<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------
SUCCESS BANCSHARES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 6712 #36-3497644
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
One Marriott Drive
Lincolnshire, Illinois 60069
(847) 634-4200
(Address and Telephone Number of Principal Executive Offices and
Principal Place of Business)
Saul D. Binder
President and Chief Executive Officer
Success Bancshares, Inc.
One Marriott Drive
Lincolnshire, Illinois 60069
(847) 634-4200
(Name, Address and Telephone Number of Agent for Service)
Please address a copy of all communications to:
<TABLE>
<S> <C>
Michael J. Gamsky Kurt W. Florian, Jr.
Much Shelist Freed Denenberg Ament Bell & Rubenstein, P.C. Lord, Bissell & Brook
200 N. LaSalle Street, Suite 2100 115 S. LaSalle Street
Chicago, Illinois 60601 Chicago, Illinois 60603
Telephone No: (312) 346-3100 Telephone No: (312) 443-1800
Fax No: (312) 621-1750 Fax No: (312) 443-0336
</TABLE>
Approximate Date of Proposed Sale to the Public: As soon as practicable
after the Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933 check the following box. / X /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
====================================================================================================================================
TITLE OF EACH CLASS OF AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION
REGISTERED PER UNIT FEE(2)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock ($0.001 par value) ........... 1,380,000 shares(1) $12.50 $17,250,000 $5,227
====================================================================================================================================
</TABLE>
(1) Includes 180,000 shares of Common Stock subject to the additional
subscription option and the over-allotment option.
(2) The registration fee was previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION DATED SEPTEMBER ___, 1997
PROSPECTUS 1,200,000 SHARES
SUCCESS BANCSHARES, INC.
[LOGO]
COMMON STOCK
Success Bancshares, Inc. (the "Company") is offering for sale, on a "best
efforts" basis, up to 1,200,000 shares of its Common Stock, $0.001 par value
per share (the "Common Stock"), at a price of $12.50 per share. Of these
shares, 600,000 shares are being offered by the Company, on a "best efforts"
basis, with the assistance of EVEREN Securities, Inc. (the "Selling Agent") in
a Subscription and Community Offering (as defined herein) and 600,000 shares
are being offered concurrently by the Selling Agent, on a "best efforts" basis,
in a Public Offering (as defined herein). The shares being offered by the
Company in the Subscription and Community Offering are being offered on a
priority basis to shareholders of record of the Company as of September 15,
1997 ("Record Date Shareholders"), and to certain customers of Success National
Bank, a majority owned subsidiary of the Company (the "Bank"), as of September
15, 1997 ("Record Date Customers"), in a subscription offering (the
"Subscription Offering"). The highest priority will be given in the
Subscription Offering to Record Date Shareholders placing purchase orders for
shares of Common Stock offered hereby prior to Noon, Central Time, on October
15, 1997. While shares are being offered on a priority basis to eligible
subscribers in the Subscription Offering, the Company is also concurrently
offering Common Stock for sale to the general public in a direct community
offering (the "Community Offering") with preference given to residents of the
communities served by the Bank. The Subscription Offering and Community
Offering are collectively referred to herein as the "Subscription and Community
Offering." The Company reserves the right in its sole discretion, regardless of
any priorities or preferences, to accept or reject orders in whole or in part
in the Subscription and Community Offering, which will expire at Noon, Central
Time, on October 28, 1997 (the "Expiration Date") and to terminate the
Subscription and Community Offering prior to the Expiration Date. The minimum
subscription for any investor in the Subscription and Community Offering is 200
shares, or $2,500. ONCE MADE, SUBSCRIPTIONS ARE IRREVOCABLE. The shares being
offered concurrently by the Selling Agent in a Public Offering are being
offered, on a "best efforts" basis, to the general public in an underwritten
public offering (the "Public Offering") managed by the Selling Agent. The
number of shares of Common Stock to be offered in the Subscription and
Community Offering and the Public Offering is subject to adjustment as
described herein. The Subscription and Community Offering and the Public
Offering are referred to collectively herein as the "Offering." COMPLETION OF
THE OFFERING IS NOT CONDITIONED UPON THE SALE OF ANY MINIMUM NUMBER OF SHARES
IN EITHER THE SUBSCRIPTION AND COMMUNITY OFFERING OR THE PUBLIC OFFERING.
Prior to this Offering there has been no public market for the Common
Stock, and there can be no assurance that such a market will develop after
completion of the Offering or, if developed, that it will be sustained. For
information relating to the determination of the initial public offering price
of the Common Stock, see "Terms of the Offering." The Company has applied to
have its Common Stock approved for quotation on The Nasdaq National Market(SM)
under the symbol "SXNB" subject to the completion of the Offering.
--------------------
For information on how to subscribe for shares of Common Stock,
please call the Stock Information Office at (800) 744-6248 and ask for an
EVEREN Securities, Inc. representative.
--------------------
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FACTORS SET FORTH UNDER
"RISK FACTORS" BEGINNING ON PAGE 10 OF THIS PROSPECTUS
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS
OR DEPOSITS, AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, ANY OTHER GOVERNMENTAL AGENCY OR OTHERWISE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
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SELLING AGENT
COMMISSIONS AND PROCEEDS TO
PRICE TO PUBLIC UNDERWRITING COMPANY(3)
DISCOUNT(1)(2)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share ..................... $12.50 $0.6562 $11.8438
- ------------------------------------------------------------------------------------------------------------------------------------
Total(4) ..................... $15,000,000 $787,500 $14,212,500
====================================================================================================================================
</TABLE>
(1) The Company has agreed to indemnify the Selling Agent against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Terms of the Offering."
(2) Of the up to 1,200,000 shares being offered, 600,000 shares are being
offered by the Company on a "best efforts" basis with the assistance of the
Selling Agent in a Subscription and Community Offering and 600,000 shares
are being offered concurrently by the Selling Agent in a Public
Offering. The number of shares of Common Stock to be offered in the
Subscription and Community Offering and the Public Offering is subject to
adjustment as described herein. Assumes all 1,200,000 shares are sold on
this basis. Based upon negotiations between the Company and the Selling
Agent, the Company has agreed to pay the Selling Agent a commission equal
to 3.5% of the aggregate price of the shares sold directly by the Company
in the Subscription and Community Offering and to allow the Selling Agent
to purchase the number of shares to be offered in the Public Offering at
the per share price to public less an underwriting discount of 7%.
(3) Before deducting expenses payable by the Company estimated to be
approximately $650,000, including a maximum of $100,000 reimbursable to the
Selling Agent for out-of-pocket expenses.
(4) Assumes no exercise of the additional subscription or over-allotment
option and the sale of 600,000 shares by the Company in the Subscription
and Community Offering and 600,000 shares by the Selling Agent in
the Public Offering (although there is no minimum number of shares required
to be sold). The Company may, in its sole discretion, increase the number
of shares of Common Stock sold by up to an additional 15% of the number of
shares sold in the Subscription and Community Offering to satisfy unfilled
purchase orders (the "additional subscription option") and has granted to
the Selling Agent an option, exercisable within 30 days of the completion
date of the Public Offering, to purchase up to an additional 15% of the
number of shares sold in the Public Offering at the price to public less
underwriting discount for the purpose of covering over-allotments, if any
(the "over-allotment option"). If the Company exercises the additional
subscription option in full and the Selling Agent exercises the
over-allotment option in full, the total price to public, Selling Agent
commissions and underwriting discount, and proceeds to the Company will be
$17,250,000, $905,625, and $16,344,375, respectively. See "Terms of the
Offering."
--------------------
EVEREN SECURITIES, INC.
The date of this Prospectus is _____________, 1997
<PAGE> 3
SUCCESS BANCSHARES, INC.
[LOGO]
[MAP]
CERTAIN PERSONS PARTICIPATING IN THE PUBLIC OFFERING MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE
COMMON STOCK. SUCH TRANSACTIONS MAY INCLUDE STABILIZING AND THE PURCHASE OF
COMMON STOCK TO COVER THE SYNDICATE SHORT POSITIONS.
IN CONNECTION WITH THE PUBLIC OFFERING, CERTAIN PERSONS MAY ENGAGE IN
PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL
MARKET IN ACCORDANCE WITH RULE 103 UNDER REGULATION M.
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Company's Consolidated Financial Statements, including the
accompanying notes, appearing elsewhere in this Prospectus. Unless otherwise
indicated, the information in this Prospectus (i) assumes no exercise of the
Company's additional subscription option or the Selling Agent's over-allotment
option and (ii) gives effect to a 1.7-for-1 stock split effected on July 30,
1997 (the "stock split"). Pro forma information gives effect to the
reorganization of the capital structure of the Company consisting of (a) the
increase in the authorized number of shares of Common Stock to 7,500,000, (b)
the changing of the par value of each share of Common Stock to $0.001, (c) the
conversion of all of the outstanding shares of the Company's Series B Preferred
Stock into 91,104 shares of Common Stock (post stock split), (d) the conversion
of all of the outstanding shares of the Company's Class A Common Stock into
171,745 shares of Common Stock (post stock split), (e) the conversion of the
aggregate outstanding principal amount of the Company's 1992 9% Convertible
Subordinated Debentures (the "1992 Debentures") into 234,582 shares of Common
Stock (post stock split), and (f) the conversion of the aggregate outstanding
principal amount of the Company's 1995 15% and 17% Convertible Subordinated
Notes (the "1995 Notes") into 92,400 shares of Common Stock (post stock split)
(collectively, the "Reorganization"). The Reorganization was completed in July,
1997, except for the conversion of the 1992 Debentures and 1995 Notes which will
be effected as of the closing date of the Offering. Prospective investors
should carefully consider the matters set forth in "Risk Factors."
THE COMPANY
Success Bancshares, Inc., a Delaware corporation (the "Company"), is a bank
holding company headquartered in Lincolnshire, Illinois with total assets of
over $300 million at June 30, 1997. Through its majority owned subsidiary,
Success National Bank (the "Bank"), the Company engages in full service
community banking. The Bank is also headquartered in Lincolnshire, Illinois,
located approximately 35 miles north of downtown Chicago, and has seven branch
offices serving individuals and small-to-medium-sized businesses in communities
in the north and northwest suburbs of Chicago and the north side of Chicago.
These banking facilities, all of which have been established since 1991, are
located in Deerfield (2), Libertyville, Lincolnwood, Chicago (Lincoln Park),
Arlington Heights and Northbrook, Illinois.
The Bank was founded in 1973 with an initial equity investment of $3
million. In 1982, an investment group, including Saul D. Binder, the current
President and Chief Executive Officer of the Company and the Bank, purchased
majority control of the Bank, which at that time had one location and $10
million in total assets. In 1986, the Company was organized as a holding
company for the Bank and a majority of the Bank's shareholders exchanged their
shares of Bank capital stock for shares of Company capital stock. The Company
currently owns 100% of the Bank's outstanding preferred stock and 92% of the
Bank's outstanding common stock.
The Company provides community banking services to individuals,
small-to-medium-sized businesses, local governmental units and institutional
clients primarily in the Northern Chicagoland area. These services include
traditional checking, NOW, money market, savings and time deposit accounts, as
well as a number of innovative deposit products targeted to specific market
segments. The Bank offers home equity, home mortgage, commercial real estate,
commercial and consumer loans, safe deposit facilities and other innovative and
traditional services specially tailored to meet the needs of customers in its
target markets. The Company's goal is to continue to offer innovative,
attractive financial products to businesses and individuals in its market area.
In May, 1996, the Bank became one of the first banks in its market area to go
on-line with its own home page on the World Wide Web
(http://www.successbank.com). The Bank's home page enables consumers to access
information regarding branch locations, deposit and loan rates and economic
forecasts. The Bank recently introduced its Success for Seniors account to
compete with the high cost reverse mortgage products of its competitors. This
new product combines a high rate of interest NOW account with a 20 year home
equity line of credit and the added flexibility of a Visa Gold card.
As a community bank, the Bank stresses personalized service, local decision
making, quick customer response and strong relationships with business, civic
and community organizations. Management believes this marketing and service
approach enables the Bank to compete effectively with the money center, super
regional and regional banks that have a presence in its target markets. By
continuing to offer quality service, management expects to be
3
<PAGE> 5
able to expand the Bank's base of core deposits and to expand loan growth among
its commercial and retail customers.
The Company's goal is to continue to grow the assets of the Bank and
increase profitability while maintaining strong credit quality. To achieve this
goal, the Company's strategic plan is to continue to focus on providing a high
level of service to its core customers while expanding its market share in its
target markets. Key elements of the Company's strategic plan include:
- MAINTAINING STRONG LOCAL PRESENCE AND LOCAL DECISION MAKING
AUTHORITY. The Company believes that its local presence and focus on local
decision making provides the Bank with the competitive advantage of being able
to tailor products and services to meet the needs of the customers and
communities in its target markets, to make decisions for customers quickly, and
to enjoy the symbiotic benefits of investing and participating in its community.
- PROVIDING A HIGH LEVEL OF SERVICE THROUGH QUALITY EMPLOYEES. The
Company intends to compete with larger institutions by providing a high level of
individualized service and responsiveness. To provide this individualized
personal service, the Company emphasizes the recruiting and training of
competent and highly motivated employees who are able to make decisions and
quickly respond to customers' needs.
- POSITIONED FOR CONTROLLED MARKET EXPANSION. The Company will pursue
disciplined growth in its target markets by opening branches in areas where
management believes local residents and small-to-medium-sized businesses would
benefit from a community banking alternative. The Company's strategic plan also
includes selectively acquiring other financial institutions in its target
markets.
- INCREASING ITS PORTFOLIO OF HIGH QUALITY LOANS. The Company is
committed to maintaining strong credit quality while increasing income as the
Company grows.
- FOCUSING ON CORE CUSTOMERS. The Company believes that focusing on
establishing and maintaining long-term relationships with individuals and
small-to-medium-sized businesses in its target markets will result in growth and
increased profitability.
- CREATING INNOVATIVE AND NICHE PRODUCTS. The Company intends to
continue developing innovative loan and deposit products. The Company also
intends to continue developing lending niches which generate loan growth and
service its target markets.
The Company's executive offices are located at One Marriott Drive,
Lincolnshire, Illinois 60069, and its telephone number is (847) 634-4200.
4
<PAGE> 6
THE OFFERING
COMMON STOCK OFFERED IN THE
OFFERING . . . . . . . . . . . . 1,200,000 shares
COMMON STOCK TO BE OUTSTANDING
AFTER THE OFFERING . . . . . . . 2,759,949 shares(1)
PRICE TO PUBLIC . . . . . . . . . . . $12.50 per share
USE OF PROCEEDS . . . . . . . . . . . The Company intends to use the net
proceeds from the sale of shares of
Common Stock offered hereby to
repay all or a portion of the
amount outstanding under the
Company's $8 million revolving line
of credit. At July 30, 1997,
approximately $7.4 million of
indebtedness was outstanding under
the line of credit. The Company
intends to contribute any remaining
net proceeds to the capital of the
Bank to support continued growth of
the Bank's loan portfolio.
SUBSCRIPTION OFFERING . . . . . . . . 600,000 shares of Common Stock are
being offered by the Company on a
priority basis to shareholders of
record of the Company as of
September 15, 1997, and to certain
customers of the Bank as of
September 15, 1997. The highest
priority will be given to those
Record Date Shareholders placing
purchase orders prior to Noon,
Central Time, on October 15, 1997.
COMMUNITY OFFERING . . . . . . . . . While shares are being offered on a
priority basis to eligible
subscribers in the Subscription
Offering, the Common Stock is also
being concurrently offered by the
Company for sale to the general
public in a direct community
offering with a preference given
to residents of the communities
served by the Bank. For a
description of the communities
served by the Bank, see "Business
-- Market." The Public Offering
is being conducted concurrently
with the Subscription and
Community Offering. Depending on
market demand, the Company and the
Selling Agent may determine to
increase or decrease the number of
shares of Common Stock to be
offered in the Subscription and
Community Offering relative to the
Public Offering. COMPLETION OF THE
SUBSCRIPTION AND COMMUNITY
OFFERING IS NOT CONDITIONED UPON
THE SALE OF ANY MINIMUM NUMBER OF
SHARES IN THE SUBSCRIPTION AND
COMMUNITY OFFERING OR THE PUBLIC
OFFERING.
SUBSCRIPTION AND COMMUNITY
OFFERING PERIOD . . . . . . . . The Subscription and Community
Offering will terminate at Noon,
Central Time, on October 28, 1997,
unless extended by the Company.
PUBLIC OFFERING . . . . . . . . . . . 600,000 shares of Common Stock are
being offered, on a "best efforts"
basis, concurrently with the
Subscription and Community
Offering by the Selling Agent to
the general public in an
underwritten Public Offering.
Depending on market demand, the
Company and the Selling Agent may
determine to increase or decrease
the number of shares of Common
Stock to be offered in the Public
Offering relative to the
Subscription and Community
Offering. Although 600,000
5
<PAGE> 7
shares of Common Stock are being
offered by the Selling Agent to
the general public in the Public
Offering, the Selling Agent is not
obligated pursuant to the Agency
Agreement to purchase any of the
shares of Common Stock offered in
the Public Offering. Completion
of the Public Offering will be
subject to the execution of a
public offering acknowledgment
(the "Public Offering
Acknowledgment") pursuant to which
the Company and the Selling Agent
agree that the Agency Agreement
will constitute the underwriting
agreement between the Company and
the Selling Agent for purposes of
the Public Offering. Subject to
the terms and conditions contained
in the Public Offering
Acknowledgment, the Selling Agent
will agree to purchase from the
Company and the Company will agree
to sell to the Selling Agent a
specified number of shares of
Common Stock to be offered to the
general public in the Public
Offering. The Company and the
Selling Agent currently anticipate
that the Public Offering
Acknowledgment will be executed
within five business days
following the termination of the
Subscription and Community
Offering. Whether the Public
Offering Acknowledgment is
executed and the Public Offering
is completed will depend upon,
among other factors, the market
conditions then prevailing and the
then-current financial condition
of the Company. The number of
shares of Common Stock to be sold
in the Public Offering will be
determined by the Selling Agent
and the Company. COMPLETION OF THE
PUBLIC OFFERING IS NOT CONDITIONED
UPON THE SALE OF ANY MINIMUM
NUMBER OF SHARES IN THE PUBLIC
OFFERING OR THE SUBSCRIPTION AND
COMMUNITY OFFERING.
ADDITIONAL-SUBSCRIPTION AND OVER-
ALLOTMENT OPTIONS . . . . . . . . The Company may, in its sole
discretion, increase the number of
shares of Common Stock sold by up
to an additional 15% of the number
of shares sold in the Subscription
and Community Offering to satisfy
unfilled purchase orders (the
"additional subscription option").
In addition, the Company has
granted to the Selling Agent an
option, exercisable within 30 days
of the completion date of the
Public Offering, to purchase up to
an additional 15% of the number of
shares sold in the Public Offering
(the "over-allotment option").
PROCEDURES FOR ORDERING SHARES OF
COMMON STOCK IN THE SUBSCRIPTION
AND COMMUNITY OFFERING . . . . . . Record Date Shareholders, Record
Date Customers and other
interested investors in the
Subscription and Community
Offering must return to the
Company the accompanying original
Stock Order Form (facsimile copies
and photocopies will not be
accepted) and a fully executed
Certification Form, along with
full payment (or appropriate
instructions for authorizing a
withdrawal from a deposit account
at the Bank) at $12.50 per share
for all shares subscribed for or
ordered prior to Noon, Central
Time, on October 28, 1997. The
minimum subscription for any
investor is 200 shares, or $2,500.
6
<PAGE> 8
To receive the highest priority in
the Subscription Offering, Record
Date Shareholders must place
purchase orders prior to Noon,
Central Time, on October 15, 1997.
The Company reserves the right in
its sole discretion, regardless of
priorities or preferences, to
accept or reject orders in whole
or in part in the Subscription and
Community Offering and to
terminate the Subscription and
Community Offering prior to the
Expiration Date. Subscription
proceeds will be held in a
non-interest bearing escrow
account at the Bank pending
closing of the Offering. ONCE
MADE, SUBSCRIPTIONS ARE
IRREVOCABLE. COMPLETION OF THE
SUBSCRIPTION AND COMMUNITY
OFFERING IS NOT CONDITIONED UPON
THE SALE OF ANY MINIMUM NUMBER OF
SHARES IN THE OFFERING. Delivery
of certificates evidencing the
shares will be made either
directly to purchasers of the
shares or through the facilities
of the Depository Trust Company as
soon as practicable following
completion of the Offering. See
"Terms of the Offering" for
complete instructions for ordering
shares and terms and conditions of
the Subscription and Community
Offering.
DIVIDEND POLICY . . . . . . . . . . . The Company intends to retain
future earnings for the operation
and expansion of its business and
does not anticipate paying cash
dividends on the Common Stock in
the foreseeable future. See
"Dividend Policy."
PROPOSED NASDAQ NATIONAL MARKET(SM)
SYMBOL . . . . . . . . . . . . . . SXNB
- -------------
(1) Assuming 1,200,000 shares of Common Stock are sold in the Offering.
Excludes 170,000 shares of Common Stock reserved for issuance under
the Success Bancshares, Inc. 1995 Stock Option Plan (the "1995 Stock
Option Plan") and 115,090 shares reserved for issuance pursuant to
options granted prior to the implementation of the 1995 Stock Option
Plan. There are currently 153,340 options outstanding, including
options outstanding under the 1995 Stock Option Plan, each of which
entitles the holder thereof to purchase one share of Common Stock.
See "Management -- Stock Option Plans." The weighted average exercise
price per share for all of the currently outstanding options is $5.02.
Of the currently outstanding options, 127,840 are currently
exercisable at a weighted average price of $4.79 per share.
7
<PAGE> 9
SUMMARY CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The summary consolidated financial and other data should be read in
conjunction with the Company's Consolidated Financial Statements, including the
accompanying notes, appearing elsewhere in this prospectus and with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." Results for interim periods are not necessarily indicative of
results to be expected during the remainder of the year or for any future
period.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
----------------------- --------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Interest income . . . . . . . . . . . . . . $ 11,215 $ 9,568 $ 19,850 $ 18,675 $ 14,619 $ 10,960 $ 9,952
Interest expense . . . . . . . . . . . . . 5,725 4,806 10,020 9,886 7,221 5,016 4,794
---------- ---------- ---------- ---------- ---------- --------- ---------
Net interest income . . . . . . . . . . 5,490 4,762 9,830 8,789 7,398 5,944 5,158
Provision for loan losses . . . . . . . . . 228 128 310 207 250 220 315
---------- ---------- ---------- ---------- ---------- --------- ---------
Net interest income after provision for
loan losses . . . . . . . . . . . . . . 5,262 4,634 9,520 8,582 7,148 5,724 4,843
Other operating income . . . . . . . . . . 3,913 3,299 7,149 6,004 5,007 5,501 4,561
Other operating expenses . . . . . . . . . 8,620 7,481 15,630 13,342 12,016 10,144 8,217
Minority interest in income of
subsidiary bank . . . . . . . . . . . . 7 13 23 47 58 79 129
---------- ---------- ---------- ---------- ---------- --------- ---------
Income before taxes . . . . . . . . . . 548 439 1,016 1,197 81 1,002 1,058
Income tax expense (benefit) . . . . . . . 188 92 233 260 (182) 176 285
---------- ---------- ---------- ---------- ---------- --------- ---------
Net income . . . . . . . . . . . . . . . $ 360 $ 347 $ 783 $ 937 $ 263 $ 826 $ 773
========== ========== ========== ========== ========== ========= =========
COMMON SHARE DATA(1):
Earnings per common and common
equivalent share
Primary . . . . . . . . . . . . . . . . $ 0.29 $ 0.30 $ 0.66 $ 0.89 $ 0.25 $ 0.87 $ 0.84
Fully diluted . . . . . . . . . . . . . 0.29 0.30 0.66 0.86 0.25 0.84 0.82
Book value(2) . . . . . . . . . . . . . . . 9.35 8.52 8.99 7.48 5.83 7.27 6.14
Weighted average common and common
equivalent shares outstanding 1,239,388 1,150,971 1,182,286 1,057,461 1,032,253 952,441 923,812
PRO FORMA COMMON SHARE DATA(1)(3):
Earnings per common and common
equivalent share
Primary . . . . . . . . . . . . . . . . $ 0.29 $ 0.62
Fully diluted . . . . . . . . . . . . . 0.29 0.62
Book value . . . . . . . . . . . . . . . . 8.85 8.59
Weighted average common and common
equivalent shares outstanding . . . . . 1,622,615 1,585,837
JUNE 30, DECEMBER 31,
----------------------- -------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- --------- --------- ---------
BALANCE SHEET DATA:
Loans, net . . . . . . . . . . . . . . . . . $ 230,075 $ 176,872 $ 203,299 $ 171,135 $ 139,491 $ 109,224 $ 88,072
Total assets . . . . . . . . . . . . . . . . 305,955 253,031 276,349 251,338 222,809 190,677 143,695
Deposits . . . . . . . . . . . . . . . . . . 268,236 222,690 245,105 227,308 204,171 162,676 132,155
Borrowings, including repurchase 24,386 19,261 18,975 14,395 11,174 19,644 4,319
agreements . . . . . . . . . . . . . . .
Shareholders' equity(4) . . . . . . . . . . 9,758 8,823 9,234 7,366 5,625 6,276 5,108
</TABLE>
8
<PAGE> 10
<TABLE>
<CAPTION>
June 30, 1997
-----------------------------------------------------------------------
PRO FORMA PRO FORMA
ACTUAL PRO FORMA(3) AS ADJUSTED(3)(5) AS ADJUSTED(3)(6)
------ ------------ ----------------- ----------------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Loans, Net . . . . . . . . . . . . . . . $ 230,075 $ 230,075 $ 230,075 $ 230,075
Total Assets . . . . . . . . . . . . . . 305,955 305,955 307,996 315,102
Deposits . . . . . . . . . . . . . . . . 268,236 268,236 268,236 268,236
Borrowings, Including Repurchase
Agreements . . . . . . . . . . . . . . . . 24,386 21,219 16,804 16,804
Shareholders' Equity . . . . . . . . . . 9,758 12,925 19,382 26,488
SIX MONTHS
ENDED JUNE 30,(10) YEAR ENDED DECEMBER 31,
-------------------- ------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
PERFORMANCE DATA:
Net Interest Margin(7) . . . . . . . . . 4.19% 4.26% 4.25% 4.14% 4.14% 4.38% 4.50%
Return On Average Assets . . . . . . . . 0.25 0.28 0.31 0.40 0.13 0.53 0.59
Return On Average Equity(8) . . . . . . . 7.58 8.52 9.09 15.78 4.58 14.97 15.35
Loans to Deposits . . . . . . . . . . . . 85.77 79.43 82.94 75.29 68.32 67.14 66.64
Average Equity To Average Assets . . . . 3.28 3.30 3.36 2.54 2.81 3.53 3.87
ASSET QUALITY RATIOS:
Non-Performing Loans To Total Loans(9) . 0.49% 0.22% 0.06% 0.37% 0.27% 1.25% 1.07%
Non-Performing Assets To Total Assets . . 0.37 0.16 0.04 0.25 0.17 0.72 0.88
Allowance For Loan Losses To Total Loans 0.70 0.70 0.70 0.70 0.71 0.78 0.73
Non-Performing Loans To
Allowance For Loan Losses . . . . . . 70.10 31.75 8.28 53.74 38.10 160.35 146.37
Net Loan Charge-offs To Average Loans . . 0.02 0.06 0.04 0.01 0.08 0.01 0.24
Other:
Branch Offices . . . . . . . . . . . . . 7 7 7 7 5 4 2
Full-Time Equivalent Employees . . . . . 143 139 144 150 120 114 73
</TABLE>
________________
NOTES TO SUMMARY CONSOLIDATED FINANCIAL DATA
(1) Common share data has been restated to reflect the stock split.
(2) Book value per share is calculated using total shareholders' equity
plus stock owned by Employee Stock Ownership Plan ("ESOP") participants,
net of ESOP loan, divided by shares outstanding at end of period.
(3) The pro forma information reflects the completion of the Reorganization.
(4) The decrease in shareholders' equity from $6,276 in 1993 to $5,625 in
1994 is primarily attributable to the implementation of SFAS 115
Accounting for Certain Investments in Debt and Equity Securities on
December 31, 1993. The unrealized net loss on securities
available-for-sale, net of tax declined $1.7 million during 1994, and
was recorded as a reduction in shareholders' equity.
(5) Adjusted to reflect the Offering (assuming the sale of 1,200,000 shares
and net proceeds of $13.6 million and assuming no exercise of the
additional subscription option or the over-allotment option) and the
application of $4.4 million of the net proceeds to repay the amount
outstanding under the Company's revolving line of credit. See "Use of
Proceeds."
(6) Adjusted to reflect the Offering (assuming the sale of 600,000 shares
and net proceeds of $6.5 million and assuming no exercise of the
additional subscription option or the over-allotment option) and the
application of $4.4 million of the net proceeds to repay the amount
outstanding under the Company's revolving line of credit. See "Use of
Proceeds."
(7) Net interest income on a tax-equivalent basis divided by average
interest earning assets.
(8) Net income divided by average equity.
(9) Non-performing loans consist of non-accrual loans and loans
contractually past due 90 days or more and still accruing.
(10) All interim periods have been annualized.
9
<PAGE> 11
RISK FACTORS
Prospective investors should consider carefully the following factors
associated with the ownership of Common Stock together with the other
information contained in this Prospectus.
IMPACT OF BRANCH OPENINGS AND ACQUISITIONS ON PROFITABILITY
The Company's recent historical results have been impacted by the opening
of its branch banking facilities. Each of the various branch facilities was
newly opened by the Company within the past six years, including the Arlington
Heights branch which opened in September, 1997. While management believes that
the Company has demonstrated significant success to date in deposit generation
and will likely continue to increase its loans-to-deposits ratio as loan
origination activities increase, the level of reported net income and return on
average assets for the Company will in the near term continue to be impacted by
start-up costs associated with these branching operations. Management believes
that new branch facilities typically require 18 to 30 months of operation before
becoming profitable, due to the impact of organizational and overhead expenses,
the start-up phase of generating deposits and the time lag typically involved in
redeploying deposits into attractively priced loans and other higher yielding
assets. The Company intends to expand in its target markets by establishing
additional branches. To the extent the Company undertakes additional branching,
the Company is likely to continue to experience the effects of higher operating
expenses relative to operating income from the new branches, which may limit
increases in profitability. The Company's ability to expand by establishing new
branch offices is dependent on its ability to identify advantageous branch
office locations and generate new deposits and loans from those locations that
will create an acceptable level of net income for the Company. There can be no
assurance the Company will be able to successfully establish additional
branches.
Although the Company has expanded through establishing new branch offices
in the past, the Company's strategic plan also includes selectively acquiring
other financial institutions in its target markets. There can be no assurance
that potential acquisitions will be available on terms acceptable to the Company
or that the required regulatory approval of any proposed acquisitions will be
obtained. There can also be no assurance that the Company will be able to
successfully operate and manage any business that it does acquire so as to
maintain or increase profitability.
ADVERSE IMPACT OF ECONOMIC CONDITIONS
Economic conditions beyond the Company's control may have a significant
impact on the Company's operations, including changes in net interest income.
Examples of such conditions include: (i) the strength of credit demand by
customers; (ii) the introduction and growth of new investment instruments and
transaction accounts by non-bank financial competitors; and (iii) changes in the
general levels of interest rates, including changes resulting from the monetary
activities of the Board of Governors of the Federal Reserve System (the "Federal
Reserve").
Economic growth in the Company's market area is dependent upon the local
economy. Adverse changes in the economy of the Chicago metropolitan area would
likely impair the Bank's ability to gather deposits and could otherwise have a
negative effect on its business, including the demand for new loans, the ability
of customers to repay loans and the value of the collateral pledged to the Bank.
See "Business of the Company - Competition" and "- Market."
CREDIT RISK; ALLOWANCE FOR LOAN LOSSES
There are risks inherent in making any loan, including risks with respect
to the period of time over which the loan may be repaid, risks resulting from
changes in economic and industry conditions including those in the Company's
local market area, risks inherent in dealing with individual borrowers and risks
resulting from uncertainties as to the future value of the collateral. The
Company's allowance for loan losses is established in consultation with
management of the Bank and is maintained at a level considered adequate by
management to absorb anticipated loan losses. The Company has not experienced
any significant charge-offs since 1992. The amount of future losses is
susceptible to changes in economic, operating and other conditions, including
changes in interest rates, that may be beyond the Company's control, and such
losses may exceed current estimates.
10
<PAGE> 12
Management uses the best information available to it and draws upon many years
of banking experience in establishing the allowance for loan losses. Although
management believes that the allowance for loan losses is adequate to absorb
losses on any existing loans that may become uncollectible, there can be no
assurance that the allowance will prove sufficient to cover actual loan losses
in the future.
EFFECT OF INTEREST RATES
Like most banks, the Bank realizes income primarily from the spread between
interest earned on loans and investments and the interest paid on deposits and
borrowings. It is expected that the Bank, from time to time, will experience
"gaps" in the interest rate sensitivities of its assets and liabilities, meaning
that either its interest bearing liabilities will be more sensitive to changes
in market interest rates than its interest-earning assets, or vice versa. In
either event, if market interest rates should move contrary to the Bank's
position, the "gap" will work against the Bank and its earnings may be
negatively affected. Management actively monitors the interest rate
sensitivities of the assets and liabilities of the Bank in an effort to prevent
any gaps from approaching imprudent levels.
COMPLIANCE WITH REGULATORY CAPITAL REQUIREMENTS/EFFECT ON GROWTH
The Federal Reserve has established certain minimum risk-based capital
standards that apply to bank holding companies and the Office of the Comptroller
of the Currency (the "OCC") has established certain minimum risk-based capital
standards for national banks. As of June 30, 1997, the Company and the Bank
equaled or exceeded all capital adequacy requirements except that the Company's
actual total capital to risk weighted assets ratio ("Tier 2 Ratio") was below
the minimum ratio established by the Federal Reserve of 8.0%. As of June 30,
1997, the Company's actual Tier 2 Ratio was 7.31% and its total capital was
$15.1 million which was $1.3 million less than the minimum amount required by
the Federal Reserve. The Company's pro forma Tier 2 Ratio, reflecting the
completion of the Reorganization, is 7.95%. As of June 30, 1997, the most
recent notification from the OCC categorized the Bank as "well capitalized"
under the regulatory framework for prompt corrective action. The growth of the
Company and the Bank in the past has been, and may in the future be, constrained
by these capital adequacy requirements. The Offering is being undertaken in
part to ensure that the Company and the Bank meet all applicable capital
requirements to enable the Company to continue its growth. However, there can be
no assurance that after the Offering, the Company and/or the Bank will continue
to be in compliance with all of the applicable regulatory capital requirements.
Bank holding companies and/or banks which are not in compliance with the
applicable capital requirements may be subject to significant operating
restrictions including, among other restrictions, restrictions on the payment of
dividends and incurring additional indebtedness. Any imposition of such
operating restrictions on the Company and/or the Bank could have an adverse
effect on the Company's growth and its financial results. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources" and "Supervision and Regulation."
RELIANCE ON KEY PERSONNEL
The Company's success to date has been influenced strongly by its ability
to attract and to retain senior management experienced in providing community
banking services. The Company's ability to retain the management team of the
Bank, and, as the Company grows, to attract and retain qualified additional
senior and middle management will continue to be important to successful
implementation of the Company's strategy. Currently, the Company is the
beneficiary under a key-man life insurance policy on Saul D. Binder, President
and Chief Executive Officer of the Company and the Bank, in the amount of $1.0
million. Mr. Binder has also entered into an employment agreement with the
Company. Steven A. Covert, Executive Vice President and Chief Financial Officer
of the Company, has entered into an Executive Severance Agreement with the
Company. The unexpected loss of services of any key management personnel, or
the inability to recruit and retain qualified personnel in the future, could
have an adverse effect on the Company's business and financial results.
NO ASSURANCE THAT THE OFFERING WILL BE COMPLETED
Of the up to 1,200,000 shares offered hereby, 600,000 shares are being
offered by the Company with the assistance of the Selling Agent on a "best
efforts" basis in a Subscription and Community Offering and 600,000 shares are
being offered concurrently by the Selling Agent on a "best efforts" basis in a
Public Offering. The number of shares of Common Stock to be offered in the
Subscription and Community Offering and the Public Offering is subject to
adjustment as described herein. Neither completion of the Subscription and
Community
11
<PAGE> 13
Offering nor the Public Offering is conditioned upon the sale of any minimum
number of shares, and the number of shares actually issued may be substantially
less than the maximum 1,200,000 shares offered hereby. If the Company and the
Selling Agent determine to increase the number of shares of Common Stock to be
sold in the Public Offering, the Company would incur increased costs
attributable to an increase in the underwriting discount. See "Terms of the
Offering -- Plan of Distribution for the Subscription, Community and Public
Offerings." If the Offering is completed with a materially fewer number of
shares of Common Stock issued and/or the payment of additional selling costs,
the net proceeds would be reduced from the amounts set forth herein. A lower
level of capitalization may limit the Company's ability to implement elements of
its strategic plan.
RISK OF DELAYED OFFERING
Once made, subscriptions are irrevocable. Though the Company anticipates
completing the Offering as soon as practicable following the Expiration Date,
the Company has reserved the right to extend the Offering until December 1,
1997. Accordingly, investors placing purchase orders in the Subscription and
Community Offering, including any extensions thereof, are placed at the risk of
(i) foregoing potential investment income and having subscription funds
unavailable as a result of subscription funds being placed in a non-interest
bearing escrow account, and/or (ii) having holds placed on deposit accounts at
the Bank as a result of account withdrawal authorizations used as payment for
shares subscribed.
COMPETITION
The Company is headquartered in Lincolnshire, Illinois, a suburb of Chicago,
which is located in Lake County. The Company currently conducts its business
from its main office and seven branch offices, all of which are located in the
north and northwest suburbs of Chicago and the north side of Chicago. The
Company faces significant competition both in making loans and in attracting
deposits. Most of the Company's mortgage loans are secured by properties
located in Cook and Lake Counties. The Chicago metropolitan area has a high
density of financial institutions, many of which have a state-wide or regional
presence, and, in some cases, a national presence, and all of which are
competitors of the Company to varying degrees. The Company's competition for
loans comes principally from commercial banks, savings banks, savings and loan
associations, credit unions, mortgage banking companies and insurance
companies. Many of the Company's non-bank competitors are not subject to the
same degree of regulation as that imposed on bank holding companies, federally
insured banks and national banks. As a result, such non-bank competitors have
advantages over the Company in providing certain services. The Company's most
direct competition for deposits has historically come from commercial banks,
savings banks, savings and loan associations and credit unions, many of which
are significantly larger than the Company and, therefore, have greater
financial and marketing resources than those of the Company. The Company faces
additional competition for deposits from short-term money market funds, other
corporate and government securities funds and from other financial institutions
such as brokerage firms and insurance companies. Such competition may limit the
growth and profitability of the Company in the future. See "Business -- Market
and Competition."
SUBSTANTIAL CONTROL BY DIRECTORS AND EXECUTIVE OFFICERS
After the Offering, assuming none of them purchase additional shares in the
Offering, the directors, executive officers and certain key employees of the
Company will in aggregate own approximately 18.2% of the issued and outstanding
shares of Common Stock (assuming 1,200,000 shares are sold in the Offering) and
are likely to continue to exercise substantial control over the Company's
affairs. See "Principal Shareholders."
SUBSTANTIAL AND IMMEDIATE DILUTION
The initial public offering price is substantially higher than the net
tangible book value per share of Common Stock. Investors purchasing shares of
Common Stock in the Offering will be subject to immediate dilution of $2.84 per
share in pro forma net tangible book value. See "Dilution."
POTENTIAL ADVERSE EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE
Sale of a substantial number of shares of Common Stock in the public market,
whether by purchasers in this Offering or other shareholders of the Company,
could adversely affect the prevailing market price of the Common Stock, and
could impair the Company's future ability to raise capital through an offering
of its equity securities.
12
<PAGE> 14
There will be 2,759,949 shares of Common Stock outstanding immediately after
completion of the Offering (assuming 1,200,000 shares are sold in the Offering),
2,749,619 of which will be freely tradeable in the public market, subject in
certain cases to the volume and other limitations set forth in Rule 144
promulgated under Securities Act of 1933, as amended (the "Securities Act"), and
certain 180-day lock-up agreements with the Selling Agent. See "Shares Eligible
for Future Sale."
CERTAIN ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Restated Certificate of Incorporation
(the "Certificate of Incorporation"), by-laws (the "By-Laws"), and the Delaware
General Corporation Law ("DGCL") may have the effect of impeding the acquisition
or control of the Company by means of a tender offer, a proxy fight, open-market
purchases or otherwise in a transaction not approved by the board of directors
of the Company (the "Board of Directors"). Certain provisions will also render
the removal of the current Board of Directors or management of the Company more
difficult. Among other provisions, the Company's Certificate of Incorporation
and By-Laws include the authorization of "blank check" preferred stock, a
staggered board of directors, limiting the filling of Board of Directors
vacancies to the Board of Directors, requiring advance notice with respect to
shareholder proposals and director nominations and requiring an 80 percent vote
of the shareholders to amend certain anti-takeover provisions in the Certificate
of Incorporation and By-Laws. See "Description of Capital Stock."
NO DIVIDENDS
The Company has not paid any cash dividends on its Common Stock to date and
does not intend to pay such cash dividends in the foreseeable future. The
Company intends to retain earnings to finance the development and expansion of
its business. The Company is also subject to restrictions on the payment of
dividends under its revolving line of credit agreement. In addition, the
Company's ability to pay dividends in the future is dependent upon its receipt
of dividends paid to it by the Bank. The Bank is subject to certain
restrictions on the amount of dividends that it may declare without prior
regulatory approval. See "Dividend Policy."
SUPERVISION AND REGULATION
Bank holding companies and national banks operate in a highly regulated
environment and are subject to supervision and examination by federal
regulatory agencies. The Company is subject to the Bank Holding Company Act of
1956, as amended (together with the regulations issued thereunder, the "BHC
Act"), and to regulation and supervision by the Federal Reserve. The Bank, as
a national bank that is a member of the Federal Reserve System and insured by
the Federal Deposit Insurance Corporation (the "FDIC"), is subject to the
primary regulation and supervision of the OCC, and secondarily, of the FDIC.
Federal laws and regulations govern numerous matters including changes in the
ownership or control of banks and bank holding companies, maintenance of
adequate capital and the financial condition of a financial institution,
permissible types, amounts and terms of extensions of credit and investments,
permissible non-banking activities, the level of reserves against deposits, and
restrictions on dividend payments. The OCC and the FDIC possess cease and
desist powers to prevent or remedy unsafe or unsound practices or violations of
law by national banks, and the Federal Reserve possesses similar powers with
respect to bank holding companies. These and other restrictions limit the
manner in which the Company and the Bank may conduct business and obtain
financing. Furthermore, the commercial banking business is affected not only
by general economic conditions, but also by the monetary policies of the
Federal Reserve. Changes in monetary or legislative policies may affect the
interest rates the Bank must offer to attract deposits and the interest rates
it must charge on its loans, as well as the manner in which it offers deposits
and makes loans. These monetary policies have had, and are expected to
continue to have, significant effects on the operating results of commercial
banks, including the Bank. See "Supervision and Regulation."
ABSENCE OF PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common
Stock. The Company has applied to have its Common Stock approved for quotation
on The Nasdaq National Market(SM), subject to the completion of the Offering.
There can be no assurance that an active trading market will develop or, if
developed, will be sustained upon completion of the Offering or that the market
price of the Common Stock will not decline below the initial public offering
price. The market price of the Common Stock may be subject to significant
fluctuations in response to variations in quarterly operating results, the gain
or loss of significant contracts, changes in management,
13
<PAGE> 15
announcements of new products by the Company or its competitors, legislative or
regulatory changes, general trends in the industry and other events or factors.
In addition, the stock market has experienced extreme price and volume
fluctuations which have affected the market price of the common stock of many
companies for reasons frequently unrelated to the operating performance of these
companies. These broad market fluctuations may adversely affect the market
price of the Company's Common Stock. Securities recently issued in an initial
public offering are particularly susceptible to volatility based on the short
term trading strategies of certain investors. See "Terms of the Offering."
14
<PAGE> 16
USE OF PROCEEDS
The net proceeds to the Company from the sale of 1,200,000 shares of Common
Stock in this Offering are estimated to be approximately $13.6 million
(assuming (i) 600,000 shares are sold in the Subscription and Community
Offering; (ii) 600,000 shares are sold in the Public Offering; and (iii) no
exercise of the additional subscription option or the over-allotment option)
after deducting estimated offering expenses and Selling Agent commissions and
underwriting discount of approximately $1.4 million. If the Company sells
600,000 shares of Common Stock in this Offering, the net proceeds to the
Company are estimated to be approximately $6.5 million (assuming (i) 300,000
shares are sold in the Subscription and Community Offering; (ii) 300,000 shares
are sold in the Public Offering; and (iii) no exercise of the additional
subscription option or the over-allotment option) after deducting estimated
offering expenses and Selling Agent commissions and underwriting discount of
approximately $1 million. The shares of Common Stock in both the Subscription
and Community Offering and the Public Offering are being offered on a "best
efforts" basis and, accordingly, there is no requirement or assurance that the
Company will sell a specified minimum number of shares of Common Stock in the
Offering.
The Company will use the net proceeds of the Offering to repay all or a
portion of the amount outstanding under the Company's $8 million revolving line
of credit. At July 30, 1997, approximately $7.4 million of indebtedness was
outstanding under the line of credit. Borrowings under the line of credit bear
interest at the lender's prime rate and interest is payable quarterly. The
lender's prime rate was 8.5% at July 30, 1997. The line of credit is secured by
a pledge of the common stock and preferred stock of the Bank owned by the
Company. Loans drawn on the line of credit mature on June 15, 1998. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources." The Company intends to
contribute any remaining net proceeds of the Offering to the capital of the
Bank to support continued growth of the Bank's loan portfolio.
Once repaid, the unused portion of the revolving line of credit will remain
available and the Company may use the line for future borrowings from time to
time for general corporate purposes, including continued growth of the Bank,
for future branch office openings and for potential future acquisitions of
other financial institutions; however, no general corporate purpose has been
specifically identified by the Company at this time and the Company has no
arrangements, agreements or understandings concerning specific acquisitions.
DIVIDEND POLICY
The Company has not previously paid any cash dividends on the Common Stock.
The Company intends to retain all future earnings for the operation and
expansion of its business, and does not anticipate paying cash dividends on its
Common Stock in the foreseeable future. The Company is also subject to
restrictions on the payment of dividends under its revolving line of credit
agreement. In the future, any declaration and payment of dividends on the
Common Stock will depend upon the Company's results of operations, general
financial condition, capital requirements and any regulatory restrictions or
restrictions under credit agreements or other funding sources of the Company
existing from time to time, as well as other factors which the Company's Board
of Directors may consider relevant. The Company's principal source of funds to
pay dividends on the Common Stock will be cash dividends the Company receives
from the Bank. Should the Bank declare a dividend on its common stock, a pro
rata portion of such dividend would be required to be paid to the Bank's
minority shareholders. The Bank has in the past and intends to continue to pay
dividends only on its preferred stock, all of which is owned by the Company.
The payment of dividends by the Bank to the Company is subject to certain
restrictions imposed by federal and state banking laws, regulations and
authorities. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Supervision and Regulation."
15
<PAGE> 17
CAPITALIZATION
The following table sets forth the Company's consolidated capitalization
as of June 30, 1997, (i) on a historical basis; (ii) on a pro forma basis,
giving effect to the Reorganization; (iii) on a pro forma basis, giving effect
to Offering (assuming the sale of 600,000 shares and net proceeds of $6.5
million and assuming no exercise of the additional subscription option or the
over-allotment option) and the application of the net proceeds therefrom as
described under "Use of Proceeds"; and (iv) on a pro forma basis, giving effect
to the Offering (assuming the sale of 1,200,000 shares and net proceeds of
$13.6 million and assuming no exercise of the additional subscription option or
the over-allotment option) and the application of the net proceeds therefrom as
described under "Use of Proceeds". The shares of Common Stock in both the
Subscription and Community Offering and the Public Offering are being offered
on a "best efforts" basis and, accordingly, there is no requirement or
assurance that the Company will sell a specified minimum number of shares of
Common Stock in the Offering. This data should be read in conjunction with the
financial statements of the Company included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1997
---------------------------------------------------------
PRO FORMA PRO FORMA
AS ADJUSTED AS ADJUSTED
ACTUAL PRO FORMA(1) (600,000 (1,200,000
SHARES) SHARES)
---------- ------------- ------------ -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Short-Term Debt.................................................... $ 18,140 $ 18,140 $ 13,725 $ 13,725
Long-Term Debt:
Federal Home Loan Bank advances.................................. 3,079 3,079 3,079 3,079
9% Convertible Subordinated Debentures........................... 2,012 -- -- --
15% and 17% Convertible Subordinated Notes....................... 1,155 -- -- --
------ ------ -------- ---------
Total Long-Term Debt........................................... 6,246 3,079 3,079 3,079
Minority interest in subsidiary bank............................... 538 538 538 538
Stock owned by Employee Stock Ownership Plan ("ESOP")
participants, net of ESOP loan, Series B Preferred Stock,
$1.00 par value, 100,000 shares authorized, 53,918 shares
issued and outstanding actual; no shares of preferred stock
issued and outstanding pro forma and pro forma as adjusted;
Common Stock, $0.001 par value, no shares issued and
outstanding actual, 91,660 shares issued and outstanding pro
forma and pro forma as adjusted.................................. 800 800 800 800
Shareholders' Equity:
Preferred stock, $25.00 par value, 14,774 shares authorized,
no shares issued and outstanding actual; $0.001 par value,
1,000,000 shares authorized; no shares issued and
outstanding pro forma and pro forma as adjusted................ -- -- -- --
Common Stock, $1.00 par value, 1,000,000 shares authorized,
960,282 shares issued and outstanding actual; $0.001 par
value, 7,500,000 shares authorized, 1,459,010 shares
issued and outstanding pro forma; 2,059,010 shares issued and
outstanding pro forma as adjusted (600,000 shares);
2,659,010 shares issued and outstanding pro forma as adjusted
(1,200,000 shares)(2).......................................... 960 2 3 3
Class A Common Stock, $1 par value, 1,000,000 shares authorized,
115,500 shares issued and outstanding actual; no shares issued
and outstanding pro forma and pro forma as adjusted............ 116 -- -- --
Additional paid-in capital......................................... 4,869 9,110 15,566 22,672
Retained earnings.................................................. 4,298 4,298 4,298 4,298
------ ------ -------- ---------
Total before unrealized loss on securities....................... 10,243 13,410 19,867 26,973
Unrealized loss on securities, net of tax.......................... (485) (485) (485) (485)
------ ------ -------- ---------
Total shareholders' equity....................................... 9,758 12,925 19,382 26,488
------ ------ -------- ---------
Total capitalization............................................... $ 17,342 $ 17,342 $ 23,799 $ 30,905
====== ====== ======== =========
Capital ratios:
Leverage (4.00% required minimum)(3)............................. 4.00% 5.09% 7.27% 9.48%
Risk-based capital(4)
Tier 1 (4.00% required minimum)................................ 5.62% 7.16% 10.23% 13.35%
Tier 2 (8.00% required minimum)................................ 7.31% 7.95% 11.01% 14.12%
</TABLE>
- --------------
(1) The pro forma information reflects the completion of the Reorganization.
