<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K\A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
----------------- -----------------
Commission file number 0-24120
WESTERN OHIO FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 31-1403116
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
28 East Main Street
Springfield, Ohio 45501-0719
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (513) 325-4683
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)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
requirements for the past 90 days. YES X . NO .
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.[ ]
The aggregate market value of the voting stock held by non-affiliates
of the registrant, computed by reference to the closing price of such stock on
the Nasdaq National Stock Market as of February 21, 1997, was approximately
$49.7 million. (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 February 21, 1997, there were issued and outstanding 2,312,088
shares of the Registrant's Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Parts II and IV of Form 10-K - Portions of the Annual Report to Stockholders for
the fiscal year ended December 31, 1996.
Part III of Form 10-K - Portions of the Proxy Statement for Annual Meeting of
Stockholders.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
(a) (1) Financial Statements:
The following information appearing in the Company's Annual Report to
Stockholders for the year ended December 31, 1996, is incorporated by reference
in this Annual Report on Form 10-K as Exhibit 13.
<TABLE>
<CAPTION>
Pages in
Annual
Annual Report Section Report
--------------------- ------
<S> <C>
Consolidated Balance Sheets at
December 31, 1996 and 1995.......................................................................... 25
Consolidated Statements of Income for the Years Ended
December 31, 1996, 1995 and 1994.................................................................... 26 - 27
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended December 31, 1996, 1995 and 1994................................................ 28 - 29
Consolidated Statements of Cash Flows for Years Ended
December 31, 1996, 1995 and 1994.................................................................... 30 - 31
Notes to Consolidated Financial Statements............................................................ 32 - 57
Independent Auditors' Report.......................................................................... 24
</TABLE>
(a) (2) Financial Statement Schedules:
All financial statement schedules have been omitted as the information
is not required under the related instructions or is inapplicable.
44
<PAGE>
(a) (3) Exhibits:
Reference to Prior
Regulation Filing or Exhibit
S-K Exhibit Number Attached
Number Document Hereto
- ----------- -------- ------------------
2 Plan of acquisition, reorganization, None
arrangement, liquidation or
succession
3 (i) Certificate of Incorporation *
3 (ii) Bylaws *
4 Instruments defining the rights of *
security holders, including
indentures
9 Voting trust agreement None
10 Material contracts:
(a) 1995 Stock Option and **
Incentive Plan
(b) Management Recognition Plan **
(c) Employment Agreement with **
C. William Clark
(d) Employment Agreement with **
Jerry R. Mills
(e) Employment Agreement with **
Thomas A. Estep
(f) Employment Agreement with ***
Philip W. Christman
(g) Employment Agreement with ***
John T. Heckman
11 Statement re computation of per None
share earnings
12 Statements re computation of ratios None
13 Annual report to security holders 13
16 Letter re change in certifying None
accountant
18 Letter re change in accounting None
principles
45
<PAGE>
Reference to Prior
Regulation Filing or Exhibit
S-K Exhibit Number Attached
Number Document Hereto
- ----------- ------------------------------------- ------------------
21 Subsidiaries of the registrant 21
22 Published report regarding matters None
submitted to vote of security holders
23 Consents of experts and counsel 23
24 Power of attorney None
27 Financial data schedule 27
99 Additional exhibits None
- ----------
* Incorporated by reference to the Company's Registration Statement
No. 33-76734.
** Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1994.
*** Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarterly period ended June 30, 1995.
(b) Reports on Form 8-K:
On November 14, 1996, the Company filed a current report on Form 8-K
reporting the acquisition of Seven Hills. No other reports on Form 8-K were
filed during the quarter ended December 31, 1996.
46
<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.
<TABLE>
<S> <C>
WESTERN OHIO FINANCIAL CORPORATION
Date: March 31, 1997 By: /s/John T. Heckman
-----------------------------------------------------
John T. Heckman, Interim President and Chief
Executive Officer
(Duly Authorized Representative)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
By: /s/John T. Heckman By: /s/David L. Dillahunt
-------------------------------------------------- -----------------------------------------------------
John T. Heckman, Interim President and David L. Dillahunt, Chairman of
Chief Executive Officer the Board
(Principal Executive Officer)
Date: March 31, 1997 Date: March 31, 1997
By: /s/Howard V. Dodds By: /s/John E. Field
-------------------------------------------------- -----------------------------------------------------
Howard V. Dodds, Director John E. Field, Director
Date: March 31, 1997 Date: March 31, 1997
By: /s/Carl. E. Mumma By: /s/William N. Scarff
-------------------------------------------------- -----------------------------------------------------
Carl. E. Mumma, Director William N. Scarff, Director
Date: March 31, 1997 Date: March 31, 1997
By: By:
/s/Jeffrey L. Levine /s/Thomas A. Estep
-------------------------------------------------- -----------------------------------------------------
Jeffrey L. Levine, Director Thomas A. Estep, Vice President, Treasurer
and Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: March 31, 1997 Date: May 2, 1997
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
As a savings and loan association holding company, Western Ohio Financial
Corporation ("the Company" or "WOFC"), holds Springfield Federal Savings Bank
("Springfield Federal"), Mayflower Federal Savings Bank ("Mayflower") and Seven
Hills Savings Association ("Seven Hills") whose principal business has
traditionally consisted of attracting deposits from the general public, and
making loans secured by residential real estate. Springfield Federal's,
Mayflower's and Seven Hills' profitability and consequently the Company's
profitability is primarily dependent upon their net interest income, which is
the difference between interest income on its loan and investment portfolio and
interest paid on deposits and other borrowed funds. Net interest income is
directly affected by the relative amounts of interest-earning assets and
interest-bearing liabilities and the interest rates earned or paid on such
amounts. Springfield Federal's, Mayflower's and Seven Hills' profitability is
also affected by the provisions for loan losses and the level of non-interest
income and expense. Non-interest income consists primarily of service charges
and other fees, gains (losses) on sales of securities and other assets and
income from real estate operations. Non-interest expense includes salaries and
employee benefits, real estate operations, occupancy of premises, federal
deposit insurance premiums, franchise taxes, data processing expenses and other
operating expenses.
The operating results of the Company are also affected by general economic
conditions, the monetary and fiscal policies of federal agencies and the
policies of agencies that regulate financial institutions. The Company's cost of
funds is influenced by interest rates on competing investments and general
market rates of interest. Lending activities are influenced by the demand for
real estate loans and other types of loans, which is in turn affected by the
interest rates at which such loans are made, general economic conditions
affecting loan demand and the availability of funds for lending activities.
Management and the Board of Directors of the Company have sought to enhance
shareholder value by repurchasing outstanding shares and acquiring compatible
financial institutions in new geographic markets. On March 29, 1996, the Company
concluded its purchase of Mayflower at a cost of $10.0 million and on November
12, 1996, the Company closed on its purchase of Seven Hills at a cost of $10.5
million. These acquisitions represent a wide spread geographic entry to the
Cincinnati market. The Company offers a range of customer services and products,
including deposit accounts and loans with a special emphasis on one-to-four
family mortgage lending and, to a lesser extent, multi-family and commercial
real estate lending. Smaller portions of the Company's loans receivable consist
of construction, commercial and consumer loans. Management has expanded and
intends to continue to expand its consumer lending portfolio by soliciting its
existing customer base. In January 1996, Springfield Federal incorporated a
consumer finance subsidiary, West Central Financial Services in order to expand
Springfield Federal's consumer lending. In November 1996, Springfield Federal
sold approximately $17.9 million dollars in one-to-four family loans to FNMA.
The proceeds were primarily used to fund the acquisition of Seven Hills. Further
expansion is being planned by management.
<PAGE>
Analysis Of Financial Condition
Total assets of the Company increased $161.4 million in the year ending December
31, 1996, from $231.4 million in 1995 to $392.8 million in 1996. This increase
of 69.8% was primarily reflective of the acquisition of Mayflower and Seven
Hills.
Liabilities increased from $171.7 million at December 31, 1995, to $338.7
million at December 31, 1996, an increase of $167.0 million, or 97.3%. An
increase in deposits from $139.1 million at December 31, 1995, to $233.2 million
at December 31, 1996, (an increase of $94.1 million) combined with an increase
in advances from the Federal Home Loan Bank ("FHLB") of Cincinnati from $31.5
million at December 31, 1995, to $102.6 million at December 31, 1996, (an
increase of $71.1 million) were the primary sources of the increase in total
liabilities. The increase in deposits was primarily attributable to the
acquisition of Mayflower and Seven Hills. Company deposits also grew in response
to its continued aggressive advertising and competitive rates during 1996.
The Company's subsidiaries drew net advances from the FHLB of Cincinnati of
$68.4 million in 1996. The advance rates ranged from 5.20% to 6.30%. The nature
of these advances varied with the intended purpose of obtaining the funds.
Fixed-rate advances of $20.0 million were taken to fund the purchase of callable
securities. The remainder of the borrowing was variable-rate or fixed-rate in
nature and was intended to fund mortgages. The above mentioned advances are
secured by a blanket pledge of mortgages to the FHLB of Cincinnati and are not
tied to specific securities or mortgages.
Mortgage loan originations and purchases increased $61.0 million from $61.3
million in 1995 to $122.3 million in 1996. The higher level of mortgage loan
originations in 1996 was the result of a more aggressive lending effort and the
addition of Mayflower's origination efforts. Net loans receivable increased by
$137.1 million from 1995 to 1996 primarily as the result of the acquisition of
Mayflower and Seven Hills. Also contributing to the increase in net loans
receivable was an increase in non-mortgage loans of $6.1 million. The increase
was a combination of commercial and consumer lending.
Total equity decreased $5.6 million due largely to the buyback of treasury
stock. During 1996, 188,112 shares were repurchased with a total buyback
expenditure of $4.2 million. Earnings of $1.1 million less dividends of $2.3
million decreased retained earnings by $1.2 million in 1996 compared to an
increase of $467,000 in 1995.
<PAGE>
COMPARISON OF RESULTS OF OPERATIONS
Comparison of Years Ended December 31, 1996 and December 31, 1995
The Company's results of operations depend primarily on the level of its net
interest income and non-interest income and the level of its operating expenses.
Net interest income depends upon the volume of interest-earning assets and
interest-bearing liabilities and the interest rate earned or paid on them. In
addition, the Company receives fees from loan originations, late payments, loan
servicing and payments for service related to transaction and other deposit
accounts, and from dividends on its FHLB stock.
GENERAL. Net income for the year ended December 31, 1996, was $1.1 million a
decrease of $1.8 million compared to the year ended December 31, 1995. Net
interest income increased by $2.6 million from $7.8 million to $10.4 million, or
33.5%, primarily as a result of a higher volume of average interest-earning
assets. Non-interest income declined substantially as a result of a decline in
gain on sale of investment securities of $1.0 million. For the year ended
December 31, 1995, non-interest income also included a $681,000 gain from the
termination of benefit plans at Springfield Federal. Non-interest expense also
increased $3.4 million, from $5.4 million at December 31, 1995, to $8.8 million
at December 31, 1996, primarily due to a $1.1 million special assessment to
recapitalize SAIF. The increase in non-interest expense also reflects the new
costs of operating Seven Hills and Mayflower. Income taxes decreased by $800,000
from $1.5 million at December 31, 1995, to $707,000 at December 31, 1996,
primarily as a result of lower income.
INTEREST INCOME. Total interest income increased $9.4 million or 63.1% for the
year ended December 31, 1996 compared to the prior year. This increase is
chiefly due to the higher volume of interest earning assets. This higher volume
is due mostly to a higher volume of loans receivable which reflects the
Company's aggressive lending efforts and the addition of Mayflower and Seven
Hills. Interest from investment securities and other sources rose by $878,000
primarily due to the increased investment in callable securities. Interest
income from the available for sale mortgage-backed securities showed little
change over 1995.
INTEREST EXPENSE. Total interest expense increased $6.7 million or 95.9% for the
year ended December 31, 1996, compared to the prior year. The increase was due
primarily to a higher volume of both deposits and borrowings and a 0.52%
increase in the average rate paid on deposits and borrowings.
PROVISION FOR LOAN LOSSES. The provision for loan losses is a result of
management's periodic analysis of the adequacy of the allowance for loan losses.
There was a $399,000 additional provision for loan losses during the year ended
December 31, 1996. This is an increase of $393,000 from a $6,000 provision
during the prior year. Management believes that the total allowance of $1.7
million is adequate given the area economic conditions and its loan portfolio
composition. At December 31, 1996, the Company was aware of no regulatory
directives or suggestions that the Company make additional provisions for losses
on loans.
