- ----
- ---------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Passbook accounts 2.88% $47,552 10.37% 2.88% $47,423 10.96% 2.82% $40,174 9.93%
NOW accounts 2.02% 28,861 6.29% 2.02% 26,025 6.02% 2.02% 22,596 5.58%
Money market deposit accounts 2.53% 20,436 4.46% 2.53% 23,014 5.32% 2.53% 26,147 6.46%
Commercial accounts 0.00% 9,264 2.02% 0.00% 11,728 2.71% 0.00% 9,144 2.26%
- ---------------------------------------------------------------------------------------------------------------------------
2.33% 106,113 23.14% 2.29% 108,190 25.01% 2.29% 98,061 24.23%
Certificates of deposit:
4.50% and less 2.99% 3,100 0.68% 3.03% 4,454 1.03% 3.39% 8,966 2.22%
4.51% to 5.50% 5.27% 119,458 26.04% 5.27% 77,802 17.99% 5.27% 86,933 21.49%
5.51% to 6.50% 5.96% 134,058 29.23% 6.03% 120,175 27.78% 6.19% 86,758 21.44%
6.51% to 7.50% 7.28% 86,665 18.89% 7.22% 108,282 25.03% 7.22% 107,436 26.55%
7.51% and greater 8.84% 9,264 2.02% 9.01% 13,660 3.16% 9.04% 16,467 4.07%
- ---------------------------------------------------------------------------------------------------------------------------
6.10% 352,545 76.86% 6.33% 324,373 74.99% 6.36% 306,560 75.77%
- ---------------------------------------------------------------------------------------------------------------------------
Total deposits 5.23% $458,658 100.00% 5.32% $432,563 100.00% 5.38% $404,621 100.00%
===========================================================================================================================
</TABLE>
21
<PAGE> 24
PART II
ITEM 4 Submission of Matters to a Vote of Security Holders
----------------------------------------------------
(a) The Annual Meeting of Shareholders was held on April 19, 1996.
(b) The following three directors were elected for the three year
term stated. All were elected without opposition.
<TABLE>
<CAPTION>
Director Term
--------------------------------------------------
<S> <C>
Kenneth J. Piechowski 1996 to 1999
George P. Bohnert, Jr. 1996 to 1999
John J. Plucinsky 1996 to 1999
</TABLE>
The remaining directors and year in which their current term
expires are as follows:
<TABLE>
<CAPTION>
Director Term
--------------------------------------------------
<S> <C>
Joan M. Dzurilla 1997
Mike Kalinich 1997
Thomas P. Perciak 1997
John F. Ziegler 1998
William A. Fraunelder, Jr. 1998
Glenn W. Goist 1998
</TABLE>
(c) The following matters were voted upon at the Annual Shareholders
Meeting, with the allocation of the votes cast indicated.
(i) Election of three directors for three-year terms expiring in
1999. The nominees were elected and the record of votes was
as follows:
<TABLE>
<CAPTION>
Votes Abstaining Shares not
Nominee Votes for against Votes Voted
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Kenneth J. Piechowski 2,084,414.554 0 26,673.576 419,711.870
George P. Bohnert, Jr. 2,084,414.554 0 26,673.576 419,711.870
John J. Plucinsky 2,084,414.554 0 26,673.576 419,711.870
</TABLE>
(ii) Establishment of directors fees for the period beginning May
1, 1996 and ending at the 1997 Annual Meeting of
Shareholders at $20,000 annually for the Chairman of the
Board, $600.00 per board meeting attended and $300.00 per
committee
22
<PAGE> 25
meeting attended. These fees would apply to board members
other than Mr. Perciak and Mr. Ziegler, who would not
receive remuneration for their services as board members.
The directors fees were approved as proposed and the record
of votes was as follows:
<TABLE>
<CAPTION>
Votes Abstaining Shares not
Votes for against Votes Voted
-------------------------------------------------------------------------
<S> <C> <C> <C>
2,045,199.788 39,443.697 26,444.685 419,711.830
</TABLE>
(iii) Amend the Bank's Articles of Incorporation, as amended, by
deleting the current Article Fifth in its entirety. Said
Article reads, "The amount of authorized capital of the
corporation is One Million Dollars ($1,000,000.00)."
The Articles of Incorporation were amended as proposed and
the record of votes was as follows:
<TABLE>
<CAPTION>
Votes Abstaining Shares not
Votes for against Votes Voted
-------------------------------------------------------------------------
<S> <C> <C> <C>
2,044,897.291 3,590.788 9,551.051 472,760.870
</TABLE>
(iv) Amend the Bank's Articles of Incorporation, as amended, and
Constitution adding a new Article Fifth of the Articles of
Incorporation and the first paragraph of Article VI, Section
1 of the constitution would be amended to clarify that The
Strongsville Savings Bank's Board of Directors shall be
divided into three classes, which would serve staggered
terms of three years each.
The Shares cast in favor of this item were insufficient,
therefore the proposal was defeated. The record of votes
was as follows:
<TABLE>
<CAPTION>
Votes Votes Abstaining Shares not
for against Votes Voted
-------------------------------------------------------------------------
<S> <C> <C> <C>
1,585,091.741 43,497.338 10,251.051 891,959.870
</TABLE>
23
<PAGE> 26
(v) Ratification of Deloitte & Touche LLP as the Bank's
independent auditors for the year ended December 31, 1996.
Deloitte & Touche LLP were ratified as proposed and the
record of votes was as follows:
<TABLE>
<CAPTION>
Votes Votes Abstaining Shares not
for against Votes Voted
-------------------------------------------------------------------------
<S> <C> <C> <C>
2,094,678.568 7,372.686 9,036.876 419,711.870
</TABLE>
(d) Not applicable.
24
<PAGE> 27
ITEM 5 EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Amended Articles of Incorporation
(b) No reports on Form 8-K were filed during the quarter.