(2) Excludes 9,350 shares of Common Stock issued to Directors in July, 1997,
pursuant to the exercise of stock options granted as part of the Company's
Director Stock Option Program. Also excludes 170,000 shares of Common
Stock reserved for issuance under the 1995 Stock Option Plan and 115,090
shares reserved for issuance pursuant to options granted before the
implementation of the 1995 Stock Option Plan. There are currently
outstanding 153,340 options outstanding, including options outstanding
under the 1995 Stock Option Plan, each of which entitles the holder
thereof to purchase one share of Common Stock. See "Management -- Stock
Option Plans." The weighted average exercise price per share for all of
the currently outstanding options is $5.02. Of the currently outstanding
options, 127,840 are currently exercisable at a weighted average price of
$4.79.
(3) Leverage ratio is defined as Tier 1 capital (as defined in the
regulations) as a percent of total average assets. See "Supervision and
Regulation."
(4) The pro forma risk-based capital ratios have been computed assuming the
net proceeds of the Offering, after payment of the Company's indebtedness,
are invested in assets carrying a risk-weight that is equivalent to the
Company's average risk-weight at June 30, 1997. See "Supervision and
Regulation."
16
<PAGE> 18
DILUTION
The pro forma net tangible book value of the Company as of June 30, 1997
(after giving effect to the Reorganization and the exercise of outstanding
options to purchase 153,340 shares of Common Stock) was $13.7 million or
approximately $8.51 per pro forma share of Common Stock. "Pro forma net
tangible book value" is defined as the pro forma total shareholders' equity of
the Company less intangible assets. "Pro forma net tangible book value per
share" is determined by dividing the pro forma net tangible book value of the
Company by the number of outstanding pro forma shares of Common Stock.
Assuming, and after giving effect to, the sale of the 1,200,000 shares of
Common Stock offered hereby (after deducting the estimated Selling Agent
commissions and underwriting discount and offering expenses), the Company's pro
forma net tangible book value as of June 30, 1997, would have been $27.3
million or $9.66 per pro forma share of Common Stock. This represents an
immediate increase in pro forma net tangible book value of $1.15 per share to
the existing shareholders, and an immediate dilution of $2.84 per share to
investors who purchase shares of Common Stock in the Offering. "Dilution" is
the difference between the offering price per share and the pro forma net
tangible book value per share as adjusted for the Offering.
Assuming, and after giving effect to, the sale of the 600,000 shares of
Common Stock offered hereby (after deducting the estimated Selling Agent
commissions and underwriting discount and offering expenses), the Company's pro
forma net tangible book value as of June 30, 1997, would have been $20.2
million or $9.09 per pro forma share of Common Stock. This represents an
immediate increase in pro forma net tangible book value of $0.58 per share to
the existing shareholders, and an immediate dilution of $3.41 per share to
investors who purchase shares of Common Stock in the Offering.
The following table illustrates the per share dilution as of June 30, 1997
assuming, and giving effect to, the sale of 600,000 shares and 1,200,000
shares, respectively, which is determined by subtracting the pro forma net
tangible book value per share after the Offering from the price paid by a new
investor.
<TABLE>
<CAPTION>
600,000 SHARES 1,200,000 SHARES
------------------------ ---------------------------
<S> <C> <C> <C> <C>
Initial public offering price per share (1) ..................... $ 12.50 $ 12.50
Pro forma net tangible book value per share
as of June 30, 1997 (2)...................................... $ 8.51 $ 8.51
--------
Increase in pro forma net tangible book value
per share attributable to payments by new
investors (3)................................................ 0.58 1.15
-------- --------
Pro forma net tangible book value per share
after offering............................................... 9.09 9.66
------- -------
Dilution of pro forma net tangible book value
per share to new investors................................... $ 3.41 $ 2.84
======= =======
</TABLE>
__________________
(1) Before deducting the estimated Selling Agent commissions and underwriting
discount and offering expenses.
(2) Based on the number of pro forma shares of Common Stock outstanding as of
June 30, 1997.
(3) After deducting estimated Selling Agent commissions and underwriting
discount and offering expenses.
The following table sets forth on a pro forma basis as of June 30, 1997
(after giving effect to the Reorganization), the number of shares purchased
from the Company, the total consideration paid and the average price per share
paid by: (i) existing shareholders and (ii) investors in the Offering (before
deducting the estimated Selling Agent commissions and underwriting discount and
offering expenses):
17
<PAGE> 19
<TABLE>
<CAPTION>
NUMBER OF SHARES TOTAL AVERAGE PRICE PER
PURCHASED CONSIDERATION SHARE
---------------- ------------- -----------------
<S> <C> <C> <C>
Existing shareholders(1) . . . . . . . . . . . . . $ 1,550,670 $ 9,912,000 $ 6.39
New investors . . . . . . . . . . . . . . . . . . . 1,200,000 15,000,000 12.50
</TABLE>
__________________
(1) Excludes 9,350 shares of Common Stock issued to Directors in July, 1997,
pursuant to the exercise of stock options granted as part of the Company's
Director Stock Option Program. Also excludes 170,000 shares of Common
Stock reserved for issuance under the 1995 Stock Option Plan and 115,090
shares reserved for issuance pursuant to options granted before the
implementation of the 1995 Stock Option Plan. There are currently
outstanding 153,340 options outstanding, including options outstanding
under the 1995 Stock Option Plan, each of which entitles the holder thereof
to purchase one share of Common Stock. See "Management -- Stock Option
Plans." The weighted average exercise price per share for all of the
currently outstanding options is $5.02. Of the currently outstanding
options, 127,840 are currently exercisable at a weighted average price of
$4.79.
18
<PAGE> 20
TERMS OF THE OFFERING
GENERAL
The Company is offering for sale on a "best efforts" basis up to 1,200,000
shares of its Common Stock at a price of $12.50 per share. Of these shares,
600,000 shares are being offered by the Company on a "best efforts" basis with
the assistance of the Selling Agent in a Subscription and Community Offering
and 600,000 shares are being offered concurrently by the Selling Agent on a
"best efforts" basis in a Public Offering. The number of shares of Common Stock
to be offered in the Subscription and Community Offering and the Public
Offering is subject to adjustment as described herein. The Company has entered
into an agency agreement (the "Agency Agreement") with the Selling Agent.
Subject to the terms and conditions set forth in the Agency Agreement, the
Selling Agent has agreed to act as the Company's agent and, on a "best efforts"
basis, to assist the Company with the solicitation of purchase orders for
600,000 shares in the Subscription and Community Offering. The Selling Agent
has also agreed in the Agency Agreement to offer 600,000 shares on a "best
efforts" basis in the Public Offering.
SUBSCRIPTION AND COMMUNITY OFFERING
The Subscription Offering. Of the 1,200,000 shares offered, 600,000 shares
are being offered on a priority basis to shareholders of the Company as
September 15, 1997 ("Record Date Shareholders"), and to certain customers of
the Bank as of September 15, 1997 ("Record Date Customers"). The highest
priority will be given to those Record Date Shareholders placing purchase
orders prior to Noon, Central Time, on October 15, 1997.
The Community Offering. While 600,000 shares are being offered on a
priority basis to eligible subscribers in the Subscription Offering, the Common
Stock is also being concurrently offered by the Company for sale to the general
public, with a preference being given to residents of the communities served by
the Bank.
Unless extended by the Company, the Subscription and Community Offering will
terminate at Noon, Central Time, on October 28, 1997. The Public Offering is
being conducted concurrently with the Subscription and Community Offering.
Depending on market demand, the Company and the Selling Agent may determine to
increase or decrease the number of shares of Common Stock to be offered in the
Subscription and Community Offering relative to the Public Offering. The
Company reserves the right in its sole discretion, notwithstanding the
priorities and preferences described above, to accept or reject in whole or in
part orders in the Subscription and Community Offering.
Procedures for Subscribing for Common Stock in the Subscription and
Community Offering. The Company will mail, hand deliver, or make available at
its offices Prospectuses and related subscription documents (the "Stock Order
Forms" and the "Certification Forms"). In accordance with Rule 15c2-8 of the
Exchange Act, to ensure that each purchaser receives a Prospectus at least 48
hours prior to the Expiration Date, no Prospectus will be mailed any later than
five days prior to such date or hand delivered any later than two days prior to
such date.
Record Date Shareholders, Record Date Customers, and other investors
interested in subscribing for shares of Common Stock in the Subscription and
Community Offering must return to the Company a properly completed original
Stock Order Form (facsimile copies and photocopies will not be accepted) and a
fully executed Certification Form along with full payment (or appropriate
instructions for authorizing a withdrawal from a deposit account at the Bank)
at $12.50 per share for all shares subscribed for or ordered prior to Noon,
Central Time, on October 28, 1997. To receive preference in the Subscription
Offering, Record Date Shareholders must place purchase orders prior to Noon,
Central Time, on October 15, 1997. Original Stock Order Forms and Certification
Forms accompany this Prospectus. In order to ensure that prospective investors
are properly identified as to their stock purchase priorities, Record Date
Shareholders and Record Date Customers must provide the identifying information
requested on the Stock Order Forms. The minimum subscription for any investor
is 200 shares, or $2,500.
Payment for shares of Common Stock must be made by check, bank draft or
money order drawn upon a United States bank payable to "Success Bancshares,
Inc." or by withdrawal authorization from a deposit account at the Bank. Wire
transfers will not be accepted. Payment by non-certified personal check
will be considered received only upon clearance, and the Company in its sole
discretion may reject subscriptions for which funds have not
19
<PAGE> 21
cleared at the Expiration Date. Payments made by check, bank draft, or money
order will be placed in a non-interest bearing escrow account at the Bank until
completion or termination of the Subscription and Community Offering. The Stock
Order Form contains blanks to authorize deposit withdrawals as payment for
shares subscribed, and such deposit accounts will be charged on the day the
order is received for the amount of the subscription and proceeds placed in a
non-interest bearing escrow account at the Bank until completion or termination
of the Subscription and Community Offering. To the extent subscription orders
are filled, the foregoing escrow account will be charged as of the closing date
of the Offering against issuance of certificates evidencing ownership of the
shares of Common Stock. In the event subscription orders are not filled, or
are accepted only in part, or if the Subscription and Community Offering is
terminated or extended beyond December 1, 1997, unaccepted subscription funds
placed in escrow will be returned to subscribers without interest.
The methods of delivery of Stock Order Forms, Certification Forms and
payment for shares are at the election and risk of Record Date Shareholders,
Record Date Customers, and other prospective investors. The Company recommends
that such parties deliver in person to the Bank or its branch offices the
properly completed original Stock Order Form along with the fully executed
Certification Form and full payment in advance of the Expiration Date.
Alternatively, such parties may mail them in the pre-addressed, postage-prepaid
business reply envelope accompanying the Prospectus, allowing for sufficient
time for delivery of the mail to the Company and the clearance of any
non-certified personal checks prior to the Expiration Date.
Once made, subscriptions are irrevocable. Completion of the Subscription
and Community Offering is not conditioned upon the sale of any minimum number
of shares in either the Subscription and Community Offering or the Public
Offering. See "Risk Factors -- No Assurance that the Offering will be
Completed."
All questions concerning the timeliness, validity, form, and eligibility of
Stock Order Forms received will be determined by the Company in its sole
discretion, including the absolute right of the Company to reject any order in
whole or part in the Subscription and Community Offering without assigning any
reason therefor. The Company may, in its sole discretion, permit the correction
of incomplete or improperly executed Stock Order Forms or waive the Expiration
Date receipt deadline but does not represent that it will do so. The Company
assumes no responsibility to provide, nor will it incur any liability for
failure to give, notification of any defect or irregularity in connection with
the submission of Stock Order Forms. The Company also reserves the right in
its sole discretion to terminate the Subscription and Community Offering prior
to the Expiration Date.
Prospective investors with questions or needing assistance concerning the
procedures for subscribing for shares of Common Stock should call the Stock
Information Office at (800) 744-6248 and ask for an EVEREN Securities, Inc.
representative.
Limitations on Purchase of Shares. Record Date Shareholders, Record Date
Customers and other prospective investors in the Subscription and Community
Offering must subscribe for at least 200 shares. In addition, no subscription
orders will be accepted from parties or groups which, when combined with any
current holdings of Common Stock, would cause any undue concentration of
ownership control as determined by the Company in its sole discretion. There
can be no assurance that Common Stock will be available to satisfy all
subscription orders, and the Company reserves the absolute right to allocate
available shares in its sole discretion.
Delivery of Certificates. Purchasers may elect to receive certificates
evidencing ownership of shares purchased in the Subscription and Community
Offering or to have delivery of such shares made in book entry form through the
facilities of The Depository Trust Company ("DTC"), New York, New York. Share
certificates or confirmations of delivery to DTC will be delivered, along with
any refund due, by U.S. mail, postage-prepaid, directly to the purchasers at
the address indicated on the Stock Order Form as soon as practicable following
completion of the Offering. Until share certificates are available and
delivered to purchasers or the delivery to DTC is effected, purchasers may be
unable to sell the shares of Common Stock purchased by them.
THE PUBLIC OFFERING
Concurrently with the Subscription and Community Offering, 600,000 shares
are being offered on a "best efforts" basis to the general public in an
underwritten Public Offering managed by the Selling Agent. Depending on market
demand, the Company and the Selling Agent may determine to increase or decrease
the number of shares of Common Stock to be offered in the Public Offering
relative to the Subscription and Community Offering. Although
20
<PAGE> 22
600,000 shares of Common Stock are being offered by the Selling Agent to the
general public in the Public Offering, the Selling Agent is not obligated
pursuant to the Agency Agreement to purchase any of the shares of Common Stock
offered in the Public Offering. Completion of the Public Offering will be
subject to the execution of a public offering acknowledgement (the "Public
Offering Acknowledgement") pursuant to which the Company and the Selling Agent
agree that the Agency Agreement will constitute the underwriting agreement
between the Company and the Selling Agent for purposes of the Public Offering.
Subject to the terms and conditions contained in the Public Offering
Acknowledgment, the Selling Agent will agree to purchase from the Company and
the Company will agree to sell to the Selling Agent a specified number of
shares of Common Stock offered to the general public in the Public Offering.
The Company and the Selling Agent currently anticipate that the Public Offering
Acknowledgement will be executed within five business days following the
termination of the Subscription and Community Offering. Whether the
Public Offering Acknowledgement is executed and the Public Offering is
completed will depend upon, among other factors, the market conditions then
prevailing and the then-current financial condition of the Company. The number
of shares of Common Stock to be sold in the Public Offering will be determined
by the Selling Agent and the Company. Completion of the Public Offering is not
conditioned upon the sale of any minimum number of shares in the Public
Offering or the Subscription and Community Offering.
PLAN OF DISTRIBUTION
Subscription and Community Offering. The Company, pursuant to the terms of
the Agency Agreement, engaged the Selling Agent as a financial and marketing
adviser in connection with the Offering. The Selling Agent has agreed to use
its "best efforts" to assist the Company with the solicitation of subscriptions
and purchase orders for shares of Common Stock in the Subscription and
Community Offering. Pursuant to the Agency Agreement, the Selling Agent will
provide the Company certain financial and marketing advice regarding the
structure of the Offering and sale of the Common Stock; prepare certain
marketing documents ancillary to the Prospectus; establish, staff, and manage a
Stock Information Office to solicit purchase orders for the Common Stock and
provide technical and administrative support; and conduct informational
meetings for prospective investors. The Agency Agreement does not obligate the
Selling Agent to take or purchase any of the shares of Common Stock. As
compensation for the foregoing services, the Company will pay the Selling Agent
3.5% of the aggregate price of the shares of Common Stock sold directly by the
Company in the Subscription and Community Offering. The Company will also
reimburse the Selling Agent for certain out-of-pocket expenses (including fees
and expenses of the Selling Agent's counsel) up to a maximum of $100,000. The
Company has also agreed to indemnify the Selling Agent against certain
liabilities, including civil liabilities arising under the Securities Act, or
to contribute to certain payments made in respect thereof. The Company may, in
its sole discretion, increase the number of shares of Common Stock sold by up
to an additional 15% of the number of shares sold in the Subscription and
Community Offering to satisfy unfilled purchase orders.
Public Offering. The Company, pursuant to the terms of the Agency
Agreement, has also retained the Selling Agent to serve as the underwriter, on
a "best efforts" basis, of the Public Offering. Concurrently with the
Subscription and Community Offering, the Selling Agent will commence the Public
Offering. The Agency Agreement does not obligate the Selling Agent to purchase
any of the shares of Common Stock offered in the Public Offering. Completion
of the Public Offering will be subject to the execution of the Public Offering
Acknowledgement by the Company and the Selling Agent. The Company has also
agreed to indemnify the Selling Agent against certain liabilities, including
civil liabilities arising under the Securities Act, or to contribute to certain
payments made in respect thereof. The Public Offering Acknowledgement will
provide that the Selling Agent will offer a specified number of shares to the
general public at the offering price per share set forth on the cover page
hereof and purchase such shares from the Company at such price less an
underwriting discount of 7.0%. The number of shares to be purchased by the
Selling Agent from the Company in the Public Offering will be determined by the
Company and the Selling Agent on the date that the Public Offering
Acknowledgment is executed. In the Public Offering Acknowledgement, the
Company will also grant the Selling Agent an option, exercisable within 30 days
of the completion of the Public Offering, to purchase up to an additional 15%
of the shares sold in the Public Offering to cover over-allotments, if any, at
the same price as would be paid by the Selling Agent for the other shares
purchased pursuant to the Public Offering Acknowledgement. The Selling Agent
will exercise the option only for the purpose of covering over-allotments, if
any, made in connection with the distribution of the Common Stock offered in
the Public Offering. It is expected that delivery of the shares of Common
Stock purchased in the Public Offering will be made through the facilities of
DTC within four business days of the execution of the Public Offering
Acknowledgement.
21
<PAGE> 23
The Company has been advised by the Selling Agent that it may offer the
Common Stock to certain dealers at $12.50 per share, less a concession not in
excess of $0.53 per share of Common Stock. The Selling Agent may allow, and
such dealers may reallow, a concession not in excess of $0.10 per share of
Common Stock to certain other brokers or dealers. After the Public Offering,
the price per share, concession and reallowance to brokers or dealers may be
changed by the Selling Agent. The Selling Agent has informed the Company that
it does not intend to confirm sales to accounts over which it exercises
discretionary authority.
Completion of the Public Offering of the Common Stock is subject to prior
sale, when, as and if issued by the Company and delivered to and accepted by
the Selling Agent and subject to withdrawal, cancellation or modification of
the offer without notice. The Selling Agent reserves the right to reject any
order for the purchase of the Common Stock.
DETERMINATION OF INITIAL OFFERING PRICE
The initial offering price of the Common Stock has been determined by the
Company and the Selling Agent based on a number of factors including prevailing
market and economic conditions, revenues and earnings of the Company, estimates
of the business potential and prospects of the Company, the present state of
the Company's business and operations, an assessment of the Company's
management, and the consideration of the foregoing factors in relation to
market valuations of generally comparable companies.
22
<PAGE> 24
BUSINESS
THE COMPANY
The Company provides community banking services to individuals,
small-to-medium-sized businesses, local governmental units and institutional
clients primarily in the Northern Chicagoland area. These services include
traditional checking, NOW, money market, savings and time deposit accounts, as
well as a number of innovative deposit products targeted to specific market
segments. The Bank offers home equity, home mortgage, commercial real estate,
commercial and consumer loans, safe deposit facilities and other innovative and
traditional services specially tailored to meet the needs of customers in its
target markets. The Company's goal is to continue to offer innovative,
attractive financial products to businesses and individuals in its market area.
In May, 1996, the Bank became one of the first banks in its market area to go
on-line with its own home page on the World Wide Web
(http://www.successbank.com). The Bank's home page enables consumers to access
information regarding branch locations, deposit and loan rates and economic
forecasts. The Bank recently introduced its Success for Seniors account to
compete with the high cost reverse mortgage products of its competitors. This
new product combines a high rate of interest NOW account with a 20 year home
equity line of credit and the added flexibility of a Visa Gold card.
As a community bank, the Bank stresses personalized service, local decision
making, quick customer response and strong relationships with business, civic
and community organizations. Management believes this marketing and service
approach enables the Bank to compete effectively with the money center, super
regional and regional banks that have a presence in its target markets. By
continuing to offer quality service, management expects to be able to expand
the Bank's base of core deposits and to expand loan growth among its commercial
and retail customers.
STRATEGY
The Company's goal is to continue to grow the assets of the Bank and
increase profitability while maintaining strong credit quality. To achieve
this goal, the Company's strategic plan is to continue to focus on providing a
high level of service to its core customers while expanding its market share in
its target markets of the north and northwest suburbs of Chicago and the north
side of Chicago. Key elements of the Company's strategic plan include:
* MAINTAIN STRONG LOCAL PRESENCE AND LOCAL DECISION MAKING
AUTHORITY. The Company intends to maintain its strong local presence in the
communities it serves through personal service, local decision making, quick
consumer response and strong relationships with local business, civic and
community organizations. This strong local presence combined with the
Company's focus on local decision making differentiates it from larger
financial institutions with national or regional markets that have branches in
the Company's target markets. The Company believes that its local presence and
focus on local decision making provide the Bank with the competitive advantage
of being able to tailor products and services to meet the needs of the
customers and communities within its target markets, to make decisions for
customers quickly and to enjoy the symbiotic benefits of investing and
participating in its community.
* PROVIDING A HIGH LEVEL OF SERVICE THROUGH QUALITY EMPLOYEES.
A cornerstone of the Company's strategy is to provide customers with quality
products and services delivered through traditional and state-of-the-art
systems, while making highly responsive and personalized attention to customer
service the priority in all of its operations. The rapid pace of consolidation
in the financial services industry has led to the disenchantment of many
individuals and small businesses with the perceived lower level of service
offered by the resulting larger institutions. The Company intends to
capitalize on this negative perception by providing a high level of
individualized service and responsiveness. The Company believes that providing
this individualized service depends on competent and highly motivated employees
who are able to make decisions and quickly respond to customers' needs. To
ensure professional servicing of commercial and retail customers of the Bank,
the Company emphasizes the recruiting and training of such employees at all
levels of the organization. The Company expects that a well- trained,
motivated and loyal staff will produce the maximum personal contact needed to
understand and meet customer needs and preferences.
23
<PAGE> 25
* POSITIONED FOR CONTROLLED MARKET EXPANSION. The Company
believes that there are significant opportunities to grow its deposit and loan
base in its target markets. In anticipation of such opportunities, the Company
has invested in structuring an organization that is capable of handling a much
larger scope of operations. New systems and quality personnel have been put in
place so that new branches may be opened in a cost effective manner.
Management believes that opening new branches is an efficient means for the
Company to gain market share. The Company will pursue disciplined growth in
its target markets by opening branches in areas where management believes local
residents and small-to-medium-sized businesses would benefit from a community
banking alternative. Following an industry trend, the Company will continue to
pursue branching opportunities at non-traditional outlets. The Company
recently entered into an agreement with Butera Finer Foods to establish a
branch banking facility in Butera's Golf/Mill store in Niles, Illinois.
Although the Company has expanded through establishing new branch offices in
the past, the Company's strategic plan also includes selectively acquiring
other financial institutions in its target markets.
* INCREASING ITS PORTFOLIO OF HIGH QUALITY LOANS. The Company's
policy is to respond to all creditworthy segments of its target markets as a
key to its long-term success. The Company makes an active effort to determine
the credit needs of the communities in its target markets, including low and
moderate income areas and individuals, and to evaluate the products it offers
and the design of those products to determine whether it is effectively
responding to such communities. The Bank adheres to strict underwriting
standards in its loan origination activities and loans in excess of certain
specified lending limits are subject to approval by the Bank's loan committee
or, in certain circumstances, by the full board of the Bank. The Board of
Directors and loan committee of the Bank, which include a number of persons who
also serve as directors of the Company, review the loan portfolio on a monthly
basis to assess loan quality. In addition to the internal review process,
independent external review of the loan portfolio is provided by the
examinations conducted by regulatory authorities, independent public
accountants in connection with their annual audit, and a loan review performed
by an independent consultant engaged by the audit committee of the Bank's Board
of Directors. The Company has historically had a high quality loan portfolio
as exhibited by a loan loss rate (net charge-offs to average total loans) of
0.04% for the year ended December 31, 1996. The Company is committed to
maintaining strong credit quality while increasing income as the Company grows.
* FOCUSING ON CORE CUSTOMERS. The Company continues to focus on
establishing and maintaining long-term relationships with its core customers.
The Company emphasizes relationships with individuals and small-to-medium-sized
businesses in its target markets and believes that focusing on its core
customers will result in growth and increased profitability.
* CREATING INNOVATIVE AND NICHE PRODUCTS. The Company intends to
continue developing innovative loan and deposit products. The Company believes
that its local presence and focus on local decision making enables the Bank to
target and be more responsive to the needs of its customers by offering
customized products and services. For instance, the Company developed the
SIGMA account which combines a checking account and credit card with a home
equity loan. The Company also intends to continue to develop lending niches
which generate loan growth and service its target markets. The Company has
developed a strong expertise in real estate loans to small entrepreneurs and in
loans to the long- term health care industry. The Company is also one of the
few sources of loans for co-operative apartments in Chicagoland and provides
unique and flexible home equity loans. The Company intends to continue to
market its products aggressively through creative newspaper and other
advertising, special promotions and frequently sponsored community events. The
Bank also emphasizes business development calling programs and superior
servicing of existing commercial loan customers.
MARKET
The Bank is headquartered and has branch offices in the north and northwest
suburbs of Chicago and the north side of Chicago, including many affluent
communities in the Chicago area. The Company's target markets of Lake County,
and Lincolnwood, Arlington Heights and Lincoln Park in Cook County, have a
unique combination of affluence, population growth and strong overall economy.
Per capita income for the target markets is high compared to Illinois and to
the United States as a whole. In 1994, Lake County had the highest per capita
income in Illinois ($32,969), and Cook County ranked fourth in Illinois
($24,944). From 1984 to 1994, per capita income grew at an average annual rate
of 6.1% in Lake County and 5.1% in Cook County. (Source: Bureau of Economic
Analysis, U.S. Department of Commerce; "BEA Regional Facts."). In 1994, per
capita income for Lake County and Cook County was 152% and 115% of the
national average, respectively. (Source: USDOC/BEA, "Survey of
24
<PAGE> 26
Current Business, June, 1996"). From 1992 to 1994, total personal income
increased 11.7% in Lake County and 7.9% in Cook County. Earnings (wages and
salaries, other labor income, and proprietor's income) increased on average
8.2% per year in Lake County and 5.0% per year in Cook County for the period
1984 to 1994. (Source: Bureau of Economic Analysis, U.S. Department of
Commerce; "BEA Regional Facts."). Total bank deposits as of June 30, 1994,
were over $5.2 billion in Lake County, and over $78.3 billion in Cook County.
Population in Lake County is steadily growing, increasing 17.27% from 1980 to
1990, and 10.8% from 1990 to 1995, for a total increase of 30% from 1980 to
1995. (Source: U.S. Bureau of the Census, U.S. Department of Commerce, USA
Counties 1996 CD-ROM). The economies of the target markets continue to thrive.
From 1995 to 1996, State Sales Tax receipts increased 8.44% for the communities
served in Lake County, and 2.89% for the communities served in Cook County
(note: specific data for Lincoln Park, Lakeview, West Rogers Park, and Peterson
Park unavailable). (Source: State of Illinois Department of Revenue). From
1990 to 1996, unemployment rates decreased in Lake County from 4.2% to 4.0%,
and in Cook County from 6.7% to 5.5% (Source: Illinois Department of Employment
Security, May, 1997).
Since 1991, the Bank has grown substantially through the addition of seven
branches, which have significantly increased the Bank's service area. The
table below sets forth certain information with respect to the Bank's target
markets and the amount of deposits, as of June 30, 1997, which have been
obtained through this expansion:
<TABLE>
<CAPTION>
AVERAGE
BANK OR COMMUNITIES HOUSEHOLD
BRANCH LOCATION DATE OPENED TOTAL DEPOSITS SERVED POPULATION(1) INCOME(2)
- --------------- ----------- ------------- ----------- ------------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C>
Lincolnshire March, 1973 $133,134 Lincolnshire 3,955 $123,364
Vernon Hills 18,830 53,722
Lake Forest 18,771 142,688
Lincolnwood February, 1992 76,294 Lincolnwood 12,168 75,654
Skokie 58,980 53,390
Evanston 73,433 56,079
West Rogers Park 65,374 37,975
Peterson Park 16,236 41,463
Lincoln Park April, 1993 18,517 Lincoln Park 61,092 67,158
Lakeview 91,031 44,515
Libertyville March, 1994 14,848 Libertyville 19,757 72,815
Green Oaks 2,416 95,025
Mundelein 23,995 50,466
Mettawa 386 204,615
Northbrook March, 1995 13,604 Northbrook 33,476 107,350
Glencoe 8,705 164,254
Winnetka 12,899 174,957
Glenview 37,836 83,709
Deerfield/Riverwoods December, 1995 9,272 Riverwoods 3,049 169,359
Buffalo Grove 39,806 64,797
Wheeling 30,863 43,976
Deerfield/Downtown April, 1997 2,567 Deerfield 17,822 90,821
Highland Park 29,309 119,892
Bannockburn 1,495 139,510
Arlington Heights September, 1997 newly opened Arlington Heights 77,438 59,692
Mount Prospect 53,605 53,502
Prospect Heights 15,635 50,605
Palatine 39,985 56,951
--------
Total $268,236
========
</TABLE>
- ---------------
(1) Reflects 1994 census estimates published by Bureau of the Census, U.S.
Department of Commerce.
(2) Provided by Northeastern Illinois Planning Commission derived from 1989
information reported in 1990 U.S. Census Data.
25
<PAGE> 27
The Company's expansion plans include opening branches in the Butera
Golf/Mill store in Niles (second half of 1997) and North Libertyville (1998).
SERVICES
The Company's strategy is to be the primary financial services provider to
its customers by emphasizing a high level of customer service and innovative
products. The Company's history of introducing innovative products has helped
it increase its competitive position within its target markets. The Company
continues to concentrate its efforts on building its business by offering its
customers the following services:
Deposit Services
The Bank offers a variety of traditional and innovative accounts for
depositors designed to attract both short-term and long-term deposits. The
Bank's deposit accounts include certificates of deposit, savings accounts,
checking and NOW accounts and money market accounts. In connection with its
opening of new banking facilities, the Bank has aggressively marketed
innovative deposit products at highly competitive rates to increase its market
share in its target markets. Innovative deposit products offered by the Bank
include:
(I) MORE ACCOUNT. Under its new management in 1982,
the Bank became one of the first financial institutions in the
United States to offer a tiered open time account. The More
account is an open time account with its interest rate tied
directly to the 13-week U.S. Treasury bill rate. The account
is structured in such a way that the larger the customer's
balance, the higher the rate of return on the customer's
investment. In essence, the "more" money in the account, the
higher the interest rate on the account.
(II) BUSINESS MORE II ACCOUNT. The Business More II
Account features a high variable interest rate based on the
13-week U.S. Treasury bill rate compounded monthly which is
earned on open accounts based on various levels of daily
balances. The rate on this money market account is subject to
change weekly and the depositor must maintain a minimum daily
balance in the account each day to earn interest. Like the
More Account, the "more" money in the account the higher the
interest rate on the account.
(III) CIVIC PLUS ACCOUNT. In addition to providing
commercial and consumer banking services to its customers, the
Company strives to provide services and benefits to all
persons, regardless of race, creed, gender, sexual orientation
or ethnic background. In this spirit, the Company, continually
looking for unique ways to assist its not- for-profit
customers, developed a special account for not-for-profit
organizations. The Civic Plus Account helps not- for-profit
organizations stretch their resources by paying them 5%
interest on average outstanding monthly balances and by
waiving all monthly check processing fees and monthly minimum
balance requirements.
(IV) SURE PAY OVERDRAFT PROGRAM. Sure Pay is another
unique product offered by the Bank. The program insures the
customer against costly errors in check writing and allows the
customer to borrow funds quickly and easily. Basically, Sure
Pay is a pre-approved method of borrowing funds short-term
through a line of credit. Sure Pay covers accidental
overdrafts and cash advances by check and ATM withdrawals.
For current customers, Sure Pay does not require a new
account. It is activated through an existing Bank checking
account. Sure Pay has no minimum usage requirement and is a
part of intelligent cash flow planning. The Company believes
that Sure Pay's annual percentage rate is significantly below
the rate of interest on most credit cards.
Lending Services
The Bank aggressively seeks quality loan relationships. The Bank's loan
portfolio consists of real estate (including residential and commercial),
commercial, home equity and consumer loans. The Bank's management
26
<PAGE> 28
emphasizes sound credit analysis and loan documentation. Management also seeks
to avoid undue concentration of loans in a single industry or secured by a
single type of collateral. The Bank has concentrated its efforts on building
its lending services in the following areas:
(i) COMMERCIAL AND INDUSTRIAL LOANS. These loans are
made to small-to-medium-sized businesses that are sole
proprietorships, partnerships, and corporations. Generally,
these loans are secured with collateral including accounts
receivable, inventory and equipment, and generally require
personal guarantees of the principals. The Bank has developed a
niche making loans secured by accounts receivable to health care
providers and retailers.
(ii) COMMERCIAL REAL ESTATE LOANS. The Bank offers
loans for acquisition, development, and construction of real
estate secured by the real estate involved, in addition to loans
secured by commercial real estate, multi-family residential
properties, and other non-farm, non-residential properties. The
Bank also makes loans to small-to-medium- sized real estate
developers building 10 homes or less per year and rehabbers doing
a small number of projects per year. These loans typically have
20 to 30 year amortization schedules with 5-year balloons and are
personally guaranteed by the borrowers.
(iii) RESIDENTIAL REAL ESTATE LOANS. These are loans
made to finance residential units that house from one to four
families. The Company originates only fixed rate residential
real estate loans including 15 year, 30 year, 5/25, 7/23 and 5
year balloon mortgages. A majority of loans originated pursuant
to Fannie Mae and FHLMC guidelines are sold in the secondary
market with servicing retained by the Company. The Bank is one
of a limited number of lending institutions in the Chicagoland
area to offer financing for co-operative apartments. In
addition, the Bank makes non- conforming loans which are held in
its portfolio. See "Management's Discussion and Analysis of
Results of Operations and Financial Condition - Financial
Condition."
(iv) HOME EQUITY LINES OF CREDIT. The Bank has
originated many unique and flexible home equity lines of credit
for its customers. These lines of credit are secured by the
borrower's home and can be drawn on at the discretion of the
borrower. These lines of credit are at variable interest rates.
When made, home equity lines, combined with the outstanding loan
balance of prior mortgage loans, generally do not exceed 80% of
the appraised value of the underlying real estate collateral.
The following accounts demonstrate the Bank's determination to meet the specific
needs of its customer base:
1. SIGMA ACCOUNT. With a SIGMA account, an interest
bearing checking account, an equity line of credit
secured by a mortgage on the customer's primary
residence, and a Gold Visa/Mastercard are combined into
one convenient account that is available for a ten year
period. Deposits to the SIGMA checking account are
automatically applied against any amount outstanding
under the equity line of credit thus minimizing
interest charges. Where there is no outstanding
balance on the equity line of credit, the deposits
automatically earn interest at a premium over the rate
then being paid by the Bank on its NOW checking
accounts. The SIGMA equity line of credit is available
when the customer needs funds in excess of the
customer's balance in the SIGMA checking account. The
equity line of credit bears a variable interest rate
based upon the prime rate with a maximum rate below
current market rates. Interest charges incurred by the
customer on the equity line of credit are often tax
deductible. The Gold Visa/Mastercard provides the
customer with purchase flexibility and allows the
customer to avoid incurring any monthly credit card
interest
27
<PAGE> 29
charges by automatically transferring the full amount
of the outstanding balance on the SIGMA Gold card from
the customer's SIGMA checking account and, when
necessary, the customer's SIGMA line of credit. As a
way of thanking its customers for using their SIGMA
accounts, each year SIGMA Gold cardholders also receive
an annual rebate equal to 1% of the total amount of
purchases made with the SIGMA Gold card during the
prior year.
2. SUCCESS PLUS ACCOUNT. The Success Plus account is a
home equity loan which allows the customer to access
the line of credit by writing a check or using a
special Visa Gold Card that makes advances directly
from the line of credit. No minimum draw is required,
repayment is spread over ten years, and interest is
charged based upon the prime rate.
3. SUCCESS FOR SENIORS ACCOUNT. Success for Seniors is
the Bank's alternative to reverse mortgage products for
individuals over the age of 62. It combines a primary
checking account with a 20 year home equity line of
credit up to 75% of the home's appraised value which
converts into 30-year fixed rate mortgage at the end of
the 20-year term. The product also offers a Visa Gold
Card, and an attractive interest rate on the first
$1,000 in the NOW account. The total application fee
is substantially less than that charged on most
traditional reverse mortgages.
4. READY ACCESS PROGRAM. The Bank, in conjunction with
the Office of the Illinois State Treasurer, offers a
unique program which enables individuals with
disabilities to obtain low fixed rate financing in
order to purchase transportation modifications and
technical devices to achieve greater mobility and to
enhance their quality of life through a more
independent lifestyle. Under this program, the
Treasurer's Office deposits state funds with
participating financial institutions, such as the Bank,
which then offer low interest Ready Access loans to
individuals with disabilities. The State's funds earn
interest for taxpayers and are fully protected against
loss.
Merchant Credit Card Processing Program
The Bank, through its Merchant Processing Program, provides direct Visa and
Mastercard processing services for its business customers. By eliminating the
middleman, the Bank believes that it not only provides more cost efficient
processing services, but that it also gives the merchant quicker access to
available funds by processing receipts the next business day. In 1996, the Bank
processed transactions for over 1,400 merchant customers throughout the United
States involving in excess of $263 million of transaction volume. In addition,
the Merchant Processing Program generates an additional $7-12 million of demand
deposits from participants in the program.
PROPERTIES
The Company and the Bank are headquartered in Lincolnshire, Illinois. The
Bank has seven branch banking facilities located in Deerfield(2), Libertyville,
Lincolnwood, Chicago (Lincoln Park), Arlington Heights and Northbrook, Illinois.
The table below summarizes the Company's owned and leased facilities.
28
<PAGE> 30
<TABLE>
<CAPTION>
LOCATION TYPE OF FACILITY APPROX. SQUARE FEET EXPIRATION DATE
- ------------------ ---------------------- --------------------- ----------------
<S> <C> <C> <C>
Lincolnshire, IL Corporate headquarters and branch 11,760 Owned
Lincolnwood IL Branch 8,760 Owned
Lincolnwood, IL Branch(1) 1,900 October 2001
Lincoln Park, IL Branch 1,967 April 2003
Libertyville, IL Operations center and branch 8,100 Owned
Northbrook, IL Branch 1,950 December 1997
Deerfield/Riverwoods, IL Commercial loan center and branch 4,100 September 1998
Deerfield/Downtown, IL Branch 2,200 Owned
Arlington Heights, IL Branch 1,300 Owned
</TABLE>
- ----------
(1) Currently not utilized. This facility may be used in the future as a
branch facility primarily to serve the Asian community.
COMPETITION
The Company competes in the commercial banking industry through its
subsidiary, Success National Bank, in the communities it serves. The commercial
banking industry is highly competitive, and the Bank faces strong direct
competition for deposits, loans, and other financial-related services. The
Bank competes directly in Cook and Lake counties with other commercial banks,
thrifts, credit unions, stockbrokers, and the finance divisions of automobile
companies. Some of these competitors are local, while others are statewide or
nationwide. The Bank has developed a community banking and marketing strategy.
In keeping with this strategy, the Bank provides highly personalized and
responsive service characteristic of locally-owned and managed institutions. As
such, the Bank competes for deposits principally by offering depositors a
variety of deposit programs, convenient office locations, hours and other
services. The Bank competes for loan originations primarily through the
interest rates and loan fees it charge, the efficiency and quality of services
it provides to borrowers and the variety of its loan products. Some of the
financial institutions and financial services organizations with which the Bank
competes are not subject to the same degree of regulation as that imposed on
bank holding companies and national banking associations. In addition, the
larger banking organizations have significantly greater resources than those
that will be available to the Bank. As a result, such competitors have
advantages over the Bank in providing certain non-deposit services. Currently,
major competitors in certain of the Bank's markets include Harris Trust and
Savings Bank, The Northern Trust Company, LaSalle Bank, N.A., and American
National Bank and Trust Company of Chicago.
LEGAL PROCEEDINGS
The Company and the Bank are from time to time parties in various routine
legal actions arising in the normal course of business. Management believes
that there is no proceeding threatened or pending against the Company or the
Bank which, if determined adversely, would materially adversely affect the
consolidated financial position or operations of the Company.
EMPLOYEES
As of June 30, 1997, the Company had 143 full-time equivalent employees.
The employees are not represented by a collective bargaining unit. The Company
considers its relationship with its employees to be good.
29
<PAGE> 31
SELECTED CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth selected consolidated financial and other
data of the Company. The selected statement of income and balance sheet data,
insofar as they relate to the five years in the five-year period ended December
31, 1996, have been derived from the Company's audited consolidated financial
statements. The consolidated financial statements for each of the three years
in the period ended December 31, 1996 and as of December 31, 1996 and 1995 are
included elsewhere herein. The selected financial data for the six month
periods ended June 30, 1997 and 1996 and as of June 30, 1997 and 1996, are
derived from the Company's unaudited interim financial statements. Such
unaudited interim financial statements include all adjustments (consisting only
of normal, recurring accruals) that the Company considers necessary for a fair
presentation of the financial position and the results of operation as of the
dates and for the periods indicated. Information for any interim period is not
necessarily indicative of results that may be anticipated for the full year.
The following information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements and Notes thereto included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
--------------- ---------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Interest income....................... $ 11,215 $ 9,568 $ 19,850 $ 18,675 $ 14,619 $ 10,960 $ 9,952
Interest expense...................... 5,725 4,806 10,020 9,886 7,221 5,016 4,794
------ ----- ------ ------ ------ ------ -----
Net interest income.................. 5,490 4,762 9,830 8,789 7,398 5,944 5,158
Provision for loan losses............. 228 128 310 207 250 220 315
------ ----- ------ ------ ------ ------ -----
Net interest income after provision
for loan losses.................... 5,262 4,634 9,520 8,582 7,148 5,724 4,843
Other operating income
Service charges on deposit accounts.. 917 624 1,402 1,134 865 687 680
Securities gains, net................ -- -- -- 25 61 481 500
Gain on sales of loans, net.......... 28 82 109 84 94 1,077 555
Writedown of real estate loans
held-for-sale, transferred to
portfolio.......................... -- -- (74) -- (572) -- --
Credit card processing income........ 2,845 2,388 5,334 4,389 4,071 2,960 2,293
Other fees and commissions........... 123 205 378 372 488 296 533
------ ----- ------ ------ ------ ------ -----
Total other operating income 3,913 3,299 7,149 6,004 5,007 5,501 4,561
Other operating expenses
Salaries and employee benefits....... 2,878 2,738 5,513 4,729 3,986 2,755 2,331
Occupancy and equipment expenses..... 979 807 1,715 1,388 1,287 934 676
Credit card processing expenses...... 2,765 2,213 5,013 3,879 3,756 3,290 2,525
Other non-interest expenses.......... 1,998 1,723 3,389 3,346 2,987 3,165 2,685
------ ----- ------ ------ ------ ------ -----
Total other operating expenses 8,620 7,481 15,630 13,342 12,016 10,144 8,217
Minority interest in income of
subsidiary bank 7 13 23 47 58 79 129
------ ----- ------ ------ ------ ------ -----
Income before taxes.................. 548 439 1,016 1,197 81 1,002 1,058
Income tax expense (benefit).......... 188 92 233 260 (182) 176 285
------ ----- ------ ------ ------ ------ -----
Net income........................... $ 360 $ 347 $ 783 $ 937 $ 263 $ 826 $ 773
======== ======= ======= ======== ======== ======= =======
COMMON SHARE DATA(1):
Earnings per common and common
equivalent share
Primary.............................. $ 0.29 $ 0.30 $ 0.66 $ 0.89 $ 0.25 $ 0.87 $ 0.84
Fully diluted........................ 0.29 0.30 0.66 0.86 0.25 0.84 0.82
Book value(2)......................... 9.35 8.52 8.99 7.48 5.83 7.27 6.14
Weighted average common and
common equivalent shares outstanding 1,239,388 1,150,971 1,182,286 1,057,461 1,032,253 952,441 923,812
PRO FORMA COMMON SHARE DATA(1)(3):
Earnings per common and common
equivalent share
Primary.............................. $ 0.29 $ 0.62
Fully diluted........................ 0.29 0.62
Book value............................ 8.85 8.59
Weighted average common and common
equivalent shares outstanding....... 1,622,615 1,585,837
</TABLE>
<PAGE> 32
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
--------------------- ------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---------- -------- --------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................ $ 15,817 $ 15,285 $ 13,833 $ 20,559 $ 18,909 $ 8,190 $ 13,765
Securities....................................... 47,083 48,307 47,707 50,732 55,614 55,393 30,250
Real estate loans held for sale.................. 291 2,880 117 203 40 11,021 5,760
Loans, net....................................... 230,075 176,872 203,299 171,135 139,491 109,224 88,072
Total assets..................................... 305,955 253,031 276,349 251,338 222,809 190,677 143,695
Deposits......................................... 268,236 222,690 245,105 227,308 204,171 162,676 132,155
Borrowings, including repurchase agreements...... 24,386 19,261 18,975 14,395 11,174 19,644 4,319
Shareholders' equity(4).......................... 9,758 8,823 9,234 7,366 5,625 6,276 5,108
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
----------------------------------------------------------------------------
PRO FORMA PRO FORMA
ACTUAL PRO FORMA(3) AS ADJUSTED(3)(5) AS ADJUSTED(3)(6)
--------- ------------ ----------------- ------------------
BALANCE SHEET DATA:
<S> <C> <C> <C> <C>
Loans, net ..................................... $230,075 $ 230,075 $ 230,075 $ 230,075
Total assets ................................... 305,955 305,955 307,996 315,102
Deposits ....................................... 268,236 268,236 268,236 268,236
Borrowings, including repurchase agreements .... 24,386 21,219 16,804 16,804
Shareholders' equity ........................... 9,758 12,925 19,382 26,488
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, (10) YEAR ENDED DECEMBER 31,
------------------ -----------------------------------------------
1997 1996 1996 1995 1994 1993 1992
------- ------- ------ ------ ------- ------- -------
PERFORMANCE DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Net interest margin(7) ....................... 4.19% 4.26% 4.25% 4.14% 4.14% 4.38% 4.50%
Return on average assets...................... 0.25 0.28 0.31 0.40 0.13 0.53 0.59
Return on average equity(8) .................. 7.58 8.52 9.09 15.78 4.58 14.97 15.35
Loans to deposits ............................ 85.77 79.43 82.94 75.29 68.32 67.14 66.64
Average equity to average assets ............. 3.28 3.30 3.36 2.54 2.81 3.53 3.87
ASSET QUALITY RATIOS:
Non-performing loans to total loans(9)........ 0.49% 0.22% 0.06% 0.37% 0.27% 1.25% 1.07%
Non-performing assets to total assets......... 0.37 0.16 0.04 0.25 0.17 0.72 0.88
Allowance for loan losses to total loans...... 0.70 0.70 0.70 0.70 0.71 0.78 0.73
Non-performing loans to allowance for
loan losses ............................... 70.10 31.75 8.28 53.74 38.10 160.35 146.37
Net loan charge-offs to average loans ........ 0.02 0.06 0.04 0.01 0.08 0.01 0.24
CAPITAL RATIOS:
Tier 2(11) ................................... 7.31% 8.24% 8.00% 7.53% 7.83% 8.35% 9.60%
Leverage(12) ................................. 4.00 4.36 4.37 3.70 3.52 3.67 6.30
OTHER:
Branch offices ............................... 7 7 7 7 5 4 2
Full-time equivalent employees ............... 143 139 144 150 120 114 73
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
31
<PAGE> 33
__________________
NOTES TO SELECTED CONSOLIDATED FINANCIAL DATA
(1) Common share data has been restated to reflect the stock split.
(2) Book value per share is calculated using total shareholders' equity plus
stock owned by Employee Stock Ownership Plan ("ESOP") participants, net
of ESOP loan, divided by shares outstanding at end of period.
(3) The pro forma information reflects the completion of the Reorganization
consisting of (a) the increase in the authorized number of shares of
Common Stock to 7,500,000, (b) the changing of the par value of each
share of Common Stock to $0.001, (c) the conversion of all of the
outstanding shares of the Company's Series B Preferred Stock into 91,104
shares of Common Stock (post stock split), (d) the conversion of all of
the outstanding shares of the Company's Class A Common Stock into 171,745
shares of Common Stock (post stock split), (e) the conversion of the
aggregate outstanding principal amount of the 1992 Debentures into
234,582 shares of Common Stock (post stock split), and (f) the conversion
of the aggregate outstanding principal amount of the 1995 Notes into
92,400 shares of Common Stock (post stock split).
(4) The decrease in shareholders' equity from $6,276 in 1993 to $5,625 in
1994 is primarily attributable to the implementation of SFAS 115
Accounting for Certain Investments in Debt and Equity Securities on
December 31, 1993. The unrealized net loss on securities available-
for-sale, net of tax declined $1.7 million during 1994, and was recorded
as a reduction in shareholders' equity.
(5) Adjusted to reflect the Offering (assuming the sale of 600,000 shares and
net proceeds of $6.5 million and assuming no exercise of the additional
subscription option or the over-allotment option) and the application of
$4.4 million of the net proceeds to repay the amount outstanding under
the Company's revolving line of credit. See "Use of Proceeds."
(6) Adjusted to reflect the Offering (assuming the sale of 1,200,000 shares
and net proceeds of $13.6 million and assuming no exercise of the
additional subscription option or the over-allotment option) and the
application of $4.4 million of the net proceeds to repay the amount
outstanding under the Company's revolving line of credit. See "Use of
Proceeds."
(7) Net interest income on a tax-equivalent basis divided by average interest
earning assets.
(8) Net income divided by average equity.
(9) Non-performing loans consist of non-accrual loans and loans contractually
past due 90 days or more and still accruing.
(10) All interim periods have been annualized.
(11) Total capital to risk weighted assets.
(12) Tier 1 capital to total average assets.
32
<PAGE> 34
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with "Selected
Consolidated Financial Data" and the Company's Consolidated Financial
Statements, including the accompanying notes, each appearing elsewhere in this
Prospectus. In addition to historical information, the following "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contains forward-looking statements that involve risks and uncertainties. The
Company's actual results could differ significantly from those anticipated in
these forward-looking statements as a result of certain factors, including
those discussed in "Risk Factors" contained elsewhere in this Prospectus.
GENERAL
The Company's principal business is conducted by the Bank and consists of
full service community banking. The profitability of the Company's operations
depends primarily on its net interest income, provision for loan losses, other
operating income, and other operating expenses. Net interest income is the
difference between the income the Company receives on its loan and investment
portfolios and its cost of funds, which consists of interest paid on deposits
and borrowings. The provision for loan losses reflects the cost of credit risk
in the Company's loan portfolio. Other operating income consists of service
charges on deposit accounts, securities gains, gains on sale of loans, credit
card processing income and fees and commissions. Other operating expenses
include salaries and employee benefits as well as occupancy and equipment
expenses, credit card processing expenses, and other non-interest expenses.
