UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________________ to _______________
Commission file number 0-22034
WOOD BANCORP, INC.
- --------------------------------------------------------------------------------
(Name of small business issuer as specified in its charter)
Delaware 34-1742860
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
124 East Court, Bowling Green, Ohio 43402-2259
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (419) 352-3502
Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
--------------------------------------
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the issuer was required to file such reports), and (2) has
been subject to such requirements for the past 90 days. YES [ X ] NO [ ]
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained herein, and no disclosure will 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-KSB
or any amendment to this Form 10-KSB. [ ]
State the issuer's revenues for its most recent fiscal year: $13,219,894.
<PAGE>
The aggregate market value of the voting stock held by non-affiliates
of the registrant, computed by reference to the average of the bid and asked
prices of such stock on the Nasdaq Stock Market as of September 15, 1997, was
$37,339,232. (The exclusion from such amount of the market value of the shares
owned by any person shall not be deemed an admission by the registrant that such
person is an affiliate of the registrant.)
As of September 15, 1997, there were issued and outstanding 2,118,538
shares of the Registrant's Common Stock (including 85,374 shares of restricted
stock issued pursuant to the Registrant's Recognition and Retention Plan).
DOCUMENTS INCORPORATED BY REFERENCE
Part II of Form 10-KSB - Annual Report to Stockholders for the
fiscal year ended June 30, 1997.
Part III of Form 10-KSB - Proxy Statement for 1997 Annual
Meeting of Stockholders.
Transitional Small Business Disclosure Format: YES [ ] NO [ X ]
<PAGE>
PART I
Item 1. Description of Business
General
Wood Bancorp, Inc. (the "Company") is a Delaware corporation which was
formed at the direction of First Federal Bank ("First Federal" or the "Bank") in
May 1993 for the purpose of becoming the savings and loan holding company of
First Federal (the "Conversion"). At June 30, 1997, the Company had total assets
of $163.9 million, deposits of $120.5 million, and shareholder's equity of $20.2
million. All references to the Company at or before August 31, 1993 refer to
First Federal.
First Federal is a federally chartered stock savings and loan
association headquartered in Bowling Green, Ohio. First Federal was originally
organized in 1923 as a state chartered savings institution and, in 1937,
converted to a federal savings and loan association. First Federal has been, and
intends to continue to be, a community-oriented financial institution offering a
variety of financial services to meet the needs of the communities it serves.
The Bank attracts deposits from the general public and uses such deposits,
together with borrowings and other funds, to originate one- to four-family
residential mortgage loans and short-term consumer loans. The Bank also
originates residential construction loans in its market area and commercial
loans and loans secured by multi-family and non-residential real estate. At June
30, 1997, substantially all of the Bank's real estate mortgage loans (excluding
mortgage-backed securities) and consumer loans were secured by properties or
collateral located in northwest Ohio. See generally "Lending Activities."
The Bank also invests in mortgage-backed securities, most of which are
insured or guaranteed by federal agencies as well as securities issued by the
U.S. government or agencies thereof. See "Investment Activities."
Like all federally chartered savings associations, First Federal's
operations are regulated by the Office of Thrift Supervision (the "OTS"). First
Federal is a member of the Federal Home Loan Bank System ("FHLB System") and a
stockholder in the Federal Home Loan Bank ("FHLB") of Cincinnati. The Bank is
also a member of the Savings Association Insurance Fund ("SAIF") and its deposit
accounts are insured up to applicable limits by the Federal Deposit Insurance
Corporation ("FDIC"). See "Regulation."
The Bank's revenues are derived primarily from interest on mortgage
loans, consumer and commercial loans, mortgage-backed securities, investments,
income from service charges, and loan origination fees. The Bank does not
originate loans to fund leveraged buyouts, has no loans to foreign corporations
or governments and is not engaged in land development or construction activities
through joint ventures or subsidiaries.
The Bank offers a variety of deposit accounts having a wide range of
interest rates and terms, which generally include passbook accounts, NOW, money
market checking and regular checking accounts, and certificate accounts with
terms of 91 days to 60 months. The Bank primarily solicits deposits in its
primary market area and does not accept brokered deposits. However, in June
1997, the Bank began using a national listing service to attract additional
deposits.
Market Area
The main office of the Bank is located in Bowling Green, Ohio, which is
located in Wood County, Ohio. The Bank operates seven offices: two in Bowling
Green, and one in each of Grand Rapids, North Baltimore, Rossford, Woodville and
Pemberville. All branches are located in Wood County with the exception of the
Woodville branch, which is located four miles from Wood County in Sandusky
County, Ohio. The Bank considers Wood County its primary market area.
Wood County is located in northwest Ohio. Toledo, Ohio, 20 miles to the
north, is a major midwest industrial city with a commercial airport served by
major airlines and several commuter affiliates. Wood County has a mixed
agricultural and industrial economy. Wood County is also the home of Bowling
Green State University, a four-year public undergraduate and graduate
institution.
The executive offices of the Company are located at 124 East Court
Street, Bowling Green, Ohio 43402-2259 and its telephone number is (419)
352-3502. Unless the context otherwise requires, all references herein to the
Bank or the Company include the Company and the Bank on a consolidated basis.
Lending Activities
General. Historically, the Bank primarily originated fixed-rate, one-
to four-family mortgage loans. In the early 1980s, the Bank began to focus on
the origination of adjustable-rate one- to four-family mortgage ("ARM") loans
and short-term consumer and other loans for retention in its portfolio, in order
to increase the percentage of loans with more frequent repricing or shorter
maturities, and in some cases higher yields, than fixed-rate, one- to
four-family mortgage loans. While the Bank's current loan portfolio consists
mainly of ARM loans and short-term consumer loans, in 1993 the Bank began to
originate fixed-rate mortgage loans in response to customer demand. Under First
Federal's current policy, virtually all fixed-rate loans are sold in the
secondary market. See also "- One- to Four-Family Residential Mortgage Lending"
and "Originations, Purchases, Sales and Servicing of Loans."
The Bank also originates consumer (including automobile), commercial
and multi-family real estate, commercial business, and residential construction
loans in its primary market area. At June 30, 1997, the Bank's net loan
portfolio totaled $131.3 million.
The aggregate amount of loans that the Bank is permitted to make under
applicable federal regulations to any one borrower, including related entities,
or the aggregate amount that the Bank could have invested in any one real estate
project is generally the greater of 15% of unimpaired capital and surplus or
$500,000. See "Regulation - Federal Regulation of Savings Associations." At June
30, 1997, the maximum amount which the Bank could have lent to any one borrower
and the borrower's related entities was approximately $2.1 million. At June 30,
1997, the Bank had no loans with outstanding balances to any one borrower (or
related entities) in excess of this amount. The principal balance of the largest
amount outstanding to any one borrower, or group of related borrowers, was
approximately $1.4 million at June 30, 1997. The Bank may discontinue, adjust or
create new lending programs to respond to its needs and to competitive factors.
<PAGE>
Loan Portfolio Composition. The following information presents the
composition of the Bank's loan portfolio in dollar amounts and in percentages
(before deductions for loans in process, deferred fees and discounts and
allowances for losses) as of the dates indicated.
<TABLE>
<CAPTION>
Year Ended June 30,
------------------------------------------------------------------------
1997 1996 1995
------------------------------------------------------------------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Real Estate Loans:
One- to four-family ........................ $ 93,538 69.63% $ 85,387 73.43% $ 88,923 78.72%
Secured by other properties(1) ............. 7,296 5.43 4,813 4.14 4,189 3.71
Construction loans ......................... 4,516 3.36 6,397 5.50 3,865 3.42
Home equity ................................ 8,335 6.20 4,112 3.54 2,838 2.51
-------- ------ -------- ------ -------- ------
Total real estate loans ................ 113,685 84.62 100,709 86.61 99,815 88.36
Other Loans:
Consumer Loans:
Automobile ................................ 7,696 5.73 7,013 6.03 6,927 6.13
Other ..................................... 4,925 3.67 4,462 3.84 3,686 3.27
-------- ------ -------- ------ -------- ------
Total consumer loans ................... 12,621 9.40 11,475 9.87 10,613 9.40
-------- ------ -------- ------ -------- ------
Commercial business loans .................. 8,035 5.98 4,098 3.52 2,534 2.24
-------- ------ -------- ------ -------- ------
Total other loans ...................... 20,656 15.38 15,573 13.39 13,147 11.64
-------- ------ -------- ------ -------- ------
Total loans ............................ 134,341 100.00% 116,282 100.00% 112,962 100.00%
-------- ------ -------- ------ -------- ------
Less:
Loans in process............................ 2,246 4,104 1,526
Deferred origination fees, net.............. 201 209 209
Allowance for losses........................ 576 513 410
-------- -------- --------
Total loans receivable, net............. $131,318 $111,456 $110,817
======== ======== ========
</TABLE>
(1) Includes multi-family, commercial real estate, land lot and agricultural
loans.
<PAGE>
The following table shows the composition of the Bank's loan portfolio
by fixed and adjustable rates at the dates indicated.
<TABLE>
<CAPTION>
Year Ended June 30,
-----------------------------------------------------------------------------------
1997 1996 1995
-----------------------------------------------------------------------------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Fixed-Rate Loans:
Real estate:
One- to four-family ....................... $ 9,892 7.37% $ 13,355 11.48% $ 12,548 11.11%
Secured by other properties(1) ............ 703 .52 2,198 1.89 1,497 1.32
-------- ------ -------- ------ -------- ------
Total ................................... 10,595 7.89 15,553 13.37 14,045 12.43
Home equity and consumer .................. 12,842 9.56 11,965 10.29 10,740 9.51
Commercial business ....................... 3,363 2.50 3,181 2.74 1,487 1.32
-------- ------ -------- ------ -------- ------
Total fixed-rate loans .................. 26,800 19.95 30,699 26.40 26,272 23.26
Adjustable-Rate Loans:
Real estate:
One- to four-family ....................... 83,646 62.26 72,032 61.95 76,375 67.61
Secured by other properties(1) ............ 6,593 4.91 2,615 2.25 2,692 2.38
Construction .............................. 4,516 3.36 6,397 5.50 3,865 3.42
-------- ------ -------- ------ -------- ------
Total ................................... 94,755 70.53 81,044 69.70 82,932 73.41
Home equity and consumer .................. 8,114 6.04 3,622 3.11 2,711 2.40
Commercial business ....................... 4,672 3.48 917 .79 1,047 .93
-------- ------ -------- ------ -------- ------
Total adjustable-rate loans ............. 107,541 80.05 85,583 73.60 86,690 76.74
-------- ------ -------- ------ -------- ------
Total loans ............................. 134,341 100.00% 116,282 100.00% 112,962 100.00%
-------- ------ -------- ------ -------- ------
Less:
Loans in process................................ 2,246 4,104 1,526
Deferred fees and discounts..................... 201 209 209
Allowance for loan losses....................... 576 513 410
-------- -------- --------
Total loans receivable, net.................. $131,318 $111,456 $110,817
======== ======== ========
</TABLE>
(1) Includes multi-family, commercial real estate, land lot and agricultural
loans.
<PAGE>
The following schedule sets forth certain information at June 30, 1997
regarding the net dollar amount of loans maturing in First Federal's portfolio,
based on contractual terms to maturity. The schedule does not reflect the
effects of possible prepayments or enforcement of due-on-sale clauses.
<TABLE>
<CAPTION>
Due During
Years Ending Consumer
June 30, Real Estate(1)(4) Commercial Construction(2) and Other Total
-------- -------------- ---------- --------------- --------- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
1998(3)..................... $ 241 $ 1,805 $4,516 $ 2,704 $9,266
1999........................ 148 1,834 --- 1,780 3,762
2000........................ 563 1,305 --- 2,793 4,661
2001 and 2002............... 2,202 973 --- 4,909 8,084
2003 to 2012 ............... 34,261 2,059 --- 394 36,714
2013 and
following.................. 71,754 59 --- 41 71,854
-------- ------ ------ ------- --------
$109,169 $8,035 $4,516 $12,621 $134,341
======== ====== ====== ======= ========
</TABLE>
(1) Includes one- to four-family, multi-family, commercial real estate,
land lot, agricultural and home equity loans.
(2) Construction loans are written for a nine month construction period,
with interest only payments due monthly. At the end of the construction
period the loan automatically converts to a monthly payment, 30-year
permanent loan.
(3) Includes demand loans, loans having no stated maturity and overdraft
loans.
(4) Home equity loans totaling $8.3 million do not have a stated payment.
The borrower is billed 1% of the outstanding balance monthly.
At June 30, 1997, the total amount of loans due after June 30, 1998
which have predetermined interest rates was $22.8 million, while the total
amount of loans due after such date which have floating or adjustable interest
rates was $102.2 million.
One- to Four-Family Residential Mortgage Lending. Residential loan
originations of this type are generated by the Bank's marketing efforts, its
present customers, walk-in customers and referrals from real estate agents and
builders. The Bank focuses its lending efforts primarily on the origination of
loans secured by first mortgages on owner-occupied, one- to four-family
residences. At June 30, 1997, the Bank's one- to four-family residential
mortgage loans totaled approximately $93.5 million, or approximately 69.6% of
the Bank's total gross loan portfolio. Of this portfolio, approximately $5.2
million constituted loans secured by one- to four-family residential property
that is rented.
The Bank currently offers fixed-rate or ARM payment loans. The Bank's
one- to four-family residential mortgage originations are secured by property
located in its market and surrounding areas.
The Bank currently offers one and three year ARM loans with an interest
rate margin over the one and three year Treasury rates. These loans provide for
a 200 basis point annual interest rate cap and a lifetime cap of 600 basis
points over the initial rate. The Bank's ARMs do not permit negative
amortization of principal. The Bank qualifies one year ARM borrowers on the
maximum second year rate and three year ARM borrowers on the initial rate plus
100 basis points.
Interest rates charged on fixed-rate and adjustable-rate one- to
four-family mortgage loans are competitively priced according to market
conditions. Residential loans generally do not include prepayment penalties.
During the last four fiscal years, the Bank has not purchased any loans. See
"Originations, Purchases, Sales and Servicing of Loans."
In underwriting one- to four-family residential real estate loans,
First Federal evaluates both the borrower's ability to make monthly payments and
the value of the property securing the loan. Currently, virtually all properties
securing real estate loans made by First Federal are appraised by independent
fee appraisers approved and qualified by the Board of Directors. First Federal
generally requires borrowers to obtain an attorney's title opinion or title
insurance, and fire and property insurance (including flood insurance, if
necessary) in an amount not less than the amount of the loan. Real estate loans
originated by the Bank generally contain an option "due on sale" clause allowing
the Bank the option to declare the unpaid principal balance due and payable upon
the sale of the security property.
Consumer Lending. First Federal offers a variety of secured consumer
loans, including automobile and truck, motorcycle, boat and recreational
vehicle, home equity, home improvement loans and loans secured by savings
deposits. In addition, First Federal offers other secured and unsecured consumer
loans, including an overdraft checking line-of-credit. The Bank currently
originates substantially all of its consumer loans in its primary market area
and surrounding areas. The Bank originates consumer loans primarily on a direct
basis, by extending credit directly to the borrower. Indirect loans, such as
those involving the purchase of loan contracts from retailers of goods or
services which have extended credit to their customers, are also made, to a
lesser extent. Typically, automobile loans are made for up to 60 months for new
vehicles, and up to 48 months for used vehicles. Used vehicle lending
predominates over new vehicle lending. Almost all consumer loans are made on a
fixed-rate basis, except for home equity loans, which are either fixed-rate or
tied to one year Treasury rates.
Consumer loans may entail greater credit risk than do residential
mortgage loans, particularly in the case of consumer loans which are unsecured
or are secured by rapidly depreciable assets, such as automobiles. In such
cases, any repossessed collateral for a defaulted consumer loan may not provide
an adequate source of repayment of the outstanding loan balance as a result of
the greater likelihood of damage, loss or depreciation. In addition, consumer
loan collections are dependent on the borrower's continuing financial stability,
and thus are more likely to be affected by adverse personal circumstances.
Furthermore, the application of various federal and state laws, including
bankruptcy and insolvency laws, may limit the amount which can be recovered on
such loans. Consumer loan terms also vary according to the type and value of
collateral, length of contract and creditworthiness of the borrower. At June 30,
1997, $221,000, or approximately 1.75% of the consumer loan portfolio, was
delinquent 30 days or more. There can be no assurance that delinquencies will
not increase in the future.
At June 30, 1997, the Bank's consumer loan portfolio totaled $12.6
million, or 9.4% of its gross loan portfolio. Of the consumer loan portfolio at
June 30, 1997, approximately 94.46% were short- and intermediate-term,
fixed-rate loans and 5.54% were adjustable-rate loans.
The largest component of First Federal's consumer loan portfolio
consists of automobile loans. At June 30, 1997, automobile loans totaled $7.7
million, or approximately 60.97% and 5.73%, of the Bank's consumer and gross
loan portfolios, respectively.
Loans secured by deposit accounts at the Bank are generally originated
for up to 90% of the account balance with a hold placed on the account
restricting the withdrawal of the account balance. The interest rate on such
loans is from 100 to 300 basis points above the deposit contract rate.
The underwriting standards employed by the Bank for consumer loans
include an application, a determination of the applicant's payment history on
other debts and an assessment of ability to meet existing obligations and
payments on the proposed loan. Although creditworthiness of the applicant is a
primary consideration, the underwriting process also includes a comparison of
the value of the security, if any, in relation to the proposed loan amount.
Construction Lending. The Bank engages in construction lending to
individuals for the construction of their residences as well as to builders for
the construction of single-family homes and other types of real estate in the
Bank's primary market area and surrounding areas. At June 30, 1997, the Bank had
$4.5 million of gross construction loans, most of which were to borrowers who
intended to live in the properties upon completion of construction. Currently
all of the Bank's construction loans have adjustable rates of interest.
Construction loans for residences are structured as permanent loans
with interest only payable for up to the first nine months during the
construction phase. Construction loans are underwritten pursuant to the same
guidelines used for originating permanent real estate loans.
Construction lending is generally considered to involve a higher level
of credit risk than permanent one- to four-family residential lending, due to
the concentration of principal in a limited number of loans and borrowers and/or
the effects of general economic conditions on development projects, real estate
developers, managers or homebuilders. In addition, the nature of these loans is
such that they are more difficult to evaluate and monitor. The Bank's risk of
loss on a construction loan is dependent largely upon the accuracy of the
initial estimate of the property's value upon completion of the project and the
estimated cost (including interest) of the project. If the estimate of value
proves to be inaccurate, the Bank may be confronted, at or prior to the maturity
of the loan, with a project having a value which is insufficient to assure full
repayment. When loan payments become due, borrowers may experience cash flow
from the property which is not adequate to service total debt. In such cases,
the Bank may be required to modify the terms of the loan. The Bank has not
experienced a loss on this portfolio during the last four years.
Commercial and Multi-Family Real Estate Lending. The Bank has also
engaged in limited commercial and multi-family real estate lending in the Wood
County market area. At June 30, 1997, all of the Bank's commercial and
multi-family real estate loan portfolio was secured by properties located in
Ohio.
Loans secured by commercial and multi-family real estate properties are
generally larger and involve a greater degree of credit risk than one- to
four-family residential mortgage loans. Because payments on loans secured by
commercial real estate properties are often dependent on the successful
operation or management of the properties, repayment of such loans may be
subject to adverse conditions in the real estate market or the economy. 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's commercial and multi-family real estate loan portfolio is
secured primarily by apartment buildings and, to a lesser extent, office
buildings, hotels, restaurants, retail stores, multi-family real estate and
churches. Commercial and multi-family real estate loans generally have terms
that do not exceed 25 years. The Bank has a variety of rate adjustment features
and other terms in its commercial and multi-family real estate loan portfolio.
Generally, the loans are made in amounts up to 75% of the appraised value of the
security property. Commercial real estate loans provide for a margin over a
designated index which is generally the one year Treasury bill rate. The Bank
currently analyzes the financial condition of the borrower, the borrower's
credit history, and the reliability and predictability of the cash flow
generated by the property securing the loan. In addition to the collateral
securing the loan, the Bank generally requires personal guaranties of the
borrowers. Appraisals on properties securing commercial real estate loans
originated by the Bank are performed by independent appraisers.
Commercial Business Lending. The Bank also originates commercial
business loans. At June 30, 1997, approximately $8.0 million, or 5.98% of the
Bank's total gross loan portfolio, was comprised of commercial business loans.
Unlike residential mortgage loans, which generally are made on the
basis of the borrower's ability to make repayment from his or her employment and
other income and which are secured by real property whose value tends to be more
easily ascertainable, commercial business loans typically are made on the basis
of the borrower's ability to make repayment from the cash flow of the borrower's
business. As a result, the availability of funds for the repayment of commercial
business loans may be substantially dependent on the success of the business
itself (which, in turn, is likely to be dependent upon the general economic
environment). The Bank's commercial business loans are usually, but not always,
secured by real estate or business assets. However, the collateral securing the
loans may depreciate over time, may be difficult to appraise and may fluctuate
in value based on the success of the business. At June 30, 1997, $164,000, or
approximately 2.04%, of the commercial business loan portfolio was delinquent 30
days or more.
First Federal's commercial business lending policy includes credit file
documentation and analysis of the borrower's character, capacity to repay the
loan, the adequacy of the borrower's capital and collateral as well as an
evaluation of conditions affecting the borrower. Analysis of the borrower's
past, present and future cash flows is also an important aspect of First
Federal's current credit analysis. Nonetheless, there are generally increased
credit risks associated with commercial business lending.
Management anticipates that this segment of the Bank's portfolio, which
consists of inventory, receivable and working capital loans, may increase over
the foreseeable future to levels approximating ten percent of total gross loans
outstanding.
Originations, Purchases, Sales and Servicing of Loans
Real estate loans are generally originated by First Federal's staff of
salaried loan officers. The Bank presently has three commission-based loan
officers as part of its effort to increase loan origination volume. Loan
applications are taken and processed in the branches and main office of the
Bank.
While the Bank originates both adjustable-rate and fixed-rate loans,
its ability to originate loans is dependent upon the relative customer demand
for loans in its market. Demand is affected by the interest rate environment.
In fiscal 1997, the Bank originated $71.4 million of loans, compared to
$60.6 million in fiscal 1996. In fiscal 1997, $39.2 million of loans were repaid
compared with $38.8 million in 1996.
When loans are sold by the Bank, the Bank retains the responsibility
for collecting and remitting loan payments, making certain that real estate tax
payments are made on behalf of borrowers, and otherwise servicing the loans. The
Bank receives a servicing fee for performing these services. The servicing fee
is recognized as income over the life of the loans. The Bank services mortgage
loans that it originated and sold amounting to approximately $32.4 million at
June 30, 1997. See also Note 1 of the Notes to Consolidated Financial Statements
in the Annual Report to Stockholders filed herewith as Exhibit 13 (the "Annual
Report").
In periods of economic uncertainty, the Bank's ability to originate
large dollar volumes of real estate loans may be substantially reduced or
restricted, with a resultant decrease in related loan origination fees, other
fee income and operating earnings. In addition, the Bank's ability to sell loans
may substantially decrease as potential buyers (principally government agencies)
reduce their purchasing activities. The Bank will make fixed-rate loans for sale
in the secondary market as demand dictates.