The Company will continue to review its allowance for loan losses and make
further allowances as economic and regulatory conditions dictate. Although the
Company maintains its allowance for loan losses at a level that it considers to
be adequate to provide for potential losses, there can be no assurance that
future losses will not exceed estimated amounts or that additional provisions
for loan losses will not be required in future periods. In addition, the
Company's determination as to the amount of the allowance for loan losses is
subject to review by the OTS and FDIC, which can order the establishment of
additional or specific allowances.
<PAGE>
NON-INTEREST INCOME. Non-interest income decreased from $2.0 million in 1995 to
$550,000 in 1996. This decrease is due primarily to a $1.2 million gain on the
sale in 1995 of FHLMC common stock that had been held as an investment security.
Further, the Company realized gains in 1995 of $476,000 and $205,000 from the
curtailment of its defined benefit pension plan and its retiree health care
benefits respectively at Springfield Federal. These plans were eliminated and
replaced with other benefits in an effort to control expanding compensation and
benefit costs.
NON-INTEREST EXPENSE. Total non-interest expense increased from $5.4 million in
1995 to $8.8 million in 1996. The increase is primarily the result of a $1.1
million special assessment to recapitalize SAIF. Additionally, the 1996 expenses
included nine months of operations at Mayflower and one and one half months of
operations at Seven Hills.
INCOME TAX EXPENSE. Income tax expense was $707,000 for the year ended December
31, 1996, a decrease of $800,000, or 63.3%, from the same period the prior year.
Income taxes increased primarily as a result of increased earnings before income
taxes.
Comparison of Years Ended December 31, 1995 and December 31, 1994
The Company's results of operations depend primarily on the level of its net
interest income and non-interest income and the level of its operating expenses.
Net interest income depends upon the volume of interest-earning assets and
interest-bearing liabilities and the interest rate earned or paid on them. In
addition, the Company receives fees from loan originations, late payments and
payments for service related to transaction and other deposit accounts, and from
dividends on its FHLB stock.
GENERAL. Net income for the year ended December 31, 1995, was $2.9 million, an
increase of $266,000 compared to the year ended December 31, 1994. Net interest
income increased by $508,000 from $7.3 million to $7.8 million, or 7.0%,
primarily as a result of a higher volume of average interest-earning assets.
Non-interest income, consisting primarily of gains on sales of investment
securities, increased from $72,000 for the year ended December 31, 1994, to $2.0
million for the year ended December 31, 1995. Non-interest expense also
increased $2.0 million, from $3.3 million at December 31, 1994, to $5.3 million
at December 31, 1995, primarily due to increases in compensation and benefits as
the Company hired additional personnel to staff its expanding operations. Income
taxes increased by $141,000 from $1.4 million at December 31, 1994, to $1.5
million at December 31, 1995, primarily as a result of higher income.
INTEREST INCOME. Total interest income increased $2.4 million or 19.0% for the
year ended December 31, 1995, compared to the prior year. This increase is
chiefly due to the higher volume of interest earning assets. This higher volume
is due mostly to a higher volume of loans receivable and to a lesser degree the
higher volume of mortgage-backed securities. Interest from investment securities
and other sources were little changed over 1994. The increase in volume of
interest earning assets was offset in part by a 71 basis point decline in the
average yield earned on loans receivable.
INTEREST EXPENSE. Total interest expense increased $1.9 million or 35.8% for the
year ended December 31, 1995, compared to the prior year. The increase was due
primarily to a higher volume of both deposits and borrowings and a 1.22%
increase in the average rate paid on time deposits. The increase in rates paid
on time deposits is due in part to management aggressively seeking deposits.
<PAGE>
PROVISION FOR LOAN LOSSES. The provision for loan losses is a result of
management's periodic analysis of the adequacy of the allowance for loan losses.
There was a $6,000 additional provision for loan losses during the year ended
December 31, 1995. This was an increase of $6,000 from no provision during the
prior year. Management believed that the total allowance of $774,000 was
adequate given the local economic conditions and its loan portfolio composition.
At December 31, 1995, the Company was aware of no regulatory directives or
suggestions that the Company make additional provisions for losses on loans.
NON-INTEREST INCOME. Non-interest income increased from $72,000 in 1994 to $2.0
million in 1995. This increase is due primarily to a $1.2 million gain on the
sale of FHLMC common stock which had been held as an investment security. The
gain was the result of the Company's desire to shift the resulting sale proceeds
into other assets. Further, the Company realized gains of $476,000 and $205,000
from the curtailment of its defined benefit pension plan and its retiree health
care benefits respectively. These plans were eliminated and replaced with other
benefits in an effort to control expanding compensation and benefit costs.
NON-INTEREST EXPENSE. Total non-interest expense increased from $3.3 million in
1994 to $5.3 million in 1995. The increase is primarily a result of an increase
in compensation and benefits. This item increased substantially due to expanded
staffing levels to cover the higher volume of lending and in anticipation of
acquisitions. A new branch is to be opened early in 1996. The amortization of
the cost of the Company's Management Recognition Plan and recognition of a full
year's cost of the ESOP also contributed to the increase in compensation and
benefits.
INCOME TAX EXPENSE. Income tax expense was $1,507,000 for the year ended
December 31, 1995, an increase of $141,000, or 10.3%, from the same period the
prior year. Income taxes increased primarily as a result of increased earnings
before income taxes.
<PAGE>
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. No tax equivalent adjustments were made. All average balances are monthly
average balances. Nonaccruing loans have been included in the table as loans
carrying a zero yield.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------------------------------
1996 1995 1994
----------------------------------------------------------------------------------------------
Average Interest Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate Balance Paid Rate Balance Paid Rate
---------- --------- -------- ---------- --------- ------ ---------- -------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans Receivable $ 235,936 $ 18,436 7.81% $ 121,373 $ 9,942 8.19% $ 100,505 $ 8,944 8.90%
Mortgage-backed securities 43,243 2,854 6.60 42,606 2,876 6.75 31,427 1,832 5.83
Investment securities 27,190 2,043 7.51 12,045 833 6.92 11,696 667 5.70
Interest-bearing deposits 8,293 536 6.46 16,655 1,067 6.41 20,408 933 4.57
FHLB stock 3,914 291 7.43 1,381 91 6.59 1,245 69 5.54
---------- --------- ---------- --------- ---------- --------
Total interest-earning assets $ 318,576 24,160 7.58 $ 194,060 14,809 7.63 $ 165,281 12,445 7.53
========== --------- ========== --------- ========== --------
Interest-bearing liabilities:
Time deposits $ 134,757 8,188 6.08 $ 90,805 5,277 5.81 $ 75,545 3,470 4.59
Demand and NOW deposits 12,851 146 1.14 11,932 277 2.32 17,891 439 2.45
Savings deposits 28,334 926 3.27 25,175 687 2.73 36,577 1,111 3.04
Borrowings 74,832 4,523 6.04 13,374 793 5.93 2,343 158 6.74
---------- --------- ---------- --------- ---------- --------
Total interest-bearing
liabilities $ 250,774 13,783 5.50 $ 141,286 7,034 4.98 $ 132,356 5,178 3.91
========== --------- ========== --------- ========== --------
Net interest income $ 10,377 $ 7,775 $ 7,267
========= ========= ========
Net interest rate spread 2.08% 2.65% 3.62%
======= ====== ======
Net earning assets $ 67,802 $ 52,774 $ 32,925
========== ========== ==========
Net yield on average interest-
earning assets 3.26% 4.01% 4.40%
======= ======= ======
Average interest-earning assets to
average interest-bearing liabilities 1.27x 1.37x 1.25x
======= ======= =======
</TABLE>
<PAGE>
RATE/VOLUME ANALYSIS. The following schedule 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 average outstanding
balances and that due to the volatility of 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 new 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 December 31, Year Ended December 31,
----------------------------------- --------------------------------------
1995 vs. 1996 1994 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 receivable $8,972 $(478) $8,494 $1,710 $(712) $ 998
Mortgage-backed securities 43 (65) (22) 755 289 1,044
Investments securities 1,132 78 1,210 24 142 166
Other (353) 22 (331) (233) 389 156
------ ----- ------ ------ ----- ------
Total interest-earning assets $9,794 $(443) $9,351 $2,256 $ 108 $2,364
====== ===== ====== ====== ===== ======
Interest-bearing liabilities:
Time deposits 2,661 250 2,911 887 921 1,808
Demand and NOW deposits 20 (151) (131) (138) (24) (162)
Savings deposits 93 146 239 (311) (114) (425)
Borrowings 3,714 16 3,730 654 (19) 635
------ ----- ------ ------ ----- ------
Total interest-bearing liabilities $6,488 $ 261 $6,749 $1,092 $ 764 $1,856
====== ===== ====== ====== ===== ======
Net interest income $2,602 $ 508
====== ======
</TABLE>
<PAGE>
ASSET/LIABILITY MANAGEMENT
NET PORTFOLIO VALUE. The measurement and analysis of the exposure of the
Company's subsidiaries to changes in the interest rate environment are referred
to as asset/liability management. One method used to analyze the Company's
sensitivity to changes in interest rates is the "net portfolio value" ("NPV")
methodology used by the OTS as part of its capital regulations. The Company's
subsidiaries are not currently subject to the NPV regulation because such
regulation does not apply to institutions with less than $300 million in assets
and risk-based capital in excess of 12%. The application of the NPV methodology
may illustrate the Company's interest rate risk.
NPV is generally considered to be the present value of the difference between
expected incoming cash flows on interest-earning and other assets and expected
outgoing cash flows on interest-bearing and other liabilities. The application
attempts to quantify interest rate risk as the change in the NPV which would
result from a theoretical 200 basis point (1 basis point equals .01%) change in
market interest rates. Both a 200 basis point increase in market interest rates
and a 200 basis point decrease in market interest rates are considered.
Presented below, as of September 30, 1996 and December 31, 1995, is an analysis
of Springfield Federal's, Mayflower's and Seven Hills' interest rate risk as
measured by changes in NPV for instantaneous and sustained parallel shifts of
100 basis points in market interest rates. The tables also contain the policy
limits set by the Board of Directors of each institution as the maximum change
in NPV that the Board of Directors deems advisable in the event of various
changes in interest rates. Such limits have been established with consideration
to the impact on the NPV capital position of various rate changes and each
institution's strong capital position.
As illustrated in the tables, each institution's NPV is more sensitive to rising
rates than declining rates. From an overall perspective, such difference in
sensitivity occurs principally because, as rates rise, borrowers do not prepay
fixed-rate loans as quickly as they do when interest rates are declining. Thus,
in a rising interest rate environment, because the Company has primarily
fixed-rate loans in its loan portfolio, the amount of interest the Company would
receive on its loans would increase relatively slowly as loans are slowly
prepaid and new loans at higher rates are made. Moreover, the interest the
Company would pay on its deposits would increase rapidly because the Company's
deposits generally have shorter periods to repricing. Assumptions used in
calculating the amounts in these tables are OTS assumptions.
<PAGE>
SPRINGFIELD FEDERAL SAVINGS BANK
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
------------------------ -------------------------
Change in Interest Rate Board limit $ change % change $ change % change
(Basis Points) % change in NPV in NPV in NPV in NPV
- ------------------------ ---------- ------------ ---------- ------------ -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
+300 (60) (24,754) (53) (13,334) (27)
+200 (40) (16,538) (36) (8,352) (17)
+100 (20) (8,130) (18) (3,762) (8)
0 0 0 0 0 0
-100 (20) 7,049 15 2,337 5
-200 (40) 11,538 25 3,229 7
-300 (60) 14,942 32 6,253 9
</TABLE>
MAYFLOWER FEDERAL SAVINGS BANK
September 30, 1996
------------------------
Change in Interest Rate Board limit $ change % change
(Basis Points) % change in NPV in NPV
- ------------------------ ---------- ------------ ----------
(Dollars in thousands)
+300 (50) (2,451) (34)
+200 (25) (1,494) (21)
+100 (10) (662) (9)
0 0 0 0
-100 (10) 434 6
-200 (25) 654 9
-300 (50) 869 12
SEVEN HILLS SAVINGS ASSOCIATION
September 30, 1996
------------------------
Change in Interest Rate Board limit $ change % change
(Basis Points) % change in NPV in NPV
- ------------------------ ---------- ------------ ----------
(Dollars in thousands)
+300 (60) (2,755) (32)
+200 (30) (1,782) (21)
+100 (15) (843) (10)
0 0 0 0
-100 (15) 668 8
-200 (30) 1,036 12
-300 (60) 1,304 15
<PAGE>
As of September 30, 1996, the percentage change in NPV resulting from certain
changes in interest rates were within the policy limits of each institution's
Board of Directors. It should be noted that the above tables and the regulation
of concern only pertains to each institution and does not apply to the holding
company. The Company's assets are all of a short term or short term to repricing
nature and therefore are not subject to significant interest rate risk.