Net interest income is dependent on the amounts and yields of interest
earning assets as compared to the amounts of and rates on interest bearing
liabilities. Net interest income is sensitive to changes in market rates of
interest and the Company's asset/liability management procedures in coping with
such changes. The provision for loan losses is dependent on increases in the
loan portfolio, management's assessment of the collectibility of the loan
portfolio, as well as economic and market factors. Non-interest expenses are
heavily influenced by the growth of operations, with additional employees
necessary to staff and open new branch facilities and marketing expenses
necessary to promote them. Growth in the number of account relationships
directly affects such expenses as data processing costs, supplies, postage and
other miscellaneous expenses.
OVERVIEW
BACKGROUND
The Company's total assets and total deposits have increased to $306.0
million and $268.2 million, respectively, at June 30, 1997 from $143.7 million
and $132.2 million, respectively, at December 31, 1992 primarily as a result of
the Company's addition of seven branch banking facilities. The addition of
these seven branch facilities and corresponding growth in total assets and
total deposits has resulted in increased operating expenses reflected in the
increase in the Company's net operating expense (other operating expense net of
other operating income) to average assets from 2.81% in 1992 to 3.31% in 1996.
This increase is primarily attributable to the relatively young age of the
Bank's branches and an increase in staff levels to improve the Company's
operations. The increase in operating expenses resulted in a $154,000 decrease
in the Company's net income in 1996 to $783,000 from $937,000 in 1995. The
Company's return on average assets of 0.31% and return on average equity of
9.09% in 1996 were significantly less than a national peer group comprised of
bank holding companies with total assets of between $150 million and $300
million. This peer group's return on average assets and return on average
equity were 1.17% and 12.92%, respectively, in 1996. The Company's lower
returns are primarily attributable to the expense associated with the Company's
strategy of pursuing growth in its target markets by opening branches.
Beginning in 1995, the Company began to implement a number of measures to
control operating expenses and position the Company for future growth. These
measures included: (i) adding senior management personnel experienced in
managing growth, controlling operating expenses, improving net interest margin,
and managing mortgage banking operations through hedging strategies; (ii)
enhancing and improving the Company's policies and procedures in the areas of
asset liability management and mortgage banking operations; and (iii)
developing a comprehensive strategic plan to substantially increase core
deposits and loans using the Company's existing
33
<PAGE> 35
facilities, operational systems and personnel. The Company believes that the
improvement in operating results during the first six months of 1997 compared to
the same period in 1996 is a direct result of implementation of these measures.
Net income for the six months ended June 30, 1997, was $360,000, compared with
$347,000 for the same period in 1996.
CONSOLIDATED RESULTS OF OPERATIONS
COMPARISON OF RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND
JUNE 30, 1996
General. The Company's net income for the six months ended June 30, 1997,
was $360,000 compared to net income of $347,000 for the six months ended June
30, 1996. The $13,000 increase in net income was primarily attributable to an
increase in net interest income and other operating income, partially offset by
increased net operating expenses.
Net interest income. Net interest income increased to $5.5 million for the
six months ended June 30, 1997, from $4.8 million for the comparable period of
1996. This increase in net interest income of $728,000, or 15.3%, was
attributable to a $1.6 million increase in interest income resulting from a
$37.8 million, or 16.5%, increase in average interest earning assets in the
first six months of 1997 compared to the same period in 1996. This increase in
average interest earning assets was primarily attributable to the continued
growth of the Company's loan portfolio. Partially offsetting this increase in
interest income was a $919,000 increase in interest expense for the first six
months of 1997, a 19.1% increase from the comparable period in 1996. The
Company's net interest margin decreased to 4.19% in the first six months of 1997
compared to 4.26% in the comparable period in 1996 as a result of increased
market interest rates in conjunction with the Company's liability sensitivity.
Provision for loan losses. The provision for loan losses increased to
$228,000 in the six months ended June 30, 1997, from $128,000 in the prior year
period primarily due to the growth in the loan portfolio. At June 30, 1997, the
allowance for loan losses represented 0.70% of loans outstanding which
management believed was adequate to cover potential losses in the portfolio.
There can be no assurance that future losses will not exceed the amounts
provided for, thereby affecting future results of operations. The amount of
future additions to the allowance for loan losses will be dependent upon the
economy, changes in real estate values, interest rates, the view of regulatory
agencies toward adequate reserve levels, and past due and non-performing loan
levels.
Other operating income. Total other operating income increased
approximately $614,000, or 18.6%, to $3.9 million for the first six months of
1997, compared to $3.3 million in the same period in 1996. Service charges on
deposit accounts increased by 47.0% to $917,000 for the six months ended June
30, 1997, from $624,000 for the six months ended June 30, 1996. The increase is
primarily attributable to a 13.7% increase in the average balance of deposit
accounts subject to such service charges and 106.6% increase in average
overdrafts outstanding. The majority of service charges on deposit accounts
consist of fees charged for overdrafts and failure to maintain required
balances. Gains on sale of loans decreased to $28,000 for the first six months
of 1997 from $82,000 for the first six months of 1996 primarily due to a
decrease in the number of loans originated attributable to decreased market
demand in 1997. Credit card processing income increased to $2.8 million from
$2.4 million for the six months ended June 30, 1997 and 1996, respectively, due
primarily to a 16.9% increase in the amount of credit card sales processed.
Other operating expenses. Total other operating expenses increased $1.1
million, or 15.2%, to $8.6 million for the first six months of 1997, as compared
to $7.5 million in the same period of 1996. This increase reflects the higher
level of expenditures required to support the Company's growth. Salaries and
employee benefits increased to $2.9 million for the six months ended June 30,
1997, as compared to $2.7 million for the same period of the prior year. The
increase of $140,000 reflects increased staffing to support the growth in
deposit and loan accounts at existing banking locations which are required to
maintain high levels of customer service. Also contributing to the increase in
salaries were normal salary increases. Occupancy and equipment expenses
increased to $979,000 for the six months ended June 30, 1997, from $807,000 for
the first six months of 1996, primarily due to improvements in the Company's
computer systems and the costs associated with the April, 1997, opening of the
Deerfield/Downtown branch location and preparing the Arlington Heights branch
location for opening in September, 1997. Data
34
<PAGE> 36
processing expenses increased to $488,000, or 67.7%, for the six months ended
June 30, 1997, compared to $291,000 for the first six months of 1996, primarily
due to substantially higher volume levels and the costs associated with the
conversion of the Company's data processing provider in March, 1997. Credit
card processing expenses increased $552,000, or 24.9%, to $2.8 million for the
six months ended June 30, 1997, compared to $2.2 million for the first six
months of 1996, primarily due to the 16.9% increase in the amount of credit card
sales processed. Other non-interest expenses increased by $78,000, or 5.4%, to
$1.5 million for the six months ended June 30, 1997, from $1.4 million for the
first six months of 1996, primarily due to a $157,000 increase in legal fees
attributable to increased collection costs and other matters.
Income taxes. The Company recorded income tax expense of $188,000 for the
first six months of 1997, compared to an income tax expense of approximately
$92,000 in the first six months of 1996.
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1996 AND
DECEMBER 31, 1995
General. The Company's net income was $783,000 for the year ended December
31, 1996, compared to net income of $937,000 for the year ended December 31,
1995, a decrease of $154,000 or 16.4%. The decrease in net income was primarily
due to increases in interest expense of $134,000, the provision for possible
loan losses of $103,000 and other operating expenses of $2.3 million, offset by
increases in interest income of $1.2 million and other operating income of $1.1
million.
Net interest income. Net interest income increased by $1.0 million, or
11.8%, to $9.8 million in 1996 from $8.8 million in 1995. This increase was
attributable to a $17.8 million increase in average interest earning assets to
$236.4 million in 1996 from $218.6 million in 1995. The Company's net interest
margin in 1996 increased to 4.25% compared to 4.14% in 1995. This increase was
primarily due to the Company's ability to use the increase in demand deposits
and other borrowings to fund higher yielding commercial loans and real estate
mortgage loans.
Provision for loan losses. The provision for loan losses increased to
$310,000 in 1996 from $207,000 in 1995, to provide for the growth in the
Company's loan portfolio. Total loans increased $32.4 million, or 18.7% to
$205.4 million at December 31, 1996, from $173.0 million at December 31, 1995.
At December 31, 1996, the allowance for loan losses represented 0.70% of total
loans, which management believed was adequate to cover potential losses in the
loan portfolio.
Other operating income. Other operating income increased by $1.1 million,
or 19.1%, to $7.1 million in 1996 from $6.0 million in 1995. Contributing to
this increase was an increase in service charges on deposit accounts of $268,000
to $1.4 million in 1996 and an increase in credit card processing income of
$945,000 to $5.3 million in 1996. The increase in service charges on deposit
accounts is directly attributable to the $17.8 million, or 7.8%, increase in
deposits to $245.1 million at December 31, 1996, from $227.3 million at December
31, 1995. The increase in credit card processing income is primarily
attributable to the increase in the number of participating merchants and a
corresponding processing volume increase to $263.2 million at December 31, 1996,
from $214.7 million at December 31, 1995, a 22.6% increase.
Other operating expenses. Other operating expenses increased $2.3 million,
or 17.1%, to $15.6 million in 1996 from $13.3 million in 1995, primarily due to
a $784,000 increase in salaries and employee benefits primarily attributable to
a full year of staffing of two additional branches, adding a number of
experienced senior personnel and additional staff to position the Company for
future growth and normal annual salary and wage increases. Occupancy and
equipment expenses increased $327,000, or 23.6%, to $1.7 million in 1996 from
$1.4 million in 1995 primarily due to a full year of operation of two
additional branch facilities in 1996, one of which was in operation for 10
months in 1995 and the other for less than one month in 1995. Credit card
processing expenses increased by approximately $1.1 million, or 29.2%, to $5.0
million in 1996 from $3.9 million in 1995, primarily due to the increase in the
number of participating merchants and corresponding processing volume
increases.
Income taxes. The Company recorded an income tax expense of $233,000 in
1996 compared to $260,000 in 1995, reflecting the decrease in the Company's net
income before taxes in 1996.
35
<PAGE> 37
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1995 AND
DECEMBER 31, 1994
General. The Company's net income was $937,000 for the year ended December
31, 1995, compared to net income of $263,000 for the year ended December 31,
1994, an increase of $674,000 or 256.3%. The increase in net income was
primarily due to increases in net interest income of $1.4 million and other
operating income of $997,000, offset by a $1.3 million increase in other
operating expenses.
Net interest income. Net interest income increased by $1.4 million, or
18.8%, to $8.8 million in 1995 from $7.4 million in 1994. This increase was
attributable to a $31.9 million increase in average interest earning assets to
$218.6 million in 1995 from $186.7 million in 1994. The Company's net interest
margin in 1995 remained constant at 4.14% compared to 1994 primarily due to a
relatively balanced interest rate gap.
Provision for loan losses. The provision for loan losses decreased to
$207,000 in 1995 from $250,000 in 1994, due to fewer loan charge offs in 1995
compared to 1994. Total loans increased $34.2 million, or 24.7%, to $173.0
million at December 31, 1995, from $138.8 million at December 31, 1994. At
December 31, 1995, the allowance for loan losses represented 0.70% of total
loans, which management believed was adequate to cover potential losses in the
loan portfolio.
Other operating income. Other operating income increased by $997,000, or
19.9%, to $6.0 million in 1995 from $5.0 million in 1994. Contributing to this
increase was an increase in service charges on deposit accounts of $269,000 to
$1.1 million in 1995, an increase in credit card processing income of $318,000
to $4.4 million in 1995 and the writedown of real estate loans held-for-sale in
1994 which reduced other operating income by $572,000. The increase in service
charges on deposit accounts is directly attributable to the $23.1 million, or
11.3%, increase in deposits to $227.3 million at December 31, 1995, from $204.2
million at December 31, 1994. The increase in credit card processing income is
primarily attributable to the increase in the number of participating merchants
and corresponding processing volume increases. The Company took a $572,000
charge to income in 1994 which represented the writedown of real estate loans
which had previously been held for sale but were transferred to the loan
portfolio. The Company transferred these loans to the loan portfolio in an
effort to mitigate the effects of interest rate changes on the value of the
loans and the corresponding effect on earnings. This writedown is being
amortized as a yield adjustment on the loans and will be recovered as payments
are made on the loans.
Other operating expenses. Other operating expenses increased $1.3 million,
or 11.0%, to $13.3 million in 1995 from $12.0 million in 1994, primarily due to
a $743,000 increase in salaries and employee benefits primarily attributable to
the initial staffing of the two branches opened in 1995 and normal annual salary
and wage increases. Occupancy and equipment expenses increased $101,000, or
7.8%, to $1.4 million in 1995 from $1.3 million in 1994 primarily due to the
opening of two branch facilities in 1995. Credit card processing expenses
increased by approximately $123,000, or 3.3%, to $3.9 million in 1995 from $3.8
million in 1994, primarily due to the increase in the number of participating
merchants and corresponding processing volume increases.
Income taxes. The Company recorded an income tax expense of $260,000 in
1995 compared to an income tax benefit of $182,000 in 1994, reflecting the
increase in the Company's net income before taxes in 1995.
36
<PAGE> 38
INTEREST EARNING ASSETS AND INTEREST BEARING LIABILITIES
The following table sets forth the average daily balances, net interest
income and expense and average yields and rates for the Company's earning assets
and interest bearing liabilities for the indicated periods on a tax-equivalent
basis assuming a 34% tax rate.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------------------------------------------------------
1997 1996
----------------------------------- ---------------------------------
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE
--------- -------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Loans(1)(3)....................................... $214,432 $9,691 9.04% $176,506 $8,070 9.14%
Taxable investment securities..................... 39,031 1,179 6.04 40,753 1,198 5.88
Investment securities exempt from federal
income taxes................................... 8,252 312 7.56 8,898 337 7.57
Interest bearing deposits with financial
institutions................................... 2,219 58 5.23 1,303 34 5.22
Federal funds sold................................ 2,887 76 5.26 1,538 42 5.46
-------- ------ ------ -------- ------ -----
Total interest earnings assets.................. 266,821 11,316 8.48% 228,998 9,681 8.46%
------ ------
Non-interest earning assets..................... 22,811 17,873
-------- --------
Total assets.................................... $289,632 $246,871
======== ========
INTEREST BEARING LIABILITIES:
Deposits:
NOW and money market accounts................... $81,525 $1,367 3.35% $74,595 $1,249 3.35%
Savings deposits................................ 19,408 325 3.35 18,096 291 3.22
Time deposits................................... 113,437 3,235 5.70 93,149 2,639 5.67
Notes payable..................................... 4,477 189 8.44 3,125 131 8.38
Other borrowings.................................. 18,835 609 6.47 15,806 496 6.28
-------- ------ ------ -------- ------ -----
Total interest bearing liabilities.............. 237,682 5,725 4.82 204,771 4,806 4.69
------ ------
Demand deposits - non-interest bearing............ 39,209 31,613
Other non-interest bearing liabilities............ 1,878 1,115
Minority interest in subsidiary bank.............. 530 503
Shareholders' equity(2)........................... 10,333 8,869
--------
Total liabilities and shareholders' equity..... $289,632 $246,871
======== ========
Net interest income............................ $5,591 $4,875
====== ======
Net interest margin............................ 4.19% 4.26%
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------
1996 1995
----------------------------------- ---------------------------------
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE
--------- -------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Loans(1)(3)....................................... $182,453 $16,764 9.19% $156,896 $14,965 9.54%
Taxable investment securities..................... 40,423 2,397 5.93 43,515 2,936 6.75
Investment securities exempt from federal
income taxes................................... 8,824 671 7.60 11,895 825 6.94
Interest bearing deposits with financial
institutions................................... 2,189 125 5.71 4,586 108 2.35
Federal funds sold................................ 2,500 120 4.80 1,744 103 5.91
-------- ------- ---- -------- ------- ----
Total interest earnings assets................. 236,389 20,077 8.49% 218,636 18,937 8.66%
------- -------
Non-interest earning assets.................... 19,890 14,846
-------- --------
Total assets................................... $256,279 $233,482
======== ========
INTEREST BEARING LIABILITIES:
Deposits:
NOW and money market accounts................... $76,127 $2,557 3.36% $68,574 $2,534 3.70%
Savings deposits................................ 18,329 606 3.31 18,293 589 3.22
Time deposits................................... 96,308 5,469 5.68 96,020 5,648 5.88
Notes payable..................................... 4,237 355 8.38 5,190 449 8.65
Other borrowings.................................. 15,923 1,033 6.49 10,746 666 6.20
-------- ------- ---- -------- ------- ----
Total interest bearing liabilities.............. 210,924 10,020 4.75 198,823 9,886 4.97
------- -------
Demand deposits - non-interest bearing............ 33,922 26,884
Other non-interest bearing liabilities............ 1,515 789
Minority interest in subsidiary bank.............. 515 513
Shareholders' equity(2)........................... 9,403 6,473
-------- --------
Total liabilities and shareholders' equity...... $256,279 $233,482
======== ========
Net interest income............................. $10,057 $9,051
======= =======
Net interest margin............................. 4.25% 4.14%
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1994
-----------------------------------
AVERAGE YIELD/
BALANCE INTEREST RATE
--------- -------- --------
<S> <C> <C> <C>
INTEREST EARNING ASSETS:
Loans(1)(3)....................................... $125,607 $11,146 8.87%
Taxable investment securities..................... 46,058 2,796 6.07
Investment securities exempt from federal
income taxes.................................... 13,663 945 6.92
Interest bearing deposits with financial
institutions.................................... 885 42 4.75
Federal funds sold................................ 472 19 4.03
-------- ------- ----
Total interest earnings assets.................. 186,685 14,948 8.01%
-------
Non-interest earning assets..................... 17,488
--------
Total assets.................................... $204,173
========
INTEREST BEARING LIABILITIES:
Deposits:
NOW and money market accounts................... $51,116 $1,519 2.97%
Savings deposits................................ 22,339 689 3.08
Time deposits................................... 84,168 4,224 5.02
Notes payable..................................... 5,335 421 7.89
Other borrowings.................................. 9,110 368 4.04
-------- ------- ----
Total interest bearing liabilities.............. 172,068 7,221 4.20
-------
Demand deposits - non-interest bearing............ 23,765
Other non-interest bearing liabilities............ 1,697
Minority interest in subsidiary bank.............. 514
Shareholders' equity(2)........................... 6,129
--------
Total liabilities and shareholders' equity...... $204,173
========
Net interest income............................. $7,727
======
Net interest margin............................. 4.14%
</TABLE>
- --------------------
(1) Non-accrual loans are included in average loans.
(2) Includes stock owned by Employee Stock Ownership Plan ("ESOP")
participants, net of ESOP loan.
(3) Interest income on loans includes loan origination and other fees of
$386,000 and $370,000 for the six months ended June 30, 1997 and 1996,
respectively, and $817,000, $819,000 and $703,000 for the years ended
December 31, 1996, 1995 and 1994, respectively.
37
<PAGE> 39
CHANGES IN INTEREST INCOME AND EXPENSE
The following table shows the dollar amount of changes in interest
income and expense by major categories of interest earning assets and interest
bearing liabilities attributable to changes in volume or rate or both, for the
periods indicated.
38
<PAGE> 40
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------------------ ---------------------------------
1997 COMPARED TO 1996 1997 COMPARED TO 1996
------------------------------ ---------------------------------
Change Change Change Change
Due to Due to Total Due to Due to Total
Volume Rate Change Volume Rate Change
--------- -------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Net loans (1)............................................... $ 1,715 $ (94) $ 1,621 $ 2,365 $ (566) $ 1,799
Taxable investment securities............................... (51) 32 (19) (199) (340) (539)
Investment securities exempt from federal income taxes (1).. (24) (1) (25) (228) 74 (154)
Interest bearing deposits with financial institutions....... 24 - 24 (78) 95 17
Federal funds sold.......................................... 36 (2) 34 39 (22) 17
-------- ------- -------- -------- ------- --------
Total increase (decrease) in interest income............. 1,700 (65) 1,635 1,899 (759) 1,140
-------- ------- -------- -------- ------- --------
INTEREST BEARING LIABILITIES:
NOW and money market accounts............................... 116 2 118 265 (242) 23
Savings deposits............................................ 22 12 34 1 16 17
Time deposits............................................... 578 18 596 17 (196) (179)
Notes payable............................................... 57 1 58 (80) (14) (94)
Other borrowings............................................ 98 15 113 335 32 367
-------- ------- -------- -------- ------- --------
Total increase (decrease) in interest expense............ 871 48 919 538 (404) 134
-------- ------- -------- -------- ------- --------
Increase (decrease) in net interest income............... $ 829 $ (113) $ 716 $ 1,361 $ (355) $ 1,006
======== ======= ======== ======== ======= ========
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1995 COMPARED TO 1994
------------------------------------
Change Change
Due to Due to Total
Volume Rate Change
--------- --------- ---------
<S> <C> <C> <C>
INTEREST EARNING ASSETS:
Net loans (1)............................................... $ 2,936 $ 883 $ 3,819
Taxable investment securities............................... (160) 300 140
Investment securities exempt from federal income taxes (1).. (123) 3 (120)
Interest bearing deposits with financial institutions....... 97 (31) 66
Federal funds sold.......................................... 72 12 84
-------- -------- --------
Total increase (decrease) in interest income............. 2,822 1,167 3,989
-------- -------- --------
INTEREST BEARING LIABILITIES:
NOW and money market accounts............................... 593 422 1,015
Savings deposits............................................ (129) 29 (100)
Time deposits............................................... 641 783 1,424
Notes payable............................................... (12) 40 28
Other borrowings............................................ 75 223 298
-------- -------- --------
Total increase (decrease) in interest expense............ 1,168 1,497 2,665
-------- -------- --------
Increase (decrease) in net interest income............... $ 1,654 $ (330) $ 1,324
======== ======== ========
</TABLE>
(1) Tax-exempt income is reflected on a fully tax equivalent basis utilizing a
a 34% rate for all periods presented.
<PAGE> 41
Volume variances are computed using the change in volume multiplied by the
previous year's rate. Rate variances are computed using the changes in rate
multiplied by the previous year's volume. The change in interest due to both
rate and volume has been allocated between the factors in proportion to the
relationship of the absolute dollar amounts of the change in each.
FINANCIAL CONDITION
Securities
The following table sets forth certain information with respect to the
Company's securities portfolio.
40
<PAGE> 42
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ---------------------------------------------
1997 1996 1995
---------------------- ---------------------- ----------------------
AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE COST VALUE
----------- ---------- ----------- ---------- ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
SECURITIES AVAILABLE-FOR-SALE:
U.S. Treasury . . . . . . . . . . . . . . . . . . . . $ 1,743 $ 1,757 $ 748 $ 754 $ 1,236 $ 1,250
U.S. government sponsored entities . . . . . . . . . . 5,096 4,997 5,846 5,721 7,845 7,643
States and political subdivisions . . . . . . . . . . 1,566 1,569 1,565 1,561 1,779 1,769
Mortgage-backed securities . . . . . . . . . . . . . . 3,332 3,348 2,568 2,585 555 556
SBA guaranteed loan participation certificates . . . . 4,052 4,033 4,337 4,290 4,293 4,359
Other securities . . . . . . . . . . . . . . . . . . . 117 117 110 236 14 99
-------- ------- -------- -------- -------- --------
Total . . . . . . . . . . . . . . . . . . . . . $ 15,906 $15,821 $ 15,174 $ 15,147 $ 15,722 $ 15,676
======== ======= ======== ======== ======== ========
SECURITIES HELD TO MATURITY:
U.S. Treasury . . . . . . . . . . . . . . . . . . . . $ 244 $ 246 $ 242 $ 245 $ 238 $ 246
U.S. government sponsored entities . . . . . . . . . . 14,933 14,921 15,368 15,403 17,719 17,907
States and political subdivisions . . . . . . . . . . 8,484 8,771 8,751 8,980 9,019 9,333
Mortgage-backed securities . . . . . . . . . . . . . . 5,521 5,715 5,804 6,037 6,384 6,768
Other securities . . . . . . . . . . . . . . . . . . . 2,080 2,080 2,395 2,395 1,696 1,696
-------- ------- -------- -------- -------- --------
Total . . . . . . . . . . . . . . . . . . . . . $ 31,262 $31,733 $ 32,560 $ 33,060 $ 35,056 $ 35,950
======== ======= ======== ======== ======== ========
<CAPTION>
DECEMBER 31,
---------------------
1994
----------------------
AMORTIZED FAIR
COST VALUE
----------- ----------
<S> <C> <C>
SECURITIES AVAILABLE-FOR-SALE:
U.S. Treasury . . . . . . . . . . . . . . . . . . . . $ 1,171 $ 1,053
U.S. government sponsored entities . . . . . . . . . . 8,820 8,181
States and political subdivisions . . . . . . . . . . 3,461 3,208
Mortgage-backed securities . . . . . . . . . . . . . . 237 234
SBA guaranteed loan participation certificates . . . . 4,448 4,427
Other securities . . . . . . . . . . . . . . . . . . . 14 49
-------- -------
Total . . . . . . . . . . . . . . . . . . . . . $ 18,151 $17,152
======== =======
SECURITIES HELD TO MATURITY:
U.S. Treasury . . . . . . . . . . . . . . . . . . . . $ 235 $ 226
U.S. government sponsored entities . . . . . . . . . . 18,965 17,668
States and political subdivisions . . . . . . . . . . 10,599 9,954
Mortgage-backed securities . . . . . . . . . . . . . . 7,020 6,884
Other securities . . . . . . . . . . . . . . . . . . . 1,643 1,643
-------- -------
Total . . . . . . . . . . . . . . . . . . . . . $ 38,462 $36,375
======== =======
</TABLE>
41
<PAGE> 43
The fair value of securities available for sale was $15.8 million at June
30, 1997, compared to $15.1 million at December 31, 1996, and $15.7 million at
December 31, 1995.
The book value of securities held to maturity was $31.3 million at June 30,
1997, compared to $32.6 million at December 31, 1996 and $35.1 million at
December 31, 1995.
The overall investment mix did not change significantly for the periods
presented.
The Company manages its investment portfolio to provide both a source of
liquidity and earnings. The Company follows an investment policy which
generally requires the securities in its investment portfolio to be rated, at
the date of purchase, investment grade by a nationally recognized rating agency.
In accordance with the Company's investment policy, no derivative securities may
be purchased without the prior approval of the Board of Directors. As of June
30, 1997, the Company did not hold any derivatives or off-balance sheet
derivative financial instruments such as futures, forwards, swaps or option
contracts. As of June 30, 1997, the Company held no securities with a book
value exceeding 10% of shareholders' equity of a single issuer other than the
U.S. Treasury or other U.S. government sponsored entities
Securities Maturities and Yields
The following table sets forth maturities and the weighted average yields
of the securities at June 30, 1997.
42
<PAGE> 44
<TABLE>
<CAPTION>
MATURITY
-----------------------------------------
DUE AFTER ONE
DUE IN ONE YEAR THROUGH
YEAR OR LESS FIVE YEARS
------------------- -------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
BALANCE YIELD BALANCE YIELD
------- -------- ------- --------
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE-FOR-SALE:
U.S. Treasury............................... $ -- -- % $ 1,757 6.48 %
U.S. government sponsored entities.......... 1,838 4.66 1,968 4.97
States and political subdivisions(1)........ 355 6.88 1,129 6.83
Mortgage-backed securities(2)............... -- -- 2,355 6.65
SBA guaranteed loan participation
certificates(2)........................... -- -- 296 7.89
Other securities............................ -- -- -- --
------- ---- ------- ----
Total..................................... $ 2,193 4.99 % $ 7,505 6.25 %
======= ==== ======= ====
SECURITIES HELD TO MATURITY:
U.S. Treasury............................... $ -- -- % $ 244 6.61 %
U.S. government sponsored entities.......... 297 6.83 6,126 5.84
States and political subdivisions(1)........ 185 7.07 3,270 7.39
Mortgage-backed securities(2)............... -- -- 910 7.37
Other securities............................ -- -- 150 8.25
------- ---- ------- ----
Total..................................... $ 482 6.92 % $10,700 6.50 %
======= ==== ======= ====
<CAPTION>
MATURITY
-----------------------------------------
DUE AFTER FIVE
YEARS THROUGH DUE AFTER
TEN YEARS TEN YEARS
------------------- -------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
BALANCE YIELD BALANCE YIELD
------- -------- ------- --------
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE-FOR-SALE:
U.S. Treasury............................... $ -- -- % $ -- -- %
U.S. government sponsored entities.......... 1,191 5.90 -- --
States and political subdivisions(1)........ 85 7.57 -- --
Mortgage-backed securities(2)............... 993 7.08 -- --
SBA guaranteed loan participation
certificates(2)........................... -- -- 3,737 7.02
Other securities............................ -- -- 117 3.04
------- ---- ------- ----
Total..................................... $ 2,269 6.48 % $ 3,854 6.90 %
======= ==== ======= ====
SECURITIES HELD TO MATURITY:
U.S. Treasury............................... $ -- -- % $ -- -- %
U.S. government sponsored entities.......... 8,052 6.82 458 5.73
States and political subdivisions(1)........ 2,103 7.93 2,926 8.41
Mortgage-backed securities(2)............... 3,657 7.41 954 7.39
Other securities............................ 300 7.32 1,630 7.02
------- ---- ------- ----
Total..................................... $14,112 7.15 % $ 5,968 7.66 %
======= ==== ======= ====
</TABLE>
- -----------------
(1) The yield is reflected on a fully tax equivalent basis utilizing a 34%
rate.
(2) These securities are presented based on contractual maturities.
Loan Portfolio
The loan portfolio is the largest category of the Company's interest
earning assets. Since December 31, 1992, total loans as a percentage of total
assets have increased to 75.9% at June 30, 1997, from 59.4%.
The following table sets forth the historical composition of the loan
portfolio.
43
<PAGE> 45
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ------------------------------------------------------
1997 1996 1995
------------------------ -------------------------- --------------------------
PERCENT OF PERCENT OF PERCENT OF
AMOUNT PORTFOLIO AMOUNT PORTFOLIO AMOUNT PORTFOLIO
-------- ----------- -------- ----------- ------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Commercial ....................... $ 65,474 28.18% $ 58,912 28.68% $ 45,217 26.14%
Real estate - construction........ 13,400 5.77 12,282 5.98 12,821 7.41
Real estate - mortgage............ 92,605 39.86 84,920 41.34 68,227 39.44
Home equity ...................... 51,920 22.35 43,193 21.03 37,820 21.86
Installment ...................... 8,475 3.65 5,615 2.73 8,655 5.00
Credit cards ..................... 446 0.19 503 0.24 261 0.15
-------- ------ -------- ------ -------- -----
Total gross loans............ 232,320 100.00% 205,425 100.00% 173,001 100.00%
====== ====== ======
Unearned discount ................ -- (2) (3)
Net deferred loan fees. (225) (261) (223)
Unaocreted discount from
loss on transfer of
loans held for sale to
portfolio....................... (391) (438) (451)
-------- -------- --------
Loans, net of unearned
discount loan fees.............. 231,704 204,724 172,324
Allowance for loan
losses.......................... (1,629) (1,425) (1,189)
-------- -------- --------
Net loans....................... $230,075 $203,299 $171,135
======== ======== ========
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------------------------
1994 1993 1992
------------------------- -------------------------- --------------------------
PERCENT OF PERCENT OF PERCENT OF
AMOUNT PORTFOLIO AMOUNT PORTFOLIO AMOUNT PORTFOLIO
-------- ----------- -------- ----------- ------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Commercial . . . . . . $ 33,640 23.83% $ 34,118 30.96% $32,132 36.17%
Real estate - construction 8,656 6.13 6,697 6.08 2,321 2.61
Real estate - mortgage 63,533 45.01 29,691 26.94 32,486 36.57
Home equity . . . . . . 30,810 21.83 36,366 33.00 19,067 21.46
Installment . . . . . . 4,056 2.87 2,771 2.51 2,332 2.63
Credit cards . . . . . 443 0.33 562 0.51 499 0.56
-------- ------ -------- ------ ------- ------
Total gross loans 141,138 100.00% 110,205 100.00% 88,837 100.00%
====== ====== ======
Unearned discount . . . (8) (18) (49)
Net deferred loan fees. (126) (108) (69)
Unaocreted discount from
loss on transfer of
loans held for sale to
portfolio............. (513) -- --
-------- -------- -------
Loans, net of unearned
discount loan fees.... 140,491 110,079 88,719
Allowance for loan
losses................ (1,000) (855) (647)
-------- -------- -------
Net loans............. $139,491 $109,224 $88,072
======== ======== =======
</TABLE>
<PAGE> 46
Commercial Loans. Commercial loans are generally written with adjustable
interest rates to match variable rate funding sources. Such loans increased
$6.6 million to $65.5 million at June 30, 1997, as the Company actively pursued
more commercial loan relationships. Commercial loans represented 28.2% of the
total loan portfolio at June 30, 1997, as compared to 28.7% of the total loan
portfolio at December 31, 1996.
Real Estate Mortgage Loans. Real estate mortgage loans, which consist of
residential and commercial loans secured by real estate, totaled $92.6 million
at June 30, 1997, compared to $84.9 million at December 31, 1996. This
increase is primarily related to an increased emphasis in commercial real
estate lending. Real estate mortgage loans are typically written with fixed
rates of interest.
Home Equity Loans. Home equity loans increased $8.7 million, or 20.2%, from
December 31, 1996 and were $51.9 million at June 30, 1997. At June 30, 1997,
home equity loans accounted for 22.4% of the total loan portfolio, compared to
21.0% of the total loan portfolio at December 31, 1996. The increase in home
equity loans is primarily due to the success of the Company's prime rate-based
home equity products. Home equity lines of credit, in addition to senior
mortgage indebtedness, normally do not exceed 80% of the residential real
estate collateral value. These loan to value ratios help to limit the credit
risk associated with these loans.
The Bank has no concentrations to borrowers engaged in the same or similar
industries that exceed 10% of total loans. The Bank has developed a lending
niche in providing loans to the long-term health care industry. At December
31, 1996, the Bank had $10.2 million of commitments to customers in this
industry, with $2.9 million drawn and outstanding. The Company maintains a
policy of directing its lending activities to the target markets from which its
deposits are drawn.
Loan Maturities
The following table sets forth the maturities of commercial and real estate
construction loans outstanding at December 31, 1996. Also set forth are the
amounts of such loans due after one year, classified according to sensitivity
to changes in interest rates.
<TABLE>
<CAPTION>
MATURITY
----------------------------------------------------------------------
DUE IN ONE
YEAR OR DUE AFTER ONE YEAR DUE AFTER
LESS THROUGH FIVE YEARS FIVE YEARS TOTAL
---------- ----------------------- -------------------- -----
(DOLLARS IN THOUSANDS)
FLOATING FLOATING
FIXED RATE FIXED RATE
----- -------- ----- --------
<S> <C> <C> <C> <C> <C> <C>
Commercial and real estate
construction loans . . . . . . . $54,081 $3,516 $10,345 $2,336 $916 $71,194
======= ====== ======= ====== ==== =======
</TABLE>
Non-performing Loans
Non-performing loans include: (1) loans accounted for on a non-accrual
basis; (2) accruing loans contractually past due ninety days or more as to
interest or principal payment; and (3) loans whose terms have been renegotiated
to provide a reduction or deferral of interest or principal because of a
deterioration in the financial position of the borrower.
The Bank has a reporting and control system to monitor non-performing loans.
The following table provides certain information on the Bank's non-performing
loans at the dates indicated.
45
<PAGE> 47
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
-------- -----------------------------------------------
1997 1996 1995 1994
--------- ---------- --------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Nonaccrual loans................................... $ 574 $ -- $ 13 $ 258
Restructured loans................................. -- -- -- --
Loans 90 days or more past due, still accruing..... 568 118 626 123
--------- ---------- --------- ----------
Total non-performing loans...................... $ 1,142 $ 118 $ 639 $ 381
========= ========== ========= ==========
Non-performing loans to loans, net of unearned
discount and net deferred loan fees............. 0.49% 0.06% 0.37% 0.27%
Non-performing loans to allowance
for loan losses................................. 70.10% 8.28% 53.74% 38.10%
<CAPTION>
DECEMBER 31,
----------------------
1993 1992
--------- ---------
<S> <C> <C>
Nonaccrual loans................................... $ 852 $ 258
Restructured loans................................. -- --
Loans 90 days or more past due, still accruing..... 519 689
--------- ---------
Total non-performing loans...................... $ 1,371 $ 947
========= =========
Non-performing loans to loans, net of unearned
discount and net deferred loan fees............. 1.25% 1.07%
Non-performing loans to allowance
for loan losses................................. 160.35% 146.37%
</TABLE>
The increase in non-performing loans of $1.0 million from December 31, 1996
to June 30, 1997 is primarily attributable to six loans. Of these loans, three
loans (totaling $509,000) are 90 days or more past due but still accruing
interest. Each of these loans is secured by a first lien on residential real
estate or a second lien where the Bank also holds the first lien. Should
management's view of the collectibility of these loans change, they may be
transferred to nonaccrual status. The other three large non-performing loans
are commercial loans (totaling $525,000) which are classified as nonaccrual.
One of these loans (totaling approximately $75,000) is guaranteed 82% by the
Small Business Administration. Management is aggressively pursuing collection
efforts with respect to each of these non-performing loans.
Loans with principal or interest payments contractually due but not yet paid
are reviewed by senior management on a weekly basis and are placed on
nonaccrual status when scheduled payments remain unpaid for 90 days or more,
unless the loan is both well-secured and in the process of collection.
Interest income on nonaccrual loans is recorded when actually received in
contrast to the accrual basis, which records income over the period in which it
is earned, regardless of when it is received.
Potential Problem Loans
In addition to those loans disclosed under "Non-performing Loans," there are
certain loans in the portfolio which management has identified, through its
problem loan identification system which exhibit a higher than normal credit
risk. However, these loans do not represent non- performing loans to the
Company. Management's review of the total loan portfolio to identify loans
where there is concern that the borrower will not be able to continue to
satisfy present loan repayment terms includes factors such as review of
individual loans, recent loss experience and current economic conditions.
Loans in this category include those with characteristics such as those that
have recent adverse operating cash flow or balance sheet trends, or have
general risk characteristics that the loan officer believes might jeopardize
the future timely collection of principal and interest payments. The principal
amount of loans in this category as of June 30, 1997 and December 31, 1996 were
approximately $484,000 and $983,000, respectively. Loans in this category
generally include loans that were classified for regulatory purposes. At June
30, 1997, there were no significant loans which were classified by any bank
regulatory agency that are not included above as non-performing or as a
potential problem loan.
The Bank had no other real estate owned at December 31, 1996 or June 30,
1997.
Allowance for Loan Losses
The allowance for loan losses is maintained at a level considered adequate
to provide for potential future losses. The level of the allowance is based
upon management's periodic and comprehensive evaluation of the loan portfolio,
as well as current and projected economic conditions. Reports of examination
furnished by Federal banking authorities are also considered by management in
this regard. These evaluations by management in assessing the adequacy of the
allowance include consideration of past loan loss experience, changes in the
46
<PAGE> 48
composition of the loan portfolio, the volume and condition of loans
outstanding and current market and economic conditions.
Loans are charged to the allowance for loan losses when deemed uncollectible
by management, unless sufficient collateral exists to repay the loan.
47
<PAGE> 49
Set forth in the following table is an analysis of the allowance for
loan losses.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ----------------------------------------------------------
1997 1996 1995 1994 1993 1992
---------- -------- ------- -------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Allowance at beginning of
period . . . . . . . . . . . . . . . . $ 1,425 $ 1,189 $ 1,000 $ 855 $ 647 $ 531
Charge-offs:
Commercial . . . . . . . . . . . . . . -- 49 -- 88 26 179
Real estate - construction . . . . . . -- -- -- -- -- --
Real estate - mortgage . . . . . . . . -- -- -- -- -- --
Home equity . . . . . . . . . . . . . -- -- -- -- -- --
Installment . . . . . . . . . . . . . 2 20 4 1 7 6
Credit cards . . . . . . . . . . . . . 53 9 15 50 19 47
-------- ---------- ---------- ------- ------- -------
Total charge-offs . . . . . . . . . . . . 55 78 19 139 52 232
-------- ---------- ---------- ------- ------- -------
Recoveries:
Commercial . . . . . . . . . . . . . . 22 -- -- 31 23 16
Real estate - construction . . . . . . -- -- -- -- -- --
Real estate - mortgage . . . . . . . . -- -- -- -- -- --
Home equity . . . . . . . . . . . . . -- -- -- -- -- --
Installment . . . . . . . . . . . . . 9 3 -- 1 -- --
Credit cards . . . . . . . . . . . . . -- 1 1 2 17 17
-------- ---------- ---------- ------- ------- -------
Total recoveries . . . . . . . . . . . . 31 4 1 34 40 33
-------- ---------- ---------- ------- ------- -------
Net charge-offs . . . . . . . . . . . . . 24 74 18 105 12 199
Provision for loan losses . . . . . . . . 228 310 207 250 220 315
-------- ---------- ---------- ------- ------- -------
Allowance at end of period . . . . . . . $ 1,629 $ 1,425 $ 1,189 $ 1,000 $ 855 $ 647
======== ========== ========== ======= ======= =======
Allowance to loans, net of unearned
discount and net deferred
loan fees . . . . . . . . . . . . . . 0.70% 0.70% 0.70% 0.71% 0.78% 0.73%
Net charge-offs to average net loans
(annualized for interim period) . . . . 0.02% 0.04% 0.01% 0.08% 0.01% 0.24%
</TABLE>
In 1996, the loan loss provision of $310,000 reflects an increase of
$103,660 from the 1995 provision. The increase was necessary to offset an
increase in net charge-offs, and to reflect the increase in commercial real
estate lending. The decline in the ratio of the allowance to loans, net of
unearned discount and net deferred loan fees has occurred as a result of the
increase in the loan portfolio. The decline is, however, mitigated by a
decrease in non-performing loans.
The following table presents the allocation of the allowance for loan
losses.
48
<PAGE> 50
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, -------------------------------------------------
1997 1996 1995
---------------------- ------------------------ -----------------------
PERCENT OF PERCENT OF PERCENT OF
LOANS OF EACH LOANS OF EACH LOANS OF EACH
CATEGORY TO CATEGORY TO CATEGORY TO
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
-------- ------------ -------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Commercial .................. $ 722 28.18% $ 597 28.68% $ 596 26.14%
Real estate - construction... -- 5.77 -- 5.98 -- 7.41
Real estate - mortgage....... 50 39.86 59 41.34 37 39.44
Installment.................. 47 3.65 34 2.73 36 5.00
Home Equity.................. 243 22.35 224 21.03 190 21.86
Credit cards................. 5 .19 12 0.24 7 0.15
Unallocated.................. 562 -- 499 -- 323 --
-------- ------ -------- ------ -------- -------
Total........................ $ 1,629 100.00% $ 1,425 100.00% $ 1,189 100.00%
======== ====== ======== ====== ======== =======
<CAPTION>
DECEMBER 31,
----------------------------------------------------------------------------------
1994 1993 1992
-------------------------- -------------------------- -----------------------
PERCENT OF PERCENT OF PERCENT OF
LOANS OF EACH LOANS OF EACH LOANS OF EACH
CATEGORY TO CATEGORY TO CATEGORY TO
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
-------- ------------ ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Commercial .................. $ 550 23.83% $ 478 30.96% $ 437 36.17%
Real estate - construction... -- 6.13 -- 6.08 -- 2.61
Real estate - mortgage....... 27 45.01 20 26.94 15 36.57
Installment.................. 35 2.87 53 2.51 9 2.63
Home Equity.................. 180 21.83 163 33.00 71 21.46
Credit cards................. 9 0.33 34 0.51 34 0.56
Unallocated.................. 199 -- 107 -- 81 --
-------- ------ -------- ------ --------- ------
Total........................ $ 1,000 100.00% $ 855 100.00% $ 647 100.00%
======== ====== ======== ====== ========= ======
</TABLE>
49
<PAGE> 51
Control of the Company's loan quality is continually monitored by management
and is reviewed by the board of directors and loan committee of the Bank on a
monthly basis, subject to the oversight by the Company's Board of Directors
through its members who serve on the loan committee. Independent external
review of the loan portfolio is provided by the examinations conducted by
regulatory authorities, independent public accountants in conjunction with
their annual audit, and an independent loan review performed by an entity
engaged by the Board of Directors. The amount of additions to the allowance
for possible loan losses which are charged to earnings through the provision
for possible loan losses are determined based on a variety of factors,
including actual charge-offs during the year, historical loss experience,
delinquent loans, and an evaluation of current and prospective economic
conditions in the market area. Management believes the allowance for possible
loan losses is adequate to cover any potential losses.
Asset Liability Management
As a continuing part of its financial strategy, the Company attempts to
manage the impact of fluctuations in market interest rates on its net interest
income. This effort entails providing a reasonable balance between interest
rate risk, credit risk, liquidity risk and maintenance of yield. Asset
liability management policies are established and monitored by management in
conjunction with the board of directors of the Bank, subject to general
oversight by the Company's Board of Directors. The policies establish
guidelines for acceptable limits on the sensitivity of the market value of
assets and liabilities to changes in interest rates.
The following table illustrates the Company's estimated interest rate
sensitivity and periodic and cumulative gap positions as calculated as of June
30, 1997. An institution with more assets than liabilities repricing over a
given time frame is considered asset sensitive and will generally benefit from
rising rates.
<TABLE>
<CAPTION>
TIME TO MATURITY OR REPRICING
---------------------------------------------------------
0-90 91-365 1-5 OVER 5
DAYS DAYS YEARS YEARS TOTAL
----------- -------- --------- -------- ----------
INTEREST EARNING ASSETS: (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net loans(1).......................................... $ 114,177 $ 12,775 $ 68,910 $ 34,504 $ 230,366
Taxable investment securities......................... 13,607 1,470 13,654 18,352 47,083
Interest bearing deposits with financial institutions. 778 99 -- -- 877
Federal funds sold.................................... 3,200 -- -- -- 3,200
----------- --------- --------- -------- ---------
Total earning assets............................. 131,762 14,344 82,564 52,856 281,526
=========== ========= ========= ======== =========
INTEREST BEARING LIABILITIES:
NOW and money market accounts......................... $ 52,740 $ 5,067 $ 28,594 $ 2,338 $ 88,739
Savings deposits...................................... 626 1,907 10,927 5,975 19,435
Time deposits......................................... 42,140 50,428 24,362 559 117,489
Notes payable......................................... 4,415 -- -- -- 4,415
Other borrowings...................................... 11,765 2,123 2,084 3,999 19,971
----------- --------- --------- -------- ---------
Total interest bearing liabilities............... $ 111,686 $ 59,525 $ 65,967 $ 12,871 $ 250,049
=========== ========= ========= ======== =========
Rate sensitive assets (RSA)........................... 131,762 146,106 228,670 281,526 281,526
Rate sensitive liabilities (RSL)...................... 111,686 171,211 237,178 250,049 250,049
Cumulative gap
(GAP = RSA - RSL)................................ $ 20,076 $ (25,105) $ (8,508) $ 31,477 $ 31,477
RSA/Total assets...................................... 43.07% 47.75% 74.74% 92.02% 92.02%
RSL/Total assets...................................... 36.50% 55.96% 77.52% 81.73% 81.73%
GAP/Total assets...................................... 6.56% (8.21%) (2.78%) 10.29% 10.29%
GAP/RSA............................................... 15.24% (17.18%) (3.72%) 11.18% 11.18%
</TABLE>
- -----------------
(1) Includes loans held for sale.
50
<PAGE> 52
While the gap position illustrated above is a useful tool that management
can assess for general positioning of the Company's and the Bank's balance
sheets, management uses an additional measurement tool to evaluate its
asset/liability sensitivity which determines exposure to changes in interest
rates by measuring the percentage change in net interest income due to changes
in rates over a one-year time horizon. Management measures such percentage
change assuming an instantaneous permanent parallel shift in the yield curve of
200 basis points, both upward and downward. Utilizing this measurement concept,
the interest rate risk of the Company, expressed as a percentage change in net
interest income over a one-year time horizon due to changes in interest rates,
at May 31, 1997, is as follows:
<TABLE>
<CAPTION>
+200 BASIS -200 BASIS
POINTS POINTS
---------- ----------
<S> <C> <C>
Percentage change in net interest
income due to an immediate 200
basis point change in interest over a
one-year time horizon ....................... 0.12% (1.36)%
</TABLE>
Deposits
Average total deposits were $253.6 million for the six months ended June
30, 1997, an increase of 12.9% from 1996. The increase in deposits occurred as
a result of opening new branches, and continued emphasis on deposit growth
through marketing and rate promotions. The composition of deposits has not
changed significantly from 1996. The following table sets forth average
deposits for the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
JUNE 30, -----------------------------------
1997 1996 1995 1994
----------------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
NOW and money market accounts .................. $ 81,525 $ 76,127 $ 68,574 $ 51,116
Savings deposits .............................. 19,408 18,329 18,293 22,339
Time deposits .................................. 113,437 96,308 96,020 84,168
Demand deposits - non-interest bearing ........ 39,209 33,922 26,884 23,765
--------- --------- --------- ---------
Total ....................................... $ 253,579 $ 224,686 $ 209,771 $ 181,388
========= ========= ========= =========
</TABLE>
The following table sets forth the maturities of certificates of deposit and
other time deposits of $100,000 or more at December 31, 1996 and June 30, 1997.
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
-------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Maturing within three months ................ $ 9,231 $ 6,458
After three but within six months............ 4,821 7,590
After six but within twelve months........... 13,059 8,427
After twelve months ......................... 8,439 7,411
========= =======
Total...................................... $ 35,550 $ 29,886
========= ========
</TABLE>
51
<PAGE> 53
Securities Sold Under Agreements to Repurchase
Securities sold under agreements to repurchase are overnight repurchase
agreements with customers of the Bank and consist of primarily U.S. government
sponsored entity obligations.
The securities underlying the agreements are book-entry securities. During
the period, the securities were delivered by appropriate entry into a
third-party custodian's account designated by the Bank under a written custodial
agreement that explicitly recognizes the customer's interest in the securities.
At December 31, 1996, no material amount of agreements to repurchase securities
sold were outstanding with any individual customer.
The following table sets forth categories of securities sold under
agreements to repurchase as of the indicated dates or for the indicated
periods:
<TABLE>
<CAPTION>
AT OR FOR THE
SIX MONTHS AT OR FOR THE YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, ---------------------------------------
1997 1996 1995 1994
------------- --------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance at end of period . . . . . . . . . . . . $ 4,996 $ 4,255 $ 1,868 $ 1,809
Weighted average interest rate at end of period . 4.38% 4.23% 4.40% 4.50%
Maximum amount outstanding . . . . . . . . . . . $ 5,689 $ 4,637 $ 5,330 $ 2,913
Average amount outstanding . . . . . . . . . . . $ 5,165 $ 4,115 $ 3,182 $ 2,240
Weighted average interest rate during period . . 4.30% 4.20% 4.99% 3.94%
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
The Company and the Bank are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements could result in certain mandatory, and possibly
additional discretionary, actions by regulators that, if undertaken, could have
a direct material effect on the Company's financial condition. The regulations
require the Company and the Bank to meet specific capital adequacy guidelines
that involve quantitative measures of assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting principles.