25
<PAGE> 28
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
The Strongsville Savings Bank
-----------------------------
(Registrant)
Date August 12, 1996 /s/ THOMAS P. PERCIAK
------------------- -------------------------------------
Thomas P. Perciak,
President & Chief Executive Officer
Date August 12, 1996 /s/ JOHN F. ZIEGLER
------------------- -------------------------------------
John F. Ziegler,
Executive Vice President &
Chief Financial Officer
26
<PAGE> 1
EXHIBIT 99(IV)*
FORM 10-Q QUARTERLY REPORT OF THE STRONGSVILLE SAVINGS BANK FOR THE
QUARTER ENDED SEPTEMBER 30, 1996, AS FILED WITH THE OFFICE OF THRIFT SUPERVISION
* Upon completion of the holding company reorganization of The Strongsville
Savings Bank, which was accomplished by means of the merger of Emerald Interim
Savings Bank, a wholly owned subsidiary of Emerald Financial Corp., with and
into The Strongsville Savings Bank, The Strongsville Savings Bank became a
wholly owned subsidiary of Emerald Financial Corp., the Registrant. At that
time, the Registrant succeeded to the registration and reporting obligations of
The Strongsville Savings Bank pursuant to Rule 12g-3(a) under the Securities
Exchange Act of 1934. The Form 10-K Annual Report of The Strongsville Savings
Bank for the year ended December 31, 1995 and the Form 10-Q Quarterly Reports of
The Strongsville Savings Bank for the quarters ended March 31, June 30 and
September 30, 1996 attached as exhibits to this Form 8-A Registration Statement
complied as to form and content with the disclosure obligations established by
the Securities and Exchange Commission under the Securities Exchange Act of
1934.
<PAGE> 2
OFFICE OF THRIFT SUPERVISION
UNITED STATES DEPARTMENT OF THE TREASURY
Washington, DC 20552
- --------------------------------------------------------------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1996
[ ] TRANSITIONAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
-------------- -----------
OTS Docket Number: 6565
THE STRONGSVILLE SAVINGS BANK
-----------------------------
(Exact name of registrant as specified in its charter)
OHIO 34-0875093
- ------------------------------- -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
14092 PEARL ROAD
STRONGSVILLE, OHIO 44136
----------------------------- -----
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (216) 238-7311
CAPITAL STOCK, WITHOUT PAR VALUE
--------------------------------
Title of Class
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Capital Stock, No Par Value 2,530,800
- --------------------------------------------------------------------------------
(Class) (Outstanding at November 4, 1996)
<PAGE> 3
<TABLE>
<CAPTION>
THE STRONGSVILLE SAVINGS BANK
TABLE OF CONTENTS
-----------------
Part I. FINANCIAL INFORMATION PAGE
<S> <C> <C>
Item I. Financial Statements:
Consolidated Statements of Financial
Condition as of September 30, 1996, and
December 31, 1995.............................................................. 2
Consolidated Statements of Income for
the Three and Nine Month Periods Ended
September 30, 1996 and 1995.................................................... 3
Consolidated Statements of Cash Flows
for the Nine Month Periods Ended September
30, 1996 and 1995.............................................................. 4
Notes to Consolidated Financial Statements..................................... 5
Selected Financial Information........................................................... 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................................. 8
Tables......................................................................... 20
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................................... 23
SIGNATURES ...................................................................................... 24
</TABLE>
1
<PAGE> 4
THE STRONGSVILLE SAVINGS BANK
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
- -------------------------------------------------------------------------------------------------------------
(In thousands, except per share data)
<S> <C> <C>
ASSETS:
CASH AND CASH EQUIVALENTS
Cash and deposits with banks $ 3,044 $ 3,574
Interest bearing deposits with banks 3,071 11,935
INVESTMENT SECURITIES
Held-to-maturity (fair values of $39,006 and $49,640 at
September 30, 1996 and December 31, 1995, respectively) 39,120 49,354
Available for sale (at fair value) 17,709 26,595
MORTGAGE-BACKED SECURITIES
Held-to-maturity (fair values of $34,437 and $37,819 at
September 30, 1996 and December 31, 1995, respectively 34,062 37,256
Available for sale (at fair value) 5,412 14,749
LOANS-NET
(Including allowance for loan losses of $1,437 and $1,168 at
September 30, 1996 and December 31, 1995, respectively) 421,698 331,017
Loans held for sale 4,805 5,334
Accrued interest receivable 3,347 3,299
Federal Home Loan Bank stock-at cost 2,782 2,407
Premises and equipment-net 4,099 4,334
Prepaid expenses and other assets 3,042 2,243
- ----------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 542,191 $492,097
==========================================================================================================
LIABILITIES:
Deposits $ 474,561 $432,563
Federal Home Loan Bank Advances 17,288 13,333
Deferred federal income tax 1,400 1,583
Advance payments by borrowers 786 1,222
Accrued interest payable 479 425
Accounts payable and other 5,758 1,880
- ----------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 500,272 451,006
SHAREHOLDERS' EQUITY
Common stock, no par value, 10,000,000 shares authorized,
2,530,800 shares issued and outstanding 9,831 9,831
Fair value adjustment, net of tax effect (109) 196
Retained earnings 32,197 31,064
- ----------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 41,919 41,091
- ----------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 542,191 $492,097
==========================================================================================================
Shareholders' Equity per share $ 16.56 $ 16.24
Tangible Equity per share $ 16.24 $ 15.87
<FN>
See notes to consolidated financial statements
</TABLE>
2
<PAGE> 5
THE STRONGSVILLE SAVINGS BANK
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
INTEREST INOME
Loans $ 8,434 $ 6,771 $ 23,760 $ 19,331
Investment securities 888 1,278 2,941 3,775
Mortgage-backed securities 699 903 2,350 2,282
Other 88 189 344 610
- ------------------------------------------------------------------------------------------------------------------------
10,109 9,141 29,395 25,998
INTEREST EXPENSE
Deposits 6,007 5,416 17,238 14,864
Advances from the Federal Home Loan Bank 272 224 751 701
- ------------------------------------------------------------------------------------------------------------------------
6,279 5,640 17,989 15,565
- ------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 3,830 3,501 11,406 10,433
Provision for loan losses 285 87 313 131
- ------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 3,545 3,414 11,093 10,302
NON-INTEREST INCOME
Gain on sale of assets 418 280 679 725
Loan service fees 149 115 471 352
Other 178 149 505 407
- ------------------------------------------------------------------------------------------------------------------------