<PAGE>
The following table shows the loan origination, purchase and repayment
activities of the Bank for the periods indicated.
<TABLE>
<CAPTION>
Year Ended June 30,
----------------------------------------
1997 1996 1995
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Originations by type:
Adjustable-rate............................................ $46,948 $29,597 $23,183
Fixed-rate................................................. 24,455 31,005 16,932
------- ------- -------
Total loans originated............................. 71,403 60,602 40,115
Purchases:
Total loans purchased...................................... --- --- ---
Sales and Repayments:
Total loans sold........................................... 14,111 18,497 3,026
Principal repayments....................................... 39,233 38,785 27,517
------- ------- -------
Total increase..................................... 18,059 3,320 9,572
(Increase) decrease in other items,
net....................................................... 1,803 (2,681) 740
------- ------- -------
Net increase....................................... $19,862 $ 639 $10,312
======= ======= =======
</TABLE>
Non-Performing Assets and Classified Assets
Generally, when a borrower fails to make a required payment on real
estate secured loans and consumer loans within 20 days after the payment is due,
the Bank institutes collection procedures by mailing a computer generated
delinquency notice. The customer is contacted again, by notice or telephone,
when the payment is 30 days past due and 60 days past due. In most cases,
delinquencies are cured promptly; however, if a loan secured by real estate or
other collateral has been delinquent for more than 60 days, a final letter is
sent demanding payment. The customer is requested to acknowledge the status of
the loan and to make arrangements to bring the loan current. If satisfactory
arrangements are not made, a personal visit may be made to initiate repossession
on collateral for consumer loans. At 90 days past due, a 30-day foreclosure
notice is sent, and if the loan is 120 days overdue, unless satisfactory
arrangements have been made, immediate repossession or foreclosure procedures
will commence.
<PAGE>
The following table sets forth information concerning delinquent
mortgage and other loans at June 30, 1997. The amounts presented represent the
total remaining principal balances of the related loans, rather than the actual
payment amounts which are overdue.
<TABLE>
<CAPTION>
Loans Delinquent For:
--------------------------------------------------------------------------------------------------
30-59 Days 60-89 Days 90 Days and Over
--------------------------------------------------------------------------------------------------
Percent Percent Percent
of Loan of Loan of Loan
Number Amount Category Number Amount Category Number Amount Category
--------------------------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate:
One- to four-family............ 36 $1,661 1.8% 6 $214 .2% 10 $330 .4%
Home equity................... 19 233 2.8 3 54 .6 --- --- --
Secured by other properties.... --- --- --- 1 37 --- --- --- --
Commercial..................... 3 29 .4 1 111 1.4 1 24 .3
Consumer....................... 33 161 1.3 9 42 .3 4 17 .1
--- ----- ------ ---- ----- ----- ----- ----- ---
Total....................... 91 $2,084 1.6% 20 $458 .3% 15 $371 .3%
=== ====== === === ==== ===== ==== ==== ===
</TABLE>
There were no delinquent construction loans at June 30, 1997. The ratio
of delinquent loans to total loans (net), was 2.22% at June 30, 1997.
<PAGE>
The table below sets forth the amounts and categories of non-performing
assets in the Bank's loan portfolio. Loans are placed on non-accrual status when
the collection of principal and/or interest become seriously doubtful.
Foreclosed assets include assets acquired in settlement of loans.
<TABLE>
<CAPTION>
Year Ended June 30,
------------------------
1997 1996 1995
---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
Non-accruing loans:
One- to four-family ............................ $-- $-- $--
Secured by other ............................... -- 28 28
Construction ................................... -- -- --
Consumer ....................................... -- 2 --
Commercial business ............................ -- -- --
---- ---- ----
Total ....................................... -- 30 28
---- ---- ----
Accruing loans delinquent more than 90 days:
One- to four-family ............................ 330 116 262
Secured by other ............................... -- 39 --
Construction ................................... -- -- --
Consumer ....................................... 17 30 35
Commercial business ............................ 24 -- --
---- ---- ----
Total ....................................... 371 185 297
---- ---- ----
Foreclosed assets:
One- to four-family ............................ -- -- --
Secured by other ............................... 30 30 30
Construction ................................... -- -- --
Consumer ....................................... -- -- --
Commercial business ............................ -- -- --
---- ---- ----
Total ....................................... 30 30 30
---- ---- ----
Total non-performing assets(1) ................... $401 $245 $355
==== ==== ====
Total as a percentage of total
assets .......................................... .24% 0.17% 0.26%
==== ==== ====
</TABLE>
(1) In addition, the Bank had one troubled debt restructuring at June 30,
1996 and 1995 with a balance at those dates of $62,524 and $63,187,
respectively.
For the year ended June 30, 1997 gross interest income which would have
been recorded had the non-accruing loans and troubled debt restructuring been
current in accordance with their original terms amounted to approximately $758.
None of such amount was included in interest income on such loans for the year
ended June 30, 1997.
As of June 30, 1997, there were no other loans not included on the
table or discussed above where known information about the possible credit
problems of borrowers caused management to have doubts as to the ability of the
borrower to comply with present loan repayment terms and which may result in
disclosure of such loans in the future.
Classified Assets. Federal regulations provide for the classification
of loans and other assets such as debt and equity securities considered by the
OTS to be of lesser quality as "substandard," "doubtful" or "loss." An asset is
considered "substandard" if it is inadequately protected by the current net
worth and paying capacity of the obligor or of the collateral pledged, if any.
"Substandard" assets include those characterized by the "distinct possibility"
that the savings association will sustain "some loss" if the deficiencies are
not corrected. Assets classified as "doubtful" have all of the weaknesses
inherent in those classified "substandard," with the added characteristic that
the weaknesses present make "collection or liquidation in full," on the basis of
currently existing facts, conditions, and values, "highly questionable and
improbable." Assets classified as "loss" are those considered "uncollectible"
and of such little value that their continuance as assets without the
establishment of a specific loss reserve is not warranted.
When a savings association classifies problem assets as either
substandard or doubtful, it may establish general allowances for loan losses in
an amount deemed prudent by management. General allowances represent loss
allowances which have been established to recognize the inherent risk associated
with lending activities, but which, unlike specific allowances, have not been
allocated to particular problem assets. When a savings association classifies
problem assets as "loss," it is required either to establish a specific
allowance for losses equal to 100% of that portion of the asset so classified or
to charge-off such amount. An association's determination as to the
classification of its assets and the amount of its valuation allowances is
subject to review by the association's District Director at the regional OTS
office, who may order the establishment of additional general or specific loss
allowances.
In connection with the filing of its periodic reports with the OTS and
in accordance with its classification of assets policy, the Bank regularly
reviews the loans in its portfolio to determine whether any loans require
classification in accordance with applicable regulations. On the basis of
management's review of its assets, at June 30, 1997, the Bank had classified a
total of $1.1 million of its assets as substandard, none as doubtful and $63,386
as loss.
At June 30, 1997, total classified assets comprised $1.2 million, or
8.61% of the Bank's capital, or .75% of the Bank's total assets.
Allowance for Loan Losses. The allowance for loan losses is established
through a provision for loan losses based on management's evaluation of the risk
inherent in its loan portfolio and changes in the nature and volume of its loan
activity. Such evaluation, which includes a review of loans for which full
collectibility may not be reasonably assured, considers among other matters, the
estimated fair value of the underlying collateral, economic conditions,
historical loan loss experience and other factors that warrant recognition in
providing for an adequate loan allowance.
Real estate properties acquired through foreclosure are recorded at
fair value, less estimated costs to sell. If fair value at the date of
foreclosure is lower than the balance of the related loan, the difference will
be charged-off to the allowance at the time of transfer. Valuations are
periodically updated by management and if the value declines, a specific
provision for losses on such property is established by a charge to operations.
Although management believes that it uses the best information
available to determine the allowances, unforeseen market conditions could result
in adjustments and net earnings could be significantly affected if circumstances
differ substantially from the assumptions used in making the final
determination. Future additions to the Bank's allowances will be the result of
periodic loan, property and collateral reviews and thus cannot be predicted in
advance. At June 30, 1997, the Bank had a total allowance for loan losses of
$575,985 or .44% of total loans receivable, net. See also Notes 1 and 3 of the
Notes to Consolidated Financial Statements in the Annual Report.
<PAGE>
The following table sets forth an analysis of the Bank's allowance for
loan losses for the periods indicated.
<TABLE>
<CAPTION>
Year Ended June 30,
----------------------------
1997 1996 1995
---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
Balance at beginning of period ............. $513 $409 $351
Charge-offs:
One- to four-family ...................... -- -- --
Secured by other properties .............. 58 -- --
Construction ............................. -- -- --
Consumer ................................. 32 17 2
---- ---- ----
Total charge-offs ..................... 90 17 2
---- ---- ----
Recoveries:
One- to four-family ...................... -- -- --
Secured by other properties .............. 23 -- --
Construction ............................. -- -- --
Consumer ................................. 10 1 --
---- ---- ----
Total recoveries ...................... 33 1 --
---- ---- ----
Net charge-offs ............................ 57 16 2
Additions charged to operations ............ 120 120 60
---- ---- ----
Balance at end of period ................... $576 $513 $409
==== ==== ====
Ratio of net charge-offs during the
period to average loans outstanding
during the period ......................... .05% .02% ---%
==== ==== ====
Ratio of allowance to non-performing
loans ..................................... 155.26% 238.60% 126.08%
==== ==== ====
</TABLE>
<PAGE>
The distribution of the Bank's allowance for losses on loans at the dates
indicated is summarized as follows:
<TABLE>
<CAPTION>
Year Ended June 30,
---------------------------------------------------------------------------------
1997 1996 1995
---------------------------------------------------------------------------------
Percent Percent Percent
of Loans of Loans of Loans
in Each in Each in Each
Category Category Category
to Total to Total to Total
Amount Loans Amount Loans Amount Loans
------ ----- ------ ----- ------ -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
One- to four-family......................... $100 69.63% $102 73.43% $ 60 78.72%
Secured by other properties................. 160 5.43 191 4.14 191 3.71
Construction................................ --- 3.36 --- 5.50 -- 3.42
Home equity................................. 21 6.20 10 3.54 -- 2.51
Consumer.................................... 128 9.40 88 9.87 56 9.40
Commercial business......................... 120 5.98 82 3.52 60 2.24
Unallocated................................. 47 --- 40 ---- 42 ---
---- ------ ---- ------ ---- ------
Total.................................. $576 100.00% $513 100.00% $409 100.00%
==== ====== ==== ====== ==== ======
</TABLE>
Investment Activities
First Federal must maintain minimum levels of investments that qualify
as liquid assets under OTS regulations. Liquidity may increase or decrease
depending upon the availability of funds and comparative yields on investments
in relation to the return on loans. Historically, the Bank has maintained its
liquid assets above the minimum requirements imposed by the OTS regulations and
at a level believed adequate to meet requirements of normal daily activities,
repayment of maturing debt and potential deposit outflows. The Bank's investment
policy objective in this regard currently sets the Bank's desired liquidity
between 6% and 12%. As of June 30, 1997, the Bank's liquidity ratio (liquid
assets as a percentage of net withdrawable savings deposits and current
borrowings) was 6.64%. See "Regulation Liquidity."
Federally chartered savings institutions have the authority to invest
in various types of liquid assets, including United States Treasury obligations,
securities of various federal agencies, certain certificates of deposit of
insured banks and savings institutions, certain bankers' acceptances, repurchase
agreements and federal funds. Subject to various restrictions, federally
chartered savings institutions may also invest their assets in commercial paper,
investment grade corporate debt securities and mutual funds whose assets conform
to the investments that a federally chartered savings institution is otherwise
authorized to make directly.
Generally, the investment policy of the Bank, as set by the Investment
Committee, is to invest funds among various categories of investments and
maturities based upon the Bank's need for liquidity, to achieve the proper
balance between its desire to minimize risk and maximize yield, to provide
collateral for borrowings, and to fulfill the Bank's asset/liability management
policies.
Investment Securities. At June 30, 1997, the Company's cash and cash
equivalents totaled $2.9 million, or 1.78% of its total assets, and investment
and mortgage-backed securities (including a $1.4 million investment in the
common stock of the FHLB of Cincinnati in order to satisfy the requirement for
membership in such institution) totaled $24.4 million, or 14.88% of its total
assets. It is the Bank's general policy to purchase investment securities which
are U.S. government securities and federal agency obligations, state and local
government obligations, commercial paper, mutual funds, interest-bearing
deposits in other institutions, and overnight federal funds. See also Notes 1
and 2 to Notes to Consolidated Financial Statements in the Annual Report.
OTS regulations restrict investments in corporate debt and equity
securities by the Bank. These restrictions include prohibitions against
investments in the debt securities of any one issuer in excess of 15% of the
Bank's unimpaired capital and unimpaired surplus as defined by federal
regulations, which totaled approximately $2.1 million as of June 30, 1997, plus
an additional 10% if the investments are fully secured by readily marketable
collateral. See "Regulation - Federal Regulation of Savings Associations" for a
discussion of additional restrictions on the Bank's investment activities.
<PAGE>
The following table sets forth the composition of the Bank's investment
portfolio at the dates indicated.
<TABLE>
<CAPTION>
Year Ended June 30,
------------------------------------------------------------------------------
1997 1996 1995
------------------------------------------------------------------------------
Carrying % of Carrying % of Carrying % of
Value Total Value Total Value Total
----- ----- ----- ----- ----- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest bearing deposits in other
financial institutions............................. $2,229 100.00% $ 78 100.00% $ 352 100.0%
====== ====== ======= ====== ======= =====
Investment and Mortgage-Backed
Securities:
Available for sale:
U.S. Treasury securities......................... $ 693 2.84% $ 839 3.13% $ 613 3.25%
Mutual funds..................................... 2,716 11.13 2,625 9.78 2,565 13.60
Mortgage-backed securities....................... 8,844 36.26 9,648 35.94 5,751 30.50
U.S. Government agency step up 4
bonds........................................... 791 3.2 1,499 5.58 --- ---
Other............................................ 40 .16 40 .15 --- ---
U.S. Government agency 2
securities..................................... 9,909 40.6 10,883 40.54 --- ---
------- ------ ------- ------ ------- -----
Subtotal....................................... 22,993 94.25 25,534 95.12 8,929 47.35
------- ------ ------- ------ ------- -----
Held to Maturity:
U.S. Treasury securities......................... --- --- --- --- 200 1.06
U.S. Government agency
securities...................................... --- --- --- --- 5,733 30.41
U.S. Government agency step
up bonds....................................... --- --- --- --- 1,318 6.99
Mortgage-backed securities....................... --- --- --- 1,454 7.71
------- ------- ------- ------
Subtotal....................................... --- --- --- --- 8,705 46.17
------- ------ ------ ------- -----
FHLB stock......................................... 1,403 5.75 1,309 4.88 1,221 6.48
------- ------ ------- ------ ------- -----
Total investment securities,
mortgage-backed securities
and FHLB stock..................................... $24,396 100.00% $26,843 100.00% $18,855 100.0%
======= ====== ======= ====== ======= =====
Average remaining life of
U.S. Government and Agency
securities......................................... 5.5 years 5.3 years 3.6 years
</TABLE>
See also Note 3 of the Notes to Consolidated Financial Statements in
the Annual Report.
<PAGE>
The composition and maturities of the investment securities portfolio,
excluding FHLB stock, are indicated in the following table.
<TABLE>
<CAPTION>
At June 30, 1997
--------------------------------------------------
Amortized Estimated Weighted
Cost Market Value Average Yield
---- ------------ -------------
(Dollars in thousands)
<S> <C> <C> <C>
Available for sale:
Due in one year or less................... $1,149 $1,146 5.34%
Due after one through
five years............................... 3,548 3,516 5.89
Due after five years
through ten years........................ 6,117 6,233 7.62
Due after ten years....................... 500 498 8.12
------- ------- ----
11,314 11,393 6.87
Mortgage-backed securities................ 8,977 8,844 6.43
Mutual funds.............................. 2,781 2,716 5.44
Other..................................... 40 40 ---
------- ------- ----
Total investment
securities available for
sale................................... $23,112 $22,993 6.52%
======= ======= ====
</TABLE>
The Bank's portfolio at June 30, 1997 contained no tax-exempt
securities of any issuer with an aggregate book value in excess of the Bank's
retained earnings, excluding those securities issued by the U.S. government or
its agencies.
Mortgage-Backed Securities. First Federal has a portfolio of
mortgage-backed securities which it holds as available for sale. Such
mortgage-backed securities can serve as collateral for borrowings and, through
repayments, as a source of liquidity. For information regarding the carrying and
market values of First Federal's mortgage-backed securities portfolio, see Note
2 of the Notes to Consolidated Financial Statements in the Annual Report. Under
the Bank's risk-based capital requirement, mortgage-backed securities have a
risk weight of 20% (or 0% in the case of GNMA securities) in contrast to the 50%
risk weight carried by residential loans. See "Regulation--Regulatory Capital
Requirements."
Consistent with the Bank's asset/liability policy, most of the Bank's
mortgage-backed securities carry adjustable interest rates.
The OTS has issued guidelines regarding management oversight and
accounting treatment for securities, including investment securities, loans,
mortgage-backed securities and derivative securities. The guidelines require
thrift institutions to reduce the carrying value of securities to the lesser of
cost or market value unless it can be demonstrated that a class of securities is
intended to be held to maturity. As of June 30, 1997, the company's entire
investment and mortgage-backed securities portfolio was classified as available
for sale with an amortized cost and market value of $25.7 million and $25.5
million, respectively.
Sources of Funds
General. The Bank's primary sources of funds are deposits, borrowings,
amortization and repayment of loan principal (including interest earned on
mortgage-backed securities), interest earned on or maturation of investment
securities and short-term investments, and funds provided from operations. FHLB
advances have been used to compensate for seasonal reductions in deposits or
deposit inflows at less than projected levels, and will be used on a longer-term
basis to support expanded lending activities.
Deposits. First Federal offers a variety of deposit accounts having a
wide range of interest rates and terms. The Bank's deposits consist of passbook
savings accounts, NOW accounts, money market checking, individual retirement
accounts, Christmas and vacation club accounts, and certificate accounts
generally ranging in terms from 91 days to 60 months. The Bank primarily
solicits deposits from its market area and does not use brokers to obtain
deposits. However, in June 1997, the Bank began using a national rate listing
service to attract additional deposits. The Bank relies primarily on competitive
pricing policies, advertising and customer service to attract and retain these
deposits.
The flow of deposits is influenced significantly by general economic
conditions, changes in money market and prevailing interest rates, and
competition.
The variety of deposit accounts offered by the Bank has allowed it to
be competitive in obtaining funds and to respond with flexibility to changes in
consumer demand. The Bank has become more susceptible to short-term fluctuations
in deposit flows, as customers have become more interest rate conscious. The
Bank endeavors to manage the pricing of its deposits in keeping with its
asset/liability management and profitability objectives. Based on its
experience, the Bank believes that its passbook savings, NOW accounts and money
market checking are relatively stable sources of deposits.
<PAGE>
The following table sets forth the savings flows at the Bank during the
periods indicated.
<TABLE>
<CAPTION>
Year Ended June 30,
--------------------------------------
1997 1996 1995
-------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C>
Opening balance ................... $115,830 $104,845 $100,388
Deposits .......................... 380,868 310,235 268,563
Withdrawals ....................... 380,743 303,783 267,626
Interest credited ................. 4,591 4,533 3,520
-------- -------- --------
Ending balance .................... $120,546 $115,830 $104,845
======== ======== ========
Net increase (decrease) ........... $ 4,716 $ 10,985 $ 4,457
======== ======== ========
Percent increase
(decrease) ....................... 4.07% 10.48% 4.44%
======== ======== ========
</TABLE>
<PAGE>
The following table sets forth the dollar amount of savings deposits in
the various types of deposit programs offered by the Bank at the dates
indicated. See also Note 6 of the Notes to Consolidated Financial Statements in
the Annual Report.
<TABLE>
<CAPTION>
At June 30,
---------------------------------------------------------------------------------
1997 1996 1995
------------------------ ------------------------- ------------------------
Percent Percent Percent
Amount of Total Amount of Total Amount of Total
------ -------- ------ -------- ------ --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Transactions and Savings Deposits:
Demand and NOW Accounts(1)................. $ 15,119 12.54 % $ 13,605 11.74% $ 10,347 9.87%
Passbook Accounts.......................... 21,307 17.68 20,117 17.37 21,253 20.27
Money Market Accounts...................... 19,944 16.54 22,008 19.00 13,727 13.09
-------- ------ -------- ------ -------- ------
Total Non-Certificates..................... 56,370 46.76 55,730 48.11 45,327 43.23
-------- ------ -------- ------ -------- ------
Certificates:
0.00 - 3.99%............................. 168 .14 473 .41 3,255 3.10
4.00 - 5.99%............................. 52,469 43.53 49,998 43.16 40,728 38.85
6.00 - 7.99%............................. 11,526 9.56 9,611 8.30 15,473 14.76
8.00 - 9.99%............................. 13 .01 18 .02 62 .06
-------- ------ -------- ------ -------- ------
Total Certificates......................... 64,176 53.24 60,100 51.89 59,518 56.77
-------- ------ -------- ------ -------- ------
Total Deposits............................. $120,546 100.00% $115,830 100.00% $104,845 100.00%
======== ====== ======== ====== ======== ======
</TABLE>
(1) Includes non-interest bearing deposits of $1,033,148, $928,463 and
$846,142 at June 30, 1997, 1996 and 1995, respectively.
<PAGE>
The following table indicates the amount of the Bank's certificates of
deposit and other deposits by time remaining until maturity as of June 30, 1997.
<TABLE>
<CAPTION>
Maturity
-------------------------------------------------------
Over Over
3 Months 3 to 6 6 to 12 Over
or Less Months Months 12 months Total
------- ------- ------- ------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Certificates of deposit less
than $100,000 .............. $ 8,290 $ 9,664 $19,464 $19,355 $56,773
Certificates of deposit of
$100,000 or more ........... 945 1,336 2,268 2,368 6,917
Public funds(1) ............. 170 316 -- -- 486
------- ------- ------- ------- -------
Total certificates of deposit $ 9,405 $11,316 $21,732 $21,723 $64,176
======= ======= ======= ======= =======
</TABLE>
(1) Deposits from governmental and other public entities.
Borrowings. Although deposits are the Bank's primary source of funds,
the Bank's policy has been to utilize borrowings when they are a less costly
source of funds, can be invested at a positive interest rate spread or when the
Bank desires additional capacity to fund loan demand or meet other liquidity
needs.
First Federal's borrowings historically have consisted of advances from
the FHLB of Cincinnati upon the security of a blanket collateral agreement of a
percentage of unencumbered loans. Such advances can be made pursuant to several
different credit programs, each of which has its own interest rate and range of
maturities.
<PAGE>
The following table sets forth the maximum month-end balance and
average balance of FHLB advances.