The capital classifications are also subject to qualitative judgments by the
regulators about risk weightings and other factors.
Quantitative measures established by Federal Reserve, OCC and FDIC
regulations to ensure capital adequacy require the Company and the Bank to
maintain minimum ratios (set forth in the table below) of Tier 1 capital (as
defined in the regulations) to total average assets (as defined in the
regulations) ("leverage ratio") and minimum ratios of Tier 1 capital and total
capital (as defined in the regulations) to risk-weighted assets (as defined in
the regulations) ("Tier 1 Ratio" and "Tier 2 Ratio", respectively). As of June
30, 1997, the Company's actual total capital to risk-weighted assets ratio (Tier
2) of 7.31% was below the minimum ratio of 8.0% established by the Federal
Reserve. The Company's pro forma total capital to risk-weighted assets ratio
(Tier 2) which reflects the completion of the Reorganization was 7.95%. Failure
by the Company and/or the Bank to meet minimum capital requirements can result
in certain mandatory and possibly additional discretionary actions by regulators
that, if undertaken, could have an adverse effect on the Company's growth and
financial results. The Offering is being undertaken to increase the capital of
the Company and the Bank to enable the Company to continue its growth. As of
June 30, 1997, the most recent notification from the OCC categorized the Bank as
"well capitalized" under the regulatory framework for prompt corrective action.
To be considered well capitalized, under this framework, the Bank must maintain
minimum leverage, Tier 1 and Tier 2 ratios as set forth in the following table.
There are no conditions or events since the notification that management
believes has changed the Bank's category. However,
52
<PAGE> 54
there can be no assurance that after the Offering, the Company or the
Bank will continue to be in compliance with their regulatory capital
requirements.
The required ratios and the Company's and Bank's actual and pro forma ratios
at June 30, 1997, are presented below:
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED
FOR CAPITAL UNDER PROMPT
PRO ADEQUACY CORRECTIVE ACTION
ACTUAL FORMA(1) PURPOSES PROVISIONS
------------------ ------------------ ------------------ ------------------
ACTUAL RATIO ACTUAL RATIO ACTUAL RATIO ACTUAL RATIO
------ ----- ------ ----- ------ ----- ------ -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
As of June 30, 1997
Total Capital (to Risk Weighted Assets)
(Tier 2 ratio):
Company . . . . . . . . . . . . . . . $ 15,056 7.31% $ 16,376 7.95% $ 16,481 8.0% N/A
Bank . . . . . . . . . . . . . . . . 20,546 10.00 20,546 10.00 16,441 8.0 $ 20,551 10.0%
Tier 1 Capital (to Risk Weighted
Assets)
(Tier 1 ratio):
Company . . . . . . . . . . . . . . . 11,580 5.62 14,747 7.16 8,241 4.0 N/A
Bank . . . . . . . . . . . . . . . . 18,917 9.20 18,917 9.20 8,221 4.0 12,331 6.0
Tier 1 Capital (to Total Average Assets)
(leverage ratio):
Company . . . . . . . . . . . . . . . 11,580 4.00 14,747 5.09 11,585 4.0 N/A
Bank . . . . . . . . . . . . . . . . 18,917 6.54 18,917 6.54 11,571 4.0 14,464 5.0
</TABLE>
- ---------------
(1) The pro forma information reflects the completion of the Reorganization.
Banking regulations limit the amount of dividends that the Bank may pay
without the prior approval of regulatory authorities. As of June 30, 1997,
approximately $1,003,000 of the Bank's retained earnings were available for
dividends without prior regulatory approval. In addition, the Company's debt
agreement with its lending institution requires the Bank to maintain minimum
capital requirements which serve to limit dividends from the Bank. Under the
debt agreement, the Company and the Bank are required to maintain minimum
capital of $9.0 million and $17 million, respectively, and minimum Tier 1
capital to total average assets ratios of 3% and 6%, respectively. The
Company's and Bank's capital levels exceed these requirements. The debt
agreement imposes a more restrictive dividend limitation on the Bank than the
banking regulations. The debt agreement also requires the Bank to maintain an
allowance for loan losses of at least 7/10ths of 1% of total loans. Non-
performing loans and other real estate are also limited under the agreement to
20% of the Bank's capital. The Bank may not declare a dividend, other than for
the purpose of the Company's debt service, without the written consent of its
lender. The Company cannot declare cash dividends or acquire any of its own
stock without the written consent of its lender.
Liquidity management at the Bank involves planning to meet anticipated
funding needs at a reasonable cost. Liquidity management is guided by policies
formulated and monitored by the Company's senior management and the Bank's
asset/liability committee, which take into account the marketability of assets,
the sources and stability of funding and the level of unfunded commitments. The
Banks' principal sources of funds are deposits, short-term borrowings and
capital contributions by the Company out of the proceeds of borrowings under
the revolving line of credit. At July 30, 1997, approximately $7.4 million of
indebtedness was outstanding under the Company's $8.0 million revolving line of
credit. Borrowings by the Bank from the Federal Reserve Bank of Chicago and
Federal Home Loan Bank of Chicago provide additional sources of short-term
liquidity.
The Bank's core deposits, the most stable source of liquidity for community
banks due to the nature of long-term relationships generally established with
depositors and the security of deposit insurance provided by the FDIC, are
available to provide long-term liquidity. At June 30, 1997, 68.9% of the
Company's total assets were funded by
53
<PAGE> 55
core deposits with balances less than $100,000, while remaining assets were
funded by other funding sources such as core deposits with balances in excess
of $100,000, public funds, purchased funds, and the capital of the Bank. At
December 31, 1996 and 1995, 69.8% and 71.3% of total assets were funded by core
deposits, respectively.
Liquid assets refer to money market assets such as Federal funds sold and
interest bearing time deposits with financial institutions, as well as
securities available-for-sale and securities held-to-maturity with a remaining
maturity less than one year. Net liquid assets represent the sum of the liquid
asset categories less the amount of assets pledged to secure public funds. At
June 30, 1997, net liquid assets totaled approximately $25.9 million, compared
to approximately $26.3 million at December 31, 1996 and $30.7 million at
December 31, 1995. The decrease in net liquid assets from December 31, 1995
to June 30, 1997 is a result of the Company's efforts to shift assets from
lower yielding investments such as maintaining high balances with correspondent
banks to higher yielding investments such as loans. Cash and due from banks
including interest bearing demand balances with financial institutions, at
December 31, 1995 was $19.1 million compared with $12.6 million at June 30,
1997.
The Bank routinely accepts deposits from a variety of municipal entities.
Typically, these municipal entities require that banks pledge marketable
securities to collateralize these public deposits. At June 30, 1997, December
31, 1996 and December 31, 1995, the Bank had approximately $11 million, $14
million and $13 million, respectively, of securities collateralizing such
public deposits. Deposits requiring pledged assets are not considered to be
core deposits, and the assets that are pledged as collateral for these deposits
are not deemed to be liquid assets.
The Company's cash flows are composed of three classifications: cash flows
from operating activities, cash flows from investing activities, and cash flows
from financing activities. Net cash provided by operating activities,
consisting primarily of earnings, was $1.6 million for the six months ended
June 30, 1997, and $1.6 million for the year ended December 31, 1995. Net cash
used in operating activities for the six months ended June 30, 1996 was $2.2
million and $266,000 for the year ended December 31, 1996. A significant
component in the fluctuation of net cash provided by or used in operating
activities is the timing of the transfer of loans held for sale to permanent
investors. Net cash used in investing activities, consisting primarily of loan
and investment funding, was $28.2 million and $4.6 million for the six months
ended June 30, 1997 and 1996, respectively, and $29.9 million and $26.4 million
for the years ended December 31, 1996 and 1995, respectively. Net cash provided
by financing activities, consisting principally of deposit growth, was $28.5
million and $1.4 million for the six months ended June 30, 1997 and 1996,
respectively, and $23.5 million and $26.9 million for the years ended December
31, 1996 and 1995, respectively.
EFFECTS OF INFLATION
The financial statements and related financial data concerning the Company
presented herein have been prepared in accordance with generally accepted
accounting principles, which require the measurement of financial position and
operating results in terms of historical dollars without considering changes in
the relative purchasing power of money over time due to inflation. Inflation
can have a significant effect on the operating results of all industries.
However, the effects of inflation in the local economy and on the Company's
operating results have been relatively modest for the past several years.
Since substantially all of the Company's assets and liabilities are monetary in
nature, such as cash, securities, loans and deposits, their values are less
sensitive to the effects of inflation than to changing interest rates, which do
not necessarily change in accordance with inflation rates.
The primary impact of inflation on the operations of the Company is
reflected in increased operating costs. Increases in interest rates affect the
ability of the Company's borrowers to service their variable rate debt.
Furthermore, inflation can directly affect the value of loan collateral in
general, and real estate collateral in particular. These factors are taken
into account in the initial underwriting process and over the life of the
loans. The Company believes that it has systems in place to continue to manage
the rates, liquidity and interest rate sensitivity of the Company's assets and
liabilities. See "Financial Condition - Asset Liability Management."
54
<PAGE> 56
FORWARD-LOOKING STATEMENTS
This Prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). Such forward-looking statements
may be deemed to include, among other things, statements relating to
anticipated growth and increased profitability, as well as statements relating
to the Company's strategic plan, including plans to continue to develop lending
niches, to open new branch offices, and to selectively acquire other financial
institutions. Actual results could differ materially from those addressed in
the forward-looking statements as a result of the factors discussed in "Risk
Factors" and elsewhere in this Prospectus.
55
<PAGE> 57
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors, executive officers and certain other key employees of the
Company, and their respective ages and principal positions as of July 31, 1997,
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Saul D. Binder(3) . . . . . . . . . . 57 Director, President and Chief Executive Officer of
the Company and President and Chief Executive Officer
of the Bank
Steven A. Covert . . . . . . . . . . . 35 Executive Vice President and Chief Financial Officer
of the Company and the Bank
Craig R. Carpenter . . . . . . . . . . 61 Senior Vice President and Chief Credit Officer of the Bank
Ronald W. Tragasz . . . . . . . . . . . 48 Senior Vice President and Cashier of the Bank
Christa N. Calabrese . . . . . . . . . 48 Senior Vice President and Chief Lending Officer of the Bank
Sam Moraras . . . . . . . . . . . . . . 46 Treasurer of the Company and Vice President and Controller of the Bank
George M. Ohlhausen(3)(4) . . . . . . . 75 Chairman of the Board of Directors of the Company
Charles G. Freund(1)(5) . . . . . . . . 73 Director
Avrom H. Goldfeder(2)(5) . . . . . . . 38 Director
Samuel D. Kahan(1)(5) . . . . . . . . . 50 Director
Sherwin Koopmans(2)(4) . . . . . . . . 55 Director
Norman D. Rich(3)(4) . . . . . . . . . 62 Director
</TABLE>
- --------------
(1) Class I Director
(2) Class II Director
(3) Class III Director
(4) Member of the Audit Committee
(5) Member of the Compensation Committee
Saul D. Binder has been President and Chief Executive Officer since joining
the Bank in 1982, and has been President and Chief Executive Officer of the
Company since 1992. Mr. Binder has been a Director of the Bank since 1982 and
a Director of the Company since its incorporation in 1986. From March, 1985 to
December, 1989, Mr. Binder served as President of the Bank of Bellwood. From
August, 1986 to December, 1989, he served as President of First National Bank
of Wheaton. From August, 1985 to December, 1989, Mr. Binder served as
Secretary of Bellwood Bancorp.
Steven A. Covert was named Executive Vice President and Chief Financial
Officer of the Company and the Bank in September, 1995. From July, 1993 to
December, 1994, Mr. Covert was Senior Vice President and Chief Financial
Officer of Ithaca Bancorp, Inc., a bank holding company located in Ithaca, New
York. From January, 1991 to July, 1993, Mr. Covert was Vice President and
Chief Financial Officer of Center Banks, Incorporated, a bank holding company
located in Skaneateles, New York. Prior to January, 1991, Mr. Covert was
employed by KPMG Peat Marwick LLP as an auditor, where he obtained his license
as a Certified Public Accountant.
56
<PAGE> 58
Craig R. Carpenter joined the Bank as Senior Vice President and Chief Credit
Officer in August, 1995. From 1961 to August, 1995, Mr. Carpenter was
employed by Continental Bank N.A. in various capacities, most recently as Vice
President and Departmental Credit Officer where he oversaw the pre-approval of
all credit relationships for the real estate department, including the energy
and mineral division.
Ronald W. Tragasz joined the Bank in September, 1991, and is currently
Senior Vice President and Cashier of the Bank and Assistant Vice President of
the Company. Prior to September, 1991, Mr. Tragasz was employed by the Bank of
Ravenswood as Cashier and by First National Bank of Chicago as Assistant Vice
President, where he was responsible for bank operating functions and various
branch operations.
Christa N. Calabrese has been Senior Vice President and Chief Lending
Officer of the Bank since 1992. Prior to joining the Bank, Ms. Calabrese was
an Asset Specialist with the Resolution Trust Corporation from 1990 to 1992.
From 1969 through 1990, Ms. Calabrese held commercial lending positions with
local community banks.
Sam Moraras has been Treasurer of the Company and Vice President and
Controller of the Bank since August, 1996. From September, 1995, to July,
1996, Mr. Moraras was employed by Siam Commercial Bank as the Manager of the
Operations Group where he oversaw the general operations of the bank. From
January, 1987, to September, 1995, Mr. Moraras was employed by Peterson Bank
with his last position being Senior Vice President and Controller where he was
in charge of the accounting and investment functions for the bank.
George M. Ohlhausen has been Chairman of the Board of Directors of the
Company since September, 1991. Mr. Ohlhausen was formerly President of George
M. Ohlhausen, Inc., through which he represented a variety of jewelry
manufacturers. He has served as a Director of the Bank since 1982 and of the
Company since 1989.
Charles G. Freund has been Chairman of the Board Emeritus of the Bank since
September, 1991. From August, 1989, to September, 1991, Mr. Freund was
Chairman of the Board of the Bank. Prior to his retirement in 1986, Mr. Freund
was Vice President, Secretary and Treasurer of Mid-Con Corp., a natural gas
transmission company. He currently serves as a Director of Lincoln National
Income Fund, Lincoln National Convertible Securities Fund and the Mathers Fund.
Mr. Freund has been a Director of the Bank since 1978 and of the Company since
1989.
Avrom H. Goldfeder has been a Director of the Company since 1997. Mr.
Goldfeder has been a member-trader of the Chicago Board of Trade (CBOT) since
1986. He is a member of the CBOT Business Conduct Committee and is Vice
Chairman of the CBOT Educational Research Foundation. Mr. Goldfeder was a
founding partner of the Financial Futures Interest Rate Group before joining
ING Futures and Options in October, 1990.
Samuel D. Kahan has been a Director of the Company since 1995. Mr. Kahan is
an economist and since October, 1995, has been President of A.S.K. Financial
Research Ltd., an economic research firm. From 1985 to 1995, Mr. Kahan was the
Chief Economist for Fuji Securities, Inc., a subsidiary of Fuji Bank, Ltd.
Sherwin Koopmans has been a Director of the Company since 1997. Prior to
his retirement in January, 1996, Mr. Koopmans was the Associate Director of the
Division of Depository and Asset Services for the Federal Deposit Insurance
Corporation ("FDIC") from July, 1994 to December, 1995. Prior to working for
the FDIC, Mr. Koopmans was the Regional Director and then the Vice President
for Resolution for the Resolution Trust Corporation from December, 1991, to
July, 1994.
Norman D. Rich has been a Director of both the Company and the Bank since
1991. Mr. Rich is a principal of the accounting and consulting firm of Veatch,
Rich & Nadler, Chtd., and has been during the last five years. Mr. Rich is a
Certified Public Accountant.
The Company's Board of Directors consists of seven (7) members divided
into three classes of Directors who are elected to hold office for staggered
three-year terms as provided in the Company's By-Laws. Those persons currently
serving as Class I Directors will hold office until the Annual Stockholder
Meeting to be held in 1998;
57
<PAGE> 59
Class II Directors will hold office until the Annual Stockholder Meeting to be
held in 1999; and Class III Directors will hold office until the Annual
Stockholder Meeting to be held in 2000.
Executive officers are appointed annually by the Board of Directors and
serve at the Board's discretion, subject to any written employment agreements
with the Company. See "Management--Employment Agreements."
DIRECTORS' COMPENSATION
Prior to July, 1997, members of the Board of Directors of the Company did
not receive compensation for their services as directors but were compensated
as members of the Bank's Board of Directors. Beginning August, 1997, members
of the Company's Board of Directors other than executive officers will receive
a fee of $1,000 a month. The Company will reimburse all directors of the
Company for all travel-related expenses incurred in connection with their
activities as directors. George M. Ohlhausen receives an additional $32,500
annually for serving as Chairman of the Board of Directors of the Company.
Prior to July, 1997, the same people were members of both of the Board of
Directors of the Company and the Bank. As of January 1 of each year, each
director of the Company and the Bank was granted an option to purchase up to
10,000 shares of Common Stock at the book value per share of Common Stock on
the last day of the month prior to the month in which such option was either
fully or partially exercised. Such options expire on December 31 of the year
in which the options were granted. In June, 1997, both the Board of Directors
of the Company and the Bank approved a resolution which reduced the number of
shares for which options granted in 1997 could be exercised to 1,000 shares and
changed the expiration date of the 1997 options to July 23, 1997. Between
January 1, 1996 and July 30, 1997, nine Directors exercised options to purchase
an aggregate of 20,405 shares of Common Stock at a weighted average exercise
price of $8.34 per share.
COMMITTEES OF THE BOARD OF DIRECTORS
In connection with the Offering, the Company has formed two new committees
of the Board, the Audit Committee and the Compensation Committee. The members
of the Company's Audit Committee are Messrs. Norman D. Rich, George M.
Ohlhausen and Sherwin Koopmans. The Audit Committee's functions will include
recommending to the Board of Directors the engagement of the Company's
independent certified public accountants, reviewing with such accountants the
plan and results of their audit of the Company's financial statements and
determining the independence of such accountants. The members of the Company's
Compensation Committee are Messrs. Charles G. Freund, Avrom H. Goldfeder and
Samuel D. Kahan. The Compensation Committee will review and make
recommendations with respect to compensation of officers and key employees,
including the grant of options under the 1995 Stock Option Plan.
EXECUTIVE COMPENSATION
The following table shows certain information concerning the compensation of
the Chief Executive Officer during the year ended December 31, 1996. No other
executive officer of the Company had compensation during the year ended
December 31, 1996, which exceeded $100,000.
58
<PAGE> 60
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY COMPENSATION(1)
---- --- --------- -------- ---------- -------- -----------------
<S> <C> <C> <C>
Saul D. Binder
President and Chief Executive Officer of the
Company and President and Chief Executive
Officer of the Bank.............................. 1996 $175,000 $ 19,503
</TABLE>
- --------------
(1) Includes $200 contributed by the Company for Mr. Binder under the
Company's 401(k) Plan and $19,303 allocated to Mr. Binder under the
Company's ESOP.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table provides information on option exercises in 1996
by the Chief Executive Officer and the value of such officer's unexercised
options at December 31, 1996. The Company made no option grants in 1996 to the
Chief Executive Officer.
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN THE
OPTIONS AT MONEY OPTIONS AT
DECEMBER 31, 1996(1) DECEMBER 31, 1996(2)
SHARES ------------------------------ -------------------------------
ACQUIRED ON VALUE
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------ -------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Saul D. Binder(3) - $0 113,390 -- $894,105 $0
</TABLE>
- --------------
(1) Future exercisability is subject to vesting and the optionee remaining
employed by the Company.
(2) Based on the offering price of $12.50 per share. There is no guarantee
that if and when these options are exercised they will have this value.
(3) Of these options, options to purchase 28,390, 68,000 and 17,000 shares of
Common Stock were granted in February, 1990, April, 1992 and January,
1993, respectively, at exercise prices reflecting the fair market value
as of the dates of such option grants of $1.82, $5.41 and $6.09 per
share, respectively.
EMPLOYMENT AGREEMENTS
The Bank has entered into an Employment Agreement dated February 1, 1997,
with Mr. Binder. The Employment Agreement will remain in effect until Mr.
Binder reaches the age of sixty-five, or in the event his employment is
terminated for cause. The annual base salary for Mr. Binder as of the execution
of the Employment Agreement was $175,000. In addition to his salary, Mr. Binder
is entitled to participate in and receive benefits under any employee insurance
and fringe benefits programs that may be established by the Bank for its
employees. The Employment Agreement further provides that upon the sale,
transfer or disposition of the shares of stock or assets of the Bank, Mr. Binder
will receive a lump sum payment in the amount of $229,000.
The Company has entered into an Executive Severance Agreement dated August
21, 1995, with Steven A. Covert, Executive Vice President and Chief Financial
Officer of the Company and the Bank, whereby under certain circumstances Mr.
Covert will be paid a specified sum in the event his employment is terminated
except if such employment is terminated for cause.
STOCK OPTION PLANS
The Company adopted the 1995 Stock Option Plan for executive officers and
other key personnel of the Company and the Bank effective October 31, 1995.
Pursuant to the 1995 Stock Option Plan, vesting of the options
59
<PAGE> 61
is determined by the Board of Directors and typically is over a period not
exceeding four years. Options must be exercised within ten years after the
date of grant. At July 31, 1997, there were 153,340 outstanding options to buy
Common Stock at a weighted average price of $5.02 per share.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Historically, compensation of the Bank's executive officers has been
established at the Bank level by the Compensation Committee of the Bank's Board
of Directors. Saul D. Binder, President and Chief Executive Officer of the
Company and the Bank, participated in deliberations concerning compensation of
the executive officers during 1996. Mr. Binder's compensation has historically
been determined by the Compensation Committee of the Bank's Board of Directors.
The Company's Compensation Committee will determine the compensation of
executive officers of the Company on a going-forward basis.
CERTAIN TRANSACTIONS
From time to time, the Bank makes loans and extends credit to certain of the
Company's and/or the Bank's officers and directors and to certain companies
affiliated with such persons. In the opinion of the Company, all of such loans
and extensions of credit were made in the ordinary course of business, on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other third parties,
and did not involve more than the normal risk of collectibility or present
other unfavorable features. At June 30, 1997, an aggregate of $2.5 million of
loans and extensions of credit were outstanding to certain officers and
directors of the Company and/or the Bank and to certain companies affiliated
with such persons.
60
<PAGE> 62
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of July 31, 1997 after
giving effect to the Reorganization and the stock split, and as adjusted to
reflect the issuance by the Company of the shares of Common Stock offered in
the Offering (assuming 1,200,000 shares are sold in the Offering) by: (i) each
person or entity known to the Company to be the beneficial owner of more than
5% of its outstanding Common Stock, (ii) each Named Executive Officer, (iii)
each director of the Company, and (iv) all directors, executive officers and
certain key employees of the Company as a group.
<TABLE>
<CAPTION>
NUMBER OF
SHARES
NAME AND ADDRESS OF BENEFICIALLY PERCENTAGE OF OUTSTANDING
BENEFICIAL OWNER(1) OWNED(2)(3) SHARES OWNED
- ----------------------------------------------- ------------ ----------------------------------------
Before Offering After Offering
--------------- --------------
<S> <C> <C> <C>
Saul D. Binder . . . . . . . . . . . . . . . . 194,447 11.5% 6.7%
Charles G. Freund . . . . . . . . . . . . . . . 49,912 3.0 1.7
Avrom H. Goldfeder . . . . . . . . . . . . . . -- -- --
Samuel D. Kahan . . . . . . . . . . . . . . . . 1,700 * *
Sherwin Koopmans . . . . . . . . . . . . . . . -- -- --
George M. Ohlhausen . . . . . . . . . . . . . . 247,777 14.7 8.6
Norman D. Rich . . . . . . . . . . . . . . . . 18,699 1.1 *
Naschon Draiman(4) . . . . . . . . . . . . . . 155,674 9.2 5.4
All directors, executive
officers and key employees as a group (12
persons) . . . . . . . . . . . . . . . . . . 526,985 31.2 18.2
</TABLE>
- ---------------
* Less than 1%
(1) The address of each of the executive officers and directors, unless noted
otherwise in the footnotes, is c/o Success Bancshares, Inc., One Marriott
Drive, Lincolnshire, Illinois 60069.
(2) The number of shares listed includes 127,840 shares of Common Stock which
may be acquired through the exercise of stock options.
(3) Includes, when applicable, shares owned of record by such person's minor
children and spouse and by other related individuals and entities over
whose shares of Common Stock such person has custody, voting control, or
power of disposition.
(4) Mr. Draiman's address is 6134 North St. Louis Avenue, Chicago, Illinois
60659.
61
<PAGE> 63
SUPERVISION AND REGULATION
Bank holding companies and banks are extensively regulated under federal
and state law. References under this heading to applicable statutes or
regulations are brief summaries of portions thereof which do not purport to be
complete and which are qualified in their entirety by reference to those
statutes and regulations. Any change in applicable laws or regulations may have
a material adverse effect on the business of commercial banks and bank holding
companies, including the Company and the Bank. However, management is not aware
of any current recommendations by any regulatory authority which, if
implemented, would have or would be reasonably likely to have a material effect
on liquidity, capital resources, or operations of the Company or the Bank.
BANK HOLDING COMPANY REGULATION
The Company is registered as a "bank holding company" with the Federal
Reserve and, accordingly, is subject to supervision by the Federal Reserve
under the BHC Act. The Company is required to file with the Federal Reserve
periodic reports and such additional information as the Federal Reserve may
require pursuant to the BHC Act. The Federal Reserve examines the Company and
may examine the Bank.
The BHC Act requires prior Federal Reserve approval for, among other
things, the acquisition by a bank holding company of direct or indirect
ownership or control of more than five percent of the voting shares or
substantially all the assets of any bank or bank holding company, or for a
merger or consolidation of a bank holding company with another bank holding
company. With certain exceptions, the BHC Act prohibits a bank holding company
from acquiring direct or indirect ownership or control of voting shares of any
company which is not a bank or bank holding company and from engaging directly
or indirectly in any activity other than banking or managing or controlling
banks or performing services for its authorized subsidiaries. Under the BHC
Act and Federal Reserve regulations, the Company and the Bank are prohibited
from engaging in certain tie-in arrangements in connection with an extension of
credit, lease, sale of property, or furnishing of services.
Any person, including associates and affiliates of and groups acting in
concert with such person, who purchases or subscribes for five percent or more
of the Company's Common Stock may be required to obtain prior approval of the
Federal Reserve under the BHC Act. Under the Change in Bank Control Act, any
person who acquires stock of the Company such that its interest exceeds ten
percent of the Company, may be required to demonstrate that such person is not
in control of the Company. Prior regulatory approval will be required before
acquiring the power to directly or indirectly direct the management, operations
or policies of the Company or the Bank or before acquiring control of 25
percent or more of any class of the Company's or Bank's outstanding voting
stock. In addition, any corporation, partnership, trust or organized group that
acquires a controlling interest in the Company or the Bank may have to obtain
approval of the Federal Reserve to become a bank holding company and thereafter
be subject to regulation as such.
It is the policy of the Federal Reserve that the Company is expected to
act as a source of financial strength to the Bank and to commit resources to
support the Bank. The Federal Reserve takes the position that in implementing
this policy, it may require the Company to provide such support when the
Company otherwise would not consider itself able to do so.
The Federal Reserve has adopted risk-based capital requirements for
assessing bank holding company capital adequacy. These standards define
regulatory capital and establish minimum capital standards in relation to
assets and off-balance sheet exposures, as adjusted for credit risks. The
Federal Reserve's risk-based guidelines apply on a consolidated basis for bank
holding companies with consolidated assets of $150 million or more and on a
"bank-only" basis for bank holding companies with consolidated assets of less
than $150 million, subject to certain terms and conditions. Under the Federal
Reserve's risk-based guidelines, capital is classified into two categories. For
bank holding companies, Tier 1 or "core" capital consists of common
shareholders' equity, perpetual preferred stock (subject to certain
limitations) and minority interests in the common equity accounts of
consolidated subsidiaries, and is reduced by goodwill, certain other intangible
assets and certain investments in other corporations ("Tier 1 Capital"). Tier 2
capital consists of the allowance for loan and lease losses (subject to certain
conditions and
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limitations), perpetual preferred stock (to the extent not included in Tier 1
capital), "hybrid capital instruments," perpetual debt and mandatory
convertible debt securities, and term subordinated debt and intermediate-term
preferred stock.
Under the Federal Reserve's capital guidelines, bank holding companies are
required to maintain a minimum ratio of qualifying capital to risk-weighted
assets of 8.0%, of which at least 4.0% must be in the form of Tier 1 Capital.
The Federal Reserve also requires a minimum leverage ratio of Tier 1 Capital to
total average assets of 4.0%, except that bank holding companies not rated in
the highest category under the regulatory rating system are required to
maintain a leverage ratio of 1.0% to 2.0% above such minimum. The 4.0% Tier 1
Capital to total average assets ratio constitutes the minimum leverage standard
for bank holding companies, and will be used in conjunction with the risk-based
ratio in determining the overall capital adequacy of banking organizations. In
addition, the Federal Reserve continues to consider the Tier 1 leverage ratio
in evaluating proposals for expansion or new activities.
In its capital adequacy guidelines, the Federal Reserve emphasizes that
the foregoing standards are supervisory minimums and that banking organizations
generally are expected to operate well above the minimum ratios. These
guidelines also provide that banking organizations experiencing internal growth
or making acquisitions will be expected to maintain strong capital positions
substantially above the minimum levels.
As of June 30, 1997, on a pro forma basis, the Company had a Tier 1
capital to risk-weighted assets ratio (Tier 1 Ratio) of 7.2%, total capital to
risk-weighted assets ratio (Tier 2 Ratio) of 7.95% and a Tier 1 capital to
total average assets ratio (leverage ratio) of 5.09%. The Company's actual
Tier 2 Ratio as of June 30, 1997 was below the minimum ratio of 8.0%
established by the Federal Reserve. Failure by the Company to meet minimum
capital requirements can result in certain mandatory and possible additional
discretionary actions by regulators that, if undertaken, could have a adverse
effect on the Company's growth and financial results.
BANK REGULATION
The Bank is subject to supervision and examination by the OCC pursuant to
the National Bank Act and regulations promulgated thereunder. The Bank is a
member of the Federal Reserve and as such is also subject to examination by the
Federal Reserve.
The deposits of the Bank are insured by the Bank Insurance Fund under the
provisions of the Federal Deposit Insurance Act (the "FDIA"), and the Bank is,
therefore, also subject to supervision and examination by the FDIC. The FDIA
requires that the appropriate federal regulatory authority (the OCC, in the
case of the Bank) approve any merger and/or consolidation by or with an insured
bank, as well as the establishment or relocation of any bank or branch office.
The FDIC also supervises compliance with the provisions of federal law and
regulations which place restrictions on loans by FDIC-insured banks to their
directors, executive officers and other controlling persons.
Furthermore, banks are affected by the credit policies of other monetary
authorities, including the Federal Reserve, which regulate the national supply
of bank credit. Such regulation influences overall growth of bank loans,
investments, and deposits and may also affect interest rates charged on loans
and paid on deposits. The monetary policies of the Federal Reserve have had a
significant effect on the operating results of commercial banks in the past and
are expected to continue to do so in the future.
All banks located in Illinois have traditionally been restricted as to the
number and geographic location of branches which they may establish. The
Illinois Banking Act was amended in June 1993, however, to eliminate such
branching restrictions. Accordingly, banks located in Illinois are now
permitted to establish branches anywhere in Illinois without regard to the
location of other banks' main offices or the number of branches previously
maintained by the bank establishing the branch. Under recently enacted federal
legislation, banks are also permitted to establish branches in other states,
subject to certain limitations. See "Interstate Banking and Branching
Legislation."
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FINANCIAL INSTITUTION REGULATION GENERALLY
Transactions with Affiliates. Transactions between a bank and its holding
company or other affiliates are subject to various restrictions imposed by
state and federal regulatory agencies. Such transactions include loans and
other extensions of credit, purchases of securities and other assets, and
payments of fees or other distributions. In general, these restrictions limit
the amount of transactions between an institution and an affiliate of such
institution, as well as the aggregate amount of transactions between an
institution and all of its affiliates, and require transactions with affiliates
to be on terms comparable to those for transactions with unaffiliated entities.
Dividend Limitations. As a holding company, the Company is primarily
dependent upon dividend distributions from the Bank for its income. Federal
statutes and regulations impose restrictions on the payment of dividends by the
Company and the Bank.
Pursuant to the National Bank Act, all dividends must be paid out of
undivided profits. Federal Reserve policy provides that a bank holding company
should not pay dividends unless (i) the bank holding company's net income over
the prior year is sufficient to fully fund the dividends and (ii) the
prospective rate of earnings retention appears consistent with the capital
needs, asset quality and overall financial condition of the bank holding
company and its subsidiaries.
Delaware law also places certain limitations on the ability of the Company
to pay dividends. For example, the Company may not pay dividends to its
shareholders if, after giving effect to the dividend, the Company would not be
able to pay its debts as they become due. Since a major source of the Company's
revenue is dividends the Company receives and expects to receive from the Bank,
the Company's ability to pay dividends is likely to be dependent on the amount
of dividends paid by the Bank. No assurance can be given that the Bank will, in
any circumstances, pay dividends to the Company.
Federal regulations prohibit any Federal Reserve member bank, including
the Bank, from declaring dividends in any calendar year in excess of its net
profit for the year plus the retained net profits for the preceding two years
without the prior approval of the Federal Reserve. Furthermore, the OCC may,
after notice and opportunity for hearing, prohibit the payment of a dividend by
a national bank if it determines that such payment would constitute an unsafe
or unsound practice.
In addition to the foregoing, the ability of the Company and the Bank to
pay dividends may be affected by the various minimum capital requirements and
the capital and non-capital standards established under the Federal Deposit
Insurance Corporation Improvements Act of 1991 ("FDICIA"), as described below.
The right of the Company, its shareholders and its creditors to participate in
any distribution of the assets or earnings of its subsidiaries is further
subject to the prior claims of creditors of the respective subsidiaries.
Standards for Safety and Soundness. The FDIA, as amended by FDICIA and
the Riegle Community Development and Regulatory Improvement Act of 1994,
requires the Federal Reserve, together with the other federal bank regulatory
agencies, to prescribe standards of safety and soundness, by regulations or
guidelines, relating generally to operations and management, asset growth,
asset quality, earnings, stock valuation, and compensation. The Federal
Reserve, the OCC and the other federal bank regulatory agencies have adopted,
effective August 9, 1995, a set of guidelines prescribing safety and soundness
standards pursuant to FDICIA, as amended. The guidelines establish general
standards relating to internal controls and information systems, internal audit
systems, loan documentation, credit underwriting, interest rate exposure, asset
growth, and compensation, fees and benefits. In general, the guidelines
require, among other things, appropriate systems and practices to identify and
manage the risks and exposures specified in the guidelines. The guidelines
prohibit excessive compensation as an unsafe and unsound practice and describe
compensation as excessive when the amounts paid are unreasonable or
disproportionate to the services performed by an executive officer, employee,
director or principal stockholder. In addition, each of the Federal Reserve and
the OCC adopted regulations that authorize, but do not require, the Federal
Reserve or the OCC, as the case may be, to order an institution that has been
given notice by the Federal Reserve or the OCC, as the case may be, that it is
not satisfying any of such safety and soundness standards to submit a
compliance plan. If, after being so notified, an institution fails to submit an
acceptable compliance plan or
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fails in any material respect to implement an accepted compliance plan, the
Federal Reserve or the OCC, as the case may be, must issue an order directing
action to correct the deficiency and may issue an order directing other actions
of the types to which an undercapitalized association is subject under the
"prompt corrective action" provisions of FDICIA. If an institution fails to
comply with such an order, the Federal Reserve or the OCC, as the case may be,
may seek to enforce such order in judicial proceedings and to impose civil
money penalties. The Federal Reserve, the OCC and the other federal bank
regulatory agencies also proposed guidelines for asset quality and earnings
standards.
A range of other provisions in FDICIA include requirements applicable to
closure of branches; additional disclosures to depositors with respect to terms
and interest rates applicable to deposit accounts; uniform regulations for
extensions of credit secured by real estate; restrictions on activities of and
investments by state-chartered banks; modification of accounting standards to
conform to generally accepted accounting principles including the reporting of
off-balance sheet items and supplemental disclosure of estimated fair market
value of assets and liabilities in financial statements filed with the banking
regulators; increased penalties in making or failing to file assessment reports
with the FDIC; greater restrictions on extensions of credit to directors,
officers and principal shareholders; and increased reporting requirements on
agricultural loans and loans to small businesses.
In August, 1995, the Federal Reserve, OCC, FDIC and other federal banking
agencies published a final rule modifying their existing risk-based capital
standards to provide for consideration of interest rate risk when assessing the
capital adequacy of a bank. Under the final rule, the Federal Reserve, the OCC
and the FDIC must explicitly include a bank's exposure to declines in the
economic value of its capital due to changes in interest rates as a factor in
evaluating a bank's capital adequacy. The Federal Reserve, the FDIC, the OCC
and other federal banking agencies also have adopted a joint agency policy
statement providing guidance to banks for managing interest rate risk. The
policy statement emphasizes the importance of adequate oversight by management
and a sound risk management process. The assessment of interest rate risk
management made by the banks' examiners will be incorporated into the banks'
overall risk management rating and used to determine the effectiveness of
management.
Prompt Corrective Action. FDICIA requires the federal banking regulators,
including the Federal Reserve, the OCC and the FDIC, to take prompt corrective
action with respect to depository institutions that fall below certain capital
standards and prohibits any depository institution from making any capital
distribution that would cause it to be undercapitalized. Institutions that are
not adequately capitalized may be subject to a variety of supervisory actions
including, but not limited to, restrictions on growth, investment activities,
capital distributions and affiliate transactions and will be required to submit
a capital restoration plan which, to be accepted by the regulators, must be
guaranteed in part by any company having control of the institution (such as
the Company). In other respects, FDICIA provides for enhanced supervisory
authority, including greater authority for the appointment of a conservator or
receiver for under capitalized institutions. The capital-based prompt
corrective action provisions of FDICIA and their implementing regulations apply
to FDIC-insured depository institutions. However, federal banking agencies have
indicated that, in regulating bank holding companies, the agencies may take
appropriate action at the holding company level based on their assessment of
the effectiveness of supervisory actions imposed upon subsidiary insured
depository institutions pursuant to the prompt corrective action provisions of
FDICIA.
Insurance of Deposit Accounts. Under FDICIA, as an FDIC-insured
institution, the Bank is required to pay deposit insurance premiums based on
the risk it poses to the insurance fund. The FDIC has authority to raise or
lower assessment rates on insured deposits in order to achieve certain
designated reserve ratios in the insurance funds and to impose special
additional assessments. The FDIC recently amended the risk-based assessment
system and on December 11, 1995, adopted a new assessment rate schedule for BIF
insured deposits. The new assessment rate schedule, effective with respect to
the semiannual premium assessment beginning January 1, 1996, provides for an
assessment range of zero to 0.27% (subject to a $2,000 minimum) of insured
deposits depending on capital and supervisory factors. Each depository
institution is assigned to one of three capital groups: "well capitalized,"
"adequately capitalized" or "less than adequately capitalized." Within each
capital group, institutions are assigned to one of three supervisory subgroups:
"healthy," "supervisory concern" or "substantial supervisory concern."
Accordingly, there are nine combinations of capital groups and supervisory
subgroups to which varying assessment rates would be applicable. An
institution's assessment rate depends on the capital category and supervisory
category to which it is assigned.
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During 1996, the Bank was assessed at an average annual rate of the
statutory minimum of $2,000. Deposit insurance may be terminated by the FDIC
upon a finding that an institution has engaged in unsafe or unsound practices,
is in an unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, rule, order or condition imposed by the FDIC. The
management of the Bank does not know of any practice, condition or violation
that might lead to termination of deposit insurance.
The Economic Growth and Regulatory Paperwork Reduction Act of 1996 enacted
on September 30, 1996 provides that beginning with semi-annual periods after
December 31, 1996, deposits insured by the Bank Insurance Fund ("BIF") will
also be assessed to pay interest on the bonds (the "FICO Bonds") issued in the
late 1980s by the Financing Corporation to recapitalize the now defunct Federal
Savings & Loan Insurance Corporation. For purposes of the assessments to pay
interest on the FICO Bonds, BIF deposits will be assessed at a rate of 20.0% of
the assessment rate applicable to SAIF deposits until December 31, 1999. After
the earlier of December 31, 1999 or the date on which the last savings
association ceases to exist, full pro rata sharing of FICO assessments will
begin. It has been estimated that the rates of assessment for the payment of
interest on the FICO Bonds will be approximately 1.3 basis points for
BIF-assessable deposits and approximately 6.4 basis points for SAIF-assessable
deposits. The payment of the assessment to pay interest on the FICO Bonds
should not materially affect the Bank.
Federal Reserve System. The Bank is subject to Federal Reserve
regulations requiring depository institutions to maintain non-interest-earning
reserves against their transaction accounts (primarily NOW and regular checking
accounts). The Federal Reserve regulations generally require 3.0% reserves must
be maintained against total transaction accounts of $52.0 million or less plus
10.0% on the remainder. The first $4.3 million of otherwise reservable balances
(subject to adjustments by the Federal Reserve) are exempted from the reserve
requirements. The Bank is in compliance with the foregoing requirements.
Community Reinvestment Act. Under the Community Reinvestment Act ("CRA"),
a financial institution has a continuing and affirmative obligation, consistent
with the safe and sound operation of such institution, to help meet the credit
needs of its entire community, including low- and moderate-income
neighborhoods. The CRA does not establish specific lending requirements or
programs for financial institutions nor does it limit an institution's
discretion to develop the types of products and services that it believes are
best suited to its particular community, consistent with the CRA. The CRA
requires each federal banking agency, in connection with its examination of a
financial institution, to assess and assign one of four ratings to the
institution's record of meeting the credit needs of its community and to take
such record into account in its evaluation of certain applications by the
institution, including applications for charters, branches and other deposit
facilities, relocations, mergers, consolidations, acquisitions of assets or
assumptions of liabilities, and savings and loan holding company acquisitions.
The CRA also requires that all institutions make public disclosure of their CRA
ratings. The Bank received a "satisfactory" rating from the OCC on its most
recent CRA performance evaluations.
In April 1995, the Federal Reserve, the OCC and other federal banking
agencies adopted amendments revising their CRA regulations. Among other things,
the amended CRA regulations substitute for the prior process-based assessment
factors a new evaluation system that would rate an institution based on its
actual performance in meeting community needs. In particular, the proposed
system would focus on three tests: (i) a lending test, to evaluate the
institution's record of making loans in its assessment areas; (ii) an
investment test, to evaluate the institution's record of investing in community
development projects, affordable housing, and programs benefiting low or
moderate income individuals and businesses; and (iii) a service test, to
evaluate the institution's delivery of services through its branches, ATMs and
other offices. The amended CRA regulations also clarify how an institution's
CRA performance would be considered in the application process.
Brokered Deposits. Well-capitalized institutions are not subject to
limitations on brokered deposits, while an adequately capitalized institution
is able to accept, renew or rollover brokered deposits only with a waiver from
the FDIC and subject to certain restrictions on the yield paid on such
deposits. Undercapitalized institutions are not permitted to accept brokered
deposits. The Bank is eligible under the statutory standard to accept brokered
deposits and may use this funding source from time to time when management
deems it appropriate from an asset/liability management perspective.
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Enforcement Actions. Federal and state statutes and regulations provide
financial institution regulatory agencies with great flexibility to undertake
enforcement action against an institution that fails to comply with regulatory
requirements, particularly capital requirements. Possible enforcement actions
range from the imposition of a capital plan and capital directive to
receivership, conservatorship or the termination of deposit insurance.
Interstate Banking and Branching Legislation. On September 29, 1994, the
Riegle-Neal Interstate Banking and Efficiency Act of 1994 (the "Interstate
Banking Act") was enacted. Under the Interstate Banking Act, adequately
capitalized and adequately managed bank holding companies are allowed to
acquire banks across state lines subject to certain limitations. In addition,
under the Interstate Banking Act, beginning on June 1, 1997, banks are
permitted to merge with one another across state lines and thereby create a
main bank with branches in separate states. After establishing branches in a
state through an interstate merger transaction, a bank could establish and
acquire additional branches at any location in the state where any bank
involved in the interstate merger could have established or acquired branches
under applicable federal and state law. It is anticipated that this interstate
merger and branching ability will increase competition and further consolidate
the financial institutions industry.
MONETARY POLICY AND ECONOMIC CONDITIONS
The earnings of banks and bank holding companies are affected by general
economic conditions and also by the fiscal and monetary policies of federal
regulatory agencies, including the Federal Reserve. Through open market
transactions, variations in the discount rate and the establishment of reserve
requirements, the Federal Reserve exerts considerable influence over the cost
and availability of funds obtainable for lending or investing.
The above monetary and fiscal policies and resulting changes in interest
rates have affected the operating results of all commercial banks in the past
and are expected to do so in the future. The Bank cannot fully predict the
nature or the extent of any effects which fiscal or monetary policies may have
on its business and earnings.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company is authorized to issue 7,500,000 shares, $0.001 par value per
share, of common stock (the "Common Stock") and 1,000,000 shares, $0.001 par
value per share, of preferred stock (the "Preferred Stock"). As of June 30,
1997, there were issued and outstanding 1,550,670 shares of Common Stock, on a
pro forma basis, and no shares of Preferred Stock, with 153,340 additional
shares of Common Stock reserved for issuance upon the exercise of currently
outstanding options, each of which represents the right to purchase one share
of Common Stock. Each share of Common Stock has the same relative rights as,
and is identical in all respects with, each other share of Common Stock. Each
share offered hereby will be (when issued and delivered in accordance with the
terms and conditions of the Offering) duly authorized, fully paid and
nonassessable.
COMMON STOCK
Dividends. The holders of Common Stock are entitled to receive and share
equally in such dividends, if any, declared by the Board of Directors out of
funds legally available therefor. The Company may pay dividends if, as and when
declared by its Board of Directors. The payment of dividends by the Company is
subject to limitations which are imposed by the DGCL. Under these
restrictions, dividends may be paid only out of "surplus" as defined by the
DGCL, or, if there should be no surplus, out of the corporation's net profits
for the fiscal year in which the dividend is declared and/or the preceding
fiscal year. See "Dividend Policy". If the Company issues Preferred Stock,
the holders thereof may have a priority over the holders of the Common Stock
with respect to dividends.
Voting Rights. The holders of Common Stock possess voting rights in the
Company. Shareholders elect the Company's Board of Directors and act on such
other matters as are required to be presented to them under the DGCL or the
Company's Certificate of Incorporation or as are otherwise presented to them by
the Board of Directors. Each holder of Common Stock will be entitled to one
vote per share and will not have any right to cumulate votes in the election of
directors. Accordingly, holders of more than fifty percent of the outstanding
shares of Common Stock will be able to elect all of the Directors to be elected
each year. Although there are no present plans to do so, if the Company issues
Preferred Stock, holders of the Preferred Stock may also possess voting rights.
See "Certain Anti-Takeover Effects of the Company's Certificate of
Incorporation and By-Laws and Delaware Law."
Liquidation. In the event of any liquidation, dissolution or winding up
of the Company, the holders of its Common Stock would be entitled to receive,
after payment or provision for payment of all debts and liabilities of the
Company, all assets of the Company available for distribution. If Preferred
Stock is issued, the holders thereof may have a priority over the holders of
the Common Stock in the event of any liquidation or dissolution.
Preemptive Rights and Redemption. Holders of the Common Stock will not be
entitled to preemptive rights with respect to any shares which may be issued by
the Company in the future. The Common Stock is not subject to mandatory
redemption by the Company.
PREFERRED STOCK
The Board of Directors is authorized, pursuant to the Company's
Certificate of Incorporation, to issue one or more series of Preferred Stock
with respect to which the Board, without stockholder approval, may determine
voting, conversion and other rights which could adversely affect the rights of
holders of Common Stock. The rights of the holders of the Common Stock would
generally be subject to the prior rights of the Preferred Stock with respect to
dividends, liquidation preferences and other matters. Among other things,
Preferred Stock could be issued by the Company to raise capital or to finance
acquisitions. The issuance of Preferred Stock under certain circumstances
could have the effect of delaying or preventing a change in control of the
Company. The Company has no present plans to issue any shares of Preferred
Stock.
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CERTAIN ANTI-TAKEOVER EFFECTS OF THE COMPANY'S CERTIFICATE OF INCORPORATION AND
BY-LAWS AND DELAWARE LAW
General. Certain provisions of the Company's Certificate of
Incorporation, By-Laws and the DGCL may have the effect of impeding the
acquisition of control of the Company by means of a tender offer, a proxy
fight, open-market purchases or otherwise in a transaction not approved by the
Board of Directors.
These provisions may have the effect of discouraging a future takeover
attempt which is not approved by the Board of Directors but which individual
shareholders may deem to be in their best interests or in which shareholders
may receive a substantial premium for their shares over then current market
prices. As a result, shareholders who might desire to participate in such a
transaction may not have an opportunity to do so. Such provisions will also
render the removal of the current Board of Directors or management of the
Company more difficult.
The provisions of the Certificate of Incorporation and By-Laws described
below are designed to reduce, or have the effect of reducing, the vulnerability
of the Company to an unsolicited proposal for the restructuring or sale of all
or substantially all of the assets of the Company or an unsolicited takeover
attempt which is unfair to shareholders.
The following description of certain of the provisions of the Certificate
of Incorporation and By-Laws of the Company is necessarily general and is
qualified in its entirety by reference to the Certificate of Incorporation and
By-Laws of the Company.
Authorized Shares. The Company's Certificate of Incorporation authorizes
the issuance of 7,500,000 shares of Common Stock and 1,000,000 shares of
Preferred Stock. The shares of Common Stock and Preferred Stock have been
authorized in an amount which provides the Board of Directors with as much
flexibility as possible to effect, among other things, transactions,
financings, acquisitions, stock dividends, stock splits and employee stock
options. However, these authorized shares may also be used by the Board of
Directors consistent with its fiduciary duty to deter future attempts to gain
control of the Company. The Board of Directors also has sole authority to
determine the terms of any one or more series of Preferred Stock, including
voting rights, conversion rates, and liquidation preferences. As a result of
the ability to fix voting rights for a series of Preferred Stock, the Board of
Directors has the power to the extent consistent with its fiduciary duty to
issue a series of Preferred Stock to persons friendly to management in order to
attempt to block a merger or other transaction by which a third party seeks
control, and thereby assist the incumbent Board of Directors and management to
retain their respective positions.
Classified Board of Directors; Filling of Board Vacancies. The Board of
Directors is divided into three classes, each of which contains approximately
one-third of the whole number of the members of the Board of Directors. Each
class serves a staggered three-year term, with approximately one-third of the
total number of Directors being elected each year. The Certificate of
Incorporation and By-Laws provide that the size of the Board of directors is
determined by a majority of the Directors. The Certificate of Incorporation and
By-Laws also provide that any vacancy occurring in the Board of Directors,
including a vacancy created by an increase in the number of Directors or
resulting from death, resignation, retirement, disqualification, removal from
office or other cause, shall be filled for the remainder of the unexpired term
exclusively by a majority vote of the Directors then in office. Shareholders
may elect Directors at either an annual or special meeting. Under the DGCL,
members of a staggered board may only be removed for cause unless the
corporation's certificate of incorporation provides otherwise. The Company's
Certificate of Incorporation does not provide for removal of directors without
cause. The staggered board is intended to provide for continuity of the Board
of Directors and to make it more difficult and time consuming for a stockholder
group to fully use its voting power to gain control of the Board of Directors
without the consent of the incumbent Board of Directors.