745 544 1,655 1,484
NON-INTEREST EXPENSE
Salaries and employee benefits 960 808 2,770 2,588
Net occupancy and equipment 394 370 1,139 1,037
Federal deposit insurance 251 218 734 620
Amortization of goodwill 33 36 100 106
Other 763 681 2,373 2,069
- ------------------------------------------------------------------------------------------------------------------------
Non-interest expense before one-time SAIF assessment 2,401 2,113 7,116 6,420
One-time SAIF assessment 2,481 - 2,481 -
- ------------------------------------------------------------------------------------------------------------------------
4,882 2,113 9,597 6,420
INCOME (LOSS) BEFORE FEDERAL INCOME TAXES (592) 1,845 3,151 5,366
Provision for (benefit of) federal income taxes (179) 640 1,132 1,863
- ------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ (413) $ 1,205 $ 2,019 $ 3,503
========================================================================================================================
Earnings (loss) per common share $ (0.16) $ 0.48 $ 0.80 $ 1.38
Weighted average number of common
shares outstanding 2,530,800 2,530,800 2,530,800 2,530,800
</TABLE>
See notes to consolidated financial statements
3
<PAGE> 6
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
1996 1995
- ---------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,019 $ 3,503
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Provision for loan losses 313 131
Gain from sale of assets (679) (713)
Accretion of discounts and other deferred yield items (1,638) (1,277)
Depreciation and amortization 610 611
Effect of change in accrued interest
receivable and payable 6 (576)
Federal Home Loan Bank stock dividends (136) (108)
Deferred federal income taxes (26) 426
Net change in other assets and liabilities 3,096 920
Net decrease (increase) in loans held for sale 805 (3,144)
- --------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 4,370 (227)
CASH FLOWS FROM INVESTING ACTIVITIES
Net increase in loans (89,519) (38,030)
Net decrease in investment securities 18,932 2,579
Net decrease (increase) in mortgage-backed securities 12,413 (14,683)
Sale of premises and equipment 640 -
Purchases of:
Premises and equipment (621) (1,323)
Federal Home Loan Bank Stock (239) (437)
- --------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (58,394) (51,894)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 41,997 60,527
Payments on advances from the Federal Home Loan Bank (54,695) (1,690)
Proceeds from advances from the Federal Home Loan Bank 58,650 -
Net decrease in escrows (436) (388)
Payment of dividends on common stock (886) (734)
- --------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 44,630 57,715
- --------------------------------------------------------------------------------------------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (9,394) 5,594
CASH AND CASH EQUIVALENTS, AT BEGINNING OF THE PERIOD 15,509 10,649
- --------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, AT END OF THE PERIOD $ 6,115 $ 16,243
==================================================================================================
<FN>
See notes to consolidated financial statements
</TABLE>
4
<PAGE> 7
THE STRONGSVILLE SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
--------------------
The Strongsville Savings Bank (Bank) conducts its principal activities
from its Community Financial Centers located in southwestern Cuyahoga, Lorain
and Medina counties. The Bank's principal activities include residential lending
and retail banking.
The Bank has called a Special Meeting of Shareholders on November 19,
1996. At this meeting shareholders will vote upon a proposal to adopt a holding
company structure for The Strongsville Savings Bank. Under this proposal the
Bank will become a wholly-owned subsidiary of a new holding company named
"Emerald Financial Corp." The establishment of a holding company will enhance
the Bank's ability to raise capital and would permit the Bank to diversify
operations into non-banking lines of business. Management currently has no plans
to acquire or establish other businesses, however, upon consummation of the
holding company reorganization, the Bank will be in a position to take immediate
advantage of any such opportunities which may arise.
2. BASIS OF PRESENTATION
---------------------
The consolidated financial statements of the Bank include the accounts
of the Bank and the accounts of its wholly owned subsidiary, Dennis Financial
Corporation. All significant inter-company transactions have been eliminated. In
the opinion of management, the accompanying unaudited financial statements
include all adjustments (consisting only of normal recurring adjustments) which
the Bank considers necessary for a fair presentation of (a) the results of
operations for the three and nine month periods ended September 30, 1996 and
1995; (b) the financial condition at September 30, 1996 and December 31, 1995;
and (c) the statements of cash flows for the nine month periods ended September
30, 1996 and 1995. The results of operations for the three and nine month
periods ended September 30, 1996 are not necessarily indicative of the results
that may be expected for a full year.
Certain prior period data has been reclassified to conform to the
current year presentation.
5
<PAGE> 8
3. STATEMENTS OF CASH FLOWS
------------------------
For purposes of the Statements of Cash Flows, the Bank considers all
cash and deposits with banks with maturities of less than three months to be
cash equivalents.
Income tax payments of $1,863,000 and $1,137,000 were made during the
nine month periods ended September 30, 1996 and 1995, respectively. Interest
paid totaled $17,935,000 and $15,463,000 for the nine month periods ended
September 30, 1996 and 1995, respectively. There were transfers from loans to
real estate owned of $117,000 during the nine months ended September 30, 1996.
No such transfers from loans to real estate owned occurred during the nine
months ended September 30, 1995. There were no loans made to finance the sale of
real estate owned during the nine month periods ended September 30, 1996 and
1995, respectively.
4. EARNINGS PER SHARE
------------------
Earnings per share are calculated using the weighted average number of
shares of capital stock outstanding for the period.
5. NEW ACCOUNTING STANDARDS
------------------------
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
requires that long-lived assets and certain identifiable intangibles be reviewed
for impairment whenever events or changes in circumstances indicate the carrying
value of these assets may not be recoverable.
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 123, Accounting for
Stock-Based Compensation, encourages, but does not require, adoption of a
fair-value based accounting method for employee stock-based compensation
arrangements. Management has elected to continue to use the Accounting
Principles Board Opinion 25, Accounting for Stock Issued to Employees, intrinsic
value method for measurement and recognition of stock-based compensation.
These statements were adopted January 1, 1996, and did not have a
material effect on the Bank's consolidated financial statements.