As with any method of measuring interest rate risk, certain shortcomings are
inherent in the NPV approach. For example, although certain assets and
liabilities may have similar maturities or periods of repricing, they may react
in different degrees to change in market interest rates. Also, the interest
rates on certain types of assets and liabilities may fluctuate in advance of
changes in market interest rates, while interest rates on other types may lag
behind changes in market rates. Further, in the event of a change in interest
rates, expected rates of prepayment on loans and mortgage-backed securities and
early withdrawal levels from certificates of deposit would likely deviate
significantly from those assumed in making risk calculations.
In the event that interest rates continue to rise from the recent historically
low levels, each institution's net interest income could be expected to be
negatively affected. Moreover, rising interest rates could negatively affect
Springfield Federal's, Mayflower's and Seven Hills' earnings and thereby the
Company's earnings due to diminished loan demand. As part of the Company's
interest rate risk strategy, the Company has attempted to utilize adjustable
rate and short term duration loans and investments at its subsidiaries.
The Company fully intends to limit the addition of fixed rate long duration
loans and securities to its portfolio. In addition to this restructuring it has
also begun to offer consumer products at its subsidiaries that reprice on a
monthly basis. It is expected that as the size of these portfolio segments grows
the interest rate risk will be lessened, though not eliminated.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Western Ohio Financial Corporation'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 December 31, 1996,
1995 and 1994.
Year Ended December 31,
--------------------------------------
1996 1995 1994
------ ------ ------
Net income $ 1,062 $ 2,893 $ 2,627
Adjustments to reconcile net income
to net cash from operating
activities (324) (1,825) (253)
-------- -------- --------
Net cash from operating activities 738 1,068 2,374
Net cash from investment activities (82,460) (45,838) (26,969)
Net cash from financing activities 79,728 42,424 33,631
-------- -------- --------
Net change in cash and cash
equivalents (1,994) (2,346) 9,036
Cash and cash equivalents at
beginning of period 17,605 19,951 10,915
-------- -------- --------
Cash and cash equivalents at
end of period $ 15,611 $ 17,605 $ 19,951
======== ======== ========
At December 31, 1996 , the Company had no outstanding commitments to sell loans
or securities.
The OTS requires minimum levels of liquid assets. OTS regulations presently
require Springfield Federal, Mayflower and Seven Hills to maintain an average
daily balance of liquid assets (United State Treasury, federal agency, and other
investments having maturities of five years or less) equal to at least 5.0% of
the sum of its average daily balance of net withdrawable deposit accounts and
borrowings payable in one year or less. Such requirements may be changed from
time to time by the OTS to reflect changing economic conditions.
Such investments are intended to provide a source of relatively liquid funds
upon which Springfield Federal, Mayflower and Seven Hills may rely, if
necessary, to fund deposit withdrawals and other short-term funding needs.
Springfield Federal's average regulatory liquidity at December 31, 1996 was
5.51%. Mayflower's average regulatory liquidity at December 31, 1996 was 6.86%.
Seven Hills average regulatory liquidity at December 31, 1996 was 9.46%.
The Company's primary sources of funds consist of deposits and repayments of
loans and interest earned on securities. The Company maintains a higher ratio of
loans to deposits in comparison with other similarly sized savings institutions.
Historically, this has not had a material affect on the Company's liquidity as
it has utilized other potential sources of funds including borrowings from the
FHLB of Cincinnati to maintain liquidity and to meet operating expenses.
Management believes that loan repayments and other sources of funds will be
adequate to meet the Company's foreseeable liquidity needs.
The primary financing activity of the Company during 1996 was the proceeds from
FHLB advances of $88.0 million. Also a major financing activity was the net
increase in savings deposits of $17.3 million. The Company paid $2.3 million in
dividends and acquired treasury stock for $4.2 million in 1996.
<PAGE>
Liquidity management is a daily and long-term responsibility of management. The
Company adjusts its investments in liquid assets based upon assessment of (i)
expected loan demand, (ii) expected deposit flows, (iii) yields available on
interest-bearing deposits and (iv) the objectives of its asset/liablity
management program. Excess liquidity is invested generally in interest-bearing
overnight deposits and other short-term government and agency obligations. If
the Company requires additional funds beyond its internal ability to generate,
it has additional borrowing capacity with the FHLB of Cincinnati.
The Company anticipates that it will have sufficient funds available to meet
current loan commitments. At December 31, 1996, the Company had outstanding
commitments to extend credit that amounted to $5.4 million.
Under The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA"), the capital requirements applicable to all savings institutions,
including the Company, were substantially increased. However, Springfield
Federal, Mayflower and Seven Hills are in compliance with all applicable capital
requirements and expects to remain so.
OTS regulations require that institutions maintain "tangible capital" of not
less than 1.5% of the institution's adjusted total assets. Tangible capital is
defined as "core capital" less any intangible assets.
Core capital is comprised of common stockholders' equity (including retained
earnings). OTS regulations require core capital to be maintained at 3% of total
institution assets.
OTS regulations require the institution to maintain "risk-based capital" in an
amount not less than 8% of risk-weighted assets. Risk-based capital is defined
as core capital plus certain additional items. Springfield Federal's adjustment
to core capital includes the portion of the loan and lease loss allowance over
the amount required for loans classified as loss. This adjustment is $1.2
million as of December 31, 1996. Mayflower's adjustment to core capital includes
the portion of the loan and lease loss allowance over the amount required for
loans classified as loss. This adjustment is $330,000 as of December 31, 1996.
Seven Hills' adjustment to core capital includes the portion of the loan and
lease loss allowance over the amount required for loans classified as loss. This
adjustment is $216,000 as of December 31, 1996.
The following table summarizes Springfield Federal's regulatory capital
requirements and actual capital at December 31, 1996.
SPRINGFIELD FEDERAL SAVINGS BANK
<TABLE>
<CAPTION>
Excess of Actual
Capital Over Current
Actual Capital Current Requirement Requirement
------------------------ ------------------------- ------------------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Tangible Capital $30,262 11.03% $ 4,116 1.50% $26,146 9.53%
Core Capital 30,262 11.03 8,234 3.00 22,028 8.03
Risk-Based Capital 31,432 21.77 11,542 8.00 19,890 13.77
</TABLE>
<PAGE>
MAYFLOWER FEDERAL SAVINGS BANK
<TABLE>
<CAPTION>
Excess of Actual
Capital Over Current
Actual Capital Current Requirement Requirement
------------------------ ------------------------- ------------------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Tangible Capital $6,714 10.24% $ 984 1.50% $5,730 8.74%
Core Capital 6,714 10.24 1,968 3.00 4,746 7.24
Risk-Based Capital 7,044 19.08 2,948 8.00 4,096 11.08
</TABLE>
SEVEN HILLS SAVINGS ASSOCIATION
<TABLE>
<CAPTION>
Excess of Actual
Capital Over Current
Actual Capital Current Requirement Requirement
------------------------ ------------------------- ------------------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Tangible Capital $8,744 19.07% $ 688 1.50% $8,056 17.57%
Core Capital 8,744 19.07 1,376 3.00 7,368 16.07
Risk-Based Capital 8,960 40.99 1,749 8.00 7,211 32.99
</TABLE>
IMPACT OF NEW ACCOUNTING STANDARDS
In October 1994, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 119, Disclosure about Derivative Financial
Instruments and Fair Value of Financial Instruments. This statement requires
disclosures about the amounts, nature and terms of derivative financial
instruments that are not subject to Statement 105, Disclosures of Information
about Financial Instruments and Off-Balance-Sheet Risk, because they do not
result in off-balance-sheet risk of accounting loss. It requires that a
distinction be made between financial instruments held or issued for trading
purposes (including dealing and other trading activities measured at fair value
with gains and losses recognized in earnings) and financial instruments held or
issued for purposes other than trading. SFAS No. 119 is effective for financial
statements for fiscal years ending after December 15, 1995. The Company and its
subsidiaries held no securities for trading activities nor are any of the
securities held considered a futures, forward, swap or option contract.
Considering the preceding factors, no material impact resulted from the adoption
of this standard.
In May 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 122, Accounting for Mortgage Servicing Rights.
This statement requires that a mortgage banking enterprise recognize as separate
assets rights to service mortgage loans for others, however those servicing
rights are acquired. A mortgage banking enterprise that acquires mortgage
servicing rights through either the purchase or origination of mortgage loans
and sells or securitizes those loans with servicing rights retained would
allocate the total cost of the mortgage loans to the mortgage servicing rights
and the loans based on their relative fair value. SFAS No. 122 is effective for
fiscal years beginning after December 31, 1995. A sale of loans which had not
been originated for sale took place in November 1996. The servicing rights were
valued in accordance with SFAS No. 122.
<PAGE>
In October 1995, the FASB issued SFAS No. 123, Accounting for Stock-Based
Compensation, establishing financial accounting and reporting standards for
stock-based employee compensation plans. SFAS No. 123 encourages all entities to
adopt a new method of accounting to measure the compensation cost of all
employee stock compensation plans based on the estimated fair value of awards at
the date they are granted. Companies are, however, allowed to continue to
measure compensation costs for those plans using the intrinsic value based
method of accounting, which generally does not result in compensation expense
recognition for most plans. Companies that elect to retain their existing
accounting method are required to disclose in a footnote to the financial
statements pro forma net income and, if presented, earnings per share as if SFAS
No. 123 had been adopted. The accounting requirements of SFAS No. 123 are
effective for transactions entered into during fiscal years that begin after
December 15, 1995. Companies are required, however, to disclose information for
awards granted in their first fiscal year ending after December 15, 1994.
Disclosure of information regarding awards is included in the footnotes to the
following audited financial statements.
In June 1996, the FASB issued SFAS No 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities, which
established accounting and reporting standards for transfers and servicing of
financial assets and extinguishment of liabilities. The standards are based on a
consistent application of a financial-components approach that focuses on
control. Under that approach, after a transfer of financial assets an entity
recognizes the financial and servicing assets it controls and the liabilities it
has incurred and ceases recognizing financial assets when control has been
surrendered and ceases recognizing liabilities when they have been extinguished.
SFAS No. 125 provides consistent standards for distinguishing transfers of
financial assets that are sales from transfers that are secured borrowings. SFAS
No. 125 supersedes SFAS No. 122. SFAS No. 125 is effective for transactions
occurring after December 31, 1996. Management does not expect an impact from
adoption of SFAS No. 125.
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements and related data presented herein have
been prepared according to generally accepted accounting principles which
require the measurement of financial position and operating results in terms of
historical dollars without considering changes in the relative purchasing power
of money over time due to inflation. An exception to historical cost
presentation is the valuation of securities available for sale under FASB No.
115. The primary assets and liabilities of the Company are monetary in nature.
As a result, interest rates have a more significant impact on the Company's
performance than the effects of general levels of inflation. Interest rates do
not necessarily move in the same direction or magnitude as the prices of goods
and services.
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Western Ohio Financial Corporation
We have audited the accompanying consolidated statements of financial condition
of Western Ohio Financial Corporation and its wholly-owned subsidiaries,
Springfield Federal Savings Bank (formerly Springfield Federal Savings and Loan
Association), Mayflower Federal Savings Bank and Seven Hills Savings
Association, as of December 31, 1996 and 1995, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended December 31, 1996. 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated 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 Western Ohio
Financial Corporation and its subsidiaries as of December 31, 1996 and 1995, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the financial statements, the Company changed its
method of accounting for investment and mortgage-backed securities available for
sale in 1994 to conform to new accounting guidelines.
Clark, Schaefer, Hackett & Co.