Cumulative Voting; Action by Written Consent and Stockholder Meetings.
The Certificate of Incorporation does not provide for cumulative voting for any
purpose. The Certificate of Incorporation and By-Laws also provide that any
action required or permitted to be taken by the shareholders at an annual or
special meeting may be effected by written consent in lieu of a meeting.
Directors also retain the right to postpone any previously scheduled
stockholder meeting and adjourn any stockholder meeting at any time, whether or
not a quorum is present.
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Delaware Business Combination Statute. Section 203 of the DGCL provides
that, subject to certain exceptions specified therein, an "interested
stockholder" of a Delaware corporation shall not engage in any business
combination, including mergers or consolidations or acquisitions of additional
shares of the corporation, with the corporation for a three-year period
following the time that such stockholder becomes an interested stockholder
unless (i) prior to such time, the board of directors of the corporation
approved either the business combination or the transaction which resulted in
the stockholder becoming an interested stockholder, (ii) upon consummation of
the transaction which resulted in the stockholder becoming an interested
stockholder, the interested stockholder owned at least 85% of the voting stock
of the corporation outstanding at the time the transaction commenced (excluding
certain shares), or (iii) at or subsequent to such time, the business
combination is approved by the board of directors of the corporation and
authorized at an annual or special meeting of shareholders by the affirmative
vote of at least 66% of the outstanding voting stock which is not owned by the
interested stockholder. Except as otherwise specified in Section 203, an
interested stockholder is defined to include any person that is (x) the owner
of 15% or more of the outstanding voting stock of the corporation, or (y) is an
affiliate or associate of the corporation and was the owner of 15% or more of
the outstanding voting stock of the corporation at any time within the
three-year period immediately prior to the date of determination; and the
affiliates and associates of any such person.
Under certain circumstances, Section 203 makes it more difficult for a
person who would be an interested stockholder to effect various business
combinations with a corporation for a three-year period. The Company has not
elected to be exempt from the restrictions imposed under Section 203. The
provisions of Section 203 may encourage persons interested in acquiring the
Company to negotiate in advance with the Board of Directors of the Company
since the stockholder approval requirement would be avoided if a majority of
the directors then in office approves either the business combination or the
transaction which results in any such person becoming an interested
stockholder. Such provisions also may have the effect of preventing changes in
the management of the Company. It is possible that such provisions could make
it more difficult to accomplish transactions which the Company's shareholders
may otherwise deem to be in their best interests.
Amendment of the Certificate of Incorporation and By-Laws. The
Certificate of Incorporation provides that the affirmative vote of the holders
of at least 80% of the voting stock, voting together as a single class, is
required to amend provisions of the Certificate of Incorporation relating to
Board of Directors and stockholder amendment of the Certificate of
Incorporation and By-laws, limitation of Directors' liability for monetary
damages, stockholder action without a meeting and the number, election and term
of the Company's Directors. By-Laws may be amended only by the Board of
Directors of the Company or by the affirmative vote of the holders of at least
80% of the voting stock, voting together as a single class.
Certain By-Law Provisions. The By-Laws of the Company also require a
stockholder who intends to nominate a candidate for election to the Board of
Directors, or to raise new business at a stockholder meeting to provide advance
notice to the Secretary of the Company. The notice provision requires a
stockholder who desires to raise new business to provide certain information to
the Company concerning the nature of the new business, the stockholder and such
stockholder's interest in the business matter. Similarly, a stockholder wishing
to nominate any person for election as a director must provide the Company with
certain information concerning the nominee and such proposing stockholder.
The provisions described above are intended to reduce the Company's
vulnerability to takeover attempts and certain other transactions which have
not been negotiated with and approved by members of its Board of Directors.
Attempts to take over corporations have recently become increasingly
common. An unsolicited non-negotiated proposal can seriously disrupt the
business and management of a corporation and cause it great expense.
Accordingly, the Board of Directors believes it is in the best interests of the
Company and its shareholders to encourage potential acquirors to negotiate
directly with management and that these provisions will encourage such
negotiations and discourage non-negotiated takeover attempts. It is also the
view of the Board of Directors that these provisions should not discourage
persons from proposing a merger or other transaction at a price that reflects
the true value of the Company and that otherwise is in the best interest of all
shareholders.
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LIMITATIONS ON DIRECTORS' AND OFFICERS' LIABILITY AND INDEMNIFICATION
The Certificate of Incorporation provides that a Director of the Company
will not be personally liable to the Company or its shareholders for monetary
damages for breach of fiduciary duty as a Director, except, if required by the
DGCL as amended from time to time, for liability (i) for any breach of the
Director's duty of loyalty to the Company or its shareholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the DGCL, which concerns
unlawful payments of dividends, stock purchases or redemptions, or (iv) for any
transaction from which the Director derived an improper personal benefit.
Neither the amendment nor repeal of such provision will eliminate or reduce the
effect of such provision in respect of any matter occurring, or any cause of
action, suit or claim that, but for such provision, would accrue or arise prior
to such amendment or repeal.
While the Certificate of Incorporation provides Directors with protection
from awards for monetary damages for breaches of their duty of care, it does
not eliminate such duty. Accordingly, the Certificate of Incorporation will
have no effect on the availability of equitable remedies such as an injunction
or recission based on a Director's breach of his or her duty of care.
The Certificate of Incorporation provides that each person who was or is
made a party or is threatened to be made a party to or is involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such person, or a person of whom such
person is the legal representative, is or was a director or officer of the
Company or is or was serving at the request of the Company as a Director,
officer, employee or agent of another corporation or of a partnership, joint
venture, trust or other enterprise, including service with respect to employee
benefit plans, whether or not the basis of such proceeding is alleged action in
an official capacity as agent, will be indemnified and held harmless by the
Company to the fullest extent authorized by the DGCL, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the
extent that such amendment permits the Company to provide broader
indemnification rights than said law permitted the Company to provide prior to
such amendment), against all expense, liability and loss reasonably incurred or
suffered by such person in connection therewith. Such rights are not exclusive
of any other right which any person may have or thereafter acquire under any
statute, provision of the Certificate of Incorporation, By-Laws, agreement,
vote of shareholders or disinterested directors or otherwise. No repeal or
modification of such provision will in any way diminish or adversely affect the
rights of any Director, officer, employee or agent of the Company thereunder in
respect of any occurrence or matter arising prior to any such repeal or
modification. The Certificate of Incorporation also specifically authorizes
the Company to maintain insurance and to grant similar indemnification rights
to employees or agents of the Company.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Harris Trust and
Savings Bank.
71
<PAGE> 73
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has been no market for the Common Stock of
the Company. Future sales of substantial amounts of Common Stock in the public
market could adversely affect market prices prevailing from time to time.
Sales of substantial amounts of Common Stock of the Company in the public
market after various restrictions lapse could adversely affect the prevailing
market price and the ability of the Company to raise equity capital in the
future. Upon completion of the Offering, the Company will have 2,759,949
shares of Common Stock issued and outstanding (2,939,949 if the additional
subscription option and the over-allotment option are exercised in full). The
1,200,000 shares of Common Stock sold in the Offering (plus any shares sold, as
a result of any exercise of the additional subscription option or
over-allotment option) will be freely tradeable without registration or other
restrictions under the Securities Act of 1933, as amended (the "Securities
Act"), except for any shares held by an "affiliate" of the Company (as defined
in the Securities Act).
The remaining 1,559,949 shares of Common Stock outstanding upon completion
of the Offering are "restricted securities" as that term is defined in Rule
144. As described below, Rule 144 permits resales of restricted securities
subject to certain restrictions. On the date of this Prospectus, approximately
890,159 shares will be eligible for immediate sale without restriction pursuant
to Rule 144(k) and an additional 659,460 shares will be eligible for immediate
sale under Rule 144, subject to compliance with the provisions of Rule 144;
399,145 of such shares will, however, be subject to the Lock-up Agreements.
After 180 days from the closing date of the Company's Public Offering, these
shares will be eligible for sale in the public market, subject, in certain
cases, to compliance with Rule 144.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are required to be aggregated) who has beneficially owned, for at
least one year (including the holding period of any immediate prior owner,
except an affiliate), shares of Common Stock that have not been registered
under the Securities Act or that were acquired from an "affiliate" of the
Company (in a transaction or chain of transactions not involving a public
offering) is entitled to sell in "broker's transactions" or to market makers,
within any three month period commencing 90 days after the closing date of the
Company's Public Offering, a number of shares of Common Stock which does not
exceed the greater of (i) one percent of the number of shares of Common Stock
then outstanding (approximately 27,400 shares immediately after the Offering)
or (ii) the average weekly trading volume of the Common Stock during the four
calendar weeks preceding the sale. Sales under Rule 144 are generally subject
to certain manner of sale provisions and notice requirements and to the
availability of current public information about the Company. Under Rule
144(k), a person who is not deemed to have been an affiliate of the Company at
any time during a 90-day period preceding a sale, and who has beneficially
owned the shares proposed to be sold for at least two years (including the
holding period of any immediate prior owner, except an affiliate), is entitled
to sell such shares without having to comply with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.
Pursuant to lock-up agreements entered into between the Company and its
Directors and executive officers and the Selling Agent, the Directors,
executive officers and key employees, who own an aggregate of 399,145 shares as
of the date of this Prospectus, have agreed not to offer, sell or contract to
sell any Common Stock for a period of 180 days from the closing date of the
Public Offering without the prior written consent of the Selling Agent. Upon
expiration of this 180-day period, if applicable, all of these shares, except
restricted securities, could be resold by the Directors, executive officers and
other persons who are affiliates of the Company, subject to certain
requirements of Rule 144 under the Securities Act.
The Company intends to register 285,090 shares of Common Stock that are
reserved for issuance under its stock option plans. As of July 30, 1997,
options to purchase 153,340 shares were outstanding, each of which entitles the
holder thereof to purchase one share of Common Stock. Once registered, shares
issued upon exercise of options will be generally eligible for immediate resale
in the public market, subject to vesting under the applicable option
agreements.
72
<PAGE> 74
LEGAL MATTERS
Certain legal matters in connection with the Offering are being passed
upon for the Company by Much Shelist Freed Denenberg Ament Bell & Rubenstein,
P.C., Chicago, Illinois, and for the Selling Agent by Lord, Bissell & Brook,
Chicago, Illinois.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1996, and 1995 and for each of the years in the two year period ended December
31, 1996, included in this Prospectus and the Registration Statement of which
it is a part, have been so included in reliance on the report of McGladrey &
Pullen, LLP, independent certified public accountants, given on the authority
of said firm as experts in auditing and accounting. The consolidated financial
statements for the year ended December 31, 1994, included in this Prospectus
and the Registration Statement of which it is part, have been so included in
reliance on the report of Crowe, Chizek and Company LLP, independent certified
public accountants, given on the authority of said firm as experts in
accounting and auditing.
The Company dismissed Crowe, Chizek and Company LLP, its independent
certified public accountants, effective October, 1995. In connection with the
1993 and 1994 audits and during the interim period prior to the dismissal,
there were no disagreements with the former accountants on any matter or
accounting principle or practice, financial statement disclosure, or auditing
scope or procedure. The former accountant's reports included in the 1993 and
1994 financial statements were unqualified. The Company engaged McGladrey &
Pullen, LLP as its new independent public accountants effective with the
dismissal of its former accountants. During the Company's 1993 and 1994 fiscal
years and during the interim period prior to engagement there were no
consultations with McGladrey & Pullen, LLP with regard to either the
application of accounting principles as to any specific transaction, either
completed or proposed; the type of audit opinion that would be rendered on the
Company's financial statements or any matter of disagreements with the former
accountants. The Board of Directors approved the Audit Committee's
recommendation to change accountants. In consideration of Crowe, Chizek and
Company LLP consenting to the inclusion of its report and to being named as
experts in the Registration Statement which includes this Prospectus, the
Company agreed to defend, indemnify and hold harmless to the extent permitted
by law Crowe, Chizek and Company LLP and its personnel from any claim which
arises as a result of the use of its report, including attorney's fees and
costs of defense. This indemnification is inoperable if Crowe, Chizek and
Company LLP is held liable for professional malpractice or pays any final or
non-appealable settlement.
AVAILABLE INFORMATION
The Company has filed a Registration Statement on Form S-1 under the
Securities Act with the Securities and Exchange Commission (the "Commission")
in connection with the Common Stock offered by this Prospectus. This Prospectus
omits certain information, exhibits and undertakings set forth in the
Registration Statement which the Company has filed with the Commission. Such
materials may be inspected and copied upon payment of prescribed rates, at the
public reference facilities of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the Regional Office of the Commission at the
following locations: Seven World Trade Center, Suite 1300, New York, New York
10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. This
information is also available on the Internet at the Commission's web site. The
address for the web site is: http://www.sec.gov. For further information with
respect to the Company, reference is hereby made to the Registration Statement
and the exhibits thereto. Statements contained in this Prospectus concerning
the provisions of any contract, agreement or other document are not necessarily
complete, and in each instance reference is made to the copy of such contract,
agreement or other document filed as an exhibit to the Registration Statement
for a full statement of the provisions thereof. Each such statement in this
Prospectus is qualified in all respects by such reference.
The Company has not previously been subject to the reporting requirements
of the Securities Exchange Act of 1934, as amended. The Company intends to
furnish its shareholders with annual reports containing financial
73
<PAGE> 75
statements audited by its independent certified public accountants and may
furnish either quarterly or semi-annual reports containing unaudited financial
information.
74
<PAGE> 76
INDEX TO FINANCIAL STATEMENTS
SUCCESS BANCSHARES, INC.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Balance Sheets at June 30, 1997 (unaudited) and December 31, 1996............................. F-
Consolidated Statements of Income for the six months ended June 30, 1997 and
June 30, 1996 (unaudited)............................................................................... F-
Consolidated Statements of Cash Flows for the six months ended June 30, 1997 and
June 30, 1996 (unaudited)............................................................................... F-
Notes to Unaudited Consolidated Financial Statements....................................................... F-
Report of McGladrey & Pullen, LLP.......................................................................... F-
Report of Crowe, Chizek & Company LLP...................................................................... F-
Consolidated Balance Sheets at December 31, 1996 and December 31, 1995..................................... F-
Consolidated Statements of Income for the years ended December 31, 1996, 1995 and 1994..................... F-
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1996, 1995 and 1994........................................................................ F-
Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994................. F-
Notes to Consolidated Financial Statements................................................................. F-
</TABLE>
F-1
<PAGE> 77
Success Bancshares, Inc. and Subsidiaries
Consolidated Balance Sheets
June 30, 1997 and December 31, 1996
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
- ---------------------------------------------------------------------------------------------------
(Unaudited)
ASSETS (In thousands, except share data)
<S> <C> <C>
Cash and cash equivalents $ 15,817 $ 13,833
Interest-bearing time deposits with financial insti 99 99
Securities available-for-sale 15,821 15,147
Securities held-to-maturity (fair value $31,733 and $3,060 in
1997 and 1996, respectively) 31,262 32,560
Real estate loans held-for-sale 291 117
Loans, less allowance for loan losses of $1,629
at 1997 and $1,425 at 1996 230,075 203,299
Premises and equipment, net 8,317 7,049
Interest receivable 2,112 1,761
Other assets 2,161 2,484
- ---------------------------------------------------------------------------------------------------
$ 305,955 $ 276,349
===================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Non-interest bearing deposits $ 42,573 $ 42,596
Interest bearing deposits 225,663 202,509
- ---------------------------------------------------------------------------------------------------
Total deposits 268,236 245,105
Note payable 4,415 4,815
Federal Home Loan Bank advances 9,079 5,152
Securities sold under repurchase agreements 4,996 4,255
Demand notes payable to U.S. Government 2,729 1,586
Convertible subordinated debentures 3,167 3,167
Interest payable and other liabilities 2,237 1,645
- ---------------------------------------------------------------------------------------------------
Total liabilities 294,859 265,725
Minority interest in subsidiary bank 538 524
Stock owned by Employee Stock Ownership Plan (ESOP) participants;
53,918 and 54,789 Series B Preferred shares at 1997 and 1996,
respectively, net of ESOP loan of $137 in 1997 800 866
Shareholders' equity
Preferred stock, $25 par value, 14,774 shares authorized,
none issued -- --
Common stock, $1 par value, 7,500,000 shares authorized, 960,282 and
953,391 shares issued and outstanding, at 19 960 955
Class A common stock, $1 par value, 1,000,000 shares authorized, 115,500
shares issued and outstanding, at 1997 and 19 116 116
Additional paid-in capital 4,869 4,372
Retained earnings 4,298 4,370
- ---------------------------------------------------------------------------------------------------
Total before unrealized loss on securities 10,243 9,813
Unrealized loss on securities, net of tax (485) (579)
- ---------------------------------------------------------------------------------------------------
Total shareholders' equity 9,758 9,234
- ---------------------------------------------------------------------------------------------------
$ 305,955 $ 276,349
===================================================================================================
</TABLE>
See accompanying notes to Unaudited Consolidated Financial Statements
F-2
<PAGE> 78
Success Bancshares, Inc. and Subsidiaries
Consolidated Statements of Income
Six Months Ended June 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---------------
(Unaudited)
Interest income (In thousands, except share data)
<S> <C> <C>
Loans (including fee income) $ 9,688 $ 8,067
Investment securities 1,393 1,425
Other interest income 134 76
11,215 9,568
- -----------------------------------------------------------------------------------------------------
Interest expense
Deposits 4,927 4,179
Note payable 189 131
Convertible subordinated debentures 185 150
Other borrowings 424 346
- -----------------------------------------------------------------------------------------------------
5,725 4,806
- -----------------------------------------------------------------------------------------------------
Net interest income 5,490 4,762
Provision for loan losses 228 128
- -----------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 5,262 4,634
Other operating income
Service charges on deposit accounts 917 624
Gain on sale of loans 28 82
Credit card processing income 2,845 2,388
Other noninterest income 1,510 1,432
3,913 3,299
Other operating expenses
Salaries and employee benefits 2,878 2,738
Occupancy and equipment expense 979 807
Data processing 488 291
Credit card processing expenses 2,765 2,213
Other noninterest expenses 1,510 1,432
8,620 7,481
- -----------------------------------------------------------------------------------------------------
Minority interest in income of subsidiary bank 7 13
- -----------------------------------------------------------------------------------------------------
Income before income taxes 548 439
Income tax expense 188 92
- -----------------------------------------------------------------------------------------------------
NET INCOME 360 347
Preferred stock dividends 40 27
- -----------------------------------------------------------------------------------------------------
NET INCOME APPLICABLE TO COMMON STOCK $ 320 $ 320
=====================================================================================================
Earnings per common and common equivalent share
Primary (1,239,388 and 1,150,971 shares, respect $ 0.29 $ 0.30
Fully diluted (1,239,388 and 1,150,971 shares, respectively) $ 0.29 $ 0.30
Pro Forma earnings per common and common equivalent share
Primary (1,622,615 shares) $ 0.29
Fully diluted (1,622,615 shares) $ 0.29
</TABLE>
See accompanying notes to Unaudited Consolidated Financial Statements
F-3
<PAGE> 79
Success Bancshares, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
- ------------------------------------------------------------------------------------------
(Unaudited)
(In thousands)
<S> <C> <C>
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $ 1,631 $ (2,238)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of available-for-sale securities 1,747 1,168
Purchase of available-for-sale securities (2,479) --
Purchase of held-to-maturity securities -- (615)
Proceeds from maturities of held-to-maturity securities 1,134 1,941
Loans made to customers, net (26,895) (5,779)
Premises and equipment expenditures (1,667) (1,283)
Purchase of subsidiary bank stock (1) (40)
- ------------------------------------------------------------------------------------------
Net cash used in investing activities (28,161) (4,608)
- ------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in non-interest bearing deposits (23) (294)
Increase (decrease) in interest bearing deposits 23,154 (4,324)
Increase (decrease) in demand notes payable to U.S. Government 1,143 (167)
Increase in securities sold under agreements to repurchase 741 1,423
Repayments of notes payable -- (1,415)
Proceeds from notes payable (400) 3,000
Net increase in Federal Home Loan Bank advances 3,927 1,271
Issuance of convertible subordinated debentures -- 755
Issuance of common stock 62 1,151
Loan to ESOP (50) --
Dividends paid (40) (27)
- ------------------------------------------------------------------------------------------
Net cash provided by financing activities 28,514 1,373
- ------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 1,984 (5,473)
Cash and cash equivalents at beginning of period 13,833 20,559
- ------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD 15,817 15,086
==========================================================================================
</TABLE>
F-4
See accompanying notes to the Unaudited Consolidated Financial Statements
<PAGE> 80
SUCCESS BANCSHARES, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
- --------------------------------------------------------------------------------
NOTE 1. BASIS OF PRESENTATION
The financial information of Success Bancshares, Inc. and
subsidiaries included herein is unaudited; however, such
information reflects all adjustments (consisting of normal
recurring adjustments) which are, in the opinion of management,
necessary for a fair statement of results for the interim periods.
The results of the interim period ended June 30, 1997 are not
necessarily indicative of the results expected for the year ended
December 31, 1997.
NOTE 2. SECURITIES
Amortized costs and fair values of securities are summarized as
follows:
<TABLE>
<CAPTION>
June 30, 1997
--------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
-------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Securities available-for-sale
U.S. Treasury $ 1,743 $ 14 $ - $ 1,757
U.S. Government sponsored entities 5,096 1 100 4,997
States and political sub-divisions exempt
from Federal income taxes 1,566 6 3 1,569
Mortgage-backed securities 3,332 16 - 3,348
SBA guaranteed loan participation 4,052 17 36 4,033
certificates
Other securities 117 - - 117
-------------------------------------------------------------------------------------------------
$ 15,906 $ 54 $ 139 $ 15,821
=================================================================================================
Securities held-to-maturity
U.S. Treasury $ 244 $ 2 $ - $ 246
U.S. Government sponsored entities 14,933 251 263 14,921
States and political sub-divisions
Taxable 1,846 78 - 1,924
Exempt from Federal income taxes 6,638 216 7 6,847
Mortgage-backed securities 5,521 194 - 5,715
Other securities 2,080 - - 2,080
-------------------------------------------------------------------------------------------------
$ 31,262 $ 741 $ 270 $ 31,733
=================================================================================================
</TABLE>
F-5
<PAGE> 81
SUCCESS BANCSHARES, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
- --------------------------------------------------------------------------------
NOTE 2. SECURITIES (CONTINUED)
<TABLE>
<CAPTION>
December 31, 1996
--------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
- ---------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Securities available-for-sale
U.S. Treasury $ 748 $ 6 $ - $ 754
U.S. Government sponsored entities 5,846 2 (127) 5,721
States and political sub-divisions exempt
from Federal income taxes 1,565 6 (10) 1,561
Mortgage-backed securities 2,568 17 - 2,585
SBA guaranteed loan participation 4,337 3 (50) 4,290
certificates
Other securities 110 126 - 236
- ---------------------------------------------------------------------------------------------------------------
$ 15,174 $ 160 $ (187) $ 15,147
===============================================================================================================
Securities held-to-maturity
U.S. Treasury $ 242 $ 3 $ - $ 245
U.S. Government sponsored entities 15,368 279 (244) 15,403
States and political sub-divisions
Taxable 1,845 94 - 1,939
Exempt from Federal income taxes 6,906 147 (12) 7,041
Mortgage-backed securities 5,804 233 - 6,037
Other securities 2,395 - - 2,395
- ---------------------------------------------------------------------------------------------------------------
$ 32,560 $ 756 $ (256) $ 33,060
===============================================================================================================
</TABLE>
The amortized cost and fair value of securities classified as
held-to-maturity and available-for-sale at June 30, 1997 and
December 31, 1996, by contractual maturity, are shown below.
Expected maturities may differ from contractual maturities
because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
Therefore, these securities are not included in the maturity
categories in the following maturity summary.
<TABLE>
<CAPTION>
June 30, 1997
---------------------------------------------------
Available-for-sale Held-to-maturity
------------------------ ----------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
-----------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Due in one year or less $ 2,205 $ 2,193 $ 482 $ 485
Due after one year through five years 4,869 4,854 9,790 9,655
Due after five years through ten years 1,331 1,276 10,455 10,305
Due after ten years 117 117 5,014 5,573
Mortgage-backed securities and SBA guar-
anteed loan participation certificates 7,384 7,381 5,521 5,715
-----------------------------------------------------------------------------------------------
$ 15,906 $ 15,821 $ 31,262 $ 31,733
===============================================================================================
</TABLE>
F-6
<PAGE> 82
SUCCESS BANCSHARES, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
- --------------------------------------------------------------------------------
NOTE 2. SECURITIES (CONTINUED)
<TABLE>
<CAPTION>
December 31, 1996
--------------------------------------------------
Available-for-sale Held-to-maturity
---------------------- ---------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
----------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Due in one year or less $ 2,965 $ 2,953 $ 702 $ 703
Due after one year through five years 3,783 3,728 9,987 10,001
Due after five years through ten years 1,411 1,355 10,444 10,605
Due after ten years 110 236 5,623 5,714
Mortgage-backed securities and SBA guar-
anteed loan participation certificates 6,905 6,875 5,804 6,037
----------------------------------------------------------------------------------------------
$ 15,174 $ 15,147 $ 32,560 $ 33,060
==============================================================================================
</TABLE>
Securities with carrying values of approximately $23.3 million
and $24.2 million at June 30, 1997 and December 31, 1996,
respectively, were pledged to secure public deposits, to secure
securities sold under agreements to repurchase and for other
purposes as required or permitted by law.
NOTE 3. LOANS
The major classification of loans follow:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
-----------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Commercial $ 65,474 $ 58,912
Residential real estate - mortgage 42,074 41,586
Commercial real estate - mortgage 50,531 43,334
Real estate - construction 13,400 12,282
Home equity 51,920 43,193
Other loans 8,921 6,118
Total loans 232,320 205,425
Less
Unearned discount - (2)
Deferred loan fees (225) (261)
Unaccreted discount resulting from loss on
transfer of loans from held-for-sale to portfolio (391) (438)
Allowance for loan losses (1,629) (1,425)
-----------------------------------------------------------------------------------------------
Net loans $ 230,075 $ 203,299
===============================================================================================
</TABLE>
F-7
<PAGE> 83
SUCCESS BANCSHARES, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
- --------------------------------------------------------------------------------
NOTE 4. ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
Six months ended June 30,
------------------------------
1997 1996
----------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Balance at beginning of period $ 1,425 $ 1,189
Provision for loan losses 228 128
Recoveries on loans previously charged-off 31 3
Loans charged-off (55) (54)
----------------------------------------------------------------------------------------------
Balance at end of period $ 1,629 $ 1,266
==============================================================================================
</TABLE>
NOTE 5. CONTINGENT LIABILITIES
At June 30, 1997 and December 31, 1996, loan commitments,
including standby letters of credit, were as follows:
<TABLE>
<CAPTION>
1997 1996
--------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Financial instruments whose contract amounts represent credit risk
Unused home equity lines of credit $ 57,882 $ 45,195
Unused commercial and other consumer lines of credit 42,976 33,531
Standby letters of credit 2,825 1,808
Commitments to make loans 10,313 5,199
</TABLE>
NOTE 6. RECENT ACCOUNTING DEVELOPMENTS
The Financial Accounting Standards Board (FASB) has issued
Statement No. 125, Accounting for Transfers and Servicing of
Financial Assets and Extinguishment of Liabilities, which became
effective for transactions occurring after December 31, 1996,
except for transactions relating to secured borrowings and
collateral for which the effective date is December 31, 1997. The
Statement does not permit earlier or retroactive application. The
Statement distinguishes transfers of financial assets that are
sales from transfers that are secured borrowings. A transfer of
financial assets in which the transferor surrenders control over
those assets is accounted for as a sale to the extent that
consideration other than beneficial interest in the transferred
assets is received in exchange. The Statement also establishes
standards on the initial recognition and measurement of servicing
assets and other retained interest and servicing liabilities, and
their subsequent measurement. The Statement requires that debtors
reclassify financial assets pledged as collateral and that secured
parties recognize those assets and their obligation to return them
in certain circumstances in which the secured party has taken
control of those assets. In addition, the Statement requires that
a liability be derecognized only if the debtor is relieved of its
obligation through payment to the creditor or by being legally
released from being the primary obligor under the liability either
judicially or by the creditors.
The Company adopted the applicable provisions of this Statement as
of January 1, 1997. Management does not believe the application of
the Statement to transactions of the Bank that have been typical in
the past will materially affect the Bank s financial position and
results of operations.
F-8
<PAGE> 84
SUCCESS BANCSHARES, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
- --------------------------------------------------------------------------------
NOTE 6. RECENT ACCOUNTING DEVELOPMENTS (CONTINUED)
The FASB has issued Statement No. 128, Earnings per Share, which
supersedes APB Opinion No. 15. Statement No. 128 requires the
presentation of earnings per share by all entities that have common
stock or potential common stock, such as options, warrants and
convertible securities, outstanding that trade in a public market.
Those entities that have only common stock outstanding are required
to present basic earnings per share amounts. All other entities
are required to present basic and diluted per share amounts.
Diluted per share amounts assume the conversion, exercise or
issuance of all potential common stock instruments unless the
effect is to reduce a loss or increase the income per common share
from continuing operations. All entities required to present per
share amounts must initially apply Statement No. 128 for annual and
interim periods ending after December 15, 1997. Earlier
application is not permitted.
Because the Company has potential common stock outstanding
(convertible preferred stock and convertible debentures, and stock
options to employees and directors), the Company will be required
to present basic and diluted earnings per share. If the Company
had applied Statement No. 128 in the accompanying financial
statements, the following per share information would have been
reported:
<TABLE>
<CAPTION>
For the six months For the year ended
ended June 30, December 31,
1997 1996 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Basic earnings per share $ 0.33 $ 0.30 $ 0.74 $ 0.93 $ 0.27
Diluted earnings per share 0.31 0.29 0.70 0.86 0.26
</TABLE>
In June 1997, the FASB issued Statement 130, Reporting
Comprehensive Income. The Statement establishes standards for the
reporting and display of comprehensive income and its components in
a full set of general purpose financial statements. The Statement
does not address when transactions are recorded, how they are
measured in the financial statements, or whether they should be
included in net income or other comprehensive income. The
Statement is effective for fiscal years beginning after December
15, 1997, with earlier application permitted. Management has not
assessed the effect that this statement will have on its financial
statement presentation.
Also in June 1997, the FASB issued Statement No. 131, Disclosures
about Segments of an Enterprise and Related Information. The
Statement establishes standards for the way that public companies
report information about operating segments in annual financial
statements and requires that those enterprises report selected
financial information about operating segments in interim financial
reports issued to shareholders. It also establishes standards for
related disclosures about products and services, geographic areas,
and major customers. Statement No. 131 is effective for financial
statements for fiscal years beginning after December 15, 1997. In
the initial year of application, comparative information for
earlier years is required to be restated. Management has not
assessed the effect that this statement will have on its financial
reporting practices.
NOTE 7. SHAREHOLDERS' EQUITY AND CAPITAL STANDARDS
The Company and the Bank are subject to various regulatory capital
requirements administered by the federal banking agencies.
Failure to meet minimum capital requirements can initiate certain
mandatory, and possibly additional discretionary, actions by
regulators that, if undertaken, could have
F-9
<PAGE> 85
SUCCESS BANCSHARES, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
- --------------------------------------------------------------------------------
NOTE 7. SHAREHOLDERS' EQUITY AND CAPITAL STANDARDS (CONTINUED)
a direct material effect on the Company s financial statements.
The regulations require the Company and the Bank to meet specific
capital adequacy guidelines that involve quantitative measures of
assets, liabilities, and certain off-balance-sheet items as
calculated under regulatory accounting principles. The capital
classifications are also subject to qualitative judgments by the
regulators about risk weightings and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Company and the Bank to maintain minimum
ratios (set forth in the table below) of Tier I capital (as
defined in the regulations) to total average assets (as defined)
("leverage ratio") and minimum ratios of Tier I capital and total
capital (as defined) to risk-weighted assets (as defined). As of
June 30, 1997, the Company s actual total capital to risk-weighted
assets ratio of 7.31% is below the minimum ratio of 8.0%
established by the Federal Reserve. Failure to meet minimum
capital requirements could result in certain mandatory and
possibly additional discretionary actions by regulators that, if
undertaken, could have a direct material effect on the Company s
business and financial results. As of June 30, 1997, the most
recent notification from the corresponding regulatory agency
categorized the Bank as well capitalized under the regulatory
framework for prompt corrective action. To be considered well
capitalized, under this framework, the Bank must maintain minimum
leverage, Tier I and Tier II ratios as set forth in the following
table. There are no conditions or events since the notification
that management believes has changed the Bank's category.
The required ratios and the Company's and Bank's actual ratios at
June 30, 1997, are presented below:
<TABLE>
<CAPTION>
To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
------------------ -------------------- ----------------------------
As of June 30, 1997 Actual Ratio Actual Ratio Actual Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C>
Total Capital (to Risk Weighted Assets):
Company . . . . . . . . . . . . . . . $ 15,056 7.3% $ 16,481 8.0% N/A
Bank . . . . . . . . . . . . . . . . 20,546 10.0 16,441 8.0 $ 20,551 10.0%
Tier I Capital (to Risk Weighted Assets):
Company . . . . . . . . . . . . . . . 11,580 5.6 8,241 4.0 N/A
Bank . . . . . . . . . . . . . . . . 18,917 9.2 8,221 4.0 12,331 6.0
Tier I Capital (to Average Assets):
Company . . . . . . . . . . . . . . . 11,580 4.0 11,585 4.0 N/A
Bank . . . . . . . . . . . . . . . . $ 18,917 6.5% $ 11,571 4.0% $ 14,464 5.0%
</TABLE>
NOTE 8. SUBSEQUENT EVENTS
In anticipation of a public offering, the following actions were
approved by the Company's Board of Directors and its shareholders
and became effective as indicated:
- All unexercised director stock options expired on July 18, 1997.
- The par value of the Common stock was changed from $1.00 per
share to $0.001 per share, effective July 24, 1997.
- The number of authorized shares of Common stock was increased
to 7.5 million shares, effective July 24, 1997.
- Each of the 115,500 shares of Class A Common stock was
converted into .8749 shares of Common stock, effective July 24,
1997.
F-10
<PAGE> 86
SUCCESS BANCSHARES, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
- --------------------------------------------------------------------------------
NOTE 8. SUBSEQUENT EVENTS (CONTINUED)
- Each of the 53,918 shares of Series B Preferred stock was
converted into one share of Common stock, effective July 24,
1997.
- A 1.7 to one (1) stock split was effected on July 30, 1997.
All references in the accompanying financial statements to the
number of Common shares and per Common share amounts have been
retroactively restated to reflect this transaction.
NOTE 9. PRO FORMA EARNINGS PER SHARE CALCULATIONS
As of the closing date of the Company's offering of up to 1,380,000
shares of Common Stock registered with the Securities and Exchange
Commission on a Form S-1 Registration Statement (File No.
333-32561), substantially all of the aggregate outstanding
principal amount of the Company's 9% Convertible Subordinated
Debentures and 15% and 17% Convertible Subordinated Notes will be
converted into shares of Common Stock.
Accordingly, the Pro Forma Earnings Per Common Share calculations
reflect the effect of these transactions as well as the
transactions described in Note 8 Subsequent Events.
F-11
<PAGE> 87
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Success Bancshares, Inc.
Lincolnshire, Illinois
We have audited the accompanying consolidated balance sheets of Success
Bancshares, Inc. and Subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of income, shareholders, equity, and cash flows
for the years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Success Bancshares,
Inc. and Subsidiaries as of December 31, 1996 and 1995, and the results of
their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
Schaumburg, Illinois McGladrey & Pullen, LLP
February 16, 1997 (except for
Note 19 for which the date is
July 23, 1997)
F-12
<PAGE> 88
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Success Bancshares, Inc.
Lincolnshire, Illinois
We have audited the accompanying consolidated statement of income, shareholders,
equity, and cash flows of Success Bancshares, Inc. and Subsidiaries for the
year ended December 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly in all material respects, the financial position and the results of
operations and cash flows of Success Bancshares, Inc. and Subsidiaries for the
year ended December 31, 1994 in conformity with generally accepted accounting
principles.
Oak Brook, Illinois Crowe, Chizek and Company, LLP
February 4, 1995
F-13
<PAGE> 89
Success Bancshares, Inc. and Subsidiaries
Consolidated Balance Sheets
December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
- -------------------------------------------------------------------------------------------------------
(In thousands, except share data)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 13,833 $ 20,559
Interest-bearing time deposits with financial 99 199
institutions
Securities available-for-sale 15,147 15,676
Securities held-to-maturity (fair value $33,060 and
$35,950 in 1996 and 1995, respectively) 32,560 35,056
Real estate loans held-for-sale 117 203
Loans, less allowances for loan losses of $1,425 and
$1,189 at 1996 and 1995, respectively 203,299 171,135
Premises and equipment, net 7,049 4,783
Interest receivable 1,761 1,694
Other assets 2,484 2,033
- ------------------------------------------------------------------------------------------------------
$ 276,349 $ 251,338
======================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Non-interest bearing deposits $ 42,596 $ 35,168
Interest bearing deposits 202,509 192,140
- ------------------------------------------------------------------------------------------------------
Total deposits 245,105 227,308
Note payable 4,815 3,830
Federal Home Loan Bank advances 5,152 5,950
Securities sold under repurchase agreements 4,255 1,868
Demand notes payable to U.S. Government 1,586 335
Convertible subordinated debentures 3,167 2,412
Interest payable and other liabilities 1,645 1,040
- ------------------------------------------------------------------------------------------------------
Total liabilities 265,725 242,743
Minority interest in subsidiary bank 524 510
Stock owned by Employee Stock Ownership Plan (ESOP)
participants; 54,789 Series B Preferred shares for
1996 and 93,154 common shares for 1995, net of ESOP 866 719
loan of $137 in 1996 and $183 in 1995
Shareholders equity
Preferred stock, $25 par value, 14,774 shares authorized,
none issued - -
Common stock, $1 par value, 7,500,000 shares authorized,
953,391 and 947,733 shares issued and outstanding,
at 1996 and 1995, respectively, exclusive of shares
retained by ESOP participants 955 949
Class A common stock, $1 par value, 1,000,000 shares
authorized, 115,500 and 40,000 shares issued and
outstanding at 1996 and 1995, respectively 116 40
Additional paid-in capital 4,372 3,317
Retained earnings 4,370 3,769
- ------------------------------------------------------------------------------------------------------
Total before unrealized loss on securities 9,813 8,075
Unrealized loss on securities, net of tax (579) (709)
- ------------------------------------------------------------------------------------------------------
Total shareholders' equity 9,234 7,366
- ------------------------------------------------------------------------------------------------------
$ 276,349 $ 251,338
======================================================================================================
</TABLE>
See accompanying notes to Consolidated Financial Statements
F-14
<PAGE> 90
SUCCESS BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------------------------------------------------------------------------------------------------------
(In thousands, except share data)
<S> <C> <C> <C>
Interest income
Loans (including fee income) $ 16,757 $ 14,956 $ 11,136
Investment securities
Taxable 2,397 2,936 2,796
Exempt from federal income tax 451 572 626
Other interest income 245 211 61
----------------------------------------------------------------------------------------------------------
Total interest income 19,850 18,675 14,619
Interest expense
Deposits 8,632 8,771 6,432
Note payable 355 449 242
Convertible subordinated debentures 339 185 179
Other borrowings 694 481 368
----------------------------------------------------------------------------------------------------------
Total interest expense 10,020 9,886 7,221
----------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 9,830 8,789 7,398
Provision for loan losses 310 207 250
----------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 9,520 8,582 7,148
Other operating income
Service charges on deposit accounts 1,402 1,134 865
Securities gains, net - 25 61
Gains on sales of loans, net 109 84 94
Writedown of real estate loans held-for-sale, transferred to
portfolio (74) - (572)
Credit card processing income 5,334 4,389 4,071
Other fees and commissions 378 372 488
----------------------------------------------------------------------------------------------------------
Total other operating income 7,149 6,004 5,007
Other operating expenses
Salaries and employee benefits 5,513 4,729 3,986
Occupancy and equipment expenses 1,715 1,388 1,287
Federal deposit and other insurance 113 350 422
Data processing 633 501 461
Credit card processing expenses 5,013 3,879 3,756
Other noninterest expenses 2,643 2,495 2,104
----------------------------------------------------------------------------------------------------------
Total other operating expenses 15,630 13,342 12,016
Minority interest in income of subsidiary bank 23 47 58
----------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 1,016 1,197 81
Income tax expense (benefit) 233 260 (182)
----------------------------------------------------------------------------------------------------------
NET INCOME 783 937 263
Preferred stock dividends 81 - -
----------------------------------------------------------------------------------------------------------
NET INCOME APPLICABLE TO COMMON STOCK $ 702 $ 937 $ 263
==========================================================================================================
Earnings per common and common equivalent share
Primary (1,182,286, 1,057,461 and 1,032,253 shares, $ .66 $ .89 $ .25
respectively)
Fully diluted (1,182,286, 1,215,366 and 1,032,253 shares, $ .66 $ .86 $ .25
respectively)
Pro Forma earnings per common and common equivalent share
(unaudited)
Primary (1,585,837 shares) $ .62
Fully diluted (1,585,837 shares) $ .62
</TABLE>
See accompanying notes to Consolidated Financial Statements
F-15
<PAGE> 91
Success Bancshares, Inc. and Subsidiaries
Consolidated Statements of Shareholders' Equity
December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
CLASS A ADDITIONAL
COMMON COMMON PAID-IN RETAINED
STOCK STOCK CAPITAL EARNINGS
----------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance at January 1, 1994 $ 864 $ - $ 2,104 $ 2,982
Net income - - - 263
Issuance of 102,413 shares of common stock 102 - 559 -
Increase in stock owned by ESOP participants, 9,478 shares (9) - - (54)
Net change in the fair value of stock owned by ESOP participants - - - 109
Change in unrealized net gain(loss) on securities, net of taxes - - - -
- -----------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 957 - 2,663 3,300
Net income - - - 937
Issuance of 16,186 shares of common stock 16 - 94 -
Issuance of 40,000 shares of Class A common - 40 560 -
Increase in stock owned by ESOP participants, 23,837 shares (24) - - (123)
Net change in the fair value of stock owned by ESOP participants - - - (345)
Change in unrealized net loss on securities, net of taxes - - - -
- -----------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 949 40 3,317 3,769
Net income - - - 783
Issuance of 5,658 shares of common stock 6 - 39 -
Issuance of 75,500 shares of Class A common stock - 76 1,016 -
Series B Preferred stock dividends - - - (81)
Net change in the fair value of stock owned by ESOP Participants - - - (101)
Change in unrealized net loss on securities, net of taxes - - - -
- -----------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 $ 955 $ 116 $ 4,372 $ 4,370
=======================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
UNREALIZED
NET GAIN TOTAL
(LOSS) ON SHARE-HOLDERS'
SECURITIES EQUITY
---------------------------
<S> <C> <C>
Balance at January 1, 1994 $ 326 $ 6,276
Net income - 263
Issuance of 102,413 shares of common stock - 661
Increase in stock owned by ESOP participants, 9,478 shares - (63)
Net change in the fair value of stock owned by ESOP participants - 109
Change in unrealized net gain(loss) on securities, net of taxes (1,621) (1,621)
- ----------------------------------------------------------------------------------------------
Balance at December 31, 1994 (1,295) 5,625
Net income - 937
Issuance of 16,186 shares of common stock - 110
Issuance of 40,000 shares of Class A common - 600
Increase in stock owned by ESOP participants, 23,837 shares - (147)
Net change in the fair value of stock owned by ESOP participants - (345)
Change in unrealized net loss on securities, net of taxes 586 586
- ----------------------------------------------------------------------------------------------
Balance at December 31, 1995 (709) 7,366
Net income - 783
Issuance of 5,658 shares of common stock - 45
Issuance of 75,500 shares of Class A common stock - 1,092
Series B Preferred stock dividends - (81)
Net change in the fair value of stock owned by ESOP Participants - (101)
Change in unrealized net loss on securities, net of taxes 130 130
- ---------------------------------------------------------------------------------------------
Balance at December 31, 1996 $ (579) $ 9,234
=============================================================================================
</TABLE>
See accompanying notes to Consolidated Financial Statements
F-16
<PAGE> 92
Success Bancshares, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
- -----------------------------------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 783 $ 937 $ 263
Adjustments to reconcile net income to net cash
provided by operating activities
Premium amortization on
securities, net of discount accretion (49) (44) (78)
Provision for loan losses 310 207 250
Depreciation and amortization 623 508 470
Provision for deferred taxes (88) (208) (6)
Minority interest in income of subsidiary bank 23 47 58
Net gains on sales of securities - (25) (61)
Loans originated for sale (5,453) (9,652) (4,173)
Proceeds from sales of loans 3,326 9,438 5,000
Net (gains) losses on sales of loans (109) 51 (94)
Writedown of loans held for sale, transferred to portfolio 74 - 572
Accretion of loan discount (87) (62) (60)
Deferred loan fees 38 96 18
Net gain on sales of other real estate owned - - (21)
Change in interest receivables and other assets (518) 606 (551)
Change in interest payable and other liabilities 605 25 210
Other 256 (310) (15)
- -----------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities (266) 1,614 1,782
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of available-for-sale securities - 5,803 4,718
Proceeds from maturities of available-for-sale securities 3,828 1,231 2,573
Purchase of available-for-sale securities (3,906) (2,272) (3,639)
Proceeds from maturities of held-to-maturity securities 3,171 2,990 4,609
Purchases of held-to-maturity securities - (1,834) (11,061)
Changes in interest-bearing balances with
financial institutions 100 298 464
Loans made to customers, net (30,218) (32,112) (21,105)
Proceeds from sales of other real estate - 366 152
Premises and equipment expenditures (2,889) (800) (943)
Purchase of subsidiary bank common stock (25) (84) (17)
- -----------------------------------------------------------------------------------------------------------
Net cash used in investing activities (29,939) (26,414) (24,249)
</TABLE>
(Continued)
F-17
<PAGE> 93
Success Bancshares, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in non-interest bearing deposits $ 7,428 $ 5,916 $ 5,683
Increase in interest bearing deposits 10,369 17,222 35,812
Increase (decrease) in demand notes payable to US Government 1,251 (249) (2,911)
Increase (decrease) in securities sold under agreements
to repurchase 2,387 59 (330)
Repayments of notes payable (2,015) (1,690) -
Proceeds from notes payable 3,000 1,000 2,000
Proceeds from Federal Home Loan Bank advances 4,000 6,000 5,000
Repayment of Federal Home Loan Bank advances (4,798) (2,300) (8,000)
Decrease in Federal funds purchased - - (4,000)
Issuance of convertible subordinated debentures 755 400 85
Repayment of subordinated debentures - - (315)
Issuance of common stock 1,137 710 661
ESOP loan for common shares purchased by ESOP - (147) (63)
Principal payment on ESOP loan 46 26 28
Dividends paid (81) - -
- --------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 23,479 26,947 33,650
- --------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (6,726) 2,147 11,183
Cash and cash equivalents at beginning of year 20,559 18,412 7,229
- --------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 13,833 $ 20,559 $ 18,412
==========================================================================================================================
Supplemental disclosures of cash flow information
Cash paid during the year for
Interest on deposits $ 8,647 $ 8,784 $ 6,337
Interest on borrowings 1,373 1,144 731
Income taxes 352 121 (10)
Selected noncash investing activities (see Notes 3 and 4)
Other real estate acquired in settlement of loans $ - $ 226 $ -
</TABLE>
See accompanying notes to Consolidated Financial Statements
F-18
<PAGE> 94
Success Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Success Bancshares, Inc. (the Company), through its subsidiary, Success
National Bank (the Bank), provides a full range of financial services to
customers through eight locations in the Chicagoland metropolitan area.
(a) Basis of Presentation: The consolidated financial statements of
Success Bancshares, Inc. include the accounts of the Company and its
majority-owned subsidiary, Success National Bank, and its wholly-owned
subsidiary, Success Realty Ventures, Inc. ("Success"). The Company owns
100% of the Bank s preferred stock and approximately 92% of the Bank's
common stock. Significant intercompany accounts and transactions have been
eliminated in consolidation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Significant estimates which are particularly susceptible
to change in a short period of time include the determination of the
allowance for possible loan losses. Actual results could differ from those
estimates.
(b) Cash and Cash Equivalents: Cash and cash equivalents include cash on
hand, noninterest-bearing amounts due from banks, interest-bearing demand
balances with banks, and federal funds sold. Generally, federal funds are
sold or purchased for one-day periods. Cash flows from loans originated by
the Bank and deposits are reported net.
(c) Securities: Securities classified as held-to-maturity are those debt
securities the Company has both the positive intent and ability to hold to
maturity regardless of changes in market conditions, liquidity needs or
changes in general economic conditions. These securities are carried at
cost adjusted for amortization of premium and accretion of discount which
are recognized in interest income using the interest method over the period
to maturity. Transfer of debt securities into the held-to-maturity
classification from the available-for-sale classification are made at fair
value on the date of transfer. The unrealized gain or loss on the date of
transfer is retained as a separate component of stockholders equity and in
the carrying value of the held-to-maturity securities. Such amounts are
amortized over the remaining contractual lives of the securities by the
interest method.
Securities classified as available-for-sale are those debt securities that
the Company intends to hold for an indefinite period of time, but not
necessarily to maturity. Any decision to sell a security classified as
available for sale would be based on various factors, including significant
movements in interest rates, changes in the maturity mix of the Company's
assets and liabilities, liquidity needs, regulatory capital considerations
and other similar factors. Securities available for sale are carried at fair
value. The difference between fair value and amortized cost results in an
unrealized gain or loss. Unrealized gains or losses are reported as
increases or decreases in stockholders' equity, net of the related deferred
tax effect. Realized gains or losses, determined on the basis of the cost
of specific securities sold, are included in earnings. Premiums and
discounts are recognized in interest income using the interest method over
their contractual lives.
(d) Real Estate Loans Held-for-Sale: Real estate loans held-for-sale are
carried at the lower of cost, net of loan fees collected, or fair value in
the aggregate. Loans are sold without recourse with servicing retained.
Gains and losses from the sale of loans are determined based upon the net
proceeds and the carrying value of the loans sold after allocating cost to
servicing rights retained. Net unrealized losses are recognized in a
valuation allowance by charges to income.
Transfer of loans held for sale to portfolio are accounted for at the lower
of cost or fair value at the date of transfer. The excess of the carrying
value over the fair value as of the transfer date is accreted into interest
income over the remaining estimated lives of the transferred loans. Cost
approximated fair value for loans held for sale as of December 31, 1996 and
1995.