<TABLE>
<CAPTION>
Year Ended June 30,
1997 1996 1995
------- ------- -------
(In Thousands)
<S> <C> <C> <C>
Maximum Balance:
FHLB advances ............. $26,792 $11,045 $ 9,636
Average Balance:
FHLB advances ............. $19,706 $ 6,868 $ 8,242
</TABLE>
Subsidiary Activities
As a federally chartered savings institution, First Federal is
permitted by OTS regulations to invest up to 2% of its assets, or $3.2 million
at June 30, 1997, in the stock of, or loans to, service corporation
subsidiaries. In July 1995, First Federal organized a service corporation
subsidiary, Wood Service Corp., Inc., which offers financial planning services
and related products, including mutual funds and annuities, through an agreement
with a third party. As of June 30, 1997, First Federal's investment in Wood
Service Corp., Inc. was $11,059. In addition to investments in service
corporations, federal associations are permitted to invest an unlimited amount
in operating subsidiaries engaged solely in activities which a federal
association may engage in directly.
Regulation
General. First Federal is a federally chartered savings and loan
association and, accordingly, First Federal is subject to broad federal
regulation and oversight extending to all its operations. First Federal is a
member of the FHLB of Cincinnati and is subject to certain limited regulation by
the Board of Governors of the Federal Reserve System ("Federal Reserve Board").
First Federal is a member of the Savings Association Insurance Fund ("SAIF") and
the deposits of First Federal are insured by the FDIC. As a result, the FDIC has
certain regulatory and examination authority over First Federal.
As the savings and loan holding company of First Federal, the Company
also is subject to OTS regulation and oversight. The purpose of the regulation
of the Company and other holding companies is to protect subsidiary savings
associations.
Certain of these regulatory requirements and restrictions are discussed
below or elsewhere in this document.
Federal Regulation of Savings Associations. The OTS, as the Bank's
primary federal regulator and chartering authority, and the FDIC, as the insurer
of its deposits, have extensive authority over the operations of savings
associations. As part of this authority, First Federal is required to file
periodic reports with the OTS and is subject to periodic examinations by the OTS
and the FDIC. The last regular OTS examination of First Federal was performed as
of March 31, 1996 and the last regular FDIC examination of First Federal was
performed jointly with the OTS as of December 31, 1992. The OTS and FDIC have
entered into a joint examination agreement which provides for joint examinations
by the FDIC with the OTS unless compelling reasons otherwise dictate. When these
examinations are conducted by the OTS and the FDIC, the examiners may require
First Federal to provide for higher general or specific loan loss reserves.
Financial institutions in various regions of the United States have been called
upon by examiners to write down assets and to establish increased levels of
reserves, primarily as a result of perceived weaknesses in real estate values
and a more restrictive regulatory climate.
All savings associations are subject to a semi-annual assessment, based
upon the savings association's total assets, to fund the operations of the OTS.
The general assessment, to be paid on a semi-annual basis, is computed upon the
savings association's total assets, as reported in the association's latest
quarterly thrift financial report. First Federal's OTS assessment for the fiscal
year ended June 30, 1997 was $44,264.
The OTS also has extensive enforcement authority over all savings
institutions and their holding companies, including First Federal and the
Company. This enforcement authority includes, among other things, the ability to
assess civil money penalties, to issue cease-and-desist or removal orders and to
initiate injunctive actions. In general, these enforcement actions may be
initiated for violations of laws and regulations and unsafe or unsound
practices. Other actions or inactions may provide the basis for enforcement
action, including misleading or untimely reports filed with the OTS. Except
under certain circumstances, public disclosure of final enforcement actions by
the OTS and the FDIC is required.
In addition, the investment, lending and branching authority of First
Federal is prescribed by federal laws, and it is prohibited from engaging in any
activities not permitted by such laws. For instance, no savings institution may
invest in non-investment grade corporate debt securities. In addition, the
permissible level of investment by federal associations in loans secured by
non-residential real property may not exceed 400% of total capital, except with
approval of the OTS. Federal savings association are also generally authorized
to branch nationwide. First Federal is in compliance with the noted
restrictions.
First Federal's permissible lending limit for loans-to-one-borrower is
equal to the greater of $500,000 or 15% of unimpaired capital and surplus
(except for loans fully secured by certain readily marketable collateral, in
which case this limit is increased to 25% of unimpaired capital and surplus). At
June 30, 1997, First Federal's lending limit under this restriction was $2.1
million. First Federal is in compliance with the loans-to-one-borrower
limitation.
The OTS, as well as the other federal banking agencies, has adopted
guidelines establishing safety and soundness standards on such matters as loan
underwriting and documentation, internal controls and audit systems, interest
rate risk exposure and compensation and other employee benefits. Any institution
which fails to comply with these standards must submit a compliance plan. A
failure to submit a plan or to comply with an approved plan will subject the
institution to further enforcement action. The OTS and the other federal banking
agencies have also proposed additional guidelines on asset quality and earnings
standards. No assurance can be given as to whether or in what form the proposed
regulations will be adopted.
Insurance of Accounts and Regulation by the FDIC. First Federal is a
member of the SAIF, which is administered by the FDIC. Deposits are insured up
to applicable limits by the FDIC and such insurance is backed by the full faith
and credit of the United States Government. As insurer, the FDIC imposes deposit
insurance premiums and is authorized to conduct examinations of and to require
reporting by FDIC-insured institutions. It also may prohibit any FDIC-insured
institution from engaging in any activity the FDIC determines by regulation or
order to pose a serious risk to the FDIC. The FDIC also has the authority to
initiate enforcement actions against savings associations, after giving the OTS
an opportunity to take such action, and may terminate the deposit insurance if
it determines that the institution has engaged in unsafe or unsound practices,
or is in an unsafe or unsound condition.
The FDIC's deposit insurance premiums are assessed through a risk-based
system under which all insured depository institutions are placed into one of
nine categories and assessed insurance premiums, ranging from .00% to .27% of
deposits, based upon their level of capital and supervisory evaluation. Under
the system, institutions classified as well capitalized (i.e., those with a core
capital ratio of at least 5%, a ratio of Tier 1 or core capital to risk-weighted
assets ("Tier 1 risk-based capital") of at least 6% and a risk-based capital
ratio of at least 10%) and considered healthy pay the lowest premium while
institutions that are less than adequately capitalized (i.e., those with core or
Tier 1 risk-based capital ratios of less than 4% or a risk-based capital ratio
of less than 8%) and considered of substantial supervisory concern pay the
highest premium. Risk classification of all insured institutions will be made by
the FDIC for each semi-annual assessment period.
The FDIC is authorized to increase assessment rates, on a semiannual
basis, if it determines that the reserve ratio of the SAIF will be less than the
designated reserve ratio of 1.25% of SAIF insured deposits. In setting these
increased assessments, the FDIC must seek to restore the reserve ratio to that
designated reserve level, or such higher reserve ratio as established by the
FDIC. The FDIC may also impose special assessments on SAIF members to repay
amounts borrowed from the United States Treasury or for any other reason deemed
necessary by the FDIC.
For the first six months of 1995, the assessment schedule for BIF
members and SAIF members ranged from .23% to .31% of deposits. As is the case
with the SAIF, the FDIC is authorized to adjust the insurance premium rates for
banks that are insured by the BIF of the FDIC in order to maintain the reserve
ratio of the BIF at 1.25% of BIF insured deposits. As a result of the BIF
reaching its statutory reserve ratio, the FDIC revised the premium schedule for
BIF insured institutions to provide a range of .04% to .31% of deposits. The
revisions became effective in the third quarter of 1995. In addition, the BIF
rates were further revised, effective January 1997, to provide a range of 0% to
.27%. The SAIF rates, however, were not adjusted.
In order to eliminate this disparity and any competitive disadvantage
between BIF and SAIF member institutions with respect to deposit insurance
premiums, legislation to recapitalize the SAIF was enacted on September 30,
1996. The legislation provided for a one-time assessment to be imposed on all
deposits assessed at the SAIF rates, as of March 31, 1995, in order to
recapitalize the SAIF. It also provides for the merger of the BIF and the SAIF
on January 1, 1999 if no savings associations then exist. The special assessment
rate was established at .657% of deposits by the FDIC and the resulting
assessment of $442,661 after taxes, was paid in November 1996. This special
assessment significantly increased noninterest expense and adversely affected
First Federal's results of operations for the year ended June 30, 1997. As a
result of the special assessment, First Federal's deposit insurance premiums was
reduced to zero for calendar 1997 based upon its current risk classification and
the new assessment schedule for SAIF insured institutions. These premiums are
subject to change in future periods. See also Note 10 of the Notes to
Consolidated Financial Statements in the Annual Report.
Prior to the enactment of the legislation, a portion of the SAIF
assessment imposed on savings associations was used to repay obligations issued
by a federally chartered corporation to provide financing ("FICO") for resolving
the thrift crisis in the 1980s. Although the FDIC equalized the SAIF and BIF
assessment schedule, effective October 1, 1996, SAIF-insured institutions will
continue to be subject to a FICO assessment as a result of this continuing
obligation. Although the legislation also now requires assessments to be made on
BIF-assessable deposits for this purpose, effective January 1, 1997, that
assessment will be limited to 20% of the rate imposed on SAIF assessable
deposits until the earlier of December 31, 1999 or when no savings association
continues to exist, thereby imposing a greater burden on SAIF member
institutions such as the Association. Thereafter, however, assessments on
BIF-member institutions will be made on the same basis as SAIF-member
institutions. The calendar 1997 rates established by the FDIC to implement this
requirement for all FDIC-insured institutions are 6.48 basis points on SAIF
deposits and 1.3 basis points on BIF deposits.
Regulatory Capital Requirements. Federally insured savings
associations, such as First Federal, are required to maintain a minimum level of
regulatory capital. The OTS has established capital standards, including a
tangible capital requirement, a leverage ratio (or core capital) requirement and
a risk-based capital requirement applicable to such savings associations. These
capital requirements must be generally as stringent as the comparable capital
requirements for national banks. The OTS is also authorized to impose capital
requirements in excess of these standards on individual associations on a
case-by-case basis.
The capital regulations require tangible capital of at least 1.5% of
adjusted total assets (as defined by regulation). Tangible capital generally
includes common stockholders' equity and retained income, and certain
noncumulative perpetual preferred stock and related income. In addition, all
intangible assets, other than a limited amount of purchased mortgage servicing
rights, must be deducted from tangible capital for calculating compliance with
the requirement. At June 30, 1997 the Bank had no intangible assets subject to
these tests.
The OTS regulations establish special capitalization requirements for
savings associations that own subsidiaries. In determining compliance with the
capital requirements, all subsidiaries engaged solely in activities permissible
for national banks or engaged in certain other activities solely as agent for
its customers are "includable" subsidiaries that are consolidated for capital
purposes in proportion to the association's level of ownership. For excludable
subsidiaries, the debt and equity investments in such subsidiaries are deducted
from assets and capital. The Bank's service corporation is an includable
subsidiary. See "Subsidiary Activities" above.
At June 30, 1997, First Federal had tangible capital of $14.0 million,
or 8.71% of adjusted total assets, which is approximately $11.6 million above
the minimum requirement of 1.5% of adjusted total assets in effect on that date.
The capital standards also require core capital equal to at least 3% of
adjusted total assets. Core capital generally consists of tangible capital plus
certain intangible assets, including supervisory goodwill (which is phased-out
over a five-year period), and a limited amount of purchased credit card
relationships. As a result of the prompt corrective action provisions of FDICIA
discussed below, however, a savings association must maintain a core capital
ratio of at least 4% to be considered adequately capitalized unless its
supervisory condition is such to allow it to maintain a 3% ratio. At June 30,
1997, First Federal had no intangibles which were subject to these tests.
At June 30, 1997, First Federal had core capital equal to $14.0
million, or 8.71% of adjusted total assets, which is $9.2 million above the
minimum leverage ratio requirement of 3% in effect on that date.
The OTS risk-based requirement requires savings associations to have
total capital of at least 8% of risk-weighted assets. Total capital consists of
core capital, as defined above, and supplementary capital. Supplementary capital
consists of certain permanent and maturing capital instruments that do not
qualify as core capital and general valuation loan and lease loss allowances up
to a maximum of 1.25% of risk-weighted assets. Supplementary capital may be used
to satisfy the risk-based requirement only to the extent of core capital. At
June 30, 1997, First Federal had $513,000 of general loss reserves, which was
less than 1.25% of risk-weighted assets.
Certain exclusions from capital and assets are required to be made for
the purpose of calculating total capital. Such exclusions consist of equity
investments (as defined by regulation) and that portion of land loans and
nonresidential construction loans in excess of an 80% loan-to-value ratio (these
items were excluded on a sliding scale through June 30, 1994, after which they
must be excluded in their entirety) and reciprocal holdings of qualifying
capital instruments. First Federal had no such exclusions from capital and
assets at June 30, 1997.
In determining the amount of risk-weighted assets, all assets,
including certain off-balance sheet items, will be multiplied by a risk weight,
ranging from 0% to 100%, based on the risk inherent in the type of asset. For
example, the OTS has assigned a risk weight of 50% for prudently underwritten
permanent one- to four-family first lien mortgage loans not more than 90 days
delinquent and having a loan to value ratio of not more than 80% at origination
unless insured to such ratio by an insurer approved by FNMA or FHLMC.
The OTS has adopted a final rule that requires every savings
association with more than normal interest rate risk exposure to deduct from its
total capital, for purposes of determining compliance with such requirement, an
amount equal to 50% of its interest-rate risk exposure multiplied by the present
value of its assets. This exposure is a measure of the potential decline in the
net portfolio value of a savings association, greater than 2% of the present
value of its assets, based upon a hypothetical 200 basis point increase or
decrease in interest rates (whichever results in a greater decline). Net
portfolio value is the present value of expected cash flows from assets,
liabilities and off-balance sheet contracts. The rule provides for a two quarter
lag between calculating interest rate risk and recognizing any deduction from
capital. The rule will not become effective until the OTS evaluates the process
by which savings associations may appeal an interest rate risk deduction
determination. It is uncertain as to when this evaluation may be completed. Any
savings association with less than $300 million in assets and a total capital
ratio in excess of 12%, such as First Federal, is exempt from this requirement
unless the OTS determines otherwise.
On June 30, 1997, First Federal had total risk-based capital of $14.6
million (including $14 million in core capital and $513,000 in qualifying
supplementary capital) and risk-weighted assets of $95.7 million (including no
converted off-balance sheet assets); or total capital of 15.2% of risk-weighted
assets. This amount was $6.9 million above the 8% requirement in effect on that
date.
The OTS and the FDIC are authorized and, under certain circumstances
required, to take certain actions against savings associations that fail to meet
their capital requirements.
Limitations on Dividends and Other Capital Distributions. OTS
regulations impose various restrictions or requirements on associations with
respect to their ability to pay dividends or make other distributions of
capital. OTS regulations prohibit an association from declaring or paying any
dividends or from repurchasing any of its stock if, as a result, the regulatory
capital of the association would be reduced below the amount required to be
maintained for the liquidation account established in connection with its mutual
to stock conversion.
The OTS utilizes a three-tiered approach to permit associations, based
on their capital level and supervisory condition, to make capital distributions
which include dividends, stock redemptions or repurchases, cash-out mergers and
other transactions charged to the capital account (see "- Regulatory Capital
Requirements").
Generally, Tier 1 associations, which are associations that before and
after the proposed distribution meet their fully phased-in capital requirements,
may make capital distributions during any calendar year equal to the greater of
100% of net income for the year-to-date plus 50% of the amount by which the
lesser of the association's tangible, core or risk-based capital exceeds its
fully phased-in capital requirement for such capital component, as measured at
the beginning of the calendar year, or the amount authorized for a Tier 2
association. However, a Tier 1 association deemed to be in need of more than
normal supervision by the OTS may be downgraded to a Tier 2 or Tier 3
association as a result of such a determination. First Federal meets the
requirements for a Tier 1 association and has not been notified of a need for
more than normal supervision. Tier 2 associations, which are associations that
before and after the proposed distribution meet their current minimum capital
requirements, may make capital distributions of up to 75% of net income over the
most recent four quarter period.
Tier 3 associations (which are associations that do not meet current
minimum capital requirements) that propose to make any capital distribution and
Tier 2 associations that propose to make a capital distribution in excess of the
noted safe harbor level must obtain OTS approval prior to making such
distribution. Tier 2 associations proposing to make a capital distribution
within the safe harbor provisions and Tier 1 associations proposing to make any
capital distribution need only submit written notice to the OTS 30 days prior to
such distribution. As a subsidiary of the Company, First Federal will also be
required to give the OTS 30 days' notice prior to declaring any dividend on its
stock. The OTS may object to the distribution during that 30-day period based on
safety and soundness concerns. See "- Regulatory Capital Requirements."
The OTS has proposed regulations that would revise the current capital
distribution restrictions. The proposal eliminates the current tiered structure
and the safe-harbor percentage limitations. Under the proposal a savings
association may make a capital distribution without notice to the OTS (unless it
is a subsidiary of a holding company) provided that it has a CAMEL 1 or 2
rating, is not in troubled condition (as defined by regulation) and would remain
adequately capitalized (as defined in the OTS prompt corrective action
regulations) following the proposed distribution. Savings associations that
would remain adequately capitalized following the proposed distribution but do
not meet the other noted requirements must notify the OTS 30 days prior to
declaring a capital distribution. The OTS stated it will generally regard as
permissible that amount of capital distributions that do not exceed 50% of the
institution's excess regulatory capital plus net income to date during the
calendar year. A savings association may not make a capital distribution without
prior approval of the OTS and the FDIC if it is undercapitalized before, or as a
result of, such a distribution. As under the current rule, the OTS may object to
a capital distribution if it would constitute an unsafe or unsound practice. No
assurance may be given as to whether or in what form the regulations may be
adopted.
Liquidity. All savings associations, including First Federal, are
required to maintain an average daily balance of liquid assets equal to a
certain percentage of the sum of its average daily balance of net withdrawable
deposit accounts and borrowings payable in one year or less. For a discussion of
what the Bank includes in liquid assets, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources." This liquid asset ratio requirement may vary from time to
time (between 4% and 10%) depending upon economic conditions and savings flows
of all savings associations. At the present time, the minimum liquid asset ratio
is 5%.
In addition, short-term liquid assets (e.g., cash, certain time
deposits, certain bankers acceptances and short-term United States Treasury
obligations) currently must constitute at least 1% of the association's average
daily balance of net withdrawable deposit accounts and current borrowings.
Penalties may be imposed upon associations for violations of either liquid asset
ratio requirement. At June 30, 1997, First Federal was in compliance with both
requirements, with an overall liquid asset ratio of 6.64% and a short-term
liquid assets ratio of 2.83%.
Accounting. An OTS policy statement applicable to all savings
associations clarifies and re-emphasizes that the investment activities of a
savings association must be in compliance with approved and documented
investment policies and strategies, and must be accounted for in accordance with
GAAP. Under the policy statement, management must support its classification of
and accounting for loans and securities (i.e., whether held for investment, sale
or trading) with appropriate documentation. First Federal is in compliance with
these amended rules.
The OTS has adopted an amendment to its accounting regulations, which
may be made more stringent than GAAP by the OTS, to require that transactions be
reported in a manner that best reflects their underlying economic substance and
inherent risk and that financial reports must incorporate any other accounting
regulations or orders prescribed by the OTS.
Qualified Thrift Lender Test. All savings associations, including First
Federal, are required to meet a qualified thrift lender ("QTL") test to avoid
certain restrictions on their operations. This test requires a savings
association to have at least 65% of its portfolio assets (as defined by
regulation) in qualified thrift investments on a monthly average for nine out of
every 12 months on a rolling basis. Such assets primarily consist of residential
housing related loans and investments. At June 30, 1997, First Federal met the
test and has always met the test since its effectiveness.
Any savings association that fails to meet the QTL test must convert to
a national bank charter, unless it requalifies as a QTL and thereafter remains a
QTL. If an association does not requalify and converts to a national bank
charter, it must remain SAIF-insured until the FDIC permits it to transfer to
the BIF. If such an association has not yet requalified or converted to a
national bank, its new investments and activities are limited to those
permissible for both a savings association and a national bank, and it is
limited to national bank branching rights in its home state. In addition, the
association is immediately ineligible to receive any new FHLB borrowings and is
subject to national bank limits for payment of dividends. If such association
has not requalified or converted to a national bank within three years after the
failure, it must divest of all investments and cease all activities not
permissible for a national bank. In addition, it must repay promptly any
outstanding FHLB borrowings, which may result in prepayment penalties. If any
association that fails the QTL test is controlled by a holding company, then
within one year after the failure, the holding company must register as a bank
holding company and become subject to all restrictions on bank holding
companies. See "- Holding Company Regulation."
Community Reinvestment Act. Under the Community Reinvestment Act
("CRA"), every FDIC insured institution has a continuing and affirmative
obligation consistent with safe and sound banking practices 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 it believes are
best suited to its particular community, consistent with the CRA. The CRA
requires the OTS, in connection with the examination of First Federal, to assess
the institution's record of meeting the credit needs of its community and to
take such record into account in its evaluation of certain applications, such as
a merger or the establishment of a branch by First Federal. An unsatisfactory
rating may be used as the basis for the denial of an application by the OTS.
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 to the CRA
in the past few years, First Federal may be required to devote additional funds
for investment and lending in its local community. First Federal was examined
for CRA compliance as of April 17, 1995 and received a rating of satisfactory.
Transactions with Affiliates. Generally, transactions between a savings
association or its subsidiaries and its affiliates are required to be on terms
as favorable to the association as transactions with non-affiliates. In
addition, certain of these transactions, such as loans to affiliates, are
restricted to a percentage of the association's capital. Affiliates of First
Federal include the Company and any company which is under common control with
First Federal. In addition, a savings association may not lend to any affiliate
engaged in activities not permissible for a bank holding company or acquire the
securities of most affiliates.
Certain transactions with directors, officers and controlling persons
are also subject to conflict of interest regulations enforced by the OTS. These
conflict of interest regulations and other statutes also impose restrictions on
loans to such persons and their related interests. Among other things, such
loans must be made on terms substantially the same as for loans to unaffiliated
individuals.
Holding Company Regulation. The Company is a unitary savings and loan
holding company subject to regulatory oversight by the OTS. As such, the Company
is required to register and file reports with the OTS and is subject to
regulation and examination by the OTS. In addition, the OTS has enforcement
authority over the Company and its non-savings association subsidiaries which
also permits the OTS to restrict or prohibit activities that are determined to
be a serious risk to the subsidiary savings association.
As a unitary savings and loan holding company, the Company generally is
not subject to activity restrictions. If the Company acquires control of another
savings association as a separate subsidiary, it would become a multiple savings
and loan holding company, and the activities of the Company and any of its
subsidiaries (other than the Bank or any other SAIF-insured savings association)
would become subject to such restrictions unless such other associations each
qualify as a QTL and were acquired in a supervisory acquisition.
If First Federal fails the QTL test, the Company must obtain the
approval of the OTS prior to continuing after such failure, directly or through
its other subsidiaries, any business activity other than those approved for
multiple savings and loan holding companies or their subsidiaries. In addition,
within one year of such failure the Company must register as, and will become
subject to, the restrictions applicable to bank holding companies. The
activities authorized for a bank holding company are more limited than are the
activities authorized for a unitary or multiple savings and loan holding
company. See "- Qualified Thrift Lender Test."
The Company must obtain approval from the OTS before acquiring control
of any other SAIF-insured association. Such acquisitions are generally
prohibited if they result in a multiple savings and loan holding company
controlling savings associations in more than one state. However, such
interstate acquisitions are permitted based on specific state authorization or
in a supervisory acquisition of a failing savings association.
