SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to _______________
Commission File No.: 0-25470
Community Investors Bancorp, Inc.
(Exact name of registrant as specified in its charter)
Ohio 34-1779309
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
119 South Sandusky Avenue
Bucyrus, Ohio 44820
(Address) (Zip Code)
Registrant's telephone number, including area code: (419) 562-7055
Securities registered pursuant to Section 12(b) of the Act:
Not Applicable
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
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
<PAGE>
The aggregate market value of the voting stock held by non-affiliates of the
Registrant at September 24, 1999 was $8,803,212.
The number of shares issued and outstanding of the Registrant's Common Stock as
of September 24, 1999 was 1,218,684.
DOCUMENTS INCORPORATED BY REFERENCE
Annual Report to Shareholders for fiscal year ended June 30, 1999 - Parts I, II
and IV.
Definitive Proxy Statement for the Annual Meeting of Stockholders to be held
October 26, 1998 - Part III.
<PAGE>
COMMUNITY INVESTORS BANCORP, INC.
FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
Item 1. Business of Community Investors Bancorp, Inc........................1
Item 2. Properties.........................................................27
Item 3. Legal Proceedings .................................................27
Item 4. Submission of Matters to a Vote of Security Holders ...............27
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder
Matters..........................................................28
Item 6. Selected Financial Data............................................28
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................28
Item 8. Financial Statements and Supplementary Data........................28
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.........................................28
PART III
Item 10. Directors and Executive Officers of the Registrant.................29
Item 11. Executive Compensation.............................................29
Item 12. Security Ownership of Certain Beneficial Owners and Management.....29
Item 13. Certain Relationships and Related Transactions.....................29
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K....30
Signatures..................................................................32
<PAGE>
PART I
Item 1. Business of Community Investors Bancorp, Inc.
General
Community Investors Bancorp, Inc. (the "Corporation") was organized in
September 1994 at the direction of the Board of Directors of First Federal
Savings and Loan Association of Bucyrus (the "Association") for the purpose of
acquiring all of the capital stock to be issued by the Association upon its
conversion from a federally-chartered mutual savings and loan to a
federally-chartered stock association (the "Conversion"). Upon completion of the
Conversion on February 6, 1995, the Corporation has conducted business as a
unitary savings and loan holding company. At June 30, 1999, the Corporation had
$116.2 million of total assets, $105.8 million of total liabilities, including
$79.9 million of deposits, and $10.4 million of stockholders' equity.
The Association is a traditional savings and loan association primarily
engaged in attracting deposits from the general public through its offices and
using those and other available sources of funds to originate loans secured by
single-family residences primarily located in Crawford County. To a lesser
extent, the Association originates other real estate loans secured by
non-residential real estate and construction loans and non-real estate loans,
primarily consumer loans. The Association also invests in U. S. Treasury and
federal government agency obligations and mortgage-backed securities which are
issued or guaranteed by federal agencies.
Lending Activities
General
A savings association generally may not make loans to one borrower and
related entities in an amount which exceeds 15% of its unimpaired capital and
surplus, although loans in an amount equal to an additional 10% of unimpaired
capital and surplus may be made to a borrower if the loans are fully secured by
readily marketable securities. See "Regulation - Federal Regulation of Savings
Associations." At June 30, 1999, the Association's limit on loans-to-one
borrower was approximately $1.2 million and its five largest loans or groups of
loans-to-one borrower, including related entities, aggregated $594,000,
$447,000, $392,000, $360,000 and $354,000. All of these loans or groups of loans
were performing in accordance with their terms at June 30, 1999.
-1-
<PAGE>
Loan Portfolio Composition. The increase in net loans outstanding over
the prior year was $6.3 million, $7.1 million and $10.2 million in fiscal 1999,
1998 and 1997, respectively. The loan portfolio contains no foreign loans nor
any concentrations to identified borrowers engaged in the same or similar
industries exceeding 10% of total loans.
The following table sets forth the composition of the Association's
loan portfolio by type of loan at the dates indicated.
<TABLE>
<CAPTION>
June 30,
1999 1998 1997
Amount % Amount % Amount %
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans:
Secured by one-to-four family residences $75,600 82.1% $67,205 78.7% $62,584 79.8%
Secured by other residential properties 399 0.4 500 0.6 1,093 1.4
Construction loans 1,374 1.5 1,026 1.2 1,284 1.6
Nonresidential 3,733 4.1 4,744 5.6 4,039 5.2
------ ----- ------- ----- ------- -----
Total mortgage loans 81,106 88.1 73,475 86.1 69,000 88.0
Other loans:
Mobile homes 1,484 1.6 1,988 2.3 3,003 3.8
Commercial 2,041 2.2 1,357 1.6 1,114 1.4
Automobile 3,032 3.3 3,133 3.7 3,013 3.8
Home equity and improvement 1,076 1.2 1,732 2.0 550 .7
Other 3,371 3.6 3,690 4.3 1,721 2.3
----- ----- ------ ----- ------ -----
Total other loans 11,004 11.9 11,900 13.9 9,401 12.0
------ ----- ------ ----- ------ -----
Total loans 92,110 100.0% 85,375 100.0% 78,401 100.0%
===== ===== =====
Less:
Net deferred loan origination fees 308 308 340
Undisbursed loan funds 1,289 930 1,137
Allowance for loan losses 591 563 478
------ ------ ------
Loans receivable - net $89,922 $83,574 $76,446
====== ====== ======
</TABLE>
-2-
<PAGE>
Contractual Principal Repayments and Interest Rates. The following
table sets forth certain information at June 30, 1999, regarding the dollar
amount of loans maturing in the Association's porfolio, based on the contractual
terms to maturity, before giving effect to net items. Demand loans, loans having
no stated schedule of repayments and no stated maturity and overdraft loans are
reported as due in one year or less.
<TABLE>
<CAPTION>
Mortgage Loans
Secured by Secured by
One-to-four Other
Family Residential Non-
Residences Properties Construction Residential
(In thousands)
<S> <C> <C> <C> <C>
Amounts due in:
One year or less $ 1,937 $ 10 $ 48 $ 24
After one year through two years 2,081 7 50 26
After two years through three years 2,237 8 54 30
After three years through five years 4,977 17 125 67
After five years through ten years 18,350 54 402 216
After ten years through twenty years 46,018 199 695 803
Over twenty years - 108 - 418
------ --- ----- -----
Total $75,600 $399 $1,374 $1,584
====== === ===== =====
Interest rate terms on amounts due
after one year:
Fixed
Adjustable
</TABLE>
<TABLE>
<CAPTION>
Other Loans
Consumer
Mobile and
Homes Commercial Other Total
<S> <C> <C> <C> <C>
Amounts due in:
One year or less $ 45 $ 282 $2,124 $ 4,466
After one year through two years 50 312 2,340 4,866
After two years through three years 56 342 2,508 5,235
After three years through five years 120 1,213 2,548 9,067
After five years through ten years 390 - - 19,412
After ten years through twenty years 823 - - 48,538
Over twenty years - - - 526
----- ----- ----- ------
Total $1,484 $2,149 $9,520 $92,110
===== ===== ===== ======
Interest rate terms on amounts due
after one year:
Fixed $33,323
Adjustable 54,321
------
$87,644
======
</TABLE>
-3-
<PAGE>
Origination, Purchase and Sale of Loans
The lending activities of the Association are subject to the written
non-discriminatory, underwriting standards and loan origination procedures
established by the Association's Board of Directors and management. Loan
originations are obtained primarily through real estate brokers, existing
customers, walk-in customers and branch managers. Appraisals are performed on
all real estate loans of $75,000 or more and may be performed on certain loans
less than $75,000. Property valuations are always performed by independent
outside appraisers approved by the Association's Board of Directors. Hazard
insurance is required on substantially all property that serves as collateral.
The Association has local counsel perform a title search on each loan and issue
a legal opinion as to good and marketable title. The Association, however, does
not require title insurance on such loans. Substantially all of the
Association's loans are secured by property located in its market area. The
Association has not been an active purchaser or seller of loans.
All real estate loans are reviewed by the Executive Committee and,
provided they are within the Association's guidelines regarding amount and do
not raise other special considerations requiring Board of Director approval, may
be approved by that committee. The Association's managing officer is authorized
to approve letters of credit of $10,000 or less and open-end additions in any
amount provided that the total outstanding amount does not exceed the amount of
the original mortgage. The consumer loan officer is authorized to approve
consumer loans of $25,000 or less. Any loan in excess of $250,000 or any other
loan that, after funded, would result in a borrower having total loans in excess
of $250,000 must be approved by the Board of Directors. All other loans must be
ratified by the Board, including those loans approved by the Executive
Committee.
The Association has emphasized the origination of ARM loans for several
years. As a result, at June 30, 1999, approximately 67.1% of mortgage loans in
the Association's portfolio were comprised of ARM loans. All real estate
mortgage loans are originated for portfolio, usually under terms and conditions
which did not permit the immediate sale of such loans to the Federal Home Loan
Mortgage Corporation ("FHLMC") or the Federal National Mortgage Association
("FNMA").
-4-
<PAGE>
The following table shows origination, purchase and sale activity of
the Association with respect to its loans during the periods indicated:
<TABLE>
<CAPTION>
Year ended June 30,
1999 1998 1997
(In thousands)
<S> <C> <C> <C>
Mortgage loan originations:
Secured by one-to-four family residences $34,942 $17,323 $19,119
Construction loans 2,676 1,774 2,316
Nonresidential 3,214 1,486 949
------ ------ ------
Total mortgage loan originations 40,832 20,583 22,384
Other loan originations:
Mobile homes 71 82 120
Commercial 1,050 493 261
Automobiles 2,189 2,392 1,231
Home equity and improvement 2,015 2,132 275
Other 1,484 2,050 2,568
------ ------ ------
Total other loans 6,809 7,149 4,455
Purchases of loan participations - 60 250
------ ------ ------
Total loans originated and purchased 47,641 27,792 27,089
Less:
Loan principal repayments 41,113 20,421 16,529
Sales of whole loans and participations - - -
Transferred to real estate, mobile homes and
other assets held for sale 179 177 265
Other, net 1 66 104
------ ------ ------
Net increase in total loans $ 6,348 $ 7,128 $10,191
====== ====== ======
</TABLE>
-5-
<PAGE>
Asset Quality
The Association's credit policy establishes guidelines to manage credit
risk and asset quality. These guidelines include loan review and early
identification of problem loans to ensure sound credit decisions. The
Association's credit policies and procedures are meant to minimize the risk and
uncertainties inherent in lending. In following these policies and procedures,
management must rely on estimates, appraisals and evaluations of loans and the
possibility that changes in these could occur quickly because of changing
economic conditions.
Interest receivable is accrued on all loans and credited to income as
earned. When a loan is delinquent three payments or more, the unpaid interest is
fully reserved by a provision to the allowance for uncollected interest. A
nonmortgage loan is generally charged off after it becomes delinquent 120 days.
Loans may be reinstated to accrual status when all payments are brought current
and, in the opinion of management, collection of the remaining balances can be
reasonably expected. The Association did not have any accruing loans 90 or more
days delinquent at June 30, 1999, 1998 or 1997.
-6-
<PAGE>
Delinquent Loans
The following table sets forth information concerning delinquent loans
at the dates indicated, in dollar amounts and as a percentage of each category
of the Association's loan portfolio. The amounts presented represent the total
outstanding principal balances of the related loans, rather than the actual
payment amounts which are past due.
<TABLE>
<CAPTION>
June 30, 1999
------------------------------------------------------------------------------------------
30 - 59 Days 60 - 89 Days 90 or More Days
------------------------- ------------------------ ------------------------
Percent of Percent of Percent of
Loan Loan Loan
Amount Category Amount Category Amount Category
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans:
Secured by one-to-four
family residences $223 .29% $ 10 .01% $661 .87%
Secured by other
residential properties 24 6.02 - - - -
Construction loans - - - - - -
Other, nonresidential - - - - - -
--- --- ---
Total mortgage loans 247 .30 10 .01 661 .81
Other loans:
Mobile homes 170 11.46 80 5.39 197 13.27
Commercial - - - - - -
Automobile 68 2.24 8 .26 32 1.06
Home equity and
improvement - - 6 .56 10 .93
Other 12 .36 13 .39 12 .36
--- --- ---
Total other loans 250 2.27 107 .97 251 2.28
--- --- ---
Total $497 .54% $117 .13% $912 .99%
=== ===== === ===== === =====
</TABLE>
<TABLE>
<CAPTION>
June 30, 1998
------------------------------------------------------------------------------------------
30 - 59 Days 60 - 89 Days 90 or More Days
------------------------- ------------------------ ------------------------
Percent of Percent of Percent of
Loan Loan Loan
Amount Category Amount Category Amount Category
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans:
Secured by one-to-four
family residences $412 .61% $324 .48% $377 .56%
Secured by other
residential properties - - - - - -
Construction loans - - - - - -
Other, nonresidential - - - - - -
--- --- ---
Total mortgage loans 412 .56 324 .44 377 .51
Other loans:
Mobile homes 222 11.17 116 5.84 166 8.35
Commercial - - - - - -
Automobile 53 1.69 39 1.24 - -
Home equity and
improvement - - - - - -
Other 28 .76 7 .19 57 1.54
--- --- ---
Total other loans 303 2.55 162 1.36 223 1.87
--- --- ---
Total $715 .84% $486 .57% $600 .70%
=== ===== === ===== === =====
</TABLE>
-7-
<PAGE>
The following table sets forth the amounts and categories of the
Association's non-performing assets and troubled debt restructurings at the
dates indicated.
<TABLE>
<CAPTION>
June 30,
1999 1998 1997
(Dollars in thousands)
<S> <C> <C> <C>
Non-accruing loans:
Secured by one-to-four family residences $ 661 $377 $364
Secured by other residential properties - - -
Nonresidential - - -
Mobile homes 197 166 98
Automobile 32 - 1
Other 22 57 45
Accruing loans 90 days or more delinquent - - -
----- --- ---
Total non-performing loans 912 600 508
Property acquired in settlement of loans 50 58 71
----- --- ---
Total non-performing assets 962 658 579
Troubled debt restructurings 52 34 -
----- --- ---
Total $1,014 $692 $579
===== === ===
Total non-performing loans and troubled
debt restructurings as a percentage of
total loans 1.07% 0.70% 0.65%
==== ==== ====
Total non-performing assets and troubled
debt restructurings as a percentage of
total assets 0.87% 0.67% 0.63%
==== ==== ====
</TABLE>
Additional interest income that would have been recognized had such
loans performed in accordance with their original terms amounted to
approximately $65,000, $44,000 and $51,000 for the fiscal years ended June 30,
1999, 1998 and 1997, respectively.
-8-
<PAGE>
Classified Assets
Federal regulations require that each insured savings association
classify its assets on a regular basis. In addition, in connection with
examinations of insured institutions, federal examiners have authority to
identify problem assets and, if appropriate, classify them. There are three
classifications for problem assets: "substandard," "doubtful" and "loss."
Substandard assets have one or more defined weaknesses and are characterized by
the distinct possibility that the insured institution will sustain some loss if
the deficiencies are not corrected. Doubtful assets have the weaknesses of
substandard assets with the additional characteristic that the weaknesses make
collection or liquidation in full on the basis of currently existing facts,
conditions and values questionable, and there is a high possibility of loss. An
asset classified loss is considered uncollectible and of such little value that
continuance as an asset of the institution is not warranted. Another category
designated "watch" also may be established and maintained for assets which do
not currently expose an insured institution to a sufficient degree of risk to
warrant classification as substandard, doubtful or loss. At June 30, 1999, the
Association had approximately $903,000 of classified assets, net of specific
loss allowances, consisting of $835,000 of substandard and $3,000 of doubtful.
There were no assets categorized as "loss" at June 30, 1999. As of that same
date, the Association had $65,000 of assets on its "watch" list.
Allowance for Loan Losses
The allowance for loan losses is maintained at a level believed
adequate by management to absorb potential losses in the loan portfolio.
Management's determination of the adequacy of the allowance is based on an
evaluation of the portfolio, past loan loss experience, current economic
conditions, volume, growth and composition of the loan portfolio, and other
relevant factors. The allowance is increased by provisions for loan losses
charged against earnings. While management uses available information to
recognize losses on loans, future additions to the allowance may be necessary
based on changes in economic conditions. In addition, various regulatory
agencies, as an integral part of their examination process, periodically review
the Association's allowance for losses on loans. Such agencies may require the
Association to recognize additions to the allowance based on their judgments of
information available to them at the time of their examination. For additional
information, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included in the Corporation's Annual Report to
Shareholders.
-9-
<PAGE>
The following table summarizes changes in the allowance for loan losses
and other selected statistics for the periods presented.
<TABLE>
<CAPTION>
Year ending June 30,
1999 1998 1997
(Dollars in thousands)
<S> <C> <C> <C>
Average loans, net $88,179 $81,586 $71,710
====== ====== =======
Allowance for loan losses, beginning of
year $ 563 $ 478 $ 459
Charged-off loans:
Secured by one-to-four family residences 15 29 5
Mobile homes 48 29 88
Automobiles 2 9 14
Other 9 20 24
------ ------ ------
Total charged-off loans 74 87 131
Recoveries on loans previously charged off:
Secured by one-to-four family residences 8 9 -
Secured by other residential properties - - -
Mobile homes - - 5
Automobiles - 2 -
Other - 5 3
------ ------ ------
Total recoveries 8 16 8
------ ------ ------
Net loans charged-off 66 71 123
Provision for loan losses 94 156 142
------ ------ ------
Allowance for loan losses, end of period $ 591 $ 563 $ 478
====== ====== ======
Net loans charged-off to average loans, net .07% .09% .17%
Allowance for loan losses to total loans .64% .66% .61%
Allowance for loan losses to nonperforming
loans 64.80% 93.8% 94.1%
Net loans charged-off to allowance for loan
losses 11.17% 12.6% 25.7%
</TABLE>
-10-
<PAGE>
The following table presents the allocation of the allowance for loan
losses to the total amount of loans in each category listed at the dates
indicated.
<TABLE>
<CAPTION>
June 30,
1999 1998 1997
% of Loans % of Loans % of Loans
In Each In Each In Each
Category Category Category
To Total To Total To Total
Amount Loans Amount Loans Amount Loans
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Secured by one-to-four
family residences $253 82.1% $272 78.7% $195 79.8%
Secured by other
residential properties - 0.4 - 0.6 35 1.4
Construction loans - 1.5 - 1.2 - 1.6
Other, nonresidential 65 4.1 18 5.6 - 5.2
Mobile homes 125 1.6 234 2.3 186 3.8
Commercial - 2.2 - 1.6 - 1.4
Automobile 63 3.3 - 3.7 12 3.8
Home equity and
improvement 22 1.2 7 2.0 - 0.7
Other 63 3.7 32 4.3 50 2.3
--- ----- --- ----- --- -----
Total $591 100.0% $563 100.0% $478 100.0%
=== ===== === ===== === =====
</TABLE>
Investment Activities
The Association has the authority as a federal association to invest in
a wide range of mortgage securities products and low risk U. S. Government and
agency securities. The Corporation accounts for investment and mortgage-backed
securities in accordance with SFAS No. 115, "Accounting for Certain Investments
in Debt and Equity Securities." In accordance with SFAS No. 115, management
determines the appropriate classification of debt securities at the time of
purchase. Debt securities are classified as held to maturity when either the
Corporation or the Association has the positive intent and ability to hold the
securities to maturity. Held to maturity securities are stated at amortized
cost. Debt securities not classified as held to maturity and equity securities
are classified as available for sale. Available for sale securities are stated
at fair value with any unrealized gain or loss recorded to stockholders' equity,
net of related tax effects.
The Corporation's securities portfolio is managed in accordance with a
written policy adopted by the Board of Directors. All securities transactions
must be approved by the Board of Directors.
-11-
<PAGE>
The Corporation's investment portfolio includes two collateralized
mortgage obligations (CMO's) issued totaling $1,002,000. These investments are
considered derivative securities. None of the Corporation's investments are
considered to be high risk and management does not believe the risks associated
with these investments to be significantly different from risks associated with
other pass-through mortgage-backed or agency securities. The Corporation does
not invest in off-balance sheet derivative securities.
For additional information regarding the Corporation's investment
portfolio refer to Notes A-2 and B to the consolidated financial statements.
Sources of Funds
General - Deposits are the primary source of the Corporation's funds
for lending and other investment purposes. In addition to deposits, the
Corporation derives funds from principal repayments and prepayments on loans and
mortgage-backed securities. Repayments on loans and mortgage-backed securities
are a relatively stable source of funds, while deposits inflows and outflows are
significantly influenced by general interest rates and money market conditions.
Borrowings may be used on a short-term basis to compensate for reductions in the
availability of funds from other sources including the FHLB of Cincinnati.
Deposits - The Corporation's deposit products include a broad selection
of deposit instruments, including passbooks, NOW and super NOW accounts, money
market demand accounts and term certificate accounts. Deposit account terms
vary, with the principal differences being the minimum balance required, the
time periods the funds must remain on deposit and the interest rate.
The Corporation considers its primary market area to be Crawford
County, Ohio. The Corporation attracts deposit accounts by offering a wide
variety of accounts, competitive interest rates, and convenient office locations
and service hours. The Corporation does not advertise for deposits outside of
its primary market area. While the Corporation no longer utilizes the services
of deposit brokers, approximately $694,000 of the Corporation's certificates of
deposit consisted of broker deposits at June 30, 1999.
The Corporation has been competitive in the types of accounts and in
interest rates it has offered on its deposit products but does not necessarily
seek to match the highest rates paid by competing institutions.
-12-
<PAGE>
The following table shows the distribution of, and certain other
information relating to, the Corporation's deposits by type of deposit as of the
dates indicated.
<TABLE>
<CAPTION>
June 30,
1999 1998 1997
Amount Percent Amount Percent Amount Percent
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Passbook $16,263 12.6% $16,139 21.2% $15,454 21.2%
Money market demand,
NOW and super NOW 10,058 20.3 8,757 11.6 7,710 10.6
Certificates of deposit 53,633 67.1 51,059 67.2 49,747 68.2
------ ----- ------ ----- ------ -----
Total deposits at end of
period $79,954 100.0% $75,955 100.0% $72,911 100.0%
====== ===== ====== ===== ====== =====
</TABLE>
The following table sets forth the Corporation's net deposit flows
during the periods indicated.
<TABLE>
<CAPTION>
Year ended June 30,
1999 1998 1997
(In thousands)
<S> <C> <C> <C>
Net increase (decrease) before interest credited $1,042 $ (131) $ (57)
Interest credited 2,957 3,175 3,057
----- ----- -----
Net deposits increase $3,999 $3,044 $3,000
===== ===== =====
</TABLE>
The following table sets forth maturities of the Corporation's
certificates of deposit of $100,000 or more at June 30, 1999 by time remaining
to maturity.
<TABLE>
<CAPTION>
(Amount in thousands)
<S> <C>
Three months or less $ -
Over three months through six months 1,211
Over six months through 12 months 2,368
Over 12 months 1,268
-----
Total $4,847
=====
</TABLE>
-13-
<PAGE>
The following table presents, by various interest rate categories, the
amount of certificates of deposit at June 30, 1999 and the amounts at June 30,
1999 which mature during the periods indicated.