F-19
<PAGE> 95
Success Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(e) Loans: Loans that management has the intent and ability to hold for the
foreseeable future or until maturity or payoff ("portfolio loans") are
stated net of unearned income, deferred loan fees, unaccreted discounts and
the allowance for loan losses. Interest on loans is accrued over the term
of the loan based on the amount of principal outstanding. For impaired
loans, accrual of interest is discontinued on a loan when management
believes, after considering collection efforts and other factors, that the
borrower's financial condition is such that collection of interest is
doubtful. Interest income is subsequently recognized only to the extent
cash payments are received and the principal is considered fully
collectible. Discounts are accreted into income over the estimated lives
of the loans on a method that approximates the interest method. Loan
origination fees and costs are deferred and recognized over the life of the
loan as a yield adjustment.
Because some loans may not be paid in full, an allowance for loan losses is
recorded. Increases to the allowance are recorded by a provision for loan
losses charged to expense. Estimating the risk of loss and the amount of
loss on any loan is necessarily subjective. Accordingly, the allowance is
maintained at a level considered adequate to cover possible losses that are
currently anticipated based on past loss experience, general economic
conditions, information about specific borrower situations including their
financial position and collateral values, and other factors and estimates
which are subject to change over time. A loan is charged-off by management
as a loss when deemed uncollectible, although collection efforts continue
and future recoveries may occur.
Commercial loans less than $100,000, residential real estate mortgages, home
equity loans, and installment loans are considered small balance homogenous
loan pools for purposes of impairment. All other loans are specifically
evaluated for impairment. Loans are considered impaired when, based on
current information and events, it is probable that the Company will not be
able to collect all amounts due according to the contractual terms of the
loan agreement. The impairment is measured based on the present value of
expected future cash flows, or alternatively, the observable market price of
the loans or the fair value of the collateral. However, for those loans
that are collateral-dependent and for which management has determined
foreclosure is probable, the measure of impairment of those loans is to be
based on the fair value of the collateral. The amount of impairment, if
any, and any subsequent changes are included in the allowance for loan
losses.
(f) Loan Servicing: The Bank generally retains the right to service mortgage
loans sold to others. The cost allocated to the mortgage servicing rights
retained has been recognized as a separate asset and is being amortized in
proportion to and over the period of estimated net servicing income.
Mortgage servicing rights are periodically evaluated for impairment based on
the fair value of those rights. Fair values are estimated using discounted
cash flows based on current market rates of interest. For purposes of
measuring impairment, the rights must be stratified by one or more
predominant risk characteristics of the underlying loans. The Bank
stratifies its capitalized mortgage servicing rights based on the
origination date and term of the underlying loans. The amount of impairment
recognized is the amount, if any, by which the amortized cost of the rights
for each stratum exceed their fair value.
(g) Premises and Equipment: Buildings, leasehold improvements, furniture,
and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are provided on the
straight-line method over estimated useful lives of the related assets.
Maintenance and repairs are expensed as incurred, while major improvements
are capitalized.
F-20
<PAGE> 96
Success Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(h) Income Taxes: The Company files a consolidated income tax return with its
subsidiaries. Its share of the consolidated income tax provision is
computed on a separate return basis.
Deferred taxes are provided using the liability method to recognize deferred
tax assets for deductible temporary differences and operating loss and tax
credit carryforwards and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between
the reported amounts of assets and liabilities and their tax bases.
Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or all
of the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates on
the date of enactment.
(i) Fair Value of Financial Instruments: The following methods and assumptions
were used by the Company in estimating the fair value of its financial
instruments.
Cash and cash equivalents: The carrying amounts reported in the balance
sheet for cash and these short-term instruments approximate their fair
values.
Securities: Fair values for investment securities are based on quoted
market prices, where available. If quoted market prices are not available,
fair values are based on quoted market prices of comparable instruments.
Loans: For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying
values. The fair values for other loans are determined using estimated
future cash flows, discounted at the interest rates currently being
offered for loans with similar terms to borrowers with similar credit
quality.
Deposit liabilities: The fair value of deposits with no stated maturity,
such as noninterest bearing deposits, savings, NOW accounts, and money
market accounts, is equal to the amount payable on demand (i.e. the carrying
value.) Fair values for fixed rate certificates of deposit are estimated
using a discounted cash flow calculation that applies interest rates
currently being offered on certificates to a schedule of aggregated expected
monthly maturities on time deposits.
Borrowed funds: The fair value is estimated using a discounted cash flow
calculation using the rate currently available for similar term borrowings.
Off-balance-sheet instruments: Fair values for the Company's
off-balance-sheet instruments are based on fees currently charged to enter
into similar agreements, taking into account the remaining term of the
agreements and the counterparties credit standing. There is no material
difference between the notional amount and the estimated fair value of
off-balance sheet items which are primarily comprised of commitments to
extend credit which are generally priced at market at the time of funding.
(j) Earnings Per Common Share: Primary earnings per share are computed by
dividing net income, after deducting any dividends on preferred stock, by
the weighted average number of common shares outstanding. Stock options
and Series B Preferred Stock are regarded as common stock equivalents and
are considered in earnings per share calculations if dilutive. Fully
diluted earnings per share assume that the convertible subordinated debt is
converted into common stock upon issuance or at the beginning of the year,
as applicable, if the debt qualified as common stock equivalents. If the
result of the assumed conversion is dilutive, the interest expense on the
convertible subordinated debentures is eliminated while the number of
common stock shares is increased. In 1996 and 1994, the assumed conversion
of the subordinated debt would have had an antidilutive effect.
F-21
<PAGE> 97
Success Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(k) Current Accounting Development: The Financial Accounting Standards
Board has issued Statement No. 125, Accounting for Transfers and Servicing
of Financial Assets and Extinguishment of Liabilities, which becomes
effective for transactions occurring after December 31, 1996, except for
transactions relating to secured borrowings and collateral for which the
effective date is December 31, 1997. The Statement does not permit earlier
or retroactive application. The Statement distinguishes transfers of
financial assets that are sales from transfers that are secured borrowings.
A transfer of financial assets in which the transferor surrenders control
over those assets is accounted for as a sale to the extent that
consideration other than beneficial interest in the transferred assets is
received in exchange. The Statement also establishes standards on the
initial recognition and measurement of servicing assets and other retained
interests and servicing liabilities, and their subsequent measurement. The
statement requires that debtors reclassify financial assets pledged as
collateral and that secured parties recognize those assets and their
obligation to return them in certain circumstances in which the secured
party has taken control of those assets. In addition, the Statement
requires that a liability be derecognized only if the debtor is relieved of
its obligation through payment to the creditor or by being legally released
from being the primary obligor under the liability either judicially or by
the creditor. Management does not believe the application of the
Statement to transactions of the Bank that have been typical in the past
will materially affect the Bank s financial position and results of
operations.
(l) Prior Year Reclassifications: Certain reclassifications were made to make
the 1995 and 1994 financial statements comparable with the 1996
presentation.
NOTE 2 - CASH AND CASH EQUIVALENTS
Cash and cash equivalents are comprised of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
----------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Cash and due from banks $ 13,780 $ 16,043
Interest-bearing demand balances with financial institutions 53 3,016
Federal funds sold - 1,500
----------------------------------------------------------------------------------------------
$ 13,833 $ 20,559
==============================================================================================
</TABLE>
At December 31, 1996 and 1995, reserves of $2.5 million and $2.4 million,
respectively, were required to be held as cash or on deposit with the Federal
Reserve Bank of Chicago. These reserves do not earn interest.
NOTE 3 - SECURITIES
The amortized cost, gross unrealized gains and losses, and fair values of
securities at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
- ----------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Securities available-for-sale
U.S. Treasury $ 748 $ 6 $ - $ 754
U.S. Government sponsored entities 5,846 2 (127) 5,721
States and political sub-divisions
exempt from Federal income taxes 1,565 6 (10) 1,561
Mortgage-backed securities 2,568 17 - 2,585
SBA guaranteed loan participation certificates 4,337 3 (50) 4,290
Other securities 110 126 - 236
- ----------------------------------------------------------------------------------------------------------
$ 15,174 $ 160 $ (187) $ 15,147
==========================================================================================================
</TABLE>
F-22
<PAGE> 98
Success Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- -----------------------------------------------------------------------
NOTE 3 - SECURITIES (CONTINUED)
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
- -----------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Securities held-to-maturity
U.S. Treasury $ 242 $ 3 $ - $ 245
U.S. Government sponsored entities 15,368 279 (244) 15,403
States and political sub-divisions
Taxable 1,845 94 - 1,939
Exempt from Federal income taxes 6,906 147 (12) 7,041
Mortgage-backed securities 5,804 233 - 6,037
Other securities 2,395 - - 2,395
- -----------------------------------------------------------------------------------------------------
$ 32,560 $ 756 $ (256) $ 33,060
=====================================================================================================
</TABLE>
The amortized cost and fair value of securities at December 31, 1996, by
contractual maturity, are shown below. Expected maturities of mortgage backed
securities and SBA guaranteed loan participation certificates will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties. Therefore, these
securities are not included in the maturity categories in the following
maturity summary.
<TABLE>
<CAPTION>
Available-for-sale Held-to-maturity
-------------------- -------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
- -----------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Due in one year or less $ 2,965 $ 2,953 $ 702 $ 703
Due after one year through five years 3,783 3,728 9,987 10,001
Due after five years through ten years 1,411 1,355 10,444 10,605
Due after ten years 110 236 5,623 5,714
Mortgage-backed securities and SBA guar-
anteed loan participation certificates 6,905 6,875 5,804 6,037
- -----------------------------------------------------------------------------------------------------
$ 15,174 $ 15,147 $ 32,560 $ 33,060
=====================================================================================================
</TABLE>
The amortized cost, gross unrealized gains and losses, and fair values of
securities at December 31, 1995 are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
- -----------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Securities available-for-sale
U.S. Treasury $ 1,236 $ 15 $ (1) $ 1,250
U.S. Government sponsored entities 7,845 19 (221) 7,643
States and political sub-divisions
exempt from Federal income taxes 1,779 6 (16) 1,769
Mortgage-backed securities 555 1 - 556
SBA guaranteed loan participation certificates 4,293 66 - 4,359
Other securities 14 85 - 99
- -----------------------------------------------------------------------------------------------------
$ 15,722 $ 192 $ (238) $ 15,676
=====================================================================================================
Securities held-to-maturity
U.S. Treasury $ 238 $ 8 $ - $ 246
U.S. Government sponsored entities 17,719 509 (321) 17,907
States and political sub-divisions
Taxable 1,845 161 - 2,006
Exempt from Federal income taxes 7,174 169 (16) 7,327
Mortgage-backed securities 6,384 384 - 6,768
Other securities 1,696 - - 1,696
- -----------------------------------------------------------------------------------------------------
$ 35,056 $ 1,231 $ (337) $ 35,950
=====================================================================================================
</TABLE>
F-23
<PAGE> 99
Success Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 3 - SECURITIES (CONTINUED)
Proceeds from sales of securities available-for-sale and realized gross gains
and losses in 1996, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Securities available-for-sale
Proceeds from sales $ - $ 5,803 $ 4,718
Gross gains $ - $ 56 $ 61
Gross losses $ - $ 31 $ -
</TABLE>
Securities designated as held-to-maturity with an amortized cost of $2.3
million and with net unrealized gains of $19,000 were transferred to
available-for-sale on December 13, 1995. This was a one-time transfer in
accordance with the transition provision of Statement 115.
During 1994, $32.7 million of securities available-for-sale were transferred to
the held-to-maturity portfolio at their fair value. The securities' amortized
cost exceeded fair value at the date of transfer by $1.5 million. Amortization
of this unrealized loss was $215,000, $223,000, and $91,000 for 1996, 1995, and
1994, respectively.
Securities with a carrying value of approximately $24.2 and $30.3 million at
December 31, 1996 and 1995, respectively, were pledged to secure public
deposits and for other purposes as required or permitted by law.
NOTE 4 - LOANS
Loans at December 31, 1996 and 1995 consisted of the following:
<TABLE>
<CAPTION>
1996 1995
---------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Commercial $ 58,912 $ 45,217
Residential real estate - mortgage 41,586 32,880
Commercial real estate - mortgage 43,334 35,347
Real estate - construction 12,282 12,821
Home equity - first lien 21,975 21,485
Home equity - junior lien 21,218 16,335
Other loans 6,118 8,916
---------------------------------------------------------------------------------------------
Total loans 205,425 173,001
Less
Unearned discount (2) (3)
Deferred loan fees (261) (223)
Unaccreted discount resulting from loss on transfer of
loans from held for sale to portfolio (438) (451)
Allowance for loan losses (1,425) (1,189)
---------------------------------------------------------------------------------------------
Net loans $ 203,299 $ 171,135
</TABLE>
In 1996 and 1994, real estate loans held-for-sale with carrying value of
approximately $2.2 million and $9.7 million, respectively, were transferred to
portfolio. Losses of $74,000 and $572,000 were recognized for the difference
between fair value and cost basis on the transferred loans, in 1996 and 1994,
respectively.
F-24
<PAGE> 100
Success Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 4 - LOANS (CONTINUED)
Activity in the allowance for loan losses is summarized below:
<TABLE>
<CAPTION>
1996 1995 1994
- ----------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Balance at beginning of year $ 1,189 $ 1,000 $ 855
Provision for loan losses 310 207 250
Recoveries on loans previously charged-off 4 1 34
Loans charged-off (78) (19) (139)
- ----------------------------------------------------------------------------------------------------------
Balance at end of year $ 1,425 $ 1,189 $ 1,000
==========================================================================================================
</TABLE>
Impaired loan information as of and for the years ended December 31, 1996 and
1995 is as follows:
<TABLE>
<CAPTION>
1996 1995
- ----------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Impaired loans for which an allowance has been provided $ 100 $ 795
Impaired loans for which no allowance has been provided 350 -
----------------------------------------------------------------------------------------------------
Total loans determined to be impaired $ 450 $ 795
====================================================================================================
Allowance provided for impaired loans, included in the
allowance for loan losses $ 3 $ 17
====================================================================================================
Average recorded investment in impaired loans $ 694 $ 990
Interest income recognized from impaired loans $ 101 $ 118
Cash basis interest income recognized from impaired $ 94 $ 81
loans
</TABLE>
As of December 31, 1994, the accrual of interest was discontinued on loans in
the amount of $258,000. If these loans had been current in accordance with
their original terms, additional gross income in the amount of $10,000 would
have been recorded in 1994.
Mortgage loans serviced for the Federal Home Loan Mortgage Corporation by the
Company are not included in the accompanying consolidated balance sheets. The
unpaid principal balances of these loans were approximately $53.4 and $55.2
million at December 31, 1996 and 1995, respectively.
Mortgage servicing rights in the amounts of $79,000 and $128,000 were
capitalized during the years ended December 31, 1996 and 1995, respectively.
Amortization of mortgage servicing rights was $101,000 and $21,000 in 1996 and
1995, respectively. As of December 31, 1996 and 1995 the valuation allowance
for mortgage servicing rights was none and $12,000, respectively.
NOTE 5 - PREMISES AND EQUIPMENT
Premises and equipment consisted of the following at December 31, 1996 and
1995:
<TABLE>
<CAPTION>
1996 1995
- ---------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Land $ 2,454 $ 2,154
Building and leasehold improvements 4,458 2,916
Furniture and equipment 3,167 2,121
-------------------------------------------------------------------------------------------------
Total cost 10,079 7,191
Less accumulated depreciation and amortization 3,030 2,408
-------------------------------------------------------------------------------------------------
Net book value $ 7,049 $ 4,783
=================================================================================================
</TABLE>
The Company has agreed to acquire two branch buildings from another financial
institution in 1997 for $1.2 million.
F-25
<PAGE> 101
Success Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 6 - DEPOSITS
Deposits at December 31 are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
----------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Demand deposits:
Interest-bearing $ 47,620 $ 43,797
Non-interest-bearing 42,596 35,168
----------------------------------------------------------------------------
Total demand deposits 90,216 78,965
Savings 19,022 17,993
Money market 34,486 33,684
Other deposits 22,696 27,321
Time:
Due within one year 50,477 52,849
Due within one to two years 18,269 6,132
Due within two to three years 5,878 2,764
Due within three to four years 1,479 4,815
Due within four to five years 1,980 1,503
Due thereafter 602 1,282
----------------------------------------------------------------------------
Total time deposits 78,685 69,345
----------------------------------------------------------------------------
Total deposits $ 245,105 $ 227,308
================================================================================
</TABLE>
Time deposits in amounts of $100,000 or more were approximately $29.9 million
and $26.0 million at December 31, 1996 and 1995, respectively.
Interest expense on deposits for the years ending December 31 is summarized as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Interest-bearing demand $ 1,200 $ 1,062 $ 853
Savings 606 589 736
Money market 1,357 1,472 988
Other deposits 1,224 1,561 603
Time 4,245 4,087 3,252
----------------------------------------------------------------------------
$ 8,632 $ 8,771 $ 6,432
================================================================================
</TABLE>
NOTE 7 - BORROWING ARRANGEMENTS
Note payable at December 31, 1996 and 1995 is comprised of a $8.0 million
revolving line of credit with Cole Taylor Bank with interest at the prime rate
(8.25% at December 31, 1996) payable quarterly, maturing June 15, 1997.
Borrowings under the line of credit are limited to 50% of the Bank's
shareholders' equity. Proceeds of borrowings under the line of credit may only
be used to acquire or carry stock of one or more subsidiary banks. The
revolving line of credit is secured by the common and preferred stock of the
Bank owned by the Company.
The Bank can also borrow from the Federal Reserve Bank ("FRB") up to 75% of
loans pledged to the FRB. As of December 31, 1996 and 1995, there were no loans
pledged to the FRB and there were no borrowings outstanding at either date.
F-26
<PAGE> 102
Success Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 8 - FEDERAL HOME LOAN BANK ADVANCES
At December 31, 1996 and 1995, advances from the Federal Home Loan Bank of
Chicago ("FHLB") were as follows:
<TABLE>
<CAPTION>
Advance Amount
Maturity Interest Frequency of ---------------------------
Date Rate Rate Adjustment 1996 1995
-------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
November, 1996 5.72% Fixed $ - $ 2,000
November, 1997 5.66% Fixed 2,000 2,000
May, 2002 (1) 6.83% Fixed 1,869 1,950
February, 2003 (1) 5.65% Fixed 1,283 -
-------------------------------------------------------------------------------------
$ 5,152 $ 5,950
=====================================================================================
</TABLE>
(1) This is a 15 year amortizing advance with a seven year balloon.
The Bank maintains a collateral pledge agreement with the FHLB covering secured
advances. Under this agreement, first mortgages on improved residential
property not more than 90 days delinquent are pledged as collateral. Total
loans pledged to secure advances at December 31, 1996 and 1995 were
approximately $14.6 million and $17.8 million, respectively.
NOTE 9 - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Securities sold under agreements to repurchase are overnight repurchase
agreements with customers of the Bank and consist of primarily U.S. government
sponsored entity obligations.
The securities underlying the agreements are book-entry securities. During the
period, the securities were delivered by appropriate entry into a third-party
custodian's account designated by the Bank under a written custodial agreement
that explicitly recognizes the customer's interest in the securities. At
December 31, 1996, no material amount of agreements to repurchase securities
sold were outstanding with any individual customer. Securities sold under
agreements to repurchase averaged $4.1 million and $3.2 million during 1996 and
1995, respectively, and the maximum amounts outstanding at any month-end during
1996 and 1995 were $4.6 million and $5.3 million, respectively. The weighted
average rate paid during 1996 and 1995 was 4.20% and 4.99%, respectively, and
the weighted average rate at the end of 1996 and 1995 was 4.23% and 4.44%.
NOTE 10 - CONVERTIBLE SUBORDINATED DEBENTURES
In 1992, the Company issued $2.2 million of ten year 9% convertible subordinated
debentures (the debentures). The debentures pay interest semi-annually. The
debentures are convertible at any time prior to maturity into Class A common
stock at $12.75 per share. The Company can redeem the debentures (a) without
paying a premium if the book value per share of the Company's common stock
equals or exceeds the conversion price; or (b) with a premium of between 10% and
2% depending on the redemption date.
In November 1995, the Company began a private placement of units consisting of
$4,000 principal amount of ten year convertible subordinated notes (the Notes)
and 400 shares of Class A Common Stock. The interest on the notes is payable
semi-annually. The rate on the notes is 15% for notes in denominations less
than $100,000 and 17% for notes of $100,000 or more. The notes are convertible
at any time prior to maturity into Class A common stock at $23.50 per share. The
Company can redeem the notes (a) two years after issuance without paying a
premium if the book value per share of the Company s common stock equals or
exceeds the conversion price; or (b) with a premium of between 5% and 1%
depending on the redemption date.
F-27
<PAGE> 103
Success Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 10 - CONVERTIBLE SUBORDINATED DEBENTURES (CONTINUED)
The following table summarizes the debentures and notes outstanding at December
31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
9% Debentures $ 2,012 $ 2,012
15% Notes 235 -
17% Notes 920 400
------------------------------------------------------------------------------------------
$ 3,167 $ 2,412
==========================================================================================
</TABLE>
NOTE 11 - SHAREHOLDERS' EQUITY AND CAPITAL STANDARDS
The preferred stock is cumulative and nonconvertible. Dividends are payable
quarterly based on the average prime rate in effect during the quarter. There
were no shares of preferred stock outstanding at December 31, 1996 or 1995.
The Series B preferred stock is noncumulative and each share is convertible
into one share of common stock. Dividends are payable quarterly at a rate
established by the Company's board of directors. All outstanding shares are
held by the Company s Employee Stock Ownership Plan.
Class A common stock carries a voting power of 1/20th of the original common
stock and requires a dividend of 115% of any dividend paid on the original
common stock.
The Company and the Bank are subject to various regulatory capital requirements
administered by the federal banking agencies. 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 Company s financial statements. The regulations require
the Company and the Bank to meet specific capital adequacy guidelines that
involve quantitative measures of assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting principles.
The capital classifications are also subject to qualitative judgments by the
regulators about risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum ratios (set forth in the
table below) of Tier I capital (as defined in the regulations) to total average
assets (as defined) ("leverage ratio") and minimum ratios of Tier I and total
capital (as defined) to risk-weighted assets (as defined). Management believes
that as of December 31, 1996 the Company and the Bank met all capital adequacy
requirements to which they were subject. As of December 31, 1996, the most
recent notification from the corresponding regulatory agency categorized the
Bank as well capitalized under the regulatory framework for prompt corrective
action. To be considered well capitalized, under this framework, the Bank must
maintain minimum leverage, Tier I and Total Capital ratios as set forth in the
following table. There are no conditions or events since the notification that
management believes has changed the Bank's category.
F-28
<PAGE> 104
Success Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 11 - SHAREHOLDERS EQUITY AND CAPITAL STANDARDS (CONTINUED)
The required ratios and the Company's actual ratios at December 31, 1996, are
presented below:
<TABLE>
<CAPTION>
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>
As of December 31, 1996
Total Capital (to Risk Weighted Assets):
Consolidated $ 14,475 8.0% $ 14,481 8.0% N/A
Bank 20,207 11.2 14,471 8.0 $ 18,088 10.0%
Tier 1 Capital (to Risk Weighted Assets):
Consolidated 11,203 6.2 7,240 4.0 N/A
Bank 18,782 10.4 7,235 4.0 10,853 6.0%
Tier 1 Capital (to Average Assets):
Consolidated 11,203 4.4 7,688 4.0 N/A
Bank $ 18,782 7.3% $ 7,673 4.0% $ 12,788 5.0%
</TABLE>
Banking regulations limit the amount of dividends that the Bank may pay without
the prior approval of regulatory authorities. As of December 31, 1996,
approximately $1,003,000 of the Bank's retained earnings were available for
dividends without prior regulatory approval. In addition, the Company's debt
agreement with its lending institution requires the Bank to maintain minimum
capital requirements which serve to limit dividends from the Bank. Under the
debt agreement, the Company and the Bank are required to maintain minimum
capital of $7.5 million and $14 million, respectively, and minimum Tier I
capital to assets ratios of 3% and 6%, respectively. The Company's and Bank's
capital levels exceed these requirements. The debt agreement imposes a more
restrictive dividend limitation on the Bank than the banking regulations. The
debt agreement also requires the Bank to maintain an allowance for loan losses
of at least 7/10ths of 1% of total loans. In addition, the Bank's allowance for
loan losses must be at least 100% of the Bank's nonperforming loans.
Nonperforming loans and other real estate are also limited under the agreement
to 20% of the Bank's capital. The Bank may not declare a dividend, other than
for the purpose of the Company's debt service, without the written consent of
Cole Taylor Bank. The Company cannot declare cash dividends or acquire any of
its own stock without the written consent of Cole Taylor Bank.
NOTE 12 - EMPLOYEE STOCK OWNERSHIP PLAN
The Company maintains an Employee Stock Ownership Plan ("ESOP"), which also has
a 401(k) feature. The ESOP covers substantially all employees of the Bank.
The ESOP is internally leveraged. Loans from the Company to the ESOP to
acquire Company stock are recorded as a reduction of shareholders' equity. At
December 31, 1996 and 1995, the fair value of unearned ("suspense") ESOP shares
is not materially different from the Company's loan to the ESOP. Suspense
shares are released and allocated to participants as the ESOP s debt to the
Company is repaid. Employer contributions, including any matching contribution
for the 401(k) provision, are made at the discretion of the Bank's Board of
Directors. Contributions to the ESOP, which are not materially different from
the fair value of shares allocated to participants, were funded through
dividends on the Series B preferred stock during 1996. The fair value of
dividends paid on suspense shares was not material and was charged to retained
earnings. Preferred dividends of $81,000 were paid in 1996. During 1995 and
1994, contributions of $72,000 and $50,000, respectively, were charged to
compensation expense.
F-29
<PAGE> 105
Success Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 12 - EMPLOYEE STOCK OWNERSHIP PLAN (CONTINUED)
Shares of the Company's stock held by the ESOP as of December 31, 1996 and
1995, are shown in the following table. The allocated and unallocated shares
as of December 31, 1996 are approximations, as the 1996 participant allocation
has not yet been completed.
1995
<TABLE>
<CAPTION>
1996 1995
---------------------------------------------------------------------------------------------------
<S> <C> <C>
Shares allocated to participants 41,881 63,897
Suspense (unallocated) shares 12,908 29,257
---------------------------------------------------------------------------------------------------
Total ESOP Shares 54,789 93,154
===================================================================================================
</TABLE>
A participant or beneficiary who receives a distribution of Company stock from
the ESOP has the right to require the Company, or the ESOP if the plan
administrator so elects, to purchase the shares at fair value within sixty days
of the distribution.
The Securities and Exchange Commission's Accounting Series No. 268 requires
that to the extent there are conditions (regardless of their probability of
occurrence) whereby holders of equity securities may demand cash in exchange
for their securities, the Company, must reflect the maximum possible cash
requirements related to those securities outside of stockholders' equity.
Accordingly, the Series B preferred stock and common stock owned by ESOP
participants is reflected on the accompanying balance sheet at its fair value.
NOTE 13 - STOCK OPTIONS
In the past, the Company's Board of Directors has granted nonqualified options
to various members of senior management. The outstanding stock options may be
exercised at any time by the respective officers through a period ending three
years after termination of employment with the Bank or the Company. There were
no such options granted during 1996 or 1995.
In 1995, the Company adopted a qualified incentive stock option plan for senior
officers of the Company with options to be granted at the fair value of the
stock as estimated by the Company's Board of Directors at the date of grant.
Under this plan, 170,000 shares of authorized but unissued common stock are
reserved for the granting of options. Vesting of the options is determined by
the Board of Directors and typically is over a period not exceeding four years.
Options must be exercised within ten years after the date of grant. The
following table summarizes data concerning stock options:
<TABLE>
<CAPTION>
Weighted
Common Shares Option Price Average
Under Option Per Share Exercise Price
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding, December 31, 1993 & 1994 118,490 $1.82 - $6.09 $ 4.68
----------------------------------------------------------------------------------------------------
Granted 38,250 $6.18 $ 6.18
----------------------------------------------------------------------------------------------------
Outstanding, December 31, 1995 156,740 $1.82 - $6.18 $ 5.04
----------------------------------------------------------------------------------------------------
Canceled (3,400) $6.09 $ 6.09
----------------------------------------------------------------------------------------------------
Outstanding, December 31, 1996 153,340 $1.82 - $6.18 $ 5.02
====================================================================================================
</TABLE>
At December 31, 1996, there are options exercisable for 127,840 shares at a
weighted average price of $4.79.
Grants under the plan are accounted for following APB Opinion No. 25 and
related interpretations. Accordingly, no compensation cost has been recognized
for incentive stock option grants under the stock option plan. Had
compensation cost for the stock-based compensation plan been determined based
on the grant date fair values of awards, reported income and earnings per
common share would have been reduced to the pro forma amounts shown on the
following page:
F-30
<PAGE> 106
Success Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 13 - STOCK OPTIONS (CONTINUED)
<TABLE>
<CAPTION>
1996 1995 1994
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income applicable to common stock (In thousands):
As reported $ 702 $ 937 $ 263
Pro Forma $ 702 $ 904 $ 263
Primary earnings per common share:
As reported $ 0.66 $ 0.89 $ .25
Pro Forma $ 0.66 $ 0.86 $ .25
Fully diluted earnings per common share:
As reported $ 0.66 $ 0.86 $ .25
Pro Forma $ 0.66 $ 0.84 $ .25
</TABLE>
The fair value of each option grant was estimated using the Black-Scholes
option-pricing model with the following weighted average assumptions used for
grants during the year ended December 31, 1995; dividend yield of 0% for the
period; expected volatility of 0% for the period; risk free rate of return of
5.88%; and, expected life of 4 years.
Under the provisions of Statement No. 123, pro forma net income reflects only
options granted in 1995. Therefore, the full impact of calculating
compensation cost for stock options under Statement No. 123 is not reflected in
the pro forma net income amounts presented above because compensation cost for
options granted prior to January 1, 1995 is not considered.
The Company's Board of Directors has authorized each director to purchase up to
17,000 shares of the Company s $1 par value common stock per year. The
purchase price of the stock is its book value as of the end of the prior month.
This authorization must be renewed annually, and shares which are not purchased
in any year expire as of December 31 of that year.
NOTE 14 - INCOME TAXES
The deferred tax assets and liabilities consist of the following components as
of December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
-------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 402 $ 311
Securities available for sale 398 488
Deferred loan fees 142 111
Premises and equipment 50 -
Stock options 12 12
Loans 170 175
Alternative minimum tax credit carryforward - 21
----------------------------------------------------------------------------------------------
1,174 1,118
----------------------------------------------------------------------------------------------
Deferred tax liabilities:
Premises and equipment - 63
State income taxes 27 27
Loans - tax mark to market 159 40
Mortgage servicing rights 33 36
Other 21 16
----------------------------------------------------------------------------------------------
240 182
----------------------------------------------------------------------------------------------
Net deferred tax assets $ 934 $ 936
==============================================================================================
</TABLE>
F-31
<PAGE> 107
Success Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 14 - INCOME TAXES (CONTINUED)
No valuation allowance was considered necessary.
Income tax expense (benefit) for the years ended December 31, 1996, 1995 and
1994, consists of the following:
<TABLE>
<CAPTION>
1996 1995 1994
- --------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Current $ 321 $ 468 $ (176)
Deferred (88) (208) (6)
- --------------------------------------------------------------------------------------------------------
$ 233 $ 260 $ (182)
========================================================================================================
</TABLE>
Reconciliations of income tax expense (benefit) computed at the statutory
federal income tax rate to the Company s income tax expense (benefit) for the
years ended December 31, 1996, 1995, and 1994, are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
- -------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Income tax expense at statutory rate $ 345 $ 407 $ 28
Increase (decrease) in income taxes resulting from:
State income taxes, net of federal tax benefit 21 13 (37)
Nontaxable interest income (net of disallowed expenses) (141) (178) (197)
Other 8 18 24
- -------------------------------------------------------------------------------------------------------
$ 233 $ 260 $ (182)
=======================================================================================================
</TABLE>
NOTE 15 - COMMITMENTS, CONTINGENCIES AND CREDIT RISK
Credit risk: The Company makes loans to, and obtains deposits from, customers
primarily in Lake County, Cook County, DuPage County, and McHenry County,
Illinois and surrounding areas. Most loans are secured by specific items of
collateral, including residential and commercial real estate and other business
and consumer assets. Collateral held varies but may include deposits held in
financial institutions; U.S. Treasury securities; other marketable securities;
income-producing commercial properties; residential real estate; accounts
receivable; and property, plant and equipment. The loan portfolio includes
concentration of loans for the long-term care industry. At December 31, 1996
the Bank had $10.2 million of commitments to customers in the long-term care
industry, with $2.9 million drawn and outstanding. Credit losses arising from
these lending transactions compare favorably with the Bank's credit loss
experience on its portfolio as a whole.
Financial instruments with off-balance sheet risk: The Company is a party to
financial instruments with off-balance-sheet risk in the normal course of
business to meet financing needs of its customers. These financial instruments
include commitments to make loans, standby letters of credit, and unused lines
of credit. The Company s exposure to credit loss in the event of
nonperformance by the other parties is represented by the contractual amounts
of the instruments. The Company uses the same credit policy to make such
commitments as it uses for on-balance-sheet items.
At December 31, 1996 and 1995, the contract amount of these financial
instruments is summarized as follows:
<TABLE>
<CAPTION>
1996 1995
- ------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Financial instruments whose contract amount represents credit risk
Unused home equity lines of credit $ 45,195 $ 39,319
Unused commercial and other consumer lines of credit 33,531 25,780
Standby letters of credit 1,808 1,529
Commitments to make loans 5,199 10,258
</TABLE>
F-32
<PAGE> 108
Success Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
NOTE 15 - COMMITMENTS, CONTINGENCIES AND CREDIT RISK (CONTINUED)
Since many commitments to make loans expire without being used, the amounts
above do not necessarily represent future cash commitments. Collateral
obtained upon exercise of the commitment is determined using management s
credit evaluation of the borrower, and may include commercial and residential
real estate and other business and consumer assets.
Litigation: From time to time, the Company and the Bank are involved in
litigation, both as a defendant and as a plaintiff. Management believes that
the ultimate liability from such actions, if any, will not have a material
effect on the financial condition of the Company or the Bank.
Lease Commitments: The Bank leases branch facilities under noncancelable
operating lease agreements. Rent expense for branch facilities was $322,000,
$246,000, and $112,000 in 1996, 1995 and 1994, respectively, excluding taxes,
insurance and maintenance. The branch facilities are charged for their
proportionate share of taxes, insurance and maintenance costs plus monthly
rent. The minimum rental commitments, not including taxes, insurance and
maintenance, at December 31, 1996 under the leases are summarized below:
<TABLE>
<S> <C>
1997 $ 202,170
1998 144,540
1999 98,640
2000 98,640
2001 90,724
2002 and thereafter 59,668
-----------------------------------------------------------
Total $ 694,382
===========================================================
</TABLE>
NOTE 16 - RELATED PARTY TRANSACTIONS
In the normal course of business, certain executive officers, directors, and
companies with which they are affiliated have borrowed funds from the Bank. In
the opinion of management, these loans were made on substantially the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with unrelated parties. The activities in total
loans during 1996 is as follows (In thousands):
<TABLE>
<S> <C>
Balance as of January 1, 1996 $ 1,438
New loans 1,009
Repayments (394)
-----------------------------------------------------------
Balance as of December 31, 1996 $ 2,053
===========================================================
</TABLE>
NOTE 17 - FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amount and estimated fair value of financial instruments at
December 31, 1996 and 1995, are as follows:
<TABLE>
<CAPTION>
1996 1995
------------------------------------------------------------------------------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 13,833 $ 13,833 $ 20,559 $ 20,559
Investment securities 47,707 48,207 50,732 51,626
Loans held-for-sale 117 117 203 203
Loans 203,416 203,043 171,135 173,219
Financial liabilities:
Deposits $ 245,105 $ 245,865 $ 227,308 $ 228,127
Borrowed funds 18,975 19,719 14,395 14,087
</TABLE>
F-33
<PAGE> 109
Success Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 17 - FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
Loan commitments on which the committed interest rate is less than the current
market rate are insignificant at December 31, 1996.
The Company assumes interest rate risk (the risk that general interest rate
levels will change) as a result of its normal operations. As a result, fair
values of the Company's financial instruments will change when interest rate
levels change and that change may be either favorable or unfavorable to the
Company. Management attempts to match maturities of assets and liabilities to
the extent believed necessary to minimize interest rate risk. However,
borrowers with fixed rate obligations are more likely to prepay in a falling
rate environment and less likely to prepay in a rising rate environment.
Conversely, depositors who are receiving fixed rates are more likely to
withdraw funds before maturity in a rising rate environment and less likely to
do so in a falling rate environment. Management monitors rates and maturities
of assets and liabilities and attempts to minimize interest rate risk by
adjusting terms of new loans and deposits and by investing in securities with
terms that mitigate the Company s overall interest rate risk.
NOTE 18 - PARENT COMPANY FINANCIAL INFORMATION
Presented below are the condensed balance sheets as of December 31, 1996 and
1995 and statements of income and statements of cash flows for the years ended
December 31, 1996, 1995, and 1994 for Success Bancshares, Inc.:
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
1996 1995
- -------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
ASSETS
Cash on deposit with subsidiary bank $ 388 $ 15
Investment in subsidiaries 17,496 14,052
Other assets 374 487
- -------------------------------------------------------------------------------------------
$ 18,258 $ 14,554
===========================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Note payable $ 4,815 $ 3,830
Note payable - Success Realty Ventures, Inc. 105 105
Subordinated convertible debt 3,167 2,412
Other liabilities 71 122
- -------------------------------------------------------------------------------------------
Total liabilities 8,158 6,469
Stock owned by ESOP participants, net of ESOP loan 866 719
Shareholders equity 9,234 7,366
- -------------------------------------------------------------------------------------------
$ 18,258 $ 14,554
===========================================================================================
</TABLE>
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
1996 1995 1994
- -----------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Operating income
Dividends from subsidiary bank $ 949 $ 830 $ 494
Interest and other income 32 47 33
- -----------------------------------------------------------------------------------------------------
981 877 527
Operating expenses
Interest 695 640 424
Other expense 126 100 102
- -----------------------------------------------------------------------------------------------------
821 740 526
- -----------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES AND EQUITY IN UNDISTRIBUTED
INCOME OF SUBSIDIARIES 160 137 1
Income tax benefit 319 263 189
- -----------------------------------------------------------------------------------------------------
479 400 190
INCOME BEFORE EQUITY IN UNDISTRIBUTED INCOME OF SUBSIDIARIES
Equity in undistributed income of subsidiaries 304 537 73
- -----------------------------------------------------------------------------------------------------
NET INCOME $ 783 $ 937 $ 263
=====================================================================================================
</TABLE>
F-34
<PAGE> 110
SUCCESS BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 18 - PARENT COMPANY FINANCIAL INFORMATION (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1996 1995 1994
- ---------------------------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 783 $ 937 $ 263
Adjustments to reconcile net income to net cash from
operating activities
Equity in undistributed income of subsidiaries (304) (537) (73)
Change in other assets and liabilities 62 (67) (116)
Other 15 - -
- ---------------------------------------------------------------------------------------------------
Net cash provided by operating activities 556 333 74
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of subsidiary bank stock (3,025) (1,084) (2,032)
- ---------------------------------------------------------------------------------------------------
Net cash used in investing activities (3,025) (1,084) (2,032)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in:
Subordinated debt 755 400 (230)
Repayment of note payable (2,015) (1,690) -
Proceeds from note payable 3,000 1,000 -
Notes payable to subsidiary - 105 1,910
(Payment from) loan to ESOP 46 (122) (35)
Dividends on Series B preferred stock (81) - -
Issuance of common stock 1,137 710 661
- ---------------------------------------------------------------------------------------------------
Net cash provided by financing activities 2,842 404 2,306
- ---------------------------------------------------------------------------------------------------
Increase (decrease) in cash 373 (347) 348
Cash at beginning of year 15 362 14
- ---------------------------------------------------------------------------------------------------
CASH AT END OF YEAR $ 388 $ 15 $ 362
===================================================================================================
</TABLE>
NOTE 19 - SUBSEQUENT EVENTS
On July 23, 1997, the Company approved a 1.7 for 1 stock split effective July
30, 1997, on common shares. All references in the accompanying financial
statements to the number of common shares and per common share amounts have been
retroactively restated to reflect the stock split.
NOTE 20 - PRO FORMA EARNINGS PER SHARE CALCULATIONS (UNAUDITED)
As of the closing date of the Company's offering of up to 1,380,000 shares of
Common Stock registered with the Securities and Exchange Commission on a Form
S-1 Registration Statement (File No. 333-32561), substantially all of the
aggregate outstanding principal amount of the Company's 9% Convertible
Subordinated Debentures and 15% and 17% Convertible Subordinated Notes will be
converted into shares of Common Stock.
Additionally, each of the 115,500 shares of Class A Common Stock was converted
into .8749 shares of Common stock effective July 24, 1997.
Accordingly, the Pro Forma Earnings Per Common Share calculations reflect the
effect of these transactions.
F-35
<PAGE> 111
No person is authorized in connection with any offering made hereby to give any
information or to make any representation not contained in this Prospectus and,
if given or made, such information or representation must not be relied upon as
having been authorized by the Company or EVEREN Securities, Inc. This
Prospectus does not constitute an offer to sell or a solicitation of an offer
to buy any security other than the Securities offered hereby, nor does it
constitute an offer to sell or a solicitation of an offer to buy any of the
securities offered hereby to any person in any jurisdiction in which it is
unlawful to make such an offer or solicitation. Neither the delivery of this
Prospectus nor any sale made hereunder shall under any circumstances create any
implication that there has been no change in the affairs of the Company since
the date of this Prospectus or that the information contained herein is correct
as of any date subsequent to the date of this Prospectus.
TABLE OF CONTENTS
Page
----
Prospectus Summary .................... 3
Risk Factors .......................... 10
Use of Proceeds ....................... 15
Dividend Policy ....................... 15
Capitalization ........................ 16
Dilution .............................. 17
Terms of the Offering ................. 19
Business .............................. 23
Selected Consolidated Financial Data .. 30
Management's Discussion and Analysis of
Financial Condition and Results of
Operations .......................... 33
Management ............................ 56
Certain Transactions .................. 60
Principal Shareholders ................ 61
Supervision and Regulation ............ 62
Description of Capital Stock .......... 68
Shares Eligible for Future Sale ....... 72
Legal Matters ......................... 73
Experts ............................... 73
Available Information ................. 73
Financial Statements .................. F-1
Until 25 days after the execution of the Public Offering Acknowledgment,
all dealers effecting transactions in the Securities, whether or not
participating in this Offering, may be required to deliver a Prospectus. This
is in addition to the obligation of dealers to deliver a Prospectus when acting
as Underwriters and with respect to their unsold allotments or subscriptions.
1,200,000 SHARES
[Logo]
COMMON STOCK
PROSPECTUS
EVEREN SECURITIES, INC.
_____________, 1997
<PAGE> 112
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses in connection with this offering are as set forth in the
following table.
<TABLE>
<S> <C>
SEC registration fee ................................. $ 5,227
NASD filing fee ...................................... 2,225
Nasdaq National Market application fee ............... 18,696
Reimbursable Selling Agent Expenses .................. 100,000
Printing and engraving expenses ...................... 80,000
Accounting fees and expenses ......................... 65,000
Legal fees and expenses .............................. 225,000
Registrar and Transfer Agent fees .................... 2,500
Miscellaneous ........................................ 156,579
--------
Total ....................................... $ 650,000
========
</TABLE>
__________________
All amounts except the SEC registration fee, the NASD filing fee, the
Nasdaq National Market application fee and the Reimbursable Selling Agent
Expenses are estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company is a Delaware corporation. Reference is made to Section
102(b)(7) of the Delaware General Corporation Law (the "DGCL"), which enables a
corporation in its original certificate of incorporation or an amendment
thereto to eliminate or limit the personal liability of a director for
violations of the director's fiduciary duty, except: (i) for any breach of the
director's duty of loyalty to the corporation or its shareholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (iii) pursuant to Section 174 of the DGCL
(providing for liability of directors for unlawful payments of dividends or
unlawful stock purchases or redemptions) or (iv) for any transaction from which
a director derived an improper personal benefit.
Reference is also made to Section 145 of the DGCL, which provides that a
corporation may indemnify any person, including an officer or director, who is,
or is threatened to be made, party to any threatened, pending or completed
legal action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of such corporation), by
reason of the fact that such person was an officer, director, employee or agent
of such corporation or is or was serving at the request of such corporation as
a director, officer, employee or agent of another corporation or enterprise.
The indemnity may include expenses (including attorney's fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by such
person in connection with such action, suit or proceeding, provided such
officer, director, employee or agent acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the corporation's best
interest and, for criminal proceeding, had no reasonable cause to believe that
his conduct was unlawful. A Delaware corporation may indemnify any officer or
director in any action by or in the right of the corporation under the same
conditions, except that no indemnification is permitted without judicial
approval if the officer or director is adjudged to be liable to the
corporation. Where an officer or director is successful on the merits or
otherwise in the defense of any action referred to above, the corporation must
indemnify him against the expense that such officer or director actually and
reasonably incurred.
The Company's Certificate of Incorporation limits the personal liability
of directors to the fullest extent permitted by Delaware law. In addition, the
Company's Certificate of Incorporation and By-laws provide that the Company
shall to the fullest extent permitted by Delaware law, indemnify any person who
was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative by reason of the fact that he or she is or was
a director, officer, employee or
II-1
<PAGE> 113
agent of the Company or is or was serving at the request of the Company as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any and all expenses, liabilities or
other matters referred to or covered by Delaware law, which were reasonably
incurred by such person. This indemnification is in addition to any other
rights of indemnification to which such persons may be entitled under the
Company's Certificate of Incorporation, By-laws, any agreement or notice of
shareholders or disinterested directors.
The Company's Certificate of Incorporation and By-laws also permit it to
secure insurance on behalf of any director, officer, employee or other agent
for any liability arising out of his or her actions in such capacity,
regardless of whether Delaware law, the Certificate of Incorporation or By-laws
would permit indemnification. The Company does not have any separate
indemnification agreements with its directors or officers.
The description of Delaware law is not intended to be complete. The
description of the Company's Certificate of Incorporation and its By-laws is
not intended to be complete and is respectively qualified in its entirety by
such Certificate and By-laws.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
During the three-year period ended August 1, 1997, the Company issued and
sold 39,434 shares of Common Stock at an average exercise price of $7.72 per
share (after giving effect to the stock split) to its Directors pursuant to the
exercise of stock options granted as part of its Director Stock Option Program.
The shares of Common Stock were issued pursuant to the Section 4(2) private
placement exemption from the Securities Act.
During the period beginning in November, 1995, and ended in June, 1996,
the Company issued and sold 288.5 Units at a purchase price of $10,000 per Unit
to 21 purchasers. Each Unit consisted of 400 shares of Class A Common Stock
and $4,000 principal amount of 15% or 17% Convertible Subordinated Notes
(264,145 shares of Common Stock after giving effect to the stock split and the
Reorganization). The Units were issued and sold primarily to accredited
investors as well as a limited number of non-accredited investors pursuant to
the Section 4(2) private placement exemption from the Securities Act in
accordance with Regulation D.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
See Exhibit Index on page E-1 which is incorporated herein by reference.
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered ) and any
deviation from the low or high and of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee."
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
II-2
<PAGE> 114
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
(4) If the registrant is a foreign private issuer, to file a
post-effective amendment to the registration statement to include any financial
statements required by Rule 3-19 of this chapter at the start of any delayed
offering or throughout a continuous offering. Financial statements and
information otherwise required by Section 10(a)(3) of the Act need not be
furnished, provided, that the registrant includes in the prospectus, by means
of a post-effective amendment, financial statements required pursuant to this
paragraph (a)(4) and other information necessary to ensure that all other
information in the prospectus is at least as current as the date of those
financial statements. Notwithstanding the foregoing, with respect to
registration statements on Form F-3, a post-effective amendment need not be
filed to include financial statements and information required by Section
10(a)(3) of the Act or Rule 3-19 of this chapter if such financial statements
and information are contained in periodic reports filed with or furnished to
the Commission by the registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the Form
F-3.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to Item 14 of this Registrant Statement, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purposes of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-3
<PAGE> 115
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement on Form S-1 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Chicago,
State of Illinois, on September 5, 1997.
SUCCESS BANCSHARES, INC.
By: //Saul D. Binder//
-----------------------------
Saul D. Binder
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed on September 5, 1997, by the following
persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE
---------- -----
<S> <C>
President
and
//Saul D. Binder// Chief Executive Officer
- ------------------ (Principal Executive Officer)
Saul D. Binder
//Steven A. Covert// Executive Vice President and
- -------------------- Chief Financial Officer
Steven A. Covert (Principal Financial and
Accounting Officer)
//Charles G. Freund//*
- ---------------------- Director
Charles G. Freund
//Avrom Goldfeder//*
- -------------------- Director
Avrom Goldfeder
//Samuel D. Kahan//*
- -------------------- Director
Samuel D. Kahan
//Sherwin Koopmans//*
- --------------------- Director
Sherwin Koopmans
//George M. Ohlhausen//*
- ------------------------ Director
George M. Ohlhausen
//Norman D. Rich//*
- ------------------- Director
Norman D. Rich
*By: //Saul D. Binder//
---------------------
Saul D. Binder
Attorney-In-Fact
</TABLE>
II-4
<PAGE> 116
EXHIBIT INDEX
<TABLE>
<S> <C>
EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------
1.1* Form of Agency Agreement.
3.1 Second Restated Certificate of Incorporation of the Company.
3.2 By-laws of the Company.
5.1* Opinion of Much Shelist Freed Denenberg Ament Bell & Rubenstein, P.C.
10.1 $8 million Business Loan Agreement between Success Bancshares, Inc. and
Cole Taylor Bank
10.2 1995 Success Bancshares, Inc. Employee Stock Option Plan.
10.3 Employment Agreement between the Company and Saul D. Binder.
10.4 Executive Severance Agreement between the Company and Steven A. Covert.
10.5 Lease with respect to Lincolnwood branch banking facility (October, 1991).
10.6 Lease with respect to Lincoln Park branch banking facility (April, 1993).
10.7 Lease with respect to Northbrook branch banking facility (December, 1994).
10.8 Lease with respect to Deerfield/Riverwoods branch banking facility
(September, 1995).
11.1* Statement re: earnings per share.
16.1* Letter of Crowe, Chizek and Company LLP re: change in certifying accountant.
21.1 Subsidiaries of the Company.
23.1* Consent of McGladrey & Pullen LLP.
23.2* Consent of Crowe, Chizek and Company LLP.
23.3* Consent of Much Shelist Freed Denenberg Ament Bell & Rubenstein, P.C.
(included as part of Exhibit 5.1).
24.1 Power of Attorney (included on signature page of the Registration Statement on Form
S-1).
27.1 Financial Data Schedule.
99.1* Form of Subscription and Community Offering Stock Order Form and
Certificate Form.
99.2* Mock-up of Company's Web pages relating to marketing of its Common
Stock.
</TABLE>
_________________________
*Exhibits marked with an asterisk are filed herewith. All other listed
exhibits were filed with the Form S-1 Registration Statement (File No.
33-32561) filed with the Commission on July 31, 1997.
E-1
<PAGE> 1
EXHIBIT 1.1
SUCCESS BANCSHARES, INC.
(a Delaware corporation)
1,200,000 SHARES OF COMMON STOCK(1)
AGENCY AGREEMENT
September ___, 1997
EVEREN Securities, Inc.