Federal Securities Law. The stock of the Company is registered with the
SEC under the Securities Exchange Act of 1934, as amended (the "Exchange Act").
The Company is subject to the information, proxy solicitation, insider trading
restrictions and other requirements of the SEC under the Exchange Act.
Company stock held by persons who are affiliates (generally officers,
directors and principal stockholders) of the Company may not be resold without
registration or unless sold in accordance with certain resale restrictions. If
the Company meets specified current public information requirements, each
affiliate of the Company is able to sell in the public market, without
registration, a limited number of shares in any three-month period.
Federal Reserve System. The Federal Reserve Board requires all
depository institutions to maintain non-interest bearing reserves at specified
levels against their transaction accounts (primarily checking, NOW and Super NOW
checking accounts). At June 30, 1997, First Federal was in compliance with these
reserve requirements. The balances maintained to meet the reserve requirements
imposed by the Federal Reserve Board may be used to satisfy liquidity
requirements that may be imposed by the OTS. See "- Liquidity."
Savings associations are authorized to borrow from the Federal Reserve
Bank "discount window," but Federal Reserve Board regulations require
associations to exhaust other reasonable alternative sources of funds, including
FHLB borrowings, before borrowing from the Federal Reserve Bank.
Federal Home Loan Bank System. First Federal is a member of the FHLB of
Cincinnati, which is one of 12 regional FHLBs, that administers the home
financing credit function of savings associations. Each FHLB serves as a reserve
or central bank for its members within its assigned region. It is funded
primarily from proceeds derived from the sale of consolidated obligations of the
FHLB System. It makes loans to members (i.e., advances) in accordance with
policies and procedures established by the board of directors of the FHLB, which
are subject to the oversight of the Federal Housing Finance Board. All advances
from the FHLB are required to be fully secured by sufficient collateral as
determined by the FHLB. In addition, all long-term advances are required to
provide funds for residential home financing.
As a member, First Federal is required to purchase and maintain stock
in the FHLB of Cincinnati. At June 30, 1997, First Federal had $1.4 million in
FHLB stock, which was in compliance with this requirement. In past years, First
Federal has received substantial dividends on its FHLB stock. Over the past five
fiscal years such dividends have averaged 5.96% and were 7.05% for fiscal year
1997.
Under federal law the FHLBs are required to provide funds for the
resolution of troubled savings associations and to contribute to low- and
moderately priced housing programs through direct loans or interest subsidies on
advances targeted for community investment and low- and moderate-income housing
projects. These contributions have affected adversely the level of FHLB
dividends paid and could continue to do so in the future. These contributions
could also have an adverse effect on the value of FHLB stock in the future. A
reduction in value of First Federal's FHLB stock may result in a corresponding
reduction in First Federal's capital.
For the year ended June 30, 1997, dividends paid by the FHLB of
Cincinnati to First Federal totaled $94,757, which constitute a $6,903 increase
over the amount of dividends received in fiscal year 1996. The $24,913 dividend
received for the quarter ended June 30, 1997 reflects an annualized rate of
7.25% or .25% above the rate paid for the quarter ended June 30, 1996.
Federal Taxation. Savings associations such as the Bank that meet
certain definitional tests relating to the composition of assets and other
conditions prescribed by the Internal Revenue Code of 1986, as amended (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. The amount of the bad debt reserve deduction for
"qualifying real property loans" (generally loans secured by improved real
estate) may be computed under either the experience method or the percentage of
taxable income method (based on an annual election).
Under the experience method, the bad debt reserve deduction is an
amount determined under a formula based generally upon the bad debts actually
sustained by the savings association over a period of years.
The percentage of specially computed taxable income that is used to
compute a savings association'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
savings associations to be taxed at a lower effective federal income tax rate
than that applicable to corporations generally (approximately 31.3% assuming the
maximum percentage bad debt deduction).
If a savings association'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
association may not deduct any addition to a bad debt reserve and generally must
include existing reserves in income over a four year period. No representation
can be made as to whether the Bank will meet the 60% test for subsequent taxable
years.
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 or the greater of (i) the
amount deductible under the experience method or (ii) the amount which when
added to the bad debt 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.
In August 1997, legislation was enacted that repeals the reserve method
of accounting (including the percentage of taxable income method) used by many
thrifts, including the Bank, to calculate their bad debt reserve for federal
income tax purposes. As a result, large thrifts such as the Bank must recapture
that portion of the reserve that exceeds the amount that could have been taken
under the specific charge-off method for post-1987 tax years. The legislation
also requires thrifts to account for bad debts for federal income tax purposes
on the same basis as commercial banks for tax years beginning after December 31,
1995. The recapture will occur over a six-year period, the commencement of which
will be delayed until the first taxable year beginning after December 31, 1997,
provided the institution meets certain residential lending requirements. The
management of the Company does not believe that the legislation will have a
material impact on the Company or the Bank.
In addition to the regular income tax, corporations, including savings
associations such as the Bank, generally are subject to a 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. The alternative minimum tax is imposed to the extent it exceeds the
corporation's regular income tax and net operating losses can offset no more
than 90% of alternative minimum taxable income. For taxable years beginning
after 1986 and before 1997, corporations, including savings associations such as
the Bank, are also subject to an environmental tax equal to 0.12% of the excess
of alternative minimum taxable income for the taxable year (determined without
regard to net operating losses and the deduction for the environmental tax) over
$2 million.
To the extent earnings appropriated to a savings association'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 association's supplemental reserves
for losses on loans ("Excess"), such Excess may not, without adverse tax
consequences, be utilized for the 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). As of June 30, 1997, the Bank's Excess for tax purposes totaled
approximately $2.3 million.
The Company and the Bank file consolidated federal income tax returns
on a fiscal year basis using the accrual method of accounting. Savings
associations, such as the Bank, that file federal income tax returns as part of
a consolidated group are required by applicable Treasury regulations to reduce
their taxable income for purposes of computing the percentage bad debt deduction
for losses attributable to activities of the non-savings association members of
the consolidated group that are functionally related to the activities of the
savings association member.
The Bank's 1993 federal income tax return has been audited by the
Internal Revenue Service and no material adjustments have been made. The Bank
has federal income tax returns which are open and subject to audit for fiscal
years 1995 through 1997. With respect to years examined by the IRS, either all
deficiencies have been satisfied or sufficient reserves have been established to
satisfy asserted deficiencies. In the opinion of management, any examination of
still open returns (including returns of subsidiaries and predecessors of, or
entities merged into, the Bank) would not result in a deficiency which could
have a material adverse effect on the financial condition of the Bank and its
consolidated subsidiary.
For additional information regarding taxation, see Note 7 of the Notes
to the Consolidated Financial Statements in the Annual Report.
Competition
First Federal faces strong competition, both in originating real estate
and other loans and in attracting deposits. Competition in originating real
estate loans comes primarily from other commercial banks, savings associations,
credit unions and mortgage bankers making loans secured by real estate located
in the Bank's market area. Commercial banks and finance companies provide
vigorous competition in consumer lending. The Bank competes for real estate and
other loans principally on the basis of the quality of services it provides to
borrowers, interest rates and loan fees it charges, and the types of loans it
originates.
The Bank attracts most of its deposits through its retail banking
offices, primarily from the communities in which those retail banking offices
are located; therefore, competition for those deposits is principally from other
commercial banks, savings associations and credit unions located in the same
communities. The Bank competes for these deposits by offering a variety of
deposit accounts at competitive rates, convenient business hours, and convenient
branch locations with interbranch deposit and withdrawal privileges at each.
The Bank's primary market area is Wood County. There are nine
commercial banks and two savings associations, other than First Federal, and six
credit unions which compete for deposits and loans in Wood County.
Executive Officers of the Company and the Bank
Certain information with respect to the executive officer of the
Company and/or the Bank who is not also a director, at June 30, 1997, is set
forth below.
David A. Weaks. Mr. Weaks, age 50, has been a Vice President of the
Bank since 1975 and Vice President of the Company since its formation in May
1993. His primary responsibilities include overall administration of the Bank's
savings and marketing operations, and human resources department. Mr. Weaks also
oversees the Bank's liability activities and is responsible for overall
supervision of office services and property management for the Bank.
John H. Bick. Mr. Bick, age 47, is Vice President of Lending and
Operations and is also an Executive Officer of the Company. He is responsible
for all facets of lending, loan processing and new product development. Mr. Bick
began his career in banking at a community bank in Amsterdam, Ohio in 1977. He
received his MBA from the University of Steubenville and has taught accounting,
financing and other bank related subjects in local colleges for a number of
years.
Employees
At June 30, 1997, the Bank had a total of 51 employees, including 12
part-time employees. The Bank's employees are not represented by any collective
bargaining group. Management considers its employee relations to be good.
Item 2. Description of Property
The Bank conducts its business at its main office and six other
locations in its primary market area. The following table sets forth information
relating to each of the Bank's offices as of June 30, 1997.
The Bank owns all of its offices as of June 30, 1997. The total net
book value of the Bank's premises and equipment (including land, building and
leasehold improvements and furniture, fixtures and equipment) at June 30, 1997
was $1.9 million. See Note 5 of Notes to Consolidated Financial Statements in
the Annual Report.
<PAGE>
<TABLE>
<CAPTION>
Total
Approximate Net Book Value at
Location Date Acquired Square Footage June 30, 1997
- -------- ------------- -------------- -------------
<S> <C> <C> <C>
Main Office:
124 E. Court Street 1968 10,208 $136,784
Bowling Green, Ohio
Branch Offices:
601 Superior Street 1976 2,844 204,315
Rossford, OH
125 W. Main Street 1979 4,458 148,495
Woodville, OH
201 S. Main Street 1984 2,430 122,973
N. Baltimore, OH
525 W. Wooster Street 1985 980 43,950
Bowling Green, OH
24215 Front Street 1986 925 1,722
Grand Rapids, OH
130/134 E. Court Street(1) 1980 2,850 ---
Bowling Green, OH
</TABLE>
- ------------------
(1) The property the Bank owns at 130/134 E. Court Street, Bowling Green,
Ohio, was purchased for future development. It currently contains an
older frame house built in the 1880s and a small one-story brick office
building. Both of these structures have been fully depreciated. The
property is rented, with current gross income of $1,475 per month. The
Bank also owns land for future development at 525 W. Wooster Street,
Bowling Green, Ohio, which generates gross rent on a storage building
of $635 per month.
First Federal believes that its current facilities, while adequate to
meet its present needs, are not adequate to meet its needs in the foreseeable
future. The Bank is considering alternatives to expand its facilities. The Bank
has purchased land located behind and adjacent to its 525 West Wooster Street
office. First Federal is currently considering construction of a new branch
and/or a new main office. The Bank also acquired a parcel of land in Perrysburg,
Ohio for a possible branch office and opened an office in Pemberville, Ohio in
July 1997. The Pemberville location is a leased office inside a grocery store.
The Bank maintains an outside service bureau for depositor and borrower
customer information. The net book value of the data processing and computer
equipment utilized by the Bank at June 30, 1997 was approximately $58,028.
Item 3. Legal Proceedings
First Federal is involved from time to time as plaintiff or defendant
in various legal actions arising in the normal course of its business. While the
ultimate outcome of these proceedings cannot be predicted with certainty, it is
the opinion of management, after consultation with counsel representing First
Federal in the proceedings, that the resolution of these proceedings should not
have a material adverse effect on First Federal's financial position or results
of operations.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the quarter ended June 30, 1997.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
The information provided under the captions "Dividends" and "Market
Information" on page 47 of the attached 1997 Annual Report to Stockholders is
herein incorporated by reference.
Item 6. Management's Discussion and Analysis or Plan of Operation
Pages 4 through 16 of the attached 1997 Annual Report to Stockholders
is herein incorporated by reference.
Item 7. Financial Statements
The following information appearing in the Company's Annual Report to
Stockholders for the year ended June 30, 1997, is incorporated by reference in
this Annual Report on Form 10-KSB as Exhibit 13.
Annual Report Section Pages in Annual Report
- --------------------- ----------------------
Report of Independent Auditors 12
Consolidated Balance Sheets
(June 30, 1997 and 1996) 18
Consolidated Statements of Income
(Years Ended June 30, 1997, 1996 and 1995) 19
Consolidated Statements of Changes in
Shareholders' Equity (Years Ended
June 30, 1997, 1996, and 1995) 20
Consolidated Statements of Cash Flows
(Years Ended June 30, 1997, 1996, and 1995) 22
Notes to Consolidated Financial Statements 24
All schedules are omitted as the required information is not applicable or is
contained in the notes to the consolidated financial statements.
With the exception of the aforementioned information, the Corporation's
Annual Report to Stockholders for the year ended June 30, 1997 is not deemed
filed as part of this Annual Report on Form 10-KSB.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
There has been no Current Report on Form 8-K filed within 24 months
prior to the date of the most recent financial statements reporting a change of
accountants and/or reporting disagreements on any matter of accounting principle
or financial statement disclosure.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
Directors
Information concerning Directors of the Company is incorporated herein
by reference from the definitive Proxy Statement for the Annual Meeting of
Stockholders to be held in 1997, a copy of which will be filed not later than
120 days after the close of fiscal year.
Executive Officers
Information regarding the business experience of each executive officer
of the Company and/or the Bank who is not also a director contained in Part I of
this Form 10-KSB is incorporated herein by reference.
Compliance with Section 16(a) of the Exchange Act. Section 16(a) of the
Exchange Act requires the Company's directors and executive officers, and
persons who own more than 10% of a registered class of the Company's equity
securities, to file with the SEC reports of ownership and reports of changes in
ownership of common stock and other equity securities of the Company. Officers,
directors and greater than 10% stockholders are required by SEC regulation to
furnish the Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of
such reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended June 30, 1997, all Section
16(a) filing requirements applicable to its officers, directors and greater than
10% beneficial owners were complied with, with the exception of one executive
officer covering one transaction.
Item 10. Executive Compensation
Information concerning executive compensation is incorporated herein by
reference from the definitive Proxy Statement for the Annual Meeting of
Stockholders to be held in 1997, a copy of which will be filed not later than
120 days after the close of the fiscal year.
Item 11. Security Ownership of Certain Beneficial Owners and Management
Information concerning security ownership of certain beneficial owners
and management is incorporated herein by reference from the definitive Proxy
Statement for the Annual Meeting of Stockholders to be held in 1997, a copy of
which will be filed not later than 120 days after the close of the fiscal year.
Item 12. Certain Relationships and Related Transactions
Information concerning certain relationships and related transactions
is incorporated herein by reference from the definitive Proxy Statement for the
Annual Meeting of Stockholders to be held in 1997, a copy of which will be filed
not later than 120 days after the close of the fiscal year.
<PAGE>
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Reference to
Prior Filing
or Exhibit
Regulation Number
S-K Exhibit Attached
Number Document Hereto
- --------------- -------------------------------------- -------------
<S> <C> <C>
2 Plan of acquisition, reorganization, None
arrangement, liquidation, or
succession
3(a) Articles of Incorporation *
3(b) By-Laws *
4 Instruments defining the rights of *
security holders, including
debentures
9 Voting Trust Agreement None
10 Material Contracts
(a) 1993 Stock Option and Incentive *
Plan
(b) Recognition and Retention Plan *
(c) Employment Agreements *
11 Statement re: computation of per None
share earnings
12 Statement re: computation of ratios Not required
13 Annual Report to Security Holders 13
16 Letter on change in certifying None
accountants
18 Letter on change in accounting None
principles
21 Subsidiaries of the Registrant 21
22 Published report regarding
matters submitted to vote None
23 Consents of Experts and Counsel 23
24 Power of Attorney Not required
27 Financial Data Schedule 27
99 Additional exhibits None
</TABLE>
- ----------------
* Filed as exhibits to the Company's Form S-1 registration statement filed on
May 28, 1993 (File No. 33-63594) pursuant to Section 5 of the Securities Act
of 1933. All of such previously filed documents are hereby incorporated
herein by reference in accordance with Item 601 of Regulation S-B.
(b) Reports on Form 8-K
During the quarter ended June 30, 1997, the Company did not file any
Current Reports on Form 8-K.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 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.
WOOD BANCORP, INC.
Date: September 29, 1997 By: /s/ Richard L. Gordley
----------------------- ----------------------
Richard L. Gordley
President, Chief Executive
Officer and Director
(Duly Authorized Representative)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons in the capacities and
on the dates indicated.
/s/ Richard L. Gordley /s/ David L. Nagel
- ------------------------------- ------------------------------------
Richard L. Gordley, President, David L. Nagel, Executive Vice
Chief Executive Officer and President, Chief Financial Officer,
Director (Principal Executive Secretary and Director (Principal
and Operating Officer) Financial and Accounting Officer)
Date: September 29, 1997 Date: September 29, 1997
------------------ ------------------
/s/ Robert E. Spitler /s/ Michael A. Miesle
- ------------------------------- ------------------------------------
Robert E. Spitler Michael A. Miesle, Director
Chairman of the Board
Date: September 29, 1997 Date: September 29, 1997
------------------ ------------------
/s/ Dale L. Myers /s/ Randal R. Huber
- ------------------------------- ------------------------------------
Dale L. Myers, Director Randal R. Huber, Director
Date: September 29, 1997 Date: September 29, 1997
------------------ ------------------
<PAGE>
Index to Exhibits
Exhibit
Number
- ---------
13 Annual Report to Security Holders
21 Subsidiaries of the Registrant
23 Consent of Crowe, Chizek and Company
27 Financial Data Schedule
Exhibit 13
Annual Report to Security Holders
<PAGE>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Letter to Shareholders..................................................1
Selected Consolidated Financial and Other Data..........................2
Management's Discussion and Analysis of Financial
Condition and Results of Operations................................4
Report of Independent Auditors.........................................17
Consolidated Financial Statements and Notes............................18
Shareholder Information................................................47
Directors and Executive Officers.......................................48
- --------------------------------------------------------------------------------
ANNUAL MEETING
- --------------------------------------------------------------------------------
The annual Meeting of Stockholders is scheduled for October 21, 1997, at 1:00
p.m., at the Bowling Green Country Club located at 923 Fairview Avenue, Bowling
Green, Ohio.
<PAGE>
To our Shareholders:
We are pleased to report continued progress in our efforts to improve
earnings from the delivery of financial services to our markets. We trust you
also will be pleased with the financial performance of your company over the
past year.
Earnings for 1997 set a new record of $2,118,000, or $.94 per share,
before an after-tax charge of $443,000, or $.20 per share, to recognize our
portion of the thrift industry's recapitalization of the Savings Association
Insurance Fund (SAIF). Even with this exceptionally high charge to earnings, we
take pride in being able to report modest net profit improvement over last year.
We continue to make progress in improving market share in our core one-
to four-family and consumer and commercial lending. Gross loan originations
exceeded $70 million for the year and set all time high production records. Our
loan portfoilio grew by 17.8% and resulting fee and interest income helped fuel
earnings growth.
Software and hardware enhancements at customer service stations has increased
volume and provided our customer service professionals the data to enhance
cross-selling of products. Training of loan associates in traditional community
bank product delivery has become high priority during the past year and they
have responded by securing new customer relationships at every opportunity. We
stick to the basics and attempt to be the best at delivering our product
offerings.
As of this writing, we have opened our seventh full-service office in
Pemberville, Ohio. Early results are most gratifying and we are happy to report
success exceeding goal in every product. Our goal is to continue to search for
markets where the need exists for a local community bank that understands the
needs of local customers.
Our strategic plan is working and demonstrates that we understand the
markets we serve. We will continue to work "main street" very aggressively for
continued financial improvement. We appreciate the support you provide to our
organization.
Sincerely,
Robert E. Spitler Richard L. Gordley
Chairman of the Board President and Chief Executive Officer
1.
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
<TABLE>
<CAPTION>
At June 30,
------------------------------------------------------------
(In Thousands)
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Selected Financial Condition Data:
Total assets ................................ $163,918 $146,249 $135,081 $124,375 $115,955
Cash and cash equivalents ................... 2,915 2,637 2,821 1,870 3,186
Repurchase agreement ........................ 2,500
Investment securities available for sale .... 14,149 15,886 3,178 3,106
Mortgage-backed securities available for sale 8,844 9,648 5,751 6,315
Mortgage-backed securitiesheld for sale ..... 4,795
Investment securities held to maturity ...... 7,251 6,531 6,748
Mortgage-backed securities held
to maturity ............................... 1,454 1,690 2,357
Loans, net .................................. 131,318 111,456 110,817 100,505 95,505
Deposits .................................... 120,546 115,830 104,845 100,388 104,824
Advances from Federal Home
Loan Bank ................................. 21,775 9,316 9,576 4,853 2,000
Shareholders' equity (1) .................... 20,166 20,122 19,614 18,241 8,198
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
For the Year Ended June 30,
-----------------------------------------------------------
(In Thousands)
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Selected Operations Data:
Total interest income ............. $12,635 $11,085 $ 9,647 $ 8,063 $ 8,358
Total interest expense ............ 6,107 5,289 4,395 3,835 4,573
------- ------- ------- ------- -------
Net interest income .......... 6,528 5,796 5,252 4,228 3,785
Provision for loan losses ......... 120 120 60 51 173
------- ------- ------- ------- -------
Net interest income after
provision for loan losses .. 6,408 5,676 5,192 4,177 3,612
------- ------- ------- ------- -------
Noninterest income:
Service charges .............. 282 227 208 207 181
Securities gains (losses), net 5 4
Gain on sale of FHLMC stock .. 199
Other noninterest income ..... 104 232 109 97 87
------- ------- ------- ------- -------
Total non-interest income 585 459 322 308 268
Total non-interest expense ... 4,371 3,473 3,276 2,903 2,429
------- ------- ------- ------- -------
Income before income taxes ........ 2,622 2,662 2,238 1,582 1,451
Provision for income tax .......... 947 994 737 504 500
Cumulative effect of change in
accounting for income taxes ..... 40
------- ------- ------- ------- -------
Net income ........................ $ 1,675 $ 1,668 $ 1,501 $ 1,118 $ 951
======= ======= ======= ======= =======
Earnings per share, before SAIF
assessment (2)(3) ............... $ .94 $ .72 $ .63 $ .37 N/A
Earnings per share, after SAIF
assessment (2)( 3) .............. .74 .72 .63 .37 N/A
Dividends per share (2) ........... .25 .15 .13 .07 N/A
Dividend payout ratio (4) ......... 32.52% 20.20% 19.73% 17.72% N/A
</TABLE>
- --------------------------------------------------------------------------------
(1) Represents retained earnings prior to August 31, 1993.
(2) Restated to reflect 50% stock split declared July 1, 1997 and payable July
29, 1997.
(3) Does not include earnings prior to August 31, 1993, the date of First
Federal's conversion to stock form. (4) Represents annual dividends divided
by net income subsequent to conversion.
2.