6
<PAGE> 9
<TABLE>
<CAPTION>
SELECTED FINANCIAL INFORMATION
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
Unaudited
(Dollars in thousands, except per-share data)
<S> <C> <C> <C> <C>
ANNUALIZED RETURNS AND OPERATING RATIOS
EXCLUDING ONE-TIME SAIF ASSESSMENT
Earnings per share $ 0.48 $ 0.48 $ 1.44 $ 1.38
Return on Average Assets 0.91% 1.02% 0.95% 1.04%
Return on Average Equity 11.49% 12.19% 11.55% 12.10%
Noninterest expense to
average assets 1.77% 1.77% 1.81% 1.87%
Efficiency ratio 56.98% 54.81% 56.66% 56.22%
OTHER SELECTED FINANCIAL RATIOS
Interest rate spread 2.56% 2.64% 2.65% 2.79%
Net yield on interest-earning assets 2.93% 3.05% 3.03% 3.17%
Yield on average interest-earning assets 7.74% 7.96% 7.80% 7.90%
Cost of average interest-bearing liabilities 5.18% 5.32% 5.15% 5.11%
Non-performing loans to total loans 0.51% 0.60% 0.51% 0.60%
Non-performing assets to total assets 0.42% 0.40% 0.42% 0.40%
Net recoveries (charge-offs) to average loans (0.02%) 0.00% (0.02%) 0.00%
Capital ratios:
Tangible capital ratio 7.61% 8.10% 7.61% 8.10%
Core capital ratio 7.61% 8.10% 7.61% 8.10%
Risk-based capital ratio 12.77% 13.31% 12.77% 13.31%
Dividends per share $ 0.12 $ 0.11 $ 0.35 $ 0.29
Annualized asset growth 9.83% 17.77% 13.57% 20.07%
Average total assets $ 535,617 $ 470,807 $ 515,775 $ 449,862
Average loans, net (includes held for sale) 416,668 312,511 383,679 297,634
Average interest-earning assets 522,241 459,270 502,378 438,538
Average deposits 466,385 409,951 448,766 391,051
Average advances from the FHLB 18,313 14,115 17,086 14,705
Average shareholders' equity 42,622 39,552 42,193 38,596
</TABLE>
7
<PAGE> 10
Part I, Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
- -------
The Strongsville Savings Bank (Bank) was founded in 1961 as an
Ohio-chartered, federally insured savings association whose business activities
are concentrated in the greater Cleveland, Ohio area. The Bank conducts its
business through its home office in Strongsville and its thirteen full-service
Community Financial Centers located in Cuyahoga, Lorain and Medina counties.
The principal business of the Bank has historically been attracting
deposits from the general public and making loans secured by first mortgage
liens on residential and other real estate. The Bank and the banking industry in
general are significantly affected by prevailing economic conditions, the
general level and trend of interest rates as well as by government policies and
regulations concerning, among other things, fiscal affairs, housing and
financial institutions.
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- ---------------------------------------------
The Bank's total assets at September 30, 1996, were $542.2 million,
representing an increase of $50.1 million, or 13.6%, annualized, for the nine
month period and of $59.8 million, or 12.4% for the twelve month period ended
September 30, 1996. The increase in assets was primarily due to increases in
mortgage loans. The Bank's loan portfolio increased $90.2 million during the
nine month period and $101.7 million during the twelve month period ended
September 30, 1996. The increases in loans were funded by increases in deposits
and decreases in investment securities and other liquid assets.
The Bank's deposits were $474.6 million at September 30, 1996,
representing an increase of $42.0 million, or 12.9%, annualized, during the nine
month period and of $51.0 million, or 12.0% during the twelve month period ended
September 30, 1996.
Net interest income was $3.8 million for the quarter ended September
30, 1996, an increase of $0.3 million over the third quarter of 1995. The
increase in net interest-earning assets caused the improvement; however, the
impact of the increase in interest earning assets was offset by a reduction in
interest rate spread. Average interest-earning assets increased $62.9 million
from $459.3 million for the third quarter of 1995 to $522.2 million for the
third quarter of 1996. The Bank's interest rate spread decreased 8 basis points
from 2.64% during the third quarter of 1995 to 2.56% during the third quarter of
1996.
8
<PAGE> 11
The net loss for the third quarter of 1996 was caused by a special
one-time FDIC assessment on all institutions insured by the Savings Association
Insurance Fund (SAIF) fund of the Federal Deposit Insurance Corporation (FDIC).
This assessment was enacted by the Congress and the President of the United
States of America on September 30, 1996 and, accordingly, was recognized as a
charge to earnings on that date. The Bank's earnings were charged $2.5 million
before federal income taxes as a result of this special SAIF assessment.
Net loss for the third quarter of 1996 was $0.4 million after
recognizing the impact of the one-time SAIF assessment. Net income would have
been $1.2 million for the third quarter of 1996 without the one-time SAIF
assessment, which is comparable to the $1.2 million for the same period in 1995.
Increases in net interest income and gains on sales of assets offset by
increases in the provision for loan losses and operating expenses resulted in
the flat earnings between the third quarters of 1996 and 1995.
Net income for the nine months ended September 30, 1996 was $2.0
million after recognizing the impact of the one-time SAIF assessment. Net income
would have been $3.7 million for the third quarter of 1996 without the one-time
SAIF assessment, representing an increase of $0.2 million over the $3.5 million
for the same period in 1995. Net interest income offset by increases in the
provision for loan losses and operating expenses resulted in the increase.
9
<PAGE> 12
Tables 1a and 1b present information regarding the average balances of
interest-earning assets and interest-bearing liabilities, the total dollar
amount of interest income from interest-earning assets and their average yields
and the total dollar amount of interest expense on interest-bearing liabilities
and their average rates. Tables 1a and 1b also present net interest income,
interest-rate spread, net interest margin and the ratio of average
interest-earning assets to average interest-bearing liabilities. Interest-rate
spread represents the difference between the weighted average yield on
interest-earning assets and the weighted average cost of interest-bearing
liabilities. Net interest margin represents net interest income as a percent of
average interest-earning assets. Average balance calculations were based on
daily and monthly balances. Assets available for sale are included in the major
asset category as if they were held-to-maturity.