<TABLE>
<CAPTION>
Amounts at June 30, 1999
Maturing Within
One Two Three
Certificates of Deposit Year Year Years Thereafter
(In thousands)
<S> <C> <C> <C> <C>
4.01% to 6.0% $39,761 $9,628 $ 994 $1,431
6.01% to 8.0% 831 216 724 47
------ ----- ----- -----
Total certificate accounts $40,592 $9,844 $1,718 $1,478
====== ===== ===== =====
</TABLE>
Borrowings - The Association may obtain advances from the FHLB of
Cincinnati upon the security of the common stock it owns in the FHLB and certain
of its residential mortgage loans, provided certain standards related to
creditworthiness have been met. Such advances are made pursuant to several
credit programs, each of which has its own interest rate and range of
maturities. Such advances are generally available to meet seasonal and other
withdrawals of deposit accounts and to permit increased lending. Programs are
also available to match maturities on certain loans with payments on advances
secured from the FHLB.
The following table sets forth the maximum month-end balance and
average balance of the Corporation's FHLB advances during the periods indicated.
<TABLE>
<CAPTION>
Year ended June 30,
1999 1998 1997
(Dollars in thousands)
<S> <C> <C> <C>
Maximum balance $25,538 $15,558 $14,099
Average balance 23,735 10,695 11,537
Weighted average interest rate of
FHLB advances 5.30% 5.61% 6.68%
</TABLE>
-14-
<PAGE>
The following table sets forth certain information as to the
Corporation's FHLB advances at the dates indicated.
<TABLE>
<CAPTION>
June 30,
1999 1998 1997
(Dollars in thousands)
<S> <C> <C> <C>
FHLB advances $25,291 $15,558 $7,810
Weighted average interest rate of
FHLB advances 5.28% 5.58% 6.46%
</TABLE>
Employees
The Corporation had 24 full-time employees and 8 part-time employees at
June 30, 1999. None of these employees is represented by a collective bargaining
agreement, and the Corporation believes that it enjoys good relations with its
personnel.
-15-
<PAGE>
REGULATION
Set forth below is a brief description of material laws and regulations
which currently relate to the regulation of the Association. The description of
these laws and regulations, as well as descriptions of laws and regulations
contained elsewhere herein, does not purport to be complete and is qualified in
its entirety by reference to applicable laws and regulations.
General
The Association, as a federally chartered savings association, is
subject to federal regulation and oversight by the OTS extending to all aspects
of its operations. The Association also is subject to regulation and examination
by the FDIC, which insures the deposits of the Association to the maximum extent
permitted by law, and requirements established by the Federal Reserve Board. The
laws and regulations governing the Association generally have been promulgated
to protect depositors and the deposit insurance funds and not for the purpose of
protecting stockholders.
Federal Savings Association Regulation
The investment and lending authority of a federally chartered savings
association is prescribed by federal laws and regulations, and it is prohibited
from engaging in any activities not permitted by such laws and regulations.
These laws and regulations generally are applicable to all federally-chartered
savings associations and many also apply to state-chartered savings
associations.
Among other things, OTS regulations provide that no savings association
may invest in corporate debt securities not rated in one of the four highest
rating categories by a nationally recognized rating organization. In addition,
HOLA provides that loans secured by nonresidential real property may not exceed
400% of regulatory capital, subject to increase by the OTS on a case-by-case
basis.
The Association is subject to limitations on the aggregate amount of
loans that it can make to any one borrower, including related entities.
Applicable regulations generally do not permit loans-to-one borrower to exceed
15% of unimpaired capital and surplus, provided that loans in an amount equal to
an additional 10% of unimpaired capital and surplus also may be made to a
borrower if the loans are fully secured by readily marketable securities. The
OTS by regulation has amended the loans-to-one borrower rule to permit savings
associations meeting certain requirements, including fully phased-in capital
requirements, to extend loans-to-one borrower in additional amounts under
circumstances limited essentially to loans to develop or complete residential
housing units. At June 30, 1999, the Association was in compliance with
applicable loans-to-one borrower limitations.
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<PAGE>
Regulatory Capital Requirements - As a federally insured savings
association, the Association is required to maintain minimum levels of
regulatory capital. The regulatory capital standards for savings associations
generally must be as stringent as the comparable capital requirements imposed on
national banks. The OTS also is authorized to impose capital requirements in
excess of these standards on individual associations on a case-by-case basis.
The Association must satisfy three different OTS capital requirements;
"tangible" capital equal to 1.5% of adjusted total assets, "core" capital equal
to 3% of adjusted total assets and "risk-based" capital (a combination of core
and "supplementary" capital) equal to 8% of "risk-weighted" assets. Any savings
association that fails any of the capital requirements is subject to possible
enforcement actions by the OTS or the FDIC. Such actions could include a capital
directive, a cease and desist order, civil money penalties, the establishment of
restrictions on an association's operations, termination of federal deposit
insurance and the appointment of a conservator or receiver.
In August 1993 the OTS adopted final regulations which incorporate an
interest rate risk ("IRR") component into the current risk-based capital
requirement. The IRR component is a dollar amount that will be deducted from
total capital for the purpose of calculating an institution's risk-based capital
requirement. The IRR component will be equal to one-half of the difference
between an institution's "measured exposure" and a "normal" level of exposure,
in each case as measured in terms of the sensitivity of an institution's net
portfolio value ("NPV") to changes in interest rates. The OTS will calculate
changes in an institution's NPV based on financial data submitted by the
institution on a quarterly basis and guidance provided by the OTS. An
institution's measured IRR is expressed as the change that occurs in the NPV as
a result of a hypothetical 200 basis point increase or decrease in interest
rates (whichever leads to a lower NPV) divided by the estimated economic value
(present value) of its assets. An institution with a "normal" level of interest
rate risk is defined as one whose measured IRR is less than 2%, as estimated by
the OTS model, and only institutions whose measured IRR exceeds 2% will be
required to maintain an IRR component. Since the regulations were issued
requiring the IRR component, the OTS has continually waived the required
adjustment. In August 1995, the OTS issued Thrift Bulletin No. 67 which allows
eligible institutions to request an adjustment to their IRR component, as
calculated by the OTS, or to request to use their own computer model to
calculate their IRR component. The OTS also indicated that it will delay
invoking its IRR rule requiring institutions with above normal IRR exposure to
adjust their regulatory capital requirement until the new procedures are
implemented and evaluated. The OTS has not yet established an effective date for
the capital deduction. Had the IRR component been required as of June 30, 1999,
the date of the latest available information, there would have been no reduction
in the Association's risk based capital.
-17-
<PAGE>
Prompt Corrective Action
Under Section 38 of the FDIA, as added by the Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA"), each federal banking agency is
required to implement a system of prompt corrective action for institutions
which it regulates. In September 1992, the federal banking agencies adopted
substantially similar regulations which are intended to implement the system of
prompt corrective action established by Section 38 of the FDIA, which became
effective on December 19, 1992. Under the regulations, an institution shall be
deemed to be (i) "well capitalized" if it has a total risk-based capital ratio
of 10.0% or more, has a Tier I risk-based capital ratio of 6.0% or more, has a
Tier I leverage capital ratio of 5.0% or more and is not subject to specified
requirements to meet and maintain a specific capital level for any capital
measure, (ii) "adequately capitalized" if it has a total risk-based capital
ratio of 8.0% or more, a Tier I risk-based capital ratio of 4.0% or more and a
Tier I leverage capital ratio of 4.0% or more (3.0% under certain circumstances)
and does not meet the definition of "well capitalized," (iii) "undercapitalized"
if it has a total risk-based capital ratio that is less than 8.0%, a Tier I
risk-based capital ratio that is less than 4.0% or a Tier I leverage capital
ratio that is less than 4.0% (3.0% under certain circumstances), (iv)
"significantly undercapitalized" if it has a total risk-based capital ratio that
is less than 6.0%, a Tier I risk-based capital ratio that is less than 3.0% or a
Tier I leverage capital ratio that is less than 3.0%, and (v) "critically
undercapitalized" if it has a ratio of tangible equity to total assets that is
equal to or less than 2.0%.
Section 38 of the FDIA and the implementing regulations also provide
that a federal banking agency may, after notice and an opportunity for a
hearing, reclassify a well capitalized institution as adequately capitalized and
may require an adequately capitalized institution or an undercapitalized
institution to comply with supervisory actions as if it were in the next lower
category if the institution is in an unsafe or unsound condition or engaging in
an unsafe or unsound practice. (The FDIC may not, however, reclassify a
significantly undercapitalized institution as critically undercapitalized.)
An institution generally must file a written capital restoration plan
which meets specified requirements, as well as a performance guaranty by each
company that controls the institution, with the appropriate federal banking
agency within 45 days of the date that the institution receives notice or is
deemed to have notice that it is undercapitalized, significantly
undercapitalized or critically undercapitalized. Immediately upon becoming
undercapitalized, an institution shall become subject to the provisions of
Section 38 of the FDIA, which sets forth various mandatory and discretionary
restrictions on its operations.
At June 30, 1999, the Association was a "well capitalized" institution
under the prompt corrective action regulations of the OTS.
-18-
<PAGE>
Standards for Safety and Soundness - The FDICIA requires the federal
banking regulatory agencies to prescribe, by regulation, standards for all
insured depository institutions and depository institution holding companies
relating to: (i) internal controls, information systems and internal audit
systems; (ii) loan documentation; (iii) audit underwriting; (iv) interest rate
risk exposure; (v) asset growth; and (vi) compensation, fees and benefits. The
compensation standards would prohibit employment contracts, compensation or
benefit arrangements, stock options plans, fee arrangements or other
compensatory arrangements that would provide excessive compensation, fees or
benefits or could lead to material financial loss. In addition, the federal
banking regulatory agencies would be required to prescribe by regulation
standards specifying: (i) maximum classified assets to capital ratios; (ii)
minimum earnings sufficient to absorb losses without impairing capital; and
(iii) to the extent feasible, a minimum ratio of market value to book value for
publicly traded shares of depository institutions and depository institution
holding companies.
Liquidity Requirements
All savings associations are required to maintain an average daily
balance of liquid assets in each calendar quarter equal to a certain percentage
of the sum of its average daily balance of net withdrawable accounts and
short-term borrowings. The liquidity requirement may vary from time to time
(between 4% and 10%) depending upon economic conditions and savings flows of all
savings associations. At the present time, the required liquid asset ratio is
4%. In addition to meeting the minimum liquidity requirement, each savings
association must maintain sufficient liquidity to ensure its safe and sound
operation.
Liquid assets for purposes of this ratio include cash, certain deposits,
certain banker's acceptances, U.S. Government obligations, and state and agency
obligations with a maximum term of two years. Monetary penalties may be imposed
upon associations for violations of liquidity requirements.
At June 30, 1999, the Association's regulatory liquidity totaled $11.8
million, or 11.17%, which exceeded the minimum regulatory requirement by $7.6
million.
Qualified Thrift Lender Test
All savings associations are required to meet a qualified thrift lender
("QTL") test set forth in Section 10(m) of the HOLA and regulations of the OTS
thereunder to avoid certain restrictions on their operations. A savings
association that does not meet the QTL test set forth in the HOLA and
implementing regulations must either convert to a bank charter or comply with
the following restrictions on its operations: (i) the association may not engage
in any new activity or make any new investment, directly or indirectly, unless
such activity or investment is permissible for a national bank; (ii) the
branching powers of the association shall be restricted to those of a national
bank; (iii) the association shall not be eligible to obtain any advances from
its FHLB; and (iv) payment of dividends by the association shall be subject to
the rules regarding payment of dividends by a national bank. Upon the expiration
of three years from the date the association ceases to be a QTL, it must cease
any activity and not retain any investment not permissible for a national bank
and immediately repay any outstanding FHLB advances (subject to safety and
soundness considerations). In addition, within one year of the date on which a
savings association controlled by a company
-19-
<PAGE>
ceases to be a QTL, the company must register as a bank holding company
and becomes subject to the rules applicable to such companies.
Currently, the QTL test requires that 65% of an institution's
"portfolio assets" (as defined) consist of certain housing and consumer-related
assets on a monthly average basis in nine out of every 12 months. Assets that
qualify without limit for inclusion as part of the 65% requirement are loans
made to purchase, refinance, construct, improve or repair domestic residential
housing and manufactured housing; home equity loans; mortgage-backed securities
(where the mortgages are secured by domestic residential housing or manufactured
housing); FHLB stock; direct or indirect obligations of the FDIC and loans for
educational purposes, loans to small businesses, and loans made through credit
cards or credit card accounts. In addition, the following assets, among others,
may be included in meeting the test subject to an overall limit of 20% of the
savings institution's portfolio assets: 50% of residential mortgage loans
originated and sold within 90 days of origination; loans for personal, family or
homehold purposes (other than those included in the 100% basket above); and
stock issued by the FHLMC or the FNMA. Portfolio assets consist of total assets
minus the sum of (i) goodwill and other intangible assets, (ii) property used by
the savings institution to conduct its business, and (iii) liquid assets up to
20% of the institution's total assets. At June 30, 1999, the qualified thrift
investments of the Association were approximately 99.9% of its portfolio assets.
Restrictions on Capital Distributions
An OTS regulation governs capital distributions by savings
associations, which include cash dividends, stock redemptions or repurchases,
cash-out mergers, interest payments on certain convertible debt and other
transactions charged to the capital account of a savings association to make
capital distributions. Generally, the Association's payment of dividends is
limited, without prior OTS approval, to net income for the current calendar year
plus the two preceding calendar years, less capital distributions paid over the
comparable time period. Insured institutions are required to file an application
with the OTS for capital distributions in excess of this limitation. At June 30,
1999, the Association was required to obtain OTS approval with respect to future
dividend distributions to the Corporation.
-20-
<PAGE>
Federal Home Loan Bank System
The Association is a member of the FHLB of Cincinnati, which is one of
12 regional FHLBs that administers the home financing credit function of savings
associations. Each FHLB serves as a reserve or central bank for its members
within its assigned region. It is funded primarily from proceeds derived from
the sale of consolidated obligations of the FHLB System. It makes loans to
members (i.e., advances) in accordance with policies and procedures established
by the Board of Directors of the FHLB. At June 30, 1999, the Association had
advances of $25.3 million from the FHLB of Cincinnati.
As a member, the Association is required to purchase and maintain stock
in the FHLB of Cincinnati in an amount equal to a least 1% of its aggregate
unpaid residential mortgage loans, home purchase contracts or similar
obligations at the beginning of each year. At June 30, 1999, the Association had
$1.4 million in FHLB stock, which was in compliance with this requirement.
The FHLBs are required to provide funds for the resolution of troubled
savings associations and to contribute to affordable housing programs through
direct loans or interest subsidies on advances targeted for community investment
and low and moderate-income housing projects. These contributions have adversely
affected the level of FHLB dividends paid and could continue to do so in the
future. These contributions also could have an adverse effect on the value of
FHLB stock in the future. Dividends paid by the FHLB of Cincinnati to the
Association for the fiscal year ended June 30, 1999 totaled $87,000.
Branching by Federal Savings Institutions
Effective May 11, 1992, the OTS amended its Policy Statement on
Branching by Federal Savings Institutions to permit interstate branching to the
full extent permitted by statute (which is essentially unlimited). Prior policy
permitted interstate branching for federal savings institutions only to the
extent allowed for state-chartered institutions in the states where the
institution's home office was located and where the branch was sought. Prior
policy also permitted healthy out-of-state federal institutions to branch into
another state, regardless of the law in that state, provided the branch office
was the result of a purchase of an institution that was in danger of default.
Generally, federal law prohibits federal savings institutions from
establishing, retaining or operating a branch outside the state in which the
federal institution has its home office unless the institution meets the
Internal Revenue Service's ("IRS") domestic building and loan test (generally,
60% of a thrift's assets must be housing-related) ("IRS Test"). The IRS Test
requirement does not apply if: (i) the branch(es) result(s) from an emergency
acquisition of a troubled savings institution (however, if the troubled savings
institution is acquired by a bank holding company, does not have its home office
in the state of the bank holding company bank subsidiary and does not qualify
under the IRS Test, its branching is limited to the branching laws for
state-chartered banks in the state where the savings institution is located);
(ii) the branch was authorized for the federal savings association prior to
October 15, 1982; (iii) the law of the state where the branch would be located
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<PAGE>
would permit the branch to be established if the federal savings institution
were chartered by the state in which its home office is located; or (iv) the
branch was operated lawfully as a branch under state law prior to the savings
institution's conversion to a federal charter.
Furthermore, the OTS will evaluate a branching applicant's record of
compliance with the Community Reinvestment Act of 1977 ("CRA"). An
unsatisfactory CRA record may be the basis for denial of a branching
application.
Federal Reserve System
The Federal Reserve Board requires all depository institutions to
maintain reserves against their transaction accounts (primarily NOW and Super
NOW checking accounts) and non-personal time deposits. Currently, reserves of 3%
must be maintained against total transaction accounts of $51.9 million or less
(after a $4.0 million exemption), and an initial reserve of 10% (subject to
adjustment by the Federal Reserve Board to a level between 8% and 14%) must be
maintained against that portion of total transaction accounts in excess of such
amount. At June 30, 1999, the Association was in compliance with applicable
requirements.
The balances maintained to meet the reserve requirements imposed by the
Federal Reserve Board may be used to satisfy applicable liquidity requirements.
Because required reserves must be maintained in the form of vault cash or a non
interest-bearing account at a Federal Reserve Bank, the effect of this reserve
requirement is to reduce the Association's earning assets.
Transactions with Affiliates
The Association is subject to certain restrictions on loans to the
Corporation or its non-bank subsidiaries, on investments in the stock or
securities thereof, on the taking of such stock or securities as collateral for
loans to any borrower, and on the issuance of a guarantee or letter of credit on
behalf of the Corporation or its non-bank subsidiaries. The Association also is
subject to certain restrictions on most types of transactions with the
Corporation or its non-bank subsidiaries, requiring that the terms of such
transactions be substantially equivalent to terms of similar transactions with
non-affiliated firms. In addition, the Association is subject to restrictions on
loans to its executive officers, directors and principal stockholders.
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<PAGE>
Miscellaneous
In addition to requiring a new system of risk-based insurance
assessments and a system of prompt corrective action with respect to
undercapitalized banks, as discussed above, recent legislation requires federal
banking regulators to adopt regulations in a number of areas to ensure bank
safety and soundness, including: internal controls; credit underwriting; asset
growth; management compensation; ratios of classified assets to capital; and
earnings. Recent legislation also contains provisions which are intended to
enhance independent auditing requirements; restrict the activities of
state-chartered insured banks; amend various consumer banking laws; limit the
ability of "undercapitalized banks" to borrow from the Federal Reserve Board's
discount window; and require regulators to perform annual on-site bank
examinations and set standards for real estate lending.
Regulatory Enforcement Authority
The enforcement powers available to federal banking regulators is
substantial and includes, among other things, the ability to assess civil
monetary penalties, to issue cease-and-desist or removal orders and to initiate
injunctive actions against banking organizations and institution-affiliated
parties, as defined. In general, these enforcement actions must be initiated for
violations of laws and regulations and unsafe or unsound practices. Other
actions or inactions may provide the basis for enforcement action, including
misleading or untimely reports filed with regulatory authorities. Applicable law
also requires public disclosure of final enforcement actions by the federal
banking agencies.
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<PAGE>
FEDERAL AND STATE TAXATION
General
The Corporation and the Association are subject to the generally
applicable corporate tax provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), as well as certain additional provisions of the Code which
apply to thrifts and other types of financial institutions. The following is a
discussion of material tax aspects applicable to the Corporation and the
Association. It is intended only as a summary and does not purport to be a
comprehensive description of the tax rules applicable to the Corporation and the
Association.
Fiscal Year - The Corporation and the Association will file federal
income tax returns on a separate company basis.
Method of Accounting - The Corporation maintains its books and records
for federal income tax purposes using the accrual method of accounting. The
accrual method of accounting generally requires that items of income be
recognized when all events have occurred that establish the right to receive the
income and the amount of income can be determined with reasonable accuracy, and
that items of expense be deducted at the later of (i) the time when all events
have occurred that establish the liability to pay the expense and the amount of
such liability can be determined with reasonable accuracy or (ii) the time when
economic performance with respect to the item of expense has occurred.
Bad Debt Reserves - Under applicable provisions of the Code, savings
institutions such as the Association are permitted to establish reserves for bad
debts and to make annual additions thereto which qualify as deductions from
taxable income. The bad debt deduction is generally based on a savings
institution's actual loss experience (the "Experience Method"). Alternatively,
provided that certain definitional tests relating to the composition of assets
and the nature of its business are met, a savings institution may elect annually
to compute its allowable addition to its bad debt reserves for qualifying real
property loans (generally loans secured by improved real estate) by reference to
a percentage of its taxable income (the "Percentage Method").
Under the Experience Method, the deductible annual addition is the
amount necessary to increase the balance of the reserve at the close of the
taxable year to the greater of (i) the amount which bears the same ratio to
loans outstanding at the close of the taxable year as the total net charge-offs
sustained during the current and five preceding taxable years bear to the sum of
the loans outstanding at the close of those six years or (ii) the balance in the
reserve account at the close of the Association's "base year," which was its tax
year ended December 31, 1987.
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<PAGE>
Under the Percentage Method, the bad debt deduction with respect to
qualifying real property loans was computed as a percentage of the Association's
taxable income before such deduction, as adjusted for certain items (such as
capital gains and the dividends received deduction). Under this method, a
qualifying institution such as the Association generally was able to deduct 8%
of its taxable income. The availability of the Percentage Method has permitted a
qualifying savings institution, such as the Association, to be taxed at an
effective federal income tax rate of 31.3%, as compared to 34% for corporations
generally.
The Percentage Method deduction was limited to the excess of 12% of
savings accounts at year end over the sum of surplus, undivided profits and
reserves at the beginning of the year. For taxable years ended on or before June
30, 1994, the Association has generally elected to use the Percentage Method to
compute the amount of its bad debt deduction with respect to its qualifying real
property loans.
Pursuant to certain legislation which was effective for tax years
beginning after 1995, a small thrift institution (one with an adjusted basis of
assets of less than $500 million), such as the Association, is no longer
permitted to make additions to its tax bad debt reserve under the percentage of
taxable income method. Such institutions are permitted to use the experience
method in lieu of deducting bad debts only as they occur. Such legislation
requires the Association to realize increased tax liability over a period of at
least six years, beginning in 1996. Specifically, the legislation requires a
small thrift institution to recapture (i.e., take into income) over a multi-year
period the balance of its bad debt reserves in excess of the lesser of (i) the
balance of such reserves as of the end of its last taxable year ending before
1988 or (ii) an amount that would have been the balance of such reserves had the
institution always computed its additions to its reserves using the experience
method. The recapture requirement would be suspended for each of two successive
taxable years beginning January 1, 1996 in which the Association originates an
amount of certain kinds of residential loans which in the aggregate are equal to
or greater than the average of the principal amounts of such loans made by the
Association during its six taxable years preceding 1996. The recapture of the
Association's bad debt reserves accumulated after 1987 will not have a material
adverse effect on the Association's financial condition and results of
operations.
Distributions - If the Association were to distribute cash or property to its
sole stockholder having a total fair market value in excess of its accumulated
tax-paid earnings and profits, or were to distribute cash or property to its
stockholder in redemption of its stock, the Association would generally be
required to recognize as income an amount which, when reduced by the amount of
federal income tax that would be attributable to the inclusion of such amount in
income, is equal to the lesser of: (i) the amount of the distribution or (ii)
the sum of (a) the amount of the accumulated bad debt reserve of the Association
with respect to qualifying real property loans (to the extent that additions to
such reserve exceed the additions that would be permitted under the experience
method) and (b) the amount of the Association's supplemental bad debt reserve.
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<PAGE>
As of June 30, 1999, the Association's accumulated bad debt reserve for
qualifying real property loans and its supplemental bad debt reserve balances
were approximately $ and $ , respectively. The Association believes it has
approximately $2.5 million of accumulated earnings and profits as of June 30,
1999, which would be available for dividend distributions, provided regulatory
restrictions applicable to the payment of dividends are met. See "Dividend
Policy."