<PAGE>
<TABLE>
<CAPTION>
As of or for the Year Ended June 30,
-----------------------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C>
Selected Financial Ratios and Other Data:
Performance Ratios:
Return on assets:
Before SAIF assessment ......... 1.34% 1.20% 1.16% 0.90% 0.83%
After SAIF assessment .......... 1.07 1.20 1.16 0.90 0.83
Interest rate spread information:
Average during year ............ 3.70 3.66 3.69 3.21 3.23
End of year .................... 3.54 3.46 3.37 3.13 2.94
Net interest margin (1) ............ 4.26 4.26 4.19 3.57 3.42
Ratio of noninterest expense to
average total assets ............. 2.78 2.49 2.53 2.34 2.11
Return on equity:
Before SAIF assessment ......... 10.25 8.33 7.93 6.77 12.11
After SAIF assessment .......... 8.25 8.33 7.93 6.77 12.11
Asset Quality Ratios:
Non-performing assets to total
assets .......................... .24% 0.17% 0.24% 0.11% 0.37%
Allowance for loan losses to non-
performing loans(2) .............. 155.26 238.60 126.08 257.35 69.92
Capital Ratios:
Shareholders' equity (3) to total
assets ........................... 12.30% 13.76% 14.52% 14.67% 7.08%
Average shareholders' equity (3)
to average assets ................ 12.92 14.36 14.63 13.31 7.05
Ratio of average interest-earning
assets to average interest-bearing
liabilities ...................... 1.14 1.15 1.14 1.11 1.05
Number of offices (4) ................... 6 6 6 6 6
</TABLE>
- --------------------------------------------------------------------------------
(1) Net interest income divided by average interest-earning assets.
(2) Non-performing loans consist of non-accruing loans and accruing loans which
are past due 90 or more days.
(3) Represents retained earnings prior to August 31, 1993.
(4) Includes four full-service offices and two limited-service offices.
3.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
Wood Bancorp, Inc. (the "Company") was formed as part of the conversion
of First Federal Bank ("First Federal") from a mutual to a stock savings bank,
which was completed on August 31, 1993 (the "Conversion"). In the Conversion,
1,599,000 shares of common stock, as adjusted for the July 1996 stock split, par
value of $.01 per share, of the Company were sold to the public for an aggregate
gross consideration of $10,660,000. The Company retained approximately 50% of
the net proceeds and used the remainder to purchase all of the outstanding stock
of First Federal. Currently, the Company has no other business activity other
than acting as the holding company for First Federal. As a result, the following
discussion relates primarily to the activities of First Federal. This discussion
should be read in conjunction with the Consolidated Financial Statements and
accompanying Notes included elsewhere in this report.
The Company's results of operations are dependent primarily on net
interest income, which is the difference ("spread") between the interest income
earned on its loans, mortgage-backed securities, and investment portfolio and
its cost of funds, consisting of interest paid on its deposits and borrowed
money. The interest rate spread is affected by regulatory, economic and
competitive factors that influence interest rates, loan demand and deposit
flows. The Company's net income is also affected by, among other things, loan
fee income, provisions for loan losses, service charges, operating expenses and
franchise and income taxes. The Company's revenues are derived primarily from
interest on mortgage loans, consumer loans, mortgage-backed securities and
investments, as well as income from service charges and loan originations. The
Company's operating expenses principally consist of employee compensation and
benefits, occupancy, federal deposit insurance premiums and other general and
administrative expenses. The Company's results of operations are also
significantly affected by general economic and competitive conditions,
particularly changes in market interest rates, government policies and actions
of regulatory authorities.
The main office of the Company and First Federal is located in Bowling
Green, Ohio, which is located in Wood County, Ohio. First Federal operates six
offices: two in Bowling Green, and one in each of Grand Rapids, North Baltimore,
Rossford and Woodville. All branches are located in Wood County with the
exception of the Woodville branch, which is located four miles from Wood County
in Sandusky County, Ohio. First Federal considers Wood County its primary market
area. In June, 1995, First Federal purchased land adjacent to its Bowling Green
West office for possible expansion at this location. In July 1997, the Company
opened its seventh location, which consists of a full-service office inside a
supermarket in Pemberville, Ohio which is in Wood County.
4.
<PAGE>
First Federal has been, and intends to continue to be, a
community-oriented financial institution offering a variety of financial
services to meet the needs of the communities it serves. First Federal attracts
deposits from the general public and uses such deposits, together with
borrowings and other funds, to originate one- to four-family residential
mortgage loans and short-term consumer loans. To a lesser extent, First Federal
also originates residential construction loans in its market area and a limited
amount of commercial business loans and loans secured by multi-family and
non-residential real estate. First Federal's deposits are insured up to the
maximum allowable amount by the Savings Association Insurance Fund (the "SAIF"),
and administered by the Federal Deposit Insurance Corporation (the "FDIC").
First Federal also invests in mortgage-backed securities, most of which are
insured or guaranteed by federal agencies, as well as securities issued by the
U.S. government or agencies thereof. In July 1995, First Federal organized a
service corporation subsidiary, Wood Service Corp., Inc., which offers financial
planning services and related products, including mutual funds and annuities,
through an agreement with a third party. Revenues of Wood Service Corp., Inc.
were not significant for the fiscal years ended June 30, 1997 and 1996.
The Company is not aware of any market or institutional trends, events
or uncertainties that are expected to have a material effect on liquidity,
capital resources or operations, except as discussed below. The Company is also
not aware of any current recommendations by its regulators which would have a
material effect if implemented, except as discussed below.
Financial Condition
Total assets of the Company were $163.9 million at June 30, 1997,
compared to $146.2 million at June 30, 1996, representing an increase of $17.7
million, or 12.1%. The growth was primarily attributable to increases in loans,
offset by the maturity of a repurchase agreement and decreases in investment
securities. The increase was primarily funded by increases in advances from the
Federal Home Loan Bank ("FHLB") of Cincinnati. The changes in the consolidated
balance sheets and the factors which caused the changes are discussed below.
Investment and Mortgage-Backed Securities. Total investment and
mortgage-backed securities decreased $2.5 million, or 10.0%, from $25.5 million
at June 30, 1996 to $23.0 million at June 30, 1997. The decrease was the result
of the Company investing funds obtained through sales and maturities of
investment securities to partially fund loan growth.
At June 30, 1997, the Company's mortgage-backed securities portfolio
classified as available for sale was comprised primarily of agency-issued
adjustable rate securities. The net unrealized losses on these investments
totaled $133,000 at June 30, 1997. The Company does not anticipate the need to
sell these securities in the near future. Management's strategy emphasizes
investment in securities guaranteed by the U.S. Government and its agencies in
order to minimize credit risk. The investment strategy also includes purchasing
variable rate mortgage-backed security products with monthly and annually
adjusting interest rates in order to minimize interest rate risk. These
securities provide the Company a continued cash flow stream through principal
paydowns and help reduce the Company's exposure to interest rate risk. See also
Note 2 of the Notes to Consolidated Financial Statements.
5.
<PAGE>
At June 30, 1997, the Company's CMOs and REMICs were comprised of
$4,589,000 in government agency issued securities and $62,000 in privately
issued securities. The Company does not consider these to be high risk and does
not expect loss of principal.
Loans. Loans increased from $111.5 million at June 30, 1996 to $131.3
million at June 30, 1997. Average loans comprised 81.6% of interest-earning
assets in 1997 compared to 80.1% in 1996. During the period, a significant
portion of the new loan originations were fixed rate loans which were sold to
the secondary market. The sale of these fixed rate loan originations corresponds
to the Bank's policy of selling virtually all fixed rate loan originations in
the secondary market, while maintaining variable rate loans in the Bank's
portfolio.
First Federal originated $44.3 million in mortgages during fiscal 1997,
of which $14.3 million were refinancing transactions. This compares with $42.8
million in mortgages originated in fiscal 1996, of which $17.4 million were
refinancing transactions. The Bank maintained $30.1 million of the 1997 loan
originations in portfolio, while the remaining $14.2 million were sold to the
secondary market. During the year, the balance of one- to four-family mortgage
loans increased $8.2 million, or 9.5%, primarily due to increased loan volume
resulting from the Company's business development and marketing efforts.
Consumer and other loans increased $5.1 million, or 32.6%, from $15.6
million at June 30, 1996 to $20.7 million at June 30, 1997. The increases were
primarily due to management's increased emphasis on originating consumer and
other loans, which resulted in a $3.9 million increase in commercial loans and a
$1.1 million increase in automobile and other loans. At June 30, 1997,
commercial loans comprised 38.9% of consumer and other loans. See also Notes 3
and 9 of the Notes to Consolidated Financial Statements.
Deposits and Borrowings. The Company's deposits are obtained primarily
from individuals and businesses in its market area. Total deposits increased
$4.7 million, or 4.1%, from $115.8 million at June 30, 1996 to $120.5 million at
June 30, 1997. The growth was primarily in certificates of deposits, which
increased $4.1 million during the period.
The Company offset the period's slow deposit growth and funded the loan
growth by taking additional advances from the FHLB. FHLB advances were increased
by $12.5 million during the period, bringing the total balance from $9.3 at June
30, 1996 to $21.8 million at June 30, 1997. The Company intends to continue
using FHLB advances, as needed, to fund loan growth. As of June 30, 1997, the
Company had the ability of borrow an additional $6.3 million from the FHLB. See
also Note 8 of the Notes to Consolidated Financial Statements.
6.
<PAGE>
Comparison of Results of Operations for the Years Ended June 30, 1997 and 1996
General. Net income remained relatively constant at $1.7 million for
1997 and 1996. This includes the $443,000 after tax impact of a 1997 special
assessment levied by the Federal Deposit Insurance Corporation upon institutions
with deposits insured by the SAIF. See also Note 10 of the Notes to Consolidated
Financial Statements. The Company experienced a return on average assets of
1.07% in 1997 compared to 1.20% in 1996, while return on average shareholders'
equity for the same periods was 8.25% and 8.33%, respectively. Excluding the
SAIF assessment, the Company would have reported net income of $2.1 million, an
increase of $450,000, or 27.0%, over 1996. The primary factor contributing to
the increase in net income, excluding the SAIF assessment, was an increase in
net interest income of $732,000.
Net Interest Income. Net interest income is the largest component of
the Company's net income, and consists of the difference between interest income
generated on interest-earnings assets and interest expense incurred on
interest-bearing liabilities. Net interest income is primarily affected by the
volumes, interest rates and composition of interest-earning assets and
interest-bearing liabilities.
Net interest income increased approximately $732,000, or 12.6%, from
$5.8 million in 1996 to $6.5 million in fiscal 1997. The primary component of
this change was a $1.3 million, or 14.1%, increase in interest income on loans.
The increase in interest income on loans consisted of a $1,392,000 increase due
to increased average volume in the loan portfolio and $59,000 decrease due to
decreasing average interest rates. The increase in interest income of $1,550,000
was partially offset by an $818,000, or 15.5%, increase in interest expense,
primarily on FHLB borrowings.
Average loans outstanding during fiscal 1997 increased $16.1 million,
or 14.8%, compared to fiscal 1996, while average investment and mortgage-backed
securities increased $4.8 million, or 23.0%, compared to the prior year. In
fiscal 1997, the Company experienced increases in yield on assets and cost of
liabilities of nine and five basis points, respectively, resulting in the
$1,550,000 increase in interest income and $818,000 increase in interest
expense. Net interest margin, however, remained constant at 4.26%. The Company's
average interest rate spread increased slightly from 3.66% in 1996 to 3.70% in
1997.
The tables appearing elsewhere in this report provide a more detailed
analysis of the changes in average balances, yields/rates and net interest
income identifying that portion of change in average volume versus that portion
due to change in average rates. See "Average Balances, Interest Rates and
Yields," "Rate/Volume Analysis of Net Interest Income" and "Weighted Average
Yields."
Provision for Loan Losses. The provision for loan losses is based on
management's regular review of the loan portfolio, which considers factors such
as past experience, prevailing general economic conditions and considerations
applicable to specific loans, such as the ability of the borrower to repay the
loan and the estimated value of the underlying collateral, as well as changes in
the size and growth of the loan portfolio. Management believes the allowance for
loan losses is adequate to absorb potential losses; however, future additions to
the allowance may be necessary based on changes in economic conditions.
7.
<PAGE>
The provision for loan losses remained constant at $120,000 for 1997
and 1996. At June 30, 1997, the allowance for loan losses represented .44% of
loans, net of unearned and deferred income, compared to .46% at June 30, 1996.
Noninterest Income. The Company experienced a $125,000, or 27.3%,
increase in noninterest income during 1997. The increase was primarily due to
increases in loan sale gains related to the adoption of Statement of Financial
Accounting Standards No. 122, which requires lenders who sell or securitize
originated loans and retain the servicing rights to recognize as separate assets
the rights to service mortgage loans for others. See also Note 1 of the Notes to
Consolidated Financial Statements.
Noninterest Expense. Noninterest expense increased $898,000, or 25.8%,
primarily due to the SAIF assessment and increased salaries and benefits
expense. Salaries and benefits increased $196,000, or 11.1%, for 1997, compared
to 1996. Of that increase, $136,000 was related to additional personnel added
for loan production and annual salary reviews, and $60,000 was related to costs
associated with the ESOP plan.
Income Taxes. The provision for income taxes totaled $947,000 in fiscal
1997 compared to $994,000 in fiscal 1996. See also Note 7 of the Notes to the
Consolidated Financial Statements.
Comparison of Results of Operations for the Years Ended June 30, 1996 and 1995
General. Net income for 1996 was $1.7 million compared to $1.5 million
for fiscal 1995. This represented a return on average assets of 1.20% in 1996
compared to 1.16% in 1995, while return on average shareholders' equity for the
same periods was 8.33% and 7.93%, respectively. The primary factor contributing
to the increase in net income was an increase in net interest income of
$544,000.
Net Interest Income. Net interest income is the largest component of
the Company's net income, and consists of the difference between interest income
generated on interest-earnings assets and interest expense incurred on
interest-bearing liabilities. Net interest income is primarily affected by the
volumes, interest rates and composition of interest-earning assets and
interest-bearing liabilities.
Net interest income increased approximately $544,000, or 10.4%, from
$5.3 million in 1995 to $5.8 million in fiscal 1996. The primary component of
this change was a $991,000, or 11.7%, increase in interest income on loans. The
increase in interest income on loans consisted of a $701,000 increase due to
rising average interest rates and $290,000 increase due to increased average
volume in the loan portfolio. The increased interest rate environment during
fiscal 1995 and early fiscal 1996 benefited the Company, as 65% of its one- to
four-family real estate loans repriced based on the one-year Treasury Index and
its commercial loans repriced based on either the one-year Treasury Index or
Prime. The increase in interest income was partially offset by an $894,000, or
20.3%, increase in interest expense, primarily on certificates of deposit and
money market accounts. Interest expense on certificates of deposit increased
primarily due to a $3.1 million increase in the average balance of total
certificates of deposit and a shift from lower yielding certificates to higher
yielding certificates, as rates paid on certificates of deposit increased during
the year. During fiscal 1996, the Company experienced a $2.8 million and $5.9
8.
<PAGE>
million decrease in 3.00% to 3.99% and 6.00% to 7.99% certificates,
respectively, while the 4.00% to 5.99% increased $9.3% million. In addition,
interest paid on FHLB deposits decreased $83,000 to $408,000 from $491,000.
Average loans outstanding during fiscal 1996 increased $3.5 million, or
3.34% compared to fiscal 1995, while average investment and mortgage-backed
securities increased $3.8 million, or 22.7%, compared to the prior year. In
fiscal 1996, the Company experienced increases in yield on assets and cost of
liabilities of 46 and 49 basis points, respectively. As a result, interest
income increased by $1,438,000, while interest expense increased by $894,000,
and net interest margin increased to 4.26% from 4.19% in the prior year. The
Company's average interest rate spread decreased slightly from 3.69% in 1995 to
3.66% in 1996.
While the interest rate environment of recent years has proven
beneficial to most financial institutions, including the Company, increases in
market rates of interest generally adversely affect the net income of most
financial institutions. Because the Company's liabilities may reprice more
quickly than its assets, interest margins could decrease if interest rates
continue to rise.
The tables appearing elsewhere in this report provide a more detailed
analysis of the changes in average balances, yields/rates and net interest
income identifying that portion of change in average volume versus that portion
due to change in average rates. See "Average Balances, Interest Rates and
Yields," "Rate/Volume Analysis of Net Interest Income" and "Weighted Average
Yields."
Provision for Loan Losses. The provision for loan losses is based on
management's regular review of the loan portfolio, which considers factors such
as past experience, prevailing general economic conditions and considerations
applicable to specific loans, such as the ability of the borrower to repay the
loan and the estimated value of the underlying collateral, as well as changes in
the size and growth of the loan portfolio. Management believes the allowance for
loan losses is adequate to absorb potential losses; however, future additions to
the allowance may be necessary based on changes in economic conditions.
The provision for loan losses increased from $60,000 in 1995 to
$120,000 in 1996. At June 30, 1996, the allowance for loan losses represented
.46% of loans, net of unearned and deferred income, compared to .37% at June 30,
1995.
During fiscal year 1996, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 114, "Accounting by Creditors for Impairment
of a Loan," and SFAS No. 118 which require the carrying value of an impaired
loan be determined by calculating the present value of estimated future cash
flows discounted using the loan's effective interest yield. The adoption of
these pronouncements did not have a significant impact on the Company's
financial statements.
Noninterest Income. The Company experienced a $138,000, or 42.9%,
increase in noninterest income during 1996. The increase was primarily due to
increases in loan sale gains from increased volume in fixed rate mortgage loan
originations and increases in service charges related to additional life,
accident and health insurance sales.
9.
<PAGE>
Noninterest Expense. Noninterest expense increased $198,000, or 6.0%,
primarily due to increased salaries and benefits expense and franchise taxes.
Salaries and benefits increased $132,000, or 8.0%, for 1996, compared to 1995,
primarily due to additional personnel added for loan production and annual
salary reviews. Franchise taxes increased due to the increased capital from the
Conversion, as well as from retained earnings.
Income Taxes. The provision for income taxes totaled $994,000 in fiscal
1996 compared to $737,000 in fiscal 1995. The increase was primarily the result
of an increase in pretax income. See also Note 8 of the Notes to the
Consolidated Financial Statements.
Average Balances, Interest Rates and Yields. The following table
presents for the periods indicated the total dollar amount of interest income
from average interest-earning assets and the resultant yields, as well as the
interest expense on average interest-bearing liabilities, expressed both in
dollars and rates. Average balances for both 1997 and 1996 are derived from
daily balances. Non-accruing loans have been included in the table as loans
carrying a zero yield.
<PAGE>
<TABLE>
<CAPTION>
Year Ended June 30,
------------------------------------------------------------------------------
1997 1996
------------------------------------ ------------------------------------
Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate Balance Paid Rate
----------- ----------- -------- ----------- ----------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans (1) $ 124,973 $ 10,804 8.65% $ 108,880 $ 9,471 8.70%
Investment securities (2) 16,211 1,071 6.57 11,654 692 5.97
Mortgage-backed securities (2) 9,320 604 6.41 9,117 577 6.28
FHLB deposits 353 20 5.77 3,521 187 5.33
Interest-bearing cash accounts 646 21 3.26 944 34 3.58
Other interest-earning assets 255 20 7.72 606 36 5.92
FHLB stock 1,343 95 7.05 1,253 88 7.01
----------- ----------- -------- ----------- ----------- -------
Total interest-earnings
assets $ 153,101 12,635 8.24 $ 135,975 11,085 8.15
=========== ----------- -------- =========== ----------- -------
Interest-bearing liabilities:
Money market 20,602 852 4.13 $ 18,822 833 4.43
Savings deposits 19,598 535 2.73 20,152 577 2.87
NOW 12,858 222 1.72 11,957 225 1.88
Time deposits 61,557 3,349 5.44 59,900 3,241 5.41
FHLB borrowings 19,706 1,143 5.80 6,868 408 5.94
Other borrowings 240 6 2.48 200 5 2.68
----------- ----------- -------- ----------- ----------- -------
Total interest-bearing
liabilities $ 134,561 6,107 4.54 $ 117,899 5,289 4.49
=========== ----------- -------- =========== ----------- -------
Net interest income $ 6,528 $ 5,796
=========== ===========
Net interest rate spread 3.70% 3.66%
======== =======
Net earning assets $ 18,540 $ 18,076
=========== ===========
Net yield on average
interest-earning assets 4.26% 4.26%
======== =======
Average interest-earning
assets to average interest-
bearing liabilities 113.78% 115.33%
=========== ==========
</TABLE>
- --------------------------------------------------------------------------------
(1) Calculated net of deferred loan fees, loan discounts, loans in process and
loss reserves.
(2) Average balance is computed using the carrying value of securities. The
average yield has been computed using the amortized cost average balance
for available sale securities.
10.
<PAGE>
Rate/Volume Analysis of Net Interest Income. The following table
presents the dollar amount of changes in interest income and interest expense
for major components of interest-earning assets and interest-bearing
liabilities. It distinguishes between the increase or decrease related to
changes in balances and/or changes in interest rates. For each category of
interest-earning assets and interest-bearing liabilities, information is
provided on changes attributable to (i) changes in volume (i.e., changes in
volume multiplied by old rate) and (ii) changes in rate (i.e., changes in rate
multiplied by old volume). For purposes of this table, changes attributable to
both rate and volume, which cannot be segregated, have been allocated
proportionately to the change due to volume and the change due to rate.
<TABLE>
<CAPTION>
Year Ended June 30,
--------------------------------------------------------------------------------
1997 vs. 1996 1996 vs. 1995
--------------------------------------- -------------------------------------
Increase Increase
(Decrease) (Decrease)
Due to Total Due to Total
---------------------- Increase -------------------- Increase
Volume Rate (Decrease) Volume Rate (Decrease)
------ ---- ---------- ------ ---- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans $ 1,392 $ (59) $ 1,333 $ 290 $ 701 $ 991
Investment securities 305 74 379 141 (6) 135
Mortgage-backed securities 16 11 27 91 34 125
FHLB deposits (182) 15 (167) 151 2 153
Interest-bearing cash
accounts (10) (3) (13) (2) 1 (1)
Other interest-earning
assets (25) 9 (16) 14 8 22
FHLB stock 6 1 7 5 8 13
----------- ----------- ----------- ----------- ----------- -----------
Total interest-earning
assets $ 1,502 $ 48 1,550 $ 690 $ 748 1,438
=========== =========== ----------- =========== =========== -----------
Interest-bearing liabilities:
Money market $ 76 $ (57) 19 $ 359 $ 138 497
Savings deposits (16) (26) (42) (114) (6) (120)
NOW 16 (19) (3) 32 (30) 2
Time deposits 90 18 108 151 447 598
FHLB borrowings 745 (10) 735 (82) (1) (83)
Other borrowings 1 1 1 (1)
----------- ----------- ----------- ----------- ------------
Total interest-bearing
liabilities $ 912 $ (94) 818 $ 347 $ 547 894
=========== =========== ----------- =========== =========== -----------
Net interest income $ 732 $ 544
=========== ===========
</TABLE>
11.
<PAGE>
Weighted Average Yields. The following table sets forth the weighted
average yields earned on the Company's interest-earning assets, the weighted
average interest rates paid on its interest-bearing liabilities and the interest
rate spread between the average yields earned and rates paid at the dates
indicated.