<TABLE>
<CAPTION>
TABLE 1a
AVERAGE BALANCE TABLE
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
1996 1995
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE
- --------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS
Loans, net (1) $416,668 $8,434 8.10% $312,511 $6,771 8.67%
Investment securities 57,617 888 6.17% 81,593 1,278 6.27%
Mortgage-backed securities 40,398 699 6.92% 51,223 903 7.05%
Other interest-earning assets 7,558 88 4.68% 13,943 189 5.42%
- --------------------------------------------------------------------------------------------------------------
Total interest-earning assets 522,241 10,109 7.74% 459,270 9,141 7.96%
Noninterest-earning assets 13,376 11,537
- --------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $535,617 $470,807
==============================================================================================================
INTEREST-BEARING LIABILITIES
Deposits (2) $466,385 $6,007 5.15% $409,951 $5,416 5.28%
Advances from FHLB 18,313 272 5.94% 14,115 224 6.36%
- --------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilitie 484,698 6,279 5.18% 424,066 5,640 5.32%
Noninterest-bearing liabilities 8,297 7,189
Shareholders' equity 42,622 39,552
- --------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $535,617 $470,807
==============================================================================================================
Net interest income $3,830 $3,501
Interest-rate spread 2.56% 2.64%
Net interest margin 2.93% 3.05%
Ratio of average Interest-
earning assets to average
interest-bearing liabilities 107.75% 108.30%
<FN>
(1) Average balances include non-accrual loans. Interest income includes
deferred loan fee amortization of $404,000 and $391,000 for the three
months ended September 30, 1996 and 1995, respectively.
(2) Deposits include noninterest-bearing demand accounts which were $10,231,000
and $10,602,000 at September 30, 1996 and 1995, respectively.
</TABLE>
10
<PAGE> 13
<TABLE>
<CAPTION>
TABLE 1b
AVERAGE BALANCE TABLE
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1996 1995
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE
- ---------------------------------------------------------------------------------------------------------------------------
(Dollars In thousands)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS
Loans, net (1) $383,679 $23,759 8.26% $297,634 $19,331 8.66%
Investment securities 64,652 2,942 6.07% 81,943 3,775 6.14%
Mortgage-backed securities 45,118 2,349 6.94% 43,480 2,282 7.00%
Other interest-earning assets 8,929 345 5.14% 15,481 610 5.26%
- ---------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 502,378 29,395 7.80% 438,538 25,998 7.90%
Noninterest-earning assets 13,397 11,324
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $515,775 $449,862
===========================================================================================================================
INTEREST-BEARING LIABILITIES
Deposits (2) $448,766 17,238 5.12% $391,051 14,864 5.07%
Advances from FHLB 17,086 751 5.86% 14,705 701 6.35%
- ---------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 465,852 17,989 5.15% 405,756 15,565 5.11%
Noninterest-bearing liabilities 7,730 5,510
Shareholders' equity 42,193 38,596
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $515,775 $449,862
===========================================================================================================================
Net interest income $11,406 $10,433
Interest-rate spread 2.65% 2.79%
Net interest margin 3.03% 3.17%
Ratio of average interest-
earning assets to average
interest-bearing liabilities 107.84% 108.08%
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Average balances include non-accrual loans. Interest income includes
deferred loan fee amortization of $1,195,000 and $1,270,000 for the nine
months ended September 30, 1996 and 1995, respectively.
(2) Deposits include noninterest-bearing demand accounts which were $10,231,000
and $10,602,000 at September 30, 1996 and 1995, respectively.
</TABLE>
11
<PAGE> 14
Table 2 presents certain information regarding changes in interest income and
interest expense of the Bank for the three month and nine month periods ended
September 30, 1996 and 1995. The table shows the changes in interest income and
interest expense by major category attributable to changes in the average
balance (volume) and the changes in interest rates. The net change not
attributable to either rate or volume is allocated on a prorata basis to the
change in rate or volume. Assets available for sale are included in the major
asset category as if they were held-to-maturity.
<TABLE>
<CAPTION>
TABLE 2
RATE/VOLUME TABLE
QUARTER ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
1996 COMPARED TO 1995 1996 COMPARED TO 1995
INCREASE (DECREASE) DUE TO CHANGES INCREASE (DECREASE) DUE TO CHANGES IN:
VOLUME RATE TOTAL VOLUME RATE TOTAL
- ----------------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME ON INTEREST-EARNING ASSETS
Loans, net $ 2,071 ($408) $ 1,663 $ 5,271 $ (842) $ 4,429
Investment securities (370) (20) (390) (791) (43) (834)
Mortgage-backed securities (188) (16) (204) 87 (19) 68
Other (78) (23) (101) (252) (14) (266)
- ----------------------------------------------------------------------------------------------------------------------------------
Total 1,435 (467) 968 4,315 (918) 3,397
- ----------------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE ON INTEREST-BEARING LIABILITIES
Deposits 720 (129) 591 2,225 149 2,374
Advances from FHLB 61 (13) 48 96 (46) 50
- ----------------------------------------------------------------------------------------------------------------------------------
Total 781 (142) 639 2,321 103 2,424
- ----------------------------------------------------------------------------------------------------------------------------------
CHANGE IN NET INTEREST INCOME $ 654 ($325) $ 329 $ 1,994 ($1,021) $ 973
===================================================================================================================================
</TABLE>
12
<PAGE> 15
NET INTEREST INCOME
- --------------------------------------------------------------------------------
Net interest income is the primary component of net income and is
determined by characteristics of the Bank's interest-earning assets and
interest-bearing liabilities, including the spread, or the difference between
the yields earned and the rates paid on those assets and liabilities. Net
interest income is the difference between interest income and interest expense.
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, 1996 September 30, 1996
---------------------------------------
(Dollars in thousands)
<S> <C> <C>
Net interest income:
Current period $3,830 $11,406
Prior period 3,501 10,433
-----------------------------
Dollar increase from prior period $ 329 $ 973
-----------------------------
Percent increase from prior period 9.41% 9.33%
=============================
</TABLE>
Interest income
- ---------------
Interest income for the three months ended September 30, 1996 was $10.1
million, compared to $9.1 million for the third quarter of 1995, an increase of
$1.0 million or 10.59%. This increase was primarily due to the increase in
average interest-earning assets as demonstrated on Table 1a. Average
interest-earning assets increased to $522.2 million for the third quarter of
1996 from $459.3 million for the third quarter of 1995. The effect of the
increase in interest-earning assets was offset somewhat by the 22 basis point
decline in the average yield on interest-earning assets to 7.74% for the third
quarter of 1996 from 7.96% for the like period in 1995.