January 25, 1997
Springfield, Ohio
<PAGE>
WESTERN OHIO FINANCIAL CORPORATION
Consolidated Statements of Financial Condition
($000's in Thousands)
December 31, 1996 and 1995
<TABLE>
<CAPTION>
Assets 1996 1995
------ ---- ----
<S> <C> <C>
Cash and cash equivalents (includes federal funds of $4,898 and
$11,075 at December 31, 1996 and 1995) ................................. $ 15,611 $ 17,605
Securities available for sale, at fair value ............................. 35,729 12,039
Mortgage-backed securities available for sale, at fair value ............. 36,843 45,719
Loans receivable, net .................................................... 287,611 150,476
Accrued interest receivable .............................................. 2,170 691
Premises and equipment, net .............................................. 3,954 2,542
Federal Home Loan Bank stock, at cost .................................... 5,862 1,602
Investment in joint venture .............................................. 20 20
Prepaid federal income taxes ............................................. 322 92
Prepaid expenses and other assets ........................................ 637 420
Deferred acquisition costs ............................................... --- 181
Goodwill from acquisition of subsidiaries, net ........................... 4,006 ---
-------- --------
Total assets ........................................................ $392,765 $231,387
======== ========
Liabilities and Stockholders' Equity
------------------------------------
Liabilities:
Deposits ............................................................... $233,203 $139,129
Advances from the Federal Home Loan Bank ............................... 102,602 31,528
Deferred federal income taxes .......................................... 5 261
Advance payments from borrowers for taxes and insurance ................ 833 283
Accrued expenses and other liabilities ................................. 1,054 518
Amount due on acquisitions ............................................. 1,020 ---
-------- --------
Total liabilities .................................................... 338,717 171,719
-------- --------
Stockholders' equity:
Common stock; $.O1 par value; 7,250,000 shares authorized;
2,645,000 shares issued .............................................. 26 26
Additional paid-in capital ............................................. 41,158 41,048
Unrealized gain (loss) on securities available for sale, net
of income taxes ...................................................... (242) 631
Unallocated shares held by employee stock ownership plan ............... (1,785) (2,023)
Deferred management recognition plan expense ........................... (764) (1,011)
Treasury stock; 307,072 and 157,914 shares, at cost .................... (7,579) (3,450)
Retained earnings, substantially restricted ............................ 23,234 24,447
-------- --------
Total stockholders' equity .......................................... 54,048 59,668
-------- --------
Total liabilities and stockholders' equity .......................... $392,765 $231,387
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
WESTERN OHIO FINANCIAL CORPORATION
Consolidated Statements of Income
($000's in thousands except earnings per share data)
Years Ended December 31, 1996, 1995, and 1994
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Interest income:
Loans receivable:
First mortgage loans $ 18,074 9,763 8,867
Other loans 363 179 77
Securities available for sale 2,305 833 667
Mortgage-backed securities available for sale 2,854 740 102
Mortgage-backed securities at amortized cost - 2,136 1,730
Other 564 1,158 1,002
-------- -------- -------
Total interest income 24,160 14,809 12,445
-------- -------- -------
Interest expense:
Deposits 9,260 6,241 5,020
Federal Home Loan Bank advances 4,523 793 158
-------- -------- -------
Total interest expense 13,783 7,034 5,178
-------- -------- -------
Net interest income 10,377 7,775 7,267
Provision for loan losses 399 6 -
-------- -------- -------
Net interest income after provision for loan losses 9,978 7,769 7,267
-------- -------- -------
Non-interest income:
Gain on sales of securities 234 1,207 2
Gain from termination of benefit plans - 681 -
Fees and other charges 156 60 53
Gain on sale of assets 106 - -
Other 54 32 17
-------- -------- -------
Total non-interest income 550 1,980 72
-------- -------- -------
Non-interest expense:
Compensation and benefits 3,731 2,848 1,722
Occupancy and equipment 773 579 368
SAIF deposit insurance premium 1,465 277 313
Franchise taxes 898 797 321
Legal, accounting and examinations 360 175 161
Advertising 265 203 127
Amortization of goodwill 246 - -
Other 1,021 470 334
-------- -------- -------
Total non-interest expense 8,759 5,349 3,346
-------- -------- -------
Income before income taxes $ 1,769 4,400 3,993
Provision for income taxes 707 1,507 1,366
-------- -------- -------
Net income $ 1,062 2,893 2,627
======== ======== =======
Earnings per share (since conversion at July 29, 1994): $ 0.47 1.18 0.42
======== ======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
WESTERN OHIO FINANCIAL CORPORATION
Consolidated Statements of Stockholders' Equity
($000's in thousands)
Years Ended December 31, 1996, 1995, and 1994
<TABLE>
<CAPTION>
Unrealized Unallocated
Gain (Loss) on Shares Held
Additional Seurities By Employee
Common Paid-In Available Stock Owner-
Stock Capital For Sale ship Plan
--------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Balance, December 31, 1993 $ - - - -
Addition at adoption of SFAS No. 115, net of deferred taxes - - 1,125 -
Sale of 2,496,219 shares of common stock $16 per share, net of related expenses 25 38,694 - -
Issuance of 148,781 shares to Employee Stock Option Plan at $16 per share 1 2,379 - (2,380)
Net income for year ended December 31, 1994 - - - -
Dividends paid ($.125 per share) - - - -
Employee Stock Ownership Plan shares committed to be allocated,
at average market price - - - 119
Net change for year, net of deferred taxes - - (585) -
---- ------- ----- ------
Balance, December 31, 1994 26 41,073 540 (2,261)
Net income for year ended December 31, 1995 - - - -
Dividends paid ($1.00 per share) - - - -
Transfer from "held to maturity" to "available for sale", net of deferred taxes - - 490 -
Net change for year, net of deferred taxes - - (399) -
Treasury shares acquired - - - -
Shares awarded under Management Recognition Plan - (88) - -
Management Recognition Plan expense - - - -
Employee Stock Ownership Plan shares committed to be allocated,
at average market price - 63 - 238
---- ------- ----- ------
Balance, December 31, 1995 26 41,048 631 (2,023)
Net income for year ended December 31, 1996 - - - -
Dividends paid ($1.00 per share) - - - -
Net change for year, net of deferred taxes - - (873) -
Treasury shares acquired - - - -
Management Recognition Plan expense and related tax benefit - 31 - -
Employee stock options exercised - (7) - -
Employee Stock Ownership Plan shares committed to be allocated,
at average market price - 86 - 238
----- ------- ----- ------
Balance, December 31, 1996 $ 26 41,158 (242) (1,785)
===== ======= ===== ======
</TABLE>
<PAGE>
(RESTUBBED TABLE FROM ABOVE)
<TABLE>
<CAPTION>
Deferred
Management
Recognition Treasury Retained
Plan Expense Stock Earnings Total
------------- ---------- --------- -------
<S> <C> <C> <C> <C>
Balance, December 31, 1993 - - 21,664 21,664
Addition at adoption of SFAS No. 115, net of deferred taxes - - - 1,125
Sale of 2,496,219 shares of common stock $16 per share, net of related expenses - - - 38,719
Issuance of 148,781 shares to Employee Stock Option Plan at $16 per share - - - -
Net income for year ended December 31, 1994 - - 2,627 2,627
Dividends paid ($.125 per share) - - (311) (311)
Employee Stock Ownership Plan shares committed to be allocated,
at average market price - - - 119
Net change for year, net of deferred taxes - - - (585)
----- ------ ------ ------
Balance, December 31, 1994 - - 23,980 63,358
Net income for year ended December 31, 1995 - - 2,893 2,893
Dividends paid ($1.00 per share) - - (2,426) (2,426)
Transfer from "held to maturity" to "available for sale", net of deferred taxes - - - 490
Net change for year, net of deferred taxes - - - (399)
Treasury shares acquired - (4,769) - (4,769)
Shares awarded under Management Recognition Plan (1,231) 1,319 - -
Management Recognition Plan expense 220 - - 220
Employee Stock Ownership Plan shares committed to be allocated,
at average market price - - - 301
----- ------ ------ ------
Balance, December 31, 1995 (1,011) (3,450) 24,447 59,668
Net income for year ended December 31, 1996 - - 1,062 1,062
Dividends paid ($1.00 per share) - - (2,275) (2,275)
Net change for year, net of deferred taxes - - - (873)
Treasury shares acquired - (4,187) - (4,187)
Management Recognition Plan expense and related tax benefit 247 - - 278
Employee stock options exercised - 58 - 51
Employee Stock Ownership Plan shares committed to be allocated,
at average market price - - - 324
----- ------ ------ ------
Balance, December 31, 1996 (764) (7,579) 23,234 54,048
===== ====== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
WESTERN OHIO FINANCIAL CORPORATION
Consolidated Statements of Cash Flows
($000's in thousands)
Years Ended December 31, 1996, 1995, and 1994
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,062 2,893 2,627
Adjustments to reconcile net income to net cash provided
by operating activities:
ESOP expense 324 301 119
Management Recognition Plan expense 247 220 -
Depreciation and amortization of premises and equipment 245 220 69
Amortization of goodwill 246 - -
Stock dividends, Federal Home Loan Bank (294) (92) (71)
Deferred loan origination fees (345) (155) (305)
Premiums and discounts on loans, mortgage-backed
securities and investments (58) (334) 28
Deferred income taxes 21 129 16
Provision for loan losses 399 6 -
Net gain on sales of:
Mortgage-backed securities (208) - -
Other securities (26) (1,207) (2)
Loans (83) - -
Premises and equipment (23) - (6)
Changes in:
Prepaid expenses and other assets 469 (299) 7
Accrued expenses and other liabilities (9) (420) 280
Accrued interest receivable (999) (282) (21)
Federal income taxes accrued or refundable (230) 88 (367)
-------- ------- -------
Net cash provided by operating activities 738 1,068 2,374
-------- ------- -------
Cash flows from investing activities:
Federal Home Loan Bank stock:
Purchases (3,141) (217) -
Investment securities:
Available for sale:
Purchases (23,000) (12,000) (18,650)
Sales 51 1,287 9,791
Maturities 2,321 16,335 3,000
Mortgage-backed securities:
Available for sale:
Purchases - (10,636) (3,427)
Collections 7,567 186 -
Sales 21,770 - -
</TABLE>
(Continued)
<PAGE>
WESTERN OHIO FINANCIAL CORPORATION
Consolidated Statements of Cash Flows (Continued)
($000's in thousands)
Years Ended December 31, 1996, 1995, and 1994
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Cash flows from investing activities: (Continued)
At amortized cost:
Purchases - - (17,318)
Sales - - -
Collections - 6,171 6,109
Loans:
Originations (83,195) (53,574) (24,183)
Purchases (45,236) (8,765) -
Collections 37,730 16,281 18,319
Sales 17,783 - -
Premises and equipment:
Additions (699) (725) (599)
Sales proceeds 13 - 9
Investment in joint venture - - (20)
Acquisition of subsidiaries, net of cash received (14,424) (181) -
------- ------- -------
Net cash used by investing activities (82,460) (45,838) (26,969)
------- ------- -------
Cash flows from financing activities:
Proceeds from issuance of common stock upon conversion - - 38,719
Net increase (decrease) in deposits 17,284 21,600 (8,091)
Net increase in advances from borrowers for taxes and insurance 463 212 71
Advances from Federal Home Loan Bank:
Net borrowings 87,963 32,876 3,265
Repayments (19,571) (5,037) (22)
Dividends paid (2,275) (2,458) (311)
Stock options exercised, net 51 - -
Treasury stock acquired (4,187) (4,769) -
------- ------- -------
Net cash provided by financing activities 79,728 42,424 33,631
------- ------- -------
Net increase (decrease) in cash and cash equivalents (1,994) (2,346) 9,036
Cash and cash equivalents:
Beginning 17,605 19,951 10,915
------- ------- -------
Ending $ 15,611 17,605 19,951
======= ======= =======
Supplemental information:
Interest paid $ 13,396 6,875 5,160
======= ======= =======
Income taxes paid $ 861 1,290 1,530
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
WESTERN OHIO FINANCIAL CORPORATION
Notes to Consolidated Financial Statements
($000'S in Thousands)
1. Organization and Summary of Significant Accounting Policies:
The following describes the Company and the significant accounting policies
followed in the preparation of these financial statements.
Organization and principles of consolidation
Western Ohio Financial Corporation (the "Company") is a holding company
formed in 1994 in conjunction with the conversion of Springfield Federal
Savings and Loan Association from a mutual savings association to a
stock savings bank on July 29, 1994. The Company's financial statements
include the accounts of its wholly-owned subsidiaries, Springfield
Federal Savings Bank, and its subsidiary West Central Financial
Services, Inc., Mayflower Federal Savings Bank and Seven Hills Savings
Association (collectively referred to as "Banks").
Springfield Federal Savings Bank (formerly Springfield Federal Savings
and Loan Association) was organized in 1884. Mayflower Federal Savings
Bank and Seven Hills Savings Association were acquired on March 29, 1996
and November 12, 1996, respectively. Operating results reflect only
transactions since acquisition dates. All significant intercompany
transactions have been eliminated.
Each institution is a member of the Federal Home Loan Bank system (FHLB)
and subject to regulation by the Office of Thrift Supervision (OTS), an
Office of the U.S. Department of Treasury. As members of the FHLB
system, each institution maintains a required investment in capital
stock of the Federal Home Loan Bank of Cincinnati.
The Company conducts a general banking business in west central and
southwestern Ohio which consists of attracting deposits from the general
public and applying those funds to the origination of loans for
residential, consumer and nonresidential purposes. The Company's
profitability is significantly dependent on its net interest income,
which is the difference between interest income generated from
interest-earning assets (i.e., loans and investments) and the interest
expense paid on interest-bearing liabilities (i.e., customer deposits
and borrowed funds). Net interest income is affected by the relative
amount of interest-earning assets and interest-bearing liabilities and
the interest received or paid on these balances. The level of interest
rates paid or received by the Company can be significantly influenced by
a number of environmental factors, such as governmental monetary policy,
that are outside of management's control.