Minimum Tax - The Code imposes an alternative minimum tax at a rate of
20% on a base of regular taxable income plus certain tax preferences
("alternative minimum taxable income" or "AMTI"). The alternative minimum tax is
payable to the extent such AMTI is in excess of an exemption amount. The Code
provides that an item of tax preference is the excess of the bad debt deduction
allowable for a taxable year pursuant to the percentage of taxable income method
over the amount allowable under the experience method. The other items of tax
preference that constitute AMTI include (a) tax exempt interest on newly-issued
(generally, issued on or after August 8, 1986) private activity bonds other than
certain qualified bonds and (b) for taxable years beginning after 1989, 75% of
the excess (if any) of (i) adjusted current earnings as defined in the Code,
over (ii) AMTI (determined without regard to this preference and prior to
reduction by net operating losses). Net operating losses can offset no more than
90% of AMTI. Certain payments of alternative minimum tax may be used as credits
against regular tax liabilities in future years.
Audit by IRS - The Association's federal income tax returns for taxable
years through June 30, 1995 have been closed for the purpose of examination by
the IRS.
Other Matters - Other recent changes in the system of federal taxation
that could affect the Association's business include a provision that an
individual taxpayer will generally not be permitted to deduct personal interest
paid or accrued during the taxable year unless, subject to certain limitations,
the interest is paid or accrued on indebtedness which is secured by the
principal or secondary residence of the taxpayer or indebtedness incurred by the
taxpayer to pay for certain medical and educational expenses. The deductibility
of losses generated by investments in certain passive activities of a taxpayer
and the deduction for contributions to individual retirement accounts of a
taxpayer if the taxpayer is a participant in an employer-maintained retirement
plan is now limited. The Association does not believe that these changes will
have a material adverse effect on its operations.
State Taxation
The Association is subject to an Ohio franchise taxed based on its
equity capital plus certain reserve amounts. Total capital for this purpose is
reduced by certain exempted assets. The resultant net taxable value was taxed at
a rate of 1.4% and 1.5% for 1999 and 1998, respectively.
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<PAGE>
Item 2. Properties
At June 30, 1999, the Corporation conducted its business from its
executive offices in Bucyrus, Ohio and two full-service branch offices. All of
these offices are located in Crawford County, Ohio.
The following table sets forth certain information with respect to the
Corporation's office properties at June 30, 1999.
<TABLE>
<CAPTION>
Net Book
Leased/ Value of Amount of
Owned Property Deposits
(In thousands)
<S> <C> <C> <C>
Main Office Owned $187 $66,665
119 South Sandusky Avenue
Bucyrus, Ohio 44820
South Branch Office Owned 112 6,134
South Sandusky and Marion Road
Bucyrus, Ohio 44820
New Washington Branch Owned 48 7,155
115 South Kibler Street
New Washington, Ohio 44854
Automated Teller Machine Owned 42
1661 Marion Road (machine
Bucyrus, Ohio only)
---- ------
$289 $79,954
=== ======
</TABLE>
At June 30, 1999, the Corporation's office premises and equipment had
a net book value of $720,000.
Item 3. Legal Proceedings
The Corporation is involved in routine legal proceedings occurring in
the ordinary course of business which, in the aggregate, are believed by
management to be immaterial to the Corporation's financial condition.
Item 4. Submission of Matters to a Vote of Securities Holders
No matters were submitted to a vote of securities holders during the
fourth quarter of fiscal 1999.
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<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The information required herein is incorporated by reference from page
4 of the Corporation's Annual Report to Stockholders for fiscal 1999 ("Annual
Report"), which is included herein as Exhibit [13].
Item 6. Selected Financial Data
The information required herein is incorporated by reference from pages
6 and 7 of the Annual Report.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The information required herein is incorporated by reference from pages
8 through 13 of the Annual Report.
Item 8. Financial Statements and Supplementary Data
The financial statements required herein are incorporated by reference
from pages 22 through 53 of the Annual Report.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
The information required herein is incorporated by reference from page
11 of the Company's Proxy Statement for its 1999 Annual Meeting of Shareholders.
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<PAGE>
PART III
Item 10. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act
The information required herein is incorporated by reference from pages
4 to 5 of the Registrant's Proxy Statement dated September 29, 1999 ("Proxy
Statement").
Item 11. Executive Compensation
The information required herein is incorporated by reference from pages
9 to 10 of the Registrant's Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required herein is incorporated by reference from pages
7 and 8 of the Registrant's Proxy Statement.
Item 13. Certain Relationships and Related Transactions
The information required herein is incorporated by reference from pages
4 and 5 of the Registrant's Proxy Statement.
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<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) (1) Financial Statements
The following financial statements are incorporated herein by reference
from pages 22 through 53 of the Annual Report:
Report of Independent Certified Public Accountants
Consolidated Statements of Financial Condition as of June 30, 1999 and 1998
Consolidated Statements of Earnings for the years ended June 30, 1999, 1998
and 1997
Consolidated Statements of Comprehensive Income for the years ended June
30, 1999, 1998 and 1997
Consolidated Statements of Changes in Stockholders' Equity for the years
ended June 30, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the years ended June 30, 1999,
1998 and 1997
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are included in the Notes to Financial Statements
incorporated herein by reference and therefore have been omitted.
(3) Exhibits
The following exhibits are either filed as a part of this report or are
incorporated herein by reference to documents previously filed as indicated
below:
<TABLE>
<CAPTION>
Exhibit
Number Description
<S> <C> <C>
3.1 Articles of Incorporation *
3.2 Code of Regulations of Community Investors Bancorp, Inc. *
3.3 Bylaws of Community Investors Bancorp, Inc. *
</TABLE>
-30-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
4.1 Specimen Stock Certificate of Community Investors Bancorp, Inc. *
10.1 Form of Severance Agreement between Community Investors
Bancorp, Inc. and John W. Kennedy, Brian R. Buckley, Phillip W.
Gerber and Robert W. Siegel *
10.5 Employee Stock Ownership Plan *
13 Annual Report to Stockholders
27 Financial Data Schedule
99 Revocable Proxy Statement
</TABLE>
* Incorporated by reference from the Registrant's Registration Statement on
Form S-1 (File No. 33-84132) filed with the Securities and Exchange
Commission on September 16, 1994, as amended.
(b) Reports on Form 8-K
There were no reports on Form 8-K for the quarter ended June 30, 1999.
(c) See (a)(3) above for all exhibits filed herewith or incorporated herein
by reference to documents previously filed and the Exhibit Index.
(d) There are no other financial statements and financial statement
schedules which were excluded from the Annual Report to Stockholders which are
required to be included herein.
-31-
<PAGE>
SIGNATURES
Pursuant to the requirements of Sections 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.
FIRST FEDERAL SAVINGS AND LOAN
September 24, 1999 By: /s/ John W. Kennedy
-------------------
John W. Kennedy
President and Managing Officer
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 indicated on September 24, 1999.
Signature Title
/s/ John W. Kennedy President and Managing Officer
John W. Kennedy
/s/ Robert W. Siegel Assistant Vice President and Treasurer
Robert W. Siegel
/s/ Dale C. Hoyles Chairman of the Board
Dale C. Hoyles
/s/ David M. Auck Vice Chairman of the Board
David M. Auck
/s/ D. Brent Fissel Director
D. Brent Fissel
/s/ Philip E. Harris Director
Philip E. Harris
/s/ John D. Mizick Director
John D. Mizick
/s/ Thomas P. Moore Director
Thomas P. Moore
-32-
1999
ANNUAL
REPORT
COMMUNITY INVESTORS BANCORP, INC.
<PAGE>
TABLE OF CONTENTS
President's Letter to Stockholders......................................... 2
The Business of Community Investors Bancorp, Inc. and Subsidiary........... 3
Market for Common Stock.................................................... 4
Selected Consolidated Financial Data....................................... 6
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................ 8
Discussion of Financial Condition Changes from June 30, 1998 to
June 30, 1999............................................................ 9
Comparison of Results of Operations for Fiscal Years Ended
June 30, 1999 and 1998................................................... 10
Comparison of Results of Operations for Fiscal Years Ended
June 30, 1998 and 1997................................................... 12
Average Yield Analysis..................................................... 14
Rate/Volume Table.......................................................... 15
Asset and Liability Management............................................. 16
Liquidity and Capital Resources............................................ 18
Recent Accounting Pronouncements........................................... 19
Year 2000 Compliance Matters............................................... 21
Report of Independent Certified Public Accountants......................... 22
Consolidated Financial Statements.......................................... 23
Directors and Officers..................................................... 54
Stockholder Services....................................................... 55
1
<PAGE>
Dear Stockholder:
We are very pleased to present to our stockholders, the results of the fourth
year of operation for Community Investors Bancorp, Inc. ("CIBI").
The results of operations in fiscal 1999 reflected another year of solid
performance. We reported net earnings of $922,000 for the fiscal year ended June
30, 1999, representing an increase of $43,000, or 4.9%, over the $879,000 in net
earnings recorded in fiscal 1998.The Corporation also reported basic earnings
per share of $0.81, representing a 15.7% increase compared to the $0.70 basic
earnings per share reported in fiscal 1998.
Our earnings continue to grow in tandem with our community. The local economy
remains strong and supports a robust demand for housing. Our residential
mortgage loan portfolio grew by $8.7 million, or 12.8%, in this fiscal year. We
have consistently been a leader in total mortgages originated in our market
area. We continue to be a portfolio lender and have been very successful in
originating adjustable rate mortgages.
We have also increased the number of commercial account relationships on our
books over the past year. We are continuing to make calls on local businesses
and anticipate additional growth in this area.
We have worked extensively over the past fiscal year preparing for the century
date change, or Y2K. All mission-critical systems have been diligently tested
and we do not anticipate problems with the passing of the millennium. We have
developed a contingency plan that enables us to continue operations in the event
problems occur due to Y2K. Our deposit and loan products have passbooks, which
provide our customers with additional security and updated balances. We are
hoping to have a party for all employees soon after the first of the year to
celebrate the new millennium.
Your management is continuing to develop diversified loan and savings product
lines, as well as products designed to augment fee income. We are working on two
areas at this time, and hopefully will be able to report to you next year the
favorable operating results related to these services.
In conclusion, your Board and management remain committed to maximizing the
value of your investment by exploiting our niche as an independent
community-based provider for financial services. We appreciate your support in
pursuit of our goals over the past year and look forward to a very good 2000.
Very truly,
/s/Dale C. Hoyles
Dale C. Hoyles
Chairman
/s/John W. Kennedy
John W. Kennedy
President
2
<PAGE>
BUSINESS OF COMMUNITY INVESTORS BANCORP, INC. AND SUBSIDIARY
General
Community Investors Bancorp, Inc. (the "Corporation") was organized in fiscal
1995 at the direction of the Board of Directors of First Federal Savings and
Loan Association of Bucyrus ("First Federal" or the "Association") for the
purpose of acquiring all of the common stock to be issued by the Association
upon its conversion from a federally-chartered mutual savings and loan to a
federally-chartered stock association (the "Conversion"). Since completion of
the Conversion on February 6, 1995, the Corporation has conducted business as a
unitary savings and loan holding company. At June 30, 1999, the Corporation had
$116.2 million of total assets, $105.8 million of total liabilities, including
$79.9 million of deposits, and $10.4 million of stockholders' equity.
The Association is a traditional savings and loan association primarily engaged
in attracting deposits from the general public through its offices and using
those and other available sources of funds to originate loans secured by
single-family residences primarily located in Crawford County, Ohio. To a lesser
extent, the Association originates other real estate loans secured by
non-residential real estate and construction loans and non-real estate loans,
primarily consisting of consumer loans. The Association also invests in U.S.
Government and agency obligations and mortgage-backed securities which are
issued or guaranteed by federal agencies.
As a savings and loan holding company, the Corporation is subject to regulation,
supervision and examination by the Office of Thrift Supervision of the United
States Department of the Treasury (the "OTS"). As a savings association
chartered under the laws of the United States, the Association is subject to
regulation, supervision and examination by the OTS and the Federal Deposit
Insurance Corporation (the "FDIC"). The Association is also a member of the
Federal Home Loan Bank (the "FHLB") of Cincinnati.
Lending Activities
A savings association generally may not make loans to one borrower and related
entities in an amount which exceeds 15% of its unimpaired capital and surplus,
although loans in an amount equal to an additional 10% of unimpaired capital and
surplus may be made to a borrower if the loans are fully secured by readily
marketable securities. At June 30, 1999, the Association's limit on loans-to-one
borrower was approximately $1.2 million and its five largest loans or groups of
loans-to-one borrower, including related entities, aggregated $594,000,
$447,000, $392,000, $360,000, and $354,000. All of these loans or groups of
loans were performing in accordance with contractual terms at June 30, 1999.
3
<PAGE>
MARKET FOR COMMON STOCK
Shares of common stock of Community Investors Bancorp, Inc. are traded
nationally under the symbol "CIBI" on the Nasdaq SmallCap Market System
("Nasdaq"). At September 9, 1999, the Corporation had 1,218,684 shares of common
stock outstanding and 443 stockholders of record.
The following tables set forth the reported high and low sale prices of a share
of the Corporation's common stock as reported by Nasdaq and cash dividends paid
per share of common stock during the periods indicated. All share prices and
dividends per share have been adjusted for the 3-for-2 stock splits effected
during fiscal 1998 and 1997.
<TABLE>
<CAPTION>
Fiscal Year Ended June 30, 1999
Quarter Ended High Low Dividend
<S> <C> <C> <C>
September 30, 1998 $15.00 $12.00 $.06
December 31, 1998 13.50 11.50 .06
March 31, 1999 12.75 9.00 .06
June 30, 1999 10.75 8.63 .06
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year Ended June 30, 1998
Quarter Ended High Low Dividend
<S> <C> <C> <C>
September 30, 1997 $10.83 $ 8.50 $.053
December 31, 1997 11.33 9.83 .053
March 31, 1998 13.50 10.67 .053
June 30, 1998 16.67 12.67 .053
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year Ended June 30, 1997
Quarter Ended High Low Dividend
<S> <C> <C> <C>
September 30, 1996 $7.33 $6.67 $.045
December 31, 1996 8.11 7.11 .045
March 31, 1997 8.11 6.89 .045
June 30, 1997 9.67 7.67 .045
</TABLE>
In addition to certain federal income tax considerations, OTS regulations impose
limitations on the payment of dividends and other capital distributions by
savings associations. Under OTS regulations applicable to converted savings
associations, the Association is not permitted to pay a cash dividend on its
common shares if the Association's regulatory capital would, as a result of the
payment of such dividend, be reduced below the amount required for the
liquidation account (which was established for the purpose of granting a limited
priority claim on the assets of the Association in the event of a complete
liquidation to those members of the Association before the Conversion) who
maintain a savings account at the Association after the Conversion or applicable
regulatory capital requirements prescribed by the OTS.
4
<PAGE>
MARKET FOR COMMON STOCK (CONTINUED)
The Association is subject to regulations imposed by the Office of Thrift
Supervision ("OTS") regarding the amount of capital distributions payable by the
Association to the Corporation. Generally, the Association's payment of
dividends is limited, without prior OTS approval, to net income for the current
calendar year plus the two preceding calendar years, less capital distributions
paid over the comparable time period. Insured institutions are required to file
an application with the OTS for capital distributions in excess of this
limitation. At June 30, 1999, the Association was required to obtain OTS
approval with respect to future dividend distributions to the Corporation.
The Association currently meets all of its regulatory capital requirements and,
unless the OTS determines that the Association is an institution requiring more
than normal supervision, the Association may pay dividends in accordance with
the foregoing provisions of the OTS regulations.
5
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following tables set forth certain selected consolidated financial and other
data of the Corporation at the dates and for the periods indicated. For
additional financial information about the Corporation, reference is made to
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements of the Corporation and
related notes included elsewhere herein.
<TABLE>
<CAPTION>
At June 30,
Selected Consolidated Financial
Condition Data: 1999 1998 1997 1996 1995
(In thousands)
<S> <C> <C> <C> <C> <C>
Total assets $116,224 $102,535 $92,304 $91,787 $84,741
Cash and cash equivalents 3,497 2,793 2,410 1,909 1,077
Securities:
Available-for-sale 15,517 5,485 1,498 6,201 3,840
Held-to-maturity 4,577 8,554 9,990 15,674 18,326
Loans receivable - net 89,922 83,574 76,446 66,255 59,872
Deposits 79,954 75,955 72,911 69,911 70,464
Federal Home Loan Bank advances 25,291 15,558 7,810 9,884 1,515
Stockholders' equity, restricted 10,417 10,343 11,113 11,486 12,296
</TABLE>
<TABLE>
<CAPTION>
Year ended June 30,
Selected Consolidated Operating Data: 1999 1998 1997 1996 1995
(In thousands, except share data)
<S> <C> <C> <C> <C> <C>
Total interest income $8,189 $7,511 $7,288 $6,770 $6,061
Total interest expense 4,822 4,153 4,069 3,626 3,385
----- ----- ----- ----- -----
Net interest income 3,367 3,358 3,219 3,144 2,676
Provision for losses on loans 94 156 142 159 160
----- ----- ----- ----- -----
Net interest income after provision for
losses on loans 3,273 3,202 3,077 2,985 2,516
Other income 261 197 140 164 131
SAIF recapitalization assessment - - 458 - -
General, administrative and other expense 2,147 2,076 1,862 1,805 1,511
----- ----- ----- ----- -----
Earnings before income taxes 1,387 1,323 897 1,344 1,136
Federal income taxes 465 444 308 458 384
----- ----- ----- ----- -----
Net earnings $ 922 $ 879 $ 589 $ 886 $ 752
===== ===== ===== ===== =====
Earnings per share (1)
Basic $.81 $.70 $.44 $.59 $.27
=== === === === ===
Diluted $.78 $.68 $.44 $.59 $.27
=== === === === ===
</TABLE>
(1) Earnings per share for fiscal 1995 is based on the weighted-average
number of shares outstanding (as adjusted) and net earnings since
February 6, 1995, the date of the conversion to the stock form of
ownership. Earnings per share for the years ended June 30, 1997, 1996 and
1995 have been restated to give effect to the 3-for-2 stock splits
effected during fiscal 1998 and 1997.
6
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA (CONTINUED)
<TABLE>
<CAPTION>
At or for the year ended June 30,
Selected financial ratios and
other data: (1) 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Return on average assets (4) .81% .90% .62% 1.05% .94%
Return on average equity (4) 9.03 8.05 5.21 7.44 10.24
Average equity to average assets (2) 9.02 11.20 11.97 14.06 9.16
Interest rate spread (2) 2.63 3.07 3.06 3.02 3.12
Net interest margin (2) 3.02 3.54 3.53 3.73 3.44
Non-performing assets and troubled debt
restructuring to total assets at end of period (3) .87 .64 .63 .78 .56
Non-performing loans and troubled debt
restructuring to total loans (3) 1.07 .70 .65 .94 .60
Average interest-earning assets to average
interest-bearing liabilities 109.01 110.58 110.40 116.57 107.42
Net interest income after provision for loan
losses and other income to total general,
administrative and other expense (4) 164.59 163.73 138.66 174.46 175.18
General, administrative and other expense to
average total assets (4) 1.90 2.13 2.46 2.13 1.88
Book value per share (5) $8.55 $8.17 $7.97 $7.66 $7.40
Dividend payout ratio (5) 29.63 30.48 40.40 6.03 N/A
</TABLE>
(1) With the exception of end of period ratios, all ratios are based on average
monthly balances during the periods.
(2) Interest rate spread represents the difference between the weighted-average
yield on interest-earning assets and the weighted-average rate on
interest-bearing liabilities. Net interest margin represents net interest
income as a percentage of average interest-earning assets. The ratio of
equity to assets and the interest rate spreads are calculated based on
average balances.
(3) Non-performing loans consist of non-accrual loans and accruing loans that
are contractually past due 90 days or more, and non-performing assets
consist of non-performing loans and real estate, mobile homes and other
assets acquired by foreclosure or deed-in-lieu thereof.
(4) Before consideration of the SAIF recapitalization assessment the ratios set
forth below for the fiscal year ended June 30, 1997, would have been as
follows:
Return on average assets .95%
Return on average equity 7.90
Net interest income after provision for
loan losses and other income to total
general, administrative and other expense 165.25
General, administrative and other expense
to average total assets 1.97
(5) Adjusted to give effect to the 3-for-2 stock splits effected during fiscal
1998 and 1997.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The principal asset of the Corporation is its ownership of First Federal.
Accordingly, the Corporation's results of operations are primarily dependent
upon the results of operations of the Association. The Association conducts a
general banking business that consists of attracting deposits from the general
public and using those funds to originate loans for primarily residential and
consumer purposes.
The Association's profitability depends primarily on its net interest income,
which is the difference between interest income generated from interest-earning
assets (i.e., loans, investments and mortgage-backed securities) less the
interest expense incurred on interest-bearing liabilities (i.e., deposits and
borrowed funds). Net interest income is affected by the relative amounts of
interest-earning assets and interest-bearing liabilities, and the interest rates
paid on these balances.
Additionally, and to a lesser extent, the Association's profitability is
affected by such factors as the level of non-interest income and expenses, the
provision for losses on loans, and the effective tax rate. Non-interest income
consists primarily of service charges and other fees. Non-interest expenses
consist of compensation and benefits, occupancy-related expenses, FDIC deposit
insurance premiums and other operating expenses.
Management's discussion and analysis of earnings and related financial data are
presented herein to assist investors in understanding the consolidated financial
condition and results of operations of the Corporation for the fiscal years
ended June 30, 1999 and 1998. This discussion should be read in conjunction with
the consolidated financial statements and related footnotes presented elsewhere
in this report.
Forward-Looking Statements
In the following pages, management presents an analysis of the Corporation's
financial condition as of June 30, 1999, and the results of operations for the
year ended June 30, 1999 as compared to prior periods. In addition to this
historical information, the following discussion contains forward-looking
statements that involve risks and uncertanties. Economic circumstances, the
Corporation's operations and the Corporation's actual results could differ
significantly from those discussed in the forward-looking statements. Some of
the factors that could cause or contribute to such differences are discussed
herein but also include changes in the economy and interest rates in the nation
and in the Corporation's general market area.
Without limiting the foregoing, some of the forward-looking statements include
the following:
Management's establishment of an allowance for loan losses and its
statements regarding the adequacy of such allowance for loan losses.
Management's opinions as to the financial statement effect of certain
recent accounting pronouncements.
Management's opinion as to the effect of the Year 2000 compliance
matters on its information technology systems.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Discussion of Financial Condition Changes from June 30, 1998 to June 30, 1999
The Corporation's total assets amounted to $116.2 million as of June 30, 1999,
an increase of $13.7 million, or 13.4%, over the $102.5 million total at June
30, 1998. The increase in assets was funded primarily through an increase in
advances from the Federal Home Loan Bank of $9.7 million and growth in deposits
of $4.0 million.
Cash and cash equivalents and investment securities totaled $23.6 million at
June 30, 1999, an increase of $6.8 million, or 40.2%, over 1998 levels. The
increase resulted primarily from purchases of investment and mortgage-backed
securities during fiscal 1999 totaling $21.6 million, which were partially
offset by maturities of $10.2 million and sales of $5.0 million. Purchases
during fiscal 1999 include government agency securities and corporate bonds
bearing a weighted-average interest rate of 6.41%, which were financed via
fixed-rate advances from the Federal Home Loan Bank bearing a weighted-average
cost of 5.06%, coupled with proceeds from maturities of investment securities.