<TABLE>
<CAPTION>
At June 30,
----------------------
1997 1996
---- ----
<S> <C> <C>
Weighted average yield on:
Loans receivable 8.46% 8.24%
Mortgage-backed securities 6.52 6.43
Investment securities 6.87 6.33
Other interest-earning assets 5.97 5.87
Combined weighted average yield
on interest-earning assets 8.12 7.82
Weighted average rate paid on:
Savings deposits 2.74 2.77
NOW deposits 1.68 1.65
Money market accounts 4.05 4.19
Time deposits 5.60 5.34
Borrowings 5.88 5.78
Combined weighted average rate
paid on interest-bearing liabilities 4.58 4.36
Spread 3.54 3.46
</TABLE>
Asset/Liability Management
The Company's asset/liability management strategy emphasizes the
retention of adjustable rate loans and mortgage-backed securities in its
portfolio in order to reduce the effective maturity of its assets. In addition,
First Federal originates other loans, specifically consumer loans, with shorter
terms to maturity or which reprice more frequently than do long-term fixed rate
mortgage loans, yet provide a positive margin over the Company's cost of funds.
Under First Federal's current policy, virtually all fixed rate mortgage loans
are sold in the secondary market. At June 30, 1997 and 1996, fixed rate loans
totaled $26.8 million, or 20.0% and $30.7 million, or 26.4%, respectively, of
the Company's gross loan portfolio. At such dates, adjustable rate loans totaled
$107.5 million, or 80.0% and $85.6 million, or 73.6%, of the Company's gross
loan portfolio, respectively.
Proposed regulations of the Office of Thrift Supervision (the "OTS"),
First Federal's primary regulator, provide a Net Portfolio Value ("NPV")
approach to the quantification of interest rate risk. In essence, this approach
calculates the difference between the present value of expected cash flows from
assets and the present value of expected cash flows from liabilities, as well as
cash flows from off balance sheet contracts, arising from an assumed 200 basis
point increase or decrease in interest rates (whichever results in the greater
pro forma decrease in NPV). Under OTS proposed regulations, an institution's
"normal" level of interest rate risk in the event of this assumed change in
interest rates is a decrease in the institution's NPV in an amount not exceeding
2% of the present value of its assets. Thrift institutions with greater than
"normal" interest rate exposure must take a deduction from their total capital
available to
12.
<PAGE>
determine if they meet their risk-based capital requirement. The amount of that
deduction is one-half of the difference between (a) the institution's actual
calculated exposure and (b) its "normal" level of exposure, multiplied by the
present value of its assets. Savings associations, such as First Federal, with
less than $300 million in assets and a risk-based capital ratio in excess of 12%
are exempt from this requirement unless the OTS determines otherwise. At June
30, 1997, 2.0% of the present value of First Federal's assets was approximately
$3.4 million, which was more than the $1,826,000 decrease in NPV resulting from
a 200 basis point change in interest rates as calculated by the OTS. As a
result, First Federal currently would not be required to make a deduction from
total capital in calculating its risk-based capital requirement if it were
subject to this requirement.
First Federal's asset/liability management strategy dictates acceptable
limits on the amounts of change in NPV given certain changes in interest rates.
Presented below, as of June 30, 1997, is an OTS analysis of First Federal's
interest rate risk as measured by changes in NPV for instantaneous and sustained
parallel shifts in the yield curve, in 100 basis point increments, up and down
300 basis points and compared to Bank policy limits. OTS assumptions are used in
calculating the amounts in this table.
<TABLE>
<CAPTION>
Actual at June 30, 1997
Changes in As Measured by OTS
Interest Rates Bank Limit -----------------------
(Basis Points) % Change $ Change % Change
-------------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
+300 60% $ (3,586) (17)%
+200 40 (1,826) (9)
+100 15 (596) (3)
0 0 --- ---
-100 15 25 0
-200 40 (201) (1)
-300 60 (52) 0
</TABLE>
Management has structured its assets and liabilities to attempt to
lessen exposure to interest rate risk. In the event of a 300 basis point change
in interest rates, First Federal would experience a 0% change in NPV in a
declining interest rate environment and a 17% decrease in a rising interest rate
environment. During periods of rising interest rates, the value of monetary
assets and monetary liabilities generally decline. Conversely, during periods of
falling interest rates, the value of monetary assets and liabilities generally
increase. However, the amount of change in value of specific assets and
liabilities due to changes in interest rates is not the same in a rising
interest rate environment as in a falling interest rate environment (i.e., the
amount of value increase under a specific interest rate decrease may not equal
the amount of value decrease under an identical interest rate increase).
In evaluating First Federal's exposure to interest rate risk, certain
shortcomings inherent in the method of analysis presented in the foregoing table
must be considered. For example, although certain assets and liabilities may
have similar maturities or period to repricing, they may react in different
degrees to changes in market interest rates. In addition, the interest rates on
certain types of assets and liabilities may fluctuate in advance of changes in
market interest rates, while interest rates on other types may lag behind
changes in market rates. Furthermore,
13.
<PAGE>
in the event of a change in interest rates, prepayments and early withdrawal
levels would likely deviate significantly from those assumed in calculating the
table. Finally, the ability of many borrowers to service their debt may decrease
in the event of an interest rate increase. As a result, the actual effect of
changing interest rates may differ from that presented in the foregoing table.
Liquidity and Capital Resources
Liquidity. The Company's liquidity, primarily represented by cash
equivalents, is a result of its operating, investing and financing activities.
These activities are summarized below for the years ended June 30, 1997 and
1996.
<TABLE>
<CAPTION>
Year Ended June 30,
-----------------------------------
(In Thousands)
1997 1996
-------------- --------------
<S> <C> <C>
Net income $ 1,675 $ 1,668
Adjustments to reconcile net income to
net cash from operating activities 912 (62)
-------------- --------------
Net cash from operating activities 2,587 1,606
Net cash used in investing activities (17,474) (11,239)
Net cash from financing activities 15,165 9,449
-------------- --------------
Net change in cash and cash equivalents 278 (184)
Cash and cash equivalents at beginning of period 2,637 2,821
-------------- --------------
Cash and cash equivalents at end of period $ 2,915 $ 2,637
============== ==============
</TABLE>
The Company's sources of funds include customer deposits, loan and
mortgage-backed securities repayments and other funds provided by operations.
The Company also has the ability to borrow from the FHLB of Cincinnati. The
Company maintains investments in liquid assets based upon management's
assessment of (i) First Federal's need for funds, (ii) expected deposit flows,
(iii) the yields available on short-term liquid assets, and (iv) the objectives
of the Company's asset/liability management program. The OTS requires savings
associations to maintain minimum levels of liquid assets. OTS regulations
currently require First Federal to maintain an average daily balance of liquid
assets equal to at least 5% of the sum of its average daily balance of net
withdrawable deposit accounts and borrowings payable in one year or less. At
June 30, 1997, First Federal's regulatory liquidity ratio was 6.64% compared to
7.88% at June 30, 1996. At June 30, 1997 and 1996, First Federal had commitments
to originate loans or fund outstanding lines of credit totaling $11.7 million
and $11.5 million, respectively. The Company considers its liquidity sufficient
to meet its outstanding short- and long-term needs. The Company expects to be
able to fund or refinance, on a timely basis, its material commitments and
long-term liabilities.
Cash Flow. The most significant investing cash flow in 1997 was related
to a $19.9 million net increase in loans. The most significant financing
activity was an $12.5 million increase in FHLB advances.
14.
<PAGE>
The most significant investing cash flow in 1996 was related to
investment and mortgage-backed securities purchases of $10.0 million. The most
significant financing activity was an $11.0 million increase in deposits.
Capital Resources. Federally insured savings institutions, such as
First Federal, are required to meet a 1.5% tangible capital requirement, a 3.0%
leverage ratio (core capital to risk weighted assets) requirement, a 4.0%
leverage ratio (core capital to adjusted total assets) requirement and an 8.0%
risk-based capital requirement. At June 30, 1997, First Federal exceeded these
requirements with tangible capital ratio of 8.71%, a core capital to risk
weighted assets ratio of 14.67%, a core capital to adjusted total assets of
8.71% and a risk-based capital ratio of 15.20%. See Note 14 of the Notes to
Consolidated Financial Statements.
The following table summarizes First Federal's capital amounts (in
thousands) and the ratios required by law at June 30, 1997.
<TABLE>
<CAPTION>
Required Actual Required
Amount Amount Excess Ratio Ratio
------ ------ ------ ----- -----
<S> <C> <C> <C> <C> <C>
Tangible capital $ 14,041 $ 2,417 $ 11,624 8.71% 1.5%
Core capital to
adjusted total assets 14,041 4,834 9,207 8.71 3.0
Core capital to risk
weighted assets 14,041 3,829 10,212 14.67 4.0
Risk-based capital 14,554 7,658 6,896 15.20 8.0
</TABLE>
Accounting Standards
Recent pronouncements by the Financial Accounting Standards Board
("FASB") will have an impact on financial statements issued in subsequent
periods. Set forth below are summaries of such pronouncements.
Several new accounting standards have been issued by the FASB that will
apply for the Company's consolidated financial statements for the year ending
June 30, 1998.
SFAS No. 125, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities," was issued in 1996. It revises the
accounting for transfers of financial assets, such as loans and securities, and
for distinguishing between sales and secured borrowings. It became effective for
some transactions occurring after December 31, 1996, and will be effective for
others in 1998. The impact of partial adoption in 1997 was not material to the
1997 consolidated financial statements and the impact of the complete adoption
in 1998 is also not expected to be material to the consolidated financial
statements.
In March 1997, the accounting requirements for calculating earnings per
share were revised by SFAS No. 128 "Earnings Per Share." Basic earnings per
share for the quarter ended December 31, 1997 and later will be calculated
solely on average common shares outstanding. Diluted earnings per share will
reflect the potential dilution of stock options and other common stock
equivalents. All prior calculations will be restated to be comparable to the new
methods.
15.
<PAGE>
As the Company has not had significant dilution from stock options, the new
calculation methods will not significantly change prior earnings per share
disclosures.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This Statement establishes standards for reporting and display of
comprehensive income and its components (revenue, expenses, gains and losses) in
a full set of general-purpose financial statements. This Statement requires that
all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. Income tax
effects must also be shown. This Statement is effective for fiscal years
beginning after December 15, 1997.
In June 1997, the FASB issued SFAS No. 131 "Disclosures about Segments
of an Enterprise and Related Information." SFAS No. 131 establishes standards
for the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
This statement is effective for financial statements for periods beginning after
December 15, 1997.
These statements are not expected to have a material effect on the
Company's consolidated financial position or results of operation.
Impact on Inflation and Changing Prices
The financial statements and related data presented herein have been
prepared in accordance with generally accepted accounting principles, which
require the measurement of financial position and results of operations
primarily in terms of historical dollars without considering changes in the
relative purchasing power of money over time due to inflation. Unlike most
industrial companies, virtually all of the assets and liabilities of First
Federal are monetary in nature. As a result, interest rates have a more
significant impact on a financial institution's performance than the effects of
general levels of inflation. Interest rates do not necessarily move in the same
direction or in the same magnitude as the prices of goods and services. The
liquidity, maturity structure and quality of First Federal's assets and
liabilities are critical to the maintenance of acceptable performance levels.
16.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Wood Bancorp, Inc.
Bowling Green, Ohio
We have audited the accompanying consolidated balance sheets of Wood Bancorp,
Inc. as of June 30, 1997 and 1996, and the related consolidated statements of
income, changes in shareholders' equity and cash flows for each of the three
years in the period ended June 30, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Wood Bancorp, Inc.
as of June 30, 1997 and 1996, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended June 30, 1997, in
conformity with generally accepted accounting principles.
Crowe, Chizek and Company LLP
Cleveland, Ohio
July 25, 1997
17.
<PAGE>
<TABLE>
<CAPTION>
WOOD BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
June 30, 1997 and 1996
- ---------------------------------------------------------------------------------------------------------------
1997 1996
---- ----
<S> <C> <C>
ASSETS
Cash and due from banks $ 2,844,578 $ 2,622,396
Federal funds sold 70,000 15,000
---------------- ----------------
Cash and cash equivalents 2,914,578 2,637,396
Interest-bearing deposits in other financial institutions 2,229,104 77,715
Repurchase agreement 2,500,000
Investment securities available for sale 14,148,537 15,885,647
Mortgage-backed securities available for sale 8,844,333 9,648,337
Loans, net 131,317,923 111,456,292
Office properties and equipment, net 1,860,331 1,359,034
Federal Home Loan Bank stock, at cost 1,403,200 1,308,600
Accrued interest receivable 853,736 816,501
Other assets 346,100 559,160
---------------- ----------------
Total assets $ 163,917,842 $ 146,248,682
================ ================
LIABILITIES
Deposits $ 120,546,079 $ 115,829,891
Federal Home Loan Bank advances 21,775,306 9,315,945
Accrued interest payable 193,166 89,212
Other liabilities 1,237,711 891,636
---------------- ----------------
Total liabilities 143,752,262 126,126,684
---------------- ----------------
Commitments
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value, 500,000 shares
authorized, no shares issued or outstanding
Common stock, $.01 par value, 2,500,000 shares
authorized, 1,657,347 shares issued in 1997,
1,655,847 shares issued in 1996 16,573 11,039
Additional paid-in capital 10,884,182 10,686,033
Retained earnings-substantially restricted 12,805,953 11,688,467
Treasury stock at cost: 1997 - 244,886 shares;
1996 - 158,211 shares (3,130,066) (1,671,491)
Obligation under employee stock ownership
plan (301,741) (409,161)
Unearned compensation (30,977) (42,561)
Unrealized loss on available for sale securities, net (78,344) (140,328)
---------------- ----------------
Total shareholders' equity 20,165,580 20,121,998
---------------- ----------------
Total liabilities and shareholders' equity $ 163,917,842 $ 146,248,682
================ ================
</TABLE>
See accompanying notes to consolidated financial statements.
18.
<PAGE>
<TABLE>
<CAPTION>
WOOD BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
Years ended June 30, 1997, 1996 and 1995
- -----------------------------------------------------------------------------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Interest income
Loans $ 10,804,173 $ 9,471,271 $ 8,480,319
Investment securities 1,070,865 691,907 556,523
Mortgage-backed and related securities 604,152 576,583 451,366
FHLB deposits 20,365 187,556 34,941
Other 135,505 157,591 123,948
-------------- -------------- --------------
Total interest income 12,635,060 11,084,908 9,647,097
-------------- -------------- --------------
Interest expense
Deposits 4,957,409 4,875,161 3,898,921
FHLB borrowings 1,143,352 408,071 490,727
Other 5,974 5,361 5,232
-------------- -------------- --------------
Total interest expense 6,106,735 5,288,593 4,394,880
-------------- -------------- --------------
Net interest income 6,528,325 5,796,315 5,252,217
Provision for loan losses 120,000 120,000 60,000
-------------- -------------- --------------
Net interest income after provision
for loan losses 6,408,325 5,676,315 5,192,217
-------------- -------------- --------------
Noninterest income
Service charges 282,447 227,099 207,635
Security gains (461) 4,713
Net gains from sale of loans 199,162 105,039 25,108
Other 103,686 127,395 84,087
-------------- -------------- --------------
Total noninterest income 584,834 459,533 321,543
-------------- -------------- --------------
<PAGE>
<CAPTION>
WOOD BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
Years ended June 30, 1997, 1996 and 1995
- -----------------------------------------------------------------------------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Noninterest expense
Salaries and benefits 1,972,201 1,775,920 1,643,973
Occupancy and equipment 379,551 346,669 344,516
Data processing 305,852 269,794 267,323
Insurance expense 864,479 284,642 269,818
Franchise taxes 228,574 250,077 196,061
Advertising and promotional expense 159,718 142,754 130,652
Other 460,864 403,563 423,343
-------------- -------------- --------------
Total noninterest expense 4,371,239 3,473,419 3,275,686
-------------- -------------- --------------
Income before income tax 2,621,920 2,662,429 2,238,074
Provision for income tax 946,525 994,150 737,450
-------------- -------------- --------------
Net income $ 1,675,395 $ 1,668,279 $ 1,500,624
============== ============== ==============
Earnings per common share $ .74 $ .72 $ .63
============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
19.
<PAGE>
<TABLE>
<CAPTION>
WOOD BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Years ended June 30, 1997, 1996 and 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Additional Obligation
Common Paid-in Retained Treasury Under Unearned
Stock Capital Earnings Stock ESOP Compensation
----- ------- -------- ----- ---- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at July 1, 1994 $ 11,039 $ 10,511,732 $ 9,158,973 $ (488,829) $ (639,600) $ (203,974)
Reduction of obligation under employee
stock ownership plan 117,819
Compensation expense with respect to
recognition and retention plan 102,629
Tax benefit related to recognition and
retention plan 12,889
Purchase of treasury stock, 26,250 shares (249,375)
ESOP expense related to market in excess
of book value of shares allocated 53,018
Change in unrealized loss on securities
available for sale
Net income for the year ended June 30, 1995 1,500,624
Cash dividends - $.13 per share (296,072)
----------- ------------- ----------- ----------- ----------- -----------
Balance at June 30, 1995 11,039 10,577,639 10,363,525 (738,204) (521,781) (101,345)
Reduction of obligation under employee
stock ownership plan 112,620
Compensation expense with respect to
recognition and retention plan 58,784
Tax benefit related to recognition and
retention plan 23,704
Purchase of treasury stock, 78,600 shares (960,925)
ESOP expense related to market in excess
of book value of shares allocated 84,690
Stock options exercised, 3,189 shares (6,379) 27,638
Change in unrealized loss on securities
available for sale
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Unrealized
Gains (Losses)
on Securities Total
Available for Shareholders'
Sale, Net Equity
--------- ------
<S> <C> <C>
Balance at July 1, 1994 $ (107,884) $18,241,457
Reduction of obligation under employee
stock ownership plan 117,819
Compensation expense with respect to
recognition and retention plan 102,629
Tax benefit related to recognition and
retention plan 12,889
Purchase of treasury stock, 26,250 shares (249,375)
ESOP expense related to market in excess
of book value of shares allocated 53,018
Change in unrealized loss on securities
available for sale 131,309 131,309
Net income for the year ended June 30, 1995 1,500,624
Cash dividends - $.13 per share (296,072)
----------- --------
Balance at June 30, 1995 23,425 19,614,298
Reduction of obligation under employee
stock ownership plan 112,620
Compensation expense with respect to
recognition and retention plan 58,784
Tax benefit related to recognition and
retention plan 23,704
Purchase of treasury stock, 78,600 shares (960,925)
ESOP expense related to market in excess
of book value of shares allocated 84,690
Stock options exercised, 3,189 shares 21,259
Change in unrealized loss on securities
available for sale (163,753) (163,753)
</TABLE>
(Continued)
20.
<PAGE>
<TABLE>
<CAPTION>
WOOD BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Years ended June 30, 1997, 1996 and 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Additional Obligation
Common Paid-in Retained Treasury Under Unearned
Stock Capital Earnings Stock ESOP Compensation
----- ------- -------- ----- ---- ------------
<S> <C> <C> <C> <C> <C> <C>
Net income for the year ended June 30, 1996 $ 1,668,279
Cash dividends - $.15 per share (336,958)
----------- ------------- ----------- ----------- ----------- -----------
Balance at June 30, 1996 $ 11,039 $ 10,686,033 11,688,467 $(1,671,491) $ (409,161) $ (42,561)
Reduction of obligation under
employee stock ownership plan 107,420
Compensation expense with respect to
recognition and retention plan 34,834
Tax benefit related to recognition and
retention plan 24,902
Purchase of treasury stock, 90,450 shares (1,491,300)
ESOP expense related to market in excess
of book value of shares allocated 150,012
Stock options exercised, 3,775 shares (7,546) 32,725
Change in unrealized loss on securities
available for sale
Stock dividend 5,519 (5,519)
Shares issued with respect to recognition
and retention plan 1,500 shares 15 23,235 (23,250)
Net income for the year ended June 30, 1997 1,675,395
Cash dividends - $.25 per share (544,844)
----------- ------------- ----------- ----------- ----------- -----------
Balance at June 30, 1997 $ 16,573 $ 10,884,182 $12,805,953 $(3,130,066) $ (301,741) $ (30,977)
=========== ============= =========== =========== =========== ===========
<PAGE>
<CAPTION>
Unrealized
Gains (Losses)
on Securities Total
Available for Shareholders'
Sale, Net Equity
--------- ------
<S> <C> <C>
Net income for the year ended June 30, 1996 $ 1,668,279
Cash dividends - $.15 per share (336,958)
----------- -----------
Balance at June 30, 1996 $ (140,328) 20,121,998
Reduction of obligation under
employee stock ownership plan 107,420
Compensation expense with respect to
recognition and retention plan 34,834
Tax benefit related to recognition and
retention plan 24,902
Purchase of treasury stock, 90,450 shares (1,491,300)
ESOP expense related to market in excess
of book value of shares allocated 150,012
Stock options exercised, 3,775 shares 25,179
Change in unrealized loss on securities
available for sale 61,984 61,984
Stock dividend
Shares issued with respect to recognition
and retention plan 1,500 shares
Net income for the year ended June 30, 1997 1,675,395
Cash dividends - $.25 per share (544,844)
----------- -----------
Balance at June 30, 1997 $ (78,344) $20,165,580
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
21.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended June 30, 1997, 1996 and 1995
- --------------------------------------------------------------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 1,675,395 $ 1,668,279 $ 1,500,624
Adjustments to reconcile net income
to net cash from operating activities
Depreciation 131,122 115,493 121,629
Gain on loan sales (199,162) (105,039) (25,108)
Loans originated for sale (14,182,540) (18,497,220) (3,026,255)
Proceeds from sale of loans 14,212,692 18,602,259 3,051,363
Provision for loan losses 120,000 120,000 60,000
Net accretion (117,999) (36,775) (47,142)
Investment security gains 461 (4,713)
Stock dividend on FHLB stock (94,600) (87,700) (75,000)
Amortization of unearned
compensation 34,834 58,784 102,629
Tax benefit from recognition and
retention plan shares 24,902 23,704 12,889
ESOP expense 257,432 197,310 170,839
Change in
Interest receivable (37,235) (209,577) (118,361)
Other assets 351,716 (258,867) (90,994)
Income taxes payable (35,191) (32,335) 29,172
Other liabilities 256,606 (23,015) 110,182
Interest payable 103,954 (9,836) 14,449
Deferred loan fees (8,074) (454) (30,979)
Deferred taxes 92,731 81,554
------------ ------------ ------------
Net cash from operating
activities 2,587,044 1,606,565 1,755,224
------------ ------------ ------------
Cash flows from investing activities
Net change in interest-bearing
balances with banks (2,151,389) 274,686 851,850
Investment and mortgage-backed
securities available for sale
Proceeds from sales 1,050,000 59,713
Proceeds from maturities and calls 5,220,000 713,481 573
Purchases (4,300,000) (10,177,915) (56,462)
Proceeds from principal payments
on mortgage-backed securities 782,565 1,341,966 687,943
</TABLE>
(Continued)
22.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended June 30, 1997, 1996 and 1995
- ------------------------------------------------------------------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from investing activities (continued)
Investment and mortgage-backed
securities held to maturity
Proceeds from maturities and calls $ 500,000 $ 2,115,000
Purchases (662,944) (2,821,865)
Proceeds from principal payments
on mortgage-backed securities 174,342 238,525
Net increase in loans $(19,943,203) (758,798) (10,340,714)
Properties and equipment
expenditures, net (632,419) (143,354) (173,225)
Purchases of repurchase agreements (5,000,000)
Proceeds from repurchase agreements 2,500,000 2,500,000
------------ ------------ ------------
Net cash from investing activities (17,474,446) (11,238,536) (9,438,662)
------------ ------------ ------------
Cash flows from financing activities
Net change in deposits 4,716,188 10,985,291 4,457,099
Proceeds from FHLB borrowings 24,150,000 8,500,000 4,900,000
Repayment of FHLB borrowings (11,690,639) (8,759,883) (177,514)
Proceeds from issuance of stock 25,179 21,259
Cash dividends paid (544,844) (336,958) (296,072)
Purchase of treasury stock (1,491,300) (960,925) (249,375)
------------ ------------ ------------
Net cash from financing activities 15,164,584 9,448,784 8,634,138
------------ ------------ ------------
Net change in cash and cash equivalents 277,182 (183,187) 950,700
Cash and cash equivalents at beginning
of year 2,637,396 2,820,583 1,869,883
------------ ------------ ------------
Cash and cash equivalents at end of year $ 2,914,578 $ 2,637,396 $ 2,820,583
============ ============ ============
Supplemental disclosures of cash flow
information
Cash paid during the year for
Interest $ 6,002,781 $ 5,298,429 $ 4,380,431
Income taxes 842,850 860,682 688,300
Noncash activities
Transfer securities to available
for sale - 8,705,534
</TABLE>
See accompanying notes to consolidated financial statements.