77 West Wacker Drive
Chicago, Illinois 60601-1994
Gentlemen:
Success Bancshares, Inc., a Delaware corporation (the "COMPANY"), hereby
confirms its agreement with EVEREN Securities, Inc. ("EVEREN SECURITIES,"
"AGENT" or "YOU"), as follows:
Introductory
The Company is offering for sale up to 1,200,000 newly issued shares (the
"SHARES") of its common stock, par value $0.001 per share (the "COMMON STOCK"),
at a price of $12.50 per share in a Subscription and Community Offering and a
Public Offering (each as defined below). The Shares offered in the
Subscription and Community Offering are being offered on a priority basis first
to shareholders of record of the Company as of September __, 1997 (the "RECORD
DATE SHAREHOLDERS") and to certain customers of the Bank (as defined below) as
of September __, 1997 ("RECORD DATE CUSTOMERS") in a subscription offering (the
"SUBSCRIPTION OFFERING"). The highest priority will be given in the
Subscription Offering to those Record Date Shareholders who place purchase
orders for Shares prior to Noon, Central Time, on ____________, 1997. To the
extent Shares offered in the Subscription Offering remain available for sale
after satisfying purchase orders in the Subscription Offering, the Company is
offering Shares for sale to the general public in a direct community offering
(the "COMMUNITY OFFERING") with preference given to residents of the
communities served by the Bank.
- ---------------
1 The Company may, in its sole discretion, increase the number of
Shares sold by up to 15% of the number of Shares sold in the Subscription and
Community Offering to cover over-subscriptions in the Subscription and
Community Offering and has granted the Agent an option to acquire up to an
additional 15% of the number of Shares sold in the Public Offering to cover
over-allotments in the Public Offering.
<PAGE> 2
EVEREN Securities, Inc.
September ____, 1997
Page 2
The Subscription Offering and Community Offering are collectively referred to
herein as the "SUBSCRIPTION AND COMMUNITY OFFERING." It is acknowledged that
the Subscription and Community Offering will terminate at Noon, Central Time,
on ___________, 1997 (the "EXPIRATION DATE") unless extended by the Company.
It is further acknowledged that the Company may, in its sole discretion,
regardless of any priorities or preferences, accept or reject orders in whole
or in part in the Subscription and Community Offering. Once made,
subscriptions are irrevocable. Completion of the Subscription and Community
Offering is not conditioned upon the sale of any minimum number of Shares.
600,000 Shares will be offered in the Subscription and Community Offering. The
Company may, in its sole discretion, increase the number of Shares sold by up
to 15% of the number of Shares sold in the Subscription and Community Offering
to cover over-subscriptions in the Subscription and Community Offering.
In addition, concurrently with the Subscription and Community Offering, an
additional 600,000 Shares will be offered to the general public in an
underwritten public offering ("PUBLIC OFFERING") to be managed by the Agent.
The Subscription and Community Offering and the Public Offering are referred to
collectively herein as the "OFFERING." The Company proposes to grant to the
Agent an option to purchase up to an additional 15% of the number of Shares
sold in the Public Offering to cover over-allotments in the Public Offering
(such additional shares and the additional shares offered to cover
over-subscriptions in the Subscription and Community Offering, to the extent
such shares are sold, together with the Shares, are hereinafter collectively
referred to as the "Shares"). Depending on market demand, the Company and the
Agent may determine to increase or decrease the number of Shares to be offered
in the Subscription and Community Offering relative to the Public Offering.
The Company has filed with the Securities and Exchange Commission (the
"COMMISSION") a Registration Statement on Form S-1 (File No. 333-32561)
containing a prospectus relating to the Offering for the registration of the
Shares under the Securities Act of 1933, as amended (the "1933 ACT"), and has
filed one or more amendments thereto, and such amended prospectuses as may have
been required as of the date hereof. The Registration Statement, as so
amended, as declared effective by the Commission on September __, 1997, is
hereinafter referred to as the "Registration Statement." The prospectus, as
amended, on file with the Commission at the time the Registration Statement
initially became effective is hereinafter called the "PROSPECTUS," except that
if the Company files a Prospectus pursuant to Rule 424 of the rules and
regulations of the Commission under the 1933 Act (the "1933 ACT REGULATIONS")
which differs from the Prospectus on file at the time the Registration
Statement initially became effective, or if the Company files an amendment to
the Registration Statement subsequent to the time it
<PAGE> 3
EVEREN Securities, Inc.
September ____, 1997
Page 3
initially became effective and such amendment contains a Prospectus which
differs from the Prospectus on file at the time the Registration Statement
initially became effective, the term "PROSPECTUS" shall refer to the Prospectus
filed pursuant to Rule 424 or contained in such amendment to the Registration
Statement from and after the time said Prospectus is filed with or transmitted
to the Commission for filing.
Any terms not expressly defined herein shall have the same definition and
meaning as is set forth in the Prospectus.
SECTION 1. APPOINTMENT OF AGENT; COMPENSATION TO THE AGENT
Subject to the terms and conditions herein set forth, the Company hereby
appoints EVEREN Securities as its exclusive marketing agent to consult with and
advise the Company, and, on a "best efforts" basis, to assist the Company with
the solicitations of purchase orders for Shares in connection with the
Company's offering of the Shares in the Subscription and Community Offering.
The Company may, in its sole discretion, increase the number of Shares sold by
up to 15% of the number of Shares sold in the Subscription and Community
Offering to cover over-subscriptions in the Subscription and Community
Offering.
On the basis of the representations, warranties and agreements herein
contained, and subject to the terms and conditions herein set forth, EVEREN
Securities accepts such appointment and agrees to consult with and advise the
Company as to matters relating to the Offering and agrees to use its best
efforts to solicit purchase orders for Shares in accordance with this
Agreement; provided, however, that the Agent shall not be responsible for
obtaining purchase orders for any specific number of Shares, shall not be
required to purchase any Shares and shall not be obligated to take any action
which is inconsistent with all applicable laws, regulations, decisions or
orders or decrees, directives, agreements or memoranda of or with any court,
regulatory body, administrative agency, or other government body. Shares will
be offered in the Subscription and Community Offering by means of Stock Order
Forms and Certification Forms (the "ORDER FORMS"), substantially in the forms
set forth as Exhibit 99.1 to the Registration Statement.
Concurrently with the Subscription and Community Offering, EVEREN
Securities will offer Shares in the Public Offering. Completion of the Public
Offering will be subject to the execution of an acknowledgment by the Company
and the Agent (the "PUBLIC OFFERING ACKNOWLEDGMENT"), the form of which is set
forth as Exhibit A to this Agreement, that this Agreement shall constitute an
underwriting agreement between
<PAGE> 4
EVEREN Securities, Inc.
September ____, 1997
Page 4
the Company and the Agent for purposes of the Public Offering. Whether a
Public Offering occurs and the Public Offering Acknowledgment is executed with
the Agent will depend upon, among other factors, market conditions then
prevailing and the then-current financial condition of the Company. The number
of Shares to be sold in the Public Offering, if any, will be determined by the
Agent and the Company.
In addition to the reimbursement of expenses of the Agent specified in
Section 5 hereof and any amounts which may become payable to the Agent under
Sections 6 and 7 hereof, the Company will pay the following fees to the Agent
as compensation for the Agent's services under this Agreement:
(a) A fee equal to 3.5% of the aggregate price of the Shares sold by
the Company in the Subscription and Community Offering.
(b) Concurrently with the Subscription and Community Offering, the
Agent will commence the Public Offering. If the Public Offering Acknowledgment
is executed, it will be executed prior to completion of the Public Offering.
The Public Offering Acknowledgment will set forth the number of Shares that the
Agent will offer to the general public. These Shares will be offered by the
Agent at the Price to Public set forth on the cover page of the Prospectus and,
subject to execution of the Public Offering Acknowledgment, purchased by the
Agent from the Company at such price less an underwriting discount of 7.0%. In
the event of a Public Offering, the Company will also grant the Agent an
option, exercisable within 30 days of the completion of the Public Offering, to
purchase up to an additional 15% of the Shares sold in the Public Offering to
cover over-allotments, if any, at the same price as paid by the Agent for the
other Shares purchased pursuant to the Public Offering Acknowledgment, and the
Company, each director and each executive officer will agree to 180-day
lock-ups as contemplated in the Prospectus.
The Company has been advised by the Agent that in the event of a Public
Offering it may offer the Common Stock to certain dealers at $12.50 per share,
less a concession not in excess of $0.53 per share of Common Stock. The Agent
may allow, and such dealers may reallow, a concession not in excess of $0.10
per share of Common Stock to certain other brokers or dealers. After the
Public Offering, the price per share, concession and reallowance to brokers or
dealers may be changed by the Agent. The Agent has informed the Company that
it does not intend to confirm sales to accounts over which it exercises
discretionary authority.
<PAGE> 5
EVEREN Securities, Inc.
September ____, 1997
Page 5
The compensation specified above shall be payable to the Agent in same day
funds on the Closing Date (as defined in Section 2 below). The Company agrees
to reimburse the Agent for the costs and expenses specified in Section 5
hereof, to the extent such costs and expenses are incurred by the Agent,
provided that such reimbursement will not exceed $100,000.
The appointment of the Agent hereunder shall terminate upon completion of
the Subscription and Community Offering and the Public Offering, if any.
SECTION 2. CLOSING DATE; RELEASE OF FUNDS AND DELIVERY OF CERTIFICATES
Subject to the terms and conditions of this Agreement, the Company agrees
to issue or have issued the Shares sold in the Subscription and Community
Offering, and to instruct the Transfer Agent to cause to be delivered
certificates for such Shares, on the Closing Date (as hereinafter defined)
against payment therefor by release of funds from the non-interest bearing
escrow account referred to in Section 4(r) hereof, provided, however, that no
such funds shall be released to the Company or withdrawn until the conditions
specified in Section 8 hereof shall have been complied with to the reasonable
satisfaction of the Agent and its counsel. Such release, withdrawal and
payment shall be made at the Closing Date, at 10:00 a.m. Central time, on a
business day and at a place designated by the Company, on at least two business
days' prior notice by the Company and no more than ten business days after the
later of the expiration of the Subscription and Community Offering, as
extended, or such other time or place as shall be agreed upon by the Agent and
the Company. Certificates for Shares shall be delivered by the Transfer Agent
directly to the purchasers thereof or in accordance with their directions as
promptly as practicable following the Closing Date or directly to the offices
of the Agent or through the facilities of the Depository Trust Company. The
hour and date upon which the Company shall release for delivery the Shares sold
in the Subscription and Community Offering and/or the Public Offering, in
accordance with terms hereof, are herein called the "CLOSING DATE."
Subject to the terms and conditions of this Agreement and the Public
Offering Acknowledgment, the Company agrees to issue or have issued the Shares
sold by the Company and purchased by the Agent in connection with a Public
Offering and to deliver certificates for such Shares on the Closing Date, which
will be the third business day following the execution of the Public Offering
Acknowledgment (or the fourth business day following the date of execution of
the Public Offering Acknowledgment if the Public Offering Acknowledgment is
executed after 3:30 p.m. Chicago time), against payment therefor by (a) wire
transfer to an account designated by the Company or (b) certified or
<PAGE> 6
EVEREN Securities, Inc.
September ____, 1997
Page 6
official bank check or checks, payable to the order of the Company, to the
offices of the Agent or through the facilities of the Depository Trust Company.
SECTION 3. REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to the Agent as follows:
(a) The Registration Statement was declared effective by the
Commission on ____________, 1997. At the time the Registration Statement
became effective, the Registration Statement complied in all material respects
with the requirements of the 1933 Act and the 1933 Act Regulations and the
Registration Statement, the Prospectus, and any Sales Information (as such
terms are defined previously herein or in Section 6 hereof) authorized by the
Company for use in connection with the Offering did not contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, and, if applicable,
at such later time as any Prospectus was filed with or mailed to the Commission
for filing, the Prospectus will not contain an untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading, provided, however, that the representations and warranties in this
Section 3(a) shall not apply to statements in or omissions from such
Registration Statement, Prospectus or any Sales Information made in reliance
upon and in conformity with information furnished to the Company by the Agent
expressly regarding the Agent for use in the Prospectus or Sales Information,
which information solely consists of the disclosure included in the Prospectus
in the first paragraph (other than the first and the last two sentences
thereof) and the third paragraph under the caption "TERMS OF THE OFFERING --
Plan of Distribution."
(b) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Delaware with
full corporate power and authority to own or lease its properties and conduct
its business as described in the Prospectus, and has been duly qualified to do
business as a foreign corporation under the corporation law of, and is in good
standing as such in, every jurisdiction where ownership or leasing of property,
or the conduct of its business requires such qualification, except where the
failure to so qualify would not have a material adverse effect on the
condition, financial or otherwise, or the business, property, operations or
income of the Company and the Bank (as defined below) on a consolidated basis
(a "Material Adverse Effect").
<PAGE> 7
EVEREN Securities, Inc.
September ____, 1997
Page 7
(c) Except for Success Realty Ventures, Inc. and except as described
in the Prospectus, the Company does not own, directly or indirectly, other than
in the ordinary course of its business, equity securities or any equity
interest in any business enterprises other than Success National Bank, a
national banking association (the "BANK"). Success Realty Ventures, Inc. is a
wholly-owned subsidiary of the Company which has no liabilities and has
conducted no business. The Bank has been duly organized and is validly
existing as a national banking association, and is in good standing with the
Office of Comptroller of the Currency (the "OCC"), with full power and
authority (corporate and other) to own or lease its properties and conduct its
business as described in the Prospectus, and is duly qualified to do business
as a foreign corporation in good standing in all other jurisdictions in which
the nature of its business or the character or location of its properties
requires such qualification, except where the failure to so qualify would not
have a Material Adverse Effect. The activities of the Company and the Bank are
permitted under applicable federal and state banking laws and regulations.
(d) All the outstanding shares of capital stock of the Bank have been
duly authorized and validly issued and are fully paid and nonassessable. 100%
of the outstanding shares of preferred stock of the Bank and 92% of the
outstanding shares of common stock of the Bank are owned of record and
beneficially by the Company, and, except as described in the Prospectus, free
and clear of all liens, security interests, charges, claims, encumbrances or
restrictions on transfer or rights of others, except for restrictions on
transfer set forth in the 1933 Act or under applicable state securities laws.
The remaining 8% of the outstanding shares of common stock of the Bank are
owned by ________ holders of record.
(e) McGladrey & Pullen LLP and Crowe, Chizek and Company LLP, the
firms which have issued their reports on certain financial statements included
in the Registration Statement and the Prospectus, are independent certified
public accountants within the meaning of the Code of Professional Conduct of
the American Institute of Certified Public Accountants and are independent
accountants as required by the 1933 Act and the 1933 Act Regulations.
(f) This Agreement has been duly and validly authorized, executed and
delivered by the Company and constitutes a valid and binding agreement of the
Company, enforceable against the Company in accordance with its terms except to
the extent limited by bankruptcy, reorganization, insolvency, moratorium and
other laws of general application relating to or affecting the enforcement of
creditors' rights and by general equitable principles and except as rights to
indemnity hereunder may be limited by applicable securities laws. The Company
has full power and lawful authority to issue
<PAGE> 8
EVEREN Securities, Inc.
September ____, 1997
Page 8
and sell the Shares to be sold by it hereunder on the terms and conditions set
forth herein, all necessary corporate proceedings therefor have been duly and
validly taken, and no consent, approval, authorization or other order of any
governmental authority is required in connection with such authorization,
execution and delivery or with the authorization, issue and sale of the Shares,
except such as may be required under the 1933 Act or state securities laws.
(g) The Shares have been duly and validly authorized and, when issued
and delivered pursuant to this Agreement, will be duly and validly issued,
fully paid and nonassessable. The Shares are not subject to preemptive rights
of any security holder of the Company.
(h) The consummation of the transactions herein contemplated and the
fulfillment of the terms of this Agreement to be performed by the Company will
not conflict in any material respect with or result in a material breach of any
of the terms or provisions of, or constitute a material default under, or
result in the creation or imposition of any lien, charge or encumbrance upon
any of the property or assets of the Company or the Bank pursuant to the terms
of any indenture, mortgage, deed of trust, agreement for money borrowed or any
other material agreement or instrument to which the Company or the Bank is a
party, or by which the Company or the Bank may be bound, or to which any of the
property or assets of the Company or the Bank are subject, nor will such action
result in any violation of the provisions of the charter or the bylaws, as
amended, of the Company or the Bank, or any statute or any order, rule or
regulation applicable to the Company or the Bank of any court or any regulatory
authority or other governmental body having jurisdiction over the Company or
the Bank, assuming satisfaction by the Agent of the terms of this Agreement and
full compliance by the Agent and any other broker-dealers and their associated
persons with all applicable statutes, orders, rules, or regulations in
connection with the Offering.
(i) The authorized, issued and outstanding capital stock of the
Company is as set forth in the Prospectus under "Capitalization"; the shares of
issued and outstanding capital stock of the Company set forth thereunder have
been duly authorized, validly issued, are fully paid and nonassessable and, to
the knowledge of the Company, were issued in compliance with all applicable
securities laws; and the capital stock conforms in all material respects to all
statements relating thereto contained in the Registration Statement and the
Prospectus. Except as disclosed in the Prospectus, no options, warrants or
other rights or agreements, written or oral, to purchase or otherwise acquire
any authorized but unissued shares of Common Stock or other equity interests of
the
<PAGE> 9
EVEREN Securities, Inc.
September ____, 1997
Page 9
Company or any security convertible into shares of Common Stock or other equity
interests of the Company are outstanding or reserved for issuance.
(j) Each of the Company and the Bank has good and marketable title to
all properties and assets described in the Prospectus as owned by it, free and
clear of all liens, charges, encumbrances or restrictions, except such as are
described or referred to in the Prospectus or as would not have a Material
Adverse Effect; all of the leases and subleases under which the Company or the
Bank is the lessor or sublessor of properties or assets, or under which the
Company or the Bank holds properties or assets as lessee or sublessee, as
disclosed in the Prospectus, which are material to the business of the Company
and the Bank on a consolidated basis, are in full force and effect, and neither
the Company nor the Bank is in default in respect of any of the material terms
or provisions of any of such leases or subleases, and no claim has been
asserted by anyone adverse to the Company's or the Bank's rights as lessor,
sublessor, lessee or sublessee under any of the leases or subleases mentioned
above, or affecting or questioning the Company's or the Bank's right to the
continued possession of the leased or subleased premises or assets under any
such lease or sublease; and each of the Company and the Bank owns or leases all
such properties as are necessary to its operations as now conducted and, except
as otherwise disclosed in the Prospectus, as proposed to be conducted as set
forth in the Prospectus.
(k) The consolidated financial statements of the Company, together
with the related notes thereto, set forth in the Registration Statement and the
Prospectus, fairly present the financial position and results of operations of
the Company on the basis stated in the Registration Statement, at the
respective dates and for the respective periods to which they apply. Such
statements and related notes are accurate, complete and correct, comply as to
form in all material respects with all applicable accounting requirements,
including the 1933 Act Regulations, have been prepared in accordance with
generally accepted accounting principles ("GAAP"), which were consistently
applied throughout the periods involved, except as otherwise disclosed therein,
and are consistent in all material respects with the most recent financial
statements and other reports filed by the Company with the Federal Reserve
Board (the "FRB"), except for inconsistencies attributable solely to
differences between GAAP and regulatory accounting principles. Since the date
of the statements of financial condition included in the Registration
Statement, except as contemplated in the Prospectus, no events have occurred
that have had a Material Adverse Effect. The summaries of such financial
statements and other financial, statistical and pro forma information and
related notes set forth in the Registration Statement and the Prospectus are
(i) accurate and correct and fairly present the information purported to be
shown thereby at the dates and for the periods indicated
<PAGE> 10
EVEREN Securities, Inc.
September ____, 1997
Page 10
on a basis consistent with the audited financial statements of the Company and
(ii) in compliance in all material respects with the requirements of the 1933
Act and the 1933 Act Regulations. All pro forma adjustments described therein
have been properly applied on the basis described therein. Any allowance for
loan losses by the Company is adequate to cover anticipated losses. The
carrying value of any real estate owned by the Company does not exceed the
current estimated market value of such real estate owned nor does it exceed the
original loan amount secured by such real estate owned plus costs of
foreclosure and improvements (as permissible to be capitalized under GAAP) made
to such real estate owned by the Company.
(l) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, and except as may
otherwise be stated therein: (i) no events have occurred that have had a
Material Adverse Effect, (ii) there has not been any change in the capital
stock, or any material increase in long-term debt, of the Company and the Bank
on a consolidated basis, nor has the Company or the Bank issued any securities
or incurred any liability or obligation for borrowing other than in the
ordinary course of business, consistent with past practices, or issued any
options, warrants or rights to purchase its capital stock; (iii) there have not
been any material transactions entered into by the Company or the Bank, except
those transactions entered into in the ordinary course of business, consistent
with past practices; (iv) there has not been any material increase in the
aggregate dollar amount of the Bank's classified assets, loans more than 90
days past due or real estate owned, or any material decrease in the surplus and
reserves or total assets of the Bank; (v) there has not been any material
adverse change in the aggregate amount of the Bank's deposits; (vi) there has
not been more than a $30 million increase in the aggregate amount of the
aggregate borrowings of the Company and the Bank, on a consolidated basis;
(vii) there has not been more than a $30 million increase in the aggregate
amount of fixed-rate loans and investment securities with a remaining term of
maturity in excess of five years of the Company and the Bank, on a consolidated
basis; and (viii) there has been no material adverse change in the insurance
coverage of the Company or the Bank, including, without limitation,
cancellation or other termination of any fidelity bond or any other type of
insurance coverage. Neither the Company nor the Bank has any material
liability of any kind, contingent or otherwise, except as set forth in the
Prospectus. The capitalization, liabilities, assets, properties and business
of the Company and the Bank conform in all material respects to the
descriptions thereof contained in the Prospectus.
(m) Except as disclosed in the Registration Statement and Prospectus,
there is not now pending or, to the knowledge of the Company, threatened, any
action, suit or proceeding to which the Company or the Bank is a party,
including, without limitation,
<PAGE> 11
EVEREN Securities, Inc.
September ____, 1997
Page 11
any action, suit or proceeding relating to discrimination or environmental
matters, before or by any court or governmental agency or body, which might
result in a Material Adverse Effect, nor is the Company aware of any facts
which would form the basis for the assertion of any material claim or liability
that are not disclosed in the Registration Statement and Prospectus; and no
labor disturbance by the employees of the Company or the Bank exists or is
imminent which might be expected to result in a Material Adverse Effect.
(n) The Company and the Bank have filed all necessary federal, state,
local and foreign income and franchise tax returns and have paid, or are
contesting in good faith, all taxes shown as due thereon; and the Company has
no knowledge of any tax deficiency which has been or might be asserted against
the Company or the Bank, which would result in a Material Adverse Effect.
(o) All contracts and other documents of the Company or the Bank which
are, under the 1933 Act Regulations, required to be filed as exhibits to the
Registration Statement have been so filed.
(p) The Company is a bank holding company duly registered with the FRB
under the Bank Holding Company Act of 1956, as amended. The conduct of the
business of the Company and the Bank is in compliance in all respects with
applicable federal, state, local and foreign laws and regulations, except where
the failure to be in compliance would not have a Material Adverse Effect. The
Company and the Bank are in possession of all necessary licenses, permits,
consents, certificates, orders, trademarks, patent rights, copyright protection
and other governmental authorizations currently required for the conduct of
their respective businesses, except where failure to obtain such licenses,
permits, consents, certificates, orders, trademarks, patent rights, copyright
protection or governmental authorizations would not have a Material Adverse
Effect, and all such licenses, permits, consents, certificates, orders,
trademarks, patent rights, copyright protection or governmental authorizations
are in full force and effect and neither the Company nor the Bank has received
any notice of proceedings related to the revocation or modification thereof,
and the Company and the Bank are in all material respects complying therewith;
the expiration of any such licenses, permits, consents, certificates, orders,
trademarks, patent rights, copyright protection and other governmental
authorizations would not materially affect their operations; and none of the
products, activities or businesses of the Company or the Bank is in violation
of, or causes the Company or the Bank to violate, any material law, rule,
regulation or order of the United States, any state, county or locality, or any
agency or body of the United States or of any state, county or locality.
Without limiting the generality of the foregoing, the Company
<PAGE> 12
EVEREN Securities, Inc.
September ____, 1997
Page 12
has all necessary approvals, including the approvals of the OCC and the FRB, to
own the stock of the Bank. The Bank has a valid charter from the OCC. Neither
the Company nor the Bank is a party or subject to any agreement or memorandum
with, or directive or order issued by, the FRB, the OCC or any other bank
regulatory authority, which imposes any restrictions or requirements not
generally applicable to bank holding companies or commercial banks.
(q) Neither the Company nor the Bank is in violation, breach or
default of or under its charter or bylaws or any material bond, debenture, note
or other evidence of indebtedness or any material contract, agency agreement,
indenture, mortgage, loan agreement, lease, joint venture or other material
agreement or instrument to which the Company or the Bank is a party or by which
it or any of its properties may be bound, or is in material violation of any
federal, foreign, state or local law, order, rule, regulation, writ, injunction
or decree of any government, governmental instrumentality or court, which
violation would have a Material Adverse Effect.
(r) Neither the Company nor the Bank, nor any of their officers and
directors in their role as such, has at any time (i) made any unlawful
contributions to any candidate for political office, or failed to disclose
fully any such contributions in violation of applicable law; (ii) made any
payment to any state, federal or foreign governmental officer or official, or
other person charged with similar public or quasi-public duties, other than
payments required or allowed by applicable law; (iii) used any corporate funds
for any unlawful contribution, gift, entertainment or other unlawful expense
relating to political activity; (iv) made any direct or indirect unlawful
payment to any foreign or domestic government official or employee from
corporate funds; (v) violated or is in violation of any provision of the
Foreign Corrupt Practices Act of 1977, as amended; (vi) made any bribe, rebate,
payoff, influence payment, kickback or other unlawful payment; or (vii) engaged
in any transaction, maintained any bank account or used any corporate funds
except for transactions, bank accounts and funds which have been and are
reflected in the normally maintained books and records of the Company or the
Bank; and neither the Company nor the Bank has reimbursed or repaid, directly
or indirectly, any officer or director for any such unlawful or improper
contribution or payment.
(s) The Company and the Bank make and keep accurate books and records
reflecting their respective assets and maintain internal accounting controls
which provide reasonable assurance that (i) transactions are executed with
management's authorization; (ii) transactions are recorded as necessary to
permit preparation of the Company's consolidated financial statements and to
maintain accountability for the assets of the Company and the Bank; (iii)
access to the assets of the Company and the Bank is
<PAGE> 13
EVEREN Securities, Inc.
September ____, 1997
Page 13
permitted only in accordance with management's authorization; and (iv) the
reported accountability of the assets of the Company and the Bank is compared
with existing assets at reasonable intervals.
(t) The deposit accounts of the Bank are insured by the Federal
Deposit Insurance Corporation (the "FDIC") to the fullest extent provided by
law, and no proceeding for the termination or revocation of such insurance is
pending or threatened.
(u) Neither the Company nor the Bank is subject to any directive from
the Commission, the OCC, the FDIC, the FRB or any other governmental authority
to make any material change in the method of conducting their respective
businesses and no such directive is pending or threatened by such authorities.
The Company knows of no unlawful storage, treatment or disposal of waste by the
Company or the Bank (or any of their predecessors-in-interest) at any of the
facilities owned thereby, except for such violations which would not have a
Material Adverse Effect; the Company knows of no material spill, discharge,
leak, emission, ejection, escape, dumping or release of any kind onto the
properties owned by the Company or the Bank or into the environment surrounding
those properties, of any toxic or hazardous substances as defined under any
federal, state or local regulations, laws or statutes, except for those
releases permissible under such regulations, laws or statutes or otherwise
allowable under applicable permits and except for such releases which would not
have a Material Adverse Effect.
(v) The Company knows of no outstanding claims for finder's,
origination or underwriting fees with respect to the sale of the Shares except
as contemplated herein.
(w) The Company and the Bank maintain insurance of the types and in
the amounts required by any applicable rules and regulations, including those
of the FRB and the OCC and, to the best knowledge of the Company, consistent
with insurance coverage maintained by similar companies and businesses, all of
which insurance is in full force and effect.
(x) All material transactions between the Company or the Bank and the
officers, directors or shareholders who beneficially own more than 5% of any
class of the Company's voting securities required to be disclosed under the
rules of the Commission, have been accurately disclosed in the Registration
Statement and the Prospectus, and, except as noted therein, the terms of each
such transaction are fair to the Company and no less favorable to the Company
than the terms that could have been obtained from unrelated parties.
<PAGE> 14
EVEREN Securities, Inc.
September ____, 1997
Page 14
(y) The Company will not take, directly or indirectly, any action (and
does not know of any action taken by its directors, officers, shareholders or
others) designed to or which has constituted or which might reasonably be
expected to cause or result in, under the Securities Exchange Act of 1934, as
amended (the "1934 ACT"), stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the Shares.
Any certificate signed by an officer of the Company and delivered to the
Agent or its counsel that refers to this Agreement shall be deemed to be a
representation and warranty by the Company to the Agent as to the matters
covered thereby with the same effect as if such representation and warranty
were set forth herein.
SECTION 4. COVENANTS OF THE COMPANY
The Company hereby covenants with you as follows.
(a) The Company will not, at any time before or after the Registration
Statement, including any supplement filed pursuant to Rule 424 under the 1933
Act, is declared effective by the Commission file any amendment to such
Registration Statement without so notifying you and without providing you and
your counsel a reasonable opportunity to review such amendment.
(b) The Company will immediately upon receipt of any information
concerning the events listed below notify you and promptly confirm the notice
in writing:
(i) of the receipt of any comments from the Commission, or any
other governmental entity having authority with respect to the transactions
contemplated by this Agreement;
(ii) any requests by the Commission or any other governmental
entity having authority for any amendment or supplement to the Registration
Statement or for additional information;
(iii) of the issuance by the Commission or any other
governmental entity having authority of any order or other action
suspending the Offering or the use of the Registration Statement or the
Prospectus;
(iv) the issuance by the Commission or any state authority
having jurisdiction of any stop order suspending the effectiveness of the
Registration
<PAGE> 15
EVEREN Securities, Inc.
September ____, 1997
Page 15
Statement or of the initiation or threat of initiation or threat of any
proceedings for that purpose; or
(v) of the occurrence of any event mentioned in paragraph (g)
below.
The Company will make every reasonable effort to prevent the issuance by
the Commission or any state authority having jurisdiction of any such order
and, if any such order shall at any time be issued, to obtain the lifting
thereof at the earliest possible time.
(c) The Company will give you notice of its intention to file, and
reasonable time to review prior to filing, any amendment or supplement to the
Registration Statement or the Prospectus.
(d) The Company has delivered or will deliver to you and to your
counsel two complete conformed copies (including all exhibits) of the
Registration Statement, as originally filed and each amendment thereto.
(e) The Company will furnish to you, without charge, from time to time
during the period when the Prospectus is required to be delivered under the
1933 Act or the 1934 Act, such number of copies of such Prospectus (as amended
or supplemented) as you may reasonably request for the purposes contemplated by
the 1933 Act or the 1934 Act or the respective applicable rules and regulations
of the Commission thereunder. The Company authorizes the Agent to use the
Prospectus (as amended or supplemented, if amended or supplemented) for any
lawful manner in connection with the sale of the Shares by the Agent.
(f) The Company will comply in all material respects with the 1933 Act
Regulations, the 1934 Act and the rules and regulations of the Commission
promulgated under the 1934 Act (the "1934 ACT REGULATIONS"), and all other
applicable laws (including state Blue Sky laws) to be complied with prior to,
at, and subsequent to the Closing Date. During the periods prior to the
Closing Date and when the Prospectus is required to be delivered, the Company
will comply in all material respects, at its own expense, with all requirements
imposed upon it by the 1933 Act, the 1933 Act Regulations, the 1934 Act and the
1934 Act Regulations, in each case as from time to time in force, in accordance
with the provisions hereof and the Prospectus.
(g) If, at any time during the period when the Prospectus relating to
the Shares is required to be delivered (including the period after the
Expiration Date and prior to the Closing), any event relating to or affecting
the Company shall occur, as a result of which
<PAGE> 16
EVEREN Securities, Inc.
September ____, 1997
Page 16
it is necessary or appropriate, in the reasonable good faith opinion of the
Agent's counsel, to amend or supplement the Registration Statement or
Prospectus in order to make the Registration Statement or Prospectus not
misleading in light of the circumstances existing at the time it is delivered
to a purchaser, the Company will, at its expense, forthwith prepare, file with
the Commission and furnish to you a reasonable number of copies of an amendment
or amendments of, or a supplement or supplements to, the Registration Statement
or Prospectus (in form and substance satisfactory to you and your counsel after
a reasonable time for review) which will amend or supplement the Registration
Statement or Prospectus so that as amended or supplemented it will not contain
an untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in light of the
circumstances existing at the time the Prospectus is delivered to a purchaser,
not misleading. For the purpose of this Agreement, the Company will timely
furnish to you such information with respect to itself as you may from time to
time reasonably request.
(h) If required, the Company will take all necessary actions, in
cooperation with you, to qualify or register the Shares for offering and sale
by the Company under the applicable securities or Blue Sky laws of each
jurisdiction as you may reasonably designate, provided, however, that the
Company shall not be obligated to qualify to do business in any jurisdiction in
which it is not so qualified. In each jurisdiction where any of the Shares
shall have been qualified or registered as above provided, the Company will
make and file such statements and reports in each fiscal period as are or may
be required by the laws of such jurisdictions.
(i) The Company will not sell or issue, contract to sell or otherwise
dispose of, for a period of 180 days after the Closing Date, without your prior
written consent which shall not be unreasonably withheld, any shares of Common
Stock other than the Shares or other than in connection with any employee
benefit plan, or pursuant to any arrangement described in the Prospectus,
including the exercise of any options, rights or warrants currently outstanding
or the granting of options currently available under the Company's stock option
plans.
(j) During the period which the Common Stock is registered under the
1934 Act or for the three years from the Closing Date, whichever period is
greater, the Company will furnish to its shareholders as soon as practicable
after the end of each fiscal year an annual report (including a consolidated
statement of financial condition and consolidated statements of income or
operations, changes in shareholders' equity and cash flows of the Company and
the Bank as at the end of and for such year, certified by independent public
accountants in accordance with Regulation S-X under the 1933 Act).
<PAGE> 17
EVEREN Securities, Inc.
September ____, 1997
Page 17
(k) During the period of three years from the date hereof, the Company
will furnish to you: (i) as soon as practicable, a paper copy of each report of
the Company furnished generally to shareholders of the Company or furnished to
or filed with the Commission under the 1934 Act or any national securities
exchange or system on which any class of securities of the Company is listed or
quoted (including, but not limited to, reports on Forms 10-K, 10-Q and 8-K and
of all proxy statements and annual reports to shareholders), or national
securities exchange or system on which any class of securities of the Company
is listed or quoted, each press release and material news items and articles
released by the Company and such additional documents and information with
respect to the Company as you may reasonably request, and (ii) from time to
time, such other non-confidential information concerning the Company as you may
reasonably request.
(l) The Company will use the net proceeds from the sale of the Shares
in the manner set forth in the Prospectus under the caption "Use of Proceeds."
(m) Other than as permitted by the 1933 Act, the 1933 Act Regulations
and the laws of any state in which the Shares are qualified for sale, the
Company will not distribute any Prospectus, offering circular or other offering
material in connection with the offer and sale of Shares.
(n) The Company will make generally available to its security holders
as soon as practicable, but not later than 90 days after the close of the
period covered thereby, an earning statement (in form complying with the
provisions of Rule 158 of the regulations promulgated under the 1933 Act)
covering a twelve-month period beginning not later than the first day of the
Company's fiscal quarter next following the effective date (as defined in said
Rule 158) of the Registration Statement.
(o) The Company will file, if required, with the Commission such
reports on Form SR as may be required pursuant to Rule 463 under the 1933 Act.
(p) The Company shall register the Shares under Section 12(g) of the
1934 Act prior to execution of the Public Offering Acknowledgment and will not
deregister the Shares for a period of at least three years thereafter, unless
such registration is no longer required.
(q) The Company will use its best efforts to obtain approval for
quotation of the Shares on the Nasdaq National Market, effective on or prior to
the Closing Date and
<PAGE> 18
EVEREN Securities, Inc.
September ____, 1997
Page 18
will use its best efforts to maintain such quotation (or, in lieu thereof,
listing on a national or regional securities exchange) for a minimum of three
years following the Closing Date.
(r) The Bank will maintain appropriate arrangements for depositing all
funds received from persons mailing Order Forms to purchase Shares in the
Subscription Offering and the Community Offering until the Closing Date and
satisfaction of all conditions precedent to the release of the Bank's
obligation to refund payments received from persons ordering Shares in the
Subscription and Community Offering as described in the Prospectus or until
refunds of such funds have been made to the person entitled thereto and as
described in the Prospectus. The Bank will maintain such records of all funds
received as are necessary to permit the funds of each subscriber to be
separately insured by the FDIC (to the maximum extent allowable) and to enable
the Bank to make appropriate refunds of such funds in the event that refunds of
such funds are required to be made as described in the Prospectus.
(s) The Company will take such actions and furnish such information as
are reasonably requested by the Agent in order for the Agent to ensure
compliance with the "Interpretation With Respect to Free Riding and
Withholding" of the National Association of Securities Dealers, Inc. ("NASD").
(t) Prior to the Closing Date, the Company will conduct its business
in compliance in all material respects with all applicable federal and state
laws, rules, regulations, decisions, directives and orders including, without
limitation, all decisions, directives and orders of the FRB, OCC and the FDIC.
(u) The Company and the Bank on a consolidated basis will not, prior
to the Closing Date, incur any liability or obligation, direct or contingent,
or enter into any material transactions, other than in the ordinary course of
business, except as contemplated by the Prospectus.
(v) The Company will use all reasonable efforts to comply with, or
cause to be complied with, the conditions precedent to the several obligations
of the Agent specified in Section 8 hereof.
(w) The representations and warranties made in this Agreement will be
true and correct as of the date hereof and as of the Closing Date.
<PAGE> 19
EVEREN Securities, Inc.
September ____, 1997
Page 19
SECTION 5. PAYMENT OF EXPENSES
The Company agrees to pay all expenses incident to the performance of the
obligations of the Company under this Agreement, including, without limitation,
the following: (i) the preparation, issuance and delivery of certificates for
the Shares to the purchasers in the Subscription and Community Offering or to
the offices of the Agent or through the facilities of the Depository Trust
Company in connection with a Community Offering with the use of registered
representatives and/or a public offering; (ii) the fees and disbursements of
the Company's counsel, accountants and other advisors; (iii) the qualification
of the Shares under all applicable securities or Blue Sky laws, including
filing fees and the fees and disbursements of counsel in connection therewith
and in connection with the preparation of a Blue Sky memorandum; (iv) the
printing and delivery to you in such quantities as you shall reasonably request
of copies of the Registration Statement and the Prospectus, as amended or
supplemented and all other documents in connection with this Agreement; (v)
filing fees incurred in connection with the review of the Offering by the
Commission and by the NASD; (vi) the fees for listing the Shares on the Nasdaq
National Market; (vii) fees and expenses relating to advertising expenses, data
processing expenses, temporary personnel expenses, stock sale center expenses,
investor meeting expenses, and other miscellaneous expenses relating to the
marketing by the Agent of the Shares; (ix) the cost of printing all stock
certificates and all other documents applicable to the Offering, including the
Order Forms, and the fees and charges of any transfer agent, registrar and
other agents; and (x) all reasonable and documented out-of-pocket expenses of
EVEREN Securities including without limitation the fees and expenses of your
counsel, provided that such reimbursement shall not exceed $100,000 (including
legal fees and expenses) incurred by you in connection with the Offering which
shall be payable from time to time upon request. The reimbursement of expenses
of the Agent provided in this Section 5 shall be in addition to the amounts
payable to the Agent under Section 1 hereof and any amounts which may become
payable to the Agent under Sections 6 and 7 hereof.
SECTION 6. INDEMNIFICATION
(a) The Company agrees to indemnify and hold harmless you, your
officers, directors, agents, servants and employees and each person, if any,
who controls you within the meaning of Section 15 of the 1933 Act or Section
20(a) of the 1934 Act, against any and all loss, liability, claim, damage or
expense whatsoever (including but not limited to settlement expenses), joint or
several, that you or any of them may suffer or to which you or any of them may
become subject under all applicable federal and state laws or otherwise, and to
promptly reimburse you and any such persons upon written demand
<PAGE> 20
EVEREN Securities, Inc.
September ____, 1997
Page 20
for any expenses (including fees and disbursements of counsel) incurred by you
or any of them in connection with investigating, preparing or defending any
actions, proceedings or claims (whether commenced or threatened) to the extent
such losses, claims, damages, liabilities or actions: (i) arise out of or are
based upon any untrue statement or alleged untrue statement of a material fact
contained in (a) the Registration Statement (or any amendment or supplement
thereto), the Prospectus (or any amendment or supplement thereto), (b) any
application or other instrument or document of the Company or based upon
written information supplied by the Company or their representatives filed in
any state or jurisdiction to register or qualify any or all of the Shares under
the securities laws thereof (collectively, the "BLUE SKY APPLICATION"), or (c)
any application or other document, advertisement, oral statement, or
communication ("SALES INFORMATION") prepared, made or executed by or, with its
consent, on behalf of the Company, or based upon written or oral information
furnished by, or with its consent, on behalf of the Company, in connection with
or in contemplation of the transactions contemplated by this Agreement; (ii)
arise out of or are based upon the omission or alleged omission to state in any
of the foregoing documents or information a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; or (iii) arise from
any theory of liability whatsoever relating to or arising from or based upon
the Registration Statement (or any amendment or supplement thereto),
preliminary or final Prospectus (or any amendment or supplement thereto), Blue
Sky Application or Sales Information or other documentation distributed in
connection with the Offering; provided, however, that no indemnification is
required under this paragraph (a) to the extent such losses, claims, damages,
liabilities or actions arise out of or are based upon any untrue statements or
alleged untrue statements in, or material omission or alleged material omission
from, the Registration Statement (or any amendment or supplement thereto),
Prospectus or Sales Information made in reliance upon and in conformity with
information furnished to the Company by you regarding EVEREN Securities
expressly for use in the Prospectus, which information consists of the
disclosure included in the Prospectus contained in the first paragraph (other
than the first and the last two sentences thereof) and the third paragraph
under the caption "TERMS OF THE OFFERING -- Plan of Distribution."
(b) You agree to indemnify and hold harmless the Company, its
directors, officers, agents, servants and employees, and each person, if any,
who controls the Company within the meaning of Section 15 of the 1933 Act or
Section 20(a) of the 1934 Act, against any and all loss, liability, claim,
damage or expense whatsoever (including but not limited to settlement
expenses), joint or several, that the Company or any of them may suffer or to
which the Company or any of them may become subject under all applicable
federal and state laws or otherwise, and to promptly reimburse the Company
<PAGE> 21
EVEREN Securities, Inc.
September ____, 1997
Page 21
and any such persons upon written demand for any expenses (including fees and
disbursements of counsel) incurred by the Company or any of them in connection
with investigating, preparing or defending any actions, proceedings or claims
(whether commenced or threatened) to the extent such losses, claims, damages,
liabilities or actions arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement (or any amendment or supplement thereto) or the Prospectus (or any
amendment or supplement thereto), the Sales Information, or arise out of or are
based upon the omission or alleged omission to state in any of the foregoing
documents a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading; provided, however, that your obligations under this
Section 6(b) shall exist only if, and only to the extent, that such untrue
statement or alleged untrue statement was made in, or such material fact or
alleged material fact was omitted from the Registration Statement (or any
amendment or supplement thereto) or the Prospectus (or any amendment or
supplement thereto) or the Sales Information in reliance upon and in conformity
with information furnished to the Company by you regarding EVEREN Securities
expressly for use in the Prospectus, which information consists of the
disclosure included in the Prospectus contained in the first paragraph (other
than the first and the last two sentences thereof) and the third paragraph
under the caption "TERMS OF THE OFFERING -- Plan of Distribution."
(c) Each indemnified party shall give prompt written notice to each
indemnifying party of any action, proceeding, claim (whether commenced or
threatened), or suit instituted against it in respect of which indemnity may be
sought hereunder. No indemnification shall be available to any party who shall
fail to give notice as provided in this Section 6(c) if the party to whom
notice was not given was unaware of the proceeding to which such notice would
have related and was prejudiced by the failure to give such notice, but
otherwise the omission so to notify the indemnifying party will not relieve it
from any liability that it may have to an indemnified party under this Section
6. An indemnifying party may participate at its own expense in the defense of
such action. In addition, if it so elects within a reasonable time after
receipt of such notice, an indemnifying party, jointly with any other
indemnifying parties receiving such notice, may assume the defense of such
action with counsel chosen by it and approved by the indemnified parties that
are defendants in such action, and such indemnified parties shall not be liable
for any fees and expenses of such counsel for the indemnified parties incurred
thereafter in connection with such action, proceeding or
<PAGE> 22
EVEREN Securities, Inc.
September ____, 1997
Page 22
claim, other than reasonable costs of investigation. In any action, proceeding
or claim, the indemnified party shall have the right to retain its own counsel,
but the fees and disbursements of such counsel shall be at its own expense
unless (i) the parties to any such action, proceeding or claim include both the
indemnifying party and the indemnified party and (ii) representation of both
parties by the same counsel reasonably would be deemed inappropriate due to
actual or potential conflicting interests between them. In no event shall the
indemnifying parties be liable for the fees and expenses of more than one
separate firm of attorneys (other than any special counsel that said firm may
retain) for each indemnified party in connection with any one action,
proceeding or claim or separate but similar or related actions, proceedings or
claims in the same jurisdiction arising out of the same general allegations or
circumstances.
SECTION 7. CONTRIBUTION
In order to provide for just and equitable contribution in circumstances in
which the indemnification provided for in Section 6 is due in accordance with
its terms but is for any reason held by a court to be unavailable from the
Company or you, the Company or you shall contribute to the aggregate losses,
claims, damages and liabilities (including any investigation, legal and other
expenses incurred in connection with, and any amount paid in settlement of, any
action, suit or proceeding or any claims asserted, but after deducting any
contribution received by the Company or you from persons other than the other
party thereto, who may also be liable for contribution) to the party entitled
to indemnification in such proportion so that you are responsible for that
portion represented by the percentage that the fees paid to the Agent pursuant
to Section 1 of this Agreement (not including expenses) bears to the gross
proceeds received by the Company from the sale of the Shares in the Offering
and the Company shall be responsible for the balance. If, however, the
allocation provided above is not permitted by applicable law, then each
indemnifying party shall contribute to such amount paid or payable by such
indemnified party in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the Company on the one hand
and you on the other in connection with the statements or omissions which
resulted in such losses, claims, damage or liabilities (or actions, proceedings
or claims in respect thereof), as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one hand
and you on the other shall be deemed to be in the same proportion as the total
gross proceeds from the Offering (before deducting expenses) received by the
Company bears to the total fees (not including expenses) received by the Agent.
The relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or other
omission or alleged omission to state a material fact relates to information
supplied by the Company on the one hand or you on the other and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company and you agree that it would
not be just and equitable if contribution pursuant to this Section 7 were
determined by pro rata
<PAGE> 23
EVEREN Securities, Inc.
September ____, 1997
Page 23
allocation or by any other method of allocation which does not take into
account the equitable considerations referred to above in this Section 7. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages or liabilities (or actions, proceedings or claims in respect
thereof) referred to above in this Section 7 shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action, proceeding or
claim. It is expressly agreed that the Agent shall not be liable for any loss,
liability, claim, damage or expense or be required to contribute any amount
which in the aggregate exceeds the amount paid to the Agent under the
Agreement. It is understood that the above-stated limitation on the Agent's
liability is essential to the Agent and that the Agent would not have entered
into this Agreement if such limitation had not been agreed to by the parties to
this Agreement. No person found guilty of any fraudulent misrepresentation
(within the meaning of Section 11 (f) of the 1933 Act) shall be entitled to
contribution from any person who was not also found guilty of such fraudulent
misrepresentation. The obligations of the Company and the Agent under this
Section 7 and under Section 6 hereof shall be in addition to any liability
which the Company and the Agent may otherwise have. For purposes of this
Section 7, each of your officers and directors and each person, if any, who
controls you within the meaning of the 1933 Act and the 1934 Act shall have the
same rights to contribution as you and each person, if any, who controls the
Company within the meaning of the 1933 Act and the 1934 Act, and each officer
and director of the Company, shall have the same rights to contribution as the
Company. Any party entitled to contribution, promptly after receipt of notice
of commencement of any action, suit, claim or proceeding against such party in
respect of which a claim for contribution may be made against another party
under this Section 7, will notify such party from whom contribution may be
sought. No person shall be entitled to contribution hereunder who shall fail
to give notice as provided in this Section 7 if the party to whom notice was
not given was unaware of the proceeding to which such notice would have related
and was prejudiced by the failure to give such notice, but otherwise the
omission so to notify the party from whom contribution is sought will not
relieve it from any liability that it may have to a party seeking contribution
under this Section 7.
SECTION 8. CONDITIONS OF THE OBLIGATIONS OF THE AGENT
Your obligations hereunder are subject, in your discretion, to the
condition that all representations and warranties and other statements of the
Company herein are, at and as of commencement of the Offering and at and as of
the Closing Date, true and correct in all material respects, the condition that
the Company shall have performed in all material respects all of its
obligations hereunder to be performed on or before such dates, and to
<PAGE> 24
EVEREN Securities, Inc.
September ____, 1997
Page 24
the following further conditions (which are solely for your benefit), unless
waived (if legally permissible to do so) in writing by you:
(a) The Registration Statement shall have been declared effective by
the Commission not later than 5:30 p.m., Eastern time, on the date of this
Agreement, or with your consent at a later time and date; and at the Closing
Date no stop order suspending the effectiveness of the Registration Statement
shall have been issued under the 1933 Act nor proceedings therefor initiated or
threatened by the Commission or any state authority, and no order or other
action suspending the effectiveness of the Prospectus shall have been issued or
proceedings therefor initiated or threatened by the Commission or any state
authority.
(b) At the Closing Date you shall have received:
(1) The favorable opinion, dated as of the Closing Date addressed to
the Agent and for its benefit, of Much Shelist Freed Denenberg Ament Bell &
Rubenstein, P.C., counsel for the Company, and in form and substance
satisfactory to EVEREN Securities to the effect that:
(i) the Company is validly existing as a corporation in good
standing under the laws of the State of Delaware with full power and authority
to own or lease its properties and conduct its business as described in the
Prospectus; and the Company has been duly qualified to do business as a foreign
corporation under the corporation law of, and is in good standing as such in,
every jurisdiction where the ownership or leasing of property, or the conduct
of its business requires such qualification except where the failure to so
qualify would not have a Material Adverse Effect;
(ii) an opinion to the same general effect as paragraph (i) of
this subsection (1) in respect of the Bank;
(iii) The Company has an authorized and outstanding
capitalization as set forth in the Prospectus and the Shares conform to the
description thereof contained in the Prospectus. All of the issued and
outstanding shares of Common Stock have been duly authorized, validly issued
and are fully paid and non-assessable and free of preemptive or other similar
rights, and, to the best of such counsel's knowledge, there are no options,
agreements, contracts or other rights in existence to acquire from the Company
any shares of Common Stock, except as set forth in the Prospectus. Except as
set forth in the Prospectus, to the best of such counsel's knowledge, there are
no holders of the securities of the Company having rights to the registration
thereof. All of the
<PAGE> 25
EVEREN Securities, Inc.