Savings accounts are insured by Savings Association Insurance Fund
(SAIF), a division of the Federal Deposit Insurance Corporation (FDIC),
within certain limitations. Quarterly premiums are required by SAIF for
the insurance of such savings accounts.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets
<PAGE>
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates and such estimates may change in the future.
Areas involving the use of management's estimates and assumptions
include, but are not limited to, the allowance for loan losses, the
realization of deferred tax assets, the determination and carrying value
of impaired loans, the carrying value of other real estate owned,
recognition and measurement of loss contingencies, and depreciation of
premises and equipment.
Cash and cash equivalents
For the purpose of presentation in the consolidated statements of cash
flows, cash and cash equivalents include cash and amounts due from
depository institutions and federal funds.
Investments and mortgage-backed securities
The Company may classify its investment and mortgage-backed securities
into held-to-maturity, available-for-sale or 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 cost.
Available-for-sale securities are those which the Company could sell for
liquidity, cash 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. Trading
securities are those purchased principally to sell in the near term and
are carried at fair value, with unrealized holding gains and losses
reflected in earnings. All investment and mortgage-backed securities are
classified as available-for-sale as of December 31, 1996.
Gains and losses on the sale of available-for-sale securities are
determined using the specific-identification method.
In May 1993, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 115, Accounting
for Certain Investments in Debt and Equity Securities. This statement
addresses the accounting and reporting for securities based on
management's intent and ability to hold such securities to maturity.
Securities classified as "available-for-sale," as defined, are reported
at fair value, with unrealized gains and losses excluded from earnings
and reported in a separate component of stockholders' equity. The
Company adopted the statement as of January 1, 1994. The effect of
adopting this pronouncement is shown on the statement of changes in
stockholders' equity, and had no impact on net income.
In November, 1995, FASB issued a special report, A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in
Debt and Equity Securities, which provided technical interpretations and
guidance relating to the adoption of SFAS No. 115. The guide allows an
enterprise to reassess the appropriateness of the classifications of all
securities held at that time and to account for any resulting
reclassification at fair value in accordance with SFAS No. 115. One-
time reassessments were able to be made no later than December 31, 1995.
Accordingly, management reclassified $31,328 (market value $32,070) of
mortgage-backed securities from "held to maturity" to "available for
sale" at December 31, 1995 to reflect its intention regarding those
investments.
<PAGE>
In October, 1994, FASB issued SFAS No. 119, Disclosures about Derivative
Financial Instruments and Fair Value of Financial Instruments. This
Statement requires disclosures about the amounts, nature and terms of
derivative financial instruments that are not subject to SFAS No. 105,
Disclosures of Information about Financial Statements and Off-Balance
Sheet Risk and Financial Instruments with Concentrations of Credit Risk,
because they do not result in off-balance sheet risk of accounting loss.
It requires that a distinction be made between financial instruments
held or issued for trading purposes (including dealing and other trading
activities measured at fair market value with gains and losses
recognized in earnings) and financial instruments held or issued for
purposes other than trading. SFAS No. 119 was effective beginning in
1995. The adoption of this pronouncement had no effect on the financial
statements.
Loans receivable
Loans receivable are stated at unpaid principal balances less the
allowance for loan losses, adjusted for deferred fees or costs on
originated loans and unamortized premiums or discounts on purchased
loans.
Discounts on purchased residential real estate loans are amortized to
income using the interest method over the remaining period to
contractual maturity, adjusted for anticipated prepayments.
The allowance for loan losses is maintained at a level which, in
management's judgment, is adequate to absorb potential losses inherent
in the loan portfolio. The amount of allowance is based on management's
evaluation of the collectibility of the loan portfolio, including the
nature of the portfolio, credit concentrations, trends in historical
loss experience, specific impaired loans, and economic conditions.
Allowances for impaired loans generally are determined based on
collateral values or the present value of estimated cash flows. The
allowance is increased by a provision for loan losses, which is charged
to expense and reduced by charge-offs, net of recoveries. Changes in the
allowance relating to impaired loans are charged or credited to the
provision for loan losses. Because of uncertainties inherent in the
estimation process, management's estimate of credit losses inherent in
the loan portfolio and the related allowance may change in the near
term. However, the amount of the change that is reasonably possible
cannot be estimated.
Uncollectible interest on loans that are contractually past due is
charged off, or an allowance is established based on management's
periodic evaluation. The allowance is established by a charge to
interest income equal to all interest previously accrued, and income is
subsequently recognized only to the extent that cash payments are
received until, in management's judgment, the borrower's ability to make
periodic interest and principal payments is back to normal, in which
case the loan is returned to accrual status.
In May 1993, FASB issued SFAS No. 114, Accounting by Creditors for
Impairment of a Loan. This standard amends SFAS No. 5 to clarify that a
creditor should evaluate the collectibility of both contractual interest
and contractual principal on all loans when assessing the need for a
loss accrual. In October, 1994, FASB issued SFAS No. 118, Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosure,
which amends Statement No. 114 to allow a creditor to use existing
methods for recognizing interest income on impaired loans. The
statements were effective beginning in 1995.
<PAGE>
For impairment recognized in accordance with SFAS No. 114, as amended,
the entire change in present value of expected cash flows is reported as
bad debt expense in the same manner in which impairment initially was
recognized or as a reduction in the amount of bad debt expense that
otherwise would be reported. Interest on impaired loans is reported on
the cash basis. Impaired loans are loans that are considered to be
permanently impaired in relation to principal or interest based on the
original contract. Impaired loans would be charged off in the same
manner as all loans subject to charge off. For the year ended December
31, 1996, the Company had no loans that were impaired as described in
the pronouncement and therefore no interest income was recognized or
received on impaired loans.
Loan origination fees, commitment fees, and related costs
Loan fees are accounted for in accordance with SFAS No. 91, Accounting
for Nonrefundable Fees and Costs Associated with Originating or
Acquiring Loans and Initial Direct Costs of Leases. Loan fees and
certain direct loan origination costs are deferred, and the net fee or
cost is recognized as an adjustment to interest income using the
interest method over the contractual life of the loans, adjusted for
prepayments. Commitment fees and costs relating to commitments, the
likelihood of exercise of which is remote, are recognized over the
commitment period on a straight-line basis. If the commitment is
subsequently exercised during the commitment period, the remaining
unamortized commitment fee at the time of exercise is recognized over
the life of the loan as an adjustment of yield.
Real estate acquired in settlement of loans
Real estate acquired in settlement of loans results when property
collateralizing a loan is foreclosed upon or otherwise acquired by the
Company in satisfaction of the loan. Real estate acquired in settlement
of loans is recorded at the lower of the recorded investment in the loan
satisfied or the fair value of the assets received at the time of
acquisition. The fair value of the assets received is based upon a
current appraisal adjusted for estimated carrying and selling costs.
Valuations are periodically performed by management, and an allowance
for losses is established by a charge to operations if the carrying
value of a property exceeds its estimated net realizable value.
Premises and equipment
Land is carried at cost. Company premises, furniture, and equipment are
carried at cost less accumulated depreciation and amortization computed
principally by the straight-line and accelerated methods over the
estimated useful lives of the assets.
Acquisition goodwill
Core deposit goodwill arising from acquisition of subsidiaries is being
amortized over ten years under the sum-of-the-years method. Other
goodwill arising from acquisitions is being amortized over twenty years
using the straight-line method.
Income taxes
Deferred tax assets and liabilities are reflected at currently enacted
income tax rates applicable to the period in which the deferred tax
assets or liabilities are expected to be realized or settled. As changes
in tax laws or rates are enacted, deferred tax assets and liabilities
are adjusted through the provision for income taxes.
<PAGE>
Employee Stock Ownership Plan
Shares committed to be allocated to the Employee Stock Ownership Plan
(ESOP) are charged to expense at the average market price for the year.
The excess of average market value over cost of shares is added to
additional paid-in capital.
Dividends are paid only on shares allocated to beneficiary's accounts.
Management Recognition Plan
The cost, measured by the market value of shares at the date of the
award, of 69,846 shares awarded to Directors and employees under the
Management Recognition Plan is being amortized to expense over the
vesting periods of the awards on the straight-line method.
Mortgage servicing rights
Mortgage servicing rights are accounted for under SFAS No. 122,
Accounting for Mortgage Servicing Rights. This statement requires that a
mortgage banking enterprise recognize as separate assets rights to
service mortgage loans for others, however those servicing rights are
acquired. A mortgage banking enterprise that acquires mortgage servicing
rights through either the purchase or origination of mortgage loans and
sells or securitizes those loans with servicing rights retained
allocates the total cost of mortgage loans to the mortgage servicing
rights and the loans based on their relative fair value. SFAS No. 122
was effective for fiscal years beginning after December 31, 1995.
Concentration of credit risk
The Company grants residential real estate, consumer and commercial
loans to customers located in Clark, Hamilton and contiguous counties in
Ohio and Kentucky. 82.1% of loans are secured by one-to-four family
residences.
Earnings per share
Earnings per share has been computed on the basis of the weighted
average number of common shares outstanding. The weighted number of
common shares outstanding includes shares awarded under the Management
Recognition Plan, and shares allocated and committed to be allocated
under the Employee Stock Ownership Plan. The Company completed its
conversion from a mutual savings association to a stock savings bank on
July 29, 1994; accordingly, the earnings per share for the year ended
December 31, 1994, reflect only operations from the date of the
conversion.
Reclassifications
Certain amounts appearing in the 1995 and 1994 consolidated financial
statements and notes to consolidated financial statements have been
reclassified to conform to the 1996 presentation.
<PAGE>
2. Securities:
Securities available for sale
The Company had investment securities available for sale carried at market
value, at December 31, 1996 and 1995, as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
December 31, 1996:
Obligations of U.S. government agencies $ 36,092 4 (455) 35,641
FHLMC Stock 3 85 - 88
--------- ---- ------ --------
$ 36,095 89 (455) 35,729
========= ==== ====== ========
December 31, 1995:
Obligations of U.S. government agencies $ 12,000 39 - 12,039
========= ==== ====== ========
</TABLE>
The amortized cost and estimated market values of obligations of U.S.
government agencies available for sale at December 31, 1996, by contractual
maturity, are shown below. Expected maturities may differ from contractual
maturities because the U. S. government agencies may call the obligations
with or without call or prepayment penalties in 1997.
Estimated
Amortized Fair
Cost Value
--------- ---------
Due in one year or less $ 1,299 1,299
Due after one year through five years 4,393 4,378
Due after five years through ten years 30,000 29,566
Due after ten years 400 398
-------- -------
$ 36,092 35,641
======== ======
At December 31, 1996, the Company recorded an unrealized loss of $366, net
of $123 in deferred taxes, to decrease investment securities available for
sale to market value. The net unrealized loss of $243 is included as a
component of stockholders' equity.
Proceeds and resulting gains realized from sales of investment securities
available for sale during the year ended December 31, 1996, were as follows:
Gross Gross Gross Net Realized
Proceeds Gains Losses Gain
-------- ----- ------ ------------
$ 51 26 - 26
==== == = ==
<PAGE>
3. Mortgage-Backed Securities:
Mortgage-backed securities available for sale
The Company had mortgage-backed securities available for sale carried at
market value, at December 31, 1996 and 1995, as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
December 31, 1996:
Collateralized mortgage obligations $ 489 - (8) 481
Mortgage pass-through certificates 25,714 316 (215) 25,815
Real estate mortgage investment conduits 10,639 - (92) 10,547
------- ----- ------ ------
$ 36,842 316 (315) 36,843
====== === ==== ======
December 31, 1995:
Mortgage pass-through certificates $ 29,046 655 - 29,701
Real estate mortgage investment conduits 15,754 412 148 16,018
------ ------ ------- ------
$ 44,800 1,067 148 45,719
====== ===== ======= ======
</TABLE>
The amortized cost and estimated market values of mortgage-backed securities
available for sale at December 31, 1996, by contractual maturity, are shown
below. Expected maturities will differ from final maturities because
borrowers may have the right to call or prepay obligations with or without
call or prepayment penalties.
Estimated
Amortized Fair
Cost Value
--------- ---------
Due in one year or less $ 379 365
Due after one year through five years - -
Due after five years through ten years 285 291
Due after ten years 36,178 36,187
-------- -------
$ 36,842 36,843
======== ======
At December 31, 1996, the Company recorded an unrealized gain of $1, net of
deferred taxes, to increase mortgage-backed securities available for sale to
market value. The net unrealized gain is included as a component of
stockholders' equity.