23.
<PAGE>
WOOD BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997, 1996 and 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation Policy: The consolidated financial statements include the accounts
of Wood Bancorp, Inc. (the "Company") and its wholly owned subsidiary, First
Federal Bank (the "Bank"). All significant intercompany transactions and
balances have been eliminated.
Industry Segment Information: The Company is engaged in the business of banking
with operations conducted through its main office and five branches located in
Bowling Green, Ohio, and neighboring communities. These communities are the
source of substantially all of the Company's deposit and loan activities. The
majority of the Company's income is derived from one- to four-family residential
real estate loans.
Use of Estimates in Preparation of Financial Statements: In preparing financial
statements, management must make estimates and assumptions. These estimates and
assumptions affect the amounts reported for assets, liabilities, revenues and
expenses as well as affecting the disclosures provided. Future results could
differ from current estimates. Areas involving the use of management's estimates
and assumptions primarily include the allowance for loan losses, the realization
of deferred tax assets, fair value of certain securities and capitalized
mortgage loan servicing rights and the determination and carrying value of
impaired loans.
Cash Reserves: At June 30, 1997, the Company was required to have $342,000 on
deposit with the Federal Reserve Bank or as cash on hand. These reserves do not
earn interest.
Investment Securities: Securities are classified into held-to-maturity,
available-for-sale, and trading categories. Held-to-maturity securities are
those which the Company has the positive intent and ability to hold to maturity,
and are reported at amortized cost. Available-for-sale securities are those
which the Company may decide to sell if needed for liquidity, asset-liability
management, or other reasons. Available-for-sale securities are reported at fair
value, with unrealized gains or losses included as a separate component of
equity, net of tax.
Realized gains or losses on sales are determined based on the amortized cost of
the specific security sold. Amortization of premiums and accretion of discounts
are computed under the level-yield method and are recognized as adjustments to
interest income. Prepayment activity on mortgage-backed securities is affected
primarily by changes in interest rates. Yields on mortgage-backed securities are
adjusted as prepayments occur through changes to premium amortization or
discount accretion.
24.
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loans: Interest income on loans is accrued over the term of the loans based upon
the principal outstanding. The accrual of interest on loans is suspended when,
in management's opinion, the collection of all or a portion of the loan
principal has become doubtful. When a loan is placed on nonaccrual status,
accrued and unpaid interest at risk is charged against income. Under Statement
of Financial Accounting Standards ("SFAS") No. 114, as amended by SFAS No. 118,
the carrying value of impaired loans is periodically adjusted to reflect cash
payments, revised estimates of future cash flows and increases in the present
value of expected cash flows due to the passage of time. Cash payments
representing interest income are reported as such and other cash payments are
reported as reductions in carrying value. Increases or decreases in carrying
value due to changes in estimates of future payments or the passage of time are
reported as reductions or increases in bad debt expense.
Effective July 1, 1996, the Company adopted SFAS No. 122, "Accounting for
Mortgage Servicing Rights." SFAS No. 122 requires lenders who sell or securitize
originated loans and retain the servicing rights to recognize as separate assets
the rights to service mortgage loans for others. SFAS No. 122 also requires that
capitalized mortgage servicing rights be assessed for impairment based on the
fair value of those rights. For purposes of measuring impairment, management
stratifies loans by loan type, interest rate and investor. SFAS No. 122 did not
materially impact the Company's financial condition or results of operations.
Mortgage loans originated by the Bank and intended for sale in the secondary
market are carried at the lower of cost or estimated market value in the
aggregate. Net unrealized losses are recognized in a valuation allowance by
charges to income. To mitigate the interest rate risk associated with loans held
for sale, management obtains fixed secondary market purchase commitments for
these loans.
Loan fees, net of direct loan origination costs, are deferred and recognized
over the life of the loan as a yield adjustment.
Allowance for Loan Losses: Because some loans may not be repaid in full, an
allowance for loan losses is maintained. Increases to the allowance are recorded
by a provision for loan losses charged to expense. Estimating the risk of the
loss and the amount of loss on any loan is necessarily subjective. Accordingly,
the allowance is maintained by management at a level considered adequate to
cover losses that are currently anticipated based on past loss experience,
general economic conditions, information about specific borrower situations
including their financial position and collateral values, and other factors and
estimates which are subject to change over time. While management may
periodically allocate portions of the allowance for specific problem loan
situations, the whole allowance is available for any loan charge-offs that
occur. A loan is charged-off against the allowance by management when deemed
uncollectible, although collection efforts continue and future recoveries may
occur.
25.
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Effective July 1, 1995, the Company adopted SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan." SFAS No. 114 requires that the carrying
values of impaired loans be determined by calculating the present value of
estimated future cash flows, discounted using the loan's effective interest
yield. A loan is impaired when it is probable that a creditor will be unable to
collect all amounts due according to the contractual terms of the loan
agreement. SFAS No. 118 was issued in October 1994 and amends SFAS No. 114 to
allow a creditor to use existing methods to recognize income on impaired loans.
SFAS No. 114 and SFAS No. 118 did not materially impact the Company's financial
condition or results of operations.
Smaller-balance homogeneous loans are evaluated for impairment in total. Such
loans include residential first mortgage loans secured by one- to four-family
residences, residential construction loans and automobile, home equity and
second mortgages. Commercial loans and mortgage loans secured by other
properties are evaluated individually for impairment. When analysis of borrower
operating results and financial condition indicates that underlying cash flows
of the borrower's business are not adequate to meet its debt service
requirements, the loan is evaluated for impairment. Often this is associated
with a delay or shortfall in payments of 30 days or more. Loans are generally
moved to nonaccrual status when 90 days or more past due or when collection of
principal or interest is in doubt. These loans are often also considered
impaired. Impaired loans, or portions thereof, are charged off when deemed
uncollectible. The nature of disclosures for impaired loans is considered
generally comparable to prior nonaccrual and renegotiated loans and
non-performing and past-due asset disclosures.
Real Estate Owned: Real estate owned, other than that which is used in the
normal course of business, is recorded at fair value less estimated costs to
sell. For real estate acquired through foreclosure, any initial loss is recorded
as a charge to the allowance for loan losses prior to being transferred to real
estate owned. Any subsequent reduction in fair value is recognized in a
valuation allowance by charges to income.
Office Properties and Equipment: Office properties and equipment are stated at
cost less accumulated depreciation. Depreciation is computed based on both the
straight-line method and the accelerated method over the estimated useful lives
of the respective properties and equipment. Maintenance and repairs are expensed
and major improvements are capitalized.
Profit Sharing Plan: The Company maintains a profit sharing plan for
substantially all employees. Annual contributions to the plan are determined by
the Board of Directors. Expenses related to the profit sharing plan were
$101,300, $101,000 and $100,700 for the years ended June 30, 1997, 1996 and
1995, respectively.
Income Taxes: The Company records income tax expense based upon the amount of
tax due on its tax return plus deferred taxes computed based upon the expected
future tax consequences of temporary differences between the carrying amounts
and tax bases of assets and liabilities, using enacted tax rates. The provision
for income taxes is based upon the effective tax rate expected to be applicable
for the entire year.
26.
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Concentrations of Credit Risk: The Bank grants residential, consumer and
commercial loans to customers located primarily in Wood and surrounding counties
in Ohio. Real estate mortgage loans make up approximately 84% of the Company's
loan portfolio and the remaining 16% is made up of consumer and commercial
loans. The Bank, in the normal course of business, makes commitments to make
loans which are not reflected in the financial statements.
These commitments are discussed in Note 9.
Statement of Cash Flows: For purposes of this statement, cash and cash
equivalents are defined to include the Company's cash on hand, due from banks
and federal funds sold. The Company reports net cash flows for customer loan
transactions, deposit transactions and interest-bearing deposits made with other
financial institutions.
Earnings Per Share: Earnings per common share for 1997 and 1996 were computed by
dividing net income by the weighted average number of shares outstanding for the
period. On July 1, 1997, the board of Directors declared a 3 for 2 stock split
payable July 29, 1997, which was accounted for similar to a 50% stock split. All
earnings and dividends per share disclosures have been restated to reflect the
stock dividend. Weighted average shares outstanding used to compute earnings per
share for the 1997, 1996 and 1995 periods were, 2,263,305, 2,326,085 and
2,378,889 respectively, as restated for the stock dividend.
Stock options outstanding have a dilutive effect of less than 3% on net income
per share for 1997, 1996 and 1995.
Accounting for Stock Option and Incentive Plan: SFAS No. 123, "Accounting for
Stock-Based Compensation," issued in October 1995, encourages, but does not
require, entities to use a "fair value based method" to account for stock-based
compensation plans. If the fair value accounting encouraged by SFAS No. 123 is
not adopted, entities must disclose the pro forma effect on net income and on
earnings per share had the accounting been adopted. Fair value of a stock option
is to be estimated using an option-pricing model, such as Black-Scholes, that
considers: exercise price, expected life of the option, current price of the
stock, expected price volatility, expected dividends on the stock and the
risk-free interest rate. Once estimated, the fair value of an option is not
later changed. The accounting and disclosure requirements of this statement are
effective for transactions entered into in fiscal years beginning after December
15, 1995. Pro forma disclosures required for entities that elect to continue to
measure compensation cost using existing accountings methods must include the
effects of all awards granted in fiscal years beginning after December 15, 1994.
Stock option grants in fiscal 1997 and 1996, of 5,000 and 2,000 shares,
respectively, do not materially affect current or future pro forma earnings per
share.
Financial Statement Presentation: Certain items in the 1996 and 1995 financial
statements have been reclassified to correspond with the 1997 presentation.
27.
<PAGE>
NOTE 2 - INVESTMENT SECURITIES
The amortized cost, gross unrealized gains and losses and estimated fair values
of investment securities at June 30, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
-------------------------------1997------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
Available for sale
U.S. Treasury Securities $ 540,627 $ 152,073 $ 692,700
U.S. Government agencies 9,972,708 23,327 $ 86,647 9,909,388
U.S. Government agency
step-up bonds 800,000 9,252 790,748
Mutual funds and equity
investments 2,781,306 276 65,881 2,715,701
Other 40,000 40,000
--------------- ------------ ------------ ----------------
Total investment securities 14,134,641 175,676 161,780 14,148,537
--------------- ------------ ------------ ----------------
Mortgage-backed securities
CMOs and REMICs 4,650,973 41,272 100,746 4,591,499
Other mortgage-backed
securities 4,325,959 6,124 79,249 4,252,834
--------------- ------------ ------------ ----------------
Total mortgage-
backed securities 8,976,932 47,396 179,995 8,844,333
--------------- ------------ ------------ ----------------
Total investment and
mortgage-backed securities
available for sale $ 23,111,573 $ 223,072 $ 341,775 $ 22,992,870
=============== ============ ============ ================
</TABLE>
28.
<PAGE>
NOTE 2 - INVESTMENT SECURITIES (Continued)
<TABLE>
<CAPTION>
------------------------------1996-------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
Available for sale
U.S. Treasury Securities $ 681,998 $ 156,673 $ 838,671
U.S. Government agencies 11,022,712 11,037 $ 150,593 10,883,156
U.S. Government agency step-up
bonds 1,517,639 7,024 25,802 1,498,861
Mutual funds and equity
investments 2,712,148 87,189 2,624,959
Other 40,000 40,000
--------------- ------------ ------------ ----------------
Total investment securities 15,974,497 174,734 263,584 15,885,647
--------------- ------------ ------------ ----------------
Mortgage-backed securities
CMOs and REMICs 4,681,972 3,922 77,890 4,608,004
Other mortgage-backed securities 5,090,133 62,723 112,523 5,040,333
--------------- ------------ ------------ ----------------
Total mortgage-
backed securities 9,772,105 66,645 190,413 9,648,337
--------------- ------------ ------------ ----------------
Total investment and
mortgage-backed securities
available for sale $ 25,746,602 $ 241,379 $ 453,997 $ 25,533,984
=============== ============ ============ ================
</TABLE>
29.
<PAGE>
NOTE 2 - INVESTMENT SECURITIES (Continued)
The amortized cost and estimated fair value of debt securities at June 30, 1997,
by contractual maturity, are shown below. Expected maturities may differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Amortized Estimated
Cost Fair Value
---- ----------
<S> <C> <C>
Available for sale
Due in one year or less $ 1,148,696 $ 1,145,623
Due after one year through five years 3,548,282 3,515,636
Due after five years through ten years 6,116,357 6,233,140
Due after ten years 500,000 498,437
--------------- ---------------
11,313,335 11,392,836
CMOs and REMICs 4,650,973 4,591,499
Other mortgage-backed securities 4,325,959 4,252,834
--------------- ---------------
Total mortgage-backed securities 8,976,932 8,844,333
Mutual funds and equity investments 2,781,306 2,715,701
Other 40,000 40,000
--------------- ---------------
$ 23,111,573 $ 22,992,870
=============== ===============
</TABLE>
Proceeds from the sale of securities for the year ended June 30, 1997 were
$1,050,000, resulting in gross losses of $2,410. Securities called or settled by
the issuer during 1997 resulted in gross gains of $1,949. No securities were
sold during 1996. Proceeds from the sale of equity securities for the year ended
June 30, 1995 were $59,713, resulting in gross gains of $4,713.
Investment securities with a carrying value of $499,843 and $276,468 as of June
30, 1997 and 1996, respectively, were pledged to secure public deposits and for
other purposes as required or permitted by law.
To provide additional flexibility to meet liquidity and asset/liability needs,
the Company reclassified securities with an amortized cost of $8,705,534 from
held to maturity to available for sale. The securities were transferred in
December 1995 as allowed by the SFAS No. 115 implementation guide issued by the
Financial Accounting Standards Board ("FASB"), with the related unrealized loss
of $69,977 recorded net of tax as a decrease in shareholders' equity.
30.
<PAGE>
NOTE 3 - LOANS
Loans as presented on the balance sheet are comprised of the following
classifications at June 30:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Real estate mortgage loans (principally conventional)
Principal balances
Secured by one- to four- family residences $ 93,537,749 $ 85,387,205
Secured by other properties 7,295,761 4,812,944
Construction 4,515,950 6,397,279
Home equity 8,334,481 4,111,607
----------------- -----------------
113,683,941 100,709,035
Less:
Loans in process 2,245,571 4,104,299
Net deferred loan origination fees 200,660 208,733
----------------- -----------------
Total real estate mortgage loans 111,237,710 96,396,003
----------------- -----------------
Consumer and other loans
Principal balances
Automobile 7,695,651 7,013,451
Commercial 8,035,167 4,098,055
Other 4,925,380 4,462,150
----------------- -----------------
Total consumer and other loans 20,656,198 15,573,656
----------------- -----------------
131,893,908 111,969,659
Allowance for loan losses 575,985 513,367
----------------- -----------------
Loans, net $ 131,317,923 $ 111,456,292
================= =================
</TABLE>
<PAGE>
A summary of the activity in the allowance for loan losses is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of period $ 513,367 $ 409,706 $ 351,325
Provision for loan losses 120,000 120,000 60,000
Recoveries 33,097 1,111 292
Charge-offs (90,479) (17,450) (1,911)
------------ -------------- ------------
Balance at end of period $ 575,985 $ 513,367 $ 409,706
============ ============ ============
</TABLE>
31.
<PAGE>
NOTE 3 - LOANS (Continued)
No loans were transferred to foreclosed real estate in 1997 or 1996.
The Bank is not committed to lend additional funds to debtors whose loans have
been modified.
Loans serviced for other institutions totaled $32,418,955, $20,291,370, and
$3,609,081 at June 30, 1997, 1996 and 1995, respectively. Nonaccrual loans
totaled $0 at June 30, 1997 and 1996, and $28,479 at June 30, 1995. Interest not
recognized on nonaccrual loans totaled approximately $1,947, $2,613 and $2,412
for June 30, 1997, 1996 and 1995, respectively. Impaired loans were
insignificant at June 30, 1997 and 1996 and during the fiscal years ended June
30, 1997 and 1996.
NOTE 4 - RELATED PARTY TRANSACTIONS
In the course of its business, the Bank has granted loans to executive officers,
directors, and their related business interests. A summary of related party loan
activity, for loans aggregating $60,000 or more to any one related party, is as
follows for the year ended June 30:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Balance at beginning of period $ 510,521 $ 328,195
New loans 268,100 208,476
Repayments (196,119) (26,150)
----------- -----------
Balance at end of period $ 582,502 $ 510,521
=========== ===========
</TABLE>
32.
<PAGE>
NOTE 5 - OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment consists of the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Land $ 605,879 $ 452,933
Buildings and improvements 1,892,967 1,560,895
Furniture and equipment 979,019 815,312
Construction in process 78,150 94,457
------------- --------------
Total cost 3,556,015 2,923,597
Accumulated depreciation 1,695,684 1,564,563
------------- --------------
Office properties and equipment, net $ 1,860,331 $ 1,359,034
============= ==============
</TABLE>
NOTE 6 - DEPOSITS
The aggregate amount of deposits with a minimum denomination of $100,000 was
$16,984,405 and $18,034,465 at June 30, 1997 and 1996, respectively.
At June 30, 1997, scheduled maturities of certificates of deposit are as
follows:
1998 $ 42,452,858
1999 17,203,285
2000 2,557,532
2001 1,878,418
2002 58,472
Thereafter 25,640
----------------
$ 64,176,205
================
NOTE 7 - INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Current $ 853,794 $ 912,596 $ 737,450
Deferred 92,731 81,554
----------- ------------
Total income tax provision $ 946,525 $ 994,150 $ 737,450
=========== ============ ============
</TABLE>
33.
<PAGE>
NOTE 7 - INCOME TAXES (Continued)
The differences between the financial statement provision and amounts computed
by applying the statutory federal income tax rate of 34% to income before taxes
are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Income tax computed at the
statutory federal rate $ 891,453 $ 905,226 $ 760,945
Add (subtract) tax effect of
ESOP deduction 51,004 28,795 18,026
Other 4,068 60,129 (41,521)
----------- ------------ ------------
Total income tax provision $ 946,525 $ 994,150 $ 737,450
=========== ============ ============
</TABLE>
The tax effects of principal temporary differences and the resulting deferred
tax assets and liabilities that comprise the net deferred tax balance are as
follows at June 30:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Items giving rise to deferred tax assets:
Deferred loan fees $ 68,225 $ 70,970
Recognition and retention plan 10,355 37,203
Accrued vacation 7,087 6,703
Accrued retirement 17,000
Accelerated ESOP expense 6,159 5,861
Unrealized loss on securities available for sale 40,359 72,291
Items giving rise to deferred tax liabilities:
FHLB stock dividend (145,821) (113,657)
Franchise taxes (32,180) (41,432)
Depreciation (11,771) (11,977)
Allowance for loan losses in excess of tax reserve (18,767) (37,957)
Gain on other real estate owned (3,839)
Mortgage servicing rights (47,143)
------------- -------------
Net deferred tax asset/(liability) $ (123,497) $ 1,166
============= =============
</TABLE>
The Company has sufficient taxes paid in prior years and available for recovery
to warrant recording the full deferred tax asset without a valuation allowance.
34.
<PAGE>
NOTE 7 - INCOME TAXES (Continued)
Retained earnings at June 30, 1997 includes approximately $2,300,000 for which
no provision for federal income taxes has been made. This amount represents the
tax bad debt reserve at June 30, 1988, which is the end of the Bank's base year
for purposes of calculating the bad debt deduction for tax purposes. If this
portion of retained earnings is used in the future for any purpose other than to
absorb bad debts, the amount used will be added to future taxable income. The
unrecorded deferred tax liability on the above amount at June 30, 1997 was
approximately $782,000.
Taxes attributable to securities gains approximated $(157) and $1,602 for the
years ended June 30, 1997 and 1995, respectively.
NOTE 8 - ADVANCES FROM FEDERAL HOME LOAN BANK
The Company had the following outstanding Federal Home Loan Bank ("FHLB")
advances at June 30, 1997 and 1996:
<TABLE>
<CAPTION>
--------------------------1997--------------------------
Rate at
Amount June 30 Maturity
------ ------- --------
<S> <C> <C> <C>
Mortgage Matched Advance, (monthly
principal and interest payment of
$16,255) fixed rate $ 1,560,786 6.20% June 2008
Mortgage Matched Advance (monthly
principal and interest payment of
$16,048) fixed rate 1,564,520 6.00% July 2008
Libor Index Advance, variable rate 2,000,000 5.6875% June 1998
Libor Index Advance, variable rate 2,000,000 5.7375% June 2001
Cash Management Advance, variable rate 7,500,000 5.75% July through
September 1997
Regular Fixed Rate 200,000 6.35% August 1997
Regular Fixed Rate 450,000 6.45% January 1998
Regular Fixed Rate 5,000,000 6.10% November 1999
Short Term Fixed Rate 1,500,000 5.60% August 1997
----------------
$ 21,775,306
</TABLE>
35.
<PAGE>
NOTE 8 - ADVANCES FROM FEDERAL HOME LOAN BANK (Continued)
<TABLE>
<CAPTION>
---------------------------1996-------------------------
Rate at
Amount June 30 Maturity
------ ------- --------
<S> <C> <C> <C>
Mortgage Matched Advance (monthly
principal and interest payment of
$16,255) fixed rate $ 1,655,850 6.20% June 2008
Mortgage Matched Advance (monthly
principal and interest payment of
$16,048) fixed rate 1,660,095 6.00% July 2008
Libor Index Advance, variable rate 2,000,000 5.4843% June 1998
Libor Index Advance, variable rate 2,000,000 5.5343% June 2001
Cash Management Advances, variable rate 2,000,000 5.80% September 1996
---------------
$ 9,315,945
===============
</TABLE>
At June 30, 1997, scheduled principal payments on FHLB advances are as follows:
1998 $ 11,853,628
1999 216,403
2000 5,229,978
2001 2,244,406
2002 259,739
Thereafter 1,971,152
----------------
$ 21,775,306
================
All advances are collateralized by the Company's FHLB stock and residential
mortgage loans totaling $32,663,000 and $13,974,000 at June 30, 1997 and 1996,
respectively.