Interest income for the nine months ended September 30, 1996 was $29.4
million, compared to $26.0 million for the first nine months of 1995, an
increase of $3.4 million or 13.07%. This increase was primarily due to the
increase in average interest-earning assets as demonstrated on Table 1b. Average
interest-earning assets increased to $502.4 million for the first nine months of
1996 from $438.5 million for the first nine months of 1995. The effect of the
increase in interest-earning assets was offset somewhat by the 10 basis point
decline in the average yield on interest-earning assets to 7.80% for the first
nine months of 1996 from 7.90% for the like period in 1995.
Interest expense
- ----------------
Interest expense increased $0.6 million during the quarter ended
September 30, 1996 compared to the same period in 1995 primarily due to an
increase in average interest-bearing liabilities of $60.6 million, or 14.29%,
offset somewhat by a decrease in the average cost of interest-bearing
liabilities. Average interest-bearing liabilities were $484.7 million and $424.1
million for the
13
<PAGE> 16
third quarter of 1996 and 1995, respectively. The average cost of
interest-bearing liabilities decreased 14 basis points to 5.18% for the third
quarter of 1996 from 5.32% for the same period in 1995.
Interest expense increased $2.4 million during the nine months ended
September 30, 1996 compared to the same period in 1995 primarily due to an
increase in average interest-bearing liabilities of $60.1 million, or 14.81%,
and by an increase in the average cost of interest-bearing liabilities. Average
interest-bearing liabilities were $465.9 million and $405.8 million for the
first nine months of 1996 and 1995, respectively. The average cost of
interest-bearing liabilities increased 4 basis points to 5.15% for the first
nine months of 1996 from 5.11% for the same period in 1995.
Provision for loan losses
- -------------------------
The provision for loan losses for the three months ended September 30,
1996 was $285,000 compared to $87,000 for the same period in 1995. The 1996
quarter's provision for loan losses was increased due to the overall increase in
the loan portfolio. The ratio of allowance for loan losses to total loans was
0.34% at September 30, 1996. The provision for both periods were commensurate
with management's estimate of the credit risk in the loan portfolio. Economic
conditions in the Bank's market area were stable.
Further discussion and other information relating to loan losses and
nonperforming assets are included in the section titled "Asset Quality."
NON-INTEREST INCOME
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, 1996 September 30, 1996
---------------------------------------
(Dollars in thousands)
<S> <C> <C>
Non-interest income:
Current period $745 $1,655
Prior period 544 1,484
--------------------------
Dollar increase from prior period $201 $ 171
--------------------------
Percent increase from prior period 36.85% 11.48%
==========================
</TABLE>
Non-interest income consists primarily of fees earned for servicing
loans and providing services for customers and the gain on the sale of assets.
14
<PAGE> 17
NON-INTEREST EXPENSE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, 1996 September 30, 1996
---------------------------------------
(Dollars in thousands)
<S> <C> <C>
Non-interest expense before one-
time SAIF assessment:
Current period $2,401 $7,116
Prior period 2,113 6,420
----------------------------
Dollar increase from prior period $ 288 $ 696
----------------------------
Percent increase from prior period 13.64% 10.84%
============================
</TABLE>
The increase in non-interest expense is primarily due to the Bank's
growth and the resulting increase in the number of employees. Net occupancy,
deposit insurance and franchise tax expense also increased as a result of the
Bank's growth. Despite the dollar increase in non-interest expense, the Bank's
efficiency ratio for the quarter ended September 30, 1996 was 56.98% and for the
first nine months of 1996 was 56.66%.
SPECIAL ONE-TIME FDIC SAIF FUND ASSESSMENT
- --------------------------------------------------------------------------------
The Bank's deposits are insured by the Savings Association Insurance
Fund (SAIF) of the Federal Deposit Insurance Corporation (FDIC). The Congress
voted for and the president signed into law the Omnibus Appropriations Bill (the
Bill) on September 30, 1996. The Bill included the recapitalization of the
FDIC's SAIF fund by requiring all SAIF insured institutions to pay a special
one-time assessment. The Bank's pre-tax charge to income on September 30, 1996
as a result of the recapitalization of the SAIF fund was $2.5 million.
The recapitalization of the SAIF fund is expected to result in
significant future savings to the Bank in the form of reduced deposit insurance
expense. The annual savings are expected to begin on January 1, 1997 and are
expected to be approximately $500,000, or 19(cents) per share, after taxes.
FEDERAL INCOME TAXES
- --------------------------------------------------------------------------------
The Bank realized a benefit from federal income tax of $179,000 for the
third quarter of 1996 and provided $1,132,000 for federal income tax for the
nine month period ended September 30, 1996. Similarly, the Bank provided
$640,000 and $1,863,000 for federal income tax for the three and nine month
periods ended September 30, 1995, respectively. The Bank's provisions for income
tax were based on net income (loss) before the provision for (benefit of) income
tax for the periods discussed herein.
15
<PAGE> 18
FINANCIAL RESOURCES AND LIQUIDITY
- --------------------------------------------------------------------------------
The Bank's primary sources of funds are deposits, principal and
interest payments on loans, maturities of investment securities, proceeds from
the sale of loans and funds generated through earnings. The primary uses for
such funds are to originate loans, maintain liquidity requirements and manage
interest rate risk.
For an analysis of the cash flows of the Bank, refer to the
Consolidated Statements of Cash Flows on page 3. Management believes the Bank
has adequate resources to meet its normal funding requirements.
The Bank is required to maintain an average daily balance of liquid
assets equal to 5% of the sum of its average daily balance of net withdrawable
accounts and borrowed funds due in one year or less. The Bank's September 1996
monthly average of eligible liquid assets was 13.04%.
SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------
Shareholders' equity was $41.9 million at September 30, 1996, an
increase of $0.8 million, or 2.69%, annualized, during the first nine months of
1996. This increase was primarily the result of net income offset by dividends
paid. The Bank paid dividends in the first nine months of 1996 of 35(cents) per
share, an increase of 20.69% over the 29(cents) per share dividends paid in the
first nine months of 1995.
The Bank's return on average assets excluding the one-time SAIF
assessment for the three and nine month periods ended September 30, 1996 were
0.91% and 0.95%, respectively. Return on average equity excluding the one-time
SAIF assessment for the three and nine month periods ended September 30, 1996
were 11.49% and 11.55%, respectively.
16
<PAGE> 19
At September 30, 1996, the Bank was in excess of all capital
requirements specified by federal regulations as shown by the following table.