Loans receivable totaled $89.9 million at June 30, 1999, an increase of $6.3
million, or 7.6%, over June 30, 1998 levels. Loan disbursements during fiscal
1999 totaled $47.6 million, which were partially offset by principal repayments
of $41.1 million. The volume of loan disbursements remained strong during the
year, as fiscal 1999 volume exceeded that of fiscal 1998 by approximately $19.9
million, or 71.8%. Growth in the loan portfolio was comprised primarily of loans
secured by one-to-four family residential real estate, which increased by $8.7
million, during fiscal 1999, as compared to fiscal 1998.
At June 30, 1999, the Corporation's allowance for loan losses totaled $591,000,
which represented .64% of total loans and 64.8% of nonperforming loans. The
allowance totaled $563,000 at June 30, 1998, which represented .66% of total
loans and 93.8% of nonperforming loans at that date. Nonperforming loans totaled
$912,000 and $600,000 at June 30, 1999 and 1998, respectively, which represented
.99% and .70% of total loans at those respective dates. Although management
believes that its allowance for loan losses at June 30, 1999 was adequate based
on the available facts and circumstances, there can be no assurance that
additions to such allowance will not be necessary in future periods, which could
adversely affect the Corporation's results of operations.
Deposits totaled $79.9 million at June 30, 1999, an increase of $4.0 million, or
5.3%, over the $75.9 million total reported at June 30, 1998. Growth in deposits
resulted primarily from management's continuing efforts to sustain the
Corporation's extended growth trend through a combination of marketing and
pricing strategies. Such deposit growth consisted of $1.4 million in transaction
accounts and $2.5 million in certificates of deposit.
Advances from the Federal Home Loan Bank totaled $25.3 million at June 30, 1999,
an increase of $9.7 million, or 62.6%, over June 30, 1998 levels. Proceeds from
such advances were used primarily to fund the purchase of investment and
mortgage-backed securities, and to fund the growth in the loan portfolio.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Discussion of Financial Condition Changes from June 30, 1998 to June 30, 1999
(continued)
Stockholders' equity totaled $10.4 million at June 30, 1999, a increase of
$74,000, or .7%, over June 30, 1998 levels. The increase resulted primarily from
net earnings of $922,000, which were partially offset by repurchases of 48,176
shares of treasury stock at an aggregate price of $638,000, coupled with
dividend payments on common stock totaling $294,000.
Comparison of Results of Operations for the Fiscal Years Ended June 30, 1999 and
1998
General
The Corporation's net earnings totaled $922,000 for the fiscal year ended June
30, 1999, an increase of $43,000, or 4.9%, over the $879,000 of net earnings
reported for fiscal 1998. The increase in earnings resulted from a $62,000
decrease in provision for losses on loans, a $64,000 increase in other income
and a $9,000 increase in net interest income, which were partially offset by a
$71,000 increase in general, administrative and other expense and a $21,000
increase in the provision for federal income taxes.
Net Interest Income
Total interest income for the fiscal year ended June 30, 1999, amounted to $8.2
million, an increase of $678,000, or 9.0%, over fiscal 1998. This increase was
due primarily to a $16.5 million, or 17.4%, increase in the weighted-average
balance of interest-earning assets outstanding, which was partially offset by a
fifty-six basis point decline in the average yield year to year, to 7.35% in
fiscal 1999. Interest income on loans increased by $240,000, or 3.6%, due
primarily to a $6.6 million, or 8.1%, increase in the average balance of loans
outstanding year-to-year, partially offset by a thirty-four basis point decline
in the average yield. Interest income on investment and mortgage-backed
securities and interest-bearing deposits increased by $438,000, or 49.8%, due
primarily to a $9.9 million, or 74.2%, increase in the average portfolio balance
outstanding.
Interest expense on deposits increased by $10,000, or .3%, as the $3.4 million,
or 4.5%, increase in the weighted-average balance of deposits outstanding was
mitigated by a nineteen basis point decrease in the cost of deposits year to
year, to 4.54% in fiscal 1999. Interest expense on borrowings increased by
$659,000, or 109.8%, during the current period, due primarily to a $13.0 million
increase in the weighted-average balance of advances from the Federal Home Loan
Bank outstanding, partially offset by a thirty-one basis point decline in the
average cost of borrowings, to 5.30% in fiscal 1999.
As a result of the foregoing changes in interest income and interest expense,
net interest income increased by $9,000, or .3%, to a total of $3.4 million for
the fiscal year ended June 30, 1999. The interest rate spread amounted to 2.63%
in fiscal 1999 and 3.07% in fiscal 1998, while the net interest margin totaled
approximately 3.02% in fiscal 1999, as compared to 3.54% in fiscal 1998.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Results of Operations for the Fiscal Years Ended June 30, 1999 and
1998 (continued)
Provision for Losses on Loans
A provision for losses on loans is charged to earnings to bring the total
allowance for loan losses to a level considered appropriate by management based
on historical experience, the volume and type of lending conducted by the
Association, the status of past due principal and interest payments, general
economic conditions, particularly as such conditions relate to the Association's
market area, and other factors related to the collectibility of the
Association's loan portfolio. As a result of such analysis, management recorded
a $94,000 provision for losses on loans during the fiscal year ended June 30,
1999, a decrease of $62,000, or 39.7%, from the provision recorded in fiscal
1998. The current period provision was predicated upon the overall growth in the
loan portfolio, coupled with an increase in the level of nonperforming loans.
Other Income
Other income increased by $64,000, or 32.5%, for the fiscal year ended June 30,
1999, compared to fiscal 1998, due primarily to an increase in service fees on
loan and deposit accounts and transactions.
General, Administrative and Other Expense
General, administrative and other expense totaled $2.1 million for the fiscal
year ended June 30, 1999, an increase of $71,000, or 3.4%, compared to fiscal
1998. This increase was due primarily to a $55,000, or 5.4%, increase in
employee compensation and benefits and a $36,000, or 20.3%, increase in data
processing, which were partially offset by a $12,000, or 2.4%, decrease in other
operating expenses. The increase in employee compensation and benefits resulted
primarily from increased management staffing levels year to year, coupled with
increased costs attendant to stock benefit plans and normal merit increases. The
increase in data processing generally reflects the effects of the Corporation's
overall growth year to year.
Federal Income Taxes
The provision for federal income taxes increased by $21,000, or 4.7%, for the
fiscal year ended June 30, 1999, as compared to fiscal 1998. This increase
resulted primarily from the increase in net earnings before taxes of $64,000, or
4.8%. The effective tax rates were 33.5% and 33.6% for the fiscal years ended
June 30, 1999 and 1998, respectively.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Results of Operations for the Fiscal Years Ended June 30, 1998 and
1997
General
The Corporation's net earnings totaled $879,000 for the fiscal year ended June
30, 1998, an increase of $290,000, or 49.2%, over the $589,000 of net earnings
reported for fiscal 1997. The increase in earnings resulted primarily from the
absence of a $304,000 one-time after tax charge recorded in fiscal 1997
reflecting the assessment to recapitalize the Savings Association Insurance Fund
(SAIF), coupled with a $139,000 increase in net interest income and a $57,000
increase in other income, which were partially offset by a $214,000 increase in
general, administrative and other expense (excluding the one-time SAIF
recapitalization pre-tax charge of $458,000) and a $136,000 increase in the
provision for federal income taxes.
Net Interest Income
Total interest income for the fiscal year ended June 30, 1998, amounted to $7.5
million, an increase of $223,000, or 3.1%, over fiscal 1997. This increase was
due primarily to a $3.8 million, or 4.1%, increase in the weighted-average
balance of interest-earning assets outstanding, which was partially offset by an
eight basis point decline in the average yield year to year, to 7.91% in fiscal
1998. Interest income on loans increased by $691,000, or 11.6%, due primarily to
a $9.9 million, or 13.8%, increase in the average balance of loans outstanding
year-to-year, partially offset by a 15 basis point decline in the average yield.
Interest income on investment and mortgage-backed securities and
interest-bearing deposits decreased by $468,000, or 34.7%, due primarily to a
$6.1 million, or 31.4%, decrease in the average portfolio balance outstanding.
Interest expense on deposits increased by $255,000, or 7.7%, due primarily to a
$4.1 million, or 5.8%, increase in the weighted-average balance of deposits
outstanding, coupled with a nine basis point increase in the cost of deposits
year to year, to 4.73% in fiscal 1998. Interest expense on borrowings decreased
by $171,000, or 22.2%, during the current period, due primarily to an $842,000
decrease in the weighted-average balance of outstanding advances from the
Federal Home Loan Bank, coupled with a 107 basis point decline in the average
cost of borrowings, to 5.61% in fiscal 1998.
As a result of the foregoing changes in interest income and interest expense,
net interest income increased by $139,000, or 4.3%, to a total of $3.4 million
for the fiscal year ended June 30, 1998. The interest rate spread amounted to
3.07% in fiscal 1998 and 3.06% in fiscal 1997, while the net interest margin
totaled approximately 3.54% in fiscal 1998, as compared to 3.53% in fiscal 1997.
Provision for Losses on Loans
A provision for losses on loans is charged to earnings to bring the total
allowance for loan losses to a level considered appropriate by management based
on historical experience, the volume and type of lending conducted by the
Association, the status of past due principal and interest payments, general
economic conditions, particularly as such conditions relate to the Association's
market area, and other factors related to the collectibility of the
Association's loan portfolio. As a result of such analysis, management recorded
a $156,000 provision for losses on loans during the fiscal year ended June 30,
1998, an increase of $14,000, or 9.9%, over fiscal 1997.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Results of Operations for the Fiscal Years Ended June 30, 1998 and
1997 (continued)
Other Income
Other income increased by $57,000, or 40.7%, for the fiscal year ended June 30,
1998, compared to fiscal 1997, due primarily to an increase in service fees on
deposit accounts and transactions.
General, Administrative and Other Expense
General, administrative and other expense totaled $2.1 million for the fiscal
year ended June 30, 1998, a decrease of $244,000, or 10.5%, compared to fiscal
1997. This decrease resulted primarily from the $458,000 one-time charge
recorded in fiscal 1997 attendant to the aforementioned SAIF recapitalization
assessment.
Excluding the effects of the SAIF recapitalization assessment, general,
administrative and other expense increased by $214,000, or 11.5%, due primarily
to a $189,000, or 22.5%, increase in employee compensation and benefits, a
$22,000, or 14.2%, increase in data processing and an $80,000, or 19.1%,
increase in other operating expenses, which were partially offset by a $50,000
decrease in federal deposit insurance premiums. The increase in employee
compensation and benefits resulted primarily from increased management staffing
levels year to year, coupled with increased costs attendant to stock benefit
plans and normal merit increases. The increase in data processing and other
operating expense generally reflects the effects of the Corporation's overall
growth year to year. The special one-time assessment to recapitalize the SAIF
caused federal deposit insurance premiums to be significantly reduced beginning
January 1, 1997.
Federal Income Taxes
The provision for federal income taxes increased by $136,000, or 44.2%, for the
fiscal year ended June 30, 1998, as compared to fiscal 1997. This increase
resulted primarily from the increase in net earnings before taxes of $426,000,
or 47.5%. The effective tax rates were 33.6% and 34.3% for the fiscal years
ended June 30, 1998 and 1997, respectively.
13
<PAGE>
AVERAGE YIELD ANALYSIS
The following average balance sheet table sets forth for the periods indicated,
information on the Corporation regarding: (i) the total dollar amounts of
interest income on interest-earning assets and the resulting average yields;
(ii) the total dollar amounts of interest expense on interest-bearing
liabilities and the resulting average costs; (iii) net interest income; (iv)
interest rate spread; (v) net interest-earning assets; (vi) the net interest
margin; and (viii) the ratio of total interest-earning assets to total
interest-bearing liabilities. Additional interest income that would have been
recognized had non-accruing loans performed in accordance with original terms
has not been included in the table. Interest income from non-accruing loans is a
component of interest income in the period received. The loan is returned to
accruing status upon payment of all delinquent interest.
Information is based on average monthly balances during the period presented.
<TABLE>
<CAPTION>
Year ended June 30,
1999 1998 1997
Average Interest Average Interest Average Interest
outstanding earned/ Yield/ outstanding earned/ Yield/ outstanding earned/ Yield/
balance paid rate balance paid rate balance paid rate
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable $ 88,179 $6,871 7.79% $81,586 $6,631 8.13% $71,710 $5,940 8.28%
Investment securities 20,448 1,168 5.71 12,668 837 6.61 18,598 1,314 7.07
Other interest-earning
assets (1) 2,851 150 5.27 705 43 6.10 890 34 3.82
------- ----- ---- ------ ----- ---- ------ ----- ----
Total interest-earning
assets 111,478 8,189 7.35 94,959 7,511 7.91 91,198 7,288 7.99
Non-interest-earning assets 1,671 2,572 3,227
------- ------ ------
Total assets $113,149 $97,531 $94,425
======= ====== ======
Interest-bearing liabilities:
Deposits $ 78,528 3,563 4.54 $75,177 3,553 4.73 $71,071 3,298 4.64
FHLB advances 23,735 1,259 5.30 10,695 600 5.61 11,537 771 6.68
------- ----- ---- ------ ----- ---- ------ ----- ----
Total interest-bearing
liabilities 102,263 4,822 4.72 85,872 4,153 4.84 82,608 4,069 4.93
----- ---- ----- ---- ----- -----
Non-interest-bearing
liabilities 675 736 517
------- ------ ------
Total liabilities 102,938 86,608 83,125
Stockholders' equity 10,211 10,923 11,300
------- ------ ------
Total liabilities and
stockholders' equity $113,149 $97,531 $94,425
======= ====== ======
Net interest income/interest
rate spread $3,367 2.63% $3,358 3.07% $3,219 3.06%
===== ==== ===== ==== ===== ====
Net interest margin (2) 3.02% 3.54% 3.53%
==== ==== ====
Ratio of interest-earning assets
to interest-bearing liabilities 109.01% 110.58% 110.40%
====== ====== ======
</TABLE>
(1) Comprised principally of interest-bearing deposits.
(2) Net interest income divided by average interest-earning assets.
14
<PAGE>
RATE/VOLUME TABLE
The following table describes the extent to which changes in interest rates and
changes in volume of interest-earning assets and liabilities have affected the
Corporation's interest income and expense during the periods indicated. For each
category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in volume (change
in volume multiplied by prior year rate), (ii) changes in rate (change in rate
multiplied by prior year volume), (iii) changes in rate/volume (changes in rate
multiplied by changes in volume) and (iv) total changes in rate and volume.
<TABLE>
<CAPTION>
Year ended June 30,
1999 vs. 1998 1998 vs. 1997
Increase Increase
(decrease) Total (decrease) Total
due to increase/ due to increase/
Rate Volume (decrease) Rate Volume (decrease)
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans $(283) $ 523 $240 $(110) $801 $691
Investment securities (127) 458 331 (81) (396) (477)
Interest-earning deposits and other (7) 114 107 17 (8) 9
---- ----- --- ---- --- ---
Total interest-earning assets $(417) $1,095 678 $(174) $397 223
==== ===== ==== ===
Interest-bearing liabilities:
Deposits $(146) $ 156 10 $ 64 $191 255
Advances from Federal Home Loan Bank (35) 694 659 (118) (53) (171)
---- ----- --- ---- --- ---
Total interest-bearing liabilities $(181) $ 850 669 $ (54) $138 84
==== ===== --- ==== === ---
Increase in net interest income $ 9 $139
=== ===
</TABLE>
15
<PAGE>
ASSET AND LIABILITY MANAGEMENT
The lending activities of savings institutions have historically emphasized
long-term loans secured by single-family residences, and the primary source of
funds of such institutions has been deposits. The deposit accounts of savings
institutions generally bear interest rates that reflect market rates and largely
mature or are subject to repricing within a short period of time. This factor,
in combination with substantial investments in long-term, fixed-rate loans, has
historically caused the income earned by savings institutions on their loan
portfolios to adjust more slowly to changes in interest rates than their cost of
funds.
In order to minimize the potential for adverse effects of material and prolonged
increases in interest rates on the Corporation's results of operations, the
Corporation's management has implemented and continues to monitor asset and
liability management policies to better match the maturities and repricing terms
of the Corporation's interest-earning assets and interest-bearing liabilities.
Such policies have consisted primarily of: (i) emphasizing investment in
Adjustable Rate Mortgages (ARMs); (ii) emphasizing the retention of
lower-costing savings accounts and other core deposits and lengthening the term
of liabilities by participating in the mortgage matched advances program offered
by the Federal Home Loan Bank (FHLB) of Cincinnati; and (iii) maintaining a
significant level of liquid assets that can be readily invested in higher
yielding investments should interest rates rise.
Although the Corporation emphasizes the origination of single-family residential
ARMs, originations of such loans have been difficult due to the preference of
the Corporation's customers for fixed-rate residential mortgage loans in the low
interest rate environment that has prevailed for the past five years. Despite
this preference for fixed-rate originations, as a consequence of management's
continuing efforts, $51.6 million, or 67.1%, of the Corporation's portfolio of
one-to-four family residential mortgage loans consisted of ARMs at June 30,
1999. In addition, at June 30, 1999, another $5.7 million, or 43.7%, of the
Corporation's total loan portfolio consisted of other types of loans with
adjustable interest rates.
The Corporation prices deposit accounts based upon the availability of prudent
investment opportunities. Pursuant to this policy, the Corporation has generally
neither engaged in sporadic increases or decreases in interest rates paid nor
offered the highest rates available in its deposit market. In addition, the
Corporation does not pursue an aggressive growth strategy which has assisted it
in controlling the cost of funds.
The Corporation generally maintains a high level of liquidity to respond to
investment opportunities as interest rates and lending activities permit and to
fund deposit withdrawals. Management believes that this flexibility will allow
the Corporation to maintain its profitability over a wide range of interest rate
environments.
The interest rate spread is the principal determinant of First Federal's income.
The interest rate spread, and therefore net interest income, can vary
considerably over time because asset and liability repricing do not coincide.
Moreover, the long-term and cumulative effect of interest rate changes can be
substantial. Interest rate risk is defined as the sensitivity of an
institution's earnings and net asset values to changes in interest rates. The
management and Board of Directors attempt to manage First Federal's exposure to
interest rate risk in a manner to maintain the projected four-quarter percentage
change in net interest income and the projected change in the market value of
portfolio equity within limits established by the Board of Directors, assuming a
permanent and instantaneous parallel shift in interest rates.
16
<PAGE>
ASSET AND LIABILITY MANAGEMENT (CONTINUED)
First Federal, like other financial institutions, is subject to interest rate
risk to the extent that its interest-earning assets reprice differently than its
interest-bearing liabilities. As a part of its effort to monitor its interest
rate risk, First Federal reviews the reports of the OTS which set forth the
application of the "net portfolio value" ("NPV") methodology adopted by the OTS
as part of its final rules related to revisions in the risk-based capital
regulations. Although First Federal is not currently subject to the NPV
regulation, the application of the NPV methodology may illustrate First
Federal's interest rate risk.
Generally, NPV is the discounted present value of the difference between
incoming cash flows on interest-earning and other assets and outgoing cash flows
on interest-bearing liabilities. The application of the methodology 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. If the NPV
would decrease more than 2% of the present value of the institution's assets
with either an increase or a decrease in market rates, the institution must
deduct 50% of the amount of the decrease in excess of such 2% in the calculation
of the institution's risk-based capital.
At June 30, 1999, 2% of the present value of First Federal's assets was
approximately $2.4 million. Because the interest rate risk of a 200 basis point
increase or decrease in market interest rates did not exceed $2.4 million at
June 30, 1999, First Federal would not have been required to reduce its capital
in determining whether First Federal met its risk-based capital requirement.
The tables below show the increase and decrease of NPV under different interest
rate scenarios at June 30, 1999 and 1998.
<TABLE>
<CAPTION>
June 30, 1999
Estimated
Change in NPV as a
Interest Rates Estimated Percentage Amount
(basis points) NPV of Assets of Change Percent
(Dollars in thousands)
<S> <C> <C> <C> <C>
+300 $ 6,069 5.36% $(3,376) (36)%
+200 7,753 6.72 (1,692) (18)
+100 8,780 7.52 (665) (7)
- 9,445 8.01 - -
- -100 10,195 8.56 750 8
- -200 11,098 9.21 1,653 18
- -300 12,215 10.00 2,770 29
</TABLE>
17
<PAGE>
ASSET AND LIABILITY MANAGEMENT (CONTINUED)
<TABLE>
<CAPTION>
June 30, 1998
Estimated
Change in NPV as a
Interest Rates Estimated Percentage Amount
(basis points) NPV of Assets of Change Percent
(Dollars in thousands)
<S> <C> <C> <C> <C>
+300 $6,806 6.86% $ 295 5%
+200 7,131 7.10 620 10
+100 6,978 6.88 467 7
- 6,511 6.38 - -
- -100 6,300 6.11 (211) (3)
- -200 6,259 6.00 (252) (4)
- -300 6,467 6.11 (44) (1)
</TABLE>
In the event that interest rates should rise from recent levels, First Federal's
net interest income could be expected to be negatively affected. Moreover,
rising interest rates could negatively affect First Federal's earnings due to
diminished loan demand.
LIQUIDITY AND CAPITAL RESOURCES
The Corporation's primary sources of funds are deposits, repayments, prepayments
and maturities of outstanding loans and mortgage-backed securities and funds
provided by operations. While scheduled loan and investment securities
repayments are relatively predictable sources of funds, deposit flows and loan
prepayments are greatly influenced by the movement of interest rates in general,
economic conditions and competition. The Corporation manages the pricing of its
deposits to maintain a deposit balance deemed appropriate and desirable. In
addition, the Corporation invests excess funds in FHLB overnight deposits and
other short-term interest-earning assets which provide liquidity to meet lending
requirements. The Corporation has been able to generate enough cash through the
retail deposit market, its traditional funding source, to offset the cash
utilized in investing activities. As an additional source of funds, the
Association may borrow from the FHLB of Cincinnati and has access to the Federal
Reserve Bank discount window. The Association has borrowed from the FHLB of
Cincinnati as part of its asset/liability management strategy to match payments
on the advances to the stream of income from its recently originated fixed rate
one-to-four family residential loan portfolio and its investment in U.S.
government agency bonds. As of June 30, 1999, the Association had $25.3 million
of advances outstanding.
Liquidity management is both a daily and long-term function. Excess liquidity is
generally invested in short-term investments such as FHLB of Cincinnati
overnight deposits. On a longer term basis, the Corporation maintains a strategy
of investing in various investment securities and lending products. At June 30,
1999, the total approved mortgage-loan commitments outstanding amounted to $1.6
million. At the same date, the Corporation had maximum exposure for loan
commitments under unfunded loans and unused lines of credit totaling $3.1
million.
18
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
During fiscal 1999, the Corporation had positive cash flows from operating
activities and financing activities and negative cash flows from investing
activities which resulted in a net increase in cash and cash equivalents for the
year totaling $704,000.
During fiscal 1998, the Corporation had positive cash flows from operating
activities and financing activities and negative cash flows from investing
activities which resulted in a net increase in cash and cash equivalents for the
year totaling $383,000.
Operating activities provided cash as net interest income exceeded general and
administrative expenses. Investing activities used cash primarily as a result of
loan originations and purchases of investment securities exceeding principal
repayments. Cash flows from financing activities increased during fiscal 1999
and 1998 primarily due to proceeds from Federal Home Loan Bank advances.
The Association is required by the Office of Thrift Supervision ("OTS") to
maintain average daily balances of liquid assets and short-term liquid assets
(as defined) in amounts equal to 4% and 1%, respectively, of net withdrawable
deposits and borrowings payable in one year or less to assure its ability to
meet demand for withdrawals and repayment of short-term borrowings. The
liquidity requirements may vary from time to time at the direction of the OTS
depending upon economic conditions and deposit flows. The Association's average
monthly liquidity ratio and short-term liquid assets ratio at June 30, 1999 was
11.2%.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income." SFAS No. 130 established standards for reporting and
display of comprehensive income and its components (revenues, expenses, gains
and losses) in a full set of general-purpose financial statements. SFAS No. 130
requires that all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. It does not require a specific format for that financial statement
but requires that an enterprise display an amount representing total
comprehensive income for the period in that financial statement.