Proceeds and resulting gains realized from the sale of mortgage-backed
securities available for sale during the year ended December 31, 1996, were
as follows:
Gross Gross Gross Net Realized
Proceeds Gains Losses Gain
-------- ----- ------ ------------
$ 21,770 208 - 208
======== === == ===
<PAGE>
Mortgage-backed securities at amortized cost
As a result of the transfer, during 1995, of mortgage-backed securities from
"held to maturity" to "available for sale", the Company had no
mortgage-backed securities at amortized cost at December 31, 1996.
4. Loans Receivable:
Loans receivable at December 31 are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Principal balances of first mortgage loans secured by:
One-to-four family residences $ 242,185 131,262
Other properties 33,007 15,034
Construction loans 10,965 5,405
--------- -------
286,157 151,701
--------- -------
Adjustments for:
Undisbursed portion of construction loans (5,651) (2,768)
Net deferred loan fees, premiums and discounts (45) (538)
Allowance for loan losses (1,716) (774)
--------- -------
(7,412) (4,080)
--------- -------
Total first mortgage loans 278,745 147,621
--------- -------
Principal balances of consumer and other loans:
Consumer 3,668 800
Commercial 2,244 1,056
Loans on savings deposits 384 363
Home improvement loans 31 -
Home equity 2,603 474
Other 21 162
--------- -------
8,951 2,855
Less:
Unearned discounts (85) -
--------- -------
Total consumer and other loans 8,866 2,855
--------- -------
$ 287,611 150,476
========= =======
</TABLE>
Activity in the allowance for loan losses is summarized as follows for the
years ended December 31:
1996 1995 1994
---- ---- ----
Balance at beginning of year $ 774 774 774
Beginning balance acquisitions 577 - -
Provision charged to income 399 6 -
Charge-offs, net of recoveries (34) (6) -
------ --- ---
Balance at end of year $1,716 774 774
====== === ===
<PAGE>
Certain directors, officers, and associates of such persons have loans with
the Company. Such loans, which were made in the ordinary course of business,
aggregated $1,445 and $350 at December 31, 1996 and 1995, respectively.
Activity with respect to such aggregate loans for the two years ended
December 31, 1996, consists of the following:
Balance, December 31, 1994 $ 439
New loans 57
Repayments (146)
------
Balance, December 31, 1995 350
1996 acquisitions 338
New loans 949
Repayments (192)
------
Balance, December 31, 1996 $1,445
======
5. Accrued Interest Receivable:
Accrued interest receivable at December 31 is summarized as follows:
1996 1995
---- ----
Investment securities $ 728 235
Mortgage-backed securities 227 370
Loans receivable 1,215 86
------- ----
$ 2,170 691
======= ====
6. Premises and Equipment:
Premises and equipment at December 31 are summarized as follows:
1996 1995
---- ----
Land $ 1,159 815
Buildings and improvements 3,789 2,550
Furniture, fixtures and equipment 1,813 1,095
------- -----
6,761 4,460
Accumulated depreciation (2,807) (1,918)
------- ------
$ 3,954 2,542
======= ======
7. Joint Venture
The Company is a 50% stockholder, with another local financial institution,
in the Springfield-Home Community Reinvestment Corporation (the
"Corporation"). The purpose of the Corporation is to underwrite higher risk
loans than either stockholder is able to underwrite individually.
As of December 31, 1996, the Company had invested $20 in the Corporation and
is accounting for the investment under the equity method. Any additional
funding of the Corporation will be based on the relative total assets of the
stockholders. The Corporation had a $4 loss for the year ended December 31,
1996 and a $1 net profit for the year ended December 31, 1995.
<PAGE>
8. Acquisition of Subsidiaries:
On March 29, 1996, the Company completed its acquisition of Mayflower
Federal Savings Bank, and on November 12, 1996, the Company completed its
acquisition of Seven Hills Savings Association. Both banks are located in
Cincinnati, Ohio and operate in southwestern Ohio and northern Kentucky. The
acquisitions have been treated for accounting purposes as purchases.
Details of the acquisition costs are as follows:
<TABLE>
<CAPTION>
Mayflower Seven Hills
--------- -----------
<S> <C> <C>
Purchase price and related expenses $10,149 10,652
======= ======
Amount assigned to specific assets and liabilities $ 6,755 9,794
Amount assigned to goodwill:
Core deposits 945 858
Other 2,449 -
------- ------
$10,149 10,652
======= ======
</TABLE>
The goodwill assigned to core deposit goodwill is being amortized over ten
years by the sum-of-the-years method; other goodwill is being amortized
over twenty years by the straight-line method.
Goodwill amortization expense for 1996 totalled $246.
The approximate scheduled amortization of goodwill is as follows:
1997 $ 427
1998 395
1999 362
2000 330
2001 298
2002 and years thereafter 2,194
------
$4,006
======
Results of operations of the subsidiaries are included in the statement of
income of the Company since the dates of acquisition. Pro forma (unaudited)
results of operations of the Company as if the acquisition had taken place
at January 1, 1995 are shown in the following schedule:
<TABLE>
<CAPTION>
1996 1995
------------------------- --------------------------
Pro Forma Pro Forma
As Reported (Unaudited) As Reported (Unaudited)
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Interest income $ 24,160 27,830 14,809 21,383
Interest expense 13,783 16,370 7,034 11,701
--------- ------ ------ ------
Net interest income 10,377 11,460 7,775 9,682
Provision for loan losses 399 565 6 26
--------- ------ ------ ------
Net interest income after provision
for loan losses $ 9,978 10,895 7,769 9,656
========= ====== ====== ======
Net income $ 1,062 380 2,893 2,203
========= ====== ====== ======
Earnings per share $ 0.47 0.17 1.18 0.90
========= ====== ====== ======
</TABLE>
<PAGE>
9. Deposits:
Deposits at December 31 are summarized as follows:
<TABLE>
<CAPTION>
Weighted Average Rate 1996 1995
At December 31, ------------------- -------------------
1996 Amount Percent Amount Percent
--------------------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C>
Demand and NOW accounts 0.93% $ 10,074 5.11 4,269 3.0
Money market accounts 4.70% 19,664 8.36 7,046 5.1
Passbook savings accounts 2.67% 27,981 11.90 24,437 17.6
------ ------ ------- -----
57,719 25.37 35,752 25.7
------ ------ ------- -----
Certificates of deposit:
0-11 months 4.88% 18,076 7.69 17,552 12.6
12-17 months 5.69% 41,019 17.44 17,673 12.7
18-23 months 5.36% 17,162 7.30 14,794 10.6
24-35 months 6.52% 56,268 23.93 21,068 15.2
36-47 months 6.24% 28,299 12.03 24,740 17.8
48-59 months 5.92% 6,210 2.64 6,775 4.8
60 months and greater 6.55% 8,450 3.59 775 .6
------- ------ -------- ------
175,484 74.63 103,377 74.3
------- ------ ------- -----
$ 233,203 100.00 139,129 100.0
======= ====== ======= =====
</TABLE>
At December 31, 1996, scheduled maturities of certificates of deposit are as
follows:
Within 1 year $ 113,856
1 to 3 years 58,446
3 to 5 years 2,499
Over 5 years 683
---------
$ 175,484
=========
Certificates of deposit with balances of one hundred thousand dollars or
more totaled $16,164 and $11,424 at December 31, 1996 and 1995,
respectively.
Interest expense on deposits for the years ended December 31 is summarized
as follows:
1996 1995 1994
---- ---- ----
Money market accounts $ 361 202 365
Passbook savings accounts 653 687 1,111
Demand and NOW accounts 63 75 74
Certificates of deposit 8,183 5,277 3,470
------ ----- -----
$9,260 6,241 5,020
====== ===== =====
10. Fair Values of Financial Instruments
SFAS No. 107, Disclosures About Fair Value of Financial Instruments,
requires that the Company disclose estimated fair values for its financial
instruments. Fair value estimates, methods and assumptions are set forth
below for the Company's financial instruments:
<PAGE>
Cash and equivalents
The carrying amounts reported in the balance sheet for cash and
equivalents approximate those assets' fair values.
Investment and mortgage-backed securities
For investment securities (debt instruments) and mortgage-backed
securities, fair values are based on quoted market prices where
available. If a quoted market price is not available, fair value is
estimated using quoted market prices of comparable instruments.
Loans receivable
The fair value of the loan portfolio is estimated by evaluating
homogeneous categories of loans with similar financial characteristics.
Loans are segregated by types, such as residential mortgage, commercial
real estate, and consumer. Each loan category is further segmented into
fixed and adjustable rate interest, terms, and performing and
nonperforming categories.
The fair value of performing loans, except residential mortgage loans,
is calculated by discounting contractual cash flows using estimated
market discount rates which reflect the credit and interest rate risk
inherent in the loan. For performing residential mortgage loans, fair
value is estimated by discounting contractual cash flows adjusted for
prepayment estimates using discount rates based on secondary market
sources. The fair value for significant nonperforming loans is based on
recent internal or external appraisals. Assumptions regarding credit
risk, cash flow, and discount rates are judgmentally determined by using
available market information.
Accrued interest receivable and Federal Home Loan Bank Stock
The carrying amounts of these items are a reasonable estimate of their fair
values.
Deposit liabilities
The fair values of passbook accounts, NOW accounts, money market savings and
demand deposit accounts approximate their carrying values. The fair value of
fixed maturity certificates of deposit is estimated using a discounted cash
flow calculation that applies interest rates currently offered in the
Company's market for deposits of similar remaining maturities.
Advances from FHLB
The fair value of variable rate borrowings, which reprice frequently, are
based on carrying values. For fixed-rate borrowings, fair values were
estimated using discounted cash flow analyses, based on current incremental
borrowing rates for similar types of borrowing arrangements.
Commitments to originate loans and extend credit
The fair value of commitments to originate loans approximates the
contractual amount due to the comparability of current levels of interest
rates and the committed rates. The fair value of commitments to extend
credit is not material.
<PAGE>
The estimated fair values of the Company's instruments at December 31 are as
follows:
<TABLE>
<CAPTION>
1996 1995
---------------------- --------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
----------- ----- ---------- -----
<S> <C> <C> <C> <C>
Financial assets:
Cash and interest bearing deposits $ 15,611 15,611 17,605 17,605
Investment and mortgage-backed securities 72,572 72,572 57,758 57,758
Loans receivable 287,611 287,827 150,476 151,549
Accrued interest receivable 2,170 2,170 691 691
Investment in FHLB stock 5,862 5,862 1,602 1,602
Financial liabilities:
Deposits 233,203 234,629 139,129 140,227
Advances from FHLB 102,602 102,332 31,528 31,590
Unrecognized financial instruments:
Commitments to originate loans 5,357 5,357 671 671
</TABLE>
While these estimates of fair value are based on management's judgment of
appropriate factors, there is no assurance that, were the Company to have
disposed of such items at December 31, 1996 and 1995, the estimated fair
values would necessarily have been achieved at that date, since market
values may differ depending on various circumstances. The estimated fair
values at December 31, 1996 and 1995 should not necessarily be considered to
apply at subsequent dates.
In addition, other assets, such as property and equipment, and liabilities
of the Company that are not defined as financial instruments are not
included in the above disclosures. Also, nonfinancial instruments typically
not recognized in financial statements nevertheless may have value but are
not included in the above disclosures. These include, among other items, the
estimated earning power of core deposit accounts, the trained work force,
customer goodwill and similar items.
11. Employee Benefit Plans:
Pension plan:
On October 19, 1995, the Board of Directors authorized the termination of
the defined benefit pension plan and the implementation of a 401(k) profit
sharing plan for all eligible employees. The benefits under the plan were
frozen at the benefit amount accrued as of December 31, 1995. Benefit
liabilities were satisfied by distributions permitted by the plan.