<TABLE>
<CAPTION>
TANGIBLE CORE RISK-BASED
CAPITAL CAPITAL CAPITAL
-------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Capital amount -- Actual $ 41,208 $ 41,208 $ 42,633
Capital amount -- Required 8,124 16,247 26,704
------------------------------------------------
Amount in excess of requirement $ 33,084 $ 24,961 $ 15,929
================================================
Capital ratio -- Actual 7.61% 7.61% 12.77%
Capital ratio -- Required 1.50% 3.00% 8.00%
------------------------------------------------
Amount in excess of requirement 6.11% 4.61% 4.77%
================================================
</TABLE>
The Bank's capital levels at September 30, 1996, qualify it as a
"well-capitalized" institution, the highest of five tiers under applicable
federal definitions.
QUALIFIED THRIFT LENDER TEST
- --------------------------------------------------------------------------------
Savings associations insured by the Savings Association Insurance Fund
are required to maintain 65% of total portfolio assets in Qualified Thrift
Investments. As of September 30, 1996, the Bank had 91.52% of total assets
invested in Qualified Thrift Investments.
17
<PAGE> 20
ASSET QUALITY
- ------------------------------------------------------------------------------
Table 3 sets forth information regarding non-performing assets at
September 30, 1996, December 31, 1995 and September 30, 1995.
<TABLE>
<CAPTION>
TABLE 3
NON-PERFORMING ASSETS ANALYSIS
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
1996 1995 1995
- --------------------------------------------------------------------------------------
NON-ACCRUING LOANS: (Dollars In thousands)
<S> <C> <C> <C>
1-4 family - permanent $ 247 $ 52 $ 52
1-4 family - construction -- -- --
Multi-family and Commercial
real estate -- -- 516
Land and development -- -- --
Commercial non-real estate 69 70 12
Consumer and other 17 24 31
- --------------------------------------------------------------------------------------
Total 333 146 611
LOANS DELINQUENT 90 DAYS OR MORE
AND STILL ACCRUING:
1-4 family - permanent 1,225 1,906 1,262
1-4 family - construction 625 -- --
Multi-family and Commercial
real estate -- -- --
Land and development -- -- --
Commercial non-real estate -- -- 58
Consumer and other 1 -- 4
- --------------------------------------------------------------------------------------
Total 1,851 1,906 1,324
Total non-performing loans 2,184 2,052 1,935
Real estate owned 117 - -
- --------------------------------------------------------------------------------------
Total non-performing assets $2,301 $2,052 $1,935
======================================================================================
Allowances for loan losses $1,437 $1,168 $1,075
======================================================================================
Non-performing loans to total loans-net 0.51% 0.61% 0.60%
Non-performing assets to total assets 0.42% 0.42% 0.40%
Allowance for loan losses to ending
loan balance (before allowance) 0.34% 0.35% 0.33%
Allowance for loan losses to
non-performing loans 65.79% 56.91% 55.56%
</TABLE>
At September 30, 1996, there were two loans secured by funeral homes to
a single borrower totaling $1.1 million which are not included in Table 3.
Indications of possible cash flow problems have caused management concern
regarding the borrower's ability to comply with present loan repayment terms and
may result in the classification of these loans as non-performing in the future.
Based on written opinions from an independent fee appraiser, the collateral
values of the properties are sufficient to cover the total outstanding debt.
18
<PAGE> 21
Table 4 presents information concerning activity in the Bank's
allowance for loan losses during the three and nine month periods ended
September 30, 1996 and 1995.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Table 4
ACTIVITY IN THE ALLOWANCE FOR LOAN LOSSES
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Allowance at the beginning of the period $ 1,170 $ 988 $ 1,168 $ 948
Provision charged to expense 285 87 313 131
Charge-offs:
- ------------
1-4 family - permanent - - - -
1-4 family - construction - - - -
Multi-family and Commercial
real estate - - - -
Land and development - - - -
Commercial non-real estate - 1 - 1
Consumer and other 22 0 49 5
- ---------------------------------------------------------------------------------------------------------------
22 1 49 6
Recoveries
- ----------
1-4 family - permanent - - - -
1-4 family - construction - - - -
Multi-family and Commercial
real estate - - - -
Land and development - - - -
Commercial non-real estate - - - -
Consumer and other 4 1 5 2
- ---------------------------------------------------------------------------------------------------------------
4 1 5 2
- ---------------------------------------------------------------------------------------------------------------
Net recoveries (charge-offs) (18) - (44) (4)
- ---------------------------------------------------------------------------------------------------------------
Allowance at the end of the period $ 1,437 $ 1,075 $ 1,437 $ 1,075
===============================================================================================================
Net charge-offs during the period
to average loans outstanding
during the period (Annualized) 0.02% 0.00% 0.02% 0.00%
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
The amount of the allowance for loan losses is based on management's
analysis of risks inherent in the various segments of the loan portfolio,
management's assessment of known or potential problem credits which have come to
management's attention during the ongoing analysis of credit quality, historical
loss experience, current economic conditions, and other factors. Loan loss
estimates are reviewed periodically, and adjustments, if any, are reported in
earnings in the period in which they become known.
19
<PAGE> 22
<TABLE>
<CAPTION>
TABLE A
Table A sets forth the composition of the Bank's loan portfolio at
September 30, 1996, December 31, 1995, and September 30, 1995.