SFAS No. 130 requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b) display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital. SFAS No. 130 is effective for fiscal
years beginning after December 15, 1997. Reclassification of financial
statements for earlier periods provided for comparative purposes is required.
Management retroactively adopted SFAS No. 130 effective July 1, 1998, as
required, without material impact on the Corporation's financial statements.
19
<PAGE>
RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 significantly changes the way
that public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about reportable segments in interim financial reports issued to
shareholders. It also established standards for related disclosures about
products and services, geographic areas and major customers. SFAS No. 131 uses a
"management approach" to disclose financial and descriptive information about
the way that management organizes the segments within the enterprise for making
operating decisions and assessing performance. For many enterprises, the
management approach will likely result in more segments being reported. In
addition, SFAS No. 131 requires significantly more information to be disclosed
for each reportable segment than is presently being reported in annual financial
statements and also requires that selected information be reported in interim
financial statements. SFAS No. 131 is effective for fiscal years beginning after
December 15, 1997. Management adopted SFAS No. 131 effective July 1, 1998, as
required, without material impact on the Corporation's financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which requires entities to recognize all
derivatives in their financial statements as either assets or liabilities
measured at fair value. SFAS No. 133 also specifies new methods of accounting
for hedging transactions, prescribes the items and transactions that may be
hedged, and specifies detailed criteria to be met to qualify for hedge
accounting.
The definition of a derivative financial instrument is complex, but in general,
it is an instrument with one or more underlyings, such as an interest rate or
foreign exchange rate, that is applied to a notional amount, such as an amount
of currency, to determine the settlement amount(s). It generally requires no
significant initial investment and can be settled net or by delivery of an asset
that is readily convertible to cash. SFAS No. 133 applies to derivatives
embedded in other contracts, unless the underlying of the embedded derivative is
clearly and closely related to the host contract.
SFAS No. 133, as amended by SFAS No. 137, is effective for fiscal years
beginning after June 15, 2000. On adoption, entities are permitted to transfer
held-to-maturity debt securities to the available-for-sale or trading category
without calling into question their intent to hold other debt securities to
maturity in the future. SFAS No. 133 is not expected to have a material impact
on the Corporation's financial statements.
20
<PAGE>
YEAR 2000 COMPLIANCE MATTERS
As with all providers of financial services, the Association's operations are
heavily dependent on information technology systems. The Association has
addressed the potential problems associated with the possibility that the
computers that control or operate the information technology system and
infrastructure may not be programmed to read four-digit date codes and, upon
arrival of the year 2000, may recognize the two-digit code "00" as the year
1900, causing systems to fail to function or to generate erroneous data.
As part of the awareness and assessment phases of its action plan related to the
Year 2000 problem, the Association identified the operating systems that it
considers critical to the on-going operations of the Association.
Of the systems that the Association identified as mission-critical, the most
significant is the on-line core account processing system that is performed by a
third party service provider, Intrieve, Inc. The service provider has converted
its hardware to a Year 2000 compliant system. The Association's conversion to
this new system was completed during the fourth calendar quarter of 1998. The
service provider successfully performed Year 2000 proxy testing with several of
its larger users during early October 1998. Year 2000 compliance has become an
integral part of the Association's 1999 planning. With the completion of the
proxy testing of the mission critical systems the Association is now focusing on
the less critical portions of the Year 2000 program.
The Association has developed a contingency plan in case the mission-critical
systems are not successfully renovated in a timely manner or if they actually
fail at Year 2000 critical dates. The contingency plan states that the
Association deems the likelihood of failure of the service provider's efforts to
renovate Year 2000 changes to the on-line core account processing system to be
remote. The plan, therefore, primarily addresses action to deal with the
possibility that the service provider's system would be down for several days or
weeks upon arrival of Year 2000. The Association has the ability to conduct and
process transactions manually for a period of time until the service center's
systems would be available.
Management of the Association has developed an estimate of expenses that are
reasonably likely to be incurred by the Association in connection with this
issue; however, the Association does not expect to incur significant expense to
implement the necessary corrective measures. As of June 30, 1999, the
Association has expensed approximately $4,000 to ensure all mission critical
systems will be functional upon arrival of Year 2000. No assurance can be given,
however, that significant expense will not be incurred in future periods. In the
event that the Association is ultimately required to purchase replacement
computer systems, programs and equipment, or incur substantial expense to make
the Association's current systems, programs and equipment Year 2000 compliant,
the Association's net earnings and financial condition could be adversely
affected.
In addition to possible expense related to its own systems, the Association
could incur losses if loan payments are delayed due to Year 2000 problems
affecting any major borrowers in the Association's primary market area. Because
the Association's loan portfolio is highly diversified with regard to individual
borrowers and types of businesses and the Association's primary market area is
not significantly dependent upon one employer or industry, the Association does
not expect any significant or prolonged difficulties that will affect net
earnings or cash flow.
21
<PAGE>
Report of Independent Certified Public Accountants
Board of Directors
Community Investors Bancorp, Inc.
We have audited the accompanying consolidated statements of financial condition
of Community Investors Bancorp, Inc. as of June 30, 1999 and 1998, and the
related consolidated statements of earnings, comprehensive income, stockholders'
equity, and cash flows for each of the years ended June 30, 1999, 1998 and 1997.
These consolidated financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Community
Investors Bancorp, Inc. as of June 30, 1999 and 1998, and the consolidated
results of its operations and its cash flows for each of the years ended June
30, 1999, 1998 and 1997, in conformity with generally accepted accounting
principles.
/s/GRANT THORNTON LLP
Cincinnati, Ohio
August 19, 1999
22
<PAGE>
<TABLE>
Community Investors Bancorp, Inc.
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
June 30,
(In thousands, except share data)
ASSETS 1999 1998
<S> <C> <C>
Cash and due from banks $ 2,142 $ 1,279
Federal funds sold 724 572
Interest-bearing deposits in other financial institutions 631 942
------- -------
Cash and cash equivalents 3,497 2,793
Investment securities available for sale - at market 3,847 5,485
Investment securities - at amortized cost, approximate market value of
$3,647 and $7,317 as of June 30, 1999 and 1998 3,664 7,285
Mortgage-backed securities available for sale - at market 11,670 -
Mortgage-backed securities - at amortized cost, approximate market value
of $872 and $1,214 as of June 30, 1999 and 1998 913 1,269
Loans receivable - net 89,922 83,574
Property acquired in settlement of loans - net 50 58
Office premises and equipment - at depreciated cost 720 600
Federal Home Loan Bank stock - at cost 1,363 825
Accrued interest receivable on loans 65 114
Accrued interest receivable on mortgage-backed securities 69 7
Accrued interest receivable on investments and interest-bearing deposits 86 233
Prepaid expenses and other assets 127 150
Prepaid federal income taxes 23 -
Deferred federal income tax asset 208 142
------- -------
Total assets $116,224 $102,535
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 79,954 $ 75,955
Advances from the Federal Home Loan Bank 25,291 15,558
Advances by borrowers for taxes and insurance 1 5
Accrued interest payable 369 342
Other liabilities 192 226
Accrued federal income taxes - 106
------- -------
Total liabilities 105,807 92,192
Commitments - -
Stockholders' equity
Preferred stock, 1,000,000 shares of no par value authorized,
no shares issued - -
Common stock, 4,000,000 shares authorized, $.01 par value; 1,660,850
shares issued 17 17
Additional paid-in capital 7,084 6,908
Retained earnings, restricted 8,370 7,742
Shares acquired by stock benefit plans (610) (759)
Less 442,166 and 394,530 shares of treasury stock at June 30, 1999
and 1998, respectively - at cost (4,189) (3,551)
Accumulated other comprehensive income - unrealized losses on securities
designated as available for sale, net of related tax benefits (255) (14)
------- -------
Total stockholders' equity 10,417 10,343
------- -------
Total liabilities and stockholders' equity $116,224 $102,535
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
23
<PAGE>
<TABLE>
Community Investors Bancorp, Inc.
<CAPTION>
CONSOLIDATED STATEMENTS OF EARNINGS
For the year ended June 30,
(In thousands, except share data)
1999 1998 1997
<S> <C> <C> <C>
Interest income
Loans $6,871 $6,631 $5,940
Mortgage-backed securities 600 98 135
Investment securities 568 739 1,179
Interest-bearing deposits and other 150 43 34
----- ----- -----
Total interest income 8,189 7,511 7,288
Interest expense
Deposits 3,563 3,553 3,298
Borrowings 1,259 600 771
----- ----- -----
Total interest expense 4,822 4,153 4,069
----- ----- -----
Net interest income 3,367 3,358 3,219
Provision for losses on loans 94 156 142
----- ----- -----
Net interest income after provision
for losses on loans 3,273 3,202 3,077
Other income
Gain on sale of investment securities 6 - -
Loss on sale of property acquired in settlement of loans - (1) -
Other operating 255 198 140
----- ----- -----
Total other income 261 197 140
General, administrative and other expense
Employee compensation and benefits 1,083 1,028 839
Occupancy and equipment 136 139 127
Federal deposit insurance premiums 47 46 554
Franchise taxes 148 152 157
Expenses of property acquired in settlement of loans 33 35 69
Data processing 213 177 155
Other operating 487 499 419
----- ----- -----
Total general, administrative and other expense 2,147 2,076 2,320
----- ----- -----
Earnings before income taxes 1,387 1,323 897
Federal income taxes
Current 407 469 299
Deferred 58 (25) 9
----- ----- -----
Total federal income taxes 465 444 308
----- ----- -----
NET EARNINGS $ 922 $ 879 $ 589
===== ===== =====
EARNINGS PER SHARE
Basic $.81 $.70 $.44
=== === ===
Diluted $.78 $.68 $.44
=== === ===
</TABLE>
The accompanying notes are an integral part of these statements.
24
<PAGE>
<TABLE>
Community Investors Bancorp, Inc.
<CAPTION>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the years ended June 30,
(In thousands)
1999 1998 1997
<S> <C> <C> <C>
Net earnings $ 922 $879 $589
Other comprehensive income (loss), net of tax:
Unrealized holding losses on securities
during the period, net of tax (237) (8) (1)
Reclassification adjustment for realized gains
included in earnings, net of tax of $2 in 1999 (4) - -
---- --- ---
Comprehensive income $ 681 $871 $588
==== === ===
Accumulated comprehensive income (loss) $(255) $(14) $ (6)
==== === ===
</TABLE>
The accompanying notes are an integral part of these statements.
25
<PAGE>
<TABLE>
Community Investors Bancorp, Inc.
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the years ended June 30, 1999, 1998 and 1997
(In thousands, except share data)
Unrealized
gains (losses)
Shares on securities
Additional acquired designated
Common paid-in Retained by stock Treasury as available
stock capital earnings benefit plans shares for sale Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at July 1, 1996 $ 7 $6,800 $6,796 $(995) $(1,117) $ (5) $11,486
Purchase of treasury shares, at cost - - - - (854) - (854)
Amortization of stock benefit plan expense - 27 - 105 - - 132
Net earnings for the year ended June 30, 1997 - - 589 - - - 589
Cash dividends of $.18 per share - - (238) - - - (238)
Effect of 3-for-2 stock split, including cash in lieu
of fractional shares 4 - (5) - - - (1)
Unrealized losses on securities designated as
available for sale, net of related tax benefits - - - - - (1) (1)
-- ----- ----- --- ------ ----- ----------
Balance at June 30, 1997 11 6,827 7,142 (890) (1,971) (6) 11,113
Purchase of treasury shares, at cost - - - - (1,580) - (1,580)
Amortization of stock benefit plan expense - 81 - 131 - - 212
Net earnings for the year ended June 30, 1998 - - 879 - - - 879
Cash dividends of $.21 per share - - (271) - - - (271)
Effect of 3-for-2 stock split, including cash in lieu
of fractional shares 6 - (8) - - - (2)
Unrealized losses on securities designated as
available for sale, net of related tax benefits - - - - - (8) (8)
-- ----- ----- --- ------ ----- ----------
Balance at June 30, 1998 17 6,908 7,742 (759) (3,551) (14) 10,343
Purchase of treasury shares, at cost - - - - (638) - (638)
Amortization of stock benefit plan expense - 176 - 149 - - 325
Net earnings for the year ended June 30, 1999 - - 922 - - - 922
Cash dividends of $.24 per share - - (294) - - - (294)
Unrealized losses on securities designated as
available for sale, net of related tax benefits - - - - - (241) (241)
-- ----- ----- --- ------ ---- --------
Balance at June 30, 1999 $ 17 $7,084 $8,370 $(610) $(4,189) $(255) $10,417
==== ===== ===== ==== ====== ==== ======
</TABLE>
The accompanying notes are an integral part of these statements.
26
<PAGE>
<TABLE>
Community Investors Bancorp, Inc.
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the year ended June 30,
(In thousands)
1999 1998 1997
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings for the year $ 922 $ 879 $ 589
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Amortization (accretion) of discounts and premiums on
investments and mortgage-backed securities - net 47 (53) (10)
Gain on sale of investment securities 6 - -
Amortization of deferred loan origination fees (95) (90) (38)
Depreciation and amortization 49 53 52
Provision for losses on loans 94 156 142
Amortization of stock benefit plan expense 325 212 132
Loss on sale of property acquired in settlement of loans - 1 -
Federal Home Loan Bank stock dividends (86) (57) (49)
Increase (decrease) in cash due to changes in:
Accrued interest receivable on loans 49 (25) (23)
Accrued interest receivable on mortgage-backed securities (62) 5 7
Accrued interest receivable on investments and
interest-bearing deposits 147 (91) 109
Prepaid expenses and other assets 23 (9) (37)
Accrued interest payable 27 52 -
Other liabilities (34) 77 (7)
Federal income taxes
Current (129) 82 (30)
Deferred 58 (25) 9
------ ------ ------
Net cash provided by operating activities 1,341 1,167 846
Cash flows provided by (used in) investing activities:
Proceeds from maturity of investment securities 5,583 5,646 10,338
Proceeds from sale of investment securities designated as available-for-sale 5,002 - -
Purchase of investment securities designated as available for sale (3,950) (4,992) (999)
Purchase of investment securities designated as held to maturity (1,430) (3,621) -
Purchase of mortgage-backed securities designated as available for sale (16,249) - -
Principal repayments on mortgage-backed securities 4,584 463 1,056
Purchase of loans - (60) (250)
Loan principal repayments 41,113 20,421 16,529
Loan disbursements (47,641) (27,732) (26,839)
Purchase of office premises and equipment (170) (35) (145)
Proceeds from sale of property acquired in settlement of loans 179 189 275
Purchase of Federal Home Loan Bank stock (452) - (144)
------ ------ ------
Net cash used in investing activities (13,433) (9,721) (179)
------ ------ ------
Net cash provided by (used in) operating and investing
activities (subtotal carried forward) (12,092) (8,554) 667
------ ------- ------
</TABLE>
27
<PAGE>
<TABLE>
Community Investors Bancorp, Inc.
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the year ended June 30,
(In thousands)
1999 1998 1997
<S> <C> <C> <C>
Net cash provided by (used in) operating and investing
activities (subtotal brought forward) $(12,092) $(8,554) $ 667
Cash flows provided by (used in) financing activities:
Net increase in deposit accounts 3,999 3,044 3,000
Proceeds from Federal Home Loan Bank advances 12,000 25,950 23,050
Repayment of Federal Home Loan Bank advances (2,267) (18,202) (25,124)
Advances by borrowers for taxes and insurance (4) (2) 1
Purchase of treasury stock (638) (1,580) (854)
Dividends on common stock (294) (273) (239)
------- ------ ------
Net cash provided by (used in) financing activities 12,796 8,937 (166)
------- ------ ------
Net increase in cash and cash equivalents 704 383 501
Cash and cash equivalents at beginning of year 2,793 2,410 1,909
------- ------ ------
Cash and cash equivalents at end of year $ 3,497 $ 2,793 $ 2,410
======= ====== ======
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Federal income taxes $ 537 $ 404 $ 275
======= ====== ======
Interest on deposits and borrowings $ 4,795 $ 4,101 $ 4,069
======= ====== ======
Supplemental disclosure of noncash investing activities:
Transfers from loans to property acquired in settlement of loans $ 179 $ 177 $ 265
======= ====== ======
Unrealized losses on securities designated as available
for sale, net of related tax benefits $ (241) $ (8) $ (1)
======= ====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
28
<PAGE>
Community Investors Bancorp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999, 1998 and 1997
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Community Investors Bancorp, Inc. (the "Corporation") is a savings and loan
holding company whose activities are primarily limited to holding the stock
of First Federal Savings and Loan Association of Bucyrus (the
"Association"). The Association conducts a general banking business in
northern 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 Association's profitability is
significantly dependent on 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 Association
can be significantly influenced by a number of environmental factors, such
as governmental monetary policy, that are outside of management's control.
The consolidated financial information presented herein has been prepared in
accordance with generally accepted accounting principles ("GAAP") and
general accounting practices within the financial services industry. In
preparing consolidated financial statements in accordance with GAAP,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements and revenues
and expenses during the reporting period. Actual results could differ from
such estimates.
The following is a summary of the Corporation's significant accounting
policies which have been consistently applied in the preparation of the
accompanying consolidated financial statements.
1. Principles of Consolidation
The consolidated financial statements include the accounts of the
Corporation and its subsidiary, the Association. All significant
intercompany balances and transactions have been eliminated.
2. Investment Securities and Mortgage-Backed Securities
The Corporation accounts for investment and mortgage-backed securities in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 115
"Accounting for Certain Investments in Debt and Equity Securities." SFAS No.
115 requires that investments be categorized as held-to-maturity, trading,
or available for sale. Securities classified as held-to-maturity are carried
at cost only if the Corporation has the positive intent and ability to hold
these securities to maturity. Trading securities and securities available
for sale are carried at fair value with resulting unrealized gains or losses
recorded to operations or stockholders' equity, respectively.
29
<PAGE>
Community Investors Bancorp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999, 1998 and 1997
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2. Investment Securities and Mortgage-Backed Securities (continued)
At June 30, 1999 and 1998, the Corporation's stockholders' equity reflected
net unrealized losses on securities designated as available for sale of
$255,000 and $14,000, respectively.
Realized gains or losses on sales of securities are recognized using the
specific identification method.
3. Loans Receivable
Loans receivable are stated at the principal amount outstanding, adjusted
for deferred loan origination fees and the allowance for loan losses.
Interest is accrued as earned unless the collectibility of the loan is in
doubt. 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 has
returned to normal, in which case the loan is returned to accrual status. If
the ultimate collectibility of the loan is in doubt, in whole or in part,
all payments received on nonaccrual loans are applied to reduce principal
until such doubt is eliminated.
4. Loan Origination Fees
The Association accounts for loan origination fees in accordance with SFAS
No. 91 "Accounting for Nonrefundable Fees and Costs Associated with
Originating or Acquiring Loans and Initial Direct Cost of Leases". Pursuant
to the provisions of SFAS No. 91, origination fees received from loans, net
of direct origination costs, are deferred and amortized to interest income
using the level-yield method, giving effect to actual loan prepayments.
Additionally, SFAS No. 91 generally limits the definition of loan
origination costs to the direct costs attributable to originating a loan,
i.e., principally actual personnel costs. Fees received for loan commitments
that are expected to be drawn upon, based on the Association's experience
with similar commitments, are deferred and amortized over the life of the
loan using the level-yield method. Fees for other loan commitments are
deferred and amortized over the loan commitment period on a straight-line
basis.
30
<PAGE>
Community Investors Bancorp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999, 1998 and 1997
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
5. Allowance for Losses on Loans
It is the Association's policy to provide valuation allowances for estimated
losses on loans based on past loss experience, trends in the level of
delinquent and specific problem loans, adverse situations that may affect
the borrower's ability to repay, the estimated value of any underlying
collateral and current and anticipated economic conditions in its primary
lending areas. When the collection of a loan becomes doubtful, or otherwise
troubled, the Association records a loan valuation allowance equal to the
difference between the fair value of the property securing the loan and the
loan's carrying value. Major loans and major lending areas are reviewed
periodically to determine potential problems at an early date. The allowance
for loan losses is increased by charges to earnings and decreased by
charge-offs (net of recoveries).
The Association accounts for impaired loans in accordance with SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan" which requires that
impaired loans be measured based upon the present value of expected future
cash flows discounted at the loan's effective interest rate or, as an
alternative, at the loan's observable market price or fair value of the
collateral. The Association's current procedures for evaluating impaired
loans result in carrying such loans at the lower of cost or fair value.
A loan is defined as impaired under SFAS No. 114 when, based on current
information and events, it is probable that a creditor will be unable to
collect all amounts due according to the contractual terms of the loan
agreement. In applying the provisions of SFAS No. 114, the Association
considers its investment in one-to-four family residential loans and
consumer installment loans to be homogeneous and therefore excluded from
separate identification for evaluation of impairment. With respect to the
Association's investment in multi-family and nonresidential loans, and its
evaluation of impairment thereof, such loans are collateral dependent and as
a result are carried as a practical expedient at the lower of cost or fair
value.
It is the Association's policy to charge off unsecured credits that are more
than ninety days delinquent. Similarly, collateral dependent loans which are
more than ninety days delinquent are considered to constitute more than a
minimum delay in repayment and are evaluated for impairment under SFAS No.
114 at that time.
At June 30, 1999 and 1998, the Association had no loans that would be
defined as impaired under SFAS No. 114.
31
<PAGE>
Community Investors Bancorp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999, 1998 and 1997
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
6. Office Premises and Equipment
Office premises and equipment are carried at cost and include expenditures
which extend the useful lives of existing assets. Maintenance, repairs and
minor renewals are expensed as incurred. For financial reporting,
depreciation and amortization are provided on the straight-line method over
the useful lives of the assets, estimated to be up to fifty years for
buildings, five to fifty years for building improvements, and five to twenty
years for furniture and equipment. An accelerated method is used for tax
reporting purposes.
7. Property Acquired in Settlement of Loans
Property acquired in settlement of loans is carried at the lower of the
loan's unpaid principal balance (cost) or the fair value of collateral less
estimated selling expenses at the date of acquisition. Loss provisions are
recorded if the property's fair value subsequently declines below the amount
determined at the recording date. In determining the lower of cost or fair
value at acquisition, costs relating to development and improvement of
property are capitalized. Costs relating to holding property acquired
through foreclosure, net of rental income, are charged against earnings as
incurred.
8. Federal Income Taxes
The Corporation accounts for federal income taxes in accordance with the
provisions of SFAS No. 109, "Accounting for Income Taxes". Pursuant to the
provisions of SFAS No. 109, a deferred tax liability or deferred tax asset
is computed by applying the current statutory tax rates to net taxable or
deductible differences between the tax basis of an asset or liability and
its reported amount in the consolidated financial statements that will
result in taxable or deductible amounts in future periods. Deferred tax
assets are recorded only to the extent that the amount of net deductible
temporary differences or carryforward attributes may be utilized against
current period earnings, carried back against prior years earnings, offset
against taxable temporary differences reversing in future periods, or
utilized to the extent of management's estimate of future taxable income. A
valuation allowance is provided for deferred tax assets to the extent that
the value of net deductible temporary differences and carryforward
attributes exceeds management's estimates of taxes payable on future taxable
income. Deferred tax liabilities are provided on the total amount of net
temporary differences taxable in the future.