The following table sets forth the Plan's funded status and amounts
recognized in the Company's statements of financial condition at the
measurement date of October 1 and the termination date:
<TABLE>
<CAPTION>
December 31 October 1
----------- -----------------
1995 1995 1994
---- ---- ----
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation:
Vested $ 926 901 643
Non-vested - 7 5
------ ---- ---
$ 926 908 648
====== ==== ===
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
December 31 October 1
----------- -----------------
1995 1995 1994
---- ---- ----
<S> <C> <C> <C>
Projected benefit obligation for services rendered to date $ 926 1,530 1,341
Plan assets at fair value; primarily cash, certificates of
deposit, cash value of life insurance and mortgages 1,210 1,202 999
------ ----- -----
Projected benefit obligation (over) under of plan assets 284 (328) (342)
Termination expense (212) - -
Unrecognized net loss from past experience different
from that assumed and effects of changes in assumptions (103) (103) (170)
Prior service cost not yet recognized in periodic pension cost 186 322 335
Unrecognized net transition asset being amortized over 28.5 years (155) (155) (161)
------ ----- -----
Accrued pension cost at end of period $ - (264) (338)
====== ===== =====
</TABLE>
The components of net pension expense for the periods ended are as
follows:
<TABLE>
<CAPTION>
Three months ended Years Ended
December 31 September 30
------------------ ---------------
1995 1995 1994
---- ---- ----
<S> <C> <C> <C>
Service cost benefits earned during the year $ 35 100 87
Interest cost on projected benefit obligation 28 103 92
Actual return on assets (22) (50) (50)
Net amortization and deferral (209) (24) (20)
Curtailment gain 644 - -
----- --- ---
$ 476 129 109
===== === ===
Assumptions used to develop the net periodic
pension cost were:
Discount rate 7.5% 7.5% 7.5%
Expected long-term rate of return on assets 7.5% 7.5% 7.5%
Rate of increase in compensation levels 5.5% 5.5% 5.5%
</TABLE>
Postretirement healthcare plan
The Company provided a postretirement healthcare plan for retirees. The Plan
provided for the payment of an equivalent employer portion of medical
insurance premiums for retirees and dependents at age 62 and a supplemental
equivalent employer portion of medical insurance premiums for a Medicare
supplement at age 65.
The Plan was an unfunded plan and did not contain any limitations on the
commitment to increase monetary benefits.
In December 1990, the FASB issued SFAS No. 106, Employers' Accounting for
Postretirement Benefits Other than Pensions, which requires accrual, during
the years the employee renders the necessary service, of the expected cost
of providing the above-mentioned healthcare benefits to an employee and the
employee's beneficiaries and covered dependents. The Company adopted SFAS
No. 106 in 1993.
<PAGE>
During 1995, the Board of Directors terminated the plan and beneficiaries
received a cash payment for their vested benefits as of the termination
date.
The changes in the accrued postretirement healthcare benefit cost and
accumulated postretirement benefit obligation during 1995 is summarized as
follows:
Accumulated
Accumulated Postretirement
Postretirement Healthcare
Healthcare Benefit/
Benefit Cost Obligation
-------------- --------------
Beginning of year $(277) (277)
----- ----
Recognition of components of
net periodic post-retirement
healthcare benefit cost:
Service cost (14) (14)
Interest cost (18) (18)
--- ----
(32) (32)
Experience gains 33 33
Settlement increase 171 171
Benefit payments 105 105
----- ----
Net change 277 277
----- ----
End of year $ - -
===== ====
A weighted average assumed discount rate of 7.5% was used to measure the
accumulated postretirement benefit obligation.
Employee stock ownership plan
Concurrent with the conversion from a mutual savings and loan association to
a stock savings bank, the Company issued 148,781 shares to the Employee
Stock Ownership Plan. Management intends to allocate these shares to
eligible employees' accounts over ten years starting in 1994. The plan
covers all salaried employees who meet age and service requirements.
Expense for shares committed to be allocated during 1996, 1995 and 1994 was
$324, $301 and $119, respectively. The status of ESOP shares at December 31,
1996 is as follows:
Shares
------
Allocated (including shares withdrawn) 22,317
Committed to be allocated 14,878
Unearned 111,586
-------
Total 148,781
=======
The market value of unearned shares at December 31, 1996 was $2,427.
<PAGE>
401(k) profit sharing plan
The 401(k) profit sharing plan became effective on January 1, 1996.
Participants may elect to contribute up to 15% of compensation each year,
subject to dollar limits. The Company will match 50% of the amount
contributed up to 6% of compensation. $16 was expensed under the plan in
1996.
Non-qualified deferred compensation plan
On October 19, 1995, the Board of Trustees voted to establish a
non-qualified deferred compensation plan for all employees who meet certain
service requirements. Eligible employees may contribute up to 15% of
compensation. The company will match 50% of the amount contributed (up to 6%
of compensation deferred) for participants with up to ten years of service
or 62.5% of the amount contributed (up to 8% of compensation deferred) for
participants with ten or more years of service. The Deferred Compensation
Plan became effective January 1, 1996.
Stock option and incentive plan
On January 31, 1995, the shareholders approved the 1995 Stock Option and
Incentive Plan. Under the provisions of the Plan, 264,500 shares have been
allocated for non-qualified and incentive stock options to be granted to
directors and selected employees. Grantees are awarded 10-year options to
acquire shares at the market price on the date the option is granted in five
equal annual installments commencing one year after the date of the grant.
Set forth below is activity under the plan.
<TABLE>
<CAPTION>
1995 12/31/96
Options Options Options Options Option Price
Date of Grant Granted Exercised Forfeited Outstanding Per Share
------------- ------- --------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C>
January 31, 1995 197,599 3,000 6,000 188,599 $ 17.50
April 19, 1995 27,672 - - 27,672 18.50
May 22, 1995 5,000 - - 5,000 19.75
July 19, 1995 5,000 - - 5,000 20.50
August 17, 1995 1,000 - - 1,000 21.25
------- ----- ----- ------- -------------
Total grants outstanding 236,271 3,000 6,000 227,271 $ 17.50-21.25
======= ===== ===== ======= =============
Exercisable in 1997 45,751 $ 17.50-21.25
======= =============
Shares available for future
grants at December 31, 1996 34,229
=======
</TABLE>
The Company applies Accounting Principles Board (APB) Opinion 25, Accounting
for Stock Issued to Employees, and related Interpretations in accounting for
its option plans. Accordingly, no compensation cost has been recognized. Had
compensation cost for the Company's stock-based compensation plans been
determined based on the fair value at the grant dates for awards under
<PAGE>
those plans consistent with the method of FASB Statements 123, Accounting
for Stock-Based Compensation, the Company's net income and earnings per
share would have been reduced to the pro forma amounts indicated below:
1996 1995
---- ----
Net income:
As reported $1,062 2,893
Additional compensation cost 88 88
Pro forma 974 2,805
Earnings per share:
As reported $ 0.47 1.18
Pro forma 0.43 1.14
The estimated fair value of options granted was calculated by the
Black-Scholes method. Assumptions used in the calculations are as follows:
Risk-free interest rate U.S. Treasury Strips rate on dates of grants
which ranged from 6.26% to 7.24%
Expected life Life of the options which is ten years
Expected volatility 0.17% based on the 30-month history of
prices since conversion
Expected dividends $1 per share
Management recognition plan
On January 31, 1995, the shareholders approved the Management Recognition
Plan. Under the provisions of the Plan, 105,800 shares have been allocated
for awards to directors and selected officers of the company. At December
31, 1996, 69,846 shares have been awarded under the plan at a total cost of
$1,231. The cost of awards, measured by the market value of the shares
awarded at the dates of the grants, is being amortized over the sixty-month
vesting periods from the dates of the grants. $247 and $220 was amortized to
expense in 1996 and 1995, respectively. Grantees have all the benefits of
shareholders, including the right to receive dividends, except for certain
restrictions on the transferability of the shares.
Deferred compensation plan
During 1996, the Bank adopted a non-qualified compensation plan for two
officers. Under the plan, those covered agreed to defer a portion of their
current compensation in exchange for future payments. The liability for the
future payments is secured by single-premium life insurance policies on each
of the individuals covered. The premium on the policies totaling $365 is
included in other assets on the accompanying statement of financial
position.
<PAGE>
12. Advances From the Federal Home Loan Bank:
Advances from the Federal Home Loan Bank consist of the following:
<TABLE>
<CAPTION>
Current
Weighted Average
Interest Rate 1996 1995
--------------------- ---- ----
<S> <C> <C> <C>
Fixed rate advances, with monthly interest
payments, principal due in:
1996 5.95% $ - 10,000
1997 5.90% 37,254 -
1998 6.30% 25,500 7,000
1999 5.50% 20,000 -
2001 8.35% 340 340
-------- ------
83,094 17,340
-------- ------
Variable rate advances, with monthly interest
payments, principal due in:
1997 5.85% 11,007 10,641
1998 6.80% 4,000 -
2000 6.10% 1,000 -
-------- ------
16,007 10,641
-------- ------
Fixed rate advances, with monthly principal
and interest payments, final principal due in:
2003 5.89% 428 434
2004 7.01% 2,761 2,798
2005 7.16% 312 315
-------- ------
3,501 3,547
-------- ------
$102,602 31,528
======== ======
</TABLE>
Principal payments due in the five years from December 31, 1996 are detailed
as follows:
1997 $ 48,305
1998 29,548
1999 20,051
2000 1,056
2001 398
Thereafter 3,244
--------
$ 102,602
Pursuant to a collateral agreement with the Federal Home Loan Bank (FHLB),
advances are secured by all stock owned in the FHLB and qualifying first
mortgage loans totaling 150% of the advanced balance.
Interest expense on borrowed funds for the years ended December 31, 1996,
1995, and 1994 was $4,523, $793 and $158, respectively.
<PAGE>
13. Income Taxes:
Income tax expense for the years ended December 31 is summarized as follows:
1996 1995 1994
---- ---- ----
Current $ 686 1,378 1,350
Deferred 21 129 16
----- ----- -----
$ 707 1,507 1,366
===== ===== =====
Total income tax expense differed from the amounts computed by applying the
U.S. federal income tax rate of 34 percent to income before income taxes and
cumulative effects of changes in accounting principles as a result of the
following:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Expected income tax expense at federal tax rate $ 601 1,496 1,355
Dividend exclusion (1) (2) (7)
Amortization of intangible assets 81 - -
Miscellaneous 26 13 18
----- ----- -----
$ 707 1,507 1,366
===== ===== =====
</TABLE>
Temporary differences that gave rise to deferred income tax assets and
liabilities at December 31, 1996 and 1995, were as follows:
<TABLE>
<CAPTION>
1996 1995
------------------------ --------------------------
Deferred Deferred Deferred Deferred
Tax Tax Tax Tax
Assets Liability Assets Liability
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
FHLB stock dividends not taxable $ - 453 - 220
Basis adjustments for investments
and mortgage-backed securities
available for sale 136 - - 325
Basis difference for intangible assets 2 105 - -
Amortization of discounts on loans
acquired in reciprocal loan sale - 16 - -
Loan loss reserve not currently
deductible 416 - 209 -
Adjustment for former use of cash basis
accounting method for income tax
reporting - 100 - -
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1996 1995
------------------------ --------------------------
Deferred Deferred Deferred Deferred
Tax Tax Tax Tax
Assets Liability Assets Liability
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Deferred loan fees previously included
in taxable income 3 - - -
Depreciation differences for income tax
reporting - 19 - -
Director deferred compensation and
management recognition plan
expense not currently deductible 131 - 75 -
--- ---- --- ---
$ 688 693 284 545
===== ==== ==== ===
</TABLE>
Legislation repealing the percentage of earnings bad debt reserve provisions
of the Internal Revenue Code previously applicable to qualifying thrift
institutions was enacted into law on August 20, 1996. The legislation, which
is part of The Small Business Job Protection Act of 1996 (the Jobs Act),
requires all thrift institutions to pay tax on or recapture excess bad debt
reserves accumulated since 1988. The legislation substantially equalizes the
taxation of banks and thrift institutions, but it protects thrifts from
taxes on bad debt reserves established prior to 1988. The new law eliminates
the percentage of taxable income method for deducting bad debt reserves for
all thrifts for tax years beginning after December 31, 1995. All thrifts are
required to recapture or pay tax on all or a portion of their bad debt
reserves added since the base year (i.e., the last taxable year beginning
before January 1, 1988). The amount of reserves to be recaptured will depend
upon whether or not an institution is a "large institution" (i.e., assets
exceed $500 million) under the bad debt rules for commercial banks. Large
institutions will have to switch to the specific charge-off method.
Institutions with assets of $500 million or less, such as the Company, will
be permitted to use the experience method to compute their bad debt
deduction. The amount to be paid by the Company is not material.
An institution is required to recapture the excess of its bad debt reserves
over the balance of the bad debt reserves outstanding at the end of the base
year ratably over a six year period beginning with the first taxable year
after December 31, 1995. Institutions can postpone the payment of these
taxes for two years if they meet a residential loan requirement during tax
years beginning before January 1, 1998. Generally, to meet the residential
loan requirement, an institution's mortgage lending activity must equal or
exceed its average mortgage lending activity for the six taxable years
preceding 1996, adjusted for inflation.
Retained earnings at December 31, 1996 and 1995, include approximately
$6,209, for which no deferred federal income tax liability has been
recognized. This amount represents an allocation of income to bad debt
deductions for tax purposes only. Reduction of amounts so allocated for
purposes other than tax bad debt losses or adjustments arising from
carryback of net operating losses would create income for tax purposes only,
which would be subject to the then current corporate income tax rate. The
unrecorded deferred income tax liability on the above amount was
approximately $2,111 at December 31, 1996 and 1995.