- ---------------------------------------------------------------------------------------------------------------------------
LOAN PORTFOLIO COMPOSITION
SEPTEMBER 30, 1996 DECEMBER 31, 1995 SEPTEMBER 30, 1995
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
- ---------------------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
REAL ESTATE MORTGAGE LOANS:
Permanent first mortgage loans:
1-4 family $ 302,293 71.68% $ 220,490 66.61% $ 215,426 67.02%
Multi-family 1,079 0.26% 1,183 0.36% 1,212 0.38%
Commercial real estate 42,936 10.18% 42,098 12.72% 41,481 12.91%
Land 289 0.07% 358 0.11% 1,705 0.53%
Construction first mortgage loans:
Residential development 55,379 13.12% 48,538 14.66% 47,130 14.66%
1-4 family 38,426 9.11% 26,960 8.14% 28,041 8.72%
Multi-family 680 0.16% 2,660 0.80% 2,019 0.63%
Commercial real estate 5,949 1.42% 4,233 1.28% 3,198 0.99%
- ---------------------------------------------------------------------------------------------------------------------------
Total mortgage loans 447,031 106.00% 346,520 104.68% 340,212 105.84%
OTHER LOANS
Commercial 3,997 0.95% 3,955 1.19% 4,257 1.32%
Consumer 8,764 2.08% 8,895 2.69% 8,679 2.70%
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL OTHER LOANS 12,761 3.03% 12,850 3.88% 12,936 4.02%
- ---------------------------------------------------------------------------------------------------------------------------
Total loans 459,792 109.03% 359,370 108.56% 353,148 109.86%
Less:
Loans in process 32,323 7.66% 23,639 7.14% 26,969 8.39%
Allowance for loan losses 1,437 0.34% 1,168 0.35% 1,075 0.33%
Deferred yield items 4,334 1.03% 3,546 1.07% 3,665 1.14%
- ---------------------------------------------------------------------------------------------------------------------------
38,094 9.03% 28,353 8.56% 31,709 9.86%
- ---------------------------------------------------------------------------------------------------------------------------
Total loans held for investment-Net $ 421,698 100.00% $ 331,017 100.00% $ 321,439 100.00%
===========================================================================================================================
Real estate loans held for sale $ 4,805 $ 5,334 $ 3,410
===========================================================================================================================
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE> 23
TABLE B
Table B sets forth the activities in the Bank's loan portfolio for the
three and nine month periods ended September 30, 1996 and 1995.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
ACTIVITY IN THE LOAN PORTFOLIO
FOR THE QUARTER ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
- --------------------------------------------------------------------------------------------------------
(In thousands)
PERMANENT MORTGAGE LOAN ORIGINATIONS
<S> <C> <C> <C> <C>
1-4 family $33,726 $14,444 $123,156 $23,249
Multi-family - - - -
Commercial real estate 1,643 1,287 4,408 1,343
Land 575 33 575 108
- --------------------------------------------------------------------------------------------------------
35,944 15,764 128,139 24,700
CONSTRUCTION FIRST MORTGAGE LOAN ORIGINATIONS
Residential development 9,417 17,418 35,897 23,725
1-4 family 10,695 11,792 36,623 19,117
Multi-family - - - -
Commercial real estate 1,054 1,360 2,479 1,735
- --------------------------------------------------------------------------------------------------------
21,166 30,570 74,999 44,577
NONMORTGAGE LOANS
Commercial 430 867 1,604 1,578
Consumer 1,314 1,461 2,784 2,587
- --------------------------------------------------------------------------------------------------------
1,744 2,328 4,388 4,165
- --------------------------------------------------------------------------------------------------------
TOTAL LOAN ORIGINATIONS 58,854 48,662 207,526 73,442
PURCHASED LOANS
Commercial real estate 1,650 700 1,650 700
- --------------------------------------------------------------------------------------------------------
TOTAL NEW LOANS 60,504 49,362 209,176 74,142
LESS
Principal repayments 33,141 22,927 89,217 40,224
Loan sales 11,696 5,785 20,042 11,201
- --------------------------------------------------------------------------------------------------------
44,837 28,712 109,259 51,425
- --------------------------------------------------------------------------------------------------------
NET INCREASE IN LOANS $15,667 $20,650 $99,917 $22,717
========================================================================================================
</TABLE>
21
<PAGE> 24
<TABLE>
<CAPTION>
TABLE C
Table C sets forth the composition of the Bank's deposits by interest
rate category at September 30, 1996, December 31, 1995, and September 30, 1995.
DEPOSIT COMPOSITION
----------------------------------------------------------------------------------------
SEPTEMBER 30, 1996 DECEMBER 31, 1995 SEPTEMBER 31, 1995
WTD AVG WTD AVG WTD AVG
COST AMOUNT PERCENT COST AMOUNT PERCENT COST AMOUNT PERCENT
- --------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Passbook accounts 2.89% $46,668 9.83% 2.88% $47,423 10.96% 2.88% $47,010 11.10%
NOW accounts 2.02% 27,858 5.87% 2.02% 26,025 6.02% 2.02% 24,146 5.70%
Money market deposit accounts 2.53% 18,646 3.93% 2.53% 23,014 5.32% 2.53% 24,570 5.80%
Commercial accounts 0.00% 10,231 2.16% 0.00% 11,728 2.71% 0.00% 10,602 2.50%
- --------------------------------------------------------------------------------------------------------------------
2.31% 103,403 21.79% 2.29% 108,190 25.01% 2.32% 106,328 25.10%
Certificates of deposit:
4.50% and less 2.55% 2,063 0.43% 3.03% 4,454 1.03% 3.08% 5,513 1.30%
4.51% to 5.50% 5.37% 120,555 25.41% 5.27% 77,802 17.99% 5.23% 73,102 17.26%
5.51% to 6.50% 6.02% 163,925 34.54% 6.03% 120,175 27.78% 6.10% 115,001 27.15%
6.51% to 7.50% 7.31% 75,512 15.91% 7.22% 108,282 25.03% 7.22% 108,148 25.53%
7.51% and greater 8.84% 9,103 1.92% 9.01% 13,660 3.16% 9.05% 15,485 3.66%
- --------------------------------------------------------------------------------------------------------------------
6.12% 371,158 78.21% 6.33% 324,373 74.99% 6.37% 317,249 74.90%
- --------------------------------------------------------------------------------------------------------------------
TOTAL DEPOSITS 5.29% $474,561 100.00% 5.32% $432,563 100.00% 5.35% $423,577 100.00%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE> 25
PART II
ITEM 4 Submission of Matters to a Vote of Security Holders
----------------------------------------------------
There were no items submitted to a vote by security holders during
the quarter.
ITEM 5 Exhibits and Reports on Form 8-K
--------------------------------
(a) Not applicable
(b) No reports on Form 8-K were filed during the quarter.
<PAGE> 26
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
The Strongsville Savings Bank
-----------------------------
(Registrant)
Date November 4, 1996 /s/ THOMAS P. PERCIAK
------------------ -----------------------------------
Thomas P. Perciak,
President & Chief Executive Officer
Date November 4, 1996 /s/ JOHN F. ZIEGLER
---------------- -----------------------------------
John F. Ziegler,
Executive Vice President &
Chief Financial Officer
24