32
<PAGE>
Community Investors Bancorp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999, 1998 and 1997
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
8. Federal Income Taxes (continued)
The Corporation's principal temporary differences between pretax financial
income and taxable income result from different methods of accounting for
deferred loan origination fees and costs, Federal Home Loan Bank stock
dividends, the general loan loss allowance and percentage of earnings bad
debt deductions. Additional temporary differences result from depreciation
computed using accelerated methods for tax purposes.
9. Benefit Plans
The Corporation has an Employee Stock Ownership Plan ("ESOP") which provides
retirement benefits for substantially all full-time employees who have
completed one year of service and have attained the age of 21. The
Corporation accounts for the ESOP in accordance with Statement of Position
("SOP") 93-6, "Employers Accounting for Employee Stock Ownership Plans." SOP
93-6 requires that compensation expense recorded by employers equal the fair
value of ESOP shares allocated to participants during a given fiscal year.
Expense recognized related to the ESOP totaled approximately $153,000,
$150,000 and $102,000 for the fiscal years ended June 30, 1999, 1998 and
1997, respectively.
The Corporation also has a Management Recognition Plan ("MRP"). During
fiscal 1996, the MRP purchased 66,430 shares of the Corporation's common
stock in the open market. As of June 30, 1999, the Corporation had awarded
63,800 shares under the MRP, leaving 2,630 shares available for allocation
at June 30, 1999. Common stock awarded under the MRP vests ratably over a
five year period, commencing with the date of award. A provision of
$150,000, $143,000 and $63,000 related to the MRP was charged to expense for
the fiscal years ended June 30, 1999, 1998 and 1997, respectively. All share
total references herein have been adjusted for the 3-for-2 stock splits in
fiscal 1998 and 1997.
10. Earnings Per Share
Basic earnings per share is computed based upon the weighted-average shares
outstanding during the period less shares in the ESOP that are unallocated
and not committed to be released. Weighted-average common shares deemed
outstanding, which gives effect to a reduction for 85,991, 99,427 and
112,861 weighted-average unallocated shares held by the ESOP, totaled
1,144,573, 1,248,309 and 1,342,619 for the fiscal years ended June 30, 1999,
1998 and 1997, respectively.
Diluted earnings per share is computed taking into consideration common
shares outstanding and dilutive potential common shares to be issued under
the Corporation's stock option plan. Weighted-average common shares deemed
outstanding for purposes of computing diluted earnings per share totaled
1,184,187, 1,287,095 and 1,350,245 for the fiscal years ended
33
<PAGE>
Community Investors Bancorp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999, 1998 and 1997
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
10. Earnings Per Share (continued)
June 30, 1999, 1998 and 1997, respectively. Incremental shares related to
the assumed exercise of stock options included in the computation of diluted
earnings per share totaled 39,614, 38,786 and 7,626 for the fiscal years
ended June 30, 1999, 1998 and 1997, respectively. Options to purchase 20,871
and 10,792 shares of common stock with a weighted average exercise price of
$10.74 and $7.89 were outstanding at June 30, 1999 and 1997, respectively,
but were excluded from the computation of diluted earnings per share because
their exercise prices were greater than the average market price of the
common shares.
11. Comprehensive Income
The Corporation adopted SFAS No. 130, "Reporting Comprehensive Income," as
of July 1, 1998. The Statement established standards for reporting and
presentation of comprehensive income and its components in a full set of
general-purpose financial statements. It requires that all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is presented
with the same prominence as other financial statements. SFAS No. 130
requires that companies (i) classify items of other comprehensive income by
their nature in a financial statement and (ii) display the accumulated
balance of other comprehensive income separately from retained earnings and
additional paid-in capital. Financial statements for earlier periods were
restated for comparative purposes. The Corporation's accumulated
comprehensive income consists solely of the change in unrealized gains and
losses on securities designated as available for sale in accordance with
SFAS No. 115.
12. Fair Value of Financial Instruments
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments",
requires disclosure of the fair value of financial instruments, both assets
and liabilities whether or not recognized in the consolidated statement of
financial condition, for which it is practicable to estimate that value. For
financial instruments where quoted market prices are not available, fair
values are based on estimates using present value and other valuation
methods.
The methods used are greatly affected by the assumptions applied, including
the discount rate and estimates of future cash flows. Therefore, the fair
values presented may not represent amounts that could be realized in an
exchange for certain financial instruments.
34
<PAGE>
Community Investors Bancorp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999, 1998 and 1997
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
12. Fair Value of Financial Instruments (continued)
The following methods and assumptions were used by the Corporation in
estimating its fair value disclosures for financial instruments at June 30,
1999 and 1998:
Cash and cash equivalents: The carrying amounts presented in
the consolidated statements of financial condition for cash
and cash equivalents are deemed to approximate fair value.
Investment and mortgage-backed securities: For investment and
mortgage-backed securities, fair value is deemed to equal the
quoted market price.
Loans receivable: The loan portfolio has been segregated into
categories with similar characteristics, such as one-to-four
family residential, multi-family residential and
nonresidential real estate. These loan categories were further
delineated into fixed-rate and adjustable-rate loans. The fair
values for the resultant loan categories were computed via
discounted cash flow analysis, using current interest rates
offered for loans with similar terms to borrowers of similar
credit quality. For loans on deposit accounts and consumer and
other loans, fair values were deemed to equal the historic
carrying values. The historical carrying amount of accrued
interest on loans is deemed to approximate fair value.
Federal Home Loan Bank stock: The carrying amount presented in
the consolidated statements of financial condition is deemed
to approximate fair value.
Deposits: The fair value of NOW accounts, passbook accounts
and advances by borrowers are deemed to approximate the
amounts payable on demand. Fair values for fixed-rate
certificates of deposit have been estimated using a discounted
cash flow calculation using the interest rates currently
offered for deposits of similar remaining maturities.
Advances from Federal Home Loan Bank: The fair value of
advances is estimated using the rates currently offered for
similar advances of similar remaining maturities or, when
available, quoted market prices.
Commitments to extend credit: For fixed-rate and
adjustable-rate loan commitments, the fair value estimate
considers the difference between current levels of interest
rates and committed rates. The difference between the fair
value and notional amount of outstanding loan commitments at
June 30, 1999 and 1998 was not material.
35
<PAGE>
Community Investors Bancorp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999, 1998 and 1997
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
12. Fair Value of Financial Instruments (continued)
Based on the foregoing methods and assumptions, the carrying value and fair
value of the Corporation's financial instruments at June 30 are as follows:
<TABLE>
<CAPTION>
1999 1998
Carrying Fair Carrying Fair
value value value value
(In thousands)
<S> <C> <C> <C> <C>
Financial assets
Cash and cash equivalents $ 3,497 $ 3,497 $ 2,793 $ 2,793
Investment securities 7,511 7,494 12,770 12,802
Mortgage-backed securities 12,583 12,542 1,269 1,214
Loans receivable 89,922 90,720 83,574 83,371
Federal Home Loan Bank stock 1,363 1,363 825 825
------- ------- ------- -------
$114,876 $115,616 $101,231 $101,005
======= ======= ======= =======
Financial liabilities
Deposits $ 79,954 $ 80,197 $ 75,955 $ 76,157
Advances from the Federal Home Loan Bank 25,291 24,998 15,558 15,553
Advances by borrowers for taxes and insurance 1 1 5 5
------- ------- ------- -------
$105,246 $105,196 $ 91,518 $ 91,715
======= ======= ======= =======
</TABLE>
13. Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash
and due from banks, federal funds sold and interest-bearing deposits due
from other financial institutions with original maturities of less than
ninety days.
14. Reclassifications
Certain prior year amounts have been reclassified to conform to the 1999
consolidated financial statement presentation.
36
<PAGE>
Community Investors Bancorp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999, 1998 and 1997
NOTE B - INVESTMENTS AND MORTGAGE-BACKED SECURITIES
Carrying values and estimated fair values of investment securities held to
maturity at June 30 are summarized as follows:
<TABLE>
<CAPTION>
1999 1998
Estimated Estimated
Carrying fair Carrying fair
value value value value
(In thousands)
<S> <C> <C> <C> <C>
U. S. Government and
agency obligations $3,205 $3,188 $6,705 $6,737
Municipal obligations 459 459 580 580
----- ----- ----- -----
$3,664 $3,647 $7,285 $7,317
===== ===== ===== =====
</TABLE>
At June 30, 1999, the cost carrying value of the Corporation's investment
securities exceeded the fair value by $17,000, comprised of $28,000 in gross
unrealized gains and $45,000 in gross unrealized losses. At June 30, 1998,
the fair value of the Corporation's investment securities exceeded the cost
carrying value by $32,000, comprised of $48,000 in gross unrealized gains
and $16,000 in gross unrealized losses.
The amortized cost, gross unrealized gains, gross unrealized losses, and
estimated fair values of investment securities designated as available for
sale at June 30, are summarized as follows:
<TABLE>
<CAPTION>
1999
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
(In thousands)
<S> <C> <C> <C> <C>
U.S. Government and
agency obligations $3,474 $- $ 96 $3,378
Mutual funds 488 - 19 469
------ -- ---- ------
$3,962 $- $115 $3,847
===== == === =====
</TABLE>
<TABLE>
<CAPTION>
1998
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
(In thousands)
<S> <C> <C> <C> <C>
U.S. Government and
agency obligations $5,018 $ - $ 8 $5,010
Mutual funds 488 - 13 475
------ --- -- ------
$5,506 $ - $21 $5,485
===== === == =====
</TABLE>
37
<PAGE>
Community Investors Bancorp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999, 1998 and 1997
NOTE B - INVESTMENTS AND MORTGAGE-BACKED SECURITIES (continued)
The amortized cost and estimated fair value of U.S. Government agency and
municipal obligations designated as held to maturity, by contractual term to
maturity at June 30 are shown below:
<TABLE>
<CAPTION>
1999 1998
Estimated Estimated
Amortized fair Amortized fair
cost value cost value
(In thousands)
<S> <C> <C> <C> <C>
Due in three years or less $1,928 $1,949 $3,397 $3,404
Due after three years through
five years 815 791 2,023 2,044
Due after five years 921 907 1,865 1,869
------ ------ ----- -----
$3,664 $3,647 $7,285 $7,317
===== ===== ===== =====
</TABLE>
The amortized cost and estimated fair value of U.S. Government and agency
securities, designated as available for sale at June 30, by contractual
terms to maturity, are shown below:
<TABLE>
<CAPTION>
1999 1998
Estimated Estimated
Amortized fair Amortized fair
cost value cost value
(In thousands)
<S> <C> <C> <C> <C>
Due in three years or less $ - $ - $4,993 $4,985
Due after three years through
five years 2,449 2,387 - -
Due after five years 1,025 991 25 25
----- ------ ------- -------
$3,474 $3,378 $5,018 $5,010
===== ===== ===== =====
</TABLE>
Gross realized gains on sales of available-for-sale investment securities
were approximately $6,000 during the year ended June 30, 1999.
At June 30, 1999 and 1998, investment securities with an aggregate book
value of $1.8 million and $500,000, respectively, were pledged as
collateral for public deposits.
38
<PAGE>
Community Investors Bancorp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999, 1998 and 1997
NOTE B - INVESTMENTS AND MORTGAGE-BACKED SECURITIES (continued)
The amortized cost, gross unrealized gains, gross unrealized losses and
estimated fair values of mortgage-backed securities at June 30, 1999 and
1998 are summarized as follows:
<TABLE>
<CAPTION>
1999
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
Available for sale: (In thousands)
<S> <C> <C> <C> <C>
Government National
Mortgage Association
participation certificates $ 6,348 $- $100 $ 6,248
Federal National
Mortgage Association
participation certificates 5,593 - 171 5,422
------- -- --- -------
Total mortgage-backed
securities available for sale 11,941 - 271 11,670
Held to maturity:
Federal Home Loan
Mortgage Corporation
participation certificates 118 2 - 120
Government National
Mortgage Association
participation certificates 276 2 - 278
Federal National
Mortgage Association
participation certificates 519 - 45 474
-------- -- ---- --------
Total mortgage-backed
securities held to maturity 913 4 45 872
-------- ----- ---- --------
Total mortgage-backed
securities $12,854 $ 4 $316 $12,542
====== ===== === ======
</TABLE>
<TABLE>
<CAPTION>
1998
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
Held to maturity: (In thousands)
<S> <C> <C> <C> <C>
Federal Home Loan
Mortgage Corporation
participation certificates $ 175 $ 6 $- $ 181
Government National
Mortgage Association
participation certificates 385 7 - 392
Federal National
Mortgage Association
participation certificates 709 - 68 641
------ -- ---- ------
Total mortgage-backed
securities $1,269 $ 13 $ 68 $1,214
===== ==== ==== =====
</TABLE>
39
<PAGE>
Community Investors Bancorp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999, 1998 and 1997
NOTE B - INVESTMENTS AND MORTGAGE-BACKED SECURITIES (continued)
The amortized cost of mortgage-backed securities designated as available for
sale at June 30, 1999, by contractual terms to maturity, are shown below.
Expected maturities will differ from contractual maturities because
borrowers may generally prepay obligations without prepayment penalties.
Amortized cost
(In thousands)
Due in five to ten years $ 4,576
Due after twenty years 7,365
-------
$11,941
The amortized cost of mortgage-backed securities designated as held to
maturity, by contractual terms to maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers may
generally prepay obligations without prepayment penalties.
<TABLE>
<CAPTION>
June 30,
1999 1998
(In thousands)
<S> <C> <C>
Due within three years $ 16 $ 36
Due in three to five years 1 5
Due in five to ten years 77 105
Due in ten to twenty years 32 45
Due after twenty years 787 1,078
--- -----
$913 $1,269
=== =====
</TABLE>
40
<PAGE>
Community Investors Bancorp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999, 1998 and 1997
NOTE C - LOANS RECEIVABLE
The composition of the loan portfolio at June 30 is as follows:
<TABLE>
<CAPTION>
1999 1998
(In thousands)
<S> <C> <C>
Residential real estate
One-to-four family $75,600 $67,205
Multi-family 399 500
Construction 1,374 1,026
Nonresidential real estate and land 3,733 4,744
Mobile home loans 1,484 1,988
Consumer and other 9,520 9,912
------- -------
92,110 85,375
Less:
Undisbursed portion of loans in process 1,289 930
Deferred loan origination fees 308 308
Allowance for loan losses 591 563
-------- --------
$89,922 $83,574
====== ======
</TABLE>
The Association's lending efforts have historically focused on one-to-four
family and multi-family residential real estate loans, which comprise
approximately $76.1 million, or 85%, of the total loan portfolio at June 30,
1999 and $67.8 million, or 81%, of the total loan portfolio at June 30,
1998. Generally, such loans have been underwritten on the basis of no more
than an 80% loan-to-value ratio, which has historically provided the
Association with adequate collateral coverage in the event of default.
Nevertheless, the Association, as with any lending institution, is subject
to the risk that real estate values could deteriorate in its primary lending
area of northern Ohio, thereby impairing collateral values. However,
management is of the belief that residential real estate values in the
Association's primary lending area are presently stable.
In the normal course of business, the Association has made loans to some of
its directors, officers and employees. In the opinion of management, such
loans are consistent with sound lending practices and are within applicable
regulatory lending limitations. Loans to directors and officers totaled
approximately $1.2 million and $997,000 at June 30, 1999 and 1998,
respectively. During the year ended June 30, 1999, there were $397,000 in
loans disbursed to directors and officers, while principal repayments of
$181,000 were received.
41
<PAGE>
Community Investors Bancorp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999, 1998 and 1997
NOTE D - ALLOWANCE FOR LOAN LOSSES
The activity in the allowance for loan losses is summarized as follows for
the years ended June 30:
<TABLE>
<CAPTION>
1999 1998 1997
(In thousands)
<S> <C> <C> <C>
Balance at beginning of year $563 $478 $459
Provision for loan losses 94 156 142
Charge-offs of loans (74) (87) (131)
Recoveries 8 16 8
----- ---- -----
Balance at end of year $591 $563 $478
=== === ===
</TABLE>
As of June 30, 1999, the Association's allowance for loan losses was
comprised of a general loss allowance of $473,000, which is includible as a
component of regulatory risk-based capital and a specific loss allowance of
$118,000.
Nonperforming and nonaccrual loans totaled approximately $912,000, $600,000
and $508,000 at June 30, 1999, 1998 and 1997, respectively.
During the years ended June 30, 1999, 1998 and 1997, interest income of
approximately $65,000, $44,000 and $51,000, respectively, would have been
recognized had nonperforming loans been performing in accordance with their
contractual terms.
NOTE E - OFFICE PREMISES AND EQUIPMENT
Office premises and equipment at June 30 are comprised of the following:
<TABLE>
<CAPTION>
1999 1998
(In thousands)
<S> <C> <C>
Land and improvements $ 93 $ 93
Office buildings and improvements 639 539
Furniture, fixtures and equipment 311 242
------ ---
1,043 874
Less accumulated depreciation and
amortization 323 274
------ ---
$ 720 $600
====== ===
</TABLE>
42
<PAGE>
Community Investors Bancorp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999, 1998 and 1997
NOTE F - DEPOSITS
Deposits consist of the following major classifications at June 30:
<TABLE>
<CAPTION>
Deposit type and weighted-
average interest rate 1999 1998
(In thousands)
<S> <C> <C>
NOW accounts
1999 - 2.03% $10,058
1998 - 2.39% $ 8,757
Passbook
1999 - 2.98% 16,263
1998 - 3.25% 16,139
------ ------
Total demand, transaction and
passbook deposits 26,321 24,896
Certificates of deposit
Original maturities of:
Less than 12 months
1999 - 4.61% 7,600
1998 - 5.07% 7,360
12 months to 24 months
1999 - 5.15% 24,432
1998 - 5.64% 23,752
30 months to 36 months
1999 - 5.69% 4,781
1998 - 5.75% 3,892
More than 36 months
1999 - 5.95% 3,920
1998 - 6.23% 3,356
Individual retirement accounts
1999 - 5.65% 12,900
1998 - 5.65% 12,699
------ ------
Total certificates of deposit 53,633 51,059
------ ------
Total deposit accounts $79,954 $75,955
====== ======
</TABLE>
At June 30, 1999 and 1998, the Association had certificate of deposit
accounts with balances in excess of $100,000 totaling $4.8 million and $2.8
million, respectively.
43
<PAGE>
Community Investors Bancorp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999, 1998 and 1997
NOTE F - DEPOSITS (continued)
Interest expense on deposits for the year ended June 30 is summarized as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
(In thousands)
<S> <C> <C> <C>
Passbook $ 445 $ 503 $ 502
NOW accounts 272 226 153
Certificates of deposit 2,846 2,824 2,643
----- ----- -----
$3,563 $3,553 $3,298
===== ===== =====
</TABLE>
Maturities of outstanding certificates of deposit at June 30 are summarized
as follows:
<TABLE>
<CAPTION>
1999 1998
(In thousands)
<S> <C> <C>
Less than one year $40,592 $40,446
One to three years 11,563 9,426
Over three years 1,478 1,187
------- -------
$53,633 $51,059
====== ======
</TABLE>
NOTE G - ADVANCES FROM THE FEDERAL HOME LOAN BANK
Advances from the Federal Home Loan Bank, collateralized at June 30, 1999 by
pledges of certain residential mortgage loans totaling $37.9 million, and
the Association's investment in Federal Home Loan Bank stock, are summarized
as follows:
<TABLE>
<CAPTION>
Maturing year
Interest rate ending June 30, 1999 1998
(Dollars in thousands)
<S> <C> <C> <C>
6.45% 1999 $ - $ 1,000
5.78% 2003 6,000 6,000
5.15 - 7.05% 2008 8,291 8,558
5.00% 2009 11,000 -
------ -------
$25,291 $15,558
====== ======
Weighted-average interest rate 5.28% 5.58%
==== ====
</TABLE>
44
<PAGE>
Community Investors Bancorp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999, 1998 and 1997
NOTE H - FEDERAL INCOME TAXES
Federal income taxes differ from the amounts computed at the statutory
corporate tax rate as follows for the years ended June 30:
<TABLE>
<CAPTION>
1999 1998 1997
(In thousands)
<S> <C> <C> <C>
Federal income taxes computed at
statutory rate $472 $450 $305
Increase (decrease) in taxes resulting from:
Other (primarily tax-exempt interest in
1999 and 1998) (7) (6) 3
----- ----- -----
Federal income tax provision per consolidated
statements of earnings $465 $444 $308
=== === ===
</TABLE>
The composition of the Corporation's net deferred tax asset at June 30 is as
follows:
<TABLE>
<CAPTION>
1999 1998
(In thousands)
<S> <C> <C>
Taxes (payable) refundable on temporary
differences at estimated corporate tax rate:
Deferred tax assets:
General loan loss allowance $161 $158
Deferred loan origination fees 105 105
Unrealized losses on securities designated as
available for sale 131 7
Stock benefit plan 27 30
Other - 20
--- ----
Total deferred tax assets 424 320
Deferred tax liabilities:
Percentage of earnings bad debt deduction (7) (9)
Federal Home Loan Bank stock dividends (161) (132)
Book/tax depreciation (48) (37)
---- ----
Total deferred tax liabilities (216) (178)
--- ---
Net deferred tax asset $208 $142
=== ===
</TABLE>
45
<PAGE>
Community Investors Bancorp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999, 1998 and 1997
NOTE H - FEDERAL INCOME TAXES (continued)
The Association was allowed a special bad debt deduction, generally limited
to 8% of otherwise taxable income, subject to certain limitations based on
aggregate loans and deposit account balances at the end of the year. If the
amounts that qualify as deductions for federal income taxes are later used
for purposes other than bad debt losses, including distributions in
liquidation, such distributions will be subject to federal income taxes at
the then current corporate income tax rate. Retained earnings at June 30,
1999, includes approximately $1.2 million for which federal income taxes
have not been provided. The amount of unrecognized deferred tax liability
relating to the cumulative bad debt deduction at June 30, 1999 is
approximately $400,000. See Note M for additional information regarding the
Association's future percentage of earnings bad debt deductions.
NOTE I - LOAN COMMITMENTS
The Association is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of its
customers including commitments to extend credit. Such commitments involve,
to varying degrees, elements of credit and interest-rate risk in excess of
the amount recognized in the consolidated statement of financial condition.
The contract or notional amounts of the commitments reflect the extent of
the Association's involvement in such financial instruments.
The Association's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend credit
is represented by the contractual notional amount of those instruments. The
Association uses the same credit policies in making commitments and
conditional obligations as those utilized for on-balance-sheet instruments.
At June 30, 1999, the Association had outstanding commitments of
approximately $1.6 million to originate loans. Additionally, the Association
was obligated under unused lines of credit totaling $1.8 million. In the
opinion of management, all loan commitments equaled or exceeded prevalent
market interest rates as of June 30, 1999, and will be funded from normal
cash flow from operations.
NOTE J - REGULATORY CAPITAL
The Association is subject to the regulatory capital requirements of the
Office of Thrift Supervision (the "OTS"). Failure to meet minimum capital
requirements can initiate certain mandatory - and possibly additional
discretionary - actions by regulators that, if undertaken, could have a
direct material effect on the Association's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Association must meet specific capital guidelines
that involve quantitative measures of the Association's assets, liabilities,
and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Association's capital amounts and classification
are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
46
<PAGE>
Community Investors Bancorp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999, 1998 and 1997
NOTE J - REGULATORY CAPITAL (continued)
Such minimum capital standards generally require the maintenance of
regulatory capital sufficient to meet each of three tests, hereinafter
described as the tangible capital requirement, the core capital requirement
and the risk-based capital requirement. The tangible capital requirement
provides for minimum tangible capital (defined as stockholders' equity less
all intangible assets) equal to 1.5% of adjusted total assets. The core
capital requirement provides for minimum core capital (tangible capital plus
certain forms of supervisory goodwill and other qualifying intangible
assets) equal to 3.0% of adjusted total assets. An OTS proposal, if adopted
in present form, would increase the core capital requirement to a range of
4% - 5% of adjusted total assets for substantially all savings institutions.