<PAGE>
14. Stockholders' Equity:
At the time of the conversion, July 29, 1994, the Company established a
liquidation account in an amount of $21,664, which is equal to the Company's
regulatory capital at December 31, 1993. The liquidation account will be
maintained for the benefit of eligible savings account holders who maintain
their savings account in the Company after conversion.
In the event of a complete liquidation (and only in such event), each
eligible savings account holder will be entitled to receive a liquidation
distribution from the liquidation account in the amount of the then current
adjusted balance of savings accounts held before any liquidation
distribution may be made with respect to capital stock. Except for the
repurchase of stock and payment of dividends by the Company, the existence
of the liquidation account will not restrict the use or application of such
related earnings.
The Company may not declare or pay a cash dividend on, or repurchase any of,
its capital stock if the effect thereof would cause the regulatory capital
of the Company to be reduced below either the amount required for the
liquidation account or the regulatory capital requirements imposed by the
OTS.
During 1996 and 1995, the Company reacquired 188,112 and 227,760 shares of
its common stock, respectively. Management intends to use the reacquired
shares to fund the Management Recognition Plan and Stock Option Plan.
15. Summarized Financial Information of the Parent Company:
The following condensed financial statements of the financial condition of
Western Ohio Financial Corporation as of December 31, 1996 and 1995 and the
condensed statements of operations and cash flows for the years ended
December 31, 1996 and 1995 should be read in conjunction with the
consolidated financial statements and notes thereto.
Western Ohio Financial Corporation
Statements of Financial Condition
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Assets:
Cash and cash equivalents $ 4,959 11,237
Investments and mortgage-backed securities - 2,912
Accrued interest receivable - 25
Investment in Springfield Federal Savings Bank 20,562 20,562
Investment in Mayflower Federal Savings Bank 10,021 -
Investment in Seven Hills Savings Association 9,647 -
Deferred federal income taxes 75 49
Prepaid expenses and other assets 10 74
Deferred acquisition costs - 180
Intercompany receivables 375 223
------- -------
Total Assets $45,649 35,262
======= =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Liabilities:
Federal income taxes payable $ 64 145
Accrued expenses and other liabilities 1,028 20
-------- -------
1,092 165
-------- -------
Stockholders' equity:
Common stock $.01 par value, 7,250,000 shares authorized
and 2,645,000 shares issued 26 26
Additional paid in capital 41,130 41,048
Unrealized gain (loss) on available for sale securities
(net of income taxes) - 51
Unallocated shares held by employee stock ownership plan (1,785) (2,023)
Deferred MRP expense (764) (1,010)
Retained earnings 13,529 455
-------- -------
52,136 38,547
Treasury stock (7,579) (3,450)
-------- -------
44,557 35,097
-------- -------
Total Liabilities and Stockholders' Equity $ 45,649 35,262
======== =======
Statements of Income
1996 1995
---- ----
Interest income:
Interest from loan to subsidiary for funding of employee
stock ownership plan $ 143 160
Other 357 997
-------- -------
500 1,157
Non-interest income 78 -
Dividends from subsidiaries 15,500 -
-------- -------
16,078 1,157
Non-interest expenses (805) (714)
-------- -------
Income before income taxes 15,273 443
Provision for income taxes 76 151
-------- -------
Net Income $ 15,349 292
======== =======
Statements of Cash Flows
1996 1995
---- ----
Cash flows from operating activities:
Net income $ 15,349 292
Adjustments to reconcile net income to net cash provided by
operating activities:
Gain on sale of investments (54) -
Amortization - (89)
ESOP and MRP expense not requiring cash 566 522
Change in:
Other assets 63 4
Other liabilities 927 84
-------- -------
Net cash provided by operating activities 16,851 813
-------- -------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Cash flows from investing activities:
Investment in subsidiaries (19,488) -
Proceeds from sale of investments 2,915 -
Maturities and principal collected - 6,623
Deferred acquisition costs - (180)
Intercompany advance (152) (223)
-------- -------
Net cash provided (used) by investing activities (16,725) 6,220
-------- -------
Cash flows from financing activities:
Dividends paid (2,275) (2,440)
Treasury shares acquired (4,129) (4,769)
-------- -------
Net cash provided by financing activities (6,404) (7,209)
-------- -------
Net decrease in cash and cash equivalents (6,278) (176)
Cash and cash equivalents:
Beginning 11,237 11,413
-------- -------
Ending $ 4,959 11,237
======== =======
Supplemental information:
Income taxes paid $ - 64
======= =======
</TABLE>
16. Regulatory Capital Requirements:
In connection with the insurance of its deposits by the Federal Deposit
Insurance Corporation, the Banks are required to maintain certain minimum
capital requirements. If the Banks fail to meet their minimum capital
requirements in the future, the Office of Thrift Supervision may take such
action as it deems appropriate to protect the deposit insurance fund, the
Banks and their depositors and investors. Such action may include various
regulatory actions to limit the Banks' operations.
The following is a summary of the Banks' consolidated regulatory capital and
ratios at December 31, 1996:
Amount %
------ ---
Tangible capital:
Banks' $ 45,720 11.8
Requirement 5,788 1.5
-------- ----
Excess $ 39,932 10.3
======== ====
Core capital:
Banks' $ 45,720 11.8
Requirement 11,578 3.0
-------- ----
Excess $ 34,142 8.8
======== ====
Risk-based capital:
Banks' $ 47,436 23.4
Requirement 16,239 8.0
-------- ----
Excess $ 31,197 15.4
======== ====
<PAGE>
A reconciliation of the Banks' consolidated capital in accordance with
generally accepted accounting principles (GAAP) and regulatory capital is as
follows at December 31, 1996:
Stockholders' equity per financial statements $ 54,048
--------
Parent company's equity not available
for regulatory purposes:
Equity of parent company (44,557)
Less investment in subsidiaries 40,230
--------
(4,327)
--------
Equity of subsidiary holding companies (179)
--------
Equity of subsidiaries 49,542
Unamortized mortgage servicing rights (58)
Acquisition goodwill (4,006)
Unrealized loss on securities available for sale 242
--------
Total tangible and core capital 45,720
Allowance for loan losses as defined 1,716
--------
Total risk based capital $ 47,436
========
17. Commitments and Contingencies:
In the ordinary course of business, the Company has various outstanding
commitments and contingent liabilities that are not reflected in the
accompanying financial statements. The principal commitments of the Company
are as follows:
Loan commitments and commitments to extend credit
At December 31, 1996, the Company had outstanding firm commitments to
originate loans and extend credit as follows:
Fixed Variable
Rate Rate Total
----- -------- -----
First mortgage loans $ - 1,197 1,197
Consumer and other loans - - -
Commitments to extend credit:
Home equity - 3,349 3,349
Commercial - 811 811
--- ----- -----
$ - 5,357 5,357
=== ===== =====
Fees received in connection with these commitments have not been recognized
in income.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates
<PAGE>
or other termination clauses. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements.
Deposit insurance fund recapitalization
The United States Congress enacted legislation to recapitalize the Federal
Deposit Insurance Corporation's Savings Association Insurance Fund (SAIF)
through a one-time special assessment of $0.657 per $100 of deposits held by
the Company on March 31, 1995. The Company paid an additional assessment of
$1,064 that was charged to expense and reduced net income in 1996.
18. Selected Quarterly Financial Data (Unaudited):
Selected quarterly financial data are presented below for the quarters
ending December 31, 1996 and 1995. Year-end reclassifications have not been
reflected.
<TABLE>
<CAPTION>
1996
-----------------------------------------------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Total interest income $ 4,505 5,868 6,491 7,296
Total interest expense 2,392 3,462 3,746 4,183
------- ----- ------ ------
Net interest income 2,113 2,406 2,745 3,113
Provision for losses 80 64 195 60
------- ----- ------ ------
Net interest income after
provision for losses 2,033 2,342 2,550 3,053
Total non-interest income 23 131 310(1) 86
Total non-interest expenses (1,576) (1,937) (3,098)(2) (2,148)
------ ------ ------ ------
Income before income expense 480 536 (238) 991
Income tax expense (benefit) 200 184 (71) 394
------- ------ ------ ------
Net Income $ 280 352 (167) 597
====== ====== ====== ======
Earnings per share $ 0.12 0.15 (0.07) 0.27
====== ====== ====== ======
Market range:
High bid $ 24 23-3/4 23 21-3/4
Low bid $ 21-1/4 22-1/4 19-1/2 19-1/2
</TABLE>
- -----------
(1) Third quarter earnings include $234 gain from sale of investments.
(2) Third quarter expenses include special SAIF assessment of $1.1 million.
<PAGE>
<TABLE>
<CAPTION>
1996
-----------------------------------------------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Total interest income $ 3,423 3,424 3,747 4,215
Total interest expense (1,414) (1,584) (1,847) (2,189)
-------- ------ ------ ------
Net interest income 2,009 1,840 1,900 2,026
Provision for losses - (6) - -
-------- ------ ------ ------
Net interest income after
provision for losses 2,009 1,834 1,900 2,026
Total non-interest income(1)(2) 298 313 327 1,042
Total non-interest expenses (1,357) (1,283) (1,314) (1,395)
-------- ------ ------ ------
Income before income expense 950 864 913 1,673
Income tax expense 309 280 297 621
-------- ------ ------ ------
Net Income $ 641 584 616 1,052
======== ====== ====== ======
Earnings per share $ 0.26 0.24 0.25 0.43
======== ====== ====== ======
Market range:
High bid 19-1/4 20 22-1/4 24-3/4
Low bid 14-3/4 18 19 21-1/2
</TABLE>
- -----------
(1) 1995 quarterly earnings include gains from sales of interest-earning assets
of $279, $294, $310 and $324.
(2) Fourth-quarter 1995 earnings include gains from termination of pension and
health-care plans of $681.
<PAGE>
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
Parent Subsidiary Ownership Organization
- ---------------------- ----------------------------- --------- ------------
<S> <C> <C> <C>
Western Ohio Financial Springfield Federal Savings 100% Federal
Corporation Bank
Western Ohio Financial Mayflower Federal Savings Bank 100% Federal
Corporation
Western Ohio Financial Seven Hills Savings Association 100% Federal
Corporation
Springfield Federal Savings Springfield-Home Community 50% Ohio
Bank Reinvestment Corporation
Springfield Federal Savings West Central Financial Services, 100% Ohio
Bank Inc.
</TABLE>
The financial statements of the Registrant are consolidated with those
of its subsidiaries.
<PAGE>
Exhibit 23
Clark, Schaefer, Hackett & Co.
Certified Public Accountants
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements on
Form S-8 (Registration Nos. 33-97586 and 33-97588) of Western Ohio Financial
Corporation (the "Company") of our report dated January 25, 1997, on the 1996
consolidated financial statements of the Company, which report is included in
the Company's Annual Report on Form 10-K for the year ended December 31, 1996.
/s/ Clark, Schaefer, Hackett & Co.
CLARK, SCHAEFER, HACKETT & CO.
Springfield, Ohio
May 1, 1997
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 4716
<INT-BEARING-DEPOSITS> 5406
<FED-FUNDS-SOLD> 5489
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 35,729
<INVESTMENTS-CARRYING> 36,095
<INVESTMENTS-MARKET> 35,729
<LOANS> 287,611
<ALLOWANCE> (1716)
<TOTAL-ASSETS> 392,765
<DEPOSITS> 233,203
<SHORT-TERM> 48,261
<LIABILITIES-OTHER> 2,912
<LONG-TERM> 54,341
0
0
<COMMON> 26
<OTHER-SE> 54,022
<TOTAL-LIABILITIES-AND-EQUITY> 392,765
<INTEREST-LOAN> 18,437
<INTEREST-INVEST> 5,159
<INTEREST-OTHER> 564
<INTEREST-TOTAL> 24,160
<INTEREST-DEPOSIT> 9,260
<INTEREST-EXPENSE> 4,523
<INTEREST-INCOME-NET> 10,377
<LOAN-LOSSES> 399
<SECURITIES-GAINS> 234
<EXPENSE-OTHER> 8,759
<INCOME-PRETAX> 1,769
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,062
<EPS-PRIMARY> .47
<EPS-DILUTED> .47
<YIELD-ACTUAL> 3.26
<LOANS-NON> 2,099
<LOANS-PAST> 2,044
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 809
<ALLOWANCE-OPEN> (774)
<CHARGE-OFFS> 34
<RECOVERIES> 0
<ALLOWANCE-CLOSE> (1,716)
<ALLOWANCE-DOMESTIC> (1,716)
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