September ____, 1997
Page 25
issued and outstanding capital stock of the Bank has been duly authorized,
validly issued and is fully paid and non-assessable. Except as set forth in
the Prospectus, the Company, directly or indirectly, owns of record and
beneficially, and, to the best of such counsel's knowledge, free and clear of
any liens, claims, encumbrances or rights of others, 100% of the issued and
outstanding preferred stock and 92% of the issued and outstanding common stock
of the Bank. To the best of such counsel's knowledge, except as disclosed in
the Prospectus, there are no options, agreements, contracts or other rights in
existence to purchase or acquire from the Company or the Bank any issued and
outstanding shares of the Bank;
(iv) The Shares to be sold by the Company in the Offering have
been duly authorized and, when issued and delivered by the Company pursuant to
the Offering against payment of the consideration therefor, will be validly
issued, fully paid and non-assessable; the holders of the Shares will not be
subject to personal liability by reason of being such holders; the Shares are
not subject to the preemptive rights of any shareholder of the Company, and all
corporate actions required to be taken for the due authorization, valid
issuance and sale of the Shares have been taken;
(v) This Agreement has been duly and validly authorized,
executed and delivered and constitutes a valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms, except
insofar as (A) such enforcement may be subject to bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights generally; (B) the remedy of specific performance
and injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding
thereafter may be brought; and (C) such enforcement may be subject to any
limitations under applicable law which relate to the indemnification and
contribution provisions of this Agreement.
(vi) The making and performance by the Company of this
Agreement will not violate any provision of the Company's charter or bylaws and
will not result in the breach or be in contravention of any of the terms or
provisions of or constitute a default under, or result in the creation or
imposition of any lien, charge or encumbrance upon any property or assets of
the Company or the Bank under any agreement, franchise, license, indenture,
lease, mortgage, deed of trust, or other instrument known to such counsel to
which the Company or the Bank is a party or by which the Company, the Bank or
the property of either of them may be bound or affected, or, to such counsel's
knowledge, any law, order, judgment, rule or regulation applicable to the
Company or the Bank of any government, governmental instrumentality, court or
regulatory body,
<PAGE> 26
EVEREN Securities, Inc.
September ____, 1997
Page 26
administrative agency or other governmental body having jurisdiction over the
Company or the Bank or any of their respective properties, or any order of any
court or governmental agency or authority entered in any proceeding to which
the Company or the Bank was or is now a party or by which it is bound, except
for any such violation, breach, contravention, default, lien charge or
encumbrance which would not, singly or in aggregate, have a Material Adverse
Effect. No consent, approval, authorization or other order of, or filing with,
any court, regulatory body, administrative agency or other governmental body is
required for the execution and delivery of this Agreement or the consummation
of the transactions contemplated herein, other than has been obtained or made
and except for compliance with the 1933 Act and applicable Blue Sky laws,
clearance of the Offering with the NASD and approval of the Company's Nasdaq
National Market listing application;
(vii) the Registration Statement has become effective under the
1933 Act, and, to the best knowledge of such counsel, no stop order suspending
the effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been instituted or are pending or
contemplated by the Commission under the 1933 Act, and the Registration
Statement, the Prospectus and each amendment or supplement thereto (except for
the financial statements and other statistical or financial data included
therein as to which such counsel need express no opinion) comply as to form in
all material respects with the requirements of the 1933 Act; and such counsel
does not know of any statutes or regulations or any legal or governmental
proceedings pending or threatened required to be described in the Prospectus
which are not described as required, nor of any contracts or documents of a
character required to be described in the Registration Statement or Prospectus
or to be filed as exhibits to the Registration Statement which are not
described or filed, as required; and
(viii) the statements under the captions "Supervision and
Regulation," and "Description of Capital Stock" in the Prospectus, insofar as
such statements constitute a summary of documents referred to therein or
matters of law, are accurate summaries and fairly and correctly present, in all
material respects, the information called for with respect to such documents
and matters.
In rendering such opinion, such counsel may rely, provided that the opinion
shall state that you and they are entitled to so rely, as to factual matters on
certificates of the officers and employees of, and accountants for, the
Company. Such opinion may contain such other qualifications and assumptions as
are reasonably acceptable to counsel for the Agent.
<PAGE> 27
EVEREN Securities, Inc.
September ____, 1997
Page 27
In addition, such counsel shall state that they have participated in
conferences with officers and other representatives of the Company,
representatives of the independent public accountants for the Company, and
representatives of the Agent and its counsel, at which the contents of the
Registration Statement, the Prospectus and related matters were discussed and,
although such counsel is not passing upon, and does not assume any
responsibility for, the accuracy, completeness or fairness of the statements
contained in the Registration Statement or the Prospectus, including without
limitation, any information contained therein supplied by the Agent, and has
not made any independent check or verification thereof, on the basis of the
foregoing (relying as to factual matters upon the statements of officers and
other representatives of the Company), no facts have come to such counsel's
attention that have led them to believe that the Registration Statement (other
than financial statements, the notes thereto and other financial, statistical
and accounting data included therein or omitted therefrom, as to which such
counsel need express no belief), as amended or supplemented, if applicable, at
the time such Registration Statement or any post-effective amendment became
effective, contained an untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading, or that the Prospectus (other than financial
statements, the notes thereto and other financial, statistical and accounting
data included therein or omitted therefrom, as to which such counsel need
express no belief) as amended or supplemented, if applicable, as of its date
and the Closing Date, contained an untrue statement of a material fact or
omitted to state a material fact necessary to make the statements therein not
misleading in light of the circumstances under which they were made.
(2) The favorable opinion, dated as of the Closing Date, of Lord,
Bissell & Brook, your counsel, with respect to such matters as you may
reasonably require. Such opinion may rely upon the opinion of counsel to the
Company as such counsel deems proper in the reasonable exercise of its
judgment, and as to matters of fact, upon certificates of officers and
directors of the Company delivered pursuant hereto or as such counsel shall
reasonably request.
(3) At the Closing Date, you shall receive a certificate of the Chief
Executive Officer, the President and the Chief Financial Officer of the
Company, dated as of such Closing Date, to the effect that to the best of their
knowledge after due inquiry: (i) since the respective dates as of which
information is given in the Registration Statement and the Prospectus, no
events have occurred that have had a Material Adverse Effect whether or not
arising in the ordinary course of business; (ii) the representations and
warranties in Section 3 are true and correct with the same force and effect as
through expressly made at and as of the Closing Date; (iii) the Company has
complied in all material respects with
<PAGE> 28
EVEREN Securities, Inc.
September ____, 1997
Page 28
all agreements and satisfied all conditions on its part to be performed or
satisfied at or prior to the Closing Date under the Agreement, and all other
applicable laws, regulations, decisions and orders, and will comply in all
material respects with all obligations to be satisfied by it after consummation
of the Offering; (iv) no stop order suspending the effectiveness of the
Registration Statement has been initiated or, to the best knowledge of the
Company, threatened by the Commission or any state authority; and (v) no order
suspending the Offering, or the effectiveness of the Prospectus has been issued
and no proceedings for that purpose have been initiated or threatened by the
Commission.
(c) Prior to and at the Closing Date: (i) in the reasonable opinion of
the Agent, no events have occurred that have had a Material Adverse Effect
since the latest dates as of which such information relating to the financial
condition or the earnings or the business affairs of the Company is set forth
in the Prospectus, except as referred to therein; (ii) there shall have been no
material transaction entered into by the Company or the Bank, from the latest
date as of which the financial condition of the Company is set forth in the
Prospectus other than transactions referred to or contemplated therein; (iii)
the Company or the Bank shall not have received from the OCC, the FRB, the FDIC
or any other governmental authority any direction (oral or written) to make any
material change in the method of conducting their businesses with which it has
not complied in all material respects (which direction, if any, shall have been
disclosed to the Agent) or which would result in a Material Adverse Effect;
(iv) neither the Company nor the Bank shall have been in default (nor shall an
event have occurred which, with notice or lapse of time or both, would
constitute a default) under any provision of any agreement or instrument
relating to any outstanding indebtedness, which default or event would have a
Material Adverse Effect; (v) no action, suit or proceedings, at law or in
equity or before or by any federal or state commission, board or other
administrative agency, shall be pending or, to the knowledge of the Company,
threatened against the Company or the Bank or affecting any of their properties
wherein an unfavorable decision, ruling or finding would result in a Material
Adverse Effect; and (vi) the Shares shall have been qualified or registered for
offering and sale under the securities or blue sky laws of the jurisdiction as
you shall have reasonably requested.
(d) (A) Concurrently with the execution of this Agreement, the Agent shall
receive a letter from McGladrey & Pullen LLP dated the date of this Agreement,
and addressed to the Agent: (i) confirming that McGladrey & Pullen LLP is a
firm of independent public accountants within the meaning of the Code of
Professional Conduct of the American Institute of Certified Public Accountants
and the 1933 Act and the 1933 Act Regulations and no information concerning its
respective relationship with or interests in the Company is required to be
disclosed by Item 10 of the Form S-1; (ii)
<PAGE> 29
EVEREN Securities, Inc.
September ____, 1997
Page 29
stating in effect that in their opinion the combined and consolidated financial
statements and financial statement schedules of the Company for the years ended
December 31, 1996 and 1995 as are included in the Prospectus and covered by
their opinion included therein, comply as to form in all material respects with
the applicable accounting requirements of the 1933 Act and the 1933 Act
Regulations, and generally accepted accounting principles; (iii) stating in
effect that, on the basis of certain agreed upon procedures (but not an audit
examination in accordance with generally accepted auditing standards)
consisting of a reading of the latest available unaudited interim consolidated
financial statements of the Company and the Bank prepared by the Company, a
reading of the minutes of meetings of the Boards of Directors of the Company
and the Bank and consultations with officers of the Company responsible for
financial and accounting matters, nothing came to its attention which caused it
to believe that: (1) during the period from June 30, 1997 to a specified date
not more than five business days prior to the date hereof, there has not been
more than a $30 million increase in the aggregate amount of the aggregate
borrowings of the Company and the Bank, on a consolidated basis, any material
increase in loans greater than ninety days delinquent, any material increases
in real estate owned, any material decrease in deposit accounts or any changes
in principles or methods of accounting whether by adoption or otherwise (except
as disclosed in the Prospectus); or (2) there was any material decrease in
consolidated net assets of the Company at the date of such letter from the
amounts shown in the latest audited statement of condition included in the
Prospectus or there was any material decrease in net interest income, income
before income taxes, or net income of the Company for the period from the date
of the latest audited statement of operations included in the Prospectus and
ended on a specified date not more than five business days prior to the date
hereof as compared to the corresponding period in the preceding year; and (iv)
stating that, in addition to the examination referred to in its opinion
included in the Prospectus and the performance of the procedures referred to in
clause (iii) of this subsection (d), it has compared with the general
accounting records of the Company and/or the Bank, as applicable, which are
subject to the internal controls of the Company's and/or the Bank's, as
applicable, accounting system and other data prepared by the Company and/or the
Bank, as applicable, directly from such accounting records, to the extent
specified in such letter, such amounts and/or percentages set forth in the
Prospectus as you may reasonably request; and they have found such amounts and
percentages to be in agreement therewith (subject to rounding).
(B) Concurrently with the execution of this Agreement, the Agent shall
receive a letter from Crowe, Chizek and Company LLP dated the date of this
Agreement, and addressed to the Agent: (i) confirming that Crowe, Chizek and
Company LLP is a firm of independent public accountants within the meaning of
the Code of Professional
<PAGE> 30
EVEREN Securities, Inc.
September ____, 1997
Page 30
Conduct of the American Institute of Certified Public Accountants and the 1933
Act and the 1933 Act Regulations and no information concerning its respective
relationship with or interests in the Company is required to be disclosed by
Item 10 of the Form S-1; (ii) stating in effect that in their opinion the
combined and consolidated financial statements and financial statement
schedules of the Company for the year ended December 31, 1994 as are included
in the Prospectus and covered by their opinion included therein, comply as to
form in all material respects with the applicable accounting requirements of
the 1933 Act and the 1933 Act Regulations, and generally accepted accounting
principles; and (iii) stating that, in addition to the examination referred to
in its opinion included in the Prospectus, it has compared with the general
accounting records of the Company and/or the Bank, as applicable, which are
subject to the internal controls of the Company's and/or the Bank's, as
applicable, accounting system and other data prepared by the Company and/or the
Bank, as applicable, directly from such accounting records, to the extent
specified in such letter, such amounts and/or percentages set forth in the
Prospectus as you may reasonably request; and they have found such amounts and
percentages to be in agreement therewith (subject to rounding).
(e) (A) At the Closing Date, you shall receive a letter from McGladrey &
Pullen LLP, dated the Closing Date, addressed to the Agent, confirming the
statements made by it in the letter delivered by it pursuant to subsection
(d)(A) of this Section 8, the "specified date" thereof to be a date specified
in such letter, which shall not be more than two business days prior to the
Closing Date.
(B) At the Closing Date, you shall receive a letter from
Crowe, Chizek and Company LLP, dated the Closing Date, addressed to the Agent,
confirming the statements made by it in the letter delivered by it pursuant to
subsection (d)(B) of this Section 8, the "specified date" referred to in clause
(iii) thereof to be a date specified in such letter, which shall not be more
than two business days prior to the Closing Date.
(f) At the Closing Date, your counsel shall be furnished with such
documents and opinions as they may reasonably require for the purpose of
enabling them to pass upon the sale of the Shares as herein contemplated and
related proceedings or in order to evidence the occurrence or completeness of
any of the representations or warranties, or the fulfillment of any of the
conditions herein contained; and all proceedings taken by the Company in
connection with the sale of the Shares as herein contemplated shall be
satisfactory in form and substance to you.
(g) The Company or the Bank shall not have sustained since the date of
the latest audited financial statements included in the Registration Statement
and Prospectus
<PAGE> 31
EVEREN Securities, Inc.
September ____, 1997
Page 31
any material loss or interference with its business from fire, explosion, flood
or other calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree, otherwise than as set
forth or contemplated in the Registration Statement and Prospectus, and since
the respective dates as of which information is given in the Registration
Statement and Prospectus, there shall not have been any material change in the
consolidated long-term debt of the Company or any material change, or any
development involving a prospective material change, in or affecting the
general affairs, management, financial position, shareholders' equity, cash
flow or results of operations of the Company and the Bank on a consolidated
basis, otherwise than as set forth or contemplated in the Registration
Statement and Prospectus, the effect of which, in any such case described
above, is sufficiently material and adverse as to make it impracticable or
inadvisable to proceed with the Offering or the delivery of the Shares on the
terms and in the manner contemplated in Prospectus.
(h) Subsequent to the date hereof, there shall not have occurred any
of the following: (i) any domestic or international event or act or occurrence
which has materially disrupted, or in your sole reasonable opinion will in the
immediate future materially disrupt the securities markets; (ii) trading in
securities on the New York Stock Exchange or the American Stock Exchange shall
have been suspended or limited; (iii) material governmental restrictions shall
have been imposed on trading in securities generally (not in force and effect
on the date hereof); (iv) a banking moratorium shall have been declared by
federal or New York or Illinois State authorities, (v) the Dow Jones Industrial
Average (the "DJIA") shall on any day, from and including the date of this
Agreement, have declined 20% or more from the closing DJIA as reported in The
Wall Street Journal for the business day immediately preceding the effective
date of the Registration Statement; (vi) any outbreak of international
hostilities or other national or international calamity or crisis or change in
economic or political conditions shall have occurred, if the effect of such
outbreak, calamity, crisis or change on the financial markets of the United
States would, in your sole judgment, make the offering of the Shares
impracticable; or (vii) the passage by the Congress of the United States or by
any state legislative body of any act or measure, or the adoption or proposed
adoption of any orders, rules, legislation or regulations by any governmental
body, any authoritative accounting institute or board or any governmental
executive, or the taking, or proposed taking of any action by any federal,
state or local government or agency in respect of its monetary or fiscal
affairs, which is reasonably believed likely by you to have a material adverse
impact on the business, financial condition or financial statements of the
Company, or the market for the Shares.
<PAGE> 32
EVEREN Securities, Inc.
September ____, 1997
Page 32
If any of the conditions specified in this Section shall not have been
fulfilled when and as required by this Agreement, or by December 15, 1997
(unless such date is extended by a written agreement signed by all of the
parties hereto), this Agreement and all of your obligations hereunder may be
canceled by you by notifying the Company of such cancellation in writing
(including facsimile transmissions) or by telegram at any time at or prior to
the Closing Date, and any such cancellation shall be without liability of any
party to any other party except as otherwise provided in Sections 1, 5, 6 and 7
hereof. Notwithstanding the above, if this Agreement is canceled pursuant to
this paragraph, the Company agrees to reimburse you for all of your
out-of-pocket expenses, including without limitation the fees and expenses of
your counsel, provided that such reimbursement shall not exceed $100,000
(excluding Blue Sky counsel fees and expenses), subject to the limits expressed
in Section 5 hereof, reasonably incurred by you, and your counsel, at its
normal rates, in connection with the preparation of the Registration Statement
and the Prospectus, and in contemplation of the proposed Offering.
SECTION 9. TERMINATION
(a) In the event the Company elects not to accept any orders for
Shares in the Subscription and Community Offering, this Agreement shall
terminate upon refund by the Company to each person who has ordered any of the
Shares the full amount which it may have received from such persons and no
party to this Agreement shall have any obligation to the other hereunder,
except for the Company's obligations under Sections 1, 5, 6, 7 and 8 hereof.
(b) This Agreement may be terminated by the Agent, with respect to the
Agent's obligations hereunder, by notifying the Company at any time at or prior
to the Closing Date, if any of the conditions specified in Section 8 hereof
shall not have been fulfilled when and as required by this Agreement or if the
services to be performed by the Agent have not been completed by December 15,
1997 (unless such date is extended by a written agreement signed by all of the
parties hereto).
SECTION 10. SURVIVAL
The respective indemnities, agreements, representations, warranties and
other statements of the Company and you, as set forth in this Agreement, shall
remain in full force and effect, regardless of any investigation (or any
statement as to the results thereof) made by or on behalf of you or any of your
officers or directors or any person controlling you, or the Company or any
officer, director or person controlling the Company, and shall
<PAGE> 33
EVEREN Securities, Inc.
September ____, 1997
Page 33
survive termination of the Agreement and the receipt or delivery of any payment
for the Shares.
SECTION 11. MISCELLANEOUS
Notices hereunder, except as otherwise provided herein, shall be given in
writing or by telegraph, addressed (a) to the Agent at 77 West Wacker Drive,
Chicago, Illinois 60601-1694 (Attention: Steven A. Hurwitz, Senior Managing
Director), with a copy (which shall not constitute notice) to, Lord, Bissell &
Brook, 115 South LaSalle Street, Chicago, Illinois 60603 (Attention: Kurt W.
Florian, Jr., Esq.) and (b) to the Company at One Marriott Drive, Lincolnshire,
Illinois 60069 (Attention: Saul B. Binder, President), with a copy (which shall
not constitute notice) to Much Shelist Freed Denenberg Ament Bell & Rubenstein,
P.C., 200 N. LaSalle Street, Suite 2100, Chicago, Illinois 60601 (Attention:
Michael J. Gamsky, Esq.).
This Agreement is made solely for the benefit of and will be binding upon
the parties hereto and their respective successors and the controlling persons,
directors and officers referred to in Section 6 hereof and no other person will
have any right or obligations hereunder. The term "SUCCESSOR" shall not
include any purchaser of any of the Shares.
This Agreement shall be governed by and construed in accordance with the
laws of the State of Illinois.
This Agreement may be signed in various counterparts which together will
constitute one agreement.
If the foregoing correctly sets forth the arrangement among the Company and
the Agent, please indicate acceptance thereof in the space provided below for
that purpose, whereupon this letter and your acceptance shall constitute a
binding agreement.
Very truly yours,
SUCCESS BANCSHARES, INC.
By:______________________________
Saul D. Binder
<PAGE> 34
EVEREN Securities, Inc.
September ____, 1997
Page 34
President and Chief Executive Officer
Accepted as of the date first above written.
EVEREN SECURITIES, INC.
By: _______________________
_______________________
_______________________
<PAGE> 35
EXHIBIT A
SUCCESS BANCSHARES, INC.
(a Delaware corporation)
1,200,000 Shares
of
Common Stock
PUBLIC OFFERING ACKNOWLEDGMENT
____________, 1997
EVEREN Securities, Inc.
77 West Wacker Drive
Chicago, Illinois 60601-1994
Gentlemen:
Pursuant to Section 1 of the Agency Agreement (the "AGREEMENT") dated as
of September __, 1997 between Success Bancshares, Inc., a Delaware corporation
(the "COMPANY"), and EVEREN Securities, Inc. (the "AGENT"), the Company and the
Agent have determined to conduct a Public Offering of _________ Shares. The
Company and the Agent are executing this Public Offering Acknowledgment to
acknowledge and confirm that the Agreement shall constitute the underwriting
agreement between the Company and the Agent for purposes of the Public
Offering. On the basis of the representations, warranties and agreements
contained in the Agreement, the Agent will offer ___________ Shares to the
general public at a Price to Public set forth on the cover page of the
Prospectus and will purchase such Shares from the Company at such price less an
underwriting discount of 7%. The Company also grants the Agent an option,
exercisable within 30 days of the completion of the Public Offering, to
purchase up to an additional 15% of the Shares sold in the Public Offering to
cover over-allotments, if any, at the same price as paid by the Agent for the
other Shares purchased pursuant to the Agreement.
<PAGE> 36
Any terms not expressly defined herein shall have the same definition and
meaning as is set forth in the Agreement.
Very truly yours,
SUCCESS BANCSHARES, INC.
By:______________________________
Saul D. Binder
President and Chief Executive Officer
Accepted as of the date first above written.
EVEREN SECURITIES, INC.
By: _______________________
_______________________
_______________________
<PAGE> 1
EXHIBIT 5.1
September 4, 1997
Success Bancshares, Inc.
One Marriott Drive
Lincolnshire, IL 60069
Ladies and Gentlemen:
Reference is hereby made to the Registration Statement on Form S-1
(Registration No. 333-32561) (the "REGISTRATION STATEMENT"), as amended, filed
by Success Bancshares, Inc., a Delaware Corporation (the "COMPANY"), with the
Securities and Exchange Commission in connection with the proposed public
offering of up to 1,200,000 shares of Common Stock, par value $0.001 per share
("COMMON STOCK"). Up to an additional 180,000 shares may be sold by the
Company to satisfy unfilled purchase orders in the Subscription and Community
Offering or pursuant to EVEREN Securities, Inc.'s over-allotment option in the
Public Offering (referred to collectively as the "OVER-SUBSCRIPTION OPTION").
We have acted as special counsel for the Company in connection with the
proposed offering. In rendering this opinion, we have assumed the
authenticity, accuracy and completeness of all documents submitted to us as
originals, the conformity to authentic original documents of all documents
submitted to us as certified, conformed or photostatic copies and the
genuineness to all signatures.
It is our opinion that the 1,380,000 shares of Common Stock that may be
sold by the Company in accordance with said Registration Statement (including
the 180,000 shares subject to the Over-Subscription Option), if and when so
sold, will be legally issued, fully paid and non-assessable.
<PAGE> 2
Success Bancshares, Inc.
Page 2
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name under the heading "Legal
Matters" in the Prospectus.
Very truly yours,
/s/ Much Shelist Freed Denenberg
Ament Bell & Rubenstein, P.C.
MUCH SHELIST FREED DENENBERG
AMENT BELL & RUBENSTEIN, P.C.
MJG/
<PAGE> 1
EXHIBIT 11.1
COMPUTATION OF EARNINGS PER COMMON SHARE
(In thousands, except share amounts)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------
1996 1995 1994
--------------------------------------------
<S> <C> <C> <C>
PRIMARY EARNINGS
Net income applicable to common stock $ 702 $ 937 $ 263
Dividends on convertible preferred stock 81 - -
- -----------------------------------------------------------------------------------------------------------------
Net income $ 783 $ 937 $ 263
=================================================================================================================
Shares
Weighted average number of common and
common equivalent shares outstanding 1,182,286 1,057,461 1,032,253
Primary earnings per common and common equivalent share $ 0.66 $ 0.89 $ 0.25
=================================================================================================================
FULLY DILUTED EARNINGS
Net income applicable to common stock $ 702 $ 937 $ 263
Dividends on convertible preferred stock 81 - -
Net interest expense related to convertible debt - 112 -
- -----------------------------------------------------------------------------------------------------------------
Net income as adjusted $ 783 $ 1,049 $ 263
=================================================================================================================
Shares
Weighted average number of common and
common equivalent shares outstanding 1,182,286 1,057,461 1,032,253
Assuming conversion of convertible debt - 157,905 -
- -----------------------------------------------------------------------------------------------------------------
Weighted average number of common and common
equivalent shares outstanding as adjusted 1,182,286 1,215,366 1,032,253
Fully diluted earnings per common and common equivalent share $ 0.66 $ 0.86 $ 0.25
=================================================================================================================
</TABLE>
<PAGE> 1
Exhibit 16.1
Securities and Exchange Commission
Washington, D.C. 20549
Gentlemen:
We were previously the independent accountants for Success Bancshares, Inc. and
on February 4, 1995, we reported on the consolidated statements of income,
shareholders' equity, and cash flows of Success Bancshares, Inc. for the year
ended December 31, 1994. In October 1995, we were dismissed as independent
accountants of Success Bancshares, Inc. We have read the statements included
under the caption "Experts" in the Registration Statement (No. 333-32561) on
Form S-1 filed by Success Bancshares, Inc., and we agree with such statements,
except that we are not in a position to agree or disagree with the Company's
statements a) that the change was approved by the Board of Directors and b)
that the Company appointed new independent accountants whom had not been
previously consulted on audit or accounting issues involving Success
Bancshares, Inc.
Crowe, Chizek and Company, LLP
Oak Brook, Illinois
September 5, 1997
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the use of our report, dated February 16, 1997 (except for Note
19 for which the date is July 23, 1997), with respect to the consolidated
balance sheets of Success Bancshares, Inc. and Subsidiaries as of December 31,
1996 and 1995, and the related consolidated statements of income, shareholders'
equity, and cash flows for the years then ended included in this Amendment
No. 1 to Registration Statement No. 333-32561 and related prospectus of Success
Bancshares, Inc. for the offering of 1,200,000 shares of common stock. We also
consent to the reference to our Firm under the caption "Experts."
McGladrey & Pullen, LLP
Schaumburg, Illinois
September 5, 1997
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
Success Bancshares, Inc.
Lincolnshire, Illinois
We consent to the inclusion in this Registration Statement on Form S-1 of our
report dated February 4, 1995 on our audit of the consolidated statements of
income, shareholders' equity, and cash flows of Success Bancshares, Inc. for
the year ended December 31, 1994. We also consent to the reference to us
under the heading "Experts" in this Registration Statement on Form S-1.
Crowe, Chizek and Company LLP
Oak Brook, Illinois
September 5, 1997
<PAGE> 1
EXHIBIT 99.1
SUCCESS BANCSHARES, INC. Expiration Date: October 15, 1997
SUCCESS NATIONAL BANK Noon, Central Time
Stock Information Office
P.O. Box 597879
Chicago, IL 60659
(800) 744-6248
SUBSCRIPTION AND COMMUNITY OFFERING STOCK ORDER FORM
Please read the Stock Order Form Instructions and Guide as you complete this
form.
STOCK REGISTRATION
Write one letter/number per box, beginning from the left. Leave one blank box
for a space.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
(1) Form of Stock Ownership: __Individual __Joint tenants __Tenants in common __Fiduciary
__UTMA __IRA __Corporation __Partnership __Other____________
</TABLE>
(2) Name(s) in which your stock is to be registered (PLEASE PRINT CLEARLY IN
CAPITAL LETTERS. USE BLACK OR BLUE INK.)
First Name_______________________ M.I.____ Last Name____________________
Joint Name_______________________________________________________________
Joint Name_______________________________________________________________
Address___________________________________________________________________
City__________ State___ Zip Code_________
County of Residence (First 8 Letters) _____________
Social Security or Tax ID No.______________ Daytime Phone________________
Evening Phone________________
Check one: __Social Security No. or __Tax ID No.
Mail Certificate(s) __ or Hold in Book Entry Form __
(3) AFFILIATIONS
Under the regulations of the National Association of Securities Dealers,
Inc. ("NASD"), certain persons may not be eligible to purchase shares.
___Check here if you are:
(i) A member of the NASD, a person associated with an NASD member,
a member of the immediate family of any such person to whose support
such person contributes, directly or indirectly, or the holder of an
account in which an NASD member or person associated with an NASD
member has a beneficial interest; or
(ii) A senior officer of a bank, savings and loan institution,
insurance company, registered investment company, registered
investment advisory firm or any other institutional-type account, or
a person who is employed in the securities department of any such
institution or who otherwise may influence or whose activities
directly or indirectly are related to the buying and/or selling of
securities by any of such institutions, or a member of the immediate
family of any such person.
<PAGE> 2
(4) ASSOCIATES AND PERSONS ACTING IN CONCERT
___ Check here, and complete the reverse side of this Stock Order Form,
if you or any associates ("associate" is defined on the reverse side
of this Stock Order Form) or persons acting in concert with you
("acting in concert" is defined on the reverse side of this Stock
Order Form), have submitted other orders for shares in the
Subscription and Community Offering.
AMOUNT OF ORDER
FILL BLANKS BEGINNING FROM THE LEFT (EXCEPT DOLLAR AMOUNTS)
Subscription Total
(5) Number of Price Payment Due
Shares _______ x $12.50 = $______________
(mininum number 200)
METHOD OF PAYMENT
FILL BLANKS BEGINNING FROM THE LEFT (EXCEPT DOLLAR AMOUNTS)
<TABLE>
<S> <C> <C> <C>
(6) __Check, bank draft, or money order made payable Check Amount
to "Success Bancshares, Inc." $______________
(7) __The undersigned authorizes withdrawal from Account Number(s) Amount
this (these) account(s) at Success National Bank. ______________ $______________
If using an IRA account to subscribe for stock, ______________ $______________
please call the Stock Information Office immediately at ______________ $______________
(800) 744-6248. SPECIAL ADVANCE ARRANGEMENTS
MUST BE MADE FOR IRA ACCOUNTS BY
OCTOBER 8, 1997.
TOTAL (must match Total Payment Due in Item #5 above) $_____________
</TABLE>
PURCHASER INFORMATION
Check the appropriate box(es) below indicating whether you were:
(8)a __A Shareholder (i.e., as of September [xx], 1997),
(8)b __A Customer (i.e., as of September [xx], 1997), and/or
(8)c __A resident of one of the following metropolitan Chicago communities:
Arlington Heights, Bannockburn, Buffalo Grove, Deerfield,
Evanston, Glencoe, Glenview, Green Oaks, Highland Park, Lake Forest,
Lakeview, Libertyville, Lincoln Park, Lincolnshire, Lincolnwood,
Mettawa, Mount Prospect, Mundelein, Northbrook, Palatine, Peterson
Park, Prospect Heights, Riverwoods, Skokie, Vernon Hills, West Rogers
Park, Wheeling and Winnetka.
If you checked box (8)a and/or (8)b, please enter the identifying information
regarding these relationships on the reverse side of this Stock Order Form.
This information will be used to identify your stock purchase priority.
<PAGE> 3
ACKNOWLEDGMENT
(9) To be effective, this fully completed original Stock Order Form and
accompanying Certification Form, fully executed, must be actually received
by Success Bancshares, Inc. no later than Noon, Central Time, on October
xx, 1997, unless extended (or by October xx, 1997 to receive highest
priority as a Record Date Shareholder). Completed original Stock Order
Forms (facsimile copies and photocopies will not be accepted) and executed
Certification Forms, together with the required payment or withdrawal
authorization, may be delivered to the Stock Information Office at the
main office of the Bank or any branch office. Alternatively, you may mail
these documents in the postage-paid envelope that has been provided.
It is understood that this Stock Order Form will be accepted in accordance
with, and subject to, the terms and conditions described under the caption
"TERMS OF THE OFFERING" in the Success Bancshares, Inc. Prospectus dated as
of September [ ], 1997, receipt of which is hereby acknowledged at least
48 hours prior to the return of this Stock Order Form to Success.
SIGNATURE
(10) The undersigned agrees that after receipt by Success Bancshares, Inc.,
this Stock Order Form may not be modified, withdrawn, or canceled without
Success's consent unless the offering is not completed or terminated by
December xx, 1997, and if authorization to withdraw from a deposit account
at the Bank has been given as payment for shares, the amount authorized
for withdrawal will be placed in a non-interest bearing escrow account at
the Bank and will not be available for withdrawal by the undersigned.
THE UNDERSIGNED ACKNOWLEDGES THAT THIS SECURITY IS NOT A DEPOSIT OR A BANK
ACCOUNT, AND IT IS NOT FEDERALLY INSURED OR GUARANTEED.
Under penalty of perjury, I (we) certify that the Social Security or Tax ID
Number and the information provided under items 2, 3, and 4 of this Stock
Order Form are true, correct, and complete and that I am (we are) not
subject to back-up withholding.
Signature______________________ Date____________
Signature______________________ Date____________
YOUR ORDER CANNOT BE PROCESSED WITHOUT AN EXECUTED CERTIFICATION FORM.
<PAGE> 4
ITEM (4) - CONTINUED
List below all other orders submitted by you or "associates" (as defined below)
or by persons "acting in concert" (as defined below) with you.
Name(s) listed on the other Stock Order Form(s) Number of Shares Ordered
1.______________________________________________ __________________
2.______________________________________________ __________________
3.______________________________________________ __________________
4.______________________________________________ __________________
The term "associate" is used above to indicate any of the following
relationships with a person: (i) any corporation or organization (other than
Success Bancshares, Inc. or Success National Bank) of which a person is an
officer or partner or is, directly or indirectly, the beneficial owner of 10%
or more of any class of equity security; (ii) any trust or other estate in
which such person has a substantial beneficial interest or as to which such
person serves as trustee or in a similar fiduciary capacity; and (iii) any
relative or spouse of such person, or any relative of such spouse, who has the
same home as such person or who is a director or officer of Success Bancshares,
Inc. or Success National Bank.
The term "acting in concert" is defined to mean (i) knowing participation in a
joint activity or interdependent conscious parallel action towards a common
goal whether or not pursuant to an express agreement; (ii) a combination of
pooling of voting or other interests in the securities of an issuer for a
common purpose pursuant to any contract, understanding, relationship, agreement
or other arrangement, whether written or otherwise; or (iii) a person or
company which acts in concert with another person or company ("other party")
shall also be deemed to be acting in concert with any person or company who is
also acting in concert with that other party, except that any employee stock
benefit plan of Success Bancshares, Inc. or the Bank will not be deemed to be
acting in concert with its trustee or a person who serves in a similar capacity
solely for the purpose of determining whether stock held by the trustee and
stock held by the plan will be aggregated. No director of Success or the Bank
shall be deemed to be acting in concert with any other director of Success or
the Bank solely by reason of their services in such capacities.
ITEM (8)A - CONTINUED
If you were a Record Date Shareholder, please enter the information below:
1. Exact name in which stock is held:______________________________________
2. Nominee name if held by other(s): ______________________________________
3. Number of shares: ______________________________________
ITEM (8)B - CONTINUED
If you were a Record Date Customer, please list the following information for
your deposit and/or loan accounts.
Account Number Account Title
1.___________________________________ __________________________________
2.___________________________________ __________________________________
3.___________________________________ __________________________________
4.___________________________________ __________________________________
<PAGE> 5
SUCCESS BANCSHARES, INC.
SUBSCRIPTION AND COMMUNITY OFFERING
STOCK ORDER FORM INSTRUCTIONS AND GUIDE
COMPLETING THE STOCK ORDER FORM
Information on this Stock Order Form will be mechanically scanned. As a
result, it is important that the Stock Order Form be completed neatly and
legibly. Please print in capital letters, using black or blue ink, within the
confines of each box. Write one letter per box, from left to right, leaving one
box blank for a space. Write dollar amounts in the appropriate boxes utilizing
the commas and decimal places provided. Please see the example below.
First Name M.I. Last Name
_____________ ____ ____________________
You may deliver your completed Stock Order Form, executed Certification Form,
and full payment to the Stock Information Office or to the Bank or any branch
office. Alternatively, you may mail these documents in the postage-paid
envelope that has been provided. Your properly completed original Stock Order
Form (facsimile copies and photocopies will not be accepted), executed
Certification Form, and payment in full (or withdrawal authorization), at
$12.50 per share, must be actually received by Success no later than Noon,
Central Time, on October 15, 1997 or your order will become void. If you need
further assistance, please call the Stock Information Office at (800) 744-6248
and ask for an EVEREN Securities, Inc. representative. An EVEREN Securities
representative will be pleased to help you with the completion of your Stock
Order Form and Certification Form or answer any questions you may have.
ITEM 1 INSTRUCTIONS
Please check the box for the desired form of stock ownership. The stock
transfer industry has developed a uniform system of stockholder registrations
that will be used in the issuance of your Success Bancshares, Inc. common stock
certificate. Stock ownership must be registered in one of the ways described
under these guidelines. If you have any questions or concerns regarding the
registration of your stock, please consult your legal adviser. Listed below
are some general guidelines for stockholder registration.
INDIVIDUAL
Include the first name, middle initial, and the last name of the subscriber.
Avoid the use of two initials. Please omit words that do not affect ownership
rights, such as "Mrs.", "Mr.", "Dr.", "special account", "single person", etc.
JOINT TENANTS
Joint tenants with right of survivorship may be specified to identify two or
more owners. When stock is held by joint tenants with right of survivorship,
ownership passes automatically to the surviving joint tenant(s) upon the death
of any joint tenant. All parties must agree to the transfer or sale of shares
held by joint tenants.
TENANTS IN COMMON
Tenants in common may also be specified to identify two or more owners. When
stock is held by tenants in common, upon the death of one co-tenant, ownership
of the stock will be held by the surviving co-tenant(s) and by the heirs of the
deceased co-tenant. All parties must agree to the transfer or sale of shares
held by tenants in common.
UNIFORM TRANSFER TO MINORS OR UNIFORM GIFT TO MINORS
Stock may be held in the name of a custodian for a minor under the Uniform Gift
to Minors Act ("UGTMA") or Uniform Transfer to Minors Act ("UTMA") of each
state. There may be only one custodian and one minor designated on a stock
certificate. The minor is the actual owner of the stock with the adult
custodian responsible for the investment until the minor reaches legal age.
The standard abbreviation for Custodian is "CUST". Standard U.S. Postal
Service state abbreviations should be used to describe the appropriate state.
For example, stock held by John Doe as custodian for Susan Doe under the
Illinois Uniform Transfers to Minors Act will be abbreviated John Doe, CUST
Susan Doe UTMA, IL. Use minor's social security number.
<PAGE> 6
FIDUCIARIES
Information provided with respect to stock to be held in a fiduciary capacity
must contain the following:
1. The name(s) of the fiduciary. If an individual, list the first name,
middle initial, and last name. If a corporation, list the corporation's
title before the individual.
2. The fiduciary capacity, such as administrator, executor, personal
representative, conservator, trustee, committee, etc.
3. A description of the document governing the relationship, such as a trust
agreement or court order.
4. The date of the document governing the relationship, except that the
date of a trust created by a will need not be included in the description.
5. The name of the maker, donor, or testator and the name of the
beneficiary.
An example of fiduciary ownership of stock in the case of a trust is: John Doe,
Trustee UAD 10-1-87 for Susan Doe. The standard abbreviation for "Under
Agreement Dated" is "UAD".
Purchasers may elect to receive certificates evidencing ownership of shares
purchased in the Subscription and Community Offering or to have delivery of
such shares made in book entry form through the facilities of The Depository
Trust Company ("DTC"). Share certificates or confirmations of delivery to DTC
will be delivered directly to the purchasers at the address indicated herein as
soon as practicable following completion of the Offering.
ITEM 2 INSTRUCTIONS
Please complete Item 2 as fully and accurately as possible. Please print in
capital letters and use black or blue ink. Leave one blank box for a space.
Please be certain to supply your social security or tax identification number
as well as your daytime and evening telephone number(s). It may be necessary
to call you if your order cannot be executed as given.
ITEM 3 INSTRUCTIONS
Please check this box if either of these descriptions applies to you.
ITEM 4 INSTRUCTIONS
Please check this box if you or any associate, as defined on the reverse side
of the Stock Order Form, or person acting in concert with you, also defined on
the reverse side of the Stock Order Form, has submitted another order for
shares and complete the continuation of Item 4 on the reverse side of the Stock
Order Form.
ITEM 5 INSTRUCTIONS
Fill in the number of shares for which you wish to subscribe and the total
payment due. The amount due is determined by multiplying the number of shares
by the subscription price of $12.50 per share. Success Bancshares, Inc. has
reserved the right to reject the subscription of any order received in the
Subscription and Community Offering, in whole or in part. The minimum order is
200 shares.
ITEM 6 INSTRUCTIONS
Please check this box if your method of payment is by check, bank draft, or
money order and fill in the boxes to the right of Item 6 with the total amount
of checks, bank drafts, and money orders submitted. Checks, bank drafts, or
money orders should made payable to Success Bancshares, Inc.. Your funds will
be held in a non-interest-bearing escrow account at the Bank until the closing
of the Offering.
ITEM 7 INSTRUCTIONS
Please check this box if you intend to pay for your stock by a withdrawal from
a deposit account at the Bank. Supply the account number(s), and the total
amount of your withdrawal authorization for each account in the boxes provided.
The amount submitted under Item 6 (if applicable) when added to the amount
withdrawn under Item 7 should equal the total amount of your stock purchase
under Item 5. Your deposit account will be charged on the date Success
receives your subscription and the proceeds placed in a non-interest-bearing
escrow account at the Bank until the closing of the Offering. SPECIAL
ARRANGEMENTS MUST BE MADE BY OCTOBER 8, 1997 IF USING AN INDIVIDUAL RETIREMENT
ACCOUNT ("IRA") FOR STOCK PURCHASES. PLEASE CONTACT THE STOCK INFORMATION
OFFICE AT (800) 744-6248 FOR INFORMATION REGARDING SUBSCRIPTIONS USING AN IRA.
<PAGE> 7
ITEM 8 INSTRUCTIONS
a. Please check this box only if you were a shareholder of Success
Bancshares, Inc. as of September [xx], 1997.
b. Please check this box only if you were a customer of Success National Bank
as of September [xx], 1997.
c. Please check this box if you were a resident of one of the following
metropolitan Chicago communities: Arlington Heights, Bannockburn, Buffalo
Grove, Deerfield, Evanston, Glencoe, Glenview, Green Oaks, Highland Park,
Lake Forest, Lakeview, Libertyville, Lincoln Park, Lincolnshire,
Lincolnwood, Mettawa, Mount Prospect, Mundelein, Northbrook, Palatine,
Peterson Park, Prospect Heights, Riverwoods, Skokie, Vernon Hills, West
Rogers Park, Wheeling and Winnetka.
To ensure proper identification of your stock purchase priorities, you must
list the Success stock registration or Bank account information requested on
the reverse side of the Stock Order Form.
ITEM 10 INSTRUCTIONS
Please sign and date the Stock Order Form and Certification Form where
indicated. Review both documents carefully before you sign. Normally, only
one signature is required. An additional signature is required only when
payment is to be made by withdrawal from a deposit account that requires
multiple signatures to withdraw funds. ALL PERSONS LISTED IN ITEM 2 MUST SIGN
THE CERTIFICATION FORM.
If you have any remaining questions, or if you would like assistance in
completing your Stock Order Form, you may call the Stock Information Office
telephone number (800) 744-6248 and ask for a representative of EVEREN
Securities.
The Stock Information Office is open between the hours of 8:30 A.M. and 5:30
P.M., Central Time, Monday through Friday.
<PAGE> 8
5.5 CERTIFICATION FORM
This Certification Form must be carefully reviewed and executed by all the
parties listed on the accompanying Stock Order Form for Success Bancshares,
Inc. common stock.
I ACKNOWLEDGE THAT SHARES OF COMMON STOCK OF SUCCESS BANCSHARES, INC. ARE NOT
SAVINGS ACCOUNTS OR DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, ANY GOVERNMENTAL AGENCY OR OTHERWISE.
I further certify that, before purchasing the common stock, $0.001 par value
per share of Success Bancshares, Inc. (the "Company"), I have received a
Prospectus dated as of September [ ], 1997 which contains disclosure regarding
the nature of the Company's common stock being offered and describes the risks
involved in the investment, including, but not limited to:
<TABLE>
<S> <C>
- - The impact of branch openings and acquisitions by the Company on profitability;
- - The impact of adverse changes in economic conditions on the Company's operations;
- - The risk that the Company's allowance for loan losses may prove to be inadequate;
- - The potential adverse effect that changes in market interest rates
may have on the Company's earnings;
- - The constraints on growth of the Company imposed by regulatory capital requirements;
- - The Company's reliance on certain key management personnel;
- - The "best efforts" basis of the Subscription and Community Offering,
which does not require any minimum number of shares to be sold, may
cause a lower level of capitalization which would limit the Company's
ability to implement elements of its strategic plan;
- - The risks for potential investors with respect to subscription funds
associated with any delay in completion of the Subscription and
Community Offering;
- - The risks associated with significant competition in the financial
services industry;
- - The substantial control over the Company's affairs exercised by the
directors, executive officers and certain key employees of the Company
who will own approximately 18.4% of the outstanding shares of common
stock (assuming 1,200,000 shares are sold);
- - Investors purchasing shares of Common Stock in the Subscription and
Community Offering will be subject to immediate dilution of $2.51 per
share in pro forma net tangible book value;
- - The risk that additional shares of common stock becoming eligible for
sale could adversely affect the prevailing market price of the common
stock;
- - The anti-takeover effects of certain provisions of the Company's
Certificate of Incorporation and By-Laws;
- - The Company does not intend to pay cash dividends in the foreseeable
future in order to finance expansion of its business and is subject to
restrictions on the payment of dividends in its debt instruments and
from regulations;
- - Financial regulation and supervision limit the manner in which the
Company and its banking subsidiary may conduct business and obtain
financing; and,
- - The risk that an active trading market will not develop or continue
if developed for the common stock or that the market price of the common
stock will decline below its initial public offering price.
</TABLE>
For a more detailed description of the risks involved in the Offering, see
"RISK FACTORS" at pages [ ] through [ ] of the Prospectus.
Signature:___________________
Note: If the stock is to be held in joint name,
- ----- all parties must sign. Signature:___________________
Date:___________________
<PAGE> 1
EXHIBIT 99.2
TEXT ONLY | ENHANCED
ONLINE
[SUCCESS
NATIONAL
BANK LOGO]
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$ Headquartered in Lincolnshire, Illinois, Success National Bank is a
locally-owned community bank with a strong focus on customer value. During our
first 19 years of business we were known as First National Bank of
Lincolnshire. The bank's name changed in 1992 - at the time we opened our first
branch office - in recognition of our growth and broader market area. Today,
with reserves in excess of regulatory requirements, Success National Bank is a
healthy, growing institution with facilities in Lincolnshire, Lincolnwood,
Lincoln Park, Libertyville, Northbrook and Deerfield (2).
Employment opportunities at Success National Bank
=================
(C) 1997 Success National Bank
<PAGE> 2
ONLINE
[SUCCESS
NATIONAL
BANK LOGO]
About
- ----------
Locations
- ----------
Services
- ----------
Rates
- ----------
Forecast [OPPORTUNITY TO INVEST IN SUCCESS]
- ----------
Feedback
- ----------
Events
- ----------
Links
- ----------
SUCCESS BANCSHARES, INC.
REGISTRATION STATEMENT DECLARED EFFECTIVE
LINCOLNSHIRE, ILLINOIS (September [ ], 1997) -- Success Bancshares, Inc. ,
holding company of Success National Bank, announced today that its Registration
Statement permitting the offer and sale of up to 1,380,000 shares (including
180,000 shares subject to an additional subscription option and an overallotment
option) of Success' common stock at a price of $12.50 per share was declared
effective by the Securities and Exchange Commission. As part of the offering,
Success will offer 600,000 shares, on a best efforts basis, in a Subscription
and Community Offering. 600,000 shares of Common Stock are being offered by
Success in a Subscription Offering on a priority basis to shareholders of record
of Success as of September __, 1997, and to certain customers of the Bank as of
September __, 1997. The highest priority will be given to those shareholders
placing purchase orders prior to Noon, Central Time, on ________________, 1997.
While shares are being offered on a priority basis to eligible subscribers in
the Subscription Offering, Success is also concurrently offering common stock
for sale to the general public in a Community Offering with preference given to
residents of communities served by the Bank with the assistance of EVEREN
Securities, Inc. EVEREN will concurrently offer 600,000 shares, on a best
efforts basis, to the general public in an underwritten Public Offering.
Depending upon market demand, the Company and EVEREN may increase or decrease
the number of shares to be offered in the Public Offering relative to the
Subscription and Community Offering.
Commenting on the Offering, Saul D. Binder, Success's President and Chief
Executive Officer, stated that, "As part of the Bank's community focus, we are
pleased to be able to offer our shareholders, customers and members of our
community the opportunity to invest in our local banking institution."
Success Bancshares, Inc. is a bank holding company headquartered in
Lincolnshire, Illinois with total assets of over $300 million at June 30, 1997.
Through its majority owned subsidiary, Success National Bank, the Company
engages in full service community banking. The Bank is also headquartered in
Lincolnshire, Illinois, located approximately 35 miles north of downtown
Chicago, and has seven branch offices serving individuals and
small-to-medium-sized businesses in communities in the north and northwest
suburbs of Chicago and the northside of Chicago. These banking facilities, all
of which have been established since 1991, are located in Deerfield (2),
Libertyville, Lincolnwood, Chicago (Lincoln Park),
<PAGE> 3
Arlington Heights and Northbrook, Illinois.
A prospectus and other offering material relating to the shares may be obtained
by completing the form below, visiting the Bank or any branch office or by
calling the Stock Information Office at (800) 744-6248 and asking for an EVEREN
Securities, Inc. representative.
THE COMMON STOCK OF SUCCESS BANCSHARES, INC. IS NOT A DEPOSIT
OR A BANK ACCOUNT AND IS NOT FEDERALLY INSURED OR GUARANTEED.
THIS PRESS RELEASE IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN
OFFER TO BUY THE COMMON STOCK OF
SUCCESS BANCSHARES, INC. THE OFFER IS MADE ONLY BY THE PROSPECTUS.
To receive a Prospectus and other offering materials, please fill out the
form below.
*PLEASE NOTE: ALL FIELDS MUST BE COMPLETED IN ORDER TO RECEIVE A
PROSPECTUS.
Name: ____________________________________________________________
E-mail Addr:______________________________________________________
Address:__________________________________________________________
Address:__________________________________________________________
Address:__________________________________________________________
City:_______________ State:__________________ ZIP:_______________
Home Phone:___________________________
Work Phone:___________________________
------------------
SUBMIT/CLEAR FORM
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========================================
(C) 1997 SUCCESS NATIONAL BANK