Management anticipates no material change to the Association's present
excess regulatory capital position as a result of this change in the
regulatory capital requirement. The risk-based capital requirement provides
for the maintenance of core capital plus general loss allowances equal to
8.0% of risk-weighted assets. In computing risk-weighted assets, the
Association multiplies the value of each asset on its statement of financial
condition by a defined risk-weighting factor, e.g., one-to-four family
residential loans carry a risk-weighted factor of 50%.
During the 1999 fiscal year, the Association was notified from its regulator
that it was categorized as "well-capitalized" under the regulatory framework
for prompt corrective action. To be categorized as "well-capitalized" the
Association must maintain minimum capital ratios as set forth in the
following tables.
As of June 30, 1999 and 1998, management believes that the Association met
all capital adequacy requirements to which it was subject.
<TABLE>
<CAPTION>
1999
To be "well-
capitalized" under
For capital prompt corrective
Actual adequacy purposes action provisions
Amount Ratio Amount Ratio Amount Ratio
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Risk-based capital $8,339 13.8% =>$4,828 =>8.0% =>$6,035 =>10.0%
Core capital $7,866 6.8% =>$3,485 =>3.0% =>$6,970 => 6.0%
Tangible capital $7,866 6.8% =>$1,743 =>1.5% =>$5,808 => 5.0%
</TABLE>
47
<PAGE>
Community Investors Bancorp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999, 1998 and 1997
NOTE J - REGULATORY CAPITAL (continued)
<TABLE>
<CAPTION>
1998
To be "well-
capitalized" under
For capital prompt corrective
Actual adequacy purposes action provisions
Amount Ratio Amount Ratio Amount Ratio
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Risk-based capital $7,113 12.4% =>$4,604 =>8.0% =>$5,755 =>10.0%
Core capital $6,647 6.5% =>$3,075 =>3.0% =>$6,150 => 6.0%
Tangible capital $6,647 6.5% =>$1,538 =>1.5% =>$5,125 => 5.0%
</TABLE>
The Corporation's management believes that, under the current regulatory
capital regulations, the Association will continue to meet its minimum
capital requirements in the foreseeable future. However, events beyond the
control of the management, such as increased interest rates or a downturn in
the economy in the Association's market areas, could adversely affect future
earnings and, consequently, the ability to meet future minimum regulatory
capital requirements.
48
<PAGE>
Community Investors Bancorp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999, 1998 and 1997
NOTE K - CONDENSED FINANCIAL STATEMENTS OF COMMUNITY INVESTORS BANCORP, INC.
The following condensed financial statements summarize the financial
position of Community Investors Bancorp, Inc. as of June 30, 1999 and 1998,
and the results of its operations and its cash flows for the years ended
June 30, 1999, 1998 and 1997.
<TABLE>
Community Investors Bancorp, Inc.
<CAPTION>
STATEMENTS OF FINANCIAL CONDITION
June 30,
(In thousands)
ASSETS 1999 1998
<S> <C> <C>
Interest-bearing deposits in First Federal Savings and
Loan Association of Bucyrus $ 2,327 $ 3,256
Interest-bearing deposits in other financial institutions 21 21
Loan receivable from ESOP 403 454
Investment in First Federal Savings and Loan Association of Bucyrus 7,611 6,633
Prepaid expenses and other 151 76
------ -------
Total assets $10,513 $10,440
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued expenses and other liabilities $ 96 $ 97
Stockholders' equity
Common stock and additional paid-in capital 7,101 6,925
Retained earnings 8,370 7,742
Shares acquired by stock benefit plans (610) (759)
Treasury shares - at cost (4,189) (3,551)
Unrealized losses on securities designated as available for sale,
net of related tax benefits (255) (14)
------ ------
Total stockholders' equity 10,417 10,343
------ ------
Total liabilities and stockholders' equity $10,513 $10,440
====== ======
</TABLE>
<TABLE>
Community Investors Bancorp, Inc.
<CAPTION>
STATEMENTS OF EARNINGS
Year ended June 30,
(In thousands)
1999 1998 1997
<S> <C> <C> <C>
Revenue
Interest income $ 31 $ 56 $ 66
Equity in earnings of First Federal Savings and Loan
Association of Bucyrus 1,046 976 640
----- ------ --------
Total revenue 1,077 1,032 706
General, administrative and other expenses 219 204 134
------ ------ --------
Earnings before income tax credits 858 828 572
Federal income tax credits (64) (51) (17)
------- ------- ---------
NET EARNINGS $ 922 $ 879 $ 589
====== ====== ========
</TABLE>
49
<PAGE>
Community Investors Bancorp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999, 1998 and 1997
NOTE K - CONDENSED FINANCIAL STATEMENTS OF COMMUNITY INVESTORS BANCORP, INC.
(continued)
<TABLE>
Community Investors Bancorp, Inc.
<CAPTION>
STATEMENTS OF CASH FLOWS
Year ended June 30,
(In thousands)
1999 1998 1997
<S> <C> <C> <C>
Cash flows provided by (used in) operating activities:
Net earnings for the year $ 922 $ 879 $ 589
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
(Undistributed earnings of) excess distributions from
consolidated subsidiary (1,046) 3,913 (640)
Amortization of stock benefit plan expense 153 104 73
Increases (decreases) in cash due to changes in:
Prepaid expenses and other assets (75) (51) 22
Other liabilities (1) 64 4
Other (1) (18) (38)
-------- ------- -------
Net cash provided by (used in) operating activities (48) 4,891 10
Cash flows provided by investing activities:
Maturities of investment securities - - 709
Repayments on ESOP loan 51 18 60
------- ------- -------
Net cash provided by investment activities 51 18 769
Cash flows used in financing activities:
Dividends on common stock (294) (271) (239)
Purchase of treasury stock (638) (1,580) (854)
------ ----- -------
Net cash used in financing activities (932) (1,851) (1,093)
------ ----- -----
Net increase (decrease) in cash and cash equivalents (929) 3,058 (314)
Cash and cash equivalents at beginning of year 3,277 219 533
----- ------ -------
Cash and cash equivalents at end of year $2,348 $3,277 $ 219
===== ===== ======
</TABLE>
50
<PAGE>
Community Investors Bancorp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999, 1998 and 1997
NOTE K - CONDENSED FINANCIAL STATEMENTS OF COMMUNITY INVESTORS BANCORP, INC.
(continued)
The Association is subject to regulations imposed by the OTS regarding the
amount of capital distributions payable by the Association to the
Corporation. Generally, the Association's payment of dividends is limited,
without prior OTS approval, to net income for the current calendar year plus
the two preceding calendar years, less capital distributions paid over the
comparable time period. Insured institutions are required to file an
application with the OTS for capital distributions in excess of this
limitation. At June 30, 1999, the Association was required to obtain OTS
approval with respect to future dividend distributions to the Corporation.
NOTE L - STOCK OPTION PLAN
During fiscal 1996, the Board of Directors adopted a Stock Option Plan that
provided for the issuance of 110,722 shares of authorized, but unissued
shares of common stock at the fair value at the date of grant.
The Corporation accounts for the stock option plan in accordance with SFAS
No. 123, "Accounting for Stock-Based Compensation," which contains a fair
value-based method for valuing stock-based compensation at the grant date.
Compensation is then recognized over the service period, which is usually
the vesting period. Alternatively, SFAS No. 123 permits entities to continue
to account for stock options and similar equity instruments under Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees." Entities that continue to account for stock options using APB
Opinion No. 25 are required to make pro forma disclosures of net earnings
and earnings per share, as if the fair value-based method of accounting
defined in SFAS No. 123 had been applied.
The Corporation applies APB Opinion No. 25 and related Interpretations in
accounting for its stock option plan. Accordingly, no compensation cost has
been recognized for the plan. Had compensation cost for the Corporation's
stock option plan been determined based on the fair value at the grant dates
for awards under the plan consistent with the accounting method utilized in
SFAS No. 123, the Corporation's net earnings and earnings per share would
have been reduced to the pro forma amounts indicated below:
51
<PAGE>
Community Investors Bancorp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999, 1998 and 1997
NOTE L - STOCK OPTION PLAN (continued)
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C> <C>
Net earnings (In thousands) As reported $922 $879 $589
=== === ===
Pro-forma $922 $863 $579
=== === ===
Earnings per share
Basic As reported $.81 $.70 $.44
=== === ===
Pro-forma $.81 $.69 $.43
=== === ===
Diluted As reported $.78 $.68 $.44
=== === ===
Pro-forma $.78 $.67 $.43
=== === ===
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the modified Black-Scholes options-pricing model with the following
weighted-average assumptions used for grants in 1998 and 1997,
respectively; dividend yield of 7.0% and expected volatility of 20.0% for
all years; risk-free interest rates of 6.5% and 6.0% and expected lives of
ten years.
A summary of the status of the Corporation's stock option plan as of June
30, 1999, 1998 and 1997, and changes during the periods ending on those
dates is presented below:
<TABLE>
<CAPTION>
1999 1998 1997
Weighted- Weighted- Weighted-
average average average
exercise exercise exercise
Shares price Shares price Shares price
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 117,074 $7.67 96,653 $ 7.00 85,860 $6.89
Granted - - 21,321 10.73 10,793 7.87
Exercised (540) 6.61 (180) 9.92 - -
Forfeited (1,260) - (720) - - -
------- ---- ------ ------ ------ ----
Outstanding at end of year 115,274 $7.67 117,074 $ 7.67 96,653 $7.00
======= ==== ======= ====== ====== ====
Options exercisable at year-end 59,198 $6.95 36,322 $ 6.95 17,172 $6.89
======= ==== ====== ====== ====== ====
Weighted-average fair value of
options granted during the year N/A $ 1.20 $1.33
=== ====== ====
</TABLE>
52
<PAGE>
Community Investors Bancorp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999, 1998 and 1997
NOTE L - STOCK OPTION PLAN (continued)
The following information applies to options outstanding at June 30, 1999:
Number outstanding 115,274
Range of exercise prices $6.61 - $10.83
Weighted-average exercise price $7.67
Weighted-average remaining contractual life 6.0 years
NOTE M - LEGISLATIVE MATTERS
The deposit accounts of the Association and of other savings associations
are insured by the FDIC through the Savings Association Insurance Fund
("SAIF"). The reserves of the SAIF were below the level required by law,
because a significant portion of the assessments paid into the fund were
used to pay the cost of prior thrift failures. The deposit accounts of
commercial banks are insured by the FDIC through the Bank Insurance Fund
("BIF"), except to the extent such banks have acquired SAIF deposits. The
reserves of the BIF met the level required by law in May 1995. As a result
of the respective reserve levels of the funds, deposit insurance assessments
paid by healthy savings associations exceeded those paid by healthy
commercial banks by approximately $.19 per $100 in deposits in 1995.
Legislation was enacted to recapitalize the SAIF that provided for a special
assessment totaled $.657 per $100 of SAIF deposits held at March 31, 1995,
in order to increase SAIF reserves to the level required by law. The
Association held $70.2 million in deposits at March 31, 1995, resulting in
an assessment of approximately $458,000, or $304,000 after-tax, which was
charged to operations in fiscal 1997.
Under separate legislation related to the recapitalization plan, the
Association is required to recapture as taxable income approximately $26,000
of its tax bad debt reserve, which represents the post-1987 additions to the
reserve, and will be unable to utilize the percentage of earnings method to
compute its bad debt deduction in the future. The Association has provided
deferred taxes for this amount and will amortize the recapture of the bad
debt reserve into taxable income over a six year period, which commenced in
fiscal 1998.
53
<PAGE>
Board of Directors Assistant Vice Presidents
John W. Kennedy Jane A. Cremeans
President and Chief Executive Timothy G. Heydinger
Officer of First Federal Kimberly B. Roe
Savings & Loan Association
General Counsel
Dale C. Hoyles Cory and Cory
Chairman of the Board, Retired 221 S. Poplar Street
Senior Vice President/Treasurer Bucyrus, Ohio 44820
of Centurion Financial
Special Legal Counsel
Elias, Matz, Tiernan & Herrick, LLP
David M. Auck 734 15th Street, N.W., 12th Floor
Vice Chairman of the Board Washington, DC 20005
Co-owner Auck Dostal Agency
Transfer Agent and Registrar
Philip E. Harris Registrar & Transfer Company
Plant Manager, Distribution 10 Commerce Drive
Center - The Timken Company Cranford, NJ 07016
John D. Mizick Independent Auditors
Certified Public Accountant Grant Thornton LLP
Mizick & Company, Inc. Suite 900
625 Eden Park Drive
D. Brent Fissel Cincinnati, Ohio 45202
Dentist
Investment Banker & Financial Advisor
Thomas P. Moore Charles Webb & Company
Retired President and General Manager - 211 Bradenton
Brokensword Broadcasting Co. Dublin, Ohio 43017
Major Market Makers
Honorary Directors The Ohio Company
John T. Bridges McDonald & Company Sec., Inc.
Retired Plant Manager - Friedman, Billings, Ramsey & Company
General Electric Company Sweney, Cartwright & Company
Richard L. Cory
Attorney at law - Cory and Cory
Herbert Kraft
Farmer and Retired Salesman -
Moorman Feed Sales
Executive Officers
John W. Kennedy
President and Chief Executive
Officer
Brian R. Buckley
Vice President
Phillip W. Gerber
Vice President
Robert W. Siegel
Assistant Vice President and Treasurer
54
<PAGE>
ANNUAL REPORT ON FORM 10-KSB
A copy of Community Investors Bancorp, Inc.'s Annual Report on Form 10-KSB, as
filed with the Securities and Exchange Commission, is available without charge
to stockholders of record by writing to:
Brian R. Buckley
Vice President
Community Investors Bancorp, Inc.
P.O. Box 749
119 S. Sandusky Avenue
Bucyrus, Ohio 44820
BRANCH ADDRESSES AND MANAGERS
Main Office
P.O. Box 749
119 S. Sandusky Avenue
Bucyrus, Ohio 44820
South Branch - Dieann Frost New Washington - Sharon Carman
Sandusky Avenue & Marion Road 115 S. Kibler Street
Bucyrus, Ohio 44820 New Washington, Ohio 44854
Automated Teller Machine
1661 Marion Road
Bucyrus, Ohio 44820
STOCKHOLDER SERVICES
Registrar and Transfer serves as primary transfer agent and as dividend
disbursing agent for Community Inventors Bancorp, Inc. shares. Communications
regarding changes of address, transfer of shares, lost certificates and
dividends should be sent to:
Registrar and Transfer Company
10 Commerce Drive
Cranford, NJ 07016
1 (800) 525-7686
55
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 2,142
<INT-BEARING-DEPOSITS> 631
<FED-FUNDS-SOLD> 724
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 15,517
<INVESTMENTS-CARRYING> 4,577
<INVESTMENTS-MARKET> 4,519
<LOANS> 89,922
<ALLOWANCE> 591
<TOTAL-ASSETS> 116,224
<DEPOSITS> 79,954
<SHORT-TERM> 0
<LIABILITIES-OTHER> 562
<LONG-TERM> 25,291
0
0
<COMMON> 17
<OTHER-SE> 10,400
<TOTAL-LIABILITIES-AND-EQUITY> 116,224
<INTEREST-LOAN> 6,871
<INTEREST-INVEST> 1,168
<INTEREST-OTHER> 150
<INTEREST-TOTAL> 8,189
<INTEREST-DEPOSIT> 3,563
<INTEREST-EXPENSE> 4,822
<INTEREST-INCOME-NET> 3,367
<LOAN-LOSSES> 94
<SECURITIES-GAINS> 6
<EXPENSE-OTHER> 2,147
<INCOME-PRETAX> 1,387
<INCOME-PRE-EXTRAORDINARY> 922
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 922
<EPS-BASIC> .81
<EPS-DILUTED> .78
<YIELD-ACTUAL> 3.02
<LOANS-NON> 912
<LOANS-PAST> 0
<LOANS-TROUBLED> 52
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 563
<CHARGE-OFFS> 74
<RECOVERIES> 8
<ALLOWANCE-CLOSE> 591
<ALLOWANCE-DOMESTIC> 118
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 473
</TABLE>
REVOCABLE PROXY
COMMUNITY INVESTORS BANCORP, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
COMMUNITY INVESTORS BANCORP, INC. FOR USE AT THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER 25, 1999 AND AT ANY ADJOURNMENT THEREOF.
The undersigned hereby appoints the Board of Directors of Community
Investors Bancorp, Inc. (the "Company"), as proxies, each with power to appoint
his substitute, and hereby authorizes them to represent and vote, as designated
below, all the shares of Common Stock of the Company held of record by the
undersigned on September 9,1999 at the Annual Meeting of Shareholders to be held
at the Days Inn, located at 1515 North Sandusky Avenue, Bucyrus, Ohio 44820, on
Monday, October 25, 1999 at 2:00 p.m., Eastern Time, and any adjournment
thereof.
1. ELECTION OF DIRECTORS FOR TWO-YEAR TERM
[ ] FOR all nominees listed below [ ] WITHHOLD authority to vote for
(except as marked to the all nominees listed below
contrary below)
Nominees for two-year term expiring in 2001:
Dale C. Hoyles, Brent D. Fissel, D.D.S. and Michael J. Romanoff
Instruction: To withhold authority to vote for any individual nominee, write
that nominee's name in the space provided below:
2. PROPOSAL TO RATIFY THE APPOINTMENT by the Board of Directors of Grant
Thornton LLP as the Company's independent auditors for the year ending June 30,
2000.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
(Continued and to be signed on other side)
<PAGE>
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS. THE SHARES OF THE
COMPANY'S COMMON STOCK WILL BE VOTED AS SPECIFIED. IF NOT OTHERWISE SPECIFIED,
THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE BOARD OF DIRECTORS' NOMINEES TO
THE BOARD OF DIRECTORS, FOR THE PROPOSAL SPECIFIED IN ITEM 2 AND OTHERWISE AT
THE DISCRETION OF THE PROXIES. IN THE DISCRETION OF THE PROXIES, SHARES
REPRESENTED BY THIS PROXY MAY BE VOTED CUMULATIVELY WITH RESPECT TO THE ELECTION
OF THE NOMINEES FOR DIRECTOR LISTED HEREIN. YOU MAY REVOKE THIS PROXY AT ANY
TIME PRIOR TO THE TIME IT IS VOTED AT THE ANNUAL MEETING.
Date: -------------------, 1999
---------------------------------------
Signature
---------------------------------------
Signature
Please sign this proxy exactly as your name(s) appear on this proxy. When
signing in a representative capacity, please give title. When shares are held
jointly, only one holder need sign.
- -------------------------------------------------------------------------------
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
- -------------------------------------------------------------------------------
<PAGE>
September 29, 1999
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders of
Community Investors Bancorp, Inc. The meeting will be held at the Days Inn, 1515
North Sandusky Avenue, Bucyrus, Ohio 44820, on Monday, October 25, 1999 at 2:00
p.m., Eastern Time. The matters to be considered by shareholders at the Annual
Meeting are described in the accompanying materials.
It is very important that you be represented at the Annual Meeting regardless of
the number of shares you own or whether you are able to attend the meeting in
person. We urge you to mark, sign and date your proxy card today and return it
in the envelope provided, even if you plan to attend the Annual Meeting. This
will not prevent you from voting in person, but will ensure that your vote is
counted if you are unable to attend.
We appreciate your support and interest in Community Investors Bancorp, Inc.
Sincerely,
/s/Dale C. Hoyles
Dale C. Hoyles
Chairman of the Board
<PAGE>
COMMUNITY INVESTORS BANCORP, INC.
119 South Sandusky Avenue
Bucyrus, Ohio 44820
(419) 562-7055
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held on October 25, 1999
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders ("Annual
Meeting") of Community Investors Bancorp, Inc. (the "Company") will be held at
the Days Inn, 1515 North Sandusky Avenue, Bucyrus, Ohio 44820, on Monday,
October 25, 1999 at 2:00 p.m., Eastern Time, for the following purposes, all of
which are more completely set forth in the accompanying Proxy Statement:
(1) To elect three (3) directors for a two-year term and until their
successors are elected and qualified;
(2) To ratify the appointment by the Board of Directors of Grant
Thornton LLP as the Company's independent auditors for the year ending June 30,
2000; and
(3) To transact such other business as may properly come before the
meeting or any adjournment thereof. Management is not aware of any other such
business.
The Board of Directors has fixed September 9, 1999 as the voting record
date for the determination of shareholders entitled to notice of and to vote at
the Annual Meeting and at any adjournment thereof. Only those shareholders of
record as of the close of business on that date will be entitled to vote at the
Annual Meeting or at any such adjournment.
By Order of the Board of Directors
Thomas P. Moore
Secretary
Bucyrus, Ohio
September 29, 1999
================================================================================
YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING. IT IS IMPORTANT THAT
YOUR SHARES BE REPRESENTED REGARDLESS OF THE NUMBER YOU OWN. EVEN IF YOU PLAN TO
BE PRESENT, YOU ARE URGED TO COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY
PROMPTLY IN THE ENVELOPE PROVIDED. IF YOU ATTEND THE MEETING, YOU MAY VOTE
EITHER IN PERSON OR BY PROXY. ANY PROXY GIVEN MAY BE REVOKED BY YOU IN WRITING
OR IN PERSON AT ANY TIME PRIOR TO THE EXERCISE THEREOF.
================================================================================
<PAGE>
PROXY STATEMENT
COMMUNITY INVESTORS BANCORP, INC.
119 South Sandusky Avenue
Bucyrus, Ohio 44820
1999 ANNUAL MEETING OF SHAREHOLDERS
October 25, 1999
This Proxy Statement is furnished to holders of common stock, $.0l par
value per share ("Common Stock"), of Community Investors Bancorp, Inc. (the
"Company"), an Ohio corporation which holds all of the outstanding stock of
First Federal Savings and Loan Association of Bucyrus ("First Federal" or the
"Association"). Proxies are being solicited on behalf of the Board of Directors
of the Company to be used at the Annual Meeting of Shareholders ("Annual
Meeting") to be held at the Days Inn, 1515 North Sandusky Avenue, Bucyrus, Ohio
44820, on Monday, October 25, 1999 at 2:00 p.m., Eastern Time, and at any
adjournment thereof for the purposes set forth in the Notice of Annual Meeting
of Shareholders. This Proxy Statement is first being mailed to shareholders on
or about September 29, 1999.
The proxy solicited hereby, if properly signed and returned to the
Company and not revoked prior to its use, will be voted in accordance with the
instructions contained therein. If no contrary instructions are given, each
proxy received will be voted for the nominees for director described herein and
for the matters described below and, upon the transaction of such other business
as may properly come before the meeting, in accordance with the best judgment of
the persons appointed as proxies. Any shareholder giving a proxy has the power
to revoke it at any time before it is exercised by (i) filing with the Secretary
of the Company written notice thereof (Thomas P. Moore, Secretary, Community
Investors Bancorp, Inc., 119 South Sandusky Avenue, Post Office Box 766,
Bucyrus, Ohio 44820); (ii) submitting a duly executed proxy bearing a later
date; or (iii) appearing at the Annual Meeting and giving the Secretary notice
of his or her intention to vote in person. Proxies solicited hereby may be
exercised only at the Annual Meeting and any adjoununent thereof and will not be
used for any other meeting.
