Ohio Bank Dodged Tax Bullet by Setting Up Charitable Foundation Before

Second Bancorp in Ohio has created a charitable foundation that will make it cheaper to help local organizations over the next decade.

The $904 million-asset company, based in the Rust Belt town of Warren, near Youngstown, is funding the foundation with $800,000 in investment securities that officials hope will rise in value.

The second-quarter move was made in anticipation of a costly change in the federal tax code, said Christopher Stanitz, a senior vice president at Second Bancorp.

Under tax rules that took effect June 1, companies that give away assets cannot write off their current market value, but only the value at the time of purchase, according to John Ziegelbauer, senior manager of Grant Thornton's tax division in Washington.

Second Bancorp's outside accountant suggested that it create the foundation before the tax code changed. Having done so, the company can write off the assets' current value-$800,000-this year.

It will also save on taxes over the next decade. The foundation plans an annual charitable distribution of between $100,000 and $120,000-the amount Second Bancorp has traditionally given away each year, Mr. Stanitz said.

Analysts who follow Second Bancorp said it was smart to take advantage of the tax savings during the second quarter, even though the move resulted in a loss of $192,000 for the quarter, or 3 cents per share.

"If they're going to give back to the community anyway, they might as well help themselves along the way," said Ross A. Demmerle, a bank analyst at McDonald & Company Investments.

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