NOTE 9 - COMMITMENTS AND FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Company is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to make loans. The Company's
exposure to credit loss in the event of nonperformance by the other party to the
financial instrument for commitments to make loans is represented by the
contractual amount of those instruments. The Company follows the same credit
policy to make such commitments as is followed for those loans recorded in the
financial statements.
36.
<PAGE>
NOTE 9 - COMMITMENTS AND FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
(Continued)
As of June 30, 1997 and 1996, variable rate commitments to make loans or fund
outstanding lines of credit amounted to approximately $9,467,000 and
$10,116,000, respectively, and fixed rate commitments amounted to $2,231,000 and
$1,336,000, respectively. The interest rates on variable rate commitments ranged
from 6.75% to 11.50% and interest rates on fixed rate commitments ranged from
7.00% to 12.50% at June 30, 1997. Since loan commitments may expire without
being used, the amounts do not necessarily represent future cash commitments.
NOTE 10 - FDIC INSURANCE
The deposits of savings associations such as the Bank are presently insured by
the Savings Association Insurance Fund (the "SAIF"), which, along with the Bank
Insurance Fund (the "BIF"), is one of the two insurance funds administered by
the FDIC. Financial institutions which are members of the BIF were experiencing
substantially lower deposit insurance premiums because the BIF had achieved its
required level of reserves, while the SAIF had not yet achieved its required
reserves. On September 30, 1996, President Clinton signed into law the Omnibus
Bill which included provisions designed to recapitalize the SAIF and to mitigate
the BIF/SAIF premium disparity. The Omnibus Bill required the FDIC to impose a
special assessment on SAIF-insured deposits which was set at 65.7 cents per $100
of SAIF insured deposits at March 31, 1995. The assessment was paid on November
27, 1996 from working capital of the Bank. Since the SAIF reached its required
reserve ratio following the assessment, the FDIC reduced the annual assessment
rates for SAIF insured institutions to bring them in line with BIF assessment
rates. The Company's special assessment totaled $442,611, after taxes.
The Bank, however, will continue to be subject to an assessment to fund the
repayment of the FICO obligations. It is anticipated that the premium for SAIF
insured institutions will be approximately 6.5 cents per $100 of deposits while
BIF insured institutions will pay approximately 1.5 cents per $100 of deposits
until the year 2000 when the assessment will be imposed at the same rate on all
FDIC insured institutions.
NOTE 11 - EMPLOYEE STOCK OWNERSHIP PLAN
The Company has established an Employee Stock Ownership Plan ("ESOP") for the
benefit of employees who have completed at least one year of service and 1,000
hours of work. Contributions under the ESOP are conditioned upon the ESOP being
qualified under Sections 401 and 501 of the Internal Revenue Code of 1986, as
amended (the "Code"). Wood Bancorp, Inc. has received a favorable determination
letter dated June 19, 1995, from the Commissioner of the Internal Revenue
Service.
37.
<PAGE>
NOTE 11 - EMPLOYEE STOCK OWNERSHIP PLAN (Continued)
To fund the plan, the ESOP borrowed $746,200 from the Company for the purposes
of purchasing 111,930 shares of stock at $6.67 per share in the Conversion.
Principal and interest payments on the loan were due in annual installments
beginning June 1994, with the final payments of principal and accrued interest
being due and payable at maturity, which is June 2000. Interest is payable
during the term of the loan at a fixed rate of 6%. The loan is collateralized by
the shares of the Company's common stock purchased with the proceeds. As First
Federal periodically makes contributions to the ESOP to repay the loan, shares
will be allocated among participants on the basis of all taxable compensation
and any amount of compensation contributed to First Federal's cafeteria plan.
Effective July 1, 1994, the Company adopted Statement of Position ("SOP") 93-6,
"Employers' Accounting for Employee Stock Ownership Plans". The effect of
initially adopting SOP 93-6 was not material. Under SOP 93-6, the shares pledged
as collateral are reported as unearned ESOP shares in the consolidated balance
sheet. As shares are released from collateral, the Company reports compensation
expense equal to the current market price of the shares, and the shares become
outstanding for earnings-per-share computations. Dividends on allocated ESOP
shares are recorded as a reduction of retained earnings, while dividends on
unallocated ESOP shares are recorded as a reduction of debt. ESOP compensation
expense was $257,432 and $197,310 for 1997 and 1996, respectively.
The ESOP shares were as follows at June 30:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Allocated shares 52,155 35,262
Shares committed to be released 16,113 16,893
Unreleased shares 43,662 59,775
------------ -------------
Total ESOP shares 111,930 111,930
============ =============
Fair value of unreleased shares $ 736,796 $ 757,150
============ =============
</TABLE>
38.
<PAGE>
NOTE 12 - STOCK OPTION AND INCENTIVE PLAN
The Company sponsors a shareholder-approved stock option plan which authorizes
the Stock Option Committee of the Board to grant options to directors, officers
and employees of the Company or its subsidiaries. A total of 159,900 common
shares, as adjusted for the July 1996 stock split, were reserved for issuance
under the Plan. Options may be granted at a price not less than fair market
value at the date of grant. Options to purchase 5,000 and 2,000 shares were
granted during 1997 and 1996, respectively, at an exercise price of $15.50 and
$15.125 per share, respectively. No options were granted during 1994 and 1995.
Options to purchase 134,316 shares were granted during 1993 at an exercise price
of $6.67 per share, as adjusted for the July 1996 stock split. These options are
subject to a five-year vesting schedule for those granted to employees and a
four-year vesting schedule for those granted to non-employee directors.
Information about options granted is as follows:
<TABLE>
<CAPTION>
-----------------1997-------------- ---------------1996----------------
Weighted Weighted
Number of Average Number of Average
Options Exercise Price Options Exercise Price
------- -------------- ------- --------------
<S> <C> <C> <C> <C>
Options outstanding July 1 130,167 $ 6.67 134,316 $ 6.67
Options granted 5,000 15.50 2,000 15.125
Options forfeited 1,599 6.67 2,960 15.125
Options exercised 3,775 6.67 3,189 6.67
--------------- ---------------
Options outstanding June 30 129,793 7.00 130,167 6.67
=============== ===============
Options exercisable 79,541 $ 6.67 55,325 $ 6.67
=============== =============== =============== ===============
</TABLE>
39.
<PAGE>
NOTE 13 - RECOGNITION AND RETENTION PLAN
The Bank has adopted a Recognition and Retention Plan ("RRP") as a means of
providing directors and certain key employees of the Bank with an ownership
interest in the Company in a manner designed to reward and retain such directors
and key employees. The Company issued 56,916 shares out of its authorized but
unissued shares at the conclusion of the Conversion to fund the RRP. The shares
vest at a rate of 20% per year with the first installment vesting six months
after the completion of the Conversion and each additional installment vesting
on each subsequent anniversary of such date. The cost of the RRP will be
reflected as compensation expense in the consolidated statement of income as
vesting occurs.
NOTE 14 - RESTRICTIONS ON RETAINED EARNINGS AND CAPITAL
REQUIREMENTS
Related to its 1993 conversion from a mutual to stock savings and loan
association, the Bank established a liquidation account which was equal to its
total net worth as of the date of the latest balance sheet appearing in the
final Conversion prospectus. The liquidation account will be maintained for the
benefit of eligible depositors who continue to maintain their accounts at the
Bank after the Conversion. The liquidation account will be reduced annually to
the extent that eligible depositors have reduced their qualifying deposits.
Subsequent increases will not restore an eligible account holder's interest in
the liquidation account. In the event of a complete liquidation, each eligible
depositor will be entitled to receive a distribution from the liquidation
account in an amount proportionate to the current adjusted qualifying balances
for accounts then held. The Bank may not pay dividends that would reduce
shareholders' equity below the required liquidation account balance.
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory actions that, if undertaken, could have a direct
material effect on the Company's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the Bank
must meet specific capital guidelines that involve quantitative measures of the
Bank's assets, liabilities and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Bank's capital amounts and
classifications are also subject to qualitative judgments by the regulators
about the Bank's components, risk weightings and other factors. At June 30,
1997, management believes the Company and the Bank are in compliance with all
regulatory capital requirements. Based on the Bank's computed regulatory capital
ratios, the Bank is considered well capitalized under Section 38 of the Federal
Deposit Insurance Act at June 30, 1997.
40.
<PAGE>
NOTE 14 - RESTRICTIONS ON RETAINED EARNINGS AND CAPITAL REQUIREMENTS (Continued)
Federal regulations limit all capital distributions, including cash dividends,
by savings associations. The regulation establishes a tiered system of
restrictions, with the greatest flexibility afforded to thrifts which are both
well-capitalized and given favorable qualitative examination ratings. These
restrictions would not currently limit the Company from paying normal dividends.
At June 30, 1997 and 1996, the Bank's actual capital levels (in thousands) and
minimum required levels were:
<TABLE>
<CAPTION>
Minimum Required
Minimum Required To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Regulations
------ ----------------- ------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
1997
- ----
Total capital (to risk weighted assets) $ 14,554 15.20% $ 7,658 8.00% $ 9,573 10.00%
Tier 1 (core) capital (to risk weighted assets) $ 14,041 14.67% $ 3,829 4.00% $ 5,744 6.00%
Tier 1 (core) capital (to adjusted total assets) $ 14,041 8.71% $ 4,834 3.00% $ 8,056 5.00%
Tangible capital (to adjusted total assets) $ 14,041 8.71% $ 2,417 1.50% N/A
1996
- ----
Total capital (to risk weighted assets) $ 12,579 16.18% $ 6,221 8.00% $ 7,776 10.00%
Tier 1 (core) capital (to risk weighted assets) $ 12,138 15.61% $ 5,772 4.00% $ 4,665 6.00%
Tier 1 (core) capital (to adjusted total assets) $ 12,138 8.41% $ 4,329 3.00% $ 3,888 5.00%
Tangible capital (to adjusted total assets) $ 12,138 8.41% $ 2,165 1.50% N/A
</TABLE>
The Bank was considered well capitalized at June 30, 1997 and 1996. No
conditions or events have occurred subsequent to June 30, 1997 that management
believes would change First Federal's capital category.
41.
<PAGE>
NOTE 15 - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION
Condensed financial information of Wood Bancorp, Inc. is as follows at June 30:
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEETS
1997 1996
---- ----
<S> <C> <C>
Assets
Cash $ 3,066,707 $ 5,162,248
Interest-bearing deposits in other
financial institutions 99,000 98,937
Investment securities 2,033,443 1,945,877
Mortgage-backed and related securities 599,973 628,274
Loan receivable from subsidiary 319,800 426,400
Investment in subsidiary 14,021,379 12,043,846
Other assets 26,424 195,251
--------------- ---------------
Total assets $ 20,166,726 $ 20,500,833
=============== ===============
Liabilities
Other liabilities $ 1,146 $ 378,835
Shareholders' Equity
Common stock 16,573 11,039
Additional paid-in capital 10,884,182 10,686,033
Retained earnings 12,805,953 11,688,467
Treasury stock (3,130,066) (1,671,491)
Obligation under employee stock ownership plan (301,741) (409,161)
Unearned compensation (30,977) (42,561)
Unrealized loss on available for sale securities, net (78,344) (140,328)
--------------- ---------------
Total liabilities and shareholders' equity $ 20,166,726 $ 20,500,833
=============== ===============
</TABLE>
42.
<PAGE>
NOTE 15 - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION
(Continued)
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF INCOME
For the years ended June 30, 1997, 1996 and 1995
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Interest income
Investment securities $ 116,740 $ 113,119 $ 123,745
Mortgage-backed and related securities 37,836 38,575 47,662
Loan to subsidiary 25,939 32,423 38,909
Other interest income 6,703 23,227 10,480
------------- ------------- -------------
Total interest income 187,218 207,344 220,796
------------- ------------- -------------
Operating expenses 89,967 96,272 105,702
------------- ------------- -------------
Income before taxes and equity in
earnings of subsidiary 97,251 111,072 115,094
Provision for income taxes 33,100 37,750 40,450
------------- ------------- -------------
Income before equity in earnings
of subsidiary 64,151 73,322 74,644
Equity in earnings of subsidiary 1,611,244 1,594,957 1,425,980
------------- ------------- -------------
Net income $ 1,675,395 $ 1,668,279 $ 1,500,624
============== ============= =============
</TABLE>
43.
<PAGE>
NOTE 15 - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION (Continued)
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF CASH FLOWS
For the years ended June 30, 1997, 1996 and 1995
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 1,675,395 $ 1,668,279 $ 1,500,624
Adjustments to reconcile net income
to net cash from operating activities:
Equity in earnings of subsidiary (1,611,244) (1,594,957) (1,425,980)
Principal reduction of ESOP obligation 106,600 106,600 106,600
Net accretion (186) (726) (27,266)
Change in
Other assets 147,628 (80,267) (102,158)
Other liabilities (433,698) 374,839 (3,354)
-------------- -------------- ---------------
Net cash from operating activities (115,505) 473,768 48,466
-------------- -------------- ---------------
Cash flows from investing activities
Purchase of interest-bearing deposits
in other financial institutions (63) (98,937)
Purchases of investment and
mortgage-backed securities (405,777) (1,328,637)
Maturities of investment securities 800,000 1,100,000
Proceeds from principal payments on
mortgage-backed securities 30,992 51,579 115,871
Dividend from subsidiary 5,000,000
-------------- --------------
Net cash from investing activities 30,929 5,346,865 (112,766)
-------------- -------------- ---------------
Cash flows from financing activities
Cash dividends paid (544,844) (336,958) (296,072)
Purchase of treasury stock (1,491,300) (960,925) (249,375)
Stock options exercised 25,179 21,259
-------------- --------------
Net cash from financing activities (2,010,965) (1,276,624) (545,447)
-------------- -------------- ---------------
Net change in cash (2,095,541) 4,544,009 (609,747)
Cash at beginning of period 5,162,248 618,239 1,227,986
-------------- -------------- --------------
Cash at end of period $ 3,066,707 $ 5,162,248 $ 618,239
============== ============== ===============
</TABLE>
44.
<PAGE>
NOTE 16 - FAIR VALUES OF FINANCIAL INSTRUMENTS
The following table shows the estimated fair value and the related carrying
value of the Company's financial instruments at June 30, 1997 and 1996:
<TABLE>
<CAPTION>
-----------------1997-------------- ---------------1996----------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
----- ---------- ----- ----------
<S> <C> <C> <C> <C>
Assets
Cash and cash equivalents $ 2,914,578 $ 2,915,000 $ 2,637,396 $ 2,637,000
Interest-bearing deposits in
other financial institutions 2,229,104 2,229,000 77,715 78,000
Repurchase agreement 2,500,000 2,500,000
Investment securities
available for sale 14,148,537 14,149,000 15,885,647 15,886,000
Mortgage-backed securities
available for sale 8,844,333 8,844,000 9,648,337 9,648,000
Loans, net 131,317,923 134,050,000 111,456,292 111,960,000
FHLB Stock 1,403,200 1,403,000 1,308,600 1,309,000
Accrued interest receivable 853,736 854,000 816,501 817,000
Liabilities
Demand and savings deposits (56,369,874) (56,370,000) (55,730,074) (55,730,000)
Time deposits (64,176,205) (64,114,000) (60,099,817) (60,057,000)
FHLB borrowings (21,775,306) (21,463,000) (9,315,945) (9,091,000)
Accrued interest payable (193,166) (193,000) (89,212) (89,000)
</TABLE>
For purposes of the above disclosures of estimated fair value, the following
assumptions were used. The estimated fair value for cash and cash equivalents is
considered to approximate cost. The estimated fair value of investment and
mortgage-backed securities and Federal Home Loan Bank stock is based on quoted
market values for the individual securities or for equivalent securities.
Carrying value is considered to approximate fair value for loans that
contractually reprice at intervals of six months or less, for short-term
borrowings, for deposit liabilities subject to immediate withdrawal and accrued
interest. The fair values of fixed rate loans, loans that reprice less
frequently than each six months, time deposits and Federal Home Loan Bank
borrowings have been approximated by a discount rate value technique utilizing
estimated market interest rates as of June 30, 1997 and 1996. The fair values of
unrecorded commitments at June 30, 1997 and 1996 are not material.
While these estimates of fair value are based on management's judgment of the
most appropriate factors, there is no assurance that were the Company to have
disposed of such items at June 30, 1997 and 1996, the estimated fair values
would necessarily have been achieved at these dates, since market values may
differ depending on various circumstances. The estimated fair values at June 30,
1997 and 1996 should not necessarily be considered to apply at subsequent dates.
45.
<PAGE>
NOTE 16 - FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued)
Other assets and liabilities of the Company may have value but are not included
in the above disclosures, such as property and equipment. Also, nonfinancial
instruments typically not recognized in these financial statements nevertheless
may have value, but are not included in the above disclosures. These include,
among other items, the estimated earnings power of core deposit accounts, the
earnings potential of loan servicing rights, the value of a trained work force,
customer goodwill, and similar items.
46.
<PAGE>
SHAREHOLDER INFORMATION
Dividends
The Company has paid quarterly cash dividends of $.03 per share
beginning in the first quarter of 1994 and increased the dividend to $.04 per
share beginning in the second quarter of 1996 and $.07 per share beginning in
the third quarter of 1997. The Board of Directors intends to continue the
payment of quarterly cash dividends, dependent on the results of operations and
financial condition of the Company, tax considerations, industry standards,
economic conditions, general business practices and other factors. The Company's
ability to pay dividends is dependent on the dividend payments it receives from
its subsidiary, First Federal Bank, which are subject to regulations and First
Federal's continued compliance with all regulatory capital requirements. See
Note 13 of the Notes to Consolidated Financial Statements for information
regarding regulatory requirements applicable to the payment of cash dividends by
First Federal.
Market Information
Wood Bancorp, Inc. common stock is traded over the counter and quoted
on the Nasdaq Small-Cap Market under the symbol "FFWD". At September 15, 1997,
there were 2,118,538 shares of Wood Bancorp, Inc. common stock issued and
outstanding by 739 holders of record. The table below sets forth the high and
low bid quotations for the common stock as reported on the Nasdaq, as well as
dividends declared per share, for each of the quarterly periods since the stock
began trading.
<TABLE>
<CAPTION>
QUARTER ENDED HIGH LOW DIVIDENDS
- ------------- ---- --- ---------
<S> <C> <C> <C>
September 30, 1995.......................... 7.55 6.33 .03
December 31, 1995........................... 8.67 7.00 .04
March 31, 1996.............................. 8.45 8.00 .04
June 30, 1996............................... 8.45 8.11 .04
September 30, 1996.......................... 10.42 8.25 .06
December 31, 1996........................... 11.50 10.09 .06
March 31, 1997.............................. 11.50 10.50 .07
June 30, 1997............................... 11.33 10.92 .07
</TABLE>
The information set forth in the table above was provided by the
Nasdaq. Such information reflects interdealer prices, without retail mark-up,
mark-down or commission and may not represent actual transactions.
Annual Report on Form 10-KSB
A copy of Wood Bancorp, Inc.'s Annual Report on Form 10-KSB as filed
with the Securities and Exchange Commission may be obtained without charge upon
written request to David L. Nagel, Executive Vice President, Chief Financial
Officer and Secretary, 124 East Court Street, Bowling Green, Ohio 43402-2259 or
by calling (419) 352-3502.
47.
<PAGE>
Corporate Headquarters Market Makers
124 East Court The Ohio Company
Bowling Green, Ohio 43402-2259 Herzog, Heine, Geduld, Inc.
McDonald & Company Securities, Inc.
Registrar / Transfer Agent General Counsel
Registrar and Transfer Company Spitler, Vogtsberger & Huffman
10 Commerce Drive Bowling Green, OH
Cranford, NJ 07016
Special Counsel
Silver, Freedman & Taff, L.L.P.
Washington, DC
DIRECTORS AND EXECUTIVE OFFICERS
WOOD BANCORP, INC.
And
FIRST FEDERAL BANK
Directors
Robert E. Spitler Richard L. Gordley
Chairman of the Board of Wood President and Chief Executive
Bancorp, Inc. and First Federal Bank Officer of Wood Bancorp, Inc.
Partner - Law Firm of Spitler, and First Federal bank
Vogtsberger & Huffman
David L. Nagel Randal R. Huber
Executive Vice President, Chief Officer and Part-Owner
Financial Officer and Secretary Huber, Harger, Welt and Smith
of Wood Bancorp, Inc. and First Insurance Agency
Federal Bank
Michael A. Miesle Dale L. Myers
Chief Executive Officer Pharmacist
Wood County Hospital Heartland Health Care Services
Executive Officers
Richard L. Gordley David L. Nagel
President and Chief Executive Officer Executive Vice President, Chief
Financial Officer and Secretary
David A. Weaks John H. Bick
Vice President Vice President
48.
Exhibit 21
Subsidiaries of the Registrant
<PAGE>
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
State of
Percentage Incorporation
of or
Parent Subsidiary Ownership Organization
------ ---------- --------- ------------
<S> <C> <C> <C>
Wood Bancorp, Inc. First Federal Bank 100% Federal
First Federal Bank Wood Service Corp., Inc. 100% Ohio
</TABLE>
Exhibit 23
Consent of Crowe, Chizek and Company
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (Registration Nos. 33- 86136 and 33-99026) of Wood
Bancorp, Inc. (the "Company") of our report dated July 25, 1997 appearing in
this Annual Report on Form 10-KSB of the Company for the year ended June 30,
1997.
/s/Crowe, Chizek and Company LLP
Crowe, Chizek and Company LLP
September 25, 1997
Columbus, Ohio
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
The schedule contains summary financial information extraced from Form 10-KSB
for the fiscal year ended June 30, 1997 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,844,578
<INT-BEARING-DEPOSITS> 2,229,104
<FED-FUNDS-SOLD> 70,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 22,992,870
<INVESTMENTS-CARRYING> 22,992,870
<INVESTMENTS-MARKET> 22,992,870
<LOANS> 131,893,908
<ALLOWANCE> 575,985
<TOTAL-ASSETS> 163,917,842
<DEPOSITS> 120,546,079
<SHORT-TERM> 11,853,628
<LIABILITIES-OTHER> 1,430,877
<LONG-TERM> 9,921,678
0
0
<COMMON> 16,573
<OTHER-SE> 20,149,007
<TOTAL-LIABILITIES-AND-EQUITY> 163,917,842
<INTEREST-LOAN> 10,804,173
<INTEREST-INVEST> 1,675,017
<INTEREST-OTHER> 155,870
<INTEREST-TOTAL> 12,635,060
<INTEREST-DEPOSIT> 4,957,409
<INTEREST-EXPENSE> 6,106,735
<INTEREST-INCOME-NET> 6,528,325
<LOAN-LOSSES> 120,000
<SECURITIES-GAINS> (461)
<EXPENSE-OTHER> 4,371,239
<INCOME-PRETAX> 2,621,920
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,675,395
<EPS-PRIMARY> .74
<EPS-DILUTED> .74
<YIELD-ACTUAL> 4.26
<LOANS-NON> 0
<LOANS-PAST> 371,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 513,367
<CHARGE-OFFS> 90,479
<RECOVERIES> 33,097
<ALLOWANCE-CLOSE> 575,985
<ALLOWANCE-DOMESTIC> 575,985
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