<PAGE>
VOTING
Only shareholders of record at the close of business on September 9,
1999 ("Voting Record Date") will be entitled to vote at the Annual Meeting. On
the Voting Record Date, there were 1,218,684 shares of Common Stock issued and
outstanding and the Company had no other class of equity securities outstanding.
Each share of Common Stock is entitled to one vote at the Annual Meeting on all
matters properly presented at the meeting except that votes may be cumulated for
the election of directors. Cumulative voting means the right to vote, in person
or by proxy, the number of shares owned by a stockholder for as many persons as
there are directors to be elected (three) and for whose election the stockholder
has a right to vote, or to cumulate votes by giving one candidate as many votes
as the number of such directors to be elected multiplied by the number of such
stockholder's shares shall equal or by distributing such votes on the same
principle among any number of candidates. Any shareholder wishing to cumulate
his or her votes with respect to the election of directors must give notice to
the Secretary of the Company of his or her intention to cumulate his or her vote
and obtain a ballot or proxy from the Secretary of the Company for such purpose.
The presence in person or by proxy of at least a majority of the
outstanding shares of Common Stock entitled to vote is necessary to constitute a
quorum at the Annual Meeting. Directors are elected by a plurality of the votes
cast at the Annual Meeting. The affirmative vote of the holders of a majority of
the total votes cast at the Annual Meeting is required for approval of the
proposal to ratify the appointment of the Company's independent auditors.
Abstentions will be counted for purposes of determining the presence of
a quorum at the Annual Meeting. Because of the required votes, abstentions will
not be counted as votes cast for the election of directors and the proposal to
ratify the appointment of the Company's independent auditors and, thus, will
have no effect on the voting for the election of directors and the ratification
of the auditors. Under rules of the New York Stock Exchange, the election of
directors and the proposal to ratify the auditors are considered "discretionary"
items upon which brokerage firms may vote in their discretion on behalf of their
clients if such clients have not furnished voting instructions and for which
there will not be "broker non-votes."
-2-
<PAGE>
INFORMATION WITH RESPECT TO NOMINEES FOR DIRECTOR,
DIRECTORS WHOSE TERMS CONTINUE AND EXECUTIVE OFFICERS
Election of Directors
The Certificate of Incorporation and Bylaws of the Company provide that
the Board of Directors of the Company shall be divided into two classes as
nearly equal in number as possible, and that the members of each class are to be
elected for a term of two years and until their successors are elected and
qualified. One class of directors is to be elected annually, and shareholders of
the Company are permitted to cumulate their votes for the election of directors.
No nominee for director is related to any other director or executive
officer of the Company by blood, marriage or adoption. All nominees currently
serve as directors of the Company, with the exception of Michael J. Romanoff who
has been nominated by the Board of Directors for the directorship currently held
by Thomas P. Moore. Mr. Moore will retire from the Board of Directors upon the
election of his successor, but will continue to serve the Company as a director
emeritus.
Unless otherwise directed, each proxy executed and returned by a
shareholder will be voted for the election of the nominees for director listed
below. If any person named as nominee should be unable or unwilling to stand for
election at the time of the Annual Meeting, the proxies will vote for any
replacement nominee or nominees recommended by the Board of Directors. At this
time, the Board of Directors knows of no reason why any of the nominees listed
below may not be able to serve as a director if elected.
The following tables present information concerning the nominees for
director and each director whose term continues, including his tenure as a
director of the Company.
<TABLE>
<CAPTION>
Nominees for Director for Two-Year Term Expiring in 2001
Position(s) Held in Director
Name Age(1) the Company Since (2)
<S> <C> <C> <C>
Dale C. Hoyles 61 Chairman of the Board 1974
Brent D. Fissel, D.D.S. 44 Director 1991
Michael J. Romanoff 49 * *
</TABLE>
The Board of Directors recommends a vote FOR election of the nominees for
director.
-3-
<PAGE>
<TABLE>
<CAPTION>
Members of the Board of Directors Continuing in Office
Directors With Terms Expiring in 2000
Position(s) Held in Director
Name Age (1) the Company Since (2)
<S> <C> <C> <C>
John W. Kennedy 58 Director, President and Managing Officer 1972
David M. Auck 55 Director 1979
Philip E. Harris 50 Director 1992
John D. Mizick 57 Director 1998
</TABLE>
(1) As of June 30, 1999.
(2) Includes service as a director of the Association.
Each of the directors of the Company is also director of the Association.
The business experience of each of the directors or nominee for director for at
least the past five years is as follows:
Dale C. Hoyles. Mr. Hoyles has served as Chairman of the Board of the
Association since 1990 and as one of its directors since 1974. Until his
retirement in November 1994, he was Senior Vice President/Treasurer of Centurion
Financial which is a property and casualty insurance company located in Bucyrus,
Ohio. Mr. Hoyles had been associated with Centurion Financial since 1973.
Thomas P. Moore. In 1998, Mr. Moore retired from his position as the
President and General Manager of Brokensword Broadcasting Co., which owns a
radio station that broadcasts from Bucyrus, Ohio. Mr. Moore had served in that
capacity since 1962. He also serves as secretary, chairman of the Personnel
Committee and as a member of the Audit Committee. Mr. Moore plans to retire from
the Board of Directors upon the election of a successor to his position, but
will continue to serve the Company as a director emeritus.
John W. Kennedy. Mr. Kennedy has served as Managing Officer of the
Association since 1972. He has been employed by the Association since 1969 and
during that time has also served as Secretary and Executive Vice President.
David M. Auck. Mr. Auck has served as Vice Chairman of the Board of the
Association since 1990. He has been the owner of the Auck-Dostal Agency, an
independent insurance agency, located in Bucyrus, Ohio since 1974. He also
serves as chairman of the Association's Audit Committee.
-4-
<PAGE>
Philip E. Harris. Mr. Harris is employed by The Timken Company, a
manufacturer and distributor of tapered roller bearings. His current title is
Manager - Distribution and Logistics - Industrial Distribution U.S. and Canada.
He also serves the Association as a member of its Personnel Committee.
Brent D. Fissel, D.D.S. Dr. Fissel is a dentist who has had a private
family practice in New Washington, Ohio since 1988. He also serves the
Association as a member of its Personnel Committee.
John D. Mizick. Mr. Mizick is a certified public accountant who founded
Mizick and Company, Inc., a public accounting firm, in 1972 and is currently its
president and chief executive officer. He also serves as a member of the
Association's Audit Committee.
Michael J. Romanoff. Mr. Romanoff is the owner of Romanoff Jewelers,
located in Bucyrus, Ohio. He is also the co-owner of Val Casting and Allure
Designs, also located in Bucyrus. Mr. Romanoff has been nominated to fill the
directorship currently held by Mr. Moore, who is retiring from that position.
Shareholder Nominations
Article X, Section D of the Company's Articles of Incorporation governs
nominations for election to the Board and requires all such nominations, other
than those made by the Board, to be made at a meeting of shareholders called for
the election of directors, and only by a shareholder who has complied with the
notice provisions in that section. Shareholder nominations must be made pursuant
to timely notice in writing to the Secretary of the Company. To be timely, a
shareholder's notice must be in writing, delivered or mailed by first class
United States mail, postage prepaid, to the Secretary of the Company not less
than thirty days nor more than sixty days prior to such meeting: provided,
however, that if less than forty days' notice of the meeting is given to
stockholders, such written notice shall be delivered or mailed, as prescribed to
the Secretary of the Company not later than the close of the tenth day following
the day on which notice of such meeting was mailed to stockholders.
Each written notice of a shareholder nomination shall set forth: (a)
the name, age, business address and, if known, the residence address of each
nominee proposed in such notice; (b) the principal occupation or employment of
each such nominee; and (c) the number of shares of stock of the Company which
are beneficially owned by each such nominee. In addition, the stockholder making
such nomination shall promptly provide any other information reasonably
requested by the Company.
-5-
<PAGE>
The Board of Directors and Its Committees
The Board of Directors of the Company and of the Association meet on a
monthly basis. During the fiscal year ended June 30, 1999, the Board of
Directors met 12 times. No director attended fewer than 75% of the total number
of Board meetings or committee meetings on which he served that were held during
fiscal 1999. The Board of Directors of the Company had not established any
committees in fiscal 1999. The Board of Directors of the Association has
established an Executive Committee, an Audit Committee, a Personnel Committee
and a Nominating Committee.
Executive Committee. The Executive Committee is authorized to exercise all
the authority of the Board of Directors in the management of the Association
between Board meetings. The Executive Committee consists of three outside
directors appointed by the Chairman of the Board. If any member is unable to
attend, the Managing Officer may appoint any other director to serve. The
Executive Committee also serves as a Loan Committee that reviews all real estate
loans. The Executive Committee met 51 times in fiscal 1999.
Audit Committee. The Audit Committee, which is appointed by the Chairman of
the Board and consists of Messrs. Auck (who serves as chairman), Mizick and
Moore has the right to inspect and review the records of the Association
associated with its annual audit. The Committee meets annually with the
Association's auditors and then is required to report the results of such
meeting to the full board of directors. The Audit Committee met once during
fiscal 1999.
Personnel Committee. The Personnel Committee has the responsibility to
review personnel policy and to recommend changes regarding employee salaries,
fringe benefits and related personnel matters. Messrs. Moore (who serves as
chairman), Harris and Fissel are members of the Personnel Committee, which met
twice during fiscal 1999.
Nominating Committee. The Nominating Committee makes written nominations
for directors at least 30 days prior to the annual meeting of shareholders. The
committee is appointed by the Chairman of the Board at the Board of Directors'
September meeting and consists of three members.
Executive Officers Who Are Not Directors
The following sets forth certain information with respect to the executive
officers of the Company and the Association who are not directors, including
their business experience for at least the past five years.
Brian R. Buckley. Mr. Buckley has served the Association as a Vice
President since 1979. He has been employed by the Association since 1974.
Phillip W. Gerber. Mr. Gerber has served the Association as Vice President
since January 1997. Prior to January 1997, he had served as Vice President of
Farmers Citizens Bank, Bucyrus, Ohio, for 24 years.
Robert W. Siegel. Mr. Siegel has served the Association as Treasurer since
August 1999. He has been employed by the Association since April 1996. Prior to
April 1996, he had served several positions at the Huntington National Bank,
Columbus, Ohio, for 4 years.
-6-
<PAGE>
BENEFICIAL OWNERSHIP OF COMMON STOCK
BY CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table includes, as of the Voting Record Date, certain
information as to the Common Stock beneficially owned by (i) the only persons or
entities, including any "group" as that term is used in Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended ("1934 Act"), who or which was known
to the Company to be the beneficial owner of more than 5% of the issued and
outstanding Common Stock, (ii) the directors and nominee for director of the
Company and (iii) all directors and executive officers of the Company and the
Association as a group.
<TABLE>
<CAPTION>
Common Stock
Beneficially
Name of Owned as of
Beneficial Owner September 9, 1999(1)(2)
No. %
<S> <C> <C>
Jeffrey L. Gendell
200 Park Avenue, Suite 3900
New York, New York 10166 76,500 6.3
Community Investors Bancorp, Inc.(3)
Employee Stock Ownership Trust
119 South Sandusky Avenue
Bucyrus, Ohio 44820 131,985 10.8
Directors and Nominee:
David M. Auck (4) 39,493 3.2
Philip E. Harris (5) 10,620 *
Brent D. Fissel, D.D.S. (6) 4,696 *
Dale C. Hoyles (7) 16,602 1.4
John W. Kennedy (8) 53,265 4.3
John D. Mizick 1,000 *
Thomas P. Moore (9) 25,245 2.1
Michael Romanoff (10) 6,300 *
All directors and executive officers
of the Company and the Association
as a group (10 persons) (11) 175,316 13.9
</TABLE>
* Represents less than 1% of the outstanding Common Stock.
(1) For purposes of this table, pursuant to rules promulgated under the 1934
Act, an individual is considered to beneficially own shares of Common Stock
if he or she directly or indirectly has or shares (1) voting power, which
includes the power to vote or to direct the voting of the shares; or (2)
investment power, which includes the power to dispose or direct the
disposition of the shares. Unless otherwise indicated, a director has sole
voting power and sole investment power with respect to the indicated
shares.
(2) Based upon filing made pursuant to the Securities Exchange Act of 1934, as
amended.
(footnotes continued on next page)
-7-
<PAGE>
(3) The Community Investors Bancorp, Inc. Employee Stock Ownership Trust
("Trust") was established pursuant to the Community Investors Bancorp, Inc.
Employee Stock Ownership Plan ("ESOP") by an agreement between the Company
and Messrs. Hoyles, Kennedy and Buckley, who act as trustees of the plan
("Trustees"). As of the Voting Record Date, 52,713 of the shares of Common
Stock held in the Trust had been allocated to the accounts of participating
employees. Under the terms of the ESOP, the Trustees must vote all
allocated shares held in the ESOP in accordance with the instructions of
the participating employees, and allocated shares for which employees do
not give instructions will be voted in the same ratio on any matter as to
those shares for which instructions are given. Unallocated shares held in
the ESOP will be voted by the ESOP Trustees in accordance with their
fiduciary duties as trustees. The amount of Common Stock beneficially owned
by each individual trustee or all directors and executive officers as a
group does not include the shares held by the Trust.
(4) Includes 5,625 shares held by Heritage Rentals, a general partnership, and
12,375 shares held in a retirement account. Also includes 664 shares
granted pursuant to the MRP which are scheduled to vest on or prior to
November 1, 1999 and 6,033 shares which may be acquired upon the exercise
of stock options.
(5) Two thousand two hundred fifty of the indicated shares are held jointly
with the director's spouse. Also includes 664 shares granted pursuant to
the MRP which are scheduled to vest on November 1, 1999 and 6,033 shares
which may be acquired upon the exercise of stock options.
(6) Includes 4,207 shares which may be acquired upon the exercise of stock
options.
(7) Includes 3,591 shares held by Mr. Hoyles' spouse. Also includes 664 shares
granted pursuant to the MRP which are scheduled to vest on or prior to
November 1, 1999 and 6,033 shares which may be acquired upon the exercise
of stock options.
(8) Includes 16,920 held jointly with the director's spouse, 4,461 shares held
by Mr. Kennedy's spouse, 901 shares held in a retirement account, 8,788
shares which have been allocated to Mr. Kennedy's account in the ESOP,
1,800 shares granted pursuant to the MRP which are scheduled to vest on or
prior to November 1, 1999 and 7,695 shares which may be acquired through
the exercise of stock options.
(9) Includes 1,125 shares held by Mr. Moore's spouse, 664 shares granted
pursuant to the MRP which are scheduled to vest on or prior to November 1,
1999 and 6,033 shares which may be acquired upon the exercise of stock
options.
(10) Includes 675 shares held jointly with his children.
(11) Does not include the shares held by the nominee.
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<PAGE>
EXECUTIVE COMPENSATION
Summary
The following table sets forth a summary of certain information concerning
the compensation awarded to or paid by the Association for services rendered in
all capacities during the last three fiscal years to the Chief Executive
Officer of the Association. No other executive officer had total compensation
during the last three fiscal years which exceeded $100,000. The Company
currently does not pay any separate compensation to its executive officers.
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
Other All
Name and For the Year Annual Stock Other
Principal Position ended June 30, Salary Bonus Compensation(1) Grants(2) Options (3) Compensation (4)
<S> <C> <C> <C> <C> <C> <C> <C>
John W. Kennedy 1999 $74,472 $- $- $ - - $26,717
President and 1998 74,472 - - 19,874 - 21,745
Managing Officer 1997 72,000 - - 45,000 - 16,840
</TABLE>
(1) Does not include amounts attributable to miscellaneous benefits received by
the named executive officers. In the opinion of management of the
Association, the costs to the Association of providing such benefits to the
named executive officers during the year ended June 30, 1999 did not exceed
the lesser of $50,000 or 10% of the total of annual salary and bonus
reported for the individual.
(2) Consists of awards granted pursuant to the Company's 1995 Management
Recognition Plan which vest and are exercisable at the rate of 20% per year
over a five-year period commencing on the first anniversary of the date of
the grant. The grants had a market value at June 30, 1999 of $62,438.
(3) Consists of awards granted pursuant to the Company's 1995 Stock Option Plan
which options vest and are exercisable at the rate of 20% per year over a
five-year period commencing on the first anniversary of the date of the
grant.
(4) Consists of amounts allocated during the years ended December 31, 1996,
December 31, 1997 and December 31, 1998 pursuant to the ESOP based on a per
share price of $7.56 and $10.77 and $12.25, respectively, per share on the
date of allocation. The per share prices for fiscal 1996 and 1997 have been
adjusted to account for stock splits which occurred subsequent to the date
of allocation.
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<PAGE>
Stock Options
The following table discloses information regarding options exercised during
the year ended June 30, 1999, and held at year-end, by the Chief Executive
Officer.
<TABLE>
<CAPTION>
Number of Options at Value of Options at
June 30, 1999 June 30, 1999(1)
Shares Acquired Value
Name On Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
John W. Kennedy - - 7,695 5,130 $20,315 $13,543
</TABLE>
(1) Based on a per share market price of $9.25 at June 30, 1999.
Compensation of Directors
Board Fees. In fiscal 1999, members of the Board of Directors of the
Association were paid fees semiannually at the rate of $500 per Board of
Directors meeting and $55 per committee meeting. The Chairman of the Board
received a fee of $750 per Board of Directors meeting. Each director is also
paid an annual fee of $75 and is permitted two absences annually without
affecting his directors' fees.
Severance Agreements
The Company and the Association (collectively the "Employers") have
entered into severance agreements with Messrs. Kennedy, Buckley, Gerber and
Siegel (individually an "Executive Officer"). The Employers have agreed that
in the event that the Executive Officer's employment is terminated as a
result of certain adverse actions which are taken with respect to the
Executive Officer's employment following a Change in Control of the Company
or the Association, as defined, such Executive Officer will be entitled to a
cash severance amount equal to 2.99 times his base salary.
A Change in Control is generally defined in the severance agreement
to include (i) the acquisition by any person of 25% or more of the Company's
or the Association's outstanding voting securities and (ii) a change in a
majority of the directors of the Company or the Association during any
two-year period without the approval of at least two-thirds of the persons
who were directors of the Company or the Association, as applicable, at the
beginning of such period. The current base salaries upon which a cash
severance payment would be paid to Messrs. Kennedy, Buckley, Gerber and
Siegel are $76,700, $64,800, $64,800 and $50,400, respectively.
-10-
<PAGE>
Each severance agreement provides that in the event that any of the
payments to be made thereunder or otherwise upon termination of employment
are deemed to constitute "excess parachute payments" within the meaning of
Section 28OG of the Code, then such payments and benefits received
thereunder shall be reduced, in the manner determined by the Executive
Officer, by the amount, if any, which is the minimum necessary to result in
no portion of the payments and benefits being non-deductible by the
Employers for federal income tax purposes. Excess parachute payments
generally are payments in excess of three times the base amount, which is
defined to mean the recipient's average annual compensation from the
employer includable in the recipient's gross income during the most recent
five taxable years ending before the date on which a change in control of
the employer occurred. Recipients of excess parachute payments are subject
to a 20% excise tax on the amount by which such payments exceed the base
amount, in addition to regular income taxes, and payments in excess of the
base amount are not deductible by the employer as compensation expense for
federal income tax purposes.
Although the above-described severance agreements could increase the
cost of any acquisition of control of the Company or the Association,
management of the Company and the Association does not believe that the
terms thereof would have a significant anti-takeover effect.
Indebtedness of Management
All of the Association's currently outstanding loans to its directors
and executive officers were originally made either (i) in the ordinary
course of business at substantially the same terms, including interest rates
and collateral, as those prevailing at the time of the loans for comparable
transactions with other persons and did not involve more than the normal
risk of collectability or other unfavorable features or (ii) pursuant to a
benefit or compensation program that is widely available to the employers of
the Association and that does not give preference to any insider of the
Association over other employees of the Association.
RATIFICATION OF APPOINTMENT OF AUDITORS
The Board of Directors of the Company has appointed Grant Thornton,
independent certified public accountants, to perform the audit of the
Company's financial statements for the year ending June 30, 2000, and
further directed that the selection of auditors be submitted for
ratification by the stockholders at the Annual Meeting.
The Company has been advised by Grant Thornton that neither that firm
nor any of its associates has any relationship with the Company or its
subsidiaries other than the usual relationship that exists between
independent certified public accountants and clients. Grant Thornton will
have one or more representatives at the Annual Meeting who will have an
opportunity to make a statement, if they so desire, and will be available to
respond to appropriate questions.
The Board of Directors recommends that you vote FOR the ratification
of the appointment of Grant Thornton as independent auditors for the fiscal
year ending June 30, 2000.
-11-
<PAGE>
SHAREHOLDER PROPOSALS
Any proposal which a shareholder wishes to have included in the proxy
materials of the Company relating to the next annual meeting of shareholders
of the Company, which is scheduled to be held in October 2000, must be
received at the principal executive offices of the Company, 119 South
Sandusky Avenue, Bucyrus, Ohio 44820, Attention: Secretary, no later than
May 31, 2000. If such proposal is in compliance with all of the requirements
of Rule 14a-8 under the 1934 Act, it will be included in the proxy statement
and set forth on the form of proxy issued for such annual meeting of
shareholders. It is urged that any such proposals be sent certified mail,
return receipt requested.
Shareholder proposals which are not submitted for inclusion in the
Company's proxy materials pursuant to Rule 14a-8 under the 1934 Act may be
brought before an annual meeting pursuant to Article X, Sections D and E of
the Company's Code of Regulations, which provides that business at an annual
meeting of shareholders must be (a) specified in the notice of meeting (or
any supplement thereto) given by or at the direction of the Board of
Directors, or (b) otherwise properly brought before the meeting by a
shareholder. For business to be properly brought before an annual meeting by
a shareholder, the shareholder must have given timely notice thereof in
writing to the Secretary of the Company. To be timely, a shareholder's
notice must be delivered to or mailed and received at the principal
executive offices of the Company not less than 90 days prior to the
anniversary date of the mailing of proxy materials by the Company for the
immediately preceding annual meeting. A shareholder's notice must set forth
as to each matter the shareholder proposes to bring before an annual meeting
(a) a brief description of the business desired to be brought before the
annual meeting, (b) the name and address, as they appear on the Company's
books, of the shareholder proposing such business, (c) the class and number
of shares of Common Stock of the Company which are beneficially owned by the
shareholder, and (d) any material interest of the shareholder in such
business. No shareholder proposals were received by the Company in
connection with the Annual Meeting.
ANNUAL REPORTS
A copy of the Company's Annual Report to Shareholders for the year
ended June 30, 1999 accompanies this Proxy Statement. Such annual report is
not part of the proxy solicitation materials.
Upon receipt of a written request, the Company will furnish to any
shareholder without charge a copy of the Company's Annual Report on Form
10-K required to be filed with the Securities and Exchange Commission under
the 1934 Act. Such written requests should be directed to Brian R. Buckley,
Community Investors Bancorp, Inc., P.O. Box 766, 119 South Sandusky Avenue,
Bucyrus, Ohio 44820. The Form 10-K is not part of the proxy solicitation
materials.
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<PAGE>
OTHER MATTERS
Management is not aware of any business to come before the Annual
Meeting other than the matters described above in this Proxy Statement.
However, if any other matters should properly come before the meeting, it is
intended that the proxies solicited hereby will be voted with respect to
those other matters in accordance with the judgment of the persons voting
the proxies.
The cost of the solicitation of proxies will be borne by the
Company. The Company will reimburse brokerage firms and other custodians,
nominees and fiduciaries for reasonable expenses incurred by them in sending
the proxy materials to the beneficial owners of the Company's Common Stock.
In addition to solicitations by mail, directors, officers and employees of
the Company may solicit proxies personally or by telephone without
additional compensation
-13-
